MCA penalised Company secretary for Digitally Signing MGT-7 Without Statutory Audit

In a move to uphold corporate governance standards, the Ministry of Corporate Affairs (MCA) took disciplinary action against a Company Secretary for a breach of statutory obligations. The case involved Calderys Steelcasting India Private Limited, a company incorporated in 1999, which came under scrutiny during an inspection under Section 206(5) of the Companies Act, 2013.

The VIOLATION:

The violation centered around the Company Secretary's failure to comply with Section 205(1) of the Companies Act, 2013, which outlines the functions of a Company Secretary. The provision mandates that a Company Secretary must report compliance with applicable laws and secretarial standards to the Board of Directors, ensuring the company adheres to regulatory requirements.

The INVESTIGATION:

The investigation revealed that the Company Secretary had digitally signed Form MGT-7, an annual return containing key information about the company, for the financial years 2018-19 and 2019-20 without completing the statutory audit. This action contravened Section 205(1), as the Company Secretary failed to exercise due diligence in ensuring compliance with applicable laws and standards.

In response to the identified non-compliance, the Company Secretary took proactive measures by filing a suo-moto application for adjudication of the offense under Section 205 on September 2, 2023. However, due to the decriminalization of the offense, the compounding application was withdrawn, and the matter proceeded to adjudication.

The HEARINGS:

The Adjudicating Officer, appointed by the MCA through a Gazette Notification, issued a hearing notice to the Company Secretary, providing an opportunity to explain why penalties should not be imposed. During the hearing, the Company Secretary's authorized representative acknowledged the unintentional lapse in due diligence and informed the Adjudicating Officer that revised MGT-7 forms had been filed for the respective financial years to rectify the non-compliance.

THE DECISION

After considering the submissions, the Adjudicating Officer held the Company Secretary liable for a penalty of ₹20,000 under Section 450 of the Companies Act, 2013, for violating Section 205(1) during the financial years 2018-19 and 2019-20. The order directed the Company Secretary to pay the penalty individually within 90 days, outlining the consequences of non-payment, including potential prosecution under Section 454(8)(i) and (ii) of the Act.

The order also provided information on the appeal process, allowing the Company Secretary to challenge the order before the Regional Director (Eastern Region), Ministry of Corporate Affairs, Kolkata, within 60 days of receiving the order.

FAQs:

Q1. What was the violation committed by the Company Secretary?

A1.The Company Secretary violated Section 205(1) of the Companies Act, 2013, by digitally signing Form MGT-7 for the financial years 2018-19 and 2019-20 without completing the statutory audit, failing to exercise due diligence and comply with secretarial standards.

Q2. What legal provisions were invoked in this case?

A2.The Adjudicating Officer, appointed under Section 454(1) read with Section 454(3) of the Companies Act, 2013, imposed the penalty under Section 450 of the Act for the violation of Section 205(1).

Q3.What was the penalty imposed on the Company Secretary?

A3.The Adjudicating Officer imposed a penalty of ₹20,000 on the Company Secretary for the violation of Section 205(1) during the financial years 2018-19 and 2019-20.

Q4. What were the consequences of non-payment of the penalty?

A4.If the penalty was not paid within 90 days of receiving the order, the Company Secretary could face potential prosecution under Section 454(8)(i) and (ii) of the Companies Act, 2013.

Q5. What was the appeal process available to the Company Secretary?

A5.The Company Secretary had the option to file an appeal against the order within 60 days of receiving it, with the Regional Director (Eastern Region), Ministry of Corporate Affairs, Kolkata, accompanied by a certified copy of the order.