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Dual KMP Roles
MCA Imposes ₹30.88 Lakh Penalty for holding two KMP Roles
MCA Imposes ₹30.88 Lakh Penalty for holding two KMP Roles
Western Carriers (India) Limited appointed Mr. Kanishka Sethia, as a Whole-Time Director while he concurrently held the positions of Managing Director and Chief Financial Officer in another company, Western Conglomerate Limited, This contravenes Section 203(3) of the Companies Act, 2013 which imposes the restriction on whole-time key managerial personnel (KMP) from holding office in more than one company simultaneously except in its subsidiary.
The Contravention
The investigation revealed that Mr. Kanishka Sethia, a director and KMP of Western Carriers (India) Limited, had been appointed as the Whole-Time Director in the company with effect from April 1, 2016. However, he had already been serving as the Managing Director and Chief Financial Officer in another company, Western Conglomerate Limited, since April 1, 2008.
This dual role contravened the provisions of Section 203(3), which prohibits a whole-time KMP from holding office in more than one company simultaneously, except in its subsidiary.
The Proceedings
The company and its directors were duly served with a notice of hearing under Section 454 of the Companies Act, 2013, read with Rule 3(2) of the Companies (Adjudication of Penalties) Rules, 2014, as amended by the Companies (Adjudication of Penalties) Rules, 2019.
Despite the opportunity to respond, the company and its officers in default failed to provide an adequate reply to the adjudication notice. However, during the hearing, Shri Madan Kumar Maroti, a Chartered Accountant, appeared on behalf of the company and directors, acknowledging the inadvertent appointment of Mr. Kanishka Sethia and providing information about a suo-moto application for adjudication filed by the company.
The Result
Exercising the powers conferred by the Companies (Amendment) Ordinance, 2019, the Adjudicating Officer, A.K. Sethi, the Registrar of Companies, West Bengal, imposed a total penalty of ₹30.88 lakh. This included ₹5,00,000 on the company, ₹88,000 for one of its officers in default, and ₹5,00,000 on each of its five officers-in-default, pursuant to Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014, and the proviso of the said Rule and Rule 3(13) of the Companies (Adjudication of Penalties) Rules, 2014, read with General Circular No. 1/2020 dated 02.03.2020.
The order directed the company and its directors to pay the imposed penalties within 90 days, outlining the consequences of non-payment within the prescribed time limit, including potential prosecution under Section 454(8)(i) and (ii) of the Companies Act, 2013.
FAQs:
Q1. What was the violation committed by Western Carriers (India) Limited and its directors?
A1.Western Carriers (India) Limited and its directors violated Section 203(3) of the Companies Act, 2013, by appointing the same individual, Mr. Kanishka Sethia, as a Whole-Time Director in the company while he concurrently held the positions of Managing Director and Chief Financial Officer in another company, Western Conglomerate Limited. Q2. What legal provisions were invoked in this case?
A2.The Registrar of Companies, West Bengal, initiated adjudication proceedings against the company and its directors under Section 454(3) of the Companies Act, 2013, read with Rule 3(2) of the Companies (Adjudication of Penalties) Rules, 2014, as amended by the Companies (Adjudication of Penalties) Rules, 2019. Q3.What was the penalty imposed on Western Carriers (India) Limited and its directors?
A3.The Adjudicating Officer imposed a total penalty of ₹30.88 lakh – ₹5,00,000 on the company, ₹88,000 on one of its officers in default, and ₹5,00,000 on each of its five officers-in-default. Q4.How was the penalty amount calculated?
A4.The penalty amount was determined based on the provisions of Section 203(5) of the Companies Act, 2013, which prescribes a penalty of ₹5 lakh on the company and ₹50,000 on each officer in default, subject to a maximum of ₹5 lakh for each officer.
Q5.What are the implications of this case for companies and directors? A5.This case emphasizes the importance of strict compliance with corporate governance norms, particularly the restrictions on whole-time key managerial personnel holding office in multiple companies simultaneously. Companies and their directors must exercise due diligence in ensuring adherence to statutory requirements to avoid penalties and legal repercussions.
Key Takeaways:
1. Ministry of Corporate Affairs (MCA) has imposed a penalty of ₹30.88 Lakh on Western Carriers (India) Limited for violating Section 203(3) of the Companies Act, 2013.
2. The violation involved the appointment of the same person as a Whole Time Director in Western Carriers (India) Limited while holding the office of Managing Director and Chief Financial Officer in another company, Western Conglomerate Limited.
3. Despite the opportunity to respond, no adequate reply was received from the company and its officers in default, leading to the imposition of penalties.
