Rs 1Lac penalty imposed as Additional director continued holding office even after AGM.

In a recent adjudication order, the Ministry of Corporate Affairs (MCA) has taken decisive action against Mayflower Infra Realty Private Limited and its director, Sanjana Gupta, for violations related to the appointment and cessation of an additional director.

The case came to light through an inspection conducted under Section 206(5) of the Companies Act, 2013.

What's the violation?

The company had appointed Kali Lohia Charan as an additional director on June 16, 2014. According to Section 161(1) of the Act, an additional director should hold office only until the next Annual General Meeting (AGM), which in this case was scheduled for September 30, 2015. However, the MCA-21 database revealed that Kali Lohia Charan's cessation as an additional director was recorded on December 31, 2015, well beyond the AGM date.

Mayflower Infra Realty initially claimed that Mr. Kali Charan Lohia had vacated the office on September 30, 2015, but the resignation letter was dated December 31, 2015. Upon further investigation, the adjudication officer found discrepancies in the company's statements and concluded that the company and its directors had violated Section 161(1) from September 30, 2015, to December 31, 2015.

What happened during adjudication process?

The adjudication process involved issuing a notice under Section 454(4) read with Section 161 of the Companies Act, 2013, and Rule 3(2) of the Companies (Adjudication of Penalties) Rules, 2014, as amended in the Amendment Rules, 2019. The company and its officers in default were given an opportunity to respond and attend a hearing scheduled for June 7, 2023.

During the hearing, the authorized representative, Mr. Arun Kumar Jaiswal, acknowledged the unintentional nature of the violation and requested leniency. However, the adjudication officer, A.K. Sethi, found the company and its director-in-default, Mrs. Sanjana Gupta, liable for the violation under Section 172 of the Companies Act, 2013.

Here's the Order.

In the order dated August 31, 2023, the adjudicating officer imposed a penalty of Rs. 1,00,000 (Rupees One Lakh only), with Rs. 50,000 (Rupees Fifty Thousand only) on the company and Rs. 50,000 (Rupees Fifty Thousand only) on its director-in-default, Mrs. Sanjana Gupta, pursuant to Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014.

FAQs:

Q1. What was the primary violation committed by Mayflower Infra Realty Private Limited and its director?

A1.The company and its director, Sanjana Gupta, were found in violation of Section 161(1) of the Companies Act, 2013, for failing to ensure the timely cessation of an additional director's tenure, extending beyond the mandated Annual General Meeting (AGM) date.

Q2. What is the significance of the adjudication order?

A2.The adjudication order underscores the importance of adherence to the Companies Act, 2013, and highlights the penalties imposed on companies and directors for lapses in corporate governance and compliance. It serves as a reminder of the crucial role directors play in upholding statutory requirements.

Q3.What were the specific sections of the Companies Act, 2013, violated in this case?

A3.The company and its director violated Section 161(1) of the Companies Act, 2013, and were penalized under Section 172 of the Act.

Q4.What is the penalty imposed on Mayflower Infra Realty Private Limited and its director?

A4.The adjudication officer imposed a total penalty of Rs. 1,00,000 (Rupees One Lakh only), with Rs. 50,000 (Rupees Fifty Thousand only) on the company and Rs. 50,000 (Rupees Fifty Thousand only) on its director-in-default, Mrs. Sanjana Gupta.

Q5.What are the consequences of non-payment of the penalty?

A5.The company and its director have been given a 90-day window to pay the penalty through e-payment on the Ministry of Corporate Affairs website. Failure to pay the penalty within the prescribed time limit may result in consequences outlined in Section 454(8)(i) & (ii) of the Companies Act, 2013.

Q6.What is the appeal process available to the company and its director

A6.The company and its director can file a written appeal with the Regional Director (ER), Ministry of Corporate Affairs, Kolkata, within 60 days of receiving the order, setting forth the grounds of appeal and accompanied by a certified copy of the adjudication order.