ADJUDICATION OF PENALTIES

ADJUDICATION OF PENALTIES

COMPANIES ACT, 2013

There is always confusion between “Provision of Adjudication of Penalties” and “Authority having power on Adjudication”.  Through, this editorial author made an attempt to elaborate the basic meaning and powers under “Adjudication of Penalties”.

Adjudication of Penalties is New Concept under Companies Act, 2013. In earlier Companies Act, 1956, there were no such provisions like this. As all of us are aware that Compliances and governance has been increased under Companies Act, 2013. Minor non-compliances like failure to file every resolution or agreement, failure to furnish information about DIN, failure of filling of forms etc ‘Non Filing of MGT-14 within 30 days, Non filing of AOC-4 within 30 days and non filing of MGT-7 within 60 days” are proposed to be brought within the purview of the Adjudication by Registrar of Companies.

The Companies (Amendment) Ordinance, 2018

The main maxim of writing of this article is, The Companies (Amendment) Ordinance, 2018 has re categorized certain offence from Fine to Penalty. Thus, Registrar of Companies (ROC) and Regional Director (RD) can now impose penalties directly after issuing SCN, instead of going to judiciary for imposing fines or for following procedure for composition of offences.

There are as many as 16 sections amended via Amendment Act, 2019 whereby the punishment for non-compliance to be levied under the Companies Act, 2013 is re-categorized from “FINE” to “PENALTY”. However, there are approximately 35 sections under Act which states about Penalty. 

S. No.	Section	Section Description
1.	53(3)	Prohibition of Issue of shares at a discount
2.	64(2)	Notice to be given to Registrar for alteration of share capital
3.	92(5)	Annual Return
4.	102(5)	Statement to be annexed to Notice
5.	105	Proxies
6.	117(2)	Resolutions and Agreements to be filed
7.	121(3)	Report on annual general meeting
8.	137(3)	Copy of financial statement to be filed with Registrar
9.	140(3)	Removal, resignation of auditor and giving of special notice
10.	157(2)	Company to inform Director Identification Number to Registrar
11.	159	Punishment for Contravention – in respect of DIN
12.	165(6)	Number of Directorships
13.	191(5)	Payment to Director for Loss of Office
14.	197(15)	Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits
15.	203(5)	Appointment of Key Managerial Personnel
16.	238(3)	Registration of the offer of scheme involving transfer of shares

ADJUDICATION PROCESS

I.	Who Can adjudicate penalties under the Companies Act, 2013
	As per Section 454(1) The Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government, not below the rank of Registrar, as adjudicating officers for adjudging penalty under the provisions of this Act in the manner as may be prescribed. MCA has vide Notification No. [F. No. 4-4201 1/l 1212014-Ad.ll] dated 24.03.2015 appointed various ROC’s as adjudicating officer for adjudging penalties in their respective jurisdiction.
II.	Jurisdiction of Adjudication officer.
	MCA has vide Notification No. [F. No. 4-4201 1/l 1212014-Ad.ll] dated 24.03.2015 appointed various ROC’s as adjudicating officer for adjudging penalties in their respective jurisdiction
III.	Whether adjudicating officer can impose penalty on non-compliance or default under the provisions of Companies Act, 2013?
	Yes, as per Section 454(3) Adjudicating officer can impose penalty on non-compliance or default under the provisions of Companies Act, 2013
IV.	On whom penalties may be imposed by adjudicating officer
	Companies and officer in Default
V.	Process for Adjudications
	Foremost Adjudication Office will Find out the defaults. Once adjudication officer will find out default will start process of adjudication: STEP-I: ISSUE OF SHAW CAUSE NOTICE TO COMPANY AND OFFICER IN DEFAULT: As per Rule 3(2) The adjudicating officer shall issue a written notice to the company and to every officer of the company who is in default a show cause notice and ask to the Company and officer “why the inquiry should not be held against him”. In Notice Adjudication officer will indicate the nature of non-compliance or default under the Act alleged to have been committed or made by such company and officer in default, as the case may be Period of Shaw Cause Notice: Not being less than fifteen days and more than forty five days from the date of service thereon. Extension of period of Shaw Cause Notice: The above time limit may be extended by a further period not exceeding fifteen days, if the company or officer (as applicable) satisfies the said officer that it has sufficient cause for not responding to the notice within the stipulated period. STEP-II: OPPORTUNITY TO BEING HEARD: The act provides for providing of opportunity of being heard before imposing of any penalty. Company and officer will file show cause notice with mentioning of reason “why the inquiry should not be held against him”. STEP-III: ENQUIRY BY ADJUDICATION OFFICER- NOTICE FOR HEARING: If, after considering the cause, if any, shown by such company or officer, the adjudicating officer is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of such company (Hearing), through its authorized representative, or officer of such company whether personally or through his authorized representative. STEP-IV: HEARING On the date fixed for hearing and after giving a reasonable opportunity of being heard to the person(s) concerned, the adjudicating officer may, subject to reasons to be recorded in writing, pass any order as he thinks fit including an order for adjournment of the hearing to a future date. STEP-V: ORDER Every order passed under sub-rule (4), shall be dated and signed by the adjudicating officer.
VI.	If Company and Officer in default make absence themselves from the Hearing?
	EX-PARTE HEARINGS If any person fails, neglects or refuses to appear before the adjudicating officer, the adjudicating officer may proceed with the inquiry in the absence of such person after recording the reasons for doing so.
VII.	Copies of order of Adjudication officer.
	The adjudicating officer shall send a copy of the order passed by it to v  The concerned company or officer who is in default and v  To the Central Government.
VIII.	Powers of Adjudication officer during hearing:
	While holding an inquiry, the adjudicating officer shall have the following powers, namely:- §  To summon and enforce the attendance of any person acquainted with the facts and circumstances of the case; §  To order for evidence or to produce any document, which in the opinion of the adjudicating officer, may be useful for or relevant to the subject matter of the inquiry.
IX.	Quantum of Penalties & factors responsible.
	While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely:- §  The amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; §  The amount of loss caused to an investor or group of investors or creditors as a result of the default; §  The repetitive nature of the default.
X.	Where all there penalty amount invest by the Government.
	All sums realized by way of penalties under the Act shall be credited to the Consolidated Fund of India.
XI.	Can assessee file the petition against the order of adjudication officer?
	Every appeal against the order of the adjudicating officer shall be filed in writing with the Regional Director having jurisdiction in the matter.
XII.	In which form Appeal can be made?
	Form ADJ
XIII.	What is the time limit for filling of appeal?
	Within a period of sixty days from the date of receipt of the order of adjudicating officer by the aggrieved party, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of the order against which the appeal is sought.
XIV.	Who can appear before RD on behalf of the Party?
	Authorized Representative consent to be attached with appeal: Company can appear by authorized representative, Where the party is represented by an authorized representative, a copy of such authorization in favour of the representative and the written consent thereto by such authorized representative shall also be appended to the appeal.
XV.	Process for Appeal in Regional Director.
	Date on Appeal: On the receipt of an appeal, office of the Regional Director shall endorse the date on such appeal and shall sign such endorsement. Registration/Admission §  If, on scrutiny, the appeal is found to be in order, it shall be duly registered and given a serial number or §  If, on scrutiny, the appeal is not found to be in order or defective, the Regional Director may allow the appellant such time, not being less than 14 days following the date of receipt of intimation by the appellant from the Regional Director about the nature of the defects, to rectify the defects. If the appellant fails to rectify the defects: The Regional director may by order and for reasons to be recorded in writing, decline to register such appeal and communicate such refusal to the appellant within a period of 7 days thereof: Extension of period of rectification of defects: RD may, for reasons to be recorded in writing, extend the period referred to in the first proviso above by a further period of 14 days if an appellant satisfies the RD that the appellant has sufficient cause for not rectifying the defects with in the period of 14 days.  Copy of Notice to Adjudication officer: On the admission of the appeal, the Regional Director shall serve a copy of appeal upon the adjudicating officer against whose order the appeal is sought along-with a notice requiring such adjudicating officer to file his reply thereto with in such period, not exceeding twenty-one days, as may be stipulated by the Regional Director in the said notice. The time may be further extended by 21 days. Reply of Adjudication officer: A copy of every reply, application or written representation filed by the adjudicating officer before the Regional Director shall be forthwith served on the appellant by the adjudicating officer.  Intimation of Date of Hearing by RD: The Regional Director shall notify the parties, the date of hearing of the appeal which shall not be a date earlier than Thirty Days following the date of such notification for hearing of the appeal.  Hearing by RD: On the date fixed for hearing the Regional Director may, subject to the reasons to be recorded in writing, pass any order as he thinks fit including an order for adjournment of the hearing to a future date. Ex parte hearing In case the appellant or the adjudicating officer does not appear on the date fixed for hearing, the Regional Director may dispose of the appeal ex-parte.  Setting aside ex-parte order Provided that where the appellant appears afterwards and satisfies the Regional Director that there was sufficient cause for his nonappearance, the Regional Director may make an order setting aside the ex-parte order and restore the appeal.  Signing of Order Every order passed under this rule shall be dated and signed by the Regional Director. Communication A certified copy of every order passed by the Regional Director shall be communicated to the adjudicating officer and to the appellant forthwith and to the Central Government.
XVI.	Note:
	§   An appeal in Form ADJ shall not seek relief(s) therein against more than one order unless the reliefs prayed for are consequential. §  Every appeal filed under this rule shall be accompanied by such fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION