LegaLogic – Corporate Laws Newsletter: Compliance due dates further relaxed in view of COVID-19 pandemic – January 2022
Keeping in view the difficulties faced by various stakeholders due to the pandemic, the Ministry of Corporate Affairs (MCA) has granted certain relaxations to companies. The MCA has further relaxed the levy of any additional fees to companies in relation to filing of annual financial statements and returns for the financial year ending March 31, 2021. For companies filing of eForm AOC-4 for the period ending March 31, 2021, no additional fees will be levied up to February 15, 2022, and for MGT-7 or MGT-7A for the period ending March 31, 2021, up to February 28, 2022 .
The relaxation in timelines will grant additional time to all the companies to complete their filings for the period ending March 31, 2021, without any additional fees.
Penalty charged for non-compliance with private placement provisions under the Companies Act, 2013
Pursuant to Section 42 of the Companies Act, 2013 (CA 2013), a private limited company (Company) allotted 50,000 compulsorily convertible preference shares to four investors on private placement basis after obtaining requisite approval from its shareholders. However, the Company failed to comply with the provisions of the CA 2013 and did not mention the details in the allotment of securities in accordance with Section 42 in the resolution passed in its board meeting and extraordinary general meeting. The Company failed to pass special resolution prior to issue of private placement offer cum application letter. Furthermore, the Company did not open a separate bank account for the deposit of monies received through private placement in a separate bank account as mandated under Section 42 of the CA 2013. Section 42(6) of the CA 2013 mandates companies receiving money from an application under this section to maintain and receive the money in a separate bank account in a scheduled bank.
In view of these non-compliances under section 42 of the CA 2013, the registrar of companies as per the powers vested under Section 454 of the CA 2013 imposed a penalty of INR 1,50,00,000 on the Company and its directors. The Company was further directed to refund the monies to the subscribers along with interest (if any), within 30 days from the date of the order as the Company had not complied with the provisions of Section 42 of the CA 2013 In the recent times where companies are focused on fund raising, it is often seen that companies fail to comply with the provisions of private placement process under Section 42 of the CA 2013. However, companies and their directors need to be vigilant and ensure compliances with the provisions of Section 42 of the CA 2013 and other applicable provisions in the fund-raising process in order to avoid levy of heavy penalties by the regulatory authorities.
Hefty penalties levied as a result of delay in appointment of Key Managerial Personnel
In terms of Section 203 of the CA 2013 and the applicable rules4 , every listed company and every other public/private company having paid-up share capital of INR 10,00,00,000 or more is required to appoint a whole time key managerial personnel (KMP) which also includes a company secretary5 . Any vacancy created in the office of the KMP is to be filled up by the board within a period of 6 months from the date of such vacancy6 . A private limited company (Company) crossed the share capital threshold under Section 203 of the CA 2013 in the month of June 2020. Its board of directors passed a resolution to appoint a whole-time company secretary in the month of March 2021 almost after 299 days. However, the said appointee could not assume his office due to personal reasons and conveyed his inability in the month of April 2021. Subsequently, the Company appointed another individual in the position of company secretary in the month of June 2021 which was almost 383 days from crossing the capital threshold under Section 203 CA 2013.
Any default in provisions of Section 203 results in levy of penalty on the companies and its directors including additional penalties for continuing defaults7 . In the present case, though the casual vacancy created (in month of April 2021) was filled in the month of June 2021 i.e. prior to the expiry of 6 months, the Company failed to appoint a wholetime company secretary upon crossing the paid-up share capital threshold as set out in Section 203 of the CA 2013. In view of the default of provisions of Section 203 by the Company, a penalty of INR 16,16,000 was levied on the Company and its directors including those directors who held office during the period of non-compliance. Considering the hefty penalties involved, it is pertinent that companies to comply with provisions relating to appointment of KMP as soon as these provisions become applicable to the companies in view of changes in their share capital. It is equally important to ensure that any vacancy created in the office of KMP is filled in within the prescribed timelines to avoid penalties.