ADJUDICATION OF PENALTIES


The law stated in this post is valid from 19th February 2019. The earlier post on the subject here was valid from 1st April 2014 till 18th February 2019.

Section 454 of the Companies Act 2013 discussed earlier here, deal with the adjudication of penalties.  This Section is supplemented by the Companies (adjudication of Penalties) Rules 2014. This Section was amended by the Companies (Amendment) Ordinance, 2018 and Its retained as amended by first and Second Company amendment Ordinances of the year 2019. Accordingly, the Companies (adjudication of Penalties) Amendment Rules 2019 substituted Rule 3 of the Companies (adjudication of Penalties) Rules 2014. In this post, we will discuss these amended provisions.

Adjudicating Officers

The Central Government may by an order published in the Official Gazette appoint Adjudicating Officers for adjudicating penalty under this Act. [Section 454(1)]

The Central Government shall while appointing adjudicating officers, specify their jurisdiction in the order under sub-section (1). [Section 454(2)]

The Central Government may appoint any of its officers, not below the rank of Registrar, as adjudicating officers for adjudging penalty under the provisions of the Act. [Rule 3(1) of the Companies (adjudication of Penalties) Rules 2014]

Powers to make an Order

According to Amended provision, the adjudicating officer may, by an order stating therein any non-compliance or default under the relevant provisions of this Act –

  • impose the penalty on –
    1. the company,
    2. the officer who is in default, or
    3. any other person, as the case may be; and
  • wherever he considers fit, direct–
    1. such company, or
    2. an officer who is in default, or
    3. any other person, as the case may be,

to rectify the default. [Section 454(3) as amended by the Companies Amendment Ordinance, 2018]

Earlier, the adjudicating officer has no power to direct to rectify the default.

Reasonable opportunity

The adjudicating officer shall, before imposing any penalty, give a reasonable opportunity of being heard to such a company, the officer who is in default or any other person. [Section 454(4) as amended by the Companies Amendment Ordinance, 2019 discussed earlier here]

Before this amendment, the Adjudicating Officer has no power to give reasonable opportunity to any other person.

Show Cause Notice

Before adjudging penalty, the adjudicating officer shall issue a written notice in a specified manner, to the company, the officer who is in default or any other person, as the case may be, to show cause, why the penalty should not be imposed on it or him. These persons shall show cause within such period as may be specified in the notice not being less than fifteen days and more than thirty days from the date of service thereon. [Rule3 (2)]

There is a shift from show cause why the inquiry should not be held to a show cause why the penalty should not be imposed on it or him.

Specified Manner for Rule 3(2) shall mean service of documents as specified under section 20 of the Act and rules made thereunder. The details in respect of address (including electronic mail ID) provided in the KYC documents filed in the registry shall be used for communication under this rule. [Explanation 2 to Rule 3]

Every notice issued shall clearly indicate the nature of non-compliance or default under the Act alleged to have been committed or made by such company, an officer in default, or any other person, as the case may be. The Notice shall also draw attention to the relevant penal provisions of the Act and the maximum penalty which can be imposed on the company, and each of the officers in default or the other person. [Rule 3(3) as amended]

The reply to such notice shall be filed in electronic mode only within the period as specified in the Notice. [Rule 3(4)]

The requirement of submission of replies in electronic mode shall become mandatory after the creation of the e – adjudication platform. [Explanation 2 to Rule 3]

Extension of Period

The adjudicating officer may, for reasons to be recorded in writing, extend the period referred to above by a further period not exceeding fifteen days. [Proviso to Rule 3(4)]

Such an extension is allowed –

  • if the company or officer in default or any person as the case may be, satisfies the adjudicating officer that it or he has sufficient cause for not responding to the notice within the stipulated period or
  • the adjudicating officer has reason to believe that the company or the officer or the person has received a shorter notice and did not have reasonable time to give reply. [Proviso to Rule 3(4)]

Physical Appearance

There are two ways for Physical Appearance –

  1. Where Adjudicating Officer requires; and
  2. Where oral representation is requested.

After considering the reply submitted by such company, its officer, or any other person, as the case may be, the adjudicating officer may form an opinion that physical appearance is required. In such case, he shall issue a notice, within a period of ten working days from the date of receipt of reply fixing a date for the appearance of such company, through its authorised representative, or officer of such company, or any other person. Such physical appearance may be personally or through an authorised representative. [Rule 3(5)]

If any person, to whom a notice is issued under sub-rule (2), desires to make an oral representation, they may indicate the same while submitting his reply in electronic mode. Such oral representation may be personally or through his authorised representative. On receiving such request made in electronic mode, the adjudicating officer shall allow such person to make such representation after fixing a date of appearance. [Proviso to Rule 3(5)]

Day to day Order

On the date fixed for hearing and after giving a reasonable opportunity of being heard to the person concerned, the adjudicating officer may pass any order in writing as he thinks fit. Such order shall be subject to reasons to be recorded in writing. Such order may be an order for adjournment. [Rule 3(6)]

After hearing, adjudicating officer may require the concerned person to submit his reply in writing on certain other issues related to the notice under sub-rule (2), relevant for determination of the default. [Proviso to Rule 3(6)]

Order

The adjudicating officer shall pass an order,-

(a) within thirty days of the expiry of the period referred in sub-rule (2) or of such extended period as referred therein, where physical appearance was not required under sub-rule (5);

(b) within ninety days of the date of issue of notice under sub-rule (2), where any person appeared before the adjudicating officer under sub-rule (5). [Rule 3(7)]

In case an order is passed after the aforementioned duration, the reasons for the delay shall be recorded by the adjudicating officer. No such order shall be invalid merely because of its passing after the expiry of such thirty days or ninety days as the case may be. [Proviso to Rule 3(7)]

Every order of the adjudicating officer shall be duly dated and signed by him. The Order shall clearly state the reasons for requiring the physical appearance under sub-rule (5). [Rule 3(8)]

The adjudicating officer shall send a copy of the order passed by him to –

  • the concerned company;
  • an officer who is in default;
  • any other person or
  • all of them.

The adjudicating officer shall send a copy of the order passed by him to the Central Government. A copy of the order shall also be uploaded on the website. [Rule 3(9)]

Powers of Adjudicating Officer

The adjudicating officer shall exercise the following powers, namely –

(a) to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case after recording reasons in writing;

(b) to order for evidence or to produce any document, which in the opinion of the adjudicating officer, may be relevant to the subject matter. [Rule 3(10)]

Order in Absence

If any person –

  • fails to reply or
  • neglects or
  • refuses to appear as required

the adjudicating officer may pass an order imposing the penalty, in the absence of such person after recording the reasons for doing so.

Quantum of Penalty

While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely:-

(a) size of the company;

(b) nature of the business carried on by the company;

(c) injury to the public interest;

(d) nature of the default;

(e) repetition of the default;

(f) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; and

(g) the amount of loss caused to an investor or group of investors or creditors as a result of the default. [Rule 3(12)]

In no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act. [Proviso to Rule 3(12)]

In case a fixed sum of penalty is provided for default of a provision, the adjudicating officer shall impose that fixed sum, in case of any default therein. [Rule 3(13)]

Payment of Penalty

The penalty shall be paid through the Ministry of Corporate Affairs portal only [Rule 3(14)]

All sums realised by way of penalties under the Act shall be credited to the Consolidated Fund of India. [Rule 3(15)]

 

Enter your email address to follow this blog and receive notifications of new posts by email.

 

Advertisements

No professional query in comments (but in mail). Only academic discussion here. Comments moderated. Sometime, I reply to your mail ID.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.