Adjudication of Penalties and Decriminalization of several offences under the Companies Act, 2013 By FCS Vinit Nagar



“Adjudication of Penalties under the Companies Act, 2013”

Section 454 read with Companies (Adjudication of Penalties) Rules, 2014

Decriminalization of several offences

The   Companies (Amendment) Act, 2019   has already re-categorized several offences under the Act in the category of compoundable offences to an in-house adjudication framework. Now, these offenses  are  presently  punishable  with  penalty, instead   of   being   punishable   with   fine   or imprisonment or with both.

With regards to the Companies (Amendment) Bill, 2020, which has proposed several amendments to the   Companies   Act,   2013,   by   decriminalizing various  offences  and  moderating  the  penalty regime to boost of ease doing business in country. The majority of the changes are proposed with a view to remove criminality of the offences where no mala fide is intended. The major thrust is to improve  the  business  and  to  de-criminalize  the Act. The Center is set to move a Bill to amend the Companies  Act  2013  in  the  current  session  of Parliament.  The  Bill  will  decriminalize  offences which   will   be   classified   as   civil   wrongs   not warranting jail.

Decriminalization  of  various  offenses  under  the Act  was  the  prime  concern  of  the  Companies (Amendment) Act, 2019 and the same is there also in Companies (Amendment) Bill, 2020.

“Decriminalization” is to lessening of the criminal penalties in relation to certain acts which will further reduce the number of compoundable offences under the Act.

Fines” are mostly used in context of criminal law wherein a Court of law or Tribunal can punish a Company and its officer convicted of a crime by imposing a fine or imprisonment whereas the “Penalty” is generally a punishment imposed for breaking a law, rule, or contract and this can be imposed by the Registrar of Companies.

Power of adjudication – the Registrar of Companies

The Central Government has empowered the Registrar of Companies to act as the “adjudicating officers” for adjudging several penalties prescribed under the provisions of the Companies Act. The Registrar of Companies while adjudicating any offence shall possess following powers i.e.

(a)    To summon and enforce the attendance of any person acquainted with the facts of the case;
(b)    To order for evidence or to produce any document which is relevant to the subject matter.

The Registrar before adjudging any penalty under the Companies Act is required to issue a written notice  to  the  company,  the  officer  who  is  in default or any other person, as the case may be, to show cause within such period as may be specified in the notice which in no case shall be less than 15 days  and  more  than  30  days  from  the  date  of service thereon that, why the penalty should not be imposed on it or him or them.

The adjudicating officer also possess discretion to extend the period as stated above by a further period of not exceeding 15 days, 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  else  when  the adjudicating officer has all the reasons to believe that the company or the officer or the person has received a shorter notice and did not have the reasonable time to send its representation.

Every notice issued shall indicate the nature of non-compliance/ default committed under the Act and attention shall also be drawn to the relevant penal provisions of the Act along with the maximum penalty which can be imposed on the parties concern.

The reply to such notice shall be filed in electronic mode only within the period as specified in the notice.

Appearance & Adjudication

After considering the reply submitted by such company, its officer, or any other person, as the case may be, if the adjudicating officer is of the opinion that physical appearance is required, he shall issue a notice, within a period of 10 working days from the date of receipt of reply fixing a date for the appearance of such company, through its authorized representative, or officer of such company, or any other person, whether personally or through its authorized representative.

On the date fixed for hearing and  after giving  a reasonable opportunity of being heard to the person concerned, the adjudicating officer may, subject to reasons to be recorded in writing, pass any order in writing as he thinks fit including as order for adjournment

The adjudicating officer may require the concerned person to submit the written submission on certain other issues related to the notice which are relevant for determination of the default.

The adjudicating officer shall pass an order thereafter and shall send a copy of the order passed by him to the concerned company, officer who is in default or any other person or all of them. In no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act.

The imposed penalty shall be paid through MCA Portal and all the sums realized by way of penalties under the Act shall be credited to the Consolidated Fund of India.

Elements to be considered while Adjudication

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

(a)    Size of the company in terms of capital, revenue, profit etc.
(b)    Nature of business carried on by the company;
(c)    Public interest;
(d)    Nature of the default & injury caused;
(e)    Repetition of the default;
(f)    Disproportionate gain as a result of the default;
(g)    The amount of loss caused to an investor(s) or creditors as a result of the default

Appeal before the Regional Director

An appeal against the order of the adjudicating officer shall be filed in writing by the aggrieved party in in Form ADJ (Memorandum of Appeal) with the Regional Director having jurisdiction in the matter within a period of 60 Days from the date of receipt of the order setting forth the grounds of appeal and the appeal shall be accompanied with the certified copy of the order against which the appeal is sought and authority letter/ Board Resolution in favor of Counsel and his Memorandum of Appearance, if the appellant is representing through any Counsel.

Registration of Appeal

On the receipt of an appeal, office of the Regional Director shall endorse the date on such appeal and shall sign such endorsement. If, on scrutiny, the appeal is found to be in  order,  it  shall  be  duly registered and given a serial number.

In case where the appeal is found to be defective or incomplete in nature, 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, in to rectify/ remove the defects and if the appellant fails to rectify such defects within the time period as stated above, 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 seven days thereof.

Disposal of Appeal

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 within such period, not exceeding 21 days, as may be stipulated by the Regional Director in the said notice.

The  Regional  Director  may,  for  reasons  to  be recorded  in  writing, extend  the period  referred above  for  a  further  period  of  21  days,  if  the adjudicating officer satisfies the Regional Director that he had sufficient cause for not being able to file his reply to the appeal within the above-said period of 21 days.

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.

The Regional Director shall notify the parties, the date of hearing of the appeal which shall not be a date earlier than 30 days following the date of such notification for hearing of the appeal.

Hearing before the Directorate

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.

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.

Restoration of Appeal after disposal

If the appellant appears afterwards and satisfies the Regional Director that there was sufficient cause for his non- appearance, the Regional Director may make an order setting aside the ex-parte order and restore the appeal.

The 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.

Final Thoughts

In the years to come the Ministry of Corporate Affairs is also looking forward to have a system of e-adjudication where there will be no provision of any physical interface before the Adjudicating Authority. The system generated show cause notices shall be served to the Company and its Officer concerned against which the their representation shall also be sough through the electronic means only and automatically the Web Portal will calculate the penalty which is to be imposed on the Company and the officer concerned which is in default or to any other person, as the case may be just like the “Traffic Memo”.

This Adjudication process has already reduced the burden of Courts and Tribunals and in the years to come e-adjudication will surely reduce the burden of Registrar of Companies and the Regional Director to a greater extent and this will stimulate an era of self-governance among Companies and its Officers.
Lex comply

Click here to read the disclaimer


Write a Comment