Section 454 Companies Act 2013: ROC Penalty Order for Section 179 Violation

Introduction:

The adjudication of penalties under Section 454 Companies Act 2013 ensures that companies and their officers comply with statutory provisions. In this case, Martin Realty Private Limited and its directors faced penalty proceedings for violation of Section 179(3)(f) Companies Act 2013, highlighting the importance of Board resolutions in corporate governance.

Background of the Case

Martin Realty Private Limited (hereinafter Known as “Company”) is a company registered with this office of Registrar of Companies, Tamil Nadu- Coimbatore, under the provisions of Companies Act, having its registered address at 54, Mettupalayam Road, G N Mills Post, Coimbatore – 641029.

Facts of the Case under Section 179 Companies Act

The company and its directors filed a suo-moto application on 01.11.2023 for adjudication of the penalty for violating Section 179(3)(f) Companies Act 2013. The ROC, exercising powers under Section 454 Companies Act 2013, scheduled a hearing on 20.03.2024 to provide a reasonable opportunity before imposing any penalty.

The office of Registrar of Companies, Tamil Nadu- Coimbatore, in exercise of power conferred under sub section 4 of section 454 of the Companies Act, 2013 with a view to give a reasonable opportunity of being heard before imposing any penalty, fixed the date of hearing on 20/03/2024 at 11.00 AM to adjudicate the penalty for violation of provision of section 179 (3) (f) of the Companies Act, 2013.

The Board of Directors of the Company vide their resolution dated 31/08/2023 authorized Ms. M. Jayasree , Chartered Accountant to act as authorized representative of the company before the Registrar of Companies, Coimbatore, to carry out the formalities for the Adjudication of Penalties under Section 454 of the Companies Act, 2013.

During the hearing on 20/03/2024, Ms. M. Jayasree, Chartered Accountant and authorized representative of the Respondent made submissions that during the Financial Year 2020-21 there was a transaction for Rs. 1,30,15,000/- related to payment made to M/s. Aadhi Builders Trichy which was wrongly paid by the company instead of payment to be made by Mrs. M. Leema Rose. The fact was found out by the company on 31.03.2021, and on the same day, the amount was repaid by Mrs. M. Leema Rose to the Company. However the company did not obtain specific Board Resolution for the above transaction as the fact that the payment ought not to have been made by the company was known only on 31.03.2021 and immediate recovery action was taken.

Key Provisions of the Companies Act 2013

As per sub-section (1) of Section 179 (3) (f) of the Companies Act, 2013, the Board of Directors of a company shall exercise powers on behalf of the company by means of resolution passed at meetings of the Board to grant loans or give guarantee or provide security in respect of loans.

Further, section 450 provides that if a company or any officer of a company contraventions any of the provision of the Act or the rules made thereunder for which no penalty or punishment is provided elsewhere in the Act, the company and every officer of the company who is in default or such other persons shall be liable to a penalty of ten thousand rupees and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.

Order Passed by Adjudicating Officer under Section 454 Companies Act 2013

After reviewing the case and submissions, the Adjudicating Officer imposed penalties for the violation of Section 179(3)(f) Companies Act 2013. The penalties under Section 454 Companies Act 2013 were applied as follows:

Source:

The full text of the Order No. ROC/CBE/A.O./179/13718/2024 can be accessed here.