ADJUDICATION OF PENALTIES UNDER COMPANIES ACT, 2013

The Companies Act, 2013 (‘Act’ for short) originally treated many procedural defaults as criminal offences, requiring prosecution before criminal courts. Section 454 of the Act provides the procedure for adjudication of penalties. This often resulted in prolonged litigation even for technical and procedural lapses. Subsequently, the Companies (Amendment) Acts of 2019 and 2020 further decriminalised numerous procedural defaults by replacing criminal punishments with civil penalties.

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. The Central Government generally appoints Registrars of Companies as Adjudicating Officers to impose penalties for specified defaults after giving the company and its officers a reasonable opportunity of being heard.

The proceedings under Section 454 are civil in nature. The Adjudicating Authority is a quasi-judicial body. The proceedings are administrative in nature but governed by principles of natural justice.

The Central Government, for this purpose, made ‘Companies (Adjudication of Penalties) Rules, 2014, vide Notification No. GSR 254(E), dated 31.03.2014 which came into effect from 01.04.2014.

Procedure

The Adjudicating Officer, first, issued notice to the company and the Officer, who is in charge of the affairs of the company with directions to file reply within the time as stipulated in the notice. Normally, not less than 15 days but not more than 30 days’ time is given to file reply. The notice shall clearly indicate the nature of non-compliance or default under the Act alleged to have been committed or made by such company, officer in default, or any other person, as the case may be and 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. The reply shall be filed only through electronic mode.

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, the adjudicating officer may, for reasons to be recorded in writing, extend the period referred to above by a further period not exceeding 15 days.

On receipt of the reply from the company and its officers, the Adjudicating Authority, if considered necessary for physical hearing shall issue a notice to the company and the officer to appear before him either in person or through authorised representative. If the concerned person desires to make an oral representation, whether personally or through his authorised representative and has indicated the same while submitting his reply in electronic mode, the adjudicating officer shall allow such person to make such representation after fixing a date of appearance.

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

 The adjudicating officer shall pass an order, -

• within 30 days of the expiry of the period or of such extended period where physical appearance was not required;
• within 90 days of the issue of the notice where any person required to appear in person before the Adjudicating Authority.

If the Adjudicating Authority is unable to pass the order within the time stipulated above, he shall record reasons for the delay in making the order. Such order shall not be invalid merely because of its passing after the expiry of such 30 days or 90 days as the case may be.  Every order of the adjudicating officer shall be duly dated and signed by him and shall clearly state the reasons for requiring the physical appearance.

The adjudicating officer 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 and to the Central Government and a copy of the order shall also be uploaded on the website.

In the adjudication process, the Adjudicating Authority may exercise the following powers-

• to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case after recording reasons in writing;
•  to order for evidence or to produce any document, which in the opinion of the adjudicating officer, may be relevant to the subject matter.

If any person fails to appear before the Adjudicating Authority the adjudicating officer may pass an order imposing the penalty, in the absence of such person after recording the reasons for doing so.

The Adjudicating Officer shall consider the following, while considering the quantum of penalty to be imposed on the company and the officer-in-charge-

• size of the company:
• nature of business carried on by the company;
• injury to public interest;
• nature of the default;
• repetition of the default;
• the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; and
• the amount of loss caused to an investor or group of investors or creditors as a result of the default.

In no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act. 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. The penalty shall be paid through Ministry of Corporate Affairs portal only. The same shall be credited to the Consolidated Fund of India.

Sending of notice

In case the e-mail address of any person to whom a notice or summons is required to be issued under these rules is not available, the adjudicating officer shall send the notice by post at the last intimated address or address available in the records and the officer shall preserve a copy of such notice in the electronic record in the e-adjudication platform. In case no address of the person concerned is available, the notice shall be placed on the e-adjudication platform.

Appeal

The appeal against the Adjudicating Officer lies with the Regional Director. The appeal shall be filed within 60 days from the date of receipt of the order. The appeal shall be filed 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 along with the prescribed fee. The appeal shall not seek relief(s) against more than one order unless the reliefs prayed for are consequential. The Authorised representative shall attach the authorisation letter of the appellant along with his consent to act as Authorised Representative.

On the receipt of an appeal, office of the Regional Director shall endorse the date on such appeal and shall sign such endorsement. If the appeal is found to be in order, it shall be duly registered and given a serial number. If the appeal is found to be 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 such defects within the time period allowed as 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. The Regional Director may extend further time of 14 days for rectification of the mistake, if he found that the appellant shows sufficient cause for not rectifying the mistake within the stipulated time.

The Regional Director shall send a copy of the appeal to the Adjudicating Officer to file his reply not exceeding 21 days. The Regional Director may extend the said date to further 21 days if he considers that there was sufficient cause to the Adjudicating Officer to file reply in time. The copy of the reply shall be sent to the appellant.

The Regional Director shall fix the hearing date within 30 days. On the hearing date 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. If 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. The ex-parte order may be set aside if the concerned person shows sufficient cause for his non-appearance.

Every order passed by the Regional Director shall be dated and signed by him.  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.