Adjudication of Penalty under Sec 454 for Violation of Sec 173(4)

Adjudication of Penalty under Sec 454 for Violation of Sec 173(4). This case pertains to the violation of Section 173(1) of the Companies Act, 2013. As per section 173(1), Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board. Spunweb Nonwoven Limited failed to comply with this statutory requirement, triggering adjudication proceedings intiated by the Registrar of Companies.
Applicable Provisions 
As per section 173(1) of the Companies Act, 2013, Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.
Provided that the Central Government may, by notification, direct that the provisions of this sub- section shall not apply in relation to any class or description of companies or shall apply subject to such exceptions, modifications or conditions as may be specified in the notification.
Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees.
Facts of the Case
Spunweb Nonwoven Limited was incorporated on 06.08.2015 under the provisions of the Companies Act, 2013. During the financial year 2020-21 company conducted two board meetings on 08.06.2020 and 05.11.2020. In the process of verification of minutes book of the meetings of Board of Directors, it was noticed that the gap between two board meetings was more than 120 days which was not in compliance with the provisions of section 173(1) of the Companies Act, 2013 during the financial year 2020-21.
Thus, the company violates Section 173(1) of the Companies Act, 2013 read with Companies (Meeting of Board and its powers) Rules, 2017. The violation was brought to the attention of the Registrar of Companies or the Adjudicating Officer. In this regard, the Registar of Companies, acting as the adjudicating officer is authorized under section 454(3) of the Companies Act, 2013 to impose penalities for such non- compliance.
Legal Issues

The interval between two board meetings exceeded 120 days, leads to violating the statutory requirement under section 173(1) of Companies Act, 2013.

The company did not conduct the minimum required number of board meetings in a financial year as mandated under section 173(1)

The penal consequences arise against the company or its officers for non-compliance with section 173(1).

The non-compliance with section 173(1) was due to negligence and lack of due diligence on part of the directors.

Penalty Imposed by Registrar of Companies on Company and Officers in Default
Section 454 – Penalty for non- compliance 
If a company fails to hold a Board meeting in accordance with section 173(1), the company and every officer of the company who is in default shall be liable to penalty. 
Taking into the consideration the facts the penalty imposed by registrar of companies is as follows:

Entity / Officer
Penalty (Rs.)
Relevant Section

Dineshbhai Hansrajbhai Kagthara
25000
454

Jay Dilipbhai Kagthara
25000
454

Total
50,000

Total Penalty- 50000 
Payment of Penalty:

The Adjudicating Officer finds the company and its officer guilty of the violation of provisions of this act.

Penalities are imposed under Section 454 of the Act.

The penalty must be paid within 90 days through MCA e- Adjudication portal.

The officers are required to pay the penalty from their personal funds.

Under section 454(5) and (6) the regional director, Ahemdabad has the right to appeal within 60 days.

Societal Impact 
Failure to conduct timely board meetings undermines the principles of corporate governance and transparency, which are essential to build public and investor trust. Such widespread non-compliance with governance norms can erode investor confidence in the corporate sector, especially in emerging markets like India, where regulatory enforcement is closely watched. By enforcing compliance with section 173(1), aims to promote a culture of accountability and good governance. 
Final Note of the Article
This case highlights that holding the first board meeting is not optional it is a legal obligation under the act. It is the duty of the directors or the company secretary to ensure compliance. Failure reflects poor internal governance and lack of due diligence in their part. The Registrar of Companies has the authority under section 454 to adjudicate penalities after issuing a show-cause notice and giving the company and officers a chance to explain, the Registrar of Company concluded that there was violation of Section 173(1) of companies act 2013 and there was no reasonable justification and hence monetary penalities are appropriate.

Download MCA Adjudication Order

This case pertains to the violation of Section 173(1) of the Companies Act, 2013. As per section 173(1), Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board. Spunweb Nonwoven Limited failed to comply with this statutory requirement, triggering adjudication proceedings intiated by the Registrar of Companies.

Applicable Provisions

As per section 173(1) of the Companies Act, 2013, Every company shall hold the first meeting of the Board of Directors within thirty days of the date of its incorporation and thereafter hold a minimum number of four meetings of its Board of Directors every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.

Provided that the Central Government may, by notification, direct that the provisions of this sub- section shall not apply in relation to any class or description of companies or shall apply subject to such exceptions, modifications or conditions as may be specified in the notification.

Every officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees.

Facts of the Case

Spunweb Nonwoven Limited was incorporated on 06.08.2015 under the provisions of the Companies Act, 2013. During the financial year 2020-21 company conducted two board meetings on 08.06.2020 and 05.11.2020. In the process of verification of minutes book of the meetings of Board of Directors, it was noticed that the gap between two board meetings was more than 120 days which was not in compliance with the provisions of section 173(1) of the Companies Act, 2013 during the financial year 2020-21.

Thus, the company violates Section 173(1) of the Companies Act, 2013 read with Companies (Meeting of Board and its powers) Rules, 2017. The violation was brought to the attention of the Registrar of Companies or the Adjudicating Officer. In this regard, the Registar of Companies, acting as the adjudicating officer is authorized under section 454(3) of the Companies Act, 2013 to impose penalities for such non- compliance.

Legal Issues

The interval between two board meetings exceeded 120 days, leads to violating the statutory requirement under section 173(1) of Companies Act, 2013.
The company did not conduct the minimum required number of board meetings in a financial year as mandated under section 173(1)
The penal consequences arise against the company or its officers for non-compliance with section 173(1).
The non-compliance with section 173(1) was due to negligence and lack of due diligence on part of the directors.

Penalty Imposed by Registrar of Companies on Company and Officers in Default

Section 454 – Penalty for non- compliance

If a company fails to hold a Board meeting in accordance with section 173(1), the company and every officer of the company who is in default shall be liable to penalty.

Taking into the consideration the facts the penalty imposed by registrar of companies is as follows:

Entity / Officer	Penalty (Rs.)	Relevant Section
Dineshbhai Hansrajbhai Kagthara	25000	454
Jay Dilipbhai Kagthara	25000	454
Total	50,000

Total Penalty- 50000

Payment of Penalty:

The Adjudicating Officer finds the company and its officer guilty of the violation of provisions of this act.
Penalities are imposed under Section 454 of the Act.
The penalty must be paid within 90 days through MCA e- Adjudication portal.
The officers are required to pay the penalty from their personal funds.
Under section 454(5) and (6) the regional director, Ahemdabad has the right to appeal within 60 days.

Societal Impact

Failure to conduct timely board meetings undermines the principles of corporate governance and transparency, which are essential to build public and investor trust. Such widespread non-compliance with governance norms can erode investor confidence in the corporate sector, especially in emerging markets like India, where regulatory enforcement is closely watched. By enforcing compliance with section 173(1), aims to promote a culture of accountability and good governance.

Final Note of the Article

This case highlights that holding the first board meeting is not optional it is a legal obligation under the act. It is the duty of the directors or the company secretary to ensure compliance. Failure reflects poor internal governance and lack of due diligence in their part. The Registrar of Companies has the authority under section 454 to adjudicate penalities after issuing a show-cause notice and giving the company and officers a chance to explain, the Registrar of Company concluded that there was violation of Section 173(1) of companies act 2013 and there was no reasonable justification and hence monetary penalities are appropriate.