MOA Compliance Case: Penalties Under Companies Act, 2013

MOA Compliance Case: Penalties Under Companies Act, 2013. How Gujarat Peanut & Agri Products Ltd faced penalties for violating Section 4(1)(c) of the Companies Act, 2013. 
The Companies Act, 2013 is a statute governing corporate entities in India, ensuring that companies operate in accordance with their defined objectives and statutory obligations. Section 4(1)(c) of the Act requires that a company’s objects be clearly stated in its Memorandum of Association (MOA) and that business activities be confined to those objects. Section 454 empowers adjudicating officers to impose penalties on companies and officers in default for contravention of the Act. This case underscores the significance of complying with principles of corporate governance, meticulous recording of organizational objectives, and prompt remediation of regulatory lapses. It also illustrates the MCA’s procedure for adjudicating penalties and reinforcing compliance.
Background and Facts of the Case
Gujarat Peanut and Agri Products Limited amended its Memorandum of Association (MOA) during an Extraordinary General Meeting (EOGM) held on March 7, 2019. The amendment removed the "other objects" clause from the MOA. However, even after the amendment, the company continued to carry out the same unauthorized activities that previously fell under the "other objects" clause. The company’s actions violated Section 4(1)(c) of the Companies Act, as per which the company was required to undertake only those activities specified in the MOA in written form.
This issue came to light in 2024 when the newly appointed Company Secretary and Chief Financial Officer took charge. On their review, it was discovered that the MOA was missing the principal object clause. Consequently, the company convened an EOGM on August 23, 2024, and passed a special resolution to incorporate the principal object of the company. Subsequently, the company filed Form MGT-14 for the amendment, which was registered and certified as an amendment by the Registrar of Companies (ROC) on September 7, 2024.Therefore, the period of default is calculated from March 7, 2019, to September 6, 2024. The company continued to carry out unauthorized activities for a total of 2011 days.
Issue

Whether the continuation of operations by the company outside the scope of the objects specified in its Memorandum of Association (MOA) amounts to a contravention of the statutory provisions contained in Section 4(1)(c) of the Companies Act, 2013.

Whether the Company Secretary (CS) and the Chief Financial Officer (CFO), who contended that they had assumed office after the default had commenced and had immediately brought the issue to the notice of the management, could still be classified as “officers in default” within the meaning of the Companies Act, 2013.

Whether the computation of monetary penalty under Section 454 of the Companies Act, 2013 in respect of both the Company and the officers in default had been carried out correctly, and further, whether any additional penalty for continued default was payable under the said provision.

Relevant Sections & Penalties Imposed

Section 4(1)(c): Section 4(1)(c), Companies Act 2013 - A company shall carry on only those business activities (objects) which are stated in its Memorandum of Association (MOA).

Section 450 of the Companies Act, 2013: provides that where a company contravenes any provision of the Act or the rules made thereunder for which no specific penalty is prescribed, such company shall be liable to a fine which may extend to Rs.2,00,000, and every officer of the company who is in default shall be liable to a fine which may extend to Rs.50,000.

Section 454 of the companies Act, 2013: Penalty to be adjudicated by the Adjudicating Officer appointed by the Central Government.

Section (2)(60): Section 2(60), Companies Act 2013 - Definition of “Officer in Default”

Penalties imposed

Entity / Officer

Penalty (Rs.)

Relevant Section

Gujarat Peanut and Agri Products Limited

2,00,000

450

Jitkumar Bhaveshbhai Raychura (CS)

50,000

450

Mayaben Damjibhai Kantaria (CFO)

50,000

450

Arunkumar Natwarlal Chag (Director)

50,000

450

Sagar Arunkumar Chag (Director)

50,000

450

Total Penalty: Rs. 4,00,000  
Payment of Penalty

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

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

Under Sections 454(5) and (6), the Regional Director, Ahmedabad, has the right to appeal within 60 days.

Final Note of the Article
This case emphasizes that companies must strictly adhere to their Memorandum of Association (MOA) and the provisions of the Companies Act, 2013. Gujarat Peanut and Agri Products Limited engaged in activities beyond its authorized objects, thereby violating Section 4(1)(c) of the Companies Act. The Registrar of Companies (ROC), acting under Section 454, imposed penalties on the company and its defaulting officers under Section 450. This decision highlights the importance of timely compliance and demonstrates that lapses, even if corrected later, attract legal and financial consequences.
Download MCA Adjudication Order

How Gujarat Peanut & Agri Products Ltd faced penalties for violating Section 4(1)(c) of the Companies Act, 2013.

The Companies Act, 2013 is a statute governing corporate entities in India, ensuring that companies operate in accordance with their defined objectives and statutory obligations. Section 4(1)(c) of the Act requires that a company’s objects be clearly stated in its Memorandum of Association (MOA) and that business activities be confined to those objects. Section 454 empowers adjudicating officers to impose penalties on companies and officers in default for contravention of the Act. This case underscores the significance of complying with principles of corporate governance, meticulous recording of organizational objectives, and prompt remediation of regulatory lapses. It also illustrates the MCA’s procedure for adjudicating penalties and reinforcing compliance.

Background and Facts of the Case

Gujarat Peanut and Agri Products Limited amended its Memorandum of Association (MOA) during an Extraordinary General Meeting (EOGM) held on March 7, 2019. The amendment removed the "other objects" clause from the MOA. However, even after the amendment, the company continued to carry out the same unauthorized activities that previously fell under the "other objects" clause. The company’s actions violated Section 4(1)(c) of the Companies Act, as per which the company was required to undertake only those activities specified in the MOA in written form.

This issue came to light in 2024 when the newly appointed Company Secretary and Chief Financial Officer took charge. On their review, it was discovered that the MOA was missing the principal object clause. Consequently, the company convened an EOGM on August 23, 2024, and passed a special resolution to incorporate the principal object of the company. Subsequently, the company filed Form MGT-14 for the amendment, which was registered and certified as an amendment by the Registrar of Companies (ROC) on September 7, 2024.Therefore, the period of default is calculated from March 7, 2019, to September 6, 2024. The company continued to carry out unauthorized activities for a total of 2011 days.

Issue

Whether the continuation of operations by the company outside the scope of the objects specified in its Memorandum of Association (MOA) amounts to a contravention of the statutory provisions contained in Section 4(1)(c) of the Companies Act, 2013.
Whether the Company Secretary (CS) and the Chief Financial Officer (CFO), who contended that they had assumed office after the default had commenced and had immediately brought the issue to the notice of the management, could still be classified as “officers in default” within the meaning of the Companies Act, 2013.
Whether the computation of monetary penalty under Section 454 of the Companies Act, 2013 in respect of both the Company and the officers in default had been carried out correctly, and further, whether any additional penalty for continued default was payable under the said provision.

Relevant Sections & Penalties Imposed

Section 4(1)(c): Section 4(1)(c), Companies Act 2013 - A company shall carry on only those business activities (objects) which are stated in its Memorandum of Association (MOA).
Section 450 of the Companies Act, 2013: provides that where a company contravenes any provision of the Act or the rules made thereunder for which no specific penalty is prescribed, such company shall be liable to a fine which may extend to Rs.2,00,000, and every officer of the company who is in default shall be liable to a fine which may extend to Rs.50,000.
Section 454 of the companies Act, 2013: Penalty to be adjudicated by the Adjudicating Officer appointed by the Central Government.
Section (2)(60): Section 2(60), Companies Act 2013 - Definition of “Officer in Default”

Penalties imposed

Entity / Officer	Penalty (Rs.)	Relevant Section
Gujarat Peanut and Agri Products Limited	2,00,000	450
Jitkumar Bhaveshbhai Raychura (CS)	50,000	450
Mayaben Damjibhai Kantaria (CFO)	50,000	450
Arunkumar Natwarlal Chag (Director)	50,000	450
Sagar Arunkumar Chag (Director)	50,000	450

Total Penalty: Rs. 4,00,000

Payment of Penalty

The penalty must be paid within 90 days through MCA’s e-Adjudication portal.
The officers are required to pay the penalty from their personal funds.
Under Sections 454(5) and (6), the Regional Director, Ahmedabad, has the right to appeal within 60 days.

Final Note of the Article

This case emphasizes that companies must strictly adhere to their Memorandum of Association (MOA) and the provisions of the Companies Act, 2013. Gujarat Peanut and Agri Products Limited engaged in activities beyond its authorized objects, thereby violating Section 4(1)(c) of the Companies Act. The Registrar of Companies (ROC), acting under Section 454, imposed penalties on the company and its defaulting officers under Section 450. This decision highlights the importance of timely compliance and demonstrates that lapses, even if corrected later, attract legal and financial consequences.