Non Appointment of CS due to COVID-19 Pandemic

Non Appointment of CS due to COVID-19 Pandemic. Penalties for Failure to Appoint Company Secretary within 6 months time under Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
The Companies Act, 2013 provides a clear set of rules for corporate governance. One of the key element is appointment of key managerial personnel, especially a whole-time company secretary for companies that meet specific thresholds. A company secretary’s responsibilities extend beyond administrative tasks; they play a crucial role in ensuring that governance standards are upheld and that the company complies with applicable laws.
Pegatron Technology India Private Limited, a subsidiary based in Tamil Nadu, failed to appoint a whole-time company secretary within the statutory timeframe after surpassing the prescribed capital threshold. The Registrar of Companies, Chennai, reviewed this failure under Section 454 of the Act and imposed penalties on both the company and its directors. This case serves as an instructive example of regulatory enforcement of compliance with statutory appointments, even in the face of challenges such as the COVID-19 pandemic.
Facts of the Case
Pegatron Technology India Private Limited was registered with its office at Mahindra World City, Chengalpattu, Kancheepuram District, Tamil Nadu. On 7 December 2020, the company increased its paid-up share capital to Rs.55 crore by issuing equity shares. Consequently, Section 203(1) of the Companies Act, 2013, along with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, became applicable. These rules made it necessary for the company to appoint a whole-time company secretary.
Despite the increase in capital, the company delayed the appointment of a company secretary. The company claimed that the COVID-19 pandemic and restrictions on physical operations posed significant challenges. Additionally, the Chairman and Managing Director were based in Taiwan, which further delayed board discussions.
Ultimately, the company appointed Ms. Neha Sharma, a member of the Institute of Company Secretaries of India (Membership No. A58382), on 23 July 2021. The appointment was officially reported through Form DIR-12 filed on 17 August 2021. This appointment occurred 227 days after the company surpassed the statutory threshold.
The company filed an application in Form GNL-1 on 22 January 2022, admitting the oversight and requesting adjudication. The ROC issued a notice on 6 March 2022, followed by an e-hearing on 15 April 2022. The company was represented by a practicing company secretary who argued that the default was unintentional, corrected by the appointment, and mainly caused by unique circumstances due to the pandemic.
However, the adjudicating officer pointed out that statutory deadlines are strict and cannot be adjusted for practical challenges unless specific exceptions are made.
Issues Raised
The adjudication led to several issues for discussion:

Whether the company violated Section 203 by failing to appoint a company secretary within six months of crossing the prescribed threshold.

Whether the difficulties cited by the company, such as pandemic restrictions and management being abroad, could justify the delay.

Whether the company and its directors could avoid personal responsibility by attributing the delay to external circumstances.

What should be the quantum of penalty to be imposed under Section 203(5) by the adjudicating authority.

Relevant Provisions
(A) Section 203 of the Companies Act, 2013 – This section mandates certain types of companies to appoint key managerial personnel, including a whole-time company secretary. Sub-section (1) specifically states that companies in the prescribed class must appoint such personnel. Sub-section (4) requires that any vacancy in these positions be filled within six months.
Sub-section (5) lists penalties: a fine of up to Rs.5,00,000 for the company and Rs.50,000 for each director and key managerial personnel in default, plus an additional daily fine for ongoing violations.
(B) Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 – This rule states that every private company with a paid-up share capital of ten crore rupees or more must appoint a whole-time company secretary. When Pegatron's share capital exceeded Rs.10 crore on 7 December 2020, this rule became applicable.
(C) Section 454 of the Companies Act, 2013- This section gives the Registrar of Companies the authority to impose penalties. It outlines the adjudication process and the right to appeal to the Regional Director.
These sections created a clear requirement for Pegatron Technology India Private Limited to appoint a company secretary within six months of 7 December 2020. By appointing a company secretary only on 23 July 2021, the company was in contravention of the law.
Judgment
After examining the submissions and documents, the ROC determined that Pegatron Technology India Private Limited had violated Section 203 of the Act. The delay of 227 days in appointing a whole-time company secretary was confirmed. Although the company provided explanations that indicated genuine difficulties, these did not release it from its legal obligations.
The adjudicating officer thus imposed penalties under Section 203(5). The penalties were calculated based on the period of default and the statutory limits prescribed by law. The final penalties were as follows:

On Pegatron Technology India Private Limited: Rs.5,00,000

On Akhilesh Bansal (DIN 06852795): Rs.2,77,000

On Chiu Tan Lin (DIN 08793219): Rs.2,77,000

The order required that the penalties be paid within ninety days through the MCA e-Adjudication portal. It also specified that the penalties imposed on the directors must be paid from their personal funds. The order provided the right to appeal to the Regional Director, Chennai, within sixty days by filing Form ADJ along with a certified copy of the order.
The order warned that failing to pay the penalties within the specified time would lead to consequences under Section 454(8), which may include prosecution.
Final Note of the Article
The adjudication against Pegatron Technology India Private Limited by ROC Chennai underscores the stringent nature of compliance obligations under the Companies Act, 2013. The 227-day delay in appointing a whole-time company secretary was deemed a violation, notwithstanding the challenges posed by the pandemic. The penalties of Rs.5,00,000 on the company and Rs.2,77,000 on each of the two directors reflect the seriousness with which regulators address such defaults.
This case highlights that statutory appointments are mandatory and must be completed within the prescribed legal timeframes. Directors must remain vigilant regarding obligations arising from increases in share capital and act expeditiously to avoid penalties. By imposing penalties, the ROC has reinforced the principle that accountability rests with both the company and its directors, ensuring that governance obligations are treated with the requisite seriousness.
Download MCA Adjudication Order

Penalties for Failure to Appoint Company Secretary within 6 months time under Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

The Companies Act, 2013 provides a clear set of rules for corporate governance. One of the key element is appointment of key managerial personnel, especially a whole-time company secretary for companies that meet specific thresholds. A company secretary’s responsibilities extend beyond administrative tasks; they play a crucial role in ensuring that governance standards are upheld and that the company complies with applicable laws.

Pegatron Technology India Private Limited, a subsidiary based in Tamil Nadu, failed to appoint a whole-time company secretary within the statutory timeframe after surpassing the prescribed capital threshold. The Registrar of Companies, Chennai, reviewed this failure under Section 454 of the Act and imposed penalties on both the company and its directors. This case serves as an instructive example of regulatory enforcement of compliance with statutory appointments, even in the face of challenges such as the COVID-19 pandemic.

Facts of the Case

Pegatron Technology India Private Limited was registered with its office at Mahindra World City, Chengalpattu, Kancheepuram District, Tamil Nadu. On 7 December 2020, the company increased its paid-up share capital to Rs.55 crore by issuing equity shares. Consequently, Section 203(1) of the Companies Act, 2013, along with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, became applicable. These rules made it necessary for the company to appoint a whole-time company secretary.

Despite the increase in capital, the company delayed the appointment of a company secretary. The company claimed that the COVID-19 pandemic and restrictions on physical operations posed significant challenges. Additionally, the Chairman and Managing Director were based in Taiwan, which further delayed board discussions.

Ultimately, the company appointed Ms. Neha Sharma, a member of the Institute of Company Secretaries of India (Membership No. A58382), on 23 July 2021. The appointment was officially reported through Form DIR-12 filed on 17 August 2021. This appointment occurred 227 days after the company surpassed the statutory threshold.

The company filed an application in Form GNL-1 on 22 January 2022, admitting the oversight and requesting adjudication. The ROC issued a notice on 6 March 2022, followed by an e-hearing on 15 April 2022. The company was represented by a practicing company secretary who argued that the default was unintentional, corrected by the appointment, and mainly caused by unique circumstances due to the pandemic.

However, the adjudicating officer pointed out that statutory deadlines are strict and cannot be adjusted for practical challenges unless specific exceptions are made.

Issues Raised

The adjudication led to several issues for discussion:

Whether the company violated Section 203 by failing to appoint a company secretary within six months of crossing the prescribed threshold.
Whether the difficulties cited by the company, such as pandemic restrictions and management being abroad, could justify the delay.
Whether the company and its directors could avoid personal responsibility by attributing the delay to external circumstances.
What should be the quantum of penalty to be imposed under Section 203(5) by the adjudicating authority.

Relevant Provisions

(A) Section 203 of the Companies Act, 2013 – This section mandates certain types of companies to appoint key managerial personnel, including a whole-time company secretary. Sub-section (1) specifically states that companies in the prescribed class must appoint such personnel. Sub-section (4) requires that any vacancy in these positions be filled within six months.

Sub-section (5) lists penalties: a fine of up to Rs.5,00,000 for the company and Rs.50,000 for each director and key managerial personnel in default, plus an additional daily fine for ongoing violations.

(B) Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 – This rule states that every private company with a paid-up share capital of ten crore rupees or more must appoint a whole-time company secretary. When Pegatron's share capital exceeded Rs.10 crore on 7 December 2020, this rule became applicable.

(C) Section 454 of the Companies Act, 2013- This section gives the Registrar of Companies the authority to impose penalties. It outlines the adjudication process and the right to appeal to the Regional Director.

These sections created a clear requirement for Pegatron Technology India Private Limited to appoint a company secretary within six months of 7 December 2020. By appointing a company secretary only on 23 July 2021, the company was in contravention of the law.

Judgment

After examining the submissions and documents, the ROC determined that Pegatron Technology India Private Limited had violated Section 203 of the Act. The delay of 227 days in appointing a whole-time company secretary was confirmed. Although the company provided explanations that indicated genuine difficulties, these did not release it from its legal obligations.

The adjudicating officer thus imposed penalties under Section 203(5). The penalties were calculated based on the period of default and the statutory limits prescribed by law. The final penalties were as follows:

On Pegatron Technology India Private Limited: Rs.5,00,000
On Akhilesh Bansal (DIN 06852795): Rs.2,77,000
On Chiu Tan Lin (DIN 08793219): Rs.2,77,000

The order warned that failing to pay the penalties within the specified time would lead to consequences under Section 454(8), which may include prosecution.

Final Note of the Article

The adjudication against Pegatron Technology India Private Limited by ROC Chennai underscores the stringent nature of compliance obligations under the Companies Act, 2013. The 227-day delay in appointing a whole-time company secretary was deemed a violation, notwithstanding the challenges posed by the pandemic. The penalties of Rs.5,00,000 on the company and Rs.2,77,000 on each of the two directors reflect the seriousness with which regulators address such defaults.

This case highlights that statutory appointments are mandatory and must be completed within the prescribed legal timeframes. Directors must remain vigilant regarding obligations arising from increases in share capital and act expeditiously to avoid penalties. By imposing penalties, the ROC has reinforced the principle that accountability rests with both the company and its directors, ensuring that governance obligations are treated with the requisite seriousness.