Violation of Section 203(5) of The Companies Act, 2013 for Non- compliance of Appointment of Chief Finance Officer

Violation of Section 203(5) of The Companies Act, 2013 for Non- compliance of Appointment of Chief Finance Officer. This adjudication order relates to Shanti Inorganics Limited, an unlisted public company, and its senior managerial personnel who were found to be in breach of Section 203(3) of the Companies Act, 2013. The matter concerns the appointment of a whole-time Key Managerial Personnel (KMP) in more than one company at the same time, which is contrary to the statutory mandate of the Act. The default came to the attention of the Registrar of Companies, Ahmedabad, following a suo motu application made by the company itself. This case highlights the significance of compliance with the provisions of the Companies Act as an essential requirement for corporate discipline and accountability. 
Facts and Background of the Dispute 
On 6 May 2025, the company altered its name from Shanti Inorgo Chem (Guj) Ltd. to Shanti Inorganics Limited. Earlier, on 19 December 2024, Mr. Avanishkumar Patel was appointed as the Chief Financial Officer (CFO) of the company. At the time of this appointment, however, he was already functioning as the Managing Director of Jagjanani Textiles Limited, a company listed on the Bombay Stock Exchange (BSE). 
On 25 January 2025, Mr. Patel stepped down as CFO but was simultaneously appointed as a Whole-Time Director of Shanti Inorganics Limited. Despite this change, he continued to hold the office of Managing Director in Jagjanani Textiles Limited, leading to a direct conflict with Section 203(3). Realizing the irregularity, the company redesignated him as Joint Managing Director on 28 January 2025 in an attempt to bring its records into conformity with the Act. 
The non-compliance, therefore, extended from 19 December 2024 until 28 January 2025. Recognizing this lapse, the company voluntarily reported the matter and sought adjudication of penalties through a suo motu application before the ROC under Section 454 of the Act. The Registrar, after verifying the documents and submissions, passed an order on 13 August 2025 imposing penalties for the breach. 
Issue 
The principal question before the ROC was whether Shanti Inorganics Limited and its directors were in violation of Section 203(3) of the Companies Act, 2013, which clearly prohibits a whole-time Key Managerial Personnel from occupying such a position in more than one company simultaneously, except in the case of a subsidiary. 
Parties in default:- The company involved in the matter was Shanti Inorganics Limited (CIN: U24100GJ2010PLC059218). The officers held responsible as being in default were Mr. Avanishkumar Manojkumar Patel, Mr. Kalpeshbhai Ambaprasad Raval, Mr. Manojbhai Jayantibhai Patel, and Ms. Suhani Avanishkumar Patel. 
Rules and Legal Provisions 
Section 203(3) of the Companies Act, 2013 provides that a whole-time KMP such as a CEO, CFO, or Managing Director cannot simultaneously hold office in more than one company, except in its subsidiary. 
Section 203(5) prescribes penalties for contravention of this provision. The company can be fined up to Rs.5,00,000, and each director or KMP in default is liable to pay a fine of Rs.50,000, along with a further fine of Rs.1,000 for each day the default continues, subject to a maximum of Rs.5,00,000. 
Section 454 of the Act lays down the procedure for adjudication of penalties by the Registrar of Companies or another designated adjudicating authority. 
Analysis 
After reviewing the records, the ROC held that Mr. Avanishkumar Patel had indeed held two KMP positions simultaneously first as CFO and later as Whole-Time Director of Shanti Inorganics Limited, while continuing as Managing Director of Jagjanani Textiles Limited. This was a direct contravention of Section 203(3), regardless of whether the overlap was brief or unintentional. 
The company’s argument that it had voluntarily disclosed the default was taken into account but could not erase liability, since the statute imposes strict responsibility for compliance. The ROC further noted that other directors of the company also fell within the definition of “officers in default” as they collectively bore the responsibility to ensure observance of the Act. 
Although the company eventually attempted to regularize the matter by redesignating Mr. Patel as Joint Managing Director, such rectification took place only after the violation had already occurred. Therefore, imposition of penalties was unavoidable. 
Holding and Judgment 
The Registrar of Companies, Ahmedabad, imposed a penalty of Rs.5,00,000 on Shanti Inorganics Limited for its failure to comply with Section 203(3). In addition, each of the officers in default namely Mr. Avanishkumar Patel, Mr. Kalpeshbhai Raval, Mr. Manojbhai Patel, and Ms. Suhani Patel was directed to pay a penalty of Rs.90,000. 
The penalties were ordered to be paid within ninety days from the date of the order, and the officers were expressly prohibited from using company funds for payment. In case of default in payment, stricter consequences under Section 454(8) of the Act would follow. The company and its officers were, however, given the statutory right to appeal before the Regional Director, Ahmedabad, provided the appeal was filed within sixty days. 
The ROC emphasized that Section 203 serves a vital role in ensuring sound corporate governance. It is designed to avoid conflicts of interest, maintain accountability of senior management, and preserve transparency in the functioning of companies. By treating even temporary contraventions seriously, the provision sends a clear message that compliance cannot be compromised. 
Legal Impact of the Order 
This order has broader implications for corporate practice. For companies, it highlights the need for thorough compliance checks before appointing or designating KMPs, since even minor administrative oversights can attract heavy penalties and reputational loss. For directors and officers, it reiterates that the responsibility for compliance lies with them personally, and ignorance of the law is not an excuse.
From the standpoint of corporate governance, the order underlines the importance of transparency, accountability, and clear separation of managerial roles. Overlaps in critical positions weaken governance and erode stakeholder confidence. For corporate advisors and legal professionals, the order serves as a reminder of their duty to guide clients diligently, stress the importance of compliance, and ensure timely corrective measures whenever defaults arise.
In essence, the order sends out the message that compliance with corporate law is not merely procedural but a fundamental part of good governance and sustainable corporate functioning. 
Conclusion 
In this case, Shanti Inorganics Limited and its directors were penalized for permitting a whole-time KMP to serve in more than one company at the same time, contrary to Section 203(3) of the Companies Act, 2013. Although the breach lasted just over a month and was voluntarily reported, penalties were nevertheless imposed, since the Act does not exempt such contraventions. 
The case illustrates the strict and mandatory nature of compliance with corporate law. It also reinforces the principle that corporate governance rules are designed to prevent conflicts of interest and ensure accountability at the highest managerial level. The penalties imposed Rs.5,00,000 on the company and Rs.90,000 on each officer in default demonstrate the seriousness with which even temporary non-compliance is treated by the ROC. The decision stands as a cautionary example for companies and their officers to maintain vigilant compliance practices, carry out due diligence during appointments, and rectify violations without delay, knowing that once a breach occurs, penalties are inevitable.

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This adjudication order relates to Shanti Inorganics Limited, an unlisted public company, and its senior managerial personnel who were found to be in breach of Section 203(3) of the Companies Act, 2013. The matter concerns the appointment of a whole-time Key Managerial Personnel (KMP) in more than one company at the same time, which is contrary to the statutory mandate of the Act. The default came to the attention of the Registrar of Companies, Ahmedabad, following a suo motu application made by the company itself. This case highlights the significance of compliance with the provisions of the Companies Act as an essential requirement for corporate discipline and accountability.

Facts and Background of the Dispute

On 6 May 2025, the company altered its name from Shanti Inorgo Chem (Guj) Ltd. to Shanti Inorganics Limited. Earlier, on 19 December 2024, Mr. Avanishkumar Patel was appointed as the Chief Financial Officer (CFO) of the company. At the time of this appointment, however, he was already functioning as the Managing Director of Jagjanani Textiles Limited, a company listed on the Bombay Stock Exchange (BSE).

On 25 January 2025, Mr. Patel stepped down as CFO but was simultaneously appointed as a Whole-Time Director of Shanti Inorganics Limited. Despite this change, he continued to hold the office of Managing Director in Jagjanani Textiles Limited, leading to a direct conflict with Section 203(3). Realizing the irregularity, the company redesignated him as Joint Managing Director on 28 January 2025 in an attempt to bring its records into conformity with the Act.

The non-compliance, therefore, extended from 19 December 2024 until 28 January 2025. Recognizing this lapse, the company voluntarily reported the matter and sought adjudication of penalties through a suo motu application before the ROC under Section 454 of the Act. The Registrar, after verifying the documents and submissions, passed an order on 13 August 2025 imposing penalties for the breach.

Issue

The principal question before the ROC was whether Shanti Inorganics Limited and its directors were in violation of Section 203(3) of the Companies Act, 2013, which clearly prohibits a whole-time Key Managerial Personnel from occupying such a position in more than one company simultaneously, except in the case of a subsidiary.

Parties in default:- The company involved in the matter was Shanti Inorganics Limited (CIN: U24100GJ2010PLC059218). The officers held responsible as being in default were Mr. Avanishkumar Manojkumar Patel, Mr. Kalpeshbhai Ambaprasad Raval, Mr. Manojbhai Jayantibhai Patel, and Ms. Suhani Avanishkumar Patel.

Rules and Legal Provisions

Section 203(3) of the Companies Act, 2013 provides that a whole-time KMP such as a CEO, CFO, or Managing Director cannot simultaneously hold office in more than one company, except in its subsidiary.

Section 203(5) prescribes penalties for contravention of this provision. The company can be fined up to Rs.5,00,000, and each director or KMP in default is liable to pay a fine of Rs.50,000, along with a further fine of Rs.1,000 for each day the default continues, subject to a maximum of Rs.5,00,000.

Section 454 of the Act lays down the procedure for adjudication of penalties by the Registrar of Companies or another designated adjudicating authority.

Analysis

After reviewing the records, the ROC held that Mr. Avanishkumar Patel had indeed held two KMP positions simultaneously first as CFO and later as Whole-Time Director of Shanti Inorganics Limited, while continuing as Managing Director of Jagjanani Textiles Limited. This was a direct contravention of Section 203(3), regardless of whether the overlap was brief or unintentional.

The company’s argument that it had voluntarily disclosed the default was taken into account but could not erase liability, since the statute imposes strict responsibility for compliance. The ROC further noted that other directors of the company also fell within the definition of “officers in default” as they collectively bore the responsibility to ensure observance of the Act.

Although the company eventually attempted to regularize the matter by redesignating Mr. Patel as Joint Managing Director, such rectification took place only after the violation had already occurred. Therefore, imposition of penalties was unavoidable.

Holding and Judgment

The Registrar of Companies, Ahmedabad, imposed a penalty of Rs.5,00,000 on Shanti Inorganics Limited for its failure to comply with Section 203(3). In addition, each of the officers in default namely Mr. Avanishkumar Patel, Mr. Kalpeshbhai Raval, Mr. Manojbhai Patel, and Ms. Suhani Patel was directed to pay a penalty of Rs.90,000.

The penalties were ordered to be paid within ninety days from the date of the order, and the officers were expressly prohibited from using company funds for payment. In case of default in payment, stricter consequences under Section 454(8) of the Act would follow. The company and its officers were, however, given the statutory right to appeal before the Regional Director, Ahmedabad, provided the appeal was filed within sixty days.

The ROC emphasized that Section 203 serves a vital role in ensuring sound corporate governance. It is designed to avoid conflicts of interest, maintain accountability of senior management, and preserve transparency in the functioning of companies. By treating even temporary contraventions seriously, the provision sends a clear message that compliance cannot be compromised.

Legal Impact of the Order

This order has broader implications for corporate practice. For companies, it highlights the need for thorough compliance checks before appointing or designating KMPs, since even minor administrative oversights can attract heavy penalties and reputational loss. For directors and officers, it reiterates that the responsibility for compliance lies with them personally, and ignorance of the law is not an excuse.

From the standpoint of corporate governance, the order underlines the importance of transparency, accountability, and clear separation of managerial roles. Overlaps in critical positions weaken governance and erode stakeholder confidence. For corporate advisors and legal professionals, the order serves as a reminder of their duty to guide clients diligently, stress the importance of compliance, and ensure timely corrective measures whenever defaults arise.

In essence, the order sends out the message that compliance with corporate law is not merely procedural but a fundamental part of good governance and sustainable corporate functioning.

Conclusion

In this case, Shanti Inorganics Limited and its directors were penalized for permitting a whole-time KMP to serve in more than one company at the same time, contrary to Section 203(3) of the Companies Act, 2013. Although the breach lasted just over a month and was voluntarily reported, penalties were nevertheless imposed, since the Act does not exempt such contraventions.

The case illustrates the strict and mandatory nature of compliance with corporate law. It also reinforces the principle that corporate governance rules are designed to prevent conflicts of interest and ensure accountability at the highest managerial level. The penalties imposed Rs.5,00,000 on the company and Rs.90,000 on each officer in default demonstrate the seriousness with which even temporary non-compliance is treated by the ROC. The decision stands as a cautionary example for companies and their officers to maintain vigilant compliance practices, carry out due diligence during appointments, and rectify violations without delay, knowing that once a breach occurs, penalties are inevitable.