1. Puthenpurakal Properties Private Ltd. vs. UOI, Delhi and Others LSI-128-HC-2021 (Ker) Date of order: 2nd March, 2021
Kerala High Court grants liberty to the Government to proceed against petitioner companies for violating section 203 of the Companies Act, 2013 which inter alia mandates appointment of a whole-time Company Secretary where a company’s paid-up capital exceeds Rs. 5 crores
FACTS
Company P, the petitioner, is a company incorporated with the Registrar of Companies, Kerala. P has filed these writ petitions seeking to direct the respondents to permit it to file E-form ACTIVE, INC-22A without insisting on appointment of a whole-time Company Secretary (CS). P has also sought to declare that the restrictions imposed in filing E-form ACTIVE, INC-22A with regard to non-compliance of section 203 of the Companies Act, 2013 in appointment of a whole-time Company Secretary, or Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is arbitrary and illegal.
P contended that pursuant to the powers vested u/s 469 of the Companies Act, 2013 the Union of India amended the Companies (Incorporation) Rules, 2014. As per the newly-added Rule 25A, every company incorporated on or before 31st December, 2017 was required to file the particulars of the company and its registered office in E-form ACTIVE (Active Company Tagging Identities and Verification) on or before 25th April, 2019. P further contended that the website of the Ministry of Corporate Affairs was not accepting the E-form ACTIVE submitted by it for the reason that its paid-up capital is more than Rs. 5 crores and yet the petitioners have not appointed a whole-time CS.
It was the case of the petitioners that as per section 203(5) if any company makes any default in complying with the provisions, such company shall be liable for a penalty of Rs. 5 lakhs and Directors and Key Managerial Personnel are personally liable for a penalty of Rs. 50,000, and if the default is a continuing one, with a further penalty of Rs. 1,000 for each day.
The petitioners contended that they have part-time Company Secretaries and Auditors to properly look after the affairs of their companies and for the last several years they have been functioning well within the provisions of the Act without giving any room for initiating any penal proceedings. On these premises, the petitioners contended that they should not be forced to appoint a whole-time Company Secretary and should be permitted to file E-form ACTIVE, INC-22A without insisting on the appointment of a whole-time Company Secretary.
When these writ petitions came up for admission, interim orders were passed by the Court permitting the petitioners to file E-form ACTIVE, INC-22A, Form PAS-03 (change in paid-up capital) and Form DIR-12 (change in Director, except cessation) without insisting on appointment of a whole-time Company Secretary provisionally, pending further orders in these writ petitions.
When the petitions came up for final hearing, the Counsel for the respondents urged as under:
The Central Government counsel representing the respondents argued that as per the existing rules the petitioners are bound to appoint a whole-time Company Secretary as their paid-up capital is more than Rs. 5 crores. The petitioners cannot be granted any exemption from the Rules.
The Counsel further argued that non-appointment of Company Secretary by the petitioners is an offence u/s 383A of the Companies Act, 1956 with effect from 1st December, 1988. If a company fails to comply with this requirement, the Company and every one of its officers who is in default shall be punishable with a fine which may extend to Rs. 500 per day during which the default continues.
HELD
After deliberations, the Kerala High Court held as under:
As things stand now, the petitioners have been permitted to file E-form ACTIVE, INC-22A without insisting on the appointment of a whole-time Company Secretary on a provisional basis. Section 203(5) of the Companies Act, 2013 provides that if any company makes any default in complying with the provisions of section 203 relating to appointment of a Key Managerial Personnel, such company shall be liable to a penalty of Rs. 5 lakhs and every Director and Key Managerial Personnel of the company who is in default shall be liable to a penalty of Rs. 50,000, and where the default is a continuing one, with further penalty of Rs. 1,000 for each day after the first during which such default continues, but not exceeding Rs. 5 lakhs.
It is evident that the petitioner has not adhered to the provisions of the Companies Act, especially section 203 thereof. In such circumstances, the respondents are empowered to proceed against the petitioner companies in accordance with the law.
In the circumstances, the writ petitions were disposed of granting liberty to the respondents to proceed against the petitioners for violating section 203 of the Companies Act, 2013 if they are so advised. It is made clear that the interim orders passed in these writ petitions shall not be taken as pronouncements on merits on the legality of section 203 of the Companies Act, 2013 or Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
