Adjudicating authority
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This article is written by Chandana, from The Tamil Nadu Dr Ambedkar Law University (SOEL). This article deals with the limitation on the role of the Adjudicating Authority under Companies Act, 2013.

Introduction

The Companies (Second Amendment) Act, 2002 introduced the National Company Law Tribunal and National Company Law Appellate Tribunal, to have complete jurisdiction over the existing Company Law Board and on the High Courts. One of the essential powers of the Tribunal is the power to regulate the conduct of affairs of the company as per Section 242 (2)(a) of Companies Act, 2013.

Adjudicating authority

Overview of Adjudicating Authority

According to Section 454 of Companies Act, 2013;

  • The Adjudicating Authority is appointed by the Central Government for adjudging penalties.
  • The Central Government is required to appoint officers as it deems fit and at the time of appointment, the concerned adjudicating authority shall not be below the rank of the Registrar.
  • On the date of appointment of adjudicating authority, the central government shall specify the jurisdiction in which adjudicating authority shall exercise its powers.
  • The Adjudicating Authority may, by an order;
  1. Impose a penalty on the company, officers in default or any other person who shall be responsible for non-compliance or default of provision under this act.
  2. Direct such company, officers in default or any other person to rectify the default.
  • Before imposing such penalty, the adjudicating authority shall give the opportunity of being heard to the company, officers in default or any other person.
  • In case the parties to the proceedings are dissatisfied by the order given by the adjudicating officer, the concerned parties may prefer an appeal to the Regional Director who is having such jurisdiction over the order.
  • An appeal shall be filed to the regional director within sixty days from the date of order of adjudicating authority and shall be submitted in the prescribed form and with prescribed fees.
  • The regional director after giving reasonable opportunity of being heard shall pass such orders as he thinks fit, and either confirm, modify or set aside the order appealed against.
  • In case company contravenes with the order of regional director within ninety days, the company shall be punishable with fine which shall not be less than INR 25,000 but may extend to INR 5 lakhs.
  • An officer in default or any other person who is in default shall be punishable with imprisonment which may extend to six months or with a fine which shall not less than INR 25,000 but which may extend to INR1 lakh or with both. 

Penalty for repeated default

  • Section 454-A of Companies act, 2013 states if the company, officer in default, or any other person already been subjected to a penalty for default of provisions of this act and commits again such default within three years from the date of passing such penalty then he shall be liable to pay for an amount equal to twice the amount of penalty provided for such default.

Role of adjudicating authority under the Companies Act, 2013

  • The adjudicating authority resolves the disputes relating to corporate affairs effectively.
  • If any person, officers in default, and the company contravenes with the orders of adjudicating authority, it either prescribes a fine which is of high amount or imprisonment. 
  • The adjudicating authority helps in winding up companies within a limited period of time.
  • The adjudicating authority,  while adjudicating the disputes, follows the procedure which is laid down by the Companies Act, 2013 and the Central Government. And they are also guided by the principles of natural justice.
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Order of adjudicating authority

An order was passed by the adjudicating authority under Section 454 of Companies Act, 2013 read with Rule 3 of the Companies (Adjudication of Penalties) rule 2014 for violation of Section 12 of the Companies Act, 2013.

  • M/S Kodagu Heritage

Facts of the case

M/s Kodagu Heritage is a private limited company which was incorporated on April 11, 2017. An order was filed by the adjudicating authority because the company had violated Section 12 of the Companies Act, 2013. As per Section 12(2) of Companies Act, 2013 the company,  as soon as it is incorporated, shall furnish to the registrar the verification of registered office within thirty days in Form INC-22. But the company filed the form after the three years that’s on January 1, 2019. The company and its officers in default had admitted that they have violated the provision of Section 12(2) of Companies Act, 2013. The adjudicating authority issued a notice to the company and its officers in default to appear before the authority along with their representatives before September 5, 2019, in the chamber of a registrar of the company. 

The authorised representative was present on said date but the notice was not signed by all the directors. According to Section 12(8) of Companies act, 2013, if a company and officer in default contravenes the provisions of Section 12 of Companies Act, 2013 shall be liable to pay a penalty of INR 1000 for every day during which the default continues but it shall not exceed INR 1 lakh. 

Order

The company and its officers in default are liable to pay INR 1 lakh each. As per Section 454(1) and (3) of Companies Act, 2013 and considering the delay of 621 days they have imposed of a penalty of INR 1 lakh on the company and its directors and are required to pay the amount on MCA portal and proof of payment to be produced within thirty days from the date of receipt of order. An appeal shall be filed as per Section 454(1) and (3) of Companies Act, 2013 to the regional director within sixty days from the date of order of adjudicating authority and it shall be submitted in the prescribed form and with prescribed fees.

  • Ms Joy Ice Cream (Bangalore) Private Limited

Facts of the case

Ms Joy Ice Cream (Bangalore) Private Limited was incorporated on July 25, 1996. The matter before the adjudicating authority is as per Section 12(1) of Companies Act, 2013 a company shall, within thirty days of its incorporation, have registered office which shall be capable of receiving and acknowledging all the communications and notices which are addressed to it. In case there is a change in the registered office of the company, the company shall give notice of change in the registered office within thirty days after the date of incorporation and shall submit in Form INC 22 to the registrar. On the verification of the record, the authority came to the conclusion that it has not filed the Form INC 22. When the office issued a letter on July 27, 2018, for seeking reply with regard to complaints received against the company. The letter was returned unserved with no such firm. The adjudicating authority issued a notice to the company and the officers in default under section 454 of Companies Act, 2013 for violation of Section 12 of Companies, Act 2013.

Order

The Company and its officers in default were called upon along with the representatives to present before the registrar of companies. But none of them was present on the said date. The adjudicating authority under section 454(3) of Companies act, 2013 issued a penalty of INR 1 lakh to each director and the company and were required to pay the amount on MCA portal and proof of payment to be produced within thirty days from the date of receipt of order.

In case a company does not pay the penalty within ninety days as specified under section 454(8) of Companies Act, 2013 the company shall be liable to pay a fine which shall not be less than INR 25 thousand but may extend to INR 5 lakhs. An officer in default or any other person is in default shall be punishable with imprisonment which may extend to six months or with a fine which shall not be less than INR 25,000 but which may extend to INR 1 lakh or with both.

Companies (Adjudication of Penalties) Amendment Rules, 2019

Companies (Adjudication of Penalties) Amendment Rules, 2019 in these rules, Rule 3 of Companies (Adjudication of Penalties) Rules 2014 was amended. 

Rule 3 of Companies (Adjudication of Penalties) Amendment Rules, 2019 provides that:

  • The Adjudicating Authority is appointed by the Central Government for adjudging penalties.
  • Before adjudging penalty, the adjudicating officer shall, within fifteen days and not more than thirty days, issue a written notice to the company, officer in default and any other person so as to show reasons why penalty should not be imposed on them.
  • The reply to the notice shall be made in electronic mode.
  • Once the reply is made by the company, the officer in default and any other person is required by the adjudicating authority that the parties should be present in physical appearance and they shall be present within fifteen days.
  • The adjudicating authority, after giving reasonable opportunity of being heard, may pass any orders as he thinks fit and record the reasons in writings.
  • But in case the adjudicating authority comes to the conclusion that parties have defaulted then the adjudicating authority may pass an order as he thinks necessary.
  • Every order made by adjudicating authority shall be duly signed by him and state the reasons for requiring the physical appearance.
  • The order that is passed by adjudicating authority shall send a copy of the order to the company, officer in default, every other person, and to the central government.
  • Summon and enforce the attendance of any person acquainted with the facts and circumstances of the case and after recording reasons in writing.
  • Either the adjudicating authority shall order for evidence or to produce any document, which in the opinion of the adjudicating officer may be relevant to the subject matter.
  • If any person contravenes the rules of adjudicating authority by not appearing before him they shall be punished by the adjudicating officer by way of imposing a penalty.
  • While determining the quantum of penalty, the officer shall take into account the following factors:
  1. The size of the company.
  2. The nature of business carried on by the company.
  3. The injury to the public at large.
  4. The nature of the default.
  5. The amount of disproportionate gain or unfair advantage.
  6. The amount of loss caused to an investor or group of investors or creditors.
  • A penalty which is levied by the adjudicating authority shall be paid on the Ministry of Corporate Affairs portal.
  • The money which has been realised by the way of penalties shall be credited to the Consolidated Fund of India.

Appeals against the order of adjudicating authority;

Rule 4 of Companies (Adjudication of Penalties) Rules, 2014 provides: 

  • Any person aggrieved by the order of adjudicating officer shall file an appeal within sixty days from the date of receipt of an order of the adjudicating authority to the regional director who shall have jurisdiction to decide on the matter.
  • The appeal shall be filed in Form ADJ setting forth the grounds of appeal and also copy of orders against which appeal is sought.

Disposal of appeal by the regional director;

Rule 6 of Companies (Adjudication of Penalties) Rules, 2014 states:

  • Within twenty days on the admission of appeal to the regional director, he shall send a copy of the appeal to the adjudicating authority against whose order appeal is sought and the adjudicating authority is also required to send his reply within the prescribed period.
  • A copy of the reply from the adjudicating authority shall be sent to all the appellants.
  • The regional director, within thirty days,  shall notify the date of appeal to the parties to be present.
  • On the date of appeal, the regional director may pass any such orders as he thinks fit.
  • On the date of the hearing if either of parties to the proceedings is not present the regional director may pass an ex- parte order but if the appellant shows that there was sufficient reason for his non-appearance then the regional director may restore the appeal and set aside the ex-parte appeal.
  • A certified copy of the order passed by the regional director shall be sent to the appellant and also to the adjudicating authority.

Conclusion

The debate whether the civil courts have jurisdiction to decide matters over company law still continues. Some of the judgements decided in favour of civil courts for having jurisdiction over the company law matters while some of the courts ruled that NCLT is the proper forum to adjudicate the companies law disputes.

Reference


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