NEW DELHI : Registrars of Companies (RoCs) across the country are taking disciplinary action against companies for not making mandatory disclosures after incorporating companies and for not holding a minimum of four board meetings in a year, regulatory orders showed.
RoCs have issued over a dozen regulatory orders on these two counts since the beginning of the year. The trend indicates that registrars are focusing on enforcement action in the case of defaults in key governance and disclosure obligations.
In several cases, companies were imposed with a penalty of ₹25,000, and each of the defaulting directors was issued a penalty of ₹50,000 for each of the years in which the defaults persisted, according to the orders made available by the ministry of corporate affairs. In some cases, the penalty amounts on directors reached ₹100,000. Defaulting on penalty payments within three months puts the companies at the risk of hefty fines and defaulting officials at the risk of higher fines or imprisonment of up to six months or both, the orders showed.
However, in the case of small companies and approved startups, there is some relief. While passing the orders, RoCs keep in mind the provision of lower penalties for them guaranteed under the Companies Act, 2013. For them, the penalty cannot be more than half of what the general provisions specify, with a cap of ₹200,000 for companies and ₹100,000 for the defaulting officer.
The Act mandates that businesses have to file a declaration within six months of their incorporation, confirming that share subscribers have paid the value of shares. Since April, nine penalty orders have been issued against companies for alleged violations of this section of the law. Commencement of operations or borrowings cannot be made without making this disclosure and also filing a verification of its registered office.
The law also mandates that every company has to hold four board meetings in a year in such a way that the gap between any two meetings does not exceed four months. Several companies have defaulted on this obligation. In certain cases, company secretaries were penalized, the orders showed. Since the beginning of the year, five penalty orders have been issued for this violation.
Last year, adjudicatory orders were issued in the case of a dozen companies for not holding board meetings as per law.
The compliance officer in companies should be responsible for ensuring that all obligations are followed in a timely manner, but directors should remain educated and updated about the latest regulatory requirements, explained Manoj Raut, chief executive and secretary general of the Institute of Directors (IOD), an apex professional association for directors in India. “Educating the board of directors is very important,” Raut said.
Although India has a large number of family-run businesses, in a globalized economy in the digital age, businesses should be showcasing to the world how transparent and well-governed they are if they are to prosper, explained Raut. In family-run businesses, control will remain with them; nothing wrong with that, but independent directors should play a more active role in protecting the interest of minority shareholders and that of shareholders at large, Raut said.
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Updated: 11 Jun 2023, 11:49 PM IST