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ADJUDICATION OF PENALTY UNDER COMPANIES ACT AND RULES

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ADJUDICATION OF PENALTY UNDER COMPANIES ACT AND RULES
By: Mr.áM. GOVINDARAJAN
June 30, 2014
All Articles by: Mr.áM. GOVINDARAJAN       View Profile
  • Contents

Section 454 of the Companies Act deals with the Adjudication of penalties.   The said section provides that the Central Government may, by an order published in the Official Gazette, appoint as many officers of the Central Government, not below the rank of Registrar, as adjudicating officers for adjudging penalty under the provisions of the Act  For this purpose the Government made rule named ‘The Companies (Adjudication of Penalties) Rules, 2014.

Adjudication procedure

 The procedure involved in adjudication is discussed as below:

  • The Central Government shall while appointing adjudicating officers specify their jurisdiction in the order;
  • Before adjudging penalty, the adjudicating officer shall issue a written notice to the company and to every officer of the company  who is in default, to show cause, within such period as may be specified by the Adjudicating Officer in the notice;, why the inquiry should not be held against him;
  •  The time limitation may be not less than fifteen days and more than 45 days from the date of service thereon;
  • Every notice issued shall clearly indicate the nature of non compliance or default under the Act alleged to have been committed or made by such company and officer-in-default as the case may be;
  • The Adjudicating Officer may, for reasons to be recorded in writing, extend the period referred to above by a further period not exceeding 15 days, if the company or officer satisfies the said office that it has sufficient cause for not responding to the notice within the stipulated period;
  • If, after considering the cause, if any, shown by such company or officer, the Adjudicating Officer is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for the appearance of such company, through its authorized representative, or officer of such company whether personally or through his authorized representative;
  • On the date fixed for hearing and after giving a reasonable opportunity of being heard to the person(s) concerned the Adjudicating Officer may, subject to reasons to be recorded in writing, pass any order as thinks fit including an order for adjournment of the hearing to a future date;
  • While holding an inquiry, the adjudicating officer shall have the following powers:
  • To summon and enforce the attendance of any person acquainted with the facts and circumstances of the case;
  • To order for evidence or to produce any document, which in the opinion of the adjudicating officer, may be useful for or relevant to the subject matter of the inquiry;
  • If any person fails,  neglects or refused to appear before the Adjudicating Officer, the Adjudicating Officer may proceed with the inquiry in the absence of such person after recording the reasons for doing so;
  • The Adjudicating Officer may, by an order impose the penalty on the company and the officer who is in default, stating any non compliance or default under the relevant provisions of the Act;
  • While adjudicating the penalty the Adjudicating Officer shall have due regard to the following factors:
  • The amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
  • The amount of loss cause to an investor or group of investors or creditors as a result of the default;
  • The repetitive nature of the default;
  • Every order shall be dated and signed by the Adjudicating Officer;
  • The Adjudicating Officer shall send a copy of the order passed by it to the concerned company or officer who is in default and to the Central Government.
  • All sums realized by way of penalties under the Act shall be credit to the Consolidated Fund of India.

Appeal

Any person aggrieved by an order made by the Adjudicating Officer may prefer an appeal to the Regional Director having jurisdiction in this matter.  The procedure for filing appeal is illustrated as below:

  • Every appeal shall be filed within 60 days from the date on which the copy of the order made by the Adjudicating Officer is received by the aggrieved person;
  • The appeal shall be filed in Form –ADJ;
  • The fee payable is as prescribed;
  • The appeal shall set forth  the grounds of appeal and shall be accompanied by a certified copy of the order against which the appeal is sought;
  • On receipt of the appeal, office of the Regional Director shall endorse the date on such appeal and sign such endorsement;
  • If, on scrutiny, the appeal is found to be in order, it shall be duly registered and given a serial number;
  • Where the appeal is found to be defected, the Regional Director may allow the appellant such time, not being less than 14 days following the date of receipt of intimation by the appellant from the Regional Director about the nature of the defects, to rectify the defects and if the appellant fails to rectify such defects within the time period allowed, the Regional Director may by order and for reasons to be recorded in writing, decline to register such appeal and communicate such refusal to the appellant within a period of 7 days thereof;
  • The Regional Director may, for reasons to be recorded in writing, extend the period  by a further period of 14 days if the appellant satisfies the Regional Director that the appellant had  sufficient cause for not rectifying the defects within the period of 14 days;
  • On the admission of the appeal, the Regional Director shall serve a copy of appeal upon the Adjudicating Officer against whose order the appeal is sought along with a notice requiring such Adjudicating Officer to file his reply within such period, not exceeding 21 days, as may be stipulated by the Regional Director in the said notice;
  • The Regional Director may, for reasons to be recorded in writing, extend the period for a further period of 21 days, if the adjudicating officer satisfies the Regional Director that he had sufficient cause for not being able to file his reply to the appeal within the period of 21 days;
  • A copy of every reply, application or written representation filed by the Adjudicating Officer before the Regional Director shall be forthwith served on the appellant by the Adjudicating Officer;
  • The Regional Director shall notify the parties, the date of hearing of the appeal which shall not be a date earlier than 30 days following of the date of such notification for hearing of the appeal;
  • On the date fixed for hearing, the Regional Director may, subject to the reasons to be recorded in writing, pass any order as he thinks fit including an order for adjournment of the hearing to a future date;
  • In case the appellant or the Adjudicating Officer does not appear on the date fixed for hearing, the Regional Director may dispose of the appeal ex-parte;
  • Where the appellant appears afterwards and satisfies the Regional Director that there was sufficient cause for his non appearance, the Regional Director may make an order setting aside the ex-parte order and restore the appeal;
  • The Regional Director may, after giving the parties to the appeal an opportunity of being heard, pass such order as he thinks fit, confirming, modifying or setting aside the order appealed against;
  • Every order passed under this rule shall be dated and signed by the Regional Director;
  • A certified copy of every order passed by the Regional Director shall be communicated to the Adjudicating Officer and the appellant forthwith and to the Central Government.

Compliance

When the penalty has been imposed it should be paid.   Where company does not pay the penalty imposed by the Adjudicating Officer or the Regional Director within a period of 90 days of the date of receipt of the copy of the order, the company shall be punishable with fine which shall not be less than Rs. 25,000/- but which may extend to Rs. 5,00,000/-.  

Where an officer of a company who is in default does not pay the penalty within a period of 90 days from the date of the receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to 6 months or with fine which shall not be less than Rs. 25,000/- but which may extend to Rs.1,00,000/- or with both.

 

By: Mr.áM. GOVINDARAJAN - June 30, 2014

 

 

 
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