2024 (5) TMI 1525 - HC - Companies Law

Levy of penalty u/s 203 of the Companies Act 2013 - non consideration of material facts - principles of natural justice - HELD THAT - The language of sub-Section (5) of Section 203 is that if any company makes any default in complying with the provisions of the Section such company shall be liable to a penalty of the amount as stipulated therein. Thus payment of penalty is not mandatory. The liability to pay penalty is subject to adjudication by the concerned authority that is the ROC - Such discretion has associated with it a responsibility of the adjudicating authority to take into consideration any mitigating or alleviating circumstances which might have visited the company in question before imposing such penalty and or deciding the quantum of the penalty. Conclusion - In the absence of any real consideration worth the name of the mitigating circumstances of the petitioner company and the small size of the petitioner company including that of its number of shareholders and share capital as well as the fact that a whole-time Company Secretary has already been appointed by the company since July 15 2022 and was functioning on the date of passing the impugned order the impugned orders of the Appellate Authority as well as the ROC are vitiated for non-consideration of material fact. The impugned order set aside - petition allowed.

Summary

The issues presented and considered in the judgment are as follows:1. Whether the Adjudicating Authority under Section 203 of the Companies Act 2013 was justified in imposing a penalty on the petitioner company.2. Whether the Regional Director erred in affirming the order of the Adjudicating Authority without considering the mitigating circumstances presented by the petitioner company.3. Whether the Appellate Authority, the Regional Director, failed to apply its mind while affirming the penalty imposed on the petitioner company.Issue-Wise Detailed Analysis:1. Relevant Legal Framework and Precedents:- Section 203(5) of the Companies Act 2013 confers discretion on the Registrar of Companies (ROC) to impose a penalty on companies for default in complying with the provisions of the Act.- The discretion to impose a penalty includes the option not to impose a penalty or to impose a lesser penalty based on the circumstances of the case.2. Court's Interpretation and Reasoning:- The Court noted that the ROC has the responsibility to consider any mitigating circumstances before imposing a penalty on a company.- The Court found that the ROC and the Regional Director failed to adequately consider the mitigating circumstances presented by the petitioner company, such as the small size of the company, the number of shareholders, and the appointment of a whole-time Company Secretary.- The Court emphasized that the imposition of a penalty is not mandatory and should be based on a thorough consideration of all relevant factors.3. Key Evidence and Findings:- The petitioner company, despite being a small company with limited capital and shareholders, was penalized by the Adjudicating Authority under Section 203 of the Companies Act 2013.- The Regional Director affirmed the penalty without giving due consideration to the mitigating circumstances presented by the petitioner.- The Appellate Authority, the Regional Director, mechanically affirmed the penalty without adequately applying its mind to the facts and circumstances of the case.4. Application of Law to Facts:- The Court held that the orders of the Adjudicating Authority, the Regional Director, and the ROC were vitiated due to the non-consideration of material facts and mitigating circumstances.- The Court set aside the impugned orders and directed the ROC to reconsider the representation of the petitioner, taking into account the mitigating circumstances and giving the petitioner an opportunity to be heard.Significant Holdings:- The Court allowed the writ petition, setting aside the orders of the Regional Director and the ROC imposing a penalty on the petitioner company under Section 203(5) of the Companies Act 2013.- The Court directed the ROC to reconsider the representation of the petitioner, considering the mitigating circumstances, and decide on the imposition of the penalty within a reasonably expeditious period.In conclusion, the judgment highlights the importance of considering mitigating circumstances before imposing penalties on companies under the Companies Act 2013. The Court emphasized the discretionary nature of imposing penalties and the need for adjudicating authorities to thoroughly evaluate all relevant factors before making a decision.