Thefra Technopark Pvt. Ltd vs Union of India WP(C).No.3219 OF 2020(B)

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INTRODUCTION

The Companies Act, 2013 (hereinafter referred to as “The Act”) has introduced a number of innovative changes and one such novel feature relates to the mandatory appointment of “key Managerial Personnel”(KMPs) in the case of certain classes of companies. Section 203 of Companies Act 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, necessitated that every listed company and every other public company having paid-up share capital of Rs 10 crores or more to appoint the Company Secretary in whole-time employment. Every whole-time key managerial personnel shall be appointed by means of Board resolution containing the terms and conditions of the appointment including the remuneration. Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, stipulates that both a public and private company with a capital base of rupees 5 crores but less than rupees 10 crores need to compulsorily appoint a company secretary.  In the case Thefra Technopark Pvt. Ltd vs Union of India, the petitioners didn’t appoint a whole-time Company Secretary and hence the respondents are not accepting the e-form ACTIVE submitted by the petitioners.

FACTS OF THE CASE

The petitioners (Thefra Technopark Pvt. Ltd) filed writ petition against the respondent for permitting the petitioners to file e-form ACTIVE, INC-22A without insisting on appointment of a whole-time Company Secretary. The petitioners have also sought to declare that the restriction imposed in filing e-form ACTIVE, INC-22A with regard to non-compliance of Section 203 of a whole-time Company Secretary or Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is arbitrary and illegal.

The 1st respondent (Union of India), in exercise of its powers under Section 469 of the Companies Act, 2013 amended the Companies Rules, 2014 as per Notification dated 21.02.2019. As per the new added Rule 25A, every Company incorporated on or before 31.12.2017 shall file the particulars of the Company and its registered office in e-form ACTIVE (Active Company Tagging Identities and Verification) on or before 25.04.2019. The Ministry of Corporate Affairs is not accepting e-form ACTIVE submitted by the petitioners for the reason that the paid up capital of petitioners is more and still the petitioners-Companies have not appointed whole-time Company Secretary.

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 ₹5 lakhs and Directors and Key Managerial Personnel are personally liable for a penalty of ₹50,000/- and if the default is a continuing one, with a further penalty of ₹1,000/- for each day.

ISSUES OF THE CASE

  1. Whether Section 203 of a whole-time Company Secretary or Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is arbitrary and illegal?
  2. Whether the writ petition is maintainable?
  3. Whether the petitioners can be allowed to fill e-form ACTIVE, INC-22A having part-time Company Secretaries and Auditors?

SUMMARY OF COURT JUDGEMENT

The writ petitions are disposed of granting liberty to the respondents to proceed against the petitioner-Companies for violating Section 203 of the Companies Act read together with Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The company had not appointed a whole-time Company Secretary and hence the above said section is violated and the company is liable. It is made clear that the interim orders passed in these writ petitions shall not be taken as pronouncement 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.

ANALYSIS

The respondent is not accepting the petitioners e-form ACTIVE, INC-22A because of the fact that the petitioners didn’t appoint a whole-time Company Secretary. The petitioners filed writ petition permitting them to file the form without insisting on the appointment of a whole-time Company Secretary. A Whole-Time Director of a Company is defined under Section 2(94) of the Act which means a director in whole-time employment of the Company. A Company Secretary or Secretary is defined under Section 2(24) of the Act whose function is to report to the Board about the compliance of the provisions of the Act and other rules in relation to this Act. It also ensures that whether or not the company is complying with the secretarial standards. The Central Government under Clause (c) of Section 205 has prescribed the role of company secretary in a company. He/she has to ensure the following things:

  • To facilitate the meetings of the Board members and the General meeting and maintain the minutes of the meeting.
  • To assist the Board members in the conduct of the affairs of the Company.
  • To perform duties as prescribed by the Board of Directors.
  • To represent the company before different Tribunals, regulators and other authorities.

According to section 203(1) read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the following companies are mandated to appoint a whole-time Key Managerial Personnel (KMP):

  •  Every Listed Company
  •  Public Companies having paid-up share capital of 10 Crore rupees or more.
  • Public Companies Having paid-up shares of 5 Crore rupees or more.
  • Companies having paid-up share capital of 10 Crore rupees or more are mandated to appoint a Company Secretary.

The term “Listed Company” has been defined by Section 2(52) to mean a company which has any of its securities listed on any recognized stock exchange. The above definition is not restricted to only a public company whose equity shares are listed on a stock exchange. Rule 8A stipulates that both a public and private company with a capital base of rupees 5 crores but less than rupees 10 crores need to compulsorily appoint a company secretary. Company fails to comply with the requirement regarding the appointment of Company Secretary, the Company and every officer of the Company who is in default shall be punishable with fine which may extend to ₹500/- per every day during which the default continues.

ARGUMENTS OF COUNSELS

PETITIONERS:

The petitioners contend that they have part-time Company Secretaries and Auditors to properly look after the affairs of their Companies and for the last so many years, they have been functioning well within the provisions of the Act without giving any room for initiating any penalty proceedings. On these premises, the petitioners contend 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. The petitioners filed a writ petition to insist the respondent to accept the form filed by them.

RESPONDENTS:

The Central Government Counsel further argued that non-appointment of Company Secretary by petitioners- Companies is an offence under Section 383A (1A) vide Companies (Amendment) Act, 1988 with effect from 01.12.1988. If a Company fails to comply with the requirement regarding the appointment of Company Secretary, the Company and every officer of the Company who is in default shall be punishable with fine which may extend to ₹500/- per every day during which the default continues. As per the existing rules, the petitioners are bound to appoint whole-time Company Secretaries, as their paid up capital is more than ₹5 Crores. The petitioners cannot be granted any exemption from the Rules and hence the respondents not accepting the form filed the petitioners.

CONCLUSION

Key Managerial Personnel (KMP) refers to the officials of a company who are vested with the most important roles and responsibilities. They are in-charge of maintaining the operations of the company. Section 203 of The Companies Act, 2013 states the provisions relating to appointment of key managerial personnel (KMP). These are a group of people who are in charge of managing the operations of a Company; they are responsible for the planning, directing and controlling the functioning of a Company. They are the first point of contract between the company and its Stakeholders.

As per section 2(51) of the Act, KMP means the following person(s), if appointed in a company, whether under a legal obligation under the Act

  • Chief Executive Officer (CEO) or the Managing Director (MD) or the manager;
  • company secretary (CS);
  • whole-time director (WTD);
  • Chief Financial Officer (CFO); and
  • ●       such other officers may be prescribed (none prescribed till date).

In the above case, the petitioner didn’t appoint a whole-time company secretary which is a mandatory requirement under the Companies Act. Section 203 of Companies Act, 2013, deals with appointment and remuneration of managerial personnel. This section primarily lays down the provision for the appointment of key managerial personnel. This section read with Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 makes it compulsory for every listed company and every other public company with a paid-up share capital of 10 crore rupees or more, must have whole-time key managerial personnel comprising of managing director, chief executive officer or manager and in their absence, a whole time director, company secretary and chief financial officer. This section regulates dual appointment of key managerial personnel. Therefore, the writ petitions are disposed of granting liberty to the respondents to proceed against the petitioner-Companies for violating Section 203 of the Companies Act.

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