RoC Imposed a Penalty on the Company for not Carrying Out Business Specified in MOA

September 9, 2024
Company Law
CA. Kavit Vijay

M/s Paramount Dye Tec Limited (“The Company”) is incorporated on 04.01.2024. The company is engaged in the manufacturing and trading of fibers. However, such business was nowhere specified in the MOA of the Company. As per Section 4(1)(c) of the Companies Act, 2013, the Company must specify the purpose for which it is incorporated in MOA. Accordingly, RoC held that the company had violated the provisions of Section 4(1)(c) of the Companies Act, 2013, and therefore, RoC imposed a penalty on the company and the directors in default for carrying out business not mentioned in MOA.

Detailed analysis of the case is as follows:

1. Brief Facts of the Case:

M/s Paramount Dye Tec Limited (“The Company”) is registered in the state of Chandigarh and incorporated on 04.01.2024.
The Company is engaged in the business of manufacturing and trading of fibers. However, such business is nowhere specified in the object clause of the company in the Memorandum of Association.
Upon informing, the company made a suitable amendment in MOA through an Extra General meeting held on 29th May 2024.
The Company filed the corresponding MGT-14 for such alteration on 31st May 2024.
The Company submitted that it commenced the business of manufacturing and trading of fibers with effect from 4th March 2024, and no business activity related to fiber was conducted before this date.
Accordingly, the company and its directors suo-moto applied Section 454 of the Companies Act.

2. Relevant Legal Extract

Relevant provisions of The Companies Act, 1956 are reiterated below for ready reference:

Section-4 Memorandum

“4. Memorandum.—(1) The memorandum of a company shall state—

…

(c) the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof;

..”

Section 450- Penalty provisions where no specific provisions are provided

450.“if a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption about any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person”

Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014

“3 Adjudication of Penalties:

…

(12) While adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely:-

(a) size of the company;

(b) nature of business carried on by the company;

(c) injury to public interest;

(d) nature of the default;

(e) repetition of the default;

(f) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; and

(g) the amount of loss caused to an investor or group of investors or creditors as a result of the default:

Provided that, in no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act.

…”

3. Findings and penalty imposed by Hon’ble Registrar of Company

The RoC, Punjab and Chandigarh held that:

The company has violated the provision of Section 4(1)(c) of the Companies Act, 2013 as the Company carried on the business of trading fiber not mentioned in its MOA on 04.03.2024.
Therefore, the following penalty shall be levied on the company and its directors under Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014 is as follows:

Person	Days of Default	Penalty	Maxmium Penalty	Penalty Imposed
Company	86	10000+1000*8= 96000	2,00,000	96,000
Director in default	86	10000+1000*8= 96000	50,000	50,000
Director in default	86	10000+1000*8= 96000	50,000	50,000

RoC held that the penalty is commensurate with the failure committed by the Company and the penalty imposed upon the Officers-in-default shall be paid from their source of income.

Appeal against this order may be filed within sixty days from the date of receipt of this order.

In case of failure to comply with the order within 90 days from the date of receipt of the order, the following penalty shall be levied:
- In the case of a company, a minimum fine of INR 25,000/- but which may extend to INR 5,00,000/-
- In case of an officer in default, imprisonment may extend to 6 months or a fine of a minimum of INR 25,000/- but not exceeding INR 1,00,000/-.