Calcutta High Court
Kusum Industrial Gases Ltd. & Ors vs Office Of The Registrar Of Companies & ... on 24 February, 2025
Author: Amrita Sinha
Bench: Amrita Sinha
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Original Side
Present :- Hon'ble Justice Amrita Sinha
WPO No. 848 of 2024
Kusum Industrial Gases Ltd. & Ors.
Vs.
Office of the Registrar of Companies & Anr.
For the writ petitioners :- Mr. Anirban Ray, Sr. Adv.
Ms. Urmila Chakraborty, Adv.
Ms. Sabarni Mukherjee, Adv.
Mr. Shubham Raj, Adv.
For the ROC :- Mr. Moti Sagar Tiwari, Adv.
Mrs. Priti Jain, Adv.
Hearing concluded on :- 26.11.2024
Judgment on :- 24.02.2025
Amrita Sinha, J.:-
1. The adjudication order dated 3rd August, 2023 imposing penalty under
Section 454 (3) of the Companies Act, 2013 read with Rule 3 of the Companies
(Adjudication of Penalties) Rules, 2014 amended by the Companies
(Adjudication of Penalties) Rules, 2019 for non compliance of the provision of
Section 203 (4) of the Companies Act, 2013 read with Rule 8 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014
imposing penalty of Rs. 20 lakh (Rs. 5 lakh each on three of the Directors and
Rs. 5 lakh on the Company) and the order passed by the Regional Director
(ER), Ministry of Corporate Affairs, Kolkata in appeal, affirming the order
passed by the adjudicatory authority, are impugned in the instant writ
petition.
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2. The petitioner no. 1 is a Company incorporated under the Companies
Act, 1956 in the year 1981 and the petitioner nos. 2 to 4 are the Directors and
office bearers of the petitioner no. 1. The Company is registered with the
Calcutta Stock Exchange which is practically defunct for nearly a decade. The
Company claims to be a very small one with only 270 shareholders of which
more than 81% holds less than 100 shares and there has been no movement
or trading in respect of the shares of the Company for the last twenty years.
The Company has been suspended from the Kolkata Stock Exchange with
effect from 21st March, 2023.
3. The requirement of having a whole time Company Secretary could not be
strictly followed by the petitioners as no suitable candidate for appointment of
Company Secretary could be found. The petitioners were able to appoint
Company Secretary only on 2nd January, 2023 to comply the provision of
Section 203 (1) (ii) of the Companies Act, 2013 and intimated the same to the
Registrar of Companies in June, 2023.
4. In September 2022 the Registrar of Companies and the adjudicating
officer under the Companies Act issued a notice to the petitioners intimating
violation of Section 203 of the Companies Act, 2013 and called upon the
petitioners to offer their comments as regards the violation and to state as to
why penalty should not be imposed upon them for the said violation. The
contraventions were clearly specified in the said notice. The petitioners failed
to provide any response to the aforesaid notice.
5. In November 2022 a notice was served upon the petitioners directing
appearance for a hearing for adjudication of the penalty. In response thereto
one of the Directors of the Company intimated the Registrar of Companies that
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they were not able to find out a suitable candidate for the post of Company
Secretary and sought for more time for compliance of the requirement of
Section 203.
6. The appointment of the Company Secretary was made on 2nd January,
2023 but the said Company Secretary resigned from the post with effect from
1st May, 2024 and the Company thereafter appointed a separate Company
Secretary with effect from 1st May, 2024.
7. On the date of the hearing the representative of the petitioners was
present and sought for an adjournment. On such prayer, the date of hearing
was rescheduled but on the rescheduled date, none appeared on behalf of the
petitioners. The hearing stood adjourned once again and finally on 16th June,
2023 the authorized representative of the petitioners appeared and made
submission on behalf of the Company. Order was pronounced by the
adjudicating officer and the Registrar of Companies on 3rd August, 2023 by
imposing penalty for non-compliance of the statutory provision. Being
aggrieved by the order of the adjudicating authority, the petitioners preferred a
statutory appeal which stood rejected vide order dated 5th March, 2024.
8. According to the petitioners the respondent authorities failed to adhere
to the principles of natural justice at the time of passing the impugned order.
The issues raised by the petitioners before the adjudicatory authority were not
properly considered and the impugned order of penalty was passed
mechanically, upon total non-application of mind.
9. The petitioners contend that the adjudicating authority and the
appellate authority both acted mechanically. The quantum of penalty imposed
is of the highest amount. Despite disclosing the reason(s) for not being able to
appoint a Company Secretary, highest penalty has been imposed.
10. It has been argued that the authority ought to have exercised their
discretion while fixing up the quantum of penalty. As the Company is a very
small one, imposing such huge amount of penalty is highly prejudicial. The
respondent authorities ought to have pragmatically considered the genuine
difficulties on the part of the petitioners in not being able to appoint a whole-
time Company Secretary.
11. Prayer has been made to set aside the order passed by the adjudicatory
authority and the order passed by the appellate authority affirming the order
passed by the adjudicatory authority.
12. In support of the aforesaid submission the petitioners rely on the order
delivered by a coordinate Bench of this Court on 3rd May, 2024 in WPO 349 of
2024 in the matter of Apex Traders and Exporters Ltd. & Anr. -vs- The
Registrar of Companies, West Bengal, Ministry of Corporate Affairs &
Anr. wherein, under similar circumstances, the Court was of the opinion that
there was non-application of mind on the part of the authority while
adjudicating the subject issue and while considering the imposition of penalty.
In the absence of any real consideration worth the name of the mitigating
circumstances of the Company and the small size of the Company, including
its number of shareholders and share capital, and taking into consideration
the fact that a whole-time Company Secretary was already appointed and
functioning, the Court was pleased to set aside the adjudication order and the
order passed by the appellate authority. The Court directed reconsideration of
the case of the petitioners afresh by taking into account and on considering
the mitigating circumstances relied upon by the petitioners upon affording
opportunity of hearing to decide the issue of imposition of penalty.
13. The petitioners rely on the judgment delivered by the Hon'ble Supreme
Court in the matter of Mary Pushpam -vs- Telvi Curusumary & Ors.
reported in (2024) 3 SCC 224 wherein the Court deliberated on the doctrine of
precedents and the rule of 'judicial discipline and propriety'. The Court held
that when a decision of a coordinate Bench of the same High Court is brought
to the notice of the Bench, it is to be respected and is binding subject to right
of the Bench of such co-equal coram to take a different view and refer the
question to a Larger Bench. It is the only course of action open to a Bench of
co-equal strength, when faced with the previous decision taken by a Bench
with the same strength.
14. The petitioners contend that facts in the present case being more or less
the same as in the matter of Apex Traders (supra), similar relief, as granted by
the coordinate Bench, ought to be granted in this case.
15. Learned advocate representing the respondents opposes the submission
made on behalf of the petitioners. It has been submitted that the provision
under the Companies Act is a mandatory one and there is no scope to
differentiate between a small and a big company. There is a statutory
requirement of law for appointment of a whole-time Company Secretary in
every company as may be prescribed.
16. The said provision is in place with effect from 1st April, 2014. The subject
Company is in existence long prior thereto. The penal provision has come into
effect on and from the year 2018 and the Company is bound to act in
accordance with the statutory provisions.
17. It has been submitted that the petitioners have admitted that a whole-
time Company Secretary was appointed only on 2nd January, 2023 evidencing
the default on the part of the petitioners in appointing a whole-time Company
Secretary prior thereto.
18. It has been argued that the Registrar of Companies does not have any
discretion to waive the penalty after the default has been noticed and found to
be true. The reason for arriving at the quantum of penalty has also been
mentioned in the adjudication order.
19. It has been denied that there has been violation of the principles of
natural justice or that the impugned orders were passed mechanically. It has
also been denied that there has been non-application of mind at the time of
passing the impugned orders. There has neither been any illegality nor
perversity in the orders as alleged.
20. As regards the order passed by the coordinate Bench in Apex Traders
(supra) it has been submitted that the said order is an ex parte one and the
stand of the respondents were not before the said Bench when the issue was
decided.
21. In support of the submission that the Registrar of Companies does not
have any discretion with regard to imposition of penalty, reliance has been
placed on the judgment delivered by the Hon'ble Supreme Court in the matter
of Chairman, SEBI -vs- Shriram Mutual Fund & Anr. reported in (2006) 5
SCC 361 wherein the Court was of the opinion that mens rea is not an
essential ingredient for contravention of the provisions of a civil Act. Penalty is
attracted as soon as contravention of the statutory obligation is established
and, therefore, the intention of the parties committing such violations becomes
immaterial. The Court made it clear that breach of a civil obligation which
attracts penalty under the provisions of an Act would immediately attract the
levy of penalty irrespective of the fact whether the contravention was made by
the defaulter with any guilty intention or not. Unless any of the Statute
indicates the need to establish the element of mens rea, it is sufficient to prove
that the default has occurred.
22. Prayer has been made to dismiss the writ petition.
23. I have heard and considered the submissions made on behalf of both the
parties and have perused the materials on record.
24. The fact that the petitioners did not appoint a whole-time Company
Secretary in accordance with the statutory provision is not disputed. It is
admitted that prior to 2nd January, 2023 the Company did not have a whole-
time Company Secretary. The petitioners cite mitigating situations and
hardship in finding out a suitable candidate for the post of Company
Secretary.
25. The issue to be decided is whether the authority could have applied its
discretion while adjudicating the default on the part of the petitioners.
26. In Apex Traders (supra) the Court interpreted the expression 'liability'
used in Section 203(5) of the Companies Act, 2013. The Court was of the
opinion that the language of Section 203(5) confirms discretion on the
Registrar of Companies to impose penalty. Such discretion also includes the
converse, that is, the discretion not to impose penalty or to impose lesser
penalty. The liability has been found to be subject to adjudication by the
Registrar of Companies. Such discretion associates with it, responsibility of the
adjudicating authority to consider any mitigating or alleviating circumstances
which might have visited the Company for not adhering to the statutory
provision.
27. The Hon'ble Supreme Court in the matter of Chairman, SEBI (supra)
interpreted the words 'shall be liable' under the SEBI Act and the regulations
framed thereunder and held the same as mandatory provision for imposition of
monetary penalties for breaches or non-compliance with the provisions of the
Act and the regulations. The Court took note of the fact that, the legislature in
its wisdom had not included mens rea or deliberate or wilful nature of default
as a factor to be considered by the adjudicating officer in determining the
quantum of liability to be imposed on the defaulter. The provisions of penalty
for non-compliance with the mandate of the Act are with an object to have an
effective deterrent to ensure better compliance of the statutory provisions.
28. The Court clearly laid down that penalty is attracted as soon as the
contravention of the statutory obligation contemplated by the Act and the
regulations are established and intention of the parties committing such
violation becomes wholly irrelevant. Once contravention is established, the
penalty is to follow.
29. The Court was of the view that the power to impose penalty would be
severely curtailed if the presence of mens rea is to be considered. The same
would set the stage for various market players to violate statutory regulations
with impunity and subsequently claim ignorance of law or lack of mens rea to
escape imposition of penalty. Imputing mens rea against the plain language of
the statute would frustrate the entire purpose and the object of the Act to
secure strict compliance of the statutory provisions.
30. The ratio laid down in the matter of Chairman, SEBI (supra) leaves no
doubt in the mind of the Court that there is no scope to avoid or waive penalty
once violation in the statutory provision is detected as the Companies Act,
2013 does not provide for any mens rea to justify the default. The Court
reiterated that when a penalty is imposed by an adjudicatory officer, it is done
so in adjudicatory proceedings and not by way of fine as a result of
prosecution of an accused in a criminal proceeding. For arriving at the said
decision, the Hon'ble Supreme Court took into consideration provisions of the
SEBI Act, FERA, Income Tax Act and the Orissa Sales Tax Act.
31. Here, the Company admits that whole-time Company Secretary was not
appointed and cites various reasons for the same. In such a situation when
default is admitted by the Company, the Court has to follow the law laid down
by the Hon'ble Supreme Court being the law of the land under Article 141 of
the Constitution of India. Therefore, the impugned order of the adjudicating
authority affirmed by the appellate authority holding the Company and its
Directors guilty of the offence cannot be faulted.
32. What remains for consideration is whether the authority could have
exercised discretion in fixing the quantum of penalty and whether the
quantum of penalty imposed is proper or not? In Chairman, SEBI (supra) the
Court held that quantum of penalty is discretionary.
33. Section 203(5) of the Companies Act, 2013 lays down that if the
Company contravenes the provisions of the Section, the Company shall be
punishable with fine which shall not be less than one lakh rupees but which
may extend to five lakh rupees. Every Director in default shall be punishable
with fine which may extend to fifty thousand rupees and where the
contravention is a continuing one, with a further fine which may extend to one
thousand rupees for every day after the first during which the contravention
continues.
34. In the instant case, the contravention continued for years together. The
adjudicating authority gave benefit to the Company for the COVID period and
calculated the fine. The authority exercised its discretion in doing so. Such
exercise of discretion does not appear to be illegal, erroneous or arbitrary,
requiring interference. Hence, the Court is not inclined to interfere with the
same.
35. The writ petition fails and is hereby dismissed.
36. No costs.
37. Urgent certified photocopy of this judgment, if applied for, be supplied to
the parties or their advocates on record expeditiously on compliance of usual
legal formalities.
(Amrita Sinha, J.)
