Bangalore ROC Levies Fine on Company for Unauthorized Extension of Additional Director's Term Beyond Statutory Period
Background of the Adjudication Proceedings
The Registrar of Companies stationed at Bangalore, functioning in the capacity of an Adjudicating Officer pursuant to the authority vested under Section 454 of the Companies Act, 2013, undertook examination of a self-initiated application pertaining to violation of statutory requirements under Section 161(1) concerning the permissible duration for which an additional director may hold office.
The matter under scrutiny involved SCANIA COMMERCIAL VEHICLES INDIA PRIVATE LIMITED, a corporate entity registered with CIN U35999KA2011FTC056984, having its registered office located at PLOT NO. 64-66, 88-97, NARASAPURA KIADB INDUSTRIAL AREA, ACHHATANAHALLI VILLAGE, NARASAPURA HOBLI NA KOLAR KOLAR KARNATAKA INDIA 563133.
Details of the Compliance Breach
Appointment and Tenure of Additional Director
The Board of Directors of the aforementioned company had, through a resolution passed during a Board meeting convened on 10 June 2021, designated Mr. Sven Johan Persson as an additional director. In accordance with the statutory provisions governing such appointments, his tenure was legally mandated to terminate on the date when the subsequent Annual General Meeting was conducted or alternatively on the final date by which such AGM ought to have been convened, being 30 November 2021, whichever event occurred earlier.
Unauthorized Continuation in Office
Contrary to the statutory mandate, Mr. Sven Johan Persson continued to discharge his functions as a director beyond the expiry of his lawful tenure. His regularization as a director was eventually accomplished by shareholder approval during the Annual General Meeting that took place on 23 May 2022. This arrangement resulted in an unauthorized and unlawful continuation of directorship spanning a period of 174 days, commencing from 01 December 2021 through 23 May 2022.
Corporate Accountability
The adjudicating authority observed that both the company and its existing Board of Directors permitted this irregular continuation of directorship with delayed regularization by shareholders, which constituted a clear violation of the provisions enshrined in Chapter XI of the Companies Act, 2013. This deviation from statutory requirements rendered Mr. Sven Johan Persson, the corporate entity itself, and the serving directors liable for penal consequences.
Legal Framework and Applicable Provisions
Section 172 of the Companies Act, 2013
Given that no specific penalty or punishment has been prescribed within Chapter XI for this particular category of default, the adjudicating officer invoked Section 172 of the Companies Act, 2013. This provision stipulates the following consequences:
If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.