In a recent twist of events, a Private Limited Company finds itself in hot water as the Regional Director of the Ministry of Corporate Affairs (MCA) slaps a penalty of Rs. 61.31 Lakhs on the entity. The penalty stems from the company’s failure to utilise its Corporate Social Responsibility (CSR) funds, leading to a violation of Section 135(5) of the Companies Act, 2013.
A Missed Deadline and Consequences
The case, filed as an appeal under Section 454(5) of the Companies Act, was initiated due to the company’s failure to comply with the requirements outlined in Section 135 of the Companies Act, 2013. The Registrar of Companies, Telangana, had passed an order under Section 454, addressing the company’s default in compliance.
According to the order, the company had a crucial obligation – to transfer the unspent amount of Rs.26,65,872/- to funds specified in Schedule VII of the Act within six months of the conclusion of the financial year 2020-21, specifically on or before 30.09.2021. However, the Registrar of Companies noted a glaring violation – the company failed to meet the stipulated timeline, violating Section 135(5) and incurring liability under Section 135(7).
Despite this misstep, the order recognises a positive turn of events. The company rectified its default by promptly making a payment of the unspent amount to the PM CARES Fund on 10.11.2022. This act of rectification prompted the Registrar of Companies to consider the adjudication request, and in light of the company’s proactive measures, the request was deemed considered.
Gautami Darvesh, the authorised representative and Practicing Company Secretary, took the stand on behalf of the company during the adjudication process. Ms. Darvesh reiterated that the company had no intention to default on CSR spending under Section 135(5) of the Companies Act, 2013. She emphasised that the company neither willfully defaulted nor intended to violate the provisions. Upon discovering the default, the company swiftly rectified the situation by contributing the unspent CSR amount to the PM Cares Fund.
In a parallel adjudication order dated 14.09.2023, the Registrar of Companies maintained substantial penalties against a different company. This company, wholly owned by FMC Technologies Singapore and FMC Tech Inc, USA, faced a hefty fine of Rs. 53,31,744/-. Despite the company’s size and profitability, the Registrar stood firm on the penalty, also imposing fines on directors David Macfarlane, Housila Prasad Tiwari, Narendra Kumar Dharmavarapu, and Niranjan Desal, totalling Rs. 61,31,744/-.
The appellants in this case were sternly instructed to comply with the order and Section 454(8) of the Companies Act, 2013, following the Companies (Adjudication of Penalties) Rules, 2014. The order was issued to the appellants with a copy sent to the Registrar of Companies.
Lessons Learned
This case serves as a stark reminder of the critical importance of timely CSR fund utilisation and the severe consequences of non-compliance. Companies are urged to uphold their CSR obligations, and if defaults occur, swift corrective measures are essential to avoid penalties. This episode emphasises the need for companies to contribute meaningfully to society while navigating the regulatory landscape with diligence and responsibility.
