[Guest post by Rohit Sharma, Executive at Vinod Kothari & Co.]
UW International Training & Education Centre for Health Private Limited voluntarily filed an application before the National Company Law Tribunal (‘NCLT’) with respect to a matter pertaining to section 56(2)(a) of the Companies Act, 2013 (the ‘Act’) for transfer and transmission of securities.
In this regard, section 56(4)(a) of the Act states as follows:
Every Company shall, unless prohibited by any provisions of law or any order of Court, Tribunal or other authority , deliver the certificates of all securities allotted, transferred or transmitted-
within a period of two months form the date of incorporation, in the case of subscribers of the memorandum;
Hence, the company should have delivered the certificates of all securities allotted, transferred or transmitted, to the subscribers of the memorandum of association (MoA) of the company within a period of 2 months from the date of incorporation, in case there are subscribers to the MoA of the Company.
However, in the case of UW International, although the company was incorporated in New Delhi on 15 October 2015, due to numerous procedural requirements the bank accounts of the company were opened only on 26 April 2016. Accordingly, the company received the subscription money on 27 April 2016 and 6 May 2016 from the subscribers to the MoA of the company.
Since UW International was incorporated on 15 October 2015, the share certificates should have been issued to the subscribers of the MoA by 15 December 2015. Nevertheless, as stated above, due to the delay in opening of the bank account of the company to deposit the subscription money, the certificate was not issued within the prescribed time limit under the provisions of the Act.
Penalty prescribed for the aforesaid matter
The penalty for default in compliance with section 56(4)(a) of the Act has been prescribed in section 56(6) of the Act, which states as follows:
Where any default is made in complying with the provisions of sub-sections (1) to (5), the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
Pursuant to section 441 of the Act, the following offences are considered for compounding:
(a) Offence punishable with fine only;
(b) Offence punishable with imprisonment or fine; or
(c) Offence punishable with both.
Therefore, the aforementioned penalty happens to be a compounding offence.
Order of the NCLT
In the instant case, pursuant to the aforesaid provisions of the Act, the minimum penalty on UW International should have been Rs. 25,000, while for the defaulting officers it should have been Rs. 10,000. Moreover, the maximum penalty on company should be Rs. 5,00,000, while on the defaulting officers it should be Rs. 1,00,000. However, the NCLT held that the concept of minimum fine on compounding matters is not mandatory, and the NCLT may even consider reprimanding the defaulter or issuing a warning as part of compounding of an offence. Therefore, considering the fact that the delay in issuing the share certificates to the subscribers as mentioned in the MoA was not within the control of UW International, the NCLT imposed a minimum fine of Rs. 10,000 on UW International and each of the defaulting officers. The NCLT also ordered that the fine imposed on the defaulting officer shall be paid out of their personal accounts.
This case is an example that brings out the actual intention behind imposing minimum penalty on the defaulter(s). It is not necessary that fine imposed on the defaulter shall be solely in monetary terms. The consequences may also be imposed by way of reprimanding the defaulter or by giving an appropriate warning to the defaulter. The entire rationale behind imposing a fine implies a warning to the defaulter or as a deterrent. This case suggests that there might be other means to achieve the objective of the legislation.
- Rohit Sharma