Company Law Section 10A

In late June (June 26th, to be exact), a government department overseeing company registration (the Office of Registrar of Companies) in Delhi hit 5B Industries India Private Limited with a penalty. The reason? The company failed to follow a key rule (Section 10A of the Companies Act, 2013) that requires new businesses to complete specific steps before starting operations. This Company Law Section 10A article explores the details of this case, how the penalty was decided, and the amount they were fined.

What is company law section 10A?

Imagine you’ve just started a new company and secured funding from investors. Section 10A of the Companies Act, 2013 acts as a gatekeeper before you can officially launch operations. This company law section 10A applies specifically to companies with a share capital formed after November 2nd, 2018.

Company law Section 10A Background :

Facts of the Case:

As per companies Act, 2013, a declaration under section 10A required to be filed in e-from INC-20A by the company within the stipulated time of 180 days from the date of its Incorporation However, in the given case, 5B Maverick Special Unit VIA P Ltd and 5B Maverick Special Unit VIB Pvt Ltd. delayed the remittance of funds, resulting in a delayed filing of e-form INC 20A by 100 days. This delay led to the issuance of a Show Cause Notice (SCN) from the Registrar of Companies on June 13, 2024, to the company and its officers. The company accepted the default, citing delays as unintentional and requested to take lenient action.3

Relevant Provisions of Section 10A:

To ensure transparency, the Companies Act (2013) mandates that directors file a declaration within 180 days of a company’s incorporation. This declaration confirms that investors have paid the agreed-upon share value. Missing this deadline comes with a penalty. The company faces a fine of INR 50,000, while each responsible officer can be penalized INR 1,000 per day, capped at a maximum of INR 1 lakh.

The adjudication of penalties imposed by the ROC:

After considering the facts and the company’s admission of the default, the Registrar of Companies imposed the following penalties:

Conclusion:

The order requires 5B Industries India Private Limited and its directors to settle the penalties within 90 days. Online payment is mandatory through the MCA portal, and they must submit proof of payment to the registrar’s office. If they disagree with the decision, the company and its officers have 60 days from receiving the order to appeal by filing Form ADJ with the Ministry of Corporate Affairs’ Regional Director.

Adjudication Order of Penalties for Violation of Section 10A of the Companies Act, 2013 in the Matter of 5B Industries India Private Limited

1. Appointment of the Adjudicating Officer:

2. Company:

This document pertains to 5B Industries India Private Limited (the “company”), incorporated on May 26, 2023, under the Companies Act, 2013. The company’s registered address, as listed on the MCA21 registry, is C-42 Mayfair Gardens, Hauz Khas, New Delhi, India (110016). While financial information isn’t yet required to be filed, some details about the company are available on the MCA21 portal.

3. Facts about the case:

1. Our office received an application (number GNL-1 F93370922) on March 14, 2024, from the company. This application requests that penalties be adjudicated for violating Section 10A of the Act.

2. As per the application, the following submissions were given:

(a) Founded on May 26, 2023, the company had two initial investors: 5B Maverick Special Unit VIA Pty Ltd and 5B Maverick Special Unit VIB Pty Ltd. These investors committed to purchasing 8,193,100 shares, each valued at INR 10. Details about these subscribers to the company’s Memorandum of Association are provided below:

(b) The company’s initial investors, 5B Maverick Special Unit VIA Pty Ltd and 5B Maverick Special Unit VIB Pty Ltd, encountered delays in securing the funds for their investment. Due to this, their contribution wasn’t received until February 26, 2024, exceeding the 180-day limit.

(c) Because the investors’ funds arrived late (not received until February 26, 2024), the company’s e-form, INC 20A, was submitted behind schedule. The due date for filing this form was November 22, 2023, but it wasn’t filed until March 1, 2024 (SRN AA6977707), resulting in a 100-day delay.

III. Due to the delays mentioned above, a Show Cause Notice (SCN) was issued to the company and its responsible officers on June 13, 2024. This notice cited their non-compliance with Section 10A of the Act. The company responded on June 27, 2024, acknowledging the unintentional default and requesting a favorable order.

4. The relevant provisions of Section Commencement of Business, etc:

(1) For companies with share capital formed after the Companies (Amendment) Act of 2019, starting business operations or borrowing money requires fulfilling specific conditions first.

(a) One of the directors submits a sworn statement (in a specific format) to the government within 180 days of incorporation. This statement confirms that all investors have paid for their promised shares at the time the director files the statement.

(2) Failing to meet these requirements comes with penalties. The company itself faces a fine of ₹50,000. Additionally, each responsible officer can be penalized ₹1,000 per day for the duration of the non-compliance, capped at a maximum of ₹1 lakh.

5. Adjudication of penalty:

I. After reviewing the case details and the company’s response, it’s clear that a violation of Section 10A(1) of the Act occurred. The company and its officers have acknowledged this. The specific penalty for such a default is outlined in Section 10A(2) of the Act.

II. Based on my authority granted through a notification issued on March 24th, 2015, and after reviewing the submitted application and reply, I am imposing the following penalties:

6. Order:

a. The parties listed in Table I (above) must pay the penalty amounts shown in column “E.” For individuals other than the company itself, these penalties must be paid from their personal funds.

b. The penalty must be settled online within 90 days of receiving this order. You can do this on the Ministry of Corporate Affairs website (mca.gov.in) under the “Misc. head” in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi.” Please submit proof of payment to this office after completing the online transaction.

c. If you disagree with this decision, you have 60 days to file an appeal. You can do this by submitting Form ADJ, which can be downloaded from the Ministry of Corporate Affairs website (mca.gov.in). The form should be filed with the Regional Director (NR) at their office located at B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003. Be sure to include a copy of this order and explain why you are appealing the decision. [Reference: Sections 454(5) & 454(6) of the Companies Act, 2013, read with the Companies (Adjudicating of Penalties) Rules, 2014].

d. It’s important to note that Section 454(8) of the Act outlines the penalties for failing to comply with this order.

External Government Website Link: MCA