ROC PUNE FINED MD, CS & CFO FOR FAILURE TO OBTAIN APPROVAL FROM GOVERNMENT IN TIME FOR APPOINTING EXPATRIATE MD

 ROC PUNE FINED MD, CS & CFO FOR FAILURE TO  OBTAIN APPROVAL FROM GOVERNMENT IN TIME FOR APPOINTING EXPATRIATE MD 

ROC PUNE VS ZENSAR TECHNOLOGIES LIMITED 

SECTION 196(4) OF THE COMPANIES ACT, 2013 

A person may be appointed MD / WTD / Manager without Central Government (CG) approval if all the conditions in Part I are satisfied. These conditions include: 

• That the individual is a resident of India. Specifically, “resident in India” means someone who has been staying in India for a continuous period of not less than 12 months immediately preceding the date of appointment, or who has come to stay in India for taking up employment or for carrying on business. 

• 
  

In this case, the company had appointed an ex-patriate individual as its managing director for which the Central Government approval was called for.   

The concerned individual was appointed as a managing director with effect from 23rd January 2023 in ZENSAR TECHNOLOGIES. 

RULE 7(3) OF THE COMPANIES (APPOINTMENT AND REMUNERATION OF MANAGERIAL PERSONNEL) RULES 2014 

As per the mandated Rule 7(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the company was to make an application for seeking approval of the Central Government within 90 days from the date of such appointment. 

FORM MR-2  

A company can seek approval from Central Government through ‘MR-2’ webform for approval of appointment of managing director or whole-time director or manager in certain special circumstances as mentioned in Schedule V of the Companies Act, 2013. 

BELATED FILING OF MR-2 

However, the company had made the required application for approval of the appointment of the managing director in form MR-2 only on 12th October 2023, which was beyond the stipulated timeline contravening the provisions of section 196 of the Companies Act 2013 read with Rule 7(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 by a delayed period of 171 days after the permitted time period of 90 days.   

PENALTY  

A monetary penalty of Rs 3,31,000 was levied on the company, MD, CFO and CS for the above violation.  

“DE FACTO” APPROVAL 

Any actions taken by the MD after appointment, while the appointment is not valid, could be questioned (though in many cases, for bona fide third-party dealings, courts may uphold their actions under the “de facto” doctrine or for the sake of business continuity) 

 

R V SECKAR FCS,LLB 79047 19295