ROC CUTTACK IMPOSED PENALTIES ON MAGNUM SEA FOODS LIMITED FOR PAYMENT OF EXCESS MANAGERIAL REMUNERATION

 ROC CUTTACK IMPOSED PENALTIES ON MAGNUM SEA FOODS LIMITED FOR PAYMENT OF EXCESS MANAGERIAL REMUNERATION

ROC CUTTACK Vs MAGNUM SEA FOODS LIMITED

FACTS OF THE CASE

The Registrar of Companies (ROC) Cuttack imposed a total penalty of ₹10 lakh on Magnum Sea Foods Limited and five of its directors for paying managerial remuneration in excess of the limits prescribed under Section 197 of the Companies Act, 2013

WHY PENALTY WAS LEVIED BY ROC

The penalty was imposed because the company paid remuneration to its directors that exceeded the maximum limits permitted by Section 197 of the Companies Act, 2013, without following the correct procedure for obtaining approval.

KEY REGULATIONS UNDER THE ACT STATE THAT:

·      The total managerial remuneration payable by a public company in a financial year must not exceed 11% of its net profits.

·      Remuneration in excess of this limit can be paid if approved by the shareholders via a special resolution.

·      The company is also required to refund any excess remuneration drawn or received without the necessary approvals

CONTENTION BY MAGNUM SEA FOODS LIMITED

·      Magnum Sea Foods Limited had claimed that a special resolution had been passed to authorize the remuneration

·      Payments were transparently disclosed in the Board’s Report and statutory filings.

·      The company was profit-making and acted in good faith

However, the Adjudicating Officer found this submission insufficient to negate the violation, leading to the penalties.

PAYMENT OF PENALTY TIMELINE

Penalties must be paid within 90 days, failing which further consequences under Section 454(8) may apply.

RELIEF TO INDEPENDENT DIRECTORS:

Independent Directors were exempted from penalty, citing MCA’s SOP (General Circular No. 1/2020), as there was no evidence of  their involvement in day-to-day management or consent to the violation .

WHAT THIS CASE SIGNIFIES?

This case highlights the strict enforcement by the Ministry of Corporate Affairs (MCA) regarding compliance with the rules on managerial remuneration, emphasizing the need for proper governance and timely filings.

Even with shareholder approval and disclosures, director remuneration must strictly comply with statutory limits. Governance lapses—even perceived ones—can attract heavy penalties.

APPEAL TO REGIONAL DIRECTOR

MAGNUM SEA FOODS LIMITED may apply to Regional director  within 90 days to waive the penalty imposed by arguing

•   Magnum Sea Foods Limited had claimed that a special resolution had been passed to authorize the remuneration

•   Payments were transparently disclosed in the Board’s Report and statutory filings.

•   The company was profit-making and acted in good faith

R V SECKAR , FCS, LLB 79047 19295