COMPANY FINED FOR NOT FILING FORM AOC-2 FOR RELATED PARTY TRANSACTIONS ROC Karnataka vs SDU Projects Private Limited

 COMPANY FINED FOR NOT FILING FORM AOC-2 FOR RELATED PARTY TRANSACTIONS

ROC Karnataka vs  SDU Projects Private Limited

LAPSES

Company's Director's Report never disclosed its related-party transactions like rent paid to in the mandatory Form AOC-2, as required under Section 134(3)(h).

DEFENCE BY THE COMPANY

·     The company argued these transactions were at arm's length, in the ordinary course of business

·     It is too small compared to company’s net worth— so no AOC-2 disclosure was needed.

PENALTY IMPOSED

₹8,00,000 on company and its two directors

LESSONS LEARNED

Form AOC-2 has to be prepared and attached to the Board's Report as a matter of procedure, every single year, irrespective of the transaction's size or nature.

# Your Knowledge partner R V Sekar 79047 19295,

USE OF INNOVATIVE FINANCIAL PRODUCT BY SIYARAM SILK MILLS TO ISSUE BONUS PREFERENCE SHARES, FUNDED ENTIRELY FROM GENERAL RESERVES, TO ITS EQUITY SHAREHOLDERS

 USE OF INNOVATIVE FINANCIAL PRODUCT BY SIYARAM SILK MILLS TO ISSUE BONUS PREFERENCE SHARES, FUNDED ENTIRELY FROM GENERAL RESERVES, TO ITS EQUITY SHAREHOLDERS

FOR THE ATTENTION OF CFO’S ABOUT NEW FINANCIAL PRODUCT

FACTS

Siyaram Silk Mills has secured NCLT Mumbai’s approval under Section 230 of the Companies Act, 2013 for a unique Scheme of Arrangement that issues bonus preference shares to equity shareholders, funded entirely from general reserves. The scheme became effective on 30 July 2026, with a record date fixed as 22 August 2026.

KEY HIGHLIGHTS OF THE SCHEME

TRIBUNAL APPROVAL:

·     Sanctioned by NCLT Mumbai Bench on 21 July 2026.

·     Filed with RoC via Form INC-28, effective from 30 July 2026.

FUNDING SOURCE:

Entirely from general reserves (no cash outflow).

ENTITLEMENT STRUCTURE:

For every 1 equity share of ₹2 face value, shareholders receive:

·     Series I: 4 cumulative non-convertible redeemable preference shares (NCRPS), ₹10 face value, 9% dividend, redeemable within 3 years.

·     Series II: 3 cumulative NCRPS, ₹10 face value, 9% dividend, redeemable within 5 years.

LEGAL & REGULATORY CONTEXT

SECTION 230, COMPANIES ACT, 2013:

·     Provides for compromises/arrangements between a company and its shareholders/creditors.

·     Typically used for mergers, demergers, or restructuring; here innovatively applied for issuing bonus preference shares.

ADVANTAGES OF BONUS PREFERENCE SHARES

This approach is particularly advantageous because:

1. No cash is removed from the company at issuance; it is a book entry, not a payout. The “release of assets” occurs only at redemption.

2. Shareholders receive a listed, tradeable instrument. If they require liquidity, they can sell in the market. If not, they hold a preference share with its own rights.

3. This method directs surplus reserves to shareholders while preserving the company’s cash cushion for lenders and operations. The Tribunal specifically noted that this was not detrimental to other stakeholders.

4. It underwent the full Section 230 process, including shareholder and creditor meetings, Regional Director scrutiny, SEBI and stock exchange observation letters, making it a fully sanctioned and low-risk structure.

The significant takeaway for corporate lawyers and CFOs is that Section 230 is no longer limited to mergers, demergers and restructurings. It is increasingly being utilised as a strategic tool for capital allocation, functioning as a hybrid between a dividend and a buyback that provides companies greater control over timing and cash impact.

It is worth observing whether more financially robust listed companies begin to adopt this approach.

GOVERNANCE INSIGHT

This scheme demonstrates creative use of Section 230 beyond mergers/demergers, showing how companies can restructure reserves to reward shareholders.

 It also highlights NCLT’s willingness to sanction innovative capital structuring, provided statutory safeguards are met.

 

# Your Knowledge partner R V Sekar 79047 19295,

 

ROC CUTTACK SAYS SUBSEQUENT FILING OF FINANCIAL STATEMENT MAY CURE THE COMPLIANCE BUT DOES NOT ERASE THE DEFAULT ALREADY COMMITTED BY SHAKTI CHROME LIMITED

 ROC CUTTACK SAYS SUBSEQUENT FILING OF FINANCIAL STATEMENT MAY CURE THE COMPLIANCE BUT DOES NOT ERASE THE DEFAULT ALREADY COMMITTED BY SHAKTI CHROME LIMITED

FACTS OF THE CASE

The Registrar of Companies, Cuttack, has imposed penalties under Section 137(3) of the Companies Act, 2013 on Shakti Chrome Limited and its officers in default for the delayed filing of the Financial Statements for the Financial Year 2022-23.

The Financial Statements were required to be filed on or before 31 October 2023, but were actually filed only on 09 July 2026.

ROC FINDINGS

The ROC held that although the company subsequently completed the filing, the delay constituted a continuing default and did not extinguish the liability for penalty.

ROC IMPOSED ₹3,58,000 ON COMPANY AND OFFICERS

The ROC observed that subsequent filing cures the compliance but does not erase the default already committed. Accordingly, penalties were imposed for the period from 01 November 2023 to 08 July 2026 under Section 137(3) of the Companies Act, 2013.

COMPANY PAID BELATED ROC FEES FOR AOC-4 BUT STILL IT WAS FINED FOR NON-COMPLIANCE AND DEFAULT

While delayed filing may rectify the default for compliance purposes, it does not absolve the company and its officers from penalties for the period of default.

Timely statutory filings are essential to avoid adjudication proceedings and financial penalties.

# Your Knowledge partner R V Sekar 79047 19295,

ROC GUJARAT IMPOSED A PENALTY OF ₹11.40 LAKHS ON ESSAR SHIPPING LIMITED AND ITS DIRECTORS FOR IMPROPER MAINTENANCE OF AUDIT COMMITTEE MINUTES VIOLATING SECTION 118(10) OF THE COMPANIES ACT, 2013.

 ROC GUJARAT IMPOSED A PENALTY OF ₹11.40 LAKHS ON ESSAR SHIPPING LIMITED AND ITS DIRECTORS FOR IMPROPER MAINTENANCE OF AUDIT COMMITTEE MINUTES VIOLATING SECTION 118(10) OF THE COMPANIES ACT, 2013.

ROC, GUJARAT VS ESSAR SHIPPING LIMITED

FACTS OF THE CASE

ROC GUJARAT IMPOSED A PENALTY OF ₹11.40 LAKHS ON ESSAR SHIPPING LIMITED AND ITS DIRECTORS FOR IMPROPER MAINTENANCE OF AUDIT COMMITTEE MINUTES, INCLUDING NUMBERING WITH PENCIL, LEAVING BLANK PAGES, AND FAILURE OF THE CHAIRMAN TO SIGN THE MINUTES—VIOLATING SECTION 118(10) OF THE COMPANIES ACT, 2013.

VIOLATION:

·       Improper maintenance of Audit Committee Minutes Book

·       Page numbering done with pencil

·       Blank pages left in the register

·       Serial numbers not properly maintained

·       Minutes not signed by the Chairman

LEGAL PROVISION BREACHED:

·       Section 118(10), Companies Act, 2013 → mandates compliance with Secretarial Standards (SS-1 & SS-2) issued by ICSI.

These standards require proper numbering, authentication, and signing of minutes by the Chairman.

PENALTY IMPOSED:

·       ₹10.50 lakh on the Company

·       ₹45,000 on the Chairman of the Audit Committee

·       ₹45,000 on Directors

·       Total: ₹11.40 lakh

KEY COMPLIANCE LESSONS

·       Minutes must be numbered in ink (not pencil) to prevent tampering.

·       No blank pages should be left in statutory registers.

·       Chairman’s signature is mandatory for authentication.

·       Audit Committee records are subject to strict scrutiny by ROC/MCA.

# Your Knowledge partner R V Sekar 79047 19295,

CAN MCA ISSUE A CIRCULAR CLARIFYING THAT WITHOUT THE APPOINTMENT OF A COMPANY SECRETARY & KMPs , ELIGIBLE COMPANIES MAY NOT BE ABLE TO PROCEED WITH FURTHER STATUTORY FILINGS AND COMPLIANCE SUBMISSIONS WITH ROC AS IT IS PRACTICED IN NEPAL

CAN MCA ISSUE A CIRCULAR CLARIFYING THAT WITHOUT THE APPOINTMENT OF A COMPANY SECRETARY & KMPs , ELIGIBLE COMPANIES  MAY NOT BE ABLE TO PROCEED WITH FURTHER STATUTORY FILINGS AND COMPLIANCE SUBMISSIONS WITH ROC AS IT IS PRACTICED IN NEPAL

WHAT IS IN PRACTICE IN NEPAL?

The Office of the Company Registrar (OCR) has mandated the appointment of a Company Secretary for companies having committed or paid-up capital exceeding NPR 1 crore during the critical period of the fiscal year.

Without the appointment of a Company Secretary, companies will not be able to proceed with further statutory filings and compliance submissions before the OCR.

Companies falling within this threshold should ensure timely appointment to avoid delays in annual compliance and regulatory filings.

NEPAL MODEL

In Nepal, the Office of Company Registrar follows a stricter compliance regime where companies required to appoint a Company Secretary may face difficulties in processing certain filings if the position remains vacant. This approach encourages continuous compliance rather than merely imposing penalties.

WHAT IS IN PRACTICE IN INDIA

In India, the mandatory appointment of a whole-time Company Secretary (CS) is governed by Section 203 of the Companies Act, 2013 and Rules 8 and 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

In India, the Ministry of Corporate Affairs (MCA) does not bar companies from making statutory filings with the Registrar of Companies (RoC) simply because they have not appointed a Company Secretary. 

The Companies Act, 2013 mandates appointment of a Company Secretary only for certain classes of companies (e.g., listed companies and public companies with paid-up share capital of ₹10 crore or more), 

but filings can still be made by directors or other authorized professionals. This is different from Nepal, where stricter practice requires a Company Secretary for filings.

BAN ON FILING STATUTORY FORMS

FOR THE STRICTER COMPLIANCE, WILL THE MCA COME FORWARD TO ISSUE A CIRCULAR IF KEY MANAGERIAL PERSON IS not appointed ( Company Secretary, independent director , CFO or women independent director) these companies LIKE listed companies and public companies with paid-up share capital of ₹10 crore or more with ROC concerned. are  NOT allowed to  File statutory forms .

This will make the companies to see that KMPs are appointed regularly and if any failure on the part of Indian companies may not able file statutory forms with MCA. 

POTENTIAL CHALLENGES

• Companies may become unable to file annual returns or financial statements, leading to cascading defaults.

• Genuine cases involving resignation, death, incapacity, or delays in recruitment may be adversely affected.

• Such restrictions could conflict with the objective of facilitating compliance.

• validity may be questioned unless supported by amendments to the Companies Act or Rules.

KEY TAKEAWAYS

MCA can strengthen enforcement of Section 203 through MCA21 portal controls and rule amendments. 

However, a complete prohibition on statutory filings solely through a circular would likely exceed the scope of a clarificatory circular and may require amendments to the Companies Act, 2013 or the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. A balanced approach that encourages compliance without creating additional defaults would be more sustainable and legally robust.

# Your Compliance expert R V SECKAR , FCS ,  LLB 79047  19295

WILL THE FOREIGN NON RESIDENT DIRECTORS ALSO BE PUNISHED FOR NON-DISCLOSURE OF SECRETARIAL STANDARDS COMPLIANCE IN BOARD'S REPORT UNDER SECTION 118(11) OF THE COMPANIES ACT, 2013?

 WILL THE FOREIGN NON RESIDENT DIRECTORS ALSO BE PUNISHED FOR NON-DISCLOSURE OF SECRETARIAL STANDARDS COMPLIANCE IN BOARD'S REPORT UNDER SECTION 118(11) OF THE COMPANIES ACT, 2013?

NON-DISCLOSURE OF SECRETARIAL STANDARDS COMPLIANCE IN BOARD'S REPORT BY CHONGQING JIELI INDIA PRIVATE LIMITED ATTRACTED PENALTY UNDER SECTION 118(11) OF THE COMPANIES ACT, 2013

FACTS OF THE CASE

The law also requires that the Board’s Report explicitly state whether the company has complied with these Secretarial Standards.

In the case of Chongqing Jieli India Private Limited, the omission of this disclosure in its Board’s Report amounted to non-compliance. As a result, the company attracted penalty under Section 118(11).

KEY HIGHLIGHTS OF THE CASE:

• The company failed to include a statement in its Board's Report confirming   compliance with Secretarial Standard-1 (Board Meetings) and Secretarial Standard-2 (General Meetings).

• The omission constituted a violation of Section 118(10) of the Companies Act,   2013, read with the applicable Secretarial Standards.

• During the adjudication proceedings, the company admitted the default and requested the Adjudicating Officer to take a lenient view by imposing the minimum prescribed penalty.

• The ROC observed that compliance with Secretarial Standards and the corresponding disclosure in the Board's Report is a statutory requirement, and failure to make such disclosure attracts penalty under Section 118(11) of the Companies Act, 2013.

  PENALTY LEVIED ON NON-RESIDENT DIRECTORS

Penalties levied on non-resident directors of Chongqing Jieli India Private Limited

Mr. Zeng Ping – ₹5,000

✔️ Mr. Zhang Yi – ₹5,000 Who are non-resident diectors of Chongqing Jieli India Private Limited fined for not NON-DISCLOSURE OF SECRETARIAL STANDARDS COMPLIANCE IN BOARD'S REPORT - the impact on NON resident directors

IMPACT ON NON‑RESIDENT DIRECTORS

EQUAL LIABILITY

The Companies Act, 2013 does not distinguish between resident and non‑resident directors when it comes to compliance obligations.

Any director who is part of the Board is considered “officer in default” if statutory requirements are not met.

PERSONAL PENALTY EXPOSURE

Even though they may not be physically present in India, non‑resident directors are still liable for lapses in statutory disclosures.

Section 118(11) imposes a fixed penalty of ₹5,000 per officer in default, which applies uniformly.

GOVERNANCE RISK

Repeated lapses can damage the directors’ reputation and may affect their eligibility for future directorships in Indian companies.

It signals to regulators that the Board is not exercising adequate oversight.

PRACTICAL TAKEAWAY

·       Disclosure is mandatory even if compliance exists in practice.

·       Penalty is automatic if disclosure is missing, regardless of intent.

·       Best practice: Create a Board’s Report compliance template that includes this clause every year.

 

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

WHETHER ORDINARY RESOLUTION PASSED WITH 51% BY A PARENT COMPANY WITH 20% OF HOLDING COMPANY SHARES TO APPROVE A RELATED PARTY TRANSACTION IS VALID ONE? DOES SECTION 188 OF COMPANIES ACT 2013 AND REGULATION 23(4) OF SEBI LODR HAS A LOOPHOLE?

 WHETHER ORDINARY RESOLUTION PASSED WITH 51% BY A PARENT COMPANY WITH 20% OF HOLDING COMPANY SHARES TO APPROVE A RELATED PARTY TRANSACTION IS VALID ONE?

DOES SECTION 188 OF COMPANIES ACT 2013 AND REGULATION 23(4) OF SEBI LODR HAS A LOOPHOLE?

FACTS OF THE CASE

Imagine a listed company — for example, Tata Steel Limited — places a resolution before its shareholders in the General Meeting to approve the termination of a construction contract entered into with Tata Sons Private Limited (its Promoter Group entity and Related Party).

The company secures the Ordinary Resolution with 51% votes in favour. However, out of this, Tata Sons (holding 20%) also voted in favour of the termination.

IS THIS ORDINARY RESOLUTION VALID?

Does Section 188 of Companies Act 2013 and Regulation 23(4) of SEBI LODR has a loophole?

This question  dives right into the intersection of Companies Act, 2013 (Section 188) and SEBI LODR Regulations (Regulation 23), both of which govern related party transactions (RPTs).

KEY LEGAL PROVISIONS

SECTION 188(1), COMPANIES ACT, 2013:

Certain related party transactions require Board approval and, in some cases, shareholder approval.

SECOND PROVISO TO SECTION 188(1):

If shareholder approval is required, related parties cannot vote to approve the resolution.

REGULATION 23(4), SEBI LODR:

 For listed companies, all material related party transactions must be approved by shareholders, and all related parties are prohibited from voting to approve such resolutions, regardless of whether they are interested in that transaction.

HOW IT APPLIES?

·       Tata Steel Limited is a listed company.

·       The resolution concerns termination of a contract with Tata Sons Pvt Ltd, a promoter group entity and related party.

·       Tata Sons holds 20% shares and voted in favour.

·       The resolution passed with 51% votes in favour, but this includes Tata Sons’ 20%.

·       Problem: Since Tata Sons is a related party, its votes must be excluded when calculating whether the resolution has passed.

·       Excluding Tata Sons’ 20%, the effective votes in favour are only 31%.

·       That means the resolution fails, because it does not secure a majority of the non-related party shareholders.

IS THERE A LOOPHOLE?

Not really. Both Section 188 and Regulation 23(4) are clear: related parties cannot vote to approve their own transactions. SEBI has tightened this further by requiring exclusion of related party votes even if they are not directly interested.

So, in this scenario:

·       The resolution is invalid because Tata Sons’ votes should not have been counted.

·       There is no loophole — the law anticipates this exact situation and prevents promoter group entities from pushing through RPT approvals with their own votes.

KEY TAKEAWAYS

The ordinary resolution passed with 51% including Tata Sons’ votes is not valid. For compliance, Tata Steel must re-run the resolution and secure majority approval excluding Tata Sons’ 20% stake.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

BAJRANGBALI SPONGE AND POWER LIMITED WAS PENALISED BY THE REGISTRAR OF COMPANIES (ROC), CUTTACK, FOR FAILING TO APPOINT A CHIEF FINANCIAL OFFICER (CFO) FOR OVER SIX YEARS (2014–2020) ROC CUTTACK vs BAJRANGBALI SPONGE AND POWER LIMITED

 BAJRANGBALI SPONGE AND POWER LIMITED WAS PENALISED BY THE REGISTRAR OF COMPANIES (ROC), CUTTACK, FOR FAILING TO APPOINT A CHIEF FINANCIAL OFFICER (CFO) FOR OVER SIX YEARS (2014–2020)

ROC CUTTACK vs BAJRANGBALI SPONGE AND POWER LIMITED

FACTS OF THE CASE

Bajrangbali Sponge and Power Limited was penalised by the Registrar of Companies (RoC), Cuttack, for failing to appoint a Chief Financial Officer (CFO) for over six years (2014–2020), despite being legally required under Section 203 of the Companies Act, 2013. The company and its directors were fined ₹5 lakh each for prolonged non-compliance.

VIOLATION:

Failure to appoint a whole-time CFO despite having paid-up share capital exceeding ₹10 crore (making CFO appointment mandatory).

LAW INVOKED:

Section 203(1)(iii) of the Companies Act, 2013, read with Rule 8 of the Companies (Appointment and Remuneration) Rules, 2014.

PENALTY:

·       ₹5,00,000 on the company.

·       ₹5,00,000 each on several directors/officers.

LEGAL BACKGROUND

Under Section 203 of the Companies Act, 2013:

·       Certain classes of companies must appoint Key Managerial Personnel (KMP), including a Managing Director/CEO, a Company Secretary (CS), and a Chief Financial Officer (CFO).

·       Non-compliance attracts penalties under Section 203(5):

·       Company: Fine up to ₹5 lakh.

·       Officers in default: Fine up to ₹50,000 plus ₹1,000 per day of continuing default.

COMPARISON OF PENALTIES

COMPANY	PERIOD OF DEFAULT	POSITIONS VACANT	PENALTY AMOUNT
Bajrangbali Sponge & Power Ltd	2014–2020 (6 yrs)	CFO	₹5 lakh (company) + ₹5 lakh each director
Virupaksha Organics Ltd	2018–2021 (3 yrs)	CS & CFO	₹79.40 lakh total
Mahatamil Mining & Thermal Ltd	2014–2023 (9 yrs)	CS, CFO, MD	₹75.18 lakh total

KEY LESSONS LEARNED

·       Mandatory CFO appointment applies to companies with paid-up capital ≥ ₹10 crore.

·       Non-compliance is costly: penalties can reach tens of lakhs depending on duration and positions vacant.

·       Regulators are strict: pleas for leniency (e.g., citing administrative oversight or pandemic delays) are often rejected.

·       Best practice: Companies should proactively appoint KMPs to avoid financial and reputational damage.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

WHETHER SUPREME COURT OF INDIA IS AGAINST THE CORPORATE CLASS ACTION SUIT AS THE JINDAL POLY FILMS LTD MINORITY SHAREHOLDERS ALLEGE THAT THEY WERE SIDELINED BECAUSE SC REFERRED THE DISPUTE TO PRIVATE ARBITRATION?

WHETHER SUPREME COURT OF INDIA IS AGAINST THE CORPORATE CLASS ACTION SUIT AS THE JINDAL POLY FILMS LTD MINORITY SHAREHOLDERS ALLEGE THAT THEY WERE SIDELINED BECAUSE SC REFERRED THE DISPUTE TO PRIVATE ARBITRATION? 

REFERRING THE DISPUTE TO PRIVATE ARBITRATION

The Supreme Court has ended India’s first-ever corporate class action suit against Jindal Poly Films Ltd., referring the dispute to private arbitration after both sides consented. This move has sparked controversy, as minority shareholders allege they were sidelined, with nearly 40,000 investors losing a statutory remedy.

KEY FACTS ABOUT THE CASE

CASE ORIGIN:

Filed in March 2024 by minority shareholder Ankit Jain, alleging siphoning of ₹2,500 crore through undervalued related-party transactions.

NCLT & NCLAT ORDERS:

 Both tribunals admitted and upheld the class action under Section 245 of the Companies Act, 2013, marking India’s first admitted shareholder class action.

SUPREME COURT DECISION (JUNE 2026):

 Set aside NCLT/NCLAT orders and appointed Justice Manindra Mohan Shrivastava (Retd. Chief Justice) as sole arbitrator, with Delhi as the arbitration seat.

LEAD PETITIONER EXIT:

 Ankit Jain sold his stake in March 2026; Monet Securities substituted as petitioner in May and then consented to arbitration.

SHAREHOLDER CONCERNS

LACK OF CONSULTATION:

Minority investors claim 40,000 shareholders were not consulted before the case was diverted to arbitration.

ALLEGED STRATEGY:

 Critics argue Monet Securities’ substitution and immediate consent to arbitration may have been a pre-arranged strategy with Jindal Poly to defeat the class action.

INVESTOR PROTECTION DEBATE:

 Legal experts warn this sets a precedent where class actions can be privately settled, undermining statutory safeguards for retail investors

ROLE OF SEBI

INTERVENTION:

 SEBI filed an investigative report confirming ₹760 crore losses to public shareholders due to opaque related-party transactions and disclosure violations.

PENDING ACTION:

 Despite arbitration, SEBI continues pursuing regulatory proceedings, meaning the company may still face penalties or compliance directives.

RISKS & TRADE-OFFS

TRANSPARENCY LOSS:

Arbitration is private, reducing visibility for retail investors.

PRECEDENT RISK:

May discourage future shareholder activism under Section 245.

INVESTOR REMEDIES:

Shareholders may need to pursue individual claims or rely on SEBI’s enforcement.

CONCLUDING REMARKS

In short, while the Supreme Court’s referral to arbitration resolves the dispute procedurally, it raises serious questions about minority shareholder rights, transparency, and the future of class actions in India.

Investors should closely monitor SEBI’s ongoing proceedings, as that remains the only avenue for broader accountability.

# YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,