Case Note & Summary
The petitioners, N.S.J.L Nidhi Ltd and its officers, challenged an order dated October 11, 2023, by which a Learned Adjudicating Officer imposed a penalty of Rs. 64 lakhs under Section 39(5) of the Companies Act, 2013 for alleged failure to certify annexures to sixteen returns of allotment of securities filed between February 10, 2019 and January 26, 2021. The petitioners argued that the penalty was not attracted because the default alleged was not a default under Section 39(4), which only requires filing of the return of allotment, not certification of annexures. They also contended that the quantum was excessive. The court analyzed Section 39 and Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, and held that the penalty under Section 39(5) is attracted only for default under Section 39(3) or 39(4). Since the petitioners had filed the returns of allotment, there was no default under Section 39(4). The requirement to certify the list of allottees under Rule 12(2) is a procedural requirement, and non-compliance does not attract penalty under Section 39(5). The court also noted that even if penalty were attracted, the quantum of Rs. 64 lakhs was excessive and not proportionate. The court quashed the impugned order and allowed the petition.
Headnote
A) Companies Act - Penalty under Section 39(5) - Default under Section 39(4) - The penalty under Section 39(5) is attracted only for default under Section 39(3) or Section 39(4). Section 39(4) requires filing of return of allotment, not certification of annexures. Non-compliance with Rule 12(2) requiring certification of list of allottees does not attract penalty under Section 39(5). Held that the impugned penalty was not attracted as the default alleged was not a default under Section 39(4) (Paras 2-10). B) Companies Act - Quantum of Penalty - Proportionality - Even if penalty were attracted, the quantum of Rs. 64 lakhs was excessive and not a product of reasonable exercise of jurisdiction. The penalty must be proportionate to the default. Held that the quantum was not compliant with the Act (Paras 11-15).
Issue of Consideration
Whether penalty under Section 39(5) of the Companies Act, 2013 is attracted for failure to certify annexures to return of allotment, and if so, whether the quantum of penalty imposed is compliant with the Act.
Final Decision
The court quashed the impugned order dated October 11, 2023 and allowed the writ petition. Rule made absolute.
Law Points
- Section 39(4) of Companies Act
- 2013 requires filing of return of allotment
- not certification of annexures
- Rule 12(2) of Allotment Rules requires certification of list of allottees but non-compliance does not attract penalty under Section 39(5)
- Penalty under Section 39(5) is attracted only for default under Section 39(3) or 39(4)
- Quantum of penalty must be reasonable and proportionate.
