ROC (Gujarat) penalizes Adani Power for Inadequate RPT disclosure and delay in filing shareholders’ details

Provisions Involved:

  • Section 92 of Companies Act, 2013 states that every company should provide the annual information about the company, its members and regarding the general compliances of the company by filing annual return with the Registrar within 60 days from the date of Annual General Meeting (AGM). Further, it is the management’s responsibility to file annual return in Form No. MGT-7 along with shareholders details. Further as per Section 92(5) if a company fails to file Annual return before the expiry of the period specified, then the Company and every Officer who is in Default shall be liable to a penalty of Rs. 10,000 & in case of continuing failure with a further penalty of Rs. 100 for each day during which such failure continues subject to a maximum of Rs. 2,00,000 in case of company and Rs. 50,000 in case of an officer who is in default.
  • As per Section 189 of Companies Act, 2013 it is mandatory for all the companies to keep one or more registers giving separately the particulars of all contracts and arrangements as required under:
  • Section 184(2) [Disclosure of interest by directors] or
  • Section 188 [Related party transaction]

Every Director who fails to comply with provisions of section 189 regarding maintenance of ‘Register of contracts or arrangements in which directors are interested’ and the rules made there under shall be liable to a penalty of Rs. 25,000.

Facts of the Case for Violation of Section 92 & 189:

  • During the course of inquiry under section 206(4) of the Companies Act, 2013 by the office of ROC Ahmedabad, it was observed that the company has not attached the details of shareholders with the said forms as required under provisions of section 92 of Companies Act, 2013 for the financial year 2014-15 and 2016-17 and the same has been pending for more than 6 to 7 years, thereby the company and its officers are in default of violation of section 92(4) of Companies Act, 2013.
  • The officer has issued adjudication notice under section 454 of the Companies Act, 2013 for violation of the above provisions to the company and its officer in default on March 9, 2023, but the company has flied fresh E-form MGT-7 for financial year 2014-15 on April 11, 2023 which is two days more than the required time. Therefore, penalty will be levied for those two days only.
  • Inquiry officer also observed that from the financial statements of the company for the financial years 2017- 18, 2018-19, 2019-20 that the company has intervened into various Related Party Contracts as per section 184(2) and Related Party Transactions u/s 188 without making any entry in the register of contracts and the company has not provided any supportive documents in respect of Arm’s Length Transactions. Therefore, company and its officer in default have violated the provisions of section 188 and 189 of Companies Act, 2013.

Decision on Violation of Section 92 & 189:

  • While determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the noticee or loss caused to the investor as a result of the delay on the part of noticee to redress the investor grievance have been taken into consideration. Further it may also be added that it is difficult to quantify the unfair advantage made by the noticee or the loss caused to the investors in a default of this nature.
  • After considering the facts and circumstances of the case, the inquiry officer imposed a total penalty of Rs. 51,000 for violation of section 92(4) of the Companies Act, 2013 for financial year 2014-15:
  • Company – Rs. 10,200
  • Rajesh Shantilal Adani (M.D)- Rs. 10,200
  • Vneet S Jain (WTD) – Rs. 10,200
  • Vinod Bhandawat (CFO) – Rs. 10,200
  • Deepakbhai sanatkumar Pandya (C.S) – Rs. 10,200
  • Further for the violation of section 188 and 189 for financial years 2017-18, 2018-19, 2019-20, the inquiry officer imposed a total penalty of Rs. 2,25,000 on the officer in default as per section 189(6) of Companies Act, 2013:
  • Mr. Rajesh Shantilal Adani (M.D) – Rs. 75,000
  • Mr. Vneet S Jain (WTD) – Rs. 75,000
  • Mr. Gautam Adani (Chairman) – Rs. 75,000
  • The noticee shall pay the amount of penalty individually for the company and its directors by way of Form No. INC-28 of e-payment under “Pay miscellaneous fees” category in MCA fee and payment service within 90 days of this order and challan generated after payment of penalty through online mode shall be forwarded to the office of along with copy of Form INC-28.

SW Remarks: Related party transaction are themselves legal, but some transactions carry the innate potential for conflicts of interest. The misuse of RPT could result in fraud and financial ruin for all parties involved. Therefore, RPT must be reported transparently, specifically in case of public company, to ensure that all reporting is as per legal & ethical requirements and do not compromise shareholder value.

Sahil Ojha, Audit Associate, SW India