Amendments to the Companies (Adjudication of Penalties) Rules, 2014

Pursuant to the amendment notified by the Ministry of Corporate Affairs (‘MCA’), on February 19, 2019, to the Companies (Adjudication of Penalties) Rules, 2014 (‘Adjudication Rules’), Rule 3 relating to adjudging penalties under the provisions of the Companies Act, 2013 (‘Companies Act’), has been amended. The key changes introduced, inter alia, include: (i) amended timelines and process for responding to show cause notices by the recipient (which, in addition to the company and every officer in default, can now be any person in the company); (ii) requirement for show cause notice to include the nature of non-compliance, relevant penal provisions under the Companies Act and the maximum penalty that may be imposed; (iii) provision for e–filing to be made once the e-adjudication platform is created; and (iv) timelines within which the adjudicating officer has to pass an order.

The amendments to the Adjudication Rules further provide that: (i) while adjudging the quantum of penalty, certain additional factors must now be taken into consideration such as the size of the company, nature of business, injury to public interest, and nature of the default; and (ii) the penalty imposed cannot be less than the minimum penalty, if any, prescribed under the relevant section of the Companies Act, and if the Companies Act provides a fixed penalty for a default, then the adjudicating officer must impose such fixed penalty.