ROC adjudication notice under section 454: reply, pay or appeal

A notice has landed from the Registrar of Companies (ROC). It says an adjudicating officer is looking at a default by your company. It may name the company and its directors. It may mention a penalty.

Do not panic, and do not ignore it. A notice is the start of a process, not the end. The law gives you a hearing, a chance to fix some defaults before any penalty, and an appeal if a penalty order goes against you. Each step has a clock. This guide walks through them.

Who is the adjudicating officer, and what can they do

The Central Government appoints officers, not below the rank of Registrar, as adjudicating officers. Their job is to adjudge penalties under the Companies Act 2013. The appointing order must also say what area each officer covers (s.454(1) and (2), Companies Act 2013).

Once an adjudicating officer takes up your case, they can do two things by order (s.454(3), Companies Act 2013):

• impose a penalty on the company, the officer who is in default, or any other person, stating the non-compliance or default; and
• direct the company, the officer in default or any other person to rectify the default, wherever the officer thinks fit.

So a penalty order can come with a direction to fix the underlying default. Paying the penalty alone may not close the matter if the order also directs you to rectify.

Who is an "officer who is in default"

Many notices name directors personally. The Act defines "officer who is in default" for provisions that make such an officer liable. It includes a whole-time director and key managerial personnel (the Chief Executive Officer, managing director or manager, the company secretary and the Chief Financial Officer, s.2(51), Companies Act 2013). Where there is no key managerial personnel, it covers directors specified by the Board who have consented in writing, or all the directors if none is specified (s.2(60)(i) to (iii), Companies Act 2013).

It also reaches a person who, under the immediate authority of the Board or a key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, and who authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, the default (s.2(60)(iv), Companies Act 2013).

Read the notice for who is named. Each named person has their own right to be heard.

Your right to be heard

The adjudicating officer must give "a reasonable opportunity of being heard" to the company, the officer in default or any other person before imposing any penalty (s.454(4), Companies Act 2013).

That is your core protection. In practice, reply in writing on time, attend the hearing on the date the notice gives, and put your facts on record: what happened, why, and what has since been done.

Section 454 itself fixes no reply period, so follow the date written on your notice.

The cure window: annual return and financial statements

There is one valuable exception. If the default relates to filing the annual return or filing the financial statements, and you have rectified it either before the notice was issued or within thirty days of the issue of the notice, no penalty is imposed. All proceedings under section 454 for that default are deemed concluded (proviso to s.454(3), Companies Act 2013).

The proviso is limited to two defaults:

• non-compliance with sub-section (4) of section 92: the company must file a copy of its annual return with the Registrar within sixty days of the annual general meeting (AGM), or within sixty days of the date the AGM should have been held if none was held (s.92(4), Companies Act 2013); and
• non-compliance with sub-section (1) or (2) of section 137: the company must file its adopted financial statements with the Registrar within thirty days of the AGM (s.137(1), Companies Act 2013).

If your notice is about one of these, the most useful thing you can do is file the overdue documents on the MCA portal now, and do it inside thirty days of the date on the notice. Count from the date the notice was issued, not the date you opened it. Keep the filing acknowledgement. Then say in your reply that the default was rectified within the thirty-day window, and attach proof.

The additional fee for late filing is set by the rules, so check the current figure on the MCA portal before you file.

If the notice is about any other default, this proviso does not apply. Fixing the default is still sensible, because it supports your reply and the adjudicating officer may direct you to rectify anyway. But the Act does not promise that no penalty will follow.

Smaller companies may face a lower ceiling

If the company is a One Person Company, small company, start-up company or Producer Company, the penalty payable for non-compliance with the Act is capped. The company, its officer in default or any other person is liable to not more than one-half of the penalty set out in the relevant provision, subject to a maximum of ₹2 lakh for a company and ₹1 lakh for an officer in default or any other person (s.446B, Companies Act 2013).

Check whether your company qualifies. "Small company" is a defined term: a company other than a public company, within the paid-up capital and turnover limits in section 2(85), Companies Act 2013. Those limits can be raised by prescription, so check the current figures on the MCA portal. If you qualify, say so in your reply and ask that section 446B be applied.

What if you have defaulted before

Section 454A raises the stakes for repeat defaults. Where a company, an officer or any other person has already been subjected to penalty for a default under the Act and again commits such default within three years of the date of the order imposing that penalty (passed by the adjudicating officer or the Regional Director), the liability for the second or later default is twice the penalty provided for it (s.454A, Companies Act 2013).

So if you have an older penalty order on file, note its date. A repeat of such default within three years doubles the penalty.

The deadline clock

Three clocks matter once an order is passed.

Sixty days to appeal. Anyone aggrieved by the adjudicating officer's order may appeal to the Regional Director having jurisdiction. The appeal must be filed within sixty days from the date the copy of the order is received, in the form and manner, and with the fees, that are prescribed (s.454(5) and (6), Companies Act 2013). The form and the fee come from the rules, so check the current figure on the MCA portal before you file.

The Regional Director decides. After hearing the parties, the Regional Director may pass such order as he thinks fit, confirming, modifying or setting aside the order appealed against (s.454(7), Companies Act 2013).

Ninety days to comply. If the company fails to comply with the order under sub-section (3) or the appellate order under sub-section (7) within ninety days of receiving the copy, the consequences are serious (s.454(8), Companies Act 2013):

• The company is punishable with a fine of not less than ₹25,000, which may extend to ₹5 lakh (s.454(8)(i), Companies Act 2013).
• An officer in default or any other person is punishable with imprisonment up to six months, or a fine of not less than ₹25,000 and up to ₹1 lakh, or both (s.454(8)(ii), Companies Act 2013).

The ninety days run from receipt of the order. Section 454(8) does not say an appeal pauses them, so do not assume an appeal buys you time.

Step by step: from the day the notice arrives

• Note the issue date and the hearing date. The thirty-day cure window runs from issue.
• Identify the default. Match the provision named in the notice to the default alleged.
• Check who is named. Each named person should have their own reply.
• For an annual return or financial statement default, file now on the MCA portal, inside thirty days of issue. Save the acknowledgement.
• Gather proof for any other default: resolutions, receipts, challans, correspondence.
• Send a written reply with the facts, the rectification done, any section 446B claim and a request for a hearing.
• Attend the hearing with originals and an authority letter for any representative.
• Read the order twice. Note whether it imposes a penalty, a direction to rectify, or both, and the date you received it.
• Decide: pay, comply or appeal. To dispute, appeal to the Regional Director within sixty days.

What not to do

• Do not ignore the notice. The adjudicating officer can impose a penalty after giving you the opportunity of being heard. If you do not use that opportunity, your side is not on record.
• Do not miss the thirty-day window on an annual return or financial statement default. Rectifying within it brings the proceedings for that default to a close with no penalty.
• Do not let sixty days pass after receiving the order if you want to appeal.
• Do not leave an order unpaid or the default unrectified past ninety days. That is where fines and possible imprisonment come in (s.454(8), Companies Act 2013).

What to do now

• Next step: Note the issue date on the notice. If it concerns the annual return or financial statements, file the overdue forms on the MCA portal and keep the acknowledgement. Then send a written reply (s.454(4), Companies Act 2013).
• Deadline: Thirty days from the issue of the notice to rectify an annual return or financial statement default and avoid any penalty (proviso to s.454(3), Companies Act 2013). Sixty days from receipt of the order to appeal to the Regional Director (s.454(6), Companies Act 2013).
• Consequence of missing it: Not complying within ninety days of receiving the order exposes the company to a fine of ₹25,000 to ₹5 lakh, and an officer in default to up to six months' imprisonment or a fine of ₹25,000 to ₹1 lakh, or both (s.454(8), Companies Act 2013).

Have a CA review your facts before you act or file.

Frequently asked questions

Is an adjudication notice the same as a penalty order?
No. A penalty can be imposed only after the adjudicating officer gives the company, the officer in default or any other person a reasonable opportunity of being heard (s.454(4), Companies Act 2013). The notice starts that process. The order comes later.

I filed the overdue annual return after the notice. Is that enough?
For a default under section 92(4) or section 137(1) or (2), it can be. If it was rectified before the notice, or within thirty days of the issue of the notice, no penalty is imposed and the proceedings for that default are deemed concluded (proviso to s.454(3), Companies Act 2013). For any other default there is no such promise.

Where do I appeal, and how long do I have?
To the Regional Director having jurisdiction in the matter. The appeal must be filed within sixty days from the day you receive the copy of the order, in the prescribed form and with the prescribed fee (s.454(5) and (6), Companies Act 2013). Check the current form and fee on the MCA portal.

Can a director be personally penalised?
Yes. The adjudicating officer may impose the penalty on the company, the officer who is in default, or any other person (s.454(3)(a), Companies Act 2013). Who counts as an officer in default is set out in section 2(60) of the Act.

What if I have already been penalised for the same kind of default?
If such default occurs again within three years from the date of the earlier penalty order, the liability for the second or later default is twice the penalty provided for it (s.454A, Companies Act 2013).

Does a small company pay the same penalty?
Not necessarily. For a One Person Company, small company, start-up company or Producer Company, the penalty is not more than one-half of the penalty in the relevant provision, up to ₹2 lakh for a company and ₹1 lakh for an officer in default or any other person (s.446B, Companies Act 2013).

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See Also

• ROC sent us a notice asking for documents: what to do under Section 206
• Can we change our company's financial year from 31 March?
• Shareholders did not adopt the accounts: what the company still files with the ROC