Sections 454 and 455 of the Companies Act, 2013: Adjudication of Penalties and Dormant Company
Sections 454 and 455 of the Companies Act, 2013 deal with two distinct compliance subjects. Section 454 establishes the statutory mechanism for adjudication of monetary penalties and appeals, while Section 455 provides the framework under which an eligible company may obtain and retain dormant company status.
Section 454 - Adjudication of penalties
Section 454 provides an administrative adjudication mechanism for penalties imposed under the Companies Act, 2013. The Central Government may appoint officers not below the rank of Registrar as adjudicating officers and specify their jurisdiction.
Power of the adjudicating officer
The adjudicating officer may impose the applicable penalty on the company, an officer in default or any other person, as the case may be, while identifying the relevant non-compliance or default. The adjudicating officer may also direct rectification of the default wherever considered appropriate.
Where the default concerns non-compliance with Section 92(4) or Section 137(1) or 137(2), and the default is rectified either before or within thirty days of the issue of notice by the adjudicating officer, the statutory proviso provides that no penalty shall be imposed for that default and the proceedings are treated as concluded.
Opportunity of hearing
Before imposing a penalty, the adjudicating officer must give a reasonable opportunity of being heard to the company, officer in default or other person concerned.
Appeal to the Regional Director
A person aggrieved by an order made by the adjudicating officer under Section 454(3) may appeal to the Regional Director having jurisdiction. The appeal is required to be filed within sixty days from the date on which the aggrieved person receives a copy of the adjudication order, in the prescribed form and manner and with the prescribed fee.
After giving the parties an opportunity of being heard, the Regional Director may confirm, modify or set aside the order appealed against.
Failure to comply with an order under Section 454
If a company fails to comply with an order made under Section 454(3) or Section 454(7) within ninety days from receipt of the order, the Act provides for a fine of not less than Rs. 25,000, which may extend to Rs. 5,00,000.
Where an officer of a company or another person in default fails to comply with such an order within the prescribed ninety-day period, the Act provides for imprisonment which may extend to six months, or a fine of not less than Rs. 25,000 which may extend to Rs. 1,00,000, or both.
Section 455 - Dormant company
Section 455 permits a qualifying company to obtain dormant company status. A company formed and registered for a future project, or to hold an asset or intellectual property, and having no significant accounting transaction may apply to the Registrar. An inactive company may also apply for dormant status in the prescribed manner.
After considering the application, the Registrar may allow dormant status and issue the prescribed certificate. The Registrar also maintains the register of dormant companies.
Where a company has not filed financial statements or annual returns for two consecutive financial years, Section 455(4) requires the Registrar to issue notice to the company and enter its name in the register maintained for dormant companies.
Important definitions under Section 455
Inactive company
An "inactive company" is a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.
Significant accounting transaction
A "significant accounting transaction" excludes: payment of fees by the company to the Registrar; payments made to fulfil requirements of the Companies Act or any other law; allotment of shares to fulfil requirements of the Act; and payments for maintenance of the company's office and records.
Dormant company procedure and continuing compliance
The Companies (Miscellaneous) Rules, 2014 supplement Section 455. An eligible company seeking dormant status uses Form MSC-1. After considering the application, the Registrar may issue the certificate of dormant status in Form MSC-2.
A dormant company must maintain the prescribed minimum number of directors, comply with the filing requirements and pay the prescribed annual fee to retain dormant status. The rules provide for an annual Return of Dormant Company in Form MSC-3 and for seeking active status through Form MSC-4.
The rules also prescribe eligibility conditions for an application for dormant status, including conditions concerning inspections or investigations, prosecution, public deposits, outstanding loans, management or ownership disputes, statutory dues, workmen's dues and listing of securities. The applicable rules and current MCA filing instructions should therefore be checked before filing Form MSC-1.
Under Section 455(6), the Registrar shall strike off the name of a dormant company from the register of dormant companies if it fails to comply with the requirements of Section 455.
Practical compliance points
- Read the provision creating the underlying penalty together with Section 454 and the Companies (Adjudication of Penalties) Rules, 2014.
- Track the date of receipt of an adjudication order because the statutory appeal period is sixty days.
- Adjudication proceedings are now electronic under Rule 3A of the 2014 Rules.
- Before applying for dormant status, verify the eligibility conditions under the Companies (Miscellaneous) Rules, 2014 and the current MCA Form MSC-1 instructions.
- Dormant status does not eliminate continuing statutory compliance; prescribed filings, director requirements and fees continue to apply.