Companies ActNCLTRulings

NCLT levied penalty for not obtaining prior approval for related party transactions

In the matter of Maheshwari Logistics Pvt Ltd

NCLT Ahmedabad has levied penalty of Rs. 50,000/- on Maheshwari Logistics Pvt Ltd (Petitioner) under Section 629A of Company Act 1956 for violation of Sec. 297 of the Act. Petitioner had failed to obtain prior approval of Central Govt. at the time of entering into related party transactions of worth Rs. 40,000/-.

In the present case, Maheshwari Logistics Pvt Ltd, Mayadevi Krishnaawtar Kabra, Varun Krishnavtar Kabra, Amit Kailashnarayan Maheshwari and Vinay Premnarayan Maheshwari (Petitioners) had filed a petition for violation of Sec 297 (1) of Cos. Act 1956.

It was alleged that Petitioner company had carried out the related party transactions from the in last 6 FY from 200 6 to 2012 wherein the Petitioner Company had not obtained necessary prior approval from the Central Government to carry transactions with 6 related parties. This lead to the violation of Sec 297 of the Act.

Petitioner further contended that Paid-up Share Capital of the Petitioner Company was increased to more than Rs 1 Crore. Thereafter the Petitioner company entered into all the related party transaction. However, Sec 297 (1) of Cos Act, 1956 mandates the company with Paid up share Capital 1 Crore or more to obtain prior approval from the Central Govt for entering any transactions with the Director of the Company and his relative or a firm in which such director or his relative is a partner or any other partner in such a firm or private company in which the director is a member of director.

NCLT observed that there was variation between the Paid- up Share Capital of the Company hence had asked Registrar of Companies to clarify regarding the Paid-up Capital. In reference to that ROC stated that Petitioner company had entered into 2 transactions from March 31, 2012, to April 30, 2012, for service of software development and maintenance with one related party. Further, Petitioner company had applied and had got approval from the Regional Director for entering into related party transactions for May 1, 2012, to April 30, 2015. However, in the perusal of the entire material on record the transactions that took place in 2012 and 2016 which shows that Petitioner company violated the Provision for Cos. Act for not obtaining prior approval of the Central Govt.

Hence, NCLT held that

“there is no specific provision in Cos Act, 1956 to deal with appropriate punishment for violation of Sec 297 (1). Therefore, one has to fall back upon Sec 269 A of Company Act wherein it is provided, that the Company and every officer of the Company who is in default should be punishable with fine which extends to Rs 5000 and where the contravention is a continuing one, with a further fine which may extend to Rs 500 for every day after the first during which the contravention continues.”

Therefore, Petitioners were liable to pay fine of Rs 5000 each for the 2 transactions dated in 2016 which comes to Rs 50,000 even though the value of 2 transactions were of only Rs 40,000. NCLT stated that it is not inclined to reduce the amount for compounding. Hence, NCLT compounded Rs 10,000 to each Petitioner within 3 weeks from the order passed.

Accordingly, NCLT disposed of the petition.





Show More

Related Articles

1 thought on “NCLT levied penalty for not obtaining prior approval for related party transactions”

  1. That іs a really good tip especiaⅼlу to thоѕe fresh to the blogosphere.
    Simple but very accurate infօrmation… Thanks foг sharing this one.
    A must read article!

Leave a Reply

Your email address will not be published. Required fields are marked *