Adjudication Penalty For Adani Power For Non-Compliance Related Party Transaction

SHORT SUMMARY

Every company registered under this statute or any other as prescribed is required to disclose related party transactions, under Sections 188 and 189 of the Company Act 2013. Every business that engages in related party transactions is required by Section 189 of the 2013 Company Act to record the relevant information in the contract register. This is subject to Section 188.

Every corporation must comply with the above provision in order to preserve good governance. Many Companies registered with the MCA (Ministry of Corporate Affairs) do not follow this clause of the Company Act 2013.

AS PER THE INSPECTION BY OFFICE OF ROC AHMEDABAD

As per Data available with ROC Gujrat, Dadra & Nagar Haveli have issued an adjudication order u/s 454 of CA, 2013 for violation of Section 188 & 189 to Directors of the Company.

"Adjudication Order in the Matter of ADANI POWER LIMITED"

FACTS OF THE CASE

• It is observed the Company for the financial years 2017-18, 20l8-19 and 2019-20 that the company has been intervened into various related party contracts as per section 184(2) and Related Party Transaction U/s. 188 of the Companies 2013.However, the company has not entered the said details in the register of contract u/s 189 of the Companies Act, 2013 in form MBP-4
• Hence the Company, its directors and officers in default made violation of section 188 read with section 189 of the Companies Act, 2013.
• The Authorized Representatives of the Company vide letter dated 24.04.2023 requested the Adjudicating Authority for physically hearing in the matter. Accordingly, the undersigned had fixed the hearing on 08.05.2023 in the O/o ROC. Ahmedabad.
• Authorized representatives further submitted that all the transactions disclosed in the Financial Statements were at Arm's Length Basis And In Ordinary Course Of Business and thus, not covered under the provisions of Section 188 of the Companies Act, 2013. Hence, no penalty should be imposed.

They further stated that the penal provisions as provided under section 189(6), the company should not be covered for penalty.They further submit that show cause notice issued to Company Secretary is also not be covered for penalty.

• The Presenting Officer submitted that the inquiry officer very categorically stated that as per the financial statement covering the period of three F.Y. i.e. 2017-18, 2018-19 and 2019-20, the company has been entered into various related party transactions and not made the entry in the register of contract required under section 189 of the Act.
• They further submitted that the company has not furnished the documentary evidence related to transactions in ordinary course of business and arm's length basis.The Company unable to produce the document for the same.

ORDER

While adjudging quantum of penalty under section 189 r.w. 188 of the Companies Act, 2013, the Adjudication Officer shall have due regard to the following factors, namely:

• The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as a result of default.
• The amount of loss caused to an investor or group of investors us a result of the default.
• The repetitive nature of default

Having reviewed the foregoing facts and circumstances, the Registrar of Companies imposes a penalty under Section 189 of the Companies Act 2013.

CONCLUSION

Recently, there have been numerous instances where penalties have been levied on directors, statutory auditors, and secretarial auditors for failing to comply with Sections 188 and 189 regarding related party transactions.

If the Companies believe any transaction to be at arm's length, they must keep the proof. Additionally, the auditor should request arm's-length proof from the company. if Companydoes not offer the same. The provisions of Section 188 should be used to qualify the report by the auditor and the CS.