Recently, the Registrar of Companies (“ROC”), Karnataka issued an order of adjudication of penalty Under Section 454 of Companies Act, 2013 read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014for violation of provisions of Section 134(3) of the Companies Act, 2013 by a public (unlisted company)(“Company”), incorporated in the year 1984 under the jurisdiction of ROC, Karnataka.
As per the facts of the case, during the course of inquiry under section 206(4) of the Companies Act, it was noticed that the Board’s report attached to the financial statement as on March 31, 2019 and March 31, 2020 did not disclose that the Company had complied with provisions relating to constitution of Internal Committee(“IC”) under the Prevention of Sexual Harassment of Women at Workplace (Prevention, Prohibition, Redressal)Act, 2013 (“POSH Act”). This violation was pointed out in the Preliminary Findings Letter issued on July 28,2021 by the Inspecting Officer and further show cause notice was issued for the said violation of Section 134(3)of the Companies Act on April 20, 2023.
The Company thereafter submitted an adjudication application on May 29, 2023, pursuant to which, a notice of hearing was sent on July 27, 2023 and physical hearing was held. It was submitted by Company that since the Company had less than ten (10) employees in each of its establishment, it was not required to constitute an IC asper POSH Act. Further, till date no complaint from any women worker had so far been received in the Company.
The ROC rejected the submissions and held that as the Company is a public company, it does not fall under the definition of a small company as per the provisions of section 2(85) of the Companies Act 2013, and needs to comply with the provisions of Section 134(3) of the Companies Act, which includes a provision concerning disclosure by directors inter-alia about constitution of IC. Further, the ROC held that the provisions of imposing lesser penalty as per the Section 446(8) of the Companies Act shall not be applicable in this case. Therefore, in view of the above said violation of non-compliance of provisions of Section 134(3) of the Companies Act, the ROC imposed penalty of INR 300,000 (about US$ 3,600) on the Company and INR 50,000 (about US$ 600)each on the Managing Director and CFO (KMP) and the Company Secretary and the same were directed to pay the penalty amount separately for each default within 90 days and file Form INC-28 attaching a copy of the Order and payment challans. In case of directors, such penalty amount was directed to be paid out of their own funds.
Background
The POSH Act requires every organization to build a workplace free of sexual harassment and create awareness among employees about their rights under the POSH Act. As per Section 2 (g) of the POSH Act, ‘employer’ for the purpose of private sector is defined to mean any person responsible for the management, supervision and control of the workplace. The POSH Act besides mandating organizations with more than ten (10) employees to formulate an IC, inter-alia assigns responsibility to the organization to comply with two major compliances regarding Annual Return and Board Report every year, details of which are as follows:
(1) Section 21 of the POSH Act mandates the IC to submit an annual report every calendar year to the employer as well as the district officer. In terms of the provisions under the POSH Act. Such an annual report should also include the following: the number of complaints of sexual harassment received in the year; the number of such complaints disposed during the year; the number of sexual harassment cases pending for more than ninety (90)days; the number of workshops or awareness programs conducted by the employer for sensitizing the employees with the provisions of the POSH Law; and the nature of action taken by the employer or district officer whilehandling sexual harassment complaints. Section 22 of POSH Act mandates the employer to include informationregarding number of cases filed and their disposal in Annual Report.
(2) As per the provisions of Section 134(3)(q) of the Companies Act, 2013 there shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include such other matters as may be prescribed.
In order to ensure compliance of safe workplaces for women in the private sector, the Ministry of Corporate Affairs recently amended the Companies (Accounts) Rules, 2014 (“Companies Rules”) and notified the Companies (Accounts) Amendment Rules, 2018 (“Amended
Companies Rules”) under Section 134 of the Companies Act, 2013 with effect from July 31, 2018, to include the following mandatory disclosure in the board’s report of every company:
“A statement that the Company has complied with provisions relating to the constitution of Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013”.
Accordingly, as per the amended Companies Rules, every company will now have to submit a statement in their annual Board Report in the directors’ responsibility statement that the company has complied with the provisions relating to the constitution of IC under the POSH Act. As per Section 134(8) of the Companies Act. 2013, if a company is in default in complying with the provisions of this compliance, the company shall be liable to a penalty of INR 300,000 and every officer of the company who is in default shall be liable to a penalty of INR50,000.
Anhad Law’s Perspective
It is apparent that the consequences for non-compliance with the Companies Act or POSH Act could lead to the government taking legal action against an organisation. Besides, the same may prove to be detrimental for the reputation of an organisation. Under POSH Act, penalties for non-formation of IC and compliance with other provisions of POSH Act are penalty up to Rs. 50,000 on the organisation which could be doubled in case of repeated offense in addition to the risk of cancellation of business license for regular non-compliance. Apart from this, not filing the Annual Report to the district office or disclosure in director statement could also lead to action taken against the organisation and office bearers by the government.
Since each company is requested to have a POSH policy and also comply with several other provisions of POSHACT, it would be expected from a company to make a disclosure in its board report whether it has complied withthe relevant provisions of the POSH Act as applicable to it.
While it is not clear if the Company decided to appeal against the order of the ROC, the order passed by the ROC is reflective of the fact that POSH compliance is not merely a formality but rather a serious legal obligation of companies to ensure a safe working environment for women and regulator are attributing more significance to compliance being undertaken by the companies and/or their Board of Directors.