Failure to Disclose Compliance with the Sexual Harassment Act in Board Reports Attracts Penalties
NEW DELHI (India CSR): In a noteworthy development, Ceeta Industries Limited faces penalties imposed by the Ministry of Corporate Affairs (MCA) owing to a violation concerning the nondisclosure of compliance with the Sexual Harassment of Women at Workplace Act in its financial reports for 2019 and 2020.
Appointment of Adjudicating Officer and Legal Mandate
The MCA took decisive action by appointing an Adjudicating Officer under Section 454 of the Companies Act, 2013, tasked with ascertaining penalties for violations of the Act. The matter relates to Ceeta Industries Limited, a corporation under the purview of the Registrar of Companies in Karnataka, instituted on 31st October 1984 and currently headquartered in Tumkur, Karnataka.
Section 134(3)(q) of the Companies Act, 2013, prescribes that a company’s board report must confirm its adherence to provisions concerning the formulation of an Internal Complaints Committee, as stipulated by the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013. Furthermore, Rule 8(5)(x) of the Companies (Accounts) Rules, 2014 details this obligation.
Violation Details and Identified Penalties
The infringement was discerned during an examination under Section 206(4) of the Act, pinpointing that the board reports of Ceeta Industries for the fiscal years concluding on 31st March 2019 and 2020 omitted the mandated disclosure of compliance with the Sexual Harassment Act. This omission equates to a violation of Section 134(3) of the Companies Act, and as per Section 134(8) of the Act, the company is subject to a penalty of three lakh rupees, with every defaulting officer liable to a fifty thousand rupee penalty.
Chronology of Notices, Submissions, and Hearings
Upon identification of the violation through a Preliminary Findings Letter dispatched on 28th July 2021, a show cause notice followed on 20th April 2023. The company, in turn, submitted an adjudication application on 29th May 2023. A hearing notice was issued on 27th July 2023, culminating in a physical hearing on 10th August 2023.
Represented by Mahaveer Jain, a practicing company secretary, the company and its directors presented arguments highlighting the absence of the necessity to establish an Internal Complaints Committee due to having fewer than ten employees in each establishment and emphasized the lack of any complaints and the unintentional nature of the non-disclosure.
Ceeta Industries Limited’s penalty underscores the importance of adhering to legal provisions, particularly regarding workplace safety and gender-specific rules. Companies must ensure compliance and proper board report disclosures to avoid fines and legal consequences.
Penalties Applied to the Company and Its Officers
Ceeta Industries Limited, not qualifying as a small company, is ineligible for a lesser penalty under Section 446B of the Act. Consequently, penalties have been imposed on both the company and its defaulting officers for each year of violation: The company is fined Rs. 3,00,000 per financial year, and officers Krishna Murari Poddar, Anubhav Poddar, and Ms. Sneha Binani are each fined Rs. 50,000 per financial year.
Penalty Payment and Option to Appeal
The company and its key managerial personnel are mandated to individually pay their respective penalties within a 90-day window from receipt of the Order, attaching a copy of the Order and payment challans with the filed Form INC-28. Directors are obligated to finance the penalty from personal funds, and payments are to be made online via a designated website. An appeal against the Order may be lodged within a 60-day period from its receipt.
Ceeta Industries Limited was incorporated on 31st October 1984 and is under the jurisdiction of the Registrar of Companies in Karnataka. The firm’s registered office is in Tumkur, Karnataka.
The Root of Violation
The law, specifically Section 134(3)(q) of the Companies Act, 2013, obliges companies to declare in their annual board reports any compliance with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013. Ceeta Industries Limited reportedly missed this inclusion for the financial years 2019 and 2020.
Any company not adhering to Section 134(8) of the Companies Act, 2013 faces a penalty of three lakh rupees, and any officer at fault is subject to a fine of fifty thousand rupees.
How the Oversight Came to Light
An inspection under Section 206(4) of the Act spotlighted the omission in Ceeta Industries Limited’s board reports for the financial years ending on 31st March 2019 and 2020.
After receiving the violation notice, the company, represented by Mr. Mahaveer Jain, contended that due to its fewer than ten employees, it wasn’t mandated to create an Internal Complaints Committee under the Sexual Harassment of Women at Workplace Act. They also pointed out that there were no recorded complaints from female workers and that the omission in their board reports was accidental.
Given the company’s arguments and the facts of the case, the imposed penalties are as follows:
Ceeta Industries Limited: Rs. 3,00,000 for each year (2019 and 2020).
Krishna Murari Poddar, Managing Director: Rs. 50,000 annually.
Anubhav Poddar, CFO (KMP): Rs. 50,000 annually.
Sneha Binani, Company Secretary: Rs. 50,000 annually.
The penalized company and its personnel have 90 days from receiving the Order to pay the respective fines. Payment is to be made online, with the directors required to foot the bill from their personal funds. For transparency, the payment details and the Order must be attached to Form INC-28. If unsatisfied with the decision, an appeal can be made within 60 days of receiving the Order.
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