MCA Reduces Vishnupriya Hotels’ CSR Penalty from Rs 1.59 Cr to Rs 32.72 Lakh

NEW DELHI (India CSR): Vishnupriya Hotels and Resorts Private Limited recently found itself in hot water for failing to meet its Corporate Social Responsibility (CSR) obligations. Initially slapped with a hefty penalty of Rs 1.59 crore by the Registrar of Companies (ROC), the company managed to secure significant relief after explaining the circumstances that led to the lapses. In a recent order, the Ministry of Corporate Affairs (MCA) reduced the penalty to Rs 32.72 lakh, acknowledging the company’s subsequent corrective action and the extraordinary disruptions caused by the COVID-19 pandemic.

The Violation: CSR Compliance Ignored for Three Years

Between FY 2020-21 and FY 2022-23, Vishnupriya Hotels failed to adhere to several key provisions under the Companies Act, 2013:

• No CSR Policy: The company did not adopt a formal Corporate Social Responsibility policy.
• No CSR Committee: A CSR committee was not constituted until January 31, 2024.
• Unspent CSR Funds: The company failed to utilize CSR funds totaling over Rs 68 lakh.
• No Disclosures: There was an absence of adequate disclosures in board reports for three consecutive financial years.

As per law, companies meeting certain financial thresholds are required to spend at least 2% of their average net profits on CSR activities and disclose details in their annual reports.

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The Original Penalty: Rs. 1.59 Crore Blow

The ROC’s adjudication order, dated April 19, 2024, imposed stringent penalties on the company and its directors, Ajith Padival and Mrs. Chitra Padival:

• For not constituting a CSR Committee: Rs 9 lakh
• For not spending and transferring CSR funds: Rs 1.36 crore
• For not disclosing reasons in board reports: Rs 13.5 lakh
• Total penalties: Rs 1,58,91,752

The Appeal: A Plea for Justice and Context

On June 5, 2024, the company filed an appeal under Section 454(5) of the Companies Act. During the hearing on December 11, 2024, their authorized representative, Navrang Saini, a Practicing Company Secretary, presented the company’s case.

He acknowledged the violations but emphasized:

• The company was incorporated only in 2019 and was still stabilizing.
• COVID-19 created unprecedented operational and financial hurdles.
• The errors were not deliberate but occurred due to oversight.
• A new board, post-acquisition by Samvardhana Motherson International Ltd. in July 2023, initiated corrective actions.

Corrective Actions: A CSR Wake-Up Call

The company took substantial steps before the hearing to align with compliance:

• Adopted a formal CSR policy on January 31, 2024.
• Formed a CSR committee as required under Section 135 of the Act.
• Transferred the unspent amount of Rs 68.2 lakh to the Clean Ganga Fund on March 4, 2024—a government-approved initiative under Schedule VII of the Act.

The Final Order: A Fair Judgment

Considering these developments, the Regional Director, South East Region, decided to reduce the penalty significantly. The revised penalties were as follows:

• Company: Rs 30 lakh
• Ajith Padival (Director): Rs 1.36 lakh
• Chitra Padival (Director): Rs 1.36 lakh
  Total Penalty: Rs 32.72 lakh

All dues were paid on December 18, 2024. The final order was issued on January 8, 2025.

Key Learnings for Businesses

This case highlights how even unintentional non-compliance with CSR laws can lead to serious consequences. However, it also sets a precedent that sincere corrective actions, backed by transparent communication and evidence, can lead to reduced penalties.

With CSR becoming a core part of corporate governance in India, companies must stay proactive in policy formulation, committee constitution, fund allocation, and disclosure practices.

Closing Thoughts: A Timely Reminder

While Vishnupriya Hotels got a breather, the incident serves as a reminder for all companies to treat CSR obligations with the seriousness they deserve. Non-compliance is not just a regulatory issue—it’s a question of corporate ethics, responsibility, and public image.

With compliance confirmed, the appeal was disposed of, and the order was issued on January 8, 2025, to all relevant authorities, including the ROC, Karnataka, and the Ministry of Corporate Affairs.

F.No:9/24/ADJ/SEC.135 & 134 (3)(o) CA, of 2013/KARNATAKA/RD(SER)/2024
BEFORE THE REGIONAL DIRECTOR, SOUTH EAST REGION
MINISTRY OF CORPORATE AFFAIRS, HYDERABAD
IN THE MATTER OF COMPANIES ACT, 2013 /5632

IN THE MATTER OF VISHNUPRIYA HOTELS AND RESORTS PRIVATE LIMITED

1. M/s. Saddles International Automotive & Aviation Interiors Private Limited

2. Ajith Padival, Director

3. Chitra Padival, Director ………………………………………… Appellants

Date of hearing: 11.12.2024
Present: Navrang Saini, PCS,

 Appellants

ORDER

This is an appeal filed under section 454(5) of the Companies Act, 2013(hereafter referred as Act) by the above appellants in e-form ADJ vide SRN F95965166 dated 05.06.2024 against the adjudication order passed by the Registrar of Companies, Karnataka in F No. ROC(B)/Adj.Ord.454-135 & 134 (3) (o)/Saddles International/Co.No.122245/2024/ dated 19.04.2024 under section 454 of the Act, for default in compliance with the requirements of Section 135 & 134 (3)(o) of the Companies Act, 2013.

2. The Registrar of Companies in his order of adjudication has stated that:

i. Failure to adopt CSR Policy, non – adoption of the CSR Policy for the financial year 2020-21, 2021-22 and 2022-23, Therefore the company has violated the provisions of section 135 and 134(3)(o) of the Act by not constituting the CSR Committee as prescribed and constituted the same only on 31.01.2024.

ii. Failure to spend the required CSR Obligation on specified CSR Activities and non-transfer of the unspent CSR amount to fund specified in Schedule VII of the Act within 6 months of closure of the financial year 2020-21, 2021-22 and 2022-23. The company ought to have spent Rs.35,64,089 for the FY 2020-21, Rs.19,30,521 for the FY 2021-22 and .2. Rs.1325646 for the FY 2022-23 towards CSR activities. Therefore, the company has violated the provisions of Section 135(5) of the Act. However, the company has transferred the unspent CSR amount on 04.03.2024 to Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga, as specified in Schedule VII of the Act.

iii. Non-reporting or failure to disclose the adequate reasons in the Board Report of the FY 2020-21, 2021-22 & 2022-23. Therefore, the company has violated the provisions of Section 134(3)(o) of the Act.

iv. It is seen from the application submitted by the company that during FY 2023-24, Samvardhana Motherson International Limited (formerly known as Motherson Sumi Systems Limited) acquired 51% stake in the subject company and the board was reconstituted on 13.07.2023.

3. The hearing was held before the Registrar of Companies on 22.03.2024 and after hearing the authorized representative had levied a penalty as below:

A. Penalty imposed under section 450 of the Act for violation of Section 135(1) of the Act.

B. Penalty imposed under section 135(7) of the Act for violation of Section 135(5) of the Act.

C. Penalty imposed under section 134(8) of the Act for violation of Section 134(3)(o) of the Act.

4. Aggrieved by the adjudication order, the appellants, i.e. Company and 2 directors, Ajith Padival and Mrs. Chitra Padival have filed the above appeal. An opportunity of being heard was given to the Appellants on 11.12.2024.

5. The authorized representative Navrang Saini, Practicing Company Secretary appeared for hearing on 11.12.2024 on behalf of the company 2 directors, Ajith Padival and Mrs. Chitra Padival and reiterated the submissions made in the appeal and also stated that

a) The company incorporated under the provisions of the Act, on March 11, 2019. Further, it is submitted that as per Section 135(5) of the Act the company was required to spend, in every financial year, at least two percent of the average net profits of the company made during three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its CSR Policy. However, inadvertently and/ or due to oversight, Appellant Company has not spent aforesaid amount aggregating to INR 68,20,259 (Indian Rupees Sixty-Eight Lakhs Twenty Thousand Two Hundred and Fifty Nine Only) for the financial years 2020­21, 2021-22 and 2022-23 on CSR activities and has further not transferred the same to the fund specified in Schedule VII of the Act within 6 months of expiry of relevant financial year. The following non-compliances have been admitted by the Appellant Company:

(i) Failure to adopt the CSR Policy.

(ii) Failure to spend the required CSR obligation on specified CSR activities.

(iii) Non transfer of the unspent CSR amount to fund specified in Schedule VII of the Act within 6 months of closure of the relevant Financial Year.

(iv) Non reporting or failure to disclose the adequate reasons in the Board Report.

b) During the Financial Year 2023-24, samvardhana Motherson International Limited (formerly Motherson Sumi Systems Limited) acquired 51% stake of the Appellant Company and the board of the company was reconstituted on July 13, 2023. The old board of the company consists of Ajith Padival and Mrs. Chitra Padival. However, it is submitted that the Board of the Appellant Company in its meeting held on January 31, 2024, have approved the following items:

(i) Adoption of CSR Policy;

(ii) Transfer of the unspent CSR amount in Clean Ganga Fund Set-up by the Central Government for rejuvenation of river Gana.

c) The company transferred the unspent CSR amount on 04th March 2024 to Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga, as specified in Schedule VII of the Act. Further the CSR Policy was also adopted in the meeting held on January 31, 2024

d) Further submitted by all appellants that delay in compliance happened due to inadvertent and / or oversight of provisions of Section 135 of the Act and the said delay in compliance is neither intentional nor wanton and further was never intended to prejudice the interests of the members or creditors or other dealing with the company.

e) The application is being filed bona fide and in the interest of justice and due to unprecedented challenges posed by the Covid-19 pandemic and the subsequent nationwide lockdown.

6. In view of the above, taking into consideration the facts of the appeal and the submissions made by the authorized representative the then Regional Director had to meet the end of justice reduced the penalty imposed by the Registrar of Companies is reduced as below:

7. Accordingly, the appellants have paid the penalty as under

8. In view of the compliance reported, the appeal is accordingly disposed off, and this order is issued to the Appellants with a copy to the Registrar of Companies, Karnataka and Joint Secretary, E-Governance Cell, Ministry of Corporate Affairs, New Delhi for information and necessary action.

(India CSR)