NCLT Mumbai Holds AGM Default Compoundable, Levies ₹40.90 Lakh On Kolhapur Hotels Directors

The Mumbai Bench of the National Company Law Tribunal (NCLT) on 9 June compounded the violation, imposing a total compounding fee of Rs. 40.90 lakh on Kolhapur Hotels Pvt Ltd and its two directors for breach of Section 96 of the Companies Act relating to Annual General Meeting (AGM) requirements.

Judicial Member Ashish Kalia and Technical Member Charanjeet Singh Gulati also ruled that the benefit available to small companies under Section 446B of the Companies Act applies only to “penalties” and not to “fines” imposed for statutory violations. The Bench held:

“Considering the rival submission of the parties, we observe that in the Section 446B of the Act, 2013, the word used is “penalty”, whereas in the provision of the Section 99 of the Act, 2013, the word used is “fine”. These two separate words have been used by the legislator in different provision of the law and therefore, the same cannot mean one and the same thing. Further, when the literal interpretation of law is clear and unambiguous, the purposive interpretation or any reading into the law as canvassed by the Ld. counsel of the Petitioners cannot be resorted to.”

The case arose from a petition filed by Kolhapur Hotels seeking compounding of defaults under the Companies Act. The company submitted that it had regularly held AGMs until financial year 2015–16. However, one of its two shareholders, Kanhaiyalal Motilal Talera, who held 90% of the shares, passed away on 28 March 2017, leaving only one surviving shareholder.

It contended that it could not meet quorum requirements for holding AGMs and also did not receive any request for transmission of the deceased shareholder's shares.

The Ministry of Corporate Affairs issued a show-cause notice on 4 November 2019 for non-compliance with Section 96. The Registrar of Companies, Pune, reported that the AGM for financial year 2016–17, due on 30 September 2017, was not held within the prescribed period, resulting in a continuing default.

Before the Tribunal, the company argued that as a small company it was entitled to the benefit of Section 446B, which limits penalties for certain violations. The Registrar of Companies opposed the plea, submitting that Section 99 prescribes a fine and not a penalty.

Accepting the RoC's submission, the Bench held that the legislature had consciously used the expressions “penalty” and “fine” in different provisions and they could not be treated as interchangeable. Since Section 99 specifically provides for a fine, the benefit under Section 446B was held to be unavailable.

Accordingly, the NCLT compounded the offence and directed the company and its two directors to pay Rs. 13.63 lakh each within 30 days.