CAN INDEPENDENT DIRECTORS (ID) AND NON-EXECUTIVE DIRECTORS (NED), BE HELD ACCOUNTABLE FOR VIOLATIONS

 CAN INDEPENDENT DIRECTORS (ID) AND NON-EXECUTIVE DIRECTORS (NED), BE HELD ACCOUNTABLE FOR VIOLATIONS RELATED TO THE CORPORATE SOCIAL RESPONSIBILITY (CSR) PROVISIONS UNDER SECTION 135(5) OF THE COMPANIES ACT, 2013

COMVIVA TECHNOLOGIES LIMITED VS ROC DELHI & HARYANA

The case involves the company’s failure to spend the required amount on CSR activities as mandated by the law and also failure to transfer the unspent CSR amount to the government of India.

A suo-motu application dated 26.07.2022 was filed by company, its KMP and Board of directors (including independent directors and non- executive directors) wherein they had admitted non-compliance of Section 135(5) of the Act for the FY 2020-21. Company stated that it had an unspent amount of Rs, 5,50,122/- which had to be transferred within six months of the end of the financial year i.e 31st March 2021 to the fund specified in Schedule VII of the Act in compliance of the Section 135 (5) to PM National Relief Fund.

Even though the company transferred the amount through its bank ,the said amount bounced back into applicant Company’s Bank account on the same day and the same remained unnoticed to the officers of the Applicant Company.

The Company averred that the default was made good by the company and its officers by depositing unspent amount of Rs, 5,50,122/. to the Prime Minister’s National Relief Fund on March 30, 2022.

KMPS NOT ACCOUNTABLE BUT ALL DIRECTORS INCLUDING INDEPENDENT AND NED WERE ACCOUNTABLE

KMPs who did not hold Board positions would not be liable under section 135. But all the directors as on that relevant date would be liable on account of the failure to discharge an obligation cast upon them by the law.

A total fine of Rs 13,75,305/= was levied on Company and on all its directors including Independent and NEDs.

CONCLUSION

1.       Even though the company transferred the amount through its bank ,the said amount bounced back into applicant Company’s Bank account on the same day and the same remained unnoticed to the officers of the Applicant Company. It is a technical snag. Concerned staff failed to find out the bounced amount and rectified the mistake. Because of the staff’s mistake ,  the company and all its directors were fined for their negligence.

2.       It seems that there is absence of internal controls in the company. By strengthening the internal audit, this type mistakes can be avoided in the future.

3.       While doing secretarial audit or company audit , why this is not reported and this raises a million dollar question.

4.       It is to be noted that the Hon’ble Supreme Court in the case of Chintalapati Srinivasa Raju Vs Securities and Exchange Board of India held that unless the independent directors or non-executive directors exercise a significant role in the decision-making process of the company, they cannot be held liable. However , in this case , both ID and NED were made accountable for the KMPs action. It is perplexed why Company has not appealed to Regional Director or to NCLT for giving relief to NED or IDs.

R V Seckar  Practicing Company Secretary ,

 7904719295,

rvsekar2007@gmail.com