Compounding Fee must be Paid by ‘Officer in Default’, Not Third party: Telangana HC allows Request to Rectify MCA Records [Read Order]

The Telangana High Court, in its recent ruling has allowed the request of the petitioner-director to rectify MCA ( Ministry of Corporate Affairs ) records with regards to wrong mentioning of compounding fee. The court ruled that the fee must be paid by the ‘officer in default’ and not the third party.

Prem Jain, a former director of a company, challenged an order dated 22.08.2023 passed by the Regional Director, South-East Region, Ministry of Corporate Affairs (MCA) before the high court.

He alleged that the order is wrong recording to the extent of naming the person who has paid the compounding fee who admittedly is not the petitioner.

The proceedings against the company and its directors including the petitioner were initiated against the company and its directors, including the petitioner, relating to failure to hold the requisite number of board meetings and maintain statutory gaps between meetings. It was alleged that the petitioner, directors and the company had violated Sections 173(1) and 118 of the Companies Act, 2013.

The offence was compounded under Section Section 441, and the disputed order recorded that the compounding fee of ₹9,000 was paid by the petitioner “from his own sources”.

However, the petitioner submitted that the fee had in fact been paid by a third party (another respondent) and not by him, though he was named as the “officer in default” in the company’s annual report.

The petitioner, apprehending the future liability, sought rectification from the MCA records. He claims that he was the officer in default and he shall pay the fee.

Justice Moushumi Battacharya, allowing the petition, held that the petitioner’s claim was consistent with Section 441(1). The court directed the Regional Director to correct the impugned order, accept the compounding fee from the petitioner and refund the amount earlier paid by the third party.

The bench further ordered the MCA authorities to remove the incorrect order and the annual and auditors’ reports from the MCA portal.