Independent Director appointed Beyond Two Consecutive Terms: MCA Imposes Penalty on Company and its Officers [Read Order]

The Ministry of Corporate Affairs ( MCA ) imposed a penalty on a company and its directors for the violation of Section 149(11) of the Companies Act, which permits the appointment of an independent director consecutively for a period of two years.

The case arose from a suo moto application filed by the company, Clean Max Enviro Energy Solutions Private Limited (hereinafter referred to as the Applicant) under Section 454 for default under Section 149(11) read with Rule 3(2) of the Companies (Adjudication of Penalties) Rules, 2014 for which penalty is provided under Section 172 of the Act.

Section 149(11) of the Act states that:

“Notwithstanding anything contained in sub-section (10), no independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the expiration of three years of ceasing to become an independent director:

Provided that an independent director shall not, during the said period of three years, be appointed in or be associated with the company in any other capacity, either directly or indirectly.”

The Applicant has stated that it is a Private Limited Company and accordingly, was not mandated to appoint an Independent Director. However, pursuant to provisions of Section 161 of the Act read with Article of Association of the Company, it appointed Mr. Sumit Banerjee as an Independent Director.

The Applicant has stated that it appointed Mr. Sumit Banerjee (DIN: 00213826) as an Additional Non-executive Director on 30.03.2015 for a term up to the ensuring Annual General Meeting (AGM) for Financial Year 2015-16.

The said AGM was held on 30.09.2015 and he was appointed as Non-Executive Independent Director for the first term, that is from 30.09.2015 till 30.09.2020.

Thereafter, he was re-appointed as an Independent Director (Non-Executive) for a period of three years that is from 01.10.2020 to 30.09.2022. He was further re-appointed for a third term vide Board Resolution for a period of three years from 01.10.2022 to 30.09.2025.

Whereas the Company filed E-form DIR-12 dated 16.07.2025 with respect to resignation of Mr Sumit Banerjee with effect from 09.07.2025. Thus, the default under Section 149(11) of the Act continued from 01.10.2022 till the date of his resignation that is 09.07.2025.

Thus, the Company had appointed Mr. Sumit Banerjee as an Independent Director for more than two consecutive terms in contravention of the provisions of Section 149(11) of the Act read with Rule 3(2) of the Companies (Adjudication of Penalties) Rules, 2014. Accordingly, the Company and its Officers in default shall be liable to a penalty under the provisions

of Section 172 of the Act.

The MCA observed that the subject Company does not fall within the definition of a Small Company under the provisions of Section 2(85) of the Act as the subject Company is a holding Company of 68 Companies including LLPs.

Therefore, the provisions of Section 446B of the Act shall not apply to the Company and its officers in default.

Considering Section 172 of the Act, the period of default is considered to be the date of appointment of Mr Sumit Banerjee as an independent director for the third term, that is, 01.10.2022 till the date of resignation, that is, 09.07.2025 for a total of 1013 days.

Therefore, the Company and its Officers in default namely Mr. Ullash Chandra Parida(Company Secretary), Nikunj Gopal Ghodawat (CFO) and Kuldeep Jain (Managing Director) shall be liable to penalty under Section 172 for default under Section 149(11) of the Act.

A maximum penalty of Rs. 3,00,000 was imposed on the company and 1,00,000 on its directors.

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