RoC Chennai Imposes ₹7.22 Lakh Fine On Doowon Automotive Systems India Pvt. Ltd. For Delay In Declaration Of Significant Beneficial Ownership

Section 90(1) of the Companies Act, 2013 mandates that every individual who holds significant beneficial ownership in a company must declare their interest to the company. Significant beneficial ownership is typically defined as holding directly or indirectly, not less than 10% of the shares or voting rights, or having the right to exercise significant influence or control over the company.

Section 90(4) of the Companies Act, 2013 requires the company to take actions upon receiving a declaration of significant beneficial ownership. The company must file a return in the prescribed form with the Registrar of Companies (RoC) within a stipulated period, typically within 30 days of receiving the declaration. This return is filed in Form BEN-2, and it contains details about the significant beneficial owner as declared in Form BEN-1.

Brief Facts:

M/s. Doowon Automotive Systems India Private Limited, a company registered under the Companies Act, 1956, with its registered office in Tamil Nadu, was issued a notice under Section 206(1) of the Companies Act, 2013. The purpose of this notice was to ascertain whether the company complied with the provisions of Section 90 of the Companies Act, 2013, and the associated rules. Subsequently, the Registrar of Companies (ROC) Chennai issued another notice under Section 206(3). These notices were aimed at verifying whether the company took appropriate actions to identify its significant beneficial owners, issued BEN-4 notices as required, filed necessary applications with the National Company Law Tribunal (NCLT) under Section 90(7) of the Companies Act, and maintained records of shareholders of Doowon Electronics Company Limited, Korea and its ultimate holding company from the financial year 2018-19 to the present.

The Managing Director of the company responded with a clarification letter along with a list of shareholders. In the letter, the Managing Director stated that the company already initiated the process of filing Form BEN-2. However, he admitted that the company was initially unaware of the mandatory requirement to issue BEN-4 notices as specified in Rule 2A(2) of the Companies (Significant Beneficial Owners) Rules, 2018. He further stated that the company was in the process of issuing the BEN-4 notices to comply with this requirement. It was also clarified that the company had not initiated any application to the NCLT in terms of Section 90(7) of the Companies Act, 2013, read with Rule 7 of the Companies (Significant Beneficial Owners) Rules, 2018.

Observations by the RoC:

The RoC noted that the investigation revealed that the company failed to issue BEN-4 notices to its members despite receiving declarations from the beneficial owners, Mr. Kim Nah Young, Mr. Kim Jong Eom, and Mr. Kim Jong Wan, who had declared their significant beneficial ownership through BEN-1 forms submitted on June 1, 2019. The company, however, only filed the BEN-2 forms on June 4, 2024, after the initiation of legal proceedings.

The RoC noted that this delay in filing the BEN-2 forms and the omission of the BEN-4 notices constitutes a violation of Section 90(4) read with Section 90(4a) and Section 90(5) of the Companies Act, 2013. The law mandates that such forms and notices be filed within a specific timeframe to ensure transparency in the ownership structure of companies.

Further, the RoC held that the company and its officers were liable under Section 90(11) of the Companies Act, 2013. This section imposes penalties on companies and their officers who default in complying with the provisions related to significant beneficial ownership. The RoC found that the company had managing directors in place who would be considered "Officers in default" under Section 2(60) of the Act.

The company was penalized by the RoC with a maximum fine of Rs. 5,00,000/-. Additionally, the managing directors, Mr. Yong Seung Kang and Mr. Gyu Seob Lee, were also penalized. Mr. Kang was fined Rs. 1,96,000 for the period from July 1, 2019, to November 1, 2021, and Mr. Lee was fined Rs. 2,14,200 for the period from November 1, 2021, to June 3, 2024, for their roles in the ongoing default. The total penalty imposed on the company and its officers amounted to Rs. 7,00,000/-.

Further, the RoC noted that the investigation highlighted a delay of 24 days in the submission of BEN-1 declarations by the significant beneficial owners. As a result, the RoC imposed penalties on each of the significant beneficial owners. Mr. Kim Nah Young, Mr. Kim Jong Eom, and Mr. Kim Jong Wan were each fined Rs. 74,000, totaling Rs. 2,22,000/- for their delayed compliance with Section 90(1).

Therefore, the RoC, exercising its powers under Section 454(1) and (3) of the Companies Act, 2013, imposed a total penalty of Rs. 7,22,000 on the company, its officers, and the significant beneficial owners for their violations of Sections 90(1) and 90(4) of the Companies Act, 2013.

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