Companies Act Section 99

Companies Act, Section 99: Punishment for Default in Complying with Provisions of Sections 96 to 98

Section 99 of the Companies Act addresses the penalties and consequences for companies and their officers in the event of a failure to comply with the provisions outlined in Sections 96, 97, and 98, which relate to the holding of meetings (including Annual General Meetings (AGM)) and compliance with the Tribunal's directions regarding meetings. This section serves as a deterrent against non-compliance and enforces accountability for both the company and its officers in ensuring that they follow the legal requirements regarding the convening and conducting of meetings. Below is a detailed explanation of Section 99, its scope, and the consequences of non-compliance.

Subsection (1): Default in Holding Meetings and Complying with Tribunal Directions

1. Failure to Hold a Meeting as per Section 96:

Section 96 requires that a company, other than a One Person Company, must hold an Annual General Meeting (AGM) within specific timelines (not more than 15 months between consecutive AGMs) and in compliance with the provisions of the Companies Act. Failure to adhere to these timelines, without justifiable reasons, constitutes a default under Section 96.

This section outlines the necessity of adhering to the prescribed schedules for AGMs and other types of meetings, ensuring that companies do not neglect their obligations to shareholders.

2. Failure to Comply with Section 97 or Section 98:

Section 97 provides for the power of the Tribunal to call an AGM if there is a default in holding such a meeting as mandated under Section 96.

Section 98 grants the Tribunal the authority to call and direct the holding of meetings for reasons where it is impracticable to hold a meeting in the usual prescribed manner, such as in cases where there are logistical difficulties or the provisions of the company's Articles of Association cannot be adhered to.

Any failure in complying with the provisions of these sections, whether regarding the calling, holding, or conducting of meetings, or the directions issued by the Tribunal in cases of impracticability, can result in penalties.

3. Failure to Comply with Tribunal’s Directions:

If the company does not comply with the directions of the Tribunal issued under Sections 97 or 98 (such as modifying the manner of conducting meetings or relaxing specific procedural requirements), it is considered a default.

These directions may include mandates such as the method of calling or conducting meetings, the timing of meetings, or even decisions related to the quorum or the participation of members. Non-compliance with these Tribunal orders is also punishable under Section 99.

Subsection (2): Penalty for Default by Company and Officers

1. Imposition of Fines on the Company and Its Officers:

Section 99 imposes financial penalties on the company and its officers in default. These penalties are designed to ensure that both the company and its management adhere to the meeting and procedural requirements set forth by the Companies Act.

Penalties on the Company: The company itself will be liable for a fine for failing to comply with the provisions related to meetings. The fine can extend to one lakh rupees for a single instance of non-compliance.

Penalties on the Officers of the Company: In addition to the company, any officer in default (such as directors, company secretaries, or other officials responsible for the management of the company’s affairs) will also be penalized. These officers can face a fine of up to one lakh rupees for the default.

2. Continuing Default:

If the default continues over time, the penalty becomes more severe. A continuing default refers to a situation where the company or its officers fail to rectify the non-compliance, and the default persists beyond the original instance.

In such cases, the company and its officers will face an additional fine of up to five thousand rupees for every day the default continues. This daily fine serves as a financial incentive for the company to act swiftly and rectify any non-compliance in order to avoid further financial penalties.

Objective and Purpose of Section 99

1. Ensuring Corporate Accountability:

Section 99 aims to ensure that companies and their officers remain accountable for adhering to the meeting requirements under Sections 96, 97, and 98. By imposing penalties for non-compliance, the law incentivizes companies to follow procedures properly and timely.

The penalties also create a deterrent against deliberate negligence or avoidance of meeting-related requirements, ensuring that companies do not overlook or intentionally disregard the legal process for convening and conducting meetings.

2. Protection of Shareholders' Rights:

Regular and timely meetings, such as the AGM, are essential for shareholder participation, transparency, and informed decision-making. Non-compliance with these requirements can severely affect the rights of shareholders and other stakeholders. Section 99 ensures that there are consequences for not fulfilling these responsibilities, thereby protecting the rights of shareholders to be involved in key corporate decisions.

3. Ensuring Proper Corporate Governance:

Holding regular meetings and adhering to Tribunal directions is a fundamental aspect of corporate governance. Section 99 emphasizes the importance of governance practices by holding companies and their officers accountable for following legal requirements related to meetings, thus supporting the overall framework of transparency and accountability in corporate operations.

4. Prompt Remediation of Defaults:

The imposition of daily penalties for continuing defaults encourages companies to take immediate action to rectify any failure in meeting the legal requirements. This provision is designed to prevent prolonged delays and ensure that companies comply as quickly as possible to avoid accumulating penalties.