Bombay HC Moderates Monetary Penalty of Section 39 Company Act
Section 39(4) of the Companies Act require a company to upload return of allotment of securities as provided by Rule 12 of the Company Allotment of Securities Rules, 2014. In the event of failure, sub-section (5) of Section 39 provides for penalty.
signatory to the return of allotment to also certify the list of allottees with all the particulars to be contained therein as being correct and complete.
The Adjudicating Officer has imposed monetary penalty of Rs.64 lakhs on the petitioner company for failure to certify annexures to sixteens returns of allotment of securities uploaded by the petitioner company between February 2019 and January 2021.
The issue is whether the quantum of penalty is attracted and the scope of powers / discretion of the Adjudicating Officer to impose such monetary penalty.
Whether imposition of a penalty of Rs. 1,000 per day is a mandatory statutory minimum or whether the Adjudicating Officer has the power (coupled with the duty) to exercise discretion to impose penalty of less than Rs. 1,000 per day, is the question to answer.
In my opinion, the reading of Section 39(5) of the Companies Act, a penal provision, as a stipulation that does not permit the Adjudicating Officer to exercise adjudicatory discretion to examine the nature, the gravity, and the impact of the default is an unreasonable reading of the provision, which would render it unconstitutional. The very same provision can be read in a constitutionally valid manner and that entails the power of the Adjudicating Officer, which is indeed a power coupled with a duty to exercise such discretion in discharge of an adjudicatory function.
Judgment dated 27.4.2026 of the High Court of Bombay in Writ Petition No.10782 of 2024 of N>S. J.L Nidhi Ltd Throu. Its Rohit K Bhamburdekar and others Vs. The Regional Director (Wr) Ministry of Corporate Affair and another
Penalty of Rs.64 lakhs for failure to certify annexures of 16 returns of securities allotment (Form PAS-3) – Scope of Powers of the Adjudicating Officer under section 39 of the Companies Act
Bombay HC – Section 39(5) Penalty Must Be Proportionate – Technical Default by the Company Moderated to Rs.1 Lakh Per Return
Affirmation in Form PAS-3 is substantial compliance but does not affect Rule 12(2)’s dual certification requirement and therefore, it is a technical default. However, the Adjudicating Officer wrongly multiplied maximum penalty by number of directors, making it arbitrary.
Liability can be joint and several but multiplied per director without analysis.
