ROC Mumbai I Imposes Penalty for Delay in Board Resolution Approving Loan Conversion into Equity

1. Background and Regulatory Framework

The Registrar of Companies, Mumbai I, has passed an adjudication order dated 25.06.2026 under Section 454 of the Companies Act, 2013, imposing penalties for violation of Section 450 arising out of non-compliance with the proviso to Section 179(3). The proceedings arose from a delay by the Board of Directors of a company in formally exercising its powers to approve the conversion of a loan from its holding company into equity share capital.

The order concerns COVERFOX INSURANCE BROKING PRIVATE LIMITED (CIN: U66000MH2013PTC243810), a company registered in Mumbai. The adjudication also involves its directors, Mr. Anurag Mehrotra (DIN: 01950688) and Mr. Sanjib Kumar Jha (DIN: 02277191), treated as officers in default.

The adjudicating officer was appointed by the Ministry of Corporate Affairs through Gazette Notification S.O. 698(E) dated 10.02.2026, in exercise of powers under Section 454 read with the Companies (Adjudication of Penalties) Rules, 2014.

2. Statutory Provisions Involved

2.1 Section 179(3) – Powers to be Exercised by Board Resolutions

Section 179(3) mandates that specified powers of the Board must be exercised only through resolutions passed at meetings of the Board. The provision, as reproduced in the order, lists several matters reserved for Board resolutions, including:

  • Making calls on shareholders,
  • Authorising buy-back under Section 68,
  • Issuing securities,
  • Borrowing,
  • Investing funds,
  • Granting loans, guarantees, or security in respect of loans,
  • Approving financial statements and Board’s report,
  • Diversification,
  • Approving amalgamation, merger, or reconstruction,
  • Takeover or acquisition of substantial stake,
  • And any other prescribed matter.

In this case, the conversion of a loan from the holding company into equity shares was treated as a matter requiring proper Board approval under Section 179(3), read with other relevant provisions such as Section 62(3).

2.2 Section 450 – General Penalty Provision

Section 450 is the residual penalty provision under the Companies Act, 2013. It stipulates that where a contravention occurs for which no specific penalty is elsewhere prescribed in the Act, the following applies:

  • The company and every officer in default (or other person) is liable to:
    • A fixed penalty of ₹10,000, and
    • In the case of a continuing contravention, an additional ₹1,000 per day after the first day of default,
    • Subject to a maximum of ₹2,00,000 for the company and ₹50,000 for each officer in default.

Since no specific penalty is provided for the breach arising out of the delay in exercising powers under Section 179(3), the ROC proceeded under Section 450.

2.3 Section 2(60) and Rule 12(3) – Officer in Default and GNL-3

The order also touches on Section 2(60) read with Rule 12(3) of the Companies (Registration Offices and Fees) Rules, 2014, which deal with identification and intimation of an "officer in default" through filing of E-form GNL-3. The absence of this filing affected the ROC’s conclusion on who should be treated as officers in default.

3. Factual Matrix of the Case

3.1 Loan and Conversion Arrangement

The assessee company, COVERFOX INSURANCE BROKING PRIVATE LIMITED, had received advances/loans from its holding company, COVERSTACK TECHNOLOGIES PRIVATE LIMITED, on various dates.