Appointment of Independent Director Beyond Permissible Tenure: ROC Mumbai Imposes Personal Penalty on Company Secretary
A recent adjudication in the matter of M/s Clean Max Enviro Energy Solutions Ltd. has sent a strong compliance message to companies and professionals alike: voluntary compliance cannot override statutory prohibitions. The Registrar of Companies, Mumbai has imposed penalties not only on the company and its directors but also personally on the Company Secretary, highlighting the expanding accountability of key managerial personnel under the Companies Act, 2013.
Facts of the Case
The company, earlier a private limited company, had appointed Mr. Sumit Banerjee as an Independent Director (ID) for multiple consecutive terms. The chronology of appointments was as follows:
His first term as Independent Director was from 30.09.2015 to 30.09.2020, covering a full term of five years. The second term commenced on 01.10.2020 and continued up to 30.09.2022, covering one year and eleven months. Thereafter, a third term began on 01.10.2022 and is scheduled to conclude on 30.09.2025, covering two years and eleven months.
Effectively, the same individual continued as an Independent Director for more than two consecutive terms, in clear violation of section 149(11) of the Companies Act, 2013, which places an absolute cap on the tenure of an Independent Director.
Statutory Framework: Section 149(11)
Section 149(11) of the Companies Act, 2013 provides that an Independent Director shall hold office for a term of up to five consecutive years and is eligible for reappointment for one more term of up to five years. After completion of two consecutive terms, the Independent Director must observe a cooling-off period of three years before being eligible for reappointment.
This restriction is not conditional upon the type of company. Once a person is appointed and designated as an “Independent Director”, the statutory limitations attached to that position automatically apply.
Defense Taken by the Company
The company argued that being a private limited company, it was not mandatorily required to appoint an Independent Director under the Companies Act. It was further contended that the appointment was made under section 161 of the Act and in accordance with the Articles of Association of the company. On this basis, it was claimed that section 149(11) should not be attracted.
ROC Mumbai’s Findings
The Registrar of Companies, Mumbai categorically rejected the company’s defense. The adjudicating authority held that once the company voluntarily chose to appoint an Independent Director, it became fully bound by all provisions governing Independent Directors, including restrictions on tenure.
The ROC observed that section 161 and the Articles of Association cannot be used to bypass an express statutory prohibition. The nature of appointment, designation, and continued description of the director as an Independent Director made section 149(11) squarely applicable.
Penalties Imposed
Taking a strict view of non-compliance, the ROC imposed the following penalties:
A penalty of ₹3 lakh on the company, ₹2 lakh collectively on the directors, and ₹1 lakh personally on the Company Secretary.
The penalty on the Company Secretary is particularly significant. It reflects the regulator’s view that compliance officers are expected to ensure adherence to core governance provisions and cannot escape liability by attributing decisions solely to the board.
Why This Order Is Important
This order underscores several important principles. First, voluntary appointment does not dilute statutory discipline. Even if a private company is not required to appoint an Independent Director, once it does so, it must strictly comply with all conditions attached to that role.
Second, designation matters. Calling a person an Independent Director attracts the full rigour of section 149, irrespective of internal justifications or intent.
Third, the order highlights the personal responsibility of Company Secretaries. Professionals overseeing corporate compliance are expected to flag and prevent violations, especially those that are clear, objective, and time-based.
Key Takeaway
The ruling in M/s Clean Max Enviro Energy Solutions Ltd. serves as a cautionary precedent. Companies must be careful not only about whether an appointment is mandatory, but also about whether it is legally sustainable over time. For Company Secretaries and directors, the message is clear: governance lapses are no longer viewed as technical or procedural-they carry real personal consequences.
The copy of the ROC order is as under:
