Adani Power Limited Penalised Rs 2.25 Lakh for Failing to Maintain Register of Related-Party Contracts

ROC Gujarat imposes penalties on three key directors under Section 189 r.w. 188 of the Companies Act, 2013

Background

The Registrar of Companies (ROC), Gujarat, Dadra & Nagar Haveli passed an adjudication order on 16 May 2023 against M/s. Adani Power Limited (CIN: L40100GJ1996PLC030533) for violation of provisions relating to related-party transactions across three consecutive financial years - FY 2017-18, FY 2018-19, and FY 2019-20.

Key Metrics

What Went Wrong?

• Adani Power entered into multiple related-party transactions under Sections 184(2) & 188 of the Companies Act, 2013 during FY 2017-18, 2018-19, and 2019-20.
• The company failed to record these transactions in the mandatory register of contracts (Form MBP-4), as required under Section 189.
• The company could not produce documentary evidence to demonstrate that transactions were at arm's length and in the ordinary course of business.
• An inquiry under Section 206(4) - ordered by the Ministry of Corporate Affairs on 05.04.2018- surfaced these gaps, ultimately triggering the adjudication notice on 09.03.2023.

Penalties Imposed

Penalty calculated at Rs 25,000 per FY × 3 FYs = Rs 75,000 per director (maximum under Section 189(6)).

Company’s Defence

The authorised representatives argued that all transactions were conducted at arm’s length and in the ordinary course of business, and therefore fell outside the ambit of Section 188. They further contended that the Company Secretary should not be treated as an officer in default under Section 189(6). The adjudicating officer rejected these submissions, noting that the company failed to furnish supporting documentary evidence before the inquiry officer.

Key Compliance Takeaways

• Maintain MBP-4 diligently. Every related-party contract — even those claimed to be at arm’s length - must be entered in the register of contracts under Section 189. The burden of proof lies on the company.
• Document arm’s-length basis contemporaneously. Assertions alone are insufficient. Documentary evidence must be available to the inquiry officer at the time of inquiry.
• Repetitive defaults attract maximum penalty. The default spanning three consecutive FYs pushed the penalty to the statutory ceiling of Rs 25,000 per year per director.
• Non-payment carries further consequences. Failure to pay within 90 days can attract fines up to Rs 5 lakh for the company (Section 454(8)(i)) and imprisonment up to 6 months or a fine up to Rs 1 lakh for officers (Section 454(8)(ii)).

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From the desk of CS Sharath