The Ministry of Corporate Affairs (MCA) has imposed penalties on Zerodha Asset Management Private Limited and its key directors, including founder Nithin Kamath, for failing to appoint a Chief Financial Officer (CFO) within the stipulated timeframe, thereby, violating the law.
On January 9, 2024, Zerodha Asset Management filed a suo-moto application admitting that they had not appointed a CFO, violating Section 203 of the Companies Act, 2013.
This law requires companies like Zerodha, which are deemed public companies with a paid-up share capital exceeding Rs 10 crore, to have a full-time key managerial personnel, including a CFO.
“Section 203(1) of the Act mandates that companies of certain sizes must have full-time key managerial personnel, including a CFO and company secretary. Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, specifies that any public company with a paid-up share capital of Rs 10 crore or more must comply,” the order read.
The firm did not comply with the said rule until March 24, 2023, when Chintan Bhatt was finally appointed. This delay, spanning 459 days, led to the ministry’s decision to impose significant penalties.
“The Company did not have Chief Financial Officer till the appointment of Chintan Vasantlal Bhatt on 24.03.2023, thereby violating the relevant provisions of the Act from 20.12.2021 to 23.03.2023 i.e. 459 days,” the order read.
Company to contest order
In response to the MCA's order, Vishal Jain, CEO of Zerodha Asset Management Private Limited, explained that the order covers the time after the company was incorporated but before it started operations.
The company had applied to address an unintentional delay in appointing a CFO within six months of incorporation.
"The ROC order was issued in response to the suo-motu application filed by the company. The Company is contesting the order, and an appeal has already been filed with the Regional Director, Hyderabad on July 16, 2024," Jain said in a written statement, responding to Moneycontrol queries.
Meanwhile, the MCA has imposed a maximum penalty of Rs 5 lakh on the company itself.
Additionally, key directors and officers who were in default during this period have also been fined.
Founder and Director Nithin Kamath has been fined Rs 4.08 lakh. Director Rajanna Bhuvanesh received the maximum penalty of Rs 5 lakh, followed by CEO Vishal Virendra Jain (Rs 3.45 lakh), Company Secretary Shikha Singh (Rs 3.45 lakh), Director Nithya Easwaran (Rs 1.50 lakh), Director Tushar Mahajan (Rs 1.50 lakh).
Zerodha Fund House, a venture between brokerage Zerodha and wealth-tech platform smallcase, is among the newest entrants in the Rs 59 lakh crore Indian mutual fund industry.
Launched in November 2023, the passive-only asset management company (AMC) has crossed Rs 2,000 crore in assets under management (AUM).
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