Why Section 173 Compliance Is No Longer a “Routine” Obligation

In today’s regulatory environment, corporate secretarial compliance is no longer viewed as a procedural or clerical function. It has become a critical pillar of corporate governance, accountability, and risk management. With regulators increasingly leveraging technology, data analytics, and artificial intelligence (AI) to monitor compliance, even seemingly routine lapses are attracting swift penal action.

Recent adjudication orders issued by the Registrar of Companies (RoC) including the one issued on 12th August, 2025 underscore this shift. One such order issued by the RoC, Hyderabad, under Section 454 of the Companies Act, 2013, imposed penalties on directors for non-compliance of Section 173, relating to the periodicity of Board Meetings. The case serves as a strong reminder that non-adherence to Board meeting timelines is treated as a substantive governance failure, not a procedural oversight.

Section 173 of the Companies Act, 2013 – A Governance Cornerstone

Section 173 of the Companies Act, 2013 mandates that:
• Every company must hold its first Board Meeting within 30 days of incorporation.
• Thereafter, the company must hold a minimum of four Board Meetings every calendar year.
• The maximum gap between two consecutive Board Meetings must not exceed 120 days.
The intent behind this provision is clear:
Board Meetings are the primary forum where directors discharge their fiduciary duties, exercise oversight, and guide the strategic and operational direction of the company. Any prolonged gap weakens governance, dilutes accountability, and increases the risk of non-compliance across other statutory areas.

Regulatory Enforcement: Lessons from the Recent Adjudication Order

In the adjudication order under reference, the company failed to comply with the 120-days gap requirement. The interval between two Board Meetings extended to 268 days, far exceeding the statutory limit. Despite the justification made by the company , penalties were imposed on the directors considered to be “officers in default”.

Key takeaways from the order include:
1. No Tolerance for extended gaps – The adjudicating authority focused squarely on the number of days between meetings, not on intent or operational explanations.
2. Identifying and assigning the responsibility of compliance – Assigning a particular Officer the responsibility for issuing Notice of Board Meeting as per provisions of section 173(4) can prevent all the Directors from the implications of non-compliance. As a result the officer of the company whose duty is to give notice under this section and who fails to do so shall be liable to a penalty of twenty-five thousand rupees.
3. Personal Liability of Directors – In the present case, no officer was assigned, therefore penalties under Section 173(4) were imposed individually on all directors, unless proved otherwise and the same shall be payable from their personal sources, reinforcing the importance of Board compliance.
4. Nominee Director Exemptions are not automatic – While one nominee director was exempted, this was based on specific facts and representations. The order makes it clear that nominee status alone does not provide blanket immunity.
5. AI-Enabled Scrutiny Is Real – The default was detected through data available on the MCA portal—highlighting how regulators now rely on system-driven monitoring rather than manual inspections.

This case reflects a broader regulatory trend: objective, data-backed enforcement with limited scope for discretion.

“Officer in Default”: Understanding Director Liability

A common misconception among directors—especially nominee and non-executive directors—is that liability arises only for those managing day-to-day operations. The Companies Act takes a far stricter view.

Under Section 2(60), an “Officer in Default” refers to individuals who can be personally held liable for non-compliance under the Act. This includes:
• Whole-time Director – Any director in full-time employment of the company.
• Key Managerial Personnel (KMP)Includes the CEO, Managing Director, Whole-time Director, CFO, Company Secretary, or any person designated as KMP under the Act.
• Designated Director(s) in Absence of KMP – Where there is no KMP, such director(s) as specifically identified by the Board and who have consented in writing; If no such director is specified, all directors become officers in default.
• Persons Charged with Compliance Responsibility- Any individual who, under the authority of the Board or KMP is responsible for maintenance, filing, or distribution of records/accounts, or Authorises, actively participates in, knowingly permits, or Fails to take reasonable steps to prevent a default.
• Shadow Directors / Persons Giving Directions – Any person whose instructions or advice the Board is accustomed to act upon, excluding professionals (such as lawyers, auditors, or consultants acting in their professional capacity).
• Directors with Knowledge or Consent – Any director who is aware of a contravention through Board proceedings or participation, and does not object, or Where the contravention occurred with their consent, connivance, or approval.
• Intermediaries in Share Issuance or Transfer – In matters relating to issue or transfer of shares, the following may be officers in default:
-Share Transfer Agents
-Registrars
-Merchant Bankers to the issue or transfer

In the cited adjudication:
• All directors were initially issued show-cause notices, regardless of their role.
• Only one nominee director was exempted, and that too after substantiating limited involvement with documentary evidence.
• The remaining directors were held personally liable, with penalties imposed from their personal income, not company funds.

The message from regulators is unambiguous: Board positions come with accountability, not ceremonial oversight.

The Rise of AI and Data Analytics in Compliance Monitoring

The Ministry of Corporate Affairs has significantly enhanced its digital infrastructure through MCA Version 3 (V3). With this transformation:
• Board meeting dates, filings, and event timelines are digitally mapped
• Algorithms can easily flag deviations from statutory timelines
• Non-compliance is detected without human intervention
• Adjudication proceedings are increasingly system-triggered
For companies—especially overseas subsidiaries and institutionally funded entities—this means that visibility gaps, delayed internal coordination, or informal governance practices can translate directly into regulatory exposure.

Why Board Meeting Compliance Often Slips

In practice, non-compliance with Section 173 often arises due to:
• Dependence on informal calendars instead of compliance trackers
• Delayed confirmations from directors located across geographies
• Lack of a central secretarial function overseeing group entities
• Assumptions that “minor delays” will not attract regulatory attention
The recent enforcement actions clearly dispel these assumptions.

The Strategic Role of Corporate Secretarial Professionals

Corporate secretarial compliance is not limited to drafting minutes or filing forms. It involves:
• Proactive compliance calendar management
• Board and committee planning aligned to statutory timelines
• Advisory to directors on personal liability exposure
• Ensuring documentary and evidentiary robustness in case of scrutiny
A well-structured secretarial framework acts as a preventive control, not merely a reporting function.

How SimplyBiz Supports Robust Board Governance

SimplyBiz is a Trusted Partner in corporate secretarial compliance, with an extensive track record of serving overseas subsidiaries, institutionally funded companies, and growth-stage enterprises. Our approach goes beyond checklist compliance.
We support clients through:
• End-to-end Board Meeting management – planning, scheduling, agenda structuring, documentation, and minutes
• Statutory compliance calendars aligned to Companies Act timelines
• Proactive alerts and governance dashboards to prevent slippages
• Director-level advisory on liabilities and regulatory expectations
• Representation and support during adjudication and regulatory interactions

In an environment where regulators are vigilant and systems are unforgiving, SimplyBiz acts as a governance partner, ensuring that Boards operate with discipline, visibility, and confidence.

Conclusion

The enforcement of Section 173 is a clear signal that Board governance is under active regulatory surveillance. With AI-driven monitoring and data-led adjudication becoming the norm, companies can no longer afford reactive or informal compliance approaches.
Strong corporate secretarial compliance is not just about avoiding penalties—it is about protecting directors, preserving investor confidence, and enabling sustainable growth.

With SimplyBiz as your compliance partner, organizations can move from compliance anxiety to governance assurance—knowing that their Board processes meet both the letter and spirit of the law.

If you want to know more on the Corporate Secretarial compliance related requirements, please write to our Product Head – Vaishali Vohra at the mail ID vaishali@simplybiz.in Lead – Corporate Compliances at vanaja@simplybiz.in or SimplyCorp@simplyBiz.in