While a fine of INR 5 Lakh each has been imposed on the company as well as its director Rajanna Bhuvanesh, founder Kamath has been charged a penalty of INR 4.08 Lakh
Meanwhile, Zerodha Asset Management plans to contest the order
At the heart of the matter is the company not appointing the CFO for a period of 459 days between December 20, 2021 and March 23, 2023 in violation of Companies Act, 2013
Inc42 Daily Brief
Stay Ahead With Daily News & Analysis on India’s Tech & Startup Economy
The Ministry of Corporate Affairs (MCA) has reportedly imposed a penalty of INR 23.9 Lakh on Zerodha Asset Management and its directors over the asset management company’s failure to appoint a chief financial officer (CFO) in the stipulated time.
As per a Moneycontrol report, the MCA slapped the fine on Zerodha Asset Management, its cofounder and director Nithin Kamath, and other key directors for failure to appoint the financial head within the period mandated by the Companies Act, 2013.
While a fine of INR 5 Lakh each has been imposed on the company as well as its director Rajanna Bhuvanesh, Kamath has been charged a penalty of INR 4.08 Lakh. Meanwhile, CEO Vishal Virendra Jain and company secretary Shikha Singh have been levied a fine of INR 3.45 Lakh each, while directors Nithya Easwaran and Tushar Mahajan have been penalised INR 1.5 Lakh each.
At the heart of the matter is the company not appointing the CFO for a period of 459 days between December 20, 2021 and March 23, 2023. It eventually appointed Chintan Bhatt as CFO in March last year.
It is pertinent to note that Section 203 mandates public companies, with a paid-up share capital exceeding INR 10 Cr, to have full-time key managerial personnel, including a CFO. Interestingly, Zerodha Asset Management, in a suo-moto application filed in January 2024, admitted that it had not appointed a CFO during the intervening period.
However, the company plans to contest the penalties. Zerodha Asset Management’s CEO Jain told the publication that the order covers the time period before the company commenced operations but after it was incorporated.
“The RoC (Registrar of Companies) 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.
It is pertinent to note that Zerodha received final approval from the market regulator Securities and Exchange Board of India (SEBI) to commence the operations of its asset management company (AMC) in August 2023.
A joint venture (JV) between Zerodha and Peak XV Partners-backed invest tech platform smallcase, Zerodha Fund House is the asset management arm of the company.
Zerodha Fund House was also said to be in talks with several investors to raise up to $100 Mn in March this year.
The development comes at a time when the parent and online brokerage major Zerodha is already grappling with a slew of brewing troubles on the regulatory front.
Last month, SEBI halted the zero-brokerage facility on discount broking platforms, which will have a direct impact on the company’s fortunes. Additionally, Union Budget 2024-25 also proposed increasing the rates of STT from 0.0625% to 0.1% on options and from 0.0125% to 0.02% for futures, which is also expected to hit Zerodha’s lucrative F&O trading.
As if this was not enough, SEBI, in late-July, also floated a draft paper that aimed to curb the rise of F&O trading in India.
Meanwhile, competitor Groww has raced ahead of Zerodha as the former accounted for over 10 Mn active investors at the end of May 2024, while the latter played second fiddle with 7.5 Mn active users.
Note: We at Inc42 take our ethics very seriously. More information about it can be found here.