The Ministry of Corporate Affairs (MCA) has imposed significant fines on Zerodha Asset Management Private Limited (Zerodha AMC) and its senior executives, including founder Nithin Kamath, for failing to appoint a chief financial officer (CFO) within the mandated timeframe. According to a court order dated July 31, Zerodha AMC has been penalized for violating Section 203 of the Companies Act, 2013, which stipulates that companies with a paid-up capital exceeding ₹10 crore must appoint a full-time managerial executive, including a CFO.
Details of the Penalty Imposed on Zerodha AMC
The MCA has levied a fine of ₹5 lakh on Zerodha AMC for this non-compliance. Founder and director Nithin Kamath has been fined ₹4.08 lakh. Other key executives also face penalties: Rajanna Bhuvanesh, a director, has received the maximum fine of ₹5 lakh; CEO Vishal Virendra Jain and Company Secretary Shikha Singh have each been fined ₹3.45 lakh; and directors Nitya Easwaran and Tushar Mahajan have each been fined ₹1.5 lakh. The fines reflect the severity of the delay, which lasted from December 20, 2021, to March 23, 2023—a total of 459 days—before the appointment of Chintan Bhatt as CFO.
The Companies Act, 2013 mandates that certain companies, including those with a paid-up share capital of ₹10 crore or more, 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 public companies falling into this category must adhere to this requirement to ensure proper financial oversight and compliance.
The delay in appointing a CFO was deemed a serious breach of these regulations, leading to the imposition of penalties on both the company and its executives. The MCA’s order underscores the importance of adhering to corporate governance norms and timely compliance with regulatory requirements.
Zerodha AMC’s Response and Appeal
In response to the MCA’s order, Vishal Jain, CEO of Zerodha Asset Management Private Limited, has stated that the order pertains to the period after the company’s incorporation but before it began its operational activities. Jain clarified that the company had been working to address an unintentional delay in appointing a CFO within the six-month period post-incorporation.
Jain explained that the MCA’s order was issued following a suo-motu application filed by Zerodha AMC. The company is contesting the order and has already filed an appeal with the Regional Director in Hyderabad on July 16, 2024. This appeal challenges the imposition of penalties and seeks a review of the circumstances leading to the delay in appointing the CFO.
The maximum penalty of ₹5 lakh was imposed on the company itself, while individual fines were also levied on the key directors and officers from the relevant period. The company and its directors have been given 90 days to settle the penalties. According to the court order, the directors must pay their fines personally.
About Zerodha Fund House
Zerodha Fund House, a collaboration between the brokerage Zerodha and the wealth-tech platform smallcase, entered the ₹59 lakh crore Indian mutual fund industry as a new player. Launched in November 2023, this passive-only asset management company has made a substantial impact in a short time. It has already surpassed ₹2,000 crore in assets under management (AUM), reflecting its rapid growth and the increasing interest in its investment products.
The company’s swift rise in the mutual fund sector highlights its innovative approach and the market demand for passive investment options. Despite the regulatory challenges, Zerodha AMC’s growth trajectory underscores its significant role in shaping the future of asset management in India.
The ongoing appeal process will determine if the penalties imposed on Zerodha AMC and its executives will be adjusted or upheld. This case serves as a reminder of the critical importance of adhering to regulatory requirements and maintaining robust corporate governance practices.
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