The Ministry of Corporate Affairs (MCA) fines Zerodha Asset Management and its directors, including co-founder Nithin Kamath, a total of INR 23.9 Lakh for failing to appoint a CFO within the mandated timeframe.
Penalties Imposed
According to Moneycontrol, the MCA imposed fines on Zerodha Asset Management, co-founder and director Nithin Kamath, and other key directors for not appointing a financial head as mandated by the Companies Act, 2013.
- Company and Director Rajanna Bhuvanesh: INR 5 Lakh each
- Nithin Kamath: INR 4.08 Lakh
- CEO Vishal Virendra Jain and Company Secretary Shikha Singh: INR 3.45 Lakh each
- Directors Nithya Easwaran and Tushar Mahajan: INR 1.5 Lakh each
Background
The issue stemmed from the company’s failure to appoint a CFO for 459 days between December 20, 2021, and March 23, 2023. The position was eventually filled by Chintan Bhatt in March 2023.
Section 203 of the Companies Act, 2013, mandates that public companies with paid-up share capital exceeding INR 10 Cr must have full-time key managerial personnel, including a CFO.
Company’s Response
Zerodha Asset Management acknowledged the delay in a suo-moto application filed in January 2024. CEO Vishal Virendra Jain stated that the company plans to contest the penalties, noting that the order covered a period before the company commenced operations but after incorporation.
“The RoC (Registrar of Companies) order was issued in response to the suo-moto application filed by the company. The Company is disputing the order, and on July 16, 2024, Jain said, an appeal was already filed with the Regional Director, Hyderabad.
Recent Developments
Zerodha received final approval from the Securities and Exchange Board of India (SEBI) to commence operations of its asset management company (AMC) in August 2023. The Zerodha Fund House is a joint venture with invest tech platform smallcase, backed by Peak XV Partners.
In March 2024, Zerodha Fund House was reportedly in talks to raise up to $100 million from investors.
Challenges Ahead
Zerodha is currently facing multiple regulatory challenges. SEBI recently halted the zero-brokerage facility on discount broking platforms, impacting the company’s revenue. The Union Budget 2024-25 proposed increasing the rates of Securities Transaction Tax (STT) on options and futures, affecting Zerodha’s F&O trading business.
Additionally, SEBI floated a draft paper in late July aimed at curbing the rise of F&O trading in India.
Competition
Competitor Groww has overtaken Zerodha, with over 10 million active investors as of May 2024, compared to Zerodha’s 7.5 million active users.
This series of developments highlights the ongoing regulatory and competitive challenges faced by Zerodha in the financial services market.
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