Mystery Surrounding Nomination of Persons Responsible for Company's Actions Under Legal Metrology

In pursuance of Section 49(2), the Government has formulated Rule 29 of the Legal Metrology (General) Rules, 2011 ("General Rules") to prescribe the manner of nomination of the director.

Under Section 49 of the Legal Metrology Act, 2009 ("LM Act"), a company is required to nominate a person who will be in charge of and responsible for conducting its business. The purpose behind nominating such a person is to hold him/ her responsible for an offence committed by the company.

Thus, in the event of an offence, the prosecution proceedings will be initiated against such a nominated person. Recently, an amendment has been made in respect of the person to be nominated by the companies. Before discussing this amendment and the issues revolving around it, let us first understand the provisions dealing with nomination of a person.

Legal provisions for nomination of a person

The source of power for nominating a person to be held responsible for the company's actions emanates from sub-section (2) of Section 49 of the LM Act. As per the said section, a company may, by order in writing, authorize any of its directors to exercise all such powers and take all such steps as may be necessary or expedient to prevent the commission by the company of any offence under this Act. Further, the company is also required to give a notice of such nomination to the authorized legal metrology officer in the prescribed form and manner. Here, it is significant to note that the Explanation to Section 49(2) allows a company, having different establishments or branches or different units in any establishment or branch, to nominate different persons in relation to different establishments or branches or units. The person so nominated is deemed as the person responsible in respect of such an establishment, branch or unit.

In pursuance of Section 49(2), the Government has formulated Rule 29 of the Legal Metrology (General) Rules, 2011 ("General Rules") to prescribe the manner of nomination of the director. It requires a Company to intimate the authorized officer, the name and address of the "director" nominated under Section 49(2) in the format specified in the Thirteenth Schedule. The aforesaid format also refers to the nomination of the "director" by the company.

Amendment made in Rule 29

On 4.10.2022, a proviso has been inserted in Rule 29 of the General Rules vide Notification No. F. No. I-9/15/2022-W&M issued by the Department of Consumer Affairs. The said proviso states as under:- "Provided that where a company has different establishment or branch or different unit in any establishment or branch, an officer who has the authority and responsibility for planning, directing and controlling the activities of the establishment or branch or different unit may be nominated under subsection (2) of section 49 to be in-charge of and be responsible for the conduct of business of the establishment, branch or unit thereof."

Simultaneously, the phrase "(name and designation of the officer nominated under rule 29)" have been substituted in place of the word "director" in the format prescribed under the Thirteenth Schedule.

On a primary reading of the above proviso, it is discernible that any officer other than a director can also be nominated by a company under Section 49(2) provided such an officer has the authority for planning, directing and controlling the activities of the business. Whilst the said amendment appears to be an uncomplicated one, it has opened up a can of worms. Let us discuss certain issues that have cropped up from this amendment.

1) Validity of amendment

The first and foremost issue that comes up is whether the insertion of proviso in Rule 29 traverses beyond Section 49 since, no corresponding amendment has been made in the said section.

Here, we may take note of the Press Release issued by the Ministry of Consumer Affairs, Food & Public Distribution on 4.10.2022 ("Press Release"), which clarifies that this amendment has been made to enhance the ease of doing business and to reduce the compliance burden. The Press Release also clarifies that earlier in case of any violations under the LM Act, prosecutions were initiated against the directors. However, with this amendment a person who is actually responsible for the activities of an establishment or branch of the company will be nominated and accordingly, held liable.

From a perusal of the Press Release, it appears that the law makers are of the understanding that Section 49(2) empowers a company to nominate one of its directors but does not carve a restriction for nominating a person other than a director for the purpose of the LM Act. Having said that, whether this taxpayer friendly amendment becomes a topic of controversy or not will have to be seen.

2) Applicability of amendment

The next question that emerges is whether this amendment applies only in case of a company having multiple establishments, branches or units. In other words, whether a person other than a director can be nominated in case where a company has a single establishment or branch or unit. The Explanation to Section 49(2) also envisages nomination of different persons in case of different establishments, branches or units only.

Even though the purpose behind incorporating an Explanation is to provide clarification, the manner in which the proviso to Rule 29 has been worded results in such an ambiguous interpretation.

3) Nomination of a single person

Despite the fact that the amended Rule 29 allows nomination of different persons for different establishments, branches or units, a question may arise whether one person can still be nominated under Section 49(2) read with Rule 29 for different establishments, branches or units. Further, if a person is not involved in or responsible for day- to- day activities, whether he can be nominated under Section 49(2) is another issue that might crop up.

4) Imposition of an additional requirement

Another doubt that comes into the picture is whether a person responsible for the activities of the establishments, branches or units is required to be nominated in addition to the director or in lieu of the director. To put it simply, the ambiguity involved here is whether a company is required to nominate a director as well as a person responsible for business activities under Section 49(2) of the LM Act read with Rule 29.

The abovementioned issues highlight a few challenges surfacing from this simplistic amendment. However, it is of the utmost importance for the companies to take an informed decision while nominating a person under Section 49(2) considering the grave consequences that may ensue in case of an offence.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.