Indian govt fines Zerodha Asset Management, Nithin Kamath for late hiring of CFO

The Ministry of Corporate Affairs (MCA) has penalized Zerodha Asset Management Private Limited and its directors, including founder Nithin Kamath, for failing to appoint a chief financial officer (CFO) within the stipulated timeframe.

According to an MCA court order released on July 31, Zerodha AMC violated Section 203 of the Companies Act, 2013.

The section mandates companies with a paid-up capital of more than Rs 10 crore to have full-time key managerial personnel, including a CFO and a company secretary.

Details of the penalties

The MCA has fined Zerodha AMC Rs 5 lakh in total. Additionally, founder Nithin Kamath has been fined Rs 4.08 lakh. 

Other top executives have also been penalized: Director Rajanna Bhuvanesh received a fine of Rs 5 lakh, CEO Vishal Virendra Jain was fined Rs 3.45 lakh, Company Secretary Shikha Singh was fined Rs 3.45 lakh, and directors Nitya Easwaran and Tushar Mahajan were fined Rs 1.5 lakh each.

Reportedly, these penalties are to be paid within 90 days from the issuance of the order, and directors must pay their fines from personal funds.

Admission of fault and corrective actions

Zerodha Asset Management admitted its fault in a suo-moto application filed on July 9, acknowledging the delay in appointing a CFO.

"The Company did not have a Chief Financial Officer till the appointment of Chintan Vasantlal Bhatt on 24.03.2023, thereby violating the relevant provisions of the Act from 20.12.2021 to 23.03.2023 i.e. 459 days," the company said.

The delay prompted the MCA to impose significant penalties on the company and its key personnel.

Legal compliance and ongoing appeal

Section 203(1) of the Companies Act, 2013, along with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, requires public companies with a paid-up share capital of Rs 10 crore or more to have a full-time CFO and company secretary.

Zerodha AMC's failure to comply with this requirement until March 2023 led to the penalties. The company has made an application to address the unintentional delay and is contesting the order.

"The Company is contesting the order, and an appeal has already been filed with Regional Director, Hyderabad on July 16, 2024," CEO Vishal Jain said.

Zerodha AMC’s presence

Zerodha Fund House, a collaboration between Zerodha brokerage and smallcase wealth-tech platform, was established in November 2023.

The firm exceeds Rs 2,000 crore in assets under management (AUM). As a passive-only asset management company, It focuses on creating index funds and ETFs designed for effortless investment and utmost transparency.