This editorial is based on the importance of the compliance of the Provisions of the Companies Act, 2013. As a lot of amendments have come into the Companies Act, 2013 in the last 8 years. In Many places, ease has given and in many places, strictness has been made. The only motto of the government is to comply with the law in corporate governance manner.
To, enable the corporates to follow the law in true spirit, many penalties were levied by the ROC’s, RD’s, Central Government on non-Compliance by the Corporates. Therefore, it is mandatory to comply with the law with proper care.
In this editorial, author shall discuss “Penalty imposed by Roc Bangalore recently u/s 42 Private Placement of Shares”
- Fact of the Case:
- Company has made Private Placement of 50,000 CCD of Rs. 100/-. Total Value Rs. 50,00,000/-
- SR passed on 27.11.2018
- PAS-3 was filed on 09.01.2019.
- Compliance failed by the Company:
- The Company fails to give reference to Section 42 in the Board Resolution and General meeting Resolution.
- Fails to comply with the provisions of Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014
- The MGT-14 was filed after the issue of Private Placement offer cum application letter.
- The Company has not received the allotment money in a separate Bank Account.
MOST IMPORTANT NON-COMPLIANCE:
- As per Rule 14(8), A company shall issue a private placement offer cum application letter only after the relevant special resolution or Board resolution has been filed in the Registry.
*As per Law until unless the company file MGT-14 with a special Resolution, they are not allowed to issue offer letter. In the given case, The company has filed MGT-14 for SR after issuance of the Offer Letter.
Therefore, corporates must understand and keep in mind that without the filing of Special Resolution with ROC, Companies are not allowed to issue the offer letter.
- As per Rule 42(6), money received on application under this section shall be kept in a separate bank account in a scheduled bank.
*As per Law, it is mandatory to keep a separate bank account for a private placement of shares. In the given case, the company has not opened separate bank account for private placement of shares.
Therefore, it is mandatory for corporates to understand and keep in mind that Opening of separate Bank Account is mandatory for Private Placement of Shares.
Penalty u/s 42:
Subject to sub-section (11), if a company makes an offer or accepts money in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all money with interest as specified in sub-section (6) to the subscribers within a period of thirty days of the order imposing the penalty.
Order made by ROC:
- Penalty Imposed on Company Rs. 50,00,000/-
- Penalty Imposed on both Directors, each Rs. 50,00,000/-
- Total Penalty imposed Rs. 1,50,00,000/-
Further, Directed the Company to refund all the subscription money along with interest to all the subscribers of a private placement.
After this verdict of the ROC Bangalore, Compliance with Section 42 (private placement of Shares) are very important under the Companies Act, 2013. In case company fails to comply with any single provision of Section 42 and relevant rules, then the company may have to bear heavy penalties.
Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.
IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION