Penalty Set Aside as No Violation of Private Placement Provisions Found

The Regional Director, Hyderabad, adjudicated an appeal under Section 454 of the Companies Act, 2013 against a penalty imposed by the Registrar of Companies, Vijayawada for alleged violation of Section 42(10) concerning private placement. Upon review, it was observed that the company, being a startup, had substantially complied with the requirements of Section 42 and had duly followed the prescribed procedures. The alleged violation pertained only to filing an incorrect attachment (PAS-4) with Form MGT-14, despite there being no legal requirement to file PAS-4 after the 2018 amendment. The authority held that this amounted to a procedural lapse under Rule 14 of the relevant rules, for which no specific penalty is prescribed. Consequently, the earlier penalty under Section 42 was set aside and replaced with a nominal penalty under Section 450 read with Section 446B, imposing ₹5,000 each on the company and its directors, recognizing the minor and technical nature of the default.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
RD Hyderabad
3rd Floor, Corporate Bhawan, Bandlaguda, Nagole, Tattiannaram Village, Hayat Nagar Mandal, Ranga Reddy District, Hyderabad, Telangana, India, 500068

Appeal Order ID: PO/ADJ/04-2026/HYD/000225 Dated: 22-04-2026

To the appellant(s),

1. LOCALBUY TECHNOLOGIES PRIVATE LIMITED, ——-

AND

the respondent ROC Vijayawada

Appeal under section 454 of the Companies Act, 2013 read with rule 4 and 5 of the Companies (Adjudication of Penalties) Rules, 2014 against the order for adjudication of penalty dated 30-12-2024 of the ROC Vijayawada issued under section 42(10) of the Companies Act, 2013.

A. Facts about the case:

1. An appeal in e-Form ADJ vide SRN AB2819066 dated 26-02-2025 under section 454 of Companies Act, 2013 was filed by the appellant LOCALBUY TECHNOLOGIES PRIVATE LIMITED in reference to the subject cited above.

2. The Regional Director heard the matter and also taking into consideration the facts of the Appeal and the submissions made by the authorised Representative
on behalf of the Company and its directors, the Regional Director observe as under:

a. The company is a start-up company and the provisions of Section 446(B)-in respecting of levying lesser penalty of the Companies Act, 2013 would be applicable in this case.

b. The Registrar of Companies imposed penalty for violation of provisions of Section 42 of the Companies Act, 2013. The penalty fee which is as per Section 42(10) read with Section 446(B) of the Companies Act, 2013. Section 42(10) provided that Subject to SubSection (11), if a company makes an offer or accepts monies in contravention of this Section, the company, its promotors and directors shall be liable for a penalty which may extent to the amount raised through the private placement or Two Crore Rupees, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section(6) to subsidiaries with a period of thirty days of the order imposing the penalty.

c. In this regard it was observed that there was no violation of Section 42 and the company had followed the entire procedure and filed all documents as required by the provisions of Section 42 of the Companies Act, 2013 and therefore penalty for the violation of Section 42 was not to be imposed upon the company and its directors.

d. The violation relates to filing wrong attachment to PAS-4 filed along with MGT-14. PAS-4 is the application form for private placement under Rule 14 of the Companies (Prospectus and allotment of Securities) Rules, 2014. It is relevant that PAS-4 was required to be filed with ROC as attachment of MGT-14 till 06.08.2018 but the requirement to file PAS -4 with ROC was done away with the amendment of said Rule 14 w.e.f. 07.08.2018. Therefore, as such there was no legal requirement for the Company to file PAS-4 with ROC, however, as the company did file the same, but with a defective attachment it will at most be a violation of Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Since no penal provision is provided for the violation of the said Rule, the penalty given under section 450 r/w 446B of the Companies Act, 2013 is applicable.

In view of the above and after taking into consideration the fact of the appeal and the submissions made by the authorized representative, the appeal is allowed and the order of the 10 is modified. The penalty imposed by the Registrar of Companies, Andhra Pradesh, as per Section 42 is set-aside and the penalty as per Section 450 r/w 446B of the Act is imposed. The penalty levied for the violation of Rule 14 of Prospectus and allotment of Securities is as under.

1. Localbuy Technologies Private Limited Rs. 5000/-

2. Neeraj Menta, Director Rs. 5000/-

3. Sailesh Tulshan, Director Rs. 5000/-

4. Anil Thontepu Naga Purushithama Rs. 5,000/-

B. Order:

1. Hence, in exercise of powers conferred under sub-section (7) of section 454 of the Companies Act, 2013, the details of penalty imposed on the appellant(s) shall be as follows:

2. The notified appellant(s) shall rectify the default mentioned above and pay the penalty, as applicable, within 60 days of receipt of the order.

3. The notified appellants shall pay the penalty amount via ‘Appeal dashboard’ facility which can be accessed through the respective login IDs on the website of Ministry of Corporate Affairs and upload the copy of paid challan / SRN of e-filing (if applicable) on the ‘Appeal dashboard’ portal itself. It is also directed that the penalty so imposed upon the appellants shall be paid from their personal sources/income.

4. Accordingly, the appeal is disposed with a direction to the ROC Vijayawada to initiate action in accordance with the provisions of section 454(8) of the Companies Act, 2013 in case of non-payment of penalty within the prescribed time limit.

RichaRicha Kukreja,
Office of Regional Director
RD Hyderabad