Preferential Allotment Money Received from Wrong Bank Account: ROC imposes Penalty

ROC Delhi-II Imposes Penalty on Hindustan Coca-Cola Holdings and its Promoters and Directors for Accepting Preferential Allotment Money from the Wrong Bank Account

Summary: Hindustan Coca-Cola Holdings Private Limited filed a suo-motu adjudication application under Section 454 of the Companies Act, 2013 concerning a procedural deviation in a preferential allotment made on 30.03.2019. The company had allotted 1,03,27,04,999 equity shares of face value Rs. 10 each, aggregating to approximately Rs. 1032.705 crores, to Bharat Coca-Cola Overseas Holdings Pte. Ltd. (BCCOH) and Hindustan CocaCola Overseas Holdings Pte. Limited (HCCOH). Of these, 31,48,71,754 equity shares aggregating to approximately Rs. 314.872 crores were allotted to BCCOH, but the subscription money was remitted from HCCOH’s bank account because BCCOH did not maintain a bank account in its own name at the relevant time. The Registrar of Companies, Delhi-II, held that this contravened Rule 14(5) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 read with Section 42 of the Companies Act, 2013. The Adjudicating Officer held that the requirement under Rule 14(5) is mandatory and concerns the source of the remittance, and that FEMA compliance or recognition of the remittance by an authorised dealer bank did not substitute for compliance with the Companies Act. The company, BCCOH and HCCOH, and directors Sridhar Raman and Sonali Khanna were held liable under Section 42(10). Proceedings against Lagan Shastri and Company Secretary Daisy Khanna were dropped. Considering the company’s size and institutional capacity, the mandatory nature of the requirement, voluntary disclosure and cooperation, and the absence of established investor or creditor loss or disproportionate gain, penalties aggregating to Rs. 5,50,00,000 were imposed. The company was penalised Rs. 1,50,00,000 and each of the other four liable noticees Rs. 1,00,00,000. The notified persons were directed to rectify the default and pay the penalties within 90 days, with an appeal available within 60 days.

Background of this case

Hindustan Coca-Cola Holdings Private Limited (CIN U74899DL1997FTC085304), a company registered with the Registrar of Companies, Delhi-II, approached the Registrar on a suo-motu basis under Section 454 of the Companies Act, 2013 to seek adjudication of a lapse in its own preferential allotment of shares. On 30.03.2019, the Board of the company, with shareholders’ approval, had allotted 1,03,27,04,999 equity shares of face value Rs. 10 each, aggregating to approximately Rs. 1032.705 crores, on preferential basis to Bharat Coca-Cola Overseas Holdings Pte. Ltd. (BCCOH) and Hindustan CocaCola Overseas Holdings Pte. Limited (HCCOH). Of this, 31,48,71,754 equity shares aggregating to approximately Rs. 314.872 crores were allotted to BCCOH, but the subscription money for these shares was received not from BCCOH’s own bank account but from the bank account of HCCOH, since BCCOH did not maintain a bank account in its own name at the relevant time. This was found to be in violation of Rule 14(5) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 read with Section 42 of the Companies Act, 2013. After considering the company’s submissions and hearing the authorised representatives, the Registrar of Companies, Delhi-II, acting as Adjudicating Officer, imposed a total penalty of Rs. 5,50,00,000 on the company, its two promoter entities and two of its directors, while dropping proceedings against the company secretary and one non-participating director.

Provisions relating to this case under the Companies Act 2013

The default in this case attracts the following provisions of the Companies Act, 2013 and the rules framed thereunder.

Consequences of default/violation, action from the Regulator

The basis of this article is the adjudication order passed by the Registrar of Companies, Delhi-II (Central Delhi), being Order No. ROC/D/ADJ/Section 42/Hindustan Coca-cola/369 dated 05.08.2026, read with the connected Order ID PO/ADJ/08-2026/DC/02629 also dated 05.08.2026.

Details of the company

Company: Hindustan Coca Cola Holdings Private Limited

Hindustan Coca Cola Holdings Private Limited is registered with the Registrar of Companies, Delhi-II, and its registered office is situated at B-91, Mayapuri Industrial Area, Phase-I, West Delhi, New Delhi, Delhi, India, 110064. As per the financial and other details available on the MCA-21 portal for FY 2024-25, the company had a paid-up capital of Rs. 66,49,74,30,430, nil revenue from operations, other income of Rs. 5,19,30,000 and profit for the period of Rs. 4,53,80,000. The company is not registered as a small company, is not registered under Section 8, and is not registered under any other special Act. It has Hindustan CocaCola Overseas Holdings Pte. Limited as its holding company, and Hindustan Cocacola Beverages Private Limited and Hindustan Cocacola Marketing Company Private Limited as its subsidiaries.

Facts of the case

(a) The company filed a suo-motu adjudication application under Section 454 of the Companies Act, 2013, seeking adjudication in respect of a procedural deviation under Rule 14(5) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, read with Section 42 of the Companies Act, 2013.

(b) As per the application, the Board of the company, with shareholders’ approval, had on 30.03.2019 approved the allotment of 1,03,27,04,999 equity shares on preferential basis, with a face value of Rs. 10 each amounting to approximately Rs. 1032.705 crores, to BCCOH and HCCOH. Of this, 31,48,71,754 equity shares amounting to approximately Rs. 314.872 crores were allotted to BCCOH.

(c) BCCOH did not maintain a bank account in its own name at the relevant time, and the subscription amount towards the shares allotted to it was instead remitted by HCCOH on its behalf. The company accepted this subscription money from HCCOH’s bank account rather than from BCCOH’s own bank account.

(d) This was found to contravene Rule 14(5) of the PAS Rules, 2014, which mandatorily requires that payment for subscription to securities be made from the bank account of the subscriber itself, and requires the company to keep a record of the bank account from which the payment is received.

(e) The Board of Directors and the officers responsible for conducting the preferential allotment were found to have failed to ensure compliance with this statutory requirement, rendering the company and every officer in default, including the promoters, prima facie liable to action under Section 42(10) of the Companies Act, 2013.

Action taken by ROC, issue of show cause notice

An e-SCN was issued on 22.05.2026 to the company and its officers, and pursuant to Section 20 of the Companies Act, 2013, was also served upon the promoters of the company. The company was directed to furnish, among other things, a certified copy of the Board Resolution approving the preferential allotment, details of the officers responsible for the allotment and filing compliances, bank statements evidencing receipt of the subscription money, a copy of Form PAS-3 filed with the MCA, copies of the FIRC and RBI correspondence relied upon, a detailed explanation as to why the amount was accepted from an account other than that of the subscriber, and details of the promoters, given that Section 42(10) also contemplates penalty on promoters.

Response from the company

The company submitted its response dated 05.06.2026 by hand, and on its request the matter was fixed for a hearing on 25.06.2026.

Hearing on this case

A physical hearing was conducted on 25.06.2026. Sh. Mukul Sharma, Advocate, Ms. Shreya Teewari, Advocate, and Ms. Nafisa Charania, PCS, appeared on behalf of the company and submitted, in substance, that the deviation was an inadvertent technical lapse since BCCOH had no bank account of its own at the relevant time, that the remittance had been accepted by the authorised dealer bank in accordance with the applicable FEMA framework and supported by Foreign Inward Remittance Certificates, and that the shares were in any event allotted only to BCCOH, the intended subscriber. It was further submitted that no penalty ought to be imposed on the company secretary since Section 42(10) does not extend to that office, and that the Adjudicating Officer, while bound by the upper limit prescribed under Section 42(10), retained discretion in fixing the actual quantum having regard to the factors listed in Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014, namely the size of the company, the nature of its business, injury to public interest, the nature and repetition of the default, any disproportionate gain, and any loss caused to investors or creditors.

ROC decided to proceed

Having heard the authorised representatives and examined the material on record, the Adjudicating Officer proceeded to record findings on the contravention and on the liability of each noticee, rather than treating the matter as closed merely because it had been voluntarily disclosed.

Conclusion of the ROC/Adjudicating Officer

The Adjudicating Officer held that Rule 14(5) uses the word ‘shall’ and is mandatory in character, and that it contains no exception permitting subscription money to be routed through a holding company, subsidiary, associate, promoter or nominee. The requirement, it was held, concerns the source of the remittance and not merely the beneficial ownership of the funds, and diluting it would defeat the legislative object of ensuring traceability in private placement transactions. Compliance with FEMA and recognition of the remittance by an authorised dealer bank were held not to substitute for compliance with the Companies Act, since the two statutes operate in separate fields. On this basis, the company was held to have accepted subscription money contrary to Rule 14(5), attracting Section 42(10). The company’s voluntary disclosure, cooperation and the absence of any established investor loss were treated as mitigating factors going to quantum, but were held not to erase the contravention itself. On liability, the company was held primarily responsible as the issuer that accepted the non-compliant payment; BCCOH was held liable as the identified subscriber and an active participant that permitted another entity to discharge its subscription obligation; and HCCOH was held liable as the entity whose remittance was the very act that caused the departure from Rule 14(5). Among the directors, Mr. Sridhar Raman and Ms. Sonali Khanna were held liable since the Board Resolution dated 05.03.2019 had specifically entrusted them with implementing the preferential allotment, including execution of offer documents, statutory filings, opening and operation of bank accounts for the transaction, depository formalities and RBI-related documentation, so that their status as non-executive directors did not by itself absolve them. Mr. Lagan Shastri’s proceedings were dropped since no material showed his participation in implementing the transaction beyond holding the office of director, consistent with MCA General Circular No. 01/2020 dated 02.03.2020 that liability cannot rest on the holding of office alone. Proceedings against Ms. Daisy Khanna, the Company Secretary, were also dropped since Section 42(10) extends penal liability only to the company, its promoters and its directors, and not to the company secretary.

The order passed by the Registrar of Companies

In arriving at the quantum of penalty, the Adjudicating Officer weighed the size and institutional capacity of the company as part of a large multinational beverage group, the professional resources available to it, and the absence of any established investor or creditor loss or disproportionate gain, against the fact that the default concerned a mandatory statutory requirement capable of straightforward compliance in a transaction of considerable scale. Earlier adjudication orders citing more modest penalties were noted but not treated as binding, since adjudication under Section 454 is fact-specific. On this balance, the Adjudicating Officer imposed the following penalties under Section 42(10) of the Companies Act, 2013 read with Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014, against a maximum permissible penalty of Rs. 2,00,00,000 for the violation:

Proceedings against Mr. Lagan Shastri (Director, DIN 07486454) and Ms. Daisy Khanna (Company Secretary, DIN 07545503) were dropped for the reasons noted above. The notified officers and the company were directed to rectify the default and pay the penalty within 90 days of receipt of the order, through the e-Adjudication facility on the MCA website against the head ‘Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi’, with the penalty on individuals to be paid from their own personal sources or income and proof of payment to be intimated to the office. An appeal against the order may be filed with the Regional Director (NR-I), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003, within sixty days from the date of receipt of the order, in Form ADJ, accompanied by a certified copy of the order, under Section 454(5) and 454(6) of the Companies Act, 2013 read with the Companies (Adjudication of Penalties) Rules, 2014. Attention was also drawn to Section 454(8) of the Act for the penal consequences of non-payment of the penalty within the prescribed time.

Despatch of the order

The order was despatched by the Registrar of Companies, Delhi-II, to the company at its registered office, and to Ms. Daisy Khanna (Company Secretary), Mr. Sridhar Raman, Mr. Lagan Shastri and Ms. Sonali Khanna (Directors) at their respective addresses on record.

The complete order for reading

The readers may like to read the complete adjudication order dated 05.08.2026, being Order No. ROC/D/ADJ/Section 42/Hindustan Coca-cola/369 passed by the Registrar of Companies, Delhi-II (Central Delhi), at the MCA website at https://www.mca.gov.in/content/mca/global/en/data-and-reports/rd-roc-info/roc-adjudication-orders.html

Conclusion

This order is a reminder that the safeguards written into Section 42 and the PAS Rules are not satisfied merely because money ultimately reaches the company and shares ultimately reach the intended subscriber. Rule 14(5) fastens the obligation to the source of the remittance, and that obligation cannot be discharged through a holding company, a subsidiary or any other group entity, however genuine the commercial reason for doing so. The order also confirms that compliance with FEMA and recognition of a remittance by an authorised dealer bank operate in a separate field and do not, by themselves, satisfy the requirements of the Companies Act. At the same time, the order shows that a genuine suo-motu disclosure, cooperation during the proceedings and the absence of any established loss to investors or creditors do count meaningfully towards a proportionate rather than a maximum penalty, and that liability on directors is fastened on the basis of their actual role in the transaction rather than their designation alone.

Practical Suggestions to Avoid Recurrence

•  Before accepting subscription money for any preferential allotment or other private placement, the finance and secretarial teams should independently verify, remittance by remittance, that the payment has originated from the identified subscriber’s own bank account, and should not rely on FIRC or AD bank confirmation as a substitute for this check.
•  Where a proposed subscriber within a group does not yet hold an operating bank account, the allotment should be deferred, or the subscriber should open an account and route the remittance through it, rather than allowing an affiliate to remit on its behalf.
•  The Board Resolution approving a preferential allotment should record, with precision, which director or officer is responsible for verifying the source bank account, filing PAS-3 and retaining the underlying records, so that responsibility is traceable if a query arises later.
•  Directors who are assigned implementation responsibility under a Board Resolution, whether or not they are executive directors, should treat that assignment as carrying personal accountability, and should insist on documentary confirmation of each compliance step before the transaction is closed.
• Where a lapse of this kind is discovered after the event, a prompt suo-motu application under Section 454 remains the more prudent course, since voluntary disclosure and cooperation were expressly recognised in this order as significant mitigating factors in fixing the quantum of penalty.

References

1. The Companies Act, 2013, in particular Section 42 and Section 454.

2. The Companies (Prospectus and Allotment of Securities) Rules, 2014, in particular Rule 14(5).

3. The Companies (Adjudication of Penalties) Rules, 2014, in particular Rule 3(12).

4. Adjudication order No. ROC/D/ADJ/Section 42/Hindustan Coca-cola/369 dated 05.08.2026 passed by the Registrar of Companies, Delhi-II (Central Delhi), in the matter of Hindustan Coca-Cola Holdings Private Limited.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).