Companies Act Section 42, 55 & 62 Violation: MCA reduces Penalty from ₹13.9 Lakh to ₹1.1 Lakh

Aaryak Jewellery Private Limited filed an appeal under Section 454(5) of the Companies Act, 2013, contesting penalties levied by the Registrar of Companies, Karnataka, for non-compliance with Sections 42, 55, and 62. The violations pertained to incomplete disclosures in notices, resolutions, and explanatory statements during private placements of securities. The Registrar imposed penalties totaling ₹13,90,000 for Section 42, ₹45,000 for Section 55, and ₹45,000 for Section 62 violations. The company argued that lapses were unintentional clerical errors, without fraudulent intent, and did not harm stakeholders or investors. The Regional Director, South East Region, reviewed the appeal, determining that no penalty was warranted under Section 42 due to procedural compliance. However, penalties under Sections 55 and 62, governed by general penal provisions under Section 450 read with Section 446B, were upheld. The revised total penalty amounts to ₹1,05,000.

F.No:09/42/ADJ/SEC.42,55 & 62 of CA, 2013/KARNATAKA/RD(SER)/2024
BEFORE THE REGIONAL DIRECTOR, SOUTH EAST REGION
MINISTRY OF CORPORATE AFFAIRS, HYDERABAD
IN THE MATTER OF COMPANIES ACT, 2013

IN THE MATTER OF AARYAK JEWELLERY PRIVATE LIMITED

1. Aaryak Jewellery Private Limited
2. Elizabeth Mukhedkar
3. Kumar saurabh

….  Appellants

Date of hearing: 05.02.2025
Present: M. Anil Kumar, PCS on behalf of the Appellants

ORDER

This is an appeal filed under section 454(5) of the Companies Act, 2013 (hereafter referred as Act) by the above appellants in e-form ADJ vide SRN AB2139968 dated 12.12.2024 against the adjudication order passed by the Registrar of Companies, Karnataka in F No. ROC(B)/Adj.Ord.454-42,55,62/Aaryak Jewellery/ Co.No.170996/2024 dated 15.10.2024 under section 454 of the Act, 2013 read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014 for violation of provisions of Section 42, 55 & 62 of the Companies Act, 2013 of Aaryak Jewellery Private Limited .

2. The Registrar of Companies in his order of adjudication has stated that the company has filed a suo-motu adjudication application dated 08.07.2024 for non-compliance of section 42, 55 and 62 of the companies Act,2013. The application has been filed by the company and its promoters-cum-directors. It has been submitted in the application that the company made private placements of securities to different investors based on shareholder approvals as under:

3. During these private placements, the company inadvertently failed to disclose certain information as required under various rules as mentioned below:

a. Section 42 of the Act read with rule 14 of the Companies (Prospectus and Allotment of Securities) Rules,2014. The company has failed to make a few disclosures in the explanatory statement attached to the notice of the EGM and in the PAS 4 and PAS 5 eforms, which were required to be made as per Rule 14(1), 4(3), 14(4) and 14(6) of the Companies (Prospectus and Allotment of. Securities) Rules,2014 related to the three issues/allotments of CCDs made by the company.

b. Section 55 of the Act read with Rule 9 of the Companies (Share Capital and Debenture) Rules, 2014. The company has failed to make a few disclosures in the notice, explanatory statement attached to the notice of the EGM and the resolution passed at the EGM, which were required to be made as per Rule 9(2) and 9(3) of the Companies (Share Capital and Debenture) Rules, 2014 related to the three issues/allotments of CCDs made by the company.

c. Section 62 of the Act read with Rule 13 of the Companies (Share Capital and Debenture) Rules, 2014. The company has failed to make a few disclosures in the explanatory statement attached to the notice of the EGM, which were required to be made as per Rule 13(2)(d) of the Companies (Share Capital and Debenture) Rules, 2014 related to one of the issues/allotments of CCDs made by the company.

4. Hearing was held before the Registrar of companies on 08.08.2024 and after hearing the authorized representative Registrar of companies had levied a penalty as follows:

(a) for violation of section 42 of the Companies Act, 2013 (total aggregating to Rs.13,00,000/-)

(b) for violation of section 55 of the Companies Act, 2013 (total aggregating to Rs.45,000/-)

(c). for violation of section 62 of the Companies Act, 2013 (total aggregating to Rs.45,000/-)

5. Aggrieved by the adjudication order, the appellants have filed the present appeal, submitting as under:

(i) The Appellant Company is a startup company registered with the Department for promotion of Industry and Internal Trade (DPIIT) vide certificate No. DIPP138032 dated 6th July 2023 and valid up to 8th March 2033. The company is also a small company as defined under section 2(85) of the Companies Act, 2013.

(ii) The Appellants have complied with the applicable provisions of section 42, section 55 and section 62 of the Companies Act, 2013. It is accepted that the Appellants have inadvertently failed to disclose certain information as required under the various rules mentioned in para 3 a, b, c above of this submission letter which is due to typographical error which in no way affects the interest of the Investors. As such, levying penalty for typographical errors and unintentional non – disclosures will put the appellants to great hardship.

(iii) The adjudication officer should not have levied the penalties as prescribed in section 42 for the non- disclosures as stated in Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules,2014, Rule 9 of the Companies (Share Capital and Debenture) Rules,2014, Rule 13 of the Companies (Share Capital and Debenture) Rules,2014.

(iv) Sections 55 and 62 do not provide any penal provisions for non-compliance of section 55 and section 62 respectively. One needs to refer to the section 450 and Rules only which is general penal provision for the entire Act where specific penal provisions are not provided in the Act and Rules.

6. Based on the appeal filed before this Directorate a hearing was fixed on 05.02.2025 before the undersigned and Mr. Anil Kumar, PCS (authorized representative) appeared for hearing on behalf of the Appellants and reiterated the submissions made in the appeal and requested the undersigned to consider the above facts and submitted that the appellants never intended to cause violation of any existing laws, nor acted against the interest of the shareholders or any stakeholders. The lapses or discrepancies were purely accidental and inadvertent. The company and the appellant promoter -cum-Director had no malafide or fraudulent intention. It is humbly submitted that by not making disclosures as required by the act neither the appellant company has benefited In any way nor has any of the investors suffered any loss on account of above-mentioned non disclosures. All these defaults occurred on account of clerical errors with no intention of deceiving anyone and requested to waive the penalty levied by the Registrar of Companies.

7. The appeal filed by the Appellants and Adjudication order passed by Registrar of Companies has been examined and it is observed as under:

(a) As the appellant company is a start-up-company, the provisions of section 446B of the Companies Act, 2013 apply.

(b) The Registrar of Companies imposed penalty for violation of Section 42 of the Act, vide para 13 (a) of Adjudication Order dated 15.10.2024 as per provisions of Section 42(10) read with Section 446B of the Companies Act, 2013. In this regard it is observed that there is no violation of Section 42 and the company has followed the entire procedure and filed all documents as required by Section 42, therefore penalty for the violation of section 42 cannot be imposed. Sections 42(9) and (10) read as under:

Section 42 (9) If a company defaults in filing the return of allotment within due period prescribed under sub-section (8), the company, its promoters and directors shall be liable to a penalty for each default of one though rupees for each day during which such default continues but not exceeding twenty five lakh rupees.

Section 42(10) Subject to sub-section (11), if a company makes an offer or accepts monies 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, which ever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subsidiaries within a period of thirty days of the order imposing the penalty.

(c) Section 42 does not impose penalty for the violation of Section 42(9) & 42(10) read with Rules made there under. Further, the Rules do not provide for any penalty for its violation. Therefore, the penalty u/s. 450 read with Section 446B is applicable and needs to be imposed.

(d) As Sections 55 and 62 do not provide any penal provisions for non-compliance of section 55 and section 62 respectively and need to refer to Section 450 r/w 446B of the Companies Act, 2013.

8. In view of the above, the adjudication order passed by the Registrar of Companies is modified and the penalty imposed for violation of Section 42 of the Companies Act, 2013 and there is no change in the penalty as imposed by Registrar of Companies, vide its adjudication order dated 15.10.2025, with respect to Section 55 & 62 of the Companies Act, 2013. The penalty imposed is as follows:.

(a) for violation of Rule 14 of Companies (Prospectus and Allotment of Securities) Rules,2014 read with section 450 and 446B of the Companies Act, 2013 (total aggregating to Rs. 45,000/-)

(b) for violation of Rule 9 of the Companies (Share Capital and Debenture) Rules, 2014 read with section 450 and 446B of the Companies Act, 2013 (total aggregating to Rs.45,000/-)

(c). for violation of Rule 13 of the Companies (Share Capital and Debenture) Rules, 2014 read with section 450 and 446B of the Companies Act, 2013 (total aggregating to Rs.15,000/-)

9. The appeal is accordingly disposed of.

Issued under my hand and seal on this 24th day of March 2025.

(Richa Kukreja)
Regional Director, SER
Ministry of corporation Affairs, Hyderabad