Companies Act Section 62(1)(a) Violation: MCA Imposes ₹3 Lakh Penalty

The adjudication order concerns penalties imposed on Longcheng Composites Private Limited for violation of Section 62(1)(a) of the Companies Act, 2013. This violation pertains to the company’s failure to offer further shares to existing shareholders in proportion to their current shareholding, as mandated by the said section. The order, issued by the Registrar of Companies, Maharashtra, Pune, outlines the procedural aspects, relevant legal provisions, facts of the case, and the penalties imposed.

The order begins by establishing the appointment of the adjudicating officer, who is empowered to adjudicate penalties under the Companies Act, 2013. It further identifies Longcheng Composites Private Limited as the company in question, detailing its registration and office address.

Section 62(1)(a) of the Companies Act, 2013, is cited to illustrate the legal provision breached by the company. This section mandates that when a company intends to increase its subscribed capital by issuing further shares, it must offer these shares to existing equity shareholders in proportion to their current holdings. Failure to adhere to this provision constitutes a violation subject to penalties as per Section 450 of the Act.

The adjudication order proceeds to enumerate the facts of the case, indicating that during an inquiry, it was discovered that the company had allotted equity shares without offering them to a relevant existing shareholder, thereby contravening Section 62(1)(a). Despite being provided with an opportunity to respond to the allegations, the company’s reply was deemed unsatisfactory, leading to the initiation of adjudication proceedings.

Subsequently, an adjudication notice was issued to the company and its officers, detailing the violations and providing an opportunity for them to respond. However, no response was received, leading to the conclusion that the violation had indeed occurred.

The order then details the penalties imposed on the company and its officers in default. It calculates the penalties based on the duration of the default and stipulates the payment process. The penalties are imposed in accordance with Rule 3(12) of the Companies (Adjudication Of Penalties) Rules, 2014, taking into account the factors mentioned earlier in the order.

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OFFICE OF THE
REGISTRAR OF COMPANIES
MAHARASHTRA, PUNE
MINISTRY OF CORPORATE AFFAIRS
GOVERNMENT OF INDIA

Order No. ROCP/ADJ / Sec-62(1)(a) /JTA(B) / 24-25/ 17/430 to 433 Date: 28 MAY 2024

ADJUDICATION ORDER

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Adjudication Order of penalties in the matter of LONGCHENG COMPOSITES PRIVATE LIMITED

(U25190PN2019FTC183423)

under Section 454(3) read with 62(1)(a) of The Companies Act, 2013 read with rule 3(2) Of Companies (Adjudication Of Penalties), 2014 As Amended in Amendment Rules, 2019 of the Companies Act, 2013

Please Read:

• Companies (Adjudication Of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019 (G. S. R.131(E) ).
• Provisions of Subsection (1) of Section 62 and Section 450 of the Companies Act, 2013.
• Gazette Notification of Ministry of Corporate Affairs vide No. A-42011/112/2014-Ad.II, dated 24.03.2015 (see SO 831(E), dated 24.03.2015)
• Companies (Amendment) Act, 2019.
• General Circular No. 1/2020 dated 02.03.2020.
• Companies (Amendment) Act, 2020, w.e.f. 21.12.2020

In respect of:

Longcheng Composites Private Limited having CIN U25190PN2019FTC183423 is a company governed by the provisions Act and registered with this office having its office – PAP-K-1/1, 1/2 Chakan MIDC Phase 2, Khed, Pune, Maharashtra, 410501, India.

1. Appointment of Adjudicating Officer:

Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 (see SO 831(E), dated 24.03.2015) appointed undersigned as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (herein after known as Act) r/w Rule 3(1) of Companies (Adjudication of Penalties) Rules, 2014 for . adjudging penalties under the provisions of this Act. The undersigned vide Companies (Amendment) Act, 2019 is entrusted to adjudicate penalties under Section 450 of the Companies Act, 2013 w.e.f. 21.12.2020.

2. Company:

Longcheng Composites Private Limited (U25190PN2019FTC183423) (herein after referred as Company) is a registered company with this office pursuant to sub-section (2) of section 7 of the Companies Act, 2013 (18 of 2013) and rule 18 of the Companies (Incorporation) Rules, 2014 having its registered office as per MCA21 Registry at address”PAP-K-1/1, 1/2 Chakan MIDC Phase 2, Khed, Pune, Maharashtra,410501, India.”

3. Relevant provisions of the Companies Act, 2013:

Section 62(1)(a) of the Act provides that (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered—

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely: —

(i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.

(ii) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right.

(iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not disadvantageous to the shareholders and the company.

Section 450 of the Act provides that If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.

4. Facts about the Case:

a) An Inquiry into the affairs of the company was conducted by the I0 and during the Inquiry and examination of records it has been observed that the Board Resolution of the Board Meeting held on 12.07.2019, attached to Form PAS-3 filed vide SRN R78307550 dated 28.12.2020, allotment of 56,187 equity shares was made to Jiangsu Longcheng FRP Co., Ltd and no offer was made to Mr. Zhou Jian Yu, who at the date of offer is a holder of shares holding 300 equity shares of Rs.10/- each of the company. Hence, the company and directors have violated provisions of section 62(1)(a) of the Companies Act, 2013 and are liable for action under section 450 of the Act.

b) A reasonable opportunity was given to the company and its directors vide order under section 206(4) of the Companies Act, 2013 vide letter no. ROCP/INQ/2021/1982 to 1983 dated 11.02.2022. However, the reply submitted by the Company was not satisfactory and the competent authority has directed to adjudicate the matter.

c) Accordingly, the adjudication officer has issued adjudication notice vide No.ROCP/ADJ/Sec-62(1)(a)/JTA(B)/23-24/17(ii)/2780 to 2782 dated 31.03.2024 (herein after referred as Adjudication Notice) under Section 454(4) read with 62(1)(a)of the Companies Act, 2013 read with Rule 3(2) Of Companies (Adjudication of Penalties), 2014 as amended in Amendment Rules, 2019, to the company and its officers in default for the violation of the provisions of the act as mentioned in para “a” & “b” above;

d) No reply to the Adjudication notice has been received from the company or any of the directors,

e) Hence, as the said violation has already been concluded by I0 during the course of Inquiry :- no further hearing in physical is required to ascertain the violation of the said section.

Furthermore, the Noticee(s) are at liberty to file appeal against this order as per Para. 5. (e) of this order. Hence the Order-

5. ORDER:

a. The applicant company and its officers, who have defaulted the provisions of section 62(1)(a) of the Act as under-.

As per examination of records it has been observed that the Board Resolution of the Board Meeting held on 12.07.2019, attached to Form PAS-3 filed vide SRN R78307550 dated 28.12.2020, allotment of 56,187 equity shares was made to Jiangsu Longcheng FRP Co., Ltd and no offer was made to Mr. Zhou Jian Yu, who at the date of offer is a holder of shares holding 300 equity shares of Rs.10/- each of the company. Hence, the company and directors have violated provisions of section 62(1)(a) of the Companies Act, 2013 and are liable for action under section 450 of the Act;

b. In exercise of the powers conferred on the undersigned vide Notification dated 24th March, 2015 and after taking into account the factors mentioned herein above, I do hereby impose the penalty on the company and its officers in default pursuant to Rule 3(12) of Companies (Adjudication Of Penalties) Rules, 2014 and the proviso of the said Rule and Rule 3(13) of Companies (Adjudication Of Penalties) Rules, 2014 r/w General Circular No. 1/2020 dated 02.03.2020; as per table below for violation of section 62(1)(a) of the Act:-

(* No of days have been calculated from 28.12.2020 (The date on which Form PAS-3 filed vide SRN R78307550) to till date of Adjudication Notice, i.e.,31.01.2024)

a. I am of the opinion that the penalty so imposed is commensurate with the aforesaid failure committed by the notice(s). The delay in issuance of order is on account of other admin work.

b. The Noticee(s)/applicant(s) shall pay the penalty so imposed through Ministry of Corporate Affairs portal only as per rule 3(14) of Companies (Adjudication of Penalties) Rules, 2014.

c. Appeal against this order may be filed under section 454(5) of the Act, in writing with the Regional Director (Western Region), Ministry of Corporate Affairs 100, Everest, 5th Floor, Netaji Subhash Road, Marine Drive, Mumbai-400002, within a period of sixty days from the date of receipt of this order, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of this order. [Section 454 of the Act read with Companies (Adjudication of Penalties) Rules, 2014 as emended by Companies (Adjudication of Penalties) Amendment Rules, 2019.

d. Your attention is also invited to section 454(8)(ii) of the Act regarding. consequences of non-payment of penalty within the prescribed time limit of 90 days from the date of the receipt of copy of this order in terms of the provisions of section 454(8)(i) of the Act.

e. In terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019, copy of this order 4 is being sent to Longcheng Composites Private Limited and all directors/officers in default mentioned herein above and also to Office of the Regional Director (Western Region) and Ministry of Corporate Affairs at New Delhi.

(Mangesh Jadhav ICLS)
Adjudicating Officer
Registrar of Companies
Maharashtra, Pune