Continuous Private Placement Offers Without Closing Previous Ones: MCA Penalizes

In a significant development, the Ministry of Corporate Affairs (MCA) has imposed penalties on Richesm Healthcare Limited for violations of the Companies Act, 2013. The company was found to have made continuous private placement offers without completing or closing previous offers. This article delves into the details of the case, the relevant provisions of the Companies Act, and the implications of this order.

Background and Violation

Richesm Healthcare Limited, previously known as Richesm Healthcare Pvt. Ltd., registered under the Companies Act, 2013 on February 2, 2021, with an authorized share capital of Rs. 24,50,00,000/-. The company raised funds through three private placement offers of equity shares between April 29, 2022, and July 4, 2022.

Section 42(5) of the Companies Act, 2013 stipulates that no fresh offer or invitation for private placement shall be made unless the allotments for any previous offer have been completed or the offer has been withdrawn or abandoned. Richesm Healthcare violated this provision by making successive private placement offers without closing the previous ones.

Investigation and Findings

Upon reviewing the suo moto application filed by the company through e-form GNL-1, the Registrar of Companies, Uttar Pradesh, initiated an investigation. A show cause notice was issued to the company and its directors on May 31, 2024. In response, the company’s Authorized Representative appeared before the adjudicating officer and submitted a written reply on June 11, 2024, acknowledging the non-compliance.

The company contended that the violation was inadvertent and relied on the proviso to Section 42(5) of the Act, which allows more than one issue of securities to a class of identified persons, subject to a maximum limit. Additionally, the company highlighted its status as a “Small Company” and a “Start-up Company,” arguing for lesser penalties under Section 446B of the Companies Act, 2013.

Adjudication and Penalties

After considering the submissions, the adjudicating officer found that the company violated Section 42(5) for the second and third private placement offers made on May 6, 2022, and June 6, 2022, respectively. The company and its directors were penalized under Section 42(10) read with Section 446B of the Act.

Legal Provisions and Relief

Section 446B provides relief by capping the penalty at half the amount specified in the relevant provisions, subject to a maximum of Rs. 2,00,000/- for companies and Rs. 1,00,000/- for officers in default. This provision was applied in determining the penalties for Richesm Healthcare Limited.

Payment and Appeal

The penalized parties are required to pay the imposed penalties through the MCA21 portal within 90 days of receiving the order. They may appeal against the order to the Regional Director (Northern Region), Ministry of Corporate Affairs, within 60 days.

Conclusion

The MCA’s imposition of penalties on Richesm Healthcare Limited underscores the importance of compliance with the provisions of the Companies Act, 2013. Companies engaging in private placement offers must ensure that each offer is duly completed or closed before initiating a new one. This case serves as a crucial reminder for companies to adhere strictly to legal requirements to avoid severe penalties and legal consequences.

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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES Uttar Pradesh
37/17, Westcott Building, The Mall,
Kanpur — 208001 (U.P.)
Phone : 0512 — 2310443/23102

ORDER FOR VIOLATION OF SECTION 42 OF THE COMPANIES ACT, 2013 READ WITH SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES 2014 & COMPANIES (AMENDMENT) ACT, 2020.

IN THE MATTER OF RICHESM HEALTHCARE LIMITED (PREVIOUSLY KNOWN
AS RICHESM HEALTHCARE PVT. LTD.)

1. The Ministry of Corporate Affairs vide its Gazette Notification no A-42011/112/2014-Ad.II dated 24.3.2015, has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred by section 454 of the Companies Act, 2013 (hereinafter known as the Act) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. The Company viz. RICHESM HEALTHCARE LIMITED (PREVIOUSLY KNOWN AS RICHESM HEALTHCARE PVT. LTD.) has been registered under the provisions of the Act on 02.02.2021 and is having its registered office situated at Office No. 1/54, 1st Floor, Wave Silver Tower, Plot No. D-6, Sector 18, Noida- 201 301, Gautam Budh Nagar. The authorized share capital of the Company is Rs. 24,50,00,000/-.

3. That it is observed from the suo moto application filed by the Company vide e-form GNL-1 having SRN F93658417 dated 21-03-2024 and also from the record of MCA21 registry that the Company has raised funds via three (3) offers of private placement of equity shares under section 42 of the Act during the period staring from 29-04-2022 to 04-07-2022 as per the details given hereunder: –

Provisions of the Act: –

Sub section (5) of Section 42 of the Companies Act, 2013 provides that: –

(5) No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company:

*Provided that, subject to the maximum number of identified persons under sub­section (2), a company may, at any time, make more than one issue of securities to such class of identified persons as may be prescribed.

Sub section (10) of Section 42 of the Companies Act, 2013 provides that: –

“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, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of thirty days of the order imposing the penalty.”

4. In view of the above, this office has issued show cause notice No. 07/27/Adj/2024/Richesm/1352 to 1357 dated 31.05.2024 to the company and its directors giving 15 days’ time to reply and also given opportunity vide abovementioned letter to appear before the undersigned on 12.06.2024 to represent the case.

5. CS Avinash Kaur, Authorized Representative of the company appeared before the undersigned on 12.06.2024 on behalf of the Company and other Noticee and furnished written reply dated 11.06.2024 to the show cause notice so issued by the undersigned.

6. The Authorized Representative submitted that the inadvertent non­compliance of section 42(5) of the Act was on account of reliance of the Company on the proviso to sub section 5 of section 42 of the Act. The Company in its written submission submitted that three consecutive allotments were made by the Company for 7383, 2689 and 5126 number of equity shares at a face value of Rs.10/- each at a premium of Rs.454/ respectively in reliance on the proviso of sub-section 5 of section 42 of the Act. The proviso permits a Company, subject to the maximum number of identified persons i.e. 200, to make more than one issue of securities to such class of identified persons, any time, as may be prescribed.

7. It was further submitted by the Authorized Representative that during the period of inadvertent non-compliance i.e. FY 2022-23, the Company qualified to be a “Small Company” as defined under sub-section 85 of the Act and accordingly as well as falls under the definition of start up and as such is eligible for lesser penalties under section 446B of the Companies Act, 2013.

8. Section 446B of the Companies Act, 2013 provides that –

446B. Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in Default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one- half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be.

Explanation.—For the purposes of this section-

(a) “Producer Company” means a company as defined in clause (1) of section 378A;

(b) “start-up company” means a private company incorporated under this Act or under the Companies Act, 1956 and recognised as start-up in accordance with the notification issued by the Central Government in the Department for Promotion of Industry and Internal Trade.]

9. It was further submitted by the Authorized Representative that the Company is also a “Start-up Company” duly recognized by the Department for Promotion of Industry and Internal Trade (“DPIIT”) vide Certificate No. DIPP83939 valid upto 01-02-2031 and insisted that the said fact be considered while imposing penalties on the Company and other Noticee.

10. During the period of default i.e . 29.04.2022 to 04.07.2022 , there were 03 promoters and they were also the directors in the company and for the purpose of imposition of penalty this fact was taken into consideration. Also as per MCA21 Registry Mr. Gurmeet Singh , Mr. Vishweshwar Dayal Goyel , Mr. Ramayan Prasad Tiwari (to whom SCNs were issued) were not the directors for the default period i.e 29.04.2022 to 04.07.2022, hence no imposition of penalty will be on them for the second and third Offer of Private Placement made by the company.

11. Having arrived at this conclusion , I am inclined to conclude that the default under section 42(5) read with Section 446B of the Act stands established for the second and third offer for private Placement made by the company on 06.05.2022 and 06.06.2022 respectively .

Hence taking into consideration the facts and other factors of the case submitted by the Authorised Representative during the hearing of the case,

I hereby impose a penalty of Rs. 2,00,000/- on the company and Rs.1,00,000/- on the directors under section 42(10) read with Section 446B of the Act and each of the Noticee of Show Cause Notice dated 31.05.2024, The details of penalty imposed are as under :-

–

12. The Noticee shall pay the amount of penalty so imposed through MCA21 portal only as per rule 3(14) of the Companies (Adjudication of Penalties) Rules, 2014 within 90 days receipt of this order. The company needs to file INC-28 as per the provisions of the Act, attaching the copy of adjudication order along with the paid challans.

13. Appeal against this order may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodhi Road, New Delhi, 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(5) & 454(6) of the Act, read with Companies (Adjudication of Penalties) Rules, 2014].

14. Your attention is also invited to section 454(8) of the Companies Act, 2013, in the event of non-compliance of this order. In Case appeal is made 0/o Registrar of Companies, U.P. may be informed alongwith the penalty imposed & the payments made.

(Seema Rath)
Registrar of Companies & Adjudicating Officer
Uttar Pradesh, Kanpur

No. 07/27/ADJ/2024/Richesm/1845 to 1849

Dated 27/6/2024