Cost of a Few Paise: MCA imposes Penalty for Rounding Off in Preferential Allotments

Cost of a Few Paise: Why Rounding Off in Preferential Allotments is a Compliance Trap

A recent adjudication by the Registrar of Companies, Bangalore, involving a preferential allotment of shares highlights the strict compliance requirements under the Companies Act, 2013. The company Netanalytiks Technologies Limited  obtained a valuation report fixing the fair value of each share at ₹334.59 but allotted shares at ₹334 per share after rounding down the value. Although the company later identified the shortfall, recovered the differential amount of ₹0.59 per share along with 12% interest, obtained board acknowledgment, and voluntarily filed a suo-motu adjudication application, the ROC held that a violation had occurred. Rule 13(3) of the Companies (Share Capital and Debenture) Rules, 2014 requires that shares issued on a preferential basis must not be priced below the valuation determined by a registered valuer. Since no de minimis exception exists, the underpricing constituted a breach of Section 62(1)(c). Penalties of ₹10,000 each were imposed on the company and two officers in default, with directors required to pay penalties from personal sources. Read Order: ROC Levies Penalty as Share Allotment Made Below Registered Valuer’s Price

The Anatomy of the Default

The applicant company, Netanalytiks Technologies Limited, decided to raise funds through a preferential allotment of shares. Following the standard protocol under the Companies Act, 2013, the Board obtained a valuation report from a Registered Valuer.

• The Registered Valuer’s Fair Value: ₹334.59 for each equity share.
• The Company’s Approved Allotment Price: ₹334 per share.

Assuming that the fractional paise arrived at by the valuer could be rounded off to the nearest rupee, the company approved and allotted 16,766 equity shares at ₹334/- each across its Board and Shareholders’ meetings in March 2022.

Upon later noticing that this shortfall constituted a technical non-compliance, the company proactively rectified the default by recovering the remaining ₹0.59 per share, along with interest at a rate of 12%. The receipt of this differential amount was formally acknowledged by the Board of Directors on February 17, 2025. Believing in transparency, the company filed a suo-motu adjudication application to regularize the slip-up.

The Legal Reality: No “De Minimis” Exception

Despite the company’s good-faith rectification and proactive disclosure, the ROC Bangalore held that a statutory violation had indeed occurred. Under Rule 13(3) of the Companies (Share Capital and Debenture) Rules, 2014, the price of shares to be issued on a preferential basis shall not be less than the price determined on the basis of the valuation report of a registered valuer.

The law sets a hard floor. By pricing the shares at ₹334 instead of ₹334.59, the company under-priced its issuance. Because the Companies Act, 2013 does not contain a de minimis (insignificant matter) exception for pricing floors, the action was treated as a clear breach of Section 62(1)(c) read with Rule 13(3).

Adjudication and Financial Penalties Imposed

Because no specific penalty is outlined for this particular subset of Section 62, the residual penalty provisions of Section 450 of the Companies Act, 2013 were invoked. Furthermore, the ROC noted that the company did not qualify as a “small company” under Section 2(85), eliminating any possibility of lesser penalties under Section 446B. The Adjudicating Officer imposed a flat penalty on both the entity and its officers in default:

The order specifically directed that the penalties imposed on the individual directors must be paid from their personal sources/income, emphasizing personal accountability.

Core Takeaways for Corporate Legal Teams

1. Valuation Price is an Absolute Floor

When a registered valuer mandates a price down to the paise, that number is the absolute statutory minimum. Corporate boards cannot round down for administrative or commercial convenience. If rounding is desired, it must always be rounded up to ensure compliance with the “not less than” mandate.

2. The Strict Liability Regime Applies

Corporate law increasingly mirrors a strict liability framework: once a statutory breach is established, intent or the lack of major financial harm becomes largely irrelevant. The breach itself triggers the liability.

3. Rectification is Not Absolution

While recovering the deficit with 12% interest and securing board ratification demonstrates good corporate citizenship, it only serves to mitigate the severity of the consequences (keeping the penalties to the statutory minimums). It does not retroactively erase the legal culpability of the initial transaction.

Final Reflection: This case serves as a masterclass in precision governance. For legal counsels and compliance officers, the message from the regulators is loud and clear: review the decimals, respect the statutory floors, and remember that when it comes to compliance, every paisa counts.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).