In a recent order by the Ministry of Corporate Affairs (MCA), the Registrar of Companies (ROC) in Gujarat, Dadra & Nagar Haveli imposed a penalty on Ignosi Systems Private Limited for non-compliance with certain provisions of the Companies Act, 2013. The penalty was adjudicated under Section 454(3) of the Companies Act, 2013, read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014, for violations related to the conversion of a loan into equity.
Background of the Case: Ignosi Systems Private Limited, a company registered under the Companies Act, 2013, filed a suo-moto application acknowledging a default under Section 179(3), Section 62(3), and Section 39(4) of the Companies Act, 2013. The default pertained to the company availing a loan of Rs. 1,00,000 from its director, Mr. Nirav Bhupendrakumar Prajapati, on January 31, 2022.
The company, in its application, admitted that the loan was not approved by a resolution of the board of directors before borrowing, as required by Section 179(3)(d) of the Act. Additionally, the company did not enter into a loan agreement before January 31, 2022, as stipulated by the same section. The loan agreement executed later lacked provisions allowing the conversion of the outstanding amount into equity shares, and the company failed to obtain shareholder approval for such conversion under Section 62(3) of the Act.
Subsequently, the company rectified the situation by passing a special resolution at an extraordinary general meeting and approving an addendum to the loan agreement. The company also issued and allotted 10,000 equity shares to Mr. Nirav Bhupendrakumar Prajapati. However, an error occurred in the filing of form PAS-3 under Section 39(4), where the wrong board resolution was attached.
Show Cause Notice and Response: Upon receiving the suo-moto application, the ROC issued an Adjudication Hearing Notice, fixing the date of hearing on September 4, 2023. The company’s representatives did not appear on the scheduled date, but subsequently, they requested a rescheduled hearing.
During the hearing on November 22, 2023, the company’s authorized representative explained the circumstances of the default. Ignosi Systems argued that the loan was interest-free and meant to cover incorporation expenses. The representative acknowledged the default and requested a lenient view, urging the imposition of minimum penalties.
Adjudication and Penalty Imposition: The ROC, considering the submissions and facts of the case, found the company and its officers in default to have failed to comply with the provisions of Section 39(4) of the Companies Act, 2013. The ROC imposed a penalty of Rs. 50,000 on the company and Rs. 50,000 each on two directors, Mr. Niravkumar Bhupendrakumar Prajapati and Mr. Chintan Sheth.
The ROC directed the company to file a fresh form PAS-3, along with requisite fees, for the correct document for the allotment of shares. The company was given 30 days from the receipt of the order to comply. The noticees were instructed to pay the penalty through e-payment on the MCA website within 90 days from the date of the order.
Conclusion and Appeal: The ROC concluded the adjudication by stating that the penalty was commensurate with the default committed by Ignosi Systems and its officers. The order also informed the noticees about the option to file an appeal within 60 days of receiving the order, adhering to the specified procedures.
The case serves as a reminder for companies to diligently follow the legal procedures outlined in the Companies Act, 2013, to avoid penalties and legal consequences. Ignosi Systems has the option to appeal the decision to the Regional Director within the stipulated timeframe.
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Government of India
Ministry of Corporate Affairs
First Office of the Registrar of Companies,
Gujarat, Dadra & Nagar Haveli
ROC Bhavan. Opp. Pupal Park,
Nr. Ankur Bus Stand. Naranpura, Ahmedabad (Gujarat) – 380013.
Tel. No.: 079-27438031. Fax : 079-27438371
Website : www.mca.gov in E-mail : roc.ahmedabad@mca.gov.in
Order No. ROC-Gj/12/U/S-454/IGNOSI SYSTEMS /2023-24/4424 To 29 Dated: 14 DEC 2023
Before the Adjudicating Officer
Registrar of Companies, Gujarat, Dadra & Nagar Haveli
In the Matter of Adjudication of Penalty under Section 454(3) of the Companies Act, 2013 read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014 for violation of Section 39(4) of the Companies Act, 2013 and rules made thereunder
In the Matter of Ignosi Systems Private Limited
Date of hearing – 22/11/2023
PRESENT :
1. Shri Keerthi Thej N. (ROC), Adjudicating Officer
2. Ms. Rupa Sutar (DROC), Presenting Officer
Company/ Officers/Directors/KMP/Authorized Representative : Absent
Appointment of Adjudication Authority:-
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Adll dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred under section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.
2. IGNOSI SYSTEMS PRIVATE LIMITED (herein after referred to as “company”) is a company having its registered office at “House No. 6, Sigma Commerce Zone, Nr Galops Mall, Iscon Cross Road, S G Highway, Jodhpur, Ahmedabad, Gujara,-.-380015, India” registered under the provisions of the Companies Act, 2013 (hereinafter referred to as “Act”) in the State of Gujarat. The CIN of the Company is U72200GJ2022PTC128725 as per the record maintained on the MCA’s Website.
Fact of the case
3. The company has filed a physical suo-moto application under Section 454 o the Companies Act, 2013 citing default of Section 179(3), Section 62(3) an. Section 39(4) of the Companies Act, 2013. The company has also submitte application in GNL-1 vide SRN F67250670 dated 12.10.2023 in the matter. The company mentioned in the application that “the company has availed a low amounting to Rs. 1,00,000(one Lakh) from its director Mr. Nirav Bhupendrs’ Prajapati on 31.01.2023. However, such borrowing by the Company was no approved by way of a resolution by the board of director of the company prior t the borrowing of the loan, as required under section 179(3)(d) of the Companies, Act, 2013. Further, the company and Mr. NiravBhupendra Prajapati did not enter into loan agreement on or prior to 31Januaty 2022 in relation to such borrowing Subsequently, the Board passed a resolution dated Febuary 08,2022 approvin the execution of a loan agreement between the company and Mr. Nira Bhupendrakumar Prajapati which states that at option of the lender, the’ outstanding amount may be converted into equity shares of the company on or before 30 September 2022. However, the loan Agreement dated March 31, 2022 executed between the Company and Mr. Nirav Bhupendrakumar Prajapati dr. not includes provisions allowing the lender to convert the outstanding amount into into equity shares of the Company. Further, the company has also not obtained any shareholder approval by way of a special resolution under Section 62(3) of the Act, on or prior to 31 January 2022, allowing conversion of the outstanding loan amount into equity shares of the Company.
Thereafter, the company’s shareholder passed a special resolution at an extraordinary general meeting dated June 06, 2022 to amend and modify the terms of the Loan Agreement, by executing an addendum between the parties, which includes provisions stating that at the option of the lender, the outstanding amount may be converted into equity shares of the company on or before 30 September 2022 or such other period as may be mutually agreed between the Parties. Further, on June 14, 2022, the Board passed a resolution approving t the allotment of 10,000 equity shares having face value of Rs. 10 each at par aggregating to Rs. 1,00,000 to Nirav Bhupendra kumar under Section 62(3) of the Act prior to the modification of the terms of the loan Agreement and the issurance and allotment of equity shares to Mr. Nirav Bhupendra Prajapati and t required MGT-14 form was duly filed with the Registrar of Companies, vide SRN F06626907 dated 16 June, 2022.
Further, at the time of filing of PAS-3 under Section 39(4) of the Act, for reporting aforementioned allotment of equity shares, the Company errorneously attached incorrect Board Resolution for allotment where Section 62(1)(a) in place o Section 62(3) of the Act was mentioned. Therefore the company hereby seeks ti address matter related to default in compliance with Section 39(4), Section 62(3) and Section 179(3)(d) of the Act.”
Show Cause Notice, reply and personal Hearing:-
4. Pursuant to the suo-moto application dated 07.08.2023, received in this office under Section 454 of the Act read with Companies (Adjudication of Penalty Rules, 2014, this office had issued Adjudication Hearing Notice to Company an Directors on 17.08.2023 fixing the date of hearing on 04.09.2023 at 12.00P.M. None of the representative appeared before the Adjudicating Authority on the date so fixed. However, Mr. Vinit Nagar purporting as Authorize Representative of the company/ Directors vide an e-mail dated 06.11.2023 ha requested to reschedule the date of hearing for submission of some addition .1 documents/ information in the matter. Mr. Vinit Nagar further vide e-ma 1 dated 08.11.2023 had further requested to rescheduled the date of hearing o 22.11.2023 at 4.30 P.M.
5. On the scheduled date of hearing i.e. 22.11.2023, Mr. Vinit Nagar, PCS Authorized representative of the Company/Officers appeared before the Adjudicating Authority Mr. Keerthi Thej N., ROC, Presenting Officer Ms. Rupa Sutar, DROC and Mr. V.S. Tiwari, STA and submitted that “the Company has borrowed Interest fee loan amounting of Rs. 1Lakh from the promoter/ Director Mr. Niravkumar Prajapati on 31.01.2022 to meet the incorporation expenses after incorporation of the company on mutual understanding between t e Director and Company. The said loan was exempted under the definition of deposits in term of Rule 2((1)(c)(viii) of the Companies (Acceptance of Deposit.) Amendment Rules, 2015. The aforesaid transaction was unanimously approved in Board meeting dated 08.02.2022. In the said Board meeting, it was decided that at the option of Mr. Niravkumar Prajapati, the interest free loan amount may be converted into Equity Share Capital of the company at any later date b t on or before 30.09.2022”. Mr. Nagar further submitted that “upon receiving approval from Shareholders in the meeting dated 06.06.2022, an agreement wo s entered into the same by and between the company and Mr. Nirav Prajapati 14.06.2022 which has entitled Mr. Niravkumar Prajapati to convert t outstanding amount of Rs. 1Lakh into Equity Shares of the Company on or before 30.09.2022. The Shareholders resolution dated 06.06.2022 was passed u/s 62(3 of the Act and the said resolution was filed by the company on MCA21 portal i e-Form MGT-14 vide SRN F06626907 dated 1606.2022 and the said SRN was approved through STP mode. In the said e-form MGT-14, erroneously an inadvertently the Board of Directors have passed the resolution for the allotment u/s 39 of the Act 2013 by taking the reference of Sec. 62(1)(a) of the Companies Act, 2013 instead of mentioning the provisions of Sec. 62(3) of the Companies Act, 2013”. He submitted that the company has defaulted the provisions of Section 179(3)(d) (by delay of 8 days), Section 39 (delay of 126 days) and Section 62(3) of the Companies Act, 2013 (delay of 136days). He requested further ti take a lenient view and impose minimum penalty on the company an Directors.
Submission of the Presenting Officer
6. The Presenting Officer submitted that the company was non-compliant certain requirements with respect to conversion of loan into equity. T company had received a loan of Rs, 1,00,000 from its founder-directors an. shareholders. Mr. Nirav Bhupendrakumar Prajapati. Subsequently, t company undertook allotment of 10,000 equity shares of Rs. 10 each to M Nirav Bhupendrakumar Prajapati the consideration of which, aggregating to a total of Rs. 1,00,000 was adjusted towards the repayment of loan by way f conversion of the relevant portion of the loan into consideration for 10,010 equity shares of the company. Further, it has been submitted that in the resolution passed by the board of the company, the aforesaid allotment w s erroneously recorded as rights issues under section 62(1)(a) of the Act inste d of conversion of loan into equity under section 62(3) of the Act.
7. The Presenting Officer further submitted that it is also observed from e-for PAS-3 filed vide SRN F06808000 dated 16.06.2022 for filing of Return f Allotment dated 14.06.2022, the company has attached copy of Boar .’s resolution dated 14.06.2022 under Section 39, 62(1)(a) and other applicable provisions of the Companies Act, 2013 regarding allotment of 10,000 Equal Shares on conversion of Loan into Equity Shares. Hence, the company directors have violated the provisions of Section 39(4) of the Companies A 2013 and liable to penalize u/s 39(5) of the Companies Act, 2013.
8. It is observed from the financial statement for the Financial Year 2022-23 of the company that the paid-up capital of the company is Rs. 1.10 Lakhs a d Turnover is Rs. 29,382,358.00. Hence, as per the Ministry’s Notification G.S.R. 700(E) dated 15.09.2022 for Notification of Companies (Specification o definition details) Amendment Rules, 2022 read with provisions of Section 2(85) of the Companies Act, 2013, the Company does fall under the ambit o “small company”. Therefore, the provisions of imposing one half of the penal specified under the provisions of Section 39(5) of the Act would be governed pursuant to Section 446B of the Companies Act, 2013 on company and Officer in default for the default of Section 39(4) of the Companies Act, 2013.
ORDER
1. While adjudging quantum of penalty under section 39(5) of the Act, the Adjudicating Officer shall have due regard to the following factors, namely;
a. The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as a result of default.
b. The amount of loss caused to an investor or group of investors as a result of the default.
c. The repetitive nature of default.
2. With regard to the above factors that are to be considered while determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the noticee or loss caused to the investor as a result of t delay on the part of the notice to redress the investor grievance are n available on the record. Further, it may also be added that it is difficult quantify the unfair advantage made by the noticee or the loss caused to t investors in a default of this nature.
3. Having considered the facts and circumstances of the case and after taking in o accounts the factors above, the undersigned has reasonable cause to belie e that the company and its officers in default have failed to comply with t e provisions of Section 39(4) of the Companies Act, 2013 in the aforementioned circumstances. It is due and justified to levy a penalty of Rs. 50,000/-company and Rs. 50,000/- each in respect of two Directors Mr. Niravkumar Bhupendrakumar Prajapati and Mr. Chintan Sheth in default. I hereby impost d penalty as under:
[No. of days calculated from the date of filing of e-form PAS-3 i.e. 16.06.2022 to 18.07.2023 i.e. the date of filing of physical suo-moto application]
AO is of the opinion that penalty is commensurate with the aforesaid default committed by the Noticees:
4. The Company is directed to file afresh e-form PAS-3 along with requisite fees/additional Fees for filing of correct document for the allotment of Shares dated 16.06.2023 as per the procedure provided under the companies Ac 2013 and Rules, made thereunder within 30 days from the date of receipt of this order.
5. The noticee shall pay the amount of penalty by way of e-payment available on Ministry website www.mca.gov.in under “Pay miscellaneous fees” category in MCA fee and payment Services under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 within 90 days from the date of receipt of this order and copy of this adjudication order and Challan/SRN generated after payment of penalty through online mode shall be filed in INC-28 under the MCA portal without further reference and intimation should be submitted to this office.
6. Appeal against this order may be filed in writing with the Regional Director, North Western Region, Ministry of Corporate Affairs, Roc Bhavan, opp. Rupal park, Nr. ANKUR BUS STAND, NARANAPURA, AHMEDABAD (GUJARAT)-380013 within a period of sixty days from the date of receipt of this order, .n Form ADJ setting forth the grounds of appeal and shall be accompanied by the certified copy of this order. [Section 454(5) & 454(6) of the Companies Act, 2013 read with the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019]
7. Your attention is also invited to Section 454(8)(i) and 454(8) (ii) of the Companies Act, 2013, which state that in case of non-payment of penalty amount, the company shall be punishable with fine which shall not less than Twenty Five Thousand Rupees but which may extend to Five Lakhs Rupees and officer in default shall be punishable with Imprisonment which may extend to Six months or with fine which shall not be less than Twenty Five Thousand Rupees by which may extend to one Lakhs Rupees or with both.
The adjudication notice stands disposed of with this order..
(KEERTHI THEJ N. ,ICLS)
Registrar of Companies & Adjudicating Officer
Gujarat, Dadra & Nagar Havel’
