Failure to dematerialize shares: MCA imposes ₹2.5 lakh Penalty

The Ministry of Corporate Affairs’ Registrar of Companies, Jaipur, has imposed a penalty on Ashapurna Buildcon Limited and its Managing Director, Shri Karan Singh, for failing to comply with the Companies Act, 2013. Specifically, the company did not dematerialize its shares as mandated by Section 29(1) of the Act and Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Despite multiple notices and hearing dates, the company and its MD did not appear for hearings. Consequently, a fine of ₹2,00,000 has been levied on the company and ₹50,000 on the MD, totaling ₹2,50,000. The penalty reflects the non-compliance period from October 2, 2018, to March 12, 2024. The amount must be paid via the Ministry of Corporate Affairs portal, and appeals can be filed within 60 days. Non-payment could result in further fines or imprisonment as stipulated under the Companies Act.

GOVERNMEN OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES CUM OFFICIAL LIQUDIAOTR,
ATTACHED TO RAJASTHAN HIGH COURT, JAIPUR BENCH AT JAIPUR
CORPORATE BHAWAN, G/6-7, RESIDENCY AREA, CIVIL LINES, JAIPUR- 302001

ORDER FOR PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICTION OF PENALTIES) RULES, 2014 AND COMPANIES (ADJUDICATON OF PENALTIES AMENDEMENT RULES, 2015 FOR THE VIOLATION OF SECTION 29(1) OF COMPANIES ACT, 2013 READ WITH RULE 9A OF COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014 IN THE MATTER OF: –

01. Ashapurna Buildcon Limited, Company
4A, East, Patel Nagar, Circut House Road, LIC Office Ke Samne, Ratanada, Jodhpur, Rajasthan- 342011.
02.Shri Karan Singh, Managing Director

….. Respondents

Date of hearing – 12.03.2024

Present: –
01. Shri Ruvit Kumar, ROC-Cum-OL, Rajasthan, Jaipur
02. Shri Raunak Agrawal, AROC-cum-AOL, Rajasthan, Jaipur

ADJUDICATION ORDER

1. Appointment of Adjudicating Officer: –

WHEREAS the Ministry of Corporate Affairs vide its Gazette Notification No. SO 831 (E) dated 24.03.2015 appointed the Registrar of Companies/undersigned as Adjudicating Officer in exercise of the Power conferred by Section 454 of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014. The Registrar of Companies vide the Companies (Amendment) Act, 2019 is entrusted with power to adjudicate penalty as provided under Section 450 of Companies Act, 2013.

2.Respondent Company:

WHEREAS Ashapurna Buildcon Limited (ON U45201RJ1996PLC013034) is registered with this office under the provisions of Companies Act, 1956 and having its registered office at 4A, East, Patel Nagar, Circut House Road, LIC Office Ke Samne, Ratanada, Jodhpur, Rajasthan- 342011.

3. Relevant provisions of the Companies Act, 2013: –

WHEREAS as per the provision of Section 29 (1) of the Companies Act, 2013 “Notwithstanding anything contained in any other provisions of this Act,- (a) every company making public offer; and (b) such other class or classes of public companies as may be prescribed, shall issue the securities only in dematerialized form by complying with the provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made thereunder.

WHEREAS as per the provision of Section 29 (1A) of the Companies Act- “In case of such class or classes of unlisted companies as may be prescribed, the securities shall be held or transferred only in dematerialized form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder”.

WHEREAS as per Rule 9A (1) of the Companies (Prospectus and Allotment of  Securities) Rules, 2014 “every unlisted public company shall -(a) Issue the securities only in dematerialised form; and (b) Facilitate dematerialisation of all its existing securities in accordance with provisions of the Depositories Act, 1996 and regulations made there under”.

WHEREAS as per Rule 9A (2) of the Companies (Prospectus and Allotment of  Securities) Rules, 2014 “every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with provisions of the Depositories Act 1996 and regulations made there under”.

WHEREAS as per Rule 9A (3) of the Companies (Prospectus and Allotment of  Securities) Rules, 2014 “every holder of securities of an unlisted public company, ­(a) who intends to transfer such securities on or after 2nd October 2018, shall get such securities dematerialised before the transfer; or(b) who subscribes to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after 2nd October 2018 shall ensure that all his existing securities are held in dematerialized form before such subscription.

WHEREAS as per Rule 9A (4) of the Companies (Prospectus and Allotment of  Securities) Rules, 2014 “every unlisted public company shall facilitate dematerialisation of all its existing securities by making necessary application to a depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 and shall secure international security Identification Number (ISIN) for each type of security and shall in-form all its existing security holders about such facility.”

WEHEREAS as per the provision of Section 450 of the Companies Act- 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 of the Case:

• That it has been observed during the procedural scrutiny of the e-Form MGT-7 filed by the respondent company wherein authorized person/signatory for filing of above e-Form has stated/mentioned that the respondent company has not demetallized its shares. Hence, the respondent company and its directors have violated the provision of section 29 of the companies Act, 2013 read with Rule 9A of the Companies (Prospectuses and Allotment of Securities) Rules, 2014.
• In this regard, this office has issued Show Cause Notice vide letter No. ROCJP/SCN/Sec 29/2023-24/1495-99 dated 15.12.2023 to the respondents. In this regard, the respondent company has replied vide letter dated 28.12.2023 and admitted the default stating that the shareholders of the respondent company have opened DEMAT Account with CDSL and had also submitted the share certificate(s) for dematerialization and the same is under process.
• Further, this office has issued an Adjudication Notice dated 24.01.2024 to the respondents and also fixed a date of hearing in the matter on 20.02.2024. However, at the time of hearing, none appeared on behalf of the respondents.

Therefore, the Competent Authority has decided to give a last opportunity for hearing to the respondents and fixed a date of hearing in the matter on 12.03.2024.

Further, at the time of the hearing on 12.03.2024 none appeared on behalf of the respondents. Accordingly, the Competent Authority has decided the matter on merits.

5. In view of the above facts, the undersigned has reasonable cause to believe that the provision of section 29 of the Companies Act, 2013 read with Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 have not been complied with by the respondents and therefore liable for penal action under section 450 of the Companies Act, 2013. Accordingly, in exercise the power of 454 (3) of the Companies Act, 2013, I inclined to impose a penalty on the respondents, as under: –

I am of this opinion that penalty is commensurate with the aforesaid failure committed by the respondents and penalty so imposed upon the Officers-in-default shall be paid from their personal sources/ income. It is further directed that penalty imposed shall be paid through the Ministry of Corporate Affairs portal only as mentioned under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 under intimation to this office.

6. Appeal against this order may be filed in writing with the Regional Director (NWR), Ministry of Corporate Affairs, Ahmedabad within a period of sixty days from the date of receipt of this order, in e-Form ADJ (available on Ministry website mca.gov.in setting forth the grounds of appeal and shall be accompanied by a certified copy of this order (section 454(5) & 454(6) of the Companies Act, 2013 read with Companies (Adjudicating of Penalties) Rules, 2014).

7. 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 be less than twenty five thousand rupees but which may extend to five lakh 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 but which may extend to one lakh rupees or both.

8. In terms of the provisions of sub-Rule (9) of Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014, copy of the order is being sent to the following: –

I. Ashapurna Buildcon Limited at 4A, East, Patel Nagar, Circut House Road, LIC Office Ke Samne, Ratanada, Jodhpur, Rajasthan- 342011.

II. Shri Karan Singh, Managing Director at ___________________.

III. Regional Director, NWR, Ministry of Corporate Affairs, Ahmedabad at ROC Bhavan, Opp. Rupal Park Society, Behind Ankur Bus Stop, Naranpura, Ahmedabad, Gujarat-380 013.

The adjudication notice stands disposed off with this order.

(RUVIT KUMAR)
ROC-cum-OL & Adjudicating officer,
Rajasthan, Jaipur

File No. ROCIP/SCN/Sec. 29/2023-24/989

Dated: 21/05/2024