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In recent regulatory actions, Shree Auro Iron Limited faces penalties for non-compliance with dematerialization regulations set forth by the Companies Act, 2013. The Ministry of Corporate Affairs (MCA) has imposed significant penalties on the company and its Managing Director, highlighting the seriousness of the violation.

Introduction

The Ministry of Corporate Affairs, through its office of Registrar of Companies (ROC), Rajasthan, Jaipur, has issued an adjudication order penalizing Shree Auro Iron Limited for its failure to dematerialize shares as mandated by the Companies Act, 2013. This violation, concerning Section 29 of the Act and Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, has led to legal repercussions for the company and its management.

Detailed Analysis

1. Appointment of Adjudicating Officer: The Ministry of Corporate Affairs, under Section 454 of the Companies Act, 2013, appointed the Registrar of Companies as the Adjudicating Officer. This appointment empowers the officer to impose penalties on companies found in contravention of the Act’s provisions.

2. Violation Identified: Shree Auro Iron Limited, a registered company, failed to dematerialize its shares, a requirement under Section 29 of the Companies Act, 2013, and Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014. This violation surfaced during the scrutiny of the company’s filings.

3. Legal Proceedings: Following the identification of the violation, the ROC issued a Show Cause Notice to the company, prompting a response. However, failing to receive a satisfactory reply, an Adjudication Notice was subsequently issued, initiating formal legal proceedings.

4. Response from the Company: During the hearing, the company’s authorized representative acknowledged the failure to dematerialize shares but stated that the company had initiated the process and requested leniency in imposing penalties.

5. Penalty Imposed: Considering the gravity of the violation and the response from the company, the Adjudicating Officer, exercising powers under Section 454 of the Companies Act, 2013, imposed penalties totaling Rs. 20,000 on Shree Auro Iron Limited and its Managing Director, Shri Bhairu Lal Dangayach.

6. Appeal Process: The order allows for an appeal to be filed within sixty days from the date of receipt, following the prescribed procedure outlined by the Ministry of Corporate Affairs.

Conclusion

The penalization of Shree Auro Iron Limited underscores the stringent enforcement of corporate regulations by the Ministry of Corporate Affairs. This case serves as a reminder to companies of the importance of compliance with statutory requirements, particularly regarding the dematerialization of shares. The imposition of penalties not only acts as a deterrent against future violations but also upholds the integrity and transparency of the corporate governance framework in India.

*****

Government of India
Ministry of Corporate Affairs
Office of Registrar of Companies cum Official Liquidator,
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 (Adjudication of Penalties) Rules, 2014 and Companies (Adjudication of Penalties Amendment) 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.Shree Auro Iron Limited, Company
E-359, Road No-14, VKI Area, Vishwakarma Industrial Area, Jaipur, Rajasthan-302013.
02.Shri Bhairu Lal Dangayach, Managing Director

…. Respondents

Date of hearing – 09.04.2024

Present: –
01. Shri Ruvit Kumar, ROC-Cum-OL, Rajasthan, Jaipur
02. Shri Raunak Agrawal, AROC-cum-AOL, Rajasthan, Jaipur
03. Shri Rachit Sharma, Advocate and authorized representative of the respondents.

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 Shree Auro Iron Limited (CIN U27109RJ1999PLC015833) is registered with this office under the provisions of Companies Act, 1956 and having its registered office at E-359, Road No-14, VKI Area, Vishwakarma Industrial Area, Jaipur, Rajasthan-302013.

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 (ON) 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 29/2023-24/1473-78 dated 14.12.2023 to the respondents. However, no reply in the matter has been received so far.

➣ Further, this office has issued an Adjudication Notice dated 06.02.2024 to the respondents and also fixed a date of hearing in the matter on 28.02.2024.

Further, at the time of hearing on 28.02.2024, Shri Rachit Sharma, Advocate and authorized representatives of the respondents appeared in the matter and requested Competent Authority to adjourn the date of hearing in the matter. Accordingly, the matter has been adjourned for hearing on 09.04.2024.

➣ At the time of hearing on 09.04.2024, Shri Rachit Sharma, Advocate and authorized representative of the respondent appeared in the matter. He has submitted that the respondent company has already applied for dematerialization of shares vide letter dated 26.05.2023 to the National Securities Depository Limited, Mumbai. He has further submitted that the respondent company has neither issued any fresh shares nor transferred the shares.

Accordingly, he requested the Competent Authority to impose a minimum penalty in the matter.

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: –

Nature of default Relevant section of the Companies Act, 2013 and Rules made thereunder Name of persons on whom penalty imposed Maximum
Limit for
Penalty
(In
Rs.)
Final Penalty Imposed (In Rs.)
Non dematerialized of the shares. Section 29 of the Companies Act, 2013 read with Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Shree Auro iron Limited 10,000/- 10,000/-
Shri Bhairu Lal Dangayach, Managing
Director
10,000/- 10,000/-
Grand Total 20,000/-

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. Shree Auro Iron Limited at E-359, Road No-14, VKI Area, Vishwakarma Industrial Area, Jaipur, Rajasthan- 302013.

II. Shri Bhairu Lal Dangayach, Managing Director

III. Regional Director, NWR, Ministry of Corporate Affairs, Ahmedabad at ROC Bhavan, Opp. Ruin 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. ROCJP/SCN/Sec.29/2023-24/786 to 789

Date: 26/04/2024

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