This editorial is based on the importance of compliance of Provisions of Companies Act, 2013. As there are lot of amendment has come into Companies Act, 2013 in last 8 years. Many places ease has given and many places strictness has been made. The only motto of government to company with the law in corporate governance manner.
To, enable the corporates to follow the law in true spirit, many penalties levied by the ROC’s, RD’s, Central Government on non-Compliance by the Corporates. Therefore, it is mandatory to comply with the law with proper care.
In this editorial author shall discuss “Penalty imposed by Roc Bangalore recently u/s 42 Private Placement of Shares”
A. Fact of the Case:
- Company has made Private Placement of 50,000 CCD of Rs. 100/-. Total Value Rs. 50,00,000/-
- SR passed on 27.11.2018
- PAS-3 filed on 09.01.2019.
B. Compliance failed by the Company:
- Company fails to give reference of Section 42 in Board Resolution and General meeting Resolution.
- Fails to comply with provisions of Rule 14(1) of the Companies (Prospectus and Allotment of Securities) Rules, 2014
- The MGT-14 was filed after the issue of Private Placement offer cum application letter.
- Company has not received the allotment money in separate Bank Account.
MOST IMPORTANT NON-COMPLIANCE:
I. As per Rule 14(8), A company shall issue private placement offer cum application letter only after the relevant special resolution or Board resolution has been filed in the Registry.
*As per Law until unless company file MGT-14 with special Resolution, they are not allowed to issue offer letter. In the given case company has filed MGT-14 for SR after issuance of Offer Letter.
Therefore, it is mandatory for corporates to understand and keep in mind that without filing of Special Resolution with ROC, Companies are not allowed to issue offer letter.
II. As per Rule 42(6), monies received on application under this section shall be kept in a separate bank account in a scheduled bank.
*As per Law it is mandatory to keep separate bank account for private placement of shares. In the given case company has not opened separate bank account for private placement of shares.
Therefore, it is mandatory for corporates to understand and keep in mind that Opening of separate Bank Account is mandatory for Private Placement of Shares.
Penalty u/s 42:
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.
Order made by ROC:
- Penalty Imposed on Company Rs. 50,00,000/-
- Penalty Imposed on both Directors, each Rs. 50,00,000/-
- Total Penalty imposed Rs. 1,50,00,000/-
Further, Directed the Company to refund all the subscription money along with interest to all the subscribers of private placement.
Conclusion:
After this verdict of ROC Bangalore, Compliance of Section 42 (private placement of Shares) are very important under Companies Act, 2013. In case company fails to comply any single provision of Section 42 and relevant rules then company may have to bear heavy penalties.
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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).
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