In a recent adjudication by the Registrar of Companies, Gujarat, Dadra & Nagar Haveli, M/S. Krazzy Fin Private Limited and its directors have been penalized for violations of Section 62(1)(b) of the Companies Act, 2013. The order, issued on March 27, 2024, highlights the regulatory actions taken against the company and its officers in default.
Background
The case arose from a compounding application filed by M/S. Krazzy Fin Private Limited, wherein it was revealed that the company had inadvertently allotted 216 equity shares before the completion of the vesting period of one year, a violation of Section 62(1)(b) of the Companies Act, 2013. While the company sought compounding for the offense, it was deemed not maintainable as it fell under the adjudication of penalty jurisdiction.
Key Findings and Observations
The adjudicating officer noted that the company had indeed violated the provisions of Section 62(1)(b) by issuing shares under an Employee Stock Option Scheme (ESOP) before the completion of the prescribed vesting period. Despite being classified as a small company, as per the Companies Act, 2013, the penalty provisions were applicable.
Penalties Imposed
Considering the severity of the violation and the duration of default, penalties were imposed as follows:
- Company: A penalty of Rs. 10,000/- plus Rs. 1,000/- per day for 454 days, totaling Rs. 4,64,000/-. However, the maximum penalty limit for a small company under Section 446B of the Companies Act, 2013, was considered, resulting in a final penalty of Rs. 1,00,000/-.
- Directors: Each director was fined Rs. 10,000/- plus Rs. 1,000/- per day for 454 days, summing up to Rs. 4,64,000/-. However, considering their status as officers of a small company, the penalty was reduced to Rs. 25,000/- each.
Compliance and Appeal
The company and its directors were directed to rectify the default within a stipulated period. Failure to comply could result in further punitive actions under Section 454A of the Companies Act, 2013. Additionally, an appeal against the order could be filed with the Regional Director, North-Western Region, Ministry of Corporate Affairs, within 60 days.
Concluding Remarks
The adjudication order serves as a reminder of the stringent regulatory framework governing corporate actions, emphasizing compliance with statutory provisions. It underscores the accountability of companies and their officers for adherence to the Companies Act, 2013, and related regulations, with penalties imposed for non-compliance.
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BEFORE THE ADJUDICATING OFFICER
REGISTRAR OF COMPANIES, GUJARAT, DADRA & NAGAR HAVELI
Order No. ROC//Sec.454 (4)/Sec.62(1) (b)/Krazzy Fin/STA ( VID) 23-24/6066 to 70 Dated: 27 MAR 2024
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, 2019 FOR VIOLATION OF SECTION 62(1) (b) OF THE COMPANIES ACT, 2013
IN THE MATTER OF M/S. KRAZZY FIN PRIVATE LIMITED
(U72900GJ2020PTC118476)
Date of hearing: 28.02.2024
PRESENT:
1. Shri Keerthi Thej N. (ROC), Adjudicating Officer
2. Shri Indrajit Vania (DROC), Presenting Officer
3. Ms. Richa Goyal, PCS, Authorised representative of the company M/s. Krazzy fin Private Limited
Appointment of Adjudication Authority:-
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014- Ad.II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the power 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 AO.
Company:
2. M/S. KRAllY FIN PRIVATE LIMITED (hereinafter referred to as “Company”) is a company registered under the provisions of the Companies Act, 1956/2013 in the State of Gujarat on 27.11.2020 having CIN: U72900GJ2020PTC118476 and presently having its registered office situated at “527, Shivalik Satyamev, Ambali Bopal Junction beside Vakil Saheb Bridge, Bopal, Ahmedabad, Ahmedabad, Gujarat, India, 380058”.
Facts of the case
3. That with reference to a Compounding application filed by company in GNL-1 vide SRN F74743824 dated 29.10.2023, the company mentioned in its compounding application as the company unintentionally allotted 216 Equity shares before completion of vesting period of 1 year. The applicant Company & Officers in default have filed suo-moto compounding application on 29.10.2023 under Section 441 for default committed under the violation of Section 62(1)(b) r.w. rule 12 of the Companies (Share Capital and Debenture) Rule, 2014 of the Companies Act, 2013. However, the said compounding application is not maintainable as the offence committed falls under the arnbit of Adjudication of penalty for which Adjudicating Authority can adjudicate the default under the provisions of Section 454 of the Companies Act, 2013 read with Rules made thereunder. The classification of the Company’s Snare Capital in terms of its Authorized Share capital and paid-up Share Capital are as under:
A. The Authorized Capital: Presently, the Authorized Share Capital of the Company is Rs. 30,00,000/- (Three Lac) Equity shares of Rs. 10/- (Rupees Ten) each; and
B. Paid-up Share Capital: The issued, subscribed capital and Paid-up Share Capital of the Company is Rs. 1, 81,730/- (Rupees One lakh Eighty One Thousand Seven Hundred Thirty Only) divided into 18,173/- (Eighteen thousand One hundred Seventy Three) Equity shares of Rs. 10/- (Rupees Ten) each.
4. Grounds of making an application
(i) The company has stated that the company inadvertently violated Section 62(1)(b) of the Companies Act, 2013. However, the company has filed compounding application for violation under Section 62 (1) (b) of the Companies Act, 2013 to the Regional Director, North-Western Region, Ahmedabad and served copy of the compounding application to this office. Thereafter, it is observed that the compounding application is not maintainable as the offence committed falls under the ambit of Adjudicating of penalty for which Adjudicating, Authority can adjudicate the default under the provisions of Section 454 of the Companies Act, 2013 read with Rules made thereunder.
(ii) Section 62 (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further short’s, such shares shall be offered—
(b) to employees under a scheme of employees’ stock option, subject to 2&5 (special resolution) passed by company and subject to such conditions as may be prescribed; or
As per rule 12 of the Companies (Share Capital and Debenture) Rules, 2014 A company, other than a listed company, which is not required to comply with Securities and Exchange Board CI India Employee Stock Option Scheme Guidelines shall not offer shares to its employees under a scheme of employees’ stock option (hereinafter referred to as “Employees Stock 9ption Scheme”), unless it complies with the f Wowing requirements, namely:-
(6) (a) There shall be a minimum period of one year between the grant of options and vesting of option:
(iii) The following were the Directors on the board of the Company for F.Y.2021-2022 and 2022-2023.
|
Sr. No. |
Name of Directors & their DIN | Date of Appointment | Date of Resignation |
| 1. | HARSH DHANAWAT (Director) DIN – 08946232 | 27.11.2020 | – |
| 2. | DHIREN D DHANAWAT (Director) DIN – 08975231 |
27.11.2020 | – |
| 3. | DHARMIL BF-IAVESH BAVISHI (Director) DIN – 08975232 | 27.11.2020 | – |
(iv) Taking into consideration the provision of Sec. 150 of the C:ompanies Act, 2013, which states that;
“Section 450, If a company or any officer of a comb any 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 relation to any matter has been accorded, given or granted, and for which no penalty 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 o maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an office, who is in default or any other person]
(v) The Registrar of Companies vide the Companies (Amendment) Act, 2019 is entrusted with power to adjudicate penalty as provided under Section 203 of the Companies Act, 2013 w.e.f. 15.05.2023. The DGCoA vice letter dated 11.05.2022 has instructed that all cases filed under Companies Act, 1956 and Companies Act, ,2013 can be considered under In House Adjudication Penalty Mechanism (IAM). In pursuant to the instruction of the Ministry vide letter dated 11.05.2022 further directed that all cases filed under CA, 1956 and CA, 2013 can be considered for adjudication process which are now decriminalized (earlier prosecutions to be filed by Companies Amendment Act effective from 02.11.2018 and further Amendment in 2020 effective from 28.09.2020).
5. SUBMISSION OF AUTHORISED REPRESENTATIVE OF THE COMPANY:
Ms. Richa Goyal, PCS, authorized representative of the Company has orally submitted that the company is a small startup company and shares through approval by the company was issued earlier.
6. SUBMISSION! OF PRESENTING OFFICER:
(i) It is observed from the compounding application filed by the company, the company come up with ESOP Scheme named (KFPL ESOP 2021) for the issue of 1379 equity shares of the company during the Year 2021-22 on 03.09.2C21. The company has approved allotment of 500 equity shares (ESOP) Rs.10/- under ESOP scheme to Shri Abhishek Kandoi. Further on 13.09.2022 and again company approved through Board of Directors allotment of 1095 equity shares (ESOP) Rs.10/- under ESOP scheme to Shri Abhishek Kandoi (200 shares) and Shri Divyansh Mathur (895 shares) on 01.12.2022. Thus, the company has allotted excessive 216 equity shares of Rs.10/- to Shri Divyansh Mathur on 01.12.2022 and the company has filed PAS-3 with this office.
(ii) Presenting officer has submitted that the matter is fit for further proceedings as the company and its Officers in default are liable for penalty Lnder section 450 of the Companies Act, 2013 for non-compliance of Section 62(1)(b) of the company viz. KRAZZY FIN PRIVATE LIMITED.
(iii) It is further submitted that there is reasonable ground to believe that the company and its officers in default have violated the provisions o ‘Section 62(1)(b) of the Companies Act, 2013 as noticed though the company has filed suo-motto compounding application, which can be considered for adjudication instead for reasons mentioned herein above. In view of the facts narrated above, the company and its directors/ officers, in default are liable for penal action under Section 450 of the Companies Act, 2013 and Rules, made thereunder.
(iv) The Presenting Officer further submitted that it is observed from the Balance Sheet/ Financial statement: as at 31.03.2022 the paid-up capital of the company is Rs. 1,81,330 /- and Turnover is Rs. 1,158,023/- Hence, as per the Ministry’s Notification No. G.S.R. 700(E) dated 15.09.2022, in light of Companies (Specification of definition details) Amendment Rules, 2022 with respect to the provisions of Section 2(85) of the Companies Act, 2013, the company does fall under the ambit of “small company”. Therefore, the provisions of imposing lesser penalty as per the provisions of Section 446B of the Companies Act, 2013 shall not be applied to the company.
ORDER:
1. While adjudging quantum of penalty under Section 450 of the Companies Act, 2013, 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 factors to be considered while determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the noticees or loss caused to the investor as a result of the delay on the part of the notice to redress the investor grievance are not available on the record. Further, it may also be added that it is difficult to quantify the unfair advantage made by the notice or the loss caused to the investors in a default of this nature.
3. Having considered the facts and circumstances of the case and submissions made by the presenting Officer and after taking into account the facts cited above, the undersigned has reasonable cause to believe that the company and its officers in default have failed to comply with the Provisions of Section 62 (1) (b) of the Companies Act, 2013, I hereby impose penalty as under:
Default for non-compliance under Section 62 (1) (b) of the Companies Act, 2013
Violation Under Companies Act,2013 |
Company/
|
Default Period for violation of 62 (1) (b) of
|
Penalty for Default (Rs.) in Pursuant to Section 450 of the C.A. 2013 |
Penalty to Be imposed for Default u/s.450 of the Act. (Rs.) |
Maximum Limit for
|
Penalty for Small company Section 446B of CA 2013 |
Section 62(1)(B) |
KRAZZY FIN PRIVATE LIMITED (`the Company) |
454 days |
Rs.10,000/- + 1,000* Days |
Rs.4,64,000 |
Rs. 2,00,000/- |
Rs.1,00,000 |
HARSH DHANAWAT (Director) DIN – 08946232 |
454 days |
Rs. 10,000/-+ 1,000*Days |
Rs.4,64,000 |
Rs. 50,000/- |
Rs. 25,000 |
|
DHIREN D DHANAWAT (Director) DIN – 08975231 |
454 days |
Rs. 10,000/-+ 1,000*Days |
Rs.4,64,000 |
Rs. 50,000/- |
Rs. 25,000 |
|
DHARMIL BHAVESH BAVISHI (Director) DIN – 08975232 |
454 days |
Rs. 10,000/-+ 1,000*Days |
Rs.4,64,000 |
Rs. 50,000/- |
Rs. 25,000 |
(The default period from 01.12.2022 to 28.02.2024)
AO is of the opinion that penalty is commensurate with the aforesaid default committed by the Noticees:
4. The company/ Officer is further directed to rectify the default failing which this office shall be proceeded further the matter in pursuant to Section 454A of the Companies Act, 2013 for the non-compliance of the aforesaid provisions of the Companies Act, 2013.
5. The noticees shall pay the amount of penalty individually for the company and its officers from their personal sources/ income by way of 2-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 60 days from he 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.
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, Naranpura, Ahmedabad (Gujarat) 380013 within a period of sixty days from the date of receipt of this order, in Form ADJ setting forth the ground:. 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(3) (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 the fine which shall not less than Twenty Five Thousand Rupees but which may be 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.
REGISTRAR OF COMPANIES/
ADJUDICATING AUTHORITY
GUJARAT, DADRA & NAGAR HAVELI
