In a recent development, the Ministry of Corporate Affairs in India has taken strict action against Solargridx Ventures Private Limited for violating key provisions of the Companies Act 2013. This violation has led to the imposition of a significant penalty amounting to Rs. 10 Lakh. In this article, we will delve into the details of the case, analyzing the nature of the violations and their implications.
Nature of the Violations:
Classification of CSOPs:
CSOPs as Derivatives and Securities:
No Penalty for Facilitators:
It’s noteworthy that no penalty was imposed on Tyke Technologies Private Limited, which facilitated the company’s violation of Section 42(7).
The Ministry of Corporate Affairs in India has taken a stern stance on violations of the Companies Act 2013 by Solargridx Ventures Private Limited. The penalties imposed, amounting to Rs. 10 Lakh, underscore the seriousness of the violations related to the issuance of CSOPs and their classification as securities
GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS,
OFFICE OF REGISTRAR OF COMPANIES,
NCT OF DELHI & HARYANA
ORDER UNDER SECTION 42 OF THE COMPANIES ACT, 2013 IN THE MATTER OF ADJUDICATION OF SOLARGRIDX VENTURES PRIVATE LIMITED
Appointment of Adjudicating Officer: –
Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 has appointed Registrar of Companies, NCT of Delhi & Haryana as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter referred as Act or Companies Act, 2013) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.
Whereas the company viz. SOLARGRIDX VENTURES PRIVATE LIMITED (herein after referred as ‘company’ or ‘subject company’) is a registered company with this office under the provisions of section 7 of the Companies Act, 2013 having its registered office as per MCA21 Registry at address NO. 944 Block C, Sushant Lok 1, Gurugram, Haryana, 122001. The financial & other details of the subject company for F.Y. 2021-22 as available on MCA-21 portal is stated as under:
|S. No.||Particulars||Details as on FY 2021-22|
|1.||Paid up capital||Rs. 1166|
|2.||a. Revenue from operation||NIL|
|b. Other Income||Rs. 52,75,407|
|c. Profit for the Period||(Rs. 52, 87,651)|
|5.||Whether company registered under Section 8 of the Act?||No|
|6.||Whether company registered under any other special Act?||No|
Raising of money through CSOP
I. The website of Tyke (https://www.tykeinvest.com), showed that the subject company under brand name “SustVest” had raised money from a significantly high number of persons through Community Stock Option Plan (herein after referred as “CSOP”). The following details in respect of the same are evident from the weblink2:
|Total number of Subscribers of CSOP||565|
|Average per Subscriber||Rs. 10,949.00|
|Type of Instrument||CSOP|
|Date of closure of campaign||1st February 2022|
II. The financial statement of the subject company for FY 2021-22 and other documents filed vide e-form AOC-4, shows that the statutory auditor had raised the following “Emphasis of matter:
“We draw attention to Note 20 and Note 23 of the financial statements, wherein, the company has adopted and approved the Community Stock Option Plan (CSOP Plan) for granting to eligible community members identified and approved by the Board, the right to receive Payouts pursuant to the Plan. Each CSOP Holder is an evangelist of the Company’s product and service and accordingly the company has agreed to reward CSOP Holder through Payouts. The Company issued 6,186 Community Stock Options as per the Company stock option plan to 565 subscribers. The Company issued the CSOP per unit for subscription fee of Rs. 1,000/- inclusive of applicable taxes and GST. The total amount received from such subscriptions have been recognized as Other Income. The Company has agreed to reward the holders based on the future valuation of the Company and the reward may change over a period. Thus, the company has created a provision for ‘CSOP Liability’ and the expense has been recognised as `CSOP Expenditure’ of RS. 52,42,373/-.”
Ill. Note No. 20 under the head Other Income in the Notes to Account of the financial statement of the subject company for FY 2021-22, states as under:
“During the year, the company has adopted and approved the Community Stock Option Plan (CSOP Plan) for granting to eligible community members identified and approved by the Board, the right to receive payouts pursuant to the Plan. Each CSOP Holder is an evangelist of the company’s product and service and accordingly the company has agreed to reward the CSOP Holder through payouts. The company issued 6,186 Community Stock Options as per Company Stock Option Plan to 565 subscribers. The Company issued the CSOPs for subscription fee of Rs.1000/- incl. applicable taxes and GST. The total amount received from such subscriptions have been recognized as Other Income. The company has agreed to reward the holders based on future valuation of the Company and the reward may increase/decrease over a period. Thus, the company has created a provision for `CSOP Liability’ and expense has been recognized as `CSOP Expenditure ‘of Rs. 52,42,373/- Basis recommendation issued by legal team hosted on the Tyke platform.”
IV. The language of the above disclosures gave a suggestion that CSOP could be securities, even though the subject company had not filed any e-form PAS-3 to intimate the same. The definition of ‘securities’ u/s 2(81) of the Companies Act, 2013 is derived from the definition of ‘securities’ under the Securities Contracts (Regulation) Act, 1956, whereby section 2(h) of the said statute defines securities as under:
(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;
(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
(id) units or any other such instrument issued to the investors under any mutual fund scheme;
(ii) Government securities;
(iia) such other instruments as may be declared by the Central Government to be securities; and
(iii) rights or interest in securities;
V. A ‘derivative’ is further defined in section 2(ac) of the Securities Contracts (Regulation) Act, 1956 as follows:
(A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;
(B) a contract which derives its value from the prices, or index of prices, of underlying securities”
Issue of SCN
VI. Thus, it appeared that the instrument of CSOP could be securities, if it were a “derivative” and/or “rights or interest in securities”, considering that the holders were ostensibly promised that they would be rewarded based on future valuation of the company. Accordingly, a Show Cause Notice dated 20th April, 2023 was issued to the company and its officers as why penalty should not be imposed on them for non-compliance of provisions of Section 42 of the Act.
VII. In response, a letter dated 4th May, 2023 was received from the subject company vide email, wherein the company prayed for extension of time of 15 days to submit its reply. The request of the company was not considered and vide email dated 9th May, 2023, it was communicated that reply is required to be submitted by 12th May, 2023. Considering the nature of issues at hand, an oral hearing was also scheduled on 17th May, 2023.
Reply of the company to the SCN
VIII. In its reply dated 12th May, 2013 [received through email], the subject company submitted a copy of the unsigned agreement and inter alia submitted as follows:
i. The company has made an agreement named CSOP (Community Subscription Offer Plan) with an object to build a group of brand loyalists and to increase sales to the interested persons or parties through Tyke platform.
ii. CSOP is an agreement to engage its Subscribers through a closed community, the link to which will be shared by the company with the Subscriber. In exchange for the purchase of the community benefits the subscriber can receive, including but not limited to, benefits as outlined below:
iii. Objective of CSOP: Being in the business of Installation in Solar Panels and other activities of Solar Projects and aspires to leverage the network effect created through this community and achieve the below:
iv. The company in the view to increase its sales and buildup the goodwill of its business has approached Tyke platform which is engaged in the business of running a technology-based community platform under the brand name “Tyke”. This network is created through registration on the Tyke platform and includes individuals from the business industry, corporate executives and professionals who are part of the Startup ecosystem.
v. That the Company using the services of Tyke Platform conducted an online pitching session to interact and inform members registered on the Tyke Platform regarding the Company’s background, Services, Values, Products, excellent Performance, growth opportunities and make the public aware about the company, its value, its working, area of problems and their solving ideas with the intention to educate the members registered on the platform of Tyke regarding the achievements and prospective growth of the company.
vi. Thereafter the company shall make a closed group available to the Subscribers to operationalize the plan, the company may engage the services of a third party for this purpose. Subscribers can enjoy the community benefits and additionally, perform the role of Evangelizers on behalf of the company and work to promote the products and/or services of the company.
vii. That the company has received a Show Cause Notice under Section 42 of the Companies Act, 2013 bearing serial number ROC/D/ADJ/SECTION42/SOLARGRIDX/1589 To 1593 Dated April 20,2023, in which it is alleged that the Company has violated the provision of Section 42(7) of the Companies Act by using Tyke Platform for raising securities, putting pitch information, raising money from general public through platform is amount to public advertisements or utilization any media, marketing or distribution channels or agents to inform the public at large about such an issue and directed the Company to furnish the reasons as why the penalty under Section 42(10) of the Companies Act, 2013 should not be imposed on them for violation of the section 42(7) of the Companies Act, 2013.
viii. Hence, in the present case the Company has neither released any public advertisements nor utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue of securities.
ix. Kindly take note that the company has treated the revenue received from CSOP as under the head of other income and payment of applicable GST Tax with the effective rate of 18% in GSTR3B return was filled in respect of same in the month of March 2022. Hence it clearly shows that the CSOP plan was not comes under the definition of “securities” under Securities Contracts (Regulation) Act, 1956. It is merely an agreement by the company with a view to engage its Subscribers through a closed community. In this case it is hypothetically assumed that the Company has violated Section 42(7) of the Companies Act,
x. In consideration of above mentioned facts, it is hereby submitted that the company was not violated any provisions of Section 42(7) of the Companies Act, 2013 since the CSOP plan is has structured this to engage its subscribers through a closed community, the link to which will be shared by the company with the Subscriber. In exchange for the purchase of the community benefits the subscriber as mentioned in the CSOP agreement
xi. RELIEF SOUGHT: In the view of above-mentioned facts, it is humbly requested from your good office to kindly dissolved the notice and no penalty shall be imposed as the CSOP Plan issued by the company was not come under the definition of “derivative” and/or “rights or interest in securities”, which is classified as “Securities” under Securities Contracts (Regulation) Act, 1956.
FAQs on the website of Tyke regarding CSOP3
IX. The reply of the company was silent as regards the issue of reward to the holders of CSOP based on the future valuation of the Company. The reply of the company did not make it clear as to whether these subscribers to CSOP would have an exit or not. The screenshots from the website of Tyke to describe CSOP to a lay person are as under:
X tyke Home Startup Square Academy Partnerships About Us
Tyke Academy / FAQ I Types of campaigns
Types of campaigns I FAQ
What are the different types of instruments available for subscription on Tykeinvest?
What is CSOP?
A CSOP is a contractual agreement executed between a subscriber and the company. The agreement entitles the subscriber to community benefits and the potential to be granted Stock Appredation Rights.
What are the benefits I am entitled to as a result of my subscription to CSOP?
Your subscription entitles you to benefits in the form of community services. Community services can take any of the following forms:
i. Discounts or other exclusive offers on products and services
ii. Access to exclusive events organized by the startup
iii. Opportunity to participate in testing of beta launches or provide feedback on prototypes
iv. Brand ambassador benefits and engagement with the founders
The company may grant Stock Appreciation Rights (SAR) to the subscriber as well.
What is SAR in case of CSOP?
Subscription to a CSOP may entitle the subscriber to grant of Stock Appreciation Rights (SAR) of the company. SAR entitles the grantee to receive value equivalent to appreciation in value linked to factors such revenue of the company. However, there is no issuance of equity shares involved. The value of SAR so granted can only settled by the company by payment of cash or other such incentives.
What is the benefit of a SAR?
There are multiple benefits to both the grantee as well as the company granting the SAR: To the grantee:
a. There is no additional consideration to be paid at the time of redemption
b. There is no tax impact on the grantee in the intervening period
To the company:
a. There is no issuance of equity shares involved and thus, no additional entries on the cap-table. This also saves time and effort involved in compliances and filing
What is Stock Appreciation Right (SAR)?
Generally, Stock Appreciation Rights (SAR) refer to agreements or privileges connected to the appreciation of a company’s stock value or share price. SARs are commonly settled through the issuance of actual shares of stock or cash payments, as outlined in the contractual terms.
Clearly, the reply of the company did not state anything about whether the subscribers of CSOP could avail `SAR’ or not.
X. On 17th May, 2023, Shri Hardik Bhatia (Director), Shri Dinesh Sharma (PCS) and Ms. Sheetal Sharma (PCS) appeared for the hearing. For understanding the issuance of CSOP by the subject company more clearly, they were asked to furnish the following additional information:
i. The list of subscribers who have subscribed to the CSOP Plan in the requisite format.
ii. Copy of any 5 CSOP agreements signed between company and subscribers and also to clarify whether all the agreements signed with 565 subscribers have similar content or not.
iii. Basis of treating the amount of Rs 52,42,373/- received from 565 subscribers of CSOP as ‘Other Income’ along with reference to Accounting Standards. They were also asked to provide a copy of opinion received from legal team of Tyke regarding treating the same as ‘Other Income’.
iv. Explanation was sought as to how CSOP will be settled or redeemed on a future date, including all the exit options available to CSOP holder.
v. Whether CSOP issued by company is in the form of Stock Appreciation Rights (SAR) and also how does CSOP issued by company differ from other CSOPs issued on Tyke platform.
vi. List of date/chain of events of raising CSOP and flow of banking transaction made.
vii. Money paid to Tyke for availing its services and how has the payments made to Tyke has been represented in financial statements.
Reply of the company on the queries raised during the first hearing
Xl. The company inter alia stated as under:
i. The company entered into contractual business relation with 565 subscribers using the Tyke platform. It was submitted that all the CSOP agreements signed had similar contents. A copy of 5 agreements were enclosed.
ii. It was explained that the subscription amount received by the Company is related to the ancillary activity of the Company and not included as the main business. Moreover, the main intention of the Company behind CSOP agreement was to collaborate with the Subscribers for future growth of the Company by increasing the business operations. Thus, the amount received from the subscribers was shown under the head “other income”. [It may be noted that the company got incorporated in 2020 itself and that during FY 2021-22, the subject company had reported the revenue from operations as NIL].
iii. On the issue of accounting treatment and the legal basis of CSOP, the subject company submitted a “legal opinion” by Tyke. The said opinion was an unsigned one-pager, which inter alia stated as under:
[The opinion did not clearly indicate the specific accounting standard and thus the accounting treatment was not properly explained]
iv. Despite clear indication in the financial statements of the subject company about the benefit of the CSOP subscribers in terms of future valuation of the company, it was denied that the benefit of future valuation would be available to the said subscribers. It was further emphasised that there were two types of CSOPs which were available on the website of Tyke— CSOP as SAR and CSOP as a community service offer signed between the evangelist and the start-up company.
v. The company provided the list of dates from the beginning to show raising of subscription through Tyke platform, receipt of the subscription fees from Tyke and fees charged by Tyke from the subject company and accordingly submitted that on 2nd March, 2022, it received the total subscription amount through Tyke.
Reply received from the auditor w.r.t amount raised through CSOP
XII. The auditor of the company, Shri Nischal Agrawal was also asked to appear in person for hearing in this matter. He conveyed his inability due to medical reasons but he submitted his reply through email regarding the issuance of CSOP, wherein inter alia he stated as under:
i. The CSOP transaction was very unique. It was the first time that he encountered these transactions in course of his audit and Institute of Chartered Accountants of India (ICAI) has not provided any guidance or accounting treatment for this kind of transaction.
ii. Based on representation from the management and documents so furnished, he disclosed about this transaction under the head “Emphasis of Matter”.
iii. He submitted that Management had explained and represented that the amount received is in the nature of a ‘membership fees’ and accordingly treated the same as “Other Income” and duly discharged the GST liability thereon by treating the same as Income for supply of services (which is very widely defined under GST law). The said accounting treatment was supported by a legal opinion from the legal team of TYKE platform on which such transaction was undertaken. The management has copies of few invoices issued to CSOP subscribers.
iv. He submitted that at the time of audit, management submitted that they were in the process of discussing and negotiating contract with Evangelists (term used by management for CSOP subscribers) and hence contracts were not seen by him and only invoices were provided.
Inconsistencies in the replies of the company submitted during the pre-hearing stage dated 12-5-20231, post-hearing stage dated 29-5-2023 and the replies submitted thereafter
XIII. As a reply to the initial SCN, the company in its reply dated 12-5-2023 had provided an unsigned agreement stating that all the agreements were similar in content. When it was asked to provide any 5 signed agreements during the hearing to corroborate with the initial agreement supplied to this office, the company vide its reply dated 29-5-2023, provided agreements which were materially different from the agreement initially provided to this office.
XIV. A clarification was sought in respect of the above by an email dated 07-07-2023, to which the company replied vide its letter dated 25-07-2023 that the difference in the agreements was on account of the fact that initially company had submitted only a draft agreement. But later when it was asked to submit 5 signed agreements, it submitted final agreements which were entered into after negotiation.
XV. On the issue of SAR, the company once again reiterated in its reply dated 25-072023 that the CSOP agreement was not SAR, despite the clear disclosures made in the financial statements and auditor’s report about unlocking of value for the CSOP holders. Explaining the benefits, it was submitted that subscribers are incentivized for promoting ‘brand loyalty’ on the terms provided in the CSOP agreement by way of offering ‘performance bonus’ in terms of the CSOP agreement.
XVI. Interestingly, the company also submitted that out of the 565 subscribers, only 13 had signed on the physical copies of the agreements, 438 subscribers had digitally signed on different dates through leegality.com and in case of remaining 114 subscribers, the agreements were yet to be finalized.
XVII. The reply of the company was clearly at odds with the submissions made earlier. It was categorically stated in the reply dated 29-05-2023 that all the 565 agreements were signed. But later company started taking contrasting stances including a stance that negotiations were still ongoing with some subscribers when the money had already been one and half year back!
XVIII. When the apparent inconsistencies were again brought to the notice of the subject company, it made another volte-face and stated that the information submitted concerning non-execution of 114 agreements was an error due to oversight. The copies of 5 agreements signed using the website leegality.com was shared and it was submitted that 552 agreements were similar in content. The company has also shared the copy of 565 invoices.
XIX. Despite their best efforts, the following inconsistencies remained in the replies submitted by the subject company:
a) The sample invoices submitted by the Auditor and the invoices submitted by company were compared. The sample invoices submitted by auditor contained GST Number but the invoices submitted by the company did not have GST number.
b) The 5 sample agreements submitted vide email dated 29-5-2023 and the agreements submitted vide email dated 31-7-2023 were totally different. All the 565 invoices submitted by company had same terms and conditions which clearly mentioned that “CSOP holder shall be eligible for rewards in the future based on Company’s Valuation/ such rewards may increase or decrease over a period”. The signed agreements submitted by the company vide email dated 29-05-2023 had no reference about payment being made based on company’s future valuation. Further, there was no clarity about how payouts would be made to the subscribers. While the copy of agreement which were digitally signed clearly mentioned these things.
XX. Considering the significant variations in the replies given by the subject company, it was thought apt to also ask some of the subscribers to give their comments/views along with documents supplied to them by the subject company for cross-verification of the information supplied to this office.
XXI. Reply from one the subscribers, enclosing a copy of the email received from Tyke clearly suggests that the said subscriber had got an “invite to invest” in the subject company through the Tyke platform. The screenshot of the email is as under, the name of the subscriber has been redacted:
Tyke support <firstname.lastname@example.org>
wed, GM 2022
SustVest has invited you to invest in SolarGridX Ventures Private Limited
You are invited to invest into SolarGridX Ventures Private Limited through an exclusive private campaign on Tyke.
Closes in: 10 days
XXII. The said subscriber also provided the email received from Tyke, which referred to the Tyke square as a peer-to-peer platform. The subscriber was required to sign an addendum, which would facilitate her to transfer her SAR. The screenshot of the email is as under, the name of the subscriber has been redacted:
Tyk <email@example.com> Unsubscribe
Greetings from Team Tyke!
We are excited to announce the addition of Sustvest SARs to our Tyke Square. Tyke Square is a peer-to-peer platform.
In order to enable the transfer of SARs, we require to sign an addendum to the original CSOP Agreement for Sustvest. This is merely an addition to the original agreement and the original agreement signed by you is still valid.
Please note that you will not be able to sell SARs of all companies at the beginning. We will work on adding more and more companies gradually.
Steps to sign:
XXIII. It was seen that from the reply of the subject company that its stance that CSOPs
issued by it were not in the nature of SAR was misleading, and untrue. Thus it appeared that the CSOPs were “securities” as defined under the Companies Act, 2013 and accordingly the subject company was communicated about the following violations and the directors and auditor were asked to appear on 21-08-2023 for a hearing:
Second Hearing and replies of the director and the auditors
XXIV. On 21-8-2023, Shri Hardik Bhatia (director) along with his authorized representative Shri Akshay Lath and Shri Nischal Agarwal, the concerned Auditor of the company appeared for oral hearing. Shri Agrawal submitted the Management Representation Letter received from the subject company at the time of audit, wherein it was clearly mentioned that management was yet to finalize the contracts and thus sample invoices, GST Returns and legal opinion received from Tyke team were provided for the purpose of audit.
XXV. On the issue of email being sent by Tyke to subscribers of CSOP mentioning “addition of Sustvest SARs to Tyke Square”, Shri Bhatia submitted that he is unaware about this communication.
XXVI. The company submitted a fresh reply and inter alia gave the following arguments, in its favour:
(A) a security derived from a debt instrument, share loan whether secured or unsecured , risk instrument or contract for differences or any other form of security
|CSOP cannot be said to be covered within this clause since it is not derived from the mentioned instruments|
|(B) a contract which derives its value from the prices or index of prices of underlying
|CSOP is not deriving its values from any price or index of prices of
|(C) commodity derivatives||It is not a commodity derivative|
|(D) such other instruments as may be declared by the Central Government to be
|It is not declared by the Government to be “derivative”|
Salient Features of the CSOP Agreement
XXVII. It was seen that the company had kept supplying different versions of the CSOP Agreement to this office. The company also tried to mislead this office regarding SAR given to CSOP holders. These inconsistencies were brought to the notice of the subject company from time to time. At last, the copy of the CSOP agreement supplied to this office vide email dated 31-07-2023 (where subscribers had digitally signed) matched with the copy of the CSOP agreement supplied to this office by one of the subscribers. The salient features of the said CSOP Agreement are as under:
XXVIII. Before proceeding further, it is imperative to decide as to whether the CSOP issued by the subject company were “securities” or not. The subject company’s version is largely that the rewards given to the subscribers of CSOP would be in the form of discount/concessions on the products of the company, etc. Thus, the subject company recognised them as subscription/membership fees. It was repeatedly submitted by the subject company that the CSOPs issued by them were not in the nature of Stock Appreciation Rights (SAR). The submissions made by the subject company are clearly at odds with the material placed on record:
a) The financial statements of the subject company unequivocally declare that the CSOP holders would be able to unlock value based on future valuation.
b) The website of Tyke lists out the benefits of SAR and states that they can be typically settled through issuance of shares and cash payments.
c) The signed agreement of CSOP, as discussed above, lays down the defining features of CSOP, it clearly links it with the valuation of the equity shares of the subject company. The payment provided to CSOP holder for each CSOP is to be calculated on the fair market value of the equity shares. This corroborates with the disclosures made in the financial statements which expressly provide that CSOP holders will be rewarded based on future valuations.
It is also seen that from the stage of issuance of CSOP, its value is tied to the pre-money valuation of equity shares. The ratio of CSOP to equity shares is to be adjusted in case of any capital structuring. A register of CSOP holders is to be maintained and each investor is to be told about the rights of the CSOP holders. In case of a liquidation event, the rights of the CSOP holders will be at par with the shareholders who subscribed at the same pre-money valuation. As noted above, the agreement also provides for transferability of CSOP, which is also corroborated from an email received to one of the subscribers which suggests that Tyke Square platform would be used for this purpose.
XXIX. The definition of derivative as noted above, includes “a contract which derives its value from the prices, or index of prices, of underlying securities”. It is apparent that CSOP’s value is linked to the equity securities of the subject company at the inception stage, capital restructuring stage and the payout stage. Besides this, CSOPs have other trappings of securities like transferability, maintenance of a register. Thus CSOP is clearly a ‘derivative’ as per section 2(ac)(B) as it clearly derives its value from the equity shares. In turn, CSOP is also “securities” being covered under section 2(h)(ia) of the Securities Contracts (Regulation) Act, 1956. Therefore, the provisions of section 42 of the Companies Act, 2013 would get triggered in the present case.
XXX. The limit to restrict a private placement of securities to 200 persons during a financial year as per section 42(2) of the Companies Act, 2013 read with rules has been clearly breached in the present instance as CSOPs have been issued to 565 subscribers during FY 2021-22. Thus there is a clear violation of section 42(2) of the Companies Act, 2013 read with rules.
XXXI. Under section 42(6), the subject company was bound to allot the securities within a period of 60 days from the date of receipt of application money, otherwise the amount had to be paid back to the subscribers within 15 days from the expiry of sixtieth day. Failure to do so would lead to repercussions under section 42(6), whereby the subject company is required to refund the money back with interest as provided under section 42(6). Clearly, the subject company has neither allotted the securities within the said duration nor refunded the amount back to the subscribers.
XXXII. Under section 42(7), there is a prohibition on releasing any public advertisements or utilizing any media, marketing or distribution channels or agents to inform the public at large about such an issue. In the first reply dated 12-05-2023 submitted by the company (noted above), the company has admitted that “using the services of Tyke Platform conducted an online pitching session to interact and inform members registered on the Tyke Platform regarding the Company’s background, Services, Values, Products, excellent Performance, growth opportunities and make the public aware about the company, its ►value, its working, area of problems and their solving ideas with the intention to educate the members registered on the platform of Tyke regarding the achievements and prospective growth of the company”. In the present case, the Tyke platform was utilized for publicizing its issue to the users of Tyke. The subscribers got to know about the CSOP of the subject company through the Tyke platform. The emails provided by a subscriber reveal that the Tyke was in direct contact with the subscribers at the invitation stage as well as after the completion of the issue, the screenshots of the emails have been referred above. Tyke also informed the subscribers about its new facility to transfer SAR using its platform. Thus, the subject company by its own admissions as well as based on the materials available on record used the platform of Tyke to inform the public at large (members of the Tyke platform) about the issue of CSOP, thereby it clearly violated section 42(7) of the Companies Act, 2013. It was seen that its issue was subscribed by 565 persons.
XXXIII. In the present case, the violation of section 42(6) has been noted, whereby the company would be bound to refund the money accepted from the CSOP holders on the ground that it remained unallotted. Thus, the violation under section 42(8) is not being pressed as the said violation requires the company to file e-form PAS-3 after the allotment of securities. As the company is required to refund the money in terms of section 42(6) of the Act in the present case, it would be counter-intuitive to press the charge for filing a form after allotment. Therefore, no direction in respect of violation of section 42(8) of the Act is being given in this order.
XXXIV. However, the provisions of Section 42 of the Act do not allow the undersigned to impose any penalty on Tyke Technologies Private Limited, which has clearly facilitated the subject company in the act of commission of default of sub-section (7) of Section 42.
Calculation of Penalty and issuance of a direction to rectify the default as per section 454(3) (a) and (b)
XXXV. Now in exercise of the powers conferred on the undersigned vide Notification dated 24th March, 2015 and having considered the reply submitted by the subject company and its auditor as well hearing held in the matter, I hereby impose the penalty on the company and its officers in default as follows:
a) For violation of Section 42(2) of the Act: The violation in respect of the said provision has been noted above, which is of a serious nature. The subject companies fulfill the requirements of a small company and accordingly the penalty on the subject company would be governed by Section 446B of the Act. In accordance with provisions of Section 446B, the amount of penalty in case of a company and officer in default shall not exceed Rs 2 lakhs and Rs 1 lakhs respectively. Considering the nature of default and the impact of small subscribers, the penalty being imposed is as per Table 1
|Violation||Penalty imposed on
as per Section
imposed u/s 42
|Section 42 (2)||Solargridx Ventures Private Limited||Rs 2,00,000/-||Rs 2,00,000/-|
|Hardik Bhatia||Rs 1,00,000/-||Rs 1,00,000/-|
|Devansh Manish Kumar Shah||Rs 1,00,000/-||Rs 1,00,000/-|
|Rs 1,00,000/-||Rs 1,00,000/-|
b) For violation of Section 42(7) of the Act: The violation in respect of the said provision has been noted above, which is of a serious nature. The subject companies fulfill the requirements of a small company and accordingly the penalty on the subject company would be governed by Section 446B of the Act. In accordance with provisions of Section 446B, the amount of penalty in case of a company and officer in default shall not exceed Rs 2 lakhs and Rs 1 lakhs respectively. Considering the nature of default and the impact of small subscribers, the penalty being imposed is as per Table 2
|Violation||Penalty imposed on
as per Section
imposed u/s 42
|Section 42 (7)||Solargridx Ventures Private Limited||Rs 2,00,000/-||Rs 2,00,000/-|
|Hardik Bhatia||Rs 1,00,000/-||Rs 1,00,000/-|
|Devansh Manish Kumar Shah||Rs 1,00,000/-||Rs 1,00,000/-|
|Rs 1,00,000/-||Rs 1,00,000/-|
XXXVI. Issuance of a direction to rectify the default as per section 454(3)(b) for violation of Section 42(6) of the Act: Pursuant to Section 42(6) of the Act, the company was required to make allotment within sixty days. In case, the allotment is not made, the money needs to be refunded within 15 days from the expiry of sixtieth day. In the instant case, the company in its reply had submitted that on 2nd March, 2022, it has received the money raised under CSOP through the Tyke platform. Neither it had made any allotment of securities nor it had refunded the money to subscribers. Accordingly, company is liable to pay money with interest at the rate of twelve percent per annum from the expiry of sixtieth day i.e. the default period is 01.05.2022 to date of issue of Show Cause Notice. The events and the calculation factor for computing interest is provided in Table 3 below:
|Date of receipt of amount from subscribers||02.03.2022|
|Sixtieth day from date of receiving the money||30.04.2022|
|Date of issue of SCN under Adjudication||20.04.2023|
|Days of defaults [reckoned from 01.05.2022 to 20.04.2023]||354|
|Rate of interest||12%|
|Factor for calculation of Interest||354X12% =0.116
The company is required to provide refund to all the 565 subscribers along with interest in terms of column F of Table 4 below within 45 days and provide a compliance report to this office within 60 days:
|Sr. No (A)||User Name/Name*
|Amount received from the subscriber
|Calculation of interest
|Interest to be paid
|Total amount to
be paid in Rs.(F)
|3||DR PARESHKUMAR DAVE||15000||0.116||1740||16740|
|5||CHELIKANI VENKATA ANIRUDH RAO||5000||0.116||580||5580|
|15||RAJ K SHARMA||7000||0.116||812||7812|
|21||SENSE ACCOUNTING SOLUTION||5000||0.116||580||5580|
|45||AKASHDEEP SINGH J A||11000||0.116||1276||12276|
|48||MANAS M BHAT||5000||0.116||580||5580|
|58||SAI RAM MURTHY||5000||0.116||580||5580|
|64||SIVAPRASAD KANCHA R||15000||0.116||1740||16740|
|100||PAVAN KU MAR||30000||0.116||3480||33480|
|166||AJIT KR. MAHANTY||5000||0.116||580||5580|
|168||NAVEEN KUMAR SELVARAJ||5000||0.116||580||5580|
|181||ARUN KUMAR LAKSHMINARASIMHA IAH||10000||0.116||1160||11160|
|193||AVINASH KUMAR CHAURASIA||5000||0.116||580||5580|
|245||ARJUN SINGH VARMA||10000||0.116||1160||11160|
|249||MARIA VIVENA AURA RODRIGUES CABRAL||10000||0.116||1160||11160|
|265||ANNAKULA ACHYUTH CHANDRA||5000||0.116||580||5580|
|271||VISHNU DATTA MAREMANDA||5000||0.116||580||5580|
|290||SAI BHARADWAJ VEN A||25000||0.116||2900||27900|
|306||AM IT KUMAR||5000||0.116||580||5580|
|337||ANANT SHRIVASTAVA (ANANTSHRI)||20000||0.116||2320||22320|
|346||SWAMI CHANDRESH MISHRA||100000||0.116||11600||111600|
|347||SAI SRINADHU KATTA||10000||0.116||1160||11160|
|379||SRIKANTH MORISHE T||10000||0.116||1160||11160|
|391||SONU SINGH TOMAR||5000||0.116||580||5580|
|393||ABHINANDAN YERPU D||5000||0.116||580||5580|
|396||GOPAL LAL SHARMA||10000||0.116||1160||11160|
|403||KIRAN KUMAR CHAPARALA||5000||0.116||580||5580|
|422||KIRAN KUMAR V||5000||0.116||580||5580|
|490||ANIL KUMAR HN||5000||0.116||580||5580|
|501||ANJU SINGH SENGAR||5000||0.116||580||5580|
|504||SHAIK ZAHID ALI||5000||0.116||580||5580|
|508||GNS VAMSI GUPTA||5000||0.116||580||5580|
|528||VAMSI KRISHNA REDDY MUNNAMGI||5000||0.116||580||5580|
|549||AMARPREET SINGH MADAN||10000||0.116||1160||11160|
|553||OMPRAKASH SHANMUGANANDA M||5000||0.116||580||5580|
|555||MADHUR R BHAGAT||20000||0.116||2320||22320|
*Company had provided the list titled ‘Name/ usename’ and so the same is mentioned here. PAN of the individual is not mentioned in the list due to privacy. Company is required to make payment to concerned persons who is identified on the basis of his/her PAN.
XXXVII. Names of party as mentioned in the Table 1 & 2 above are hereby directed to pay the penalty amount as per column no. `D’ therein. In case of parties other than company, such amount is required to be paid out of their own funds.
XXXVIII. The said amount of penalty shall be paid through online by using the website mca.gov.in (Misc. head) in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, payable at Delhi, within 90 days of receipt of this order, and intimate this office with proof of penalty paid.
XXXIX. The company is also required to provide refund to all the 565 subscribers along with interest in terms of column F of Table 4 above within 45 days and provide a compliance report to this office within 60 days.
XL. Appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003 within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].
XLI. Your attention is also invited to section 454(8) of the Act in the event of noncompliance of this order.
Place: New Delhi.
(Pranaji Chaturvedi, ius)
Registrar of Companies,
NCT of Delhi & Haryana
NO. ROC/D/ADJ/SECTION 42/SOLARGRIDX/3646-3650
1. CSOPs are also referred at times referred by the company as Community Subscription Offer Plan