MCA Imposes Penalty for Conversion of loan into Securities without special resolution

The Registrar of Companies cum Official Liquidator, under the Ministry of Corporate Affairs, issued a penalty order against Lalitbagh Heritage Palace and Museum Private Limited for violating Section 62(3) of the Companies Act, 2013. The company raised loans from directors and converted them into securities without passing a required special resolution. Despite a show cause notice and adjudication notice, no response was received from the company. During the hearing, the company’s representative admitted to the default, stating that a special resolution was passed retroactively. The adjudicating officer found sufficient grounds for penal action and imposed penalties totaling INR 1,02,000 on the company and its officers. The penalties are to be paid through the Ministry of Corporate Affairs portal. The order can be appealed within sixty days to the Regional Director, Ministry of Corporate Affairs, Ahmedabad. Failure to pay the penalties could result in further fines or imprisonment. Copies of the order have been sent to the involved parties and authorities.

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

File No. ROCJP/SCN/Sec. 62(3)/2023-24/923 Date: – 8/5/2024

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

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 Lalitbagh Heritage Palace and Museum Private Limited (CIN U15500RJ2014PTC045272) is registered with this office under the provisions of Companies Act, 2013 and having its registered office at 12, Behind Central Jail, Udiapole, Udaipur, Rajasthan- 313001.

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

WHEREAS as per the provision of Section 62 (3) of the Companies Act, 2013 “nothing in this section shall apply to the increase of the subscribed capital of a company caused by the exercise of an option as a term attached to the debentures issued or loan raised by the company to convert such debentures or loans into shares in the company: provided that the terms of issue of such debentures or loan containing such an option have been approved before the issue of such debentures or the raising of loan by a special resolution passed by the company in general meeting.”

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 the respondent company has raised loan(s) from its directors on 01.09.2023 and converted the same into the securities(s) on 30.09.2023. However, no special resolution was passed pursuant to section 62(3) of the Companies Act, 2013 mentioning such terms & condition(s), before raising said loan(s). Hence, the respondents have violated the provision of section 62(3) of the Companies Act, 2013.

> In this regard, this office has issued Show Cause Notice vide letter No. ROCJP/SCN/Sec 62(3)/2023-24/543-48 dated 15.03.2024 to the respondents. However, no reply has been received so far from the respondents.

> Further, this office has issued an Adjudication Notice dated 12.04.2024 to the respondents and also fixed a date of hearing in the matter on 30.04.2024.

> At the time of hearing on 30.04.2024, Shri Mohit Vanawat, Practicing Company Secretary and authorized representative of the respondents appeared in the matter and submitted that the default has already been made good as the respondent company vide its AGM dated 25.09.2023 has passed such special resolution and filed the same with Registrar in e-From MGT-14 vide SRN AA5970715 dated 24.10.2023.

5. In view of the above facts, the undersigned has reasonable cause to believe that the provision of section 62(3) of the Companies Act, 2013 has 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 in accordance with section 446B of the Companies Act, 2013, 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 www.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. Lalitbagh Heritage Palace and Museum Private Limited at 12, Behind Central Jail, Udiapole, Udaipur, Rajasthan- 313001.

II. Chanda Kunwar Rao at _____________.

III. Shri Gagan Singh Rao at _____________.

IV. Shri Tikam Singh Rao at _____________.

V. Shri Bhanu Singh Rao at _____________.

VI. Shri Suraj Pratap Singh Rao at _____________.

VII. 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

Signed on this 08^th May 2024.
Place: Jaipur, Rajasthan.

File No. ROCJP/SCN/Sec. 62(3)/2023-24/923

Date: – 8/5/2024