Penalty imposed for not taking approval of shareholders for ESOP exceeding 1% of issued capital

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF THE REGISTRAR OF COMPANIES, TAMIL NADU
SHASTRI BHAVAN, II FLOOR, 26, HADDOWS ROAD, CHENNAI-6.

Order F.NO.ROC/CHN/Guvi Geek/ADJ Order/S.62(1)(b)/2023 Date: 9th FEB 2023

ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF COMPANIES ACT, 2013 FOR VIOLATION OF PROVISIONS OF SECTION 62(1)(B) OF THE COMPANIES ACT, 2013 BY M/S Guvi Geek Network Private Limited

1. In the matter of M/ s Guvi Geek Network Private Limited incorporated on 10.11.2014 under the jurisdiction of Registrar of Companies, Chennai with the registered office situated at Module No 9, Third Floor, D Block, Phase 2, IIT Madras Research Park, Kanagam Road, Taramani, Chennai, Tamil Nadu, 600113, India.

2. Whereas pursuant to section 62(1)(b) of the Companies Act, 2013, Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to employees under a scheme of employees stock option, subject to special resolution passed by company and subject to such condition as may be prescribed

3. Whereas, under Rule 12(4)(b) of the companies (Share Capital and Debentures) Rules, 2014 specifies as follows:

The approval of shareholders by way of separate resolution shall be obtained by the company in case of-

(a) Grant of option to employees of subsidiary or holding company; or

(b) Grant of option to identified employees, during any one year, equal to or exceeding one percent of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant of option.

4. Whereas on the basis of application received for adjudication of offence/violation dated 17.10.2022 and notice of hearing issued by this office on 05.01.2023, the authorized representatives of the Company viz., Mr. T H Vijay Prasad, Practicing Company Secretary attended for hearing on 24.01.2023 at 12:00 noon for adjudicating offence for violations committed. He had also admitted the violations of the provisions of the Act in principle and requested for a lenient view of the matter.

5. Whereas the company at its Board Meeting convened on 05.04.2021 unanimously accorded its approval for grant of 327 options under the Scheme to identified employees during the Financial Year-2021-2022 which exceeds 1% of the issued capital of the company. Hence, the approval of shareholders by way of separate resolution should have been obtained by the company at the time of grant of 327 employee stock options as required under Rule 12(4)(b) of the companies (Share Capital and Debentures) Rules,2014. However, the company failed to convene a shareholders meeting for obtaining approval from its shareholders for grant of stock options to identified employees exceeding 1% of the issued capital.

6. Whereas the failure for convening meeting of Shareholders as stipulated under Rule 12(4)(b) of the companies (Share Capital and Debentures) Rules,2014 was only due to oversight and inadvertence on the part of the company. However, immediately after the company was made aware that a default has occurred by not obtaining approval of its shareholders for grant of options in excess of 1% of its issued capital.

7. According to Para No.6, the Extra Ordinary General meeting convened on 09.09.2022 and the shareholders of the company accorded their approval by way of a special resolution for ratification and approval for grant of stock options to identified employees in excess of 1% of the Issued Capital of the company during the Financial Year 2021-2022.

8. Subsequently, the company filed E-form MGT-14 with the Registrar of companies, Chennai on 15.09.2022 vide SRN F25063587 for reporting the special resolution passed at the Extra ordinary general meeting convened on 09.09.2022.

9. Whereas pursuant to section 450, 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, directions 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 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 default or any other person.

11. Therefore in view of Para.6 said violation of Section 62(1)(b) of the Companies Act, 2013, the undersigned in exercise of the powers vested to him under Section 454(1) & (3) of the Companies Act, 2013.

Hereby impose a penalty of Rs.2,10,000/- to the company and Rs.60,000/- each to the officers in default viz., 1. Shri. Arunprakash 2. Shri. Balamurugan Palaniswamy for the year 2021-2022.

(Totalling -Rs.3,30,000/- Penalty Amount)

12. Whereas sub-section (5) of section 454 of the Companies Act,2013 provides that any person aggrieved by an order made by the adjudicating officer under sub-section(3) may prefer an appeal to the Regional Director having jurisdiction in the matter and further sub-section(6) provides that every appeal under sub-section(5) shall be filed within sixty days form the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person and shall be in such form, manner and be accompanied by such fees as may be prescribed.

13. Please note that as per Section 454(8) (i) of the Companies Act, 2013, Where company does not pay the penalty imposed by the adjudicating officer or the Regional Director within a period of ninety days from the date of the receipt of the copy of the order, 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.

(ii) Where an officer of a company who is in default does not pay the penalty within a period of ninety days from the date of the receipt of the copy of the order, such officer 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 with both.

In case of default in payment of penalty, prosecution will be filed under section 454(8) (i) and (ii) of the Companies Act, 2013 at your own costs without any further notice. Alongwith the penalty to be imposed and the same should be submitted.

(K.G.JOSEPH JACKSON)
REGISTRAR OF COMPANIES/
ADJUDICATING OFFICER
TAMILNADU, CHENNAI.