Penalty Imposed on East Alpha Technology for SBO Violation

Ministry of Corporate Affairs (MCA) has issued an adjudication order concerning East Alpha Alliance Technology Private Limited (CIN: U74110UP2017PTC093229) for failing to comply with the provisions of Section 90 of the Companies Act, 2013, regarding the declaration of Significant Beneficial Owners (SBO). The company, incorporated on May 18, 2017, had not filed the required e-form BEN-2 or identified its SBOs as mandated by law. Section 90 of the Companies Act outlines the necessity for companies to identify and declare significant beneficial owners (SBOs), those who hold substantial control or influence over the company. The order was issued by the Registrar of Companies (RoC) Uttar Pradesh following an inquiry report and multiple notices sent to the company.

Despite repeated communications, including a Show Cause Notice (SCN) issued on May 21, 2024, the company and its directors failed to respond or attend the scheduled hearing. Consequently, penalties were imposed for the violation, covering the period from December 21, 2020, to May 21, 2024, for not submitting the required forms. The penalties totaled Rs. 7,00,000, with individual penalties for the company and its directors. Additionally, the company was directed to identify all significant beneficial owners and submit the relevant e-form BEN-2 within 90 days from the date of the order. If the company fails to comply, the penalty remains enforceable, and any appeal must be filed within 60 days with the Ministry of Corporate Affairs.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES,
Uttar Pradesh
37/17, Westcott Building, The Mall,
Kanpur -208001(U.P.)
Phone : 0512 — 2310443/2310227

Order No. 03/22/SBO/UP/2024/East Alpha/3986 to 3989 Dated: 11-10-2024

ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 FOR VIOLATION OF PROVISIONS OF SECTION 90 OF THE COMPANIES ACT, 2013

IN THE MATTER OF EAST ALPHA ALLIANCE TECHNOLOGY PRIVATE LIMITED
(CIN : U74110UP2017PTC093229)

Date of hearing: 29.05.2024

Present on behalf of Applicants: No one appeared on 29.05.2024

The Ministry of Corporate Affairs vide its Gazette Notification no A-42011/112/2014-Ad.II dated 24.3.2015, appointed the Registrar of Companies, Uttar Pradesh as the Adjudicating Officer in exercise of the powers conferred by Section 454(1) of the Companies Act, 2013 (hereinafter known as “the Act”) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Whereas the company viz. EAST ALPHA ALLIANCE TECHNOLOGY PRIVATE LIMITED (hereinafter as “‘the reporting company’) was incorporated under the provisions of the Companies Act, 2013 on 18.05.2017, and has its registered office situated at F-304, Ground Floor, Sector-63, Noida, Gautam Buddha Nagar, Uttar Pradesh, 201301, India. The shareholding details of the reporting company’ as per list of shareholders attached with e-form MGT-7 for financial year 2018-19 (last available annual return at MCA21 Registry) is as follows:-

3. That the provisions of Section 90 of the Companies Act, 2013 reads:-

Section 90:- (1) Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company (herein referred to as “significant beneficial owner”), shall make a declaration to the company, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof as may be prescribed:

Provided that the Central Government may prescribe a class or classes of persons who shall not be required to make declaration under this sub-section.

(2) Every company shall maintain a register of the interest declared by individuals under sub­section (1) and changes therein which shall include the name of individual, his date of birth, address, details of ownership in the company and such other details as may be prescribed.

(3) The register maintained under sub-section (2) shall be open to inspection by any member of the company on payment of such fees as may be prescribed.

(4) Every company shall file a return of significant beneficial owners of the company and changes therein with the Registrar containing names, addresses and other details as may be prescribed within such time, in such form and manner as may be prescribed.

(4A) Every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require him to comply with the provisions of this section.

(5) A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe—

a. to be a significant beneficial owner of the company;

b. to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or

c. to have been a significant beneficial owner of the company at any time during the three years immediately preceding the date on which the notice is issued, and who is not registered as a significant beneficial owner with the company as required under this section.

(6) The information required by the notice under sub-section (5) shall be given by the concerned person within a period not exceeding thirty days of the date of the notice.

(7) The company shall—

a. where that person fails to give the company the information required by the notice within the time specified therein; or

b. where the information given is not satisfactory, apply to the Tribunal within a period offifteen days of the expiry of the period specified in the notice, for an order directing that the shares in question be subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed.

(8) On any application made under sub-section (7), the Tribunal may, after giving an opportunity of being heard to the parties concerned, make such order restricting the rights attached with the shares within a period of sixty days of receipt of application or such other period as may be prescribed.

(9) The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8), within a period of one year from the date of such order:

Provided that if no such application has been filed within a period of one year from the date of the order under sub-section (8), such shares shall be transferred, without any restrictions, to the authority constituted under sub-section (5) of section 125, in such manner as may be prescribed; (921) The Central Government may make rules for the purposes of this section.

(10) If any person fails to make a declaration as required under sub-section (1), he shall be liable to a penalty offifry thousand rupees and in case of continuing failure, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees.

(11) If a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day, after the first during which such failure continues, subject to a maximum of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees for each day, after the first during which such failure continues, subject to a maximum of one lakh rupees.

(12)If any person willfully furnishes any false or incorrect information or suppresses any material information of which he is aware in the declaration made under this section, he shall be liable to action under section 447.

4. (i) That Section 2(27) of the Act defines ‘control’:

“control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

(ii) That Section 2(1) of the Companies (Significant Beneficial Owners) Rules, 2018 of the Act defines ‘significant influence’ as the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies.

5. That Rule 2(1)(h) of the Companies (Significant Beneficial Owners) Rules, 2018 of the Act defines

“Significant Beneficial Owner” in relation to a reporting company means an individual referred to in sub-section (1) of section 90, who acting alone or together, or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting company, namely: -(i) holds indirectly, or together with any direct holdings, not less than ten per cent. of the shares; 00 holds indirectly, or together with any direct holdings, not less than ten per cent. of the voting rights in the shares; (iii) has right to receive or participate in not less than ten per cent. of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings; (iv) has right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone: Explanation I. – For the purpose of this clause, T an individual does not hold any right or entitlement indirectly under sub-clauses (0, (ii) or (iii), he shall not be considered to be a significant beneficial owner.

Explanation II – For the purpose of this clause, an individual shall be considered to hold a right or entitlement directly in ‘the reporting company’, if he satisfies any of the following criteria, namely.’

(i) The shares in ‘the reporting company’ representing such right or entitlement are held in the name of the individual;

(ii) the individual holds or acquires a beneficial interest in the share of ‘the reporting company’ under sub-section (2) of Section 89 and has made a declaration in this regard to ‘the reporting company’.

Explanation III. – For the purpose of this clause, an individual shall be considered to hold a right or entitlement indirectly in ‘the reporting company, if he satisfies any of the following criteria, in respect of a member of ‘the reporting company, namely: -(i)where the member of ‘the reporting company’ is a body corporate (whether incorporated or registered in India or abroad), other than a limited liability partnership, and the individual, -(a)holds majority stake in that member; or(b)holds majority stake in the ultimate holding company (whether incorporated or registered in India or abroad) of that member.

6. It is pertinent to mention herein that inquiry report under Section 208 of the Companies Act, 2013 was submitted to the Directorate on 11.11.2022 wherein the appointed Inquiry Officer for the case recommended winding up under Section 271 r/w 272 of the Companies Act, 2013. The Ministry had granted winding up sanction vide order dated 20.05.2024. The shares of reporting company in majority are held by an individual viz. Mr. Zhenghua Li, Chinese national (holding 99% of the total shares). On examination of the filings made by ‘the reporting company’ in MCA-21 Registry till 14.02.2024 (i.e. the date of issuance of letter) there was no e-form BEN-2 filed by the reporting company and it was reason to believe that ‘the reporting company’ ought to have made compliance with Section 90 of the Companies Act, 2013 i.e. declaration of beneficial ownership by filing e-form BEN-2 of ‘the reporting company’ till the time of issuance of notice under Section 206(1) of the Act vide letter dated 14.02.2024. However, the reporting company did not submit any reply to the letter dated 14..02.2024 issued by this office.

7. There existed sufficient reason(s) that ‘the reporting company’ ought to have declared its significant beneficial owner in terms of Section 90 r/w the Companies (Significant Beneficial Owners) Rules, 2018 of the Companies Act, 2013 (herein after referred as SBO Rules). Hence, a Show Cause Notice (SCN) was issued to ‘the reporting company’ and its directors for non­compliance of Section 90 r/w SBO rules made thereunder, vide letter dated 21.05.2024 and a date of hearing was fixed for 29.05.2024.. The reporting company has not furnished any feresponse to the SCN dated 21.05.2024. Further, neither any director nor authorized representative of the company appeared on the date of hearing.

8. One of the Indian director of the reporting company, namely, Mr. Sunny Kumar (Director of the Company from 18.05.2017 to till date as per MCA21 Registry) submitted his response vide letter dated 30.05.2024. In reply, he submitted that he is a BBA student and in May, 2017 he approached the reporting company for internship and Mr. Zhengua Li, director agreed to provide internship in the reporting company along with a request, that he should become director of the reporting company, as he is having Indian citizenship which is mandatory for functioning of the reporting company in India. He has stated that he completed his internship in August, 2017 and never visited the reporting company again and was never involved in any of the affairs of the company as a director. Further, he was not holding any beneficial interests in the company. He tendered his resignation to Mr. Zhengua Li on 29.02.2020 (effective from 01.03.2020) and he has filed DIR-11 vide SRN T57572570 in MCA21 Portal wherein board resolution dated 02.03.2020 is attached mentioning that the company has accepted his resignation. However, company has not filed his cessation till date in e-form DIR-12.

9. The Company has not replied to the notices dated 14.02.2024 and 21.05.2024 of this office. Further, no one appeared on the date of hearing fixed. This indicates that the reporting company has nothing to say for the SCN issued for non-compliance with the provisions of Section 90 r/w SBO rules.

10. Taking into consideration the filings made by the company in MCA21 Registry as the opportunity was given and no one appeared for the company and its directors, it is concluded that the company at the first instance should have issued form BEN-4 to identify Significant Beneficial Owner and should have obtained declaration in this regard.

11. Adjudication of Penalty:

To conclude, the default u/s 90 r/w SBO Rules made thereunder of the Companies Act, 2013, stands established on the company and its officers in default.

The default period is counted from the date of decriminalization of default i.e. 21.12.2020 till the date of issuance of SCN i.e. 21.05.2024 for violation of Section 90(4A) r/w SBO Rules made thereunder and the default period is for 1247 days.

A. Calculation of Penalty imposed for violation of Section 90 r/w SBO Rules made there under of the Companies Act, 2013:-

B. On the findings mentioned above by the Registrar, in respect of the violation under Section 90 r/w SBO Rules of the Act, the company East Alpha Alliance Technology Private Limited, its “officers’ are further directed pursuant to Section 454(3) (b) of the Companies Act, 2013 to determine all the individuals who fall under the definition of ‘significant beneficial owner’ in the letter and spirit of the Act, in respect of the reporting company and file the relevant e-form BEN 2 with respect to all such individuals within a period of 90 days from the date of this Order.

12. The Noticee shall pay the amount of penalty by way of e-payment [available on Ministry website mca.gov.in] under “Pay miscellaneous fees” category in MCA fee and payment Services within 90 days of receipt of this order and intimate this office with proof of penalty paid.

13. Appeal against this order may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodi Road, New Delhi, within a period of sixty days from the date of receipt of this order, in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of this order [Section 454(5) & 454(6) of the Act, read with Companies (Adjudication of Penalties) Rules, 2014].

14. Attention is also invited to Section 454(8) of the Companies Act, 2013, in the event of non­compliance of this order. In case appeal is made, 0/o the Registrar of Companies, U.P., may be informed along with the penalty imposed and the payments made.

(Seema Rath)
Registrar of Companies & Adjudicating Officer
Uttar Pradesh, Kanpur

No. 03/22/SBO/UP/2024/East Alpha/3986 to 3989

Dated:11-10-2024