Private Placement Breach Penalised for Improper Use of Share Subscription Money

The Ministry of Corporate Affairs, through the Registrar of Companies Chandigarh, passed an adjudication order under Section 454 of the Companies Act, 2013 for violation of Section 42 relating to private placement of shares. The case arose from the company’s own adjudication application, where it was found that share subscription money was utilised without proper allotment through a duly convened Board meeting and that subscription funds were not paid directly by the respective allottees, contrary to Section 42(4). One subscriber paid on behalf of another, yet shares were allotted, which was held to be a clear statutory contravention. Considering the entity qualified as a small company, the penalty was restricted under Section 446B. A monetary penalty of ₹2 lakh was imposed on the company and ₹1 lakh each on two officers in default. The order directs rectification of the default, payment through the MCA e-adjudication portal within 90 days, and clarifies appeal rights and consequences of non-compliance.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
ROC Chandigarh
Registrar of Companies, Punjab and Chandigarh, 1st Floor, Corporate Bhawan, Plot No.4-B, Sector 27-B, Chandigarh,
Chandigarh, India, 160019
Phone: 0172-2639415/2639416
E-mail: roc.chandigarh@mca.gov.in

Order ID: PO/ADJ/12-2025/CH/01265 Dated: 18/12/2025

ORDER FOR ADJUDICATION OF PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 (‘THE ACT’) FOR VIOLATION OF SECTION 42(10) OF THE COMPANIES ACT, 2013.

A. Appointment of Adjudicating Officer:

Ministry of Corporate Affairs vide its  Gazette notification number S.O. 831(E) dated 24/03/2015 appointed undersigned as Adjudicating Officer in exercise of the powers conferred by section 454 of the Companies Act, 2013 [herein after known as Act] read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

B. Company details:

In the matter relating to RECODE STUDIOS LIMITED ……………

Individual details:

In the matter relating to RAHUL SACHDEVA………….

In the matter relating to DHEERAJ BANSAL………………

C. Provisions of the Act:

Subject to sub-section (11), if a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with interest as specified in sub-section (6) to subscribers within a period of thirty days of the order imposing the penalty.

D. Facts about the case:

1. Default committed by the officers in default/noticee –

i)The Company has filed e-form GNL-1 vide AB8377183 dated 17.10.2025 along with an adjudication application under section 454 of the Companies Act,2013. It is observed that the company has utilized the share subscription money received from the applicants without effecting the corresponding allotment of shares through a duly convened meeting of its Board of Directors as required under proviso of sub-section (4) of section 42 of Companies Act, 2013.

ii)The Company has filed e-form GNL-1 vide AB8377183 dated 17.10.2025 alongwith an adjudication application under section 454 of the Companies Act,2013. It is observed that on 20.01.2023 Mr. Rahul Sridhar remitted a sum of Rs.25,00,000/- towards share subscription, where the price per equity share was fixed at Rs.95,700/- inclusive of share premium. Out of the said amount, fifty percent was paid on behalf of Ms. Ritu Bhansali. Consequently, both Mr.Rahul Sridhar and Ms. Ritu Bhansali were entitled to an allotment of 13 equity shares each, for a consideration of Rs.12,44,100 per applicant. The surplus subscription amount of Rs.5,900 was duly refunded to each applicant. However, it is pertinent to note that the company allotted equity shares to Ms. Ritu Bhansali on the basis of subscription money remitted by Mr. Rahul Sridhar. A plain reading of section 42(4) of the Company Act,2013 indicates that the subscription money must be paid directly by the person to whom the shares are proposed to be allotted. Accordingly, the applicants in the present adjudication proceedings appear to have contravened the provisions of Section 42(4) of the Companies Act, 2013.

2. In terms of Section 446B of the Act, being a small company the total penalty amount is restricted to Rs. 2,00,000 in case company and Rs. 1,00,000 in case of officer(s) in default.

E. Order:

1. In terms of Section 446B of the Act, being a small company the total penalty amount is restricted to Rs. 2,00,000 in case company and Rs. 1,00,000 in case of officer(s) in default.

2. The details of penalty imposed on the company, officers in default and others are shown in the table below:

3. The notified officers in default/noticee shall rectify the default mentioned above and pay the penalty, so applicable within 90 days of receipt of the order.

4. The notified officers in default/noticee shall pay the penalty amount via ‘e-Adjudication’ facility which can be accessed through the respective login IDs on the website of Ministry of Corporate Affairs and upload the copy of paid challan / SRN of e-filing (if applicable) on the ‘e-Adjudication’ portal itself. It is also directed that the penalty so imposed upon the officers in default shall be paid from their personal sources/income.

5. Appeal against this order may be filed in writing with the Regional Director, RD Noida within a period of sixty days from the date of receipt of this order, in Form ADJ setting for 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].

6. For penal consequences of non-payment of penalty within the prescribed time limit, please refer Section 454(8) of the Companies Act, 2013.

Anupam Vashista,
Registrar of Companies
ROC Chandigarh