Private Placement & Form PAS-3 non-Compliance: MCA Imposes Penalty of Rs.16 Lakh

Private placement amount used before allotment & Filing of Form PAS-3- MCA Imposes Penalty of 16 Lakh

On January 30, 2024, the Registrar of Companies, Punjab and Chandigarh, issued an order under Section 454 of the Companies Act, 2013, imposing penalties on Tridib Industries Limited for violations related to private placement and the filing of Form PAS-3. This article provides an in-depth analysis of the case, including the relevant provisions, facts, submissions by the company, findings, and the adjudication of penalties.

1. Appointment of Adjudicating Officer

The Ministry of Corporate Affairs appointed the Adjudicating Officer (AO) under Section 454 of the Companies Act, 2013. The AO, in this case, is Kamna Sharma.

2. Overview of Tridib Industries Limited

Tridib Industries Limited, a company registered under the Companies Act, 2013, with its registered office in Punjab, has a paid-up capital of Rs. 1,00,000. It was incorporated on July 18, 2020, and is categorized as a small company. The company’s turnover for the latest audited financial statement is Rs. 13,40,47,000.

3. Relevant Provisions Applicable in the Case

The violations pertain to Section 42 of the Companies Act, 2013, which deals with the issue of shares on a private placement basis. Additionally, Section 446B specifies lesser penalties for certain companies, including small companies.

4. Facts of the Case

During the financial year 2023-24, Tridib Industries Limited conducted private placements and raised funds through two separate instances. The company allotted shares before completing the allotment process, utilized funds before allotment, failed to maintain a separate bank account for private placement, and issued a new offer without completing the previous allotment.

The company self-reported these violations by filing an application under Section 454 for adjudication.

5. Company’s Submissions

In response to the allegations, Tridib Industries Limited argued that the defaults were inadvertent procedural lapses. The company emphasized its status as a small company and sought leniency in the imposition of penalties. The submissions referred to Section 446B and Rules 3(12) and 3(13) of the Companies (Adjudication of Penalties) Rules, 2014.

6. Findings and Observations

The Adjudicating Officer observed multiple violations, including the utilization of funds before allotment, failure to maintain a separate bank account, issuance of a new offer before completing the first allotment, and non-compliance with Rule 14(5) of Companies (Prospectus and Allotment of Securities) Rules, 2014.

7. Adjudication of Penalties

The Adjudicating Officer considered the company’s status as a small company and imposed penalties in accordance with Section 446B and Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014. The penalties were categorized based on the specific violations.

Penalty Breakdown:

Violation of Section	Company	Penalty Amount
Section 42(4)	Tridib Industries Limited	Rs. 2,00,000
	Sh. Gaisu Bhasin Goel (Director)	Rs. 1,00,000
	Mr. Davinder Bhasin (Director)	Rs. 1,00,000
Section 42(5)	Tridib Industries Limited	Rs. 2,00,000
	Sh. Gaisu Bhasin Goel (Director)	Rs. 1,00,000
	Mr. Davinder Bhasin (Director)	Rs. 1,00,000
Section 42(6)	Tridib Industries Limited	Rs. 2,00,000
	Sh. Gaisu Bhasin Goel (Director)	Rs. 1,00,000
	Mr. Davinder Bhasin (Director)	Rs. 1,00,000
(Rule 14(5)	Tridib Industries Limited	Rs. 2,00,000
	Sh. Gaisu Bhasin Goel (Director)	Rs. 1,00,000
	Mr. Davinder Bhasin (Director)	Rs. 1,00,000

8. Conclusion

The penalties imposed on Tridib Industries Limited highlight the importance of adhering to regulations related to private placements and filing obligations. The case underscores the need for companies to diligently follow the prescribed procedures to avoid unintended violations and subsequent penalties. The regulatory framework, including Section 446B and relevant rules, provides flexibility in penalty imposition, considering factors such as the company’s size, nature of business, and the impact on public interest. Companies, especially small entities, should prioritize compliance to maintain the integrity of the corporate ecosystem.

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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF THE REGISTRAR OF COMPANIES,
PUNJAB AND CHANDIGARH,
CORPORATE BHAWAN,
PLOT NO.4-B, SECTOR 27B, CHANDIGARH
PHONE NO.172-2639415,2639416

Order No. ROC-CHD/2023-24/10A/051420/1008 Dated: 30/01/2024

Order under Section 454 from Violation of Section 42 of the Companies Act, 2013 read with
Companies (Adjudication of Penalties) Rules, 2014

IN THE MATTER OF M/S. TRIDIB INDUSTRIES LIMITED
CIN: U29309PB2020PTCO51420

1. Appointment of Adjudicating Officer

The Ministry of Corporate Affairs vide its gazette notification no S0.831(E) dated 24.3.2015, has appointed the undersigned as Adjudicating Officer (AO) in exercise of the powers conferred by section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company

TRIDIB INDUSTRIES LIMITED (herein after referred to as ”the company”) is a company registered with this office under the Provisions of the Companies Act, 2013 (or previous Acts in force, as applicable) having its registered office situated at Munish Forge Limited, Village Gobindgarh, Adj. Phase VII and Focal Point Ludhiana, Punjab — 141 010. The financial and other details of the subject company for immediately preceding financial year as available on MCA-21 Portal is as under: –

S No.	Particulars	Details
1.	Paid Up Capital as per latest Audited Financial Statement	Rs. 1,00,000
2.	Date of Incorporation	18.07.2020
3.	Turnover as per latest Audited Financial Statement	Rs. 13,40,47,000
4.	Holding Company	NA
5.	Subsidiary Company	NA
6.	Whether company registered under section 8 of the Act	No
7.	Whether company registered under any other special Act?	No
8.	Whether Company is small company	Yes
9.	Whether Section 446B is applicable to the company (Lesser penalties for Certain companies)	Yes

3. RELEVANT PROVISIONS WHICH ARE APPLICABLE IN THE PRESENT CASE OF THE COMPANIES ACT, 2013

42. Issue of shares on private placement basis.—

(1) A company may, subject to the provisions of this section, make a private placement of securities.

(2) A private placement shall be made only to a select group of persons who have been identified by the Board (herein referred to as identified persons), whose number shall not exceed fifty or such higher number as may be prescribed excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option in terms of provisions of clause (b) of sub-section (1) of section 62, in a financial year subject to such conditions as may be prescribed.

(3) A company making private placement shall issue private placement offer and application in such form and manner as may be prescribed to identified persons, whose names and addresses are recorded by the company in such manner as may be prescribed:

Provided that the private placement offer and application shall not carry any right of renunciation.

Explanation 1.—”private placement” means any offer or invitation to subscribe or issue of securities to a select group of persons by a company (other than by way of public offer) through private placement offer-cum-application, which satisfies the conditions specified in this section.

Explanation II. —”qualified institutional buyer” means the qualified institutional buyer as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended from time to time, made under the Securities and Exchange Board of India Act, 1992, (15 of 1992).

Explanation 111.—If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognised stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part i of this Chapter.

(4) Every identified person willing to subscribe to the private placement issue shall apply in the private placement and application issued to such person along with subscription money paid either by cheque or demand draft or other banking channel and not by cash:

Provided that a company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with sub-section (8).

(5) No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company:

Provided that, subject to the maximum number of identified persons under sub-section (2), a company may, at any time, make more than one issue of securities to such class of identified persons as may be prescribed.

(6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the expiry of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent. Per annum from the expiry of the sixtieth day:

Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than —

(a) for adjustment against allotment of securities; or

(b) for the repayment of monies where the company is unable to allot securities.

(7) No company issuing securities under this section shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an issue.

(8) A company making any allotment of securities under this section, shall file with the Registrar a return of allotment within fifteen days from the date of the allotment in such manner as may be prescribed, including a complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.

(9) If a company defaults in filing the return of allotment within the period prescribed under subsection (8), the company, its promoters and directors shall be liable to a penalty for each default of one thousand rupees for each day during which such default continues but not exceeding twenty-five lakh rupees.

(10) 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.

(11) Notwithstanding anything contained in sub-section (9) and sub-section (10), any private placement issue not made in compliance of the provisions of sub-section (2) shall be deemed to be a public offer and all the provisions of this Act and the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be applicable.]

446B. Lesser penalties for certain companies:—

Notwithstanding anything contained in this Act, if penalty is payable for non­compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be.

4. FACTS ABOUT THE CASE

Whereas the company and its director(s) have Suo-moto filed the present application under section 454 vide e-form GNL-1 vide SRN F90635160 for Adjudication of non-compliance (technical-default) of provisions under the Companies Act, 2013.

Further, during the Financial Year 2023-24, the Board of Directors of the company in its Board Meeting held on 26.08.2023 approved issuance of 41,52,500 equity shares with face value of Rs, 10/- each amounting to Rs. 4,15,25,000 on Right Issue basis.

Subsequently, the Board of Directors allotted the 41,52,500 equity shares to Investor on 01.09.2023 against the conversion of outstanding loan of Rs. 2,88,40,000 and also received a balance cheque amounting to Rs. 1,26,85,000 against the total consideration of Rs. 4,15,25,000.

In respect of such allotment the company duly filed e-form PAS-3 vide SRN AA4898389 dated 14.09.2023 with RoC Chandigarh which was in accordance with the provision of law.

1. It is further stated that during the Financial Year 2023-24, the company raised funds through two Private Placement. The amount which was received through Private Placement was utilized by the Company prior to the allotment and filing of Form PAS-3 which is a non-compliance of Section 42(4) of the Companies Act,2013.

2. Further, The Company also failed to maintain a separate bank account for the purpose of the Private Placement and the same is also non-compliance of Section 42(6) of the Companies Act,2013.

3. It is further stated that the Company had issued a new offer for private placement without completing the process of allotment of the aforesaid offer which is a non-compliance of Section 42(5) of the Companies Act, 2013.

4. Furthermore, the Company had allotted 10,435 Equity Shares to one of the Allottee and the said Allottee requested the company to receive the subscription money from her daughter who was also one of the Allottee in the Private Placement. The Company on the request of the Allottees who are related to each other had accepted the request of the said Allottees keeping in view their relationship who are daughter and mother. However, the same is also non­compliance of Rule 14(5) of Companies (Prospectus and Allotment of Securities) Rules,2014 read with Section 42 of the Companies Act,2013. The details of private placement are mentioned below:

Sr. No.	Date of allotment of Shares	No. of Shares allotted	Amount raised through Private Placement	Date of Filing PAS‑ 3
1.	01.11.2023	66,000	Rs. 75,90,000	AA6052913
2.	20.11.2023	3,20,000	Rs. 3,68,00,000	AA6193307

However, it is stated that the company has filed the PAS-3 in terms of the provisions of the Companies Act, 2013.

5. SUBMISSION BY THE COMPANY

The personal hearing was granted to the Applicant Company on 25.01.2024, the Applicant Company submitted that the default committed were technical defaults and were committed inadvertently and unintentionally and are simply are procedural laps and thus a lenient view may be taken for the same.

I. The Applicant Company has submitted that under the provision of Companies Act, 2013, the Adjudicating Officer has power to levy a penalty based on the facts and circumstances of the present case. It is submitted that as per the provisions of the Companies Act, 2013 inter-alia provides only for the upper limit up-to which penalty can be imposed but it does not provide the minimum amount of penalty which can be imposed and therefore, Sh. Ravi Shanker on behalf of the Applicant Company submitted the Adjudicating Officer that Applicant Company is a small company in terms of the definition provided under Section 2(85) of the Companies Act, 2013 as per the latest Financial Statements the Applicant Company and is at its very nascent stage of developing business and in case if such heavy penalties are imposed upon the same would amount to disrupting the entire business.

II. It was further submitted that the company is a small company therefore the provisions of section 446B of the act stands attracted in view of which in case if any penalty is payable for non-compliance of any of the provisions of this act by a one person company, small company, startup company or producer company, or by any officers in default, or any other person in respect of such company then such company, its officer in default or any other person, as the case may be, shall be liable to penalty which shall be not more than one half of the penalty specified in such provisions subject to a maximum of two lakh rupee in case of company and one lakh rupee in case of an officer who is in default. Or any other person, as the case, may be.

III. Mr. Shanker has further emphasised upon the provision of Rule 3(12) and Rule 3 (13) of Companies (Adjudication of Penalties) Rules, 2014 which reads as under:

Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014

While adjudging quantum of penalty, the adjudicating officer shall have due regard to the following factors, namely.‑

a) size of the company

b) nature of business carried on by the company,

c) injury to public interest,

d) nature of the default,’

e) repetition of the default,’

f) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the deflate: and

g) (the amount of loss caused to an investor or group of investors or creditors as a result of the default.

Provided that, in no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the Act.

Rule 3 (13) of Companies (Adjudication of Penalties) Rules, 2014 which read as under:

In case a fixed sum of penalty is provided for default of a provision, the adjudicating officer shall impose that fixed sum, in case of any default therein.

IV. Mr. Shanker submitted that the Company is a small company in terms of the definition provided under Section 2(85) of the Companies Act, 2013 as per the latest Financial Statement of the Applicant Company and is at its very nascent stage of developing business and in case if such heavy penalties are imposed upon the same would amount to disrupting the entire business of Applicant Company.

V. The aforesaid defaults made are neither prejudicial to the interest of the public at large nor to any investor/stakeholder. It may be further noted that all the aforesaid investors of Applicant Company have also rendered/issued their unconditional, unequivocal declaration stating that they do not wish to take their subscription amount back with interest and have supported the company to this effect.

VI. That the company has not repeated such default till date.

VII. He further submitted that since the the company satisfies all the aforesaid ingredients set out in Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014 and the penalty prescribed under Section 4463 of the Act is neither fixed nor minimum. Hence aforesaid factors may be taken into consideration while adjudging the quantum of penalty under Section 446B of the Act.

6. FINDINGS AND OBSERVATIONS

1. It is observed that the Company has utilized the money without making the allotment and filing Return of allotment i.e., PAS-3 thereby violating the Section 42(4) of the companies Act, 2013.

2. The company has further violated Section 42(5) of the Companies Act, 2013 as stated by the Company in its application whereby the Company without completing the first allotment had issued the second public offer for allotment of equity shares and therefore has committed a default in compliance of Section 42(5).

3. Further the company has failed to maintain a separate bank account in a scheduled bank for the money received against the subscription of the shares and therefore, the company has defaulted to comply with the provision of Section 42(6) of Companies Act, 2013.

4. The company has also violated Rules 14(5) of Companies (Prospectus and allotment of Securities) Rules.

7. ADJUDICATION OF PENALTY:

1. Therefore, having considered the facts and circumstances of the case and after hearing the submissions made by the company through its Authorized Representative namely Sh. Ravi Shankar, I am of the considered view that the aforesaid violations have been committed by the company inadvertently and because the company is a small company in terms of the definition provided under Section 2(85) of the Companies Act, 2013 therefore, penalty is being levied on the company along with its promoters and directors in terms of Section 446B of the Companies Act, 2013 read with Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014.

2. 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 dated hearing in the matter held on 25.01.2024, hereby impose the penalties on the company, promoters and directors as under.

(a) Penalty for violation of Section 42(4) read with Section 446B of the Act read with Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014:

As the subject company has utilized the money prior to filling of Form PAS-3, it has failed to comply with the provision of Section 42(4) of Companies Act, 2013. Therefore, penalty is levied on the subject company, along with its promoters and directors in terms of the Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014 as under:

Violation	Penalty imposed on company/ promotor(s)/ director (s)	Period of default	Maximum Penalty u/s 42(10) of the Companies Act, 2013	Penalty imposed in terms of the Rule 3 (12) of Companies (Adjudication of Penalties) Rules, 2014 and having regard to the quantum of penalty u/s 446B
Violation of  Rule 14(5) of Companies Act	Tridib Industries Limited	2023-24	2,00,00,000	Rs. 2,00,000. (Rs. Two Lacs Only)
	Sh. Gaisu Bhasin Goel (Director)	2023-24		Rs. 1,00,000. (Rs. One Lacs Only)
	Mr. Davinder Bhasin (Director)	2023-24		Rs. 1,00,000. (Rs. One Lacs Only)

(b) Penalty for violation of Section 42(5) read with Section 446B of the Act read with Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014:

The company without completing the first allotment had issued the second public offer for allotment of equity shares. It has failed to comply with the provision of Section 42(5) of Companies Act, 2013. Therefore, penalty is levied on the subject company, along with its promoters and directors in terms of the Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014 as under:

Violation	Penalty imposed on company/ promotor(s)/ director (s)	Period of default	Maximum Penalty u/s 42(10) of the Companies Act, 2013	Penalty imposed in terms of the Rule 3 (12) of Companies (Adjudication of Penalties) Rules, 2014 and having regard to the quantum of penalty u/s 446B
Violation of  Rule 14(5) of Companies Act	Tridib Industries Limited	2023-24	2,00,00,000	Rs. 2,00,000. (Rs. Two Lacs Only)
	Sh. Gaisu Bhasin Goel (Director)	2023-24		Rs. 1,00,000. (Rs. One Lacs Only)
	Mr. Davinder Bhasin (Director)	2023-24		Rs. 1,00,000. (Rs. One Lacs Only)

(c) Penalty for violation of Section 42(6) read with Section 446B of the Act read with Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014:

As the company did not open separate bank account. It has failed to comply with the provision of Section 42(6) of Companies Act, 2013. Therefore, penalty is levied on the subject company, along with its promoters and directors in terms of the Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014 as under:

Violation	Penalty imposed on company/ promotor(s)/ director (s)	Period of default	Maximum Penalty u/s 42(10) of the Companies Act, 2013	Penalty imposed in terms of the Rule 3 (12) of Companies (Adjudication of Penalties) Rules, 2014 and having regard to the quantum of penalty u/s 446B
Violation of  Rule 14(5) of Companies Act	Tridib Industries Limited	2023-24	2,00,00,000	Rs. 2,00,000. (Rs. Two Lacs Only)
	Sh. Gaisu Bhasin Goel (Director)	2023-24		Rs. 1,00,000. (Rs. One Lacs Only)
	Mr. Davinder Bhasin (Director)	2023-24		Rs. 1,00,000. (Rs. One Lacs Only)

(d) Penalty for violation of Rule 14(5) of Companies (Prospectus and Allotment of Securities) Rules, 2014 read with Section 446B of the Act read with Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014:

The company has not accepted the payment for the subscription amount of the private placement offer from the person to whom the allotment was made and thus violated Rule 14(5) of Companies (Prospectus and Allotment of Securities) Rules, 2014 read with Section 42 of Companies Act, 2013. Therefore, penalty is levied on the subject company, along with its promoters and directors in terms of the Rule 3(12) of Companies (Adjudication of Penalties) Rules, 2014 as under:

Violation	Penalty imposed on company/ promotor(s)/ director (s)	Period of default	Maximum Penalty u/s 42(10) of the Companies Act, 2013	Penalty imposed in terms of the Rule 3 (12) of Companies (Adjudication of Penalties) Rules, 2014 and having regard to the quantum of penalty u/s 446B
Violation of  Rule 14(5) of Companies (Prospectus and Allotment of Securities) Rules, 2014	Tridib Industries Limited	2023-24	2,00,00,000	Rs. 2,00,000. (Rs. Two Lacs Only)
	Sh. Gaisu Bhasin Goel (Director)	2023-24		Rs. 1,00,000. (Rs. One Lacs Only)
	Mr. Davinder Bhasin (Director)	2023-24		Rs. 1,00,000. (Rs. One Lacs Only)

3. 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

4. Appeal against this order may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodhi 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].

5. Your 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 with both.

6. 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 as under:

a. M/s TRIDIB INDUSTRIES LIMITED at Munish Forge Limited, Village Gobindgarh, Adj. Phase VII and Focal Point Ludhiana, Punjab — 141 010

b. Gaisu Bhasin Goel, Director

c. Davinder Bhasin, Director

d. Regional Director (Northern Region), Ministry of Corporate Affairs, CGO Complex, Lodhi Road, New Delhi and will also be uploaded on website of Ministry of Corporate Affairs.

(Kamna Sharma)
Registrar of Companies & Adjudication Officer
Punjab & Chandigarh