Violation of Section 179(3)(d) of Companies Act, 2013: MCA Imposes Penalty

Violation of Section 179(3)(d) of Companies Act, 2013: MCA Imposes Penalty on Ignosi Systems Private Limited

In a recent adjudication by the Registrar of Companies, Gujarat, Dadra & Nagar Haveli, the Ministry of Corporate Affairs (MCA) has imposed penalties on Ignosi Systems Private Limited for violation of Section 179(3)(d) of the Companies Act, 2013. The penalty has been adjudicated under Section 454(3) of the Companies Act, 2013, read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014.

Background: Ignosi Systems Private Limited, a company registered under the Companies Act, 2013, with its registered office in Gujarat, faced adjudication proceedings for defaulting on compliance related to Section 179(3)(d) of the Companies Act, 2013.

Company’s Admission of Default: The company, in a suo-moto application, acknowledged default under Section 179(3)(d) of the Companies Act, 2013, citing borrowing a loan amount of Rs. 1,00,000 from its director, Mr. Nirav Bhupendra Prajapati, on 31.01.2022. The company admitted that such borrowing was not approved by a resolution of the Board of Directors prior to the loan transaction, as required by Section 179(3)(d). It also mentioned lapses in complying with Section 62(3) and Section 39(4) of the Act.

Show Cause Notice and Hearing: Following the suo-moto application, a hearing notice was issued to the company and its directors. Despite initial non-appearance, the company’s authorized representative, Mr. Vinit Nagar, later attended the hearing on 22.11.2023. During the hearing, Mr. Nagar explained the circumstances of the default and requested leniency in the imposition of penalties.

Adjudication Officer’s Findings and Order: The Adjudicating Officer, Shri Keerthi Thej N., considered the facts and submissions during the hearing. The officer noted that the company and its directors were non-compliant with the requirements of Section 179(3)(d) of the Companies Act, 2013, and that penalties were warranted.

Penalties were imposed as follows:

1. IGNOSI SYSTEMS PRIVATE LIMITED: Penalty of Rs. 9,000 for a default period of 8 days.
2. Niravkumar Bhupendrakumar Prajapati: Penalty of Rs. 9,000 for a default period of 8 days.
3. Chintan Sheth: Penalty of Rs. 9,000 for a default period of 8 days.

The penalties were calculated based on the provisions of Section 450 of the Companies Act, 2013, and half of the penalty amount specified under Section 446B of the Act.

Payment and Appeal: The company and its directors have been directed to pay the penalties within 90 days from the date of receipt of the order through e-payment on the Ministry’s website. An appeal against this order can be filed within 60 days with the Regional Director.

Failure to comply with the order may result in further penal action, including fines and imprisonment, as per the provisions of Section 454(8)(i) and 454(8)(ii) of the Companies Act, 2013.

This order concludes the adjudication proceedings against Ignosi Systems Private Limited for the specified default.

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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF THE REGISTRAR OF COMPANIES.
GUJARAT, DADRA & NAGAR HAVELI
ROC Bhavan. Opp. Rupal Park.
Nr. Ankur Bus Stand. Naranpura, Ahmedabad (Gujarat – 380013.
Tel No.: 079-27438531. Fax : 079-27438371
Website: www.mca.gov.in E-mail : [email protected]

No. ROC-GJ/13/U/S-454/ IGNOSI SYSTEMS /2023-24/4425 to 4470

Dated: 14 DEC 2023

BEFORE THE ADJUDICATING OFFICER

REGISTRAR OF COMPANIES, GUJARAT, DADRA & NAGAR HAVELI

IN THE MATTER OF ADJUDICATION OF PENALTY UNDER SECTION 454 (3) OF THE COMPANIES ACT 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 FOR VIOLATION OF SECTION 179(3)(d) OF THE COMPANIES ACT, 2013 AND RULES MADE THEREUNDER

IN THE MATTER OF

IGNOSI SYSTEMS PRIVATE LIMITED

Date of hearing – 22/11/2023

PRESENT :

1. Shri Keerthi Thej N. (ROC), Adjudicating Officer

2. Ms. Rupa Sutar (DROC), Presenting Officer

Company/ Officers/Directors/KMP/Authorized Representative : Absent

Appointment of Adjudication Authority:-

1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred under section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.

2. IGNOSI SYSTEMS PRIVATE LIMITED (herein after referred to as “company”) is a company having its registered office at “House No. 6, Sigma Commerce Zone, Nr Galops Mall, Iscon Cross Road, S G Highway, Jodhpur, Ahmedabad, Gujarat-380015, India” registered under the provisions of the Companies Act, 2013 (hereinafter referred to as “Act”) in the State of Gujarat. The CIN of the Company is U72200GJ2022PTC128725 as per the record maintained on the MCA’s Website.

IN THE MATTER OF IGNOSI SYSTEMS PRIVATE LIMITED

Fact of the case

3. The company has filed a physical suo-moto application under Section 454 of the Companies Act, 2013 citing default of Section 179(3), Section 62(3) and Section 39(4) of the Companies Act, 2013. The company has also submitted application in GNL-1 vide SRN F67250670 dated 12.10.2023 in the matter. The company stated in the aforesaid application that “the company has availed a loan amounting to Rs. 1,00,000(one Lakh) from its director Mr. Nirav Bhupendra Prajapati on 31.01.2023. However, such borrowing by the Company was not approved by way of a resolution by the board of director of the company prior to the borrowing of the loan, as required under section 179(3)(d) of the Companies Act, 2013. Further, the company and Mr. NiravBhupendra Prajapati did not enter into loan agreement on or prior to 31January 2022 in relation to such borrowing. Subsequently, the Board passed a resolution dated February 08,2022 approving the execution of a loan agreement between the company and Mr. Nirav Bhupendrakumar Prajapati which states that at option of the lender, the outstanding amount may be converted into equity shares of the company on or before 30 September 2022. However, the loan Agreement dated March 31, 2022 executed between the Company and Mr. Nirav Bhupendrakumar Prajapati did not include provisions allowing the lender to convert the outstanding amount into into equity shares of the Company. Further, the company has also not obtained any shareholder approval by way of a special resolution under Section 62(3) of the Act, on or prior to 31 January 2022, allowing conversion of the outstanding loan amount into equity shares of the Company.

Thereafter, the company’s shareholder passed a special resolution at an extra­ordinary general meeting dated June 06, 2022 to amend and modify the terms of the Loan Agreement, by executing an addendum between the parties, which includes provisions stating that at the option of the lender, the outstanding amount may be converted into equity shares of the company on or before 30 September 2022 or such other period as may be mutually agreed between the Parties. Further, on June 14, 2022, the Board passed a resolution approving the allotment of 10,000 equity shares having face value of Rs. 10 each at par aggregating to Rs. 1,00,000 to Nirav Bhupendrakumar under Section 62(3) of the Act prior to the modification of the terms of the loan Agreement and the issuance and allotment of equity shares to Mr. Nirav Bhupendra Prajapati and the required MGT-14 form was duly filed with the Registrar of Companies, vide SRN F06626907 dated 16 June, 2022.

IN THE MATTER OF IGNOSI SYSTEMS PRIVATE LIMITED

Further, at the time Wiling  of PAS-3 under Section 39(4) of the Act, for reporting aforementioned allotment of equity shares, the Company errorneously attached incorrect Board Resolution for allotment where Section 62(1)(a) in place of Section 62(3) of the Act was mentioned. Therefore the company hereby seeks to address matter related to default in compliance with Section 39(4), Section 62(3) and Section 179(3)(d) of the Act.”

Show Cause Notice, reply and personal Hearing:-

4. Pursuant to the suo-moto application dated 07.08.2023, received in this office under Section 454 of the Act read with Companies (Adjudication of Penalty) Rules, 2014, this office had issued Adjudication Hearing Notice to Company and Directors on 17.08.2023 fixing the date of hearing on 04.09.2023 at 12.00P.M. None of the representative appeared before the Adjudicating Authority on the date so fixed. However, Mr. Vinit Nagar purporting as Authorized Representative of the company/ Directors vide an e-mail dated 06.11.2023 had requested to reschedule the date of hearing for submission of some additional documents/ information in the matter. Mr. Vinit Nagar further vide e-mail dated 08.11.2023 had further requested to rescheduled the date of hearing on 22.11.2023 at 4.30 P.M.

5. On the scheduled date of hearing i.e. 22.11.2023, Mr. Vinit Nagar, PCS, Authorized representative of the Company/Officers appeared before the Adjudicating Authority Mr. Keerthi Thej N., ROC, Presenting Officer Ms. Rupa Sutar, DROC and Mr. V.S. Tiwari, STA and submitted that “the Company has borrowed Interest fee loan amounting of Rs. 1Lakh from the promoter/ Director Mr. Niravkumar Prajapati on 31.01.2022 to meet the incorporation expenses after incorporation of the company on mutual understanding between the Director and Company. The said loan was exempted under the definition of deposits in term of Rule 2((1)(c)(viii) of the Companies (Acceptance of Deposits) Amendment Rules, 2015. The aforesaid transaction was unanimously approved in Board meeting dated 08.02.2022. In the said Board meeting, it was decided that at the option of Mr. Niravkumar Prajapati, the interest free loan amount may be converted into Equity Share Capital of the company at any later date but on or before 30.09.2022”. Nagar further submitted that “upon receiving approval from Shareholders in the meeting dated 06.06.2022, an agreement was entered into the same by and between the company and Mr. Nirav Prajapati on 14.06.2022 which has entitled Mr. Niravkumar Prajapati to convert the outstanding amount of Rs. 1 Lakh into Equity Shares of the Company on or before

IN THE MATTER OF IGNOSI SYSTEMS PRIVATE LIMITED

30.09.2022. The Shareholders resolution dated 06.06.2022 was passed u/s 62(3) of the Act and the said resolution was filed by the company on MCA21 portal in e-Form MGT-14 vide SRN F06626907 dated 16.06.2022 and the said SRN was approved through STP mode. In the said e-form MGT-14, erroneously and inadvertently the Board of Directors have passed the resolution for the allotment u/s 39 of the Act 2013 by taking the reference of Sec. 62(1)(a) of the Companies Act, 2013 instead of mentioning the provisions of Sec. 62(3) of the Companies Act, 2013″. He submitted that the company has defaulted the provisions of Section 179(3)(d) (by delay of 8 days), Section 39 (delay of 126 days) and Section 62(3) of the Companies Act, 2013 (delay of 136days). He requested further to take a lenient view and impose minimum penalty on the company and Directors.

Submission of the Presenting Officer

6. The Presenting Officer submitted that the company was non-compliant in certain requirements with respect of borrowing money from the Director. The company has availed a loan amounting to Rs. 1,00,000 from its director Mr. Nirav Prajapati on 31.01.2022 without approval by way of a resolution by Board of Directors as required under Section 179(3)(d) of the Companies Act, 2013. The Board passed a resolution dated 08.02.2022 approving the execution of a loan agreement between the company and Mr. Nirav Prajapati by delay of 8 days. Therefore, the company and Officers in default are liable to penalize under Section 450 of the Act for the default of provisions of Section 179(3)d) of the Companies Act, 2013.

7. It is observed from the financial statement for the Financial Year 2022-23 of the company that the paid-up capital of the company is Rs. 1.10 Lakhs and Turnover is Rs. 29,382,358.00. Hence, as per the Ministry’s Notification No. G.S.R. 700(E) dated 15.09.2022 for Notification of Companies (Specification of definition details) Amendment Rules, 2022 read with provisions of Section 2(85) of the Companies Act, 2013, the Company does fall under the ambit of “small company”. Therefore, the provisions of imposing one half of the penalty specified under the provisions of Section 450 of the Act would be governed pursuant to Section 446B of the Companies Act, 2013 on company and Officers in default for the default of Section 62(3) of the Companies Act, 2013.

ORDER

1. While adjudging quantum of penalty under section 450 of the Act, the Adjudicating Officer shall have due regard to the following factors, namely;

IN THE MATTER OF IGNOSI SYSTEMS PRIVATE LIMITED

a. The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as a result of default.

b. The amount of loss caused to an investor or group of investors as a result of the default.

c. The repetitive nature of default.

2. With regard to the above factors that are to be considered while determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the noticee or loss caused to the investor as a result of the delay on the part of the notice to redress the investor grievance are not available on the record. Further, it may also be added that it is difficult to quantify the unfair advantage made by the noticee or the loss caused to the investors in a default of this nature.

3. Having considered the facts and circumstances of the case and after taking into accounts the factors above, the undersigned has reasonable cause to believe that the company and its officers in default have failed to comply with the provisions of Section 179(3)(d) of the Companies Act, 2013 in the aforementioned circumstances. It is due and justified to levy a penalty of Rs. 9000/- on company and Rs. 9000/- each in respect of two Directors Mr. Niravkumar Bhupendrakumar Prajapati and Mr. Chintan Sheth in default. I hereby imposed penalty as under:

[No. of days calculated from the date of acceptance amount of Rs. 1 Lakhs i.e. from 31.01.2022 to 07.02.2022 i.e. prior to date of Board’s resolution dated 08.02. 2022]

AO is of the opinion that penalty is commensurate with the aforesaid default committed by the Noticees:

IN THE MATTER OF IGNOSI SYSTEMS PRIVATE LIMITED

4. The noticee shall pay the amount of penalty by way of e-payment available on Ministry website www.mca.gov.in under “Pay miscellaneous fees” category in MCA fee and payment Services under Rule 3(14) of Company (Adjudication of Penalties) (Amendment) Rules, 2019 within 90 days from the date of receipt of this order and copy of this adjudication order and Challan/SRN generated after payment of penalty through online mode shall be filed in INC-28 under the MCA portal without further reference and intimation should be submitted to this office.

5. Appeal against this order may be filed in writing with the Regional Director, North Western Region, Ministry of Corporate Affairs, Roc Bhavan, opp. Rupal park, Nr. ANKUR BUS STAND, NARANAPURA, AHMEDABAD (GUJARAT)-380013 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 the certified copy of this order. [Section 454(5) & 454(6) of the Companies Act, 2013 read with the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019]

6. 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 less than Twenty Five Thousand Rupees but which may extend to Five Lakhs 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 by which may extend to one Lakhs Rupees or with both.

The adjudication notice stands disposed of with this order..

(KEERTHI THEJ N. ICLS)
Registrar of Companies & Adjudicating Officer
Gujarat, Dadra & Nager Haveli