Adjudication Order Sec.454: Herb Nutra Lab Pvt Ltd Penalized for Violating Sec. 42(1), ROC-Hyd

Adjudication Order Sec.454: Herb Nutra Lab Pvt Ltd Penalized for Violating Sec. 42(1), ROC-Hyd. In this article, we will take you through the mandatory provisions under Section 42(1) of the Companies Act, 2013. As per section 42(1) of the Companies Act, 2013, A company may, subject to the provisions of this section, make a private placement of securities. 
As per section 42(2)of the Companies Act, 2013A 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. 
Failure to comply with these requirements may result in penalties for both the company and the officers in default, as specified under section 42(9) of the Companies Act, 2013. Therefore, it is essential to adhere to these provisions to avoid any legal consequences. 
Applicable Provisions:- 
As per section 42(1) of the Companies Act, 2013, A company may, subject to the provisions of this section, make a private placement of securities. 
As per section 42(2)of the Companies Act, 2013A 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. 
As per section 42(3)of the Companies Act, 2013A 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. 
As per section 42(7)of the Companies Act, 2013 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. 
As per section 42(8)of the Companies Act, 2013 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 
As per section 42(9)of the Companies Act, 2013: If a company defaults in filing the return of allotment within the period prescribed under sub-section (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.  
Facts of the case: 
During the course of Inquiry, it was observed that the e-Form PAS-3 filed for issue of Rs. 9,00,000/- worth of equity shares through private placement offer. Upon examining reply of Shri. S. Ragu, Director, it is inferred that the board meeting agenda speaks only about alloment of shares with no mention of Private Placement to M/s. Wellness Noni Limited. Minutes of general meeting for allotment of 90,000 shares by private placement was not attached. The company has admitted that no EGM was conducted for allotment of said equity shares through private placement. Hence, the provisions of Sec. 42 of the Companies Act, 2013 is violated.     
After reviewing the appeal and the company’s circumstances, the Regional Director acknowledged the financial struggles faced by Herb Nutra Lab. The decision was made to reduce the penalties imposed and the penalty imposed by the Registrar of Companies is reduced to Rs. 50,000 each on company and its directors. 
Penalty Imposed by Registrar of Companies on Company and Officers in Default 
Taking into consideration the facts of the appeal and submissions made by the authorized representative, the penalty imposed by Registrar of Companies is reduced to 10%.

Violation of section

Penalty imposed on company/ directors

Penalty imposed by ROC

Revised penalty imposed by RD

Sec. 42(1) of the Companies Act, 2013

Company

9,00,000

50,000

Director-1

9,00,000

50,000

Director-2

9,00,000

50,000

Director-3

9,00,000

50,000

Total

36,00,000

2,00,000

Reduction in penalty 
The ground stated for the reduction of penalty are as follows:

Lack of knowledge on the above provisions;

Professionals whom the company relied on, did not enlighten the company on the said provisions.

Panic caused due to the troubles created by Shri. Shahul Hammed whose intention was to close the operations of the company.

Exemption to Startup/ Small Company/OPC under section 446B: 
As per sec. 446B of the Companies Act, 2013, if penalty is payable for non-compliance 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.  
In this case, Section 446B will apply, as the company comes under the definition of Small Company as per section 2(85) of the Companies Act, 2013. Hence, the provisions of the lesser penalty is applicable to this company. 
Conclusion 
In conclusion, In summary, the Regional Director's decision shows a balanced approach to corporate governance. It emphasizes the importance of following regulations while also considering the company’s financial struggles. This case highlights the need for flexibility in enforcement, allowing for accountability and compassion during tough times. 
Download MCA adjudication order:

In this article, we will take you through the mandatory provisions under Section 42(1) of the Companies Act, 2013. As per section 42(1) of the Companies Act, 2013, A company may, subject to the provisions of this section, make a private placement of securities.

As per section 42(2)of the Companies Act, 2013A 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.

Failure to comply with these requirements may result in penalties for both the company and the officers in default, as specified under section 42(9) of the Companies Act, 2013. Therefore, it is essential to adhere to these provisions to avoid any legal consequences.

Applicable Provisions:-

As per section 42(1) of the Companies Act, 2013, A company may, subject to the provisions of this section, make a private placement of securities.

As per section 42(2)of the Companies Act, 2013A 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.

As per section 42(3)of the Companies Act, 2013A 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.

As per section 42(7)of the Companies Act, 2013 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.

As per section 42(8)of the Companies Act, 2013 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

As per section 42(9)of the Companies Act, 2013: If a company defaults in filing the return of allotment within the period prescribed under sub-section (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.

Facts of the case:

During the course of Inquiry, it was observed that the e-Form PAS-3 filed for issue of Rs. 9,00,000/- worth of equity shares through private placement offer. Upon examining reply of Shri. S. Ragu, Director, it is inferred that the board meeting agenda speaks only about alloment of shares with no mention of Private Placement to M/s. Wellness Noni Limited. Minutes of general meeting for allotment of 90,000 shares by private placement was not attached. The company has admitted that no EGM was conducted for allotment of said equity shares through private placement. Hence, the provisions of Sec. 42 of the Companies Act, 2013 is violated.

After reviewing the appeal and the company’s circumstances, the Regional Director acknowledged the financial struggles faced by Herb Nutra Lab. The decision was made to reduce the penalties imposed and the penalty imposed by the Registrar of Companies is reduced to Rs. 50,000 each on company and its directors.

Penalty Imposed by Registrar of Companies on Company and Officers in Default

Taking into consideration the facts of the appeal and submissions made by the authorized representative, the penalty imposed by Registrar of Companies is reduced to 10%.

Violation of section	Penalty imposed on company/ directors	Penalty imposed by ROC	Revised penalty imposed by RD
Sec. 42(1) of the Companies Act, 2013	Company	9,00,000	50,000
	Director-1	9,00,000	50,000
	Director-2	9,00,000	50,000
	Director-3	9,00,000	50,000
	Total	36,00,000	2,00,000

Reduction in penalty

The ground stated for the reduction of penalty are as follows:

Lack of knowledge on the above provisions;
Professionals whom the company relied on, did not enlighten the company on the said provisions.
Panic caused due to the troubles created by Shri. Shahul Hammed whose intention was to close the operations of the company.

Exemption to Startup/ Small Company/OPC under section 446B:

As per sec. 446B of the Companies Act, 2013, if penalty is payable for non-compliance 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.

In this case, Section 446B will apply, as the company comes under the definition of Small Company as per section 2(85) of the Companies Act, 2013. Hence, the provisions of the lesser penalty is applicable to this company.

Conclusion

In conclusion, In summary, the Regional Director's decision shows a balanced approach to corporate governance. It emphasizes the importance of following regulations while also considering the company’s financial struggles. This case highlights the need for flexibility in enforcement, allowing for accountability and compassion during tough times.