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In this article, we will take you through the mandatory provisions under Section section 42 & 62(1)(a) 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:
This is a case relating to M/s Payswiff Technologies Private Limited situated at Hyderabad Rangareddi of Telangana where the company and its directors had filed an appeal with the Regional Director of South Eastern Region under section 454(5) of the Companies Act 2013 against the adjudication order passed by the Registrar of Companies of Hyderabad on 13th May 2023. This case was relating to the violation committed by the company relating to the provisions of section 42 (4) and 42 (6) of the Companies Act 2013 wherein the company and its directors were imposed a heavy penalty of Rs. 2 crores.
The order also further directed the company and its directors to refund the monies for which the allotment was already completed, with an interest of 12% to the shareholders within 30 days from the date of the order.
The Regional Director, South Eastern Region, upon hearing appeal petition, after careful considerations of the case, came to a conclusion that the heavy penalty imposed by the Adjudication Officer was not desirable for a procedural violation committed by the company and its directors. According the Regional Director, the violation related to the failure to open a separate bank account and utilize the funds before allotment and it could not be equated with a wrong offering of private placement or acceptance of money in contravention of section 42. With this view, the Regional Director felt that the company deserved relief from the penalty and according the Regional Director had reduced the heavy penalty amount from Rs. 2 crores imposed by the Registrar of Companies of Hyderabad to a mere Rs. 12 lakh only.
Penalty Imposed by Registrar of Companies on Company and Officers in Default
|
Violation of section |
Penalty imposed on company / directors |
Penalty imposed by ROC |
Revised penalty imposed by RD |
|
violation of section 43 (4) & 43(6) of the Companies Act 2013 |
Company |
80,00,000 |
6,00,000 |
|
Managing Director |
20,00,000 |
1,00,000 |
|
|
Director |
20,00,000 |
1,00,000 |
|
|
Director |
20,00,000 |
1,00,000 |
|
|
Director |
20,00,000 |
1,00,000 |
|
|
|
Director |
20,00,000 |
1,00,000 |
|
|
Director |
20,00,000 |
1,00,000 |
|
|
Total |
2,00,00,000 |
12,00,000 |
Reduction in penalty
The ground stated for the reduction of penalty are as follows:
- Took reference of already citied case laws.
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.
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.
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