ROC-Hyderabad issues order to Krishikan Krishikan Pvt Ltd u/s 454 for Sec 42 & 62(1)(a) violations

ROC-Hyderabad issues order to Krishikan Krishikan Pvt Ltd u/s 454 for Sec 42 & 62(1)(a) violations. 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. 
Section 62(1)(c): Pertains to the issuance of further shares, subject to certain conditions, including a special resolution authorizing the increase in subscribed capital. 
Facts of the case: 
The Ministry of Corporate Affairs, represented by the Regional Director of the South East Region, has recently made an important ruling concerning penalties for non-compliance with Section 62(1)(c) and section 42 of the Companies Act, 2013. This decision follows an appeal filed by Krishikan Krishikan Private Limited against an adjudication order passed by the Registrar of Companies, Hyderabad.  
The adjudication order, dated 05.07.2023, by the Registrar of Companies, Karnataka, stated that the company had issued OCDs three times without following the proper procedural requirements, as laid out in section 62(1)(c) and section 42 of the Companies Act, 2013. The company admitted the default and filed a Suo-motu adjudication application, citing procedural ambiguity as the cause. The company, Krishikan Krishikan Private Limited, had issued OCDs on 24.07.2020, 10.12.2020, and 29.01.2021, under section 71 of the Act. However, it mistakenly treated them as rights issues under section 62(1)(a) instead of preferential allotment under section 62(1)(c). 
Penalty Imposed by Registrar of Companies on Company and Officers in Default 
1. Penalty paid under section 450 of the Act r/w Section 446B of the Act for violation of Section 62(1)(c) of the Act: 15000/- Each on company and 2 directors.  
2. Penalty paid under section 42(10) r/w Section 446B of the Act for violation of Section 42 of the Act: 1,50,000 on company and 75,000/- each on 2 directors.
Reduction in penalty 
The ground stated for the reduction of penalty are as follows:

That hat the company is a small company and relief shall be given under Section 446B of the Act.

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 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.

Section 62(1)(c): Pertains to the issuance of further shares, subject to certain conditions, including a special resolution authorizing the increase in subscribed capital.

Facts of the case:

The Ministry of Corporate Affairs, represented by the Regional Director of the South East Region, has recently made an important ruling concerning penalties for non-compliance with Section 62(1)(c) and section 42 of the Companies Act, 2013. This decision follows an appeal filed by Krishikan Krishikan Private Limited against an adjudication order passed by the Registrar of Companies, Hyderabad.

The adjudication order, dated 05.07.2023, by the Registrar of Companies, Karnataka, stated that the company had issued OCDs three times without following the proper procedural requirements, as laid out in section 62(1)(c) and section 42 of the Companies Act, 2013. The company admitted the default and filed a Suo-motu adjudication application, citing procedural ambiguity as the cause. The company, Krishikan Krishikan Private Limited, had issued OCDs on 24.07.2020, 10.12.2020, and 29.01.2021, under section 71 of the Act. However, it mistakenly treated them as rights issues under section 62(1)(a) instead of preferential allotment under section 62(1)(c).

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

1. Penalty paid under section 450 of the Act r/w Section 446B of the Act for violation of Section 62(1)(c) of the Act: 15000/- Each on company and 2 directors.

2. Penalty paid under section 42(10) r/w Section 446B of the Act for violation of Section 42 of the Act: 1,50,000 on company and 75,000/- each on 2 directors.

Reduction in penalty

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

That hat the company is a small company and relief shall be given under Section 446B of the Act.

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.