Violation of Section 62 (1) (C) while issuing Convertible Notes

Violation of Section 62 (1) (C) while issuing Convertible Notes. It is pertinent to note that the provisions Section 62 (l)(c) read with Rule 13(2) of the Companies (Share Capital and Debentures) Rules, 2014 require additional, specific and exhaustive disclosures in the explanatory statement attached to the notice of ECM. On the other hand, Section 62(3) of the Companies Act, 2013 does not provide for any such requirements. In other words, the company has inadvertently1 provided additional disclosures under the Companies Act, 2013 enabling the members to take a more informed decision.
In this order the company sought approval from members for issue of Convertible Notes by providing reference to Section 62(1)(c) of the Companies Act, 2013, however, the special resolution also mentioned that the said approval is sought pursuant to "other applicable provisions of the Companies Act, 2013.
Applicable Provisions
The MCA adjudication order involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (WR), Mumbai, for consideration.
Facts of the Case with ROC and RD 
In Wurknet Private Limited &ORS, ROC vide adjudication order dated 17/11/2023 held the Company and its directors, who have defaulted, liable for penalty under Section 450 of the Act from 09/12/2019 till 04/08/2021 for carrying out compliances as per provisions of Section 62(1)(c) in place of Section 62(3) of the Act.
Considering the fact and circumstances of the case, Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD to appellants on 29/05/2024. The authorised representative stated that she did not find any defect in ROC adjudication order dt. 17/11/2023. Along with this she stated that
1. The company sought approval from members for issue of Convertible Notes by providing reference to Section 62(1)(c) of the Companies Act, 2013, however, the special resolution also mentioned that the said approval is sought pursuant to "other applicable provisions of the Companies Act, 2013. Accordingly, in Petitioner's humble opinion the said reference covers the provisions of section 62(3) as well.
2. It is pertinent to note that the provisions Section 62 (l)(c) read with Rule 13(2) of the Companies (Share Capital and Debentures) Rules, 2014 require additional, specific and exhaustive disclosures in the explanatory statement attached to the notice of ECM. On the other hand, Section 62(3) of the Companies Act, 2013 does not provide for any such requirements. In other words, the company has inadvertently1 provided additional disclosures under the Companies Act, 2013 enabling the members to take a more informed decision.
3. In view of the above averments made, the Petitioner humbly submits that considering the unintentional non-serious nature of the default, suo moto application filed by the Petitioners for Adjudication of Penalty and considering the fact that the Company has already closed down its business operations, the Hon'ble Regional Director, Western Region, may allow this Appeal and set aside the order passed by the Respondent.
Imposed Penalty
Considering all the facts, circumstances and all the submission made by the company, the adjudicating authority had imposed penalty as follows:

No. ofdefault

Penalty imposed on Company / Director (s)

First default (In Rs.)

Default continues (In Rs.)

Total penalty levied (In

Maximum penalty (In Rs.) (450r/w. 446B)

Penalty levied (In Rs.) (450r/w. 446B)

604

WurknetPrivate Limited

10,000

604 x 1000604 x 1000604 x 1000TOTAL

Vivan Puri

10,00010,000

50,000

25,000

Sanjay Dinkar Ramugade

50,000

25,000

Reduction in Penalties, If any
Taking into consideration the Adjudication Order of the Registrar of Companies, Mumbai, submissions made by the Appellants in their application and, oral submissions of the authorized representative of the company and RoC during the hearing, it is observed that:
1. The PCS has argued the matter on the quantum of penalty should be less keeping in view of procedural/ technical issue for non-making specific provision of Section 62(3) in resolution dt.09/12/2023 passed by shareholders for issue of Convertible Notes into equity in further for issue of 'Notes-Debt instrument' to identified persons on Private Placement Basis.
2. The company has moved adjudication application with ROC, Mumbai for abundant caution for compliance of provisions of the Act.
3. ROC, Mumbai has imposed penalty stipulated in Section 450 r/w. Section 446B of the Act.
4. The appellants have not pointed out any defects in the ROCs Adjudication Order dt. 17/11/2023. As the ROC Adjudication Order has no defects, the said order is confirmed.
Any Benefit of Section 446B of Companies Act
Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. In adjudication matter of Wurknet Private Limited &ORS, does not qualify to claim the benefit under section 446B of the companies Act 2013.
To conclude:
In the adjudication matter concerning Wurknet Private Limited &ORS, it is evident that the company, along with its officers, was found in default for failing to comply with the provisions of Section 62(1) © of the Companies Act, 2013, regarding issue of convertible notes. Despite of various claims made by the authorised representatives, RD confirm the order of ROC as they did not find any merit in their appeal.
Download MCA Adjucation Order

It is pertinent to note that the provisions Section 62 (l)(c) read with Rule 13(2) of the Companies (Share Capital and Debentures) Rules, 2014 require additional, specific and exhaustive disclosures in the explanatory statement attached to the notice of ECM. On the other hand, Section 62(3) of the Companies Act, 2013 does not provide for any such requirements. In other words, the company has inadvertently1 provided additional disclosures under the Companies Act, 2013 enabling the members to take a more informed decision.

In this order the company sought approval from members for issue of Convertible Notes by providing reference to Section 62(1)(c) of the Companies Act, 2013, however, the special resolution also mentioned that the said approval is sought pursuant to "other applicable provisions of the Companies Act, 2013.

Applicable Provisions

The MCA adjudication order involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties. The relevant rules include the Companies (Adjudication of Penalties) Rules, 2014. The matter was brought before the Regional Director (WR), Mumbai, for consideration.

Facts of the Case with ROC and RD

In Wurknet Private Limited &ORS, ROC vide adjudication order dated 17/11/2023 held the Company and its directors, who have defaulted, liable for penalty under Section 450 of the Act from 09/12/2019 till 04/08/2021 for carrying out compliances as per provisions of Section 62(1)(c) in place of Section 62(3) of the Act.

Considering the fact and circumstances of the case, Registrar of Companies (ROC) imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD) and an opportunity of being heard was given by the RD to appellants on 29/05/2024. The authorised representative stated that she did not find any defect in ROC adjudication order dt. 17/11/2023. Along with this she stated that

1. The company sought approval from members for issue of Convertible Notes by providing reference to Section 62(1)(c) of the Companies Act, 2013, however, the special resolution also mentioned that the said approval is sought pursuant to "other applicable provisions of the Companies Act, 2013. Accordingly, in Petitioner's humble opinion the said reference covers the provisions of section 62(3) as well.

2. It is pertinent to note that the provisions Section 62 (l)(c) read with Rule 13(2) of the Companies (Share Capital and Debentures) Rules, 2014 require additional, specific and exhaustive disclosures in the explanatory statement attached to the notice of ECM. On the other hand, Section 62(3) of the Companies Act, 2013 does not provide for any such requirements. In other words, the company has inadvertently1 provided additional disclosures under the Companies Act, 2013 enabling the members to take a more informed decision.

3. In view of the above averments made, the Petitioner humbly submits that considering the unintentional non-serious nature of the default, suo moto application filed by the Petitioners for Adjudication of Penalty and considering the fact that the Company has already closed down its business operations, the Hon'ble Regional Director, Western Region, may allow this Appeal and set aside the order passed by the Respondent.

Imposed Penalty

Considering all the facts, circumstances and all the submission made by the company, the adjudicating authority had imposed penalty as follows:

No. ofdefault	Penalty imposed on Company / Director (s)	First default (In Rs.)	Default continues (In Rs.)	Total penalty levied (In	Maximum penalty (In Rs.) (450r/w. 446B)	Penalty levied (In Rs.) (450r/w. 446B)
604	WurknetPrivate Limited	10,000	604 x 1000604 x 1000604 x 1000TOTAL
	Vivan Puri	10,00010,000			50,000	25,000
	Sanjay Dinkar Ramugade	10,00010,000			50,000	25,000
					50,000

Reduction in Penalties, If any

Taking into consideration the Adjudication Order of the Registrar of Companies, Mumbai, submissions made by the Appellants in their application and, oral submissions of the authorized representative of the company and RoC during the hearing, it is observed that:

1. The PCS has argued the matter on the quantum of penalty should be less keeping in view of procedural/ technical issue for non-making specific provision of Section 62(3) in resolution dt.09/12/2023 passed by shareholders for issue of Convertible Notes into equity in further for issue of 'Notes-Debt instrument' to identified persons on Private Placement Basis.

2. The company has moved adjudication application with ROC, Mumbai for abundant caution for compliance of provisions of the Act.

3. ROC, Mumbai has imposed penalty stipulated in Section 450 r/w. Section 446B of the Act.

4. The appellants have not pointed out any defects in the ROCs Adjudication Order dt. 17/11/2023. As the ROC Adjudication Order has no defects, the said order is confirmed.

Any Benefit of Section 446B of Companies Act

Section 446B of the Companies Act, 2013 provides a significant relief mechanism for small companies and start-ups by reducing the penalty burden for certain non-compliances. Under this provision, if a small company or a start-up commits a default for which a penalty is prescribed under the Act, the penalty imposed shall not be more than half of the specified penalty, subject to a maximum limit. In adjudication matter of Wurknet Private Limited &ORS, does not qualify to claim the benefit under section 446B of the companies Act 2013.

To conclude:

In the adjudication matter concerning Wurknet Private Limited &ORS, it is evident that the company, along with its officers, was found in default for failing to comply with the provisions of Section 62(1) © of the Companies Act, 2013, regarding issue of convertible notes. Despite of various claims made by the authorised representatives, RD confirm the order of ROC as they did not find any merit in their appeal.