The Ministry of Corporate Affairs (MCA) has imposed a penalty of Rs. 4 Lakhs on a small startup company for non filing of the Form MGT – 14 through vide order issued on 18th May 2023 under Section 446B of Companies Act, 2013.
The Company M/s Konwerts India Motors Private Limited of CIN: U31909TZ2019PTC032612 incorporated under the Companies Act. It was noticed that the company has passed a special resolution for the issue of private placement on 24th April 2021 and filed MGT-14 on 24th August 2021.
However, the company has issued the Private placement offer letter in PAS-4 on 24.04.2021, before filing the relevant Special resolution in form MGT-14 in the registry which is resulted in violation of Section 42(3) of Companies Act read with Rule 14(8) of the Companies (Prospectus and Allotment of Securities) Rules,2014. Thus, an adjudication notice was issued under Section 454 of the Companies Act.
The Section 42(3) of the Companies Act provided that a company making private placement shall issue a private placement offer and application as may be prescribed.
And, following the guidelines specified in Rule 14(8) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company is required to distribute a private placement offer along with an application letter only after the appropriate special resolution or Board resolution has been submitted to the Registry.
In addition, according to Section 42(10) of the Companies Act, in the event of a company’s infringement by issuing an offer or accepting funds, the company, together with its promoters and directors, will face penalties. The penalty imposed can be equal to the amount raised through the private placement or a maximum of two crore rupees, whichever is lower. Furthermore, within thirty days of the penalty order, the company is obliged to reimburse all funds to the subscribers, along with the specified interest as stated in subsection (6).
Nonetheless, since the company is a small startup, the regulations outlined in Section 446B take precedence over sub-Section (10) of Section 42 of the Companies Act. Consequently, a penalty of Rs. 2 lakhs has been levied on the company and 1 lakh on person/promoters in accordance with Section 446B of the Companies Act.
Considering the facts and issues of the matter, the adjudicating officer, C.S.Govindarajan (ROC, Coimbatore) imposed a penalty of Rs. 2 lakhs on the company and 1 lakh each on two directors/persons/promoters of the company on non-filing of form MGT-14.
Additionally, it was instructed that the imposed penalty must be paid exclusively through the MCA portal (www.mca.gov.in > under Miscellaneous Fee) within a timeframe of ninety days from the date of receiving a copy of the order.
Any potential appeal against this order must be submitted in written form to the Regional Director, Southern Region, Ministry of Corporate Affairs within a period of 60 days starting from the date of the order.
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