MCA Penalizes Company and Directors for Non-Compliance with Section 29(1)(b) of Companies Act [Read Order]

In the adjudication order passed by the Ministry of Corporate Affairs (MCA) Registrar of Companies under Section 454 of the Companies Act, 2013, the company and its directors were penalized with Rs. 3.5 lakhs for non-compliance with Section 29(1)(b) of the Companies Act, read with Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

In this case, the company M/s BCL Homes Limited has been incorporated under the Companies Act, 1956, with a paid-up capital of Rs. 8.49 crores. 

 Coming to the facts of the present case, the Central Government directed the office of the MCA to inspect the books and papers of the company. A Show Cause Notice and Preliminary Findings Letter were issued to the company and its directors on 28-2-2023, with a further summons sent on March 15, 2024, seeking additional information. But the company failed to furnish any reply.

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Interestingly, the inspection report revealed that the company failed to comply with key provisions related to the allotment of securities. The report, submitted to the Regional Director (Northern Region) on March 26, 2024, pointed out that the company had not followed Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

 Earlier, a practising company secretary flagged this observation in the company’s annual return (Form MGT-7) for the financial year ending March 31, 2019. The adjudicating authority reached the conclusion that the company and its officers are liable for penalties under Section 450 of the Companies Act, 2013, for violation of Section 29(1)(b) of the Companies Act, read with Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

The provisions of Section 29 of the Companies Act, 2013, deal with public offers of securities to be in dematerialised form. Section 29 states that:

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 “(1) Notwithstanding anything contained in any other provisions of this Act,-

(a) Every company making public offer; and

(b) Such other class or classes of companies as may be prescribed, shall issue the securities only in dematerialised form by complying with the provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made thereunder.

(1A) In case of such class or classes of unlisted companies as may be prescribed, the securities shall be held or transferred only in dematerialised form in the manner laid down in the Depositories Act, 1996, and the regulations made thereunder.

(2) Any company, other than a company mentioned in sub-section (1), may convert its securities into dematerialised form or issue its securities in physical form under the provisions of this Act or in dematerialised form under the provisions of the Depositories Act, 1996 (22 of 1996) and the regulations made thereunder.”

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The company and its directors were hit with a total penalty of Rs. 3.5 lakhs for serious violation of Section 29 (1) (b) of the Companies Act.

The Registrar of Companies and Adjudication Officer, Kamna Sharma, issued the adjudication ruling.

To Read the full text of the Order CLICK HERE

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