Public Advertisement for Issuance of Securities on Private Placement Basis: MCA Slaps Rs. 7 Cr Penalty on Company and Directors

 The Ministry of Corporate Affairs ( MCA ) has imposed a penalty of Rs. 7 crore on the company and its directors following a public advertisement for the issuance of securities on a private placement basis.

The present facts clearly indicate that Planify Platform used by Planify Enterprises Private Limited was a "distribution channel" of the subject company to inform the public at large about the issue of the subject company. It was for this reason that Planify Enterprises Private Limited was given the authorization to utilize the Planify platform [owned by the subject company] so that the shares of the subject company can be transferred to the potential buyers.

It was evident that the information related to the buying of shares of the subject company were hosted on the Planify platform, along with crucial information related to the pitch, financial ratios, news, etc. This was followed by you tube videos and advertorials in the news portal, which encouraged people at large to buy the shares of the subject company

As per Section 42(7) of the Companies Act, no company issuing securities under section 42 shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue. Use of Planify platform for raising securities, putting pitch information, raising money from general public through platform amounts to issuance of public advertisements or utilization of media, marketing or distribution channels or agents to inform the public at large about such an issue.

The provision pursuant to sub-section (7) of Section 42 of the Companies Act, no company issuing securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue. The subject company has violated sub-section (7) of section 42 of the Companies Act. The penal provision for the same is provided at sub-section (10) of Section 42 of the Companies Act

According to Section 42(7) of the Companies Act provides the ceiling up to which a penalty can be imposed on the company, directors and promoters. In the present case, the Rs. 3, 89, 53,017 was raised by selling the shares to Planify Enterprises Private Limited, which in turn acted as a "distribution channel" for selling the shares to the investors on the Planify platform. The amount raised is more than Rs. 2 crores, so the amount of penalty cannot exceed Rs. 2 crores.

In the present case, the single member bench of the tribunal comprising Pranay Chaturvedi (Adjudicating officer) observed that the penalty was leviable under Section 42(10) of the Companies Act. As far as returning the money to the subscribers under section 42(6) is concerned, clause (b) of the proviso section 42(6) clearly provides that such an eventuality would arise if the company was unable to allot the securities.

It was thus held that, Since the securities have been allotted, the issue of returning the monies to the subscribers does not arise. Hereby impose the penalty on the company and its officers in default under section 42 (10) of the Act r/w Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014, for violation of section 42 (7) of the Companies Act, 2013

To Read the full text of the Order CLICK HERE

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