MCA Penalises Company, Directors and CS for Issuing Rights to Non-Shareholders and Allotting Shares Before Offer Closure
The ROC held that issuing shares to a non-shareholder without following the private placement procedure constituted a violation of Section 62(1)(c) read with Section 42
The Ministry of Corporate Affairs ( MCA ), through the Registrar of Companies ( ROC ) has imposed penalties on a company, its directors and its Company Secretary for multiple violations relating to a rights issue in which shares were allotted both to non-shareholders and before the mandatory offer period had closed. The adjudication order, issued under Section 454 of the...
The Ministry of Corporate Affairs ( MCA ), through the Registrar of Companies ( ROC ) has imposed penalties on a company, its directors and its Company Secretary for multiple violations relating to a rights issue in which shares were allotted both to non-shareholders and before the mandatory offer period had closed.
The adjudication order, issued under Section 454 of the Companies Act, 2013, found that the company had breached key provisions governing rights issues, including Section 62(1)(a) and Section 62(1)(c) read with Section 42, in addition to procedural lapses in statutory filings.
A voluntary application filed by the company, Jainam Broking Limited and its directors admitting irregularities in the conduct of the rights issue. The ROC’s examination revealed that the company had misstated the record date in the board resolution filed in Form MGT-14 and in the letter of offer sent to shareholders.
Although the company claimed it was a clerical error without material impact, the ROC held that the incorrect disclosure constituted a violation of Sections 117 and 179 of the Act. Further, the letter of offer carried an incorrect date of signing, which was treated as a breach of Section 62(1)(a).
An important violation identified by the ROC was the allotment of rights shares to a non-shareholder Jainam Fincap Private Limited on 15 July 2023, based on renunciation by existing shareholders.
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The ROC held that issuing shares to a non-shareholder without following the private placement procedure constituted a violation of Section 62(1)(c) read with Section 42. The company made a second allocation of remaining shares on 22 September 2023, also allegedly to entities who were not on the register of members as on the record date.
The ROC rejected the company’s explanation that partnership firms were represented by partners already appearing in demat records, noting discrepancies between shareholder lists across financial years.
The ROC further observed that the company allotted 78,98,733 equity shares on 15 July 2023, even though the offer period was open from 11 July 2023 to 25 July 2023. Allotting shares before the expiry of the statutory minimum 15-day offer period, the ROC held, violated the mandatory requirements under Section 62(1)(a).
The ROC also noted contradictory statements by the company regarding closure of the offer period and justification for filing multiple PAS-3 forms for tranche-wise allotment.
After reviewing the company’s replies and the material on record, the ROC concluded that violations under Section 450 of the Act were established.
The registrar imposed penalties of ₹20,000 each on the company and its directors and on the company secretary, with no additional daily penalty applied.
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