Private Placement Violation: MCA imposes Lesser Penalty on DPIIT-Start-up for Not Disclosing Identified Persons in Shareholders Resolution [Read Order]

The Ministry of Corporate Affairs ( MCA ) has imposed a reduced penalty on a DPIIT-recognised start-up, for violating private placement norms by failing to disclose the identified persons in the shareholders’ resolution relating to the conversion of director loans into equity.

The company, Bon Fresh Foods Private Limited filed a voluntary application acknowledging that it had allotted 9,68,674 equity shares on 10 July 2018 split equally between its two directors by converting unsecured loans into share capital, but without specifying the details of the identified persons in its shareholders’ resolution as mandated under Section 42(2) of the Companies Act, 2013. This omission constituted a contravention of Section 42(10), triggering adjudication.

During the proceedings, the company admitted the violation and stated that it qualified as a DPIIT-recognised start-up under Recognition, with eligibility continuing as its turnover had remained below the prescribed threshold of ₹100 crore since incorporation.

The authorised representative also advised the adjudicating authority to grant leniency under Section 446B of the Companies Act, which permitted lower penalties for start-ups and small companies.

The authority observed that while the company had indeed failed to disclose the identified persons in the resolution for the private placement arising from the loan conversion, it continued to fulfil the criteria for start-up recognition and had voluntarily admitted the default.

The MCA, considering the start-up status and the nature of the contravention, imposed a lesser penalty.

Bon Fresh Foods Private Limited was directed to pay ₹2,00,000, while each of its two directors was penalised ₹50,000.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates