ARTICLE
16 April 2024

Capital Conundrum: MCA Slaps INR 7 Crore Penalty For Share Issuance Violations

AP
AK & Partners

Contributor

AK & Partners is a full-service law firm, whose expertise spans diverse practice areas, including Banking and Finance, Dispute Resolution, Transaction Advisory and Funds, Data Privacy, Tax, and regulatory compliance. Our services are offered across different legal forums and jurisdictions, including the USA, the UK, Singapore, Italy, Spain, Sri Lanka, etc.
The Ministry of Corporate Affairs ("MCA"), vide its adjudication order dated April 03, 2024 ("Order"), has levied a penalty amounting to INR 7,00,00,000...
India Corporate/Commercial Law
To print this article, all you need is to be registered or login on Mondaq.com.

The Ministry of Corporate Affairs ("MCA"), vide its adjudication order dated April 03, 2024 ("Order"), has levied a penalty amounting to INR 7,00,00,000 (Indian Rupees Seven Crores only) on Planify Capital Limited ("Company") and its directors. The Order was pronounced in light of violations of provisions of the Companies Act, 2013 ("Act") regarding private placement of shares.

The Company owns and operates a fund-raising platform ("Planify Platform") for start-ups and is engaged in selling shares of unlisted companies to investors through its platform.

Owing to the issuance of shares by the Company and certain discrepancies thereof, MCA issued a show-cause notice to the Company to explain the following averments:

  • The Company issued shares on a private placement basis but used the Planify Platform to issue shares in violation of section 42(7) of the Act;
  • The Company did not file form PAS-3 for the issuance of such shares to 76 people in violation of the provisions of Companies (Prospectus and Allotment of Securities) Rules, 2014.

During the adjudication proceedings and upon the response from the Company, both in writing and oral, MCA observed the following:

  • The Company had issued the shares to only one entity, i.e. Planify Enterprises Private Limited ("Group Company"), which was managed by the promoters of the Company only. The Company had filed form PAS-3 for the issuance of shares to the Group Company;
  • The Group Company then transferred the issued shares to 76 investors through the Planify Platform, who ultimately became the shareholders of the Company;
  • Information related to buying of shares of the Company was hosted on the Planify Platform along with crucial information related to the pitch, financial ratios, news etc. which was followed by YouTube videos and advertorials in the news portal, which encouraged people at large to buy the shares of the Company from the Group Company, and;
  • The valuation report for the issuance of shares was done for the Group Company instead of the Company in violation of section 42 of the Act.

MCA observed that the Planify Platform used by the Group Company was a 'distribution channel' of the Company to inform the public at large about the issuance of shares by the Company, and the board authorisation was given by the Company to the Group Company to use the Planify Platform so that the shares of the Company can be transferred to the potential buyers. MCA further observed that the purpose of selling shares to the Group Company was to only find the potential investors for the Company through the Planify Platform, and the real intention was to issue shares to the public at large, and thus, the provisions of section 42(7) stood violated.

In light of the above, MCA imposed a penalty of INR 7,00,00,000 (Indian Rupees Seven Crores only) on the Company and its directors, including the non-executive directors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
16 April 2024

Capital Conundrum: MCA Slaps INR 7 Crore Penalty For Share Issuance Violations

India Corporate/Commercial Law

Contributor

AK & Partners is a full-service law firm, whose expertise spans diverse practice areas, including Banking and Finance, Dispute Resolution, Transaction Advisory and Funds, Data Privacy, Tax, and regulatory compliance. Our services are offered across different legal forums and jurisdictions, including the USA, the UK, Singapore, Italy, Spain, Sri Lanka, etc.
See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More