PRIVATE PLACEMENT VIOLATION: MCA IMPOSED ₹4.73 CRORE PENALTY ON COMPANY & DIRECTORS FOR FAILURE TO MAINTAIN A SEPARATE BANK ACCOUNT FOR PRIVATE PLACEMENT PROCEEDS OF ₹73,44,000 AND INCOMPLETE DISCLOSURES IN FILINGS. ROC HYDERABAD Vs DIGILOGIC SYSTEMS LIMITED

 PRIVATE PLACEMENT VIOLATION: MCA IMPOSED ₹4.73 CRORE  PENALTY ON COMPANY & DIRECTORS FOR FAILURE TO MAINTAIN A SEPARATE BANK ACCOUNT FOR PRIVATE PLACEMENT PROCEEDS OF  ₹73,44,000 AND INCOMPLETE DISCLOSURES IN FILINGS.

ROC HYDERABAD Vs DIGILOGIC SYSTEMS LIMITED

FACTS OF THE CASE

ROC Hyderabad has imposed penalties totaling ₹4.73 crore on DigiLogic Systems Limited and its directors for violations in private placement compliance under Section 42 of the Companies Act, 2013 .

The penalties include ₹2 crore each in two separate orders and ₹73.44 lakh in a third, with identical amounts levied on the company and its officers. DigiLogic Systems has announced plans to appeal before the Regional Director.

NON-COMPLIANCE

Non-compliance with Section 42(6) & Section 42(10) of the Companies Act, 2013.

Failure to maintain a separate bank account for private placement proceeds and incomplete disclosures in filings.

ARGUMENT BY COMPANY

The company argued that it had designated an existing account and substantially complied with the law, the adjudicating authority rejected this contention, holding that the statutory requirement of maintaining a separate bank account was not fulfilled.

It also noted procedural lapses, including incomplete disclosures in filings. While the show cause notice initially considered a higher penalty of ₹2 crore, the authority correctly restricted the penalty to the amount raised, i.e., ₹73,44,000.

CORPORATE GOVERNANCE IMPACT:

·      Such violations highlight the importance of strict compliance with private placement rules, especially regarding separate bank accounts and accurate disclosures.

·      Regulatory penalties can affect investor confidence and future fundraising activities.

KEY TAKEAWAYS

PRIVATE PLACEMENT RULES ARE STRICT:

Companies must maintain a dedicated bank account for application money.

PROCEDURAL LAPSES ATTRACT HEAVY PENALTIES:

 Even minor deviations can result in multi-crore fines.

DIRECTORS ARE PERSONALLY LIABLE:

 Identical penalties were imposed on both the company and its officers.

# YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,