WHETHER ISSUANCE OF NON-CONVERTIBLE DEBENTURES (NCDS) BY AMFL—OSTENSIBLY VIA PRIVATE PLACEMENT—ACTUALLY AMOUNTED TO A “DEEMED PUBLIC ISSUE”, THEREBY TRIGGERING STRICTER SEBI’S COMPLIANCE REQUIREMENTS.

 WHETHER ISSUANCE OF NON-CONVERTIBLE DEBENTURES (NCDS) BY AMFL—OSTENSIBLY VIA PRIVATE PLACEMENT—ACTUALLY AMOUNTED TO A “DEEMED PUBLIC ISSUE”, THEREBY TRIGGERING STRICTER SEBI’S COMPLIANCE REQUIREMENTS.

SEBI CONSIDERS ISSUANCE OF NON-CONVERTIBLE DEBENTURES (NCDS) AS A ‘DEEMED PUBLIC ISSUE’ BY ASIRVAD MICRO FINANCE LIMITED (AMFL)

SEBI VS ASIRVAD MICRO FINANCE LIMITED (AMFL)

SEBI REVIEW

SEBI reviewed the issuance of NCDs by AMFL to Karvy Capital Limited (KCL) under two tranches in May and June 2019.

ALLOTTED THE NCDS TO KCL AS A SINGLE INVESTOR

According to the findings, AMFL had initially allotted the NCDs to KCL as a single investor under a private placement. However, based on material on record, SEBI noted that before listing, the number of NCD holders had increased to 739, as reflected in the beneficiary position (BENPOS) data dated June 3, 2019

KEY FINDINGS IN SEBI VS AMFL

SEBI observed that AMFL:

·      Structured issuance of NCDs across multiple tranches

·      Allotted securities to more than 200 persons

·      Effectively bypassed public issue norms while claiming private placement

SEBI CONCLUDED:

This fragmentation strategy cannot be used to avoid regulatory thresholds.

WHY IT BECAME A “DEEMED PUBLIC ISSUE”

A private placement loses its character when:

·      Investor count exceeds 200

·      Offer resembles a public solicitation

·      Issuance lacks selectivity and exclusivity

IN AMFL’S CASE:

The scale and distribution pattern indicated a public fundraising exercise.

Therefore, SEBI treated it as a public issue in substance.

COMPLIANCE VIOLATIONS IDENTIFIED

Because the issue was treated as a public issue, AMFL was required—but failed—to comply with:

·      Filing of prospectus

·      Obtaining credit rating

·      Appointment of debenture trustee

·      Listing on a recognized stock exchange

·      Adhering to disclosure norms under SEBI regulations

REGULATORY CONSEQUENCES

SEBI typically imposes:

·      Monetary penalties

·      Directions to refund investors

·      Market access restrictions

·      Enforcement actions against directors/promoters

PRACTICAL TAKEAWAYS

1. SUBSTANCE OVER FORM

Labeling an issue as “private placement” does not protect you if the economic reality is public fundraising.

2. STRICT 200-PERSON RULE

The 200 investor cap is absolute (excluding QIBs and employees under ESOP in certain cases).

3. TRANCHE STRUCTURING -COMPLIANCE STRATEGY

Splitting issues across tranches to avoid thresholds is regulatory arbitrage—and SEBI will pierce it.

4. DEBT INSTRUMENTS ARE NOT EXEMPT

Even though NCDs are not equity, they are fully regulated securities.

CONCLUDING REMARKS

·      SEBI fined AMFL Rs 1 lakh for violating public issue norms.

·      AMFL's NCDs to 739 holders, breaching placement rules

·      SEBI blamed AMFL for non-compliance, rejecting its claims.

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

HOW TO AVOID QUALIFICATIONS IN A SECRETARIAL AUDIT REPORT? HOW TO OBTAIN A CLEAN MR-3 REPORT? COMMON RED FLAGS IN A SECRETARIAL AUDIT REPORT?

 HOW TO AVOID QUALIFICATIONS IN A SECRETARIAL AUDIT REPORT?

HOW TO OBTAIN A CLEAN MR-3 REPORT?

COMMON RED FLAGS IN A SECRETARIAL AUDIT REPORT?

Remarks by a Secretarial Auditor are not casual observations—they are formal, reportable qualifications, reservations, or adverse comments issued under Section 204 of the Companies Act, 2013 and the Secretarial Audit Report (Form MR-3).

These remarks signal non-compliance, weak governance, or procedural lapses and often attract regulatory scrutiny.

HIGH-RISK CLAUSES TO SCRUTINIZE

(A) Companies Act, 2013 Non-Compliance

Check for:

·      Delay in ROC filings (AOC-4, MGT-7, PAS-3, DIR-12)

·      Non-maintenance of:

·      Register of Members (Section 88)

·      Minutes (Section 118)

NON-APPOINTMENT OF:

·      Company Secretary (Section 203)

·      Internal Auditor (Section 138)

·      Non-appointment of women director wherever applicable – About 189 public sector companies have not appointed a woman director in their board

(B) BOARD PROCESS & GOVERNANCE FAILURES

Look for:

·      Board meetings not held as per Section 173

·      Improper notice / agenda circulation

·      Minutes not signed within 30 days

·      Committees not properly constituted

·      Improper constitution of Board / Committees

·      Lack of independent directors (for applicable companies)

·      Minutes not properly recorded or signed

(C) SHARE CAPITAL & SECURITIES ISSUES

Red flags include:

·      Allotment without receipt of money (VARDHMAN AIRPORT SOLUTIONS LIMITED)

·      Private placement violations (Section 42)

·      Delay in PAS-3 filing

·      Non-issue of share certificates within timelines

D) DEPOSITS & LOANS COMPLIANCE

·      Acceptance of deposits in violation of Sections 73–76

·      Non-compliance with Section 186 (loans, guarantees)

(E) RELATED PARTY TRANSACTIONS (SECTION 188)

·      No Board / shareholder approval

·      Not at arm’s length

·      Not disclosed properly

(F) SEBI / LISTING REGULATIONS (IF APPLICABLE)

·      Delay in disclosures to Stock Exchanges

·      Non-compliance with LODR

·      Insider trading lapses

(G) OTHER LAWS APPLICABLE TO COMPANY

·      FEMA, RBI, Labour laws, Environmental laws

·      Industry-specific regulatory non-compliance.

IMPACT OF SECRETARIAL AUDITOR’S REMARKS

These remarks can have serious consequences:

·      Regulatory action by ROC / SEBI

·      Monetary penalties and prosecution

·      Negative impact on investors and stakeholders

·      Red flags in due diligence / IPO (RHP stage)

·      Reputational damage

BOARD’S RESPONSIBILITY

Under Section 134, the Board must:

·      Provide explanations to each qualification/remark

·      Include responses in the Board’s Report

·      Take corrective action and strengthen compliance systems

BEST PRACTICES TO AVOID ADVERSE REMARKS

·      Robust compliance calendar and tracking system

·      Periodic secretarial compliance audits (internal)

·      Proper documentation and record keeping

·      Timely filings and disclosures

·      Strong coordination between legal, finance, and secretarial teams

 

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

COMPANY FINED FOR MAKING ALLOTMENT OF SHARES WITHOUT RECEIVING FULL SHARE APPLICATION MONEY ROC DELHI VS VARDHMAN AIRPORT SOLUTIONS LIMITED

 COMPANY FINED FOR MAKING ALLOTMENT OF SHARES WITHOUT RECEIVING FULL SHARE APPLICATION MONEY

ROC DELHI VS VARDHMAN AIRPORT SOLUTIONS LIMITED 

FACTS OF THE CASE

ROC- Delhi fined Vardhman Airport Solutions Limited for allotting shares during a rights issue without first receiving the full share application money.

The adjudication order dated 24 April 2026 imposed penalties under Section 450 of the Companies Act, 2013. Although the company argued that the transactions were carried out with shareholder consent and without mala fide intent,  ROC has  treated the lapse as a technical non-compliance.

NATURE OF DEFAULT

·      Shares were allotted before receipt of full subscription money.

·      Delays of up to 98 days in receiving application money.

·      Some subscription amounts were received from third-party entities, raising traceability concerns.

·      The lapse was considered a procedural violation rather than fraud or misrepresentation.

PENALTIES IMPOSED

COMPANY PENALTY:	₹10,000 for contravention, plus ₹1,000 per day for continuing default (capped at ₹2,00,000).	Penalty levied ₹108000
DIRECTORS PENALTY:	Penalties applied to directors and key managerial personnel based on the period of default	₹ 1,50,000/= ₹ 50000 on 3 directors each

KEY LEARNINGS

·      Strict compliance with Section 62 is mandatory: shares cannot be allotted until full consideration is received.

·      Even technical lapses (without fraud or wrongful gain) attract penalties under Section 450.

·      Companies must ensure traceability of funds and avoid receiving application money from third parties.

·      ROC may take a lenient view if no mala fide intent is found, but penalties will still be imposed.

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

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,

DELAY IN CHARGE FILING WITH ROC - HEAVY PENALTY UPTO Rs 5,00,000 OR Up TO 0.05% OF LOAN AMOUNT UNDER NEW RULES

 DELAY IN CHARGE FILING  WITH ROC - HEAVY PENALTY UPTO Rs 5,00,000 OR Up TO 0.05% OF LOAN AMOUNT UNDER NEW RULES

WHAT IS NEW ?

·      Delay in filing charge with ROC is no longer a minor compliance lapse —

·      It can trigger significant additional fees and penalties under the rules.

HEAVY FINE FOR NOT FILING CHARGES WITH ROC

Recent amendments under the Companies (Registration Offices and Fees) Rules have made non-compliance extremely costly for filing charges with ROC beyond 60 days.

WHAT HAPPENS IF CHARGE IS NOT FILED WITHIN 60 DAYS

FILING  CHARGES WITH ROC AFTER 60 DAYS

·      Ad valorem fee applies

Up to 0.05% of loan amount or (Max ₹5 lakhs)

·      Higher the loan = Higher the penalty

FILING BETWEEN 90–120 DAYS

·      Higher additional fee + Ad valorem continues

FILING BEYOND 120 DAYS

·      Filing not allowed

·       You have to go for condonation under Section 87 of CA 2013

CONCLUDING REMARKS

Even a small delay can lead to:

• Escalating additional fees

• Compliance risk exposure

• Issues in enforcement of security

·      Timely filing is not optional — it’s critical for protecting lender rights and avoiding regulatory consequences.

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

NON APPOINTMENT OF A COMPANY SECRETARY-₹15 LAKH PENALTY --- DIRECTORS HELD PERSONALLY LIABLE DESPITE COMPANY DISSOLVED VIA NCLT ORDER SUBSEQUENTLY

 NON APPOINTMENT OF A COMPANY SECRETARY-₹15 LAKH PENALTY --- DIRECTORS HELD PERSONALLY LIABLE DESPITE COMPANY DISSOLVED VIA NCLT ORDER SUBSEQUENTLY

ROC CUTTACK Vs SAV INDUSTRIES PRIVATE LIMITED

FACTS OF THE CASE

The company failed to appoint a Whole-Time Company Secretary as mandated under Section 203(1)(ii) read with Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, despite meeting the applicable paid-up capital threshold Rs 10 Crores.

DISSOLUTION

The company was subsequently dissolved via NCLT order.

OBSERVATION OF ROC

1. Default was established based on MCA records.

2. Non-response to SCN indicated acceptance of default .

3. DISSOLUTION OF COMPANY DOES NOT ABSOLVE  DIRECTORS OF LIABILITY FOR DEFAULTS DURING TENURE PER SECTION 203(5).

DECISION BY CUTTACK ROC

Penalty of ₹5,00,000 imposed on each of the 3 directors. Total penalty: ₹15,00,000. Amount payable from personal funds within 90 days from order date.

KEY TAKEAWAYS FOR BUSINESSES & DIRECTORS

1. KMP COMPLIANCE IS NON-NEGOTIABLE:

 Paid-up capital ≥ ₹10 crore triggers mandatory Whole-Time CS appointment

2. LIABILITY SURVIVES DISSOLUTION:

DIRECTORS REMAIN PERSONALLY LIABLE FOR PAST

 DEFAULTS .

3. RESPOND TO SCN:

Ignoring notices leads to maximum penalty under

 adjudication

4. PROACTIVE COMPLIANCE SAVES LAKHS:

 Regular secretarial audits prevent such orders and heavy fines.

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