BON FRESH FOODS WAS PENALIZED BY ROC CHENNAI FOR ISSUANCE OF SECURITIES WITHOUT SPECIAL RESOLUTION AND NON-FILING OF MGT-14

 BON FRESH FOODS WAS PENALIZED BY ROC CHENNAI FOR ISSUANCE OF SECURITIES WITHOUT SPECIAL RESOLUTION AND NON-FILING OF MGT-14

ROC, Chennai in the above case has addressed a specific compliance failure regarding the issuance of securities.

WHAT IS THE VIOLATION?

The company was found to have accepted debenture application monies from an investor before fulfilling the statutory requirements mandated by the Companies Act, 2013. Specifically:

SECTION 179(3)(c):

This section mandates that the power to issue securities, including debentures, must be exercised by the Board of Directors only by means of resolutions passed at meetings of the Board.

SECTION 117(3)(g):

This requires certain resolutions, including those passed under Section 179(3), to be filed with the ROC in Form MGT-14 within 30 days.

THE LAPSE:

By obtaining the application money before passing the necessary special resolution and filing the required E-form MGT-14, the company bypassed the "prior approval" and "transparency" mechanisms intended to protect stakeholders.

The company was also found to be failing to obtain valuation reports for share allotments.

PENALTIES AND ADJUDICATION

The ROC Chennai, acting as the Adjudicating Officer, typically imposes penalties under Section 450 (the general penalty provision) when no specific penalty is provided for a particular contravention, or under Section 117(2) for the failure to file resolutions.

BON FRESH FOODS PRIVATE LIMITED IS A START-UP COMPANY

·    The ROC took note that the company is a DPIIT-recognized startup.

·    Lesser Penalty (Section 446B): Because of its startup status, the company benefited from Section 446B, which limits the penalty to half of the amount normally prescribed, subject to a maximum cap (usually ₹2,00,000 for the company and ₹50,000 for officers).

LESSOR PENALTY

ROC, Chennai levied a lessor penalty due to the following reasons:

·    The ROC took note that the company is a DPIIT-recognized startup.

·    Lesser Penalty (Section 446B): Because of its startup status, the company benefited from Section 446B, which limits the penalty to half of the amount normally prescribed, subject to a maximum cap (usually ₹2,00,000 for the company and ₹50,000 for officers).

·    Further the company is running at loss.

Hence , ROC Chennai levied Rs 5000 penalty on company and Rs 5000 each on the two directors of the company.

LESSONS LEARNED :

1.           In case of further issue of securities, the company should pass a special resolution and to file MGT-14 before receiving the money from the applicant.

Section 446B – Lesser penalties for certain companies

2.           In case of start-up companies One Person Companies (OPCs), Small Companies, and Producer Companies are liable to not more than 50% of the penalty prescribed for such non-compliance., they can request to reduce the penalty up to 50%  or lessor penalty as prescribed in the CA 2013.

3.           Since , it is loss making start-up company, it is entitled to lessor penalty.

R V SECKAR, FCS, LLB ,79047 19295