ROC BENGALURU IMPOSED PENALTY ON TACTILE EDUCATION SERVICES PRIVATE LIMITED FOR CONVERSION OF LOAN INTO EQUITY WITHOUT PASSING SPECIAL RESOLUTION AND THE ALLOTMENT WAS INCORRECTLY REPORTED AS A RIGHTS ISSUE UNDER SECTION 62(1)(A).

ROC BENGALURU IMPOSED PENALTY ON TACTILE EDUCATION SERVICES PRIVATE LIMITED FOR CONVERSION OF LOAN INTO EQUITY WITHOUT PASSING SPECIAL RESOLUTION AND THE ALLOTMENT WAS INCORRECTLY REPORTED AS A RIGHTS ISSUE UNDER SECTION 62(1)(A).

ROC , BENGALURU VS ON TACTILE EDUCATION SERVICES PRIVATE LIMITED

FACTS OF THE CASE

CONVERSION OF LOAN INTO EQUITY WITHOUT PASSING SPECIAL RESOLUTION AND THE ALLOTMENT WAS INCORRECTLY REPORTED AS A RIGHTS ISSUE UNDER SECTION 62(1)(A) WHEREAS IT SHOULD HAVE BEEN TREATED AS A PREFERENTIAL ALLOTMENT UNDER SECTION 62(1)(C) INVOLVING CONSIDERATION OTHER THAN CASH.

VIOLATION:

·       Converted loans from shareholders/directors into equity shares without prior approval via special resolution under Section 62(3).

·       Incorrectly reported the allotment as a rights issue under Section 62(1)(a) instead of a preferential allotment under Section 62(1)(c).

·       This triggered non-compliance with Section 42 (private placement provisions).

REDUCED PENALTY DUE TO START UP

•       ₹2 lakh on the company.

•       ₹1 lakh each on directors Ravi Rangan Srinivasa, Aragudige Prabhakara Raghu, and Rajani Rangan.

•       Reduced penalties applied under Section 446B (benefits for start-ups).

RISKS & COMPLIANCE LESSONS

·       Misclassification of allotment (rights issue vs. preferential allotment) can lead to serious penalties.

·       Special resolution is mandatory before converting loans into equity.

·       Private placement rules under Section 42 must be strictly followed, including filing Form PAS-3 within 15 days.

·       Start-ups may receive reduced penalties under Section 446B, but violations still attract fines and reputational risk.

KEY TAKEAWAYS

·       Always pass a special resolution before converting loans into equity.

·       Ensure allotments are correctly categorized (rights issue vs. preferential allotment).

·       File PAS-3 on time to avoid additional penalties.

·       Seek legal and compliance review before restructuring capital.

·       Start-ups should leverage Section 446B relief, but not rely on it as a safeguard against non-compliance.

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