MCA: Imposes penalty of Rs. 7cr for violation in private placement of shares of Rs. 1cr

Provisions Involved –

• Section 42(2) of the Companies Act, 2013states that a private placement shall be made only to a select group of persons who have been identified by the Board (herein referred to as “identified persons”), whose number shall not exceed fifty or such higher number as may be prescribed [excluding the qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option in terms of provisions of clause (b) of subsection (1) of section 62], in a financial year subject to such conditions as may be prescribed.
• Section 42(7) of the Companies Act, 2013states that no company issuing securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue.
• Section 42(8) of the Companies Act, 2013states that a company making any allotment of securities under this section, shall file with the Registrar a return of allotment in form PAS-3 within fifteen days from the date of the allotment in such manner as may be prescribed, including a complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.

Facts of the Case –

• The Subject Company (Planify Capital Limited) has been acting as a fund-raising platform for start-ups and is engaged in selling of shares of unlisted companies to investors through its website [Planify Platform]. It had come to notice that the company had also campaigned and raised funds for itself through its platform amounting Rs. 1cr.

• A SCN was issued to the company and its directors, it was observed that the subject company issued securities in an open forum and there was a use of Planify platform for raising securities, which illustrated the issuance of public advertisements or utilization of media, marketing or distribution channels or agents to inform the public at large about such an issue.

• Further, observed that the subject company has issued securities to 76 subscribers, but form PAS -3 has not been filed for the said issuance.

• At the time of issuance of the SCN to the subject company, it appeared that it had used its platform for issuing its shares to the public. However, during the proceedings, it emerged that the subject company had carried out a more nuanced transaction.

• The subject company sold its shares to Planify Enterprises Private Limited [identified by subject company as group company managed by same promoter] and then sold the shares using the Planify platform to 76 persons [after the general authorization from the subject company to use the Planify platform].

• On the basis of the records available in the office and on the basis of the submission made by parties, it is seen an amount of Rs 3,89,53,017 was raised by the subject company through the Planify platforms by selling its 4,53,530 shares to Planify Enterprises Private Limited and subsequently those were offered to 76 investors out of which 3,51,558 shares at Rs. 85 per share were bought by Shri Rajesh Kumar Singla HUF (a director and shareholder in the subject company as well as in the Planify Enterprises Private Limited).
• It cannot be denied that the purpose of the selling the shares to Planify Enterprises Private Limited was to only find the potential investors for the subject company through the Planify Platform. The real intention was to issue the shares to the public at large. Thus, the first transaction whereby the shares of the subject company were issued to Planify Enterprises Private Limited was merely a smokescreen.

Decision on Violation –

• The company and its officers in default are hereby imposed with monetary penalties under Section 42 of the Companies Act, 2013 as per the details mentioned in the Table below:

Harsh Arora, Audit Associate, SW