[Opinion] ROC Imposes a Penalty of Rs 7 Crore on Co., Its Directors Along With CEO for Violating Private Placement Norms

In a recent adjudication order dated 3rd April 2024 passed by the Registrar of Companies, New Delhi has imposed a huge amount of penalty aggregating to a total amount of Rs.7 crore upon M/s. Planify Capital Limited, its chief executive officer, non-executive director and as also upon two of the independent directors for the violation committed by them in the issue of private placement of shares. The company i.e. Planify Capital Limited is a company, mainly engaged in fundraising for start-ups through the start-up platform to invest in start-ups, pre-IPO & Unicorns and the company is an integrated marketplace that connects entrepreneurs with investors for hassle-free equity fundraising and provides an opportunity to new investors to invest in these Start-ups. In this particular case, the company M/s. Planify Capital Limited, despite the restrictions imposed by the regulators under the provisions of the Companies Act 2013, the company facilitated and assisted the sale of shares to investors through its start-up platform, by violating the provisions of section 42 of the Companies Act 2013 in a case of issue of shares through private placement.

The company’s unauthorised issuance of securities and public advertising has led to this punitive action. The MCA issued a show cause notice to Planify Capital, highlighting several violations, including exceeding the limit of 200 persons for private placement offers and utilising public advertisements to inform the public about securities issues. Planify Capital’s response claimed a single allotment to Planify Enterprises Private Limited, followed by transfers to 76 investors. However, investigations revealed a more complex transaction structure, implicating the company in breaching regulations. The adjudication process uncovered discrepancies, including misleading valuation reports and improper use of the company’s platform for securities transactions.

Despite attempts to justify actions, Planify Capital’s conduct breached legal provisions. The company’s mode of operandi resulted in an unauthorised issuance of securities and public advertisement which led to a penalty of 7 Crore upon the company, its chief executive officer, non-executive director and two of the independent directors as well. This particular order is one of the speaking orders issued by the Registrar of Companies of Delhi wherein, he discussed the multiple violations committed by the company such as exceeding the prescribed limit of 200 persons for making an offer for private placement, utilization of public advertisements to inform and invite public about the issue of securities, pending the provisions by way of making one single allotment to an intermediary company followed by transfer of shares to 76 investors ultimately etc. The regulator had taken an extensive investigation on this matter which revealed a more complex transaction structure, implicating the company for breaching the mandatory regulatory requirements and compliance of the Companies Act 2013.

Though the company tried to justify its actions on the breeches committed, the regulator uncovered the discrepancies which included the misleading valuation reports submitted by the company and the improper use of the company’s start-up platform for the transactions of the securities which finally resulted in a hefty penalty of 7 crore. The order also reasoned out the penalty levied upon the independent directors and non-executive directors since the approval was given by all the directors of the company through their knowledge, attributable through the board processes, and with their consent. The order is worth reading order in order to understand the various issues involved and the way the breeches happened and were discovered by the regulators. Let us go through the case in detail to have a better understanding.