Regulatory Update – MCA Adjudication Order

The Registrar of Companies (ROC), Hyderabad, has recently passed an Order of Adjudication of Penalty under Section 454 of the Companies Act, 2013 against Chiraharit Limited and its directors for violation of Section 42(10) (private placement provisions).

Key Highlights

The company made a preferential allotment of 24,00,000 equity shares in June 2016.
It inadvertently failed to open a separate bank account for application money, leading to non-compliance of Section 42(6).

MCA has imposed a penalty on the Company and four directors, each liable up to the prescribed limits.
The company filed the application suo moto, admitting the lapse as inadvertent, and has been directed to pay penalties within 90 days.

This order reinforces the importance of strict compliance with procedural requirements under the Companies Act, even when the underlying transaction is bona fide and without mala fide intent.

Takeaway for Corporates

Even technical lapses in processes like preferential issues / private placement can lead to significant penalties. Robust compliance systems, internal checks, and timely legal review are critical to avoid such consequences.

What’s your view — should inadvertent technical lapses attract such high penalties, or should MCA consider intent while imposing penalties?

Note: AI Content