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Companies ActCompany LawDEMAT FormMCAOthersPremier Energies LimitedRule 9ASection 29(1A)

MCA imposed Penalty for failure to issue and transfer shares in Demat form

CA. Kavit Vijay

26 April 2024

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In the matter of M/s PREMIER ENERGIES LIMITED (CIN: U40106TG1995PLC019909)

As per Section 29(1A) of Companies Act read with Rule 9A of The Companies (Prospectus and Allotment of Securities) Rules, 2014, every unlisted public company shall ensure that before issuance of any securities entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with provisions of the Depositories Act 1996. Further,  every shareholder of an unlisted public company is required to dematerialise its securities before transfer, if such transfer is made on or after 2nd October, 2018.

However, in the given case, the Company issued securities in physical form and record transfer of securities in physical form. The Company and the officers have defaulted in complying with the provisions of Section 29(1A) of the Act and made the offence good on 19th March 2024 by converting the physical shares of promoter into Demat as a one time offense. Accordingly, penalty is imposed on both company and the officers in default for non compliance of provisions of Section 29(1A) of The Act read with Rule 9A of he Companies (Prospectus and Allotment of Securities) Rules, 2014.

1. Facts of the case

1. M/s Premier Energies Limited (“The Company”) is registered under Companies Act, 2013 with principal place of business located in the state of Telangana.
2. Then Company and its shareholders filed suo-moto application for adjudication and imposition of penalty under section 454 of the Companies Act and related rules.
3. The Company allotted Securities, Equity and Convertible Securities, to raise funds for general purpose and for expansion of business operations on various dates from 17th December, 2019.
4. The Company allotted shares to its promoters, managing directors and whole time directors before dematerialization.
5. Therefore, this allocation was made in violation of provision of Rules 9A(2) of The Companies (Prospectus and Allotment of Securities) Rules, 2014.
6. Further, the company and the shareholders recorded transfer of shares in physical form under Section 56 of Companies Act, 2013. Such transfer is made in violation of Rule 9A(3)(a) of The Companies (Prospectus and Allotments of Securities) Rules, 2014.

2. Relevant legal extract

Relevant extract of Companies Act and rules made thereunder is reiterated below for ready reference:

1. Section 29: Public Offer of Securities to be in Dematerialised Form.

…

(1A) In case of such class or classes of unlisted companies as may be prescribed, the securities shall be held or transferred only in dematerialised form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder.

(Inserted by The Companies (Amendment) Act,2019- Effective From 15th August 2019 [Companies (Amendment) Second Ordinance 2019 is repealed on 31st July 2019])

..

2. 9A. Issue of securities in dematerialised form by unlisted public companies.-

…

(2) Every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with provisions of the Depositories Act 1996 and regulations made there under.

(3) Every holder of securities of an unlisted public company,_

(a) who intends to transfer such securities on or after 2nd October, 2018, shall get such securities dematerialised before the transfer; or

..”

(Rule 9A was Inserted by the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 dated 10.09.2018)

3. Submissions and Findings

• During adjudication hearing, the company submitted that there was non-compliance of Section 29(1A) of Companies Act read with Rule 9A(2) of the Companies (Prospectus and Allotments of Securities) Rules, 2014
• The Company made the offense good completely on 19th March 2024 by converting the physical shares of promoter into Demat as a one time offense.

4. Order

• The Company and the officers have defaulted in complying with the provisions of Section 29(1A) of the Act and made the offence good on 19th March 2024 by converting the physical shares of promoter into Demat as one time offense. 
• In this regard, the company, and its officer in default (within the meaning of section 2 (60) of the Companies Act, 2013) are hereby imposed penalty as under.

On Company:

On Officers in Default:

Notes:

1. The Company and its officers in default are required to deposit the above mentioned penalty through the “MCA” portal and Proof of payment, along with this order, must be submitted via e-form INC-28 to the ROC office within 30 days.
2. Appeal Against order:
   1. As per Section 454(5) and (6) of the Act, appeal may be filed against the above mentioned order to the Regional Director having jurisdiction in the matter.  
   2. The Appeal is required to be filed within 60 from the date on receipt of copy of order.
3. Consequences of Non compliances:
   1. As per Section 454(8)(i) & (ii) of the Companies Act, 2013, If the company fails to comply with the order within 90 days, it can be fined between ₹25,000 and ₹500,000.
   2. If an officer in default fails to comply with the order within 90 days, they may face up to six months imprisonment which may extend to 6 months or with fine which shall not be less than ₹25,000 to ₹100,000. Or both