ROC penalises company for Violating Private Placement Rules under Section 42

The ROC in Hyderabad had a problem with Digilogic Systems Limited. They said the company messed up by not following Section 42(6) of the Companies Act, 2013. Basically, they did not keep the private placement money in its own special bank account.

Because of this goof up, the company and its officers got hit with a fine. It is all laid out in Section 42(10). The penalty A whopping ₹73,44,000  the same amount they had raised through that private placement deal.

Fact of the Case

Digilogic Systems Limited ran afoul of the Registrar of Companies (ROC) in Hyderabad. Seems like they were not playing by the rules when they did a private placement, specifically under Section 42 of the Companies Act, 2013.

Back in February 2025, they went and raised  Rs73,44,000 by selling 25,000 shares privately. They did the paperwork and all – filed the PAS-3 and MGT-14 forms – but they missed a crucial step. Digilogic did not bother to set up a separate bank account to hold the money from those share applications, which, as it turns out, Section 42(6) makes a requirement.

Plus, their filings had gaps some disclosure information in MGT-14 was missing and there were delays in complying with the requirements.

Trying to get ahead of the situation, Digilogic submitted a suo-moto adjudication application. They argued they’d mostly followed Section 42, claiming they used a designated account (just not a new one). They said slip-ups happened because of professional advice and technical glitches.

The ROC issued an electronic show cause notice and gave Digilogic a hearing. The company pleaded for either no penalty or the smallest one possible.

Issues of the case

1. Was not using a separate bank account a breach of private placement rules?

2. Does this lapse attract a penalty under Section 42(10)?

3. Could Digilogic’s explanation for their mistakes save them from a penalty?

Judgement of the Fact

The ROC’s answer was clear. Digilogic broke Section 42(6 they didn’t keep private placement funds in a separate account. And yes, this triggers penalties under Section 42(10). Their “substantial compliance” defense didn’t fly; rules are rules, and Digilogic had to follow them exactly.

Penalty-wise, Section 42(10) says the fine can be up to the amount raised or ₹2 crore, whichever is less. Since Digilogic raised ₹73,44,000, that became the penalty amount.

• The company has to pay Rs 7,344,000.
• Each director or officer in default pays Rs 73,44,000 individually.
• No extra daily penalty.
• They need to pay within 90 days and files proof of compliance via the MCA portal.
• If they want, they can appeal to the Regional Director within 60 days.

Key hightlight of the judgement

This case spells out that private placement rules are tight, especially the separate bank account requirement. Even if a company thinks they’ve followed most of the steps, missing out on this statutory detail can cost them big- the penalty matched what they raised.