ROC Imposes Penalty on Company for Failure to Dematerialize Its Shares

The Registrar of Companies (ROC), Bangalore, has passed a penalty order against a company for not converting the shares to dematerialized form before transferring them.

The company, Stalwart Intellisense Private Limited, is a subsidiary of a public company, which is considered to be a public company under section 2(71) of the Companies Act. The company violated Rule 9A(3) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, which requires the holders of securities in an unlisted company to dematerialize their holdings before transferring them or subscribing to new issues.

However, Stalwart Intellisense’s two directors, shareholders holding 240 and 250 equity shares, physically transferred their full holdings to Stalwart People Services India Limited, which was against Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 and section 29(1A) of the Companies Act. This violation lasted for 707 days.

Even though the company had voluntarily disclosed the non-compliance through a suo moto application, the ROC held the company and its director liable for a penalty under section 450 of the Act. As a result, the ROC imposed a penalty of Rs 2,00,000 on the company and Rs 50,000 each on its three directors for violating Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

The directors are required to pay their penalty amount from their own personal money. The ROC directed the company’s directors to correct the mistake and pay the penalty amount within 90 days through the ‘e-Adjudication’ facility available on the MCA Portal.