New Delhi: The Office of the Registrar of Companies (RoC) in Delhi and Haryana has initiated action against firms that raise equity investments through online pitch-making platforms to investors in violation of the Companies Act.
The ROC issued an order this week imposing the fine 2 lakhs on a small company in Delhi and A Mumbai-based company has been fined Rs 1 lakh each on two of its directors for allegedly violating a provision of the Companies Act by raising capital through a technology platform, according to the corporate affairs ministry’s website. has been applied.
The RoC order said that Section 42 of the Companies Act prohibits companies going for private placement of securities from issuing any public advertisement or using marketing or distribution channels or agents to inform the public about such issue prevents from doing.
Using technology platforms to reach a large number of investors makes such issues unauthorized public offers rather than private placements, said a person informed of the development, who spoke on condition of anonymity.
The ROC order also states that private placement cannot be offered to more than 200 individuals. The person said the RoC may issue a second order next week in case of another company that has raised capital from the same platform.
However, the regulator noted in its order that the Companies Act provision dealing with private placement (Section 42) does not permit imposition of any penalty on technology platforms, in this case Tyke Technologies Pvt Ltd, which it alleged That “apparently the facility has been provided to the company concerned. “In default of sub-section (7) of section 42.
An email sent to Tyke Technologies Pvt Ltd on Friday seeking comment for the story remained unanswered at the time of publication.
The move is significant as start-ups use such platforms to reach out to a large number of investors.
For the regulator, the biggest concern is to ensure that the company seeking investment is genuine and that the interests of the investors are protected. Given that there have been instances of listed companies disappearing even after raising capital publicly, the creditworthiness of companies seeking funds from a large pool of small investors outside stock exchanges becomes a matter of concern, the person said .
A discussion paper by capital markets regulator SEBI in 2014 defined equity crowd funding as the raising of funds by offering equity interests to investors online, particularly early stage funding.
Traditionally, start-ups are funded through private equity, angel investors or debt arrangements with a financial institution.
Any offering of public equity takes place only after the product or business is commercially viable. However, equity based crowdfunding solicitation is done in the first phase, which has both benefits and risks.
Know your inner investor
Do you have guts of steel or are you a victim of insomnia regarding your investments? Let’s define your investment approach.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.