ROC Set Aside Penalty Due to Proof of Proper Use of

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What This Update Means

Readers should treat this as a tax and compliance update, not as personal advice.

Key Reader Takeaways

• The issue involved alleged misuse of share application funds under company law provisions.
• The authority ruled that compliance was established through proper bank account usage,…
• The appeal before the Regional Director, Hyderabad, under Section 454 of the Companies Act, 2013 challenged a penalty imposed by the Registrar of Companies under Section 42(10) concerning alleged non-compliance in handling share application money.
• The company contended that it had duly deposited the funds in a separate designated bank account, with no transactions undertaken until share allotment, after which funds were transferred for business use.

LAMORC DIGITAL Context

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The appeal before the Regional Director, Hyderabad, under Section 454 of the Companies Act, 2013 challenged a penalty imposed by the Registrar of Companies under Section 42(10) concerning alleged non-compliance in handling share application money. The company contended that it had duly deposited the funds in a separate designated bank account, with no transactions undertaken until share allotment, after which funds were transferred for business use. The appellant argued that filing of Form GNL-2 was based on incorrect professional advice and did not reflect any actual violation. Upon examining the bank statements and submissions, the authority concluded that the company had complied with statutory requirements and that no violation existed. Consequently, the adjudication order imposing penalty was set aside. The ruling reinforces that procedural filings or admissions do not override substantive compliance, and penalties cannot be sustained where factual compliance with legal provisions is demonstrated.

GOVERNMENT OF INDIA MINISTRY OF CORPORATE AFFAIRS RD Hyderabad

3rd Floor, Corporate Bhawan, Bandlaguda, Nagole, Tattiannaram Village, Hayat Nagar Mandal, Ranga Reddy District, Hyderabad, Telangana, India, 500068

Appeal Order ID: PO/ADJ/05-2026/HYD/000227 Dated: 04-05-2026

To the appellant(s), 1. DIGILOGIC SYSTEMS LIMITED, —— 2. MADHUSUDHAN VARMA JETTY, —— 3. RADHIKA VARMA JETTY, ——- 4. JETTY SHASHANK VARMA, ——-

the respondent ROC Hyderabad

Appeal under section 454 of the Companies Act, 2013 read with rule 4 and 5 of the Companies (Adjudication of Penalties) Rules, 2014 against the order for adjudication of penalty dated 22-04-2026 of the ROC Hyderabad issued under section 42(10) of the Companies Act, 2013.

A. Facts about the case:

1. An appeal in e-Form ADJ vide SRN AC3142986 dated 23-04-2026 under section 454 of Companies Act, 2013 was filed by the appellant DIGILOGIC SYSTEMS LIMITED in reference to the subject cited above.

2. The company has informed that it has passed resolution to keep the amount of the issue in a separate bank account specifying the account. The company has two bank accounts, one for its daily operations and the other was opened earlier for statutory requirements. The company had deposited the amount collected in the said designated account and no other transactions took place from the account till the allotment of shares. Only thereafter the funds were transferred to the bank account used for daily operations and used for business of the company.

The AO has stated that the company has suo moto came to them by filing GNL-2 and cannot go back again stating that there is no violations.

In this regard, the managing director stated that he is a technical person from the defence sector and he was wrongly advise to file GNL-2 by some professional. However, later on when proper guidance has taken from professionals it was found that there is no violation.

In view of the submissions made and perusal of the bank statement attached to the appeal. The Competent Authority is of the view that the company has complied with the requirement of law and there is no violation. Hence the order of the AO is set aside.

1. Hence, in exercise of powers conferred under sub-section (7) of section 454 of the Companies Act, 2013, the details of penalty imposed on the appellant(s) shall be as follows:

03370303 null null 2. The notified appellant(s) shall rectify the default mentioned above and pay the penalty, as applicable, within 60 days of receipt of the order.

3. The notified appellants shall pay the penalty amount via ‘Appeal dashboard’ facility which can be accessed through the respective login IDs on the website of Ministry of Corporate Affairs and upload the copy of paid challan / SRN of e-filing (if applicable) on the ‘Appeal dashboard’ portal itself. It is also directed that the penalty so imposed upon the appellants shall be paid from their personal sources/income.

4. Accordingly, the appeal is disposed with a direction to the ROC Hyderabad to initiate action in accordance with the provisions of section 454(8) of the Companies Act, 2013 in case of non-payment of penalty within the prescribed time limit.

RichaRicha Kukreja, Office of Regional Director RD Hyderabad

Readers should treat this as a tax and compliance update, not as personal advice.

This article is for general information based on available source information. It should not be considered legal, tax, investment, or financial advice.