Introduction – Background and Summary of the Case

The Registrar of Companies (ROC), Delhi, has recently passed an adjudication order dated 14th October 2025 against Hexafun Private Limited and its directors for violations of Section 42 (Private Placement) of the Companies Act, 2013.

The adjudication was initiated based on a suo motu application filed by the company under Form GNL-1 (SRN N30478432), admitting certain lapses during the issue of 311 equity shares on a private placement basis.

Upon examination, the ROC observed procedural non-compliances such as:

1. circulation of the private placement offer letter (Form PAS-4) before filing MGT-14,
2. offer letter not being specifically addressed to investors,
3. non-maintenance of a separate bank account for subscription money, and
4. utilisation of funds before filing return of allotment (Form PAS-3).

While the company contended that the defaults were unintentional and without mala fide intent, the ROC held that procedural compliance under Section 42 is mandatory and cannot be overlooked. Consequently, penalties were levied on the company and its directors under Section 42(10) read with Section 446B of the Act, considering its status as a Startup/Small Company.

This order serves as a compliance lesson for startups and professionals, reinforcing the importance of adhering to the private placement procedure laid down under the Companies Act, 2013.

Legal Framework

The present case revolves around non-compliance of the provisions under Section 42 of the Companies Act, 2013 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, which regulate private placement of securities by companies. The penalty has been imposed under Section 42(10), read with Section 446B and Section 454 of the Act.

Section 42 – Private Placement

Section 42 governs the procedure for private placement of securities by a company to a select group of investors, not exceeding 200 persons in a financial year.
Key compliance requirements include:

1. Prior Approval:

A company must obtain the approval of its shareholders by passing a Special Resolution under Section 42(3) before making any private placement offer.

2. Filing of MGT-14:

The resolution must be filed with the ROC before circulating the private placement offer letter (Form PAS-4).

3. Offer Letter:

The PAS-4 must be specifically addressed to identified persons and not circulated publicly.

4. Application Money:

The subscription money must be received through banking channels and deposited in a separate bank account in a scheduled bank.

5. Allotment & Return Filing:

Funds raised cannot be utilised until allotment is made and PAS-3 (Return of Allotment) is filed with the Registrar.

Failure to adhere to these provisions results in a contravention of Section 42.

Section 42(10) – Penalty Clause

“If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through private placement or ₹2 crore, whichever is lower.”

Hence, both the company and its officers in default are jointly liable for monetary penalties, in addition to being directed to refund monies, if required.

 Section 446B – Lesser Penalties for Small Companies and Startups

Section 446B provides relaxation in penalties for Small Companies, One Person Companies (OPCs), and Startups.

In such cases, the amount of penalty shall not exceed one-half of the standard penalty specified under the Act, subject to prescribed limits.

This provision was invoked by ROC Delhi in the case of Hexafun Private Limited, acknowledging its classification as a Startup/Small Company at the time of default.

Facts of the Case

Company Background

1. Name of Company: Hexafun Private Limited
2. CIN: U47912DL2023PTC413622
3. Registered Office: 14/12, Geeta Colony, East Delhi – 110031
4. Incorporation Year: 2023
5. Business Nature: Startup Company (as per declaration under Section 2(85) read with Section 446B)

 Directors Involved

Name of Director	DIN	Remarks
Mr. Harshit Singhal	10147661	Director at time of default
Ms. Aakansha Singhal	10147662	Director at time of default
Ms. Manali Shailesh Sanghvi	10560362	Appointed later (21.03.2024) – not involved in default

Chronology of Events

Date	Event	Relevant Form/Section
04.12.2023	Company passed Special Resolution in EGM for issuance of 311 equity shares on a private placement basis.	Section 42(3)
04.12.2023	Private Placement Offer Letter (Form PAS-4) issued to investors before filing MGT-14.	Rule 14(8) violation
11.12.2023	Subscription money received from investors.	Section 42(6)
12.12.2023	Board Resolution passed for allotment of 311 shares.	Section 42(4)
06.01.2024	Form MGT-14 filed with ROC (delayed filing).	SRN AA6552693
08.01.2024	Form PAS-3 (Return of Allotment) filed belatedly.	SRN AA6553792
28.04.2025	Company filed suo motu application through Form GNL-1 for adjudication of penalty under Section 42.	SRN N30478432
18.09.2025	ROC issued e-Show Cause Notice (e-SCN) under Section 42(10).	Adjudication process initiated
20.09.2025	Company submitted reply, accepting default and seeking leniency.	–
14.10.2025	ROC Delhi passed final order imposing penalty under Section 42(10) r/w Section 446B.	Order ID PO/ADJ/10-2025/DL/00771

 Company’s Submission

The company, in its written reply, accepted the default and contended that:

1. The lapses were unintentional and inadvertent;
2. No mala fide intent or investor loss was involved;
3. The company being a Startup/Small Company, requested application of Section 446B for reduced penalty; and
4. Director Ms. Manali Sanghvi should be exempted as she was appointed after the default period.

The ROC, after considering the submission and supporting documents, proceeded with adjudication under Section 454 of the Companies Act, 2013.

Nature of Non-Compliance

The Registrar of Companies (ROC), Delhi, identified multiple instances of non-compliance by Hexafun Private Limited and its officers concerning the provisions of Section 42 of the Companies Act, 2013 and Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

These non-compliances were procedural in nature but considered significant under corporate law due to the mandatory nature of Section 42 requirements.

 Circulation of PAS-4 before Filing MGT-14

Provision Violated: Section 42(3) read with Rule 14(8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

As per the law, a company must issue the private placement offer letter (Form PAS-4) only after filing the relevant Board or Shareholders’ Resolution (Form MGT-14) with the Registrar of Companies.

In the present case:

• The company circulated PAS-4 on 04.12.2023, the same day the Special Resolution was passed.
• However, the resolution was filed in MGT-14 only on 06.01.2024.

This sequence of events clearly shows that the company issued the offer letter before filing MGT-14, thereby violating the prescribed procedure.

 Offer Letter Not Specifically Addressed to Investors

Provision Violated: Rule 14(3) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Under this rule, every private placement offer must be made through a specific offer letter (Form PAS-4) addressed individually to the person to whom the offer is made. The company is prohibited from issuing a generic or blanket offer.

In the present case:

• The PAS-4 issued by the company was not addressed individually to the identified investors.
• ROC observed that this generic circulation contravened the private placement norms and lacked the specificity mandated under Rule 14(3).

Non-Maintenance of Separate Bank Account

Provision Violated: Section 42(6) of the Companies Act, 2013.

The section mandates that all monies received under private placement shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than:

1. Adjustment against allotment of securities, or
2. Refund if the company fails to allot within 60 days.

In the present case:

• The company failed to open a dedicated bank account for receiving the subscription money.
• This constituted a violation of Section 42(6), as the subscription funds were not segregated from other business transactions.

 Utilisation of Funds Before Filing PAS-3

Provision Violated: Section 42(4) of the Companies Act, 2013.

This provision explicitly restricts utilisation of the money raised through private placement until the Return of Allotment (Form PAS-3) has been filed with the Registrar.

In the present case:

• The company utilised the funds before filing PAS-3, which was eventually submitted on 08.01.2024.
• The ROC treated this as a procedural violation and part of cumulative non-compliance under Section 42.

Summary of Violations

Sl. No.	Nature of Default	Legal Provision Violated	Observations by ROC
1	PAS-4 circulated before MGT-14 filing	Section 42(3) r/w Rule 14(8)	Offer issued prematurely
2	PAS-4 not addressed to specific investors	Rule 14(3)	Generic offer letter
3	No separate bank account for subscription money	Section 42(6)	Non-segregation of funds
4	Utilisation of funds before PAS-3 filing	Section 42(4)	Premature fund utilisation

ROC’s View

The ROC concluded that all the above defaults were technical yet substantive violations of Section 42, as private placement is a highly regulated process under the Companies Act.
Even if the company’s intention was bona fide, procedural non-compliance attracts penalty under Section 42(10) due to the mandatory wording of the law (“shall be liable”).

However, considering that Hexafun Private Limited qualified as a Startup and Small Company, leniency under Section 446B was extended while quantifying the penalty.

 ROC Findings and Observations

After reviewing the suo motu application, replies submitted by the company, and supporting documents, the Registrar of Companies (ROC), Delhi, made the following key observations during adjudication under Section 454 of the Companies Act, 2013:

  Admission of Default by the Company

The company accepted that the procedural lapses occurred inadvertently and without mala fide intent.

The ROC acknowledged the cooperative approach and suo motu adjudication filing through Form GNL-1.

Improper Issuance of PAS-4

ROC reiterated that MGT-14 must be filed prior to issuing PAS-4, and failure to follow this statutory timeline constitutes a direct breach of Section 42(3).
The PAS-4 examined by ROC was also found to be non-specific and not addressed to particular investors — violating Rule 14(3).

 Violation of Fund Management Rules

The company received subscription money without opening a separate bank account and utilised the amount before filing PAS-3, clearly contravening Sections 42(6) and 42(4).

Limited Liability for One Director

ROC accepted the plea that Ms. Manali Shailesh Sanghvi — appointed on 21.03.2024 — was not involved in the 2023–24 default period.

Hence, no penalty was imposed on her.

 Classification as Small Company/Startup

Considering that Hexafun Private Limited met the Small Company criteria under Section 2(85), ROC granted reduced penalty under Section 446B, noting:

Lower penalties apply when default is committed by a Startup/Small Company and is first in nature.

Duty to Report in Board Report

The ROC mandated that the penalty imposed must be disclosed in the company’s forthcoming Board Report as part of corporate governance compliance.

Future Action Not Ruled Out

The order clarified that only the identified non-compliances were adjudicated, and other violations, if noticed later, may be taken up separately under applicable provisions.

 ROC’s Final Position

The adjudicating officer concluded that:

“Procedural non-compliance in private placement cannot be ignored simply because the company is a Startup or the violation was unintentional.”

Thus, liability under Section 42(10) becomes automatic once contravention is established.

 Penalty Imposed — Detailed Analysis

The ROC, Delhi, after adjudication under Section 454 and applying the penal provisions of Section 42(10) read with Section 446B, quantified and levied monetary penalties on the company and the officers in default. Below is a granular breakdown of the penalties, statutory basis, reasoning for reduction, payment methodology, appeal remedies, and practical implications for directors and startups.

Statutory Basis for Penalty

1. Primary provision: Section 42(10) — where a company makes an offer or accepts monies in contravention of Section 42, the company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through private placement or ₹2 crore, whichever is lower.
2. Mitigation provision: Section 446B — allows reduction of penalty (generally up to one-half of the prescribed amount) where the defaulting entity qualifies as a Small Company / Startup / OPC.
3. Adjudication authority / procedure: Companies (Adjudication of Penalties) Rules, 2014 and Section 454 (adjudication) were followed by ROC in issuing the final order.

Penalty Table (As Ordered by ROC Delhi)

Sr. No.	Person / Entity	Designation / Role	Penalty Levied (₹)	Maximum Statutory Limit
1	Hexafun Private Limited	Company (Defaulting Entity)	2,00,000	Up to amount raised or ₹2,00,00,000
2	Mr. Harshit Singhal	Director / Officer-in-default	1,00,000	Up to amount raised or ₹2,00,00,000
3	Ms. Aakansha Singhal	Director / Officer-in-default	1,00,000	Up to amount raised or ₹2,00,00,000
4	Ms. Manali S. Sanghvi	Director (Appointed 21.03.2024)	Nil	Up to amount raised or ₹2,00,00,000

Observations: The ROC opted for a substantially lower quantum than the maximum permissible limits, applying Section 446B relief given startup/small company status and the admitted inadvertent nature of defaults.

 ROC’s Reasoning for Quantum

1. Admission & Cooperation:

The company filed a suo motu application (Form GNL-1) and admitted defaults — a factor favouring mitigation.

2. Inadvertence / No Mala Fide:

ROC recorded that defaults were unintentional, with no evidence of fraudulent intent or investor prejudice.

3. Small Company / Startup Relief (Section 446B):

Given Hexafun’s classification under Section 2(85) at the time, ROC exercised discretion to reduce penalties—consistent with legislative intent to protect nascent ventures from disproportionate financial burden.

4. Proportionality & Precedent Approach:

The adjudicating officer followed a proportionality approach — penalising but not crippling the company — and absolved a director (Ms. Manali Sanghvi) who joined post-default.

5. Disclosure & Remediation:

ROC mandated disclosure in the Board Report and required rectification; these remedial steps further supported a moderated penalty.

Payment Procedure & Timeline

1. Mode of Payment: Penalty to be paid via MCA e-Adjudication portal using the respective login IDs. Payment must be made from the personal sources / income of the officers-in-default (where applicable).
2. Time Limit: 90 days from the date of receipt of the adjudication order to pay the penalty and rectify defaults.
3. Proof of Payment: Upload paid challan / SRN of e-filing on the e-Adjudication portal as evidence.
4. Consequences of Non-Payment: Failure to pay within prescribed time may invoke penal consequences under Section 454(8) (including additional monetary penalties and potential prosecution, depending on continued default).

 Appeal Remedy

1. Forum: Appeal to the Regional Director (RD), Noida.
2. Form / Mode: File Form ADJ with grounds of appeal and attach certified copy of the adjudication order.
3. Time Limit: 60 days from receipt of adjudication order (per Section 454(5) & (6)).
4. Grounds Typically Available: Excessive quantum, misapplication of Section 446B, factual errors, misattribution of officer-in-default status, or procedural irregularities in adjudication.

Implication for Directors / Officers

1. Personal Liability Exposure: Directors named as officers-in-default remain personally liable for the penalty unless successfully appealed or otherwise relieved. ROC emphasised payment from personal funds for officers-in-default.
2. Record & Reputation: The penalty and defaults must be disclosed in the Board Report, which may impact investor perception and future fund-raising.
3. Role Clarity: Directors must ensure delegated compliance (Company Secretary / CFO) are executing statutory filings timely; absence of such checks increases personal exposure.
4. Director Onboarding Caution: ROC’s exemption of Ms. Manali Sanghvi reaffirms that directors appointed after the period of default may avoid liability — but due diligence on appointment dates and default timelines is critical.

 Practical Notes for Startups & Small Companies

1. Mitigation Opportunity: Voluntary disclosure (suo motu Form GNL-1) and genuine remediation can materially reduce penalty quantum under Section 446B.
2. Proportional Enforcement: Regulators may adopt a balanced approach for startups, but statutory obligations remain non-negotiable — procedural lapses can invite action despite benign intent.
3. Internal Controls: Maintain checklists to ensure MGT-14 → PAS-4 → PAS-3 sequencing, bank segregation, and documentary proof of communication to investors.

Possible Additional Consequences (Beyond Monetary Penalty)

1. Requirement to Refund / Interest: While Section 42(10) contemplates refund of monies (with interest) where appropriate, the ROC order primarily focused on penalty; companies should be prepared to refund if statutory conditions so require or if investor grievances arise.
2. Regulatory Scrutiny: Adjudication orders often invite closer scrutiny of subsequent filings; compliance teams must ensure future correctness to avoid cascading actions.
3. Civil / Investor Claims: Even if MCA imposes a mitigated penalty, investors dissatisfied may pursue contractual or civil remedies; companies must maintain transparent records to defend such claims.

Takeaway Summary (Penalty Focused)

1. ROC levied ₹4,00,000 total (₹2,00,000 on company; ₹1,00,000 each on two directors) — a moderated quantum demonstrating both enforcement and leniency principles.
2. Section 446B relief is available but not automatic — requires demonstrated small company/startup status and cooperative conduct.
3. Timely self-reporting, remedial filings, and transparent disclosures materially influence penalty quantum and regulatory outcomes.

Private Placement Compliance Checklist (Quick Reference)

Stage	Form / Action	Key Condition
Approval	Pass Special Resolution	Prior to private placement
Filing	MGT-14 with ROC	Must be filed before PAS-4 issue
Issue	PAS-4	Personalized to each investor
Receipt	Deposit funds in separate bank account	Only scheduled bank allowed
Allotment	Within 60 days of receipt of funds	As per Section 42(6)
Post-Allotment Filing	PAS-3 with ROC	Only after this can funds be utilised
Disclosure	Board Report	Mandatory compliance reporting

Conclusion

The adjudication order issued by ROC Delhi against Hexafun Private Limited reinforces the regulatory stance that private placement is a strictly governed procedure under the Companies Act, 2013. Even if a company is newly incorporated or operating as a Startup/Small Company, procedural compliance cannot be compromised.

In this case, though the company admitted the default and acted without mala fide intent, the ROC still imposed penalties under Section 42(10) as statutory liability arises automatically upon contravention. The relief granted under Section 446B demonstrates that regulators remain supportive of emerging ventures — but only to a reasonable extent.

Companies, directors, and compliance professionals must ensure that filings such as MGT-14 → PAS-4 → PAS-3 are executed in the correct sequence, that subscription funds remain segregated, and that offer letters are investor-specific. Any deviation, even minor, may result in adjudication proceedings, monetary penalties, reputational impact, and increased regulatory scrutiny going forward.

Thus, the key takeaway is clear:

Startups may get lenient penalties, but no exemption from compliance responsibility.

A proactive compliance system with timely statutory filings is essential to avoid unnecessary penalties and safeguard corporate governance during fundraising activities.

Reference & Order Details

Particular	Details
Authority	Registrar of Companies (ROC), Delhi
Law Invoked	Section 42(3), 42(4), 42(6), 42(10) of the Companies Act, 2013 Rule 14 of Companies (Prospectus & Allotment of Securities) Rules, 2014 Section 446B – Lesser penalties for Small Company/Startup Section 454 – Adjudication of penalties
Company Name	Hexafun Private Limited
CIN	U47912DL2023PTC413622
Directors Involved	Mr. Harshit Singhal (DIN: 10147661) Ms. Aakansha Singhal (DIN: 10147662) Ms. Manali Shailesh Sanghvi (DIN: 10560362)
Penalty Imposed	₹2,00,000 on Company ₹1,00,000 on each Director (Harshit & Aakansha) No penalty on Manali (appointed post-default)
Appeal Remedy	Regional Director (North Region), Noida — Form ADJ
Time Limit for Appeal	Within 60 days of receipt of order
Order ID	PO/ADJ/10-2025/DL/00771
Date of Order	14 October 2025
Payment Deadline	Within 90 days of receipt of adjudication order
Source	Order uploaded on MCA e-Adjudication portal

Written by Mahboob Gaddi and Farman Ahmad | Founders, Lawgical Sea

Download the order copy:

https://lawgicalsearch.com/wp-content/uploads/2025/10/Roc-order.pdf