ROC imposes fines on crowd-funding platforms in Delhi, Haryana

New Delhi, Sept 28: In its ongoing action against crowdfunding platforms, the Registrar of Companies (ROC) Delhi & Haryana has penalised a Gurgaon-based company, SustVest, formerly known as Solargridx Ventures Pvt Ltd and three of its promoter-directors after the company used a Mumbai based crowdfunding platform, Tyke, to raise money from public investors.
The ROC additionally ordered the company to refund the money raised from all the 565 subscribers along with penal interest. As per the ROC’s order, the company now has a period of 60 days to appeal against the order before the Regional Director.
This is second such action by the RoC Delhi & Haryana; earlier in March this year, another Delhi based firm, Anbronica Technologies and two of its promoter-directors were penalised after the company for using the platform offered by Tyke Technologies to raise funds from public investors by inviting them to subscribe to compulsorily convertible debentures (CCDs) issued by Anbronica.
It should be noted that SustVest, a sustainable investment firm based in Gurgaon, raised $160,000 in 2022, from early stage investors like Paurush Sonkar of Stallions Capital, Balaji Vaidyanathan, and Sandeep Shetty. As the funding festival from public financial institutions and private investors dried up, startups are dealing with funding crunches. Online portal like Tyke are campaigning and reaching out to public to invest in Startup through instruments like CSOP whose returns are linked to the future valuation of the company. The RoC’s order states that such fund mobilisation is a violation of private placement rules under the Companies Act.
In some cases, tightening financial distress in many of the startups is followed by increasing incidents of accounting and financial frauds. This has led to closer scrutiny by Indian government agencies.
RoC’s probe has revealed that Solargridx Ventures in FY 22 adopted and approved the community stock option plan (CSOP Plan) for granting to eligible community members identified and approved by the Board, the right to receive payouts pursuant to the plan. ROC, through this order has noted that CSOPs are ‘derivatives’ as it derives value from the equity shares of the company and accordingly it comes under the classification of ‘securities’. Therefore the start-up has been penalised for violating private placement norms, for reaching out to more than 200 persons (through Tyke platform) and for non allotment of securities as per company law.
For private placement of any kind of securities, a company raising funds must restrict the offer to a maximum of 200 investors. If the number exceeds 200, it is required to file a prospectus with the Securities and Exchange Board of India (Sebi) and complete the formalities of a public offering. In the said case , the company received the amount of Rs 52 lakhs from 565 subscribers of CSOP.
Pertinently ROCs across the country have started enforcement actions against the defaulting companies and there is an increase in Search and Seizure operations too besides the regular stocktake of Investigations and Prosecutions at senior level in the ministry.