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18 April 2023

Pioneer Legal

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Start-ups and small companies in India are always on the lookoutfor viable sources of capital. At the same time, small investorsare interested in diversifying their portfolios and betting onpromising new ventures. This has led to the mushrooming of manyplatforms offering companies an opportunity to connect withinvestors to crowdsource their funding goals.

Equity crowdfunding is not explicitly regulated under Indianlaw. In light of this, the platforms have taken a considered viewthat so far as they and the companies using them comply with theprovisions of the Companies Act, 2013 and the applicable SEBIregulations, their activities would be permissible. Afterall, mostsuch platforms merely act as technology intermediaries connectingthe investors and the companies with each other.

However, a couple of recent orders passed by the Registrar ofCompanies, NCT of Delhi and Haryana("ROC") in the matter of AnbronicaTechnologies Private Limited and Septanove Technologies PrivateLimited ("Companies") have put thismodel of raising funds through crowdfunding under the scanner.

Background:

ROC Observations:

Order:

Conclusion:

Footnotes

1.Section 42(10): "Subject to sub-section (11), if a companymakes an offer or accepts monies in contravention of this section,the company, its promoters and directors shall be liable for apenalty which may extend to the amount raised through privateplacement or two crore rupees, whichever is lower and the companyshall also refund all the monies with interest as specified insub-section (6) to subscribers within a period of third days of theorder imposing the penalty."

2.Section 446B: "Notwithstanding anything contained in thisAct, if penalty is payable for non-compliance of any of theprovisions of this Act by a One Person Company, small company,start-up company or Producer Company, or by any of its officer indefault, or any other person in respect of such company, then suchcompany, its officer in default or any other person, as the casemay be, shall be liable to a penalty which shall not be more thanone-half of the penalty specified in such provisions subject to amaximum of two lakh rupees in case of a company and one lakh rupeesin case of an officer who is in default or any other person, as thecase may be."

3. https://www.sebi.gov.in/sebi_data/attachdocs/1403005615257.pdf

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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