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Tyke Case And It's Adjudication

Tyke Case:

In the, Matter of Anbronica Technologies Private Limited. Adjudication Order dated 1st March 2023, ROC (Delhi)

It was seen that Anbronica Technologies Private Ltd. (herein referred as the subject company) had issued its Compulsorily Convertible Debentures (herein referred as CCDs henceforth) using the website tyke it was noticed that the company raised the investment under the brand name DeciWood

It was raised as an issue on prima facie that is on surface as a violation to the subsection (7) of section 42

According to Sec 42[7] of Companies Act, 2013 No company issuing securities under this section shall release any public advertisements or utilize any media, marketing or distribution channels or agents to inform the public at large about such an issue."

But, in this case, Tyke's website has clearly been used by a company as a media/marketing/distribution channel or agent to inform the public about issue of securities.

As per the reply of Subject Company Following are the key points noted from it:

  • Tyke platform is engaged in the business of technology-based community platform under the brand name Tyke. This platform works with two ends being:
    • Startup companies looking for funding
    • Individuals or others as the potential investors as a part of the startup ecosystem
  • Tyke organizes pitching lessons targeted to promote startup investments. It also has other services including:
    • Setting up of an escrow account
    • KYC verification of proposed investor
    • Assistance in compliance procedures of private placement as per Companies Act 2013
  • Tyke is neither acting as an intermediary nor inviting the public to subscribe to the securities and is merely collecting investment interests from its community of members. It is not acting as the agent of the company to advertise or inform it to the public at large.
  • Tyke arranged an "Ask me anything" session for the Subject Company in which the members of Tyke platform showed their interest in investing.
  • The Subject Company then identified 28 members of Tyke Platform willing to invest in the Subject Company, after which a resolution by the board to issue 125,000 CCDs was passed having a face value of ₹10.
  • The Subject Company then appointed Tyke Company to facilitate the information and collect the subscription amount in their escrow account.
  • The Subject Company has complied with the procedures of the Companies Act and will be given an oral representation in the matter.

The reply of the company was not satisfactory as the company did not provide any response for observations mentioned, namely:

  1. No response was provided to the fact that while the campaign for raising fund closed on 25th July 2021, the company had already got a Board approval of identified persons on 10th July, 2021.
  2. No response was provided to the fact that the CCDs was oversubscribed, as was displayed on the website of Tyke.
  3. Whether engaging the services of Tyke amounted to violation of sub-section (7) of Section 42 of the Act.
  4. It was also not clear as to whether Tyke was collecting any commission or service fees.

It was Adjudicated that:
No companies issuing securities under section 42(7) shall release any public advertisement or utilize any media, marketing or any distribution channels or agents to inform public at large about such issue of securities

However, the provisions of Section 42 of the Act do not allow the undersigned to impose any penalty on Tyke Technologies Private Limited, which has clearly facilitated the subject company in the act of commission of default of sub-section (7) of Section 42.

The nature of violation on the part of subject company is quite serious and that it fulfils the requirements of a small company hence it is to be governed by section 446B of the companies act 2013 As per sub-section (10) of Section 42 of the Act, the maximum penalty in this case cannot exceed Rs 12.50 lakhs (which was raised by the subject company). However, per provisions of Section 446B, the amount of penalty in case of a company and officer in default shall not exceed Rs 2 lakhs and Rs 1 lakhs respectively.

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