Penalty Order Set Aside as Digilogic Systems Limited Establishes Full Compliance with Section 42 of Companies Act 2013
Overview of the Matter
The Regional Director, Ministry of Corporate Affairs (Hyderabad), exercising appellate jurisdiction under Section 454 of the Companies Act, 2013, allowed an appeal preferred by Digilogic Systems Limited along with its directors. The appeal was directed against a penalty order dated 22-04-2026 passed by the Registrar of Companies (ROC), Hyderabad, under Section 42(10) of the Companies Act, 2013.
The Competent Authority, upon a thorough examination of the bank statements and submissions placed on record, concluded that the company had, in fact, fully complied with the statutory mandate regarding maintenance of a separate designated bank account for funds raised through private placement. Accordingly, the adjudicating officer's order imposing penalty was set aside in its entirety.
Case Details at a Glance
| Particulars | Details |
|---|---|
| Appeal Order ID | PO/ADJ/05-2026/HYD/000229 |
| Date of Appeal Order | 04-05-2026 |
| Forum | Office of Regional Director, MCA, Hyderabad |
| Appellants | Digilogic Systems Limited & its Directors |
| Respondent | ROC Hyderabad |
| Provision Invoked (Penalty) | Section 42(10), Companies Act, 2013 |
| Appeal Provision | Section 454, Companies Act, 2013 read with Rules 4 & 5 of Companies (Adjudication of Penalties) Rules, 2014 |
| SRN of Appeal | AC3142284 dated 23-04-2026 |
Background and Factual Matrix
About the Company and Its Directors
Digilogic Systems Limited (CIN: U62099TG2011PLC077933) is a company registered in Telangana. The appeal was filed jointly by the company and three of its directors:
- Madhusudhan Varma Jetty (DIN: 02247769)
- Radhika Varma Jetty (DIN: 03370284)
- Jetty Shashank Varma (DIN: 03370303)
The Private Placement and Bank Account Requirement
Under Section 42 of the Companies Act, 2013, any company making an offer or invitation for subscription of securities on a private placement basis is mandatorily required to keep the application money received in a separate designated bank account. The funds must remain in that account without any utilization until the allotment of securities is completed. Only after allotment can those funds be transferred for legitimate business purposes.
In the present case, the company had:
- Passed a formal board resolution identifying and designating a specific bank account for receiving private placement application money.
- Maintained two separate bank accounts — one used for routine day-to-day operational transactions and a second account that had been opened earlier for statutory/regulatory compliance purposes.
- Deposited all application money received from investors exclusively into the designated statutory account.
- Ensured that no debit transactions took place from the designated account during the period between receipt of funds and completion of share allotment.
- Transferred the funds to the operational account only after allotment was completed, utilising the same for the company's business activities.
This sequence of events, supported by bank statements, formed the foundation of the company's defence before the appellate authority.