Startups raising funds from public at large held illegal

The subject company had issued its Compulsorily Convertible Debentures (herein after referred as “CCDs”) using the website https://www.tykeinvest.com  (herein after referred as “Tyke”). From the website of Tyke, it was noted that the subject company collected the investment under brand name “DECIWOOD” and the campaign for raising fund closed on 25th July 2021. Other details as enlisted on the website of Tyke are as follows: 

ROC held that the provision pursuant to sub-section (7) of Section 42 of the Act, 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. As mentioned in para (IX)(d) above, with the use of Tyke platform for raising securities, the subject company has violated sub-section (7) of section 42 of the Act. The penal provision for the same is provided at sub-section (10) of Section 42 of the Act. 

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.

So, interstingly, ROC did not impose any penalty on tyke technology per se but the company who used the platform to raise the money
The RoC has penalised a Delhi based company Anbronica Technologies and two of its promoter directors after the company used the platform offered by Tyke Technologies to raise money by reaching out to investors who could be interested to subscribe to compulsorily convertible debentures (CCDs) issued by Anbronica.

Way Forward

Online platforms raising money from public for startups are acting like a stock exchange per se where a company lists itself with the platform, offer it securities and the platform through advertisements & media engagement brings public to its platform to invest in the said listed companies.

In the current case only the company who raised money has been penalised, but not the platform per se.
In the coming days, we might see such platforms come under the regulation of SEBI as they are nothing but stock exchanges for the companies listed on their platform.