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2016 (8) TMI 1384 - Board - Companies LawRepayment proposal submitted by HBN - Previous default by company for non repayment - repayment proposal that HBN has now proposed is a structured repayment mechanism which involves setting up an independently managed ring fenced Special Purpose Entity ( SPE ) in the nature of a trustee company as a corporate registered under the Indian Trust Act, 1882 - Held that - SEBI has been assigned the statutory duty to protect the interests of investors in securities and regulating the market by such measures as it deems fit. It is the duty of SEBI to ensure that the securities market functions in a fair manner. HBN failed to take any concrete steps for all these years to repay the investors money despite its own earlier repayment proposal in 2013. The past malafide conduct of the company was clearly noted. Almost 20 lacs investors of HBN are desperately waiting to get their money back. The company s intentions have been malafide right from the very beginning till now. This is illustrated by HBN s raising of funds in a blatantly illegal manner, flouting the directions of SEBI in respect of repayments to be made only through the escrow account, repaying by cash to a huge extent of ₹ 192.96 crores, the source of which remains unexplained even after 2 years etc.. This new proposal is nothing but a ploy to drag on the matter without any reasonable end in sight. Order - In view of the foregoing, in exercise of the powers conferred upon me in terms of Section 19 read with Sections 11 and 11B of the SEBI Act, 1992 hereby reject the repayment proposal submitted by HBN.
Issues Involved:
1. Illegal mobilization of funds by HBN Dairies & Allied Limited. 2. SEBI's interim order and directives to HBN. 3. HBN's repayment proposal and compliance issues. 4. SEBI's observations on HBN's repayment actions. 5. SEBI's final order and directions. 6. HBN's appeal and resubmission of repayment proposal. 7. SEBI's rejection of the new repayment proposal. Detailed Analysis: 1. Illegal Mobilization of Funds by HBN Dairies & Allied Limited: The case began with a complaint forwarded by the Reserve Bank of India, alleging that HBN Dairies & Allied Limited was illegally mobilizing funds from the public. SEBI's preliminary inquiry revealed that HBN was inviting applications for the purchase and upbringing of cattle under various plans, which were categorized as lump sum and installment plans. 2. SEBI's Interim Order and Directives to HBN: In response to these findings, SEBI issued an Interim Order on July 12, 2013, directing HBN and its directors to cease soliciting or collecting further investments, submit a proposal for winding up its schemes and making payments to investors, and restrict the disposal of any properties except for the purpose of repaying investors. 3. HBN's Repayment Proposal and Compliance Issues: HBN submitted a repayment proposal to SEBI on August 8, 2013, proposing to repay ?1,136.78 crores in a phased manner. SEBI provided a detailed repayment procedure, which included appointing a SEBI-registered Registrar and Share Transfer Agent (RTA), opening an escrow account, and publishing advertisements about the repayment process. However, SEBI's review revealed significant deviations from the approved procedure, including repayments not being made from the escrow account and without the involvement of the RTA. 4. SEBI's Observations on HBN's Repayment Actions: SEBI observed that HBN's repayments were not being made from the escrow account and that the company had failed to transfer the entire cash/deposits to the escrow account. Additionally, SEBI found that HBN was issuing cheques that were returned due to insufficient funds, indicating that HBN was giving a false picture of having repaid its customers. SEBI also received numerous complaints from investors alleging non-payment of matured amounts and issuance of post-dated cheques that bounced. 5. SEBI's Final Order and Directions: In its final order dated February 12, 2015, SEBI concluded that HBN's schemes were in the nature of collective investment schemes as per section 11AA of the SEBI Act, 1992, and that HBN had violated section 12(1B) of the SEBI Act, 1992, and regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999. SEBI directed HBN to wind up its existing collective investment schemes and refund the money collected under the schemes by March 9, 2015, and submit a winding-up and repayment report to SEBI within 15 days thereafter. 6. HBN's Appeal and Resubmission of Repayment Proposal: HBN filed an appeal before the Securities Appellate Tribunal (SAT) against SEBI's final order, and the matter remained sub-judice. On January 13, 2016, HBN submitted another repayment proposal to SEBI, which SEBI objected to based on HBN's previous non-compliance. SAT granted HBN the liberty to send a proposal to SEBI, which SEBI was to consider on its merits. 7. SEBI's Rejection of the New Repayment Proposal: HBN re-submitted a repayment proposal on May 19, 2016, involving the creation of a Special Purpose Entity (SPE) to manage repayments. SEBI found several issues with the new proposal, including the lack of firm timelines for property sales, the unnecessary complexity of setting up an SPE, and the potential for further delays in repayments. SEBI noted that HBN had failed to sell properties since 2013 and had not provided a plausible explanation for the same. SEBI concluded that the new proposal was a deliberate ploy to delay repayments and rejected it. Order: In conclusion, SEBI rejected HBN's repayment proposal, citing the company's malafide intentions and failure to take concrete steps to repay investors over the years. The order emphasized SEBI's duty to protect investors and ensure the fair functioning of the securities market.
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