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2015 (2) TMI 1287 - Board - Companies LawIllelegal mobilizing funds from the public - carrying on the activities of a Collective Investment Scheme - Whether HBN is operating a CIS without obtaining registration from SEBI? - Whether HBN has failed to repay to the investors as per the approved detailed procedure? - Held that - Payments were made without the supervision of RTA though this was a condition stipulated by SEBI for making repayments. Further the statement that the Company had made cash payments is also a breach of such conditions. It has also been stated that HBN has deducted 25% of the amounts payable to the investors as a penalty. The Company cannot make any such deduction as the liability to repay the investors has arisen out of its illegal manner of fund mobilization from them. Therefore wherever such deductions were made HBN shall make full payments to its investors with returns that were assured. The auditor has also observed that HBN did not provide full chain of repayments and also that it has used the stationery of group companies for making payments. These statements therefore create a doubt as to whether the claim of partial repayments made by the Company is genuine. Noticee were the directors of HBN at the relevant period time and have resigned later-on. In view of the same these five notices are also liable and responsible along with Mr. Harmender Singh Sran Mr. Amandeep Singh Sran Ms. Manjeet Kaur Sran and Ms. Jasbeer Kaur for the violations committed by HBN in running CISs without obtaining registration from SEBI as required under law during the period when they were the directors. Company had all the opportunity to sell its properties since July 12 2013 (except for the period July 30 2014 to December 09 2014 when the restraint order of Hon ble Delhi High Court was operative) and make repayments to its investors. Also note that there was no restraint on recalling the loans and advances so as to make the repayments. No hesitation in holding that HBN failed to comply with the directions of SEBI read with the Repayment Procedure forwarded to HBN on January 06 2014. In exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act 1992 and Sections 11(1) 11B and 11(4) thereof and Regulation 65 of the SEBI (Collective Investment Schemes) Regulations 1999 hereby issue the following directions a. HBN Dairies Allied Limited PAN PAN AAACH7852C and its directors/ former directors namely Mr. Harmender Singh Sran PAN AIGPS2229B Mr. Satnam Singh Randhava Mr. Amandeep Singh Sran PAN AUVPS5370E Mr. Gajraj Singh Chauhan PAN ADXPC6922H Ms. Manjeet Kaur Sran DIN 00105878 Ms. Jasbeer Kaur DIN 00161623 Mr. Rakesh Kumar Tomar DIN 06824416 Mr. Sukhdev Singh Dhillon and Ms. Sukhjeet Kaur shall abstain from collecting any money from the investors or launch or carry out any Collective Investment Schemes including the scheme which have been identified as a Collective Investment Scheme in this Order. b. HBN Dairies Allied Limited and its directors/ former directors namely Mr. Harmender Singh Sran Mr. Satnam Singh Randhava Mr. Amandeep Singh Sran Mr. Gajraj Singh Chauhan Ms. Manjeet Kaur Sran Ms. Jasbeer Kaur Mr. Rakesh Kumar Tomar Mr. Sukhdev Singh Dhillon and Ms. Sukhjeet Kaur are restrained from accessing the securities market and are prohibited from buying selling or otherwise dealing in securities market for a period of four (4) years. c. HBN Dairies Allied Limited and its directors namely Mr. Harmender Singh Sran Mr. Amandeep Singh Sran Ms. Manjeet Kaur Sran and Ms. Jasbeer Kaur shall forthwith wind up the existing Collective Investment Schemes and refund the money collected by the said company under the schemes with returns which are due to its investors as per the terms of offer on or before March 09 2015 and thereafter within a period of fifteen days submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations 1999 including the trail of funds claimed to be refunded bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds. d. The Company shall provide proof including trail of funds bank statements to support its contention that it has refunded the monies to its investors. e. HBN Dairies Allied Limited and its directors namely Mr. Harmender Singh Sran Mr. Amandeep Singh Sran Ms. Manjeet Kaur Sran and Ms. Jasbeer Kaur shall not alienate or dispose off or sell any of the assets of HBN Dairies Allied Limited except for the purpose of making refunds to its investors as directed above. f. HBN Dairies Allied Limited and its directors/ former directors namely Mr. Harmender Singh Sran Mr. Satnam Singh Randhava Mr. Amandeep Singh Sran Mr. Gajraj Singh Chauhan Ms. Manjeet Kaur Sran Ms. Jasbeer Kaur Mr. Rakesh Kumar Tomar Mr. Sukhdev Singh Dhillon and Ms. Sukhjeet Kaur are also directed to provide a full inventory of all their assets and properties and details of all their bank accounts demat accounts and holdings of shares/securities if held in physical form. g. In the event of failure by HBN Dairies Allied Limited and its directors namely Mr. Harmender Singh Sran Mr. Amandeep Singh Sran Ms. Manjeet Kaur Sran and Ms. Jasbeer Kaur to comply with the above directions on or before March 09 2015 the following actions shall follow - HBN Dairies Allied Limited and its directors namely Mr. Harmender Singh Sran Mr. Amandeep Singh Sran Ms. Manjeet Kaur Sran and Ms. Jasbeer Kaur shall remain restrained from accessing the securities market and would further be prohibited from buying selling or otherwise dealing in securities even after the period of four (4) years of restraint imposed in Paragraph 20 (b) above till all the Collective Investment Schemes of HBN Dairies Allied Limited are wound up and all the monies mobilized through such schemes are refunded to its investors with returns which are due to them. - SEBI would make a reference to the State Government/ Local Police to register a civil/ criminal case against HBN Dairies Allied Limited its promoters directors and its managers/ persons in-charge of the business and its schemes for offences of fraud cheating criminal breach of trust and misappropriation of public funds; and - SEBI would make a reference to the Ministry of Corporate Affairs to initiate the process of winding up of the company HBN Dairies Allied Limited. - SEBI shall also initiate attachment and recovery proceedings under the SEBI Act and rules and regulations framed thereunder.
Issues Involved:
1. Whether HBN is operating a Collective Investment Scheme (CIS) without obtaining registration from SEBI. 2. Whether HBN has failed to repay the investors as per the approved detailed procedure. Issue-wise Detailed Analysis: 1. Whether HBN is operating a CIS without obtaining registration from SEBI: a. SEBI's Investigation and HBN's Response: SEBI received a complaint alleging that HBN was illegally mobilizing funds from the public. SEBI advised HBN to submit various documents to ascertain whether it was operating a CIS. Instead of complying, HBN applied for CIS registration and later withdrew the application, claiming it did not wish to initiate CIS activities. b. Examination of HBN's Schemes: SEBI examined HBN's schemes, which involved public participation in dairy farming through joint ventures. The schemes promised assured returns and included clauses for accidental death compensation. The plans were categorized into lump sum and installment payment schemes, with specific terms and conditions. c. Legal Framework: Section 11AA of the SEBI Act defines a CIS and sets conditions for such schemes. SEBI's investigation found that HBN's schemes met all four conditions of a CIS: pooling of investor contributions, expectation of profits, management of the scheme by HBN, and lack of day-to-day control by investors. d. Conclusion: SEBI concluded that HBN was operating a CIS without obtaining registration, in violation of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. The schemes were found to be investment schemes rather than genuine joint ventures. 2. Whether HBN has failed to repay the investors as per the approved detailed procedure: a. SEBI's Repayment Procedure: SEBI approved a detailed repayment procedure for HBN, which included appointing a Registrar and Share Transfer Agent (RTA), opening an escrow account, publishing advertisements, and appointing a concurrent auditor. HBN was required to deposit funds into the escrow account and repay investors in tranches. b. HBN's Compliance and Issues: HBN claimed to have repaid Rs. 242.17 crores to 2,36,307 investors. However, SEBI found that repayments were not made from the escrow account, and many investor complaints alleged non-payment or bounced cheques. HBN also failed to provide necessary documents and comply with the repayment procedure. c. Investor Complaints and SEBI's Findings: SEBI received over 1,200 complaints alleging non-payment and fraudulent practices by HBN. SEBI's investigation revealed that HBN continued to collect money from investors under a different name, HBN Foods Limited, and issued receipts accordingly. d. Conclusion: SEBI found that HBN failed to comply with the repayment procedure and continued to collect funds illegally. The company's claims of repayment were not substantiated, and investor complaints indicated ongoing fraudulent practices. Judgment and Directions: a. Prohibition on Fund Collection: HBN and its directors/former directors are prohibited from collecting any money from investors or launching any CIS. b. Market Restraint: HBN and its directors/former directors are restrained from accessing the securities market and prohibited from dealing in securities for four years. c. Winding Up and Repayment: HBN and its directors must wind up the existing CIS and refund the money collected with returns due to investors by March 09, 2015. They must submit a winding-up and repayment report to SEBI. d. Proof of Refunds: HBN must provide proof, including bank statements and receipts, to support its claim of refunds to investors. e. Asset Disposal Restriction: HBN and its directors are prohibited from disposing of any assets except for the purpose of making refunds to investors. f. Asset and Account Disclosure: HBN and its directors/former directors must provide a full inventory of their assets, properties, bank accounts, demat accounts, and securities holdings. g. Consequences of Non-Compliance: If HBN fails to comply with the above directions by March 09, 2015, further actions will follow, including extended market restraint, references to law enforcement and regulatory authorities, and initiation of attachment and recovery proceedings by SEBI. h. Additional Proceedings: SEBI may consider initiating further proceedings under the SEBI Act and CIS Regulations for the contraventions found in this order. i. Order Enforcement: The order comes into force immediately, and copies are forwarded to stock exchanges and depositories for necessary action.
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