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2015 (10) TMI 2847 - Board - SEBIFund mobilising activity from the public - offer and issuing Redeemable Preference Shares (RPS) - Company and its directors are restrained from carrying on with their fund mobilizing activity - violation of the provisions of sections 56, 60 read with section 2(36), 73 of the Companies Act, 1956 r.w.s. 465 of the Companies Act, 2013 and the SEBI (DIP Guidelines since rescinded) read with SEBI (ICDR Regulations) - HELD THAT - Company has made multiple allotments on a monthly basis during the financial years 2009-2010, 2010-2011 and 2011-2012. It can be seen that on every allotment (excluding the solitary allotment made on 30.04.2009), the number of persons to whom RPS were allotted always exceeded 49. The Company is not an NBFC or a Public Financial Institution within the meaning of Section 4A of the Companies Act, 1956 to be covered under the second proviso to section 67(3) of the Companies Act, 1956. Therefore, considering the number of persons from whom monies were mobilized by the Company by issuing RPSs, which is definitely more than 49 persons, it can be concluded that the Company had made a public issue of RPS in terms of the first proviso to section 67(3) of the Companies Act, 1956. Further, the manner of making such offer and issuance of RPS adopted by the Company (i.e., series of allotments made consistently every month) can be definitely held to be a ploy employed by the Company to circumvent the provisions of the first proviso to section 67(3) of the Companies Act, 1956. In view of the above observations, by virtue of section 55A(a) and (b), the SEBI has jurisdiction and would govern the issue of RPS as the same was made to more than 49 persons. As alleged in the SEBI Order, the Company was mandated to comply with the provisions of sections 56, 60 and 73 of the Companies Act, 1956 read with Companies Act, 2013 and the DIP Guidelines read with the ICDR Regulations, in respect of its offer and issue of RPS. As Company did not comply with the public issue norms mandated under sections 56, 60 and 73 of the Companies Act, 1956 read with the Companies Act, 2013 and the DIP Guidelines read with the ICDR Regulations in respect of its offer and issue of RPS made during the financial years 2009-2010, 2010-2011 and 2011-2012. The Company is therefore liable for appropriate regulatory action. 6 persons (present and past directors) are liable for the violations committed by the Company as found in this Order and also liable for making refunds under section 73(2) of the Companies Act, 1956 read with section 27 of the SEBI Act and the DIP Guidelines. Thus it becomes necessary to issue directions for refund against the Company and its directors and other directions in the interest of investors and the securities market. Order - Company jointly and severally, shall forthwith refund the money collected by the Company through the issuance of Redeemable Preference Shares (which have been found to be issued in contravention of the public issue norms stipulated under the Companies Act, 1956 and the DIP Guidelines), to the investors including the money collected from investors, till date, pending allotment of securities, if any, with an interest of 15% per annum compounded at half yearly intervals, from the date when the repayments became due (in terms of Section 73(2) of the Companies Act, 1956) to the investors till the date of actual payment. The repayments to investors shall be effected only in cash through Bank Demand Draft or Pay Order.The Company/its present directors are permitted to sell the assets of the Company only for the sole purpose of making the refunds as directed above and deposit the proceeds in an Escrow Account opened with a nationalised Bank. The Company and its promoters and directors shall issue public notice, in all editions of two National Dailies (one English and one Hindi) and in one local daily (in Bengali) with wide circulation, detailing the modalities for refund, including details of contact persons including names, addresses and contact details, within fifteen days of this Order coming into effect. After completing the aforesaid repayments, the Company shall file a certificate of such completion with SEBI, within a period of three months from the date of this Order, from two independent peer reviewed Chartered Accountants who are in the panel of any public authority or public institution. The Company, its directors and former directors 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.The Company is directed not to, directly or indirectly, access the capital market by issuing prospectus, offer document or advertisement soliciting money from the public and are further restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, from the date of this Order till the expiry of 4 years from the date of completion of refunds to investors as directed above.) The directors including former directors restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, with immediate effect.
Issues Involved:
1. Alleged fund mobilizing activity by the Company through the issuance of Redeemable Preference Shares (RPS). 2. Violation of public issue norms under the Companies Act, 1956 and SEBI regulations. 3. Non-compliance with SEBI (Disclosure and Investor Protection) Guidelines, 2000 and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. 4. Liability of the Company and its directors for the violations and repayment to investors. 5. Directions for refund and restraint measures imposed by SEBI. Issue-wise Detailed Analysis: 1. Alleged Fund Mobilizing Activity: SEBI observed that the Company was engaged in fund mobilizing activity from the public by issuing RPS, allegedly violating sections 56, 60 read with section 2(36), 73 of the Companies Act, 1956, and SEBI guidelines. The interim order restrained the Company and its directors from further fund mobilization and accessing the securities market. 2. Violation of Public Issue Norms: The Company issued RPS to more than 49 persons, making it a public issue under section 67(3) of the Companies Act, 1956. The Company failed to comply with the mandatory provisions of sections 56, 60, and 73 of the Companies Act, 1956, which require issuing a prospectus, registering it with the RoC, and listing the securities on a recognized stock exchange. The Supreme Court's Sahara case was referenced to emphasize that any offer to more than 49 persons constitutes a public issue. 3. Non-compliance with SEBI Guidelines and Regulations: The Company did not follow the SEBI (Disclosure and Investor Protection) Guidelines, 2000, and SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. Specific clauses of the DIP Guidelines, such as filing offer documents, application for listing, issuing securities in dematerialized form, and others, were violated. The Company did not deny these allegations and failed to provide any material to suggest compliance. 4. Liability of the Company and its Directors: The liability for non-compliance with sections 56, 60, and 73 of the Companies Act, 1956, extends to the Company and its directors. The liability to repay investors is a continuing obligation, and directors during the period of violation are responsible, irrespective of their current status. The directors listed in the interim order were found liable for the violations and responsible for making refunds to investors. 5. Directions for Refund and Restraint Measures: SEBI directed the Company and its directors to refund the money collected through RPS with 15% interest per annum. The repayments must be made in cash through Bank Demand Draft or Pay Order. The Company was permitted to sell its assets solely for making refunds and required to deposit the proceeds in an Escrow Account. Public notices detailing refund modalities were mandated. The Company and its directors were restrained from accessing the capital market and dealing in securities for four years post-refund completion. Non-compliance would lead to recovery actions, adjudication proceedings, and potential criminal cases. Conclusion: The Company and its directors were found to have violated public issue norms and SEBI regulations, resulting in directives for refunds and market restraints. The order emphasized the continuing liability of directors for investor repayments and outlined stringent measures to ensure compliance and protect investor interests.
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