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TMI Blog2020 (5) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... tively. Therefore conclude that OIL came out with an Offer of RPS as outlined above. Securities to more than 49 persons - public issue and the provisions of Section 56 not followed - Violation of Section 56, Section 60 and Section 73 of Companies Act, 1956 - HELD THAT:- OIL assessee has issued RPS to more than 50 persons and it is noted that in financial years 2011-12 and 2012-13 RPS has been issued to 4,191 allottees. It may be noted that even in cases where the issue is made in tranches and any one of the tranche has not exceeded forty nine people, reference may be made to the in Neesa Technologies Ltd. v. SEBI [ 2017 (4) TMI 1500 - SECURITIES APPELLATE TRIBUNAL, MUMBAI ] which lays down that In terms of Section 67(3) of the Companies Act any issue to '50 persons or more' is a public issue and all public issues have to comply with the provisions of Section 56 of Companies Act and ILDS Regulations. Accordingly, in the instant matter the appellant has violated these provisions and their argument that they have issued the NCDs in multiple tranches and no tranche has exceeded 49 people has no meaning . Therefore, I hold that even if one or more of the tranche is 49 or less, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tus, containing disclosures as specified. Neither OIL nor its directors produced any record to show that it has issued Prospectus containing the disclosures mentioned in section 56(1) of the Companies Act, 1956, or issued application forms accompanying the abridged prospectus. Therefore, OIL has not complied with sections 56(1) and 56(3) of the Companies Act, 1956. OIL was engaged in fund mobilizing activity from the public, through the Offer of RPS and has contravened the provisions of sections 56(1), 56(3), 2(36) read with 60, 73(1), 73(2), 73(3) of the Companies Act, during the financial years 2011-2012 and 2012-2013. Liability for violations committed - A person cannot assume the role of a Director in a company in a casual manner. The position of a 'Director' in a company comes along with responsibilities and compliances under law associated with such position, which have to be fulfilled by such director or face the consequences for any violation or default thereof. The aforesaid Directors cannot therefore wriggle out from liability. A Director who is part of a company's Board shall be responsible and liable for all acts carried out by a company. Accordingly, I note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been collated from the information on Ministry of Corporate Affairs (MCA) Portal and the documents received from the complaint. As the above said Offer of RPS was found prima facie in violation of respective provisions of the SEBI Act, 1992 and the Companies Act. 3. SEBI passed an interim order dated July 05, 2019 (hereinafter referred to as Interim Order ) and issued directions mentioned therein against OIL and its Directors viz. Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati, Mohammed Afaque Ahmad, Santanu Sen Choudhury (hereinafter referred to individually by their respective names and collectively referred to as Noticees ). 4. Prima facie findings/allegations: 4.1 In the said Interim Order, the following prima facie findings were recorded. OIL had made an Offer of RPS during the financial years 2011-12 and 2012-13 and raised a total amount of ₹ 5,46,48,000 from 4,191 allottees as shown below: Financial Year No. of allottees Amount (Rs.) 2011-12 319 38,57,000 2012-13 3872 5,07,91,000 Total 4191 5,46,48,000 4.2 The above Offer of RPS and pursuant allotment were deemed public issue of securities under the first provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the public through the offer and allotment of RPS, without complying with the public issue norms, with an interest of 15% per annum {the interest being calculated from the date when the repayments became due in terms of Section 73(2) of the Companies Act, 1956 till the date of actual payment} within a period of ninety days and file a certificate of two independent Chartered Accountants to the satisfaction of SEBI (to be submitted within seven days of completion of the refund); and (b) The Noticees to be restrained/prohibited from accessing the securities market by issue of prospectus/offer document/advertisement and buying, selling or otherwise dealing in securities in any manner whatsoever, either directly or indirectly, for a period of four years, from the date of completion of making refund to the investors. 5. Service of Interim Order: Copies of the Interim Order was served on Noticees vide letter dated July 05, 2019. In respect of OIL the said Interim Order was returned undelivered and therefore, affixture was done on September 27, 2019. 6. Replies of the Noticees pursuant to interim order : 6.1 In response to the interim order, except OIL, the following Noticees filed their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not the promoter of the company. 3 Md. Mahfuz Alam (hereinafter referred to as Mahfuz ) Vide letter dated September 24, 2019, stated that due to delay in receiving the interim order, sought for extension of time for 60 days to reply to the interim order. 4 Ms. Punam Bharati (hereinafter referred to as Punam ) Vide letter dated August 14, 2019, stated that she was appointed as Director on March 07, 2011 and ceased to be Director on May 16, 2014. She was Director for approx. 3years, was appointed to look in to the matter of appointment of field worker. Sought an extension of time of 120 days to collect the documents advised in the interim order. 5 Shri Kamal Koushar (hereinafter referred to as Kamal ) i. Vide undated letter received by SEBI on August 07, 2019, stated that he is the Promoter cum Director of the company and the date of appointment for the position of Director was March 07, 2011. ii. He was deputed to look into the matter of appointment of field workers. Due to limited area/field, he is not in position to provide the requisite documents mentioned in the interim order, shall contact the colleague/directors to provide the reply, therefore, sought an extension of time o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Authorized Representatives (Mr. Monish Kumar and Mr. Rohitash Gupta) of Santanu appeared for the personal hearing held on the said date and made oral submissions, which are stated below: 8.1 Mahfuz and Kamal : i. The Company was managed by its six directors viz., Md Mahfuz Alam, Parwez Alam, Md. Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam and Punam Bharti. There is no Managing Director in the Company. ii. The Noticees submitted that they are ready to make the refund to its investors. iii. They claimed that they had refunded approximately ₹ 2-2.5 crores to the investors. The list of investors to whom refunds were already made was prepared by their CA and some of the repayments were made in cash and some were made through banking channels. iv. The Noticees submitted that the Company has properties at Jamtara and Asansol, West Bengal. v. During the hearing, the Noticees were directed to submit the details of the abovementioned properties along with a proper repayment plan for refund of money collected from the investors. Also they were advised to provide the bank statements with respect to the refunds already made along with the corresponding list of investors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Promoters/Directors of the Company are as follows: Md Mahfuz Alam - Director cum Promoter Md Parwez Alam - Director cum Promoter Md Kamal Kausher - Director cum Promoter Md Salimuddin Ansari - Director cum Promoter Md Manzur Alam - Director cum Promoter Punam Bharti - Director Afaque Ahmad - Director 9.3 That Mr. Santanu Sen Choudhary was appointed in the company as director and Promoter and worked in the company for a period of 3 months. After completion of his tenure of three months, he was terminated from the company. 9.4 That Mr. Afaque Ahmad was also one of the directors in the company having his DIN No: -05110815, he had been appointed as the director to look into the matter of field force and field -headquarters relationship, but as Mr. Afaque Ahmad was not satisfied with his appointment, he preferred to resign from the company just after three months. But in the interest of the Company the directors deferred his resignation for a long time but after several requests Mr. Afaque Ahmad denied to continue with the company, and hence his resignation was accepted and No Due Certificate along with Clearance Certificate was issued to him. That he was associated with the Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmation in writing from SEBI for the same within 45 days from the date of receipt of the said Interim Order. In the event of the Noticees failing to replies within 21 days or requesting for an opportunity of personal hearing within the said 45 days, the preliminary findings a paras 11 to 20 of this Order shall become final and absolute against the respective Noticees automatically, without any further orders. Consequently, the Noticees shall automatically be bound by the respective directions contained in Paragraphs 21 and 22. 11.1 In view of the above, the directions stated in the interim order have already become final against OIL. 12. The present proceeding shall deal with the submissions made by other Notices viz. Mahfuz, Parwez, Kamal, Salimuddin, Manzur, Punam, Afaque and Santanu and the material available on record. 13. I have considered the allegations, written and oral submissions and materials available on record. On perusal of the same, the following issues arise for consideration. (1) Whether the Company came out with the Offer of RPS as stated in the Interim Order? (2) If answer on Issue No. 1 is in affirmative, whether the Offer of RPS is in violation of Section 56, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em extended to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner. (3) No offer or invitation shall be treated as made to the public by virtue of sub- section (1) or sub-section (2), as the case may be, if the offer or invitation can properly be regarded, in all the circumstances- (a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or (b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more: Provided further that nothing contained in the first proviso shall apply to nonbanking financial companies or public financial institutions specified in section 4A of the Companies Act, 1956 (1 of 1956). 15.2 The following observations of the Hon'ble Supreme Court of India in SEBI v. Sahara India Real Esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as public offer. Under such circumstances, they are considered as private placement of shares and debentures. It is noted that as per the first proviso to Section 67(3) Companies Act, the public offer and listing requirements contained in that Act would become automatically applicable to a company making the offer to fifty or more persons. However, the second proviso to Section 67(3) of Companies Act, exempts NBFCs and Public Financial Institutions from the applicability of the first proviso. 15.4 In the instant matter, I find that RPS were issued by OIL to 4,191 investors during the financial years 2011-12 and 2012-13 and OIL has raised total amount of ₹ 5,46,48,000. The above findings lead to reasonable conclusion that the Offer of RPS by OIL was a public issue within the meaning of the first proviso to section 67(3) of the Companies Act, 1956. 15.5 Neither OIL nor its directors have contended that the Offer of RPS does not fall within the ambit of first proviso of Section 67(3) of Companies Act. 15.6 I find that there is no case that OIL is a Non-Banking Financial Company or Public financial institution within the meaning of Section 4A of the Companies Act. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. Therefore, I find that OIL has contravened the said provisions. Moreover, the allegations of non-compliance of the above provisions are not denied by the Directors of the company. Therefore, I find that OIL has contravened the provisions of sections 73(1) and (2) of the Companies Act. 15.11 Moreover, no material is available on record or submitted by the aforesaid Directors of OIL to show that the amount collected by the company was kept in a separate bank account. Therefore, I find that of OIL has also not complied with the provisions of section 73(3) which mandates that the amounts received from investors shall be kept in a separate bank account. 15.12 Section 2(36) of the Companies Act read with Section 60 thereof, mandates a company to register its 'prospectus' with the RoC, before making a public offer/issuing the 'prospectus'. As per the aforesaid Section 2(36), prospectus means any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate. As the Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtinent to note that by virtue of Section 55A of the Companies Act, SEBI has to administer Section 67 of that Act, so far as it relates to issue and transfer of securities, in the case of companies who intend to get their securities listed. While interpreting the phrase intend to get listed in the context of deemed public issue the Hon'ble Supreme Court in Sahara Case observed- But then, there is also one simple fundamental of law, i.e. that no-one can be presumed or deemed to be intending something, which is contrary to law. Obviously therefore, intent has its limitations also, confining it within the confines of lawfulness Listing of securities depends not upon one's volition, but on statutory mandate The appellant-companies must be deemed to have intended to get their securities listed on a recognized stock exchange, because they could only then be considered to have proceeded legally. That being the mandate of law, it cannot be presumed that the appellant companies could have intended , what was contrary to the mandatory requirement of law 15.16 In view of the above findings, I am of the view that OIL was engaged in fund mobilizing activity from the public, through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of receipt of the letter by the Company on February 14,2012. However, there is evidence of acceptance of resignation on March 15, 2012 signed by five directors namely, Salimuddin, Parvez, Mahfuz, Kamal and Manzur on behalf of the Company. Further those five directors have not disputed his resignation after three months of his appointment as director. Therefore, though documents uploaded in MCA portal, shows the date of cessation of Afaque as September 21, 2013, I find that there is evidence on record that his resignation dated February 10, 2012, was received at least on the date of acceptance of his resignation on March 15, 2012 and hence, I find that Afaque has resigned from the company with effect from March 15, 2012. 16.3 I also find from the extract of the Minutes of the shareholders meeting held on February 14, 2012 filed by OIL in MCA, a resolution was passed on February 14, 2012 to issue RPS to meet the financial requirements of the company and accordingly Memorandum of Association and Articles of Association was altered. Taking this MCA records into consideration, as I have already found that Afaque has resigned from the company with effect from March 15, 2012, the liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruary, 2015. For this purpose, the appellant is granted time up to one year to do the needful and submit the same to SEBI . 16.6 Therefore, I am of the considered view that Santanu may be granted 365 day's time to obtain appropriate order from the competent authority with respect to his allegations of forgery. The said order, if any, shall reach SEBI within 365 days from the date of this order. Till that time the directions against Santanu passed in this order shall not take effect. The finding of this order will come into effect in respect of Santanu on the expiry of 365 days of this order, if the order of the Competent Authority is not produced by Santanu within such 365 days, or, if produced within such period, and the same is not in favour of Santanu whichever is earlier 16.7 Section 56(1) and 56(3) read with Section 56(4) of the Companies Act, imposes the liability on the company, every director, and other persons responsible for the prospectus for the compliance of the said provisions. The liability for non-compliance of Section 60 of the Companies Act, is on the company, and every person who is a party to the non-compliance of issuing the prospectus as per the said provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest from the appellant is wholly illegal . 16.11 In the present case, Noticees namely Mahfuz, Parwez, Kamal, Salimuddin, Manzur, Punam have admitted there is no Managing Director in the company and the company is managed by these Noticees who act as Directors of the company. Considering the above and that there is no material has been brought on record to show that any of the officers set out in clause (a) to (c) of section 5 of Companies Act or any specified Director of OIL was entrusted to discharge the obligation contained in Section 73 of the Companies Act, therefore, I find that as per Section 5(g) of the Companies Act all the Directors of OIL, at the time of issuance of RPS, are officers in default and are liable to make refund, jointly and severally, along with interest at the rate of 15% per annum, under section 73(2) of the Companies Act is continuing and such liability continues till all the repayments are made. The Directors of OIL namely, Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati are co-extensively responsible along with the company for making refunds along with interest under section 73(2) of the Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to the refunds already made along with the corresponding list of investors. However, the Noticees have not submitted any proof for the aforesaid claim. Therefore, I find that the Company/Noticees have not produced adequate evidence regarding the refund claimed to have been made. Further, it would be in the interest of the investors that SEBI should consider the requirement of repayment fulfilled only when the same has been through verifiable banking channel, individual investor wise, either through Bank Demand Draft or Pay Order, both of which crossed as Non-Transferable . Since there is no such evidence of payment through Bank Demand Draft or Pay Order, I am unable to accept the aforesaid submissions of the Noticees. 16.14 I find that Santanu being the promoter of OIL, is liable as promoter for the Offer of RPS against the norms of deemed public issue which requires that persons with knowledge/connivance/consent in the act be made accountable to the investors. Therefore, Santanu Sen Choudhury is liable to be debarred for an appropriate period of time. 16.15 I note that a person cannot assume the role of a Director in a company in a casual manner. The position of a ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till date, pending allotment of securities, if any, with an interest of 15% per annum, from the eighth day of collection of funds, to the investors till the date of actual payment. b. If the Company, OIL, had repaid part of the amount collected through RPS as stated in its reply to its investors as per section 73(2) of the Companies Act, along with promised returns, the above directions and the below mentioned consequential directions from paragraphs 17(c) to 17 (h), shall be applicable for the amounts due to be returned to the investors. However, such prior repayments should have been made by the Company as per the requirement laid down in paragraph 17(c) below, and the same shall be certified by Chartered Accountants, as directed in paragraph 17(h) below. c. The repayments and interest payments to investors shall be effected only through Bank Demand Draft or Pay Order both of which should be crossed as Non-Transferable or through any other appropriate Banking channels, with clear identification of beneficiaries and supporting bank documents. d. Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati are directed to provide a full inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. i. In case of failure of Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati jointly with OIL to comply with the aforesaid applicable directions, SEBI, on the expiry of three months' period from the date of this Order may recover such amounts, from the company and the directors liable to refund as specified in paragraph 17(a) of this Order, in accordance with section 28A of the SEBI Act including such other provisions contained in securities laws. j. Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati are directed not to, directly or indirectly, access the securities 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 (four) years from the date of completion of refunds to investors as directed above. The above said directors are also restrained from associating themselves with any listed public company and any public company which int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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