9911796707
TMI Blog2020 (12) TMI 1219X X X X Extracts X X X X X X X X Extracts X X X X ..... clauses of the Underwriting Agreement reveals that the obligation of the underwriter was limited/restricted to only those IPO applications that was to be procured by it only in case of default of payment by an applicant after allotment of shares or in case of withdrawal of such applications by applicants (to whom allocation of equity shares has been made) just prior to allotment of shares to those applicants - no other clause in the aforesaid agreement that can be shown to have imposed a contractual obligation on the underwriter to subscribe to the entire unsubscribed portion of the IPO so as to cross the minimum threshold of 90% subscriptions of total quantity of shares offered in the IPO. Thus, the said Underwriting Agreement which is being peddled by the Company as a strong defense shield to ward off the charges of funding of IPO subscription by the Company, is actually of no help to the Company given the facts and circumstances of the present case. In absence of such a financial backing, the only consequence would have been the failure of the IPO thereby compelling the Company to refund all the application amounts so collected from the applicants. Therefore, the argument of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crore (approx.) was transferred to the funding group Noticees. By acting in tandem and in concert to fructify their scheme, all the Noticees in this proceedings have been able to make the IPO of HPC successful by way of funding the IPO applications to the extent of 29.03% of the total shares subscribed under the IPO in the absence of which, the IPO would have been hit by non-achievement of the mandatory 90% of shares offered in the IPO and resultantly the scrip of Company would have failed to reach the listing platform of the stock exchange. The feeble attempt to produce certain self made documents to project utilization of IPO proceeds is nothing but an eyewash that the Company has attempted to make. Thus, the claimed grievance of not having provided adequate opportunities does not exist anymore in the present case as the Company and its Directors have provided whatever explanation and documentary proofs they intended to file out of their own volition, which have been duly considered by me and the findings on such explanations have already been recorded in this order. Under the circumstances, the unassailable fact remains that despite providing adequate opportunities, and in sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or with any intermediary registered with SEBI for a period of 3 years. v. The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns: Sr. No. Name of Entity Debarred vide interim order Period of debarment. vi. Obligation of the debarred Noticees, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order in respect of pending transactions, if any. Further, all open positions, if any, of the aforesaid debarred Noticees in the F O segment of the stock exchange, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order. vii. It is further clarified that during the period of the aforesaid restraint, the existing holding of securities, including the units of mutual funds shall remain under freeze. - WTM/SM/IVD/ID3/9896/2020-21 - - - Dated:- 22-12-2020 - S. K. MOHANTY, J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, 2015 was issued inter alia against the Company and three other companies who were seen to have followed a common modus operandi in deploying a fraudulent scheme with respect to their respective IPOs. 2. The facts in brief with respect to the IPO and the scheme that was allegedly deployed by the Company and other Noticees, as noted from the SCN, are narrated as under: i. The Company came out with an IPO by offering 45,00,000 equity shares (28.30% of its post issue size) of INR 10 at an issue price of INR 35 per share to raise INR 15.75 Crore. The equity shares of the Company were listed on SME segment of BSE Ltd. ( BSE ) on March 19, 2013. ii. The Company had disclosed in the Prospectus that the funds so raised in the IPO shall be utilized in the following manner: Table no. 1 - Proposed Utilisation Sr. no. Particulars Amount (INR in Lakh) 1 Development of Green House Cultivation 327.00 2 Development of Farm land for transition to Organic Farming 790.00 3 Strengthen Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. of shares Application rejected QIB/MARKET MAKER 232,000 232,000 1 - HNI 2,852,000 2,624,000 113 184,000 RII 1,776,000 1,704,000 426 72,000 Total 4,860,000 4,560,000 540 256,000 vi. It was also revealed during the investigation that certain entities which were directly/indirectly connected with HPC had funded few of the IPO applicants so as to enable them to make applications under the IPO of the Company. The connection between those entities is based on factors like fund movements, common directorships in companies etc. For the sake of reference, the said entities are hereinafter referred to as funding group entities . vii. The investigation further revealed that in Retail Individual Investors (RIIs) category, 163 applicants were allegedly funded by the funding group entities, out of which 156 applicants were allotted 6,24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration had received INR 1.00 Crore from IPO proceeds of HPC. Subsequently the same were transferred to Shiv Om Sales Corporation. Yes Bank 013683900002209 Magnum Industrial had issued 15 cheques of INR 1.40 Lakh each to the Company on behalf of 15 Non ASBA retail investors. (15 applicants got allotment) Magnum Industrial had received INR 21 Lakh from Bright Securities of Satendra Kumar. Yes Bank 13683900002242 Alliance Traders had issued 25 cheques of INR 1.40 Lakh each to the Company on behalf of 25 Non ASBA retail investors. (25 applicants got allotment) Alliance traders had received INR 42.50 Lakh from Shiv Om Sales Corporation. 3. Satendra Kumar Proprietorship Firm: Nisha Traders (Noticee no.6) Yes Bank- 013683900002254 Nisha Traders had issued 25 cheques of INR 1.40 Lakh each to the Company on behalf of 25 Non ASBA retail investors. (23 applicants got allotment) Nisha traders had received INR 18.00 Lakh from Allian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It had funded INR 1.43 Crore to Narayan Securities Ltd. who had applied in the IPO of HPC. Out of INR 1.43 Crore, Narayan Securities Ltd. had transferred INR 56 Lakh to Panchsheel Securities Pvt. Ltd. and INR 21 Lakh to Search Finvest Pvt. Ltd. Panchsheel Securities Pvt. Ltd. and Search Finvest Pvt. Ltd. had also applied in the IPO of HPC. It had received INR 1.00 Crore from S P Enterprise which were the IPO proceeds of HPC. 8. AMS Powertronic Pvt. Ltd. (Noticee no.11) Axis Bank 912020004151524 AMS Powertronic had given INR 35 Lakh to Search Finvest Pvt. Ltd. and INR 35 Lakh to Guardian Portfolio Consultants Pvt. Ltd. who had applied in HNI category. It had received INR 58.00 Lakh from IPO proceeds of HPC. AMS Powertronic had received funds from Bright Securities. x. The summary of amounts financed by the above noted 8 entities as well as the allotments of shares made by the Company based on such financing are presented below: Table no. 5 Sr. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act, 1992 ) read with Regulation 3 (a), (b), (c) and (d) and 4(1) of SEBI (Prohibition of Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations ). 4. It is noted that the SCN was served on the Noticee nos. 1 to 4, 7 and 9 through SPAD and upon the rest of the Noticees, the SCN was served through affixture at their respective last known addresses. I note from the records that the Noticee nos. 2, 3, and 7 had sought inspection of the documents which was provided to them on September 23, 2019. 5. The Noticees were provided with opportunity to make submission in their defense through personal hearing before me that was fixed on June 18, 2019 which was subsequently rescheduled to July 16, 2019. It is noted that on July 16, 2019 no one appeared on behalf of the Noticees hence, another opportunity of personal hearing was granted to the Noticees on November 14, 2019. On the said date, only Noticee no. 2 appeared before me and he also represented on behalf of Noticee no. 1 and 3 however, no one appeared on behalf of the other Noticees. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Price Waterhouse (Civil Appeal no. 6003-6004/2012). Further, vide common letter dated November 20, 2019, Noticee nos. 1, 2 and 3 have filed a written submission. Also, vide letter dated March 03, 2020, an additional submission has been filed by the Noticee no.1. The highlights of aforesaid submissions made by the above noted three Noticees (i.e. Noticee nos. 1, 2 and 3) are as under: i. The IPO of CNE was 100% underwritten in compliance with the Regulation 106P of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as ICDR Regulations ) and therefore the allegation that the Company was involved in getting its shares subscribed by acting in undesirable manner is not sustainable. Copy of the underwriting agreement has also been filed in support of the said submission. ii. The financial dealings of the Company with the Goldline International Finvest Ltd. (hereinafter referred to as Goldline ) and other entities were purely commercial in nature. Goldline is in the business of buying selling of shares and lending and borrowing. Further based on the financial transactions carried out between other entities, no adverse inference shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lakh to BSE; INR 2.60 Lakh to SAP Printer Solutions Pvt. Ltd.; INR 18.09 Lakh to Guiness Corporate Advisor (Manager to the Issue); INR 1.88 Lakh to NSDL and CDSL; and INR 1.30 Lakh to Innovative Communication (for newspaper advertisement). The Company has also incurred expenses of around INR 2.20 Lakh towards miscellaneous heads like travelling expenses (INR 1.75 Lakh); brokerage to IPO banks (INR 25,956) and market making expenses (INR 20,000). For the said expenses, the Company has given copy of its internal ledger. Consideration of Issues and findings 8. Before adverting to the merits of the case, I deem it fit to first deal with the technical ground raised by certain Noticees. It is noted that few of the Noticees have made a request to provide all the documents collected during investigation, copy of investigation report etc. At the outset, I observe that the Noticees have made a very generic request seeking all the documents pertaining to the present proceedings. Insofar as the copy of investigation report and alleged non-compliance of principles of natural justice is concerned, I refer to the observations made by the Hon ble SAT in the case of Reliance Commodities L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N, its annexure, submissions made by the Noticee nos. 1, 2 and 3 and other materials available on the records. From a perusal of the charges made in the SCN, it is viewed that the following issues emerge for consideration in the present matter: Issue I: Whether the Noticee nos. 4 to 11 are connected and whether the Company through its connected entities/Noticees has funded the subscription of its IPO? Issue II: Whether the proceeds of IPO have been utilized by the Company in terms of the Objects stated in the Prospectus? 12. Before I proceed to examine whether the material available on record is sufficient to find out the answers to the aforesaid issues, it would be appropriate to refer and reproduce the relevant provisions of the law that have been alleged to have been violated by the Noticees in the SCN or are relevant for to the present matter: SEBI Act, 1992 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control Section 12A.No person shall directly or indirectly- (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (2) of rule 19 of Securities Contracts (Regulation) Rules, 1957. 13. Insofar as the connection amongst the Noticees is concerned, I note that such an allegation is largely premised on the inter-se fund transactions between various parties and in a few cases, the connections are based on other parameters like common directorship, common address etc. The said details of connections that were found amongst various entities, as noted from the SCN are reproduced hereunder: Table no. 7 Sr. No. Particulars Connection - Fund Movement 1. Goldline International Finvest Ltd. ('Goldline') (Noticee no. 4) Goldline had received INR 318.50 Lakh from IPO proceeds of HPC (Company). Goldline was having fund movement with Mayfair Infosolution Pvt. Ltd., AMS Powertronic Pvt. Ltd. (Noticee no. 11), Avisha Credit Capital Pvt. Ltd. (Noticee no. 7) Goldline also had fund movement with the entities who had funded to IPO allottees viz. Aggrawal traders, AMS Powertronic Pvt. Ltd. (Noticee no.11), Bright Securities (Noticee no. 9), Columbia Sales and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and Shubha Jhindal: S-520, Greater Kailash Part I, New Delhi - 110 048. Common Address: Vijay Kumar Jindal, Shubha Jhindal and Mayur Development Leasings Pvt. Ltd. having common Address. It had fund movement with Eco Friendly Food Processing Par Ltd. ( ECO ), Goldline (Noticee no. 4) and Mayfair Infosolution. 5. Sumit Kumar Proprietorship Firm Vijay Bhagwandas Co. Durga Prasad Co. (Noticee no.8) Durga Prasad Co. had received funds from Bright Securities (Prop. Satendra Kumar) Durga Prasad Co. had received funds from Alliance Traders, A R Enterprise of Satendra Kumar and N V Sales Corporation. Durga Prasad Co. also had fund movement with Mayfair Infosolution Pvt. Ltd. and AMS Powertronic Pvt. Ltd. Address: Plot No. 3, Gali No. 3, East Guru Angad Nagar, Laxmi Nagar, Delhi - 110092. (Bank KYC) Proprietorship firm of Sumit Kumar, Madhukar Dubey and Satendra Kumar were having common address. (Bank KYC) Sumit Kumar is the director of AMS Powertronic Pvt. Ltd. (Noticee no. 11) 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It had received INR 80.00 Lakh from the IPO proceeds of HPC (Company). It had fund movement with AMS Powertronic Pvt. Ltd., Shiv Traders, Madhukar Dubey, Aavia Buildtech Pvt. Ltd. Director Name (MCA Database): 1) Sumit Kumar 2) Vinay Kumar Mayfair is connected with AMS Powertronic Pvt. Ltd., through common directors. 11. Aavia Buildtech Pvt. Ltd. It had received INR 100.00 Lakh from IPO proceeds of HPC(Company). It had fund movement with Mayfair Infosolution, AMS Powertronic Pvt. Ltd. and Shiv Om Sales. 12. S P Enterprises It had received INR 100.00 Lakh from the IPO proceeds of HPC. The same were transferred to Shiv Traders. 13. Shiv Om Sales Shiv Om Sales had fund movement with Alliance Traders and N V Sales Corporation. 14. I note that the Noticee no. 1 has not denied the transfer of funds to various entities which included transfer of INR 3.18 Crore to Noticee no. 4. The Noticees nos. 1 to 3 have rather give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the IPO proceeds, has transferred huge amount of money to many of the funding group entities. 18. At the relevant point in time, the prospective investors who intended to subscribe to the shares under the IPO of a company, could make an application either under the Application Supported by the Blocked Amount (ASBA) in which appropriate amount is blocked in their accounts to support their application or in the alternative by supporting their application by way of a cheque. 19. From the SCN, it is noted that the funding group entities have in most of the cases directly issued cheques to the Company on behalf of the applications filed by numerous applicants, who had applied under non-ASBA category. Further, in remaining cases, the funding group of entities have, through a web of transactions, directly or indirectly funded the applicants and such applicants have, based on the strength of such funds received from the funding group of entities, applied under ASBA category. 20. All the transactions that have been alleged to be in the nature of funding the IPO applications of different applicants are captured in the following graphical representation: 21. Curiously, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 0 55 82.60 318.50 Lakh from IPO proceeds 220000 2 Noticee no. 5 48 0 0 47 67.20 100.00 Lakh (from IPO proceeds) 6.00 Lakh from Nisha Traders (proprietorship firm of Noticee no.6) 188000 3 Noticee no. 6 25 0 0 23 35 18.00 Lakh from Alliance Traders and 10.50 Lakh from N V Sales Corporation (both are proprietorship firms of Noticee no.5) 10.00 Lakh from Bright Securities (proprietorship firm of Noticee no. 9) 92000 4 Noticee no. 7 7 16 1 24 36.40 16.00 Lakh from IPO proceeds 104000 5 Noticee no. 8 8 0 0 8 11.20 11.50 Lakh from Brigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided those cheques either on behalf of or to the IPO applicants as well as on the Company itself, since the Company has received and accepted such third party cheques from funding entities (instead of from the applicants) to allot shares to those applicants. The accountability of the Company becomes more onerous when the SCN ultimately makes a categorical allegation holding the Company responsible for providing funding to the IPO subscribers. The Company can t escape from its responsibility to justify these transactions by merely stating that, for these third party transactions, no adverse inference can be drawn against it. The Company cannot also escape from the liabilities that may arise out of its explicit action of receiving cheques from the third party funding group Noticees on behalf of various IPO applicants (who were apparently unrelated to the funding entities) by taking the plea that transactions between third parties cannot be invoked against it, without bringing on table, its explanation as to why it willingly accepted the applicants to use third party cheques to pay their IPO application money. Moreover, the fund giving Noticees who have by their very actions, played ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intended to be avoided by the Company at any cost. 26. I further note that the Company has in its reply contended that its IPO was 100% underwritten which completely nullifies the allegation against the Company for being part of a scheme to provide funds for the subscription made by the IPO applicants in order to achieve the mandatory subscription applications. However, such an argument made by the Company does not find support from its overall conduct in conjunction with the conduct of other Noticees which have clearly demonstrated as to how in a pre-meditated manner, the Company s connected entities first funded the applications for IPO and helped the Company to achieve the prescribed statutory threshold limit of 90% of shares offered under the IPO so as to successfully list its equity shares on SME segment of BSE. 27. Notwithstanding the ex-facie contradictory arguments advanced by the Noticees vis- -vis the conduct displayed by the Noticees in the entire IPO issue, the Company s emphasis on the underwriting agreement needs to be discussed in detail. In this connection, I deem it fit to reproduce relevant clauses of the underwriting agreement that was entered into by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractual obligation on the underwriter to subscribe to the entire unsubscribed portion of the IPO so as to cross the minimum threshold of 90% subscriptions of total quantity of shares offered in the IPO. Thus, the said Underwriting Agreement which is being peddled by the Company as a strong defense shield to ward off the charges of funding of IPO subscription by the Company, is actually of no help to the Company given the facts and circumstances of the present case. The Company has not been able to project an absolute prima facie presumption that there was no necessity on the part of the Company to deploy any scheme so as to arrange funding for its IPO, as has been alleged in the SCN. Moreover, even despite the said Underwriting Agreement being in place, the established facts have indicated that the Company and its connected entities had indulged in providing funding to applicants to whom as much as 29.03% of the total shares were allotted. I observe that in absence of such a financial backing, the only consequence would have been the failure of the IPO thereby compelling the Company to refund all the application amounts so collected from the applicants. Therefore, the argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d INR 2.20 Lakh towards miscellaneous expenses like brokerage, market making etc., aggregating to INR 9.28 Crore (approx.). Thus, out of the total amount of INR 15.96 Crore raised in the IPO, the Company has been able to put forth some explanation for approx. INR 9.28 Crore only and for the rest of the amount, i.e., INR 6.68 Crore, the reply of the Company has been conspicuously silent. To elaborate further, the Company has not provided the exact details for which an amount of INR 3.18 Crore (approx.) was provided by it to Goldline. The said amount was close to 20% of the total IPO proceeds of INR 15.96 Crore and the silence of the Company with respect to specifics of the said amount of transfers to Goldline exposes its complicity in the scheme of funding the IPO applicants as alleged in the SCN. Similarly, the funds transferred to other entities within a short span of receiving the IPO proceeds, have also not been touched upon by the Company. It is thus observed that the Company has failed to furnish any document or reasoning so as to clarify the discrepancies in its submissions made during the investigation which were not found to be supported by actual fund transfers, that have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions allegedly executed with the remaining 16 entities (out of those 20 entities as alleged in the SCN). 36. It is observed that the Company through its post hearing written submissions has provided inter alia, the copies of agreements executed by it those 7 entities for the purpose of the development of farm land (hereinafter collectively referred to as the agreements ) alongwith the copies of bank account statements showing the transfers of money to the said entities and has also furnished copies of invoices. The salient features of the said agreements purportedly executed for development of farm land are summarized here: i. All the agreements entail development of small portions of land, out of a large common land admeasuring 400.66 Acres situated at Pant Nagar, Uttrakhand. ii. The other party to each of the agreements is a proprietorship firm and the name of proprietor is not mentioned in the narration of the party. iii. Out of 7 firms, 3 firms viz., N V Sales, Nisha Traders and A R Enterprises share same address, i.e., Plot no. 3, Gali no. 3, East Guru Angad Nagar, Laxmi Nagar, New Delhi. The rest of the firms are situated in New Delhi or Ghaziabad. iv. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INR 2.20 Crore 01.12.2012/ INR 2.20 Crore/97.94 acres INR 70 Lakh on 28.12.2012 INR 50 Lakh on 27.02.2013 INR 1 Crore on 20.03.2013 Total INR 8.99 rore 37. At the outset, I observe that these documents were never filed by the Company during the investigation conducted by SEBI nor were filed along with the initial reply to the SCN and have come on record for the first time only by way of the post hearing submissions filed by the Company. Nevertheless, I have minutely perused the contents of the said agreements and when those contents are contrasted and compared with other materials available in the records of investigation particularly with the contents of draft offer document (January 17, 2013) and Prospectus (dated February 22, 2013) (hereinafter collectively referred to as IPO documents ) pertaining to the IPO, I observe the following discrepancies: i. In the above mentioned agreements, the Company has claimed itself to be the sole and absolute owner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 7 entities for farm land development including the aforestated pre-IPO transactions of INR 4.49 Crore, has been utilized out of the IPO proceeds. Under the circumstances, the claim of the Noticee Company stands on a false ground to begin with as far as its claim of utilization of IPO proceeds towards the Object of development of farm land is concerned. 38. In view of the aforesaid discrepancies, the Company cannot claim itself to be the absolute owner of the subject land at the time of executing those agreements with the proprietors of various entities, as the same would render the corresponding relevant disclosure made in the Prospectus as false proclamations and reduce those declarations to nullity. I observe that such an observation projecting glaring contradictions assumes crucial significance in calling the Company s bluff as the purpose behind presenting such invalid and unenforceable agreements was to demonstrate utilization of IPO proceeds for one of the major objects disclosed in the Prospectus. Moreover, the Company has not produced any document before me to show its ownership over the subject land like purchase deed, payment details etc. to lend any credence to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such agreements to be ab initio unenforceable in law. Further, there is no witness to such agreements, which further corroborates that these agreements do not possess any qualities to be called as valid or enforceable documents. I find that the Company has not been able to produce any third party verifiable document/details like the details of profit/revenue earned or return from the funds so deployed by the Company for the land development, or any approval of land development plan/layout from local authorities, or any latest entry in the balance sheet certified by the statutory auditors indicating tangible outcome of the funds so transferred for land development or even any photographs of the development work that was supposed to be carried out with the money so invested towards the said object, as claimed by the Company, to corroborate the purpose for which those un-registered unenforceable agreements are claimed to have been executed with several parties. It is also pertinent to mention here that the firms with whom these un-registered agreements have been claimed to have been executed are found to be involved in a web of transactions facilitating the funding of the IPO applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and nothing is known with respect to the fate of the said amount which was also raised from the investors by offering its securities under IPO. Even for the details so furnished in support of the utilization of IPO proceeds of INR 9.28 Crore, as per the detailed examination and analysis made thereof in the earlier paragraphs, it is clearly revealed that the claim of having spent the said amount towards meeting the objects of the IPO turned out to be false, baseless and unsubstantiated. As recorded above, the Company has failed to substantiate those unenforceable agreements by any kind of third party verifiable documents like purchase /lease agreement of the land, details of payments of purchase consideration, if any, audited balance sheets, approvals from the local authorities for land development, TDS certificates, etc., so as to lend any credence to its claim of having transferred more than 50% of the IPO proceeds to the aforesaid 7 entities under such unenforceable agreements. Thus, the claim of the Company grossly lacks bonafide in the absence of any basic documentary evidence which could have been relied upon to verify such a claim of having transferred large amounts of IPO pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other verifiable document to explain the rational of those commercial transactions which involved such significant amounts of fund transfers. 46. It is interesting to note that the amounts of these transactions entered with various individuals, proprietorship firms, companies etc., ranged from INR 10 Lakh to INR 3.18 Crore which were promptly executed by disbursing the funds in a short span of only 3 days (March 19, 2013 to March 21, 013) from the date of listing of shares of the Company (March 19, 2013). It shows that the Company had a pressing need of funds to meet huge amounts of pending obligations to carry out its business as per the objects of IPO, hence one can assume that the supporting documentations/agreements, correspondences with the parties concerned, internal sanction orders, entries in the books etc., underlying those transactions would have been kept ready beforehand so as to process the payments/disbursals expeditiously without any delay soon after the IPO proceeds were available at its disposal. However, strangely enough, till date, the Company has not been able to justify those transactions as legitimate commercial transaction by producing any documentary evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IPO of HPC successful by way of funding the IPO applications to the extent of 29.03% of the total shares subscribed under the IPO in the absence of which, the IPO would have been hit by non-achievement of the mandatory 90% of shares offered in the IPO and resultantly the scrip of Company would have failed to reach the listing platform of the stock exchange. 50. I may hasten to add here that in its reply to the SCN, it was submitted by the Company that the matter requires re-investigation taking a plea that selected transactions have been picked up by SEBI and had the Company furnished complete information, the proceedings would not have been initiated. It is observed that the Company while making request for re-investigation has neither explained as to what were the constraining factors due to which the information was not submitted during the investigation nor has it elaborated the details of information that it wants to furnish now (which it could not furnish earlier), so as to show the circumstances mitigating enough to grant it exoneration from the charges. It is an admitted position that the present proceedings are in the nature of quasi-judicial proceedings and all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first fraudulently supported the IPO applications of various applicants by funding their application money so as to enable the IPO cross the threshold of minimum applications of 90% of the shares offered. The facts also explain the reasons as to why immediately after completion of the IPO, the IPO proceeds were transferred to various entities including the funding group entities. The said transfer of funds immediately after the IPO coupled with the evasive and unsubstantiated explanations offered by the Company with respect to claimed utilization of IPO proceeds, further explain the reasons as to why the Company had not actually utilized the IPO proceeds towards the Objects of its IPO. In reality, the specious claims of utilization of the IPO proceeds remained far away from the actual utilization in terms of the stated Objects, resulting in the un-fulfillment of the promises made to the shareholders by way of the Prospectus. 52. In view of my observations in the foregoing paragraphs highlighting the facts which clearly indicate that the Company in collusion with the other Noticees has implemented a scheme to get the IPO successfully subscribed by deceptively funding the IPO app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money from the public and diverting such money with the help of Noticee no. 2 and 3 for various purposes other than the objects for which the money was raised from public under the IPO. 57. At this stage, I am seeking guidance from the decision of Hon ble Supreme Court passed in the matter of N. Narayanan Vs. Adjudicating Officer, SEBI (2013) 12 SCC 152, wherein it was observed that: 33. Company though a legal entity cannot act by itself, it can act only through its Directors. They are expected to exercise their power on behalf of the company with utmost care, skill and diligence. This Court while describing what is the duty of a Director of a company held in Official Liquidator v. P.A. Tendolkar (1973) 1 SCC 602 that a Director may be shown to be placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of business of the company even though no specific act of dishonesty is provide against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially. 58. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udulent acts would be of preponderance of probabilities which, as held by me earlier are clearly tilted against the Noticees. In this regard, in a case involving fraudulent activity by a company, the Hon ble Delhi High Court has observed inter alia as: Clearly, given the manner in which fraudulent acts are undertaken under deceit and camouflage, if done with the affairs of a company/trust etc., the standards of proof required to prove such fraudulent conduct would necessarily be less stringent. [SEBI Vs. CRB Capital Markets Ltd. (date of decision: December 05, 2019)] 61. I note that the present case is built upon the statutory requirement of achieving subscription of at least 90% of shares being offered under IPO, for a company to be allowed to be listed on an Exchange. The rationale behind such a requirement appears to ensure that the stock market opens up for only such issuers who have the capability and capacity to broadly align the Company s vision with the vision and investment horizon of adequate number of shareholders. It is pertinent to note that that keeping a threshold of a minimum mandatory subscription on a higher side of 90% itself shows that such a regulatory fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting themselves in any capacity with any listed public company and with any public company which intends to raise money from the public, or with any intermediary registered with SEBI for a period of 3 years. v. The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns: Sr. No. Name of Entity Debarred vide interim order Period of debarment Sr.No. Name of Entity Debarred vide interim order Period of debarment 1. HPC Biosciences Ltd Yes Till date of this order 2. Shri. Tarun Chauhan Yes Till date of this order 3. Ms. Madhu Anand Yes Till date of this order 4. Goldline International Finvest Ltd. Yes Till date of this order 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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