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TMI Blog2020 (12) TMI 1219X X X X Extracts X X X X X X X X Extracts X X X X ..... its Proprietorship firm viz. Nisha Traders AWWPK8525E 7 Avisha Credit Capital Pvt. Ltd. AAACA5715D 8 Shri. Sumit Kumar & its Proprietorship firm viz. Durga Prasad & Co. ARUPK1589P 9 Shri. Raj Kumar & its Proprietorship firm viz. Bright Securities BNBPK2681L 10 Shri. Prakash Gupta & its Proprietorship firm viz. Shiv Traders ARVPG7849R 11 AMS Powertronic Pvt. Ltd. AAECA8718H (The entities mentioned above are individually known by their respective name or Noticee no. and collectively referred to as "Noticees") In the matter of IPO of HPC Biosciences Limited Background: 1. The present proceedings are arising out of a common show cause notice dated December 11, 2017 (hereinafter referred to as "SCN") alleging that a scheme was deployed in the Initial Public Offer (IPO) of equity shares of HPC Biosciences Limited (hereinafter referred to as "HPC/the Company"), wherein certain applicants of the IPO were funded by the entities connected with the Company itself and subsequently, the IPO proceeds were not utilized towards the objects of raising funds and instead were allegedly transferred to a few of the entities who had funded the applicants of the IPO. Before conductin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for 48,60,000 shares (1.08 times of the offer size). After rejecting numerous application for various reasons, a total of 45,60,000 shares were allotted to 540 applicants, thereby raising INR 15.97 Crore in the IPO. The details of applications received, shares allotted etc., are tabulated herein below: Table no. 3: Break up of Applications Date of Bid No. of shares applied No. of shares allotted No. of Allottees whom shares allotted 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Alliance Traders which is proprietorship firm of Madhukar Dubey, INR 10.00 Lakh from Bright Securities which is proprietorship firm of Satendra Kumar and INR 10.50 Lakh from N V Sales Corporation which is proprietorship firm of Madhukar Dubey. 4. Avisha Credit capital Pvt. Ltd. (Noticee no.7) HDFC Bank - 05982740000567 * Avisha Credit Capital had issued 7 cheques of INR 1.40 Lakh each to the Company on behalf of 7 Non ASB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financing are presented below: Table no. 5 Sr. No Funding Entity Amount funded (INR in lacs) No. of allottees got allotment No of shares allotted 1 Goldline International Finvest Ltd 82.60 55 220000 2 Madhukar Dubey 67.20 47 188000 3 Satendra Kumar 35 23 92000 4 Avisha Credit Capital Ltd 36.40 23+1(ASBA) 92000+12000 = 104000 5 Sumit Kumar 11.20 8 32000 6 Raj Kumar (Bright Securities) 56 1 152000 7 Prakash Gupta (Shiv Traders) 137.20 2 384000 8 AMS Powertronic Pvt. Ltd & Shiv Traders 56 1 152000 Total 481.60 161 13,24,000 3. Thus, based on the aforesaid details, the SCN alleges that the Company and its Directors had devised and planted a scheme with the help of the funding group entities to achieve the threshold of minimum applications (90% of the offer size) required for listing of its scrip on the SME segment of BSE, as has been envisaged under Regulation 14(1) of SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009, (hereinafter referred to as "ICDR Regulations"). As the Company and its connected entities (other Noticees) had allegedly acted in concert to fund to the tune of 29.03% of the total allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition - 05.11.2019 7 Avisha Credit Capital Pvt. Ltd. -do- 8 Shri. Sumit Kumar & its Proprietorship firm viz. Durga Prasad & Co. Times Day and Hindustan Times- Ghaziabad Edition- 12.11.2019 9 Shri. Raj Kumar & its Proprietorship firm viz. Bright Securities Navbharat Times and Hindustan Times- Delhi Edition - 05.11.2019 10 Shri. Prakash Gupta & its Proprietorship firm viz. Shiv Traders -do- 11 AMS Powertronic Pvt. Ltd. -do- 6. It is noted from the materials available on record that none of the Noticees except for Noticee nos. 1, 2 and 3, has filed any reply to the SCN and also except for these three Noticees, none of the other Noticees has availed the opportunity of personal hearing before me. 7. It is noted from the records that the Noticee nos. 2, 3 and 7 have through their various letters, have sought copy of investigation report and all other material collected by SEBI during the investigation and to support their request for such documents, reliance has been placed on the judgment of the Hon'ble Supreme Court of India in the matter of SEBI Vs. Price Waterhouse (Civil Appeal no. 6003-6004/2012). Further, vide commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and allocations in the IPO of the Company. vi. The provisions of Section 12 A (a), (b) and (c) of SEBI Act, 1992, and Regulation 3 and 4 of PFUTP Regulations are not attracted, as they have not dealt in securities, i.e., activity in the secondary market segment of capital market. vii. During investigation, only selected financial transactions have been picked up and the transactions executed by third parties have been made basis to make allegations, without appreciating business model of such companies. The matter requires re-investigation to appreciate the true facts based on the comprehensive investigation as has been done in various other matters. viii. In terms of the stated Objects of the IPO, the Company has entered into agreements with various entities for development of farm land for transition into organic farming. The Company has provided copy of agreements, invoices, ledger etc., pertaining to the agreements entered with 7 different proprietorship firms for a total amount of INR 8.99 Crore. ix. The Company had also made certain expenses towards IPO itself which includes INR 2.35 Lakh to BSE; INR 2.60 Lakh to SAP Printer Solutions Pvt. Ltd.; INR 18.09 Lakh to Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of natural justice require supply of such documents which has not been relied upon by the AO." (emphasis supplied). Therefore, applying the ratio of the aforesaid orders in the present case, I observe that the demand of the Noticees to provide them with the copy of investigation report and other material collected during the investigation is devoid of merit and is thus rejected. 10. Moving on further, it is noted from the records that despite providing sufficient opportunity, the Noticee nos. 4 to 11 have failed to present their case before me, as they have neither filed any reply to the SCN nor appeared before me for the personal hearing. I also note that adequate opportunities have been provided to them to present their case rebutting the allegations made in the SCN, however, for the reasons best known to them, they have preferred to remain absent and silent. I am of the view that sufficient opportunities have been granted to them and therefore, it would be appropriate to proceeds with matter on its merit, based on material available on record. 11. I have carefully perused the SCN, its annexure, submissions made by the Noticee nos. 1, 2 and 3 and other materials available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder. Prohibition of manipulative, fraudulent and unfair trade practices Regulation 4 (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 Minimum Subscription 14. (1) the minimum subscription to be received in an issue shall not be less than ninety percent of the offer through offer document: Provided that in the case of an initial public offer, the minimum subscription to be received shall be subject to allotment of minimum number of specified securities, as prescribed in sub-clause (b) of clause (2) of rule 19 of Securities Contracts (Regulation) Rules, 1957. 13. Insofar as the connection amongst the Noticees is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation and A One Furniture. * 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) 4. Avisha Credit Capital Pvt. Ltd. (Noticee no. 7) * Avisha Credit Capital had received INR 16.00 Lakh from IPO proceeds of HPC (Company). * Director Name: 1) Shubha Jhindal, 2) Vijay Kumar Jhindal, 3) Rakesh Agrawal * Common Director: During the investigation period, Avisha Credit Capital Pvt. Ltd. (Noticee no. 7) and Mayur Developments and Leasings Ltd. were having common director. * Address of Vijay Kumar Jindal 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 (Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pments and Leasings Ltd. were having common Director. * Common Address: Vijay Kumar Jindal, Shubha Jhindal and Mayur Development Leasings Pvt. Ltd. were having common Address. 10. Mayfair Infosolution Pvt. Ltd. * 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 find that the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cee 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 Bright Securities (proprietorship firm of Noticee no. 9) 32000 6 Noticee no. 9 1 0 0 1 56 A R Enterprises and Nisha Traders (both proprietorship firm of Noticee no. 9) received INR 100.00 Lakh each from IPO proceeds of the Company 152000 7 Noticee no. 10 0 0 3 2 137.20 Shiv Traders (proprietorship firm of Noticee no. 10 had received INR 100.00 Lakh from a firm, S P Enterprises, who in turn had received the said amount from the IPO proceeds of the Company. 384000 8 Noticee no. 11 0 0 2 1 56 58.00 Lakh from IPO proceeds of the Company. 152000 Total 481.60 13,24,000 23. I note that the Company and its two Directors who have responded to the SCN and have participated in the personal hearing, have been given multi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing allegedly orchestrated by the Company, by issuing cheques on behalf of those purportedly unrelated applicants and also by providing funds directly to some of the applicants so as to enable them to get shares allotted successfully under the IPO, ought to have clarified their stand by filing written replies to the SCN explaining with supporting materials, the exact nature and purpose of those transactions that have been alleged to be the transactions made for funding the IPO applicants. I also note that it is no one's case that the said transactions were in the nature of loan transactions vis-à-vis the IPO applicants since none of the Noticees has claimed them to be loan transactions nor has produced any verifiable or reliable document before me to explain the nature of those transactions. 24. As far as the impact of such funding of IPO applicants is concerned, I recall that the Company had issued 45,60,000 shares under its IPO. Out of the said shares, as per the foregoing analysis allotment of 13,24,000 shares has been made to those applicants who were financially funded by the funding group Noticees, either by paying directly to the Company on their behalf or to the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited, for the purpose of its IPO: "2. Underwriting On the basis of representations and warranties contained in this Agreement and subject to its terms and conditions, the Underwriter hereby agrees to underwrite and/or procure subscription for the Equity Shares in the manner and on the terms and conditions contained in Section 5 of this Agreement. ...... 5. Issue 5.1 Notwithstanding anything contained elsewhere or otherwise in this Agreement, the Company agrees that the maximum number of Equity Shares in the Issue that the Underwriter have to underwrite is 45,00,000 Equity Shares, which is allocated as under: Name of the Underwriter No. of Shares Underwritten GCAPL 45,00,000 5.2 In the issue, Underwriter shall only be responsible for ensuring completion of the subscription in respect of such applicants, including ensuring full payment of the issue Price in respect of the Equity Shares for which such applications are made, in the manner set forth in this Section. 5.2.1 The default in full and timely payment of the Issue Price in respect of the Equity Shares for which the applicant has placed a application and received allocation in respect of such application; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, is liable to be rejected as not maintainable on the face of the aforesaid factual evidence and observations made in preceding paragraphs. 29. In view of the foregoing discussion, particularly the details of the financial transactions highlighted above, the evasive replies of the Company and its Directors and complete absence of any explanation from the other Noticees , I am persuaded to hold that the Company, its Directors and the rest of the Noticees have successfully implemented a fraudulent scheme to achieve sufficient number of applications by way of funding the applicants, with the sole motive to get the listing of its equity shares on SME segment of BSE. Thus, as far as the first issue is concerned, the same has to be answered affirmatively against the Noticees and in favour of the allegations levelled in the SCN. I shall now deal with the next set of allegations pertaining to diversion of IPO proceeds in deviation from the Objects of the IPO. Issue II: Whether the proceeds of IPO have been utilized by the Company in terms of the Objects stated in the Prospectus? 30. At the outset, it may be recalled that the Company raised equity capital of INR 15.96 Crore through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons put to the Company to explain with corroborative evidence the nature of certain fund transfers out of the IPO proceeds, the Company has not been able to explain the nature of any of the proclaimed utilization/fund transfers or about the current status of the investments which it had disclosed earlier to have been made for INR 3.00 Crore towards development of Green Housing Cultivation or even about the present status of the amount of INR 2.18 Crore which was stated to be lying unutilized at that time of investigation. As a result, it is not known as to how the said unspent amount of INR 2.18 Crore was ultimately put to use by the Company. Therefore, even after passage of 7 years from raising of the fund through IPO, the Company is not in a position to explain the actual deployment of IPO proceeds, so as to defend itself from the charges made in the SCN. 34. The explanation of the Company with regard to payment towards Issue expenses and miscellaneous expenses do not deserve much of discussion as the same have been largely executed with registered intermediaries. I should now however deal with the explanation furnished by the Company with respect to utilization of IPO proceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prises is owned by Mr. Raj Kumar (Noticee no. 9) but his other proprietorship firm viz., Bright Securities had provided funds to the IPO applicants. v. All the agreements are exactly identical with respect to the terms and conditions and only the size of the land being entrusted by the Company to the counter party for development, and the corresponding consideration amounts are the only variable factors. vi. The agreements have been executed on letter heads of the Company (not on stamp paper) and have not been registered/notarized. vii. The details of the consideration, size of land and payments claimed to have been made to various entities under all such agreements are summarized hereunder: Table no. 9 Sr. no. Name of the entity Amount transferred Date of agreement/Amount/Size of Land Amount transferred 1. Raj Marketing India INR 60 Lakh 26.11.2012/ INR 60 Lakh/26.71 Acre INR 60 Lakh on 27.12.2012 2. A.R. Enterprises INR 1.50 Crore 01.01.2013/ INR 1.50 Crore/66.76 Acre INR 50 Lakh on 27.02.2013 INR 1 Crore on 20.03.2013 3. Garg Traders and Supplies INR 1.10 Crore 16.11.2012/ INR 1.10 Crore/48.97 acre INR 60 Lakh on 27.12.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of November 16, 2012 to January 01, 2013, i.e., just immediately prior to the IPO of the Company. If the bonafide of the said agreements are to be accepted on their face value, then one of the disclosures made in the IPO documents has to be viewed as a false declaration by the Company, viz: "We are yet to place orders for proposed soil, green house cultivation etc. for the Project, as specified in the "Objects of the Issue" on page 45 of this Prospectus. Any delay in procurement of soil bed, installation of green house may delay the implementation schedule. We may also be subject to risks on account of inflation in the price. Hence our Project could face time and cost over-run which could have an adverse effect on the operations of our Company. Negotiations in respect of specification with suppliers have been commenced and the agreements will be entered in due course once the negotiations are completed and Issue proceeds are procured." iii. As stated above, all the aforesaid agreements have been executed prior to the IPO and from the table above, it is also noticed that huge amounts of funds have been transferred by the Company in favour of those 7 entities prior to the IPO as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany are being paid out of IPO proceeds for the first time to third parties under an agreement, it deserves to be first discussed at the Board level before the execution of such important contracts or at least immediately after execution of those contracts and the Board ought to have been apprised of the execution of the said contracts by the Company. The records before me do not suggest that the afore said agreements which were entered into just prior to the IPO was ever brought to the notice of the Board of the Company, nor do the IPO documents bear even any passing reference to those agreements which the Company intended to execute with various parties. Similarly, it's a common knowledge that no Director or official can sign such important agreements for and on behalf of HPC, unless the concerned Director or official of the Company has been duly authorized or empowered by the Company, in support of which, there has to be some internal document like Board Resolution or authorization letter in possession of the Company. However, no such document in the nature of either a Board Resolution or an authorization letter in favour of any Director or official permitting him to negotiate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out in previous paragraphs, I have no hesitation to hold that the Company has not come up with clean hands before me and by showing the agreements which do not appear to be genuine, the Company has made an unjustified attempt to seek discharge from the present proceedings that deserves to be rejected. 42. The holistic examination of the materials available on record goes on to point that the agreements produced before me by the Company as a defense to neutralize the charges levelled against it in the SCN are all self-generated, concocted and have been made up only as an afterthought exercise after the personal hearing was over. All the factual details and analysis thereof and the circumstances under which the Company has tried to set up its defense via the agreements referred to above, clearly tilt the preponderance of probability against the Company and vindicate the allegations made against it in the SCN. Under the circumstances, I observe that the Company has miserably failed to impress on me that the funds that have been paid to different entities mentioned in the table no. 9 above were indeed paid in pursuance of the Objects of the IPO for which such funds were raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarations made in the IPO documents. So, having concluded that the funds transferred by the Company to various entities were not for appropriate utilization of IPO proceeds in terms of the declared objects of IPO, I have to move on to deal with the details of various fund transfers effected by the Company from the IPO proceeds so as to determine the true nature of those funds transfers. 45. I note that the SCN through a graphical representation made under its para 8 (also reproduced in the beginning of the present order) has demonstrated that out of INR 15.96 Crore raised in IPO, the Company has immediately transferred out a sum of INR 15.65 Crore (approx.) out of which, INR 10.59 Crore (approx.) was transferred to various funding group Noticees. I observe that the Company has attempted to justify funds transfers to a few of those funding group Noticees like Nisha Traders etc., stating that the same was paid under contractual obligation for development of land for the Company, a claim which has already been found to be baseless and has been rejected by me. For the rest of the transactions that formed part of the transfers detailed in the said graphical representation, including a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the stated objects, neither the details of the expenditure/funds transfers were furnished nor the explanations offered by the Company could even remotely pass the muster to satisfy that the IPO funds have actually been utilized for the purposes for which the IPO was issued by the Company. 48. In view of the aforesaid facts and the circumstances and the manner and timing of transfer of funds made immediately after the IPO, I am constrained to observe that the amount of INR 10.59 Crore which was immediately diverted from the IPO proceeds to various entities belonging to the funding group entities represent nothing but reimbursement of the funds that were provided by the funding group entities (Noticee nos. 4 to 11) so as to make the IPO of the Company successful by helping it cross the statutory ceiling of 90% of total subscription amounts. 49. After analyzing all the facts and the materials on records, I am of the view that the Company, in connivance with the funding group Noticees at the first stage, financially supported the applications of the 161 IPO applicants who were allotted 13,24,000 shares. Subsequently, out of INR 15.97 Crore received under the IPO, the Company siphon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, despite all the opportunities it had with it, the Company has not been able to answer the charges of SCN to make out a case of exoneration. It has completely failed to justify the utilization of IPO proceeds and the transfer of funds executed by it, leading to a clear cut case that the funds raised in IPO were not utilised for the objects as mentioned in the Prospectus. 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 spite of furnishing various explanations and documents, the Noticees including the Company have not been able to produce any tangible material or evidence so as to justify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se with respect to their role and involvement in the activities of the Company pertaining to the IPO. It is seen that the Company, after making adequate disclosures in terms of the extant framework, was able to list its securities, which was possible as an outcome of a fraudulent scheme perpetrated by the Noticees. As the persons in charge of its day to day affairs, it was an onerous responsibility cast on the Directors to ensure that true and fair disclosures are made; the compliance with the applicable regulations like Regulation 14 (1) are made in letter and spirit and the IPO proceeds are put to use as per the Objects so disclosed under the offer documents so as to increase the value of the investments made by the shareholders. 55. I have already recorded that the Company had achieved the minimum threshold of 90% subscription of the total offer made under the IPO, by fraudulently arranging funding of the applications representing 29.03% of the shares subscribed, through its connected entities and has eventually paid back to those funding group entities out of the IPO proceeds under the garb of utilization of IPO proceeds as per the objects of IPO. 56. There is no material pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent diversion of IPO proceeds. Therefore, the actions of Noticee nos. 2 and 3 are also equally violative as per the charges levelled in the SCN. 59. Insofar as Noticee nos. 4 to 11 are concerned, I note that their role of providing funds to the applicants at the time of IPO and then receiving back the funds out of the IPO proceeds has already been dealt with adequately and needs no further reiteration. I may however, note that in the entire scheme, the Noticee nos. 4 to 11 have played an important part by providing funds on time in support of the applications of IPO to the extent of 29.03% of the shares subscribed and have also received back large amounts of funds, directly or indirectly, out of the IPO proceeds against the funding made by them to facilitate the success of the IPO. Surely enough, the scheme could not have been successfully implemented but for the crucial roles played by the Noticee nos. 4 to 11. I have already recorded earlier the amount provided by the Noticee nos. 4 to 11 to the IPO applicants as well as the amounts so received back by the Noticee nos. 4 to 11 out of the IPO proceeds. It is relevant to state here that the Noticee nos. 4 to 11 have not stated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of achieving subscription of 90% of shares offered under the IPO is found to be standing on falsehood, the only way to protect the investors of the securities market is to provide them with an opportunity to exit from the Company. Directions: 63. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(4) and 11B thereof, pass the following directions: i. Noticee nos. 2 and 3 (promoters of the Company) are directed to make a public offer through a merchant banker to acquire shares of the Company from public shareholders by paying them the value determined by the valuer in the manner prescribed in Regulation 23 of the SEBI (Delisting of Equity Shares) Regulations, 2009 and acquire the shares offered in response to the public offer, within three months from the date of this Order ii. BSE to facilitate valuation of shares to be purchased as directed at (i) above, and compulsorily delist the Company, if the public shareholding reduces below the minimum level in view of aforesaid purchase. iii. The Noticee no. 1 is hereby restrained from accessing the securities mar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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