TMI Blog2016 (8) TMI 1384X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI in respect of repayments to be made only through the escrow account, repaying by cash to a huge extent of ₹ 192.96 crores, the source of which remains unexplained even after 2 years etc.. This new proposal is nothing but a ploy to drag on the matter without any reasonable end in sight. Order:- In view of the foregoing, in exercise of the powers conferred upon me in terms of Section 19 read with Sections 11 and 11B of the SEBI Act, 1992 hereby reject the repayment proposal submitted by HBN. - WTM/SR/SEBI/CIS-NRO/42 /08/2016 - - - Dated:- 12-8-2016 - S. RAMAN, WHOLE TIME MEMBER ORDER 1. Securities and Exchange Board of India ('SEBI') received a reference dated October 27, 2008 from the Reserve Bank of India forwarding a complaint against HBN Dairies Allied Limited ('HBN'/company) having its registered office at IIIrd Floor, Vardhman Chamber, Sonia Complex, Vikas Puri, New Delhi - 110 018. The complainant alleged that HBN was illegally mobilizing funds from the public. Upon preliminary inquiry, SEBI observed that HBN was inviting applications from the customers/ investors for the purchase and upbringing of the cattle under its various pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A has to inform the investors about the initiation of the repayment process by way of registered post within 15 days of its appointment, for handling the repayment process. HBN to open an escrow account with any of the public sector scheduled bank, within one week of appointment of RTA. HBN to publish an advertisement regarding repayment in an English newspaper having nationwide circulation and in a local daily at the places where investors are situated within 10 days of appointment of RTA. HBN to appoint a reputed concurrent auditor with the approval of SEBI to look into the details of day-to-day repayment to the investors within 30 days. HBN has to get its books of accounts and other relevant documents/ records in respect of its CIS activities audited by the said auditor. Before initiating the process of selling the properties, HBN and its group companies have to get the valuation of the assets counter checked by an independent Government approved valuer. Such valuer may be appointed by HBN after receiving the due approval of SEBI. After appointment of RTA, the independent valuer and the concurrent auditor, the details of procedure/ modalities of repayment of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being made from the bank accounts other than the escrow account (which was opened for the purposes of repayment to the investors) and without the involvement of RTA, i.e. in complete disregard to the repayment procedure. ii) SEBI had asked HBN to submit the bank account statements from where approximately ₹ 242 crores claimed to have been disbursed. HBN on February 03, 2014, submitted four volumes of paper book containing the various bank statements. An attempt was made to cross verify the claim of repayment by HBN. For the same, two samples were selected. The selected sample investors informed SEBI that the cheques issued to them were returned with the remark 'insufficient funds'. The relevant bank statement of HBN with Axis Bank bearing account number- 910020029352533 revealed that the aforesaid cheques, bearing numbers 560 and 561, were returned with the reason 'funds insufficient'. This clearly indicated that HBN was trying to give a false picture that it has repaid its customers. However, the fact is that the cheques issued were not honoured and the investors/ customers still remained unpaid. HBN had claimed that the investors were repaid in the month ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: i) HBN had informed that it sold various assets and also liquidated the investments of the group companies to repay to its investors. It is still in search of prospective buyers for its various properties. However due to the depressed market conditions/ liquidity crunch HBN is facing lack of interest from the buyers towards various properties held by it. Due to the stress to repay the investors, HBN is faced with compelling circumstances to sell the properties hurriedly giving rise to a situation to sell the properties at a price much below the expected market price. HBN also informed that for the said purpose, HBN had also approached UTI, however, it did not get any positive response in this regard. Further, to repay the investors, HBN also thought it wise to avail loan and for the same it sought clarification from SEBI. ii) HBN stated that it faced various difficulties for the operation of escrow account. HBN informed that the escrow account could not be made operational/ functional because of Bank s non-co-operation. As a result of the same, HBN could not utilize the services of the RTA. (SEBI had advised HBN to forward all the correspondences exchanged by it with the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Collective Investment Schemes and refund the money collected by the said company under the schemes with returns which are due to its investors as per the terms of offer, on or before March 09, 2015 and thereafter within a period of fifteen days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including the trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds. ii. The Company shall provide proof including trail of funds, bank statements to support its contention that it has refunded the monies to its investors. 8. Subsequently, HBN filed an appeal before Hon ble Securities Appellate Tribunal ( SAT ) against aforesaid final order dated February 12, 2015 and the matter is presently sub-judice. Meanwhile, on January 13, 2016 SEBI received another repayment proposal from HBN towards compliance of the directions issued vide SEBI s final order. During the hearing held on January 15, 2016, before Hon ble SAT, HBN submitted that the company was willing to refund the investors and filed a proposal with S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 2013 and the transfer of assets and liabilities from the wholly owned subsidiaries is construed as amalgamation of companies in public interest in pursuant to section 237 of the Companies Act, 2013. d. The assets transferred to the SPE shall be at market value, certified by a competent valuator. As transfer of assets are at market value it shall not attract any gain on further transfer on sale of assets. However, should there be any tax payable for any differential gain then it will be as per the Income Tax Act, 1961. A tax reserve will be maintained by the SPE, in event of default in tax payment. ii) Tenure and Payment to all the investors: The entity shall continue its function of repayment within 24 months from the date of formation. The trust will repay the entire amount of INR 7,67,49,74,427/- accepted from 19,77,924 investors from all the centers across the country. Cash collateral of INR 50 crores p.a. will be contributed by HBN from the Hospitality business so as to maintain cash collateral in the payment process. At the closure of the trust the entire amount will go back to HBN which was brought in by them as cash collateral from this source. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yees. It is also noted that the key elements of this SPE include contractual and legal framework regulated by competent authorities. 11. Having considered the repayment proposal in detail, I find the following: i. The initial repayment proposal was submitted on August 08, 2013. It is a matter of grave concern that after a lapse of a little more than 3 years, the Company is still seeking a fresh proposal for repayment to investors. ii. HBN has failed to give any plausible explanation as to why the properties could not be sold since 2013. The new proposal also does not give any firm timelines as to when the properties will be sold. SEBI vide its letter dated July 10, 2014 had advised HBN to look into the possibilities of selling its properties through auction or tender process. I find that the transfer of properties to an SPE will in no substantial way lead to quicker sale of property, as compared to an auction of properties which was suggested earlier. The methodologies proposed to be used by the SPE do not also in any way guarantee sale of properties at better rate than by auction. Most importantly, such a scheme is only likely to delay the repayment to investors. ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m and the Bank the Company has failed to do so. Further, from the facts available on record, HBN claims to have made repayments to many investors in cash, in total disregard to the repayment scheme agreed by the company earlier. These cash repayments totalled to an amount as high as ₹ 192.96. crores (out of the total of ₹ 242 crores claimed to have been repaid till December 2014). It is difficult to give any credence to such claims made by HBN as the company despite being asked to submit details of the sources of cash, has failed to do so. viii. The proposal does not add value to the process of recovery of funds, which require auctioning of HBN assets to raise funds. The new proposal, instead of facilitating the process of repayments to the investors, would only result in huge delays. HBN also claims that the SPE might get some tax benefits. This is at best a vague claim, specially as no mention of any legal provisions in support have been mentioned. ix. The new proposal also envisages personnel from SEBI and RBI to join the Board of Trustees in the proposed trust. This can only be termed far-fetched and without any serious intent and purpose. x. A long winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Certain other Section of the people who are worstly affected are those who belong to the middle income group who again make such investments in order to earn some extra financial benefits and thereby improve their standard of living and on very many occasions to cater to the need of the educational career of their children. 38. Since it was noticed in the early 90s that there was mushroom growth of attractive schemes or arrangements, which persuaded the above vulnerable group getting attracted towards such schemes and arrangements, which weakness was encashed by the promoters of such schemes and arrangements who lure them to part with their savings by falling as a prey to the sweet coated words of such frauds, the Parliament thought it fit to introduce Section 11AA in the Act in order to ensure that any such scheme put to public notice is not intended to defraud such gullible investors and also to monitor the operation of such schemes and arrangements based on the regulations framed under Section 11AA of the Act .. 42. Therefore, in reality what sub-section (2) of Section 11AA intends to achieve is only to safeguard the interest of the investors whenever any scheme o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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