TMI Blog2020 (5) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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, in view of this judgment, the issue qualifies as deemed public issue. OIL has allotted RPS to more than forty-n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 that aforesaid Directors are responsible for all the deeds/acts of the company durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 3872 5,07,91,000 2013-14 1 50,000 Total 4192 5,46,98,000 The number of allottees and funds mobilized 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 amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d December 19, 2018 and February 04, 2019. 4.4 The Interim Order also directed OIL and the Noticees to show cause as to why suitable directions/prohibitions under section 11, 11(4), and 11B of the SEBI Act, 1992 should not be issued/imposed against them, including the following directions, namely: - Para 22 . (a) Orion Industries Ltd. and its directors Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati, Mohammed Afaque Ahmad, to jointly and severally refund the money collected from 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 other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad any type of bank transaction with the company. ii. That he has no information about the allotment of RPS by the Company as he has not signed any Form 2 on behalf of the Company. iii. That he is not related to the directors/promoters of the Company. As he was not the director of the company, it is not his responsibility to comply with Section 56, 60, 73(1), 73(3) of the Companies Act.. iv. That as he was never involved in issuing any type of securities, he cannot be held responsible for the said non-compliances and cannot be considered as the officer in default. v. That he does not have any knowledge of the said funds mobilized by the Company as he never had nor in present associated with the Company. vi. The Direction issued in the interim order is not binding upon him since he was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not aware of all the facts of the company. 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 of 120 days. 7. Personal Hearing: 7.1 In the present proceeding, before proceeding further in the matter, an opportunity of personal hearing was granted on December 10, 2019 to OIL and the Noticees. 7.2 Hearing Notice returned undelivered with respect to Noticees viz. OIL, Punam, Santanu and Afaque. Paper publication was done on November 23, 2019 in Pioneer and Dainik Bhaskar was done for OIL and Afaque and in Edition of Telegraph, Sanmarg and Ananda Bazar Patrika for Punam and Santanu. 7.3. Meanwhile, vide different undated letter received by SEBI on December 09, 2019, following Noticees made written submission: 7.3.1 Parwez and Manzur: reiterated the submission made by them earlier and in addition stated that they have made efforts to collect the requisite documents stated in the interim order and sought for adjournment of hearing. 7.3.2 Salimuddin: reiterated the submission made by him earlier and said he could col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the affairs of the Company and is not an auhorised signatory of the Company. The Noticee did not sign any documents of the Company. He doesn't know any of the directors of the Company. iii. The Noticee submitted that the signatures appearing in the MoA and AoA are not signed by him. His signatures are different as can be verified from his PAN card. iv. The Noticee was advised to file an affidavit with respect to the fact that he doesn't know any of the directors of OIL Further, the Noticee was informed that this is not the appropriate forum to dispute the signatures and he has to file a complaint in the appropriate forum. 9. Pursuant to the personal hearing, the Noticees, namely Mahfuz, Parwez, Kamal, Salimuddin and Manzur vide joint letter dated December 20, 2019 made the following submission, relevant portions of which are summarized below: 9.1 That they are the directors of the company M/s Orion Industries Limited registered with the Registrar of Companies Jharkhand, Bihar Patna bearing its CIN No- U01403JH2010PLC014555 having its registered office at the address of K-4, Kalpatru, Jalan Road, Ranchi, Jharkhand -834001. That, the date of incorporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees were once again granted an opportunity to avail personal hearing on February 05, 2020. The Noticees appeared on the said date and made oral submissions. 10.1 Parwez, Manzur Alam and Punam : i. The Noticees submitted that they are ready to refund the money collected by selling the properties in the name of the Company. The Company has properties at Jamtara and Asansol, West Bengal. ii. The Noticees were working in Basil International Ltd. as a commission agent and then started this company. Mr. Santanu Sen was also working in Basil International Ltd. Mr. Santanu Sen Choudhury worked in OIL for a period of 3 months. iii. Mr. Md. Afaque Ahmad preferred to resign after 3 months but the company did not accept his resignation for a long period. iv. There is no Managing Director in the Company. v. The Noticees submitted that they are in consensus with the written submissions made vide letter dated December 20, 2019. 11. OIL, pursuant to interim order did not file any reply nor appeared for personal hearing despite the notification through paper publication the date of personal hearing. In this regard, the direction of interim order dated July 05, 2019 is reproduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt received by SEBI. Therefore, it is possible that the actual number of allottees and amount mobilized could be more than 4,191 allottees and ₹ 5,46,48,000/- respectively. 14.3 I therefore conclude that OIL came out with an Offer of RPS as outlined above. 15. ISSUE No. 2- If answer on Issue No. 1 is in affirmative, whether the Offer of RPS is in violation of Section 56, Section 60 and Section 73 of Companies Act, 1956? 15.1 The provisions alleged to have been violated and mentioned in Issue No. 2 are applicable to the Offer of RPS made to the public. Therefore, the primary question that arises for consideration is whether the issue of RPS is 'public issue'. At this juncture, reference may be made to sections 67(1) and 67(3) of the Companies Act, 1956: 67. (1) Any reference in this Act or in the articles of a company to offering shares or debentures to the public shall, subject to any provision to the contrary contained in this Act and subject also to the provisions of sub-sections (3) and (4), be construed as including a reference to offering them to any section of the public, whether selected as members or debenture holders of the company concerned or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase by persons other than those receiving the offer or invitation or otherwise as being a domestic concern of the persons making and receiving the offer or invitations. Section 67(3) is, therefore, an exception to sections 67(1) and (2). If the circumstances mentioned in clauses (1) and (b) of Section 67(3) are satisfied, then the offer/invitation would not be treated as being made to the public. The first proviso to Section 67(3) was inserted by the Companies (Amendment) Act, 2000 w.e.f. 13-12-2000, which clearly indicates, nothing contained in Sub-section (3) of Section 67 shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more. Resultantly, after 13-12-2000, any offer of securities by a public company to fifty persons or more will be treated as a public issue under the Companies Act, even if it is of domestic concern or it is proved that the shares or debentures are not available for subscription or purchase by persons other than those receiving the offer or invitation. 15.3 Section 67(3) of Companies Act, provides for situations when an offer is not considered as offer to public. As per the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, 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, in view of this judgment, the issue qualifies as deemed public issue. 15.8 Since, OIL has allotted RPS to more than forty-nine allottees, I find the offer of RPS is a public issue within the first proviso of Section 67(3) of Companies Act. Hence, the Offer of RPS are deemed to be public issues and OIL was mandated to comply with the 'public issue' norms as prescribed under the Companies Act. 15.9 Further, since the Offer of RPS is a public issue of securities, such securities shall also have to be listed on a recognized stock exchange, as mandated under section 73 of the Companies Act. As per section 73(1) and (2) of the Companies Act, a company is required to make an application to one or more recognized stock exchanges for permission for the shares or debentures to be offered to be dealt with in the stock exchange and if permission has not been applied for or not granted, the company is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectus, 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, I find that OIL has not complied with sections 56(1) and 56(3) of the Companies Act, 1956. 15.14 Further, I note that the jurisdiction of SEBI over various provisions of the Companies Act, including the above mentioned, in the case of public companies, whether listed or unlisted, when they issue and transfer securities, flows from the provisions of Section 55A of the Companies Act. While examining the scope of Section 55A of the Companies Act, the Hon'ble Supreme Court of India in Sahara Case, had observed that: We, therefore, hold that so far as the provisions enumerated in the opening portion of Section 55A of the Companies Act, so far as they relate to issue and transfer of securities and nonpayment of dividend is concerned, SEBI has the power to administer in the case of listed public companies and in the case of those public companies which intend to get their securities listed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 - Md Kamal Koshar Director and Promoter 07/03/2011 - Mohammad Salimuddin Ansari Director and Promoter 07/03/2011 - Manzur Alam Director and Promoter 18/04/2011 - Punam Bharati Director 07/03/2011 16/05/2014 Mohammed Afaque Ahmad Director 11/11/2011 21/09/2013 Santanu Sen Choudhury Promoter 16.2 I note that aforesaid Directors have not disputed about their tenure of directorship in the company except Afaque. Afaque in his submission has stated he was a past director who joined the Company on November 11, 2011 and worked for a very brief period of 3-4 months and tendered his resignation on February 12, 2012 and the same was accepted by the directors of the Company on February 14, 2012. On perusal of the document submitted by Afaque received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material is available in respect of the same. Therefore, I give the benefit of doubt to Afaque and he is not liable on the basis of benefit of doubt. Hence, the directions against him in force are liable to be revoked. However, if any evidence of money collection is made available for the period preceding March 15, 2012, he will also be liable to the extent of money collected during the period preceding March 15, 2012. 16.4 I note from the submission made by Santanu that he was not the promoter of the Company and was never involved in issuing any type of securities nor has signed any documents related to the Company. He has also submitted that he doesn't know any of the directors of the Company and that the signatures appearing in Memorandum of Association (MoA) and Articles of Association (AoA) are not signed by him. I note from the submission made by the Directors vide joint letter dated December 20, 2019, that they have stated that he was the promoter of the company for the three months but has not provided the tenure when he was the promoter. During the personal hearing, Santanu was advised to file an affidavit whether he doesn't know any of the directors of OIL and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies Act. 16.8. As far as the liability for non-compliance of section 73 of Companies Act, is concerned, as stipulated in section 73(2) of the said Act, the company and every director of the company who is an officer in default shall, from the eighth day when the company becomes liable to repay, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent if the money is not repaid forthwith. With regard to liability to pay interest, I note that as per Section 73 (2) of the Companies Act, the company and every director of the company who is an officer in default is jointly and severally liable, to repay all the money with interest at prescribed rate. In this regard, I note that in terms of rule 4D of the Companies (Central Governments) General Rules and Forms, 1956, the rate of interest prescribed in this regard is 15%. 16.9 As per Section 5 of Companies Act, officer who is in default means (a) the managing director/s; (b) the whole-time director/s; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the Board of directors of the company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 956 and section 27(2) of the SEBI Act. Therefore, I find that Directors, viz., Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati Ahmad are jointly and severally liable to refund the amounts collected from the investors with interest at the rate of 15 % per annum, for the non-compliance of the above mentioned provisions. 16.12 I note that during the financial years 2011-12 and 2012-13, OIL, through Offer of RPS, had collected an amount of ₹ 5,46,48,000 from various allottees. I note that Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati have been the directors of OIL during financial years 2011-12 and 2012-13. Therefore, in view of Hon'ble Securities Appellate Tribunal (SAT) Order dated July 14, 2017 in the matter of Manoj Agarwal (supra), I am of the view that the obligation of the aforesaid Noticees to refund the amount with interest jointly and severally with OIL and other directors are limited to the extent of amount collected during his/her tenure as director of OIL. 16.13 It is to be noted that the above Noticees vide letter dated December 20, 2019 have submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that aforesaid Directors are responsible for all the deeds/acts of the company during the period of their directorship and are obligated to ensure refund of the money collected by the company to the investors as per the provisions of Section 73 of Companies Act. 16.16 In view of the foregoing, the natural consequence of not adhering to the norms governing the issue of securities to the public and making repayments as directed under section 73(2) of the Companies Act, is to direct OIL and its Directors, viz., Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati to refund the monies collected, with interest to such investors. Further, in view of the violations committed by the Company and its Directors, to safeguard the interest of the investors who had subscribed to such RPS issued by the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk accounts, demat accounts and holdings of mutual funds/shares/securities, if held in physical form and demat form, of the company and their own. e. Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati are permitted to sell the assets of the Company for the sole purpose of making the refunds as directed above and deposit the proceeds in an Escrow Account opened with a nationalized Bank. Such proceeds shall be utilized for the sole purpose of making refund/repayment to the investors till the full refund/repayment as directed above is made. f. Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati are prevented from selling their assets, properties and holding of mutual funds/shares/securities held by them in demat and physical form except for the sole purpose of making the refunds as directed above and deposit the proceeds in an Escrow Account opened with a nationalized Bank. Such proceeds shall be utilized for the sole purpose of making refund/repayment to the investors till the full refund/repayment as directed above is made. g. Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Moha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termediary registered with SEBI from the date of this Order till the expiry of 4 (four) years from the date of completion of refunds to investors. k. Santanu Sen Choudhury is directed not to, directly or indirectly, access the securities market, by issuing prospectus, offer document or advertisement soliciting money from the public and is further restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner for a period of 4 (four) years from the date of this Order. Santanu Sen Choudhury is also restrained from associating himself with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with SEBI from the date of this Order. It is also clarified that the period of restraint already suffered by Santanu Sen Choudhury shall be taken into account for calculating the period of restraint now imposed, l. This order will come into effect with respect to Santanu Sen Choudhury on the expiry of three hundred and sixty fifth (365) days of this order, if the order of the Competent Authority is not produced by Santanu Sen Choudhury within suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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