Final Order in the matter of M/s Alchemist Capital Ltd

8/20/2019 Final Order in the matter of M/s Alchemist Capital Ltd

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WTM/PS/32/IMD/NRO/AUG/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM: PRASHANT SARAN, WHOLE TIME MEMBER

ORDER

Und! "#$%&n" 11, 11'(), 11A *nd 11B &+ $ S#-!%$%" *nd E.#*n B&*!d &+ Ind%* A#$, 12,

In !"#$ &+

1 A4#%"$ C*%$*4 L%%$d 'PAN:AABCT525F) *nd

%$" D%!#$&!" '!"n$ *nd +&!!),

2 M! M*n"&&! Ad 'DIN: 016077318 PAN: A99PA63P),

3

M! H*!%*!*n;!*!**


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2 /n the basis of such reference, SEBI conducted an examination into the affairs of the $ompan'

re-ated to the a--eged mobi-i0ation of pub-ic funds through issue of securities /n comp-etion of the

examination, SEBI, vide an O!d! d*$d D#! 06, 201( ("the %n$!% &!d!") a--eged that the

$ompan' had made an offer and a--otted Rd*4 P!+!n# S*!" (RPS2) during the financia-

'ears !!3!!4, !!43!!*, !!*3!! and !!3!!5 in contravention of the provisions of the

$ompanies 6ct, 17* (sections *, ! read +ith section () and 5) and the SEBI (isc-osure and

Investor %rotection) 9uide-ines, !!! ("the DIP G-%d4%n"") read +ith regu-ation 111 of the SEBI (Issue

of $apita- and isc-osure #e:uirements) #egu-ations, !!7 ("the ICDR R-4*$%&n"") In vie+ of the

vio-ations, to ensure that on-' -egitimate fund raising activities are carried on b' 6$; and no investors are

defrauded, SEBI issued the fo--o+ing directions against the $ompan', its directors and former directors

"

7. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11, 11(4), 11A and 11 of

the S!I Act and "lause 17 of the #I$ %uidelines read with &egulation 111 of the I"#& &egulations, here'

issue the following directions

i A"* shall not mo'ili+e an fresh funds from investors through the ffer of &edeema'le $reference Shares or

through the issuance of e-uit shares or an other securities, to the pu'lic andor invite su'scription, in an

manner whatsoever, either directl or indirectl till further directions/

ii A"* and its present #irectors, vi+. Shri 0ansoor Ahmed (#I2 3135561/ $A2 A$A776$),

Shri 8ariharan9eeraraghavan (#I2 36156:6;/ $A2 A


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vi A"* and its a'ovementioned present #irectors shall not dispose of an of the properties or alienate or

encum'er an of the assets ownedac-uired ' that compan through the ffer of &edeema'le $reference

Shares, without prior permission from S!I/

vii A"* and its a'ovementioned present #irectors shall not divert an funds raised from pu'lic at large through

the ffer of &edeema'le $reference Shares, which are ept in 'an account(s) andor in the custod of A"*/

viii A"* and its a'ovementioned present #irectors shall furnish complete and relevant information in respect of the

ffer of &edeema'le $reference Shares (as sought ' S!I letters dated cto'er 1, :316/ @e'ruar :3, :314and 0arch :7, :314), within :1 das from the date of receipt of this rder.

8 Che a'ove directions shall tae effect immediatel and shall 'e in force until further orders

"

3 The interim order +as issued +ithout pre&udice to the right of SEBI to tae an' other action that

ma' be initiated against the $ompan' and its past and present irectors (co--ective-' referred to as

"n&$%#"") in accordance +ith -a+ The interim order a--o+ed the noticees to fi-e their response and a-so

intimate +hether the' desired to avai- an opportunit' of persona- hearing

( The C&*n, vide -etter dated A!%4 17, 2015, submitted its rep-', inter alia maing the fo--o+ing

submissions <

a) The rep-' is in respect of the C&*n and its present directors M! M*n"&&! A*d and M!

H*!%*!*n;!*!**ar&it Singh and Smt >arpreet ?aur named as directors in the

interim order have a-read' resigned from the respective posts prior to the passing of the interim

order and that the re:uisite documents evidencing their resignations +ere said to be annexed

c) The $ompan' is a pub-ic -imited compan' incorporated under the provisions of the $ompanies

6ct, 17* and is registered as a @on3Baning Ainancia- $ompan' (@BA$) +ith the #eserve Ban

of India (#BI) The $ompan' is inter alia engaged in the business as an investment compan' and

for the said purpose it invests in, ac:uires, under+rites, subscribes for and ho-ds shares, bonds,

stocs etc

d) The $ompan' +as incorporated as Cou'ro 8oldings *td. on ecember 1, !!! and obtained a

certificate of commencement of business on anuar' , !!1 /n ecember , !!*, the

$ompan' obtained a $ertificate of #egistration +ith the #BI to commence business as an @BA$

The name of the compan' +as changed to its present name in the 'ear !!8 and a fresh $ertificate


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of #egistration pursuant to the name change +as issued to the $ompan' on 6ugust 11, !!8 #BI

governs the conduct of the $ompan' under the #BI 6ct

e) /n anuar' !, !1, the $ompan' received t+o S$@s dated ecember 8, !1 from the #o$

$handigarh a--eging inter alia that the $ompan' +as in vio-ation of sections !, 5 and 5 of the

$ompanies 6ct The a--egation +as that the $ompan' issued shares to more than *! persons

vio-ating the provisions re-ating to issuance of prospectus and -isting contained in section !, 5

and 5 of the $ompanies 6ct The $ompan' had cha--enged the said S$@s before the >on.b-e

>igh $ourt of %un&ab and >ar'ana on the ground that the provisions of section !, 5 and 5 are

inapp-icab-e to the $ompan' being an @BA$ registered +ith #BI The >on.b-e >igh $ourt had

sta'ed the S$@s on noting its contention The #o$ had fi-ed a detai-ed counter affidavit taing a

stand that as the $ompan' +as an @BA$ registered +ith #BI, no action has been taen for a--eged

vio-ations of sections !, 5 and 5 In vie+ of the stand taen b' the #o$, the >on.b-e >igh

$ourt passed a fina- &udgment dated /ctober 1, !14 +ith the fo--o+ing order<

"=. Although the praer in the petition pertains to a challenge to the show cause notice issued under section 53 and

57(6) read with section 76 of the "ompanies Act, no orders are necessar in the light of the repl of the State that

the are not taing an action pursuant to the notice since the petitioner is a onDaning @inancial Institution to

which the said provisions will not 'e applica'le."

f) Chi-e taing the above stand, the #o$ has a-so for+arded the reference regarding the a--eged

vio-ation of the ver' same provisions to the SEBI b' +a' of the communication dated September

18, !1 $op' of the said communication has not been provided to the $ompan' ti-- date b'

SEBI or b' #o$

g) The representation made b' the #o$ +as not on-' ma-afide but a-so contrar' to its stand before

the >on.b-e >igh $ourt

h) SEBI re:uest dated /ctober !1, !1 to the #o$ seeing detai-s regarding the #%S and #o$.s

response dated /ctober 1*, !1 have not been made avai-ab-e to the $ompan'

i) The $ompan' vide -etter dated /ctober 14, !1 responded to the SEBI -etter dated /ctober !1,

!1 and had pointed out that it is an @BA$ and sought 4 +eesD time to provide a detai-ed

response

&) The $ompan', +ithout pre&udice to its rights, submitted detai-ed information vide its -etter dated@ovember !5, !1 submitting certain documents inc-uding =emorandum and 6rtic-es of

6ssociation, $opies of 6nnua- #eturns, detai-s of directors, etc


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) Cith respect to the SEBI.s -etter asing for a cop' of the certificate of registration as an @BA$, the

$ompan' sent a response dated =arch !, !14 supp-'ing the re:uisite information a-ong +ith

cop' of samp-e pamph-et form and app-ication form, Aorm3 fi-ed +ith #o$ for issuance of #%S

and Aorm3 for issuance of #%S

-) SEBI vide another -etter dated =arch 5, !14 sought information +ith respect to -ist of a--ottees

and their detai-s and that the $ompan' re:uested for ! da's time to provide the information @o

further communication +as exchanged bet+een the $ompan' and SEBI thereafter It +as

understood that the #o$ had a-read' for+arded a $ containing the names and detai-s of a--ottees

to SEBI and therefore the $ompan' did not fee- the re:uirement to send further information

assuming that SEBI +as satisfied >o+ever, on service of the interim order, the $ompan' -earnt

that SEBI had passed order against itse-f and its directors as +e-- as former directors +ithout

affording an' opportunit' of persona- hearing

The $ompan' submitted that the /rder passed b' SEBI is comp-ete-' untenab-e in the e'es of -a+and is thus -iab-e to be immediate-' reca--ed for the fo--o+ing reasons <

I) R+!n# R&C C*nd%*! %" *4*+%d:

i The interim order is a nu--it' in -a+ as the same has been passed on a reference made b'

the #o$ to investigate the a--eged vio-ations of section !, 5 and 5 of the $ompanies 6ct

not+ithstanding the stand of #o$ that the above provisions are inapp-icab-e to the

$ompan' as it is a registered @BA$ under the #BI 6ct This stand +as categorica--' taen

b' the #o$ in its counter affidavit fi-ed before the >on.b-e >igh $ourt of %un&ab and>ar'ana

ii The #o$ cannot cause another roving and fishing in:uir' into the affairs of the $ompan'

having fai-ed in its ear-ier attempt at prosecuting the $ompan'

iii The >on.b-e >igh $ourt has a-read' struc do+n the said S$@s issued b' the #o$ b'

accepting the statement of the #o$ that the said provisions are inapp-icab-e to the

$ompan' Therefore, on a matter of interpretation, SEBI cannot be a--o+ed to tae a

different vie+ in the matter The >on.b-e >igh $ourt has put its imprimatur b' accepting

the statement made b' the #o$ and as such the action of SEBI in re3agitating the same

issue amounts to constructive res3&udicata In an' event, a finding of the >on.b-e >igh

$ourt that the provisions of sections !, 5 and 5 are inapp-icab-e to the $ompan' is


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binding on SEBI and an' contrar' interpretation +ou-d amount to contempt of $ourt.s

/rders

iv The emergent facts c-ear-' sho+ that the actions of the #o$ are comp-ete-' ma-afide in so

far as the' are continuous-' targeting the $ompan' as part of their ma-afide designs The

#o$ being an instrumenta-it' of the State is re:uired to act in a fair, unbiased and bonafide

manner nfortunate-', the #o$ seems to have abdicated their so-emn dut' and have

adopted unscrupu-ous means to target the $ompan'

II) O!d! *""d @%$&-$ *!%n $ C&*n *nd %$" d%!#$&!" -"$%#

i The interim order has been passed in a mechanica- manner +ithout affording the $ompan'

or its directors an opportunit' of being heard SEBI has passed s+eeping orders +ithout

hearing, 8 'ears after the issuance of #%S during +hich period SEBI and $ompan' had

exchanged extensive correspondence

ii The interim order is thus a gross vio-ation of the princip-es of natura- &ustice

iii @either #o$ nor SEBI have ti-- date provided the a--eged reference made b' the #o$ to

SEBI and correspondence dated /ctober !1, !1, /ctober 1*, !1 and /ctober 7,

!1 +hich forms the basis for passing of the interim order It further appears that #o$

annexed certain documents a-ong +ith their reference to SEBI, +hich have not been

provided to the $ompan' ti-- date

iv The procedure adopted b' SEBI is comp-ete-' perverse as it has a-read' pre3&udged the

entire issue rendering the process of sho+ cause an empt' forma-it' Fita- rights of the

$ompan' have been affected +ithout affording an opportunit' of being heard and that

SEBI has ignored the proviso to section 11(4) of the SEBI 6ct +hich re:uires an

opportunit' of hearing to the concerned person

v The $ompan' has cooperated +ith SEBI and has provided ade:uate response and

therefore SEBI cou-d not have he-d that the $ompan' defau-ted in providing information

III)

N& -!n# %n $ *$$! %n$!% &!d! -nn#""*!i SEBI has fai-ed to appreciate that the $ompan' has not committed an' irregu-arit' nor has

vio-ated an' provisions issued b' SEBI or #BI


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ii The entire basis of the /rder is f-a+ed for the reason that the $ompan' has not issued an'

#%S since the 'ear !! The interim order has been passed in a -acadaisica- and hurried

manner in the guise of investor protection The admitted case of SEBI is that a--eged

pub-ic issue too p-ace in the 'ear !!, !!4, !!* and +as made more than e-even 'ears

ago and there +as no occasion for SEBI to pass an ex3parte interim order at such a be-ated

stage

I;) N&


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stoc exchange for -isting compan'.s securities is re-atab-e to a case +here offers or

invitation for subscription to shares are made to the pub-ic The $ompan' has not made

an' offer to the pub-ic Cithout pre&udice to the $ompan'.s other contentions, the

issuance of shares +as not ca-cu-ated to resu-t, +hether direct-' or indirect-', in shares

becoming avai-ab-e for subscription or purchase b' persons other than those receiving the

offer or invitation The offer made +as other+ise as being a domestic concern of the

persons maing and receiving the offer or invitation

vi Even the #BI has taen the vie+ that section 5 of the $ompanies 6ct does not app-' to

@BA$s as +ou-d be evident from the fo--o+ing<

• The Ainancia- Stabi-it' #eport of ecember !1! issued b' #BI specifica--' records

that @BA$s are exempt from the provisions of section 5 of the $ompanies 6ct

and that the #BI +as in the process of formu-ating guide-ines in con&unction +ith

the =inistr' of $orporate 6ffairs to p-ug the contemporaneous regu-ator' gap

• #BI issued $ircu-ars dated une 5, !1 and u-' !, !1 for @BA$s in the

matter of private p-acement It is c-ear therefrom that private p-acement has been

sub&ected to regu-ator' restrictions on-' in !1 and no restrictions +ere app-icab-e

at the time the $ompan' issued the #%S in :uestion The aforesaid $ircu-ars have

amended the operation of section 5 of the $ompanies 6ct to the extent that

@BA$s are a-so sub&ect to the .47 person. ru-e +hich +as inapp-icab-e to @BA$s

prior thereto

vii The aforesaid #BI $ircu-ars do not app-' retrospective-' and sha-- app-' to future issue of

shares b' @BA$s The a--egations raised b' SEBI re-ate to issuance of #%S in the 'ears

!!, !!* and !! The interim order does not tae into account the fact that the

$ircu-ar issued b' #BI c-arifies the position of -a+ that the section 5 does not app-' to the

$ompan'

viii The $ompan'.s status as an @BA$ has not been disputed b' SEBI @ot+ithstanding the

same, SEBI has gone ahead to ho-d that the provisions of section 5 app-ies to the

$ompan' and that it fai-ed to estab-ish that the issue of shares +as a .private p-acement.

ix SEBI fai-ed to appreciate that it had amp-e po+ers under section 5 (6) of the $ompanies

6ct to issue guide-ines in consu-tation +ith the #BI in respect of the offer or invitation

made to the pub-ic b' a pub-ic financia- institution The said provision is the app-icab-e


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provision and in the absence of an' such guide-ines, no directions cou-d have been passed

against the $ompan'

x SEBI did not investigate the issue and erroneous-' p-aced the entire burden on the

$ompan' The >on.b-e S6T in Cou'ro InfotechE Industries *imited vs. S!I (Appeal o.

141:336) has he-d that the onus to estab-ish that a particu-ar issue is intended to be a

pub-ic issue -ies upon SEBI This position of -a+ is further strengthened b' a combined

reading of the aforesaid &udgment and the #BI $ircu-ars The interim order +rong-' shifts

the entire onus on the $ompan' and ho-ds that the $ompan' fai-ed to provide an' cogent

materia- to prove their case

xi SEBI fai-ed to appreciate the scope of its po+ers +hi-e administering the provisions of the

$ompanies 6ct in respect of companies mentioned in section **6 of the $ompanies 6ct

Chi-e acting so, SEBI is on-' empo+ered to act in terms of the $ompanies 6ct and not to

pass directions under the SEBI 6ct That being the position, SEBI cou-d not have issued

directions against the $ompan' under the provisions of the SEBI 6ct

xii SEBI has fai-ed to appreciate that under section **6 of the $ompanies 6ct, SEBI has

-imited &urisdiction +hich has been granted on-' :ua those companies +hich intend to get

their shares -isted on an' recogni0ed stoc exchange and the same can on-' be exercised in

terms of the po+ers +hich are provided under the various sections as specified in section

**6

xiii SEBI has erred in re-'ing upon the observations made in the decision rendered in Sahara

India &eal !state "orporation *imited and others vs. S!I and others ("ivil Appeal o.

=16:311). The decision in Sahara is distinguishab-e on facts as Sahara +as never

registered as @BA$ Aurther, in paragraph 7* of the Sahara order, it +as observed " A pu'lic

compan can escape from the rigor of provisions, if the offer is made ' companies mentioned under Section

57(6A), i.e. ' pu'lic financial institutions specified under section 4A or ' nonD'aning financial

companies referred to in section 4;I(f) of the &eserve an of India Act, 1=64."

xiv It is c-ear that the >on.b-e Supreme $ourt has conscious-' he-d that the app-icabi-it' of

section 5() of the $ompanies 6ct cannot be extended to @BA$s Therefore, re-iance

p-aced on the &udgment in Sahara +as misp-aced Even other+ise, the aforesaid &udgment +as rendered in the 'ear !1 and can on-' be app-ied prospective-'

xv The interim order severe-' hampered the operations of the $ompan' in as much as the

same is a running concern and its da' to da' operations have been hampered b' putting


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unnecessar' fetters and restrictions Stringent directions have been passed against the

directors +ithout proper ad&udication of the case There +as no urgenc' in the matter and

SEBI ought to have given an opportunit' to the $ompan' and its directors to put forth

their case before passing the order

xvi 6s far as the observations made in the interim order +ith respect to the a--otments dated

6ugust !, !!8, ecember 1, !!4 and u-' !, !!* are concerned, it +as submitted

that the $ompan' has issued #%S on private p-acement basis Even though the $ompan'

+as not registered as an @BA$ at the time, a-- re-evant disc-osures have been made to the

#BI +hich has thereafter granted registration certificate to the $ompan'

xvii The a--otments made prior to registration as +e-- as post registration have been

proper-' characteri0ed b' the $ompan' and it does not -ie in the mouth of SEBI to

:uestion the same Cithout pre&udice to the above, it is submitted that the $ompan' has

redeemed a substantia- portion of the aforesaid a--otments

xviii 6--otments made more than 1 'ears ago more so in the absence of an' comp-aints

from shareho-ders cannot be the basis of the order

The $ompan' and its directors re:uested SEBI to reca-- the order and to suspend the direction +hich

directs the $ompan' and its directors to mae disc-osures +ith regard to their assets

5 R4 &+ M! H*!>%$ S%n '!#%


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no+-edge of the noticee and the noticee cannot be he-d accountab-e for an' a--eged -apses on the

part of the $ompan' in regu-ator' comp-iances

f) The noticee +as mere-' an Independent irector in the $ompan' and not in an' manner

responsib-e for the da' to da' management and contro- of the $ompan' The interim order has

not considered the said facts and has caused grave pre&udice to the noticee

g) @o ro-e has been ascribed to the noticee and as such the noticee cannot be made vicarious-' -iab-e

for the a--eged acts of the $ompan' in issuing #%S in vio-ation of the -a+

h) The interim order sees to invoe the provisions of sections 11, 116 and 11B of the SEBI 6ct for

the a--eged vio-ations The aforesaid provisions do not spe-- out that directors of a compan' sha--

be vicarious-' -iab-e for the offences committed b' a compan' In the absence of an' such

provision, the interim order ho-ding the directors of the $ompan' prima facie gui-t' of the vio-ations

is comp-ete-' +ithout &urisdiction

i) SEBI has the po+er to administer the provisions of the $ompanies 6ct b' virtue of section **6 of

the $ompanies 6ct in order to effective-' regu-ate the functioning of -isted companies In doing so,

the pena-ties must re-ate to the said 6ct and SEBI is therefore +rong in invoing the provisions of

sections of SEBI 6ct

&) Cithout pre&udice, the noticee denied that the $ompan' had committed an' irregu-arit' or

vio-ation of the $ompanies 6ct, I% 9uide-ines and I$# #egu-ations and as such proceedings

against the $ompan' and its directors is -iab-e to be dropped

) The noticee re:uested that the proceedings against him be dropped and as interim re-ief re:uested

for suspension of the directions passed vide the interim order

-) The noticee a-so re:uested for documents forming part of correspondence bet+een the $ompan'

and SEBI and those that are re-ied in the order

7 R4 &+ M! S*nd S$% '!4 !#%


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d) SEBI ought to have verified the facts before passing s+eeping directions +hich have not on-'

caused economic harm but a-so tarnished his reputation /n this ground a-one the order needs to

be reca--ed

e) @o notices or correspondence +ere ever exchanged bet+een the noticee and SEBI and it +as

obvious that SEBI did not send notices due to the mistaen be-ief that the noticee continues to be

the director

m) SEBI has demonstrated that a--otment of #%S +as undertaen b' the $ompan' on 6ugust !,

!!, ecember 1, !!4, u-' !, !!*, 6pri- 1!, !! and une !, !! and a tota- of #s1*1

crore +as raised upto une !, !! b' the $ompan' Chat has sipped SEBI.s attention +as that

the noticee +as not a director of the $ompan' on the said dates Even as per SEBI.s case, no

a--otment or issuance of #%S too p-ace post une !, !! and as such no -iabi-it' for such

a--otments can be fastened on the noticee, +ho +as appointed on anuar' , !!7 and

subse:uent-' resigned on /ctober !1, !1 It is therefore c-ear that the undersigned cou-d not

have been invo-ved in the a--eged vio-ations

n) The issuance of #%S b' the $ompan' being a private p-acement did not in an' manner offend the

provisions of -a+, as contended b' SEBI

o) The order does not -eve- an' a--egations against the noticee nor does it spe-- out the ro-e of the

undersigned in the commission of the a--eged vio-ations b' the $ompan'

p) The provisions of the SEBI 6ct as invoed b' SEBI do not provide for vicarious -iabi-it' of the

directors and in the absence of such statutor' provisions, no vicarious -iabi-it' can be fastened on

the directors of the $ompan'

:) The noticee p-aced re-iance on =asudSai'ed v State of 9u&arat and others H!!8 (*) S$$ 8,

$ommissioner of $entra- Excise, banga-ore v Brindavan Beverages (%) ;td and others H!!5 7*)

S$$ 88 and $o--ector of $ustoms, $a-cutta v Tin %-ate $o of India ;td and others H1775 (1!)

S$$ *8 The noticee a-so re-ied on the decision in Suni- Bharti =itta- v $EB H$rimina- 6ppea-

@o 4 of !1* decided on !7!1!1*, +here it +as he-d that -iabi-it' of offending acts of a

compan' can be foisted on its directors on-' +hen the app-icab-e statute specifica--' provides for

vicarious -iabi-it', there has to be specific act attributab-e to a director so as to ho-d such director

responsib-e for the offending acts committed b' or on beha-f of the compan'r) It is sett-ed -a+ that pena- provisions in a statute are to be strict-' construed

s) The issuance of #%S b' the $ompan' c-ear-' constitutes a private p-acement and as such does not

attract the provisions of section 5 and 5 of the $ompanies 6ct


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t) The $ompan' is an @BA$ and +as carr'ing on business in terms of the certificate of

commencement of business granted to it 6s a resu-t of such registration, the provisions of section

5 and 5 are inapp-icab-e to the $ompan' in terms of the second proviso to section 5() of the

$ompanies 6ct

u) Section 5(6) of the $ompanies 6ct is the app-icab-e provision attracted in the present case and

as no guide-ines existed at the time of issuance of the #%S, no -iabi-it' can be fastened on the

$ompan' and its directors

v) The noticee a-so referred to the #BI circu-ars dated 5!!1 and !!5!1 +herein the po+ers

under section 5(6) appear to have been exercised for the first time to p-ug the -oopho-es in the

regime regu-ating @BA$s in India

+) The fact that section 5() and 5(6) of the $ompanies 6ct operate in different spheres has been

recognised b' the Supreme $ourt in the Sahara case

x) The issuance of #%S b' the $ompan' +as not ca-cu-ated to resu-t, +hether direct-' or indirect-', in

shares becoming avai-ab-e for subscription or purchase b' persons others than those receiving the

offer or invitation The offer made +as other+ise as being a domestic concern of the persons

maing and receiving the offer or invitation

') The noticee has at a-- times acted in good faith and discharged his fiduciar' duties professiona--'

and in accordance +ith -a+ The noticee being an independent director +as never invo-ved in the

da' to da' management of the $ompan' and therefore no -iabi-it' can be fastened upon him

0) The noticee urged SEBI to reca-- the interim order and drop the proceedings in respect of him

R4 &+ M! 9*n@*! D S%n '!4 !#%o-dings ;imited ( the "ompan was earlier nown ' this

name ) +hich +as incorporated +ith the #o$ on ecember 1, !!! and obtained a certificate of

commencement of business on anuar' , !!1 The noticee +as a non3+oring director on the

board of the said compan' from its incorporation ti-- 6pri- !*, !!4, +hen he resigned from it

The noticee a-so enc-osed documents (resignation -etter dated 6pri- !*, !!4 and Aorm3)

c-aiming to evidence his resignation The noticee acted in good faith and discharged his functions +ith utmost di-igence fo--o+ing professiona- advice rendered at that time and as such cannot be

made -iab-e for the acts of the $ompan', even if SEBI reachs a conc-usion that the $ompan' has

vio-ated the $ompanies 6ct and the SEBI 6ct


14/61

Page 14 of 61

b) SEBI did not issue a sing-e -etter to the erst+hi-e directors to ascertain their stand and that it

cannot be the case of SEBI that it +as not a+are that the noticee a-ong +ith other erst+hi-e

directors resigned from the compan'

c) The noticee has re:uested for the documents that forms the basis of the interim order

d) The in:uir' admitted-' commenced on the representation of the #o$ and therefore prima facie no

-iabi-it' cou-d have been fastened on the noticee +ho resigned on 6pri- !*, !!4

e) 6s far as the noticee +as concerned the a--otment made on 6ugust !, !! ma' be re-evant as the

a--otments done on the other dates +ere done after his resignation as a director in the $ompan'

The a--otment on 6ugust !, !! +as made pursuant to a Specia- #eso-ution passed b' the Board

of the $ompan' dated u-' 1, !! for issuance of #%S on private p-acement basis

f) The impugned a--otment +as made pursuant to specific professiona- advise that the issuance of

such #%S on private p-acement +ou-d comp-' +ith the provisions of the $ompanies 6ct, 17*

g) 6s the $ompan' +as an un-isted compan', there +as no re:uirement of an' comp-iance of section

5 of the $ompanies 6ct and the SEBI 6ct and regu-ations framed thereunder

h) The re-iance on the &udgment in the Sahara case is misp-aced and it is impossib-e to contend that

the said decision +ou-d operate retrospective-' to the transactions +hich too p-ace a-most a

decade ago

i) SEBI sees to invoe the princip-e of vicarious -iabi-it' against the noticee and other pastGpresent

directors There are no specific a--egations against the noticee that he +as responsib-e for the da'

to da' management and contro- of the compan' at the re-evant time @o specific ro-e has been

ascribed to the noticee or against the other directors and therefore the invocation of the provisions

of the SEBI 6ct and passing interim directions against the noticee and the other directors is

comp-ete-' un+arranted and renders the order to be reca--ed

&) The order has been passed +ithout hearing the $ompan' or its directors and thus amounts to a

gross vio-ation of the princip-es of natura- &ustice There +as no need to pass interim order as the

same re-ated to the 'ear !!

) The noticee re:uested SEBI to discharge him from the proceedings and further re:uested SEBI to

provide re-evant documents forming basis of the order

6 R4 &+ M!" H*!!$ 9*-!<

This noticee made the fo--o+ing submissions vide rep-' received on 6pri- !, !1* 3


15/61

Page 15 of 61

a) The noticee +as an initia- director of the $ompan' and +as named as such in the 6rtic-es of

6ssociation of the $ompan' fi-ed +ith #/$ She tendered her resignation vide -etter dated

Aebruar' 8, !!1 Aorm3 evidencing her resignation +as a-so fi-ed

b) She has been +rong-' described as a .present director. despite the fact that she had resigned from

the said post on Aebruar' 8, !!1 The notice has been issued in error as the noticee has no ro-e

to p-a' in the business and management of 6$;

c) The a--egations emanate from the a--otment of #%S issued b' the $ompan' in the 'ears !!,

!!4, !!* and !! uring such period, the undersigned had ceased to be director

d) The noticee refuted the a--egations and submitted that order cannot see to impose an'

ob-igations or -iabi-ities on the noticee in vie+ of the fact that she +as not a director during the

re-evant time

e) The interim order proceeds on an erroneous basis against the noticee and the same is +ithout

&urisdiction and authorit' of -a+

f) The noticee therefore re:uested SEBI to reca-- the order in respect of her

M! RP C*!*, vide his -etter received on 6pri- !, !1*, inter alia made the fo--o+ing

submissions <

(a) The noticee is 5* 'ears o-d and has retired from %un&ab @ationa- Ban

(b) The service of the noticee +as not pensionab-e and after his retirement, his fu-- time vocation are

his investments in the stoc maret The noticee +ho is retired has the dut' to -oo after his +ife,

daughter and grand3daughter, and does not have other source of income except his investments in

the stoc maret

(c) The noticee +as appointed as a director in the $ompan' on Aebruar' 8, !!1 uring his tenure,

the noticee +as a non3+oringGindependent director +ithout an' shareho-ding in the $ompan'

The noticee did not dra+ an' remuneration and had no ro-e in the affairs of the $ompan'

(d) /n 6pri- !*, !!4, the noticee resigned from his position as a director of the $ompan' $opies of

resignation -etter and Aorm3 +ere fi-ed

(e) /n coming to no+ of the interim order passed b' SEBI against the $ompan' and its past and

present directors, the noticee re:uested the $ompan' to provide copies of communication

exchanged bet+een SEBI and compan' a-ong +ith interim order


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Page 16 of 61

(f) The order is i--ega- and bad in -a+ as it has arbitrari-' prohibited the noticee from accessing and

dea-ing in the securities maret, +hich is the means of noticeeDs -ive-ihood being a retired senior

citi0en

(g) The noticee +as never ca--ed upon b' SEBI to exp-ain his stand and a comp-ete-' erroneous

procedure has been fo--o+ed b' SEBI in passing the order against ex3directors

(h) The prima facie observations contained in the interim order do not raise an' specific a--egations

against the directors of the $ompan' nor does it attribute an' specia- no+-edge of the a--eged

vio-ations b' the $ompan' %ena- statutes must be construed b' &udicia- authorities in the strictest

possib-e terms and vicarious -iabi-it' can on-' be fastened on directors in case their ro-e is c-ear-'

visib-e or ascribed in the a--egations -eve--ed b' a comp-ainant The noticee reiterated that he +as

appointed as a non3+oringGindependent director on Aebruar' 8, !!1 and resigned on 6pri- !*,

!!4

(i) uring his tenure as a director, the noticee did not participate in the management and contro- of

the $ompan' and as such cannot be deemed to be in contro- or in charge of the affairs of the

$ompan'

(&) Arom the a--egations, on-' one a--otment too p-ace on 6ugust !, !! and the re:uisite forms

+ere fi-ed +ith #o$ The said a--otment +as made on private p-acement basis and did not offend

an' regu-ator' or statutor' re:uirement in -a+ The noticee has -earnt that substantia- redemption

of the #%S a--otted on 6ugust !, !! +as made b' the $ompan' and re:uested SEBI to ca--

upon the $ompan' to provide detai-s of such redemption

() The action of SEBI appears to be ma-afide and hit b' de-a' and -aches The noticee resigned from

the $ompan' as far bac as 6pri- !!4 and has not retained an' documents pertaining to the

period of directorship +hich ended over 1! 'ears ago SEBI has started a roving and fishing

in:uir' into the affairs of the $ompan' +ithout rea-i0ing that the individua-s such as the noticee

+ou-d never be ab-e to defend themse-ves effective-' due to -ac of evidenceGdocuments avai-ab-e

for such o-d transactions

(-) SEBI did not provide documents and the noticee +as at the merc' of the $ompan' to reconstruct

his record and to effective-' defend himse-f

(m) @oticee re:uested to provide a-- documents and a-so for an opportunit' of persona- hearing


17/61

Page 17 of 61

10 Though the interim order +as de-ivered on noticees, =r Bri& =ohan =aha&an and =r Firendra

Singh, the' did not fi-e an' response The interim order for the fo--o+ing noticees returned +ith the

remar as mentioned in the tab-e<

S N& N* &+ $ n&$%# R*"&n +&! n&n

d4%ariharan Feeraraghavan ;eft

#avinder Singh @o such person

Suni- ?anti ?ar eceased

Subse:uent-', it is noted that one $S $houhan received the interim order for =r >ariharan Feeraghavan

on Aebruar' 17, !1* The rep-' of the $ompan' +as a-so for =r >ariharan Feeraghavan Aurther, SEBI

pub-ished a ne+spaper advertisement on Aebruar' 18, !1* regarding the proceedings against =r Suni-

?anti ?ar and =r #avinder Singh It is noted that the interim order +as received b' =r S ?ar on beha-f

of =r Suni- ?anti ?ar on Aebruar' 11, !1* >o+ever, no response +as received from Suni- ?anti

?arGhis fami-' and no death3certificate +as for+arded to SEBI @o rep-' +as received from =r #avinder

Singh a-so

11 The noticees +ere afforded an opportunit' of persona- hearing on 6pri- !, !1*, +hen the

$ompan' and =r =ansoor 6hmed appeared and sought for another date of hearing The matter +as

ad&ourned to =a' !8, !1* In this hearing, noticees 3 $ompan', =ansoor 6hmed, >ariharan

Feeraraghavan, >ar&it Singh, Sandeep Sethi, Bri& =ohan =aha&an, ?an+ar eep Singh, >arpreet ?aur,

#avinder Singh and #% $hhabra appeared through their authorised representatives The' had re:uested

for copies of the documents re-ied upon b' SEBI It +as pointed out that no such re:uest +as made on

the -ast date (ie !!4!1*) of persona- hearing >o+ever, in the interest of natura- &ustice, a fina-

opportunit' +as granted to the noticees on =a' , !1* @one appeared for noticees 3 Suni- ?anti ?ar

and Firendra Singh

In response to the notice dated =a' 1, !1* informing persona- hearing on =a' , !1*, the $ompan'

re:uested for an ad&ournment that their counse- +as not avai-ab-e on account of vacation and that the

documents received from SEBI had to be examined >o+ever, as the noticeesGtheir counse- +ere c-ear-'

informed that the persona- hearing afforded on =a' , !1* +ou-d be the fina- opportunit' and the same


18/61

Page 18 of 61

+as a-so agreed to b' them, I had decided that no further ad&ournment +ou-d be afforded 6ccording-',

the $ompan' +as informed, vide SEBI.s -etterGemai- dated =a' 1, !1* that the re:uest for ad&ournment

+as re&ected and the' +ere advised to appear on =a' , !1* and that fai-ure to appear +ou-d resu-t in no

further opportunit' of hearing and the case +ou-d be decided on the basis of materia- on record >o+ever,

none of the noticees especia--' the noticees +ho appeared on =a' !8, !1* appeared on =a' , !1* 6s

informed, the hearing opportunit' +as c-osed and the matter is taen up for consideration on merits on

the basis of materia- avai-ab-e on record

12 %ursuant to the above, it is noted that >onDb-e S6T had vide /rder dated une !7, !1* (in =isc

6pp-n @o 14G!1* and 6ppea- @o 4G!1* ( &. $. "hha'ra vs. S!I ) a--o+ed M! RP C*!* to

+ithdra+ his appea- ( which challenged the interim order passed against him ) after taing on record the statement of

SEBI The re-evant portions of the said /rder are reproduced be-o+<

F :. GGGGGG. "ounsel for S!I fairl states that opportunit of hearing was alread afforded to the

appellant on two occasions and on the third occasion the appellant remained a'sent. "ounsel for S!I further states

that one more opportunit of hearing would 'e given to the appellant within a period of 4 wees from toda and an

order would 'e passed within 4 wees thereafter. Statement made ' counsel for S!I is accepted.

6. In view of the aforesaid statement, counsel for the Appellant sees to withdraw the appeal.

4. Accordingl, the appeal is allowed to 'e withdrawn in the a'ove terms with no order as to costs 2

6ccording-', =r #% $hhabra +as afforded an opportunit' of persona- hearing on u-' !, !1*

13 %ursuant to affording opportunit' of persona- hearing for =r #% $hhabra, representations +ere

received from $ompan' and fe+ other noticees J =r >ar&it Singh, =r Bri& =ohan =aha&an, =r Sandeep

Sethi and =r Firendra Singh, +herein the' +hi-e referring to the opportunit' afforded to =r $hhabra,

re:uested SEBI for an opportunit' of persona- hearing for themse-ves on the date and time as schedu-ed

for =r # % $hhabra $onsidering the same and as a fina- opportunit', the' +ere a-so advised to appear

in the persona- hearing

1( In the persona- hearing he-d on u-' !, !1* 3


19/61

Page 19 of 61

1 A4#%"$ C*%$*4 L%%$d and its directors M! M*n"&&! Ad and M! H*!%*!*n

;!*!**e a-so undertoo to fi-e

+ritten submissions >e +as advised to do so +ithin a period of 1* da's

4 @oticees, M! B!%> M&*n M**>*n and M! ;%!nd!* S%n appeared through =r 6nurag

Singh, 6dvocate The 6dvocate re:uested for time for fi-ing +ritten submissions for =r Firendra

Singh as the said noticee had not 'et fi-ed his rep-' ;ibert' +as granted and the 6dvocate +as

advised to fi-e the #ep-'G+ritten submissions +ithin a period of 1* da's

15 W!%$$n "-%""%&n" +%4d -!"-*n$ $& $ !"&n*4 *!%n<

A The C&*n, vide its emai- dated u-' 18, !1*, fi-ed its Critten Submissions a-ong +ith

6nnexures J

6nnexure L6D 3 $op' of /rder in $ort Auth. of St. $aul v. 8arstad

6nnexure LBD J 6nand #athi and others vs SEBI J /rder of >onDb-e Bomba' >igh $ourt 6nnexure L$D J /rder dated une !, !! J >onDb-e Securities 6ppe--ate Tribuna-

T +&44&@%n @! %n$! *4%* "-%$$d %n $ W!%$$n S-%""%&n":


20/61

Page 20 of 61

(a) The $ompan' reiterated its ear-ier submissions made +ith respect to the reference received from

#o$ The $ompan' submitted that the #o$ notices (issued to the $ompan') +ere cha--enged

before the >onDb-e %un&ab and >ar'ana >igh $ourt, that #o$ had taen a stand that sections *,

!, 5 and 5 of the $ompanies 6ct, 17* +ere inapp-icab-e to 6$; as 6$; +as a registered @on3

Baning Ainancia- $ompan' (@BA$) and that the >onDb-e >igh $ourt, after noticing such

statement of #o$, disposed off the proceedings

(b) The $ompan' submitted that the conduct of #o$ in maing reference to SEBI for the a--eged

vio-ation of the same provisions +hich it has submitted to be inapp-icab-e to 6$; in proceedings

before the >onDb-e >igh $ourt and on basis of +hich submission, the >igh $ourt has passed

orders inter a-ia disposing of the proceedings before it, is hit b' the princip-e of constructive res

&udicata andGor princip-es ana-ogous thereto The $ompan' submitted that the issue of

inapp-icabi-it' of the said provisions of the $ompanies 6ct to 6$; has attained fina-it' in vie+ of

the order dated 11! !14 passed b' the >igh $ourt and in the circumstances, an' interpretation

contrar' thereto +ou-d be in vio-ation of the >igh $ourtDs order and ma' even amount to

contempt of court

(c) The $ompan' sought to re-' upon the princip-e of &udicia- estoppe- in support of its submission

that #o$ +as not entit-ed to mae a reference to SEBI contrar' to the stand taen b' it before the

>onDb-e >igh $ourt and +hich +as accepted b' the >onDb-e >igh $ourt The $ompan' referred

to the &udgment of the $ourt of 6ppea-s of =innesota, nited States of 6merica (S6) in the case

of $ort Authorit of St. $aul vs. 8arstad +here it has been he-d as fo--o+s<

Hudicial estoppel prevents a part that has taen one position in litigating a particular set of facts from later

reversing its position when it is to its advantage to do so. It is intended to protect the courts from 'eing manipulated

' chameleonic litigants who see to prevail, twice, on opposite theories. Although the doctrine is reduci'le to a pat

formula, we have recogni+ed certain 'oundaries. @irst, the later position must clearl 'e inconsistent with the earlier

position. Also, the facts at issue should 'e the same in 'oth cases. @inall, the part to 'e estopped must have

convinced the court to adopt its position/ a litigant is not forever 'ound to a losing argument 2

(d) The $ompan' a-so submitted that the infractions a--eged in the order date bac to the 'ear !!

and that it had not issued an' #%S for the -ast nine 'ears In the circumstances, it +as submitted

that there +as no urgenc' or exigenc' to pass the ex parte directions against the $ompan' and itsdirectors

(e) The $ompan' submitted that @BA$s registered under the #BI 6ct are outside the purvie+ of

sections *, !, 5 and 5 of the $ompanies 6ct, 17* b' reason of second proviso to section 5()


21/61

Page 21 of 61

+hich maes the deeming fiction of an' p-acement in excess of *! persons being a pub-ic issue

contained in the first proviso to the said sub3section inapp-icab-e to @BA$Ds and further b' reason

of sub3section (6) +hich maes @BA$Ds sub&ect to a separate regimeGset of normsGguide-ines to

be specified b' SEBI in consu-tation +ith #BI It is submitted that insofar as an entit' is registered

as an @BA$, a proper interpretation of section 5() and (6) of the $ompanies 6ct, 17* imp-ies

that the number of persons to +hom p-acements are made is entire-' irre-evant

(f) The above interpretation is confirmed b' a number of contemporaneous documents p-aced on

record b' 6$; a-ong3+ith its rep-' dated 14!1* name-',

(i) an advertisement dated 1*11!1 issued b' SEBI c-arif'ing that SchemesArrangements

made or offered ' "ooperative Societies, deposits accepted ' @"sGAre outside the purview of

S!Is >urisdiction 2

(ii) Ainancia- Stabi-it' #eport of #BI dated ecember !1!, +hich specifica--' records that

@BA$Ds are exempt from the provisions of Section 5 of the $ompanies 6ct, 17* and

that #BI +as in the process of formu-ating guide-ines to p-ug such regu-ator' gap

(iii) $ircu-ars dated 5!1 and 5!1 b' #BI +hich +ere issued in furtherance to such

intention to regu-ate and extended the *! person ru-e to @BA$Ds and p-aced further

restrictions on private p-acements b' @BA$Ds prospective-' It is submitted that no such

guide-ines existed prior to issuance of the said circu-ar b' #eserve Ban of India

(g) The $ompan' a-so referred to the fo--o+ing observation made in the /rder of the >onDb-e

Supreme $ourt in the Sahara case<

M A pu'lic limited compan can escape from the rigor of provisions, if the

offer is made ' companies mentioned under Section 57(6A), i.e. ' pu'lic financial institutions specified under

Section 4A or ' nonD'aning financial companies referred to in Section 4;I(f) of the &eserve an of India Act,

1=642

(h) The $ompan' further submitted that the contemporaneous -a+ cast the onus on SEBI to estab-ish

that a particu-ar issue +as a pub-ic issue even in case of non3@BA$ companies The fo--o+ing

portion from the &udgment of the S6T in Cou'ro Infotech E Industries *td. vs. S!I (6ppea- @o

141G!!) reported in (!!*) $omp ; !* (S6T) +as referred to<

6;. ?e hold that the paramount test is that no offer or invitation shall 'e treated as made to the pu'lic, unless it

can 'e shown in the facts and circumstances of a particular case that it has 'een calculated to a result directl or

indirectl in the shares or de'entures 'ecoming availa'le for su'scription other than to those receiving the offer or

invitation. In other words, there must 'e a design or intention on the part of the compan ' its conduct which results

in a gatecrasher accepting the offer or invitation.


22/61

Page 22 of 61

6;.1 It must 'e esta'lished

(a) that there was a calculated offer on the part of the compan to 'ring in an uninvited guest to su'scri'e to the

de'enture/

(') that persons other than those receiving the offer or invitation had, in fact, actuall su'scri'ed to the offer.

6;.: If these two conditions are fulfilled, then no amount of camouflage in the letter of offer can mae a pu'lic issue

into one of a private issue. In this regard, we have given anxious consideration to the facts and circumstances of the

case emanating from the impugned order. "ertainl, S!I could have done a 'etter >o' ' examining during en-uir

one or two su'scri'ers to determine whether the were invited or not. Chat would have 'een a clinching proof to hold

that a pu'lic issue was sought to 'e 'rought out in the guise of a private issue. Che reasons given ' S!I for

holding it as a pu'lic placement is, strictl speaing, not in accordance with law. As expressed ' us, there is no 'ar

on fulfilling certain conditions for a compan paing commission to an agent in a pu'lic issue. S!I was in error in

holding that mere pament of commission to an agent would mae an issue pu'lic. S!I also did not put enough

materials in the impugned order to prove that the compan had gone in for a pu'lic issue. S!I got carried awa '

the statements of disgruntled commission agents and the letter from olata $olice. Accordingl, we hold from the

materials on record that it is not possi'le to state that the two issues were pu'lic issues in the a'sence of an proper

en-uir 2

(i) 6ccording to the $ompan', app-'ing the above ratio in the case of Toubro >o-dings, it +ou-d

appear that the SEBI has fai-ed in the instant case to p-ace sufficient materia- to &ustif' its

conc-usion that the issue of redeemab-e preference shares b' the $ompan' amounted to pub-ic

issue and did not satisf' the conditions of private p-acement

(&) The $ompan' contended that SEBI did not p-ace an' document or testimon' on record to prove

that there +as a ca-cu-ated offer on the part of the compan' to bring in an uninvited guest or thatan' person other than those to +hom the offer had been made, has in fact subscribed to the offer

Therefore, the interim order does not contain sufficient &ustification to arrive at the conc-usion that

the redeemab-e preference shares issued b' 6$; +ere in the nature of pub-ic issue and

conse:uent-', 6$; had vio-ated app-icab-e provisions of the $ompanies 6ct

() The $ompan' submitted that its present directors =r >ariharan Feeraraghavan and =r =ansoor

6hmed +ere appointed on 6ugust *, !!7 and anuar' , !1! The' +ere not directors of the

$ompan' +hen the a--eged infractions too p-ace and +ere appointed to the board a-most 4 'ears

after !! +hen the -ast a--otment too p-ace

(-) The $ompan' a-so submitted that the >onDb-e Supreme $ourt in the case of Sunil harti 0ittal vs.

"I (:31;) 4 S"" 53= that a director of a compan' can be he-d -iab-e for the a--eged


23/61

Page 23 of 61

vio-ationGoffence committed b' the compan' on-' if (a) there is sufficient incriminating evidence

against the said director coup-ed +ith crimina- intentK or (b) the statutor' regime attracts the

doctrine of vicarious -iabi-it' 6ccording to it, the interim order sho+s that neither of these

conditions are met :ua the said t+o present directors

(m) The $ompan' submitted that the >onDb-e >igh $ourt of Bomba' and >onDb-e S6T ( Anand &athi

vs. Securities and !xchange oard of India (:33:) 1 0ah *H ;::/ 9ideocon International *td. vs. S!I, SAC

(rder dated :3.5.:33: )) have interpreted that directions under sections 11(4) and 11B the SEBI

6ct, are preventive and remedia- as opposed to punitive in nature Therefore, an order of

in&unction against the said present directors from accessing the securities maret in their persona-

capacit' andGor issuing prospectus in respect of another compan', ma' not be said to be either

preventive or remedia- in nature in as much as the persona- portfo-io of such directors is

comp-ete-' de hors an' a--eged vio-ation committed b' 6$; and moreover, restraint upon their

operating their persona- accounts is not in an' +a' re-atab-e to the avo+ed purpose of these

provisions to protect the interests of investors

B M! H*!>%$ S%n, vide emai- dated u-' 1, !1*, stated that his previous -etter (dated u-' 17,

!1*) ma' be treated as cance--ed as it +as devoid of certain additiona- facts +hich have occurred to him

no+ >e had enc-osed his fina- submissions dated u-' 1, !1* as per -ibert' granted in the persona-

hearing he-d on u-' !, !1*, +herein he has submitted inter alia as fo--o+s<

(a) the noticee is a -a+ abiding senior citi0en of this countr' +ho has served in the Indian 6rm' as an

officer from 71754 to 111!!8 and remained re3emp-o'ed as a $o-one- (se-ection grade) in

arm' from ecember !!8 to 81!!1

(b) he +as appointed as an Independent irector of 6$; on 17!8!1 and subse:uent-' resigned

from directorship +ith effect from 1*5!14 after a short period of 11 months or so Being in

arm' service and even other+ise, the noticee submitted that he +as not even remote-' affi-iated or

connected to 6$; prior to 6ugust !1 >e +as neither a director nor a shareho-der during the

a--otment period or on the dates +hen a--otments +ere done as per the interim order Therefore,

such transactions +ere not deemed to be +ithin his no+-edge nor can he be he-d accountab-e forthe a--eged -apses


24/61

Page 24 of 61

(c) The noticee neither signed an' financia- document of 6$; nor has ever been a shareho-der of an'

compan' in his -ifetime so far

(d) The noticee has never attended an' board meeting of 6$; he-d so far nor has ever been ca--ed to

attend to an' meetings +hatsoever

(e) The noticee had resigned :uite ear-' due to his non3invo-vement +ith 6$; as +e-- as his inabi-it'

to attend to an' issues of 6$; due to his +ifeDs serious disease ie /varian $ancer $ detected in

6ugust !1 for +hich she is sti-- undergoing treatment

(f) The $ompan' had accepted his resignation fi-ed the re:uisite Aorm ir31 ( particulars of appointment

of directors and 0$ and changes among them ) before the #o$, and that a cop' of the same +as

enc-osed +ith submissions The noticee a-so annexed cop' of Aorm3 regarding his appointment

as a director of 6$; on 178!1 6s 6$; as +e-- as #o$ have confirmed the same, he stated that

he shou-d not be considered as a present director in 6$; an'more

(g) It is sett-ed -a+ that no action can be maintained against a irector in his individua- capacit' un-ess

and unti- there are specific a--egations against the said irector +ith regard to his ro-e in the

transaction or the statute specifica--' provides for vicarious -iabi-it' H Sunil harti 0ittal vs. "I,

(:31;) 4 S"" 53= 6ccording to the noticee, no a--egations have been -eve--ed in the interim order

against the noticee to +arrant the directions passed in the interim /rder Aurthermore, it is a-so

not the case that the statutor' provisions in :uestion provide for vicarious -iabi-it' of an ex3director

+ho had no ro-e +hatsoever in da' to da' affairs of the compan' The noticee contended that he

cannot be pena-i0ed for mere-' being a irector of 6$;

(h) The noticee submitted that though SEBI has the po+er to administer the provisions of the

$ompanies 6ct, 17* b' virtue of section **6 of the $ompanies 6ct, SEBI cannot invoe the

provisions under the SEBI 6ct in order to impose pena-ties as provided in the SEBI 6ct +hi-e

administering the provisions of the $ompanies 6ct, 17* Chi-e SEBI is administering theprovisions of the $ompanies 6ct, 17* and prima facie finds vio-ations of the said 6ct, the pena-ties

must re-ate to the said 6ct on-' and therefore, SEBI is +rong in invoing the provisions of S 11,

116 and 11B of the SEBI 6ct in the present case


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(i) The noticee contended that the >onDb-e Bomba' >igh $ourt and >onDb-e S6T have he-d that the

provisions of section 11B of the SEBI 6ct are preventive and not punitive in nature H Anand &athi

vs. Securities and !xchange oard of India (:33:) 1 0ah *H ;::/ 9ideocon International *td. vs. S!I, SAC

(rder dated :3.5.:33:)/ Sterlite Industries (India) *td. vs. Securities and !xchange oard of India SAC (rder

dated ::.13.:331 ) The noticee contended that passing severe restrictions on him from accessing

the securities maret andGor from dea-ing +ith securities purchased from his o+n funds, cannot be

said to re-ate to or sub3serve the interests of investors of 6$; It is not as if these shares or

securities +ere purchased from the proceeds of subscription to shares b' these investors or that

dea-ing in such securities +ou-d defeat or endanger the interests of these investors

(&) The impugned order severe-' hampers the -ive-ihood of the noticee b' putting unnecessar' fetters

upon his abi-it' to dea- in the stoc maret The noticee is a senior citi0en and has invested sums in

the stoc maret from his o+n funds The said funds have nothing to do +ith 6$; and as such no

fetters ought to have been p-aced on the same Aurther, the impugned /rder has caused grave

embarrassment to the noticee +hose reputation and good+i-- has been severe-' tarnished as a

resu-t of being pena-i0ed b' SEBI Even the mutua- funds, in +hich the noticee is mere-' a second

ho-der +ith his spouse and son +ho are the actua- investors N primar' account ho-ders, have a-so

been -oced due to the said impugned /rder Thus, the impugned order a-so severe-' hampers the

-ive-ihood of the fami-' members of the @oticee

6ccording to the noticee, no case +as made out against him and therefore re:uested that the

directions contained in the impugned order ma' be vacated and proceedings be dropped against

him

C M! S*nd S$%, e +as appointed as an Independent irector on anuar' , !!7 and resigned on /ctober !1,

!1 Therefore, none of the a--otments mentioned in the interim order re-ate to the period +henhe had an' interest +hatsoever in the $ompan'

(b) The reference to him as a Lpresent directorD in the interim order is comp-ete-' misp-aced and

contrar' to the records


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(c) uring his tenure as a director, he +as an independent director having no ro-e in the da' to da'

affairs or decision maing in the $ompan'

(d) There is not a sing-e a--egation against him in the interim order

(e) The provisions of the SEBI 6ct, as invoed in the interim order, do not provide for vicarious

-iabi-it' of directors In the absence of statutor' provisions, no vicarious -iabi-it' can be fastened on

the directors for the a--eged vio-ations b' the $ompan'

(f) This noticee stated that he p-aces re-iance on the case -a+s of 0asud Saied v. State of %u>arat,

"ommissioner of "entral !xcise vs. rindavan everages ($) *td. and "ollector of "ustoms vs. Cin $late "o. of

India *td

(g) The provisions of the SEBI 6ct invoed in the order are preventive and not punitive in nature

>ence, the directions preventing him from dea-ing +ith his persona- securities is contrar' to the

purpose for +hich sections 11, 116 and 11B of the SEBI 6ct +ere enacted >e p-aced re-iance on

the &udgments of >onDb-e Bomba' >igh $ourts in the matter of Anand &athi vs. S!I O(!!) 1

=ah ; *P and that of >onDb-e S6T in the matters of 9ideocon International vs. S!I (dated une

!, !!) and Sterlite Industries vs SEBI (/ctober , !!1)

In vie+ of his submissions, the noticee re:uested that the present proceedings against him be

dropped and the directions passed against him (vide the interim order) be reca--ed

D M! B!%> M&*n M**>*n, vide emai- dated u-' 1, !1* for+arded his Critten Submissions,

+herein he has submitted that J

(i) >e +as appointed as an Independent irector of the $ompan' on 6pri- !, !!4 and

subse:uent-' resigned +ith effect from =arch !, !!7

(ii) There is no a--egation against him in the interim order

(iii) 6s an independent director, the noticee had no ro-e in the running or management of the

$ompan' Therefore, he cannot be foisted +ith the -iabi-it' for a--eged contravention of

provisions of the $ompanies 6ct and SEBI 6ct, +hich do not provide for strict vicarious -iabi-it'

of independent directors even +here no specific ro-e is attributed to them

(iv) The noticee p-aced re-iance on the concept of vicarious -iabi-it' as -aid do+n b' the >onDb-e

Supreme $ourt in catena of &udgments in the context of -egis-ations such as @egotiab-eInstruments 6ct, 1881, +hich specifica--' provide for vicarious -iabi-it'

(v) >e a-so referred to the case -a+ of Suni- Bharti =itta- vs $BI


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(vi) >e a-so taes the p-ea that +hi-e administering the provisions of the $ompanies 6ct, SEBI cannot

invoe provisions of the SEBI 6ct to impose pena-ties

(vii) >e denied committing an' irregu-arit' of vio-ations of the $ompanies 6ct, 17* read +ith

$ompanies 6ct, !1 a-ong +ith I% 9uide-ines and I$# #egu-ations as a--eged and that the

proceedings are -iab-e to be dropped

(viii) >e re:uested that the above facts, +hich +ere not considered in the interim order, be

considered and proceedings against him be dropped >e a-so re:uested for vacating the interim

directions passed against him

E M! ;%!nd!* S%n, e +as appointed as a director of the $ompan' on 6pri- !, !!4 and resigned on 6ugust 15,

!1! uring this period, he had no ro-e +hatsoever in po-iciesGdecision maing in the $ompan'

(b) It appears from the interim order cum S$@ that the a--eged vio-ation committed b' the $ompan'

is in respect of issue and a--otment of #%S during the period J !!8!! to !!!! It is

sett-ed -a+ that a director can be he-d -iab-e for the a--eged vio-ationGoffence committed b' the

compan' on-' if (a) there is sufficient incriminating evidence against the said director coup-ed +ith

crimina- intentK or (b) the statutor' regime attracts the doctrine of vicarious -iabi-it' ( Sunil harti

0ittal vs. "I )

(c) In this case, the interim order does not &ustif' the sanctions passed against him based on materia-

that he had ro-e to p-a' in the a--eged vio-ations nor is the statutor' provision referred to +hich

foists -iabi-it' on directors for a--eged vio-ation of the $ompanies 6ct invoed in the present case

(d) @o ro-e +as ascribed to the noticee in the interim order for the a--eged vio-ations The order sees

to impose vicarious -iabi-it' on him for being a director of the $ompan' for the actionsGomissions

of the $ompan'

(e) The noticee referred to the fo--o+ing observations made in Sunil harti 0ittal vs. "I O(!1*) 4

S$$ !7P <

F4:. o dou't, a corporate entit is an artificial person which acts through its officer, #irector, 0anaging #irector,

"hairman, etc. if such a compan commits an offence involving mens rea, it would normall 'e intent and action ofthat individual who would act on 'ehalf of the compan. It would 'e more so, when criminal act is that of

conspirac. 8owever, it is cardinal principle of criminal >urisprudence that there is no vicarious lia'ilit unless the

statue especiall provides so.


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46. Chus an individual who has perpetrated the commission of an offence on 'ehalf of a compan can 'e made an

accused, along with the compan, if there is sufficient evidence of his active role coupled with criminal intent. Second

situation in which he can 'e implicated is in those cases, where the statutor regime itself attracts the doctrine of

vicarious lia'ilit, ' specificall incorporating such provision.

44. ?hen the compan is the offender, vicarious lia'ilit of the #irectors cannot 'e imputed automaticall, in the

a'sence of an statutor provision to this effect. ne such example is section 141 of the egotia'le Instruments Act,

11. In Aneeeta8ada, the court noted that if a group of persons that guide the 'usiness of the compan have the

criminal intent, that would 'e imputed to the 'od corporate and it is in this 'acdrop, section 141 of the egotia'le

Instruments Act has to 'e understood. Such a position is, therefore, 'ecause of statutor intendment maing it a

deeming one direction, namel, where a group of persons that guide the 'usiness had criminal intent, that is to 'e

imputed to the 'od specific act attri'uted to the #irector or an other person allegedl in control and management of

the compan, to the effect that such a person was responsi'le for the acts committed ' or on 'ehalf of the

companG.2

(f) The noticee referred to the fo--o+ing observations made in ational Small Industries "orporation vs.

8armeet Singh $aintal O(!1!) S$$ !P

6= @rom the a'ove discussion, the following principles emerge2(i) Che primar responsi'ilit is on the complainant to mae specific averments as are re-uired under the law in the

complaint so as to mae the accused vicariousl lia'le. @or fastening the criminal lia'ilit, there is no presumptionthat ever director nows a'out the transactions.

(ii) Section 141 does not mae all the #irectors lia'le for the offence. Che criminal lia'ilit can 'e fastened onl thosewho, at the time of the commission of the offence, were in charge of and were responsi'le for the conduct of the 'usiness

of the compan.

(iii) 9icarious lia'ilit can 'e inferred against a compan registered or incorporated under the "ompanies Act, 1=;5onl of the re-uisite statements, which are re-uired to 'e averred in the complaint petition, are made so as to maethe accused therein vicariousl lia'le for the offence committed ' the compan along with averments in the petitioncontaining that the accused were in charge of an responsi'le for the 'usiness of the compan ' virtue of their positionthe are lia'le to 'e proceeded with.

(iv) 9icarious lia'ilit on the part of a person must 'e pleaded and proved and not inferredG.

(v) Che person sought to 'e made lia'le should 'e in charge of and responsi'le for the conduct of the 'usiness of the

compan at the relevant time. Chis has to 'e averred as a fact as there Is no deemed lia'ilit of a #irector in suchcases 2

(g) The provisions of the SEBI 6ct (sections 11, 116 and 11B) do not spe-- out an' vicarious -iabi-it'

of ex3directors of the compan' for a--eged offences committed b' the $ompan' This noticee


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a-so too the p-ea that SEBI ought not invoe po+ers under the SEBI 6ct and that the

conse:uences of the $ompanies 6ct shou-d a-one fo--o+ The >onDb-e Bomba' >igh $ourt ( in

Anand &athi vs. S!I ) +hi-st interpreting the above provisions he-d that the same are preventive in

nature and intended to protect the interest of investors b' preventingGin&uncting further

ma-practiceGvio-ation

(h) Therefore, preventing the noticee from accessing the securities maret or from issuing prospectus

has no re-ation +hatsoever +ith the avo+ed purpose of protecting the interests of investors of the

$ompan'

(i) The directions contained in the interim order have severe-' pre&udiced him and affected his income

and -ive-ihood besides bringing his reputation and name in disrepute

(&) In vie+ of his submissions, the noticee re:uested that the interim order be set3aside

F M! RP C*!*, through his counse- =Gs @anani N 6ssociates, vide 4$$! d*$d ?-4 21,

2015, fi-ed his Critten Submissions In addition to certain ne+ submissions (+hich +ere a-so made in thehearing) +hich are mentioned be-o+, the noticee had reiterated his ear-ier submissions<

(a) 6s per the interim order, the fo--o+ing are the causeGreasons for passing the ex3parte directions<

(i) to ensure on-' -egitimate fundraising activities are carried on b' 6$; and that no investors

are defraudedK

(ii) on account of fai-ure on the part of the $ompan' to provide a-- re-evant information

sought b' SEBIK

(iii) to prevent the $ompan' and a-- its directors from further carr'ing on +ith its fund

mobi-i0ing activit' under the offer of #%S

The noticee ceased to be a director of 6$; as of 6pri- !*, !!4 and is therefore not capab-e of

taing an' actionsGdecisions for and on beha-f of 6$; or participate in an' decision of 6$; or its

fund raisingGmobi-i0ation activit' >ence, in its endeavour to prevent 6$; from carr'ing on an'

fund raisingGmobi-i0ing activit', SEBI need not impose an' restrictions on the present noticee as

he is not a part of 6$;, +hich is to the express no+-edge of SEBI

(b) The noticee has no access to the $ompan'Ds documents and data There +as no communication

+hatsoever from SEBI to the noticee There +as no :uestion of SEBI having sought an'

c-arificationGinformation from the noticee and conse:uent-' the :uestion of noticee having an

opportunit' to c-arif' the position did not and does not arise at a--


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(c) 6ccording to the contents of the interim order, on 6ugust !, !!, the $ompan' issued

1,!,54,!!! preference shares of #s1!G3 +hich +as the on-' issuance made b' the $ompan'

during the period of directorship of the noticee SEBI has stated that it is not a+are +hether the

said issuance has been made to more than *! persons >ence, presumption of an' vio-ation is

erroneous and +ithout an' basis

(d) The interim order +as passed +ithout affording an' opportunit' of hearing to the noticee Even

6$; +as given notice, +hereas the noticee +as taen tota--' b' surprise The same is a

contravention of princip-es of natura- &ustice SEBI fai-ed to prove the urgenc' in passing the

interim order against the noticee

(e) The noticee re-ied on the &udgment of >onDb-e Supreme $ourt of India in the case of *i'ert il

0ills reported in (1784) S$$ 4* and the &udgment of the >onDb-e Bomba' >igh $ourt in Anand

&athi vs. S!I

(f) The noticee is 5* 'ears o-d and has retired from the %un&ab @ationa- ban and his service +as not

pensionab-e The noticee has a * 'ear o-d daughter +ho suffers from s-o+ menta- gro+th and

that his grand3daughter a-so suffers from the same prob-em and is stud'ing in a specia- schoo- at

$handigarh SEBI b' restricting the noticee from accessing his securities and the securities maret

has caused grave pre&udice to him and his fami-' +ho are dependent on him for their basic needs

(g) The noticee re:uested SEBI to vacate the interim order as the same has caused pre&udice for the

past 8 months and continues to cause pre&udice to him b' putting a ha-t on his and his fami-'Ds

means of -ive-ihood

G M! 9*n@*! D S%n fi-ed his +ritten submissions received on u-' , !1* >e reiterated

his ear-ier submissions and additiona--' stated the fo--o+ing<

(a) The noticee is not ans+erab-e for the a--otments made on !1!!4, !!5!!*,

1!!4!! and !!!! as the' +ere made after his resignation on 6pri- !*, !!4

(b) 6s far as the a--otment on !!8!! +as concerned, his mere presence in the Board of

the $ompan' +as not sufficient to foist vicarious -iabi-it' upon him for a--eged vio-ation It

is sett-ed -a+ that in the absence of specific a--egation or specific ro-e ascribed to a director,

he cannot be -iab-e for the a--eged vio-ations committed b' a compan' >e re-ied on the&udgment of the >onDb-e Supreme $ourt in Sunil harti 0ittal vs. "I.


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(c) The a--otment made during his tenure as a director +as made pursuant to a specia-

reso-ution passed b' the Board of the $ompan' on u-' 1, !! for issuance of #%S on

private p-acement basis

(d) The $ompan' neither issued an' %rospectus in re-ation to its shares nor did it offer the

same for pub-ic subscription The issuance of shares +as not ca-cu-ated to resu-t, direct-' or

indirect-', in the shares becoming avai-ab-e for subscription or purchase b' persons other

than those receiving the offer The offer made +as other+ise as being a domestic concern

of the persons maing and receiving the offer or invitation Being an un-isted compan',

there +as no re:uirement of an' comp-iance of section 5 of the $ompanies 6ct andGor

provisions of the SEBI 6ct Such contention is fortified b' the opinion of 6dditiona-

So-icitor 9enera- at the re-evant time

(e) SEBI has committed a gross error of &urisdiction b' exercising po+ers under section **6

of the $ompanies 6ct on an un-isted compan' +hich at no point of time intended to get

its shares -isted on a recognised stoc exchange The &udgment in Sahara case is misp-aced

as the same is distinguishab-e on facts The noticee a-so contended that the said &udgment

cannot be app-ied retrospective-' to an a--otment made a decade ago

;ie the other noticees, =r ?an+ar eep Singh submitted that (i) SEBI cannot invoe the

SEBI 6ct and regu-ations for vio-ations of the $ompanies 6ct, (ii) the provisions invoed

in the instant case are for preventive and remedia- purposes and (iii) it is not exp-ained as to

ho+ his dea-ings in securities be-onging to his persona- portfo-io or issuing %rospectus in

re-ation to another compan' be pre&udicia- to the interest of investors of the

$ompan'G6$;

H M!" H*!!$ 9*-!, vide +ritten submissions received on u-' 1, !1*, reiterated her ear-ier

submissions She additiona--' contended that no ro-e +as attributed to her in the interim order and that a--

vio-ations +ere specifica--' against the $ompan' She a-so submitted that the first a--otment (of #%S) +as

made 'ears after her resignation (on 8!!!1) from the $ompan' =rs ?aur further contended that

she shou-d not be punished for the vio-ations that too p-ace after her disassociation from the $ompan'

17 I have considered the observations and a--egations made in the interim order against the $ompan'

and other noticees, their submissions and materia- and other documents avai-ab-e on record Before


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proceeding to dea- +ith the a--egations and submissions of the parties, it is necessar' to refer to the

observations and prima facie findings made in the interim order

a) The $ompan' +as incorporated as Toubro >o-dings ;imited on ecember 1, !!!, +ith the

#o$, $handigarh Thereafter, the name of the compan' +as changed to 6-chemist $apita- ;imited

on 6ugust 11, !!8

b) #BI had granted a $ertificate of #egistration ("$o#") O@ ! !!*8!P to the compan' ie Toubro

>o-dings ;imited, on ecember , !!* to commenceGcarr' on business of non J baning

financia- institution +ithout accepting pub-ic depositsJ under Section 4*JI6 of the #eserve Ban

of India 6ct, 174 ("#BI 6ct") 6nother certificate +as issued b' #BI on =arch !4, !!7 in -ieu of

the ear-ier certificate

c) It +as noticed that the $ompan' had issued and a--otted #edeemab-e %reference Shares ("#%S") as

per the fo--o+ing terms and conditions <

P4*n A B C D E FI""- !%# %n%- 100

!+!n# "*!"1!!!

Rd$%&n P!%&d 'ears 7 'ears 1 'ears 1* 'ears 1 'ears 4 'earsRd$%&n P!%- 1!!! !!! 41!! 5!!! 7!!! *!!

M*$-!%$


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!!J!4 !!8!!

1!

1!54!!! @ot avai-ab-e 1!54!!!!

!!4J!* 11!!4 4**48!@ot avai-ab-e

4**48!!

!!*J! !!5!!* 4!***!@ot avai-ab-e

4!***!!

!!J!5 1!!4!! 8!! 1474 8!!!

!!J!5 !!!! !5!*!! 145! !5!*!!!

T&$*4 175212(30 2617( 175212(300

As per information o'tained from @orm : (@orm for &eturn of Allotment filed ' A"* with the &" in accordance withthe provisions of the "ompanies Act, 1=;5).

e) as per the 6nnua- #eturns submitted b' the $ompan' to the #o$, the 'earJ+ise status (from

Ainancia- Rears !!5J!8 to !11J1)of the subscribed %reference Share $apita- +as as fo--o+s3

S!N&

F%n*n#%*4 *!End%n

I""-d *nd "-"#!%d *%d - P!+!n#S*! C*1%$*4 'N-! &+ "*!")

1 1!!!5 148175! 1!!!8 1!5*4 1!!!7 1*887!*44 1!!1! 1488474* 1!!11 15!!5774 1!!1 1!8587!4

f) the 6uditors of the $ompan' vide their $ertificate dated @ovember , !1, had certified that

upto une !, !!, the $ompan' had issued 1,*,1,4! #%S of 1! each amounting to

1*1 crore The 6uditors had a-so certified that as on =arch 1, !1, an amount of

approximate-'78! $rores +as outstanding in respect of 7,8,!1,44 #%S.

g) The interim order has noted that the $ompan' has admitted-' raised #s1!15 crore under its

offer of #%S even prior (ie prior to ecember , !!*) to being registered as an @BA$ +ith

#BI The $ompan' has a--eged-' fai-ed to provide the detai-s of investors to +hom approximate-'

1!,1,5,! #%S +as a--otted pursuant to the $ompan'.s Board #eso-utions dated une !, !!

and @ovember 1*, !!4 The interim order observed the fo--o+ing<

" since A"* was not registered as an @" with the &I when the aforesaid allotment of

131576663 &edeema'le $reference Shares was made under the ffer of &edeema'le $reference Shares for the


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@inancial Lears :33634, :3343; and :33;35 and having regard to the fact that it failed to coDoperate

with S!I in su'mitting re-uisite information in respect of the num'er of allottees under the said ffer for

those @inancial Lears :33634, :3343; and :33;35, the same would lead me to the inescapa'le

conclusion that the compan exceeded the threshold for a private placement. I, therefore, find that the ffer of

&edeema'le $reference Shares was nothing 'ut a pu'lic issue of securities in accordance with the first proviso to

Section 57(6) of the "ompanies Act, 1=;5 "

It +as a--eged therefore that the offer and a--otment of 1!,1,5,! #%S made during the

Ainancia- Rears !!J!4, !!4J!* and !!*J! +as not a private p-acement of securities but +as a

pub-ic issue of #%S in terms of the first proviso to section 5() of the $ompanies 6ct, 17*

h) %ursuant to the receipt of $o# from #BI on ecember , !!* to carr' on activities as an @BA$,

the $ompan' +as found to have admitted-' issued and a--otted ,*,7,1!! #%S to 8,14

individua-sGinvestors under its offer and a--otment of #%S during the Ainancia- Rear !!J!5 This

information is as per Aorm3 fi-ed b' the $ompan' +ith the #o$

i) The interim order had a--eged that though the second proviso to section 5() +ou-d be app-icab-e

to the $ompan' being an @BA$, the $ompan' +as re:uired to sho+ that it had an intention to

offer the #%S under its offer and a--otment of #%S during the Ainancia- Rear !!J!5 , to on-'

those persons +ho received the offer, or that the offer +as a domestic concern of the $ompan'

and the persons receiving the same The interim order observed that the fact that the $ompan'

+as a registered @BA$ +ou-d not exempt it from proving that the offer of #%S during !!3!!5

+as a private p-acement in accordance +ith the $ompanies 6ct, 17* The interim order a-so

observed that 3

a. JChe terms and conditions of the ffer of &edeema'le $reference Shares clearl provide who can

invest, vi+.Individuals, Crusts, "orporate odies, 0inors (through %uardians), @inancial

Institutions, 0utual @unds, 8K@s and "o operative odies. Such a generali+ed categor of

investor(s) cannot 'e said to satisf the condition of specificit as re-uired under Section 57(6) of the

"ompanies Act, 1=;5. @urther, from the material on record, no evidence has 'een adduced ' A"*

of an prior determination of the identit of the offerees of what has 'een claimed ' A"* in its

repl dated 0arch 6, :314, to 'e the issue of &edeema'le $reference Shares on private placement.


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b A"* has failed to provide details of individualsinvestors to whom &edeema'le $reference Shares

was allotted vide A"*Bs oard &esolution dated 1;.3:.:335. @urther, A"* has not su'mitted

copies of the prospectus, invitation letter or offer document through which it sought su'scription from

the investors. I note that S!I repeatedl sought the aforesaid information vide letters dated cto'er

1, :316/ @e'ruar :3, :314 and 0arch :7, :314, which as on date, have not 'een su'mitted '

A"* "

ii I find that A"* has not made availa'le to S!I an material or information to indicate that the ffer

of &edeema'le $reference Shares ' A"*, which raised 56.;4 "rores during the @inancial Lear

:33537 and which resulted in su'scription ' :154 individualsinvestors, was intended to 'e an issue

on private placement 'asis meant onl for a specific or selected group of persons, as re-uired ' Section

57(6) of the "ompanies Act, 1=;5. I, therefore, find that A"* has failed to discharge the 'urden of

proof necessitated for esta'lishing that the ffer of &edeema'le $reference Shares made ' it was an issue

on private placement 'asis in accordance with Section 57(6) of the aforesaid Act.

4.7.6 In view of the a'ove, I, therefore, find that the issue of 56;6=133 &edeema'le $reference Shares, '

A"*, under the ffer of &edeema'le $reference Sharesduring the @inancial Lear :33537, was prima facie

a pu'lic issue and not an issue on private placement 'asis in accordance with Section 57(6) of the "ompanies

Act, 1=;5 "

&) The interim order had therefore a--eged that the $ompan' fai-ed to comp-' +ith the norms re-ated

to the pub-ic issue of securities as stipu-ated under sections *, ! read +ith section (), section

5 of the $ompanies 6ct, 17*, the I% 9uide-ines read +ith the I$# #egu-ations

) The interim order mentioned that "5. ................ the present #irectors in A"* are Shri 0ansoor Ahmed,

Shri 8ariharan 9eeraraghavan, Shri 8ar>it Singh, Smt. 8arpreet aur and Shri Sandeep Sethi. I also note that

Shri ri> 0ohan 0aha>an, Shri Sunil antiar, Shri 9irendra Singh, Shri anwar #eep Singh, Shri &. $.

"hha'ra and Shri &avinder Singh, who were earlier #irectors in A"*, have since resigned "

1 Arom the observations made in the interim order, the offer and a--otment of #%S b' the $ompan'

can be considered broad-' under t+o heads 3

(i) /ffer and a--otment of 1!,1,5,! #%S for the Ainancia- Rears !!3!4, !!43!* and !!*3!

prior to being registered as @BA$K and


36/61

Page 36 of 61

(ii) /ffer and a--otment of ,*,7,1!!#%S for the Ainancia- Rear !!J!5 post registration ( on

:5.1:.:33; ) as an @BA$

16 The interim order has a--eged that both the above offers and a--otments of #%S +ere pub-ic issues

of #%S and +ere made and issued b' the $ompan' +ithout comp-'ing +ith the norms re-ated to pub-ic

issues stipu-ated under the $ompanies 6ct and the SEBI guide-ines and regu-ations

1 Before proceeding, I +ish to dea- +ith a pre-iminar' submission of the $ompan' The $ompan'

has submitted that on anuar' !, !1, it received t+o S$@s dated ecember 8, !1 from the #o$,

$handigarh a--eging inter alia that the $ompan' +as in vio-ation of sections !, 5 and 5 of the

$ompanies 6ct The a--egation in those notices +as that the $ompan' issued shares to more than *!

persons vio-ating the provisions re-ating to issuance of prospectus and -isting contained in section !, 5

and 5 of the $ompanies 6ct The $ompan' stated that it had cha--enged the said S$@s before the

>on.b-e >igh $ourt of %un&ab and >ar'ana on the ground that the provisions of section !, 5 and 5 are

inapp-icab-e to the $ompan' being an @BA$ registered +ith #BI The #o$ had fi-ed a detai-ed counter

affidavit taing a stand that as the $ompan' +as an @BA$ registered +ith #BI, no action has been taen

for a--eged vio-ations of sections !, 5 and 5 In vie+ of the stand taen b' the #o$, the >on.b-e >igh

$ourt passed a fina- &udgment dated /ctober 1, !14 +ith the fo--o+ing order<

"=. Although the praer in the petition pertains to a challenge to the show cause notice issued under section 53 and

57(6) read with section 76 of the "ompanies Act, no orders are necessar in the light of the repl of the State that

the are not taing an action pursuant to the notice since the petitioner is a onDaning @inancial Institution to

which the said provisions will not 'e applica'le."

The contention of the $ompan' is that >on.b-e >igh $ourt has a-read' struc do+n the said S$@s issued

b' the #o$ b' accepting the statement of the #o$ that the said provisions are inapp-icab-e to the

$ompan' Therefore, as the >on.b-e >igh $ourt has put its imprimatur on a matter of interpretation,

SEBI cannot be a--o+ed to tae a different vie+ in the matter 6s such the action of SEBI in re3agitating

the same issue amounts to constructive res3&udicata and an' contrar' interpretation +ou-d amount to

contempt of $ourt.s /rders

I have considered the above submissions made b' the $ompan' In the -itigation referred to above, I fi

Documents

Final Order in the matter of M/s Alchemist Capital Ltd