WTM/PS/32/IMD/NRO/AUG/2015. Case: In Re: Alchemist Capital Limited and Ors. Vs. Securities and Exchange Board of India
| Case Number | WTM/PS/32/IMD/NRO/AUG/2015 |
| Judges | Prashant Saran, Whole Time Member |
| Issue | Companies Act, 1956 - Sections 2(36), 3, 4A, 55A, 56, 56(1), 56(3), 60, 67, 67(1), 67(2), 67(3), 67(3)(a), 67(3A), 73, 73(1), 73(2), 73(3); Companies Act, 2013 - Section 465; Constitution Of India - Article 141; Indian Evidence Act, 1872 - Section 103; Negotiable Instruments Act, 1881 - Section 141; Reserve Bank Of India Act, 1934 - Sections 45... |
| Judgement Date | August 03, 2015 |
| Court | Securities and Exchange Board of India |
Order:
Prashant Saran, Whole Time Member
1. The Securities and Exchange Board of India (hereinafter referred to as "SEBI") had received a reference dated September 18, 2013 from the Registrar of Companies ("RoC"), Punjab and Chandigarh inter alia stating that the company, Alchemist Capital Limited (hereinafter referred to as "ACL" or "the Company") had raised Rs. 165 crore during the year 2006 and that the funds were raised from 28,000 investors spread throughout the Country. The RoC had remarked that such wide subscription was not possible without making the offer, directly or indirectly, to the public. RoC also shared with SEBI the list of persons to whom 'preferential shares' were issued and observed that the issue was 'public' in nature.
2. On the basis of such reference, SEBI conducted an examination into the affairs of the Company related to the alleged mobilization of public funds through issue of securities. On completion of the examination, SEBI, vide an Order dated December 08, 2014 ("the interim order") alleged that the Company had made an offer and allotted Redeemable Preference Shares ("RPS") during the financial years 2003-2004, 2004-2005, 2005-2006 and 2006-2007 in contravention of the provisions of the Companies Act, 1956 (sections 56, 60 read with section 2(36) and 73) and the SEBI (Disclosure and Investor Protection) Guidelines, 2000 ("the DIP Guidelines") read with regulation 111 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ("the ICDR Regulations"). In view of the violations, to ensure that only legitimate fund raising activities are carried on by ACL and no investors are defrauded, SEBI issued the following directions against the Company, its directors and former directors.
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7. In view of the foregoing I, in exercise of the powers conferred upon me under Sections 11, 11(4), 11A and 11B of the SEBI Act and Clause 17 of the DIP Guidelines read with Regulation 111 of the ICDR Regulations, hereby issue the following directions--
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ACL shall not mobilise any fresh funds from investors through the Offer of Redeemable Preference Shares or through the issuance of equity shares or any other securities, to the public and/or invite subscription, in any manner whatsoever, either directly or indirectly till further directions;
ii. ACL and its present Directors, viz. Shri Mansoor Ahmed (DIN: 01806631; PAN: AKKPA7873P), Shri Hariharan Veeraraghavan (DIN: 03163235; PAN: ABQPV9123N), Smt. Harpreet Kaur (PAN: ABCPK6456B), Shri Sandeep Sethi (DIN: 01541853; PAN: AQBPS6934N) and Shri Harjit Singh (DIN: 06629572; PAN: ADLPS4992B) alongwith its past Directors, viz. Shri Brij Mohan Mahajan (DIN: 00031819; PAN: AAWPM1136F), Shri Sunil Kantikar (DIN: 00476819; PAN: AEQPK2126K), Shri Virendra Singh (DIN: 01683025; PAN: AAWPM1136F), Shri Kanwar Deep Singh (PAN: ACCPS3258G), Shri Ravinder Singh (PAN: ALHPS5680C) and Shri R.P. Chhabra (PAN: ADOPC4099E), are prohibited from issuing prospectus or any offer document or issue advertisement for soliciting money from the public for the issue of securities, in any manner whatsoever, either directly or indirectly, till further orders;
iii. ACL and its abovementioned past and present Directors, are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, either directly or indirectly, till further directions;
iv. ACL shall provide a full inventory of all its assets and properties;
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ACL's abovementioned past and present Directors shall provide a full inventory of all their assets and properties;
vi. ACL and its abovementioned present Directors shall not dispose of any of the properties or alienate or encumber any of the assets owned/acquired by that company through the Offer of Redeemable Preference Shares, without prior permission from SEBI;
vii. ACL and its abovementioned present Directors shall not divert any funds raised from public at large through the Offer of Redeemable Preference Shares, which are kept in bank account(s) and/or in the custody of ACL;
viii. ACL and its abovementioned present Directors shall furnish complete and relevant information in respect of the Offer of Redeemable Preference Shares (as sought by SEBI letters dated October 1, 2013; February 20, 2014 and March 27, 2014), within 21 days from the date of receipt of this Order.
8. The above directions shall take effect immediately and shall be in force until further orders.
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3. The interim order was issued without prejudice to the right of SEBI to take any other action that may be initiated against the Company and its past and present Directors (collectively referred to as "noticees") in accordance with law. The interim order allowed the noticees to file their response and also intimate whether they desired to avail an opportunity of personal hearing.
4. The Company, vide letter dated April 16, 2015, submitted its reply, inter alia making the following submissions:
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The reply is in respect of the Company and its present directors Mr. Mansoor Ahmad and Mr. Hariharan Veeraraghavan. (the two individuals are also noticees covered under the interim order)
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Individuals Mr. Sandeep Sethi, Mr. Harjit Singh and Smt. Harpreet Kaur named as directors in the interim order have already resigned from the respective posts prior to the passing of the interim order and that the requisite documents evidencing their resignations were said to be annexed.
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The Company is a public limited company incorporated under the provisions of the Companies Act, 1956 and is registered as a Non-Banking Financial Company (NBFC) with the Reserve Bank of India (RBI). The Company is inter alia engaged in the business as an investment company and for the said purpose it invests in, acquires, underwrites, subscribes for and holds shares, bonds, stocks etc.
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The Company was incorporated as Toubro Holdings Ltd. on December 13, 2000 and obtained a certificate of commencement of business on January 23, 2001. On December 26, 2005, the Company obtained a Certificate of Registration with the RBI to commence business as an NBFC. The name of the company was changed to its present name in the year 2008 and a fresh Certificate of Registration pursuant to the name change was issued to the Company on August 11, 2008. RBI governs the conduct of the Company under the RBI Act.
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On January 03, 2013, the Company received two SCNs dated December 28, 2012 from the RoC Chandigarh alleging inter alia that the Company was in violation of sections 60, 67 and 73 of the Companies Act. The allegation was that the Company issued shares to more than 50 persons violating the provisions relating to issuance of prospectus and listing contained in section 60, 67 and 73 of the Companies Act. The Company had challenged the said SCNs before the Hon'ble High Court of Punjab and Haryana on the ground that the provisions of section 60, 67 and 73 are inapplicable to the Company being an NBFC registered with RBI. The Hon'ble High Court had stayed the SCNs on noting its contention. The RoC had filed a detailed counter affidavit taking a stand that as the Company was an NBFC registered with RBI, no action has been taken for alleged violations of sections 60, 67 and 73. In view of the stand taken by the RoC, the Hon'ble High Court passed a final judgment dated October 31, 2014 with the following Order:
"9. Although the prayer in the petition pertains to a challenge to the show cause notice issued under section 60 and 67(3) read with section 73 of the Companies Act, no orders are necessary in the light of the reply of the State that they are not taking any action pursuant to the notice since the petitioner is a Non-Banking Financial Institution to which the said provisions will not be applicable."
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While taking the above stand, the RoC has also forwarded the reference regarding the alleged violation of the very same provisions to the SEBI by way of the communication dated September 18, 2013. Copy of the said communication has not been provided to the Company till date by SEBI or by RoC
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The representation made by the RoC was not only mala fide but also contrary to its stand before the Hon'ble High Court.
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SEBI request dated October 01, 2013 to the RoC seeking details regarding the RPS and RoC's response dated October 15, 2013 have not been made available to the Company.
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The Company vide letter dated October 14, 2013 responded to the SEBI letter dated October 01, 2013 and had pointed out that it is an NBFC and sought 4 weeks' time to provide a detailed response.
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The Company, without prejudice to its rights, submitted detailed information vide its letter dated November 07, 2013 submitting certain documents including Memorandum and Articles of Association, Copies of Annual Returns, details of directors, etc.
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With respect to the SEBI's letter asking for a copy of the certificate of registration as an NBFC, the Company sent a response dated March 03, 2014 supplying the requisite information along with copy of sample pamphlet form and application form, Form-23 filed with RoC for issuance of RPS and Form-2 for issuance of RPS.
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SEBI vide another letter dated March 27, 2014 sought information with respect to list of allottees and their details and that the Company requested for 60 days time to provide the information. No further communication was exchanged between the Company and SEBI thereafter. It was understood that the RoC had already forwarded a CD containing the names and details of allottees to SEBI and therefore the Company did not feel the requirement to send further information assuming that SEBI was satisfied. However, on service of the interim order, the Company learnt that SEBI had passed order against itself and its directors as well as former directors without affording any opportunity of personal hearing.
The Company submitted that the Order passed by SEBI is completely untenable in the eyes of law and is...
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