Odisha-based AM Fund Managers was collecting money from investors through issue of preference shares
Market regulator Securities and Exchange Board of India (SEBI) asked AM Fund Managers Ltd not to mobilise funds from investors. SEBI also barred the company and its directors from issuing prospectus or any offer document or issue advertisement for soliciting money from investors for issue of securities.
The company was engaged in fund mobilising activity through issue of Preference Shares to more than 49 persons without complying with the provisions of the Companies Act, 1956, according to the SEBI Order.
SEBI had received complaints dated 3rd November and 10 November 2014 from investors alleging non-payment of their invested money by AM Fund Managers. The complainants also enclosed copies of application forms and preference share certificates.
SEBI started an investigation and wrote to AMF and Registrar of Companies (RoC), Cuttack, Odisha. RoC, Cuttack in its letter dated 31 December 2014 stated that the company has filed Form-2 with their office for issue of 36% Redeemable Preference Shares (RPS). The RoC also provided copies of Form-2 and list of allottees filed by the company with their office.
For ascertaining whether the Offer of RPS is in the nature of a public issue in accordance with Section 67 of the Companies Act, 1956, the number of subscribers is of utmost importance. SEBI after investigation found it to be a public issue without following appropriate procedures for safeguarding the interests of investors.
Once it is found to be a public issue, it follows that such securities shall also have to be listed on a recognized stock exchange, as mandated under Section 73 of the Companies Act, 1956. In this regard, reference is made to Sections 73 of the Companies Act, 1956, of which sub-Sections (1), (2) and (3) are relevant for the instant case. No listing was made by the company.
The SEBI Order hence inferred that it prima facie appears that AMF had violated the provisions of Section 73 of the Companies Act, 1956, in respect of the Offer of RPS.
Since no prospectus was issued for the public issue, the SEBI Order inferred that prima facie, AMF had not complied with the provisions of Section 60 of Companies Act, 1956.
The SEBI member hence made it clear in his Order, “I am of the view that AMF is prima facie engaged in fund mobilising activity from the public, through the offer of RPS and as a result of the aforesaid activity has violated the aforementioned provisions of the Companies Act, 1956 (Section 56, Section 60 read with Section 2(36), Section 73).”
Hence the SEBI Order goes on to direct the company and its directors as follows:
(a) AMF shall not mobilize any fresh funds from investors through the offer of RPS 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;
AMF, its Directors and Promoters 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;
(b) AMF shall provide a full inventory of all its assets and properties;
(c) AMF 's Directors and Promoters shall provide a full inventory of all their assets and properties;
(d) AMF and its promoters 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 RPS, without prior permission from SEBI;
(e) AMF, its Directors and Promoters shall not divert any funds raised from public at large through the offer of RPS, which are kept in bank account(s) and/or in the custody of AMF;