Infocare Infra directed not to mobilise funds from the public by a SEBI Order

The company was engaged in fund mobilising activity through issue of Preference Shares and NCDs to more than 49 persons without complying with the relevant provisions of the Companies Act, 1956 and provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008

 

SEBI passed an interim order dated 19 March 2015, directing that Infocare Infra Limited (IIL) shall not mobilise funds from the investors. Further, the company and its directors shall not dispose off any of the properties of the company and shall not divert any funds raised from the public. The company and its directors and promoters are also prohibited from accessing the securities market.
 
Debenture Trustee,  Pawan Kumar Agarwal, is prohibited from continuing with his present assignment as debenture trustees in respect of the issue of NCDs of the company and also from taking up any new assignment or involvement in any new issue of debentures, etc. in a similar capacity, according to the SEBI Order.
 
The company was engaged in fund mobilising activity through issue of Preference Shares and NCDs to more than 49 persons without complying with the relevant provisions of the Companies Act, 1956 and provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008.
 
SEBI had received a complaint on 2 July 2014 (forwarded by the Reserve Bank of India vide letter dated 25 June 2014), alleging mobilisation of funds by Infocare Infra Limited (IIL). SEBI had also received a letter dated 22 July 2014, from the Criminal Investigation Department, Government of West Bengal, stating that IIL "has collected huge money from good number of investors." SEBI began its investigation by writing to the company and by looking up the data on the MCA 21 Portal.
 
From its investigation, SEBI observed, “it will follow that since the Offer of Redeemable Preference Shares and Offer of NCDs are public issues of securities, 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…” Clearly, the company had not followed proper procedure required for a public issue.
 
The SEBI Member in his Order said, “I am of the view that IIL is prima facie engaged in fund mobilising activity from the public, through the Offer of Redeemable Preference Shares and Offer of NCDs 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, Section 117B) read with the Debt Securities Regulations. From the material available on record, it is observed that IIL created a charge for an amount of Rs11.40 crore and appointed Pawan Kumar Agarwal as Debenture Trustee for the Offer of NCDs by that company. Based on the material available on record, I find that Pawan Kumar Agarwal has acted as unregistered Debenture Trustee, which amounts to violation of the provisions of the SEBI Act read with the Debenture Trustee Regulations.”
 
The SEBI Order adds that the company and its directors should show cause as to why they should not be compelled to refund the entire money collected by them from the
public.
 
The SEBI Order concludes by saying that the Order is without prejudice to the right of SEBI to take any other action that may be initiated against IIL and its director and debenture trustee.
 

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Cell Industries directed not to mobilise funds from investors, by a SEBI Order

Cell Industries was engaged in fund mobilising activity through issue of Redeemable Preference Shares and NCDs to more than 49 persons without complying with the provisions of the Companies Act, 1956

 

SEBI passed an Interim Order dated 17 March 2015 in the matter of Cell Industries Limited directing that the company shall not mobilise funds from investors and that the company and its directors are prohibited from issuing prospectus or any offer document or issue advertisement for soliciting money from the public for the issue of securities.
 
The company and its directors are also restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, according to the SEBI Order.
 
The company was engaged in fund mobilising activity through issue of Redeemable Preference Shares and NCDs (non-convertible debentures) to more than 49 persons without complying with the provisions of the Companies Act, 1956.
 
SEBI had received a complaint dated 9 June 2014, alleging mobilisation of funds by Cell Industries Limited. SEBI began to investigate by seeking information from Cell Industries and by looking up the MCA 21 portal. 
 
Based on its investigation, SEBI observed, “Having regard to the observations of the Hon'ble Supreme Court of India, since the Offer of Redeemable Preference Shares and Offer of NCDs are prima facie public issues in accordance with the provisions of the Companies Act, 1956, the same will attract the requirement of compulsory listing before a recognized stock exchange in terms of Section 73(1) of the Companies Act, 1956 and also compliance with the provisions of Sections 73(2) and 73(3) of that Act.. In the facts of the instant case, it prima facie appears that Cell Industries has violated the provisions of Section 73 of the Companies Act, 1956, in respect of the Offer of Redeemable Preference Shares and Offer of NCDs.”
 
SEBI also observed, “Under Section 2(36) read with Section 60 of the Companies Act, 1956, a company needs to register its prospectus with the ROC, before making a public offer or issuing the prospectus.” Cell Industries has thus not followed proper procedure for its public issue.
 
Hence, SEBI made the following inference in its interim Order: “I am of the view that Cell Industries is prima facie engaged in fund mobilising activity from the public, through the Offer of Redeemable Preference Shares and Offer of NCDs and as a result of the aforesaid activity has violated the provisions of the Companies Act, 1956 (Section 56, Section 60 read with Section 2(36), Section 73, Section 117B) read with the Debt Securities Regulations. From the material available on record, it is observed that Cell Industries created charge on 6 July 2011 and appointed Ashish Kumar De Sarkar, Samrat Sinha and Abdul Basad Molla, as Debenture Trustees for the Offer of NCDs by that company.” The latter have acted as unregistered Debenture Trustees, which amounts to violation of the provisions of the SEBI Act read with the Debenture Trustee Regulations.
 
The interim SEBI Order includes a show cause notice, which reads as: “In this context, Cell Industries and its directors are advised to show cause as to why suitable directions/prohibitions under Sections 11(1), 11(4), 11A and 11B of the SEBI Act including the following, should not be taken/imposed against them:
 
i. Directing them jointly and severally to refund money collected through the Offer of Redeemable Preference Shares and Offer of NCDs along with interest, if any, promised to investors;
 
ii. Directing them to not issue prospectus or any offer document or issue advertisement for soliciting money from the public for the issue of securities;
 
iii. Directions restraining them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period.”
 
The SEBI Order concludes with the warning, “This Order is without prejudice to the right of SEBI to take any other action that may be initiated against Cell Industries and its directors, and its Debenture Trustees, in accordance with law.”
 

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