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.”