Suraksha Industries India was engaged in fund mobilising activity through issue of Redeemable Preference Shares to more than 49 persons without complying with the provisions of the Companies Act, 1956, according to a SEBI Order
SEBI passed an order directing Suraksha Industries India Limited not to mobilise funds from investors. 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 shall not dispose off any of the properties of the company and shall not divert any funds raised from the public, according to the SEBI Order.
The company was engaged in fund mobilizing activity through issue of Redeemable Preference Shares to more than 49 persons without complying with the provisions of the Companies Act, 1956.
SEBI received a complaint dated 5 September 2014 against Suraksha Industries India Limited alleging mobilisation of money through issuance of preference shares and non-payment of maturity amount thereon. The complainant also enclosed a copy of Redeemable Preference Share Certificate issued by Suraksha. SEBI immediately began to investigate the matter.
As the company was not forthcoming with complete information to assist SEBI in its investigation, SEBI also obtained information from MCA21 Portal.
The SEBI Order infers, “It is clear that Suraksha had issued and allotted Redeemable Preference Shares to at least 794 investors and raised an amount of at least Rs82.23 lakh during the financial year 2012-13.”
SEBI points out, “The number of investors to whom the Offer of RPS was made by Suraksha in a single allotment (on 01.06.2012) was much beyond the prescribed limit of forty-nine persons. In view of the above stated facts, the Offer of RPS by Suraksha prima facie qualifies as a public issue of securities under Section 67(3) of the Companies Act, 1956, which has been elucidated by the Hon'ble Supreme Court of India in the Sahara Case.”
SEBI continues, “it will follow that since the Offer of RPS is a public issue of securities, such securities shall also have to be listed on a recognised stock exchange, as mandated under Section 73 of the Companies Act, 1956.”
Hence, SEBI infers, “In the facts of the instant case, it prima facie appears that Suraksha has violated the provisions of Section 73 of the Companies Act, 1956, in respect of the Offer of RPS.”
With respect to prospectus for public issue, the SEBI Order says, “Having made a public offer, Suraksha was required to register a prospectus with the RoC under Section 60 of the Companies Act, 1956. In this case, there is no evidence on record to indicate that the requirement had been complied with, by Suraksha. In view of the same, I find that Suraksha has prima facie not complied with the provisions of Section 60 of the Companies Act, 1956.”
The SEBI Order points out, “I am of the view that Suraksha is prima facie engaged in fund mobilising activity from the public, through the Offer of RPS and as a result of the activity has violated the provisions of the Companies Act, 1956 (Section 56, Section 60read with Section 2(36), Section 73).”
In this case, SEBI feels that the money has been illegally collected from investors and must be returned to them. The SEBI Order continues, “In this context, Suraksha 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 along with interest, promised to investors therein;
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 for an appropriate period;
iii. Directing them to refrain from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period.”
Finally, the SEBI Order warns that the Order is without prejudice to the right of SEBI to take any other action that may be initiated against Suraksha and its directors, in accordance with law.