SEBI has asked HBN Dairies & Allied to submit proof including trail of funds, bank statements to support its contention that it has refunded the monies to its investors. SEBI would also initiate attachment and recovery proceedings under the SEBI Act and rules and regulations
Market regulator Securities and Exchange Board of India (SEBI) has barred HBN Dairies & Allied Limited and its current and former directors not to collect money from investors using its various schemes. In addition, SEBI said it would also initiate attachment and recovery proceedings under the SEBI Act and rules and regulations.
The directors named by SEBI are Harmender Singh Sran, Satnam Singh Randhava, Amandeep Singh Sran, Gajraj Singh Chauhan, Manjeet Kaur Sran, Jasbeer Kaur, Rakesh Kumar Tomar, Sukhdev Singh Dhillon and Sukhjeet Kaur. The company has been also asked to provide proof including trail of funds, bank statements to support its contention that it has refunded the monies to its investors.
SEBI had received a reference from Reserve Bank of India (RBI) along with a complaint against HBN Dairies & Allied. HBN is a company with its registered office at IIIrd Floor, Vardhman Chamber, Sonia Complex, Vikas Puri, New Delhi - 110 018). The complaint alleged that HBN is illegally mobilising funds from the public. SEBI started an investigation and wrote to HBN for detailed information. HBN instead of replying to the SEBI letter, filed an application for registration as CIS (Collective Investment Scheme) on 30 June 2010. With the application, HBN also submitted the copies of certificate of incorporation, notice to its shareholders, minutes of the Extra-ordinary General Meeting, Trust Deed and 'Rule Book'. SEBI in its letter dated 23 July 2010, sought certain documents/ details from HBN, as the information submitted was incomplete. HBN failed to provide the information within the time specified.
While HBN claims that it is a genuine cattle business, it has some liquidity problems which it explains as “Due to the stress to repay the investors, HBN is faced with compelling circumstances to sell the properties hurriedly giving rise to a situation to sell the properties at a price much below the expected market price. HBN had also entered into 'transaction service agreement' with JLL to sell the properties located at Bhatinda.”
“Subsequent to the publishing of advertisement, public notice in search of prospective buyers, a panic has been spread amongst the investors of HBN,” was the explanation from HBN management for its woes. Over time, HBN found it difficult to attract new investors.
While HBN is found to operate a CIS without prior permission from SEBI, the company has a further explanation that the amounts taken from its customers are not solely utilised for the purpose of purchase and rearing of cattle and maintenance of dairy farms, but a part of this amount is also used for investment in acquisition of fixed assets and investment of properties through its subsidiary and associate companies. The same has not been referred in any of the documents viz., application, certificate, agreement, and receipt, points out SEBI in its Order.
The SEBI order is clear in its indictment of HBN by saying, “Section 12(1B) of the SEBI Act mandates that no person, shall sponsor or cause to be sponsored or carry on or caused to be carried on any CIS unless it obtains a certificate of registration from SEBI in accordance with the CIS Regulations. HBN has clearly failed to do so. Regulation 3 of the CIS Regulations provides that no person other than a Collective Investment Management Company which has obtained a certificate under the said regulations shall carry on or sponsor or launch a 'collective investment scheme'. A person can launch or sponsor or cause to sponsor a collective investment scheme only if it is registered with SEBI as a Collective Investment Management Company.
Therefore, the launching/ floating/ sponsoring/ causing to sponsor any 'collective investment scheme' by any 'person' without obtaining the certificate of registration in terms of the provisions of the CIS Regulations is in contravention of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations. I note that HBN has launched CIS without obtaining certificate of registration from SEBI, it has contravened the provisions of Section 12(1B) of the SEBI Act and Regulation 3 of the CIS Regulations.” Hence, HBN shall not collect any more money.
Coming to the refund of money already collected, “I note that HBN, in its letter dated 8 August 2013, had forwarded a repayment proposal/ schedule and a list of its properties. The said proposal/ schedule was examined by SEBI and a detailed procedure for making repayments was forwarded to HBN, in its letter dated 6 January 2014, for necessary compliance,” observes the SEBI Order.
Finding that there were many small investors, SEBI in its Order has highlighted the nature of complaints it received with respect to refunds: “I note that in the recent past SEBI has received more than 1,200 complaints. These complaints alleged are as under:
- HBN is not paying the matured amount. In certain cases, HBN has not repaid even after 18-24 months of the maturity date.
- Phone calls have been received by SEBI, alleging therein that the branch office of HBN has informed them that the payment of matured amount shall be made by SEBI.
- HBN has issued post-dated cheques to its investors. Certain investor complaints have also alleged that the cheques received from HBN are getting bounced.
- That the agents of HBN are asking for fresh deposits and are threatening investors of not getting their money back unless money is deposited in new scheme.
These complaints are serious in nature and have been forwarded to HBN for early resolution.”
There were also allegations that HBN may not be in a position to refund and fulfil its obligations. The most serious one was: “The Chartered Accountant appointed by the Delhi High Court, in his report dated 16 September 2014 had highlighted diversion of funds by HBN to its sister concern. The report also states that the net worth of HBN is in negative by Rs75.35 crore due to losses of Rs85.45 crore.”
Based on these difficulties in refund, SEBI has asked HBN for bank statements. SEBI has also made it clear that “HBN and its directors namely Harmender Singh Sran, Amandeep Singh Sran, Manjeet Kaur Sran and Jasbeer Kaur shall not alienate or dispose off or sell any of the assets of HBN Dairies & Allied Limited except for the purpose of making refunds to its investors.” HBN is also directed to provide a full inventory of all its assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form.
In the event of breach of its Order, SEBI would make a reference to the State Government/ Local Police to register a civil/ criminal case against HBN Dairies & Allied, its promoters, directors and its managers/ persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds, concludes the SEBI Order. SEBI shall also initiate attachment and recovery proceedings under the SEBI Act and rules and regulations.