Miscarriage of Justice: Six Years of Trauma, a Dodgy Promoter and a Callous SEBI and RoC
On 18 August 2020, the Securities Appellate Tribunal (SAT) issued a landmark order that exposes the callousness of the regulatory system and holds a big lesson for those holding corporate directorships. Associating with a dodgy company can have far-reaching personal consequences, both in terms of cost and reputational damage. 
 
In the past two years, we have seen many directors of several infamous companies and corporate groups get away without any damage to their reputation—IL&FS, Yes Bank and DHFL are some that come to mind. In these cases, regulators have not dared to touch or question high-profile directors who deliberately turned a blind eye to brazen loot by the promoters, only to resign and escape when things got rough. And then, you have a case like Neesa Technologies Ltd, where an individual, trapped as a director by a dodgy group, failed to get the benefit of doubt and had to fight for justice for six long years. Here is this extraordinary story. A reading of the SAT order as well as two previous orders by the whole-time directors (WTMs) of the Securities and Exchange Boad of India (SEBI) would prove the adage that truth is often stranger than fiction.
 
The Neesa group of companies has a long record of duping depositors who invested in its fixed deposits (FDs) and bonds through a series of companies that include: Neesa Leisure Ltd, Neesa Agritech and Foods Ltd, Neesa Technologies, Neesa Infrastructure Ltd and, probably, a few others. 
 
Sometime in 2014, when complaints from desperate depositors began to pile up, SEBI and the ministry of corporate affairs (MCA) launched their own investigations. This column is about Neesa Technologies and one Nimain Charan Biswal who was ostensibly the managing director (MD) of the companies. Mr Biswal was one of nine directors of Neesa Technologies. Here’s his story, which emanates from Justice Tarun Agarawala’s order at SAT on 18 August 2020. 
 
In November 2013, Neesa Technologies held a recruitment interview at which it obtained a consent letter from Mr Biswal, which was misused and utilised to show him as the MD of the company. When he got to know ‘about this mischief’, he submitted his resignation and filed all compliances with the registrar of companies (RoC). For reasons unknown, the RoC failed to update its records for more than three years. He then filed a writ petition before the Gujarat High Court (GHC) for appropriate direction. Based on a court order of 5 July 2017, his tenure as director/MD was to be recorded for four months from 7 November 2013 to 6 March 2014 and RoC’s records were to be updated accordingly.
 
Meanwhile, following complaints about non-convertible debentures (NCDs) issued by Neesa Tech, SEBI issued an ex-parte interim order on 3 June 2015, confirmed a year later on 2 June 2016, in which WTM Prashant Saran ordered the company to repay investors, if necessary through sale of assets as well as the personal assets of directors, and barred the directors from the securities market. Mr Biswal, whose name was in RoC’s records as a director, was implicated by this order. Mr Biswal appealed to SAT, which quashed the SEBI order and asked the regulator to pass fresh orders because the previous one had exceeded the show-cause notice. 
 
On 7 September 2016, SEBI’s WTM Rajeev Kumar Agarwal passed fresh orders which exonerated Mr Biswal of all charges in the earlier notice and specifically noted that he had not attended any board meeting in the period when he was allegedly on the board and, in any case, the allotment of NCDs was completed in August 2013, before his so-called appointment. SAT has quoted a long paragraph from the order which concluded, “…Mr. Biswal became a director of NTL after the offer, issue and allotment of NCDs by NTL was complete and, therefore, he cannot be held responsible for violations of NTL regarding offer, issue and allotment of NCDs.” 
 
Remember, during these hearings, the RoC continued to show him as a director; but the July 2107 order of the GHC mentioned above, fixed that problem and confined his tenure to four months ending 6 March 2014. 
 
You would think this would end Mr Biswal’s troubles; but that was not to be. The RoC, having failed to update its records, got active on ensuring compliance with its orders of October 2014 against various directors asking them to repay investors. So, in January 2017, the RoC filed 34 criminal cases against Mr Biswal, as director/MD of Neesa Technologies, before the magistrate’s court. He went back to the GHC, this time with a criminal writ petition (No. 1117 of 2017) leading to an order quashing all 34 cases against him. The Court noted that all complaints related to the periods ending 31 March 2012, 2013 and 2014, for which there was no record of Mr Biswal having attended any board meeting and his appointment seemed to be a ‘paper arrangement’ of four months. 
 
This should have ended the matter; but it didn’t. On 13 December 2018, SEBI issued a fresh show-cause notice about non-payment of optionally convertible debentures (OCDs) which, it said, happened during his tenure as MD. Mr Biswal’s vehement submissions and records apparently fell on deaf ears of SEBI’s WTM and, on 7 April 2020, Anant Barua, issued fresh orders against most directors, including Mr Biswal, asking them to refund investors’ money with 15% interest, provide an inventory of their personal assets and barred them from accessing the capital market for four years. 
 
In effect, it was back to square one in April 2020, despite two High Court verdicts and an appeal to SAT. Interestingly, during the hearing, SEBI said that it would not enforce the order relating to refund of money, but Mr Biswal would be barred for four years, since he was shown as MD for four months in the period when Neesa Technologies issued the OCDs.  
 
Anant Barua wouldn't buy his argument that Mr Biswal had not attended any meetings, signed any orders or been party to decisions. All that mattered, in implicating him (as the SAT order noted) was that Mr Biswal ‘appears’ to have been issued and allotted when he was allegedly the MD. SAT stressed on the word ‘appears’ and decimated the erroneous presumption in arriving at that conclusion by narrating a series of facts on record. 
 
These were: he did not attend any board meetings; was not paid remuneration; the allotment of debentures was done before August 13 (which was prior to his alleged tenure of four months); and the resolution to issue debentures dated back to May 2012. Moreover the GHC judgement had already found that his so-called tenure as MD, was only a ‘paper arrangement’ and he was not an officer in default.
 
SAT not only quashed Mr Barua’s ridiculous order but noted that Mr Biswal had been “harassed since 2015 when an ex-parte interim order was passed against him”, a fresh show-cause notice issued without ‘application of mind’ and a new order issued by ignoring facts on record. In a puny but unusual gesture, SAT also ordered SEBI to pay Mr Biswal Rs50,000 in costs, when he probably deserved exemplary damages.
 
This chilling case holds a lesson for all those, including regulators and central bankers, who clamber on to boards of dodgy companies and have faced varying degrees of ignominy including being ousted, or having the boards sacked. But these, too, pale in the face of Mr Biswal’s trauma. It is important to note that he fought his own case before SAT and emerged victorious. 
 
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    COMMENTS

    youngspiritual.1

    3 weeks ago

    How many people does money life employs? Itne h ethics aur knowledge hai to khol lo ek company do logo ko employment rather than just ranting all the time!

    pankaj.mahidhar

    3 weeks ago

    Why were Prashant Saran, Rajeev Kumar Agarwal and Anant Barua not punished? It is always the regulators who are at fault in manipulating regulations and blinking at the guilty and punishing the public in most instances. Luckily for Mr Biswal the SAT was in good mood or he would be still struggling to get justice. Courts don't take suo motu cognisance of contempt of their orders by regulators or government bodies.

    arnaud.descamps

    3 weeks ago

    Amazing... Meanwhile some easy to identify fraud-supporting directors and fraudsters are left un-punished.

    This reminds us that Alert processes, as required by exchanges, are important, because an alert can be done faster than going to institutions or court.

    When I see the behavior of some so called « independent » directors who cover-up fraud, I find it useful that directors do face responsibility though.

    I need to check whether CEO means « managing director »

    Seems like the system ended up with fair decisions, but the journey was not one to be lived.

    sundar_ramang

    3 weeks ago

    Excellent piece by Sucheta Dalal..how people can be harassed for many years by our Indian system..

    hamungel

    3 weeks ago

    Great Guy Mr. Biswal and Great Journalist Ms Dalal for writing this story.

    vikasuti

    3 weeks ago

    Scheta Ji!
    One more report by you, Excellent.... Please look into the piles of complaints in Helios & Matheson, Chennai FDs. The Depositors are clueless what to do? Please guide them too with your vast experience & People friendly approach.

    nikhil.girme

    3 weeks ago

    Whole system stinks sadly...We are unfortunately debenture holders and are waiting for sebi to take fast and furious action on neesa to repay our ncd amounts with interest.Will seniors who had invested their pension amounts get justice ?

    Nurani Ramanathan

    3 weeks ago

    amazing story, a kafkaesque representation of how our regulators function

    mukeshpande0309

    3 weeks ago

    Shame on such officials in the regulatory bodies who seems to be corrupt and work hands in glove with such promoters. The poor guy Mr Biswal suffered and should have been paid in crores as compensation. Further such officials and promoters must be put behind bar asap to set examples.

    vaibhavdhoka

    3 weeks ago

    Our regulators are hand in glove with unscrupulous fraudsters, they are least interested in resolving complaints.Neesa Leisure Ltd has duped investors of crores the matter is pending with RP who is helping debtors.

    rajoluramam

    3 weeks ago

    Why no body is writing about the fraud pharma company " ELDER
    PHARMA MUMBAI". The company deceived thousands of FD holders.. It is more than 6 years after the maturity of FDs. The case is with Bombay high court liquidator. From the press reports, it is known that the pharma company is doing well. However they are not refunding deposits. These fradulent companies are happy if the case is filed in the court. No body could do any thing as far as the case is pending in the courts. Many old senior citizens might have passed away with out receiving their matured FDs.

    Newme

    3 weeks ago

    Cannot imagine the hardship the poor guy went through for so many years. His compensation is peanuts.

    RBI rationalises risk weights of new individual home loans to boost liquidity
    In a bid to improve liquidity for home buyers and boost realty demand, the Reserve Bank of India (RBI) has decided to rationalise the risk weights of new individual home loans sanctioned up to March 31, 2022.
     
    Under the extant regulations, differential risk weights are applicable to individual housing loans, based on the size of the loan as well as the loan-to-value ratio (LTV).
     
    Addressing the media after the Monetary Policy Committee's bi-monthly meeting, RBI Governor Shaktikanta Das said: "In recognition of the role of the real estate sector in generating employment and economic activity, it has been decided to rationalise the risk weights and link them to LTV ratios only for all new housing loans sanctioned up to March 31, 2022."
     
    He noted that the move is expected to give a fillip to the real estate sector.
     
    Realty players have hailed the decision which would boost liquidity for the prospective home buyers.
     
    "The linking of risk weight of home loans to LTV for all new housing loans is a step in the right direction, this will benefit the real estate sector," Krish Raveshia, CEO, Azlo Realty said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Newme

    3 weeks ago

    Just by risk weightage will lead to lower rates? Expecting more detailed article on this.

    RBI announces Rs1 lakh crore on-tap repo operation-TLTRO to revive economic activity in key sectors
    As part of efforts to revive economic activity in specific sectors and maintain liquidity flows in the financial markets, the Reserve Bank of India on Friday decided to conduct a Rs 1 lakh crore on-tap Targeted Long Term Repo Operations (TLTRO).
     
    The Reserve Bank of India (RBI) in its late March policy action introduced the TLTROs as a tool to enhance liquidity in the system, particularly the corporate bond market, in the wake of the Covid-19 crisis.
     
    RBI governor Shaktikanta Das said that fresh TLTROs will focus on providing l iquidity support for revival of activity in specific sectors that have both b ackward and forward linkages, and multiplier effects on growth.
     
    Accordingly, it has been decided liquidity availed by banks under the scheme has to be deployed in corporate bonds, commercial papers, and non-convertible debentures issued by the entities in specific sectors over and above the outstanding level of their investments in such instruments as on September 30, 2020.
     
    The Rs 1 lakh crore TLTROs will be available for tenors of up to three years issued at a floating rate linked to the policy repo rate. The scheme will be available up to March 31, 2021 with flexibility with regard to enhancement of the amount and period after a review of the response to the scheme.
     
    The liquidity availed under the scheme can also be used to extend bank loans and advances to identified sectors. Investments made by banks under this facility will be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio.
     
    All exposures under this facility will also be exempted from reckoning under the large exposure framework (LEF).
     
    Moreover, banks that had availed of funds earlier under targeted long-term repo operations (TLTRO and TLTRO 2.0) have the option of reversing these transactions before maturity.
     
    In view of the borrowing requirements of the Centre and states in the second half of 2020-21 and the likely pick-up in demand for credit as the recovery gathers strength, on-tap TLTROs are intended to enable banks to conduct their operations smoothly and seamlessly without being hindered by illiquidity frictions, the RBI governor said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    m.prabhu.shankar

    3 weeks ago

    Again and again we are focussing on the support for supply side while the real issue is the demand. Don't know how many more months we will take to understand this simple thing. Put money into the hands of common people. That will solve the problem.

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