Confirmatory Order in the matter of Pacific Finstock Limited[SAT Appeal No.:[295/2018]

UNDER SECTIONS 11, 11(4), 11A AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992

IN THE MATTER OF S. NO. NAME PAN 1 Pacific Finstock Limited AABCP1727D

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), in the interest of investors, vide its letter dated August 7, 2017 took pre-emptive interim measures under section 11(1) of Securities and Exchange Board of India Act, 1992 (“SEBI Act”), in respect of certain listed companies identified as “shell companies” by the Ministry of Corporate Affairs including Pacific Finstock Limited (hereinafter referred to as “PFL” / “Company”). In view of the said objective, SEBI vide the said letter dated August 7, 2017 also placed the scrip of PFL in the trade to trade category with limitation on the frequency of trade and imposed a limitation on the buyers by way of 200% deposit on the trade value, so as to alert them while trading in the scrip. The said measures were initiated by SEBI pending final determination after verification of credentials and fundamentals of the company by the exchanges, including by way of audit and forensic audit, if necessary. The measures also envisaged, on the final determination, delisting of the company from the stock exchange, if warranted. By virtue of these measures, trading in the scrip was not suspended, but was allowed under strict monitoring so that investors could take informed investment decisions till SEBI and Stock Exchanges complete detailed examination of such companies.

2. Aggrieved by the aforesaid letter dated August 7, 2017 issued by SEBI, PFL filed an appeal No. 264 of 2017 before Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”). Hon’ble SAT vide order dated September 29, 2017 allowed PFL to withdraw the appeal with liberty to pursue the representation filed before SEBI against the said letter dated August 7, 2017. Hon’ble SAT directed SEBI to dispose of the representation of PFL as expeditiously as possible and in any event within a Order in the matter of Pacific Finstock Limited period of four weeks from September 29, 2017. Hon’ble SAT also held that passing of any order on the representation made by the appellant would not preclude SEBI from further investigating the matter and initiate appropriate proceedings if deemed fit.

3. Pursuant to the decision of Hon’ble SAT that the communication of SEBI dated August 7, 2017 is in the nature of quasi-judicial order, in the interest of natural justice, an opportunity of personal hearing was granted to PFL on October 3, 2017. The authorized representative of PFL had appeared for the said hearing.

4. Thereafter, SEBI vide interim order dated October 26, 2017 (hereinafter referred to as “interim order”), had modified, subject to para 24 of the interim order, the actions envisaged in SEBI’s letter dated August 07, 2017 and the consequential actions taken by Stock Exchanges, against PFL as under:

i. Stock Exchange shall appoint an independent forensic auditor, inter alia, to further verify: a) Misrepresentation including of financials and/or business of PFL, if any; b) Misuse of the funds/books of accounts of PFL, if any.

ii. The promoters and directors in PFL are permitted only to buy the securities of PFL. The promoters and directors of PFL shall not sell the securities of PFL held by them, either in physical form or dematerialized form.

iii. The other actions envisaged in SEBI’s letter dated August 07, 2017 in para 1 (d), as may be applicable, and the consequential action taken by Stock Exchanges shall continue to have effect against PFL.

5. It is noted that PFL was listed on Vadodara Stock Exchange and is shown on the dissemination board of Bombay Stock Exchange Ltd. Thus, there was no active trading in the scrip of PFL.

6. Vide the interim order, SEBI had advised PFL to file its reply/objections to the said interim order within 30 days from the date of receipt thereof and also indicate in its reply whether it desires to avail an opportunity of personal hearing on a date and time to be fixed on a specific request made in that regard.

7. Vide an email order dated October 26, 2017, a copy of interim order was forwarded to PFL. Subsequently, a physical copy of interim order was also sent to PFL vide letter dated October 31, 2018 on its address on record, and the same was delivered.

Reply and hearing

8. PFL submitted its reply/objections to the Interim order vide letter dated November 21, 2017. PFL filed the following documents along with its submissions:

i. Ledger statement of Panki Investment Limited, Amarkantak Traders Limited, Anvita Sales Corporation, Mehul H Patel, Dilip G Pawar, Hitesh H Patel, Prabhav Industries Limited, Jayeshbhai Thakkar, Jayesh R Thakkar, Adamina Traders Pvt Ltd, Aadhar Ventures India Limited, Emporis Projects Limited and Hetal Trivedi. ii. Tax Payment Challan Receipts of Rs. 18,81,500. iii. Bank Reconciliation Statement of Bank of India A/c No. 250720110000353 of Pacific Health Informatics. iv. Ledger Statement for permanent diminution in value of shares of Prabhav Industries Ltd., Valuemart and Yantra Natural Resources Ltd. v. Separate Loan Agreements with Ghanshyambhai J Bharwad, Jethabhai Bharwad, Kavit Intermediate, Prabhav Industries Limited and Hetal Trivedi vi. Confirmation of accounts of Ghanshyam J Bharwad, Jethabhai Bharwad, Kavit Intermediate, Prabhav Industries Limited vii. Extract of resolutions passed in various Board meetings. viii. Notice of Extraordinary General Meeting held on 15/04/2014, 05/01/2016, 22/12/2017.

9. The replies / objections of PFL in respect of the observations of the interim order are as under:

a) Observation in the order:

On analysis of Annual Report for the F.Y. 2015-16 (especially Note 9 and Cash Flow Statement), it is observed that the company had sold 12,00,000 shares of Natural Expo Agro Industries Limited at Rs. 10/- per share. In the F.Y. 2016-17 Company purchased the shares of Natural Expo Agro Industries Limited at Rs. 2/-per share and sold at Rs. 7/- per share.

It is noteworthy that Natural Expo Agro Industries Limited and Pacific Finstock Limited have same address i.e. Chinoi Building, Station Road, Vadodara 390002 as per MCA database and submissions of Pacific. Mr. Jayeshchdrabhai Thakkar is common director in Natural Expo Agro industries limited and Pacific Finstock limited.

It is observed that the company purchased shares on credit from Anvita Sales Corporation on April 25, 2016 and sold shares on credit to Panki Investments Limited and Amarkantak Traders Limited on March 8, 2017 and there were no fund transfers at the time of purchase or sale of shares of Natural Expo Agro Industries Limited.

The consideration amount for purchase and sale of shares by PFL mentioned in the submissions of PFL dated October 16, 2017 appears to be an afterthought as the partial amount of such sale and purchase has been reflected in the bank account statements pursuant to the queries raised during the WTM hearing. No challans have been submitted for payment of tax on STCG. The company in its reply has also confirmed that it has a tax liability of Rs.17.82 lakhs which would be paid before October 31, 2017.

It is noted that the company is appearing on the Dissemination Board of BSE. The company has stated that it has applied to BSE for Direct Listing on June 29, 2017 and in view of SEBI letter dated August 7, 2017 issued to the exchanges its applications was not processed under the Direct Listing norms prior to September 29, 2017. BSE vide email has informed that the net worth criteria for companies to be listed under Direct Listing norms prior to September 29, 2017 was at least Rs. 3 crores as per the latest Audited Financials.

In view of the above facts, it prima facie appears that the abovementioned transaction i.e. purchase and sale of shares of Natural Expo Agro Industries Ltd. was recorded in the books of the accounts of the company to comply with the net worth requirement of Rs. 3 crore on paper so as to avail listing at BSE under Direct Listing norms prior to September 29, 2017, even though there was no cash flow till that date.

PFL’s Reply

Purchase and sale of shares of Natural Expo Agro Industries Ltd in FY 2016-17 was made on credit basis to Panki Investments Limited and Amarkantak Traders Limited on 08.03.2017, and payment against credit sale was received during Nov 2017. Detailed ledger copy for the same is attached and the company has paid Income Tax of Rs 18,81,500 on 31.10.2017. There are actual cash flows as on date. [copy of Ledger of Both sundry debtors and Tax paid Challan of Rs 18,81,500.00 is attached). Since the Company is a NBFC, hence in its normal course of business activities it purchases/sells securities on credit basis & same are settled latter.

Hence, there is no prima facie mala fide of the company.

b) Observation in the order:

As per Annual Report 2016-17, the total Bank balance as on March 31, 2017 is Rs. 40,95,147.63. The company has replied that it has three bank accounts (including the bank account of Pacific Health Informatics) and the balance as on March 31, 2017 is Rs. 24,58,148.62. As per Annual Report 2016-17, there were Nil Cheques/Drafts in hand.

Name of Bank Balances as on March 31, 2017 Punjab National 78,211.08 Bank UCO Bank 3,33,284.82 Bank of India 20,46,652.72 TOTAL 24,58,148.62

Thus, it is observed that there is discrepancy between what has been reported in the financials for the F.Y. 2016-17 and the bank statements.

PFL’s Reply

Company had received a cheque of Rs 16,37,000/- on 31.03.2017 which was standing in reconciliation statement of Bank of India Bank statements on 31.03.2017 (Reconciliation copy attached) because of which there is error in the Annual Report. The Balance as per various Bank statements was Rs 24,58,148.62 while as per Annual Report, the Bank balance was Rs 40,95,147.63. So difference of Rs 16,37,000 was due to above mentioned cheque received by the Company on 31.03.2017 which was standing in Reconciliation statement as on 31.03.2017.

Hence, there is no discrepancy between what has been reported in the financial statement for F.Y. 2016.17 and the Bank statement.

Name of Bank balance as per Bank balance as per Reconciliation Bank bank statement on bank statement as on amount 31.03.2017 31/03/2017 P NB 78,211.08 78211.08 0 UCO 3,33,284.82 3,33284.82 0 BOI 20,46,652.72 36,83,652.72 16,37,000 TOTAL 24,58,148.62 40,95,147.63 16,37,000 c) Observation in the order:

It is noted that amount of trade receivables has been shown under Loans and advances in the financials of the company for FY 2016-17. The same figures were presented by the company for audit also. The company has claimed that it was done erroneously, however, the same appears to be an afterthought by the company as it was brought out by the company only after SEBI questioned it during the hearing. It does not appeal to reason that such an error never came to the notice of the company even after its accounts were audited. In view of the above, the inclusion of trade receivables under Loans and advances, prima facie appears to be misrepresentation in financials by PFL.

PFL’s Reply

There is no misrepresentation in financial statement. There is no change in Trade receivable amount or Loans and advances but there is an error in grouping on the Assets side which was rectified in next financial year 2017-18.

d) Observation in the order:

With respect to investment in Shree Ganesh Spinners Limited (currently known as Yantra Natural Resources Ltd.), it is observed that trading in this scrip is suspended since August 28, 2015. The closing price of the scrip as appearing on August 27, 2015 on BSE website is Rs.0.31/- per share. The market value of the scrip has diminished substantially. On analysis of annual report for the F.Y. 2016- 17, it is observed that the company has not made provision for diminution in the value of investments. The value of inventory as per annual report is shown as 1.96 crores as on March 31, 2017, whereas the market value thereof as submitted by the company is only Rs.2.69 lakhs. Thus, prima facie there appears to be misrepresentation of financials of PFL.

PFL’s Reply

With effect from 01.04.2017, Indian Accounting standards were applicable to the Company, Hence company has not considered Market value in F Y 2016-17, and till F Y 2016-17 old Accounting standards was applicable. So the company has not made Provision for diminutions in value of investment in F.Y. 2016-17 in its Books of Accounts. The Company has made provision of diminution in Value of Investment during 2017-18. Hence there is no financial misrepresentation by PFL.

e) Observation in the order:

For increase in long term borrowings, the company has furnished the names of entities from whom it has borrowed the amounts and has furnished copies of ledger extracts, bank statements and certain loan agreements. From the agreements, it is observed that the said entities are appearing as borrowers instead of lenders and in some cases, the tenure of agreements being 45 months, the same have lapsed. Further, Anvita Sales Corporation is shown by the company in long term borrower whereas it is noted that PFL has purchased shares of Natural Expo Agro Industries Ltd from Anvita Sales Corporation on April 25, 2016 which should have been shown under Trade Payables. The details gathered from the agreements are as under:

Name of entity Date of Entity Amount Tenure of Agreement appearing agreement as Adamina Traders Pvt. 31/12/2011 Borrower 1 crore 45 months Ltd. Jayeshbhai R Thakkar 05/01/2016 Borrower 1 crore 45 months Kavit Industries 05/01/2016 Borrower 4 crore 45 months Limited Mahesh S Kahar 31/12/2010 Borrower 30 lakhs 45 months Shree Saibaba Exim P 02/07/2016 Borrower 10 lakhs 45 months Ltd

Thus there is a discrepancy between the reported financials and supporting documents.

PFL’s Reply

There is no discrepancy in financial statement & supported documents, as trade payable of Anvita Sales Corporation was erroneously shown as Unsecured Loans in F Y 2016-17, which we have rectified the same in F V 2017-18 by changing group from Unsecured Loans to Trade Payable. Since the Company was not having funds, it has not paid it till date. Now the promoter has agreed to pay the Company on behalf of various parties who have taken loans/advances from the Company, so now Company will repay all its borrowers, f) Observation in the order:

The details of Long term loans and advances and short term loans and advances as gathered from the copies of agreements submitted by the company are as under:

Name of entity Date of Entity Amount Tenure of Agreement appearing agreement as Ghanshyam J Bharwad 09/09/2016 Borrower 1.5 45 months crore Jethabahi Bharwad* 09/09/2016 Borrower 2.5 45 months lakhs Hetal Trivedi* 09/09/2016 Borrower 2.5 45 months lakhs Kavit Intermediate 05/01/2016 Borrower 5 lakh 45 months Prabhav Industries ltd. 15/04/2014 Borrower 30 lakhs 45 months

* Loan amount said to have been given by Pacific Health Infomatics, stated to be division of Pacific Finstock ltd.

Kavit Intermediate (stated to be division of Kavit Industries) and Prabhav Industries share the same address with Pacific Finstock Ltd. – 9th Floor, Galav Chambers, Sayajiganj, Vadodara- 390020.

The amount shown as short term loan and advances for Panki Investment Ltd. and Amarkantak Traders Ltd. were actually the amount due for sale of shares of Natural Expo Agro Industries Ltd. on credit as on March 31, 2017 which is in the nature of trade receivables but has been categorized under ‘Short term Loans and Advances’. In any case, in terms of the agreements submitted for entities (offered short terms loans and advances and if amount dues for Panki and Amarkantak are considered), the increase in amount is only by 3 crores and not 3.2 crores.

All the agreements pertaining to long term borrowings, long term loans and advances and short terms loans and advances are not on stamp paper nor have they been notarized, which raises a doubt regarding their authenticity.

PFL’s Reply

Normally company is following the practice of lending money by way of Agreement on its Letter Head instead of Stamp paper. Hence it has followed the same in all its transactions since inception, however now it will follow the procedure of entering into agreement on duly notarized stamp paper. All the parties are authentic parties & confirmation from the all parties is again submitted.

g) Observation in the order:

The company has submitted the secretarial audit report for the F.Y. ended March 31, 2017 wherein the secretarial auditor has highlighted that the required documents in case of related party transactions were not produced before it. Further the secretarial audit report has highlighted non-compliance of various requirements. The relevant observation of secretarial audit report is reproduced below:

“ I confirm that the Company has partly complied with the provisions of the Act, Rules, Regulations, Guidelines, Standards, Listing Agreement etc. mentioned hereinabove, other than those mentioned above subject to following observations: 1. The Company has not filed certain forms & certain forms were filed with delay filling fees. 2. The Company has not appointed an Internal Auditor for FY 2016-17 as required under Section 138 of the Companies Act, 2013. 3. The constitution of various Committees is not in conformity with the requirement of Section 178 of the Companies Act, 2013 and rules thereunder during the Audit period. However, Company is taking steps to regularize the same.

4. The Company has failed to appoint whole time Key managerial personnel as required under Section 203 of the Companies Act, 2013 and rules thereon. … 7. The Company has failed to produce Prof of dispatch notice to the members of Annual General Meeting as required under Section 101 of the Companies Act, 2013. 8. Company has not file the Return as required by the RBI act, 1934 and RBI Directions and Guidelines.

I further report that compliance of applicable financial laws including Direct and Indirect Tax laws by the Company has not been reviewed in the Audit since the same has been subject to review by the Statutory Auditors and other designated professionals, … At the time of secretarial audit Company could not produce necessary agenda/notices given to all directors to schedule the Board Meetings or any other supporting, hence I am unable to comment whether adequate notice of board meeting along with agenda was sent at least seven days in advance or not, nor we can found whether a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting. Majority decision is carried through while the dissenting Members views are captured and Recorded as part of the minutes. Since Minutes books is not updated, hence we cannot comment whether majority decision is carried through while the dissenting members' views are captured and recorded as part of the minutes. • Statutory Register was not updated at the time of secretarial audit of the Company. • At the time of secretarial audit, company has not produced relevant documents, hence I cannot comment whether any Related Party Transaction (RPT) has taken place or Board/ Shareholders approval was taken for the same.

I further report that there are not adequate systems and processes in the company commensurate with the size and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines.”

Thus, it is observed that there are significant governance issues relating to PFL which have been highlighted by the auditor.

PFL’s Reply

The Governance issue related to the company has been regularized as on date. Since the company was listed only at VSE in 2016-17. The Company has complied with various clause of listing agreement during year 2016-17 but the same was not submitted to VSE. The Company will update its minute books & statutory register. The Company has filed all relevant forms with RBI.

h) Observation in the order:

The company has submitted the Net Assets Purchase agreement on which, inter-alia, following observations are made:- a) The agreement is signed between PFL and Mr. Jayesh Thakker and is dated October 12, 2017. b) The date of the agreement is after questions were raised during the WTM hearing. c) This agreement appears to be an afterthought and no Board resolution and shareholders resolution has been furnished. d) The company has submitted that all long term loans and advances (which appear to have been inadvertently referred to as long term borrowings) of Rs 3.24 crore were carried in books of account since long time (approx. more than 5 years) and the same were not possible to be recovered so, promoter of company, Mr. Jayesh R Thakkar purchased (took over) long term loans and advances, investments and unsecured loans through net asset purchase agreement dated October 12, 2017. e) The agreement provides for annexures –reflecting investment in shares as on September 30, 2017 for an amount of Rs.27,64,371 and loans and advances as on September 30, 2017 for an amount of Rs. 1,89,65,890/-. However, the total amount does not add up to Rs. 3.24 crores. f) Article II on page 4 of the said agreement states that the consideration of Rs. 2.17 crores is paid by the Assignor (i.e. PFL) to the Assignee (i.e. Jayesh Thakker). In fact, the company has stated that they have sold all long term loans and advances to Jayesh Thakker and not vice versa as indicated in Article II.

PFL’s Reply

Total Loans and Advances are of Rs 3.24 Crore but Mr. Jayeshbhai Thakkar, Promoter of Company has agreed to purchase Loans and advance of Rs 1.89 Crore only. The balance amount Rs 1.35 Crore is recoverable from the concerned parties. The Copy of Board resolution / shareholders resolution is enclosed herewith. Out of Rs 1.35 Crore of Remaining concerned parties. Rs 43,52 Lacs was recovered. Ledger for the same is also attached.

It is clarified that Mr. Jayeshbhai Thakkar has acquired all Loans and advances & repaid the same amount to company & there is a typographic error in the agreement, Net Asset Purchase Agreement Amended copy is enclosed herewith for further clarity.

Mr. Jayeshbhai Thakkar has paid Rs.0 82 Crore as on date as per Net Purchase Agreement. Ledger for the same is attached herewith.

i) Observation in the order:

On analysis of Bank statement of Bank of India submitted by the company for the F.Y. 2016-17, it is observed that there are several entries wherein the amount has been received from Kavit Industries Limited (a related party of PFL) and withdrawn as cash. Further it is observed that there are majorly three types of transactions in the bank statement i.e. Kavit Industries Limited, Jayesh Thakkar (Director) and Cash. Further, the said bank account belongs to Pacific Health Informatics. This raises prima facie suspicion that the bank account is being used for purposes other than primary business activities.

PFL’s Reply

Pacific Health informatics was not doing any business activities in the financial year 2016-17. Hence, there were only entries belonging to Kavit Industries Limited (Group Company), Jayeshbhai Thakkar( Managing Director of Pacific Finstock Limited) & Cash Transaction of Pacific Health Informatics shown in Bank of India account of Pacific Health informatics. This cash transactions are reflected in cash in hand as on 31st March, 2017.

10. PFL had not requested for an opportunity of personal hearing in its reply dated November 21, 2017. Therefore, vide email dated January 17, 2018, PFL was advised to confirm whether it desires to avail an opportunity of personal hearing or reply filed vide letter dated November 21, 2017 may be taken as its submission to proceed further in the matter. In this regard, PFL vide email dated January 17, 2018 replied that the submissions made by it vide letter dated November 21, 2017 may be considered as final submissions. PFL further submitted that the forensic audit of the company is going on and PFL is submitting all the required documents and clarifications to the auditor appointed by BSE.

Issue for consideration

Whether in light of the facts and circumstances of the case, the findings of the interim order and the submissions of the company in response thereto, the directions issued against the company vide the interim order need to be confirmed, revoked or modified in any manner?

11. Considering the above mentioned facts and circumstances and the replies of PFL to the findings of the interim order, I observe the following:

A. It is noted that during the financial year 2016-17, PFL transacted only in the shares of Natural Expo Agro Industries Limited, which is a related party of PFL on account of a common director – Mr. Jayesh Thakkar. From the MCA records, it is observed that Natural Expo Agro Industries Limited has not submitted its financials after the F.Y. 2008-09. The statutory auditor of Natural Expo Agro Industries Limited in its report for F.Y. 2008-09 has qualified the audit report with 12 qualifications as mentioned in the audit report. The auditor in its report has highlighted that i. The company has not undertaken any business activity since incorporation. ii. The company has not complied with provisions of section 383A of the Companies Act, 1956 relating to appointment of whole time secretary. iii. Company has not taken due care to arrange in order and to preserve past years Books of accounts, relevant records and Shareholders records, etc. in proper manner and proper place. iv. Company has not made provision for diminution in value of investment in shares. v. Accounts and balance of major parties remain stagnant and unconfirmed. vi. Continuing contravention of section 372A of companies Act, 1956 for inter corporate loan and investment of Rs. 7.26 crores in excess of the limit specified and it is also doubtful to be recovered. vii. Continuing contravention of section 295 of the companies act, 1956.

viii. Company has received summons from Ministry of corporate affairs and the status of the matter is not available. ix. The allotment money remain unrealized since the F.Y. 1995-96 are Rs. 3.06 crore for which no steps taken for forfeiture and no relevant records for the arrears available. x. SEBI vide order No. CO/51/IES/06/2003 directed to the company and all the three directors of disassociation from capital market for a period of 5 years. xi. Profit and loss account has been prepared as the company has loss on sale of investment, but the company has not commenced any Revenue earning capacity and therefore all the expenses incurred are capitalized under the head Pre-operative expenses. xii. In respect of inoperative bank account having balance of Rs. 44,750 neither bank statement nor confirmation of balance, have been called by the company.

In its reply, PFL has submitted that the purchase / sale of shares of Natural Expo Agro Industries Ltd. in FY 2016-17 was made on credit basis and subsequently there were actual cash flows and PFL and also paid tax applicable on the transactions. It also submitted that since it is an NBFC, in its normal course of business activities it purchases/sells securities on credit basis & same are settled latter. In this regard, it is relevant to reiterate that during the FY 2016-17, PFL transacted only in the scrip of National Expo Agro Industries Ltd. This fact itself belies the submission of PFL that as an NBFC, on a routine basis, it purchases / sells securities on credit basis and settles them later. Further, PFL has not provided any explanation in respect of the observation in the interim order that “purchase and sale of shares of Natural Expo Agro Industries Ltd. was recorded in the books of the accounts of the company to comply with the net worth requirement of Rs. 3 crore on paper so as to avail listing at BSE under Direct Listing norms prior to September 29, 2017”. Thus, PFL has not submitted the rationale behind first selling the shares of Natural Expo Agro Industries limited at Rs. 10 per share during the F.Y. 2015-16, repurchasing the shares at Rs. 2 per share and thereafter, again selling the shares at Rs. 7 per share during the F.Y. 2016-17, all these transactions being for shares of a company that as per its own statutory auditor, had no operations.

B. With regard to the observation in the interim order highlighting the discrepancy between the financials for the F.Y. 2016-17 and the bank statements, PFL has submitted that the said discrepancy was because of a cheque dated March 31,

2017 which was received by PFL but was not credited in its account. It is noted that PFL has not provided the bank statement for the subsequent period (i.e. after March 31, 2017) to show that the outstanding cheque was actually credited in the next financial year. Further the actual date of depositing cheque to the bank was also not mentioned in the reply filed by PFL.

C. It is noted in the interim order that amount of trade receivables has been shown under Loans and Advances in the financials of the company for FY 2016-17. In this regard, PFL has claimed that there is error in grouping in the assets’ side of Balance sheet for the F.Y. 2016-17, however, it has not provided any explanation regarding the observation in the interim order that “the same appears to be an afterthought by the company as it was brought out by the company only after SEBI questioned it during the hearing”.

D. PFL has accepted that there is substantial decline in the value of shares of Shree Ganesh Spinners Limited held by it. PFL submitted that the provision in diminution of value of investments has been rectified in the month of November 2017 and also provided the ledger statement in support of the submissions. In my view, non-provisioning of substantial decline of the investment in shares cannot be said to reflect true and fair financials. It is pertinent to note that the decline in the value of investment in shares by Rs. 1.93 crores amounts to 86% of the total value of shares held by the company as reported in the Annual Report as on March 31, 2017. Even as per the old accounting standard (AS 13) “provision for diminution shall be made to recognize a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually”.

E. PFL has accepted that the trade payables of Anvita Sales Corporation have wrongly been grouped under “long term borrower”. PFL has not made any submissions w.r.t. whether it is a borrowing agreement or lending agreement in support of increase in long term borrowings. Further, PFL has not provided any explanation on agreements that have lapsed and any actions taken by the company for recovery of amount on those agreements.

F. PFL has not provided proper break-up for increase in the long term loans and advances by Rs. 3.2 crores during the F.Y. 2016-17. Also, PFL has provided no explanation with regard to observation in the interim order pertaining to the agreements for long term borrowings, long term loans and advances and short terms loans and advances not being on stamp paper nor being notarized. Rather, it has only stated that it has been following the practice of lending money by way of Agreement on its Letter Head instead of Stamp paper.

G. PFL has not provided explanation with respect to the observation in the interim order pertaining to significant governance issues relating to PFL which have also been highlighted by its auditor. PFL has made a claim that it has regularized the said governance issues but has not provided documentary evidence to show how it has done so.

H. There is no attachment of amended copy of Net Asset Purchase Agreement in the reply dated November 21, 2017 submitted by PFL. It has not submitted the bank statement reflecting the receipt of proceeds, if any. Most importantly, PFL has not provided any justification in respect of the observation in the interim order that the said Net Asset Purchase Agreement appears to be an afterthought.

I. PFL has not provided any explanation as to why the account of Pacific Health informatics was shown as PFL’s account. Further, it is also not clear from PFL’s reply that if Pacific Health informatics (claimed to be a division of PFL) was not doing any business, why its account was being used for the transactions with a group company and the Managing Director of PFL. Furthermore, the reasons for withdrawal of amount in cash has also not been provided by PFL.

12. It is noted that subsequent to the interim order, PFL was given opportunities to submit its explanations in respect of the observations made in the interim order. However, as noted above, PFL has either not provided any explanation in respect of the observations of the interim order, or it has provided insufficient explanation / justification, which is not backed by documentary evidence. In respect of the prima facie misrepresentations in the financials of PFL that have been highlighted in the interim order, PFL has submitted that they were errors and has claimed that the same have now been rectified. It has offered no explanation as to why so many errors (as claimed) had crept in its financials and whether they were bona fide errors. It also failed to give any reason as to why the said errors did not come to its notice till the time SEBI highlighted the same. In view of the above, I find that the facts and circumstances of the case as brought out in the interim order have not changed, so as to justify the dis-continuation/ modification/ revocation of the directions passed in the interim order.

ORDER

13. In view of the foregoing, I, in exercise of the powers conferred upon me under sections 11, 11(4), 11A and 11B read with section 19 of the Securities and Exchange Board of India Act, 1992 hereby confirm the directions issued against PFL vide interim order dated October 26, 2017.

14. As informed by Bombay Stock Exchange, it is noted that the forensic audit of PFL as ordered in the interim order is now complete. The consequential action in that regard shall be taken in accordance with law.

15. Copy of this Order shall be forwarded to the recognized stock exchanges for information and necessary action. A copy of this Order shall also be forwarded to the Ministry of Corporate Affairs and Serious Fraud Investigation Office for their information.

Sd/-

DATE: August 2nd, 2018 MADHABI PURI BUCH PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA