Interim order in respect of Nirmal Infrahome Corporation Ltd

WTM/SR/WRO/ILO/33 /02/2015 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, WHOLE TIME MEMBER ORDER Under Sections 11 (1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992, in the matter of Nirmal Infrahome Corporation Limited (PAN: AAECN1024A) and its Directors, viz., Shri Phool Singh Choudhary(PAN: AIKTC8055F), Shri Harish Sharma(PAN: COUTS0677H), Shri Abhishek S. Chauhan (PAN: AGOPC3742P) and Shri Prabal Pratap Singh Yadav (DIN: 01907205) and Debenture Trustee, viz. Nirmal Debenture Trust represented by its Trustee viz., Shri Jeetendra Rajput.

1. Securities and Exchange Board of India ("SEBI") came across a news report published in a newspaper on July 07 & July 08, 2013 in respect of fund mobilization from general public by Nirmal group. The news report also referred to issuance of debentures by Nirmal Infrahome Corporation Limited ("Nirmal'/Company").

2. The case of NICL India Limited was analyzed separately by SEBI. It is noted that SEBI vide Order dated January 14, 2015 directed NICL India Limited (PAN: AADCN4728Q) and its Directors viz., Shri Phool Singh Choudhary, Shri Harish Sharma and Shri Abhishek S. Chauhan "not to collect any more money from investors including under the existing schemes; not to launch any new schemes; not to dispose of any of the properties or alienate any of the assets of the schemes; not to divert any funds raised from public at large which are kept in bank account(s) and/or in the custody of the company", for the violation of SEBI Act, 1992 read with SEBI (Collective Investment Schemes) Regulations 1999.

2.1 As a matter of preliminary inquiry, SEBI, vide letter dated August 07, 2013, sought the information from Nirmal and its Directors regarding its fund mobilization from public.In response thereto, Nirmal vide letter dated August 26, 2013 submitted that they are engaged in the business of real estate, trading and allied services. This subject matter comes under Entry 18 of list II of Seventh Schedule of Constitution of India. It was stated that they are not engaged in Collective Investment Scheme. It was also stated that there is no complaint from any customer that he has been cheated by the company. Alongwith the said letter, Nirmal also provided the following documents, viz. - a) Incorporation certificate; b) Business commencement certificate; c) Memorandum and Articles of Association; d) Name and address of the Directors.

2.2 Subsequently, SEBI vide letter dated November 07, 2013 sought details of debentures issued to general public by Nirmal such as regulatory approvals obtained for issuance of debentures, list of debenture holders, funds mobilized, copies of advertisements, application forms, allotment certificates etc. However, no reply was received from the Nirmal. On December 03, 2013, a reminder was issued to Nirmal and its Directors seeking the details of fund mobilization.

2.3 On December 19, 2013, SEBI received some documents related to fund mobilization by Nirmal from the office of newspaper viz- a) Brochure issued by the company giving details of various schemes for its debenture issue; b) Debenture Certificate dated January 10, 2013 issued by the company to an investor; c) Complaints from investors who had alleged that the company/ its agents had wrongly induced them for the investment in debentures; d) Blank application form for becoming “Associate” of the group.

2.4 In reply to SEBI's letter dated December 03, 2013, Nirmal vide letter dated January 16, 2014, reiterated its earlier submissions. Nirmal furnished documents such as copy of its PAN card, copy of debenture certificate, sample allotment letter issued to investors of debentures, certified copies of various schemes for its non-convertible redeemable secured debentures and company's profile book were also submitted.

2.5 SEBI vide letter dated January 28, 2014 sought the following additional information from Nirmal, viz., : a) Date of opening and closing of debenture issue; b) Name and address of person(s) to whom debentures were allotted, with details including face value of debenture, number of debenture allotted, date of allotment, distinctive number, date of charge creation in RoC, charge identification number; c) Total amount mobilized by issue of debentures till date; d) Whether the persons to whom debentures were allotted are still the holder of these debentures. Details of debentures transferred by allottees; e) Name & address of debenture trustees. Also, whether these trustees are registered with SEBI; f) Details as regards the management of Nirmal Debenture Trust; g) Details of charge of `50 crores created on the secured debenture issue. h) Details of properties including valuation report; i) Details of brokerage paid in respect of money raised from each alllottee; j) List of all the branches with their address; k) List of all the properties acquired by Nirmal from the funds of investors; l) Certified copy of audited financial statement from date of incorporation till 2012-13. Copy of detailed trial balance from April 2013 till date. m)Copy of Income Tax Return filed by the company for the financial year 2012-13; Further, the company was provided with the complaints from the complainants and comments were sought on the same.

2.6 Subsequently, vide letter dated February 14, 2014 Nirmal sought additional 15 days to provide the information. Vide letter dated February 18, 2014, SEBI allowed the request till February 26, 2014 to Nirmal. Subsequently, vide letter dated March 31, 2014 Nirmal contended that they were not aware of violations of SEBI Regulations and they have closed their schemes from March 27, 2014 and are preparing to refund the money. Nirmal also sought additional 15 days to submit the information to SEBI.

2.7 Meanwhile, SEBI received a letter from Balangir Police (Odisha) dated December 30, 2013, wherein it was stated “the company carrying on business of receiving cash from the public by introducing different types of monthly, half-yearly, yearly plans and receiving money through installments and also in lump sum. So far the company is operating in Balangir area since 2012 and above referred case was registered in 2013. After registration of the case the company was sealed and stopped its operation at Balangir.”

2.8 Subsequently, Nirmal vide letter dated April 28, 2014 provided partial information to SEBI, as below:- a) Certificate of Commencement of business of the company b) The copy of memorandum and articles of association of the company. c) Brochure/ booklet of the schemes. d) Sample Debenture Certificate. e) Plan-wise details of amount mobilized during 2012-13. f) Audited financial statement for the year 2012-13.

2.9 On perusal of the documents submitted by Nirmal, SEBI vide letter dated June 03, 2014 sought information/clarifications from Nirmal with regard to the following observations:- (a) As per the brochures, Nirmal launched 32 Schemes in respect of Multiplier Redeemable non-convertible secured debentures. However, Nirmal had provided information of money mobilized in 26 schemes. The Nomenclature of schemes/ plans mentioned in the reply do not match with nomenclature of schemes/ plans mentioned in the brochure of Nirmal. Hence, Nirmal was asked to explain the correct position including the actual amount mobilized by issue of debentures till date. (b) In respect of the list of investors, it is noted that columns given are CSC (Customer Service Centre), Plan, name of Holder, commencement date, booking amount, total deposit, payable amount, realizable value and status. It is noted that address of the investor, number of debentures applied, number of debentures allotted and debenture certificate number allotted, distinctive number, date of allotment, redemption date have not been provided. Hence, Nirmal was asked to provide these details certified by the management. (c) Nirmal did not provide information about investors from their existing branches mentioned in its brochure of Rajnandgaon, Bhanupratappur, Bolangir. (d) Bolangir Police informed SEBI that Nirmal was raising money from large number of investors in Bolangir under the garb of debentures. It is noted that Nirmal did not provide details of any investors from its branch in Bolangir. (e) From the internet search, SEBI came across the address and photograph of Nirmal’s branch located at CRPF Road, Neemuch, Madhya Pradesh (Tel. No. 07423-223288). However, Nirmal did not provide information about investors from its branch in Neemuch. (f) As per the booklet of Nirmal that there are many works-in-progress and upcoming branches of Nirmal. Hence, Nirmal was requested to provide the complete addresses of all its branches. (g) It is noted that details of funds mobilized were given for year 2012-13. The details of scheme-wise fund mobilized during subsequent period have not been provided. (h) Nirmal was also advised to provide details of their bank accounts.

2.10 As the list of investors provided by Nirmal was not complete and correct, hence, Nirmal was advised to furnish correct and complete information. Nirmal was also advised to provide the abovementioned information/clarification by June 16, 2014. The copy of aforesaid letter was also sent to its Directors for compliance.

2.11 In response thereto, Nirmal vide letter dated June 16, 2014 made the following submissions:- (a) " ...Though the company has total 32 schemes but company had not received funds in all the schemes. The company received amount in 26 schemes only and detailed information of investment in such schemes is already submitted to you.

(b) That the nomenclature doesn't meet with the scheme/plan mentioned in the brochure. The nomenclature used in brochure is understandable by general public. We have submitted the printouts directly from the software itself. These printouts contain code word used in it and therefore it is not fully matched with nomenclature used in brochure. If required we can submit the information again with matching nomenclature within 1 month period of this letter. (c) That the information sought under paragraph 2(b) (information of investors) requires tedious work to be done to gather the required information and therefore, we require one month's time to furnish it. (d) That the information sought as per paragraph 2(c) the company has provided data upto FY 2012-13 only. Data of the subsequent year will be submitted soon after the audit. (e) That the information sought as per paragraph 2(d) the information submitted was for FY 2012-13 only and at that time company has limited CSC and therefore information submitted contains CSC which were in operation at that time. (f) Bolangir CSC was sealed by local police and hence we are not able to provide its information earlier as we have suspended its code.

We have gathered its information now and we are submitting alongwith this letter as Annexure I. (Incidentally, no such information was attached with the letter of the company.) (g) That the brochure of company had mentioned various upcoming branches but all of them were not operational, they were in planning only. Some new CSC (including Neemuch) were operational in 2013-14 and detailed information of them will be submitted after the audit of the company. (h) That the information sought under paragraph 2(e)(i) the company has offered its debentures in private placement basis only and therefore there is no issue was given for this and hence no issue open and end date exist. (i) Information sought under paragraph 2(e) (ii), the persons to whom debentures were allotted are still the customers of the company and no debentures were transferred by the allottees. (j) The Trustee was not a registered trustee with SEBI. The debentures were permitted by RoC and they have not mentioned/ suggested that the Trustee has to be SEBI registered. (k) That the information sought under paragraph 2(e) (v,vi,vii,viii, ix), (f) the details of all these points will be submitted along with audit report after the audit of the company for FY 2013-14.

(l) The company once again assures you that we have stopped collecting amount and we are in process of paying back our customers the committed amount on the committed time without any delay or fail..."

2.12 Subsequently, SEBI vide letter dated June 19, 2014 informed Nirmal that their request for additional time to reply is not acceptable. Nirmal was also informed that Annexure I was not found attached with its letter. Nirmal was given final opportunity to provide the information/ clarifications sought by SEBI vide letter dated June 03, 2014 alongwith necessary supporting documents by June 30, 2014. However, no reply has been received till date.

2.13 Meanwhile, SEBI came across a receipt dated June 30, 2014 issued by Nirmal to an investor viz., Mr. Jitendra Kumar towards installment. This is indeed a clear indication that Nirmal continued its fund mobilization from public, contrary to the submissions made by them in their letter of June 16, 2014 (Para 2.11(l) above).

3 In view of the above, it is clear that Nirmal and its Directors are not providing complete documents to SEBI as sought vide various letters issued to them. In view of the same, I am left with no option but to proceed on the basis of the documents available with us. I have carefully perused the material available on record such as correspondence exchanged between SEBI and NCIL alongwith the documents contained therein, submissions made by Nirmal, media reports, information obtained from internet; the Ministry of Corporate Affairs' website i.e. 'MCA 21 Portal', complaints received and the documents furnished by them, etc. On an examination of the same, it is prima facie observed as under:-

3.1 Nirmal (CIN: U70102CT2012PLC000352) was incorporated on May 18, 2012 having its Registered Office at 1st Floor, Bhatiya Complex, Near Shyam Petrol Pump, Ring Road No.1, Kushalpur Chawk, Raipur, Chhatisgarh-492001.

3.2 The present Directors of Nirmal are Shri Phool Singh Choudhary(PAN: AIKTC8055F), Shri Harish Sharma(PAN: COUTS0677H), Shri Abhishek S. Chauhan (PAN: AGOPC3742P) and Shri Prabal Pratap Singh Yadav (DIN: 01907205).

3.3 As per the Memorandum and Articles of Association of Nirmal, the main object is "to carry on business of sale, purchase, acquire, deal for development or resale agricultural lands, houses, shops, warehouse, cold storage, industrial sheds, building..."

3.4 As per the brochures, Nirmal offered investment in multiplier redeemable non-convertible fully secured debentures. The investors can opt for installment payment scheme or one-time payment scheme. The interest rate varies from 10% (one year plan) to 17% (15 years plan) as per the terms of the plans/schemes. In special doubling plan viz., Scheme No. SDS1, Nirmal offered interest rate of 19.63%. The schemes offered by Nirmal are as under: 1. One year part payment scheme No. PDS1 offering debentures number 12-600 with interest of 10% per annum. 2. Two years part payment scheme No. PDS2 offering debentures number 24-1200 with interest of 10.5% per annum. 3. Three year part payment scheme No. PDS3 offering debentures number 36-1800 with interest of 11% per annum. 4. Four year part payment scheme No. PDS4 offering debentures number 48-2400 with interest of 11.5% per annum. 5. Five year part payment scheme No. PDS5 offering debentures number 60-3000 with interest of 12% per annum. 6. Six year part payment scheme No. PDS6 offering debentures number 72-3600 with interest of 12.5% per annum. 7. Seven year part payment scheme No. PDS7 offering debentures number 84-4200 with interest of 13% per annum. 8. Eight year part payment scheme No. PDS8 offering debentures number 96-4800 with interest of 13.5% per annum.

9. Nine year part payment scheme No. PDS9 offering debentures number 108-5400 with interest of 14% per annum. 10. Ten year part payment scheme No. PDS10 offering debentures number 120-6000 with interest of 14.5% per annum. 11. Eleven year part payment scheme No. PDS11 offering debentures number 132- 6600 with interest of 15% per annum. 12. Twelve year part payment scheme No. PDS12 offering debentures number 144- 7200 with interest of 15.5% per annum. 13. Thirteen year part payment scheme No. PDS13 offering debentures number 156- 7800 with interest of 16% per annum. 14. Fourteen year part payment scheme No. PDS14 offering debentures number 168- 8400 with interest of 16.5% per annum. 15. Fifteen year part payment scheme No. PDS15 offering debentures number 180- 9000 with interest of 17% per annum. 16. One time payment scheme for one year No. OTDS1 offering debentures number 10-20000 with interest of 10% per annum. Further, a bonus interest of 6% was offered. 17. One time payment scheme for two years No. OTDS2 offering debentures number 10-20000 with interest of 10.5% per annum. Further, a bonus interest of 6.40% was offered. 18. One time payment scheme for three years No. OTDS3 offering debentures number 10-20000 with interest of 11% per annum. Further, a bonus interest of 7.60% was offered. 19. One time payment scheme for four years No. OTDS4 offering debentures number 10-20000 with interest of 11.5% per annum. Further, a bonus interest of 5.10% was offered. 20. One time payment scheme for five years No. OTDS5 offering debentures number 10-20000 with interest of 12% per annum. Further, a bonus interest of 2.70% was offered.

21. Special doubling scheme, as per which one time payment scheme for five year No. SDS1 offering debentures number 10-20000 with interest of 19.63% per annum. 22. One time payment scheme for six years No. OTDS6 offering debentures number 10-20000 with interest of 12.5% per annum. Further, a bonus interest of 6.20% was offered. 23. One time payment scheme for seven years No. OTDS7 offering debentures number 10-20000 with interest of 13% per annum. Further, a bonus interest of 3.50% was offered. 24. One time payment scheme for eight years No. OTDS8 offering debentures number 10-20000 with interest of 13.50% per annum. Further, a bonus interest of 1.80% was offered. 25. One time payment scheme for nine years No. OTDS9 offering debentures number 10-20000 with interest of 14% per annum. 26. One time payment scheme for ten years No. OTDS10 offering debentures number 10-20000 with interest of 14.50% per annum. 27. One time payment scheme for eleven years No. OTDS11 offering debentures number 10-20000 with interest of 15% per annum. 28. One time payment scheme for twelve years No. OTDS12 offering debentures number 10-20000 with interest of 15.50% per annum. 29. One time payment scheme for thirteen years No. OTDS13 offering debentures number 10-20000 with interest of 16% per annum. 30. One time payment scheme for fourteen years No. OTDS14 offering debentures number 10-20000 with interest of 16.50% per annum. 31. One time payment scheme for fifteen years No. OTDS15 offering debentures number 10-20000 with interest of 17% per annum. 32. Yearly interest return debenture scheme for six years No. IRDS1 offering debentures number 10-25000 with interest of 12.50% per annum. Further, a bonus interest of 7.50% was offered with final payment.

3.5 The sample of the Scheme 5 and Scheme 31 mentioned above are tabulated as under for reference: Scheme: 5 Multiplier Redeemable Non Convertible secured debentures Five year part payment Scheme No. PDS5 (on private placement basis) In ` S. Debentures Monthly Quarterly Half- Yearly Interest Total Bonus Refundable No. Units Call Call yearly Call per Amount Interest Money money Call Money annum Money 1 60 100.00 295.00 580.00 1,150.00 12.00% 6,000.00 0.84% 8,500.00 2 120 200.00 590.00 1,160.00 2,300.00 12.00% 12,000.00 0.84% 17,000.00 3 300 500.00 1,475.00 2,900.00 5,750.00 12.00% 30,000.00 0.84% 42,500.00 4 600 1,000.00 2,950.00 5,800.00 11,500.00 12.00% 60,000.00 0.84% 85,000.00 5 1200 2,000.00 5,800.00 11,600.00 23,200.00 12.00% 1,20,000.00 0.84% 1,70,000.00 6 1800 3,000.00 11,600.00 17,400.00 34,500.00 12.00% 1,80,000.00 0.84% 2,55,000.00 7 2400 4,000.00 17,400.00 23,200.00 46,000.00 12.00% 2,40,000.00 0.84% 3,40,000.00 8 3000 5,000.00 23,200.00 29,000.00 57,500.00 12.00% 3,00,000.00 0.84% 4,25,000.00 Scheme 31: Multiplier Redeemable Non Convertible secured debentures One-time payment debentures schemes for fifteen year, Scheme No. OTDS15 (on private placement basis)

S. No. Debenture One Time Interest per Refundable ( in Units Payment annum Rs) 1 10 17.00% 1,000.00 10,539.00 2 20 17.00% 2,000.00 21,077.00 3 50 17.00% 5,000.00 52,694.00 4 100 17.00% 10,000.00 1,05,387.00 5 250 17.00% 25,000.00 2,63,468.00 6 500 17.00% 50,000.00 5,26,936.00 7 1000 17.00% 1,00,000.00 10,53,872.00 8 5000 17.00% 5,00,000.00 52,69,361.00 9 10000 17.00% 10,00,000.00 1,05,38,721.00 10 20000 17.00% 25,00,000.00 2,63,46,803.00

3.6 As per the brochure, Nirmal has branches in Bhopal, Biaora (in Madhya Pradesh), Chandrapur (in Maharastra), Raipur, Rajnandgaon, Baloda Bazar, Bhanupratappur and Dhamtari (in Chhatisgarh), Agra (in Uttar Pradesh), Sambalpur and Balangir (Odisha). The Head Office of Nirmal is situated at 12, 1st floor, Archana Complex, Zone II, MP Nagar, Bhopal (Madhya Pradesh). The website of Nirmal is www.nirmalcorporate.com.

3.7 The sample Debenture Certificate issued by Nirmal states "issue of 50,00,000 Secured Redeemable Non-convertible Debentures of Rs 100/- each at the aggregate nominal value of Rs 50,00,00,000/-(Rupees fifty crores only) on private placement basis, carrying interest as mentioned overleaf, under the authority of the resolution passed by the Board of directors on 18/05/2012, pursuant to the powers vested in the company and the board of directors as per the provisions of the Companies Act, 1956 and the Memorandum and Articles of Association of the Company". The debentures are issued in terms of debenture trust deed dated May 19, 2012 entered between Nirmal and Nirmal Debenture Trust. On reverse side of sample debenture certificate, Nirmal has given the certificate of registration of mortgage created on May 19, 2012 between Nirmal Infrahome Corporation Ltd. and Nirmal Debenture Trust for `50 crores.

3.8 The plan-wise details of amount mobilised during FY 2012-13 as submitted by Nirmal is tabulated as under: Plan Name Number of Amount received investors In ```` I1 290 5828675 O1 47 1016107 O10 14 172000 O12 4 430 O15 6 97860 O2 5 60000 O3 27 412000

O4 5 42000 O5 63 605410 O6 122 1406970 O7 9 54070 O8 13 122890 O9 1 1000 P10 25 48893 P11 1 3450 P12 2 13350 P15 11 68130 P-S1 186 658440 P-S2 18 27300 P-S3 162 374820 P-S4 41 79680 P-S5 1473 2315449 P-S6 453 1540038 P-S7 30 202454 P-S8 13 89050 SD1 288 3272324 3309 18512790

3.9 It is noted from the reply of Nirmal that it received `1,85,12,790/- from 3309 investors towards its various schemes of debentures during 2012-13. Out of this, `20,63,288/- has been repaid. The amount refundable is mentioned as `1,64,49,602/-.

3.10 As per the audited financial statements as on March 31, 2013 of Nirmal, `62,06,945 is cash in hand (as certified by management) and `89,43,687 available with HDFC Bank. As per the Auditors report for the FY 2012-13, “Board has certified that they issued debenture of `100/- each. For this debenture trust created and deed has executed & charge registered with MCA vide SRN. B40343303. Interest as per deed will be paid half yearly since next year.”

4 In the context of the abovementioned details of the "Offer of Secured Redeemable Non Convertible Debentures (SRNCD)", the issue for determination in the instant matter is whether the mobilization of funds by Nirmal through the aforesaid Offer, is in accordance with the provisions of the SEBI Act, 1992 ("SEBI Act") read with the SEBI (Issue and Listing of Debt Securities), Regulations, 2008 ("Debt Securities Regulations"); the Companies Act, 1956.

4.1 I note that the jurisdiction of SEBI over various provisions of the Companies Act in the case of public companies, whether listed or unlisted, when they issue and transfer securities, flows from the provisions of Section 55A of the Companies Act. While examining the scope of Section 55A of the Companies Act, 1956, the Hon'ble Supreme Court of India in Sahara India Real Estate Corporation Limited & Ors. vs. SEBI (Civil Appeal no. 9813 of 2011) (Judgment dated August 31, 2012) (hereinafter referred to as the "Sahara Case"), had observed that: "We, therefore, hold that, so far as the provisions enumerated in the opening portion of Section 55A of the Companies Act, so far as they relate to issue and transfer of securities and non-payment of dividend is concerned, SEBI has the power to administer in the case of listed public companies and in the case of those public companies which intend to get their securities listed on a recognized stock exchange in India."

4.2 In this regard-

4.2.1 Reference is also made to Sections 67(1) and 67(3) of the Companies Act, 1956 which are reproduced as under: "67. (1) Any reference in this Act or in the articles of a company to offering shares or debentures to the public shall, subject to any provision to the contrary contained in this Act and subject also to the provisions of sub-sections (3) and (4), be construed as including a reference to offering them to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner.

(2) Any reference in this Act or in the articles of a company to invitations to the public to subscribe for shares or debentures shall, subject as aforesaid, be construed as including a reference to invitations to subscribe for them extended to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner. (3) No offer or invitation shall be treated as made to the public by virtue of sub-section (1) or sub-section (2), as the case may be, if the offer or invitation can properly be regarded, in all the circumstances- (a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or (b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation … Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more: Provided further that nothing contained in the first proviso shall apply to non-banking financial companies or public financial institutions specified in section 4A of the Companies Act, 1956 (1 of 1956).”

4.2.2 While examining the scope of Section 67 of the Companies Act, 1956, the Hon'ble Supreme Court of India in the Sahara Case observed that: "Section 67(1) deals with the offer of shares and debentures to the public and Section 67(2) deals with invitation to the public to subscribe for shares and debentures and how those expressions are to be understood, when reference is made to the Act or in the articles of a company. The emphasis in Section 67(1) and (2) is on the “section of the public”. Section 67(3) states that no offer or invitation shall be treated as made to the public, by virtue of subsections (1) and (2), that is to any section of the public, if the offer or invitation is not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation or otherwise as being a domestic concern of the persons making and receiving the offer or invitations. Section 67(3) is, therefore, an exception to Sections 67(1) and (2). If the circumstances mentioned in clauses (1) and (b) of Section 67(3) are satisfied, then the offer/invitation would not be treated as being made to the public. The first proviso to Section 67(3) was inserted by the Companies (Amendment) Act, 2000 w.e.f. 13.12.2000, which clearly indicates, nothing contained in Sub-section (3) of Section 67 shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more. …

Resultantly, if an offer of securities is made to fifty or more persons, it would be deemed to be a public issue, even if it is of domestic concern or proved that the shares or debentures are not available for subscription or purchase by persons other than those received the offer or invitation. … I may, therefore, indicate, subject to what has been stated above, in India that any share or debenture issue beyond forty nine persons, would be a public issue attracting all the relevant provisions of the SEBI Act, regulations framed thereunder, the Companies Act, pertaining to the public issue. …"

4.2.3 In the instant matter, for ascertaining whether Offer of SRNCDs is a public issue or an issue on private placement basis in accordance with Section 67 of the Companies Act, 1956, the number of subscribers is of utmost importance. a) Nirmal vide its reply dated June 16, 2014 stated that debentures were offered on private placement basis. However, Nirmal failed to furnish any data/rationale in support of their claim. In the absence of any supporting documents and considering the fact that Nirmal had issued SRNCDs to 3309 investors (mentioned at table at page10-11), I am of the view that the issue can by no stretch of imagination be treated as a private placement. It is evident from the material available on record that Nirmal issued SRNCDs way beyond the threshold limit for a private placement i.e. 49 persons as prescribed under the first proviso to Section 67(3) of the Companies Act, 1956. I, therefore, have no hesitation in concluding that the Offer of SRNCDs was nothing but a public issue of securities under the first proviso to Section 67(3) of the Companies Act, 1956.

b) Nirmal is not stated to be a non-banking financial company or a public financial institution within the meaning of Section 4A of the Companies Act and therefore, is not covered under the second proviso to Section 67(3).

c) In view of the above, the Offer of SRNCDs would prima facie qualify as a public issue under the first proviso to Section 67(3) of the Companies Act, 1956, which has been elucidated by the Hon'ble Supreme Court of India in the Sahara Case. In this regard, it is pertinent to note that by virtue of Section 55A of the Companies Act, Section 67 of that Act, so far as it relates to issue and transfer of securities, shall also be administered by SEBI.

4.3 I note that - i. From the abovementioned, it will follow that the Offer of SRNCDs is a public issue of securities, such securities shall also have to be listed on a recognized stock exchange, as mandated under Section 73 of the Companies Act, 1956. In this regard, reference is made to Sections 73 of the Companies Act, 1956, of which sub-Sections (1), (2) and (3) are relevant for the instant case, which is reproduced as under: "73. (1) Every company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange. (1A) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognized stock exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void, if the permission has not been granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists: Provided that where an appeal against the decision of any recognized stock exchange refusing permission for the shares or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the dismissal of the appeal.

(2) Where the permission has not been applied under subsection (1) or such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money. (3) All moneys received as aforesaid shall be kept in a separate bank account maintained with a Scheduled Bank 1 [until the permission has been granted, or where an appeal has been preferred against the refusal to grant such. permission, until the disposal of the appeal, and the money standing in such separate account shall, where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section (2)]; and if default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees.”

ii. In the Sahara Case, the Hon'ble Supreme Court of India also examined Section73 of the Companies Act, 1956, wherein it observed that – "Section 73(1) of the Act casts an obligation on every company intending to offer shares or debentures to the public to apply on a stock exchange for listing of its securities. Such companies have no option or choice but to list their securities on a recognized stock exchange, once they invite subscription from over forty nine investors from the public. If an unlisted company expresses its intention, by conduct or otherwise, to offer its securities to the public by the issue of a prospectus, the legal obligation to make an application on a recognized stock exchange for listing starts. Sub-section (1A) of Section 73 gives indication of what are the particulars to be stated in such a prospectus. The consequences of not applying for the permission under sub-section (1) of Section 73 or not granting of permission is clearly stipulated in sub-section (3) of Section 73. Obligation to refund the amount collected from the public with interest is also mandatory as per Section 73(2) of the Act. Listing is, therefore, a legal responsibility of the company which offers securities to the public, provided offers are made to more than 50 persons. … Section 73(2) says that every company and every director of the company who is an officer in default, shall be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed. The scope of the above mentioned provisions came up for consideration before this Court in Raymond Synthetics Ltd. & Ors. V. Union of India (supra), wherein the Court held that in a case where the company has not applied for listing on a stock exchange, the consequences will flow from the company’s disobedience of the law, the liability to pay interest arises as from the date of receipt of the amounts, for the company ought not to have received any such amount in response to the prospectus. I am, therefore, of the view that since Saharas had violated the listing provisions and collected huge amounts from the public in disobedience of law, SEBI is justified in directing refund of the amount with interest."

iii. Having regard to the abovementioned observations of the Hon'ble Supreme Court of India, since the Offer of SRNCDs is prima facie a public issue 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.

iv. In the facts of the instant case, it prima facie appears that Nirmal has violated the provisions of Sections 73 of the Companies Act, 1956 in respect of the Offer of SRNCDs.

4.4 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. As per the aforesaid Section 2(36), “prospectus” means any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate. As mentioned above, since the Offer of SRNCDs was made to fifty persons or more, it has to be construed as a public offer. Having made a public offer, Nirmal was required to register a prospectus with the RoC under Section 60 of the Companies Act, 1956. I find that there is no evidence on record to indicate whether or not Nirmal has complied with the provisions of Section 60 of Companies Act, 1956. In view of the same, I find that Nirmal has not complied with the provisions of Section 60 of Companies Act, 1956.

4.5 Under Section 56(1) of the Companies Act, 1956, every prospectus issued by or on behalf of a company, shall state the matters specified in Part I and set out the reports specified in Part II of Schedule II of that Act. Further, as per Section 56(3) of the Companies Act, 1956, no one shall issue any form of application for shares in or debentures of a company, unless the form is accompanied by abridged prospectus, contain disclosures as specified. Based on the material available on record, I find that Nirmal has not complied with the provisions of Section 56(1) and 56(3) of the Companies Act, 1956 and therefore prima facie, has violated the aforesaid provisions.

4.6 Under Section 117B of the Companies Act, 1956, no company shall issue a prospectus or a letter of offer to the public for subscription of its debentures, unless it has, before such issue, appointed one or more debenture trustees for such debentures and the company has, on the face of the prospectus or the letter of offer, stated that the debenture trustee or trustees have given their consent to the company to be so appointed.

4.7 Further, under Section 117C of the Companies Act, 1956, where a company issues debentures, it shall create a debenture redemption reserve for the redemption of such debentures, to which adequate amounts shall be credited, from out of its profits every year until such debentures are redeemed.

4.8 Based on the material available on record, I find that Nirmal has not complied with the provisions of Sections 117B–C of the Companies Act, 1956 and therefore, has prima facie violated the aforesaid provisions.

4.9 In addition to the above, reference may be made to the Debt Securities Regulations, which were framed by SEBI in exercise of its powers under Section 30 of the SEBI Act and are applicable to the public issue and listing of debt securities. It may be relevant to note that under the aforesaid Regulations, 'debt securities' have been defined as 'non-convertible debt securities which create or acknowledge indebtedness, and include debenture…' In this context, I find that Nirmal, through the Offer of SRNCDs, which is a public issue of debt securities, has prima facie violated the following provisions of the aforesaid Regulations, which contain inter alia conditions for public issue and listing of debt securities, viz. i. Regulation 4(2)(a) – Application for listing of debt securities ii. Regulation 4(2)(b) – In-principle approval for listing of debt securities iii. Regulation 4(2)(c) – Credit rating has been obtained iv. Regulation 4(2)(d) – Dematerialization of debt securities v. Regulation 4(4) – Appointment of Debenture Trustee vi. Regulation 5(2)(b) – Disclosure requirements in the Offer Document vii. Regulation 6 – Filing of draft Offer Document viii. Regulation 7 – Mode of disclosure of Offer Document ix. Regulation 8 – Advertisements for Public Issues x. Regulation 9 – Abridged Prospectus and application forms xi. Regulation 12 – Minimum subscription xii. Regulation 14 – Prohibition of mis-statements in the Offer Document xiii. Regulation 15 – Trust Deed xiv. Regulation 16 – Debenture Redemption Reserve xv. Regulation 17 – Creation of security xvi. Regulation 19 – Mandatory Listing xvii.Regulation 26 – Obligations of the Issuer, etc.

4.10 Upon a consideration of the aforementioned paragraphs, I am of the view that Nirmal is prima facie engaged in fund mobilising activity from the public, through the Offer of SRNCDs and as a result of the aforesaid activity has violated the aforementioned provisions of the Companies Act, 1956 (Section 56, Section 60 read with Section 2(36), Section 73, Section 117B, Section 117C) read with the Debt Securities Regulations.

5 From the material available on record, it is observed that Nirmal created a charge for an amount of `50 crores on May 19, 2012 and appointed Shri Jeetendra Rajput as Debenture Trustee for the Offer of SRNCDs by that Company.

5.1 Section 12(1) of the SEBI Act states that "No… trustee of trust deed … shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act".

5.2 In addition, Regulation 7 of the SEBI (Debenture Trustees) Regulations, 1993 ("Debenture Trustees Regulations"), provides that: "no person should act as a debenture trustee unless he is either:- a) a scheduled bank carrying on commercial activity; or b) a public financial institution within the meaning of section 4A of the Companies Act, 1956; or c) an insurance company; or d) body corporate."

5.3 Based on the material available on record, I find that Shri Jeetendra Rajput has acted as unregistered Debenture Trustee, which amounts to violation of the abovementioned provisions of the SEBI Act read with the Debenture Trustee Regulations.

6 SEBI has a statutory duty to protect the interests of investors in securities and promote the development of, and to regulate, the securities market. Section 11 of the SEBI Act has empowered it to take such measures as it thinks fit for fulfilling its legislative mandate. Further, as per the provisions of Section 55A of the Companies Act, 1956, administrative authority on the subjects relating to public issue of securities is exclusively with SEBI. For this purpose, SEBI can exercise its jurisdiction under Sections 11(1), 11A, 11B and 11(4) of the SEBI Act read with Section 55A of the Companies Act, 1956, over companies who issue Secured Redeemable Non Convertible Debentures to fifty persons or more, but do not comply with the applicable provisions of the aforesaid Companies Acts and the Debt Securities Regulations (as mentioned in paragraphs 4.1–4.10 above). Steps therefore, have to be taken in the instant matter to ensure only legitimate fund raising activities are carried on by Nirmal and no investors are defrauded. In light of the same, I find there is no other alternative but to take recourse through an interim action against Nirmal and its Directors alongwith the Debenture Trustee, viz., Shri Jeetendra Rajput, for preventing that company from further carrying on with its fund mobilising activity under the Offer of SRNCDs.

7 In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11, 11(4), 11A and 11B of the SEBI Act read with the Debt Securities Regulations and the Debenture Trustee Regulations, hereby issue the following directions:- i. Nirmal shall not mobilize any fresh funds from investors through the Offer of SRNCDs or through the issuance of equity shares or any other securities, to the public and/or invite subscription, in any manner whatsoever, either directly or indirectly till further directions;

ii. Nirmal and its Directors viz., Shri Phool Singh Choudhary(PAN: AIKTC8055F), Shri Harish Sharma(PAN: COUTS0677H), Shri Abhishek S. Chauhan (PAN: AGOPC3742P) and Shri Prabal Pratap Singh Yadav (DIN: 01907205) are prohibited from issuing prospectus or any offer document or issue advertisement for soliciting money from the public for the issue of securities, in any manner whatsoever, either directly or indirectly, till further orders;

iii. NCL and its abovementioned Directors are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, either directly or indirectly, till further directions;

iv. Nirmal shall provide a full inventory of all its assets and properties;

v. Nirmal and its Directors shall provide full inventory of all their assets and properties;

vi. Nirmal and its Directors shall not dispose of any of the properties or alienate or encumber any of the assets owned/acquired by that company through the Offer of SRNCDs, without prior permission from SEBI;

vii. Nirmal and its Directors shall not divert any funds raised from public at large through the Offer of SRDs, which are kept in bank account(s) and/or in the custody of Nirmal;

viii. Nirmal and its Directors shall furnish complete and relevant information (as sought by SEBI letters dated January 28, 2014 and June 03, 2014), within 21 days from the date of receipt of this Order.

ix. The Debenture Trustee viz., Shri Jeetendra Rajput is prohibited from continuing with his assignment as debenture trustee in respect of the Offer of SRNCDs of Nirmal and also from taking up any new assignment or involvement in any new issue of debentures, etc. in a similar capacity, from the date of this order till further directions.

8 The above directions shall take effect immediately and shall be in force until further orders.

9 The prima facie observations contained in this Order are made on the basis of the material available on record. In this context, Nirmal and its abovementioned Directors may, within 21 days from the date of receipt of this Order, file their reply, if any, to this Order and may also indicate whether they desire to avail themselves an opportunity of personal hearing on a date and time to be fixed on a specific request made in that regard.

9.1 Similarly, the Debenture Trustee, viz., Shri Jeetendra Rajput may, within 21 days from the date of receipt of this Order, file his reply, if any, to this Order and may also indicate whether he desires to avail himself an opportunity of personal hearing on a date and time to be fixed on a specific request made in that regard.

10 This Order is without prejudice to the right of SEBI to take any other action that may be initiated against Nirmal and its abovementioned Directors and its Debenture Trustee viz., Shri Jeetendra Rajput, in accordance with law.

Place: Mumbai S. RAMAN Date: February 20, 2015 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA