Interim Order in the matter of Chakra Infrastructure Limited

WTM/PS/09/ERO/APR/2016 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under Sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 In the matter of Chakra Infrastructure Limited In respect of: 1. Chakra Infrastructure Limited [PAN: AADCC6855H], 2. Mr. Swapan Majumdar [PAN: AKJPM4426D], 3. Mr. Pranab Kumar Roy [PAN- ACDPR4876J], 4. Mr. Subhas Bose [PAN: BLEPB3468F], 5. Mr. Partha Chakraborti [PAN: ADQPC5578E], 6. Ms. Soma Chakraborti [PAN: AEKPC9920P], 7. Mr. Swapan Kumar Sen [PAN: CILPS3142L], 8. Mr. Prithwis Kumar Das [PAN: AFCPD3788F], 9. Mr. Litan Chandra Sen [PAN: CEDPS4072K], 10. Mr. Biplab Halder [PAN: AHGPH6624N], 11. Mr. Santosh Kumar [PAN: ALUPK5400F] and 12. Mr. Bijoy Das [PAN: ALRPD5933D].

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) on receipt of reference from the Registrar of Companies (hereinafter referred to as ‘RoC’), Kolkata and Reserve Bank of India, Guwahati against one Chakra Infrastructure Limited (hereinafter referred to as ‘CIL’ or ‘the Company’) had initiated a preliminary examination into the fund raising activities of CIL and asked certain information/ documents from the Company. During the examination, while scrutinizing the balance sheet of the Company for the year ended March 31, 2013, it was revealed that CIL had issued equity shares amounting to 30,00,000 during the financial year 2012-13. Further, from the annexure to the Auditor’s Report dated August 28, 2013, at point no. ‘xviii’, the following was observed:

“The Company has made preferential allotment of 3,00,000 Equity shares during the year to 196 equity share holders. We are unable to express our opinion whether these allotments were in violation of provision of 67(3) of the Company Act, 1956”. Thereafter, the list of equity shareholders as on March 31, 2013, as enclosed with the Annual Return of the Company was scrutinized. The said list contained a total of 201 equity shareholders. A comparison of the same with the details of shareholders as on March 31, 2012 revealed that the Company had made fresh allotment of equity shares to 196 persons during the financial year 2012-13.

2. From an examination of the documents available on record, I note the following:

i. CIL was incorporated on December 12, 2008 with the RoC, Kolkata with CIN No. as U45400WB2008PLC131200. The Registered Office of the Company is situated at Chakra Madhumati, 40/B North Purbachal, P.O- Haltu, Kalitala Link Road (P. No- 28), Purbachal Main Road, Kolkata - 700078.

ii. As per the information obtained from ‘MCA-21’ portal, the present directors of the Company are Mr. Swapan Majumdar, Mr. Pranab Kumar Roy and Mr. Subhas Bose.

iii. The earlier directors of the Company were Mr. Partha Chakraborti (till July 03, 2013), Ms. Soma Chakraborti (till April 21, 2012), Mr. Swapan Kumar Sen (till April 21, 2012), Mr. Prithwis Kumar Das (till August 08, 2012), Mr. Litan Chandra Sen (till July 01, 2012), Mr. Biplab Halder (till July 03, 2013), Mr. Santosh Kumar (till February 26, 2014) and Mr. Bijoy Das (till February 26, 2014).

iv. The subscribers to the Memorandum of Association of the Company were Mr. Partha Chakraborti and Ms. Soma Chakraborti.

3. Having observed the above, I proceed further with the matter and note that the issue for determination in the instant matter is whether CIL had complied with the applicable provisions of the SEBI Act, 1992 (hereinafter referred to as ‘SEBI Act’), the Companies Act, 1956 (since repealed) read with the Companies Act, 2013, the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 (hereinafter referred to as ‘ICDR Regulations’) in respect of its issuance of the equity shares.

4. As the equity shares had been issued by CIL during the year 2012-13, the provisions of sub-sections (1), (2) and (3) of the Section 67 of the Companies Act, 1956, are applicable to the allotments made by the Company. In terms of Section 67(3), no offer or invitation shall be treated as made to the public by virtue of sub-sections (1) or (2), as the case may be, if the offer or invitation can properly be regarded, in all 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.

In terms of the proviso to the aforesaid section, the provisions of Section 67(3) shall not apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more. Therefore, 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 receiving the offer or invitation. The number of persons to whom the shares have been allotted becomes relevant to judge whether an issue of shares is made to public or made on a private placement basis.

5. As noted from the discussion above, the Company had allotted equity shares to 196 investors during the financial year 2012-13. As per the first proviso to Section 67(3) of the Companies Act, 1956, where the “offer” or “invitation to subscribe for shares or debentures” is made to fifty persons or more, then it has to be construed as a public offer. In view of the same, the offer and allotment of equity shares by CIL in the financial year 2012-13 is alleged to be made to public. All mobilisation of funds from fifty or more investors should be classified as a public issue requiring the company to make an application to list its securities. In view of the foregoing, it could be observed that the aforesaid issues of equity shares made by CIL were deemed public issues. I now place my reliance on the order of Hon'ble Supreme Court of India in the matter of Sahara India Real Estate Corporation Limited & Ors. Vs. SEBI (Civil Appeal no. 9813 and 9833 of 2011) (hereinafter referred to as the ‘Sahara Case’), wherein the Hon'ble Court inter alia observed as under: “… after 13.12.2000, any offer of securities by a public company to fifty persons or more will be treated as a public issue under the Companies Act, even if it is of domestic concern or it is proved that the shares or debentures are not available for subscription or purchase by persons other than those receiving the offer or invitation. … 90. ... ... 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. …” [Emphasis supplied] 6. Having observed that the equity shares issued by CIL are in the nature of public issue, the Company was required to comply with provisions of the Companies Act, 1956 and other relevant statutory provisions as applicable.

I note that in the case of any public issue of securities, the relevant provisions of the Companies Act, 1956 inter alia Sections 60 read with Section 2(36), 56(1), 56(3) and Section 73 thereof needs to be complied with. In terms of Section 60 read with the Section 2(36) of the Companies Act, 1956, a company needs to file a prospectus with respect to its public issue with the RoC. Further, in terms of Section 60B(2) of the Companies Act, 1956, a company inviting subscription by an information memorandum is bound to file a prospectus prior to the opening of the subscription lists, at least three days before the opening of the offer. While Section 60B(3) of the Companies Act, 1956, stipulates that the ‘Information Memorandum’ shall carry the same obligations as are applicable in case of prospectus. Section 60B(9) required CIL to file a final prospectus with SEBI/ RoC. As per Section 2(36) of the Companies Act, 1956, ‘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 a body corporate.

As per the information available on record, it did not file any prospectus/ information memorandum with respect to the said issues of equity shares and had also prima facie not complied with the above discussed provisions of the Companies Act, 1956.

7. By issuing equity shares to more than 49 persons, the Company had to compulsorily list such securities in compliance with Section 73 of the Companies Act, 1956, in order to ensure liquidity and exit opportunity to the subscribers to the shares. As per Section 73(1) and (2) of the Companies Act, 1956, a company is required to make an application to one or more recognised stock exchanges for permission for the shares or debentures to be offered to be dealt with in the stock exchange and if permission has not been applied for or not granted, the company is required to forthwith repay with interest all moneys received from the applicants. From the material available on record, the Company, does not appear to have done so and thus, contravened the said provisions. It neither made an application seeking listing permission nor refunded the amounts on account of such failure. The Company has also not complied with the provisions of Section 73(3) of the Companies Act, 1956, as it had not kept the amounts received from investors in a separate bank account and failed to repay the same in accordance with Section 73(2) of the Companies Act, 1956. In view of the above, it is alleged that the Company had contravened the provisions of the Companies Act, 1956, which regulates the public issue of securities, including Sections 60B(2), 60B(9) read with Sections 2(36), 56(1), 56(3) and 73 of the Companies Act, 1956, in respect of its collection of public funds towards the issue of equity shares.

8. Considering the discussion above, now I discuss the regulatory powers and the jurisdiction of SEBI on the company that raise funds, by issue of securities, from the public. In this regard, I refer to the Section 55A of the Companies Act, 1956. In terms of the relevant provisions of the said section, the provisions contained in Sections 55 to 58, 59 to 81 (including Sections 68A, 77A and 80A), 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207 of the Companies Act, 1956, in so far as they relate to the issue and transfer of securities in the case of listed public companies and in the case of those public companies which intend to get their securities listed on any recognised stock exchange in India, shall be administered by SEBI. The terms ‘securities’ as per Section 2(h) of the Securities

Contracts (Regulation) Act, 1956 includes ‘shares’. I observe that Sections 67 and 73 of the Companies Act, 1956 are included in the list of the sections as mentioned in Section 55A of the Companies Act, 1956 and therefore, such sections are to be administered by SEBI.

As per the provisions of Section 55A of the Companies Act, 1956, the administrative authority on the subjects relating to public issue of securities is SEBI. For this purpose, SEBI can exercise the 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 equity shares to fifty persons or more, but fail to comply with the applicable provisions of the aforesaid statutes. Therefore, in addition to the compliance with the provisions of the Companies Act, 1956, the Company was mandated to comply with the applicable provisions of the ICDR Regulations.

9. I note that SEBI had notified the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ('ICDR Regulations') with effect from August 28, 2009 and all the public issues are now required to comply with the ICDR Regulations which lays down the eligibility norms, disclosure norms and other procedural requirements, for ensuring investor protection in the case of issue of securities. The ICDR Regulations operates as reasonable safeguards for the investors who subscribe or intended to subscribe in the public issues of securities. In this regard, I prima facie observe that CIL has also prima facie not complied with the following clauses of the provisions of ICDR Regulations: - Application for listing of specified securities on one or more recognized stock exchange (Regulation 4(2)), - Appointment of merchant banker and other intermediaries (Regulation 5), - Filing of draft offer document with SEBI and the designated stock exchange and RoC (Regulation 6), - Obtaining in-principle approval from the recognized stock exchanges in which the specified securities are to be listed (Regulation 7), - Satisfy the conditions of initial public offer (Regulation 25 and 26), - Lock-in of specified securities held by promoters and persons other than promoters (Regulation 36 and 37) - Keeping the public issue open for the specified period (Regulation 46),

- Pre issue advertisement for public issue (Regulation 47) - Manner of disclosures in the offer documents (Regulation 57) - Refrain from offering any incentive to any person making application for allotment of specified securities (Regulation 59). - Issuer to appoint compliance officer who would be responsible for monitoring the compliance of securities laws and for redressal of investors' grievances. (Regulation 63) In view of the above, in addition to the non-compliance with the relevant provisions of the Companies Act, 1956, the Company has also prima facie failed to comply with the aforesaid provisions of the ICDR Regulations, with respect to its money mobilization activities from the public by issuing equity shares. Thus, from the information available on record, it appears that CIL has prima facie violated the provisions of Sections 56(1), 56(3), 60 and 73 of the Companies Act, 1956 read with Section 29, 33(1) and 40 of the Companies Act, 2013 and Regulations 4, 5, 6, 7, 8, 9, 25, 26, 32, 36, 37, 46, 47, 49, 57, 58, 59 and 63 of the ICDR Regulations.

In this regard, it is important to note the following observation made by the Hon'ble Supreme Court of India in the matter of Sahara Case: “90. ……… 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.” 10. I note that the Company had allegedly commenced allotment of equity shares to the public in the financial year 2012-13. It can reasonably be inferred that the directors/ promoters of the Company namely Mr. Swapan Majumdar, Mr. Pranab Kumar Roy, Mr. Subhas Bose, Mr. Partha Chakraborti, Ms. Soma Chakraborti, Mr. Swapan Kumar Sen, Mr. Prithwis Kumar Das, Mr. Litan Chandra Sen, Mr. Biplab Halder, Mr. Santosh Kumar and Mr. Bijoy Das were prima facie instrumental in the formulation of the plan/ scheme of the mobilisation of public funds through the issue of equity shares without complying with the applicable law, as discussed above.

Section 56(1) and 56(3) read with Section 56(4) of the Companies Act, 1956 imposes the liability for the compliance of the said provisions, on the company, every director, and other persons responsible for the issuance of the prospectus. The liability for non-compliance of Section 60 of the Companies Act is on the Company, and every person who is a party to the non-compliance of issuing the prospectus as per the said section. Similarly, the Company and the directors would be liable for action for not complying with the provisions of the ICDR Regulations. The liability of the Company and directors to repay under Section 73(2) of the Companies Act, 1956 and Section 27 of the SEBI Act, is a joint and several liability on them and is also a continuing liability and therefore such liability would be extinguished only after the repayments are made as mandated under law.

Therefore, the directors (irrespective of whether they continue or resign) who were present during the period when the Company made the offer and allotted equity shares are allegedly liable for violation of Sections 56, 60 and 73 of the Companies Act, including the default in making refunds as mandated therein. Further, the persons who join the Company’s Board pursuant to the offer and allotment of securities shall also be liable, if the Company and the concerned directors have failed to make refunds as required under law.

In view of the same, it is alleged that the above stated directors/ promoters of CIL, being the persons responsible for the conduct of the business, are responsible under Section 27(2) of the SEBI Act, for the contraventions committed by CIL in its offer and issue of equity shares.

11. I note that SEBI had passed an ex-parte interim order on January 29, 2015 and a final order on April 20, 2016 with respect to the Company’s unauthorized public issue of Non-Convertible Redeemable Debentures and the Company and its directors were restrained from accessing the securities market, directly or indirectly, by issuing offer document/ advertisement and were also prohibited from dealing in securities. The liability of the said Company has increased by way of issue of equity shares and for preventing the Company and its directors from further carrying on with the fund mobilizing activity under the ‘offer of equity shares’ or any other securities. Therefore, I find it necessary to issue an interim order cum show cause notice in respect of issue of equity shares allegedly without complying with the public issue norms, as observed in this Order.

12. I also note that SEBI, in its Order dated April 20, 2016, has granted liberty to the Company and directors to sell the assets and deposit the proceeds in an Escrow Account with a nationalised bank for repaying the investors. The amounts in this Escrow Account may also be used to repay the investors to whom equity shares have been issued by the Company unauthorisedly, after the final order in this regard is passed.

13. Accordingly, I, in exercise of the powers conferred under Sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 read with Section 19 thereof and Regulation 107 read with Regulation 111 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, hereby issue the following directions: a. The Company namely Chakra Infrastructure Limited [PAN: AADCC6855H] and its promoters/ directors (present and past) including Mr. Swapan Majumdar [PAN: AKJPM4426D], Mr. Pranab Kumar Roy [PAN- ACDPR4876J], Mr. Subhas Bose [PAN: BLEPB3468F], Mr. Partha Chakraborti [PAN: ADQPC5578E], Ms. Soma Chakraborti [PAN: AEKPC9920P], Mr. Swapan Kumar Sen [PAN: CILPS3142L], Mr. Prithwis Kumar Das [PAN: AFCPD3788F], Mr. Litan Chandra Sen [PAN: CEDPS4072K], Mr. Biplab Halder [PAN: AHGPH6624N], Mr. Santosh Kumar [PAN: ALUPK5400F] and Mr. Bijoy Das [PAN: ALRPD5933D] are restrained from mobilizing funds through the issue of equity shares or through any other form of securities, to the public and/ or invite subscription, in any manner whatsoever, either directly or indirectly till further directions.

b. Chakra Infrastructure Limited and its promoters/ directors including the above named persons 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.

c. Chakra Infrastructure Limited and its promoters/ directors including the above named persons shall not divert any funds raised from public at large through the issuance of the impugned equity shares, kept in its bank accounts and/ or in the custody of the Company without prior permission of SEBI until further orders.

d. Chakra Infrastructure Limited and its promoters/ directors including the above named persons are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities in any manner whatsoever, either directly or indirectly, till further directions.

e. Chakra Infrastructure Limited and its promoters/ directors including the above named persons shall co-operate with SEBI and shall furnish all the documents that they have been or shall be required to furnish.

f. Chakra Infrastructure Limited and its promoters/ directors including the above named persons are also directed to provide a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/ securities, if held in physical form.

14. The above directions shall come into force with immediate effect and shall continue to be in force till further directions. This Order shall be read harmoniously with the SEBI Order dated April 20, 2016 (in respect of Chakra Infrastructure Limited and its directors).

15. Chakra Infrastructure Limited and its promoters/ directors including the above named persons shall show cause as to why suitable directions/ prohibitions, under the Sections 11(1), 11(4), 11A and 11B of the SEBI Act read with 73(2) of the Companies Act, 1956 and the ICDR Regulations, including the following, should not be taken/ imposed against them:

a. directing them jointly and severally to refund the money collected through the issue of equity shares that are impugned in this Order, along with interest at 15% per annum from the date when the refunds became due to the investors till the date of repayment; b. directing them not to issue 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, for an appropriate period; c. directions restraining them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period; d. directing them and other companies in which their directors hold substantial or controlling interest, to not access the capital market for an appropriate period.

16. Chakra Infrastructure Limited and its promoters/ directors including the above named persons may file their replies/ submissions within a period of 21 days from the date of receipt of this Order and may also indicate whether they desire to avail an opportunity of personal hearing in the matter.

17. This Order is without prejudice to the right of SEBI to take any other action including prosecution proceedings under Section 24 of the SEBI Act and Section 621 of the Companies Act, 1956 read with the relevant provisions of the Companies Act, 2013 and adjudication proceedings under the SEBI Act, against Chakra Infrastructure Limited and its promoters/ directors including the above named persons, in accordance with law.

Date: April 22nd, 2016 PRASHANT SARAN Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA