Mr. Basir Uddin Khan vs Sebi

Date of Decision: 17.10.2017

Appeal No. 280 of 2016

Mr. Basir Uddin Khan C/O Mr. Bahar Ali Khan Ghoshpur, Khanakul, Hooghly, West Bengal- 712 613 ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai -400 051 ...Respondent

Mr. Shailesh Kumar, Advocate for the Appellant.

Mr. Mustafa Doctor, Senior Advocate with Mr. Nishant Upadhyay, Advocate i/b K. Ashar & Co. for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member

Per: Justice J.P. Devadhar (Oral)

1.

This appeal is filed to challenge the order passed by the Whole

Time Member ("WTM" for short) of the Securities and Exchange Board

of India ("SEBI" for short) on May 10, 2016. By the said order Bharat

Krishi Samridhi Industries Limited ("the company" for short) and its

directors including the appellant are jointly and severally directed to

refund the money collected by the company through the offer and 2

issuance of Redeemable Preference Shares and Non-Convertible

Debentures, to the investors with interest at the rate of 15% compounded

as more particularly set out in the said order. By the said order appellant

is also restrained from the securities market and further prohibited from

buying, selling or otherwise dealing in the securities market, directly or

indirectly whatsoever in any manner, with effect from May 10, 2016 and

the said restraint order shall continue to be in force from May 10, 2016

till the expiry of 4 years from the date of completion of refunds to

investors.

2. Appellant was initially working as a supervisor with the company.

Appellant became director of the company on June 30, 2011 and

continued as director till he resigned from the company on March 01,

2013.

3. It is not in dispute that in the light of the judgement of the Apex

Court in the case of Sahara India Real Estate v/s SEBI reported in (2013)

1 SCC Pg 1 issuance of Non-Convertible Debentures/ Redeemable

Preference Shares to more than 50 entities without following the public

issue norms constitutes violation of the Companies Act, 1956 and also

Section 27 of the SEBI Act. Admittedly, the company and its directors

have not complied with the public issue norms while issuing the Non-

Convertible Debentures/ Redeemable Preference Shares. This Tribunal

in the case of Manoj Agarwal v/s SEBI (Appeal No. 66 of 2016 decided

on 14.07.2017) has held that where a company fails to follow the public

issue norms before issuing Redeemable Preference Shares to more than 3

50 entities, then all directors of the company are 'officers in default' and

in such a case, the company and its directors are liable to refund the

amount with interest as per the terms of offer.

4. Counsel for appellant, however, submitted that the appellant was

an employee director and he was the first person to lodge a Police

Complaint against promoter directors and other key directors of the

company on August 01, 2012 who had mismanaged and misappropriated

the funds so collected by the company. In such a case, it is submitted

that for the illegal activities committed by the company and other

directors the appellant could not be held liable.

5. We see no merit in the above contentions.

6. In the present case, it is not in dispute that the company had

collected money from the investors by issuance of Non-Convertible

Debentures and Redeemable Preference Shares from more than 50

investors without complying with the public issue norms.

7. Admittedly, appellant was a director of the company when the

Non-Convertible Debentures/ Redeemable Preference Shares were issued

without following the public issue norms. In fact, appellant had signed

the offer documents relating to debentures pursuant to the resolution

dated March 02, 2012. Thus, the appellant who was party to the issuance

of Non-Convertible Debentures and Redeemable Preference Shares 4

without following the public issue norms is guilty of violating the

provisions contained in the Companies Act, 1956 and the SEBI Act.

8. Fact that the appellant was an employee director and the fact that

the appellant on August 01, 2012 had filed a complaint against some

directors for misappropriation of funds cannot be a ground to exonerate

the appellant. It is interesting to note that in the complaint dated August

01, 2012 the appellant had not stated that the amounts were collected by

the company was in violation of the Companies Act and the SEBI Act.

What is stated in the complaint is that the funds collected by the company

are being misappropriated by some of the directors. In such a case,

where collection of funds itself is in violation of law, appellant who is

party to such illegal collection of funds cannot escape liability merely

because he had filed a police complaint against some directors for

misappropriation of funds. Accordingly, we see no merit in the

arguments advanced on behalf of the appellant.

9. Admittedly, SEBI has attached the bank accounts and assets of the

company and other directors. In the facts of present case, we direct SEBI

to take immediate steps for disposal of the aforesaid assets already

attached by SEBI. If the amount realised on sale of aforesaid assets/

bank accounts is not sufficient for refunding the amount payable to the

investors then it would be open to SEBI to implement the impugned

order passed against the appellant.

5

10. Appellant is directed to give list of his assets to SEBI within a

period of two weeks from today and the appellant is directed not to

dispose of the said assets without the prior approval of SEBI.

11. Appeal is disposed of in the aforesaid terms with no order as to

costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G. Nair Member 17.10.2017 Prepared & Compared By: PK