Order against Almondz Global Securities Limited

1. PG Electroplast Limited ("PGEL"), a company incorporated under the Companies Act, 1956, came out with an Initial Public Offering ("IPO") of 57,45,000 equity shares of 10 each for cash at a price of 210 per equity share. The Issue opened on September 7, 2011 and closed on September 12, 2011. The shares of PGEL, issued in its IPO, were listed on the Bombay Stock Exchange of India Limited ("BSE") and the National Stock Exchange of India Limited ("NSE") on September 26, 2011. Almondz Global Securities Limited ("Almondz"), a Category – I Merchant Banker, was the Book Running Lead Manager ("BRLM") for the IPO; Mr. Vinay Mehta was the Chief Executive Officer ("CEO") and Managing Director ("MD") of Almondz and Mr. Sanjay Dewan was the authorised signatory for the Due-Diligence Certificate issued by Almondz in respect of PGEL's IPO.

2. Upon noticing fluctuations in the share price of PGEL on the days immediately following its listing, Securities and Exchange Board of India ("SEBI") conducted an investigation in the IPO of the aforesaid company. The preliminary findings of the investigation prima facie revealed suppression of material facts and mis-statements in the RHP and Prospectus of PGEL; siphoning off and diversion of IPO proceeds by the company for the purpose of purchase of its own shares.

3. As manipulative practices were prima facie observed in the IPO of PGEL, SEBI vide an ad–interim ex–parte Order dated December 28, 2011 ("Interim Order") inter alia issued directions against Almondz in view of the prima facie violations of Regulation 8(2)(b), (e)– (f) and Regulation 64(1) of the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009 ("ICDR Regulations") and Regulation 13 read with Clauses 1–4, 6–7 and 21 of the Code of Conduct prescribed under Schedule III of the SEBI (Merchant Banker) Regulations, 1992 ("Merchant Banker Regulations"), whereby they were "prohibited from taking up any new assignment or involvement in any new issue of capital including IPO, follow-on issue etc. from the securities market in any manner whatsoever, from the date of this order till further directions." The Interim Order was confirmed as against Almondz on September 11, 2012 ("Confirmatory Order").

4. Thereafter, upon completion of investigation in the matter, SEBI proceeded with proceedings against Almondz, its CEO and MD, under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 ("SEBI Act"), in the matter of PGEL's IPO. An Order dated March 21, 2014 (“Final Order”), was passed by SEBI, against Almondz, its CEO and MD, in respect of the aforesaid proceedings with the following directions – i. "Prohibit Almondz Global Securities Ltd. (SEBI Registration No. INM000000834), its MD and CEO, Shri Vinay Mehta (PAN AAIPM7035P) and its authorised signatory for due diligence certificates in respect of PGEL's IPO, Shri Sanjay Dewan (AAAPD0621Q), from taking up any new assignment or involvement in any new issue of capital including an IPO, follow on issue etc., from the securities market in any manner whatsoever for a period of five years. ii. During the aforementioned period of five years, the Noticees shall not take up any assignment or involvement in buy-back of securities under SEBI (Buy-Back of Securities) Regulations, 1998, open offers under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and delisting of securities under the SEBI (Delisting of Equity Shares) Regulations, 2009."

5. Almondz challenged the abovementioned Final Order dated March 21, 2014, before the Hon’ble Securities Appellate Tribunal (“SAT”).

Enquiry Proceedings against Almondz –

6.1 Simultaneously, SEBI initiated proceedings against Almondz, a registered intermediary, in terms of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 ("Intermediaries Regulations") and appointed a Designated Authority ("DA") in respect thereof, vide Communication of Proceeding of Whole Time Member dated October 8, 2012. The DA issued a Show Cause Notice ("SCN") dated December 14, 2012. The DA enquired into the alleged violation of the following provisions of law, viz. –.

i. Regulations 64(1) and 8(2)(b), (e)–(f) of the ICDR Regulations; ii. Regulation 13 read with Clauses 1–4, 6–7 and 21 of the Code of Conduct prescribed under Schedule III of the Merchant Bankers Regulations.

6.2 The abovementioned provisions alleged to have been violated by Almondz are reproduced hereunder:

"ICDR Regulations

Regulation 8 - Documents to be submitted before opening of the issue. 8. (2) The lead merchant bankers shall submit the following documents to the Board after issuance of observations by the Board or after expiry of the period stipulated in sub-regulation (2) of regulation 6 if the Board has not issued observations: (b) a due diligence certificate as per Form C of Schedule VI, at the time of registering the prospectus with the Registrar of Companies; (e) a due diligence certificate as per Form D of Schedule VI, immediately before the opening of the issue, certifying that necessary corrective action, if any, has been taken; (f) a due diligence certificate as per Form E of Schedule VI, after the issue has opened but before it closes for subscription. Regulation 64. (1) The lead merchant bankers shall exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents.

Merchant Banker Regulations Regulation 13. Every merchant banker shall abide by the Code of Conduct as specified in Schedule III. Code of conduct. 1. A merchant banker shall make all efforts to protect the interests of investors.

2. A merchant banker shall maintain high standards of integrity, dignity and fairness in the conduct of its business. 3. A merchant banker shall fulfil its obligations in a prompt, ethical, and professional manner. 4. A merchant banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment. 6. A merchant banker shall ensure that adequate disclosures are made to the investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision. 7. A merchant banker shall endeavour to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision. 21. A merchant banker shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act, regulations made thereunder, circulars and guidelines, which may be applicable and relevant to the activities carried on by it. The merchant banker shall also comply with the award of the Ombudsman passed under the Securities and Exchange Board of India (Ombudsman) Regulations, 2003."

6.3 In his report dated May 16, 2013 ("Enquiry Report"), the DA found that Almondz had contravened all the abovementioned provisions of law.

6.4 In view of the above, the DA recommended that Almondz be prohibited from taking up any new assignment as a Merchant Banker for a period of two years.

Post – Enquiry SCN dated May 28, 2013 –

7.1 After considering the Enquiry Report, Post–Enquiry SCN [under Regulation 28(1) of the Intermediaries Regulations] dated May 28, 2013 (enclosing therein a copy of the Enquiry Report), was issued to Almondz for the alleged violation of Regulation 8(2)(b), (e)–(f) and Regulation 64(1) of the ICDR Regulations and Regulation 13 read with Clauses 1–4, 6–7 and 21 of the Code of Conduct prescribed under Schedule III of the Merchant Banker Regulations.

7.2 As per the Post–Enquiry SCN read with the Enquiry Report, Almondz was alleged to have committed the following violations – i. Failure to ensure disclosure of material facts in the RHP and Prospectus, such as – a. Funds raised by PGEL through Inter Corporate Deposits ("ICDs"), which were in the nature of a bridge loan. b. Purchase orders placed by PGEL for plant and machinery. c. Suppliers and Agreements for purchase of plastic granules. d. Agreements and Memorandum of Understandings entered into by PGEL with certain entities for purchase of land. ii. Made contradictory disclosures regarding Term–loan alongwith line of credit availed by PGEL.

7.3 It is noted that on December 27, 2012, Almondz filed a consent application in terms of the SEBI Circular No. CIR/EFD/1/2012 dated May 25, 2012. However, the consent application was rejected by SEBI and the aforesaid fact was communicated to Almondz vide letter dated May 30, 2013.

7.4 Thereafter, Almondz filed their reply to the Post–Enquiry SCN vide letter dated June 19, 2013 and also requested for an opportunity of personal hearing. Pursuant to receipt by SEBI of the aforesaid reply to the Post–Enquiry SCN, an opportunity of personal hearing before the Designated Member (“DM”) was granted to Almondz on July 11, 2013. During the aforesaid hearing, the authorised representatives for Almondz i.e. Mr. Vinay Mehta and Mr. Sanjay Dewan, reiterated the submissions made in its aforesaid reply to the Post–Enquiry SCN.

8. Submissions made by Almondz.

8.1 In its reply to the Post–Enquiry SCN, Almondz inter alia submitted that – i. The Prospectus is a replication of the RHP and effectively requires no updation other than price and number of securities offered. ii. It was not aware of the moneys raised through ICDs by PGEL and the subsequent fund transactions with various entities by PGEL. iii. The Board of Directors of PGEL did not permit the raising of moneys through ICDs and the Loan Committee was not authorised to permit raising of moneys through ICDs either. iv. It relied on the certifications and undertakings given by PGEL as well as the Comfort Letter provided by the Statutory Auditor of PGEL, which confirmed that except for the disclosures made in the RHP by PGEL, there was no material change in share capital, increase in current liabilities, secured and unsecured loans, deferred payment liabilities, contingent liabilities or total liabilities or decrease in current assets, loans and advances, fixed assets or net worth of PGEL, etc. The Comfort Letter provided by the Statutory Auditor, on which reliance was placed by them, were unqualified, comprehensive and in accordance with the specimen format prescribed by the Institute of Chartered Accountants of India ("ICAI"). v. It was not aware of the purchase orders placed by PGEL with Modi Alloys Pvt. Ltd. (“Modi Alloys”) and Aggarwal Steel Rolling Mills and Metal Industries (“Aggarwal Steel”). vi.

During the due diligence process, PGEL had neither referred to Nimbus Industries Ltd. ("Nimbus") and Supreme Communications Ltd. ("SCL") being their suppliers, nor informed it of any agreement entered into with them. vii. In respect of long term supply Agreements for purchase of plastic granules, the list of suppliers extended by Almondz in the RHP was based on the information supplied to it by PGEL and verified by it from its record. It is also borne out by SEBI's own observation in its Interim Order dated December 28, 2011, that the names of Nimbus and SCL do not appear in the list of its suppliers provide by PGEL in its offer document. viii. Details of the Land Agreements entered into by PGEL with Saptrishi Suppliers Pvt. Ltd ("Saptrishi"), Safeco Projects Pvt. Ltd. ("Safeco"), Realnet Infraprojects Pvt. Ltd. ("Realnet") and Eastern Resorts Pvt. Ltd. ("Eastern Resorts") were not disclosed to it by PGEL. ix. All the Agreements entered into by PGEL and various entities for purchase of land, plastic granules, etc. underlying the alleged non–disclosures were not genuine and were in all probability contrived as afterthoughts. x. Due Diligence carried out by Almondz was also in accordance with the "Due Diligence Manual" brought out by the Association of Investment Bankers of India. xi.

The details relating to existence of the underlying Agreements, or purchase orders, or ICDs were never disclosed to Almondz and no public notices were placed by the Issuer. Rather to the contrary, Almondz was given a specific undertaking by PGEL that no material adverse changes had taken place after the filing of the RHP.

Consideration of Issues and Findings –

9.1 I have considered the Post–Enquiry SCN issued to Almondz alongwith the Enquiry Report provided therein, its reply to the Post–Enquiry SCN alongwith the submissions made during the personal hearing before me and all other relevant material available on record.

9.2 SEBI has been served with a Notice of Motion (L) No. 18 of 2015 in Writ Petition (L) No. 34/2015 – Almondz Global Securities Ltd. vs. Securities and Exchange Board of India & Ors., filed before the Hon'ble Bombay High Court. However, the said Writ Petition is yet to be admitted by the Hon'ble Bombay High Court.

9.3 In light of the same, I shall now proceed to deal with the charges levelled against Almondz, in the Post–Enquiry SCN read with the Enquiry Report.

10. Non–disclosure in the Prospectus of funds raised by PGEL through ICDs, which were in the nature of a bridge loan.

10.1 As per the Post–Enquiry SCN read with the Enquiry Report, Almondz was alleged to have failed in ensuring disclosure of material facts regarding funds raised by PGEL through ICDs, which were in the nature of a bridge loan.

10.2 In this regard, I note that – i. PGEL had raised funds through ICDs aggregating to approximately 52.02 Crores (i.e. approximately 43% of the IPO size) from 7 entities, viz. Jainex Securities Pvt. Ltd. ("Jainex"), Prraneta Industries Ltd. ("Prraneta"), Agarwal Holdings Ltd. ("Agarwal Holdings"), JRI Industries and Infrastructure Ltd. ("JRI Industries"), Vineet Capital Services Pvt. Ltd. ("Vineet Capital"), Jay Poly Chem (India) Ltd. ("Jay Poly") and Urmi Computers Pvt. Ltd. ("Urmi") vide various Agreements, details of which are provided below:

Entity Date of Amount Interest Tenure of Actual Nature of Date of Amount Agreement agreed as Rate ICD amount ICD - repayment repaid per (Per received Secured/ of ICD from IPO Agreement Annum) by PGEL Unsecured proceeds ( Crores) ( ( Crores) Crores) Jainex 22.08.2011 30.00 13.5% 31 days - 28.75 Unsecured 22.09.2011 28.75 Securities Pvt. 22.09.2011 Ltd. Prraneta 10.09.2011 16.00 13.5% 31 days - 15.65 Unsecured 22.09.2011 15.65 Industries Ltd. 11.10.2011 Agarwal 29.08.2011 2.00 13.5% 31 days - 2.00 Unsecured 22.09.2011 2.00 Holdings Ltd. 29.09.2011 (Now known as Wagend Infra Venture Ltd.) JRI Industries 24.08.2011 1.00 10.5% 6 months - 0.92 Unsecured 15.09.2011 & 24.02.2012 Infrastructure Ltd. Vineet Capital 29.08.2011 2.00 10.5% 21 days - 2.00 Unsecured 20.09.2011 Services Pvt. 19.09.2011 Ltd. Jay Poly Chem 29.08.2011 2.50 10.5% 6 months - 2.50 Unsecured 20.09.2011 (India) Ltd. 29.02.2012 Urmi 31.08.2011 0.20 13.5% 21 days - 0.20 Unsecured 20.09.2011 Computers 21.09.2011 Pvt. Ltd. Total 53.70 52.02 46.40 ii. The date of receipt of funds by PGEL (prior to September 14, 2011 i.e. date of the Prospectus) in respect of the abovementioned ICDs, is provided in the following page:

Entity Date of Actual amount Amount received by Date of repayment Agreement received by PGEL PGEL prior to of ICD ( Crores) September 14, 2011 ( Crores) Jainex Securities 22.08.2011 28.75 23.08.2011 – 0.70 22.09.2011 Pvt. Ltd. 24.08.2011 – 2.20 26.08.2011 – 6.10 29.08.2011 – 7.50 Prraneta Industries 10.09.2011 15.65 Not applicable 22.09.2011 Ltd. Agarwal Holdings 29.08.2011 2.00 3.09.2011 – 2.00 22.09.2011 Ltd. (Now known as Wagend Infra Venture Ltd.) JRI Industries & 24.08.2011 0.92 27.08.2011 – 0.92 15.09.2011 Infrastructure Ltd. Vineet Capital 29.08.2011 2.00 6.09.2011 – 0.25 20.09.2011 Services Pvt. Ltd. 8.09.2011 – 1.00 12.09.2011 – 0.50 Jay Poly Chem 29.08.2011 2.50 1.09.2011 – 1.00 20.09.2011 (India) Ltd. 2.09.2011 – 1.00 3.09.2011 – 0.50 Urmi Computers 31.08.2011 0.20 5.09.2011 – 0.20 20.09.2011 Pvt. Ltd. Total 52.02 ** 23.87 ** Amount of 23.87 Crores was received by PGEL in 2 Bank Accounts, viz. i. SBI A/c no. 00000010642214872 ii. HDFC Bank A/c no. 00880330001203

10.3.1 Almondz had relied on the certification (Comfort Letter) given by the Statutory Auditors. In this context, from the Comfort Letter dated September 13, 2011, the following is noted:

a. The Statutory Auditor mentioned that "… we are unable to express and do not express an opinion on the financial position, results of operations or cash flows of the company for any period subsequent to March 31, 2011 [emphasis supplied]." b. The Statutory Auditor mentioned that they had read the un-audited financial statements of PGEL for the period from April 1, 2011 to August 31, 2011, furnished to it by the management of PGEL.

c. For the period from September 1 to September 13, 2011, the Statutory Auditor had inquired from Mr. Vishal Gupta (Executive Director - Finance), Mr. M. P. Gupta (Assistant General Manager - Accounts) and Mr. Naveen Chandra Joshi (Assistant General Manager - Accounts) for any material change in the financial position of PGEL. d. The Statutory Auditor had qualified that the Comfort Letter was solely for the information of the addressees therein. (i.e. Board of Directors of PGEL and Almondz) and to assist Almondz in conducting and documenting their investigation of the affairs of PGEL.

10.3.2 From the above, it is clearly evident that the Comfort Letter submitted by the Statutory Auditor and relied on by Almondz, was essentially a qualified and limited opinion, which itself was dependent on the information furnished by the management of PGEL. Therefore, Almondz's contention that it did not know inter alia about the existence of funds raised through ICDs by PGEL because it relied on the Comfort Letter provided by the Statutory Auditor, is unacceptable.

10.4 As regards the ICDs (indicated in a tabular format on page 8), a sum of 46.40 Crores was repaid from the IPO proceeds (an amount of 104.41 Crores was received as IPO proceeds on September 22, 2011) towards Jainex, Prraneta and Agarwal Holdings on the very date of receipt of such proceeds. In its Prospectus dated September 14, 2011 (Point No. 15 on page 27), PGEL stated: 'Our Company has not raised any bridge loan against the proceeds of the present Issue … No other circumstances have arisen, since the date of the last financial statement until the date of filing of this Prospectus with SEBI, which materially and adversely affect or is likely to affect the operations or profitability of our Company, or value of its assets, or its ability to pay its liability within twelve months.' The aforementioned statements in PGEL's Prospectus clearly reveal that the liability arising from the repayment of ICDs towards Jainex, Prraneta and Agarwal Holdings (i.e. 46.40 Crores - amount paid from the IPO proceeds), which was effectively tagged to the IPO proceeds, was not disclosed by Almondz.

10.5 As discussed in paragraph 10.3.1–10.3.2 above, I find that the Comfort Letter submitted by the Statutory Auditor and relied on by Almondz, was essentially a qualified and limited opinion which itself was dependent on the information furnished by the management of PGEL. I also note that a simple perusal of the bank account statements of PGEL for the period at least after March 31, 2011 (the date of the last audited balance sheet) – to September 14, 2011 (date of Prospectus), would have revealed funds flows on account of raising of funds through ICDs, which effectively amounted to a bridge loan (amount received by PGEL indicated in a tabular format on page 9).

10.6 In view of the above, I find that the charge vis-à-vis Almondz in respect of failure to ensure disclosure of material facts regarding funds raised by PGEL through ICDs, which were in the nature of a bridge loan, stands established.

11. Non–disclosure in the Prospectus of purchase orders placed by PGEL for plant & machinery.

11.1 As per the Post–Enquiry SCN read with the Enquiry Report, Almondz was alleged to have failed in ensuring disclosure of material facts in the Prospectus regarding purchase orders placed by PGEL for plant & machinery.

11.2 In this regard, I note that – i. At page 43 of its Prospectus under the heading ‘Objects of the Issue’, PGEL had stated: "We have not yet placed any orders for purchase of plant & machineries and utilities for our proposed expansion project under Phase II."

ii. Purchase orders worth 52.23 Crores (approximately) were placed by PGEL during the period between August 30, 2011 and September 5, 2011, with several suppliers of machinery, equipment and utilities, including Modi Alloys and Aggarwal Steel.

iii. A study of the bank account statements of PGEL revealed that PGEL paid 7.85 Crores to Modi Alloys ( 5 Crores on August 20, 2011, 1.85 Crores on August 24, 2011 and 1 Crore on August 29, 2011) even before placing purchase orders with the latter. Similarly, payment of 1 Crore was observed to have been made to Aggarwal Steel on August 23, 2011, even before PGEL placed purchase orders with the latter.

iv. Almondz have submitted that they were not aware of the purchase orders, or the alleged fund transfers to Modi Alloys and Aggarwal Steel, and that the disclosures made in the RHP were on the basis of information provided by PGEL.

v. I am unable to accept the contentions of Almondz. As per Regulation 64 (1) of the ICDR Regulations, the Merchant Bankers "shall exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents." Further, as per Clause 4 of the Code of Conduct for Merchant Bankers read with Regulation 13 of the Merchant Banker Regulations, "(a) merchant banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment." Almondz have submitted no material to show that it had made any attempt to go even slightly beneath the surface of the statements furnished by PGEL, the certification/Comfort Letter given by the Statutory Auditors of PGEL or the due diligence reports given by the Legal Advisors to the Issue. As a Merchant Banker is required to exercise due diligence with respect to the IPO process, Almondz could at least have verified the bank account statements of PGEL for the period after March 31, 2011 (the date of the last audited balance sheet) – to September 14, 2011 (date of Prospectus), for major funds flows. Such independent verification by Almondz would surely have revealed funds flows which did not correspond with the information made available by PGEL. It would also have revealed the mis-statements and non-disclosures made by PGEL regarding inter alia the purchase orders placed by PGEL. Even if Almondz had relied on the Comfort Letter provided by the Statutory Auditor of PGEL, such reliance could not have been such a total and absolute reliance.

vi. Almondz have stated that the Comfort Letter provided by the Statutory Auditor, on which reliance was placed by them, was unqualified, comprehensive and in accordance with the specimen format prescribed by ICAI. However, I find that the Comfort Letter dated September 13, 2011, is a qualified and limited opinion, as expressly indicated in paragraphs H and I of the said Comfort Letter. Further, the Comfort Letter clearly mentions in paragraph G that the procedures followed for the purpose of the letter – including reading of financial statements of PGEL, and making inquiries of persons responsible for financial and accounting matters of PGEL – "do not constitute an audit conducted in accordance with generally accepted auditing standards in India. In addition, they would not necessarily reveal matters of significance with respect to the comments in the following paragraph. Accordingly, we (the statutory auditors) make no representation about the sufficiency of the foregoing procedure for your purposes". This has to be considered alongwith the fact that the Comfort Letter in this case was intended only 'to assist the BRLM in conducting and documenting their investigation of the affairs of PGEL'.

Thus, the Comfort Letter is a clearly qualified and limited opinion and is evidently not intended to be a document for absolute reliance on the same by the Merchant Banker. The Comfort Letter could not remotely have been a full and total substitute for independent verification and exercise of Due Diligence by Almondz in the matter.

vii. In view of the above, I find that the charge vis-à-vis Almondz in respect of failure to make disclosure of material facts in the Prospectus regarding purchase orders placed by PGEL for plant & machinery, stands established.

12. Contradictory disclosures regarding Term–loan alongwith line of credit availed by PGEL.

12.1 As per the Post–Enquiry SCN read with the Enquiry Report, Almondz was alleged to have failed in preventing misrepresentation in the RHP and Prospectus in respect of Term-loan alongwith line of credit availed by PGEL.

12.2 In this regard, I note that – i. It has been mentioned in the RHP and the Prospectus under the head of "Objects of the Issue" that PGEL had raised 24.10 Crores for ‘Prepayment of the portion of term loan and line of credit facility proposed to be availed by our company for the expansion under Phase I.’ Further, Page 29 of the RHP and Prospectus states: "For part financing the expansion under Phase I, our Company has received the sanction for availing 2,350 Lakhs as term loan and of US$ 3 million ( 1,410 Lakhs based on conversion rate of 1US$ = 47/-) as Line of Credit from Standard Chartered Bank vide its sanction letter dated September 14, 2010. We have already availed disbursement of the entire sum sanctioned to us". However, in the table on Page 30 of the RHP as well as Prospectus, with respect to the term loan and letter of credit, it was stated - ‘Amount availed as on the date of this RHP – NIL.’

ii. I find that contradictory statements pertaining to term-loan alongwith line of credit availed by PGEL have been made in the RHP and Prospectus of PGEL. The abovementioned statements in the RHP and Prospectus [reproduced at paragraph 12.1(i)], were thus misleading. I find that the incorrect disclosure in the RHP was not rectified in the Prospectus, which is supposed to be the main updated document which is relied upon by investors during and after the IPO. This error is therefore a significant lapse on the part of Almondz, and reflects a lack of diligence on their part.

iii. In the Enquiry Report, the DA has referred to the reply made by Almondz in proceedings before that Authority wherein it highlighted various instances such as on pages no. 40, 86 & 87 and 171 & 172 of the RHP, where disclosures regarding sources of finances for expenditure, term loan, etc. were made. The DA has considered the aforesaid and has noted that there was no other evidence to suggest that Almondz had 'intentionally' given wrong disclosures. Accordingly, the DA has given Almondz the benefit of doubt stating that disclosure relating to disbursement of term loan alongwith line of credit appearing in the RHP, was inadvertently mentioned as "NIL". The DA has nonetheless observed that Almondz should have been more diligent and exercised proper care in avoiding such lapses in the RHP and Prospectus of PGEL, which may mislead investors.

iv. As a Merchant Banker, Almondz was obligated to undertake all reasonable efforts for carrying out thorough due diligence to ensure adequate and truthful disclosures in the RHP and Prospectus of PGEL. This obligation involved examining everything required for giving a true account of the facts in the RHP and Prospectus of PGEL, which would affect the interest of investors. The investors would have decided to invest in PGEL on the faith that Almondz would have conducted due diligence with utmost sincerity and because it failed to act diligently, the investors were put to grave danger. In view of the aforesaid, I find that Almondz cannot be said to have fulfilled its obligation as a Merchant Banker through contradictory and inaccurate disclosures in the RHP and Prospectus of PGEL. I, therefore, am unable to agree with the benefit of doubt accorded by the DA to Almondz, in respect of the instant charge.

v. In view of the above, I find that the charge vis-à-vis Almondz in respect of failure to prevent misrepresentation in the RHP and Prospectus in respect of amount of Term-loan alongwith line of credit availed by PGEL, stands established.

13. Non–disclosure of names of certain companies in the list of suppliers for plastic granules, their agreements alongwith financial transactions.

13.1 As per the Post–Enquiry SCN read with the Enquiry Report, Almondz was alleged to have failed in ensuring disclosure of material facts in the Prospectus regarding names of certain companies in the list of suppliers for plastic granules, their agreements alongwith financial transactions.

13.2 In this regard, I note that – i. During the investigation conducted by SEBI, PGEL provided a copy of the following additional Agreements, which reveal the existence of additional suppliers of raw materials to the company, viz. – a. Agreement dated August 31, 2011 with Nimbus, for purchase of plastic granules valued upto 3.50 Crores. b. Agreement dated August 31, 2011 with SCL for purchase of plastic granules valued upto 5 Crores.

ii. The list of suppliers, as disclosed by PGEL at page 76 of the Prospectus, contained the names of LG Polymers, BASF, Supreme Petrochem, etc. However, the names of Nimbus and SCL do not appear in the said list of suppliers. Considering that the combined value of the above Agreements dated August 31, 2011, with Nimbus and SCL was 8.50 Crores, the same was undoubtedly material information which was required to have been disclosed in the Prospectus.

Entity Payments made by PGEL prior to September 14, 2011 ( Crores) Nimbus Industries Ltd. 5.09.2011 – 2.35 8.09.2011 – 0.40 Supreme Communications Ltd. 8.09.2011 – 1.50 Total ** 4.25 ** Amount of 4.25 Crores was paid by PGEL through 4 Bank Accounts, viz. i. SBI A/c no. 00000031765471877 ii. SBI A/c no. 00000031765482416 iii. SBI A/c no. 00000010642214872 iv. HDFC Bank A/c no. 00880330001203 iii. Almondz have submitted that PGEL had neither referred to Nimbus and SCL as being its suppliers, nor informed Almondz of any purchase agreement entered into with Nimbus or SCL.

iv. Considering that the combined value of the Agreements dated August 31, 2011 with Nimbus and SCL was 8.5 Crore, the same was material information which was required to have been disclosed in the Prospectus. The Post–Enquiry SCN read with the Enquiry Report mentions that PGEL transferred funds amounting to 2.35 Crores and 40 Lakhs to Nimbus on September 5, 2011 and September 8, 2011, respectively. Further, the Post–Enquiry SCN read with the Enquiry Report also mentions that PGEL transferred funds amounting to 1.50 Crores to SCL on September 8, 2011. As the Merchant Banker responsible for ensuring accurate and adequate disclosures in the RHP and Prospectus, Almondz was under an obligation to undertake reasonable efforts to verify the accuracy of the information submitted by PGEL for disclosure in its RHP and Prospectus. Instead, Almondz relied completely on the certifications and undertakings of PGEL, as well as the Comfort Letter provided by the Statutory Auditor. If only Almondz had at least looked into the bank statements of PGEL for the period after March 31, 2011 (the date of the last audited balance sheet) – to September 14, 2011 (date of Prospectus) (payment details indicated in a tabular format on page 16), substantial funds flows including transfer of a total of 4.25 Crores before September 14, 2011, to Nimbus and SCL, would have been easily noticed. I find that the contentions of Almondz in defence of its omission to ensure disclosure of the names of Nimbus and SCL in the list of suppliers of raw material in the Prospectus, are not acceptable.

v. In view of the above, I find that the charge vis-à-vis Almondz in respect of failure to make disclosure of material facts in the Prospectus regarding names of certain companies in the list of suppliers for plastic granules, their agreements and the financial transactions stands established.

14. Non–disclosure of Agreements and Memorandum of Understandings entered into by PGEL with certain entities for purchase of land.

14.1 As per the Post–Enquiry SCN read with the Enquiry Report, Almondz was alleged to have failed in ensuring disclosure of material facts in the Prospectus regarding Agreements/Memorandum of Understandings ("MOUs") entered into by PGEL with certain entities for purchase of land.

14.2 In this regard, I note that PGEL was alleged to have entered into Agreements/MOUs for purchase of land with Saptrishi, Safeco, Realnet and Eastern Resorts for a total consideration value of approximately 80 Crores, which is almost 66% of the Issue size of 120.64 Crores. The details of the Agreements/MOUs entered into by PGEL for purchase of land are as follows:

Name Date of Location of land Total Payments made by PGEL prior of MOU consideration to September 14, 2011 entity value ( Crores) ( Crores) Saptrishi 21.09.2011 Tamil Nadu 18 Not applicable Safeco 27.08.2011 Karnataka 25 25.08.2011 – 7.00 26.08.2011 – 3.00 27.08.2011 – 2.50 5.09.2011 – 2.50 Realnet 2.09.2011 As per MOU, Realnet would 12 – 15 6.09.2011 – 2.00 locate and procure land on The amount was behalf of PGEL in Greater not mentioned in Noida the MOU. Amount indicated is as per PGEL’s letter dated 10.04.2012. Eastern 26.08.2011 As per MOU, Eastern 25 26.08.2011 – 2.00 Resorts Resorts has 80 acres in Virat 1.09.2011 – 1.00 Pvt. Nagar (Jaipur) and is in 2.09.2011 – 1.00 Ltd. process of acquiring 45 9.09.2011 – 1.00 acres. Further, as per MOU, PGEL would purchase entire 2nd Floor of the proposed building. ** Total – 22.00 ** Amount of 22 Crores was paid by PGEL through 3 Bank Accounts, viz. i. SBI A/c no. 00000010642214872 ii. Standard Chartered Bank A/c no. 52205923018 iii. HDFC Bank A/c no. 00880330001203

14.3 I note that – i. At page 83 of the RHP, it was mentioned that "there is no property which our company has acquired or propose to purchase or acquire which is to be paid wholly, or in part, from the net proceeds of the Issue or the purchase of acquisition of which has not been completed as on the date of filing of this RHP with SEBI…". At page 83 of the Prospectus, it was mentioned that – ‘Except as stated in section titled “Objects of the Issue” appearing on page no. 28 of this Prospectus, there is no property which our Company has purchased or acquired or propose to purchase or acquire which is to be paid wholly, or in part, from the net proceeds of the Issue or the purchase or acquisition of which has not been completed as on the date of filing of this Prospectus with SEBI…".

ii. Almondz have submitted that PGEL did not inform them about details pertaining to land deals at the time when the Prospectus was being finalized. Almondz have also submitted that PGEL specifically affirmed vide Underwriting Agreement dated September 13, 2011 and letter dated September 14, 2011 that no material developments have taken place after August 17, 2011. It was also submitted that the Statutory Auditor vide Comfort Letter dated September 13, 2011, had confirmed that there were no material developments after the date of filing of the RHP i.e. August 17, 2011. It was also contended by Almondz that the Statutory Auditor's letter was based on the format specified by ICAI. However, I observe that PGEL made advance payments of upto 2 Crores to Eastern Resorts on the date of the MOU i.e. August 26, 2011, and 10 Crores to Safeco even before the MOU dated August 27, 2011, as consideration for purchase of land. Thus, I find that if only Almondz had at least looked into the bank statements of PGEL for the period after March 31, 2011 (the date of the last audited balance sheet) – to September 14, 2011 (date of Prospectus) (payment details indicated in a tabular format on page 18), irregularities in funds flows would have been easily noticed, and investors could have been prevented from being misled by inaccurate disclosures in the Prospectus dated September 14, 2011. Therefore, I find that Almondz failed to adhere to the high standards of service and due diligence required of a Merchant Banker.

iii. In view of the above, I find that the charge vis-à-vis Almondz in respect of failure to make disclosure of material facts in the Prospectus regarding Agreements/MOUs entered into by PGEL with certain entities for purchase of land, stands established.

Conclusion.

15.1 The issue to be considered is whether, in the facts of this case, Almondz exercised reasonable care and diligence as a Merchant Banker.

15.2 I note that Regulation 64(1) of the ICDR Regulations refers to the duty of the lead Merchant Banker to ensure "veracity and adequacy of disclosure in the offer documents". An 'offer document' as defined in Regulation 2(1)(x) of the ICDR Regulations "means a red herring prospectus, prospectus or shelf prospectus and information memorandum…". Therefore the requirements for accurate and adequate disclosures as stipulated in the ICDR Regulations are applicable as much to the Prospectus as to an RHP. Regulations 8(2)(b), (e)–(f) of the ICDR Regulations require the lead Merchant Banker to file Due Diligence Certificates as stipulated in Forms C, D and E in Schedule VI of the ICDR Regulations. Forms C, D and E require the Merchant Banker to submit due diligence certificates to SEBI, certifying that all material disclosures at the time of registering the RHP or the Prospectus with the Registrar of Companies, as well as immediately before opening of the issue, and after opening of issue but before closure of subscription, are made and updated for the respective applicable dates. Thus, the Prospectus has to contain accurate and adequate disclosures in all respects, as on the date of registration of RHP as well as the Prospectus.

15.3 I note that the following due–diligence Certificates were submitted by Almondz – i. Vide letter dated September 1, 2011, Almondz submitted the due–diligence Certificate under Regulation 8(2)(b) of the ICDR Regulations, wherein it was stated – 'the said Red Herring Prospectus contains all the material disclosures in respect of the Issuer Company as on the said date.' ii. Vide letter dated September 6, 2011, Almondz submitted the due–diligence Certificate under Regulation 8(2)(e) of the ICDR Regulations, wherein it was stated – 'This is to certify that all the material disclosures in respect of the Issuer as on the date of opening of the Issue have been made through the Red Herring Prospectus.' iii. Vide letter dated September 9, 2011, Almondz submitted the due–diligence Certificate under Regulation 8(2)(f) of the ICDR Regulations, wherein it was stated – 'This is to certify that all the material disclosures in respect of the Issuer as on date have been made through the Red Herring Prospectus.'

15.4 As discussed in the preceding paragraphs in respect of each allegation levelled vis-à-vis Almondz, a complete failure to carry out reasonable due diligence has been observed. Reasonable efforts on the part of Almondz to at least check the bank account statements of PGEL for the period after March 31, 2011 (the date of the last audited balance sheet) – to September 14, 2011 (date of Prospectus) and the complete minutes of PGEL's Board meeting dated August 17, 2011, would surely have revealed that the undertakings and letters of PGEL did not correspond with the funds flows in its bank accounts. Due diligence carried out in compliance with the ICDR Regulations and the Merchant Banker Regulations could have prevented the mis-statements and non-disclosures in the RHP and Prospectus of PGEL.

16.1 A Merchant Banker is appointed for the purpose of managing the issue of an IPO of a Company and co-ordinates the activities of the Company, the Regulatory Bodies, and the Investors. The Merchant Banker has responsibilities towards the Company, to manage the entire process of issue of its IPO, and to investors to present the Company's information before them in a concise and unambiguous form. The Merchant Banker is therefore expected to exercise due diligence to ensure the adequacy and appropriateness of the disclosures made in offer document. Due diligence does not merely mean that the Merchant Banker will passively report all that has been reported to him but to examine everything that is required to give a true account of the facts in the prospectus. It is about making an active effort to find out material developments that would affect the interest of the investors. It is on the faith that the Merchant Banker would have conducted the due diligence with utmost sincerity that the investing public goes forward and decides to invest in a particular company. If the Merchant Banker fails to act diligently and comply strictly with the letter and spirit of the regulations, the investors are put to grave danger.

16.2 In this regard, it may be pertinent to note the observations of the Hon'ble Securities Appellate Tribunal in the matter of HSBC Securities and Capital Markets (India) Private Ltd. vs. SEBI, SAT Appeal No. 99 of 2007, where it held that "ensuring the truth and correctness of the letter of offer is a fundamental responsibility of the merchant banker which he has to discharge by exercising due diligence." Further, the Hon'ble Supreme Court in the matter of Chander Kanta Bansal vs. Rajinder Singh Anand [(2008) 5 SCC 117] had discussed the concept of 'due diligence' and observed that due diligence meant 'reasonable diligence; …such diligence as a prudent man would exercise in the conduct of his own affairs.'

17. Considering the important role of a Merchant Banker in the public issue of a company, Almondz in the present case cannot take refuge under the Comfort Letter issued by the Statutory Auditor and certifications/undertakings by PGEL. Further, the procedural AIBI Due Diligence Manual cited by Almondz would not be of any help unless the Merchant Banker takes proactive and prudent steps to independently verify the material details and circumstances surrounding the Public Issue. If the contention regarding absolute reliance placed by Almondz on the comfort letter of the Statutory Auditor is accepted, it will negate the very requirement of a Merchant Banker in any Public Issue.

Therefore, Almondz cannot seek to evade its primary responsibility (as a Merchant Banker) of undertaking all reasonable efforts to carry out thorough due diligence for ensuring accurate and complete disclosures in the 'offer document'.

18. Passive and absolute reliance on undertakings and letters of PGEL and the Statutory Auditor were not enough for Almondz to discharge its legal obligations under the ICDR Regulations and the Merchant Banker Regulations. The due diligence exercise conducted by Almondz was completely lacking in thoroughness, thus rendering it liable for total dereliction of duty as Merchant Banker in the IPO of PGEL. Therefore, I find that Almondz fell well short of exercising reasonable diligence and care, to satisfy themselves of the veracity and adequacy of disclosures in the RHP and Prospectus of PGEL, and thus violated the Regulations 8(2)(b), (e)–(f) and 64(1) of the ICDR Regulations and Regulation 13 read with Clauses 1–4, 6–7 and 21 of the Code of Conduct prescribed under Schedule III of the Merchant Banker Regulations.

19. Enquiry proceedings are mainly disciplinary proceedings initiated against intermediaries registered with SEBI. Section 12(3) of the SEBI Act provides that: "The Board may, by order, suspend or cancel a certificate of registration in such manner as may be determined by regulations…". I find that the violations committed by Almondz (as detailed in the preceding paragraphs) were part of a larger scheme, which affected the integrity of the securities market and deprived gullible investors of material information for making an informed decision in respect of PGEL's IPO. SEBI had earlier taken necessary steps vide Interim Order against Almondz and was justified in doing so considering the prima facie gravity of offences committed in PGEL's IPO inter alia by Almondz. On considering the totality of the facts and circumstances and the interest of securities market, I am of the considered view that the following Order would meet the ends of justice.

Order –

20.1 I note that vide the Interim Order dated December 28, 2011 (later confirmed through the Confirmatory Order on September 11, 2012), Almondz was "prohibited from taking up any new assignment or involvement in any new issue of capital including IPO, follow-on issue etc. from the securities market in any manner whatsoever, from the date of this order till further directions."

20.2 I note that in separate proceedings initiated against Almondz under Sections 11(1), 11(4) and 11B of the SEBI Act, in the matter of PGEL's IPO, SEBI vide Final Order dated March 21, 2014, prohibited that entity from taking up – i. "Any new assignment or involvement in any new issue of capital including an IPO, follow on issue etc., from the securities market in any manner whatsoever for a period of five years. ii. Any assignment or involvement in buy-back of securities under SEBI (Buy-Back of Securities) Regulations, 1998, open offers under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and delisting of securities under the SEBI (Delisting of Equity Shares) Regulations, 2009."

20.3 I note that in the Enquiry Report dated May 16, 2013, as submitted by the DA in accordance with Regulation 27 of the Intermediaries Regulations, it was recommended that Almondz be prohibited from taking up any new assignment as a Merchant Banker for a period of two years. As stated in the preceding paragraph, I find that the effect and consequence of the aforesaid prohibition on Almondz, if imposed through this Order, will be substantially the same as that of the directions issued against it vide the abovementioned Final Order dated March 21, 2014. In view of the same, while finding Almondz guilty of contravening the provisions of ICDR Regulations and the Merchant Banker Regulations, I however, find that no further direction needs to be issued in these proceedings since Almondz has already been prohibited for the aforesaid misconduct.

20.4 The Post–Enquiry SCN dated May 28, 2013, is accordingly disposed of.

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