Order against the past director of Sunplant Forgings Limited viz. Shri Ameet Singh

WTM/PS/24/ERO/IMD/MAY/2016

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, 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 SunplantForgingsLimited In respect of Mr. Ameet Singh (PAN: BWIPS3911H; DIN: 02885973).

1. Securities and Exchange Board of India (“SEBI”) passed an Order dated April 29, 2015 (“the Final Order”) in the matter of Sunplant Forgings Limited (“the Company”), whereby the Company and its Directors, viz. Mr. Abhinandan Kumar Singh, Mr.Sumanta Sinha and Mr.Neeraj Pathakwere made liable for the contravention of sections 56, 60 read with section 2(36) and 73 read with section 27(2) of the SEBI Act, 1992 of the Companies Act, 1956 by engaging in fund mobilizing activity through the offer and issue of Redeemable Preference Shares (RPSs) made during FY 2011-2012 to atleast 6658 investors. The Order had accordingly issued various directions against them including direction to refund the public funds mobilized under such offer and issuance of securities.

2. Thereafter, it came to the notice of SEBI that Mr. Ameet Singh (“the noticee”) was a director in the Company during the period –January 15, 2011 to February 28, 2012. Accordingly, the noticee was alleged to have also engaged in fund mobilizing activity from the public, in his capacity as a director during the relevant period and had violated the provisions of law mentioned in the above paragraph. Accordingly, SEBI issued an interim order cum show cause notice dated November 20, 2015 (“the interim order”), wherein the following directions were issued: “In view of the alleged violations by the abovementioned past Director, I, in exercise of the powers conferred upon me under Sections 11, 11(4), 11A and 11B of the SEBI Act, hereby issue the following directions – i. The past Director of SFL, viz. Shri Ameet Singh (PAN: BWIPS3911H; DIN: 02885973), is 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; ii. The abovementioned past Director of SFL is 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; iii. The abovementioned past Director of SFL shall provide a full inventory of all his assets and properties”.

The interim order also directed the noticee to show cause as to why suitable directions/prohibitions under sections 11(1), 11(4), 11A and 11B of the SEBI Act, section 73(2) of the Companies Act, 1956 read with section 27(2) of the SEBI Act should not be passed against him: i. Directing him jointly and severally to refund money collected through the Offer of Preference Shares alongwith interest, if any, promised to investors therein; ii. Directing him 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; iii. Directing him to refrain from accessing the securities market and prohibiting him from buying, selling or otherwise dealing in securities for an appropriate period.

3. The interim order advised the noticee to file his response within a period of 21 days and also indicate whether he desires to avail an opportunity of personal hearing. The interim order was forwarded to the noticee vide SEBI letter dated November 23, 2015. The noticee was also advised to read the interim order along with the Final Order passed in respect of the Company and its directors.

4. The noticee did not file his response to the interim order within the period advised in the interim order. However, in accordance with the principles of natural justice, the noticee was afforded an opportunity of personal hearing on March 09, 2016. On the date of the personal hearing, the noticee vide his reply (sent through facsimile), while referring to the notice informing the date of hearing, stated that he was not aware of the interim order passed against him. He further stated that he did not receive any notice earlier. According to him, he was appointed as an additional director in the Company on January 15, 2011 and resigned on February 28, 2012. He submitted that he was not involved in the day to day business activities of the Company. He also submitted that he did not take any share of the Company and did not also receive any remuneration from the Company. The noticee submitted that he stays in Patna and cannot afford to travel to Kolkata to attend the hearing due to his financial condition and requested SEBI to excuse his personal appearance in the hearing.

5. I have perused the Final Order, considered the interim order cum show cause notice issued to the noticee, his submissions and other material available on record. The noticee in his submissions has stated that he was not aware of the interim order passed against him. However, it is noted that the envelope enclosing the interim order sent to the noticee had not returned back to SEBI and as per the postal tracking system of India Post, it is seen that the interim order was served and delivered on the noticee.

6. The Final Order passed in respect of the Company and its directors had conclusively held that the Company made a public issue of RPS (during FY 2011-12 by allotting to atleast 6658 persons) and raising atleast Rs.17.51 crore without complying with the public issue norms mandated under sections 56, 60 and 73 of the Companies Act, 1956.

7. In the present case, the noticee admittedly was a director in the Company from January 15, 2011 to February 28, 2012. Therefore, in can be inferred that he was a director when the Company made the offer and issued RPSs to investors without complying with the public issue norms. As regards the liability of the noticee, I note that – (a) In terms of section 291 of the Companies Act, 1956, the board of directors of a company shall be entitled to exercise all such powers and do all such acts and things as the company is authorized to exercise and do. Therefore, the board of directors being responsible for the conduct of the business of a company shall therefore be liable for any non-compliance of law and such liability is on the individual directors also. With respect to the culpability of a director for breach of law by a company, I refer to and rely on the following observations made by the Hon’ble High Court of Madras in MadhavanNambiar vs Registrar Of Companies (2002 108 Comp Cas 1 Mad): “13. It may be that the petitioner may not be a whole-time director, but that does not mean he is exonerated of the statutory obligations which are imposed under the Act and the rules and he cannot contend that he is an ex officio director and, therefore, he cannot be held responsible.

There is substance in the contention advanced by Mr. Sridhar, learned counsel since the petitioner a member of the Indian Administrative Service and in the cadre of Secretary to Government when appointed as a director on the orders of the Government to a Government company or a joint venture company, he is expected not only to discharge his usual functions, but also take such diligent care as a director of the company as it is expected of him not only to take care of the interest of the Government, but also to see that the company complies with the provisions of the Companies Act and the rules framed thereunder. Therefore, the second contention that the petitioner cannot be proceeded against at all as he is only a nominee or appointed director by the State Government, cannot be sustained in law. A director either full time or part time, either elected or appointed or nominated is bound to discharge the functions of a director and should have taken all the diligent steps and taken care in the affairs of the company. 14. In the matter of proceedings for negligence, default, breach of duty, misfeasance or breach of trust or violation of the statutory provisions of the Act and the rules, there is no difference or distinction between the whole-time or part time director or nominated or co-opted director and the liability for such acts or commission or omission is equal.

So also the treatment for such violations as stipulated in the Companies Act, 1956. 15. Section 5 of the Companies Act defines the expression "officer who is in default". The expression means either (a) the managing director or managing directors; (b) the whole-time director or whole-time directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the board of directors of the company is accustomed to act; (f) any person charged by the board with the responsibility of complying with that provision; (g) any director or directors who may be specified by the board in this behalf or where no director is so specified, all the directors. 16. Section 29 of the Companies Act provides the general power of the board and …………... Therefore it follows there cannot be a blanket direction or a blanket indemnity in favour of the petitioner or other directors who have been nominated by the Government either ex officio or otherwise. Hence the second point deserves to be answered against the petitioner. 17. As regards the first contention, it is contended by Mr. Arvind P. Datar, learned senior counsel appearing for the petitioner that the company or its board had resolved that Thiagaraj S. Chettiar shall be the director in charge of the company of all its day-to-day affairs and, therefore, the petitioner, an ex officio chairman and director, cannot be expected to attend to the affairs on a day-to-day basis.

This contention though attractive cannot be sustained as a whole. There may be a delegation, but ultimately it comes before the board and it is the board and the general body of the company which are responsible.” {Emphasis supplied}

(b) The noticee cannot assume the role of a director in a company in a casual manner.The position of a ‘director’ in a public company/listed company comes along with responsibilities and compliances under law associated with such position, which have to be fulfilled by such director or face the consequences for any violation or default thereof. The noticee cannot therefore wriggle out from liability by merely stating that he was not involved in the affairs of the Company or was not aware of issuance of securities. Accordingly, a director who is part of a company’s board shall be responsible and liable for all acts carried out by a company unless exemptions are provided. Accordingly, he shall also be responsible and liable along with the others in the Board, for all the deeds/acts of the Company during the period of his directorship.

(c) According to 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 a company, unless the form is accompanied by abridged prospectus, contain disclosures as specified. Section 2(36) of the Companies Act read with section 60 thereof, mandates a company to register its 'prospectus' with the RoC, before making a public offer/ issuing the 'prospectus'. The Company had not complied with these provisions, as found in the Order.

Section 56(1) and 56(3) read with section 56(4) of the Companies Act, 1956 imposes the liability on the company, every director, and other persons responsible for the prospectus for the compliance of the said provisions. The liability for non-compliance of section 60 of the Companies Act, 1956 is on the company, and every person who is a party to the non-compliance of issuing the prospectus as per the said section. The noticee is therefore liable for non-compliance with sections 56 and 60.

(d) By making a public issue of RPS, as discussed above, the Company had to compulsorily list such securities in compliance with section 73(1) of the Companies Act, 1956. As per section 73(1) Companies Act, 1956, a company is required to make an application to one or more recognized stock exchanges for permission for the shares or debentures to be offered to be dealt with in the stock exchange. The Company had failed to comply with this requirement, as observed in the final Order. Section 73(2) states that "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". As the Company failed to make an application for listing such securities, the Company had to forthwith repay such money collected from investors. If such repayments are not made within 8 days after the Company becomes liable to repay, the Company and every director is liable to repay with interest at such rate. The liability of the Company/directors to refund the public funds collected through offer and allotment of the impugned securities is continuing and such liability would continue till repayments are made. Accordingly, the noticee shall be liable for making refunds for the monies collected during his tenure as a director in the Company, till such liability is discharged by making refunds by Company/other directors who are liable.

(e) In view of the above observations and findings, the submissions of the noticees do not have merit. The present case involves directors in a company that has mobilized public funds from gullible investors through its offer and issue of securities without complying with the applicable laws. Such statutory provisions (sections 56, 60, 73) in the Company Act, 1956 are prescribed to – i. ensure that the investing public are aware about the company in which they were investing their money and the attendant risk such investment may carry, and also ii. provide for marketability of such securities and in the absence of the same, to return the funds collected from the investors, with or without interest in accordance with section 73(2) of the Companies Act, 1956.

8. In view of the above discussions, I hereby find the noticee also liable for the violation of sections 56, 60 and 73 of the Companies Act, 1956 read with the Companies Act, 2013, committed by the Company/its board of directors with respect to their offer and issue of RPSs and NCDs. The noticee shall also be liable for making refunds as provided under section 73(2) of the Companies Act, 1956 read with section 27 of the SEBI Act, and shall be jointly and severally responsible along with other as directed vide the Final Order. The Final Order had levied an interest @ 15% p.a. on the amounts that are due to be repaid to the investors. The noticee shall be liable to make refunds along with interest at 15%. The same is also in accordance with rule 4D (which prescribes that the rates of interest, for the purposes of sub-sections (2) and (2A) of section 73, shall be 15 per cent per annum) of the Companies (Central Government’s) General Rules and Forms, 1956 also.

9. In view of the above findings and observations, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11(1), 11(4), 11A and 11B thereof hereby issue the following directions:

(a) Thenoticee, Mr. Ameet Singh shall,jointly and severally along with the Company and others as ordered vide SEBI Order dated April 29, 2015,forthwith refund the money collected by the Company through the offer and issuance of Redeemable Preference Shares (which have been found to be issued in contravention of the public issue norms stipulated under the Companies Act, 1956), to the investors including the money collected from investors, pending allotment of securities, if any, with an interest of 15% per annum compounded at half yearly intervals, from the date when the repayments became due (in terms of Section 73(2) of the Companies Act, 1956) to the investors till the date of actual payment.

(b) Mr. Ameet Singh shall provide a full inventory of his assets and properties and details of all bank accounts, demat accounts and holdings of shares/securities, if held in physical form.

(c) All other directions issued vide SEBI Order dated April 29, 2015 in respect of making refunds and reporting of the same shall apply mutatis mutandis to Mr. Ameet Singh.

(d) In case of failure of the noticee to refund the monies as directed in this Order or on failure to comply with the directions, SEBI, on expiry of three months from the date of this Order,- (i) shall recover such amounts in accordance with section 28A of the SEBI Act including such other provisions contained in securities laws. (ii) may initiate appropriate action against the noticee, including adjudication proceedings, in accordance with law. (iii) would make a reference to the State Government/ Local Police to register a civil/ criminal case against the noticee, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and (iv) would also make a reference to the Ministry of Corporate Affairs for necessary action.

(e) Mr. Ameet Singh is restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, with immediate effect. He is also restrained from issuing prospectus, offer document or advertisement soliciting money from the public and associating himself with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with SEBI. The above directions shall come into force with immediate effect and shall continue to be in force from the date of this Order till the expiry of4 yearsfrom the date of completion of refunds to investors, as directed above.

(f) The above directions shall come into force with immediate effect.

10. This Order is without prejudice to any action, including adjudication and prosecution proceedings that might be taken by SEBI in respect of the above violations committed by the noticee.

11. Copy of this Order shall be forwarded to the recognised stock exchanges and depositories for information and necessary action.

12. A copy of this Order shall also be forwarded to the Ministry of Corporate Affairs/concerned Registrar of Companies, for their information and necessary action with respect to the directions/restraint imposed above against the noticee.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date: May 09, 2016 Place: Mumbai