Order against the past directors of Sun-Plant Business Limited viz. Shri Girija Shankar Kumar and Shri Awdhesh Kumar Singh

WTM/PS/26/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 Sunplant Business Limited In respect of – 1. Mr. Girija Shankar Kumar (PAN: AKAPK2774R/ DIN: 00355512) and 2. Mr. Awdhesh Kumar Singh (PAN: AKQPS6527G/DIN: 00301404)

Date of personal hearing: March 09, 2016 Appearance: Mr. Girija Shankar Kumar appeared in-person. Mr. Awdhesh Kumar Singh appeared along with Mr. B. Ghosh, Bar-at-Law. For SEBI: Mr. T. Vinay Rajneesh, Assistant General Manager and Ms. Nikki Agarwal, Assistant Manager

1. Securities and Exchange Board of India (“SEBI”) passed an Order dated June 03, 2015 (“the Order”) in the matter of Sunplant Business Limited (“the Company”), whereby the Company and its directors, Mr. Basant Kumar Sasmal, Mr. Amit Kumar Chowdhury and Mr. Mahesh Chandra Prasad were made liable for the contravention of sections 56, 60 and 73 of the Companies Act, 1956 and the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (DIP Guidelines) in respect of the offer and issuance of Redeemable Preference Shares (RPS) during the financial years – 2005-2006, 2006-2007 and 2007-2008. SEBI had directed the Company and others to refund the public funds mobilized under such offer and issuance of securities and also passed certain other consequential and attendant directions against them.

2. Thereafter, it came to the notice of SEBI that Mr. Girija Shankar Kumar and Mr. Awdhesh Kumar Singh (collectively referred to as “noticees”) were the directors in the Company from April 29, 2002 to April 30, 2011. In view of the same, they were alleged that they were also engaged in fund mobilizing activity from the public, in the capacity as directors during the relevant period, and have violated the provisions of law mentioned the above paragraph. Accordingly, SEBI issued an interim order cum show cause notice dated November 20, 2015, wherein the allegations were made and the following directions were issued: “In view of the alleged violations by the abovementioned past Directors, 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 Directors of SBL, viz. Shri Girija Shankar Kumar (PAN: AKAPK2774R; DIN: 00355512) and Shri Awdhesh Kumar Singh (PAN: AKQPS6527G; DIN: 00301404), 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; ii. The abovementioned past Directors of SBL are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, either directly or indirectly, till further directions; iii. The abovementioned past Directors of SBL shall provide a full inventory of all their assets and properties”.

The said interim order had also directed the said noticees 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 them:

i. Directing them jointly and severally to refund money collected through the Offer of preference shares alongwith interest, if any, promised to investors therein; ii. 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;

iii. Directing them to refrain from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period.

3. The interim order advised the noticees to file their response within a period of 21 days and also indicate whether they wish to avail an opportunity of personal hearing. The interim order was forwarded to the noticees vide SEBI letters dated November 23, 2015. The noticees were also advised to read this interim order along with the Final Order dated June 03, 2015 passed in respect of the Company and its directors.

4. Mr. Girija Shankar Kumar, vide his letter dated December 28, 2015 requested for further time of 45 days in order to gather relevant documents for sending a suitable reply. The noticee mentioned that this request was made for the other noticee i.e. Mr. Awdhesh Kumar Singh also. SEBI, on consideration of the request, advised the noticees vide letter dated January 19, 2016 that they are granted additional time till February 05, 2016 for filing their replies.

5. Thereafter, vide letter dated February 05, 2016, Mr. Awdhesh Kumar Singh made the following submissions:

(a) There were other past directors too in the Company apart from them. By issuing show cause notice to the noticees, SEBI has been selective. (b) He was appointed as a director in the Company on April 29, 2002 and resigned from the post on April 30, 2011. (c) When the noticees had resigned, the board of directors/management at that point in time have taken all the liabilities and absolved them from any sort of liability. Evidence in this regard was enclosed. (d) There were many assets of the Company against liabilities of preference shareholders. (e) He requested SEBI not to involve him with respect to any compliance with respect to the Company as there is document which has absolved him of the liabilities. He also stated that he is complying with SEBI’s instructions issued in the matter of Sunplant Agro Limited. (f) He also contended that he was not connected with the Company after his resignation.

The noticee had enclosed copy of an undated letter from the Company to him wherein it was stated that the noticee’s resignation dated April 30, 2011 was accepted in the board meeting held on the same day. The noticee was also informed that as on the date of his resignation, he had no liability towards the Company. It was further mentioned that the noticee would not be held liable in the future also and that the present directors have taken full responsibility towards the Company.

6. Mr. Girija Shankar Kumar, vide letter dated February 05, 2016 made the following submissions: (a) He had consented to act as an independent director of the Company. (b) The company is a separate legal entity having perpetual succession managed by the board of directors. In the instant case, though he was a director, he had received an NOC from Mr. B.K. Sasmal (managing director) at the time when he had resigned. (c) He had always acted in accordance with the MoA, AoA of the Company. His effort was to attain the main objects of the Company and to work for the interest of the shareholders. (d) As per section 166 of the Companies Act, 2013, when a director has discharged his duties with due diligence, reasonable care and skill and no knowledge of wilful default, he should not be held responsible for any act. He is therefore not covered with the purview of “officer in default”. As per the Companies Act, 2013, no director shall be held responsible if any act has been done or any breach occurred without his knowledge and without consent. (e) In view of his submissions, the noticee requested SEBI to absolve him in the matter.

7. In accordance with the principles of natural justice, the noticees were afforded an opportunity of personal hearing on March 09, 2016. In the personal hearing, Mr. Girija Shankar Kumar appeared in-person and referred to his reply and reiterated the submissions made therein. Mr. Awdhesh Kumar Singh appeared along with his representative. This notice also referred to his reply and reiterated the submissions made therein.

8. I have considered the final order dated June 03, 2015, the interim order cum show cause notice issued to the noticees, their submissions and other material available on record.

9. The final order dated June 03, 2015 passed in respect of the Company and its directors had conclusively held that the Company made a public issue of Redeemable Preference Shares (RPS) during FY 2005-06, 2006-07 and 2007-08 without complying with the public issue norms mandated under sections 56, 60 and 73 of the Companies Act, 1956 and also the provisions of the DIP Guidelines. The final order had also observed that the Company made a series of allotments during the aforesaid financial years. Further, the Company had admitted to have issued 41,74,300 RPS to 470 persons and mobilized Rs.4,17,43,000/- and had also mobilized Rs.1,58,61,000/- (pending allotment) from 229 persons.

10. In the present case, it is admitted position that the noticees were present as directors in the Company during the period – April 29, 2002 to April 30, 2011. It is relevant to note here that the Company was incorporated on April 29, 2002. It can therefore be seen that the noticees became directors when the Company was incorporated. The noticeeswere in the board of directors when the Company made the offer and allotted RPS, without complying with the public issue norms.

11. As regards the liability of the noticees, 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.

(b) Mr. Girija Shankar Kumarhas claimed that he was an independent director in the Company. However, he has not supported this claim with any document. From the Register of directors, managing directors, manager and secretary etc. (obtained from RoC, Kolkata) pertaining to the Company, it is noted that the noticee was appointed as a ‘director’ on April 29, 2002 and continued in such position till April 30, 2011.

Notwithstanding the observations made herein above, I note that independent directors do not have personal, material and pecuniary connection with the company or related to persons/entities/promoters. They are appointed for their expertise in a given field for constructive role in meetings/policies of a company, report unethical and oppressive activities, if any, noticed in the conduct of the company and also to report violation of law. Therefore, even if it is presumed that the noticee was an ‘independent director’, he ought to have ensured that the Company carried on its business in full compliance with the applicable law including the Companies Act, 1956.

(c) 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} (d) The noticees 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. The noticees, in the present case, were part of the Company’s Board of Directors for the period –April 29, 2002 to April 30, 2011. Accordingly, they 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.

(e) 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 noticees are therefore also liable for non-compliance with sections 56 and 60.

(f) 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 RPSs is continuing and such liability would continue till repayments are made. Accordingly, the noticees 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.

(g) In view of the above observations and findings, the submissions of the noticees do not have merit. Further, the said ‘NOC” from Company issued to the noticees, stating that they have no liability, shall have no validity in view of the statutory liability under the Companies Act, 1956 and DIP Guidelines including liability to make refunds under section 73(2). 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 and 73) in the Company Act, 1956 and the DIP Guidelines 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.

12. In view of the above discussions, I hereby find themalso liable for the violation of sections 56, 60 and 73 of the Companies Act, 1956 read with the Companies Act, 2013 and the DIP Guidelines, committed by the Company/its board of directors with respect to the offer and issue of RPS during 2005-06, 2006-07 and 2007-08, thereby mobilizing Rs.5.76crores(=Rs.4.17crore + Rs. 1.59 crore, i.e., amount raised against issue of RPS and the amount raised pending allotment)from the public investors. The noticees 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 Order had levied an interest @ 15% p.a. on the amounts that are due to be repaid to the investors. The noticees 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.

13. Mr. Awdhesh Kumar Singh has also submitted that there were other persons in the board of directors during the relevant period and that SEBI has been selective in issuing the interim orders against him and Mr. Girija Shankar Kumar.This submission has no relevance as SEBI has taken action against the past and present directors as per the records of the MCA.

14. 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. Girija Shankar Kumar and Mr. Awdhesh Kumar Singhshall,jointly and severally along with the Company and others as ordered vide SEBI Order dated June 03, 2015,forthwith refund the money collected by the Company through the 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 and DIP Guidelines), to the investors including the money collected from investors, till date, 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) The noticeesshall also provide a full inventory of their 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 Order dated June 03, 2015 in respect of making refunds and reporting of the same shall apply mutatis mutandis to the above noticees.

(d) In case of failure of the noticees 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 noticees, 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) The noticees, Mr. Girija Shankar Kumar and Mr. Awdhesh Kumar Singh arerestrained 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. They are 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 of 4 yearsfrom the date of completion of refunds to investors, as directed above.

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

15. 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 noticees.

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

17. 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 noticees.

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