Order in respect of Brooks Laboratories Limited and Others

Under Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read with SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, in the matter of- 1. Brooks Laboratories Limited (PAN: AACCB5316P); 2. Mr. Atul Ranchal – Chairman (PAN: ADMPR5359L); 3. Mr. Rajesh Mahajan- Managing Director (PAN: AFGPM8060D); 4. Mr. Durga Shankar Maity- Chief Executive Officer (PAN:AHNPM4221B); 5. Mr. Ketan Shah- Chief Financial Officer (PAN: BIUPS7078D) and 6. Ms. Parvinder Kaur – Company Secretary (PAN: BNQPK5210E). 1. Brooks Laboratories Ltd. ("Brooks/the company"), a company incorporated under the Companies Act, 1956, came out with an Initial Public Offering ("IPO") by way of an offer of equity shares to the public in the price band of `90/- to `100/-per equity share of face value of `10/- each aggregating `63 crores. The Red Herring Prospectus (RHP) was dated August 3, 2011 and the Prospectus was dated August 22, 2011. The bids opened on August 16, 2011 and closed on August 18, 2011. D&A Financial Services (P) Ltd. (hereinafter referred to as "D&A") was the Book Running Lead Manager ("BRLM") for the IPO.

2. The primary objective of the issue as stated in the prospectus was to set up a manufacturing unit at JB SEZ P. Ltd, Panoli, Gujarat for manufacture of various pharmaceuticals formulations, to meet long term working capital requirements and general corporate purpose.

3. Item-wise objects of the Issue as disclosed in the Prospectus were as under –

Sr. No. Object Total Estimated Cost (in crores) 1 Land 6.35 2 Building and Construction 12.20 3 Plant and Machinery 19.94 4 Utilities 11.00 5 Misc. Fixed Assets 2.30 6 Long Term Working Capital 5.00 7 General corporate purposes 3.28 8 Listing Fees to Stock Exchanges 0.01 9 Issue Expenses 2.92 Total 63.00 4. Securities and Exchange Board of India (hereinafter referred to as "SEBI"), received several complaints in respect of the said IPO of Brooks wherein it was alleged that on the listing day i.e. September 5, 2011 the price of the scrip went down and that a fraud was committed by the management of Brooks in collusion with the merchant bankers and other operators. In view of this, SEBI conducted a preliminary investigation into the alleged irregularities in the IPO of Brooks for the period from June 2011 to September 2011 (hereinafter referred to as the "Investigation Period").

5. Preliminary investigation by SEBI prima facie revealed suppression of material facts and mis-statements in the RHP and Prospectus; siphoning off and diversion of IPO proceeds by Brooks. Investigation also revealed that the BRLM to the IPO of Brooks had failed to exercise due diligence regarding various aspects of the issue including the veracity and adequacy of disclosure in the offer documents and issued due diligence certificates to Brooks without sufficiently verifying the facts. It was also seen that Brooks and D&A failed to disclose certain material information such as information regarding the raising of ICDs prior to the issue (and which were to be repaid from the issue proceeds, as detailed in the following paragraphs), which if disclosed, would have enabled the investors to take an informed investment decision.

6. On the basis of the aforesaid prima facie findings, SEBI, vide ad interim ex-parte Order dated December 28, 2011 inter alia prohibited Brooks, its directors and other key personnel from accessing the securities market and further prohibited it from buying, selling or dealing in securities market, directly or indirectly till further orders. Brooks was further directed to call back the ICDs advanced by it to several entities. Subsequently, as per the SEBI directions, the company deposited the unutilized proceeds of IPO, i.e. `14.40 crores in an escrow account. SEBI vide order dated July 9, 2013 also confirmed the directions of the ad-interim ex-parte order dated December 28, 2011 against Brooks and Mr. Atul Ranchal, Mr. Rajesh Mahajan, Mr. Durga Shankar Maity, Mr. Ketan Shah and Ms. Parvinder Kaur and vacated the interim directions against Ms. Monika Sabharwal and Mr. Lalit Mahajan, independent directors of the company. By an earlier order dated October 16, 2012, SEBI had vacated interim directions against Mr. Vivek Sharma, independent director of the company.

7. Pursuant to the interim order, an investigation was conducted into the alleged irregularities in the IPO of Brooks for the period from June 2011 to September 2011. Thereafter, SEBI issued a common Show Cause Notice ("SCN") dated November 12, 2013 to the following: (1) Brooks Laboratories Ltd. ("Noticee No.1"), (2) Mr. Atul Ranchal – Chairman ("Noticee No.2"), (3) Mr. Rajesh Mahajan- Managing Director ("Noticee No.3"), (4) Mr. Durga Shankar Maity- Chief Executive Officer ("Noticee No.4"), (5) Mr. Ketan Shah- Chief Financial Officer ("Noticee No. 5") and (6) Ms. Parvinder Kaur – Company Secretary ("Noticee No.6") (collectively referred to as 'Noticees').

8. The SCN contains the following allegations against the Noticees: i. failed to make disclosures of material facts in the Prospectus such as:- a. Non–disclosure of funds raised through Inter Corporate Deposits ("ICDs") vide Board Resolutions dated May 25, 2011, July 2, 2011 and July 21, 2011, which were in the nature of a bridge loan/short term loan.

b. Non–disclosure of (i)appointment of Suryamukhi Projects Pvt. Ltd as project contractor as also the (ii) an advance payment of `15.30 crores (full amount of the contract to Suryamukhi; c. Non–disclosure of (i)Appointment of Neo Power Universal FZ LLC, UAE as Supplier for plant and machinery and (ii) making an advance payment of `13.97 crores to Neo Power (substantial amount of the contract). ii. siphoned off and diverted IPO proceeds:- a. through purchase orders. b. through repayment of ICDs raised from certain related entities prior to the issue. iii. failed to comply with certain directions contained in the Interim Order (applicable only to Brooks).

In view of the above, it was alleged that the Noticees violated the provisions of Regulations 3 (a), (b), (c) and (d) and Regulations 4 (1), 4 (2) (d), (e), (f) and (k) of PFUTP Regulations read with sections 12 A(a), (b) and (c) of SEBI Act and Regulations 57(1), 60 (4) (a), 60(7) (a) and Clauses 2 (VII) (G), 2 (XVI) (B) (2) of Part A of Schedule VIII read with regulation 57(2) (a) of ICDR Regulations.

9. Subsequently, Noticees nos. 1-4 submitted an application for consent on December 2, 2013. However, the said application was rejected and vide letter dated July 31, 2014, SEBI communicated the same to the Noticees. Thereafter, the Noticees were granted opportunities of hearings on January 07, 2015 and February 27, 2015. The Noticees vide their letters dated February 26, 2015 and February 27, 2015 submitted replies to the SCN. The Noticees sought adjournments in the matter and finally, another opportunity of hearing was granted to the Noticees on April 21, 2015 as requested by the Noticees.

10. The hearing on April 21, 2015 was attended by the Authorised Representatives of Noticees viz. Mr. Kumar Desai along with Mr. Apurv Gupta -Advocates for Brooks and Mr. Vinay Chauhan- Advocate for Noticees nos 2-6. During the hearing, the said authorized representatives reiterated the submissions made in their aforesaid replies. The Noticees were granted further time upto April 30, 2015 to file additional written submissions if any. The Noticees made additional written submissions vide letters dated May 14, 2015.

11. The main submissions of Noticees in their replies/written submissions dated February 26, 2015 and February 27, 2015 inter alia, are as under: 1) " Brooks Laboratories Ltd (“Brooks”/“The Company”) was incorporated on January 23, 2002 under the Companies Act, 1956. The Company is a pharmaceutical research and manufacturing service Company having set up a well equipped manufacturing facility at Baddi, Himachal Pradesh. It manufactures wide range of products catering to the critical care segment.

2) The Company has consistently been a profit making company since inception and in the last four financial years viz. 2009-10, 2010-11, 2011-12, 2012-13, we have made a profit of Rs 5.17 crores, Rs 6.89 crores, Rs 8.84 crores and Rs 7.14 crores respectively.

3) In the year 2009, Brook's manufacturing unit at Baddi, Himachal Pradesh was running with very good profit. The Company's consistent profitable performance made us to look for expansion and growth. After scrutinizing various options, the Company opted for setting up a Pharmaceutical Formulation Plant at Gujarat in a Pharmaceutical Special Economic Zone (SEZ) named JB SEZ.

4) In order to meet the capital requirement for our proposed expansion, the Company decided to come out with an IPO after being suggested of the same by Mr. Dinesh Kaushik of D & A Financial Services Private Limited. Subsequently, the Company engaged D & A Financial Services Private Limited ( D&A) as the Lead Merchant Banker in our IPO and a Memorandum of Understanding ("MoU") dated November 24, 2010 was entered into between us and D & A for that purpose.

5) Post appointment as Lead Merchant banker to the issue, D & A sought various documents / clarifications from the Company from time to time, conducted site visits/ inspections, conducted due diligence of the affairs of the Company for the purpose of drafting offer document and making appropriate disclosures in the same. The Company at all points of time religiously provided all the documents/ clarifications to D& A as and when sought by it. During the Issue process, the Company had kept D & A in loop with regard to all its activities / decisions.

6) Subsequently, the Draft Red Herring Prospectus (“DRHP”) was filed with SEBI on 25.11.2010. The main objects of the IPO were disclosed in the offer document. Requisite application seeking in-principle approval from the stock exchanges was filed on 26.11.2010. The in-principle approval of the stock exchanges for listing of the securities so proposed to be issued was also obtained on 23.12.2010.

7) In February 2011, the Government of India, in the annual budget, proposed to cut tax incentives offered on SEZs. The Government of India also proposed a deadline of March 31, 2012 for setting up manufacturing units in any SEZ to avail tax benefits. In view of the same and since the IPO document of the Company was pending clearance and there was no clarity of time frame within which the same would be cleared. In light of said, we started exploring the possibility of raising funds for short period in order to commence work in the project.

8) It is pertinent to note that the procurement of plant and machineries and the civil work at site was required to go simultaneously. The machineries were to be procured at early stage of construction of building of a plant, because few machineries are required to be installed when building is being erected. It is not feasible to install some machines after completion of the building. Land was already tied up by the Company at the relevant time, only impediment was lack of requisite infrastructure, which the Company was pursuing with JB SEZ for providing the same expeditiously.

9) It was in this background, sometime around May 2011, the Company started exploring short term funding option for its project activities as disclosed in the offer document. Over a period spanning between May-July 2011, Brooks raised an amount of Rs.30.40 crores. To ensure that preference and priority is given to the job so as to meet the deadline of March 31, 2012, the Company, at the request of Suryamukhi paid an amount of Rs.15.30 crores for procurement of material required for erection of plant at the proposed site in JB SEZ. This amount was paid out of the ICDs raised by the Company.

10) For the purpose of supplying machines, based on the request of Neo Power, the Company released an advance to expedite the procurement of machineries keeping in mind the March 2012 deadline.

11) Post placing the said orders for machinery with Neo Power and giving mandate to Suryamukhi for civil work, the Company vigorously started pursing with JB SEZ for providing the requisite infrastructure facilities, so that the Company could acquire the land and commence its project at the site and complete it before March 2012 deadline.

12) Brooks had at all the relevant times, kept the merchant banker informed and appraised of the facts and all necessary developments including resolutions passed at board meetings for raising ICDs and the details of the accounts. However at no point of time did the Merchant Banker advise Brooks to make any new disclosures in the RHP.

13) On approval of DRHP, we filed RHP with SEBI. After approval of RHP on August 01, 2011, the IPO opened on August 16, 2011 and closed on August 18, 2011. The issue was successful and was subscribed 1.76 times. The shares of the company were listed on stock exchanges on September 05, 2011. On September 2 & 3, 2011 the Company received the total sum of Rs.61,03,07,312 (after deduction of issue related expenses) as issue proceeds. Out of the said proceeds, the Company repaid an amount of Rs.30.40 crores (along with interest after deducting TDS) towards the ICDs availed by the Company. Further, the Company parked Rs.14.40 crores in the fixed deposit and the remaining balance of IPO was temporarily utilized by the company for the purpose in consonance with disclosures made in the prospectus.

14) Here it may be most pertinently noted that to put any machinery for the project in the State of Gujarat, prerequisite is that the Company must be registered under VAT under VAT Act 2003. For obtaining registration under VAT, prerequisite is that the Company, which is setting up the manufacturing plant shall either own the land or has lease land. Further apart from the VAT registration, the Company must be registered with the Excise Department, the Company should hold membership of Industrial Entrepreneurs Memorandum with the Union Government of India, the Company should have license from Directorate General of Foreign Trade to import machinery. Since the land for the project was not ready for the external reasons over which we had no control, no headway could have been made by the Company and there was no point for Neo power to deliver machinery to us, as the same would have created further complications for the Company. It was in these circumstances we had requested Neo Power not to deliver the machineries procured by it.

15) Keeping in view the sluggish development at JB SEZ, Panoli, lack of infrastructure development and reduced incentives for manufacturing plants in SEZ, overall subdued interest of the manufacturers towards SEZ due to policy paralysis, the Board of the Company, in the best interests of the company and its shareholders, convened a meeting on December 17, 2011 to decide about shifting of project from SEZ to Domestic Tariff Zone (DTZ). In the said Board meeting it was decided to go for postal ballot process to pass a resolution in this regard. Accordingly, postal ballot process was initiated on December 17,2011 and executed by registrar Link In Time and intimation in this regard was duly made to Registrar of Companies on December 22,2011.

16) In the meantime, SEBI passed the ad interim ex-parte order dated December 28, 2011 prohibiting the Company, its Promoter and Directors from accessing the securities market and from buying, selling or dealing in securities market, directly or indirectly, till further orders. The Company was also prohibited from raising any further capital from securities market, in any manner whatsoever, till further directions. The Company was also directed to call back the ICDs/money advanced by it to Suryamukhi and Neo Power, and to deposit the amounts together with all the IPO proceeds that were lying unutilized with the Company across all its banks/ deposit accounts or any investments including mutual fund, in an interest bearing account with a Scheduled Commercial Bank.

17) Consequently, the Company deposited an amount of Rs.14.40 crores in the fixed deposit as directed. With regard to the advance payment to Suryamukhi and Neo power, the company wrote to Suryamukhi and Neo power recalling the amounts advanced. Pursuant to recall notices issued by the company, Suryamukhi and Neo Power informed the company that they have already taken steps to execute the order of the company and hence cannot return the advances paid to them. As on date, an amount of Rs 17.15 crore and Rs 77.13 lakhs after accretion of interest are lying in an escrow account subsequent to the directions of SEBI.

18) The shareholders had approved the proposal for change in the site of the project. Since, the balance IPO proceeds were deposited in the Escrow Account as per the directions of SEBI, the Company was severely handicapped financially. The Company infused funds through internal accruals to procure land at the alternate site at Vadodara by way of agreement dated March 09, 2012.

19) Post procuring the land, the Company requested Suryamukhi to start civil work. Suryamukhi took charge of civil work at the site on March 09, 2012 and conducted surveys and obtained necessary approvals and permissions from authorities. Subsequently, in November 2013, we have also acquired adjacent land for the project.

20) With regard to alleged non-disclosures as alleged in the SCN, it is submitted that at the relevant time Brooks had kept the BRLM in loop about all its decisions/ activities ( pertaining to raising monies by way of ICDs, awarding the project to Suryamukhi, entering into agreement with Suryamukhi, placing orders with Neo Power and making payments to Suryamukhi & NeoPower etc). However, at no point of time did the Merchant Banker advise Brooks to make any new disclosures in the RHP. Brooks was totally relying on the BRLM with regard to the IPO process and the preparation of the RHP/prospectus and the disclosures to be made therein.

21) With regard to ICDs amount advanced to Suryamukhi and Neo Power, the Company submitted "Pursuant to the recall notices issued by the company, Suryamukhi informed that it cannot return the amounts as it has already tied up with sub-contractors and had also procured the materials. Suryamukhi also informed that it was ready to start the construction immediately as and when required by the Company. In so far as Neo Power is concerned, it informed that following machines viz., BSF Bottle Pack 4010(main machine) and ancillary items of plant have already been procured and could be delivered/shipped as and when required by the Company. Regarding the remaining machines, Neo Power informed that it will treat the order as cancelled in view of the directions of SEBI.

22) On acquisition of the project land, we requested Neo Power for shipping the BSF Bottle Pack 4010 and ancillary items bought on the Company's behalf as the same was required to be installed first during the civil work. Neo Power shipped the machinery and the Company received the same on May 17, 2012.

23) The following amount was utilised from the issue proceeds viz. Rs.562 lakh for land acquisition, Rs.498 Lakh for building construction and Rs.1104 Lakh for plant/machinery/utilities. Subsequently, SEBI had passed order dated July 09, 2013 inter-alia confirming direction issued against the Company.

24) From the aforesaid, it can be seen that funds given by the Company to Suryamukhi and Neo Power was for the purpose of carrying out civil work and supply of machinery. Therefore, it was wrong to allege that funds were siphoned off. Every single penny utilized by the Company from its own fund as well as IPO fund is duly accounted for.

25) It is denied that there was any siphoning off funds to the tune of Rs. 8 crores from the IPO proceeds as alleged. The said allegations are based on erroneous understanding of the factual position and are based on mere surmises and conjectures.

26) At the relevant time we were not aware that all the said entities through whom we had raised the ICDs are related entities and the same was of no concern to us as they were introduced to us through a chartered accountant in our business circle. At the relevant time there was nothing adverse about the said entities in public domain. Here, it may be appreciated that we were borrowers and not the lenders and our main concern was to raise funds on terms acceptable to us.

27) It may be appreciated that while borrowing funds, we were not aware of the sources of the funds of the Lenders and the same was of no concern to us. Similarly, while making payments to Suryamukhi, our limited concern was that we get the desired services for which they were engaged, which they have been delivering religiously. We are not aware of the subsequent fund transfers done by Suryamukhi to others and the same is of no concern to us. We have no control over Suryamukhi or its affairs. We have an arm’s length relationship with Suryamukhi.

28) The allegation of round tripping of funds (to the extent of Rs.8 crores out of total IPO proceeds of Rs.63 crores) is based on further transfer of funds by Suryamukhi to others, who in turn have allegedly given funds to us by way of ICDs.

29) Nothing has been brought on record to even remotely demonstrate as to how we were allegedly aware of the subsequent transfer of funds by Suryamukhi. In this context, it is submitted that the funds which we have given to Suryamukhi have been duly accounted in our books and for the same we have received services i.e. Consultancy and execution of architectural design, civil work, electrical installations, etc. There is no dispute over flow of funds from the Bank accounts of the Lenders to our Bank account and from our Bank account to the Bank account of Suryamukhi. Copies of the bills raised by Suryamukhi from time to time for the various services provided for the project are annexed.

30) As on date, more than Rs.16 crores has already been incurred on the project. A valuation Report from Government Approved Valuer is annexed. Therefore the issue of alleged siphoning off cannot arise.

31) Save and except this allegation of siphoning off, there is nothing on record to suggest that we are the beneficiaries and nor there is any allegation by SEBI that we have been the beneficiaries. Further, it has also not been demonstrated as to how the funds have come back either to the promoters or directors of the Company directly or indirectly in any manner.

32) It is denied that the amount paid by Blue Print, Shardaraj, Sunshine and Konark aggregating to a sum of Rs.8 crores to us as ICDs were nothing but Rs.7 crores received from Shitalnath as alleged. It may be noted that we had individually and separately received funds from Shaitalnath, Blue Print, Shardaraj, Sunshine and Konark. We are not aware about the source of funds of Shitalnath, Blue Print, Shardaraj, Sunshine and Konark and nothing has been brought on record to show that we were aware of the same. Admittedly, at the relevant time (i.e. during 30.5.2011 to 3.6.2011), we have only received the funds.

33) As on date, an amount of Rs. 7,12,74,019/- had been spent as land cost, an amount of Rs.13,97,49,287/- as the cost of machinery and an amount of Rs. 15,30,00,000/- as the cost of construction. Further, an amount of Rs. 15, 86,30,701/- is lying frozen in the interest bearing account of State Bank of India as per the directions of SEBI.

34) Further, it has not even been alleged that by the alleged siphoning off of the funds, either the Company or its promoters / directors have benefited in any manner.

35) Neither we nor any of the promoters or director is even remotely connected with any of the entities as referred to in the para. No link or connection has been established between the Company or its directors with the said entities from whom the funds were raised through ICDs and repaid with interest.

36) In so far as agreement dated June 1, 2011 entered into by Suryanmukhi and us, no adverse inference can be drawn merely because the same is not on stamp paper. Admittedly, the parties to the agreement are abiding by term of Agreement.

37) It is denied that order as placed with Neopower without quotation as alleged. In this context it may be noted that based on the interactions, discussions and presentations, we had placed the orders with New Power. In so far as payment of advance to Neo Power is concerned it may be noted that, based on the request of Neo Power the Company released advance to Neo Power to expedite the procurement of machineries keeping in mind the March 31, 2012 deadline, as stated in earlier paras.

38) With regard to non-mentioning of name of Neo Power in the prospectus, it is submitted that the list of suppliers and machinery was only indicative and the end use of machines was same. Further, all the documents including the quotations were duly provided to the BRLM. We were totally relying on the BRLM with regard to the IPO process and the preparation of the RHP/ Prospectus and other relevant documents as required to be done by the BRLM in the IPO process.

39) We have already suffered debarment for a period of more than 3 years as on date and the debarment continues. As a result of the punitive directions, the growth of the Company has already impeded and suffered considerably to the detriment of not only the Company but also its shareholders. There are no complaints against us either by our clients/investors or anybody else.

40) We have fully cooperated in the proceedings with SEBI. We have an impeccable track record, and no history of non-compliance, save and except under these proceedings. The violations as alleged in the Notice are technical, venial and unintentional.

Reply of Noticees Nos. 2 – 6

41) Since part of the charges in the SCN pertain to the Company / Brooks, we adopt the detailed reply dated January 31st, 2014 filed by the Company, inter alia refuting the allegations in the Notice, issued in the adjudication proceedings, in order to avoid repetition.

42) We specifically deny that we have violated any of the provisions of the SEBI Act or the Regulations as alleged. We deny that there was non-disclosure of material information in the prospectus or that there was misstatement in the prospectus or that there was misutilisation of the issue proceeds as alleged, as all acts done by us were bonafide in nature and under the supervision and instructions of the Management.

43) Over the years, we have built a very strong professional reputation with sustained good work conduct and sound integrity. we have a clean track record without any history of non-compliance. We are not connected to any of the entities or their directors as referred to in the SCN.

44) There is nothing to indicate in the SCN that we have made any gains or derived unfair advantage. The Violations as alleged in the SCN are technical, venial and unintentional. Our conduct has all along been bonafide. All the disclosures were made bonafide, dehors sinister intent or design.

45) We have already suffered disproportionately for the alleged violations. Debarment already suffered is sufficient and no further imposition of monetary penalty is warranted.

46) Charges in the SCN are predominantly arising from the decisions taken by the Company regarding short term finance/ICDs, appointment of project contractor and placement of purchase orders for plant and machinery. It is pointed out that all the above decisions were taken in a bonafide manner in the best interests of the Company.

47) Noticee No. 4 (Mr. Durga Shankar Maity) made the following submissions in his letter dated February 27, 2015 “I have joined the company as a General Manager in March 2006 and later appointed as Director-Technical since September, 2010. I have a total work experience of more than 24 years. Before joining Brooks, I had worked at M/s Unimark Remedies Limited, M/s Venus Remedies Limited and Paam Pharmaceutical (Delhi) at senior positions. I had joined the Company as it was looking at setting up of a plant. At present, my job profile includes Production, Quality Control & Quality Assurance and I am working on a fixed compensation of ` 1,06,000 per Month without any perks.

48) Noticee No. 5 (Mr. Ketan Shah) made the following submissions in his letter dated February 26, 2015 “I resigned as a Chief Financial Officer of Brooks in October, 2014. At the relevant time, I was working as a salaried employee of the Company on a monthly remuneration of _ 75,000/- without any perks.I joined Brooks Laboratories in December 15, 2010. I am Chartered Accountant by profession. My work profile includes supervising accounts departments, liaisoning with Bank and other financial institutions, preparation of budget for cost control among others. I was not a director of the Company. Charges in the Notice are predominantly arising from the decisions taken by the Company to enter into an agreement dated June 01, 2011 to appoint Suryamukhi as the project contractor, wherein I was the authorized signatory and also signed the prospectus declaring that all the statements therein were true and correct. I may like to point out that all the decisions regarding appointment of Suryamukhi as project contractor were taken in a bonafide manner by the Company and in the best interests of the Company. Further, all the statements and disclosures made in the prospectus are true and correct.”

49) Noticee No. 6 (Ms. Parvinder Kaur) made the following submissions in his letter dated February 26, 2015 “I have resigned as a Company Secretary of Brooks since February 2012, due to certain personal problems. At the relevant time, I was working as a salaried employee of the Company on a monthly remuneration of Rs 26,000/- without any perks. My work profile included setting forth policies and adherence to the rules for the preservation of price sensitive information among others. I never held any shares in the Company. I have never traded in the shares of the Company and no such allegation of making any trading gains is also leveled against me. Charges in the SCN are predominantly arising from the decisions taken by the Board in its variousmeetings held on May 25, 2011, July 02, 2011 and July 21, 2011. I was not a party to those decisions, since I was not a member of the Board.”

Written submissions by Brooks dated May 14, 2015: 50) Company is in need of IPO funds lying frozen in Escrow Account pursuant to SEBI’s directions:

• As stated hereinbefore, pursuant to SEBI’s directions a total amount of Rs 15.05 crores is lying frozen in escrow account. The said amount belonging to the Company is lying idle for the last more than 3 years now and the Company, though in dire need of funds for its project, is not in a position to utilise it and has been forced to raise funds from Banks at exorbitant rates of interest for its project.

• Further, since the funds lying in the Escrow account are earning interest, the same is income in the books of the Company and the Company has to pay income tax on the said interest amount. In fact, every year Company has to pay an income tax of around Rs 40 lakhs, that is around 30% of the interest that is accrued on this fixed deposit.

• Same has lead to a piquant situation, wherein on the one hand Company is paying tax on the interest earned leading to outflow of monies, on the other hand as a result of SEBI’s directions the Company is not in a position to touch the said amount of Rs 15.05crores lying in the escrow account and the interest earned on this amount.

• As on date, the Company has placed orders for supply of machineries/utility and mechanical works from various suppliers for its project to the tune of around Rs 20 crores. Against the said total amount of Rs 20 crores, the Company has already paid a total advance of Rs 3.55 crores to the suppliers. The balance amount of Rs 16.45 crores is payable by the company in due course. The details of orders placed with various suppliers as on January 2015 and the details of advance payments made and the details of balance amounts payable as on that date were submitted vide Reply dated February 26, 2015.

• Accordingly, it is requested that Company be permitted to pay an amount of Rs 16.45 crores from the escrow account to its suppliers.

• While considering the aforesaid request it may be appreciated that due to the ongoing SEBI proceedings and consequent delay in setting up the plant including the financial constraints placed by SEBI on Brooks by directing it to deposit Rs 15.05 crores (Rs 14.4 crores and Rs 65 lakhs) in the Escrow Account, Brooks has already suffered a delay in its expansion plans and same has hampered its profitability. Same has also indirectly adversely affected the interests of the public shareholders of the Company.

In the circumstances, it is prayed that :

The charges in the Notice against Brooks be dropped and the directions issued vide Order dated 28.12.2011 and confirmed vide Order dated July 9, 2013 against Brooks be lifted.

Brooks be allowed to utilize the amounts lying frozen in escrow account for the purpose of its project.

Consideration of Issues and findings:

12. I have considered the SCN issued to the Noticees alongwith the documents provided therein, replies and the submissions made by the Noticees during the personal hearing, additional written submissions furnished by the Noticees and the material available on record. In light of the same, I shall now proceed to deal with the charges levelled against the Noticees. The charges levelled against the Noticees have been mentioned in the preceding Paragraph No.8 at page no. 3.

13. Before dealing with the aforesaid charges in seriatim, the relevant legal provisions, the contravention of which have been alleged in this case may be reproduced hereunder for reference purpose:- SEBI Act 12A. No person shall directly or indirectly – (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder; PFUTP Regulations "3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder. 4. Prohibition of manipulative, fraudulent and unfair trade practice (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:- (d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or money’s worth for inducing such person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in the price of such security; (e) any act or omission amounting to manipulation of the price of a security;

(f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities; (k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors; ICDR Regulations Manner of disclosures in the offer document. 57. (1) The offer document shall contain all material disclosures which are true and adequate so as to enable the applicants to take an informed investment decision. (2) Without prejudice to the generality of sub-regulation (1): (a) the red-herring prospectus, shelf prospectus and prospectus shall contain: (i) the disclosures specified in Schedule II of the Companies Act, 1956; and (ii) the disclosures specified in Part A of Schedule VIII, subject to the provisions of Parts B and C thereof.

Public communications, publicity materials, advertisements and research reports. 60 (4) The issuer shall make prompt, true and fair disclosure of all material developments which take place during the following period mentioned in this sub-regulation, relating to its business and securities and also relating to the business and securities of its subsidiaries, group companies, etc., which may have a material effect on the issuer, by issuing public notices in all the newspapers in which the issuer had issued pre-issue advertisement under regulation 47 or regulation 55, as the case may be: (a) in case of public issue, between the date of registering final prospectus or the red herring prospectus, as the case may be, with the Registrar of Companies, and the date of allotment of specified securities; 60 (7) Any advertisement or research report issued or caused to be issued by an issuer, any intermediary concerned with the issue or their associates shall comply with the following: (a) it shall be truthful, fair and shall not be manipulative or deceptive or distorted and it shall not contain any statement, promise or forecast which is untrue or misleading;

Disclosures in Red Herring Prospectus, Shelf Prospectus and Prospectus Clause 2 of Part A of Schedule VIII An issuer making a public issue of specified securities shall make the following disclosures in the offer document. However, an issuer making a fast track issue of specified securities may not make the disclosures specified in Part B of this Schedule in the offer document. Further, an issuer making a further public offer of specified securities may not make the disclosures specified in Part C of this Schedule, in the offer document, if it satisfies the conditions specified in para 2 of that Part: VII (G) Sources of Financing of Funds Already Deployed: The means and source of financing, including details of bridge loan or other financial arrangement, which may be repaid from the proceeds of the issue. XVI (B) (2) The signatories shall further certify that all disclosures made in the offer document are true and correct." 14. Let me now discuss the charges levelled against the Noticee and the submissions made: I. Non Disclosure in RHP / Prospectus. i. Non Disclosure of funds raised through ICDs prior to the issue: 15. As per the SCN, the Noticees were alleged to have failed in making material disclosures regarding the funds raised through ICDs, which were essentially in the nature of a bridge loan. Brooks passed resolutions in board meetings held on May 25, 2011, July 2, 2011 and July 21, 2011 to raise funds through short term unsecured loans to fund its capital expenditure and raised `30.40 crores from 12 entities in the form of ICDs. However, disclosures regarding said ICDs were not made in the RHP/Prospectus dated August 03, 2011 and August 22, 2011 respectively.

16. As regards the said allegation, the Noticees have submitted that funds were raised through ICDs for the following: • for its project activities (to set up a manufacturing unit at JB SEZ P. Ltd, Panoli, Gujarat) as disclosed in the offer document.

• To avail tax incentives offered on SEZs by the Government (As the deadline was March 31, 2012 for setting up manufacturing units in any SEZ to avail tax benefits.) The Noticees stated that they were totally relying on the BRLM with regard to the IPO process/preparation of the Offer Document and all the documents asked for were furnished to the BRLM.

17. In this regard, I note that the SCN also alleges that meeting of the Board of Directors of Brooks was convened and certain resolutions were passed to raise funds to the tune of `30.40 crores through ICDs from the mentioned below entities, in order to fund its capital expenditure. Details of board meetings and resolutions are as under: Date of Name of the entity from Amount Date of Board Board whom ICDs were raised (in ` cr.) meeting when meeting minutes were approved. Shital Nath Buildcon P. Ltd. 15.00 Blue Print Securities Ltd. 1.00 May 25, 2011 Konark Commerce & Industries 5.50 June 8, 2011 Ltd. Shardaraj Tradefin Ltd. 0.50 Bankebehari Commercial P. Ltd. 1.00 Dream Valley Sales P. Ltd. 1.00 Jagdhatri Dealcomm P. Ltd. 1.35 July 02, 2011 July 21, 2011 Pioneer Prodev P. Ltd. 0.65 Pushpanjali Commotrade P. Ltd. 1.00 Shyama Properties P. Ltd. 2.00 Sunshine Housecon Ltd. 1.00 July 21, 2011 July 25, 2011 Hillston Advisors P. Ltd. 0.40 TOTAL ` 30.40 18. It can be seen from the above paragraph 17 that funds amounting to `30.40 crores were raised by Brooks through ICDs, during a period of 2 to 3 months prior to the IPO (issue opened on August 16, 2011 and closed on August 18, 2011). However, necessary disclosures pertaining to the aforesaid ICDs were not made by Brooks in its RHP dated August 3, 2011 and the prospectus dated August 22, 2011, which was mandated as per Regulations 57(1), 57(2)(a), 60(4)(a) and 60(7)(a) of the ICDR

Regulations and Clause 2(VII)(G) of Part A of Schedule VIII of the ICDR Regulations.

19. It is observed from page 77 of the Prospectus that under the heading Bridge Loan it was stated "We have not entered into any bridge loan facility that will be repaid from the Issue Proceeds". However, it is noted that Brooks passed resolutions in its board meetings held on May 25, 2011, July 2, 2011 and July 21, 2011 to raise funds through short term unsecured loans to fund its capital expenditure and borrowed Rs. 30.40 crores from 12 entities. From the submissions of Brooks, it is noted that "on September 2 & 3, 2011 the Company received the total sum of Rs.61,03,07,312 (after deduction of issue related expenses) as issue proceeds. Out of the said proceeds, the Company repaid an amount of Rs.30.40 crores (along with interest after deducting TDS) towards the ICDs availed by the Company". This clearly reveals that the liability arising from the repayment of ICDs was effectively tagged to the IPO proceeds thereby indicating that ICDs were nothing but a bridge loan taken by the Noticees. Non disclosure of such material fact was clearly in violation of Clause 2(VII)(G) of Part A of Schedule VIII of the ICDR Regulations detailed on page 19. Noticees have also contended that all documents were provided to the BRLM and that the BRLM did not advise them to make the disclosure regarding this fact. This contention is untenable as the Noticees cannot absolve themselves of their responsibility for making prompt, true and fair disclosure of all material developments in the RHP/offer document. The Noticees failed to disclose vital information of raising funds to the tune of `30.40 crores and its proposed repayment out of issue proceeds in the Offer Document. The investing public was hence deprived of the information that their money was being used for the repayment of moneys raised by issuance of ICDs prior to the issue. It is thus clearly established that the Noticees failed to disclose vital information and material facts in the Offer Document in respect of these ICDs.

ii. Non-Disclosure of Appointment of Suryamukhi It has been alleged in the SCN that while appointing contractor for the purpose of construction of building, another builder had given a quotation of `12.20 crores to Brooks as against `15.30 crores by Suryamukhi. However, in spite of a lower quotation, Brooks appointed Suryamukhi Projects Private Limited ("Suryamukhi") a project contractor for an amount of `15.30 crores on June 1, 2011. Furthermore, the entire amount was paid as an advance to Suryamukhi for carrying out project work. This was done without any infrastructure being developed at the project site. This important fact was not disclosed in the RHP/Prospectus. It is also alleged that the said agreement was executed on a plain letter head, contrary to the "normal practice that a contract of such size and magnitude is entered on a stamp paper and registered".

20. As regards the aforesaid, Noticees submitted that at the relevant time they had kept BRLM in loop about the decision to award the project to Suryamukhi. Noticee further contended that they were totally relying on the BRLM with regard to the IPO process. It is further stated that in May 2011, Noticees shortlisted Suryamukhi for carrying out the project work at the proposed project site at JB SEZ Panoli to meet the deadline of March 31, 2012 to avail tax benefits as proposed by the Government of India in the Annual Budget to cut tax incentives offered on SEZs. The other bidders are Architects and not “project contractor” and they had given an estimate for the proposed work which was limited and restricted to “Civil Work” alone. However, the agreement with Suryamukhi envisaged much wider gamut of activities to be executed viz. designing of the entire facility, execution of civil work and electrical job etc. Merely because the quotation of another builder was low, no adverse inference can be drawn for choosing Suryamukhi in the facts and circumstances. No adverse inference can be drawn on the basis that the agreement dated June 1, 2011 between Suryanmukhi and Brooks was not executed on stamp paper. An amount of `15.30 crores was paid by Brooks (out of the ICDs) at the request of Suryamukhi for procurement of material required for erection of plant at the proposed site in JB SEZ.

21. I observe that Brooks entered into an agreement with Suryamukhi dated June 1, 2011 for Suryamukhi providing consultancy and execution of architectural design, civil work, electrical installations, etc. From the bank statements it is noted that Brooks paid `4 Crores on June 01, 2011, `6 crores on June 03, 2011, `5 Crores on June 04, 2011 and `30 lacs on August 19, 2011( total `15.30 crores). However, no disclosures were made in the RHP dated August 03, 2011, or subsequently in the offer document dated August 22, 2011.

Furthermore, I find that Brooks has made the following declarations in the offer document (page 15 paragraph 6): i. “We have not yet entered into definitive agreements to utilize the Net Proceeds of the Issue The projects intended to be financed from the Net Proceeds of this Issue are currently in initial stages of implementation. Further, as on the date of this Prospectus, our Company has not entered into any definitive contracts or placed any orders for purchase of plant & machineries required for the proposed project at Panoli, Gujarat...........”

ii. It is also noted that the Noticees mentioned the cost of building construction at `12.20 crores in the RHP (page 70) and the Offer Document (page 69). It was therefore clearly conveyed to the investors that the total cost of construction was going to be `12.20 crores which, incidentally, was the lower of the two quotations received by Brooks. Brooks however not only awarded the contract to Suryamukhi at a much higher price of `15.30 crores but also gave the entire amount as advance even prior to completion of the acquisition of the proposed site/land for the project.

22. In the light of the aforesaid discussions, it is clearly established that the Noticees failed to disclose in the RHP, or later in the Offer Document the fact that a definitive contract was already awarded to Suryamukhi and also that the full contract amount of `15.30 crores was also already paid in advance. Furthermore, by mentioning the total cost of construction as `12.20 crores, Brooks also made a wrong disclosure in the offer document as regards the amount involved.

iii. Non- Disclosure of Appointment of Neo Power as Supplier :

23. It is alleged in the SCN that apart from Suryamukhi, the funds raised by Brooks in the form of ICDs were also transferred to Neo Power Universal FZ LLC, UAE ("Neo Power"), a company manufacturing equipment and machinery.

24. It is alleged that names of suppliers based in India, viz. Ambika Pharma Machines (P) Ltd., Metal Chem Industries and Cemach Machineries Ltd., etc. from whom quotations were received for supply of plant & machinery, utilities etc., were disclosed in RHP. However, the name of Neo Power to whom the contract was actually awarded was not disclosed in the list of the suppliers. Despite the fact that Brooks changed the supplier and paid a substantial sum of `13.97 crores between July 21, 2011 to August 02, 2011 (i.e. prior to the issuance of RHP), no necessary disclosure of appointing Neo Power as Supplier was made in the Offer Document.

25. As regards the aforesaid allegation, Noticees submitted the following: • Brook's Core Technical Committee recommended the import of high precision machineries as per the latest international standards to cater to the highly regulated export market for pharmaceuticals; • pursuant to the recommendation, Brooks shortlisted Neo Power for the supply of high precision machineries. While placing orders for various machines and ancillary items with Neo Power, Brooks instructed it to supply machines at the project site at different stages of construction; • for the purpose of supplying machines, based on the request of Neo Power, Brooks released a total advance of USD 3,131,092 (`13,97,38,302/-) on the basis of a proforma invoice dated June 20, 2011, out of the ICDs raised by Brooks; • payment was made in advance to expedite the procurement of machineries to avail tax benefit before March 31, 2012. • with regard to non-mentioning of name of Neo Power in the list of suppliers in the Offer Document, the list in the Offer Document was only indicative. • all the documents including the quotations were duly provided to the BRLM as they were totally relying on the BRLM with regard to the IPO process.

26. The fact that Brooks had already placed purchase orders for plant and machinery with Neo Power and paid substantial sum of `13.97 crores in advance through part payments between July 21, 2011 to August 02, 2011 is not disputed by the Noticees. However, the Noticees declared in the offer document "we will be placing the orders for the machineries in due course"(pages 69 to 72 of the offer document). The omission/non disclosure of Neo power as a supplier for purchase of plant and machinery is found to be irregular based on the following:

Names of approximately 60 suppliers for the purpose of purchasing plant & machineries for an amount of `19.94 crores were disclosed in the Offer Document.

However, despite the change of supplier to Neo Power and also making payment of a substantial amount of `13.97 crores in advance, no disclosure about Neo Power was made in the Offer Document.

As per the submissions of Brooks, the same was pursuant to the recommendation of its Core Technical Committee. Irrespective of the correct position in this regard, the fact that proper disclosures were not made in the RHP/Offer Document cannot be denied.

Admittedly, an amount of `13.97 crores was transferred to Neo Power by Brooks during the period July 21, 2011 to August 02, 2011. However, the machinery was received by Brooks only during May 2012 (as per copies of bill of entry and bill of lading of machine submitted by the Noticees). The Noticees contended that the payment was made to avail the tax benefit by purchase of machinery before March 31, 2012. (This however does not appear to be the case as the machinery was received only after March 31, 2012.)

27. The Noticees contention that all the documents including the quotations were duly provided to the BRLM and that they were totally relying on the BRLM with regard to the IPO process is not acceptable as ICDR Regulations makes it clear that the Issuer is responsible for prompt, true and fair disclosure of all material developments. In the facts and circumstances of the case, it is clearly evident that the Noticees have failed to disclose such a vital information of placing of purchasing order with Neo power in the offer document.

28. In sum, I am of the considered view that the Noticees have clearly failed to disclose the following in the RHP/prospectus: • raising of funds to the tune of `30.40 crores through ICDs which were approved in the Board Resolutions dated May 25, 2011, July 2, 2011 and July 21, 2011 i.e. prior to the issue; • definitive contract given to Suryamukhi and the payment of full contract amount of `15.30 crores in advance to Suryamukhi once again, prior to the issue; • placement of purchase orders for plant and machinery with Neo Power and also the advance payment of a substantial sum of `13.97 crores i.e. prior to the issue.

In view of the same, I find that the charge vis-a-vis the Noticees relating to the concealment of abovementioned material information in the RHP/prospectus clearly stands established.

(II) Allegation of Round Tripping and Siphoning off Funds. 29. The SCN alleges that the Noticees siphoned off the funds received in the IPO. The manner in which funds were transferred in a circuitous route of round tripping and thereby resorting to siphoning of funds is depicted in the following diagram:

30. From the aforesaid Chart, the SCN alleges as under:- a. On May 30, 2011, Brooks received `4 crores in the form of ICDs from Shitalnath Buildcon Pvt. Ltd. (Shitalnath)which was immediately transferred to Suryamukhi on June 1, 2011. b. On June 1 and 2, 2011, Suryamukhi transferred a total sum of `3.50 crores to different parties such as Blue Print (`1 cr. through Mangalmayee), Shardaraj (`0.50 cr.), Sunshine (`1 cr.) and Konark (`1 cr.) (through Pushpanjali (`0.50 cr.) and Balram Tie Up(`0.50 cr.). c. On the same day i.e. on June 2, 2011, these funds were once again transferred to Brooks by Blue Print, Shardraj, Sunshine and Konark as ICDs (i.e. resulting in round tripping). On June 2, 2011, Brooks also received `3 crores from Shitalnath in addition to `4 crores received on May 30, 2011.

d. On June 3, 2011, Brooks again transferred `6 crores to Suryamukhi who in turn transferred `4.50 crores to Konark which was once again transferred to Brooks as ICDs (i.e. round tripping). e. On June 4, 2011, Brooks further transferred `5 crores to Suryamukhi.

31. Brooks received a total sum of `61,03,07,312 (after deduction of IPO expenses) on September 02, 2011 from the IPO, and then immediately transferred funds on September 2 & 3 of 2011 to the following entities from whom the ICDs were raised. The details are as under: Sl. No. Beneficiary Name Amount (`) 1. Shitalnath Buildcon Private Ltd. 15,00,00,000 2. Konark Commerce & Industries Ltd. 5,50,00,000 3. MK Distributors Private Ltd. 4,00,00,000 4. Jagdhatri Dealcomm Private Ltd. 1,35,00,000 5. Pushpanjali Commotrade Private Ltd. 1,00,00,000 6. Blue Print Securities Private Ltd. 1,00,00,000 7. Sunshine Housecon Ltd. 1,00,00,000 8. Pioneer Prodev Private Ltd. 65,00,000 9. Shardaraj Tradefin Ltd. 50,00,000 10. Hillston Advisors Private Ltd. 40,00,000 Sub Total 30,40,00,000 11. Fixed Deposits 19,75,00,000 12. Overdraft paid (SBI Goregaon # 6950) & (SBI Mohali 9,75,00,000 # 2308) Total 59,90,00,000

32. The Noticees, in their replies to SCN have contended that the ICDs were utilized to achieve the objects disclosed in the Prospectus. In respect of the aforementioned allegations of fictitious transactions and round tripping/siphoning off funds (`8 crores) it is observed as under:

33. As per the material available on record such as copy of Bank statements, agreements, etc., it is noted that the funds raised by Brooks in the form of ICDs were transferred to two entities namely- Suryamukhi and Neo Power. The analysis of sequence of fund flow is as under:

i. From the minutes of the Board resolution dated May 25, 2011 it is noted that Brooks decided to raise funds through ICDs from Shital Nath (`15 cr.) Blue print (`1cr.) Konark (`5.5 cr.) and Sharadaraj (`0.50 cr.) to meet its capital expenditures. (As per Brooks' reply, funds were raised through ICDs to expedite the project work so as to avail the tax benefits.) ii. Pursuant thereto, Shitalnath transferred `4 crores to Brooks on May 30, 2011. iii. On June 01, 2011, Brooks entered into an agreement with Suryamukhi for providing consultancy and execution of architectural design, civil work, electrical installations, etc. ( for `15.30cr.). From the bank statements it is noted that Brooks paid `4 Crores to Suryamukhi on June 01, 2011. (to expedite the project work so as to avail the tax benefits) iv. From the Bank statement and Chart 1 mentioned above, it is noted that on the very same day (i.e. June 01, 2011), Suryamukhi transferred `1 crore to Blue Print through Mangalmayee; `0.50 crores to Konark through Pushpanjali and `0.50 crores to Konark thru Balram Tie- Up. (total `2 cr.) v. Similarly, on June 02, 2011 Suryamukhi directly transferred `0.50 crores to Sharadaraj and `1 crore to Sunshine. (`1.5 cr.) vi. It is seen that on June 02, 2011 Brooks received ICDs amounting to `3.5 crores from Blue Print (ICD of `1 cr.); Konark (ICD of `1 cr.); Sharadraj (ICD of `0.50 cr.) and Sunshine (ICD of `1 cr.). Simultaneously, on June 02, 2011 Brooks also received ICDs to the tune of `3 crores from Shitalnath (as part of the agreed `15 crores of ICDs). In short, on 02, June, 2011 Brooks received ICDs amounting to `6.5 crores. In view of the above, I find that the amount of `3.5 crores received by Brooks as ICDs on June 02, 2011 is exactly corresponding to the amount transferred by Suryamukhi to Blue Print (ICD of `1 crore); Konark (ICD of `1 crore); Sharadraj (ICD of `0.50 crore) and Sunshine (ICD of `1 crore). vii. On the very next day i.e. on 03 June, 2011 Brooks transferred `6 crores to Suryamukhi. It is pertinent to mention that on 03 June, 2011 itself Suryamukhi transferred `4.50 crores to Konark. Konark in turn extended

ICDs to the tune of exactly of 4.50 crores to Brooks on the same day. (so on June 03, 2011 Brooks having ICDs of `5 crores i.e. `4.5 cr. +`0.5 cr) viii. On June 04, 2011 Brooks transferred `5 crores to Suryamukhi as part of the payment for the project work. In sum, Brooks paid `15 crores (i.e. `4 cr. on June 01, 2011; `6 cr. on June 03, 2011 and `5 cr. on June 04, 2011) to Suryamukhi.

Considering the proximity of fund flow as narrated above, I find that funds to the tune of `8 crores extended to Brooks by Blue Print, Shardaraj, Sunshine and Konark is nothing but ICDs (`7 crores) received from Shitalnath plus additional 1 crore routed by Suryamukhi through Konark. Furthermore, the purpose of availment of ICDs by the Noticees was ostensibly to expedite the project work to avail tax benefits. This is however contrary to the facts as land purchase, civil works carried out by Suryamukhi and supply of machineries by Neo Power occurred after the cut of date for the tax benefit i.e. March 31, 2012. The round tripping and the circuitous transfer of funds as detailed above, clearly point to the repayment of ICDs out of the Issue process in the following manner: Repayment of ICDs from the Issue proceeds: i. It is noted from the copy of Statements of their accounts with ICICI Bank Ltd. that Brooks paid a total amount of ` 8.25 crores (inclusive of interest) from the proceeds of IPO as repayment of ICDs to the following parties viz., Blue Print (`1 crore on September 02, 2011), Shardaraj (`50 lakh on September 03, 2011), Sunshine (`1 crore on September 02, 2011) and Konark (` 5.5 crores on September 03, 2011). From the IPO proceeds, Brooks repaid all the entities(mentioned at para 31 of the order) from whom they had raised ICDs. ii. In addition, Brooks admittedly made a payment of `4 crores to MK Distributors Private Limited out of the Issue proceeds on September 05, 2011 at the instruction of the entities from whom they availed ICDs viz., Shyama Properties Private Limited [ICDs of `2 crores], Dream Valley Sales Private Limited [ICDs of `1 crore] and Banke Bihari Commercial Private Limited [ICDs of `1 crore].

iii. Thus, the Issue proceeds were diverted and not utilized for the purpose as stated under the Objects of the Issue in the Offer Document.

34. The Noticees have contended that nothing has been brought on record, to demonstrate as to how they were aware of the subsequent transfer of funds by Suryamukhi and there is nothing on record to suggest that they were the beneficiaries or as to how the funds have come back either to the Promoters or Directors of the Company directly or indirectly in any manner. Noticees have also contended that the said allegations are based on erroneous understanding of the factual position and is based merely on further transfer of funds by Suryamukhi to other entities who in turn have allegedly given funds to Brooks by way of ICDs. Noticees submitted that they were not aware that all the said entities through whom they had raised the ICDs are related entities and the same was of no concern to them. Similarly, while borrowing funds, they were not aware of the sources of the funds of the lenders.

35. I observe from the available record i.e. details of Directors of other entities/layers/ lenders downloaded from MCA website (annexure to SCN), the following entities have common Directors: Sl. Name of the entity Name of the Directors Nature of No. relationship 1 Konark Commerce & Pramod Ramdin Sharma Industries Ltd. (Involved in Pulak Bagchi Entities at Sl. No. Round tripping of Funds / Ajay Agarwal (1) to (7) have Lender ) Neeraj Kedia common Raj Pandey directors. 2 Sunshine Housecon Ltd. Harish Sureka (companies at Sl. (Involved in Round tripping Pramod Ramdin Sharma No. 1 to 7 of Funds / Lender) Pulak Bagchi collectively Neeraj Kedia referred to as 3 Blue Print Securities Ltd. Pramod Ramdin Sharma 'Konark Group'). (Involved in Round tripping Pulak Bagchi of Funds / Lender) Neeraj Kedia Bajrang Sultania 4 Shardaraj Tradefin Ltd. Pulak Bagchi (Involved in Round tripping Bajrang Sultania of Funds / Lender) Neeraj Kedia 5 Pushpanjali Commotrade Pramod Ramdin Sharma Private Ltd. (Involved in Pulak Bagchi Round tripping of Funds / Layer ) 6 Jagdhatri Dealcomm P. Ltd Umesh Singh Neeraj Kedia 7 Pioneer Prodev Private Ltd. Umesh Singh Neeraj Kedia 8 Dream Valley Sales Private Rakesh Bajaj Dream Valley and Ltd. Mukesh Agarwal Bankebihari have 9 Bankebehari Commercial Rakesh Bajaj common Private Ltd. Mukesh Agarwal directors

36. From the above, the following are observed: i. Konark, Sunshine, Blue Print and Shardaraj (from whom Brooks had availed ICDs) were actually related to each other as they were having many common Directors. ii. From the agreement dated June 01, 2011 between Brooks and Suryamukhi (Annexure 2 of SCN), it is noted that Mr. Pulag Bagchi was the signatories to the project contract for Suryamukhi. Mr. Pulag Bagchi is one of the common Directors of Konark group (viz., Konark, Blue Print, Sunshine and Sharadaraj). iii. From the Chart 1, it is also seen that Suryamukhi transferred funds to Konark through Pushpanjali. Mr. Pulak Bagchi is also a Director in Pushpanjali. iv. It is noted from the interim order dated December 28, 2011 and the Confirmatory Order dated July 09, 2013 passed against the Noticees that Mr. Pramod Ramdin Sharma was also a common Director in Suryamukhi and Konark group. v. In addition to the above, as per the material available on record/bank statements, Blue Print and Sharadaraj share a common address (i.e. 1 Crooked lane, Room no.109, Kolkata). Sunshine and Konark have the same address (i.e. 10A Hospital Street, Kolkata). Similarly, Suryamukhi,

Pushpanjali and Magalmayi have the same address (i.e. 4A, Madan Mohan Burman Street, Kolkata). vi. From the above, the relationship of Brooks with the entities from whom ICDs were availed and also with Suryamukhi to whom project contract was awarded is clearly established. Therefore, the contention of Noticees that they are not aware of the connection of aforesaid entities cannot be accepted as it is contrary to facts.

37. The Noticees also contended that while making payments to Suryamukhi, their limited concern was that they receive the desired services for which Suryamukhi was engaged. In this regard, the following are noted: Brooks raised funds to the tune of `30.40 crores through ICDs from the several entities, in order to fund its capital expenditure (as mentioned in the Board Resolutions dated May 25, 2011, July 02, 2011 and July 21, 2011).

On June 01, 2011, Brooks entered into an agreement with Suryamukhi for providing consultancy and execution of architectural design, civil work, electrical installations, etc for the project in Gujarat ( for `15.30cr.) Brooks paid the total amount as advance to Suryamukhi (i.e. `4 Crores on June 01, 2011, `6 crores on June 03, 2011, `5 Crores on June 04, 2011 and `30 lacs on August 19, 2011) out of the amount received as ICDs. However, it is noted that at that point of time the land was yet to be acquired on which Suryamukhi was supposed to carry out the Project work. The same is evident from statement of Brooks at page No. 77 of RHP " Note:* - Our Company has paid an advance amount of Rs. 63.00 Lacs to J.B.SEZ Pvt Ltd as advance towards purchase of land."

From the IPO proceeds, Brooks repaid all the entities(mentioned at para 31 of the order) from whom they had raised ICDs. Though an amount of `15.30cr was diverted to Suryamukhi out of the ICDs raised by Brooks in the guise of carrying out Project work/objects of the IPO, fructification of terms of contract entered into by Brooks with Suryamukhi occurred pursuant to the inquiries and subsequent enforcement action initiated by SEBI.

In view of the above, the Noticees' contention that their limited concern was only to receive the desired services for which Suryamukhi was engaged cannot accepted. As seen from the above, there was a clear scheme to siphoning off funds through the availment of ICDs and appointment of Suryamukhi as project contractor.

38. In the light of above analysis and examination of proximity of events connected to IPO of Brooks such as routing the funds to the tune of `8 crores through a web of inter connected entities in the guise of ICDs; common directors in these companies; awarding of project to Suryamukhi and payment of full amount even before land is acquired, non disclosure of these vital information in the offer documents and fructification of the contract by Suryamukhi after the inquiries initiated by SEBI etc. clearly establish the charges of siphoning off funds by the Noticees.

III. Failed to comply with certain directions contained in the Interim Order: 39. It is pertinent to mention that SEBI vide Interim Order dated December 28, 2011 had directed Brooks to " call back the ICDs advanced by it to Suryamukhi Projects P. Ltd. and Neo Power Universal FZ LLC, UAE. These amounts together with all the IPO proceeds that are still lying unutilized with the company across all its banks / deposit accounts or any investments including in mutual funds, shall be deposited in an interest bearing escrow account with a scheduled commercial bank, till further orders." a) In this regard, it is noted that on February 6, 2012, Brooks had deposited an amount of `14.40 crores (Issue proceeds) in an escrow account with Dhanalaxmi Bank Ltd., Fort Branch which was subsequently switched over to State Bank of India, Goregaon (East) Branch on May 7, 2012. b) However, the company failed to call back the ICDs advanced to Suryamukhi and Neo Power. c) As regards the same, the Noticees have contended "the company wrote to Suryamukhi and Neo power recalling the amounts advanced. Pursuant to recall notices issued by the company, Suryamukhi and Neo Power informed the company that they have already taken steps to execute the order of the company and hence cannot return the advances paid to them."

d) It is noted that Brooks has furnished copies of the bills raised by Suryamukhi from time to time for the various services i.e. Consultancy and execution of architectural design, civil work, electrical installations, etc. provided for the project. e) Brooks also furnished a valuation Report from Government Approved Valuer for the expenses incurred for the project such as Civil works, Main drainage system, Borewell and underground recharge systems, underground and overhead water tanks. As per the same, an amount of `16 crores approx. has been incurred on the project. f) As regards the amount of `13.97 crores given as advance to Neo Power for procurement of machineries, Brooks submitted that Neo Power had already delivered the entire machinery. In this regard, Brooks has furnished copies of various documents including details of bill of lading, freight bills and custom clearance etc. for the purchase of said machines.

40. Considering the facts and circumstances narrated above, I am of the view that Brooks has only partially complied with the interim directions passed by SEBI on December 28, 2011.

Conclusion: 41. The facts of the case detailed in the preceding paragraphs of this order make it abundantly clear that some of the activities of the Noticees in connection with the IPO of Brooks were fraudulent. This is clearly evident from the following: a) Brooks decided to raise funds through ICDs as approved by the Board resolutions dated May 25, 2011, July 2, 2011 and July 21, 2011 prior to the IPO of Brooks; Brooks routed the funds to the tune of `8 crores through a web of inter connected entities in the guise of ICDs and the liability of the same was attached to the proceeds of IPO (detailed in paragraphs 33 to 36 of the order). As a result, the Noticees were able to divert IPO proceeds to the tune of `8 crores. Further, the civil work was initiated by Suryamukhi subsequent to inquiries and enforcement action taken by SEBI. Hence, such actions can only be seen as an afterthought to escape liability.

Thus, the Noticees indulged in fraudulent activities and thus violated provisions of Sections 12 A (a), (b) & (c) of the SEBI Act read with regulations 3 (a), (b), (c) & (d), regulations 4 (1) and 4 (2) (f) of PFUTP Regulations. b) In addition, I find that the Noticees have violated regulation 57(1) and Clauses 2 (VII) (G), 2 (XVI) (B) (2) of Part A of Schedule VIII read with regulation 57(2) (a) of ICDR Regulations and Noticees No. 5 & 6 have violated of Clause 2 (XVI) (B) (2) of Part A of Schedule VIII, by failing to disclose/making wrong disclosure of material information in the offer document, viz., : Non-disclosure of the raising of funds to the tune of `30.40 crores through ICDs which were in the nature of a bridge loan;

Non-disclosure of definitive contract given to Suryamukhi and the payment of full contract amount of `15.30 crores in advance to Suryamukhi.

Wrong disclosure/misstatement in the offer document regarding procurement of plant and machinery from Neo Power and advance payment of `13.97 crores.

42. As regards the role of Noticees Nos. 2 to 6, I have perused their respective replies. The said Noticees besides explaining their individual role in Brooks denied that there was any non-disclosure of material information in the Prospectus or misstatement in the Prospectus or mis-utilisation of the issue proceeds as alleged. The Noticees nos 2-6 have contended that all the acts done by them were bona fide in nature and under the supervision and instructions of the Management. It is also stated that they have a clean track record without any history of non-compliance and they are not connected to any of the entities or their directors. The Noticee nos 2-6 have stated that there was nothing in the SCN to show that they made any gains or derived unfair advantage and the violations as alleged in the SCN are technical, venial and unintentional. It is further contended that debarment already suffered is sufficient and no further imposition of monetary penalty is warranted. They have further stated that the charges in the SCN are predominantly arising from the decisions taken by Brooks regarding raising and repayment of short term finance/ ICDs, appointment of project contractor and placement of purchase orders for plant and machinery from foreign supplier and the above decisions were taken in a bona fide manner in the best interests of the Company.

43. It is noted from the records that Mr. Atul Ranchal (Executive Chairman), Mr. Rajesh Mahajan (Managing Director), Mr. Durga Shankar Maity, Brook's CEO (erstwhile Director - Technical) were part of the Board meetings when resolutions were passed for raising funds through ICDs. In addition to Mr. Atul Ranchal, Mr. Rajesh Mahajan and Mr. Durga Shankar Maity, it is observed that Mr. Ketan Shah, CFO (erstwhile DGM - Accounts) who was the authorized signatory for Brooks for the contract entered into between Brooks and Suryamukhi as project contractor, Ms. Parvinder Kaur (the erstwhile Company Secretary), were also signatories to the Offer Document as indicated therein at page numbers 326 & 327 respectively.

44. From the foregoing, the submissions of Noticees Nos. 2-6 are found to be unacceptable. Brooks, though a legal entity, cannot act by itself. It can act only through its Board/Management/Key Managerial Personnel etc. In respect of allegation of siphoning off funds, the persons in charge of day to day affairs of the Company viz. Directors/Management/Key Managerial Personnel (as Noticees No. 2-6) are indeed responsible for the fraudulent activities.

45. Mr. Atul Ranchal, Mr. Rajesh Mahajan, Mr. Durga Shankar Maity were part of the Board meetings when resolutions were passed for raising funds through ICDs and were also involved in decisions of transferring the funds (siphoning off funds), in appointing project contactor/appointing Neo power, etc. Based on the aforesaid and in view of the declaration at page numbers 326 & 327 of the Offer Document makes them liable for fraudulent/misleading acts detailed in the order. Noticees Nos. 5 & 6 were also authorized signatories in the Offer Document and made declarations in the Offer Document. The declaration by Noticees No 2 to 6 are as under: "We certify that all relevant provisions of Companies Act, 1956 and the guidelines issued by the Government of India or the Guidelines and the Regulations issued by the SEBI, established under Section 3 of the Securities and Exchange Board of India Act, 1992, as the case may be, have been complied with and no statement made in this Prospectus is contrary to the provisions of Companies Act, 1956, the Securities and Exchange Board of India Act, 1992 or rules made or Regulations issued there under or guidelines issued, as the case may be. We further certify that all the statements in this Prospectus are true and correct".

46. The Noticees have submitted that the allegations made in the SCN are technical, venial and unintentional. However, from the discussions in preceding paragraphs it is seen that the some of the violations of Noticees are fraudulent in nature and their act of suppressing material information did deprive investors of a chance to take an informed decision armed with full details. Therefore, the submission of the Noticees that the alleged violations are technical, venial and unintentional is clearly not acceptable.

47. The abovementioned fraudulent acts of siphoning off funds and the non disclosure or concealment of material information viz., raising of ICDs; appointment of Suryamukhi as project contactor and paying entire amount to Suryamukhi as an advance; appointment of Neo Power as the supplier of the machinery and making an advance payment of `13.97 crores to Neo Power were concealed from the investors. Such concealment of material information does not amount to true, fair and adequate disclosures by Noticees. This concealment is rather fraudulent in nature, depriving the investors the chance to take an informed investment decision. Not only did the Noticees failed to make true, fair and adequate disclosures, they also made deliberately wrong disclosures in the RHP/Offer Document.

48. In respect to the misleading or incorrect disclosures, it is pertinent to note that Hon'ble Securities Appellate Tribunal in the matter of HSBC Securities and Capital Markets (India) Private Ltd. v. SEBI, SAT Appeal No. 99 of 2007 (decided on February 20, 2008) observed: " an incorrect or wrong information in a letter of offer or other similar documents issued for the benefit of investors in general could lead to serious consequences including loss of credibility for the market operators and for the regulatory system. This kind of failure has to be taken very seriously by the market regulator".

49. Further, Hon'ble Securities Appellate Tribunal in the matter of V. Natarajan vs. SEBI, SAT Appeal No.104 of 2011 (order dated June 29, 2011), wherein it was held that "… we are satisfied that the provisions of Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, were violated. These regulations, among others, prohibit any person from employing any device, scheme or artifice to defraud in connection with dealing in or Issue of securities which are listed or proposed to be listed on an exchange. They also prohibit persons from engaging in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities that are listed on stock exchanges. These regulations also prohibit persons from indulging in a fraudulent or unfair trade practice in securities which includes publishing any information which is not true or which he does not believe to be true. Any advertisement that is misleading or contains information in a distorted manner which may influence the decision of the investors is also an unfair trade practice in securities which is prohibited. The regulations also make it clear that planting false or misleading news which may induce the public for selling or purchasing securities would also come within the ambit of unfair trade practice in securities"

50. It would also be relevant to refer to the following observations made by the Hon'ble Supreme Court of India in its judgment dated April 26, 2013, in the case of N. Narayanan v. Adjudicating Officer SEBI (Civil Appeal Nos. 4112-4113 of 2013).

"SEBI, the market regulator, has to deal sternly with companies and their Directors indulging in manipulative and deceptive devices, insider trading etc. or else they will be failing in their duty to promote orderly and healthy growth of the Securities market. Economic offence, people of this country should know, is a serious crime which, if not properly dealt with, as it should be, will affect not only country’s economic growth, but also slow the inflow of foreign investment by genuine investors and also casts a slur on India’s securities market. Message should go that our country will not tolerate “market abuse” and that we are governed by the “Rule of Law”. Fraud, deceit, artificiality, SEBI should ensure, have no place in the securities market of this country and ‘market security’ is our motto."

51. In the present case, the Noticees had acted in a manner highly detrimental to the interests of the securities market and the investors therein. The rulings of the Hon'ble Supreme Court and Securities Appellate Tribunal discussed in the preceding paragraphs apply directly and fully to the facts of the instant case. The development of a strong, transparent and credible securities market is an important pre-requisite for the economic development of our country. The fraudulent activities such as what have been observed in the instant case indeed pose a real threat to the integrity of our securities market. If such activities are allowed to continue, they will jeopardize and tarnish the image of the securities market as a transparent and efficient way of raising capital, shaking the very foundations of capital raising in India. The violations of law observed with respect to the Noticees, if not dealt with sternly, could give rise to a situation where raising of capital would become extremely difficult even for honest companies.

52. In view of the aforesaid observations/conclusions, it is established that all Noticees have violated the provisions of Regulations 3 (a), (b), (c) and (d) and Regulations 4(1), 4 (2) (d), (e), (f) and (k) of PFUTP Regulations read with Sections 12 A(a), (b) and (c) of SEBI Act. Further, the Noticees have also violated Regulations 57(1), 60 (4) (a), 60(7) (a) of ICDR Regulations and Clauses 2 (VII) (G), 2 (XVI) (B) (2) of Part A of Schedule VIII read with Regulation 57(2) (a) of ICDR Regulations.

Utilization of funds raised in IPO kept in escrow account: 53. It is observed that Brooks and its Directors vide their reply dated May 14, 2015 have requested that the funds lying in the Escrow Account comprising of unutilized proceeds of the IPO i.e. `14.40 crores along with its interest accrued as on date, may be allowed to be used for the purposes of its project. During the personal hearing and also vide the written submissions dated May 14, 2015, Brooks submitted that "pursuant to SEBI’s directions a total amount of Rs 15.05 crores is lying frozen in escrow account. The said amount belonging to the Company is lying idle for the last more than 3 years now and the Company, though in dire need of funds for its project, is not in a position to utilise it and has been forced to raise funds from Banks at exorbitant rates of interest for its project".

54. Although the Noticees have violated the provisions of SEBI Act, PFUTP Regulations and the ICDR Regulations as concluded in paragraph 51 above, the following facts are considered as regards the request for release of funds viz., : a. As per Brooks statement "As on date, the Company has placed orders for supply of machineries/utility and mechanical works from various suppliers for its project to the tune of around Rs 20 crores. Against the said total amount of Rs 20 crores, the Company has already paid a total advance of Rs 3.55 crores to the suppliers. The balance amount of Rs 16.45 crores is payable by the company in due course. The details of orders placed with various suppliers as on January 2015 and the details of advance payments made and the details of balance amounts payable as on that date were submitted vide Reply dated February 26, 2015". b. Subsequently, the company does appear to have (i)carried out certain civil works to establish the project at Vadodara, Gujarat which was stated as one of the objects of IPO, (ii) bought machinery from Neo power etc. In view of this and in the interest of investors of Brooks, I am of the view that the request for release of funds deserves consideration.

Order 55. In view of the foregoing, I, therefore, in exercise of the powers conferred upon me by virtue of Section19 read with Sections 11(1), 11(4), 11(A) and 11B of the SEBI Act read with Regulation 11(1) of the PFUTP Regulations and the ICDR Regulations, 2009, hereby direct as follows – i. Brooks Laboratories Limited (PAN: AACCB5316P) and Mr. Atul Ranchal – Chairman (PAN: ADMPR5359L), Mr. Rajesh Mahajan- Managing Director (PAN: AFGPM8060D), Mr. Durga Shankar Maity- Chief Executive Officer (PAN:AHNPM4221B), (5) Mr. Ketan Shah- Chief Financial Officer (PAN: BIUPS7078D) and Ms. Parvinder Kaur – Company Secretary (PAN: BNQPK5210E) are prohibited from raising any further capital from the securities market, in any manner whatsoever, for a period of 5 years.

ii. Brooks and its abovementioned Directors and officers are prohibited from buying, selling or dealing in the securities market, in any manner whatsoever, for a period of 5 years.

iii. The period of prohibition already undergone by Brooks Laboratories Limited and its Directors and officers pursuant to the Interim Order dated December 28, 2011 shall be taken into account for the purpose of computing the period of prohibition imposed in this Order.

iv. Subject to the applicable provisions of Companies Act, 1956 and Companies Act, 2013 as the case may be, Brooks is hereby permitted to utilize the funds lying in the escrow account for the objects disclosed in the Prospectus.

v. Brooks may submit their application for withdrawals of funds to the escrow bank duly accompanied by necessary documentary support including Certificates from an independent Valuer, an independent Chartered Accountant to the effect that the money sought to be released is for the purpose of payments in relation to the objects for which money was raised. The independent valuer and independent chartered account may be selected from the list of such professionals in the approved panel(s) maintained by the escrow bank.

56. This Order shall come into force with immediate effect.

Place: Mumbai S. RAMAN September 10, 2015 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA