Order in respect of M/s Almondz Global Securities Ltd., Mr. Vinay Mehta, and Mr. Sanjay Dewan

WTM/RKA/IVD/10/2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 against Almondz Global Securities Ltd., Mr. Vinay Mehta, and Mr. Sanjay Dewan In the matter of M/s. Bharatiya Global Infomedia Limited. Appearances:

For the Noticees: 1. Mr. Vinay Mehta for Almondz Global Securities Ltd and himself 2. Mr. Sanjay Dewan For SEBI: 1. Mr. Santosh Kumar Shukla, Joint Legal Adviser 2. Mr. B. Rajendran, General Manager 3. Mr. Peeyush Gaurav Soni, Assistant Legal Adviser 4. Mr. Sugadev C., Assistant General Manager 1. Bharatiya Global Infomedia Limited (hereinafter referred to as "BGIL") made an Initial Public Offer ("IPO") through the book building route in the price band of ₹ 75 to ₹ 82 for 67.2 lakh equity shares having face value of ₹ 10 each. Almondz Global Securities Ltd. (hereinafter referred to as "Almondz") was the Book Running Lead Manager ("BRLM") for the IPO. CARE, a SEBI registered Credit Rating Agency, had assigned an IPO Grade of 2 to the IPO, which signifies 'below average fundamentals'. 2. BGIL, in consultation with Almondz decided to issue and allot the shares in its IPO at the price of 82 per share. An amount of 55.104 crore was raised by BGIL through the IPO. The allotment of shares in IPO was completed on July 21, 2011 and thereafter the shares of BGIL were listed and admitted for dealings on National Stock Exchange of India Ltd. (hereinafter referred to as "NSE") and Bombay Stock Exchange Ltd. (hereinafter referred to as "BSE") on July 28, 2011.

3. It was noted that on July 28, 2011 (i.e. on the day of listing of shares on BSE), the scrip price opened at ₹ 81.9, went up to ₹ 83, stayed between ₹ 60-70 for some time and then plunged to ₹ 29.90 at close. On NSE, the scrip price opened at ₹ 84 (day’s high), stayed between ₹ 60-70 for some time and then plunged to ₹ 30.95 at close. As on December Order in respect of Almondz Global Securities Ltd. and others

24, 2011, the market price of the scrip was hovering around ₹ 9.50 at BSE. In this background, the Securities and Exchange Board of India ("SEBI") undertook preliminary investigation in the matter wherein it was noted that, as disclosed in the Prospectus of BGIL, the IPO proceeds were to be utilised as following:- S. ₹ in Description No. lakh To set up its owned corporate office at Noida for ₹396 lakhs. BGIL has entered into MoU with M/s Gadeo Electronics to take over the said firm having immovable property at Noida for total 1. consideration of ₹596 lakh. Out of the said sum, BGIL had already 396.00 allotted 2,00,000 shares at a price of ₹100 each as part consideration. The balance ₹ 396 lakh was to be paid in cash through the IPO proceeds. To buy a 4000-5,000 sq ft branch office premises between Vile Parle 2. 593.60 (W) and Jogeshwari (W) in Mumbai To buy machineries i.e. computer hardware and software for the 3. 1365.46 Digital Post Production Studio at Mumbai. 4. To expand the IT division at Mumbai and Noida. 839.21 5. To expand the R&D centre. 656.73 6. Repayment of bank borrowings 269.72 7. Meeting long term working capital requirements 505.00 8. General Corporate Purpose 650.00 9. Issue expenses 277.36 Total 5553.08

4. It was prima facie observed, inter alia, that BGIL had utilised the IPO proceeds in a substantially different manner from the 'objects of the issue/identified vendors/time lines' disclosed in the Red Herring Prospectus ("RHP"). In addition thereto, several instances of untrue, incorrect and misleading disclosures in the RHP were also observed. It was alleged that Almondz being the BRLM in the IPO "has also prima facie failed to exercise the required due diligence and have aided and abetted the fraud committed by BGIL and its directors/officials and thereby violated 3(b), 3(c) and 3(d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Further, the BRLM has also prima facie violated the provision of SEBI (ICDR) Regulations, 2009 and SEBI (Merchant Bankers) Regulations, 1992." 5. Based on the above prima facie findings, SEBI vide its ad-interim ex-parte order dated December 28, 2011("interim order"), inter-alia, issued directions prohibiting Almondz, Mr.

Vinay Mehta (Managing Director and Chief Executive Officer of Almondz) and Mr. Sanjay Dewan (Head of Merchant Banking Division of Almondz) from taking up any new assignment or involvement in any new issue of capital including IPO, follow-on issue, etc. in the securities market in any manner whatsoever from the date of the order till further directions. These directions were confirmed vide SEBI's order dated September 21, 2012 ("confirmatory order"). 6. After completion of investigation in the matter, SEBI issued a Show Cause Notice ("SCN") dated September 4, 2013 to Almondz, Mr. Vinay Mehta, and Mr. Sanjay Dewan (hereinafter collectively referred to as 'the Noticees' and individually by their respective names) calling upon them to show cause as to why appropriate directions including directions under sections 11(1), 11(4) read with section 11A and 11B of the Securities and Exchange board of India Act, 1992 ("SEBI Act") including restraining them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities, for an appropriate duration, should not be issued against them.

It was alleged in the SCN that the Noticees have violated the provisions of regulations 8(2)(b), (e), (f) and 64(1) of SEBI (Issuance of Capital and Disclosure Requirements) Regulations, 2009 ("ICDR Regulations") and regulation 13 of SEBI (Merchant Bankers) Regulations, 1992 ("Merchant Bankers Regulations") read with clause (1), (2), (3), (4), (6), (7) and (21) of the Code of Conduct prescribed under schedule III thereof as they did not exercise due diligence in the IPO of BGIL on account of wrong disclosure, non-disclosure in the RHP/Prospectus of BGIL and failure to do independent valuation. 7. The allegations against the Noticees in the SCN were made on the basis of following alleged acts and omissions of the Noticees: I. Wrong disclosure of the relationship-details with respect to the transaction between BGIL and Gadeo Electronics ("Gadeo"): a) It was disclosed in the RHP dated June 28, 2011 and the Prospectus dated July 16, 2011 of BGIL that 3.96 crore were to be paid to Gadeo out of the IPO proceeds. It was described in the RHP and Prospectus that BGIL had entered into MoU with Gadeo to take over the said firm having immovable property at Noida for total consideration of 5.96 crore.

Out of the said sum, BGIL had already allotted 2 lakh shares at a price of 100 per share as part consideration.

b) Gadeo is a partnership firm consisting of two partners namely, Mrs. Richa Mittal (95% share) and Mr. R. K. Mittal (5% share). Mrs. Richa Mittal is wife of Mr. Rajeev Mittal (who is the brother of Sanjeev Kumar Mittal, director of BGIL). Mr. R. K. Mittal is the father of Mr. Sanjeev Kumar Mittal.

c) While the draft offer document relating to the IPO was pending, SEBI, vide letter dated January 21, 2011, had asked a specific clarification from Almondz as to whether Gadeo is an entity related to BGIL/ its promoters /promoter group companies. In response thereto, Almondz vide its letter dated February 8, 2011 stated that Mrs. Richa Mittal is not related to the promoter / directors / promoter group companies. d) In the RHP and Prospectus of BGIL, it was disclosed that:-“Mrs. Richa Mittal is wife of Mr. Rajeev Mittal and a resident of A-147-148, Sector 55, Noida, Uttar Pradesh, and is not related to our Company, our Promoters / Directors or Promoter Group Companies". e) Further, the RHP and Prospectus of BGIL did not disclose the 'related party transactions' entered with Gadeo by BGIL under the heading of "related party transactions". f) It was observed during investigations that Almondz, while preparing the draft RHP for the IPO of BGIL had relied upon the copy of the partnership deeds of Gadeo wherein it was apparent that: i. The original partners of Gadeo were Mr. Sanjeev Kumar Mittal, (son of Mr. Ram Kishan Mittal) and Mrs. Richa Mittal. ii. At the time of processing of RHP and prospectus in IPO of BGIL, Mrs. Richa Mittal (wife of. Mr. Rajeev Kumar Mittal) and Mr. Ram Kishan Mittal were the partners of the Gadeo. iii. Mrs. Richa Mittal and Mr. Sanjeev Kumar Mittal are having the same address at - D-51(B), Sector-26, Noida. iv. The partnership deed was witnessed by the Chairman and Managing Director of BGIL, Mr. Rakesh Bhatia and Mr. Rajeev Agarwal, Manager (Finance) of BGIL. g) Thus, it was apparent that Mrs. Richa Mittal was related to Mr. Sanjeev Kumar Mittal, director of BGIL, as sister-in-law. However, the RHP and Prospectus contained wrong and misleading statements. It was alleged that Almondz being BRLM for IPO of BGIL facilitated BGIL to disclose wrong and misleading statements in its RHP and Prospectus. II. Non disclosure of Inter-corporate Deposit (ICD) amounts raised and payments made by BGIL to various entities.

a) Both RHP and Prospectus contained the disclosure that “our company has not raised any bridge loan against the proceeds of the present issue”. However, it was noted during investigation that BGIL had taken ICD loans of ₹ 15 crore as described in the following Table: Amount in ₹ S. No Party Name Received Date crore Prior to the date of filing of RHP 1 Krishna trade & Commerce Pvt. 21.6.2011 2 2 AachmanVanijya Pvt. Ltd. 22.6.2011 2 3 SajalImpex Pvt. Ltd. 22.6.2011 0.475 4 Dinosour Tradelink Pvt. Ltd. 27.6.2011 1 5 Divyadrishti Traders Pvt. Ltd. 27.6.2011 0.525 6 Subhshree Hirise Pvt. Ltd. 27.6.2011 1 After the date of filing of RHP but before the date of filing of Prospectus 7 Skylight Distributors Pvt. Ltd. 29.6.2011 1 8 Times tradelink Pvt. Ltd. 30.6.2011 1 9 Makesworth Projects Developers 04.7.2011 1 04.7.2011 1 10 Affluent Dealcom Pvt. Ltd. 05.7.2011 0.5 11 Abhilasha Exports Pvt. Ltd. 06.7.2011 1 05.7.2011 1.5 12 ETL Infrastructure Finance Ltd. 07.7.2011 1 Total 15 b) The above ICD loans of ₹ 7 crore raised by BGIL prior to date of RHP were not disclosed therein. Further the facts about raising 8 crore of ICD loans after the date of filing of RHP but before the date of filing of Prospectus were neither disclosed in the Prospectus nor did BGIL issue any public notice in that regard.

Thus, above disclosure in RHP and prospectus was allegedly a wrong and misleading disclosure. c) Had these ICD loans of 15 crore been added to the total liabilities of BGIL, its current liabilities as on March 31, 2011 would have increased by 100%. These high value transactions that were also reflected in the bank statements of BGIL should have raised doubt about the nature of transactions to a prudent merchant banker. However, admittedly, Almondz even did not collect the bank statements of BGIL. d) These ICD loans' amounts were used to pay various vendors whose details were also not disclosed in the RHP / Prospectus. Subsequently, the ICD loans were repaid by BGIL from its IPO proceeds. e) As per regulation 57 (2)(a) read with clause VII (G) of Part A of Schedule VIII of the ICDR Regulations, BGIL was under an obligation to disclose in the RHP and Prospectus under the heading of “Sources of funds already deployed - the means and sources of financing, including details of bridge loan or other financial arrangements, which may be repaid from the proceeds of the issue." However, no such disclosures were made in the RHP and Prospectus of BGIL. f) It has been alleged that the understatement of the liabilities of BGIL, by not adding the ICD loans in current liabilities and not disclosing the same in RHP/Prospectus, gave a rosy picture about BGIL and influenced the decision of the investors regarding the IPO of BGIL.

It has been further alleged that Noticees' failure to notice the high value transactions of BGIL indicates that they had facilitated BGIL in concealing the correct position in the RHP / Prospectus of its liabilities, other related details and bridge loans by way of ICD loans. III. Failure to carry out Independent Valuation. a) During investigation Mr. Sanjay Dewan had, in his statement dated November 26, 2011, inter alia admitted on behalf of Almondz that it had not done any independent valuation of the software which was shown in RHP and Prospectus as assets of BGIL. Further, he did not give details for a specific query regarding the contents as per their verification about the purchase of hardware / software for ₹ 1.5 crore entered in the fixed assets register for computer / software of BGIL on June 21, 2010. b) In respect of debtors, Almondz had admitted that it had only verified the invoices of top 10 debtors from the records submitted by BGIL and did not carry out any independent verification. It also admitted that sundry creditors too were not independently verified. 8. In terms of regulation 64 of the ICDR Regulations, the lead merchant banker should exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosures in RHP.

It has been alleged in the SCN that non-disclosures / incorrect disclosures by BGIL in its RHP and Prospectus as observed above show an extremely poor standard of due-diligence by the Noticees. It has been further alleged that Almondz did not exercise due diligence about the veracity and adequacy of the disclosures made in the RHP. Further, it had submitted wrong/false due diligence certificate to SEBI stating inter-alia that the disclosures made in the draft RHP/draft Prospectus were true, fair and adequate. In view of the same, it has been alleged that the Noticees' had violated the provisions of regulation 64(1), regulation 8(2)(b)(e) and (f) of the ICDR Regulations and regulation 13 of the Merchant Bankers Regulations read with clauses 1, 2, 3, 4, 6, 7 and 21 of the Code of Conduct specified in Schedule III thereof. The provisions alleged to have been violated by the Noticees are reproduced hereunder:

ICDR Regulations Regulation 64(1)- "The lead merchant bankers shall exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents." Regulation 8 Documents to be submitted before opening of the issue. "8(2) The Lead merchant bankers shall submit the following documents to the Board after issuance of observations by the Board or after expiry of the period stipulated in sub-regulation (2) of regulation 6 if the Board has not issued observations: (b) a due diligence certificate as per Form C of Schedule VI, at the time of registering the Prospectus with the Registrar of Companies; (e) a due diligence certificate as per Form D of Schedule VI, immediately before the opening of the issue, certifying that necessary corrective action, if any, has been taken; (f) a due diligence certificate as per Form E of Schedule VI, after the issue has opened but before it closes for subscription." Merchant Bankers Regulations Code of Conduct. "13. Every merchant banker shall abide by the Code of Conduct as specified in Schedule III."

SCHEDULE III "CODE OF CONDUCT FOR MERCHANT BANKERS 1. A merchant banker shall make all efforts to protect the interests of investors. 2. A merchant banker shall maintain high standards of integrity, dignity and fairness in the conduct of its business. 3. A merchant banker shall fulfill its obligations in a prompt, ethical, and professional manner. 4. A merchant banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment. 5. ……………………………………………………. 6. A merchant banker shall ensure that adequate disclosures and guidelines so as to in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision. 7. A merchant banker shall Endeavour to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision. ………………………………………………………….

21. A merchant banker shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act, regulations made thereunder, circulars and guidelines, which may be applicable and relevant to the activities carried on by it. The merchant banker shall also comply with the award of the Ombudsman passed under the securities and Exchange Board of India (Ombudsman) Regulations, 2003."

9. The Noticees filed their replies to the SCN vide their separate letters. They were also afforded an opportunity of personal hearing on October 21, 2013 before me when Mr. Vinay Mehta and Mr. Sanjay Dewan, appeared for themselves and on behalf of Almondz and made oral submissions in line with their replies. The Noticees have denied all the allegations contained in the SCN except those that are specifically admitted by them and have, inter alia, made the following submissions:- I. Submissions of Almondz: (a) Prior to SEBI’s ad-interim order dated December 28, 2011, Almondz was not aware that Mrs. Richa Mittal was related to any of the promoters or directors of BGIL. The primary source of providing information on an individual is the issuer. Throughout the diligence process, BGIL and its directors had consistently maintained to Almondz that Mrs. Richa Mittal was not related to any of the promoters or directors of BGIL. (b) For responding to the clarifications sought by SEBI vide letter dated January 21, 2011, Almondz pointedly asked BGIL whether Mrs. Richa Mittal was related in any manner to the issuer, its promoters, directors or promoter group companies.

It is emphasized that as a matter of due diligence, Almondz extended the scope of clarification to cover Mrs. Richa Mittal relationship, if any, with any director(s) of BGIL though this was not covered in SEBI's query. BGIL responded in negative vide its letter dated February 7, 2011. However, before responding to SEBI, Almondz carried out its independent diligence and did not find anything contrary on its records or the information provided by BGIL. Thereafter, Almondz submitted the information provided by BGIL to SEBI vide its letter dated February 8, 2011. (c) The fact of Mrs. Richa Mittal being the sister-in-law of Mr. Sanjeev Mittal, director of BGIL was withheld from Almondz and nothing in the record of BGIL or in the declarations and undertakings submitted by BGIL and its directors suggested otherwise. (d) The charge in the SCN is leveled because Almondz was aware that Mr. Sanjeev Kumar Mittal and Mrs. Richa Mittal were related on the basis of the partnership deeds. Almondz has admitted that it was aware that Mr. Sanjeev Kumar Mittal and Mrs. Richa Mittal were the original partners of Gadeo.

This fact and all other allied facts have been very clearly disclosed on pages 72 and 73 of the RHP. Further, there is nothing in the partnership deed that points out the relationship between Mr. Sanjeev Kumar Mittal and Mrs. Richa Mittal or indicate that she was married to Mr. Sanjeev Kumar Mittal's brother. (e) While seeking clarification on the draft RHP of BGIL, SEBI vide letter dated January 21, 2011, had sought a number of clarifications on the DRHP of BGIL, of which item no. 5 related to a query on the "capital build up". SEBI had sought the clarification regarding the relationship of Mrs. Richa Mittal as a part of the said query relating to "capital build up" and not in relation to Gadeo. (f) The disclosure under ICDR Regulations for 'purchase of property' is different from the disclosure on 'purchase of land'. The transaction in question between BGIL and Gadeo related to the purchase of property from Gadeo and not to the purchase of land which could be subject matter of disclosure under clause (IV) (H) (18) of para. 2 of Part A of Schedule VIII of the ICDR Regulations. Therefore, only the disclosure requirement related to acquisition of property is relevant in terms of provisions of clause VIII (B) (5)(a) (iii) and (iv) and 6(a) of Part A of in Schedule VIII of the ICDR Regulations.

These requirements stipulate that in case a property is acquired, the name of the promoter or director of the issuer who has a direct or indirect interest in the vendor of the property is to be disclosed. (g) Clause IX of Part A of Schedule VIII of the ICDR Regulations lays down the guidelines for disclosures on Financial Statements. It stipulates that the entire financial information sought under this section has to be certified by auditors who hold a valid certificate issued by the Peer Review Board of the Institute of Chartered Accountants of India (“ICAI”).The disclosure in respect of related party transactions is a part of the information sought under section IX as set out under Para (B)(12) of the clause. Once it is so certified, and the certified financial information (including disclosure of Related Party Transactions) is reproduced in entirety in the Offer document, then the ICDR Regulations' requirements of due diligence in respect of the disclosure are met. (h) In the case of IPO of BGIL, the company’s financial information certified by their auditor along with peer reviewed auditor’s report was reproduced verbatim in the DRHP, RHP and the Prospectus.

The names of Gadeo and Mrs. Richa Mittal did not figure as related parties in these submissions made by the statutory and peer reviewed auditors. (i) Para (B)(12) of clause IX of the ICDR Regulations stipulates that disclosures on related party transactions have to be made “in accordance with the requirements of Accounting Standard (AS 18)---Related Party Disclosures issued by the ICAI”. (j) For the purpose of disclosures of related party transactions, the ICDR Regulations do not contain any independent provision and incorporates the requirements of AS 18 by reference. Accordingly, the definition of "relative" given in AS 18 will be applicable. It is clear from the definition of "relative" under Para 10.9 of AS 18 that a brother’s wife i.e. sister-in-law (the relationship that Mrs. Richa Mittal bears to Mr. Sanjeev Mittal, director of BGIL) is not deemed a relative for the purposes of disclosure of related party transaction in accordance with AS 18. For this reason only it appears that even the peer reviewed auditors have not treated the transaction of BGIL with Gadeo as a related party transaction.

(k) As there is no source in the public domain that provides independent information to establish whether any promoter or director of BGIL had a direct or indirect interest in the purchase of property from Gadeo, Almondz had to, like all Merchant Bankers taking up IPOs, necessarily rely on the information provided by the Issuer and its promoters and directors as the primary source. (l) Almondz relied not only on the disclosures made by BGIL, but also conducted the following diligence: i. It examined the financial statements for preceding five financial years audited by the statutory auditors and found no mention of Mrs. Richa Mittal or Gadeo in a related party transaction. It also examined the audited and restated statements provided by the peer reviewed auditors and the Register of Contracts but did not find any reference of such a transaction. ii. The undertaking-cum-indemnity dated November 6, 2010 furnished by Mr. Sanjeev Mittal stated that BGIL had not purchased any property in the preceding two years and did not propose to purchase any property in which Mr. Sanjeev Mittal had, have or will have a direct or indirect interest or in respect of any payment thereof. iii.

It had also examined the Form 24 AA (General notice for disclosure of interest of directors) submitted by directors including Mr. Sanjeev Mittal for the years ending March 31, 2010 and March 31, 2011. The said forms also did not disclose the relationship with Mrs. Richa Mittal or any interest in Gadeo. iv. Mr. Sanjeev Mittal was also present in the Board Meetings in which the transaction with Gadeo was approved but he did not disclose any interest in the transaction even though he was required to do so by virtue of section 299 of the Companies Act, 1956. v. On June 11, 2011, BGIL issued a confirmation to Almondz that they had not purchased any property in which any of its directors had any direct or indirect interest. (m) BGIL had neither disclosed to Almondz about its plans to raise ICDs nor did they reveal any details of the ICDs actually raised before the RHP and the Prospectus. BGIL also did not inform Almondz about its plans to repay the ICDs from the issue proceeds. BGIL obtained the ICDs surreptitiously and consequently the RHP did not contain any disclosure about raising of bridge finance.

(n) The Board of BGIL continued to maintain all along that no material change had taken place in the information contained in the RHP. (o) Under normal circumstances i.e. the circumstances that do not excite suspicion or raise doubts on the intention of the issuer, a due diligence process rarely extends to examination of bank account statements as one is apprehensive of fund movements by issuer post receipt of IPO proceeds and not prior to an IPO. Almondz had no reason to disbelieve BGIL at the time when it was carrying out the due diligence and there existed no information which could have excited suspicion such that it would have led to an examination of BGIL's bank statements. (p) Almondz had accepted the value of debtors and creditors as stated in BGIL's audited accounts and as certified by their auditors and did not consider at that time that an independent verification of debtors or creditors was required. (q) The due diligence carried out by Almondz was also in accordance with the "Due Diligence Manual" brought out by the Association of Investment Bankers of India

1I. Submissions of Mr. Vinay Mehta: a) The SCN ascribes only a vicarious responsibility on account of the fact that Mr. Vinay Mehta was the Managing Director and CEO of Almondz. He had not violated any of the provisions of the ICDR Regulations and Merchant Bankers Regulations which would warrant any directions against him. b) In the ex-parte interim order there was no role or act of collusion attributed to him as an individual in the irregularities alleged to have been committed by Almondz. The directions issued vide the interim order has severely tarnished his reputation. III. Submissions of Mr. Sanjay Dewan: a) He has been made a party, without there being any direct allegation or charge against him as is borne out by the contents of the SCN. The alleged violations in the SCN are themselves based on the prima facie findings in the ex-parte interim order. b) Merely because he was the Head of Merchant Banking division of Almondz, the violations of the provisions of the ICDR Regulations and Merchant Bankers Regulations have been alleged against him. He had not violated any of the provisions of the ICDR Regulations and Merchant Bankers Regulations which would warrant any directions against him.

c) The due diligence in the IPO of BGIL was handled by a team of professionals including chartered accountants, company secretaries and legal professionals under his overall supervision. The team completed the due diligence based on extensive discussions and after taking sufficient information documents from BGIL and wherever available from independent sources. d) He had not omitted or committed anything with any mala fide intention; there was not any deliberate intent towards non-disclosure of any material information or compromising on any aspect of due-diligence in any manner whatsoever. 10. I have carefully considered the SCN, replies of the Noticees and the oral submissions made during the hearing. The first allegation against Almondz is pertaining to the non-disclosure of the relationship of the entity from which the issuer had acquired land/property and the disclosure of transactions as related party transactions in the RHP / Prospectus. This allegation has been levelled on the basis of the requirements of clause (IV) (H) (18) of para. 2 and clause VIII (B) (5)(a) (iii), (iv) and 6(a) of Part A of Schedule VIII of the ICDR Regulations in terms of which the RHP and prospectus should disclose- (a) "relationship, if any, of the entities from whom the issuer has acquired land or proposes to acquire land, with any of the promoters or directors of the issuer along with the relevant details." (clause (IV) (H) (18) of para. 2) (b) Clause VIII (B) (5)(a) "(iii) the nature of the title or interest in such property acquired or to be acquired by the issuer; (iv) short particulars of every transaction relating to the property completed within the two preceding years, in which any vendor of the property to the issuer or any person who is, or was at the time of the transaction, a promoter, or a director or proposed director of the issuer had any interest, direct or indirect, specifying the date of the transaction and the name of such promoter, director or proposed director and stating the amount payable by or to such vendor, promoter, director or proposed director in respect of the transaction." (c) Section VIII (B) (6)(a) "(a) The names of the entities from whom the land has been acquired/ proposed to be acquired alongwith the cost of acquisition, along with the relation, if any, of such entities to any promoter or director of the issuer."

11. I note that the above provision of clause (IV) (H) (18) of para. 2 deals with the disclosure of 'risk factors' in the RHP and Prospectus. It requires the disclosure of relationship of the entities from whom the issuer has acquired the land or proposes to acquire land with its promoters or directors along with relevant details. I further note that these provisions are not subservient to the requirements of AS -18 and they operate independently. The words 'relative' or 'relationship' have not been defined in the ICDR Regulations.

Therefore, for the purpose of this clause, in terms of regulation 2(2) of the ICDR Regulations, definition of these words as given under the Companies Act, 1956 shall apply. I note that in terms of section 6 read with Schedule IA of the Companies Act, 1956, 'father', 'brother' and 'brother's wife' are included in the definition of relatives and they are related to each other. I, therefore, am of the view that such relationship of the entities from whom the issuer has acquired the land or proposes to acquire the land, with promoters or directors of the issuer should be disclosed in the RHP and Prospectus as risk factors in terms of the provisions of above mentioned clause (IV) (H) (18) of para. 2 of Schedule VIII of the ICDR Regulations. 12. In this case, it is admitted fact that before filing its RHP, BGIL had entered into MoU with Gadeo to take over the said firm having "immovable property at Noida" for which 2 lakh shares of ₹ 100 each were already allotted to Mrs. Richa Mittal as part consideration. It is also admitted fact that Mrs. Richa Mittal, and Mr. Ram Kishan Mittal were the only partners of Gadeo at the relevant time.

I note that in the RHP and Prospectus of BGIL it was disclosed that:-“Mrs. Richa Mittal is wife of Mr. Rajeev Mittal and a resident of A-147-148, Sector 55, Noida, Uttar Pradesh, and not related to our Company, our Promoters / Directors or Promoter Group Companies." I find that this disclosure was apparently wrong, misleading and false since Mrs. Richa Mittal is the wife of brother of Mr. Sanjeev Kumar Mittal, a director of BGIL. 13. The question that arises for determination is whether Almondz, being the BRLM for the IPO of BGIL, failed to exercise due diligence while preparing the RHP and Prospectus and ensuring correct disclosures therein. I note that while processing the RHP and Prospectus of BGIL, Almondz was in possession of the two partnership deeds of Gadeo. Further, at page 72 of the RHP it was disclosed that Gadeo, "a partnership was formed on September 1, 2001 between Mrs. Richa Mittal, Mr. Sanjeev Mittal and Mr. R.K. Mittal. Mr. Sanjeev Mittal took retirement w.e.f. March 31, 2008 and Mrs. Richa Mittal and Mr. R.K. Mittal entered into a fresh partnership deed on April 1, 2008 and agreed to start and run the business of manufacturing, marketing and selling of electronics and electronic items and components.

As per partnership deed, partnership was having principal head office at Delhi, W.E.A., Karol Bagh, New Delhi and carry out its manufacturing activities at B-60, Sector-57, Noida with profit sharing ratio of 97.5:2.5 between Mrs. Richa Mittal and Mr. R.K. Mittal."

14. From the partnership deeds and the RHP, it is clear that at the time of preparing RHP and Prospectus in this case, Almondz was aware that Mrs. Richa Mittal, Mr. Sanjeev Kumar Mittal a director of BGIL and Mr. Ram Kishan Mittal (Mr. R. K. Mittal) father of Mr. Sanjeev Kumar Mittal were original partners of Gadeo. In the second partnership deed Mr. Ram Kishan Mittal was continued as partner alongwith Mrs. Richa Mittal. Further, it was apparent in the first partnership deed that Mr. Sanjeev Kumar Mittal and Mrs. Richa Mittal shared the common address i.e. D-51 (B) Sector 26, Noida. In the RHP also it was clearly stated that Mr. Sanjeev Kumar Mittal is son of Mr. Ram Kishan Mittal and resides at the address D-51/B, Sector-26 Noida-201 301, U.P., which is also the address of Mrs. Richa Mittal. I find that these facts were sufficient to alert Almondz to diligently verify the relationship between Mrs. Richa Mittal and Mr. Sanjeev Kumar Mittal. I, however, note that while responding to the query raised by SEBI in that regard, Almondz simply forwarded to SEBI the response of BGIL without applying any independent judgement.

Almondz being aware of the aforesaid facts, should have taken measures of prudence, activity or assiduity, as is properly expected from and ordinarily exercised by a reasonable and prudent merchant banker and it ought to have inquired further about the relationship between Mrs Richa Mittal and Mr. Sanjeev Kumar Mittal. It is trite to say that a BRLM plays a very important and vital role in the management of an IPO. Regulation 64 of the ICDR Regulations casts a general obligation on the BRLM to exercise due diligence and satisfy himself about all the aspects of issue including the veracity and adequacy of disclosures in the offer documents. The BRLM is further obligated under regulation 64(2) to call upon the issuer, its promoters or its directors to fulfil their obligations as disclosed by them in offer document and as required under the ICDR Regulations. Thus, it is clear that the merchant banker is expected to satisfy himself about all aspects of the disclosures in the RHP and Prospectus and verify the veracity and adequacy of the information provided by the issuer and not to blindly disclose whatever the issuer informs it.

In this case, Almondz showed casual and passive approach and did not take any efforts to verify the information furnished by BGIL and mechanically disclosed the same in the RHP and the Prospectus. 15. Almondz has further contended that the transaction in question between BGIL and Gadeo related to the purchase of property from Gadeo and not to the purchase of land which could be subject matter of disclosure under clause (IV) (H) (18) of para. 2 of Part A of Schedule VIII of the ICDR Regulations and only the disclosure requirement related to acquisition of property in this case was relevant in terms of provisions of clause VIII (B) (5)(a) (iii), (iv) and 6(a) of Part A of in Schedule VIII of the ICDR Regulations. In this regard, I note that RHP of BGIL contained a specific disclosure under the head "details of utilisation of issue proceeds" that "We have entered into a Memorandum of Understanding on September 1, 2009 and Supplementary MoU dated June 3, 2010 with M/s Gadeo Electronics for taking over the said firm having immoveable property at B-60 Sector-57 Noida for the total consideration of ₹ 596.00 lakhs for purchase of Office."

Further, under the head "Other Property" in the RHP, after the description of the Memorandum of Understanding with Gadeo, BGIL has disclosed that "Since the above land /property are not owned by us, therefore no charge has been created in favour of any property by us". From these disclosures in the RHP it is clear that the transaction in question regarding the purchase of property by BGIL from Gadeo did include land, address whereof was also disclosed in the RHP. I, therefore, find that the transaction was covered under clause (IV) (H) (18) of para. 2 of Part A of Schedule VIII of the ICDR Regulations and, accordingly, reject the contention of Almondz. 16. I further, note that in addition to the disclosure of relationship of seller of the land with any promoter or director of the issuer as risk factor in terms of clause (IV) (H) (18) of para. 2 of Part A of Schedule VIII, the specific disclosures of the nature of title or interest of a director in such property/land, details of such transactions where the director has interest and his direct or indirect relation with the seller or vendor is also required to be made in the RHP under the head "About the Issuer", in terms of clause 5(a) (iii), (iv), and 6(a) of Part A of Schedule VIII of the ICDR Regulations.

In this case, however, these disclosures with regard to the transaction between BGIL and Gadeo wherein Mrs. Richa Mittal, sister in-law of Mr. Sanjeev Kumar Mittal and his father Mr. R.K. Mittal were the only partners, were not made in the RHP and the Prospectus of BGIL. Instead, it was disclosed that: "our Company has not purchased any property in which any Directors, have any direct or indirect interest in any payment made thereof." I further note that in the RHP, it was ex-facie apparent that Mr. R. K. Mittal the other partner in Gadeo is father of Mr. Sanjeev Kumar Mittal, the director of BGIL. This fact itself was sufficient to excite suspicion or raise doubts in the mind of any prudent and professional merchant banker about veracity of this disclosure. 17. In view of the above, I find that in the present case, Almondz failed to ensure that the disclosures under clauses 2 (IV) (H)18 and 2(VIII)(B) 5(a)(iii), (iv) and 6(a) of Part A of Schedule VIII of the ICDR Regulations were made in respect of the purchase of land / property from Gadeo. I, therefore, find that Almondz, failed to exercise due diligence in the IPO of BGIL in this regard as alleged in the SCN.

18. I further note that in response to the allegation in the SCN with regard to the non-disclosure of the above transaction (which was about 7.2% of the IPO proceeds) in the RHP/prospectus of BGIL as the "related party transaction", the Almondz has contended that 'related party transactions' should be disclosed in accordance with AS-18 issued by the ICAI as provided in clause IX(B)(12) of Part A of Schedule VIII of the ICDR Regulations. Since this is a self contained provision dealing with disclosure of related party transaction, for the purpose of determining whether a particular transaction has to be covered within the definition of a 'related party transaction', the definition of 'relative' provided in AS-18 should apply. I note that in terms of clause IX(B)(12) of Part A of Schedule VIII of the ICDR Regulations, the disclosures of details of related party transactions should be made in accordance with AS -18. In this case, the partners in Gadeo at the relevant time were Mrs. Richa Mittal and Mr. R. K. Mittal. Mrs. Richa Mittal is sister-in-law and Mr. R. K. Mittal is father of Mr. Sanjeev Kumar Mittal, the director of BGIL.

I note that in terms of clause 10.9 of AS-18, though sister-in-law is not included in the definition of "relative", father is included. 19. According to clause 3(d) and (e) of AS-18, the relationships of key management personnel and their relatives, and an enterprise over which such key management personnel or his/her relative is able to exercise significant influence, are covered for the purpose of related party disclosure under AS-18. In the present case, admittedly, Gadeo is a firm having only two partners and Mr. Ram Kishan Mittal, father (covered within the definition of 'relative' under clause 10.9 of AS-18) of Mr. Sanjeev Kumar Mittal, is one of them. The other partner is Mrs. Richa Mittal who is also relative of Mr. Sanjeev Kumar Mittal as per section 6 of the Companies Act. Therefore, in my view, in facts of this case, irrespective of the individual share of the said two partners in Gadeo the transaction between BGIL and Gadeo would be covered under AS-18 read with clause IX(B)(12) of Part A of Schedule VIII of the ICDR Regulations and the same ought to have been disclosed as a related party transaction in the RHP/Prospectus of BGIL.

I find that Almondz, being aware of the relationship of Mr. Sanjeev Kumar Mittal with Mr. Ram Kishan Mittal (as mentioned at page 87 of the RHP) should have applied its independent judgment and should have ensured that the transaction between BGIL and Gadeo relating to the purchase of property was disclosed as a related party disclosure. 20. The second allegation against Almondz is non-disclosure of ICD loans raised and payments made by BGIL to various entities. The facts that BGIL had raised ICD loans of ₹ 7 crore prior to the date of filing of RHP and other ICD loans of ₹ 8 crore after the date of filing of RHP but before the date of filing of Prospectus are undisputed. Further, there is no dispute that these ICD loans' amounts were used to pay various vendors and the ICD loans were repaid by BGIL from its IPO proceeds. I note that in terms of regulation 57 (2) (a) read with clause VII( G) of Part A of Schedule VIII of the ICDR Regulations, BGIL was under an obligation to disclose, in the RHP and Prospectus under the heading of “Sources of funds already deployed", "The means and sources of financing, including details of bridge loan or other financial arrangements, which may be repaid from the proceeds of the issue."

21. I further note that in terms of regulation 60(4) (a) of the ICDR Regulations, an issuer making an IPO, as in this case, is obligated to ‘make prompt, true and fair disclosure of all material developments’ which ‘may have material effect on the issuer’ and that take place between date of registering the RHP with ROC and the date of allotment of shares in the IPO. Such disclosures have to be promptly made by issuing public notices in all news papers in which pre-issue advertisement was made. Further, in terms of the Companies Act and ICDR Regulations, the Prospectus should contain all material changes that have taken place after registration of RHP. 22. It is important to note certain dates and events in this mater. Before filing of the RHP (i.e. between June 21, 2011 to June 27, 2011) BGIL had raised ₹ 7 crore ICD loans. The RHP was filed on June 28, 2011. After filing of the RHP, BGIL raised further ICD loans of ₹8 crore between June 29, 2011 to July 7, 2011. The issue opened for subscription on July 11, 2011 and closed on July 14, 2011. It is to be kept in mind that the subscriptions in the IPO were invited on the basis of the RHP which did not have disclosure of the ICD loans of 7 crore and BGIL had not issued any public notice under regulation 60(4)(a) of the ICDR Regulations about such liabilities by way of interim financing.

Thus, when the IPO was open for subscription, the investors were not aware about these liabilities of BGIL and the fact that the liabilities would be discharged out of the IPO proceeds. Further, these loan liabilities were not disclosed in the final Prospectus also. 23. In this case, these ICD loans of 15 crore would have increased the total liabilities of BGIL as on March 31, 2011 by 100%. The understatement of the liabilities of BGIL, by not adding the ICD loans in current liabilities and not disclosing the same in RHP/Prospectus, in my view, had potential to influence the investment decision of the investors in the IPO of BGIL. Being the liability of the company these ICD loans also had potential to materially affect BGIL. In my view, therefore, the disclosures about above ICD loans ought to have been made in the RHP and Prospectus and also by issuing a public notice under regulation 60(4)(a) of the ICDR Regulations. 24. In terms of regulation 57 (2) (a) read with clause VII( G) of Part A of Schedule VIII of the ICDR Regulations, the means and source of financing including details of bridge loan or other financial arrangement, which may be repaid from the IPO proceeds must be disclosed in the RHP and the Prospectus.

As already mentioned above, any interim financing after filing of RHP and before the allotment of securities must be disclosed through public notice under regulation 60(4)(a) of the ICDR Regulations. The BRLM is associated and is expected to exercise due diligence at each and every stage of IPO. While issuing the due diligence certificate the BRLM also confirms that it has examined various documents and other material in connection with the finalisation of the RHP and Prospectus and gives confirmation and certification on the basis including such examination. The BRLM also confirms and certifies that the disclosures made in the RHP and the Prospectus are true, fair and adequate to enable the investors to make a well informed decision and that the disclosures are in accordance with the requirements of the Companies Act and the ICDR Regulations. The BRLM further certifies that applicable disclosures mandated under the ICDR Regulations have been made in addition to the disclosures which, in its view, are fair and adequate to enable the investor to make a well informed decision. While filing the DRHP with SEBI along with the due diligence certificate, the BRLM also undertakes to comply with the regulations pertaining to advertisement under the ICDR Regulations.

In view of these obligations and certification, confirmation and undertakings the BRLM cannot casually rely upon the information with regard to the financial obligations and liabilities incurred by the issuer before filing of RHP without satisfying itself about adequacy and veracity of the information. In order to discharge its obligations the BRLM can rely upon the material including the records of the company. In facts and circumstances as in this case, the merchant banker should have verified the bank accounts of the issuer in which the high value transactions were reflected. A mere glance of the bank statements would have revealed the high value ICD loans that BGIL had taken, and which in turn would have reflected a substantial increase in the liabilities of BGIL. However, admittedly, Almondz even did not collect the bank statements of BGIL. I observe that Almondz in the present case was not diligent in respect of non-disclosure of ICDs as it did not take any steps to verify the adequacy and veracity of the disclosures. I, therefore, find that Almondz failed in exercising due diligence that is required from a merchant banker under the ICDR Regulations and the Merchant Bankers Regulations.

25. It is further alleged against Almondz that it failed to carry out an independent valuation in order to ascertain the adequacy, fairness and accuracy of the disclosures made in the RHP. I note that valuation of the assets referred in the SCN i.e. software and fixed assets, etc. are not in dispute. It is further noted that Almondz had relied on the valuation of assets provided by the statutory auditors which was further verified by peer review auditors. Auditors and Chartered Accountants are commonly accepted as experts in respect of matters relating to valuation of assets. Further, the SCN does not contain any specific allegation regarding the valuation of assets of BGIL disclosed in the RHP. In absence of any circumstance that raises suspicion in respect of valuation of any specific assets, I give the benefit of doubt to Almondz in respect of this allegation. 26. A merchant banker is expected to maintain high standards of integrity, dignity and fairness in its business and to fulfil its obligations in a prompt, ethical and professional manner. Further, its obligation to exercise at all times due diligence and to ensure proper care and exercise independent professional judgment require the merchant banker to observe high standards in its activities.

Besides acting as agent of the issuers while engaging with them for rendering services on payment of charges, the merchant banker is also expected to monitor the regulatory compliance by them. In the IPO process, this obligation is one of its core duties to act with due care and diligence while conducting its business. This is a duty which the merchant banker not only owes to its client but also to the securities market at large. While in discharge of its duties, the merchant banker must strike a balance between conflicting interests i.e. its pecuniary interest and the interest of the securities market. It is a settled position that the standard of due diligence expected from an intermediary depends upon the facts of the case. In this regard, following observations of Hon'ble Securities Appellate Tribunal in the matter of Imperial Corporate Finance and Services Private Limited Vs. SEBI [2005] 61 SCL 197 (SAT) is worth mentioning:- "It can be safely said that lack of due diligence should run from the facts of each case and ultimately there can be no hard and fast rule as to what constitutes lack of due diligence.

It depends entirely on the facts of each case. We however hold that before any person is found to have violated the concept of "due diligence", there must be an enquiry and the finding must be sustained by a higher degree of proof than that required in a civil suit, yet falling short of the proof required to sustain a conviction in a criminal prosecution. There must be convincing preponderance of evidence (see AIR 1984 SC 110). A Lead Manager is required to employ reasonable skill and care but he is not required to begin with suspicion and to proceed in a manner of trying to detect a fraud or lie unless such information excites his suspicion or ought to excite his suspicion as a professional man of reasonable competence." 27. In view of the above mentioned facts and circumstances, I find that, in this case, Almondz did not employ reasonable skill and care and failed to verify the veracity and adequacy of the disclosures which any ordinary prudent person could have done in the same facts and circumstances. It has, thus, failed to exercise due-diligence in respect of wrong, false and misleading disclosures of relationship of Mrs. Richa Mittal and director of the BGIL, Mr. Sanjeev Kumar Mittal, his direct or indirect interest in the property that BGIL proposed to buy from Gadeo and nature of such interest, disclosure of transaction between BGIL and Gadeo as ' related party transaction' and also in respect of non-disclosure of ICD loans raised by BGIL in its RHP / Prospectus.

Thus, Almondz has violated the provisions of regulation 64(1) of the ICDR Regulations and regulation 13 of the Merchant Bankers Regulations read with clause (1),(2),(3),(4),(6), (7) and (21) of the Code of Conduct prescribed under scheduled III thereof. In view of failure to exercise due diligence as found in the facts and circumstances of this case, I find that the due diligence certificate given by Almondz while filing the draft RHP with SEBI was not true and thus it also violated provisions of regulation 8(2)(b), (e) and (f) of the ICDR Regulations. 28. I note that Mr. Vinay Mehta is the managing director and CEO of Almondz and he acted in the same capacity while Almondz was acting as BRLM for the IPO of BGIL. As managing director and CEO of Almondz, he was, at the relevant time, in charge or control of the day to day affairs of Almondz and was responsible for the conduct of its business and management and is, therefore, liable for defaults of Almondz. The liability of the managing director for default of a company is settled by various courts in cluding Hon'ble Bombay High Court in Garda Chemical Pvt LTD V. R Parthasarthy, Asst.

Collector

Central Excise [1984] 2 ECC 384 [Bom]. I further note that Mr. Sanjay Dewan was the head of merchant banking of Almondz and he was responsible for the issue management with regard to the IPO of BGIL. He has also signed the due diligence certificate furnished by Almondz to SEBI. Being engaged in such activities he is also a person associated with securities market and expected to exercise reasonable skill and care and due diligence which he has failed as found with regard to Almondz. He cannot escape liability merely because he had no mala fide intention as claimed by him. 29. Considering the facts and circumstances of this case, particularly the degree of negligence of Almondz as found in this case, interest of investors and the integrity of the securities market, I, in exercise of powers conferred upon me under section 19 read with sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 hereby prohibit Almondz Global Securities Ltd., Mr. Vinay Mehta and Mr. Sanjay Dewan from taking up any new assignment or involvement in any new issue of capital including IPO, follow-on issue, etc. in the securities market in any manner whatsoever for a further period of six months from the date of this order. I further direct that during this period of six months, they shall not take up any assignment or involvement in buy-back of securities under SEBI (Buy-Back of Securities) Regulations, 1998, open offers under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and delisting of securities under the SEBI (Delisting of Equity Shares) Regulations, 2009. 30. This order shall come into force with immediate effect. 31. A copy of this order shall be served on the Noticees, all the recognized stock exchanges and depositories for ensuring due compliance with the above directions.

Date: March 3rd, 2014 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA