Order in respect of REI Agro Ltd.

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), conducted an investigation into the alleged irregularities with respect to preferential allotment of shares made by REI Agro Limited (hereinafter referred to as “the Noticee” or “the Company”), for the period August 09, 2004 to September 16, 2005. Based on the findings of the investigation, following facts were observed:

i. During the months of January-March 2005, the Company made several corporate announcements, inter alia, with respect to preferential allotment, increase in its authorized capital, issue of Foreign Currency Convertible Bonds (FCCBs)/ADRs/GDRs etc. ii. Pursuant to the Board Meeting of the Company held on January 25, 2005 and EGM held on March 09, 2005, the Company had, on March 22, 2005, allotted 38, 46, 154 equity shares on preferential basis to the following 05 entities:

a. Tripti Merchants Pvt Ltd.; b. Nirmit Vyapar Pvt. Ltd.; c. Design Vinomay Pvt. Ltd.; d. Bhajan Business Pvt. Ltd.; and e. Mirik Commercial Pvt. Ltd. (The aforesaid entities are hereinafter collectively referred to as “the preferential allottees”). iii. The Company had received an amount of Rs. 50,00,00,020/- (Rs. Fifty Crores and Twenty only) in total, as application/allotment money, during March 10-21, 2005, from the preferential

Order in the matter of REI Agro Limited allottees. The party-wise break-up of the said preferential allotment of shares and subscription amount received are as under: Sr. No. Name of the allottee No. of Total shares subscription amount (in Rs.) 1. Tripti Merchants Pvt. Ltd. 769231 10,00,00,030/- 2. Nirmit Vypar Pvt. Ltd. 615384 7,99,99,920/- 3. Design Vinomay Pvt. Ltd. 692308 9,00,00,040/- 4. Mirik Commercial Pvt. Ltd. 846154 11,00,00,020/- 5. Bhajan Business Pvt. Ltd. 923077 12,00,00,010/- Total 38,46,154 50,00,00,020/- iv. However, permission for listing and consequent trading of shares, as allotted under the preferential allotment, was not granted by the stock exchange. Therefore, in pursuance of the Board Resolution dated February 02, 2006, the Company withdrew the issue/allotment of aforesaid 38,46,154 shares; cancelled the shares and refunded the money to the preferential allottees between February 06 and March 31, 2006. An intimation with regard to the cancellation of shares was also filed by the Company with the Registrar of Companies. v. Hi-Fi Tradecom Private Limited (hereinafter referred to as “Hi-Fi”) was one of the entities who traded largely in the scrip of the Company during the investigation period.

It was observed that Hi-Fi had received a sum of Rs. 7,10,00,000/- (Rupees Seven Crore and Ten Lakh) from the Company on March 18, 2005. The said amount was onward transferred on March 19, 2005 by Hi-Fi to Tripti Merchants Private Limited; Nirmit Vyapar Private Limited; Design Vinomay Private Limited; and Mirik Commercial Private Limited. The said four entities were preferential allottees of the Company, as noted above. It was further observed that one of the promoters of the Company viz., Ms. Kausalya Devi Jhunjhunwala was also the director of Hi- Fi. Further, Ms. Kausalya Devi Jhunjhunwala is the mother of Mr. Sanjay Jhunjhunwala (Chairman of the Company) and Mr. Sandeep Jhunjhunwala (Managing Director of the Company). Thus, Hi-Fi was observed to be connected company of the Noticee Company. vi. The Company as well as Hi-Fi claimed that out of Rs. 7.10 Crore received by Hi-Fi, Rs 4.00 Crore was received towards repayment of advance/loan taken by the Company from Hi-Fi during November 2004 for working capital requirement. However, no written agreement was executed for availing the said loan.

The rest of the amount, i.e., Rs. 3.10 Crore was transferred to Hi-Fi, on behalf of another entity, namely, Rajkamal Marketing Private Limited (hereinafter referred to as “Rajkamal”), from which the Company had taken interest free loan, which again was taken without entering into any written agreement with Rajkamal. vii. The Directors of Rajkamal at the relevant time were Ms. Sangita Jhunjhunwala, Ms. Saruchi Jhunjhunwala and Mr. K.K. Jajodia. Mr. K.K. Jajodia was working as Manager with the Company and the other two aforesaid Directors were promoters of the Company and family members of Chairman and Managing Director of the Company. Thus, Rajkamal was also found to be a connected entity to the Noticee Company. viii. The Company was asked to provide the details of preferential allottees and copies of share application received from the said preferential allottees. The Company, however, failed to provide the copies of share applications and submitted that the same were missing. Letters/Summons issued to the preferential allottees during investigation returned back undelivered. ix. It was observed that the preferential allottee companies were incorporated during February 15-16, 2005 and all the Directors of these preferential allottees (companies) were appointed on February 26, 2005, i.e., just around a month before the preferential allotment was made.

The preferential allottees shared some common Directors and the Directors were having common addresses with each other. The authorized capital of each of the preferential allottee companies was Rs. 2.00 lakhs. Prima facie, it was observed that these companies were incorporated only with a view to allot shares to them under preferential issue by the Company.

2. Based on the aforesaid findings, a Show Cause Notice dated September 11, 2009 (hereinafter referred to as “the SCN”) was issued to the Noticee, wherein it was alleged that out of the total preferential allotment amount of Rs. 50.00 Crore (approx.), the Company had itself funded such allotment to the extent of Rs. 7.10 Crore. All the preferential allottees were connected to each other through common directors, common addresses, date of incorporation etc. Out of the five preferential allottee companies, four were fraudulently funded by the Noticee Company through its connected entity Hi-Fi for the purposes of subscribing to/purchasing its own shares under preferential allotment. As alleged in the SCN, by the said acts and omissions, the Company violated Section 77 of Companies Act, 1956, for the fact that the Company had bought its own shares through the preferential issue made in favour of the four preferential allottees. It is further alleged in the SCN that the Company did not receive the full consideration money towards the preferential issue and still issued the shares in a fraudulent manner thereby violating Regulation 3(b), (c), (d) and 4(1) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”).

3. It is noted that the during the pendency of the present proceedings, Noticee had filed a consent application and sought disposal of the present proceedings through a consent order. However, the said consent application was rejected and the same was communicated to the Company vide letter dated September 30, 2011 of SEBI. 4. The Company, vide its reply dated September 24, 2009, filed its response to the allegations levelled in the SCN. It has been contended in the said reply that: i. The SCN alleges violations of provisions based on the assumption that the Company had funded four entities for an amount of Rs. 7.10 Crore and the said allegations are baseless. ii. The decision of making preferential allotment of 38,46,154 shares at Rs. 130.00 per share to the 05 entities, was taken by Board of Directors in the meeting held on February 25, 2005. The object was to meet the funds requirement for the business expansion of the Company and the said five entities had expressed their interest in making the investment in the Company. In pursuance of the same, notice to shareholders was issued for convening EOGM on March 09, 2005. As requisite approval was received, the shares were allotted to the 05 entities against which a total amount of Rs. 50,00,00,020/- was received by the Company which is evidenced from bank account statements.

Necessary returns were filed with the Registrar of Companies and application for listing of the said shares was made to stock exchange, i.e., BSE Ltd. (hereinafter referred to as “BSE”). iii. As BSE did not list the said shares, many correspondence were exchanged by the Company with it and all the documents/clarifications were furnished. In the meanwhile the preferential allottees kept pressurizing the Company to expedite the listing of the shares or return the money by cancelling the shares. iv. As nothing was forthcoming from BSE with respect to grant of listing of the said shares, the matter was getting prolonged and protracted. The pressure from the preferential allottees constrained the Company to cancel the shares. Therefore, the Board of Directors in the meeting held on February 02, 2006, decided to cancel the said shares which were allotted on preferential basis. The total amount of Rs. 50,00,00,020/- was returned by the Company to the respective preferential allottees. Copy of bank account statement has also been furnished in support of the refund/return of money. The charges levelled in the SCN are restricted to alleged funding of Rs. 7.10 Crore out of the total amount, i.e., Rs. 50 Crore (approx.) which is insignificant to sustain the charges. v. The entities, with respect to whom allegation of funding have been made, had paid more amount that what has been alleged to be funded.

Further, the said allottees had sound financial capacity to pay their subscription amounts and there was no reason for them to seek funds from the Company nor was there any reason for the Company to fund them for subscribing to the shares under the preferential allotment, as alleged in the SCN. vi. Further, the Company had received Rs. 4.00 Crore on November 12, 2004, as inter corporate deposit (hereinafter referred to “ICD”) from Hi-Fi, for meeting its working capital requirement. Copy of bank account statement has been furnished in support. vii. The Company had received Rs.3.50 Crore on November 16, 2004 and December 14, 2004, as ICD, from Rajkamal, for meeting its working capital requirement. Copy of bank account statement has been furnished in support. viii. Out of the said amount of Rs. 3.50 Crore, the Company had repaid Rs 15.00 lakhs & Rs 25.00 lakhs on February 7, 2005 & February 8, 2005, respectively, to Rajkamal. ix. On March 18, 2005, the Company had paid an amount of Rs 7.10 Crore to Hi-Fi. Out of the said amount of Rs 7.10 Crore, Rs. 4.00 Crore pertained to the ICD, borrowed by the Company from Hi-Fi earlier, and the balance amount of Rs.3.10 Crore was paid by the Company to Hi-Fi on the request of Rajkamal on its (Rajkamal’s) behalf.

Copy of bank account statement has been furnished in support. x. The Company had to repay Rs 3.10 Crore to Rajkamal, borrowed by it earlier. Since Rajkamal requested the Company to pay the said amount of Rs 3.10 Crore to Hi-Fi, the Company paid Rs 3.10 Crore to Hi-Fi on March 10, 2005. A copy of letter dated March 10, 2005 sent by Rajkamal to the Company requesting it to make the payment of Rs 3.10 Crore on its behalf to Hi- Fi, has also been furnished. xi. All the said transactions were normal borrowing transactions carried in the ordinary course of business. The Company had entered into such transactions with Hi-Fi and Rajkamal in the past also. The Company is not aware and can’t be held responsible for as to how Hi-Fi has utilized the said amount of Rs. 7.10 Crore, repaid by the Company. Hi-Fi is a separate legal entity and the Company has no control over it. xii. The copies of Share Application Forms are not traceable, as the allotment pertained to the year 2005. No adverse inference can be drawn on the said non-submission of the documents, as shares have already been cancelled and money has been refunded to the preferential allotteess due to non-listing of the shares. xiii.

No adverse inference can be drawn merely due to the fact that the preferential allottees were incorporated, around a month before the preferential allotment, i.e., during February 15-16, 2005 nor due to the fact that some of the directors, shared common directorship and common addresses, as alleged. There is no prohibition on subscribing to shares of other companies by newly incorporated companies.

xiv. Till the time amount of subscription of shares is being paid, an issuer company may not be concerned whether such subscriber is an old company or a new company. The Company had no connection with preferential allottees nor had any role to play in their incorporation. As the said companies had paid the entire amount of Rs. 50.00 Crore (approx.) towards the subscription amount, the Company had no reason to suspect their bonafides/financial capabilities. xv. There was no chain of fund flows from the Company to Hi-Fi and then to the preferential allottees. The Company has denied that based on the alleged relationship between the Company, Rajkamal and Hi-Fi, it can be alleged that the incorporation of preferential allottees was done solely for the purpose of preferential allotment. The said allegations are vague and baseless. The mere fact of repayment of money which was borrowed earlier cannot be a basis of allegation of funding for subscription of its preferential allotment. xvi. There is nothing on record to substantiate that: (a) How the Company is connected to the preferential allottees without any shareholding of the Company in them, none of their directors are directors of them and there are no financial transactions with them; (b) How the Company is responsible for incorporating the preferential allottees and what was the role played by it; (c) How funds have been provided to preferential allottees.

The transfer of funds by Hi-Fi without its involvement cannot lead to the conclusion that funds have been transferred by the Company, as Hi-Fi is a separate legal entity and the Company has no control over its affairs. 5. An opportunity of personal hearing was granted to the Noticee on May 21, 2010 and the intimation of date of hearing was communicated vide letter dated May 03, 2010. The Noticee, vide its letter dated May 14, 2010 requested for an adjournment of the personal hearing by four weeks as its EGM was scheduled to be held on May 22, 2010. Accordingly, another opportunity of personal hearing was granted to the Noticee on June 21, 2010. On the said date, Authorized Representative of the Company appeared and made oral submissions on behalf of the Noticee. A time of 15 days was sought to file written submissions, however, the same were not filed. 6. Meanwhile, the application filed by the Noticee seeking settlement of the instant proceedings under the consent mechanism did not yield in settlement of the proceedings and accordingly, the rejection of the application filed for settlement was communicated by SEBI to the Noticee vide letter dated September 30, 2011. Therefore, the Noticee was granted another opportunity of personal hearing on December 02, 2011. The authorized representative appeared on behalf of the Noticee and sought adjournment on the ground of pendency of another proceedings against the directors of the Company.

During the pendency of the proceedings, it was noticed from the website of BSE that the Company is under liquidation in terms of the order passed by National Company Law

Tribunal, Kolkata. As the hearing could not take place on the day scheduled for hearing, the hearing was rescheduled on April 04, 2019, which was further postponed to July 03, 2019. The intimation for the said date fixed for personal hearing was given to the Company (by way of affixture at its address) as well as to the Insolvency Professional appointed as Liquidator of the Company, viz., AAA Insolvency Professionals LLP. However, no one appeared for the hearing on the said date. 7. Based on the SCN, I find that the limited issue that arises for my consideration in the present matter is as to whether the Company had actually funded the allottee companies to subscribe to its own shares so as to hold the said acts of funding as manipulative and fraudulent in terms of the provisions of PFUTP Regulations. 8. Before I proceed to examine the issues involved in the instant proceedings, I deem it fit to refer to and reproduce the relevant provisions of law involved in the SCN for ready reference. The said provisions are as under: Companies Act, 1956 77. Restrictions on Purchase by Company, or Loans by Company for Purchase, of its own or its Holding Company's Shares (1) No company limited by shares, and no company limited by guarantee and having a share capital, shall have power to buy its own shares, unless the consequent reduction of capital is effected and sanctioned in pursuance of sections 100 to 104 or of section 402. (2) No public company, and no private company which is a subsidiary of a public company, shall give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or in its holding company: Provided that nothing in this sub-section shall be taken to prohibit - (a) the lending of money by a banking company in the ordinary course of its business; or (b) the provision by a company, in accordance with any scheme for the time being in force, of money for the purchase of, or subscription for, fully paid shares in the company or its holding company, being a purchase or subscription by trustees of or for shares to be held by or for the benefit of employees of the company, including any director holding a salaried office or employment in the company; or (c) the making by a company of loans, within the limit laid down in sub-section (3), to persons (other than directors or managers) bona fide in the employment of the company with a view to enabling those persons to purchase or subscribe for fully paid shares in the company or its holding company to be held by themselves by way of beneficial ownership.

(3) No loan made to any person in pursuance of clause (c) of the foregoing proviso shall exceed in amount his salary or wages at that time for a period of six months. (4) If a company acts in contravention of sub-sections (1) to (3), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ten thousand rupees. (5) Nothing in this section shall affect the right of a company to redeem any shares issued under section 80 or under any corresponding provision in any previous companies law.

SEBI PFUTP Regulations 3. Prohibition of certain dealings in securities No person shall directly or indirectly— (a) …; (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 there under; (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 there under. 4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities.”

Consideration: 9. I have perused the SCN, the reply of the Company and other material available on record and after carefully considering all of the said documents, my observations are as under: i. There is no dispute that the Company had made a preferential allotment of 38,46,154 shares at Rs.130.00 per share (face value of Rs.10 per share with premium of Rs.120 per share), to five preferential allottees, viz., Tripti Merchants Private Limited, Nirmit Vyapar Private Limited, Design Vinomay Private Limited, Mirik Commercial Private Limited and Bhajan Business Private Limited. A total sum of Rs. Rs.50,00,00,020/- (Rupees Fifty Crore and Twenty) was received by the Company against the said preferential allotment during the period March 10-21, 2005. In the course of investigation into the allotment of shares and receipt of considerations, it was noticed that there was a transfer of Rs 7.10 Crore on March 18, 2005, from the account of the Company to Hi-Fi, which was prima facie connected to the Company. After receipt of the said amount, it was further transferred by Hi-Fi on the very next day, i.e., on March 19, 2005 to four allottee entities, who were allotted shares under preferential allotment by the Company.

Under the aforesaid facts and circumstances, it was alleged that the Company had funded the subscription to its own preferential issue and the said act of providing funds to the preferential allottees for utilizing the same towards subscribing to the shares of the Company would be in violations of provisions of Companies Act, 1956 and provisions of PFUTP Regulations as alleged in the SCN. ii. From the replies of the Company, as summarized under Para 4 of this order, I find the Noticee Company has vehemently opposed to the allegations of funding and has submitted that the allegations have been made on the basis of surmises without any evidence to corroborate the said allegations. The Company has submitted that the decision to issue preferential allotment was made after compliance with due procedure and the mere fact that the preferential allotment was made to the entities which were incorporated few days before such preferential allotment, would not have any relevance to the allotment of shares. It has been contended by the Company that the facts pertaining to the incorporation of the allottee entities has no significance considering the fact that the allegation of funding is limited to only Rs. 7.10 Crore, as compared to the total amount received by the Company under the preferential allotment which was Rs. 50.00 Crore (approx.).

The SCN has not found anything objectionable with respect to the subscription of the balance amount of Rs. 42.90 Crore, even though the same amount was received from the very same allottee entities, which got incorporated almost a month ago prior to the allotment and each of them was having paid up capital of Rs. 2.00 lakh only. iii. It is noted that while denying its relations or association with any of the preferential allottees, the Company has explained that the transfer of fund to the tune of Rs. 7.10 Crore to Hi- Fi was towards repayment of loan of Rs. 4.00 Crore which was advanced by Hi-Fi to the Company on November 12, 2004. Insofar as the payment of balance transfer of Rs 3.10 Crore by the Company to Hi- Fi is concerned, it has been submitted that the same was made on account of repayment of the amount received by the Company, from Rajkamal. The Company has submitted that it received an amount of Rs. 1.50 Crore from Rajkamal on November 16, 2004 and the remaining Rs. 2.00 Crore was received on December 14, 2004. Out of the said amount, the Company had already repaid Rs. 40 Lakh.

The transfer of Rs. 3.10 Crore to Hi-Fi was pursuant to request made by Rajkamal, vide letter dated March 10, 2005, by which Rajkamal had requested Noticee Company to make the balance outstanding amount of Rs. 3.10 Crore on their behalf to Hi-Fi. I note that the Company has submitted the bank account statements as well as copy of the letter March 10, 2005 from Rajkamal in support of its submission. iv. One can appreciate from the SCN that the charge levelled against the Noticee Company is limited to the alleged funding of Rs 7.10 Crore by the Company to the four allottee entities. This allegation again, hinges on its connected entity, Hi-Fi, to which the aforesaid amount of Rs. 7.10 Crore was transferred by the Company and Hi-Fi in turn, transferred the said amount to four allottee companies. Thus, Hi-Fi is the suspected link or conduit through which the Company has allegedly transferred Rs. 7.10 Crore to those four allottees entities who subscribed to the preferential issue of the Company. Under the circumstances, based on the allegations made in the SCN along with documents available in record in support of the allegations, reply received from the Noticee and documents furnished in support of the submissions advanced by it, I proceed to examine as to whether the allegations of funding by the Company stand established or not. v. Before proceeding further, it is deemed relevant to re-visit the details of the five entities, the amounts of subscription made by them, the amount allegedly financed to them by the Company, number of shares subscribed and the total consideration paid by those 05 entities etc., which are as under: Name of the No. of Total Subscription Amount not allottee shares subscription amount alleged financed (in Rs.) amount (in to be financed Rs.) (in Rs.) Tripti Merchants Pvt. 769231 10,00,00,030/- 2,40,00,000/- 760,00,030/- Ltd. Nirmit Vypar Pvt. 615384 7,99,99,920/- 1,00,00,000/- 6,99,99,920/- Ltd. Design Vinomay Pvt. 692308 9,00,00,040/- 2,00,00,000/- 7,00,00,040/- Ltd. Mirik Commercial 846154 11,00,00,020/- 1,70,00,000/- 930,00,020/- Pvt. Ltd. Bhajan Business Pvt. 923077 12,00,00,010/- No charge Not financed Ltd. 3846154 50,00,00,020 7,10,00,000 30,90,00,010 Total vi.

From the above, it is noted that there were 05 entities to whom shares were allotted on a preferential basis and out of those 05 entities, allegations of funding of Rs. 7.10 Crore have been made qua 04 entities. The allegations in the SCN is that these 04 entities have been partly funded to subscribe shares in the preferential allotment. There is nothing adverse found in the course of investigation pertaining to the balance subscription amount paid by these 04 entities against the shares allotted to them. The Company has submitted that Hi- Fi is a separate legal entity and is not under its control. The Company has denied that it has any connection with the preferential allottees. vii. After perusing the materials available on record, I find substance in the arguments advanced by the Noticee. In my view merely on the fact that there was fund transfer by the Company to its connected entity, Hi-Fi, and from Hi-Fi to another four entities who were subscribers to the preferential allotment made by the Company, we may at best raise a bonafide doubt about the nature of such transactions but without any other materials to corroborate such doubt about the said transfer of funds, it would not be proper to hold that such transfer of fund by its connected entity to four different entities is sufficient to establish the charge of funding, more particularly, when the transfer of the funds have been adequately explained.

I find that the allegations of funding of subscription to its own preferential issue is not substantiated by any evidence to show that the four subscribers were otherwise financially not capable to subscribe to the preferential issue more so when the remaining subscription amount paid by each of these four entities ranging between Rs. 7-9 Crore was not been questioned vis-à-vis their financial capabilities. There is no evidence on record either in the form of bank statement or otherwise based on which it can be said that had the funds not been transferred, the 04 entities would not have been in a position to subscribe to the shares in the preferential allotment. viii. The submissions of the Noticee further find strength from the explanations with supportive documents, made by the Company to justify the transfer of Rs 7.10 Crore to Hi-Fi. From the perusal of the bank statement and ledger accounts as submitted by the Noticee, I find entries for receipt of Rs 4.00 Crore on November 12, 2004, Rs 1.50 Crore on November 16, 2004 and Rs 2.00 Crore on December 14, 2004 by the Company. It is noted that nothing adverse have been found in the investigation against the above accounting entries and accordingly no imputation was made in the SCN controverting the receipt of the aforesaid amounts by the Noticee Company.

Therefore, in the absence of any evidence controverting the receipt of the aforestated amounts by the Company, I find no reason not to be persuaded by the justification advanced by the Noticee Company. ix. The SCN contains allegations of funding to the tune of Rs 7.10 Crore and the allegations have been framed based on certain facts such as the subscribers entities were incorporated just few days before the preferential allotment and each of the entities were incorporated with a paid up capital of Rs 2.00 Lakh only. Further, summons issued during the course of investigation to these entities returned back undelivered. In this respect, as seen from the above table, the 04 entities had together subscribed to 29,23,077 shares against a total consideration of Rs. 38,00,00,010/- and out of that total consideration, Rs 7.10 Crore was alleged to have been received by them from the Company through its connected entity Hi- Fi. As pointed out earlier, the investigations have not found any evidence raising suspicion of any kind, on the balance amount of Rs 30,90,00,010/- which was used by the same 04 entities to subscribe to the shares of the Company in the preferential allotment.

Further, the Company has furnished letter addressed by Rajkamal and evidence of receipt of loan from Rajkamal. The reason for Hi-Fi receiving funds on behalf of Rajkamal has been duly explained. Therefore, in the absence of any tangible evidence to prove the nexus between the Company and four allottee entities, I see no reason to draw any adverse inference from the fact that the 04 entities, which got incorporated a month before the preferential allotment with meagre paid up capital and received fund from an entity connected to the Company, were incorporated for clandestine reasons and the funds of Rs. 7.10 Crore transferred to these entities were solely used for subscribing to the shares of the Noticee Company. x. I further observe from the record that even the 5th preferential allottee, i.e., Bhajan Business Pvt. Ltd., which had subscribed 923077 shares, (maximum number of shares in the preferential allotment) against a total consideration of Rs. 12,00,00,010/-, was also found to have been incorporated around the same time and was also having a paid up capital of Rs. 2.00 lakh only.

However, since this entity has not received any fund from Hi-Fi, subscription made by it to the preferential issue, has not been adversely viewed. Understandably, the fact that each of the entities was incorporated few days before the preferential allotment with a paid capital of Rs. 2.00 Lakh, could be a valid reason to raise suspicion for investigation. However, in the absence of any credible piece of evidence, such suspicion would not be adequate enough to infer any preponderance of probabilities to suggest that these entities had actually got their incorporation done only to subscribe to the shares under preferential allotment by the Company and that the funds received by these entities were used to subscribe the same. xi. It is observed that there is no specific allegation in the SCN with regard to the association of the 04 preferential allottees, with the Noticee Company. It is further observed that nothing has come out in the investigation pointing that the Noticee Company had any direct or indirect role in incorporation of the preferential allottees. Further, it also not a case where the Noticee Company or its promoters/directors have been alleged to have any connection in the incorporation or management of the preferential allottees.

I note that the mere fact of funds movement which formed the basis of the allegation in the SCN are not sufficient enough to establish the charge of funding for subscribing to the shares of the Noticee Company by the above noted four allottee entities. xii. Moreover, it is also noted that the shares allotted under the preferential allotment were subsequently cancelled by the Company as the permission from the stock exchange with respect to listing of shares was not forthcoming. The Company has also submitted that subsequent to the cancellations of shares, as aforesaid, the share subscription amount were duly returned to the respective allottees and there is no adverse findings or observation in the investigation report either disputing the aforesaid facts or against the amounts that were refunded by the Company to all the preferential allottees, which included the amount of Rs. 7.10 Crore allegedly funded by the Noticee Company to those allottees.

10. To sum up, it is observed that the allegation of funding by the Company to 04 allottee entities has been made on the strength of trail of fund transfer from the Company to the subscribing entities via its related entity viz., Hi-Fi. However, on the examinations of the materials available on records, the explanation and evidences furnished by the Noticee Company and based on my observations as recorded above in para 9, I find that the evidences available on record and relied upon in the SCN are not sufficient enough to establish the charge that the Company had indirectly purchased its own shares. The explanations furnished by the Noticee Company along with documents in support thereof, provide a plausible and reliable submission to controvert the allegations made in the SCN. Having been satisfied with the explanations furnished by the Noticee Company with respect to the transfer of fund of Rs. 7.10 Crore and in light of the fact that there is no allegation regarding funding of the balance subscription amount, in my view the charge of funding of subscription to its own shares by the Noticee is not established. Since, the charge of funding the preferential allottees has not been established, the consequent charges of manipulative and unfair trade practices also are not proved. Accordingly, the instant proceedings deserves to be disposed of without any direction.

Directions:

11. I, therefore, in exercise of the powers conferred under Section 11 and 11B read with Section 19 of SEBI Act, hereby dispose of the proceedings initiated against REI Agro Limited. 12. A copy of this order shall be served on the Company as well as to AAA Insolvency Professionals LLP (the liquidator).

-Sd- Date: October 17, 2019 S. K. MOHANTY Place: Mumbai WHOLE TIME MEMBER