Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

WTM/SM/IVD/MRD/ID5/DRMNP/ 20599/2022-23 SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: S. K. MOHANTY, WHOLE TIME MEMBER ORDER UNDER SECTION 11(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF SECUNDERABAD HEALTHCARE LIMITED In respect of Noticee No. Name of the Noticee PAN 1. Secunderabad Healthcare Limited AACCS8246B The above-mentioned entity is referred to as Noticee no. 1 as assigned in the Show Cause Notice dated July 19, 2019) BACKGROUND 1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) passed an order dated April 30, 2021 (hereinafter referred to as “SEBI Order”) against Secunderabad Healthcare Limited (hereinafter referred to as “SHL/Company”) and 9 other entities, alleging receipt of equity shares allotted to these 9 entities by the Company post conversion of warrants for which full consideration was not paid and therefore observed to have got benefited by the Company and further caused loss to the other shareholders of the Company. Further, the proceeding against one allottee i.e., Anvita Trading Co. Private Limited (Noticee no. 9 therein) was disposed of without any direction. The following directions were issued vide the above mentioned SEBI Order: “37) In view of the facts and circumstances of the case and the aforesaid discussions and findings, I, in exercise of the powers conferred upon me under Section 19 read with Sections 11(1), 11(4), 11B of the SEBI Act, 1992 hereby pass following directions: i. The Noticee no. 1 is directed not to access the securities market, directly or indirectly, by issuing prospectus, offer document or advertisement soliciting money from the public for a period of 02 years and is further restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, for a period of 02 years. ii. The Noticee no. 2 to 8 and 10 are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly in any manner whatsoever for a period of 02 years from the date of this order.

Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

iii. The Noticee no. 1 is directed to collect the balance consideration from the Noticee no. 2 to 8 and 10 and the Noticee no. 2 to 8 and 10 are directed to pay the balance consideration to the Noticee no. 1 in terms of amount shown to be recovered in Table no.-5 of the order. The above collection and payment shall be completed within a period of 60 (sixty) days from the date of this order. iv. The Noticee no. 2 and 3 shall disgorge the wrongful gain of INR 6,85,98,216/- and INR 3,71,22,625/-, respectively with simple interest @ 6% per annum till the date of actual payment. For the purpose calculation of interest, the period shall commence from December 2012 for the Noticee no. 2 and August 2013 for the Noticee no.3, respectively and continue till the date of actual payment made. The wrongful gain of INR 6,85,98,216/- and INR 3,71,22,625/- along with interest shall be remitted by them to Investor Protection and Education Fund (IPEF) as referred to in Section 11(5) of the SEBI Act, 1992, and intimation, if any may be forwarded to “Division Chief, Enforcement Department-1, DRA-4, Securities and Exchange Board of India SEBI Bhavan II, Plot no. C-7, "G" Block, Bandra Kurla Complex, Bandra (E), Mumbai-400 051”.

In case, the Noticee nos. 2 and 3 fail to comply with the said direction, they shall be restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in the securities market, till the actual payment of disgorgement amount or till the completion of the debarment directed at sub-paragraph (ii) above, whichever is later. v. The Banks, with whom the Noticee no. 2 and 3’s accounts are maintained, are directed that no debit shall be made, without permission of SEBI, in respect of the bank accounts held by them except for the purposes of compliance of this order. vi. The Noticee no. 2 and 3 are directed to furnish details of assets, properties owned directly or indirectly by it respectively and further directed not to dispose of or alienate any of his assets/ properties/ securities, till such time the direction of this order is complied with. vii. The Noticee no. 1 having received the balance consideration as directed in terms of sub-paragraph (iii) above is directed to furnish to SEBI, a Certificate from a Chartered Accountant along with necessary documentary evidencing certifying the compliance of this direction and said Certificate will be furnished within a period of 03 months from the date of this order. viii.

This direction is without prejudice to any other action including action for recovery of such amounts from these Noticees which may be initiated by SEBI. ix. It is further clarified that during the period of restraint, the existing holding of securities including the holding of units of mutual funds of the Noticee nos. 1 to 8 and 10 shall remain under freeze. x. Obligation of the aforesaid the Noticee nos. 1 to 8 and 10, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange (s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order, only in Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

respect of pending unsettled transactions, if any. Further, all open positions, if any, of the aforesaid Noticees in the F & O segment of the stock exchange, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order. xi. In light of my observations noted at paragraph 26 of this Order, proceeding against the Noticee no. 9 is disposed of without any direction.” 2. Aggrieved by the above SEBI Order, the Company filed Appeal no. 667 of 2021 before the Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT/Tribunal”). The Hon’ble SAT vide its order dated October 29, 2021 allowed the aforesaid appeal and remitted the matters to SEBI for reconsideration of the issue after considering the annual reports and such other evidence that may be placed by the Company and/or 9 allottees. 3. In this regard, I note that SEBI had issued a Show Cause Notice dated July 19, 2019 (hereinafter referred to as “SCN”) to the Company and 9 entities/allottees asking them to show cause as to why appropriate directions should not be issued against them under Sections 11(1), 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 ( hereinafter referred to as “SEBI Act, 1992”) for allegedly violating the provisions of Section 12A(a),(b),(c) of the SEBI Act, 1992, Regulations 3(a),(b),(c),(d) and 4(1) of the 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”) and Regulations 77(1) and 77(3) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as “ICDR Regulations”).

4. The brief facts pertaining to the Company that are necessary for the disposal of the matter at hand, as contained in the SCN, are as under: 4.1 On October 14, 2010, SHL had allotted 8,00,00,000 warrants convertible into 8,00,00,000 equity shares of INR 10 each for cash at a premium of INR 8.60 per share on preferential basis to 27 non-promoter entities on the following terms of payment: (a) At least 25% shall be payable before the allotment of warrants and balance on or before 18 months from the date of allotment or else the money received for the allotment of warrants shall be forfeited by the Company. (b) In the event convertible warrants are issued, the same shall, at the option of the allottee, be converted into equivalent number of equity shares in one or more tranches but before expiry of 18 months from the date of allotment. 4.2 Upon first tranche of conversion of warrants to shares, SHL allotted 4,00,96,000 equity shares to 13 entities (including the entities referred to as Noticee nos. 2, 3, 4 and 9 in the SCN dated July 19, 2019) on March 02, 2011 and the said shares were under lock-in till

Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

March 01, 2012. Pursuant to second tranche of conversion of warrants into shares on March 31, 2012, SHL allotted 3,99,04,000 equity shares to 16 entities (including the entities referred to as Noticee nos. 5, 6, 7, 8 and 10 in the SCN dated July 19, 2019) and the said shares were also under lock-in till March 30, 2013. 4.3 From the analysis of the information gathered during the investigation including the information provided by SHL vide its email dated September 10, 2018 regarding the funds received from 15 out of the 27 allottees, it was observed that there were variations in the funds received from certain allottees i.e. there were either excess or shortage of amounts due to refunds of money by the Company to some of the allottees. Therefore, SHL was asked to furnish detailed information in this regard, however, no proper information was provided regarding such variations despite reminders being sent advising SHL to provide information regarding such variations. 4.4 In view of the above, it has been alleged in the SCN that the Noticee nos. 2 to 10 had received equity shares allotted to them by the Company post conversion of warrants, without paying the full consideration.

Since, the documents furnished in the course of investigation did not show with sufficient evidences that the Noticee nos. 2 to 10 had paid full consideration for the conversion of warrants to equity shares, the Noticee nos. 2 to 10 were alleged to have been benefited by the Company and by such non-payment has caused loss to the other shareholders of the Company. 4.5 It is further noticed that the Noticee nos. 2 to 10 were enjoying connection to the Company i.e., SHL/promoters of SHL through a network of common directors. 4.6 It has also been noticed that although the Company at that time gave a public impression of capital infusion through preferential allotment, but in reality, the Company, inter-alia, allotted shares to the Noticee nos. 2 to 10 without receiving full consideration from them thereby providing huge amount of monetary benefit to them and therefore, SHL and other allottees including the Noticees are alleged to have perpetrated a fraud on the shareholders and the ordinary investing public who had transacted in the shares of the Company post preferential allotment. REPLY, PERSONAL HEARING AND SUBMISSIONS 5. Pursuant to passing of the aforesaid SAT order, SEBI vide emails dated November 26, 2021 alongwith reminders dated January 06, 2022 and February 01, 2022 advised the Company to file its reply in compliance of the said SAT Order.

Since the Company had not filed the reply, SEBI vide letter dated April 08, 2022 once again advised the Company to file its reply within 10 days of the receipt of the said letter. However, the Authorized Representative (AR) of the Company vide email dated April 16, 2022 had requested for extension on the ground that it was in the Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

process of preparing the reply and sought for 3 weeks’ time to file its reply. The said request made by the AR on behalf of the Company was acceded to as a final and last opportunity for it to file its reply in this regard. Accordingly, the Company has filed its reply to the SCN vide letter dated April 27, 2022 which was received by email dated May 04, 2022. Vide the aforesaid reply, the Company has inter alia submitted as under: a) The SCN is issued with a delay of over 9 years from the date of the transactions and on this ground of delay alone the SCN is liable to be set aside. Section 11B of the SEBI Act is a drastic power and the same cannot be exercised with such a delay. b) As regards non furnishing of information, at the relevant time, the Company was unable to lay its hands on the relevant records as the transactions were a decade old and the SCN was issued in 2019. Pertinently, as can be seen from the Annual reports of 2010, 2011 and 2013 read with the disclosures of the Company made on October 19, 2010, March 04, 2011 and April 03, 2012 the Company had received the entire payment w.r.t. to the convertible warrants issued on preferential basis before allotment and in compliance with the ICDR Regulations and SEBI Act, 1992. c) The Company vide its disclosure dated April 03, 2012 made on the BSE Ltd. regarding outcome of the Board meeting held on March 31, 2012 has disclosed as under: “Secunderabad Healthcare Ltd has informed BSE that the Board of Directors of the Company at its meeting held on March 31, 2012, has decided to issue and allot equity shares in lieu of Convertible Equity Warrants to the allottees consequent to their exercising option to convert warrants by paying balance 75% consideration towards the same.” d) As per the Annual Reports of the Company for the years 2010, 2011 and 2013 which are available in the public domain (published on the BSE Ltd.) the auditors of the Company had recorded, receipts of the entire consideration by the Company towards issue and conversion of convertible warrants issued by it.

Moreover, no qualifications have been given by the auditor in the Annual Report w.r.t. conversion of warrants and consideration towards the same. e) Since the full consideration has been received by the Company, the Company denies that it was part of a fraudulent arrangement through which it had perpetuated fraud on the other allottees, shareholders and also on the ordinary investing public who had transacted in the shares of the SHL post issuance of the aforesaid preferential allotment and thereby denied to have been acted in violation of the provisions of Section 12A(a),(b),(c) of the SEBI Act, 1992 and Regulations 3(a),(b),(c),(d) and 4(1) of the PFUTP Regulations.

Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

f) The allegation in the SCN showing the connection, leading to violation of the PFUTP Regulations by the Company, is entirely baseless and without any evidence on record or otherwise. Insofar as linkage through common directors is concerned, SEBI has failed to demonstrate as to how the Company has acted in concert with the Noticee no. 2 to 10 for the purpose of non-payment of consideration towards conversion of warrants issued on preferential basis. Thus, the allegations of the violation of the PFUTP Regulations against the Company as set out in the SCN, do not hold any ground and therefore SCN may be set aside. 6. After receipt of the written replies and in compliance with the principle of natural justice, an opportunity of personal hearing was also granted to the Company on August 03, 2022 which was communicated vide hearing notice dated June 13, 2022. On the scheduled date of personal hearing held through video conferencing, the Company entered appearance through its AR and made oral submissions on the lines of its reply. CONSIDERATION 7. I have perused the allegations and facts recorded in the SCN, the submissions advanced on behalf of the Company and the other materials available on record.

In my view, the only issue that needs adjudication in the present proceedings is whether or not, the entities referred to as Noticee nos. 2 to 10 in the SCN dated July 19, 2019 have received equity shares allotted to them by the Company post conversion of the warrants, after paying the full consideration for the said shares allotted to them, to the Company? 8. Before adverting to the factual conspectus of the case, I note that the Noticees in the SCN dated July 19, 2019 have been alleged to have violated applicable provisions of SEBI Act, 1992, the PFUTP Regulations and the ICDR Regulations. Therefore, the said provisions are reproduced hereunder for ease of reference and better appreciation: The SEBI Act, 1992 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. 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 recognized 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 recognized 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

Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

on a recognized stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder; The PFUTP Regulations, 2003 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 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 manipulative, fraudulent or an unfair trade practice in securities markets. Explanation.–For the removal of doubts, it is clarified that any act of diversion, misutilization or siphoning off of assets or earnings of a company whose securities are listed or any concealment of such act or any device, scheme or artifice to manipulate the books of accounts or financial statement of such a company that would directly or indirectly manipulate the price of securities of that company shall be and shall always be deemed to have been considered as manipulative, fraudulent and an unfair trade practice in the securities market. The SEBI(ICDR) Regulations, 2009 Payment of consideration. 77. (1) Full consideration of specified securities other than warrants issued under this Chapter shall be paid by the allottees at the time of allotment of such specified securities: Provided that in case of a preferential issue of specified securities pursuant to a scheme of corporate debt restructuring as per the corporate debt restructuring framework specified by the Reserve Bank of India, the allottee may pay the consideration in terms of such scheme.

(2) An amount equivalent to at least twenty-five per cent. of the consideration determined in terms of regulation 76 shall be paid against each warrant on the date of allotment of warrants. (3) The balance seventy-five per cent of the consideration shall be paid at the time of allotment of equity shares pursuant to exercise of option against each such warrant by the warrant holder.

Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

9. I note from the SCN that essentially the allegation against the Company is that it had allotted equity shares to entities referred to as Noticee nos. 2 to 10 in the SCN dated July 19, 2019 post conversion of warrants for which adequate consideration was not paid by these entities to the Company and thus these entities, referred to as Noticee nos. 2 to 10 in the SCN dated July 19, 2019 were benefited by the Company at the cost of its other shareholders. The aforesaid acts of the Noticees have been alleged to be in violation of Section 12A(a), (b), (c) of the SEBI Act, 1992, Regulations 3(a), (b), (c), (d) and 4(1) of the PFUTP Regulations and Regulations 77(1) and 77(3) of the ICDR Regulations. 10. In this respect, I find that the SCN provides the details of preferential allotment of warrants, conversions of warrants into equity shares, allotment of equity shares to the Noticee nos. 2 to 10, total consideration that the Noticee nos. 2 to 10 were required to pay to the Company and the actual payment made by the Noticee nos. 2 to 10 to the Company (against the warrants/equity shares pursuant to conversion of warrants).

11. I note that the Company has now filed reply in rebuttal to the aforesaid allegations made in the SCN stating that the allegation pertaining to allotment of shares pursuant to conversion of warrants without receipt of consideration is wrong. The Company has further submitted that it has duly received remaining consideration of 75% from the entities referred to as Noticee nos. 2 to 10 in the SCN on or before the due date of March 02, 2011 (as regards the entities referred to as Noticee nos. 2, 3 and 4 in the SCN dated July 19, 2019) and March 31, 2012 (as regards to the entities referred to as Noticee nos. 5, 6, 7, 8 and 10 in the SCN dated July 19, 2019) set out for the payment of consideration as per terms of payment mandated by the Company. 12. From a perusal of the copy of the bank statements furnished by the Company in support of its afore-stated claims of having received the full consideration including the remaining 75% of total consideration against the allotment of warrants and equity share, I find that different sums of money on different dates aggregating to total consideration required to be paid by the Noticee no. 2, 3, 4, 5, 6, 7, 8 and 10 have indeed been received from the respective bank accounts of these Noticees to the bank account of the Company during the period from August 13, 2010 to March 31, 2012. The said receipt of funds gets corroboration from the amounts paid in tranches by the said Noticee no. 2, 3, 4, 5, 6, 7, 8 and 10 from their respective bank accounts on the respective dates.

13. The Company has also brought attention to the statement made in its 20th Annual Report for the year 2010-11 in support of the above submission that the auditors had in fact recorded about the receipts of the entire consideration by the Company towards issue and conversion of convertible warrants issued by SHL. Further, it has also been brought to my notice that the Company vide its disclosure dated April 03, 2012 made on the BSE Ltd., while disclosing the Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

outcome of the Board meeting held on March 31, 2012 had duly disclosed that it has decided to issue and allot equity shares in lieu of Convertible Equity Warrants to the allottees consequent to their exercising option to convert warrants against the receipt of balance 75% consideration towards the same. 14. I therefore find that the Company has furnished sufficient evidence in supports of its claim that it had received full consideration from the Noticee no. 2, 3, 4, 5, 6, 7, 8 and 10 to the bank account of the Company prior to allotment of equity shares to these Noticees upon conversion of warrants. 15. Moreover, I find that vide three different SEBI orders dated September 23, 2021 (Hamraj fashions Consultants Private Limited-Noticee no. 4), September 23, 2022 (SKR Supreme Electronics & Trading Private Limited-Noticee no. 2, Nishottam Traders Private Limited-Noticee no. 3, Jabeen Tradelink Private Limited-Noticee no. 6, Gajpal Buildinfra Private Limited-Noticee no. 7, Nirvana Mall Management Co. Private Limited-Noticee no. 8 and Aansal Securities Services Private Limited-Noticee no. 10) and October 03, 2022 (Nu Pharmalogics Private Limited-Noticee no. 5) the Noticee no. 2, 3, 4, 5, 6, 7, 8 and 10 have been exonerated and the SCN dated July 19, 2019 (alleging receipt of equity shares allotted to them by the Company post conversion of warrants for which full consideration was not paid) issued against them has been disposed off without issuing any direction against them as the Noticee no. 2, 3, 4, 5, 6, 7, 8 and 10 have successfully demonstrated the payment of consideration (pertaining to allotment of shares pursuant to conversion of warrants) to the Company by due date fixed by the Company in this regard.

It is also relevant to note here that entity referred to as Noticee no. 9 in the SCN dated July 19, 2019 has already been exonerated vide SEBI Order dated April 30, 2021 as it had already provided evidence supporting full payment of consideration to the Company prior to due date. 16. Essentially the cause of action against the Noticees in the SCN was that Noticees no. 2 to 10 had failed to pay due considerations to the Company prior to allotment of equity shares upon conversion of warrants. Since the counter parties to the said transactions pertaining to the allotment of warrants and preferential shares by the Company have already been exonerated vide the aforesaid three orders, no cause of action survives against the Company in the present proceedings. 17. In view of the facts and circumstances of this case and aforesaid discussions, I hold that the Noticee nos. 2 to 10 have paid full and adequate consideration to the Company towards allotment of its equity shares as per the terms of payment mandated by the Company. In view of the aforesaid finding, I do not find it necessary to deal with other submissions of the Company made in this regard.

Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.

DIRECTION 18. In view of the facts and circumstances of the case and the aforesaid discussions and findings, I, in exercise of the powers conferred upon me under Section 19 read with Sections 11(1), 11(4), 11B of the SEBI Act, 1992 hereby pass following direction: i. The SCN dated July 19, 2019 issued against the Company i.e. Secunderabad Healthcare Ltd. is disposed of without any direction. 19. This Order shall come into force with immediate effect. 20. A copy of this Order shall be served upon the recognized Stock Exchanges, Depositories, Registrar and Transfer Agents and all the banks for necessary compliance.

Sd/- DATE: OCTOBER 20, 2022 S. K. MOHANTY PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in respect of Secunderabad Healthcare Ltd. in the matter of Secunderabad Healthcare Ltd.