Order in the matter of Adamant Infrastructures Limited

WTM/RKA/EFD/133/2016 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under Sections 11 (1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 and regulation 28 of the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008, in respect of: 1. Adamant Infrastructures Limited 2. Mr. Indrajit Kumar Sharma 3. Mr. Jitendra Kumar Sharma 4. Mr. Anand Mohan and 5. Adamant Debenture Trust, represented by its Trustee, Smt. Sushmita Sinha In the matter of issuance of Non-Convertible Redeemable Secured Debentures by Adamant Infrastructures Limited.

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), conducted a preliminary examination into the issuance of Non-Convertible Redeemable Secured Debentures (hereinafter referred to as “NCDs”) by Adamant Infrastructures Limited (hereinafter referred to as “the company” or “AIL”) with a view to ascertain the possible violations of the public issue norms stipulated under the Companies Act, 1956 and other applicable laws pertaining to SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter referred to as “the ILDS Regulations”). 2. Pursuant to the examination, SEBI passed an interim order dated February 11, 2015 (hereinafter referred to as “interim order”) against AIL, its directors, Mr. Indrajit Kumar Sharma, Mr. Jitendra Kumar Sharma and Mr. Anand Mohan and Adamant Debenture Trust (represented by its Trustee, Smt. Sushmita Sinha){collectively referred to as “noticees”}, in view of the following: (i) “……it is an admitted fact that NCDs aggregating to Rs. 25,28,600/- have been issued to 306 investors during FY 2012-13. The number of persons to whom the NCDs were issued by AIL was thus way beyond the prescribed limit of forty–nine persons and hence said issuance of NCDs is a public issue in terms of the provisions of Section 67(3) of the Companies Act, 1956. It is observed that AIL issued NCDs in several tranches during FY 2012-13 to camouflage the issuance of NCDs as a private placement. …..”. (ii) “….AIL is prima facie engaged in fund mobilising activity from the public, through the Offer of NCDs and as a result of the aforesaid activity has violated the aforementioned provisions of the Companies

Order in respect of Adamant Infrastructures Limited and others

Act, 1956 (Section 56, Section 60 read with Section 2(36), Section 73, Section 117B, Section 117C) and the Debt Securities Regulations”. (iii) “Adamant Debenture Trust and its trustee Smt. Sushmita Sinha are not registered with SEBI and therefore has acted as unregistered Debenture Trustees, which amounts to violation of the abovementioned provisions of the SEBI Act read with the Debenture Trustee Regulations.” 3. In view of the alleged contraventions and for the reasons stated in the interim order, the following directions were issued therein: i. “AIL shall not mobilize any fresh funds from investors through the Offer of NCDs or through the issuance of equity shares or any other securities, to the public and/or invite subscription, in any manner whatsoever, either directly or indirectly till further directions; ii. AIL and its Directors, viz. Shri. Indrajit Kumar Sharma (DIN:05222098, PAN:BQNPS0657R), Shri. Jitendra Kumar Sharma (DIN:05222111, PAN:AZGPS4457A), Shri. Anand Mohan (DIN:05225968, PAN:AQYPM7781N) are prohibited from issuing prospectus or any offer document or issue advertisement for soliciting money from the public for the issue of securities, in any manner whatsoever, either directly or indirectly, till further orders; iii.

AIL and its abovementioned Directors, are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, either directly or indirectly, till further directions; iv. AIL shall provide a full inventory of all its assets and properties; v. AIL's abovementioned Directors shall provide a full inventory of all their assets and properties; vi. AIL and its abovementioned Directors shall not dispose of any of the properties or alienate or encumber any of the assets owned/acquired by that company through the Offer of NCDs, without prior permission from SEBI; vii. AIL and its abovementioned Directors shall not divert any funds raised from public at large through the Offer of NCDs, which are kept in bank account(s) and/or in the custody of AIL; viii. AIL and its abovementioned Directors shall furnish complete and relevant information within 21 days from the date of receipt of this Order. ix. The Debenture Trustee, viz. Adamant Debenture Trust (represented by its trustee viz. Smt.Sushmita Sinha ), is prohibited from continuing with their present assignment as a debenture trustee in respect of the Offer of NCDs of AIL and also from taking up any new assignment or involvement in any new issue of debentures, etc. in a similar capacity, from the date of this order till further directions”.

4. The noticees were afforded opportunity to file their reply within 21 days of receipt of the interim order and to seek a personal hearing, if they desired. The noticees were also informed vide SEBI’s letter dated August 02, 2016 that an opportunity of personal hearing was afforded to them on August 30, 2016. As the interim order could not be delivered to the noticees at their last known address, SEBI made a public notice on August 23, 2016 in the newspapers (Times of India, Anand Bazaar Patrika and Dainik Bhaskar) intimating them about the interim order and the personal hearing fixed on August 30, 2016. They were also advised to file their replies before the date of personal hearing. Despite the above steps, the noticees neither filed their replies nor appeared in the personal hearing. The proceedings of personal hearing was therefore concluded. 5. I have considered the interim order and material available on record. The prima facie findings made in the interim order remain undisputed as none of the noticees have filed their response. Therefore, I do not wish to burden this Order by repeating the elaborate facts and observations mentioned in the interim order.

The company is alleged to have made a public offer and issued NCDs without complying with the public issue norms mandated under the Companies Act, 1956 and the ILDS Regulations. In this regard, I note the following: (a) The Board of Directors of the company and the shareholders of the company, vide Resolutions dated March 30, 2012 and April 04, 2012 respectively decided to issue NCDs of face value of `100/- amounting to `50 crores. (b) The company filed Form-10 with respect to creation of charge on April 04, 2012. (c) The company had allotted NCDs to 306 allottees on various dates during FY 2012-13. As per the information submitted by the company to RoC, the amount mobilized was `20,10,900/- as on December 15, 2012. However, the company vide letter dated May 16, 2014 to SEBI indicated that it had mobilized `25,28,600/-. In this regard, the interim order observed “…….. there are discrepancies between the declarations made by the company to RoC, Gwalior and SEBI in respect of the amounts raised”. (d) The interim order, while referring to the brochure cum application form submitted by the company, observed that the company had issued NCDs in Series-II under Schemes I, II and III.

However, the company failed to provide details of allottees of this Series. As per the company’s documents, subscription under this Series opened on July 01, 2013. 6. The interim order has alleged that issuance of NCDs were made in tranches during FY 2012-13 in order to camouflage the issue as a ‘private placement’ and that this method was adopted by the company in order to circumvent the provisions of the first proviso to section 67(3) of the Companies Act, 1956. In terms of the aforesaid provision, an issue of securities becomes a ‘public issue’ if the offer to subscribe to shares or debentures is made to 50 persons or more. In this case, the company has made a public issue of NCDs as it had admittedly issued/allotted NCDs to 306 persons. Further, as mentioned in the interim order, the issue opened on April 04, 2012 and was “currently open”, giving an impression that company continued to raise money through its offer of NCDs. All the above observations remain uncontroverted. 7. As the issuance of NCDs by the company was a ‘public issue’, it ought to have complied with the provisions of sections 60 read with sections 2(36), 56(1), 56(3), 73, 117B and 117C of the Companies Act, 1956 and regulations 4(2)(a), (b), (c), (d), 4(4), 5(2)(b), 6, 7, 8, 9, 12, 14, 15, 16, 17, 19 and 26 of the ILDS Regulations, as alleged in the interim order.

In the present case, there is no record to show that the company complied with requirements of the above provisions of law. The company is therefore held guilty of contravening the aforesaid provisions of the Companies Act and the ILDS Regulations and thus liable for the consequences of such default. 8. The interim order has issued directions in respect of the directors of the company, namely, Mr. Indrajit Kumar Sharma, Mr. Jitendra Kumar Sharma and Mr. Anand Mohan. All these persons were appointed as directors of the company on March 28, 2012 (i.e. the date of incorporation of the company). These directors, being part of the Board of Directors of the company, had passed Resolution dated March 30, 2012 to issue NCDs of face value of `100/- each amounting to `50 crores. As mentioned in the interim order, these NCDs were admittedly issued on various dates during FY 2012-2013 to 306 allottees and the company admittedly mobilized `25,28,600/-.

9. In terms of section 291 of the Companies Act, 1956, the Board of Directors of a company shall be entitled to exercise all such powers and do all such acts and things as the company is authorized to exercise and do. Therefore, the Board of Directors being responsible for the conduct of the business of a company will be liable for any non-compliance of law and such liability shall be upon the individual directors also. With respect to the breach of law and duty by a director of a company, I refer to and rely on the following observations made by the Hon’ble High Court of Madras in Madhavan Nambiar vs Registrar of Companies (2002 108 Comp Cas 1 Mad): “13. …. A director either full time or part time, either elected or appointed or nominated is bound to discharge the functions of a director and should have taken all the diligent steps and taken care in the affairs of the company. 14. In the matter of proceedings for negligence, default, breach of duty, misfeasance or breach of trust or violation of the statutory provisions of the Act and the rules, there is no difference or distinction between the whole-time or part time director or nominated or co-opted director and the liability for such acts or commission or omission is equal. So also the treatment for such violations as stipulated in the Companies Act, 1956.” 10. Accordingly, the directors, Mr. Indrajit Kumar Sharma, Mr. Jitendra Kumar Sharma and Mr. Anand Mohan, being ‘officers in default’ in terms of section 5 of the Companies Act, 1956, shall be liable for the contravention of sections 60 read with section 2(36), 56(1), 56(3), 73, 117B and 117C of the Companies Act, 1956 and the provisions of the ILDS Regulations. The liability of the company and directors to repay under section 73(2) of the Companies Act, 1956 would remain until the whole of the subscription amount along with interest is refunded to the allottees/investors. 11. In view of the foregoing observations, the company and its aforesaid directors are held responsible for the contraventions and therefore liable for the consequences including refund of the subscription money to the allottees along with interest at 15% p.a. as mandated under section 73(2) of the Companies Act, 1956 read with rule 3(c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

12. As per Form-10 filed by the company with the RoC, a charge of `50 crores has been created on April 04, 2012. Smt. Sushmita Sinha, Trustee of Adamant Debenture Trust, has been engaged as the debenture trustee to secure the issue of NCDs. The said Trust or its Trustee were never registered with SEBI as ‘debenture trustees’. In terms of regulation 7 of the Debenture Trustee Regulations, a person can act as a debenture trustee only if it is either a scheduled bank or a public financial institution or an insurance company or a body corporate. Smt. Sushmita Sinha, being a natural person, is therefore not qualified under regulation 7 to be engaged as a ‘debenture trustee’. Accordingly, I find Adamant Debenture Trust and Smt. Sushmita Sinha guilty of contravening section 12(1) of the SEBI Act and regulation 7 of the Debenture Trustee Regulations. 13. In view of the foregoing, I, in exercise of the powers conferred under sections 11(1), 11(4), 11A and 11B read with section 19 of the Securities and Exchange Board of India Act, 1992 and regulation 28 of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, hereby issue the following directions: (i) Adamant Infrastructures Limited and its directors, Mr. Indrajit Kumar Sharma (DIN:05222098; PAN:BQNPS0657R), Mr. Jitendra Kumar Sharma (DIN:05222111; PAN:AZGPS4457A), Mr. Anand Mohan (DIN:05225968; PAN:AQYPM7781N) shall within a period of three months from the date of this order, jointly and severally refund the money collected through the issue of non-convertible debentures to the allottees with interest at the rate of 15% per annum from the date of receipt of money till the date of such refund. (ii) Such refund shall be made only in cash through a Demand Draft or Pay Order.

(iii) Adamant Infrastructures Limited and its directors shall within fifteen days from the date of this Order submit to SEBI complete details of their assets (along with proofs thereof) certified by a peer reviewed Chartered Accountant. (iv) Adamant Infrastructures Limited and its directors are permitted to sell assets of the company and deposit the sale proceeds in an Escrow Account opened with a nationalized bank. Such proceeds shall be utilized for the sole purpose of making refund/ repayment to the allottees of non-convertible debentures till the full refund/ repayment as directed above is made. (v) Adamant Infrastructures Limited and its directors shall issue a public notice, in all editions of one English national daily and one vernacular daily with wide circulation, detailing the modalities for refund, including details of contact persons including names, addresses and contact details, within fifteen days of this order. (vi) Within seven days of completion of refund/ repayment as directed hereinabove, Adamant Infrastructures Limited and its directors shall file a certificate of such completion with SEBI from two independent peer reviewed Chartered Accountants who are in the panel of any public authority or public institution.

Such certificate shall be issued by the Chartered Accountants after verifying the relevant documents including bank accounts of the noticees and satisfying themselves that the refund has actually been made. (vii) For the purpose of this order, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India. (viii) Adamant Infrastructures Limited and its directors, Mr. Indrajit Kumar Sharma, Mr. Jitendra Kumar Sharma, Mr. Anand Mohan are restrained from, directly or indirectly, accessing the capital market by issuing prospectus, any offer document or advertisement soliciting money from the public and are further prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly, in whatsoever manner for a period of four years or till the date of refund of money to the allottees, whichever is later. (ix) Mr. Indrajit Kumar Sharma, Mr. Jitendra Kumar Sharma, Mr. Anand Mohan are also restrained from associating themselves, with any listed public company and any public company which intends to raise money from the public, for a period of four years or till the date of refund of money to the allottees, whichever is later.

(x) Adamant Debenture Trust and Smt. Sushmita Sinha are prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly, in whatsoever manner for a period of four years. (xi) For the purposes of sub-paragraphs (viii) and (ix) above, the period of restraint shall be counted from the date of the interim order. 14. The interim order dated February 11, 2015 is disposed off accordingly. The above directions are without prejudice to the right of SEBI to take any other appropriate action for the violations found in this case or to initiate any action in case of failure to comply with the above directions, in accordance with the provisions of applicable laws including the proceedings under the provisions of section 28A of the SEBI Act. 15. The order shall come into force with immediate effect. A copy of the order shall be served on the noticees to ensure compliance with the above directions. A copy of this Order shall also be forwarded to the recognized stock exchanges and depositories for information and necessary action. 16. A copy of this Order shall also be forwarded to the Ministry of Corporate Affairs/ concerned Registrar of Companies, for their information and necessary action.

Date : October 3rd, 2016 RAJEEV KUMAR AGARWAL Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA