Order in the matter of Adorable Agrotech Limited in respect of Mr. Prashanta Ghosh

WTM/PS/121/ERO/IMD/DEC/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 In the matter of Adorable Agrotech Limited In respect of Mr. Prashanta Ghosh(DIN-02861411 / PAN-AJSPG1087A)

Date of personal hearing: November 23, 2015 Appearance: Mr. Prashanta Ghosh appeared in-person. For SEBI : Mr. Prasanta Mahapatra, General Manager, Mr. T. Vinay Rajneesh, Assistant General Manager and Ms. Nikki Agarwal, Assistant Manager

1. Securities and Exchange Board of India (“SEBI”)passed an Order dated October 01, 2015 (“the Order”) in the matter of Adorable Agrotech Limited (“the Company”), whereby the Company and its directors (past and present) named therein were made liable for the contravention of sections 56, 60 and 73 of the Companies Act, 1956 in respect of the offer and issuance of Redeemable Preference Shares (RPS) during the financial years – 2010-11, 2011-12 and 2012 -13. SEBI had directed the Company and others to refund the public funds mobilized under such offer and issuance of securities and also passed certain other consequential and attendant directions against them.

2. Mr. Prashanta Ghosh (“the noticee”) was one of the noticees in the proceedings which culminated in the passing of the Order. Vide the Order, the noticee was discharged from the proceedings on noticing that he had resigned prior to the allotment of RPS which commenced on September 15, 2011 (as per Form-2). However, it has been brought to the notice of SEBI that in addition to Form-2 (Return of Allotment), the Company had admitted that it had allotted RPS to 169 persons and raised an amount of Rs.20,30,500/- during the financial year 2010-2011. The noticee was a director in the Company from July 28, 2010 to May 10, 2011(as per the “Register of directors, managing director etc” of the Company). Therefore, it can be inferred that he was a director in the Company when above offer and allotment of RPSs were made in violation of the public issue norms mandated under sections 56, 60 and 73 of the Companies Act, 1956. Accordingly, SEBI issued a notice dated November 02, 2015 (“the notice”) to noticee, Mr. Prashanta Ghosh alleging that he would also be liable and responsible for – (a) violation of sections 56, 60 and 73 of the Companies Act, 1956 read with the Companies Act, 2013 in respect of the offer and issuance of RPS; (b) making refunds, jointly and severally with the Company and others (as directed in the Order) to the investors as required under section 73(2) read with section 27 of the SEBI Act, and (c) other consequential, regulatory and attendant directions, as was issued in paragraph 19 of the Order.

The notice afforded the noticee to make his submissions and also the opportunity to appear in the personal hearing scheduled on November 23, 2015.

3. On the said date, the noticee appeared in person and filed his reply dated November 23, 2015. The following submissions were inter alia made in the said reply: (a) He received the notice alleging him to be also responsible for allotment of RPS to 169 persons and mobilization of Rs.20,30,500 /- through such issuance during the financial year 2010-11 in violation of the public issue norms mandated under section 56, 60 and 73 of the Companies Act, 1956. (b) The noticee was appointed as an Independent director on July 28, 2010 in the Company and had resigned on May 10, 2011. These facts were also recorded in the Order and notice. (c) He was never an active participant in the Board meetings of the Company and in its decision making. He never took part in the day to day business operations of the Company. (d) He was neither a signatory of the Company nor had he signed any document of the Company. From December 2010, he had not visited the Company.

(e) He did not have any idea regarding the issuance of RPS at any point of time and was also not informed of the same by the Company. As soon as he came to know about the collection of funds from the market, he had insisted for accepting his resignation and ultimately managed to resign on May 10, 2011 as stated above. (f) The noticee never received and / or accepted any benefits from the Company. (g) If at all these alleged RPS were issued by the said company, the same was done without his consent or information. The noticee was neither a shareholder nor a regular Director in the Company. (h) He being an Independent Director should not be held responsible for the alleged allegations when he was personally not aware and never consented to the same. (i) In view of his submissions, the noticee requested SEBI to discharge him from the proceedings and to withdraw the notice dated November 02, 2015.

The noticee reiterated the above submissions during the hearing.

4. I have considered the notice, the submissions made by the noticee and material available on record. It is an admitted fact that the noticee was a director in the Company from July 28, 2010 to May 10, 2011. I note that vide the Order, the Company was already foundto have contravened the public issue norms stipulated under sections 56, 60 and 73 of the Companies Act, 1956 in respect of the offer and issue of RPS made during the financial years 2010-11, 2011-12 and 2012-13. The relevant finding from the Order is reproduced below: “16. From the above discussions, it is concluded that the Company has not complied with the provisions of sections 56, 60 and 73 of the Companies Act, 1956 read with the Companies Act, 2013 and had mobilized a total of Rs.25.20 crore from more than 6545 investors during the financial years 2010-11, 2011-12 and 2012 -13. These monies are liable to be refunded to the investors in terms of section 73(2) of the Companies Act, 1956. The interim order has also mentioned that the Company had accepted Rs.5,77,67,056/- as „Share Application Money Pending Allotment‟, as stated in the Balance Sheet of AAL for the year 2011-2012 submitted by AAL to SEBI. The Company is liable to return such amounts if the same pertained to its offer and allotment of RPS/securities during 2011-2012 made in contravention of the Companies Act, 1956 and the norms governing public issuance of securities”.

The noticee was a director in the Company,when the Company made the offer and allotted RPS to 169 persons during the financial year 2010-2011, without complying with the requirements under sections 56, 60 and 73 of the Companies Act, 1956.

5. As regards the liability of the noticee, I note that – (a) 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 shall be responsible for the conduct of the business of a company and liable for any non-compliance of law and such liability shall trickle down to individual directors.

(b) Accordingly, a director who is part of a company‟s board shall be responsible and liable for all acts carried out by a company unless exemptions are provided. The noticee, in the present case, was part of the Company‟s Board of Directors for the period –July 28, 2010 to May 10, 2011. Accordingly, he shall also be responsible and liable along with the others in the Board, for all the deeds/acts of the Company during the period of his directorship.

(c) The noticee has claimed that he was an independent director in the Company. However, he has not supported this claim with any document. From the Register of directors, managing directors, manager and secretary etc. (available in the MCA portal) pertaining to the Company, it is noted that the noticee was appointed as a „director’ {not an independent director} on July 28, 2010 and continued in such position till May 10, 2011. Notwithstanding the observations made herein above, I note that independent directors do not have personal, material and pecuniary connection with the company or related to persons/entities/promoters. They are appointed for their expertise in a given field for constructive role in meetings/policies of a company, report unethical and oppressive activities, if any, noticed in the conduct of the company and also to report violation of law. Therefore, even if it is presumed that the noticee was an „independent director‟, he ought to have ensured that the Company carried on its business in full compliance with the applicable law including the Companies Act, 1956.

(d) With respect to the culpability of a director for breach of law by 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. It may be that the petitioner may not be a whole-time director, but that does not mean he is exonerated of the statutory obligations which are imposed under the Act and the rules and he cannot contend that he is an ex officio director and, therefore, he cannot be held responsible. There is substance in the contention advanced by Mr. Sridhar, learned counsel since the petitioner a member of the Indian Administrative Service and in the cadre of Secretary to Government when appointed as a director on the orders of the Government to a Government company or a joint venture company, he is expected not only to discharge his usual functions, but also take such diligent care as a director of the company as it is expected of him not only to take care of the interest of the Government, but also to see that the company complies with the provisions of the Companies Act and the rules framed thereunder.

Therefore, the second contention that the petitioner cannot be proceeded against at all as he is only a nominee or appointed director by the State Government, cannot be sustained in law. 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. 15. Section 5 of the Companies Act defines the expression "officer who is in default". The expression means either (a) the managing director or managing directors; (b) the whole-time director or whole-time directors; (c) the manager; (d) the secretary; (e) any person in accordance with whose directions or instructions the board of directors of the company is accustomed to act; (f) any person charged by the board with the responsibility of complying with that provision; (g) any director or directors who may be specified by the board in this behalf or where no director is so specified, all the directors.

16. Section 29 of the Companies Act provides the general power of the board and …………... Therefore it follows there cannot be a blanket direction or a blanket indemnity in favour of the petitioner or other directors who have been nominated by the Government either ex officio or otherwise. Hence the second point deserves to be answered against the petitioner. 17. As regards the first contention, it is contended by Mr. Arvind P. Datar, learned senior counsel appearing for the petitioner that the company or its board had resolved that Thiagaraj S. Chettiar shall be the director in charge of the company of all its day-to-day affairs and, therefore, the petitioner, an ex officio chairman and director, cannot be expected to attend to the affairs on a day-to-day basis. This contention though attractive cannot be sustained as a whole. There may be a delegation, but ultimately it comes before the board and it is the board and the general body of the company which are responsible.”

{Emphasis supplied} (e) The noticee cannot assume the role of a director in a company in a casual manner. The position of a „director‟ in a public company/listed company comes along with responsibilities and compliances under law associated with such position, which have to be fulfilled by such director or face the consequences for any violation or default thereof. The noticee cannot therefore wriggle out from liability by merely stating that he was not involved in the affairs of the Company.

(f) The present case involves a director in a company that has mobilized public funds from gullible investors through its offer and issue of securities without complying with the applicable laws. Such statutory provisions (sections 56, 60 and 73) in the Company Act, 1956 are prescribed to – i. ensure that the investing public are aware about the company in which they were investing their money and the attendant risk such investment may carry, and also ii. provide for marketability of such securities and in the absence of the same, to return the funds collected from the investors, with or without interest in accordance with section 73(2) of the Companies Act, 1956.

(g) According to section 56(1) of the Companies Act, 1956, every prospectus issued by or on behalf of a company, shall state the matters specified in Part I and set out the reports specified in Part II of Schedule II of that Act. Further, as per section 56(3) of the Companies Act, 1956, no one shall issue any form of application for shares in a company, unless the form is accompanied by abridged prospectus, contain disclosures as specified. Section 2(36) of the Companies Act read with section 60 thereof, mandates a company to register its 'prospectus' with the RoC, before making a public offer/ issuing the 'prospectus'. The Company had not complied with these provisions, as found in the Order.

Section 56(1) and 56(3) read with section 56(4) of the Companies Act, 1956 imposes the liability on the company, every director, and other persons responsible for the prospectus for the compliance of the said provisions. The liability for non-compliance of section 60 of the Companies Act, 1956 is on the company, and every person who is a party to the non-compliance of issuing the prospectus as per the said section. This noticee is therefore also liable for non-compliance with sections 56 and 60.

(h) By making a public issue of RPS, as discussed above, the Company had to compulsorily list such securities in compliance with section 73(1) of the Companies Act, 1956. As per section 73(1) Companies Act, 1956, a company is required to make an application to one or more recognized stock exchanges for permission for the shares or debentures to be offered to be dealt with in the stock exchange. TheCompany had failed to comply with this requirement, as observed in the Order. Section 73(2) states that "Where the permission has not been applied under subsection (1) or such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money". As the Company failed to make an application for listing such securities, the Company had to forthwith repay such money collected from investors. If such repayments are not made within 8 days after the Company becomes liable to repay, the Company and every director is liable to repay with interest at such rate. The liability of the Company/directors to refund the public funds collected through offer and allotment of the impugned RPSs is continuing and such liability would continue till repayments are made.Accordingly, the noticee shall be liable for making refunds for the monies collected during his tenure as a director in the Company, till such liability is discharged by making refunds by Company/other directors who are liable.

6. In view of the above discussions, I hereby find the noticee (being a director in the Company from July 28, 2010 to May 10, 2011) also liable for the violation of sections 56, 60 and 73 of the Companies Act, 1956 read with the Companies Act, 2013, committed by the Company/its board of directors with respect to the offer and issue of RPS during 2010-2011, thereby mobilizing approximately Rs.20 lakh from the public investors. The noticee shall also be liable for making refunds as provided under section 73(2) of the Companies Act, 1956 read with section 27 of the SEBI Act, and shall be jointly and severally responsible along with other as directed vide the Order. The Order had levied an interest @ 15% p.a. on the amounts that are due to be repaid to the investors.

7. In view of the above findings and observations, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11(1), 11(4), 11A and 11B thereof hereby issue the following directions:

(a) Thenoticee, Mr. Prashanta Ghosh(DIN-02861411;PAN-AJSPG1087A)shall,jointly and severally along with the Company and others as ordered vide SEBI Order dated October 01, 2015,forthwith refund the money collected by the Company through the issuance of Redeemable Preference Shares (which have been found to be issued in contravention of the public issue norms stipulated under the Companies Act, 1956), to the investors including the money collected from investors, till date, pending allotment of securities, if any, with an interest of 15% per annum compounded at half yearly intervals, from the date when the repayments became due (in terms of Section 73(2) of the Companies Act, 1956) to the investors till the date of actual payment.

(b) The noticee shall also provide a full inventory of his assets and properties and details of all bank accounts, demat accounts and holdings of shares/securities, if held in physical form.

(c) All other directions issued vide Order dated October 01, 2015 in respect of making refunds and reporting of the same shall apply mutasis mutandis to this noticee.

(d) In case of failure of the noticee to refund the monies as directed in this Order or on failure to comply with the directions, SEBI, on expiry of three months from the date of this Order, - (i) shall recover such amounts in accordance with section 28A of the SEBI Act including such other provisions contained in securities laws.

(ii) may initiate appropriate action against the noticee, including adjudication proceedings, in accordance with law. (iii) would make a reference to the State Government/ Local Police to register a civil/ criminal case against the noticee, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and (iv) would also make a reference to the Ministry of Corporate Affairs.

(e) The noticee isrestrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, with immediate effect. He is also restrained from issuing prospectus, offer document or advertisement soliciting money from the public and associating himself with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with SEBI. The above directions shall come into force with immediate effect and shall continue to be in force from the date of this Order till the expiry of 4 yearsfrom the date of completion of refunds to investors, as directed above.

(f) The above directions shall come into force with immediate effect.

8. This Order is without prejudice to any action, including adjudication and prosecution proceedings that might be taken by SEBI in respect of the above violations committed by the noticee.

9. Copy of this Order shall be forwarded to the recognised stock exchanges and depositories for information and necessary action.

10. 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 with respect to the directions/restraint imposed above against the noticee.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date: December 29th, 2015 Place: Mumbai