Order in the matter of Astha Techno Realty India Limited

WTM/PS/168/ERO/FEB/2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Sections 11, 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 In the matter of Astha Techno Realty India Limited In respect of: 1. Astha Techno Realty India Limited [PAN: AAJCA7529E], 2. Mr. Bablu Sanfui [PAN: BXUPS5883F], 3. Mr. Ronjit Barik [PAN: ALXPB0550E], 4. Mr. Narottam Raha [PAN: AIKPR4950J] and 5. Mr. Kamal Krishna Debnath [PAN: AWGPD7072F]. 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), vide an ex-parte interim Order dated March 19, 2015 (hereinafter referred to as ‘the interim order’) had observed that the company, Astha Techno Realty India Limited (hereinafter referred to as ‘Astha Techno’ or ‘the Company’) is prima facie engaged in fund mobilising activity from the public, through the Offer of Redeemable Preference Shares (hereinafter referred to as ‘RPS’) and had allegedly violated the provisions of Sections 56, 60 (read with Section 2(36)), 67, 73 of the Companies Act, 1956. In order to protect the interest of investors and to ensure that only legitimate fund raising activities are carried on by the Company and its directors, SEBI had issued the following directions: “… … 6. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11, 11(4), 11A and 11B of the SEBI Act, hereby issue the following directions – i. ATRIL (PAN: AAJCA7529E) shall forthwith cease to mobilize funds from investors through the Offer of Redeemable Preference Shares 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. ATRIL and its Directors, viz. Shri Bablu Sanfui (PAN: BXUPS5883F; DIN: 03360361), Shri Ronjit Barik (PAN: ALXPB0550E; DIN: 03360421), Shri Narottam Raha (PAN: AIKPR4950J; DIN: 03360538) and Shri Kamal Krishna Debnath (PAN: AWGPD7072F; DIN: 03360565), 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. ATRIL 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. ATRIL shall provide a full inventory of all its assets and properties; v. ATRIL's abovementioned Directors shall provide a full inventory of all their assets and properties; vi. ATRIL 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 Redeemable Preference Shares, without prior permission from SEBI; vii. ATRIL and its abovementioned Directors shall not divert any funds raised from public at large through the Offer of Redeemable Preference Shares, which are kept in bank account(s) and/or in the custody of ATRIL. 7. The above directions shall take effect immediately and shall be in force until further orders. … 9. This Order is without prejudice to the right of SEBI to take any other action that may be initiated against ATRIL and its abovementioned Directors, in accordance with law.” 2. The interim order observed that the prima facie observations made therein were on the basis of the correspondences exchanged between SEBI and the Company alongwith the documents contained therein and the information/ documents obtained from the ‘MCA-21’ portal. The interim order advised the Company and its directors to file their replies within 21 days from the date of its receipt and also seek an opportunity of personal hearing.

3. The interim order was forwarded to the Company and its directors namely Mr. Bablu Sanfui, Mr. Ronjit Barik, Mr. Narottam Raha and Mr. Kamal Krishna Debnath vide letter dated March 20, 2015. The letters sent to the Company, Mr. Bablu Sanfui and Mr. Kamal Krishna Debnath returned undelivered.

4. Subsequently, SEBI proceeded further and granted an opportunity of personal hearing to the Company and its directors on September 03, 2015. The scheduled date was communicated vide SEBI letter dated July 28, 2015. The date of hearing was also communicated vide the public notice in the newspapers namely ‘Ananda Bazar Patrika’ and ‘Times of India’ both dated September 03, 2015. The Company and its directors were advised that in case they fail to appear for the personal hearing before SEBI on the aforesaid date, then the matter would be proceeded ex-parte on the basis of the material available on record. In the meantime, Mr. Narottam Raha vide his letter dated August 26, 2015, replied to the interim order.

On the date fixed, the director namely Mr. Narottam Raha appeared for the personal hearing and requested liberty for filing written submission, which was duly granted. The written submissions were filed by him on September 23, 2015.

The Company and its other directors remained absent. Considering the reasonable opportunities already afforded for making submissions in the matter, I am inclined to proceed further with the matter.

5. The submissions made by Mr. Narottam Raha vide his letters dated August 26, 2015 and September 23, 2015, are as under: - The Company had raised ₹5,00,000 by allotting 50,000 preference shares of ₹10 each, by way of private placement, after taking prior permission from Registrar of Companies. - They had raised the funds in two phases i.e. ₹1,82,000 against allotment of 27 preference shares on June 30, 2011 and ₹3,18,000 against allotment of 34 preference shares on March 15, 2012. - The Company is not continuously raising money from public and it had not crossed the prescribed limit of 50 persons or more under Section 67(3) of the Companies Act, 1956 - The Company has invested the amount of ₹5,00,000 in a brick field and is in the process of refunding the collected amounts. The Company has already made refunds of ₹1,26,000 out of ₹5,00,000. The rest of the amount will be refunded gradually.

6. I have considered the interim order and the material available on record. The following are the observations from the interim order: “… i. ATRIL was incorporated on February 16, 2011, with the ROC, Kolkata with CIN No. as U45400WB2011PLC159262. Its Registered Office is at Akshy Nagar, South 24 Parganas, Kakdwip, Kolkata–743347, West Bengal, India. ii. The Directors in ATRIL are Shri Bablu Sanfui, Shri Ronjit Barik, Shri Narottam Raha and Shri Kamal Krishna Debnath. iii. Form 2 (Form for Return of Allotment – filed by ATRIL with the ROC in accordance with the provisions of the Companies Act, 1956) reveals that ATRIL issued "Redeemable Preference Shares" ("Offer of Redeemable Preference Shares") to investors, details of which are provided below – Type of Security Year No. of persons to whom Total Amount preference shares were allotted (₹ in Lakhs) Redeemable 2011–12 61 5 Preference Shares ** It is observed from the copy of preference share certificates submitted by the complainant that the date of issue of such share certificates in most cases is after the Financial Year 2011–12. Hence, it prima facie appears that ATRIL is continuously raising money from public by way of issue of redeemable preference shares. …” 7. Having considered the above, it is now necessary to determine whether the Company had made a public issue as alleged in the interim order and if so, whether the Company had complied with the public issue norms. The liability of the directors of the Company also needs to be determined as they have also been alleged in the interim order.

8. In order to ascertain whether an issue of securities is a ‘public issue’ or done on ‘private placement’, it is necessary to make a reference to Section 67(3) of the Companies Act, 1956, which reads as under: “67. (1) Any reference in this Act or in the articles of a company to offering shares or debentures to the public shall, subject to any provision to the contrary contained in this Act and subject also to the provisions of sub-sections (3) and (4), be construed as including a reference to offering them to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner. (2) ...

(3) No offer or invitation shall be treated as made to the public by virtue of sub-section (1) or sub-section (2), as the case may be, if the offer or invitation can properly be regarded, in all the circumstances- (a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or (b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation … Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more: Provided further that nothing contained in the first proviso shall apply to non-banking financial companies or public financial institutions specified in section 4A of the Companies Act, 1956 (1 of 1956).” In terms of Section 67(3), as amended by the Companies (Amendment) Act, 2000, with effect from December 13, 2000, no offer or invitation shall be treated as made to the public by virtue of sub-sections (1) or (2), as the case may be, if the offer or invitation can properly be regarded, in all circumstances - (a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or (b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation. In terms of the first proviso to the aforesaid section, the provisions of Section 67(3) shall not apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more. Therefore, the number of subscribers becomes relevant to conclude whether an issue of shares are for public or on a private placement basis. In view of the same, if an offer of securities are made to fifty or more persons, it would be deemed to be a public issue.

9. I now place my reliance on the order of Hon'ble Supreme Court of India in the matter of Sahara India Real Estate Corporation Limited & Others Vs. SEBI and another (Civil Appeal Nos. 9813 and 9833 of 2011; decided on August 31, 2012) (‘the Sahara case’) had inter alia held that - “Section 67(1) deals with the offer of shares and debentures to the public and Section 67(2) deals with invitation to the public to subscribe for shares and debentures and how those expressions are to be understood, when reference is made to the Act or in the articles of a company. The emphasis in Section 67(1) and (2) is on the “section of the public”. Section

67(3) states that no offer or invitation shall be treated as made to the public, by virtue of subsections (1) and (2), that is to any section of the public, if the offer or invitation is not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation or otherwise as being a domestic concern of the persons making and receiving the offer or invitations. Section 67(3) is, therefore, an exception to Sections 67(1) and (2). If the circumstances mentioned in clauses (1) and (b) of Section 67(3) are satisfied, then the offer/invitation would not be treated as being made to the public. The first proviso to Section 67(3) was inserted by the Companies (Amendment) Act, 2000 w.e.f. 13.12.2000, which clearly indicates, nothing contained in Sub-section (3) of Section 67 shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more. … Resultantly, if an offer of securities is made to fifty or more persons, it would be deemed to be a public issue, even if it is of domestic concern or proved that the shares or debentures are not available for subscription or purchase by persons other than those received the offer or invitation. … I may, therefore, indicate, subject to what has been stated above, in India that any share or debenture issue beyond forty nine persons, would be a public issue attracting all the relevant provisions of the SEBI Act, regulations framed thereunder, the Companies Act, pertaining to the public issue. …” 8. In the present case, I note that the Company had offered and allotted RPS in two tranches to a total of 61 allottees (i.e. 27 allottees on June 30, 2011 and 34 allottees on March 15, 2012) during the financial year 2011-12 and had raised ₹5,00,000. As per ‘Form 2’ (return of allotment) the date of passing of the special resolution for the issue of RPS was June 21, 2011. From the same, it can be said that both the tranches of allotment of RPS were out of the same offer to more than 49 persons. In view of the same, it is held that the Company had made an offer and allotted RPSs to more than 49 persons, thereby making a public issue of RPSs (in terms of the first proviso to Section 67(3) of the Companies Act, 1956) during the period alleged in the interim order.

9. By making a public issue of RPS, as discussed above, the Company was mandated to comply with all the legal provisions that govern and regulate public issue of such securities, including the Companies Act, 1956 and the SEBI Act and regulations. In this context, I refer and rely on the below mentioned observation made by the Hon'ble Supreme Court of India in the matter of Sahara case:

“... ... that any share or debenture issue beyond forty nine persons, would be a public issue attracting all the relevant provisions of the SEBI Act, regulations framed thereunder, the Companies Act, pertaining to the public issue. …” 10. In view of the above observations, by virtue of Section 55A(a) and (b), SEBI has jurisdiction and would govern the issue of RPS as the same was clearly made to more than 49 persons. As alleged in the interim order, the Company was mandated to comply with the provisions of Sections 56, 60, 67 and 73 of the Companies Act, 1956, in respect of its offer and issue of RPS. In terms of 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’.

11. The interim order further alleged that the Company had failed to comply with Section 73 of the Companies Act, 1956, in respect of its issuance of RPS. By issuing RPSs to more than 49 persons, the Company had to compulsorily list such securities in compliance with Section 73(1) of the Companies Act, 1956. As per Section 73(1) of the 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. There is no material on record to say that the Company has filed an application with a recognised stock exchange to enable the RPS to be dealt with in such exchange. Therefore, the Company has failed to comply with this requirement.

12. Section 73(2) of the Companies Act, 1956 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 RPSs, 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 of the Company, who is an officer in default, is jointly and severally liable to repay with interest at such rate. There is no material on record to say that the Company has complied with the provisions of Section 73(3).

13. From the foregoing, I conclude that the Company had failed to comply with the provisions of Sections 56, 60, 73 of the Companies Act, 1956 read with the Companies Act, 2013 in respect of its offer and issuance of RPSs, as discussed in this Order. The Company shall therefore be liable to make refunds as per the mandate under Section 73(2) of the Companies Act, 1956 and also for regulatory action for committing the above violations.

14. Liability of Directors: The interim order was issued against the directors of the Company namely Mr. Bablu Sanfui, Mr. Ronjit Barik, Mr. Narottam Raha and Mr. Kamal Krishna Debnath. a. The details of their appointment and resignations are as under: Name Date of Appointment Date of Cession Mr. Bablu Sanfui 16/02/2011 Continuing as director Mr. Ronjit Barik 16/02/2011 Continuing as director Mr. Narottam Raha 16/02/2011 Continuing as director Mr. Kamal Krishna Debnath 16/02/2011 Continuing as director b. I note that the Company had offered and issued RPS in the financial year 2011-12 (the date of first allotment being June 30, 2011 and the last date being March 15, 2012). Section 56 of the Companies Act, 1956 imposes the liability for the compliance, on the company, every director, and persons responsible for the issuance of the prospectus. The liability of the Company to repay under Section 73(2) of the Companies Act, 1956 read with Section 27 of the SEBI Act, is continuing and the same continues till all the repayments are made to the investors/ public. Therefore, the directors who were present during the period when the Company had made the offer and allotted RPS shall be liable for violation of Sections 56, 60 and 73 of the Companies Act, 1956 including the default in making refunds as mandated therein. The liability to make repayments under Section 73(2) of the Companies Act read with Section 27 of the SEBI Act is a continuing liability.

c. From the table above, it is noted that Mr. Bablu Sanfui, Mr. Ronjit Barik, Mr. Narottam Raha and Mr. Kamal Krishna Debnath were the directors of the Company at the time of impugned issues and allotment of RPSs and were responsible for the affairs of the Company at the relevant point of time. These persons continue to be the directors of the Company. In view of the same, it can be concluded that Mr. Bablu Sanfui, Mr. Ronjit Barik, Mr. Narottam Raha and Mr. Kamal Krishna Debnath are responsible for violations committed by the Company and liable, jointly and severally, for making refunds along with interest to the investors as mandated under Section 73(2) of the Companies Act, 1956 read with Section 27 of the SEBI Act.

15. I note that the Company and its directors namely Mr. Bablu Sanfui, Mr. Ronjit Barik, Mr. Narottam Raha and Mr. Kamal Krishna Debnath were required to provide full inventory of the assets and properties within 21 days from the date of receipt of the interim order. However, no such details have been filed till date.

16. In view of the discussion above, appropriate action in accordance with law needs to be initiated against the Company and the directors/ promoters in charge of the affairs of the Company, during the relevant period.

17. Therefore, 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 and 11B thereof hereby issue the following directions:

a. The Company, Astha Techno Realty India Limited [PAN: AAJCA7529E], Mr. Bablu Sanfui [PAN: BXUPS5883F], Mr. Ronjit Barik [PAN: ALXPB0550E], Mr. Narottam Raha [PAN: AIKPR4950J] and Mr. Kamal Krishna Debnath [PAN: AWGPD7072F] jointly and severally, shall 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 RPS, 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 repayments to investors shall be effected only in cash through Bank Demand Draft or Pay Order.

c. The Company/ its present management are permitted to sell the assets of the Company only for the sole purpose of making the refunds as directed above and deposit the proceeds in an Escrow Account opened with a nationalised Bank.

d. The Company and its present management shall issue public notice, in all editions of two National Dailies (one English and one Hindi) and in one local daily with wide circulation, detailing the modalities for refund, including details on contact persons including names, addresses and contact details, within fifteen days of this Order coming into effect.

e. If the Company, Astha Techno Realty India Limited has repaid the investors as claimed by it, the Company may include such repayment in the report to be submitted under para 17(f), provided the Company has met with the criteria laid down under para 17(b) and it pays 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.

f. After completing the aforesaid repayments, the Company shall file a certificate of such completion with SEBI, within a period of three months from the date of this Order, from two independent peer reviewed Chartered Accountants who are in the panel of any public authority or public institution. 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 (‘ICAI’).

g. In case of failure of the Company, Astha Techno Realty India Limited, its directors including Mr. Bablu Sanfui, Mr. Ronjit Barik, Mr. Narottam Raha and Mr. Kamal Krishna Debnath in complying with the aforesaid 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 Company, its promoters/ directors and the persons/ officers who are in default, including adjudication proceedings against them, in accordance with law. iii. would make a reference to the State Government/ Local Police to register a civil/ criminal case against the Company, its promoters, directors and its managers/ persons in-charge of the business and its schemes, 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, to initiate the process of winding up of the Company.

h. The Company namely Astha Techno Realty India Limited is directed not to, directly or indirectly, access the capital market by issuing prospectus, offer document or advertisement soliciting money from the public and is further restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, from the date of this Order till the expiry of four (4) years from the date of completion of refunds to investors, made to the satisfaction of SEBI, as directed above.

i. The directors of the Company namely Mr. Bablu Sanfui, Mr. Ronjit Barik, Mr. Narottam Raha and Mr. Kamal Krishna Debnath are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, with immediate effect. They are also restrained from associating themselves with any listed public company and any public company which intends to raise money from the public, with immediate effect. This restraint shall continue to be in force for a further period of four (4) years on completion of the repayments, as directed above.

j. The above directions shall come into force with immediate effect.

18. 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 Company, its promoters, directors and other key persons.

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

20. 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 Company and the individuals.

DATE : February 26th, 2016 PRASHANT SARAN PLACE : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA