Order in the matter of AVM Real Estate & Allied Limited

In the matter of issuance of Redeemable Preference Shares by AVM Real Estate & Allied Limited 1. Securities and Exchange Board of India (“SEBI”) conducted a preliminary inquiry into the issuances of redeemable preference shares by AVM Real Estate & Allied Limited (hereinafter referred to as 'AVM' or 'the company') with a view to ascertain the possible violations of the public issue norms stipulated under the Companies Act, 1956 and other applicable laws including the Securities and Exchange Board of India Act, 1992 (SEBI Act, 1992) and the SEBI Regulations/Guidelines. Pursuant to the preliminary inquiry, SEBI passed an ad interim order dated June 05, 2015 (hereinafter referred to as “interim order”) in respect of AVM and its present/past directors, viz. Mr. Rajeshwar Prasad Dwivedi, Mr. Anil Kumar Sahu, Mr. Mahendra Kumar Sahu and Mr. Ashutosh Dwivedi (hereinafter collectively referred to as “the Noticees” and individually by their respective names), inter alia, in view of the following: “ b. The present Directors of AVM are Shri Rajeshwar Prasad Dwivedi (DIN:02973616; PAN:AGFPD9237P), Shri Anil Kumar Sahu (DIN: 02973628; PAN: CILES0387K) and Shri Mahendra Kumar Sahu (DIN:06471851; PAN:CQDPS7744E). Shri Ashutosh Dwivedi (DIN: 02973639; PAN:ATWPD6907G) was a Director of AVM during the period 23/03/2010 to Order in the matter of AVM Real Estate & Allied Limited

04/01/2013. c. A perusal of the Balance Sheet as at March 31, 2011, March 31, 2012 and March 31, 2013 indicates the following amounts under the head “Share Application Money Pending Allotment":

March 31, 2013 (`) March 31, 2012 (`) March 31, 2011 (`) 63,50,500.00 58,30,000.00 30,05,000.00 d. It is observed that in the financial statements for the year ended March 31, 2013, the auditor had made the following observations with regard to the share application money pending allotment “As at 31 March 2013, the Company has received an amount of `63,50,500/- towards share application money towards 6,35,050 preference shares of the Company (As at 31 March 2012 `58,30,000/- towards 5,83,000 preference shares) at a premium of ` NIL….. The share application money was received pursuant to an invitation to offer shares and in terms of such invitation, the Company is required to complete the allotment formalities by 31 December 2014……” e. AVM vide letter dated May 21, 2014 provided the following details with regard to the amount collected by them as Preference Share Application Money (“Offer of Redeemable Preference Shares”) and wherein the date of allotment of shares has been indicated as “Allotment Pending”:

Total Preference Share Present Preference Share Preference Share Applicants Applicants Applicants Repaid No of No of Shares No of No of Shares No of No of Shares Applicants Held Applicants Held Applicants Held 156 638050 44 478000 112 160050 4.3(iii)(a) “In the instant case, it is observed from the balance sheet as at March 31, 2013 and the observations made by the auditors that an amount of `63,50,500/- is indicated under the head “Share Application Money Pending Allotment”. AVM has stated that they had only invited applications for subscription towards preference shares and have not made any allotments. Further, AVM has also stated that they had collected 156 applications for subscription of preference shares out of which application money has been returned to 112 applicants and at present they have only 44 applicants. Though the year-wise break up of number of applicants for subscription towards preference shares is not available, it is apparent from the aforesaid facts that AVM had issued application forms and made an invitation to offer Redeemable Preference Shares to more than 50 applicants.

Merely stating the issue as a private placement in the application form shall not make it as such. It is also pertinent to mention that prima facie it appears that the amount mobilized by AVM under the Offer of Redeemable Preference Shares was retained with AVM from the financial year 2010-11 and the refunds were made only from 2012-13. In view of the above stated facts, the Offer of Redeemable Preference Shares by AVM prima facie qualifies as a public issue of securities under Section 67(3) of the Companies Act, 1956, which has been elucidated by the Hon'ble Supreme Court of India in the Sahara Case “4.7 ….AVM is prima facie engaged in fund mobilising activity from the public, through the Offer of Redeemable Preference Shares and as a result of the aforesaid activity has violated the aforementioned provisions of the Companies Act, 1956 (Section 56, Section 60 read with Section 2(36), Section 73). …………………………………………….” 2. By the interim order, the following interim directions were issued against the Noticees: “i. AVM shall forthwith cease to mobilize any fresh funds from investors through the Offer of Redeemable Preference Shares or through any other securities, to the public and/or invite subscription, in any manner whatsoever, either directly or indirectly, till further directions; ii.

AVM (CIN:U70100CT2010PLC021677; PAN:AAICA3913D) and its directors, viz. Shri Rajeshwar Prasad Dwivedi (DIN:02973616; PAN:AGFPD9237P), Shri Anil Kumar Sahu (DIN: 02973628; PAN:CILES0387K); Shri Mahendra Kumar Sahu (DIN:06471851; PAN:CQDPS7744E) and Shri Ashutosh Dwivedi (DIN: 02973639; PAN:ATWPD6907G) 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. AVM 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. AVM shall provide a full inventory of all its assets and properties; v. The Directors of AVM shall provide a full inventory of all their assets and properties; vi. AVM 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.

AVM 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 AVM xiii. AVM shall furnish information with regard to list of all the persons who had applied for Redeemable Preference Shares along with their contact details, addresses and details of investment amounts. AVM shall also provide full details of refunds, including dates of such refunds;

ix. AVM and its abovementioned Directors shall, within 21 days from the date of receipt of this Order, provide SEBI with all relevant and necessary information as sought by SEBI.” 3. Vide the interim order, the Noticees were called upon to show cause as to why suitable directions/prohibitions under sections 11(1), 11(4), 11A and 11B of the SEBI Act including the following, should not be taken/imposed against them: “i. Directing them jointly and severally to refund money collected through the Offer of Redeemable Preference Shares alongwith interest, if any, promised to investors therein; ii. Directing them not to issue 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, for an appropriate period; iii. Directing them to refrain from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period.” 4. Vide the interim order the Noticees have also been advised that they may file their objections, if any, within twenty one days from the date of this interim order and, if they so desire, may avail themselves of an opportunity of personal hearing before SEBI, on a date and time to be fixed on a specific request, received from them.

5. The Noticees filed their replies to the interim order on separate dates and the same is summarized as under: (i) Vide its letter dated June 29, 2015 AVM has submitted that it abides by the directions in the interim order and the directors do not have any properties except inherited ones. It also submitted a list of three cars which were in the name of its directors. It sought a period of one year to refund the money to investors and requested SEBI to allow the company to sell its properties to refund the monies. It also submitted two lists of “paid off share applicants" and present applicants. (ii) Vide letter dated March 03, 2016, the three directors of AVM, namely, Mr. Mahendra Kumar Sahu, Mr. Anil Kumar Sahu and Mr. Rajeshwar Prasad Dwivedi, submitted a list of movable and immovable properties and two lists of paid off share applicants and present applicants. They also requested SEBI to waive the directions with regard to sale of properties and bank accounts so that they can refund the monies to investors. (iii) Vide email dated September 01, 2016, the three directors of AVM, namely, Mr. Mahendra Kumar Sahu, Mr. Anil Kumar Sahu and Mr. Rajeshwar Prasad Dwivedi forwarded a copy of the letter dated August 31, 2016 signed by the aforesaid directors requesting SEBI to allow them to sell the properties to refund the monies to the investors.

(iv) Vide letter dated October 05, 2016, Mr. Asutosh Dwivedi submitted that he had resigned from the directorship of AVM since January 07, 2013 and that the company had issued a letter to him absolving him from all the financial and legal liabilities. He also submitted copies of letters dated January 07, 2013 and February 10, 2013, Form 32 (submitted to the Registrar of Companies) in this regard. 6. In the interest of natural justice, an opportunity personal hearing was granted to the Noticees on October 18, 2016 and the same was communicated to the Noticees through public notices published in the newspapers “Sunday Pioneer” and “Haribhoomi” on August 28, 2016 and subsequently vide separate letters dated September 26, 2016. On the date of personal hearing, Mr. Rajeshwar Prasad Dwivedi and Mr. Anil Kumar Sahu appeared in person and made oral submissions on the lines of their earlier replies. Mr. Anil Kumar Sahu also made oral submission on behalf of Mr. Mahendra Kumar Sahu. 7. I note that AVM and Mr. Ashutosh Dwivedi neither appeared during the personal before me nor have sought any adjournment.

Considering the above, I find that the principles of natural justice have been complied with in these proceedings. 8. I have considered the interim order, the allegations levelled against the Noticees therein and the material available on record. The core allegation in the interim order is that AVM made a “public issue” of Redeemable Preference Shares without complying with provisions of law regulating such public issues mandated under the Companies Act, 1956. I note that these findings of the interim order have not been disputed by any of the Noticees. Thus, by virtue of the proviso to section 67(3) of the Companies Act, 1956 the issuances of Redeemable Preference Shares by AVM were public issues. In this regard, it is important to mention that all the controversies with regard to questions such as whether an offer to 50 persons or more is a public issue or private placement, SEBI's jurisdiction on issuance of securities including Redeemable Preference Shares, intention/obligation to list such securities, etc. have been settled by the Hon'ble Supreme Court in its judgment and order dated August 31, 2012 in the matter of Sahara India Real Estate Corporation Limited & Ors. Vs SEBI & Anr. - Civil Appeal No. 9813 and 9833 of 2011 [(2013) 1 SCC 1] (hereinafter referred to as “the Sahara Order").

9. I note that since the issuances of Redeemable Preference Shares by AVM during the period FY 2010, FY 2011-12 and FY 2012-13 were public issues, it ought to have complied with the applicable provisions of the Companies Act, 1956 (read with the corresponding provisions of Companies Act, 2013) and as noted in the interim order. In the present case, there is no dispute as to the fact that AVM while making the aforesaid “public issues” of Redeemable Preference Shares had not complied with the provisions of sections 56, 60, 73, 117B and 117C of the Companies Act, 1956, as alleged in the interim order. Since the requirements of these applicable provisions and the relevant observations of the Hon’ble Supreme Court in the Sahara Order have been clearly stipulated in the interim order, I do not deem it necessary to reiterate the same and burden this order with the same findings. 10. 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 are liable for any non-compliance of law and such liability shall be upon the individual directors also. Section 56(1) and 56(3) read with section 56(4) of the Companies Act, 1956 imposes the liability for the non-compliance of the said provisions, on the company, every director, and other persons responsible for the issuance of the prospectus. 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 noncompliance of issuing the prospectus as per the said section. 11. The interim order has alleged that the directors, Mr. Rajeshwar Prasad Dwivedi, Mr. Anil Kumar Sahu, Mr. Mahendra Kumar Sahu and Mr. Ashutosh Dwivedi are liable for the violations committed by AVM and advised them to show cause as to why directions contemplated in the interim order should not be issued against them. The details regarding the date of appointment and resignation, if any, of the aforesaid directors is mentioned below:

Sl. No. Name Date of Appointment Date of cessation 1 Mr. Rajeshwar Prasad Dwivedi 23/03/10 Continuing as director 2 Mr. Anil Kumar Sahu 23/03/10 Continuing as director 3 Mr. Mahendra Kumar Sahu 04/01/13 Continuing as director 4 Mr. Ashutosh Dwivedi 23/03/10 07/01/13 12. It is held above in this Order that AVM made a public issue of Redeemable Preference Shares during FY 2010-11, 2011-12 and 2012-13 and mobilized atleast `63,50,500 from atleast 156 persons in violation of the public issue norms. Mr. Rajeshwar Prasad Dwivedi, Mr. Anil Kumar Sahu and Mr. Ashutosh Dwivedi were appointed as directors on March 23, 2010 (i.e. date of incorporation of AVM). There is no dispute to the fact that Mr. Rajeshwar Prasad Dwivedi, Mr. Anil Kumar Sahu, Mr. Mahendra Kumar Sahu and Mr. Ashutosh Dwivedi were the directors of AVM at the time when the company authorized the issuances of Redeemable Preference Shares to 156 investors. Mr. Ashutosh Dwivedi has resigned from the directorship of AVM only with effect from January 07, 2013 by which time the company had made the issuance of Redeemable Preference Shares to 156 investors.

The board of directors of AVM at the time of the above mentioned issuances of Redeemable Preference Shares being in control of their affairs, was under an obligation to ensure that these issuances were in compliance with all the applicable provisions of the Companies Act, 1956 and SEBI Act/Regulations/Guidelines. In my view, the above named directors of AVM at the time of the above mentioned issuances are also "officers in default" as defined under section 5 of the Companies Act, 1956 read with section 2(60) of the Companies Act, 2013. I, therefore, find that the above named directors of AVM are also responsible for its acts and omissions in this case. 13. 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. Therefore, the directors (irrespective of whether they continue or resign) who were present during the period when the company made the offer and allotted securities shall be liable for violation of sections 56, 60 and 73 of the Companies Act, 1956. Further, the persons who join the company’s Board as directors pursuant to the offer and allotment of securities shall also be liable if the company/concerned directors fail to make refunds as mandated under sections 73(2) of the Companies Act, 1956. 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.” 14. Considering the above, I find that in respect of the issuances of Redeemable Preference Shares by AVM during the financial years 2011-12 to 2012-13, the Noticees have failed to comply with the above-mentioned provisions of Companies Act, 1956 (read with the corresponding provisions of Companies Act, 2013). 15. It is important to mention that one of the consequence of the aforesaid non-compliance/violations is refund/repayment of subscription money to the allottees with interest as provided in section 73 read with section 56 of the Companies Act, 1956. With regard to liability to pay interest on the subscription money, I note that as per section 73 (2) of the Companies Act, 1956 read with section 40(3)(b) of the Companies Act, 2013, the company and every director of the company who is an officer in default is jointly and severally liable, to repay all the money with interest at prescribed rate.

In this regard, I note that in terms of rule 4D of the Companies (Central Government's) General Rules and Forms, 1956 read with rule 3(c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, the rate of interest prescribed in this regard is 15%. Accordingly, the Noticees are liable to pay interest to the allottees at such statutory rate of interest. 16. In view of the foregoing, I, in exercise of the powers conferred upon me under sections 11, 11(4), 11A and 11B read with section 19 of the SEBI Act, hereby issue the following directions: (i) AVM Real Estate & Allied Limited (CIN: U70100CT2010PLC021677; PAN: AAICA3913D), Mr. Rajeshwar Prasad Dwivedi (DIN: 02973616; PAN: AGFPD9237P), Mr. Anil Kumar Sahu (DIN: 02973628; PAN: CILES0387K), Mr. Mahendra Kumar Sahu (DIN: 06471851; PAN: CQDPS7744E) and Mr. Ashutosh Dwivedi (DIN: 02973639; PAN: ATWPD6907G) shall within a period of three months from the date of this order, jointly and severally refund the money collected through issuances Redeemable Preference Shares to the investors with interest at the rate of 15% per annum from the date of receipt of money till the date of such refund or the redemption value as promised and accrued till the date of refund, whichever is higher.

(ii) Such refund shall be made only in cash through a Demand Draft or Pay Order. (iii) AVM Real Estate & Allied Limited and its directors shall within fifteen days from the date of this Order submit to SEBI complete details of their assets (alongwith proofs thereof) certified by a peer reviewed Chartered Accountant. (iv) AVM Real Estate & Allied Limited and its directors are permitted to sell the 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 investors (holders of Redeemable Preference Shares) till the full refund/ repayment as directed above is made. (v) AVM Real Estate & Allied 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, the Noticees 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) AVM Real Estate & Allied Limited, Mr. Rajeshwar Prasad Dwivedi, Mr. Anil Kumar Sahu, Mr. Mahendra Kumar Sahu and Mr. Ashutosh Dwivedi 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 investors (holders of Redeemable Preference Shares) whichever is later. (ix) Mr. Rajeshwar Prasad Dwivedi, Mr. Anil Kumar Sahu, Mr. Mahendra Kumar Sahu and Mr. Ashutosh Dwivedi 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 holders of Redeemable Preference Shares, whichever is later. (x) For the purposes of above clauses, the period of restraint shall be counted from the date of the interim order. 17. The interim order cum show cause notice dated June 05, 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. 18. The order shall come into force with immediate effect. A copy of this Order shall be forwarded to the recognized stock exchanges and depositories for information and necessary action. 19. 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.

Sd/-

DATE: NOVEMBER 1st, 2016 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA