Order in the matter of Basil International Limited

Under section 11 and 11B of SEBI Act 1992 in the matter of Basil International Limited

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") received a complaint dated 23.6.2011 from the Office of the Directorate of Income Tax (Investigation), Kolkata, against M/s Basil International Limited (hereinafter referred to as "BIL") wherein, it was stated that, the said office had carried out a search operation at BIL’s office in Asansol and it had found out that BIL was engaged in the business of taking deposits under the garb of redeemable preference shares from rural people promising them returns ranging from 11% - 14% and was utilizing such proceeds in paying huge commission to its agents, investing in its business assets, fixed deposits and siphoning off the funds as cash. Hence, the company was stated to be running a ponzi scheme where liability was being met through deposits. 2. In the light of the nature of complaints received against BIL, SEBI decided to analyse the case in detail. Accordingly, information was sought from BIL vide SEBI's letter dated July 18, 2011 sent at the registered office address of BIL Mini Shop No.12, main market, Satyaniketan (near Nanakpura Gurudwara) Moti Bagh II, Delhi 110021) seeking information about its scheme(s) and plan(s).

The letter was returned undelivered with remarks that the company had left the premises. 3. Information was also sought from the Registrar of Companies (hereinafter referred to as "ROC") Delhi vide letter dated August 8, 2011. RoC, Delhi vide letter dated September 2, 2011 submitted the Memorandum of Association, Articles of Association, copies of Form 32 and Form 18 filed by BIL with its office. 4. Letters dated October 31, 2011 written to BIL at its registered office and all its other offices in Delhi seeking information about its schemes returned undelivered. 5. SEBI conducted a physical inspection at the registered office address and other office addresses of BIL on November 11, 2011 and November 18, 2011 in Delhi. It was found that BIL did not exist at any of the said addresses. 6. On the basis of documents received from RoC, a letter dated March 29, 2012 was sent to BIL at its registered office address as well as to all promoter(s)/signatories to Memorandum of Association and Articles of Association and to directors/additional directors of BIL, a total of thirty entities, seeking information about the various scheme(s) and plan(s) of BIL.

Out of these letters, 9 letters returned undelivered, replies were received from 4 additional directors on the board of BIL and no response was received from other entities. 7. SEBI received letter dated April 23, 2012 from BIL wherein it was informed that scheme(s) of BIL were not in the nature of a collective investment scheme in terms of Section 11AA of SEBI Act, 1992 and the company is under process of collecting information as sought by SEBI. 8. SEBI vide letter dated July 16, 2012 sent to the corporate office of BIL in Kolkata and vide letter dated September 11, 2012 sent to Shri. Prithi Paul Singh Sethi and Shri. Satya Narayan Karmakar (directors of BIL) sought information about BIL’s scheme(s) and plan(s). The letters written to the directors of BIL returned undelivered. 9. BIL vide its letters dated July 24,2012 and September 12,2012 submitted that since investments in different projects were a continuous process it was not possible to identify funds collected for each individual project/scheme. 10. SEBI vide letter dated October 3, 2012 sent to BIL at its new registered office address in Delhi(Unit No. 213, 2nd Floor, Vardhman Times Plaza, Plot No.13, Road No.44, Pitam Pura, Delhi -110034) and corporate office address in Kolkata once again sought information about its scheme(s) and plan(s).

The letter sent at the new registered office address in Delhi returned undelivered while no response was received from BIL’s Kolkata office. 11. In the meanwhile SEBI conducted a site visit at the BIL’s corporate office in Kolkata to obtain the requisite information. BIL officials present at the said corporate office stated that the company’s registered office in Delhi was operational and also that necessary documents and information would be sent to SEBI. It may be noted that the registered office in Delhi referred to by the BIL officials in Kolkata is the same address from where earlier letters had returned undelivered. 12. BIL vide its letter dated January 16, 2013 reiterated its earlier stand that the company would be unable to submit details regarding number of investors and amount mobilized under each scheme and plan as investments in its different projects is a continuous process and thus it is not possible to identify funds collected under each scheme and plan. The company also submitted the Memorandum and Articles of Association, Balance Sheet and Profit and Loss Account for the financial year 2011-12.

13. SEBI issued letters dated February 8, 2013 sent to BIL at its corporate office in Kolkata and registered office in Delhi (indicated to be operational by BIL) seeking information about the schemes and plans of BIL. The letter sent at BIL's registered office in Delhi returned undelivered and no response was received from its corporate office in Kolkata. 14. In view of the foregoing, it is clear that BIL has not provided to SEBI the required details/documents as sought from it. Since BIL also prima facie appears to be mobilising funds through issuance of redeemable preference shares, it becomes incumbent upon SEBI to intervene urgently in the matter. Therefore, in the facts and circumstances of this case, it becomes necessary for SEBI to act swiftly and proceed ex-parte on the basis of material available on record. 15. I have perused the complaint received by SEBI in the matter, the correspondences between SEBI and BIL, the application forms circulated by BIL, the information/documents received from BIL and other material available on record. 16. From the application form I note that BIL appears to have issued Redeemable Preference Share to its promoters, directors, employees, shareholders and their friends under various plans with varying redemption periods and indicative yields.

17. I also note from the documents available on record that BIL has in operation the following plans:- Min Redemption Investment Indicative Redemption S.No. Plan Period ( Yrs) (Rs.) Yield (%) Value (Rs.) 1 AA 3 1000 11 1368 2 BB 6 20,000 11.5 191.66 3 DD 10 1000 14 3707 4 EE 6 1000 13.5 2138 5 FF 3 300 11 410 6 GG 10 300 14 1112 7 HH 6 300 13.5 641 8 II 3 500 11 684 9 JJ 10 500 14 1854 10 KK 6 500 13.5 1069 11 LL 3 20,000 9 150

18. From the material available on record I note the following:- (a) The offer of Redeemable Preference Shares is stated to have been made to Promoters/Directors, employees, the shareholders and their friends and relatives on private placement basis.

(b) From the copy of receipts and payment account of BIL received from Directorate of Income Tax, Kolkata, BIL had mobilized Rs.959,193,767 (Rs. 95.9 cr approx) till year the financial year ending 2011 through issue of share certificates. (c) From the balance sheet of BIL as on March 31, 2012 as submitted by BIL, BIL has mobilized Rs.92,01,72,000 (Rs.92 cr approx.) through issue of redeemable cumulative preference shares upto March 31, 2012. (d) BIL has issued equity shares during FY 2009-10 as well as during FY 2011-12. Also, during FY 2011-12 BIL has authorized issue of preference shares to the extent of Rs.101,90,01,000 ( Rs.101.9 cr approx.).

19. The brochure of BIL offering redeemable preference shares states that the offer of Redeemable Preference Shares has been made to promoters/directors, the employees, shareholders and their friends and relatives only on private placement basis. However, the quantum of capital mobilised by BIL (approximately Rs.95 crores) as on March 31, 2011 through issuance of the said redeemable preference shares prima facie indicates that the offer of such shares was a public offer made to more than fifty persons within the meaning of the term "offer" made to the public under the first proviso to sub-section (3) of section 67 of the Companies Act, 1956. Section 67 of the Companies Act states that "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....". Sub-section (3) of section 67 states that "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 (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". The first proviso to section 67 (3) of the Companies Act states that "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". Therefore, in the instant case pertaining to issuance of redeemable preference shares by BIL, there appears to have been, inter alia, a non-compliance with section 67 of the Companies Act. 20. Non–compliance and non-cooperation by BIL in submitting information to SEBI, no prospectus having been filed by BIL with the RoC, and complaints received against BIL also indicate that BIL is attempting to conceal information about the offer size and other essential details in order to avoid compliance with company law and securities law.

21. I have observed that BIL has repeatedly refused to submit details of funds mobilized under its various schemes and plans as well as details of number of investors in such plan(s). It has stated that its investment in different projects is on continuous basis and hence it is not possible for it to identify funds collected for each individual project/ scheme. However, this is not a valid ground for withholding information which is essential for verifying legal compliance with the provisions of the Companies Act, 1956 and other applicable law. 22. In terms of section 55A of the Companies Act, 1956, section 67, so far as it relates to issue and transfer of securities, shall be administered by SEBI in the case of listed companies and companies which intend to get their securities listed. Section 73 (1) of the Companies Act requires a company offering shares or debentures to the public to apply to a recognised stock exchange for permission for the shares or debentures to be dealt with in the stock exchange. In this regard, I note that the Hon'ble Supreme Court of India in the matter of Sahara India Real Estate Corporation Limited & Ors. v. SEBI has, vide its judgment and order dated 31.08.2012 held that an offer to fifty or more persons becomes public issue by virtue of first proviso to section 67(3) of the Companies Act and thereby attracts compulsory listing as mandated under section 73 of the Companies Act.

Therefore, if BIL has made a public offer of securities in terms of the Companies Act, it would be SEBI's legal mandate to administer the provisions of the Companies Act applicable to the said public offer. 23. In the instant case, though details of the amount mobilized by BIL under its preference share issue are available with SEBI, no information regarding the number of investors to whom such offer was made or who subscribed to such an issue is currently available. The said information has been sought on various occasions from BIL but BIL has refused to co-operate with SEBI. Further, the RoC records pertaining to BIL do not indicate any filing by BIL regarding such issue of redeemable preference share with the RoC. 24. It is noted from the letter dated 23.06.2011 received from the Directorate of Income-Tax(Investigation), Kolkata, that BIL is not registered as a Non- Banking Financial Company with Reserve Bank of India. Further, it is noted that BIL has not appointed any SEBI registered Registrar to an Issue / Share Transfer Agent for the issue of Redeemable Preference Shares. 25. It is pertinent to note that under the SEBI Act, 1992, SEBI has a statutory duty to protect the interests of investors in securities and promote the development of, and to regulate, the securities market.

Section 11 of the SEBI Act has empowered it to take such measures as it thinks fit for fulfilling its legislative mandate. SEBI's powers under sections 11, 11A and 11B of the SEBI Act, as interpreted by judicial authority, are not fettered by any other law including the Companies Act and in view of provisions of section 55A of the Companies Act, administrative authority on the subjects relating to public issue of securities is exclusively with SEBI. For this purpose, SEBI can exercise its jurisdiction under sections 11(1), 11A(1)(b) and 11B of the SEBI Act over companies who issue redeemable preference shares to fifty or more persons, but do not comply with the applicable provisions of the Companies Act including section 73(1). 26. Further, in order to ensure that BIL does not collect further funds and also to safeguard the assets or property acquired through such funds of the investing public till complete details are brought out and a final decision is accordingly taken in the matter, it becomes necessary for SEBI to take urgent preventive and remedial action by way of this ex-parte order.

In the absence of such preventive action, irreparable loss and damage may be caused to investors. 27. For the aforesaid reasons, I, in exercise of powers conferred upon me by virtue of section 19 of the SEBI Act, issue the following directions under sections 11 and 11B thereof, by way of this ad-interim ex-parte order :- (a) M/s Basil International Limited having its Registered office at Unit No. 213, 2nd Floor, Vardhman Times Plaza, Plot No.13, Road No.44, Pitam Pura, Delhi -110034 and corporate office at " 27/2, Suren Tagore road, Ground Floor(Oppo. to Bengal Jewellery) Kolkatta- 770019, and its promoters and directors including Shri.Satya Narayan Karmakar,Shri. Sourindra Nath Mukherjee, Shri. Biplab Talukdar, Shri. Manindra Kumar Basu, Shri. Susanto Chatterjee, Shri. Jayanta Kumar Basu, Monami Basu, Sadhan Kumar Nandi, Sarmistha Sengupta Saikia, Korobi Sengupta, Shri. Kaushik Chattopadhyay and Shri. Promothesh Banerjee, are hereby directed not to collect any money from investors; (b) The properties/assets which have been owned or acquired by M/s Basil International Limited shall not be disposed of by it without prior permission of SEBI; and (c) BIL is hereby directed not to divert any fund raised from public at large kept in bank account and/or at the custody of the company.

28. This order is without prejudice to the right of SEBI to take any other action that may be initiated against BIL, its promoters and directors in accordance with law. 29. This order shall be treated as a show cause notice to M/s Basil International Limited, its promoters and directors including directors including Shri.Satya Narayan Karmakar,Shri. Sourindra Nath Mukherjee, Shri. Biplab Talukdar, Shri. Manindra Kumar Basu, Shri. Susanto Chatterjee, Shri. Jayanta Kumar Basu, Monami Basu, Sadhan Kumar Nandi, Sarmistha Sengupta Saikia, Korobi Sengupta, Shri. Kaushik Chattopadhyay and Shri. Promothesh Banerjee, who may show cause as to why appropriate actions under the SEBI Act should not be taken/issued against them for non-compliance with the provisions of the Companies Act including Sections 56,60,69,73 etc. 30. M/s Basil International Limited, its promoters and directors including Shri.Satya Narayan Karmakar,Shri. Sourindra Nath Mukherjee, Shri. Biplab Talukdar, Shri. Manindra Kumar Basu, Shri. Susanto Chatterjee, Shri. Jayanta Kumar Basu, Monami Basu, Sadhan Kumar Nandi, Sarmistha Sengupta Saikia, Korobi

Sengupta, Shri. Kaushik Chattopadhyay and Shri. Promothesh Banerjee shall,within 15 days from the date of receipt of this Order, file their reply, if any. They may also indicate, in their replies, whether they wish to avail an opportunity of personal hearing in the matter. 31. This Order shall come into force with immediate effect and the directions issued hereinabove shall continue till further orders.

S RAMAN Date: 16th May 2013 WHOLE TIME MEMBER Place: Mumbai SECURITIES AND EXCHANGE BOARD OF INDIA