Order in the matter of Landmarc Leisure Corporation Ltd

UNDER SECTIONS 11, 11(4), 11A AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992

IN THE MATTER OF S. NO. NAME PAN 1 Landmarc Leisure Corporation Ltd. AAACL5117A

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), in the interest of investors, vide its letter dated August 7, 2017 took pre-emptive interim measures under section 11(1) of Securities and Exchange Board of India Act, 1992 (“SEBI Act”), in respect of certain listed companies identified as “shell companies” by the Ministry of Corporate Affairs including Landmarc Leisure Corporation Ltd. (hereinafter referred to as “LLCL” / “Company”). In view of the said objective, SEBI vide the said letter dated August 7, 2017 also placed the scrip of LLCL in the trade to trade category with limitation on the frequency of trade and imposed a limitation on the buyers by way of 200% deposit on the trade value, so as to alert them while trading in the scrip. The said measures were initiated by SEBI pending final determination after verification of credentials and fundamentals of the company by the exchanges, including by way of audit and forensic audit if necessary. The measures also envisaged, on the final determination, delisting of the company from the stock exchange, if warranted. By virtue of these measures, trading in the scrip was not suspended, but was allowed under strict monitoring so that investors could take informed investment decisions till SEBI and Stock Exchanges complete detailed examination of such companies.

2. Aggrieved by the aforesaid letter dated August 7, 2017 issued by SEBI, LLCL filed an appeal No. 217 of 2017 before Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”). Hon’ble SAT vide order dated September 11, 2017 allowed

Order in the matter of Landmarc Leisure Corporation Ltd.

LLCL to withdraw the appeal with liberty to pursue the representation filed before SEBI against the said letter dated August 7, 2017. Hon’ble SAT directed SEBI to dispose of the representation of LLCL as expeditiously as possible and in any event within a period of four weeks from September 11, 2017. Hon’ble SAT also held that passing of any order on the representation made by the appellant would not preclude SEBI from further investigating the matter and initiate appropriate proceedings if deemed fit.

3. Pursuant to the decision of Hon’ble SAT that the communication of SEBI dated August 7, 2017 is in the nature of quasi-judicial order, in the interest of natural justice, an opportunity of personal hearing was granted to LLCL on September 20, 2017. The authorized representative of LLCL had appeared for the said hearing.

4. Thereafter, SEBI vide interim order dated October 6, 2017 (hereinafter referred to as “interim order”), had modified, subject to para 24 of the interim order, the actions envisaged in SEBI’s letter dated August 07, 2017 and the consequential actions taken by Stock Exchanges, against LLCL as under:

i. The trading in securities of LLCL shall be reverted to the status as it stood prior to issuance of letter dated August 7, 2017 by SEBI. ii. Stock Exchange shall appoint an independent forensic auditor, inter alia, to further verify: a) Misrepresentation including of financials and/or business of LLCL, if any; b) Misuse of the funds/books of accounts of LLCL, if any. iii. The promoters and directors in LLCL are permitted only to buy the securities of LLCL. The shares held by the promoters and directors in LLCL shall not be allowed to be transferred for sale by depositories. iv. The other actions envisaged in SEBI’s letter dated August 07, 2017 in para 1 (d) as may be applicable, and the consequential action taken by Stock Exchanges shall continue to have effect against LLCL.

5. The prima facie observations in the Interim Order are as under:

“ i. The Memorandum of Understanding (MOU) submitted by LLCL is between LLCL and SRUIL, both predominantly having common promoters. The said MOU is with regard to appointment of LLCL to manage the operation of the Wellness Centre in the property named Palais Royale which is a residential building for which the handover date was March 31, 2010 as per the original

MoU. The said handover date was modified to September 07, 2013 as per addendum dated March 30, 2009. Further, as per the second addendum to MoU dated August 17, 2013, the handover date was again modified to March 20, 2017. The handover date was once again modified to December 31, 2021 as per addendum dated February 20, 2017.

ii. Despite being aware that the project forming the subject matter of the MOU has been in litigation, LLCL has neither sought for refund of amount from SRUIL for its security deposit (terminating the MoU) nor added any amendment in MoU to the effect of addition of penalty on further delay of handover date, which, prima facie, appears to be inappropriate use of the investors’ funds towards related party transaction, as LLCL is not getting any benefit from year 2005 till 2021 from this interest free security deposit. On the contrary, it has agreed to accept the tentative handover date of 2021 without any revenue generation for LLCL. There has been lot of uncertainty w.r.t. the likelihood of commencement of operations and it is not clear why LLCL has not demanded its deposit back from SRUIL.

iii. It is noted that in the audit report since the year 2009-2010, there has been an audit qualification regarding non-provision against the interest free security deposit in company’s books and the same has not been addressed by LLCL till 2016-2017.

iv. Despite investing such huge amount vis-à-vis its Asset base i.e. Rs 15 crore (1/3 of its asset size mentioned in Annual report 2016-17), company has not demanded the deposit back from SRUIL, which is a related party.

v. It is noted that the “confirmation of accounts” submitted by LLCL shows “debit of Vijay Infrastructure Deposit a/c transfer to Shree Ram Mills Deposit a/c” worth Rs 20 crore, which matches with the figure given in MoU, In the company’s reply, the relation of Vijay infrastructure with LLCL is not mentioned by the company. Additionally, whether this transaction is done for operating and managing a wellness center at Palais Royale, which is the property under consideration in the MoU, cannot be confirmed from the aforesaid document. It is also noted that as per the long term loans and advances (shown in FY 2016-17), the advance to SRUIL for running business operations at Worli Premises (i.e. the property under consideration) is Rs. 15 crore. The Company did not give any bank transaction entry showing refund receipt of the balance Rs. 5 crore based on the addendum 1 to the MoU dated March 30, 2009.

vi. Further, the date of MoU is 27/10/2005 and the date of “confirmation of account” is 31/12/2004 (prior to the date of MoU). This gives rise to a suspicion as to why would the company enter into a transaction 10 months ahead of the date of MoU that too for such a large amount.

vii. The three addendums to MoU are not made on stamp papers. Hence, whether the three addendums are legally valid is questionable. Also, the name of signatory on behalf of SRUIL is not mentioned in any of the addendums.

viii. Despite asking for the Name and contract details of the persons to whom loans and advances (short term and long term) were given, the company failed to provide the same.

a) With regard to the long term loans and advances, the Company only made a passing remark stating that Rs 15 crore is towards running business operations at Andheri Premises (Fixed) and Rs 15 crore is towards running business operations at Worli Premises. However it did not give the relevant details or contract/MoU/agreement.

b) With regard to the aforesaid Andheri premises, LLCL had entered into a transaction with SKM Real Infrastructure Ltd. and had deposited Rs. 15 crore (long-term advance given in 2007) and Rs. 10 crore (short term advance given during 2007-2009) whereunder LLCL could use one lakh sq. ft. of the area owned by SKM. It is noted that SKM is also a related party of LLCL having common promoter i.e. Mr. Vikas S. Kasliwal. As per the submissions of LLCL, it had only 6 employees as on March 31, 2017 and the revenues from the use of said premises are not significant. Thus, it appears that LLCL has been incurring substantial cost (loss of opportunity of appropriate usage / loss of interest income on the deposit of Rs. 25 crore) without generating significant revenues from the said premises, which is potentially to the detriment of the interests of minority shareholders.

ix. The company was specifically asked to provide the utilization of IPO proceeds, however it has failed to provide the relevant details in that regard.

18. Considering the above observations, it prima facie appears that LLCL has utilized the investors’ money in a manner detrimental to the interests of minority shareholders. One such instance is that LLCL has given a substantial portion of its assets, Rs. 15 crore, to a related party (i.e. SRUIL) as an interest free security deposit which is outstanding for 12 years without any benefit to the shareholders of the company. Also, LLCL has claimed its transaction with SRUIL was an arm’s length transaction but has failed to provide any explanation as to how it was an arm’ length transaction. The company at the time of hearing was also asked to provide contract details and particulars of arm’s length transactions (where related parties are involved) in respect of the loan and advances shown by it FY 2016-17, however it failed to provide any contract details and particulars of related parties. It has also failed to provide utilization of proceeds of IPO which came in the year 2000.”

6. Vide the interim order, SEBI had advised LLCL to file its reply/objections to the said interim order within 30 days from the date of receipt thereof and also indicate in its reply whether it desires to avail an opportunity of personal hearing on a date and time to be fixed on a specific request made in that regard. Thereafter, on October 10, 2017, a corrigendum to the interim order was also issued.

7. Vide an email, a copy of interim order was forwarded to LLCL. Subsequently, a physical copy of interim order and the corrigendum was also sent to LLCL on its address on record, and the same was delivered.

Reply and hearing

8. LLCL submitted its reply/objections to the Interim order vide letter dated November 3, 2017, inter alia, submitting the following:  The SEBI order dated October 6, 2017 was placed before the Board to consider the investments in the form of interest free security deposit given to group company of Rs. 15 crore to SRUIL and Rs. 25 crore to SKMRIL. The Board considered that Company should not insist on refund of the Interest free security deposit given to both the companies in view of the Commercial Interest of the company. The Board was of the opinion that let the Commercial wisdom of the Directors prevail over the Regulatory issues. It was of the informed opinion that it was in the larger interest of the shareholders of the company that Company continues with both the projects and ratifies the decisions taken by erstwhile Directors in the year 2005 and 2007, respectively.

 In commercial terms 20,000 sq.ft. of Palais Royale, Worli at today’s market rate of Rs 38,000 per sq.ft. (Source: Magicbricks) aggregate to Rs. 76 crores against which company paid only Rs 15 crores to SRUIL which is also refundable at the end of 30 years.

 In commercial terms 1,00,000 sq. ft. of Raaj Chambers, Andheri at today’s market rate of Rs. 21, 000 per sq. ft. (Source: magic bricks) aggregate to Rs. 210 crores against which company has paid only Rs. 25 crores to SKM Real Infra. Ltd. which is also refundable.

 The company also provided a snapshot of the financials of SKMRIL and SRUIL for FY 2016-17. It also listed the unique features of both the projects.

 As regards the IPO, the company made Offer for sale in the year 1998 and got itself listed on Pune Stock Exchange. Subsequently, the company got listed on BSE. The company’s capital at the time of listing was Rs. 15 crores. Further, company issued shares on preferential basis in year 1999 for Rs. 25 crores and in the year 2011 for Rs. 40 crores. The existing listed capital of the company is Rs. 80 crores.

 In view of the above, the company requested SEBI to withdraw the restriction on the sale of shares by promoters. It was also submitted that they suo moto undertake that the promoters will not sell the shares for a period of 3 years

9. Vide the said letter dated November 3, 2017, the company also requested for an opportunity of hearing. Hearing was scheduled in the matter on January 10, 2018 when the authorized representatives of LLCL appeared and made, inter alia, the following submissions:

i) The auditor appointed pursuant to SEBI’s order has been asking questions beyond the scope of the interim order. ii) The company is positive that the investments made by it in the properties based in Worli and Andheri will be profitable to the company in the longer run.

10. The company also submitted a letter dated January 10, 2018 whereby it stated that “we shall be discussing with our associate companies regarding the proposal for resolution of financial transaction that we had with them and as stated in the interim order.” The company was also asked to submit its further reply addressing the following points:

i) Whether the transactions carried out by the company were arm’s length transactions?

ii) Had the entity, to whom the deposit has been given by the company, not been a related party, would it still have given the deposit?

iii) Why the company has not taken any steps to recover the deposit from the entity?

11. The company also submitted during the hearing that within a period of 3 weeks (from January 10, 2018), it will submit a proposal to remedy the situation addressing the points that have been highlighted in the interim order. Thereafter, LLCL vide letter dated January 30, 2018 communicated as under:

 The board of LLCL has decided to reduce its focus on wellness activities and concentrate on films, media and TV channel business. Accordingly it has decided to terminate LLCL’s agreements with SKMRIL and SRUIL and utilize the resources so realized for entertainment business.

 Accordingly, discussions were held with both the companies i.e. SKMRIL and SRUIL who have agreed to refund the security deposit along with the interest at SBI prevailing FD rates. This is in line with the proposal given by the company officials before WTM during personal hearing and our letter dated January 10, 2018.

 In view of the above, the company requested SEBI to withdraw the forensic audit and also lift the restriction on promoters as well as directors not to transfer or sell the shares held by them, though the promoters do not intend to sell any shares.

12. As seen from the above response of LLCL dated January 30, 2018, it submitted a remedial proposal but did not provide a timeline for the same. Subsequent to the said communication, the company did not send any communication regarding the execution of the said remedial proposal. Thus, vide letter dated April 3, 2018, SEBI asked LLCL to submit documents (i.e. relevant bank statement entries) in line with its remedial proposal, latest by April 10, 2018. In response thereto, LLCL vide letter dated April 10, 2018 submitted the following:

a. Company received an amount of Rs. 50 lakhs from SKMRIL as refund against interest free deposit given to them. (The, bank statement screenshot for the amount of Rs 50 lacs was sent vide email dated April 12, 2018).

b. Company stated that SKMRIL has resolved to pay the balance amount in installments.

c. For SRUIL, Company stated that provisional liquidator has been appointed by Hon’ble Bombay High Court and provided copies of two Bombay High Court orders dated August 24, 2017 and October 5, 2016.

d. The provisional liquidator had issued a notice for symbolic possession for SRUIL vide notice dated 23/11/2017. LLCL stated that SRUIL has filed an appeal against the said order.

e. LLCL furnished copies of two letters dated November 7, 2017 and April 5, 2018, received from SRUIL.

i. Vide letter dated November 7, 2017, SRUIL stated that they are agreeable to refund the moneys received from LLCL vide MOU of 27th October 2005 along with simple interest based on SBI fixed deposit rate. SRUIL also mentioned that they are working out the resources position and will revert on the repayment schedule shortly.

ii. Vide letter dated April 5, 2018 to LLCL, submitted that “We are presently in provisional liquidation and are unable to reply”. SRUIL also mentioned that once they come out of liquidation, they will work out the position and reply.

Issue for consideration

Whether in light of the facts and circumstances of the case, the findings of the interim order and the submissions of the company in response thereto, the directions issued against the company vide the interim order need to be confirmed, revoked or modified in any manner?

13. Considering the above mentioned facts and circumstances and the replies of LLCL to the findings of the interim order, I observe the following:

i. No fixed timeline has been given by either SRUIL or SKMRIL for the repayment. Hence, there is no clarity on when the funds will be received by LLCL as per the proposed remedial plan submitted by it to SEBI on January 10, 2018.

ii. With regard to the refund of Rs. 25 crore from SKMRIL (plus interest) under the remedial plan proposed by the company, it provided the bank statement transaction (from 5.4.2018 to 9.4.2018) showing the credit of Rs 50 lacs vide its email dated April 12, 2018. The Company did not provide any backup documentation for the communication between LLCL and SKMRIL regarding SKMRIL’s commitment to pay the balance amount in installments. It is noted that Rs 50 lacs is negligible as compared to Rs. 25 crores (+ SBI prevailing FD rates) given by LLCL to SKMRIL way back in the period 2007-2009. It is also noted that the transfer of funds to LLCL started only after SEBI sought for information regarding the remedial plan vide letter dated April 3, 2018.

iii. Regarding the refund of Rs.15 crore from SRUIL under the remedial plan proposed by the company, I note that vide the Order dated August 24, 2017 Hon’ble High Court of Bombay (in the matter of Action Barter Pvt. Ltd and SRUIL), has directed that winding up proceedings of SRUIL shall revive.

iv. It is noted that vide order dated October 5, 2016, Hon’ble Bombay High Court directed that the provisional liquidator shall take charge of the assets/properties and records of SRUIL without awaiting any notification. It is also noted from the order of the Hon’ble High Court that SRUIL had also defaulted in honoring its undertaking given to the Hon’ble Supreme Court (regarding payment of amount to another company).

v. In its latest communication to LLCL, SRUIL vide letter dated April 5, 2018 stated that it is under provisional liquidation and it will work out its position and reply only after it is out of liquidation.

vi. In light of the above facts and circumstances, it prima facie appears that SRUIL is not in a position to refund the security deposit of Rs. 15 crore to LLCL and LLCL may not receive the said refund from SRUIL.

vii. Further, in this connection, BSE was asked whether LLCL has disclosed through corporate announcement or any other way that SRUIL has gone into liquidation. In that regard, BSE vide e-mail dated May 7, 2018 responded as under:

“It is observed that Landmarc Leisure Corporation Ltd (“Company”) has not disclosed about the liquidation of Shree Ram Urban Infrastructure Ltd. during the period mentioned in the trailing mail.”

viii. Hence, it appears that LLCL has not disclosed appointment of provisional liquidator for taking symbolic possession of the premises and assets belonging to SRUIL to whom LLCL has given Rs 15 crore (out of total assets of LLCL Rs. 45.55 crores for FY ending March 31, 2017) through its corporate announcements or otherwise.

14. It is observed that out of LLCL’s total assets of Rs. 45.55 crores for FY ending March 31, 2017, Rs. 25 crore have been given by it to SKMRIL [Rs. 15 crore (long-term advance given in 2007) and Rs. 10 crore (short term advance given during 2007- 2009)]. Under the remedial proposal submitted by LLCL, it has shown proof of refund of only Rs. 50 lakh, which is a miniscule fraction of Rs, 25 crore plus interest since 2007-2009. Regarding the refund of Rs. 15 crore interest free deposit made to SRUIL, it is noted that SRUIL has gone into liquidation, and there is a likelihood that the refund may not take place at all. It is pertinent to mention that both SRUIL and SKMRIL are related parties of LLCL. Thus, LLCL has kept Rs. 40 crores out of its total assets of Rs. 45.5 crores with its related parties without earning any interest thereon and the refund of a significant part of this amount is now in question. In view of the above, I find that LLCL has prima facie misused investors’ funds towards related party transactions.

15. In view of the above, I find that the facts and circumstances of the case as brought out in the interim order have not changed adequately, so as to justify the dis-continuation/ modification/ revocation of the directions passed in the interim order.

ORDER

16. In view of the foregoing, I, in exercise of the power conferred upon me under sections 11, 11(4), 11A and 11B read with section 19 of the Securities and Exchange Board of India Act, 1992 hereby confirm the directions issued against LLCL vide interim order dated October 6, 2017.

17. Copy of this Order shall be forwarded to the recognized stock exchanges for information and necessary action. A copy of this Order shall also be forwarded to the Ministry of Corporate Affairs and Serious Fraud Investigation Office for their information.

Sd/-

DATE: June 5th, 2018 MADHABI PURI BUCH PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA