Order in the matter of Life Care Real Developers Limited

WTM/GM/EFD/79/2018–19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER IN COMPLIANCE WITH THE ORDER OF THE SECURITIES APPELLATE TRIBUNAL DATED OCTOBER 25, 2016 IN MISC. APPLICATION NO. 221 OF 2016 AND APPEAL NO. 275 OF 2016. IN THE MATTER OF LIFE CARE REAL DEVELOPERS LIMITED – COMPANY PAN 1. LIFE CARE REAL DEVELOPERS LIMITED AABCL8415G

DIRECTOR PAN 2. ARSHAD HUSSAIN AAVPH7486C 3. SHIBA PRAVIN ATOPP9889R 4. MOHD. SERAJ LARI AEKPL9354C 5. RAJNEESH CHANDRA SHUKLA BHCPS8238J 6. YOGENDRA PRATAP SHAHI ATBPS3325E 7. MOHAMMAD AFTAB ALAM ANIPA3040P 8. MOHD. GANI BIGPG0523B

BACKGROUND –

1. Securities and Exchange Board of India (“SEBI”) issued an Order dated December 9, 2015 (“Final Order”) against Life Care Real Developers Limited (“Life Care”) and its Directors, viz. Arshad Hussain, Shiba Pravin, Mohd. Seraj Lari, Rajneesh Chandra Shukla, Yogendra Pratap Shahi, Mohammad Aftab Alam and Mohd. Gani, for engaging in fund mobilising activity from the public through the issue and allotment of Redeemable Preference Shares during the Financial Years 2010–11, 2011–12, 2012–13 and 2013–14. In the aforesaid Final Order, SEBI observed that the aforementioned issue and allotment of Redeemable Preference Shares qualified as an offer made to the public in terms of Section 67(3) of the Companies Act, 1956 (“Companies Act”) and was in violation of the provisions of Section 56, Section 60 read with Section 2(36) and Section 73 of the Companies Act. SEBI inter alia directed the aforementioned entities – a. To jointly and severally refund the money collected by the Company through the issuance of Redeemable Preference Shares (which were found to be issued in contravention of the public issue norms stipulated under the Companies Act and SEBI Regulations), to the investors including the money collected from investors, till date, pending allotment of securities, if any, with an interest of Order in the matter of Life Care Real Developers Limited

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) to the investors till the date of actual payment. b. Not to, directly or indirectly, access the capital market by issuing prospectus, offer document or advertisement soliciting money from the public. The entities are 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 4 years from the date of completion of refunds to investors as directed above.

2. From the Final Order, the following is noted – a. Details regarding the issue and allotment of Redeemable Preference Shares by Life Care as obtained from the Ministry of Corporate Affairs website i.e. MCA21 Portal, are reproduced as under – TABLE I FINANCIAL YEAR NO. OF ALLOTTEES VALUE OF ALLOTMENT (₹) 2010–11 540 41,17,000 2011–12 866 77,28,000 2012–13 290 28,64,000 TOTAL 1696 1,47,09,000 b. Details regarding the issue and allotment of Redeemable Preference Shares by Life Care as observed from the Audited Balance Sheets of the Company, are reproduced as under – TABLE II FINANCIAL YEAR NO. OF ALLOTTEES VALUE OF ALLOTMENT (₹) 2010–11 – 1,17,26,000 2011–12 – 2,55,66,000 2012–13 – 51,58,000 TOTAL – 4,24,50,000 c. The difference in the amounts i.e. ₹1,47,09,000 and ₹4,24,50,000, appeared to be on account of incomplete fillings made by Life Care with the RoC, Delhi. In any case, Life Care had allotted Redeemable Preference Shares to at least 1696 persons during the Financial Years 2010–11, 2011–12 and 2012–13. It is also noted from the ‘Form 23AC’ inter alia submitted by Life Care vide its letter dated December 19, 2014, that the Company had raised an amount of ₹12,77,000 under the head ‘other private placement’ of preference shares during the Financial Year 2013–14.

d. The Company had therefore, mobilized ₹4,37,27,000 (i.e. ₹4,24,50,000 as noted from Table II and ₹12,77,000 as per ‘Form 23AC’ during the Financial Year 2013– 14) from the public under the issue and allotment of Redeemable Preference Shares and in doing so it has failed to comply with the provisions of the Companies Act, 1956.

3. The Final Order was challenged by Life Care and its Directors before the Hon’ble Securities Appellate Tribunal (“SAT”) in Misc. Application No. 221 of 2016 and Appeal No. 275 of 2016 – Life Care vs. SEBI. Vide an Order dated October 25, 2016, the Hon’ble SAT directed as under –

1. “This appeal is filed to challenge the order passed by the Whole Time Member of SEBI on 9th December, 2015. By the said Order, appellants are jointly and severally directed to refund the moneys collected by the appellant company through issuance of the redeemable preference shares to the investors. Counsel for the appellants fairly states that in compliance of the aforesaid order, appellants have already refunded approximately ₹75 Lakh to the investors and the appellants would like to repay the balance amount in instalments by making an application to SEBI. 2. Accordingly, appellants are permitted to make an application to SEBI by 3rd November, 2016 setting out in detail the modalities for refunding the balance amount to the investors. If such an application is made, SEBI shall consider the same and pass appropriate orders thereon. 3. It is made clear that if the appellants fail to submit an application within the stipulated time, then SEBI is at liberty to enforce the impugned order as they deem fit. …”

4. Thereafter, vide a representation dated November 3, 2016, Life Care and its Directors submitted a repayment proposal inter alia stating that the Company had raised a sum of approximately ₹4.20 Crores and had repaid a sum of ₹75 Lakh (approx.). The total outstanding due to the holders of Redeemable Preference Shares (excluding interest amount) is ₹3.45 Crores (approx.). The total amount (with agreed interest) will be refunded to each and every legitimate holder of Redeemable Preference Shares within a period of eighteen months from the date of the aforesaid proposal.

5. Upon receipt of the aforementioned repayment proposal, SEBI vide an e–mail dated November 11, 2016, had sought certain clarifications from Life Care regarding the same. Vide a reply dated December 6, 2016, Life Care informed SEBI as under – a. The Company had issued advertisements and had opened an Escrow Account with a nationalized bank as per the directions of the SEBI Final Order. b. The Company had appointed KPMC and Associates for the purpose of certifying the refunds/payments made by the Company to its investors till that date and the Report of the said Auditor would be submitted to SEBI upon completion of all such refunds/payments.

6. Thereafter, vide an e–mail dated December 23, 2016, SEBI advised Life Care to submit the abovementioned Auditor’s Report in respect of the refunds/payments made by the Company to its investors till date along with a Certification from the concerned nationalized bank regarding the purpose of the Escrow Account stated to have been opened by the Company. As no reply was received to the aforementioned e–mail, SEBI vide an e–mail dated February 6, 2017, advised the Company to submit the Auditor’s Certificate in respect of the refunds/payments made by the Company to its investors till date latest by February 15, 2017. However, no information was submitted by Life Care.

7. In the absence of adequate evidence to authenticate the claims of refund made by Life Care and in view of its non–cooperation to clarify and substantiate its repayment proposal through submission of requisite documents within the timelines stipulated by the Hon’ble SAT in its Order dated October 25, 2016, SEBI rejected the aforesaid proposal of the Company on March 16, 2017 in accordance with the directions contained in the aforesaid Order (the Company was also informed of the same vide SEBI letter dated November 20, 2017). Accordingly, as permitted by the Hon’ble SAT through its aforesaid Order, SEBI sought to enforce the Final Order through the following – a. Adjudication proceedings were initiated against Life Care and its abovementioned Directors for non–compliance with the Final Order dated December 9, 2015. An Adjudicating Officer was appointed by SEBI on May 18, 2017 to adjudge into the matter and thereafter, a Show Cause Notice (“SCN”) dated June 27, 2017 was issued to the aforementioned entities alleging that they had failed to comply with the directions issued vide the Final Order dated December 9, 2015. The Noticees therein were asked to show cause as to why monetary penalty under Section 15HB of the SEBI Act should not be imposed against them. In their reply dated September 1, 2017, to the SCN, the aforementioned entities inter alia submitted that no Order was passed by SEBI in respect of their repayment proposal.

b. Recovery Proceedings vide Recovery Certificate no. 1194 of 2017 for recovery of ₹4.37 Crores (approx.) were also initiated by SEBI against the Company. Notice of Attachment of Bank Account and Notice of Attachment of Demat Account each dated July 13, 2017 (Attachment Proceedings No. 3179 of 2017 and 3180 of 2017) were also issued to the Principal Officer/Chairman/Managing Director of the Company and all the Banks in India by the Recovery Officer, SEBI–NRO (“Recovery Officer”) under the provisions of Sections 28A(1)(b) and 11(2)(ia) of the SEBI Act read with Section 226 and the Second Schedule of the Income Tax Act, 1961, resulting in the attachment of bank accounts and demat accounts.

PERSONAL HEARING –

8. Upon a consideration of the reply dated September 1, 2017 (refer to paragraph 7(a) above), an opportunity of personal hearing was granted by SEBI to Life Care and its Directors on July 10, 2018; however, none of the aforementioned entities appeared for the hearing. Thereafter, another opportunity of personal hearing was granted by SEBI to Life Care and its Directors on August 21, 2018, which was attended by the authorised representatives for the Company and its Directors. The Company and its Directors (through their authorised representatives) sought time for submitting a fresh repayment proposal. They were granted time till August 31, 2018 to submit a fresh repayment proposal to SEBI and also to forward all relevant documents including complete details of investors, details of refund stated to have been made, etc.

9. Subsequently, vide a letter dated August 31, 2018, Life Care forwarded a revised repayment proposal to SEBI inter alia stating –

1. The Company had in total raised a sum of ₹4.37 Crores by issuing Redeemable Preference Shares. Till date of the previous proposal dated November 3, 2016, the Company had already repaid a sum of ₹75 Lakh (approx.) and accordingly made the proposal for repayment of the balance liability of (₹3.45) Crores (approx.). 2. Even at the time of submitting that proposal, the Company and its Directors were trying their best to arrange the money required to repay investors. However, due to the slowdown in the real estate market, it became exceedingly difficult for them to sell the immovable assets of the Company. The Company and its Directors have in the alternate instead of selling the entire immovable assets at one go, found out a recourse of selling the land parcels in the form of plots and they have already taken steps for plotting and selling the same. Subsequently, the Company and its Directors were able to sell off some parcels of the property held by them and the proceeds of the sale have been deposited in the Escrow Account opened by the Company. The agreement entered into by the Company for the sale of the said properties are submitted with this proposal.

The Escrow Account has been opened by the Company with Punjab National Bank (“PNB”) bearing account no. 6448–0021–0000–1488 with Bhatparani District, Devariya Branch (a place which is near to most of the investors). The Company has deposited all the sale proceeds of their properties in this account and the purpose of this account is ‘debit only for refund to investors in terms of the SEBI Order dated December 9, 2015’. 3. With the sale proceeds, the Company has repaid its investors to the tune of ₹1.66 Crores (approx.). The total outstanding due to the investors (excluding interest amount) is ₹3.44 Crores (approx.). 4. The Company has submitted a Certificate from an independent auditor named Khanna Nanda and Kumar, Chartered Accountant, who has audited the refund made and pending by the Company and its Directors to the investors and issued a certificate which is submitted with this proposal. Further, copy of the Bank statements showing the payment made through the banking channels by the Company and its Directors to investors has also been submitted with this proposal. In addition, the acknowledgement received from investors to whom full and final payment was made by the Company and its Directors, in cash, has also been submitted with this proposal.

5. In light of the aforesaid, the Company and its Directors submit the present proposal: i. The total outstanding due to the legitimate investors (excluding interest amount) is ₹3.44 Crores (approx.) and the same with the agreed interest (hereinafter referred to as ‘Amount Due’) will be refunded to each and every legitimate investors within a period of 12 months for the date of this proposal. ii. The Company and its Directors will bring in the Amount Due in the following manner: a. Firstly, an amount of ₹60 Lakhs within 3 months from the date on which the communication of acceptance of proposal is received by the Company and its Directors. b. Secondly, an amount of ₹85 Lakhs within 6 months from the date on which the communication of acceptance of proposal is received by the Company and its Directors. c. Thirdly, an amount of ₹1Crore within 9 months from the date on which the communication of acceptance of proposal is received by the Company and its Directors. d. Fourthly, an amount of ₹1Crore within 12 months from the date on which the communication of acceptance of proposal is received by the Company and its Directors. e. Lastly, the balance amount along with the total interest amount within 12 months from the date on which the communication of acceptance of proposal is received by the Company and its Directors. iii.

The following assets of the Company and its Directors, which as per estimate will be sufficient to repay the legitimate investors, shall be used to refund the Amount Due to the legitimate investors – Particulars of Properties Area of Property 1. Residential House, 341.514 sq. m Gata No. 633/667, Kanchanpur Bhatiyari 2. Residential Land, 512.271 sq. m Gata No. 633I667, S. No. 667/797, Kanchanpur Bhatiyari 3. Agriculture Land, 0.663 Hectare Sub Division – Deva, Gram- Gadiya, Property No: 1843,1691,1849, 1851, Gata No: 1843 4. Agriculture Land, 1,22,036 Sq. Ft. Sub Division - Kursi, Gram: Amarsanda (Vikas Shil) Property No: 906, 907,915, 916, 920,921, 922,925, 926,928,929,930,931/20,934,1236

CONSIDERATION AND FINDINGS –

10. I have considered the Final Order; the SAT Order dated October 25, 2016; the revised repayment proposal dated August 31, 2018 along with all other material available on record.

11. It is reiterated that vide the Final Order, Life Care and its abovenamed Directors were inter alia directed to refund the money collected by the Company under the issue and allotment of Redeemable Preference Shares with returns which were due to the investors within the time set out therein since the Company had failed to make a public issue of securities in violation of the provisions of the Companies Act, 1956.

12. From the Final Order, the following is noted:

“In the present matter … the Company had made continuous allotments of Redeemable Preference Shares on various dates during the financial years 2010-11, 2011-12 and 2012-13. The Interim Order has observed that ‘… number of allotments made under the Redeemable Preference Shares issue along with the amount raised therein, when viewed in light of failure on the part of Life Care and its Directors to submit relevant information to SEBI, would prima facie indicate that the issue of Redeemable Preference Shares was a public issue of securities’. I note that the Company vide its letter dated December 19, 2014 has submitted certain documents i.e. Memorandum and Articles of Association, directors details, annual returns and financial statements, income tax returns, etc. However, the Company has failed to file the details of the investors. The Company has also failed to submit the copy of the ‘issue register’ containing the list of allottees with addresses as sought during the course of personal hearing dated May 8, 2015. Therefore, the present proceedings are being proceeded with the material available on record. Considering the number of persons from whom monies were mobilised by the Company by issuing Redeemable Preference Shares, which is definitely more than 49 persons, it can be concluded that the Company had made a public issue of Redeemable Preference Shares in terms of the first proviso to Section 67(3) of the Companies Act, 1956 where the ‘offer’ or ‘invitation to subscribe for shares or debentures’ is made to fifty persons or more, then it has to be construed as a public offer.”

13. In its Order dated October 25, 2016, the Hon’ble SAT while recording that Life Care and its Directors had submitted that they had already refunded approximately ₹75 Lakh to the investors and would like to repay the balance amount in instalments by making an application to SEBI, permitted the said entities to make a representation to SEBI by November 3, 2016 setting out in detail the modalities for refunding the balance amount to the investors. It is pertinent to note that the obligation to refund arising from the Final Order encompasses refund of all the money collected by Life Care with returns which are due to its investors as per the terms of offer under the issue and allotment of Redeemable Preference Shares. As noted at paragraphs 6 and 7 of this Order, Life Care and its Directors had failed to provide adequate evidence to authenticate the claims of refund made by the Company and had also failed to cooperate with SEBI to substantiate its earlier repayment proposal dated November 3, 2016, as a result of which, the same was rejected by SEBI in accordance with the directions contained in the aforementioned Order of the Hon’ble SAT.

14. Incidentally, in Recovery proceedings (Recovery Certificate no. 892 of 2016) initiated by SEBI against a Group Company of Life Care i.e. M/s Life Care Infratech Limited, an Order was passed by the Recovery Officer on October 26, 2016 [in compliance with the Hon’ble SAT Order dated July 20, 2016 read with Order dated August 4, 2016 in Misc. Application no. 62 of 2016 and Appeal No. 91 of 2016 (Life Care Infra Tech Limited vs. SEBI)], rejecting similar claims of repayment made by the said Company on account of insufficient proof and also denying the request by the Company for grant of extension of time to make the balance payments. The aforementioned Recovery proceedings had emanated from the failure of the aforesaid Company and its Directors to comply with the SEBI Order dated September 14, 2015, directing the refund of money collected through the issue and allotment of Redeemable Preference Shares.

15. In this background, I now proceed to consider the revised repayment proposal dated August 31, 2018, as made by Life Care and its Directors.

16. As per the revised repayment proposal dated August 31, 2018, Life Care and its Directors have submitted that out of the total sum raised by the Company i.e. ₹4.38 Crores (approx.), an amount of ₹3.44 Crores (approx. – total outstanding due to the investors excluding interest amount) is yet to be paid to its investors/customers as on that date, in respect of the issue and allotment of Redeemable Preference Shares. The Company has also represented that it has repaid its investors to the tune of ₹1.66 Crores (approx.).

17. Amounts claimed to have been refunded by the Company – As regards the amounts claimed to have been refunded i.e. ₹1.66 Crores (approx.), I find that Life Care has submitted that the Company had opened an Escrow Account bearing account no. 6448–0021–0000– 1488 with PNB wherein amounts received from sale of land parcels have been deposited.

18. As stated at paragraph 7(b) of page 4, SEBI had initiated Recovery Proceedings against the Company vide Recovery Certificate no. 1194 of 2017 for recovery of ₹4.37 Crores. Notice of Attachment of Bank Account and Notice of Attachment of Demat Account each dated July 13, 2017 (Attachment Proceedings No. 3179 of 2017 and 3180 of 2017) were also issued to the Company and its Directors resulting in the attachment of bank accounts and demat accounts. As per information received from Recovery Officer, Life Care had submitted an Affidavit to SEBI (on March 6, 2018) affirming that the Escrow Account opened by the Company with PNB bearing account no. 6448–0021–0000–1488 would only be used to make refunds to the investors. Subsequent to receipt of the aforesaid Affidavit, the Recovery Officer vide letter dated March 9, 2018, permitted PNB to conditionally open and operate the Escrow Account of the Company. The Recovery Officer has also stated that Life Care has been regularly submitting details of refund made to investors and the said repayments have also been certified by an Auditor i.e. Khanna Nanda and Kumar, Chartered Accountant.

19. Without prejudice to the foregoing, I note that in the instant proceedings to substantiate its claim of having made refunds/payments amounting to ₹1.66 Crores (approx.), Life Care has submitted copies of agreements entered into with several individuals for the sale of immovable properties belonging to the Company along with account statement details pertaining to its aforementioned Escrow Account. In addition, Life Care has also submitted copy of the Bank account statements showing the refunds/payments made to investors through banking channels and also copies of acknowledgement received from investors to whom full and final payment was made in cash. I also note that Life Care has submitted a Certificate of redemption of preference shares issued by its Auditor stated to be towards the audit of refund made and pending, which corroborates such claimed refunds/payments to investors under the issue and allotment of Redeemable Preference Shares. Having regard to the aforementioned, I am inclined to accept the repayment claim made by Life Care and its Directors amounting to ₹1.66 Crores (approx.) to investors under the issue and allotment of Redeemable Preference Shares.

20. Repayment Proposal in respect of amounts outstanding to investors under the issue and allotment of Redeemable Preference Shares – I find that the representation dated August 31, 2018, made by Life Care and its Directors does not set out in ‘detail the modalities for refunding the balance amount to the investors’ such as the present market value of the immovable properties after assessment by an independent Valuer, marketability of such immovable properties, etc. (refer to paragraph 5(iii) of paragraph 9 at page 6) from which cash flow is to be generated by the Company and which ought to have been submitted to SEBI while making its representation, have not been furnished. Further, in the aforementioned representation, Life Care has inter alia submitted that: “The total outstanding due to the legitimate investors … will be refunded to each and every legitimate investors within a period of 12 months for the date of this proposal”. I am of the view that permitting such a request at this stage in the absence of requisite documents, will not be in favour of all the investors of Life Care to whom amounts are due under the issue and allotment of Redeemable Preference Shares offered by the Company since 2010–11. I note that Life Care has, without filing relevant details and modalities for repayment, tried to protract the actual repayment of dues to its investors/customers through a representation which lacks bona fides and cannot be acceded to.

21. I understand that the Hon’ble SAT in its Order dated July 20, 2016 read with Order dated August 4, 2016 in Misc. Application no. 62 of 2016 and Appeal No. 91 of 2016 (Life Care Infra Tech Limited vs. SEBI) has recognised the power of the Recovery Officer to consider a representation for repayment, extension of time, etc. where Recovery proceedings are pending. Having regard to the fact that Recovery proceedings are ongoing against Life

Care, the Company is granted liberty to submit the requisite information/documents to the Recovery Officer who may consider the same by exercising his power on the lines of the aforementioned Order of the Hon’ble SAT.

ORDER –

22. I, in exercise of the powers conferred upon me under Section 19 read with Sections 11(4), 11A and 11B of the SEBI Act, hereby dispose of the revised repayment proposal dated August 31, 2018, as submitted by Life Care and its Directors in accordance with the findings contained in paragraphs 11–21 of this Order.

Place: Mumbai G. MAHALINGAM Date: December 21, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA