Order in the matter of MARS Agrofarm Developers Limited

WTM/PS/167/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 MARS Agrofarm Developers Limited In respect of: 1. MARS Agrofarm Developers Limited [PAN: AAGCM8952L], 2. Mr. Sekh Sahadat Ali [PAN: AHEPA0768N], 3. Mr. Abu Taleb Mohammod [PAN: AMLPM2792C] and 4. Mr. Tushar Kanti Kanti Samanta [PAN: BSPPS8463P]. 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, MARS Agrofarm Developers Limited (hereinafter referred to as ‘MARS’ 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, 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. MADL (PAN: AAGCM8952L) 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.

MADL and its Directors, viz. Shri Sekh Sahadat Ali (PAN: AHEPA0768N; DIN: 03247695), Shri Abu Taleb Mohammod (PAN: AMLPM2792C; DIN: 05137868) and Shri Tushar Kanti Kanti Samanta (PAN: BSPPS8463P; DIN: 05145822), 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. MADL 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. MADL shall provide a full inventory of all its assets and properties; v. MADL's abovementioned Directors shall provide a full inventory of all their assets and properties; vi. MADL 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.

MADL 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 MADL; viii. MADL and its abovementioned Directors shall furnish complete and relevant information (as sought by SEBI letter dated November 27, 2014), within 14 days from the date of receipt of this Order. 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 MADL 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 information/ documents obtained from the ‘MCA-21’ portal. The interim order was also treated as a show cause notice which advised the Company and its directors to file their replies within 21 days from the date of receipt of its receipt and also seek an opportunity of personal hearing.

3. The interim order was forwarded to the Company and its directors vide respective letters dated March 26, 2015. The interim order was delivered to Mr. Tushar Kanti Kanti Samanta and Mr. Abu Taleb Mohammod, i.e. two directors of the Company. The letter issued to the Company and its other director, Mr. Sekh Sahadat Ali had returned undelivered. Mr. Tushar Kanti Kanti Samanta vide his letter dated April 09, 2015 and Mr. Abu Taleb Mohammod vide letter dated April 07, 2015, replied to the interim order.

4. Thereafter, SEBI granted an opportunity of personal hearing to the Company and its directors on September 04, 2015. The scheduled date was communicated vide SEBI letter dated August 07, 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 material available on record. On the date fixed, no one had appeared either for the Company or for its directors. Considering that reasonable opportunity to the Company and its directors had already been afforded for making submissions in the matter, I am inclined to proceed further with the matter, on the basis of merits of the case.

5. The submissions made by Mr. Tushar Kanti Kanti Samanta and Mr. Abu Taleb Mohammod (vide letters dated April 09, 2015 and April 07, 2015 respectively) are almost similar and the same are summarized as under: - Mr. Sekh Sahadat Ali had approached them with an offer to join the Company on monthly salary to work as ‘motivators’. As the work would not have hampered their individual work/ profession, they joined the Company from the month of December 2011. - They have not received the salary from April 2012. The Company has closed all its offices and branches from February 2013. - They have filed a civil suit at Burdwan for receiving the promised remuneration for the period from April to September 2012 and the same is still pending. - They do not have the details about the income and expenditure of the Company.

6. I have considered the interim order and the material available on record. The following are the observations from the interim order: “… i. MADL was incorporated on November 1, 2010, with the ROC, Kolkata with CIN No. as U01403WB2010PLC154384. Its Registered Office is at Vill. & P.O.–Pursurah, Pursurah– 712401, West Bengal, India. ii. The present Directors in MADL are Shri Sekh Sahadat Ali, Shri Abu Taleb Mohammod and Shri Tushar Kanti Kanti Samanta. iii. From the material available on record including Form 2 (Form for Return of Allotment – filed by MADL with the ROC in accordance with the provisions of the Companies Act, 1956) reveals that MADL issued "Redeemable Preference Shares" ("Offer of Redeemable Preference Shares") to investors, details of which are provided below – Type of Date of No. of persons to whom Total Amount Security Allotment preference shares were allotted (₹ in Lakhs) 06.12.2010 **1 25 11.01.2011 49 Redeemable 05.02.2011 49 Preference Shares 01.03.2011 48 25.03.2011 49 31.03.2011 41 Total 237 25 ** The exact details of allotments on this particular date is not available on the MCA21 Portal. …” 7. I note that the Company has not replied to the interim order. The interim order has alleged that the Company had issued and allotted RPS during the financial year 2010-2011 and had raised ₹25 lakh from at least 237 persons/ investors, without complying with the ‘public issue’ norms stipulated under Sections 56, 60 read with Section 2(36) and 73 of the Companies Act, 1956. The interim order had also alleged that the Company, by issuing shares to more than 49 persons, had made a public issue of RPS in terms of the first proviso to Section 67(3) of the Companies Act, 1956.

8. The Company had allotted RPS in continuous tranches to 49, 49, 48, 49 and 41 investors on January 11, 2011, February 05, 2011, March 01, 2011, March 25, 2011 and March 31, 2011 respectively. The same indicates that the Company had issued RPS to more than 49 persons in a series of transactions over three months in the year 2011 and in the absence of any evidence to the contrary these can be taken to be part of a single offer.

9. 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. 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. …” 10. As per the ‘Form 2’ (return of allotment) for the allotment dated March 31, 2011, the Company had allotted 2,46,000 RPS and had raised ₹24,60,000.

From the interim order, it is observed that the Company had allotted RPS to 237 allottees on various dates i.e. January 11, 2011, February 05, 2011, March 03, 2011, March 25, 2011 and March 31, 2011. Such continuous allotment of RPSs in a series of transactions which were in close proximity of each other indicates that such allotments were part of the same offer. Considering the number of persons from whom monies were mobilised by the Company by offering and allotting RPSs, it can be concluded that the Company had made a public issue of RPS 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.

11. 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. …”

12. 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’.

13. The interim order has alleged that the Company failed to comply with Section 73 of the Companies Act, 1956, in respect of its issuance of RPS. By issuing RPS 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.

14. 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 RPS, 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).

15. Liability of Directors: The interim order was issued against the directors of the Company namely Mr. Sekh Sahadat Ali, Mr. Abu Taleb Mohammod and Mr. Tushar Kanti Kanti Samanta. a. The details of their appointment and resignations are as under: Name Date of Appointment Date of Cession Mr. Sekh Sahadat Ali 05/12/2011 Continuing as director Mr. Abu Taleb Mohammod 15/11/2011 Continuing as director Mr. Tushar Kanti Kanti Samanta 13/12/2011 Continuing as director b. I note that the Company had offered and issued RPSs in the financial year 2010-11. 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. As 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, the persons who joined the Company’s Board pursuant to the offer and allotment of RPS shall also be liable if the Company and the concerned directors have failed to make refunds, as mandated under the discussed provisions of law.

c. From the table above, it is noted that Mr. Sekh Sahadat Ali, Mr. Abu Taleb Mohammod and Mr. Tushar Kanti Kanti Samanta became the directors of the Company after the last available date (i.e. March 31, 2011) of impugned offers of RPS. These persons are the present directors of the Company. Mr. Abu Taleb Mohammod and Mr. Tushar Kanti Kanti Samanta in their respective replies have only submitted that they had joined the Company on monthly salary and they have not received the salary from April 2012. It has also been submitted by these that they both have filed a civil suit against the Company and Mr. Sekh Sahadat Ali for the promised remuneration, which is still pending. Mr. Abu Taleb Mohammod in his submission has also stated that he wanted to resign from the Company. It is observed that these persons have not exercised necessary diligence after becoming the directors in the Company. The inaction by these against the previous management (for violating the public issue norms as stipulated under the Companies Act, 1956), even after the receipt of the interim order, leads one to conclude on a possible collusion with the Company and its management.

I note that Mr. Sekh Sahadat Ali, Mr. Abu Taleb Mohammod and Mr. Tushar Kanti Kanti Samanta have not reported the violations committed by the Company. As discussed earlier, the liability to refund is a continuous liability and would be discharged only when the repayments are done. Mr. Sekh Sahadat Ali, Mr. Abu Taleb Mohammod and Mr. Tushar Kanti Kanti Samanta did not take any steps to remedy the violations committed. Accordingly, I hold these persons responsible for the same.

I also note that the interim order does not mention the names of the directors who were on the board of the Company during the period when the impugned RPS were issued. In view of the same, SEBI is directed to identify such persons and proceed appropriately against them.

16. I note that the Company and its directors namely Mr. Sekh Sahadat Ali, Mr. Abu Taleb Mohammod and Mr. Tushar Kanti Kanti Samanta were required to provide full inventory of the assets and properties within 21 days from the date of receipt of interim order. However, no such details have been filed till date.

17. 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.

18. 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, MARS Agrofarm Developers Limited [PAN: AAGCM8952L], Mr. Sekh Sahadat Ali [PAN: AHEPA0768N], Mr. Abu Taleb Mohammod [PAN: AMLPM2792C] and Mr. Tushar Kanti Kanti Samanta [PAN: BSPPS8463P] 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. 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’).

f. In case of failure of the Company, MARS Agrofarm Developers Limited, its directors including Mr. Sekh Sahadat Ali, Mr. Abu Taleb Mohammod and Mr. Tushar Kanti Kanti Samanta 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.

g. The Company 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.

h. The directors of the Company namely Mr. Sekh Sahadat Ali, Mr. Abu Taleb Mohammod and Mr. Tushar Kanti Kanti Samanta 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.

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

19. 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.

20. SEBI is directed to identify the directors who were on the board of MARS Agrofarm Developers Limited during the period when the Company had made the offer of Redeemable Preference Shares and proceed appropriately against them.

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

22. 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