Order in the matter of Megasys Healthcare Limited

WTM/RKA/EFD/186/2016 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992, In respect of: 1. Megasys Healthcare Limited 2. Mr. Manish Roy 3. Mr. Anil Pandey 4. Mr. Barun Biswas 5. Mr. Tufan Kumar Pramanik 6. Smt. Susmita Roychoudhary 7. Mr. Prabir Sengupta 8. Mr. Kabir Roy and 9. Megasys Healthcare Debenture Trust (represented by Shri Dinesh Ch. Ghosh). In the matter of issuance of Secured Redeemable Non-Convertible Debentures by Megasys Healthcare Limited.

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), conducted a preliminary examination into the issuance of Secured Redeemable Non-Convertible Debentures (hereinafter referred to as “NCDs”) by Megasys Healthcare Limited (hereinafter referred to as “MHL” 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 pertaining to the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter referred to as “ILDS Regulations”) and the SEBI (Debenture Trustees) Regulations, 1993 (hereinafter referred to as "Debenture Trustees Regulations"). 2. Pursuant to the examination, SEBI passed an interim order dated July 02, 2015 (hereinafter referred to as “interim order”) against the company, its directors, Mr. Manish Roy, Mr. Anil Pandey and Mr. Barun Biswas, its past directors, Mr. Tufan Kumar Pramanik, Smt. Susmita Roychoudhary, Mr. Prabir Sengupta and Mr. Kabir Roy and the debenture trustee, viz. Megasys Healthcare Debenture Trust (represented by Mr. Dinesh Ch. Ghosh) {collectively referred to as “the noticees”}, in view of the following: (i) “…….. MHL is prima facie engaged in fund mobilising activity from the public, through the Offer of NCDs and as a result of the aforesaid activity has violated the aforementioned provisions of the In respect of Megasys Healthcare Limited

Companies Act, 1956 (Section 56, Section 60 read with Section 2(36), Section 73, Sections 117B– 117C) read with the Debt Securities Regulations”. (ii) “…. Megasys Healthcare Debenture Trust (represented by Shri Dinesh Ch. Ghosh), has acted as an unregistered Debenture Trustee, which amounts to violation of the abovementioned provisions of the SEBI Act read with the Debenture Trustees Regulations.” 3. In view of the alleged contraventions and for the reasons stated in the interim order, the following directions were issued therein: i. “MHL shall forthwith cease to mobilize funds from investors through the Offer of NCDs 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. MHL and its present Directors, viz. Shri Manish Roy (DIN: 05258308; PAN: AQQPR8167F), Shri Anil Pandey (DIN: 05354626; PAN: BMPPP2155K), Shri Barun Biswas (DIN: 06420748; PAN: ADRPB4364N), 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.

The past Directors of MHL, Shri Tufan Kumar Pramanik (DIN: 06415440), Smt. Susmita Roychoudhary (DIN: 03092008; PAN: ADTPR0390N), Shri Prabir Sengupta (DIN: 03171427; PAN: ANNPS2028N), Shri Kabir Roy (DIN: 02105383: PAN: ABWPR2654Q), 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; iv. MHL and its abovementioned past and present 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; v. MHL shall provide a full inventory of all its assets and properties; vi. MHL's abovementioned past and present Directors shall provide a full inventory of all their assets and properties; vii. MHL and its abovementioned present 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 NCDs, without prior permission from SEBI; viii.

MHL and its abovementioned present Directors shall not divert any funds raised from public at large through the Offer of NCDs, which are kept in bank account(s) and/or in the custody of MHL; ix. MHL and its abovementioned past and present Directors shall furnish complete and relevant information (as sought by SEBI letter dated February 21, 2014), within 14 days from the date of receipt of this Order; x. The Debenture Trustee, viz. Megasys Healthcare Debenture Trust (represented by Shri Dinesh Ch. Ghosh), is prohibited from continuing with its assignment as debenture trustee in respect of the Offer of NCDs of MHL and also from taking up any new assignment or involvement in any new issue of debentures, etc. in a similar capacity, from the date of this order till further directions.” 4. The interim order advised the company and its aforesaid directors 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 NCDs alongwith interest, if any, promised to investors therein; ii.

Directing them to not 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. 5. Megasys Healthcare Debenture Trust (represented by Mr. Dinesh Ch. Ghosh) was advised to show cause as to why suitable directions/prohibitions under sections 11(1), 11(4), 11A and 11B of the SEBI Act including restraining it from accessing the securities market and further restraining it from buying, selling or dealing in securities, in any manner whatsoever, for an appropriate period should not be issued. 6. The noticees were afforded opportunity to file their reply within 21 days of receipt of the interim order and to seek a personal hearing, if they desired. The interim order was forwarded to the noticees vide SEBI letters. Mr. Dinesh Chandra Ghosh (a noticee), vide letter dated August 05, 2015, inter alia submitted as follows: (a) The company was incorporated on December 30, 2011 and received approval from Ministry of Corporate Affairs on January 11, 2012 to issue NCDs upto Rs.20 crores.

(b) Though approval was taken, not a single NCD was offered to the members till date. No offer letter was prepared to issue NCDs of that series. Audited Balance Sheet for 2011- 12 was annexed. (c) The key person and Managing Director Mr. Kabir Roy died on May 10, 2013. The company did not have operations since then. Copy of Death Certificate dated May 22, 2013 of Mr. Kabir Roy issued by the Rajarhat Gopalpur Municipality (W.B.) was enclosed. (d) The noticee’s name was given at the time of taking permission to issue the debentures. However, no appointment letter or remuneration was provided to him in respect of the said capacity. No trustee board was appointed.

7. Thereafter, SEBI vide letters dated September 22, 2016 informed the noticees that they were afforded an opportunity of personal hearing on October 18, 2016. SEBI also made a public notice in newspapers (on August 28, 2016 and August 29, 2016 in Times of India, Ananda Bazar Patrika and Dainik Bhaskar) regarding the interim order and advised the noticees that a final opportunity of being heard was provided on October 18, 2016. They were also advised to file their replies before the date of personal hearing. However, in the personal hearing held on October 18, 2016, none of the noticees appeared. Therefore, proceedings of personal hearing was concluded. 8. I have considered the interim order and material available on record. The prima facie findings made in the interim order remain undisputed as none of the noticees have filed their response on merits till date. Therefore, I do not wish to burden this Order by repeating the elaborate facts and observations mentioned in the interim order. The company is alleged to have made a public offer of NCDs and issued such securities without complying with the public issue norms mandated under the Companies Act, 1956 and the ILDS Regulations.

9. As per the interim order, the Resolution with respect to issuance of NCDs upto Rs.20 crores was passed in the Board Meeting held on January 07, 2012. It is pertinent to note that the company was incorporated on December 30, 2011. It becomes clear that the company commenced its money mobilization activities from public through its offer and issue of NCDs immediately after its incorporation. The company created a charge of Rs.20 crores on January 09, 2012 and appointed Megasys Healthcare Debenture Trust (represented by Mr. Dinesh Ch. Ghosh), as Debenture Trustee for its offer of NCDs. As per the interim order, the company had offered and issued NCDs to 151 investors during FY 2011-12 and mobilised Rs.52.16 lakhs. The interim order also mentioned the schemes under which the mobilization was done. 10. Considering that the company had offered and issued NCDs to more than 49 persons, it can be held that the company made a public issue of NCDs in terms of the first proviso to section 67(3) of the Companies Act, 1956. In terms of the aforesaid provision, an issue of securities becomes a ‘public issue’ if the offer to subscribe to shares or debentures is made to 50 persons or more.

The jurisdiction of SEBI in respect of issuance of securities including NCDs, intention/ obligation of the issuer 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 as ‘Sahara case’}. In view of the same, the contention of the noticee, Mr. Dinesh Ch. Ghosh that company obtained approval from MCA with respect to the offer and issue of debentures has no merit.

11. Mr. Dinesh Ch. Ghosh has also stated that though approval for NCDs was taken, not a single debenture was offered to the public. He has referred to the Balance Sheet of 2011-12. This submission also has no merit as the interim order has clearly mentioned, from the documents on record i.e. complaint and MCA records, that the company had issued debentures during FY 2011- 12 to 151 allottees and mobilised Rs.52.16 lakhs. 12. As the issuance of NCDs by the company was done through a ‘public issue’, it ought to have complied with the provisions of sections 60 read with section 2(36), 56(1), 56(3), 73, 117B and 117C of the Companies Act, 1956 and regulations 4(2)(a), (b), (c), (d), 4(4), 5(2)(b), 6, 7, 8, 9, 12, 14, 15, 16, 17, 19 and 26 of the ILDS Regulations. In the present case, there is no record to show that the company complied with requirements of the above provisions of law in respect of its offer and issuance of NCDs. The company is therefore held guilty of contravening the aforesaid provisions of the Companies Act, 1956 and the ILDS Regulations and becomes liable for the consequences of such non-compliances. 13. The interim order has issued directions in respect of the company’s directors, namely Mr. Manish Roy, Mr. Anil Pandey, Mr. Barun Biswas, Mr. Tufan Kumar Pramanik, Smt. Susmita Roychoudhary, Mr. Prabir Sengupta and Mr. Kabir Roy. The details regarding their date of appointment and resignation, if any, as directors, is tabulated below:

Name Date of appointment Date of resignation Mr. Manish Roy 02.04.2013 Continuing as director Mr. Anil Pandey 01.10.2013 Continuing as director Mr. Barun Biswas 02.04.2013 Continuing as director Mr. Tufan Kumar Pramanik 02.04.2013 01.10.2013 Smt. Susmita Roychoudhary 30.12.2011 02.04.2013 Mr. Prabir Sengupta 30.12.2011 02.04.2013 Mr. Kabir Roy 30.12.2011 02.04.2013 14. It is held above that the company made a public issue of NCDs during FY 2011-12. Smt. Susmita Roychoudhury, Mr. Prabir Sengupta and Mr. Kabir Roy were the director during the period when the company made offer and issued NCDs thereby mobilizing public funds. The others, namely, Mr. Manish Roy, Mr. Anil Pandey, Mr. Barun Biswas and Mr. Tufan Kumar Pramanik became directors during 2013 i.e. pursuant to FY 2011-12. 15. 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 will be 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) 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 is on the Company, and every person who is a party to the non-compliance of issuing the prospectus as per the said section. Further, the directors of a company shall be liable for action in case of contravention of the ILDS Regulations. 16. 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 NCDs shall be liable for violation of sections 56, 60 and 73 of the Companies Act, 1956 and the ILDS Regulations. 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. 17. 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.” 18. As mentioned above in this Order, the company and directors did not file their objections to the interim order. In view of the foregoing observations, I hereby find Smt. Susmita Roychoudhury, Mr. Prabir Sengupta and Mr. Kabir Roy liable for the contravention of sections 56, 60, 73, 117B and 117C of the Companies Act, 1956 and the ILDS Regulations committed by the company including default in making refunds of the subscription money to the allottees/investors under section 73(2) of the Companies Act, 1956 and the ILDS Regulations.

Mr. Manish Roy, Mr. Anil Pandey, Mr. Barun Biswas and Mr. Tufan Kumar Pramanik shall be liable for default in making refunds in terms of section 73(2) of the Companies Act, 1956 and the ILDS Regulations. All the aforesaid persons are ‘officers in default’ in terms of section 5 of the Companies Act, 1956. Therefore, the company and the aforesaid persons are liable for the consequences including making refund of the subscription money to the allottees along with interest at 15% p.a. as mandated under section 73(2) of the Companies Act, 1956 read with rule 3(c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014. 19. As regards Mr. Kabir Roy, noticee Mr. Dinesh Chandra Ghosh vide his letter dated August 05, 2015 inter alia submitted that Mr. Kabir Roy died on May 10, 2013. Copy of Death Certificate dated May 22, 2013 of Mr. Kabir Roy issued by the Rajarhat Gopalpur Municipality (W.B.) was submitted along with the aforesaid reply. Having perused the Death Certificate, I find it appropriate to terminate the proceedings in respect of Mr. Kabir Roy as the same has abated. 20. The interim order has observed that the company created a charge of Rs.20 crores on January 09, 2012 and appointed Megasys Healthcare Debenture Trust (represented by Mr. Dinesh Ch.

Ghosh) as Debenture Trustee for its offer of NCDs and alleged that they had acted as unregistered Debenture Trustee in violation of section 12(1) of the SEBI Act and regulation 7 of the Debenture Trustees Regulations. The Trustee, Mr. Dinesh Chandra Ghosh has accepted that his name was given at the time of taking permission for the issue of debentures. Section 12(1) of the SEBI Act, 1992 mandates that a Trustee shall buy, sell or deal in securities, except under and in accordance with the conditions of a certificate of registration obtained from SEBI. It is an undisputed fact that Megasys Healthcare Debenture Trust and Mr. Dinesh Ch. Ghosh were never registered with SEBI as ‘debenture trustees’. In terms of regulation 7 of the Debenture Trustees Regulations, a person can act as a debenture trustee only if he is either a scheduled bank or a public financial institution or an insurance company or a body corporate. The above persons are therefore not eligible under regulation 7 to be engaged as a debenture trustees. Submissions of Mr. Dinesh Ch. Ghosh that he was not given appointment letter and remuneration do not have any merit.

Accordingly, I find Megasys Healthcare Debenture Trust and Mr. Dinesh Ch. Ghosh guilty of contravening section 12(1) of the SEBI Act and regulation 7 of the Debenture Trustee Regulations. 21. In view of the foregoing, I, in exercise of the powers conferred under sections 11(1), 11(4), 11A and 11B read with section 19 of the Securities and Exchange Board of India Act, 1992, hereby issue the following directions: (i) Megasys Healthcare Limited, Shri Manish Roy (DIN: 05258308; PAN: AQQPR8167F), Mr. Anil Pandey (DIN: 05354626; PAN: BMPPP2155K), Mr. Barun Biswas (DIN: 06420748; PAN: ADRPB4364N), Mr. Tufan Kumar Pramanik (DIN: 06415440), Smt. Susmita Roychoudhary (DIN: 03092008; PAN: ADTPR0390N) and Mr. Prabir Sengupta (DIN: 03171427; PAN: ANNPS2028N) shall within a period of three months from the date of this order, jointly and severally refund the money collected through the issue of non-convertible debentures to the subscribers/allottees with interest at the rate of 15% per annum from the date of receipt of money till the date of such refund. (ii) Such refund shall be made only in cash through a Demand Draft or Pay Order.

(iii) Megasys Healthcare Limited and its directors shall within fifteen days from the date of this Order submit to SEBI complete details of their assets (along with proofs thereof) certified by a peer reviewed Chartered Accountant. (iv) Megasys Healthcare Limited and its directors are permitted to sell 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 allottees of securities till the full refund/ repayment as directed above is made. (v) Megasys Healthcare 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, Megasys Healthcare Limited and its directors 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) Megasys Healthcare Limited, Mr. Manish Roy, Mr. Anil Pandey, Mr. Barun Biswas, Mr. Tufan Kumar Pramanik, Smt. Susmita Roychoudhary and Mr. Prabir Sengupta 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 allottees, whichever is later.

(ix) Mr. Manish Roy, Mr. Anil Pandey, Mr. Barun Biswas, Mr. Tufan Kumar Pramanik, Smt. Susmita Roychoudhary and Mr. Prabir Sengupta 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 allottees, whichever is later. (x) Megasys Healthcare Debenture Trust and Mr. Dinesh Ch. Ghosh are prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly, in whatsoever manner for a period of four years (xi) For the purposes of sub-paragraphs (viii) and (ix) above, the period of restraint shall be counted from the date of the interim order. 22. The interim order dated July 02, 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. 23. This Order shall come into force with immediate effect. A copy of the Order shall be served on the noticees to ensure compliance with the above directions. A copy of this Order shall also be forwarded to the recognized stock exchanges and depositories for information and necessary action. 24. 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.

Date : November 1st, 2016 RAJEEV KUMAR AGARWAL Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA