Order in the matter of Morningstar Ventures Limited

WTM/RKA/EFD/141/2016 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) Morningstar Ventures Limited, 2) Shri Chakrapani Sarangi, 3) Shri Bhabani Satapathy, 4) Shri Sujit Mohapatra, 5) Shri Deepak Ranjan Samant, 6) Shri Himanshu Bhusan Nayak, 7) Shri Kumar Saheb Padma Bhusan Pradhan and 8) Smt. Swarna Lata Devi.

In the matter of issuance of Redeemable Preference Shares by Morningstar Ventures Limited. _ 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted a preliminary examination into the issuance of Redeemable Preference Shares (hereinafter referred to as ‘RPS’) by Morningstar Ventures Limited (hereinafter referred to as ‘MVL’ or ‘the company’) with a view to ascertain the possible violations of the public issue norms stipulated under the Companies Act, 1956. Pursuant to the examination, SEBI passed an interim order dated March 30, 2015 (hereinafter referred to as “interimorder”) against MVL and its directors/ promoters namely Shri Chakrapani Sarangi, Shri Bhabani Satapathy, Shri Sujit Mohapatra, Shri Deepak Ranjan Samant, Shri Himanshu Bhusan Nayak, Shri Kumar Saheb Padma Bhusan Pradhan and Smt. Swarna Lata Devi (hereinafter collectively referred to as “the Noticees” and individually by their respective names) in view of the following: “3.d.Fromthedetailsofallotment(Form2-FormforfilingReturnof Allotment),whichhavebeenprovidedbyRoC,Cuttack,itisprimafacie notedthatfundstothetuneof `5,62,56,500/-weremobilizedduringthe financial years 2009-10 to 2011-12 through issuance of 56,25,650 RedeemablePreferenceSharesoffacevalueof`10/-to1,224investors. …”

Order in respect of Morningstar Ventures Limited and others. Page

2. The following directions were issued against the Noticees vide the interim order:

“i.MVLshallforthwithceasetomobilizeanyfreshfundsfrominvestors throughtheOfferofRPSorthroughanyothersecurities,tothepublic and/orinvitesubscription,inanymannerwhatsoever,eitherdirectlyor indirectly, till further directions; ii. MVL(CIN:U70101OR2009PLC011132;PAN:AAGCM1706Q)andits directors/promotersnamelyShriChakrapaniSarangi(DIN:02034012; PAN:BDAPS1347A), Shri Bhabani Satapathy (DIN:02751714; PAN:BJMPS0012A), Shri Sujit Mohapatra (DIN: 02751710; PAN:ARZPM3090L), Shri Deepak Ranjan Samant(DIN:02751712; PAN:AMEPS2466G), ShriHimanshuBhusanNayak(DIN:02751708; PAN: AFYPN4410L); Shri Kumar Saheb Padma Bhusan Pradhan (PAN:ALZPP9660P) and Mrs. Swarna Lata Devi (DIN:02751719; PAN:AGAPD7484R)areprohibitedfromissuingprospectusoranyoffer documentorissueadvertisementforsolicitingmoneyfromthepublic fortheissueofsecurities,inanymannerwhatsoever,eitherdirectlyor indirectly, till further orders; iii.MVLanditsabovementionedDirectors/Promoters,arerestrainedfrom accessing the securities market and further prohibited from buying, sellingorotherwisedealinginthesecuritiesmarket,eitherdirectlyor indirectly, till further directions. iv. MVL shall provide a full inventory of all its assets and properties; v. TheDirectors/PromotersofMVLshallprovideafullinventoryofall their assets and properties; vi.MVLanditsabovementionedDirectors/Promotersshallnotdisposeof any of the properties or alienate or encumber any of the assets owned/acquiredbythatcompanythroughtheOfferofRPS,without prior permission from SEBI; vii.MVLanditsabovementionedDirectors/Promotersshallnotdivertany fundsraisedfrompublicatlargethroughtheOfferofRPS,whichare kept in bank account(s) and/or in the custody of MVL; viii. MVLanditsabovementionedDirectors/Promotersshall,within21 daysfrom the date of receipt of thisOrder, provide SEBI with all relevant and necessary information as sought by SEBI.

Order in respect of Morningstar Ventures Limited and others. Page

3. Vide the interimorder, the Noticees were also called upon to show cause as to why suitable directions/ prohibitions, under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act”) including the following, should not be taken/ imposed against them : “i. Directingthemjointlyandseverallytorefundmoneycollectedthrough theOfferofRedeemablePreferenceSharesalongwithinterest,ifany, promised to investors therein; ii. Directingthemtonotissueprospectusoranyofferdocumentorissue advertisement forsolicitingmoneyfrom the public forthe issue of securities,inanymannerwhatsoever,eitherdirectlyorindirectly,foran appropriate period; iii. Directing them to refrain from accessing the securities market and prohibitingthemfrombuying,sellingorotherwisedealinginsecurities for an appropriate period.”

4. Theinterimorderadvised the Noticees to file their replies within 21 days from the date of its receipt and also to seek an opportunity of personal hearing. The interimorderwas forwarded to the Noticees vide letter dated March 30, 2015. The letter issued to MVL, Shri Bhabani Satapathy, Shri Deepak Ranjan Samant, Shri Himanshu Bhusan Nayak and Smt. Swarna Lata Devi had returned undelivered. Thereafter, attempts were made to deliver the interim order by pasting on the last known addresses of the Noticees. 5. SEBI proceeded further and granted an opportunity of personal hearing to the Noticees on September 22, 2016. The scheduled date of hearing was communicated to the Noticees vide respective letters all dated August 31, 2016. The hearing notices were hand delivered at the addresses of the Noticees namely Shri Kumar Saheb Padma Bhusan Pradhan, Chakrapani Sarangi, Shri Sujit Mohapatra and Shri Deepak Ranjan Samant. The hearing notices were pasted on the last known address of MVL, Shri Bhabani Satapathy, Shri Himanshu Bhusan Nayak and Smt. Swarna Lata Devi. However, the Noticees neither filed their replies nor appeared in the personal hearing. Accordingly, I proceed to consider the case on merits on the basis of material available on record.

Order in respect of Morningstar Ventures Limited and others. Page

6. I have considered the interimorder and material available on record. The primafaciefindings made in the interimorderare undisputed as none of the Noticees have filed their response. As per the interimorder, RTIL had issued RPSs during the financial years 2009-10, 2010-11 and 2011-12 to 1,224 allotteesand mobilised fundsto the tune of `5,62,56,500. These details(Form 2 - Form for filing ‘Return of Allotment’) were received by SEBI from RoC, Cuttack. The year wise details of allotment of RPS, as also noted in theinterim order are as under: Table A S.No. Year No. of No. of RPS allotted Amount (`) allottees 1 2009 128 -10 7,45,500 74,55,000 2 2010 661 -11 28,95,150 2,89,51,500 3 2011 435 -12 19,85,000 1,98,50,000 Total 1,224 56,25,650 5,62,56,500 7. The date wise details with respect to the issuance of RPS by MVL are as under: Table B S.No. Date of No. of No. of RPS Value of allotment allottees allotted allotment (`) 1 11-Nov.-2009 2 60000 600000 2 18-Nov.-2009 1 10000 100000 3 11-Dec.-2009 6 26900 269000 4 22-Dec.-2009 29 95200 952000 5 05-Feb.-2010 27 214500 2145000 6 22-Mar.-2010 63 338900 3389000 7 20-May-2010 113 403500 4035000 8 02-Aug.-2010 40 183500 1835000 9 14-Aug.-2010 40 213300 2133000 10 16-Aug.-2010 33 98850 988500 11 18-Oct.-2010 40 157300 1573000 12 20-Oct.-2010 40 198300 1983000 13 22-Oct.-2010 35 148000 1480000 14 18-Dec.-2010 40 133800 1338000 15 20-Dec.-2010 40 108500 1085000 16 22-Dec.-2010 28 264500 2645000 17 27-Jan.-2011 40 214400 2144000 18 29-Jan.-2011 40 121300 1213000 19 31-Jan.-2011 40 204600 2046000

Order in respect of Morningstar Ventures Limited and others. Page

20 02-Feb.-2011 40 233500 2335000 21 04-Feb.-2011 13 40,300 403000 22 09-Mar.-2011 39 171500 1715000 23 10-Apr.-2011 40 173350 1733500 24 11-Apr.-2011 40 113150 1131500 25 12-Apr.-2011 40 115500 1155000 26 13-Apr.-2011 40 135500 1355000 27 14-Apr.-2011 36 170650 1706500 28 20-Jun.-2011 40 177000 1770000 29 22-Jun.-2011 19 115200 1152000 30 06-Sep.-2011 40 113500 1135000 31 09-Sep.-2011 40 131150 1311500 32 12-Sep.-2011 20 138500 1385000 33 14-Sep.-2011 40 333000 3330000 34 28-Sep.-2011 40 268500 2685000 Total 1,224 56,25,650 5,62,56,500

8. I note that MVL had made 34 allotments of RPS. On two occasions i.e. March 22, 2010 and May 20, 2010, the allotment of RPS was made to 63 and 113 allottees respectively. In case of other allotments, as noted from the table B above, MVL had allotted RPS to more than 49 persons on consecutive days or within a short time gap. I note that the Company has not submitted the details to show that all the allotments were made pursuant to different offers. In absence of ‘date of resolutions for offer’ and the proximity in the dates of allotment of RPSs, it can be presumed that all these allotments were made out of a single offer. Accordingly, the provisions of section 67(3) and other applicable provisions of law apply to such issues of securities irrespective of the number of allottees, their relationship with the company and the quantum of allotment, etc. As discussed, the company could not bypass the operation of the first proviso to section 67(3) of the Companies Act, 1956 by making consecutive allotments for the reasons stated above. It is mandatory for every company to comply with the aforesaid proviso both in letter and spirit. 9. Considering the available facts and the conduct of the Noticees in not providing the information, I find no reason to differ with the observation made in theinterimorderthat the company made a ‘public issue’ of RPS in terms of first provisoto section 67(3) of the Companies Act, 1956. As the issuance of RPS by the company was a ‘public issue’, it ought to have complied with the applicable provisions of the Companies Act, 1956 as alleged in the interim order. In the present case, there is no dispute to the fact that the company

Order in respect of Morningstar Ventures Limited and others. Page failed to comply with the provisions of law regulating such public issues i.e. Section 56, 60 read with Section 2(36) and 73 of the Companies Act, 1956. Accordingly, I find the company liable for violating the aforesaid provisions of law.

10. The interimorderwas issued against the directors/ promoters of the company namely Shri Chakrapani Sarangi, Shri Bhabani Satapathy, Shri Sujit Mohapatra, Shri Deepak Ranjan Samant, Shri Himanshu Bhusan Nayak, Shri Kumar Saheb Padma Bhusan Pradhan and Smt. Swarna Lata Devi. The details of the appointment and resignations of directors of the company are as under: Table C Name Date of Appointment Date of Cession Shri Chakrapani Sarangi 11/09/2009 Continuing as director Shri Bhabani Satapathy 11/09/2009 Continuing as director Shri Deepak Ranjan Samant 11/09/2009 Continuing as director Smt. Swarna Lata Devi 11/09/2009 Continuing as director Shri Sujit Mohapatra 11/09/2009 24/05/2012 Shri Himanshu Bhusan Nayak 11/09/2009 07/08/2012 11. From the interimorderit is noted that Shri Chakrapani Sarangi, Shri Bhabani Satapathy, Shri Sujit Mohapatra, Shri Deepak Ranjan Samant, Shri Himanshu Bhusan Nayak and Smt. Swarna Lata Devi are also the promoters of MVL along with Shri Kumar Saheb Padma Bhusan Pradhan. I note that the scope of Sections 11, 11B and 11(4) of the SEBI Act are wide enough to include a promoter/ director or other concerned persons.

I observe that MVL had started issuing RPSsince November 2009. Apparently, the processof offering RPSand inviting monies by the Company from investors started almost immediately after its incorporation. In view of the foregoing, the above said promoters and directors are responsible for the contraventions committed by the Company while issuing RPS as observed above. 12. I note that Shri Chakrapani Sarangi, Shri Bhabani Satapathy, Shri Sujit Mohapatra, Shri Deepak Ranjan Samant, Shri Himanshu Bhusan Nayak and Smt. Swarna Lata Devi were in the Board of Directors of the company during the period when the company had made offer and allotted securities to mobilize public funds without complying with the public issue norms. 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 Order in respect of Morningstar Ventures Limited and others. Page thingsasthe company isauthorized 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) of the Companies Act, 1956 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, 1956 is on the Company, and every person who is a party to the non-compliance of issuing the prospectus as per the said section. 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. In this regard, I refer to 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 appointedornominatedisboundtodischargethefunctionsofadirector andshouldhavetakenallthediligentstepsandtakencareintheaffairs of the company. 14.Inthematterofproceedingsfornegligence,default,breachofduty, misfeasanceorbreachoftrustorviolationofthestatutoryprovisionsof theActandtherules,thereisnodifferenceordistinctionbetweenthe whole-timeorparttimedirectorornominatedorco-opteddirectorand theliabilityforsuchactsorcommissionoromissionisequal.Soalsothe treatment for such violations as stipulated in the Companies Act, 1956.” 13. Therefore, all the above persons beingofficersindefault,in terms of section 5 of the Companies Act, 1956, are responsible for the contravention committed bythe companyasfoundabove andliable for the consequencesof suchdefault.

The non-consequence of the aforesaid violations is refund of the subscription money by the company and its directors to the allottees along with interest under section 73(2) of the Companies Act, 1956. In this regard, I further note that in terms of rule 4D of the Companies (Central Government's) General Rules and Forms, 1956 read with rule 3(c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, the rate of interest prescribed in this regard is 15%. 14. In view of the foregoing, I, in exercise of the powers conferred under sections

Order in respect of Morningstar Ventures Limited and others. Page

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) The Noticees i.e. Morningstar Ventures Limited [PAN: AAGCM1706Q] and its directors namely Shri Chakrapani Sarangi [PAN: BDAPS1347A], Shri Bhabani Satapathy [PAN: BJMPS0012A], Shri Sujit Mohapatra [PAN: ARZPM3090L], Shri Deepak Ranjan Samant [PAN: AMEPS2466G], Shri Himanshu Bhusan Nayak [PAN: AFYPN4410L] and Smt. Swarna Lata Devi [PAN:AGAPD7484R] shall within a period of three months from the date of thisorder, jointly and severally refund the money collected through the issue of Redeemable Preference Shares to the 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)Morningstar Ventures Limited and its directors shall within fifteen days from the date of this Order submit to SEBI complete details of their assets (alongwith proofs thereof) certified by a peer reviewed Chartered Accountant. (iv) Morningstar Ventures 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 till the full refund/ repayment as directed above is made. (v) Morningstar VenturesLimited and itsdirectorsshall 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, Morningstar Ventures 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.

Order in respect of Morningstar Ventures Limited and others. Page (vii)For the purpose of thisorder, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India. (viii) Morningstar Ventures Limited and its directors/ promoters namely Shri Chakrapani Sarangi, Shri Bhabani Satapathy, Shri Sujit Mohapatra, Shri Deepak Ranjan Samant, Shri Himanshu Bhusan Nayak, Smt. Swarna Lata Devi and Shri Kumar Saheb Padma Bhusan Pradhan [PAN:ALZPP9660P] 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) Shri Chakrapani Sarangi, Shri Bhabani Satapathy, Shri Sujit Mohapatra, Shri Deepak Ranjan Samant, Shri Himanshu Bhusan Nayak, Smt. Swarna Lata Devi and Shri Kumar Saheb Padma Bhusan Pradhan 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) For the purposesof sub-paragraphs(viii) and (ix) the period of restraint shall be counted from the date of the interim order. 15. The interim order dated March 30, 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. 16. The order shall come into force with immediate effect. A copy of the order shall be served on the Noticeesto ensure compliance with the above directions. A copy of this Order shall also be forwarded to the recognised stock exchanges and depositories for information and necessary action. 17. A copy of this Order shall also be forwarded to the Ministry of Corporate

Order in respect of Morningstar Ventures Limited and others. Page

Affairs/ concerned Registrar of Companies, for their information and necessary action

DATE : October 6th, 2016 RAJEEV KUMAR AGARWAL PLACE : MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in respect of Morningstar Ventures Limited and others. Page