Order in the matter of MRS Agrotech India Limited

WTM/RKA/EFD/146/2016 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 and Regulation 28 of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, in respect of: 1. MRS Agrotech India Limited, 2. Shri Subhashish Chakarborty, 3. Shri Rajdeep Sadhu, 4. Shri Samrat Sadhu, 5. Smt. Dolon Sadhu Kundu, 6. Shri Bablu Debnath, 7. Shri Narayan Chandra Bhowmick, 8. Shri Subrata De and 9. MRS Debenture Trust (represented by trustee Shri Tinku Das). In the matter of issuance of Non-convertible Redeemable Debentures by MRS Agrotech India Limited 1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted a preliminary examination into the issuance of Non-Convertible Redeemable Secured Debentures (hereinafter referred to as “NCDs”) by MRS Agrotech India Limited (hereinafter referred to as “the company” or “MRS”) 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 SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter referred to as “the ILDS Regulations”). 2. Pursuant to the examination, SEBI passed an interim order dated May 08, 2015 (hereinafter referred to as “interim order”) against MRS, its directors namely Shri Subhashish Chakarborty, Shri Rajdeep Sadhu, Shri Samrat Sadhu, Smt. Dolon Sadhu Kundu, Shri Bablu Debnath, Shri Narayan Chandra Bhowmick, Shri Subrata De and the persons/ entity acting as the Debenture Trustee namely MRS Debenture Trust (represented by trustee Shri Tinku Das) (hereinafter collectively referred to as ‘the noticees’ and individually by their respective names), in view of the following reasons: “10… iii. … a. … from the money receipts and letters of allotment issued by MRS that the company issued NCRSDs to at least 60 allottees and mobilized Rs.8,38,000/- during FY 2011-12 and 2012- 13. In FY 2012-13 alone, NCRSDs were issued to at least 59 allottees.”

Order in respect of MRS Agrotech India Limited and others.

3. In view of the alleged contraventions and the reasons stated in the interim order, the following directions were issued: “i. MRS shall forthwith cease to mobilize any fresh funds from investors through the Offer of NCRSDs 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. MRS and its present/ past Directors, viz. Mr. Shri Subhashish Chakarborty (DIN: 02410395), Shri Rajdeep Sadhu (DIN: 02410910), Shri Samrat Sadhu (DIN: 06519386), Smt Dolon Sadhu Kundu (DIN: 03634295), Shri Bablu Debnath (DIN: 06601618), Shri Narayan Chandra Bhowmick (DIN: 06601620) and Shri Subrata De (DIN: 06601623), 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. MRS 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.

MRS shall provide a full inventory of all its assets and properties; v. MRS’s abovementioned Directors shall provide a full inventory of all their assets and properties; vi. MRS 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 NCRSDs, without prior permission from SEBI; vii. MRS and its abovementioned present Directors shall not divert any funds raised from public at large through the Offer of NCRSDs, which are kept in bank account(s) and/or in the custody of MRS; viii. MRS shall furnish complete and relevant information within 21 days from the date of receipt of this Order; ix. The Debenture Trustee, viz. MRS Debenture Trust (represented by trustee Shri Tinku Das), is prohibited from continuing with his present assignment as a debenture trustee in respect of the Offer of NCRSDs of MRS 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 the 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 along with 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. The noticees were advised to file their response within 21 days of receipt of the interim order and indicate whether they wish to avail a personal hearing. The interim order was forwarded to the noticees vide respective letters dated May 14, 2015. Shri Narayan Chandra Bhowmick, Shri Bablu Debnath and Shri Subrata De vide their respective letters dated June 01, 2015, June 01, 2015 and June 06, 2016 replied to the interim order. The submissions made are mostly common and the same in brief, are as under: a. They had joined the company for promotion and marketing development of products with a written assurance from then existing board of directors that they should in no way be held responsible for past and future liabilities of the company. b. They had not participated in the management of the company.

Further, no notice to attend any of the board meetings were ever served upon them by the company. c. They doubted malice behind their appointment as directors of the company. d. On June 21, 2013, Shri Narayan Chandra Bhowmick had expressed his intention to resign as director before the Board of Directors of the company. On June 26, 2013, he had repeated his intention of resignation to other directors. Form 32 with regard to his resignation was then electronically filed with the concerned Registrar of Companies. Further on June 27, 2013, the company under its letter head and signatures of Shri Rajdeep Sadhu and Shri Shubhashish Chakraborty had released Shri Narayan Chandra Bhowmick from all the responsibilities and obligations as directors of the company. e. On March 05, 2014, Shri Bablu Debnath and Shri Subrata De had expressed their intention to resign as directors before the Board of Directors of the company. After repeated intimations, Form 32 with regard to their resignation were electronically filed with the concerned Registrar of Companies. Later on, vide separate declarations dated February 27, 2014, the directors of the company namely Shri Rajdeep Sadhu and Shri Shubhashish Chakraborty had released Shri Bablu Debnath and Shri Subrata De from the responsibilities as directors towards the debts and liabilities of the company.

It has been stated in the declaration that they had never incurred financial liabilities of the company and they are indemnified against any losses, claims that may arise against the company by the investors, shareholders, creditors etc. It has also been stated in the declaration that Shri Bablu Debnath and Shri Subrata De are released from the entire financial burden, liabilities and all the claims, damages that may arise out of the transactions caused by the company. f. They were indemnified by the company against all possible claims and demands arising in due course of the said company both prior and subsequent to his resignation from MRS. g. They had not received any deposits/ funds as alleged in the interim order. 6. SEBI then proceeded further and granted an opportunity of personal hearing to the noticees on August 31, 2016. The noticees were informed of the date of hearing vide SEBI’s letter dated August 02, 2016. As the interim order could not be delivered on certain noticees at their last known address, SEBI made the public notice dated August 23, 2016 in the newspapers namely ‘Times of India’, ‘Dainik Bhaskar’ and ‘Anandabazar Patrika’ respectively intimating the noticees about the interim order and the personal hearing fixed on August 31, 2016. Vide the public notice the noticees were also advised to file their replies before the date of personal hearing.

The Company and its directors were advised that in case they fail to appear before SEBI on the aforesaid date, then the matter would be proceeded ex-parte on the basis of material available on record. 7. On the date fixed for personal hearing, Shri Ritesh Basu, advocate, appeared on behalf of Shri Narayan Chandra Bhowmick, Shri Bablu Debnath and Shri Subrata De and filed written submissions dated August 29, 2016 on their behalf which were on the lines of replies of the noticees. Mr. Ritesh Basu also made oral submissions on the lines of written replies/ submissions. Other noticees neither filed replies nor appeared in the personal hearing. 8. I have considered the interim order, replies and submissions of Shri Narayan Chandra Bhowmick, Shri Bablu Debnath and Shri Subrata De and the material available on record. The prima facie findings made in the interim order in respect of offer and issue of NCDs are undisputed. Therefore, I do not deem it necessary to burden this order again with all the elaborate facts and observations made in the interim order. The company is alleged to have made a public offer and issued NCDs without complying with the public issue norms mandated under the Companies Act, 1956 and the ILDS Regulations.

As per the interim order, the company had issued NCDs during the Financial Years 2011-12 and 2012-13 to atleast 1 and 59 allottees, respectively and had mobilized funds to the tune of `8,38,000. The interim order has categorically stated that the number of allottees and the amount mobilized as noted therein were from the complaints received. In view of the same, it can be said that such number and the amount mobilized would be much more than the indicated figures. 9. The interim order had specifically directed the company to furnish complete and relevant information. However, the concerned noticees have failed to provide the relevant information, till date. Considering the said conduct of the company and their non-participation in the proceedings despite a public notice, leads to the conclusion that they deliberately concealed information regarding their money mobilizing activities through offer and issue of NCDs to the public. 10. From the available facts and the conduct of the company and its directors in not providing the information regarding the NCDs, I find no reason to differ with the observation made in the interim order that the company made a ‘public issue’ of NCDs in terms of first proviso to section 67(3) of the Companies Act, 1956. As the issuance of NCDs by the company was a ‘public issue’, it ought to have complied with the applicable provisions of the Companies Act, 1956 and the ILDS Regulations as alleged in the interim order.

In the present case, there is no dispute to the fact that the company failed to comply with 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. Accordingly, I find the company guilty of violating the aforesaid provisions of law. 11. The interim order was issued against the directors of the company, namely, Shri Subhashish Chakarborty, Shri Rajdeep Sadhu, Shri Samrat Sadhu, Smt. Dolon Sadhu Kundu, Shri Bablu Debnath, Shri Narayan Chandra Bhowmick and Shri Subrata De. The details of the appointment and resignation of the said directors are as under: Table A Name Date of Appointment Date of Cessation Shri Subhashish Chakarborty 19/10/2011 Continuing as director Shri Rajdeep Sadhu 19/10/2011 Continuing as director Shri Samrat Sadhu 12/03/2013 Continuing as director Smt. Dolon Sadhu Kundu 19/10/2011 12/03/2013 Shri Bablu Debnath 12/06/2013 05/03/2014 Shri Narayan Chandra 12/06/2013 27/02/2014 Bhowmick Shri Subrata De 12/06/2013 05/03/2014 12. It has been concluded above that the company made a public issue of NCDs during the Financial Years 2011-12 and 2012-13.

Therefore, the aforesaid directors namely Shri Subhashish Chakarborty, Shri Rajdeep Sadhu, Shri Samrat Sadhu, Smt. Dolon

Sadhu Kundu were part of the Board of Directors of the company during the period when the company had mobilized 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 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 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 directors of a company shall be liable for action in case of contravention of the ILDS Regulations. Therefore, the directors who were present during the period when the company had made the offer and allotted equity shares 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, 1956 is a continuing liability, the persons who joined the company’s Board pursuant to the offer and allotment of equity shares shall also be liable if the company and the concerned directors have failed to make refunds, as mandated under the discussed provisions of law. 13. With regard to the liability of a director, 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.”

14. Shri Narayan Chandra Bhowmick, Shri Bablu Debnath and Shri Subrata De vide their respective replies/ submissions have submitted that they had joined the company for promotion and marketing of products with an assurance from the then existing board of directors that they should not be held responsible for past and future liabilities of the company. They had neither participated in the management of the company nor received any notice of the board meetings. They had not received any deposits/ funds as alleged in the interim order. It has also been submitted that they were released from the responsibilities and obligations as directors of the company. I have seen the ‘declaration and indemnity’ documents submitted by Shri Bablu Debnath and Shri Subrata De. Having considered the submission, I note that it is not in dispute that they were the directors of the company. From the available records, it is noted that Shri Narayan Chandra Bhowmick, Shri Bablu Debnath and Shri Subrata De became the directors of the company after the available dates of offer of NCDs. As the subscription amounts are not refunded in terms of Section 73(2) of the Companies Act, 1956, they would also become jointly and severally liable to make such payments to investors and also liable for action for default.

As the liability of making refunds is a statutory liability, the same cannot be waived off by declarations/ indemnity. Considering the same, it is difficult to grant any relief to Shri Narayan Chandra Bhowmick, Shri Bablu Debnath and Shri Subrata De. However, it goes without saying that if the company/ other noticees refund the subscription amounts along with applicable interest, then these noticees would be automatically discharged of the liability to make refunds to the investors. 15. Shri Subhashish Chakarborty, Shri Rajdeep Sadhu, Shri Samrat Sadhu, Smt. Dolon Sadhu Kundu, Shri Bablu Debnath, Shri Narayan Chandra Bhowmick and Shri Subrata De being ‘officers in default’ in terms of section 5 of the Companies Act, 1956, are held responsible for the violations committed by the company as found above in this order. Therefore, the company and the aforesaid persons are liable for the consequences including 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. 16. The interim order has observed that the company on November 28, 2014, had created a charge of `25 crore on its movable and immovable properties, stocks in trade, plants and machinery and floating assets to secure the issuance of debentures and also appointed MRS Debenture Trust (represented by trustee Shri Tinku Das) as its Debenture Trustee in violation of section 12(1) of the SEBI Act and regulation 7 of the SEBI (Debenture Trustees) Regulations, 1993 (hereinafter referred to as ‘Debenture Trustees Regulations’).

It is an undisputed fact that MRS Debenture Trust (represented by trustee Shri Tinku Das) was never registered with SEBI as a ‘debenture trustee’. In terms of regulation 7 of the Debenture Trustee Regulations, a person can act as a debenture trustee only if it is either a scheduled bank or a public financial institution or an insurance company or a body corporate. MRS Debenture Trust and its trustee Shri Tinku Das are therefore not qualified to be appointed. Accordingly, I find it guilty of contravening section 12(1) of the SEBI Act, 1992 and regulation 7 of the Debenture Trustee Regulations. 17. 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 and regulation 28 of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, hereby issue the following directions: (i) MRS Agrotech India Limited and its directors namely Shri Subhashish Chakarborty [DIN: 02410395], Shri Rajdeep Sadhu [DIN: 02410910], Shri Samrat Sadhu [DIN: 06519386], Smt. Dolon Sadhu Kundu [DIN: 03634295], Shri Bablu Debnath [PAN: AIEPD2431N], Shri Narayan Chandra Bhowmick [PAN: AOEPB6160J] and Shri Subrata De [PAN: AOGPD1999H], 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 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) MRS Agrotech India 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) MRS Agrotech India 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 non-convertible debentures till the full refund/ repayment as directed above is made. (v) MRS Agrotech India 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, MRS Agrotech India 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) MRS Agrotech India Limited, Shri Subhashish Chakarborty, Shri Rajdeep Sadhu, Shri Samrat Sadhu, Smt. Dolon Sadhu Kundu, Shri Bablu Debnath, Shri Narayan Chandra Bhowmick and Shri Subrata De 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 Subhashish Chakarborty, Shri Rajdeep Sadhu, Shri Samrat Sadhu, Smt. Dolon Sadhu Kundu, Shri Bablu Debnath, Shri Narayan Chandra Bhowmick and Shri Subrata De 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) MRS Debenture Trust (represented by trustee Shri Tinku Das) is 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.

18. The interim order cum show cause notice dated May 08, 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. 19. The 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. 20. 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 : October 18th, 2016 RAJEEV KUMAR AGARWAL Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA