Order in the matter of NVD Solar Limited

WTM/RKA/ERO/139/ 2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTIONS 11, 11A AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 107 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 AGAINST NVD SOLAR LIMITED, MR. SAIBAL KUMAR HAZRA, MR. SUBRATA KUMAR MANDAL MR. ARUN KUMAR CHAKRABORTY AND MR. DIPSEKHAR MUKHERJEE IN THE MATTER OF NVD SOLAR LIMITED 1. NVD Solar Limited (hereinafter referred to as "NVD") is a company which was registered with Registrar of Companies, Kolkata, West Bengal on February 17, 2003 with CIN No. as U52599WB2003PLC095790. NVD has its Registered Office at 21/1, Karnani Estate, 1st Floor, 209, A.J.C. Bose Road, Kolkata–700017, West Bengal, India. 2. Securities and Exchange Board of India ('SEBI') conducted an examination with respect to several complaints complaint/references whereby SEBI was informed that during the financial year 2012-13, NVD had raised an amount of ₹ 595 crore through issuance of fresh equity shares to 1,09,480 entities without complying with the regulatory provisions applicable to a public issue. 3. In this regard, SEBI, vide letter dated October 30, 2013, asked NVD to provide certain details such as copy of shareholders approval and other statutory clearances for the said issue of shares, copy of statutory form 2, copies of audited annual accounts of the company for the last three years. As NVD had not provided the information sought from it by SEBI, reminders were sent to it whereupon NVD, vide its letter dated December 13, 2013, stated that it had not issued any shares in contravention of any provisions of law and that all due formalities regarding issuance of shares required by the Department of Corporate Affairs had been fulfilled. It also stated that the enhancement of authorized share capital and subsequent raising of paid up capital equivalent to the authorized share capital had been done after fulfilling all norms as required and upon payment of prescribed fees. Further, in response to SEBI's letter dated November 20, 2013, NVD, vide letter dated December 13, 2013, made a contradictory statement that that they had not issued any shares and/or convertible securities during the last five years until the time hereinafter mentioned.

Order in the matter of NVD Solar Limited

4. The examination conducted by SEBI revealed, inter alia, the following: - i. In the year 2011–12, NVD had accepted share application money for an amount of ₹ 20 lakh. The notes to accounts of NVD referred to receipt of the share application money pursuant to an invitation to offer shares. ii. On November 30, 2012, shares for an amount of ₹ 3 Crore were allotted to three persons i.e. the directors of the Company. iii. On March 30, 2013, equity shares for an amount of ₹ 595 Crore were allotted by NVD to 1, 09,480 entities. No prospectus/ Red Herring Prospectus/ Statement in lieu of Prospectus/ Information Memorandum was filed by NVD for the issuance of the said equity shares. iv. As on March 31, 2013, NVD had increased its share capital from ₹ 2 crore to ₹ 600 crore. As per the balance sheet of NVD for the year ending March 31, 2013, the money received from the issue of the equity shares was shown to be invested almost entirely in NVD's associate companies such as NVD Infotech Private Limited, NVD Entertainments Limited and NVD Tea & Plants Limited etc. under the head "Non-Current Investments" 5. In view of the above, SEBI issued a show cause notice dated June 05, 214 to NVD and its directors namely, Mr. Saibal Kumar Hazra, Mr. Subrata Kumar Mandal, Mr. Arun Kumar Chakraborty and Mr. Dipsekhar Mukherjee calling upon them to show cause as to why appropriate directions under sections 11, 11A and 11B of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") read with regulation 107 of the SEBI (Issuance of Capital and Disclosure Requirements) Regulations, 2009 ("ICDR Regulations") should not be issued against them including but not limited to directions to refund the money mobilized through equity shares along with interest as well as directions to prohibit NVD and its directors from accessing the capital market.

6. It is alleged in the SCN that the issuance of equity shares on March 30, 2013 by NVD to more than fifty entities (i.e. 1,09,480 entities) was a public offer in terms of section 67(3) of the Companies Act, 1956 ("Companies Act"). It is further alleged that NVD while making the said public offer of equity shares failed to comply with the provisions of sections 56(1), 56(3), 60(1),73(1), 73(2) and 73(3) of the Companies Act and regulations 4(2)(d), 5(1), 6(1), 7(a), 25, 26, 36, 37, 46, 47 and 57 of the ICDR Regulations. 7. The SCN was served on NVD and its directors (except Mr. Arun Kumar Chakraborty) but no reply to the SCN was filed by any of them. NVD, Mr. Saibal Kumar Hazra, Mr. Subrata Kumar Mandal and Mr. Dipsekhar Mukherjee shall hereinafter collectively be referred to as "the Noticees". The Noticees were afforded an opportunity of personal hearing in the matter on August 26, 2014. The Noticees responded to the hearing notice vide letter dated August 25, 2014 (received by SEBI on August 25, 2014 at 07:04 pm), stating their in ability to attend the hearing on August 26, 2014 on the ground that they had received the hearing notice from SEBI on August 23, 2014. The said statement was however incorrect as the hearing notice had been delivered to one of the directors, Mr. Dipsekhar Mukherjee on August 18, 2014 and to the other directors on August 19, 2014. The hearing notice sent to NVD (via hand delivery) could not be delivered as NVD was closed (both registered office as well as corporate office).

It was seen from the MCA website that there was no change in the address of the registered office of NVD. Therefore, the said hearing notice was pasted at the registered office address of NVD on August 19, 2014. However, in the interest of natural justice, one more opportunity of hearing was provided to the Noticees on September 16, 2014 but on the said date, no one appeared on behalf of the Noticees nor any communication was sent by any of them to SEBI. 8. I have carefully considered the SCN and the material available on record. I note from the material on record that Mr. Arun Kumar Chakraborty. expired on January 1, 2014. and therefore, the proceedings against him have abated and the SCN dated June 05, 2014 as against him is disposed off accordingly. As regards the Noticees, I note that sufficient opportunity of filing replies to the SCN and appear for personal hearing have been provided to them but no reply/submissions have been made by them. I am, therefore, of the view that the principles of natural justice have been duly complied in the present case. I now proceed to deal with the allegations levelled against the Noticees in the SCN.

9. It is alleged in the SCN that the issuance of 59.5 crore equity shares to 1,09,480 entities on March 30, 2013 by NVD was a public offer in terms of section 67(3) of the Companies Act. I note that section 67 of the Companies Act provides for the rule of construction for treating an issue of shares or debentures as public issue. In order to deal with the allegations levelled against the Noticees, I deem it necessary to refer to the provisions of section 67 of the Companies Act as it applied at the relevant time and provided as under:- “Construction of references to offering shares or debentures to the public, etc. 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-section (3) and (4), be construed as including a reference to offering them to any section of the public, whether selected as members of debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner.

(2) Any reference in this Act or in the articles of a company to invitations to the public to subscribe for them extended 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.

(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 in made to fifty persons or more: …………………………………………………….………." 10. From the language of section 67, it is very clear that construction of public issue under sub-sections (1) and (2) thereof is subject to provisions of section 67(3). Section 67(3) exempts an offer or invitation from the purview of the construction laid down in section 67(1) and 67(2), if such offer or invitation can properly be regarded, in all the circumstances - i. 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 ii. otherwise as being a domestic concern of the persons making and receiving the offer or invitation.

11. I note that the first proviso to section 67(3) states that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures in made to fifty persons or more. Thus, in terms of the first proviso to section 67(3), any offer or invitation to fifty or more persons to subscribe for shares or debentures is a public issue even if a case satisfies the conditions under section 67(3) (a) or (b). In other words, an offer or invitation to 50 or more persons is a public issue even if it is shown that the shares or debentures are not available for subscription or purchase by persons other than those receiving the offer or invitation or that it is of a “domestic concern” of those making and receiving the offer or invitation. In this regard it is also to be kept in mind that the first proviso was inserted in section 67(3) vide the Companies (Amendment) Act, 2000, with effect from December 13, 2000, in order to curb the companies from offering shares and debentures to a wider group of people by disguising it as “domestic concern”. In my view, the intention of the Legislature, as envisaged in the said Amendment Act is that any mobilization of funds from a group of investors, fifty or more in number, should be classified as a "public issue".

12. I note that the Hon'ble Supreme Court of India in its judgement and order dated August 31, 2012 in matter of Sahara India Real Estate Corporations Limited & Ors. Vs SEBI & Anr. [(2013) 1

SCC 1] (hereinafter referred to as the "Sahara Order") has settled all the doubts relating to interpretation of section 67 of the Companies Act and has held as under - "…. after the amendment to the Companies Act, 1956 on 13.12.2000, every private placement made to fifty or more persons becomes an offer intended for the public and attracts the listing requirements under Section 73(1). Even those issues which satisfy Sections 67(3)(a) and (b) would be treated as an issue to the public if it is issued to fifty or more persons, as per the proviso to Section 67(3) and as per Section 73(1), an application for listing becomes mandatory and a legal requirement. Reading of the proviso to Section 67(3) and Section 73(1) conjointly indicates that any public company which intends to issue shares or debentures to fifty persons or more is legally obliged to make an application for listing its securities on a recognized stock exchange.” 13. In view of the provisions of section 67(3) and aforesaid observations of the Hon'ble Supreme Court, I find that once the number of allottees exceeds 49, the issuance of securities (equity shares in the present case) would be deemed to be a "public issue".

I, therefore, find that the issuance of 59.5 crore equity shares by NVD to 1,09,480 entities on March 30, 2013 was a "public issue". 14. I note that since the issuance of shares by NVD was a public issue, it was required to ensure compliance with all the requirements relating to a public issue under the Companies Act and ICDR Regulations including filing a draft offer document with SEBI under regulation 6 of the ICDR Regulations and registering the prospectus [meeting the requirements of section 56(1)] with the Registrar of Companies under section 60(1). 15. In terms of section 56(1) of the Companies Act, every prospectus should state the matters/reports specified in Schedule II of the Companies Act and set out reports as specified in Part II of the Schedule. In the present case, NVD did not issue any prospectus for the issuance of equity shares made by it on March 30, 2013 and therefore, it violated section 56(1) of the Companies Act. In terms of section 56(3) of the Companies Act, it is mandatory for the company to issue the application forms for shares or debentures accompanied by a memorandum containing the salient features of the prospectus which complies with the Companies Act and the forms prescribed under the Companies (Central Government’s) General Rules and Forms, 1956. In this case, no such application forms were issued by NVD and thus NVD violated the provisions of section 56(3) of the Companies Act.

16. I note that in terms of section 60(1) read with section 2(36) of the Companies Act, a company before issuing a prospectus in respect of a public issue, is required to register with the Registrar of Companies, a copy of the prospectus signed by every person who has been named therein as a director or proposed director of the company or by his authorized agent. In the present case, NVD has not registered any prospectus with the Registrar of Companies and has therefore violated the provisions of section 60(1) of the Companies Act. 17. I further note that in terms of provisions of section 73 of the Companies Act, listing of securities issued pursuant to a public issue is mandatory and not optional at the intention of the issuer. Thus, when shares are issued by any company including an unlisted company to 50 or more persons, it is under a legal obligation to make an application on a recognized stock exchange for listing thereof. In this regard, I note that in the above mentioned Sahara Order, Hon'ble Supreme Court has held as under: "Section 73(1) of the Act casts an obligation on every company intending to offer shares or debentures to the public to apply on a stock exchange for listing of its securities.

Such companies have no option or choice but to list their securities on a recognized stock exchange, once they invite subscription from over forty nine investors from the public. If an unlisted company expresses its intention, by conduct or otherwise, to offer its securities to the public by the issue of a prospectus, the legal obligation to make an application on a recognized stock exchange for listing starts. Sub-section (1A) of Section 73 gives indication of what are the particulars to be stated in such a prospectus. The consequences of not applying for the permission under sub-section (1) of Section 73 or not granting of permission is clearly stipulated in sub-section (3) of Section 73. Obligation to refund the amount collected from the public with interest is also mandatory as per Section 73(2) of the Act.

Listing is, therefore, a legal responsibility of the company which offers securities to the public, provided offers are made to more than 50 persons. In view of the clear statutory mandate, the contention raised, based on Rule 19 of the SCR Rules framed under the SCR Act, has no basis. Legal obligation flows the moment the company issues the prospectus expressing the intention to offer shares or debentures to the public, that is to make an application to the recognized stock exchange, so that it can deal with the securities. A company cannot be heard to contend that it has no such intention or idea to make an application to the stock exchange. Company's option, choice, election, interest or design does not matter, it is the conduct and action that matters and that is what the law demands." 18. Thus, in terms of saction 73(1) of the Companies Act it is obligatory for every company intending to offer shares to the public to apply on a stock exchange for listing of the same. I, therefore, find that in the present case, NVD has contravened the provisions of section 73(1) of the Companies Act as it did not apply for listing of its shares on any recognized stock exchange.

19. I note that Mr. Saibal Kumar Hazra, Mr. Subrata Kumar Mandal and Mr. Dipsekhar Mukherjee were part of the board of directors of NVD which authorised the issuance of shares on March 30, 2013. As found hereinabove, the issuance of shares dated March 30, 2013 was a "public issue" and in respect thereof, the applicable provisions of the Companies Act and ICDR Regulations were not complied by NVD. The board of directors of NVD at the time of the above mentioned issuance of shares, being in control of the affairs of NVD, was under an obligation to ensure that the issuance was in compliance with all the applicable provisions of the Companies Act and ICDR Regulations. In my view, the above named directors of NVD as on the date of the above mentioned issuance of shares are also "officers in default" as defined under section 5 of the Companies Act. I, therefore, find that Mr. Saibal Kumar Hazra, Mr. Subrata Kumar Mandal and Mr. Dipsekhar Mukherjee are also responsible for the acts and omissions of NVD. 20. It is pertinent to note that SEBI Act is a special legislation to deal with matters relating, inter alia, to the protection of interests of investors in securities and the ICDR Regulations framed for the purposes of section 11(1) and section 11A lay down various disclosure and other related requirements for public issues in furtherance of the objective and duties of SEBI enshrined under the SEBI Act. It is also to be kept in mind that these statutory requirements and obligations are intended to protect the interests of the investors in securities and to ensure transparency and integrity in the securities market. Accordingly, a company making a public issue of securities is obligated to comply with these requirements in addition to the requirements prescribed under the Companies Act. In this case, the company has not complied with any provision of ICDR Regulations. I, therefore, find that apart from non-compliance of provisions of section 56(1), 56(3), 60(1), 73(1), 73(2) and 73(3) of the Companies Act, NVD failed to comply with requirements relating to public issue and listing of securities contained in regulations 4(2)(d), 5(1), 6(1), 7(a), 25, 26, 36, 37, 46, 47 and 57 of the ICDR Regulations as alleged in the SCN. The requirements of the relevant provisions are described in the following Table:-

Sr. Relevant provisions of Requirements No. the ICDR Regulations. 1. Regulation 4 (2) (d) Application for listing of specified securities on one or more recognized stock exchange. 2. Regulation 5 (1) Appointment of merchant banker and other intermediaries.

3. Regulation 6 (1) Filing of draft offer document with SEBI and the designated stock exchange and Registrar of Companies 4. Regulation 7 (a) Obtaining in-principle approval from the recognized stock exchanges in which the specified securities are to be listed 5. Regulation 25 and 26 Satisfy the conditions of initial public offer 6. Regulation 36 To ensure lock-in of minimum promoters' contribution 7. Regulation 37 To ensure lock-in of pre-issue capital 8. Regulation 46 Keeping the public issue open for the specified period 9. Regulation 47 Pre issue advertisement for public issue 10. Regulation 57 Manner of disclosures in the offer documents

21. I note that in terms of section 73(2) read with section 73(3) of the Companies Act, where the permission (to deal shares or debentures on a stock exchange) has not been applied under section 73(1), the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if 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 eight days, 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. Since, NVD failed to make application for listing of its shares on any recognized stock exchange, NVD and its directors at the time of issuances of shares mentioned above are liable to refund the amounts collected from subscribers of its shares issued to them along with interest at the rate of 15% per annum. 22. It is pertinent to note that though Companies Act, 1956 has been repealed by the Companies Act, 2013, anything done or any action taken or purported to have been done or taken under the Companies Act, 1956 is deemed to have been done or taken under the corresponding provisions of the Companies Act, 2013 by virtue of section 465(2) of the Companies Act, 2013, and is therefore saved regardless of the repeal of the Companies Act, 1956. Section 465(2)(a) of the Companies Act, 2013, reads as under: "(2)Notwithstanding the repeal under sub-section (1) of the repealed enactments, - (a) anything done or any action taken or purported to have been done or taken, including any rule, notification, inspection, order or notice made or issued or any appointment or declaration made or any operation undertaken or any direction given or any proceeding taken or any penalty, punishment, forfeiture or fine imposed under the repealed enactments shall, insofar as it is not inconsistent with the provisions of this Act, be deemed to have been done or taken under the corresponding provisions of this Act;"

23. In view of the foregoing, I, in exercise of the powers conferred upon me under sections 11, 11A and 11B read with section 19 of the SEBI Act and regulation 107 of the ICDR Regulations, hereby issue the following directions: i. NVD Solar Limited and its directors namely Mr. Saibal Kumar Hazra, Mr. Subrata Kumar Mondal and Mr. Dipsekhar Mukherjee, shall within three months from the date of this order, jointly and severally refund the entire amount of ₹ 595 crore collected in the public issue dated March 30, 2013 as found in this order, to the subscribers of equity shares 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. NVD Solar Limited shall issue a public notice, in all editions of two National Dailies (one English and one Hindi) 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 coming into effect. iv. Within seven days of completion of refund as directed hereinabove, NVD Solar Limited 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.

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). v. NVD Solar Limited and its directors namely, Mr. Saibal Kumar Hazra, Mr. Subrata Kumar Mondal and Mr. Dipsekhar Mukherjee, are directed not to, directly or indirectly, access the capital market by issuing prospectus, any offer document or advertisement soliciting money from the public and are further restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner till the expiry of three years from the date of completion of refund as directed hereinabove. vi. Mr. Saibal Kumar Hazra, Mr. Subrata Kumar Mondal and Mr. Dipsekhar Mukherjee are further restrained from associating themselves, with any listed public company and any public company which intends to raise money from the public, till the expiry of three years from the date of completion of refund as directed hereinabove. 24. 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 including launching of prosecution, in case of failure of the Noticees to comply with the above directions, in accordance with the provisions of applicable laws.

25. The order shall come into force with immediate effect. 26. A copy of the order shall be served upon the Noticees to ensure compliance with the above directions.

Sd/-

DATE: NOVEMBER 27th, 2014 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA