Order in the matter of Prism Infracon Limited;[SAT Appeal No.377 /2016]

WTM/PS/160/IMD/ERO/FEB/2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHIOLE TIME MEMBER ORDER Under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 read with the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and SEBI (Debenture Trustees) Regulations, 1993 In respect of – 1. Prism Infracon Limited (PAN: AAFCP1275L), and its directors 2. Mr. Rajesh Kumar Agarwal (DIN: 00403730; PAN: AFAPA9440H), 3. Mr. Koushik Ghosh (DIN: 02635333; PAN: AHLPG4351N), 4. Mr. Navin Pratap Singh (DIN:02683191; PAN: AVUPS8738C) and and its Debenture Trustees, 5. Mr. Hemanta Banerjee, 6. Mr. Tapas Kumar Dey and 7. Mr. Abhishek Loharuka

Date of hearing: April 23, 2015 Appearance: The Company was represented by Mr. Bhagbati Prasad Padhy, Advocate. Other noticees did not appear. For SEBI: Ms. Soma Majumder, General Manager, Mr. N. Murugan, Assistant General Manager, Mr. Prasenjit Dey, Assistant General Manager and Ms. Nikki Agarwal, Assistant Manager. Date of hearing: August 21, 2015 Appearance: For Company: Mr. Bhagbati Prasad Padhy, Advocate and Mr. Rajesh Kumar Agarwal, Director For SEBI: Dr. Anitha Anoop, Deputy General Manager, Mr. T. Vinay Rajneesh, Assistant General Manager and Ms. Nikki Agarwal, Assistant Manager.

1. Securities and Exchange Board of India (“SEBI”), vide an ex-parte interim Order dated November 24, 2014 (“interim order”) prima facie observed that the company, Prism Infracon

Limited (“the Company” or “PIL”) is engaged in fund mobilization activity from the public through the offer of Non-Convertible Redeemable Debentures (“NCDs”) in violation of sections 56, 60, 73, 117B and 117C of the Companies Act, 1956 read with the Companies Act, 2013 and the provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (“the ILDS Regulations”). The interim order also alleged that the debenture trustees, namely, Mr. Tapas Kumar Dey, Mr. Hemanta Banerjee and Mr. Abhishek Loharuka had allegedly failed to meet the eligibility conditions specified under regulation 7 of the SEBI (Debenture Trustees) Regulations, 1993 ("DT Regulations") and acted as an unregistered debenture trustees in violation of section 12(1) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”).

2. In order to protect the interest of investors who had subscribed to such securities offered and issued by the Company and to prevent the Company and its directors from continuing with their unlawful fund mobilization from public, SEBI issued the following directions vide the interim order:

i. “PIL shall not mobilize any fresh 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. PIL and its present and past Directors, viz. Shri Rajesh Kumar Agarwal (DIN: 00403730; PAN: AFAPA9440H), Shri Koushik Ghosh (DIN: 02635333; PAN: AHLPG4351N), Shri Navin Pratap Singh (DIN: 02683191; PAN: AVUPS8738C), 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. PIL 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. PIL shall provide a full inventory of all its assets and properties; v. PIL's abovementioned Directors shall provide a full inventory of all their assets and properties; vi. PIL 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;

vii. PIL 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 PIL; viii. PIL shall furnish complete and relevant information (as sought by SEBI letters dated December 06, 2013 and March 21, 2014), within 21 days from the date of receipt of this Order. ix. The Debenture Trustees, viz. Shri Tapas Kumar Dey, Shri Hemanta Banerjee and Shri Abhishek Loharuka, are prohibited from continuing with their present assignment as debenture trustees in respect of the Offer of NCDs of PIL 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”.

3. The interim order came into force with immediate effect. The interim order afforded opportunity to the noticees to file their submissions and seek an opportunity of personal hearing if they so desired. For sake of convenience, the Company and its above said directors and debenture trustees shall be collectively referred to as “noticees”. The interim order was sent to all the noticees vide SEBI letters dated November 24, 2014.

4. Reply dated December 07, 2014 of Tapas Kumar Dey: This noticee has submitted that he was surprised to note that he was the trustee in respect of the debentures issued by the Company. He has sent a letter to the Company and its directors as to how he was made a debenture trustee without his knowledge and consent. He was introduced to Mr. Kaushik Ghosh, director of the Company through his friend’s circle and was informed about a society run by them. On the director’s request, the noticee agreed to join the society as a member and had provided copies of PAN card, voter card and photographs. Subsequently, a monthly magazine was launched, he was appointed as its Editor. Only one monthly magazine (issue) with 10,000 copies were published which was also the last issue. When they stopped the magazine, the noticee decided to quit the society and finally opted out of the society in the month of March 2010. The noticee contended that he had not signed any of the documents at any point in time for the Company related to the issue of debentures.

5. Reply dated December 12, 2014 of the Company: Vide this reply, the Company inter alia submitted as follows:

(a) SEBI does not have jurisdiction over the Company as it does not fall within the criteria prescribed by the Hon’ble Supreme Court in the matter of Sahara case. (b) The offer of debentures was made to less than 49 persons. (c) The offer was made to 4 existing members of the Company and the allotment was made only to one member – Prism Society, registered under the Societies Registration Act with the Registrar of Societies, Kolkata. Prism Society is a domestic concern i.e. a member of PIL. (d) The debentures were not available for subscription other than the members of the Prism Society. (e) SEBI cannot assume suo moto jurisdiction in all cases and take coercive action without any power conferred by the statute. The facts of this case are completely different from that of the facts of the Sahara case for the following reasons: (i) All the debenture holders of PIL are identifiable as they are the members of the Prism Society. PIL has not offered any debentures to the public. (ii) Secondly, PIL is making repayments on maturity of debentures as of November 30, 2014, it had paid Rs.15.86 crore (principal) and Rs.4.34 crore as interest. (iii) There are no complaints received with respect to repayments.

(f) RoC, Kolkata had issued various notices under sections 60, 73 and 291 of the Companies Act, 1956 raising similar allegations in December 2012 and the same were closed after RoC was satisfied with the reply of the Company. (g) PIL cannot be subjected to jurisdiction by two different authorities under the same statute which is in contravention of Part III of the Constitution of India. (h) Without prejudice to the contention made above, the Sahara judgment dated August 31, 2014 cannot be applied retrospectively as PIL has not offered debentures after August 31, 2012. (i) The Company was promoted by young qualified persons in the year 2009, who ventured to start business with their limited funds. As, neither institutional finance nor raising capital through public issue is encouraging to the first generation entrepreneurs, the Company issued debentures to its members i.e. Prism Society. The membership did not exceed 49 and the securities were issued as per the provisions of the Companies Act, 1956. (j) PIL has not contravened any law with respect to the issue of debentures.

(k) The debentures were issued for the Company’s business activity of manufacturing packaged drinking water and soda to the urban and semi-urban areas of West Bengal. The Company has entered into Food and Hospitality sector and has started chain of units starting with micro-brewery unit in Bangalore. The Company has vast tracts of developed land in the vicinity of Kolkata for housing project and about to commence constructions. (l) As members having debentures are well known to promoters and are aware of the business activities of the Company, the repayments on maturity would not be a problem for the Company. (m) The Company did not offer the debentures to the public by issuance of any circular/advertisement meant for public subscription. (n) As per Balance Sheet of 2012-13, the assets of the Company are to the tune of Rs.119.78 crore which are quite sufficient to pay the debentures on their maturity. (o) The Company had no intention to suppress information as all the information sought by SEBI were submitted to RoC and are available in public domain in MCA portal. On advice received from its counsel with respect to the jurisdiction of SEBI in case of unlisted companies, the information could not be furnished.

(p) It is a matter of record that PIL raised funds to the tune of Rs.59.37 crore through offer of NCDs during 2009-10, 2010-11, 2011-12 and 2012-13 (from 01.04.2012 to 31.08.2012). The Company has not issued any debenture after August 31, 2012. The total number of debentures allotted by it as on September 30, 2013 was to 19,919 members of Prism Society and by November 30, 2014, the number of investors has come down to 18,789 as the Company was paying debenture holders on maturity. The debenture holders are transferees from Prism Society. The recipients are closely known to PIL and its promoters. (q) PIL had created the Debenture Redemption Reserve and as per the Balance sheet of 2012- 2013, such reserve is to the tune of Rs.7.89 lakh. (r) The Company does not dispute the details given with regard to charge for issuance of debentures till September 28, 2011. The Company had created total charge to the tune of Rs.60 crore for all the debentures issued primarily on immovable properties, plant & machinery, furniture & fixture. The Company contended that it was wrong to state that as per Balance sheet of 2011-12, the value of total fixed assets of the Company was Rs.39 crore as the order does not take into account the investments, bank balances and other current assets appearing in the said Balance Sheet, the value of which amount to Rs.26 crore.

(s) The Company submitted that its debenture trustees are qualified to act as such and are registered as per the Companies Act, 1956. As the debentures were not offered to more than 49 persons, registration with SEBI was totally misconceived. (t) As the initial offer was only to 4 members and as the Company had no intention to offer the securities to the public, filing of Prospectus was not required. The Company has not violated sections 56 and 60 of the Companies Act. (u) The Company has complied with sections 117B and 117C of the Companies Act as it had appointed debenture trustees, filed Trust deeds along with Form-10 and created debenture redemption reserve. A perusal of the Balance Sheets for the years 2009-10 to 2012-13, would show that there are sufficient assets which are proportionate to the redemption of debentures. (v) The Company also contended that reliance placed on regulations framed under the SEBI Act and the applicability to PIL were totally misplaced as the Company did not make a public issue. (w) In view of its submissions, the Company requested SEBI to recall the interim order.

The Company stated that it is complying with directions in para 7(iv) and (v) as it has submitted the following documents : (i) MoA and AoA (ii) Details of directors (iii) Balance sheets for last 3 years (iv) Form 10 (v) Terms and conditions of issue (vi) List of members of Prism Society holding debentures as on 30.09.2013 (vii) Details of payments with regard to redemption of debentures till 30.11.2014 (viii) Details of properties of Company (ix) Details of assets and properties of directors (x) Notices issued by RoC and replies of Company.

6. Reply dated December 12, 2014 of Mr. Kaushik Ghosh: This noticee has inter alia submitted as follows:

(a) He being the Managing Director of the Company is adopting the reply of the Company as the same was based on records of PIL. (b) The interim order has been passed on the presumption that the Company had offered debentures to the public. The same is erroneous and the documents submitted with the reply are the relevant evidence to show that the debentures have been redeemed on their maturity. (c) The business of PIL is on-going. The units dealing with packaged drinking water and food and beverages have started operations. (d) PIL has sufficient assets to redeem the debentures at any time. (e) While requesting for an opportunity of personal hearing, this noticee requested SEBI to consider the case on the basis of the reply of the Company and for revocation of directions issued vide paragraph 7(i) to (iii) and (vi) to (ix) of the interim order.

7. Reply dated December 12, 2014 of Mr. Abhishek Loharuka, debenture trustee of the Company: (a) The trustees are qualified as debenture trustees and are registered as per the Companies Act, 1956. As the debentures were offered to not more than 49 persons, the registration with SEBI is totally misconceived. (b) At no point in time, the authorities under the Companies Act have found fault with the debenture trustees. (c) The Company, vide its reply dated December 12, 2014, submitted relevant documents such as copies of Form-10 relating to registration of charges for debentures, Trust Deeds etc,. (d) The Company has complied with the provisions of section ‘117A & 117B’ of the Companies Act in appointing debenture trustees, execution of Trust Deed and creation of debenture redemption reserve and the same were filed with the RoC, Kolkata. (e) The Company did not violate section 117B of the Companies Act as it had made provision for debenture redemption reserve which is reflected from the documents.

(f) The debenture holders are ‘safe’ and PIL is redeeming the debentures on maturity, which can be appreciated from the documents submitted with the reply of PIL. (g) The Company has commenced its business and operation of its packaged drinking water has also commenced. (h) In view of the same, PIL shall contribute a portion of the profits of the business to the debenture redemption reserve. (i) In any case, PIL has sufficient assets to redeem the debentures at any time. (j) The debenture holders are members of the Prism Society and are known to the promoters of PIL and aware of the business activities. (k) This noticee requested SEBI to consider the reply of PIL and further requested SEBI to recall the direction contained in paragraph 7(ix) of the interim order.

8. As the interim order was not delivered on few of the noticees (i.e. Mr. Kaushik Ghosh, Mr. Navin Pratap Singh, Mr. Abhishek Loharuka), SEBI issued a public notice (in the Ananda Bazar Patrika dated April 14, 2015 and The Times of India dated April 15, 2015) informing the noticees about the proceedings and the opportunity of personal hearing scheduled on April 23, 2015. SEBI also sent notices dated April 17, 2015 to the noticees informing them of the opportunity of personal hearing. The said notice was received by the Company and on behalf of Mr. Navin Pratap Singh, Mr. Abhishek Loharuka and Mr. Koushik Ghosh.

9. On April 23, 2015, Mr. Bhagbati Prasad Padhy appeared for the Company and submitted that the Company filed its reply dated December 12, 2014 and that it made repayments between December 2014 and March 2015. He submitted a letter dated April 22, 2015 giving details of repayment made subsequent to its reply. According to this letter, the Company submitted that during the period – December 01, 2014 and March 31, 2015, the Company had further repaid Rs.4.98 crore on maturity of debentures. The learned advocate requested for one more opportunity of personal hearing. Despite the public notice, the other noticees did not appear.

10. Mr. Tapas Kumar Dey, vide letter dated April 24, 2015, requested that his submissions be considered. He stated that he has already sent letters to the Company and directors regarding his appointment as debenture trustee.

11. Thereafter, vide letter dated June 22, 2015, the director Mr. Koushik Ghosh while stating that his bank account (held with HDFC Bank) had been made non-operational, requested that the ban be vacated. He submitted that the Company had repaid Rs.22.65 crore till May 31, 2015.

12. As requested by the Company, a final opportunity of personal hearing was afforded on August 21, 2015, when Mr. Bhagbati Prasad Padhy appeared for the Company and made oral submissions. He requested for liberty to file written submissions within a period of two weeks. This request was allowed. Director, Mr. Rajesh Kumar Agarwal was also present in this hearing.

13. Thereafter, vide letter dated September 03, 2015, the Company filed its written submissions. While reiterating the submissions made in its reply, the Company stated that it repaid Rs.34.74 crore (principal Rs.26.56 crore + interest Rs.8.18 crore). The Company also submitted that the amount of Rs.59.37 crore received by way of debentures would mature to Rs.74.43 crore by August 2017. As Company had already repaid Rs.34.74 crore, its liability is only Rs.39.69 crore. The Company has fixed assets to the extent of Rs.119.78 crore and would generate Rs.37.23 crore from its ongoing business operations. The Company has assets such as developed/semi-developed lands to the extent of 50 acres whose market value would come to Rs.58.38 crore. The Company would also generate revenue of Rs.20 crore in next three years from the sale of part of lands. The Company also has fully furnished commercial property in Kolkata and Ludhiana whose market value of Rs.6 crore and Rs.5.28 crore respectively. The Company further submitted that it is confident of repaying its debenture holders and such liability would be discharged by August 2017 and further submitted that coercive action would affect its business and the investments made would become futile. The Company submitted that SEBI could call for periodic reports regarding the repayments made to its investors and requested that the submissions be taken on record.

14. I have considered the interim order, the submissions made by the noticees as mentioned above, the material submitted by them and other material available on record. The interim order has alleged 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 this regard, I note that the Company had issued NCDs for Rs.59.372 crore. This fact is an admitted fact by the Company. The interim order has alleged that the Company had made offer and allotted securities to more than 49 persons. The year-wise allotments are mentioned below:

No. of persons to Year Type of Security whom issued Total Amount (approx) (Rs. in crore) Non-convertible 2009- 10 2580 1.00 Redeemable Debentures 2010-11 of Rs.100/--D &o -R s. 1000/- 5763 0.88 2011-12 -Do- 13035 33.13 201 2-13 -Do- Not available 16.47

Total 21378* 59.37 (approx.)

*The interim order has also stated that the total number of allottes could be higher as figure for 2012-13 was not available.

15. The Company has contended that it made offer to 4 of its members and the allotment was made to only one member i.e. Prism Society. The Company has stated that the Society had transferred the same to its members. In view of such contention, it is to be determined whether the Company made a public issue or not. Section 67 of the Companies Act, 1956, which provides necessary guidance regarding public issues and private placement, is reproduced below for reference:

67. (1) Any reference in this Act or in the articles of a company to offering shares or debentures to the public shall, subject to any provision to the contrary contained in this Act and subject also to the provisions of sub-sections (3) and (4), be construed as including a reference to offering them to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner. (2) ... (3) No offer or invitation shall be treated as made to the public by virtue of sub-section (1) or sub-section (2), as the case may be, if the offer or invitation can properly be regarded, in all the circumstances- (a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or (b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation … Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more: Provided further that nothing contained in the first proviso shall apply to non-banking financial companies or public financial institutions specified in section 4A of the Companies Act, 1956 (1 of 1956).

In terms of section 67(3), as amended by the Companies (Amendment) Act, 2000, with effect from December 13, 2000, no offer or invitation shall be treated as made to the public by virtue of sub-sections (1) or (2), as the case may be, if the offer or invitation can properly be regarded, in all circumstances – (a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer or invitation; or (b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation. More importantly, in terms of the first proviso to the aforesaid section, the provisions of section 67(3) shall not apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more. Therefore, the number of subscribers becomes relevant to judge whether an issue of shares are for public or on a private placement basis, in the light of the above said provision. Therefore, if an offer of securities are made to fifty or more persons, it would be deemed to be a public issue. NBFCs or PFIs are exempted only from the first proviso to section 67(3). Therefore, NBFC or PFI do not have any restriction on the number of allottees as imposed on a company which is not an NBFC or PFI. However, such companies also need to prove that its offer falls either under clause (a) or (b) of section 67(3) to claim such issuance to be a private placement. The Company is not an NBFC or PFI.

16. Though the Company contended that it allotted shares to the Prism Society, it has admitted of ‘allotting debentures to 19,919 members of Prism Society as on September 30, 2013’. The Company has also submitted “The debentures were not available for subscription other than the members of the Prism Society”. The Company also stated that by November 30, 2014, the number of investors have come down to 18,789 as the Company was paying debenture holders on maturity. The Company has also submitted that it required funds for its business and has admittedly raised a total of Rs.59.37 crore through issue of debentures. It is not shown as to how the Society has means to provide the finance as required by the Company. Therefore, it is clear that the debentures were meant to be subscribed by individuals (may or may not be members of the prism Society) and in order to avoid the provision of section 67(3) and comply with the legal requirements associated with a public issue of securities, the Company has adopted this artifice to first allot the same to the Prism Society and thereafter transfer such securities to the numerous investors as alleged in the interim order. The Company has also not shown, with documents, as to whether the payment was made by the Society directly to the Company against allotment of debentures. I have also perused the resolution of the Board of Directors passed on August 31, 2009 (w.r.t issue of debentures, no series number was mentioned), September 06, 2010 (w.r.t to issue of NCDs of ‘B’ series), August 31, 2011 (w.r.t to issue of NCDs of ‘C’ series), September 30, 2011 (w.r.t to issue of NCDs of ‘B’ series) and note that such resolutions do not mention that the offer was made to only 4 members of the Company and the allottee would only be the “Prism Society’. It is observed that in one Form 10 filed for modification of charge (date of modification of charge being 26/09/2011), a list of proposed debenture holder was attached. The names of the proposed debenture holders in the said list were Muskura Begum, Subhas Paul, Brindaban Paul and Prism Society Members. This clearly indicates that the offer was not restricted to four persons as claimed by the Company but was made to various persons being the members of the Prism Society. Further, the Company has raised Rs.16.47 crore through such offer and allotment of NCDs.

17. From the above, I hereby conclude that the manner of allotting securities to the Prism Society and thereafter transferring the same to numerous individuals was a façade and sham in order to circumvent the provisions of section 67(3) and avoid compliance with the public issue norms mandated for a public issue under the Companies Act, 1956 and the SEBI Act and regulations framed thereunder.

18. In this context, I refer and rely on the below mentioned observation made by the Hon'ble Supreme Court of India in the matter of Sahara India Real Estate Corporation Limited & Ors. Vs. SEBI (Civil Appeal no. 9813 and 9833 of 2011) (hereinafter referred to as the 'Sahara Case'), “... ... that any share or debenture issue beyond forty nine persons, would be a public issue attracting all the relevant provisions of the SEBI

Act, regulations framed thereunder, the Companies Act, pertaining to the public issue. …". Therefore, by making a public issue of NCDs, the Company was mandated to comply with all the legal provisions that govern and regulate the public issue of such securities, including the Companies Act, 1956 and the SEBI Act and regulations.

19. Regarding jurisdiction, the Company also submitted that RoC, Kolkata had issued various notices under sections 60, 73 and 291 of the Companies Act, 1956 raising similar allegations in December 2012 and the same were closed after RoC was satisfied with the reply of the Company. The Company therefore contended that it cannot be subjected to jurisdiction by two different authorities under the same statute which is in contravention of the Constitution of India. I have perused the said notices issued by the RoC. The same were issued against the Company and its directors for not filing Prospectus and listing the debentures as the issue was a public issue. In this regard, reference is made to section 55A of the Companies Act, 1956. In terms of section 55A of the Companies Act, 1956, SEBI shall administer various provisions (as mentioned therein) of the said Act with respect to issue and transfer of securities by listed companies, companies that intend to list and also those companies that are required to list its securities while making offer and issue of securities to the public. While examining the scope of Section 55A of the Companies Act, 1956, the Hon'ble Supreme Court of India in Sahara Case, had observed that:

"We, therefore, hold that, so far as the provisions enumerated in the opening portion of Section 55A of the Companies Act, so far as they relate to issue and transfer of securities and non-payment of dividend is concerned, SEBI has the power to administer in the case of listed public companies and in the case of those public companies which intend to get their securities listed on a recognized stock exchange in India." " SEBI can exercise its jurisdiction under Sections 11(1), 11(4), 11A(1)(b) and 11B of SEBI Act and Regulation 107 of ICDR 2009 over public companies who have issued shares or debentures to fifty or more, but not complied with the provisions of Section 73(1) by not listing its securities on a recognized stock exchange".

Section 56, 60 and 73 are provisions included in section 55A for being administered by SEBI in case of listed public companies, companies that intend to get their securities listed including companies who would be mandated under law to list their securities if they make a public offer of securities. Under section 11A of the SEBI Act, SEBI is also empowered to regulate, by regulations/general or special orders, the matters pertaining to issue of capital, transfer of securities and matters related thereto. Accordingly, the Company, having made a public offer and issue of securities, as observed above, is under the jurisdiction of SEBI.

20. The Company has contended, without prejudice to its other contentions, that the Sahara judgment dated August 31, 2014 cannot be applied retrospectively as it has not offered debentures after August 31, 2012. In this regard, it needs to be appreciated that the Hon’ble Supreme Court has reiterated the law under section 67(3) of the Companies Act, 1956 and such amended provisions were in force since December 13, 2000. Therefore, this argument is without any merit.

21. Sections 56, 60, 73, 117B and 117C of the Companies Act, 1956 and the provisions of the ILDS Regulations are required to be complied by a company making a public issue of securities Regarding the alleged violation of such provisions of the Companies Act, 1956 and the ILDS Regulations, I observe the following:

(i) In terms of section 56(1) of the Companies Act, 1956, every prospectus issued by or on behalf of a company, shall state the matters specified in Part I and set out the reports specified in Part II of Schedule II of that Act. Further, as per section 56(3) of the Companies Act, 1956, no one shall issue any form of application for shares in a company, unless the form is accompanied by abridged prospectus, contain disclosures as specified. Section 2(36) of the Companies Act read with section 60 thereof, mandates a company to register its 'prospectus' with the RoC, before making a public offer/ issuing the 'prospectus'. The Company has admitted that it did not file any Prospectus/offer document with the RoC and therefore has violated the aforesaid provisions.

(ii) By making a public issue of securities, the Company had to compulsorily list such securities in compliance with section 73(1) of the Companies Act, 1956. A Company making a public issue of securities cannot choose whether to list its securities or not as listing is a mandatory requirement under law in a public issue. As per section 73(1) Companies Act, 1956, a company is required to make an application to one or more recognized stock exchanges for permission for the shares or debentures to be offered to be dealt with in the stock exchange. Further, there is no material to say that the Company has filed an application with a recognized stock exchange to enable the NCDs to be dealt with in such stock exchange. Therefore, the Company has failed to comply with this requirement. Section 73(2) states that "Where the permission has not been applied under subsection (1) or such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money".

(iii) As the Company failed to make an application for listing of such securities, the Company had to forthwith repay such money collected from investors. If such repayments are not made within 8 days after the Company becomes liable to repay, the Company and every director is liable to repay with interest at such rate. The liability of the Company to refund the public funds collected through offer and allotment of the impugned securities is continuing and such liability would continue till repayments are made. There is no record to suggest that the Company made the refunds as per law. The Hon'ble Supreme Court of India in the Sahara case has examined section 73 and made the following observations: "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."

(iv) Further, the amounts mobilized through the issue of securities are to be refunded within the time period as mandated under law. Accordingly, it would be appropriate to levy an interest @ 15% p.a. in terms of section 73(2) of the Companies Act, 1956 and rule 4D (which prescribes that the rates of interest, for the purposes of sub-sections (2) and (2A) of section 73, shall be 15 per cent per annum) of the Companies (Central Government’s) General Rules and Forms, 1956 on the amounts mobilized by the Company through its offer and issue of NCDs from the date when the same was liable to be repaid till date of actual payment to the investor.

It is noted from the Balance Sheet of the Company for the year ended March 31, 2014 (latest as available in MCA 21 portal), that the total amount of debentures issued was Rs.59.37 crore as on March 31, 2013; the total amount of debenture was Rs.51.40 crore as on March 31, 2014 and the total amount of other long term liabilities increased from Rs.19.7 crore in 2012-13 to Rs.84.3 crore in 2013-2014.

(v) Section 117B of the Companies Act, 1956, prescribes that no company shall issue a prospectus or a letter of offer to the public for subscription of its debentures, unless it has, before such issue, appointed one or more debenture trustees for such debentures and the company has, on the face of the prospectus or the letter of offer, stated that the debenture trustee or trustees have given their consent to the company to be so appointed.

It is an admitted fact that the Company did not issue Prospectus/offer document. Therefore, it could not have ‘on the face of it’ stated that the debenture trustees have given their consent. It is noted from the documents that the Company had engaged three individuals (i.e. Mr. Tapas Kumar Dey, Mr. Hemanta Banerjee and Mr. Abhishek Loharuka) as its debenture trustees. Mr. Tapas Kumar Dey, in his submissions, has stated that he was surprised to note that he was appointed as the debenture trustee.

Further, the debenture trustees should also satisfy the eligibility conditions prescribed under the SEBI DT Regulations. As per the DT Regulations, individuals cannot be appointed as debenture trustees. Therefore, these persons being individuals are not eligible to be appointed as debenture trustees.

Section 117C stipulates that, where a company issues debentures, it shall create a debenture redemption reserve for the redemption of such debentures, to which adequate amounts shall be credited, from out of its profits every year until such debentures are redeemed.

In this regard, the Company has contended that it has complied with sections 117B and 117C of the Companies Act as it had appointed debenture trustees, filed Trust deeds along with Form-10 and created debenture redemption reserve. According to it, the Balance Sheets for the years 2009-2013, would show that there are sufficient assets which are proportionate to the redemption of debentures. The Company further submitted that as per the Balance sheet of 2012-2013, such reserve was to the tune of Rs.7.89 lakh.

The interim order has observed that the amount of debenture redemption reserve was insignificant as compared to the liability under the debentures issued to the investors. The Company has submitted that it has commenced operations and shall contribute a portion of the profits of the business to the debenture redemption reserve. However, considering the above finding that the Company had to repay as per mandate of section 73(2) of the Companies Act, 1956, this issue may not be of much relevance at this stage.

(vi) As NCDs are ‘debt securities’ in terms of the ILDS Regulations, the Company was also mandated to comply with the provisions of the ILDS Regulations in respect of its public issue of NCDs. However, the Company failed to comply with the following provisions of the ILDS Regulations. (a) Regulation 4(2)(a) – Application for listing of debt securities (b) Regulation 4(2)(b) – In-principle approval for listing of debt securities (c) Regulation 4(2)(c) – Credit rating has been obtained (d) Regulation 4(2)(d) – Dematerialization of debt securities (e) Regulation 4(4) – Appointment of Debenture Trustee (f) Regulation 5(2)(b) – Disclosure requirements in the Offer Document (g) Regulation 6 – Filing of draft Offer Document (h) Regulation 7 – Mode of disclosure of Offer Document (i) Regulation 8 – Advertisements for Public Issues (j) Regulation 9 – Abridged Prospectus and application forms (k) Regulation 12 – Minimum subscription (l) Regulation 14 – Prohibition of mis-statements in the Offer Document (m) Regulation 15 – Trust Deed (n) Regulation 16 – Debenture Redemption Reserve (o) Regulation 17 – Creation of security (p) Regulation 19 – Mandatory Listing (q) Regulation 26 – Obligations of the Issuer, etc.

22. From the foregoing observations, I hereby conclude that the Company did not comply with sections 56, 60, 73 and 117B of the Companies Act, 1956 read with Companies Act, 2013 and the aforesaid provisions of the ILDS Regulations, in respect of its offer and issuance of NCDs as discussed in this Order and therefore liable for suitable action under the Companies Act, 1956, the SEBI Act and the ILDS Regulations.

23. The interim order was issued against Mr. Rajesh Kumar Agarwal (DIN: 00403730; PAN: AFAPA9440H), Mr. Koushik Ghosh (DIN: 02635333; PAN: AHLPG4351N), Mr. Navin Pratap Singh. With respect to their liability, I observe the following:

(a) As per the details available from the MCA website, all the above persons continue to be the directors in the Company. Mr. Koushik Ghosh and Mr. Rajesh Kumar Agarwal were appointed on July 23, 2009 (i.e. from the date of incorporation of the Company). Mr. Navin Pratap Singh was appointed on June 01, 2011. All the above persons were present in the board of the Company during the period of allotment and hence responsible for the offer and issuance of the NCDs.

(b) Section 56(1) and 56(3) read with section 56(4) imposes the liability for the 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 would also be responsible for complying with the provisions of the ILDS Regulations.

(c) The liability of the company and directors to repay under section 73(2) of the Companies Act, 1956 and section 27 of the SEBI Act, is a continuing liability and the same continues till all the repayments are made. 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, including the default in making refunds as mandated therein. As the liability to make repayments under sections 73(2) of the Companies Act read with section 27 of the SEBI Act is a continuing liability, the persons who join the Company’s Board pursuant to the offer and allotment of NCDs shall also be liable if the Company and the concerned directors have failed to make refunds as mandated under law.

(d) The directors shall also be responsible for compliance with section 117B of the Companies Act, 1956 and the provisions of the ILDS Regulations.

(e) In view of the above observations, Mr. Rajesh Kumar Agarwal, Mr. Koushik Ghosh, Mr. Navin Pratap Singh shall be liable for the violations as found against the Company in this Order as well as for making refunds to the investors along with other enforcement action.

24. The interim order also alleged that the debenture trustees, namely, Mr. Tapas Kumar Dey, Mr. Hemanta Banerjee and Mr. Abhishek Loharuka had allegedly failed to meet the eligibility conditions specified under regulation 7 of the DT Regulations and acted as an unregistered debenture trustees in violation of section 12(1) of the SEBI Act. My observations in this regard are as follows:

(a) I note that none of the above persons are registered with SEBI as debenture trustees. I note that the interim order has observed as follows: “PIL had filed Form 10 with the ROC, West Bengal for all the aforesaid series of Debentures. It is observed from the aforesaid Form 10 that Shri Tapas Kumar Dey and Shri Abhishek Loharuka were appointed as the Debenture Trustees for series of debentures issued on October 15, 2009. Further, Shri Abhishek Loharuka and Shri Hemanta Banerjee were appointed as the Debenture Trustees for series of debentures issued on September 21, 2010 (later, vide trust deed dated November 26, 2011, the charge was modified and Shri Abhishek Loharuka was made the only trustee for the series of issue dated September 21, 2010) and Shri Abhishek Loharuka was appointed as the Debenture Trustee for series of debentures issued on September 28, 2011. However, the Debenture Trustees are neither registered with SEBI nor do they qualify to be a Debenture Trustee”.

(b) I have perused the Trust Deed dated September 21, 2010 executed between the Company and trustees Hemanta Banerjee and Abhishek Loharuka with respect to issuance of ‘B’ series debentures. These trustees have signed this Deed and they have agreed to act as trustees for and on behalf of the debenture holders.

(c) I have also perused the Trust Deed dated November 26, 2011 executed between the Company and trustee Mr. Abhishek Loharuka, with respect to ‘B’ series debentures to the extent of Rs.25 crore. This deed has been signed by Mr. Abhishek Loharuka also.

(d) Mr. Abhishek Loharuka has also signed in the Deed of Mortgage dated September 26, 2011 as a trustee with respect to mortgage of company’s property for the interest of the investors.

(e) From the above, it becomes clear that Mr. Abhishek Loharuka and Mr. Hemanta Banerjee had acted as debenture trustee. As it has been held that the Company made a public issue of debentures, the contentions of Mr. Abhishek Loharuka regarding the jurisdiction of SEBI and non-applicability of SEBI regulations for the debenture issue is without merit.

(f) Mr. Tapas Kumar Dey has submitted that he was surprised to note that he was the trustee in respect of the debentures issued by the Company. He submitted that he has sent a letter to the Company and its directors questioning them as to how he was made a debenture trustee without his knowledge and consent. He further submitted that he was introduced to Mr. Kaushik Ghosh, director of the Company and on his request agreed to join the society as a member and had provided copies of PAN card, voter card and photographs. He was appointed as the Editor and when the magazine was stopped, he quit the society in the month of March 2010. The noticee contended that he had not signed any of the documents at any point of time for the Company related to the issue of debentures. I have considered such submissions. As per the Trust Deed dated April 24, 2010 attached to one Form 10 (pertaining to registration of charges for debentures for creation of charge on April 24, 2010), Tapas Kumar Dey and Abhishek Loharuka have signed as Trustees. The other party to this deed was the Company. Therefore, it cannot be said that Tapas Kumar Dey was not aware of his appointment.

25. I note that any person who accepts a position which carries certain responsibilities, compliances and eligibility criteria under law ought to have satisfied that he is eligible and if eligible carries out such responsibility under full compliance of applicable law. In the present case, the debenture trustees are not registered as ‘debenture trustees’ with SEBI as required under section 12(1) of the SEBI Act. Further, they do not satisfy the following conditions under regulation 7 of the DT Regulations. This regulation prescribes that only a scheduled bank carrying on commercial activity or a public financial institution within the meaning of section 4A of the Companies Act, 1956 or an insurance company or a body corporate should act as a debenture trustee. Accordingly, Mr. Tapas Kumar Dey, Mr. Hemanta

Banerjee and Mr. Abhishek Loharuka are found to have violated section 12(1) of the SEBI Act and regulation 7 of the DT Regulations. In view of these observations, it can be said that the provisions of section 117B of the Companies Act, 1956 have not been completely complied with.

26. For the above reasons, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11(1), 11(4), 11A and 11B thereof and regulation 28 of the SEBI (Issue and Listing of Debt Securities) Regulation, 2008 hereby issue the following directions:

(a) The Company, Prism Infracon Limited and its directors Mr. Rajesh Kumar Agarwal, Mr. Koushik Ghosh and Mr. Navin Pratap Singh, jointly and severally, shall forthwith refund the money collected by the Company through the issuance of Non-Convertible Debentures (which have been found to be issued in contravention of the public issue norms stipulated under the Companies Act, 1956 and the ILDS Regulations), to the investors including the money collected from investors, till date, pending allotment of securities, if any, with an interest of 15% per annum compounded at half yearly intervals, from the date when the repayments became due (in terms of Section 73(2) of the Companies Act, 1956) to the investors till the date of actual payment.

(b) The repayments to investors shall be effected only in cash through Bank Demand Draft or Pay Order.

(c) The Company/its present management are permitted to sell the assets of the Company only for the sole purpose of making the refunds as directed above and deposit the proceeds in an Escrow Account opened with a nationalised Bank.

(d) The Company, its directors and other persons named above, shall issue public notice, in all editions of two National Dailies (one English and one Hindi) and in one local daily (in Bengali) 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.

(e) After completing the aforesaid repayments, the Company shall file a certificate of such completion with SEBI, within a period of three months from the date of this Order, from two independent peer reviewed Chartered Accountants who are in the panel of any public authority or public institution. For the purpose of this Order, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India ("ICAI").

(f) Prism Infracon Limited and its directors Mr. Rajesh Kumar Agarwal, Mr. Koushik Ghosh and Mr. Navin Pratap Singh, are also directed to provide a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form.

(g) In case of failure of the company, Prism Infracon Limited and its directors Mr. Rajesh Kumar Agarwal, Mr. Koushik Ghosh, Mr. Navin Pratap Singh, in complying with the aforesaid directions, SEBI, on the expiry of the three months period from the date of this order, - a) shall recover such amounts in accordance with section 28A of the SEBI Act including such other provisions contained in securities laws. b) may initiate appropriate action against the Company, its promoters/ directors and the persons/ officers who are in default, including adjudication proceedings against them, in accordance with law. c) would make a reference to the State Government/ Local Police to register a civil/ criminal case against the Company, its promoters, directors and its managers/ persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of public funds; and d) would also make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the Company.

(h) Prism Infracon Limited is directed not to, directly or indirectly, access the capital market by issuing prospectus, 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, from the date of this Order till the expiry of 4 years from the date of completion of refunds to investors as directed above.

(i) Mr. Rajesh Kumar Agarwal, Mr. Koushik Ghosh and Mr. Navin Pratap Singh are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, with immediate effect. They are also restrained from issuing prospectus, offer document or advertisement soliciting money from the public and associating themselves with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with SEBI. The above directions shall come into force with immediate effect and shall continue to be in force from the date of this Order till the expiry of 4 years from the date of completion of refunds to investors, as directed above.

(j) For the violations (i.e. acted as debenture trustee when they were not eligible to act as debenture trustees and acted so without registration from SEBI) committed by Mr. Tapas Kumar Dey, Mr. Hemanta Banerjee and Mr. Abhishek Loharuka, they are hereby restrained from acting as an intermediary, accessing the securities market and further restrained from buying, selling or dealing in securities, in any manner whatsoever, for a period of 4 years.

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

28. This Order is without prejudice to any action, including adjudication and prosecution proceedings that might be taken by SEBI in respect of the above violations committed by the Company, its promoters, directors including former directors and other key persons.

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

30. A copy of this Order shall also be forwarded to the Ministry of Corporate Affairs/concerned Registrar of Companies, for their information and necessary action with respect to the directions/restraint imposed above against the Company and the individuals.

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date: February 18th, 2016 Place: Mumbai