Order in the matter of Ramel Industries Ltd

WTM/PS/19/ERO/CIS/JULY/2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under sections 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with regulation 65 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 In respect of Ramel Industries Limited

1. On the basis of information that a company namely, Ramel Industries Limited (hereinafter referred to as "the Company" or "Ramel") was mobilizing money from the public through its "Monthly Product Scheme", the Securities and Exchange Board of India (hereinafter referred to as "the SEBI") had initiated an inquiry into such money mobilization schemes purportedly operated by the Company. In that regard, SEBI had advised the Company vide letter dated July 08, 2010 for the following information and documents :

1. A certified copy of the Memorandum and Articles of Association of the Company. 2. Audited Balance Sheet and Profit & Loss Account of the Company for the last three years. 3. Name, addresses and occupation of all the promoters/directors (present and past) of the Company. 4. A statement of mobilization and deployment of funds under various schemes duly certified by the Statutory Auditors of the Company. 5. Other information as given below : (a) Whether shares of the Company are listed in any Stock Exchange; (b) Terms and Conditions of the schemes launched by it; (c) Funds raised through the schemes from the public along with period of schemes; (d) Promises or assurances or assured returns made in the schemes; (e) Copies of offer documents, application form/ pamphlets/ brochures of the schemes launched; (f) Names and details of the Key Managerial Personnel of the Company(s); (g) Options available with the investor if he does not want to hold his investment till maturity;

(h) Whether any instrument is issued to the investors after receipt of fund; (i) Whether such instruments, if issued, are transferrable; (j) In case the 'Schemes' pertain to issue of Preference Shares/ Debentures whether the shares/debentures issued by the Company are listed/ intended to be listed on any stock exchange; (k) In case the 'Schemes' pertain to booking/ purchase of goods/ properties, to specify the options available with the investor if he does not want to possess the good/ property after payment of initial amount; (l) To confirm whether 'Schemes' floated by the Company falls under the CIS Regulations or SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

2. The Company, vide its letter dated July 23, 2010, had enclosed a sample application form (containing terms and conditions of the scheme) and inter alia submitted that : a. It is an Unlisted Public Limited Company. b. After complying with the provisions of the Companies Act, 1956 and making necessary filing with the Registrar of Companies, West Bengal, the Company is issuing Optionally Fully Convertible Debentures ("OFCDs") on private placement basis, to close associates, without making any advertisement in the public. These OFCDs are not intended to be listed with any stock exchange in India. Under the above circumstances, requirements of listing of debentures and preference shares (issued by the Company) are not applicable to it. Moreover, the Company does not intend, even in the near future, to list its shares/ preference shares/ debentures on any recognized stock exchange. c. None of its schemes fall under the CIS Regulations or the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. Therefore, registration with SEBI is not required. d. The investment scheme floated by it was for real estate business, infrastructure development, manufacturing and trading of various goods etc. If the investor does not want to possess the property/services after payment of initial amount, the Company could refund the amount to respective investor after deducting necessary charges.

3. SEBI had also conducted an examination into the money mobilization activities by the Company through the issue of OFCDs. In respect of such examination, SEBI sought information from the Company vide letters dated November 02, 2012 to which the Company had responded vide letter dated November 24, 2012, furnishing certain information. It has also been alleged that the Company had issued OFCDs to more than 49 persons without filing any offer documents and complying with statutory requirements with respect to public issue of securities. However, this issue is being separately dealt with by SEBI.

4. SEBI, vide letter dated February 22, 2013, also sought detailed information pertaining to mobilization of funds through collective investment schemes. The Company, vide letter dated April 10, 2013, also provided copies of (i) the application form pertaining to its Monthly Product Scheme, (ii) Memorandum of Association and (iii) Balance Sheet for the Year 2011-2012. In the said reply, the Company inter alia submitted that “….. none of our schemes which are floated by our company falls under the CIS Regulations or SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2009. Therefore registration with SEBI is not required.”

5. While SEBI was examining the aforesaid documents/information, the Company filed a Writ Petition (No. 14448 (W) of 2013) on May 13, 2013 before the Hon'ble High Court at Calcutta, seeking directions to SEBI to grant it a Certificate of Registration as a Collective Investment Scheme Company under Chapter IX of the Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999 (hereinafter referred to as "the CIS Regulations"). The writ petition was disposed off by the Hon'ble High Court, wherein SEBI was directed to respond to the Company's request for permission to mobilise funds from the public within a period of eight weeks (from date of the order). The Hon'ble Court also directed that if permission is to be denied to the Company, due reasons therefore should be indicated in the order.

6. As the Company failed to file an application with SEBI seeking registration to operate or launch Collective Investment Schemes ("CISs") for mobilising funds from the public, SEBI filed a Review Petition before the Hon'ble High Court bringing the above facts to the notice of the Hon'ble Court. The Review Petition was disposed off by the Hon'ble High Court with the following direction vide its Order dated July 09, 2013 :

" ……………………. The petitioner company should apply in writing to SEBI within a fortnight from date, seeking permission for the petitioner company to raise funds from the public and indicating the quantum of money already received. The petitioner company will respond to any queries that SEBI may have in the matter of mobilisation of public funds and the petitioner company will not collect any further money from the public or utilise or expend any funds already collected without due permission issued therefor by SEBI.

Upon the petitioner's written application being made within a fortnight from date, SEBI should dispose of the application within four weeks of the petitioners satisfactorily responding to any queries that may be raised by SEBI in respect of the application. It will be open to SEBI to give the petitioner an opportunity of hearing before disposing of the application by a reasoned order…. "

The Company did not comply with the directions of the Hon'ble High Court in as much as it did not apply in writing to SEBI within the time line specified (i.e., within 14 days from the date of order which was on 09.07.2013) by the Hon'ble Court. Subsequently, SEBI vide letter dated September 16, 2013 had brought to the notice of the Company the direction of the Hon'ble High Court that the Company is prohibited from collecting any further money from the public or utilise or expend any funds already collected without due permission issued therefor by SEBI. The Company was also informed that it has not complied with the directions of the Hon'ble Court as it neither filed any application nor submitted details as to the quantum of money already mobilised. The Company responded vide its letter dated September 19, 2013, wherein it sought to know the documentation needed for registration under the CIS Regulations. This letter cannot be treated as an application for registration under the CIS Regulations. The format, procedure and other requirements for making an application seeking registration under the CIS Regulations is stated under the said regulations, which are available in the public domain. The form prescribed under the CIS Regulations calls for detailed information. It cannot be said that the Company which approached the Hon'ble High Court seeking grant of Certificate of Registration is unaware of the statutory form prescribed for the same under the CIS Regulations. By not making an application within the time-line specified by the Hon'ble High Court and the request of the Company which was made only after it received the letter of SEBI dated September 16, 2013, indicates that the conduct of the Company is dilatory.

7. SEBI in its examination came to the prima facie view that the Monthly Product Scheme launched and operated by the Company is in the nature of CIS activity. As the Company is not registered with SEBI under the CIS Regulations for offering or launching such CISs, SEBI issued a Show Cause Notice dated December 04, 2013 ("the SCN") to the Company alleging that – (i) the 'Monthly Product Scheme' of the Company fulfils the conditions referred to in section 11AA(2) of the SEBI Act; (ii) 97,79,89,010/-, which is the sum under the head "Other Long Term Liabilities- Advance against projects" in the Balance Sheet as on March 31, 2012, appears to have been collected under the Collective Investment Schemes (CISs) launched/operated by the Company; (iii) The Company is running CIS activities without obtaining registration from SEBI as required under regulation 3 of the CIS Regulations.

The Company was called upon to show cause as to why directions under sections 11, 11(4) and 11B of the SEBI Act, 1992 read with regulations 65 and 73 of the CIS Regulations, should not be issued against it and why prosecution should not be launched for the aforesaid violations alleged to have been committed by the Company.

8. The Company filed its response vide letter dated January 10, 2014, wherein it inter alia stated that it has applied for registration under the CIS Regulations and that it has not withdrawn money in terms of the Hon'ble High Court's order. The Company has admitted operating CIS, where it has stated that- "... it is admitted that we have mistaken (committed a mistake) by going into the business of Collective Investment Scheme and …….. that going into such a business without obtaining permission of SEBI is not in accordance with law. We are ready to pay the penalty for the same. Under the aforesaid facts and circumstances it is hereby requested to minimise penalty as much as possible for the benefit of the general public/investor …."

9. The Company was afforded with the opportunities of personal hearing on January 31, 2014 and on February 20, 2014. However, the Company and/or its directors failed to avail such opportunities. The Company also did not seek adjournment of such personal hearings. In view of the same, I proceed to decide the case on merits on the basis of the documents on record. Before proceeding to consider the case on merits, I note that the Company has admitted that it is operating CIS which is in contravention of the law.

10. During inquiry, the Company had forwarded a copy of the sample application form for subscribing to the Company's 'Monthly Product Scheme' ("the Scheme"). The application form contained the following statements along with terms and conditions of the Scheme:

"Dear Sirs,

I/We have gone through the brochure containing the details of various properties /products being to be offered by the company and /or its business associates, Group Companies.

I/We intend to purchase plots, housing units commercial units and /or products of Ramel Industries Ltd and /or its business associates, Group Companies and tender a sum of Rs. ___________________(in words) Rs. ________________________________and undertake to pay in Monthly Instalment of Rs. __________________for months under the plan __________________as per the terms and conditions of the Company.

Plant Installment Monthly Total Total payable value (including Name Period Payment Payment at accrued benefit value) adjustable (Rs.) the end of against the price of the property/ the period product /services (Rs.)

Plan I 12 200 2400 2640 (A) 300 3600 3960 400 4800 5280 500 6000 6600 1000 12000 13200 Plan II (B) 24 200 4800 5808 300 7200 8712 400 9600 11616 500 12000 14520 1000 24000 29040 Plan II 36 200 7200 9504 (C) 300 10800 14256 400 14400 19008 500 18000 23760 1000 36000 47520 Plan II 60 200 12000 18360 (D) 300 18000 27540 400 24000 36720 500 30000 45900 1000 60000 91800 TERMS AND CONDITIONS ……………

3. The applicant(s) shall get the accrued benefit value on total advance payment as mentioned in the application form.

4. Every applicant is entitled to opt for purchase of plot, housing unit, commercial unit, on ownership in the present or future schemes promoted/to be promoted by the company and its various sites, properly developed and constructed for economically weaker section and /or availing products / services of the company or its group companies, associated companies or its affiliates including Hospital, Mineral Water, Mart & Multiplex, Prevalent of the time of availing such benefit /services.

5. The total payable value (including accrued benefit value) mentioned in the application form can be availed/utilized by the applicant on producing the receipt for advance payment along with the pass book for any of the following process. i. purchase of plot, housing unit, commercial unit property developed and constructed for economically weaker section and/or products and /or services as offered by the company. ii. properly developed and constructed for economically weaker section/purchase of products/ services as offered by its group companies, business associated from time to time prevalent at the time of availing such benefits/services. The balance sale price shall be paid by the applicant to the company.

………..

9. The applicant can withdraw and get the refund of his advance amount including the accrued benefit value standing to the credit of the applicant by stating the reasons to the company or its branch office. Consequently, the receipt for advance payment and the pass book issued in receipt will be cancelled /invalidated.

…….

13. The company my, on being satisfied that it is necessary and expedient to do so, modify any of the terms and conditions of this present and such modified terms and conditions shall be binding on all the applicants. Such modified terms and conditions shall be notified by the company by displaying at its notice board and for of the agent and /or by post applicant.

………….."

On a consideration of the terms and conditions of such scheme, the following is observed :

(a) The application form for the "Monthly Product Scheme" states that the scheme is for purchasing of plots/housing units/commercial units and/or the products of the Company or that of its business associates. This would indicate that the money collected under such plans of the scheme are pooled and utilised for the purposes of the scheme. However, there is no mention of the details of products or services that would be offered to the investor who invests in various plans of the scheme.

(b) Investors in the scheme offered by the Company could opt for any plan. As per the scheme, all the plans promise a return or profit on completion of the tenure opted by an investor. It has been specifically stated in the application form that "The applicant(s) shall get the accrued benefit value on total advance payment as mentioned in the application form". Further, the Company also promises that "The applicant can withdraw and get the refund of his advance amount including the accrued benefit value standing to the credit of the applicant". The same indicates that the contributions or payments or subscriptions made by the investors are made in the scheme with a view to receive profits, whether it is monetary benefits or products or services for such appreciated value (as compared to the original investment of the investor). In terms of clause 9 of the Terms and Conditions of the Scheme (the reproduced portion from the application form), the investor is also allowed to withdraw from the scheme, in which event he would be refunded the advance amount including the accrued benefit standing to his/her credit. The accrued benefit value appears to be calculated at an annualised rate of interest (ranging from 10-10.6% p.a).

(c) The pooling of investments and the products/services, as claimed to be delivered by the Company, are managed by the Company.

(d) The Company has every right to change/modify the terms and conditions of the above scheme. Company may accept or reject any application at its sole discretion and the investors do not have any control over the management of the properties of the schemes.

11. Section 11AA(1) of the SEBI Act provides that any scheme or arrangement which satisfies the conditions referred to in sub-section (2) shall be a collective investment scheme. The conditions mentioned in sub-section (2) are as follows : (i) the contributions, or payments made by the investors, by whatever name called, are pooled and utilized solely for the purposes of the scheme or arrangement;

(ii) the contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable from such scheme or arrangement; (iii) the property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) the investors do not have day to day control over the management and operation of the scheme or arrangement.

From the above observations, it is found that the plans/schemes operated/launched by the Company are in the nature of CIS.

12. Section 12(1B) of the SEBI Act, mandates that any “person” shall not sponsor or cause to be sponsored or cause to be carried on a 'collective investment scheme' unless he obtains a certificate of registration from the Board in accordance with the Regulations. Any person launching or sponsoring or causing to sponsor a collective investment scheme must be a company incorporated under the Companies Act, 1956; and should be registered with SEBI as a Collective Investment Management Company. Therefore, the launching/ floating/ sponsoring/causing to sponsor any 'collective investment scheme' by any person without obtaining a certificate of registration from SEBI to do so, is in contravention of section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations. SEBI has framed the CIS Regulations to regulate the activities of collective investments schemes, in exercise of powers conferred under sections 30 and 11 of the SEBI Act. Regulation 3 of the CIS Regulations provides that no person other than a Collective Investment Management Company which has obtained a certificate under the said regulations shall carry on or sponsor or launch a collective investment scheme. Therefore, the Company has mobilized money from the public under its plans which are in the nature of collective investment schemes in contravention of the above statutory provisions.

13. It also needs to be noted that the plans/schemes/arrangement, as discussed above, that have been and are operated/launched by the Company, are not protected by any of the clauses mentioned under section 11AA(3) of the SEBI Act. The Company is operating such collective investment schemes without obtaining the requisite certificate of registration from SEBI as required under section 12(1B) of the SEBI Act and regulation 3 of the CIS Regulations. This conduct of the Company is therefore in contravention of such statutory provisions. Though the scheme satisfies the conditions mentioned under section 11AA(2) to be termed as CIS, it appears that the Company has been mobilising money from the public in the guise of such scheme by offering returns. The Company has not provided any information or document to show that it actually offers lands/products/services as claimed by it in its advertisements/application form used for soliciting deposits from public.

14. As per the statutory audit report of the Company for the financial year 2011-12, a sum of 97,79,89,010/- is mentioned under the head "Other Long Term Liabilities" as "Advance against Projects" as on March 31, 2012. Though the Company had submitted vide letter dated April 10, 2013 that it would provide the balance sheet with profit and loss account for the financial year 2012-2013 on finalisation, it has not till date provided the same. This 'liability' of the Company is over and above the amount raised through the issue of Optionally Fully Convertible Debentures ("OFCD") for 60.86 crore (approx.), which is being distinctly stated in the same report. SEBI has already issued a Show Cause Notice for the alleged irregularities in respect of the issue of OFCDs, which culminated in the passing of the SEBI Order dated May 15, 2014, wherein the Company and its directors were inter alia directed to jointly and severally refund the money, collected through the application form issued by it for subscription to its OFCDs in 2009-2010, 2010-2011 and 2011-2012, to the subscribers of OFCDs with interest at the rate of 15% per annum from the date of receipt of money till the date of such refund or the redemption value as promised and accrued till the date of refund, whichever is higher.

15. The Company has therefore collected an amount of 97,79,89,010/- under its schemes in the guise of operating CIS as of March 2012..

16. It is also noted from the press reports that Mr. Rameshwar Podder, Chairman cum Managing Director of the Company was arrested by the West Bengal Police on the charges of murder and cheating investors through chit fund schemes to the tune of 2500 Crore (Hindustan Times-Kolkata edition dated November 13, 2013). Further, it has also been reported (in Indian Express- Kolkata edition dated May 1, 2013) that the State Government of Assam has referred several cases involving illegal collection of monies from the public by several entities including the Company to the Central Bureau of Investigation.

17. In view of the above observations of the schemes of the Company and as admitted by the Company itself both before the Hon'ble High Court and in its letters to SEBI dated September 19, 2013 and January 10, 2014, it is concluded that the Company is operating or launching Collective Investment Schemes without obtaining registration from SEBI, in violation of section 12(1B) of the SEBI Act read with regulation 3 of the CIS Regulations. Therefore, such contraventions calls for appropriate directions from SEBI in order to protect the interest of investors and also to secure the interest of the securities market.

18. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 and sections 11, 11(4) and 11B thereof read with regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999, hereby issue the following directions :

(a) Ramel Industries Limited and its promoters/directors shall abstain from collecting any money from investors or launch or carry out any scheme which has been identified as a collective investment scheme in this Order.

(b) Ramel Industries Limited shall wind up its existing collective investment schemes and refund the monies collected under its schemes with returns which are due to its investors as per the terms of offer, within a period of three months from the date of this Order and thereafter, within a period of 15 days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective Investment Schemes) Regulations, 1999, including trail of funds claimed to be refunded, bank account statements indicating refund to the investors and receipt from the investors acknowledging such refunds.

(c) Ramel Industries Limited shall not alienate or dispose off or sell any of its assets except for the purposes of making refunds to its investors as directed above.

(d) In the event of failure by Ramel Industries Limited and its directors/promoters to comply with the above directions, SEBI would - (i) make a reference to the State Government/Local Police to register a civil/criminal case against Ramel Industries Limited and its 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;

(ii) make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of Ramel Industries Limited; and (iii) without prejudice to the above, shall also initiate attachment and recovery proceedings under section 28A of the Securities and Exchange Board of India Act, 1992.

19. Ramel Industries Limited is restrained from accessing the securities market and is prohibited from buying, selling or otherwise dealing in securities market till all its collective investment schemes are wound up and monies mobilized under such schemes are refunded to its investors, as directed above.

20. The above action would be without prejudice to the right of SEBI to initiate prosecution proceedings under section 24 and adjudication proceedings under Chapter VI of the Securities and Exchange Board of India Act, 1992 against Ramel Industries Limited and its directors Mr. Rameshwar Podder, Mr. Ramendra Mohan Sarkar, Mr. Sukanta Deb and Mr. Partha Das including other persons who are in default, for the violations as found in this Order.

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

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

PRASHANT SARAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Date : 11th JULY, 2014 Place : Mumbai