Order in the matter of Samruddha Jeevan Foods India Limited

WTM/GM/EFD/33/2018–19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER IN COMPLIANCE WITH THE ORDER OF THE SECURITIES APPELLATE TRIBUNAL DATED SEPTEMBER 29, 2017 IN MISC. APPLICATION NO. 340 OF 2016 AND MISC. APPLICATION NO. 130 OF 2017 AND MISC. APPLICATION NO. 211 OF 2017 AND MISC. APPLICATION NO. 218 OF 2017 AND APPEAL NO. READ WITH THE ORDER OF THE SECURITIES APPELLATE TRIBUNAL DATED JUNE 8, 2018 IN MISC. APPLICATION NO. 125 OF 2018 AND APPEAL NO. 469 OF 2015. IN THE MATTER OF SAMRUDDHA JEEVAN FOODS INDIA LIMITED – COMPANY CIN PAN 1. SAMRUDDHA JEEVAN FOODS INDIA LIMITED U15204PN2002PLC016950 AAICS0865N

DIRECTOR DIN PAN 2. MAHESH KISAN MOTEWAR 00054860 AKMPM3895K 3. VAISHALI MAHESH MOTEWAR 02750035 ATTPM4634Q 4. RAJENDRA PANDURANG BHANDARE 00054872 ALKPB5263D

BACKGROUND –

1.1 Securities and Exchange Board of India (“SEBI”) issued an Order dated September 2, 2015 (“Final Order”) against Samruddha Jeevan Foods India Limited (“Samruddha Jeevan”) and its Directors, viz. Mahesh Kisan Motewar, Vaishali Mahesh Motewar and Rajendra Pandurang Bhandare, for launching a ‘Collective Investment Scheme’ without obtaining Certificate of Registration from SEBI under Section 12(B) of the SEBI Act read with Regulation 3 of the CIS Regulations, 1999.

1.2 The Final Order, which was issued under Sections 11(1), 11(4) and 11B of the SEBI Act, 1992 (“SEBI Act”) read with Regulation 65 of the SEBI (Collective Investment Schemes) Regulations, 1999 (“CIS Regulations, 1999”) and Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations, 2003”), inter alia contained the following directions – “Samruddha Jeevan and its Directors, viz. Mr. Mahesh Kisan Motewar, Mrs. Vaishali Mahesh Motewar and Mr. Rajendra Pandurang Bhandare shall abstain from collecting any money from the investors or Order in the matter of Samruddha Jeevan Foods India Limited launch or carry out any Collective Investment Schemes including the schemes which have been identified as a Collective Investment Scheme in this Order. Samruddha Jeevan and its Directors, viz. Mr. Mahesh Kisan Motewar, Mrs. Vaishali Mahesh Motewar and Mr. Rajendra Pandurang Bhandare shall wind up the existing Collective Investment Schemes and refund the money collected by the said company under the 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 ...”

1.3 The Final Order was challenged by Samruddha Jeevan and its Directors before the Hon’ble Securities Appellate Tribunal (“SAT”) in Misc. Application No. 340 of 2016; Misc. Application No. 130 of 2017; Misc. Application No. 211 of 2017 and Misc. Application No. 218 of 2017 and Appeal No. 469 of 2015 – Samruddha Jeevan vs. SEBI. Vide an Order dated September 29, 2017, the Hon’ble SAT directed as under –

2. “Counsel for the appellants submit that without prejudice to their contention that the schemes floated by the company do not constitute CIS, the appellants are ready and willing to comply with the impugned order, inter alia, by refunding the amounts due to the investors in a time bound manner. 3. In these circumstances, since the appellants are ready and willing to comply with the order passed by the WTM of SEBI, we dispose of the appeal by directing the appellants to make a representation to SEBI within 4 weeks from today setting out in detail the mode and manner in which the appellants want to refund the amounts to the investors. If such a representation is made within four weeks from today, then SEBI shall consider the same and pass appropriate order there on as it deems fit and proper as expeditiously as possible. It is made clear that the attachments levied by SEBI on the assets of the appellants shall continue to be in force during the pendency of the representation and shall be subject to the order that may be passed by SEBI on the representation made by the appellants. 4. While disposing of the representation made by the appellants SEBI shall take into consideration the amount of ₹30 Crore deposited by the appellants pursuant to the Supreme Court’s Order dated 18th March, 2016. 5. Appeal is disposed of in the aforesaid terms with no order as to costs. …”

1.4 Thereafter, vide a representation dated October 26, 2017, Samruddha Jeevan and its Directors inter alia submitted – “Repayment Proposal: 1. Details of the pending/outstanding customers who are to be paid. The summarized breakup of the pending/outstanding customers who are to be paid as on 26th October, 2017 are as follows – Total number of outstanding/remaining Amount/maturity payable to those customers customers as on date (Amount in ₹) 11,97,549 122,51,79,567 *The amounts are as per the Balance Sheet of the Company for the Financial Year 2013–14, which is enclosed.

Out of the above, an amount of ₹30,00,50,103 is admittedly deposited with SEBI on 19.07.2016 in terms of the Order dated 18.03.2016 in Writ Petition (Criminal) No. 41 of 2016, passed by the Hon’ble Supreme Court.

2. Details of the Properties of the Company: As on date, the Company has several immovable properties pan India, which are attached by the CID Pune, Central Bureau of Investigation (“CBI”) Bhubaneswar, Income Tax (Pune), PF and ESI Pune and ED Mumbai in view of the SEBI Orders. The details of the properties (tentatively) of the Company as on date are enclosed… The said agencies should not have any objection to de–attach the properties in case SEBI allows the present representation.

3. Details of the Bank Accounts of the Company: We submit that all the bank accounts of the Company have been frozen by the CID Pune, CBI Bhubaneswar, Income Tax (Pune), PF and ESI Pune and ED Mumbai having reference to SEBI Orders. At present, the Company is not operating any of its Bank Accounts. The said agencies should not have any objection to de–freeze the bank accounts in case SEBI allows the present representation.

4. Repayment Process:

a. Submission of list of customers and the amounts due: The list of customers and the amounts due to them will be submitted to SEBI within three months of de–sealing of the registered office and on SEBI allowing this representation. The registered office of the company had all files and data regarding customers of the company. The said data is indispensable for repayment process. The registered office is lying sealed. The concerned agencies will not have any objection in de–sealing upon SEBI allowing this representation.

b. Generation of Cash Flow: Cash flow will be generated by the sale of immovable properties of the Company. As mentioned above, the Company would sell the immovable properties in phases and would endeavor to realise best possible sale considerations. The consideration of the sale proceeds will be deposited in an Escrow Account to be opened with a Scheduled Commercial Bank under intimation to SEBI. One of the authorised signatory will be any one of the Company’s official. The Company would require ₹13,50,00,000 for its day to day expenses and for the salary of its staff during the repayment process.

Projected Cash Flow – Particulars Amount in Rs. Receipts 1. Sale of Fixed Assets (Offices and Lands) 1,15,00,00,000 2. Sale of Crops and Allied Products 2,00,00,000 3. Deposit with SEBI 30,00,50,103 Total Receipts 1,47,00,50,103 Payments 1. Repayment to Customers 122,51,79,567 2. Administrative and Salary Expenses for Two Years 6,92,00,000 3. Assets Selling and Disposing Expenses 5,50,00,000 4. Other Miscellaneous Expenses 8,50,00,000 Total Payments 1,43,43,79,567 c. Payments to all the existing and outstanding customers. Payments to all the existing and outstanding customers as mentioned above who are to be paid as on 26th October, 2017, is proposed to be completed within 24 months from the requisite approval from SEBI and subject to realisation of cash flow from sale of properties and de–freezing of bank accounts. The Company will refund/repay the remaining 11,97,549 customers who are to be paid ₹122,51,79,567 across the country. The list of customers and the amounts due to them will be submitted to SEBI within three months of de–sealing of the registered office and on SEBI allowing this representation.

d. Administration: The Company will form a repayment committee consisting of highly reputed professionals including a CA/CS, a retired Judge/Senior Advocate and requisite people/officials of the Company to take care of the day to day administration with respect to the sale of properties of the Company and the repayment process.

Estimated No. of employees Total Estimated Salary (in ₹ per annum) 71 3,46,00,000 e. Reporting to SEBI and compliance of directions of SEBI from time to time: The Company and Repayment Committee will communicate to SEBI the process of repayment from time to time and a detailed Repayment Report will be submitted monthly, quarterly, half yearly and yearly.

f. Directors of the Company: The Company will need assistance of Mr. Mahesh Kisan Motewar and Mr. Rajendra Pandurang Bhandari who were involved in day to day affairs of the Company and have complete knowledge of its affairs and who are presently incarcerated in jail. The authorities would not have any objection for their interim release if SEBI allows the present representation.”

PERSONAL HEARING –

1.5 Upon receipt of the aforementioned representation dated October 26, 2017, an opportunity of personal hearing was granted by SEBI to Samruddha Jeevan and its Directors on March 6, 2018, which was attended by the authorised representative for the Company and its Directors. The authorised representative reiterated the submissions contained in the representation dated October 26, 2017. The authorised representative was granted one weeks’ time, to submit a reply to SEBI and also to forward all relevant documents including complete details of investors, provisional attachment Orders stated to have been passed by the CBI, etc.

1.6 Subsequently, vide an e–mail dated April 3, 2018, Samruddha Jeevan forwarded additional submissions/documents to SEBI inter alia stating – “… As per provisional attachment order passed by Deputy Director, Directorate of Enforcement MBZO- II/06/2017 vide file ECR-01/MBZO/2016/1200, which was passed on the basis of FIR No. 323 of 2015 dated 31st October, 2015 registered by SEBI in Deccan Police. It is pertinent to note that FIR no. 323 /2015 was filed by Mr. Sachin Sonawane, an A.G.M. of SEBI, Mumbai against Samruddha Jeevan and its Directors. Copy of FIR is enclosed. Approximately 96 properties having been purchased prior in time to any action or order being passed by any of the relevant authorities and having a sum total agreement value of ₹36,02,09,425/- [as on (their) respective dates of purchase] within the state of Maharashtra which (have been) attached by the Enforcement Directorate. Further, the FIR in question merely relates to an alleged incident wherein post registration of enquiry by SEBI, M/s. Axis Bank, on its own closed the operations of Samruddha Jeevan and handed over to Samruddha Jeevan a Demand draft of about ₹1 Crore. Samruddha Jeevan left with no choice had to deposit the said draft to another bank, which incident was wrongly construed by SEBI as indulgence in banking operations. SEBI had also issued a Show Cause Notice under Rule 4(3) of the SEBI (Procedure for Holding Enquiry and Imposing Penalty by Adjudicating Officer) Rules, 1995 in relation to the same dated 14.07.2014. Samruddha Jeevan submitted a reply to the show-cause Notice 0n 18.8.2014 clearly explaining the true and correct facts of the case and a hearing was also given to Samruddha Jeevan on 20.8.2015. Thereafter, no order was passed and communicated to Samruddha Jeevan and it was understood that the above explanation proved satisfactory. A copy of the abovementioned Reply under Rule 4(3) and the Reply submitted by Samruddha Jeevan are enclosed.

Samruddha Jeevan has filed a reply before Adjudicating Authority under the Prevention of Money Laundering Act, 2002 (“PMLA Act”) on 27.09.2017, for (setting) aside of order of provisional attachment. Adjudicating Authority by order dated 27.11.2017 confirmed the provisional attachment of properties by allowing the ED Complaint. Samruddha Jeevan further filed an appeal before the Hon’ble Appellate Tribunal, under PMLA Act, 2002 for grant of ex-parte ad interim stay of impugned Order Dated 27.11.2017 passed by Adjudicating Authority and the Provisional Attachment Order passed by ED dated 12.06.2017 and the same Hon’ble Appellate Tribunal has passed an order granting ex-parte ad interim stay on Provisional Attachment Order of ED on 22.02.2018. A copy of the Ad Interim stay on Provisional Attachment Order is enclosed. At the outset, we hereby state that Mahesh Kisan Motewar, Managing Director of Samruddha Jeevan and another Director, Rajendra Bhandare have been incarcerated in jail and all documents and the registered office situated at Office No.1, 1st Floor, The Forum, Satara Road, Pune, 411009 Maharashtra and corporate office situated at Landmark, F.P.576/2B, Shirole Road, opp. FC College, Shivajinagar, Pune-411005 of the company have been sealed pursuant to order passed by the CID, Pune and CBI, Bhubaneswar on the basis. The company will need assistance of Mr. Mahesh Kisan Motewar and Mr. Rajendra Pandurang Bhandari who were involved in day to day affairs of the company and have complete knowledge of its operations. Considering the abovementioned Directors are in judicial custody based on the above authorities would not have any objection for their interim release if SEBI allows the present representation.”

1.7 Thereafter, in the matter of Samridh Jeevan Welfare Society vs. SEBI [Misc. Application no. 125 of 2018 was filed in Appeal no. 469 of 2015 (refer to paragraph 1.2 at page 4 of this Order)], the Hon’ble SAT vide an Order dated June 8, 2018, directed as under –

1. “Counsel for SEBI states that SEBI would pass its order on the representation made by the appellant within a period of four weeks from today and the said statement made by counsel for SEBI is accepted. 2. In view of the above, nothing survive in the Misc. Application and the same is disposed of accordingly with no order as to costs.”

FINDINGS –

2.1 I have considered the SEBI Order September 2, 2015; the SAT Order dated September 29, 2017; the representation dated October 26, 2017 along with the e–mail dated April 3, 2018 and the documents submitted therein; the SAT Order dated June 8, 2018 and other material available on record.

2.2 It is reiterated that vide the Final Order, Samruddha Jeevan and its abovenamed Directors were inter alia restrained from collecting money from investors and directed to wind up the existing ‘Collective Investment Scheme’ and refund the money collected by the Company under the Schemes with returns which were due to the investors within the time set out therein since the Company had failed to obtain a Certificate of Registration from SEBI under Section 12(B) of the SEBI Act read with Regulation 3 of the CIS Regulations, 1999. From the Final Order, the following investment strategy offered by the Company was recorded:

“It is an admitted fact that the Company is accepting payments (lump sum or in instalments) from customers in respect of its Scheme, i.e. the purchase and rearing of goats and buffaloes. The Company enters into an Agreement for Sale and the Rearing Contract with its customers and that each of such agreements prescribes payments as mentioned therein. The application form/agreement for sale clearly mentioned that along with the purchaser there may be several co-owners of the farming animals i.e. goat/buffalo. It is also clearly mentioned that the Company has the right to establish infrastructure including office premises, farm lands, sheds, stables etc. out of the amount/returns received from the purchaser and business. As per the agreements, the purchaser would also hand over the animal/s after he becomes the absolute owner, he would give authority to a person (presumed to be the Company’s personnel) to handover the animals to the Company for rearing purpose. While entering into the agreement for sale with the company, the customer has to necessarily agree to hand over the animals to the Company for rearing. Therefore, though the Company represents that there is no compulsion on any customer to enter into as rearing contract, the customer has either to ‘take it’ or ‘leave it’ as the agreements are standardized contracts.”

2.3 The Order of the Hon’ble SAT dated September 29, 2017, while recording that Samruddha Jeevan and its Directors are ready and willing to comply with the Final Order passed by SEBI permitted the said entities to make a representation to SEBI without prejudice to their contention that the Schemes floated by the company do not constitute ‘Collective Investment Scheme’.

2.4 It is pertinent to note that the obligation to refund arising from the Final Order encompasses refund of all the money collected by Samruddha Jeevan under the Schemes with returns which are due to its investors as per the terms of offer. 2.5 As per the representation dated October 26, 2017, Samruddha Jeevan had claimed that an amount of ₹122,51,79,567 is yet to be paid to 11,97,549 investors/customers (pending/outstanding/remaining) as on October 26, 2017, in respect of its Scheme(s). Samruddha Jeevan has stated that the said amount has been arrived at “as per the Balance Sheet of the Company for the Financial Year 2013–14.” 2.6 Incidentally, upon a perusal of the aforementioned Balance Sheet (as submitted by Samruddha Jeevan), it is observed that under the head “Long Term Liabilities & Provisions”, ‘Advance from Customers (Deferred Revenue)’ as on March 31, 2014, has been recorded at ₹135,28,21,954. The Note below the said head of account reads as: “The Company’s business is to sell livestock and provide livestock farming services. The Company sells livestock on installment basis.

Sale of livestock is recognised only when all the installments due from the customer are received. Pending receipt of all the installments, amount is treated as ‘Advance from Customer’. These amounts will be transferred to Revenue on receipt of installments from the customers, which may be between 6 to 24 months.” Further, under the head “Revenue from Operations”, it is observed that as on March 31, 2014, the Company recorded a total revenue amounting to ₹572,93,15,588, of which inter alia an amount of ₹568,73,89,856 had resulted from the sale of livestock. It therefore, appears that the “Revenue from Operations” also includes the revenue received through installments from the customers/investors. 2.7 It is also observed from the Order of the Hon’ble Supreme Court of India dated March 18, 2016 in the matter of Vaishali Mahesh Motewar vs. State of Maharashtra [Writ Petition (Criminal) No. 41 of 2016], that Samruddha Jeevan had claimed that an amount of ₹127,30,77,340 was to be refunded to its customers/investors. From the Company’s Balance Sheet for the Financial Year 2013–14, it is observed that the actual liability owed by Samruddha Jeevan to its customers/investors exceeds the liability disclosed by it to the Hon’ble Supreme Court.

Further, the aforementioned Balance Sheet does not support Samruddha Jeevan’s claim in the present representation that only ₹122,51,79,567 is yet to be paid to its investors/customers. In this background and in view of the Hon’ble SAT’s Order dated September 29, 2017 read with its Order dated June 8, 2018, I now proceed to consider the representation dated October 26, 2017, as made by Samruddha Jeevan and its Directors. 2.8 In its Order dated September 29, 2017, the Hon’ble SAT while permitting Samruddha Jeevan and its Directors to make a representation to SEBI, had clearly directed that the aforementioned entities shall set out in detail “the mode and the manner in which the appellants want to refund the amounts to the investors.”

2.9 I find that the representation dated October 26, 2017, made by Samruddha Jeevan and its Directors does not detail “the mode and the manner in which the appellants want to refund the amounts to the investors” such as the present market value of the immovable properties after assessment by an independent Valuer, marketability of such immovable properties, the location and extent of immovable properties in their name, etc. from which cash flow is to be generated by the Company and which ought to have been submitted to SEBI while making its representation, have not been furnished. Further, from the representation made by Samruddha Jeevan and its Directors, it is not practically possible for SEBI to accurately ascertain inter alia the following –

 Whether all the customers/investors of Schemes launched by the Company have been identified as pending/outstanding/remaining customers for the purpose of refund?  Whether the various amount claimed as refund to be made by Samruddha Jeevan and its Directors to the stated pending/outstanding/remaining customers is genuine?  Whether the refunds are being made to the customers/investors as per the terms of the Schemes launched by the Company?

2.10 Further, in the aforementioned representation, Samruddha Jeevan has inter alia submitted that: “Payments to all the existing and outstanding customers as mentioned above who are to be paid as on 26th October, 2017, is proposed to be completed within 24 months from the requisite approval from SEBI and subject to realisation of cash flow from sale of properties and de–freezing of bank accounts”. I am of the view that permitting such a request at this stage will not be in favour of all the customers/investors of Samruddha Jeevan to whom amounts are due under the Schemes launched by the Company since March 31, 2010.

2.11 I note that Samruddha Jeevan has, without filing relevant details and modalities for repayment, indirectly sought the intervention of SEBI to get its office premises de–sealed along with the release of its two Directors, in the representation under consideration. Samruddha Jeevan is also trying to protract the actual repayment of dues to its investors/customers. I note that sufficient time has already elapsed from the date of the Final Order directing refund by the Company. As regards the reliefs sought by Samruddha Jeevan, which fall outside the scope of SEBI, it may take recourse to other legal remedies. In short, in my considered opinion, the representation made by Samruddha Jeevan and its Directors lacks bona fides and cannot be acceded to.

ORDER –

3.1 I, in exercise of the powers conferred upon me under Section 19 read with Sections 11(1), 11(4) and 11B of the SEBI Act read with Regulation 65 of the CIS Regulations, 1999 and Regulation 4(2)(t) of the PFUTP Regulations, 2003, hereby dispose of the representation dated October 26, 2017 read with the e–mail dated April 3, 2018 along with the additional documents filed by Samruddha Jeevan and its Directors in accordance with the findings contained in paragraphs 2.2–2.11 of this Order.

Place: Mumbai G. MAHALINGAM Date: July 02, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA