Order in the matter of STPL Infrastructures Limited & Ors

WTM/RKA/EFD/167/2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTIONS 11(1), 11(4), 11A AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN RESPECT OF STPL INFRASTRUCTURES LIMITED (CIN: U45200MP2011PLC026185; PAN:AARCS4721N) AND ITS DIRECTORS, VIZ. SHRI ARINDAM SARKAR (DIN:02535319; PAN:ATPPS1339A), SHRI SWAPAN NANDI (DIN:02718205; PAN:ACGPN6147D), SHRI DULAL CHATTERJEE (DIN:02720692; PAN:AFSPC3069C) AND ITS DEBENTURE TRUSTEE, VIZ. STPL DEBENTURE TRUST (REPRESENTED BY SHRI AMIT BISWAS) 1. Securities and Exchange Board of India (“SEBI”) conducted a preliminary inquiry into the issuances ofdebentures by STPL Infrastructures Limited (hereinafter referred to as 'SIL' or 'the company') with a view to ascertain the possible non-compliances with the public issue norms stipulated under the provisions of Companies Act, 1956/2013 and other applicable laws including the SEBI Act and SEBI Regulations/Guidelines.Pursuant to the preliminary inquiry, SEBI passed an ad interim ex parte order dated June 5, 2015 (hereinafter referred to as “interim order”) in respect of SIL, its directors viz. Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjee and its Debenture Trustee, viz. STPL Debenture Trust (represented by Mr. Amit Biswas), inter alia, in view of the following: “ … iv.

A perusal of Form 10 shows that debenture issue was of ₹50 crores. In this regard, charge of ₹50 crores was created on the properties of SIL on June 20, 2011 and the charge holder is STPL Debenture Trust. The Form 10 was signed by Shri Amit Biswas, as Debenture Trustee. v. It is noted from the copy of Trust Deed found enclosed with the reply of SIL to RoC that a Debenture Trust Deed dated June 20, 2011 was signed between SIL and the Debenture Trustee. In the Trust Deed, it is indicated inter alia “the company have decided by a resolution passed by the Board of Directors in the meetings of the Board held on June 17, 2011 & June 20, 2011 to raise a sum of Rs.50 crores by issue of Debentures of Rs.100/- each, bearing interest as specified in Schedule I framed in accordance with the forms set forth in the Schedule II hereto and secures the same by mortgaging with the trustees the properties described in the Schedule III hereto.” vii. In Schedule III of the Debenture Trust Deed, all the present and future assets of the company wherever situated were mortgaged to secure the Debenture. viii.

As per SIL’s reply to RoC vide letter dated December 28, 2012, SIL inter alia informed that : Order in the matter of STPL Infrastructures Limited “Modus Operandi of Collection of Funds: The Debenture has been placed within closely held groups without any contravention of any relevant Sections and no offer has been made to more than 49 persons at any point of time, neither the Debenture has been offered to public. List of Allottees: List of allottees till 31/10/2012 has been attached as “Annexure-A”. Funds Collected: Total Collection of Funds till 31/10/2012 is Rs.48,91,000.00” ix. A perusal of the copy of Extracts of the Meeting of the Board of Directors of the Company held on 17.06.2011 inter alia states, “Resolved that the board of directors be and is hereby authorized and shall be deemed to have always been so authorized to raise or borrow from time to time at its discretion by issue of secured redeemable non-convertible debentures of Rs.100/- each upto a limit of Rupees Fifty Crores….” x. As per the List of Allottees submitted by SIL, the amount mobilized was₹48,91,000/- and the number of allottees were as follows: Sr.No.

Date of allotment Number of allottees x 1 15/07/2012 20 i 2 25/07/2012 33. 3 31/07/2012 21 4 15/08/2012 43 5 25/08/2012 37 A 6 30/08/2012 33 s 7 31/08/2012 18 8 15/09/2012 24 p 9 25/09/2012 38 10 29/09/2012 29 e 11 30/09/2012 32 r 12 15/10/2012 46 13 25/10/2012 36 t 14 30/10/2012 30 15 31/10/2012 28 h Total 468 e details mentioned above, SIL had allotted Non-Convertible Redeemable Secured Debentures("Offer of NCDs") amounting to approximately₹48.91 Lakhs during the financial year 2012-13to 468 investors.” 2. By the interim order following interim directions were issued against SIL, its directors and its Debenture Trustee: Order in the matter of STPL Infrastructures Limited “i. SIL shall forthwith cease to 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. SIL(CIN:U45200MP2011PLC026185; PAN:AARCS4721N) and its Directors, viz. Shri Arindam Sarkar (DIN:02535319; PAN:ATPPS1339A), Shri Swapan Nandi (DIN:02718205; PAN:ACGPN6147D), Shri Dulal Chatterjee (DIN:02720692; PAN:AFSPC3069C)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.

SIL 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. SIL shall provide a full inventory of all its assets and properties; v. SIL's abovementioned Directors shall provide a full inventory of all their assets and properties; vi. SIL and its abovementioned Directors shall not dispose of any of the properties or alienate or encumber any of the assets owned/acquired by that company through the Offer of NCDs, without prior permission from SEBI; vii. SIL and its abovementioned 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 SIL; viii. SIL shall provide to SEBI all information regarding repayments made to the holders of Non- Convertible Redeemable Secured Debentures including name of the debenture holder, address, amount mobilized, number of Non-Convertible Redeemable Secured Debentures issued, promised maturity amount with date of maturity, amount refunded and date thereof; ix.

SIL shall furnish complete and relevant information within 21 days from the date of receipt of this Order; x. The Debenture Trustee, viz. STPL Debenture Trust (represented by its Trustee, viz. Shri Amit Biswas), is prohibited from continuing with its present assignment as a debenture trustee in respect of the Offer of NCDs of SIL 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. Vide the interim order, SIL and its directors were called upon to show cause as to why suitable directions/prohibitions under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act”) including the following, should not be taken/imposed against them: “i. Directing them jointly and severally to refund money collected through the Offer of Non-Convertible Redeemable Secured Debentures along with interest, if any, promised to investors therein;

Order in the matter of STPL Infrastructures Limited ii. Directing them not to issue prospectus or any offer document or issue advertisement for soliciting money from the public for the issue of securities, in any manner whatsoever, either directly or indirectly, for an appropriate period; iii. Directing them to refrain from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period.” 4. Further, STPL Debenture Trust (represented by its Trustee, viz. Shri Amit Biswas) was also called upon to show cause as to why suitable directions/prohibitions under sections 11(1), 11(4), 11A and 11B of the SEBI Act including restraining it from accessing the securities market and further restraining it from buying, selling or dealing in securities, in any manner whatsoever, for an appropriate period should not be issued. 5. Interim order in the matter was passed on June 5, 2015 and was hosted on SEBI’s website. The interim order was also sent to the entities through RPAD on the addresses available on record, however, the same returned undelivered from the address of SIL and its directors and no delivery / return acknowledgement was received from the address of STPL Debenture Trust (represented by its Trustee, viz. Shri Amit Biswas).

As mentioned in paragraphs 18 and 20of the interim order, SIL, its directors and STPL Debenture Trust (represented by its Trustee, viz. Shri Amit Biswas) were required to file their replies to the interim order within 21 days from the date thereof. None of the entities filed any reply in the matter during the said period of 21 days or thereafter. In the interest of natural justice, an opportunity of personal hearing was also provided to them on September 20, 2016, the notice whereof was sent to the entities vide letters dated August 24, 2016. The said information regarding the date of hearing was also published on August 28, 2016 in one leading vernacular newspaper (Anand Bazar Patrika) and one leading National English newspaper (Times of India). However, all the entities failed to avail the opportunity of hearing on September 20, 2016. Considering the above, I am of the view the principles of natural justice have been complied with in these proceedings. I also find that that sufficient opportunities to file reply/submissions and appear for personal hearing have been provided to the entities and this matter should now be disposed of on the basis of the material available on record.

6. I have considered the interim order, the allegations levelled against SIL, its directors and STPL Debenture Trust (represented by its Trustee, viz. Shri Amit Biswas)and the material available on record. The prima facie observations contained in the interim order were made on the basis of the material available on record i.e. the reference received from RoC, Gwalior and information/documents provided by RoC, Gwalior, correspondence exchanged between SEBI, SIL and its Directors and Order in the matter of STPL Infrastructures Limited information/documents obtained from the Ministry of Corporate Affairs' website i.e. 'MCA 21 Portal'.

7. The core allegation in the interim order is that SIL made a “public issue” of NCDs without complying with provisions of law regulating such public issues i.e. sections 56, 60, 73, 117B and 117C of Companies Act, 1956 and regulations 4(2)(a), 4(2)(b), 4(2)(c), 4(2)(d), 4(3),4(4), 5(2)(b), 6, 7, 8, 9, 12, 14, 15, 16, 17, 19 and 26 of Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter referred to as “ILDS Regulations”). 8. As noted in the interim order,during the period FY 2012-13, SIL had issued NCDs to 468 investors and had mobilized ₹48.91 Lakh. The particulars of allotments are as under. Sr.No. Date of allotment Number of allottees 1 15/07/2012 20 2 25/07/2012 33 3 31/07/2012 21 4 15/08/2012 43 5 25/08/2012 37 6 30/08/2012 33 7 31/08/2012 18 8 15/09/2012 24 9 25/09/2012 38 10 29/09/2012 29 11 30/09/2012 32 12 15/10/2012 46 13 25/10/2012 36 14 30/10/2012 30 15 31/10/2012 28 Total 468

9. The findings of the interim order have not been disputed by any of the entities.Undisputedly, SIL issued NCDs amounting to ₹48.91 lakh during the period FY 2012-13 to 468 investors. Thus, by virtue of the proviso to section 67(3) of the Companies Act, 1956, the issuances of NCDs by SIL were public issues. In this regard, it is important to mention that all the controversies with regard to questions such as whether an offer to 50 persons or more is a public issue or private placement, SEBI's jurisdiction on issuance of securities including NCDs, intention/obligation to list such securities, etc. have been settled by the Hon'ble Supreme Court in its judgment and order dated August 31, 2012 in the matter of Sahara India Real Estate Corporation Limited &Ors. Vs SEBI &Anr. - Civil

Order in the matter of STPL Infrastructures Limited

Appeal No. 9813 and 9833 of 2011[(2013) 1 SCC 1] (hereinafter referred to as “the Sahara Order"). 10. I note that since the issuances of NCDs by SILduring the period FY 2012-13were public issues, it ought to have complied with the applicable provisions of the Companies Act, 1956 (read with the corresponding provisions of Companies Act, 2013) and ILDS Regulations as noted in the interim order. In the present case, there is no dispute as to the fact that SIL, while making the aforesaid “public issues” of NCDs, had not complied with the provisions of sections 56, 60, 73, 117B and 117C of the Companies Act, 1956, regulations 4(2)(a), 4(2)(b), 4(2)(c), 4(2)(d), 4(3), 4(4), 5(2)(b), 6, 7, 8, 9, 12, 14, 15, 16, 17, 19 and 26 of ILDS Regulations. Since the requirements of these applicable provisions and the relevant observations of the Hon’ble Supreme Court in the Sahara Order have been clearly stipulated in the interim order, I do not deem it necessary to reiterate the same and burden this order with the same findings. 11. In terms of section 291 of the Companies Act, 1956, the Board of Directors of a company shall be entitled to exercise all such powers and do all such acts and things as the company is authorized to exercise and do.

Therefore, the Board of Directors being responsible for the conduct of the business of a company are liable for any non-compliance of law and such liability shall be upon the individual directors also. Section 56(1) and 56(3) read with section 56(4) imposes the liability for the non-compliance of the said provisions, on the company, every director, and other persons responsible for the issuance of the prospectus. The liability for non-compliance of section 60 of the Companies Act, 1956 is on the Company, and every person who is a party to the noncompliance of issuing the prospectus as per the said section. Further, the directors of a company are also liable for action in case of contravention of the ILDS Regulations. 12. There is no dispute as to the fact that Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjee were the directors of SIL at the time when SIL authorized the issuances of NCDs to 468investors. The board of directors of SIL at the time of the above mentioned issuances of NCDs being in control of their affairs, was under an obligation to ensure that these issuances were in compliance with all the applicable provisions of the Companies Act, 1956 and SEBI Act/Regulations/Guidelines.

In my view, the above named directors of SILat the time of the above mentioned issuances are also "officers in default" as defined under section 5 of the Companies Act, 1956 read with section 2(60) of the Companies Act, 2013. I, therefore, find that the above named directors of SILare also responsible for its acts and omissions in this case.

Order in the matter of STPL Infrastructures Limited

13. Considering the above, I find that in respect of the issuances of NCDs by SILduring the financial year 2012-13, SIL and its directors have failed to comply with the above-mentioned provisions of Companies Act, 1956 (read with the corresponding provisions of Companies Act, 2013) and ILDS Regulations. 14. It is important to mention that one of the consequence of the aforesaid non-compliance/violations is refund/repayment of subscription money to the allottees with interest as provided in section 73read with section 56 of the Companies Act, 1956. With regard to liability to pay interest on the subscription money, I note that as per section 73 (2) of the Companies Act, 1956 read with section 40(3)(b) of the Companies Act, 2013, the company and every director of the company who is an officer in default is jointly and severally liable, to repay all the money with interest at prescribed rate. In this regard, I note that in terms of rule 4D of the Companies (Central Government's) General Rules and Forms, 1956 read with rule 3(c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, the rate of interest prescribed in this regard is 15%. Accordingly, the SIL and its directors namely, Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjee are liable to pay interest to the allottees at such statutory rate of interest.

15. As per Form 0provided by the RoC, a charge of ₹50 crore was created on the properties of SIL on June 20, 2011 and the charge holder was STPL Debenture Trust. The Form 10 was signed by Shri Amit Biswas, as Debenture Trustee.Further, it is noted from the copy of Trust Deed found enclosed with the reply of SIL to RoC that a Debenture Trust Deed dated June 20, 2011 was signed between SIL and the Debenture Trustee. It is an undisputed fact that during the time of impugned issues and allotment of NCDs, STPL Debenture Trust /Mr. Amit Biswaswas acting as the Debenture Trustee of SIL and Mr. Amit Biswaswas responsible for the affairs of STPL Debenture Trust at the relevant point of time. It is also an undisputed fact that STPL Debenture Trust /Mr. Amit Biswashas never been registered with SEBI as a debenture trustee and that it acted on behalf of SIL as a debenture trustee. In view of the above, I find that STPL Debenture Trust (represented by its trustee, viz. Mr. Amit Biswas) has acted as an unregistered Debenture Trustee in violation of section 12(1) of the SEBI Act read with regulation 7 of SEBI (Debenture Trustees) Regulations, 1993. 16. In view of the foregoing, I, in exercise of the powers conferred upon me under sections 11, 11(4), 11A and 11B read with section 19 of the SEBI Act, hereby issue the following directions: i. SIL and its directors viz. Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjee shall within a period of three months from the date of this order, jointly and severally Order in the matter of STPL Infrastructures Limited refund the money collected through issuances of NCDs to the investors 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. ii.

Such refund shall be made only in cash through a Demand Draft or Pay Order. iii. SIL and its directors viz. Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjeeshall within fifteen days from the date of this Order submit to SEBI complete details of their assets (alongwith proofs thereof) certified by a peer reviewed Chartered Accountant. iv. SIL and its directors viz. Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjeeare permitted to sell the assets of the company and deposit the sale proceeds in an Escrow Account opened with a nationalized bank. Such proceeds shall be utilized for the sole purpose of making refund/repayment to the investors (holders of debentures) till the full refund/ repayment as directed above is made. v. SIL and its directors viz. Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjeeshall issue a public notice, in all editions of one English national daily and one vernacular daily with wide circulation, detailing the modalities for refund, including details of contact persons including names, addresses and contact details, within fifteen days of this order. vi.

Within seven days of completion of refund/repayment as directed hereinabove, SIL and its directors viz. Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjeeshall file a certificate of such completion with SEBI from two independent peer reviewed Chartered Accountants who are in the panel of any public authority or public institution. Such certificate shall be issued by the Chartered Accountants after verifying the relevant documents including bank accounts of the said entities and satisfying themselves that the refund has actually been made. vii. For the purpose of this order, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India. viii. SIL and its directors viz. Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjeeare restrained from, directly or indirectly, accessing the capital market by issuing prospectus, any offer document or advertisement soliciting money from the public and are further prohibited from buying, selling or otherwise dealing in the Order in the matter of STPL Infrastructures Limited securities market, directly or indirectly, in whatsoever manner for a period of four years or till the date of refund of money to the investors (holders of NCDs) whichever is later. ix.

Mr. Arindam Sarkar, Mr. Swapan Nandi, Mr. Dulal Chatterjeeare also restrained from associating themselves with any listed public company and any public company which intends to raise money from the public, for a period of four years or till the date of refund of money to the holders of NCDs, whichever is later. x. STPL Debenture Trust and Mr. Amit Biswas are also prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly, in whatsoever manner for a period of four years. xi. For the purposes of paragraphs 16(viii), 16(ix) and 16(x) the period of restraint shall be counted from the date of the interim order. 17. The interim order cum show cause notice dated June 5, 2015 is disposed off accordingly. The above directions are without prejudice to the right of SEBI to take any other appropriate action for the violations found in this case or to initiate any action in case of failure to comply with the above directions, in accordance with the provisions of applicable laws including the proceedings under the provisions of section 28A of the SEBI Act.

18. The order shall come into force with immediate effect. A copy of this Order shall be forwarded to the recognized stock exchanges and depositories for information and necessary action. 19. 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.

Sd/-

DATE: October 27th, 2016 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in the matter of STPL Infrastructures Limited

Order in the matter of STPL Infrastructures Limited