Order in the matter of Sukhchain Hire Purchase Limited

WTM/PS/48/EFD/JUNE/2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 In the matter of Sukhchain Hire Purchase Limited In respect of: 1. Sukhchain Hire Purchase Limited [PAN: AAGCS6659C], 2. Mr. Malwinderwant Singh [PAN: ALSPS7699N], 3. Mr. Sukhraj Bahadur Singh [PAN: AQVPS7675N], 4. Ms. Vijay Laxmi Kathait [PAN: ALLPK5580D], 5. Mr. Jitendra Singh Gurjar [PAN: ALZPG7304F], 6. Mr. Guriqbal Singh Bhullar [PAN: AAQPB6799M], 7. Mr. Harpreet Singh [PAN: BCSPS6136G], 8. Ms. Harjit Kaur Bhullar [PAN: AARPB9746R], 9. Mr. Abhay Shukla [PAN: AQZPS7964C], 10. Mr. Vishwanathan Iyer [PAN: AADPI3574N], 11. Mr. Akshay Tiwari [PAN: ACNPT2976P] and 12. Mr. Hemant Sahu. Date of Hearing: January 15, 2016 Appearances: Mr. Vishwanathan Rajesh Iyer, Director appeared for the Company and other directors along with Mr. Dinesh Gupta, C.S.; Mr. R.S. Loona, Advocate and Mr. Abhishek Borgikar, Advocate For SEBI: Ms. Anitha Anoop, General Manager; Mr. Pradeep Kumar, Assistant General Manager and Mr. Vipul Jain, Manager. 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), vide an ex-parte interim Order dated February 11, 2015 (hereinafter referred to as ‘the interim order’) had observed that the company, Sukhchain Hire Purchase Limited (hereinafter referred to as ‘Sukhchain’ or ‘the Company’) is prima facie engaged in fund mobilising activity from the public, by making offer and issuing Secured Redeemable Non- Convertible Debentures (hereinafter referred to as ‘NCD’) and had allegedly violated the provisions of Sections 56, 60 [read with Section 2(36)], 73, 117B and 117C of the Companies Act, 1956 and the relevant provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (hereinafter referred to as ‘the ILDS Regulations’). The interim order also alleged that Mr. Hemant Sahu had allegedly failed to meet the eligibility conditions specified under the SEBI (Debenture Trustees) Regulations, 1993 (hereinafter referred to as ‘DT Regulations’) and acted as an unregistered debenture trustee in violation of Section 12(1) of the SEBI Act, 1992 (hereinafter referred to as ‘SEBI Act’).

2. In order to protect the investors who have subscribed to the impugned offer and issue of NCDs and to prevent the Company from further carrying on with its fund mobilizing activity under the offer of NCDs, SEBI had issued the following directions: “… … 17. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11(1), 11(4), 11A and 11B of the SEBI Act read with the Debt Securities Regulations and the Debenture Trustee Regulations, hereby issue the following directions – i. SHPL 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. SHPL and its Directors, viz. Mr. Malwinderwant Singh (DIN: 639523, PAN: ALSPS7699N), Mr. Sukhraj Bahadur Singh (DIN: 659193, PAN: AQVPS7675N), Mrs. Vijay Laxmi Kathait (DIN: 2548164, PAN: ALLPK5580D), Mr. Jitendra Singh Gurjar (DIN: 2548187, PAN: ALZPG7304F), Mr. Guriqbal Singh Bhullar (DIN: 3028807, PAN: AAQPB6799M), Mr. Harpreet Singh (DIN: 758659, PAN: BCSPS6136G), Mrs. Harjit Kaur Bhullar (DIN: 02939598, PAN: AARPB9746R), Mr. Abhay Shukla (DIN: 2891493, PAN: AQZPS7964C), Mr. Vishwanathan Iyer (DIN: 2952081, PAN: AADPI3574N), Mr. Akshay Tiwari (DIN: 5108463, PAN: ACNPT2976P) 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.

SHPL 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. SHPL shall provide a full inventory of all its assets and properties; v. SHPL's abovementioned Directors shall provide a full inventory of all their assets and properties; vi. SHPL 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. SHPL 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 SHPL;

viii. SHPL shall furnish complete and relevant information within 21 days from the date of receipt of this Order. ix. The Debenture Trustee, viz. Mr. Hemant Sahu, is prohibited from continuing with his present assignment as a debenture trustee in respect of the Offer of NCDs of SHPL 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. 18. The above directions shall take effect immediately and shall be in force until further orders. … 21. This Order is without prejudice to the right of SEBI to take any other action that may be initiated against SHPL and its abovementioned Directors; its Debenture Trustee, viz. Mr. Hemant Sahu, in accordance with law.” 3. The interim order observed that the prima facie observations made therein were on the basis of the information/ documents obtained from the ‘MCA-21’ portal and the correspondences exchange between SEBI and the Company along with the documents contained therein. The interim order advised the Company and its directors and the debenture trustees to file their replies within 21 days from the date of its receipt and also seek an opportunity of personal hearing.

4. The copy of the interim order was forwarded to the Company, its directors namely Mr. Malwinderwant Singh, Mr. Sukhraj Bahadur Singh, Ms. Vijay Laxmi Kathait, Mr. Jitendra Singh Gurjar, Mr. Guriqbal Singh Bhullar, Mr. Harpreet Singh, Ms. Harjit Kaur Bhullar, Mr. Abhay Shukla, Mr. Vishwanathan Iyer and Mr. Akshay Tiwari and the debenture trustee namely Mr. Hemant Sahu vide letter dated February 12, 2015. The letter issued to Mr. Akshay Tiwari had returned undelivered.

5. The Company, Mr. Vishwanathan Iyer, Mr. Abhay Shukla and Mr. Akshay Tiwari (vide common letter dated March 03, 2015); Mr. Malwinderwant Singh (vide letter dated March 03, 2015); Mr. Sukhraj Bahadur Singh (vide letter dated March 03, 2015); Ms. Vijay Laxmi Kathait (vide letter dated March 03, 2015); Mr. Jitendra Singh Gurjar (vide letter dated March 03, 2015) and Mr. Hemant Sahu (vide letter dated March 03, 2015) while replying to the letters of SEBI, requested for copies of certain documents and extension of four weeks’ for replying to the interim order. Ms. Harjit Kaur vide her letter dated March 24, 2015 replied to the interim order and submitted that she had become a director in the Company along with her late husband Mr. Guriqbal Singh

Bhullar (who passed away on November 11, 2011), however, due to the serious illness of her husband, she had resigned from the Company on January 20, 2010.

6. Mr. Vishwanathan Iyer vide his another letter dated April 07, 2015, again requested for the documents as sought vide letter dated March 03, 2015. Thereafter, the documents as sought were provided by SEBI vide letter dated April 23, 2015. Later, the Company, Mr. Vishwanathan Iyer, Mr. Abhay Shukla, Mr. Akshay Tiwari, Ms. Vijay Laxmi Kathait, Mr. Jitendra Singh Gurjar, Mr. Malwinder Singh, Mr. Harpreet Singh and Mr. Sukhraj Bahadur Singh vide common letter dated May 27, 2015, replied to the interim order.

7. Mr. Vishwanathan Iyer vide his letters dated July 15, 2015 and December 10, 2015, requested for an opportunity of personal hearing. Accordingly, an opportunity of personal hearing was granted to the Company and its directors on January 15, 2016. On the date fixed, Mr. Vishwanathan Iyer, director appeared along with the representatives namely Mr. R.S. Loona, Advocate; Mr. Abhishek Borgikar, Advocate; Mr. Dinesh Gupta, Company Secretary for the Company, Mr. Malwinderwant Singh, Mr. Sukhraj Bahadur Singh, Ms. Vijay Laxmi Kathait, Mr. Jitendra Singh Gurjar, Mr. Harpreet Singh, Mr. Abhay Shukla, Mr. Vishwanathan Iyer and Mr. Akshay Tiwari and the debenture trustee namely Mr. Hemant Sahu. The representatives made oral submissions and filed the written submission dated January 15, 2016, which was taken on record.

Ms. Harjit Kaur remained absent, considering that reasonable opportunities have already been afforded for making submissions in the matter, I am inclined to proceed further with the matter, on the basis of merits of the case.

8. The submissions of the Company, Mr. Vishwanathan Iyer, Mr. Abhay Shukla, Mr. Akshay Tiwari, Ms. Vijay Laxmi Kathait, Mr. Jitendra Singh Gurjar, Mr. Malvinder Singh, Mr. Harpreet Singh and Mr. Sukhraj Bahadur Singh, made vide letter dated May 27, 2015, December 10, 2015 and January 15, 2016, in brief are as under:

a. Sukhchain was incorporated on May 15, 1995, with the Registrar of Companies (RoC), Punjab, Himachal Pradesh and Chandigarh. Thereafter, the registered office of the Company was shifted to Madhya Pradesh and is now being regulated by RoC, Gwalior. The Company is an ‘asset finance company’ and also registered with the Reserve Bank of India (hereinafter referred to as ‘RBI’) as a Non-Banking Financial Company (hereinafter referred to as ‘NBFC’) vide registration number A 06 00514. The Company is engaged into financing of commercial vehicles, supporting productive/ economic activity. The business model of an NBFC is different from that of a manufacturing company or a trading company because the main business of an NBFC is to raise funds from its promoters or investors by private placement and to deploy such funds by way of loans or investments in the securities. b. The Company had issued NCDs at different occasions on private placement basis. Every private placement issue was strictly made in compliance with the provisions of sub section (3) of Section 67 of Companies Act, 1956 and guidelines and directions issued by RBI in this regard.

RBI vide its circular bearing no. RBI/2013-14/115 DNBS(PD) CC No. 349/03.10.10.001/2013-14 dated July 2, 2013 has clarified ‘private placement’ for issuance of NCDs as ‘Private Placement means non public offering of NCDs by NBFCs to such number of select subscribers and such subscription amounts as may be specified by the Reserve Bank of India’. c. It is an established position of law that the number of 50 investors is relevant for each private placement issue and hence aggregate number of investors in more than one issue can exceed 50 without breaching the limit specified in the first proviso to Section 67(3) of the Companies Act, 1956. In any case, the limit of 50 investors is not applicable in case of the Company which is an NBFC in view of the second proviso to Section 67(3). d. As the Company is an NBFC registered with RBI, its activities are regulated by RBI pursuant to the RBI Act, 1934 and the guidelines/ circulars issued by RBI from time to time. The Company has been reporting regularly to RBI about the issue of debentures in quarterly returns. RBI vide its circular dated June 27, 2013, has issued certain directions in respect of the issues of NCDs, on private placement basis.

The said RBI circular dated June 27, 2013 provided for the first time restriction on maximum number of investors to 49 and further stipulated a time gap of at least six months between two private placements. RBI has however subsequently withdrawn its directions in respect of six months’ time gap vide its circular dated July 02, 2013. In other words, NBFCs can come out with offers for private placement more frequently to augment their resources for investment or lending. e. It is clear from the RBI Circulars that RBI is regulating the issuance of securities by NBFCs under private placement. Being an NBFC, the Company has complied with all the regulatory requirements prescribed by RBI from time to time. Even the details of issuance of NCDs were timely informed to RBI and RBI has never raised any query in respect of issuance of such NCDs. The limit of 49 persons has now been increased to 200 for the financial year vide RBI’s circular dated February 20, 2015. f. The Company had made its last NCD allotment on May 20, 2013, i.e. before the RBI circular dated June 27, 2013 and further, the Company has never made an allotment of NCDs to fifty or more persons in any one offer even before the restriction of maximum forty-nine investors was brought into force vide RBI Circular dated June 27, 2013. g. A company is entitled to come out with private placement issues from time to time and in such a scenario the aggregate number of investors taken together in all such issues can exceed 50 without committing any breach of Section 67(3).

RBI has also clarified this position in its circulars while advising the NBFCs to keep minimum space of six months between two offers of private placement. The Company had come out with 21 separate series of private placement issues running from series ‘A’ to ‘V’ during the financial years 2010-11, 2011-12, 2012-12 and 2013-14 (till June 18, 2013). All these series of private placement were having less than 50 allottees and the said series also had different issue opening dates as well as allotment dates. The interim order has proceeded on wrong assumption of law that in all the 21 separate series of issues made by the Company exceeded fifty persons. h. Every issue of the Company was subscribed by the persons to whom the offer was made and the same was not available for subscription/ purchase by persons other than those receiving the offer/ invitation. The offer was made to particular persons and not to public at large. Further, the private placement issues were of domestic concern of the persons making and receiving the offer/ invitation which was made to the friends, relatives, associates, shareholders and customers of the Company/ Company’s management/ employees.

The top right side corner of the application clearly states ‘Private and Confidential not for circulation’ and further the tag line states ‘Private Placement of Flexi Bonds in the nature of Secured Redeemable Non-Convertible Debentures’. Further point no. 1 for instructions for filing application form clearly provides that: ‘This offer is being made on private placement basis and cannot be accepted by any other person that to whom it has been offered. Further, this offer cannot be transferred of renounced’. The same shows that the offer was made to particular person only and not to public at large. i. The object of procuring the information from an investor as to whether he is an individual, trust, corporate body, professional, etc. is as per the requirement of compliance with KYC norms. The space provided for ‘other’ is for determining the category/ status of those applicants who may not fall in any of the headings specified in the form (such as trust corporate body, professional, etc.). The same does not mean that such persons are from general public or not known to the Company/ its management.

All friends, relatives and associates had to provide their status/ occupation as a part of KYC compliance. The said column had been duly filled in the application forms by the applicants, wherever applicable. j. The investors were pre-determined by the Company’s management and the invitation for subscription to the NCDs was made only to such investors. Broadly the procedure followed by the Company in this regard, was as under: - The Company would pre-determine the investors who were known to the Company, its promoters, management of its employees. Such investors were either the customers of the Company or the customers of wife/ father of Mr. V. Rajesh Iyer (CEO and Executive Director of the Company), or friends, relatives or associates of Mr. V. Rajesh Iyer or his wife/ father or director of the Company, or friends, relatives or associates of Mr. Abhay Shukla, Executive Director or friends, relatives or associates of the employees. - The Directors would convene a Board Meeting authorizing the issue of NCDs. The Company would request an empanelled ‘Business Associate’ (referred to as ‘Broker’ in the interim order) to meet such investor for the purpose of explaining the features of NCDs and seek his consent for investment.

As per the terms of appointment, the Business Associate was not entitled to approach any other investor. The relevant clause of the terms and conditions of appointment letter, read as under : ‘The Business Associate agrees to carry out such direction and SHPL may from time to time, issue instructions in this regard. The Business Associate agrees to explain the market risks, investment risks, investment objectives and the special feature of the Company’s scheme to the investors. In case of issue of securities on private placement basis. SHPL shall provide the list of persons identified for the said purpose of private placement and Business Associate’s role shall be limited to contact such persons and explain to them the terms and conditions of such issue. In case of public deposit schemes, Business Associate can approach to the public.’ - All the investors were contacted personally by the Company’s management and no advertisement or circular was issued to the general public. - In the case of private placement it is not mandatory that invitation letters or offer documents be sent to the proposed allottees.

The prospective allottees (who were friends, relatives and associates) were first contacted by the Company’s management and thereafter given the application form along with the terms and the conditions of the issue and instructions for filling the application form. Once the investor has shown his interest in investing in the NCDs issued by the Company, the Company would deliver the application form for such investor. k. It is permissible by law to avail the services of a broker in private placement issue and mere use of such broking services does not convert the private placement into a public offer. Further, mere engagement of brokers does not convert private placement issue into a public offer if the proposed allottee to whom the broker contacts falls within the category of friends, relatives and associates and who can only be allotted the shares or NCDs. The Company, had availed the service of only 24 ‘business associates’ which were also friends/ associates/ relatives of Mr. V. Rajesh Iyer/ Mr. Abhay Shukla/ Company’s employees living in vicinity of Bhopal. The brokerage was paid to such persons for the services rendered to the Company as per the applicable norms. l. Being the secured NCDs, the Company had duly executed the Trust Deed and charge was created in favour of ‘independent trustee’ as per the RBI directions and the same was registered with the RoC within the stipulated time.

The trust deed also specifically provides that the Debentures have been issued on private placement basis to select group of person with no right either to renounce or transfer the offer. m. All the debenture holders are relatives, friends and associates of directors, promoters and employees of the Company who have vast experience in various financial services for more than 20 years and enjoy good reputation in the society. Mr. D. Vishwanathan, father of Mr. V. Rajesh Iyer, CEO and Executive Director of the Company, was a BHEL employee who after his retirement started working as FD agent for various companies (including Shriram Group Companies). Being a BHEL employee he knew many BHEL employees and their relatives. In the same manner, Late Mr. P.R. Shukla, father of Mr. Abhay Shukla was also an employee of BHEL. Mr. Abhay Shukla had earlier acted as an agent and in that capacity he had connected many of his father’s friends, who had invested their money in various organization including LIC, Post Office, Mutual Funds, GIC and Shriram Group of Companies. Some of such clients had also invested in the Company’s private placement issues of NCDs.

Few investors in the Company’s NCDs are also relatives of or closely known to the employees of the Company. All the NCD holders of the Company are from Bhopal (except three persons who are from Betul, MP and Mumbai) and of the 234 debenture holders, 155 are ex-BHEL/ BHEL/ relatives of BHEL employees. Even all the ‘business associates’ of the Company who contacted the investors are either family members/ close friends of Mr. V. Rajesh Iyer/ Mr. Abhay Shukla/ employees of their family members. n. The NCD holders have business and personal relations with the promoters, directors and employees of the Company and are in contact with them. Many of the debentures holders are also the shareholders of the Company. They had shown their interest to invest in the Debenture Scheme issued by the Company. The Company had offered them to subscribe to the debentures only after expression of interest by these persons as per the conditions of the application form. o. After SEBI’s order dated February 11, 2015, the Company had approached the debenture holders and majority of the debenture holders had provided duly notarized letters addressed to SEBI, confirming their association with the promoters/ directors.

Out of the total 234 debenture holders, the Company has procured ‘Declaration cum Confirmation’ from 228 debenture holders. Out of the remaining 6 debenture holders, 3 have expired, 2 are out of station and 1 is hospitalized. The Company along with its submission has given details of relationship of each and every NCD holder. p. As per the interim order, 552 application were received from 425 persons in all the private placements made by the Company. However, there were only 234 persons for 522 applications, as several of them appearing as investors/ application in the subsequent private placement issues were repeaters and not the first time investors. Out of the said 234 investors, 139 persons had invested only once in the debentures issued by the Company. The remaining 95 investors had invested repeatedly in different issues of the Company and they have been counted more than once. q. In a period of about 3 years, very few persons have invested in the debentures schemes of the Company and the outstanding amount as on March 31, 2015 is `4,93,59,000 payable to only 148 debenture holders.

Every offer of private placement under specific series was approved by the board of Company. There is no complaint/ document on record to show that the Company had issued NCDs to the persons to whom the offer was not made. The Company’s board resolution clearly identified its friends, relatives and associates as the proposed allottees and consequently the allotments were only made to such persons. r. The communication dated December 12, 2012, received by SEBI from Ministry of Finance is merely a forwarded copy of anonymous complaint received by a Member of Parliament and such complaint had no specific allegation against the Company. The Company’s name was mentioned in the anonymous letter by way of general/ passing reference. The letter dated October 29, 2013, received by SEBI from RoC also did not make any reference to violation of SEBI Act or Regulations. It simply stated that the Company had issued secured Debentures 10 times to more than 50 subscribers collectively on private placement basis. Section 67(3) prohibits subscription of securities by 50 or more persons in a single issue and not in multiple issues taken together. s. The noticees namely Mrs. Vijay Lakshmi Kathait, Mr. Jitendra Singh Gurjar, Mr. Malwinderwant Singh and Mr. Sukharaj Bahadur Singh were the non-executive directors who have ceased to be the directors of the Company w.e.f May 15, 2011, May 15, 2011, September 09, 2011 and September 09, 2011 respectively.

Mr. Harpreet Singh also ceased to act as Director w.e.f. August 19, 2013. These persons should not be held liable for any alleged breaches of the Companies Act or SEBI Regulations. t. The business of the Company has badly affected since the date of the interim order. Due to the restrictions imposed on the Company and its directors, the Company is not able to source its funds to sustain/ expand its business either from internal sources or from external sources like banks. The Company has made repayments in respect of redemption of debentures amounting to `1,62,64,000 from the date of interim order without corresponding increase in the source of funds. As on December 31, 2015, the Company has redeemed on the respective redemption dates debentures amounting to `4,30,01,000 held by 127 debenture holders. As on December 31, 2015, the debentures amounting to `3,17,60,000 held by 107 debenture holders are outstanding. u. The NBFCs and the financial institutions including PSUs are issuing securities in order to meet their business requirements in large number on ‘private placement basis’ in accordance with the provisions of the Companies Act and the RBI Act.

These financial institutions are also paying brokerages for mobilizing the subscription to debentures. The size of the Company and the issue of NCDs, offered by it on private placement is very meagre as compared to such companies. 9. Ms. Harjit Kaur vide her letter dated March 24, 2015, submitted as under:

a. She became the director in the Company along with her late husband Mr. Guriqbal Singh Bhullar (who passed away on November 11, 2011). b. Due to his serious illness, she had resigned from the Company on January 20, 2010. c. She was a non-executive director on the board of the Company and had never received any notice of the board meeting. d. The collection funds, by any means, by the Company were never brought to her or her husband’s notice. e. The present directors of the Company have confirmed her non-involvement in the affairs of the Company since tendering of her resignation i.e. January 20, 2010. f. Recently, she came to know that her resignation was filed by the Company w.e.f. June 20, 2013. 10. I have considered the interim order, the submissions of the Company and the persons who have replied and the material available on record. The interim order had observed/ alleged the following: “… i. SHPL was incorporated on May 15, 1995 with the ROC, Gwalior with CIN No. as U65921MP1995PLC024674. SHPL has its Registered Office situated at Plot No.78, 1st Floor, VM Arcade, M.P. Nagar, Zone-II, Bhopal, Madhya Pradesh-462011.

ii. The Directors of SHPL are Mr. Malwinderwant Singh, Mr. Sukhraj Bahadur Singh, Mrs. Vijay Laxmi Kathait, Mr. Jitendra Singh Gurjar, Mr. Guriqbal Singh Bhullar, Mr. Harpreet Singh, Mrs. Harjit Kaur Bhullar, Mr. Abhay Shukla, Mr. Vishwanathan Iyer and Mr. Akshay Tiwari. iii. The name of debenture trustee is Mr. Hemant Sahu having address at H No. 105-A, Ravidas colony, JK Road, Bhopal, Madhya Pradesh-462011. iv. The details of the schemes as mentioned in the brochure cum application form submitted by SHPL are as follows: "Private Placement of Flexi Bonds in the nature of Secured Redeemable Non-Convertible Debentures (NCDs) Non Cumulative Scheme Cumulative Scheme (Minimum Rs. 20000/- and above) (Minimum Rs. 5000/- and above) Period Monthly Quarterly Period Yield Interest Interest 12 months + 1 day 10.00% 10.00% 12 months + 1 day 10.42% 24 months 10.50% 10.50% 24 months 11.50% 36 months 11.50% 11.50% 36 months 13.50% 48 months 11.50% 11.50% 48 months 14.35% 60 months 11.50% 11.50% 60 months 15.26%

Double Bond Rs. 10,000 72 months Rs. 20,034 11.75% "

v. As per the information submitted by SHPL vide letter dated January 16, 2014, SHPL issued NCDs of face value Rs.1000/- each. The details of the NCDs are as follows: Year Issue Opening Allotment DateS erie No. of Amount No. of No. of Date of Charge Date s Debentures (Rs.) ApplicatiAllotteeCreation in ROC ons s 2010-11 8-Oct-2010 31-Dec-2010 A 4517 4517000 48 39 02/08/2011 1-Jan-2011 31-Mar-2011 B 1395 1395000 20 15 04/11/2011 2-Apr-2011 30-Apr-2011 C 2550 2550000 15 11 05/09/2011 14-May-2011 15-Jun-2011 D 1132 1132000 10 7 07/01/2011 2011-12 16-Jun-2011 30-Jul-2011 E 2440 2440000 24 20 19/08/2011 3-Aug-2011 15-Sep-2011 F 1958 1958000 14 14 19/07/2011 30-Sep-2011 15-Nov-2011 G 2610 2610000 24 20 30/11/2011 26-Nov-2011 16-Jan-2012 H 2565 2565000 27 26 02/10/2012 23-Jan-2012 19-Mar-2012 I 1855 1855000 17 13 24/03/2012 5-Apr-2012 15-May-2012 J 5016 5016000 26 18 21/05/2012 5-Jun-2012 18-Jul-2012 K 3795 3795000 26 20 23/07/2012 1-Aug-2012 8-Sep-2012 L 2931 2931000 30 24 09/12/2012 8-Sep-2012 20-Oct-2012 M 6915 6915000 44 41 22/10/2012 2012-13 20-Oct-2012 20-Nov-2012 N 4040 4040000 21 18 22/11/2012 21-Nov-2012 22-Dec-2012 O 4880 4880000 36 25 26/12/2012 22-Dec-2012 19-Jan-2013 P 5478 5478000 41 29 19/01/2013 20-Jan-2013 25-Feb-2013 Q 1170 1170000 9 8 03/04/2013

26-Feb-2013 29-Mar-2013 R 1915 1915000 12 10 29/04/2013 1-Apr-2013 25-Apr-2013 T 7840 7840000 18 15 15/05/2013 2013-14 26-Apr-2013 20-May-2013 U 5529 5529000 30 25 13/06/2013 21-May-2013 18-Jun-2013 V 4230 4230000 30 27 NA TOTAL 74761 7,47,61,000 522* 425* * It has been stated by SHPL that 522 applications were received from 425 persons for the subscription of the said issuance of NCDs. vi. SHPL has also provided the details of the brokers and brokerage paid as follows: Period Number of Amount Number of Brokerage paid (`) investors dealing brokers 8-31 Oct.,2010 19 1820000 3 30950 1-30 Nov., 2010 22 1806000 3 32020 1-31 Dec. 2010 7 891000 2 12510 1-31 Mar. 2011 19 1295000 3 37600 2-30 Apr. 2011 15 2550000 2 76500 1-May-15 June 11 10 1132000 2 30160 16 June-30 July 11 24 2440000 4 65400 1 Aug.-15 Sept 11 14 1958000 3 51740 16 Sept- 15Nov 11 24 2610000 3 74100 16 Nov11-16 Jan 12 27 2565000 4 60090 17 Jan-19 Mar 12 17 1855000 3 54100 1Apr-15 May 12 26 5016000 4 142280 1 June-18 July 12 26 3795000 5 101750 1 Aug-8 Sept.12 30 2931000 3 66730 9 Sep.-20 Oct. 12 44 6915000 8 191050 21 Oct.-20 Nov 12 21 4040000 6 109800 21 Nov.-22Dec.12 36 4880000 11 133600 24 Dec.12-19 Jan.13 41 5478000 8 139750 1-25 Feb.13 9 1170000 3 33100 1-29 Mar.13 12 1915000 5 56050 1-25 Apr.13 18 7840000 8 223000 26 Apr. -20 May 13 30 5529000 7 156010 21 May-18 June 13 30 4230000 8 122700 521 7,46,61,000 20,00,990 vii.

The company has also informed that brokerage has been paid in respect of all the applicants of the debenture issue except for one who was a direct applicant. It was informed that in the case of the application of one of the investors, who applied for 100 debentures by depositing Rs. 1,00,000/- received on January 01, 2011, the brokerage was not paid as the investor is the friend of the director of the company. viii. SHPL vide its letter dated December 13, 2013 also stated that RBI vide circular dated June 27, 2013 read with circular dated July 02, 2013 has put restriction to issue debentures to 49 persons on private placement basis as against “no limit’ provided under section 67(3) of the Companies Act, 1956. ...” 11. Having considered the above, it is now necessary to determine whether the Company had made a public issue as alleged in the interim order and if so, whether the Company had complied with the public issue norms. The liability of the directors of the Company also needs to be determined as they have also been alleged in the interim order. The Company has submitted that it had issued NCDs at different occasions on private placement basis.

12. For ascertaining whether an issue of securities is a ‘public issue’ or done on ‘private placement’ basis it is necessary to make a reference to Section 67(3) of the Companies Act, 1956, which reads as under: “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).”

As per 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. In terms of the first proviso to the said 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 is relevant to decide whether an issue of shares are made for public or done on a private placement basis, in the light of the above said provision. In view of the same, if an offer of securities are made to fifty or more persons, it would be deemed to be a public issue.

Sub section 3 of the Section 67 of the Companies Act and the two provisos thereafter, are important for the present matter. Under the said section, an offer/ invitation shall not be treated as made to the public if such offer/ invitation can be regarded in all circumstances as not being calculated to result, directly or indirectly, in the securities becoming available for subscription or purchase by persons other than those receiving the offer or invitation; if the same is a domestic concern of the persons making and receiving the offer or invitation.

The proviso also states that an offer/ invitation made to more than 49 persons is a public issue and the NBFCs/ PFIs are exempted only from the applicability of this proviso to Section 67(3) i.e. the offer/ invitation to more than 49 person will not be a public issue.

13. From the above discussion, it can be said that NBFC and PFI do not have any restriction on the number of allottees as opposed to a Company which is neither an NBFC nor a PFI, as long as the issue satisfies the provisions of Section 67(3) of the Companies Act, 1956. NBFCs and PFIs, though as discussed, may be exempted from the limit of 49 persons, they still require to comply with the clauses (a) and (b) to Section 67(3) of the Companies Act, 1956. Therefore, in order to take a view that NBFC or PFI did not make a public issue, it has to be proved that their offer or invitation did not result, directly or indirectly, in the securities becoming available for subscription or purchase by persons other than those receiving the offer or invitation or such offer or invitation was a domestic concern of the persons making and receiving the offer or invitation. The Hon'ble Supreme Court of India in the matter of Sahara India Real Estate Corporation Limited & Others Vs. SEBI and another (Civil Appeal Nos. 9813 and 9833 of 2011) (hereinafter referred to as ‘the Sahara case’) had observed as under: "84.

Section 67(1) deals with the offer of shares and debentures to the public and Section 67(2) deals with invitation to the public to subscribe for shares and debentures and how those expressions are to be understood, when reference is made to the Act or in the articles of a company. The emphasis in Section 67(1) and (2) is on the “section of the public”. Section 67(3) states that no offer or invitation shall be treated as made to the public, by virtue of subsections (1) and (2), that is to any section of the public, if the offer or invitation is 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 otherwise as being a domestic concern of the persons making and receiving the offer or invitations. Section 67(3) is, therefore, an exception to Sections 67(1) and (2). If the circumstances mentioned in clauses (1) and (b) of Section 67(3) are satisfied, then the offer/invitation would not be treated as being made to the public. 85. The first proviso to Section 67(3) was inserted by the Companies (Amendment) Act, 2000 w.e.f. 13.12.2000, which clearly indicates, nothing contained in Sub-section (3) of Section 67 shall apply in a case where the offer or invitation to subscribe for shares or debentures is made to fifty persons or more.

Resultantly, after 13.12.2000, any offer of securities by a public company to fifty persons or more will be treated as a public issue under the Companies Act, even if it is of domestic concern or it is proved that the shares or debentures are not available for subscription or purchase by persons other than those receiving the offer or invitation. A public company can escape from the rigor of provisions, if the offer is made by companies mentioned under Section 67(3A), i.e. by public financial institutions specified under Section 4A or by non-banking financial companies referred to in Section 45I(f) of the Reserve Bank of India Act, 1934. Following situations, it is generally regarded, as not an offer made to public.  Offer of securities made to less than 50 persons;  Offer made only to the existing shareholders of the company (Right Issue);  Offer made to a particular addressee and be accepted only persons to whom it is addressed;  Offer or invitation being made and it is the domestic concern of those making and receiving the offer. 86. Resultantly, if an offer of securities is made to fifty or more persons, it would be deemed to be a public issue, even if it is of domestic concern or proved that the shares or debentures are not available for subscription or purchase by persons other than those received the offer or invitation.…” 14. In the present case, I note from the interim order that the Company had offered and allotted NCDs to 425 persons during the financial years 2010-11, 2011-12, 2012-13 and 2013-14 and had raised `7.47 crore.

The Company has stated that there were only 234 persons and not 425 as stated in the interim order, as several investors were repeaters and not the first time investors. Out of the said 234 persons, 139 persons had invested only once in the NCDs of the Company and the rest 95 investors had invested repeatedly in different issues of the Company.

15. The Company in its submissions has also contended that it had issued NCDs on different occasions on private placement basis and the issues were made in compliance with the provisions of sub section (3) of Section 67 of Companies Act, 1956 and guidelines and directions issued by RBI in this regard. From the interim order, it is observed that the Company had issued NCDs in 21 series i.e. from A to V. The Company along with its submission has submitted various documents including the details of debenture holders along with their relationship with the Company, details of the brokers, copies of resolutions, etc.

However, as discussed earlier, under Section 67(3) of the Companies Act, 1956, an NBFC may make an offer to more than 49 persons provided it shows that: a. its offer did not result in the securities being available for subscription to a person who did not receive the offer or b. the offer or invitation was a domestic concern of the person making and receiving such offer, in order to claim that such offer and allotment was done through a ‘private placement’. 16. The Company had contended that the Ministry of Finance has merely forwarded copy of the anonymous complaint received by a Member of Parliament and such complaint had no specific allegation against the Company. The name of the Company was mentioned in the anonymous letter by way of general/ passing reference. It has also been said that the letter dated October 29, 2013, received by SEBI from RoC did not make any reference to the violation of SEBI Act. Such submissions of the Company may not be of any help as SEBI has conducted a preliminary examination in the matter and has already passed an interim order explaining the allegations levelled against it.

17. The Company has further argued that being an NBFC, it has to raise funds from the promoters or investors by private placement and to deploy such funds by way of loans or investments in the securities. While proceeding further, it is now necessary to examine whether the NCD issues of the Company were in terms of clauses (a) and (b) of Section 67(3) of the Companies Act, 1956. a. The Company in support of its claim that the issues were on private placement basis, has submitted the following:

- every issue of the Company was subscribed by the persons to whom the offer was made and the same was not available for subscription/ purchase by persons other than those receiving the offer/ invitation. - the issues were of domestic concern of the persons making and receiving the offer/ invitation which was made to the friends, relatives, associates, shareholders and customers of the Company/ Company’s management/ employees. The Company has contended that its investors were pre-determined and were contacted personally by the management of the Company and no advertisement/ circular was issued to the general public. The Company has also submitted that it first pre-determined the investors who were known to the Company, its promoters, management and its employees. The directors of the Company then convened meeting authorizing the issue of NCDs on private placement basis and approving the detailed terms and conditions of the issue. Thereafter, the Company requested an empanelled ‘Business Associate’ (‘broker’) to meet such investor for the purpose of explaining the features of NCDs and seek consent for investment.

b. The Company also contended that the NCD holders are relatives, friends and associates of directors, promoters and employees of the Company. It has been said that Mr. D. Vishwanathan, father of Mr. V. Rajesh Iyer, CEO and Executive Director of the Company, was a BHEL employee who after his retirement had started working as a ‘FD agent’ for various companies. In such capacity he knew many BHEL employees and their relatives. Similarly, father of Mr. Abhay Shukla (director of the Company), Late Mr. P.R. Shukla was also an employee of BHEL. It has been said that Mr. Abhay Shukla had earlier acted as an agent and in such capacity he had connected many of his father’s friends, who had invested their money in various organization. Some of such investors had also invested in the private placement issues of NCDs of the Company. Further, it has been said that few investors are the relatives of/ closely knew to the employees of the Company.

c. The Company in support of its submissions has provided the lists showing the details of the relationship of each of its investor with the Company/ its management. In addition to the same, the Company has also submitted the notarized letters from the debenture holders confirming their association with the promoters/ director/ employees of the Company. I note the submissions of the Company that all the NCD holders of the Company are from Bhopal (except three persons who are from Betul, MP and Mumbai) and of the 234 debenture holders, 155 are ex-BHEL/ BHEL/ relatives of BHEL employees.

d. I have perused the lists and letters of investors and note that the Company has identified its 234 investors. The investors are stated to be either BHEL employees or family friends of Mr. V. Rajesh Iyer (director), Mr. Abhay Shukla (director), Mr. Manish Gupta (employee), Mr. Rajeev B. (employee), Mr. Durgesh (employee), Mr. Rajendra (employee), etc. The Company has also provided the year since when they knew the investors and submitted the declaration cum confirmation from its investors confirming thereby that the person who had contacted them and informed about the proposed NCD issues. The Company has also submitted that there are no investor complaints, available on record, against the Company.

e. The interim order has also alleged the following against the Company: ‘ii. … from the contents of the brochure cum application form of SHPL that the persons who could invest in the NCDs are mentioned as “Individual, Trust, Agriculture, HUF, Mutual Fund, partnership, corporate bodies, Financial Institutions, Professional, Business, Shareholder, others etc.” The space provided for “Others” in the said Application Form indicates that the applicants were not identified prior to the publication of the Application Form. SHPL also admitted that except for one investor (who was directly introduced by one of the directors), the company had paid brokerage in respect of all other applications. The aforementioned facts clearly indicate that the offer was open to the general public, and not merely to a specific pre-determined group of persons…. iii. I also note that SHPL has not submitted the copies of invitation letters or offer documents through which it sought subscription from the pre-determined investors. Thus, SHPL has not discharged the burden of proof to establish that the offer of secured non-convertible debentures made by it was a private placement’

In reply to the allegation the Company has argued that the space for ‘others’ as stated in the application form was for determining the category/ status of applicants who may not fall in any of the headings as specified in the application form (such as trust, corporate body, professional, etc.) and the same should not be taken as such persons are from general public or not known to the Company/ its management. The Company has also submitted that the said space was duly filled in the application forms by the applicants, wherever applicable. Having considered the submission of the Company, I have perused the filled in application form of NCDs on sample basis and note that the space for ‘others’ was being as place to specify the occupation of the applicant. In one of the sample application form the individual has been specified as ‘student’ (in the space provided after ‘others’), likewise in another application form the same has been specified as ‘S. Citizen’.

f. While proceeding further, I note the observations made in the interim order that ‘except for one investor (who was directly introduced by one of the directors), the company had paid brokerage in respect of all other applications.’ In this regard, the Company has claimed that all the brokers were known to it (as these were either family members/ close friends of Mr. V. Rajesh Iyer/ Mr. Abhay Shukla/ employees) and has also provided a list showing the relationship of each broker with the Company along with the agency form/ documents showing the terms and conditions of appointment of business associate. The Company has submitted that it requested the broker to meet its investor for the purpose of explaining the features of NCDs and seek consent for investment. It has been argued that availing the services of broker in private placement is permissible by law. I note that the Company has paid a brokerage of `20.01 lakh on an amount of `7.46 crore. The same amounts to 2.68%.

g. I note that the Company had issued NCDs in different series i.e. series ‘A’ to ‘V’ and such series had different issue opening dates. The Company has submitted that it came out with 21 separate series of private placement issues i.e. from series ‘A’ to ‘V’ during the financial years 2010-11, 2011-12, 2012-12 and 2013-14 and all these series of private placement and were having less than 50 allottees. In relation to the same, I have also perused the minutes of meeting of the Board of Directors of the Company held on September 03, 2010, wherein the Company had decided to issue debentures. The relevant portion of the same is as under: “The Chairman informed the Board that the Company needs working capital for its business expansion and growth. He stated that the Company is an Asset Finance Company and is eligible to issue Secured Redeemable Non-convertible Debentures on the security of its movable property as per the Reserve Bank of India Directions. He therefore suggested that the Company may issue Secured Redeemable Non-convertible Debentures in different series to the extent of Rs.500 lacs outstanding at any point of time. …” I note that pursuant to this meeting, the Board of Directors of the Company in the meeting held on October 05, 2010, had resolved to issue the first series of the debentures named as “A” series under private placement basis to friends, relatives and associates.

Thereafter, in the minutes of meeting dated December 31, 2010, the Company had allotted 4,517 NCDs in ‘A’ series to the persons named in the Debenture Allotment list. The relevant part of the minutes of meeting of the Board of Directors held on December 31, 2010, is reproduced as under: “RESOLVED THAT allotment of 4517 Secured Redeemable Non-convertible Debentures of Rs.1000/- each of “A” Series be allotted to the persons mentioned in the Debentures Allotment list, as placed before the meeting and initialed by the Chairman for the purpose of identification, be and is hereby approved.” The said minutes further discussed about the issue of NCDs in ‘B’ Series. The relevant portion thereof is as under: “The Chairman informed the board that pursuant to resolution dated September 03, 2010 passed in the meeting of Board of Directors, the company may issue ‘B’ series Secured Redeemable Non-Convertible Debentures on private placement basis to friends, relative and associates. The matter was discussed in detail and following resolution was passed unanimously. “RESOLVED THAT pursuant to the resolution by the Board for raising of funds by issue of 50,000 secured redeemable non-convertible debentures, the board may issue second series of debentures to be named as ‘B’ series under Private placement basis to friends, relatives and Associates …”” I have also perused the other resolutions of offers of NCDs i.e. of series ‘A’ to ‘V’ and note that all the issues were different and separate and independent approvals for each of it were taken by the Company.

h. From the foregoing discussions, it is observed that the Company had issued series of NCDs. For all the issues of NCDs, the Company has claimed to have created charge in favour of an independent trustee and the same was registered with the RoC. The Company has submitted that every issue of NCDs was subscribed by the persons to whom the offer was made and the same was not available for subscription/ purchase by persons other than those receiving the offer/ invitation. In this regard, I have perused the application form for the issue of NCDs of the Company which states that the offer is being made on a private placement basis and cannot be accepted by any person other than those to whom it has been offered. I note that in each of the series of NCDs, the number of allottees is varying i.e. from 8 - 39.

i. As per the Company, it had reported regularly to RBI, about the issue of debentures in its quarterly returns. It has been argued that RBI vide its circular dated June 27, 2013, had for the first time provided restriction on the maximum number of investors to 49 and further stipulated a time gap of at least six months between two private placements. I note that the Company has issued NCDs till the financial year 2013-14 (the last date of allotment being May 21, 2013). The Company has argued that it has never made an allotment of NCDs to fifty or more persons in any one offer even before the restriction of maximum forty-nine investors was brought into force vide RBI Circular dated June 27, 2013.

18. Considering the above and the documents available on record, it is difficult to conclusively hold that the Company had made a public issue of NCDs. In view of the same, it would be in the interest of justice that the interim order as against the Company and its directors be revoked.

The above shall not prejudice SEBI from taking action if the information/ lists submitted by the Company is found to be incorrect or not comprehensive at a later point of time.

19. 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 read with Sections 11(1), 11(4), 11A and 11B thereof hereby vacate the interim directions issued vide SEBI order dated February 11, 2015 against the Company namely Sukhchain Hire Purchase Limited [PAN: AAGCS6659C], Mr. Malwinderwant Singh [PAN: ALSPS7699N], Mr. Sukhraj Bahadur Singh [PAN: AQVPS7675N], Ms. Vijay Laxmi Kathait [PAN: ALLPK5580D], Mr. Jitendra Singh Gurjar [PAN: ALZPG7304F], Mr. Guriqbal Singh Bhullar [PAN: AAQPB6799M] (now deceased), Mr. Harpreet Singh [PAN: BCSPS6136G], Ms. Harjit Kaur Bhullar [PAN: AARPB9746R], Mr. Abhay Shukla [PAN: AQZPS7964C], Mr. Vishwanathan Iyer [PAN: AADPI3574N], Mr. Akshay

Tiwari [PAN: ACNPT2976P] and Mr. Hemant Sahu with immediate effect and dispose of the show cause notice without any directions.

20. Copy of this Order shall be served on the stock exchanges and depositories for their information and necessary action.

DATE : June 07, 2016 PRASHANT SARAN PLACE : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA