Order in the matter of United Cosmetics Manufacturing (I) Limited

WTM/RKA/EFD/150/2016 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: 1. United Cosmetics Manufacturing (I) Limited 2. Mr. Samir Chattopadhyay Kumar 3. Mr. Nirapada Maiti 4. Mr. Amal Patra 5. Mr. Kartik Jana 6. Mr. Balwant Kumar Singh 7. Ms. Debashree Bhowmik and 8. Mr. Rajib Bhattacharya In the matter of issuance of redeemable preference shares by United Cosmetics Manufacturing (I) Limited.

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), conducted a preliminary examination into the issuance of Redeemable Preference Shares (hereinafter referred to as “RPS”) by United Cosmetics Manufacturing (I) Limited {hereinafter referred to as “the company” or “UCM(I)L”} with a view to ascertain the possible violations of the public issue norms stipulated under the Companies Act, 1956 and other applicable laws pertaining to the SEBI (Issue and Listing of Non-convertible Redeemable Preference Shares) Regulations, 2013 (“NPRS Regulations”). 2. Pursuant to the examination, SEBI passed an interim order dated November 20, 2015 (hereinafter referred to as “interim order”) against the company and its directors, Mr. Samir Chattopadhyay Kumar, Mr. Nirapada Maiti, Mr. Amal Patra, Mr. Kartik Jana, Mr. Balwant Kumar Singh, Ms. Debashree Bhowmik and Mr. Rajib Bhattacharya {collectively referred to as “noticees”}, in view of the following: (i) “Under the Offer of Redeemable Preference Shares, it is observed that during the Financial Years 2006-07, 2008-09 and 2013-14, UCM(I)L allotted Redeemable preference shares to at least 2,955 individuals/investors and mobilized funds amounting to approximately ₹ 3.84 Cr. The number of investors to whom allotments were made under the Offer of Redeemable Preference Shares along with the amount mobilized therein, during the Financial Year 2006-07, 2008-09 and Order in respect of United Cosmetics Manufacturing (I) Limited and others

2013-14 ….. would prima facie indicate that such Offer was a public issue of securities, as prescribed under the first proviso to Section 67(3) of the Companies Act, 1956.” (ii) “….. the number of allottees and amount raised under the Offer of Redeemable Preference Shares for the Financial Years 2006-07, 2008-09 and 2013-14, have only been taken from the documents obtained from MCA21 Portal and also the information/documents furnished by the company. Also, the details regarding the offer of redeemable preference shares of Rs. 500 Lakhs issued on January 08, 2010 (as observed from the copy of the brochure furnished by the company) has not been provided by the company. It is therefore possible that the actual number of allottees and amount mobilized by UCM(I)L could be much more than the figures indicated ….”. (iii) “…..the Offer of Redeemable Preference Shares by UCM(I)L during the Financial Year 2006- 07, 2008-09 and 2013-14, will prima facie qualify as a public issue under the first proviso to Section 67(3) of the Companies Act, 1956”. (iv) “UCM(I)L is prima facie engaged in fund mobilizing activity from the public, through the Offer of Redeemable Preference Shares and as a result of the aforesaid activity has violated the aforementioned provisions of the Companies Act, 1956 (Section 56, Section 60 read with Section 2(36), Section 73), and SEBI NRPS Regulations”.

(v) “…. Mr. Samir Chattopadhyay Kumar, Mr. Nirapada Maiti and Mr. Amal Patra are the present Directors of UCM(I)L and Mr.Kartik Jana, Mr.Balwant Kumar Singh, Ms.Debashree Bhowmik and Mr.Rajib Bhattacharya are the past Directors. It is alleged that the aforementioned Directors being the persons in-charge of and responsible to the Company for the conduct of business, are responsible under Section 27(2) of the SEBI Act, for the prima facie contraventions committed by UCM(I)L through the Offer of Redeemable Preference Shares”. 3. In view of the alleged contraventions and for the reasons stated in the interim order, the following directions were issued therein: i. “UCM(I)L (United Cosmetics Manufacturing (I) Limited) (PAN: AAACU7914N) shall not mobilize any fresh funds from investors through the Offer of Redeemable Preference Shares 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. UCM(I)L and its Directors, viz., Mr. Samir Chattopadhyay Kumar (PAN: ABVPK0643D), Mr. Nirapada Maiti (PAN: AIHPM6556G), Mr. Amal Patra (PAN: AUZPP0701A), Mr.Kartik Jana (PAN: AHQPJ8186K), Mr.Balwant Kumar Singh (PAN: BREPS6947N), Ms. Debashree Bhowmik (PAN: AJIPB7361C), and Mr.Rajib Bhattacharya (PAN: AMGPB0981P) 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. UCM(I)L 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. UCM(I)L shall provide a full inventory of all its assets and properties; v. UCM(I)L 's abovementioned Directors shall provide a full inventory of all their assets and properties; vi. UCM(I)L 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 Redeemable Preference Shares, without prior permission from SEBI; vii. UCM(I)L and its abovementioned Directors shall not divert any funds raised from public at large through the Offer of Redeemable Preference Shares, which are kept in bank account(s) and/or in the custody of UCM(I)L; viii. UCM(I)L and its abovementioned Directors shall furnish complete and relevant information in respect of the Offer of Redeemable Preference Shares (as sought by SEBI letter dated December 17, 2014), within 14 days from the date of receipt of this Order, including,  Details of the offer of redeemable preference shares of Rs. 500 Lakhs issued on January 08, 2010 (as mentioned in Paragraph No. 6(iii) above),  Details of the "Secured Redeemable Debentures" issued by the company (as mentioned in Paragraph No. 4 and 6(v) above)”.

4. The interim order advised the noticees to show cause as to why suitable directions/prohibitions under sections 11(1), 11(4), 11A and 11B of the SEBI Act read with section 73(2) of the Companies Act, 1956, including the following, should not be taken/imposed against them: i. Directing them jointly and severally to refund money collected through the Offer of Redeemable Preference Shares along with interest, if any, promised to investors therein; 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. 5. The noticees were afforded opportunity to file their reply within 21 days of receipt of the interim order and to seek a personal hearing, if they desired. The interim order was forwarded to the noticees vide SEBI letters dated November 23, 2015. Mr. Rajib Bhattacharya filed his reply vide letter dated December 07, 2015 and inter alia submitted the following: (a) He worked as a director in the company for two and a half years i.e. from September 2009 to February 2012. During his tenure, he was working as a marketing executive only and looked after the insurance development division.

He used to report to Mr. Nirapada Maiti, Managing Director and Head of the company. Mr. Nirapada Maiti was the key person in respect of legal, financial and administrative functions of the company and took all major decisions related to the company. (b) He may have been given the designation of a Director. However, he never received any privilege or benefits of any standard like a director and was treated as an employee of a company. Mr. Rajib Bhattacharya had attached copies of his Income Tax Returns for AYs 2015-16, 2014- 15 and 2013-14 along with the above reply. 6. On noticing that the Permanent Account Number (“PAN”) of Mr. Samir Chattopadhyay Kumar was erroneously mentioned in the interim order, SEBI, vide Corrigendum dated December 30, 2015, corrected the same. Thereafter, SEBI, vide hearing notices dated August 31, 2016, informed the noticees that the personal hearing in the matter is afforded on September 29, 2016. As the interim order could not be delivered to some of the noticees at their last known address, SEBI made a public notice in the newspapers (in Times of India-Kolkata Edition on August 28, 2016 and in Anand Bazaar Patrika on August 29, 2016) intimating the noticees about the interim order and the personal hearing fixed on September 29, 2016. They were also advised to file their replies before the date of personal hearing.

Despite the above steps, the noticees failed to appear in the personal hearing. Accordingly, the proceedings of personal hearing was concluded. 7. I have considered the interim order, the reply of Mr. Rajib Bhattacharya and material available on record. The company is alleged to have made a public offer and issued RPS without complying with the public issue norms mandated under the Companies Act, 1956 and the NPRS Regulations. In this regard, I note the following: (a) The company issued RPS as per the details below: Year Date of allotment No. of persons to Total amount raised (`) whom allotted 2006-07 30.03.2007 295 58,15,000/- 2008-09 04.12.2008 933 85,73,100/- 2009-10 08.01.2010 Details not provided by company till date 2013-14 - 1,727 2,40,33,900/- Total 2,955* 3,84,22,000/-* *the number of allottees and amount mobilized would therefore be higher than the indicated figures.

(b) The interim order has noted that the Brochure of the company (as submitted by it to SEBI) pertained to the issue of RPS of `500 lakhs on January 08, 2010. However, the details of issue/allotment done on January 08, 2010 was not provided by the company. Accordingly, the interim order had directed the company and its directors to provide complete information pertaining to the offer of RPS and issue of the same on January 08, 2010. However, the company failed to provide the information till date. (c) From the above facts, it becomes clear that the company issued RPS to atleast 2,955 persons and mobilized atleast `3.84 crore. These details have been taken from the information available from the MCA-21 portal and information submitted by the company. Therefore, I agree with the observation made in the interim order that “..It is therefore possible that the actual number of allottees and amount mobilized by UCM(I)L could be much more than the figures indicated …”. (d) Considering the number of persons to whom the RPS was offered/issued by the company and the deliberate concealment of information regarding the issue of RPS on January 08, 2010, it can be definitely held that the issue of RPS was nothing but a public issue in terms of the first proviso to section 67(3) of the Companies Act, 1956. In terms of the aforesaid provision, an issue of securities becomes a ‘public issue’ if the offer to subscribe to shares or debentures is made to 50 persons or more.

8. The interim order had also observed “It is further observed from the documents received by SEBI along with the complaint (mentioned in Paragraph No. 4 above), that the company had issued "Secured Redeemable Debentures" (of face value Rs.1000 each). The said complaint was filed by a group of 28 investors and as per the list forwarded by the complainants, the company has collected an amount of Rs.1.41 Cr. from the complainants”. The interim order had therefore advised the company and its directors to provide details regarding the offer and issue of secured redeemable debentures. However, the company failed to comply with the same. SEBI is therefore advised to take appropriate action in this regard. 9. As the issuance of RPS by the company was a ‘public issue’, it ought to have complied with the provisions of sections 56(1), 56(3), 60 read with section 2(36), and 73 of the Companies Act, 1956 and regulations 4(2)(a), (b), (c), (d), (e), 4(3), 4(5), 5, 6, 7, 8, 9, 13, 15, 16 and 22 of the NPRS Regulations, as alleged in the interim order. In the present case, there is no record to show that the company complied with requirements of the above provisions of law in respect of its offer and issuance of RPS.

The company is therefore held guilty of contravening the aforesaid provisions of the Companies Act, 1956 and the NPRS Regulations and thus liable for the consequences of such default. 10. The interim order has alleged that the directors, Mr. Samir Chattopadhyay Kumar, Mr. Nirapada Maiti, Mr. Amal Patra, Mr. Kartik Jana, Mr. Balwant Kumar Singh, Ms. Debashree Bhowmik and Mr. Rajib Bhattacharya are liable for the violations committed by the company and advised them to show cause as to why directions contemplated in the interim order should not be issued against them. The details regarding the date of appointment and resignation, if any, of the aforesaid directors is mentioned below: Name Date of appointment Date of resignation Mr. Samir Chattopadhyay Kumar 28.04.2014 Continuing as director Mr. Nirapada Maiti 01.04.2005 Continuing as director Mr. Amal Patra 21.01.2012 04.12.2015 Mr. Kartik Jana 01.04.2005 18.02.2011 04.03.2016 Continuing as director Mr. Balwant Kumar Singh 07.01.2010 10.05.2014 Ms. Debashree Bhowmik 01.04.2005 07.01.2010 Mr. Rajib Bhattacharya 07.09.2009 09.02.2012

11. It is held above in this Order that the company made a public issue of RPS during FY 2006- 07, 2008-09, 2009-10 and 2013-14 and mobilized atleast `3.84 crore from atleast 2955 persons in violation of the public issue norms. The aforesaid directors (except for Mr. Samir Chattopadhyay Kumar) were present (either during the substantial part of or whole of the period when RPS was offered and issued) in the company’s Board during the period when the company made offer and issued the RPS in a public issue. It is noted that Mr. Samir Chattopadhyay Kumar was appointed a director of the company on April 28, 2014. 12. 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 will be 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 is on the Company, and every person who is a party to the non-compliance of issuing the prospectus as per the said section. Further, the directors of a company shall be liable for action in case of contravention of the NPRS Regulations.

13. The liability of the company and directors to repay under section 73(2) of the Companies Act, 1956 would remain until the whole of the subscription amount along with interest is refunded to the allottees/investors. Therefore, the directors (irrespective of whether they continue or resign) who were present during the period when the company made the offer and allotted securities shall be liable for violation of sections 56, 60 and 73 of the Companies Act, 1956 and the NPRS Regulations. Further, the persons who join the company’s Board as directors pursuant to the offer and allotment of securities shall also be liable if the company/concerned directors fail to make refunds as mandated under sections 73(2) of the Companies Act, 1956. With respect to the breach of law and duty by a director of a company, I refer to and rely on the following observations made by the Hon’ble High Court of Madras in Madhavan Nambiar vs Registrar of Companies (2002 108 Comp Cas 1 Mad): “13. …. A director either full time or part time, either elected or appointed or nominated is bound to discharge the functions of a director and should have taken all the diligent steps and taken care in the affairs of the company.

14. In the matter of proceedings for negligence, default, breach of duty, misfeasance or breach of trust or violation of the statutory provisions of the Act and the rules, there is no difference or distinction between the whole-time or part time director or nominated or co-opted director and the liability for such acts or commission or omission is equal. So also the treatment for such violations as stipulated in the Companies Act, 1956.” 14. As mentioned above, except for Mr. Rajib Bhattacharya, the other noticees did not file their response to the interim order. Mr. Rajib Bhattacharya has admitted that he worked as a director in the company from September 2009 to February 2012. As per records, he was a director in the company from September 07, 2009 to February 09, 2012. This noticee has contended that he was hired to look after the insurance development division. He used to report to Mr. Nirapada Maiti, who was wholly in-charge of the legal, financial and administrative functions of the company. He submitted that he never received the benefits or privileges like a director. While producing copies of Income Tax Returns, he has not provided supporting evidence for his above submissions.

Having been aware that he was appointed as a director, this noticee cannot plead ignorance. He should be aware of the duties and responsibilities that are cast upon a director under law. Considering the observations made above and in the previous paragraphs and the admission by Mr. Rajib Bhattacharya that he was a director in the company during the period – September 2009 to February 2012, I find that his submissions are without merit. He would therefore be liable, along with the other noticees, for the violations committed by the company.

15. In view of the foregoing observations, I hereby find Mr. Nirapada Maiti, Mr. Amal Patra, Mr. Kartik Jana, Mr. Balwant Kumar Singh, Ms. Debashree Bhowmik and Mr. Rajib Bhattacharya liable for the contravention of sections 56, 60 and 73 of the Companies Act, 1956 and the NPRS Regulations committed by the company. Mr. Samir Chattopadhyay Kumar shall be liable for default in making refunds in compliance with section 73(2) of the Companies Act, 1956. All the aforesaid persons are ‘officers in default’ in terms of section 5 of the Companies Act, 1956. Therefore, the company and the aforesaid persons are liable for action and consequences including making refund of the subscription money to the allottees along with interest at 15% p.a. as mandated under section 73(2) of the Companies Act, 1956 read with rule 3(c) of the Companies (Prospectus and Allotment of Securities) Rules, 2014. 16. In view of the foregoing, I, in exercise of the powers conferred under sections 11(1), 11(4), 11A and 11B read with section 19 of the Securities and Exchange Board of India Act, 1992, hereby issue the following directions: (i) United Cosmetics Manufacturing (I) Limited (PAN:AAACU7914N), Mr. Samir Chattopadhyay Kumar (PAN: AQRPC9091N), Mr. Nirapada Maiti (PAN: AIHPM6556G), Mr. Amal Patra (PAN: AUZPP0701A), Mr. Kartik Jana (PAN: AHQPJ8186K), Mr. Balwant Kumar Singh (PAN: BREPS6947N), Ms. Debashree Bhowmik (PAN: AJIPB7361C) and Mr. Rajib Bhattacharya (PAN: AMGPB0981P) shall within a period of three months from the date of this order, jointly and severally refund the money collected through the issue of redeemable preference shares to the allottees with interest at the rate of 15% per annum from the date of receipt of money till the date of such refund.

(ii) Such refund shall be made only in cash through a Demand Draft or Pay Order. (iii) United Cosmetics Manufacturing (I) Limited and its directors shall within fifteen days from the date of this Order submit to SEBI complete details of their assets (along with proofs thereof) certified by a peer reviewed Chartered Accountant. (iv) United Cosmetics Manufacturing (I) Limited and its directors are permitted to sell 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 allottees till the full refund/ repayment as directed above is made.

(v) United Cosmetics Manufacturing (I) Limited and its directors shall 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, United Cosmetics Manufacturing (I) Limited and its directors shall 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 noticees 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) United Cosmetics Manufacturing (I) Limited, Mr. Samir Chattopadhyay Kumar, Mr. Nirapada Maiti, Mr. Amal Patra, Mr. Kartik Jana, Mr. Balwant Kumar Singh, Ms. Debashree Bhowmik and Mr. Rajib Bhattacharya are 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 securities market, directly or indirectly, in whatsoever manner for a period of four years or till the date of refund of money to the allottees, whichever is later. (ix) Mr. Samir Chattopadhyay Kumar, Mr. Nirapada Maiti, Mr. Amal Patra, Mr. Kartik Jana, Mr. Balwant Kumar Singh, Ms. Debashree Bhowmik and Mr. Rajib Bhattacharya are 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 allottees, whichever is later. (x) For the purposes of sub-paragraphs (viii) and (ix) above, the period of restraint shall be counted from the date of the interim order.

17. The interim order dated November 20, 2015 read with Corrigendum dated December 30, 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 the order shall be served on the noticees to ensure compliance with the above directions. A copy of this Order shall also 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.

Date: October 21st, 2016 RAJEEV KUMAR AGARWAL Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA