Order on representation of Vaibhav Parivar in the matter of Vaibhav Parivar

WTM/GM/ERO/06/APR/2017 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER On representation dated November 7, 2016 in the matter of Vaibhav Parivar India Projects Limited with respect to order dated January 22, 2016, made by: Sl. No. Name of the entity PAN 1 Vaibhav Pariwar India Projects Limited AACCV9807F 2 Mr. Rajesh Kumar Rai AOJPR4225D 3 Mr. Manoj Kumar Rai AQQPR5328E

Background

1. Securities and Exchange Board of India (SEBI), vide an ad interim ex-parte order dated December 29, 2014 in the matter of Vaibhav Pariwar India Projects Limited (VPIPL), inter alia, restrained VPIPL from engaging in fund mobilising activity from the public by making offer and issuing Secured Redeemable Non-Convertible Debentures (NCDs) and prohibited VPIPL and its directors, namely, Shri Rajesh Kumar Rai and Shri Manoj Kumar Rai, and two others, from accessing securities market, as it was prima facie found that VPIPL had failed to comply with the provisions of sections 56, 60, 73, 117B and 117C of the Companies Act, 1956 and the relevant provisions of the SEBI (Issue and Listing of Debt Securities) Regulations, 2008. VPIPL and its directors were directed not to dispose, alienate or encumber any assets of the company and to provide a full inventory of the assets and properties and furnish complete information in respect of the offer of NCDs.

2. Subsequently, a final order dated January 22, 2016 was passed, confirming the findings contained in the ad interim ex-parte order and holding that VPIPL and its directors had mobilised an amount of `14.47 crore from the public during the period 2009-10 to 2012- 13 by way of offer and issue of NCDs. In view of this, VPIPL and its directors, including Mr. Rajesh Kumar Rai and Mr. Manoj Kumar Rai, were directed, interaila, to forthwith refund, jointly and severally, the money collected by the Company through issuance of NCDs, to the investors, with an interest at the rate of 15% per annum compounded at half yearly intervals, from the date when the repayments became due till the date of actual payment. The aforesaid order in Para 26(c) permitted the company/ its present management to sell the assets of the Company for the sole purpose of making refunds to Order in the matter of Vaibhav Parivar India Projects Ltd.

the investors and deposit the sale proceeds in an escrow account opened with a nationalised bank.

3. VPIPL, Mr. Rajesh Kumar Rai and Mr. Manoj Kumar Rai filed an appeal in Securities Appellate Tribunal (SAT Appeal No. 271 of 2016) against the order dated January 22, 2016. The entities submitted before Hon’ble SAT that they are willing to comply with the order of SEBI and they may be permitted to make an application to SEBI for paying the balance amount to the investors in instalment. Hon’ble SAT, while disposing the appeal vide order dated October 25, 2016, allowed these entities to make an application to SEBI setting out the modalities for paying the balance amount to investors and submit a list of assets to SEBI within two weeks.

Representation

4. Pursuant to the permission granted by SAT, the entities, namely, VPIPL, Mr. Rajesh Kumar Rai and Mr. Manoj Kumar Rai, have jointly made a representation dated November 7, 2016. It has been stated in the representation that out of the total amount raised by VPIPL, `8.75 crore have been repaid to the investors till date and they may be permitted to refund the balance amount to the investors in nine instalments by March 31, 2019, by selling properties and assets of the company. A list of assets of the company and copy of auditor’s report of VPIPL for the year ending on March 31, 2014 has been submitted along with the representation. The entities also sought an opportunity of hearing. Accordingly, an opportunity of hearing was granted to the entities on December 21, 2016. Shri Aditya Khanna, Advocate, appeared on behalf of the entities for hearing. It was submitted during the hearing that the entities are willing to comply with the SEBI order dated January 22, 2016, however, they require time till March 31, 2019 to pay the investors. He also furnished copy of title deeds of certain properties held in the name of the company and one agreement to sell a property in favour of the company. In light of the direction to refund contained in para 26 of the aforesaid SEBI order and the submission before SAT that they have repaid an amount of `6 Crore to various investors, the counsel was asked to explain the details of action taken by them in compliance of the order and the proof of refund. The counsel submitted that they have not been able to take any action to repay the investors after the order was passed as the directors are in judicial custody. However, it was submitted that `8.75 crore was paid to the investors before passing of the SEBI order. In this regard, copy of annual statement of accounts of VPIPL for the year 2013-2014 was relied upon. The counsel was advised to submit a revised time line for refund, proof of payment/refund to investors and certificates of chartered accountants as directed in the order.

5. The entities, vide letter dated December 27, 2016 submitted that they are willing to repay the investors in six instalments by July 31, 2018. It has been also stated in the letter that they are in the process of getting chartered accountants’ certificate. The certificates have been submitted vide letter dated March 3, 2017. In this letter the entities have also suggested a new schedule of payment to the investors wherein they shall start refund after three months from the date of disposal of their representation by SEBI. The certificates of chartered accountants submitted by the entities are (i) certificate dated January 2, 2017 from M/s. C Ghatak & Co., Chartered Accountants, who are auditors of VPIPL and (ii) certificate dated January 17, 2017 from M/s. MSVK & Associates, Chartered Accountants. The CAs have certified that the company has refunded `8,75,79,137.50 to the debenture holders during the financial year 2013-2014.

Consideration and findings

6. I have considered the representation made by the entities and the documents furnished by them. The only question for consideration in the representation is whether to permit the applicants to refund the balance amount to investors in instalments as sought by them in the representation dated November 7, 2016 and modified by their letter dated March 3, 2017.

7. In this regard, it is noted that VPIPL and its directors have been directed to refund `14.47 crore to the investors, with an interest at the rate of 15% per annum compounded at half yearly intervals, from the date when the repayments became due till the date of actual payment. The details of the amount of money mobilised by issue and allotment of NCDs, as mentioned in the final order, are as under:

Year Security Amount Raised (in ` Crore) No. of allottee (approx.) 2009-10 Secured Redeemable 0.1063 1063 2010-11 Non-convertible 1.5587 Not available 2011-12 Debentures (NCDs) 4.4799 Not available 2012-13 8.3264 5896 14.4713

8. Though the entities represented before SAT that an amount of `6 crores have been paid to various investors, in the representation submitted to SEBI they have claimed that an amount of approximately `8.75 crore have been refunded to the investors. Thus, there is inconsistency in the amount claimed to be refunded to the debenture holders and the entities have not furnished any proof of payment to debenture holders to verify it. In order to support their claim that they have refunded an amount of ` 8.75 crores to the investors, the entities have relied upon annual statement of accounts of the company for the year 2013-

2014 and auditor’s report dated October 30, 2014. It is observed from the statement of accounts that as on March 31, 2014, the liability of the company on account of long term borrowings by way of debenture has reduced by `8.75 crore in 2013-2014. However, this fact was not brought to notice by the entities before passing of the final order.

9. It is observed that the entities have not disclosed the details of amount paid towards principal and interest, date when the payment was made, mode of payment and details of investors who have been repaid, etc. Further, even the certificates of the chartered accountants submitted by entities through two different CA firms are similarly worded and apart from saying that ` 8.75 Crore have been refunded to investors it does not say that the claims of all such investors have been satisfied in full and that they were paid interest as directed in the order. Further, the certificates have been issued based on the information and explanations provided by management of the company and not on the basis of the actual verification of settlement of claims of the investors. In such circumstances, it cannot be accepted that claims of all such debenture holders who have been directed to be refunded have been satisfied in full and they have been paid principal amount and interest as directed in the final order.

10. With regard to extension of time for refund, the entities have requested for permission to pay in six instalments spread across 15 months, which may commence after three months from the date of disposal of the representation by SEBI. I am of the view that considering the number of investors involved, this is too long a time period for complying with the directions of refund. With regard to commencement of time period, it is noted that the order dated January 22, 2016 in para 26(c) permits the company and its present directors to sell the assets of the company for the purpose of making refunds to investors and deposit the proceeds in an escrow account opened with a nationalised bank. Since the entities have already submitted before SAT (order dated October 25, 2016 in Appeal No. 271 of 2016) that they are willing to comply with the order, nothing prevented them from selling assets of the company for the purpose of refund to debenture holders and deposit the proceeds in an escrow account so as to pay the investors at the earliest. However, they have not done so despite the expiry of more than a year. Surprisingly, vide letter dated March 3, 2017 entities have modified the proposed time schedule of refund to debenture holders where first instalment may be paid three months after the date of this order. It is observed that more than one year has elapsed since the passing of the final order and the entities have not refunded any amount to the investors till date, even though it was represented before Hon’ble SAT they have made payment to investors in compliance with the SEBI order for which no proof has been submitted. This shows the evasive attitude of the entities where they are only interested in buying time and not in actually repaying the investors. This casts a doubt on their bonafides. In such circumstances, and considering the fact that the entities have already enjoyed the benefit of more than a years’ time, I am not inclined to grant any extension of time to the entities for complying with the directions mentioned in order dated January 22, 2016.

11. In view of above, in order to protect the interest of investors, SEBI shall take necessary steps to initiate attachment and recovery proceedings against the Company and its directors for the purposes of making refunds to investors and may also initiate further proceedings in accordance with law. 12. The representation dated November 7, 2016 filed by VPIPL, Mr. Rajesh Kumar Rai and Mr. Manoj Kumar Rai is accordingly disposed of without any extension of time for compliance with the directions contained in order dated January 22, 2016. 13. The order shall come into effect immediately. A copy of the order shall also be served upon recovery officer.

DATE: April 28, 2017 G MAHALINGAM PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA