Order passed by WTM u/s 15-I (3) of the SEBI Act, 1992 in respect of Oxyzo Financial Services Private Limited

1. Securities and Exchange Board of India (“SEBI”) received a reference from Bombay Stock Exchange Ltd. (“BSE”) with regard to the Market Linked Debentures (“MLDs”) issued on private placement basis by Oxyzo Financial Services Private Ltd. (“the Noticee/Oxyzo/Company”). Upon examining the reference from BSE, SEBI observed that Oxyzo allotted MLDs on March 01, 2019 stating in the information Memorandum (“IM") that the MLDs will be unlisted at the time of issuance and will be listed on the wholesale debt market segment of BSE within 90 business days of the company attaining minimum net worth of INR 100 crores. SEBI further observed that, the net worth of the Company was less than Rs.100 crores at the time of issue of MLDs, which was allegedly in violation of eligibility criteria mentioned at clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011, regulation 20(2) of SEBI (Issue and Order in the matter of Oxyzo Financial Services Private Limited

Listing of Debt Securities) Regulations, 2008 (in short ILDS Regulations, 2008) read with clause 2(i) of Uniform Listing Agreement. 2. In view of the above, SEBI initiated Adjudication Proceedings against the Noticee under section 15 (I) of Securities and Exchange board of India Act, 1992 (‘SEBI Act’) to inquire into and adjudge under section 15HB of the SEBI Act, 1992, the alleged violations of provisions of clause 4(c) of SEBI circular no. IMD/DF/17/2011 dated September 28. 2011, Regulation 20(2) of ILDS Regulations, 2008 read with clause 2(i) of Uniform Listing Agreement. The Adjudicating Officer (“AO”) appointed under the said proceedings issued a show cause notice dated December 17, 2019 to the Noticee to show cause as to why an enquiry should not be held against it and why penalty under Section 15 HB of the SEBI Act, 1992 be not imposed on it for the violations alleged and specified in the SCN. Thereafter, an opportunity of filing reply and to appear for personal hearing was provided to the Noticee. The said opportunities were availed by the Noticee.

3. After considering the reply / submissions filed by the Noticee and the material on record, the AO vide order dated February 17, 2020 (“AO Order”) recorded the following finding: “Issue a: Whether the Noticee has violated the provisions of clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011, regulation 20(2) of ILDS Regulations, 2008 r/w clause 2(i) of Uniform Listing Agreement.? a) It is alleged in the said SCN that Noticee issued MLDs without satisfying the eligibility condition for issuance i.e. to have networth of Rs. 100 Cr at the time of issuance, which is prescribed as per clause 4 (c) of the said SEBI circular with the premise that such securities (MLDs) expose issuer to market risk. I note that market risk by definition is systemic risk embedded in the market owing to exogenous factors (https://www.investopedia.com/terms/m/ marketrisk.asp) and investor is exposed to market risk. In reply to the SCN, the Noticee has broadly contended that 1) the only allottee (investor) of the said issue had issued the term sheet having done due diligence and having the knowledge that MLDs will remain

Order in the matter of Oxyzo Financial Services Private Limited unlisted at issuance uptill 90 days of Noticee attaining Rs. 100 Cr networth, 2) the said circular talks about criteria at the time of listing and that Noticee has complied with this criterion at the time of seeking listing on May 18, 2019, 3) Noticee had attained net worth of Rs.100 crore on March 22, 2019, 4) Noticee misinterpreted inadvertently that Noticee needed to comply with Net worth criteria at the time of Listing only and 5) that it has redeemed the said MLDs and returned the money to the said investor with penal interest in terms of the termsheet. b) As regards, the allegation of OD and contentions of Noticee, the question before me is whether the Noticee needed to comply with clause 4(c) of the said circular at the time of issuance and not just at the time of listing. As regards, the other two violation provisions mentioned in the SCN, I note that clause 2(i) of Uniform Listing Agreement binds the issuer company to comply with relevant byelaws / regulations / circulars / notices / guidelines issued by the stock exchange from time to time, and that regulation 20(2) of ILDS Regulations, 2008 is binding upon the issuer to comply with conditions of listing of such debt securities as specified in the Listing Agreement with the stock exchange where such debt securities are sought to be listed.

These are both triggered chronologically after securities are issued and in the instant matter at the time of issuance there is alleged violation of the clause 4(c) of the said circular by the Noticee. Thus, the question before me is whether Noticee needed to have complied with clause 4(c) of the said circular (i) only at the time of listing or (ii) at the time of issuance and later on at the time of listing. c) The said circular has been issued under regulation 31(2)(c) of ILDS Regulations,2008 under the heading, power of the Board to issue general order or circular, which reads as “In particular, and without prejudice to the generality of the foregoing power and provisions of these regulations, such orders or circulars may provide for all or any of the following matters, namely: (a) ….; (b) ….; (c) Listing conditions. Hence, applicability of the said circular stems from Order in the matter of Oxyzo Financial Services Private Limited the applicability of ILDS Regulations, 2008. It is imperative to refer to regulation 3 of ILDS Regulations, 2008, which specifies the applicability of said Regulations, states that, “These regulations shall apply to- (a) public issue of debt securities; and listing of debt securities issued through public issue or on private placement basis on recognized stock exchange”.

Literal reading of regulation 3(1)(a) of ILDS Regulations, 2008 shows that the said regulation is applicable for public issue of debt securities and regulation 3(1)(b) ILDS Regulations, 2008 is for listing of debt securities issued through public issue and private placement. Further, as per definition of public issue as prescribed under regulation 2(1)(i) of ILDS Regulations, 2008 “public issue means an offer or invitation by an issuer to public to subscribe to the debt securities which is not in the nature of a private placement”. In view of the above, it is noted that applicability of ILDS Regulation,2008 as prescribed under regulation 3(1)(a) of ILDS Regulation, 2008 is only for public issue of debt securities and not for private placement. I note that while the subject of the said SEBI circular which is issued under enabling clause 31(2)(c) of ILDS Regulations, 2008 for listing conditions states, “Guidelines for Issue and Listing of Structured/Market Linked Debentures”, the clause 4 specifically mentions about various conditions including the Eligibility criteria for issuer (issuer should have a minimum networth of Rs. 100 crore) shall be complied with in respect of listing of structured debt/ equity linked debentures.

In the spirit of ILDS Regulations, 2008, which is making specific distinction between issue and listing of debt securities through private placement. I also read clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011 in the same light and it augur that listing and issuance are two distinct actions when it comes to privately placed debt, unless specifically mentioned, the listing criteria cannot be construed as issuance criteria. Thus, Noticee needed to comply with clause 4(c) at the time of listing. However, as seen from the reply of the Noticee, the said MLDs were not listed, hence, the said

Order in the matter of Oxyzo Financial Services Private Limited allegation of non-compliance of clause 4(c) of the said Circular does not stand established. d) In view of the above, I am of the view Noticee did not violate the provisions of clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011, regulation 20(2) of ILDS Regulations, 2008 r/w clause 2(i) of Listing Agreement. Therefore, the alleged violations against the Noticee in the SCN does not stand established and hence issues (b) and (c) do not arise”. 4. In view of the above reasons, the AO disposed of the Show Cause Notice dated December 17, 2019 without imposition of any penalty on the Noticee.

Proceedings under Section 15-I (3) of the SEBI Act: 5. SEBI, after examining the AO order dated February 17, 2020, was of the opinion that the said AO order, in as much as not holding the Noticee liable for imposition of penalty under section 15 HB of the SEBI Act, 1992 was erroneous and not in the interest of the securities market. 6. In view of the above, SEBI issued a Show Cause Notice dated May 6, 2020 under section 15-I (3) of SEBI Act to the Noticee advising the Noticee to show cause as to why appropriate penalty should not be imposed against the Noticee in terms of section 15HB of the SEBI Act, 1992, for the violation as alleged in SCN dated December 17, 2019, issued by AO. It was also mentioned therein that the contents of the show cause notice dated May 6, 2020 shall be read along with the previous SCN dated December 17, 2019 issued by the AO. The SCN further advised the Noticee to file a reply to the SCN within 21 days of its receipt and to indicate whether they wish to avail of an opportunity of hearing before Whole Time Member, SEBI.

Reply of the Noticee 7. In response to the SCN, the Noticee vide reply dated May 20, 2020 inter alia made the following submissions:

Order in the matter of Oxyzo Financial Services Private Limited

I. “that the Noticee had submitted Reply (Reply before AO”) vide letter dated January 03, 2020 against the show cause notice (“SCN of AO”) dated December 17, 2019 and vide hearing Notice (“First HN”) dated January 09 2020, an opportunity of hearing was granted to the Noticee, scheduled on January 22, 2020. Further to which, vide order dated February 17, 2020, (“Order of AO”) in exercise of the power conferred under section 15-I of the SEBI Act, the Adjudicating officer had disposed-off the adjudicating proceedings initiated against the Noticee without imposing any monetary penalty. II. Vide another Show Cause Notice dated May 06, 2020 (“SCN under Section 15 I (3)”) that the said AO’s order, is erroneous and not in the interest of the securities market in as much as the matter has not been decided on the merits of the case and directed to submit the reply to the aforesaid show cause notice(“SCN under Section 15 I (3)”) within period of 21 days from the date of receipt of said notice. III. Since aforesaid SCN shall be read along with the SCN dated December 17, 2019 issued by AO, at the outset, quickly summarising the nature of issue in the Notice: Brief detail of Issue: Company has issued 1700 rated, unsubordinated, secured, redeemable, principal -protected Market linked debenture of face value of Rs. 100,000/- each aggregating up to Rs. 17 crores on private placement basis to IFMR FImpact Income Builder Fund (Debenture holder/ Investor) and Vistra ITCL (India) Ltd. acted as Debenture Trustee and KFin Technologies Private Limited acted as Registrar to the Issue. IV. In this matter, we respectfully submit the following in response to the SCN under reference: i. The Company without prejudice to the contentions of violation of SEBI circular no. IMD/DF/17/2011 September 28, 2011, not satisfying the eligibility criteria with regards to Net worth of Rs. 100 crores as prescribed under said circular, would like to submit that at the time of issuance, Investor/ Debenture holder was well acquainted with the fact that the net worth of the company is less than INR

Order in the matter of Oxyzo Financial Services Private Limited

100 Crores and after due deliberate discussion around interpretation of the clause, Investor/ Subscriber had issued a term sheet dated February 28, 2019 for issue of 1700 rated, unsubordinated, secured, redeemable, principal -protected Market linked debenture of face value of Rs. 100,000/- each aggregating up to Rs. 17 crores on private placement basis with the clause- “the MLD will be unlisted at the time of issuance and will be listed in the wholesale debt market segment of BSE within 90 business days of the Company attaining minimum net worth of INR 100 crores” ii. Thus, leading to inclusion of similar language as the listing point under clause 5.23 regarding the issue details in Information memorandum issued by the Company, which was as follows: “Unlisted at the time of issuance. To be listed in the wholesale debt market segment of BSE within 90 days of the Company attaining minimum net worth of INR 100 crores” iii. Request your good-self to kindly consider the fact that there has been no mendacious/malafide intention behind the aforesaid issue as the clause was suggested/ offered by the investor/debenture holder itself in the term sheet with the full knowledge of the financial information of the Noticee. Subsequently, Information Memorandum issued by the company had been aligned with the Term Sheet keeping in view the interest of Investor/ Debenture holder and other stakeholders to the aforesaid issue. iv. In continuation to above para submission, we would like to reiterate that the listing clause has been suggested/ offered by the Investor/ Debenture Holder via the term sheet dated February 28, 2019 and keeping in view the interest and requirement of Investor/ Debenture Holder only, the company has aligned the listing cause of Information Memorandum with the same as mentioned in term sheet issued by the Investor/ Debenture Holder. Further, considering the mandates and objectives of SEBI circular no. IMD/DF/17/2011 September 28, 2011, and particularly taking into consideration the Debenture holder and Order in the matter of Oxyzo Financial Services Private Limited

Trustee’s interest in relation to the aforesaid issue, company has also complied with the mentioned clause by applying for listing after attaining net worth of Rs. 100 crores and in this regard, on May 20, 2019, shared the undertaking to BSE that the company has attained the net worth of Rs. 100 crores on March 22, 2019. v. Kindly note that, we completely agree to the fact that such Market Linked Securities carry a different risk-return relationship and with the same view in mind had successfully completed a detailed due diligence process / risk evaluation process conducted by the Investor prior to issuance of term sheet/ opening of issue leading to Investor having a full knowledge of the financial position of the company & the types of risks involved before the issuance itself. vi. Further, please note that as soon as the company received a confirmation from SEBI on the non-eligibility of the issuance and with conscious discussions with the investor, company has taken the required actions to prepay the principal amount along with the due interest for the said period to the investor/ Debenture Holder. vii. Thus, we request you to kindly consider the fact that the company had no intention to violate the aforesaid SEBI circular or to harm the interests of the investor/ debenture holder since the terms of issuance was pre-agreed with the investor and with no malafide objective or intention. viii. Further, please record our submission with respect to following regulations:  clause 4 (c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011- At the outset, we would like to draw your kind attention that clause 4 (c) of said SEBI circular states about conditions to be complied at the time of Listing as “The following conditions shall be complied with in respect of listing of structured debt/ equity linked debentures:  clause 4 (c) -Eligibility criteria for issuers: As such securities expose the issuer to market risk, the issuer should have a minimum net worth of at least`100cr.  The Company has complied this criterion at the time of seeking listing. Company has applied for listing on May 18, 2019 and has attained net worth of Rs. 100 crores on March 22, 2019.

Order in the matter of Oxyzo Financial Services Private Limited

 Outrightly, the objective of this circular is to follow the Guidelines for Issue and Listing of Structured Products/ Market Linked by the issuer.  Hence, we here submit that, it was interpreted that we need to comply with Net worth criteria at the time of Listing only as per clause 4 of SEBI circular no. IMD/DF/17/2011 September 28, 2011 which we had complied also as mentioned earlier that the Company had attained Net worth of Rs. 100 Crores on March 22, 2019 and had applied for listing on May 18, 2019.  Further, it was confirmed by the AO’s order dated February 17, 2020 that Noticee did not violate the provisions of clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011 and regulation 20(2) of ILDS Regulations, 2008 r/w clause 2(i) of Listing Agreement … ix. This is to submit to your good self that the Company has complied with the conditions of listing of debt securities as specified in the Listing Agreement with the stock exchange and by this means, Company has agreed to comply with the relevant byelaws/ regulations/circulars/notices/guidelines as maybe be issued by the Exchange from time to time. x. Further as stated above, your good -self will consider that there was no mendacious intention with respect to aforesaid issue therefore, we had mentioned listing clause in offer disclosure documents with the condition of attaining Net worth of Rs. 100 crores. Hence, we counter the statement made in the show cause notice under reference, that the Company has violated clause 4 (c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011 and regulation 20 of SEBI (Issue and listing of Debt securities) Regulation, 2008 ( ILDS Regulation, 2008) read with clause 2 (i) of uniform Listing Agreement intentionally since interpretation from the Literal reading of guidelines for Issue and Listing of Structured/Market Linked Debentures", the clause 4 specifically mentions about various conditions including the Eligibility criteria for issuer (issuer should have a minimum net worth of Rs. 100 crore) shall be complied with in respect of listing of structured debt/ equity linked debentures and regulation 3(1)(a) of ILDS

Order in the matter of Oxyzo Financial Services Private Limited

Regulations, 2008 shows that the said regulation is applicable for public issue of debt securities only and regulation 3(1)(b) ILDS Regulations, 2008 is for listing of debt securities issued through public issue and private placement. Also, it was pre-agreed with the investor, inadvertent and with no malafide objective or intention. xi. Therefore, it is pertinent to note here that the Company had redeemed the principal and interest amount to debenture holder on September 23, 2019 with the consent of majority debenture holder and trustee and the same is intimated to Bombay Stock Exchange on September 20, 2019 and revised intimation on September 26, 2019. Details of early redemption: Date of redemption September 23, 2019 Due date of redemption March 01, 2022 ISIN INE04VS07040 Number of units 1700 Principal Amount INR 17,00,00,000 Only Interest Amount INR 1,16,34,651 Only xii. At last, your good-self will appreciate that the Company has been continuously acting bonafidely and kept the concerned authorities informed about all developments and doing whatever it can do best to protect the interest of the stakeholder. xiii. We also request your good-self to give us opportunity of being heard in person so that we can clarify our position more specifically before taking any further action/ decision on this matter. xiv. By providing all the facts and explanation, we request you to avoid taking any disciplinary action against us. In future, we will be extremely careful and cautious with this regard.”

Order in the matter of Oxyzo Financial Services Private Limited

8. Thereafter, the Noticee was granted an opportunity of hearing on June 18, 2020 through video conference.

Hearing and submissions: 9. On June 18, 2020, Mr. Brij Kishore, Mr. Bhavesh Keswani and Mr. Ayushi Aggarwal, Authorised Representatives of Oxyzo appeared for the hearing through video conference and made the following submissions: i. They are an NBFC registered with RBI. ii. They issued the first debenture in January 2019 and second in February 2019. iii. As per unaudited financials of the Company, during the issuance, they had Rs. 83 Crores as Networth. By March 2019 they had attained a Networth of Rs. 105 crores. iv. It is admitted that they misinterpreted the law that the Networth should be attained at the time of listing and not at the time of Issuance. v. The investor also misunderstood the law and after deliberations, they included the clause in the term sheet that the Company will be unlisted and after attaining a Networth of Rs. 100 cores they will get it listed with BSE. vi. When BSE rejected their listing application, Company repaid the investor along with interest due.  In the hearing, the Noticee was directed to submit the accepted Term sheet and Agreement with the customer (signed), Bank Statement showing the receipt of money and date of redemption. In case bank statement did not show the payee name, then Bank Certificate indicating the payee to be submitted. 10. As requested, the Noticee was granted time till June 23, 2020 to submit the details/documents.

Order in the matter of Oxyzo Financial Services Private Limited

11. The Noticee, vide email dated June 23, 2020, submitted the aforesaid documents.

Consideration of Issues & Findings

12. I have considered the order passed by the AO dated February 17, 2020, the material relied upon by the AO, the show cause notice dated May 6, 2020, the reply filed by the Noticee along with documents contained therein and oral submissions made by the Noticee during hearing, documents filed by the Noticee post hearing and other material available on record. In the facts and circumstances of the case and in light of the above material available on record, the issues arising for consideration in the present proceeding are as under: i. Whether the interpretation in the order of AO regarding the Clause 4 (c) of the aforesaid Circular is erroneous to the extent it is not in the interests of the securities market requiring the invocation Section 15-I (3) of the SEBI Act, 1992. ii. If so whether the requirement of Clause 4 (c) of the aforesaid Circular for having net worth of Rs.100 crore is to be satisfied at the time of listing or at the time of issuance. iii. Whether the Noticee violated Clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011?

13. Before dealing with the issues for consideration in the present proceedings, I note that the relevant provisions involved in the present matter: ILDS Regulations, 2008

Applicability

Order in the matter of Oxyzo Financial Services Private Limited

3. “These regulations shall apply to- (a) public issue of debt securities; and (b) listing of debt securities issued through public issue or on private placement basis on recognized stock exchange”.

Conditions for listing of debt securities issued on private placement basis 20. (1) An issuer may list its debt securities issued on private placement basis on a recognized stock exchange subject to the following conditions: (a) the issuer has issued such debt securities in compliance with the provisions of the Companies Act,1956, rules prescribed thereunder and other applicable laws; (b) credit rating has been obtained in respect of such debt securities from at least one credit rating agency registered with the Board; (c) the debt securities proposed to be listed are in dematerialized form; (d) the disclosures as provided in regulation 21 have been made. (e) where the application is made to more than one recognized stock exchange, the issuer shall choose one of them as the designated stock exchange. (2) The issuer shall comply with conditions of listing of such debt securities as specified in the Listing Agreement with the stock exchange where such debt securities are sought to be listed. (3) The designated stock exchange shall collect a regulatory fee as specified in Schedule V from the issuer at the time of listing of debt securities issued on private placement basis.

Regulation 31-Power of the Board to issue general order or circular.

Order in the matter of Oxyzo Financial Services Private Limited “31 (2) “In particular, and without prejudice to the generality of the foregoing power and provisions of these regulations, such orders or circulars may provide for all or any of the following matters, namely: … (c) Listing conditions.”

“SEBI circular no. IMD/DF/17/2011 September 28, 2011 Sub: Guidelines for Issue and Listing of Structured Products/ Market Linked Debentures 1. SEBI had prescribed initial and continuous disclosure norms applicable to issue and listing of debt securities through the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 and the Simplified Listing Agreement for Debt Securities.

2. It has been observed that a variety of hybrid securities that combine features of plain vanilla debt securities and exchange traded derivatives are being issued through private placements and listed on stock exchanges. It is seen that such securities differ from plain vanilla debt securities or debt securities issued with embedded call or put options, i.e., by offering market linked returns obtained through exposures on exchange traded derivatives. Since such returns are linked to equity markets, such securities are also called equity linked debentures or stock linked debentures etc.

3. In view of the fact that such securities are different in their nature and their risk return relationship, it has been decided to specify additional disclosures and other requirements in offer documents for issue of structured products/ market linked debentures that seek listing on stock exchanges.

Order in the matter of Oxyzo Financial Services Private Limited

4. The following conditions shall be complied with in respect of listing of structured debt/ equity linked debentures: a) Applicability: These guidelines shall be applicable to ‘structured products’ or ‘market linked debentures’, by whatever name they are called including all such securities that have an underlying principal component in the form of debt securities as defined under R.2(d) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and where the returns are linked to market returns on other underlying securities/ indices.

b) Securities which do not promise to return the principal amount in full at the end of the tenor of the instrument, i.e., ‘principal non-protected’ shall not be considered as debt securities under R.2(d) of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and therefore will not be eligible for issue and listing under the said regulations. c) Eligibility criteria for issuers: As such securities expose the issuer to market risk, the issuer should have a minimum net worth of at least Rs.100cr. ….”

ISSUE NO. I and II i. Whether the interpretation in the order of AO regarding the Clause 4 (c) of the aforesaid Circular is erroneous to the extent it is not in the interests of the securities market requiring the invocation Section 15-I (3) of the SEBI Act, 1992. ii. If so whether the requirement of Clause 4 (c) of the aforesaid Circular for having net worth of Rs.100 crore is to be satisfied at the time of listing or at the time of issuance.

Order in the matter of Oxyzo Financial Services Private Limited

14. The impugned AO order has imposed no penalty on the basis of an interpretation of ILDS Regulation 2008 vis-a-vis Clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011. The current show cause notice has been issued under Section 15-I (3) of the SEBI Act on the ground that such order is erroneous to the extent it is not in the interest of the securities market. 15. I note that in order to invoke powers under Section 15-I (3) of the SEBI Act, it is necessary to examine whether the AO Order is erroneous to the extent it is not in the interest of securities market. In this regard it is essential to analyze the reasoning of the AO which is based on the following premises:- i. These regulations apply to two different categories viz.,  first category:- public issue of debt securities;  Second category:- listing of debt securities issued through public issue or on private placement basis on recognized stock exchange. ii. Regulation 3(1)(a) of ILDS Regulations, 2008 is applicable to the first category and Regulation 3(1)(b) ILDS Regulations, 2008 is applicable to the second category. iii. The applicability of ILDS Regulations, 2008 as prescribed under regulation 3(1)(a) of ILDS Regulation, 2008 is only for public issue of debt securities and not for private placement iv. SEBI circular no. IMD/DF/17/2011 dated September 28, 2011 has been issued under enabling clause of Regulation 31(2)(c) of ILDS Regulations, 2008. v. Listing and issuance are two distinct actions when it comes to privately placed debt, unless specifically mentioned, the listing criteria cannot be construed as Order in the matter of Oxyzo Financial Services Private Limited issuance criteria. vi. The clause 4 of SEBI circular dated September 28, 2011 specifically mentions about various conditions including the Eligibility criteria for issuer (issuer should have a minimum networth of Rs. 100 crore) shall be complied with in respect of listing of structured debt/ equity linked debentures. vii. Thus, Noticee needed to comply with clause 4(c) only at the time of listing.

16. As stated by the AO, ILDS Regulations applies to two different categories. Regulation 3(a) states that the Regulations applies to the first category and Reg. 3(b) states that it applies to the second category. When it comes to the third point, I note that the ILDS Regulations does not specify the particulars of any provisions which are issued under Regulation 3(a) of the ILDS Regulations. However, the entire provisions have to be read and categorized whether a particular provision is in respect of the first category or the second category. As stated in the said circular the same has been issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 31(2)(c) of ILDS Regulations. Therefore, the circular is providing for listing conditions. In point No. 4, the AO order makes a distinction between action of listing and action of issuance in case of private placement of debt and concludes since action of listing and action of issuance is distinct, unless specifically mentioned, the listing criteria cannot be construed as issuance criteria. “The Points at 4 to 6 together would show that listing criteria has to be complied with at the time of listing”. The reasoning adopted in the AO order however, carves out an exception that “unless specifically mentioned” listing criteria has to be complied at the time of listing. This further shows that the premise in the AO order envisages that there can be situations where the listing criteria should be complied with before the time of action of listing, including at the time of issuance. 17. On perusal of the Regulation 31(2) (c), I find that the said provision recognizes that SEBI has power to prescribe listing conditions through circulars. The said clause does not

Order in the matter of Oxyzo Financial Services Private Limited envisage the time when the said conditions are to be satisfied. In other words, as a condition of listing, SEBI can prescribe various measures termed as listing conditions. The beginning point of satisfaction of a particular listing condition or the duration for which such condition has to be satisfied are left open for SEBI to prescribe in order to achieve the objectives of investor protection or development of the capital market. The Regulation 31(2) (c) only identifies “listing condition” as a subject over which SEBI has power to issue circulars. The expansion of that subject as to “what matters to be prescribed” as listing condition, or the manner of compliance of listing conditions or the time or the duration when the listing condition is to be satisfied are left to the discretion of SEBI to be exercised in furtherance of its objectives. I find that Regulation 31(2) (c) does not place a fetter on SEBI that the listing condition have to be satisfied only at the time of listing and not prior to the time of listing. 18. At this juncture reference may be made to section 15-I (3) of the SEBI Act, 1992 which reads as under: “The Board may call for and examine the record of any proceedings under this section and if it considers that the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities market, it may, after making or causing to be made such inquiry as it deems necessary, pass an order enhancing the quantum of penalty, if the circumstances of the case so justify: Provided that no such order shall be passed unless the person concerned has been given an opportunity of being heard in the matter:” 19. It is noted that section 15-I (3) was inserted in the SEBI Act vide the Securities Laws (Amendment) Act, 2014. Under this section, the Board has been conferred the power to call for and examine the records of any Adjudication Proceedings taken up under section 15-I, which essentially pertains to Adjudication Proceedings under the SEBI Act.

Further, the Board has the power to make an inquiry or it can cause an inquiry to be made, if it considers that the order passed by the AO is erroneous to the extent that it is not in the Order in the matter of Oxyzo Financial Services Private Limited interest of securities market. 20. I also note the observations of the Hon'ble Madras High Court in the matter of Bhavani Mills Limited Vs State of Tamil Nadu Order dated October 03, 1991 wherein it was held ".......... the word "enhance" is wide enough to enhance the penalty from zero to something ......... the word "enhance" is sufficient enough to enable the Tribunal to impose penalty which was not imposed ...". 21. Further, I note that the language of provisions under Section 15-I (3) of the SEBI Act are to an extent similar to section 263(1) of the Income Tax Act, though not in entirety as both the statutes deal with different subjects. Therefore, they cannot be considered as Pari materia. The same can be seen from the objectives of both the statutes. I note that SEBI is vested with statutory powers to regulate the securities market with the object of ensuring investors' protection and the orderly and healthy growth of the securities market whereas Income Tax Act is a comprehensive statute which governs taxation and provides for levying, administering, collecting and recovering income tax.

I note that the powers exercisable and parameters applied under Section 15-I (3) of the SEBI Act is wider in nature than the powers under section 263(1) of the Income Tax Act as section 15- I (3) of the SEBI Act, empowers the Board to enhance the quantum of penalty imposed by the AO, if the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities market. In view of the broader extent of the sweep of section 15 (I) (3) when compared to Section 263(1) of the Income Tax Act, the testing on the basis of narrow parameters laid down in case laws dealing with Section 263(1) would also satisfy the test of broad parameters under section 15 (I) (3) of the SEBI Act. 22. I proceed to apply the narrow parameters used under the Income Tax Act in the present case for the purpose of interpretation of the term ‘erroneous”. In this regard, I place reliance on the observation of the Hon’ble Supreme court in the matter of Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax ( [2000] 243 ITR 83) wherein it was observed that “An incorrect assumption of facts or an incorrect application of law will

Order in the matter of Oxyzo Financial Services Private Limited satisfy the requirement of the order being erroneous”. “where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law”. 23. The order of AO proceeds on the erroneous premise that listing conditions have to be complied with only at the time of listing. Such an erroneous premise is not sustainable in law. While listing and issuance are two different actions, it is permissible that there can be listing conditions which has to be satisfied at the time of issuance and at the time of listing. This is further reflected in the definition of issuer in Regulation 2(1) (g) of the ILDS Regulations, 2008 which captures within its ambit not only an entity which makes or proposes to make an issue of debt securities but also an entity “which seeks to list its debt securities on a recognized stock exchange”. It is noted that SEBI regulates, inter alia, the Companies which seek to list privately placed debts.

In order to provide protection to the investors who invest their money on the representation that the Company seeks to list its private placed debts, various stipulations to achieve the said objective are prescribed by SEBI by way of listing conditions. The same can include a condition which has to be complied from the time of issuance and at the time of listing and thereafter as well. For instance, listing requirement for listing of equity shares stipulate that the issuer has to have a profitability track record for three years. In other words, SEBI can stipulate a condition which needs fulfillment and compliance before listing. The regulatory objective is that any investor who invests in the privately placed debt on the faith of representation by the Company that it seeks to list needs protection in certain areas from the time of issuance of the debt itself. Any contrary interpretation as placed in the AO order would fetter the investor protection measure by way of listing condition which needs their compliance from the time of issuance itself. Therefore, I hold that the interpretation made in the AO order that the listing criteria has to be complied with only at the time of listing is unsustainable in view of the above discussion.

As stated above, if a view cannot be sustainable in law, it would not come under the category of case where two views can be Order in the matter of Oxyzo Financial Services Private Limited possible within the law. Further any view or decision of the AO which is unsustainable in law directly affects the protection of the investors. 24. Having concluded so, the next question that arises for consideration is at what point in time the net worth criteria as mentioned in clause 4 (c) of the SEBI Circular needs to be satisfied. 25. I note that the AO order concluded that the requirement of net worth of Rs.100 crores by the issuing company contemplated under Clause 4 (c) of the SEBI circular no. IMD/DF/17/2011 dated September 28, 2011 is at the time of listing only and not at the time of issuance. 26. As already noted that the ‘issuer’ include the company which seeks to list its debt securities on a recognized stock exchange”. A Company falls within the definition of “issuer” once it expresses its intention to list. The clause 4(c) of the Circular, prescribes the eligibility criteria of such “issuer”.

If a company has expressed its intention to list, the eligibility criteria gets triggered as it is an “issuer” from that time onwards, even though it may have issued privately placed debt. 27. I note that once the intention to list is expressed by the ‘issuer’, it is reasonable that the investor relies upon the same and takes the same into account while making the investment decision believing that the securities are going to be listed. The decision of the investor to invest in the securities is in itself, based on an assumption that the security is going to be listed. Therefore, in order to protect the investors, it is imperative that at the time of decision making by the investors, the condition of net-worth has to be fulfilled. If at this stage, the issuer is not even eligible to do the listing then the expression of intend to list is misleading and the investor can be misled into investing in an instrument which he believes is going to be listed, whereas at that point of time it is not even eligible for listing. In view of the same, I am of the view that the crystalized time for eligibility criteria is at the time of issuance.

Any other interpretation of the law will lead to mischief and misrepresentation.

Order in the matter of Oxyzo Financial Services Private Limited

28. It is also pertinent to be mentioned here that the circular in all relevant clauses creates an obligation as part of listing condition on the “issuer” which can include a company which seeks to list the privately placed debt securities. Further, if the interpretation offered by AO of clause 4(c) of the circular dated September 28, 2011 is accepted, it may lead to a situation where the issuer, at the time of issuance, may indicate its intention to get its MLDs listed and relying on this information, investor would have more confidence in the issue as listing provides more compliance and disclosure and possible liquidity to the investor. However, if the issuer later fails to get it listed, it may not be in the interest of the investor who relied on listing assurance by the issuer. 29. The Clause 4 (c) of the said circular is required to be read not in isolation but by going into the true meaning of the said clause 4 of the said circular. In this regard, I note that it is well settled that clauses in a statute should not to be seen in isolation and are to be read with reference to other clauses and scheme of statute overall keeping in mind the objective/intent of the Regulation.

The Hon’ble Supreme Court in the case titled Godawat Pan Masala Products I.P Ltd. Vs. UOI and Ors., {(2004) 7 SCC 68} specifically noted that “it is an accepted canon of construction of Statues that a statute must be read as a whole and one provision of the Act should be construed with reference to the other provisions of the same act so as to make a consistent, harmonious enactment of the whole statute. The court must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed, but to the scheme of the entire statute… ”. 30. There are other conditions specified in this circular such as credit rating, valuation etc. which are imposed on the “issuer” and they are meaningful only when they are compiled at the time of issuance and not only at the time of listing. For instance, Clause 4(e) of the circular specifies certain disclosures requirements in addition to the Schedule-I of SEBI (ILDS) Regulations. It is pertinent to note that these additional disclosures such as credit rating disclosure, valuation matrix showing value of security, prominently displaying of risk factors, indicative returns, conditions for premature redemption, etc. need to be made in offer document for such securities.

Order in the matter of Oxyzo Financial Services Private Limited

31. Therefore, I hold that interpretation of the AO with regard to ILDS Regulation 2008 vis-a-vis Clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011 is erroneous to the extent that it is not in the interest of the securities market and the requirement of Clause 4 (c) of the aforesaid Circular for having net worth of Rs.100 crores triggers at the time of issuance. In light of the above discussion I find that it is a fit case to invoke the powers under section 15-I (3) of the SEBI Act, 1992.

ISSUE NO. III: Whether the Noticee violated Clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011?

32. Since the requirement under Clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011 is imposed on the “issuer”, it is pertinent to determine whether the Noticee falls within the definition of “issuer” by way of seeking to list its MLDs as stated in the Clause 5.23 of the Information Memorandum. It is noted from the Information Memorandum dated February 28, 2019, Clause 5.23 that “the MLDs shall be unlisted at the time of issuance and are proposed to be listed on the Wholesale Debt Market of BSE within 90 days from the issuer company attaining a minimum net worth of Rs.100 crores. In this regard, I have perused the clauses of Term sheet entered into between the Noticee and the Allotte/Investor. From the perusal of listing clause of Term Sheet, I note that the Noticee mentioned the same as “Unlisted-to be mandatorily listed once the Net worth crosses INR 100 Cr. Issuer to have 90 days to list once Net Worth crosses INR 100Cr.” In this context, I note the purpose behind regulating the company which seeks to list the privately placed debts is that investors make their investment decision on such representation of listing. Therefore, if there are situations where such unequivocal intention to list is not expressed, the investor relying on the comfort of assurance of listing does not arise. The protection extended to the investor is in respect of the company which is issuing privately placed debt with unequivocal intention to list, expressing the intention at the time of issuance. The listing clause in the instant case is contingent upon the Order in the matter of Oxyzo Financial Services Private Limited

Company attaining the Net Worth of INR 100 Crores. I note that the investor was well informed about the said fact, therefore, the investor was never misled. Further, I note that if the terms of listing, as mentioned in the present case which is not an unqualified and unconditional intent and in a private placement scenario where there are expected to be a limited number of informed investors, the articulation is clear that the clause in the Term Sheet which is conditional in nature and envisages that listing may not happen, then I am of the view that the same does not constitute a clear intention to list. Therefore, in view of the circumstances of this case it is difficult to consider Noticee as an “issuer” within the definition of Section 2(g) of the ILDS Regulation 2008.

33. Therefore, since the Noticee is not falling within the definition of ‘issuer’ in the instant case, I find that the Noticee not violated Clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011. Summary 34. In view of the above observations and findings, I sum up the following: 34.1. The view taken by the AO while interpreting of ILDS Regulations, 2008 vis-a-vis Clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011 is not sustainable and therefore, erroneous to the extent it is not in the interest of the securities market which allows SEBI to invoke the powers under Section 15 I (3) of the SEBI Act. 34.2. The Regulation 31(2) (c) only identifies “listing condition” as a subject over which SEBI has power to issue circular. The expansion of that subject as to “what matters to be prescribed” as listing condition, or the manner of compliance of listing conditions or the time or the duration when the listing condition is to be satisfied are left to the discretion of SEBI to be exercised in furtherance of its objectives of investor protection. 34.3. Clause 4 (c) of the SEBI circular no. IMD/DF/17/2011 September 28, 2011 triggers

Order in the matter of Oxyzo Financial Services Private Limited at the time of issuance of structured debt/equity linked debentures issued through public issue or on private placement basis on a recognized stock exchange. 34.4. The AO order dated February 20, 2020, is not sustainable in the eyes of law as the view taken by AO is erroneous to the extent that is not in the interest of securities market. 34.5. The listing in the instant case is contingent upon the fact of attaining the Net worth of INR 100 Crores which may not happen. Such conditional clause does not constitute a clear intention to list rather, a conditional/contingent intention to list, which is also clear to the investor. Hence, the Noticee is not falling within the definition of ‘issuer’ in the instant case and the Noticee has not violated Clause 4(c) of SEBI circular no. IMD/DF/17/2011 September 28, 2011. Order 35. In view of the aforesaid observations and findings, I, in exercise of the powers conferred under section 19 of the Securities and Exchange Board of India Act, 1992 read with section15-I (3) of the SEBI Act, 1992, hereby dispose of the SCN qua the Noticee viz., Oxyzo Financial Services Private Ltd without any penalty. 36. Copy of this order shall be sent to the Noticee.

DATE: November 20, 2020 MADHABI PURI BUCH PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in the matter of Oxyzo Financial Services Private Limited