Panchanan Pradhan vs Sebi

Date of Decision : 19.03.2020

Appeal No. 6 of 2017

Mr. Debasis Padhy C/o Sunil Kumar Acharya, Basudev Nagar, 4th Lane, Gajpati Nagar, Berhampur, Ganjam District, ..... Appellant Odisha - 760 010.

Versus

Securities and Exchange Board of India. SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ....Respondent

Mr. Mahaveer Rajguru, Advocate i/b Regstreet Law Advisors for the Appellant.

Mr. Vishal Kanade, Advocate with Aksha Hudda, Advocate i/b Juris Corp for the Respondent.

AND Appeal No. 17 of 2017 Panchanan Pradhan Kotari, Khanata, Balugaon, Pin 752030 Dist. Khordha, Odisha ..... Appellant

Versus

1.

Securities and Exchange Board of India.

SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051.

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2. Green India Infra Projects Limited Plot No. 10, Satya Nagar, Bhubaneswar - 751007. Odisha.

3. Pradeep Kumar Singh Main Road, Gandhi Nagar, Paramjyoti Cinema Hall Square, Berhampur, Pin - 760001. Odisha.

4. Debasis Padhy, Somanath Nagar, 2nd Line, Bada Bazar, Berhampur, Ganjam, Pin - 760001. Odisha.

5. Trinath Panda, Gajapati Nagar, 14th Lane, Bada Bazar, Berhampur, Pin - 760010. Odisha.

6. Snehlata Singh, C/o Makhanlal Modi, Ram Nagar, 1st Line, Lanjipalli, Baidyanathpur, Berhampur, Ganjam, Pin - 760008. Odisha.

7. Suchitra Rani Panda, C/o S.D. Pattnaik, Somnath Nagar, 2nd Lane, Aska Road, Berhampur, Pin - 760001. Odisha.

8. Sandeep Kumar Singh, Gandhi Nagar, 4th Line East, Orissa, Pin - 760004. Odisha.

9. Sanjeeb Kumar Das, Somnath Nagar, 2nd Lane, Aska Road, Berhampur, Pin - 760001. Odisha. ....Respondents

Mr. Prakash Chandra Sethi, Advocate for the Appellant. 3

Mr. Vishal Kanade, Advocate with Aksha Hudda, Advocate i/b Juris Corp for Respondent No. 1.

CORAM : Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member

Per : Justice M.T. Joshi, Judicial Member

1. Aggrieved by the slew of directions issued by the Whole

Time Member ('WTM' for short) of the Securities and

Exchange Board of India ('SEBI' for short) dated October 28,

2016 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 and

regulation 107 read with regulation 111 of the SEBI (Issue of

Capital and Disclosure Requirements) Regulations, 2009

('ICDR Regulations' for short) against the present appellants,

the present appeal is filed.

2. In short, the WTM directed that the present appellants

along with other directors and Green India Infra Projects

Limited ('GIIPL' for short) shall make full repayment of the

money collected through issuance of Secured Optionally

Convertible Debentures ('SOCD' for short) with interest @

15% per annum as per the directions given in detail in the

impugned order.

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3. The facts on record would show that GIIPL issued

SOCD on December 16, 2010 to two companies, namely,

Green India Retailing Pvt. Ltd. and Green India Properties

Pvt. Ltd. which are the group companies of GIIPL. These

group companies, in turn, allotted these SOCDs to 751

persons within a period of one month.

4. SEBI, therefore, alleged that the allotment and transfer

of SOCDs to the two group companies was merely a device to

misguide the regulatory authorities to circumvent the

provisions of Section 67(3) of the Companies Act, 1956 as

issue of more than 50 securities would be a public issue

attracting the provisions of the Companies Act as well as of

ICDR Regulations.

5. It appears that GIIPL or its representative did not appear

before SEBI despite the efforts to serve notices upon them by

respondent SEBI. The learned counsel for the respondent

SEBI adverted the attention of the Tribunal to the fact noted

in the interim order dated March 4, 2015 which inter alia

records that as the show cause notice could not be delivered to

the GIIPL, SEBI officers visited the registered premises of the

company on November 25, 2015 and found that the office did 5

not exists at the address. It also records that a crime was

already registered by Odisha Police regarding the money

raising activities of the GIIPL and that the Supreme Court of

India had directed Central Bureau of Investigation (CBI) to

take over the investigation in the overall affairs of the GIIPL.

6. Other noticees including the present appellant

Mr. Debasis Padhy and Panchanan Pradhan appeared before

the WTM. They placed their respective cases before the

WTM. The WTM, however, passed the impugned order.

Hence, the present appeal.

Appeal No. 6 of 2017:-

7. Appellant Mr. Debasis Padhy right from October 29,

2015 till July 29, 2016 either sought time to file written

submissions or went on requesting that the hearing be

conducted at Bhuvaneshwar. He had, however, sent his

written submissions vide letter dated October 29, 2015 and

July 29, 2016. In these letters cum submissions the appellant

submitted that GIIPL had issued SOCDs only to two

companies and therefore there was no breach either of the

Companies Act or ICDR Regulations. During the relevant

period he had not participated in the affairs of the company

nor enjoyed the amount received through SOCDs. He was 6

only a name lender director of the company. According to

him Mr. Pradeep Kumar Singh and Sunilkumar Panda were

responsible for the issue of SOCDs. In the circumstances, he

wanted that he be exonerated from the proceedings.

8. The WTM of SEBI upon perusal of Memorandum of

Association and Articles of Association found that the present

appellant Debasis Padhy was one of the original subscribers

to the same and was also promoter of the company. During

the relevant period he was director. In the circumstances,

taking aid of the Section 291 of the Companies Act the

appellant was held liable.

9. The learned counsel for the appellant submitted before

us that the appellant was only an additional director. The issue

of SOCD was not a public issue. The Managing Director

Mr. Sandeep Kumar was responsible for all the acts. Since the

present appellant cannot be termed as officer in default, in

view of the provisions of Section 27 of the SEBI Act and

Section 5 of the Companies Act. He further submitted that a

circular of Ministry of Corporate Affairs dated July 28, 2011

annexed to the rejoinder would show that a differentiation

between officers in default and the directors are required to be

taken into consideration. He also relied on decisions of this 7

Tribunal in the cases of Sayanti Sen vs. Securities and

Exchange Board of India (Appeal No. 163 of 2018 decided

on August 9, 2019) and Pritha Bag vs. Securities and

Exchange Board of India (Appeal No. 291 of 2017 decided

on February 14, 2019) and submitted that the appeal be

allowed.

10. The learned counsel for the respondent relying on the

material as discussed detailed earlier submitted that the

appellant was the promoter of GIIPL. The two other private

limited companies were group companies of GIIPL and

therefore the appellant cannot take benefit of other provisions

or decisions of this Tribunal.

11. According to us, it cannot be gainsaid that the appellant

is the promoter of GIIPL. He was admittedly the director

during the relevant period. The appellant has not placed any

case before the respondent SEBI that any other person was

Managing Director of GIIPL and placed a new case before us.

He was given sufficient opportunity to put his case before

respondent SEBI as detailed (supra). Section 73 of the

Companies Act, 1956 reads as under:-

"73(1) Every company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an 8

application to one or more recognised stock exchanges for permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or each such stock exchange.

(1A) Where a prospectus, whether issued generally or not, states that an application under sub-section (1) has been made for permission for the shares or debentures offered thereby to be dealt in one or more recognized stock exchanges, such prospectus shall state the name of the stock exchange or, as the case may be, each such stock exchange, and any allotment made on an application in pursuance of such prospectus shall, whenever made, be void, if the permission has not been granted by the stock exchange or each such stock exchange, as the case may be, before the expiry of ten weeks from the date of the closing of the subscription lists:

Provided that where an appeal against the decision of any recognized stock exchange refusing permission for the shares or debentures to be dealt in on that stock exchange has been preferred under section 22 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), such allotment shall not be void until the dismissal of the appeal.

73(2) Where the permission has not been applied under sub-section (1), or, such permission having been applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the company becomes liable to repay it, the company and every director of the company who is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money with interest at such rate, not less than four percent and not more than fifteen per cent, as may be prescribed, having regard to the length of the period of delay in making the repayment of such money."

12. The WTM relying on the provisions of sub section 2 of

Section 73 of the Companies Act has observed that the 9

liability of the Company and directors would remain until the

whole of the subscription amount along with interest is

refunded to the allottees.

13. This being the position the appellant cannot escape from

the liability of the repayment. In the case of Sayanti Sen

(supra) this Tribunal has observed that WTM in the

impugned order therein had given a categorical finding that

one Shri Shib Narayan Das was responsible for the affairs of

the company. In the present case the appellant during the

relevant period being a promoter director of GIIPL cannot

escape from the liability.

14. In the case of Pritha Bag (supra) also finding that one

Late Indranath Daw was the Managing Director of the

defaulting company, the director Pritha Bag was exonerated

by this Tribunal. Since facts are distinguishable the ratio of

the same cannot be applied in the present case.

15. The circular of the Ministry of Corporate Affairs dated

July 29, 2011 is also on the similar line indicating as to who

can be held as an officer in default. Considering all the

materials on record the appeal is dismissed. 10

Appeal No. 17 of 2017:

16. Appellant Panchanan Pradhan vide the written

submissions dated August 25, 2015 and August 19, 2016

submitted before the WTM that GIIPL did not issue SOCDs

to the private entities but only to the two companies (supra).

He had not participated in the affairs of the GIIPL directly or

indirectly in the issue of SOCDs. He has not mobilized funds

through the issue of SOCDs and therefore he should be

exonerated.

17. The WTM found that present appellant Panchanan

Pradhan was original subscriber to the Memorandum of

Association as well as promoter of the GIIPL. He was director

during the relevant period of GIIPL and moreover director /

promoter in the group companies of GIIPL to whom the

SOCDs were issued which, in turn, were issued to the number

of private entities as detailed (supra). Therefore, applying the

reasons as applied to the cases of Mr. Debasis Padhy and

other noticees similar order was passed against him.

18. The learned counsel for the appellant submitted before

us that the appellant did not attend the meetings of the GIIPL.

He was merely a name lender director in both the companies. 11

He was not connected with any of the affairs. One Mr. Sanjit

Kumar was held responsible by WTM in his opening

paragraph but in the final order no order was passed against

the said Sanjit Kumar who was also the promoter of GIIPL.

Further, relying on the ratio of Madhavan Nambiar vs

Registrar of Companies [2002 108 Com Cases 1] as

extracted in the written note of submissions, submitted that

the appeal be allowed.

19. On the other hand, learned counsel for the respondent

submitted that the record as detailed (supra) would show that

GIIPL and its directors played a fraud upon the investors in

which the CBI conducted the investigation on the directions

of the Supreme Court of India. A new plea is raised before

this Tribunal that GIIPL had a Managing Director. The

appellant himself was promoter / director of GIIPL as well as

of the group companies and therefore in the facts of the case

he submitted that appeal be dismissed.

20. In our view the appeal is liable to be dismissed. No plea

was taken before the WTM that the GIIPL was run by a

Managing Director. The appellant was admittedly promoter

cum director of GIIPL as well as of the group companies. 12

21. Insofar as a case of Sanjeeb Kumar is concerned we find

that in paragraph 25 of the impugned order the WTM clearly

held that said Sanjeeb Kumar was responsible. However, in

the final order his name was not merely included so far as

direction no. 29(i). However, his name is included in other

directions and thus it is a case of inadvertent mistake on the

part of the WTM of which present appellant cannot take any

benefit. The case of Madhavan Nambiar (supra) would

show that the facts of the same were different. The appeal is

therefore liable to be dismissed.

22. We, therefore, pass the following order:-

(a) Appeal Nos. 6 of 2017 and 17 of 2017 are hereby

dismissed with no order as to costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Justice M.T. Joshi Judicial Member 19.03.2020 Prepared and compared by:msb