TaxTMI 
TaxTMI 
TaxTMI 
2016 (8) TMI 1384
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....h Sran, Mr. Gajraj Singh Chauhan, Mr. Manjeet Kaur Sran, Ms. Jasbeer Kaur, Mr. Rakesh Kumar Tomar, Mr. Sukhdev Singh Dhillon and Ms. Sukhjeet Kaur, shall not solicit or collect any further money/ investments from investors/ customers into its schemes or launch or carry out any money collection schemes. ii. HBN and its aforesaid directors shall submit to SEBI, a reasonable proposal including firm time lines with regard to the manner in which it proposes to wind up its schemes and make payments along with the returns which are due to its investors. This proposal shall be submitted within a period of 30 days from the date of this Order. iii. HBN and its aforesaid directors shall not dispose of any of the properties including the properties mentioned in Annexure A, except for the purpose of winding up of its schemes and repaying the money to its investors/ customers with returns that have been promised to them, as directed." 3. Pursuant to the said Interim Order, HBN vide letter dated August 08, 2013, forwarded a repayment proposal/ schedule to SEBI along with a list of its properties. It also proposed to repay an amount of Rs. 1,136.78 crores in a phased manner in consonance with....
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.... escrow account 100% of cash/ deposits in any form with bank or other institutions available with HBN 2 Within three months from the date of receipt of SEBI letter 33% of the remaining total money due to the investors 3 Within six months from the date of receipt of SEBI letter 33% of the remaining total money due to the investors 4 Within nine months from the date of receipt of SEBI letter 34% of the remaining total money due to the investor + the additional amount if any * RTA to repay the money to the investors from the escrow account on proportionate basis. HBN has to provide an undertaking in the form of an affidavit to the effect that the said money would be utilized only for the purposes of repayment to investors. * HBN to submit a monthly report to SEBI on the progress of realization of assets/ selling of scheme assets. 4. It is noted that SEBI constantly reviewed HBN's repayment procedure from 2014 through several correspondence exchanged with HBN as well as by conducing various meetings with HBN and RTA. During the course of such reviews SEBI observed the following: i) The repayments were not being made from the escrow account opened for the purposes of re....
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....ve been received by SEBI, alleging therein that the branch office of HBN has informed them that the payment of matured amount shall be made by SEBI. * HBN has issued post-dated cheques to its investors. Certain investor complaints have also alleged that the cheques received from HBN are getting bounced. * That the agents of HBN are asking for fresh deposits and are threatening investors of not getting their money back unless money is deposited in new scheme. * Hon'ble Delhi High Court in its order dated November 14, 2014, has also prima facie observed substantial lapses and transfer of funds between HBN and its subsidiaries and referred the matter to Serious Fraud Investigation Office (SFIO). iv) It is noted from the Auditors report submitted by the Auditor R. Shandilya & Associates who conducted post verification repayment audit of HBN for 1,99,877 investors amounting to Rs. 192.96 crores submitted the following observations: * HBN has paid to 45,670 investors through cheques and 1,54,207 investors through cash. Such payments have been made without the supervision of RTA. * In certain cases full chain of repayments were not available. * HBN has used the stationary....
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....recalling of the directions of Hon'ble High Court. As per the order dated December 09, 2014, the Hon'ble Court directed HBN that in case any further assets of HBN are sought to be sold, intimation with regard to the book value of the assets and proposed sale consideration along with the details of recorded owner of the asset shall be furnished to the Hon'ble Court, prior to the transaction being completed. 6. It is noted that SEBI considered in detail the schemes launched by HBN, various submissions made by HBN and the repayment procedure adopted by HBN pursuant to the interim order. Thereafter, SEBI vide Order bearing no. WTM/PS/71/CIS-NRO/FEB/2015 dated February 12, 2015 ("final order") made the following observations: I. The schemes/arrangements/operations of HBN are in the nature of collective investment schemes in terms of section 11AA of the SEBI Act, 1992 for the reasons detailed in the said Order at paragraph number 16. II. As HBN carried out the schemes without obtaining registration from SEBI, HBN had violated the provisions of section 12(1B) of the SEBI Act, 1992 and regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 ("CIS Regulat....
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.... natural justice, vide hearing notice dated August 04, 2016, an opportunity of personal hearing was granted before me on August 09, 2016. HBN attended the hearing and was represented by its Advocates. 10. I have considered the material available on record such as Orders passed by SEBI, repayment proposal dated May 19, 2016 submitted by HBN and the oral submissions made before me by HBN during the hearing dated August 09, 2016. On examination of the same, I note the following: 10.1 The repayment proposal that HBN has now proposed is a structured repayment mechanism which involves setting up an independently managed ring fenced Special Purpose Entity ("SPE") in the nature of a trustee company as a corporate registered under the Indian Trust Act, 1882. The salient features of the repayment proposal are the following: i) "Legal structure of the SPE: SPE will be formed in the nature of a ring fenced independent entity and shall be fully responsible for making the payment to the investors. The SPE will be purely contractual in nature with a specific purpose of repayment to the investors formed with due approval of the High court. a. The SPE under the cover of trust deed registere....
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....cial exemption from stamp duty from the High Court. vi) Pool of Assets for Repayment: The Assets are categorized as assets available for Sale, assets available for construction and assets with business for revenue generation. The assets available for sale and assets available for construction will be transferred to the SPE. The assets shall comprise of residential properties and plots, commercial complexes, malls and multiplex, and cash flows from select properties of HBN such as Radisson Blue Hotel and Developable Land in Bhatinda, Ujjain, Raipur. vii) Sale methodologies to be used by the SPE: Due to various reasons, HBN was unable to sell it properties. However, the Executive officer of the SPE needs to get the assets or projects rated from an approved rating agency so as to create a better market demand and credibility of the assets. SPE shall use real estate brokers, resellers, online sales and Joint Development Agreement as sale methodologies. The sale consideration shall be in the form of high quality capital market instruments such as stocks, AA rated Bonds, Prompter holdings of listed stocks, cash, Fixed Deposits, etc. The sale proceeds will be deposited in an escro....
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....nd that the current proposal which envisages setting up of an SPE, legal transfer of assets to the SPE, credit rating of the assets, obtaining insurance from an appropriate insurance Company, etc., will require substantial additional time for making repayments to the investors. vi. During the course of the personal hearing granted to HBN on August 09, 2016, the company submitted that the new proposal was made on account of the difficulties faced by it in selling its properties at market value. As per the valuation report of P & A Valutech Pvt. Ltd. submitted by HBN as part of the new repayment proposal dated May 19, 2016, it is noted that the assets of the Company available for sale, assets with development rights, assets with business and assets available as collateral security together have a market value of more than Rs. 1300 crores. Since the properties for the purpose of repayments are already identified, I find that setting up an SPE at this juncture is totally unnecessary. vii. It is observed that in the instant proposal, the company once again suggests opening of an escrow account. SEBI had directed the company as far back as January 2014 to open an escrow account and m....
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....anner. In this regard, reference may be made to the following observations of the Hon'ble Supreme Court in its judgment dated April 26, 2013, in N. Narayanan Vs. Adjudicating Officer SEBI (Civil Appeal Nos.4112-4113 of 2013) wherein it held that: "SEBI, the market regulator, has to deal sternly with companies and their Directors indulging in manipulative and deceptive devices, insider trading etc. or else they will be failing in their duty to promote orderly and healthy growth of the Securities market. Economic offence, people of this country should know, is a serious crime which, if not properly dealt with, as it should be, will affect not only country's economic growth, but also slow the inflow of foreign investment by genuine investors and also casts a slur on India's securities market. Message should go that our country will not tolerate "market abuse" and that we are governed by the "Rule of Law". Fraud, deceit, artificiality, SEBI should ensure, have no place in the securities market of this country and 'market security' is our motto." 13. I also find it necessary to place reliance on the judgment of Hon'ble Supreme Court, in the matter of PGF Limited Vs. Union of In....