TaxTMI 
TaxTMI 
2020 (4) TMI 315
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....nvestors, pending allotment of securities, if any, with an interest of 12% per annum from the date of collection of funds to the investors till the date of actual payment. No such interest shall be paid to Mr. Chiriankandath Palu Jose and Mr. Vadakken Raphael. b. The repayments and interest payments to investors shall be effected only through Bank Demand Draft or Pay Order both of which should be crossed as "Non-Transferable". c. CAICO and its present directors viz., Mr. Chiriankandath Palu Jose, Mr. Paul Thalokaren Timothy, Mr. Mazhuvancheriparambath Kuriakose Aelias, Mr. Chiriyankandath George Joy, Mr. Jessy Pavoo, and Mr. Paul Ovungal Raphael (on behalf of the Company) are directed to provide a full inventory of all the assets and properties and details of all the bank accounts, demat accounts and holdings of mutual funds/shares/securities, if held in physical form and demat form, of the company. d. CAICO and its present directors viz., Mr. Chiriankandath Palu Jose, Mr. Paul Thalokaren Timothy, Mr. Mazhuvancheriparambath Kuriakose Aelias, Mr. Chiriyankandath George Joy, Mr. Jessy Pavoo, and Mr. Paul Ovungal Raphael (on behalf of the Company) are prevented from selling the ....
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.... above. i. Mr. Chiriankandath Palu Jose, Mr. Parappilly Varunny Davis, Mr. Paul Thalokaren Timothy, Mr. Mazhuvancheriparambath Kuriakose Aelias, Mr. Chiriyankandath George Joy, Mr. Jessy Pavoo, Mr. Vadakken Raphael, Mr. Paul Ovungal Raphael and Mr. Ovungal Pyloth Rappai are directed not to, directly or indirectly, access the securities market, by issuing prospectus, offer document or advertisement soliciting money from the public and are further restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, from the date of this Order, till the completion of refunds to investors as directed above. The above said directors are also restrained from associating themselves with any listed public company or any public company which intends to raise money from the public, or any intermediary registered with SEBI from the date of this Order till the completion of refunds to investors. j. Mr. Joseph Chiramel is restrained from accessing the securities market and is further restrained from buying, selling or dealing in securities, in any manner whatsoever, for a period of 4 (four) years from the date of this ord....
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....ul took this matter up by filing an appeal, being Company Appeal no.7 of 2015, which was dismissed by the High Court of Kerala by a judgment dated 8.10.2015. 4. Certain complaints were received by SEBI including ROC in respect of these FCDs. SEBI undertook an enquiry to ascertain whether the Company had made any public issue of securities without complying with the provisions of the Companies Act, 2013. Pursuant to the enquiry, SEBI passed an ex-parte interim order dated 9th August, 2017 observing that the offer of FCDs by the Company and subsequent allotment were deemed public issue of securities under section 42 of the Companies Act, 2013 read with Rule 14(2)(b) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 (hereinafter referred to as Securities Rules, 2014). It was observed that the requirement under section 40 of the Companies Act, the relevant provisions of the SEBI Act and Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (hereinafter referred to as 'ICDR Regulations') were not complied with by the Company in respect of the offer of FCDs and, therefore, a slew of directions were issued agai....
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....DeVitre, Senior Advocate assisted by Mr. Mihir Mody and Mr. Shehaab Roshan, Advocates for the Respondent. 7. The contention of the appellant is, that section 42 of the Companies Act is not applicable in the instant case and that the issue of the share capital is under section 62(3) of the Companies Act which has not been considered. 8. On the other hand, the contention of the learned senior counsel for SEBI is, that since the offer of FCDs was for more than 200 persons the said offer is a deemed public offer and therefore part one of the Chapter 1 of the Companies Act is required to be followed. 9. In order to appreciate the submission of the parties it would be essential to peruse certain provisions of the Companies Act and the Rules framed thereunder. Section 42 of the Companies Act provides as under:- "42. Offer or invitation for subscription of securities on private placement. (1) Without prejudice to the provisions of section 26, a company may, subject to the provisions of this section, make private placement through issue of a private placement offer letter. (2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall be made t....
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....plication money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent per annum from the expiry of the sixtieth day: Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than- (a) for adjustment against allotment of securities; or (b) for the repayment of monies where the company is unable to allot securities. (7) All offers covered under this section shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer by name, and that a complete record of such offers shall be kept by the company in such manner as may be prescribed and complete information about such offer shall be filed with the Registrar within a period of thirty days of....
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....be sent to him, either in writing or in electronic mode, within thirty days of recording the names of such persons in accordance with sub-section (7) of section 42: Provided that no person other than the person so addressed in the application form shall be allowed to apply through such application form and any application not conforming to this condition shall be treated as invalid. (2) A company shall not make a private placement of its securities unless - (a) the proposed offer of securities or invitation to subscribe securities has been previously approved by the shareholders of the company, by a Special Resolution, for each of the Offers or Invitations: Provided that in the explanatory statement annexed to the notice for the general meeting the basis or justification for the price (including premium, if any) at which the offer or invitation is being made shall be disclosed: Provided further that in case of offer or invitation for non-convertible debentures, it shall be sufficient if the company passes a previous special resolution only once in a year for all the offers or invitation for such debentures during the year. (b) such offer or invitation shall ....
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....nies (Registration Offices and Fees) Rules, 2014 along with a complete list of all security holders containing- (i) the full name, address, Permanent Account Number and E-mail ID of such security holder; (ii) the class of security held; (iii) the date of allotment of security; (iv) the number of securities held, nominal value and amount paid on such securities; and particulars of consideration received if the securities were issued for consideration other than cash. (5) The provisions of clauses (b) and (c) of sub-rule (2) shall not be applicable to- (a) non-banking financial companies which are registered with the Reserve Bank of India under Reserve Bank of India Act, 1934; and (b) housing finance companies which are registered with the National Housing Bank under National Housing Bank Act, 1987, if they are complying with regulations made by Reserve Bank of India or National Housing Bank in respect of offer or invitation to be issued on private placement basis: Provided that such companies shall comply with sub-clauses (b) and (c) of sub-rule (2) in case the Reserve Bank of India or the National Housing Bank have not specified similar regulations. 11. Rule 14(2....
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....stances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:- (i) the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined; (ii) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right; (iii) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company; (b) to employees under a scheme of employees' stock option, subject to special resolution passed by company and subject to such conditions....
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....an order made under sub-section (4), directed that any debenture or loan or any part thereof shall be converted into shares in a company and where no appeal has been preferred to the Tribunal under sub-section (4) or where such appeal has been dismissed, the memorandum of such company shall, where such order has the effect of increasing the authorised share capital of the company, stand altered and the authorised share capital of such company shall stand increased by an amount equal to the amount of the value of shares which such debentures or loans or part thereof has been converted into. 15. If a company having a share capital at any time wishes to increase its subscribed capital by the issue of further shares, then the Company has to comply with the provisions of section 62 of the Act. Section 62 of the Act is not applicable to a private Company. This means that any such Company may offer its further issue of capital to any person or in any manner as it thinks best in its own interests. 16. Thus a perusal of section 62(1)(a) indicates that a Company having a share capital at any time proposes to increase its subscribed capital by issue of further shares then such shares shall ....
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....by means of a special resolution. The provisions of section 62 would not apply in relation to convertible debentures into shares of the Company if the following condition is satisfied, namely, that the terms of issue of debentures has been approved by the Company by a special resolution. It may be noted here that under section 62 of the Companies Act, a Company is under an obligation, when it proposes to issue further capital, to offer such capital to its own shareholders. In regard to debenture stocks or loans which are convertible into shares, the restrictions contemplated under section 62 will not apply. Section 62(3) is an exception to the other provisions of section 62. However other conditions contemplated under Rule 18 of the Debenture Rules are required to be complied with. 22. In the instant case, we find that the shareholders in their 68th Annual General Meeting held on 28th September, 2015 passed a special resolution to allot and issue 1,92,900 Fully Convertible Debentures of Rs. 250/- with the condition that the shareholders will have no right to renounce the offer in favour of any person and that these debentures would be mandatorily converted into shares upon maturit....