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2003 (9) TMI 831
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....d of three years. This aspect of the order shall come into force with effect from October 11th 2002. It is further directed that promoters of M/s . Gold Multifab Ltd. , shall write to all allottees/existing shareholders asking them whether they would like to remain invested (?) with the company and if allottees/existing shareholders choose to exit; they should be given an option to sell the shares to the promoters. If the shares offered are fully paid up, then the promoters should give the face value to the allottees/existing shareholders and if the shares are partly paid up, then the promoters should give the amount subscribed to the allottees/existing shareholders. It is directed that the company shall send its compliance report (giving evidence as to writing to all the allottees/existing shareholders by the promoters and purchase of shares from such allottees/existing shareholders by the promoters who choose the option) within 45 days of receipt of this order." 2. The Respondent No. 1 passed the said order based on the following findings arrived at by him, as recorded in the order that: "I have carefully examined the findings of investigation, submissions made from t....
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....ge that public issue did not receive the minimum subscription of 90% is baseless. He submitted that in fact the public issue was over subscribed by 2.95 times. 5. Learned Counsel submitted that the impugned public issue relates to February-March 1996 and the impugned order against the Appellant company and its directors was brought into effect on 11 October 2002 i.e. after 51/2 years of the public issue and 31/2 years after initiating investigation. He submitted that the subject matter of the impugned order really relates to the conduct of the intermediaries associated with the public issue, that despite the fact that it was the intermediaries i.e. Registrar to the Issue, Lead Manager to the Issue and Bankers to the Issue, who betrayed, deceived and committed fraud on the Appellants, the Respondent vide its order has penalized the Appellants. Learned Counsel submitted that the Respondent (SEBI) restrains companies from making public offer without appointing the registered Intermediaries, who are empowered and duty bound to undertake the roles, duties and functions laid down by SEBI, and the issuer company and promoters have limited knowledge of cumbersome SEBI guidelines and pro....
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.... of the SEBI Act, that a direction under the said section can be issued only to the persons referred in section 12 of the SEBI Act. The Appellants are not persons covered under section 12 and, therefore, the Respondent cannot issue direction against the Appellants, and enforce the same. He further submitted that direction against a company can be issued only under section 11A and section 11A is available only for the limited purpose specified in the section and it has no application to the Appellant in the instant case. 10. Shri Kumar Desai, learned Counsel appearing for the Respondents submitted that the first Respondent in his order has clearly stated the charge against the Appellants and the clear findings thereon has also been stated. Shri Desai submitted that the Appellant company's claim that it had procured subscription much more than the specified minimum subscription, is not correct. Shri Desai referred to the impugned order and submitted that the Respondent has clearly established that the Appellants had manipulated the issue and minimum subscription was not received, that the subscription money was misused and they even indulged in buying back the shares in the pr....
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.... section 55A of the Companies Act, SEBI has been empowered to administer the provisions of section 55 to 58, 59 to 84, 108, 109, 110, 112, 113, 117, 118, 119, 120, 121, 122, 206, 206A and 207 so far as they relate to issue and transfer of securities and non payment of dividend, in the case of listed public companies, and in case of those public companies which intend to get their securities listed on any recognized stock exchange in India, that it is not in dispute that the Appellant Company had issued the prospectus and it had sought permission from Stock Exchanges for listing the shares; that therefore, the Respondent is empowered to take action against the persons concerned for violation of the provisions of the Companies Act, referred to in the show cause notice.. 14. Shri Kumar Desai submitted that the Appellant Company is not entitled to the benefit under section 22 of the SICA and the view held by the Hon'ble Supreme Court in Real Value Appliances (supra) has no application to the Appellant's case. In this context he submitted that the proceeding initiated by SEBI in which the impugned order was passed is not a proceedings falling within the scope of section 22(1)....
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.... equity shares of Rs. 10/- each for cash at par made by the Appellant Company in February/March 1996. The Respondent SEBI is stated to have carried out an investigation in to the matter and collected material. Based on the material so collected the Respondent SEBI decided to conduct an inquiry and for the purpose a show cause notice was issued. In this context the show cause notice dated 29.2.2000 issued by Respondent No. 3 need be noticed. The notice after narrating the facts has stated as follows: "On the basis of the above evidences gathered in the course of investigation the following conclusions have been arrived at: 1. GML made allotments to applicants without receiving the consideration for the shares allotted and went ahead with allotting shares to applicants without receiving the minimum subscription. Thus, GML appears to have contravened the provisions of section 69 of the Companies Act, 1956. SEBI Guidelines on Disclosure and Investor Protection (June 18 1992) and also the terms and conditions of the Prospectus for the Issue. 2. Section 73 (3A) of the Companies Act specifies that the public issue proceeds standing to the credit of a separate ba....
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.... 22. The scope of adjudication is thus confined to the charges leveled in the notice. The charges in the show cause notice, as stated earlier is based on the conclusion arrived at by the person who issued the show cause notice, based on the facts stated therein. Even though the Respondent No. 3 has referred to violation by the Appellants of the SEBI Guidelines and also the terms and conditions of the Prospectus, it is not clear as to which specific guideline/terms and conditions were violated. These sort of vague allegations are not to be sustained as the same does not provide an opportunity to the noticee to counter the charges. Therefore adjudication of the said two charges i.e. violation of the SEBI Guidelines on Disclosure and Investor Protection and violation of the terms and conditions of the Prospectus, and the decision based thereon can not be sustained, as the same is contrary to the rules of natural justice. Therefore, the charges against the Appellants, which need be taken cognizance are that of violation of section 69, 73(3A) and 77 of the Companies Act, 1956, in the light of the facts stated in the show cause notice. In this context it is pertinent to have a look at t....
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....e of six per cent per annum from the expiry of the one hundred and thirtieth day: Provided that a director shall not be so liable if he proves that the default in the repayment of money was not due to any misconduct or negligence on his part. (6) Any condition purporting to require or bind any applicant for shares to waive compliance with any requirement of this section shall be void. (7) This section, except sub-section (3) thereof, shall not apply in relation to any allotment of shares subsequent to the first allotment of shares offered to the public for subscription. Section 73(3) and (3A) 73(3) "All moneys received as aforesaid shall be kept in a separate bank account maintained with a Scheduled Bank until the permission has been granted, or where an appeal has been preferred against the refusal to grant such permission, until the disposal of the appeal, and the money standing in such separate account shall, where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section 2 and if default is made in complying with this sub-section, the company, an....
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....its holding company to be held by themselves by way of beneficial ownership. (3) No loan made to any person in pursuance of clause ( c) of the foregoing proviso shall exceed in amount his salary or wages at that time for a period of six months. (4) If a company acts in contravention of sub-sections (1) to (3), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to {ten} thousand rupees. (5) Nothing in this section shall affect the right of a company to redeem any shares issued under section 80 or under any corresponding provision in any previous companies law. 23. On a perusal of the above sections it is noticed that consequences for non compliance of the requirements of the said sections have been provided in the section itself. It is to be noted that section 69 requires the issuer company in the event of failure to procure minimum subscription to repay the entire subscription money to the applicants. Similarly section 73 requires the issuer company to return the money collected by way of subscription to the applicants, in case it fails to get the listing approval from the stocks exchanges in....
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....ng to be made an enquiry, the Board is satisfied that it is necessary, -- (i) in the interest of investors, or orderly development of securities market, or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market 'or (iii) to secure the proper management of any such intermediary or person, it may issue such directions, -- (a) to any person or class of persons referred to in section 12, or associated with the securities market, or (b) to any company in respect of matters specified in section 11A as may be appropriate in the interests of investors in securities and the securities market." 25. The scope and reach of section 11B is clear. Directions can be issued for the purposes stated in clauses (i)to (iii). The persons to whom such directions can be issued have also been stated in clauses (a) and (b). The Appellant's contention that they are not persons covered under section 12 and as such they are not amenable to section 11B is not correct. As Shri Kumar Desai rightly pointed out they are persons....
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.... can not in any case be sustained. Similarly the vague charge that the Appellants did not comply with the terms and conditions of the Prospectus also in the absence of specifics can not be sustained. 27. Shri Desai, learned Counsel, in support of his contention that the Respondent SEBI has power to administer the provisions of sections 69, 73(3A) and 77 of the Companies Act had cited the provisions of section 55A of the Companies Act. Section 55A was included in the Companies Act in the year 2000, vide Companies (Amendment)Act, 2000. The section is as follows: "55A. The provisions contained in sections 55 to 58, 59 to 81 (including sections 68A, 77A and 80A), 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207, so far as they relate to issue and transfer of securities and non-payment of dividend shall, -- (a) in case of listed public companies; (b) in case of those public companies which intend to get their securities listed on any recognized stock exchange in India, be administered by the Securities and Exchange Board of India; and (c) in any other case, be administered by the Central Government. Explanation....