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Miscellaneous Order in the matter of Moral Group of Companies
Factual and Procedural Background
The Securities and Exchange Board of India (SEBI) passed an order on October 31, 2017, against Moral Devcon Limited, Moral Health & Personal Care Limited, Moral Commotrade Limited, Moral Infrastructure Corporation Limited (collectively the Moral Group), and their directors Arun Kumar, Ajay Kumar Sharma, and Gyaneshwar Sharma (collectively referred to as the Noticees). The order addressed the issuance of non-convertible debentures (NCDs) to the public without compliance with the Companies Act, 1956 and SEBI (Issue and Listing of Debt Securities) Regulations, 2008. SEBI directed the Noticees to refund the money collected through the NCD offer along with 15% interest per annum within 90 days and restrained them from dealing in securities or accessing the securities market until the refund was completed, with an additional four-year restraint post-refund.
The Noticees appealed to the Securities Appellate Tribunal (SAT), claiming completion of refunds. SAT granted them liberty to make a representation to SEBI within six weeks, which SEBI was to consider expeditiously. The Noticees submitted multiple representations and attended hearings, asserting that they had refunded approximately Rs. 19.97 crores (principal plus interest) to 25,213 investors by March 31, 2014, and ceased issuing NCDs after SEBI's 2012 letters. They provided documents, certificates from Chartered Accountants, and affidavits supporting their claim of completed refunds.
SEBI found the CDs containing refund documentation insufficient as conclusive proof and directed the Noticees to publish newspaper advertisements inviting claims from any investors with unpaid dues. The advertisements were published on May 09, 2020, across various states and cities in English and Hindi. The Noticees submitted a compliance report on July 04, 2020, stating no claims were received, only two investor enquiries without complaints. SEBI then issued its own notices in newspapers on October 29, 2020, again inviting claims with a 30-day window. Despite this, no claims or complaints were received from investors.
Based on these facts and the absence of any claims, SEBI considered the refund process complete as of March 31, 2014, and proceeded to modify the original directions.
Legal Issues Presented
- Whether the Noticees have completed the refund of money collected through the issuance of NCDs as directed by SEBI in the October 31, 2017 order.
- Whether the restraint and prohibition imposed on the Noticees regarding dealing in securities and accessing the securities market should continue or be modified based on the completion of refunds.
- The appropriate period and conditions for the continuation or modification of SEBI's directions against the Noticees.
Arguments of the Parties
Noticees' Arguments
- The Noticees claimed to have completed the refund process by March 31, 2014, paying principal and interest to all 25,213 investors who subscribed to their NCDs between June 2010 and December 2012.
- They ceased issuing any further NCDs upon SEBI’s 2012 communications.
- They submitted extensive documentation including investor names, scanned refund documents, certificates from Chartered Accountants confirming redemption, and an affidavit detailing the refund amounts and geographic distribution of investors.
- They asserted no pending civil or criminal cases related to the NCDs against the companies or directors.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The SEBI Whole Time Member evaluated the Noticees' submissions and found the documentary evidence insufficiently conclusive, prompting directions for newspaper advertisements to invite claims from investors. Despite wide publicity by both the Noticees and SEBI, no claims or complaints were received from investors. This absence of claims was taken as indicative that refunds had indeed been completed. The court reasoned that sufficient opportunity had been provided to investors to raise any pending claims. On this basis, the court accepted the Noticees’ contention of completed refunds as of March 31, 2014, and proceeded to modify the earlier SEBI order accordingly.
Holding and Implications
Holding: The restraint and prohibition period imposed on the Noticees under the SEBI order dated October 31, 2017, shall be counted from the date of that order, and the Noticees shall remain restrained from dealing in securities, accessing the securities market, and associating with listed or public companies raising money from the public for a period of four years from October 31, 2017.
Implications: This order modifies the original directions based on the acceptance that refunds were completed by March 31, 2014. The restraint period is fixed from the date of the original order rather than from the completion of refunds. The Noticees’ submissions are accepted on the premise of their truthfulness; any future misrepresentation or falsehood may lead to extended restraint, recovery proceedings, or other appropriate actions by SEBI. Additionally, the Noticees remain liable for any future claims or complaints from investors related to the NCDs. No new precedent was established; the order disposes of the representations in accordance with SAT directions and existing regulatory powers.
__________________________________________________________________________________ Order in the matter of Moral Group of Companies WTM/GM/EFD-1/DRA-IV/60/2020-21 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI MISCELLANEOUS ORDER UNDER SECTIONS 11(1), 11(4) and 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF MORAL GROUP OF COMPANIES IN RESPECT OF: NOTICEES PAN CIN/DIN
1 Moral Devcon Limited AAHCM3170B U45400UP2011PLC045251
2 Moral Health & Personal Care Limited AAHCM3158P U51900MP2011PLC026128
3 Moral Commotrade Limited AAGCM8052P U51909WB2010PLC152841
4 Moral Infrastructures Corporation Limited AAGCM4867L U45300WB2010PLC145291
5 Arun Kumar AGZPK5596J 02000610
6 Ajay Kumar Sharma ANQPS0753F 02356951
7 Gyaneshwar Sharma BQHPS9902F 01881854 ___________________________________________________________________________ BACKGROUND
1) Securities and Exchange Board of India (SEBI) had passed an order dated October 31, 2017 (the Order) inter alia against Moral Devcon Limited, Moral Health & __________________________________________________________________________________ Order in the matter of Moral Group of Companies Personal Care Limited, Moral Commotrade Limited, Moral Infrastructure Corporation Limited (collectively referred to as Moral Group) and their directors, namely Shri Arun Kumar, Shri Ajay Kumar Sharma and Shri Gyaneshwar Sharma (all the above mentioned seven entities together referred to as the Noticees), for issuance of securities to public in the form of non-convertible debentures (NCDs), without complying with the provisions of the Companies Act, 1956 and SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (ILDS Regulations). Vide the Order, SEBI had inter alia directed the above named Noticees to refund the money collected through the offer and allotment of NCDs along with interest of 15% per annum, within a period of 90 days from the date of receipt of the Order. Further, vide the directions contained in para 34 of the Order, SEBI had also restrained / prohibited the Noticees from buying, selling or otherwise dealing in securities, from accessing the securities market and from associating themselves with any listed company or any public company which intends to raise money from public, till the completion of refund. Further, under para 35 of the Order, SEBI had directed that such restraint / prohibition against the Noticees would continue for a further period of 4 years from the date of completion of refund.
2) Subsequently, the Noticees preferred an appeal against the abovementioned Order before the Honble Securities Appellate Tribunal (SAT) where they inter alia __________________________________________________________________________________ Order in the matter of Moral Group of Companies contended that they had already completed the process of refund to investors. The Honble SAT vide its order dated May 09, 2018 granted liberty to the Noticees to make a representation to SEBI within six weeks from the date of the SAT order. It further directed that if the Noticees make a representation within six weeks from that day, SEBI shall consider the same and pass appropriate order thereon as expeditiously as possible. Pursuant to the same, the Noticees filed representations / letters dated June 20, 2018, July 17, 2018, August 16, 2018, September 27, 2018, December 10, 2018 and April 05, 2019 and attended personal hearings on February 27, 2019, March 20, 2019 and January 30, 2020 whereby they inter alia contended that during the period June 2010 to December 2012, the Noticee nos. 1 to 4 had issued NCDs to 25,213 investors and had collected a total amount of Rs.15,78,36,300. They further contended that pursuant to enquiries by SEBI, the companies decided to repay the investors and the companies actually paid a total amount of Rs.19,97,47,747/- (principal + interest), in cash, to all the 25,213 investors/debenture holders, by March 31, 2014, thereby completing the refund process. They had further submitted that upon receipt of letters from SEBI in 2012 itself, the Noticees had completely stopped issuing further NCDs to any investor(s). In support of their claims of having completed the refunds, the Noticees had provided to SEBI the following: __________________________________________________________________________________ Order in the matter of Moral Group of Companies (a) Names of investors and scan copies of their documents pertaining to purported refund (original bonds and payment vouchers etc.) in Compact Discs (CDs). (b) Certificates issued by two Chartered Accountants certifying that the Noticee companies had redeemed all the debentures issued by them. One such certificate also mentioned that the redemption of debentures by all the four companies was completed by March 28, 2014. (c) An affidavit with the following averments: The total number of investors who had subscribed to the NCDs issued by the four Noticee companies was 25,213. The total number of investors (NCD Holders) of the said 4 companies to whom the amounts were refunded is 25,213. The total amount refunded by the said 4 companies to the respective NCD holders is Rs.19,97,47,747/- out of which Rs.15,78,36,300/- was towards principal and Rs.4,19,11,447/- was towards interest. The investors / NCD holders were located in the states of Uttar Pradesh, Bihar, Punjab, Jharkhand, Maharashtra, Madhya Pradesh, Assam, Gujarat, Odisha, Rajasthan, Himachal Pradesh, Chhatisgarh, West Bengal, Haryana, New Delhi, Jammu & Kashmir, Uttarakhand and Karnataka. After March 31, 2014, the said 4 companies have not received any complaint / claim from any of the investor(s). __________________________________________________________________________________ Order in the matter of Moral Group of Companies There has been no channeling of the investors refund amount into any of the Group companies, including a Co-operative Society / Credit Co- operative Society, by way of conversion or otherwise. As on date, there are no Civil and /or Criminal cases pending against the said 4 companies and their directors, in connection with the NCDs.
3) The CDs provided by the Noticees in respect of refunds to investors, containing more than 20,000 files, could not be accepted as conclusive proof of actual refund purportedly made by the Noticees. In these circumstances, it was deemed appropriate to invite claims for any unpaid dues on the companies NCDs through a newspaper publication. Accordingly, vide order dated March 20, 2020, the Noticee companies and their abovementioned directors were directed to effect a newspaper publication in one widely circulated newspaper, in English and Hindi each, in the states / union territories of Uttar Pradesh, Bihar, Punjab, Jharkhand, Maharashtra, Madhya Pradesh, Assam, Gujarat, Odisha, Rajasthan, Himachal Pradesh, Chhatisgarh, West Bengal, Haryana, New Delhi, Jammu & Kashmir, Uttarakhand and Karnataka, inviting complaints / claims from any investor in respect of the NCDs issued by them that are still outstanding, within a period of two months from the date of the said order. It was further directed that such newspaper advertisement shall provide one months time to the investors for __________________________________________________________________________________ Order in the matter of Moral Group of Companies submissions of claims and shall also contain an advisory, informing the investor to separately forward a copy of such complaints/claims to SEBI. Vide the said order, the Noticees were further directed to submit to SEBI a Compliance Report along with information on complaints received and monies refunded, within a period of two months from the date of publication of the advertisement in the newspapers.
4) In compliance of the abovementioned order dated March 20, 2020, the Noticees issued advertisements in newspapers across various states on May 09, 2020, asking the investors to submit their claims, if any. The details of such newspaper advertisements are as follows: Name of the Newspaper Language Date of publication Edition / City
1. Financial Express English May 09, 2020 Lucknow
2. Jansatta Hindi May 09, 2020 Lucknow
3. Times of India English May 09, 2020 Patna
4. Business Standard Hindi May 09, 2020 Patna
5. The Pioneer English May 09, 2020 Chandigarh
6. Jansatta Hindi May 09, 2020 NA
7. The Pioneer English May 09, 2020 Ranchi
8. Dainik Jagran Hindi May 09, 2020 Ranchi
9. Financial Express English May 09, 2020 Mumbai
10. Nav Bharat Times Hindi May 09, 2020 Mumbai
11. The Pioneer English May 09, 2020 Bhopal
12. Nai Dunia Hindi May 09, 2020 Indore
13. The Assam Tribune English May 09, 2020 Guwahati
14. Aaj Hindi May 09, 2020 NA
15. Financial Express English May 09, 2020 Gujarat
16. Patrika Hindi May 09, 2020 Ahmedabad __________________________________________________________________________________ Order in the matter of Moral Group of Companies
17. The Pioneer English May 09, 2020 Bhubaneswar
18. Sanmarg Hindi May 09, 2020 Bhubaneswar
19. The Indian Express Englsih May 09, 2020 Jaipur
20. Adhikar Hindi May 09, 2020 Jaipur
21. Amar Ujala Hindi May 09, 2020 Dharmshala
22. Amar Ujala Hindi May 09, 2020 NA
23. The Pioneer English May 09, 2020 Raipur
24. Nai Dunia Hindi May 09, 2020 Raipur
25. Financial Express English May 09, 2020 Kolkata
26. Jansatta Hindi May 09, 2020 Kolkata
27. The Times of India English May 09, 2020 Gurgaon
28. Amar Ujala Hindi May 09, 2020 Karnaal
29. Amar Juala Hindi May 09, 2020 Rohtak
30. Financial Express English May 09, 2020 Delhi
31. Jansatta Hindi May 09, 2020 Delhi
32. Kashmir Times English May 09, 2020 Jammu
33. Amar Ujala Hindi May 09, 2020 Jammu
34. The Pioneer English May 09, 2020 Dehradun
35. Amar Ujala Hindi May 09, 2020 Dehradun
36. Financial Express English May 09, 2020 Karnataka
37. Dakshin Bharat Rashtramat Hindi May 09, 2020 Bengaluru
5) Subsequently, the Noticees submitted a compliance report dated July 04, 2020, whereby they informed that none of the investors had submitted any claim in respect of the NCDs. They further submitted that only two investors had merely made enquiries with the companies without raising any complaint / claim. Further, SEBI noted that none of the investors has forwarded any claims to SEBI, as advertised in the newspapers by the Noticees. __________________________________________________________________________________ Order in the matter of Moral Group of Companies
6) In order to further verify the claims of the Noticees regarding the completion of refunds and also to provide a final opportunity to investors to submit their claims in respect of the NCDs, SEBI decided to issue notices in newspapers, both Hindi and English, across the country, calling the investors to file their claims / complaints, if any, in respect of the NCDs issued by the companies. Accordingly, notices were issued by SEBI in newspapers on October 29, 2020 and the investors were given 30 days time from the date of notice to file their claims / complaints. The details of publication of the notice in newspapers are provided below: Name of the Newspaper Language Date of Publication City
1. The Times of India English 29/10/2020 Vijaywada
2. Deccan Chronicle English 29/10/2020 Visakhapatnam
3. Hindustan Hindi 29/10/2020 Bhagalpur
4. Dainik Jagran Hindi 29/10/2020 Muzaffarpur
5. The Hindustan Times English 29/10/2020 Patna
6. Dainik Jagran Hindi 29/10/2020 Patna
7. The Hindustan Times English 29/10/2020 Chandigarh
8. Dainik Jagran Hindi 29/10/2020 Chandigarh
9. The Times of India English 29/10/2020 Raipur
10. Hindustan Times English 29/10/2020 Delhi
11. Dainik Jagran Hindi 29/10/2020 Delhi
12 The Times of India English 29/10/2020 Panaji
13. The Times of India English 29/10/2020 Ahmedabad
14. Dainik Jagran Hindi 29/10/2020 Hisar
15. Dainik Bhaskar Hindi 29/10/2020 Panipat
16. Dainik Bhaskar Hindi 29/10/2020 Rohtak
17. Dainik Jagran Hindi 29/10/2020 Dharamshala
18. Dainik Jagran Hindi 29/10/2020 Jammu
19. Hindustan Hindi 29/10/2020 Dhanbad
20. Dainik Jagran Hindi 29/10/2020 Jamshedpur __________________________________________________________________________________ Order in the matter of Moral Group of Companies
21. Prabhat Khabar Hindi 29/10/2020 Ranchi
22. Deccan Herald English 29/10/2020 Bengaluru
23. The Times of India English 29/10/2020 Mangaluru
24. The Times of India English 29/10/2020 Mysuru
25. The Times of India English 29/10/2020 Kochi
26. The New Indian Express English 29/10/2020 Kozhikode
27. The Times of India English 29/10/2020 Thiruvananthapuram
28. The Times of India English 29/10/2020 Bhopal
29. The Times of India English 29/10/2020 Indore
30. The Times of India English 29/10/2020 Kolhapur
31. The Times of India English 29/10/2020 Mumbai
32. The Times of India English 29/10/2020 Nagpur
33. The Times of India English 29/10/2020 Pune
34. The Times of India English 29/10/2020 Bhubaneswar
35. Dainik Jagran Hindi 29/10/2020 Amritsar
36. Punjab Kesari Hindi 29/10/2020 Jalandhar
37. Dainik Jagran Hindi 29/10/2020 Ludhiana
38. The Times of India English 29/10/2020 Jaipur
39. Deccan Chronicle English 29/10/2020 Chennai
40. The Times of India English 29/10/2020 Coimbatore
41. The Times of India English 29/10/2020 Madurai
42. The Times of India English 29/10/2020 Hyderabad
43. Amar Ujala Hindi 29/10/2020 Agra
44. Amar Ujala Hindi 29/10/2020 Aligarh
45. Hindustan Hindi 29/10/2020 Allahabad
46. Amar Ujala Hindi 29/10/2020 Bareilly
47. Dainik Jagran Hindi 29/10/2020 Gorakhpur
48. Dainik Jagran Hindi 29/10/2020 Kanpur
49. The Times of India English 29/10/2020 Lucknow
50. Dainik Jagran Hindi 29/10/2020 Lucknow
51. Dainik Jagran Hindi 29/10/2020 Meerut
52. Dainik Jagran Hindi 29/10/2020 Muradabad
53. Hindustan Hindi 29/10/2020 Varanasi
54. Hindustan Hindi 29/10/2020 Dehradun
55. The Times of India English 29/10/2020 Kolkata
56. Dainik Jagran Hindi 29/10/2020 Siliguri __________________________________________________________________________________ Order in the matter of Moral Group of Companies
7) It was noted that even after wide publication of the notice in newspapers, as detailed above, no claim / complaint has been received by SEBI from any investor till date.
8) Considering the abovementioned facts and circumstances, I am of the opinion that sufficient opportunities have been provided to the investors to submit their pending claims, in respect of the NCDs issued by the Noticee companies. Since none of the investors has submitted any claim / complaint, either in response to the newspaper notices issued by the Noticees or in response to the notices issued by SEBI, I am inclined to accept the contentions of the Noticees that as on March 31, 2014, the Noticee companies have completed the refunds in respect of the NCDs referred to in the SEBI Order dated October 31, 2017. Having regard to the same and in order to dispose of the representations submitted by the Noticees in terms of the order of the Honble SAT dated May 09, 2018, I deem it fit to modify the directions issued vide order dated October 31, 2017.
9) Thus, in exercise of powers conferred upon me under Sections 11(1), 11B and 11(4) of the SEBI Act, 1992 and in compliance of the directions of the Honble SAT issued vide its order dated May 09, 2018, I hereby direct as follows: __________________________________________________________________________________ Order in the matter of Moral Group of Companies (a) The period of restraint / prohibition as directed under para 35 of the SEBI Order dated October 31, 2017 shall be counted from the date of the said Order, i.e. October 31, 2017. Accordingly, the Noticee nos. 1 to 7 (v.z. Moral Devcon Limited, Moral Health & Personal Care Limited, Moral Commotrade Limited, Moral Infrastructure Corporation Limited, Shri Arun Kumar, Shri Ajay Kumar Sharma and Shri Gyaneshwar Sharma) shall remain restrained / prohibited from buying, selling or otherwise dealing in securities, from accessing the securities market and from associating themselves with any listed company or any public company which intends to raise money from public, for a period of four years from October 31, 2017. (b) This order is being passed on the premises that the submissions and averments made by the Noticees to SEBI are true and correct. In case it is subsequently found that the Noticees submissions and averments are false and misleading or that there has been misrepresentation by them, the same shall render the Noticees liable for action by SEBI, which may include extension of period of restraint / prohibition against the Noticees beyond the period directed at sub- para (a) above, initiation of recovery proceedings and / or any other action as deemed appropriate. __________________________________________________________________________________ Order in the matter of Moral Group of Companies (c) Notwithstanding the directions as contained above, in case any claim / complaint in respect of the abovementioned NCDs is received in future from any investor either by SEBI or by the Noticee companies, the Noticees shall remain liable in respect of the same. 10) This order is being passed in the context of the NCDs issued by the Noticee companies as referred to in the order dated October 31, 2017 and shall be read in conjunction with earlier orders dated October 31, 2017 and March 20, 2020 passed in the matter. 11) This order shall come into force with immediate effect. 12) Copy of this Order shall be forwarded to the recognized stock exchanges, depositories and RTAs. A copy of this Order may also be forwarded to MCA/concerned RoC for their information. Place: Mumbai G. MAHALINGAM Date: January 13, 2021 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA
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