Delhi District Court
Sebi vs Hariyali Plantations India Ltd And Ors on 3 December, 2024
IN THE COURT OF MS. VANDANA JAIN:
ADDL. SESSIONS JUDGE-03/SPECIAL JUDGE
(COMPANIES ACT), DWARKA COURTS, NEW DELHI.
(More than 22 years old)
(Targeted case in terms of letter No.7968/CFM/DHC/2024 dated
15.04.2024 by Hon'ble High Court of Delhi on the subject
"Action Plan for Arrears Reduction in District Judiciary").
CNR No.DLSW01-007662-2023
Reg. No. CC/739/2023
SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
Security and Exchange Board of India,
a statutory body established under the provisions
of Securities and Exchange Board of India Act, 1992,
having its regional office at Block No.1, Rajendra Bhawan,
Rajendra Place District Centre, New Delhi-110008 and
represented by its Assistant General Manager
Kum. Jyoti Jindgar.
.....Complainant
Versus
1. M/s. Hariyali Plantations (India) Ltd.
a company incorporated under the provisions of
Companies Act, 1956 and having its
registered office at Sumer Sagar,
Gorakhpur - 273001.
2. Virendra Kumar Jaiswal,
Occupation : Director of the accused No.1,
R/o Kirori Mal Ka Hata,
Sumer Sagar, Gorakhpur - 273001.
3. Narendra Kumar Jaiswal,
Occupation : Director of the accused No. 1,
R/o Kirori Mal Ka Hata,
Sumer Sagar, Gorakhpur - 273001.
4. Vijay Laxmi,
W/o Sh. Virendra Kumar Jaiswal,
CC No. 739/2023 Page No. 1 of 43
SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
Occupation : Director of the accused No. 1,
R/o Kirori Mal Ka Hata,
Sumer Sagar, Gorakhpur - 273001.
5. Girija Shanker Jaiswal,
Occupation : Director of the accused No. 1,
R/o Nasirabad,
Chaurahia Gola, Gorakhpur.
6. Amar Mani Tripathi,
Occupation : Director of the accused No. 1,
R/o Durga Bari Road, Humayupur,
Gorakhpur.
7. Sh. Ajit Mani Tripathi,
Occupation : Director of the accused No. 1,
R/o Durga Bari Road, Humayupur,
Gorakhpur.
8. Madhu Mani Tripathi,
Occupation : Director of the accused No. 1,
R/o Durga Bari Road, Humayupur,
Gorakhpur.
.....Accused Persons
Date of Institution of complaint : 02.01.2002
Date of Arguments : 26.11.2024
Date of pronouncement : 03.12.2024
JUDGMENT
Facts
1. Succinctly stated, the accused No.1 company namely M/s. Hariyali Plantations (India) Ltd. was running a Collective Investment Scheme (hereinafter referred to as 'CIS') and raised an aggregate amount of nearly Rs.2.664 crores from the general public.
2. The private entrepreneurs had undertaken plantation activities on a commercial scale, however, it was noticed that the CC No. 739/2023 Page No. 2 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. promoters themselves invested a minimum amount in such ventures and raised the majority of funds from ordinary investors in the absence of any regulatory mechanism. The companies promised high returns coupled with the fiscal incentives which helped these companies to mobilize large amounts over a period of time.
3. The Government of India, after detailed consultations with the regulatory bodies, decided that an appropriate regulatory framework for regulating entities, which issue instruments like Agro Bonds, Plantation Bonds etc., has to be put in place. A press release was issued by the Government on 18.11.1997, conveying that such schemes should be treated as Collective Investment Schemes coming under Security and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act'). In order to regulate such collective investment schemes, both from the point of view of investor protection as well as promotion of legitimate investment activity, Security and Exchange Board of India (hereinafter referred to as 'SEBI') was asked to formulate the regulations for them.
4. SEBI in the year 1999 notified regulations for the regulation of the activities of CIS, titled as SEBI (CIS) Regulations, 1999 (hereinafter referred to as 'CIS Regulations').
5. Pursuant to the press release dated 26.11.1997 and public notice dated 18.12.1997, accused no.1 company filed information/details with SEBI regarding its CIS.
6. In terms of Chapter IX of the CIS regulations, any person who had been operating a collective investment schemes CC No. 739/2023 Page No. 3 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. at the time of commencement of the said regulations shall be deemed to be an existing collective investment schemes and shall comply with the provisions of the said Chapter IX. Further, in terms of the said Chapter IX any person who immediately prior to the commencement of the said regulations was operating an collective investment schemes shall make an application to SEBI for grant of registration within a period of two months from the date of notification of the said regulations.
7. SEBI having regard to the interest of investors and request received from various persons operating CIS extended the last date of submitting the application by existing entities upto March 31, 2000 and the same was declared by SEBI vide a press release and a public notice.
8. The accused No.1 failed to make any application with SEBI for registration of the collective investment schemes being operated by it as per the said regulations. It is further submitted that in terms of Reg. 73(1) of the said regulations, an existing collective investment scheme which failed to make an application for registration with SEBI, shall wind up the existing collective investment schemes and repay the amounts collected from the investors. Further, in terms of Reg. 74 of the said regulations, an existing collective investment scheme which is not desirous of obtaining provisional registration from SEBI shall formulate a scheme of repayment and make such repayment to the existing investors in the manner specified in Reg. 73 but accused company failed to comply with the said provisions of the regulations.
CC No. 739/2023 Page No. 4 of 43SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
9. It is further submitted that vide letters dated 15.12.1999, 29.12.1999 and public notice dated 10.12.1999, SEBI gave intimation in terms of Reg. 73(2) to accused No. 1 company and casted an obligation on accused No.1 company to send an information memorandum to all the investors detailing the state of affairs of the schemes, the amount repayable to each investor and the manner in which such amount is determined and accused No.1 was required to send information memorandum to the investors latest by 28.02.2000. SEBI vide another public notice published in newspapers on 22.02.2000 informed to the accused company that all the companies carrying out collective investment schemes who had not made any application for grant of registration or were not desirous of obtaining provisional registration were required to compulsorily wind up their existing schemes as per the provisions of Reg. 73(1) of the said regulations.
10. It is further submitted that accused No.1 company neither applied for registration under the said regulations nor took any steps for winding up of the schemes and repayment to the investors. SEBI issued a public notice in the newspapers inviting the attention of the accused No.1 company to the aforesaid position. Further, a notice dated 12.05.2000 was also issued to accused No.1 company to show cause as to why the action stated therein be not initiated against it but accused No. 1 company did not respond to the said notice and subsequently accused No.1 company was given show cause notice dated 12.05.2000 and a letter dated 31.07.2000 was also issued to wind up the schemes and repay the amounts to the investors. Accused CC No. 739/2023 Page No. 5 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. No.1 was intentionally and with dishonest intentions evading the repayment of the amounts collected by it from the investors.
11. SEBI by exercising its powers conferred upon it under Section 11B of SEBI Act, 1992 on 07.12.2000 directing accused No.1 company to refund the money collected under the aforesaid collective investment schemes within a period of one month from the date of said directions. It is further submitted that accused No.1 company raised a total amount of Rs.2.664 crores and its failure to repay the amounts to the general public, who invested their hard earned money in the schemes operated by accused No.1 company, caused huge pecuniary damage to them. It is further submitted that accused No.1 company had violated the provisions of Sec.11B, 12 (1B) of Securities and Exchange Board of India Act, 1992 r/w Regulation 5(1) r/w Reg. 68(1), 68(2), 73 and 74 of the said regulations and accused No. 2 to 8 are the directors and/or persons in charge of and responsible to accused No.1 company for the conduct of its business and are liable for the violations of accused No.1 company, in terms of section 27 of Securities and Exchange Board of India Act, 1992.
Summoning
12. All the accused persons i.e. accused no.1 to 8 including accused no.1 company were summoned for the said offences vide order dated 02.01.2002. It is relevant to note here that though accused No.2 to 5 had appeared pursuant to the process issued against them, accused no.6 to 8 had not appeared and absconded and therefore, they were declared proclaimed offenders vide order dated 20.09.2012. However, later on accused no.6 to 8 were arrested and they joined the proceedings. Accused No. 1 CC No. 739/2023 Page No. 6 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. company was represented by accused No.2. The present judgment is passed qua all accused persons.
Notice
13. Notice for violation of Section 12(1B) of SEBI Act and Regulation 5(1), 68(1), 68(2), 73 and 74 of the CIS Regulations, punishable under Section 24(1) of SEBI Act was framed against accused no.1 through all accused No.2 to 8 and for violation of Section 12(1B) of SEBI Act and Regulation 5(1), 68(1), 68(2), 73 and 74 of the CIS Regulations, punishable under Section 24 r/w 27 of SEBI Act was framed against accused no.2 to 8 to which they pleaded not guilty and claimed trial.
14. Matter was listed for complainant evidence. During complainant's evidence, Ms. Shalini Shah, Assistant Legal Advisor, SEBI, Northern Region stepped into the witness box and examined herself as CW-1. Part examination-in-chief of CW-1 Ms. Shalini Shah, Assistant Legal Advisor was recorded on 19.03.2014 and her further examination-in-chief was deferred at the request of learned counsel for the complainant. Thereafter, since Ms. Shalini Shah was transferred, an application for substitution of AR was moved on behalf of complainant which was allowed vide order dated 09.07.2014 and Ms. Anupama Chaddha was substituted in place of Ms. Shalini Shah as AR of the complainant.
15. Thereafter, Ms. Anupama Chaddha, Assistant General Manager stepped into the witness box and was examined as CW-1. She deposed as under:-
"I have been authorized by Deputy General Manager Shri Narendra Rawat in the present case as CC No. 739/2023 Page No. 7 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
an Authorized Representative on 08.07.2014 Letter of authority, in this regard is on record which is Ex.CW1/A which bears signatures of Shri Narendra Rawat at point A which I identify as I have seen him writing and signing during the course of official duties.
Earlier Ms. Shalini Shah was authorized to prosecute the present matter vide authorization letter dated 11.11.2013 Ex.CW1/1. Earlier she has appeared as a witness and she was partly examined as CW1 on 19.03.2014 in the present matter. However, she has been transferred and therefore, now I have been authorized to prosecute the matter further in place of her.
The Government of India vide Press Release dated 18.11.1997 decided that the companies/entities that were issuing instruments such as Agro Bonds, Plantation Bonds will be treated as Collective Investment Schemes (CIS) coming under the provisions of Section 11 (2) (b) of SEBI Act 1992. An attested copy of the same is Ex.CW1/2. (Objected to by Ld Counsel as the original copy was not filed with the complaint nor the same has been filed today).
With reference to this, SEBI vide Press Release dated 26.11.1997 directed all the companies that were operating CIS to file information such as terms and conditions of the scheme launched, funds raised to all the schemes, promises or assurance or assured return made in the scheme, copies of offer documents of the scheme, name, details and background of the promoters/sponsors, if they are desirous of taking benefit under Section 12 (1)(B) of SEBI Act. An attested copy of the same is Ex.CW1/3. (Objected to by Ld Counsel as the original copy was not filed with the complaint nor the same has been filed today). Company replied vide letter dated 12.01.1998 giving reference to the advertisement published in the daily newspaper CC No. 739/2023 Page No. 8 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
named 'Dainik Jagran on 22.12.1997. Vide said letter, company submitted terms and conditions/amount collected under the various agro based scheme, assurances made to unit Golders, application form, details of directors, MOA and AOA. From the details of amount collected provided by the company, it shows that they have raised 2.66 crores. The details of directors shows the name of accused no.2 to 8 as subscriber of the company. The same is Ex.CW1/4 (colly) (running into 68 pages). (Objected to by Ld Counsel as the original copy was not filed with the complaint).
The company vide letter dated 10.04.1998, submitted that they have stopped mobilization of funds against various schemes and have applied Investment Information and Credit Rating Agency (ICRA), New Delhi for credit rating of various schemes of the company. The company also submitted auditor's report. The same is Ex.CW1/5 (colly) (running into 101 pages) (Objected to by Ld Counsel as the original copy was not filed with the complaint and writing upon Ex.CW1/5 is not upon the documents filed alongwith the complaint nor any copy was supplied).
The company vide letter dated 12.05.1998 alongwith photocopy of ICRA letter dated 08.05.1998 by which Haryali Ganga, Haryali Kanchan, Haryali Gagan and Haryali Janta were assigned 'CS 5' rating. This rating indicated high risk and that such schemes are extremely speculative. The same is Ex.CW1/6 (running into four pages). (Objected to by Ld Counsel as the original copy was not filed with the complaint and also that the ICRA letter is a photocopy).
SEBI vide letter dated 13.07.1998 to the company asked to send compliance that mobilizing funds with respect to schemes against whom credit rating has been obtained and not under any other schemes. The office copy of the same is Ex.CW1/7.
CC No. 739/2023 Page No. 9 of 43SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
SEBI vide letter dated 18.07.1998 asked the company to submit statement of deployment of funds mobilized under various schemes duly certified by auditor. The office copy of the same is Ex.CW1/8.
SEBI CIS Regulations were notified on 15.10.1999 and press release in this respect was issued on 20.10.1999. A letter in this respect were issued to accused no. 1 informing them the notification of SEBI CIS Regulations. The copy of the letter dated 21.10.1999 alongwith press release which is already on record is mark B. Accused no.1 company vide letters dated 10.10.1999 and 29.10.1999 were informed about their obligation under SEBI CIS Regulations and that they were required to get the schemes registered or wind up and file winding up report. The copy of the said letters are mark C and D. Vide show cause notice date 12.05.2000, the accused no.1 company was called upon to show cause as to why action under SEBI Act and Regulations should not be initiated against the accused no.1 company and the said letter dated 12.05.2000 is mark E. Vide letter dated 31.07.2000, the accused no.1 company was forwarded the format of winding up and repayment report to be filed with SEBI on winding up of scheme. The copy of the said letter alongwith WRR format is mark F. Since, accused no.1 company failed to comply with SEBI CIS Regulations, the board vide its order dated 07.12.2000 passed directions u/s 11B of SEBI Act against the accused no.1 company alongwith its directors and promoters and the said order was forwarded to the accused no.1 company vide letter dated 18.12.2000 and copy of the same alongwith order is mark G. The present complaint has been signed and filed by Ms. Jyoti Jindgar for and on behalf of complainant. I identify her signatures at point A on the complaint as I have seen her signatures during CC No. 739/2023 Page No. 10 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
the course of my duties with SEBI. The complaint is Ex. CW1/9.
Accused no.1 company has till date not filed the winding up and repayment report with SEBI and has violated SEBI Act and SEBI Regulations. Accused no.2 to 8 are the persons incharge of and responsible for the conduct of the affairs of the accused no.1 company. The present complaint is true and correct. (Mode of proof of documents are objected to)"
She was duly cross examined by learned counsels for accused person.
16. Thereafter, CE was closed. Statements under Section 313 of accused No.2 to 8 were recorded wherein all the incriminating evidence which came on record was put to them, which they denied and stated that they are innocent and they have been falsely implicated in the present case.
17. Accused No.4, 6, 7, 8 opted not to lead any evidence in their defence. Accused No.5, though at the time of recording of his statement under Section 313 CrPC opted to lead evidence in his defence, however, later on vide his statement recorded on 26.07.2019, he stated that he did not wish to lead any evidence.
18. During defence evidence, accused no.2 Virendra Kumar Jaiswal and accused no.3 Narendra Kumar Jaiswal have examined themselves as DW-2 and DW-1 respectively.
19. DW-1 Narendra Kumar Jaiswal deposed as under:
"My permanent address is Lohiya Nagar, Ward No. 23, Nautanva, District: Maharajganj, U.P. I had taken one bond from M/s Hariyali Plantation on 20.05.1994 with membership No. 9, Certificate No. CC No. 739/2023 Page No. 11 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
52. Copy of the said certificate is Ex.DW1/1 (OSR).
I have also studied at Nautanva Inter-college. The copy of my certificate dated 15.07.1981 is Ex.DW1/2 (OSR).
I was doing the business of building material and was given the license by the sale tax authority on 31.05.1996 and the copy of the same is Ex.DW1/3 (OSR) (objected to with regard to mode of proof).
The photocopy of Income Tax Return for the year 1994-95, 1995- 96, 1996-97 and 1997-98 regarding the said business are Ex.DW1/4 (OSR)(objected to with regard to mode of proof), Ex.DW1/5 (OSR) (objected to with regard to mode of proof), Ex.DW1/6 (OSR) (objected to with regard to mode of proof) and Ex.DW1/7 (OSR)(objected to with regard to mode of proof) respectively.
I was regularly making the payment of sales tax in respect of my firm and the copies of the return in respect thereof is Ex.DW1/8 (Colly) (4 pages) (OSR)(objected to with regard to mode of proof).
I have never participated in the meetings of accused No. 1 company. I was not visiting the Office of accused No. 1 company. I did not visit the Office of ROC or SEBI in respect of accused No.1 company.
I have not signed any letter on behalf of accused No. 1 company."
He was duly cross examined by ld. counsel for complainant/SEBI.
20. DW-2 Virendra Kumar Jaiswal deposed as under:-
"When I started the company in the year 1994 at Sumer Sagar, U.P., at that time, there was no regulation of the Government in relation to the CC No. 739/2023 Page No. 12 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
plantation business. The only requirement at that time was to get the company registered with the ROC. Accordingly, I got my company registered vide Registration Certificate No. 20-16362 dated
21.04.1994 and certificate to this effect was issued by ROC on 12.05.1994. The copy of Registration Certificate is already on Court record which is already part of Ex.CW2/4.
Thereafter, I started the plantation business at the aforesaid place. I develop a scheme that I will seek investment from the customer for the purchase of plant and we look after the said plant after plantation on behalf of the said customer for about 15-20 years. In this regard, we used to execute agreement with the customer in which it was specifically specified that we will plant tree on behalf of the customer in lieu of the amount received from them and then we look after the said plant on their behalf during the period of agreement. It was also agreed that after the period of agreement, the plant will be handed over to the customer by us and no money in lieu of the plant was to be paid by us in terms of the agreement executed with the customer. One of such agreement is Ex.DW2/1.
To start the business, we were supposed to purchase the land, plants samples and to open an office and therefore, I requested all my relatives and friends for their help and sought financial assistance from them and accordingly, I collected around Rs.70-80 Lacs from my relatives and friends with the condition that I will allot plants to them in lieu of their financial help and also that I will look after those plants allotted to them. Subsequently, I alloted plant to them and collected the above-mentioned amount from my relatives and friends. I had issued Teak Certificate in respect of allotment of the plant to all such relatives and friends who had made investment.
CC No. 739/2023 Page No. 13 of 43SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
The place of my business was near to Nepal and lot of people had free ingress and outgress in India and Nepal at that time. So, I appointed agents in India and Nepal for promoting my business. I floated two schemes that is down payment scheme and installment scheme. Whoever used to make payment in one go, we used to issued Teak Certificate to them in respect of plants allotted to them. For those, who used to avail the scheme on installment basis, on receipt of first installment, we used to plant the sample and used to look after the same, however, it was a condition that in case the customer fail to clear the installment, they will not be allotted Teak Certificate or plant to them and the company shall not be liable in any manner for such defaulters unless they make the entire payment within the stipulated time. The Teak Certificate issued to one of the customer is now Ex.DW2/2.
Subsequently, we came to know about the SEBI regulation with regard to the plantation business. It came to the knowledge of the public large that the SEBI had stopped everyone to carry out the plantation business and therefore, after coming to know about the same, the customers started visiting us and started making inquiry about the future of their plant and their Teak Certificate issued by us. Some customers who had already seen that we have done lot of plantation, agreed to continue with us whereas the other group of customers started demanding money through their agents.
Accordingly, we started refunding them on through the agents who sought refund. A register in respect of such refunds were maintained and vide said register entry, we refund the amount w.e.f. 13.11.1997. The register maintained in this regard is Ex.DW2/3 (OSR) (running into 61 pages). No disputes remained with the said investors as reflected in the above register. In so far as the remaining investor are concerned, we have alloted plants to them in Nepal border and they are deriving the benefit out of the same. I can file the list of the CC No. 739/2023 Page No. 14 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
said investors who have been alloted the plants at Nepal Border. The claim filed by SEBI against the respondent is false and not maintainable. No customer/investor has made any complaint against us either in SEBI or with the Court."
21. Thereafter, accused No.2 Virendra Kumar Jaiswal (DW-2) has moved an application under Section 311 CrPC which was allowed vide order dated 01.09.2021. DW-2 Virendra Kumar Jaiswal was again examined on 30.09.2021 wherein he had tendered additional documents and proved the same are Ex.DW2/A to Ex.DW2/W. He was duly cross examined by ld. counsel for complainant/SEBI.
Arguments on behalf of complainant
22. Sh. Ashish Aggarwal, ld. counsel for complainant/SEBI had argued that accused No.1 company was incorporated on 21.04.1994. Ld. counsel for the complainant/SEBI had futher argued that CW-1 has deposed that an amount of Rs.2.664 crores was mobilised from the general public. Ld. counsel for complainant had argued that this letter is not objected by accused persons and therefore, there is no doubt that accused no.1 company had launched a collective investment scheme. Ld. counsel for complainant had further argued that accused no.1 company had neither applied for registration of its collective investment scheme nor complied with the order under Section 11B of SEBI Act which was passed after the accused no.1 company failed to file the winding up and repayment report. Ld. counsel for the complainant had further argued that the accused no.1 company vide its letter Ex.CW1/4 had supplied the list of directors/promoters wherein the name of accused no.2 to 8 had CC No. 739/2023 Page No. 15 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. been duly shown. Accused no.2 is shown to be the Managing Director of accused no.1 company. Ld. counsel for complainant had further argued that accused no.2, 5 and 6 are shown as First Directors in the Articles of Association. Ld. counsel for complainant had drawn the attention of this Court to the audited balance sheets which have been filed alongwith letter Ex.CW1/5 and have been duly signed by accused no.2 and 4. Ld. counsel for complainant had further argued that from own documents of accused persons, it is clear that accused no.2 to 8 were the directors of accused no.1 company who were responsible for conducting day to day affairs of accused no.1 company, therefore, they be convicted alongwith accused No.1 company for violation of the offence for which notice has been framed against them.
Arguments on behalf of accused persons
23. Ld. counsels for all accused persons, in common, had argued that CW-1 Ms. Anupama Chaddha was not authorised to depose on the basis of the authority letter given by Mr. Narendra Rawat who was not authorised to delegate his powers under Section 19 of SEBI Act and therefore, CW-1 Ms. Anupama Chaddha was not a competent witness. Ld. counsels for accused persons had further argued that explicit averments regarding individual roles of each and every accused persons have not been made in the complaint. Ld. counsels had further argued that complainant/SEBI has no ROC record in order to prove Form-32 of these accused persons.
24. In addition to above common arguments, Sh. Ashok Bajaj, ld. Counsel for accused no.1, 2 and 4 had argued that the CC No. 739/2023 Page No. 16 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. complainant has failed to prove the press releases Ex.CW1/2 and Ex.CW1/3 as the originals of the same were never brought before the Court at the time of recording of evidence of CW-1 Ms. Anupama Chaddha. Ld. counsel for accused no.1, 2 and 4 though has admitted the submission of information to SEBI vide Ex.CW1/4, Ex.CW1/5 and Ex.CW1/6, however, it has been disputed that the letter Ex.CW1/7 and Ex.CW1/8, whereby SEBI intimated accused no.1 company to send the compliance report regarding mobilisation of funds under the scheme, were received by accused no.1 company. He had further argued that the accused persons did not receive any further correspondence as accused no.1 company had shifted to Maharaj Ganj, U.P. and despite the fact that complainant had come to know about the fresh address of accused no.1 company, no information was sent on the said address which shows the malafide intention of the complainant. Ld. counsel for accused no.1, 2 and 4 had further argued that due to the rumor created by SEBI, the investors became apprehensive about the future of their investments and refused to pay further installments and under those circumstances, the accused no.1 company decided to wind up the business and therefore, started refunding the amount to the investors in respect of which the register Ex.DW2/3 was maintained which proves that the accused no.1 company had refunded the amount to its investors after opting to close its schemes. Ld. counsel has further argued that accused no.4 was not mentally sound during the trial.
25. Sh. Ashok Bajaj, ld. counsel for accused no.3 had argued that at that time when accused no.1 company came into CC No. 739/2023 Page No. 17 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. existence, accused no.2, 5 and 6 were the directors but as accused no.5 and 6 resigned from the directorship, accused no.3 and 4 were substituted against them. Ld. counsel had further argued that the letters making correspondence to the SEBI on behalf of accused no.1 company were signed by accused no.2 and 4 but they were never signed by accused no.3 as he was living at a very far distance at Gorakhpur, U.P. Accused no.3 was never involved in any affairs of the company and was doing his own business there as has been proved by him in his deposition as DW-1.
26. Sh. Ashok Bajaj, ld. counsel for accused no.5 had argued that accused no.5 had left the company before the alleged violations have taken place i.e. on 13.07.1994 and in his place, accused no.4 Vijay Laxmi Jaiswal was appointed as Additional Director. Ld. counsel has further argued that accused no.5 had already filed his discharge application which is pending since long alongwith which he had filed certified copy of Form-32 wherein it is clearly shown that accused no.5 had resigned on 13.07.1994 and therefore, he is not liable for any violation whatsoever.
27. In addition to the common arguments, Sh. Arif Shakeel, ld. counsel for accused no.6 to 8 had argued that the complainant has failed to prove beyond reasonable doubt that accused no.6 to 8 were the directors of accused no.1 company. He had further argued that the complainant has failed to show any document signed by accused no.6 to 8 on behalf of accused no.1 company to prove that they were involved in day to day affairs of accused no.1 company.
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28. Ld. counsels for the accused persons have argued that no case is made out against any of the accused persons and therefore, they be acquitted.
29. Ld. counsel for accused no.6 to 8 has relied upon the following judgments in support of his submissions:
(i) National Small Industries Corporation Ltd. vs. Harmeet Singh Paintal & Anr. (2010) 3 SCC 330
(ii) Sudeep Jain vs. M/s. ECE Industries Ltd., Crl.M.C. No.1822/2013 decided on 06.05.2013
(iii) Vishnu Prakash Bajpai vs. SEBI 2010(168) DLT 827
(iv) SEBI vs. Gaurav Varshney & Ors. Crl.A. No.827-838/2012 decided on 15.07.2016.
Analyisis, Reasoning & Findings
30. I have heard ld. counsel for SEBI and ld. counsels for accused persons and have also carefully perused the record.
31. Before proceeding with the appreciation of evidence and documents on record, it would be relevant to note the relevant provisions of the SEBI Act.
32. Section 11B of SEBI Act provides the powers of SEBI to issue directions in the interest of investors and Section 12(1B) of SEBI Act provides for registration of the CIS by the company. Section 11B and 12(1B) of SEBI Act are reproduced hereinunder:
"11B . Power to issue directions [and levy penalty] [(1)] Save as otherwise provided in section 11, if after making or causing 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 CC No. 739/2023 Page No. 19 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
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.
[Explanation.--For the removal of doubts, it is hereby declared that the power to issue directions under this section shall include and always be deemed to have been included the power to direct any person, who made profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act or regulations made thereunder, to disgorge an amount equivalent to the wrongful gain made or loss averted by such contravention.] [(2) Without prejudice to the provisions contained in sub-section(1), sub-section (4A) of section 11 and section 15-I, the Board may, by an order, for reasons to be recorded in writing, levy penalty under sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB after holding an inquiry in the prescribed manner.]
12. (1B) No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment schemes including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations:
PROVIDED that any person sponsoring or causing to be sponsored, carrying or causing to be carried on any venture capital funds or collective investment schemes operating in the securities CC No. 739/2023 Page No. 20 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
market immediately before the commencement of the Securities Laws (Amendment) Act, 1995, for which no certificate of registration was required prior to such commencement, may continue to operate till such time regulations are made under clause (d) of sub-section (2) of section 30.] [Explanation: For the removal of doubts, it is hereby declared that, for purposes of this section, a collective investment scheme or mutual fund shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment besides the component of insurance issued by an insurer.]"
33. The violations are punishable under Section 24 r/w Section 27 of the SEBI Act against company and its directors.
34. Section 24 and Section 27 of SEBI Act provides as under:
"Offences.
24. (1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to [ten years, or with fine, which may extend to twenty-five crore rupees or with both].
(2) If any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders, he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to [ten years, or with fine, which may extend to twenty-five crore rupees or with both].
xxx xxx Offences by companies.
CC No. 739/2023 Page No. 21 of 43SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
27. (1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(2) xxx xxx Explanation : For the purposes of this section,--
(a) "company", means any body corporate and includes a firm or other association of individuals;
and
(b) "director", in relation to a firm, means a partner in the firm."
35. Certain regulations of CIS Regulations which are relevant for the present case are also provided hereinunder:
"Application by existing Collective Investment Schemes.
5. (1) Any person who immediately prior to the commencement of these regulations was operating a [collective investment scheme], shall subject to the provisions of Chapter IX of these regulations make an application to the Board for the grant of a certificate within a period of two months from such date."
36. Regulation 68(1) and (2) of CIS Regulations provides as under:
CC No. 739/2023 Page No. 22 of 43SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
"Existing schemes to obtain provisional registration
68. (1) Any person who has been operating a collective investment scheme at the time of commencement of these regulations shall be deem ed to be an existing collective investment scheme and shall also comply with the provisions of this Chapter.
Explanation : The expression 'operating a collective investment scheme' shall include carrying out the obligations undertaken in the various documents entered into with the investors who have subscribed to the [collective investment scheme] (2) An existing collective investment scheme shall make an application to the Board in the manner specified in regulation 5."
37. The existing CIS are granted registration in accordance with the provisions of the Act and the Regulations under Regulations 72. The existing CIS which fails to make any application for the registration to the Board, Regulation 73 and 74 provides that the company shall wind up such existing CIS and make repayment to the investors. Regulation 73 and 74 are reproduced hereinunder for the sake of convenience:-
"Manner of repayment and winding up
73. (1) An existing collective investment scheme which:
(a) has failed to make an application for registration to the Board;
or
(b) has not been granted provisional registration by the Board; or
(c) having obtained provisional registration fails to comply with the provisions of regulation 71;
shall wind up the existing [collective investment scheme].
CC No. 739/2023 Page No. 23 of 43SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
(2) The existing Collective Investment Scheme to be wound up under sub-regulation (1) shall send an information memorandum to the investors who have subscribed to the [collective investment scheme]s, within two months from the date of receipt of intimation from the Board, detailing the state of affairs of the [collective investment scheme], the amount repayable to each investor and the manner in which such amount is determined.
(3) The information memorandum referred to in sub-regulation (2) shall be dated and signed by all the directors of the [collective investment scheme].
(4) The Board may specify such other disclosures to be made in the information memorandum, as it deems fit.
(5) The information memorandum shall be sent to the investors within one week from the date of the information memorandum.
(6) The information memorandum shall explicitly state that investors desirous of continuing with the [collective investment scheme] shall have to give a positive consent within one month from the date of the information memorandum to continue with the [collective investment scheme].
(7) The investors who give positive consent under sub-regulation (6), shall continue with the [collective investment scheme] at their risk and responsibility :
Provided that if the positive consent to continue with the [collective investment scheme], is received from only twenty-five per cent or less of the total number of existing investors, the [collective investment scheme] shall be wound up.
(8) The payment to the investors, shall be made within three months of the date of the information memorandum.
(9) On completion of the winding up, the existing collective investment scheme shall file with the CC No. 739/2023 Page No. 24 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
Board such reports, as may be specified by the Board.
Existing [collective investment scheme] not desirous of obtaining registration to repay
74. An existing collective investment scheme which is not desirous of obtaining provisional registration from the Board shall formulate a [collective investment scheme] of repayment and make such repayment to the existing investors in the manner specified in regulation 73."
38. In order to deal with the argument led by ld. counsels for accused persons with respect to competency of CW-1 Ms. Anupama Chaddha to depose in this case. Some relevant extracts of judgments passed by Hon'ble Supreme Court are reproduced.
39. Hon'ble Supreme Court in "Associated Cement Co. Ltd. vs. Keshvanand" (1998) 1 SCC 687 has held that :
" 22. Chapter XV of the new Code contains provisions for lodging complaints with magistrates. Section 200 as the starting provision of that chapter enjoins on the magistrate, who takes cognizance of an offence on a complaint, to examine the complainant on oath. Such examination is mandatory as can be discerned from the words "shall examine on oath the complainant...". The magistrate is further required to reduce the substance of such examination to writing and it "shall be signed by the complainant". Under Section 203 the magistrate is to dismiss the complaint if he is of opinion that there is no sufficient ground for proceeding after considering the said statement on oath. Such examination of the complainant on oath can be dispensed with only under two situations, one if the complaint was filed by a public servant, acting or purporting to act in the discharge of his official duties and the other when a court has made the complaint. Except under the above understandable situations the complainant has to make his physical presence for being examined by the magistrate. Section 256 or Section 249 of the new Code clothes the magistrate CC No. 739/2023 Page No. 25 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
with jurisdiction to dismiss the complaint when the complainant is absent, which means his physical a absence.
23. The above scheme of the new Code makes it clear that complainant must be a corporeal person who is capable of making physical presence in the court. Its corollary is that even if a complaint is made in the name of an incorporeal person (like a company or corporation) it is necessary that a natural person represents such juristic person in the court and it is that natural person who is looked upon, for all practical purposes, to be the complainant in the case. In other words, when the complainant is a body corporate it is the de jure complainant, and it must necessarily associate a human being as de facto complainant to represent the former in court proceedings.
25. Be that so, we suggest as a pragmatic proposition that no magistrate shall insist that the particular person, whose statement was taken on oath at the first instance, alone can continue to represent the company till the end of the proceedings. There may be occasions when a different person can represent the company e.g. the particular person who represents the company at the first instance may either retire from the company's services or may otherwise cease to associate therewith or he would be transferred to a distant place. In such cases it would be practically difficult for the company to continue to make the same person represent the company in the court. In any such eventuality it is open to the de jure complainant company to seek permission of the court for sending any other person to represent the company in the court. At any rate, absence of the complainant envisaged in Section 249 or Section 256 of the new Code would include absence of the corporeal person representing the incorporeal complainant."
40. In "M.M.T.C. and Anr. vs. Medchl Chemicals and Pharma (P) Ltd." (2002) 1 SCC 234 , Hon'ble Supreme Court has held as under :
" 11. This Court has, as far back as, in the case of Vishwa Mitter v. O.P. Poddar held that it is clear that CC No. 739/2023 Page No. 26 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
anyone can set the criminal law in motion by filing a complaint of facts constituting an offence before a Magistrate entitled to take cognizance. It has been held that no court can decline to take cognizance on the sole ground that the complainant was not competent to file the complaint. It has been held that if any special stature prescribes offences and makes any special provision for taking cognizance of such offences under the statute, then the complainant requesting the Magistrate to take cognizance of the offence must satisfy the eligibility criterion prescribed by the statute. In the present case, the only eligibility criteria prescribed by Section 142 is that the complaint must be by the payee or the holder in due course. This criteria is satisfied as the complaint is in the name and on of the appellant Company.
12. In the case of Associated Cement Co. Ltd. v. Keshvanand it has been held by this Court that the complainant has to be a corporeal person who is capable of making a physical appearance in the court. It has been held that if a complaint is made in the name of an incorporeal person (like a company or corporation) it is necessary that a natural person represents such juristic person in the court. It is held that the court looks upon the natural person to be the complainant for all practical purposes. It is held that when the complainant is a body corporate it is the de jure complainant, and it must necessarily associate a human being as de facto complainant to represent the former in court proceedings. It has further been held that no Magistrate shall insist that the particular person , whose statement was taken on oath at the first instance, alone can continue to represent the company till the end of the proceedings. It has been held that there may be occasions when different persons can represent the company. It has been held that it is open to the de jure complainant company to seek permission of the court for sending any other person to represent the company in the court. Thus, even presuming, that initially there was no authority, still the company can, at any stage, rectify that defect. At a subsequent stage the company can send a person who is competent to represent the company. The complaints could thus not have been quashed on this ground."CC No. 739/2023 Page No. 27 of 43
SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
41. Further, in "National Small Industries Corporation Ltd. vs. State (NCT of Delhi) & Ors." (2009) 1 SCC 407 , Hon'ble Supreme Court has held as under :
" 16. Section 142 only requires that the complaint should be in the name of the payee. Where the complainant is a company, who will represent the company and how the company will be represented in such proceedings, is of not governed by the Code but by the relevant law relating to companies. Section 200 of the Code mandatorily requires an examination of the complainant; and where the complainant is an incorporeal body, evidently only an employee or representative can be examined on its behalf. As a result, the company becomes a de jure complainant and its employee or other representative, representing it in the criminal proceedings, becomes the de facto complainant. Thus in every complaint, where the complainant is an incorporeal body, there is a complainant-de jure, and a complainant-de facto. Clause (a) of the proviso to Section 200 provides that where the complainant is a public servant, it will not be necessary to examine the complainant and his witnesses. Where the complainant is an incorporeal body represented by one of its employees, the employee who is a public servant is the de facto complainant and is signing and presenting the complaint, he acts in the discharge of his official duties. Therefore, it follows that in such cases, the exemption under clause (a) of the first proviso to Section 200 of the Code will be available.
19. Resultantly, when in a complaint in regard to dishonour of a cheque issued in favour of a company or corporation, for the purpose of Section 142 of the NI Act, the company will be the complainant, and for purposes of Section 200 of the Code, its employee who represents the company or corporation, will be the de facto complainant. In such a complaint, the de jure complainant, namely, the company or corporation will remain the same but the de facto complainant (employee) representing such de jure complainant can change, from time to time. And if the de facto complainant is a public servant, the benefit of exemption under clause (a) of the proviso to Section CC No. 739/2023 Page No. 28 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
200 of the Code will be available, even though the complaint is made in the name of a company or corporation.
20. Thus, the answer to the question raised is: where an incorporeal body is the payee and the employee who represents such incorporeal body in the complaint is a public servant, he being the de facto complainant, clause (a) of the proviso to Section 200 of the Code will be attracted and consequently, the Magistrate need not examine the complainant and the witnesses."
42. The ratio of these judgments is very clear. The employee of an incorporeal entity is de facto complainant. Now applying the said ratio, it is noted that complaint was filed by Ms. Jyoti Jindgar who was the Assistant General Manager of the SEBI. SEBI is the statutory body. The contention of ld. counsels for accused persons that CW-1 Ms. Anupama Chaddha was competent and authorized to depose in the present case, does not hold merits in view of the fact that she had clearly deposed in her examination-in-chief that she is the Assistant General Manager with SEBI. These facts were never challenged in cross- examination of CW-1 by ld. counsels for accused persons and thus, stands proved. Hence, she was duly competent to depose on behalf of the complainant. Hence, this argument of ld. counsels for accused persons is not tenable at all and hence, turned down.
43. Now coming to the merits of the case. CW-1 Ms. Anupama Chaddha has deposed that SEBI vide press releases dated 18.11.1997 and 26.11.1997 directed all the companies that were operating collective investment schemes to file information in respect of the schemes. She exhibited the press releases as CC No. 739/2023 Page No. 29 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. Ex.CW1/2 and Ex.CW1/3. The said press releases were objected to by ld. counsels for the accused persons on the ground that originals of the press releases were not produced. In order to deal with the objections raised by ld. counsels for the accused persons in respect of the said press releases, it is relevant to point out letter dated 12.01.1994 Ex.CW1/4 by which accused no.1 company (under the signature of its Managing Director i.e. accused No.2 Virendra Kumar Jaiswal) had furnished the information to the SEBI. Letter Ex.CW1/4 has been written in response to the advertisement published by the SEBI in the Newspaper Dainik Jagran. Therefore, it stands proved that the accused persons were aware about the press releases issued by SEBI. The objection qua exhibition of press releases is found to be frivolous, hence rejected. Vide letter Ex.CW1/4, the following information was furnished by accused no.1 company:-
"(i) The terms and conditions of acceptance of money (Annexure- 'A').
(ii) Amount collected under the various Agro based Scheme (Annexure- 'B')
(iii) Assurance made to the unit holders (Annexure- 'C')
(iv) Application form (Annexure- 'D')
(v) Details of Directors/Promoters of the company (Annexure- 'E')
(vi) Copy of the Memorandum and Articles of Association of the company (Annexure- 'F')"
44. Accused No.2 Virendra Kumar Jaiswal who deposed as DW-2, has admitted during his cross examination that Ex.CW1/4 was sent by accused no.1 company under his signatures. Hence, it stands proved that the accused no.1 company through accused no.2 has furnished the information vide letter Ex.CW1/4.
45. Accused no.2 in his cross examination confirmed that CC No. 739/2023 Page No. 30 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. Memorandum of Association and Articles of Association which are part of Ex.CW1/4 are that of accused no.1 company. Alongwith Ex.CW1/4, certificate of incorporation of accused no.1 company has been placed which proves that the accused no.1 company was incorporated on 21.04.1994. Alongwith the said letter Ex.CW1/4, Annexure-B has been placed under the signatures of A-2 giving the details of amount collected under the various Agro based schemes upto 29.12.1997 totalling to Rs.2,66,46,461/-. The brochure of the scheme duly stamped and signed by accused no.2 was also filed on record. Apart from this, a letter Ex.CW1/5 dated 10.04.1998 under the signature of accused no.2 was filed. Alongwith the said letter, the audited balance sheets of accused no.1 company as on 31.03.1995, 31.03.1996 and 31.03.1997 were annexed. In the balance sheet as on 31.03.1995, the amount shown to be received from the sale of units was Rs.35,40,900/-. Further, in the balance sheet as on 31.03.1996, the amount shown to be received from the sale of units was Rs.1,30,44,461/- and in the balance sheet as on 31.03.1997, the amount shown to be received from the sale of units was Rs.2,77,92,334/-. It is pertinent to point out that in the audited balance sheet as on 31.03.1997, the amount mobilised is shown as Rs.2.779 crores whereas in the information furnished to SEBI vide Ex.CW1/4, the amount mobilised was stated to be Rs.2.66 crores. From the aforesaid documents, it stands duly proved that accused no.1 company had raised an amount of Rs.2.77 crores from the general public under collective investment schemes.
46. CW-1 Ms. Anupama Chaddha has further deposed that CC No. 739/2023 Page No. 31 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. SEBI vide several letters had asked accused no.1 company to submit the reports with respect to deployment of funds, as intimated about CIS Regulations on 21.10.1999. She has further deposed that the accused no.1 company vide letters dated 10.10.1999 and 29.10.1999 were informed about their obligations under SEBI CIS Regulations and that they were required to get the schemes registered or wind up and file the winding up report. She further deposed that show cause notice dated 12.05.2000 was also sent. She further deposed that letter dated 31.07.2000 was also sent forwarding the format of winding up and repayment report. She has further deposed that accused no.1 company failed to comply with SEBI CIS Regulations and order dated 07.12.2000 passed under Section 11B of SEBI Act by the Board which was duly forwarded to accused no.1 company vide letter dated 18.12.2000. All these letters have been perused. Except for the show cause notice dated 12.05.2000, no postal receipt has been annexed in order to show that these letters were sent to accused no.1 company. Ld. counsels for the accused persons had argued that none of these information was received by accused no.1 company at any point of time. Ld. counsels had also pointed out that the address of accused no.1 company was changed from Sumer Sagar, Gorakhpur to Maharaj Ganj, U.P. and despite knowing the new address of accused no.1 company, no letter was sent there. There is no doubt that postal receipts have not been filed except for show cause notice and therefore, it is not proved that they were sent. However, in the testimony of accused no.2, he has deposed that he was aware of SEBI regulations and had started refunding the investors. He also CC No. 739/2023 Page No. 32 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. deposed that he maintained a register in respect of refunds given to investors. The relevant extract of his deposition in this regard is as under:
"Subsequently, we came to know about the SEBI regulation with regard to the plantation business. It came to the knowledge of the public large that the SEBI had stopped everyone to carry out the plantation business and therefore, after coming to know about the same, the customers started visiting us and started making inquiry about the future of their plant and their Teak Certificate issued by us. Some customers who had already seen that we have done lot of plantation, agreed to continue with us whereas the other group of customers started demanding money through their agents. Accordingly, we started refunding them on through the agents who sought refund. A register in respect of such refunds were maintained and vide said register entry, we refund the amount w.e.f. 13.11.1997. The register maintained in this regard is Ex.DW2/3 (OSR) (running into 61 pages)."
47. Insofar as argument qua change in address is concerned, In this regard, it is relevant to note here that the earlier communications/correspondences were sent by accused no.1 company from the address of Sumer Sagar, Gorakhpur. Accused no.1 company was duty bound to intimate the officials of SEBI in case there was change in address but that was not done and therefore, the accused persons cannot claim advantage of their own lapse. This argument of ld. counsels for the accused persons is not tenable.
48. The testimony of accused no.2 (DW-2) shows that accused no.1 company was aware about the CIS Regulations. In his cross examination, he admitted that accused no.1 company CC No. 739/2023 Page No. 33 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. had not filed any application for registration of its scheme with SEBI and had not filed winding up and repayment report with SEBI. In the Volunteer portion, he stated that he was not aware about it. Deposition of DW-2 as discussed above clearly indicates that accused no.1 company was aware of the steps taken by SEBI from time to time and the directions given by it to accused no.1 company. Even if it is presumed that no information was received by accused no.1 company at that time, it is note in dispute that accused persons received all the letters and documents including the order passed under Section 11B of SEBI Act with the summons of this complaint. No challenge to Section 11B of SEBI Act was made even at that time or subsequent thereto by the accused persons. The fact that as per deposition of accused no.2 (DW-2), accused no.1 company had started refunding the amount to customers, shows that they were aware that the schemes had to be wound up and repayments were required to be made to be investors. The register Ex.DW2/3 has been seen carefully but the same does not disclose either the names of the investors or the amount invested by them or the amount repaid to the investors. This fact is admitted by DW-2 in his cross examination conducted by ld. counsel for complainant. It is pertinent to state herein that in case the accused no.1 company had already paid the amount to the investors, what stopped the company to file the winding up and repayment report to the SEBI at any point of time. It is a matter of fact that even after summons of this complaint case were issued to accused no.1 company, accused no.1 company had not come forward to file the winding up and repayment report with the SEBI which could CC No. 739/2023 Page No. 34 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. have been easily done in case the repayment to the investors were already made. Hence, this argument is not tenable.
49. There is yet another argument which has been raised by ld. counsel for accused no.1 company that no customer or investor had made any complaint against them either with the SEBI or in this Court. In this regard, it is pertinent to state that it is already proved on record that the accused no.1 company had raised funds to the tune of Rs.2.66 crores (as mentioned in complaint) under CIS from the general public which has not been repaid to them, therefore, it is not necessary for the complainant, which is a statutory body, to call the individual investors in order to prove that they have not been repaid. Further, the list of investors is with accused company or its directors. It cannot be in the possession of SEBI. Accused no.1 company was legally bound to file the winding up and repayment report in compliance with the provisions of CIS Regulations which is not done in the present case. Therefore, emphasizing on proving the complaint made by investors or producing them in the Court for deposition is completely baseless.
50. Accused No.1 company was incorporated on 21.04.1994 before introduction of Section 12(1B) of SEBI Act i.e. on 25.01.1995. There is no doubt that as on the date of incorporation, accused no.1 company was free to launch CIS and therefore, Section 12(1B) of SEBI Act is not applicable. However, at the same time, it is to be noticed that accused no.1 company fell within the four corners of proviso to Section 12(1B) of SEBI Act wherein it is provided that the company which has launched CIS before introduction of Section 12(1B) CC No. 739/2023 Page No. 35 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. shall also apply for registration on coming into force of the CIS Regulations. There is no dispute that no application seeking registration of CIS was ever moved by accused no.1 company.
51. It stands proved beyond reasonable doubt that accused no.1 company had mobilised the amount of Rs.2.779 crores as proved from the audited balance sheet as on 31.03.1997 from the general public and had failed to file the winding up and repayment report. Therefore, the accused no.1 had violated the provisions of Section 12(1B) of SEBI Act and Regulations 5(1) 68(1), 68(2), 73 and 74 of the CIS Regulations, punishable under Section 24(1) r/w 27 of SEBI Act.
52. Ld. counsels for accused no.2 to 8 had commonly argued that explicit averments regarding individual roles of each and every accused persons have not been made in the complaint and it has not been specifically pleaded that how accused no.2 to 8 were responsible for conducting day to day affairs of accused no.1 company in the business. In this regard, it is relevant to note that documents filed with the complaint are also to be read as part of the complaint. The mere fact that the complaint does not bear the details as to how accused no.2 to 8 were involved in day to day affairs of accused no.1 company, does not extend any benefit to accused no.2 to 8. The complainant has filed several documents alongwith the complaint which were exhibited during the testimony of CW-1 Anupama Chaddha and therefore, the complaint cannot be thrown away on this very count alone. The documents filed in support of the complaint by the complainant speaks volume about the same. Therefore, this arguments is not tenable. (Reliance in this regard can be placed on Mohd. Iqbal vs. CC No. 739/2023 Page No. 36 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. SEBI & Anr. 2023 SCC Online Del 4070).
53. Insofar as accused no.2 Virendra Kumar Jaiswal is concerned, accused no.2 has made entire correspondence with SEBI in pursuance to the press releases under his signatures being the Managing Director of accused no.1 company. Being the Managing Director, he is responsible for day to day affairs of accused no.1 company. During his cross examination, he has admitted his signatures on all the correspondences as well as on the audited balance sheets for financial years 1994-1995, 1995- 1996 and 1996-1997. Undoubtedly, ROC record has not been proved by the complainant, however, these documents are sufficient to prove that accused no.2 was the Managing Director of the accused no.1 company and was actively participating in the day to day affairs of accused no.1 company and is held vicariously liable for the violation of accused no.1 company.
54. Insofar as accused no.4 Vijay Laxmi is concerned, ld. counsel had argued that accused no.4 was not mentally sound to face the trial. The entire case file has been perused. No application under Section 328 CrPC is found to have been moved at any point of time by ld. counsel for accused no.4 in order to stay or stop the trial against her. It is pertinent to point out that in order dated 26.07.2019, an exemption application was moved on behalf of accused no.4 when the matter was listed for recording of statement of accused under Section 313 CrPC. Learned Predecessor of this Court had made the following observations qua accused no.4 Vijay Laxmi :-
"xxxxxxx Ld. counsel has been told to secure the CC No. 739/2023 Page No. 37 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
presence of the accused on which the Ld. Counsel Sh. Ashok Bajaj submits that the accused Vijay Laxmi will not appear and this court may issue coercive process against her. When asked to get his statement recorded to this effect, the Ld. Counsel on instructions from the accused Virendra Jaiswal submits that some time may be granted and the Accused No.2 Virendra Jaiswal shall ensure her presence on the next date. The Ld. Counsel submits that he shall also produce the medical record of the accused Vijay Laxmi."
55. It is further observed from the next order dated 01.10.2019 wherein accused appeared before the learned Predecessor of this Court and following order was passed:
"xxx xxx The accused Vijay Laxmi is present in the court. I have personally interacted with her. On the last date of hearing submissions were made that she is no mentally fit to make statement before this court. No medical record relating to her mental ailment has been produced. Rather during interaction with the accused Vijay Laxmi I have observed that she is responding properly to the queries put by the court. In fact when this court was interacting with her to assess her mental faculties in the light of the submissions made by her counsel on the last date, she tried to overrule the court by shouting at the court and was discourteous in order to refrain the court from making an inquiry regarding her mental status. At this stage, Sh. Ashok Bajaj, Advocate appearing for the accused Vijay Laxmi submits that on the alst date of hearing he had made the submissions before this court regarding her mental ailment as he was not personally aware of the same but today he had interacted with her and found that she is mentally sound and capable to understanding the nature of proceedings. He has apologized for the behaviour of the accused Vijay Laxmi and seeks a pass over to advice her.CC No. 739/2023 Page No. 38 of 43
SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.
xxx xxx xxx Statement of accused Vijay Laxmi under Section 313 CrPC has recorded. She has apologized for her rude behavior and undertakes in writing that she will appear before the court on each and every date and will not seek exemption."
56. In view of these orders, it can clearly be seen that accused no.4 was not suffering from any such mental ailment. Even after the aforesaid order was passed on 01.10.2019, no application was ever moved alongwith any medical documents. In these circumstances, this argument of ld. counsel that accused no.4 was not mentally fit to face the trial is not tenable.
57. Now coming to the merits, one Form-32 has been placed on record which is marked as Mark-X2 wherein accused no.4 Vijay Laxmi Jaiswal is shown to be appointed as Additional Director in the Board meeting held on 13.07.1994. Since Form-32 is a public document, therefore, there is no reason to disbelieve the same. Accused no.4 has duly signed the audited balance sheets for the financial years 1994-1995, 1995-1996 and 1996-1997 alongwith accused no.2 and therefore, it is proved beyond any doubt that she was also actively involved in the affairs of the company. Apart from that, her name is also reflected in the list of directors of company which was furnished by accused no.1 company alongwith letter Ex.CW1/5. Therefore, it stands duly proved that accused no.2 and 4 were involved in the day to day affairs of accused no.1 company and are vicariously liable for the violation of the said offences.
58. Insofar as accused no.3 Narendra Kumar Jaiswal is CC No. 739/2023 Page No. 39 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. concerned, the name of accused no.3 is given in the list of subscribers to the memorandum which has been filed alongwith letter Ex.CW1/4. Apart from that, he is shown to be one of the directors in the details of directors annexed as Annexure-E alongwith letter Ex.CW1/4. His name is also shown as director in the list of names of directors of the company annexed alongwith Ex.CW1/5. Apart from the aforesaid documents which did not bear the signature of accused no.3 at all, there is no other document in order to show that accused no.3 had ever participated in the affairs of the company or was involved in launching the scheme or collecting the funds under CIS. He is not shown as beneficiary of the same. Subsequent prospectus/brochures of the schemes is also placed on record wherein also his name does not appear. No ROC record has been summoned by the complainant in order to show his role in the accused no.1 company. Though it is proved on record that he was director at one point of time in the accused no.1 company, however, it does not stand proved that he was actively participating in the day to day affairs of accused no.1 company. Accused no.3 has also examined himself as DW-1 wherein he has stated that he was doing the business of building material and was given licence by Sales Tax Authority and was not involved in day to day affairs of accused no.1 company. He clearly deposed that he did not sign any letter on behalf of accused no.1 company and this fact remained unchallenged during his deposition as no cross examination was conducted on this fact by ld. counsel for the complainant. Therefore, it stands proved that accused No.3 Narendra Kumar Jaiswal was not involved in day CC No. 739/2023 Page No. 40 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. to day affairs of accused no.1 company.
59. Insofar as accused no.5 Girija Shanker Jaiswal is concerned, alongwith Ex.CW1/4 Memorandum and Articles of Association has been annexed wherein the name of first directors is given on internal page No.39 of Memorandum and Articles of Association. Accused no.5 was shown as one of the initial directors of accused no.1 company meaning thereby he became director of accused no.1 company at the time of its incorporation. However, the document Mark-X2 has been placed on record which is a certified copy of Form-32 wherein accused no.5 is shown to have resigned on 13.07.1994 (when accused no.2 joined as additional director). This fact is nowhere disputed by ld. counsel for complainant. No document in order to rebut this record has been produced by the complainant. There is no other document in order to show that accused no.5 had ever participated in the affairs of the company after 13.07.1994 or even before that. Therefore, accused no.5 Girija Shanker Jaiswal is given benefit of doubt.
60. Insofar as accused no.6 Amar Mani Tripathi, accused no.7 Ajit Mani Tripathi and accused No.8 Madhu Mani Tripathi are concerned, alongwith Ex.CW1/4 Memorandum and Articles of Association has been annexed wherein the name of first directors is given on internal page No.39 of Memorandum and Articles of Association. Accused no.6 was shown as one of the initial directors of accused no.1 company. Meaning thereby, he became director of accused no.1 company at the time of its incorporation. Accused no.6 is also shown to be one of the subscribers to the Memorandum and Articles of Association. In CC No. 739/2023 Page No. 41 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. the list of directors/promoters given alongwith Ex.CW1/4, accused no.6 is shown to be one of the promoters. Similarly, Accused no.7 and 8 are shown to be the subscribers to the Memorandum and Articles of Association and in the list of directors/promoters given alongwith Ex.CW1/4, accused no.7 and 8 are shown to be the promoters. There is not even a single document which could prove that accused no.6 to 8 had even signed any financials of the accused no.1 company or had ever participated in day to day affairs of the accused no.1 company. ROC record has not been produced in order to show their involvements in the day to day affairs of accused no.1 company. Brochure of the scheme which is placed on record do not find mention their names. Merely because, they were subscriber/promoters of the accused no.1 company, they cannot be held liable for the violations of provisions of SEBI Act and CIS Regulations for which notice has been framed against them.
61. Under these facts and circumstances, accused no.1 company i.e. M/s Hariyali Plantations (India) Ltd. is held guilty of the offence under Section 12(1B) of SEBI Act and Regulation 5(1), 68(1), 68(2), 73 and 74 of the CIS Regulations, punishable under Section 24(1) of SEBI Act and accused no.2 Virender Kumar Jaiswal and accused no.4 Vijay Laxmi are held guilty of the offence under Section 12(1B) of SEBI Act and Regulation 5(1), 68(1), 68(2), 73 and 74 of the CIS Regulations, punishable under Section 24 r/w 27 of SEBI Act and convicted accordingly and accused No.3 Narendra Kumar Jaiswal, accused No.5 Girija Shanker Jaiswal, accused No.6 Amar Mani Tripathi, accused no.7 Ajit Mani Tripathi and accused no.8 Madhu Mani Tripathi are CC No. 739/2023 Page No. 42 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors. acquitted of the charges for which notice was framed against them. Digitally signed by VANDANA VANDANA JAIN Announced in open court JAIN Date: 2024.12.03 on 03.12.2024 15:34:31 +0530 (Vandana Jain) ASJ-03 & Special Judge (Companies Act) Dwarka Courts (SW)/New Delhi/03.12.2024 Note: This judgment contains 43 (Forty Three) pages and having my signature on each page. VANDANA Digitally signed by VANDANA JAIN JAIN Date: 2024.12.03 15:34:37 +0530 (Vandana Jain) ASJ-03 & Special Judge (Companies Act) Dwarka Courts (SW)/New Delhi/03.12.2024 CC No. 739/2023 Page No. 43 of 43 SEBI vs. M/s. Hariyali Plantations (India) Ltd. & Ors.