Delhi District Court
Sebi vs . Wellgrow Plantations Ltd. on 27 August, 2012
SEBI Vs. Wellgrow Plantations Ltd.
IN THE COURT OF SH. PAWAN KUMAR JAIN,
ADDITIONAL SESSIONS JUDGE-01(CENTRAL):DELHI
Complaint Case No. 42 of 2010
ID No: 02401R5221912004
SECURITIES 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 New Delhi, represented by
Ms. Pooja Mirchandani, AGM,SEBI.
Versus
1. M/s WELLGROW PLANTATIONS LTD.
GUMTI PLAZA,
GUMITI-5,
Kanpur-208012.UP
........Accused no.1
2. Sh. Satish Subhedar,
S/o R.W.Subhedar
R/o 4/278, Vishnu Puri,
Kanpur, U.P
........Accused no.2
3. Sh. Arvind Kumar Shukla
S/o Not known
117/127,P-Block,
Kakadeo, Kanpur, U. P.
........Accused no.3
4. Sh. Om Prakash Gupta
S/o Sh. Ram Darsh Gupta
R/0 215/8, Vijay Nagar,
Kanpur, U. P.
........Accused no.4
5. Ms. Usha Gupta
W/o Sh. Om Parkash Gupta,
CC No. 42/2010 Page no. 1 of 17
SEBI Vs. Wellgrow Plantations Ltd.
R/o 215/8, Vijay Nagar,
Kanpur, U. P.
........Accused no.5
6. Ms. Alka Shukla
S/o Not known
R/o 117/127,P-Block,
Kakadeo, Kanpur, U. P.
........Accused no.6
Date of initial Institution : 14.01.2004
Date of committal to Session Court : 14.12.2004
Date of judgment reserved on : 13.08.2012
Date of pronouncement of judgment : 24.08.2012
Present: Sh. Ashish Aggarwal, Advocate, Counsel for SEBI.
Sh. D.P.Bhatia, Advocate, counsel for accused no.1 &2
Sh. J. K. Sharma, Advocate, counsel for accused no.
4 & 5
J U D G M E N T:
1. This criminal complaint was preferred by the Securities & Exchange Board of India (hereinafter referred to as "SEBI" or "the complainant"), on January 14, 2004 in the Court of Additional Chief Metropolitan Magistrate (ACMM), alleging violation of the provisions of Section 12 (1B) of Securities & Exchange Board of India Act, 1992 (hereinafter, "the SEBI Act") and Regulation Nos. 5(1) read with 68(1), 68(2), 73 and 74 of the Securities & Exchange Board of India (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as "the CIS Regulations" or "the said Regulations"), constituting offence punishable under Section 24(1) read with Section CC No. 42/2010 Page no. 2 of 17 SEBI Vs. Wellgrow Plantations Ltd.
27 of the SEBI Act.
2. Six persons were arrayed as accused in the criminal complaint preferred under Section 200 Cr.P.C., they being M/s Wellgrow Plantations Ltd. (hereinafter, "A1" or "the Company Accused"), accused No. 2 Sh. Satish Subhedar, ("A2"), accused No.3 Sh. Arvind Kumar Shukla ("A3"), accused No.4 Sh. Om Parkash Gupta ("A4"), accused No.5 Ms. Usha Gupta ("A5") and accused No.6 Sh. Ms. Alka Shukla ("A6"). It is alleged that A2 to A6 were Directors of the company accused and as such persons were in-charge of, and responsible to, A1 for the conduct of its business within the meaning of the provisions contained in Section 27 of the SEBI Act.
3. It is alleged in the complaint that A1 had floated the Collective Investment Schemes (CIS) and raised amount approximately ` 0.110 crores from general public in violation of the provisions contained in Section 12 (1B) of the SEBI Act. It is also alleged that after coming into force of CIS Regulations and in spite of public notice dated December 18, 1997, the accused persons had failed to get the Collective Investment Scheme registered with SEBI or to wind up the said scheme or repay the amount collected from the investors in terms of the CIS Regulations, thus constituting violation of the law and regulations framed thereunder and thereby committing the offence alleged as above.
4. Cognizance on the complaint was taken by the learned ACMM vide order dated January 14, 2004 whereby process was issued under Section 204 Cr.P.C. against all the accused persons.
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5. On account of the amendment, particularly in Sections 24 and 26 of the SEBI Act, through Amendment Act which came into force w.e.f. November 24, 2002, pursuant to Administrative Directions of Hon'ble High Court, under orders of the Ld. District & Sessions Judge, this case was transferred on December 14, 2004 from the Court of Ld. ACMM to the Court of Sessions, then presided over by Ms. Asha Menon, the then Additional Sessions Judge, Delhi.
6. Vide order dated December 21, 2006, a notice for the offence punishable under Section 24 read with section 27 of the SEBI Act was served upon the A1(company) & A2, A4 & A5 wherein all accused persons pleaded not guilty and claimed trial. Since, A2 represented company accused, he had also responded the notice on behalf of company. Vide order dated February 8, 2008, A3 & A6 were declared proclaimed offenders on account of their non-appearance.
7. To bring home the guilt of accused, complainant has examined only one witness named Ms. Pooja Mirchandani, AGM, SEBI as CW1. Thereafter, A2, A4 & A5 were examined under Section 313 Cr.P.C. A2 took the plea that he became the director in the company accused in the year 1996, but he was merely a sleeping director in the company accused. It was stated that company accused was floated by Sh. Virender Kumar Singh, Managing Director, and all decisions were taken by him. He further submitted that no public fund had been mis-appropriated and there is no complaint from general public in this regard. He further submitted that a case for the offence punishable under Section 420/406 IPC was registered by the police against the company accused and its Directors and Sh.
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Virender Kumar Singh has been facing trial in the said case. He further submitted that though he was one of the accused but discharged in the said case. A4 & A5 also supported the version of A2 in respect of Sh. Virender Kumar Singh. A4 further submitted that he had resigned from the company accused on June 24, 1998 and he had no active role in the company accused. A5 took the plea that she was only a sleeping director in the company accused and had resigned from the company accused on December 25, 1997 and she had no concern with the day to day affairs of the company accused. To prove their innocence, accused persons have examined Sh. Om Parkash, investor as DW1, Ms. Sohanmati, investor as DW2, Ms. Usha Gupta (A5) as DW3 and Sh. Om Parkash Gupta (A4) as DW4.
8. Learned counsel appearing for A4 & A5 contended that no case is made out against the accused persons as A4 had resigned from the directorship of company accused w.e.f. June 24, 1998 whereas A5 Ms. Usha Gupta had resigned from the company accused w.e.f. December 25, 1997 and since then they were not holding any position in the company accused. It was contended that the CIS Regulations were notified w.e.f October 15, 1999 but at that time, neither of the accused persons was holding any position in the company accused, thus it was contended that A4 & A5 were not responsible for the compliance of provisions of CIS Regulations. It was further contended that there is no violation of Section 12(1B) of the Act as company accused was incorporated in August 1993 whereas Section 12(1B) was inserted in the statute w.e.f January 25, 1995.
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9. Learned counsel appearing for A1 & A2 contended that no case is made out against them as the present complaint was not filed by the duly authorized person. It was further submitted that the company accused had not violated any provision of Section 12(1B) of the SEBI Act as Section 12(1B) was inserted in the statute w.e.f January 25, 1995 whereas company accused was incorporated in the year 1993, thus it was contended that company accused was not supposed to take requisite certificate of registration before mobilizing the funds. It was submitted that since there is no evidence on record to establish when A2 had joined the company accused as Director, A2 can not be held liable for the compliance of CIS Regulations. It was contended that A2 was the sleeping director in the company accused and main director was Sh. Virender Kumar Singh against whom a cheating case was lodged by the police. It was submitted that in the said case, A2 was discharged by the Court.
10. On the other hand, counsel appearing for SEBI fairly conceded that this is not a case for violation of Section 12(1B) of SEBI Act as the company accused was incorporated in August 1993. However, it was submitted that company accused had violated the provisions of CIS Regulations as after notification of the Regulations, company accused failed to seek certificate of registration for the existing collective investments schemes. It was further submitted that company accused had not filed winding up and repayment report in terms of CIS Regulations, thus the company accused and its directors are liable for the said violations. It was submitted that A2, A4 & A5 were the directors in the company accused on the date when the CIS CC No. 42/2010 Page no. 6 of 17 SEBI Vs. Wellgrow Plantations Ltd.
Regulations were notified, thus they are also liable for the said violations.
11. I have heard rival submissions advanced by the counsel for the parties, perused the record carefully and gave my thoughtful considerations to their contentions.
12. It is admitted case of the SEBI that company accused was incorporated on August 18, 1993 and had obtained the certificate for commencement of business on August 25, 1993. It is also admitted case of the SEBI that the company accused had mobilized funds till December 1997. Section 12 (1B) was inserted in the Act by way of amendment Act 9 of 1995 w.e.f January 25, 1995 and same runs as under:
"(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 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 CC No. 42/2010 Page no. 7 of 17 SEBI Vs. Wellgrow Plantations Ltd.
clause (d) of sub-section (2) of Section
30."
(emphasis supplied)
13. It is also admitted case of SEBI that prior to insertion of Section 12 (1B), no certificate of registration was required to mobilize funds through CIS. Since, company accused was incorporated in August, 1993 and was mobilizing funds when Section 12(1B) was inserted in the Act, the case of company accused falls within the provisions of proviso to Section 12(1B) of the Act. In terms of proviso to Section 12 (1B), company company was not required to obtain the certificate of registration for the schemes as company accused was mobilizing funds prior to insertion of Section 12(1B) in the Act. However, company accused was permitted to continue with the existing schemes only till Regulations were made by the SEBI under clause (d) of sub-Section 2 of Section 30. SEBI had notified the CIS Regulations under Section 30(2)(d) of the Act w.e.f October 15, 1999, thus thereafter, the company accused was supposed to obtain the certificate of registration. Moreover, learned counsel appearing for SEBI has fairly conceded that there is no allegation of violation of Section 12(1B) against the company accused and its directors. In other words, allegations against the accused are that they had not complied with the provisions of CIS Regulations.
14. To impose the vicarious liability in terms of Section 27 of the SEBI Act, complainant is duty bound to establish that A2, A4 and A5 were the directors in the company accused when CIS Regulations were notified and they were liable for the compliance of said Regulations.
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15. In order to prove that the said accused persons were the directors in the company accused, SEBI has relied upon the documents Ex. CW1/7 & Ex. CW1/11. Ex. CW1/7 was sent by the company accused on April 29, 1998 whereas Ex. CW1/11 was sent to the SEBI on March 12, 1999, thus it becomes clear that both the said letters pertains to the period prior to October 15, 1999, when CIS Regulations were notified.
16. A4 Om Parkash Gupta appeared in the witness box as DW4 and deposed that he had resigned from the company accused w.e.f June 24, 1998 and filed the Form-32, which is exhibited as Ex. DW4/A. Similarly, A5 Ms. Usha Gupta appeared in the witness box as DW3 and deposed that she had resigned from the company accused w.e.f December 25, 1997 and filed the certified copy of Form-32 and same is marked as Ex. DW3/A. DW4, in his cross-examination deposed that he did not aware when Form-32 was submitted with the ROC and further deposed that he can not say whether the same was submitted with ROC on September 23, 2000 or not. Similarly, DW3 also deposed that she is not aware when Form-32 was submitted with ROC and can not say whether it was submitted on September 23, 2000 or not. Learned counsel appearing for SEBI submitted that Form-32 is a fabricated document and due to that reason, same was not submitted at the time when they had allegedly resigned from the company accused. It was contended that since Form-32 was submitted with ROC only on September 23, 2000, thus presumption is that they were the directors in the company accused till September 23, 2000. It is well settled law that it is the responsibility of the company CC No. 42/2010 Page no. 9 of 17 SEBI Vs. Wellgrow Plantations Ltd.
accused to submit Form-32 with the ROC and not on the part of directors who had resigned from the company accused. Moreover, SEBI has failed to produce any cogent evidence on record to establish that the said Form-32 is a forged and fabricated document. Mere fact that Form-32 was submitted by the company accused later on, is not sufficient to discard the testimony of DW3 & DW4 and to disbelieve the certified copy of Form-32, which are exhibited as Ex.DW3/A and Ex. DW4/A. Since, A4 & A5 had resigned from the company accused much prior to notification of CIS Regulations, to my mind, they can not be roped in for the alleged violations with the aid of Section 27 of the SEBI Act.
17. Now turning to the plea of A2.
18. Learned defence counsel took the plea that A2 was merely a sleeping director in the company accused. But in support of his plea, A2 failed to lead any evidence in his defence. He even failed to grace the witness box, thus there is no iota of evidence to establish that he was merely a sleeping director in the company accused. It is admitted case of A2 that he was one of the directors in the company accused. Company accused, vide its letter dated April 29, 1998 (Ex. CW1/7), intimated the SEBI that A2 was one of the directors in the company accused. SEBI has filed Form-32 qua A2 showing that he was director in the company accused w.e.f January 6, 1996, thus it becomes absolutely clear that he was one of the directors in the company accused w.e.f January 6, 1996.
19. Since, A2 Sh. Satish Subhedar was one of the directors in the company accused at the time when the CIS Regulations were CC No. 42/2010 Page no. 10 of 17 SEBI Vs. Wellgrow Plantations Ltd.
notified, being the director it was his responsibility to ensure that company accused had complied with the mandatory provisions of CIS Regulations. Before coming to the vicarious liability of A2, I deem it appropriate to deal with the issue as to whether the company accused had violated any provisions of CIS Regulations or not?
20. It is undisputed fact that company accused was incorporated in August, 1993 thus in terms of proviso to Section 12(1B), company accused was entitled to continue with the existing schemes till the regulations were notified by the SEBI in terms of Section 30(2)(d) of the SEBI Act. CIS Regulations were notified w.e.f October 15, 1999. As per Regulation 5, companies which were carrying collective investment schemes before the notification of Regulations, were supposed to move an application within a period of two months from the date of notification to seek a certificate of registration of collective investment schemes. Admittedly, company accused had not moved any such application. Under Regulation 68, the schemes operated by the companies prior to the notification of CIS Regulations were termed as 'existing collective investment schemes', thus company accused was bound to complied with the provisions of the CIS Regulations. If any company fails to make the application under Regulation 5 or if application was made but same was rejected, such companies were bound to refund the amount to the investors and submit winding up and repayment report with the SEBI on the prescribed format. Admittedly, company accused had not submitted any such report, thus company accused had also violated Regulation 73 of CIS Regulations. The violation of said Regulations are punishable under Section 24(1) of the SEBI Act. Since, company accused failed to comply with the mandatory provisions of CIS Regulations, company accused had CC No. 42/2010 Page no. 11 of 17 SEBI Vs. Wellgrow Plantations Ltd.
committed an offence punishable under Section 24(1) of the SEBI Act.
21. As already discussed that A2 was one of the directors in the company accused, thus being the director, it was his responsibility to ensure that company should have comply with the mandatory provisions of CIS Regulations. Though, A2 took the plea that he was merely a sleeping director in the company accused, yet he failed to produce any cogent evidence in this regard, In the absence of any cogent evidence, defence version does not inspire any confidence. As per the Articles of Associations of company accused, to maintain the books of accounts as per the law, was the responsibility of the Board of Directors. Similarly, to manage the affairs of the company, was also the responsibility of the Board of Directors, thus A2 was also liable to ensure that the amount collected by the company accused be refunded to the investors and winding up and repayment report be filed in terms of mandatory provisions of CIS Regulations. But he failed to take any step in this regard. Since, he failed to take any step in this regard despite the fact that he was one of the directors, presumption is that either he was negligent in performing his duty or he was a consented party to the acts of the company accused, thus in terms of sub-Section 2 of Section 27 of the SEBI Act, he being the director, is also liable for the said violations.
22. Learned counsel appearing for A2 contended that he can not be held liable for the said violation as the complaint was not filed by the duly authorized person. The said contention is opposed by the counsel appearing for SEBI.
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23. Perusal of the record reveals that the present complaint was filed by Sh. Sharad Bansode, Legal officer of the SEBI.
24. Under Section 26 of the SEBI Act, Court can take cognizance of the offence punishable under the Act only on the complaint filed by the Board. Board is defined under Section 4 of the SEBI Act, which includes Chairman also. Sub-Section 3 further states that Chairman shall also have power of General Superintendence and directions of the affairs of the Board and may also exercises all power and do all acts and things which may be exercised or done by that Board. Under Section 19 of the Act, power of the delegation is also vested in the Board/Chairman. In terms of said power, Chairman of SEBI had authorised Mr. Sharad Bansode, Legal Officer of the SEBI to file the complaint on behalf of SEBI vide authority letter dated March 5, 2001. No doubt, during trial, SEBI has only filed the photocopy of the said authority letter but considering the fact that SEBI is a statutory body and is bound to act in accordance with the provisions of SEBI Act, thus mere fact that SEBI has failed to file the original copy of the authority letter, is not sufficient to hold that complaint has not been filed by duly authorised person. Thus, I do not find any substance in the contention raised by learned counsel.
25. Pondering over the ongoing discussion, I am of the considered opinion that SEBI has succeeded to establish beyond the shadow of all reasonable doubts that company accused had violated regulation 5 and 73 of CIS Regulations, which are punishable under Section 24(1) of SEBI Act. Thus, I hereby hold the A1 company accused i.e. M/s Wellgrow Plantations Ltd. guilty for the offence CC No. 42/2010 Page no. 13 of 17 SEBI Vs. Wellgrow Plantations Ltd.
punishable under Section 24(1) of the SEBI Act. SEBI has also succeeded to establish beyond the shadow of all reasonable doubt that A2 was director of A1 and he was either negligent in performing his duties or was a consented party for the said violations, thus A2 is also liable in terms of Section 27(2) of SEBI Act. Thus, I hereby hold A2 Sh. Satish Subhedar guilty for the offence punishable under Section 24(1) with the aid of Section 27 (2) of SEBI Act.
26. However, SEBI has failed to establish beyond the shadow of all reasonable doubts that A4 Sh. Om Parkash Gupta & A5 Ms. Usha Gupta were the persons in charge of, and responsible to, for the conduct of business of company accused. Thus, I hereby acquit A4 & A5 from all the charges.
Announced in the open Court
on this 24th day of August, 2012 (PAWAN KUMAR JAIN)
ADDITIONAL SESSIONS JUDGE-01
CENTRAL/THC/DELHI
CC No. 42/2010 Page no. 14 of 17
SEBI Vs. Wellgrow Plantations Ltd.
IN THE COURT OF SH. PAWAN KUMAR JAIN,
ADDITIONAL SESSIONS JUDGE-01(CENTRAL):DELHI Complaint Case No. 42 of 2010 ID No: 02401R5221912004 SECURITIES 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 New Delhi, represented by Ms. Pooja Mirchandani, AGM,SEBI.
Versus
1. M/s WELLGROW PLANTATIONS LTD.
GUMTI PLAZA, GUMITI-5, Kanpur-208012.UP ........Convict no.1
2. Sh. Satish Subhedar, S/o R.W.Subhedar R/o 4/278, Vishnu Puri, Kanpur, U.P ........Convict no.2 Present: Sh. Ashish Aggarwal, Advocate, Counsel for SEBI.
Sh. D.P.Bhatia, Advocate, counsel for convict no.1 & 2 ORDER ON THE POINT OF SENTENCE(ORAL):
1. Vide separate judgment dated August 24, 2012, A1 i.e M/s Wellgrow Plantations Ltd. ("A1") and A2 Sh. Satish Subhedar have CC No. 42/2010 Page no. 15 of 17 SEBI Vs. Wellgrow Plantations Ltd.
been held guilty for the offence punishable under Section 24 (1) r/w Section 27(2) of the SEBI Act.
2. Learned counsel appearing for convicts requests to take a lenient view on the grounds that the convict no. 2 is a senior citizen of 65 years old having marriageable daughter and is the sole bread earner of his family. He has no criminal antecedents. It is submitted that the company accused had already refunded the amount to the investors and no complaint of any investor is pending with the SEBI. It is requested to take a lenient view. It is further submitted that convict no. 2 was not a promoter of the company accused. It is further submitted that convict no. 2 has also to look after his old parents.
3. Per contra learned counsel appearing for SEBI requests for some substantial punishment on the ground that the company accused had not filed the winding up and repayment report and company accused had mobilized the amount more than ` 11 lac from general public.
4. I have heard rival submissions advanced by counsel for the parties, perused the record carefully and gave my thoughtful considerations to their contentions.
5. As already been held that in the instant case, the allegations against the company accused and its directors were that they had not complied with the provisions of CIS Regulations. There was no allegation of violation of Section 12(1B) of the SEBI Act.
CC No. 42/2010 Page no. 16 of 17 SEBI Vs. Wellgrow Plantations Ltd.
During trial, convict had examined some investors to show that company accused had refunded the amount to the investors. SEBI has failed to produce any cogent evidence contrary to the evidence adduced by the convict during the trial. Considering all these and submissions of the counsel for the convicts, I am of the considered opinion that ends of justice will be met, if convicts be burdened with some fine amount.
6. In view of the above, I hereby impose a fine of ` 1.50 lac upon each convict in default convict no.2 shall undergo simple imprisonment for a period of three months for the offence punishable under Section 24(1) of SEBI Act.
7. Fine amount is not paid.
8. Copy of judgment along with order on the point of sentence be given to the convicts/their counsel free of cost.
9. Since, A3 & 6 are proclaimed offenders, file be consigned to record room with direction that the same will be revived as and when they are apprehended.
Announced in the open Court
on this 27th day of August, 2012 (PAWAN KUMAR JAIN)
ADDITIONAL SESSIONS JUDGE-01
CENTRAL/THC/DELHI
CC No. 42/2010 Page no. 17 of 17