Delhi District Court
Sebi vs Alaknanda Plantation Ltd And Ors on 8 November, 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 case)
(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.DLSW01-006816-2023
CC No.565/2023
SEBI Vs. Alaknanda Plantations 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
Asstt. General Manager Ms. Jyoti Jindgar.
.....Complainant
Versus
1. Alaknanda Plantations Ltd.,
a company incorporated under the provisions of
Companies Act, 1956 and having its
registered office at Alaknanda Trades Centre
(RGM Plaza), Chakrata Road,
Dehradun-248001.
2. Sh. V.B. Pandey, S/o Late Sh. Satya Bhushan Pandey,
Director of accused No.1,
R/o 23, Chakrata Road,
Dehradun.
Also At:
85, Indira Nagar Colony,
Dehradun, Uttrakhand.
CC no.565/2023 Page No. 1 of 31
SEBI vs. Alaknanda Plantations Ltd. & Ors.
3. Smt. Jyoti Pandey, W/o Sh. V.B. Pandey,
Director of accused No.1,
R/o 23, Chakrata Road,
Dehradun.
Also At:
85, Indira Nagar Colony,
Dehradun, Uttrakhand.
4. Sh. K.P. Pant, S/o not known,
Director of accused No.1,
R/o 47, Kaulagarh Road,
Dehradun.
(Discharged vide order dated 13.05.2008)
.....Accused Persons
Date of Institution of complaint : 02.01.2002
Date of Arguments : 15.10.2024
Date of pronouncement : 08.11.2024
JUDGMENT
Facts
1. Succinctly stated, the accused No.1 company namely Alaknanda Plantations Ltd. was running a Collective Investment Scheme (hereinafter referred to as 'CIS') and raised an aggregate amount of Rs.2.10 crores from the general public.
2. The private entrepreneurs had undertaken plantation activities on a commercial scale, however, the 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 CC no.565/2023 Page No. 2 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
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 or 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 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 CC no.565/2023 Page No. 3 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
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 CIS being operated by it as per the said regulations.
9. SEBI vide its letters dated 15.12.1999/29.12.199 and also by way of public notice dated 10.12.1999 gave intimation in terms of Regulation 73(2) to accused No.1 which casted an obligation on accused no.1 to send an information memorandum to all the investors detailing the state of affairs of the scheme, amount repayable to each investor and the manner in which such amount was determined. As per the aforesaid letters of SEBI, the information memorandum to the investors was required to be sent latest by 28.02.2000. SEBI vide another public notice published in newspapers on 22.02.2000 informed the company that all the companies carrying out CIS who had not made any application for grant of registration or were not desirous of obtaining provisional registration were required to compulsorily windup their existing schemes as per the provisions of Regulation 73(1) of the CIS Regulations.
CC no.565/2023 Page No. 4 of 31SEBI vs. Alaknanda Plantations Ltd. & Ors.
10. Accused No.1 neither applied for registration under the CIS Regulations nor took any steps for winding up of the schemes and repayment to the investors as provided under the Regulations and had violated the provisions of Section 11B, 12(1B) of SEBI Act and Regulation 5(1) r/w Regulation 68(1), 68(2), 73 and 74 of CIS Regulations.
11. Subsequently, on 31.03.2000, 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 issued to the accused No.1 company calling upon it to show cause as to why the action as stated therein be not initiated against it for violations of the aforesaid provisions of law. However, the accused No.1 neither responded to the said public notice nor the subsequent show cause notice. Thereafter, the accused No.1 company was reminded by show cause notice dated 12.05.2000 and letter dated 31.07.2000 to wind up the schemes and repay the amounts to the investors.
12. On 07.12.2000 SEBI, by exercising its powers conferred upon it under Sec.11B of Securities and Exchange Board of India Act, 1992, directed accused no.1 to refund the money collected under the aforesaid CIS of the Accused No.1 to the persons who invested therein, within a period of one month from the date of the said directions.
13. However, SEBI did not receive any information from accused No.1 as to whether it complied with the directions of SEBI and therefore, it was clear that the accused No.1 with CC no.565/2023 Page No. 5 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
dishonest intentions was evading the repayment of the amounts collected by it from the investors.
14. Therefore, the accused No.1 had committed the violation of Sec.11B, 12 (1B) of SEBI Act read with Regulation 5 (1), 68(1), 68(2), 73 and 74 of CIS Regulations which is punishable under Sec.24 (1) of Securities and Exchange Board of India Act, 1992.
15. The Accused No.2 to 4 are the directors and/or persons in charge of and responsible to the accused No.1 company for the conduct of its business and are liable for the violations of the Accused No.1, in terms of Sec.27 of SEBI Act.
Summoning
16. All the accused persons i.e. accused no.1 to 4 (including accused no.1 company) were summoned for the said offences vide order dated 02.01.2002. Accused no.2 V.B. Pandey, accused no.3 Jyoti Pandey and accused no.4 K.P. Pant appeared in the Court pursuant to issuance of summons issued against them. Accused No.1 company was directed to be prosecuted under Section 305 CrPC vide order dated 09.07.2010. During pendency of trial, accused no.4 K.P. Pant was discharged vide order dated 13.05.2008.
Notice
17. Notice under Section 251 CrPC was framed against accused No.2 V.B. Pandey and accused no.3 Jyoti Pandey for CC no.565/2023 Page No. 6 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
violation of Sections 11B, 12(1B) of SEBI Act read with Regulation 5 (1), 68(1), 68(2), 73 and 74 of CIS Regulations, punishable under Sec.24 of SEBI Act, to which they pleaded not guilty and claimed trial. At the time of framing of notice, accused No.2 V.B. Pandey and accused no.3 Jyoti Pandey, in their defence, stated that they were not directors of the company at the relevant time and they had resigned much prior to the commission of offence.
18. Matter was thereafter listed for complainant evidence. During complainant's evidence, Ms.Rekha Verma, Manager, SEBI stepped into the witness box and examined herself as CW-1.
19. CW-1 Ms. Rekha Verma had deposed as under:
"I being the manager of the complaint has been authorised to depose in the present case vide delegation of power dt. 03.05.10, the certified copy of the same is Ex.PW-1/1. The present complaint was filed by Ms Jyoti Jindgar, AGM in the year 2001. Her letter of authority dt.
20.09.2001 is EX.PW-1/2. I can identify the signature of Ms Jyoti Jindgar on the complaint at point-A since I have worked with Ms Jyoti Jindgar and have seen her sign. The complaint is Ex PW-1/3. The Government of India vide press release dt. 18.11.1997 conveyed all the companies which issued plantation bonds/agro bonds would be treated as collective investments schemes and would come under the purview of SEBI. The said press release dt. 18.11.1997 is Ex PW-1/4. Vide press release 26.11.97 SEBI reiterated the contents of press release dt. 18.11.97 of GOI and asked for certain documents from the company running CIS such as terms and conditions of the schemes CC no.565/2023 Page No. 7 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
launched, Funds raised through all the schemes, promises on assurances or assured returns made in the scheme, copies of offer documents of the scheme and name, details and back ground of promoters/sponsors. The press release dt.26.11.97 is Ex PW-1/5. Vide public notice dt. 18.12.97, SEBI brought to the notice of the companies running CIS the requirement of filing of documents as stipulated vide earlier press release and the copy of said public notice is Ex PW-1/6. In reply to press release 26.11.97, the accused no. 1 company filed information vide its letter dt. 26.03.98 to SEBI as required, which is Ex PW-1/7 (Colly. along with the annexures). Vide the said letter the company inter-alia indicated mobilization of funds under "its CIS to the tune of Rs 2.10 crores as on 28.2.98. The said letter has been signed by Mr. V.B. Pandey, in the capacity of Director.
SEBI vide its letter dt. 18.05.98, issued the show cause to the accused no.1 company to give reasons as to why the information was filed after the due date i.e. 15.01.98. SEBI also asked for certain additional information from the company vide this letter, the office copy which is EX PW-1/8. SEBI vide aforesaid letter also conveyed the order dt. 24.02.98 of SEBI Chairman stating that no existing CIS can raise funds under its existing scheme unless they are rated by a credit rating agency. In reply to this letter, the accused no.1 company, vide its letter dt. 24.05.98, which is Ex. PW-1/9, filed certified copy of memorandum and articles of association, details and address of the directors of the company which were indicated to be Sh. V B Pandey, Ms Jyoti Pandey and Sh.
K.P. Pant. The above persons were also name as first director of the accused no.1 company as well as promoters in the memorandum and articles of association of the accused no. 1 company, which is Ex PW-1/10. In regard to the balance sheet to the company, it was informed vide Ex PW-1/9 that it would be filed shortly. Subsequently, company CC no.565/2023 Page No. 8 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
vide letter dt. 30.08.98 filed the balance sheet as on 31.03.98, the deployment of funds mobilized under its various schemes and the compliance certificate from the managing director in the prescribed formate. The letter dt. 30.08.98 from the accused no.1 company along with its annexures (Coll.) is Ex.PW-1/11. The balance sheet is attached with this letter, as on 31.03.98, reflected funds raised to the tune of Rs.23189754.50 under the head INVESTORS CONTRIBUTION FUND and the said balance sheet was signed by Mr. V.B. Pandey and Ms. Jyoti Pandey in the capacity of MD and Director respectively. With a further letter dated 22.09.98 company submitted the information on funds mobilized under it various schemes, no. of investors, income during the last three years, etc. and the said letter dt. 22.09.98 is Ex.PW1/12. SEBI vide letter dated 17.03.99 issued the show cause to the company as to why the funds were mobilized after 24.02.98 in contravention of the directions issued by SEBI Chairman vide order dt. 24.02.98. It further directed the company to refund the amount so mobilized and furnished the statutory auditor certificate accordingly. The said letter dt. 17.03.99 is Ex.PW1/13 is Ex.PW-1/13. A copy of this letter was sent to Sh. V.B. Pandey, Ms. Jyoti Pandey and Mr. K.P . Pant vide registered AD post and the acknowledgment cards returned with the SEBI in respect of the said letter dt.17.03.99 are Ex.PW1/14 (Coll.). The SEBI CIS regulations were notified on 15.10.99 and a press release in that regard was issued on 20.10.99. Duly certified copy of press release dt. 20.10.99 is Ex.PW-1/15. The copy of said press release was sent to the company vide letter dt.21.10.99 which is marked 'A'. As per the regulations the companies running CIS were to file application for registration as CIS within a period of two months from the date of notification of regulations. As no application was received from the company, a letter dt. 10.12.99 was issued by SEBI requiring to CC no.565/2023 Page No. 9 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
comply with the statutory requirements the same is Ex PW-1/16. A public notice dt. 10.12.99 was also issued in this regard which is Ex PW-1/17. A reminder, regarding statutory requirement was issued by SEBI on 29.12.99, which is Ex PW-1/18. The company neither applied for the registration in terms of Regulations 5, nor wound up its schemes and made repayments to the investors in terms of regulations 73/74 of SEBI CIS regulations 1999. A further public notice dt. 22.02.2000 was issued by SEBI to the existing CIS companies who had not made an application of registration or were not desirous of obtaining provisional registration from SEBI. The certified copy of the public notice dt. 22.02.2000 is Ex PW-1/19. Vide press release dt.15.03.2000 and public notice dt. 27.03.2000, the time for applying for registration was extended till 31.03.2000 and the certified copy of press release is Ex PW-1/20 and public notice dt. 27.03.2000 is Ex PW-1/21. As no application was received from the company and also did not file Winding up and Repayment Report (WRR), a show cause notice was issued to the accused no. 1 company on 12.05.2000, the office copy is Ex PW-1/22. A further letter dt.31.07.2000 was issued by SEBI of having not received the WRR. A formate of the WRR was again provided to the accused no. 1 company vide the said letter dt. 31.07.2000, which is Ex Pw-1/23. Ample opportunities were given by SEBI to the company to comply with statutory requirements. Observing the non-compliance an order dt.07.12.2000, u/s 11(B) of SEBI was issued to company and its directors/ promoters/persons in-charge vide covering letter dt. 18.12.2000, which is Ex PW-1/24. Vide the said order issued by the Chairman, the company/directors/ promoters/persons in-charge were directed to refund the money mobilized under its various schemes to the investors within a period of one month with interest as per terms of offer. The said order was also notified vide public notice appeared in national dailies which is ExPW-1/25. The name CC no.565/2023 Page No. 10 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
of the accused no. 1 company is appearing at serial no.27 of the said public notice. Information was also sought from the office of ROC regarding the company and its directors, which was received on:
03.10.11 to SEBI, which is Ex.PW-1/26 filed today. The ROC provided form 18 & 32 related to the company and directors. As on date there are two complaints received by SEBI against the company, the same is ExPW-1/27.
The company fail to comply with the provisions of SEBI Act 1992 and SEBI CIS Regulations 1999, hence this complaint is filed against the accused no.1 and the remaining accused are the persons in-charge and responsible for day to day affairs of the accused no.1 company."
CW-1 was duly examined by ld. counsel for accused No.2 and 3.
20. Thereafter, complainant's evidence was closed.
21. Statement under Section 313 of accused No.2 and 3 was recorded wherein all the incriminating evidence which came on record was put to them, which they denied.
22. In his statement recorded under Section 313 CrPC, accused No.2 V.B. Pandey had stated that the investment made by the investors had already been returned and there were no complaints against the affairs of the accused company. Moreover, he had already resigned from the Directorship of the company on 21.03.2000. He had further stated that a winding up petition was filed before the Hon'ble High Court of Uttrakhand at Nanital in the year 2000 by the accused company and subsequently an CC no.565/2023 Page No. 11 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
Official Liquidator was appointed by the Hon'ble High Court in the said matter.
23. In her statement recorded under Section 313 CrPC, accused No.3 Jyoti Pandey had stated that she was shown as Director of accused company just to complete the quorum otherwise she had no personal knowledge about any such complaint by any person or any alleged violation of rules of SEBI.
24. Accused No.2 and 3 led defence evidence.
25. Accused No.2 himself stepped into the witness box on his behalf as well as that of accused no.3 and examined as DW-1. Accused persons examined Sh.Rajesh Mamgain Negi as DW-2, Junior Clerk of accused no.1 company and Sh. Sanjay Gupta as DW-3, official from office of ROC, Dehradun.
26. DW-1 Sh. Vijay Bhushan Pandey (accused No.2) deposed as under:
"In the year 1996, the accused company was incorporated by Sh. K. P Pant, myself and my wife Ms. Jyoti Pandey. The day today work/activity of the company was looked after and carried out by Sh. K. P Pant and myself jointly. My wife had never signed any documents regarding any work/activity of the company at any point of time. The position of my wife was just to complete the quorum of Directors and had nothing to do with the day today affairs of the company. During my tenure as a Director, the company complied with all the mandatory direction issued by SEBI and also reply to each and every letter sent to the CC no.565/2023 Page No. 12 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
accused company. Every information whenever required by SEBI was submitted by me and Sh. K. P Pant.
As per directions of SEBI we started repayment of the investors however, the investors were not satisfied and hence the investor asked me and my wife to resign from the directorship of the company on 21.03.2000. On the same day i.e. 21.03.2000 I and my wife resigned from the directorship of the company. These resignations submitted by me and wife were duly accepted by the new directors of the company. The intimation of the above said resignations were duly submitted to registrar of company alongwith Form No. 29 and Form No. 32. As per my knowledge the company has refunded all the money of all the investors. The copies of Form No. 29 and Form 32 and other relevant documents submitted by me and my wife must be lying with the accused company and I want to summon the said record to proof my innocence. After my resignations from the directorship of the company I was never in control day today affairs of the accused company."
DW-1 was duly examined by ld. counsel for complainant.
27. DW-2 Sh. Rajesh Mamgain deposed as under:
"I am a summoned witness in this case. I worked with the accused No. 1/company from the period 1998 to 2001 as a Junior Accountant. Accused No. 2 and 3 were the directors of the accused No. 1 company, however, they resigned in March, 2000. The resignation letter of both the accused persons are Ex. DW-2/1 and Ex. DW-2/2 (OSR). The same fact was also intimated to the registrar of companies vide letter dated 30.05.2000 alongwith the form number 29 and 32 regarding the resignation of the old Directors and inclusion of new Directors. The letter dated 30.05.2000 is Ex. DW-2/3 (OSR) and the form number 29 and 32 1 CC no.565/2023 Page No. 13 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
duly exhibited as Ex. DW-2/4 (colly) (OSR) and Ex. DW-2/5 (colly) (OSR). The accused no.1 company also received a letter dated 17.07.2000 from registrar of company intimating the fact that the above said documents and letter is received by them. The said letter dated 17.07.2000 is exhibited as Ex. DW-2/6 (OSR). Sh. D.P.Verma was one of the investors in our company. Sh. D.P. Verma had made a complaint against the accused company, but the disputes with Sh. D.P. Verma were settled by the accused company. The copy of the affidavit given to Thana Kotwali Dehradun regarding the settlement of the disputes with company is Marked as Mark 'A' and the letter given to the accused company regarding the settlement of the disputes with company is Ex. DW-2/7 (OSR) and the copy of the another letter given to the kotwali Dehradun which also discloses the settlement of the disputes with the company and the accused no.2 herein is marked as Mark 'B'. The auditor report of the accused company for the financial year 1998 to 1999, 1999 to 2000, 2000 to 2001 are also exhibited as Ex. DW-2/8. Ex. DW-2/9 and Ex. DW-2/10 respectively."
DW-2 was duly examined by ld. counsel for complainant.
28. DW-3 Sh. Sanjay Gupta deposed as under:
"I have brought the record from the Office of Registrar of Companies regarding the accused company. I have seen already Ex.DW2/5 and Ex.DW2/6, however the same are not available in the record brought by me. I cannot tell where the document Ex.DW2/6 may be available."
DW-3 was again examined on 06.06.2019 wherein he deposed as under:
"I have brought the summoned record. The copy of Form 32 dated 22.03.2000 filed on 07.07.2000 (Reg. Resignation of Sh. Vijay Bhushan Pandey CC no.565/2023 Page No. 14 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
and Smt. Jyoti Pandey) along with resignation of Sh. Vijay Bhushan Pandey and Smt. Jyoti Pandey both dated 21.03.2000 which are already Ex.DW2/1 and Ex.DW2/2. The original of letter dated 17.7.2000 is not available on our record, however, a copy of said letter is available in the record of ROC. The original might have been weeded out or misplaced. The copy of the said letter is already Ex.DW2/6 (objected to being photocopy) and by seeing the same I say that the same was sent by our office. The copies of Form
29 both dated 21.03.2000 filed on 07.07.2000 Reg. appointment of Sh. Nandan Singh Gosain and Sh. Srikant Sharma, respectively, are already Ex.DW2/4 (Colly.) and I have tallied the same with the record brought by me today. The copy of Form 32 dated 21.03.2000 filed on 07.07.2000 Reg. appointment of Sh. Nandan Singh Gosain and Sh. Srikant Sharma is already Ex.DW2/5 and I have tallied the same with the record brought by me today. However, the above four forms Ex.DW2/4 and Ex.DW2/5 have been filed by the company but company made default in making the payment of short fee for which a letter dated 17.07.2000 (already Ex.DW2/6) was sent to the company addressed to its director Sh. Shrikant Sharma but no response to the same had been received from the company. Our office had received the resignation letter of accused no. 2 and 3 dated 30.05.2000 with the enclosures of Form No. 29 and 32 copy of which are already Ex.DW2/3 and I have tallied the same with the original brought by me today."
DW-3 was duly examined by ld. counsel for complainant.
29. Thereafter, defence evidence was closed.
Arguments on behalf of complainant CC no.565/2023 Page No. 15 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
30. Sh. Ashish Aggarwal, ld. counsel for complainant/SEBI had argued that accused No.1 company had floated a Collective Investment Scheme (CIS) and there is no dispute to the fact that they did not get the scheme registered after coming into force of the CIS Regulations. He had further argued that accused persons had never disputed that they were running the CIS Scheme and the documents relied upon by complainant's witness during the evidence clearly unfolds the case of the complainant and establishes the guilt of the accused persons.
31. Ld. counsel had further argued that accused no.2 and 3 have signed numerous documents which would show that they were actively participating in the affairs of the accused no.1 company. He had further argued that accused no.2 was looking after the affairs of accused no.1 company as Managing Director and accused no.3 was active Director in the accused no.1 company. Ld. counsel for the complainant/SEBI had argued that accused No.2 has examined himself as DW-1. While leading defence evidence for himself and his wife i.e. accused no.3, DW-1 (accused no.2) has stated that he was looking after the affairs of accused no.1 company. He had argued that this fact has been corroborated by DW-2 who had come to prove the resignation of accused no.2 and 3. In respect of defence of the accused persons regarding their resignation tendered on 21.03.2000, it had been argued that accused no.1 company filed Form-32 dated 22.03.2000 before ROC on 07.07.2000, which are Ex.DW2/1 and Ex.DW2/2, however, DW-3 - official of ROC deposed that these documents were not taken on record by ROC due to shortage of fees. Ld. counsel for the complainant had CC no.565/2023 Page No. 16 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
further argued that ROC had written letter dated 17.07.2000 to accused no.1 company but no response was received and therefore, Form-32 has not come on record.
32. Sh. Ashish Aggarwal, ld. counsel for the complainant had argued that accused No.1 company had failed to wind up its scheme by repaying its investors and filing the winding up and repayment report to SEBI which is in violation of the provision of SEBI Act and CIS Regulations and therefore, accused no.1 company alongwith accused no.2 and 3 are liable to be convicted for the offences for which notice has been framed against them.
33. Ld. counsel for complainant had relied upon the following judgments in support of his contentions:
(i) Ankur Forest and Project vs. Securities and Exchange Board of India, Crl.A. no.220/2010 dated 08.02.20211 Delhi High Court (Paras 11, 12, and 14)
(ii) S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla, Manu/SC/0622/2005 (Para 16)
(iii) Gunmala Sales Pvt. Ltd. vs. Anu Mehta, Laws (SC) 2014 134 (Para 33)
(iv) A.R. Radha Krishna vs. Dasari Deepthi & Ors., Crl.A. Nos.403-405 of 2019 decided on 28.02.2019 (Para 9)
(v) H.R. Kapoor vs. Securities and Exchange Board of India, Laws (DLH) 2008 (2) 12 (Paras 6, 7 and 10)
(vi) Jeevan Diesels and Electricals Ltd. vs. Jasbir Singh Chadha & Ors. 2011:DHC:1833
(vii) C.C. Alavi Haji vs.Palapetty Muhammed & Ors., Crl.A. No.767/2007 decided on 18.05.2007 Arguments on behalf of Accused No.2 and 3
34. Ld. counsel for accused No.2 and 3 had argued that Ms. Rekha Verma, Manager, SEBI is the only witness of the complainant and during her cross examination, she admitted that CC no.565/2023 Page No. 17 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
the resolution authorising her to come to the Court and depose was not signed by the Chairman in her presence. He had further argued that without any authorisation, she could not have deposed in the present matter. He had further argued that Asstt. General Manager namely Ms. Jyoti Jindgar had filed the present complaint, however, record shows that she was not authorised by the Board to file the present complaint.
35. Ld. counsel for accused no.2 and 3 had argued that as per statement of PW-1 Ms. Rekha Verma, accused company submitted the information regarding fund mobilisation, number of investors, income during the last three years as on 22.09.1998 which clearly reflects that accused no.2 and 3 adhered and complied with the directions issued by complainant from time to time. Ld. counsel had further argued that CIS regulations were notified on 15.10.1999 and the press release in that regard was issued on 20.10.1999 and as per the regulations, the companies running CIS were to file the application for registration as CIS within a period of two months from the date of notification of regulations. Accused no.1 company had already informed the complainant that as per the directions of the complainant, accused no.1 company had stopped its business and was under
the process of repaying the investors as and when the investors came to collect the money invested by them in accused no.1 company. He had further argued that the time for registration was extended till 31.03.2000 and the accused no.2 and 3 had resigned on 21.03.2000 and therefore, a period of 10 days for filing the application for registration was still available, hence it cannot be said that the accused no.1 company failed to comply CC no.565/2023 Page No. 18 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors. with the directions of SEBI till accused no.2 and 3 were the directors of company i.e. till 21.03.2000.
36. Ld. counsel had further argued that as it is clearly reflected from the documents that accused no.2 and 3 had already resigned from accused no.1 company on 21.03.2000, hence provision of Section 24(1) of SEBI Act is not attracted against accused no.2 and 3.
37. Ld. counsel for accused no.2 and 3 had further argued that the precondition was that the company which dealt with CIS must obtain a credit rating certificate for each scheme from and of the credit rating company whose names were suggested by the complainant. He further argued that when accused no.1 enquired about the cost and process for registration and obtaining a cerdit rating certificate, it came to its knowledge that obtaining such credit rating certificate was very costly which the accused no.1 company could not afford at all because all these credit rating companies were quoting colossal amount of cost for obtaining a single credit rating certificate. Ld. counsel had further argued that as the accused no.1 had 6 schemes, it would have to obtain 6 credit rating certificates, the cost of which came to be more than Rs.1 crore therefore, till 21.03.2000 the company was of the opinion that rather than paying more Rs.1 crore for obtaining credit rating certificates and then registering with SEBI under CIS, this money should be used for repaying the investors the respective investments made by them and accordingly, the investors were duly paid and no complaint remained pending against accused company.
CC no.565/2023 Page No. 19 of 31SEBI vs. Alaknanda Plantations Ltd. & Ors.
38. Ld. counsel for accused had argued that DW-2 Rajesh Mamgain also proved the balance sheet for the annual year 2000- 2001 showing that there was no outstanding liability towards the investors under CIS at that time which means that before institution of the present case, accused company had already repaid the outstanding amount. Ld. counsel for accused no.2 and 3 had further argued that SEBI did not make any inquiry before instituting the complainant. Had they made an inquiry, they could have come to know that the entire dues had been paid.
39. Ld. counsel for accused No.2 and 3 had further argued that CW-1 Ms. Rekha Verma clearly admitted that the complainant had the knowledge of the registered office address of the accused company at Chakrata Road, Dehradun whereas the letter dated 18.12.2000 Ex.PW1/D1 shows that the complainant had been sending letters on the wrong address of accused company. Ld. counsel had further argued that accused no.2 and 3 had duly replied to all the letters of the SEBI, however, on 21.03.2000 they retired from the directorship of accused company. Ld. counsel for accused no.2 and 3 had further argued that in order to prove the same, they had summoned DW-2 Rajesh Mamgain from accused company and DW-3 Sh. Sanjay Gupta from the office of Registrar of Companies, Dehradun. He had further argued that accused no.2 also examined himself as DW-1 under Section 315 CrPC.
40. Ld. counsel for accused no.2 and 3 had further argued that under Section 24 of SEBI Act, before its amendment on CC no.565/2023 Page No. 20 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
29.10.2002, a punishment of imprisonment of one year, or fine, or both was postulated and since the punishment contemplated under Section 24 of SEBI Act is not in excess of one year, the competence to take cognizance would lapse after a period of one year on account of the bar created by Section 468(2)(b) CrPC. Ld. counsel had further argued that the accused no.2 and 3 had ceased to be directors of M/s Alaknanda Plantation Ltd. with effect from 21.03.2000 and as such the liabilities of accused no.2 and 3 for any alleged act of omission or commission, with reference to M/s Alaknanda Plantation could not legally extended beyond 21.03.2000, hence the present complaint case be dismissed.
41. Ld. counsel for accused no.2 and 3 had relied upon the following judgments in support of his contentions:
(i) Dushyant D. Anjaria vs. Wall Street Finance Ltd. (2001) Comp. Cas. 655 (Bom)
(ii) Ganesh Krishnamurthy vs. The State (NCT of Delhi) & Anr., Crl.MC No.878/2012 decided on 7th February, 2013
(iii) B.N. Kaushik vs. The Registrar of Companies, Crl. Rev.P. No.1004/2002 decided on 08.04.2009.
(iv) Mother Care (India) Limited (In Liquidation), Rep. By The Official Liquidator, Bangalore vs. Prof. Ramaswamy P. Aiyar, Karnataka High Court, C.A No.610/2011 decided on 15.10.2003.
Analyisis, Reasoning & Findings
42. I have heard ld. counsel for SEBI and ld. counsel for accused No.2 and 3 and have also carefully perused the record.
43. During the course of arguments, the authority of Ms. Jyoti Jindgar, Asstt. General Manager, SEBI to file the present CC no.565/2023 Page No. 21 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
complaint and that of Ms. Rekha Verma, Manager, SEBI to depose in the present case was challenged by accused persons. Cross examination of CW-1 Ms. Rekha Verma has been perused carefully. Nowhere in the entire cross examination of CW-1, accused persons have disputed the fact that Ms. Jyoti Jindgar was AGM and Ms. Rekha Verma was Manager of SEBI. Their employment in the complainant/SEBI has not been disputed at all. The case of the complainant is based on documentary evidence/records available with SEBI. SEBI is a statutory body and therefore, the present criminal complaint cannot be thrown only because of the fact that the authorisation of the witness as well as that the person who had filed the complaint, has not been proved properly. Therefore, this arguments is not acceptable at all.
44. Now coming to the merits of the case. The Memorandum and Articles of Association of accused no.1 company have been placed on record by accused no.1 company and have been exhibited as Ex.PW1/10. They have been duly proved in accordance with law. The accused no.1 company was incorporated on 10.02.1997. As per letter Ex.PW1/7 dated 26.03.1998 duly signed by accused no.2 (which was written in response to the press release dated 26.11.1997 issued by SEBI), the funds mobilised by accused no.1 company as on 28.02.1998 were Rs.2.10 crores. The audited balance sheet as on 31.03.1998 is part of Ex.PW1/11. The said balance sheet was duly signed by accused no.2 and 3 whose signatures were admitted by accused no.2. The said balance sheet alongwith other documents were CC no.565/2023 Page No. 22 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
also furnished by accused no.1 company through accused no.2 alongwith letter Ex.PW1/11. In the said balance sheet, under the column "Investors Contribution Fund", the amount of Rs.2.318 crores is shown to be mobilised till 31.03.1998. The comparison of amount mobilised as given in ExPW1/7 with the amount mentioned in audited balance sheet shows that even after 28.02.1998, more money was mobilised from general public and that is the reason, it had increased from Rs.2.10 crores to Rs.2.318 crores.
45. The accused no.1 company further sent a letter Ex.PW1/12 dated 22.09.1998 wherein the amount mobilised via different schemes as on 31.03.1998 was given separately. This letter was also duly signed by accused no.2. It clearly proves that accused no.1 company was running a collective investment scheme and had mobilised an amount of Rs.2.318 crores till 31.03.1998.
46. The date of incorporation of accused no.1 company is not in dispute i.e. on 10.02.1997. Section 12 (1B) of SEBI Act was introduced on 25.01.1995. As per Section 12(1B) of SEBI Act, there was a complete embargo on floating any collective investment scheme after 25.01.1995 without registration of the scheme. There were Regulations in force at that time. CIS Regulations came into force only on 15.10.1999. So there was complete prohibition on running of CIS. The accused no.1 company floated the scheme after its incorporation in February, 1997 i.e. in complete violation of Section 12(1B) of SEBI Act.
CC no.565/2023 Page No. 23 of 31SEBI vs. Alaknanda Plantations Ltd. & Ors.
47. The aforesaid discussion proves beyond any doubt that accused no.1 company was running CIS and had raised an amount of Rs.2.318 crores till 31.03.1998 in complete violation of Section 12(1B) of SEBI Act.
48. It is a matter of record and is not in dispute that accused no.1 company did not apply for registration of the scheme and also failed to file any winding up report or the details in respect of repayment to the investors. Prima facie, there is clear violation of Section 24 of SEBI Act and CIS Regulations on part of accused no.1 company.
49. Insofar as directors are concerned, in order to appreciate their roles, their defence has to be taken into account. Accused no.2 and 3 have nowhere disputed that they were not the directors of accused no.1 company. Accused no.2 and 3 have been shown to be the first directors and promoters in Ex.PW1/9 and Ex.PW1/10. Accused no.2 has signed as Managing Director on various letters including Ex.PW1/11 while furnishing information to the SEBI. Accused no.2 and 3 have signed various documents as discussed above including the audited balance sheet as on 31.03.1998, which is part of Ex.PW1/11 and signatures of both accused persons on the said balance sheet are admitted. The financials of the relevant years having been signed by accused no.2 and 3 clearly establishes that accused no.2 and 3 were running accused no.1 company and were responsible for its day to day affairs.
50. Accused No.2 and 3 have raised a defence that they had CC no.565/2023 Page No. 24 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
resigned on 21.03.2000 from the directorship of accused no.1 company and new directors namely Sh. Nandan Singh Gosain and Sh. Srikant Sharma were inducted. In order to prove the same, they have summoned DW-2 Sh. Rajesh Mamgain, Junior Accountant who worked with accused no.1 company from year 1998 to 2001. He stated that accused no.2 and 3 were directors of accused no.1 company, however, they resigned in March, 2000. He had proved the resignation letters of both accused persons as Ex.DW2/1 and Ex.DW2/2 and also stated that said fact was intimated by accused no.1 company to the Registrar of Companies (ROC) vide letter dated 30.05.2000 alongwith Form-29 and 32 regarding resignation of old directors and induction of new directors. He exhibited the letter dated 30.05.2000 as Ex.DW2/3 and Form-29 & 32 as Ex.DW2/4 and Ex.DW2/5. He also stated that accused no.1 company had received letter dated 17.07.2000 from ROC intimating that the letter dated 30.05.2000 was received by them. He also exhibited the auditor's report for the financial years 1998 till 2001 as Ex.DW2/8 to Ex.DW2/10 in order to show that no amount towards investors was pending and everything was settled.
51. DW-2 Sh. Rajesh Mamgain claimed that he was a Junior Accountant in accused no.1 company from year 1998 to 2001. He did not bring any document to prove that he had ever been in the employment of accused no.1 company. He did not explain as to how he came in possession of a choosy record which could benefit accused no.2 and 3. He claimed to have left the accused no.1 company in the year 2001. His evidence was recorded in the year 2017. The fact that he took out the relevant documents CC no.565/2023 Page No. 25 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
from the records of accused no.1 company before leaving the company and retained them carefully for almost 17-18 good years with him, cannot be believed. Since he was a Junior Accountant, it was his bounden duty to come clean and explain as to how he had the custody of those documents. Further, he brought the auditor's report for the financial year 1998 till year 2001 and proved the same but he did not bring the balance sheet and other relevant financials showing as to how the amount standing under the column of "Investors Contribution Fund" in the audited balance sheet as on 31.03.1999 (Ex.PW1/11) was written off. He did not bring any statement of account of the company showing disbursement and details of investors to whom the amount was repaid. If the amount was repaid to the investors, what was the hitch in filing of winding up report and the details regarding repayment to the investors. It was the easiest way available to accused no.2 and 3 to avoid criminal prosecution. The testimony of DW-2 is not found to be reliable at all. Hence, it is discarded in entirety.
52. Similarly in order to prove the factum of resignation of accused no.2 and 3, DW-3 Sh. Sanjay Gupta from ROC was called but he could not find the forms Ex.DW2/5 and letter Ex.DW2/6 in the ROC record. He was again summoned on 26.06.2019 wherein he produced further record and exhibited these documents. During his evidence, he also pointed out that the company had made default in making the payment of short fee for which letter dated 17.07.2000 Ex.DW2/6 was sent to accused no.1 company but no response was received.
CC no.565/2023 Page No. 26 of 31SEBI vs. Alaknanda Plantations Ltd. & Ors.
53. Insofar as resignation of accused no.2 and 3 is concerned, the stand of accused no.2 and 3 is that they had resigned on 21.03.2000 wherein simultaneously two other directors were inducted and the company would have sent the intimation with respect to their resignation with the ROC as it was not the job of the directors. Insofar as this proposition of sending the intimation by accused no.1 company is concerned, there is no dispute to that, however, the authenticity of this Form-32 in respect of resignation of accused no.2 and 3 from the position of directorship of accused no.1 company has to be seen. In this regard, it is pertinent to mention here that while leading the complainant's evidence, SEBI had called for the ROC records during evidence of CW-1. The said ROC record was received by SEBI on 03.10.2011. The said ROC record was exhibited as Ex.PW1/26. The said record was forwarded with covering letter dated 28.09.2011 and as per the said covering letter, Form-18 regarding registered office address and Form-32 showing accused no.2 to 4 to be directors since incorporation was furnished and it was also mentioned in the said covering letter that the annual returns and balance sheets were not available in the office record. Except for the said record, nothing else was furnished by ROC to SEBI in the year 2011 which indicates that ROC was not in possession of any other record pertaining to accused no.1 company. It is worthwhile to note here that as per testimony of DW-2, Form-32 in respect of resignation of accused no.2 and 3 was received by ROC in May, 2000 but when the record was summoned in the year 2011 by SEBI, no Form-32 regarding their resignation or induction of new directors was CC no.565/2023 Page No. 27 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
found available in the ROC record, which has been exhibited as Ex.PW1/26. It is further pertinent to mention here that when DW-3 Sh. Sanjay Gupta from ROC came for the first time on 28.02.2019 alongwith the record from office of ROC pertaining to accused no.1 company, no such record of resignation of accused no.2 and 3 was produced by him. He was discharged. But he was again summoned in June, 2019 and he brought the entire record including Ex.DW2/5 and Ex.DW2/6. The manner in which the record of alleged resignation by accused no.2 and 3 from the ROC has been brought by the witnesses, raises a suspicion over the authenticity of Form-32 and the remaining record which ROC did not supply to SEBI in October, 2011. Had the record been there, it would have been supplied to SEBI by ROC then and there. It does not stand proved at all that accused no.2 and 3 had resigned from the directorship of accused no.1 company on 21.03.2000. Since the accused persons had failed to prove that they ceased to be directors w.e.f. 21.03.2000, hence they are liable for the said violations being responsible for conducting day to day affairs of the accused no.1 company, as discussed in preceding paragraphs. Even otherwise, the violation of offence under Section 24 of SEBI Act is a continuing offence till the time payment to investors is made. Reliance is placed onVishnu Prakash Bajpai vs. SEBI 2010 (115) DRJ 702. Hence, the complainant is not at all barred by limitation. The arguments led by ld. counsel for accused no.2 and 3 in this regard are not at all acceptable.
54. The next argument of learned counsel for accused no.2 and 3 is with respect to service of the order under Section 11B of CC no.565/2023 Page No. 28 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
SEBI Act passed by the Board upon accused no.1 company. Ld. counsel for the accused no.2 and 3 had argued that order under Section 11B of SEBI Act was not served upon the accused no.1 company. He had submitted that though the registered office of accused persons was at Chakrata Road, Dehradun, but it was served at East of Kailash, New Delhi. Ld. counsel had brought the attention of this Court to Ex.PW1/D1 wherein the order under Section 11B of SEBI Act was served upon accused no.1 company at East of Kailash, New Delhi. The arguments of learned counsel for accused no.2 and 3 is two fold. One is regarding the service of order under Section 11B of SEBI Act and second is regarding document Ex.PW1/D1. Insofar as Ex.PW1/D1 is concerned, it is seen that it is not the document pertaining to accused no.1 company. The said letter Ex.PW1/D1 has been sent to one Alakhnanda Agrotech Ltd. whereas name of accused no.1 company herein is Alaknanda Plantations Ltd. While leading evidence, CW-1 had proved the copy of newspaper which has been exhibited as Ex.PW1/25 (to which no objection has been raised) wherein the name of Alakhnanda Agrotech Ltd. is at Serial No.26 and name of accused no.1 company herein i.e. Alaknanda Plantations Ltd. is at Serial No.27. This indicates that order under Section 11B of SEBI Act was passed against both the companies. It is not explained by accused persons as to how this document Ex.PW1/D1 came in their possession. This document Ex.PW1/D1 has no bearing on the present case and it has just been put in order to mislead the witness and the Court. Therefore, this argument is not acceptable.
55. Insofar as service of letter Ex.PW1/24 i.e. intimation with CC no.565/2023 Page No. 29 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
respect to passing of order under Section 11B of SEBI Act by Board to the accused no.1 company is concerned, it is seen that the proof in respect of service of this letter Ex.PW1/24 upon accused no.1 company has not been filed. Though an order under Section 11B of SEBI Act was an appealable order, however, it is pertinent to mention here that this document Ex.PW1/24 was also filed by complainant/SEBI alongwith the present complaint. Even assuming that accused no.1 company gained the knowledge about passing of the said order under Section 11B of SEBI Act on filing of the present complaint, it was at liberty to challenge the said order by putting the entire circumstances before the Securities Appellate Tribunal at that time, however, nothing of this sort was done and this order was never challenged even after filing of the present complaint and therefore, the complaint cannot be dismissed on this count alone. This irregularity stood cured the moment this document was sent to accused no.1 company alongwith the summons of the present complaint case. Therefore, this argument is not at all acceptable.
56. So far as judgments relied upon by ld. counsel for accused no.2 and 3, the ratio of the said judgments are not at all disputed, however, none of the said judgments are applicable to the facts of the case in hand.
57. In view of above discussion, this Court is of the opinion that accused No.2 and 3 were responsible for day to day affairs of accused No.1 company. Despite directions issued for winding up of the scheme and repayment to investors, neither accused No.1 company nor accused No.2 and 3 complied with the orders and CC no.565/2023 Page No. 30 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.
failed to make repayment to investors and file the winding up report before SEBI. Hence, accused No.1 company Alaknanda Plantations Ltd. is held guilty of the offence under Section 11B, 12(1B) of SEBI Act r/w Regulation 5 (1), 68(1), 68(2), 73 and 74 of CIS Regulations, punishable under Section 24 of SEBI Act, 1992 and accused no.2 V.B. Pandey & accused No.3 Jyoti Pandey are held guilty of the offence under Section 11B, 12(1B) of SEBI Act r/w Regulation 5 (1), 68(1), 68(2), 73 and 74 of CIS Regulations, punishable under Section 24 r/w Section 27 of SEBI Act, 1992 and convicted accordingly.
Announced in open court Digitally signed by
VANDANA VANDANA JAIN
on 08.11.2024 JAIN Date: 2024.11.08
14:46:42 +0530
(Vandana Jain)
ASJ-03 & Special Judge (Companies Act)
Dwarka Courts (SW)/New Delhi/08.11.2024 Note: This judgment contains thirty-one (31) pages and having my signature on each page. Digitally signed by VANDANA VANDANA JAIN JAIN Date: 2024.11.08 14:46:46 +0530 (Vandana Jain) ASJ-03 & Special Judge (Companies Act) Dwarka Courts (SW)/New Delhi/08.11.2024 CC no.565/2023 Page No. 31 of 31 SEBI vs. Alaknanda Plantations Ltd. & Ors.