WTM/SM/DDHS/DDHS_Div2/14462/2021-22

SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

UNDER SECTION 11(1), 11(4) AND 11B OF THE SECURITIES AND

EXCHANGE BOARD OF INDIA ACT, 1992 IN THE MATTER OF SHREE
RAMKRISHNA ELECTRO CONTROLS LIMITED

In respect of:

Sr. Name of the Entity PAN/DIN

No.

1. Shree Ramkrishna Electro Controls Limited PAN: AAACS5963M

2. Chandrakant Bhargav Gole DIN: 00180483

3. Varsha Chandrakant Gole DIN: 00180538

4. Deepali Shriram Karandikar DIN: 01865176

5. Moreshwar Narayan Joshi -

Background

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), had

received a complaint from an investor inter alia complaining about non-receipt of the
amount invested by him in Shree Ramkrishna Electro Controls Limited (hereinafter
referred to as “the Company or SRECL”). The said complainant stated that he had
invested a total of INR 2,60,000 in multiple tranches against the 12% redeemable

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 cumulative preference shares. The grievance of the said complainant was that he has
not received the dividend and the principal amount from the Company.

2. On receipt of the aforesaid complaint, SEBI examined the matter of issuance of

redeemable cumulative preference shares (hereinafter referred to as "RCPS”) by the
Company, so as to ascertain as to whether the Company had made any public issue of
securities without complying with the provisions of the Companies Act, 1956;
Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI
Act”) and the Rules and Regulations framed thereunder.

3. In pursuit of the detailed facts underlying the issuance of RCPS by the Company,
vide letters dated September 25, 2018, SEBI sought certain information with respect
to the mobilization of funds from public by issuance of RCPS, from the Company. The
said letter was followed up by reminder letters dated November 12, 2018 and October
29, 2019. Simultaneously, vide letter dated September 27, 2018 and reminder letter
dated November 11, 2018, the Registrar of Companies (hereinafter referred to as
“RoC”) was requested to provide certain relevant information with respect to the
issuance of RCPS by the Company.

4. Apart from the above, SEBI had also addressed letters dated November 12, 2018
and a reminder dated December 05, 2018 to the Directors of the Noticee Company, i.e.,
Noticee nos. 2 to 5 herein. However, all the letters which were addressed to the Company
and to the Noticee nos. 2, 3 and 5 returned undelivered. The only response received was
from the Noticee no. 4, who vide her letter dated January 31, 2019, had informed that
she has resigned from the directorship of the Company on July 21, 2012. The said letter,
however, was not supported by any evidence about her resignation like Form 32 etc.

5. Going a step further in the examination, SEBI also physically visited the
Registered Office of the Company, however, it was observed during the said visit that

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 neither the Company was existing nor any of its officials/employees was present at the
said Registered Address of the Company.

6. On the other hand, the RoC, vide its letter dated November 16, 2018, furnished
certain relevant information as was sought by SEBI, which included copies of balance
sheets filed by the Company for the financial years 2005-06, 2006-07, 2007-08, 2008-09
and 2009-10; Form 23 AC, Annual Return, etc.

7. The examination of the aforesaid documents prima facie indicated that the Company
was involved in issuance of its securities to public and for such an act, no approvals
were obtained by the Company nor these records show any compliances having been
made by the Company as per law while issuing RCPS to the public. Accordingly, a show
cause notice dated December 31, 2020 (hereinafter referred to as “the SCN”) was
issued to the Company and its Directors. The brief facts relevant for adjudging the
present proceedings, as noted from the SCN and other material available on record,
are stated hereunder:

i. The Company was incorporated on September 01, 1989 as a public (unlisted)

company, having its registered office at: Laxmi Govind Sadan Behind, Bank of
Baroda Society, Baman Wada, Vile Parle East Mumbai-400099.
ii. The details of the present and the past directors of the Company along with their
respective periods of directorship (wherever applicable) are indicated in the table
below:
Table no. 1
Sr. No. Name of the Designatio DIN PAN Date of Date of
promoter and/ or n appointment Cessation
Director
1 Chandrakant Managing 00180483 NA 01/09/1989 -
Bhargav Gole Director
(Noticee no. 2)
2 Varsha Director 00180538 NA 01/09/1989 -
Chandrakant Gole
(Noticee no. 3)

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 3 Deepali Shriram Director 01865176 NA 01/11/2007 -
Karandikar
(Noticee no. 4)
4 Moreshwar Director NA 15/07/2003 22/02/200
Narayan Joshi 8
(Noticee no. 5)

iii. The Company had issued RCPS to numerous investors during the period of 2004-
05 to 2009-10, details of which are as follows:
Table no. 2

No. of new RPS holders

added in the year (as on
No. RPS holder as on 30th Sept 30) compared to
Financial Year
September* same period in the
previous year
2004-05 117 117
2005-06 134 100
2006-07 267 150
2007-08 258 139
2008-09 232 125
2009-10 371 170
* The Company had provided the list of RPS holders as on 30th September of every
year during the aforesaid period, in its annual returns filed with RoC. It is observed
that some of the names are repeated more than once in the said annual returns.
Therefore, no. of RPS holders is identified and tabulated above after removing the
duplicate names

iv. The details of funds so raised by the Company by way of issuance of the RCPS, as
noted from the Form 23 AC and the Annual Return filed with the RoC, are
captured in the following table:

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 Table no. 3

Financial Total no. of Total no. of RPS Amount of Amount raised

Year RPS issued, Subscribed RPS (in INR) during the year
issued, & paid up as on (in INR)
Subscribed Sept. 30
& paid up
in the
financial
year
2004-05 48705 48705 4870500 4870500
2005-06 51455 100160 10016000 5145500
2006-07 162040 262200 26220000 16204000
2007-08 33765 295965 29596500 3376500
2008-09 49235 345200 34520000 4923500
2009-10 229165 574365 57436500 22916500

v. Vide letter dated October 09, 2020, SEBI had requested Office of the Official
Liquidator, Mumbai to provide further details like names and designation of the
key managerial personnel; copy of prospectus filed by the Company with the RoC,
copies of Board Resolutions etc. The Office of Official Liquidator, Mumbai, in
response to the aforesaid letter, informed vide its letter dated October 23, 2020
that by virtue of an order dated August 08, 2012 passed by the Hon’ble Bombay
High Court, the Company has been ordered to be wound up and the Official
Liquidator attached to the Hon’ble Bombay High Court was appointed as
Liquidator of the Company. It was further informed in the said letter that the
Statement of Affair under Section 454 of the Companies Act, 1956 has not been
filed on behalf of the Company.

8. Based on the facts as brought out above, the SCN makes the following allegation
against the Noticees:

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 i. The Company had made allotment of RCPS to more than 49 persons in the financial
years 2004-05, 2005-06, 2006-07 and 2009-2010. The said issuance of securities
was a public issue, however, the Company has not complied with the provisions of
Section 56(1), 56(3), 60, 73 read with Section 67 of the Companies Act, 1956 and
Clauses 2.1.1, 2.1.4, 2.1.5, 2.8, 4.1, 4.11, 4.14, 5.3.1, 5.3.3, 5.3.5, 5.3.6, 5.4, 5.6, 5.6
A, 5.7, 5.8, 5.9, 5.9.1, 5.10, 5.12.1, 5.13, 6.0 ,6.1-6.15, 6.16- 6.34, 8.3, 8.8.1, 9 , 10.1,
10.5 of the Securities and Exchange Board of India (Disclosure and Investor
Protection) Guidelines, 2000.
ii. The Noticee no. 2 was acting as Managing Director of the Company during the
issuance of the RCPS, therefore he is an “Officer in default” in terms of Section 5
(a) of the Companies Act, 1956.
iii. Though the Noticee no. 4 had submitted vide her letter dated January 21, 2019 that
she has resigned from the directorship, however neither any document has been
provided by her nor any document with respect to her resignation is available in
the records of RoC. The Noticee nos. 3 and 4 had signed the Audited Financial
Statement/Balance Sheet of the Company for the financial years FY 2005-06, 2007-
08, 2008-09 and 2009-10. Therefore, the Noticee nos. 3 and 4 were the Whole Time
Directors in terms of Section 5 (b) of Companies Act, 1956 and along with the
Noticee no. 2, are together liable to be held as, ‘Officers in default’ in terms Section
5 of Companies Act. The Noticee no. 5 was also one of the Directors of the Company
during the period of 2004-05 to 2007-08, i.e., the time when the RCPS were issued
in violation of the various provisions. Therefore, the Noticee no. 5 has also violated
the aforesaid provisions of law pertaining to public issue of securities
iv. The obligation of filing prospectus pertaining to the issue of RCPS and compliance
of the aforesaid provisions of law were on the Noticee nos. 1 to 5, which have not

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 been complied with, thus leading to violation of the aforesaid provisions of law by
these Noticees.

9. I note from the records that the SCN were sent to the Noticees through courier and
the SCN to the Noticee no. 4 was additionally sent through e-mail. All the SCNs except
the one sent to the Noticee no. 5 returned undelivered.

10. As the Company is going through liquidation, a copy of SCN was also served on the
Office of Liquidator of the Hon’ble Bombay High Court. Further, an attempt was made
to serve the SCN to the Noticee nos. 2 to 4 by way of affixation on their last known
address, however, the SCNs could not be affixed on such addresses. Accordingly, the
SCNs were served upon the Noticee nos. 2 to 4 by way of newspaper publication in
Mumbai edition of the following newspapers on April 11, 2021: The Times of India
(English); Navbharat Times (Hindi); and Maharashtra Times (Marathi). However, no
reply in response to the SCN could be invoked from the Noticees. Nevertheless, in
compliances with the principles of natural justice, personal hearing of the Noticees was
also scheduled on July 28, 2021. The hearing notice, apart from being served upon on
the Official Liquidator, was also served on the Noticees through newspaper publication
carried out in the Mumbai editions of The Times of India (English) and Navbharat
Times (Hindi) on July 14, 2021.

11. It is noted that despite effecting service of SCN and serving hearing notice on the
Noticees, there has been no participation from the Noticees in the present proceedings,
except for a limited response received from the Noticee no. 4. Therefore, in my
considerate view, adequate opportunities have already been provided to the Noticees to
respond to the SCN and make themselves heard before me but they did not avail of
these opportunities to defend themselves against the allegations made in the SCN,
hence, it may be apposite to adjudge the matter based on the material available on
record.

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 12. Before I embark to evaluate the allegations and issues on their merits in the present
case, it is deemed imperative to first have a look at the various provisions of law relevant
to the present matter, which are quoted here under:

Companies Act, 1956

"5. MEANING OF "OFFICER WHO IS IN DEFAULT"

For the purpose of any provision in this Act which enacts that an officer of the company who is in default
shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the
expression "officer who is in default" means all the following officers of the company, namely :

(a) the managing director or managing directors;

(b) the whole-time director or whole-time directors;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or instructions the Board of directors of the company
is accustomed to act;
(f) any person charged by the Board with the responsibility of complying with that provision:
Provided that the person so charged has given his consent in this behalf to the Board;
(g) where any company does not have any of the officers specified in clauses (a) to (c), any director or
directors who may be specified by the Board in this behalf or where no director is so specified, all the
directors:

Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty
days of the exercise of such powers, file with the Registrar a return in the prescribed form."

56. MATTERS TO BE STATED AND REPORTS TO BE SET OUT IN

PROSPECTUS
(1) Every prospectus issued -
(a) by or on behalf of a company, or
(b) by or on behalf of any person who is or has been engaged or interested in the formation of a company,
shall state the matters specified in Part I of Schedule II and set out the reports specified in Part II of
that Schedule ; and the said Parts I and II shall have effect subject to the provisions contained in Part
III of that Schedule.
(2) ……………

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 (3) No one shall issue any form of application for shares or debentures of a company, unless the form is
accompanied by a memorandum containing such salient features of a prospectus as may be prescribed]
which complies with the requirements of this section :”

60. REGISTRATION OF PROSPECTUS

(1) No prospectus shall be issued by or on behalf of a company or in relation to an intended company
unless, on or before the date of its publication, there has been delivered to the Registrar for registration a
copy thereof signed by every person who is named therein as a director or proposed director of the company
or by his agent authorised in writing, and having endorsed thereon or attached thereto -
(a) any consent to the issue of the prospectus required by section 58 from any person as an expert ; and
(b) in the case of a prospectus issued generally, also –
(i) a copy of every contract required by clause 16 of Schedule II to be specified in the prospectus, or, in the
case of a contract not reduced into writing, a memorandum giving full particulars thereof ; and
(ii) where the persons making any report required by Part II of that Schedule have made therein, or have,
without giving the reasons, indicated therein, any such adjustments as are mentioned in clause 32 of that
Schedule, a written statement signed by those persons setting out the adjustments and giving the reasons
therefor…….”

67. Construction Of References To Offering Shares Or Debentures To The Public,

Etc :

67(1) Any reference in this Act or in the articles of a company to offering shares or debentures to the
public shall, subject to any provision to the contrary contained in this Act and subject also to the
provisions of sub-sections (3) and (4), be construed as including a reference to offering them to any section
of the public, whether selected as members or debenture holders of the company concerned or as clients of
the person issuing the prospectus or in any other manner.
(2) Any reference in this Act or in the articles of a company to invitations to the public to subscribe for
shares or debentures shall, subject as aforesaid, be construed as including a reference to invitations to
subscribe for them extended to any section of the public, whether selected as members or debenture holders
of the company concerned or as clients of the person issuing the prospectus or in any other manner.
(3) No offer or invitation shall be treated as made to the public by virtue of sub- section (1) or sub-
section (2), as the case may be, if the offer or invitation can properly be regarded, in all the
circumstances-
(a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming available
for subscription or purchase by persons other than those receiving the offer or invitation; or
(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation …
Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation to
subscribe for shares or debentures is made to fifty persons or more:

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 Provided further that nothing contained in the first proviso shall apply to non-banking financial companies
or public financial institutions specified in section 4A of the Companies Act, 1956 (1 of 1956).”

73. Allotment of Shares and Debentures to be dealt in in Stock Exchange.

(1) Every company intending to offer shares or debentures to the public for subscription by the issue of a
prospectus shall, before such issue, make an application to one or more recognised stock exchanges for
permission for the shares or debentures intending to be so offered to be dealt with in the stock exchange or
each such stock exchange.
(2) Where the permission has not been applied under sub-section (1), or, such permission having been
applied for, has not been granted as aforesaid, the company shall forthwith repay without interest all
moneys received from applicants in pursuance of the prospectus, and, if any such money is not repaid within
eight days after the company becomes liable to repay it, the company and every director of the company who
is an officer in default shall, on and from the expiry of the eighth day, be jointly and severally liable to
repay that money with interest at such rate, not less than four percent and not more than fifteen per cent.
as may be prescribed, having regard to the length of the period of delay in making the repayment of such
money.
(3) All moneys received as aforesaid shall be kept in a separate bank account maintained with a Scheduled
Bank until the permission has been granted, or where an appeal has been preferred against the refusal to
grant such permission, until the disposal of the appeal, and the money standing in such separate account
shall, where the permission has not been applied for as aforesaid or has not been granted, be repaid within
the time and in the manner specified in subsection (2), and if default is made in complying with this sub-
section, the company, and every officer of the company who is in default, shall be punishable with fine,
which may extend to five thousand rupees.”

Securities and Exchange Board of India (Disclosure and Investor Protection)

Guidelines, 2000 (“DIP Guidelines, 2000”)

i. Clause 2.1.1 – filing of offer document

ii. Clause 2.1.4 - Application for listing
iii. Clause 2.1.5 - Issue of securities in dematerialized form
iv. Clause 2.8 - Means of finance
v. Clause 4.1 - Promoters contribution in a public issue by
unlisted companies
vi. Clause 4.11 - Lock-in of minimum specified promoters’
contribution in public issues
vii. Clause 4.14 - Lock-in of pre-issue share capital of an
unlisted company

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 viii. Clause 5.3.1 - Memorandum of understanding
ix. Clause 5.3.3 - Due diligence certificate
x. Clause 5.3.5 - Undertaking
xi. Clause 5.3.6 - List of promoters group and other details
xii. Clause 5.4 - Appointment of intermediaries
xiii. Clause 5.6 - Offer document to be made public
xiv. Clause 5.6A - Pre-issue Advertisement
xv. Clause 5.7 - Dispatch of issue material
xvi. Clause 5.8 - No complaints certificate
xvii. Clause 5.9 - Mandatory collection centres
xviii. Clause 5.9.1 - Minimum number of collection centres
xix. Clause 5.10 - Authorised collection agents
xx. Clause 5.12.1 - Appointment of Compliance Officer
xxi. Clause 5.13 - Abridged prospectus
xxii. Clause 6.0 - Contents of offer documents
xxiii. Clause 6.1 to Clause 6.15 - Contents of Prospectus
xxiv. Clause 6.16 to Clause 6.34 - Contents of abridged prospectus
xxv. Clause 8.3 - Rule 19(2)(b) of SC(R) Rules, 1957
xxvi. Clause 8.8.1 - Opening & closing date of subscription of securities

xxvii. Clause 9 - Guidelines on advertisements by issuer company

xxviii. Clause 10.1 - Requirement of credit rating
xxix. Clause 10.5 - Redemption

13. After perusing and considering the contents of the SCN, the allegations levelled
therein against the Noticees and the other material available on record, I observe that the
only issue that needs adjudication in the present matter is whether the Company has
issued securities to the public in violation of the extant norms governing public issues
and if yes, what direction deserves to be issued in the peculiar facts and circumstances
surrounding the present case.

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 14. I note from the records of the matter that the Company vide its letter dated February
01, 2007, had forwarded the Share Certificate to one of the investors. The said letter
was issued with a title: “Issue of 12% Redeemable Cumulative Preference Share-Series
II”. Further, the contents of the said letter indicate that 300 shares have been allotted
to the said investor, against the total consideration of INR 30,000, at the rate of INR
100 per share. In the said letter, the Company has mentioned the dividend amount to be
at 12%, i.e., INR 3,600. The said letter has been signed by the Noticee no. 2 herein, in
the capacity of the Managing Director of the Company. Further, the share certificate
carries the signature of the Noticee no. 2 (Managing Director) and Noticee no. 3 (Director).
It may also be of relevance to mention that from the contents of the communication
addressed on the behalf of the investor, it is gathered that the Company has
employed/engaged individual agents for raising funds by issuance of the RCPS to the
general public.

15. Further, as highlighted in the Table no. 2 above, the Company can be noticed to
have issued its RCPS for the first time during the year 2004-05 to 117 investors. Similar
such allotments of RCPS have been made by the Company in subsequent years as well,
wherein number of such allottees ranged from 100 to 170, till the period of 2009-10.
The aforesaid details would further go on to show that the Company had allotted a total
of 574365 RCPS over a period of 6 financial years, to 801 investors. The amounts that
have been raised by the Company from the issuance of RCPS have also been detailed
out in Table no. 3 which show that the Company had raised a total amount of INR 5.74
Crore (approx.), during the said 6 financial years.

16. I note that the Company is at present in liquidation and the other Noticees who were
the Directors of the Company during the relevant periods have also not contested the
allegations levelled in the SCN with respect to the allotment of RCPS, as culled out
above from the records filed by the Company with Ministry of Corporate Affairs (MCA).

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 From a collective perusal of the letter, share certificate and the other statutory records
of the Company filed with the MCA, I may firmly conclude that the Company has
undeniably offered its RCPS to public at large through agent (s) and in the said process,
it has raised large amounts of monies from numerous investors.

17. After having concluded on facts that the Company had made public issuance of
RCPS, the next task is to assess the legal provisions and the compliances thereof, which
are relevant for adjudging the charges levelled in the SCN. I note that in order to
determine as to whether an offer of securities like RCPS is a public issue of securities
or not, a reference to Section 67 of Companies Act, 1956 (as reproduced earlier) needs
to be made. A careful perusal of the Section 67 (3) of the Companies Act, 1956 shows
that it envisages the situations in which an offer of securities is not considered to be an
offer made to public. In terms of the said provisions, if the offer is the one which is
not calculated to result, directly or indirectly, in the shares or debentures becoming
available for subscription or purchase by persons other than those receiving the
offer or invitation, or, if the offer is the domestic concern of the persons making
and receiving the said offer, the same is not to be considered as public offer; and
such an offer is to be considered as private placement of securities. Further, in terms
of the first proviso to the Section 67 (3), adherence to the legal requirements of a public
offer and those pertaining to listing of securities would automatically be applicable to
a company making the offer to fifty or more persons. The second proviso to Section
67 (3), however, grants exemption to the Non-Banking Financial Company (NBFC)
and Public Financial Institutions (PFIs) from the applicability of the first proviso.

18. Reverting to the facts of the present matter, as captured in the Table no. 2 above,
the Company has undisputedly allotted RCPS to more than 50 persons in the financial
years 2004-05 till 2009-10, except for the financial year 2008-09, during which it had
allotted RCPS to 22 persons. Notwithstanding the aforesaid facts, I observe at this

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 stage that the plain language of the relevant provisions of Companies Act,1956 would
show that it is the “offer” and not the “allotment” which would be the litmus test to
colour the nature of offer as public or private. At this stage, I deem it fit to rely upon
the findings of the Hon’ble Supreme Court of India made in the matter of Sahara India
Real Estate Corporation Limited & Ors. vs. SEBI [(2013) 1 SCC 1]. The Hon’ble Supreme
Court, while dealing with the intent of Section 67, has observed inter alia as: “…The first
proviso to Section 67(3) was inserted by the Companies (Amendment) Act, 2000 w.e.f. 13.12.2000,
which clearly indicates, nothing contained in Subsection (3) of Section 67 shall apply in a case where
the offer or invitation to subscribe for shares or debentures is made to fifty persons or more. ...
Resultantly, after 13.12.2000, any offer of securities by a public company to fifty persons or more will
be treated as a public issue under the Companies Act, even if it is of domestic concern or it is proved
that the shares or debentures are not available for subscription or purchase by persons other than
those receiving the offer or invitation…”

19. There is no gainsaying in the fact that allotment of securities made to fifty or more
persons during a financial year in itself is a certain evidence of the fact that offers have
been made to atleast such number of persons. At the same time, I observe that the
allotment of shares to less than 49 persons in a particular financial year cannot be suo
motu treated to be a private placement on its face value, since the other factors like
absence of reply from the Noticees regarding number of persons to whom the offer was
actually made; facts of allotments made to a large number of investors in the preceding
and succeeding years, and the fact of engagement of agents by the Company to raise
money by issuance of RCPS go on to show otherwise. The onus was on the Noticees to
demonstrate that the allotment made in the year 2008-09 was indeed a private
placement. However, no submission whatsoever has been made by the Noticees to
controvert the allegations made against them in the SCN. Under the circumstances, I
may not extend any kind of benefit of doubt to the Company for the financial year 2008-
09, merely for the reason that the RCPS was allotted to 22 persons since there is nothing

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 on record to show that RCPS were not offered to public at large or that the offer during
the year was confined to only a group of 22 pre-selected persons.

20. As observed by the Hon’ble Supreme Court of India, any offer of securities made
to fifty or more persons will be treated as a public issue under the Companies Act,
1956. Therefore, in light of the material available on record and based on the legal
provisions and jurisprudence applicable to the facts of this matter, I hold that the offer
of RCPS made by the Company during the aforementioned financial years, squarely falls
within the ambit of the first proviso of Section 67 (3) of the Companies Act, 1956, and
has to be treated as “public issue” of securities, and consequently, the extant legal
provisions governing the issuance of public issue of securities, as laid down under the
Companies Act, 1956 and the SEBI guidelines/regulations are required to be complied
with. It now leads me to the next question to determine as to whether in the present
case, the Company and/or its Directors have complied with the applicable requirements
of law governing the public issue of securities

21. I note that in terms of Section 60 (1) of the Companies Act, 1956, a company
offering/issuing its securities to public is required to register a prospectus with the RoC.
In the present case, there is nothing on record to suggest that the Company had ever
filed any document including any notice, circular, advertisement or other document
inviting investments from the public or inviting offers from the public to subscribe to
its securities, which can be termed as a prospectus.

22. Further, Section 56 of the Companies Act, 1956 prescribes the details of the
matters which need to be stated [Section 56 (1)] and the reports that need to be set out
[Section 56 (3)] in the Prospectus. As in the present case, there is no record of any
prospectus having been filed by the Company for issue of its RCPS, the non-compliance
with Section 56 (1) and 56 (3) of the Companies Act, 1956 becomes self-evident and
does not require any further discussion.

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 23. Apart from above, Section 73 of the Companies Act, 1956 casts obligation on the
company intending to offer shares to the public for subscription so as to ensure that
such securities are listed on a recognized stock exchange. To elaborate it further,
Section 73 (1) mandates that every such company which intends to offer
shares/debentures to the public for subscription by the issue of a prospectus shall,
before such issue, apply to one or more recognized stock exchange for permission for
the listing of these shares/debentures. Section 73 (2) provides that in those cases where
the permission for listing has not been applied for by the company or has not been
granted to it by the stock exchange, the company shall refund such amounts as collected
by it from the public forthwith. The said sub-section further provides that the refund
of such money should be made within 8 days of the liability to refund accruing on the
company and after expiry of such time, the liability to repay the money with the
applicable interest would fall jointly and severally on the company as well as on the
director (s) of the company who is an officer in default.

24. Thus, it is clear that statute casts an obligation on the company which is issuing
securities to public to seek permission to list such securities on a recognised stock
exchange but in the present case, evidently, the Company has not listed its RCPS on any
recognised stock exchange. It is further observed that the details about factum of
having filed such an application with the stock exchange needs to be mentioned in the
prospectus issued to the public. In the present case, however, as noted above there is
no prospectus nor any application has been filed by the Company seeking listing of its
securities on a recognised stock exchange.

25. With respect to the mandatory nature of listing of securities on a recognised stock
exchange, I note from the judgment of the Hon’ble Supreme Court of India in the
matter of Sahara (supra) wherein it has been recorded as: “..Since the invitation/offer was
made “to the public”, the same could only have been through one or more recognized stock exchange(s).

Order in the matter of Shree Ramkrishna Electro Controls Limited Page 16 of 25

 Once a public company adopts that course, which is actually a mandate of law emerging from section
73 of the Companies Act, the concerned companies portfolio changes that to a “listed” public company.
So listing in the present controversy was an inevitable consequence of inviting subscriptions from the
public. There can therefore be no hesitation to conclude, that the procedure contemplated in section 73
of the Companies Act, whenever a public company wishes to issue debentures “to the public”, is not
optional but mandatory…”. From the same, it is clear that the requirement of seeking
listing permission and listing of the securities thereafter, is a mandatory provision, and
the company issuing such securities is obliged to follow such a mandate of the statute.
The intent of the legislature, that can be inferred from the said provision seems to
ensure that the members of public who are being offered the securities of a company,
are given an opportunity to trade in such securities on the platform of the stock
exchange. Further, in case such permission is not granted, the same statutory provisions
prescribe for immediate refund of the monies so raised from the public and payment
of interest in case of breach of the time limit provided for refund in the relevant
provisions of Companies Act, 1956. The mandatory listing provision and the
consequential refund provision in case of failure to get the securities listed shows that
interest of the investors subscribing to such securities offered by a company has been
kept paramount.

26. In the facts of the present case, it is an undisputed position that the Company has
not listed its RCPS on any of the recognised stock exchange nor there is anything on
record to show that any such permission was even sought from the recognized stock
exchanges. Accordingly, in terms of the Section 73 (3) of the Companies Act, 1956, the
Company and its every director who is an officer in default, are under a liability to
repay/refund jointly and severally, the money raised from the public through the
issuance of RCPS along with applicable interest rate. At this juncture, I note that no
such repayment has been even attempted by the Company and its officers-in-default in
discharge of their liability, which is evident from a complaint dated July 02, 2018

Order in the matter of Shree Ramkrishna Electro Controls Limited Page 17 of 25

 received by SEBI from one of the RCPS holder, who had subscribed to the RCPS in
the years 2007-08 and 2008-09. Thus, in totality, there has been gross violation of all
the legal provisions that have mandated the registration of a prospectus, seeking
permission from the recognised stock exchanges for listing of RCPS as well as making
refunds of the monies so mobilised by the Company by issuing the RCPS during various
financial years. Under the circumstances, I observe that by virtue of the aforesaid
violative acts and omissions as elaborated above, it becomes a clear cut case of issuance
of securities by the Company to public at large in violation of Section 56 (1), 56 (3), 60,
73 read with Section 73 of the Companies Act, 1956.

27. Moving on to the other set of the allegations, it is to be first noted that the Section
11 of SEBI Act, 1992 enshrines a duty on SEBI to protect the interest of investors in
securities and to promote the development of and to regulate the securities market by
measures as it thinks fit. In pursuance of the said duty, SEBI had issued Securities and
Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000
(hereinafter referred to as "the DIP Guidelines"). The DIP Guidelines have laid down
various requirements which a company needs to adhere to while raising funds from the
public against the issue of its securities. In the present case, as alleged in the SCN, the
following provisions of the DIP Guidelines have not been complied with by the
Company while issuing its RCPS:

Clause 2.1.1 – filing of offer document

Clause 2.1.4 - Application for listing
Clause 2.1.5 - Issue of securities in dematerialized form
Clause 2.8 - Means of finance
Clause 4.1 - Promoters contribution in a public issue by unlisted
companies
Clause 4.11 - Lock-in of minimum specified promoters’ contribution in
public issues
Clause 4.14 - Lock-in of pre-issue share capital of an unlisted
company
Clause 5.3.1 - Memorandum of understanding
Clause 5.3.3 - Due diligence certificate

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 Clause 5.3.5 - Undertaking
Clause 5.3.6 - List of promoters group and other details
Clause 5.4 - Appointment of intermediaries
Clause 5.6 - Offer document to be made public
Clause 5.6A - Pre-issue Advertisement
Clause 5.7 - Dispatch of issue material
Clause 5.8 - No complaints certificate
Clause 5.9 - Mandatory collection centres
Clause 5.9.1 - Minimum number of collection centres
Clause 5.10 - Authorised collection agents
Clause 5.12.1 - Appointment of Compliance Officer
Clause 5.13 - Abridged prospectus
Clause 6.0 - Contents of offer documents
Clause 6.1 to Clause 6.15 - Contents of Prospectus
Clause 6.16 to Clause 6.34- Contents of abridged prospectus
Clause 8.3 - Rule 19(2)(b) of SC(R) Rules, 1957
Clause 8.8.1 - Opening & closing date of subscription of
securities
Clause 9 - Guidelines on advertisements by issuer company
Clause 10.1 - Requirement of credit rating
Clause 10.5 - Redemption

28. The above listed clauses and the directives laid down thereunder in terms of the
DIP Guidelines, broadly indicate that the regulatory intent behind these
directives/guidelines is to protect the interest of the investors subscribing to the
securities being offered by a corporate entity. For illustration, filing of the offer
document and the application for listing would enable the investors to take an informed
decision about subscribing to the securities of a company and allow them to trade in
such securities on the platform of the stock exchange. Similarly, the mandatory
requirement of obtaining a credit rating of the security proposed to be issued to the
public is also intended to provide a guide to the investing public in adjudging the risks
involved in the instrument/security and making an informed decision accordingly.

29. I observe that despite laying down such detailed guidelines and directives for
compliances that are required to be adhered to while issuing securities to general public,
in the present case, there is no material on record nor is there any contention from any
of the Noticees to show that they have made any compliance with the aforesaid

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 provisions of the DIP Guidelines. Hence, I am of the view that the Company has acted
in gross defiance of the requirements stipulated under the DIP Guidelines.

30. To sum up, I observe that the offer of RCPS by the Company over different financial
years as noted above, were deemed public issue of securities in terms of the first proviso
to Section 67(3) of the Companies Act, 1956 as it had offered its RCPS to more than
49 persons during each of those six financial years. The said acts on the part of the
Company resulted in compliances requirement with various provisions of Companies
Act, 1956 pertaining to prospectus, listing permission etc., but the said requirements
have not been complied with, resulting into violation of Section 56, Sections 73(1),
73(2) and 73(3) of the Companies Act, 1956.

31. As discussed earlier, the consequence of non-compliance with the aforesaid

statutory requirements, in terms of Section 73 of Companies Act, 1956, leads to a joint
and several liabilities of the Company and every Director who is an officer in default, to
refund the monies that have been raised by the Company by way of subscription to its
issuance of RCPS by the public shareholders. Insofar as the directorship of various
individuals on the Board of the Company is concerned, I note that except for the Noticee
no. 4, none of the other individual Noticees has disputed their appointment as Director
(s) or the period of directorship, as alleged in the SCN. The claim of resignation from
the directorship as made by the Noticee no. 4 is also not supported by any documentary
evidence like, her resignation letter and letter of acceptance by the Company followed
by filing of Form 32 before the RoC. In terms of the information available on the
website of MCA, the Noticee no. 4 is still continuing to be a Director of the Company.
Thus, I find that the claim of the Noticee no. 4 having resigned from the Directorship is
unfounded. Considering the same, the said submission of the Noticee no. 4 deserves a
rejection. Further, the other Directors have chosen not to respond to the SCN and

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 none of the Directors has availed the opportunity of personal hearing as granted to
them.

32. As regards the liability arising out of the violations of various statutory provisions is
concerned, it is noted that Section 56(1), 56(3) read with Section 56(4) of the
Companies Act, 1956 impose the liability on the company, every director, and other
persons responsible for filing the prospectus, for the compliance of the aforesaid
provisions of Companies Act, 1956. Further, the liability for non-compliance of
Section 60 of the Companies Act, 1956 also falls on the company, and every person
who is a party to the non-compliance of the requirement of issuing the prospectus as
per the said provision. However, as the Company being a legal person has to act through
the natural persons who are holding the rein of its affairs, the liability of non-
compliance of Section 60 by the Company also falls on the shoulders of the persons
who were acting as the Director of the Company during the relevant period of alleged
violation. In view of the discussion recorded above, more particularly the omission on
the part of the Company to file the prospectus with the requisite details, I hold that the
Company and its Directors as liable for the violation of Sections 56(1), 56(3) and 60 of
the Companies Act, 1956.

33. As far as the liability for non-compliance with the Section 73 of Companies Act, 1956
is concerned, it is observed that as has been stipulated under Section 73(2) itself, the
company and every director of the company who is an officer in default is jointly and
severally liable, to refund all the money with interest at prescribed rate to the
shareholders. Insofar as the rate of interest is concerned, it is observed that in terms
of Rule 4D of the Companies (Central Governments) General Rules and Forms, 1956,
the rate of interest has been determined at 15% per annum.

34. Notwithstanding the above, it is noted that in the present case, by an order dated
August 08, 2012, the Hon’ble Bombay High Court has ordered the winding up of the

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 Company and the Official Liquidator attached to the Hon’ble High Court has been
appointed as Liquidator of the Company. In view of thereof, in my considerate view,
the Company cannot be fastened with a liability which would adversely affect the assets
of the Company. Therefore, the liability of refunding the money so mobilised by issuing
RCPS under the deemed public cannot be fastened on the Company.

35. At the same time, however, it is observed that the investors who were issued such
securities by the Company cannot be left helpless and the interest of such investors
deserves to be protected by issuance of appropriate directions. In this connection, as
discussed earlier, the liability of making refund of the money raised through such
deemed public issuance of shares in case of failure of a company to get those securities
listed, falls jointly and severally on the company and every Director who is an officer
in default. However, in the peculiar facts of the present case, when the main culpable
entity viz., the Company is now under a statutory shield, the other persons who are also
holding “joint and several” liabilities under law, viz., the Directors of the Company,
deserve no relaxation from the liability so fastened on them by law.

36. In this regard, it is noted from the SCN that the Noticee nos. 2 was designated as
Managing Director of the Company during the years when the Company had raised funds
in violation of the public issue norms. Therefore, in terms of the categorical inclusion
of the Managing Director in the definition of ‘officer in default’ under the Companies
Act, 1956, I hold that the Noticee no. 2 is liable for ensuring refunds to the investors of
the Company. It is noted that the SCN has also alleged the Noticee nos. 3 and 4 to be
officers in default as they have signed the Audited Financial Statement/Balance sheet
of the Company for the Financial years 2005-06, 2007-08, 2008-09 and 2009-10.
However, after carefully considering the facts of the case in the light of the ratio laid
down by the Hon’ble SAT in the matter of Pritha Bag Vs. SEBI (Appeal no. 291 of 2017;
date of decision February 14, 2019), and in view of the fact that there is nothing on record

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 to show that the Noticee nos. 3 and 4 were entrusted to discharge the task of making
necessary application to the recognised stock exchange as stipulated under Section 73
of the Companies Act, 1956, the Noticee nos. 3 and 4 may not be held liable for the
refund of the monies raised under the deemed public issue of the Company more so
when the Company was having in place a Managing Director, who has already been
held liable for making refunds to the public shareholders in terms of Section 73 read
with Section 5 of the Companies Act, 1956, and in light of the decision in the case of
Pritha Bag (supra), referred to above. Nonetheless, the said two Noticees along with the
Noticee no. 5 and the Noticee no. 2 deserve to be appropriately debarred from the
securities markets as the violations of the public issue norms have been committed by
the Company when the said Noticees were acting as Directors of the Company.

37. To sum up, it is noted that the Company had issued RCPS to large number of investors
during the period of 2004-2010 and in the said process, an amount of INR 5.74 Crore
was raised from the investors, in gross violation of provisions of Section 56, 60, 73 of
Companies Act, 1956 and also of various provisions of DIP Guidelines. The Company
is at present in liquidation and the Directors for reasons best known to them have
chosen not to file any response rebutting the allegations made on them, nor have they
preferred to avail the opportunity of personal hearing before me to controvert the
allegations made against them in the SCN. In view of the foregoing discussion and
the findings, I, in exercise of the powers conferred under Section 19 of the Securities
and Exchange Board of India Act, 1992 read with Sections 11, 11 (4) and 11B, hereby
issue the following directions:

I. The Noticee no. 2 shall forthwith refund the money collected by the Company,
through the issuance of RCPS including the application money collected from
investors till date, with an interest of 15% per annum to be calculated from the
eighth day of collection of funds, till the date of actual payment to the investors.

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 II. The repayments/refunds and interest payments to the investors shall be
effected only through Bank Demand Draft or Pay Order crossed as “Non-
Transferable”.
III. The Noticee no. 2 is directed to provide a full inventory of all his assets and
properties and details of all his bank accounts, demat accounts and holdings of
mutual funds/shares/securities, if held in physical form and demat form.
IV. The Noticee no. 2 is restrained from selling his assets, properties and holding of
mutual funds/shares/securities held by him in demat and physical form except
for the sole purpose of making the refunds as directed above and deposit the
proceeds in an Escrow Account opened with a nationalized Bank. Such
proceeds shall be utilized for the sole purpose of making refund/repayment to
the investors till the full refund/repayment as directed above is made.
V. The Noticee no. 2 shall issue a public notice, in all Editions of two National
Dailies (one English and one Hindi) and in one local daily with wide circulation,
detailing the modalities for refund, including the details of the contact persons
such as names, addresses and contact details etc., within 15 days of this Order
coming into effect.
VI. After completion of the aforesaid repayments, the Noticee no. 2 shall file a report
of such completion with SEBI, within a period of three months from the date
of this order, certified by two independent peer reviewed Chartered
Accountants who are in the panel of any public authority or public institution.
For the purpose of this Order, a peer reviewed Chartered Accountant shall
mean a Chartered Accountant, who has been categorized so by the Institute of
Chartered Accountants of India ("ICAI") holding such certificate.
VII. The Noticee no. 2 is directed not to, directly or indirectly, access the securities
market, by issuing prospectus, offer document or advertisement soliciting
money from the public and is further restrained and prohibited from buying,

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 selling or otherwise dealing in the securities market, directly or indirectly in
whatsoever manner, from the date of this Order, till the expiry of 04 (four)
years from the date of completion of refunds to investors as directed above.
The Noticee no. 2 is also restrained from associating himself with any listed
public company and any public company which intends to raise money from
the public, or any intermediary registered with SEBI for a period of 04 (four)
years from the date of completion of refunds to investors.
VIII. The Noticee nos. 3 to 5 are directed not to, directly or indirectly, access the
securities market, by issuing prospectus, offer document or advertisement
soliciting money from the public and is further restrained and prohibited from
buying, selling or otherwise dealing in the securities market, directly or
indirectly in whatsoever manner, for a period of 04 (four) years.
IX. The Noticee nos. 3 to 5 are also restrained from associating themselves with any
listed public company and any public company which intends to raise money
from the public, or any intermediary registered with SEBI for a period of 04
(four) years.

38. The above directions shall come into force with immediate effect.

39. Copy of this Order shall be forwarded to the Noticees, recognized stock exchanges and
depositories and registrar and transfer agents for information and necessary action.

40. A copy of this Order shall also be forwarded to the Official Liquidator of the Hon’ble
Bombay High Court for record and information.

-Sd-
DATE: DECEMBER 13th, 2021 S. K. MOHANTY
PLACE: MUMBAI WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

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