BEFORE THE
SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on : 07.01.2019
Date of Decision
: 17.01.2019
Appeal No. 85 of 2018
Indus Weir Industries Limited
44/1, West Guru Angad Nagar,
Vikas Marg, Laxmi Nagar,
East Delhi – 110092, India
….. Appellant
Versus
Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051.

…… Respondent
Ms. Vidisha Krishan, Advocate with Ms. Bindi Parekh, Advocate i/b
MV Kini Law Firm for the Appellant.
Mr. Gaurav Joshi, Senior Advocate with Mr. Vivek Shah, Advocate for the
Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Per : Dr. C.K.G. Nair, Member
1.

This appeal has been filed challenging the order of the Adjudicating
Officer (‘AO’ for short) of Securities and Exchange Board of India (‘SEBI’
for short) dated January 15, 2018 whereby a penalty of ` 1,00,00,000/(Rupees One Crore only) has been imposed on the appellant under Section
15HB of SEBI Act for violation of Regulations 4(2) and 16 of SEBI (Issue
and
Listing
of
Non-Convertible
Redeemable
Preference
Shares)
Regulations, 2013 ( “Issue and Listing Regulations 2013” for short).

2.

Appellant, a Company registered under the Companies Act mobilized
funds through issuance of Redeemable Preference Shares (“RPS” for short)
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during 2010-11 to 2013-14. Admittedly, the appellant collected an amount
of ` 33,39,86,230/- from 32,454 investors during this period of 4 years. The
year-wise break-up of the amount and number of investors etc. are also part
of the impugned order. However, since these facts are admitted we are not
going into details of the same. Since the number of investors from whom
money was collected by the appellant through issuance of RPS exceeded 49
in each of the 4 years, it is held in the impugned order that the appellant has
violated Regulation 4(2) and 16 of the Issue and Listing Regulations, 2013.
This act of collecting funds from more than 49 investors is tantamount to a
deemed public issue which has been done without following the procedure
as stipulated by the regulations for such public issue and listing, and hence
the violations.

3.

For ready reference Regulation 4(2) and 16 are reproduced below:“ISSUE REQUIREMENTS FOR PUBLIC ISSUES
General Conditions
Regulation 4 (2). No issuer shall make a public
issue of non-convertible redeemable preference
shares unless the following conditions are satisfied,
as on the date of filing of draft offer document and
final offer document as provided in these regulations, (a)
it has made an application to one or more
recognized stock exchanges for listing of such securities
therein: Provided that where the application is made to
more than one recognized stock exchanges, the issuer
shall choose one of them as the designated stock
exchange:
Provided further that where any of such stock
exchanges have nationwide trading terminals, the
issuer shall choose one of them as the
designated stock exchange;
Explanation: For any subsequent public issue, the
issuer may choose a different stock exchange as a
designated stock exchange subject to the requirements
of this regulation;
(b)
it has obtained in-principle approval for listing
of its non-convertible redeemable preference shares on
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the recognized stock exchanges where the application
for listing has been made;
(c)
it has obtained a credit rating from at least one
credit rating agency registered with the Board and is
disclosed in the offer document: Provided that
where credit ratings are obtained from more than
one credit rating agencies, all the ratings,
including the unaccepted ratings, shall be disclosed in
the offer document;
(d)
it has entered into an arrangement with a
depository
registered
with
the
Board
for
dematerialization of the non convertible redeemable
preference shares that are proposed to be issued to the
public, in accordance with the Depositories Act, 1996
and regulations made thereunder;
(e)
the minimum tenure of the non-convertible
redeemable preference shares shall not be less than
three years; and
(f)
the issue has been assigned a rating of not less
than “AA-” or equivalent by a credit rating agency
registered with the Board.
LISTING OF NON-CONVERTIBLE
REDEEMABLE PREFERENCE SHARES
Mandatory listing.
16. (1) An issuer desirous of making an offer of
non-convertible redeemable preference shares to the
public shall make an application for listing to one or
more recognized stock exchanges in terms of subsection (1) of section 73 of the Companies Act, 1956.
(2)
The issuer shall comply with conditions of
listing of such non-convertible redeemable preference
shares as specified in the Listing Agreement with the
stock exchange where such non-convertible redeemable
preference shares are sought to be listed.
(3)
Where the issuer has disclosed the intention to
seek listing of nonconvertible redeemable preference
shares issued on private placement basis, the issuer
shall forward the listing application along with the
disclosures specified in Schedule I to the
recognized stock exchange within fifteen days from the
date of allotment of such non-convertible redeemable
preference shares.”
4.

Learned Counsel Ms. Vidisha Krishan appearing for the appellant
fairly admits that an amount of ` 33,39,86,230/- has been collected from
4
32,454 investors during the relevant time. She further submits that the
appellant only provided all these information to SEBI on September 12,
2013 shortly after a communication dated August 13, 2013 was received
from SEBI. Moreover, even before that communication from SEBI was
received the appellant had stopped all the schemes with effect from July 31,
2013. While admitting that certain violations have been made the Counsel
further submits that, it was unintentional and without being fully aware of
the Regulations and once the appellant came to know about the Sahara
Judgment of the Apex Court legal advice was taken and all schemes were
stopped with effect from July 31, 2013 and the entire amount collected has
been refunded to all the investors. The audit report of the Company
corroborates that the monies collected have been refunded to all the
investors. Further, SEBI itself appointed an external auditor, B.R.
Maheswari & Co. who also certified that the entire money collected from
the investors have been refunded either through cheques / demand drafts or
in cash. Therefore, given the facts that the appellant has suo motu closed all
the schemes and refunded the monies collected from the investors the
maximum penalty of ` 1,00,00,000/- (Rupees One Crore only) imposed
under section 15HB of SEBI Act is too harsh. Though the appellant accepts
that certain violations have been committed, the behavior of the appellant in
providing all the information to SEBI, closing the schemes even before
receiving any communication from SEBI and making all refunds to the
investors show that the appellant has been trying to comply with the
Regulations though belatedly. As such, it is not a case for imposing the
maximum possible penalty and these facts should have come to the help of
the appellant as mitigating factors under section 15J of SEBI Act which the
AO has not considered. Therefore, the counsel for the appellant prays for a
substantial reduction in the amount of penalty imposed on the appellant.

5
5.

Learned Senior Counsel Shri Gaurav Joshi appearing on behalf of the
respondent SEBI submits that the seriousness of the violation is writ large as
the appellant has collected more than 33 crore rupees from 32,454 gullible
investors who are mostly poor and uneducated residing in the far flung areas
of the country. He further submits that even after the Sahara Judgment
which was passed on August 31, 2012 the appellant continued to collect
funds from investors through RPS for another year and in fact in March
2013 a resolution was passed by the Board of the appellant Company for
further collection and also by printing large number of forms etc. The
contention that the appellant stopped collection of monies immediately after
the Sahara judgment is therefore not correct and the appellant cannot take
shelter under ignorance of law in any case even prior to that and once the
violation is admitted, which is the case here, the consequences have to
follow. Therefore, considering the seriousness of the violation in terms of
the amount collected, the number of investors from whom money was
collected and repeated nature of the offence even after the widely publicized
Judgment of the Hon’ble Apex Court in the matter of Sahara rightly led the
AO to impose the maximum penalty available to him under section 15HB of
SEBI Act. He further submits that though the appellant claims to have
refunded the entire amount collected from all the investors it is neither
verified nor verifiable since admittedly the appellant paid in cash to about
90% of the investors and the verification done by the SEBI appointed
auditor is only on a sample basis taking 500 investors on random basis.

6.

We note that the crux of the argument made by the Counsel for the
appellant is that though certain violations have been admittedly made since
the schemes were stopped before receiving any communication from SEBI
and all the investors have been repaid, the appellant deserves some
consideration of these facts. We also note that the appellant had cooperated
6
in providing the information to SEBI soon after receiving the first
communication dated August 13, 2013 and it is based on the information
submitted by the appellant that the admitted factual matrix has been laid out
in the impugned order. Further, not having satisfied with the audited balance
sheet for the financial year ending March 31, 2015, which, among other
things, discloses the repayment made by the appellant company to the
investors, SEBI has appointed another auditor to verify the accounts of the
company with specific mandate. This mandate was to verify the number of
investors and the amount collected / mobilized; to verify whether a
resolution was passed to stop issue of RPS and to start redemption; to verify
whether the company has refunded certain amount back to the investors and
details thereof and to verify the latest status of repayment. In the report
dated April 30, 2015 submitted to SEBI the SEBI appointed auditor
answered these questions affirmatively. They have also stated that they did
only a sample verification on random basis by taking 500 investors. When
the auditor has stated that they have done verification only on a sample basis
it was upto SEBI to ask the auditor to verify further either taking the full
population (total number of investors) or to take a larger sample etc for
more effective verification. Neither SEBI has done that nor any explanation
for the same is provided. On the other hand, the impugned order is silent on
this report submitted by the SEBI appointed auditor. Further, SEBI has not
produced any records relating to any pending investor grievances before us.
In the light of these facts, we are of the view that the submissions made by
the appellant deserve some consideration. In any case it is not disputed that
the appellant stopped collection with effect from July 31, 2013 though a
year after the Judgment of the Apex Court in the Sahara matter. Since the
mobilization of money was suo motu stopped by the appellant and their
claim of refund is not effectively refuted the loss to the investors is not
crystallized in the impugned order come to the aid of the appellant.

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Therefore, given these factual matrix we are of the view that this is not a fit
case for imposing the maximum penalty under section 15HB of the SEBI
Act. At the same time, given that an amount of more than ` 33 crore has
been collected from 32,454 investors over a period of 4 years and these facts
are admitted by the appellant we cannot underestimate the seriousness of the
offence.

7.

On balance, a penalty of ` 50 lakh would meet the ends of justice in
the matter. Accordingly, while upholding the impugned order on merit, we
reduce the amount of penalty imposed on the appellant from ` 1 crore to `
50 lakh. Appellant is directed to pay the penalty of ` 50 lakh to SEBI within
a period of 4 weeks from the date of this order. In the event, the appellant
fails to deposit the penalty within the stipulated period of 4 weeks SEBI is at
liberty to recover the amount of ` 50 lakh along with interest @ 12% p.a.
from the date of the impugned order.

8.

Appeal is partly allowed and is disposed of on above terms with no
order as to costs.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
17.01.2019
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