WTM/PS/48/EFD/JUNE/2016

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM: PRASHANT SARAN, WHOLE TIME MEMBER
ORDER
Under Sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India
Act, 1992
In the matter of Sukhchain Hire Purchase Limited
In respect of:
1. Sukhchain Hire Purchase Limited [PAN: AAGCS6659C],
2. Mr. Malwinderwant Singh [PAN: ALSPS7699N],
3. Mr. Sukhraj Bahadur Singh [PAN: AQVPS7675N],
4. Ms. Vijay Laxmi Kathait [PAN: ALLPK5580D],
5. Mr. Jitendra Singh Gurjar [PAN: ALZPG7304F],
6. Mr. Guriqbal Singh Bhullar [PAN: AAQPB6799M],
7. Mr. Harpreet Singh [PAN: BCSPS6136G],
8. Ms. Harjit Kaur Bhullar [PAN: AARPB9746R],
9. Mr. Abhay Shukla [PAN: AQZPS7964C],
10. Mr. Vishwanathan Iyer [PAN: AADPI3574N],
11. Mr. Akshay Tiwari [PAN: ACNPT2976P] and
12. Mr. Hemant Sahu.
________________________________________________________________________
Date of Hearing:
January 15, 2016
Appearances:

Mr. Vishwanathan Rajesh Iyer, Director appeared for the Company

and other directors along with Mr. Dinesh Gupta, C.S.; Mr. R.S.
Loona, Advocate and Mr. Abhishek Borgikar, Advocate

For SEBI:

Ms. Anitha Anoop, General Manager; Mr. Pradeep Kumar, Assistant

General Manager and Mr. Vipul Jain, Manager.
________________________________________________________________________
1.

Securities and Exchange Board of India (hereinafter referred to as SEBI), vide an exparte interim Order dated February 11, 2015 (hereinafter referred to as the interim order)
had observed that the company, Sukhchain Hire Purchase Limited (hereinafter
referred to as Sukhchain or the Company) is prima facie engaged in fund mobilising
activity from the public, by making offer and issuing Secured Redeemable NonConvertible Debentures (hereinafter referred to as NCD) and had allegedly violated
the provisions of Sections 56, 60 [read with Section 2(36)], 73, 117B and 117C of the
Page 1 of 23

Companies Act, 1956 and the relevant provisions of the SEBI (Issue and Listing of
Debt Securities) Regulations, 2008 (hereinafter referred to as the ILDS Regulations).
The interim order also alleged that Mr. Hemant Sahu had allegedly failed to meet the
eligibility conditions specified under the SEBI (Debenture Trustees) Regulations, 1993
(hereinafter referred to as DT Regulations) and acted as an unregistered debenture
trustee in violation of Section 12(1) of the SEBI Act, 1992 (hereinafter referred to as
SEBI Act).
2.

In order to protect the investors who have subscribed to the impugned offer and issue
of NCDs and to prevent the Company from further carrying on with its fund
mobilizing activity under the offer of NCDs, SEBI had issued the following directions:

17. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections
11(1), 11(4), 11A and 11B of the SEBI Act read with the Debt Securities Regulations
and the Debenture Trustee Regulations, hereby issue the following directions
i. SHPL shall not mobilize any fresh funds from investors through the Offer of NCDs or
through the issuance of equity shares or any other securities, to the public and/or invite
subscription, in any manner whatsoever, either directly or indirectly till further directions;
ii. SHPL and its Directors, viz. Mr. Malwinderwant Singh (DIN: 639523, PAN:
ALSPS7699N), Mr. Sukhraj Bahadur Singh (DIN: 659193, PAN:
AQVPS7675N), Mrs. Vijay Laxmi Kathait (DIN: 2548164, PAN:
ALLPK5580D), Mr. Jitendra Singh Gurjar (DIN: 2548187, PAN:
ALZPG7304F), Mr. Guriqbal Singh Bhullar (DIN: 3028807, PAN:
AAQPB6799M), Mr. Harpreet Singh (DIN: 758659, PAN: BCSPS6136G),
Mrs. Harjit Kaur Bhullar (DIN: 02939598, PAN: AARPB9746R), Mr. Abhay
Shukla (DIN: 2891493, PAN: AQZPS7964C), Mr. Vishwanathan Iyer (DIN:
2952081, PAN: AADPI3574N), Mr. Akshay Tiwari (DIN: 5108463, PAN:
ACNPT2976P) are prohibited from issuing prospectus or any offer document or issue
advertisement for soliciting money from the public for the issue of securities, in any manner
whatsoever, either directly or indirectly, till further orders;
iii. SHPL and its abovementioned Directors, are restrained from accessing the securities
market and further prohibited from buying, selling or otherwise dealing in the securities
market, either directly or indirectly, till further directions;
iv. SHPL shall provide a full inventory of all its assets and properties;
v. SHPL's abovementioned Directors shall provide a full inventory of all their assets and
properties;
vi. SHPL and its abovementioned Directors shall not dispose of any of the properties or
alienate or encumber any of the assets owned/acquired by that company through the Offer
of NCDs, without prior permission from SEBI;
vii. SHPL and its abovementioned present Directors shall not divert any funds raised from
public at large through the Offer of NCDs, which are kept in bank account(s) and/or
in the custody of SHPL;
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viii. SHPL shall furnish complete and relevant information within 21 days from the date of
receipt of this Order.
ix. The Debenture Trustee, viz. Mr. Hemant Sahu , is prohibited from continuing with his
present assignment as a debenture trustee in respect of the Offer of NCDs of SHPL and
also from taking up any new assignment or involvement in any new issue of debentures,
etc. in a similar capacity, from the date of this order till further directions.
18. The above directions shall take effect immediately and shall be in force until further
orders.

21. This Order is without prejudice to the right of SEBI to take any other action that may
be initiated against SHPL and its abovementioned Directors; its Debenture Trustee, viz.
Mr. Hemant Sahu, in accordance with law.
3.

The interim order observed that the prima facie observations made therein were on the
basis of the information/ documents obtained from the MCA-21 portal and the
correspondences exchange between SEBI and the Company along with the documents
contained therein. The interim order advised the Company and its directors and the
debenture trustees to file their replies within 21 days from the date of its receipt and
also seek an opportunity of personal hearing.

4.

The copy of the interim order was forwarded to the Company, its directors namely Mr.
Malwinderwant Singh, Mr. Sukhraj Bahadur Singh, Ms. Vijay Laxmi Kathait, Mr.
Jitendra Singh Gurjar, Mr. Guriqbal Singh Bhullar, Mr. Harpreet Singh, Ms. Harjit
Kaur Bhullar, Mr. Abhay Shukla, Mr. Vishwanathan Iyer and Mr. Akshay Tiwari and
the debenture trustee namely Mr. Hemant Sahu vide letter dated February 12, 2015.
The letter issued to Mr. Akshay Tiwari had returned undelivered.

5.

The Company, Mr. Vishwanathan Iyer, Mr. Abhay Shukla and Mr. Akshay Tiwari (vide
common letter dated March 03, 2015); Mr. Malwinderwant Singh (vide letter dated
March 03, 2015); Mr. Sukhraj Bahadur Singh (vide letter dated March 03, 2015); Ms.
Vijay Laxmi Kathait (vide letter dated March 03, 2015); Mr. Jitendra Singh Gurjar (vide
letter dated March 03, 2015) and Mr. Hemant Sahu (vide letter dated March 03, 2015)
while replying to the letters of SEBI, requested for copies of certain documents and
extension of four weeks for replying to the interim order. Ms. Harjit Kaur vide her
letter dated March 24, 2015 replied to the interim order and submitted that she had
become a director in the Company along with her late husband Mr. Guriqbal Singh
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Bhullar (who passed away on November 11, 2011), however, due to the serious illness
of her husband, she had resigned from the Company on January 20, 2010.
6.

Mr. Vishwanathan Iyer vide his another letter dated April 07, 2015, again requested for
the documents as sought vide letter dated March 03, 2015. Thereafter, the documents
as sought were provided by SEBI vide letter dated April 23, 2015. Later, the Company,
Mr. Vishwanathan Iyer, Mr. Abhay Shukla, Mr. Akshay Tiwari, Ms. Vijay Laxmi
Kathait, Mr. Jitendra Singh Gurjar, Mr. Malwinder Singh, Mr. Harpreet Singh and Mr.
Sukhraj Bahadur Singh vide common letter dated May 27, 2015, replied to the interim
order.

7.

Mr. Vishwanathan Iyer vide his letters dated July 15, 2015 and December 10, 2015,
requested for an opportunity of personal hearing. Accordingly, an opportunity of
personal hearing was granted to the Company and its directors on January 15, 2016.
On the date fixed, Mr. Vishwanathan Iyer, director appeared along with the
representatives namely Mr. R.S. Loona, Advocate; Mr. Abhishek Borgikar, Advocate;
Mr. Dinesh Gupta, Company Secretary for the Company, Mr. Malwinderwant Singh,
Mr. Sukhraj Bahadur Singh, Ms. Vijay Laxmi Kathait, Mr. Jitendra Singh Gurjar, Mr.
Harpreet Singh, Mr. Abhay Shukla, Mr. Vishwanathan Iyer and Mr. Akshay Tiwari and
the debenture trustee namely Mr. Hemant Sahu. The representatives made oral
submissions and filed the written submission dated January 15, 2016, which was taken
on record.
Ms. Harjit Kaur remained absent, considering that reasonable opportunities have
already been afforded for making submissions in the matter, I am inclined to proceed
further with the matter, on the basis of merits of the case.

8.

The submissions of the Company, Mr. Vishwanathan Iyer, Mr. Abhay Shukla, Mr.
Akshay Tiwari, Ms. Vijay Laxmi Kathait, Mr. Jitendra Singh Gurjar, Mr. Malvinder
Singh, Mr. Harpreet Singh and Mr. Sukhraj Bahadur Singh, made vide letter dated May
27, 2015, December 10, 2015 and January 15, 2016, in brief are as under:
a. Sukhchain was incorporated on May 15, 1995, with the Registrar of Companies (RoC),
Punjab, Himachal Pradesh and Chandigarh. Thereafter, the registered office of the
Page 4 of 23

Company was shifted to Madhya Pradesh and is now being regulated by RoC, Gwalior.
The Company is an asset finance company and also registered with the Reserve Bank
of India (hereinafter referred to as RBI) as a Non-Banking Financial Company
(hereinafter referred to as NBFC) vide registration number A 06 00514. The
Company is engaged into financing of commercial vehicles, supporting productive/
economic activity. The business model of an NBFC is different from that of a
manufacturing company or a trading company because the main business of an NBFC
is to raise funds from its promoters or investors by private placement and to deploy
such funds by way of loans or investments in the securities.
b. The Company had issued NCDs at different occasions on private placement basis.
Every private placement issue was strictly made in compliance with the provisions of
sub section (3) of Section 67 of Companies Act, 1956 and guidelines and directions
issued by RBI in this regard. RBI vide its circular bearing no. RBI/2013-14/115
DNBS(PD) CC No. 349/03.10.10.001/2013-14 dated July 2, 2013 has clarified
private placement for issuance of NCDs as Private Placement means non public offering of
NCDs by NBFCs to such number of select subscribers and such subscription amounts as may be
specified by the Reserve Bank of India.
c. It is an established position of law that the number of 50 investors is relevant for each
private placement issue and hence aggregate number of investors in more than one
issue can exceed 50 without breaching the limit specified in the first proviso to Section
67(3) of the Companies Act, 1956. In any case, the limit of 50 investors is not
applicable in case of the Company which is an NBFC in view of the second proviso
to Section 67(3).
d. As the Company is an NBFC registered with RBI, its activities are regulated by RBI
pursuant to the RBI Act, 1934 and the guidelines/ circulars issued by RBI from time
to time. The Company has been reporting regularly to RBI about the issue of
debentures in quarterly returns. RBI vide its circular dated June 27, 2013, has issued
certain directions in respect of the issues of NCDs, on private placement basis. The
said RBI circular dated June 27, 2013 provided for the first time restriction on
maximum number of investors to 49 and further stipulated a time gap of at least six
months between two private placements. RBI has however subsequently withdrawn
its directions in respect of six months time gap vide its circular dated July 02, 2013. In
Page 5 of 23

other words, NBFCs can come out with offers for private placement more frequently
to augment their resources for investment or lending.
e. It is clear from the RBI Circulars that RBI is regulating the issuance of securities by
NBFCs under private placement. Being an NBFC, the Company has complied with all
the regulatory requirements prescribed by RBI from time to time. Even the details of
issuance of NCDs were timely informed to RBI and RBI has never raised any query
in respect of issuance of such NCDs.
The limit of 49 persons has now been increased to 200 for the financial year vide RBIs
circular dated February 20, 2015.
f. The Company had made its last NCD allotment on May 20, 2013, i.e. before the RBI
circular dated June 27, 2013 and further, the Company has never made an allotment
of NCDs to fifty or more persons in any one offer even before the restriction of
maximum forty-nine investors was brought into force vide RBI Circular dated June
27, 2013.
g. A company is entitled to come out with private placement issues from time to time
and in such a scenario the aggregate number of investors taken together in all such
issues can exceed 50 without committing any breach of Section 67(3). RBI has also
clarified this position in its circulars while advising the NBFCs to keep minimum space
of six months between two offers of private placement.
The Company had come out with 21 separate series of private placement issues
running from series A to V during the financial years 2010-11, 2011-12, 2012-12 and
2013-14 (till June 18, 2013). All these series of private placement were having less than
50 allottees and the said series also had different issue opening dates as well as
allotment dates. The interim order has proceeded on wrong assumption of law that in
all the 21 separate series of issues made by the Company exceeded fifty persons.
h. Every issue of the Company was subscribed by the persons to whom the offer was
made and the same was not available for subscription/ purchase by persons other than
those receiving the offer/ invitation. The offer was made to particular persons and not
to public at large. Further, the private placement issues were of domestic concern of
the persons making and receiving the offer/ invitation which was made to the friends,
relatives, associates, shareholders and customers of the Company/ Companys
management/ employees.
Page 6 of 23

The top right side corner of the application clearly states Private and Confidential not
for circulation and further the tag line states Private Placement of Flexi Bonds in the
nature of Secured Redeemable Non-Convertible Debentures. Further point no. 1 for
instructions for filing application form clearly provides that: This offer is being made on
private placement basis and cannot be accepted by any other person that to whom it has been offered.
Further, this offer cannot be transferred of renounced. The same shows that the offer was
made to particular person only and not to public at large.
i. The object of procuring the information from an investor as to whether he is an
individual, trust, corporate body, professional, etc. is as per the requirement of
compliance with KYC norms. The space provided for other is for determining the
category/ status of those applicants who may not fall in any of the headings specified
in the form (such as trust corporate body, professional, etc.). The same does not mean
that such persons are from general public or not known to the Company/ its
management. All friends, relatives and associates had to provide their status/
occupation as a part of KYC compliance. The said column had been duly filled in the
application forms by the applicants, wherever applicable.
j. The investors were pre-determined by the Companys management and the invitation
for subscription to the NCDs was made only to such investors. Broadly the procedure
followed by the Company in this regard, was as under:
-

The Company would pre-determine the investors who were known to the
Company, its promoters, management of its employees. Such investors were either
the customers of the Company or the customers of wife/ father of Mr. V. Rajesh
Iyer (CEO and Executive Director of the Company), or friends, relatives or
associates of Mr. V. Rajesh Iyer or his wife/ father or director of the Company, or
friends, relatives or associates of Mr. Abhay Shukla, Executive Director or friends,
relatives or associates of the employees.

The Directors would convene a Board Meeting authorizing the issue of NCDs.
The Company would request an empanelled Business Associate (referred to as
Broker in the interim order) to meet such investor for the purpose of explaining
the features of NCDs and seek his consent for investment. As per the terms of
appointment, the Business Associate was not entitled to approach any other
Page 7 of 23

investor. The relevant clause of the terms and conditions of appointment letter,
read as under :

The Business Associate agrees to carry out such direction and SHPL may from time to time,
issue instructions in this regard. The Business Associate agrees to explain the market risks,
investment risks, investment objectives and the special feature of the Companys scheme to the
investors. In case of issue of securities on private placement basis. SHPL shall provide the list of
persons identified for the said purpose of private placement and Business Associates role shall be
limited to contact such persons and explain to them the terms and conditions of such issue. In case
of public deposit schemes, Business Associate can approach to the public.
All the investors were contacted personally by the Companys management and
no advertisement or circular was issued to the general public.

In the case of private placement it is not mandatory that invitation letters or offer
documents be sent to the proposed allottees. The prospective allottees (who were
friends, relatives and associates) were first contacted by the Companys
management and thereafter given the application form along with the terms and
the conditions of the issue and instructions for filling the application form.
Once the investor has shown his interest in investing in the NCDs issued by the
Company, the Company would deliver the application form for such investor.

k. It is permissible by law to avail the services of a broker in private placement issue and
mere use of such broking services does not convert the private placement into a public
offer. Further, mere engagement of brokers does not convert private placement issue
into a public offer if the proposed allottee to whom the broker contacts falls within
the category of friends, relatives and associates and who can only be allotted the shares
or NCDs. The Company, had availed the service of only 24 business associates which
were also friends/ associates/ relatives of Mr. V. Rajesh Iyer/ Mr. Abhay Shukla/
Companys employees living in vicinity of Bhopal. The brokerage was paid to such
persons for the services rendered to the Company as per the applicable norms.
l. Being the secured NCDs, the Company had duly executed the Trust Deed and charge
was created in favour of independent trustee as per the RBI directions and the same
was registered with the RoC within the stipulated time. The trust deed also specifically
provides that the Debentures have been issued on private placement basis to select
group of person with no right either to renounce or transfer the offer.
m. All the debenture holders are relatives, friends and associates of directors, promoters
and employees of the Company who have vast experience in various financial services
Page 8 of 23

for more than 20 years and enjoy good reputation in the society. Mr. D. Vishwanathan,
father of Mr. V. Rajesh Iyer, CEO and Executive Director of the Company, was a
BHEL employee who after his retirement started working as FD agent for various
companies (including Shriram Group Companies). Being a BHEL employee he knew
many BHEL employees and their relatives. In the same manner, Late Mr. P.R. Shukla,
father of Mr. Abhay Shukla was also an employee of BHEL. Mr. Abhay Shukla had
earlier acted as an agent and in that capacity he had connected many of his fathers
friends, who had invested their money in various organization including LIC, Post
Office, Mutual Funds, GIC and Shriram Group of Companies.
Some of such clients had also invested in the Companys private placement issues of
NCDs. Few investors in the Companys NCDs are also relatives of or closely known
to the employees of the Company. All the NCD holders of the Company are from
Bhopal (except three persons who are from Betul, MP and Mumbai) and of the 234
debenture holders, 155 are ex-BHEL/ BHEL/ relatives of BHEL employees. Even
all the business associates of the Company who contacted the investors are either
family members/ close friends of Mr. V. Rajesh Iyer/ Mr. Abhay Shukla/ employees
of their family members.
n. The NCD holders have business and personal relations with the promoters, directors
and employees of the Company and are in contact with them. Many of the debentures
holders are also the shareholders of the Company. They had shown their interest to
invest in the Debenture Scheme issued by the Company. The Company had offered
them to subscribe to the debentures only after expression of interest by these persons
as per the conditions of the application form.
o. After SEBIs order dated February 11, 2015, the Company had approached the
debenture holders and majority of the debenture holders had provided duly notarized
letters addressed to SEBI, confirming their association with the promoters/ directors.
Out of the total 234 debenture holders, the Company has procured Declaration cum
Confirmation from 228 debenture holders. Out of the remaining 6 debenture holders,
3 have expired, 2 are out of station and 1 is hospitalized. The Company along with its
submission has given details of relationship of each and every NCD holder.
p. As per the interim order, 552 application were received from 425 persons in all the
private placements made by the Company. However, there were only 234 persons for
Page 9 of 23

522 applications, as several of them appearing as investors/ application in the

subsequent private placement issues were repeaters and not the first time investors.
Out of the said 234 investors, 139 persons had invested only once in the debentures
issued by the Company. The remaining 95 investors had invested repeatedly in
different issues of the Company and they have been counted more than once.
q. In a period of about 3 years, very few persons have invested in the debentures schemes
of the Company and the outstanding amount as on March 31, 2015 is `4,93,59,000
payable to only 148 debenture holders.
Every offer of private placement under specific series was approved by the board of
Company. There is no complaint/ document on record to show that the Company
had issued NCDs to the persons to whom the offer was not made. The Companys
board resolution clearly identified its friends, relatives and associates as the proposed
allottees and consequently the allotments were only made to such persons.
r. The communication dated December 12, 2012, received by SEBI from Ministry of
Finance is merely a forwarded copy of anonymous complaint received by a Member
of Parliament and such complaint had no specific allegation against the Company. The
Companys name was mentioned in the anonymous letter by way of general/ passing
reference. The letter dated October 29, 2013, received by SEBI from RoC also did not
make any reference to violation of SEBI Act or Regulations. It simply stated that the
Company had issued secured Debentures 10 times to more than 50 subscribers
collectively on private placement basis. Section 67(3) prohibits subscription of
securities by 50 or more persons in a single issue and not in multiple issues taken
together.
s. The noticees namely Mrs. Vijay Lakshmi Kathait, Mr. Jitendra Singh Gurjar, Mr.
Malwinderwant Singh and Mr. Sukharaj Bahadur Singh were the non-executive
directors who have ceased to be the directors of the Company w.e.f May 15, 2011,
May 15, 2011, September 09, 2011 and September 09, 2011 respectively. Mr. Harpreet
Singh also ceased to act as Director w.e.f. August 19, 2013. These persons should not
be held liable for any alleged breaches of the Companies Act or SEBI Regulations.
t. The business of the Company has badly affected since the date of the interim order.
Due to the restrictions imposed on the Company and its directors, the Company is
not able to source its funds to sustain/ expand its business either from internal sources
Page 10 of 23

or from external sources like banks. The Company has made repayments in respect of
redemption of debentures amounting to `1,62,64,000 from the date of interim order
without corresponding increase in the source of funds. As on December 31, 2015, the
Company has redeemed on the respective redemption dates debentures amounting to
`4,30,01,000 held by 127 debenture holders. As on December 31, 2015, the debentures

amounting to `3,17,60,000 held by 107 debenture holders are outstanding.

u. The NBFCs and the financial institutions including PSUs are issuing securities in order
to meet their business requirements in large number on private placement basis in
accordance with the provisions of the Companies Act and the RBI Act. These financial
institutions are also paying brokerages for mobilizing the subscription to debentures.
The size of the Company and the issue of NCDs, offered by it on private placement
is very meagre as compared to such companies.
9.

Ms. Harjit Kaur vide her letter dated March 24, 2015, submitted as under:
a. She became the director in the Company along with her late husband Mr. Guriqbal
Singh Bhullar (who passed away on November 11, 2011).
b. Due to his serious illness, she had resigned from the Company on January 20, 2010.
c. She was a non-executive director on the board of the Company and had never received
any notice of the board meeting.
d. The collection funds, by any means, by the Company were never brought to her or
her husbands notice.
e. The present directors of the Company have confirmed her non-involvement in the
affairs of the Company since tendering of her resignation i.e. January 20, 2010.
f. Recently,

she came to know that her resignation was filed by the

Company w.e.f. June 20, 2013.

10.

I have considered the interim order, the submissions of the Company and the persons
who have replied and the material available on record. The interim order had observed/
alleged the following:

i. SHPL was incorporated on May 15, 1995 with the ROC, Gwalior with CIN No. as
U65921MP1995PLC024674. SHPL has its Registered Office situated at Plot No.78, 1st
Floor, VM Arcade, M.P. Nagar, Zone-II, Bhopal, Madhya Pradesh-462011.
Page 11 of 23

ii. The Directors of SHPL are Mr. Malwinderwant Singh , Mr. Sukhraj Bahadur Singh, Mrs.

Vijay Laxmi Kathait, Mr. Jitendra Singh Gurjar, Mr. Guriqbal Singh Bhullar, Mr.
Harpreet Singh, Mrs. Harjit Kaur Bhullar, Mr. Abhay Shukla, Mr. Vishwanathan Iyer and
Mr. Akshay Tiwari.
iii. The name of debenture trustee is Mr. Hemant Sahu having address at H No. 105-A, Ravidas
colony, JK Road, Bhopal, Madhya Pradesh-462011.
iv. The details of the schemes as mentioned in the brochure cum application form submitted by
SHPL are as follows:
"Private Placement of Flexi Bonds in the nature of Secured Redeemable Non-Convertible
Debentures (NCDs)
Non Cumulative Scheme
(Minimum Rs. 20000/- and above)
Period
Monthly
Quarterly
Interest
Interest

Cumulative Scheme
(Minimum Rs. 5000/- and above)
Period
Yield

12 months + 1 day
24 months
36 months
48 months
60 months

12 months + 1 day
24 months
36 months
48 months
60 months

10.00%
10.50%
11.50%
11.50%
11.50%

10.00%
10.50%
11.50%
11.50%
11.50%

Double Bond
72 months
11.75%

Rs. 10,000

10.42%
11.50%
13.50%
14.35%
15.26%

Rs. 20,034
"

v. As per the information submitted by SHPL vide letter dated January 16, 2014, SHPL issued
NCDs of face value Rs.1000/- each . The details of the NCDs are as follows:

Year

Issue Opening Allotment DateSerie No. of

Amount No. of No. of Date of Charge
Date
s Debentures
(Rs.)
Applicati Allottee Creation in ROC
ons
s

2010-11 8-Oct-2010
1-Jan-2011
2-Apr-2011
14-May-2011
2011-12 16-Jun-2011
3-Aug-2011
30-Sep-2011
26-Nov-2011
23-Jan-2012
5-Apr-2012
5-Jun-2012
1-Aug-2012
8-Sep-2012
2012-13 20-Oct-2012
21-Nov-2012
22-Dec-2012
20-Jan-2013

31-Dec-2010
31-Mar-2011
30-Apr-2011
15-Jun-2011
30-Jul-2011
15-Sep-2011
15-Nov-2011
16-Jan-2012
19-Mar-2012
15-May-2012
18-Jul-2012
8-Sep-2012
20-Oct-2012
20-Nov-2012
22-Dec-2012
19-Jan-2013
25-Feb-2013

A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q

4517
1395
2550
1132
2440
1958
2610
2565
1855
5016
3795
2931
6915
4040
4880
5478
1170

4517000
1395000
2550000
1132000
2440000
1958000
2610000
2565000
1855000
5016000
3795000
2931000
6915000
4040000
4880000
5478000
1170000

Page 12 of 23

48
20
15
10
24
14
24
27
17
26
26
30
44
21
36
41
9

39
15
11
7
20
14
20
26
13
18
20
24
41
18
25
29
8

02/08/2011
04/11/2011
05/09/2011
07/01/2011
19/08/2011
19/07/2011
30/11/2011
02/10/2012
24/03/2012
21/05/2012
23/07/2012
09/12/2012
22/10/2012
22/11/2012
26/12/2012
19/01/2013
03/04/2013

26-Feb-2013
1-Apr-2013
2013-14 26-Apr-2013
21-May-2013

29-Mar-2013 R
25-Apr-2013 T
20-May-2013 U
18-Jun-2013 V
TOTAL

1915
7840
5529
4230
74761

1915000
12
7840000
18
5529000
30
4230000
30
7,47,61,000 522*

10
15
25
27
425*

29/04/2013
15/05/2013
13/06/2013
NA

* It has been stated by SHPL that 522 applications were received from 425 persons for the
subscription of the said issuance of NCDs.
vi. SHPL has also provided the details of the brokers and brokerage paid as follows:
Period
8-31 Oct.,2010
1-30 Nov., 2010
1-31 Dec. 2010
1-31 Mar. 2011
2-30 Apr. 2011
1-May-15 June 11
16 June-30 July 11
1 Aug.-15 Sept 11
16 Sept- 15Nov 11
16 Nov11-16 Jan 12
17 Jan-19 Mar 12
1Apr-15 May 12
1 June-18 July 12
1 Aug-8 Sept.12
9 Sep.-20 Oct. 12
21 Oct.-20 Nov 12
21 Nov.-22Dec.12
24 Dec.12-19 Jan.13
1-25 Feb.13
1-29 Mar.13
1-25 Apr.13
26 Apr. -20 May 13
21 May-18 June 13

Number of
investors
19
22
7
19
15
10
24
14
24
27
17
26
26
30
44
21
36
41
9
12
18
30
30
521

Amount
1820000
1806000
891000
1295000
2550000
1132000
2440000
1958000
2610000
2565000
1855000
5016000
3795000
2931000
6915000
4040000
4880000
5478000
1170000
1915000
7840000
5529000
4230000
7,46,61,000

Number of Brokerage paid (`)

dealing brokers
3
30950
3
32020
2
12510
3
37600
2
76500
2
30160
4
65400
3
51740
3
74100
4
60090
3
54100
4
142280
5
101750
3
66730
8
191050
6
109800
11
133600
8
139750
3
33100
5
56050
8
223000
7
156010
8
122700
20,00,990

vii. The company has also informed that brokerage has been paid in respect of all the applicants of

the debenture issue except for one who was a direct applicant. It was informed that in the case of
the application of one of the investors, who applied for 100 debentures by depositing Rs.
1,00,000/- received on January 01, 2011, the brokerage was not paid as the investor is the
friend of the director of the company.
viii. SHPL vide its letter dated December 13, 2013 also stated that RBI vide circular dated June
27, 2013 read with circular dated July 02, 2013 has put restriction to issue debentures to 49
persons on private placement basis as against no limit provided under section 67(3) of the
Companies Act, 1956.
...
11.

Having considered the above, it is now necessary to determine whether the Company
had made a public issue as alleged in the interim order and if so, whether the Company
had complied with the public issue norms. The liability of the directors of the
Page 13 of 23

Company also needs to be determined as they have also been alleged in the interim
order. The Company has submitted that it had issued NCDs at different occasions on
private placement basis.
12.

For ascertaining whether an issue of securities is a public issue or done on private

placement basis it is necessary to make a reference to Section 67(3) of the Companies
Act, 1956, which reads as under:
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) ...
(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:
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).
As per Section 67(3) (as amended by the Companies (Amendment) Act, 2000, with
effect from December 13, 2000), no offer or invitation shall be treated as made to the
public by virtue of sub-sections (1) or (2), as the case may be, if the offer or invitation
can properly be regarded, in all 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. In terms of the first proviso to the said section, the provisions of Section
67(3) shall not apply in a case where the offer or invitation to subscribe for shares
or debentures is made to fifty persons or more. Therefore, the number of
subscribers is relevant to decide whether an issue of shares are made for public or
Page 14 of 23

done on a private placement basis, in the light of the above said provision. In view of
the same, if an offer of securities are made to fifty or more persons, it would be deemed
to be a public issue.
Sub section 3 of the Section 67 of the Companies Act and the two provisos thereafter,
are important for the present matter. Under the said section, an offer/ invitation shall
not be treated as made to the public if such offer/ invitation can be regarded in all
circumstances as not being calculated to result, directly or indirectly, in the securities
becoming available for subscription or purchase by persons other than those receiving
the offer or invitation; if the same is a domestic concern of the persons making and
receiving the offer or invitation.
The proviso also states that an offer/ invitation made to more than 49 persons is a
public issue and the NBFCs/ PFIs are exempted only from the applicability of this
proviso to Section 67(3) i.e. the offer/ invitation to more than 49 person will not be a
public issue.
13.

From the above discussion, it can be said that NBFC and PFI do not have any
restriction on the number of allottees as opposed to a Company which is neither an
NBFC nor a PFI, as long as the issue satisfies the provisions of Section 67(3) of the
Companies Act, 1956. NBFCs and PFIs, though as discussed, may be exempted from
the limit of 49 persons, they still require to comply with the clauses (a) and (b) to
Section 67(3) of the Companies Act, 1956. Therefore, in order to take a view that
NBFC or PFI did not make a public issue, it has to be proved that their offer or
invitation did not result, directly or indirectly, in the securities becoming available for
subscription or purchase by persons other than those receiving the offer or invitation
or such offer or invitation was a domestic concern of the persons making and receiving
the offer or invitation. The Hon'ble Supreme Court of India in the matter of Sahara
India Real Estate Corporation Limited & Others Vs. SEBI and another (Civil Appeal Nos.
9813 and 9833 of 2011) (hereinafter referred to as the Sahara case) had observed as
under:
"84. Section 67(1) deals with the offer of shares and debentures to the public and Section 67(2)
deals with invitation to the public to subscribe for shares and debentures and how those
Page 15 of 23

expressions are to be understood, when reference is made to the Act or in the articles of a company.
The emphasis in Section 67(1) and (2) is on the section of the public. Section 67(3) states
that no offer or invitation shall be treated as made to the public, by virtue of subsections (1) and
(2), that is to any section of the public, if the offer or invitation is 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 otherwise as being a domestic concern
of the persons making and receiving the offer or invitations. Section 67(3) is, therefore, an
exception to Sections 67(1) and (2). If the circumstances mentioned in clauses (1) and (b) of
Section 67(3) are satisfied, then the offer/invitation would not be treated as being made to the
public.
85. 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 Sub-section (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. A public company can
escape from the rigor of provisions, if the offer is made by companies mentioned under Section
67(3A), i.e. by public financial institutions specified under Section 4A or by non-banking
financial companies referred to in Section 45I(f) of the Reserve Bank of India Act, 1934.
Following situations, it is generally regarded, as not an offer made to public.
Offer of securities made to less than 50 persons;
Offer made only to the existing shareholders of the company (Right Issue);
Offer made to a particular addressee and be accepted only persons to whom it is addressed;
Offer or invitation being made and it is the domestic concern of those making and receiving
the offer.
86. Resultantly, if an offer of securities is made to fifty or more persons, it would be deemed to
be a public issue, even if it is of domestic concern or proved that the shares or debentures are not
available for subscription or purchase by persons other than those received the offer or
invitation.
14.

In the present case, I note from the interim order that the Company had offered and
allotted NCDs to 425 persons during the financial years 2010-11, 2011-12, 2012-13
and 2013-14 and had raised `7.47 crore. The Company has stated that there were only
234 persons and not 425 as stated in the interim order, as several investors were repeaters
and not the first time investors. Out of the said 234 persons, 139 persons had invested
only once in the NCDs of the Company and the rest 95 investors had invested
repeatedly in different issues of the Company.

15.

The Company in its submissions has also contended that it had issued NCDs on
different occasions on private placement basis and the issues were made in compliance
Page 16 of 23

with the provisions of sub section (3) of Section 67 of Companies Act, 1956 and
guidelines and directions issued by RBI in this regard. From the interim order, it is
observed that the Company had issued NCDs in 21 series i.e. from A to V. The
Company along with its submission has submitted various documents including the
details of debenture holders along with their relationship with the Company, details of
the brokers, copies of resolutions, etc.
However, as discussed earlier, under Section 67(3) of the Companies Act, 1956, an
NBFC may make an offer to more than 49 persons provided it shows that:
a. its offer did not result in the securities being available for subscription to a person who
did not receive the offer or
b. the offer or invitation was a domestic concern of the person making and receiving
such offer, in order to claim that such offer and allotment was done through a private
placement.
16.

The Company had contended that the Ministry of Finance has merely forwarded copy
of the anonymous complaint received by a Member of Parliament and such complaint
had no specific allegation against the Company. The name of the Company was
mentioned in the anonymous letter by way of general/ passing reference. It has also
been said that the letter dated October 29, 2013, received by SEBI from RoC did not
make any reference to the violation of SEBI Act. Such submissions of the Company
may not be of any help as SEBI has conducted a preliminary examination in the matter
and has already passed an interim order explaining the allegations levelled against it.

17.

The Company has further argued that being an NBFC, it has to raise funds from the
promoters or investors by private placement and to deploy such funds by way of loans
or investments in the securities. While proceeding further, it is now necessary to
examine whether the NCD issues of the Company were in terms of clauses (a) and (b)
of Section 67(3) of the Companies Act, 1956.
a. The Company in support of its claim that the issues were on private placement basis,
has submitted the following:

Page 17 of 23

every issue of the Company was subscribed by the persons to whom the offer was
made and the same was not available for subscription/ purchase by persons other
than those receiving the offer/ invitation.

the issues were of domestic concern of the persons making and receiving the
offer/ invitation which was made to the friends, relatives, associates, shareholders
and customers of the Company/ Companys management/ employees.

The Company has contended that its investors were pre-determined and were
contacted personally by the management of the Company and no advertisement/
circular was issued to the general public. The Company has also submitted that it first
pre-determined the investors who were known to the Company, its promoters,
management and its employees. The directors of the Company then convened meeting
authorizing the issue of NCDs on private placement basis and approving the detailed
terms and conditions of the issue. Thereafter, the Company requested an empanelled
Business Associate (broker) to meet such investor for the purpose of explaining the
features of NCDs and seek consent for investment.
b. The Company also contended that the NCD holders are relatives, friends and

associates of directors, promoters and employees of the Company. It has been said
that Mr. D. Vishwanathan, father of Mr. V. Rajesh Iyer, CEO and Executive Director
of the Company, was a BHEL employee who after his retirement had started working
as a FD agent for various companies. In such capacity he knew many BHEL
employees and their relatives. Similarly, father of Mr. Abhay Shukla (director of the
Company), Late Mr. P.R. Shukla was also an employee of BHEL. It has been said that
Mr. Abhay Shukla had earlier acted as an agent and in such capacity he had connected
many of his fathers friends, who had invested their money in various organization.
Some of such investors had also invested in the private placement issues of NCDs of
the Company. Further, it has been said that few investors are the relatives of/ closely
knew to the employees of the Company.
c. The Company in support of its submissions has provided the lists showing the details

of the relationship of each of its investor with the Company/ its management. In
addition to the same, the Company has also submitted the notarized letters from the
Page 18 of 23

debenture holders confirming their association with the promoters/ director/

employees of the Company. I note the submissions of the Company that all the NCD
holders of the Company are from Bhopal (except three persons who are from Betul,
MP and Mumbai) and of the 234 debenture holders, 155 are ex-BHEL/ BHEL/
relatives of BHEL employees.
d. I have perused the lists and letters of investors and note that the Company has

identified its 234 investors. The investors are stated to be either BHEL employees or
family friends of Mr. V. Rajesh Iyer (director), Mr. Abhay Shukla (director), Mr.
Manish Gupta (employee), Mr. Rajeev B. (employee), Mr. Durgesh (employee), Mr.
Rajendra (employee), etc. The Company has also provided the year since when they
knew the investors and submitted the declaration cum confirmation from its investors
confirming thereby that the person who had contacted them and informed about the
proposed NCD issues. The Company has also submitted that there are no investor
complaints, available on record, against the Company.
e. The interim order has also alleged the following against the Company:
ii. from the contents of the brochure cum application form of SHPL that the persons
who could invest in the NCDs are mentioned as Individual, Trust, Agriculture, HUF,
Mutual Fund, partnership, corporate bodies, Financial Institutions, Professional, Business,
Shareholder, others etc. The space provided for Others in the said Application Form
indicates that the applicants were not identified prior to the publication of the Application
Form. SHPL also admitted that except for one investor (who was directly introduced by one
of the directors), the company had paid brokerage in respect of all other applications. The
aforementioned facts clearly indicate that the offer was open to the general public, and not
merely to a specific pre-determined group of persons.
iii. I also note that SHPL has not submitted the copies of invitation letters or offer documents
through which it sought subscription from the pre-determined investors. Thus, SHPL has
not discharged the burden of proof to establish that the offer of secured non-convertible
debentures made by it was a private placement
In reply to the allegation the Company has argued that the space for others as stated
in the application form was for determining the category/ status of applicants who
may not fall in any of the headings as specified in the application form (such as trust,
corporate body, professional, etc.) and the same should not be taken as such persons
are from general public or not known to the Company/ its management. The
Page 19 of 23

Company has also submitted that the said space was duly filled in the application forms
by the applicants, wherever applicable. Having considered the submission of the
Company, I have perused the filled in application form of NCDs on sample basis and
note that the space for others was being as place to specify the occupation of the
applicant. In one of the sample application form the individual has been specified as
student (in the space provided after others), likewise in another application form the
same has been specified as S. Citizen.
f. While proceeding further, I note the observations made in the interim order that except
for one investor (who was directly introduced by one of the directors), the company had paid brokerage
in respect of all other applications. In this regard, the Company has claimed that all the
brokers were known to it (as these were either family members/ close friends of Mr.
V. Rajesh Iyer/ Mr. Abhay Shukla/ employees) and has also provided a list showing
the relationship of each broker with the Company along with the agency form/
documents showing the terms and conditions of appointment of business associate.
The Company has submitted that it requested the broker to meet its investor for the
purpose of explaining the features of NCDs and seek consent for investment. It has
been argued that availing the services of broker in private placement is permissible by
law. I note that the Company has paid a brokerage of `20.01 lakh on an amount of
`7.46 crore. The same amounts to 2.68%.
g. I note that the Company had issued NCDs in different series i.e. series A to V and
such series had different issue opening dates. The Company has submitted that it came
out with 21 separate series of private placement issues i.e. from series A to V during
the financial years 2010-11, 2011-12, 2012-12 and 2013-14 and all these series of
private placement and were having less than 50 allottees. In relation to the same, I have
also perused the minutes of meeting of the Board of Directors of the Company held
on September 03, 2010, wherein the Company had decided to issue debentures. The
relevant portion of the same is as under:
The Chairman informed the Board that the Company needs working capital for its business
expansion and growth. He stated that the Company is an Asset Finance Company and is
eligible to issue Secured Redeemable Non-convertible Debentures on the security of its movable
property as per the Reserve Bank of India Directions. He therefore suggested that the
Page 20 of 23

Company may issue Secured Redeemable Non-convertible Debentures in different series to

the extent of Rs.500 lacs outstanding at any point of time.
I note that pursuant to this meeting, the Board of Directors of the Company in the
meeting held on October 05, 2010, had resolved to issue the first series of the
debentures named as A series under private placement basis to friends, relatives and
associates. Thereafter, in the minutes of meeting dated December 31, 2010, the
Company had allotted 4,517 NCDs in A series to the persons named in the Debenture
Allotment list. The relevant part of the minutes of meeting of the Board of Directors
held on December 31, 2010, is reproduced as under:
RESOLVED THAT allotment of 4517 Secured Redeemable Non-convertible
Debentures of Rs.1000/- each of A Series be allotted to the persons mentioned in the
Debentures Allotment list, as placed before the meeting and initialed by the Chairman for
the purpose of identification, be and is hereby approved.
The said minutes further discussed about the issue of NCDs in B Series. The relevant
portion thereof is as under:
The Chairman informed the board that pursuant to resolution dated September 03, 2010
passed in the meeting of Board of Directors, the company may issue B series Secured
Redeemable Non-Convertible Debentures on private placement basis to friends, relative and
associates. The matter was discussed in detail and following resolution was passed
unanimously.
RESOLVED THAT pursuant to the resolution by the Board for raising of funds by
issue of 50,000 secured redeemable non-convertible debentures, the board may issue second
series of debentures to be named as B series under Private placement basis to friends, relatives
and Associates
I have also perused the other resolutions of offers of NCDs i.e. of series A to V and
note that all the issues were different and separate and independent approvals for each
of it were taken by the Company.
h. From the foregoing discussions, it is observed that the Company had issued series of
NCDs. For all the issues of NCDs, the Company has claimed to have created charge
in favour of an independent trustee and the same was registered with the RoC. The
Company has submitted that every issue of NCDs was subscribed by the persons to
whom the offer was made and the same was not available for subscription/ purchase
by persons other than those receiving the offer/ invitation. In this regard, I have
perused the application form for the issue of NCDs of the Company which states that
Page 21 of 23

the offer is being made on a private placement basis and cannot be accepted by any
person other than those to whom it has been offered. I note that in each of the series
of NCDs, the number of allottees is varying i.e. from 8 - 39.
i. As per the Company, it had reported regularly to RBI, about the issue of debentures
in its quarterly returns. It has been argued that RBI vide its circular dated June 27,
2013, had for the first time provided restriction on the maximum number of investors
to 49 and further stipulated a time gap of at least six months between two private
placements. I note that the Company has issued NCDs till the financial year 2013-14
(the last date of allotment being May 21, 2013). The Company has argued that it has
never made an allotment of NCDs to fifty or more persons in any one offer even
before the restriction of maximum forty-nine investors was brought into force vide
RBI Circular dated June 27, 2013.
18.

Considering the above and the documents available on record, it is difficult to

conclusively hold that the Company had made a public issue of NCDs. In view of the
same, it would be in the interest of justice that the interim order as against the Company
and its directors be revoked.
The above shall not prejudice SEBI from taking action if the information/ lists
submitted by the Company is found to be incorrect or not comprehensive at a later
point of time.

19.

In view of the foregoing, I, in exercise of the powers conferred upon me under Section
19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(1),
11(4), 11A and 11B thereof hereby vacate the interim directions issued vide SEBI order
dated February 11, 2015 against the Company namely Sukhchain Hire Purchase
Limited [PAN: AAGCS6659C], Mr. Malwinderwant Singh [PAN: ALSPS7699N], Mr.
Sukhraj Bahadur Singh [PAN: AQVPS7675N], Ms. Vijay Laxmi Kathait [PAN:
ALLPK5580D], Mr. Jitendra Singh Gurjar [PAN: ALZPG7304F], Mr. Guriqbal Singh
Bhullar [PAN: AAQPB6799M] (now deceased), Mr. Harpreet Singh [PAN:
BCSPS6136G], Ms. Harjit Kaur Bhullar [PAN: AARPB9746R], Mr. Abhay Shukla
[PAN: AQZPS7964C], Mr. Vishwanathan Iyer [PAN: AADPI3574N], Mr. Akshay
Page 22 of 23

Tiwari [PAN: ACNPT2976P] and Mr. Hemant Sahu with immediate effect and
dispose of the show cause notice without any directions.
20.

Copy of this Order shall be served on the stock exchanges and depositories for their
information and necessary action.

DATE : June 07, 2016

PLACE : Mumbai

PRASHANT SARAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

Page 23 of 23