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BEFORE THE ADJUDICATING OFFICER


SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. IVD-ID9/RDB/AO/DRK-AKS/EAD3-565-569 /109-113/2014]
__________________________________________________
UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5(1) OF SECURITIES AND EXCHANGE
BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING
PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
In respect of:
Sl.
No.
No ticees
1
Shri Sunder Lal Dugar - Promoter & Chairman of RDB Rasayans
Ltd.
2
Shri Sandeep Baid - Whole Time Director of RDB Rasayans Ltd.
3
Shri Prabir Kumar Sarkar - Independent Director of RDB
Rasayans Ltd.
4
Shri Sachin Shridhar - Independent Director of RDB Rasayans
Ltd.
5
Shri Mahendra Pratap Singh - Independent Director of RDB
Rasayans Ltd.

FACTS IN BRIEF
1. Securities and Exchange Board of India (hereinafter referred to as SEBI)
conducted an investigation of the Initial Public Offering (hereinafter referred to
as IPO) of RDB Rasayans Ltd. (herein after referred to as RDB) and its
subsequent trading on and around the listing days as the scrip of RDB
witnessed wide fluctuations in the price on Bombay Stock Exchange Ltd.
(hereinafter referred to as BSE). RDB came out with an IPO of 45,00,000
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equity shares of ` 10 per share at an issue price of ` 79 each and the issue
opened on 21.09.2011 and closed on 23.09.2011. The total issue size was
` 35.55 crore and the post issue equity share capital of the company is
1,77,14,800 shares.
APPOINTMENT OF ADJUDICATING OFFICER
2. I was appointed as an Adjudicating Officer under Section 15 I of the
Securities and Exchange Board of India Act, 1992 (hereinafter referred to as
SEBI Act), read with Rule 3 of Securities and Exchange Board of India
(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 1995 (hereinafter referred to as Adjudication Rules) to
inquire into and adjudge under Sections 15 HA and 15 HB of the SEBI Act the
violations of Regulations 57 (1) and (2) read with Schedule VIII Part A (16)
and 60 (4) of SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009 (hereinafter referred to as ICDR Regulations), Sections
12A (a), (b) and (c) of the SEBI Act read with Regulations 3 (a), (b), (c), (d), 4
(1), 4 (2) (a), (d) and (e) of SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003 (hereinafter
referred to as PFUTP Regulations) and Sections 62, 63 and 68 read with
Section 55A of the Companies Act, 1956 hereinafter referred to as
Companies Act) alleged to have been committed by Shri Sunder Lal Dugar,
- Promoter & Chairman of RDB, Shri Prabir Kumar Sarkar, Independent
Director of RDB, Shri Sandeep Baid, Whole Time Director of RDB, Shri
Sachin Shridhar, Independent Director of RDB and Shri Mahendra Pratap
Singh, Independent Director of RDB (hereinafter referred to as noticees)
and the same was communicated vide proceedings of the Whole Time
Member appointing Adjudicating Officer dated 11.05.2013.

3. In addition to the aforesaid I was also appointed as an Adjudicating Officer
under Section 23I of Securities Contracts (Regulation) Act, 1956 (hereinafter
referred to as SC(R) Act) read with Rule 3 of the Securities Contracts
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(Regulation) (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 2005 (hereinafter referred as SC(R) Rules) to
inquire into and adjudge under Section 23A (a) of SC(R) Act for the violation
of Clause 49 of the Listing Agreement read with Section 21 of SC(R) Act
alleged to have been committed by Shri Sandeep Baid, Whole Time Director
of RDB.

SHOW CAUSE NOTICE, HEARING AND REPLY

4. Show Cause Notices No. A&E/EAD3/DRK-AKS/18794/2013, A&E/ EAD3/
DRK-AKS/18764/2013, A&E/EAD3/DRK-AKS/18768/2013, A&E/EAD3/DRK-
AKS/18767/2013 and A&E/EAD3/DRK-AKS/18772/2013 dated 30.07.2013
(herein after referred to as SCN) were served on the noticees in terms of the
provisions of Rule 4 of the SEBI (Procedure for Holding Inquiry and Imposing
Penalties by Adjudicating Officer) Rules, 1995 requiring the noticees to show
cause as to why an inquiry should not be held against the noticees and why
penalty, if any, should not be imposed on the noticees under Sections 15 HA
and 15 HB of the SEBI Act. Further, Shri Sandeep Baid was also required to
show cause as to why an additional inquiry should not be held against him
and why penalty, if any, should not be imposed on him under Section 23A (a)
of SC(R) Act. In the said SCN, it was alleged as follows:
The proposal and approval for passing on the IPO proceeds in the form of an
inter-corporate loan to a group company, RDB Reality and Infrastructure
Limited (hereinafter referred to as RDBRIL) is a material development
relating to the issue. However, it was neither disclosed in the Prospectus of
the company dated September 26, 2011 which was filed with SEBI nor any
advertisement was issued in newspapers as required in terms of ICDR
Regulations.

A part of the IPO proceeds were paid to Axis Bank for repaying the working
capital demand loan (Account number: 911030026045377) (hereinafter
referred to as WCDL) and thereby lowering their liability. This tantamounts to
false disclosure in the Prospectus about the use of proceeds as mentioned in
the RHP and the Prospectus filed with SEBI.

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RDB had failed to fulfill the conditions mentioned in loan agreement entered
into by RDB with Banks for various credit facilities and to that extent deviated
from the disclosure in the Prospectus.

Haldia was witnessing labour problems for past few months which had
clouded the favourable outcome of investment out of IPO proceeds. Hence, it
is alleged that the ensuing labour problem was material information as far as
RDB was concerned because the non availability of labour would have
affected the operations of the company as well as expansion project for which
IPO was meant. Thus, it is alleged that by not disclosing the said material
information, RDB had posed a grave risk to the applicants / investors who had
applied in the IPO.
Part of IPO proceeds was routed in a circuitous manner by RDB to four
trading clients in order to enable them to make payments to their stock broker
on time i.e. as per T+2 settlement mechanism.

5. Further in addition to above with respect to Shri Sandeep Baid it was also
alleged that he being the Whole Time Director of the company had chaired
the Audit Committee meeting held on 07.10.2011 inspite of the presence of
Shri Mahendra Pratap Singh who is an Independent Director which led to the
violation of Clause 49 of the Listing Agreement read with Section 21 of SC(R)
Act.

6. Noticees vide their letters dated 19.08.2013 requested for extension of 15
days to submit a reply to the SCN. In response to the same vide hearing
notice dated 29.08.2013 noticees were advised to submit a reply to the SCN
by 20.09.2013 and attend the hearing on 27.09.2013 at SEBI, Eastern
Regional Office Kolkata at 03:30 pm.

7. Noticees vide their letters dated 28.08.2013 requested for certain documents
in the matter. Vide letter dated 05.09.2013 noticees were provided with the
relevant documents relied upon to issue the SCN.

8. The noticees vide their letters dated 18.09.2013 replied to the SCN as
follows:
a) It has been ignored and overlooked that Independent Directors are not
involved in day to day affairs of the company. In the board meetings,
broad policy decisions are taken and the actual implementation at cutting
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edge level is done by Whole Time Directors along with the other
employees. As an independent director, entity does not monitor on daily
basis the implementation of the decisions or interfere in the same. Majority
of allegations in the Notice fall in the category of instances which formed
part of the implementation process in which entity as an independent
director was not even remotely involved.

b) The thrust of the allegations in the Notice is related to grant of loan of `
31.60 crores by RDB to RDBRIL, wherein adverse inferences have been
drawn based on the perceived financial incapacity of RDBRIL to repay the
loan etc. In this context it may be noted that the repayment of entire loan
of ` 31.60 crores along with 15% interest, by RDBRIL to RDB has
completely demolished the perceived financial incapacity of RDBRIL. The
said issue today has been rendered academic and is of no consequence.

c) Shri Sachin Shridhar did not attend the Audit Committee Meeting held on
October 7, 2011 and also the Board Meeting held on October 7, 2011 as
he was travelling, and therefore adverse interferences drawn against him
based on decisions taken in the said Audit Committee and Board Meeting
cannot sustain.

d) The decision to grant loan to RDBRIL was based on the request of
RDBRIL seeking financial assistance from RDB for its business purposes.
In the past both have been giving and receiving loans from/to each other
on commercial terms in the ordinary course of business. Grant of loan by
companies to its group companies is not unusual and abnormal. Same is
a routine matter.

e) In terms of the resolution passed by the Board, it was not mandatory for
RDB to grant loan to RDBRIL. The grant of loan was contingent on the
availability of surplus funds with RDB, which could be given as demand
loan over a period of time subject to maximum cap of ` 50 crores. Further,
as on September 12, 2011, the pending IPO of RDB was yet to open and
there was no certainty as to whether the public issue of RDB would also
sail through or not.

f) In light of the requirements of Sec 372(A) of the Companies Act 1956,
Notice was issued to the shareholders of RDB on September 12, 2011,
seeking their approval for the grant of demand loan to RDBRIL out of the
surplus funds of RDB from time to time, in the EGM to be convened on
September 28, 2011. Since the AGM of RDB was already scheduled for
September 28, 2011 and the Notices for the same had already been
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issued by RDB, it was decided to convene the EGM also on the same day
in order to avoid inconvenience to the shareholders.

g) It is denied that passing of enabling resolution was a material
development relating to the issue as alleged. It is submitted that the same
also did not require any disclosure, in the Prospectus or by way of any
advertisement in newspapers.

h) Since the IPO proceeds were not immediately required for utilization by
RDB for utilization towards the objects of the issue for the reasons stated
herein before, the said funds were in the nature of surplus with RDB as on
that date. Therefore, in order to avoid keeping the funds idle and also in
light of the request of RDBRIL seeking financial assistance for its business
purposes, the Board, based on the recommendations of the Audit
Committee, decided to temporarily transfer the surplus funds as demand
loan to the group company.

i) The said transfer of IPO proceeds was in consonance with the disclosures
made by RDB to the investors in the Prospectus, wherein, it was inter alia
disclosed as follows :
Pending utilization of Issue proceeds for the purposes described in
the objects of the Issue, we intend to invest the funds in high quality
interest bearing liquid instruments including money market mutual
funds and deposits with the banks for the applicable period

j) At the relevant time the management of RDB also felt, that the markets
have been volatile and investments in mutual funds or market linked
securities could erode the value of the investments and therefore RDB
had thought it fit to advance the funds to its own group company which is
listed company and which has sufficient resources to repay the amount.
Admittedly, the loan was backed by security of mortgage and deposit of
post dated cheques covering the entire loan amount.

k) The Audit committee had given its recommendation vide its meeting held
on 07.10.2011 at 11.00 a.m. for utilizing the idle funds of RDB by inter alia
providing secured loan to its group companies which would be repayable
on demand. Based on the aforesaid recommendation, the management of
the Company held discussions with the management of RDBRIL to
consider the terms & conditions of the loan including the security to be
created by RDBRIL and decided to enter into a loan agreement.

l) Thereafter a draft agreement was prepared but due to unavoidable
circumstances the Board Meeting of RDB could not be held within the
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Banking hours. The management then considered the fact that due to
festive holidays (Durga Pooja) in Kolkata, RDB had already lost interest on
its idle funds and not intending to lose any further interest income decided
to disburse some part of the loan to RDBRIL with the condition that if the
Board RDB has any reservations while signing the loan agreement the
amount of loan disbursed shall be recalled immediately along with interest.

m) Admittedly in the Board meeting of RDB, the Board passed a resolution
inter alia granting demand loan upto ` 40 crores in one or more tranches
to RDBRIL. Therefore, release of funds, prior to the actual Board meeting,
under the circumstances, was at the highest a technical and venial
irregularity and based on the same no adverse inferences can be drawn.

n) Without prejudice to the aforesaid, it is submitted that the details of EGM
were uploaded well within the time limit prescribed in the Companies Act
(i.e. within 30 days from the date of the meeting). Further, RDB has
denied that it had deliberately failed to upload the details of the EGM. RDB
has also denied that there was an attempt to keep the information about
the EGM privy to the Company only as alleged.

o) Noticees have been given to understand by RDB that since the Board
meeting was a routine affair and the decisions taken therein were in the
form of passing enabling resolutions in the ordinary course of business
and not material in nature, therefore the same were not informed to
Chartered Capital and Investment Limited (hereinafter referred to as
CCIL). Further, RDB has denied that it had deliberately not informed
book running lead manager of its Board meeting held on September 12,
2011 and the EGM as alleged.

p) Noticees have been given to understand by RDB that in the prospectus, it
was clearly disclosed that an amount of ` 5.01 crores was ear marked for
General Corporate Purpose (Refer page 21 & 22 of the prospectus
pertaining to the objects of the issue. Same bas been also referred to at
Para 2 of the Notice). As per the prospectus, with regard to General
Corporate Purpose, it was inter alia disclosed as follows:
In accordance with the policies set up by the Board, the company
proposes to retain flexibility in applying issue proceeds for general
corporate purpose including of strengthening of marketing
capabilities, upgradation of infra-structure and working capital

q) In consonance with the said disclosure, pertaining to working capital the
amount was utilized. Therefore, the utilization of amount for the working
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Capital purpose cannot be said to be a violation. Had RDB intended to
repay the working capital loan it could have paid back the entire loan
amount. Therefore, RDB has denied that it had made a false disclosure
with regard to use of issue proceeds as alleged.

r) Noticees have been given to understand by RDB that the alleged breach
of certain terms of agreement with Axis Bank has not affected the
Company or its shareholders. Relationship between RDB and Axis Bank is
continuing and Axis Bank has not shown any grievance on this score. The
alleged innocuous breach of the terms of the agreement cannot result in
allegation of deviation from the disclosures in the Prospectus.

s) RDB had disclosed various risk factors in the Prospectus (Refer Page ix to
xvi of the Prospectus). At Clause 22 it was clearly set out as follows:
Failure to effectively manage labour or failure to ensure availability
of sufficient labour could affect the business operations of the
Company.
There has been a strike in the manufacturing unit for a period from
June 23, 2009 to July 28, 2009 for the wage dispute. The sales and
profitability of the company was adversely affected for these 36
days. Such sort of labour unrest may also arise in future which may
have its effect on the salse and profitability of the company. Also
failure to ensure availability of sufficient labour could affect the
business operations of the company.

t) Since RDB had clearly disclosed under Risk factors regarding labour
problems etc, it cannot be alleged that RDB had not made disclosures
regarding the material information.

u) Noticees have submitted that in so far as alleged diversion/ routing of IPO
proceeds by RDB is concerned, SEBI has no jurisdiction to enquire into or
pass any directions in respect of the same. For the said violation, if any,
only the Central Government has the powers to enquire into the same,
taking recourse to provisions of Sections 235 and 237 of the Companies
Act 1956. Further, even with regard to violation of provisions of
Companies Act 1956 pertaining to alleged non disclosure, the powers are
with Central Government. It may be noted that Section 55A of Companies
Act does not include Sections 235 and 237 of the Companies Act 1956,
the power remains with the Central Government. Therefore, to the said
extent the Show Cause Notice is without jurisdiction.

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v) Further, the onward transmission of funds by RDBRIL is of no concern to
the noticees and noticees had no role to play in the same. Noticees are
not aware about the usage of the fund or further transfer by RDBRIL.
Based on the transfers made by noticees to whom RDBRIL had
transferred the funds, no adverse inferences can be drawn against them.
Admittedly, noticees have no say or control over the acts of other entites.

w) With regard to transfer of ` 13.2 crores to Pyramid Sales Pvt Ltd
(hereinafter referred to as 'Pyramid'), RDBRIL has informed RDB that it
has a long standing business relationship with Pyramid. As on 01/04/2011
RDBRIL owed ` 36.62 crores to Pyramid representing unsecured loans
obtained from them. The parties have regular transactions of payment and
repayments. As on 07/10/2011 balance of unsecured loan in the books
stood at ` 16.94 crores indicating that RDBRIL had paid back ` 19.68
crores to Pyramid during this period. On 7/10/2011 RDBRIL paid an
amount of ` 13.31 crores to Pyramid. Thus the amount of ` 13.31 crores
paid by RDBRIL to Pyramid was in ordinary course of business towards its
outstanding repayment obligations.

x) With regard to transfer of ` 9.15 crores to Namokar Duplicating Pvt Ltd,
(hereinafter referred to as 'Namokar') RDBRIL has informed RDB that
during February, 2010 Namokar had entered into an agreement with
RDBRIL to acquire 1,35,000 sq. ft. of space at an approximate cost of `
20.25 crores in Regent Paradise- a real estate project undertaken by it in
Guwahati, Assam. In terms of the agreement Namokar paid an advance of
` 11.90 crores during the period 20/02/2010 to 07/07/2010. Subsequently,
due to certain delays in commencement of project and unsatisfactory
progress of work compared to the timeline outlined in the agreement,
Namokar expressed its desire to opt out from the project. RDBRIL
accepted Namokar's proposal to opt out and both the parties entered into
another agreement dated 09/07/2010 which cancelled the earlier
agreement. Pursuant to the said agreement, RDBRIL started repayment of
advance received from Namokar from 17/08/2010 and made payments of
` 2.75 crores till November 2010 leaving a balance of ` 9.15 crores.
The aforesaid amout of ` 9.15 crores was finally repaid by RDBRIL to
Namokar on October 7, 2011. Thus the amount of ` 9.15 crores paid by
RDBRIL to Namokar was in ordinary course of business towards its
outstanding repayment obligations.

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y) The Independent Directors have submitted that they have already suffered
debarment for 9 months and have undergone enormous reputational and
financial adversity.

z) Reply of Shri Sandeep Baid wrt SCRA - Since Sachin Sridhar,
Independent Director and Chairman of Audit Committee was on leave, it
was in these circumstances the meeting was chaired by him on the bona
fide belief that he can chair the meeting.
9. Noticees vide their letter dated 23.09.2013 authorized Shri Vinay Chauhan,
Advocate (herein after referred to as 'AR') to appear on their behalf. Along
with the AR, Shri Prabir Kumar Sarkar, Shri Sandeep Baid, and Shri Sachin
Shridhar also attended the hearing. At the time of hearing the noticees,
namely Shri Prabir Kumar Sarkar, Shri Sandeep Baid, and Shri Sachin
Shridhar, denied all the allegations made in the SCN and reiterated their
submissions made in their reply dated 18.09.2013. Shri Sachin Shridhar
stated that he has resigned from the company as an Independent Director
since May, 2013. The noticees stated that the entire IPO proceeds came back
within 3 months and is lying in an escrow account. The AR submitted that the
Board resolution to grant loan to RDBRIL was only an enabling resolution and
not a material fact therefore, the Board Meeting held on 12.09.2011 was not
disclosed to CCIL, Book Running Lead Manager. Further, the AR submitted
that omission to mention about the aforesaid Board Meeting to CCIL was a
technical lapse. The AR submitted that the loan given to RDBRIL was backed
by security of mortgage and deposit of post dated cheques covering the entire
loan amount. Regarding separate filing of AGM and EGM held on 28.09.2011
on the RoC website, the noticees submitted that they had one month time to
file it and they have complied within the said timeline. Shri Sandeep Baid,
Whole Time Director submitted that he chaired the Audit Committee meeting
by mistake without being aware of the relevant provision. Regarding labour
unrest in Haldia, the AR has submitted that the company had made a general
disclosure regarding the same in the Prospectus. The unit is situated in
Haldia. The AR submitted that RDB had given loan to RDBRIL which in turn
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used the said amount to repay the loan taken from Namokar and Pyramid.
Further, the AR submitted that noticees have no purview over the aforesaid
entities to whom they further transfer the money. The noticees undertook to
submit a clarification regarding transfer of ` 6 Crore as working capital
demand loan to Axis Bank instead of ` 1.9 Crore as submitted by them.
Noticees also undertook to submit supporting documents for their
transactions with Namokar and Pyramid and clarification with respect to the
validity of the quotations of 2009 for plant and machinery as disclosed in the
Prospectus. The AR undertook to submit additional reply, if any within 14
days from the date of hearing.
10. Noticees vide their letters dated 25.09.2013 had applied for consent which
was subsequently withdrawn by them vide their letters dated 10.01.2014.
11. Noticees in their additional submissions vide their letters dated 21.11.2013,
22.11.2013 and 29.11.2013 have reiterated their earlier submissions made in
their reply dated 18.09.2013 and have further submitted as follows:
In support of the submission that RDBRIL was not a financially weak
company as alleged in the notice, it may be noted that RDBRIL was earlier a
part of RDB Industries and from 01/04/2010 it was demerged into a separate
company sometime after. Noticees have submitted the details of Turnover,
Net Profit & Dividend declared over the years, the details of financial
information of RDBRIL from 2009-10 to 2012-13, the status of Government
contracts being undertaken by RDBRIL, the details of projects completed by
RDBIL and the details of enlistment of RDBRIL for Government Contracts.
The aforesaid details would further reinforce and fortify noticees submission
that ability of RDBRIL to repay the loan advanced was never in doubt and
was a certainty. Even the subsequent events as have transpired, wherein
RDBRIL has repaid the entire loan amount with interest, support the same.

Noticees have submitted a copy of the agreement dated 09.07.2010 entered
between Namokar and a copy of ledger statement maintained by RDBRIL
evidencing the payment. Further, noticees have also submitted a copy of
ledger statement maintained by RDBRIL evidencing the payment made to
Pyramid. A copy of Chartered Accountant, M/s M.K. Surana & Co. certifying
the details of loans outstanding as on 01/04/2011 and 07/10/2011 repayable
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by RDBRIL to Pyramid has also been submitted by the noticees. From the
aforesaid it is clear that the transfer of funds by RDBRIL was in the ordinary
course of business and the same had no nexus with the alleged funding of
the clients who traded in the shares of the company.

With regard to WCDL noticees submitted that the company enjoys total credit
facility of ` 12 cores which is operated through Cash Credit Account (herein
after referred to as 'CC'). Bank has sanctioned the use of this facility for
Working Capital, Export Packing Credit, and Foreign Bill Discounting etc with
interchangeable limits for each type but within the overall limit of ` 12 crores.
It is submitted that WCDL of ` 6.00 crores is not additional credit facility but
part of the overall sanctioned limit of ` 12 crores. Bank Maintains a separate
account to record the drawing of Working Capital to facilitate interest
computation at a rate which is different from Cash Credit rate. At any given
point of time drawing in WCDL account and CC account are added together
to arrive at overall actual drawing to ensure that the same is within the
sanctioned limit. Allegation by SEBI that IPO proceeds were utilized is totally
misconceived. Point to be seen is whether the CC account utilization, on the
date of retransfer of WCDL outstanding amount to CC account, was within
overall limit of ` 12 crores or not. It is submitted that it was well within the
limit. It may be seen from the bank statement that on 7.10.2011 utilization in
CC account was ` 33,936,381.53 and WCDL account ` 60,000,000/-. If
transfer of ` 9.90 crores on 8.10.2011 out of IPO proceeds is not considered,
it can be observed that CC account utilization, even after transfer of ` 6.00
crores on 10.10.2011 from WCDL account would have been ` 98,221,786.53
well below the overall sanctioned credit limit. This proves that WCDL was
paid out of CC Limit. Therefore it cannot be alleged that IPO proceeds were
used to repay WCDL.

12. Vide our letter dated 11.03.2014 certain clarifications / documents regarding
transfer of amount as WCDL to Axis Bank were sought from the noticees.
Noticees vide their letter dated 25.03.2014 submitted the requisite
information.
CONSIDERATION OF EVIDENCE AND FINDINGS

13. I have taken into consideration the facts and circumstances of the case and
the material made available on record.

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14. The first allegation against the noticees is that RDB had failed to disclose in
the Prospectus regarding the proposal and approval for passing on the IPO
proceeds in the form of an inter-corporate loan to a group company. It is
observed from the IR that RDB had passed an enabling resolution in its Board
Meeting held on September 12, 2011 to grant some of its surplus funds by
way of loans to RDBRIL, a listed company upto the extent of ` 50 Crore for
the business purpose, the same being repayable on demand. Since the
providing of the said loan to RDBRIL would require approval from
shareholders, the Board resolved to give notice for convening Extra-Ordinary
General Meeting of the company on September 28, 2011 (hereinafter referred
to as the EGM). The Board further resolved to obtain the approval of the
members for holding the meeting at less than 21 days notice as required by
Section 171 (2) of the Companies Act. In the EGM, the consent of the
shareholders was accorded to the Board of the company for the same.

15. It is further observed from the IR that the company / Board had deliberately
reduced the notice period for EGM to 15 days because had the notice period
been 21 days as stipulated under Section 171 (1) of Companies Act, the EGM
date would have fallen on October 3, 2011. Hence, the date of EGM would
have been after the date of finalization of the basis of allotment (September
29, 2011) and also after the date of Board Meeting where it was resolved to
effect delivery of 45 lakh shares to the respective beneficiaries accounts of
the successful allottees under the IPO of the company (September 30, 2011).
In that case the company would have had to take approval from the public
shareholders through postal ballot while pre IPO as per the Prospectus, the
total number of members of RDB were 10 and in the EGM held on
28.09.2011, 5 members attended.

16. Noticees submission that RDB had reduced the time period in order to avoid
inconvenience to the shareholders cannot be fully appreciated as in the given
facts and circumstances of the case it would have been difficult for RDB to
get the approval for the same from a large number of public shareholders as
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RDB wanted to transfer almost 90% of the Issue size to its group company
and the same was also different from the objects of the issue. In other words,
RDB had not disclosed in its Prospectus that the issue proceeds would be
substantially utilised to give loan to its group company. Moreover, question of
inconvenience to the shareholders does not arise as they were required to
vote through postal ballot.

17. The aforementioned finding is substantiated by the fact that the Registrar of
Companies (hereinafter referred to as RoC) filing by RDB for the AGM held
on 28.09.2011 was done on the same date while RoC filing by RDB for the
EGM held on the same date (28.09.2011) for according the consent of
shareholders to give some of the surplus funds of the company in the form of
loan to RDBRIL was done on 19.10.2011. No plausible reason for filing of the
same forms on different dates (within a gap of 3 weeks) for the meetings held
on the same date has been given by the noticees except submitting that the
details of EGM were uploaded well within the time limit prescribed in the
Companies Act. It is also observed from the IR that RDB had not informed
book running lead manager, CCIL of its Board meeting held on September
12, 2011 and the EGM. It clearly shows an attempt on the part of the
company to keep the information about EGM privy to the company and its pre
IPO members only.

18. Further, it is observed from the IR that prior to the IPO, RDB had a paid up
share capital of ` 13.21 crore and reserves of ` 4.66 crore as per annual
audited balance sheet as on March 31, 2011. The profits of RDB during the
past 5 years were in the range of ` 78 lakh and ` 1.8 crore only. The amount
of loan proposed to be given to RDBRIL was three times the net worth of
RDB (` 17.8 crore). Thus it is clear that the surplus funds to an extent of ` 50
crores which was referred to in the explanatory statement to the EGM notice
dated September 12, 2011 was in fact indirectly a reference to the IPO
proceeds which were to be received by RDB.

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19. The submission of the noticees that the grant of loan was contingent on the
availability of surplus funds with RDB is not sound as noticees have failed to
explain the source given the amount of reserves and surplus of RDB for
financial years ending March 2010 and 2011 was ` 2.8 crore and ` 4.6 crore
only respectively.

20. Thus from the above it can be concluded that the noticees have suppressed /
withheld / failed to make material disclosure in the Prospectus regarding the
proposal and approval for passing on / granting the IPO proceeds in the form
of inter-corporate loan to RDBRIL. Thus the investing public was deprived of
this very important disclosure / fact while arriving at the decision whether to
invest in the IPO of RDB or not.

21. The second allegation in the matter is that RDB has not only violated the
statements made in the Prospectus but also mis-utilized the IPO proceeds by
giving away the entire IPO proceeds as loan to RDBRIL.

22. It is observed from the Prospectus that pending utilisation, the issue
proceeds would be invested in high quality interest bearing liquid instruments
including money market mutual funds and deposits with banks. Also in the
Prospectus it is stated that other than the Related Party Transactions
disclosed in the Prospectus no other transactions are intended. However, it is
observed from the IR that the company had transferred almost 90% of the
IPO proceeds to RDBRIL as interest bearing loan (15% p.a) repayable on
demand.

23. Noticees submission that RDBRIL was not a financially weak company is not
acceptable because as per the agreement between RDB and RDBRIL, the
annual interest on the loan given by RDB to RDBRIL on an amount of ` 31.60
crore works out to ` 4.65 crore. It is seen that as per the audited balance
sheet, RDBRIL had made the profit after tax on a standalone basis of ` 6.13
crore during the year ended March 31, 2011 (audited) and ` 1.14 crore during
the year quarter ended June 30, 2011(unaudited). Also, the cash flows for the
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company for the year 2010-11 were negative. It is also observed from the
Prospectus that profit after tax for RDBRIL for the financial years ending
March 2008 and 2009 was negative while for March 2010 it was only ` 5.02
Lakh. Thus, it is clear that the capacity of RDBRIL to pay the annual interest,
let alone repay the principal is doubtful.

24. Moreover as observed from the Register of Inter Corporate Loan maintained
under Section 372A of Companies Act by RDB that it had given ` 7.28 crore
as an Inter Corporate loan to RDBRIL in five different instances starting from
April 16, 2011 till October 01, 2011 at an interest rate of 15% per annum.
However, RDB had received only ` 1.18 crore without any interest component
till October 01, 2011. In addition to it, the aforementioned submission that
RDBRIL was not in a sound financial health is evidenced from the fact that
RDBRIL had taken unsecured loans from various other parties to the tune of
` 6.5 crore during the period May 05, 2011 to May 11, 2011 which were to be
repaid in 120 days. However, RDBRIL had not repaid any of these loans by
due date but had requested the lenders in the last week of August to further
extend the repayment by 90 days. Subsequently, as observed from the bank
statements of RDB and RDBRIL, RDB had transferred ` 7.5 crore out of the
IPO proceeds to RDBRIL in their Axis Bank account on October 12, 2011 so
as to enable RDBRIL to pay off its debts / loan. Out of these transferred
funds, ` 6.5 crore was used by RDBRIL to repay the debts.

25. Noticees submission that the loan was backed by security of mortgage and
deposit of post dated cheques covering the entire loan amount is not
acceptable as they do not classify as liquid instruments. A liquid instrument is
generally one which can be converted into cash quickly with minimal impact
on the price. Examples include cash and cash equivalents like deposits in the
bank, highly liquid scrips and also money market mutual funds. RDB in its
Prospectus at page 26 had stated that "Pending utilisation of the Issue
proceeds for the purposes described above, we intend to invest the funds in
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high quality interest bearing liquid instruments including money market mutual
funds and deposits with the banks for the applicable period."

26. Hence from the above discussions, it can be concluded that the loan given to
RDBRIL cannot be considered as a high quality interest bearing instrument
comparable to money market mutual funds and deposits with the Bank as
was disclosed to the public in the Prospectus. Thus, the noticees have misled
the investing public and had put their money and their interests in jeopardy.
Therefore, RDB not only violated the statements made in the Prospectus but
also mis-utilized the IPO proceeds. Further, it is observed from the IR that the
company had transferred the funds / utilized the IPO proceeds even before
obtaining Board approval and also even before entering into a valid loan
agreement.

27. From the above, it can also be concluded that RDB has made false
declaration in the Prospectus wherein it has stated that other than the Related
Party Transactions disclosed in the Prospectus no other transactions are
intended while as discussed above RDB had transferred ` 7.28 crore as an
Inter Corporate loan to RDBRIL in five different instances starting from April
16, 2011 till October 01, 2011.

28. Further it is seen from para 11 on page xii and page 56 of RHP dated
September 13, 2011 and Prospectus dated September 26, 2011 that as per
the terms of loan agreement entered into by RDB with Banks for various
credit facilities, RDB was not allowed to ''invest by way of share capital in or
lend or advance funds to or place deposits with any other concern. Normal
trade credit or security deposits in the usual course of business or advance to
employees, are, however, not covered by this covenant''. From the IR it is
observed that a confirmation in this regard was taken from Axis Bank on
whether RDB had obtained prior permission from them for giving loan of
` 31.60 crore to RDBRIL. Axis Bank vide its email dated March 20, 2012
informed SEBI that ''as confirmed by our Corporate Banking Branch, Kolkata,
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we have not issued any confirmation / NOC -RDB Rasayans Ltd. for giving
inter corporate loan''. Thus, RDB had failed to fulfill the conditions mentioned
in loan agreement and to that extent deviated from the disclosure made in the
Prospectus.

29. The third allegation in the matter is that whether part of IPO proceeds were
paid to Axis Bank for repaying the WCDL. The noticees have submitted a
letter dated 15.03.2014 from the Axis Bank Ltd., Kolkata wherein the bank
has stated that "company has not used the IPO proceeds to pay WCDL limit
rather WCDL outstanding was paid by curving out of the CC limit". In view of
the same the third allegation against the noticees could not be established.

30. Regarding non disclosure about labour unrest in the Haldia Industrial belt in
the Prospectus, it is observed that although labour unrest in Haldia Industrial
belt has not been specifically mentioned but as seen from page xiv of the
Prospectus under the heading risk factors, past labour unrest in the
company has not only been highlighted but it also mentions the possibility of
its future occurrence and have categorically informed the investors about
its impact on business, financial condition and results of operations.

31. Further, SEBIs affidavit-in-opposition dated June 15, 2012 filed in the writ
petition with Honble High Court of Calcutta states that:
I only say that political situation and labour problem at Haldia have no
bearing in this case. I deny that there has been any significant change of
labour problem in Haldia. The Allegations regarding labour problem and
political situation are all vague..

32. Hence noticees submision with respect to labour unrest in the Haldia
Industrial belt is acceptable.

33. Shri Sunder Lal Dugar being the Promoter and Chairman of RDB is expected
to act as the company's leading representative which will involve the
presentation of the company's aims and policies to the outside world more so
his role is to promote effective communication on developments occurring in
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the Board meetings. Additionally, one of the primary duties of the Chairman is
to establish / set the agendas of all Board meetings in coordination with CEO
/ Managing Director. He is responsible for ensuring that the Board as a whole
plays a full and constructive part in the development and determination of the
companys strategy and overall commercial objectives. Thus, from the above
it can be concluded that Shri Sunder Lal Dugar being the Chairman of the
company was instrumental in granting loan to the extent of ` 50 crore to
RDBRIL and had suppressed / withheld / failed to make this material
disclosure in the Prospectus.
34. Shri Sandeep Baid being the Whole Time Director of RDB is prima facie
deemed to be in charge and responsible for the conduct of business and
management of the company and his duty and responsibility are expected to
be of high order. He is responsible for all the acts and omissions of the
company. At this juncture I would like to quote the order of Hon'ble Securities
Appellate Tribunal in Shri N. Narayanan Vs. SEBI decided on 05.10.2012
wherein it was held that:
"...The role of a whole time director is very significant and material in running
day to day affairs of a company. His role and responsibility are equivalent to
that of a managing director in as much as he is expected to spend his whole
time in the management of the company. This implies a high level of
accountability and knowledge of the overall functioning of the company..."

35. From the above discussions and Order of the Hon'ble SAT it can further be
concluded that Shri Sandeep Baid is also liable for suppressing / withholding /
failing to make the material disclosure regarding granting of loan to the extent
of ` 50 crore to RDBRIL which is a group company in the Prospectus for the
investors to take an informed decision.
36. Shri Sachin Sridhar, Shri Mahendra Pratap Singh and Shri Prabir Kumar
Sarkar submission that they were Independent Directors and are not
responsible for day to day functioning of the company is difficult to accept as
they are signatory to the Prospectus and are responsible for any
misstatement and false declaration in the Prospectus. In the Declaration
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towards the end of Prospectus at page 265 it has been categorically stated
that "... We, the directors of the Company declare and confirm that all
statements in this Prospectus are true & correct. We, the directors of the
Company declare and confirm that no information / material likely to have a
bearing on the decision of the investors in respect of the equity shares offered
in terms of the Prospectus has been suppressed/withheld and/or incorporated
in the manner that would amount to misstatement/misrepresentation..."
Further it is seen from the Board minutes dated 12.09.2011 that all the 3
aforementioned Directors attended / were present when the decision to grant
inter corporate loan upto the extent of ` 50 crore to RDBRIL was taken.
Therefore, they had the knowledge / were aware of the decisions and hence
their plea does not have merit. Further, they have not shown / submitted any
documentary proof to establish that they have exercised due diligence to
prevent the suppression / omission of the material fact from the Prospectus.

37. It may also be added that the issue at hand is not day to day functioning of
the company but suppressing / withholding / failing to make material
disclosure in the Prospectus.

38. At this juncture I would like to quote the order of Hon'ble Securities Appellate
Tribunal in Shri N. Narayanan Vs. SEBI decided on 05.10.2012 wherein it
was held that:
"...The director of a company is expected to exercise due care and diligence
in the approval of documents brought on the table during Board meetings. It is
the responsibility of a director to identify deficiencies wherever possible by
employing verification and scrutiny expected of a prudent man. Meetings of
Board of Directors are not rituals where documents are signed at the behest
of the chairman or managing director. A director cannot take a stand that he
has approved the documents totally depending on the integrity and expertise
of the managing director. We are not observing that the director of a company
should be a know all, but the duty expected of a prudent person cannot be
abdicated by him...

... With the changing scenario in the corporate world the concept of corporate
responsibilities is also rapidly changing day by day. The director of a
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company cannot confine himself to lending his name to the company but
taking light responsibility for its day to day management. While functions may
be delegated to professionals, the duty of care, diligence, verification of
critical points by directors cannot be abdicated. The directors are expected to
have a hands on approach in the running of the company and take up
responsibility not only for the achievements of the company but also the
failings thereto..."

39. In my opinion an Independent Director in order to safeguard the interests of
the investors / shareholders is expected to participate actively and
constructively in the deliberations of Board Meetings and has to ensure that
adequate deliberations are held in the matters which concerns the running of
the company. In the given situation the aforementioned 3 Independent
Directors overlooked numerous red flags viz., the low profits and reserves of
RDB, not so good track record of RDBRIL in paying back the loans taken
from other parties and RDB, RDBRIL's negative cash flows, RDBRIL's
negative profit after tax for the years March 2008 and 2009. Such financial
figures would alert any person of ordinary prudence more so for Independent
Directors who are part of the Audit Committee also (Shri Sachin Sridhar and
Shri Mahendra Pratap Singh are part of the Audit Committee). The duty of
care calls upon the Independent Directors to exercise reasonable care,
diligence and skill reasonably expected from a Director in such a position.
The corporate governance structure hinges on Independent Directors who are
supposed to promote transparency in corporate governance and enhance the
protection of interests of investors. Independent Directors are expected to
maintain an effective vigil mechanism which entails them to enhance their
monitoring of the management and Promoters for protecting the interests of
the shareholders. In the present matter although the Independent Directors
were in the knowledge of / aware about RDB's plan to grant a loan to the
extent of ` 50 crore to RDBRIL which is a group company, suppressed /
withheld / failed to make this material disclosure in the Prospectus for the
investors to take an informed decision.

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40. Over here I would like to quote the observations of Hon'ble Supreme Court of
India in the matter of Shri N. Narayanan Vs. SEBI decided on 26.04.2013
wherein it was observed as follows:
"... Company though a legal entity cannot act by itself, it can act only through
its Directors. They are expected to exercise their power on behalf of the
company with utmost care, skill and diligence. This Court while describing
what is the duty of a Director of a company held in Official Liquidator v. P.A.
Tendolkar (1973) 1 SCC 602 that a Director may be shown to be placed and
to have been so closely and so long associated personally with the
management of the company that he will be deemed to be not merely
cognizant of but liable for fraud in the conduct of business of the company
even though no specific act of dishonesty is provide against him personally.
He cannot shut his eyes to what must be obvious to everyone who examines
the affairs of the company even superficially....

A word of caution:
SEBI, the market regulator, has to deal sternly with companies and their
Directors indulging in manipulative and deceptive devices, insider trading etc.
or else they will be failing in their duty to promote orderly and healthy growth
of the Securities market. Economic offence, people of this country should
know, is a serious crime which, if not properly dealt with, as it should be, will
affect not only countrys economic growth, but also slow the inflow of foreign
investment by genuine investors and also casts a slur on Indias securities
market. Message should go that our country will not tolerate market abuse
and that we are governed by the Rule of Law. Fraud, deceit, artificiality,
SEBI should ensure, have no place in the securities market of this country
and market security is our motto. People with power and money and in
management of the companies, unfortunately often command more respect in
our society than the subscribers and investors in their companies. Companies
are thriving with investors contributions but they are a divided lot. SEBI has,
therefore, a duty to protect investors, individual and collective, against
opportunistic behavior of Directors and Insiders of the listed companies so as
to safeguard markets integrity..."

41. In view of the above it can be concluded that the noticees have violated
Regulation 57 (1) and (2) (a) read with Schedule VIII Part A (16) (b) and 60
(4) of ICDR Regulations and Sections 12A (a), (b) and (c) of the SEBI Act
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read with Regulations 3 (a), (b), (c), (d) of PFUTP Regulations. The text of the
said provisions are reproduced below:
ICDR Regulations

Manner of disclosures in the offer document.

57. (1) The offer document shall contain all material disclosures which are true
and adequate so as to enable the applicants to take an informed investment
decision.

(2) Without prejudice to the generality of sub-regulation (1):

(a) the red-herring prospectus, shelf prospectus and prospectus shall contain:

(i) the disclosures specified in Schedule II of the Companies Act, 1956; and
(ii) the disclosures specified in Part A of Schedule VIII, subject to the
provisions of Parts B and C thereof.

Schedule VIII
Part A

(16) Unsecured loans:

(b) Break-up of the total outstanding unsecured loans taken from the issuer by
the promoters, group companies, related parties, material associate companies
and others shall be disclosed.

60 (4) The issuer shall make prompt, true and fair disclosure of all material
developments which take place during the following period mentioned in this sub-
regulation, relating to its business and securities and also relating to the business
and securities of its subsidiaries, group companies, etc., which may have a
material effect on the issuer, by issuing public notices in all the newspapers in
which the issuer had issued pre-issue advertisement under regulation 47 or
regulation 55, as the case may be:

(a) in case of public issue, between the date of registering final prospectus or the
red herring prospectus, as the case may be, with the Registrar of Companies,
and the date of allotment of specified securities;

SEBI Act

Prohibition of manipulative and deceptive devices, insider trading and
substantial acquisition of securities or control.

12A. No person shall directly or indirectly
(a) use or employ, in connection with the issue, purchase or sale of any
securities listed or proposed to be listed on a recognized stock exchange, any
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manipulative or deceptive device or contrivance in contravention of the
provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or
dealing in securities which are listed or proposed to be listed on a recognised
stock exchange;

(c) engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person, in connection with the issue,
dealing in securities which are listed or proposed to be listed on a recognised
stock exchange, in contravention of the provisions of this Act or the rules or
the regulations made thereunder;

PFUTP Regulations
3. Prohibition of certain dealings in securities
No person shall directly or indirectly

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security
listed or proposed to be listed in a recognized stock exchange, any
manipulative or deceptive device or contrivance in contravention of the
provisions of the Act or the rules or the regulations made there under;

(c) employ any device, scheme or artifice to defraud in connection with dealing
in or issue of securities which are listed or proposed to be listed on a
recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would
operate as fraud or deceit upon any person in connection with any dealing in
or issue of securities which are listed or proposed to be listed on a
recognized stock exchange in contravention of the provisions of the Act or the
rules and the regulations made there under.

42. However, the violation of Regulation 57(2)(b) is not applicable as it relates to
a listed issuer making a rights issue. Schedule VIII Part A (16) (a) and (c) are
also not applicable as it relates to unsecured loans taken by the issuer.
Sections 62, 63 and 68 read with Section 55A of the Companies Act is not
applicable in the present matter as it is in the domain of Central Government.

43. Over here I would like to quote the order of Hon'ble Supreme Court of India's
decision in the matter of Sahara India Real Estate Corporation Ltd. & Others
Vs. SEBI decided on 31.08.2012 wherein the Hon'ble Court has observed as
follows:
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"..The main part of Section 55A confers jurisdiction on SEBI with regard to
three categories i.e. issue of securities, transfer of securities and non-
payment of dividend. The expression all other matters mentioned in the
explanation would refer to powers other than the above mentioned
categories. Further, it may also be remembered that the explanation does not
take away the powers conferred on SEBI by other sections of the Companies
Act. At the same time, matters relating to prospectus, statement in lieu of
prospectus, return of allotment, issue of shares and redemption of
irredeemable preference shares be exercised by the Central Government,
Tribunal, Company Law Board, Registrars of Companies, as the case may
be..

..We, therefore, hold that, so far as the provisions enumerated in the opening
portion of Section 55A of the Companies Act, so far as they relate to issue
and transfer of securities and non-payment of dividend is concerned, SEBI
has the power to administer in the case of listed public companies and in the
case of those public companies which intend to get their securities listed on a
recognized stock exchange in India. In any other case, i.e. rest of the matters,
that is excluding matters relating to issue and transfer of securities and non-
payment of dividend be administered by the Central Government in the case
of listed public companies and those companies which intend to get their
securities listed on any recognized stock exchange in India. Explanation to
that section further clarifies the position so as to remove doubts, saying all
powers relating to other matters including the matters relating to prospectus,
statement in lieu of prospectus, return of allotment, issue of shares and
redemption of irredeemable preference shares, should be exercised by the
Central Government, Tribunal or the Registrar of Companies, as the case
may be. Section 55A, therefore, makes it clear that SEBI has the power to
administer the above mentioned select provisions of the Companies Act
relating to matters specified therein.."

44. The said violations as discussed in pre paras attract penalty under Sections
15HA and 15HB of the SEBI Act. The text of the said provisions are
reproduced below:
SEBI Act, 1992

15HA. Penalty for fraudulent and unfair trade practices.- If any person
indulges in fraudulent and unfair trade practices relating to securities, he shall be
liable to a penalty of twenty-five crore rupees or three times the amount of profits
made out of such practices, whichever is higher.

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15HB. Penalty for contravention where no separate penalty has been
provided. Whoever fails to comply with any provision of this Act, the rules or the
regulations made or directions issued by the Board thereunder for which no
separate penalty has been provided, shall be liable to a penalty which may
extend to one crore rupees.
45. In this regard, the provisions of Section 15J of the SEBI Act read with Rule 5
of the Rules requires that while adjudging the quantum of penalty, the
adjudicating officer shall have due regard to the following factors namely;
a. the amount of disproportionate gain or unfair advantage wherever
quantifiable, made as a result of the default
b. the amount of loss caused to an investor or group of investors as a
result of the default
c. the repetitive nature of the default

46. With regard to the above factors to be considered while determining the
quantum of penalty, it is observed that IR has not quantified the profit / loss
for the nature of violations committed by the noticees. It may be added that it
is difficult to quantify the profit/ loss for the nature of violation committed by
the noticees and no quantifiable figures are made available on record to
assess the disproportionate gain or unfair advantage and amount of loss
caused to an investor or group of investors as a result of the noticees
violation.
47. In view of the abovementioned discussions / submissions, conclusion and
after considering the factors under Section 15J of the SEBI Act, I hereby
impose a penalty of ` 1,00,00,000/- (Rupees One Crore only) jointly and
severally on all the noticees under Section 15HA of the SEBI Act for the
violations of Sections 12A (a), (b) and (c) of the SEBI Act read with
Regulations 3 (a), (b), (c), (d), 4 (1), 4 (2) (a), (d) and (e) of PFUTP
Regulations and ` 1,00,00,000/- (Rupees One Crore only) jointly and
severally on all the noticees which is the maximum penalty prescribed under
Section 15HB of the SEBI Act for the violation of Regulations 57 (1) and (2)
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(a) read with Schedule VIII Part A (16) (b) and Regulation 60 (4) (a) of ICDR
Regulations which is appropriate in the facts and circumstances of the case.

Routing of IPO Proceeds

48. It is also observed from the IR and the bank statements that on 07.10.2011
RDB transferred ` 24.1 Crore (` 19.5 Crore and ` 4.6 Crore) in two tranches
from its Oriental Bank of Commerce account to the account of RDBRIL
maintained with Oriental Bank of Commerce. On the same day RDBRIL
transferred ` 9.15 Crore from its Oriental Bank of Commerce account to the
account of Namokar held with UCO Bank. On same day, Namokar transferred
` 8.4 Crore to the account of Mercury Fund Management Company Pvt. Ltd.
(hereinafter referred to as Mercury) with Bank of Maharashtra. On
08.10.2011 i.e. the next day, Mercury had transferred ` 5.5 Crore to the
account of Deesha Tie Up Pvt. Ltd. (hereinafter referred to as Deesha) held
with Development Credit Bank. On 10.10.2011, Deesha transferred ` 4 Crore
to the account of Dharamnath Shares and Services Pvt. Ltd. (hereinafter
referred to as Dharamnath) held with Indusind Bank. Dharamnath later on
transferred ` 4.5 Crore to the account of Subodhsagar Shares and Service
Pvt. Ltd. (hereinafter referred to as Subodhsagar) held with Axis Bank.
Subodhsagar subsequently transferred ` 4 Crore to the account of Sardhav
Investment and Finance Pvt. Ltd. (hereinafter referred to as Sardhav) held
with Axis Bank. Sardhav transferred the money received from Subodhsagar
to four major loss making loss trading clients who had dealt in RDB shares on
October 7, 2011 namely, Shri Prakashbhai Ishwarbhai Rana whose bank
account is held with ING Vysya (account no. 670011000640), Shri Dave
Harihar Kiritbhai whose bank account is held with Kotak Mahindra (account
no. 08122090002092), BMD Exports Pvt. Ltd. whose bank account is held
with Royal Bank of Scotland (account no. 1645730) and Shreyanshnath
Shares and Financial Services Private Limited whose bank account is held
with AXIS (account no. 728010200001380).

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49. The trade details of the aforementioned four trading clients on the listing day are
shown below:
Client Name Gr Buy
Vol
% of
Mkt
Buys
Gr Sell
Vol
% of
Mkt Sell
Gr Buy
Value
Gr Sell Value Net Loss Buys
Before
Price Fall
Prakashbhai
Iswarbhai Rana
3,57,405 1.021 3,57,405 1.021 2,90,19,243 1,30,66,149 -1,59,53,094 3,57,000
BMD Exports Pvt.
Ltd.
3,30,000 0.943 3,30,000 0.943 2,14,96,692 89,25,281 -1,25,71,411 230,000
Dave Harihar
Kiritbhai
1,46,000 0.417 1,46,000 0.417 1,18,26,000 41,24,898 -77,01,102 146,000
Shreyanshnath
Shares and
Financial
Services Pvt. Ltd.
84,000 0.240 84,000 0.240 68,88,000 17,74,532 -51,13,468 84,000

50. It is noted from the IR that the entity Dharamnath and Deesha are related as
the Director of Dharamnath, Mr. Maheshbhai Patel and the Director of
Deesha, Mr. Mohanlal Patel have common address as ''233, Mukhivas, New
Civil, Janakpura, Ahmedabad''. Further, Mr. Mohanlal Patel is also the
Director of Subodhsagar. Also, as per the website, Subodhsagar and Sardhav
have common email id as ''kiran_kothari2@rediffmail.com''. Further, Namokar
is a significant shareholder of RDB Insurance Broking Services Pvt. Ltd,
which is a group company of RDB. It shows that the afore mentioned entities
are inter-connected.
51. Noticees submission that ` 9.15 Crore was paid by RDBRIL to Namokar to
settle outstanding dues and it has no nexus with the IPO is not acceptable
because as it has already been concluded above RDBRIL's financial position
was not sound during the relevant period. Hence the money which was
transferred was IPO money routed through a web of inter-connected entities
to make the transaction look complex and hide the actual source of the
money. Further the ledger statement provided by noticees do not bear any
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seal or certification to prove its authenticity. Further, even if ledger's
authenticity has to be believed, it is not a normal practice that for an under
construction property, Namokar has been regularly paying money at an
interval of few days although negligible to no progress being made in the
project. No evidence has been produced by the noticees to show any type of
demand made by RDBRIL to Namokar regarding the outstanding payment
under the agreement including demand letter. Moreover, considering the
weak financial position of RDBRIL, the noticees have not submitted any
evidence to prove that the repayment of advance by RDBRIL to Namokar was
out of its own resources.
52. In view of the above it is concluded that part of IPO proceeds was routed in a
circuitous manner by RDB to the aforementioned four trading clients in order
to enable them to make payments to their stock broker on time i.e. as per T+2
settlement mechanism. As already concluded above noticees are responsible
for the actions of RDB, hence they have violated Sections 12A (a), (b) and (c)
of the SEBI Act read with Regulations 3 (a), (b), (c), (d), 4 (1), 4 (2) (a), (d)
and (e) of PFUTP Regulations. The text of Regulations 4 (1), 4 (2) (a), (d) and
(e) of PFUTP Regulations are reproduced below and the rest have been
mentioned earlier.
PFUTP Regulations

4. Prohibition of manipulative, fraudulent and unfair trade practices

(1) Without prejudice to the provisions of regulation 3, no person shall indulge in
a fraudulent or an unfair trade practice in securities.

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade
practice if it involves fraud and may include all or any of the following, namely:

(a) indulging in an act which creates false or misleading appearance of trading in
the securities market;
..
(d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person
any money or moneys worth for inducing such person for dealing in any security
with the object of inflating, depressing, maintaining or causing fluctuation in the
price of such security;

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(e) any act or omission amounting to manipulation of the price of a security;
53. The said violations attract penalty under Section 15HA of the SEBI Act. The
text of the said provision has been mentioned earlier at pre para 44.
54. In this regard, the provisions of Section 15J of the SEBI Act read with Rule 5
of the Rules requires that while adjudging the quantum of penalty, the
adjudicating officer shall have due regard to the following factors namely;
a. the amount of disproportionate gain or unfair advantage wherever
quantifiable, made as a result of the default
b. the amount of loss caused to an investor or group of investors as a
result of the default
d. the repetitive nature of the default

55. With regard to the above factors to be considered while determining the
quantum of penalty, it is observed that IR has not quantified the profit / loss
for the nature of violations committed by the noticees. It may be added that it
is difficult to quantify the profit/ loss for the nature of violation committed by
the noticees and no quantifiable figures are made available on record to
assess the disproportionate gain or unfair advantage and amount of loss
caused to an investor or group of investors as a result of the noticees
violation.
56. In view of the abovementioned discussions, conclusion and after considering
the factors under Section 15J of the SEBI Act, I hereby impose a penalty of
` 1,00,00,000/- (Rupees One Crore only) jointly and severally on all the
noticees under Sections 15HA of the SEBI Act for the violations of Sections
12A (a), (b) and (c) of the SEBI Act read with Regulations 3 (a), (b), (c), (d), 4
(1), 4 (2) (a), (d) and (e) of PFUTP Regulations which is appropriate in the
facts and circumstances of the case.

SC(R) Act

57. There is a specific allegation against Shri Sandeep Baid for chairing the Audit
Committee meeting dated 07.10.2011 although he was Whole Time Director
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inspite of presence of Independent Directors. Shri Sandeep Baid's submission
at para 8 (z) at page 10 is not acceptable as it is observed from the minutes
of the Audit Committee meeting that the other Independent Director of the
compnay, Shri Mahendra Pratap Singh who was also the member of the Audit
Committee was present at the meeting who could have chaired the said
meeting.
58. In view of the above, it can be concluded that Shri Sandeep Baid has not
complied with Clause 49 of the Listing Agreement read with Section 21 of
SC(R) Act. The text of the said provisions are reproduced below:

SC(R) Act
Conditions for listing.

21. Where securities are listed on the application of any person in any
recognized stock exchange, such person shall comply with the conditions of the
listing agreement with that stock exchange.

Listing Agreement
Clause 49- Corporate Governance

II. Audit Committee
.
iii. The Chairman of the Audit Committee shall be an independent director


59. The said non compliance of the noticee makes him liable for penalty under
Section 23H of SC(R) Act and not Section 23A (a) of SC(R) Act as mentioned
in the SCN. In my opinion this is only a procedural aspect and the inquiry
procedure as laid down in the of SC(R) Rules, 2005 is the same for both the
provisions. Therefore, no prejudice has been caused to the appellant by not
mentioning Section 23H of SC(R) Act in the SCN. Full opportunity was given
to the noticee to present his case in respect of violation alleged under SC(R)
Act. The text of the said provision is reproduced below:
SC(R) Act
Penalty for contravention where no separate penalty has been provided.

23H. Whoever fails to comply with any provision of this Act, the rules or articles or
bye- laws or the regulations of the recognised stock exchange or directions issued by
the Securities and Exchange Board of India for which no separate penalty has been
provided, shall be liable to a penalty which may extend to one crore rupees.
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Page 32 of 34

60. In this regard, the provisions of Section 23J of the SC(R) Act read with Rule 5
of the SC(R) Rules requires that while adjudging the quantum of penalty, the
adjudicating officer shall have due regard to the following factors namely;
a. the amount of disproportionate gain or unfair advantage wherever
quantifiable, made as a result of the default
b. the amount of loss caused to an investor or group of investors as a
result of the default
e. the repetitive nature of the default

61. With regard to the above factors to be considered while determining the
quantum of penalty, it is observed that IR has not quantified the profit / loss
for the nature of violation committed by the noticee. It may be added that it is
difficult to quantify the profit/ loss for the nature of violation committed by the
noticee and no quantifiable figures are made available on record to assess
the disproportionate gain or unfair advantage and amount of loss caused to
an investor or group of investors as a result of the noticee's violation.

62. In view of the abovementioned discussions, conclusion with respect to SC(R)
Act and after considering the factors under Section 23J of the SC(R) Act, I
hereby impose a penalty of ` 5,00,000/- (Rupees Five Lakh only) on Shri
Sandeep Baid, Whole Time Director of RDB under Section 23H of SC(R) Act
for not complying with Clause 49 of the Listing Agreement read with Section
21 of SC(R) Act which is appropriate in the facts and circumstances of the
case.
ORDER
63. In exercise of the powers conferred under Section 15 I of the Securities and
Exchange Board of India Act, 1992, and Rule 5 of Securities and Exchange
Board of India (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995, I hereby impose a consolidated penalty of
` 3,00,00,000/- (Rupees Three Crore only) jointly and severally on Shri
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Sunder Lal Dugar, - Promoter & Chairman of RDB (PAN: ADRPD6905F), Shri
Sandeep Baid, Whole Time Director of RDB (PAN: ADEPB3749A), Shri
Prabir Kumar Sarkar, Independent Director of RDB (PAN: ACCPS0065P),
Shri Sachin Shridhar, Independent Director of RDB (PAN: AQGPS1313N)
and Shri Mahendra Pratap Singh, Independent Director of RDB (PAN:
AIGPS3833B) in terms of the provisions of Sections 15HA and 15HB of the
Securities and Exchange Board of India Act, 1992 for the violations of
Regulations 57 (1) and (2) (a) read with Schedule VIII Part A (16) (b) and
Regulation 60 (4) (a) of SEBI (Issue of Capital and Disclosure Requirements)
Regulations, 2009 and Sections 12A (a), (b) and (c) of the Securities and
Exchange Board of India Act, 1992 read with Regulations 3 (a), (b), (c), (d),
4 (1), 4 (2) (a), (d) and (e) of SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003. In the facts and
circumstances of the case, I am of the view that the said penalty is
commensurate with the violations committed by the noticees.

64. Further , in exercise of the powers conferred under Section Section 23I of
Securities Contracts (Regulation) Act, 1956 read with Rule 5 of the Securities
Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties
by Adjudicating Officer) Rules, 2005, I hereby impose a penalty of
` 5,00,000/- (Rupees Five Lakh only) on Shri Sandeep Baid, Whole Time
Director of RDB in terms of the provisions of Section 23H of Securities
Contracts (Regulation) Act, 1956 for not complying with Clause 49 of the
Listing Agreement read with Section 21 of Securities Contracts (Regulation)
Act, 1956.

65. The penalty shall be paid by way of Demand Draft drawn in favour of SEBI
Penalties Remittable to Government of India payable at Mumbai within 45
days of receipt of this order. The said demand draft shall be forwarded to
Chief General Manager- IVD, Securities and Exchange Board of India, Plot
No. C4-A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051.

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66. In terms of the provisions of Rule 6 of the Securities and Exchange Board of
India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules 1995 and Rule 6 of Securities Contracts (Regulation)
(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 2005, copies of this order are being sent to all the aforesaid
noticees and also to the Securities and Exchange Board of India, Mumbai.






Place: Mumbai D. RAVI KUMAR
CHIEF GENERAL MANAGER &
Date: 06.08.2014 ADJUDICATING OFFICER
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