IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

 

Appeal No. 27/2005, 27A to 27F/2005

 

Date of Hearing	5.1.2006
Date of Decision	5.1.2006

 

In the matter of:

 

Pur Opale Creations Ltd.	Appellants � Represented by
Jayesh Dave Anjali Dave Jagdish Chandra Dave Madhuben Dave Umesh Soni Mr. Rohit Vyas	Mr. K. Shroff & Mr. J. Desai, Advocates
Versus
	Respondents �Represented by
Securities & Exchange Board of India Mohanlal Sanghavi Avinash M Sanghavi Suresh M. Sanghavi N.C. Chauhan K.K. Puri R.M. Jaisingh Dinesh M. Sanghavi Himanshu Desai Kamlesh Mankodi Harkishan Das Mistry	Mr. Chirag Balsara & Mr. Mihir Mody, Advocates         None

 

Coram:

����������� Justice N.K. Sodhi, Presiding Officer

����������� C. Bhattacharya, Member

����������� R. N. Bhardwaj, Member

 

Per:� Justice N.K. Sodhi, Presiding Officer (oral)

 

 

   1.            This order will dispose of a bunch of seven appeals nos. 27, 27A to 27F/2005, which are directed against the same impugned order and in which common questions of law and fact arise.� Since arguments were addressed in appeal no. 27/2005, the facts are being taken from this case.� Counsel for the parties are agreed that the decision in this appeal will govern the other cases as well.

   2.            This appeal filed under Section 15T of the Securities and Exchange Board of India Act, 1992 (for short �the Act�) is directed against the order dated 8.9.2004 passed by the Securities and Exchange Board of India (hereinafter called the �Board�) whereby appellant no. 1 was identified as a vanishing company and a direction issued to it and its Directors under sections 11(1) and 11B of the Act directing them to disassociate themselves in every respect from the capital market related activities and not to access the capital market for a period of 5 years.� The public companies in which the directors of appellant no. 1 held controlling or substantial interest have also been restrained from raising funds from the capital market for a period of 5 years.

   3.            Pur Opale Creations Ltd. (hereinafter called �the Company�) along with its Directors are the appellants before us.� The findings recorded by the Board that the Company is a fly-by-night operator and that it is a vanishing company and that having raised money from the public is not traceable are under challenge.� The Company came out with a public issue through a prospectus dated 29.12.1992 and the issue opened on 4.2.1993 and the latest closing date was 15.2.1993.� It was mentioned in the prospectus that the appellants had made an application to the Stock Exchanges at Vadodara, Mumbai, Hyderabad, Delhi and Ahmedabad for listing of shares.� After the public issue, the shares of the Company were listed at Ahmedabad and Vadodara Stock Exchanges.

   4.            The Board set up a coordination and monitoring committee in respect of companies which raised money from the public and were not traceable.� These companies were described as vanishing companies and the criteria for identifying such companies had been laid down.� Companies which had not complied with listing requirements/filing requirements of Stock Exchanges/Registrar of Companies for a period of two years or where no correspondence had been received by the Stock Exchange from the company for a long time or where no office of the company was located at the registered office address at the time of inspection by the Stock Exchange were styled as vanishing companies.� The Board found that the Company (appellant no. 1) had not complied with the listing requirements with the Stock Exchange nor did it satisfy the filing requirements with the Registrar of Companies for a period of more than two years.� It was also found that the company had not complied with various clauses of the listing agreement entered into by it with the Stock Exchange.� In other words, it was found that the Company did not submit statutory reports nor did it furnish its financial results, cash flow statements, balance sheet and profit and loss account to the Stock Exchanges.� The non-compliance of the listing agreement by the Company was held to be a violation of Section 21 of the Securities Contracts (Regulation) Act, 1956.� The scrip of the company was delisted from the Vadodara Stock Exchange.

   5.            Notice of the appeal was issued to the respondents and the Board has put in appearance through its counsel.

   6.            We have heard the learned counsel for the parties at some length.� According to the appellants� own case, the Company was incorporated on 7.2.1992 and it made a public issue on 4.2.1993 inviting the general public to invest in its equity shares. The proceeds of the public issue were collected by the Company and the appellants concede that the Company did not commence the business operations as per the scheduled dates.� The blame for this is however, being put on the erstwhile promoters of the Company. The appellants contend that the present management including appellant no. 2 took over the affairs of the Company by way of purchase of shares from the erstwhile promoters for a consideration and that the bank accounts of the Company at that time had virtually no cash balance.� We are satisfied that the Company did not comply with the listing and filing requirements and other statutory obligations were also not fulfilled and that the terms of the listing agreement had also not been complied with.� The company after collecting the proceeds of the public issue did not commence its business as per the scheduled dates and, therefore, the Board in the circumstances was justified in holding that the Company was a fly-by-night operator and that it was rightly identified as one of the vanishing companies.� ��The learned counsel for the appellants, however, during the course of arguments stated that the Company has now started its manufacturing activities and business with effect from July 2005 (its commercial production had started in that month) and that it is now complying with all the listing and filing statutory requirements.� It is urged that appellant no. 2 himself and through his group of concerns has infused funds in the company to the tune of more than Rs. 5 crores with the intention to revive the company.� It is also contended that the appellants after taking over the affairs of the company have discharged a number of its statutory liabilities including the amount due to the electricity board and therefore the bona fides of the present management could not be questioned and that the company has now come to stay and is now in commercial production.

   7.            Having regard to the facts and circumstances of the present case, we are not inclined to interfere with the impugned order passed by the Board because no meaningful argument has been advanced challenging the correctness of the findings recorded in the impugned order.� Since the appellants contend that the company has now gone into commercial production and is an existing company which has not vanished, they want the company to be given another chance to continue with its activities and approach the capital market.� In the circumstances of the case, and in view of the contentions so emphatically urged on behalf of the appellants, we can only observe that let the company continue with its business activities and perform for two full years, and if it can do that, it should then place before the Board the results of its performance in the form of audited accounts/balance sheets and annual reports.� If the results of its performance for at least two complete years from the time when its commercial production started, as referred to hereinabove are placed before the Board, the latter shall look into the performance of the company and decide afresh in accordance with law as to whether it is still a vanishing company or not and whether it could still be termed as a fly-by-night operator.� We may mention that as and when the results of its performance are placed by the company before the Board, it shall be open to the latter to ask for any further information/clarification that it may think necessary for deciding the issue and take a final decision thereon within three months from the date of receipt of the audited accounts/reports.� It goes without saying that in case the Board finds that the company having performed for two years is no longer a vanishing company, it shall recall the impugned order prohibiting the company and its directors from associating themselves from the capital market related activities.� In that event, it shall be open to the company to have access to the capital market and also get its shares listed in the Stock Exchange.

   8.            The appeals stand disposed of as above with no order as to costs.

(Pronounced in Court)

 

 

 

Place: Mumbai

Date: 5.1.2006

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