Manoj Prasad and Others vs Shivam Plantation P. Ltd.

Ramesh Kumar Datta, J.—Heard learned counsel for the petitioners and learned counsels for the company and for the Securities and Exchange Board of India (SEBI). The winding up petition has been filed by the three shareholders of the company in terms of section 433(c), (e) and (f) of the Companies Act, 1956. The three shareholders together hold 900 equity shares of Rs. 100 each of the company.

It is stated that the company was established to acquire by purchase or otherwise and to carry on the business of estate owners, cultivators, planters, growers and manufacturers or sellers and dealers in eucalyptus trees, semal, teak wood, seasame, bamboos, pepper, spices and to cultivate lands for the purpose of plantations, etc., and other objects as set forth in the memorandum of association. Pursuant to the said objects, the company acquired lands on lease/rent basis at Chitauli (Siwan), Bihta (Patna), Lalganj, Vaisa (Purnea) and planted semal, Kadam and eucalyptus trees at those places. The company for raising funds issued certificates of 10 years, 5 years and 3 1/2 years and collected an amount of Rs. 94,40,441 from various customers against the sale of units and also took an advance against Agro Vikash to the tune of Rs. 91,200 thus having a total liability of Rs. 95,31,641 of which it is stated to have returned a sum of Rs. 16,28,543 to the customers in the form of unit. It is also stated that as per the balance-sheet of the company, the company appears to have created assets of Rs. 2,88,86,497 as on March 31, 2002.

It is further stated by learned counsel for the petitioner that by a press release dated December 18, 1997, the SEBI directed all the plantation companies not to raise further funds under different plantation schemes without making compliance of the provisions of the SEBI Act and such restrictions/conditions imposed by it including to obtain credit rating from one of the listed credit rating agencies and submit the same to the SEBI and follow other guidelines before embarking upon any new scheme of plantations.

It is further stated that the company was unable to obtain any certificate from any of the agencies because the fee demanded by them was exorbitant. Since the business of the company had been stopped and the company was unable to pay off its debts to the unit holders or any dividend to its shareholders, accordingly, a prayer has been made for winding up of the company.

Earlier, by an order dated February 19, 2004, the company petition was directed to be advertised in Form 48 which was done. Subsequently, when the respondent-company had appeared it was directed by this court to provide details of the properties purchased by it and the plants developed by it in different parcels of land. After such details had been provided, this court by order dated January 6, 2005, directed the Divisional Forest Officers of Siwan, Bihta and Purnea to measure the trees and they were also directed to file their valuation reports. The valuation reports were also submitted. As per the valuation report dated July 5, 2005, submitted by the D.F.O., Patna with respect to the plantation in Bihta measuring 3.60 acre in Mauza Khedalpur and 28.50 acres in Mauza Bihta in the District of Patna the standing trees of Semal were 6144, Green Semal 51, eucalyptus 463, Shisham 30, and Kadam 177. Thus, total standing trees were 6865, the value of which came to Rs. 10,02,648.60. The Divisional Forest Officer, Purnea by his valuation report dated November 21, 2005, has reported that the value of the trees planted, all semal trees, was Rs. 17,980 and Rs. 2,48,175. The Divisional Forest Officer, Gopalganj also gave a report dated May 20, 2005, with respect to the valuation of 629 semal trees, 135 eucalyptus and 10 shisham trees totalling Rs. 60,738.

In the meantime, this court directed the Securities and Exchange Board of India to be also impleaded as party respondent and notices were issued to it by order dated April 8, 2005. By the same order, different affidavits filed on behalf of the company were directed to be served upon the official liquidator.

It may be pointed out here that the company in its affidavit has supported the winding up petition.

The SEBI also appeared and filed its written submissions. It is stated therein that the Central Government through Press Release dated November 18, 1997, directed the SEBI to formulate draft regulations with respect to collective investment schemes both from the aspect of investor protection as well as allowing legitimate investment activity to take place, pursuant to which a press release dated November 26, 1997, was notified that the regulations for the collective investment schemes including the Plantation Schemes are under preparation and will be issued in due course. It was further informed that until the regulations were notified in terms of section (1B) of the SEBI Act, no person can sponsor or cause to be sponsored any new collective investment schemes other than which are in existence and direction was issued to those operating the schemes to furnish information to the SEBI including all details. Another Press Notification was issued on December 18, 1997, informing the public the decision of the Central Government to treat such schemes through which instruments, such as, agro bonds, plantation bonds, etc., are issued as collective investment scheme (in short "CIS") and as falling under the ambit of the SEBI Act and such companies were allowed to continue with the scheme and to submit the details as directed therein. By a further order dated February 24, 1998, the SEBI directed that no collective investment scheme shall mobilise any money unless the instrument of such scheme carries raring from any rating agency. Thereafter on the basis of report submitted by Dave Committee on April 5, 1999, the SEBI framed and notified the SEBI (Collective Investment Schemes) Regulations, 1999, on October 15, 1999, by which the companies, which were running CIS at the time of notification of the Regulations, were required to either obtain registration from the SEBI or to wind up their schemes and repay the investors in the manner specified under the Regulations. The respondent-company did not get itself registered with SEBI as required by Regulations, 1999. Thereafter by letter dated February 27, 1998, issued to the respondent-company, it was directed not to mobilise any money from the public or from any investors under the existing CIS unless the investment of such scheme carries rating from any one of the rating agencies mentioned therein, namely, Credit Rating Information Services of India Ltd. (CRISIL), ICRA Ltd., Credit Analysis and Research Ltd. (CARE) and Duff and Phelps Credit Rating India P. Ltd. The respondent-company filed a writ petition being C.W.J.C. No. 5207 of 1994 before this court challenging the jurisdiction of the SEBI to issue such direction, which was dismissed on December 15, 2008, in the light of the judgment and order passed by the Delhi High Court.

In the meantime, due to a large number of writ petitions pending in various High Courts, including the PIL being Writ Petition No. 3352 of 1999 S.K. Bhattacharya v. SEBI, pending before the Delhi High Court, transfer petitions being Transfer Petition (C) Nos. 264-277 of 1999 were moved by the SEBI before the Supreme Court of India that all such matters be heard by the apex court. By its order dated July 23, 1999, the Supreme Court directed that the writ petitions/proceedings filed by the parties before various other High Courts, except Delhi High Court challenging the direction issued by the SEBI as regards the collective investment scheme shall remain stayed/pending before such High Courts which stay shall stand vacated as soon as the Delhi High Court pronounces the judgment. The parties were given liberty to intervene in the matter before the Delhi High Court for appropriate relief. Thereafter by an interim order dated October 7, 1998, the Delhi High Court directed that all such companies running CIS (a) to get themselves rated from credit rating agencies; (b) to furnish the list of their assets and liabilities, directors etc.; (c) restrained from selling, disposing or alienating their immovable properties or parting with the possession of the same; (d) not to float new schemes to raise further funds without the permission of the court; and (e) existing schemes to strictly comply with SEBI order dated February 24, 1998. It was further clarified that the said order will not come in the way of the companies intending to refund the money to their investors. By a further order the Delhi High Court clarified that the order dated October 7, 1998, shall apply to all such companies running CIS, upon a list of 592 companies submitted by the SEBI on October 13, 1998, including the respondent-company. Thereafter on the failure of as many as 513 companies, including the present company, to comply with the aforesaid orders, the Delhi High Court passed a further order directing to freeze the bank accounts of the defaulting companies as also of their directors and promoters with immediate effect. It was further directed that in case any of the affected companies claim that they are complying with the directions of this court, it would be open to them to approach the SEBI with necessary proof of compliance of the orders of this court and also with the Rules and Regulations of the SEBI and the SEBI on being convinced about the same shall file an appropriate application for modification of the order. The present company did not approach the SEBI pursuant to the said order.

Lastly, by order dated October 21, 2003, the Delhi High Court while disposing of the writ petition held that u/s 24 of the Act, action can be taken by the competent authority and even against the company cognisance can be taken u/s 26 of the said Act. The earlier interim order dated January 22, 2002, was made final and all the directions given in that order were confirmed.

It is thus the stand of the SEBI that the respondent-company has reasonably failed in complying with the orders of the SEBI and by its order dated July 2, 2001, has debarred the company its director, managing director and other person from operating into capital market for a period of five years. It is further stated that the SEBI filed a Complaint Case No. C/103 of 2002 before the court of the Chief Judicial Magistrate, Alipore, Kolkata against the respondent-company and its directors for violating the provisions of the SEBI Act and Regulations, pursuant to which all the accused persons except accused No. 7 were enlarged on bail. The further stand of learned counsel for the SEBI is that if the winding up petition is allowed by this court, the complaint case filed against the company will become infructuous as against the company and the company shall go scot-free. Further submission is made that the respondent-company may be directed to wind up their schemes and repay the money collected from investors in terms of the SEBI Regulations and direction to the respondent-company issued by the SEBI.

By order dated February 22, 2007, this court observed that it appears that Shivam Plantation P. Ltd., is a plantation company which proceeded to plant trees but the lease documents were never executed and in such circumstances the plantation over the land does not create any title in favour of the company; the company was restrained by the SEBI not to transact any business, it has hardly any assets; in the circumstances, no useful purpose would be served by proceeding with this winding up petition, which was accordingly dismissed. Aggrieved by the said dismissal, the petitioner filed Company Appeal No. 6 of 2007 which was allowed by order dated March 15, 2010, holding that the winding up application cannot be rejected on the sole ground that the company is left with no assets. Accordingly, the matter was remanded for fresh order after taking into account all the contentions raised by learned counsel for the parties.

Learned counsel for the petitioners submits that on account of various orders passed by the SEBI, the company is not in a position to carry on any business and, as a matter of fact, its bank account has also been frozen. It is, thus, submitted that it is a fit case for the winding up of the company.

So far as the plea regarding the company escaping prosecution in the criminal case is concerned, it is submitted by learned counsel for the petitioners that nearly 10 years have passed since the filing of the complaint case but no progress has been made in the same and mere pendency of the complaint case cannot be allowed to refuse the winding up of the company. It is further submitted that in view of the assets, which were in existence at least in the year 2005 when the trees had been measured and valuation reports were submitted by the Divisional Forest Officers of Patna, Purnea and Gopalganj, it is a fit case where the company is directed to be wound up and the assets sold and whatever realised may be paid firstly to the creditors of the company and if anything remains, it may be distributed among the shareholders. It is urged that the winding up of the company would be for the best interest of the investors also otherwise a situation of stalemate has been reached on account of the direction of the SEBI to the company not to carry on its business without complying with certain conditions which the company has totally failed to comply.

Learned counsel for the respondent-company also supports the stand of the petitioners stating that on account of freezing of the assets and its inability to pay the rating agency no purpose can be served by keeping the company alive.

I have considered the submissions of learned counsels for the parties. It is evident that the company has hopelessly failed in complying with the legitimate instructions issued u/s 24 of the SEBI Act. Accordingly, it has been rightly directed not to continue with its business. Further on the direction of this court, the assets of the company had been valued which are in the form of oral lease. The land and plantation standing thereon had been measured and valued by the Divisional Forest Officers of the three Districts on the direction of this court and at present the situation is such that none of the parties is in a position to inform as to how much of the assets are surviving. Thus merely freezing of assets cannot be of any benefit to the investors for whose benefit the SEBI had acted in the first place.

So far as the submission of learned counsel for the SEBI with respect to criminal case against the company is concerned, the same cannot be a valid ground particularly keeping in view that the SEBI has been very slow in pursuing the criminal case to bring it to its logical end and even after 10 years no progress has been made so far as the trial of the case is concerned.

Thus, on a consideration of the entire facts and circumstances, I find it a fit case to order winding up of the company. It is, accordingly, ordered.

The official liquidator is directed to take charge of the assets and whatever books and papers of the company are available forthwith and to proceed further in the matter in accordance with the provisions of the Act and Rules.

Learned counsel for the petitioners while making the submissions has stated that the petitioners are prepared to deposit an amount of Rs. 15,000 with the official liquidator for the purpose of winding up of the company. It was also submitted by him that an amount of Rs. 30,000 is lying in the frozen bank account of the company which would also be available to the official liquidator. Let the petitioners deposit the amount of Rs. 15,000 within two weeks from today with the official liquidator. Further they are directed to advertise this order in Form 53 in two newspapers published from Patna one in English and another in Hindi, namely, The Times of India and Aaj within one month from today. The petitioner shall also assist the official liquidator in locating and identifying the assets of the company.