SEBI Bars Rhine and Raavi Directors for Five Years Over Illegal Fund Mobilization

Introduction

The Securities and Exchange Board of India (SEBI) initiated proceedings against Rhine and Raavi Credits and Holdings Limited (RRCHL) and its directors for issuing Secured Non-Convertible Debentures (NCDs) without adhering to the required public issue norms stipulated under the Companies Act, 1956. This case outlines the sequence of events, legal breaches, and the final judgment passed by SEBI against RRCHL and its directors, specifically Mr Birendra Kaji.

Facts

1. Interim Order (October 01, 2013): SEBI issued an ex-parte interim order cum show cause notice to RRCHL and its promoters and directors, including Mr. Birendra Kaji, for the deemed public issue of NCDs.
2. Final Order (March 27, 2015): SEBI passed a final order against RRCHL and its directors for the illegal mobilization of funds through the issuance of NCDs in violation of public issue norms. It directed SEBI to initiate separate proceedings against Mr Birendra Kaji for specific regulatory breaches.
3. Examination and Show Cause Notice (June 02, 2023): Following the final order, SEBI examined the matter further and issued a show cause notice to the notices for violations of the SEBI Act, 1992, SEBI (Debenture Trustees) Regulations, 1993, SEBI (Issue and Listing of Debt Securities) Regulations, 2008, and the Companies Act, 1956.
4. Mobilization of Funds: RRCHL issued NCDs to 744 allottees, mobilizing INR 6.27 crores. However, board resolutions indicated that INR 36.30 crores were raised through the issuance of NCDs to 1,60,356 allottees.
5. Non-compliance: The company did not comply with public issue norms, did not apply for listing of securities on stock exchanges, and failed to submit necessary documents to SEBI.

Issues

1. Public Issue Norms: Whether RRCHL’s issuance of NCDs was in contravention of public issue norms under the Companies Act, 1956.
2. Regulatory Compliance: Whether RRCHL and its directors, specifically Mr. Birendra Kaji, violated SEBI regulations, including those related to debenture trustees and the issuance and listing of debt securities.
3. Non-disclosure and Non-cooperation: The extent to which RRCHL and its directors failed to cooperate with SEBI’s investigation and disclose necessary information.

Consideration of Issues and Findings

1. Public Issue Norms: SEBI concluded that RRCHL's issuance of NCDs constituted a public offer under Section 67 of the Companies Act, 1956. The company did not provide necessary disclosures or apply for listing, thereby violating Section 73 of the Companies Act, 1956.
2. Regulatory Compliance: Mr. Birendra Kaji acted as a debenture trustee without SEBI registration, violating Section 12(1) of the SEBI Act, 1992 and Regulation 7 of the SEBI (Debenture Trustees) Regulations, 1993. Additionally, the company violated several provisions of the ILDS Regulations and the Companies Act, of 1956.
3. Non-disclosure and Non-cooperation: RRCHL failed to provide a comprehensive list of allottees and other requested documents. Notices did not respond to the show cause notice or appear for personal hearings despite multiple opportunities.

Judgment and Conclusion

SEBI issued the following directions:

1. Market Restraint: The notices, including Mr Birendra Kaji, are restrained from accessing the securities market and prohibited from buying, selling, or dealing in securities, directly or indirectly, for one year.
2. Association Prohibition: Mr Birendra Kaji is restrained from associating with any listed public company, a public company intending to raise money from the public, or any SEBI-registered intermediary for one year.
3. Commencement of Restraint Period: The restraint period commences after the completion of the refund period, effectively resulting in a total restraint period of five years.

This order comes into immediate effect, and copies are to be served to the notices, all recognized stock exchanges, and depositories to ensure compliance.