Market regulator Securities and Exchange Board of India (SEBI) has ordered Vaishno Devi Dairy Products Ltd (VDDPL) and six of its directors to refund the money which it had raised illegally from investors and also barred them from the securities market between three months to four years. These entities had raised Rs25 crore through the issuance of non-convertible debentures (NCDs) in an illegal manner during FY13-14. They have been directed to refund the money along with an interest of 15%pa (per annum).
The six officials of VDDPLY penalised by SEBI are Nandkishor Harikishan Attal (promoter and managing director), Mayura Nandkishor Attal, Mahesh Brij Gopal Bhattad, Vasant Narayan Pinjan, Sahindra Jagannath Bhawale and Arati Sahindra Bhawale.
In an order, Dr Anitha Anoop, chief general manager (CGM) of SEBI, says, “I note that in the FY13-14, VDDPL allotted NCDs amounting to Rs25 crore to Karvy Capital Ltd (KCL) which were sold to the public, i.e. 185 investors within six months from various dates of allotment by VDDPL. The extant modus or scheme adopted by VDDPL, which is a part of a design to circumvent the regulatory framework, is a deemed public issue of securities in terms of Section 25 of Companies Act, 2013.”
SEBI investigation
SEBI launched an investigation into VDDPL, formerly Shubhi Agro Industries Pvt Ltd, following a complaint in July 2017. The complaint centred on the Company’s issuance of NCDs during FY13-14 and its subsequent default on repayment. These NCDs were unlisted, raising serious concerns over regulatory compliance.
SEBI’s probe revealed delays in obtaining information from VDDPL which failed to provide necessary documents, despite multiple requests from 2017 to 2019. Only after a visit to VDDPL’s office in March 2019 were some documents submitted, contributing to the prolonged investigation.
VDDPL raised concerns about SEBI initiating proceedings nearly 10 years after the NCD issuance in early 2014. However, SEBI justified the delay, citing the company’s unresponsiveness as the primary reason for the investigation’s duration. SEBI referenced a similar case involving the securities appellate tribunal (SAT) to defend its position, highlighting that delays are not considered excessive when caused by complexities or non-cooperation from the Company under investigation.
VDDPL’s information memorandum (IM) prohibited the circulation of NCDs to more than 49 investors, but the Company nonetheless allotted them to 185 individuals, breaching its own terms.
Further, VDDPL’s annual return for FY13-14, filed with the registrar of companies (RoC), included a list of these 185 debenture holders, proving the company’s awareness of the large-scale allotment.
In its defence, VDDPL claimed that KCL had full control over the issuance and sale of the NCDs and that the Company lacked access to the beneficial position (BENPOS) reports showing the ownership of the debentures. However, SEBI’s investigation revealed that VDDPL’s managing director had signed documents acknowledging the issuance of NCDs to 185 investors.
“Furthermore, KCL regularly submitted BENPOS statements, which were available to the Company. Despite this, VDDPL did not take any legal steps to rectify the breach of the IM’s terms, failing to act on the downselling of NCDs,” the market regulator says.
SEBI found VDDPL’s reliance on SAT rulings in other cases involving BENPOS reports misplaced. In this instance, SEBI concluded that VDDPL’s management was fully aware of the NCD downselling and failed to take appropriate action. Both VDDPL and KCL appeared to have engaged in a deliberate attempt to circumvent regulatory provisions on public issues
As a result, the investigation also confirmed that VDDPL’s actions violated provisions of the Companies Act, 1956, especially regarding the issuance of NCDs, which were classified as a public issue and required listing on a recognised stock exchange. VDDPL failed to provide evidence of compliance with the listing requirement, breaching Section 73 of the Companies Act, 1956.
Parallel to SEBI’s investigation, insolvency proceedings against VDDPL were initiated by the debenture trustee, Vistras, before the NCLT in September 2019. With the company undergoing the corporate insolvency resolution process (CIRP), the management of its affairs is now in the hands of an interim resolution professional (IRP), and a moratorium has been declared to prevent any enforcement of recovery suits.
On 8 September 2023, SEBI informed the resolution professional that VDDPL’s NCDs from FY13-14 violated norms and should be cancelled. The NCLT noted this on 18 October 2023. Despite CIRP, the directors remain accountable, with their liability extending beyond the company’s dissolution.
Nandkishor Attal played a key role in the fund-raising activities during FY13-14. As per SEBI’s investigation, his liability as an officer in default was established, with obligations to refund the money collected from investors with interest at 15% per annum.
SEBI order also imposed market restrictions on the company’s key figures. Nandkishor Attal and Mayura Nandkishor were prohibited from accessing the securities market for two years, while other directors, such as Mahesh Bhattad, Vasant Pinjan, Sahindra Bhawale and Arati Bhawale, faced a three-month market restriction.
