Description

SEBI order against Milani Techno Engineering Limited and its directors for illegal fund mobilization through RCPS issuance without compliance with Companies Act provisions.

Summary

SEBI issued an order under Sections 11(1), 11(4), 11A and 11B(1) of the SEBI Act, 1992 against Milani Techno Engineering Limited (MTEL) and 18 of its directors for illegal fund mobilization. The company raised ₹4.12 crore through issuance of Redeemable Cumulative Preference Shares (RCPS) during FY 2011-12 in violation of the Companies Act, 1956 and SEBI Act. A Show Cause Notice was issued on June 06, 2024 to the company and its directors for non-compliance with prescribed provisions and failure to refund collected amounts.

Key Points

  • MTEL is an unlisted public company incorporated on September 05, 1964, with registered office in Prayagraj, Uttar Pradesh
  • Company raised ₹4,12,20,000 through RCPS issuance during FY 2011-12
  • 19 noticees include the company and 18 directors (7 directors during issuance period, 11 directors who joined after)
  • SEBI received complaints regarding the RCPS issue
  • SEBI Circular dated December 31, 2015 provided option for companies to refund investors with 15% interest
  • Directors during FY 2011-12 failed to comply with Companies Act provisions during issuance
  • Subsequent directors failed to refund money collected from RCPS issuance
  • Show Cause Notice issued on June 06, 2024

Regulatory Changes

No new regulatory changes introduced. This order relates to enforcement of existing provisions under:

  • Companies Act, 1956 and Companies Act, 2013
  • SEBI Act, 1992 (Sections 11(1), 11(4), 11A and 11B(1))
  • SEBI Circular No. CIR/CFD/DIL3/18/2015 dated December 31, 2015 regarding refund mechanism

Compliance Requirements

  • Companies that offered securities to more than 49 persons prior to April 01, 2014 must provide investors option to surrender securities
  • Refund amount must be at subscription price plus 15% interest or higher promised return
  • Directors have obligation to ensure compliance with Companies Act provisions for fund mobilization
  • Subsequent directors have responsibility for refunding illegally collected amounts

Important Dates

  • September 05, 1964: MTEL incorporated as Sheetala Agro Industries Private Limited
  • September 13, 2011: Name changed to Milani Techno Engineering Limited
  • FY 2011-12: Period of alleged illegal RCPS issuance (₹4.12 crore raised)
  • December 31, 2015: SEBI Circular on refund mechanism issued
  • April 01, 2014: Cut-off date for companies offering securities to more than 49 persons
  • June 06, 2024: Show Cause Notice issued to MTEL and 18 directors

Impact Assessment

Investor Impact: Investors who subscribed to RCPS during FY 2011-12 remain at risk without refunds. The enforcement action aims to protect investor interests and recover funds.

Company Impact: MTEL and its directors face potential penalties, disgorgement orders, and directions under SEBI Act for violations spanning over a decade.

Market Impact: Limited broader market impact as MTEL is an unlisted company. However, this reinforces SEBI’s commitment to pursuing historical fund mobilization violations and holding directors accountable regardless of tenure.

Precedent Value: Establishes that both directors during violation period and subsequent directors have obligations regarding illegal fund mobilization and refunds.

Impact Justification

Enforcement action against unlisted company for historical fund mobilization violations; limited market-wide impact but significant for involved investors