WTM/MPB/ISD/ 06 /2018 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: MADHABI PURI BUCH, WHOLE TIME MEMBER ORDER Under Sections 11, 11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 In the matter of M/s Pincon Spirit Limited (PAN: AAHCS8354B): ________________________________________________________________________ 1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”), in the interest of investors, vide its letter dated August 7, 2017 took the pre-emptive interim measures under section 11(1) of SEBI Act, 1992, in respect of certain listed companies identified as “shell companies” by the Ministry of Corporate Affairs (hereinafter referred to as “MCA”) including M/s Pincon Spirit Limited (hereinafter referred to as “PSL” / “Company”). SEBI placed trading restrictions, on the promoters/directors so that they do not exit the company at the cost of innocent shareholders. In view of the said objective, SEBI vide the said letter dated August 7, 2017 also placed the scrip of PSL in the trade to trade category with limitation on the frequency of trade and imposed a limitation on the buyer by way of 200% deposit on the trade value, so as to alert them trading in the scrip. The said measures were initiated by SEBI pending final determination after verification of credentials and fundamentals by the exchanges, including by way of audit and forensic audit if necessary. The measures also envisaged, on the final determination, delisting of the company from the stock exchange, if warranted. By virtue of these measure, trading in scrip was not suspended but allowed under strict monitoring so that investors could take informed investment decisions, till SEBI and Exchanges complete their detailed examination of such companies. Order in the matter of M/s Pincon Spirit Limited Page 1 of 12 2. Aggrieved by the aforesaid letter dated August 7, 2017 issued by SEBI and Stock Exchnages, PSL filed an appeal No. 178 of 2017 before the Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”). The Hon’ble SAT vide order dated August 11, 2017 had granted stay to PSL and directed stock exchanges to reverse their decision in respect of PSL as expeditiously as possible and also directed SEBI to dispose of PSL representation in accordance with law. Hon’ble SAT also held that the said order shall not come in the way of SEBI as well as the stock exchanges to investigate the case of PSL and initiate proceedings if deemed fit. 3. Pursuant to the decision of Hon’ble SAT that the communication of SEBI dated August 7, 2017 is in the nature of quasi-judicial order, in the interest of natural justice, an opportunity of personal hearing was granted to PSL on September 13, 2017. The authorized representative of PSL had appeared for hearing and made submissions. 4. Thereafter, SEBI vide Interim Order dated December 19, 2017 (hereinafter referred to as “Interim Order”), had modified, subject to para 32(iv) of the interim order, the actions envisaged in SEBI’s letter dated August 07, 2017 and the consequential actions taken by Stock Exchanges, against M/s Pincon Spirit Limited as under: i. The trading in securities of PSL shall be reverted to the status as it stood prior to issuance of letter dated August 7, 2017 by SEBI. ii. Exchange shall appoint an independent forensic auditor interalia to further verify: a. Misrepresentation including of financials and/or business by PSL, if any; b. Misuse of the books of accounts / funds including facilitation of accommodation entries or compromise of minority shareholder interest, if any. iii. The promoters and directors in PSL are permitted only to buy the securities of PSL. The shares held by the promoters and directors in PSL shall not be allowed to be transferred for sale, by depositories. Order in the matter of M/s Pincon Spirit Limited Page 2 of 12 iv. The other actions envisaged in SEBI’s letter dated August 07, 2017 in para 1 (d), as may be applicable, and the consequential action taken by Stock Exchanges shall continue to have effect against M/s Pincon Spirit Limited. The ‘directors’ for the purpose of direction mentioned at para 32(iii) above shall mean and include: (a) the persons who are acting as directors on the date of this order, or (b) the persons who are acting as directors of this company as on August 07, 2017, who cease to be director, by way of disqualification by any other authority, or by way of resignation or by any other means, on or after August 07, 2017 5. The prima facie observations in the Interim Order were as under: “………. 25. Based on the replies given by the company in response to SEBI’s queries, prima facie observations are as under: (a) Vide affidavit dated September 15, 2017, Mr. Monoranjan Roy stated the followings: (i) He had acquired shares of Pincon Spirit Limited (erstwhile Sarang Viniyog Limited) from the following companies represented by their authorized representatives. S.No. Name of Company Authorised Representatives 1 Gravel Marketing Pvt Ltd Laxmi Dhar Parida (Director) 2 Starlight Commosale Pvt Ltd Laxmi Dhar Parida (Director) 3 Shree Tribhuvan Tie UP Pvt Ltd Kamala Kanta Jena (Director) 4 Mangolia Vinimay Pvt Ltd Kamala Kanta Jena (Director) Order in the matter of M/s Pincon Spirit Limited Page 3 of 12 5 Bubna Properties Pvt Ltd Rajendra Bubna (Director) 6 Dream Commosale Pvt Ltd Kamala Kanta Jena (Director) (ii) The share purchase agreement with the above companies have been negotiated through one Mr. Sanjeev Jhunjhunwala, S/o Mr. Sajjan Jhunjhunwala, residing at P-61, VIP Road, 7M CIT Scheme, Kankurgachi, Kolkata – 700054. (iii)To the best of his knowledge and belief, prior to his taking over charge of the company, the management and control of the company was vested with Mr. Rajendra Bubna (then Director of Sarang Viniyog limited and director of Bubna Properties Limited). (iv) He has never spoken either with Mr. Raj Kumar Tharad or with Mr. Anil Kumar Khemka or any official/promoter/owner of Bhagyaraj Vyapaar Pvt Ltd. (b) During the course of hearing and vide SEBI’s email dated September 13, 2017 PSL had advised to submit an affidavit from the person who was in control of the company prior to Mr. Monoranjan Roy. As per Mr. Monoranjan Roy’s affidavit, Mr. Rajendra Bubna was in control of the company prior to him. In this regard, the Company submitted that they have arranged for intimating Mr. Rajendra Bubna for submission of affidavit however the receipt of affidavit lies as per the decision of Mr. Rajendra Bubna. However, it is noted that till date, the company has not submitted the affidavit from the person whoever was in control of Company, prior to Mr. Monoranjan Roy. (c) The Company in its 35th Annual Report for the F.Y. 2016-17 at Page No. 64 and 84 have mentioned that the Company entered into related party transactions with Bhattacharya Bottling Plant Private Limited (Associate) for Rs. 6.98 crores with respect to purchase/sundry manufacturing expenses. The Company also mentioned nil transactions with Paul Distributors Private Limited (Subsidiary). Order in the matter of M/s Pincon Spirit Limited Page 4 of 12 However on analysis of sample bank statements submitted by the Company to NSE for the period April 01, 2016 to March 31, 2017, it was observed that the Company received approximately Rs. 83.13 crores from Bhattacharya Bottling Private Limited (BBPL) during the period April 01, 2016 to March 31, 2017. Further, it was also observed that the Company had received approximately Rs. 20.57 crores and had transferred approximately Rs. 7.99 crores from/to Paul Distributors Private Limited (PDPL) (Subsidiary of PSL) during the period April 01, 2016 to March 31, 2017. (d) In this regard, Company stated that amount of Rs 83.13 crores received by PSL in their bank a/c from BBPL represents the sales proceeds deposited by BBPL in respect of sale of PSL IMIL products which cannot be retained by BBPL since the same pertains to sale of PSL brand IMIL products. PSL has booked this amount transferred by BBPL into its a/c and the amount is a part of ‘Income/ Revenue from Operations’ as reflected in the annual balance sheet (ABS) of PSL as of 31.03.2017. The amount of Rs 6.98 crores is the real “Related Party Transactions” which was entered into by PSL with BBPL during the FY 2016-17 and the same has been reflected in the ABS of PSL as of 31.03.2017. PSL also stated that it has been utilising the services of PDPL towards Distribution of PSL brand IMFL/ IMIL products throughout the state of West Bengal. PDPL carries out distribution activity on behalf of PSL. The amount of Rs 20.57 crores received by PSL from PDPL represents the distribution sale proceeds of PSL brand IMFL & IMIL products in West Bengal during FY 2016-17. For facilitating lifting of other brand IMFL products for distribution, an amount of Rs 7.99 crores was transferred to PDPL during 2016-17. The details of transactions entered into between PSL & PDPL have been verified by PSL statutory auditors and since there is no manufacturing activity involved between PSL & PDPL, the statutory auditors of PSL have certified nil related party transactions between PSL & PDPL during 2016-17 Order in the matter of M/s Pincon Spirit Limited Page 5 of 12 (e) Thus from para 25(c) & 25(d) above, it appears that the associate and/or subsidiary companies (i.e.