Case: Ritesh Agarwal  Vs. Securities &amp; Exchange Board Of India&amp;Ors

1. Ritesh Polysters Ltd. (Company) was a company incorporated and registered under the provisions of the Companies Act, 1956. One Surender Kumar Agarwal was shown to be a promoter in the brochure issued by the Company. However, his wife Rookprekha Agarwal and their two sons Ritesh Agarwal and Deepak Agarwal (Appellants, who were said to be minors at the relevant time) also purported to have made contributions. The Company came out with a public issue of 30 lakh equity shares of Rs. 10/- each at a premium of Rs. 5/- per share aggregating to Rs. 450 lakhs. A prospectus therefor was issued. The issue opened on 12.06.1995. It closed on 22.06.1995. 15 lakh shares of Rs. 10/- each for cash at a premium of Rs. 5/- per share were reserved for firm allotment to the promoters and directors of the company and their friends and relatives. A sum of Rs. 2.25 crores (Rs. 225/- lakhs) was to be invested by the promoters. The issue went through. It later transpired that Pratha Investments, Ritesh Capital and Ritesh Agarwal asked for issuance of duplicate shares contending that the shares allotted in their favour had been misplaced. An advertisement was issued. A notice was also sent to the Stock Exchange. The Stock Exchange, however, on an enquiry made in that behalf, came to learn that the alleged lost shares had in fact been sold in the market. The trading in the scrip of the Company was suspended.2. The matter was referred to the Securities and Exchange Board of India (for short "the Board"). In an enquiry conducted by the Board, it was discovered that only 7.96% of the public issue had been subscribed by the public till the closing date and the promoters who were required to subscribe Rs. 225/- lakhs had invested a sum of Rs. 35/- lakhs only. A large number of other irregularities were also found. As the Board has noticed the said irregularities in great details, it is not necessary for us to repeat the same once over again. The Board, by its order dated 9.02.2004,Therefore, in the interest of the investors and safety and security of the capital market, in exercise of powers conferred on me under Section 4(3) read with Section 11 and 11B of SEBI Act and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 1995, I, hereby, direct M/s. Ritesh Polyster Limited and its promoters, viz., Ritesh Exports Ltd., Sh. Surendra Kumar Agarwal, Smt. Roop Rekha Agarwal, Sh. Ritesh Agarwal and Sh. Deepak Agarwal to disassociate themselves in every respect from the capital market related activities and not to access the capital market for a period of ten years.41. Further, in light of the facts and circumstances of the case, it is already made out that the public issue by the promoters was hoax with an intention to perpetrate fraud on investors. Therefore, I am of the view that it would be appropriate to pass a direction under section 11B of the SEBI Act as a remedial measure. I hereby direct the above named promoters of Ritesh Polyster Ltd. to buy back the shares from the allottees/ shareholders offering an amount at which the shares were issued i.e. Rs. 15/- per share if the shares are fully paid or @ Rs. 7.50 per share if the shares are partly paid and delist Ritesh Polyster Ltd. from the stock exchanges.An appeal was preferred thereagainst before the Tribunal. However, none of the findings of fact were in question. The said findings of fact, therefore, had attained finality. The Tribunal, by reason of the impugned judgment, negatived the plea of the appellants Ritesh Agarwal and Deepak Agarwal that they were minors at the relevant time,appellants in appeal no. 43/2004 have taken a plea that they were minors at the time when the company went in for the public issue and, therefore, the Board was not justified in issuing any direction to them. We are unable to accept this plea. We are informed that the Board has launched prosecution against the company and its promoters. In those proceedings it may be relevant for these appellants to contend that they were minors, but in the present proceedings which are of civil nature, the plea can have no relevance. At any rate, they had attained majority on the date when the impugned order was passed and, therefore, the direction restraining them from accessing the capital market could be issued by the Board.The Tribunal opined that the Company and its promoters played fraud on the public and the Board was justified in debarring the promoters and the Company from having access to the capital market for a period of 10 years. It also agreed with the other directions of the

Reasoning: 19. Ritesh Agarwal and Deepak Agarwal are said to be minors. As they were minors having regard to the provisions of the Indian Contract Act, they could not have been proceeded against strictly in terms of the provisions of the said Act. Apart from the actions taken by the Board, the persons who undertook those fraudulent actions may also be held to be guilty of making a mis-representation and commission of fraud not only before the prospective purchasers of the shares but also before the statutory authority. The same, however, would itself not mean that a minor would not be penalized for entering into a contract which per se was not enforceable. A contract must be entered into by a person who can make a promise or make an offer. If he cannot make an offer or in his favour an offer cannot be made, the contract would be void as an agreement which is not enforceable in law would be void. Section 11 of the Indian Contract Act provides that the person who is competent to contract must be of the age of majority. If Ritesh Agarwal and Deepak Agarwal were minors, as would appear from their birth certificates, they could not have entered into the contract.20. We, therefore, are of the opinion that subject to any other or further order which the Board may pass as against Shri Surender Kumar Agarwal and Smt. Rooprekha Agarwal, the impugned directions would not be binding on Ritesh Agarwal and Deepak Agarwal.21. We do not accept the contention of Ms. Aggarwal that the offence is a continuing one.22. We do not also accept the contention that Rooprekha Agarwal was not a promoter and only promoters were Ritesh Polyesters Limited and Surender Kumar Agarwal. We, however, accept the contention of Mr. Sundaram that Ritesh Agarwal and Deepak Agarwal could not have proceeded against for violation of the FUTP Regulations.23. We, however, uphold other directions issued by the Board including the action taken in respect of the offences purported to have been committed. We also grant liberty to the authorities to proceed against the offenders not only for other or further charges to which they made themselves liable under the SEBI Act but also under the Companies Act, 1956 and other penal statutes, if attracted.