WTM/RKA/CFD/ 65/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER
Under section 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act,
1992 in respect of Shah Group Builders Limited, Mr. Nalin Virji Shah, Ms. Neelam Nalin
Shah and Mr. Nirav Nalin Shah.
In the matter of Shah Group Builders Limited.
1.

Securities and Exchange Board of India (SEBI) conducted a preliminary inquiry into the
issuances of equity shares by Shah Group Builders Limited (hereinafter referred to as
SGBL) with a view to ascertain the possible non-compliances with the public issue
norms stipulated under the provisions of the Companies Act, 1956 including sections 56,
60 and 73 thereof and other applicable laws including the SEBI Regulations/Guidelines.
Pursuant to the inquiry, SEBI passed an ad interim ex parte order dated February 12, 2015
(hereinafter referred to as the interim order) against SGBL and its promoters and directors
namely, Mr Nalin Virji Shah, Ms. Neelam Nalin Shah and Mr Nirav Nalin Shah (hereinafter
collectively referred to as the Noticees) in view of the following: SGBL has issued equity shares to 1,522 persons and mobilized funds to the tune of
22,50,57,190 during the period of July 28, 2008 to March 30, 2012. As noted earlier the
Company had made allotments to more than 49 persons on four instances i.e. on October 06, 2008,
October 16, 2008, October 26, 2008 and November 15, 2008. As per the first proviso to Section
67(3) of the Companies Act, 1956, where the offer or invitation to subscribe for shares or
debentures is made to fifty persons or more, then it has to be construed as a public offer. Further, the
Company has admitted to circulation of the 'information memorandum' among the potential investors
to solicit subscription for its equity shares and confirmed the receipt of application money during the
period of 2006 - 2008. The offer and issue of equity shares by the Company through eight (8)
allotments made during the period of July 28, 2008 to November 15, 2008 to 1,521 investors
cannot prima facie be said to be a 'private placement'. Hence, the issue made by SGBL prima facie is
nothing but public offer of securities. I also note that the allotment made on March 30, 2012, to Shah
Group Builders & Infraproject Limited, also prima facie appear to be from the same offer of equity
shares through which the allotments were made in the year 2008."

2.

By the interim order following interim directions were issued against the Noticees:
a. The Company, namely, Shah Group Builders Limited [PAN: AAJCS8586M] and its promoters
and directors including Mr. Nalin V. Shah [DIN:0194184], Ms. Neelam N. Shah

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[DIN:00194214] and Mr. Nirav N. Shah [DIN:00194239] are restrained from mobilizing funds
through the issue of equity shares or through any other form of securities, to the public and/ or invite
subscription, in any manner whatsoever, either directly or indirectly till further directions.
b. Shah Group Builders Limited and its promoters and directors including Mr. Nalin V. Shah, Mr.
Nirav N. Shah and Ms. Neelam N. Shah are prohibited from issuing prospectus or any offer
document or issue advertisement for soliciting money from the public for the issue of securities, in any
manner whatsoever, either directly or indirectly, till further orders.
c.

Shah Group Builders Limited and its promoters and directors including Mr. Nalin V. Shah, Mr.
Nirav N. Shah and Ms. Neelam N. Shah shall not dispose off any of the properties or alienate the
assets of the Company or dispose off any of their properties or alienate their assets.

d. Shah Group Builders Limited and its promoters and directors including Mr. Nalin V. Shah, Mr.
Nirav N. Shah and Ms. Neelam N. Shah shall not divert any funds raised from public at large
through the issuance of the impugned equity shares, kept in its bank accounts and/or in the custody of
the Company without prior permission of SEBI until further orders.
e.

Shah Group Builders Limited and its promoters and directors including Mr. Nalin V. Shah, Mr.
Nirav N. Shah and Ms. Neelam N. Shah are restrained from accessing the securities market and are
further prohibited from buying, selling or otherwise dealing in securities in any manner whatsoever,
either directly or indirectly, till further directions.

f.

Shah Group Builders Limited and its promoter and directors including the above named persons shall
co-operate with SEBI and shall furnish all the documents. They shall also reconcile and submit the
correct position in respect of allotments made on March 30, 2006 and May 24, 2006.

g. Shah Group Builders Limited, its promoters and directors are also directed to provide a full inventory
of all their assets and properties and details of all their bank accounts, demat accounts and holdings of
shares/ securities, if held in physical form.
3.

Vide the interim order, the Noticees were also called upon to show cause as to why
appropriate action under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange
Board of India Act, 1992 (SEBI Act) read with the provisions of SEBI (Issuance of
Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations) including
the following, should not be taken/imposed against them:
a. directing them jointly and severally to refund the money collected through the issue of equity shares
that are impugned in this Order, along with interest that is promised to the investors;

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b. directing them to not to issue prospectus or any offer document or issue advertisement for soliciting
money from the public for the issue of securities, in any manner whatsoever, either directly or
indirectly, for an appropriate period;
c.

directions restraining them from accessing the securities market and prohibiting them from buying,
selling or otherwise dealing in securities for an appropriate period;

d. directing them and other companies in which their directors hold substantial or controlling interest,
to not access the capital market for an appropriate period.
4.

The Noticees submitted a joint reply dated March 05, 2015. The Noticees were provided
an opportunity of personal hearing on April 17, 2015 when their authorized representatives
appeared and made submissions on their behalf and made a prayer for interim relief for
vacating the direction contained in para 18(c) of the interim order and requested for another
date of hearing for making further submissions in response to the interim order. The said
request of the Noticees was acceded to and another opportunity was given to them on May
05, 2015 when their authorized representatives appeared and made submissions on their
behalf. The Noticees also filed their written submissions vide letter dated April 23, 2015,
April 29, 2015, May 8, 2015, May 11, 2015, June 10, 2015 and June 18/24, 2015. The
replies/ submissions of the Noticees are summarised below:
i.

The proceedings against the Noticees emanate from an investor complaint received by
SEBI on October 4, 2013. The Noticees have not been provided with a copy of the
said investor complaint.

ii.

SGBL was in need of money to fund its project at Kharghar and decided to approach a
group of close family members, relatives and friends (who were not more than 20
persons) and issued an Information memorandum dated May 25, 2006. Only 20
Information Memorandum were printed and given to 20 close family members,
relatives and friends. It was never the intention of the Noticees to make an offer to
more than 20 persons nor was there any intention to invite subscriptions form more
than 20 persons to subscribe to equity shares of SGBL. It would be erroneous to
assume that the information memorandum was in circulation during the entire period
between the date of issuance i.e. May 25, 2006 and the date of allotment of equity
shares i.e. November 2008. It would also be erroneous to assume that the share
application money was received by SGBL pursuant to circulation of Information
Memorandum.

iii.

The Noticees never advertised the fact that SGBL was planning future projects and
inviting subscription to its equity shares. The Noticees also did not carry out any

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advertisement in any manner to publicize the fact that SGBL was undertaking a private
placement. At no point of time between 2006 and 2008 did the Noticees offer or invite
subscriptions from the public at large to subscribe to the shares of SGBL.
iv.

It was always the intention of the Noticees to contribute their own funds for the
purpose of completing the project. It was never the intention of SGBL and its
promoters to compete the project using public funds.

v.

Noticees did not promise any assured returns to the investors at any point of time and
did not invite subscriptions from the public at large to subscribe to the equity shares of
SGBL.

vi.

However, given the popularity of SGBL, the word spread and over a period of two
years, a large group of people advanced money to SGBL to contribute to its future
projects and SGBL accepted money from these persons on one to one basis.

vii.

Section 67(3) of the Companies Act, 1956 only prevents a company from making an
invitation to subscribe to shares to more than 49 persons but does not prevent
allotment of equity shares to more than 49 persons at one time. In terms of this section
an offer or invitation to subscribe to subscribe for share made to 50 or more persons
could be a deemed public issue. An allotment to 50 or more persons without an offer
or invitation to subscribe to shares is not covered in deeming provisions contained in
proviso to section 67(3).

viii.

SGBL never intended to make a public issue or to make an allotment so as to

circumvent the provisions of law. Had it intended so, it could have done it by allotting
equity shares to less than 50 persons in many tranches but it did not do so as it was not
the intention of SGBL to circumvent the provisions of section 67(3).

ix.

As per the Supreme Court order in Sahara matter, where offer is made to less than 50
persons, the same cannot be construed to be a public issue. As mentioned above, the
Information Memorandum was issued to personally identified close family members,
friends and relatives and the money received by SGBL was not as a result of making an
offer or inviting subscriptions from more than 50 persons. Therefore, SGBL did not
make a deemed public offer under section 67.

x.

As there was no deemed public offer under section 67, the Noticees were not in
violation of sections 60B(2), 60B(9) read with section 2(36), 56(1), 56(3) and 73 of the
Companies Act, 1956.

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xi.

In view of the above, the Noticees stated that they have not violated any provisions of
the applicable laws and requested SEBI to set aside the directions issued under the
Interim order.

xii.

After the year 2008, SGBL did not issue any shares to public. The allotment made to
Shah Group Builders and Infraproject Ltd. (SGBIL) on March 30, 2012 against an
amount 12.75 crore cannot be construed to be part of alleged public offer made
during 2006-08 as the said allottee is a promoter group company owned by the
promoters of SGBL and the subscription money was received later in the year 2011-12.
Further, the purpose of the said allotment to SGBIL was to ensure the debt equity
ratio of 2:1 which was a condition stipulated by the lenders before sanctioning the loan
to SGBL.

xiii.

During the period July 2008 to November 2008, SGBL allotted shares to 1521 persons
(other than SGBIL) who wished to contribute to the project. A sum of 9.75 crore was
accepted from said 1521 persons. Further, out of these 1521 persons, not all of them
can be said to be members of the public as the equity shares were also issued to family
members and relatives of SGBL who may fall under promoter / promoter group of
SGBL. A sum of 2.90 crore was raised from 134 friends, family members and relatives
who cannot be construed as part of public shareholders.

xiv.

However, the Noticees were not involved in solicitation of funds from them. For the
same reason they were naturally wary of immediately allotting equity shares in SGBL.
Hence the money received from these persons was kept in the current account in the
form of share application money and ample time was given to such persons to
withdraw their monies. However, due to the goodwill and reputation enjoyed by the
Noticees very few of the persons who advanced their share application money to
SGBL, withdrew their money.

xv.

The total amount received from the remaining allottees (out of aforesaid 1521 persons)
was approximately 6.85 crore which is less than 5% of the total project cost. Thus, the
directions issued vide the interim order are disproportionate and unwarranted.

xvi.

The interim order passed against the Noticees does not impute any dishonesty, fraud,
manipulation or any other unfair trade practice.

xvii.

Even assuming that the allegation levelled in the interim order are held true, there would
only be a technical violation of the provisions of the Companies Act and the SEBI Act
requiring certain formalities to be carried out before soliciting monies from the public.
At the highest, the Noticees may be called upon to refund all the money collected from

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the allottees. No further action can lawfully be taken against the Noticees even if it is
presumed that all the allegations in the interim order are held to be correct.
xviii.

The Noticees were ready in the past and even now to refund the outstanding amounts.
In fact, the Noticees had bought back 70.97 lakh shares from 604 persons (approx.
45% of the outside shareholders) at a consideration of 3,59,11,700 before the interim
order. Outside public shares are approx. 3.25 crore only which forms 1% (approx.) of
the project cost.

xix.

SGBL may be permitted to deduct the part payments already made by SGBL to the
shareholders.

xx.

SGBL may be permitted to deposit 3.25 crore (within 3-4 weeks from the final order)
in any designated escrow account towards the refund due to outside shareholders and
balance interest liability of 2 crore may be allowed to be secured by way of corporate
guarantee or mortgage of property

5.

xxi.

SGBL has a monthly outgo of around 11.50 crore towards interest / redemption of
loans/debentures and construction cost.

xxii.

The interest rate payable to public shareholders cannot be higher than prevailing rate of
interest provided by banks for fixed deposits as held by Honble Supreme Court in
Clariant International Limited vs. SEBI.

I have considered the reply, written submissions, aforesaid letters sent by the Noticees and
other material available on record. It is noted that SGBL has issued equity shares to 1,522
persons and mobilized funds to the tune of 22,50,57,190 during the period of July 28,
2008 to March 30, 2012.The list of allotments made by SGBL as mentioned in the interim
order is as under:
Date of board
meeting

No. of allottees

No. of Equity
Shares

Amount raised (in )

28/07/2008

44

84,60,000

84,60,000

04/08/2008
04/08/2008
06/10/2008

22
3
1,112

36,73,000
2,50,000
1,11,22,800

73,46,000
6,25,000
5,56,14,000

16/10/2008
26/10/2008

96
148

8,50,000
22,92,170

51,00,000
1,60,45,190

05/11/2008
15/11/2008

1
95

1,500
4,35,500

12,000
43,55,000

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30/03/2012
Total
6.

1
1,522

3,18,75,000
5,89,59,970

12,75,00,000
22,50,57,190

I note that all the allotments referred in the above Table have been found in the interim order
to be pertaining to the same offer of equity shares. As mentioned in the above table, 8
allotments of equity shares have been made by SGBL during the period July 2008 to
November 2008, whereas 1 allotment has been made on March 30, 2012. Regarding the
allotment dated March 30, 2012 made to SGBIL, the Noticees have contended that the
same cannot be construed as a public offer as SGBIL belonged to the promoter group and
the subscription money in respect of the said allotment was received in the year 2012.
Further, the allotment was made to SGBIL to ensure the debt equity ratio of 2:1 which was
a necessary condition stipulated by the lenders for the purpose of sanctioning the loan to
SGBL. I find that the allotment of 3,18,75,000 shares exclusively and independently
promoter group entity SGBIL for 12.75 crore infused by it to SGBIL can be regarded as a
private placement and, therefore, the allotment made by SGBL on March 30, 2012 is to be
excluded for the purpose of examination of the questions that arise in the present
proceedings.

7.

The Noticees have admitted that during the period July 2008 to November 2008, SGBL
allotted shares to 1521 persons. As per the interim order, these allotments were pursuant to
offer of equity shares made by SGBL to the allottees. The Noticees have disputed the same
and have contended that SGBL never intended to make a public issue and it did not make
any offer or invitation to 50 or more persons for subscription to its shares In this
backdrop, the key question for consideration is whether the allotments made by SGBL
during the period July 2008 to November 2008 can be construed as a public offer.

8.

In order to deal with the prima facie findings against the Noticees in the interim order and their
contentions in respect thereof, I deem it necessary to refer to the provisions of section 67
of the Companies Act,1956 as it applied at the relevant time and provided as under:Construction of references to offering shares or debentures to the public, etc.
67 (1) Any reference in this Act or in the articles of a company to offering shares or debentures to the
public shall, subject to any provision to the contrary contained in this Act and subject also to the
provisions of sub-section (3) and (4), be construed as including a reference to offering them to any
section of the public, whether selected as members of debenture holders of the company concerned or as
clients of the person issuing the prospectus or in any other manner.
(2) Any reference in this Act or in the articles of a company to invitations to the public to subscribe
for them extended to any section of the public, whether selected as members or debenture holders of the
company concerned or as clients of the person issuing the prospectus or in any other manner.

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(3) No offer or invitation shall be treated as made to the public by virtue of sub- section (1) or subsection (2), as the case may be, if the offer or invitation can properly be regarded, in all the
circumstances
(a) as not being calculated to result, directly or indirectly, in the shares or debentures becoming
available for subscription or purchase by persons other than those receiving the offer or invitation; or
(b) otherwise as being a domestic concern of the persons making and receiving the offer or invitation :
Provided that nothing contained in this sub-section shall apply in a case where the offer or invitation
to subscribe for shares or debentures in made to fifty persons or more:
.."
9. I note that section 67 of the Companies Act provides for rule of construction for treating an
issue of shares or debentures as public issue. From the language of section 67, it is very clear
that construction of public issue under sub-sections (1) and (2) thereof is subject to
provisions of section 67(3). Section 67(3) exempts an offer or invitation from the purview of
the construction laid down in section 67(1) and 67(2), if such offer or invitation can properly
be regarded, in all the circumstances i. as not being calculated to result, directly or indirectly, in the shares or debentures
becoming available for subscription or purchase by persons other than those
receiving the offer or invitation; or
ii. otherwise as being a domestic concern of the persons making and receiving the
offer or invitation.
10. I note that the first proviso to section 67(3) states that nothing contained in this subsection shall apply in a case where the offer or invitation to subscribe for shares or
debentures in made to fifty persons or more. Thus, in terms of the first proviso to section
67(3), any offer or invitation to fifty or more persons to subscribe for shares or debentures
is a public issue even if a case satisfies the conditions under section 67(3) (a) or (b). In
other words, an offer or invitation to 50 or more persons is a public issue even if it is
shown that the shares or debentures are not available for subscription or purchase by
persons other than those receiving the offer or invitation. In this regard it is also to be kept
in mind that the first proviso was inserted in section 67(3) vide the Companies
(Amendment) Act, 2000, with effect from December 13, 2000, in order to curb the
companies from offering shares and debentures to a wider group of people by disguising it
as domestic concern. In my view, the intention of the Legislature, as envisaged in the
said Amendment Act is that any mobilization of funds from a group of investors, fifty or
more in number, should be classified as a "public issue".

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11. The Noticees have contended that only 20 copies of the Information Memorandum were
ever made and it was never the intention of the Noticees to issue Information
Memorandum to more than 20 persons. Further, at no point of time between 2006 and
2008 did the Noticees offer or invite subscriptions from the public at large to subscribe to
the shares of SGBL. The Noticees have also submitted that it was only because of the
popularity of SGBL that the word spread and over a period of two years, a large group of
people advanced money to SGBL to contribute to its future projects and the company
accepted money from these persons. In this regard, I note that as held by the Hon'ble
Supreme Court in its judgement and order dated August 31, 2012 in matter of Sahara India
Real Estate Corporations Limited & Ors. Vs SEBI & Anr. [(2013) 1 SCC 1] (hereinafter
referred to as the "Sahara Order"), by virtue of the first proviso to section 67(3) of the
Companies Act, the issuance of shares to more than 49 persons would become an offer to the
public. Further, even the issue which satisfies the requirements of sections 67(3)(a) and (b)
would be treated as an issue to the public if it is made to fifty or more persons. Iit is pertinent
to note that the questions of law with regard to number of allotees exceeding 49 in an issue of
securities, interpretation of section 67(3) of the Companies Act, applicability of SEBIs
Regulations/Guidelines, etc. have been settled by the Hon'ble Supreme Court of India in the
Sahara Order. The following observations of the Honble Supreme Court made in the Sahara
Order in this regard are noteworthy
"..Even those issues which satisfy Sections 67(3)(a) and (b) would be treated as an issue to the public if it
is issued to fifty or more persons, as per the proviso to Section 67(3) and as per Section 73(1), an application
for listing becomes mandatory and a legal requirement. Reading of the proviso to Section 67(3) and Section
73(1) conjointly indicates that any public company which intends to issue shares or debentures to fifty persons
or more is legally obliged to make an application for listing its securities on a recognized stock exchange.
. after the amendment to the Companies Act, 1956 on 13.12.2000, every private placement
made to fifty or more persons becomes an offer intended for the public and attracts the
listing requirements under Section 73(1). Even those issues which satisfy Sections 67(3)(a) and (b) would be
treated as an issue to the public if it is issued to fifty or more persons, as per the proviso to Section 67(3) and
as per Section 73(1), an application for listing becomes mandatory and a legal requirement. Reading of the
proviso to Section 67(3) and Section 73(1) conjointly indicates that any public company which

intends to issue shares or debentures to fifty persons or more is legally obliged to

make an application for listing its securities on a recognized stock exchange.
12. Accordingly, even if SGBL circulated only 20 copies of the information memorandum and did
not make a direct invitation to the persons to whom it allotted the shares, the issuances of
shares by SGBL would be treated as public issue" since the number of allottees exceeded 49.
The Noticees have also sought to contend that section 67(3) only prevents a company from
making an invitation to subscribe to shares to more than 49 persons and does not prevent
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allotment of equity shares to more than 49 persons at one time. I note that Hon'ble
Supreme Court in the Sahara Order has observed that every private placement made to fifty or more
persons becomes an offer intended for the public". It is important to mention that in case of an
allotment of shares, the offer is made by the person who intends to subscribe to the shares of
the company and the acceptance thereof is to be made by the company. In the present case,
the company i.e. SGBL continued to accept the offers of the intending subscribers and issued
shares to as many as 1521 allottees. Had it been the intention of SGBL to make only a private
placement of equity shares, it could have restricted the number of allottees to 20 or maximum
to 49. The fact that SGBL kept on allotting shares to as many as 1521 allottees is itself
indicative that allotments in questions were not on private placement basis. I also note that as
per the Noticees own submissions only 134 allottees were the friends, family members and
relatives of the promoters/directors of SGBL whereas the remaining allottees (out of the total
1521 allottees) belonged to the public. In my view, if the above argument of the Noticees is
accepted, it will defeat the very purpose for which the proviso to section 67(3) was inserted
vide the Companies (Amendment) Act, 2000 i.e. to curb the abuse of section 67(3)(a)and (b).
In view of the above, I reject the contentions of the Noticees in this regard and find that the
allotments of equity shares by SGBL on 8 occasions during the period July 28, 2008 to
November 15, 2008 were public issues.
13.

The Noticees have also contended that out of the 1521 allottees, not all can be said to be
belonging to public as the equity shares were also issued to family members and relatives of
SGBL who may fall under promoter / promoter group of SGBL. In this regard, I note that
even the fact that some of the allottees in these allotments belonged to the promoter group of
SGBL cannot alter the nature of the issue. As observed by the Honble Supreme Court in the
Sahara Order, even a private placement made to more than 49 persons would be treated as an
issue made to the public in terms of the provisions of the Companies Act, 1956. In view
thereof, I do not find any merit in the contention of the Noticees in this regard

14.

I note that since the issuances of equity shares by SGBL during the period July 28, 2008 to
November 15, 2008 were public issues, it ought to have complied with the applicable
provisions of the Companies Act, 1956 and SEBI (Disclosure and Investor Protection)
Guidelines, 2000 (DIP Guidelines) read with the corresponding provisions of the ICDR
Regulations as found in the interim order. In the present case, there is no dispute as to the fact
that SGBL while making the aforesaid public issues has not complied with the provisions of
section 60 read with section 2(36), 56(1), 56(3) and section 73 of the Companies Act, 1956
and clauses 2.1.1, 2.1.4, 2.1.5, 2.8, 4.1, 4.11, 4.14, 5.3.1, 5.3.3, 5.3.5, 5.3.6, 5.4, 5.6, 5.6A, 5.7,
5.8, 5.9, 5.10, 5.12.1, 6.0 to 6.15, 6.16 to 6.34, 8.3, 8.8.1 and 9 of the DIP Guidelines. Further,
since the requirements of these applicable provisions have been clearly stipulated in the interim

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order, I do not deem it necessary to reiterate the same and burden this order with same
findings.
15.

I note that Mr. Nalin V. Shah, Ms. Neelam N. Shah and Mr. Nirav N. Shah were the
directors of SGBL at the relevant point of time and authorised the issuance of shares. As
found hereinabove, the issuance of shares during July 28, 2008 to November 15, 2008 was
a public issue" and in respect thereof, the applicable provisions of the Companies Act and
DIP Guidelines / ICDR Regulations were not complied by SGBL. The board of directors
of SGBL at the time of the above mentioned issuance of shares, being in control of the
affairs of SGBL, was under an obligation to ensure that the issuance was in compliance
with all the applicable provisions of the Companies Act, 1956, SEBI Regulations and other
applicable laws. In my view, the above named directors of SGBL as on the date of the
above mentioned issuances of shares are also "officers in default" as defined under section 5
of the Companies Act, 1956. I, therefore, find that Mr. Nalin V. Shah, Ms. Neelam N. Shah
and Mr. Nirav N. Shah are also responsible for the acts and omissions of SGBL.

16.

In view of the foregoing, I find that in respect of the allotment of equity shares during the
period July 28, 2008 to November 15, 2008, the Noticees have failed to comply with the
provisions of section 60 read with section 2(36), 56(1), 56(3) and section 73 of the
Companies Act, 1956 and clauses 2.1.1, 2.1.4, 2.1.5, 2.8, 4.1, 4.11, 4.14, 5.3.1, 5.3.3, 5.3.5,
5.3.6, 5.4, 5.6, 5.6A, 5.7, 5.8, 5.9, 5.10, 5.12.1, 6.0 to 6.15, 6.16 to 6.34, 8.3, 8.8.1 and 9 of the
DIP Guidelines read with regulation 107 and 111 of the ICDR Regulations.

17.

One of the consequence of the aforesaid non-compliance/violations is refund/repayment

of subscription money to the allottees with interest as provided in clause 17 of DIP
Guidelines / regulation 18 of ICDR Regulations read with section 73 and section 56 of the
Companies Act, 1956. With regard to liability to pay interest on the subscription money, I
note that as per section 73 (2) of the Companies Act, the company and every director of
the company who is an officer in default is jointly and severally liable, to repay all the
money with interest at prescribed rate. In this regard I further note that in terms of rule 4D
of the Companies (Central Government's) General Rules and Forms, 1956 the rate of
interest prescribed in this regard is 15%. Accordingly, the Noticees are liable to pay interest
to the subscribers at such statutory rate of interest and their request in this regard cannot
be acceded to.

18.

In this case, the interim order cum show cause notice does not contain any charge regarding
fraudulent fund raising by the Noticees or any fund mobilisation with mala fide intent so as
to have any adverse impact on the integrity of the securities market. I have also considered
the facts and circumstances brought on record by the Noticees, particularly the fact that the
funds raised by SGBL through the aforesaid public issue are not substantial as compared to

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the cost of projects undertaken by SGBL. In view of the above, I am of the view that, in
this case, restraining the disposal of any asset by the Noticees would be disproportionate. I
further note that the Noticees have already undergone the restraint imposed by the interim
order for more than 4 months. Taking into account the aforesaid facts and circumstances, I
find that the following directions would be commensurate with the violations found in this
case.
19.

I, therefore, in exercise of the powers conferred upon me under sections 11(1), 11(4) and
11B read with section 19 of the Securities and Exchange Board of India Act, 1992 and
regulation 107 and 111 of the Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2009 hereby issue the following directions:
i.

The Noticees i.e. Shah Group Builders Limited [PAN: AAJCS8586M] and its
promoters / directors namely, Mr. Nalin V. Shah [DIN:0194184], Ms. Neelam N.
Shah [DIN:00194214] and Mr. Nirav N. Shah [DIN:00194239] shall, jointly and
severally, refund/repay the money to the tune of 6,15,88,300/- collected pursuant to
the allotment of shares by Shah Group Builders Limited during the period July 28,
2008 to November 15, 2008, to the allottees along with interest at the rate of 15% per
annum from the date of receipt of money from them till the date of such refund,
within a period of one year from the date of this order. However, the Noticees shall
ensure that not less than 25% of the refund/repayment directed above is made to the
allottees in every quarter starting from the date of this order. A quarterly report shall
be submitted by the Noticees in this regard at the end of each quarter.

ii. Such refund shall be made only in cash through a Demand Draft or Pay Order.
iii. The Noticees shall produce documentary evidence certified by a Chartered Accountant
to show the refund/repayment of 3,59,11,700/- as claimed by them within a period
of one month failing which, the direction given in paragraph 19(i) above shall follow
with respect to this amount also.
iv. The Noticees shall maintain stock-in-trade of a minimum of 15 crore on a continuous
basis till the full refund/repayment as directed hereinabove is made.
v. The Noticees shall issue a public notice, in all editions of one English national daily
and one vernacular daily with wide circulation, detailing the modalities for refund,
including details of contact persons including names, addresses and contact details,
within fifteen days of this order.

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vi. Within seven days of completion of refund as directed hereinabove, the Noticees shall
file a certificate of such completion with SEBI from two independent peer reviewed
Chartered Accountants who are in the panel of any public authority or public
institution. Such certificate shall be issued by the Chartered Accountants after verifying
the relevant documents including bank accounts of the Noticees and satisfying
themselves that the refund has actually been made. For the purpose of this order, a
peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has
been categorized so by the Institute of Chartered Accountants of India.
vii. The Noticees are restrained from, directly or indirectly, accessing the capital market by
issuing prospectus, any offer document or advertisement soliciting money from the
public and are further prohibited from buying, selling or otherwise dealing in the
securities market, directly or indirectly, in whatsoever manner for a period of 18
months or till the date of refund of money to the allottees whichever is later.
viii. Mr. Nalin Virji Shah, Ms. Neelam Nalin Shah and Mr. Nirav Nalin Shah are also
restrained from associating themselves, with any listed public company and any public
company which intends to raise money from the public, for a period of 18 months or
till the date of refund of money to the allottees whichever is later.
ix. For the purposes of paragraphs 19(vii) and 19(viii), the period of restraint shall be
counted from the date of the interim order.
20.

The interim order cum show cause notice dated February 12, 2015 is disposed of accordingly.
The above directions are without prejudice to the right of SEBI to take any other
appropriate action for the violations found in this case or to initiate any action in case of
failure to comply with the above directions, in accordance with the provisions of applicable
laws including the proceedings under the provisions of section 28A of the SEBI Act.

21.

The order shall come into force with immediate effect. A copy of the order shall be served
on the Noticees to ensure compliance with the above directions. A copy of this Order shall
also be forwarded to the recognised stock exchanges and depositories for information and
necessary action.
Sd/-

Date: July 1st, 2015

Place: Mumbai

RAJEEV KUMAR AGARWAL

WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

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