Sub : Refund of application money to investors in the public issue of M/s.Jaltarang Motels Ltd.

M/s.Jaltarang Motels Ltd (hereinafter referred to as ‘the Company’) came out with a public issue of 36 lakhs equity shares of Rs.10 each for cash at par aggregating to Rs. 360 lakhs. The issue opened for public subscription on December 21, 1995 and closed on December 26, 1995. The issue was oversubscribed by 11.78 times. However, applications totaling to 2,11,26,300 shares were withdrawn before the allotment was made. SEBI received complaints in regard to the public issue. In the complaints it was also stated that there was connivance of the promoters with the registrar and that the promoter of the Company i.e. Sri Atul Shah had entered into an understanding to carry out grey market operations, to rig the prices of the said shares immediately prior to the listing in order to fraudulently induce the public to invest in the company. 

In view of the complaints received, an investigation in respect of the public issue of the company and matters incidental thereto was ordered vide order dated April 16,1995. After completion of investigation, an opportunity of being heard was granted to Shri Atul Shah, Promoter of the Company and thereafter an Order was passed on December 19, 1996, wherein the Company was directed to refund the subscription received from the public issue. Appeal filed by the Company, against the Order, was dismissed by the Appellate Authority. Appellate Authority also dismissed the revision application, which was filed by the Company on 30.09.97, vide its letter dated 17.03.98. SEBI, thus directed the Company on 19.03.98 , to ensure refund of subscription money in terms of its Order dated December 19, 1996 and to file a compliance report by 31.03.98. The Company did not respond to the same. In furtherance thereof, a Show-Cause Notice 27.04.98 was served on the Company asking them to show cause as to why the company, its group companies and any other company wherein any officer in default is associated be not debarred from accessing capital market for a period of 5 years, but it did not submit its reply. Another letter dated November 19,1998 was issued to the Company and its directors, who were asked to submit reply to the said Show Cause Notice. The reply in this regard was not made. 

Finally, an opportunity of personal hearing was granted to the Company and letter dated 16.02.99 in this regard, was served on each of the directors. Hearing, was attended by Shri Atul Shah, Promoter and Managing Director of the company, on March 03, 1999, who promised to submit a scheme for refund to the investors and sought time of 15-days. Another hearing was held on May 12, 1999, but subsequently, Mr. Atul Shah neither evinced any interest in the refund of amount to the investors nor attended further personal hearings in the matter. 

In spite of more than a reasonable opportunity having been given, the Company and its Promoters/Directors failed to co operate with SEBI to refund the monies to the investors. Therefore, the issuer company i.e. Jaltarang Motels Ltd, its group or associate companies, have been debarred from accessing the capital market for a period of 5 years. Further Shri Atul Shah, Managing Director, Smt Bhavini Shah, Ms. Shaila Shah, Shri Vinod Shah who were directors at the relevant time have been restrained from dealing in securities in any manner for a period of 5 years. 

It was also alleged that Union Bank of India (hereinafter referred to as ‘the Bank’) while acting as one of the Bankers to the Public Issue of the company transferred from the Public Issue Collection Account a sum of :- 

1. Rs.30 lacs and Rs.150 lacs to the company’s account on 7.2.96 and 10.2.96, respectively. The Bank also paid Rs.25 lacs to M/s.Sagar Drugs Pharmaceutical Ltd on 8.2.96 and Rs.5.21 lacs to Navnitlal & Co. (Advertising Agency) on 10.2.96.

2. Rs.100 lacs and Rs.5 lacs on 4.3.96 and 5.4.96 respectively to the company’s account even before the Bombay Stock Exchange (BSE) granted permission for listing.

As the action of the bank in releasing the proceeds of public issue without ensuring that each of the stock exchanges mentioned in the prospectus have granted permission for listing amounted prima facie to gross negligence of the bank who were acting in a fiduciary capacity of public funds, a show cause notice dated January 11,1999 was issued to the Bank asking it to show cause as to why the amount negligently released by it should not be recovered from the Bank.
 
Similar notice was also issued to the Bank of Baroda for releasing Rs.38,89,218/- on 25.3.96 from the public issue collection account to the company’s account even though the listing permission was not granted by Bombay Stock Exchange. The bank submitted its reply. 
 
After granting an opportunity of personal hearing to the Bankers, it is concluded that the Bank allowed the company in withdrawing the funds and also transferred the funds to third parties before the listing permission was granted by the Bombay Stock Exchange. In fact, Bombay Stock Exchange had refused listing. 
 
Further, in view of the facts of the case and the provisions of Section 73(1A) read with the decision as laid down by the Supreme Court in Rishyasingha Jewellery Ltd vs Stock Exchange, Bombay, the investors are entitled for the refund of application money. Thus, a right is accrued in favour of the investors for the refund of application money when the Bombay Stock Exchange had turned down the request of the company for listing of its shares. Therefore, the contention of the Bank that SEBI has no powers to order refund is without basis. SEBI by passing the order of refund is only performing its statutory duty and ensuring that the provisions of law are abided by. In this case the Bank which was acting in a fiduciary capacity as Custodian of public funds acted negligently in allowing withdrawal of funds from the public issue account by the issuer company without ensuring that each of the stock exchanges mentioned in the Prospectus had accorded permission for listing. 
 
Therefore, Union Bank of Inida was directed to refund a sum of Rs.353.32 lacs together with interest @ 15% p.a. from 3.4.96 i.e. the last day they allowed withdrawal of the funds by the company. 
 
Similarly, Bank of Baroda was directed to refund a sum of Rs. 40,31,018/- together with interest @ 15% p.a. from 25.3.96 i.e. the day they allowed withdrawal of the funds by the company. 
 
Detailed instructions on the method and manner of refund to the investors in the public issue will be issued separately in consultation with the intermediaries concerned.