Private firm's three directors convicted for not following Sebi rules

A court here has convicted a private company and its three directors in an over 23-year-old case under the SEBI Act and Collective Investment Scheme (CIS) regulations, saying they trapped innocent people by promising them unrealistic returns.

Additional Sessions Judge Vandana Jain was hearing a 2001 case against Kisley Plantation Ltd, a company in East Patel Nagar, and its directors against whom SEBI had registered a case.

According to the Securities and Exchange Board of India, the company was running a CIS and raised an aggregate amount of around Rs 2.43 crore from the general public, without registering with the regulatory body, while promising high returns and fiscal incentives.

In its order dated October 8, the court said, "It has been proved beyond reasonable doubt that accused no.1 (Kisley Plantation) floated Collective Investment Schemes while there was a complete embargo under Section 12 (1B) of SEBI Act to launch any such scheme."

The section deals with obtaining a mandatory registration certificate from SEBI for sponsoring or carrying out CIS.

The court said the firm's directors S P Rai, Mohammed Abul Kalam, and Prem Lata were active directors, responsible for the company's day-to-day affairs.

"The accused persons trapped innocent public by promising them returns which were unrealistic and could never be given. Accused persons failed to prove that any payment was made to any of the investors under the scheme floated by the company at any point in time," the court said.

It also said that no report about the winding up of the company was submitted to SEBI.

With these observations, the court convicted the company and its three directors under SEBI and CIS regulations.

The offences are punishable with a maximum imprisonment of 10 years or a fine up to Rs 25 crore or both.

The matter has been posted on Monday for filing of mandatory documents, following which the arguments on sentencing will be heard.