Order Against Almondz Global Securities Limited

WTM/SR/EFD/DRA-IV/58/03/2015
BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI

CORAM: S. RAMAN, WHOLE TIME MEMBER
ORDER
UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF
INDIA ACT, 1992 READ WITH REGULATION 28(2) OF THE SECURITIES AND
EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008.
IN THE MATTER OF INITIAL PUBLIC OFFERING OF PG ELECTROPLAST
LIMITED.
IN RESPECT OF M/S ALMONDZ GLOBAL SECURITIES LIMITED, MERCHANT
BANKER [SEBI REGISTRATION NO.: INM000000834].
Background
1.
PG Electroplast Limited ("PGEL"), a company incorporated under the Companies Act,

1956, came out with an Initial Public Offering ("IPO") of 57,45,000 equity shares of
10
each for cash at a price of 210 per equity share. The Issue opened on September 7,
2011 and closed on September 12, 2011. The shares of PGEL, issued in its IPO, were
listed on the Bombay Stock Exchange of India Limited ("BSE") and the National Stock
Exchange of India Limited ("NSE") on September 26, 2011. Almondz Global Securities
Limited ("Almondz"), a Category I Merchant Banker, was the Book Running Lead
Manager ("BRLM") for the IPO; Mr. Vinay Mehta was the Chief Executive Officer
("CEO") and Managing Director ("MD") of Almondz and Mr. Sanjay Dewan was the
authorised signatory for the Due-Diligence Certificate issued by Almondz in respect of
PGEL's IPO.
2.
Upon noticing fluctuations in the share price of PGEL on the days immediately
following its listing, Securities and Exchange Board of India ("SEBI") conducted an
investigation in the IPO of the aforesaid company. The preliminary findings of the
investigation prima facie revealed suppression of material facts and mis-statements in the
RHP and Prospectus of PGEL; siphoning off and diversion of IPO proceeds by the
company for the purpose of purchase of its own shares.
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3.
As manipulative practices were prima facie observed in the IPO of PGEL, SEBI vide an
adinterim exparte Order dated December 28, 2011 ("Interim Order") inter alia issued
directions against Almondz in view of the prima facie violations of Regulation 8(2)(b), (e)
(f) and Regulation 64(1) of the SEBI (Issue of Capital & Disclosure Requirements)
Regulations, 2009 ("ICDR Regulations") and Regulation 13 read with Clauses 14, 67
and 21 of the Code of Conduct prescribed under Schedule III of the SEBI (Merchant
Banker) Regulations, 1992 ("Merchant Banker Regulations"), whereby they were
"prohibited from taking up any new assignment or involvement in any new issue of capital including
IPO, follow-on issue etc. from the securities market in any manner whatsoever, from the date of this order
till further directions." The Interim Order was confirmed as against Almondz on September
11, 2012 ("Confirmatory Order").
4.
Thereafter, upon completion of investigation in the matter, SEBI proceeded with

proceedings against Almondz, its CEO and MD, under Sections 11(1), 11(4) and 11B of
the Securities and Exchange Board of India Act, 1992 ("SEBI Act"), in the matter of
PGEL's IPO. An Order dated March 21, 2014 (Final Order), was passed by SEBI,
against Almondz, its CEO and MD, in respect of the aforesaid proceedings with the
following directions
i.
ii.
5.
"Prohibit Almondz Global Securities Ltd. (SEBI Registration No. INM000000834), its
MD and CEO, Shri Vinay Mehta (PAN AAIPM7035P) and its authorised signatory for
due diligence certificates in respect of PGEL's IPO, Shri Sanjay Dewan (AAAPD0621Q),
from taking up any new assignment or involvement in any new issue of capital including an
IPO, follow on issue etc., from the securities market in any manner whatsoever for a period of
five years.
During the aforementioned period of five years, the Noticees shall not take up any assignment
or involvement in buy-back of securities under SEBI (Buy-Back of Securities) Regulations, 1998,
open offers under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
2011 and delisting of securities under the SEBI (Delisting of Equity Shares) Regulations,
2009."
Almondz challenged the abovementioned Final Order dated March 21, 2014, before the
Honble Securities Appellate Tribunal (SAT).
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Enquiry Proceedings against Almondz

6.1
Simultaneously, SEBI initiated proceedings against Almondz, a registered intermediary,

in terms of the Securities and Exchange Board of India (Intermediaries) Regulations,
2008 ("Intermediaries Regulations") and appointed a Designated Authority ("DA") in
respect thereof, vide Communication of Proceeding of Whole Time Member dated
October 8, 2012. The DA issued a Show Cause Notice ("SCN") dated December 14,
2012. The DA enquired into the alleged violation of the following provisions of law, viz. .
i.
ii.
6.2
Regulations 64(1) and 8(2)(b), (e)(f) of the ICDR Regulations;

Regulation 13 read with Clauses 14, 67 and 21 of the Code of Conduct
prescribed under Schedule III of the Merchant Bankers Regulations.
The abovementioned provisions alleged to have been violated by Almondz are reproduced
hereunder:
"ICDR Regulations
Regulation 8 - Documents to be submitted before opening of the issue.
8. (2) The lead merchant bankers shall submit the following documents to the Board after issuance of
observations by the Board or after expiry of the period stipulated in sub-regulation (2) of regulation 6 if
the Board has not issued observations:
(b) a due diligence certificate as per Form C of Schedule VI, at the time of registering the
prospectus with the Registrar of Companies;
(e) a due diligence certificate as per Form D of Schedule VI, immediately before the opening of the
issue, certifying that necessary corrective action, if any, has been taken;
(f) a due diligence certificate as per Form E of Schedule VI, after the issue has opened but before
it closes for subscription.
Regulation 64. (1) The lead merchant bankers shall exercise due diligence and satisfy himself about
all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents.
Merchant Banker Regulations

Regulation 13. Every merchant banker shall abide by the Code of Conduct as specified in Schedule
III.
Code of conduct.
1. A merchant banker shall make all efforts to protect the interests of investors.
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2. A merchant banker shall maintain high standards of integrity, dignity and fairness in the conduct of
its business.
3. A merchant banker shall fulfil its obligations in a prompt, ethical, and professional manner.
4. A merchant banker shall at all times exercise due diligence, ensure proper care and exercise
independent professional judgment.
6. A merchant banker shall ensure that adequate disclosures are made to the investors in a timely
manner in accordance with the applicable regulations and guidelines so as to enable them to make a
balanced and informed decision.
7. A merchant banker shall endeavour to ensure that the investors are provided with true and adequate
information without making any misleading or exaggerated claims or any misrepresentation and are
made aware of the attendant risks before taking any investment decision.
21. A merchant banker shall maintain an appropriate level of knowledge and competence and abide by
the provisions of the Act, regulations made thereunder, circulars and guidelines, which may be
applicable and relevant to the activities carried on by it. The merchant banker shall also comply with
the award of the Ombudsman passed under the Securities and Exchange Board of India
(Ombudsman) Regulations, 2003."
6.3
In his report dated May 16, 2013 ("Enquiry Report"), the DA found that Almondz had
contravened all the abovementioned provisions of law.
6.4
In view of the above, the DA recommended that Almondz be prohibited from taking up
any new assignment as a Merchant Banker for a period of two years.
Post Enquiry SCN dated May 28, 2013

7.1
After considering the Enquiry Report, PostEnquiry SCN [under Regulation 28(1) of the
Intermediaries Regulations] dated May 28, 2013 (enclosing therein a copy of the Enquiry
Report), was issued to Almondz for the alleged violation of Regulation 8(2)(b), (e)(f)
and Regulation 64(1) of the ICDR Regulations and Regulation 13 read with Clauses 14,
67 and 21 of the Code of Conduct prescribed under Schedule III of the Merchant
Banker Regulations.
7.2
As per the PostEnquiry SCN read with the Enquiry Report, Almondz was alleged to
have committed the following violations
i.
Failure to ensure disclosure of material facts in the RHP and Prospectus, such as
Page 4 of 23
a.
ii.
Funds raised by PGEL through Inter Corporate Deposits ("ICDs"), which

were in the nature of a bridge loan.
b. Purchase orders placed by PGEL for plant and machinery.
c. Suppliers and Agreements for purchase of plastic granules.
d. Agreements and Memorandum of Understandings entered into by PGEL with
certain entities for purchase of land.
Made contradictory disclosures regarding Termloan alongwith line of credit availed
by PGEL.
7.3
It is noted that on December 27, 2012, Almondz filed a consent application in terms of
the SEBI Circular No. CIR/EFD/1/2012 dated May 25, 2012. However, the consent
application was rejected by SEBI and the aforesaid fact was communicated to Almondz
vide letter dated May 30, 2013.
7.4
Thereafter, Almondz filed their reply to the PostEnquiry SCN vide letter dated June 19,
2013 and also requested for an opportunity of personal hearing. Pursuant to receipt by
SEBI of the aforesaid reply to the PostEnquiry SCN, an opportunity of personal
hearing before the Designated Member (DM) was granted to Almondz on July 11,
2013. During the aforesaid hearing, the authorised representatives for Almondz i.e. Mr.
Vinay Mehta and Mr. Sanjay Dewan, reiterated the submissions made in its aforesaid
reply to the PostEnquiry SCN.
8.
Submissions made by Almondz.
8.1
In its reply to the PostEnquiry SCN, Almondz inter alia submitted that
i.
ii.
iii.
iv.
The Prospectus is a replication of the RHP and effectively requires no updation

other than price and number of securities offered.
It was not aware of the moneys raised through ICDs by PGEL and the subsequent
fund transactions with various entities by PGEL.
The Board of Directors of PGEL did not permit the raising of moneys through
ICDs and the Loan Committee was not authorised to permit raising of moneys
through ICDs either.
It relied on the certifications and undertakings given by PGEL as well as the Comfort
Letter provided by the Statutory Auditor of PGEL, which confirmed that except for
the disclosures made in the RHP by PGEL, there was no material change in share
Page 5 of 23
v.
vi.
vii.
viii.
ix.
x.
xi.
capital, increase in current liabilities, secured and unsecured loans, deferred payment
liabilities, contingent liabilities or total liabilities or decrease in current assets, loans
and advances, fixed assets or net worth of PGEL, etc. The Comfort Letter provided by
the Statutory Auditor, on which reliance was placed by them, were unqualified,
comprehensive and in accordance with the specimen format prescribed by the
Institute of Chartered Accountants of India ("ICAI").
It was not aware of the purchase orders placed by PGEL with Modi Alloys Pvt. Ltd.
(Modi Alloys) and Aggarwal Steel Rolling Mills and Metal Industries (Aggarwal
Steel).
During the due diligence process, PGEL had neither referred to Nimbus Industries
Ltd. ("Nimbus") and Supreme Communications Ltd. ("SCL") being their suppliers,
nor informed it of any agreement entered into with them.
In respect of long term supply Agreements for purchase of plastic granules, the list
of suppliers extended by Almondz in the RHP was based on the information
supplied to it by PGEL and verified by it from its record. It is also borne out by
SEBI's own observation in its Interim Order dated December 28, 2011, that the
names of Nimbus and SCL do not appear in the list of its suppliers provide by
PGEL in its offer document.
Details of the Land Agreements entered into by PGEL with Saptrishi Suppliers Pvt.
Ltd ("Saptrishi"), Safeco Projects Pvt. Ltd. ("Safeco"), Realnet Infraprojects Pvt.
Ltd. ("Realnet") and Eastern Resorts Pvt. Ltd. ("Eastern Resorts") were not
disclosed to it by PGEL.
All the Agreements entered into by PGEL and various entities for purchase of land,
plastic granules, etc. underlying the alleged nondisclosures were not genuine and
were in all probability contrived as afterthoughts.
Due Diligence carried out by Almondz was also in accordance with the "Due Diligence
Manual" brought out by the Association of Investment Bankers of India.
The details relating to existence of the underlying Agreements, or purchase orders,
or ICDs were never disclosed to Almondz and no public notices were placed by the
Issuer. Rather to the contrary, Almondz was given a specific undertaking by PGEL
that no material adverse changes had taken place after the filing of the RHP.
Consideration of Issues and Findings

9.1
I have considered the PostEnquiry SCN issued to Almondz alongwith the Enquiry
Report provided therein, its reply to the PostEnquiry SCN alongwith the submissions
Page 6 of 23
made during the personal hearing before me and all other relevant material available on
record.
9.2
SEBI has been served with a Notice of Motion (L) No. 18 of 2015 in Writ Petition (L) No.
34/2015 Almondz Global Securities Ltd. vs. Securities and Exchange Board of India & Ors.,
filed before the Hon'ble Bombay High Court. However, the said Writ Petition is yet to
be admitted by the Hon'ble Bombay High Court.
9.3
In light of the same, I shall now proceed to deal with the charges levelled against
Almondz, in the PostEnquiry SCN read with the Enquiry Report.
10.
Nondisclosure in the Prospectus of funds raised by PGEL through ICDs, which

were in the nature of a bridge loan.
10.1
As per the PostEnquiry SCN read with the Enquiry Report, Almondz was alleged to have
failed in ensuring disclosure of material facts regarding funds raised by PGEL through
ICDs, which were in the nature of a bridge loan.
10.2
In this regard, I note that

i.
PGEL had raised funds through ICDs aggregating to approximately 52.02 Crores
(i.e. approximately 43% of the IPO size) from 7 entities, viz. Jainex Securities Pvt.
Ltd. ("Jainex"), Prraneta Industries Ltd. ("Prraneta"), Agarwal Holdings Ltd.
("Agarwal Holdings"), JRI Industries and Infrastructure Ltd. ("JRI Industries"),
Vineet Capital Services Pvt. Ltd. ("Vineet Capital"), Jay Poly Chem (India) Ltd.
("Jay Poly") and Urmi Computers Pvt. Ltd. ("Urmi") vide various Agreements,
details of which are provided below:
Page 7 of 23
Interest
Rate
(Per
Annum)
Tenure of
ICD
Actual
amount
received
by PGEL
(
Crores)
Nature of
ICD Secured/
Unsecured
Date of
repayment
of ICD
Amount
repaid
from IPO
proceeds
(
Crores)
30.00
13.5%
31 days 22.09.2011
28.75
Unsecured
22.09.2011
28.75
10.09.2011
16.00
13.5%
31 days 11.10.2011
15.65
Unsecured
22.09.2011
15.65
Agarwal
Holdings Ltd.
(Now known
as Wagend
Infra Venture
Ltd.)
JRI Industries
&
Infrastructure
Ltd.
Vineet Capital
Services Pvt.
Ltd.
Jay Poly Chem
(India) Ltd.
29.08.2011
2.00
13.5%
31 days 29.09.2011
2.00
Unsecured
22.09.2011
2.00
24.08.2011
1.00
10.5%
6 months 24.02.2012
0.92
Unsecured
15.09.2011
29.08.2011
2.00
10.5%
21 days 19.09.2011
2.00
Unsecured
20.09.2011
29.08.2011
2.50
10.5%
6 months 29.02.2012
2.50
Unsecured
20.09.2011
Urmi
Computers
Pvt. Ltd.
31.08.2011
0.20
13.5%
21 days 21.09.2011
0.20
Unsecured
20.09.2011
Entity
Date of
Agreement
Amount
agreed as
per
Agreement
( Crores)
Jainex
Securities Pvt.
Ltd.
Prraneta
Industries Ltd.
22.08.2011
Total
53.70
ii.
52.02
The date of receipt of funds by PGEL (prior to September 14, 2011 i.e. date of the
Prospectus) in respect of the abovementioned ICDs, is provided in the following
page:
Page 8 of 23
46.40
Entity
Date of
Agreement
Actual amount
received by PGEL
( Crores)
Jainex Securities
Pvt. Ltd.
22.08.2011
28.75
Prraneta Industries
Ltd.
Agarwal Holdings
Ltd. (Now known
as Wagend Infra
Venture Ltd.)
JRI Industries &
Infrastructure Ltd.
Vineet Capital
Services Pvt. Ltd.
10.09.2011
Amount received by
PGEL prior to
September 14, 2011
( Crores)
0.70
2.20
6.10
7.50
22.09.2011
15.65
Not applicable
22.09.2011
29.08.2011
2.00
3.09.2011 2.00
22.09.2011
24.08.2011
0.92
27.08.2011 0.92
15.09.2011
29.08.2011
2.00
6.09.2011 0.25
8.09.2011 1.00
12.09.2011 0.50
20.09.2011
Jay Poly Chem

(India) Ltd.
29.08.2011
2.50
1.09.2011 1.00
2.09.2011 1.00
3.09.2011 0.50
20.09.2011
Urmi Computers
Pvt. Ltd.
31.08.2011
0.20
5.09.2011 0.20
20.09.2011
52.02
** 23.87
Total
23.08.2011
24.08.2011
26.08.2011
29.08.2011
Date of repayment
of ICD
** Amount of 23.87 Crores was received by PGEL in 2 Bank Accounts, viz.

i.
SBI A/c no. 00000010642214872
ii.
HDFC Bank A/c no. 00880330001203
10.3.1 Almondz had relied on the certification (Comfort Letter) given by the Statutory Auditors.
In this context, from the Comfort Letter dated September 13, 2011, the following is noted:
a.
b.
The Statutory Auditor mentioned that " we are unable to express and do not express an
opinion on the financial position, results of operations or cash flows of the company for any period
subsequent to March 31, 2011 [emphasis supplied]."
The Statutory Auditor mentioned that they had read the un-audited financial
statements of PGEL for the period from April 1, 2011 to August 31, 2011, furnished
to it by the management of PGEL.
Page 9 of 23
c.
d.
For the period from September 1 to September 13, 2011, the Statutory Auditor had
inquired from Mr. Vishal Gupta (Executive Director - Finance), Mr. M. P. Gupta
(Assistant General Manager - Accounts) and Mr. Naveen Chandra Joshi (Assistant
General Manager - Accounts) for any material change in the financial position of
PGEL.
The Statutory Auditor had qualified that the Comfort Letter was solely for the
information of the addressees therein. (i.e. Board of Directors of PGEL and
Almondz) and to assist Almondz in conducting and documenting their investigation
of the affairs of PGEL.
10.3.2 From the above, it is clearly evident that the Comfort Letter submitted by the Statutory
Auditor and relied on by Almondz, was essentially a qualified and limited opinion, which
itself was dependent on the information furnished by the management of PGEL.
Therefore, Almondz's contention that it did not know inter alia about the existence of
funds raised through ICDs by PGEL because it relied on the Comfort Letter provided by
the Statutory Auditor, is unacceptable.
10.4
As regards the ICDs (indicated in a tabular format on page 8), a sum of
46.40 Crores
was repaid from the IPO proceeds (an amount of 104.41 Crores was received as IPO
proceeds on September 22, 2011) towards Jainex, Prraneta and Agarwal Holdings on the
very date of receipt of such proceeds. In its Prospectus dated September 14, 2011 (Point
No. 15 on page 27), PGEL stated: 'Our Company has not raised any bridge loan against the
proceeds of the present Issue No other circumstances have arisen, since the date of the last financial
statement until the date of filing of this Prospectus with SEBI, which materially and adversely affect or is
likely to affect the operations or profitability of our Company, or value of its assets, or its ability to pay
its liability within twelve months.' The aforementioned statements in PGEL's Prospectus
clearly reveal that the liability arising from the repayment of ICDs towards Jainex,
Prraneta and Agarwal Holdings (i.e. 46.40 Crores - amount paid from the IPO
proceeds), which was effectively tagged to the IPO proceeds, was not disclosed by
Almondz.
10.5
As discussed in paragraph 10.3.110.3.2 above, I find that the Comfort Letter submitted by
the Statutory Auditor and relied on by Almondz, was essentially a qualified and limited
opinion which itself was dependent on the information furnished by the management of
PGEL. I also note that a simple perusal of the bank account statements of PGEL for the
period at least after March 31, 2011 (the date of the last audited balance sheet) to
Page 10 of 23
September 14, 2011 (date of Prospectus), would have revealed funds flows on account of
raising of funds through ICDs, which effectively amounted to a bridge loan (amount
received by PGEL indicated in a tabular format on page 9).
10.6
In view of the above, I find that the charge vis--vis Almondz in respect of failure to
ensure disclosure of material facts regarding funds raised by PGEL through ICDs, which
were in the nature of a bridge loan, stands established.
11.
Nondisclosure in the Prospectus of purchase orders placed by PGEL for plant &
machinery.
11.1
have failed in ensuring disclosure of material facts in the Prospectus regarding purchase
orders placed by PGEL for plant & machinery.
11.2

i.
At page 43 of its Prospectus under the heading Objects of the Issue, PGEL had stated:
"We have not yet placed any orders for purchase of plant & machineries and utilities for our
proposed expansion project under Phase II."
ii.
Purchase orders worth 52.23 Crores (approximately) were placed by PGEL during
the period between August 30, 2011 and September 5, 2011, with several suppliers
of machinery, equipment and utilities, including Modi Alloys and Aggarwal Steel.
iii.
A study of the bank account statements of PGEL revealed that PGEL paid
Crores to Modi Alloys ( 5 Crores on August 20, 2011,
2011 and
7.85
1.85 Crores on August 24,
1 Crore on August 29, 2011) even before placing purchase orders with
the latter. Similarly, payment of 1 Crore was observed to have been made to
Aggarwal Steel on August 23, 2011, even before PGEL placed purchase orders with
the latter.
iv.
Almondz have submitted that they were not aware of the purchase orders, or the
alleged fund transfers to Modi Alloys and Aggarwal Steel, and that the disclosures
made in the RHP were on the basis of information provided by PGEL.
Page 11 of 23
v.
I am unable to accept the contentions of Almondz. As per Regulation 64 (1) of the

ICDR Regulations, the Merchant Bankers "shall exercise due diligence and satisfy himself
about all the aspects of the issue including the veracity and adequacy of disclosure in the offer
documents." Further, as per Clause 4 of the Code of Conduct for Merchant Bankers
read with Regulation 13 of the Merchant Banker Regulations, "(a) merchant banker
shall at all times exercise due diligence, ensure proper care and exercise independent professional
judgment." Almondz have submitted no material to show that it had made any
attempt to go even slightly beneath the surface of the statements furnished by
PGEL, the certification/Comfort Letter given by the Statutory Auditors of PGEL or
the due diligence reports given by the Legal Advisors to the Issue. As a Merchant
Banker is required to exercise due diligence with respect to the IPO process,
Almondz could at least have verified the bank account statements of PGEL for the
period after March 31, 2011 (the date of the last audited balance sheet) to
September 14, 2011 (date of Prospectus), for major funds flows. Such independent
verification by Almondz would surely have revealed funds flows which did not
correspond with the information made available by PGEL. It would also have
revealed the mis-statements and non-disclosures made by PGEL regarding inter alia
the purchase orders placed by PGEL. Even if Almondz had relied on the Comfort
Letter provided by the Statutory Auditor of PGEL, such reliance could not have
been such a total and absolute reliance.
vi.
Almondz have stated that the Comfort Letter provided by the Statutory Auditor, on
which reliance was placed by them, was unqualified, comprehensive and in
accordance with the specimen format prescribed by ICAI. However, I find that the
Comfort Letter dated September 13, 2011, is a qualified and limited opinion, as
expressly indicated in paragraphs H and I of the said Comfort Letter. Further, the
Comfort Letter clearly mentions in paragraph G that the procedures followed for the
purpose of the letter including reading of financial statements of PGEL, and
making inquiries of persons responsible for financial and accounting matters of
PGEL "do not constitute an audit conducted in accordance with generally accepted auditing
standards in India. In addition, they would not necessarily reveal matters of significance with respect
to the comments in the following paragraph. Accordingly, we (the statutory auditors) make no
representation about the sufficiency of the foregoing procedure for your purposes". This has to be
considered alongwith the fact that the Comfort Letter in this case was intended only 'to
assist the BRLM in conducting and documenting their investigation of the affairs of PGEL'.
Page 12 of 23
Thus, the Comfort Letter is a clearly qualified and limited opinion and is evidently not
intended to be a document for absolute reliance on the same by the Merchant
Banker. The Comfort Letter could not remotely have been a full and total substitute
for independent verification and exercise of Due Diligence by Almondz in the
matter.
vii.
make disclosure of material facts in the Prospectus regarding purchase orders placed
by PGEL for plant & machinery, stands established.
12.
Contradictory disclosures regarding Termloan alongwith line of credit availed by

PGEL.
12.1
have failed in preventing misrepresentation in the RHP and Prospectus in respect of
Term-loan alongwith line of credit availed by PGEL.
12.2

i.
It has been mentioned in the RHP and the Prospectus under the head of "Objects of
the Issue" that PGEL had raised 24.10 Crores for Prepayment of the portion of term loan
and line of credit facility proposed to be availed by our company for the expansion under Phase I.
Further, Page 29 of the RHP and Prospectus states: "For part financing the expansion
under Phase I, our Company has received the sanction for availing
2,350 Lakhs as term loan
and of US$ 3 million ( 1,410 Lakhs based on conversion rate of 1US$ = 47/-) as Line of
Credit from Standard Chartered Bank vide its sanction letter dated September 14, 2010. We have
already availed disbursement of the entire sum sanctioned to us". However, in the table on
Page 30 of the RHP as well as Prospectus, with respect to the term loan and letter of
credit, it was stated - Amount availed as on the date of this RHP NIL.
ii.
I find that contradictory statements pertaining to term-loan alongwith line of credit

availed by PGEL have been made in the RHP and Prospectus of PGEL. The
abovementioned statements in the RHP and Prospectus [reproduced at paragraph
12.1(i)], were thus misleading. I find that the incorrect disclosure in the RHP was not
rectified in the Prospectus, which is supposed to be the main updated document
which is relied upon by investors during and after the IPO. This error is therefore a
Page 13 of 23
significant lapse on the part of Almondz, and reflects a lack of diligence on their
part.
iii.
In the Enquiry Report, the DA has referred to the reply made by Almondz in
proceedings before that Authority wherein it highlighted various instances such as
on pages no. 40, 86 & 87 and 171 & 172 of the RHP, where disclosures regarding
sources of finances for expenditure, term loan, etc. were made. The DA has
considered the aforesaid and has noted that there was no other evidence to suggest
that Almondz had 'intentionally' given wrong disclosures. Accordingly, the DA has
given Almondz the benefit of doubt stating that disclosure relating to disbursement
of term loan alongwith line of credit appearing in the RHP, was inadvertently
mentioned as "NIL". The DA has nonetheless observed that Almondz should have
been more diligent and exercised proper care in avoiding such lapses in the RHP and
Prospectus of PGEL, which may mislead investors.
iv.
As a Merchant Banker, Almondz was obligated to undertake all reasonable efforts

for carrying out thorough due diligence to ensure adequate and truthful disclosures
in the RHP and Prospectus of PGEL. This obligation involved examining
everything required for giving a true account of the facts in the RHP and Prospectus
of PGEL, which would affect the interest of investors. The investors would have
decided to invest in PGEL on the faith that Almondz would have conducted due
diligence with utmost sincerity and because it failed to act diligently, the investors
were put to grave danger. In view of the aforesaid, I find that Almondz cannot be
said to have fulfilled its obligation as a Merchant Banker through contradictory and
inaccurate disclosures in the RHP and Prospectus of PGEL. I, therefore, am unable
to agree with the benefit of doubt accorded by the DA to Almondz, in respect of the
instant charge.
v.
prevent misrepresentation in the RHP and Prospectus in respect of amount of
Term-loan alongwith line of credit availed by PGEL, stands established.
Page 14 of 23
13.
Nondisclosure of names of certain companies in the list of suppliers for plastic

granules, their agreements alongwith financial transactions.
13.1
have failed in ensuring disclosure of material facts in the Prospectus regarding names of
certain companies in the list of suppliers for plastic granules, their agreements alongwith
financial transactions.
13.2

i.
During the investigation conducted by SEBI, PGEL provided a copy of the

following additional Agreements, which reveal the existence of additional suppliers
of raw materials to the company, viz.
a.
Agreement dated August 31, 2011 with Nimbus, for purchase of plastic granules
b.
valued upto 3.50 Crores.

Agreement dated August 31, 2011 with SCL for purchase of plastic granules
valued upto
ii.
5 Crores.
The list of suppliers, as disclosed by PGEL at page 76 of the Prospectus, contained

the names of LG Polymers, BASF, Supreme Petrochem, etc. However, the names of
Nimbus and SCL do not appear in the said list of suppliers. Considering that the
combined value of the above Agreements dated August 31, 2011, with Nimbus and
SCL was 8.50 Crores, the same was undoubtedly material information which was
required to have been disclosed in the Prospectus.
Entity
Nimbus Industries Ltd.
Payments made by PGEL prior to September 14, 2011

( Crores)
5.09.2011 2.35
8.09.2011 0.40
Supreme Communications Ltd.
8.09.2011 1.50
Total
** Amount of 4.25 Crores was paid by PGEL through 4 Bank Accounts, viz.
i.
SBI A/c no. 00000031765471877
ii.
SBI A/c no. 00000031765482416
iii.
SBI A/c no. 00000010642214872
iv.
HDFC Bank A/c no. 00880330001203
Page 15 of 23
** 4.25
iii.
Almondz have submitted that PGEL had neither referred to Nimbus and SCL as
being its suppliers, nor informed Almondz of any purchase agreement entered into
with Nimbus or SCL.
iv.
Considering that the combined value of the Agreements dated August 31, 2011 with
Nimbus and SCL was 8.5 Crore, the same was material information which was
required to have been disclosed in the Prospectus. The PostEnquiry SCN read with
the Enquiry Report mentions that PGEL transferred funds amounting to
2.35
Crores and 40 Lakhs to Nimbus on September 5, 2011 and September 8, 2011,

respectively. Further, the PostEnquiry SCN read with the Enquiry Report also
mentions that PGEL transferred funds amounting to 1.50 Crores to SCL on
September 8, 2011. As the Merchant Banker responsible for ensuring accurate and
adequate disclosures in the RHP and Prospectus, Almondz was under an obligation
to undertake reasonable efforts to verify the accuracy of the information submitted
by PGEL for disclosure in its RHP and Prospectus. Instead, Almondz relied
completely on the certifications and undertakings of PGEL, as well as the Comfort
Letter provided by the Statutory Auditor. If only Almondz had at least looked into
the bank statements of PGEL for the period after March 31, 2011 (the date of the
last audited balance sheet) to September 14, 2011 (date of Prospectus) (payment
details indicated in a tabular format on page 16), substantial funds flows including
transfer of a total of 4.25 Crores before September 14, 2011, to Nimbus and SCL,
would have been easily noticed. I find that the contentions of Almondz in defence
of its omission to ensure disclosure of the names of Nimbus and SCL in the list of
suppliers of raw material in the Prospectus, are not acceptable.
v.
make disclosure of material facts in the Prospectus regarding names of certain
companies in the list of suppliers for plastic granules, their agreements and the
financial transactions stands established.
Page 16 of 23
14.
Nondisclosure of Agreements and Memorandum of Understandings entered

into by PGEL with certain entities for purchase of land.
14.1
have failed in ensuring disclosure of material facts in the Prospectus regarding
Agreements/Memorandum of Understandings ("MOUs") entered into by PGEL with
certain entities for purchase of land.
14.2
In this regard, I note that PGEL was alleged to have entered into Agreements/MOUs
for purchase of land with Saptrishi, Safeco, Realnet and Eastern Resorts for a total
consideration value of approximately
80 Crores, which is almost 66% of the Issue size
of 120.64 Crores. The details of the Agreements/MOUs entered into by PGEL for
purchase of land are as follows:
Page 17 of 23
Name
Date of
of
MOU
entity
Saptrishi 21.09.2011
Location of land
Total
consideration
value ( Crores)
18
Tamil Nadu
Safeco
27.08.2011
Karnataka
Realnet
2.09.2011
Eastern
Resorts
Pvt.
Ltd.
26.08.2011
As per MOU, Realnet would

12 15
locate and procure land on
The amount was
behalf of PGEL in Greater
not mentioned in
Noida
the MOU.
Amount indicated
is as per PGELs
letter dated
10.04.2012.
As per MOU, Eastern
25
Resorts has 80 acres in Virat
Nagar (Jaipur) and is in
process of acquiring 45
acres.
Further, as per MOU,
PGEL would purchase
entire 2nd Floor of the
proposed building.
25
Payments made by PGEL prior

to September 14, 2011
( Crores)
Not applicable
25.08.2011
26.08.2011
27.08.2011
5.09.2011
7.00
3.00
2.50
2.50
6.09.2011 2.00
26.08.2011
1.09.2011
2.09.2011
9.09.2011
2.00
1.00
1.00
1.00
** Total 22.00
** Amount of 22 Crores was paid by PGEL through 3 Bank Accounts, viz.
i.
SBI A/c no. 00000010642214872
ii.
Standard Chartered Bank A/c no. 52205923018
iii.
HDFC Bank A/c no. 00880330001203
14.3
I note that
i.
At page 83 of the RHP, it was mentioned that "there is no property which our
company has acquired or propose to purchase or acquire which is to be paid wholly,
or in part, from the net proceeds of the Issue or the purchase of acquisition of which has not been
completed as on the date of filing of this RHP with SEBI". At page 83 of the Prospectus,
it was mentioned that Except as stated in section titled Objects of the Issue appearing on
page no. 28 of this Prospectus, there is no property which our Company has
purchased or acquired or propose to purchase or acquire which is to be paid

Page 18 of 23
wholly, or in part, from the net proceeds of the Issue or the purchase or acquisition of
which has not been completed as on the date of filing of this Prospectus with SEBI".
ii.
Almondz have submitted that PGEL did not inform them about details pertaining
to land deals at the time when the Prospectus was being finalized. Almondz have
also submitted that PGEL specifically affirmed vide Underwriting Agreement
dated September 13, 2011 and letter dated September 14, 2011 that no material
developments have taken place after August 17, 2011. It was also submitted that
the Statutory Auditor vide Comfort Letter dated September 13, 2011, had confirmed
that there were no material developments after the date of filing of the RHP i.e.
August 17, 2011. It was also contended by Almondz that the Statutory Auditor's
letter was based on the format specified by ICAI. However, I observe that PGEL
made advance payments of upto
2 Crores to Eastern Resorts on the date of the
MOU i.e. August 26, 2011, and 10 Crores to Safeco even before the MOU
dated August 27, 2011, as consideration for purchase of land. Thus, I find that if
only Almondz had at least looked into the bank statements of PGEL for the
period after March 31, 2011 (the date of the last audited balance sheet) to
September 14, 2011 (date of Prospectus) (payment details indicated in a tabular
format on page 18), irregularities in funds flows would have been easily noticed,
and investors could have been prevented from being misled by inaccurate
disclosures in the Prospectus dated September 14, 2011. Therefore, I find that
Almondz failed to adhere to the high standards of service and due diligence
required of a Merchant Banker.
iii.
make disclosure of material facts in the Prospectus regarding Agreements/MOUs
entered into by PGEL with certain entities for purchase of land, stands established.
Conclusion.
15.1
The issue to be considered is whether, in the facts of this case, Almondz exercised
reasonable care and diligence as a Merchant Banker.
15.2
I note that Regulation 64(1) of the ICDR Regulations refers to the duty of the lead
Merchant Banker to ensure "veracity and adequacy of disclosure in the offer documents". An 'offer
document' as defined in Regulation 2(1)(x) of the ICDR Regulations "means a red herring
Page 19 of 23
prospectus, prospectus or shelf prospectus and information memorandum". Therefore the

requirements for accurate and adequate disclosures as stipulated in the ICDR Regulations
are applicable as much to the Prospectus as to an RHP. Regulations 8(2)(b), (e)(f) of the
ICDR Regulations require the lead Merchant Banker to file Due Diligence Certificates as
stipulated in Forms C, D and E in Schedule VI of the ICDR Regulations. Forms C, D
and E require the Merchant Banker to submit due diligence certificates to SEBI,
certifying that all material disclosures at the time of registering the RHP or the
Prospectus with the Registrar of Companies, as well as immediately before opening of
the issue, and after opening of issue but before closure of subscription, are made and
updated for the respective applicable dates. Thus, the Prospectus has to contain accurate
and adequate disclosures in all respects, as on the date of registration of RHP as well as
the Prospectus.
15.3
I note that the following duediligence Certificates were submitted by Almondz

i.
ii.
iii.
15.4
Vide letter dated September 1, 2011, Almondz submitted the duediligence

Certificate under Regulation 8(2)(b) of the ICDR Regulations, wherein it was
stated 'the said Red Herring Prospectus contains all the material disclosures in respect of the
Issuer Company as on the said date.'
Certificate under Regulation 8(2)(e) of the ICDR Regulations, wherein it was
stated 'This is to certify that all the material disclosures in respect of the Issuer as on the date
of opening of the Issue have been made through the Red Herring Prospectus.'
Certificate under Regulation 8(2)(f) of the ICDR Regulations, wherein it was
stated 'This is to certify that all the material disclosures in respect of the Issuer as on date
have been made through the Red Herring Prospectus.'
As discussed in the preceding paragraphs in respect of each allegation levelled vis--vis

Almondz, a complete failure to carry out reasonable due diligence has been observed.
Reasonable efforts on the part of Almondz to at least check the bank account
statements of PGEL for the period after March 31, 2011 (the date of the last audited
balance sheet) to September 14, 2011 (date of Prospectus) and the complete minutes of
PGEL's Board meeting dated August 17, 2011, would surely have revealed that the
undertakings and letters of PGEL did not correspond with the funds flows in its bank
accounts. Due diligence carried out in compliance with the ICDR Regulations and the
Page 20 of 23
Merchant Banker Regulations could have prevented the mis-statements and nondisclosures in the RHP and Prospectus of PGEL.
16.1
A Merchant Banker is appointed for the purpose of managing the issue of an IPO of a
Company and co-ordinates the activities of the Company, the Regulatory Bodies, and the
Investors. The Merchant Banker has responsibilities towards the Company, to manage
the entire process of issue of its IPO, and to investors to present the Company's
information before them in a concise and unambiguous form. The Merchant Banker is
therefore expected to exercise due diligence to ensure the adequacy and appropriateness
of the disclosures made in offer document. Due diligence does not merely mean that the
Merchant Banker will passively report all that has been reported to him but to examine
everything that is required to give a true account of the facts in the prospectus. It is
about making an active effort to find out material developments that would affect the
interest of the investors. It is on the faith that the Merchant Banker would have
conducted the due diligence with utmost sincerity that the investing public goes forward
and decides to invest in a particular company. If the Merchant Banker fails to act
diligently and comply strictly with the letter and spirit of the regulations, the investors are
put to grave danger.
16.2
In this regard, it may be pertinent to note the observations of the Hon'ble Securities
Appellate Tribunal in the matter of HSBC Securities and Capital Markets (India) Private Ltd.
vs. SEBI, SAT Appeal No. 99 of 2007, where it held that "ensuring the truth and correctness of
the letter of offer is a fundamental responsibility of the merchant banker which he has to discharge by
exercising due diligence." Further, the Hon'ble Supreme Court in the matter of Chander Kanta
Bansal vs. Rajinder Singh Anand [(2008) 5 SCC 117] had discussed the concept of 'due
diligence' and observed that due diligence meant 'reasonable diligence; such diligence as a
prudent man would exercise in the conduct of his own affairs.'
17.
Considering the important role of a Merchant Banker in the public issue of a company,
Almondz in the present case cannot take refuge under the Comfort Letter issued by the
Statutory Auditor and certifications/undertakings by PGEL. Further, the procedural
AIBI Due Diligence Manual cited by Almondz would not be of any help unless the
Merchant Banker takes proactive and prudent steps to independently verify the material
details and circumstances surrounding the Public Issue. If the contention regarding
absolute reliance placed by Almondz on the comfort letter of the Statutory Auditor is
accepted, it will negate the very requirement of a Merchant Banker in any Public Issue.
Page 21 of 23
Therefore, Almondz cannot seek to evade its primary responsibility (as a Merchant
Banker) of undertaking all reasonable efforts to carry out thorough due diligence for
ensuring accurate and complete disclosures in the 'offer document'.
18.
Passive and absolute reliance on undertakings and letters of PGEL and the Statutory
Auditor were not enough for Almondz to discharge its legal obligations under the
ICDR Regulations and the Merchant Banker Regulations. The due diligence exercise
conducted by Almondz was completely lacking in thoroughness, thus rendering it
liable for total dereliction of duty as Merchant Banker in the IPO of PGEL.
Therefore, I find that Almondz fell well short of exercising reasonable diligence and
care, to satisfy themselves of the veracity and adequacy of disclosures in the RHP and
Prospectus of PGEL, and thus violated the Regulations 8(2)(b), (e)(f) and 64(1) of the
ICDR Regulations and Regulation 13 read with Clauses 14, 67 and 21 of the Code of
Conduct prescribed under Schedule III of the Merchant Banker Regulations.
19.
Enquiry proceedings are mainly disciplinary proceedings initiated against intermediaries

registered with SEBI. Section 12(3) of the SEBI Act provides that: "The Board may, by
order, suspend or cancel a certificate of registration in such manner as may be determined by
regulations". I find that the violations committed by Almondz (as detailed in the
preceding paragraphs) were part of a larger scheme, which affected the integrity of the
securities market and deprived gullible investors of material information for making an
informed decision in respect of PGEL's IPO. SEBI had earlier taken necessary steps vide
Interim Order against Almondz and was justified in doing so considering the prima facie
gravity of offences committed in PGEL's IPO inter alia by Almondz. On considering the
totality of the facts and circumstances and the interest of securities market, I am of the
considered view that the following Order would meet the ends of justice.
Order
20.1
I note that vide the Interim Order dated December 28, 2011 (later confirmed through
the Confirmatory Order on September 11, 2012), Almondz was "prohibited from taking up
any new assignment or involvement in any new issue of capital including IPO, follow-on issue etc. from
the securities market in any manner whatsoever, from the date of this order till further directions."
Page 22 of 23
20.2
I note that in separate proceedings initiated against Almondz under Sections 11(1),
11(4) and 11B of the SEBI Act, in the matter of PGEL's IPO, SEBI vide Final Order
dated March 21, 2014, prohibited that entity from taking up
i.
ii.
"Any new assignment or involvement in any new issue of capital including an IPO, follow on
issue etc., from the securities market in any manner whatsoever for a period of five years.
Any assignment or involvement in buy-back of securities under SEBI (Buy-Back of Securities)
Regulations, 1998, open offers under the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 and delisting of securities under the SEBI (Delisting of Equity
Shares) Regulations, 2009."
20.3
I note that in the Enquiry Report dated May 16, 2013, as submitted by the DA in
accordance with Regulation 27 of the Intermediaries Regulations, it was recommended that
Almondz be prohibited from taking up any new assignment as a Merchant Banker for a period of two
years. As stated in the preceding paragraph, I find that the effect and consequence of the
aforesaid prohibition on Almondz, if imposed through this Order, will be substantially
the same as that of the directions issued against it vide the abovementioned Final
Order dated March 21, 2014. In view of the same, while finding Almondz guilty of
contravening the provisions of ICDR Regulations and the Merchant Banker
Regulations, I however, find that no further direction needs to be issued in these
proceedings since Almondz has already been prohibited for the aforesaid misconduct.
20.4
The PostEnquiry SCN dated May 28, 2013, is accordingly disposed of.
Place: Mumbai
Date: March 20, 2015
S. RAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Page 23 of 23

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WTM/SR/EFD/DRA-IV/58/03/2015

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI

PG Electroplast Limited ("PGEL"), a company incorporated under the Companies Act,

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Thereafter, upon completion of investigation in the matter, SEBI proceeded with

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Enquiry Proceedings against Almondz

Simultaneously, SEBI initiated proceedings against Almondz, a registered intermediary,

Regulations 64(1) and 8(2)(b), (e)(f) of the ICDR Regulations;

Merchant Banker Regulations

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Post Enquiry SCN dated May 28, 2013

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Funds raised by PGEL through Inter Corporate Deposits ("ICDs"), which

Submissions made by Almondz.

The Prospectus is a replication of the RHP and effectively requires no updation

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Consideration of Issues and Findings

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Nondisclosure in the Prospectus of funds raised by PGEL through ICDs, which

In this regard, I note that

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Jay Poly Chem

** Amount of 23.87 Crores was received by PGEL in 2 Bank Accounts, viz.

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As regards the ICDs (indicated in a tabular format on page 8), a sum of

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In this regard, I note that

1.85 Crores on August 24,

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I am unable to accept the contentions of Almondz. As per Regulation 64 (1) of the

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Contradictory disclosures regarding Termloan alongwith line of credit availed by

In this regard, I note that

2,350 Lakhs as term loan

I find that contradictory statements pertaining to term-loan alongwith line of credit

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As a Merchant Banker, Almondz was obligated to undertake all reasonable efforts

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Nondisclosure of names of certain companies in the list of suppliers for plastic

In this regard, I note that

During the investigation conducted by SEBI, PGEL provided a copy of the

valued upto 3.50 Crores.

The list of suppliers, as disclosed by PGEL at page 76 of the Prospectus, contained

Nimbus Industries Ltd.

Payments made by PGEL prior to September 14, 2011

Supreme Communications Ltd.

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Crores and 40 Lakhs to Nimbus on September 5, 2011 and September 8, 2011,

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Nondisclosure of Agreements and Memorandum of Understandings entered

80 Crores, which is almost 66% of the Issue size

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As per MOU, Realnet would

Payments made by PGEL prior

purchased or acquired or propose to purchase or acquire which is to be paid

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2 Crores to Eastern Resorts on the date of the

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prospectus, prospectus or shelf prospectus and information memorandum". Therefore the

I note that the following duediligence Certificates were submitted by Almondz