Lokmangal Agro, a company promoted by sitting cooperatives minister Subhash Deshmukh in 1998, has come under the scanner of the Securities and Exchange Board of India (Sebi) for violation of rules while accepting deposits from sugarcane producers for a proposed sugar mill. The Sebi, in an order issued on August 1, had raised objections over the company not taking permission before issuing equity shares. The Sebi has issued a show-cause notice to the firm and ordered it to return the deposits with interest. Meanwhile, Mr Deshmukh admitted that the company had failed to inform Sebi about the deposits but denied that it was a case of financial fraud.
S. Raman, a full-time member of Sebi, issued a show-cause-cum-interim notice to Lokmangal Agro at the beginning of the month, restraining the director and the firm from mobilising funds by issuing equity shares, or any other form of securities, to the public until further notice.
Mr Raman has ordered that deposits accepted from the public be repaid within eight days without interest from the date of his order. However, if the director fails to meet this deadline, the firm will be compelled to repay the amount with four to 15 per cent interest.
Background of the case Subhash Deshmukh and his family members had incorporated Lokmangal Agro with paid-up capital of Rs 99.96 crore on August 16, 1998 to launch a sugar mill in Solapur. The firm accepted deposits worth Rs 74.82 crore from 4,751 sugarcane-producing farmers from 2009 to 2011 and issued preferential shares to its investors. Mr Deshmukh resigned as promoter and director of the firm on March 31 2009, but his son Mahesh and daughter-in-law Aboli Mahesh still serve as directors.
Sebi’s objections When more than 49 per cent of a company’s equity shares are issued to investors, it is deemed a ‘public issue’, according to Section 67(3) of the Companies Act. As Lokmangal had accepted Rs 74.82 crore in deposits, which is more than 49 per cent, the company had to inform the stock exchange. Mr Raman said the company had failed to deposit the deposits it collected from investors in a scheduled bank. These actions, according to Sebi, were in violation of the rules, making the firm liable for a show-cause notice.
Sahara judgment invoked While issuing the notice, Mr Raman referred to the judgment of the Supreme Court in the case involving Sahara India Real Estate Corporation Limited. The apex court had observed, “If an offer of securities is made to fifty or more persons, it would be deemed to be a public issue, even if it is of domestic concern or proved that the shares or debentures are not available for subscription or purchase by persons other than those received the offer or invitation’.
Minister denies any wrongdoing Reacting to the notice, Mr Deshmukh agreed that the firm had to inform Sebi before and after accepting deposits from farmers. “It was a mistake, but we didn’t misuse the shareholders’ money. We haven’t committed any fraud with the deposits. The Sebi has given us time to reply,” the minister said.
