Sushil Finance Limited settled SEBI action over 2008 allotment

Sushil Finance settled possible Securities and Exchange Board of India action over its February 29, 2008 allotment of 2,67,000 equity shares to 502 people, which it said violated public-issue requirements. The settlement charge was Rs 12.1875 lakh, and seven eligible shareholders later sold 7,600 shares through an exit offer at Rs 63 each.

Why was Sushil Finance’s 2008 allotment treated as a public issue?

Sushil Finance said the February 29, 2008 allotment raised a public-issue compliance concern because it involved 502 allottees, exceeding the 49-person threshold specified in the first proviso to Section 67(3) of the Companies Act, 1956. That proviso, inserted by the Companies Amendment Act, 2000, provided that an offer or invitation to more than 49 persons would be considered a public offer.

The company disclosed three operational allotments of equity shares with a face value of Rs 10 each: 7,06,000 shares to 193 persons dated November 1, 1996; 4,08,500 shares to 65 persons dated October 31, 1999; and 2,67,000 shares to 502 persons dated February 29, 2008. The February 2008 group was the largest by both number of shares and recipients, accounting for 502 of the disclosed allottees in that transaction.

Sushil Finance stated in its settlement application that the February 2008 preferential allotment violated Sections 56, 67 and 73 of the Companies Act, 1956, along with the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2009, or DIP Guidelines. The company applied to settle the matter without admitting findings of fact or conclusions of law.

The Companies Act, 2013 introduced a different test from April 1, 2014, under which an offer or allotment to more than 200 persons in a financial year is construed as a public issue. Sushil Finance identified the earlier 49-person standard, rather than the later 200-person standard, as relevant to the February 2008 allotment. The 502-person allotment was above both numerical thresholds, although the prospectus describes its legal non-compliance under the 1956 Act.

How did Sushil Finance settle the SEBI action?

Sushil Finance settled the possible SEBI proceedings by paying Rs 12.1875 lakh after its voluntary, or suo motu, settlement application was accepted in May 2019. The settlement addressed the defaults specified in the company’s application concerning the February 2008 allotment.

The application was made under the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014, which were replaced by the SEBI (Settlement Proceedings) Regulations, 2018 from January 1, 2019. Sushil Finance submitted revised settlement terms in a letter dated March 2, 2019 and said it had provided an exit offer to eligible shareholders and submitted a compliance certificate from an independent chartered accountant.

SEBI’s High-Powered Advisory Committee considered the proposed terms on March 29, 2019 and recommended settlement upon payment of Rs 12.1875 lakh. SEBI’s Panel of Whole Time Members accepted that recommendation on May 10, 2019, and the decision was communicated to Sushil Finance by email on May 15, 2019.

The disclosed order states that SEBI would not initiate enforcement action against Sushil Finance for the specified defaults covered by the settlement. That protection is limited to the defaults settled under the order; it does not amount to a general statement on every historic corporate or shareholding matter.

What separate action did the NCLT take over the allotment?

The National Company Law Tribunal, Ahmedabad Bench, called upon Sushil Finance to pay a penalty of Rs 36.1575 lakh for an offence under Section 67(3) of the Companies Act, 1956. The order was dated December 6, 2018 and followed a compounding application filed by the company with the applicable fee.

Compounding is the statutory process through which an offence may be resolved by the relevant authority on prescribed terms. The NCLT matter concerned the stated non-compliance under Section 67(3), while the later SEBI settlement covered Sushil Finance’s disclosed non-compliance with Sections 56, 67 and 73 and the DIP Guidelines.

The NCLT order preceded SEBI’s acceptance of the settlement by about five months, with the tribunal order dated December 6, 2018 and SEBI acceptance dated May 10, 2019. The prospectus records the Rs 36.1575 lakh NCLT penalty and the Rs 12.1875 lakh SEBI settlement charge as separate regulatory outcomes, rather than describing either one as the sole resolution of the historical allotment issue.

SEBI circulars dated December 31, 2015 and May 3, 2016 addressed companies that issued securities to more than 49 but up to 200 people in a financial year before April 2014. Sushil Finance nevertheless said it provided an exit offer as a matter of abundant caution and better corporate governance, even though its February 2008 allotment involved 502 persons.

Who could use the Sushil Finance exit offer and at what price?

Sushil Finance offered eligible equity shareholders Rs 63 per share, and seven shareholders accepted the offer for 7,600 shares. The board resolution dated January 18, 2018 nominated the promoter, promoter group and senior management personnel Rajesh Punjabi as purchasers for the exit process.

Eligibility was determined as of January 22, 2018. Eligible shareholders included original allottees holding shares issued through the stated allotments, as well as holders of shares gifted by promoter Upendra T. Shah that were acquired through direct allotment or secondary acquisition.

Of the 7,600 shares sold under the exit offer, Utpall Praful Shah purchased 4,000 shares and Rajesh Punjabi purchased 3,600 shares. The seven participating shareholders were not equivalent to the 502 people in the February 2008 allotment because the offer applied to current holders meeting the specified eligibility conditions at the January 2018 date.

Sushil Finance submitted to SEBI a February 14, 2018 certificate from Shailash Shah and Associates, an independent firm, based on its review of shareholding aggregates and the exit-offer process. The 2015 and 2016 SEBI circulars contemplated an exit price of at least the subscription amount plus 15% annual interest, net of specified amounts already paid, or a higher promised return; the prospectus states the actual offer price as Rs 63 per share.

Conclusion

Sushil Finance’s prospectus records a historical compliance issue arising from the 502-person February 2008 allotment. The disclosed response comprised a Rs 36.1575 lakh NCLT penalty, a Rs 12.1875 lakh SEBI settlement without admissions, and an exit offer under which seven shareholders sold 7,600 shares at Rs 63 each.

What remains to watch is the company’s disclosure on historic promoter share-transfer records. Sushil Finance said it had been unable to locate certain transfer forms and depository instruction slips, relied on a September 22, 2026 report from Mittal V Kothari & Associates, and reported no related legal or regulatory action as of the Red Herring Prospectus date; it also said it could not assure that no future action would arise.