You are on page 1of 25

WTM/SR/SEBI/EFD-DRA4/25 /04/2016

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI


S. RAMAN, WHOLE TIME MEMBER
ORDER
Under Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read
with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Market) Regulations, 2003 and the SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2009 in respect of :
1. Edserv Softsystems Limited (PAN: AAACL7131L),
2. Mr. S. Giridharan, Chairman and CEO (PAN: AAGPG2646E),
3. Ms. G. Gita, Managing Director (PAN: AAGPG2647F),
4. Mr. IIango Balakrishna, Director (PAN: AAJPI0688K),
5. Mr. T.S. Ravichandran, Director (PAN: AAJPR0108F) and
6. Mr. S. Arvind, Director (PAN: AACPA7943E).

1. Edserv Softsystems Ltd. ("Edserv/the company") came out with an Initial Public Offer
(IPO) of 39.74 lakh shares of face value of Rs. 10/- at an issue price of Rs. 60/- per equity share
aggregating to Rs. 23.84 crores. The Red Herring Prospectus was dated January 19, 2009 and the
Prospectus was dated February 17, 2009. The bids opened on February 5, 2009 and closed on
February 09, 2009. Keynote Corporate Services Limited was the Book Running Lead Manager
("BRLM") for the IPO.
2. The primary objective of the issue as stated in the prospectus were as under:
i.

To finance the cost for developing the copyrighted D2J content by HEADS Learning (HEAL)
architecture;

ii.

To finance the cost for establishing the HEAL Lab to develop, test install, connect and implement the
D2J content across all HEADS Offices as Back-end and EdCenter as Front end;

iii.

To finance the cost for establishing the HEADS Offices to reach out regions all over India;

iv.

To finance the cost for developing and implementing the copyrighted centralized LAMPS Portal Engine;

Page 1 of 25

v.

To finance the promotion expenses to sign up and establish Partner-ed 200 EdCenters under BMC Model
across India and South Asia;

vi.

To list the equity shares of the company on the Stock Exchanges.

3. The Requirement of Funds as disclosed by the company in the Prospectus were as under:
Table: 1
Sr.
No.
1
2
3
4
5
6
7

Particulars
Content Development
Establishment of HEAL Laboratories
Establishing HEADS Offices
Development and Implementation of centralized Lamps
Portal Engine
Promotion Expenses
Issue Expenses
Contingencies
Total

Total Funds
Required
(Rs. in lakhs)
1120.00
1038.00
275.05
110.00
205.30
202.00
25.95
2976.30

4. Edserv disclosed the following as the Means of Finance for the above expenses in the
Prospectus :
Table: 2
Particulars
Proceeds from Issue of shares to Kalpathi
Investments Pvt. Ltd.
Proceeds from Pre IPO Placement
Proceeds of Public Issue
Internal Accruals
Total

Amount
(Rs. In
Crores)
3.85
0.64
23.84
1.43
29.76

5. The scrip of Edserv was listed on National Stock Exchange of India Limited (NSE) and BSE
Limited (BSE) on March 02, 2009 at a listing price of Rs.60/-. On the date of listing, the price of
the scrip saw an upward movement and it touched an intra-day high of Rs. 147.00 (NSE) and closed
at Rs.137.70 (NSE) and a total 7.05 crores shares (approx. 17.74 times of the issue size) were traded
across both NSE and BSE . The price and the traded volume of the scrip of Edserv came down

Page 2 of 25

considerably over the next few days. The Price -Volume data of Edserv (NSE) for the period March
2 - 12, 2009 are as follows:Table: 3

Date
2-Mar-09
3-Mar-09
4-Mar-09
5-Mar-09
6-Mar-09
9-Mar-09
12-Mar-09

Previous
Close
(Rs.)
137.70
110.20
88.20
70.60
56.50
45.20

Open
Price
(Rs.)
60.00
138.00
100.00
72.10
56.50
51.40
40.70

High
Price
(Rs.)
147.00
147.90
100.00
75.60
69.25
52.50
47.80

Low
Price
(Rs.)
58.20
110.20
88.20
70.60
56.50
45.20
40.70

Last
Price
(Rs.)
136.4
110.2
88.2
70.6
56.5
45.2
44

Close Average
Price
Price
(Rs.)
(Rs.)
137.70
120.72
110.20
125.65
88.20
88.43
70.60
70.96
56.50
62.56
45.20
48.46
43.80
43.60

Total
Traded
Quantity
(no. of
shares)
36403634
5560744
34219
1972314
4217618
1931997
2746945

Turnover
in Rs. Lacs
43,947
6,987
30
1,400
2,639
936
1,198

6. In view of the unusual price movements in the scrip of Edserv, Securities and Exchange Board
of India (SEBI) conducted investigation into the IPO of Edserv. SEBIs investigation revealed
suppression of material facts and mis-statements in the Prospectus of Edserv; siphoning off and
diversion of IPO proceeds by Edserv. Investigation revealed that the BRLM to the IPO of Edserv
had failed to exercise due diligence regarding various aspects of the issue including the veracity and
adequacy of disclosures in the offer documents. It was also seen that the Company and its BRLM
failed to disclose certain material information such as information regarding the raising of ICDs,
which if disclosed, would have enabled the investors to take an informed investment decision.
7. Based on the findings of the investigation, SEBI issued a common Show Cause Notice (SCN)
dated January 18, 2012 to the following entities under Sections 11 and 11B of the SEBI Act, 1992
read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulation, 2003, calling upon them to show cause as to why appropriate action
including a direction to debar them from accessing the securities market and prohibit them from
buying, selling or dealing in securities for a particular duration, should not be issued against them:
1. Edserv Softsystems Limited (Noticee No.1),
2. Mr. S. Giridharan, Chairman cum CEO (Noticee No. 2),
3. Ms. G. Gita, Managing Director (Noticee No.3),
4. Mr. IIango Balakrishna, Director (Noticee No.4),
5. Mr. T.S. Ravichandran, Director (Noticee No.5) and
Page 3 of 25

6. Mr. S. Arvind, Director (Noticee No.6)


(Noticees Nos. 1-6 are collectively referred to as Noticees)
8. The SCN contains the following allegations against the Noticees:
i.

ii.

9.

failed to make disclosures of material facts in the Prospectus such as:a. Nondisclosure of funds raised through Inter Corporate Deposits ("ICDs"), which
were in the nature of a bridge loan/short term loan.
b. Non-disclosure of prior placement of orders for equipment and software for
establishment of HEAL laboratories.
siphoned off and diverted IPO proceeds:a. through purchase orders;
b. through repayment of ICDs raised from certain entities

In view of the above, it is alleged that Noticees violated the provisions of Section 12 A (a), (b)

and (c) of SEBI Act, 1992 read with Regulations 3(a), (b), (c), (d), 4(1) and 4 (2) (f) of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations,
2003, Clause 6.2 under Chapter VI of SEBI (DIP) Guidelines, 2000 read with Regulation 111 of
SEBI (ICDR) Regulations, 2009 and Sections 11C (2) and (6) read with Sections 11C (3) and (5) of
SEBI Act, 1992.
10.

Edserv vide its letter dated May 09, 2012 replied to the SCN. Further, Edserv vide its letter

dated July 25, 2012 informed that its reply dated May 09, 2012 may be treated as the reply filed on
behalf of all the directors also. The main submissions of the Noticees are as under:
i.

Edserv Softsystems Limited was founded in the year 2001 as a software solution start up called
Lambent Softsystems (P) Ltd. in Chennai. In the year 2008, its name was changed to EdServ
Softsystems Limited. The Company initially provided IT solutions that included Y2K solutions, DBA
services, IT managed services, contractual consulting services, Corporate Training services among others.

ii.

The total cost of project as disclosed in the Propectus was Rs.29.76 crores, out of which Rs.23.84 crores
were to be raised through the IPO and the balance of Rs.5.92 crores were out of the internal accruals
(Rs.1.43 crores), investment by Kalpathi Investments Pvt. Ltd. (Rs.3.85 crores) and pre-IPO
placement of shares (Rs.0.64 crores).

iii.

As disclosed in the Prospectus, out of the 5.92 crores earmarked out of non IPO proceeds, as on
November 30, 2008, Rs.4.49 crores were utilized for the expenditure incurred prior to opening of the

Page 4 of 25

IPO in respect to the project as disclosed in the Prospectus. The balance amount was utilized for the
required non IPO activities.
iv.

The ICD of Rs.4 crores issued by the company in the month of January 2009 was to fund the
infrastructure development of HEAL Laboratories and HEADS offices of the Company. It is
submitted that the BRLMs were fully aware of the said ICDs and that they were well aware of the
contents of the ICD agreements before such ICDs were availed.

v.

As part of the objects of the issue, there were certain expenditure to be incurred pertaining to setting up
of the infrastructure for HEAL Laboratories and HEADS offices. In this context, we had identified
Rajesh Service Centre, Krishna Enterprises, Mahadev Impex and Shiv Impex for executing the said
infrastructure works for HEAL Laboratories and HEADS offices.

vi.

We had issued purchase orders to the suppliers Shiv Impex and Mahadev Impex and had made the
initial payments. But due to the failure to meet with Companys requirements and consistent delays, we
had vide our letters dated January 2, 2010 and January 21, 2010 cancelled the purchase orders given
to Shiv Impex and Mahadev Impex respectively. In this regard, we received back the advance payment
made of Rs.50,00,000/- each from Mahadev Impex on February 26, 2010 and Shiv Impex on
March 15,2010 and March 08, 2010 alongwith nominal interest.

vii.

It is submitted that only part of the payments to some of the supplier entities were met through the said
ICDs, the rest were made through either the IPO proceeds or internal accruals of our Company.

viii.

The cost of establishing the HEAL laboratories were made from the IPO proceeds. The amount
utilized for establishment for HEAL Laboratories and Heads Offices were IPO proceeds.

ix.

The statement with respect to not placing orders for equipment and software for HEAL laboratories
made in the prospectus was absolutely correct. As on the date of prospectus, only the expenses pertaining
to furniture and fixtures for setting up of HEAL laboratories were paid and no expenditure was made
for the equipment and software.

x.

Bridge loan has not been defined under the ICDR Regulation. ICDs were raised for the purpose of
continuity of the project. It is to be noted that the ICDs were raised only for the purpose of continuity of
the Project.

xi.

It is submitted that all the information pertaining to the said ICDs were disclosed to BRLM and so
they were fully aware of the said ICD agreements before such ICDs were availed.

xii.

It is vehemently denied that we have made contradictory/ inconsistent information during the
investigation and that we have not complied with the summons issued by SEBI or that we have failed to
furnish information/ document sought by SEBI.

Page 5 of 25

xiii.

It is submitted that the payments made to Krishna Enterprises and Rajesh Service Centre were as per
mutually agreed terms with them. Vide our letter dated July 28, 2010 we had indeed stated that the
assignment was still being completed. In this regard, it is to be noted that the entire work pertaining to
Krishna Enterprises and Rajesh Service Centre was completed during the month of October 2010 and
based on the actual work done Krishna Enterprises and Rajesh Service Centre had issued their invoices.

xiv.

We had vide our letter dated March 18, 2011 submitted the invoices issued by Krishna Enterprises
and Rajesh Service Centre to SEBI.

xv.

We had issued purchase orders to Shiv Impex and Mahadev Impex and had made initial payments.
But due to the failure to meet our company's requirements and consistent delays, we had vide our letters
dated Jan 2, 2010 and Jan 21, 2010 cancelled the purchase orders given to Shiv Impex and Mahadev
Impex respectively. In this regard, we received back the advance payment of Rs 50 lakh each from them
on February 26, 2010, March 08, 2010 and March 15, 2010 along with nominal interest.

xvi.

It is submitted that delivery of summons to Shiv Impex and Mahadev Impex was made through
Courier agency which was in turn based on the last know addresses of the said entities. It is to be noted
that we had vide our letter dated January 18, 2011 sent the trace of proof of delivery to SEBI. It is to
be noted that courier agency did not provide the copy of acknowledgement receipt.

xvii.

It is denied that Krishna Enterprises and Rajesh Service Centre were acting as layers for the alleged
transactions made by us to other entities. It is pertinent to note that Krishna Enterprises and Rajesh
Service Centre were associated with us for the past 10 years and carried out infrastructure assignments
given by us.

xviii.

It is submitted that we were not aware of the inter-se fund transfers between the said supplier entities. In
so far as we are concerned we had paid Shiv Impex and Mahadev Impex Rs.50 Lakhs each for the
purpose of furniture fixture works for HEAL Laboratories and HEADS Offices. As stated above,
due to failure to meet with our companys requirements and consistent delays, we had cancelled the
purchase orders given to them and received back the advance amount of Rs.50 Lakhs paid to them.

xix.

It is vehemently denied that we have not provided any invoice or proof of work/supplies to SEBI. In
this regard, it is to be noted that we had vide our letters dated March 18, 2011 submitted the invoices
issued by Krishna Enterprises and Rajesh Service Centre.

xx.

With regard to the alleged non appearance before the investigating authority, it is submitted that vide
letter dated March 18, 2011, we had sought an extension of time upto 3 weeks and we were under
bonafide belief that SEBI would grant us the additional time. Further, it is denied that we had given

Page 6 of 25

incomplete reply to the said summons. It is submitted that vide our letter dated March 18, 2011 we had
inter alia provided information/documents required by SEBI.
xxi.

It is vehemently denied that we had siphoned of Rs.4.75 Crores. It is submitted that the objects for
which the IPO was made has been completed.

11. Subsequently, an opportunity of personal hearing was granted to the Noticees on August 29,
2012. The said hearing was adjourned at the request of Edserv. Thereafter, another opportunity of
personal hearing was granted to Edserv on September 25, 2012. Edserv vide email dated September
24, 2012 sought cross examination of two entities i.e. Rajesh Service Centre and Krishna Enterprises
(suppliers) and requested for rescheduling its personal hearing. SEBI vide email dated September 25,
2012 denied the cross examination and granted opportunities of hearings on October 18, 2012 and
November 22, 2012.
In view of the denial of cross examination by SEBI, Edserve filed an appeal before Hon'ble
Securities Appellate Tribunal (SAT) and pursuant to the directions of the Honble SAT, SEBI
granted an opportunity of cross examination to Edserv on December 5, 2012. The entities to be
cross examined did not appear and the same was adjourned. Another opportunity of cross
examination was granted on December 27, 2012, however Edserv vide email dated December 20,
2012 requested for an adjournment of the said hearing. Considering the request of the entity, a final
opportunity of cross examination was granted on January 31, 2013, however due to administrative
exigencies the same was rescheduled for March 26, 2013. However, the entities to be cross examined
did not appear. Since cross examination could not materialise due to non-attendance of the entities,
opportunity of personal hearing was granted to the Noticees on July 03, 2013, however, the
Noticees failed to attend the same and requested for an adjournment. Another opportunity of
hearing was granted to Edserv on July 22, 2013. However, Edserv again failed to attend the hearing
and sought extension vide email dated July 21, 2013. One more opportunity of hearing was given to
Edserv and its Directors on March 10, 2015, however the entities did not appear for hearing. As it
appeared that the hearing notices were returned undelivered, the hearing notices were also sent to
the alternate addresses of the directors for hearing scheduled on December 28, 2015. None
appeared for the hearing. However Mr. Giridharan, the Noticee No. 2 vide email dated December
31, 2015 had made the following submissions-

Page 7 of 25

a) Edserv has wound up by the Honble Madras High Court vide order dated 19th August, 2013
and Board of directors had been removed from their post and also from all the roles and
responsibilities with the company.
b) The company is currently in the custody of the Official Liquidator (OL) and all the assets,
documents, correspondence both past and present are with the OL.
c) After the company got wound up, Directors lost the control and Directors have no information
and details of the company. Also Directors have been only directing all queries relating to company
to OL as per their direction.
d) To further seek details of the matter relating to Edserv, it is only proper to contact the OL and get
the relevant details.
12. The Noticees nos. 5 and 6 viz., Shri T.S. Ravichandran and Shri S Arvind submitted their
separate but identical replies dated December 19, 2015 pursuant to the hearing notice dated
December 14, 2015. The submissions made by Noticee No. 6 are reproduced as undera) I was an independent Director of the Company appointed as per Clause 49 of the Listing
Agreement with stock exchanges and not a promoter of the company or its full time Director in
charge of and responsible to the company for the affairs of the Company. I enclose the Annual
Report of the Company for the Financial year 2010-11 which has been filed before the Registrar
of Companies, Tamil Nadu and Stock Exchanges where the company was listed which shows
that I was an independent director of the company.
b) Only Mr. S. Giridharan and Ms. G. Gita were promoters of the Company and its full time
Directors managing the affairs of the Company.
c) As an Independent Director, I am not liable for any acts of the management which had not come
to my notice through board processes vide Section 149(12) of the Companies Act 2013 and if
there are any lapses of the management in the instant case, I am not liable for the same.
It is also submitted by the said Noticees that Noticees no. 5 viz., Shri T.S.
Ravichandran resigned from the Directorship of the Company on December 10,
2012 and Noticees no. 6 viz., Shri S Arvind resigned from directorship of the
Company on January 28, 2013.
13. The Noticees Nos 5 and 6 viz., Shri T.S. Ravichandran and Shri S Arvind also submitted that
they have not received any notice from SEBI with regard to any proceedings against Edserv
Page 8 of 25

Softsystems before SEBI. There was no response from Edserv and Directors Ms. G. Gita and
Mr. Illango Balakrishnan. In view of the same, a final opportunity of hearing was granted to
the Company and its Directors on February 24, 2016. The hearing notice was also served on
the Official Liquidator of the company. A copy of SCN was also provided to Shri T.S.
Ravichandran and Shri S Arvind along with hearing notice dated January 29, 2016,

The

hearing notice was also published in the newspapers viz., Dinamani on February 5, 2016 and
The Hindu on February 06, 2016 for the Company and Directors viz., Ms. G. Gita and Mr.
Illango Balakrishnan. However, the said Noticees neither appeared for the hearing nor
submitted any reply till date.
14. Shri S Arvind and Shri T.S. Ravichandran submitted their detailed replies dated February 09,
2016 and February 10, 2016 respectively pursuant to the hearing notices dated January 29,
2016. Apart from reiterating their earlier submissions, the said Noticees have inter alia made the
following identical submissions (a) No question of vicarious responsibility of an Independent Director for the acts of full time
Directors of the company or the Principal Officers of the Company arises. The ratio of judgment
in the NSIC case will also be applicable in this instant case. The liability of each Director for the
offence cited has to be separately stated and general statements that the Directors of the Company
are liable for the offences is not adequate. I would also like to draw attention to the Circular of the
Ministry of Corporate Affairs (General Circular No. 08/2011 dated March 25, 2011) which
had laid down the same guidelines for the responsibility of Non Executive Directors on the Board
of the Companies including Independent Directors appointed as per SEBI requirement on the
Boards of publicly listed companies. In this circular the Ministry of Corporate Affairs has
reiterated that no such directors shall be held liable for any act or omission or commission by the
company or by the officers of the company which constitute a breach or violation of the Companies
Act, 1956 and which occurred without his knowledge attributable through Board process and
without his consent or connivance or where he has acted diligently in the Board process. This
Circular also makes Independent Directors who have no knowledge of the alleged offence against
the Company immune from action.
b) The first lapse pointed out by SEBI in its notice is the non-disclosure by the company in the
public issue prospectus of its borrowing of Rs.4 crores from 5 private entities in January and
February 2009 and its declaration in the prospectus that the company had not availed any bridge
Page 9 of 25

loan. This loan was later returned to the entities with interest. I would like to state that this
information has not been disclosed to the Board at any of the Board meetings. This fact of non
disclosure has to be explained by the Chairman and CEO of the Company Mr. S.
Giridharan and the Managing Director Mrs. G. Gita as they have not disclosed this
to the Board of Directors also at the time of getting approval for the IPO
prospectus from the Board and hence it was not possible for the Board to amend
the information provided in the IPO Prospectus to reflect the correct position on
Loans /ICD as the Independent Non Executive Directors were not aware of the
facts. The IPO Prospectus as provided by the Chairman and CEO of the
Company to the Board has been approved by the Board. This non-disclosure of
information on Inter Corporate deposits taken by the Board has to be explained by
the Chairman and CEO and the Managing Director of the Company and not by
the Independent Directors. There is therefore no lapse on the part of the
Independent Directors in this matter of non-disclosure of relevant information in
the IPO Prospectus.
c) The second lapse pointed out by SEBI in its notice is possible diversion of an amount of Rs.470
lakhs meant for establishment of HEAL Labs... In this connection, I would like to point out
that the progress of expenditure on the project of the Company was being reviewed by the Board at
its meeting after the IPO and the Chairman had placed the expenditure details before the Board
and the Chairman and Managing Director had certified that the amounts raised were utilized for
the purposes stated in the IPO. The Board had recorded this information and reported to the
Stock Exchanges as required at the time of reporting of quarterly results. The Auditors of the
Company had also audited the accounts of the Company including the accounts relating to
expenditure of funds raised through IPO in February 2009 during FY 2008-09 and 2009-10
and have not qualified the accounts on any count. Hence, the Board accepted these accounts as
genuine and approved them. If as SEBI has pointed out there are doubts about the genuineness of
the expenditure to an extent of Rs. 470 crores the Chairman S. Giridharan and managing
Director Ms.G. Geetha, have to clarify the same to SEBI with proper voucher and other records
which they have not done so far. As far as the Independent Directors are concerned they have to be
guided by the certificates of the management on the utilization of the IPO proceeds as also by the
audit report.

Page 10 of 25

d) The Noticees 4-6 including me (Noticee No. 5) were only independent non-executive directors of
the company and not involved in the day to day affairs of the Company.
e) The Noticees also submitted that all the facts relevant to the above proceedings
have been put up above and they do not wish to appear for the personal hearing
and the orders may be passed based on the facts stated above.
Consideration of Issues and findings:
15. I have considered the SCN issued to the Noticees alongwith the documents provided therein,
their replies to the SCN and all other relevant material available on record. In the light of the
same, I shall now proceed to deal with the charges levelled against the Noticees in the SCN.
The charges levelled against the Noticees are mentioned at paragraphs 8 and 9 above.
16. Before dealing with the charges in seriatim, the relevant legal provisions, the contravention of
which have been alleged in this case may be reproduced hereunder for reference purpose:(i)

Section 12 A of Securities & Exchange Board of India Act, 1992 ("SEBI Act"),
which provides as follows:
12A. No person shall directly or indirectly
(a)
use or employ, in connection with the issue, purchase or sale of any securities listed or
proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or
contrivance in contravention of the provisions of this Act or the rules or the regulations made
thereunder;
(b)
employ any device, scheme or artifice to defraud in connection with issue or dealing in
securities which are listed or proposed to be listed on a recognised stock exchange;
(c)
engage in any act, practice, course of business which operates or would operate as
fraud or deceit upon any person, in connection with the issue, dealing in securities which are
listed or proposed to be listed on a recognised stock exchange, in contravention of the
provisions of this Act or the rules or the regulations made thereunder;

(ii)

Regulations 3(a), (b), (c), (d), 4(1) and 4 (2) (f) of SEBI (Prohibition of Fraudulent
and Unfair Trade Practices relating to Securities Market), Regulations, 2003, which
provides as follows:

3. Prohibition of certain dealings in securities


No person shall directly or indirectly
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
Page 11 of 25

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be
listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in
contravention of the provisions of the Act or the rules or the regulations made thereunder;
(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities
which are listed or proposed to be listed on a recognized stock exchange;
(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit
upon any person in connection with any dealing in or issue of securities which are listed or proposed
to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules
and the regulations made thereunder.
4. Prohibition of manipulative, fraudulent and unfair trade practices
(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a
fraudulent or an unfair trade practice in securities.
(2)Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it
involves fraud and may include all or any of the following, namely :

(f) publishing or causing to publish or reporting or causing to report by a person dealing in


securities any information which is not true or which he does not believe to be true prior to or
in the course of dealing in securities;
(iii)

Clause 6.2 under Chapter VI of SEBI (DIP) Guidelines, 2000 reads as under:
6.2 The prospectus shall contain all material information which shall be true and adequate so
as to enable the investors to make informed decision on the investments in the issue.

(iv)

Sections 11C (2) and (6) read with Sections 11C (3) and (5) of SEBI Act, 1992,
provides as follows:
Section 11 ( C) (2) - Without prejudice to the provisions of sections 235 to 241 of the
Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing director,
officer and other employee of the company and every intermediary referred to in section 12 or
every person associated with the securities market to preserve and to produce to the
Investigating Authority or any person authorised by it in this behalf, all the books, registers,
other documents and record of, or relating to, the company or, as the case may be, of or
relating to, the intermediary or such person, which are in their custody or power.
3) The Investigating Authority may require any intermediary or any person associated with
securities market in any manner to furnish such information to, or produce such books, or

Page 12 of 25

registers, or other documents, or record before him or any person authorised by it in this behalf
as it may consider necessary if the furnishing of such information or the production of such
books, or registers, or other documents, or record is relevant or necessary for the purposes of its
investigation.
5) Any person, directed to make an investigation under sub-section (1), may examine on
oath, any manager, managing director, officer and other employee of any intermediary or any
person associated with securities market in any manner, in relation to the affairs of his
business and may administer an oath accordingly and for that purpose may require any of
those persons to appear before it personally.
6) If any person fails without reasonable cause or refuses
(a)
to produce to the Investigating Authority or any person authorised by it in this
behalf any book, register, other document and record which is his duty under sub-section (2)
or sub-section (3) to produce; or
(b)

to furnish any information which is his duty under sub-section (3) to furnish; or

(c)
to appear before the Investigating Authority personally when required to do so under
sub-section (5) or to answer any question which is put to him by the Investigating Authority
in pursuance of that sub-section; or
(d)
to sign the notes of any examination referred to in sub-section (7), he shall be
punishable with imprisonment for a term which may extend to one year, or with fine, which
may extend to one crore rupees, or with both, and also with a further fine which may extend
to five Lakh rupees for every day after the first during which the failure or refusal continues.
17. Let me now discuss the charges levelled against the Noticees and their submissions made:
A. Non-Disclosure in the Offer Documents:

1. Nondisclosure of funds raised through ICDs prior to the IPO


As per the SCN, Edserv and its Promoter Directors were alleged to have failed in making
material disclosures regarding funds raised through ICDs, which were in the nature of a bridge
loan.
i.

During the course of investigation, it is noted from the bank account statements that Edserv
had made Inter Corporate Deposit (ICD)/Loan repayments from the proceeds of the IPO.
The details of the same are as under:
a) On February 27, 2009, Edserv received Rs. 11,30,70,455 in its ICICI bank account
(A/c No. 602305027424) from the escrow account of the issue (ICICI bank). On the
same day, Edserv inter alia made the following payments/fund transfer from its ICICI
Bank Account:

Page 13 of 25

Account
Number

Date

602305027424

27-02-09

602305027424

27-02-09

602305027424

27-02-09

602305027424

27-02-09

602305027424

27-02-09

602305027424

27-02-09

Amount
(Rs.)

Name of entity
to whom funds
paid
51,16,646 Ramesh Jain

1,01,98,330 PR Vyapaar Pvt.


Ltd.
76,18,235 Saraswati Vincom
Ltd.
5,29,18,200 Edserv
Softsystems Ltd.
25,00,000 Garrison Pharma
Ltd.
1,52,59,353 Devkant
Synthetics Ltd.

Reasons for payment


Deposit / Loan Repayments
Inter Corporate Deposit/
Loan Repayments
Inter Corporate Deposit/
Loan Repayments
A/c to A/c transfer
Inter Corporate Deposit/
Loan Repayments
Inter Corporate Deposit/
Loan Repayments

b) On February 27, 2009, Edserv received Rs. 8,03,06,160 in its Union Bank of India
account (A/c No. 352101010800409) from the escrow account of the issue (HDFC bank).
On the same day, Edserv inter alia made the following payments/fund transfer from its
Union Bank of India account:

ii.

Account Number

Date

Amount
(Rs.)

352101010800409

27-02-09

25,00,000

Name of entity
to whom funds
paid
Mahadev Impex

Reasons for payment

Payments for software


content/services
352101010800409
27-02-09 25,00,000
S. K. Alloys and Procurement of
Trading
machineries
In view of the above, SEBI sought details of the ICDs from the Company. Edserv vide
letter dated February 16, 2010, furnished the details of the ICDs/loans borrowed by them as
follows:

Sr.
No.
1
2
3
4
5

Name of Party
(From)
Ramesh Jain
Devkant Synthetics
Pvt. Ltd.
PR Vyapaar Pvt. Ltd.
Sarswati Vincom Ltd.
Garrison Pharma Ltd.
Total

Page 14 of 25

Date
20/01/2009
24/01/2009
28/01/2009
20/01/2009
22/01/2009
29/01/2009
05/02/2009

Amount
(Rs.)
50,00,000
75,00,000
75,00,000
50,00,000
50,00,000
75,00,000
25,00,000
4,00,00,000

Repayment
Schedule
40 days
36 days
32 days
40 days
38 days
31 days
24 days

Rate of Interest
24% p.a.
24% p.a.
24% p.a.
2% per month
2% per month
24% p.a.
24% p.a.

iii.

The abovementioned tables shows that just before IPO, Edserv had taken ICDs/loans
amounting to Rs. 4 crores from 5 entities during the period from January 20, 2009 to
February 05, 2009. Further, immediately on receipt of the proceeds of the IPO, the said
ICDs/ Loans were re-paid along with interest of Rs.6.92 lakhs from the proceeds of the IPO
on February 27, 2009. No disclosures regarding the ICDs were made in the prospectus.
It is noted that Edserv made the following disclosures in the Prospectus dated
February 17, 2009:
a) at page 24 under the head Object of the Issue mentions inter alia :-

To finance the cost for establishing the HEAL Lab to develop, test, install, connect, and
implement the D2J content across all HEADS Offices as Back-end and EdCenter as Frontend.
iv.

Edserv has contended that ICDs were borrowed to meet the cost of establishing the HEAL
laboratories which was one of the main Objects of the IPO. However, the same were not
disclosed as means of finance in the prospectus. Hence, the only logical conclusion to be
drawn in the circumstances is that such a contention has been taken as an after- thought to
provide justification for raising of ICD's and not making proper disclosures about it in the
prospectus.

v.

It is observed that at Page 30 of the Prospectus dated February 17, 2009 under the heading
Bridge Loan it was stated -We have not entered into any bridge loan facility that will be repaid from the
Net Proceeds. However, it is noted that Edserv did indeed raise funds through ICDs
borrowed from 5 entities as mentioned in paragraph 17 A 1 (ii) above.

vi.

Edserv has submitted that the term bridge loan has not been defined under the ICDR
Regulation. ICDs were raised for the purpose of continuity of the project. All the
information pertaining to the said ICD details were disclosed to BRLM and so they were
fully aware of the said ICDs. Being a registered intermediary BRLMs ought to have known
that the said information was required to be disclosed in the prospectus.
In this regard, I note:
Edserv had borrowed loan/ICDs during Jan 20-Feb 11, 2009 and the same was
repaid along with interest from the proceeds of the IPO. Hence Edserv was well aware that

Page 15 of 25

the ICDs were to be repaid from the proceeds of the IPO. Therefore, the said ICDs were
indeed in the nature of bridge loans.
vii.

The Noticees contention that it is the duty of the BRLM to ensure disclosures, and the
company had provided all the information to the BRLMs cannot be accepted. I find that it
is the duty of the issuer company and its directors to make prompt, true and fair disclosure
of all material developments in the offer documents. Further, the Prospectus was signed by
all the directors of Edserv declaring that all the statements in the offer documents are true
and correct. Hence the failure to mention availing of the ICDs and their proposed
repayment from the proceeds of the IPO was a deliberate attempt on the part of Edserv and
its directors. Effectively, the Noticees failed to disclose vital information of raising funds
through ICDs prior to IPOand its repayment out of issue proceeds in the Offer Document.
Therefore, it is established that Noticees have failed to disclose such vital information/
material fact in the Offer Document and deprived the public/investors in taking an
informed decision while investing in the IPO of Edserv.

2. Non-Disclosure of placing of Orders with Suppliers for the establishment of HEAL


Laboratories.
i.

Edserv in the prospectus had disclosed that they are yet to place orders for equipments and
software amounting to Rs. 338.00 lacs for establishment of HEAL laboratories. However,
Edserv had already placed purchase orders dated January 12, 2009 and January 23, 2009 for
Rs. 2.94 crores and 2.07 crores for establishment of HEAL labs/office. In view of the same,
it was alleged that Edserv failed to make proper disclosure of the orders placed by it.

ii.

In this regard, information was sought from Edserv and vide its letters dated May 26, 2010
and July 28, 2010, the Company informed SEBI that amounts received from the loans/ICDs
were paid to suppliers viz., Krishna Enterprises, Rajesh Service Centre and Shiv Impex for
establishment of HEAL laboratories/Head Office/computers and accessories. The details
are as follows:

Page 16 of 25

Entity
providing
loan/ICD
to Edserv

Amount
(Rs.)

Date

Ramesh Jain

50 lakhs

Jan 20, 2009

Devkant
Synthetics
Pvt. Ltd.

75 lakhs

Jan 24, 2009


Jan 24, 2009
75 lakhs

Jan 20, 2009

PR Vyapaar
Pvt. Ltd.

1 crore

Sarswati
Vincom Ltd.

75 lakhs

Garrison
Pharma Ltd.

25 lakhs

iii.

Jan 28, 2009

Jan 22, 2009


Jan 28, 2009
Jan 29, 2009
Feb 06, 10
and 11,
2009

Entity to whom
Edserv
transferred/paid
money
Krishna
Enterprises

Date of
payment by
Edserv

Amount
(Rs.)

Jan 21, 2009

50 lakhs

Shiv Impex
Rajesh Service
Centre
Rajesh Service
Centre
Krishna
Enterprises
Krishna
Enterprises
Rajesh Service
Centre
Rajesh Service
Centre
Shiv Impex

50 lakhs
Jan 24, 2009

25 lakhs

Jan 28, 2009

75 lakhs

Jan 21, 2009

50 lakhs

Jan 23, 2009

50 lakhs

Jan 28, 2009

50 lakhs

Jan 29, 2009

25 lakhs

Feb 06 and
10, 2009

20 lakhs

Purpose of
payment, as
claimed by Edserv
Establishment of
HEAL Labs.
Advance amount
paid for computers
and accessories.
Establishment of
HEAL Labs.
Establishment of
HEAL Labs.
Establishment of
HEAL Labs.
Establishment of
HEAD office.
Establishment of
HEAL Labs.
Establishment of
HEAD office.
Advance payment
for computers and
accessories.

Edserv vide letter dated July 28, 2010 stated that Krishna Enterprises, Rajesh Service Centre,
Shiv Impex and Mahadev Impex were engaged in the establishment of Heal
Offices/Laboratories, Infrastructure Development and for purchase of computer accessories
and services. Further, these organizations were engaged even prior to the IPO and as a part
of advance and material purchase as sought by them, internal resources as well as borrowed
funds were utilized and paid to commence the work. Furthermore, these utilizations of
funds were one and the same as given and disclosed under prospectus. Edserv further
informed that the ICD borrowings have been repaid out of the public issue proceeds and
hence these expenses to Rajesh Service Centre, Shiv Impex and Krishna Enterprises may be
treated as if the payments have been made through IPO proceeds.

iv.

Edserv submitted that the statement in respect to not placing orders for equipments and
software for Heal laboratories made in the prospectus was absolutely correct. As on the date
of prospectus, only the expense pertaining to furniture and fixtures for setting up of HEAL
laboratories were paid for and no expenditure was made for the equipment and software.

Page 17 of 25

v.

In the prospectus issued by Edserv under the heading risk factors, at Page (x) it is
mentioned that:We are yet to place orders for equipments and software amounting to Rs. 338.00 lacs for
establishment of HEAL laboratories as mentioned in the objects of the issue.
It is also noted that under the Objects section- 'Establishment of Heal Lab', it is disclosed
that they propose to spend Rs. 338.00 lacs on furniture and fixtures (including Computer
and Software systems) for the proposed laboratory. As per its own submission that furniture
and fixtures include Computer and Software systems, I find that the contention of the
Noticees that no expenditure was made for the equipment and software cannot be accepted.
In the light of the aforesaid discussions, it is clearly established that the Noticees not
only failed to disclose the purchase orders placed with suppliers viz., Krishna Enterprises,
Rajesh Service Centre, Shiv Impex and Mahadev Impex and the payment of substantial
amount in advance in the Offer Document but also made wrong disclosures as mentioned
above.

3. Siphoning of funds and Diverted IPO proceeds:


The SCN alleges that the Noticees siphoned off the funds received in the IPO (i) through purchase
orders placed with entities/suppliers viz., Krishna Enterprises, Rajesh Service Centre, Shiv Impex
and Mahadev Impex and (ii) through repayment of ICDs raised from certain entities. The
movement of funds amounting to Rs. 4.75 from EDSERV to Krishna Enterprises and Rajesh
Service Centre entities is pictorially depicted as under:
50 lakhs S. K. Alloys & Trading
Krishna Enterprises
1 crore
1.5 crores
50 lakhs
M/s Edserv (4.75 cr.)

Shiv Impex (2 crores)


50 lakhs

2.25 crores

25 lakhs

Ramco International

Rajesh Service Centre


1.5 crores

50 lakhs

Page 18 of 25

Mahadev Impex (2 crores)

The above chart shows that Edserv had ultimately transferred/ paid a total of Rs. 2

crores each to Shiv Impex and Mahadev Impex through Krishna enterprises and Rajesh
Service Centre.
i.

In view of the above, SEBI vide letters dated August 27, 2010 sought information from the
abovementioned suppliers. The letters issued to Shiv Impex and Mahadev Impex were
returned undelivered. From the replies dated September 21, 2010 and October 30, 2010 and
documents submitted by Krishna Enterprises and Rajesh Service Centre and their bank
account statements, the following are noted in the Investigation Report:
a. The bank account statement of Krishna Enterprises shows that it received Rs. 1
crore from Edserv on Jan 20, 2009 out of which Rs. 50 lakhs was paid to Shiv Impex
and Rs. 50 lakhs to S. K. Trading & Alloys on the same day through Pay Orders.
Krishna Enterprises had received another Rs. 50 lakhs from Edserv on January 22,
2009 and it had paid/transferred Rs. 50 lakhs to Shiv Impex through cheque on
January 23, 2009.
b. The bank account statement of Rajesh Service Centre shows that it had received Rs.
75 lakhs from Edserv on Jan 22, 2009 which was paid / transferred to Mahadev
Impex on Jan 24, 2009. It had received another Rs. 75 lakhs and Rs. 50 lakhs from
Edserv on Jan 28, 2009, out of which, Rs. 75 lakhs was paid/transferred to Mahadev
Impex and Rs. 50 lakhs to Shiv Impex respectively on Jan 28, 2009. It has further
received Rs. 25 lakhs from Edserv on Jan 29, 2009 which was paid/ transferred to
M/s Ramco International on the same date i.e. Jan 29, 2009.
c. Thus, Krishna Enterprises and Rajesh Service Centre have transferred the entire
amount received from Edserv as above to other entities on either the same day or
next day.

ii.

It is also noted that Edserv vide reply dated May 26, 2010 and July 28, 2010 stated that the
amounts received from the loans/ICDs were paid to Krishna Enterprises, Rajesh Service
Centre and Shiv Impex. Edserv claimed that the said payment was made for establishment
of HEAL laboratories/Head Office/computers and accessories.

Page 19 of 25

iii.

Edserv denied that Krishna Enterprises and Rajesh Service Centre were acting as layers for
the alleged transactions. Edserv stated that Krishna Enterprises and Rajesh Service Centre
were associated with ESL for the past 10 years and were carrying out the infrastructure
assignments given by Edserv. It is also contended by Edserv that it was not aware of the
inter-se fund transfers between the supplier entities. Edserv had paid Shiv Impex and
Mahadev Impex Rs.50 Lakhs each for the purpose of furniture and fixture works for HEAL
Laboratories and HEAD Offices. Due to failure to meet with companys requirements and
consistent delays, Edserv cancelled the purchase orders given to them and received back the
advance amount of Rs.50 Lakhs each paid to them. Edserv denied that it had siphoned of
Rs.4.75 crores. Edserv submitted that the objects for which the IPO was made has been
completed.

iv.

Edserv vide letter dated July 28, 2010 to SEBI had mentioned that assignments in respect of
supplier entities (including Shiv Impex and Mahadev Impex) are still continuing. However,
vide its own reply to the SCN, Edserv stated that the purchase orders given to Shiv Impex
and Mahadev Impex were cancelled vide letters dated Jan 2, 2010 and Jan 21, 2010,
Therefore, the submission of Edserv are contradictory.
Further, Edserv submitted that vide its earlier letter dated March 18, 2011, they had
furnished invoices raised by Krishna Enterprises and Rajesh Service Centre. However,
certain discrepancies were noted in the invoices. For instance, the amount mentioned in
words and figures do not match in Invoice No. RSC 13 dated 19/10/2010 raised by Rajesh
Service Centre. Similar mismatch is noted in respect of invoice no. 048 dated 17.11.2001
(even the dates are mentioned wrongly) raised by Krishna Enterprises. Considering the
above discrepancies, the invoices submitted by Edserv cannot be accepted especially in view
of the fact that entities failed to appear for cross examination though sufficient opportunities
were granted to them.

v.

Considering the fund flow depicted in the above tables, I find that funds amounting to Rs. 4
crores extended to Edserv by way of ICDs were transferred entirely to other entities
including Shiv Impex and Mahadev Impex either on the same day or the next day. It is noted
that Krishna Enterprises and Rajesh Service Centre acted only as layers for the transactions
made by Edserv to other entities. Further, Edserv had made a direct payment of Rs.50 lakhs

Page 20 of 25

each to Shiv Impex and Mahadev Impex which shows that Edserv could have directly
engaged them rather than doing so through Krishna Enterprises and Rajesh Service Centre.
Edserv had ultimately transferred/paid a total of Rs. 2 crores each to Shiv Impex and
Mahadev Impex i.e. Rs. 0.50 Crores directly and Rs. 1.5 Crores through Krishna Enterprises
and Rajesh Service Centre as detailed in diagram shown in page 18 above.
vi.

Therefore, it is seen from the contradictory and inconsistent statements provided by Edserv,
replies of Rajesh Service Centre, Krishna Enterprises, suspicious routing of funds by Edserv,
no proof of completion of work/supplies provided by Edserv/ suppliers and the financial
positions, track record and lack of experience of the suppliers, it appears that approx. Rs.
4.75 crores have indeed been siphoned off from Edserv.

4. Non-Compliance of Summons issued by SEBI:


The SCN alleged that Edserv failed to appear before the investigating authority despite
summons.
i.

Edserv contended that vide letter dated Mar 18, 2011, they had sought extension of
time upto 3 weeks since they were fully engaged in finalizing several matters, policy
and operational decision that are required to be taken before close of financial year
endin. It is further stated that they were under bonafide belief that SEBI would be
granting them the additional time.

ii.

In this regard, I note that SEBI issued two summons to Edserv dated January 11,
2011 to appear on January 18, 2011 and March 12, 2011 to appear on March 18,
2011. It is noted that SEBI vide letter dated March 16, 2011 advised the entity to
furnish the information/documents sought vide annexure to summons by March 18,
2011. As regards, the extention of time sought by Edserv, SEBI allowed the same
and advised the company to provide a suitable date for appearance before the
Investigating authority for the consideration. However, Edserv did not communicate
a suitable date as directed by SEBI. In the light of the same, I find that Edserv failed
to comply with the summons issued by SEBI.

Page 21 of 25

Conclusion:
18. The facts of the case detailed in the preceding paragraphs of this order make it abundantly
clear that non-disclosures of material information in the Prospectus were deliberate acts
done to conceal the deeper underlying fraudulent activity of Edserv and its Promoter
Directors. This is clearly evident from the following:
i.

Funds raised by Edserv through ICDs prior to the IPO were routed through various
suppliers and the liability for repayment of such ICDs were attached to the proceeds of
IPO. As a result, the Noticees were able to siphon off and divert IPO proceeds to the
tune of Rs. 4 crores.
Thus, the Noticees indulged in fraudulent activities and thus violated provisions of
Sections 12 A (a), (b) & (c) of the SEBI Act read with regulations 3 (a), (b), (c) & (d),
regulations 4 (1) and 4 (2) (f) of PFUTP Regulations.

ii.

In addition, I find that the Noticees have violated Clause 6.2 under Chapter VI of SEBI
(DIP) Guidelines, 2000 read with Regulation 111 of SEBI (ICDR) Regulations, 2009 by
failing to disclose/making wrong disclosure of material information in the offer
document, viz., :
Non-disclosure of the raising of funds to the tune of Rs.4 crores through ICDs
which were in the nature of a bridge loan;
Non-disclosure of purchase orders placed with Krishna Enterprises, Rajesh
Service Centre and Shiv Impex and providing substantial amount as advance to
them.

iii.

Further, I find that the Noticees have violated Sections 11C (2) and (6) read with
Sections 11C (3) and (5) of SEBI Act, 1992. By failing to comply with the summons
issued by SEBI.

19. It is noted from the records that Mr. S. Giridharan was promoter as well as Chairman cum
CEO of Edserv. Ms. G. Gita was a promoter and Managing Director and Mr. Ilango
Balakrishna, Mr. T.S. Ravichandran and Mr. S. Arvind were the directors of Edserv at the
relevant time i.e. January 2009 till March 2009. I addition, they were signatories to the offer
documents filed with respect to the IPO of Edserv. Edserv though a legal entity, cannot act
by itself. It can act only through its Board/Management/Key Managerial Personnel etc. In
Page 22 of 25

respect of allegation of siphoning off funds, the persons in charge of day to day affairs of
the Company viz. Directors/Management/Key Managerial Personnel (as Noticees No. 2-6)
are indeed responsible for the fraudulent activities.
20. As regards the role of Noticees nos. 2 to 6, I have perused their respective replies and it is
noted that Mr. S. Giridharan, the Noticee No. 2 vide email dated December 31, 2015
submitted that Edserv got wound up by the Order of Honble High Court of Madras and
Official Liquidator (OL) has been appointed; hence they are not liable for the affairs of the
Company. In this regard, I note that the 11B proceedings against Edserv and its promoter
directors were initiated before the initiation of winding up of the company. The OL was
not appointed when SCN was issued and reply submitted and opportunities of hearings
granted. The Honble Calcutta High Court in the matter of Official Liquidator, High Court,
Calcutta Vs. Commissioner of Income Tax, West Bengal (AIR 1970 Cal 349) held if the
proceedings against a company in liquidation be such as not to affect by itself the assets and properties of the
company in liquidation, then such proceedings cannot be construed as other proceedings referred in Section
446(1) of the Companies Act, 1956, hence leave of the Court is not necessary. Similar view had been
taken by other High Courts too. In view of the same, I note that the directions
contemplated under this order shall not affect by itself the assets and properties of Edserv
and SEBI has exclusive jurisdiction to pass such direction under SEBI Act. Furthermore, an
opportunity of hearing before me was also afforded to the OL of Edserv on February 24,
2016. However, they neither availed the said opportunity nor filed any reply. I am,
therefore, of the view that the present proceedings against Edserv can be continued without
the leave of the Court and concluded in accordance with law.
21. It is further noted that the Noticees Nos. 3 and 4 viz., Ms. G.Gita and Mr. Ilanngo
Balakrishana failed to appear before me and also did not file any separate reply till date.
However, it is noted that Edserv, vide its letter dated July 25, 2012 submitted that the reply
filed by Edserv dated May 09, 2012 shall be treated as reply filed on behalf of all the
Directors. Edserv also annexed the extracts of Board Resolution passed by the Board of
Directors in this regard. The said extracts were signed by all the Noticees. Further, the said
Board Resolution also negates the contention of the Noticees Nos. 5 and 6 that they were

Page 23 of 25

not aware of the present proceedings till the receipt of hearing notices dated December 28,
2015.
22. It is noted from the replies submitted by the Noticees Nos. 5 and 6 viz., Shri T.S.
Ravichandran and Shri S Arvind that they were only independent non-executive directors of
the company and not involved with the day to day affairs of the Company. They further,
submitted that Mr. S. Giridharan and Ms. G. Gita had not disclosed the loans/ICDs availed
by the Company to the Board of Directors at the time of getting approval for the IPO
Prospectus to reflect the correct position on loans/ICD. In this regard, from the information/
documents available in MCA website, BSE/ NSE websites, Annual reports and Prospectus of
Edserv it is noted that the Noticees were members of Audit Committee and had attended all
the Board Meetings during the relevant period i.e. FY 2008-09 and FY 2009-10. It is also
noted that they were signatories to the Offer Documents. In view of this, I find that the
Noticees are indeed liable for the abovementioned violations.
23. While dealing with a matter of this nature, it would be worthwhile to refer to the following
observations made by the Hon'ble Supreme Court in its judgment dated April 26, 2013, in N.
Narayanan v. Adjudicating Officer SEBI (Civil Appeal Nos.4112-4113 of 2013) held that "SEBI, the
market regulator, has to deal sternly with companies and their Directors indulging in manipulative and
deceptive devices, insider trading etc. or else they will be failing in their duty to promote orderly and healthy
growth of the Securities market. Economic offence, people of this country should know, is a serious crime which,
if not properly dealt with, as it should be, will affect not only countrys economic growth, but also slow the inflow
of foreign investment by genuine investors and also casts a slur on Indias securities market. Message should go
that our country will not tolerate market abuse and that we are governed by the Rule of Law. Fraud,
deceit, artificiality, SEBI should ensure, have no place in the securities market of this country and market
security is our motto."
24. In the present case, the Noticees had acted in a manner highly detrimental to the interests of
the securities market and the investors therein. The rulings of the Hon'ble Supreme Court
discussed in the preceding paragraph apply directly and fully to the facts of the instant case.
The fraudulent activities such as what have been observed in the instant case pose a real threat
to the integrity of our securities market. The violations of law observed with respect to the

Page 24 of 25

Noticees, if not dealt with sternly, could give rise to a situation where raising of capital would
become extremely difficult even for honest companies.
25. In view of the aforesaid observations/conclusions, it is established that all Noticees have
violated the provisions of Section 12A(a), (b) and (c) of SEBI Act, 1992 read with Regulations
3(a), (b), (c), (d), 4(1), 4(2)(a), (d), (e), (f) and (k) of the FUTP Regulations, Clause 6.2 under
Chapter VI of SEBI (DIP) Guidelines, 2000 read with Regulation 111 of SEBI (ICDR)
Regulations, 2009 and Sections 11C (2) and (6) read with Sections 11C (3) and (5) of SEBI
Act, 1992.
Order
26. In view of the foregoing, I, therefore, in exercise of the powers conferred upon me by virtue
of Section19 read with Sections 11(1), 11(4), 11(A) and 11B of the SEBI Act read with
Regulation 11(1) of the PFUTP Regulations and the ICDR Regulations, 2009, hereby direct as
follows
i.

ii.

Edserv Softsystems Limited and its Promoter Directors, viz. . Mr. S. Giridharan , Ms. G.
Gita, Mr. IIango Balakrishna Mr. T.S. Ravichandran and Mr. S. Arvind are prohibited
from raising any further capital from the securities market, in any manner whatsoever,
for a period of three (3) years.
Edserv Softsystems Limited and its Promoter Directors, viz. . Mr. S. Giridharan , Ms. G.
Gita, Mr. IIango Balakrishna Mr. T.S. Ravichandran and Mr. S. Arvind are prohibited
from buying, selling or dealing in the securities market, in any manner whatsoever, for a
period of three (3) years.

27. This Order shall come into force with immediate effect.

Place: Mumbai
Date: April 11, 2016

Page 25 of 25

S. RAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA