SEBI restrains Canning Ind from raising fresh funds

The Securities and Exchange Board of India has restrained The Canning Industries Cochin (CAICO), a Kerala-based food processing company, from mobilising fresh funds from investors through the offer of FCD’s (fully convertible debentures) or through the issuance of equity shares or any other securities to the public and invite subscription either directly or indirectly till further directions.

Seeking clarifications from the company, SEBI Whole Time Member S Raman directed CAICO and its present directors not to divert any funds raised from the public at large through the offer of FCD’s, which are kept in bank accounts or in the custody of CAICO.

SEBI’s interim order comes in the wake of complaints against offering FCD’s to existing 1,926 shareholders for the face value of ₹250 a unit and is convertible into two shares at a price of ₹125 a share. The FCDs were issued at 100 FCDs per shareholder irrespective of their holdings.

CAICO issued over 1.13 lakh FCDs to 335 investors aggregating to over ₹2.83 crore in December 2015. The maturity date was five years from the date of allotment of FCDs. The debentures carry a 10 per cent interest a year..

The purpose of the issue, according to the company, was to meet the fund requirements of its packaged drinking water project. The 70-year-old food processing company has been engaged in the production and supply of fruit jam, mango pulp, etc, with production units in Thrissur, Ernakulam and Mangaluru.

The issue opened for subscription on November 11, 2015 and was to close on November 25. But the director board had extended the closing date to November 20.

SEBI also issued show-cause notice to CAICO and its directors as to why suitable directions/ prohibitions under various sections of SEBI ICDR (Issue of Capital & Disclosure Requirements) Regulations should not be taken against them jointly and refund the money collected from investors of the issue of FCD along with interest of 15 per annum.

The interim order also restrained the company its past and present directors not to issue prospectus or any other offer document or issue advertisement for soliciting money from the public of the issuing securities either directly or indirectly for an appropriate period.

CAICO in its letter contended that SEBI Act and SEBI ICDR regulations are not applicable to them as the company is an unlisted firm with no intention to list its shares on any stock exchanges. Even though FCDs were issued to more than 200 persons, those were existing shareholders and not members of the general public.

However, SEBI observed that CAICO had allotted FCDs to 335 investors during FY16 violating provisions of Companies Act 2013 relating to public issue norms and also various provisions of SEBI ICDR regulations. The issue cannot be considered as a preferential issue as the offer was made to more than 200 persons in a financial year, triggering public issue requirements under Companies Act 2013.

SEBI has also given 21 days time to the company to file replies or submissions in the matter.

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