BEFORE NATIONAL COMPANY LAW TRIBUNAL

(UNDER SECTION 34,35,36,477 OF COMPANIES ACT,2013)

TACTFUL INVESTMENT LTD.

COMPLAINANT

MEMORIAL ON BEHALF OF COMPLAINANT

 TABLE OF CONTENTS

● LIST OF ABBREVIATIONS
● INDEX OF AUTHORITIES
● TABLE OF CASES
● BOOKS
● WEBSITE
● STATUTES
● STATEMENT OF FACTS
● ISSUES
● SUMMARY OF ARGUMENTS
● ARGUMENTS ADVANCED
● PRAYER
 LIST OF ABBREVIATION

AIR ALL INDIA REPORT

SEC SECTION

V VERSUS

SC SUPREME COURT

SCC SUPREME COURT CASES

SCR SUPREME COURT REPORTS

 INDEX OF AUTHORITIES

CASES:
● Mrs. Bhupinder Kaur Singh And Ors. vs Registrar Of Companies 2007
● S.R. Nayak and Anr etc. v. Union of India and Ors. AIR 1991 SC 1420
● Registrar of Companies v. Rajshree Sugar and Chemicals Ltd. and Ors.
2000 (6) SCC 138

BOOKS:
● Bharat’s Companies Act, 2013, Ravi Puliani and Mahesh Puliani,
Bharat Law House Pvt. Ltd., New Delhi, 2014.

WEBSITES:
● Indiankanoon.org
● blog.ipleaders

STATUTES
● The Companies Act, 2013 (as per the Notification of the Ministry of
Corporate Affairs, Govt. of India, dated September 12, 2013 and March
26, 2014)
 STATEMENT OF FACTS

● Tactful Investments Ltd. was promoted by Ajay Rathore, Renuka Bansal,

and Aditi Singhal in 1996.
● The company raised a public issue of 24,00,000 equity shares of Rs. 10/-
each aggregating 240 lacs in 2011.
● The prospectus for the public issue was signed in November 2010, with the
primary objective of utilizing the funds collected for leasing and investment
purposes.
● The stated objectives of the public issue were to augment long-term
resources for the working capital requirement for leasing and investments,
get shares of the company listed on the Stock Exchange, and meet the
expenses of the public issue.
● However, instead of utilizing the funds for leasing and consultancy activities
as promised in the prospectus, the company invested in unproductive shares
and securities in amounts far exceeding the limits set out in the prospectus.
● The company invested Rs. 3.13 crores and Rs. 7.18 crores in unproductive
shares and securities during 2010-2011 and 2011-2012 respectively.
● These investments remained blocked till 31.3.2018 and yielded very meager
income and hardly any return by way of dividends.
● The company did not undertake any leasing and consultancy activities as
promised in the prospectus.
● A complaint was filed in 2019 alleging that the company
misutilized/siphoned the funds collected through the public issue by failing
to utilize the same as promised in the prospectus.
● The complaint alleges that the company is liable for penalty on two counts -
(a) for paying compensation to every person who subscribed any shares or
debentures on the faith of prospectus and suffered losses; and (b) for
fraudulently inducing persons to invest money.
 ISSUES

1. Whether the company misutilized the funds raised through the public issue
by investing in unproductive shares and securities instead of utilizing the
money for leasing and consultancy activities as promised in the prospectus?

2. Whether the company is liable to pay compensation to every person who

subscribed to the shares or debentures on the faith of the prospectus and
suffered losses?
 SUMMARY OF ARGUMENTS

ISSUE 1-Whether the company misutilized the funds raised through the public
issue by investing in unproductive shares and securities instead of utilizing the
money for leasing and consultancy activities as promised in the prospectus?

It is humbly submitted by the complainant that the company breached the

prospectus by misusing the funds raised in the public issue. In this regard, it is
important to note that a prospectus is a legal document that provides important
information about a company and its securities to potential investors.The
Companies Act, 2013 defines a prospectus under section 2(70). A prospectus plays
an important role for any public company and it must be under the provisions laid
down under the Companies Act 2013. Any material misstatement or omission in
the prospectus could amount to fraud and misrepresentation, and the company and
its promoters could be held liable for such acts.
The company did not use the funds for the stated purpose, it could be considered a
violation of the Securities and Exchange Board of India (SEBI) regulations.

ISSUE 2-Whether the company is liable to pay compensation to every person who
subscribed to the shares or debentures on the faith of the prospectus and suffered
losses?
It is humbly submitted by the complainant that the company is liable to pay
compensation to every person who subscribed to the shares or debentures on the
faith of the prospectus and suffered losses.
The actions of the company amount to fraud under Section 447 of the Companies
Act, 2013.The company's actions constitute a breach of trust and a violation of its
fiduciary duties towards its shareholders. Under section 166 of the Companies Act,
2013, directors are required to act in good faith and in the best interests of the
company and its shareholders. By misusing the funds raised through the public
issue and investing in unproductive shares and securities, the company and its
directors have breached this duty. Any breach of this duty can result in liability for
the directors and the company.
 ADVANCED ARGUMENTS

ISSUE 1-Whether the company misutilized the funds raised through the public
issue by investing in unproductive shares and securities instead of utilizing the
money for leasing and consultancy activities as promised in the prospectus?

Learned Counsel for the complainant, submitted that statement in the prospectus
was that the funds were proposed to be deployed for leasing business and for
making investments. However, contrary to that, the company made huge
investments in unproductive shares and securities. It resulted in much less
profitability than projected.

Pursuant to section 2(70) of the Companies Act, 2013, prospectus is a document

that invites offers from the public for the subscription or purchase of the securities
of a company. The term ‘prospectus’ includes not only a document described or
issued as prospectus but also notices, circulars and advertisements offering
invitation to purchase or subscribe the securities.
The detailed contents of a prospectus are given in Section 26 of the Companies
Act, 2013.
A prospectus is an essential document through which one can find out the
reliability of a company’s scheme. A company is responsible to check whether the
contents of the prospectus are true or not. If it contains any misstatement then it
would invite serious consequences. Any statement that is incorrect or misleading is
included in the prospectus then it would be termed as mis-statements in the
prospectus. Any inclusion or omission of a fact which is likely to mislead the
public shall also be termed as a misstatement.
Thus, the company had made a false statement in the prospectus, which in the act
was punishable under Sections 34 and 35 of the Act.

Supreme Court in S.R. Nayak and Anr etc. v. Union of India and Ors. AIR 1991
SC 1420 It was further submitted that once it is prima facie established that there
was a misrepresentation in the prospectus, all the petitioners being signatory to the
said prospectus were liable for prosecution.

In the case of Sahara India Real Estate Corp. Ltd. & Ors v. SEBI (2012) 10 SCC
603, the Supreme Court held that any misstatement or omission in the prospectus is
a fraud on the investing public and undermines the integrity of the securities
market. The court also held that the investors who relied on the prospectus and
suffered losses are entitled to compensation from the company and its promoters.
ISSUE 2-Whether the company is liable to pay compensation to every person who
subscribed to the shares or debentures on the faith of the prospectus and suffered
losses?

It was contended by learned Counsel for the complainant that the funds were
ultimately utilized by making huge investments in unproductive shares and
securities and as the funds were utilized for a purpose other than what was stated in
the prospectus, it should be inferred that the statement made in the prospectus was
false.

one can clearly come to the conclusion that a case has been made out, prima facie,
of misstatement in the prospectus. When that is the case, the persons who were in
charge at the time of the public issue and who made statements in the prospectus
would be held responsible.

If a prospectus issued violates the provisions of section 26 of the Companies Act,

2013 then,

1. The company shall pay a fine not less than Rs.50000 which can be
extended to Rs. 300000.
2. Imprisonment for a maximum term of three years or with a fine not
less than Rs. 50000 and maximum of Rs. 300000 or with both can be
 imposed to every person of the company who is a party to the issue of
the prospectus.

Civil liability for misstatements in prospectus will arise when a person has
sustained any loss or damage by subscribing securities of a company based on a
misleading prospectus (sec. 35). In such instances the following persons shall be
liable under sec 447 and will have to pay compensation to persons who have
sustained such loss or damage:

1. director of the company at the time of the issue of the prospectus;

2. person who has agreed to be named as a director in the prospectus and is
named as a director of the company, or has agreed to become such
director;
3. is a promoter of the company;
4. has authorized the issue of the prospectus; and
5. is an expert who has been engaged or interested in the formation or
promotion or management of the company.

A person who has signed and given consent to the prospectus is liable for
misstatement. A misstatement in the prospectus can invoke criminal (sec. 34) and
civil liabilities (sec. 35). Misstatements can lead to punishment for fraud under
Sec. 447.

Section 447 of the act states that any person guilty of fraud shall be punishable
with an imprisonment for a term not less than six months but may extend to ten
years and shall also be liable to a fine which shall not be less than the amount of
the fraud and can be extended to three times of it.

The company is, thus, liable for penalty under Sections 477 of the Act on two
counts, namely (a) for paying compensation to every person who subscribed any
shares or debentures on the faith of prospectus and suffered losses; and (b) for
fraudulently inducing persons to invest money.

Under section 166 of the Companies Act, 2013, directors are required to act in
good faith and in the best interests of the company and its shareholders. By
misusing the funds raised through the public issue and investing in unproductive
shares and securities, the company and its directors have breached this duty.

The Supreme Court in the case of Larsen & Toubro Limited v. State of Karnataka
(2013) held that the directors of a company owe a fiduciary duty to the company
and its shareholders, and that they must act with utmost good faith towards the
company. The Court further held that any breach of this duty can result in liability
for the directors and the company.

In the case of Satyam Computer Services Ltd. v. SEBI (2010) 156 CompCas 260
(CLB), the Company Law Board held that the company and its promoters are liable
to pay compensation to the investors for the losses suffered due to their fraudulent
acts. The board also held that the liability of the company and its promoters is joint
and several, and they cannot escape liability by blaming each other.
 PRAYER

May it please National Company Law Tribunal ,the counsel of complainant, bring
this complaint against Tactful Investments Ltd. and its promoters, Mr. Ajay
Rathore, Renuka Bansal, and Aditi Singhal, for misutilization and siphoning the
funds raised through a public issue in 2011, which was done in violation of the
promises made in the prospectus.

I pray that the National Company Law Tribunal holds Tactful Investments Ltd. and
its promoters accountable for their actions and awards compensation to all those
who subscribed to shares or debentures based on the prospectus and suffered
losses.

I further pray that this Honorable National Company Law Tribunal imposes
penalties on Tactful Investments Ltd. and its promoters for fraudulently inducing
persons to invest money and for violating the laws and regulations governing
public issues.

I submit that the relief sought is just and necessary in order to protect the interests
of the subscribers to the public issue and to deter such fraudulent activities in the
future. I therefore respectfully request this Honorable National Company Law
Tribunal to grant the relief sought and to award any other appropriate relief as
deemed fit."