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WTM/PS/29/ERO/IMD/MAY/2016

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA


CORAM: PRASHANT SARAN, WHOLE TIME MEMBER
ORDER
Under sections 11(1), 11(4), 11A and 11B of the Securities and Exchange Board of India Act,
1992
In the matter of Bharat Krishi Samridhi Industries Limited
In respect of Mr. Basir Uddin Khan (PAN: BOSPK3303R; DIN: 03529405)
Date of personal hearing: March 09, 2016
Appearance:
Mr. Basir Uddin Khan appeared in-person along with his advocates, Mr. Gautam Kumar Ray and
Mr. Piyush Khaitan.
For SEBI: Mr. T. Vinay Rajneesh, Assistant General Manager and Ms. Nikki Agarwal, Assistant
Manager
1.

Securities and Exchange Board of India (SEBI) passed an Order dated October 09, 2015

(the Final Order) in the matter of Bharat Krishi Samridhi Industries Limited (the Company),
whereby it was conclusively held that the Company made a public issue of Non-Convertible
Redeemable Debentures (NCDs) and Redeemable Preference Shares (RPSs) without complying
with the public issue norms mandated under sections 56, 60, 73, 117B and 117C of the Companies
Act, 1956 and also the provisions of the SEBI (Issue and Listing of Debt Securities) Regulations,
2008 (ILDS Regulations). The Final Order had inter alia observed the following:
(a) As per the Brochure and the Allotment Letter cum Debenture Certificate, it was found
that the Company had offered NCDs for subscription for the value of Rs.200 crore and
that the said offer was pursuant to a Resolution passed by the Board of Directors of the
Company in their meeting held on March 10, 2012. The said NCDs has a face value of
Rs.100/-. The Company had, in the said offer, came out with different plans based on the

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difference in the maturity period. An illustrative list of issuances was prepared on the basis
of complaints received by SEBI. As per such list, the Company had issued NCDs to atleast
70 investors. The issuances were made on various dates in the years 2012 and 2013.
(b) Further, as per the Brochure and various Allotment Letter cum Share Certificate, the
Company also offered RPS worth Rs. 4.95 crore (Issue Size). The said issuance of RPS
opened on July 06, 2011. In the said issue of RPS, the subscribers could select various plans
ranging from A to E under two different categories. Different plans were devised by the
Company based on the different maturity period of investment. An illustrative list of such
issuances was prepared on the basis of various complaints received by SEBI. As per such
list, it was noted that the Company had issued RPS to atleast 71 investors and that the same
were issued on various dates during the years 2012 and 2013.
(c) On perusal of the Balance sheet of the Company as on March 31, 2012, I find that
Company has collected Rs. 87.81 lakhs from the public towards share application money
for issuance of preference shares.
(d) It is further noted that apart from the illustrative list of investor wise details provided above, SEBI has
received further complaints primarily from agents wherein it is observed that BKSIL has raised
approximately Rs. 61 lacs from hundreds of investors. However, in such complaints, only the Customer
Statement have been attached by the complainants. They have not attached the copies of certificates of
NCD/RPS. Moreover, relevant materials in this regard, from the MCA 21 portal, such as balance sheet
of the company for the year ended on March 31, 2013 or from the Company are not available. Therefore,
it cannot be ascertained with certainty as to extent of money raised by the Company through NCDs and
RPS.
2.

Accordingly, the Company and its Directors, viz. Mr. Prabir Kumar Chattopadhyay, Mr.

Pradip Kumar Das, Mr. Gulzar Ahmed and Mr. Firoz Hossain were made liable for the
contravention of sections 56, 60 read with section 2(36), 73 read with section 27(2) of the SEBI
Act, 1992, 117B and 117C of the Companies Act, 1956 and the ILDS Regulations by engaging in
fund mobilizing activity through the offer and issue of NCDs and RPSs. The Final Order had

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accordingly issued various directions against them including direction to refund the public funds
mobilized under such offer and issuance of securities. SEBI had also restrained Bharat Krishi
Secured Debenture Trust, Mr. Swadesh Banerjee, Bharat Krishi Secured Debenture Development
Trust, Mr. Amit Samanta and Mr. Jagdish Chandra Nag from, acting as intermediaries, accessing
the securities market and buying, selling or dealing in securities, in any manner whatsoever, directly
or indirectly, for a period of 4 years, for being ineligible to act as debenture trustees and acted
without registration from SEBI.
3.

Thereafter, it came to the notice of SEBI that Mr. Basir Uddin Khan (the noticee) was

a director in the Company during the period from June 30, 2011 to March 01, 2013. Accordingly,
the noticee was alleged to have also engaged in fund mobilizing activity from the public, in his
capacity as a director during the relevant period and has violated the provisions of law mentioned
the above paragraph. Accordingly, SEBI issued an interim order cum show cause notice dated
November 20, 2015 (the interim order), wherein the following directions were issued:
In view of the alleged violations by the abovementioned past Director, I, in exercise of the powers conferred

upon me under Sections 11, 11(4), 11A and 11B of the SEBI Act, hereby issue the following directions

i. The past Director of BKSIL, viz. Shri Basir Uddin Khan (PAN: BOSPK3303R; DIN:
03529405), is prohibited from issuing prospectus or any offer document or issue advertisement for
soliciting money from the public for the issue of securities, in any manner whatsoever, either directly or
indirectly, till further orders;
ii. The abovementioned past Director of BKSIL is restrained from accessing the securities market and
further prohibited from buying, selling or otherwise dealing in the securities market, either directly or
indirectly, till further directions;
iii. The abovementioned past Director of BKSIL shall provide a full inventory of all his assets and
properties.
The interim order also directed the noticee to show cause as to why suitable directions/prohibitions
under sections 11(1), 11(4), 11A and 11B of the SEBI Act, section 73(2) of the Companies Act,
1956 read with section 27(2) of the SEBI Act and the ILDS Regulations should not be passed
against him:

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i.

Directing him jointly and severally to refund money collected through the Offer of
NCDs and Offer of Preference Shares alongwith interest, if any, promised to investors
therein;
ii. Directing him not to issue prospectus or any offer document or issue advertisement
for soliciting money from the public for the issue of securities, in any manner
whatsoever, either directly or indirectly, for an appropriate period;
iii. Directing him to refrain from accessing the securities market and prohibiting him from
buying, selling or otherwise dealing in securities for an appropriate period.
4.

The interim order advised the noticee to file his response within a period of 21 days and

also indicate whether he desires to avail an opportunity of personal hearing. The interim order was
forwarded to the noticee vide SEBI letter dated November 23, 2015. The noticee was also advised
to read the interim order along with the Final Order passed in respect of the Company and its
directors.
5.

In response, the noticee through his Advocate, vide letter dated December 07, 2015 made

the following submissions:


(a) At the request of one Firoz Hussain, the promoter of the Company, this noticee was
appointed as a director of the Company since 2011.
(b) The noticee never purchased any share or paid any consideration.
(c) Being an employee of the Company, his employer Firoz Hussain forcefully included his
name as a director of the Company.
(d) The noticee was never involved in the policy or decision making process of the Company.
As an employee, the noticee had to carry out the directions of his employer.
(e) The noticee never participated in any of the board meetings of the Company and Firoz
Hussain, being the managing director was taking all the decisions and making policies in
the Company, without consulting any of the directors including the noticee. The noticee
was kept in dark (about the activities of the Company).
(f) Thereafter, the noticee had repeatedly requested Firoz Hussain to remove his name as a
director. However, his request was not heeded.
(g) The noticees resignation letter was also not accepted.

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(h) In such circumstances, during August 2012, the noticee was compelled to leave his job and
lodged a General Diary with the local Police Station narrating the details of the illegal
activities of the Company. Even after lodging the complaint, Firoz Hussain started
harassing the noticee by sending legal notice containing false and baseless allegations.
(i) Vide letter dated March 07, 2013, the RoC asked the noticee to furnish information relating
to the Company under section 234 of the Companies Act, 1956. The noticee had informed
RoC that he resigned from the Company and was not aware of information as sought.
(j) The noticees resignation was ultimately accepted in 2013 and Form-32 was filed with RoC
regarding his resignation.
(k) In view of the submissions, the noticee requested SEBI to discharge him from the
proceedings.
6.

Thereafter, vide letter dated January 02, 2016, the Advocate for the noticee forwarded

copies of the complaint dated August 01, 2012 lodged with the Police and Form-32 filed with RoC
regarding the noticees resignation. I have perused the Police complaint lodged by the noticee along
with another director and note that the following have been alleged therein:
(a) Chairman and Managing Director, Mr. Firoz Hussain was creating a lot of disturbances
and mismanagement in the Company. The said person was acting arbitrarily without
holding any meetings, passing resolutions without calling the directors, in violation of the
Companies Act/rules.
(b) Mr. Firoz Hussain was misappropriating funds and the public money invested in the
Company. He was acting as per his will for making wrongful gains for himself and making
wrongful loss to the Company. He was also violating the rules of the Company. The said
Chairman had also indicated that he was the head of the Company and could do anything.
(c) The Company being a public limited company and also as the public investors have
invested their money in the Company, the said Chairman cannot do anything without the
advice of the other directors/shareholders.
(d) It was also stated that lot of public (general investors) had invested money in the Company.
The noticee has requested the Police to save the company from the evil hands so that
funds invested by the public at large can be saved.

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(e) The noticee has requested the Police authorities to look into the matter.
7.

In accordance with the principles of natural justice, the noticee was afforded an opportunity

of personal hearing on March 09, 2016. In the personal hearing, Mr. Basir Uddin Khan appeared
in-person along with his Advocates, M/s. Gautam Kumar Ray and Piyush Khaitan. The learned
advocate referred to the noticees reply and reiterated the submissions made therein.
8.

I have perused the Final Order, considered the interim order cum show cause notice issued

to the noticee, his submissions and material submitted and other material available on record. The
Final Order has found that the Company had made a public offer of NCDs and RPSs and
mobilized funds from the general public without complying with the public issue norms as
observed therein. The interim order passed in respect of the noticee has observed that the noticee
was a director in the Company during the period June 30, 2011 to March 01, 2013 and alleged
that he was also engaged in fund mobilizing activity from the public through the offer and allotment
of NCDs and RPSs and violated the provisions of the Companies Act, 1956, the SEBI Act and the
ILDS Regulations.
9.

With respect to the allegations, the noticee has submitted that he was an employee in the

Company and was forcefully inducted as a director by its promoter, Mr. Firoz Hussain. The noticee
has also submitted that his resignation was ultimately accepted in 2013. As per Form-32 filed with
RoC, the noticee ceased to the director w.e.f March 01, 2013. The noticee has also stated that he
had filed a complaint on August 01, 2012 with the Police authorities regarding the misappropriation
of public funds by the said Firoz Hussain and the autocratic manner in which Firoz Hussain was
taking decisions in the Company causing loss to the Company and personal gains to himself.
However, the complaint does not allege that he was forcefully made a director in the Company as
stated by the noticee. Further, he was a director in the Company during the period when the NCDs
and RPSs were offered and issued by the Company and board of directors without complying with
the public issue norms. I also note from the documents annexed to the Form-10 (Particulars for
registration of charges for debentures) submitted by the Company to the RoC, that the noticee has signed
in the documents related to the offer of debentures pursuant to the resolution dated March 02,

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2012 passed for issue of NCDs for an amount not exceeding Rs.200 crore viz., (a) Affidavit dated
March 19, 2012 along with Firoz Hussain and (b) in the Declaration (along with Firoz Hussain and
another director). Therefore, it can be said that the noticee was aware of the proposed issue of
NCDs and had voluntarily signed in such issue related documents.
10.

As regards the liability of the noticee, as a director, I note that


(a) In terms of section 291 of the Companies Act, 1956, the board of directors of a company
shall be entitled to exercise all such powers and do all such acts and things as the company
is authorized to exercise and do. Therefore, the board of directors being responsible for
the conduct of the business of a company shall therefore be liable for any non-compliance
of law and such liability is on the individual directors also. With respect to the culpability
of a director for breach of law by a company, I refer to and rely on the following
observations made by the Honble High Court of Madras in Madhavan Nambiar vs Registrar
Of Companies (2002 108 Comp Cas 1 Mad):
13. It may be that the petitioner may not be a whole-time director, but that does not mean he is
exonerated of the statutory obligations which are imposed under the Act and the rules and he
cannot contend that he is an ex officio director and, therefore, he cannot be held responsible. There
is substance in the contention advanced by Mr. Sridhar, learned counsel since the petitioner a
member of the Indian Administrative Service and in the cadre of Secretary to Government when
appointed as a director on the orders of the Government to a Government company or a joint
venture company, he is expected not only to discharge his usual functions, but also take such diligent
care as a director of the company as it is expected of him not only to take care of the interest of the
Government, but also to see that the company complies with the provisions of the Companies
Act and the rules framed thereunder. Therefore, the second contention that the petitioner cannot be
proceeded against at all as he is only a nominee or appointed director by the State Government,
cannot be sustained in law. A director either full time or part time, either elected or appointed or
nominated is bound to discharge the functions of a director and should have taken all the diligent
steps and taken care in the affairs of the company.
14. In the matter of proceedings for negligence, default, breach of duty, misfeasance or breach of
trust or violation of the statutory provisions of the Act and the rules, there is no difference or
distinction between the whole-time or part time director or nominated or co-opted director and the
liability for such acts or commission or omission is equal. So also the treatment for such violations
as stipulated in the Companies Act, 1956.
15. Section 5 of the Companies Act defines the expression "officer who is in default". The
expression means either (a) the managing director or managing directors ; (b) the whole-time

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director or whole-time directors ; (c) the manager ; (d) the secretary ; (e) any person in accordance
with whose directions or instructions the board of directors of the company is accustomed to act; (f)
any person charged by the board with the responsibility of complying with that provision ; (g) any
director or directors who may be specified by the board in this behalf or where no director is so
specified, all the directors.
16. Section 29 of the Companies Act provides the general power of the board and ...
Therefore it follows there cannot be a blanket direction or a blanket indemnity in favour of the
petitioner or other directors who have been nominated by the Government either ex officio or
otherwise. Hence the second point deserves to be answered against the petitioner.
17. As regards the first contention, it is contended by Mr. Arvind P. Datar, learned senior counsel
appearing for the petitioner that the company or its board had resolved that Thiagaraj S. Chettiar
shall be the director in charge of the company of all its day-to-day affairs and, therefore, the
petitioner, an ex officio chairman and director, cannot be expected to attend to the affairs on a dayto-day basis. This contention though attractive cannot be sustained as a whole. There may be a
delegation, but ultimately it comes before the board and it is the board and the general body of the
company which are responsible.
{Emphasis supplied}
(b) A person cannot assume the role of a director in a company in a casual manner. If the
noticee claims to have been inducted without his consent, he should have ideally taken
action against the Company and others concerned. However, he appears to have failed to
do so. Further, lodging of a complaint after the offer and impugned issuance of securities
cannot be a ground to afford any benefit to the noticee.
(c) The position of a director in a public company/listed company comes along with
responsibilities and compliances under law associated with such position, which have to be
fulfilled by such director or face the consequences for any violation or default thereof. The
noticee cannot therefore wriggle out from liability by merely stating that he was not
involved in the affairs of the Company or was not aware of issuance of securities.
(d) Accordingly, a director who is part of a companys board shall be responsible and liable for
all acts carried out by a company unless exemptions are provided. The noticee, in the
present case, was part of the Companys Board of Directors for the period June 30, 2011
to March 01, 2013. As mentioned in the Final Order, the Company had resolved to issue
RPS and the issue opened in July 2011 and NCDs vide resolution made during March 2012.

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Further, the Company had issued RPS and NCD in 2012 and 2013. The noticee was a
director in the Company during the period when the decisions regarding issue of RPS and
NCD were taken and also when monies were mobilized as subscription amounts against
such securities. Accordingly, the noticee shall also be responsible and liable along with the
others in the Board, for all the deeds/acts of the Company during the period of his
directorship.
(e) According to section 56(1) of the Companies Act, 1956, every prospectus issued by or on
behalf of a company, shall state the matters specified in Part I and set out the reports
specified in Part II of Schedule II of that Act. Further, as per section 56(3) of the
Companies Act, 1956, no one shall issue any form of application for shares in a company,
unless the form is accompanied by abridged prospectus, contain disclosures as specified.
Section 2(36) of the Companies Act read with section 60 thereof, mandates a company to
register its 'prospectus' with the RoC, before making a public offer/ issuing the 'prospectus'.
The Company had not complied with these provisions, as found in the Order.
Section 56(1) and 56(3) read with section 56(4) of the Companies Act, 1956 imposes the
liability on the company, every director, and other persons responsible for the prospectus
for the compliance of the said provisions. The liability for non-compliance of section 60
of the Companies Act, 1956 is on the company, and every person who is a party to the
non-compliance of issuing the prospectus as per the said section. The noticee is therefore
liable for non-compliance with sections 56 and 60.
(f) By making a public issue of RPS, as discussed above, the Company had to compulsorily list
such securities in compliance with section 73(1) of the Companies Act, 1956. As per
section 73(1) Companies Act, 1956, a company is required to make an application to one
or more recognized stock exchanges for permission for the shares or debentures to be
offered to be dealt with in the stock exchange. The Company had failed to comply with
this requirement, as observed in the final Order. Section 73(2) states that "Where the
permission has not been applied under subsection (1) or such permission having been applied for, has not

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been granted as aforesaid, the company shall forthwith repay without interest all moneys received from
applicants in pursuance of the prospectus, and, if any such money is not repaid within eight days after the
company becomes liable to repay it, the company and every director of the company who is an officer in
default shall, on and from the expiry of the eighth day, be jointly and severally liable to repay that money
with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed,
having regard to the length of the period of delay in making the repayment of such money". As the
Company failed to make an application for listing such securities, the Company had to
forthwith repay such money collected from investors. If such repayments are not made
within 8 days after the Company becomes liable to repay, the Company and every director
is liable to repay with interest at such rate. The liability of the Company/directors to refund
the public funds collected through offer and allotment of the impugned securities is
continuing and such liability would continue till repayments are made. Accordingly, the
noticee shall be liable for making refunds for the monies collected during his tenure as a
director in the Company, till such liability is discharged by making refunds by
Company/other directors who are liable.
(g) The noticee is also liable, as a director, for complying with the provisions of sections 117B
and 117C of the Companies Act, 1956. Section 117B of the Companies Act, 1956,
prescribes that no company shall issue a prospectus or a letter of offer to the public for
subscription of its debentures, unless it has, before such issue, appointed one or more
debenture trustees for such debentures and the company has, on the face of the prospectus
or the letter of offer, stated that the debenture trustee or trustees have given their consent
to the company to be so appointed. Further, section 117C stipulates that, where a company
issues debentures, it shall create a debenture redemption reserve for the redemption of such
debentures, to which adequate amounts shall be credited, from out of its profits every year
until such debentures are redeemed. The Final Order has found that the Company failed
to comply with the above provisions. The Company has also been found to have not
complied with the provisions of regulations 4(2)(a)(d), 4(4), 5(2)(b), 69, 12, 14, 15, 16(1), 17,
19 and 26 of the ILDs Regulations. This noticee also becomes liable for these contraventions.

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(h) In view of the above observations and findings, the submissions of the noticees do not
have merit. The present case involves directors in a company that has mobilized public
funds from gullible investors through its offer and issue of securities without complying
with the applicable laws. Such statutory provisions (sections 56, 60, 73, 117B and 117C) in
the Company Act, 1956 and the ILDS Regulations are prescribed to
i. ensure that the investing public are aware about the company in which they
were investing their money and the attendant risk such investment may
carry, and also
ii. provide for marketability of such securities and in the absence of the same,
to return the funds collected from the investors, with or without interest in
accordance with section 73(2) of the Companies Act, 1956.
11.

In view of the above discussions, I hereby find the noticee also liable for the violation of

sections 56, 60, 73, 117B and 117C of the Companies Act, 1956 read with the Companies Act,
2013 and the ILDS Regulations, committed by the Company/its board of directors with respect to
their offer and issue of RPSs and NCDs. The noticee shall also be liable for making refunds as
provided under section 73(2) of the Companies Act, 1956 read with section 27 of the SEBI Act,
and shall be jointly and severally responsible along with other as directed vide the Final Order. The
Order had levied an interest @ 15% p.a. on the amounts that are due to be repaid to the investors.
The noticee shall be liable to make refunds along with interest at 15%. The same is also in
accordance with rule 4D (which prescribes that the rates of interest, for the purposes of sub-sections (2) and (2A)
of section 73, shall be 15 per cent per annum) of the Companies (Central Governments) General Rules
and Forms, 1956 also.
12.

In view of the above findings and observations, I, in exercise of the powers conferred

upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with
sections 11(1), 11(4), 11A and 11B thereof hereby issue the following directions:
(a) The noticee, Mr. Basir Uddin Khan shall, jointly and severally along with the Company
and others as ordered vide SEBI Order dated October 09, 2015, forthwith refund the

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money collected by the Company through the offer and issuance of Redeemable Preference
Shares and Non-Convertible Debentures (which have been found to be issued in contravention of
the public issue norms stipulated under the Companies Act, 1956 and SEBI Regulations), to the
investors including the money collected from investors, pending allotment of securities, if
any, with an interest of 15% per annum compounded at half yearly intervals, from the date
when the repayments became due (in terms of Section 73(2) of the Companies Act, 1956) to the
investors till the date of actual payment.
(b) Mr. Basir Uddin Khan shall provide a full inventory of his assets and properties and details
of all bank accounts, demat accounts and holdings of shares/securities, if held in physical
form.
(c) All other directions issued vide SEBI Order dated October 09, 2015 in respect of making
refunds and reporting of the same shall apply mutatis mutandis to Mr. Basir Uddin Khan.
(d) In case of failure of the noticee to refund the monies as directed in this Order or on failure
to comply with the directions, SEBI, on expiry of three months from the date of this
Order,(i)

shall recover such amounts in accordance with section 28A of the SEBI Act
including such other provisions contained in securities laws.

(ii)

may initiate appropriate action against the noticee, including adjudication


proceedings, in accordance with law.

(iii)

would make a reference to the State Government/ Local Police to register a


civil/ criminal case against the noticee, for offences of fraud, cheating,
criminal breach of trust and misappropriation of public funds; and

(iv)

would also make a reference to the Ministry of Corporate Affairs for


necessary action.

(e) Mr. Basir Uddin Khan is restrained from accessing the securities market and further
prohibited from buying, selling or otherwise dealing in the securities market, directly or
indirectly in whatsoever manner, with immediate effect. He is also restrained from issuing

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prospectus, offer document or advertisement soliciting money from the public and
associating himself with any listed public company and any public company which intends
to raise money from the public, or any intermediary registered with SEBI. The above
directions shall come into force with immediate effect and shall continue to be in force
from the date of this Order till the expiry of 4 years from the date of completion of refunds
to investors, as directed above.
(f) The above directions shall come into force with immediate effect.
13.

This Order is without prejudice to any action, including adjudication and prosecution

proceedings that might be taken by SEBI in respect of the above violations committed by the
noticee.
14.

Copy of this Order shall be forwarded to the recognised stock exchanges and depositories

for information and necessary action.


15.

A copy of this Order shall also be forwarded to the Ministry of Corporate

Affairs/concerned Registrar of Companies, for their information and necessary action with respect
to the directions/restraint imposed above against the noticee.

Date: May 10, 2016


Place: Mumbai

PRASHANT SARAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

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