TMI Blog2023 (11) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... This Tribunal also held that the company and its MDs were aware of the execution of the pledge agreement as well as loan agreement and it was no longer open to them to deny the existence of the said agreements. This Tribunal also held that the company and its Directors misled SEBI into believing that there were more subscribers to the issue and not one subscriber. We also held that company and its MDs were aware of the pledge agreement, non-disclosure of the pledge agreement and loan agreement invited penalty. Corporate announcement did not disclose the fact that the subsisting pledge agreement facilitated the subscribers to subscribe to the GDR issue. The corporate announcement was misleading and presented a distorted version to the investors and created a false version inducing the investors to deal in securities - in the light of the aforesaid decisions the findings against the appellants in the instant appeals does not require any interference nor we require to give elaborate reasons. The findings of the AO are upheld. Quantum of penalty and on the issue of proportionality - SEBI has passed various orders against company and its directors imposing different penalties fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Exchange Board of India (hereinafter referred to as SEBI ) imposing penalties for violation of Section 12A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act ) and Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as PFUTP Regulations ) as well as under Section 21 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as SCRA ) read with Clauses 36 and 50 of the Listing Agreement. A sum of Rs. 25 lakh has been imposed upon the company Kaashyap Technologies Ltd. noticee nos. 1. A sum of Rs. 20 lakh has been imposed upon noticee nos. 2. A sum of Rs. 10 lakh each has been imposed upon noticee nos. 3, 4, 5 and 6. 2. The facts leading to the filing of the present appeal is, that the Board of Directors of the company known as Kaashyap Technologies Ltd. passed a resolution on October 4, 2007 for opening a bank account with Banco Efisa, S. F. E., S. A. (hereinafter referred to as Banco ) for depositing the GDR proceeds. 3. The resolution approved by the Board of Directors r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the fact that Clifford was the sole subscriber was not intimated to the stock exchange and to the Indian investors. Further, Clifford did not repay the loan and defaulted, as a result, the bank adjusted USD 10.39 million from the GDR proceeds and, accordingly, the company and its Directors were charged with violation of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. 7. The AO after considering the evidence on record found that the entire scheme of using the GDR proceeds to fund a subscriber to the GDR issue was a fraudulent scheme and violative of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. The AO found that the GDR was subscribed by one entity, namely, Clifford and not by four entities as disclosed by the company vide its letter dated June 18, 2015. The AO further found that on account of the pledge created by the company with Banco the funds were not made available at the company s disposal and the same became available in tranches as and when the loan amount was repaid by Clifford. Further, the loan agreement was not disclosed to the stock exchange and to the Indian investors. Further, the disclosure made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Listing agreement for which purpose the penalty awarded was wholly excessive, harsh and disproportionate. 11. It was also urged that the appellant nos. 3, 4, 5 and 6 are independent directors and were not involved in the day-to-day affairs of the company and, therefore, the penalty imposed upon them was wholly inappropriate. In support of their submission, the learned counsel placed reliance upon decisions of this Tribunal in Sayanti Sen vs. SEBI Appeal No. 163 of 2018 decided on August 9, 2019 and Prafull Anubhai Shah vs. SEBI Appeal No. 389 of 2021 decided on June 28, 2021. It was also urged in the alternative that the penalty imposed upon the appellants is excessive and disproportionate and should be appropriately reduced. 12. On the other hand, the respondent supported the impugned order and contended that the modus operandi is the same as has been dealt with by this Tribunal in a large number of matters relating to the GDR issue wherein this Tribunal has held that the nondisclosure of the loan agreement and the pledge agreement was totally fraudulent and violative of the Listing Agreement. 13. Having heard the learned counsel for the parties, we find that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act contains penal provisions for penalising such offenders. At the same time, the penalty cannot be disproportionate and it should not lead to shocking results. That is the implication of the doctrine of proportionality which is based on equity and rationality. It is, in fact, a constitutionally protected right which can be traced to Article 14 as well as Article 21 of the Constitution. The doctrine of proportionality is aimed at bringing out proportional result or proportionality stricto sensu . It is a result oriented test as it examines the result of the law in fact the proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act. 17. Similar view was expressed by the Delhi High court in Rajkumar Dyeing and Printing Works Pvt. Ltd. In Rajendra Yadav, the Supreme Court held that the doctrine of equality applies to all those who are found guilty. The Supreme Court held :- 9. The doctrine of equality applies to all who are equally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. We are of the opinion that in the rapid growth of administrative law it has become the need and necessity to control possible abuse of discriminatory power by administrative authorities. In this regard, certain principles have been evolved by Courts, namely, that if an action is taken by an authority which is contrary to law or which is improper or where the action taken is unreasonable then the Court of law is duty bound to interfere with such action and one such mode of exercising power is to exercise the doctrine of proportionality. Where the punitive measure is harsh or disproportionate to the offence which shocks the conscience it is within the discretion of the Court to exercise the doctrine of proportionality and reduce the quantum of punishment to ensure that some rationality is brought to make unequals equal. 20. In this regard, we find that SEBI has passed various orders against company and its directors imposing different penalties for identical / similar offences. In a large number of penalties ranging from Rs. 25 lakh to Rs. 1.25 crore have been imposed upon the companies which we have appropriately reduced to Rs. 25 lakh. Similarly, for managing director consid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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