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2016 (6) TMI 805 - AT - Companies LawIPO - lapse of due diligence - whether the steps taken by the Appellant in light of various provisions of the ICDR Regulations and the Code of Conduct towards the due diligence of the affairs of the Issuer Company are sufficient and adequate in law? - non – disclosure of suppliers and agreements for purchase of granules - fund raising through ICDs and their subsequent deployment - Held that:- On a perusal of Order dated 3rd September, 2012 passed by the Respondent, it emerges that an independent Director of the Issuer Company, who was a signatory to the RHP as well as the Prospectus, however made the following statements on record; firstly, • that the loan committee had a term of reference limited only to availing of various credit facilities from the banks. The Loan Committee had no authority to borrow money through ICDs and secondly; • that no such proposal regarding availing of loans through ICDs was tabled at the meeting of the Board of Directors dated 17th August, 2011. In light of these factual revelations, it is evident that the Loan Committee could not have permitted the raising of money through ICDs since this was not part of its mandate. In the absence of any evidence to the contrary, we, therefore, find that the Appellant was only supplied with an extract, and not the minutes of the Board Meeting dated 17th August, 2011, by the the Issuer Company. In this factual backdrop the Appellant cannot be condemned for not disclosing the matter regarding the raising of funds through ICDs by the Issuer Company in the Offer Documents. Appellant could not have incorporated such a fact of giving ICDs to the three companies taken by the Issuer Company after the conclusion of the IPO in the DRHP, RHP or even in the Prospectus. This charge, therefore, can also not be sustained against the Appellant. However, it must be said that the Appellant seems to have acted in a hurry to issue the RHP on the same date. It should have been more vigilant and careful in filing the RHP on August 17, 2011 itself. As such, we would hasten to add that the filing of Prospectus, which was done two days after the closure of the Issue on 14th September, 2011, issue opened on 7th and closed on 12th September, 2011, the Appellant could have detected all these developments had it undertaken inspection of the Bank accounts of the the Issuer Company. To this extent, we are in agreement with the finding in the Impugned Order that the Appellant did not perform its duty properly in the matter of due diligence. Except, non-examination of the bank statement of the Issuer Company, we do not find any major lapse / flaw in the process of due diligence carried out by the Appellant. Albeit, it is not mandatory for an MB to look into the bank statements it would have been prudent for the Appellant to peruse the bank statements instead of merely relying on the Statutory Auditor’s Report and the statement of the the Issuer Company. Although there is some merit in the charges levelled against the Appellants, as far as non-perusal of Bank statements of the Issuer Company and disclosure of related party transactions ) is concerned, in view of the fact that the punishment already undergone is far in excess of the punishment which the Appellants deserved against the charges in question, we quash the remnant punishment imposed vide the Impugned Order.
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