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2017 (3) TMI 337 - AT - Companies LawFalse and inadequate material disclosures made in the Red Herring Prospectus - minimum capitalization norms applicable to NBFCs not adhered - non informed investment decision - penalty of ₹ 1 crore on the appellants under Section 15HB of the SEBI Act, 1992 - Held that:- Decision of the AO that disclosing the letter of RBI dated 26.09.2012 in the RHP, but not disclosing in the RHP that RBI by the said letter dated 26.09.2012 had sought strict compliance of minimum capitalization norms applicable to NBFCs amounts to suppressing material information in the RHP and thus violative of the provisions contained in the ICDR Regulations and Merchant Bankers Regulations cannot be sustained, because, minimum capitalization norms were not applicable to the investors permitted to participate in the offer of CARE and the said norms had no bearing on the investors permitted to participate in the offer of CARE to take an informed investment decision. No fault can be found with CARE for not disclosing the norms which were not applicable to the investors to whom the offer was made in the RHP dated 24.11.2012. Fact that subsequent to the RHP dated 24.11.2012, RBI by its letter dated 06.12.2012 directed CARE to apply minimum capitalization norms to non-resident investors covered under Schedule 2 & 8 and CARE in the circumstances of the case complied with the said direction cannot be a ground to hold that information relating compliance of minimum capitalization norms were suppressed in the RHP dated 24.11.2012. Once it is held that there was no infirmity in the RHP of CARE, then it cannot be said that the appellants without exercising due diligence have issued certificate to the effect that the RHP of CARE contains true and adequate information. Consequently, appellants cannot be said to have violated the Merchant Bankers Regulations. In the result, decision of the AO that the appellants have violated the provisions contained in the ICDR Regulations and Merchant Bankers Regulations cannot be sustained. Consequently, penalty of ₹ 1 crore imposed on the appellants cannot be sustained.
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