Home Case Index All Cases SEBI SEBI + AT SEBI - 2020 (1) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (1) TMI 366 - AT - SEBIAd-interim ex-parte order - appellants Restrained from accessing the securities market - violation of PFUTP Regulations 2003 - related party/related party transactions - Finding of manipulation of the books of account or misrepresentation of financials or diversion/siphoning off the funds of the Company - HELD THAT:- We are unable to fathom why the explanations provided by the appellant both relating to the basic facts on the proposed merger and its failure was not given sufficient consideration in the impugned order particularly because of the given business model of Tree House. Tree House is operating in the area of education both for running its own schools, through franchise system and/or by providing funds to various trusts. If that business is adversely affected due to unfavourable business environment obviously that would be a factor leading to the decline in performance as well as profitability. Therefore without passing any judgment on the veracity of the complaints between two groups/different entities the facts on record have to be analyzed in judging/evaluating business performance particularly when there are reliable evidence in the form of orders of the High Court etc. available. Similarly, we are unable to agree with the contentions of SEBI that a trustee of a public charitable trust is a related party going by the correct reading of the definition in the Companies Act as well as in the LODR Regulations, unless there is evidence to show that those Trusts have been set up or operating for the benefit of the appellant(s). Moreover, there is nothing on record to show that Mr. Giridharilal, the trustee has personally benefited in any manner not only by virtue of being a trustee or in general by any other means. Similarly, we are also unable to appreciate fully the allegations relating to the inflated expenditure on furniture and fixtures etc. particularly in the absence of any evidence on diversion of money/resources belonging to Tree House being shown. How far SEBI can reassess or reevaluate business decisions and audited figures given in financial reports of a company unless explicit proof/evidence relating to siphoning off or manipulation of accounts is available is also a question that needs to be answered by SEBI. In the absence of such information authorities are not in a position to pass business judgments regarding what could be or what should be the cost/expenditure on a particular equipment/tool such as furniture and fixtures. These are all business decisions of the concerned entity and decisions to be taken by the authorized persons. If any malafide in terms of siphoning off of funds etc is observed in the accounts of the listed companies SEBI definitely has the power to intervene in the interest of investors and securities market. There is yet another aspect which makes the impugned order not fully sustainable. Admittedly, based on media report an investigation was started by SEBI in December 2016. The investigation continued for more than a year and thereafter an ex-parte interim order dated March 7, 2018 was passed. By the said interim order SEBI further directed NSE to appoint an independent auditor/audit firm for conducting a detailed forensic audit of the books of account from the financial year 2011-12 onwards for verifying, inter alia, the manipulation of the books of account, misrepresentation of financials and/or business operations of the appellant Company and wrongful diversion/siphoning off the funds by the Company through related party transactions etc. As on date, nothing has been shown on record to indicate any finding through interim audit report with regard to the manipulation of books of account or siphoning off the funds of the Company. The forensic audit is still underway. We find that the ex parte interim order was issued on the basis of presumption of certain transactions and after acknowledging the dispute between the appellant and Zee group in 2015 and the expenses incurred by the Company from the financial year 2011-12 onwards. No case of urgency was made out in the instant case for grant of an ex parte interim order or for continuation of the said interim order to restrain the appellant from the securities market. It is settled law that an ex parte interim order is required to be passed in order to curb further mischief or to stop large scale exercise of possible mischief of tampering with the securities market. If during a preliminary enquiry, it is found prima facie, that the person is indulging in manipulation of the securities market, it would be obligatory for SEBI to pass an interim order or for that matter an ex parte interim order in order to safeguard the interests of the investors and to maintain the integrity of the market. The purpose of passing an ex parte interim order is to prevent further mischief or where the act to be prevented is imminent or where action to be taken brooks no delay.
|