2024 (12) TMI 1462 - AT - SEBI

Failure to comply with the provisions of Regulations 15(1)(i) of Debenture Trustees Regulations SEBI (Debenture Trustees) Regulations 1993 - penalty of Rs. 10 lakhs u/s 15HB of the SEBI Act 1992 imposed - default of Code of Conduct under the Debenture Trustee Regulations Appellant has not reported that there were more than 49 investors in the NCDs though it had received the relevant communication from Karvy on April 1 2014 along with list of investors. Secondly that appellant had sought to suppress the receipt of the BENPOS report from Karvy and did not furnish the same till two reminders were sent and finally forwarded the report on August 4 2020. HELD THAT - Undisputed facts of the case are Vaishnodevi Dairy Products Ltd. had proposed to issue Non-convertible Debentures and appointed appelant/IL FS as the debenture trustee. The said Company was taken over the appellant. Karvy was the sole subscriber of the debentures and it had further sold the debentures to 185 investors. As per the extant Regulations there could not have been more than 49 investors in debentures. On April 1 2014 Karvy had sent an e-mail to IL FS containing a list of 154 investors. This e-mail is produced at page 299 to 303 of the appeal paper book. It is clearly mentioned on the top that it was the BENPOS report as on March 24 2014. Appellant has fairly conceded that even on receipt of the list of investors from Karvy on April 1 2014 appellant did not report the same to SEBI. Thus the first charge has been admitted. Second charge of suppression of the BENPOS report - The total time taken by the appellant in furnishing the BENPOS report is about 13 days. In the meanwhile two e-mails were exchanged between the parties. It is not SEBI s case that correct BENPOS report was not submitted at all but the allegation is that appellant had initially attempted to suppress the correct report. Appellant has conceded that appellant did not report to the SEBI about the number of investors. Therefore in our view appellant is liable to be penalized for not reporting the matter to SEBI. So far as the second charge with regard to suppression of material is concerned we are of the opinion that the same is not tenable in view of the facts recorded hereinabove. Ends of justice would be met by reducing the penalty from Rs. 10 lakhs to Rs. 5 lakhs towards the first charge and holding that second charge is not proved.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the appellant failed to comply with the provisions of the SEBI (Debenture Trustees) Regulations, 1993, specifically Regulation 15(1)(i) and Regulation 16 read with Clause 19 of the Code of Conduct.
• Whether the appellant's failure to report the number of debenture holders to SEBI constitutes a violation warranting a penalty under Section 15HB of the SEBI Act, 1992.
• Whether the appellant suppressed the BENPOS report and if such suppression justifies the imposition of a penalty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Non-compliance with SEBI Regulations

• Relevant Legal Framework and Precedents: The SEBI (Debenture Trustees) Regulations, 1993, particularly Regulation 15(1)(i) and Regulation 16, outline the responsibilities of debenture trustees, including reporting obligations.
• Court's Interpretation and Reasoning: The Tribunal acknowledged that the appellant admitted to not reporting the number of debenture holders, which exceeded the permissible limit of 49, to SEBI.
• Key Evidence and Findings: The appellant received communication from Karvy on April 1, 2014, indicating more than 49 debenture holders, which was not reported to SEBI.
• Application of Law to Facts: The Tribunal found that the appellant's failure to report the number of investors was a clear violation of the applicable regulations.
• Treatment of Competing Arguments: The appellant argued that the failure was due to a bona fide inadvertence, while SEBI maintained that the violation warranted a penalty.
• Conclusions: The Tribunal concluded that the appellant was liable for not reporting the number of investors, warranting a penalty.

Issue 2: Alleged Suppression of BENPOS Report

• Relevant Legal Framework and Precedents: Regulation 16 and Clause 19 of the Code of Conduct under the Debenture Trustee Regulations require transparency and timely reporting.
• Court's Interpretation and Reasoning: The Tribunal assessed whether the delay in submitting the correct BENPOS report constituted suppression.
• Key Evidence and Findings: The appellant initially submitted an incorrect BENPOS report and corrected it after two reminders, taking a total of 13 days.
• Application of Law to Facts: The Tribunal determined that the delay did not amount to suppression, as the correct report was eventually submitted.
• Treatment of Competing Arguments: SEBI argued that the appellant attempted to suppress the correct report, while the appellant contended that the delay was not intentional.
• Conclusions: The Tribunal concluded that the charge of suppression was not tenable.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "We are of the opinion that the ends of justice would be met by reducing the penalty from Rs. 10 lakhs to Rs. 5 lakhs towards the first charge and holding that second charge is not proved."
• Core Principles Established: The Tribunal emphasized the importance of adhering to reporting obligations under the SEBI regulations and recognized the need to distinguish between inadvertent delays and intentional suppression.
• Final Determinations on Each Issue: The Tribunal partially allowed the appeal by reducing the penalty to Rs. 5 lakhs for the failure to report the number of investors, while dismissing the charge of suppression of the BENPOS report.