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SEBI - Case Laws
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2022 (7) TMI 1428
Violation of the SEBI Act - misrepresentation of financials and violation of the accounting standards - non-furnishing of information to the Forensic Auditor was violative of Section 11(2)(i) of the SEBI Act - appellants were debarred from accessing the securities market - Penalty imposed - HELD THAT:- A clear finding has been given that there is no misappropriation of the funds of the Company nor there is any manipulation in the price of the scrip. No fraud has been played by the Company and its Directors to its investors and shareholders. Further, finding given is, that the violation of the LODR Regulations gave no disproportionate gain to anyone nor created any unfair advantage to the appellants nor any specific loss was caused to any investor.
Thus, in the absence of any finding of any fraudulent activities or misappropriation of funds or diversion of fund, we are of the opinion that the directions of debarment and the penalty given for violation of the LODR Regulations appears to be harsh and excessive.
In the instant case, the appellants were debarred from accessing the securities market for a period of one year w.e.f. July 08, 2021 this period of debarment has already been undergone by the appellants. Consequently, no further orders are required to be passed on this score. In so far as the penalty is concerned, we are of the opinion, that the quantum is harsh and excessive and does not commensurate with the alleged violation of non-disclosure under the LODR Regulations. Since no disproportionate gain was caused to any person nor caused any loss to any investor nor caused any unfair advantage to the Company or its Directors we are of the opinion that the penalty should be reduced by 75% meaning thereby that a penalty of 25% of the penalty imposed by the WTM would be just and proper in the circumstances of the case.
Accordingly, while affirming the violation committed by the appellants, we reduce the penalty to 25% of the penalty imposed by the WTM. The appeal is partly allowed. In the circumstances of the case, parties shall bear their own costs.
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2022 (7) TMI 774
SEBI Offence - summons issued under Section 11-C(3), (5) & (6) of the Securities and Exchange Board of India Act, 1992 before the learned single Judge - scope of amendment - HELD THAT:- As investigation can be conducted after the Board has reasonable ground to believe that any person associated with the securities market has violated any of the provisions of the Act, rules or regulations. Since Section 11-C was inserted with effect from 29.10.2002, investigation under Section 11-C can be continued for the transactions occurred prior to 29.10.2002 as well, because the investigation is only a process to find facts, collect evidence materials of a suspected offence/contravention, therefore, the same being procedural in nature, it is retrospective in nature also. When the Board sought for information from the appellants who were found to have played a role in the matter of Sai Television, the appellants are duty bound to furnish information as sought for by the Board.
Apex Court also in SEBI v. Ajay Agarwal, (2010 (2) TMI 600 - SUPREME COURT] has held that Section 11-B is procedural in nature that prima facie applies to all actions, pending as well as future. When a provision that provides for imposition of directions which is in the nature of punishment itself is held to be retrospective, Section 11-C can very well be held to be retrospective in operation
A cursory perusal of the above observations clearly tells us that Section 11-C is retrospective in nature only.
Whether Section 11-C(3) covers past transactions also, a clear reading of Section 11-C(1) shows that there are two sub-clauses, namely, Section 11-C(1)(a) and Section 11-C(1)(b), while the former uses the expression " are being" meaning its application to the present transactions, the latter uses the expression "has violated" which clearly means the past transactions as well - As these two clauses are to be read disjunctively and not conjunctively, because even for past transactions the Section 11-C(1)(b) applies. Moreover, the writ petitions are not even maintainable, for the simple reason that when disputed questions have arisen as to whether the appellants/writ petitioners are individual investors or not, it is for them to prove that they are individual investors and that they have not violated any provisions before the Board. Now investigation has been ordered. The appellants have to furnish details/information regarding the transactions done by them during the particular period. On receipt of report from the investigating authority, the Board shall pass an order strictly in accordance with law. If the Board, for the reasons best known to them, comes to the conclusion that the appellants are individual investors and they do not fall within any of the categories of persons mentioned under Section 11-C of the Act, the matter ends therein. If for any reason, the Board comes to the conclusion that the appellants are persons associated with the securities market, they have to work out their remedy by filing appeal before the appellate authority. Therefore, when the appellants have got an effective statutory alternative appellate remedy, this Court finds that the writ petitions are not maintainable. Therefore, in our considered opinion, the findings and conclusions reached by the learned single Judge dismissing the writ petitions do not call for any interference.
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2022 (7) TMI 582
Interpretation of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 referred to as ‘Takeover Regulations 1997’ - increase in shareholding beyond 15% (beyond the open offer) - to yield greater influence over management of the company - Power to levy penalty - HELD THAT:- As the Board as well as the Adjudicating Officer have treated the expression ‘acquirer’, for the purpose of Regulation 10, to include a ‘person acting in concert’ and the combined shareholding were taken into consideration for deciding whether there was a breach of Regulation 10. Where the ‘acquirer’, including the ‘person acting in concert’, already had shares or voting rights in excess of the prescribed limit, they were not held guilty of violating Regulation 1028.
It is important for the regulator to be consistent and predictable. Further regulations must be clear as ambiguous regulations cause confusion and uncertainty. Regularity and predictability, along with certainty, are hallmarks of good regulation and governance. These principles underpin the ‘rule of law’, check arbitrariness and are read as the intent of the legislation, which the Courts, if need be, will enforce as a principle of interpretation. The Board is entrusted to preform legislative, executive, investigative and adjudicatory functions.
In the context of the present case, it is to be noted that the Board is the draftsman of the legislation having enacted the Takeover Regulations 1997 and hence, their interpretation and understanding of the Regulations is of importance and relevance. In the context of the present case, the Board, nearly five years after the transactions, had issued the show-cause notice and then passed an order taking a view on interpretation of Regulation 10, which was contrary to the view expressed by it in several communications as also orders passed by the adjudicating authority. Past is passed and not present, and by giving ‘retroactive’ operation without good reason.
Regulation 10 of the Takeover Regulations 1997, as interpreted and applied by the Board for over ten years, is sought to be overturned by the Board, thereby, creating penal consequences. This should not be permitted and is hardly acceptable when we apply the principle of good governance and regulation.
Thus on the enforcement of Takeover Regulations 2011, it is clear that Regulation 10 will apply on an acquirer who crosses the threshold of 15%, which under the Takeover Regulations 2011, has been increased to 25%. Further, Regulation 10 would apply both when an individual acquirer or an acquirer in concert with others acquires shares or voting rights beyond the threshold level and such an acquirer would have to comply with the applicable regulation. Takeover Regulations 1997 and Takeover Regulations 2011, therefore, postulate different preconditions and thresholds. Reliance placed upon the Takeover Regulatory Advisory Committee Report would show that there was a rethought and re-examination of Regulation 10 pursuant to which Regulation 3(3) was enacted and made a part of the regulatory mechanism under the Takeover Regulations 2011.
The use of the word ‘may’ in Regulation 44 and the wording of Sections 11(1), 11B and 11(2)(h) reflect that the Board has been conferred a discretion, which in turn also means and should be interpreted as imposing a duty, an aspect which we will elucidate in the subsequent paragraphs. Use of the word ‘may’ over the years is normally construed as permissive and not imperative. The words ‘may’ or ‘shall’ by their very etymological foundation denote discretion and mandatory nature of an act respectively. This Court has, therefore, held that the courts should not readily interpret the word ‘may’ as ‘shall’ unless such interpretation is necessary to avoid absurdity, inconvenient consequences or as mandated by the intent of the legislature which is gathered from the other parts of the statute.
Significantly, in the present case, the investors of the target company have not raised any objection. The impugned order passed by the Whole Time Member does not refer to any market manipulation or fluctuation in share price, which was detrimental to the interests of the investors. It is not the case of the Board that any windfall gains or profits have been made by the respondents on account of violation of Regulation 11(1) of Takeover Regulations 1997. The order passed by the Whole Time Member, in fact, does not take into account the impact of the order on the securities market in case the investors/shareholders in the target company as on 16th June 2007 are given an option to sell their shares on or after 31st December 2012, possibity of distruption on the functioning market place, detrimental impact on the market place/investor confidence, qualitative impact of the retroactive directions on the law’s santity predicated on predicibilty and legal stability, as well as undermining of the people’s faith and trust on the Board as the protector of law. The directions, therefore, cannot be sustained.
There is, as noticed and held below, some merit in the contention of the Board that the Appellate Tribunal could not have imposed penalty under Section 15-H when proceedings under the said Section had not been invoked by the Board and there is no order passed by the adjudicating authority imposing penalty under Section 15-H of the Act. However, the effect of the argument raised by the Board would be that the order passed by the Whole Time Member under Regulation 44 giving directions would be quashed and set aside. The respondents would have, therefore, escaped without having to pay any penalty for violation of Regulation 11(1) of the Takeover Regulations 1997. It is in this factual background we have to decide the present appeals. As noticed above, the respondents have not filed appeals or cross objections challenging the penalty imposed by the Appellate Tribunal for violation of Regulation 11(1) of the Takeover Regulations 1997.
Power of the Appellate Tribunal under section 15T of the Act - Board has contended that the Appellate Tribunal, in the exercise of power under Section 15-T and while considering appeals against proceedings under Section 11 and 11B of the Act and Regulation 44 of the Takeover Regulation, 1997, could not have converted the directions of the Board with monetary penalty under Section 15-H - HELD THAT:- In the context of the present appeal, it is to be noted that in the case of Sunil Krishna Khaitan, an order in the form of directions under Regulation 44 of the Takeover Regulations 1997 was issued. It was this order which was made subject matter of challenge before the Appellate Tribunal.Thus we do not accept the contention of the Board that the Appellate Tribunal while exercising appellate power could not have set aside and quashed the directions given in the appeal.
At the sametime, in Sunil Krishna Khaitan’s case proceedings under Section 15-H for levy of penalty were not initiated and no order of penalty under 15-H was passed by the adjudicating authority. The Appellate Tribunal, therefore, was not hearing an appeal against imposition of penalty under Section 15-H of the Act. Further, an order under Section 15-H of the Act is passed by an adjudicating authority which, while imposing penalty, is required to take into consideration the factors mentioned in Section 15-J.
As referred to Regulation 45 which in sub-regulation (6) refers to different types of penalties which can be imposed on a person violating any of the provisions of the Regulations. The Appellate Tribunal does not have the power for the first time to initiate and thereupon, impose penalty for non-compliance of the provisions of the Regulations under Chapter VI-A of the Act while deciding an appeal against directions issued under Regulation 44 of the Takeover Regulations, 1997. That power is vested with the authority specified in the Act or the Regulations. The Appellate Tribunal is an appellate forum and not the authority empowered to initiate penalty proceedings under Section 15-H or suo moto issue directions under Section 11, 11B or 11(4)(d) of the Act. It can uphold or set aside the direction issued, or modify and substitute the direction issued under Regulation 44 of the Takeover Regulations 1997 read with Sections 11, 11B and 11(4)(d) of the Act. Similarly, Appellate Tribunal can uphold, set aside, modify and even substitute the order of penalty under Chapter VI-A of the Act.
The power to initiate and levy penalty in terms of Section 15-I is vested with an officer to be appointed by the Board, not below the rank of Divisional Commissioner, to act as an adjudicating officer. The adjudicating officer is required to hold an inquiry in the prescribed manner after giving the person a reasonable opportunity of being heard for the purpose of imposing any penalty. Powers are vested with the adjudicating officer to summon and enforce attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document.
The Appellate Tribunal in the case of Sunil Krishna Khaitan, could not have substituted the penalty imposed by the Board under Regulation 44 with that of penalty under Section 15-H. An appropriate view, in our opinion, would be that when the Appellate Tribunal holds that the order passed by the Whole Time member on violation of Regulations 10, 11 and 12 is sustainable, but the directions given in the order under Regulation 44 are not sustainable, it should leave it open to the Board to initiate proceedings and pass an order under Chapter VI-A of the Act.
As held above, in the absence of any cross-appeal or cross-objection by the respondent in Sunil Krishna Khaitan’s case we are not interfering with the order imposing penalty of Rs.25,00,000/- for the violation of Regulation 11(1) of the Takeover Regulations 1997. The said direction has attained finality. At the same time, we are inclined to direct that the Board would give quietus to the matter and should not initiate proceedings under Chapter VI-A of the Act.
Civil Appeals preferred by the Board are dismissed with the clarification as to the power of the Appellate Tribunal under Section 15-T of Chapter VI-A of the Act, which is confined to examination of correctness and legality of the order under challenge.
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2022 (6) TMI 1441
Fraudulent GDR issue - fraudulent scheme was devised by the Company and its Directors - Vintage was the only entity which subscribed the entire 1.17 million GDRs of the Company by obtaining a loan from EURAM Bank - Penalty and restraint orders against company and directors - HELD THAT:- In the instant case, the copies of the loan agreement, pledge agreement was obtained from an authenticated source and, therefore the existence of the original document cannot be disputed and, in any case, the appellants especially the Company and Managing Director had copies of these documents if not the original and, therefore, it does not lie in their mouth to contend that the copies annexed to the show cause notice cannot be relied upon.
In any case, we are of the opinion that if copies of the documents and/or its contents thereof are relied by SEBI and the same is disputed by the appellants regarding its existence or its contents then the onus is upon the appellants who disputes it to prove that the document is forged or its contents are manipulated and its signatures are not of their Directors. The onus is upon the appellants and not upon SEBI.
Appellants contended that they were not aware of the pledge agreement and, therefore, the question of disclosing it to the stock exchange did not arise - Since we have already held that the appellants were aware of the pledge agreement non-disclosure of the pledge agreement invited penalty which the AO has rightly penalised the appellants.
Company furnished wrong information to SEBI regarding the subscribers to the issue. The list provided by the Company indicated that a number of subscribers had subscribed to the GDR issue which upon investigation was found to be false and that only one entity had subscribed to the GDR issue. The contention that the Company had only forwarded the letter that was given by the Merchant Banker cannot be accepted. The responsibility at the end of the day is of the Company and, in our opinion, filing false information was solely the responsibility of the Company and cannot be diverted to the Merchant Banker.
A feeble attempt was made contending that there were two dates on the loan agreement, namely, 16th August, 2010 and 26th August, 2010 and, therefore, doubted the authenticity of the said document. In the first blush the argument appeared to be attractive but upon a closer scrutiny of the document we find that the loan agreement was sent by EURAM Bank to Vintage on 16th August, 2010. This offer of a loan agreement was accepted by Vintage when they placed their signature on 26th August, 2010. Thus, we do not find any discrepancy doubting the authenticity of the loan agreement.
Penalty - As excessive penalty imposed upon the Company does not make any sense. In the instant case, there are 70,000 public shareholde Rs. Penalising the Company with such heavy penalty is infact penalising the shareholders which is not justifiable especially for a running company. Money raised through GDRs has been received by the Company and has not been misappropriated. The same has been utilitised for the purpose for which the GDR was issued, namely, for the Company’s subsidiary which fact has not been disputed. Thus, it is not a case of defalcation of the funds.
Even though the appellants had misled the investors into believing that the GDR was successful whereas there was only one subscriber. Further, the loan agreement, pledge agreement was not disclosed to the shareholders and to the stock exchange. Such scheme was totally fraudulent. If the Company had not given security for the loan taken by Vintage then Vintage could not have subscribed to the GDRs and, consequently, the GDR issue would have failed. Thus, by entering into the pledge agreement for facilitating subscription of its GDRs, we are of the view that the appellant had played a fraud on the securities market and misled the investors by creating a false impression and, thus, violated Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations.
Directions so issued under Section 11 and 11B of the SEBI Act and the penalty so imposed under Section 15HA are disproportionate and does not commensurate with the violation in view of the directions given in similar matters by the respondent.
A penalty of Rs. 10,00,000/- has been imposed on the Directors only on the strength that they were signatories to the board resolution. In Mr. Gurmeet Singh vs. SEBI [2021 (9) TMI 1519 - SECURITIES APPELLATE TRIBUNAL MUMBAI] and other connected appeals this Tribunal has held that merely being a signatory to a resolution does not mean that these Directors were part of the fraudulent scheme that the respondent was required to show some other evidence to show that these Directors were also part of the fraudulent scheme. Thus the imposition of penalty is excessive.
Consequently, while affirming the order of the WTM and AO of the aforesaid violations committed by the appellants we reduce the debarment period of the Company and the Managing Director from five years to three years. The other Directors have already undergone the debarment period and, therefore, no further order is required to be passed. In so far as the penalty imposed by the AO is concerned, the penalty against the Company is reduced to Rs. 25 lakhs. The penalty against the Managing Director is affirmed. The penalty imposed against the remaining Directors is reduced from Rs. 10,00,000/- to Rs. 2,00,000/-. The appeals are partly allowed. In the circumstances of the case, parties shall bear their own costs.
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2022 (6) TMI 1048
Investment Adviser entitled to charge fee for providing investment advice from a client in the manner as specified by the Board - fixation of a maximum cap of fee which may be charged by Investment Advisor violates any fundamental rights of the petitioners - HELD THAT:- In Ehsan Khalid Vs. Union of India [2013 (10) TMI 851 - SUPREME COURT] the Supreme Court had held that where there is a challenge to a Government policy, particularly economic policy, Court would not interfere in such policy matters in exercise of its power of judicial review unless such policy is found to be grossly arbitrary or unfair or unreasonable or irrational or violative of Constitutional provisions or contrary to statutory provision.
We are of the opinion that it is not the function of this Court to sit in judgment over a matter of economic policy such as that contained in the Regulation 15A and the Circular dt.23.09.2020 though, this Court might feel that a different policy would have been fairer or wiser or more scientific or more logical when such policy is not patently arbitrary, discriminatory or mala fide.
SEBI is an expert body constituted to deal with the securities market and is empowered to regulate activities of various entities including Investment Advisors while protecting the interest of investors.
From a reading of Circular dt.23.9.2020, it is clear that the parties i.e. the client and the Investment Advisors are given a choice to choose between either a fixed fee mode or fee fixed on the basis of AUA. In the later mode, the fee is chargeable on the basis of AUA per annum.
We do not find anything arbitrary or illogical in this arrangement which would prevent Investment Advisors from giving proper advice to clients or dis-incentivising them.
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2022 (6) TMI 991
Contravention of provisions of the SEBI Act - accused company had raised a huge amount of money from general public in contravention of legal provisions and without obtaining approval or clearance from ROC, MCA and SEBI as required under the Companies Act, 1956 and the SEBI Act, 1992 - Liability of directors in alleged offence - accused company did not take any steps for winding up of the scheme or repayment to the investors, nor did it take any steps to comply with the directions of the SEBI issue and has not the refunded money to the investors and caused huge pecuniary damage - acccused no. 2 to 13 in the complaint are the directors/promoters/key management/personnel and persons in charge of and responsible to the Accused No. 1/Company for the conduct of the business and are liable for the violations of sections 56, 60 and 70 read with section 55A and 67 of the Companies Act, 1956.
HELD THAT:- In the instant case the petitioners were directors and not mere name lenders to the company. Two of them had invested Rs. 5.5 lakhs each at the time of incorporation of the company. In the impugned order it has been stated that on the basis of submissions made by accused Kanwal Prakash Singh, Gajendra Pal Singh and Virendra Kumar, the Adjudicating Officer of SEBI found that during the tenure of the petitioners as directors the company issued redeemable preference shares to 3558 persons and collected an amount of Rs. 11,42,63,000/- in the financial years froms 2010-2013 without complying with public issue norms as mandated under sections 56, 60 and 73 of the Companies Act, 1956, read with the Companies Act, 2013. The Adjudicating Officer of SEBI directed the accused persons to refund the money collected by the company to the investors with interest of 15% per annum, compounded at half yearly intervals from the date when the repayments became due till the date of actual payment along with other compliance to be made.
It is therefore apparent that the accused petitioners were fully aware and had knowledge about the activity of the company and also the contraventions of law made by it. The onus therefore shifts upon the petitioners under proviso to section 27(1) of SEBI Act that they had no knowledge about the contravention of the provisions of law committed by the Company in mobilizing such huge amount of funds from public shares.
Order dated 13.10.2015 passed by SEBI reveals that M/s Just-Reliable Projects India Limited has mobilized fund of Rs. 11.43 crores by floating of shares in the market. This Act of the company was not done furtively and surreptitiously. Therefore, the plea of the petitioners that they had no knowledge about the activity of the company is also prima facie unacceptable at this stage.
Gajendra Pal Singh and Kanwal Prakash Singh admitted before the SEBI authorities that they had sent a notice dated 18.6.2010 and 22.6.2010 to Swarup Dutta regarding alleged unilateral decisions taken by him to open bank account, increase share capitals of the company without holding Annual General Meeting and also change in the address of the registered office of the company. The aforesaid acts alleged to have been carried out by Swarup Dutta requires prior Board Resolution of the company. The petitioners who claim to be unaware about the activity of the company are well informed about opening of bank accounts, change of Registered address of the company as well as mobilization of fund to the credit of the company. The petitioners did not hand over the company documents to SEBI as directed in order dated 13.10.2015. Therefore, documentary evidence when produced in course of trial would reveal if the concerned authorities have allowed such course of activity without any Board Meeting of the company and also of the fact if the petitioners really had no knowledge about the mode and manner of functioning of the company.
The petitioners having issued the notice to Swarup Dutta continued to be directors and did not resign from their office. The illegal activity of the company continued while petitioners were fully aware about such activity till 29.07.2011 and Virendra Kumar till 29.3.2012, their respective dates of resignation.
As it is salutary to refer to the decision in the case of Gunmala Sales Pvt. Ltd Vs Anu Mehta and Ors [ 2014 (12) TMI 1116 - SUPREME COURT] wherein it is held that a complaint cannot be quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trail and it could be argued that his further role could be brought out in the trial. It therefore emerge from the available facts and circumstances and the position of law that there is material averment in the petition of Complaint to disclose that the directors of the accused company were responsible for the conduct of its business. Since the petitioners were adequately notified before the enquiry proceedings were held by the Whole Time Member of SEBI and that they did not comply the order thereafter, learned Judge Special Court, has committed no error in holding that there is a prima facie case against the petitioners to constitute charge against them and thereby the prayer for discharge was rejected. In view of my foregoing discussion find and the impugned order suffers from no illegality, impropriety or irregularity and calls for no interference.
Both the revisional applications filed by the petitioners are accordingly dismissed on contest.
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2022 (6) TMI 874
Implementation of the fraudulent CIS - diversion of funds - as submitted principal perpetrators routed the funds raised from the public and their cooperation grave nature of the charges against the applicant - fake invoices having been generated by the companies in which the applicants were involved - Role of present applicants - Disposal of the present bail applications - HELD THAT:- We have decided the present applications independently of those orders, as the said orders concern directors of PGF/PACL [2013 (3) TMI 390 - SUPREME COURT], whose roles are at considerable variance from the roles attributed to the present applicants by the CBI itself. Suffice it to state that while rejecting Mr. Subrata Bhattacharya’s application for bail, the Supreme Court specifically noted that the matter involved an alleged criminal conspiracy in furtherance of which “the Directors of M/s PGF Limited and M/s PACL Limited are alleged to have illegally obtained a benefit of Rs 45,184 crores at the expense of 5.46 crore investors spread all over the country from sham land transactions.” The Court proceeded on the basis of roles attributed to the applicants therein, as elucidated in the affidavit of the CBI. The applicants in the present case, in contrast, are not directors of PGF/PACL and their roles are required to be independently considered in connection with their applications for bail.
As applying the relevant principles to the facts of the present cases, further incarceration of the applicants, pending conclusion of the trial, is unnecessary and they are liable to be released on bail, albeit with stringent conditions to ensure their presence at the trial and to minimise the risk of prejudice to the prosecution.
As directed that the applicants will be admitted to bail in connection with FIR No. RCBD1/2014/E/ 0004/CBI/BS & FC, registered on 19.02.2014, in Police Station CBI, under Sections 120B/409/411/420/467/468/471/474 of the IPC and Sections 4/5 read with Section 6 of the PCMCS Act.
The applicants will furnish a personal bond in the sum of ₹30,00,000/- [Rupees Thirty lakhs] each, with two sureties each in the like amount, to the satisfaction of the Trial Court. At least one of the sureties in each case will be from the spouse or a blood relative of the concerned applicant.
Each of the applicants will furnish their residential address to the IO, which will be verified by the IO. The applicants will remain resident at the said addresses and will give prior information to the Special Court and the IO in the event of any change of address. The applicants will not leave the country without the permission of the Special Court.
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2022 (6) TMI 522
Maintainability of writ petition - alternative and efficacious mechanism - Inordinate delay in issue of Show cause notice (around 16 years) - Issuance of Global Depository Receipts ('GDRs') by the 4th respondent - As argued petitioners were non-executive directors of the said company between 1998 and 2005 and that in the said capacity of non-executive director, the petitioners were not involved in the day-to-day management and affairs of the said company In the year 2009, the said company amalgamated with the 4th respondent and is no longer in existence. It is the further case of the petitioners that over the past 14 years, they are in no way connected with the company or had any dealings with the company - HELD THAT:- There is no controversy about the fact that the petitioners are non-executive directors. Non-executive directors cannot be held vicariously liable for any act committed by the company unless they have any interest in the affairs of the company or they have involved themselves in the day to-day affairs of the company. However, it is the stand of the respondents that the petitioners were the Chairman/Member of the audit team, which is one of the very crucial teams in the whole of the organisational setup and without whose knowledge and concurrence financial transactions of the nature as pointed out in the show cause notice would not have taken place. However, the said fact is disputed by the learned counsel for the petitioners. Such being the case, this being a disputed question of fact, this Court cannot adjudicate the same in a petition under Article 226 of the Constitution. Therefore, this Court refrains itself from deciding the issue in exercise of its inherent jurisdiction, as this Court is precluded from deciding such disputed questions pertaining to the status of the petitioners as non-executive directors.
In the case on hand, the GDRs pertain to the period 2002, whereas, action has been taken on the petitioners only in the year 2018, after a delay of 16 years. However, it is the case of respondents 1 and 2 that while the respondents were investigating certain other transactions pertaining to other companies, it came to light from the submissions made by Banco Efisa, with whom the company had the Credit Charge Agreement, that similar transaction of this nature has been done by the company in the year 2002, which fact was not within the knowledge of respondents 1 and 2 at any earlier point of time. Though it is pointed out that permission of SEBI is not required for floating GDRs, however, for finalising the process, certain procedural aspects codified by the Reserve Bank of India have to be followed of which one is information to be shared with SEBI. However, the petitioners dispute the said fact.
The fact remains that respondents 1 and 2 have come out with explanation as to the reason for the delay in issuing the show cause notice. True it is that the delay is enormous, but coupled with the reason assigned for the delay in issuing the notice, this Court is of the considered view that the stand of respondents 1 and 2 with regard to the reason for the delay cannot be brushed aside and has to be taken into consideration holistically.
In the case on hand, admittedly, as against the show cause notice issued by respondents 1 and 2, an alternative and efficacious remedy is available to the petitioners before SAT. The said fact is also not disputed by the petitioners. The only claim of the petitioners is that the show cause notice has been issued after an inordinate delay of about 16 years and that the petitioners being non-executive directors, vicarious liability cannot be fastened on them and, therefore, on those grounds, this Court, exercising its inherent jurisdiction could very well quash the show cause notice.
As already pointed out above, Courts shall normally refrain from quashing the show cause notice at the initial stage, unless the said show cause notice has been issued without authority or that the same is patently illegal. In the case on hand, the show cause notice has been issued by the authority, who is competent to issue the same and that there is no illegality in the said show cause notice and, therefore, the ratio laid down by the Hon'ble Supreme Court in Mohd. Ghulam Ghouse case [2004 (1) TMI 378 - SUPREME COURT] stands squarely attracted to the case of the petitioner and, hence, it is incumbent on the petitioners to submit their explanation to the show cause notice and it would not be right on the part of this Court to assume the robes of the adjudicating authority at the initial stage of show cause notice.
SAT is fully competent to decide the issue, including appreciation of disputed facts and the petitioners can place both oral and documentary evidence before SAT, which can go in-depth into the issue to render a finding. This Court, in any way, going into the issues, as raised above, would be nothing but usurping the powers of SAT, which has been vested in it on the basis of a statute. Therefore, the submission of respondents 1 and 2 that the petitioners should ventilate their grievances first before SAT deserves acceptance.
One aspect, which lingers in the mind of this Court is the fact concerning inordinate delay in issuing the show cause notice. Though respondents 1 and 2 have placed certain reasons before this Court, which are the cause for the delay, however, this Court cannot brush aside the fact that the delay is so enormous that the reason assigned by respondents 1 and 2 could be taken merely at face value, without putting it through proper appreciation in the manner known to law. Therefore, this Court, in the interest of justice, feels that the interest of both the parties to the lis requires to be safeguarded.
This Court while disposes of the writ petitions, is inclined to issue the following directions :-
i) The show cause notice issued to the petitioners by respondents 1 and 2 is kept in abeyance for a period of twelve weeks from today. In the meantime, the petitioners are directed to file appropriate petitions/applications before SAT with regard to the issues raised before this Court.
ii) On such application/petition being filed by the petitioners, the period of limitation, if any, shall be computed excluding the period when the matter was sub judice before this Court.
iii) Further, on such application/petition being filed by the petitioners, SAT shall take up the matters and consider the same on merits and accordance with law and pass orders as expeditiously as possible.
iv) Till the time granted by this Court for the petitioners to file petition/application before SAT, no coercive action shall be taken by the respondents 1 and 2 against the petitioners.
v) The petitioners are permitted to canvass all the points that have been raised before this Court in the petition/application that may be filed before SAT.
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2022 (5) TMI 1613
Settlement applications under SEBI Act - Illegality and irregularities committed by Companies alleged - violations of certain norms and regulations issued by SEBI in relation to minimum public shareholding, disclosures of shareholding details, etc. identity of promoters, valuation, etc. - Petitioners are aggrieved by exit offers given by Respondent-Companies which is alleged to be contrary to the provisions of Securities Exchange Board of India Act, 1992, Rules and Regulations as well as exit circulars.
Applicants filed settlement applications with SEBI in respect of the afore-said SCNs which is as currently pending before the Settlement Division of SEBI - as argued SEBI (Settlement Proceedings) Regulations, 2018 prohibit filing of settlement applications in respect of matters pending that are pending trial before any court.
HELD THAT:- On the perusal of previous orders, no directions are found which restrain SEBI from considering/ adjudicating the settlement applications. It appears that the instant applications have been filed by way of abundant caution at the instance of HPAC.
The Court has considered the objection put forth by Appellant but finds no cogent reason to reject the application. The decision on the settlement applications is the prerogative of SEBI. It is for the SEBI to deliberate and decide the same, in accordance with applicable provisions of SEBI Act, Rules, Regulations, etc. Whether the applications are prohibited or not is not for this Court to determine. Accordingly, the applications are disposed of with a clarification that SEBI shall be free to deal/ adjudicate the settlement applications filed by the Applicants, on its own merits, in accordance with law.
The decision on the settlement applications shall not prejudice the Petitioners and all rights and contentions of the parties herein are left open.
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2022 (5) TMI 1511
Praecipe moved for speaking to the minutes of the order - In 3rd line paragraph 3 of the order, the word "by" shall be replaced with the word "be" - In 4th paragraph, the word "implementation" shall be replaced with the word "impleadment".
Necessary corrections be carried out in the order dated 10.05.2022 and the corrected order be uploaded again.
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2022 (5) TMI 1510
Interim Application filed by SEBI for impleadment in Commercial Suit and for seeking stay / recall of the order passed in Interim Application - HELD THAT:- This Court while granting ad-interim relief by the above orders has directed Defendant No. 2 to call for a meeting of the debenture holders of Defendant No. 1 within two weeks of the order for the purpose of consideration and approval of the beneficial owners or debenture holders and the settlement offer / compromise / arrangement / resolution plan approved by ICA lenders on 19.06.2021 and further directing that the calling / conducting and voting at such meeting would be governed by the terms of the respective debenture trust deeds.
After hearing the parties and considering various orders placed before this Court, it is directed at this stage that the results of the voting of the meeting to be conducted on 13.05.2022 by placed in a sealed envelope before this Court.
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2022 (5) TMI 1314
Insider trading - Selling the shares during the UPSI period - violating Regulation 4(1) of the PIT Regulations - HELD THAT:- Explanation demonstrated the circumstances for selling the shares of the company during the UPSI period in order to avoid the company from down-graded to a nonperforming asset. In our view, such explanation given by the appellants which has not been considered by the WTM is sufficient to prove his innocence of trading while in possession of the UPSI. Such explanation will come within the purview of the proviso to Regulation 4(1) of the PIT Regulations and consequently, the appellants cannot be charged for violating Regulation 4(1) of the PIT Regulations.
A finding has been given that the appellants were aware of the losses incurred by the company and, therefore, they have sold off their shares in order to avoid further losses. In this regard, we find that the financial results were declared on November 29, 2017 on that date the closing price of the scrip of the company was Rs 21.60 per share. The declaration of the financial results on November 29, 2017 did not have a great impact in the price of the scrip on November 30, 2017. We find that the closing price of the scrip of the company on November 30, 2017 was Rs. 20.20 on NSE and Rs. 20.25 on BSE. Thus, there was hardly any price difference in the price of the scrip between 29th and 30th November 2017 and, therefore, it is incorrect to contend that the sale of the shares was made by the appellants for the purpose of avoiding further losses.
We are also find that the sale amount of the shares was not retained by the appellants for their personal use or gain. But the said money was infused in the company for its working capital.
We are satisfied that the appellants have successfully discharged their burden under Regulation 4(1) of the PIT Regulations. We find that in the given circumstances, the appellants cannot be charged for insider trading - For the reasons stated aforesaid, the impugned order cannot be sustained and is quashed. The appeal is allowed.
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2022 (5) TMI 1313
Insider trading - as noted suspected entities had traded in the mentioned scrip on the basis of unpublished price sensitive information (‘UPSI’ for short) in contravention to the provisions of SEBI Act, 1992 and SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’ - Whether appellants were not privy to any inside information and were therefore not in possession of UPSI? - HELD THAT:- There is no doubt that information of sale of ILPL was in the public domain since July 15, 2016 but this information which came into the public domain was not treated to be an UPSI by the WTM on the ground that the resolution passed by IVL on July 15, 2017 was only a raw information and there was no crystallized offer through an identified purchaser or ascertained consideration amount for the purpose of crystallizing the UPSI. If the information of sale of ILPL by IVL on July 15, 2016 was not a UPSI and was in the public domain then the purchase of shares by the appellants between July 15, 2016 to March 1, 2017 could not be made the basis of UPSI. We, thus, conclude that since there was no UPSI during this period the trades executed by the appellants were not violative of Regulation 4(1).
The EGM of IIL was held on March 1, 2017 on which date it authorized the Board of Directors to give a loan upto Rs. 600 crores or could acquire upto Rs. 600 crores. Thus, this information of acquisition, if any, came into existence on March 1, 2017. Thus, UPSI period can start from March 1, 2017 onwards till March 14, 2017.
The appellants alleged that they were never in possession of UPSI. In this regard the resolution of IVL on July 15, 2016 to sell ILPL can be the starting point of UPSI. The WTM has however disregarded this date as not a UPSI. We also find that this information came in the public domain and therefore the decision to sell ILPL was not a price sensitive information nor was it an UPSI.
WTM has strongly relied on the fact that the appellant Pia Johnson was a member of the managing committee appointed by the Board of Directors of IVL who were authorized to authorize IDSL to sale its stake in ILPL. Based on this fact, the WTM concluded that the appellant Pia Johnson had inside information and was in possession of UPSI. This fact that the appellant was a member of the managing committee can create a suspicion that the appellant could be in possession of UPSI but in our opinion the appellants were successful in proving that they had no UPSI. It has come on record that no meeting of this managing committee was ever held and therefore there was no occasion to discuss the sale of ILPL. Further, we find that there is no finding that the resolution of IIL on March 1, 2017 or notice dated January 25, 2017 or resolution of Board of Directors of IREL on February 3, 2017 was known to the appellants. The appellants had nothing to do with IREL or IIL and therefore there can be no presumption that the appellants had information that IIL was in the process of purchasing ILPL.
We also find that during the investigation the statement of the two CEOs of IVL and IREL were recorded and both the CEOs clearly stated that the information regarding sale of ILPL was not made known to others and that the appellants had no knowledge of the deal. These statements has not been considered by the WTM coupled with the fact that Mr. Gurbans Singh in his statement categorically made statement that he only came to know only in March 2017 that ILPL was up for sale. Thus the trades made by Mehul Johnson in March 2017 cannot be said to be made when in possession of UPSI.
We are satisfied that the appellants were not in possession of UPSI when they purchased the shares of IVL during the alleged UPSI period as per the show cause notice. In our view, the appellants have successfully discharged the burden under the proviso to Regulation 4 of the PIT Regulation. Considering the aforesaid, the impugned order cannot be sustained and are quashed. The appeals are allowed with no order as to costs.
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2022 (5) TMI 813
Pledge of shares - Pawnor and the pawnee’s right to sue for recovery and sell the pawned goods - Accretion on pawned goods - Pledge or hypothecation of securities held in a depository - legal jurisprudence relating to law of pledge - rights of depository Participant - right of redemption given to the pawnor vide Section 177 of the Contract Act - whether the Depositories Act, 1996 read with the Regulation 58 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, For short, ‘1996 Regulations’ has the legal effect of overwriting the provisions relating to the contracts of pledge under the Indian Contract Act, 1872 - Relevant provisions of the Contract Act - HELD THAT:- We do not find any derogation or conflict between Section 176 of the Contract Act and sub-regulations (8) and (9) of Regulation 58. Regulation 58(8) entitles the pawnee to record himself as a ‘beneficial owner’ in place of the pawnor. This does not result in an ‘actual sale’. The pawnee does not receive any money from such registration which he can adjust against the debt due. The pledge creates special rights including the right to sell the pawn to a third party and adjust the sale proceeds towards the debt in terms of Section 176 of the Contract Act. The reasoning that prior notice under Section 176 of the Contract Act would interfere with transparency and certainty in the securities market and render fatal blow to the Depositories Act and the 1996 Regulations is farfetched as it fails to notice that the right of the pawnee is to realise money on sale of the security. The objective of the pledge is not to purchase the security.
Purchase by self, as held above, is conversion and does not extinguish the pledge or right of the pawnor to redeem the pledge. Equally, it may be a disincentive for both the pawnor and the pawnee in many cases, if we accept this interpretation and ratio, which would inhibit them from entering into a transaction creating a pledge. Difficulties and disputes regarding price, valuation, right to redemption etc. could invariably arise. There would also be difficulties in case the dematerialised securities are not traded as in the present case. If the case pleaded by MHPL is to be accepted, the entire dues of PIFSL stand paid without in fact a single penny coming to the coffer of PIFSL. Whether or not PIFSL will be able to find a willing buyer and sell the shares is unknown given the fact that the shares are unlisted and MHPL continues to be the holding company of NEVPL.
In the context of the present case, the contract of pledge envisages that PIFSL is entitled to get itself recorded as ‘beneficial owner’ without forfeiting its right in terms of Clause 6.2 to sell the shares. The contention of MHPL that Clauses 6.1 and 6.2 are in the alternative and once PIFSL has exercised option under Clause 6.1, the option under Clause 6.2 is closed must be rejected as absolutely untannable. We do not find any such condition in the two clauses. As noticed above, PIFSL could not have exercised the right under Clause 6.2 unless the pledge shares were registered in its name as ‘beneficial owner’. This step was necessary to enable PIFSL to exercise its right and enforce the sale of pledge shares. Whether or not it would be successful in selling the pledge shares is unknown and uncertain even today. The amount of money that would be received is also unknown and uncertain.
As per Clause 5.1(m), the pawnor agrees that throughout the continuance of the pledge created pursuant to the pledge deed and until the repayment of the amount outstanding in full under the transaction document, that is, the Bridge Loan Agreement, the pawnor shall remain the beneficial owner of the shares pledged at all times, except on the sale made by the pawnee as the bridge loan lender. Further, vide Clause 5.1(k), the pawnor has irrevocably waived any right it may have under the Depositories Act, the 1996 Regulations, or any other applicable law to the extent it is inconsistent with the provisions of the Pledge Deed. Clause 5.1(k) would only apply if the Depositories Act, the 1996 Regulations, or any other law permits the parties to contract out of the regulations by mutual agreement. It is a settled position of law and as discussed above, a contract cannot be inconsistent with the provisions of any existing law, including regulations, unless the said law permits the parties to enter into a contract inconsistent with the provision.
PIFSL by the letter dated 23rd January 2018 had informed MHPL in terms of Clause 6.1 that there has been an occurrence of default, which has continued and, therefore, they, on 16th January 2018, in exercise of its right under Clause 6.1 of the pledge deed, have applied for transfer of the pledged shares in its name. Consequently, all the rights in the pledged shares, including but not limited to the right of attending general body meetings, voting rights, and rights to receive dividends and other distributions, now vests with them as per Clause 2.3(A)(ii)(b),
This intimation to MHPL is without prejudice to any rights or remedies PIFSL has in terms of the pledge deed or security documents executed in pursuance of the bridge loan agreement. PIFSL expressly reserved its right to transfer and sell pawned shares for value providing five days’ notice as required under Clause 6.2 of the pledge deed and Section 176 of the Contract Act. We would, without hesitation, therefore hold that on becoming the ‘beneficial owner’ in the records of the ‘depository’, the pawnee had complied with the procedural requirement of Regulation 58(8) to enforce the right to sell the shares. Thereafter, such a sale should be made according to Sections 176 and 177 of the Contract Act. Violation of the said provisions, if made by PIFSL, would have its consequences as per the law. Pawn has not been sold and there is no violation of the Contract Act or for that matter the Depositories Act and the 1996 Regulations. PIFSL has not overlooked its obligations under Sections 176 and 177 of the Contract Act by relying upon sub-regulation (8) to Regulation 58, which has an entirely different object and purpose.
Recording change in the register of the ‘depository’, whereby PIFSL as the pawnee has become the ‘beneficial owner’, is only to enable the pawnee to sell and transfer the shares in accordance with the Depositories Act and the 1996 Regulations. The object and purpose of sub-regulation (8) to Regulation 58 is not to nullify the obligation of MHPL i.e., the pawnor, and PIFSL i.e., the pawnee, under the Contract Act but to enable PIFSL to exercise its rights under Section 176. It also follows that MHPL is entitled to redeem the pledge before the sale to a third party is made.
As to be held that registration of the pawn, that is the dematerialised shares, in favour of PIFSL as the ‘beneficial owner’ does not have the effect of sale of shares by the pawnee. The pledge has not been discharged or satisfied either in full or in part. PIFSL is not required to account for any sale proceeds which are to be applied to the debt on the ‘actual sale’. The two options available to PIFSL as the pawnee under Section 176 of the Contract Act remain and are not exhausted.
For the aforesaid reasons, the present appeal must be allowed and the impugned order passed by the Appellate Authority dated 20th June 2019 upholding the orders of the Adjudicating Authority dated 6th July 2018 and the emails of the IRP dated 19th February 2018 are set aside. It is held that MHPL is not a secured creditor of the Corporate Debtor, namely NNPIL, to the extent of the value of the 31,80,678 shares. PIFSL has rightly made a claim as financial creditor of the Corporate Debtor without accounting for the value of 31,80,678 shares of NEVPL in its claim petition. Insolvency proceedings against the Corporate Debtor, namely NNPIL, will proceed accordingly.
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2022 (5) TMI 761
Fraudulent and Unfair Trade Practices relating to Securities Market - Transaction violative of Regulation 3 and 4 of the PFUTP Regulations - HELD THAT:- ‘Specified proceedings’ has been defined under Section 2(f) of the Settlement Regulations, 2018, namely, the proceedings that have been initiated by SEBI under the SEBI Act, Securities Contracts (Regulation) Act, 1956 or Depositories Act, 1996 as the case may be. 14,000 odd cases have been initiated under the illiquid stock option matters wherein similar kind of transaction have been executed and similar violation is proposed against all these noticees under Regulation 3 and 4 of the PFUTP Regulations. These 14,000 entities form a class of persons and are involved for similar defaults. Therefore, in our opinion, the Board can specify a procedure and terms of settlement for these classes of persons under Clause 26 of the Settlement Regulations, 2018.
SEBI should reconsider and seriously give a thought in coming out with a fresh scheme under Clause 26 of the Settlement Regulations, 2018. Such scheme can be a onetime scheme for this class of person. The terms of settlement should be attractive so that it could attract the noticees / entities to come forward and settle the matter which will ameliorate the harassment of penalty proceedings to the noticees and at the same time would help to clear the backlog of these pending matters before various AOs.
While considering the scheme SEBI should take into consideration the provision of Section 15HA of SEBI Act prior to the amendment made by Act No. 27 of 2014 with effect from September 8, 2014. We find that various AOs have imposed a sum of Rs. 1 lakh for similar trades which were executed prior to September 8, 2014 and Rs. 5 lakh have been imposed for similar trades after the amendment of September 8, 2014.
SEBI should also take into consideration that only a few trades were executed for small gains and some of the AOs have exonerated these noticees on the ground that such miniscule trades did not create any impact. We also request SEBI that while framing a scheme under the Settlement Regulations, 2018 it may also take into consideration the reduction of the quantum of penalty imposed in matters decided so far.
We direct the Registrar of this Tribunal to send a certified copy of this order to the Chairperson of SEBI within a week for necessary information and action.
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2022 (5) TMI 760
Insider trading - information relating to the financial results was an Unpublished Price Sensitive Information (“UPSI”) - confirmatory order confirming the ex-parte ad-interim order whereby the appellant was restrained from buying or selling any securities, either directly or indirectly, till further orders - appellant was a Senior Corporate Counsel of Infosys and, being an officer/employee of Infosys, was reasonably expected to have access to the UPSI and, on a preponderance of probability basis, the appellant was in possession of UPSI and thus, was an insider under Regulation 2(1)(g) of the PIT Regulations - HELD THAT:- As in the absence of any direct or indirect evidence coming forth at this stage and the fact that the investigation is still continuing which may take time for issuance of a show cause notice, we are of the opinion that the continuation of the interim order against the appellant is unjustified especially when the appellant has not traded in the scrip nor there is any finding that he is a party to the unlawful gain.
Admittedly, the appellant has not traded in the scrip. The two partnership companies have traded in the scrip in which admittedly the appellant is not a partner. Direction to deposit the unlawful gain have already been issued against the two partnership companies. The interest of the securities market is thus safeguarded.
The investigation has not yet concluded and, therefore, it would take some time for issuance of a show cause notice. Final orders will come much later. Considering the aforesaid when only prima facie observations are being made which the appellant has sufficiently explained and discharged his burden we are of the opinion that at this stage debarring a person from accessing the securities market is not justified in the facts of the case.
We further observe that the investigating party will not be influenced by any observation made by us in the present order which are tentative in nature and will not be utilised to the advantage of either party.
The confirmatory order as well as the interim order in so far as it relates to the appellants cannot be sustained and are quashed. The appeals are allowed. In the circumstances of the case parties shall bear their own costs.
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2022 (5) TMI 659
Related party transaction - Company proposed to enter into a transaction with one Neelkanth Realtors Private Limited for purchase of 40,000 sq. ft. of residential space - Extra-Ordinary General Meeting was convened for rescinding the resolution in which, the related parties also voted - violation of Regulation 23 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 - HELD THAT:- The Securities Appellate Tribunal has not approved this order passed by the Adjudicating Officer and has allowed the appeal filed by the present respondents while, inter alia, holding that the bar of voting as per Section 188 of the Companies Act, 2013 on related parties operated only at the time of entering into a contract or arrangement, i.e., when the resolution dated 15.07.2014 was passed; and therein the said related parties indeed abstained from voting. The Appellate Tribunal found no fault in the said parties voting in the recalling/rescinding of the said resolution.
The view, as taken by the Appellate Tribunal, in the given set of facts and circumstances of the present case, appears to be a plausible view of the matter. In fact, nothing of ill-intent on the part of the respondents has been established in the present case.
The hyper-technical stance of the appellant could have only been, and has rightly been, disapproved on the given set of facts and circumstances.
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2022 (4) TMI 1577
Appellant seeks leave of the court to withdraw the petition with liberty to approach this court or any Meera Jadhav forum as advised, if petitioners are not satisfied with the orders to be passed by SEBI in the settlement applications filed by some of the respondents or in the show cause notices issued to some of the respondents before us.
Respondents states that show cause notices have been issued to 62 entities and considering the situation that we have just come out of Covid-19, an attempt will certainly be made to dispose the proceedings at the earliest. Mr. Andhyarujina appearing for respondent no.4 states that proceedings before SEBI pertaining to respondent nos.3 and 4 are going on and it is not like what petitioners have stated that there is no progress. We are not going into this aspect but considering the over all situation, we would expect the SEBI, i.e., respondent no.1 to complete the proceedings pending before them which have been agitated in this petition, as early as possible within 6 months. Liberty to apply for extension.
All rights and contentions of the parties are kept open. We clarify that we have not made any observations on the merits of the matters pending before the SEBI.
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2022 (4) TMI 945
Insider trading - Whether existed a close relationship/immediate relation between the appellants? - circumstantial evidence (trading pattern and timing of trading) - HELD THAT:- In the present case, as rightly argued by the learned counsel of the appellant, the foundational facts were not proved which could raise the alleged presumption. SEBI failed to place on record any material to prove that the appellants were “connected persons” to Balram Garg as required by Regulation 2(1)(d)(ii)(a) read with Regulation 2(1)(f) of the PIT Regulations as none of the appellants were financially dependent on Balram Garg or even alleged to have consulted Balram Garg in any decision related to trading in securities.
In light of the above principles of law laid down by this Court, it was imperative on the Respondent/SEBI to place on record relevant material to prove that the appellants namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and Quick Developers Pvt. Ltd. were “immediate relatives” who were “dependent financially” on appellant Balram Garg or “consult” Balram Garg in “taking decisions relating to trading in securities”. However, SEBI failed to do so as has been already recorded by the WTM in its order dated 11.05.2021. The said appellants were not “immediate relatives” and were completely financially independent of the appellant Balram Garg and had nothing to do with the said Balram Garg in any decision making process relating to securities or even otherwise.
In the context of appellant no. namely Quick Developers Pvt. Ltd., the record clearly reveals that it is neither a “holding company” or an “associate company” or a “subsidiary company” of PCJ nor the appellant Balram Garg has ever been the Director of Quick Developers Pvt. Ltd. Therefore, Quick Developers Pvt. Ltd. cannot be held to be a “connected person” visàvis the appellant Balram Garg.
Reliance of the Respondent/SEBI on transactions between appellant Sachin Gupta and PCJ and the subsequent payments of rent by PCJ is against the principles of natural justice as these allegations were not part of the Show Cause Notices
There is no material on record for the WTM and the SAT to arrive at the finding that both late P.C. Gupta and the appellant Balram Garg communicated the UPSI to the other appellants. The said appellants were not “immediate relatives” and were completely financially independent of the appellant Balram Garg and had nothing to do with the him in any decision making process relating to securities or even otherwise. The submission of the learned counsel of the respondent regarding the same residential address of the appellants also falls flat as admittedly the parties were residing in separate buildings on a large tract of land. Lastly, in our opinion, the SAT order suffers from nonapplication of mind and the same is a mere repetition of facts stated by the WTM. The Appellate Tribunal was exercising jurisdiction of a First Appellate Court and was bound to independently assess the evidenced and material on record, which it evidently failed to do.
Accordingly, the appeals are allowed and the impugned judgement and final orders of WTM and SAT are set aside. The deposits made by the appellants in both the appeals in terms of the impugned orders or interim orders of this Court shall be refunded to the respective appellants.
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2022 (4) TMI 708
Release of the mutual funds in favour of the applicant/Respondent No.5, which are of the value of about 350 crores - Earlier, by order this Court had given the option to applicant/Respondent No.5 to get mutual funds converted/encashed and the amount was to be deposited in a fixed deposit account of a nationalized bank - HELD THAT:- The subsequent supplementary chargesheet submitted by the EOW, and relied upon by the learned counsel for the petitioner, ought not to be ignored while considering this matter. In its earlier orders, this Court has clearly found that the securities need to be released in favour of the applicant/Respondent No.5. The only question is with regard to the mode and manner of the securities to be furnished by the applicant/Respondent No.5. It is not disputed that the petitioner has, in terms of the order dated 16.03.2021, complied with the condition of furnishing bank guarantee of ₹ 344.07 Crores.
In paragraph 20 of this application filed by the applicant/Respondent No.5, it is stated that the applicant is a public limited company, having sound financials with a strong balancesheet and other financial statements (assets of INR 18,556 Crores and turnover of INR 8,779 Crores during financial year 202021). The same is not denied by the other parties who have filed their respective replies to this application.
We are of the opinion that the operative part of the order dated 21.09.2021 deserves to be modified and, accordingly, the same is modified to the extent that instead of bank guarantee for a sum of ₹ 344.07 Crores, which has been furnished by applicant/Respondent No.5, in terms of order dated 16.03.2021, the applicant/Respondent No.5 shall now furnish bank guarantee for a sum of ₹ 100 Crores and it shall further furnish a corporate guarantee to the extent of ₹ 300 Crores. The bank guarantee earlier furnished by the applicant/Respondent No.5 to the extent of ₹ 344.07 Crores shall stand discharged on the applicant/Respondent No.5 fulfilling the above condition to the satisfaction of the Trial Court concerned.
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