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SEBI - Case Laws
Showing 121 to 140 of 510 Records
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2022 (3) TMI 1540
Compulsory delisting against the company - Payment of reinstatement fee to the Exchange - company was granted 30 days time to submit all pending compliances including payment of all outstanding Exchanges dues and to complete the formalities for revocation of suspension of securities of the company - Whether appellant entitled to pay annual listing fee during the suspension period? - as argued appellant is not entitled to pay the reinstatement fee as demanded by the respondent - HELD THAT:- We find that reinstatement fee is one of the requirements for purpose of revocation of suspension in the trading of securities. This requirement of payment of reinstatement fee is also gathered from the Circular dated December 19, 1994 issued by SEBI and Master Circular of listing dated January 18, 2019 wherein it becomes obligatory for a Company whose securities continue to be listed at the Exchange to pay annual listing fee as well as reinstatement fee for considering revocation of suspension in trading in the securities of the company.
The respondent is entitled to levy fee for the purpose of revocation of suspension of trading in securities and the same is binding on companies desirous of such revocation. The Byelaw also empowers the respondent to reinstate suspended securities subject to conditions as it deems fit. Further in Clause 43 of the Listing Agreement the respondent is entitled to levy reinstatement fee upon companies seeking revocation of suspension of trading in securities.
We do not find any error in the interim order passed by the Delisting Committee. The appeal fails and is dismissed with no order as to costs.
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2022 (3) TMI 1539
Offence under SEBI Act - fraudulent scheme of issuing GDR with an ulterior motive - whether the appellants had played part in the fraudulent scheme of issuing GDR with an ulterior motive? - HELD THAT:- Appeals of Farmax India Limited and Mr. M. Srinivasa Reddy, M.D. - Very stand of the appellant Mr. Srinivasa Reddy that he was credulous enough to sign blank documents; further he-the Managing Director of Farmax being instrumental in obtaining a Board Resolution as detailed (supra), the defense taken by him and Farmax is merely an eyewash. Millions of US$ were involved in the transaction. Their silence for a period of three years would clearly show the involvement of these appellants in the entire episode. The appeals filed by these appellants therefore fail.
Appellant Farmax on its own has not indulged into fraudulent activity but the activities is imputed to it as the Board of Directors and the Managing Director had indulged into the same. Since the penalty would be in fact on the shareholders of the company in our view, imposition of penalty of Rs. 12 crore would be excessive. In the circumstances, the Appeal challenging the order of the AO needs to be partly allowed and the penalty needs to be reduced from Rs. 12 crore to Rs. 5 crore.
Sanjay Aggarwal And Nithish Bangera - The very fact that the appellant provided a draft of disclosure to be made by the Farmax to the exchanges that the issue of the GDR was successfully subscribed; that he has forwarded the draft Resolution to be passed by the appellant Farmax which culminated in authorizing the pledge of GDR proceeds; seeking of signatures on blank documents from appellant Farmax would clearly shows that the appellant did not act simply as a bonafide coordinator between the company and the Lead Manager etc. The appeal of the appellant Sanjay Aggarwal, therefore fails.
Nithish Bangera, he was sole employee of La Richesse owned by appellant Sanjay Aggarwal.The appellant was merely an employee of appellant Sanjay Aggarwal and the observation made by the learned WTM as regard the appellant Sanjay Aggarwal that he was an “advisor” and responsible chartered accountant would not be applicable in this case. One email forwarded to him seeking blank TT slips from the Farmax would not lead to believe that this appellant was aware of the entire fraudulent scheme of GDR issue. The evidence in this regard is lacking. The appeal therefore deserves to be allowed as regard the present appellant.
Prospect Capital Ltd. and John Behar Lead Manager is not merely a post office between the company issuing GDR and the investors investing in the same. The Lead Manager has to conduct due diligence in collecting and evaluating all information. It has to obtain confirmation of acceptance of subscription from the initial investors to the GDR issue etc. The Lead Manager has to show that it has carried its activity as per the procedures devied.
On the other hand, even if we ignore the alleged fact of issuing a false letter as alleged by SEBI, the very fact that the appellants failed to show that they had confined their activity only to the procedure correctly, would lead us to believe that they were involved in the clandestine scheme.
As fact that appellant no. 2 John Behar is closely connected to another noticee Arun Panchariya is an added factor in this direction -as submitted by SEBI that ESCROW agreement dated May 05, 2010 entered into between Farmax, EURAM Bank and Prospect Capital Ltd. noted that Prospect Capital Ltd. had agreed with Farmax “to procure investors for the subscription of GDRs”. However instead of procuring investors these appellants procured sole investor i.e Vintage which is an entity of Arun Panchariya connected both the appellants. Therefore our view, on facts, the order of SEBI as regards these appellants cannot be faulted with.The appeal of Prospect Capital Ltd. as well as John Behar fails.
European American Investment Bank AG - The entire reading of the order of the learned WTM in that case would show that the EURAM-FII’s role as a foreign investment institute was investigated and examined by respondent SEBI. Its role as a banker providing finances to subscribers to the GDR and accepting collateral of the GDR proceeds from the respective companies was not examined. The principle of issue estoppel therefore would not at all be applicable in the present case.
As regard the fact of the case, it is an admitted fact the appellant had advanced loan to Vintage for subscribing to the GDR of the Farmax as a sole subscriber. The Vintage is owned by noticee Arun Panchariya. Present appellant had joint venture with Arun Panchariya as detailed supra. The appellant did not explain as to why no collateral security could be obtained from Vintage or Arun Panchariya. However, the GDR proceeds to be received in future were accepted as a pledge by EURAM Bank.
As it was nothing but a case of making two entries in two accounts i.e. one in the account of Vintage of granting loan and another in the account of Farmax of receiving the GDR proceeds and holding the same as a security for the loan advance to Vintage. In the process, appellant EURAM had earned interest and the loan remained fully secured by the GDR proceeds. It would be naive to believe that EURAM Bank did not know the purpose for which the GDRs are issued and whether the pledging of the GDR proceeds for a stranger could be an object or purpose of issuing GDR.
Appellant relying on the case of Dilip S. Pendse vs SEBI Appeal No. 80 of 2009 decided on November 19, 2009 submitted that the preponderance of probability to prove the charge of fraud is higher than the regular one. Considering the status of the appellant as an International Bank; that it was registered as a foreign investment institute in India, having connection with the noticee Arun Panchariya, in our view the above test is satisfied in the present case.
Present appeal also fails.
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2022 (3) TMI 1498
Convening a meeting of seven debenture holders to consider the Resolution Plan approved by the ICA lenders - meeting put to vote such resolution as may be necessary in terms of the Debenture Trust Deed - HELD THAT:- Having considered the submissions, it would be appropriate following the law laid down by this Court in Rajkumar Nagpal [2021 (10) TMI 1311 - BOMBAY HIGH COURT] to grant ad-interim relief in terms of prayer clause (c). Accordingly, Defendant No.2 is directed to call meeting of the seven Debenture Holders under the three Debenture Trust Deeds within two weeks of this order. The calling, conducting and voting at such meetings shall be governed by the terms of the respective Debenture Trust Deeds. At such meetings, the second Defendant will place for consideration and approval of the beneficial owners or debenture holders the settlement offer / compromise / arrangement / Resolution Plan approved by ICA lenders on 19th June, 2021 and put to vote such Resolution Plan.
It is made clear if there is any further or later or supplementary trust deed, then the provisions of that supplementary trust deed will also be taken in to account.
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2022 (3) TMI 1449
Offence under SEBI Act - Mobilisation of the funds - violation of the CIS Regulations - Prohibition of manipulative, fraudulent and unfair trade practices - Violation of the provisions of Section 12(1B) of the SEBI Act read with Regulation 3 of CIS Regulations and Regulation 4(2)(t) of the PFUTP Regulations - Scope of definition of fraud - monetary penalty of Rs.20 crores to be paid jointly and severally by the appellant, the Company and its Directors - HELD THAT:- In the instant case, we have gone through the entire impugned order and we do not find any finding to indicate that the appellant committed a fraud in the mobilisation of the funds. In the absence of any finding of fraud the charge of violating Regulation 4(2)(t) of the PFUTP Regulations cannot be proved. We are satisfied that in the absence of any finding of fraud against the appellant there is no violation of Regulation 4(2)(t) committed by the appellant.
Regulation 4(2)(t) provides illegal mobilisation of funds. The impugned order does not show any iota of evidence that the appellant was involved in the illegal mobilisation of funds after he joined as a Director. Admittedly, the appellant was appointed as a Director in 2010. Majority of the schemes floated by the Company was already launched prior to the appellant’s appointment as a Director. There is no finding by the Adjudicating Officer that such and such scheme was launched during the period when the appellant became a Director nor there is any finding that the appellant was responsible in the mobilisation of the funds under those schemes.
The finding that no evidentiary proof has been filed by the appellant that he is not an officer in default or that he did not attend the board meeting when such scheme was launched is patently erroneous. The burden has wrongly been placed upon the appellant. A charge has been levelled against the appellant, namely, violation of Regulation 4(2)(t). The responsibility to prove the charge is upon the prosecution, namely, upon SEBI. It is for the respondent to prove that the appellant was an officer in default or that he attended the meeting when a scheme was launched. It cannot be presumed that the appellant must have been present in the meeting of the board of directors when the scheme was launched. We are satisfied that in the instant case SEBI has failed to discharge its burden.
In any case, the finding of the Adjudicating Officer that the appellant and other Directors are officers in default is totally misplaced. Under Section 5(g) of the Companies Act, 1956 all Directors can be treated as officers in default only when there is a finding that there was no Managing Director or designated person who was responsible for the mobilisation of the funds. We find that there is no finding that the Company did not have any designated person or Managing Director and, therefore, all Directors would be deemed to be officers in default.
Penalty under Section 15HA can be imposed if a person indulges in fraudulent or unfair trade practices. We have already held that the appellant has not indulged in fraudulent and unfair trade practice and, therefore, no penalty under Section 15HA could be imposed.
In the light of the aforesaid, the impugned order in so far as it relates to the appellant cannot be sustained and is quashed. The appeal is allowed. Attachment orders, if any, on the appellant’s demat account, bank account etc. shall be lifted forthwith. All the misc. applications are also accordingly disposed of. In the circumstances of the case parties shall bear their own costs.
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2022 (3) TMI 1226
Violation of provisions of the Act and the PFUTP Regulations - What is the scope and ambit of statutory appeal to the Supreme Court under Section 15Z of the Act against an order passed by the Securities Appellate Tribunal? - HELD THAT:- Supreme Court will exercise jurisdiction only when there is a question of law arising for consideration from the decision of the Tribunal. A question of law may arise when there is an erroneous construction of the legal provisions of the statute or the general principles of law. In such cases, the Supreme Court in exercise of its jurisdiction of Section 15Z may substitute its decision on any question of law that it considers appropriate.
Not every interpretation of the law would amount to a question of law warranting exercise of jurisdiction under Section 15Z. The Tribunal while exercising jurisdiction under Section 15T, apart from acting as an appellate authority on fact, also interprets the Act, Rules and Regulations made thereunder and systematically evolves a legal regime. These very principles are applied consistently for structural evolution of the sectorial laws. This freedom to evolve and interpret laws must belong to the Tribunal to subserve the Regulatory regime for clarity and consistency. These are policy and functional considerations which the Supreme Court will keep in mind while exercising its jurisdiction under Section 15Z.
Whether the advertisements dated 07.04.2005, 20.04.2005, are in violation of Regulations 3 (a), (b), (c), (d) read with Regulation 4 (1), (2) (k) and (r) as amounting to misleading and defrauding the investors? - As per the first advertisement dated 07.04.2005, it was alleged by SEBI that in violation of Regulation 4 (2) (k) and 4 (r) of the PFUTP Regulations, the Company proceeded to announce on 07.04.2005 the launch of the worldwide outbound package tour services. These services were intended to operate across 25 cities in India and were expected to achieve a revenue of ₹ 1000 million with a net profit of ₹ 200 million in its first year. SEBI alleges that this announcement was made for the sole purpose of misleading the investors. This finding is reversed by the Tribunal based on an agreement between the Company and M/s Gem Tours and Travels Private Limited to establish a subsidiary company called ‘Mega Holidays Ltd.’ to handle the tour services. The Tribunal also noted the bank statement supporting the Company's transaction with M/s Gem Tours and Travels Private Limited.
Tribunal has reversed the findings of SEBI on the basis of its own inferences drawn from the documents on record. The decision of the Tribunal is fact-based and does not give rise to any question of law for invoking the jurisdiction of the Supreme Court under Section 15Z. For this reason, we are not inclined to interfere with the finding of fact, which must rest with the conclusions drawn by the Tribunal.
Second announcement dated 20.04.2005 is concerned, it relates to the allegation of announcing the commencement of business in foreign exchange with the launch of ‘Mega Forex Brand’ as alleged that the Company made false statements such as that it is expected to grab 5-10% of the market share in the forex market, “which is at 5-6 billion dollars” in a span of one or two years. Here again, the Tribunal concluded that the application for a license to deal with foreign exchange which is alleged to have been made in September 2005 was only a revised application. The revised application is said to have been made in as a reply to the queries of the Reserve Bank of India on their original application, which was in fact made on 14.04.2005, that is even before the announcement. The Tribunal, therefore, was of the opinion that the announcement is not imaginary but is based on specific steps taken before the date of announcement, lending credence to the said activity.
the conclusion is drawn by the Tribunal, being factual, not giving rise to any question of law, the jurisdiction of this Court under Section 15Z cannot be invoked. For this reason, we affirm the finding of the Tribunal and there is no occasion for this court to interfere with the decision of the Tribunal. The issue is answered against the appellant.
Whether the company has violated Regulations 3(a), (b), (c) and (d) and Regulation 4(1), 4(2)(k) and 4(2) (r) of the SEBI (PFUTP) Regulations, 2003 by manipulating the share prices and accounts? - The Tribunal in its appellate jurisdiction came to the conclusion that the connectivity could not be established and that the conclusions drawn by the Board were insufficient - The findings are based on the Tribunal's inferences drawn from the material available on record. The conclusions drawn by the Tribunal do not give rise to any question of law warranting interference of this court under Section 15Z of the Act. This issue is answered against the appellant.
Whether there is a right to cross-examine the author of a letter if the SEBI seeks to rely on that letter, adverse to the company? - There is a right of disclosure of the relevant material. However, such a right is not absolute and is subject to other considerations as indicated under paragraph 62(v) of the judgment above referred. In this judgment, there is no specific discussion on the issue of a right to cross-examination but the broad principles laid down therein are sufficient guidance for the Tribunal to follow. There is no need for us to elaborate on this point any further.
Coming back to the facts of the present case, we have noticed that the Tribunal has arrived at its conclusions based on independent facts concerning (a) the allegations under Regulation 4 relating to the issuance of misleading advertisements dated 07.04.2005 and 20.04.2005 as well as (b) allegations relating to manipulation of scrip prices and profits to lure investors. As indicated earlier, the Tribunal concluded that the allegations could be proved.
As we are not interfering in the findings of fact arrived at by the Tribunal the Company’s claim for cross-examining would pale into insignificance. This question presents itself merely as an academic issue.
We are also of the opinion that, there was no necessity for the Tribunal to lay down as an inviolable principle that there is a right of cross-examination in all cases. In fact, the conclusion of the Tribunal based on evidence on record did not require such a finding. We, therefore, set aside the findings of the Tribunal to this extent while upholding its decision on all other grounds. We would also leave the question of law relating to the right of cross-examination open and to be decided in an appropriate case by this Court.
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2022 (3) TMI 1113
SEBI Circular applicability - whether or not SEBI would qualify as “Any person aggrieved”? - Retrospective applicability of circular - Standardisation of procedure to be followed by Debenture Trustee(s) in case of ‘Default’ by Issuers of listed debt securities” - Plaint came to be amended now seeking an injunction restraining RCFL and BoB from acting upon, implementing or taking any steps for diluting, extinguishing or creating third party rights in respect of the security provided under the DTD - HELD THAT:- In our view, if SEBI has a statutory right to file an Appeal, such right cannot be divested by virtue of certain remarks passed by the Ld. Single Judge in the Impugned Orders to the effect that the order would not constitute a precedent against SEBI.
There is no mention whatsoever in the SEBI Circular suggesting its retrospective applicability, we are unable to rule that the SEBI Circular would also apply to defaults committed prior to 13th October, 2020. As a consequence, it follows that the SEBI Circular cannot be applied retrospectively to the present case in view of the admitted fact that RCFL committed defaults prior to 13th October, 2020 and the ICA was executed on 6th July, 2019 which are dates prior to the coming into force of the SEBI Circular and prior to the Supplementary DTD incorporating reference to the SEBI Circular.
Having held that the SEBI Circular cannot be applied retrospectively on settled principles of statutory interpretation, we are unable to appreciate SEBI’s submission that the SEBI Circular being beneficial in nature ought to be applied nonetheless. We cannot also accept the submission that it must also apply in view of the fact that the SEBI Circular does not take away or impair the voting rights of debenture holders. We are therefore unable to apply the SEBI Circular to the defaults and DTDs which admittedly predate the SEBI Circular.
We are also guided by the overall structure of the SEBI Circular. Chapter A thereof provides for an Event of Default, Chapter B provides for seeking consent of investors for (i) enforcement of security; and (ii) signing an Inter-Creditor Agreement and lastly; Chapter C provides for the conditions for signing of the Inter-Creditor Agreement by Debenture Trustee(s) on behalf of investors. The structure itself puts in place a chronological mechanism starting with the event of default and consequences thereafter. We fail to understand how this structure can be applied in a piecemeal manner to prior defaults and Inter-Creditor Agreements entered into post such defaults and prior to the SEBI Circular having come into force or even prior to the Supplementary DTD being executed.
We cannot accept SEBI’s submission that the most recent of its resolutions / circulars must govern meetings irrespective of the original contract between the parties. SEBI argues that the SEBI Circular is incorporated into the DTDs by virtue of the Supplementary Debenture Trust Deed(s) executed on 11th March, 2021. In order to deal with this submission, we note that the DTDs were executed on 3rd May, 2017, 23rd May, 2017 and February 5, 2018. As stated hereinabove, defaults were committed prior to, 13th October, 2020 and the ICA was executed on, 6th July, 2019. We have already held that the SEBI Circular cannot be applied to defaults committed prior to 13th October, 2020. This being so, the subsequent incorporation of the SEBI Circular to the DTDs by virtue of the Supplementary Debenture Trust Deed(s) executed on 11th March, 2021 could only logically apply the SEBI Circular to defaults occurring post such incorporation or at best, to defaults post 13th October, 2020.
We are informed that in so far as the Debenture Trust Deed dated May 23, 2017 is concerned, YBL has no voting share. Therefore, unless the 32 Debenture Holders under the Debenture Trust Deed dated May 23, 2017, approve the settlement / compromise, the settlement / compromise cannot go through. This is irrespective and independent of YBL, considering that YBL does not have any voting rights under this Debenture Trust Deed dated May 23, 2017. In so far as the Debenture Trust Deed dated May 3, 2017 is concerned, YBL holds 68% of the Debentures in value. The majority required to approve the Resolution Plan under the DTDs is 75%. Therefore, YBL would still require an additional 7% positive vote for approval of the Resolution Plan. Therefore, we do not see how YBL can in fact single handedly determine the faith of the vote.
We do not see how the interest of retail investors is not protected should voting be carried out in terms of the DTDs. Under this procedure, the decision making power still vests with each individual Debenture Holder. Every Debenture Holder will have the right to vote and the faith of the vote shall be decided by a majority of 3/4th after taking into consideration the votes cast by the Debenture Holders. This mechanism, is in our opinion, fair, just, equitable and in keeping with the interest of all stakeholders.
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2022 (2) TMI 1408
Power of SEBI statutory initiating action against statutory auditor / chartered accountant - appellant who is a statutory auditor / chartered accountant has been prohibited from issuing any certificate of audit and has been restrained from rendering any other auditing services to any listed companies and intermediaries for a period of one year - as alleged company had made wrong misleading or inadequate disclosures to the stock exchange and had understated the outstanding loans and interest and financial changes in the annual returns of 2008-09, 2009-10 and 2010-11 and had violated Section 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations.
The stand of the appellant is, that the preparation and presentation of the financial statement and the job to ensure that they are free from material misstatement whether due to fraud or error is the responsibility of the management. The appellant as a statutory auditor was responsible to express an opinion on the financial statement based on the internal audit and was not involved in the preparation of the books of accounts of the company or the misstatement in the balance sheet by the company.
HELD THAT:- In the instant case, the show cause notice alleged that the company did not utilize the IPO proceeds and that it was diverted to different entities in the guise of making payments towards the objects stated in the prospectus. The focus in the show cause notice was to examine the role of the appellant as the statutory auditor with regard to due diligence done by it by certifying the expenditure incurred by the company towards the IPO expenses out of the IPO proceeds. The appellants certified the amount was utilized as per the prospectus. A.O. however found that there were lapses on the part of the appellant and due diligence was not carried out by them while certifying that the IPO proceeds were utilized for the objects stated in the prospectus.
We find that the A.O. has only found that due diligence was not carried out by the appellant. There is no finding that the appellants were instrumental in preparing false and fabricated accounts or have connived in preparation or falsification of the books of account. There is no finding that the appellants had manipulated the books of accounts with knowledge and intention, in the absence of which, there is no deceit or inducement by the appellants. In the absence of any inducement, the question of fraud committed by the appellants does not arise. This Tribunal in Price Waterhouse (supra) has categorically held that a C.A. can be proceeded against them if they are instrumental in preparing false and fabricated accounts otherwise SEBI has no power to proceed against them.
Section 12A(a) & (b) of the SEBI Act is obviously not applicable to the appellant as they are not dealing in the securities. Similarly, Section 12(c) cannot be made applicable because no fraud has been carried out by the appellant. Further, in the absence of connivance, deceit, or manipulation Regulation 3 & 4 of the PFUTP Regulations cannot be made applicable.
Thus when a specific finding has been given by the WTM in the impugned order that the promoters and the directors of the DCHL had a private and discreet arrangement between the company and DCM which was only known to the promoters and directors of the DCHL with regard to the understatement of loans and liabilities in the annual accounts of DCHL, it is clear that the appellant as a statutory auditor was not responsible for the preparation and falsification of the books of accounts, the financials of the company and the balance sheet of the company.
Thus in order to give a finding on collusion, there must be some material which could lead to an inference of collusion. Once a finding is given that the appellant was not involved in the fabrication and fudging of the books of accounts and the balance sheet and if the appellant had no intention or knowledge of such understatement being shown in the financials, the charge of fraud or collusion or connivance with the directors and promoters of the company cannot be levied, only on the ground that he was not diligent or cautious or did not check the outstanding loan details from the banks and through other sources. Lack of due diligence can only lead to professional negligence which would amount to a misconduct which could be taken up only by ICAI.
Thus the impugned order in so far as it relates to the appellant cannot be sustained and is quashed. The appeal is allowed with no order as to costs.
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2022 (2) TMI 907
Violation of “PFUTP Regulations”- Duty to Disclose Investigative Material - Exceptions to the Duty to Disclose - whether an investigation report under Regulation 9 of the PFUTP Regulations must be disclosed to the person to whom a notice to show cause is issued? - HELD THAT:- The findings of the investigation report are relevant for the Board to arrive at the satisfaction on whether the Regulations have been violated. Even if it is assumed that the report is an inter-departmental communication, as held in Krishna Chandra Tandon [1974 (4) TMI 103 - SUPREME COURT] there is a duty to disclose such report if it is relevant for the satisfaction of the enforcement authority for the determination of the alleged violation.
In Natwar Singh [2010 (10) TMI 156 - SUPREME COURT] it was held that material which is relevant to the subject-matter of the proceedings must be disclosed, unless the scheme of the statute indicates to the contrary. The non-disclosure of such material is prima facie arbitrary. A deviation from this general rule was made based on the stage of the proceedings. It was held that it is sufficient to disclose the materials relied on if it is for the purpose of issuing a show cause notice for initiating inquiry.
In the present case, since the report of the investigating authority under Regulation 9 enters into the calculus of circumstances borne in mind by the Board in arriving at its satisfaction under Regulation 10 for taking actions as specified in Regulations 11 and 12, it would be contrary to the Regulations to assert that the investigation report is merely an internal document of which a disclosure is not warranted. In any event, the language of Regulation 10 makes it clear that the Board forms an opinion regarding the violation of Regulations after considering the investigation report prepared under Regulation 9. Thus, the investigation report has to be duly disclosed to the noticee. However, the right to disclosure is not absolute. It needs to be determined if the non-disclosure of the investigative report is protected by any of the exceptions to the rule.
Contention of the respondents that since the investigation report under Regulation 9 would also include information on “commercial and business interests, documents involving strategic information, investment strategies, rationale for investments, commercial information and information regarding the business affairs of the entities/persons concerned” affecting the privacy and the competitive position of other entities, it should not be disclosed - We cannot be oblivious to the wide range of sensitive information that the investigation report submitted under Regulation 9 may cover, ranging from information on financial transactions and on other entities in the securities market, which might affect third-party rights. The report may contain market sensitive information which may impinge upon the interest of investors and the stability of the securities market. The requirement of compliance with the principles of natural justice cannot therefore be read to encompass the right to a roving disclosure on matters unconnected or as regards the dealings of third parties. The investigating authority may acquire information of sensitive nature bearing upon the orderly functioning of the securities market. The right of the noticee to disclosure must be balanced with a need to preserve any other third-party rights that may be affected.
We find that the appellant is unable to prove that the disclosure of the entire report is necessary for him to defend the case - The appellant did not sufficiently discharge his burden by proving that the non-disclosure of the above information would affect his ability to defend himself. However, merely because a few portions of the enquiry report involve information on third-parties or confidential information on the securities market, the respondent does not have a right to withhold the disclosure of the relevant portions of the report. The first respondent can only claim non-disclosure of those sections of the report which deal with third party personal information and strategic information on the functioning of the securities market.
Board should determine such parts of the investigation report under Regulation 9 which have a bearing on the action which is proposed to be taken against the person to whom the notice to show cause is issued and disclose the same. It can redact information that impinges on the privacy of third parties. It cannot exercise unfettered discretion in redacting information. On the other hand, such parts of the report which are necessary for the appellant to defend his case against the action proposed to be taken against him need to be disclosed.
The notice to show cause issued to the appellant is for violation of the provisions of the SEBI Act, SCRA and PFUTP Regulations. The show cause notice has specifically referred to what was revealed during the course of the investigation and has invoked the provisions of the PFUTP Regulations in the allegations against the appellant.
Conclusion:-
(i) The appellant has a right to disclosure of the material relevant to the proceedings initiated against him. A deviation from the general rule of disclosure of relevant information was made in Natwar Singh (supra) based on the stage of the proceedings. It is sufficient to disclose the materials relied on if it is for the purpose of issuing a show cause notice for deciding whether to initiate an inquiry. However, all information that is relevant to the proceedings must be disclosed in adjudication proceedings;
(ii) The Board under Regulation 10 considers the investigation report submitted by the Investigating Authority under Regulation 9, and if it is satisfied with the allegations, it could issue punitive measures under Regulations 11 and 12. Therefore, the investigation report is not merely an internal document. In any event, the language of Regulation 10 makes it clear that the Board forms an opinion regarding the violation of Regulations after considering the investigation report prepared under Regulation 9;
(iii) The disclosure of material serves a three- fold purpose of decreasing the error in the verdict, protecting the fairness of the proceedings, and enhancing the transparency of the investigatory bodies and judicial institutions;
(iv) A focus on the institutional impact of suppression of material prioritises the process as opposed to the outcome. The direction of the Constitution Bench of this Court in Karunakar [1993 (10) TMI 310 - SUPREME COURT] that the non-disclosure of relevant information would render the order of punishment void only if the aggrieved person is able to prove that prejudice has been caused to him due to non-disclosure is founded both on the outcome and the process;
(v) The right to disclosure is not absolute. The disclosure of information may affect other third-party interests and the stability and orderly functioning of the securities market. The respondent should prima facie establish that the disclosure of the report would affect third-party rights and the stability and orderly functioning of the securities market. The onus then shifts to the appellant to prove that the information is necessary to defend his case appropriately; and
(vi) Where some portions of the enquiry report involve information on third-parties or confidential information on the securities market, the respondent cannot for that reason assert a privilege against disclosing any part of the report. The respondents can withhold disclosure of those sections of the report which deal with third-party personal information and strategic information bearing upon the stable and orderly functioning of the securities market.
The Board shall be duty-bound to provide copies of such parts of the report which concern the specific allegations which have been levelled against the appellant in the notice to show cause. However, this does not entitle the appellant to receive sensitive information regarding third parties and unrelated transactions that may form part of the investigation report.
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2022 (1) TMI 1413
Power of SEBI statutory initiating action against statutory auditor / chartered accountant - Misutilization of IPO proceeds - funds diverted to different entities in the guise of making payments towards the objects stated in the prospectus - role of the appellant as the statutory auditor with regard to due diligence done by it by certifying the expenditure incurred by the company towards the IPO expenses out of the IPO proceeds - HELD THAT:- We find that the A.O. has only found that due diligence was not carried out by the appellant. There is no finding that the appellants were instrumental in preparing false and fabricated accounts or have connived in preparation or falsification of the books of account. There is no finding that the appellants had manipulated the books of accounts with knowledge and intention, in the absence of which, there is no deceit or inducement by the appellants. In the absence of any inducement, the question of fraud committed by the appellants does not arise. This Tribunal in Price Waterhouse [2019 (9) TMI 592 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] has categorically held that a C.A. can be proceeded against them if they are instrumental in preparing false and fabricated accounts otherwise SEBI has no power to proceed against them.
29G Section 12A(a) & (b) of the SEBI Act is obviously not applicable to the appellant as they are not dealing in the securities. Similarly, Section 12(c) cannot be made applicable because no fraud has been carried out by the appellant. Further, in the absence of connivane, deceit, or manipulation Regulation 3 &4 of the PFUTP Regulations cannot be made applicable.
The appeal is hereby allowed with no order as to costs.
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2022 (1) TMI 1389
Delay in the initiation of the proceedings by SEBI - AO has skirted the issue on the ground that since the appellant did not act with skill, care and diligence, it proceeded to hold that the appellant cannot be absolved for the lapses incurred by him and accordingly imposed a penalty - HELD THAT:- Admittedly, the inspection was conducted in January / February 2012. Inspection was submitted on May 07, 2012 and a reply was given on June 14, 2012. Thereafter, nothing was done and the show cause notice was eventually issued on December 12, 2019 after 7 ½ years. There has been an inordinate delay in the issuance of the show cause notice.
The view taken by the AO is patently erroneous and cannot be allowed to stand. We are of the view, that when a defense is raised by the appellant it is the onerous duty of the AO, as a quasi judicial authority, to deal with the matter instead of skirting the issue and pushing it under the carpet without dealing with it. The ground raised and not dealt with amounts to judicial indiscipline. We are of the view, when a question of delay has been raised, it is imperative for the AO to deal with the issue.
In the instant case, we find that there is an inordinate delay in the issuance of the show cause notice. No explanation whatsoever has been given by the respondent as to why the show cause notice could not be issued earlier. In the absence of any justification, we are of the view that the show cause notice was not issued within a reasonable time and, in fact there has been an inordinate delay in the issuance of the show cause notice. We are further of the opinion, that old and stale disputes should not be raised.
Thus the impugned order cannot be sustained and is quashed. The appeal is allowed with costs.
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2022 (1) TMI 1245
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 - whether the appellants were justified in voting for rescinding the resolution dated 15th July, 2014 inspite of being related party entities? - HELD THAT:- From a perusal of Section 188 of the Companies Act it is apparently clear that no member of the Company shall vote on such resolution to approve any contract or arrangement which may be entered into by the Company, if such member is a related party. Admittedly, in the instant case, when the resolution of 15th July, 2014 was passed, the appellants being related party had abstained from voting and, therefore, they had complied with Section 188 of the Companies Act as well as Regulation 23(7) of the LODR Regulations.
Section 188 of the Companies Act as well as Regulation 23 of the LODR does not prohibit related party entities from voting for recalling/rescinding resolution which was passed earlier by the Company. In the absence of any such prohibition it was open to the appellants to participate in the resolution of 16th December, 2016. The bar under Section 188 of the Companies Act and Regulation 23(7) of the LODR Regulations is that no related party can vote to approve any contract or arrangement in which he is a related party.
As per clear provisions in Section 188 of the Companies Act and Regulation 23 of the LODR Regulations, we find that the appellants did not commit any violation. The AO committed an error in holding that they had violated Regulation 23 of the LODR Regulations. The impugned order cannot be sustained and is quashed. The appeal is allowed
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2021 (12) TMI 1441
Offence under SEBI - elapse of a period of more than 10 years, the Acquirers are yet to comply with SEBI’s direction to make offer to the shareholders - Interest of investors and for protection of their rights - liability of the Acquirers by calculating the offer price in terms of regulation 23 of the Delisting Regulations - HELD THAT:- Acquirers by not making public offer has not only deprived the shareholders from exiting their shareholding at a fair price thereby acting in gross defiance of the directions issued under SEBI Order (which finally merged with order passed by the Hon’ble Tribunal and the Hon’ble Supreme Court of India) but at the same time, the non-compliance on the part of the Acquirers caused a financial gain of INR 38.65 Crore along with interest amount for the undue prolonged delay in making the offer to the shareholders, since the non- compliance to make the public offer has resulted in saving of the above stated amount as calculated towards public offer consideration to the Acquirers. It can be stated that the Acquirers have notionally gained to such extent in this regard.
As reiterated that the Acquirers have failed to make the public offer despite SEBI’s directions to them to do so and despite the SEBI directions having been upheld by the Hon’ble SAT and the Hon’ble Supreme Court of India.
Acquirers have failed to cooperate with the Independent Valuer despite issuance of First and Second Advisories. We note that adequate opportunities and time have already been provided to the Acquirers to comply with the requirements of law regarding the public offer and the aforestated SEBI’s directions issued in this regard. By failing to comply with the directions issued vide SEBI’s order dated July 27, 2010, the Acquirers have acted adverse to the interest of the shareholders of the Target Company, by denying them the right to exit at a fair price as per SEBI’s directions including the aforesaid two advisories.
In order to protect the interest of shareholders and to avoid any further delay in the matter and to implement/execute the directions contained in the SEBI Order dated July 27, 2010 which has long back become final and binding on the Acquirers in light of the First and Second SAT Orders and Second Supreme Court Order, it is imperative to issue further appropriate directions against the Acquirers, which would require the Acquirers to do the needful immediately.
Keeping in view the misconduct and non-compliances by the aforesaid Acquirers/entities as discussed in the foregoing paragraphs, Mr. Zafar Yunus Sareshwala and Mr. Uves Yunus Sareshwala are called upon to show cause as to why the suitable directions, including the following, should not be issued/imposed against them u/s 11(1), 11(4)(d) and 11B(1) of the SEBI Act:
i. direction to disgorge an amount equivalent to the gain made by them by not complying with direction of public offer along with interest;
ii. direction to restrain them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period.
This Order is without prejudice to any other action that SEBI may initiate under the securities laws, as deemed appropriate, against the above mentioned persons/entities. This Order shall come into force with immediate effect.
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2021 (12) TMI 1319
Confidentiality of the settlement and/or compromise and/or arrangement arrived - HELD THAT:- Advocates appearing for Respondent Nos.1 to 10, 11 and 12 have submitted that the Order dated 28th October, 2021, is passed by consent. In fact, Advocate Khandeparkar representing Respondent Nos.1 to 10 states that SEBI was not only represented during the hearing of the matter but SEBI was also present during the settlement talks held on six occasions. Senior Advocate appearing for SEBI states on instructions, that save and except the fact that SEBI was represented before the Learned Single Judge at the time of hearing, SEBI disputes all the other statements/ submissions made on behalf of Respondent Nos. 1 to 10, 11 and 12. In view of the above, before we proceed further, we allow SEBI to seek a clarification from the Learned Single Judge qua the allegation that SEBI has consented to the impugned Order being passed.
In view of the urgency, parties may move the Learned Single Judge today itself and obtain necessary clarification.
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2021 (12) TMI 67
Principles of natural justice - Action under SEBI Act - Attachment and freezing the bank accounts both, savings and term deposits - appellant would contend that no notice was issued to the appellant before issuing the order of attachment of the bank accounts - availability of alternative remedy of appeal to petitioner - HELD THAT:- The appellant seeks to bring his case within the ambit of the exception which has been drawn by the Hon'ble Supreme Court in WHIRLPOOL CORPORATION VERSUS REGISTRAR OF TRADE MARKS, MUMBAI & ORS. [1998 (10) TMI 510 - SUPREME COURT] to show that the order of attachment is in violation of principles of natural justice and this argument is sought to be buttressed by referring to Section 226(3)(iii) of the IT Act. Be it noted that Section 226 of the IT Act deals with other modes of recovery. Sub-Section (1) of Section 226 states that where no certificate has been drawn up under Section 222, the assessing officer may recover the tax by one mode or modes provided in Section 226. From the recovery certificate placed before us by the learned counsel appearing for the appellant, we find that the certificate has been issued under Section 28A of the SEBI Act of 1992 read with Section 222 of the IT Act. Therefore, the provisions of Section 226 of the IT Act cannot be resorted to by the appellant as it deals with cases where no certificate has been drawn under Section 222 of the IT Act. In any event, the certificate of recovery and the consequential attachment and freezing of the bank account and the term deposits is in exercise of the powers conferred under the SEBI Act of 1992. The said enactment is a special statute and it is a self-contained code as that of the IT Act. Therefore, on the facts set out by the appellant, we are not inclined to exercise our jurisdiction under Article 226 of the Constitution of India and we agree with the conclusion arrived at by the learned Single Bench.
The order impugned does not call for interference and the appeal stands dismissed.
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2021 (11) TMI 1176
Penalty u/s 15HA of the SEBI Act - Special Court at Calcutta jurisdiction to entertain the said complaint and to proceed against the petitioner - HELD THAT:- During the pendency of the proceedings before this Court and pursuant to order of this Court [2021 (3) TMI 1437 - SC ORDER] petitioner has deposited the penalty amount of Rs.1 Crore. In view of such payment, what remained, is only with regard to interest on the said amount of Rs.1 Crore penalty imposed by the Adjudicating Authority. It is the case of the petitioner that the petitioner, an innocent young entrepreneur, entered into security market immediately after completing her MBA Course.
It is stated that with great difficulty, the petitioner could mobilize the penalty amount and paid the same.
As much as, Adjudicatory Order was passed as early as on 30.04.2012 and further, the petitioner has already paid the entire penalty amount of Rs.100 lakhs during the pendency of this Petition, and to put quietus to the litigation, we deem it appropriate to dispose of the Special Leave Petition by directing the petitioner to deposit a further sum of Rs.10 lakhs towards interest, within a period of eight weeks from today.
Upon such deposit, the criminal proceedings initiated against the petitioner on the file of the 5th Special Court, Calcutta stand quashed. It is made clear that this order is passed having regard to peculiar facts and circumstances of the case and the same shall not be treated as precedent for any other case.
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2021 (11) TMI 1039
SEBI circular applicability - Clarification seeked in directions that the meeting that is to be held should be in deviation from the terms of the Debenture Trust Deed - Scope of submissions on the basis of any later or Supplementary Trust Deed - HELD THAT:- Obviously, the Supplementary Trust Deed will have to be read with the previous three Trust Deeds in a coherent and consistent manner. A mere reference to SEBI circulars will not and cannot override the express terms of any of the Trust Deeds. The 30 day period will commence from today in view of this clarification.
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2021 (11) TMI 516
Collective investment scheme without registration and in violation of the SEBI (Collective Investment Schemes) Regulations 1999 - recovery proceedings - Attachment orders - HELD THAT:- Attachment notice which has been issued by SEBI on 1 March 2021 was in order to implement the directions which have been issued by this Court under Article 142 of the Constitution. SEBI in that sense, as an expert statutory body, is exercising powers in pursuance of the mandate of this Court in order to protect the interests of the investors. This Court has created a mechanism by virtue of which, third parties who have objections, including to orders of restraint or attachment are facilitated in having their objections heard through the auspices of an officer appointed by this Court. Shri R S Virk, former District Judge, has been entrusted with the task.
Report submitted by Shri R S Virk after hearing the parties is placed before this court to provide a remedy of redress. In the present case, it is not possible to accept the submission that SEBI has attempted to short circuit the process of filing a statutory appeal by taking recourse to an IA in this Court. SEBI has been entrusted with a specific mandate under the directions of this Court. It was duty bound to and has brought the order of this Court to the notice of SAT. The stay on the order of the attachment would effectively obstruct the implementation of the directions of this Court.
The entertaining of the appeals by SAT and its interim order are contrary to the directions issued by this Court dated 2 May 2016 in terms of prayer (a) of IA 5 of 2016. As a matter of fact, it was inappropriate for SAT to entertain the appeals. Deference to the order of this Court required that the parties should be permitted to move this Court for appropriate directions. In the above view, we are not, at this stage, expressing any opinion on the merits of the defense which has been raised by DDPL and Unicorn to the order of attachment since that would preclude a hearing before, and a report by Shri R S Virk.
ORDER -The order passed by SAT shall stand vacated - DDPL and Unicorn shall be at liberty to submit their objections to the order of attachment dated 1 March 2021 issued by SEBI before Shri R S Virk, former District Judge, who has been appointed pursuant to the orders of this Court. Pending further orders of this Court, the order of attachment which has been levied by SEBI on 1 March 2021 shall continue to remain in operation to the extent of an amount of ₹ 49.67 crores. Alternatively, we grant liberty to DDPL and Unicorn to deposit an amount of ₹ 49.67 crores in an Escrow account to the satisfaction of SEBI. Upon the Escrow account being created in respect of the above amount of ₹ 49.67 crores to the satisfaction of SEBI, SEBI would be at liberty to duly modify the order of attachment dated 1 March 2021, which shall then operate only with respect to the amount which is held in Escrow. SEBI would be at liberty to issue necessary directions to invest the moneys held in Escrow in an interest bearing fixed deposit.
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2021 (11) TMI 122
Collective Investment Schemes - Petitioners seeking quashing of the show cause notices issued to the petitioners calling upon them to adduce evidence and clarifications in support of their contentions - HELD THAT:- SAT condemned the conduct of the petitioners on several grounds. It was observed that the petitioners have made misleading statements in the information memorandum only to lure the small time investors to remain invested in the Scheme and the petitioners continue to operate its Collective Investment Schemes even after the SAT passing the interim order.
The petitioners successfully dragged the matter regarding the submission of the information memorandum from 2006 to 2014. The contention that Annexures-H and H1 are the show cause notices deserve no merit on the apparent reading of those documents. After receiving Annexures-H and H1, the petitioners approached this Court in the above matter and by virtue of the interim order passed in this case, they have dragged the matter for another seven years.
From the above facts, it becomes clear that the petitioners with an intention to avoid hearing of the matter before WTM have indulged in these proceedings. If according to the petitioners, the notice of information memorandum to the investors under RPAD is not required, it is open to them to appear before WTM and convince on the said aspects. If their contention is not accepted, they can avail whatever remedy is open to them. Since no right of the petitioners is affected by the notices Annexures-H and H1, no interference of this Court is required in the matter invoking Articles 226 and 227 of the Constitution of India.
In the light of the above discussions, this Court does not find it necessary to refer to several judgments relied upon by both side. The contention that WTM has made up its mind to pass an order against the petitioners is a prematured contention.
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2021 (10) TMI 1321
Insider trading - violation of SEBI (Prohibition of Insider Trading) Regulations - Family arrangement - case of the appellants that family settlements means family estrangement - family arrangements within the family on two occasions there was no estrangement, as can be seen from the facts highlighted by Ld. WTM - appellants were restrained from accessing the securities market, in any manner, for a period of one year - allegations against the appellant Ms. Shivani Gupta and other appellants is that they being insider to two Unpublished Price Sensitive Informations (“UPSI‟ for short) regarding the buy-back of it‟s share by the Company and had traded in the shares while holding theses informations - WTM recorded a finding that the nature of relationship between the parties, their residence at the same address, financial transactions between them as well as the trading pattern of the concerned appellants during UPSI-I & II show that all of them had traded when in possession of both the UPSI, meaning thereby that those UPSI were disseminated to the appellants by Late Padam Chand Gupta and Mr. Balram Garg - HELD THAT:- The facts as highlighted by the Ld. WTM would show that though there was a family arrangements within the family on two occasions there was no estrangement, as can be seen from the facts highlighted by Ld. WTM - Additionally, in our view, the very fact that appellant Shivani had authorized her cousin brother-in-law i.e appellant Amit to trade on her behalf, would belie the case of the appellants that family settlements means family estrangement. It cannot be gainsaid that the appellants are residing at the same address and even appellant Mr. Balram Garg‟s address is “the front side‟ of the premises. The trading pattern of the concerned appellants i.e. withholding of the selling of trade once buy-back talk started within the Company and then again selling spree the shares by them once the buy-back offer was made public till the rejection of the proposal by the State Bank of India was made known to the public, would clearly show that the concerned appellants were aware of both the UPSI.
It is true that there is no direct evidence as to who had disseminated this insider information to the appellants Late Shri Padam Chand Gupta was the father of appellant Mr. Sachin Gupta and father-in-law of appellant Ms. Shivani Gupta and uncle of appellant Mr. Amit Garg. Similarly, appellant Mr. Balram Garg is the uncle of appellant Mr. Sachin Gupta and appellant Mr. Amit Garg. All of them were residing at the same address. Appellant Mr. Sachin Gupta had financial transactions with the Company of which appellant Mr. Balram Garg was Managing Director. Considering all the above facts, on preponderance probability it can very well be concluded that late Padam Chand as well appellant Mr. Balram disseminated both UPSI to the appellants in appeal.
Taking into consideration all these facts, in our view, the appeals lack merit. Hence both the appeals are hereby dismissed.
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2021 (10) TMI 1311
Approval of resolution plan - Settlement, compromise or arrangement before the Debenture Holders seeking their assent in terms of the respective Debenture Trust Deeds - negotiations between the Plaintiffs, debenture holders, the company and the resolution applicant/their advisors - 3rd Defendant, the Debenture Trustee, points out that the Debenture Trust Deeds require a meeting to be called in a certain manner - HELD THAT:- Debenture Trust Deed is a contract between the parties to it. They must know the terms of the contract at the time when the execute it. Those terms cannot be later altered except with their consent. The submission by SEBI would amount to saying that a critical term of the contract is always unknown and always liable to change or modification at any given time, conceivably upsetting the entire structure.
SEBI’s regulations all say that they are with effect from a particular date. It is not possible to read them as operating retrospectively. Correctly read, SEBI’s submission is to be understood as meaning that it is the latest of the SEBI resolutions as amended at the time of the Debenture Trust Deed’s execution that must compulsorily be incorporated in the Debenture Trust Deed. This is unexceptionable. But this cannot and does not mean that a later regulation after the Debenture Trust Deed can be retrospectively made to govern the Trust Deed. Between the parties the calling and conduct of a meeting and the voting at it are all governed by the terms of Debenture Trust Deed. There is simply no other way of looking at it.
In view of this, the 3rd Defendant is directed to call and conduct meeting of all the Debenture Holders under all three Debenture Trust Deeds within 30 days of this order ensuring that the calling and conduct of the meeting/s and the voting at such meetings conforms to the terms of the respective Debenture Trust Deeds. At such meeting/s, the 3rd Defendant will place for consideration and approval of the beneficial owners or debenture holders the settlement offer/compromise/arrangement as envisaged in the approved resolution plan and as modified to the extent provided herein above.
If there is any further or later or supplementary trust deed, then the provisions of that supplementary trust deed will also be taken into account. All parties agree and undertake to maintain confidentiality of the settlement and/or compromise and/or arrangement arrived hereto.
In view of the above compromise arrived at between the parties, the suit stands disposed off in these terms. It is made clear that the aforesaid order is passed considering the peculiar facts and circumstances of the present case. It also has consent of all the parties.
As regards SEBI, making it clear that this order will constitute no precedent against SEBI nor will SEBI be held to the terms of this order for other cases. This order is made on the peculiar facts and circumstances of this case. The demand drafts in question are handed over to the Advocates for the Plaintiffs.
Plaintiffs says this order is sufficient to dispose of the Suit itself with all undertakings given to the Court being accepted. So ordered. The suit is disposed of in these terms.
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