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2021 (3) TMI 757
Violation of the provisions of PFTUP Regulations - artificial trades - manipulative trading - there was a pattern of trading and the price of the shares went up in pre-planned manner by engaging in small trades sometimes of one share each but no explanation of the same was offered - HELD THAT:- This Tribunal held that the placing of orders in a very small number generally may point towards the possible violation of the provisions of PFTUP Regulations still it is possible that an investor observing the movement of the scrip could be placing orders in the system without any intention to manipulate the market. Finding that there is no connection of the appellants therein either with the company or with the group connected with the company it was found that merely irrational behaviour of the investor, for want of connection, it cannot be said that they were trading in manipulative or fraudulent manner
Finding that the scrip of Mapro was not a miracle scrip and taking into consideration the doubtful pattern of the trades carried out by the appellant therein this Tribunal though set aside the direction to pay penalty imposed upon the appellant therein, it was held that warning to the appellant that repetition of trading of similar nature as impugned one will lead to penal consequences.
All the appellants are small investors. They are admittedly close relatives. However, they are not found to be connected with any other parties involved are not anyway connected to the group entities as described in the appeal of Bharti Goyal [2020 (8) TMI 843 - SECURITIES APPELLATE TRIBUNAL MUMBAI]
In the circumstances, the present appeal is partly allowed without any order as to costs. The direction of the adjudicating officer to pay penalty against each of the appellants is hereby set aside. Instead the appellants are warned that repetition of trading of similar nature may lead to penal consequence. The appeal is accordingly disposed of.
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2021 (3) TMI 349
Compensatory interest on increased offer price - valuation of the shares to be done in accordance with Regulation 8(2)(e) of the SAST Regulations - Application for payment of interest rejected - appellant has prayed for compensatory interest at the rate of 10% per annum on increased offer price to be paid from April 10, 2018 to October 9, 2018 and 18% compensatory interest from January 31, 2020 till date of payment - HELD THAT:- Interest starts running from the date when respondent No. 2 entered into an agreement to acquire 100% ownership of FML which is April 10, 2018. The period of interest stops when respondent No. 2 submitted the draft letter of offer which was published on October 9, 2018. For this period, namely, April 10, 2018 to October 9, 2018 interest has been paid. After SEBI finalized the price of the shareholders on July 4, 2019 interest becomes payable and which has been paid in accordance with the provisions of the Regulations from August 21, 2019 to January 30, 2020 when the amount was eventually paid.
Reason for not paying the interest by respondent No. 2 for the intervening period i.e. from the date when the draft letter of offer was published on October 9, 2018 till the date of finalizing the price by SEBI on July 4, 2019 is, that this period was not in the hands of the respondent No. 2. We are of the opinion that the respondent No. 2 cannot be saddled with payment of interest for the period when the price was required to be finalized by SEBI under Regulation 8(16) of the SAST Regulations. It would be unfair on the part of SEBI as well as on the part of the Tribunal to saddle payment of interest upon the acquirer respondent No. 2 for the period when the price was being determined by SEBI.
The contention that the shareholders should not suffer due to long pending litigation initiated by the acquirer and, therefore, the acquirer should be directed to pay to the shareholders the interest is erroneous.
When SEBI had directed the acquirer to raise the share price from ₹ 400/- to ₹ 608.46 on March 20, 2019, the appellant himself filed appeal No. 182 of 2019 and again filed appeal No. 359 of 2019 when SEBI passed a fresh order fixing the price on July 4, 2019. Thus, in our view no interest is payable from the date of filing of the publication of the draft letter of offer, i.e., from October 10, 2018 to July 4, 2019 when SEBI eventually fixed the price of the shares.
We do not find any error in the order of SEBI rejecting the application for grant of interest.
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2021 (2) TMI 1362
Violations of provisions of PFUTP Regulations, 2003 - misleading appearance of trading in the scrip to the market participants - Whether the Noticees are connected entities? - HELD THAT:- As observed from records that some of the connected group entities have been made Noticees in the instant proceedings while some other entities have been reportedly proceeded against in separate proceedings including adjudication proceedings. Be that as it may, the Board has set its criteria and exercised intelligible differentia while selecting cases/entities for proposing action and the Noticees cannot plead innocence by merely basing their arguments on such extraneous reasons.
Also find it appropriate to observe that though the Noticees have claimed parity with the other entities, who have not been proceeded with, however, these Noticees have not brought any specific instance to my attention which are factually identical or similar to that of the entities so as to stake a claim that they also ought to have been exonerated from the instant proceedings. Considering the foregoing, Reject this contention of the Noticees in limine and do not find it necessary to further deal with this contention.
These entities are found to be connected to each other and almost all of their trades have been entered with the connected entities and from their unusual trading pattern in the scrip of the Company, it cannot be stated with confidence that the trades executed by them were mere coincidences without there being any commonality between the Noticees and their trading pattern do not in the scrip of Rutron do not suggest for abnormality. It can be reasonably concluded that the Noticees are enjoying close proximities as well as close connection amongst themselves.
Whether the acts of the Noticee nos. 12, 13 and 14 during Patch-1 of the Investigation period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003? - 3 Noticees have failed to give any plausible reason/explanation to defend themselves against the charges levelled against them in the SCN. Further, the roles played by the 3 Noticees to artificially increase the price during the Patch-1 need to be perceived as the acts of a united group of entities which was aimed at manipulating the price of the scrip of Rutron over a period of time by cumulatively contributing to the LTP of the scrip during the Patch-1 of the Investigation Period. Therefore, in the light of the aforesaid observations of the Hon’ble SAT and after considering the trading pattern, and the manner and frequency with which such trades were executed by the 3 Noticees, as constrained to hold that the Noticee nos. 12, 13 and 14 were not acting as genuine market participants and had no bona fide intention to trade in the shares of Rutron.
Therefore, hold that the trading behavior of Noticees nos. 12 to 14 during Patch-1 of the Investigation Period of vis-à-vis the scrip of Rutron has been conspicuously ill motivated, fraudulent and was targeted to manipulate the price of the shares of Rutron hence, is in violation of regulations 3 (a), (b), (c), (d) and 4 (1), 4 (2) (a), (e) of SEBI (PFUTP) Regulations, 2003.
Whether the acts of the Noticee nos. 1, 2, 3, 4, 9, and 11 during Patch-2 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003? - As unusual LTP contributing trades executed amongst the connected entities strengthens the allegations made in the SCN that these trades have been deliberately executed with a fraudulent intent of manipulating the price and causing misleading appearances of trading in the scrip, thereby causing inducement to the investors at large., It is highly inconceivable that the trades of the 6 Noticees executed on an anonymous trading platform matched with their connected entities on a numerous occasions by sheer coincidence of matching of orders and not by any pre-set design keeping in view the inter se nexus that existed amongst the 6 Noticees during the relevant period.
In fact, the repeated matching of such orders suggests how these 6 Noticees have deployed a strategy to defeat the objective of even an anonymous trading platform and have successfully ensured that their trades match with each other as per their preconceived strategy to mark up the price of the scrip of the Company. Therefore, in my considered view, the alleged trades can’t by any standard be categorized as trades executed in normal course of trading in securities market.
As glaringly show that the trading conduct of Noticee nos. 1, 2, 3, 4, 9 and 11 was evidently laced with malicious intent and fraudulent motive, hence, on the basis of the reasons recorded above, hold that the Noticee nos. 1, 2, 3, 4, 9 and 11 have violated regulations 3(a), (b), (c), (d) and regulation 4(1), 4(2) (a) and (e) of the PFUTP Regulations, 2003 while trading in the scrip of Rutron during Patch-2 of the Investigation period.
Whether the acts of the Noticee nos. 3, 5, 6, 7, 8 and 10 during Patch-3 of Investigation Period have resulted in violations of the provisions of regulation 3 (a), (b), (c), (d) and regulation 4 (1) and 4 (2) (a) and (e) of SEBI (PFUTP) Regulations, 2003? - As manner and frequency with which such trades were executed by the above noted six Noticees, we are constrained to hold that the Noticee nos. 3, 5, 6, 7, 8 and 10 were not acting as genuine market participants and had no bona fide intention to trade in the shares of Rutron.
As having found that the charges levelled against Noticees in the SCN stand established, in exercise of the powers conferred upon me under Sections 11(1), 11(4) and 11B(1) read with Section 19 of the Securities and Exchange Board of India Act, 1992, hereby hold that considering the volume of trades executed and percentage of contribution to the LTP by the Noticees and their impact on the price of the scrip of Rutron, it would be proper and in the interest of Securities Market that such entities should be restrained from being associated with the Securities Market and accordingly, restrain all the Noticees from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, for a period of six (06) months from the date of this Order.
As clarified that during the period of restraint, the existing holding of securities of the Noticees including units of mutual funds, shall remain frozen.
Obligation of the aforesaid Noticees in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange (s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order, only in respect of pending unsettled transactions, if any. Further, all open positions, if any, of the aforesaid Noticees in the F&O segment of the stock exchange, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order.
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2021 (2) TMI 1177
SEBI seeking information from the petitioner regarding alleged deemed public issue - HELD THAT:- Awareness Programme conducted by the SEBI during the year 2017, a few investors reported that the petitioner Company has been mobilising funds from the public and have issued bonus shares. As alleged that the petitioner subsequently stopped buying back the shares - A preliminary enquiry made by the SEBI, it was noticed that the petitioner-Company has passed resolutions authorising issue of equity shares to any person including existing members of the Company in any manner the board may deem fit.
The language of the resolution indicated that what was intended by the Company was not strictly private placement. It was under the said circumstances that the SEBI issued notices to the petitioner-Company. Though the information sought for were expected to be maintained by the petitioner in their statutory records and registers, such information was not made available to the SEBI. It was under such circumstances that the SEBI has issued the show-cause notices impugned in the writ petition.
The information sought for by the SEBI related back to the year 2001. However, the required information are those which are required by the petitioner to be statutorily maintained. Therefore, the delay in issuing these Show Cause Notices, cannot cause prejudice to the petitioner.
Reasons for the delay in initiation of the proceedings, it is to be noted that under Section 11(2)(f) of the SEBI Act, 1992, promoting investor education is one of the functions of the Board. In one of such meetings of investors, allegations were raised against the petitioner. The SEBI made their own enquiry and noted that the annual reports of the Company indicated authorising issue of shares to any person including existing members of the Company in any manner the Board may deem fit. The language of the resolutions indeed gives rise to a suspicion or indication that the Company proposed to issue shares to the public. It is for the said reason that the SEBI sought explanation from the petitioner.
Petitioner, instead of cooperating with the SEBI, providing requisite information, has approached this Court challenging the show-cause notices. Allegation against the petitioner and the information sought for by the SEBI would indicate that what was sought for by SEBI are information a Company is expected to maintain.
Going through the show-cause notices impugned in the writ petition, it cannot be said that jurisdictional facts necessary to initiate proceedings do not exist. Prima facie, the delay in initiation of the proceedings will not cause prejudice to the petitioner, in the nature of the information sought for by SEBI. Even if the petitioner is incapacitated to provide any information required by the SEBI, the petitioner can very well give reasoned explanation for the same to the SEBI.
The issue is presently only at a show-cause stage. It will be thoroughly inappropriate for this Court to interfere with the statutory proceedings at this stage.
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2021 (2) TMI 913
Debenture Trustees liability in default - Violation of SEBI Act - Company issued Debentures which are deemed public issues, without complying with the statutory requirements for public issue - Company failed to provide the details as to whether the consent of the Debenture holders has been obtained, for extending the tenure of the Debentures - whether by acting as Debenture Trustees of the Company without having registration as required under Section 12 of the Securities and Exchange Board of India Act, 1992 read with Regulation 7 of SEBI (Debenture Trustees) Regulations, 1993, they have violated law. Section 12(1) of the SEBI Act, 1992? - HELD THAT: - No Debenture Trustee can deal in securities except under, and in accordance with, the conditions of registration obtained from the SEBI, in accordance with the SEBI (Debenture Trustees) Regulations, 1993. Regulation 7 of the said Regulations, 1993 mandates that no person shall be entitled to act as a Debenture Trustee unless he is either - (a) a Scheduled Bank carrying on commercial activity; or (b) a public financial institution within the meaning of Section 4A of the Companies Act, 1956; or (c) an insurance company; or (d) body corporate.
The petitioners, who are allegedly acting as Debenture Trustees, are members of Institute of Chartered Accountants of India. The petitioners have no case that they are holding registration to act as Debenture Trustees.
Therefore, there is prima facie violation of Section 12(1) of SEBI Act, 1992.
Petitioners have a case that the Company being a NBFC, is regulated by, apart from the Companies Act, by RBI Act and Regulations only and is not amenable to the jurisdictional authority of SEBI and hence Ext.P2 show-cause notice is ultravires. This Court is unable to accept the said proposition. Even though the Company is an NBFC, as far as regulation of issue of Debentures and Non-current Bonds is concerned, it is the bounden duty of SEBI to protect the interest of investors in securities. As long as NBFCs are not specifically excluded from the purview of SEBI Act, 1992, the Board will have jurisdiction over securities transactions of an NBFC, including the Debenture Trustees.
Proceedings of SEBI are only at the show-cause stage. The petitioners have the opportunity to establish their case before the Board. As rightly pointed out by the Standing Counsel for the SEBI relying on the judgment of the Hon’ble Apex Court in Peerless General Finance and Investment Company Limited v. Reserve Bank of India [1992 (1) TMI 337 - SUPREME COURT] the function of the court is to see that lawful authority is not abused but not to appropriate to itself the task entrusted to that authority.
This Court does not find any reason to interfere with Ext.P2 proceedings initiated by the SEBI at this stage.
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2021 (2) TMI 598
Winding up of mutual fund scheme - Procedure and manner of winding up - Consent of the unitholders for winding up of mutual fund schemes - Rights and obligations of the trustees - objections to poll results - SEBI propounds that clause (a) of sub-regulation (2) to Regulation 39 is a standalone provision and the unitholders’ consent is not required when the trustees upon happening of an event form an opinion that the mutual fund scheme is to be wound up - SEBI (Mutual Funds) Regulations, 1996 framed by the Securities and Exchange Board of India (‘SEBI’) to hold that clause (c) to subregulation (15) of Regulation 18 mandates consent of the unitholders for winding up of mutual fund schemes even when the trustees form an opinion that the scheme is required to be wound up in terms of clause (a) to sub-regulation (2) of Regulation 39 of the Mutual Fund Regulations - Primary objection raised relates to appointment of M/s. KFin Technologies Pvt. Ltd. (‘KFin Technologies’) for providing e-voting platform services - objection to the e-voting results emanates from the notice to the unitholders
HELD THAT:- Though we have not been provided with scheme-wise break-up of the votes which should have been given, it does not matter in view of the overwhelming consent for winding up of the schemes. The trustees also state that a large number of corporate votes were rejected by the Scrutiniser on technical grounds of absence of corporate formalities for authorisation of the concerned representatives. The rejected votes represent 1,997 unitholders holding approximately 68.10 crore units valued at ₹ 2,464 crores. Further, an overwhelming majority of the rejected votes – ₹ 2,420 crores by value, 98.6% by units and 97.5% by number of unitholders – were in favour of the scheme. Accordingly, if these rejected votes are taken into consideration, the total votes being polled in proportionate terms would increase from approximately 54% to approximately 62%.
We do not think we are required to go into the said aspect in great detail. As already held above, the unitholders were given a chance and option to vote and about 38% of the unitholders in numerical terms and 54% in value terms had exercised their right to give or reject consent to the proposal for winding up. In the absence or need for minimum quorum, which is not provided or stipulated in the Regulations nor mandated under law, the e-voting result cannot be rejected on the ground that 38% of the unitholders in numerical terms and 54% in value terms, even if we do not account for the rejected votes, had participated. This cannot be a ground to reject and ignore the affirmative result consenting to the proposal for winding up of the six mutual fund schemes.
Objection raised relates to appointment of M/s. KFin Technologies Pvt. Ltd. (‘KFin Technologies’) for providing e-voting platform services - This argument does not impress us and cannot be a ground to reject the results. KFin Technologies, it has been pointed out, has been providing e-voting platform services to listed public limited companies ever since the Ministry of Corporate Affairs mandated them to secure approval of the resolutions by the shareholders through electronic voting. The e-voting platform of KFin Technologies is certified by the Ministry of Corporate Affairs approved certification agency, viz. STQC Website Quality Certification Services. KFin Technologies has conducted more than 4,500 e-voting events since 2013. To reject the voting results on this rather specious submission would cast doubts with serious repercussions on e-voting results of several reputed companies. The objectors are unable to point out even a single instance where KFin Technologies has been indicted. In the present case, the e-voting exercise was also supervised by a team of technical experts, including Mr. M. Krishna and Mr. Ch E. Sai Prasad, Assistant Directors, CFSL, Hyderabad.
Contention of the trustees that they were required to justify and explain the reasons for winding up of the six schemes and hence the notice was worded in this manner - The notice had also informed the investors that there would be suspension of subscription and redemption post the cut-off time from 23rd April, 2020. All Systematic Investment Plans, Systematic Transfer Plans and Systematic Withdrawal Plans into and from the abovementioned funds stood cancelled post the cut off time from 23rd April, 2020. The notice had also furnished information and clarification regarding distribution of monies from the Fund Assets, inter alia stating that following the decision to wind up the six schemes, the trustees would proceed for orderly realization and liquidation of the underlying assets with the objective of preserving value for unitholders. Their endeavour would be to liquidate the portfolio holdings at the earliest opportunity, to enable an equitable exit for all investors in the ‘unprecedented circumstances’. We do not think, in the facts of the present case, the notice for e-voting and the contents would justify annulling the consent given by the unitholders for the winding up of the six schemes.
The present case, we do not think the procedure prescribed by Regulation 41 is required to be followed as the trustees themselves have stated that the process of winding up, which would include liquidation of the securities and distribution/payment to the unitholders, should be undertaken by a third party. The objectors had also made similar submissions. Accordingly, with the consent of the parties, we have appointed M/s. SBI Funds Management Private Limited to undertake the exercise of winding up, which would include liquidation of the holdings/assets/portfolio and distribution/payment to the unitholders.
We hold that for the purpose of clause (c) to Regulation 18(15), consent of the unitholders would mean consent by majority of the unitholders who have participated in the poll, and not consent of majority of all the unitholders of the scheme. In view of the findings and reasons stated above, we reject the objections to poll results and hold that the unitholders of the six schemes have given their consent by majority to windup the six schemes. Winding up and disbursements would be in terms of our directions in earlier orders dated 2nd February, 2021 and 9th February, 2021.
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2021 (2) TMI 570
Winding up proceedings of Mutual fund scheme - objections to the e-voting results - HELD THAT:- As learned senior counsel appearing for some of the objectors, who prays for some time to place on record the new facts, which have come to their knowledge today, by way of an application. She is permitted to file an application within three days.
Response/reply thereto, if any, could be filed within three days thereafter.
List on 01.02.2021 at 2:00 p.m. - on the said date we would first examine the objections to the e-voting results and the issue/question whether or not disbursal/payment to the unit holders should be made. Interpretation of the Regulations and other aspects would be be examined and decided thereafter.
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2021 (2) TMI 569
Winding up proceedings of Mutual fund scheme - objections to the e-voting results - HELD THAT:- E-voting results have been recorded in paragraph 36 of the said report and have been read out. The Registry would scan the report of the observer and make e-copy available to the counsel for the parties, including Advocates on Record who have filed application for intervention/impalement.
Objections, if any, to the observer’s report/e-voting/result would be filed within three days.
Response/reply of the same could be filed within three days hereinafter.
On the next date of hearing, we would decide on the objections, if any; further procedure to be followed, and whether procedure under Regulation 41(1) in the facts of the present case is mandated.
List the matters on 25.01.2021 at 2:00 p.m.
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2021 (1) TMI 1174
Delay of 5 years or more in initiating action by the SEBI - SEBI proceedings for companies act violations - Non-payment of dividends - Show-cause notice to the Company and its Directors calling upon the noticees as to why action under Section 11 and 11B of the SEBI Act, 1992 should not be initiated for violation of Section 205(1A) of the Companies Act, 1956 - HELD THAT:- In the case on hand, complaints with regard to non-payment of dividends were registered between 2010 and 2012. Annexure-D is the screen shot of the case status. It shows that SEBI has closed the complaints between 2013 and 2014. The show-cause notice is issued in October 20, 2016. No further action is taken till issuance of communication as per Annexure-B in 2019, calling upon the petitioner to remain present during the hearing.
A perusal of the orders passed by Securities Appellate Tribunal shows that the said Tribunal has consistently held delay of five years and more in initiating action by the SEBI as unsustainable - even if petitioner is relegated to SEBI to attend the hearing as contemplated in communication Annexure-B and if petitioner were to suffer any adverse order, he can challenge the same before the Appellate Tribunal - Tribunal has decided the matter only on the point of delay without going into the merits. In this case, reckoned from the date of complaints, the delay is about four to six years in issuing the show-cause notice and seven to nine years in holding the hearing.
In this case, no useful purpose would be served in relegating the petitioner to the SEBI. Hence, this petition merits consideration and it is accordingly allowed.
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2021 (1) TMI 995
Levy of penalty for Non disclosures as required under the LODR Regulations - appellant had issued non-convertible debenture securities - CIRP proceedings were ongoing - penalty imposed for violating Regulations 52(4) and 54(2) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ( 'LODR Regulations, 2015' - whether the impugned order imposing penalty upon the appellant for alleged contravention during the period prior to the approval of the resolution plan could be passed by the adjudicating officer? - HELD THAT:- In clear terms of the resolution plan, the show cause notice could not be issued to the appellant for the alleged contravention relating to the period prior to the acquisition and, consequently, the impugned order could not be passed against the appellant.
What could not done by SEBI when the moratorium under section 14(1) of the IBC was in force cannot certainly be done after a resolution plan is approved and becomes binding on all creditors including government and local authority under section 31 of the IBC.
We are of the opinion that once a resolution plan has been approved it becomes binding on all creditors including the government and local authorities including the respondent under section 31(1) of the IBC. It is no longer open to the respondent to issue a show cause notice or adjudicate and pass an order of penalty upon the appellant. Consequently, the impugned order cannot be sustained and is quashed. The appeal is accordingly allowed with no order as to costs.
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2021 (1) TMI 982
Violator indulging in serous act of misusing client's securities - appellant was expelled from the membership of the respondent exchange and also declared as a defaulter - HELD THAT:- All the violations are admitted by him. No reply was submitted to the show cause notice issued regaring violation noted in the inspection for the year 2017-18. Considering the request of the appellant that he wanted to surrender his license afer redressing the complaints the investors, the Committee of respondent no. 1 time and again granted him time in hearing of the proceedings.Ultimately finding that the complaints were not resolved completely the impugned order was passed.
As seen that after declaration of the appellant as a defaulter more complaints of the investors are pouring in with the respondent nos.1 and 2. The appellant was earlier penalized for similar violations for the financial years 2015-16, 2016-17 and 2017-18. In the circumstances in our considered view the appellant is a continuous violator much less a repeat violator. Besides respondent no 1 had already granted more than sufficient opportunity to redress the complaints of the investors, as it pleaded that it wanted to surrender the license. Therefore in our view this is not a fit case for interference in the impugned order. Hence the appeal is hereby dismissed.
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2021 (1) TMI 761
Fraud by the company - Liability of directors - Concealing and suppressing the material facts as in violation of the provisions of Section 12A of SEBI Act - Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - WTM directing the company to take steps for refund of the money from Banco and also debarred the appellant from accessing the securities market for a period of 5 years - HELD THAT:- The submissions so made are beyond the pleadings and cannot be taken into consideration. The respondent cannot be allowed to better their case and rely upon such documents which are not part of the record. There is no finding that the appellant, being a director for more than 10 years, was deemed to be involved in the day-to-day affairs and management of the Company nor there is any finding that the appellant was chairman of various committees and therefore deemed to be involved in the day-to-day affairs of the Company. There is no finding that the credit agreement and the charge account agreement were in the knowledge of the appellant. On the other hand, it is the consistent case of the appellant that he was a practicing chartered accountant and a non-executive independent director and was only involved in policy decisions. These facts have not been disputed nor controvert by any documentary evidence before the WTM.
Reliance of section 27 of the SEBI Act is patently erroneous. Section 27 is not applicable if the offence is committed without the knowledge of the incumbent. We have already held that there is no finding given by the WTM that the appellant was involved in the day-to-day affairs and management of the Company. On the other hand, a specific case was stated by the appellant that the fraud was committed by the mastermind, namelyly, the chairman, managing director and the authorized signatory/director Mr. Rajinder Singh Negi and that he had no knowledge of the violation committed by the masterminds of the PFUTP Regulations. This fact has not been denied by the respondent. In our view Section 27 of the SEBI Act has no application. The impugned order insofar as it relates to the appellant cannot be sustained and is quashed.
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2021 (1) TMI 390
Violation of Equity Listing Agreement clauses - whether the information relating to signing of a Binding Implementation Agreement ('Binding Agreement' for short) by an Authorized Executive Director of the appellant with the dominant Shareholders of the Bank of Rajasthan was liable to be disclosed on an immediate basis under clause 36 of the Listing Agreement and Regulation 12(2) of the PIT Regulations, 1992? - Penalty imposed of ₹ 5 lakh each on the appellant - contentions of the appellant on the inordinate delay in issuing the show cause notice and in passing the impugned order by respondent SEBI - HELD THAT:- The signed Binding Agreement in question was price sensitive and admittedly material to the performance of the appellant and needed to be disclosed on an immediate basis which was not done.
On the basis of interpretation given in the impugned order itself the finding that signing of the Binding Agreement was a material and price sensitive information and hence there was a delay of a trading day in making the disclosure to the Stock Exchanges cannot be faulted. It was a PSI is also clear from the fact that the investigation revealed insider trading by entities connected with the dominant Shareholders in the shares of Bank of Rajasthan on the day of the Binding Agreement. Submission that insider trading did not happen in the shares of the Appellant does not dilute the issue since it is the same Binding Agreement which triggered the alleged violation of insider trading. Therefore, the appeal fails on merit.
We agree with the contentions of the learned Senior Counsel for the appellant on the inordinate delay in issuing the show cause notice and in passing the impugned order by respondent SEBI.
After all the charge against the appellant is one trading day's delay in disclosure, but the delay on the part of SEBI to show cause is 2955 days from the date of the event and about 2130 days from the date of the preliminary investigation report, which is too wide a gap to be ignored. Several years' delay in show-causing and concluding proceedings in such known incidence of violation/alleged violations is a failure in effectively performing the behavior modification function of a market regulator.
Laches is a mixed question of fact and law. The facts in the instant case indicate delay in issuing the show cause notice. However, the plea of laches though not raised before the AO was specifically raised in the appeal before this Tribunal. We however, find that undue delay in initiating the proceedings by the respondent by itself causes prejudice and would ultimately attach a stigma pursuant to any adverse order that may be passed.
Thus, in the instant case, though there are laches, that by itself in the peculiar circumstances of the case, will not vitiate the proceedings but definitely the penalty amount of ₹ 10 lakh imposed on the appellant cannot be sustained and deserves to be substituted by a lesser penalty.
In the result, while upholding the impugned order on merits, we modify the penalty imposed on the appellant to only a warning which will meet the ends of justice in the given facts and circumstances of the matter. Appeal is thereby partly allowed.
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2021 (1) TMI 219
Determination of the ownership of the securities - As stressed that the appellant is holding securities worth more than ₹ 90 crores given by Respondent No. 2 and the impugned direction is relating to only securities worth ₹ 34 crores - HELD THAT:- After perusing certain documents placed before us, without going into the detailed legalities and merit of the matter, we pass the following interim directions:-
(a) The parties shall appear before NSE, either physically or through Video Conference, on June 24, 2020. NSE shall give the contact details and arrangements for the said meeting to the parties at least one day in advance.
(b) Based on the database of NSE and other parties rights in respect of the securities in question shall be reconciled/determined within one week thereafter.
(c) This Tribunal will hear the matter further on Friday, July 03, 2020. In the interim status quo shall be maintained by the parties i.e. there shall be no transfer of securities as directed in the impugned orders nor the appellant shall alienate any of the securities in question.
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2021 (1) TMI 188
Whole Time Member restraining the appellant from accessing the securities market - securities of the appellant in its demat account has also been frozen for the same period - appellant is a trader and investor in the capital market - HELD THAT:- Appellant had only executed one trade out of 983 trades, we are of the opinion that the penalty of debarring the appellant for six months is wholly unwarranted and cannot be sustained.
Finding that 13 entities were acting as a homogenous group and were connected to each other and had executed the trades in a premeditated manner with a sole purpose of manipulating the price is not applicable in so far as the appellant is concerned. The finding that other notices were taking turns on different trading days with a premeditated motive to raise the LTP of the scrip is not applicable in the appellant's case as he had only executed one trade whereas the other 13 entities were executing several trades on various days in a premeditated manner. Thus, clubbing the single trade of the appellant with the trades executed by other 13 noticees on the ground that he is connected to them is per se erroneous and baseless.
No finding to the effect that the appellant was trading either on the buy side or on the sell side with the other noticees. Thus, having common email or address with some of them is redundant in the absence of any trades being executed between them.
There is no finding that the appellant had any connection with the buyer, namely, Gajpal. In the absence of any connection, no collusion could be proved with regard to price manipulation or artificially increasing the price or its volume.
Appellant has not contributed to the LTP on the basis on one trade executed on the sell side unless connection was established with the buyer which in the instance case is lacking. We find that no proceedings have been initiated against the buyer who had placed orders above the LTP and was thus responsible in the increase in the price of the scrip. Thus, we are of the opinion that the appellant has not indulged in fraudulent or unfair trade practices in securities. In the absence of any connection being found between the buyer and the seller and between the appellant and other entities the finding of a trading pattern being premeditated to manipulate the price is patently erroneous. The impugned order cannot be sustained and is quashed in so far as it relates to the appellant.
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2020 (12) TMI 1383
Offence under SEBI - imposition of disgorgement - appellants are prohibited from dealing in equity derivatives in F&O segment of Stock Exchanges - Appellant no. 1 shall disgorge an amount of Rs 447.27 Crs alongwith interest @12% p.a. w.e.f. 29.11.2017 onwards till the date of payment - HELD THAT:- Securities Appellate Tribunal has recoded a split verdict, with a dissent by its Chairperson. Having regard to the issues raised, we admit the appeal against the order of the Securities Appellate Tribunal dated 5 November 2020.
Insofar as the interim relief is concerned, the appellants have complied with the order for debarment from dealing in equity derivatives for one year, imposed by the Whole Time Member of SEBI. The appellants have been directed to make payment of the disgorged amount of Rs 447.27 crores along with simple interest at the rate of 12% per annum with effect from 29 November 2007 till payment.
As and by way of interim relief, we order and direct that the appellants shall, within a period of four weeks from today, deposit an amount of Rs 250 crores in the Investors’ Protection Fund in compliance with the order of the Whole Time Member, subject to the final result of the appeal. There shall be a stay on the recovery of the balance, inclusive of interest, pending the appeal.
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2020 (12) TMI 1219
Fraudulent IPO proceedings - certain applicants of the IPO were funded by the entities connected with the Company itself and subsequently, the IPO proceeds were not utilized towards the objects of raising funds and instead were allegedly transferred to a few of the entities who had funded the applicants of the IPO - Underwriting Agreement to subscribe unsubscribed portion of the IPO - ex-parte ad interim order issued - Whether the Noticee nos. 4 to 11 are connected and whether the Company through its connected entities/Noticees has funded the subscription of its IPO? - HELD THAT:- A careful consideration of clauses of the Underwriting Agreement reveals that the obligation of the underwriter was limited/restricted to only those IPO applications that was to be procured by it only in case of default of payment by an applicant after allotment of shares or in case of withdrawal of such applications by applicants (to whom allocation of equity shares has been made) just prior to allotment of shares to those applicants - no other clause in the aforesaid agreement that can be shown to have imposed a contractual obligation on the underwriter to subscribe to the entire unsubscribed portion of the IPO so as to cross the minimum threshold of 90% subscriptions of total quantity of shares offered in the IPO. Thus, the said Underwriting Agreement which is being peddled by the Company as a strong defense shield to ward off the charges of funding of IPO subscription by the Company, is actually of no help to the Company given the facts and circumstances of the present case.
In absence of such a financial backing, the only consequence would have been the failure of the IPO thereby compelling the Company to refund all the application amounts so collected from the applicants. Therefore, the argument of the Company projecting its Underwriting Agreement as an answer to the allegations of funding subscription to its own IPO does not hold ground at all hence, is liable to be rejected as not maintainable on the face of the aforesaid factual evidence and observations made in preceding paragraphs.
Particularly the details of the financial transactions highlighted above, the evasive replies of the Company and its Directors and complete absence of any explanation from the other Noticees , we are persuaded to hold that the Company, its Directors and the rest of the Noticees have successfully implemented a fraudulent scheme to achieve sufficient number of applications by way of funding the applicants, with the sole motive to get the listing of its equity shares on SME segment of BSE. Thus, as far as the first issue is concerned, the same has to be answered affirmatively against the Noticees and in favour of the allegations levelled in the SCN.
Diversion of IPO proceeds in deviation from the Objects of the IPO - Whether the proceeds of IPO have been utilized by the Company in terms of the Objects stated in the Prospectus? - Considering the overall conduct of the Noticee no. 1, I find it beyond acceptance that the Company and its Directors (Noticee nos. 1 to 3) are not in a position to explain the details of transfer of INR 15.65 Crore, when it was disclosed to the investors in the IPO documents that the IPO proceeds would be utilized for the stated Objects of the Issue.
Consediring facts and the circumstances and the manner and timing of transfer of funds made immediately after the IPO, I am constrained to observe that the amount of INR 10.59 Crore which was immediately diverted from the IPO proceeds to various entities belonging to the funding group entities represent nothing but reimbursement of the funds that were provided by the funding group entities (Noticee nos. 4 to 11) so as to make the IPO of the Company successful by helping it cross the statutory ceiling of 90% of total subscription amounts.
Company, in connivance with the funding group Noticees at the first stage, financially supported the applications of the 161 IPO applicants who were allotted 13,24,000 shares. Subsequently, out of INR 15.97 Crore received under the IPO, the Company siphoned off INR 15.60 Crore (approx.) by transferring the same to various entities out of which, INR 10.59 Crore (approx.) was transferred to the funding group Noticees. By acting in tandem and in concert to fructify their scheme, all the Noticees in this proceedings have been able to make the IPO of HPC successful by way of funding the IPO applications to the extent of 29.03% of the total shares subscribed under the IPO in the absence of which, the IPO would have been hit by non-achievement of the mandatory 90% of shares offered in the IPO and resultantly the scrip of Company would have failed to reach the listing platform of the stock exchange.
The feeble attempt to produce certain self made documents to project utilization of IPO proceeds is nothing but an eyewash that the Company has attempted to make. Thus, the claimed grievance of not having provided adequate opportunities does not exist anymore in the present case as the Company and its Directors have provided whatever explanation and documentary proofs they intended to file out of their own volition, which have been duly considered by me and the findings on such explanations have already been recorded in this order. Under the circumstances, the unassailable fact remains that despite providing adequate opportunities, and in spite of furnishing various explanations and documents, the Noticees including the Company have not been able to produce any tangible material or evidence so as to justify the transfer of huge sums of IPO proceeds to different entities, in gross violation of the stated Objects of the IPO.
Transfer of funds immediately after the IPO coupled with the evasive and unsubstantiated explanations offered by the Company with respect to claimed utilization of IPO proceeds, further explain the reasons as to why the Company had not actually utilized the IPO proceeds towards the Objects of its IPO. In reality, the specious claims of utilization of the IPO proceeds remained far away from the actual utilization in terms of the stated Objects, resulting in the un-fulfillment of the promises made to the shareholders by way of the Prospectus.
Noticees in this case have crafted the scheme with intricacies and in such a manner that the degree of proof to expose their fraudulent acts would be of preponderance of probabilities which, as held by me earlier are clearly tilted against the Noticees.
In exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(4) and 11B thereof, pass the following directions:
i. Noticee nos. 2 and 3 (promoters of the Company) are directed to make a public offer through a merchant banker to acquire shares of the Company from public shareholders by paying them the value determined by the valuer in the manner prescribed in Regulation 23 of the SEBI (Delisting of Equity Shares) Regulations, 2009 and acquire the shares offered in response to the public offer, within three months from the date of this Order
ii. BSE to facilitate valuation of shares to be purchased as directed at (i) above, and compulsorily delist the Company, if the public shareholding reduces below the minimum level in view of aforesaid purchase.
iii. The Noticee no. 1 is hereby restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years.
iv. Noticee no. 2 and 3 are hereby restrained from holding post of director, any managerial position or associating themselves in any capacity with any listed public company and with any public company which intends to raise money from the public, or with any intermediary registered with SEBI for a period of 3 years.
v. The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns: Sr. No. Name of Entity Debarred vide interim order Period of debarment.
vi. Obligation of the debarred Noticees, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order in respect of pending transactions, if any. Further, all open positions, if any, of the aforesaid debarred Noticees in the F & O segment of the stock exchange, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order.
vii. It is further clarified that during the period of the aforesaid restraint, the existing holding of securities, including the units of mutual funds shall remain under freeze.
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2020 (12) TMI 1209
Winding up proceedings of Mutual fund scheme - objections to the e-voting results - HELD THAT:- The Registry shall also list all connected/cross special leave petitions filed by the Security and Exchange Board of India and other respondents.
In the meanwhile, without prejudice to the rights and contentions of all parties, the trustees are permitted to call meeting of unit holders to seek their consent/approval. Steps in this regard be taken within a period of one week from today.
For the time being, there will be stay of redemption payment to the unit holders.
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2020 (12) TMI 1208
Winding up proceedings of Mutual fund scheme - objections to the e-voting results - HELD THAT:- Permission to file special leave petitions is granted
Issue notice.Counter affidavit/reply be filed by the non-applicants/respondents within seven days.
Rejoinder affidavit, if any, be filed within seven days thereafter.
Service upon the unrepresented respondents is permitted through all modes including e-mails.
An apprehension is expressed on behalf of the SEBI that the last order recording that without prejudice to the rights and contentions of all parties, the trustees are permitted to call meeting of unit holders to seek their consent/approval could be misread and treated as a precedent. This it is stated would create difficulties.
We clarify that order [2020 (12) TMI 1209 - SUPREME COURT] has been passed in the peculiar facts and circumstances ofthe case and to expedite the hearing and decision in the present special leave petitions. The same should not be treated as a precedent in any other matter.
SEBI shall appoint an observer regarding the e-voting of unit holders which is scheduled between 26th December to 29th December, 2020. The result of the e-voting would not be announced and would be produced before us in a sealed cover along with the report of the observer appointed by the SEBI. SEBI would also file a copy of the final Forensic Audit Report before this Court in a sealed cover.
It is made clear that the trustees are undertaking the exercise of e-voting and SEBI in terms of our directions is appointing an observer.
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2020 (12) TMI 157
Violation of provision of SEBI Act v/s IPC - Bail application - offence punishable under other Act such as IPC - Whether amount taken from the clients was 'deposit' or fees - invoking the principles of M.P. Nikshepakon Ke Hiton Ka Sanrakshan Adhiniyam, 2000 - HELD THAT:- Section 26 of SEBI Act only prohibits cognizance of offence which is punishable under SEBI Act, but does not prevent cognizance in respect of offence punishable under other Act such as IPC. It is true that the police has come to know about the complainants after communicating with SEBI and after obtaining particulars from the same agency and in the FIR the names of the complainants have been given, but under Section 154 of Cr.P.C, it is not imperative that the aggrieved person is only authorized to lodge FIR.
FIR has been lodged by SHO on the directions of ASP who after obtaining relevant information from SEBI regarding duped customers has directed the SHO to lodge FIR. The FIR contains the names of customers. After lodging of FIR, statements of such complainants have been recorded which reflect offences as laid down in the FIR and which are cognizable in nature. Thus, it is not that there is violation of provision of SEBI Act only, but provisions of IPC are also prima facie attracted for investigation of which police is the only appropriate authority. Investigation by police is not excluded in view of Section 32 of SEBI Act.
For invoking the principles of M.P. Nikshepakon Ke Hiton Ka Sanrakshan Adhiniyam, 2000, it should be shown that the amount which has been taken by the company from its client was in the form of deposit.
There is substance in the prosecution case that the aforesaid company, was though on papers was an advisory company rendering advice to consumers on payment of fees, was in fact involved in receiving money from investors and such money could not be termed as fees but was more in the nature of 'deposit' - such advisory companies registered with SEBI have mushroomed in various parts of the country. However, instead of doing their business by charging fees, are involved in taking lump sum amounts from their clients, assuring them with the promise of huge returns, but are indulging in malpractices resulting in huge loss to investors.
On papers such company appears to be properly constituted, showing to be acting as per their given ambit and scope of business, but in reality the consumers are given a raw deal. It is also found that the whole operation is run by persons who are not qualified as per set out norms. The applicant in the present case, although an employee of Flanking Research Investment Company is an E-Commerce Company, was looking after the complete operations at Indore and was also involved in recruiting ill equipped employees who were as many as 114 in numbers. Such firms/companies, are not only causing immense hardship to the citizens, but also causing loss to the Government and Financial and Banking Institutions in a big way. The activities of such advisory firms have to be dealt with an iron hand. Further, Tarun Chandani, the main owner of this company is still absconding - no case is made out for grant of bail to the applicant. The same stands rejected.
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