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SEBI - Case Laws
Showing 201 to 220 of 650 Records
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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 1523
Price manipulation in the scrip - Order passed by the Whole Time Member directing the appellants to disgorge an amount towards wrongful gains alongwith interest at the rate of 12% per annum till the date of payment and further directing that the interest for the period 30th June, 2016 till the date of the impugned order dated 30th September, 2019 - several corporate announcements were made with a view to increase the price of the scrip of the Company so that the promoter and promoter group entities could reduce their holding at a profitable price
HELD THAT:- The contention that there was a clear direction in the earlier order of the Tribunal to calculate the acquisition price from the date when PK started selling the shares is wholly misconceived. The Tribunal in paragraph 16 of its order dated 30th June, 2016 had only made an observation and not a direction.
The contention that no interest is payable with effect from 12th March, 2007 and that only interest, if any payable after 45 days from the date of the order dated 30th September, 2019 appears to be attractive but said contention cannot be sustained.
In view of this decision of the Supreme Court in Dushyant Dalal [2017 (10) TMI 149 - SUPREME COURT] the contention of the appellant cannot be sustained.
For the reasons stated aforesaid the appeal is partly allowed. The WTM is directed to calculate the disgorgement amount taking the acquisition price as Rs.5.34/- per share as on 3rd October, 2006 and the sale price at Rs.18.98/- per share. The calculation shall be made by the WTM within four weeks from today alongwith interest.
We find that by an interim order of this Tribunal dated 25th October, 2019 the appellant was directed to deposit a sum of Rs.2 crore which has been deposited. The said amount shall be adjusted and the balance amount so calculated and intimated to the appellant shall be deposited within four weeks thereafter. Misc. application is disposed of accordingly.
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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 1219
Dismissal of appeal for want of prosecution due to the appellant's counsel repeatedly seeking adjournments - HELD THAT:- We had directed that the matter should be taken peremptorily today as the counsel was seeking unnecessary adjournments. Today again a request has been made for an adjournment. The request is rejected. The learned counsel for the appellant does not want to argue the matter today. In view of the aforesaid, the appeal is dismissed for want of prosecution.
The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.
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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 1463
Violations of the SEBI laws - violation of 1993 circular - Appellant had misused client funds for a debit balance of other clients during the relevant period - AO concluded that as the accounts were not settled for a long gap after almost four quarters, the violation had occurred - HELD THAT:- The order cannot be faulted with. The earlier circular had clearly stated that the funds of the client cannot be applied for any other purposes. The appellant's case was that the funds were applied by it for the dues for their associates, group company, etc. Now, during the arguments only, the issue of non- existence of formula in the previous circular is brought up. In fact, the said formulization is nothing but the crystallization of the earlier circular.
There is no merit in the appeal. The appeal is, therefore, dismissed.
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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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2021 (10) TMI 818
Simulatnaous Adjudication proceedings and criminal Prosecution - exoneration in adjudication proceedings is on technical ground and not on merit - Applicants have been exonerated in the adjudication proceedings on the allegations for which, they have been prosecuted by the SEBI - HELD THAT:- In the case of K.C. Builders (2004 (1) TMI 7 - SUPREME COURT)the Hon’ble Apex Court had taken a view that when there is categorical finding in the adjudication proceedings exonerating the person, it is binding and conclusive and thus, the Prosecution cannot be allowed to stand.
In case in hand, the Applicants have been exonerated in the adjudication proceedings on merits and not on technical ground, and therefore the Prosecution for identical violation shall continue, if the order passed by Securities Appellate Tribunal is quashed and set aside by the Hon’ble Supreme Court in Civil Appeal, preferred by the SEBI against the decision of Securities Appellate Tribunal, Mumbai. [2008 (10) TMI 628 - SECURITIES APPELLATE TRIBUNAL MUMBAI] Thus, for the reasons stated above, the proceedings in the complaint pending on the file of Additional Chief Metropolitan Magistrate, 9th Court, Bandra, Mumbai, against the Applicants, shall remain stayed till the decision of the Hon’ble Apex Court in the Civil Appeal ’s instituted by the SEBI against the decision of the Securities Appellate Tribunal [2008 (10) TMI 628 - SECURITIES APPELLATE TRIBUNAL MUMBAI]
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2021 (9) TMI 1524
Offence under SEBI Act - synchronized trading, reversal trading and self-trading - appellants made unlawful gains - trading noticees received funds from the financing notices which were directly transferred to the stock brokers against the pay in obligation of the trading noticees - WTM directed the appellants to pay the said amount jointly and severally alongwith interest at the rate of 12% per annum.
HELD THAT:- Any person who has made profits or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act or Regulations made thereunder would be liable to disgorge an amount equivalent to the unlawful gain or loss averted by such contravention.
Thus, disgorgement can only happen if the person contravenes the provisions of the Act or Regulations. Secondly, the disgorgement is equivalent to the wrongful gain made or loss averted. Thus, disgorgement cannot exceed the amount of wrongful gains.The concept of disgorgement under the SEBI laws is based on the principle that a person in possession of wrongful gains by which he is enriched may be asked to part with the amount equivalent to such gains alongwith interest.
Black’s Law Dictionary defines disgorgement as “The act of giving up something (such as profits illegally obtained) on demand or by legal compulsion.” To disgorge means to deprive a person of the value by which he is unjustly enriched. Further, disgorgement is an equitable remedy designed to deprive a wrong doer of his unjust enrichment. It aims in ensuring that a person in possession of the wrongful gain does not continue to enjoy them. Section 11B of the Act only talks about disgorgement of unlawful gains/profits. The concept of “net profits” is not existing in Section 11B but the same has been carved out by Courts exercising equitable jurisdiction. Some Courts have granted only deduction of statutory dues, others have granted other legitimate expenses.
Disgorgement in our opinion is an equitable remedy under Section 11B of the Act meant to prevent the wrongdoers from enriching himself by his wrong by wresting ill-gotten gains from the hands of the wrongdoer. The provisions relating to disgorgement is thus remedial in nature and is not punitive.
Thus, legitimate expenses can be deducted while arriving at net profit. The respondent in this case has only allowed statutory deductions expended as a deduction while arriving at the net profit but did not allow deduction of administrative expenses and brokerage incurred by the wrongdoer.
We are in agreement with the findings given by the WTM in this regard. In our opinion net profit from wrongdoing is the gain made by any business or investment, where both the receipts and payments are taken into account. We are further of the opinion that the appellant will not be allowed to diminish the show of profits by putting in unconscionable expenses or other inequitable deductions even though entire profits of a business may result from the wrongdoings of the appellants and therefore are not entitled for the deductions as prayed by them.
Section 37(1) of the Income Tax Act debars an assess claiming any deduction from business profits any expenditure which may be incurred for any purpose which is an offence or which is prohibited by law. The aforesaid principle equally applies to SEBI laws since disgorgement is not a penalty nor is punitive as held by this Tribunal in Gagan Rastogi vs. SEBI [2019 (10) TMI 1047 - SECURITIES APPELLATE TRIBUNAL, MUMBAI]
Administrative expenses and brokerage charges are in the nature of business expenses and are not legitimate expenses for the purpose of claiming deductions in order to arrive at the net profit. Disgorgement being an equitable remedy and even though the profits results from wrongdoings, the appellants were rightly denied administrative expenses and brokerage. For the reasons stated aforesaid all the appeals are devoid of merit and are dismissed.
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2021 (9) TMI 1519
Fraudulent GDR issue - Company did not make adequate disclosure under the Listing Agreement and that certain monies had also been diverted - WTM passed an order of debarment and the AO passed the order of imposition of penalty on directors - HELD THAT:- H.S. Anand [director] - Subsequent order of the AO finding the Director Anand guilty is patently erroneous and cannot be sustained. Once an AO comes to a conclusion that Mr. H.S. Anand had nothing to do with the day-to-day affairs of the Company and was only associated in providing technical expertise on product quality and was not involved in any financials of the Company it was no longer open to the AO to take a different view on another GDR issue when the facts and modus operandi were all common. We are of the opinion that the regulator should be consistent in its stand and should not take contradictory views on the same issue.
In view of the categorical finding that being a non-executive independent director, the said appellant was never involved in the day-today affairs of the Company nor was part of the decision making process relating to the GDR issue, the said appellant cannot be held guilty only on the basis of being a signatory to a resolution. In Prafull Anubhai Shah vs. SEBI, [2021 (6) TMI 1159 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] we have held that being a signatory to a resolution is not sufficient to point fingers of committing a fraud. Thus, the order of the AO imposing a penalty upon Mr. H.S. Anand and the order of the WTM debarring him for one year cannot be sustained.
Non-executive independent director [Mr. I.S. Sukhija] the application of the respondent seeking permission to bring on record the additional documents cannot be allowed as it does not come within the parameters of the grounds given in Order 41 Rule 27 of the Code of Civil Procedure. Nothing has been stated as to why these documents which are in the public domain could not be considered by the authorities while considering the matter.
Nothing has been brought on record to indicate as to why such documents which was within their knowledge could not be brought on record. In any case, reliance upon these documents are misplaced. Merely because Mr. I.S. Sukhija was the Chairman of the Audit Committee does not mean that he was party to the fraudulent scheme, if any. The observations made by the authorities in the impugned orders that he should have raised questions as to why the GDR proceeds was not brought into the Company’s account or why the loan was given to the Vintage from the GDR proceeds are not matters which comes under the purview of the audit committee.
In any case, we find that there was no need to raise such questions as the loan in one case was paid immediately and in the other case was paid within a couple of months. Further, the evidence which has come on record indicates that the GDR proceeds were utilized for the purpose for which the resolution for issuance of the GDR was passed. Thus, the finding of the authorities that a fraud has committed by the Company is patently erroneous.
When the proceeds have come into the Company and have been utilized for the purpose of setting up a subsidiary in UAE the funds have been utilized for the purpose for which the GDR was issued. Thus, in our view merely because the appellant Mr. I.S. Sukhija was part of the resolution which approved the issuance of the GDR and opening of a bank account with Euram Bank does not lead to a conclusion that the appellant was part of the scheme of the alleged fraud which in any case was not in existence. Thus, imposition of penalty by the AO and debarment by the WTM was wholly erroneous on this appellant.
Managing Director of the Company [Mr. Gurmeet Singh] violation is nondisclosure of the Loan Agreement and the Pledge Agreement under the Listing Agreement for which penalty was rightly imposed upon the Managing Director - quantum imposed is wholly excessive and does not commensurate with the misconduct. There is nothing on record to indicate that any shareholder or investors have suffered any loss on account of conversion of GDR into equity shares which was sold in the Indian market. Thus, we are of the opinion that for non-disclosure of the Loan Agreement and the Pledge Agreement to the Stock Exchange under the Listing Agreement the penalty of Rs. 20 lakh in each GDR issue would be just and proper in the circumstances of the case and the debarment against Mr. Gurmeet Singh is upheld.
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2021 (9) TMI 1518
Fraudulent and Unfair Trade Practices relating to Securities Market - issuance of the GDRs - inadequate disclosures to the investors - Investigation revealed that the Company made selective disclosure to Bombay Stock Exchange (BSE) and suppressed material information, namely, that Euram Bank was authorized to use the proceeds in connection with a loan and that the execution of the loan agreement and the pledge agreement was not disclosed - Penalty imposed - HELD THAT:- The company is now under liquidation. The loan taken by Vintage has been repaid to the company. US$ 8.3 million was transferred to the account of the company and US$ 6 million was transferred to its subsidiary in UAE as per the GDRs offering. Thus, a genuine GDRs issue was made by the company which was not fraudulent nor the proceeds of the GDRs has been diverted to a third entity. In fact, there is no specific allegation about the non-utilization of the GDRs in the show cause notice. Thus, there cannot be any violation of any fraud or inducement under Regulations 3 and 4 of the PFUTP Regulations.
AO while considering the factors under Section 15J of the SEBI Act found that there is nothing on record to show or indicate any disproportionality given or unfair advantages made by the appellants nor anything has come on record to show any loss suffered by the investors.
In view of this specific finding coupled with the fact that no fraudulent scheme was initiated by the company, we are of the opinion that the findings given by the WTM and the AO against the appellants Pradip Mundhra and Sanjay Taparia relating to the penalty is excessive and arbitrary and is required to be modified.
Appeals of Jaiprakash Kabra, Gopaldas Maheshwari and Rajesh Jhunjhunwala being covered by the decision of this Tribunal in Praful Shah [2021 (6) TMI 1159 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] the impugned orders of the AO in so far as it relates to these appellants are quashed. Their appeals are allowed with no order as to costs.
In so far as the appeals of Pradip Mundhra and Sanjay Taparia are concerned, they being on the helm of the affairs of the the company on a day to day basis, they are responsible for nondisclosure of vital information. However, the penalty imposed by the AO and the WTM are disproportionate and excessive, therefore, while affirming the findings of violation in so far as it relates to nondisclosure, the penalty of Rs. 50 lac imposed by the AO is reduced to Rs. 20 lac each and debarment of five years made by the WTM is reduced to two years and six months. The appeals of Pradip Mundhra and Sanjay Taparia are partly allowed.
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2021 (9) TMI 1504
Violation of Regulation 11(1) of the SAST Regulations - Non issue of open offer - inflated price of the shares - HELD THAT:- The impugned order of the learned WTM would show that he has gone through the terms and conditions of the ZOCD Agreement, and considered the plea of the respondent as to why ZOCD Agreement and SUA were required to be executed in view of the up linking guidelines of Ministry of Information and Broadcasting. The said guidelines required that at least 51% of the total equity share capital of such a media company was required to be held by largest Indian shareholders. All those terms are put in the order.
Upon going through the terms and conditions of ZOCD Agreement, the learned WTM found that Mr. Raghav Bahl continued to be in control of TV 18, NW18 etc. on behalf of the holding companies. IMT and RIL did not had any say in the management affairs of TV 18, NW18 under the said ZOCD Agreement. The underlying existing shareholding continued to be in the hands of Mr. Raghav Bahl and the holding entities. It was found that ZOCD Agreement did not carry any voting rights. The voting rights of Mr. Raghav Bahl entities were not stifled by the said agreement. Thus, there was not any effective change in control of NW18 as a result of the execution of the ZOCD Agreement.
CCI had observed that in view of the conversion option contained in ZOCD Agreement to receive equity shares of the target company, the said amounted to the indirect acquisition of shares of the target company. The learned WTM considered the same. ZOCDs were in the nature of convertible into equity shares at any time, and only upon conversion of the same IMT would have been able to hold more than 99.99% shares of the diluted equity of the promoter company of NW18 etc. This option however was not exercised at any time before making the public announcement, thus, the ZOCD Agreement itself did not entail into any indirect control of IMT or RIL in NW18 and, therefore, no disclosure was required to be made.
In our view, the reasoning of the learned WTM cannot be faulted with. The ZOCD Agreement was in the nature of investment by IMT in the holding companies of TV18, NW18. Said ZOCD Agreement had given right to IMT, the subscriber of the ZOCDs to convert ZOCDs into equity in a given period. The control of TV18 and NW18, continued with Mr. Raghav Bahl and his entities. IT had no say in the voting rights etc. and, therefore, the conclusion of the learned WTM cannot be faulted with.
While claiming cost from the appellants, the respondents blamed the appellants for indulging into speculative litigation - As detailed earlier, Mr. Dwarkadas even pointed out the observations of the Hon’ble Supreme Court of India in the earlier round of litigation made against the present appellants. We however find that in so far as the present round is concerned the appellants’ case was strengthened by the observation of the CCI as well as the, prima-facie, observation made by this Tribunal earlier. In the circumstances, we do not find that the present litigation is also a speculative litigation.
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