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SEBI - Case Laws
Showing 221 to 240 of 650 Records
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2021 (9) TMI 1426
Offence under SEBI - Appointment of adjudicating officer for holding inquiry - HELD THAT:- It is to be noted that, in the present proceedings, the Respondent issued Show Cause Notice to the Petitioner. Whatever documents can be provided to the Petitioner, the same were provided by the Respondent. Respondent, specifically informed to the Petitioner by their letter dated 24/03/2021 (Exhibit-H) that other documents cannot be provided because those were kept are confidential. Apart from that, the Petitioner already filed applications (Exhibit-P) and another interim application on the same day (Exhibit-Q) for directing the Respondent to provide the documents. These both applications are pending before the Authority.
It is to be noted that the Judgment relied by the Petitioner as stated hereinabove are not applicable in the facts of the present case because in the present case, the Respondent Board specifically informed the Petitioner by letter dated 23/03/2021 that certain documents are confidential and that cannot provided to the Petitioner. The hearing of the show cause notice as well as applications filed by the Petitioner for certain documents (Exhibit-P and Exhibit-Q) are pending before the Whole Time Member of the SEBI.
The letter of the Respondent dated 24/03/2021 and the statement made by the learned senior counsel for the Respondent stating that the they are not relying any other documents except those which are provided to the Petitioner, we do not find any substance in the present writ petition.
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2021 (9) TMI 1392
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 - Director guilty for violating Section 12A of the SEBI Act - scheme to defraud any shareholder or investor HELD THAT:- Appellate Tribunal was impressed by the view taken by it in another case decided around the same time viz., in the case of ‘Adi Cooper v. Securities and Exchange Board of India’ [2019 (11) TMI 1380 - SECURITIES APPELLATE TRIBUNAL, MUMBAI]
Placing reliance on the said decision, the Securities Appellate Tribunal allowed the appeal preferred by the respondent.
Be it noted, the decision of the Securities Appellate Trib[2019 (11) TMI 1380 - SECURITIES APPELLATE TRIBUNAL, MUMBAI]unal in the case of ‘Adi Cooper v. Securities and Exchange Board of India’ has been reversed by this Court in [2021 (9) TMI 1391 - SUPREME COURT] - As a result, it is not open to place reliance on the said decision.
Further, we have noticed that the SEBI in its order which has been set aside by the Securities Appellate Tribunal, had adverted to the specific role of the respondent as noticee No. 6. It is noticed that besides being party to the loosely worded resolution, which paved way to the company for resorting to fraudulent transaction, he had complete knowledge about the same. These aspects have not been squarely dealt with by the Securities Appellate Tribunal in the impugned judgment.
Taking any view of the matter, therefore, this appeal ought to succeed. The impugned judgment and order passed by the Appellate Tribunal is set aside. Instead, the parties are relegated before the Securities Appellate Tribunal for reconsideration of the appeal afresh.
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2021 (9) TMI 1391
Insider trading - whole-time director responsibility - direction issued by the SEBI restraining the respondent from accessing the securities market and further prohibiting him from buying, selling or otherwise dealing in securities, directly or indirectly for a period of two years from the date of the order - HELD THAT:- Although the respondent was party to the resolution, being a whole-time director and member of the Board of Directors of the Company, had only resolved that Company may open an account with the EURAM Bank for the purpose of deposit of GDR proceeds. The resolution does not stipulate that the proceeds would be used as security in connection with the loan taken by another entity. The latter part of this submission is not in consonance with the purport of the resolution passed by the Board on January 30, 2008.
Whereas, the SEBI had rightly noted that such resolution facilitated the transaction with Vintage and was a fraudulent transaction considering the fact that neither the arrangement nor the resolution was ever disclosed to the shareholders of the Company or the investors of the securities market through BSE. This aspect has not been reckoned by the Appellate Tribunal. This is a manifest error committed by the Appellate Tribunal.
We have no hesitation in taking the view that the Appellate Tribunal was unduly impressed by only one fact; but ought to have construed the resolution in the manner done by the SEBI and in particular, the inaction of the Board of not disclosing the arrangement to the shareholders or the investors of the securities market through BSE.
As a result, we set aside the impugned judgment and order and instead uphold the view taken by the SEBI vide its decision dated 28.02.2019.
As regards the debarment period specified in the said order, we accept the submission canvassed by the counsel for the respondent that the respondent having already undergone substantial part of the prohibition imposed by the SEBI vide order dated 28.02.2019, that period be treated as sufficient compliance of the final order passed by the SEBI.
Counsel for the appellant has left it to the Court to pass appropriate order on this submission.
Accordingly, we accept the submission made by the respondent and order that the prohibition imposed by the SEBI in terms of the order dated 28.02.2019 be treated as substantially complied by the respondent and nothing more needs to be done in that regard hereafter.
We are informed by the counsel for the respondent that there are other proceedings pending against the respondent, in which the respondent may be permitted to raise all permissible issues and contentions and those proceedings be decided in accordance with law. We have no difficulty in acceding to this submission. We order accordingly.
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2021 (9) TMI 1376
Fraud under SEBI Act - penalty imposed - as contended that the applicant/Dalmia has suffered because of the fraud committed by respondent no.1/IL & FS Securities Services Ltd as well as respondent no.4/Allied Services Pvt. Ltd. - HELD THAT:- Keeping in view the findings recorded by the SEBI about the degree of involvement of the applicant/Dalmia in the said transactions, as revealed in records before us, as well as the involvement of respondent no.4 and tentative findings of fraud by respondent no.4, and also keeping in view that by a separate order penalty has also been imposed on respondents no.1 and 4 by the SEBI (without there being any finding of fraud against respondent no.1), we modify the order dated 16.03.2021 to the following extent:
That instead of bank guarantee for a sum of ₹ 344.07 crore, which has been furnished by applicant/Dalmia in terms of our order dated 16.03.2021, the applicant/Dalmia shall now furnish a bank guarantee for a sum of ₹ 100 crores and further it shall furnish a security to the extent of ₹ 300 crores of an unencumbered asset, the value of which may be duly certified by the Chartered Accountant-cum-Valuer, who have no conflict of interest having regard to the parties involved and interest in the subject matter and may be any one of the following.
1. PricewaterhouseCoopers Private Limited
2. Ernst and Young
3. KPMG
The bank guarantee already furnished by the applicant/Dalmia to the extent of ₹ 344.07 crores shall stand discharged on the applicant/Dalmia fulfilling the above conditions to the satisfaction of the Trial Court. The applicant/Dalmia shall also file an affidavit before this Court to the extent that the asset, which is being furnished as security, is an unencumbered property.
It is clarified that any observations made in this order will not affect the merits of the case, when the appeals are heard on merits.
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2021 (9) TMI 1143
Recovery proceedings - Offence under SEBI Act - Denial of natural justice - whether the recovery notice is sustainable in law? - HELD THAT:- The order does not fix any particular liability to be discharged by the writ-applicants. If upon such order recovery is sought to be undertaken of an amount then it was expected of the concerned authority to at least issue a notice to the writ-applicants and give an opportunity of hearing before arriving at a particular figure.
The impugned recovery notice is hereby quashed and set aside. The matter is remitted to the respondent No.2. The respondent No.2 shall issue notice to the writ-applicants and fix a particular date so as to give an opportunity of hearing to the writ-applicants and thereafter determine a particular amount to be paid by the writ-applicants to the depositors in accordance with law.
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2021 (9) TMI 717
Compounding of offence under SEBI Act Rejected - guidelines for compounding under Section 24A - Whether accused/Company has wound up and refunded the entire amount collected under scheme to all their share holders/ creditors? - HELD THAT:- Indisputably, the learned Judge neither referred to wind up repayment report dated 22nd February, 2019, nor the orders passed by this Court in Company Petition; nor SEBIs’ circular dated 20th April, 2007, nor the Court obtained the views of SEBI before denying to compound the offence.
The order dated 28th August, 2019 below Exhibit – 11 in SEBI Special Case passed by learned SEBI Special Judge is quash and set aside. As a consequence, learned Judge shall decide the application below Exhibit-11, in accordance with guidelines of the Hon’ble Apex Court set out in the case of Prakash Gupta [2021 (7) TMI 971 - SUPREME COURT]
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2021 (9) TMI 310
Validity of appointment of Grant Thornton Bharat LLP (GTB) as a Forensic Auditor in respect of the financial statements of the respondent No.2/company - conflict of interest - violation of the principles of natural justice - absence of cause of action within the jurisdiction of this Court for maintaining the present petition - HELD THAT:- The “cause of action” is a bundle of facts which when taken together, with the law applicable to the said facts, gives a right to the plaintiff to seek relief against the defendant. In other words, cause of action is premised on the existence of a group of facts put together that would entitle a plaintiff to approach the court for a remedy against the defendant.
In UNION OF INDIA VERSUS ADANI EXPORTS LTD. [2001 (10) TMI 321 - SUPREME COURT], it was held by the Supreme Court that in order to confer jurisdiction on a High Court to entertain a writ petition, the averments in the writ petition must disclose that such integral facts have been pleaded in support of the cause of action that would empower a court to decide the dispute and it is not as if each and every fact pleaded in the petition would automatically lead to a conclusion that there would arise a cause of action within the territorial jurisdiction of a particular High Court, unless the facts are of such a nature that they would have a nexus or relevance with the lis involved in the case.
It is also not in dispute that the sale proceeds of the shares of SAIPL to TMPPL, i.e., a sum of ₹ 1000-1200 crores had been placed in an escrow account held in trust for the shareholders and the very same Transaction Committee was required to deliberate upon and evaluate the various options available for distribution of the monies to the shareholders - It has not been denied by the respondent No.2/company that during this entire period when a decision was taken to delist the company and give an exit option to the public shareholders by offering them a floor price of ₹ 63.77 ps per share, Mr. Anoop Krishna was closely connected not only to the management, but also to the aforesaid promoters of the respondent No.2/company.
We are unable to sustain the order dated 20.10.2020 passed by the respondent No.1/SEBI insofar as it has upheld the decision taken on 07.10.2020, of appointing GTB as a forensic auditor in respect of the financial affairs of the respondent No.2/company which is accordingly quashed and set aside - Petition allowed.
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2021 (8) TMI 1397
Violations of disclosure requirements in terms of SAST Regulations and SEBI ‘PIT Regulations 1992’ read with SEBI ‘PIT Regulations 2015’ - SEBI found irregularities in the scrip of the Company - off market transactions - Manner of creating pledge or hypothecation - appellant submitted that the transfer of the shares to the appellant later on would not amount to purchase of shares - HELD THAT:- As per Section 10 of the Depositories Act, 1996 a person in whose name the shares are recorded with the depository is deemed to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of a beneficial owner. Tribunal considered the provisions of Section 150 of the Companies Act which requires every company to keep a register of its members and enter therein their particulars of shares held by them, as referred to in the section. Further survey of various relevant provisions was taken.
Ultimately, it was held that the submissions that retransfer of the shares by the Bank to the appellant therein would not amount to acquisition of the shares cannot be accepted. It was held that such arguments would mean circumventing Takeover Code and Regulation 58 of the Depository Regulations, which cannot be permitted. It was further found that when the law prescribes course for creation of a pledge of shares, the parties cannot agree to create a pledge contrary to the SAST Regulations. Considering all these facts the contention of the appellants was negativated and the appeal against the order of the respondent SEBI was dismissed.
Taking into consideration all these factors and the law as crystallized, in our view, the submissions of the appellants cannot be accepted. It is an admitted fact that the shares were transferred to the concerned noticees. Thereafter the shares were again transferred in the demat accounts of the appellants in the similar fashion. Appellants have thus violated the provisions of the regulations detailed above. The order of the AO, therefore cannot be faulted.
As regards the issue of delay in launching the proceedings, we find that no plea is taken that the delay has caused any prejudice. Delay simpliciter, if any would not lead us to quash the proceedings initiated by SEBI.
As regards the quantum of penalty, the learned AO has imposed the penalty against the Appellants of Rs. 10 lakh under Section 15H of SEBI Act jointly and severally, under Section 23H of SCRA of Rs. 10 lakh each and Rs. 10 lakh only on the Appellant no. 1 under Section 15A(b) of the SEBI Act. Considering the fact that the violations were made on several occasions as detailed in the impugned order, we do not find any reason to interfere in the impugned order in this regard also.
The appeal is therefore dismissed.
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2021 (8) TMI 1314
Violation of the securities laws - Misstatement in the prospectus - IPO proceeds were diverted and misutlised by the Company - some amount of the IPO proceeds were disbursed to certain entities under the pretext of advances towards work contracts for IPO objectives, but in fact, no substantial work contracts were executed - Directors of the Company known as Birla Pacific Medspa Ltd. have been restrained from accessing the securities market directly or indirectly, in any manner and further prohibited 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 two years - HELD THAT:- Merely because the word ‘ICD’ was not mentioned in the interim use of funds in the prospectus does not become a case of misstatement in the prospectus nor does it become a deliberate part of larger design to come out with an IPO and, thereafter, funding the operations of its group company through ICDs thereby siphoning of the money from the genuine investors. In our opinion, the word ‘liquid instrument’ is wide enough to include ICDs
The finding that because the word ‘corporate’ was included in the resolution of the Board of Directors dated 11 July, 2011 indicates that the prospectus lacked material particulars is patently erroneous as we have held that liquid instruments includes ICDs and, therefore, there was no misstatement in the prospectus. Consequently, the prospectus did not lack material particulars. Further, the resolution of 11 July, 2011 was not in contradiction or in violation of the terms indicated in the prospectus but only clarified the deployment of the IPO proceeds on a temporary basis. Such clarification in our opinion was in consonance with the use of the word ‘liquid instruments’ given in the prospectus.
The offer document is required to contain all material disclosures to enable the investors/subscribers to take an informed decision and that such disclosure must be prompt, true and fair. In the instant case, the disclosures made in the prospectus were material disclosures which were true, fair and adequate. There is no finding of the WTM that the disclosures made in the prospectus were not true and fair or were inadequate. The use of the word ‘corporate’ in the resolution of the Board of Directors dated 11 July, 2011 does not make the prospectus untrue or inadequate. In our view, the resolution of the Board of Directors was in accordance with the disclosures made in the prospectus. The usage of the word ‘corporate’ in the resolution does not dilute the statement made in the prospectus. In fact, it only clarifies it. Thus, there is no breach of Regulation 57(1), 60(4)(a) and 60(7)(a) of ‘ICDR Regulations, 2009’ and Clause 2 (XVI) (B) (2) of Part A of Schedule VIII read with Regulation 57(2)(a) of ICDR Regulations, 2009.
The contention raised by appellant that they were denied inspection of documents in violation of the principles of natural justice or on the issue that the proceedings were initiated belatedly or on the issue that the appellants being Non-Executive Director/Non Independent Executive Director no liability could be fastened upon them as they had a limited role to play in affairs of the Company need not be gone into as we are satisfied that the appellants did not commit any breach of the ICDR Regulations nor made any misstatement in the prospectus.
The impugned order in so far as it relates to the appellants cannot be sustained and is quashed. All the appeals are allowed. In the circumstances of the case, parties shall bear their own costs. All the misc. applications are accordingly disposed of.
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2021 (8) TMI 1313
Petitioner seeking direction against respondent to produce all documents relied upon by them while issuing SCN including investigation report - Code of Conduct for regulation monitoring prevention of insider trading approved and followed by the Company - HELD THAT:- On the basis of the reply filed by the respondent when this Court declined to entertain the petition, the petitioner submitted that the petitioner may be permitted to withdraw the petition with liberty to put all these issues before the authority i.e. the person who is going to hear the show cause notice. Hence, the following order is passed.
Writ petition stands dismissed as withdrawn. All contentions of both parties are kept open. No order as to costs.
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2021 (8) TMI 1299
Insider trading - charge of violation of Regulations 3 and 4 of the PFUTP Regulations - contravention of Section 12A(d) of the SEBI Act - conspiracy in the commissioning of the offence of insider trading - As urged by the appellant Rohit Gupta that the WTM has miserably failed to establish the charge of trading against the appellant and has been found guilty only on the basis of preponderance of probability - Contention of the appellants is that adequate opportunity was not provided - HELD THAT:- We find that pursuant to the show cause notice dated July 31, 2018 which was duly served on all the notices, the appellants were required to appear on September 3, 2019 and file a reply which they failed to do so. By a letter dated December 9, 2018 some of the noticees, namely, Navin Tayal and Jyotika Tayal intimated that their authorized signatory would appear on their behalf but failed to appear on next date i.e. September 3, 2019. On September 3, 2019, the AO fixed the hearing date for September 17, 2019. All the noticees requested for an adjournment on September 17, 2019 and prayed that they may be provided an opportunity to inspect the documents.
AO, in the interest of justice, adjourned the matter for November 18, 2019. Prior to that date, noticee No. 1 on November 4, 2019 and on November 5, 2019, the appellants Navin Tayal, Jyotika Tayal and Azam Shaikh, on November 14, 2019 Advik and on November 15, 2019 Kulwinder Nayyar vide the letters requested the AO for inspection of documents. The matter was accordingly adjourned on November 18, 2019 and vide notice dated December 27, 2019, all the noticees were given an opportunity to inspect the documents on January 30, 2020. By the said notice, all the noticees were intimated that the hearing would be fixed on February 17, 2020. The record indicates that no one appeared to inspect the documents on January 30, 2020 in spite of the receipt of the notice nor appeared on the date fixed for hearing i.e. February 17, 2020 and accordingly the AO proceeded ex-parte and passed the impugned order.
The contention that the notice dated December 12, 2019 was received by the appellants on January 28, 2020 was vehemently denied by the respondent. The respondent contended that the said notice was received by the appellants on January 17, 2020 and proof of delivery of service has been annexed to the reply. It was contended that the letter of the appellants dated February 11, 2020 seeking further time to inspect the documents and for adjournment and for reschedulement of the hearing was never received and the appellants were put to strict proof. In rejoinder, the appellants admitted that the notice dated December 27, 2019 was received on January 17, 2020 but was not placed before the appellants and, therefore, could not appear for inspection of documents. It was also stated that on account of personal exigency, the appellants could not attend the date fixed for hearing. No proof have been filed by the appellants with regard to the service of letter dated February 11, 2020.
It is apparently clear that the appellants were duly served with the notice. Adequate opportunity was provided to inspect the documents and appear on the date fixed for hearing. The appellants chose not to inspect the documents nor appeared personally nor appeared through their authorized representative on the date fixed for hearing. Consequently, we are of the opinion that the principles of natural justice was fully complied with. The appellants deliberately chose not to participate in the proceedings and, therefore, we do not find any fault in the proceedings adopted by the AO. The order of the AO does not suffer from any error of law.
All the appeals filed against the order of the WTM and against the order of the AO are dismissed with no order as to costs.
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2021 (8) TMI 398
Fraudulent and Unfair Trade Practices - settlement in terms of SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 seeked - HELD THAT:- Petitioners are entitled to move application for settlement even at the appellate stage. However, for the said purpose, the petitioners would have to move appropriate application before the appellate forum. The said applications thereafter be rooted to the High Powered Advisory Committee which may examine the aspect keeping in view the fact that other similarly situated two companies (supra) have been allowed to get the matter settled and settlement orders have been passed in relation to the other similarly situated companies (supra).
The issue with regard to the condition as laid down by the Internal Committee can also be examined by the High Powered Advisory Committee and it may take its own decision in this regard. As on today, so far as this Court is concerned, it is of the confirmed opinion that such a precondition is not existing and the same only related to the earlier settlement applications.
This Court concludes that no relief can be granted to the petitioner for revival of the settlement applications and the petitioner has to move afresh application if so chooses in terms of Regulation 7 of the Settlement Regulations, 2018. If such afresh application for settlement is moved, it shall be placed before the High Powered Advisory Committee as provided under Regulation 7 of the Settlement Regulations, 2018 and a decision shall be taken at the earliest. However, taking into consideration that the orders have already been passed under Section 11B of the SEBI Act, 1992, there can be no precondition of depositing the amount of 50% over the settlement amount. The said condition would only operate after the settlement is arrived at and determined by the concerned Committee. Similarly, in relation to settlement of penalty also, the aforementioned observations will equally apply.
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2021 (7) TMI 1433
GDR issue to sole subscriber - misleading information was given to the shareholders and the investors that the GDRs were subscribed by many entities - loan obtained by Vintage through a pledge agreement given by the Company was a fraudulent act which was not disclosed to the stock exchange - HELD THAT:- We find that the controversy involved in the present appeal is squarely covered by a recent decision of this Tribunal in Prafull Anubhai Shah [2021 (6) TMI 1159 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] held that merely because the appellant was present when the resolution dated July 27, 2006 was passed, no conclusion can be drawn that this was the starting point of the fraudulent arrangement for issuance of GDR and for opening a bank account. The resolution does not given any indication that the appellant had knowledge beforehand that the GDR issue was the purpose to manipulate the price or the market or that a fraud would be played upon the shareholders and the investors.
We are further of the opinion that finding of the WTM that the resolution of the Board of Directors provides execution of a pledge or execution of a charge agreement is wholly erroneous, perverse and based on no evidence. The resolution also does not stipulate that the proceeds could be utilized by the bank as security in connection with a loan taken by another entity.
In the light of the aforesaid, we are of the view that the appellant cannot be debarred only on the basis of being present in the resolution of the Board of Directors.
The impugned order of the AO as well as the WTM in so far as it relates to the appellants cannot be sustained and is quashed. The appeals are allowed.
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2021 (7) TMI 1417
Violation of Regulation 11(1) of the SAST Regulations - Non issue of open offer - Initiation of proceedings after delay of 12 Years - WTM came to the conclusion that all the acquirers collectively acquired more than five percent of the shares in the financial year 2005-06 and such acquisition beyond five percent triggered the open offer under Regulation 11(1) which acquirers failed to make and, therefore, became liable for penal action under the SAST Regulations - HELD THAT:- In the present case, SEBI is sitting quietly and has not taken any action for 12 years. Such delay defeats the purpose of initiation of proceedings for appropriate action.
Inspite of specific orders being issued from time to time on the question of delay the WTM chooses to ignore those decisions as if they do not exist or is not binding upon them. In the instant case, we find that the WTM has trenchantly asserted that it is a settled position that there is no time limit for issuing notice and that an order cannot be set aside on the ground of delay. Such assertion being used time and again in the order passed by the AO or the WTM is patently erroneous. This Tribunal in a large number of appeals have set aside the orders only on the ground of delay.
Thus considering the long lapse of time in initiating the proceedings, the direction to make an open offer was not appropriate in the circumstances of the case.
For the reasons stated aforesaid, the impugned order cannot be sustained and is quashed. The appeals are allowed
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2021 (7) TMI 986
Violation of the provisions of the SEBI Act - What exact violations raised - HELD THAT:- On going through Exhibit P3 show cause notice issued by the Deputy General manager of SEBI dated 13th March, 2020, we could not locate any such eventuality, apart from the same being explanatory in nature, enabling an aggrieved person to identify the exact violations raised against him and submit a reply understanding the gamut of the issues.
Learned single Judge has rightly dismissed the writ petition holding that SEBI has power to initiate action against the appellant for violation of the provisions of the SEBI Act, 1992 - minute intricacies of the issues raised in regard to the power of the Deputy General Manager of SEBI, the question of limitation etc. are all aspects to be considered by the statutory authority in terms of the provisions of Act, 1992 and the regulations thereto discussed above. That said, the issues raised by the appellant in respect of the power of the authority under the Companies Act, 1956 vis-a-vis the Companies Act, 2013 are all matters, which can be raised before the statutory authority. This we say because, from the show cause notice it is clear that the violations are relating to the years 2007-2013 during which period the Companies Act,1956 was in force.
We are also conscious of the fact that when the functions of an authority are regulated and controlled by clear statutory provisions and without any inhibitions created, we have no reason to think that the said authority would not adjudicate the issues in terms of law.
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2021 (7) TMI 971
Compounding of offence - Price rigging and insider trading in the scrip of the Company - IPO issues - SEBI’s Investigation and the criminal complaint - HELD THAT:- The nature of the allegations against the appellant are such so as to preclude a decision to compound the offences. We have adverted, in a considerable amount of detail, to the circumstances which have been narrated in the counter affidavit filed by SEBI.
We find merit in the submissions which has been urged before the Court by learned Senior Counsel who appeared on behalf of SEBI that the allegations in the present case involved serious acts which impinged upon the protection of investors and the stability of the securities’ market. The observation in the order of adjudication of the Chairperson of the SEBI dated 22 September 2000, that no loss has been caused to the investors as a result of the proposal which was submitted by the promoters to purchase the shares at the rate of ₹ 12 per share, would not efface the element of alleged wrong doing.
Such alleged acts of price rigging and manipulation of the prices of the shares have a vital bearing on investors’ wealth and the orderly functioning of the securities market. SEBI was, therefore, justified in opposing the request for the compounding of the offences. The matter was referred to the HPAC constituted by SEBI and presided over by a former judge of the Bombay High Court, which denied the request for compounding. This decision which has been taken by SEBI is not mala fide nor does it suffer from manifest arbitrariness. On the contrary, having due regard to the nature of the allegations, we are of the view that an order for compounding was not warranted. Judgment of the High Court of Delhi Affirmed.
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2021 (7) TMI 751
SEBI powers to issue directions and levy penalty - trustee’s decision to wind up a scheme of the mutual fund - Interpretation of the term ‘consent’ in Regulation 18(15)(c) - HELD THAT:- The quotation highlights that interpretation is sometimes a three-stage process. At first, the words being interpreted should be understood according to their grammatical meaning in their literal and popular sense. In the second stage, we consider whether in the given context the plain meaning is obscure as the text gives rise to choice of more than one interpretation, or the propositional interpretation fails to achieve the manifest purpose of the legislation, reduces it to futility, is practically unworkable or even illogical. In such cases at the third stage, the court applying interpretative tools selects or blue-pencils an interpretation advancing the legislative intent without rewriting the provision. The legislative intent is gathered not by restricting it to the language of the provision, rather in the light of the object and purpose of the provision and the legislation. The courts do lean towards a pragmatic and purposive interpretation as there is an assumption that the draftsmen legislate to bring about a functional and working result.
Harmonious interpretation of Regulation 18(15)(c) with Regulations 39 to 42 - Held that:- ‘Consent’ for the purpose of Regulation 18(15)(c) refers to the consent of the majority of the unitholders present and voting, and in case of a poll, the computation would be with reference to the number of units held by the unitholder. In fact, in the course of hearing, it was conceded that majority of the unitholders belong to provident fund trusts or pension funds. The voting pattern referred to in our earlier order reflects that voting under Regulation 18(15)(c) is possible and can work smoothly without much difficulty. The apprehensions expressed, therefore, do not carry much weight. It is obvious that where the unitholders vote against winding up, consequences would follow and accordingly the scheme would not be wound up. This is a natural and normal consequence which will have to be given effect to. It would, as stated above, happen rarely and that too would not happen without any genuine and good reason.
The consent of the unitholders, as envisaged under clause (c) to Regulation 18(15), is not required before publication of the notices under Regulation 39(3). Consent of the unitholders should be sought post publication of the notice and disclosure of the reasons for winding up under Regulation 39(3).
To complete interpretation of Regulation 18(15), we have to record that clause (a) applies and requires the trustees to obtain consent of the unitholders whenever required by SEBI in the interest of the unitholders. Clause (b) states that the trustees would obtain consent of the unitholders whenever required to do so on the requisition made by three-fourths of the unitholders of any scheme. Accordingly, clause (a) would apply whenever SEBI mandates and clause (b) applies whenever three-fourths of the unitholders of the scheme make a requisition.
The High Court was right in observing that the trustees and the AMC have understood and accepted that the consent of unitholders of the scheme would be necessary if the majority of the directors of the trustee company decide to wind up a scheme.
Challenge to the constitutional validity of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 - HELD THAT: - No doubt, clause (a) to Regulation 39(2) gives primacy to the opinion of the trustees and does not require prior approval of SEBI, yet SEBI is entitled to conduct an inquiry and investigation when justified and necessary to ascertain whether the trustees have acted in accordance with their fiduciary duty and also for reasons which would fall within the four corners of clause (a) to Regulation 39(2). If the trustees have acted for extraneous and irrelevant reasons and considerations, the action would be in violation of clause (a) to Regulation 39(2) and therefore amenable to action under the SEBI Act, including directions under Section 11B.
The power of SEBI extends to regulating and monitoring the functioning and decisions taken by mutual funds, the trustees and the AMC. SEBI has the power to pass any direction if it deems fit in the interest of unitholders.
It cannot be accepted that the trustees under clause (a) to Regulation 39(2) have been given absolute and unbridled power to wind up a scheme. Language of clause (a) to Regulation 39(2) states that the trustees must form an opinion on the happening of any event which requires the scheme to be wound up. Further, as per Regulation 39(3), the trustees are bound to give notice disclosing the circumstances leading to the winding up of the scheme. These notices along with the reasons have to be communicated to SEBI and made known to the unitholders by publication in two daily newspapers having circulation all over India and a vernacular newspaper having circulation at the place where the mutual fund is formed.
We have agreed with the High Court that the opinion of the trustees under clause (a) to Regulation 39(2), therefore, must be consented to by the unitholders in terms of the mandate of Regulation 18(15)(c). In view of this interpretation, the argument challenging constitutional validity of the Regulations on the ground that they give unbridled and absolute power to the trustees loses much of its sting and force. There are, therefore, sufficient guidance and safeguards in the Regulations itself on the power of the trustees to decide on winding up of the fund.
The Regulations, in our opinion, rightly draw the distinction between creditors and the unitholders. The unit holders are investors who take the risk and, therefore, entitled to profits and gains. Having taken the calculated risk, they must also bear the losses, if any. Unitholders are not entitled to fixed return or even protection of the principal amount
The Regulations under challenge do not suffer from the vice of manifest arbitrariness.
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2021 (7) TMI 168
Modes of charging fees to clients by Investment Advisors - Constitutional validity and vires of Regulation 3(XII) of the Securities and Exchange Board of India (Investment Advisors) (Amendment) Regulations, 2020 (“Amendment Regulations”), by which Regulation 15A was inserted into the Securities and Exchange Board of India (Investment Advisors) Regulations, 2013 and Circular issued in pursuance thereof, being Circular Reference No. SEBI/HO/IMD/DF1/CIR/P/2020/ 182 dated 23.09.2020 challenged - whether the Board has the requisite authority under the SEBI Act, in the first place, to make regulations concerning charging of fees by Investment Advisors from their clients? - challenge is on the footing of both want of legislative power in SEBI (by delegated authority) to make a provision such as regulation 15A or to issue a Circular such as Circular dated 23.09.2020 and breach of fundamental right of Investment Advisors to carry on a profession of their choice by enacting unreasonable restrictions - HELD THAT:- As specifying measures for protection of investors and development and regulation of securities market being the duty of the Board under Section 11 of the SEBI Act and without prejudice to the generality of such duty the Board having the express power to regulate the working of Investment Advisors (under Sub-Section (2)(b) of Section 11), which, as noted above, encompasses measures to provide for the manner of charging of fees as well as cap of fees, the impugned regulation (Regulation 15A) is clearly within the delegation made in favour of the Board under Section 30(1) of the SEBI Act. If charging of fees in accordance with the specification of the Board is accordingly made a condition of continued registration under Section 12 of the SEBI Act, such condition would be covered by Section 30(2)(d) of the SEBI Act.
On the subject of violation of Article 19(1)(g) of the Constitution of India, it is important to note that the impugned Regulation as well as the Circular issued by SEBI in pursuance thereof does not in any way prohibit any party from carrying on the business or profession of Investment Advisor. The Regulation and Circular merely put restrictions, and reasonable restrictions at that, on the general right of businessmen and professionals to carry on the business or profession of Investment Advisor. Prescribing a mode for charging of fees as also the ceiling of fees to be charged by Investment Advisors amounts to a reasonable restriction, at least in principle, in the matter of carrying on the business or profession of Investment Advisors, apart from being an important measure for protection of investors and development and regulation of securities market. In so far as reasonableness of the particular quantum of ceiling of fees determined by SEBI or conditions laid down for charging of such fees are concerned, there is no material placed on record by the Petitioner to suggest that the fees fixed or conditions stipulated are so unreasonable or capricious as not to admit of Investment Advisors’ freedom to practice their profession or business.
Petitioner herein cannot seek much assistance from this decision. In the first place, unlike in that case, which did not have any regulatory statutory framework for fixing of a ceiling of permissible tax audits or fees for such audits, in our case the SEBI Act makes particular provisions empowering the Board to regulate the working of Investment Advisors. The profession or business of Investment Advisor is not a traditional profession having its own customs and conventions. Nothing at least has been pointed out to us by learned counsel for the Petitioner in that behalf. If anything, Investment Advice is a profession/business which has come about as an adjunct of the securities market; the Investment Advisor works because investors need professional advice for participating in the affairs of the securities market. It is the statutory duty of SEBI to protect such investors, and develop and regulate that market inter alia by regulating the working of Investment Advisors. If, for performing such duty, SEBI fixes the manner of charging of fees by Investment Advisors or the maximum permissible fees, such fixation per se cannot be faulted as being violative of Article 14 or 19(1)(g). It is another matter, if, whilst fixing these matters, SEBI acts in an unreasonable or capricious manner; in such case, its legislative (or executive) exercise may be vitiated by arbitrariness eschewed by Article 14 or unreasonable restriction not being covered under Article 19(6) and thus infringing Article 19(1)(g). That, we are afraid, has not been the case here.
No merit in the challenge to the impugned Regulation as well as the impugned Circular prescribing modes as well as ceiling of fees to be charged by Investment Advisors.
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2021 (6) TMI 1159
Fraudulent issue of GDRs - Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - Responsibility of directors - officers in default - Investigation in the issuance of the GDR revealed that the GDR was not issued with a proper consideration and without making adequate disclosure under the Listing Agreement - As alleged account charge agreement was an integral part of the loan agreement which allowed Whiteview to avail the loan in order to subscribe to the GDR issue which was fraudulent - charge against the appellant was that he was a Director and was part of the resolution by which the first resolution was passed by the Board of Directors for issuance of the GDR and for opening an account with Banco - HELD THAT:- Merely because the appellant was present when the resolution dated July 27, 2006 was passed, no conclusion can be drawn that this was the starting point of the fraudulent arrangement for issuance of GDR and for opening a bank account.
Resolution does not given any indication that the appellant had knowledge beforehand that the GDR issue was the purpose to manipulate the price or the market or that a fraud would be played upon the shareholders and the investors.
Finding of the WTM that the resolution of the Board of Directors dated June 27, 2006 provides execution of a pledge or execution of a charge agreement is wholly erroneous, perverse and based on no evidence. The resolution also does not stipulate that the proceeds could be utilized by the bank as security in connection with a loan taken by another entity.
Appellant cannot be debarred only on the basis of being present in the resolution of the Board of Directors dated July 27, 2006. In the absence of any evidence that the appellant had a role to play in the issuance of the GDR, the mere presence of the appellant in the resolution of the Board of Directors dated July 27, 2006 does not make him liable for the alleged fraud that had been committed by the Company.
After the judgment was reserved, the respondent have submitted a short note contending that the appellant was also chairman of the audit committee and remuneration committee which fact is reflected in the annual report of 2009-10 - As per MCA circular dated March 2, 2020 civil or criminal proceedings should not be unnecessarily initiated against the independent directors or non executive directors unless sufficient evidence exists to the contrary. We also find that Reserve Bank of India issued a circular dated April 23, 2015 indicating that non-whole time director should not be considered as a defaulter unless it is conclusively established that the default had taken place with his consent or connivance.
Cogent evidence must come forward to the effect that a non executive non promoter independent director was aware of the fraud that had been played by the Company or that he was involved in the issuance of the GDR or that GDR was being issued with his connivance. Only then such non executive non promoter independent directors should be booked. Merely because he was part of the resolution of the Board of Directors would not make him liable.
In the light of the aforesaid, the impugned order insofar as it relates to the appellant cannot be sustained and is quashed. The appeal is allowed. In the circumstances of the case, parties shall bear their own costs.
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2021 (6) TMI 1144
Preferential allotments of shares - promoter related entities - price manipulation activities - LTCG in order to convert unaccounted income into accounted income with nil payment of tax as LTCG was exempt from tax -basis for holding the appellants guilty of Section 12A(a),(b) and (c) of the SEBI Act read with Regulation 3 and 4 PFUTP Regulations is, that a prudent investor would not have purchased the shares of a Company which had weak fundamentals and financials and that no one in their right mind would buy the shares unless there was a pre-existing arrangement of reaping in huge profits.
HELD THAT:- We are of the opinion that the role of the preferential allottees, exit providers and LTP contributors were far more serious than the role of the appellants. The role of the appellants in the instant case is, that they had purchased the shares off market from the six entities who in turn have purchased it from the promoter Company. Whereas, the preferential allottees have been let off, the appellants have been penalized only on the ground of being in proximity with the Company and its directors which finding is perverse in as much as we find that there is no direct connection of the appellants with the Company, its promoters, promoter company or noticees nos. 9 to 11, 75, 77 to 80 who were the main manipulators and the kingpin in the entire scheme.
The six entities are not promoter related entities. They have acquired the shares from the promoter Company but they do not become the promoters. The fact that they were de facto controlling the Company is not a relevant issue as it still does not make them promoters of the Company. Thus, merely because the appellants had purchased the shares through off market from the six entities does not and cannot lead to a conclusion that the appellants are connected with the Company or with noticee no. 9 or with promoter related entities or its directors. The finding that appellants were in close proximity or had a connection with the Company, directors etc. is patently erroneous.
The six entities had purchased the shares from a promoter Company, namely, noticees 15 to 19 and thereafter the six entities sold it to the appellants. Whereas the notices no. 15 to 19 have been exonerated by the impugned order, the appellants have been booked for having a close proximity with the Company. We find that the appellants have not purchased the shares from the Company.
The issue of weak fundamentals would equally apply to the preferential allottees who were allotted the shares at rate of Rs. 10/- per share but these preferential allottes have been let off. Therefore the standard of weak fundamentals cannot be applied in the case of the appellants especially when on the same footing the preferential allottees have been let off. We are of the opinion that it is business prudence to purchase at a lesser price and sell it at a higher price when the market is up thereby earning profits. Making profits in our opinion cannot be termed illegal or manipulative or fraudulent or violative of the PFUTP Regulations.
We are also find that the WTM has given a categorical finding that noticee no. 9 was the master mind who manipulated the price with Company and its directors and intermediaries for the benefit of the preferential allottees. These preferential allottees have been let off. We find that there is no direct connection of the appellants with noticee no. 9. There is no involvement of collusion or price manipulation of the appellants and thus there cannot be any violation of regulations 3 & 4 of the PFUTP Regulations.
Six entities had an active role to play in the management of the affairs of the Company from February / March - 2012 onwards. A direct connection has been established between the six entities and the Company and noticee no. 2. The six entities had also acquired the preferential shares of the promoters and therefore we are also of the opinion that the six entities were closely associated with the Company from February / March – 2012 onwards and throughout the period when the preferential allotments were made.
We are, thus, of the opinion that the six entities were closely connected with the Company and its directors and had a role to play in the formulation of the scheme of issuance of preferential allotment, pumping of the price through LTP contributors and providing an exit mechanism for the preferential allottee. Consequently, in our opinion, the order of the WTM insofar as the six entities are concerned does not suffer from any manifest error of law.
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