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SEBI - Case Laws
Showing 221 to 240 of 510 Records
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2020 (7) TMI 324
Guilty of causing false media report causing the rise in the price of the scrip - temporary prohibitory order - WTM directing the present appellants to disgorge an amount of ₹ 22,69,461/-along with interest at the rate of 12% per annum from December 22, 2008 - HELD THAT:- Appellants submitted that there is a delay in the proceeding, the documents filed by the appellants themselves would show that before the WTM they were pressing time and again for more documents from the respondents before filing reply to the show cause notice. Even though a compact disk was supplied to them the demand continued which ultimately led to filing of reply belatedly. Though the practice of keeping temporary prohibitory order continuing for a long period cannot be accepted, it is to be noted that ultimately the said order is revoked. Therefore, the issue does not survive.
WTM had taken into consideration the earlier dealing of the appellants in the scrip of PSTL wherein the appellants were charged for last traded price manipulation. The appellants and deceased noticees were exonerated from the charges and only charge remained for trading of the appellants and deceased noticees for a period from December 17 to 22, 2008.
The trading of period of December 16 is also taken into consideration by the WTM. However, finding that there was sudden increase in purchase of the shares of PSTL by the appellants and the deceased noticees during December 17-19, 2008 as detailed and off-loading of all those shares on December 22 before 10:30 am the order was passed.
It is an admitted fact that Nirmal Kotecha had close relations with the appellants. Many business transactions as well as gratuitous transactions of advancing interest free loan between them is an admitted fact. Out of interest free loan granted by Nirmal Kotecha to the appellants, admittedly appellants utilized some portion for the business purpose. Admittedly, they always had telephonic conversation. Admittedly, the appellants form a family group as further explained in the paragraph 1 of the synopsis itself. The appellants had pleaded before the WTM that the proceedings against them be kept in abeyance till the proceedings against Nirmal Kotecha would come to an end i.e. appeal filed by Nirmal Kotecha in this Tribunal is decided. Judicial notice can be taken that the appeal filed by Nirmal Kotecha, is finally dismissed by this Tribunal on merit holding him guilty of causing false media report causing the rise in the price of the scrip.
In the circumstances, the findings recorded by the learned WTM needs no interference.
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2020 (7) TMI 238
Acquisition of the shares by promoters - increase in the collective shareholding of all the appellants - the promoters, from 29.42% to 61.10% which was more than threshold limit of 5% - no public announcement was made - violation of provisions of Regulation 3(2) read with Regulation 13(1) of the SAST Regulations, 2011 - HELD THAT:- There should be common objective of purchase of shares or voting rights amongst the members to make them persons acting in concert. In the present case, while two promoters had an objective to dispose of their shares, the appellant No. 1 Susheel Somani had an objective to acquire the shares. This itself would show that there was no common cause between the appellant No. 1 Susheel Somani and the two transferors. Therefore, though the promoter group holdings in the company remained constant, the same would be irrelevant as observed by the AO. The order to that extent cannot be faulted with.
Whether the appellants were exempted from making a public announcement? - It is an admitted fact that the appellants have made requisite disclosures on 7th day as against the provisions of Regulation 29(3) that the disclosures are required to be made within two working days. Thus, technically the appellants were not exempted from making public announcement and, thus, are in violation of the relevant regulations. The AO has observed that as the condition of making disclosures within two working days is not fulfilled, the act was not fit for grant of exemption. In the circumstances, the penalty was imposed.
Quantum of penalty - AO took into consideration the mitigating factors that the interest of the shareholders of the target company is not jeopardized and the penalty of ₹ 15 lacs was imposed.
AO has not considered the fact that the appellants made the disclosures though belatedly after five days as required by Regulation 29 of the SAST Regulations. Thus, it was a technical breach and, therefore, in our view instead of imposing a penalty of ₹ 15 lacs, a penalty of ₹ 5 lacs would have been just and sufficient.
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2020 (7) TMI 167
Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - Monetary penalties imposed on them under section 15HA of the SEBI Act, 1992 - HELD THAT:- SEBI was doing investigation during the interim and some delay though has happened on account of change in the AO.
Though the impugned order deals with trading in the name of the minor, no action has been rightly contemplated against the minor. As regards the other noticees/appellants on appeal before us we note that though their relationship through common address, common mobile numbers etc. are matters of record and proved no motive has been attributed to their trading pattern.
New LTP, NHP and a few first trades in the scrip have been created/done by these appellants which would prima facie points towards a manipulative effort. It is on record that the scrip was progressively doing well during the investigation period with substantial increase in both prices and volumes. No connection with the promoters of the Company or with the Company itself has been attributed to the appellants.
There is no evidence or even any discussion on any fund transfer between the appellants or the appellants with any other entities in the absence of which motive for a collusive or manipulative effort becomes blunt. When a group of 16 entities themselves becomes parties to each other's trade in a circular fashion, though to a limited extent, the net amount of profits or losses also become negligible and only to the extent of their trades getting matched with entities outside the group.
Looking at the trading pattern of the appellants; the LTP, NHP, first trades etc. it may be possible to arrive at a prima facie conclusion regarding violation of PFUTP Regulations. However, in the facts and circumstances of the matter, particularly the fact that the scrip involved was reasonably liquid and continued to become more liquid and hence increase in volume and prices and with no evidence of any fund transfer, motive for manipulation etc. we are of the considered view that no penalty can be imposed on the appellants.
Without any other evidence, we are constrained to give some weight to the submissions of the appellant that they were trading in the scrip in a normal way because of the scrip itself being attractive through various public announcements supported by the fact of increase in volume of trading and rise in prices. Therefore, given these factors imposing a penalty becomes too harsh. At the same time since the trading behavior exhibited by these appellants is not normal and is amenable to invoking suspicion of a PFUTP violation, we would warn the appellants from indulging in similar trading practices in future.
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2020 (7) TMI 90
Inordinate delay in the issuance of the show cause notice for violation of Section 12(A)(a), (b) and (c) read with Regulations 3(a),(b),(c) & (d) and 4(1), (4(2)(a) and (g) of PFUTP Regulations - delay of 7 years in issuing the show cause notice - HELD THAT:- There has been an inordinate delay in the issuance of the show cause notice. Even though there is no period of limitation prescribed in the Act and Regulations in the issuance of a show cause notice or for completion of the adjudication proceedings the authority is required to exercise its powers within a reasonable period as held recently in Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Pabari [2019 (3) TMI 197 - SUPREME COURT]. In the instant case, we are of the opinion that the power to adjudicate has not been exercised within a reasonable period and therefore no penalty could be imposed.
Without going into the merits of the case, we find that on account of the inordinate delay in the initiation of the proceedings by issuance of a show cause notice, the penalty order cannot be sustained.
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2020 (7) TMI 60
Collective Investment Schemes - show cause as to why the Yatra Art Fund should not register itself with SEBI in the prescribed corporate form, as otherwise the collective investment scheme carried out by the Trust would be illegal - SCN also mentioned that all amounts collected should be refunded within a period of 30 days from the said show cause notice - HELD THAT:- The statutory scheme is that, if a collective investment scheme, as defined, is to be floated by a person, it could only be done in the form of a collective investment management company and in no other form. This is the reason why Section 11AA uses the expression "company" in sub-Section (2) and not the word "person" (as the CIS Regulations of 1999 had come into force on 15-10-1999; Section 11AA being enacted and coming into force on 22-2-2000).
Once the statutory scheme becomes clear, it is clear that the collective investment scheme that was being carried on by the appellants in the form of a private Trust would be in the teeth of the Statute read with the CIS Regulations and would thus be illegal.
This being the case, it is difficult to upset any part of SEBI's order that remains after the penultimate part of the order was set aside by the Appellate Tribunal.
This litigation has been going on for an extremely long period of time and instead of remanding the matter to SEBI to decide the refund issue afresh, we order as follows:
The principal amount repayable to each investor of both the Schemes shall be paid back within a period of six months from today in the following manner:
We are informed that so far as the first Fund is concerned, 81.32 per cent of the total principal sum of ₹ 10.95 crores has been repaid.
Insofar as Fund No. 2 is concerned, we have been informed that 50 per cent of the principal amount of ₹ 21.92 crores has been repaid.
The balance owing to the 50 investors of Fund No. 1 and to the 132 investors of Fund No. 2 be therefore, repaid within six months from the date of this judgment.
So far as the interest at the rate of 10 per cent is concerned, this amount will be paid on the principal outstanding amount from the date on which it becomes due to each such member, till the date on which each Fund came to an end, i.e., insofar as Fund No. 1 is concerned till 15-9-2011 and so far as Fund No. 2 is concerned till 31-1-2012. The aforesaid interest shall be paid within nine months from the date of this judgment.
Once the amounts are actually paid within the time period specified, compliance report be filed with SEBI in this behalf.
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2020 (7) TMI 31
Restrained orders from accessing the securities market or dealing with the securities market directly or indirectly - BSE Limited ('BSE') was directed to appoint an independent auditor/audit firm for conducting a detailed forensic audit of the books of account of Ricoh India Limited - prima facie suspicion and vicarious liability attributable to a MD/CEO - HELD THAT:- The impugned order (quoted at paragraph 5 and 6 of this order) bring out only a suspicion about the role of the appellants. Moreover, we note that though the submissions of the appellants have been noted in detail in the impugned order they have not been dealt with appropriately.
Question before us is how long the appellants would be kept out of the market through directions contained in an interim order and confirmatory order which are based on only a prima facie suspicion and vicarious liability attributable to a MD/CEO. This question becomes more relevant particularly in the facts of the case where we are told that the Company Ricoh itself is under liquidation and the appellants are not in-charge of the said Company and therefore not in a position to influence the decisions of the Company. Moreover, we also note that the submissions made by the appellants have not been dealt with in the impugned order in any meaningful manner thereby effectively confirming the interim directions without taking into account the submissions and the documents made available by the appellants. Given these factors we find it difficult to sustain the impugned order qua the appellants.
Both the appeals succeed and the impugned order is quashed qua the appellants. However, SEBI is at liberty to issue a fresh show cause notice and proceed in the matter in case evidence against the appellants are available through the forensic audit report or through SEBI's own investigation
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2020 (7) TMI 7
Insider trading - circumstantial evidence as to whether a person is guilty of insider trading - HELD THAT:- Appellant had passed on the price sensitive information regarding the open offer to the Tippees. Such inference taken from the immediate and proximate facts and circumstances surrounding the events is reasonable and logical which any prudent man would arrive at such a conclusion. The Supreme Court in Kanhaiyalal Patel 2017 (9) TMI 1269 - SUPREME COURT held that an inferential conclusion from proved and admitted facts would be permissible and legally justified so long as the same is reasonable.
In the light of the aforesaid, the decisions cited by the learned counsel for the appellant on the issue that a person cannot be held guilty only on the strength of proximity of relationship with the Tippee are distinguishable on facts and are not applicable in the instant case. We find from the record that there is ample evidence to draw a reasonable inference that the appellant had passed on the price sensitive information to the Tippees and, consequently, we are of the opinion that the order of the AO does not suffer from an error of law.
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2020 (6) TMI 778
Petition for transfer of all matters to the Delhi High Court - HELD THAT:- As pointed out at the Bar that against the order of the learned Single Judge impugned in this Letters Patent Appeal, one of the parties has approached the Supreme Court and the matter is listed today. It is further stated that other matters relating to the same issue having been filed in different High Courts, there is a petition for transfer of all matters to the Delhi High Court which is also listed today before the Supreme Court. As agreed by the learned counsel for the parties, let this matter be posted on Tuesday i.e. 23.06.2020
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2020 (6) TMI 742
Ex-parte order passed by the Whole Time Member (“WTM‟) of Securities and Exchange Board of India (“SEBI‟) - direction to deposit a sum plus interest till date in an Escrow Account towards notional loss - Using unpublished price sensitive information - Direction that the bank accounts / demat accounts of the appellant shall remain frozen till such time the amount is not deposited - HELD THAT:- There is no finding that the appellant will remove the property or will dispose of all the property or that he would obstruct the proceedings or that he would delay the proceedings pursuant to the show cause notice. In the absence of any such finding, the ex-parte interim order cannot be sustained especially when the trades were of 2016 and from 2016 till the date of the impugned order there is no evidence to show that the appellant was trying to divert the alleged notional gain/loss
As held in North End Foods Marketing Pvt. Ltd. [2019 (4) TMI 800 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] there is no real urgency in the matter to pass an ex-parte interim order especially during the pandemic period. There is no doubt that SEBI has the power to pass an interim order and that in extreme urgent cases SEBI can pass an ex-parte interim order but such powers can only be exercised sparingly and only in extreme urgent matters. In the instant case, we do not find any case of extreme urgency which warranted the respondent to pass an ex-parte interim order only on arriving at the prima-facie case that the appellant was an insider as defined in the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations‟ for short) without considering the balance of convenience or irreparable injury.
The impugned order cannot be sustained and the same is quashed at the admission stage itself without calling for a counter affidavit except the show cause notice. The appeal is allowed. We further direct that the appellant to file a reply to the show cause notice within four weeks from today. The respondent will decide the matter finally after giving an opportunity of hearing to the appellant either through physical hearing or through video conference within six months thereafter. During the interim period, in order to safeguard the interests of the respondent and more particularly the interest of the investors in the securities market and also to protect the integrity of the securities market, we direct the appellant to give an undertaking to the respondent within four weeks from today that he will not alienate 50% of his total shareholdings of the company DTL held as on date, as stated by the learned counsel for the appellant.
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2020 (6) TMI 693
Orders for release of securities - learned senior counsel sought intervention of this Tribunal to stay such orders as well as to allow the appellant to dispose of the securities worth ₹ 21.62 crores and thereafter releasing the remaining securities given by Respondent No. 2 to the appellant - HELD THAT:- We pass the following interim directions - The parties shall appear before NSE, either physically or through Video Conference, on June 24, 2020. NSE shall give the contact details and arrangements for the said meeting to the parties at least one day in advance.
(b) Based on the database of NSE and other parties rights in respect of the securities in question shall be reconciled/determined within one week thereafter.
(c) This Tribunal will hear the matter further on Friday, July 03, 2020. In the interim status quo shall be maintained by the parties i.e. there shall be no transfer of securities as directed in the impugned orders nor the appellant shall alienate any of the securities in question.
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2020 (6) TMI 646
Withhold of money by SEBI - penalty for violation of Regulations 3 and 4 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 - During the pendency of the appeal, the Recovery Officer of SEBI recovered an amount - HELD THAT:- Once the order of the AO imposing a penalty was set aside, there was no justification for SEBI to withhold any amount which was recovered pursuant to the order of the AO. Such retention of the amount after the order of the AO has been set aside, is without any authority of law. The fact that no direction for refund of the amount was issued by the Tribunal is immaterial. Once the order has been set aside, there is no amount to be recovered and consequently any amount so recovered has to be refunded immediately.
Respondent has a right to file an appeal before the Supreme Court against the order of the Tribunal. The appeal was allowed by the Tribunal on 21/2/2020. No steps were taken by SEBI to file an appeal before the lockdown i.e. 25/3/2020. Therefore, retention of the money by SEBI was wholly unwarranted, especially when the appellant has also given an undertaking to abide by the order of the Supreme Court, if any.
In view of the aforesaid and in view of the undertaking given by the appellant, we dispose of the Misc. Application directing SEBI to refund the amount of ₹ 6,35,521/- on or before 22/5/2020, failing which SEBI would be further liable to pay interest from the date of recovery till date of payment @ 12% per annum.
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2020 (6) TMI 559
Maintainability of the Writ Petition - whether IGRP of the First Respondent has jurisdiction to re-examine the complaint of the Third Respondent pursuant to the direction issued by the Second Respondent after having arrived at the conclusion that the admissible claim of the Third Respondent against the Petitioner was 'NIL' and relegated the parties to take further course of action under the Exchange Regulations in the earlier order dated 18.10.2016, which has attained finality having remained unchallenged in the manner recognized by law - HELD THAT:- There cannot be any doubt that the attempt to re-examine the complaint of the Third Respondent against the Petitioner by IGRP of the First Respondent without any specific provision to that effect in IGRM devised by the Second Respondent in Circular No. CIR/MRD/ICC/30/2013 dated 26.09.2013, which certainly amounts to re-litigation, is barred. Inasmuch as the earlier adjudication in IGRP of the First Respondent, which culminated in its order dated 18.10.2016, does not suffer from any procedural defect, the question of invoking the inherent powers to re-open the proceeding does not arise. Though a faint plea is made by the Third Respondent that the Petitioner has played a fraud on him, the letter dated 04.10.2018 issued by the Second Respondent to the First Respondent to re-examine the complaint of the Third Respondent does not suggest of the same. What has been mentioned therein is that the Second Respondent has independently examined the complaint and those findings are examined to initiate appropriate measure as per regulation.
A preliminary opinion and no definite conclusion on the culpability of the Petitioner has been expressed to treat that any fraudulent act has been committed by the Petitioner against the Third Respondent. As such, it is not possible to uphold the re-examination of the complaint on the ground of exercise of inherent powers for any act of fraud committed by the Petitioner against the Third Respondent.
There is nothing which precludes the Third Respondent to rely on any new evidence which has come to his knowledge after the order dated 18.10.2016 passed by IGRP of the First Respondent in arbitration, which is in the nature of an original proceeding. It is needless to add here that no view has been expressed by this Court on the merits of the disputes between the Third Respondent and the Petitioner, and no authority shall be inhibited or influenced by any of the observations made in this order while adjudicating the same.
The letter dated 04.10.2018 sent by the Second Respondent to the First Respondent insofar as it suggests that IGRP of the First Respondent may re-examine the complaint of the Third Respondent, is quashed as without jurisdiction and the First Respondent shall be restrained from continuing with the IGRP proceedings initiated in pursuance thereof. It is needless to clarify here that it is for the Second Respondent to exercise its powers conferred under the statute to first make necessary amendments to IGRM so as to create provision for review of an earlier decision of IGRP of a stock exchange, if it so intends, and thereafter require the First Respondent to act in furtherence thereof.
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2020 (6) TMI 284
Reversal trades - manipulative and unfair trading - 5 Entities restrained from accessing or dealing in the securities market directly or indirectly for a period of 5 - 7 years - Further 11 entities, who have already undergone a debarment of more than 5 years from the date of the interim order have been directed to disgorge an amount of ₹ 3,05,99,174/- jointly and severally along with the 5 entities who have now been restrained along with interest @ 12% p.a. from December 17, 2012 till the date of payment -
HELD THAT:- In a scheme of manipulative and unfair trading it is not necessary that every participant should be indulging in every type of trading violation or even in the same/similar magnitude. Once they are found to be part of a group trying to manipulate the volume or price of the scrip they became party to the violation. Hair splitting arguments that some traded more than others or on more days or some indulged in synchronized reversal and self trade while others did only one of those types do not cast away their violations.
We agree with the contention of Dave that more disaggregated details are needed to prove reversal trade and in the impugned order only aggregates are given though we do not agree with their submission that reversal trade done on the same trading day only can be treated as reversal trades.
As borne out from SEBI's record that detailed calculations regarding profits made by the trading entities in respect of two entities were not given to the appellants - We also note that there is considerable discrepancy between the profits as calculated by the appellants themselves as well as SEBI as given in the impugned order though the appellants claim that those calculations are based on the trade logs given by SEBI. In order to harmonize the appellants deserve to be given details of calculations made by SEBI in respect of all noticees which admittedly is not done in the instant matter.
We pass the following directions:-
(a) Appeal No. 356 of 2019 is allowed and we permit the appellant to liquidate the shares lying in the margin account of Ghogari to the extent of the legally permissible debit amount.
(b) In respect of other 11 appeals while upholding the finding in the impugned order that the appellants have violated provisions of SEBI Act and PFUTP Regulations and therefore upholding the direction relating to the restraint imposed on the appellants we remit the matter to SEBI with the following directions:-
(i) Bring out date-wise details of reversal trades in respect of the trading noticees.
(ii) Bring out details of calculation of profits in respect of all the trading noticees.
(iii) SEBI shall provide (i) and (ii) above to all the appellants and thereafter recalculate the amount of disgorgement against the appellants and pass an order within three months from the date of this order after giving an opportunity of hearing.
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2020 (5) TMI 639
Liability of the Company and directors - repayment of the money collected through issuance of Secured Optionally Convertible Debentures - HELD THAT:- WTM relying on the provisions of sub section 2 of Section 73 of the Companies Act has observed that the liability of the Company and directors would remain until the whole of the subscription amount along with interest is refunded to the allottees.
This being the position the appellant cannot escape from the liability of the repayment. In the case of Sayanti Sen [2019 (8) TMI 1441 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] this Tribunal has observed that WTM in the impugned order therein had given a categorical finding that one Shri Shib Narayan Das was responsible for the affairs of the company. In the present case the appellant during the relevant period being a promoter director of GIIPL cannot escape from the liability.
In the case of Pritha Bag [2019 (2) TMI 1742 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] also finding that one Late Indranath Daw was the Managing Director of the defaulting company, the director Pritha Bag was exonerated by this Tribunal. Since facts are distinguishable the ratio of the same cannot be applied in the present case.
The circular of the Ministry of Corporate Affairs dated July 29, 2011 is also on the similar line indicating as to who can be held as an officer in default. Considering all the materials on record the appeal is dismissed.
Whether GIIPL did not issue SOCDs to the private entities but only to the two companies? - HELD THAT:- A new plea is raised before this Tribunal that GIIPL had a Managing Director. The appellant himself was promoter / director of GIIPL as well as of the group companies and therefore in the facts of the case he submitted that appeal be dismissed.
Appeal is liable to be dismissed. No plea was taken before the WTM that the GIIPL was run by a Managing Director. The appellant was admittedly promoter cum director of GIIPL as well as of the group companies.
Insofar as a case of Sanjeeb Kumar is concerned we find that in paragraph 25 of the impugned order the WTM clearly held that said Sanjeeb Kumar was responsible. However, in the final order his name was not merely included so far as direction no. 29(i). However, his name is included in other directions and thus it is a case of inadvertent mistake on the part of the WTM of which present appellant cannot take any benefit. The case of Madhavan Nambiar [2001 (11) TMI 955 - HIGH COURT OF MADRAS] would show that the facts of the same were different. The appeal is therefore liable to be dismissed.
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2020 (5) TMI 564
Period of limitation to initiate proceedings - proceedings were launched by respondent SEBI after a period seven years - Manipulation of scrips - Shares were either sold in off-market or through market to the connected entities in order to create a volume manipulation in the said scrips - HELD THAT:- Power to initiate the proceedings must be exercised by the authorities within a reasonable time. This would depend upon the facts and circumstances of the case, nature of the default / statute and prejudice caused to the noticee.
In the present case, the appellant neither put a plea of prejudice before the AO nor before us. It was simply stated that since the proceedings were launched by respondent SEBI after a period seven years, the same should be quashed on the ground of delay. The record would show that all the documents concerning the defense of the appellant were filed by her before the AO. Therefore, for want of any prejudice the proceedings cannot be quashed simply on the ground of delay in launching the same. Further, as explained by the learned counsel for the respondent as recorded in paragraph No. 6.4 above, large numbers of entities and transactions were analyzed by SEBI which took some time.
Appeal dismissed.
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2020 (5) TMI 428
Public offer of shares - no private placement as per assessee company as per WTM - offer to more than 49 persons - violation of the provisions of the Companies Act - HELD THAT:- Evidence indicates that an invitation was made by the management of the company to selected persons for subscription or purchase by less than fifty persons. Such persons receiving the offer or invitation was not calculated directly or indirectly to be availed of by other persons, and consequently such invitation or offer could not be treated as an offer or invitation to the public. The finding of the WTM on this aspect is absolutely perverse.
The reasoning given that merely because three allottees had made the complaints indicates that the offer or invitation falls in the category of one which is calculated to result directly or indirectly in the shares, debentures becoming available to persons other than those receiving those offer or invitation is based on surmises and conjectures. No evidence has come forward by these complainants or otherwise to show that the company had made a public offer other than these 49 persons.
Allotment was made to less than fifty allottees. Once allotment is made to less than fifty allottees by way of private allotment the first proviso to section 67(3) clearly makes it a private issue and not a public issue. Consequently, there is no violation of the provisions of the Companies Act. The order of the WTM cannot be sustained and is quashed. The appeals are allowed.
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2020 (5) TMI 427
Shares acquired without making any public announcement - as per WTM Acquisition of the shares were against Regulation 3(2) of the SAST Regulations - HELD THAT:- Though a presumption that the promoters would be persons acting in concert can be raised the same can be rebutted either by positive evidence or by negative facts discernable through the conduct of the parties. The fact that the appellant Company did not participate in acquisition of additional shares by two of the other appellants, the fact that there is no resolution passed by the present appellant and fact that there is no communication on record from the appellant Company would show that present appellant Company cannot be termed as person acting in concert. The present appeal will have to be allowed.
In the present case, what we find is that Appellant Nos.5 and 6 had not deliberately acquired the shares of the target Company but they were willy nilly required to accept the shares due to inability of the borrowers to repay the loan amount. Besides this the target Company was declared as sick Company under the BIFR and draft rehabilitation scheme was also under consideration. Thus, the act of the Appellant nos. 5 and 6 cannot be equated with corporate raiders trying to circumvent the provision of Regulation in order to seek control of the target Company. They were already promoters of the target Company and they had acquired the shares beyond the limits permitted by the creeping acquisition method. In the circumstances, the direction of the WTM cannot be sustained.
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2020 (5) TMI 366
Money mobilization - Public issue - Whether the Company came out with the Offer of RPS [Redeemable Preference Share] as stated in the Interim Order? - whether the Offer of RPS is in violation of Section 56, Section 60 and Section 73 of Companies Act, 1956? - HELD THAT:- As neither the company nor the directors have disputed the same.
Also perused the documents/information obtained from the 'MCA 21 Portal' and other documents available on records. It is noted, that OIL has issued and allotted RPS to 4,191 investors during the financial years 2011-12 and 2012-13 and raised a total amount of ₹ 5,46,48,000/- - number of allottees and funds mobilized has been collated from the information from Ministry of Corporate Affairs (MCA) Portal and the documents submitted with the complaint received by SEBI. Therefore, it is possible that the actual number of allottees and amount mobilized could be more than 4,191 allottees and ₹ 5,46,48,000/- respectively.
Therefore conclude that OIL came out with an Offer of RPS as outlined above.
Securities to more than 49 persons - public issue and the provisions of Section 56 not followed - Violation of Section 56, Section 60 and Section 73 of Companies Act, 1956 - HELD THAT:- OIL assessee has issued RPS to more than 50 persons and it is noted that in financial years 2011-12 and 2012-13 RPS has been issued to 4,191 allottees. It may be noted that even in cases where the issue is made in tranches and any one of the tranche has not exceeded forty nine people, reference may be made to the in Neesa Technologies Ltd. v. SEBI [2017 (4) TMI 1500 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] which lays down that "In terms of Section 67(3) of the Companies Act any issue to '50 persons or more' is a public issue and all public issues have to comply with the provisions of Section 56 of Companies Act and ILDS Regulations. Accordingly, in the instant matter the appellant has violated these provisions and their argument that they have issued the NCDs in multiple tranches and no tranche has exceeded 49 people has no meaning". Therefore, I hold that even if one or more of the tranche is 49 or less, in view of this judgment, the issue qualifies as deemed public issue.
OIL has allotted RPS to more than forty-nine allottees, I find the offer of RPS is a "public issue" within the first proviso of Section 67(3) of Companies Act. Hence, the Offer of RPS are deemed to be public issues and OIL was mandated to comply with the 'public issue' norms as prescribed under the Companies Act.
Since the Offer of RPS is a public issue of securities, such securities shall also have to be listed on a recognized stock exchange, as mandated under section 73 of the Companies Act. As per section 73(1) and (2) of the Companies Act, a company is required to make an application to one or more recognized stock exchanges for permission for the shares or debentures to be offered to be dealt with in the stock exchange and if permission has not been applied for or not granted, the company is required to forthwith repay with interest all moneys received from the applicants.
Allegations of non-compliance of the above provisions were not denied by OIL or its directors. I also find that no records have been submitted to indicate that it has made an application seeking listing permission from stock exchange or refunded the amounts on account of such failure. Therefore, I find that OIL has contravened the said provisions. Moreover, the allegations of non-compliance of the above provisions are not denied by the Directors of the company. OIL has contravened the provisions of sections 73(1) and (2) of the Companies Act.
No material is available on record or submitted by the aforesaid Directors of OIL to show that the amount collected by the company was kept in a separate bank account. OIL has also not complied with the provisions of section 73(3) which mandates that the amounts received from investors shall be kept in a separate bank account.
As the Offer of RPS was a deemed public issue of securities, OIL was required to register a prospectus with the RoC under section 2(36) read with Section 60 of the Companies Act. OIL has not submitted any record to indicate that it has registered a prospectus with the RoC, in respect of the Offer of RPS. OIL has not complied with the provisions of Section 60 of the Companies Act, 1956.
As per section 56(3) of the Companies Act, 1956, no one shall issue any form of application for shares in a company, unless the form is accompanied by abridged prospectus, containing disclosures as specified. Neither OIL nor its directors produced any record to show that it has issued Prospectus containing the disclosures mentioned in section 56(1) of the Companies Act, 1956, or issued application forms accompanying the abridged prospectus. Therefore, OIL has not complied with sections 56(1) and 56(3) of the Companies Act, 1956.
OIL was engaged in fund mobilizing activity from the public, through the Offer of RPS and has contravened the provisions of sections 56(1), 56(3), 2(36) read with 60, 73(1), 73(2), 73(3) of the Companies Act, during the financial years 2011-2012 and 2012-2013.
Liability for violations committed - A person cannot assume the role of a Director in a company in a casual manner. The position of a 'Director' in a company comes along with responsibilities and compliances under law associated with such position, which have to be fulfilled by such director or face the consequences for any violation or default thereof. The aforesaid Directors cannot therefore wriggle out from liability. A Director who is part of a company's Board shall be responsible and liable for all acts carried out by a company. Accordingly, I note that aforesaid Directors are responsible for all the deeds/acts of the company during the period of their directorship and are obligated to ensure refund of the money collected by the company to the investors as per the provisions of Section 73 of Companies Act.
Natural consequence of not adhering to the norms governing the issue of securities to the public and making repayments as directed under section 73(2) of the Companies Act, is to direct OIL and its Directors, viz., Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati to refund the monies collected, with interest to such investors. Further, in view of the violations committed by the Company and its Directors, to safeguard the interest of the investors who had subscribed to such RPS issued by the Company, to safeguard their investments and to further ensure orderly development of securities market, it also becomes necessary for SEBI to issue appropriate directions against the Company and the other Noticees.
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2020 (5) TMI 326
Non-compliance of summons issued by SEBI - whether the appellant has violated provisions of Section 11C(3) of the SEBI Act? - whether clause 43 of the Listing Agreement has been violated by not disclosing to the Stock Exchange the alleged variations between the projected utilization of funds and the actual utilization of funds raised through the preferential allotment? - HELD THAT:- Though the appellant may be charged with non-submission of full information the submission of the appellant that the management of the appellant was new etc. has to be given some weightage while imposing the penalty. Given this and the facts of the matter, we are of the view that the amount of penalty at the rate of ₹ 10 lakh on this violation is on the higher side particularly when the appellant did provide part of the information readily available with them.
Non-reporting of the variations relating to the proceeds/funds raised through preferential allotment- It is an admitted fact that, during the interim, part of the funds were loaned out to various entities. Even if these funds have come back subsequently and in some cases with interest the matter needed to be disclosed to the Stock Exchange in terms of the requirements of Section 21 of SCRA and clause 43 of the Listing Agreement which has not been done.
Note from paragraph 23 of the impugned order that the claim of the appellant that in all cases they received interest on the loans given to other parties is not correct as in four out of eight instances no interest has been received and in one instance in fact even the full amount of principal also was not received (in place of an advance against property of ₹ 1.75 crore appellant has received only ₹ 1.71 crore). In any case from the same paragraph we note that 41% of the allotment proceeds were invested in shares and another 45.31% was loaned out to seven entities out of which three did not pay any interest and in one instance of advance against the property instead of getting the property only part of the advance was returned. So the contention in the impugned order that the proceeds were not used according to the objective specified cannot be faulted and the same was not reported is an admitted fact. Given these facts imposition of penalty of ₹ 20 lakh cannot be said to be arbitrary or harsh.
We reduce the penalty amount imposed under section 15A(a) of SEBI Act from ₹ 10 lakh to ₹ 5 lakh and retain the penalty amount imposed under section 23E of SCRA at ₹ 20 lakh.
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2020 (4) TMI 315
Private placement of securities - Allotment of Unsecured Fully Convertible Debentures (FCDs) in excess of 500 members - increase in the subscribed capital of the Company - section 71(5) - issuance of FCDs by the Company was public issue OR not? - WTM directed to cancel the FCDs and forthwith refund the money collected till date through the issuance of FCDs including the application money collected from investors,restriction to the number of shareholders to whom the debentures would be issued - appointment of trustees - HELD THAT:- Shareholders in their 68th Annual General Meeting held on 28th September, 2015 passed a special resolution to allot and issue 1,92,900 Fully Convertible Debentures of ₹ 250/- with the condition that the shareholders will have no right to renounce the offer in favour of any person and that these debentures would be mandatorily converted into shares upon maturity. Thus, we find from the resolution that the increase in the subscribed capital of the Company was caused by the exercise of an option which was a term, namely, a condition that the issuance of the debentures cannot be renounced in favour of any other person - provision of section 62(3) was duly complied with by the Company and was fully applicable. Further, there is nothing to indicate that the conditions mentioned in Rule 18 were not complied with. In fact the WTM has failed to notice this provision.
Once this provision is applicable which is an exception to the issuance of share capital under section 62 the same is not a public offer and, therefore, the provisions of part I of Chapter III of the Companies Act are not applicable. Accordingly, the provisions of section 40 which are required to be complied with in case of a public issue is not required to be followed as in the instant case we find that the issuance of FCDs by the Company was not a public issue and the Company was not mandated to comply with the requirement of public issue under Part I of Chapter 3 of the Companies Act.
Company had passed a special resolution under section 62(3) read with section 71 in respect of issuance of FCDs. The prospectus and the explanatory statement clearly state that the only members holding equity shares were eligible for allotment. It is clear that the offer of FCDs was made to the existing shareholders of the Company. Consequently, the Company was not required to ensure compliance with the limit of allottees as applicable in the case of private placement of securities.
WTM was enamoured with the provisions of Section 42 and 62(1)(2) and fortified her findings by referring to Rule 13 of the Debenture Rules and 14(2)(b) of the Securities Rules. The WTM went to the extent of quoting these Section and Rules in extenso but failed to quote or even look into the provisions of section 62(3), 71 and Rule 18 of the Debenture Rules. Had any effort been made to consider these provisions, there would be no doubt that a different conclusion would have been arrived at instead of brushing aside with the observation "the trigger for action in the present case in offer of FCDs itself and not of exercising an option to convert a debenture into shares of the Company". Clearly, the WTM has not understood the import of the exception clause, namely Section 62(3). We find that the WTM was more enamoured with the restriction of 200 persons contemplated in Section 42 and Rule 14(2)(b) of the Securities Rules and revolved its order around these provisions.
No offer can be made to its members exceeding 500 for the subscription of its debentures unless the Company, before such offer or issue has appointed a trustee. Thus, the restriction is that debentures could be issued to only 500 persons if there is no trustee appointed by the Company. However the restriction of 500 persons is done away if a trustee was appointed by the Company. In the instant case, it is an admitted fact that a trustee was appointed. Thus there was no restriction to the number of shareholders to whom the debentures would be issued.
In the light of the aforesaid, the impugned order passed by the Whole Time Member cannot be sustained.
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