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2020 (1) TMI 524 - AT - SEBIMis-utilised public issue proceeds contrary to the stated intent of investment in the company's subsidiary and augmenting the company's working capital - violating the provisions of Regulation 57 (1), Clause (XV10)(2) of Part A of Schedule VIII and regulation 60(4) of SEBI (Issuance of Capital & Disclosure Requirements) Regulations 2009 ("ICDR Regulations") read with Section 12A(a), (b) and (c) of the SEBI Act, 1992 and; regulations 3(b)(c)(d), regulations 4(1) and 4(2)(f), (k) and (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations 2003 ("PFUTP Regulations") - Whether IGSL made false statements in its RHP and prospectus with respect to raising bridge loans? - Whether IGSL failed to disclose acceptance of deposits under Section 58A of the Companies Act, 1956, thereby violating regulation 57(1) of the ICDR Regulations? - HELD THAT:- Referring to submissions of Mr. Modi that the Company was entitled to withdraw the earlier investment made in IFPL cannot be disputed. WTM in the impugned order at page no.25 at table no.7 had taken efforts to show that IFPL continues to reduce advancing loans against shares but increasing the same against unsecured loans, however, what would be the market constraint for the subsequent period cannot be gauged and the same are not part of the present enquiry. In the circumstances, in our view, this charge of making a wrong/false disclosure in the ICDR of funding ₹ 30 crores to IFPL for advancing loan against shares holds no water. Undisclosed Bridge loan - In financial world, bridge loan is understood as a short term accommodation availed by an entity awaiting the permanent financial resources. In the present case, as per the Company itself short term accommodation was sought from KRSPL and the same was repaid on 3rd August, 2011 i.e. post receipt of IPO money. These facts itself clarify that the bridge loan was raised by the Company. However, in the prospectus it was positively declared that the Company has not raised any bridge loan. Thus on this count it can clearly be declared that a false/wrong declaration was made in the prospectus in violation of ICDR Regulations. Security Deposits - WTM held that though the issue of security deposit in view of the provisions of Section 55A of the Companies Act, the jurisdiction would lie with the Central Government, for the purposes of disclosure of the deposit under ICDR Regulations the SEBI would have jurisdiction - In our view, the finding of the WTM cannot be faulted with. During investigation the Company emphatically came with a case that all these transactions were security deposits. It is clear that ₹ 21.61 crores was repaid post IPO. Only when the show cause notice was issued the Company came with a case that it was not a security deposit but an amount kept in an account for adjustment towards the debit balance of the related accounts. It is, however, a fact that the amount was repaid after the IPO proceeds were received. As found, the deposits were more than 25% of the IPO proceeds and was therefore material information under the ICDR Regulations. The decision of the WTM that the Company failed to disclose the deposits in the prospectus and, therefore, violated the Regulation therefore needs no interference. To conclude, the charge that the Company has misulitised part of the fund by failing to appropriate the necessary amount towards money advanced by its subsidiaries specifically cannot be sustained. The charge of bridge loan is proved to the extent of the aspect of raising the same from KRSPL. The next charge of non disclosure of security deposit in the prospectus also stands proved. Disclosures by independent directors - As urged that the appellants being independent director had no knowledge of the relevant non disclosures - Appellant therein were independent directors and were not involved in the day to day management and control of the Company. In the circumstances, the argument of the respondent SEBI that they had put their signatures in the prospectus were taken into consideration. It was finally concluded that disclosures could not be attributed to them as they were independent director and they were not associated in the day to day management or control over the Company. In the circumstances, the appeal was allowed.
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