TMI Blog2019 (4) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... rial fact the investors were unaware of this financial liability as well as the fact that this loan would be paid from the IPO proceeds. Such information was required to be disclosed in the prospectus. Non disclosure was in violation of Regulation 60(4) of the ICDR Regulations which requires disclosure of all material developments. Loans taken prior to the issuance of the IPO has a bearing in as much as the said loan was eventually paid from the IPO proceeds. Non disclosure was in violation of Regulation 60(4) of the ICDR Regulations which requires disclosure of all material developments. Loans taken prior to the issuance of the IPO has a bearing in as much as the said loan was eventually paid from the IPO proceeds. In our opinion, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te i/b. Desai Diwanji ORDER Per : Justice Tarun Agarwala 1. The Appellant has filed the present appeal against an order dated 12th May, 2017 passed by the Adjudicating Officer of Securities and Exchange Board of India (referred to hereinafter as SEBI ) under Section 15-I of the Securities and Exchange Board of India Act, 1992 (referred to hereinafter as SEBI Act ) read with Rule 5 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 whereby the Adjudicating Officer has imposed penalty of ₹ 8,00,000/- under Section 15HB of the SEBI Act for violation of Regulation 64(1) of the Securities and Exchange Board of India (Issue of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid disclosures and, therefore, violated Regulation 64(1) of the ICDR Regulations as well as Regulation 13 of Merchant Bankers Regulations read with Clauses 1 to 7 and 21 of the Code of Conduct for Merchant Bankers specified in Schedule III of the Merchant Bankers Regulations. 3. Pursuant to the reply filed by the appellant, the Adjudicating Officer found that the appellant had violated the provisions of Regulation 64(1) of the ICDR Regulations holding that a crucial fact was not disclosed in the prospectus and therefore the Adjudicating Officer imposed a penalty of ₹ 8,00,000/- under Section 15HB of the SEBI Act. 4. We have heard Mr. Deepak R. Shah, Advocate for the appellant and Mr. Karan Bhosale, Advocate assisted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntain all material disclosures which are true and adequate so as to enable the applicants to take an informed investment decision. ( 2) Without prejudice to the generality of sub-regulation (1): ( a) the red-herring prospectus, shelf prospectus and prospectus shall contain: (i) the disclosures specified in Schedule II of the Companies Act, 1956; and ( ii) the disclosures specified in Part A of Schedule VIII, subject to the provisions of Parts B and C thereof. Clause 2(VII) (G) and (XVI) (B)(2) of Part A of Schedule VIII read with regulation 57(2)(a). 2(VII)(G)- Sources of financing of funds already deployed: The means and source of financing, including details of bridge loan or other financial arrangement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material developments. Loans taken prior to the issuance of the IPO has a bearing in as much as the said loan was eventually paid from the IPO proceeds. In our opinion, this was a material fact which was required to be disclosed in the prospectus. Thus, the Adjudicating was justified in holding that there was a violation of Regulation 57 of the ICDR Regulations. 9. In the light of violation of the provisions of Regulation 57 we find that the appellant did not exercise due diligence nor satisfied himself with regard to all aspects of the issue including the veracity and adequacy of disclosure in the offer document. We find that quite apart from the fact that the loan taken was not disclosed in the prospectus, a wrong statement was made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be tolerated in this regard in as much as it is on the strength of the disclosures made in the prospectus that the investors take a decision to invest. The prospectus requires that full and fair disclosure of the state of affairs of the Company should be disclosed and that the Merchant Banker is required to conduct due diligence in respect of the disclosures. A Merchant Banker is appointed for the purpose of managing the issue of an IPO of a Company and, therefore, plays a fiduciary role by coordinating the activities of the Company, the Regulatory Bodies, and the Investors. The Merchant Banker is required to present the Company s information to the investors in a fair, concise and unambiguous form. By not furnishing full disclosu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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