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2019 (8) TMI 589

..... on 23E of the SCRA for failure to comply with Clause 36 of the Listing Agreement - penalties under Section 15A(b) of the SEBI Act, 1992 as well as under Section 23A(a) and Section 23E of the SCRA for violation of Regulation 13(6) of SEBI (Prohibition of Insider Trading) Regulations read with Clauses 2.1 and 7.0(ii) of Schedule II for Code of Corporate Disclosure Practices for Prevention of Insider Trading specified in Schedule II read with Regulation 12(2) of PIT Regulations as well as violation of Clause 36 of the Listing Agreement - HELD THAT:- Guidance Note indicates that the listed company is required to consider the impact of such disclosure on legal/ court proceedings while making the disclosure and if the listed entity is of the opinion that making any such disclosure was not in the interest of the listed entity then such disclosure may be limited to the extent of stating the occurrence of the event. Thus, a discretion was given to the Company to decide whether full disclosure should be made to the Exchange and where such information was not in the interest of the listed entity, then limited disclosure should be made. Further, the Guidance Note clearly indicates that the lis .....

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..... is a minimum of ₹ 5 lakh upto a maximum of ₹ 25 crores. We find that in the instant case, the appellant failed to comply with the listing conditions and considering the factors the AO imposed a penalty of ₹ 1,75,00,000/- (Rupees Once Crore Seventy Five Lakhs only). We do not find any reason to hold that the said quantum was unreasonable or arbitrary. In our opinion, considering the material event which was not disclosed we are of the opinion, that the penalty imposed is just and proper in the circumstances of the case. The contention that Rule 5 of Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 2005 was not taken into consideration while adjudging the quantum of penalty is wholly erroneous. The factors contemplated under Rule 5 of the Rules 2005 are the same as factored in Section 23J of the SCRA. These factors were duly considered based on which the authority has not imposed the maximum penalty. Thus, the contention that the factors were not taken into consideration is patently erroneous. Appeal filed by the Company NDTV, its Directors and Compliance Officer - non-disclosure of ₹ 450 c .....

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..... asani, Advocates i/b DMD Advocates For The Respondent : Mr. Kevic Setalvad, Senior Advocate with Mr. Anupam Surve, Mr. Abhiraj Arora and Mr. Vivek Shah, Advocates i/b ELP ORDER Per: Justice Tarun Agarwala 1. Even though different orders have been passed by the Adjudicating Officer ( AO for convenience) of the Securities and Exchange Board of India ( SEBI for convenience) the issue involved is more or less the same and is also interlinked and therefore both the appeals are being decided together. 2. Appeal No. 358 of 2015 has been filed against the order dated June 04, 2015 passed by the AO of SEBI imposing a penalty of ₹ 25,00,000/- (Rupees Twenty Five Lakhs only) for violation of Section 23A of the Securities Contracts (Regulation) Act, 1956 ( SCRA for convenience) and ₹ 1,75,00,000/- (Rupees Once Crore Seventy Five Lakhs only) for violation of Section 23E of the SCRA for failure to comply with Clause 36 of the Listing Agreement. Appeal No. 150 of 2018 has been filed against the order dated March 16, 2018 passed by the AO imposing penalties under Section 15A(b) of the SEBI Act, 1992 ( SEBI Act for convenience) as well as under Section 23A(a) and Section 23E of the SCRA .....

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..... f the Listing Agreement it is alleged that the audited financial results for the financial year 2013- 2014 was uploaded on the appellants website in which the appellant made the disclosure in relation to the alleged tax liability of 450 crores. Based on the aforesaid disclosure the Stock Exchange asked for necessary clarification, based on which the appellant disclosed the information to National Stock Exchange of India Limited ( NSE for convenience) vide letter dated May 26, 2014 and to BSE Limited ( BSE for convenience) vide letter dated May 29, 2014. 6. In the light of the aforesaid, a show cause notice dated February 12, 2015 was issued calling upon the appellant to show cause why penalty should not be imposed under Section 23A and 23E of the SCRA for violation of Clause 36 of the Listing Agreement. The AO after calling for the reply and after giving an opportunity of hearing found that the appellant had violated provision of Clause 36 of the Listing Agreement by belatedly disclosing the tax demand raised by the Assessing Officer pursuant to the assessment order. The AO found that for the violation of Clause 36 of the Listing Agreement monetary penalty was attracted under Secti .....

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..... inspite of several opportunities we have proceeded to hear the matter on merits. 10. On merits, it was contended that an absurd demand was raised by the Assessing Officer and such high-pitched assessment was not only illegal but was passed without any application of mind. It was contended that the management of the company took legal advice from a tax lawyer who advised them to file an appeal based on which the appeal was filed and an interim order was obtained wherein the tax demand was stayed subject to certain conditions. It was contended that it was not necessary for the appellant to immediately intimate the Stock Exchange with regard to the development and the outcome of the assessment order and that the appellant was allowed a reasonable time and opportunity to arrange its affairs and take remedial action before the Appellate Authority/ Court before making the disclosure under Clause 36 of the Listing Agreement. It was thus contended, that the word immediately as stipulated in Clause 36 of the Listing Agreement does not mean that information with regard to the tax demand should be made public instantly and that a reasonable period should be allowed to be given in view of the .....

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..... nt company was not required to disclose the Assessment Order under Clause 36. The learned counsel before us, however, argued that the disclosure was made belatedly. 13. On the other hand, the learned counsel for the respondent contended that the order passed by the AO does not suffer from any manifest error of law in as much as the appellant had clearly violated the provision of Clause 36 of the Listing Agreement and since necessary disclosure was not made, appropriate penalty was imposed which requires no interference. 14. We have heard the learned counsel for the parties at some length. Before proceeding further, it would be appropriate to refer to Clause 36 of the Listing Agreement which is extracted hereunder: Apart from complying with all specific requirements, the Issuer will intimate to the Stock Exchanges, where the company is listed immediately of events such as strikes, lock outs, closure on account of power cuts, etc. and all events which will have a bearing on the performance / operations of the company as well as price sensitive information both at the time of occurrence of the event and subsequently after the cessation of the event in order to enable the security hold .....

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..... be intimated to the Stock Exchange immediately. The aforesaid provision makes it apparently clear that the information which will have a material impact on present or future operations or profitability or financials of the company is required to be reported promptly and immediately should be made public. 15. In this regard, Clause 6 and 7 of the Guidance Note of the Clause 36 of the Listing Agreement issued by the Stock Exchange is extracted hereunder: 6. Disclosure relating to Litigation/dispute/regulatory action with a material impact: * The Listed entity shall keep the Exchange informed of any litigation/dispute developments with respect to any dispute in conciliation proceedings, litigation, assessment, adjudication or arbitration to which it is a party or the outcome of which can reasonably be expected to have a material impact on its present or future operations or its profitability or financials. The Listed entity may consider the impact of such disclosure on legal/court proceedings while making the disclosures and make the disclosure accordingly. If, Listed Entity is of the opinion that making any such disclosure is not in the interest of the Listed Entity, disclosure may b .....

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..... and the demand raised pursuant thereto is a material event and had a material impact on the profitability / financials of the company. It has come on record that the networth of the company was ₹ 365 crores and a demand of ₹ 450 crores was made in the assessment order. Such demand which eats away the networth of the company is in our opinion a material event and the assessment order had a material impact which the company was required to report to the Exchange promptly and which was required to be made public immediately . 18. We also find that in the instant case a conscious decision was taken by the management of the company not to disclose the said information under Clause 36 of the Listing Agreement. In fact, when clarification was sought by the Stock Exchanges it is only then the information was provided at a belated stage on May 26, 2014 and May 29, 2014 after more than 3 months of the final assessment order dated February 21, 2014. Thus, we are of the opinion, there was gross failure on the part of the appellant in not making the disclosure under Clause 36 of the Listing Agreement. The contention that the information was supplied belatedly is misconceived and an .....

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..... of interpretation of a statute that where literal meaning leads to anomaly and absurdity, it should be avoided. 21. As per Black s Law Dictionary-eighth edition, the word immediate means occurring without delay, instant. As per Black s Law Dictionary-sixth edition, the term immediately means without interval of time, without delay, straightaway, or without any delay or lapse of time. The words forthwith and immediately have the same meaning. They are stronger than the expression within a reasonable time. and imply prompt, vigorous action, without any delay. 22. In Wharton s Law Lexicon the term immediately in the statute, means within a reasonable time. In Words and Phrases, the word immediately when used in a statute, is not synonymous with then and there . 23. Thus in a strict sense the word immediately means at once, forthwith, instantaneously or instantly and is also defined as meaning promptly, quickly, without delay, without interval or without lapse of time. However, in a broader relative sense, the term immediately means within a reasonable time, necessarily exclude all mesne time and is often construed to mean as soon as an act can be performed within a reasonable time. 2 .....

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..... e delay in disseminating the information. The assessment order was passed on February 21, 2014. An interim order was passed on March 21, 2014 and no effort was made to disclose the information even after obtaining an interim order. The information was made belatedly after more than 3 months which cannot be construed to be a reasonable period. Thus we are of the opinion, that the appellant had violated Clause 36 of the Listing Agreement and was liable for imposition of penalty. 28. The penalty has been imposed under Section 23A and 23E of the SCRA. For facility, the said provision is extracted hereunder: Penalty for failure to furnish information, return, etc.- 23A. Any person, who is required under this Act or any rules made thereunder, (a) to furnish any information, document, books, returns or report to a recognised stock exchange, fails to furnish the same within the time specified therefor in the listing agreement or conditions or bye-laws of the recognised stock exchange, shall be liable to a penalty [which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees] fo .....

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..... f the Rules 2005 are the same as factored in Section 23J of the SCRA. These factors were duly considered based on which the authority has not imposed the maximum penalty. Thus, the contention that the factors were not taken into consideration is patently erroneous. 32. Appeal No. 150 of 2018 has been filed by the Company NDTV, its Directors and Compliance Officer. On the basis of a complaint, a show cause notice dated August 20, 2015 was issued to the appellants for non-disclosure of ₹ 450 crores demand raised by the Income Tax Department under Clause 36 of the Listing Agreement as well as delayed disclosure by the Appellant No. 1 under PIT Regulations and non-compliance by all the appellants under Clauses 2.1, 3.2 and 7.0 (ii) of Schedule II for Code of Corporate Disclosure Practices for Prevention of Insider Trading read with Regulation 12(2) of SEBI (Prohibition of Insider Trading) Regulations ( PIT Regulations for convenience) Regulations. 33. According to SEBI, the non-disclosure of the tax demand under Clause 36 of the Listing Agreement was also a price sensitive information under the PIT Regulations which the Company was required to disclose the same to both the Stock .....

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..... responsible for ensuring that the company complies with continuous disclosure requirements. Overseeing and co-ordinating disclosure of price sensitive information to stock exchanges, analysts, shareholders and media and educating staff on disclosure policies and procedures. Clause 7.0(ii) of Code of Corporate Disclosure Practices for Prevention of Insider Trading specified in Schedule II states that corporates shall ensure that disclosure to stock exchanges is made promptly. Regulation 12(2) of SEBI (PIT) Regulations states that the entities mentioned in sub31 regulation (1), shall abide by the Code of Corporate Disclosure Practices as specified in Schedule II of SEBI (PIT) Regulations. 36. The Director of the Company Mr. K.V.L. Narayan Rao had sold some shares and intimated the Company under Regulation 13(6). The company was required to disclose the said sale of shares to all the Stock Exchanges in the prescribed form. It was contended by the learned counsel for the appellant that the dispatch of the information was sent by courier within the stipulated period of two days. This fact was disbelieved by the AO as NSE and BSE confirmed to the AO that the disclosure was received on M .....

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..... e of the information under Regulation 13(6) would only be completed when the said information was received by the Stock Exchange. Reliance placed by the appellant on Section 27 of the General Clauses Act, 1897 is wholly misconceived. Section 27 of the General Clauses Act, 1897 states that there is a presumption of deemed service if the letter is sent at the correct address with requisite postal charges. This deemed service under Clause 27 of the General Clauses Act, 1897 will not apply in the instant case in as much as it was clearly mentioned in the show cause notice that the alleged letters dated December 28, 2013 and December 16, 2014 were never received by the Stock Exchanges and that the information was only made available to the said Exchanges for the first time on March 27, 2014. Thus, the burden was upon the appellant to prove by necessary evidence that the disclosure sent through a letter by a courier was duly received by the Stock Exchange. Filing of dispatch receipts given by the courier was not sufficient to prove service. What was necessary was the delivery receipt which in the instant case was not produced. In our view, proof of dispatch of courier was not sufficient .....

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..... ed has been duly authorized. In the instant case, no such disclosure has been filed to show that a particular authority was nominated for such purpose. On the other hand the stand of the appellants was that a conscious decision was taken by the management not to disclose the material event. 42. We are thus of the view, that the imposition of ₹ 2 lakh upon the Compliance Officer for violation of Clause 36 of the Listing Agreement was unjustified. The Compliance Officer works under the direction of the Board of Directors of the Company. It was not open to the Compliance Officer to comply with Clause 36 of the Listing Agreement. At the end of the day, the Compliance Officer is only an employee of the Company and works on the dictates and directions of the management of the Company. Thus, when the entire management is being penalized, it was not open to the AO to also book the Compliance Officer for the said fault. We accordingly, hold that the imposition of penalty of ₹ 2 lakh on the Compliance Officer cannot be sustained and, to that extent, the order cannot be sustained. The Compliance Officer was however liable to comply with the disclosure under Regulation 13(6) and Cl .....

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