TMI Blog2019 (8) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... closure 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 listed entity was required to notify the Stock Exchange where such assessment, etc. had a material impact and shall continue to inform the Stock Exchange till the cessation/conclusion/settlement of the event/dispute. In the light of the above, we find that the assessment order 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 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 - HELD THAT:- No error in the finding given by the AO that the appellant company had violated Regulation 13(6) and 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 PIT Regulations. no such disclosure has been filed to show that a particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for violation of Regulation 13(6) of SEBI (Prohibition of Insider Trading) Regulations ( PIT Regulations for convenience) 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. 3. The facts leading to the filing of Appeal No. 358 of 2015 is, that on September 30, 2009 the appellant filed the return of income for the Assessment Year 2009-2010 under Section 139(1) of the Income Tax Act, 1961 ( IT Act for convenience) declaring a loss of ₹ 64.83 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 23A and 23E of the SCRA and accordingly imposed a penalty totaling ₹ 2 crores. 7. We have heard Ms. Fereshte Sethna, the learned counsel assisted by Shri Adhiraj Malhotra the learned counsel for the appellant and Shri Kevic Setalvad the learned senior counsel assisted by Shri Anupam Surve, Advocate on behalf of the respondent. 8. A preliminary objection was raised by the learned counsel for the appellant that in view of Regulation 16(2) of the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2014, the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Guidance Note on Clause 36 of the Listing Agreement issued by the Stock Exchange. It was further contended that under Clause 41 of the Listing Agreement the audited financial results are required to be filed within sixty days from the end of the financial year and accordingly submitted that a reasonable period under Clause 36 has to be allowed to the company/appellants to disclose the material information under Clause 36 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 holders and the public to appraise the position of the Issuer and to avoid the establishment of a false market in its securities. In addition, the Issuer will furnish to stock exchange(s) on request such information concerning the Issuer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act (emphasis is ours). The said information is required to be made public immediately (emphasis is ours). Such information is required to 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/co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest of the listed entity, then limited disclosure should be made. Further, the Guidance Note clearly indicates that the listed entity was required to notify the Stock Exchange where such assessment, etc. had a material impact and shall continue to inform the Stock Exchange till the cessation/conclusion/settlement of the event/dispute. 17. In the light of the above, we find that the assessment order 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly. It was urged that the word immediately should be construed liberally and not literally and, thus, contended that a reasonable time has to be given to make appropriate disclosure under Clause 36 of the Listing Agreement. In support of the submissions, the learned counsel has placed reliance upon a decision in Rosali V. vs. Taico Bank and Ors. (2009) 17 SCC 690 where the Supreme Court held that the word immediately should mean within a reasonable time and further held that is a well-settled principle 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which means with all reasonable quickness and within a reasonably prompt time. 26. In the light of the aforesaid and considering the importance of disclosure under Clause 36 of the Listing Agreement, in our opinion, information was required to be given to the Stock Exchange at the earliest without any undue delay. 27. Assuming for a minute that a reasonable time should be allowed to make the necessary disclosure under Clause 36 of the Listing Agreement, we find that in the instant case, no disclosure was made at all and the disclosure, if any, was made belatedly on May 08, 2014 purportedly under Clause 41 of the Listing Agreement. Assuming that information was provided, we are of the opinion there had been an inordinate 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 Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us do not find any error in the quantum of penalty. 30. Under Section 23E of the SCRA the penalty 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. 31. 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 conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue, it would be appropriate to extract the provision of Regulation 13(6) and 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 PIT Regulations as under: Disclosure by company to stock exchanges. Every listed company, within two working days of receipt, shall disclose to all stock exchanges on which the company is listed, the information received under subregulations (l), (2), (2A), (3), (4) and (4A) in the respective formats specified in Schedule III. Clause 2.1 of Code of Corporate Disclosure Practices for Prevention of Insider Trading specified in Schedule II states that price sensitive information shall be given by listed companies to stock exchanges and disseminated on a continuous and immediate basis. Clause 3.2 of Code of Corporate Disclosure Practices for Prevention of Insider Trading specified in Schedule II states that this official (designate a senior official such as compliance officer) shall be responsible for ensuring that the company complies with continuous disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id requirement. If the requirement was only to send , on sufficient proof of posting the letter would have in the normal course to some extent met with such a requirement. But Regulation 7(1) requires the acquirer to disclose the aggregate of his holding in the Target Company to the company. Sub regulation (2) prescribes the time limit within which the disclosure is required to be made. Therefore the crucial question is whether the requisite disclosure has been made by the Appellant. For the purpose it is necessary to know what is meant by disclosure in the sense in which it is used in the regulation. Disclosure is required to be made to the Target Company. Disclose to the company is the clue. Disclose according to Websters Encyclopedic Dictionary means - to make known, reveal or uncover- to cause to appear, allow to be seen, lay open to view. According to Blacks Law Dictionary Disclosure means- act of disclosing, revelation, the impartation of that which is secret or not fully understood. Disclose is to expose to review or knowledge anything, which before was secret, hidden or concealed. Thus the requirement is that the information should reach the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision not to disclose the tax demand was a conscious decision taken by the management of NDTV. Thus, all the Directors cannot escape their liability of the penalty imposed. 41. Clause A of the Guidance Note on Clause 36 of the Listing Agreement provides that the listed company shall determine an authority who would be entitled to make the disclosure. The authority would be the Board of Directors or CEO, etc. as decided by the management of the listed entity. For facility, Clause A of the Guidance Note is extracted hereunder: A. Authority for making disclosures: Every Listed Entity shall have a policy determining the authority within the entity that is entitled to take a view on the materiality of an event that qualifies for disclosure under Clause 36 to decide the appropriate time at which such disclosure is to be filed with Exchange and details that may be filed in the best interest of present and potential investors. The authority could be Board of Directors or CEO or an operating committee of Senior Level Executives or Key Managerial Personnel (as defined under Companies Act, 2013) etc., as decided by the management ..... X X X X Extracts X X X X X X X X Extracts X X X X
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