TMI Blog2019 (10) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... arge of diversion of IPO proceeds is concerned the Tribunal in its earlier order held that the charge of violating PFUTP Regulations was not established by any cogent reasoning or convincing evidence. The Tribunal also found that the purchase of land by the appellant was genuine and not illegal or fabricated Since the appellant had already undergone a considerable period of debarment pursuant to the order of SEBI, the Tribunal reduced the debarment from ten years to seven years for the partial disclosure of information in the prospectus. In the ultimate analysis, the order of debarment was for violation of partial disclosure in the prospectus and not for violation of PFUTP Regulations. The AO while imposing the penalty has not factored this debarment while fixing the quantum of penalty. Further, in our opinion, the factors contemplated under Section 15J was also not considered by the AO in the right perspective. Penalty can be imposed for failure to carry out a statutory obligation under the SEBI s Act. Factors contemplated under Section 15J are required to be taken into consideration before imposing a penalty. If it is found that a party has not acted deliberately, then the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside - APPEAL NO. 281 OF 2017 - - - Dated:- 2-8-2019 - Mr Tarun Agarwala, Presiding Officer, Mr Dr. C.K.G. Nair, Member And Justice M.T. Joshi, Judicial Member For The appellants : Mr. Shyam Mehta, Senior Advocate with Ms. Rishika Harish and Ms. Akshaya Bhansali, Advocates i/b Mindspright Legal For The Respondent : Mr. Mustafa Doctor, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar Co. for the ORDER Per : Justice Tarun Agarwala, Presiding Officer 1. P.G. Electroplast Ltd. ( PGEL for short) had come out with Initial Public Offering (IPO) in August, 2011 for issue of 57,45,000 equity shares of face value of ₹ 10/- each. When the shares was listed on the BSE Limited ( BSE for short) and National Stock Exchange of India Limited ( NSE for short) platform in September, 2011, Securities and Exchange Board of India ( SEBI for short) noticed fluctuation in the price of the scrips of the Company following the day of listing and consequently initiated an investigation into the said scrip. Based on the preliminary findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been established between the Appellant itself and entities further down in the line of transfer which eventually purchased the Appellant s shares and dealt in its scrip once it was listed on the stock exchange. There is no commonality of directors, or registered addresses or any other incidents which can lead to such an inference that the Appellant was involved in the transfer of funds to certain such entities which, inter-alia, bought the Appellant s share in the IPO. Further, invoices and other documents have been produced by the Appellant for the purchase of raw materials and equipments required to run the business, and their validity is not in question. It is pertinently noted that most of the money which the Respondent alleges to have been transferred has been returned to the Appellant. The Respondent has fairly submitted that the Auditor appointed by SEBI itself has in its report dated January 25, 2016 noted that an amount of Rs. 80 crore has been successfully recalled by the Appellant and the Respondent has scrutinized the utilization thereof. It is also a fact that the Appellant has already recalled moneys recoverable owing to ICDs, cancelled cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch bought the appellant s share in the IPO. The Tribunal further found that most of the money which had been transferred was returned to the appellant and that the auditor appointed by SEBI had certified that an amount of ₹ 80 crore has been successfully recalled by the appellants and further had cancelled the contracts pertaining to land purchase. In fact, the Tribunal found that the appellants had shown an earnest desire to abide by SEBI s regulatory directions. The Tribunal considering the aforesaid factors and considering the fact that the appellants had already undergone debarment for several years pursuant to the order of SEBI reduced the debarment from ten years to seven years. 5. While the proceedings were going before the WTM, the Adjudicating Officer ( AO for short) also initiated proceedings under the SEBI Act, 1992. The AO considering the show cause notice and the order of the Tribunal found that the following issues arose for consideration, namely:- ( a) Non-disclosure of certain material information in the offer documents ( b) Diversion of IPO proceeds and other funds to entities which purchased the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard s resolution was sent to the Merchant Banker it became the onerous duty of the Merchant Banker to incorporate the factum of the bridge loan in the prospectus. Thus, in our view the non-disclosure is only technical. The Tribunal in its earlier order on this issue held:- The first instance of non-disclosure relates to ICDs taken by the Appellant in the nature of bridge loans. A bridge loan in financial parlance is nothing but a short-term loan availed of by companies to meet their immediate fiscal requirements, this is precisely what an intercorporate deposit represents. Clause 2(VII)(G) of Part A mandates the disclosure of bridge loans or any other financial arrangement which the concerned company intends to repay out of the proceeds of the issue. As per the facts of the case, the Appellant executed ICD agreements with seven entities, namely Jainex, Prraneta, Agarwal Holdings Ltd., JRI Industries and Infrastructure Ltd., Vineet Capital Services Pvt. Ltd., Jay Polychem (India) Pvt. Ltd., and Urmi Computers Pvt. Ltd. It is pertinent to note that all these seven agreements, vide which the Appellant received an aggregate of 26 around Rs. 52 crore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losure requirements as per the ICDR Regulations, the Appellant did not in categorical terms disclose that it wished to invest the IPO Proceeds in ICDs. We note that even though the Prospectus did state that the Appellant would be investing the IPO proceeds in high-quality interest bearing liquid instruments, the expression ICD is absent from the disclosure. The Appellant should, therefore, have fairly disclosed the abovesaid relevant information, if not material, regarding ICDs in the RHP and Prospectus filed with the Respondent. 12. Lastly, on the third issue, namely, disclosure of agreements for purchase of land executed with other entities, in this regard, the Tribunal in its earlier order found that agreements for purchase of land were executed with several entities aggregating ₹ 80 crore between the date of filing of the RHP and date of filing of the prospectus. This detail was mentioned in the prospectus but not at the appropriate place. Thus, again we are of the opinion that it is not a case of nondisclosure but a case of improper disclosure at the wrong place in the prospectus. In this regard, the finding of the Tribunal in its earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al information in the prospectus. It was not a case of complete non-disclosure of material information and, as we have found that the partial nondisclosure, was at best, a technical violation. In one instance, the information was given to the Merchant Banker who failed to disclose it in the RHP and, in the two other instances, the disclosure was made in the prospectus but not at the relevant place. Thus, it cannot be said that there was complete nondisclosure of material information in the prospectus. 15. Insofar as the second charge of diversion of IPO proceeds is concerned the Tribunal in its earlier order held that the charge of violating PFUTP Regulations was not established by any cogent reasoning or convincing evidence. The Tribunal also found that the purchase of land by the appellant was genuine and not illegal or fabricated and consequently came to a conclusion:- An analysis of the abovesaid documents reveals that the Appellant s dealings with Saptrishi, as far as the agreement for the purchase of land is concerned, are genuine and not illegal or fabricated There has to be sufficient material to bring home such a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Exchange Board of India vs. Bhavesh Pabari, (2019) 5 SCC 90 , the Supreme Court held that the provisions of Clauses (a), (b) and (c) of Section 15-J are illustrative in nature and have to be taken into account whenever such circumstances exist. The Supreme Court further held that factors other than those enumerated in Clauses (a), (b) and (c) of Section 15-J can also be considered by the Adjudicating Officer. 20. Further, we are also of the opinion that the direction of the AO to penalize all the directors is wholly unwarranted. Merely because the appellants are directors does not make them liable. The AO must give a specific finding that all the appellants as Directors were responsible for the alleged violation and were in charge of the affairs of the Company. In the instant case, there is no shred of evidence to show that the alleged act was committed by any of the Directors from which a reasonable inference could be drawn that the said Directors could also be vicariously liable. Vicarious liability can be inferred against a Company and its Directors only if the requisite assertions / allegations are averred in the Show Cause Notice so as to make the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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