TMI Blog2020 (1) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... ts on record have to be analyzed in judging/evaluating business performance particularly when there are reliable evidence in the form of orders of the High Court etc. available. Similarly, we are unable to agree with the contentions of SEBI that a trustee of a public charitable trust is a related party going by the correct reading of the definition in the Companies Act as well as in the LODR Regulations, unless there is evidence to show that those Trusts have been set up or operating for the benefit of the appellant(s). Moreover, there is nothing on record to show that Mr. Giridharilal, the trustee has personally benefited in any manner not only by virtue of being a trustee or in general by any other means. Similarly, we are also unable to appreciate fully the allegations relating to the inflated expenditure on furniture and fixtures etc. particularly in the absence of any evidence on diversion of money/resources belonging to Tree House being shown. How far SEBI can reassess or reevaluate business decisions and audited figures given in financial reports of a company unless explicit proof/evidence relating to siphoning off or manipulation of accounts is available is also a questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order or for that matter an ex parte interim order in order to safeguard the interests of the investors and to maintain the integrity of the market. The purpose of passing an ex parte interim order is to prevent further mischief or where the act to be prevented is imminent or where action to be taken brooks no delay. - Appeal No. 78 Of 2019 - - - Dated:- 7-11-2019 - Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member And M.T. Joshi, Judicial Member Pradeep Sancheti, Sr. Adv., Pulkit Sharma and Akshay Bafna, Advs. for the Appellant. Kevic Setalvad, Sr. Adv., Anubhav Ghosh and Ms. Rashi Dalmia, Advs. for the Respondent. ORDER Dr. C.K.G. Nair, This appeal has been filed challenging the confirmatory order passed by the Whole Time Member ( WTM' for short) of Securities and Exchange Board of India ( SEBI' for short) dated November 16, 2018. By the said order directions contained in the ad-interim ex-parte order dated March 7, 2018 against the appellants were confirmed. Accordingly, the appellants are restrained from accessing the securities market in any manner, directly or indirectly, with the further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this ad-interim ex-parte order before this Tribunal, which was disposed of by this Tribunal by its order dated August 29, 2018. By the said order appellants were granted three weeks time to file their replies and the WTM of SEBI was given two months thereafter to pass the confirmatory order. In addition, the submission of the appellant was also taken on record that they would cooperate with the forensic auditor though subject to the constraints on availability of documents as some of the documents were with other investigating agencies because of parallel proceedings. The order impugned in this appeal is passed by the WTM on November 16, 2018 pursuant to the aforesaid directions by this Tribunal. 4. The learned senior counsel Shri Pradeep Sancheti appearing on behalf of the appellants submits that the impugned order has been passed by the WTM of SEBI without considering the prima facie findings given by the Bombay High Court and without coming to any contrary conclusion and simply confirming the ex-parte order. Further, the impugned order also proceeds on the wrong basis that the appellants were guilty of related party transaction without considering the appellants' s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various other coercive actions and false complaints have been resorted to by people belonging to the Zee Group. Therefore, the entire finding in the impugned order that the appellant's business decline was on account of transfer of resources to some Trusts has no basis as the entire information is available in public domain particularly through filings in the annual reports of Tree House which show the declining activity, performance and profits clearly coinciding with the period from 2015-16 onwards. 7. The learned senior counsel further contended that Sub Section (77) of Section 2 of the Companies Act, 2013 which lists out relatives does not include a trustee as related party. Therefore, a trustee or a trust cannot be deemed to be a related party according to the amended provision of 2013 with effect from April 1, 2014. Similarly, under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ('LODR Regulations' for short), Regulation 2(1)(zb) defines related party as a related party as defined under sub-section (76) of Section 2 of the Companies Act, 2013 or under the applicable accounting standards and related party transactions as def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issues with the Zee group companies. The same table also discloses that the profit and loss account records decline in profit to ₹ 59.27 crore in 2016-17 from 209.33 crore in the previous financial year. Therefore, when the business itself is declining on account of the developments relating to a 'forced takeover' by a competing entity the WTM of SEBI could not have ignored these background and impose false charges on the appellants that of diverting funds from appellant no. 1 and in wrongly applying facets of related party/related party transactions contrary to the provisions relating to the same both under the Companies Act 2013 and LODR Regulations 2015. It is on record that the self operated pre-schools declined to 188 from its peak level of 542 as on March 31, 2016 while franchise pre-schools increased from 68 in 2011 to 94 in 2016 and 214 as on March 31, 2017. There is overall effectively a decline of 237 schools in 2016-17 from 2015-16. 11. As regards the alleged irregularities in respect of furniture and fixtures it was submitted that all records are available; the expenditure involved on these items is one of the most important component of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in addition SEBI has directed NSE to do a detailed forensic audit to bring out the full facts which in any case will prove the veracity which inexplicably the appellant is not fully cooperating with. 14. Learned senior counsel also brought out the facts relating to deterioration in the financial position of Tree House from 2011-12 to 2016-17 and showed how Tree House went into significant decline in profit by approximately ₹ 150 crore in 2016-17 from a profit of about ₹ 210 crore in 2015-16 with concomitant decline in their business/activities. The learned senior counsel also showed that ₹ 25 crore has been also written off by Tree House without adequate explanation. 15. The relevant Sections of the Companies Act, 2013 and the LODR Regulations, 2015 are quoted below:- Companies Act, 2013 '2. Definitions.- In this Act, unless the context otherwise requires,- (76) related party , with reference to a company, means (i) a director or his relative; (ii) a key managerial personnel or his relative; (iii) a firm, in which a director, manager or his relative is a partner; (iv) a privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts of Tree House. Tree House did not make any effort in not disclosing the facts relating to their business model, decline in their business and consequent losses on account of closing a large number of self run schools from 2015-16. The downturn coincides with the problems it had with a proposed merger and its failure and other aspects reported by the appellant company to the police authorities etc. and on which the Hon'ble High Court passed the bail order (supra) though this Tribunal does not propose to go into those details. 17. We are unable to fathom why the explanations provided by the appellant both relating to the basic facts on the proposed merger and its failure was not given sufficient consideration in the impugned order particularly because of the given business model of Tree House. It is an undisputed fact that Tree House is operating in the area of education both for running its own schools, through franchise system and/or by providing funds to various trusts. If that business is adversely affected due to unfavourable business environment obviously that would be a factor leading to the decline in performance as well as profitability. Therefore without pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, inter alia, the manipulation of the books of account, misrepresentation of financials and/or business operations of the appellant Company and wrongful diversion/siphoning off the funds by the Company through related party transactions etc. As on date, nothing has been shown on record to indicate any finding through interim audit report with regard to the manipulation of books of account or siphoning off the funds of the Company. The forensic audit is still underway. 20. We find that the ex parte interim order was issued on the basis of presumption of certain transactions and after acknowledging the dispute between the appellant and Zee group in 2015 and the expenses incurred by the Company from the financial year 2011-12 onwards. 21. We are of the opinion that no case of urgency was made out in the instant case for grant of an ex parte interim order or for continuation of the said interim order to restrain the appellant from the securities market. It is settled law that an ex parte interim order is required to be passed in order to curb further mischief or to stop large scale exercise of possible mischief of tampering with the securities market. If during a pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
