9911796707
TMI Blog2020 (1) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed jointly and severally on three Merchant Bankers (Appellants in Appeal No. 202 of 2016) for violation of Regulation 57(1), Regulation 57(2)(a)(ii) and Regulation 64(1) of the ICDR Regulations and Regulation 13 of SEBI (Merchant Bankers) Regulations, 1992 (hereinafter referred to as "Merchant Bankers Regulations"). Similarly, a penalty of Rs. 50 lakh each has been imposed on M/s Electrosteel Castings Limited ("ECL" for convenience; Appellant in Appeal No. 224 of 2016) under Section 23A(a) and 23E of the Securities Contract (Regulation) Act, 1956 ("SCRA" for convenience) for violation of Clause 36 of the Listing Agreement. Since, the impugned order is common to all these appeals, by consent of parties the appeals are heard together and decided by this common order, taking Appeal No. 223 of 2016 as the lead matter. 2. The substantive question raised in these appeals is whether non-disclosure of the 'rejection' of Forest Clearance ("FC" for convenience) by the Ministry of Environment and Forests ("MoEF" for convenience) on an application for iron ore mining filed by ECL was material to an Initial Public Offer ("IPO" for convenience) made by ESL and for disclosure under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt status of all four other mines located in the core of Singhbhum Elephant Reserve." (g) On January 16, 2009, the MoEF wrote to ECL, conveying rejection of the proposal for environmental clearance for the project proposed by ECL, consequent to the advice of the FAC dated October 04/November 04, 2008. (h) On July 10, 2009 Jharkhand Government has requested MoEF to reconsider the matter and sought approval for the said project. (i) The matter was further taken up by ECL on July 24, 2009 and by Government of Jharkhand on September 18, 2009 etc. (j) On March 25, 2010 the appellant filed a Draft Red Herring Prospectus ("DRHP") for the IPO with SEBI. (k) Subsequent correspondence in the matter of clearance for the said mining project by MoEF to Government of Jharkhand on May 03, 2010; ECL to the Prime Minister on July 13, 2010; by Ministry of Steel, Government of India to MoEF on July 23, 2010; by Ministry of Steel, Government of India to MoEF on July 23, 2010; by office of the Prime Minister forwarding a copy of the reply to a VIP reference to MoEF "for its consideration and appropriate action most expeditiously" etc. (l) On September 11, 2010 the appellant filed the Red He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no need for making such disclosure in the IPO Prospectus. In fact, it was contended, that if such a disclosure was made it would have been factually incorrect and the appellant (as well as other appellants) would have been hauled up by SEBI for making such factually incorrect disclosures. 6. It was also contended that the appellant was fully aware of the need for making every disclosure in a true and fair manner and accordingly highlighted various scenarios in the prospectus under the heading "risk factors". He drew particular attention to "risk factor" No. 3, 10 and 12 which explain scenarios relating to failure to obtain or renew a number of approvals/sanctions/licenses/registration and permits to develop and operate the mines and consequent impact on their business. The appellant's operations having significant raw material requirements and the possibility of adverse impact on operations in case of inability to ensure the availability of raw material at competitive prices were all disclosed. More particularly as risk factor 12 it is stated "In case ECL is unable to develop its mines, we may be unable to procure raw material under the current arrangement, and may have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shall be imposed on the appellant. Appeal No. 224 of 2016 8. As already stated ECL is the parent company of ESL, and the one primarily responsible for obtaining all the approvals etc. for the proposed mining project in question. ECL is a listed company and was incorporated in 1955, engaged in the business of manufacturing ductile iron pipes and cast iron pipes for more than 50 years. It is this appellant who entered into a MoU with the Government of Jharkhand for setting up a steel manufacturing plant and thereby promoted ESL, Appellant in Appeal No. 223 of 2016. 9. Leaned counsel Shri Sagar Ghogre representing the appellant, submits that he adopts all arguments relating to the disclosures in the prospectus made by learned senior counsel Shri Modi in Appeal No. 223 of 2016. In addition, he submits that the alleged violation in respect of the appellant is non-disclosure under Clause 36 of the Listing Agreement as the said 'rejection' of forest clearance for the proposed mining project was not disclosed to the Stock Exchanges. Therefore, penalty is imposed under two Sections of the SCRA; Section 23A(a) and 23E and contended that two penalties for the same violation is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further contended that at the relevant time several clearances had been already obtained and the stage of each clearance, either obtained or pending, has been categorically stated in a tabular format at Page 110 of the prospectus. In the said table against Environmental Clearances what is recorded is that the Approving Authority is MoEF; approval received in respect of coking coal and in respect of iron ore approval received, but applicable once Forest Clearance is received. Given the fact that the so-called rejection by the FAC is amenable for reconsideration and the fact that even a rejection by the MoEF itself can be reconsidered within three months of such rejection, what is stated at page 110 of the prospectus is a full and adequate disclosure under the given circumstances that ECL and the other concerned parties such an Government of Jharkhand, Ministry of Steel, Government of India etc. were resubmitting/recommending the project proposal for reconsideration of the MoEF. Similarly, under the "risk factors" all scenarios of getting approvals, not getting approvals, need for procuring iron ore from other sources all have been disclosed in detail. It was also contended by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty imposable under Section 15HB of the SEBI Act is too harsh even if it is held that there was a technical violation. It is not a fit case for imposition of heavy penalty and far from the maximum amount of penalty, it was argued. The learned counsel relied on the judgements passed by this Tribunal in the matters of Kotak Mahindra Capital Co. Ltd. v. SEBI [2017] 78 taxmann.com 329 (SAT - Mum.), Keynote Corporate Services Ltd. v. SEBI [2014] 43 taxmann.com 242/125 SCL 355 (SAT - Mum.) and New Delhi Television Ltd. v. SEBI [2019] 108 taxmann.com 141 (SAT) and reiterated the grounds for no penalty or at most a very nominal amount of penalty. 14. We have also heard the learned senior counsel Shri Vikram Nankani, who took us through the laws and the facts of the matter in detail. He also emphasised that the contention of the appellants that rejection by FAC has no meaning since it is not the Competent Authority by highlighting the January 16, 2009 letter from the MoEF whereby the mining project proposal was rejected by the MoEF which is the Competent Authority. We have also perused the papers produced before us. 15. Since materiality of the information relating to 'rejection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances are feasible and that the required area is the minimum needed for the purpose; and (d) Whether the State Government or the other authority undertakes to provide at its cost for the acquisition of land of an equivalent area and afforestation thereof." "8. Action of the Central Government on the advice of the Committee The Central Government shall, after considering the advice of the Committee tendered under Rule 7 and after such further enquiry as it be necessary, grant approval to the proposal with or without any conditions or reject the same within 60 days of its receipt." 16. ICDR 2009 is voluminous and cover in great detail the requirement for all material disclosure which are true and adequate to enable the investors to take an informed decision. Apart from providing for an abridged version it states that the Prospectus shall contain the disclosures specified in Schedule II of the Companies Act, 1956 and disclosures specified in Part A of Schedule VIII of the Regulations subject to the provisions of Parts B and C thereof. It also provides that for fast track issue of specified securities only disclosures specified in Part B of Scheduled VIII is relevant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the proposal. ECL had already at this stage invested approx. 44% of its networth and 68% of its total investments in the said project. Further, the strong concern felt by ECL at the relevant point of time that ESL's project could become economically and financially unviable in view of MoEF's rejection of forest diversion proposal for Iron Ore Mine of ECL, stands reflected in the various letters sent by ECL to various authorities including to the then Prime Minister of India. Thus, even if it is accepted that rejection of forest diversion proposal by MoEF at the in-principle stage in November 2008 may not be considered to be price sensitive at that stage, however, it was certainly an event which would have had a bearing on the performance/operation of ECL at a time when ESL's Steel Plant was to commence commercial production in October 2010, as made publicly known through the RHP of ESL. Thus, from the same, I conclude that the said information was definitely price sensitive, which required ECL to make the necessary disclosure under Clause 36 of the Listing Agreement read with Section 21 of SCRA to the Stock Exchanges at the earliest." "198. Given the significa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnish clarifications or additional information relating to a proposal, all particulars should be made available to the Central Government within 60 days. If such particulars are not received within a maximum of 90 days, the proposal may be rejected by the Central Government for non-furnishing of essential information. Such cases could be reopened provided the following conditions are satisfied : (a) all the required information has been made available (b) delay in providing the information is satisfactorily explained, and (c) there is no change in the proposal in terms of scope, purpose and other important aspects. (ii) some cases, the State Government comes up with a request for reconsideration of the proposal after it has been considered and rejected by the Ministry. Such request should be made within three months from the date of the issue of the rejection letter. The request should give a detailed justification for reconsideration as well as comments on the grounds on which the proposal was rejected by the Ministry." We agree with the contention to the extent that the said provision deals with rejection/reopening of cases. Guideline 4.14(ii) explicitly states that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of M/s Electrosteel Castings Limited, located in Kodoliabad Reserved Forest, Tehsil Manoharpur BD, District Singhbhum (West), Jharkhand-environmental clearance regarding. Sir, This has reference to your letter No. 'Nil' dated 07.05.2007 and subsequent letters dated 09.06.2007 and 12.06.2008 on the subject mentioned above. The proposal is for opening of a new mine for production of 10 million TPA of iron ore to meet the captive requirement for the integrated steel plant. The total mine lease area of the project is 192.5ha, which is a forestland. It is noted that the proposed project is located within the core area of the Singbhum Elephant Reserve, which is critical to wildlife conservation and that the Forest Advisory Committee (FAC) has rejected the proposal for diversion of forestland for the said project as communicated vide letter No. 8-35/2008-FC dated 04.10.2008. In view of the above, Ministry of Environment and Forests has decided to reject the proposal for environmental clearance for the above mentioned project. This issues with the approval of the competent authority." (emphasis added)... 23. This is a categorical rejection as on that date though a provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed NoC Received Environmental Clearance MoEF Received Received, but applicable once Forest Clearance is received Railway Transport Clearance Railway Board Received To be received alongwith Forest Clearance Forest Clearance MoEF Not applicable Forest diversion proposal already submitted Signing of Mining Lease State Government of Jharkhand Received Will be applied for after Forest Clearance is received In the row relating to Environmental Clearance what is indicated in the above table is that the approving authority for both in respect of coking coal mining and iron ore mining is the MoEF; approval in respect of coking coal mining has been received and approval in respect of iron ore has been received, but applicable once forest clearance is received. When this statement was published as part of the prospectus the 04.10/11.2008 rejection letter of the FAC as well as the rejection letter dated January 16, 2009 of the MoEF and the subsequent efforts made by the appellants for reconsideration were all in the knowledge of the appellants. Therefore, great effort has been made to put such facts in a compact statement like "received, but applicable once forest clearance i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Therefore, the penalty of Rs. 50 lakh each imposed under the said provisions cannot be termed as excessive or harsh. Therefore, no interference is needed. The contention of the appellant ECL that sub-section 23E of SCRA, 1956 is not applicable to the appellant-company since it is applicable only to persons managing CIS or mutual funds is an incorrect reading of the sub-section. 28. Section 23E of the SCRA, 1956 is extracted hereunder:- "23E. Penalty for failure to comply with listing conditions or delisting conditions or grounds.- If a company or any person managing collective investment scheme or mutual fund, fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof, it or he shall be liable to a penalty not exceeding twenty-five crore rupees." A correct reading of the above sub-section would make it abundantly clear that a company failing to comply with listing conditions or delisting conditions etc. shall be liable to a penalty not exceeding Rs. 25 crores. Such listing/delisting conditions are relevant to a company rather than persons managing CIS or mutual funds. 29. In conclusion, we pass the following order: (a) App ..... X X X X Extracts X X X X X X X X Extracts X X X X
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