TaxTMI 
TaxTMI 
2021 (5) TMI 203
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...., either directly or indirectly or in any other manner whatsoever, for a period of one year with effect from the date of the impugned order. There is a delay in the filing of the appeal. For the reasons stated in the application, the delay in filing of the appeal is condoned. The Misc. Application No. 66 of 2020 is allowed. The Misc. Application No. 12 of 2021 for urgent hearing is also disposed of. 2. The appellant is a pharmaceutical company and is engaged in the manufacture and marketing of a wide range of pharmaceutical and health care products including bulk drugs, formulations and diagnostics products. The appellant is a listed company under the provisions of the Companies Act, 1956 and is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The appellant's business is alleged to have a global presence in about 50 countries. 3. In the year 2002 the appellant took steps to tap the international capital markets and, for this purpose, a resolution was passed in the its general meeting on March 4, 2002 authorizing the board of directors for the issuance of the Global Depository Receipt ('GDR' for short) and thereafter approached its major stockholder....
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....hter, on the same date, an Account Charge Agreement was entered into between the Appellant and Banco Efisa. (iv) On March 30, 2003, the board approved the signing of Listing Documents and other related documents with regard to GDR issue and allotted 5,000,000 GDR representing 50,000,000 equity shares of Rs. 2 each at US$ 3.05 per GDR. (v) On March 31, 2003, 5,000,000 GDR were listed on the LSE. The Listing particulars filed with the LSE noted the use of the GDR proceeds in following terms: "The issue of GDRs will realize US$ 15.25 million gross and net proceeds of US$ 14.64 million after payment of related expenses and these funds will be used for: Repayment of short term and long-term debt outstanding liabilities) - US$ 14.64." (vi) On March 31, 2003, 5,000,000 GDR were listed on the LSE. Additionally, inter alia, the following transpired:- (a) an intimation was sent to the BSE about the board meeting held on March 30, 2003 which allotted 5,000,000 GDR representing 50,000,000 equity shares of Rs. 2 each at US# 3.05 per GDR and would be listed at LSE; (b) placing agreement by the appellant with Kaupthing Bank (Lead Manager) was executed; and (c) Deposit Agreement by....
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....ere is no dispute whatsoever that funds to the tune of US$ 15.25 million were raised and was utilized by the appellant for the purpose for which it was raised. Therefore, there was no violation and / or contravention of any legal provision at all. 9. After more than 14 years of the issuance of the GDRs SEBI issued a show cause notice dated June 21, 2017 leveling the following charges, namely:- (i) The appellant issued the GDRs in an allegedly fraudulent way by way of credit agreement and account charges agreement, which were not disclosed to the stock exchanges; (ii) The appellant allegedly made a misleading disclosure to the stock exchanges that it had successfully closed its GDR receipts issue; (iii) The appellant allegedly diverted an amount of US$ 7.13 million to certain entities but for which it had disclosed false information; (iv) Therefore, the appellant has allegedly violated the provisions of Section 12A(a), (b) and (c) of the Act read with Regulations 3(a)-(d), 4(1), 4(2)(f), (k) and (r) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short); and (v) In light of the above, ....
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.... did not disclose the charge agreement to the Stock Exchange and also made misleading statement and accordingly restrained the appellant from accessing the securities market for a period of one year. 14. We have heard Shri P.R. Ramesh, the learned counsel for the appellant and Shri Shyam Mehta, the learned senior counsel for the respondent. 15. On the issue of diversion of funds, the charge leveled against the appellant was that out of US$ 15 million only US$ 7.85 million was received by the appellant bank in India and US$ 7.13 million was diverted to unknown entities. The appellant submitted that balance US$ 7.13 was utilized for payments to banks / loans and these figures are reflected in the annual reports. The WTM did not find any fault in the submissions and the evidence provided by the appellant on this aspect but however observed that the audit committee may look into the matter and report to the board of directors as per Section 177(viii) of the Companies Act, 2013. Thus, the charge of diversion of US$ 7.13 was not found to be correct by the WTM. 16. On the issue of violation of PFUTP Regulations, 1995 and 2003 the WTM came to the conclusion that no fraud has been commit....
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....e measures should have been taken at the appropriate time for imposition of a penalty for nondisclosure under the Listing Agreement but definitely no order of a like nature which has been passed in the impugned order could have been passed under Sections 11 and 11B only on the ground of violation of non-disclosure of the Account Charge Agreement. 19. Insofar as the misleading statement is concerned, namely, that the appellant had wrongly informed that the GDR issue was subscribed, we are of the opinion that this finding is totally perverse. Admittedly, the GDR issue was subscribed by two entities. There is no law which has been pointed out that the issue has to be subscribed by more than one or more than 100 persons. In the absence of any limitation on the number of subscribers the essential fact which was intimated to the stock exchange was that the issue has been subscribed which was an admitted fact. Thus, in our opinion, there is no misleading statement made by the appellant to the stock exchange and therefore the question of violation of Regulation 5 of PFUTP Regulations, 1995 does not arise. We are further of the opinion that the finding that the issue was subscribed which m....
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....that since the GDR was issued abroad, SEBI had to collect the information from various entities situated abroad which took time. In our opinion, this bald statement cannot be accepted. Nothing has been brought on record to show as to how the process of collection of information was time consuming. The mere fact that SEBI was also investigating 59 other GDR issues during 2002-2014 does not make it a ground to condone this inordinate delay. The respondent is required to justify their action and has to be explain as to why the process took 14 long years. In the absence of any plausible explanation being given we are of the opinion that the initiation of the proceedings was highly belated and for this inordinate delay the proceedings are also liable to be quashed. 22. Having considered the matter we are of the view that there has been an inordinate delay on the part of the respondent in initiating proceedings against the appellant for the alleged violations. The controversy in this regard is squarely covered by various decisions of this Tribunal. 23. In Mr. Rakesh Kathotia & Ors. vs SEBI in Appeal No. 7 of 2016 decided by this Tribunal on May 27, 2019 the Tribunal held:- "22. In th....
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....he case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc." 24. Similar view was again reiterated in Ashok Shivlal Rupani & Ors. vs. SEBI (Appeal No. 417 of 2018 along with other connected appeals decided on August 22, 2019) and again in Sanjay Jethalal Soni & Ors. vs SEBI in Appeal No. 102 of 2019 and other connected appeals decided on November 14 2019 the Tribunal held:- "6. Having considering the matter, we are of the view that there has been an inordinate delay on the part of the respondent in initiating proceedings against the appellants for alleged violations. Much water has flown since the alleged violations and at this belated stage the appellants cannot be penalized. It is alleged that disclosure under PIT Regulations was not made but similar disclosure was made by the appellant under SAST Regulations. Therefore, information was available on the Stock Exchange and therefore it cannot be said that the respondents were unaware of the alleged violations. Further, the purpose of disclosure was to make the market aware of the change of shareholding of the shareholders. When a disclosure was made by the company under SAST Re....
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.... early as possible, at least soon after it becomes known to the regulator, for appropriately punishing the guilty not only for the sake of modifying the behavior of the violator but also for sending strong messages to the market participants in general. After all the charge against the appellant is one trading day's delay in disclosure, but the delay on the part of SEBI to show cause is 2955 days from the date of the event and about 2130 days from the date of the preliminary investigation report, which is too wide a gap to be ignored. Several years' delay in show-causing and concluding proceedings in such known incidence of violation / alleged violations is a failure in effectively performing the behavior modification function of a market regulator. The orders relied on by SEBI on the ground of delay are distinguishable from the facts of this matter. Therefore, we are of the considered view that issuance of a penalty order against the appellant in September, 2019 for certain disclosure violations in mid-May 2010 by issuing a show cause notice on June 26, 2018 has caused prejudice to the appellant and the order suffers from laches, as held in this Tribunal's Order in the matter of A....