TMI Blog2011 (4) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... ities Market) Regulations 2003 (for short the Regulations). Since common questions of law and fact arise in these two appeals, they are being disposed of by this order. 2. The shares of the company are listed on the Bombay Stock Exchange Limited (BSE) and the Hyderabad Stock Exchange. The Securities and Exchange Board of India (for short the Board) carried out investigations in the scrip for the period from November 1, 2004 to March 11, 2005 and it was observed that on BSE the price and volumes had witnessed a huge spurt. Investigations revealed that the company had come out with a false/misleading news regarding it having received an export order from a Swiss company which induced investors to purchase the scrip. It was also observed that the so-called export order did not fructify and the company omitted to bring this information to the notice of the investors. Investigations further revealed that after the price of the scrip had gone up considerably, the promoters of the company (one of which is the appellant in Appeal no. 50 of 2011) sold a substantial part of their holdings thereby making huge profits. On the conclusion of the investigations, the Board was prima-facie of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so stated in their reply that a public announcement was made on February 17, 2005 that the Board of directors of the company would consider the matter regarding the issue of bonus shares in their meeting to be held on February 24, 2005. In the meeting held on February 24, 2005, a recommendation was made for the issue of bonus shares in the ratio of 2:1. On February 21, 2005, the company announced that it had received an export order worth ₹ 20 crores. The appellants also pointed out that on February 22, 2005 the company had executed a lease for a duration of 25 years for an area of about 12,000 sq ft. for setting up its large retail showroom at Ameerpeth, Hyderabad. Since all these announcements were price sensitive, the company informed the BSE of these announcements where its shares were listed and, according to it, this was done as per the requirements of the listing agreement and other securities laws. As regards the announcement pertaining to the export order, it was admitted that the same was made on February 21, and February 24, 2005. It was pointed out that the representatives of Simran Enterprises had approached the company and had expressed interest in purchasing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng fabrics from the appellants and not just in one flow. He also observed that the letter was unsigned. It was on this basis that the adjudicating officer concluded that the appellants had deliberately made an inaccurate and misleading corporate announcement regarding the export order. He then observed that The price of the said scrip on February 21, 2005 touched a high of ₹ 48.85 because of said announcement. He also concluded that when the price of the scrip increased as a result of this misleading announcement, the promoters and directors sold their shares and made huge profits at the behest of gullible investors thereby violating Regulations 4(1) and 4(2)(e) and (r) of the Regulations. Accordingly, by his two identical orders dated January 13, 2011 he imposed a monetary penalty of ₹ 25 lacs on each of the appellants. It is against these orders that the present two appeals have been filed. 4. We have heard the learned counsel for the parties at length who have taken us through the record and the impugned order. 5. The first question that arises for our consideration is whether the announcement made by the appellants regarding the export order was deliberately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of twelve months. Please feel free to revert back to us in case of any clarification or concern. With Warm regards, Yours Sincerely, For Simran Enterprises Admittedly, this letter is unsigned though it refers to the presentation made by the company at its showroom when the representatives of the Swiss firm had visited. It is true, as found by the adjudicating officer, that this was not a firm order placed by the purchaser on the company but it does express the intention of the purchaser to purchase the fabric from the company. The adjudicating officer has expressed a doubt about the genuineness of this letter but in the circumstances of this case we are unable to agree with him on this count. The letter is on the letterhead of the Swiss firm and has been faxed and, therefore, contains not only the name of that firm but also the fax number from where it was faxed and also the date and the time. If the matter had rested here, we might have agreed with the adjudicating officer but the company pursued the matter further and addressed as many as three letters dated March 10, 2005, May 2, 2005 and February 2,2006 requiring Simran Enterprises to open a letter of credit t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... November 20, 2004 : VTL Board considers proposal for division/splitting of share capital November 22, 2004 : Setting up of a Studio November 27, 2004 : Board approves sub-division of shares January 3, 2005 : Board to consider fixing of record date for subdivision/ split of shares. January 20, 2005 : Considers declaration of Interim Dividend. January 31, 2005 : Board recommends interim dividend. Announces the results for the December, 2004 quarter. February 17, 2005 : Board to consider Bonus Issue February 21, 2005 : Receives export order worth ₹ 200 million February 22, 2005 : Setting up of another new large Retail Showroom at Hyderabad February 24, 2005 : Members approve issue of Bonus Shares, Receives export order worth US$ 4.60 Millions. Apart from the aforesaid price sensitive announcements, the company s financial performance had also shown increase in the profits for the year ending March, 2004 as compared to March, 2003. The profits of the company significantly improved during the period ending March, 2005 and it earned a profit of ₹ 5.23 crores on an equity capital of ₹ 3.32 crores. The company had also declared a divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded in the impugned order in this regard. 7. When confronted with the fact that the company had informed the public about the non finalization of the export order through BSE and also through an announcement made in a newspaper, the learned counsel for the Board then urged that the company did not inform the public in the same manner in which the information regarding the placing of the export order had been disclosed. Here again we cannot agree with him. The information was sent to BSE and was on its website because the company had made this announcement alongwith its un-audited financial results for the period ending September 2006. These un-audited financial results contained a note in this regard. We are of the view that this publication was way better to inform the investors because un-audited financial results are closely looked into and examined both by those who wish to invest in the market and also by those who are already invested in the company. Those wanting to invest want to know the financial performance and so do those who are already invested. In the absence of any prescribed mode of making such an announcement, we cannot but hold that this announcement was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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