TMI Blog2022 (7) TMI 1478X X X X Extracts X X X X X X X X Extracts X X X X ..... he subsidiary and have been ulitized for the purpose of which the GDR was issued the debarment of the Non-Executive Director for five years and penalty of Rs. 10 lakhs only on the basis that they were signatories to the resolution of the Board of Directors dated 31st March, 2008 appears to be excessive as well as unjustified. Other than this there is no evidence that they were part and parcel in the issuance of the GDR. A categorical statement has been made by these Directors that they were not involved in the day to day affairs of the Company. In the absence of any finding, merely because they were signatories to the resolution these Non-Executive Directors cannot be held to be part of the fraudulent scheme. The imposition of penalty and the debarment cannot be sustained. A penalty of Rs. 20 lakhs has been imposed upon the Directors of the Company. We find that in similar circumstances in the case of Visu International Ltd. a penalty of Rs. 10 lakhs was imposed upon the Directors and in Govind Das Pasari a penalty of Rs. 15 lakhs was imposed - penalty of Rs. 20 lakhs is excessive. Considering the fact that they have already undergone debarment for more than three years we th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed together. For facility, the facts stated in appeal no. 381 of 2019 is being taken into consideration. 4. The facts leading to the filing of the present appeal is, that the Board of Directors of the Company known as Sybly Industries Ltd. passed a resolution dated 31st March, 2008. The said resolution is extracted hereunder: RESOLVED THAT a bank account be opened with EURAM Bank ( the Bank ) or any branch of Euram Bank, including the Offshore Branch, outside India for the purpose of receiving subscription money in respect of the Global Depository Receipt issue of the Company. RESOLVED FURTHER THAT Shri Mahesh Chand Mittal, Managing Director and Shri Umesh Kumar Mittal, Director of the Company, be and are hereby severally authorized to sign, execute, any application, agreement, escrow agreement, document, undertaking, confirmation, declaration and other paper(s) from time to time, as may be required by the Bank and to carry and affix, Common Seal of the Company thereon, if and when so required. ... RESOLVED FURTHER THAT the Bank be and is hereby authorized to use the funds so deposited in the aforesaid bank account as security in connection with loans if any as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 30th May, 2008 was executed between Vintage and EURAM Bank in which the proceeds of the GDR was to be kept as security with EURAM Bank. The show cause notice further alleged that the pledge agreement and the loan agreement was not disclosed to the stock exchange platform and, consequently, the investors and shareholders were kept in the dark. The show cause notice further alleged that based on the pledge agreement and the loan agreement EURAM Bank advanced USD 6.99 million to Vintage which amount was utilised by Vintage to subscribe to the entire issue. The GDR proceeds were pledged as security till such time the loan was repaid by Vintage. It was also alleged that the fact that Vintage was the sole subscriber was not intimated to the stock exchange and to the Indian investors and, accordingly, the Company and its Directors were charged with violation of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. 9. The WTM and the AO after considering the evidence on record found that the entire scheme of using the GDR proceeds to fund a subscriber to the GDR issue was a fraudulent scheme and violative of Section 12A of the SEBI Act and Regulations 3 and 4 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the documents as per the advice of the Lead Manager. It was contended that when the appellant came to know about the fraud played upon them by the Lead Manager they chose not to take action by filing a complaint or FIR since the Company had received the money and the same was utilised in accordance with the object of the GDR. It was urged that the GDR proceeds were utilised in accordance with the objects of the GDR issue and that there was no diversion of money nor has the appellant indulged in any wrong dealings in securities. Further, there was no complaint from any investor with regard to the issuance of the GDR nor has the appellant made any disproportionate gain nor caused any loss to the shareholders or to the investors. It was, thus, urged that the appellant, being a small Company, has not played any fraud upon the market and the violation, if any, is only confined to the non-disclosure under the Listing Agreement for which purpose the direction of debarment by the WTM and the penalty awarded by the AO is wholly excessive, harsh and disproportionate to the alleged violations. 13. On the other hand, the respondent supported the impugned order and contended that the modu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with the objects of the GDR issue. This fact has not been denied. Thus, there has been no diversion of money and there was no wrongful dealing in securities. Further, we do not find any complaint given by any shareholder or investors in this regard. The AO has himself given a finding that no disproportionate gain could be found out against the Company and its Directors nor any loss was caused to the shareholders or investors. 17. We are accordingly of the opinion that in view of the fact that the appellant is a small listed Company the directions issued by the WTM and the penalty imposed by the AO is excessive and arbitrary as well as discriminatory. 18. In Excel Corp. (supra) the Supreme Court held: 92. Even the doctrine of proportionality would suggest that the court should lean in favour of relevant turnover . No doubt the objective contained in the Act, viz., to discourage and stop anti-competitive practices has to be achieved and those who are perpetrators of such practices need to be indicted and suitably punished. It is for this reason that the Act contains penal provisions for penalising such offenders. At the same time, the penalty cannot be disproportio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unreasonable manner or capriciously or at pleasure without adequate determining principle, rational, and has been done according to reason or judgment, and certainly does not depend on the will alone. However, the action of legislature, violative of Article 14 of the Constitution, should ordinarily be manifestly arbitrary. There must be a case of substantive unreasonableness in the statute itself for declaring the act ultra vires of Article 14 of the Constitution. (Vide: Ajay Hasia etc. v. Khalid Mujib Sehravardi, Reliance Airport Developers (P) Ltd. v. Airports Authority of India, Bidhannagar (Salt Lake) Welfare Assn. v. Central Valuation Board, Grand Kakatiya Sheraton Hotel and Towers Employees and Workers Union v. Srinivasa Resorts Limited, and State of T.N. v. K. Shyam Sunder.) 21. In matters relating to punitive measures the emphasis has shifted from the wednesbury principle of unreasonable to one of proportionality. A disproportionate punitive measure which does not commensurate with the offence would be violative of Article 14 of the Constitution of India. We are of the opinion that in the rapid growth of administrative law it has become the need and necessity to contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008 6.99 Vintage FZE 5 years 16th January, 2018 23. A perusal of the aforesaid table indicates that in the case of Aqua Logistics Ltd., the said Company had raised 62.38 million USD and the Company was debarred from accessing the securities market for a period of three years. Similarly, in the case of Zenith Birla (India) Ltd. the total amount raised through GDRs was 22.99 million USD and the Company was debarred for a period of three years whereas in the instant case, the appellant Company had raised 6.9 million USD but has been debarred for five years. 24. In similar circumstances, in Aksh Optifibre Ltd. in Appeal No. 535 of 2019 and other connected appeals decided on 27th June, 2022 this Tribunal reduced the debarment from 5 years to three years. 25. Consequently, in our opinion, the debarment period against the appellants is excessive and discriminatory and not in consonance with the penalty awarded in similar matters. 26. Similarly, the AO penalised the appellant Company of Rs. 10,30,00,000/-, the Managing Director Rs. 20,00,000/- and other Directors Rs. 10,00,000/-. In similar matters lesser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Aksh Optifibre Ltd. in Appeal No. 535 of 2019 and other connected appeals, a penalty of Rs. 10.15 crores was imposed. This Tribunal by our order dated 27th June, 2022 reduced the penalty to Rs. 25 lakhs. Thus, in our opinion, the penalty imposed is excessive and disproportionate to the violation and is also discriminatory. 28. We find that such excessive penalty imposed upon the Company does not make any sense. In the instant case, there are 7,300 public shareholders and 180 workmen. Penalising the Company with such heavy penalty is infact penalising the shareholders which is not justifiable especially for a running company. Further, the money raised through GDRs has been received by the Company and has not been misappropriated. The same has been utilitised for the purpose for which the GDR was issued, namely, for the Company s subsidiary which fact has not been disputed. Thus, it is not a case of defalcation of the funds. 29. Thus, the directions so issued under Section 11 and 11B of the SEBI Act and the penalty so imposed under Section 15HA are disproportionate and does not commensurate with the violation in view of the directions and penalty that has been imposed in sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there is no such evidence against the appellant Vipin Sharma other than the fact that he was part of the Resolution dated August 13, 2010 which has been disputed by the appellant. We are of the opinion that the Resolution dated August 13, 2010 by itself does not create any suspicion nor create any fraudulent act. The Resolution by itself does not violate any provision of the SEBI Act or PFUTP Regulations. 33. An application has been filed by the respondent to bring on record additional documents. It was urged that these documents are relevant for the purpose of justifying the action taken against the Non-Executive Independent Director. In this regard a similar application was filed by the respondent in appeal no. 406 of 2020 Mr. Gurmeet Singh and other connected appeals. This Tribunal rejected the application seeking permission to bring on record the additional documents. This Tribunal held: 11. In our view, the application of the respondent seeking permission to bring on record the additional documents cannot be allowed as it does not come within the parameters of the grounds given in Order 41 Rule 27 of the Code of Civil Procedure. Nothing has been stated as to why th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r five years and penalty of Rs. 10 lakhs only on the basis that they were signatories to the resolution of the Board of Directors dated 31st March, 2008 appears to be excessive as well as unjustified. Other than this there is no evidence that they were part and parcel in the issuance of the GDR. A categorical statement has been made by these Directors that they were not involved in the day to day affairs of the Company. In the absence of any finding, merely because they were signatories to the resolution these Non-Executive Directors cannot be held to be part of the fraudulent scheme. The imposition of penalty and the debarment cannot be sustained. 35. A penalty of Rs. 20 lakhs has been imposed upon the Directors of the Company. We find that in similar circumstances in the case of Visu International Ltd. a penalty of Rs. 10 lakhs was imposed upon the Directors and in Govind Das Pasari a penalty of Rs. 15 lakhs was imposed. Considering the aforesaid, we are of the opinion that the penalty of Rs. 20 lakhs is excessive. Considering the fact that they have already undergone debarment for more than three years we think it fit and proper if the penalty is reduced to Rs. 10 lakhs each ..... X X X X Extracts X X X X X X X X Extracts X X X X
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