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TMI Blog2022 (7) TMI 1478X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2019 filed by the Company Sybly Industries Ltd. and appeal no. 390 of 2019 filed by Mr. Mahesh Chand Mittal and Mr. Umesh Kumar Mittal against a common order dated 16th January, 2018 wherein the appellant Company and its Directors have been restrained from accessing the securities market for a period of five years. 2. Appeal no. 381 of 2019 has been filed by Sybly Industries Ltd. against the order of the AO dated 15th March, 2019. Appeal no. 382 of 2019 has been filed by Mr. Umesh Kumar Mittal against the order of the AO dated 26th March, 2019, appeal no. 384 of 2019 has been filed by Mr. Mahendra Kumar Gupta against the order of the AO dated 27th March, 2019. Appeal no. 385 of 2019 has been filed by Mr. Mahesh Chand Mittal against the order of the AO dated 25th March, 2019 and appeal no. 386 of 2019 has been filed by Mr. Subodh Kumar Goel against the order dated 27th March, 2019 wherein the AO has imposed penalties ranging from Rs. 10 lakhs to Rs. 10.30 crores. 3. Since the facts and the issues are common in all the appeals, the same are being decided together. For facility, the facts stated in appeal no. 381 of 2019 is being taken into consideration. 4. The facts leading t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company. Based on the investigation, a show cause notice dated 2nd July, 2018 was issued to the Company and its Directors to show cause as to why suitable directions under Section 11 and 11B should not be issued for violation of Section 12A(a), (b), (c) of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') read with Regulation 3(a), (b), (c), (d) and 4(1), 4(2)(f), (k), (r) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations'), Section 21 of the Securities Contracts (Regulations) Act, 1956 (hereinafter referred to as the 'SCRA Act') read with Clauses 32, 36(7) and 50 of the Listing Agreement. 8. The show cause notice alleged that pursuant to the resolution dated 31st March, 2008 not only a bank account was opened with EURAM Bank but the Managing Director executed a pledge agreement dated 30th May, 2008 on behalf of the Company based on which a loan agreement dated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount over a period of time in instalments and that based on a Chartered Accountant's certificate the entire GDR proceeds alongwith interest accrued thereon amounting to USD 7.48 million was transferred to the subsidiary of the appellant Company. 11. We have heard Mr. Nihar Mody, Advocate assisted by Mr. Prakash Shah and Mr. Meit Shah, Advocates for the appellant and Mr. Shyam Mehta, Senior Advocate assisted by Mr. Nishit Dhruva, Mr. Yash Garach and Ms. Meghna Ashwin, Advocates for the respondent. 12. The contention of the appellant is, that they had no knowledge of the pledge agreement or the loan agreement and that they came to know for the first time when SEBI informed the appellant about it. It was alleged that during the process of issuance of GDR the appellant had signed numerous documents as advised by the Lead Manager and it was also possible that the pledge agreement was also unknowingly signed by the Managing Director/Director of the Company. It was contended that the appellants have appointed a Lead Manager and had signed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to believing that there were three subscribers to the issue. Investigation found that there was only one subscriber. Explanation given by the Company and its Directors that the Lead Manager had supplied the information which were forwarded to SEBI in good faith cannot be believed. At the end of the day, the responsibility lies with the Company to forward such information which are true and the blame cannot be passed to another entity. 15. Since we have already held that the appellants were aware of the pledge agreement, non-disclosure of the pledge agreement invited penalty. Further, the corporate announcement did not disclose the fact that the subsisting pledge agreement facilitated one subscriber to subscribe to the GDR issue. The corporate announcement was misleading and presented a distorted version to the investors and created a false version inducing the investors to deal in securities. 16. There is no doubt that USD 7.48 million which included interest was eventually transferred to a subsidiary of the Company in accordance 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 securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uents has also to be maintained when punishment is being imposed. Punishment should not be disproportionate while comparing the involvement of co-delinquents who are parties to the same transaction or incident. The disciplinary authority cannot impose punishment which is disproportionate, i.e., lesser punishment for serious offences and stringent punishment for lesser offences." 20. Undoubtedly, the doctrine of proportionality is now well established in our jurisprudence and is a recognised facet of Article 14 of the Constitution of India. In Andhra Pradesh Dairy Development Corporation Federation vs. B. Narasimha Reddy and Others (2011) 9 SCC 286, the Supreme Court held: "29. It is a settled legal proposition that Article 14 of the Constitution strikes at arbitrariness because an action that is arbitrary, must necessarily involve negation of equality. This doctrine of arbitrariness is not restricted only to executive actions, but also applies to legislature. Thus, a party has to satisfy that the action was reasonable, not done in unreasonable manner or capriciously or at pleasure without adequate determining principle, rational, and has been done according to reason or judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Aqua Logistics Ltd. Feb-11 62.38 Vintage FZE 3 years 22nd July, 2021 4. Zenith Birla (India) Ltd. May-10 22.99 Vintage FZE 3 years 30th March, 2021 5. Aksh Opti-Fibre Ltd. Sept 10 25 Vintage FZE 5 years 26th June, 2019 6. Sybly Industries Ltd. June 9, 2008 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 awar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 similar matters by the respondent. 30. A penalty of Rs. 10,00,000/- has been imposed on the Independent Directors only on the strength that they were signatories to the board resolution. On the same basis, they have been debarred for five years. In Mr. Gurmeet Singh vs. SEBI, appeal no. 406 of 2020 and other connected appeals decided on 20th September, 2021, this Tribunal has held that merely being a signatory to a resolution does not mean that these Directors were part of the fraudulent scheme and that the respondent was required to show some other evidence to show that these Directors were also part of the fraudulent scheme. A specific assertion was made that they were not involved in the day to day affairs of the Company and that they h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingh 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 these documents which are in the public domain could not be considered by the authorities while considering the matter. Nothing has been brought on record to indicate as to why such documents which was within their knowledge could not be brought on record. In any case, reliance upon these documents are misplaced. Merely because Mr. I.S. Sukhija was the Chairman of the Audit Committee does not mean that he was party to the fraudulent scheme, if any. The observations made by the authorities in the impugned orders that he should have raised questions as to why the GDR proceeds was not brought into the Company's account or why the loan was given to the Vintage from the GDR proceeds are not matters which comes under the purview of the audit committee. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar 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 to be paid by the Directors. 36. Consequently, while affirming the order of the WTM and AO of the aforesaid violations committed by the Company we reduce the debarment period of the Company and the Managing Director, Director and Independent Director from five years to the period undergone. In so far as the penalty imposed by the AO is concerned, the penalty against the Company is reduced to Rs. 25 lakhs. The penalty against the Managing Director and Director is reduced to Rs. 10 lakhs. The penalty imposed against the Independent Director is quashed. The appeals are partly allowed. Misc. application no. 947 of 2021 is also disposed of accordingly. In the circumstances of the case, parties shall bear their own costs. 37. This order will be digitally ..... X X X X Extracts X X X X X X X X Extracts X X X X
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