TMI Blog2021 (9) TMI 1518X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to its subsidiary in UAE as per the GDRs offering. Thus, a genuine GDRs issue was made by the company which was not fraudulent nor the proceeds of the GDRs has been diverted to a third entity. In fact, there is no specific allegation about the non-utilization of the GDRs in the show cause notice. Thus, there cannot be any violation of any fraud or inducement under Regulations 3 and 4 of the PFUTP Regulations. AO while considering the factors under Section 15J of the SEBI Act found that there is nothing on record to show or indicate any disproportionality given or unfair advantages made by the appellants nor anything has come on record to show any loss suffered by the investors. In view of this specific finding coupled with the fact that no fraudulent scheme was initiated by the company, we are of the opinion that the findings given by the WTM and the AO against the appellants Pradip Mundhra and Sanjay Taparia relating to the penalty is excessive and arbitrary and is required to be modified. Appeals of Jaiprakash Kabra, Gopaldas Maheshwari and Rajesh Jhunjhunwala being covered by the decision of this Tribunal in Praful Shah [ 2021 (6) TMI 1159 - SECURITIES APPELLATE T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the filing of the present appeals are, that a company known as Tulsi Extrusions Ltd. issued Global Depository Receipts (hereinafter referred to as GDRs ) in August 2010. Total 1,25,000 GDRs amounting of US$ 14.325 million was issued. European American Investment Bank AG (hereinafter referred to as Euram Bank ) granted a loan to Vintage FZE (hereinafter referred to as Vintage ) through a loan agreement dated August 11, 2010 for making payment towards subscription to the entire GDRs issue. The company pledged the entire GDRs proceeds to Euram Bank as a security towards the loan availed by Vintage. The pledge agreement was an integral part of the loan agreement. Subsequent to the issuance of the GDRs, the GDRs, was converted into equity shares and sold in the Indian market. 4. The issuance of the GDRs was pursuant to a company resolution dated May 7, 2010 where the company resolved to issue GDRs for the purpose of modernizing its company and expand in its subsidiary concern off-shore. The said resolution authorized Euram Bank to use the proceeds in connection with a loan. The investigation revealed that the Company made selective disclosure to Bombay Stock Exchange (BSE) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and shareholders and independent directors are required to ensure fairness and transparency in the dealings of the company and, therefore, are equally responsible for the affairs of the company and cannot get away on the ground that they are non-executive independent director. 9. On the other hand, the learned senior counsel for the respondent fairly admitted that the finding in the instant case in so far as Jaiprakash Kabra, Gopaldas Maheshwari and Rajesh Jhunjhunwala is concerned is based on the fact that they were signatories to the resolution of the board of directors dated May 7, 2010 and, consequently, have been held responsible for the alleged non-disclosure and the fraudulent scheme. The learned senior counsel however submitted that they have filed additional documents, namely, the annual reports of the company to show that these appellants were members of the audit committee and, therefore, were aware of the financial dealings of the company. In support of his submission, the learned senior counsel placed reliance in the cases of Chromatic India Limited vs. SEBI (Appeal No. 393 of 2020 decided on May 12, 2021) and Mohandas Shenoy Adige vs. SEBI (Appeal No. 511 of 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 was passed, no conclusion can be drawn that this was the starting point of the fraudulent arrangement for issuance of GDR and for opening a bank account. The resolution does not given any indication that the appellant had knowledge beforehand that the GDR issue was the purpose to manipulate the price or the market or that a fraud would be played upon the shareholders and the investors. We are further of the opinion that finding of the WTM that the resolution of the Board of Directors dated June 27, 2006 provides execution of a pledge or execution of a charge agreement is wholly erroneous, perverse and based on no evidence. The resolution also does not stipulate that the proceeds could be utilized by the bank as security in connection with a loan taken by another entity. 13. In the light of the aforesaid, we are of the view that the appellant cannot be debarred only on the basis of being present in the resolution of the Board of Directors dated July 27, 2006. In the absence of any evidence that the appellant had a role to play in the issuance of the GDR, the mere presence of the appellant in the resolution of the Board of Directors dated July 27, 2006 does not make him liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company, we are of the opinion that the findings given by the WTM and the AO against the appellants Pradip Mundhra and Sanjay Taparia relating to the penalty is excessive and arbitrary and is required to be modified. 17. In view of the aforesaid, the appeals of Jaiprakash Kabra, Gopaldas Maheshwari and Rajesh Jhunjhunwala being covered by the decision of this Tribunal in Praful Shah (supra), the impugned orders of the AO in so far as it relates to these appellants are quashed. Their appeals are allowed with no order as to costs. In so far as the appeals of Pradip Mundhra and Sanjay Taparia are concerned, they being on the helm of the affairs of the the company on a day to day basis, they are responsible for nondisclosure of vital information. However, the penalty imposed by the AO and the WTM are disproportionate and excessive, therefore, while affirming the findings of violation in so far as it relates to nondisclosure, the penalty of Rs. 50 lac imposed by the AO is reduced to Rs. 20 lac each and debarment of five years made by the WTM is reduced to two years and six months. The appeals of Pradip Mundhra and Sanjay Taparia are partly allowed. 18. In the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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