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TMI Blog2022 (6) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeals are being decided together. The WTM by the impugned order has restrained the Company Aksh Opticfibre Ltd. and its Managing Director Dr. Kailash S. Choudhary from accessing the securities market for a period of five years. The other Directors have been restrained for a period of six months. The AO by the impugned order has imposed a sum of Rs. 10,15,00,000/- upon the Company, Rs. 20,00,000/- upon the Managing Director Dr. K. Choudhari and Rs. 10,00,000/- lakhs each on the remaining appellants who were the Directors. 2. The facts leading to the filing of the present appeal is, that the matter arises in respect of the issuance of GDRs by the Company Aksh Optifibre Ltd., whereby a fraudulent scheme was devised by the Company and its Directors. In this regard, the Board of Directors of the Company passed a resolution dated 17th May, 2010 authorising European American Investment Bank AG (hereinafter referred to as 'EURAM Bank') located outside India to receive the subscription money in respect of the GDR issued by the Company. The resolution further resolved that the Managing Director, Dr. Kailash Choudhari, Chief Financial Officer and Company Secretary were authorised to si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulations 3 and 4 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"). The show cause notice alleged that the Company had issued the GDRs amounting to USD 25 million which was subscribed only by Vintage and that Vintage has paid the subscription amount by obtaining the loan from EURAM Bank. The Company had also executed a pledge agreement by which the GDR proceeds were pledged for the loan taken by Vintage. It was also alleged that the Managing Director, Dr. Kailash Choudhari had executed the pledge agreement and that the pledge agreement was also an integral part of the loan agreement. The show cause notice further alleged that the Company reported to the stock exchange on 2nd September, 2010 that the Company had successfully closed its GDR issue of USD 25 million. Such information was misleading and distorted as it did not contain the fact that the entire GDR issue was subscribed by one entity through a loan taken by that entity on the basis of pledging the proceeds by the Company and, thus, misled the investors by indicating that the GD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that there is an inordinate delay in the initiation of the proceedings. The GDR issue took place in the year 2010 whereas the show cause notice was issued in the year 2018 after eight years and, on this ground, the proceedings should be dropped. 9. All the grounds taken by the appellants were considered by the WTM and AO. The contention so raised were rejected by the respondent holding that the Company had misled the investors in believing that the GDR issue was successful whereas there was only one subscriber, namely, Vintage. The respondent held that the arrangement made through a pledge and loan agreement for the purpose of issuance of GDR was fraudulent. The acts of the Company resulted in a fraud being committed on the investors of the securities market and created a false impression about the Company which was in violation of Section 12A read with Regulations 3 and 4 of the PFTUP Regulations. The respondent further found that the Company and its Board of Directors having participated in the scheme through which issue of GDR was effected through a fraudulent arrangement were guilty of the fraud and, accordingly, appropriate orders were passed by the WTM and AO respecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the execution of the pledge agreement. We find that a mere denial is not sufficient to place the burden upon the regulator. The onus only shifts when the allegation is supported by either attendant circumstances or convincing evidence. In the instant case, we find that no steps had been taken by the Company or by the Managing Director to lodge a complaint/FIR. No steps were taken by the Company and the Managing Director with EURAM Bank as to how the pledge agreement was executed and how the loan agreement was executed in which the GDR proceeds kept in the Company's account was being used for the loan taken by Vintage. We also find that no steps whatsoever has been taken especially by the Managing Director denying the signatures on the pledge agreement nor any steps were taken to produce an expert witness to opine that the signatures on the pledge agreement is not that of the Managing Director. In the absence of the aforesaid steps not been taken by the Company and its Managing Director, we are of the opinion that the allegations made by the Company, its Directors and the Managing Director that the pledge agreement was not executed cannot be accepted. 13. Our view is further fortif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... originals were in existence and could be proved through deposing relevant witnesses is erroneous. In the light of this decision, it was contended that the respondent has proceeded to rely upon photocopy of the pledge agreement when it was disputed and was thus wholly in violation of the principles of natural justice is also erroneous. The contention that the pledge agreement could not be relied upon without first proving the documents is also patently erroneous. 17. In this regard, the facts in Bareilly Electricity Supply Co. Ltd., is, that a dispute was raised for adjudication before the Industrial Tribunal as to whether bonus was required to be paid to the workers or not. The Company produced several documents before the Tribunal to support their stand that no bonus was required to be paid. These documents were disputed by the respondent/workers. It was observed that mere filing of the documents does not amount to proof of them and unless they are either admitted by the respondent or proved they do not become evidence in the case. In the light of the aforesaid observations the Company's stand before the Supreme Court was that the Evidence Act was not strictly applicable and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus is upon the appellants and not upon SEBI. 20. The appellants contended that they were not aware of the pledge agreement and, therefore, the question of disclosing it to the stock exchange did not arise. Since we have already held that the appellants were aware of the pledge agreement non-disclosure of the pledge agreement invited penalty which the AO has rightly penalised the appellants. 21. We also find that the corporate announcement made by the Company on 2nd September, 2010 to the effect that the Company had successfully closed the GDR issue, did not present the correct picture. The corporate announcement did not disclose the fact that there was a subsisting pledge agreement which facilitated the subscribers to subscribe to the GDR issue nor the fact was disclosed that the GDR issue was allotted to a single entity. This corporate announcement by the Company was clearly misleading and presented a distorted version to the investors and created a false impression inducing the investors to deal in securities. We also find that the Company furnished wrong information to SEBI regarding the subscribers to the issue. The list provided by the Company indicated that a number of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also be considered as a mitigating factor while imposing penalty. It was urged that other companies who had raised more GDRs in numbers and value were given lesser punishment and, therefore, the appellant has been discriminated on that score. It was lastly urged that no reason or justification has been given for quantifying the penalty. 25. In support of this submission, the learned counsel has placed reliance on the decision of the Supreme Court in Excel Corp Care Ltd. vs. Competition Commission of India Ltd. 2017 (8) SCC 47 and the decision of the Delhi High Court in Rajkumar Dyeing and Printing Works Pvt. Ltd. vs. Competition Commission of India 2014 SCC OnLine Delhi 6450 on the issue of the doctrine of proportionality and Rajendra Yadav vs. State of Madhya Pradesh and Others 2013 (3) SCC 73. 26. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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.)" 29. 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 vio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod against the appellants is excessive and discriminatory and not in consonance with the directions given in similar matters. 32. Similarly, the AO penalised the appellant Company of Rs. 10,15,00,000/-, the Managing Director Rs. 20,00,000/- and other Directorsrs. 10,00,000/-. In similar matters lesser penalty has been awarded. For facility, a comparative table is given hereunder: Penalty Orders Sr. No. Name of the GDR issuer company Date of Issue GDR size (million $) Subscriber Combined Penalty Date of the Order 1. ABL Biotechnologies Ltd. June 2008 6.68 Clifford Capital Partners Rs. 50,00,000/- (Rupees Fifty Lakhs) 23rd April, 2018 2. Syncom Healthcare Ltd. September 2010 20.74 Vintage Rs. 25,00,000/- (Rupees Twenty Five Lakhs) 30th August, 2019 3. Visu International Ltd. April 2006 9.66 Seazun Rs. 1,25,00,000/- (Rupees 1 Crore Twenty-Five Lakhs) 18th March, 2021 4. GV Films Ltd. April 2007 40 Whiteview Rs. 25,00,000/- (Rupees Twenty-Five Lakhs) 29th January, 2020 5. Aksh Opti-Fibre Ltd. Sept 2010 25 Vintage Rs. 10,15,00,000/- (Rupees Rupees Ten Crore Fifteen Lakhs) 28th February, 2020 33. A perusal of the aforesaid table indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that merely being a signatory to a resolution does not mean that these Directors were part of the fraudulent scheme that the respondent was required to show some other evidence to show that these Directors were also part of the fraudulent scheme. Thus the imposition of penalty is excessive. 38. Consequently, while affirming the order of the WTM and AO of the aforesaid violations committed by the appellants we reduce the debarment period of the Company and the Managing Director from five years to three years. The other Directors have already undergone the debarment period and, therefore, no further order is required to be passed. 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 is affirmed. The penalty imposed against the remaining Directors is reduced from Rs. 10,00,000/- to Rs. 2,00,000/-. The appeals are partly allowed. In the circumstances of the case, parties shall bear their own costs. 39. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certif ..... X X X X Extracts X X X X X X X X Extracts X X X X
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