TMI Blog2022 (8) TMI 1465X X X X Extracts X X X X X X X X Extracts X X X X ..... (A)(1) of the SCRR was not achieved. HELD THAT:- A loan was given by Manali/ Stephens which is not disputed and if the loan is not repaid Falcon/ Dunlop in their wisdom allotted shares to the assignee companies through preferential allotment of shares in order to square off the loan amount which is permissible in law. The three assignee companies are not promoter group companies of Falcon or Dunlop. Similarly, there is no evidence to show that the three assignee companies were group companies/ subsidiary companies of Manali/ Stephens. In the absence of any such evidence coming on record the WTM committed a manifest error in clubbing the shareholding of the three assignee companies, namely, Regus, Suncap and Sulputri with the shareholdings of Manali/ Stephens respectively and then clubbing it as the group shareholding with Falcon/ Dunlop. Such clubbing of shares, in our opinion, was not permissible in the eyes of law. We are of the view, that the company had rightly shown the shareholdings of the three assignee companies as public shareholdings. We are further of the view, that the shareholdings of the assignee companies cannot be clubbed together with the shareholding of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities market in any manner, for a period of two years. In addition to the aforesaid, the appellants were also restrained from being associated with any other listed company or SEBI registered intermediary, in any capacity either as a Director or as a key managerial person, directly or indirectly, for a period of two years. 2. The facts leading to the filing of the present appeal is, that SEBI conducted an investigation regarding the acquisition of shares of Falcon Tyres Limited and Dunlop India Limited by certain entities through preferential allotment. Based on the investigation, a show cause notice dated April 24, 2018 was issued to Falcon Tyres Limited, Pawan Kumar Ruia, Sunil Bhansali, S. Ravi, Mohan Lall Chauhan and Damodar Prasad Dani. The appellant before us is Pawan Kumar Ruia, who was Director and Executive Chairman of Falcon Tyres Limited (hereinafter referred to as Falcon ) and Mohan Lall Chauhan who was Non-Executive Director in Dunlop India Limited (hereinafter referred to as Dunlop ). 3. The facts stated in the show cause notice is, that Manali Properties and Finance Limited ( Manali ) is a group Company of Falcon and held 3.56% of the shares of Falcon an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in collusion with their group companies and the three preferential allottees with a view to avoid MPS requirements under Clause 40A of the Listing Agreement and was also violative of Rule 19(A) of the SCRR. 7. The WTM after considering the reply and the material evidence on record found that the preferential allotment by Falcon to the three assignee companies was not a genuine assignment and, therefore, the shareholding of the assignee companies has to be clubbed together with the shareholding of the promoter group which taken together would reach 87.27% and, therefore Falcon which had time till June 03, 2013 to achieve the minimum public shareholding of 25% as mandated under Rule 19(A)(1) of the SCRR was not achieved. The WTM accordingly passed the directions as stated aforesaid. 8. The conclusion drawn that the allotment to the assignee companies was not a genuine consequence or outcome of the Assignment Deeds was based on the fact that the three companies had no business activity and their net worth was nowhere close to the assigned amounts. Further, the assignment was without any collateral securities and, therefore, the WTM came to a conclusion that the Assignment Deeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board of India, within a period of three years from the date of such commencement; (b) whose public shareholding reduces below ten per cent, after the date of commencement of the Securities Contracts (Regulation) (Second Amendment) Rules, 2010 shall increase its public shareholding to at least ten per cent, in the manner specified by the Securities and Exchange Board of India, within a period of twelve months from the date of such reduction Listing Agreement 40A Minimum level of public shareholding The company agrees to comply with the requirements specified in Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957. Where the company is required to achieve the minimum level of public shareholding specified in Rule 19(2)(b) and/or Rule 19A of the Securities Contracts (Regulation) Rules, 1957, it shall adopt any of the following methods to raise the public shareholding to the required level: - (a) issuance of shares to public through pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms of the Assignment Deeds allotted equity shares to the extent of the loan which was passed by the shareholders of the company in the Extra Ordinary General Meeting on April 26, 2012. Similar was the case with regard to Dunlop. 14. It is not open to the WTM to question the decision of Manali assigning the loan to the three assignee companies or question the assignment given by Stephens to the three assignee companies. Whether the decision taken by Manali/ Stephens in assigning the loans to the three assignee companies was a prudent decision or a commercial decision was not open to be questioned by the WTM in these proceedings. The fact remains that a loan was given by Manali/ Stephens which is not disputed and if the loan is not repaid Falcon/ Dunlop in their wisdom allotted shares to the assignee companies through preferential allotment of shares in order to square off the loan amount which is permissible in law. 15. The three assignee companies are not promoter group companies of Falcon or Dunlop. Similarly, there is no evidence to show that the three assignee companies were group companies/ subsidiary companies of Manali/ Stephens. In the absence of any such evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Notwithstanding anything contained in subsection (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Explanation:- For the purposes of this section, (a) company means any body corporate and includes a firm or other association of individuals; and (b) director , in relation to a firm, means a partner in the firm. 19. A perusal of the aforesaid provision indicates that if an offence is committed by the company then every person who was responsible to the company for the conduct of the business of the company would be guilty of the offence. Thus, violation of Clause 40A of the Listing Agreement read with 19(A) of the SCRR has to be first found against the company and only thereafter SEBI can proceed against the Directors who were responsible for the conduct of the business of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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