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2019 (11) TMI 1380 - AT - SEBIDirector guilty for violating Section 12A of the SEBI Act - scheme to defraud any shareholder or investor - pledging the GDR proceeds as collateral for the loan taken by Vintage for making subscription to the GDR - appellant Adi Cooper was a director and had attended the meeting of the Board of Directors on January 30, 2008 in which the GDR proceeds were authorized to be pledged as security for loan which was the starting point of the fraudulent arrangement through which the company facilitated the financing of the GDR subscription by Vintage which arrangement was not disclosed to the shareholders of the company or to the investors of the securities market through the platform of the stock exchange - HELD THAT - Appellant Adi Cooper was neither directly or indirectly involved in any fraudulent activity nor employed any scheme to defraud any shareholder or investor. The WTM committed a manifest error in holding that the appellant Adi Cooper cannot be absolved of the consequences of the resolution of January 30, 2008 even though he was not present in the time when the issuance of GDR and execution of the loan and pledge agreements. We are of the opinion that the resolution of January 30, 2008 does not indicate any resolution or execution of the loan or the pledge agreement and, thus, holding the appellant that he was actively involved in the manipulation of the market through this fraudulent scheme is patently erroneous and farfetched. In the light of the aforesaid, we are of the opinion that the order of the WTM debarring the appellant Adi Cooper from accessing the securities market for two years cannot be sustained. Appellant Kishore Hegde Kishore Hegde as an independent director from 2008 to 2013 was part of the scheme through which issue of GDR by the company was effected through a fraudulent arrangement of loan agreement and pledge agreement. We are also of the opinion that the conduct of the appellant Kishore Hegde was inimical to the interest of the company, to the investors, as well as to the shareholders and, the action of the appellant Kishore Hegde was in violation of Section 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations. The order of the WTM debarring the appellant Kishore Hegde from accessing the securities market, etc. for a period of two years does not suffer from any error of law.
Issues Involved:
1. Legality of the resolution passed by the Board of Directors on January 30, 2008. 2. The involvement of appellant Adi Cooper in the fraudulent GDR arrangement. 3. The involvement of appellant Kishore Hegde in the fraudulent GDR arrangement. 4. The applicability of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations to the appellants. Detailed Analysis: 1. Legality of the resolution passed by the Board of Directors on January 30, 2008: The resolution passed on January 30, 2008, by the Board of Directors of the company authorized the opening of a bank account with EURAM Bank for receiving subscription money from the GDR issue. It also permitted the bank to use the subscription money as security in connection with loans. The resolution did not specify that the security was for a loan taken by another entity, Vintage FZE. The tribunal found that this resolution, by itself, did not violate any SEBI laws and could not be construed as the starting point of a fraudulent arrangement. 2. The involvement of appellant Adi Cooper in the fraudulent GDR arrangement: Appellant Adi Cooper was a Whole Time Director and Vice Chairman of the company until October 10, 2008. He was involved in the January 30, 2008, resolution but had resigned before the subsequent resolutions and agreements related to the GDR issue were made. The tribunal found that the WTM's conclusion that Adi Cooper was part of a fraudulent arrangement based on his involvement in the January 30, 2008, resolution was "wholly misconceived, farfetched and cannot be accepted." The tribunal noted that the resolution did not indicate any fraudulent intent, and there was no evidence that Cooper remained associated with the company after his resignation. 3. The involvement of appellant Kishore Hegde in the fraudulent GDR arrangement: Appellant Kishore Hegde was an independent director from 2008 to 2013 and Chairman of the audit committee. He attended several Board meetings, including those on January 30, 2008, and May 25, 2009. The tribunal found that Hegde was involved in the planning and execution of the GDR issue and was part of the scheme through which the GDR issue was effected via a fraudulent loan and pledge agreement. His failure to object to the non-receipt and utilization of GDR proceeds as Chairman of the audit committee was particularly noted. The tribunal concluded that Hegde's actions were in violation of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. 4. The applicability of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations to the appellants: Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations prohibit manipulative and deceptive practices in securities transactions. The tribunal found that Adi Cooper did not engage in any fraudulent activity or employ any scheme to defraud shareholders or investors. Conversely, Kishore Hegde was found to have been part of the fraudulent arrangement and his actions were deemed inimical to the interests of the company, investors, and shareholders. Conclusion: The tribunal allowed the appeal of Adi Cooper, setting aside the order of debarment against him, as there was no evidence of his involvement in the fraudulent scheme post his resignation. The appeal of Kishore Hegde was dismissed, upholding the WTM's order of debarment for his involvement in the fraudulent GDR arrangement.
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