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2021 (5) TMI 1029 - AT - SEBIFraudulent and Unfair Trade Practice relating to Securities Market - orders restraining the company Chromatic India Limited from accessing the securities market for a period of 5 years. The directors were restrained from buying and selling for a limited period - HELD THAT - Resolution dated August 13, 2010 by itself does not create any suspicion nor creates any fraudulent act. Being a signatory to the said Resolution by itself does not violate any provision of the SEBI Act or the PFUTP Regulations. However, being part of the Audit Committee he had access to the financial status of the company. It is deemed to be in his knowledge that the GDR proceeds of the company were lying in an account in European American Investment Bank ( Euram Bank ) and the same was not being utilized for the business purposes of the company rather it was being utilized as collateral for the loan given to Vintage. Being part of the Audit Committee he should have raised a red flag by observing that the funds were not being utilized by the company for the purpose for which the GDR were issued. The appellant was also the Chairman of the audit committee of the company. The WTM found that being the Chairman of the audit committee, he did not place any objection as to why the GDR proceeds did not reach the company and how the proceeds were utilized. We are thus, of the opinion that in the light of the findings given by the WTM, the appellant Kishore Hegde 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 orders of the WTM and the AO does not suffer from any error of law. Managing director / directors are concerned we find from the perusal of the comparative chart that some directors/ managing directors have been penalized a sum of Rs. 25 lakhs and in some cases Rs. 1 crore - Upon investigation it was found that those entities were non-existent and therefore false disclosures were made. Further, the company violated the provisions of clause 36 and 50 of the Listing Agreement by not making disclosures and making misleading disclosures. It was also stated that in the instant case the trading of the GDR scrips of the company was suspended. Considering the aforesaid, which is distinct from the penalty imposed to other directors in other matters and no similarity having been pointed out by the appellant we are of the opinion, that the penalty imposed by the AO under Section 12 of the SEBI Act read with 3 and 4 of the PFUTP Regulations and under Section 21 of the SCRA read with Clauses 36 and 50 of the Listing Agreement needs no modification. We are further of the opinion, that when the findings given by the WTM and the AO has not been pressed before us in such circumstances, the discretionary relief is not available to the appellants namely the company and its whole time director Vinod Kumar Kaushik. The appeals of the company and Vinod Kumar Kaushik cannot be sustained. AO penalized the appellant Vipin Sharma a sum of Rs. 3 lakhs only on the basis that he was present in the meeting of the Board of Directors when the Resolution dated August 13, 2010 was passed for opening a bank account with Euram Ban - We are of the opinion that in order to implicate a person, namely, a director of any fraudulent act it is necessary for the authority to further find any evidence which would show that the said person or director was involved in the fraud with regard to the GDR issue or that he was involved in the defalcation of the funds which was raised through GDR issue. In the instant case, we find that there is no such evidence against the appellant Vipin Sharma other than the fact that he was part of the Resolution dated August 13, 2010 which has been disputed by the appellant. We are of the opinion that the Resolution dated August 13, 2010 by itself does not create any suspicion nor create any fraudulent act. The Resolution by itself does not violate any provision of the SEBI Act or PFUTP Regulations. In view of the aforesaid, the order of the WTM giving a caution solely on the ground of being present when the Resolution dated August 13, 2010 was passed cannot be sustained. The finding of the WTM that he was aware of the objectives behind the passing of the Resolution dated August 13, 2010 is based on surmises and conjectures. The order of the AO imposing a penalty of Rs. 3 lakhs is also unwarranted in the facts of the present case. The orders of the WTM and the AO in this regard cannot be sustained.
Issues Involved:
1. Delay in filing appeals. 2. Commonality of issues in seven appeals. 3. Investigation and penalties related to Global Depository Receipts (GDRs) issued by Chromatic India Limited. 4. Specific penalties imposed on the company and its directors. 5. Arguments on the quantum of penalties. 6. Role and penalties of independent directors. 7. Specific appeals and penalties involving director Vipin Sharma. Detailed Analysis: 1. Delay in Filing Appeals: The Tribunal condoned the delay in filing the appeals for the reasons stated in the miscellaneous applications, allowing Misc. Application Nos. 67 of 2020 and 428 of 2021. 2. Commonality of Issues in Seven Appeals: Seven appeals were filed against different orders, but the issue was common, leading to a combined decision for all appeals. Appeals No. 393, 394, 428 of 2021, and 203 of 2021 were against orders by the Adjudicating Officer (AO) of SEBI dated March 31, 2020, imposing penalties. Appeals No. 64 and 184 of 2020 were against orders by the Whole Time Member (WTM) of SEBI dated September 30, 2019. Appeal No. 487 and 488 of 2020 were filed by Vipin Sharma against orders of the WTM and AO imposing penalties. 3. Investigation and Penalties Related to GDRs: The investigation into the scrip of Chromatic India Limited aimed to ascertain whether appropriate disclosures were made regarding the GDR issue in October 2010 and whether it complied with prescribed procedures. The investigation revealed that Vintage FZE was the sole subscriber to the GDR issue, which misled investors. The company misled regulatory authorities by providing a fictitious list of subscribers. The GDR proceeds were not available to the company but were utilized by Vintage, constituting a fraud to deceive investors. The company concealed the Pledge Agreement and Loan Agreement, failing to disclose under the Listing Agreement. 4. Specific Penalties Imposed: - Chromatic India Limited was fined Rs. 10 crore under Section 12 of the SEBI Act read with regulations 3 and 4 of the PFUTP Regulations and Rs. 20 lakhs under Section 21 of the SCRA read with Clauses 36 and 50 of the Listing Agreement. - Director Vinod Kumar Kaushik was fined Rs. 5 crore. - Director Ajay Sethi was fined Rs. 20 lakhs. - Director Vipin Sharma was initially restrained from accessing the securities market for one year, which was later modified to a cautionary order and a penalty of Rs. 3 lakhs. 5. Arguments on the Quantum of Penalties: The appellants, except for the appellant in Appeal No. 184 of 2020, confined their arguments to the quantum of penalties. They argued that the penalties were excessive and did not adhere to the principle of proportionality. The Tribunal found that the penalties imposed were appropriate and not arbitrary or excessive, maintaining uniformity with penalties imposed on other companies. 6. Role and Penalties of Independent Directors: Ajay Sethi, an Independent Director, contended that he was not involved in the day-to-day affairs of the company. However, the WTM and AO found him liable as he was a signatory to the Board Resolution and part of the Audit Committee. The Tribunal held that being part of the Audit Committee, he should have raised concerns about the misuse of GDR proceeds, justifying the penalty imposed. 7. Specific Appeals and Penalties Involving Director Vipin Sharma: Vipin Sharma argued that he was not present at the meeting when the Resolution was passed and that his signature on the Resolution was forged. The Tribunal found no evidence implicating him in the fraud other than his disputed presence at the meeting. The Tribunal quashed the orders of the WTM and AO imposing penalties on Vipin Sharma, finding the penalties unwarranted. Conclusion: The appeals by Chromatic India Limited, Vinod Kumar Kaushik, and Ajay Sethi were dismissed, and the penalties imposed were upheld. The appeals by Vipin Sharma were allowed, and the penalties imposed on him were quashed. The Tribunal emphasized the importance of evidence in implicating directors in fraudulent acts and maintained the principle of proportionality in imposing penalties.
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