2021 (9) TMI 1391 - SC - SEBI

Insider trading - whole-time director responsibility - direction issued by the SEBI restraining the respondent from accessing the securities market and further prohibiting him from buying, selling or otherwise dealing in securities, directly or indirectly for a period of two years from the date of the order - HELD THAT - Although the respondent was party to the resolution, being a whole-time director and member of the Board of Directors of the Company, had only resolved that Company may open an account with the EURAM Bank for the purpose of deposit of GDR proceeds. The resolution does not stipulate that the proceeds would be used as security in connection with the loan taken by another entity. The latter part of this submission is not in consonance with the purport of the resolution passed by the Board on January 30, 2008. Whereas, the SEBI had rightly noted that such resolution facilitated the transaction with Vintage and was a fraudulent transaction considering the fact that neither the arrangement nor the resolution was ever disclosed to the shareholders of the Company or the investors of the securities market through BSE. This aspect has not been reckoned by the Appellate Tribunal. This is a manifest error committed by the Appellate Tribunal. We have no hesitation in taking the view that the Appellate Tribunal was unduly impressed by only one fact; but ought to have construed the resolution in the manner done by the SEBI and in particular, the inaction of the Board of not disclosing the arrangement to the shareholders or the investors of the securities market through BSE. As a result, we set aside the impugned judgment and order and instead uphold the view taken by the SEBI vide its decision dated 28.02.2019. As regards the debarment period specified in the said order, we accept the submission canvassed by the counsel for the respondent that the respondent having already undergone substantial part of the prohibition imposed by the SEBI vide order dated 28.02.2019, that period be treated as sufficient compliance of the final order passed by the SEBI. Counsel for the appellant has left it to the Court to pass appropriate order on this submission. Accordingly, we accept the submission made by the respondent and order that the prohibition imposed by the SEBI in terms of the order dated 28.02.2019 be treated as substantially complied by the respondent and nothing more needs to be done in that regard hereafter. We are informed by the counsel for the respondent that there are other proceedings pending against the respondent, in which the respondent may be permitted to raise all permissible issues and contentions and those proceedings be decided in accordance with law. We have no difficulty in acceding to this submission. We order accordingly.

Summary

Issues:
Appeal against SEBI's decision to restrain respondent from securities market activities.

Analysis:
The Supreme Court heard an appeal challenging the Securities Appellate Tribunal's decision to set aside SEBI's order restraining the respondent from securities market activities for two years. SEBI found the respondent, a former whole-time Director, responsible for facilitating fraudulent transactions by passing a resolution enabling the use of GDR proceeds as security for a loan without disclosure to shareholders or investors. SEBI held the respondent liable even after his resignation, emphasizing the duty of directors to act diligently. The Tribunal, however, focused on a narrow interpretation of the resolution, disregarding the fraudulent nature of the transaction and lack of disclosure. The Supreme Court found the Tribunal erred in its assessment, reinstating SEBI's decision.

The Supreme Court acknowledged the respondent had already served a substantial part of the SEBI-imposed prohibition period. Thus, the Court accepted the respondent's request to consider the served period as compliance with SEBI's order. The Court also allowed the respondent to raise issues in other pending proceedings. The appeal was disposed of without costs.