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2021 (5) TMI 1071 - AT - SEBIViolation of Clause 36 of the Listing Agreement read with Section 21 of the SCRA - corporate announcement of the cancellation / truncation of the orders was not made known to the stock exchange - Penalty for failure to furnish information, return, etc - HELD THAT - As the words material / materiality means anything which is likely to impact an investor s investment decision and depends on the facts of each case. In the instant case, we find that when the appellants received the contract the said information was disclosed on the stock exchange platform and which was rightly done but when the orders were cancelled or truncated on three occasions the cancellation / truncation orders were not disclosed on the stock exchange platform. Non-disclosure of this information was a material information which could have an impact on the financials of the Company. In our view the objective of Clause 36 of the Listing Agreement is to enable the shareholders and the public to appraise position of the Company and enable investors to take an informed decision. In our view the cancellation / truncation of the contracts has a material impact which warrants a disclosure on an immediate basis. The responsibility was on the appellant no. 1 which it failed to do so. It is duty of the Compliance Officer to ensure that the Company complies with all the legal obligations. In the instant case as we have held the cancellation / truncation of the orders had a material impact and was price sensitive information which could have an impact on the financials of the Company. Thus, Clause 3.2 of the Code of Conduct was violated. Since there is no separate provision for imposition of penalty the provisions of Section 15HB of the SEBI Act was invoked and the penalty was rightly imposed. We do not find any error on this aspect. Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds - sum of Rs. 1 crore has been imposed for violation of Section 23E of the SCRA - Section 23E has nothing to do with the violation of the provisions of the Listing Agreement especially Clause 36. Section 23E provides that where a Company fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof then penalty would be a minimum of Rs. 5 lakh upto maximum of Rs. 25 crore. The words fails to comply with the listing conditions cannot mean failure to comply with the conditions in the Listing Agreement. Rule 19 of the SCRR provides certain requirements with respect to a listing of securities on a recognized stock exchange. Rule 19A provides that a Company has to continuously maintain listing requirements. Rule 21 provides conditions for delisting of securities. Failure to comply with the listing conditions which are stated in Rule 19 would entail a penalty as provided under Section 23E. Thus, in our view violation of Clause 36 of the Listing Agreement will attract Section 23A(a) of the SCRA and will not attract Section 23E. The AO has made an error. The penalty of Rs. 1 crore under Section 23E is patently erroneous and cannot be imposed and the order to that extent cannot be sustained. While confirming the order of the AO with regard to violation of Clause 36 of the Listing Agreement and Clause 3.2 of the Code of Conduct to the PIT Regulations of 1992 we affirm the penalty imposed upon appellant no. 1 under Section 23A(a) to the extent of Rs. 5 lakh and also affirm the order of the AO to the extent of imposition of Rs. 5 lakh on appellant nos. 1 and 2 under Section 15HB of the SEBI Act. The imposition of penalty of Rs. 1 crore under Section 23E of the SCRA is set aside. Appeal is partly allowed.
Issues Involved:
1. Violation of Clause 36 of the Listing Agreement. 2. Violation of Section 21 of the Securities Contracts (Regulation) Act, 1956 (SCRA). 3. Violation of Clause 3.2 of the Code of Conduct under the SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations of 1992). 4. Imposition of penalties under Sections 23A(a) and 23E of the SCRA. 5. Imposition of penalties under Section 15HB of the SEBI Act. Detailed Analysis: Violation of Clause 36 of the Listing Agreement The appellants were accused of not disclosing the cancellation/truncation of orders worth Rs. 1506 crore to the stock exchange, which was alleged to be a violation of Clause 36 of the Listing Agreement. Clause 36 mandates that any price-sensitive information or events affecting the company's performance must be reported immediately to the stock exchange. The appellants contended that the truncation of orders was not material information requiring disclosure. However, the Adjudicating Officer (AO) found that since the receipt of orders was disclosed, their cancellation or truncation should also have been disclosed to ensure shareholders and investors were informed. Violation of Section 21 of the SCRA Section 21 of the SCRA requires compliance with the conditions of the Listing Agreement. The Tribunal found that the appellants failed to disclose material information as required under Clause 36 of the Listing Agreement, thereby violating Section 21 of the SCRA. The Tribunal referenced previous cases, emphasizing that information with a "material impact" on the company's operations or financials should be disclosed "promptly" and "immediately." Violation of Clause 3.2 of the Code of Conduct under the PIT Regulations of 1992 Clause 3.2 of the Code of Conduct under the PIT Regulations of 1992 mandates the Compliance Officer to ensure continuous disclosure of price-sensitive information. The AO held that the appellants violated this clause by not disclosing the cancellation/truncation of orders, which was deemed price-sensitive information. The Tribunal upheld this finding, noting that the responsibility for compliance lay with the Compliance Officer, who failed in their duty. Imposition of Penalties under Sections 23A(a) and 23E of the SCRA The AO imposed a penalty of Rs. 5 lakh under Section 23A(a) of the SCRA for failing to furnish required information to the stock exchange. The Tribunal confirmed this penalty, stating that non-disclosure of material information violated Clause 36 of the Listing Agreement and Section 21 of the SCRA. However, the AO also imposed a penalty of Rs. 1 crore under Section 23E of the SCRA. The Tribunal found this imposition erroneous, clarifying that Section 23E pertains to non-compliance with listing or delisting conditions, not the conditions of the Listing Agreement. Therefore, the penalty under Section 23E was set aside. Imposition of Penalties under Section 15HB of the SEBI Act The AO imposed a penalty of Rs. 5 lakh on appellant nos. 1 and 2 under Section 15HB of the SEBI Act for violating Clause 3.2 of the Code of Conduct under the PIT Regulations of 1992. The Tribunal upheld this penalty, reiterating that the appellants failed to disclose price-sensitive information, thereby violating the Code of Conduct. Conclusion The Tribunal partly allowed the appeal, confirming the penalties of Rs. 5 lakh under Section 23A(a) of the SCRA and Rs. 5 lakh under Section 15HB of the SEBI Act. The penalty of Rs. 1 crore under Section 23E of the SCRA was set aside as it was found to be erroneously imposed. The order emphasized the importance of prompt and immediate disclosure of material information to ensure transparency and informed decision-making by investors.
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