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2021 (9) TMI 1519 - AT - SEBIFraudulent GDR issue - Company did not make adequate disclosure under the Listing Agreement and that certain monies had also been diverted - WTM passed an order of debarment and the AO passed the order of imposition of penalty on directors - HELD THAT - H.S. Anand director - Subsequent order of the AO finding the Director Anand guilty is patently erroneous and cannot be sustained. Once an AO comes to a conclusion that Mr. H.S. Anand had nothing to do with the day-to-day affairs of the Company and was only associated in providing technical expertise on product quality and was not involved in any financials of the Company it was no longer open to the AO to take a different view on another GDR issue when the facts and modus operandi were all common. We are of the opinion that the regulator should be consistent in its stand and should not take contradictory views on the same issue. In view of the categorical finding that being a non-executive independent director, the said appellant was never involved in the day-today affairs of the Company nor was part of the decision making process relating to the GDR issue, the said appellant cannot be held guilty only on the basis of being a signatory to a resolution. In Prafull Anubhai Shah vs. SEBI, 2021 (6) TMI 1159 - SECURITIES APPELLATE TRIBUNAL, MUMBAI we have held that being a signatory to a resolution is not sufficient to point fingers of committing a fraud. Thus, the order of the AO imposing a penalty upon Mr. H.S. Anand and the order of the WTM debarring him for one year cannot be sustained. Non-executive independent director Mr. I.S. Sukhija the application of the respondent seeking permission to bring on record the additional documents cannot be allowed as it does not come within the parameters of the grounds given in Order 41 Rule 27 of the Code of Civil Procedure. Nothing has been stated as to why these documents which are in the public domain could not be considered by the authorities while considering the matter. Nothing has been brought on record to indicate as to why such documents which was within their knowledge could not be brought on record. In any case, reliance upon these documents are misplaced. Merely because Mr. I.S. Sukhija was the Chairman of the Audit Committee does not mean that he was party to the fraudulent scheme, if any. The observations made by the authorities in the impugned orders that he should have raised questions as to why the GDR proceeds was not brought into the Company s account or why the loan was given to the Vintage from the GDR proceeds are not matters which comes under the purview of the audit committee. In any case, we find that there was no need to raise such questions as the loan in one case was paid immediately and in the other case was paid within a couple of months. Further, the evidence which has come on record indicates that the GDR proceeds were utilized for the purpose for which the resolution for issuance of the GDR was passed. Thus, the finding of the authorities that a fraud has committed by the Company is patently erroneous. When the proceeds have come into the Company and have been utilized for the purpose of setting up a subsidiary in UAE the funds have been utilized for the purpose for which the GDR was issued. Thus, in our view merely because the appellant Mr. I.S. Sukhija was part of the resolution which approved the issuance of the GDR and opening of a bank account with Euram Bank does not lead to a conclusion that the appellant was part of the scheme of the alleged fraud which in any case was not in existence. Thus, imposition of penalty by the AO and debarment by the WTM was wholly erroneous on this appellant. Managing Director of the Company Mr. Gurmeet Singh violation is nondisclosure of the Loan Agreement and the Pledge Agreement under the Listing Agreement for which penalty was rightly imposed upon the Managing Director - quantum imposed is wholly excessive and does not commensurate with the misconduct. There is nothing on record to indicate that any shareholder or investors have suffered any loss on account of conversion of GDR into equity shares which was sold in the Indian market. Thus, we are of the opinion that for non-disclosure of the Loan Agreement and the Pledge Agreement to the Stock Exchange under the Listing Agreement the penalty of Rs. 20 lakh in each GDR issue would be just and proper in the circumstances of the case and the debarment against Mr. Gurmeet Singh is upheld.
Issues Involved:
1. Adequacy of disclosure under the Listing Agreement. 2. Alleged fraudulent scheme involving GDR issuance. 3. Role and responsibility of directors in the fraudulent scheme. 4. Imposition of penalties and debarment orders. Issue-wise Detailed Analysis: 1. Adequacy of Disclosure under the Listing Agreement: The investigation revealed that the Company did not make adequate disclosure under the Listing Agreement regarding the GDR issuance. Specifically, the Company failed to disclose the Loan Agreement and the Account Charge Agreement with Euram Bank, which facilitated the subscription to the GDR issue by Vintage FZE. This non-disclosure created a false impression among genuine investors, leading to a violation of the Listing Agreement. 2. Alleged Fraudulent Scheme Involving GDR Issuance: The authorities found that the GDR issuance was a prearranged and premeditated plan. The sole subscriber, Vintage FZE, used a loan from Euram Bank secured by the Company’s Account Charge Agreement to subscribe to the GDR issue. This scheme was deemed fraudulent as it was not disclosed to the Stock Exchange, misleading shareholders and investors. 3. Role and Responsibility of Directors in the Fraudulent Scheme: - Mr. H.S. Anand: Initially found not to have committed any violation by the AO, as he was only associated with the Company for providing technical expertise and was not involved in financial decisions. However, a contradictory order later imposed a penalty on him, which was deemed erroneous by the Tribunal. The Tribunal held that being a signatory to a resolution does not imply involvement in a fraudulent scheme, and thus, the penalty and debarment against Mr. Anand were quashed. - Mr. I.S. Sukhija: As a non-executive independent director and Chairman of the Audit Committee, he was alleged to have facilitated the fraudulent scheme by not raising objections regarding the GDR proceeds. The Tribunal found that the Audit Committee's purview did not include questioning the use of GDR proceeds, especially when the funds were used for the intended purpose. Thus, the penalties and debarment against Mr. Sukhija were also quashed. - Mr. Gurmeet Singh: As the Managing Director, he was involved in the day-to-day affairs and was a signatory to the Loan and Pledge Agreements. The Tribunal found that while the non-disclosure of these agreements violated the Listing Agreement, there was no evidence of fraud or loss to shareholders. The penalty imposed on Mr. Singh was reduced from Rs. 1 crore to Rs. 20 lakh for each GDR issue, but the debarment was upheld. 4. Imposition of Penalties and Debarment Orders: The Tribunal reviewed the penalties and debarment orders issued by the AO and WTM. It found inconsistencies in the treatment of directors and the assessment of their roles in the alleged fraudulent scheme. The penalties and debarment orders against Mr. Anand and Mr. Sukhija were quashed, while the penalties against Mr. Singh were reduced but his debarment was upheld. Conclusion: The Tribunal emphasized the need for consistent regulatory actions and found that the non-disclosure of the Loan and Pledge Agreements constituted a violation of the Listing Agreement. However, it concluded that the penalties and debarment orders against non-executive directors were unwarranted, while the penalties against the Managing Director were excessive and required reduction. The Tribunal's decision reflects a nuanced understanding of the roles and responsibilities of different directors in corporate governance.
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