9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (6) TMI 1441 - AT - SEBIFraudulent GDR issue - fraudulent scheme was devised by the Company and its Directors - Vintage was the only entity which subscribed the entire 1.17 million GDRs of the Company by obtaining a loan from EURAM Bank - Penalty and restraint orders against company and directors - HELD THAT - In the instant case, the copies of the loan agreement, pledge agreement was obtained from an authenticated source and, therefore the existence of the original document cannot be disputed and, in any case, the appellants especially the Company and Managing Director had copies of these documents if not the original and, therefore, it does not lie in their mouth to contend that the copies annexed to the show cause notice cannot be relied upon. In any case, we are of the opinion that if copies of the documents and/or its contents thereof are relied by SEBI and the same is disputed by the appellants regarding its existence or its contents then the onus is upon the appellants who disputes it to prove that the document is forged or its contents are manipulated and its signatures are not of their Directors. The onus is upon the appellants and not upon SEBI. Appellants contended that they were not aware of the pledge agreement and, therefore, the question of disclosing it to the stock exchange did not arise - Since we have already held that the appellants were aware of the pledge agreement non-disclosure of the pledge agreement invited penalty which the AO has rightly penalised the appellants. Company furnished wrong information to SEBI regarding the subscribers to the issue. The list provided by the Company indicated that a number of subscribers had subscribed to the GDR issue which upon investigation was found to be false and that only one entity had subscribed to the GDR issue. The contention that the Company had only forwarded the letter that was given by the Merchant Banker cannot be accepted. The responsibility at the end of the day is of the Company and, in our opinion, filing false information was solely the responsibility of the Company and cannot be diverted to the Merchant Banker. A feeble attempt was made contending that there were two dates on the loan agreement, namely, 16th August, 2010 and 26th August, 2010 and, therefore, doubted the authenticity of the said document. In the first blush the argument appeared to be attractive but upon a closer scrutiny of the document we find that the loan agreement was sent by EURAM Bank to Vintage on 16th August, 2010. This offer of a loan agreement was accepted by Vintage when they placed their signature on 26th August, 2010. Thus, we do not find any discrepancy doubting the authenticity of the loan agreement. Penalty - As excessive penalty imposed upon the Company does not make any sense. In the instant case, there are 70,000 public shareholde Rs. Penalising the Company with such heavy penalty is infact penalising the shareholders which is not justifiable especially for a running company. Money raised through GDRs has been received by the Company and has not been misappropriated. The same has been utilitised for the purpose for which the GDR was issued, namely, for the Company s subsidiary which fact has not been disputed. Thus, it is not a case of defalcation of the funds. Even though the appellants had misled the investors into believing that the GDR was successful whereas there was only one subscriber. Further, the loan agreement, pledge agreement was not disclosed to the shareholders and to the stock exchange. Such scheme was totally fraudulent. If the Company had not given security for the loan taken by Vintage then Vintage could not have subscribed to the GDRs and, consequently, the GDR issue would have failed. Thus, by entering into the pledge agreement for facilitating subscription of its GDRs, we are of the view that the appellant had played a fraud on the securities market and misled the investors by creating a false impression and, thus, violated Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. Directions so issued under Section 11 and 11B of the SEBI Act and the penalty so imposed under Section 15HA are disproportionate and does not commensurate with the violation in view of the directions given in similar matters by the respondent. A penalty of Rs. 10,00,000/- has been imposed on the Directors only on the strength that they were signatories to the board resolution. In Mr. Gurmeet Singh vs. SEBI 2021 (9) TMI 1519 - SECURITIES APPELLATE TRIBUNAL MUMBAI and other connected appeals this Tribunal has held that merely being a signatory to a resolution does not mean that these Directors were part of the fraudulent scheme that the respondent was required to show some other evidence to show that these Directors were also part of the fraudulent scheme. Thus the imposition of penalty is excessive. Consequently, while affirming the order of the WTM and AO of the aforesaid violations committed by the appellants we reduce the debarment period of the Company and the Managing Director from five years to three years. The other Directors have already undergone the debarment period and, therefore, no further order is required to be passed. In so far as the penalty imposed by the AO is concerned, the penalty against the Company is reduced to Rs. 25 lakhs. The penalty against the Managing Director is affirmed. The penalty imposed against the remaining Directors is reduced from Rs. 10,00,000/- to Rs. 2,00,000/-. The appeals are partly allowed. In the circumstances of the case, parties shall bear their own costs.
Issues Involved:
1. Execution of the pledge agreement by the Company and its Managing Director. 2. Burden of proof and admissibility of photocopies of documents. 3. Misleading information provided to investors and SEBI. 4. Proportionality and discrimination in the penalties imposed. Detailed Analysis: 1. Execution of the Pledge Agreement: The Company and its Managing Director denied executing the pledge agreement. However, the Tribunal found this denial to be a mere smokescreen. The appellants did not lodge any complaint or take steps to prove the signatures on the pledge agreement were not genuine. The Tribunal noted that the Company and its Managing Director were aware of the pledge agreement, as evidenced by a letter dated 21st March 2011 from EURAM Bank confirming the repayment of the loan taken by Vintage, which was copied to the Company. Additionally, the Tribunal found that the signatures of the Managing Director on various documents appeared to be consistent. Therefore, the contention that the pledge agreement was not executed was rejected. 2. Burden of Proof and Admissibility of Photocopies: The appellants argued that SEBI should have produced the original documents and that photocopies were inadmissible. The Tribunal held that the documents obtained from an authenticated source did not require further authentication. The originals were either with the Company or the Bank, and SEBI had obtained copies from an overseas regulator. The Tribunal rejected the reliance on the Bareilly Electricity Supply Co. Ltd. case, stating it was not applicable. The onus was on the appellants to prove the documents were forged, which they failed to do. 3. Misleading Information Provided to Investors and SEBI: The Company did not disclose the pledge agreement to the stock exchange or shareholders, misleading investors. The corporate announcement on 2nd September 2010 was found to be misleading as it did not disclose the pledge agreement or that the GDR issue was subscribed by a single entity. The Tribunal held that the Company provided false information to SEBI regarding the number of subscribers. The responsibility for this misinformation lay with the Company, not the Merchant Banker. 4. Proportionality and Discrimination in Penalties: The appellants argued that the penalties were excessive and discriminatory compared to similar cases. The Tribunal acknowledged the doctrine of proportionality, citing various judgments, and noted that the penalties imposed on the Company and its Directors were higher than those in similar cases. For instance, Aqua Logistics Ltd. and Zenith Birla (India) Ltd. were debarred for three years despite raising substantial amounts through GDRs, whereas the appellant Company was debarred for five years. Similarly, the monetary penalties were found to be disproportionate. Conclusion: The Tribunal affirmed the violations committed by the appellants but reduced the debarment period for the Company and the Managing Director from five years to three years. The penalty against the Company was reduced to Rs. 25 lakhs, and the penalty against the remaining Directors was reduced from Rs. 10,00,000/- to Rs. 2,00,000/-. The Managing Director's penalty was affirmed. The appeals were partly allowed, and each party was directed to bear its own costs.
|
