2016 (7) TMI 877 - AT - Companies Law

Bonafide public announcements - whether the WTM of SEBI is justified in holding that some of the unimplemented corporate announcements were made by SIL with the fraudulent intention of influencing the price of SIL scrip and thereby enable the promoter group entities to off load the shares of SIL at the inflated prices and make unlawful gains? - Held that - There is nothing on record to suggest that any meetings were held with adjoining land owners and Vishwas Infrastructure Ltd. in connection with the alleged joint venture before or after the public announcements. Further the land documents furnished by the appellants related to the year 2009 whereas the public announcements relating to acquisition of lands were made in the year 2007. Moreover the said documents related to notices of stamp duty and corresponding sale deeds with regard to some agricultural land to which neither SIL nor Vishwas Infrastructure Ltd. were parties. Apart from the above very fact that proposal to acquire 200 acres of land has been abandoned on ground of unavailability of appropriate tract of land and steep rise in land prices clearly shows that the public announcements were made without ascertaining the availability of suitable land at suitable prices. Moreover decision to abandon the project relating to acquisition of land under joint venture was taken belatedly and even BSE was intimated about the abandonment of the proposal for acquisition of 200 acres of land much after the issuance of show cause notice by SEBI. In these circumstances the decision of the WTM of SEBI that the public announcements relating to acquisition of 200 acres of land for development under joint venture was not made with bonafide intentions cannot be faulted. Even the public announcements relating to amalgamation of companies cannot be said to be bonafide announcements because after making such public announcements no further steps were taken in that behalf. Argument of the appellants that they were waiting for the right time to act on the proposal is unacceptable because in the ordinary course decision to amalgamate companies is taken only if the circumstances as on that date demand amalgamation of companies. In the present case public announcements relating to amalgamation were made in the year 2007 however no steps were taken to implement it for several years and it is only on 30.4.2013 after receipt of show cause notice issued by SEBI SIL announced withdrawal of its decision relating to amalgamation of Companies. Thus it is abundantly clear that the public announcements relating to amalgamation of companies were not bonafide public announcements. For all the aforesaid reasons the decision of WTM of SEBI that three public announcements made by appellants were not made with bonafide intentions cannot be faulted. These unimplemented public announcements coupled with various other factors led the WTM of SEBI to arrive at a conclusion that the unimplemented public announcements were made with fraudulent intentions to facilitate the promoter group entities to off load the shares of SIL at inflated prices. In these circumstances no fault can be found with the impugned order. Since the appellants have already undergone the punishment question of considering any mitigating factor does not arise.

Issues Involved:
1. Delay in filing appeals.
2. Restraint order by SEBI on accessing the securities market.
3. Allegations of fraudulent corporate announcements by SIL.
4. SEBI's investigation findings on price and volume manipulation.
5. Justification of SEBI's restraint order based on unimplemented corporate announcements.

Detailed Analysis:

1. Delay in Filing Appeals:
The appeals had a delay of 2 days in filing, which was condoned by the tribunal based on the reasons stated in the Miscellaneous Applications. Both applications were disposed of accordingly.

2. Restraint Order by SEBI on Accessing the Securities Market:
The appellants were restrained from accessing the securities market for two years by the Whole Time Member (WTM) of SEBI under sections 11 and 11B of the SEBI Act, 1992, and section 12A of the Securities Contracts (Regulation) Act, 1956, read with Regulation 11 of the PFUTP Regulations, 2003. The appellants had already undergone the punishment as they had not accessed the securities market for two years.

3. Allegations of Fraudulent Corporate Announcements by SIL:
The primary issue was whether the WTM of SEBI was justified in holding that some of the unimplemented corporate announcements were made by SIL with the fraudulent intention of influencing the price of SIL scrip and enabling the promoter group entities to offload shares at inflated prices.

- Preferential Allotment of Shares: The appellants argued that the announcements were made with bona fide intentions to raise funds. However, SEBI found that SIL made applications without complying with requisite conditions, indicating a lack of sincerity in implementing the proposal. The tribunal agreed with SEBI's inference that the announcements were not bona fide.

- Acquisition of 200 Acres of Land: The appellants claimed that the announcements were made in the process of acquiring land. SEBI found no evidence of feasibility studies or meetings with landowners, suggesting the announcements were wishful thinking to lure investors. The tribunal upheld SEBI's conclusion that the announcements were not bona fide.

- Amalgamation of Companies: The appellants stated they were waiting for the right time to act on the proposal. SEBI noted that no steps were taken to implement the proposal for several years, and the withdrawal was announced only after receiving a show-cause notice. The tribunal found the announcements were not made with bona fide intentions.

4. SEBI's Investigation Findings on Price and Volume Manipulation:
SEBI's investigation revealed significant price and volume manipulation in the scrip of SIL during the period from October 1, 2006, to March 12, 2007. The price of the scrip increased substantially due to corporate announcements, which were not implemented. The promoters offloaded shares at inflated prices, making illegal profits.

5. Justification of SEBI's Restraint Order Based on Unimplemented Corporate Announcements:
The tribunal found no merit in the appellants' contentions and upheld SEBI's findings. The unimplemented announcements, coupled with other factors, led SEBI to conclude that the announcements were made with fraudulent intentions. The tribunal dismissed the appeals, stating that the appellants had already undergone the punishment, and no mitigating factors needed consideration.

Conclusion:
The tribunal dismissed both appeals, upholding SEBI's restraint order and findings that the unimplemented corporate announcements were made with fraudulent intentions to manipulate the price of SIL scrip and facilitate the offloading of shares by the promoter group entities at inflated prices.

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