2016 (9) TMI 767 - AT - Companies Law

Guilty of violating the ICDR Regulations and PFUTP Regulations - Held that - Basic charge held against the appellants is that by suppressing material facts from the investors in the IPO, the appellants have violated Securities And Exchange Board Of India (Issue Of Capital And Disclosure Requirements) Regulations, 2009 ( ICDR Regulations for short) and by misutilizing the IPO proceeds, the appellants have violated the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ( PFUTP Regulations for short). It is relevant to note that based on the aforesaid violations, the AO of SEBI by his order dated 06.08.2014 had inter alia imposed penalty of ₹ 2 crore on the directors of RDB. Challenging the said order passed by the AO, the directors of RDB had filed appeals before this Tribunal. In our order passed today in those appeals we have upheld the decision of the AO of SEBI that the directors or RDB are guilty of violating ICDR Regulations and PFUTP Regulations and accordingly upheld the penalty of ₹ 2 crore imposed on the appellants. However, going into the question as to whether the WTM of SEBI was justified in upholding the two additional charges would now be futile, because the appellants have already undergone the debarment imposed under the impugned order and as such the appeals have become infructuous. Accordingly, in view of our decision that the appellants are guilty of violating the ICDR Regulations and PFUTP Regulations and the appellants have already undergone the debarment imposed under the impugned order, without going into the question as to whether the WTM of SEBI was justified in upholding the two additional charges, we dispose of all these appeals as infructuous.

Summary

Issues:
1. Appeal against the common order passed by the Whole Time Member (WTM) of Securities and Exchange Board of India (SEBI).
2. Debarment of the appellants from accessing the securities market for four years.
3. Allegations of violating Securities And Exchange Board Of India (Issue Of Capital And Disclosure Requirements) Regulations, 2009 (ICDR Regulations) and Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations).
4. Upholding of additional charges against the appellants by the WTM of SEBI.

Analysis:
The judgment pertains to four appeals challenging a common order passed by the WTM of SEBI debarred the appellants from the securities market for four years. The appellants were accused of violating ICDR Regulations by suppressing material facts in the IPO and misutilizing IPO proceeds, thereby breaching PFUTP Regulations. The Adjudicating Officer (AO) of SEBI had initially dropped two charges against the appellants, but the WTM upheld them, leading to the appeal. In a related matter, the Tribunal had previously upheld a penalty imposed on the directors of the company for similar violations.

The Tribunal, in its analysis, noted that the WTM of SEBI had failed to provide a justification for upholding the two additional charges against the appellants that were dropped by the AO. However, since the appellants had already served the debarment period, rendering the appeals infructuous, the Tribunal decided not to delve into the merit of these charges. The Tribunal upheld the decision that the appellants had violated the ICDR Regulations and PFUTP Regulations, based on its previous order in a related appeal. Consequently, all appeals were dismissed as infructuous, with no costs imposed.

In conclusion, the judgment highlights the importance of compliance with securities regulations and the consequences of violations, even if certain charges are not adequately justified. The Tribunal's decision to dismiss the appeals as infructuous underscores the significance of timely legal action and the impact of regulatory penalties on market participants.