Home Case Index All Cases Companies Law Companies Law + AT Companies Law - 2017 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (5) TMI 794 - AT - Companies LawGuilty of violating the SEBI (PFUTP Regulations) and SEBI (PIT Regulations) - restraining the appellants from accessing the securities market and prohibiting the appellants from buying, selling or otherwise dealing in securities, directly or indirectly for a period of 14 years also the WTM has directed the appellants to disgorge the unlawful gains arising on sale/ pledge of Satyam shares during the period from 2001-2008 with interest at the rate of 12% per annum from 07.01.2009 till the date of payment Held that - Argument of the appellants that the impugned order passed on 15.07.2014 without giving inspection of documents and without permitting the appellants to cross-examine the persons whose statements were relied upon in the show cause notice, is violative of the principles of natural justice cannot be accepted because, admittedly, before commencement of the criminal trial in February 2011 all documents relating to the charge of inflating/ manipulating the books of Satyam were made available to the appellants and inspite of receiving requisite documents appellants (excluding Prabhakara Gupta) failed and neglected to file detailed reply to the show cause notices till May 2014. Moreover, during the period from 2011 till May 2014 appellants, including Prabhakara Gupta consistently failed and neglected to participate in the proceedings before the WTM even though their request for keeping the proceedings in abeyance till conclusion of the criminal trial was repeatedly rejected and repeatedly the appellants were warned that ex-parte order would be passed if they fail to avail the opportunity of hearing. In these circumstances, in the facts of present case, argument of the appellants that the impugned order is violative of the principles of natural justice cannot be accepted. Email admittedly sent by Ramalinga Raju on 07.01.2009 as also the statements of the appellants recorded by SEBI and the documents referred to in the show cause notices issued to the appellants clearly establish that the appellants were instrumental/ involved in inflating/ manipulating the books of Satyam during the period from 2001 to 2008. That information was a price sensitive information and while in possession of that unpublished price sensitive information, appellants had sold/ transferred shares of Satyam and made huge profits. In these circumstances, decision of the WTM that the appellants violated the provisions contained in the SEBI Act, PFUTP Regulations and PIT Regulations, 1992 cannot be faulted. The decision of the WTM in uniformly restraining all the appellants from accessing the securities market for 14 years without assigning any reasons is unjustified. Similarly, the quantum of illegal gain directed to be disgorged by each appellant is based on grounds which are mutually contradictory and also without application of mind. In these circumstances, we set aside the impugned order to the extent it relates to the period for which the appellants are restrained from accessing the securities market and the quantum of illegal gain directed to be disgorged by the appellants and remand the matter to the file of the WTM of SEBI for passing fresh order on merits and in accordance with law. Fresh order be passed as expeditiously as possible preferably within a period of 4 months from today. Appellants are directed to cooperate in the proceeding so as to enable the WTM to pass fresh order expeditiously. Statement made by counsel for each appellant as also the statement made by G. Ramakrishna appearing in person that they shall not access the securities market and shall not buy, sell or otherwise deal in securities, directly or indirectly till the WTM passes fresh order on merits and in accordance with law, is accepted. Accordingly, we direct that the appellants shall not access the securities market and shall not buy, sell or otherwise deal in securities, directly or indirectly till fresh order is passed by the WTM of SEBI on merits and in accordance with law.
Issues:
1. Whether the appellants are justified in contending that the impugned order is passed in violation of the principles of natural justice. 2. Whether the WTM is justified in holding that the appellants are guilty of violating the SEBI Act, PFUTP Regulations, and PIT Regulations, 1992. 3. Whether the WTM is justified in restraining the appellants from accessing the securities market for 14 years and directing the appellants to disgorge unlawful gains quantified against each appellant with interest at 12% per annum from 07.01.2009 till payment. Detailed Analysis: 1. Violation of the principles of natural justice: The appellants argued that the WTM passed the order without offering inspection of documents or cross-examination of witnesses, which violated the principles of natural justice. They contended that they were unable to file detailed replies due to lack of access to Satyam's records and the ongoing criminal trial. However, the tribunal found no merit in these arguments, noting that SEBI had provided the necessary documents before the criminal trial commenced in February 2011. The appellants had ample opportunity to file replies and attend hearings but failed to do so. The tribunal concluded that the appellants' conduct of not participating in the proceedings justified the WTM's decision to proceed ex-parte. 2. Violation of SEBI Act, PFUTP Regulations, and PIT Regulations, 1992: Mr. Ramalinga Raju: - As the Promoter/Chairman of Satyam, he admitted in his email dated 07.01.2009 and subsequent statements that the books of Satyam were inflated/manipulated for several years. - The email detailed inflated assets, non-existent cash, and overstated revenues, which were intended to maintain control over Satyam and mislead investors. - The tribunal upheld the WTM's decision that Ramalinga Raju violated SEBI Act, PFUTP Regulations, and PIT Regulations by inflating/manipulating Satyam's books and dealing in shares while in possession of unpublished price-sensitive information (UPSI). Mr. Rama Raju: - As the Managing Director of Satyam, he was involved in inflating/manipulating the books and issuing false CEO certifications. - He sent false letters and emails to create fictitious transactions and failed to report discrepancies in financial statements. - The tribunal upheld the WTM's decision that Rama Raju violated SEBI Act, PFUTP Regulations, and PIT Regulations. Mr. V. Srinivas: - As the CFO, he admitted to inflating results under pressure from Ramalinga Raju and Rama Raju. - Despite doubts about the accuracy of bank balances, he signed false CFO certifications and made misleading public statements. - The tribunal upheld the WTM's decision that V. Srinivas violated SEBI Act, PFUTP Regulations, and PIT Regulations. Mr. G. Ramakrishna: - As Vice President (Finance), he admitted to following instructions to prepare books based on fictitious monthly bank statements and generating fictitious invoices. - The tribunal upheld the WTM's decision that Ramakrishna violated SEBI Act, PFUTP Regulations, and PIT Regulations. Mr. Prabhakara Gupta: - As Head of Internal Audit, he admitted to closing audit observations without reconciliation and failing to report discrepancies to the audit committee. - The tribunal upheld the WTM's decision that Prabhakara Gupta violated SEBI Act, PFUTP Regulations, and PIT Regulations. 3. Restraint from accessing the securities market and disgorgement of unlawful gains: The tribunal found that the WTM's decision to uniformly restrain all appellants from accessing the securities market for 14 years lacked specific reasoning. The directions for disgorgement of unlawful gains were based on faulty criteria and mutually contradictory orders. The tribunal noted that SEBI issued show cause notices to both the appellants and connected entities for the same illegal gains, leading to contradictory orders. The tribunal set aside the impugned order regarding the restraint period and quantum of illegal gains, remanding the matter to the WTM for a fresh order with proper reasoning. Conclusion: The tribunal upheld the findings of violations by the appellants but set aside the uniform restraint period and quantum of disgorgement due to lack of specific reasoning and contradictory orders. The matter was remanded to the WTM for a fresh order on merits within four months. The appellants were directed not to access the securities market until the WTM passes a fresh order.
|