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2017 (5) TMI 794 - AT - Companies 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Regulations, and PIT Regulations by inflating/manipulating Satyam's books and dealing in shares while in possession of unpublished price-sensitive information (UPSI).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.

 

 

 

 

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