9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (2) TMI 1330 - AT - Companies LawViolation of provisions contained in the SEBI Regulations, 2003 - Penalty imposed - failure to comply with the disclosure obligations - Held that - AO has set out the obligation of the appellant to make disclosures under the aforesaid regulations when the shareholding of the appellant in EIIL stood reduced from 53.01 to 9.91% and thereafter increased from 9.91% to 43.01% on 31.03.2005. Assuming that on 31.03.2005 appellant came to know about the transfer of shares belonging to the appellant, after 31.03.2005 appellant ought to have made disclosures which the appellant failed to do. Similarly, when shares of EIIL in the name of third parties were transferred to the name of the appellant disclosures ought to have been made, but the appellant failed to make disclosures. Thus, in the facts of present case, decision of the AO that the appellant has violated the disclosure obligations contained in the Takeover Regulations and PIT Regulations cannot be faulted. Penalty imposable under Section 15A (b) of SEBI Act for failing to comply with the disclosure obligations under the aforesaid regulations is up to ₹ 1 crore. However, the AO after considering all mitigating factors has imposed penalty of ₹ 5 lac which cannot be said to be excessive or unreasonable. Strong reliance on the statement contained in the SEBI investigation report to the effect that there were no debit and credit entries in the demat statement of the Agrawal family during the investigation period is not acceptable because, admittedly appellant had handed over shares of EIIL in physical form to Shambhu Agrawal. In such a case question of making any debit or credit entry in the demat account does not arise at all. Once it is established that the appellant had adopted a modus operandi for trading in the shares of EIIL belonging to the appellant in violation of the regulations framed by SEBI, then irrespective of the fact that the appellant had received any consideration or not, the appellant is bound and liable to face the consequences for violating SEBI Act and the regulations framed thereunder. Fact that lesser penalty has been imposed on the Agrawal group cannot be a ground to take lenient view towards the appellant, because, the appellant was the chief architect of manipulating a device for committing fraud on the investors in the securities market. Thus appellant who was instrumental in manipulating a device to defraud the investors in the securities market could have been made liable to pay aggregate penalty up to ₹ 51 crores (up to ₹ 25 crore under Section 15HA, up to ₹ 25 crore under Section 15H(ii) and up to ₹ 1 crore under Section 15A(b) under the SEBI Act. However, after considering all mitigating factors the AO has imposed aggregate penalty of only ₹ 1 crore on the appellant promoter-director of the company who was the chief architect in manipulating a device which is prohibited under the securities laws. Hence, in the facts of present case, aggregate penalty or ₹ 1 crore imposed on the appellant cannot be said to be exorbitant or unreasonable.
Issues Involved:
1. Validity of the penalty imposed by SEBI's Adjudicating Officer (AO). 2. Alleged forgery of share transfer deeds. 3. Appellant's involvement in misleading corporate announcements. 4. Compliance with public announcement/open offer obligations under SEBI regulations. 5. Violation of disclosure obligations under SEBI regulations. Detailed Analysis: 1. Validity of the Penalty Imposed by SEBI's Adjudicating Officer (AO): The appellant contested the imposition of an aggregate penalty of ?1 crore by SEBI's AO, arguing that the penalty was exorbitant and disproportionate. The AO had imposed penalties under Section 15HA, Section 15H(ii), and Section 15A(b) of the SEBI Act, 1992, for violations of the PFUTP Regulations, SAST Regulations, 1997, and PIT Regulations, 1992, respectively. The Tribunal upheld the AO's decision, noting that the maximum penalty imposable under these sections was ?51 crore, and the AO had considered mitigating factors before imposing the penalty. 2. Alleged Forgery of Share Transfer Deeds: The appellant claimed that the shares were transferred without his consent and by forging his signature on the share transfer forms. The Tribunal found no merit in this argument, noting that the appellant had handed over 3,38,000 shares to Shambhu Agrawal but received only 2,15,500 shares in return, all in the name of third parties. The Tribunal held that the appellant's failure to take action against Shambhu Agrawal for the alleged forgery indicated either consent or acquiescence to the transfers. 3. Appellant's Involvement in Misleading Corporate Announcements: The Tribunal upheld the AO's finding that the appellant was instrumental in issuing misleading corporate announcements on 02.03.2005, which led to an increase in the price and volume of EIIL shares. The Tribunal noted that the appellant, as a promoter-director holding nearly 80% of EIIL's shares, had rematerialized and transferred 3,38,000 shares to Shambhu Agrawal, who then traded these shares during the investigation period. The Tribunal concluded that the corporate announcement was a device to lure investors and that the appellant was guilty of violating the PFUTP Regulations. 4. Compliance with Public Announcement/Open Offer Obligations Under SEBI Regulations: The appellant was found to have violated Regulation 10 & 11(1) of the Takeover Regulations, 1997, by failing to make a public announcement/open offer when his shareholding in EIIL increased from 9.91% to 43.10% on 31.03.2005. The Tribunal noted that the appellant, being aware of the transfer of shares on 31.03.2005, should have complied with the regulations. The AO's imposition of a ?75 lakh penalty under Section 15H(ii) of the SEBI Act was upheld. 5. Violation of Disclosure Obligations Under SEBI Regulations: The appellant was found to have violated Regulation 7(1A) read with Regulation 7(2) of the Takeover Regulations and Regulation 13(4) read with Regulation 13(5) of the PIT Regulations by failing to make necessary disclosures when his shareholding in EIIL changed. The Tribunal upheld the AO's finding and the imposition of a ?5 lakh penalty under Section 15A(b) of the SEBI Act. Conclusion: The Tribunal dismissed the appeal, upholding the aggregate penalty of ?1 crore imposed by the AO. The Tribunal found that the appellant, as the promoter-director of EIIL, was the chief architect in manipulating a device to defraud investors, thereby violating multiple SEBI regulations. The penalties were deemed neither excessive nor unreasonable given the gravity of the violations.
|
