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2019 (8) TMI 589 - AT - SEBIDisclosure by company to stock exchanges - consequences of non disclosures - Violation of Section 23A of the Securities Contracts (Regulation) Act, 1956 ( SCRA ) - violation of Section 23E of the SCRA for failure to comply with Clause 36 of the Listing Agreement - penalties under Section 15A(b) of the SEBI Act, 1992 as well as under Section 23A(a) and Section 23E of the SCRA for violation of Regulation 13(6) of SEBI (Prohibition of Insider Trading) Regulations read with Clauses 2.1 and 7.0(ii) of Schedule II for Code of Corporate Disclosure Practices for Prevention of Insider Trading specified in Schedule II read with Regulation 12(2) of PIT Regulations as well as violation of Clause 36 of the Listing Agreement - HELD THAT - Guidance Note indicates that the listed company is required to consider the impact of such disclosure on legal/ court proceedings while making the disclosure and if the listed entity is of the opinion that making any such disclosure was not in the interest of the listed entity then such disclosure may be limited to the extent of stating the occurrence of the event. Thus, a discretion was given to the Company to decide whether full disclosure should be made to the Exchange and where such information was not in the interest of the listed entity, then limited disclosure should be made. Further, the Guidance Note clearly indicates that the listed entity was required to notify the Stock Exchange where such assessment, etc. had a material impact and shall continue to inform the Stock Exchange till the cessation/conclusion/settlement of the event/dispute. In the light of the above, we find that the assessment order and the demand raised pursuant thereto is a material event and had a material impact on the profitability / financials of the company. It has come on record that the networth of the company was ₹ 365 crores and a demand of ₹ 450 crores was made in the assessment order. Such demand which eats away the networth of the company is in our opinion a material event and the assessment order had a material impact which the company was required to report to the Exchange promptly and which was required to be made public immediately . We also find that in the instant case a conscious decision was taken by the management of the company not to disclose the said information under Clause 36 of the Listing Agreement. In fact, when clarification was sought by the Stock Exchanges it is only then the information was provided at a belated stage on May 26, 2014 and May 29, 2014 after more than 3 months of the final assessment order dated February 21, 2014. Thus, we are of the opinion, there was gross failure on the part of the appellant in not making the disclosure under Clause 36 of the Listing Agreement. The contention that the information was supplied belatedly is misconceived and an afterthought. No such stand was taken before SEBI and the appellant cannot be allowed to change its stand at this stage. Under Section 23A, a penalty of ₹ 25,00,000/- (Rupees Twenty Five Lakhs only) has been imposed for failure to furnish the information within the time specified. In the instant case, there has been a gross failure to furnish the information and, in our opinion, there was a total non-disclosure on the part of the appellant in furnishing the information. A penalty of a maximum of ₹ 1 crore could have been imposed for such failure but the AO considering all aspects of the matter has imposed a penalty of ₹ 25,00,000/- (Rupees Twenty Five Lakhs only) which is just and fair and, is neither arbitrary, nor is unreasonable. We thus do not find any error in the quantum of penalty. Under Section 23E of the SCRA the penalty is a minimum of ₹ 5 lakh upto a maximum of ₹ 25 crores. We find that in the instant case, the appellant failed to comply with the listing conditions and considering the factors the AO imposed a penalty of ₹ 1,75,00,000/- (Rupees Once Crore Seventy Five Lakhs only). We do not find any reason to hold that the said quantum was unreasonable or arbitrary. In our opinion, considering the material event which was not disclosed we are of the opinion, that the penalty imposed is just and proper in the circumstances of the case. The contention that Rule 5 of Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 2005 was not taken into consideration while adjudging the quantum of penalty is wholly erroneous. The factors contemplated under Rule 5 of the Rules 2005 are the same as factored in Section 23J of the SCRA. These factors were duly considered based on which the authority has not imposed the maximum penalty. Thus, the contention that the factors were not taken into consideration is patently erroneous. Appeal filed by the Company NDTV, its Directors and Compliance Officer - non-disclosure of ₹ 450 crores demand raised by the Income Tax Department under Clause 36 of the Listing Agreement as well as delayed disclosure by the Appellant No. 1 under PIT Regulations and non-compliance by all the appellants under Clauses 2.1, 3.2 and 7.0 (ii) of Schedule II for Code of Corporate Disclosure Practices for Prevention of Insider Trading read with Regulation 12(2) of SEBI (Prohibition of Insider Trading) Regulations ( PIT Regulations for convenience) Regulations - HELD THAT - No error in the finding given by the AO that the appellant company had violated Regulation 13(6) and Clauses 2.1, 3.2 and 7.0 (ii) of Schedule II for Code of Corporate Disclosure Practices for Prevention of Insider Trading read with Regulation 12(2) of PIT Regulations. no such disclosure has been filed to show that a particular authority was nominated for such purpose. On the other hand the stand of the appellants was that a conscious decision was taken by the management not to disclose the material event. Imposition of ₹ 2 lakh upon the Compliance Officer for violation of Clause 36 of the Listing Agreement was unjustified. The Compliance Officer works under the direction of the Board of Directors of the Company. It was not open to the Compliance Officer to comply with Clause 36 of the Listing Agreement. At the end of the day, the Compliance Officer is only an employee of the Company and works on the dictates and directions of the management of the Company. Thus, when the entire management is being penalized, it was not open to the AO to also book the Compliance Officer for the said fault. We accordingly, hold that the imposition of penalty of ₹ 2 lakh on the Compliance Officer cannot be sustained and, to that extent, the order cannot be sustained. The Compliance Officer was however liable to comply with the disclosure under Regulation 13(6) and Clauses 2.1, 3.2 and 7.0 (ii) of Schedule II for Code of Corporate Disclosure Practices for Prevention of Insider Trading read with Regulation 12(2) of PIT Regulations and, to that extent, the penalty imposed by the AO is affirmed.
Issues Involved:
1. Violation of Clause 36 of the Listing Agreement. 2. Imposition of penalties under Section 23A and 23E of the SCRA. 3. Non-disclosure of tax demand as price-sensitive information under PIT Regulations. 4. Delayed disclosure of share sale by a Director under Regulation 13(6) of the PIT Regulations. 5. Imposition of penalties on the Compliance Officer and Directors. Detailed Analysis: 1. Violation of Clause 36 of the Listing Agreement: The appellant failed to disclose a significant tax demand of ?450 crores, which had a material impact on the company's financials. The assessment order was received on February 27, 2014, but the disclosure was only made in May 2014. The Tribunal emphasized that Clause 36 requires immediate and prompt disclosure of material events. The appellant's argument that they took legal advice and decided not to disclose the information immediately was rejected. The Tribunal held that the information should have been disclosed promptly as it had a material impact on the company's net worth. 2. Imposition of Penalties under Section 23A and 23E of the SCRA: The AO imposed penalties of ?25,00,000 under Section 23A and ?1,75,00,000 under Section 23E of the SCRA for the delayed disclosure. The Tribunal found no error in the quantum of penalties, stating that the penalties were just and fair considering the gross failure to furnish the information. The maximum penalty under Section 23A could have been ?1 crore, but the AO imposed ?25,00,000, which was deemed appropriate. 3. Non-Disclosure of Tax Demand as Price-Sensitive Information under PIT Regulations: The non-disclosure of the tax demand was also a violation of PIT Regulations, as it was considered price-sensitive information. The AO found that the appellants violated Clauses 2.1, 3.2, and 7.0(ii) of Schedule II for the Code of Corporate Disclosure Practices for Prevention of Insider Trading read with Regulation 12(2) of the PIT Regulations. The Tribunal upheld the AO's findings, stating that the company should have disclosed the tax demand promptly. 4. Delayed Disclosure of Share Sale by a Director under Regulation 13(6) of the PIT Regulations: The Director, Mr. K.V.L. Narayan Rao, sold shares and intimated the company, which was required to disclose this to the Stock Exchanges within two working days. The AO found that the disclosure was delayed, as the Stock Exchanges received the information on March 27, 2014. The Tribunal upheld this finding, stating that the mere dispatch of information by courier was insufficient; proof of delivery was required. 5. Imposition of Penalties on the Compliance Officer and Directors: The Tribunal found that the Compliance Officer should not be penalized for the company's failure to disclose the tax demand, as he acted under the direction of the Board of Directors. The penalty of ?2 lakh imposed on the Compliance Officer for this violation was set aside. However, the Compliance Officer was held liable for the delayed disclosure of the Director's share sale. The penalties on the Directors for violating Clause 36 were upheld, as the decision not to disclose the tax demand was a conscious decision by the management. Conclusion: - Appeal No. 358 of 2015: Dismissed. - Appeal No. 150 of 2018: Partially allowed, setting aside the penalty on the Compliance Officer for the violation of Clause 36, but upholding other penalties.
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