2020 (5) TMI 326 - AT - SEBI

Non-compliance of summons issued by SEBI - whether the appellant has violated provisions of Section 11C(3) of the SEBI Act ? - whether clause 43 of the Listing Agreement has been violated by not disclosing to the Stock Exchange the alleged variations between the projected utilization of funds and the actual utilization of funds raised through the preferential allotment? - HELD THAT - Though the appellant may be charged with non-submission of full information the submission of the appellant that the management of the appellant was new etc. has to be given some weightage while imposing the penalty. Given this and the facts of the matter, we are of the view that the amount of penalty at the rate of ₹ 10 lakh on this violation is on the higher side particularly when the appellant did provide part of the information readily available with them. Non-reporting of the variations relating to the proceeds/funds raised through preferential allotment- It is an admitted fact that, during the interim, part of the funds were loaned out to various entities. Even if these funds have come back subsequently and in some cases with interest the matter needed to be disclosed to the Stock Exchange in terms of the requirements of Section 21 of SCRA and clause 43 of the Listing Agreement which has not been done. Note from paragraph 23 of the impugned order that the claim of the appellant that in all cases they received interest on the loans given to other parties is not correct as in four out of eight instances no interest has been received and in one instance in fact even the full amount of principal also was not received (in place of an advance against property of ₹ 1.75 crore appellant has received only ₹ 1.71 crore). In any case from the same paragraph we note that 41% of the allotment proceeds were invested in shares and another 45.31% was loaned out to seven entities out of which three did not pay any interest and in one instance of advance against the property instead of getting the property only part of the advance was returned. So the contention in the impugned order that the proceeds were not used according to the objective specified cannot be faulted and the same was not reported is an admitted fact. Given these facts imposition of penalty of ₹ 20 lakh cannot be said to be arbitrary or harsh. We reduce the penalty amount imposed under section 15A(a) of SEBI Act from ₹ 10 lakh to ₹ 5 lakh and retain the penalty amount imposed under section 23E of SCRA at ₹ 20 lakh.

Summary

Issues:
1. Violation of SEBI Act - Sections 11(2)(i) and 11C(3)
2. Violation of SCRA - Section 21 read with clause 43 of the Listing Agreement

Detailed Analysis:
1. The judgment involves the imposition of a penalty on the appellant, a listed company, for violations under the SEBI Act and SCRA. The penalty of ?30 lakh was imposed, with ?10 lakh for violating Sections 11(2)(i) and 11C(3) of the SEBI Act, and ?20 lakh for breaching Section 21 of the SCRA read with clause 43 of the Listing Agreement. The appellant failed to comply with SEBI summons and did not disclose variations in fund utilization from a preferential allotment, leading to adjudication proceedings initiated against them.

2. The appellant argued that they provided all available documents in response to SEBI's summons and that certain requested documents dated back to the 1990s, which were not in their possession due to a change in management. The appellant contended that the investigation period was exceeded by the AO's request for documents predating the relevant period. However, the tribunal noted that the appellant's failure to submit crucial information hindered the investigation into market manipulation by other entities. The penalty of ?10 lakh was considered high, given that part of the information was provided by the appellant.

3. Regarding the non-disclosure of fund utilization variations, the appellant claimed that surplus funds from the preferential allotment were loaned to entities temporarily and later returned with interest. However, the tribunal found discrepancies in fund utilization, with some entities not returning the full principal or interest. The tribunal upheld the penalty of ?20 lakh for this violation, considering the failure to report the actual fund utilization as required by the SCRA and Listing Agreement.

4. In conclusion, the tribunal partially allowed the appeal, reducing the penalty under the SEBI Act to ?5 lakh and maintaining the penalty under the SCRA at ?20 lakh. The appellant was directed to pay the reduced penalty within four weeks from the judgment date, with no additional costs imposed.