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2021 (5) TMI 203 - AT - SEBIDiversion of funds - Show cause notice for violation of the PFUTP Regulations, 1995 and 2003 - WTM found that misleading statement was made by the appellant which was violative of Regulation 5 of the PFUTP Regulations, 1995 - HELD THAT - We are of the opinion that there has been an inordinate delay in the issuance of the show cause notice. Even though there is no period of limitation prescribed in the Act and Regulations in the issuance of a show cause notice or for completion of the adjudication proceedings, the authority is required to exercise its powers within a reasonable period as held recently in Adjudicating Officer, Securities and Exchange Board of India vs. Bhavesh Pabari 2019 (3) TMI 197 - SUPREME COURT In the instant case, we are of the opinion that the power to adjudicate has not been exercised within a reasonable period and therefore no direction could be imposed. In the instant case there was no diversion of funds in the issuance of the GDR. We also find that no finding has been given with regard to any violation in the procedure adopted by the appellant in the issuance of the GDR. The only charge that remains was nondisclosure of the Account Charge Agreement before the stock exchange. We find that nothing has been brought on record to indicate as to how this non-disclosure was violative of the Listing Agreement. We also find that no misleading statement was made by the appellant with regard to the subscription of the GDR issue. Considering the fact that there has also been an inordinate delay in the issuance of the GDR the order passed by the WTM debarring the appellant from accessing the securities market for a period of one year cannot be sustained in the peculiar facts and circumstances of the present case and is therefore quashed. The appeal is allowed
Issues Involved:
1. Delay in filing of the appeal. 2. Compliance with legal provisions for GDR issuance. 3. Alleged fraudulent issuance of GDRs. 4. Misleading disclosures to stock exchanges. 5. Alleged diversion of funds. 6. Violation of PFUTP Regulations. 7. Reasonableness of the delay in issuing the show cause notice. Analysis: 1. Delay in Filing of the Appeal: The delay in filing the appeal was condoned by the tribunal, allowing the Misc. Application No. 66 of 2020 and disposing of the Misc. Application No. 12 of 2021 for urgent hearing. 2. Compliance with Legal Provisions for GDR Issuance: The appellant, a pharmaceutical company, followed the necessary steps and obtained approvals from relevant authorities for the issuance of Global Depository Receipts (GDRs). The entire process was in compliance with the applicable legal provisions at the relevant time, and the appellant promptly informed all concerned stock exchanges and authorities. The GDRs were listed on the Luxembourg Stock Exchange, and the underlying equity shares were listed on Indian stock exchanges. 3. Alleged Fraudulent Issuance of GDRs: SEBI issued a show cause notice after 14 years, alleging that the appellant issued GDRs fraudulently through a credit agreement and account charges agreement, which were not disclosed to the stock exchanges. However, the tribunal found that the procedure for GDR issuance was followed in accordance with the law, and no manipulation or investor grievances were reported. 4. Misleading Disclosures to Stock Exchanges: The tribunal found that the appellant did not disclose the account charge agreement to the stock exchange and made misleading statements about the successful subscription of the GDR issue. However, it was noted that there was no specific requirement to disclose the account charge agreement under the listing agreement, and the statement about the GDR subscription was not misleading as the issue was indeed subscribed by two entities. 5. Alleged Diversion of Funds: The charge of fund diversion alleged that out of US$ 15 million raised, only US$ 7.85 million was received in India, and US$ 7.13 million was diverted to unknown entities. The appellant provided evidence that the balance amount was used for payments to banks/loans, which was reflected in the annual reports. The tribunal found no fault in the appellant's submissions and evidence, and the charge of fund diversion was not upheld. 6. Violation of PFUTP Regulations: The WTM concluded that no fraud was committed in the issuance of the GDR, and therefore, the provisions of Regulation 3 and 4 of the PFUTP Regulations could not be invoked. However, the WTM found a violation of Regulation 5 of the PFUTP Regulations, 1995, for making a misleading statement. The tribunal disagreed, stating that the finding was based on surmises and conjectures, and no misleading statement was made by the appellant. 7. Reasonableness of the Delay in Issuing the Show Cause Notice: The tribunal highlighted the inordinate delay of 14 years in issuing the show cause notice and subsequent supplementary notices. It emphasized that proceedings should be initiated within a reasonable period, and the delay was unjustified. The tribunal cited various decisions supporting the view that such delays are unreasonable and cannot be condoned without satisfactory explanations. Conclusion: The tribunal quashed the order debarring the appellant from accessing the securities market for one year, citing the inordinate delay in initiating proceedings, lack of evidence for fund diversion, and absence of any misleading statements or violations in the GDR issuance process. The appeal was allowed with no order as to costs.
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