|
Advanced Search Options
SEBI - Case Laws
Showing 101 to 120 of 555 Records
-
2022 (10) TMI 1180
Compulsory delisting against the company - Payment of reinstatement fee to the Exchange - HELD THAT:- Having heard the learned counsel for the applicant, we do not find any manifest error in our order requiring a review. The Review Application fails and is dismissed.
This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
-
2022 (10) TMI 641
Power of SEBI to initiate action against the company or its directors who have defaulted in payment of dividend - non payment of dividends - Whether the complaint filed by the respondent is barred by limitation as specified under Section 468(2) of Cr.P.C.? - HELD THAT:- A reading of the unamended Section specifies that the company and its directors are said to have committed an offence if the dividends are not paid within 42 days from the date of declaration. There is no provision that the company or its directors shall also be liable to pay a fine of Rs.1000 everyday during which such default continues. Hence, the offence committed under the unamended section was not a continuing offence. The decisions relied upon by the learned counsel for petitioners were rendered with reference to unamendend section and the same are not applicable to the present case since the offence alleged to have been committed by the Petitioners is under the amended section which is a continuing offence. Hence, the complaint is not barred by limitation as specified under Section 468(2) of Cr.P.C.
Whether the respondent has locus-standi to maintain the complaint when the dividends were already paid to the shareholders as on the date of filing the complaint? - A combined reading of Section 55(A) and Section 207 clearly indicates that the SEBI is vested with power to safeguard the interests of the shareholders in the matter of non payment of dividends and the moment the dividends are paid, the SEBI has no power to initiate any action against the company or its directors who have defaulted in payment of dividend within 30 days as specified under Section 207 of the Act. Section 621 clearly specifies that the shareholder/registrar of companies/person authorized by a central government can only maintain a complaint for the offence punishable u/s 207 even though the dividends are paid, since criminality does not get absolved on payment of dividends after the stipulated time. Hence, Point No.2 is answered affirmatively in favor of the Petitioners.
For the foregoing discussions, the respondent had no locus standi to file the complaint and the cognizance taken on the said complaint stands vitiated.
-
2022 (10) TMI 526
Registration of stock brokers, sub-brokers, share transfer agents with SEBI - Single registration with SEBI as sufficient even if the stock broker has various memberships and functions from several stock exchanges - Whether under the Act 1992, a stock broker has to obtain a certificate of registration from SEBI for each of the stock exchanges where he operates or whether a single certificate of registration from SEBI is sufficient and the same would enable him to trade in all other stock exchanges? - Whether the ad valorem fee to be paid for an initial period of five years will recur with every such registration?
HELD THAT:- High Court, in our view, appears to be influenced by the expression ‘a certificate of registration’ referred to under Section 12(1) of the Act, 1992 but has failed to notice that the expression ‘a certificate’ is not in reference to any number and it can be considered that the words in the singular shall include plural as well, and has failed to notice that certificate of registration has to be obtained from the Board in accordance with the regulations framed in exercise of power under Section 30 of the Act 1992.
The very scheme of rules framed by the Central Government in exercise of power under Section 29 and regulations framed by the Board under Section 30 of the Act, 1992 has been completely misplaced which indeed has a statutory force. Although the scheme may be in the nature of subordinate legislation, the same has superior force and supplements a mechanism/ procedure according to which the member (stock broker) of the stock exchange has to obtain certificate of registration from the Board and issuance of certificate of registration from SEBI remain co-terminus with the stock exchange to which the stock broker is a member and that being the reason, Reg. 10 read with Schedule III lays down the procedure according to which the fees has to be paid/deposited by the stock broker in obtaining certificate of registration from SEBI in reference to the stock exchange and for its renewal at a later stage for keeping its registration in force.
When the law has to be applied in a given case, it is for the Court to ascertain the facts and then interpret the law to apply on such facts. Interpretation, indeed, cannot be in a vacuum or in relation to hypothetical facts. It is always the function of the legislature to say what shall be the law and it is only the Court to say what the law is and this Court applied the principle of purposive construction while interpreting the law to apply to such facts. A statute has to be construed according to the intent that makes it and it is always the duty of the Court to act upon the true intention of the legislature. If a statutory provision is open to more than one interpretation, it is always desirable of the Court to choose the interpretation which represents the true intention of the legislature. It is also well-settled that to arrive at the intention of the legislation, it is always depending on the objects for which the enactment is made, the Court can resort to historical, contextual and purposive interpretation leaving textual interpretation aside.
Thus, while interpreting the statutory provisions, the Court is always supposed to keep in mind the object or purpose for which the statute has been enacted.
The conjoint reading of the expression “a certificate” as referred to in Section 12(1) of the Act read with the scheme of Rules, 1992 and Regulations 1992, leads to an inevitable conclusion that the stock broker not only has to obtain a certificate of registration from SEBI for each of the stock exchange where he operates, at the same time, has to pay ad valorem fee prescribed in terms of Part III annexed to Regulation 10 of the Regulations, 1992 in reference to each certificate of registration from SEBI in terms of the computation prescribed under Circular dated 28th March, 2002 and fee is to be paid as a guiding principle by the stock broker which is in conformity with the scheme of Regulations 1992.
So far as the emphasis which was made to the expression ‘date of initial registration’ as referred to in Schedule III(I)(1)(c) is concerned, it is in relation to a certificate of registration which has been obtained by the stock broker from SEBI, which in turn is in relation to the stock exchange of which he is a member. After the expiry of five financial years from the date of initial registration, in reference to the stock exchange, the fee has to be deposited for the purpose of sixth financial year to keep his registration in force.
Insofar as the procedure of charging fees as prescribed under Schedule III annexed to Regulation 10 of the Regulations, 1992 is concerned, it has already been examined by this Court, in B.S.E. Brokers’ Forum, Bombay and Others [2001 (2) TMI 957 - SUPREME COURT]and needs no further deliberation of this Court.
As in the case where stock broker is declared defaulter or disqualified to continue as a stock broker in reference to one of the stock exchanges, in terms of SEBI Circular SEBI/MIRSD/Master Cir-04/2010 dated 17th March, 2010, it has been notified that such stock exchange shall immediately inform all other stock exchange(s) the details of the defaulter member such as name of the member, the names of the proprietors/partners/ promoters/dominant shareholders, as applicable. This may be a mechanism according to which if the stock broker who is a member of the stock exchange commits default, or on being disqualified to continue as a member, consequential actions could be taken against him pursuant to the circular to which a reference has been made. However, this is not a question to be examined by this Court in the instant proceedings.
Consequently, the appeal deserves to succeed and is accordingly allowed and the judgment and order passed by the Division Bench of the High Court is hereby quashed and set aside.
-
2022 (9) TMI 1485
Maintainability of the writ petition against SEBI - efficacious alternative remedy of preferring an appeal in terms of Section 15T - Recovery proceedings against past director - HELD THAT:- It would be open to the Recovery Officer to examine all issues and contentions including that of the petitioner not being liable in terms of the original order passed. Judge had further observed that in case the Recovery Officer find merit in the challenge so raised, it would not continue the proceedings as initiated against the petitioner.
It was further observed that in case it reached a contrary conclusion, it would be open for the Board to continue to hold the monies and utilise the same in accordance with law. Learned counsel seeks to draw sustenance from the fact that subsequently and pursuant to the directions issued by this Court on the earlier writ petition, the Recovery Officer had in fact by an order of 22 March 2018 withdrawn all proceedings which had been initiated against the petitioner. It is in aforesaid backdrop that learned counsel contended that the petitioner is not liable to be relegated to the alternative remedy.
The Court finds itself unable to sustain the aforesaid submission for the reason that the order of the Recovery Officer does not record any categorical findings on whether the petitioner was or was not liable in terms of the original order which had been made by the Board.
The issues which were canvassed before this Court in the earlier writ petition thus do not appear to have been decided or ruled upon on merits. In any case, the present proceedings which flow from the power of the respondents to levy penalties under the Act stand on a completely distinct footing.
In that view of the matter, it would be appropriate for the petitioner to raise all objections and contentions before the Appellate Tribunal.
-
2022 (9) TMI 1426
Interim Application seeking orders to open the sealed envelope and disclose the voting results of the meeting of the Debenture Holders convened - Holding of the meeting was pursuant to the orders of this Court - HELD THAT:- There is merit in the submission of the Mr. Sharan Jagtiani, particularly considering the order dated 10th August, 2022 of the Supreme Court. The meeting of the debenture holders was convened by Respondent No.2 on 13th May, 2022. Pursuant to orders of this Court dated 31st March, 2022 and 6th April, 2022 in Interim Application (L) No [2022 (5) TMI 1510 - BOMBAY HIGH COURT] 25571 of 2021 filed by the Plaintiff.
The voting results of the said meeting had been placed in the sealed envelope pursuant to order dated 10th May, 2022. The contention of the Mr. Mustafa Doctor that the voting has not taken placed in accordance with said SEBI’s circular can be considered on the opening of the sealed envelope containing the voting results. The order of the Supreme Court dated 30th August, 2022 holds that the SEBI’s circular has retroactive application and voting would have to be as per the ISIN wise voting.
The sealed envelope containing the voting results of the meeting held on 13th May, 2022 shall be opened and made available to the Advocates for the parties in order to assist the Court as to whether the requisite majority as required in accordance with the circular of SEBI dated 13th October, 2020 has been achieved during the course of the meeting. The voting results shall not be publicised prior to such determination. This shall be without prejudice to the rights and contentions of the parties in the present proceedings.
-
2022 (9) TMI 1072
Offence under SEBI ACT - Insider trading - violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 - HELD THAT:- The contention of the appellant that SEBI took note of the situation in which the respondent was placed and the dire need that he had to sell the shares and that therefore SEBI confined the final order only to disgorgement, is neither here nor there. This argument is actually an argument of convenience. It so happened in this case that according to SEBI the closing price of the stock on 03.09.2013 showed favourable position for the respondent and SEBI was able to calculate as though the respondent made a profit. But if a company is likely to gain strength by making a significant change in its policy, the price of its securities is likely to shoot up. Despite such a natural phenomena, if a person sells his stocks without waiting for the market trend to show up, it can only be taken as a sale, devoid of any desire to make unlawful gains, even if it cannot be termed as a distress sale.
In SEBI vs. Kishore R. Ajmera [2016 (2) TMI 723 - SUPREME COURT] this Court was concerned with the question as to what is the degree of proof required to hold a broker liable for fraudulent/manipulative practices under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 as well as the Conduct Regulations of 1992. After taking note of the fact that SEBI Act and the Regulations framed thereunder are intended to protect the interest of investors and that the provisions of the Act and the Regulations have to be understood and interpreted
An attempt by the insider to encash the benefit of the information is not exactly the same as mens rea. Therefore, the Court can always test whether the act of the insider in dealing with the securities, was an attempt to take advantage of or encash the benefit of the information in his possession. This is the test we have applied to the case on hand.
In Chintalapati Srinivasa Raju [2018 (5) TMI 931 - SUPREME COURT] this Court approved the minority judgment of the Securities Appellate Tribunal (in para 20), which took note of the compelling circumstances under which the individual was selling shares. The fact that this has been taken note of by WTM as a mitigating factor, while passing a mere restitutionary order, does not take away the validity of the defence taken by the respondent.
We are of the view on Question No.1 that the information regarding the termination of the two contracts can be characterised as price sensitive information, in that it was likely to place the existing shareholders in an advantageous position, once the information came into the public domain. In such circumstances, our answer to Question No.2 would be that the sale by the respondent, of the shares held by him in GIPL would not fall within the mischief of insider trading, as it was somewhat similar to a distress sale, made before the information could have a positive impact on the price of the shares.
Appeal is dismissed
-
2022 (9) TMI 753
Offence under SEBI - Unusual price movement in the shares - penalty imposed under Section 15A(a) of the 1992 Act - non-compliance of summons - Non-cooperative attitude of the appellants during the course of the investigation - monetary penalty of rupees one crore on each appellant under Section 15A(a) for failing to comply with the summons issued to the appellants for the production of documents and furnishing of information during the course of certain investigations being carried out by SEBI during the period of 2000-2007 in relation to suspicious purchase and sale of scrip and manipulation of share prices of STIL - HELD THAT:- By not responding to the fresh summons and by not appearing before the Investigating Authority when directed to appear, the appellants’ statements could not be recorded and this has hampered with the investigation. The appellants had failed to produce the documents and information as required vide summons dated 01.04.2003 and 09.04.2003 respectively and had, thus, affected the conduct of the investigation. The appellants’ compliance, if any, to one summons dated 02.07.2001 and 26.07.2001 respectively, in no way, absolves the appellants of their responsibility to comply with the summons issued thereafter on multiple dates. The appellants were bound to fully co-operate with the Investigating Authority and promptly produce all documents, records, and information as were required for the investigation from time-to-time. In failing to do so, the appellants clearly obstructed and hindered the investigation.
Taking into consideration the severity of offences found to have been committed by the appellants and other entities, and the non-cooperative attitude of the appellants during the course of the investigation in attempting to obstruct the same, the quantum of penalty imposed under Section 15A(a) of the 1992 Act is justified and with effective consideration of the factors listed in Section 15J of the 1992 Act.
A bare reading of Section 11C (3) of the 1992 Act makes it clear that an Investigating Authority appointed by SEBI to investigate the affairs of any persons may require such person “associated with the securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorized by it, in this behalf as it may consider necessary, if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation”.
In the present case, the appellants were under investigation by SEBI for its alleged involvement in aiding and abetting Ketan Parekh and his companies in manipulating the securities market. In view of the same, the appellants would squarely fall under the scope of “persons associated with the securities market in any manner” under Section 11C(3) of the 1992 Act. The authority of the Investigating Authority to direct such persons to appear before him and furnish information or produce documents as is required for an investigation is provided in Section 11C (3) of the 1992 Act.
As also pertinent to mention that Section 19 of the 1992 Act provides that the SEBI may delegate to any member, officer of the SEBI or any other person, such of its powers and functions under this Act (except the powers under Section 29) as it may deem necessary. Thus, when the appellants failed to comply with the directions issued u/s 11C (3) of the 1992 Act and failed to produce the required documents and information, the Investigating Authority, being a delegated Authority of SEBI, was empowered to levy the penalty as provided in Section 15A(a) of the 1992 Act. Hence, we find no merit in these appeals. The appeals are dismissed.
-
2022 (9) TMI 688
Offence under SEBI - Petitioner seeking documents relied upon by the Respondent-SEBI - sought orders for supply of a copy of the opinion formed under Rule 3 of the SEBI Adjudication Rules 1995, for constituting an Adjudicating Authority to issue Show Cause Notice dated 17th November 2020 to the Petitioner - allegation of Denial of natural justice as relevant material were not disclosed to the noticee - importance of documents relied upon for formation of opinion under Rule 3 - Petitioner had sought inspection of the opinion under Rule 3 - as submitted Adjudicating Authority has not followed the procedure, and instead fixed the case for final hearing without forming an opinion, as required under Rule 4(3) of the SEBI Adjudication Rules 1995 - HELD THAT:- A reading of Section 4(3) makes it clear that, if after considering the cause, if any shown by the noticee, the Adjudicating Officer is of the opinion that an inquiry should be held, he shall issue a notice fixing a date for appearance of that person either personally or through his lawyer or other authorised representative. The noticee is not required to be heard personally or through lawyer before taking a decision to proceed with an inquiry in respect of the contraventions alleged in the Show Cause Notice.
Decision to proceed or not to proceed with the inquiry may be taken on the basis of the reply of the noticee to the Show Cause Notice. Once it is decided to proceed with the inquiry, an opportunity of personal hearing is mandatory. The inquiry has to be conducted in accordance with law, in compliance with the principles of natural justice.
Board was of the opinion that there were grounds for adjudication and accordingly appointed Adjudicating Officer. Adjudicating Officer issued Show Cause Notice to the Petitioner to which the Petitioner gave a preliminary reply and thereafter sought documents as observed above. Inspection of some documents was permitted. After considering the reply, the Adjudicating Officer was of the opinion that inquiry should be held. Accordingly, a notice fixing a date for appearance was issued. There was no procedural irregularity, at least till the stage of notice fixing a date of hearing.
In Course of argument before the High Court, counsel for the Respondent SEBI made a statement that SEBI would not rely on any document apart from those which had been provided to the Petitioner.
It is well settled that the documents which are not relied upon by the Authority need not be supplied as held in Natwar Singh [2010 (10) TMI 156 - SUPREME COURT] - High Court rightly did not interfere with the proceedings at the stage of the Show Cause Notice. The Petitioner has apparently been permitted to inspect the opinion formed under Rule 3 of the SEBI Adjudication Rules. There is apparently no rule which requires SEBI to furnish the opinion under Rule 3 to the noticee in its entirety. The documents relied upon for formation of opinion under Rule 3, are not required to be disclosed to the noticee unless relied upon in the inquiry. In the event, the Petitioner is prejudiced by reason of any adverse order, based on any materials not supplied to the Petitioner, or any prejudice is demonstrated to have been caused to the Petitioner, it would be open to the Petitioner to approach the appropriate forum.
This Court has by its interim order permitted Respondent SEBI to hold the inquiry, without relying upon any documents, not supplied to the Petitioner. The interim order will govern the inquiry. No infirmity in the impugned judgment and order of the High Court dismissing the writ petition filed by the Petitioner.
-
2022 (9) TMI 640
SEBI Settlement Scheme, 2022 - opportunity for settlement has been provided to the entities who have executed reversal trades in the stock option segment of Bombay Stock Exchange Ltd. during the period April 1, 2014 to September 30, 2015 - HELD THAT:- We dispose of the appeal directing the appellant to file an appropriate application for settlement before the authority concerned within two weeks from today. If the same is filed, the authority will accept the settlement application in terms of proposed SEBI Settlement Scheme 2022 as an application filed in a pending proceeding and pass appropriate orders. The appeal is disposed of.
This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
-
2022 (9) TMI 639
SEBI Settlement Scheme, 2022 - opportunity for settlement has been provided to the entities who have executed reversal trades in the stock option segment of Bombay Stock Exchange Ltd. during the period April 1, 2014 to September 30, 2015 - HELD THAT:- We dispose of the appeal directing the appellant to file an appropriate application for settlement before the authority concerned within two weeks from today. If the same is filed, the authority will accept the settlement application in terms of proposed SEBI Settlement Scheme 2022 as an application filed in a pending proceeding and pass appropriate orders. The appeal is disposed of.
This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
-
2022 (9) TMI 544
Offence under SEBI - reasonable grounds to believe - Whether the ‘grounds to believe’ which is a condition precedent of initiating an investigation under section 11C did exist in the facts and circumstance of the present case? - whether the two expressions i.e. ‘has reasonable ground to believe’ as appearing in Section 11C of the SEBI Act, 1992 and ‘has reason to believe’ as appearing in Section 34 (1) (a) of the Income Tax Act, 1922 have the same meaning? - HELD THAT:- Reasonable ground is understood to mean the information that establishes sufficient articulable fact that gives a reasonable basis to believe. In other words, to be a reasonable ground, it would have to be based on certain information that establishes sufficient articulable fact to make it a basis to believe whereas existence of cause, explanation or justification would be sufficient in order to constitute a reason.
Accordingly, we have to understand that to have a reason to believe, the basis for the belief may be any cause, explanation or justification whereas for having a reasonable ground to believe the basis for the belief would have to be the information, in other words, comparable to knowledge.
‘Knowledge’ is defined in the Blacks’ Law Dictionary to be an awareness or understanding of a fact or circumstance; a state of mind in which the person has no substantial doubt about the existence of a fact. ‘Belief’ is regarding the existence of something which is likely or relatively certain whereas ‘knowledge’ is the absence of any substantial doubt in the mind of the person about its existence. In other words, in order to be knowledge, the element of unlikely or uncertainty of the existence of the fact is absent and there would remain no substantial doubt about its existence.
Supreme Court in its pronouncement in Collector of Customs, New Delhi v. Ahmadalieva Nodira [2004 (3) TMI 70 - SUPREME COURT] had held that the expression ‘reasonable grounds’ mean something more than prima facie grounds and it contemplates substantial probable causes for believing. Accordingly, we will have to understand that the test of certainty to arrive at a ‘reasonable ground to believe’, of there being material available on record, would comparably be more than the test of certainty that would be required for arriving at ‘has reasons to believe’.
Any enquiry that may be required to be made under the SEBI Act, 1992, would be of a broader compass than that of an enquiry to be made under the Income Tax Act either of 1922 or 1961. Correspondingly, the requirement of having a reasonable ground to believe for initiating an enquiry under Section 11C of the SEBI Act, 1992 would also have to be on the basis of a broader spectrum as regards the activities that the SEBI is required to regulate, promote or develop.
As the enquiry may be in respect of a broader spectrum of the circumstances and activities, the element of higher certainty required for having a reasonable ground to believe under Section 11C would also have to be based on a broader spectrum of activities that are required to be regulated or promoted. If we proceed on the aforesaid premises, the materials produced by the respondents in the SEBI by referring to the interim order dated 20.08.2015 to form a view that a detailed investigation of the entire scheme as regards the reversal trades and illiquid stocks options where the involvement of more number of persons in such reversal trades and illiquid stocks options cannot be ruled out, we are of the view that it cannot be said that there was no reasonable ground to believe that an enquiry is required to be conducted under Section 11C of the SEBI Act, 1992.
Whether the opinion to be formed under Rule 3 of the PR-1995 is an individual opinion in respect of the person specific against whom the notices under Rule 4(1) are to be issued and if yes, whether any such individual opinion had been formed? - We have perused the records produced by the respondent SEBI in respect of the opinion required to be formed under Rule 3 of the PR-1995. The records produced contain materials which may be a basis to form an opinion, but the records do not indicate the formation of any such opinion by the respondent SEBI.
Whether Notices under Rule 4(1) of the PR-1995 can be assailed in a proceedins under Article 226 of Constitution of India?-We are of the view that the question on the procedural aberration of Rule 4(1) raised in these writ petitions can also be adjudicated in a proceeding under Article 226 of the Constitution of India rather than requiring the noticee to give a wholesome and composite reply to all such allegations that may be made in the notice and thereafter take a decision as to whether the procedural requirements were duly followed. From such point of view, we reject the objections raised by the respondents SEBI as regards the maintainability of the writ petition on the ground that the issues raised could also have been answered by the writ petitioner noticees in the proceeding before the adjudicating officer itself.
Whether notices impugned have been issued by authorities other than a person in the rank of a Division Chief and nor such Division Chiefs have been appointed by the Board to be the adjudicating officers? - A reading of the materials produced and the statements made by the petitioners and the authorities in the SEBI, in respect of the writ petitioner Ankita Didwania, it can be noticed that the notices under Rule 4(1) of the PR- 1995 had been issued by the Division Chief. Instead of venturing into examining the factual aspect as to whether in respect of the other writ petitions, the authorities issuing notices under Rule 4(1) of the PR-1995 are Division Chief or not, in the light of the analysis made hereinabove, the Executive Director of the SEBI is required to look into the individual notices and arrive at his own satisfaction as to whether the respective authorities who have issued the notices do satisfy the requirement of being the Division Chiefs. If the Executive Director upon examining the records arrive at any conclusion that the authorities who have issued the notice would be not a Division Chief of the Division which had issued the notices, appropriate steps be taken to ensure that only the person who would be the Division Chief of the Division issuing the notices be appointed as the adjudicating officer. In such event, the notices that may have been issued, if any, by an authority otherwise than that of a Division Chief be recalled and necessary corrective measures be taken.
Appointments of an Officer not below rank of a Division Chief to be an adjudicating officer for holding an enquiry in the prescribed manner - We are in agreement with Dr. Ashok Saraf, learned senior counsel of the petitioners to that extent that the authorities in the SEBI while undertaking the process of appointing the adjudicating officers had not meticulously followed the procedure as suggested by the petitioners, but going by the steps adopted as per the note-sheet as well as the order dated 06.07.2021, we are of the view that there is a substantial compliance of the requirement of the Board through its delegated authority in appointing the Division Chiefs as adjudicating officers in view of the conclusion which has been arrived hereinbefore. In order to avoid such issues, it is the suggestion by Dr. Ashok Saraf, the learned senior counsel for the writ petitioners, that the ED (law)/ED-EFD may be more careful in exercising his powers.
Individual opinions formed against the person specific with reference to RULE 3 OF THE PR-1995 - Board is of the opinion that there are grounds for adjudging under any of the provisions of Chapter VIA of the SEBI Act of 1992, it may appoint any of its officers not below the rank of Division Chiefs to be an adjudicating officer - The opinion to be formed under Rule 3 of the PR-1995 against the person specific is in the nature of a disclosure of an investigation report. Therefore, from the point of view of fulfilling the larger institutional purpose of fair trial and transparency, as enunciated by the Supreme Court in T Takano [2022 (2) TMI 907 - SUPREME COURT], we are of the view that there would be a requirement for the respondents in the SEBI to provide the noticees the opinion formed against the individual noticee under Rule 3 of PR-1995 along with any such notice that may be issued under Rule 4(1) of the PR-1995.
Notice u/r 4(1) of procedural rules of 1995 can be composite notice requiring the notice to respond as to whether an enquiry should be held u/r 4(1) - why the penalties prescribed under section 15HA should not be inflicted? - As notice under Rule 4(1) of the PR-1995 would be a notice only for the purpose as to whether an enquiry should be held and such notice cannot embark into an actual adjudication being made which ultimately may lead to any of the penalties under sections 15A to 15HB. Only upon forming such opinion that an enquiry is required to be held, the subsequent process of fixing a date of appearance for explaining the person concerned as to the alleged offence that had been committed by indicating the provisions of the Acts, Rules or Regulations that were contravened, can be carried forward.
When we examine the impugned notice in respect of the writ petitioner noticee Ankita Didwania it is noticed that the noticee is called upon to show cause not only as to why an enquiry should not be held against her under Rule 4, but also why penalty should not be imposed under the provisions of Section 15HA of the SEBI Act, 1992 in terms of Rule 5 of the PR-1995. In other words, the notice dated 19.09.2021 in respect of petitioner noticee Ankita Didwania is a composite notice comprising of a notice as to why an enquiry should not be held and also why the adjudication proceeding be not carried forward and brought to its end by referring to the penalty.
Accordingly, we are to arrive at a conclusion that the impugned notice dated 17.09.2021 in respect of petitioner noticee Ankita Didwania is a notice defective in form, although we may not have had arrived at any conclusion nor expressed any view on the substance of the notice dated 17.09.2021.
Had the appropriate procedure of separating the two stages would have been followed by issuing the notice under Rule 4(1) of PR-1995 by confining it on the issue as to whether an enquiry should be held or not, the noticees would have had the opportunity not to give any reply with regard to the further issue on the penalty which would be a part of the subsequent stage of the proceeding. Therefore, it cannot be wholly agreed upon that no prejudice of any kind was caused to the petitioner noticees because of the composite notice of requiring to show cause both against as to why an enquiry should not be held and also on the adjudication proceedings which may result in the penalty to be imposed.
By following the propositions laid down in Natwar Singh [2010 (10) TMI 156 - SUPREME COURT] and T. Takano [2022 (2) TMI 907 - SUPREME COURT] as well as taking note of the procedural requirements of Rule 4 of the PR-1995, we are of the view that the impugned notice dated 17.09.2021 in respect of the petitioner noticee Ankita Didwania in WP and other similar notices in respect of the petitioner noticees of the other writ petitions would not be sustainable in the present form and accordingly, they are all set aside.
As we have interfered with the notices issued by the adjudicating officers of the respondent SEBI on the technical ground of it not conforming to the requirements of the Rule 4 of PR-1995, we further provide that the delegated authority of the Board who is required to form the opinion before appointing the adjudicating officer to look into the records on the opinion being formed against the persons specific against whom the adjudication process is sought to be initiated and ensure that the required opinion referred under Rule 3 of PR-1995 is duly formed.
The opinion to be formed under Rule 3 of the PR-1995, which would have to be person specific to the individual noticees, be also served on the noticees along with the de-novo notice that may be issued under Rule 4(1) of the PR-1995.
-
2022 (9) TMI 529
Offence under the SEBI Act - Illegal fund mobilization by the accused No.1/company - accused No.1 on an aggregate had allotted Non-Convertible Debentures to at least 14256 persons, thereby making it a public issue of securities and this was done without complying with the regulatory provisions applicable to public issue - Learned Judge issued warrant of arrest against the accused persons - complaint for prosecution for violation of Fraudulent and Unfair Trade Practices relating to Securities Market
HELD THAT:- The petitioner himself has filed a document uploaded in the official portal of the Ministry of Corporate Affairs wherefrom it is ascertained that the petitioner was appointed as a director of accused No.1/company on 4th November, 2013 and he remained as director till 23rd August, 2014. Thus, the petitioner was one of the directors of accused No.1/company during the financial year 2012-13 and 2013-14.
It is rightly observed by the learned Trial Judge that an offence under the SEBI Act is punishable for imprisonment which may extend to ten years.
As submitted on behalf of the petitioner that in view of the decision of the Hon’ble Supreme Court in Satender Kumar Antil vs. Central Bureau of Investigation & Anr. [2021 (10) TMI 1296 - SUPREME COURT] the initial order passed by the learned Trial Judge issuing warrant of arrest against the petitioner and other accused persons after taking cognizance is bad in law because ordinarily summons ought to have been issued at the first instance against the petitioner permitting him to appear through his lawyer. If the petitioner failed to appear before the trial court the learned Judge was empowered to file bailable warrant. At the third stage, if the petitioner failed to surrender before the court in pursuance to bailable warrant, the trial court was empowered to pass an order issuing non-bailable warrant against the accused/petitioner. On the same analogy, it is submitted on behalf of the petitioner that the impugned order dated 6th May, 2022 is illegal, inoperative and the learned trial judge failed to act within his power vested under the law.
Obligation to issue summons against the accused persons after filing of charge-sheet/complaint taking of cognizance arises in respect of the offences falling under Category-A mentioned hereinabove. In respect of the offences mentioned in Categories-B, C and D, the guideline made by the Hon’ble Supreme Court in Satender Kumar Antil [2021 (10) TMI 1296 - SUPREME COURT] in respect of Category-A is not applicable.
We find no illegality or material irregularity in the order dated 6th May, 2022 passed by the learned Special Judge, 5th Court at Calcutta. The instant criminal revision is devoid of any merit and accordingly dismissed on contest.
-
2022 (9) TMI 523
SEBI Settlement Scheme, 2022 - opportunity for settlement has been provided to the entities who have executed reversal trades in the stock option segment of Bombay Stock Exchange Ltd. during the period April 1, 2014 to September 30, 2015 - HELD THAT:- We dispose of the appeal directing the appellant to file an appropriate application for settlement before the authority concerned within two weeks from today. If the same is filed, the authority will accept the settlement application in terms of proposed SEBI Settlement Scheme 2022 as an application filed in a pending proceeding and pass appropriate orders. The appeal is disposed of.
This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
-
2022 (9) TMI 175
Chit funding schemes/scam - Investigation Done by the CBI - Petitioner challenged Investigation of the petitioners by the Central Bureau of Investigation (CBI) on the ground of lack of jurisdiction - HELD THAT:- The scale and magnitude of the scam commonly termed as the ‘Chit Fund Scam’ deserves investigation by an agency operating at a national level such as the CBI, since the tentacles of such financial scam, which has adversely affected numerous common citizens, have apparently spread over several states of India.
Only the investigation and the trial of the CBI case, on its completion, shall reveal whether the source of money involved in the chit fund scam and rerouting of the huge sums involved can be traced to the petitioner no.1- Company, even if the petitioner, it is assumed is not a chit fund company in the strict sense of the term.
Mere investigation by the CBI, that too, when the criminal proceedings are at the stage of trial and after such a long time subsequent to the unsuccessful challenge to the charges framed, cannot be a violation of any legal or fundamental right of the petitioners. Hence, it cannot be observed that the CBI investigation of the petitioners and the framing of charges are vitiated in any manner, sufficient for the writ court to quash the same.
Even if it is assumed for the sake of argument that the list furnished by the SEBI in connection with this writ, containing the name of the petitioner no. 1 company, has not been proved to have been furnished before the Supreme Court in Subrata Chattaraj [2014 (10) TMI 328 - SUPREME COURT] , due to the reasons as discussed above, even without relying on such list, and irrespective of the fact that the petitioners were not parties to the said litigation, the petitioners clearly come within the broad sweep of the Supreme Court’s directions for investigation relating to the chit fund scam, since charges have been framed against the petitioners long back and after due investigation, the trial of the case is going on at present.
Inasmuch as the formation of the One-Man Committee consisting of a retired Hon’ble Judge of this Court is concerned, there cannot be any rhyme or reason for this Court, sitting in writ jurisdiction, to direct the said committee, out of the blue, to return all documents in its custody to the petitioners, particularly, since such efforts of the petitioners have failed before every competent forum. The petitioner no.2 is in custody for a considerable span of time and since the trial of the CBI case, upon investigation is going on in full swing, there is no substance in the present writ petition.
-
2022 (9) TMI 110
Procedure to be followed by debenture trustees - suit before the Bombay High Court - Evolution of the law surrounding the resolution of debts - Whether the debenture holders and other parties in the present case were required to follow the procedure under the SEBI Circular? - scope of Debenture Trust Deeds - Bombay High Court exercised jurisdiction over the subject matter of the suit - RCFL‘s case that the SEBI Circular is applicable only if the debenture holders choose to enter into an ICA under the RBI Circular - bar to the civil court’s jurisdiction - HELD THAT:- Section 15Y of the SEBI Act stipulates that no civil court shall have the jurisdiction to entertain any suit in respect of any matter which an adjudicating officer appointed under the SEBI Act is empowered to determine. Section 15-I of the SEBI Act provides that an adjudicating officer may be appointed to adjudge cases under Sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA, 15HB. None of the sections mentioned in Section 15-I of the SEBI Act would confer jurisdiction on the adjudicating officer to grant the relief sought by the plaintiffs in the first instance. Hence, the bar in Section 15Y would not operate as against the suit in the present case.
Similarly, Section 430 of the Companies Act provides that no civil court shall have the jurisdiction to entertain any suit in respect of any matter which the National Company Law Tribunal or the National Company Law Appellate Tribunal is empowered to determine. Nothing in the Companies Act 2013 or any other law for the time being in force vests either the National Company Law Tribunal or the National Company Law Appellate Tribunal with the jurisdiction to adjudicate upon a challenge to the RBI Circular. Hence, the bar in Section 430 is not attracted.
Single Judge of the Bombay High Court (in the first instance) as well as the Division Bench of the Bombay High Court properly exercised jurisdiction over the subject matter of the suit.
SEBI Circular is applicable if debenture holders wish to implement a Resolution Plan to which the lenders are a party -By issuing the SEBI Circular, SEBI subscribed to the overall framework of the RBI Circular and permitted debenture holders to participate in the process specified in the RBI Circular to enter into a Resolution Plan. Under the RBI Circular, the Resolution Plan cannot come into existence without an ICA. The SEBI Circular does not disturb this position. When the SEBI Circular came into force, it specified the conditions under which the debenture holders (through the Debenture Trustees) could access this Resolution Plan and participate in its formulation via the ICA.
By arguing that Clauses 22 and 23 of the Fifth Schedule to the Debenture Trust Deed(s) are not concerned with signing an ICA or with the subject matter of the SEBI Circular in general, RCFL is suggesting that the ICA and the Resolution Plan are distinct and severable. The implication is that debenture holders may opt in to the Resolution Plan after it has been formulated, without concerning themselves with the ICA. This is an incorrect interpretation of the circulars in question. The ICA and the Resolution Plan are inextricably intertwined and the latter has its genesis in the former, and flows from it.
We agree that the language in Regulation 15(7) of the 1993 Regulations and the SEBI Circular is facilitative and not mandatory. This is in recognition of the fact that debenture holders may opt to exercise their rights through mechanisms other than the execution of a Resolution Plan. The language cannot be construed to be facilitative in the sense of providing debenture holders with the option of by-passing the modalities prescribed by the SEBI Circular while accepting a Resolution Plan. The ICA continues to be the foundation or mother document for the Resolution Plan.
Dissenting ISIN level debenture holders are bound by the ICA / Resolution Plan - Dissenting creditors do not have the option of “exiting” the compromise or arrangement arrived at in terms of Section 230 Companies Act. The NCLT will look into the overall fairness of the compromise or arrangement under Section 230 Companies Act Similarly, dissenting lenders do not have the option of “exiting” the ICA / Resolution Plan under the RBI Circular. The RBI Circular states that the ICA may provide for the protection of dissenting lenders The respective majorities provided for in each of these laws bind dissenting creditors. It is along these lines that the SEBI Circular binds dissenting debenture holders. Indeed, the SEBI Circular could bind dissenting debenture holders even in the absence of similar provisions in other laws.
The argument that the SEBI Circular is not applicable because a single debenture holder will be able to frustrate the Resolution Plan is a consequential one. The applicability of a circular cannot be determined on the basis of such a concern. We need not comment upon this aspect in the absence of a challenge to the SEBI Circular. We also note that it is open to the relevant stakeholders to approach SEBI with any concerns, commercial or otherwise, and request an amendment to the SEBI Circular. SEBI as a statutory regulator can always look at such concerns and has the power to factor them in if it deems fit to do so in public interest and for the orderly functioning of the securities‘ market.
SEBI Circular has retroactive application - In the present case, RCFL issued the debentures and defaulted on the payments to the debenture holders prior to the issuance of the SEBI Circular. However, as of 13 October 2020 (the date on which the SEBI Circular came into force), a compromise or agreement on the restructuring of the debt owed by RCFL did not exist. The debenture holders were not vested with any rights with respect to the resolution of RCFL‘s debt. The existence of the debt and the subsequent default by RCFL was the status of events, which existed prior to 13 October 2020. Once it came into force, the SEBI Circular applied to the manner of resolution of debt, as specified therein.
Even assuming that debenture holders were vested with the right to sanction a compromise or arrangement in terms of the special majority in Clause 23 to the Fifth Schedule of the Debenture Trust Deed, they were divested of such a right upon the issuance of the SEBI Circular. Clause 59 of the Debenture Trust Deed stipulates that any provision in the Debenture Trust Deed which is in conflict with the 1993 Regulations is null and void. In so doing, it lays down a trigger for the divestment of rights under the Debenture Trust Deed. A contractually vested right may be taken away by the operation of a statutory instrument. A fortiori, in the present case, the SEBI Circular owes its existence to statutory powers conferred by a special legislation enacted with a view to protect the interests of investors and to ensure the stable and orderly growth and development of the market for securities.
SEBI Circular was issued partly in exercise of the powers under the 1993 Regulations.28 Further, Regulation 15(7) of the 1993 Regulations lays the foundation for the conditions specified in the SEBI Circular. As such, the phrase “provisions of the [1993 Regulations]” in Clause 59 must be read to include the SEBI Circular. Clauses 22 and 23 of the Fifth Schedule to the Debenture Trust Deed are evidently in conflict with the SEBI Circular as they each provide for different voting mechanisms. Therefore, Clauses 22 and 23 must give way to the SEBI Circular, which will take precedence
Exercise of this Court’s power under Article 142 of the Constitution - The different voting mechanism proposed under the SEBI Circular will further delay the resolution process and potentially disrupt the efforts undertaken by the stakeholders, including the retail debenture holders. Such unscrambling of the resolution process will not only prove time-consuming, but may also adversely affect the agreed realized gains to the retail debenture holders, who have already consented to the negotiated settlement before the High Court.
Depending upon the facts and circumstances of a case, this Court can, having regard to Article 142 of the Constitution of India, stipulate suitable directions to mitigate the potential denial of rights.
Pertinently, the SEBI Circular only contemplates two situations where ISIN-wise voting is mandated: (i) non-enforcement of security; and (ii) entering into an ICA. Although it applies retroactively, it admittedly does not contemplate a scenario where the debenture holders could give ex post facto consent to ICAs agreed prior to the commencement of the SEBI Circular, that is 13 October 2020. In the present case, the application of the SEBI Circular will lead to a scenario where a Resolution Plan validly agreed upon by the ICA lenders under the RBI Framework will have to be unscrambled. For this reason, we consider it necessary to extend the benefit under Article 142 to the retail debenture holders by allowing the Resolution Plan to pass muster. We would like to reiterate that this Court is issuing the directions to mould the relief under Article 142 in view of the peculiar facts and circumstances of the present case noted above.
Dissenting debenture holders in the present case - It is clear that a compromise arrived under the SEBI Circular or Section 230 of the Companies Act effectively assimilates the rights of the dissenting creditors. The SEBI Circular adopts a higher voting threshold of 60% by number and 75% to bind dissenting/ abstaining debenture holders.
SEBI submits that debenture holders are entitled to full outstanding amounts due (principal plus interest) if their debt cannot be resolved under the compromise/ resolution mechanism. However, it has been argued that the compromised arrived at in terms of the direction of the Division Bench will also bind all the other debenture holders, who were not a party to the original suit before the High Court. This will prejudice the dissenting debenture holders as they have to settle for a lesser amount – 24.96% of the principal among with a further 5% of the principal outstanding. We agree with SEBI‘s submission that the compromise arrived at the Debenture Trust Deed level among the consenting debenture holders should not bind the dissenting debenture holders.
The dissenting debenture holders would have been bound by the Resolution Plan if it had been approved in accordance with the Insolvency and Bankruptcy Code, 2016 or under an ICA as acceded to under the SEBI Circular. We accordingly deem it appropriate that dissenting debenture holders should be provided an option to accept the terms of the Resolution Plan. Alternatively, the dissenting debenture holders have a right to stand outside the proposed Resolution Plan framed under the lender‘s ICA and pursue other legal means to recover their entitled dues.
For the reasons indicated in the text of the judgment, we accept the submissions which have been urged by SEBI and disapprove of the interpretation placed by the Division Bench of the Bombay High Court on the SEBI Circular. The appeal is allowed in part, subject to the directions issued above under Article 142 of the Constitution.
-
2022 (8) TMI 1465
Offences by companies - Preferential allotment of shares - public shareholding of atleast 25% not followed - Restrain orders against Director,Executive Chairman and Non-Executive Director - allotment to the assignee companies was not a genuine consequence or outcome of the Assignment Deeds was based on the fact that the three companies had no business activity and their net worth was nowhere close to the assigned amounts - WTM found that the preferential allotment to the three assignee companies was not a genuine assignment and, therefore, the shareholding of the assignee companies has to be clubbed together with the shareholding of the promoter group which taken together would reach 87.27% and, therefore Falcon which had time till June 03, 2013 to achieve the minimum public shareholding of 25% as mandated under Rule 19(A)(1) of the SCRR was not achieved.
HELD THAT:- A loan was given by Manali/ Stephens which is not disputed and if the loan is not repaid Falcon/ Dunlop in their wisdom allotted shares to the assignee companies through preferential allotment of shares in order to square off the loan amount which is permissible in law.
The three assignee companies are not promoter group companies of Falcon or Dunlop. Similarly, there is no evidence to show that the three assignee companies were group companies/ subsidiary companies of Manali/ Stephens. In the absence of any such evidence coming on record the WTM committed a manifest error in clubbing the shareholding of the three assignee companies, namely, Regus, Suncap and Sulputri with the shareholdings of Manali/ Stephens respectively and then clubbing it as the group shareholding with Falcon/ Dunlop. Such clubbing of shares, in our opinion, was not permissible in the eyes of law.
We are of the view, that the company had rightly shown the shareholdings of the three assignee companies as public shareholdings. We are further of the view, that the shareholdings of the assignee companies cannot be clubbed together with the shareholding of the promoter group of Falcon or Dunlop respectively.
The appellant as an Independent Director has been penalized for non-compliance of the MPS requirement under Clause 40A of the Listing Agreement read with Rule 19(A) of the SCRR. As stated earlier, the obligation to comply with the MPS requirement is upon the company, namely, Dunlop. In the instant case, Dunlop has not been made a party. No show cause notice has been issued to Dunlop and, consequently, in the absence of the company being made a party, no proceedings can be initiated against the Director of the Company.
As if an offence is committed by the company then every person who was responsible to the company for the conduct of the business of the company would be guilty of the offence. Thus, violation of Clause 40A of the Listing Agreement read with 19(A) of the SCRR has to be first found against the company and only thereafter SEBI can proceed against the Directors who were responsible for the conduct of the business of the company at the time when the violation was committed. Thus, we are of the confirmed opinion, that no proceedings could have been initiated against the appellant Mohan Lall Chauhan without first initiating proceedings against its company Dunlop.
The impugned order against the appellants cannot be sustained and to that extent the order is quashed. The appeals are allowed with no order as to costs. The misc. application is disposed of accordingly.
-
2022 (8) TMI 1415
Recovery proceedings - attachment orders - real owner of property - objection regarding the maintainability of the present petition - alternate statutory remedy available to Petitioner under Section 15T read with Section 28A of the SEBI Act, 1992 and Rule 26 of the Second Schedule to the Income Tax Act, 1961 - HELD THAT:- Writ would lie before this Court only there is a jurisdictional error in the impugned order. The Court is however unable to agree. The Petitioner’s primary objection, is that the attached property belongs to Kuber Floritech Ltd. [Petitioner] and not Kuber Planters Ltd., against whom the recovery certificate has been issued.
SEBI was not satisfied with Petitioner’s claim on merits and therefore this Court does not find any jurisdictional error to entertain the petition. Moreover, as pointed out by Ms. Anand, Rule 11 of the Second Schedule of the Income Tax Act, 1961, applicable to the proceedings under dispute, provides complete mechanism of investigation by the Tax Recovery Officer for adjudication of any claim or objection to attachment or sale of any property in execution of a certificate. The aforesaid Rule is a complete code in itself.
Moreover, as acknowledged by the Petitioner and recorded in the order there is an alternate statutory remedy, available with the Petitioner under Section 15T read with Section 28A of the SEBI Act, 1992 and Rule 26 of the Second Schedule to the Income Tax Act, 1961.
The Court is not inclined to entertain the present petition. Dismissed along with other pending applications.
All the rights and contentions of the parties are left open. The Court has not examined the merits of the case and, in the event, the Petitioner were to take recourse to alternate statutory remedy, the concerned authority shall adjudicate the claim of Petitioner, uninfluenced by any of the observations made above.
-
2022 (8) TMI 1384
Condonation of delay - inordinate delay in approaching the Tribunal - 77 complaints have been filed by the appellant for the same cause of action - first complaint was disposed of on the SCORES platform on March 22, 2019 but instead of challenging that order the appellant filed fresh complaint and based on that has now filed the present appeal - HELD THAT:- In our opinion there is an inordinate delay in approaching the Tribunal. In view of the inordinate delay, we do not find any adequate reason to condone the delay at this belated stage. The appeal is dismissed with no order as to costs. Misc. applications are disposed of accordingly.
This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
-
2022 (8) TMI 1005
Offence under SEBI - Market manipulation of shares - Stay of the proceedings in criminal complaint during the pendency of the main petition - sole basis of filing of the complaint against the petitioner companies is that the accused No.17 has been shown to be one of the Directors of the petitioner companies and has been described to be the person in charge and responsible of the petitioner companies - HELD THAT:- This court directed for issuance of notice which was accepted by learned counsel appearing on behalf of the respondent and the matter was directed to be re-notified on 03.02.2020. However, in the meantime, it was directed that the trial court shall fix a date after the date is fixed in the present petition. On 29.11.2019, it was further noted that the respondent moved an application before the trial court seeking clarification of the impugned order and therefore, the trial court was directed to list the said application after the date was fixed in the present petition. On 03.02.2020, the said interim arrangement was extended and the matter was directed to be listed on 01.10.2020. On 08.12.2020, in absence of any appearance on behalf of the petitioner, the matter was directed to be listed on 25.03.2021. Further proceedings would show that the interim order so passed, was extended from time to time. However, there has not been any consideration on the instant application on its merit and therefore, on 03.08.2022, this court directed the parties to make their submissions on merits of the aforesaid application.
The complaint in question has been filed in the year 2016 against various companies on the premise that there were irregularities in the trading and shares of the accused No.1 company. It has been alleged in the complaint that there were synchronisation of logging-in of traders, creation of artificial volumes, false market in the shares, circular trading, churning of the same stock and market manipulation. Large number of shares were made available to the Ketan Parekh Group, ostensibly under guise of fiduciary transactions and those shares were sold by Ketan Parekh entities in the market.
The subject-matter of the investigation was from 09.08.2000 to 30.06.2001 and the trial court has prima facie found sufficient material to proceed against the petitioners, therefore, without expressing anything on the merits of the case, as the same would prejudice their rights to be determined at a later stage, this court does not find any reason to stay the further proceedings of the trial court. However, it is made clear that the further proceedings of the trial court would remain subject to the outcome of the instant petition.
-
2022 (8) TMI 657
Payment due for the services rendered to the unitholders prior to the winding up - Upfronting of trail commission - inflows through Systematic Investment Plans - Commission payable to mutual fund distributors - FIFA claims that independent financial advisors/mutual fund distributors are entitled to payment of commission agreed between them and Franklin Templeton Asset Management (India) Private Limited, which are in the nature of recurring expenses as per Regulation 52 of the Security and Exchange Board of India (Mutual Funds) Regulations, 1996 - whether asset management companies/mutual funds shall adopt a full trail model of commission in all schemes, without payment of any upfront commission or upfronting of any trail commission, directly or indirectly? - HELD THAT:- FIFA has claimed that the commission payment due to the mutual fund distributors on and from 23rd April 2020 is an amount ‘due and payable under the scheme’, as it is an amount or payment that had accrued before the publication of notices under Regulation 39(2)(b), but was not paid as it was payable in future. Commission payable to mutual fund distributors is in the nature of trail, and therefore, is payment due for the services rendered to the unitholders prior to the winding up. This argument is farfetched and fallacious.
The recurring liability is not a present liability, but an obligation which, on satisfaction of certain conditions, may accrue in future. The right to claim commission may not accrue and become due and payable. Distributor commission, as a recurring liability, is not payable if the unitholder(s) redeem the unit. Winding up of the scheme entails similar effects and consequences.
As noticed above, it is the asset management company which is entitled to charge fees and expenses in terms of sub-regulations (1) and (2) of Regulation 52. The mutual fund distributors are not entitled to direct payment from the unitholders. Payment to the distributors is made by the asset management company, from the amount that they deduct as a recurring expense in terms of Regulation 52(4)(b). On and after publication of the winding up notice in terms of Regulation 39(3)(b), the trustees and the asset management company cannot claim any payment on account of recurring expenses under clause (b) to sub- regulation (4) to Regulation 52. That being the position, as held above, the claim of FIFA has to be rejected. If the amount cannot be due and payable to the principal, the claim of the agent or a third party, in view of the Regulations, must also fail.
The claim of FIFA, on the basis of the Circular dated 22nd October 2018, which has been referred to above, is equally misconceived and untenable. The Circular dated 22nd October 2018 bars the asset management company from making upfront payment or upfronting of any trail commission, except in case of inflows through Systematic Investment Plans. It is also stipulated that, when the Systematic Investment Plan is discontinued for a period for which commission is paid, the commission amount has to be recovered on pro rata basis from the distributor. As a deduction, it follows that on publication of notices in terms of Regulation 39(3)(b), the business of the mutual fund comes to a stop and therefore, on and from that date the trail commission is not payable, as the scheme is to be wound up and the money is to be collected and paid to the unitholders, in terms of and as per the mandate of Regulation 41. Even if a distributor renders some services to the unitholders after publication of the notice under Regulation 39(3)(b), it would not entitle him to claim an amount from the asset management company. The Circular dated 22nd October 2018 cannot override the Regulations. The Circular does not intend to do so. It has been issued to bring about transparency in expenses, reduce portfolio churning and mis-selling in mutual fund schemes. The intent behind specifying total expense ratio and the performance disclosure for mutual funds is to bring greater transparency in expenses and to not confer any right on the mutual fund distributors to claim expenses under clause (b) to Regulation 41(2), which pertains to the procedure and manner of winding up.
Franklin Templeton Trustee Services Private Limited and Franklin Templeton Asset Management (India) Private Limited have filed an affidavit before us stating that they have borne liquidation expenses amounting to approximately Rs. 40,00,00,000/- (Rupees Forty Crores) towards various services such as liquidator’s fee, disbursement expenses, fees for the e-voting platform and the scrutinizer for voting results, etc. It is stated by them that this amount is not intended to be charged to the six Schemes in the interest of the unitholders of the Schemes. We have taken the said statement on record.
............
|
9911796707
