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SEBI - Case Laws
Showing 221 to 240 of 641 Records
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2021 (8) TMI 1313
Petitioner seeking direction against respondent to produce all documents relied upon by them while issuing SCN including investigation report - Code of Conduct for regulation monitoring prevention of insider trading approved and followed by the Company - HELD THAT:- On the basis of the reply filed by the respondent when this Court declined to entertain the petition, the petitioner submitted that the petitioner may be permitted to withdraw the petition with liberty to put all these issues before the authority i.e. the person who is going to hear the show cause notice. Hence, the following order is passed.
Writ petition stands dismissed as withdrawn. All contentions of both parties are kept open. No order as to costs.
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2021 (8) TMI 1299
Insider trading - charge of violation of Regulations 3 and 4 of the PFUTP Regulations - contravention of Section 12A(d) of the SEBI Act - conspiracy in the commissioning of the offence of insider trading - As urged by the appellant Rohit Gupta that the WTM has miserably failed to establish the charge of trading against the appellant and has been found guilty only on the basis of preponderance of probability - Contention of the appellants is that adequate opportunity was not provided - HELD THAT:- We find that pursuant to the show cause notice dated July 31, 2018 which was duly served on all the notices, the appellants were required to appear on September 3, 2019 and file a reply which they failed to do so. By a letter dated December 9, 2018 some of the noticees, namely, Navin Tayal and Jyotika Tayal intimated that their authorized signatory would appear on their behalf but failed to appear on next date i.e. September 3, 2019. On September 3, 2019, the AO fixed the hearing date for September 17, 2019. All the noticees requested for an adjournment on September 17, 2019 and prayed that they may be provided an opportunity to inspect the documents.
AO, in the interest of justice, adjourned the matter for November 18, 2019. Prior to that date, noticee No. 1 on November 4, 2019 and on November 5, 2019, the appellants Navin Tayal, Jyotika Tayal and Azam Shaikh, on November 14, 2019 Advik and on November 15, 2019 Kulwinder Nayyar vide the letters requested the AO for inspection of documents. The matter was accordingly adjourned on November 18, 2019 and vide notice dated December 27, 2019, all the noticees were given an opportunity to inspect the documents on January 30, 2020. By the said notice, all the noticees were intimated that the hearing would be fixed on February 17, 2020. The record indicates that no one appeared to inspect the documents on January 30, 2020 in spite of the receipt of the notice nor appeared on the date fixed for hearing i.e. February 17, 2020 and accordingly the AO proceeded ex-parte and passed the impugned order.
The contention that the notice dated December 12, 2019 was received by the appellants on January 28, 2020 was vehemently denied by the respondent. The respondent contended that the said notice was received by the appellants on January 17, 2020 and proof of delivery of service has been annexed to the reply. It was contended that the letter of the appellants dated February 11, 2020 seeking further time to inspect the documents and for adjournment and for reschedulement of the hearing was never received and the appellants were put to strict proof. In rejoinder, the appellants admitted that the notice dated December 27, 2019 was received on January 17, 2020 but was not placed before the appellants and, therefore, could not appear for inspection of documents. It was also stated that on account of personal exigency, the appellants could not attend the date fixed for hearing. No proof have been filed by the appellants with regard to the service of letter dated February 11, 2020.
It is apparently clear that the appellants were duly served with the notice. Adequate opportunity was provided to inspect the documents and appear on the date fixed for hearing. The appellants chose not to inspect the documents nor appeared personally nor appeared through their authorized representative on the date fixed for hearing. Consequently, we are of the opinion that the principles of natural justice was fully complied with. The appellants deliberately chose not to participate in the proceedings and, therefore, we do not find any fault in the proceedings adopted by the AO. The order of the AO does not suffer from any error of law.
All the appeals filed against the order of the WTM and against the order of the AO are dismissed with no order as to costs.
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2021 (8) TMI 398
Fraudulent and Unfair Trade Practices - settlement in terms of SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 seeked - HELD THAT:- Petitioners are entitled to move application for settlement even at the appellate stage. However, for the said purpose, the petitioners would have to move appropriate application before the appellate forum. The said applications thereafter be rooted to the High Powered Advisory Committee which may examine the aspect keeping in view the fact that other similarly situated two companies (supra) have been allowed to get the matter settled and settlement orders have been passed in relation to the other similarly situated companies (supra).
The issue with regard to the condition as laid down by the Internal Committee can also be examined by the High Powered Advisory Committee and it may take its own decision in this regard. As on today, so far as this Court is concerned, it is of the confirmed opinion that such a precondition is not existing and the same only related to the earlier settlement applications.
This Court concludes that no relief can be granted to the petitioner for revival of the settlement applications and the petitioner has to move afresh application if so chooses in terms of Regulation 7 of the Settlement Regulations, 2018. If such afresh application for settlement is moved, it shall be placed before the High Powered Advisory Committee as provided under Regulation 7 of the Settlement Regulations, 2018 and a decision shall be taken at the earliest. However, taking into consideration that the orders have already been passed under Section 11B of the SEBI Act, 1992, there can be no precondition of depositing the amount of 50% over the settlement amount. The said condition would only operate after the settlement is arrived at and determined by the concerned Committee. Similarly, in relation to settlement of penalty also, the aforementioned observations will equally apply.
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2021 (7) TMI 1433
GDR issue to sole subscriber - misleading information was given to the shareholders and the investors that the GDRs were subscribed by many entities - loan obtained by Vintage through a pledge agreement given by the Company was a fraudulent act which was not disclosed to the stock exchange - HELD THAT:- We find that the controversy involved in the present appeal is squarely covered by a recent decision of this Tribunal in Prafull Anubhai Shah [2021 (6) TMI 1159 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] held that merely because the appellant was present when the resolution dated July 27, 2006 was passed, no conclusion can be drawn that this was the starting point of the fraudulent arrangement for issuance of GDR and for opening a bank account. The resolution does not given any indication that the appellant had knowledge beforehand that the GDR issue was the purpose to manipulate the price or the market or that a fraud would be played upon the shareholders and the investors.
We are further of the opinion that finding of the WTM that the resolution of the Board of Directors provides execution of a pledge or execution of a charge agreement is wholly erroneous, perverse and based on no evidence. The resolution also does not stipulate that the proceeds could be utilized by the bank as security in connection with a loan taken by another entity.
In the light of the aforesaid, we are of the view that the appellant cannot be debarred only on the basis of being present in the resolution of the Board of Directors.
The impugned order of the AO as well as the WTM in so far as it relates to the appellants cannot be sustained and is quashed. The appeals are allowed.
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2021 (7) TMI 1417
Violation of Regulation 11(1) of the SAST Regulations - Non issue of open offer - Initiation of proceedings after delay of 12 Years - WTM came to the conclusion that all the acquirers collectively acquired more than five percent of the shares in the financial year 2005-06 and such acquisition beyond five percent triggered the open offer under Regulation 11(1) which acquirers failed to make and, therefore, became liable for penal action under the SAST Regulations - HELD THAT:- In the present case, SEBI is sitting quietly and has not taken any action for 12 years. Such delay defeats the purpose of initiation of proceedings for appropriate action.
Inspite of specific orders being issued from time to time on the question of delay the WTM chooses to ignore those decisions as if they do not exist or is not binding upon them. In the instant case, we find that the WTM has trenchantly asserted that it is a settled position that there is no time limit for issuing notice and that an order cannot be set aside on the ground of delay. Such assertion being used time and again in the order passed by the AO or the WTM is patently erroneous. This Tribunal in a large number of appeals have set aside the orders only on the ground of delay.
Thus considering the long lapse of time in initiating the proceedings, the direction to make an open offer was not appropriate in the circumstances of the case.
For the reasons stated aforesaid, the impugned order cannot be sustained and is quashed. The appeals are allowed
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2021 (7) TMI 986
Violation of the provisions of the SEBI Act - What exact violations raised - HELD THAT:- On going through Exhibit P3 show cause notice issued by the Deputy General manager of SEBI dated 13th March, 2020, we could not locate any such eventuality, apart from the same being explanatory in nature, enabling an aggrieved person to identify the exact violations raised against him and submit a reply understanding the gamut of the issues.
Learned single Judge has rightly dismissed the writ petition holding that SEBI has power to initiate action against the appellant for violation of the provisions of the SEBI Act, 1992 - minute intricacies of the issues raised in regard to the power of the Deputy General Manager of SEBI, the question of limitation etc. are all aspects to be considered by the statutory authority in terms of the provisions of Act, 1992 and the regulations thereto discussed above. That said, the issues raised by the appellant in respect of the power of the authority under the Companies Act, 1956 vis-a-vis the Companies Act, 2013 are all matters, which can be raised before the statutory authority. This we say because, from the show cause notice it is clear that the violations are relating to the years 2007-2013 during which period the Companies Act,1956 was in force.
We are also conscious of the fact that when the functions of an authority are regulated and controlled by clear statutory provisions and without any inhibitions created, we have no reason to think that the said authority would not adjudicate the issues in terms of law.
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2021 (7) TMI 971
Compounding of offence - Price rigging and insider trading in the scrip of the Company - IPO issues - SEBI’s Investigation and the criminal complaint - HELD THAT:- The nature of the allegations against the appellant are such so as to preclude a decision to compound the offences. We have adverted, in a considerable amount of detail, to the circumstances which have been narrated in the counter affidavit filed by SEBI.
We find merit in the submissions which has been urged before the Court by learned Senior Counsel who appeared on behalf of SEBI that the allegations in the present case involved serious acts which impinged upon the protection of investors and the stability of the securities’ market. The observation in the order of adjudication of the Chairperson of the SEBI dated 22 September 2000, that no loss has been caused to the investors as a result of the proposal which was submitted by the promoters to purchase the shares at the rate of ₹ 12 per share, would not efface the element of alleged wrong doing.
Such alleged acts of price rigging and manipulation of the prices of the shares have a vital bearing on investors’ wealth and the orderly functioning of the securities market. SEBI was, therefore, justified in opposing the request for the compounding of the offences. The matter was referred to the HPAC constituted by SEBI and presided over by a former judge of the Bombay High Court, which denied the request for compounding. This decision which has been taken by SEBI is not mala fide nor does it suffer from manifest arbitrariness. On the contrary, having due regard to the nature of the allegations, we are of the view that an order for compounding was not warranted. Judgment of the High Court of Delhi Affirmed.
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2021 (7) TMI 751
SEBI powers to issue directions and levy penalty - trustee’s decision to wind up a scheme of the mutual fund - Interpretation of the term ‘consent’ in Regulation 18(15)(c) - HELD THAT:- The quotation highlights that interpretation is sometimes a three-stage process. At first, the words being interpreted should be understood according to their grammatical meaning in their literal and popular sense. In the second stage, we consider whether in the given context the plain meaning is obscure as the text gives rise to choice of more than one interpretation, or the propositional interpretation fails to achieve the manifest purpose of the legislation, reduces it to futility, is practically unworkable or even illogical. In such cases at the third stage, the court applying interpretative tools selects or blue-pencils an interpretation advancing the legislative intent without rewriting the provision. The legislative intent is gathered not by restricting it to the language of the provision, rather in the light of the object and purpose of the provision and the legislation. The courts do lean towards a pragmatic and purposive interpretation as there is an assumption that the draftsmen legislate to bring about a functional and working result.
Harmonious interpretation of Regulation 18(15)(c) with Regulations 39 to 42 - Held that:- ‘Consent’ for the purpose of Regulation 18(15)(c) refers to the consent of the majority of the unitholders present and voting, and in case of a poll, the computation would be with reference to the number of units held by the unitholder. In fact, in the course of hearing, it was conceded that majority of the unitholders belong to provident fund trusts or pension funds. The voting pattern referred to in our earlier order reflects that voting under Regulation 18(15)(c) is possible and can work smoothly without much difficulty. The apprehensions expressed, therefore, do not carry much weight. It is obvious that where the unitholders vote against winding up, consequences would follow and accordingly the scheme would not be wound up. This is a natural and normal consequence which will have to be given effect to. It would, as stated above, happen rarely and that too would not happen without any genuine and good reason.
The consent of the unitholders, as envisaged under clause (c) to Regulation 18(15), is not required before publication of the notices under Regulation 39(3). Consent of the unitholders should be sought post publication of the notice and disclosure of the reasons for winding up under Regulation 39(3).
To complete interpretation of Regulation 18(15), we have to record that clause (a) applies and requires the trustees to obtain consent of the unitholders whenever required by SEBI in the interest of the unitholders. Clause (b) states that the trustees would obtain consent of the unitholders whenever required to do so on the requisition made by three-fourths of the unitholders of any scheme. Accordingly, clause (a) would apply whenever SEBI mandates and clause (b) applies whenever three-fourths of the unitholders of the scheme make a requisition.
The High Court was right in observing that the trustees and the AMC have understood and accepted that the consent of unitholders of the scheme would be necessary if the majority of the directors of the trustee company decide to wind up a scheme.
Challenge to the constitutional validity of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 - HELD THAT: - No doubt, clause (a) to Regulation 39(2) gives primacy to the opinion of the trustees and does not require prior approval of SEBI, yet SEBI is entitled to conduct an inquiry and investigation when justified and necessary to ascertain whether the trustees have acted in accordance with their fiduciary duty and also for reasons which would fall within the four corners of clause (a) to Regulation 39(2). If the trustees have acted for extraneous and irrelevant reasons and considerations, the action would be in violation of clause (a) to Regulation 39(2) and therefore amenable to action under the SEBI Act, including directions under Section 11B.
The power of SEBI extends to regulating and monitoring the functioning and decisions taken by mutual funds, the trustees and the AMC. SEBI has the power to pass any direction if it deems fit in the interest of unitholders.
It cannot be accepted that the trustees under clause (a) to Regulation 39(2) have been given absolute and unbridled power to wind up a scheme. Language of clause (a) to Regulation 39(2) states that the trustees must form an opinion on the happening of any event which requires the scheme to be wound up. Further, as per Regulation 39(3), the trustees are bound to give notice disclosing the circumstances leading to the winding up of the scheme. These notices along with the reasons have to be communicated to SEBI and made known to the unitholders by publication in two daily newspapers having circulation all over India and a vernacular newspaper having circulation at the place where the mutual fund is formed.
We have agreed with the High Court that the opinion of the trustees under clause (a) to Regulation 39(2), therefore, must be consented to by the unitholders in terms of the mandate of Regulation 18(15)(c). In view of this interpretation, the argument challenging constitutional validity of the Regulations on the ground that they give unbridled and absolute power to the trustees loses much of its sting and force. There are, therefore, sufficient guidance and safeguards in the Regulations itself on the power of the trustees to decide on winding up of the fund.
The Regulations, in our opinion, rightly draw the distinction between creditors and the unitholders. The unit holders are investors who take the risk and, therefore, entitled to profits and gains. Having taken the calculated risk, they must also bear the losses, if any. Unitholders are not entitled to fixed return or even protection of the principal amount
The Regulations under challenge do not suffer from the vice of manifest arbitrariness.
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2021 (7) TMI 168
Modes of charging fees to clients by Investment Advisors - Constitutional validity and vires of Regulation 3(XII) of the Securities and Exchange Board of India (Investment Advisors) (Amendment) Regulations, 2020 (“Amendment Regulations”), by which Regulation 15A was inserted into the Securities and Exchange Board of India (Investment Advisors) Regulations, 2013 and Circular issued in pursuance thereof, being Circular Reference No. SEBI/HO/IMD/DF1/CIR/P/2020/ 182 dated 23.09.2020 challenged - whether the Board has the requisite authority under the SEBI Act, in the first place, to make regulations concerning charging of fees by Investment Advisors from their clients? - challenge is on the footing of both want of legislative power in SEBI (by delegated authority) to make a provision such as regulation 15A or to issue a Circular such as Circular dated 23.09.2020 and breach of fundamental right of Investment Advisors to carry on a profession of their choice by enacting unreasonable restrictions - HELD THAT:- As specifying measures for protection of investors and development and regulation of securities market being the duty of the Board under Section 11 of the SEBI Act and without prejudice to the generality of such duty the Board having the express power to regulate the working of Investment Advisors (under Sub-Section (2)(b) of Section 11), which, as noted above, encompasses measures to provide for the manner of charging of fees as well as cap of fees, the impugned regulation (Regulation 15A) is clearly within the delegation made in favour of the Board under Section 30(1) of the SEBI Act. If charging of fees in accordance with the specification of the Board is accordingly made a condition of continued registration under Section 12 of the SEBI Act, such condition would be covered by Section 30(2)(d) of the SEBI Act.
On the subject of violation of Article 19(1)(g) of the Constitution of India, it is important to note that the impugned Regulation as well as the Circular issued by SEBI in pursuance thereof does not in any way prohibit any party from carrying on the business or profession of Investment Advisor. The Regulation and Circular merely put restrictions, and reasonable restrictions at that, on the general right of businessmen and professionals to carry on the business or profession of Investment Advisor. Prescribing a mode for charging of fees as also the ceiling of fees to be charged by Investment Advisors amounts to a reasonable restriction, at least in principle, in the matter of carrying on the business or profession of Investment Advisors, apart from being an important measure for protection of investors and development and regulation of securities market. In so far as reasonableness of the particular quantum of ceiling of fees determined by SEBI or conditions laid down for charging of such fees are concerned, there is no material placed on record by the Petitioner to suggest that the fees fixed or conditions stipulated are so unreasonable or capricious as not to admit of Investment Advisors’ freedom to practice their profession or business.
Petitioner herein cannot seek much assistance from this decision. In the first place, unlike in that case, which did not have any regulatory statutory framework for fixing of a ceiling of permissible tax audits or fees for such audits, in our case the SEBI Act makes particular provisions empowering the Board to regulate the working of Investment Advisors. The profession or business of Investment Advisor is not a traditional profession having its own customs and conventions. Nothing at least has been pointed out to us by learned counsel for the Petitioner in that behalf. If anything, Investment Advice is a profession/business which has come about as an adjunct of the securities market; the Investment Advisor works because investors need professional advice for participating in the affairs of the securities market. It is the statutory duty of SEBI to protect such investors, and develop and regulate that market inter alia by regulating the working of Investment Advisors. If, for performing such duty, SEBI fixes the manner of charging of fees by Investment Advisors or the maximum permissible fees, such fixation per se cannot be faulted as being violative of Article 14 or 19(1)(g). It is another matter, if, whilst fixing these matters, SEBI acts in an unreasonable or capricious manner; in such case, its legislative (or executive) exercise may be vitiated by arbitrariness eschewed by Article 14 or unreasonable restriction not being covered under Article 19(6) and thus infringing Article 19(1)(g). That, we are afraid, has not been the case here.
No merit in the challenge to the impugned Regulation as well as the impugned Circular prescribing modes as well as ceiling of fees to be charged by Investment Advisors.
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2021 (6) TMI 1159
Fraudulent issue of GDRs - Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - Responsibility of directors - officers in default - Investigation in the issuance of the GDR revealed that the GDR was not issued with a proper consideration and without making adequate disclosure under the Listing Agreement - As alleged account charge agreement was an integral part of the loan agreement which allowed Whiteview to avail the loan in order to subscribe to the GDR issue which was fraudulent - charge against the appellant was that he was a Director and was part of the resolution by which the first resolution was passed by the Board of Directors for issuance of the GDR and for opening an account with Banco - HELD THAT:- Merely because the appellant was present when the resolution dated July 27, 2006 was passed, no conclusion can be drawn that this was the starting point of the fraudulent arrangement for issuance of GDR and for opening a bank account.
Resolution does not given any indication that the appellant had knowledge beforehand that the GDR issue was the purpose to manipulate the price or the market or that a fraud would be played upon the shareholders and the investors.
Finding of the WTM that the resolution of the Board of Directors dated June 27, 2006 provides execution of a pledge or execution of a charge agreement is wholly erroneous, perverse and based on no evidence. The resolution also does not stipulate that the proceeds could be utilized by the bank as security in connection with a loan taken by another entity.
Appellant cannot be debarred only on the basis of being present in the resolution of the Board of Directors dated July 27, 2006. In the absence of any evidence that the appellant had a role to play in the issuance of the GDR, the mere presence of the appellant in the resolution of the Board of Directors dated July 27, 2006 does not make him liable for the alleged fraud that had been committed by the Company.
After the judgment was reserved, the respondent have submitted a short note contending that the appellant was also chairman of the audit committee and remuneration committee which fact is reflected in the annual report of 2009-10 - As per MCA circular dated March 2, 2020 civil or criminal proceedings should not be unnecessarily initiated against the independent directors or non executive directors unless sufficient evidence exists to the contrary. We also find that Reserve Bank of India issued a circular dated April 23, 2015 indicating that non-whole time director should not be considered as a defaulter unless it is conclusively established that the default had taken place with his consent or connivance.
Cogent evidence must come forward to the effect that a non executive non promoter independent director was aware of the fraud that had been played by the Company or that he was involved in the issuance of the GDR or that GDR was being issued with his connivance. Only then such non executive non promoter independent directors should be booked. Merely because he was part of the resolution of the Board of Directors would not make him liable.
In the light of the aforesaid, the impugned order insofar as it relates to the appellant cannot be sustained and is quashed. The appeal is allowed. In the circumstances of the case, parties shall bear their own costs.
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2021 (6) TMI 1144
Preferential allotments of shares - promoter related entities - price manipulation activities - LTCG in order to convert unaccounted income into accounted income with nil payment of tax as LTCG was exempt from tax -basis for holding the appellants guilty of Section 12A(a),(b) and (c) of the SEBI Act read with Regulation 3 and 4 PFUTP Regulations is, that a prudent investor would not have purchased the shares of a Company which had weak fundamentals and financials and that no one in their right mind would buy the shares unless there was a pre-existing arrangement of reaping in huge profits.
HELD THAT:- We are of the opinion that the role of the preferential allottees, exit providers and LTP contributors were far more serious than the role of the appellants. The role of the appellants in the instant case is, that they had purchased the shares off market from the six entities who in turn have purchased it from the promoter Company. Whereas, the preferential allottees have been let off, the appellants have been penalized only on the ground of being in proximity with the Company and its directors which finding is perverse in as much as we find that there is no direct connection of the appellants with the Company, its promoters, promoter company or noticees nos. 9 to 11, 75, 77 to 80 who were the main manipulators and the kingpin in the entire scheme.
The six entities are not promoter related entities. They have acquired the shares from the promoter Company but they do not become the promoters. The fact that they were de facto controlling the Company is not a relevant issue as it still does not make them promoters of the Company. Thus, merely because the appellants had purchased the shares through off market from the six entities does not and cannot lead to a conclusion that the appellants are connected with the Company or with noticee no. 9 or with promoter related entities or its directors. The finding that appellants were in close proximity or had a connection with the Company, directors etc. is patently erroneous.
The six entities had purchased the shares from a promoter Company, namely, noticees 15 to 19 and thereafter the six entities sold it to the appellants. Whereas the notices no. 15 to 19 have been exonerated by the impugned order, the appellants have been booked for having a close proximity with the Company. We find that the appellants have not purchased the shares from the Company.
The issue of weak fundamentals would equally apply to the preferential allottees who were allotted the shares at rate of Rs. 10/- per share but these preferential allottes have been let off. Therefore the standard of weak fundamentals cannot be applied in the case of the appellants especially when on the same footing the preferential allottees have been let off. We are of the opinion that it is business prudence to purchase at a lesser price and sell it at a higher price when the market is up thereby earning profits. Making profits in our opinion cannot be termed illegal or manipulative or fraudulent or violative of the PFUTP Regulations.
We are also find that the WTM has given a categorical finding that noticee no. 9 was the master mind who manipulated the price with Company and its directors and intermediaries for the benefit of the preferential allottees. These preferential allottees have been let off. We find that there is no direct connection of the appellants with noticee no. 9. There is no involvement of collusion or price manipulation of the appellants and thus there cannot be any violation of regulations 3 & 4 of the PFUTP Regulations.
Six entities had an active role to play in the management of the affairs of the Company from February / March - 2012 onwards. A direct connection has been established between the six entities and the Company and noticee no. 2. The six entities had also acquired the preferential shares of the promoters and therefore we are also of the opinion that the six entities were closely associated with the Company from February / March – 2012 onwards and throughout the period when the preferential allotments were made.
We are, thus, of the opinion that the six entities were closely connected with the Company and its directors and had a role to play in the formulation of the scheme of issuance of preferential allotment, pumping of the price through LTP contributors and providing an exit mechanism for the preferential allottee. Consequently, in our opinion, the order of the WTM insofar as the six entities are concerned does not suffer from any manifest error of law.
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2021 (5) TMI 1071
Violation of Clause 36 of the Listing Agreement read with Section 21 of the SCRA - corporate announcement of the cancellation / truncation of the orders was not made known to the stock exchange - Penalty for failure to furnish information, return, etc - HELD THAT:- As the words material / materiality means anything which is likely to impact an investor’s investment decision and depends on the facts of each case. In the instant case, we find that when the appellants received the contract the said information was disclosed on the stock exchange platform and which was rightly done but when the orders were cancelled or truncated on three occasions the cancellation / truncation orders were not disclosed on the stock exchange platform.
Non-disclosure of this information was a material information which could have an impact on the financials of the Company. In our view the objective of Clause 36 of the Listing Agreement is to enable the shareholders and the public to appraise position of the Company and enable investors to take an informed decision. In our view the cancellation / truncation of the contracts has a material impact which warrants a disclosure on an immediate basis. The responsibility was on the appellant no. 1 which it failed to do so.
It is duty of the Compliance Officer to ensure that the Company complies with all the legal obligations. In the instant case as we have held the cancellation / truncation of the orders had a material impact and was price sensitive information which could have an impact on the financials of the Company. Thus, Clause 3.2 of the Code of Conduct was violated. Since there is no separate provision for imposition of penalty the provisions of Section 15HB of the SEBI Act was invoked and the penalty was rightly imposed. We do not find any error on this aspect.
Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds - sum of Rs. 1 crore has been imposed for violation of Section 23E of the SCRA - Section 23E has nothing to do with the violation of the provisions of the Listing Agreement especially Clause 36. Section 23E provides that where a Company fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof then penalty would be a minimum of Rs. 5 lakh upto maximum of Rs. 25 crore. The words “fails to comply with the listing conditions” cannot mean failure to comply with the conditions in the Listing Agreement.
Rule 19 of the SCRR provides certain requirements with respect to a listing of securities on a recognized stock exchange. Rule 19A provides that a Company has to continuously maintain listing requirements. Rule 21 provides conditions for delisting of securities. Failure to comply with the listing conditions which are stated in Rule 19 would entail a penalty as provided under Section 23E. Thus, in our view violation of Clause 36 of the Listing Agreement will attract Section 23A(a) of the SCRA and will not attract Section 23E. The AO has made an error.
The penalty of Rs. 1 crore under Section 23E is patently erroneous and cannot be imposed and the order to that extent cannot be sustained.
While confirming the order of the AO with regard to violation of Clause 36 of the Listing Agreement and Clause 3.2 of the Code of Conduct to the PIT Regulations of 1992 we affirm the penalty imposed upon appellant no. 1 under Section 23A(a) to the extent of Rs. 5 lakh and also affirm the order of the AO to the extent of imposition of Rs. 5 lakh on appellant nos. 1 and 2 under Section 15HB of the SEBI Act. The imposition of penalty of Rs. 1 crore under Section 23E of the SCRA is set aside.
Appeal is partly allowed.
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2021 (5) TMI 1029
Fraudulent and Unfair Trade Practice relating to Securities Market - orders restraining the company Chromatic India Limited from accessing the securities market for a period of 5 years. The directors were restrained from buying and selling for a limited period - HELD THAT:- Resolution dated August 13, 2010 by itself does not create any suspicion nor creates any fraudulent act. Being a signatory to the said Resolution by itself does not violate any provision of the SEBI Act or the PFUTP Regulations. However, being part of the Audit Committee he had access to the financial status of the company. It is deemed to be in his knowledge that the GDR proceeds of the company were lying in an account in European American Investment Bank (“Euram Bank”) and the same was not being utilized for the business purposes of the company rather it was being utilized as collateral for the loan given to Vintage. Being part of the Audit Committee he should have raised a red flag by observing that the funds were not being utilized by the company for the purpose for which the GDR were issued.
The appellant was also the Chairman of the audit committee of the company. The WTM found that being the Chairman of the audit committee, he did not place any objection as to why the GDR proceeds did not reach the company and how the proceeds were utilized. We are thus, of the opinion that in the light of the findings given by the WTM, the appellant Kishore Hegde was part of the scheme through which issue of GDR by the company was effected through a fraudulent arrangement of loan agreement and pledge agreement. We are also of the opinion that the conduct of the appellant Kishore Hegde was inimical to the interest of the company, to the investors, as well as to the shareholders and, the action of the appellant Kishore Hegde was in violation of Section 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations. - the orders of the WTM and the AO does not suffer from any error of law.
Managing director / directors are concerned we find from the perusal of the comparative chart that some directors/ managing directors have been penalized a sum of Rs. 25 lakhs and in some cases Rs. 1 crore - Upon investigation it was found that those entities were non-existent and therefore false disclosures were made. Further, the company violated the provisions of clause 36 and 50 of the Listing Agreement by not making disclosures and making misleading disclosures. It was also stated that in the instant case the trading of the GDR scrips of the company was suspended. Considering the aforesaid, which is distinct from the penalty imposed to other directors in other matters and no similarity having been pointed out by the appellant we are of the opinion, that the penalty imposed by the AO under Section 12 of the SEBI Act read with 3 and 4 of the PFUTP Regulations and under Section 21 of the SCRA read with Clauses 36 and 50 of the Listing Agreement needs no modification. We are further of the opinion, that when the findings given by the WTM and the AO has not been pressed before us in such circumstances, the discretionary relief is not available to the appellants namely the company and its whole time director Vinod Kumar Kaushik. The appeals of the company and Vinod Kumar Kaushik cannot be sustained.
AO penalized the appellant Vipin Sharma a sum of Rs. 3 lakhs only on the basis that he was present in the meeting of the Board of Directors when the Resolution dated August 13, 2010 was passed for opening a bank account with Euram Ban - We are of the opinion that in order to implicate a person, namely, a director of any fraudulent act it is necessary for the authority to further find any evidence which would show that the said person or director was involved in the fraud with regard to the GDR issue or that he was involved in the defalcation of the funds which was raised through GDR issue. In the instant case, we find that there is no such evidence against the appellant Vipin Sharma other than the fact that he was part of the Resolution dated August 13, 2010 which has been disputed by the appellant. We are of the opinion that the Resolution dated August 13, 2010 by itself does not create any suspicion nor create any fraudulent act. The Resolution by itself does not violate any provision of the SEBI Act or PFUTP Regulations. In view of the aforesaid, the order of the WTM giving a caution solely on the ground of being present when the Resolution dated August 13, 2010 was passed cannot be sustained. The finding of the WTM that he was aware of the objectives behind the passing of the Resolution dated August 13, 2010 is based on surmises and conjectures. The order of the AO imposing a penalty of Rs. 3 lakhs is also unwarranted in the facts of the present case. The orders of the WTM and the AO in this regard cannot be sustained.
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2021 (5) TMI 1028
The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, 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. Parties will act on production of a digitally signed copy sent by fax and/or email.
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2021 (5) TMI 1020
Insider trading - Trading when in possession of unpublished price sensitive information - Noticee No.1 to 4 are alleged to have violated Section 12A(d) and (e) of the SEBI Act, 1992 and Regulations 4(1) read with 4(2) of the PIT Regulations, 2015 by trading in the shares of PC Jeweller when in possession of UPSI-II whereas Noticee No.5, is alleged to have violated Section 12A(e) of the SEBI Act, 1992 and Regulation 3(1) of PIT Regulations, 2015, by communicating UPSI-I and UPSI-II to Noticees No.1 to 4 - Whether there were UPSI-I and UPSI-II, as alleged in the SCNs? - HELD THAT:- As buy-back involves purchasing of its own shares by the company which are extinguished, therefore, consequent to a buy-back by a company, its paid-up capital stands reduced which results into change in capital structure of the company. In terms of Regulation 2(1)(n)(iii) of the PIT Regulations, 2015, information pertaining to change in capital structure of a company is per se treated as UPSI. Thus, in the present case, information pertaining to the decision taken by the board of directors of the Company in its meeting held on May 10, 2018 regarding buy-back of the shares of the Company was a price sensitive information and before its disclosure to the stock exchanges on May 10, 2018 was UPSI-I, as alleged in the SCN. I note that ppreliminary discussion among MD, ED, COO and CFO in relation to the proposal for buyback of fully paid-up equity shares of the Company took place on April 25, 2018. Therefore, I find that UPSI-I came into existence on April 25, 2018. The said information remained UPSI-I till its disclosure to stock exchanges on May 10, 2018. In view of this, I find that the period from April 25 to May 10, 2018 is the period of UPSI-I, as alleged in the SCNs.
Regarding UPSI-II in terms of the disclosure made by the Company on May 10, 2018, the general public was made aware that the Company was going to buy-back upto 1,21,14,285 fully paid-up equity shares of the Company of ₹ 10/- each at a price of ₹ 350/- per equity share which was an unpublished price sensitive information within the meaning of Regulation 2(1)(n)(iii), as discussed in the previous para, as the said information was pertaining to the change in the capital structure of the Company. As the said decision of buy-back of shares by the Company was abandoned by the Company on July 13, 2018 when its board of directors decided to withdraw the buy-back offer, therefore, as a corollary, find that the said information was also an unpublished price sensitive information within the meaning of Regulations 2(1)(n)(iii) of the PIT Regulations, 2015 as being an information pertaining to the change in capital structure of the Company. We find that as mentioned above, the said unpublished price sensitive information which has been identified as UPSI-II in the SCNs, came into existence on July 07, 2018 when the State Bank of India refused to give its NOC to the proposed buy-back of the Company and remained so till it was disclosed to the stock exchanges by the Company on July 13, 2018. Thus, I find that the period from July 07, 2018 to July 13, 2018 is the period of UPSI-II, as alleged in the SCNs. With regards to UPSI-I as well as UPSI-II, I note that the Noticees have not disputed the identification of the said information as unpublished price sensitive information by the SCNs.
Whether Noticees are “insider”, as alleged in the SCNs? - Noticee no. 1 along with Noticee no. 2 and 3 (both of whom traded on behalf of Noticee no. 1) were in the know-how of the events taking place in the Company with regard to the buyback proposal and its withdrawal. Thus, I find that Noticee no. 1, 2 and 3 had possession of UPSI-I and UPSI-II and they were ‘insiders’ in terms of Regulation 2(1)(g)(ii) of PIT Regulations, 2015.
From the nature of transactions between the bank accounts of Noticee No. 3 and Noticee No. 4 and the fund utilisation thereof, coupled with the fact that Noticee no. 3 had placed the orders for the trades of Noticee no. 4 (through stock broker Karvy) during UPSI Period-II, I find that Noticee no. 4 was nothing but a front entity of Noticee no. 3 for trading in the securities market, including trading in the scrip of PC Jeweller. I note that Noticee no. 3 has completely downplayed the aforesaid fund transfers between him and Noticee no. 4, by calling them as an inconsequential and inconclusive evidence. However, from all the attendant facts and circumstances, I find that Noticee no. 4 was a wholly owned and controlled company of Noticee no. 3 and his family and Noticee no. 3 used Noticee no. 4 as a front entity for trading in the securities of PC Jeweller.
The trading pattern and timing of trades of Noticee no. 4, the overarching influence and control of Noticee no. 3 over the affairs of Noticee no. 4, the proximity of Noticee no. 3 to the promoters (Prem Chand Gupta and Noticee no. 5), it is clear that trading by Noticee no. 4 in the futures contracts of PC Jeweller was due to the possession of UPSI-II. Thus, I find that Noticee no. 4 had possession of UPSI-II through Noticee no. 3 and thus, Noticee no. 4 was an ‘insider’ in terms of Regulatio 2(1)(g)(ii) of PIT Regulations, 2015.
We note that Noticee no. 5 was the MD of PC Jeweller. Thus, Noticee no. 5 is a connected person within the meaning of Regulation 2(1)(d)(i) of PIT Regulations, 2015. Therefore, Noticee no. 5 is an insider of PC Jeweller in terms of Reg. 2(1)(g)(i) PIT Regulations, 2015. The chronology of events which has been provided in the SCNs and also reproduced in the pre-paras of this order indicates that Noticee no. 5 was part of all the key discussions and was aware of the developments pertaining to buy-back offer, refusal of NOC from SBI and its subsequent withdrawal of buy-back offer. I also note that Noticee no. 5 has not disputed the findings of the SCNs with respect to the Chronology of Events and thereby, him having possession of UPSI-I as well as UPSI-II. Therefore, I find that Noticee no. 5 is an ‘insider’ in terms of Regulations 2(1)(g)(i) being connected person and Regulation 2(1)(g)(ii) being in possession of UPSI-I and UPSI-II, of PIT Regulations, 2015.
Whether Noticee no. 1 to 4 has traded in the securities of P C Jeweller when in possession UPSI- I and II and Noticee no. 5 communicated UPSI -I and II to Noticee no. 1 to 4, as alleged in the SCNs? - The summary of loss avoided/notional gains made in the trading accounts of Noticee no. 1 and Noticee no. 4 in aggregate (including interest) through trading in the scrip of PC Jeweller while being in possession of UPSI-II amounted to ₹ 6,17,60,184.13 and ₹ 2,13,23,161.64, respectively. I note that aforesaid amount has been impounded by SEBI by virtue of the Impounding Order. I also note that said Noticees i.e. Noticee no. 1, 2, 3 and 4 have not disputed the method used or the formula adopted for arriving at the aforesaid amount. I also note that none of the said Noticees have disputed the value of the alleged unlawful gain made or loss avoided by them alongwith calculation of interest that has been shown in the interim order.
In view of the violation of the provisions of the PIT Regulations, 2015 and SEBI Act, 1992 by the Noticees, as noted above, I find that the Noticees are liable for issuance of appropriate directions for debarment from accessing the securities market and dealing in securities. Further, I find that directions under Section 11B(1) of the SEBI Act, 1992 be issued against Noticee no. 1, 2 and 3 to disgorge an amount of ₹ 6,17,60,184.13/-, jointly and severally, and against Noticee 3 and 4 to disgorge an amount of ₹ 2,13,23,161.64/-, jointly and severally.
The unlawful gains made and unlawful loss avoided by Noticee no.1 and 4, for their impugned trades during UPSI Period-II appropriate directions of disgorgement of unlawful gains made/loss avoided along with penal interest are being issued. I note that material available on record does not bring out any loss caused to any specific investor or a group of investors, as a result of violations committed by Noticee no. 1 to 5 with respect to UPSI-I and UPSI-II. I note that there is no material available on record to indicate that the violations committed by Noticee no. 1 to 5 are repetitive in nature.
In exercise of the powers conferred upon me under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of SEBI Act, 1992 read with Section 19 of the SEBI Act, 1992 and SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, hereby direct as under:
(i) Noticee no. 1, 2, 3, 4 and 5 are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities (including units of mutual funds), directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of one (1) year, from the date of this order;
(ii) Noticee no. 1, 2, 3, 4 and 5 are restrained from buying, selling or dealing in the securities of PC Jeweller Ltd., directly or indirectly, in any manner whatsoever, for a period of two (2) years, from the date of this order;
(iii) The Noticee no. 1, 2 and 3 are directed to disgorge, jointly and severally, a sum of ₹ 6,17,60,184.13/- which was impounded by Impounding Order passed in the present matter and the same shall be credited into the Investor Protection and Education Fund (IPEF) referred to in Section 11(5) of the SEBI Act, 1992;
(iv) The Noticee no. 3 and 4 are directed to disgorge, jointly and severally, a sum of ₹ 2,13,23,161.64/- which was impounded by the Impounding Order passed in the present matter and the same shall be credited to the Investor Protection and Education Fund (IPEF) referred to in Section 11(5) of the SEBI Act, 1992;
(v) Noticee no.1, 2, 3, 4 and 5 are hereby imposed with penalty of Rs. Twenty (20) Lakhs each, under Section 15G of the SEBI Act, 1992, and are directed to pay their respective penalties within a period of forty-five (45) days, from the date of receipt of this order;
The restraints/ prohibition imposed in paras 43(i) and (ii), on the respective Noticees, shall run, concurrently. The obligation of the Noticees restrained/ prohibited by this Order, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, are allowed to be discharged irrespective of the restraint/ prohibition imposed by this Order. Further, all open positions, if any, of the Noticees, restrained/ prohibited in the present Order, in the F & O segment of the recognised stock exchange(s), are permitted to be squared off, irrespective of the restraint/ prohibition imposed by this Order.
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2021 (5) TMI 203
Diversion 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
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2021 (5) TMI 86
Investment Adviser entitled to charge fees for providing investment advice from a client in the manner as specified by the Board - Constitutional validity of Regulation 15A of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 which was inserted by Regulation 3(XII) of the Securities and Exchange Board of India (Investment Advisers) (Amendment) Regulations, 2020, as also the consequential paragraph 2(iii) of the SEBI Circular dated 23 September 2020 - HELD THAT:- Under section 19 of the SEBI Act, the SEBI is empowered to delegate its powers and functions by general or special order in writing to any member, officer of the SEBI or any other person subject to such conditions as specified by SEBI. Accordingly, the SEBI had issued SEBI (Delegation of Statutory and Financial Powers) Order, 2019 dated 31-07-2019 delegating various powers and functions to the members and officers of the SEBI, as approved by the Board. The said Delegation of Power Order is annexed at Exh.C to the Additional Affidavit-in-Reply - In Clause 3(2) of the Delegation of Power Order, the powers and functions delegated to any member or officer of the Board or authority under this Order may be exercised by any officer or authority, higher in grade or rank or position to the Deputy General Manager. The impugned Circular has been signed by Mr.Naveen Sharma, the General Manager in the Investment Management Department, who is stated in rank higher than the Deputy General Manager. In the circumstances, Mr.Naveen Sharma would be well within his authority to sign the impugned Circular issued under the SEBI Act.
As stated earlier, SEBI is an expert regulatory body established under the SEBI Act and the Court, therefore, would have to exercise judicial restraint and the scope of interference would be extremely narrow. The Court cannot substitute own views in place of views of the expert body. Moreover, it is well settled that the Court should be very slow in staying a law by way of interim relief when the constitutional validity of the law is challenged.
As noticed that the power to specify a ceiling on the fees exists in the IA principal 2013 Regulations much before the insertion of the impugned Regulation 15A. Regulation 15(9) under Chapter-III “General obligations and responsibilities” of the impugned IA principal 2013 Regulation makes provisions for Code of Conduct of an Investment Adviser. In view of the above discussion, the prayer for interim relief shall stand rejected. The hearing of the Petition is expedited.
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2021 (4) TMI 1367
Fraudulent GDR issue - Fraudulent and Unfair Trade Practices relating to Securities Market - Sigle entity subscriber to the GDR issue - penalty on directors - HELD THAT:- As appellant Mr. Govind Das, Mr. Bharat Kumar and Mr. Avichal were admittedly independent non executive directors. The resolution itself would show that they did not participate in the issue of GDR proceeds at any point of time after passing of the resolution. All the necessary followup was to be carried by the Managing Director. No case of adverse inference that they should have taken efforts to bring back GDR proceeds was made out against them in any of the impugned order as argued before us and, therefore, they could not have been penalised or restrained as detailed supra.
Appellant Mrs. Jyoti Bankda is concerned, admittedly on the very day of the passing of the resolution she had resigned from the Directorship of the Company and the same was accepted. Necessarily she cannot be made liable for the subsequent acts of entering into account charge agreement by appellant Mr. Ajay Bankda, the Managing Director with the EURAM Bank on the strength of the resolution. Therefore, she also could not have been penalised or restrained by the respondent SEBI.
Appellant Mr. Ajay Bankda the then Managing Director of the Company, the Company itself and appellant Mr. Jagdish Bagaria, the Whole Time Director are concerned, they cannot escape the liability. The Company would be liable for the acts of the Managing Director. So also the Managing Director is also liable for any default committed by the Company.
Appellant Mr. Jagdish Bagaria was the Whole Time Directors and, therefore, he cannot plead that he was not aware of the day to day affair of the Company which included non return of GDR proceeds to the Company. Their involvement in the fraudulent activity as detailed supra is writ large from the record. Though the appellant Mr. Ajay Bankda claims that he had merely signed the documents religiously on instructions by the Lead Manager, being a Managing Director he cannot claim that he was not aware of the result of the account charge agreement i.e. misappropriation of the GDR proceeds.
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2021 (4) TMI 1366
Request for adjournment has been made on the ground that Mr. Prakash Shah, appellant has still not recovered from his illness. The matter is adjourned. List on May 21, 2021.
Parties are directed to take instructions from the Registrar 48 hrs. before the date fixed in order to find out as to whether the matter would be taken up for hearing through video conference or through physical hearing.
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2021 (4) TMI 1273
Delay of 5 years or more in initiating action by the SEBI - HELD THAT:- Issue of delay can also be looked into by the appellant – SEBI while passing a final order keeping in view the various judgments. It is not a case where the show cause notice has not been issued by a competent authority and only on the point of delay, the notice could not have been quashed in the manner and method it has been done. See MR. MUKKARAM JAN VERSUS SECURITIES EXCHANGE BOARD OF INDIA [2021 (1) TMI 1174 - KARNATAKA HIGH COURT]
Petition preferred by the respondent against the show cause notice dated 20.10.2016 and notice dated 20.8.2019, was certainly a premature writ petition and therefore, the writ appeal is allowed. The order passed by the learned Single Judge is hereby set aside. The appellant SEBI is directed to conclude the proceedings within a period of six months from the date of receipt of certified copy of this judgment. The appellant – Board shall not grant unnecessary adjournment in the matter and in case need so arises for grant of an adjournment, reasons for such adjournment shall be recorded in writing.
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