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SEBI - Case Laws
Showing 261 to 280 of 555 Records
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2020 (6) TMI 646
Withhold of money by SEBI - penalty for violation of Regulations 3 and 4 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 - During the pendency of the appeal, the Recovery Officer of SEBI recovered an amount - HELD THAT:- Once the order of the AO imposing a penalty was set aside, there was no justification for SEBI to withhold any amount which was recovered pursuant to the order of the AO. Such retention of the amount after the order of the AO has been set aside, is without any authority of law. The fact that no direction for refund of the amount was issued by the Tribunal is immaterial. Once the order has been set aside, there is no amount to be recovered and consequently any amount so recovered has to be refunded immediately.
Respondent has a right to file an appeal before the Supreme Court against the order of the Tribunal. The appeal was allowed by the Tribunal on 21/2/2020. No steps were taken by SEBI to file an appeal before the lockdown i.e. 25/3/2020. Therefore, retention of the money by SEBI was wholly unwarranted, especially when the appellant has also given an undertaking to abide by the order of the Supreme Court, if any.
In view of the aforesaid and in view of the undertaking given by the appellant, we dispose of the Misc. Application directing SEBI to refund the amount of ₹ 6,35,521/- on or before 22/5/2020, failing which SEBI would be further liable to pay interest from the date of recovery till date of payment @ 12% per annum.
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2020 (6) TMI 559
Maintainability of the Writ Petition - whether IGRP of the First Respondent has jurisdiction to re-examine the complaint of the Third Respondent pursuant to the direction issued by the Second Respondent after having arrived at the conclusion that the admissible claim of the Third Respondent against the Petitioner was 'NIL' and relegated the parties to take further course of action under the Exchange Regulations in the earlier order dated 18.10.2016, which has attained finality having remained unchallenged in the manner recognized by law - HELD THAT:- There cannot be any doubt that the attempt to re-examine the complaint of the Third Respondent against the Petitioner by IGRP of the First Respondent without any specific provision to that effect in IGRM devised by the Second Respondent in Circular No. CIR/MRD/ICC/30/2013 dated 26.09.2013, which certainly amounts to re-litigation, is barred. Inasmuch as the earlier adjudication in IGRP of the First Respondent, which culminated in its order dated 18.10.2016, does not suffer from any procedural defect, the question of invoking the inherent powers to re-open the proceeding does not arise. Though a faint plea is made by the Third Respondent that the Petitioner has played a fraud on him, the letter dated 04.10.2018 issued by the Second Respondent to the First Respondent to re-examine the complaint of the Third Respondent does not suggest of the same. What has been mentioned therein is that the Second Respondent has independently examined the complaint and those findings are examined to initiate appropriate measure as per regulation.
A preliminary opinion and no definite conclusion on the culpability of the Petitioner has been expressed to treat that any fraudulent act has been committed by the Petitioner against the Third Respondent. As such, it is not possible to uphold the re-examination of the complaint on the ground of exercise of inherent powers for any act of fraud committed by the Petitioner against the Third Respondent.
There is nothing which precludes the Third Respondent to rely on any new evidence which has come to his knowledge after the order dated 18.10.2016 passed by IGRP of the First Respondent in arbitration, which is in the nature of an original proceeding. It is needless to add here that no view has been expressed by this Court on the merits of the disputes between the Third Respondent and the Petitioner, and no authority shall be inhibited or influenced by any of the observations made in this order while adjudicating the same.
The letter dated 04.10.2018 sent by the Second Respondent to the First Respondent insofar as it suggests that IGRP of the First Respondent may re-examine the complaint of the Third Respondent, is quashed as without jurisdiction and the First Respondent shall be restrained from continuing with the IGRP proceedings initiated in pursuance thereof. It is needless to clarify here that it is for the Second Respondent to exercise its powers conferred under the statute to first make necessary amendments to IGRM so as to create provision for review of an earlier decision of IGRP of a stock exchange, if it so intends, and thereafter require the First Respondent to act in furtherence thereof.
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2020 (6) TMI 284
Reversal trades - manipulative and unfair trading - 5 Entities restrained from accessing or dealing in the securities market directly or indirectly for a period of 5 - 7 years - Further 11 entities, who have already undergone a debarment of more than 5 years from the date of the interim order have been directed to disgorge an amount of ₹ 3,05,99,174/- jointly and severally along with the 5 entities who have now been restrained along with interest @ 12% p.a. from December 17, 2012 till the date of payment -
HELD THAT:- In a scheme of manipulative and unfair trading it is not necessary that every participant should be indulging in every type of trading violation or even in the same/similar magnitude. Once they are found to be part of a group trying to manipulate the volume or price of the scrip they became party to the violation. Hair splitting arguments that some traded more than others or on more days or some indulged in synchronized reversal and self trade while others did only one of those types do not cast away their violations.
We agree with the contention of Dave that more disaggregated details are needed to prove reversal trade and in the impugned order only aggregates are given though we do not agree with their submission that reversal trade done on the same trading day only can be treated as reversal trades.
As borne out from SEBI's record that detailed calculations regarding profits made by the trading entities in respect of two entities were not given to the appellants - We also note that there is considerable discrepancy between the profits as calculated by the appellants themselves as well as SEBI as given in the impugned order though the appellants claim that those calculations are based on the trade logs given by SEBI. In order to harmonize the appellants deserve to be given details of calculations made by SEBI in respect of all noticees which admittedly is not done in the instant matter.
We pass the following directions:-
(a) Appeal No. 356 of 2019 is allowed and we permit the appellant to liquidate the shares lying in the margin account of Ghogari to the extent of the legally permissible debit amount.
(b) In respect of other 11 appeals while upholding the finding in the impugned order that the appellants have violated provisions of SEBI Act and PFUTP Regulations and therefore upholding the direction relating to the restraint imposed on the appellants we remit the matter to SEBI with the following directions:-
(i) Bring out date-wise details of reversal trades in respect of the trading noticees.
(ii) Bring out details of calculation of profits in respect of all the trading noticees.
(iii) SEBI shall provide (i) and (ii) above to all the appellants and thereafter recalculate the amount of disgorgement against the appellants and pass an order within three months from the date of this order after giving an opportunity of hearing.
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2020 (5) TMI 639
Liability of the Company and directors - repayment of the money collected through issuance of Secured Optionally Convertible Debentures - HELD THAT:- WTM relying on the provisions of sub section 2 of Section 73 of the Companies Act has observed that the liability of the Company and directors would remain until the whole of the subscription amount along with interest is refunded to the allottees.
This being the position the appellant cannot escape from the liability of the repayment. In the case of Sayanti Sen [2019 (8) TMI 1441 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] this Tribunal has observed that WTM in the impugned order therein had given a categorical finding that one Shri Shib Narayan Das was responsible for the affairs of the company. In the present case the appellant during the relevant period being a promoter director of GIIPL cannot escape from the liability.
In the case of Pritha Bag [2019 (2) TMI 1742 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] also finding that one Late Indranath Daw was the Managing Director of the defaulting company, the director Pritha Bag was exonerated by this Tribunal. Since facts are distinguishable the ratio of the same cannot be applied in the present case.
The circular of the Ministry of Corporate Affairs dated July 29, 2011 is also on the similar line indicating as to who can be held as an officer in default. Considering all the materials on record the appeal is dismissed.
Whether GIIPL did not issue SOCDs to the private entities but only to the two companies? - HELD THAT:- A new plea is raised before this Tribunal that GIIPL had a Managing Director. The appellant himself was promoter / director of GIIPL as well as of the group companies and therefore in the facts of the case he submitted that appeal be dismissed.
Appeal is liable to be dismissed. No plea was taken before the WTM that the GIIPL was run by a Managing Director. The appellant was admittedly promoter cum director of GIIPL as well as of the group companies.
Insofar as a case of Sanjeeb Kumar is concerned we find that in paragraph 25 of the impugned order the WTM clearly held that said Sanjeeb Kumar was responsible. However, in the final order his name was not merely included so far as direction no. 29(i). However, his name is included in other directions and thus it is a case of inadvertent mistake on the part of the WTM of which present appellant cannot take any benefit. The case of Madhavan Nambiar [2001 (11) TMI 955 - HIGH COURT OF MADRAS] would show that the facts of the same were different. The appeal is therefore liable to be dismissed.
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2020 (5) TMI 564
Period of limitation to initiate proceedings - proceedings were launched by respondent SEBI after a period seven years - Manipulation of scrips - Shares were either sold in off-market or through market to the connected entities in order to create a volume manipulation in the said scrips - HELD THAT:- Power to initiate the proceedings must be exercised by the authorities within a reasonable time. This would depend upon the facts and circumstances of the case, nature of the default / statute and prejudice caused to the noticee.
In the present case, the appellant neither put a plea of prejudice before the AO nor before us. It was simply stated that since the proceedings were launched by respondent SEBI after a period seven years, the same should be quashed on the ground of delay. The record would show that all the documents concerning the defense of the appellant were filed by her before the AO. Therefore, for want of any prejudice the proceedings cannot be quashed simply on the ground of delay in launching the same. Further, as explained by the learned counsel for the respondent as recorded in paragraph No. 6.4 above, large numbers of entities and transactions were analyzed by SEBI which took some time.
Appeal dismissed.
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2020 (5) TMI 428
Public offer of shares - no private placement as per assessee company as per WTM - offer to more than 49 persons - violation of the provisions of the Companies Act - HELD THAT:- Evidence indicates that an invitation was made by the management of the company to selected persons for subscription or purchase by less than fifty persons. Such persons receiving the offer or invitation was not calculated directly or indirectly to be availed of by other persons, and consequently such invitation or offer could not be treated as an offer or invitation to the public. The finding of the WTM on this aspect is absolutely perverse.
The reasoning given that merely because three allottees had made the complaints indicates that the offer or invitation falls in the category of one which is calculated to result directly or indirectly in the shares, debentures becoming available to persons other than those receiving those offer or invitation is based on surmises and conjectures. No evidence has come forward by these complainants or otherwise to show that the company had made a public offer other than these 49 persons.
Allotment was made to less than fifty allottees. Once allotment is made to less than fifty allottees by way of private allotment the first proviso to section 67(3) clearly makes it a private issue and not a public issue. Consequently, there is no violation of the provisions of the Companies Act. The order of the WTM cannot be sustained and is quashed. The appeals are allowed.
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2020 (5) TMI 427
Shares acquired without making any public announcement - as per WTM Acquisition of the shares were against Regulation 3(2) of the SAST Regulations - HELD THAT:- Though a presumption that the promoters would be persons acting in concert can be raised the same can be rebutted either by positive evidence or by negative facts discernable through the conduct of the parties. The fact that the appellant Company did not participate in acquisition of additional shares by two of the other appellants, the fact that there is no resolution passed by the present appellant and fact that there is no communication on record from the appellant Company would show that present appellant Company cannot be termed as person acting in concert. The present appeal will have to be allowed.
In the present case, what we find is that Appellant Nos.5 and 6 had not deliberately acquired the shares of the target Company but they were willy nilly required to accept the shares due to inability of the borrowers to repay the loan amount. Besides this the target Company was declared as sick Company under the BIFR and draft rehabilitation scheme was also under consideration. Thus, the act of the Appellant nos. 5 and 6 cannot be equated with corporate raiders trying to circumvent the provision of Regulation in order to seek control of the target Company. They were already promoters of the target Company and they had acquired the shares beyond the limits permitted by the creeping acquisition method. In the circumstances, the direction of the WTM cannot be sustained.
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2020 (5) TMI 366
Money mobilization - Public issue - Whether the Company came out with the Offer of RPS [Redeemable Preference Share] as stated in the Interim Order? - whether the Offer of RPS is in violation of Section 56, Section 60 and Section 73 of Companies Act, 1956? - HELD THAT:- As neither the company nor the directors have disputed the same.
Also perused the documents/information obtained from the 'MCA 21 Portal' and other documents available on records. It is noted, that OIL has issued and allotted RPS to 4,191 investors during the financial years 2011-12 and 2012-13 and raised a total amount of ₹ 5,46,48,000/- - number of allottees and funds mobilized has been collated from the information from Ministry of Corporate Affairs (MCA) Portal and the documents submitted with the complaint received by SEBI. Therefore, it is possible that the actual number of allottees and amount mobilized could be more than 4,191 allottees and ₹ 5,46,48,000/- respectively.
Therefore conclude that OIL came out with an Offer of RPS as outlined above.
Securities to more than 49 persons - public issue and the provisions of Section 56 not followed - Violation of Section 56, Section 60 and Section 73 of Companies Act, 1956 - HELD THAT:- OIL assessee has issued RPS to more than 50 persons and it is noted that in financial years 2011-12 and 2012-13 RPS has been issued to 4,191 allottees. It may be noted that even in cases where the issue is made in tranches and any one of the tranche has not exceeded forty nine people, reference may be made to the in Neesa Technologies Ltd. v. SEBI [2017 (4) TMI 1500 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] which lays down that "In terms of Section 67(3) of the Companies Act any issue to '50 persons or more' is a public issue and all public issues have to comply with the provisions of Section 56 of Companies Act and ILDS Regulations. Accordingly, in the instant matter the appellant has violated these provisions and their argument that they have issued the NCDs in multiple tranches and no tranche has exceeded 49 people has no meaning". Therefore, I hold that even if one or more of the tranche is 49 or less, in view of this judgment, the issue qualifies as deemed public issue.
OIL has allotted RPS to more than forty-nine allottees, I find the offer of RPS is a "public issue" within the first proviso of Section 67(3) of Companies Act. Hence, the Offer of RPS are deemed to be public issues and OIL was mandated to comply with the 'public issue' norms as prescribed under the Companies Act.
Since the Offer of RPS is a public issue of securities, such securities shall also have to be listed on a recognized stock exchange, as mandated under section 73 of the Companies Act. As per section 73(1) and (2) of the Companies Act, a company is required to make an application to one or more recognized stock exchanges for permission for the shares or debentures to be offered to be dealt with in the stock exchange and if permission has not been applied for or not granted, the company is required to forthwith repay with interest all moneys received from the applicants.
Allegations of non-compliance of the above provisions were not denied by OIL or its directors. I also find that no records have been submitted to indicate that it has made an application seeking listing permission from stock exchange or refunded the amounts on account of such failure. Therefore, I find that OIL has contravened the said provisions. Moreover, the allegations of non-compliance of the above provisions are not denied by the Directors of the company. OIL has contravened the provisions of sections 73(1) and (2) of the Companies Act.
No material is available on record or submitted by the aforesaid Directors of OIL to show that the amount collected by the company was kept in a separate bank account. OIL has also not complied with the provisions of section 73(3) which mandates that the amounts received from investors shall be kept in a separate bank account.
As the Offer of RPS was a deemed public issue of securities, OIL was required to register a prospectus with the RoC under section 2(36) read with Section 60 of the Companies Act. OIL has not submitted any record to indicate that it has registered a prospectus with the RoC, in respect of the Offer of RPS. OIL has not complied with the provisions of Section 60 of the Companies Act, 1956.
As per section 56(3) of the Companies Act, 1956, no one shall issue any form of application for shares in a company, unless the form is accompanied by abridged prospectus, containing disclosures as specified. Neither OIL nor its directors produced any record to show that it has issued Prospectus containing the disclosures mentioned in section 56(1) of the Companies Act, 1956, or issued application forms accompanying the abridged prospectus. Therefore, OIL has not complied with sections 56(1) and 56(3) of the Companies Act, 1956.
OIL was engaged in fund mobilizing activity from the public, through the Offer of RPS and has contravened the provisions of sections 56(1), 56(3), 2(36) read with 60, 73(1), 73(2), 73(3) of the Companies Act, during the financial years 2011-2012 and 2012-2013.
Liability for violations committed - A person cannot assume the role of a Director in a company in a casual manner. The position of a 'Director' in a company comes along with responsibilities and compliances under law associated with such position, which have to be fulfilled by such director or face the consequences for any violation or default thereof. The aforesaid Directors cannot therefore wriggle out from liability. A Director who is part of a company's Board shall be responsible and liable for all acts carried out by a company. Accordingly, I note that aforesaid Directors are responsible for all the deeds/acts of the company during the period of their directorship and are obligated to ensure refund of the money collected by the company to the investors as per the provisions of Section 73 of Companies Act.
Natural consequence of not adhering to the norms governing the issue of securities to the public and making repayments as directed under section 73(2) of the Companies Act, is to direct OIL and its Directors, viz., Md Mahfuz Alam, Parwez Alam, Md Kamal Koshar, Mohammad Salimuddin Ansari, Manzur Alam, Punam Bharati to refund the monies collected, with interest to such investors. Further, in view of the violations committed by the Company and its Directors, to safeguard the interest of the investors who had subscribed to such RPS issued by the Company, to safeguard their investments and to further ensure orderly development of securities market, it also becomes necessary for SEBI to issue appropriate directions against the Company and the other Noticees.
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2020 (5) TMI 326
Non-compliance of summons issued by SEBI - whether the appellant has violated provisions of Section 11C(3) of the SEBI Act? - whether clause 43 of the Listing Agreement has been violated by not disclosing to the Stock Exchange the alleged variations between the projected utilization of funds and the actual utilization of funds raised through the preferential allotment? - HELD THAT:- Though the appellant may be charged with non-submission of full information the submission of the appellant that the management of the appellant was new etc. has to be given some weightage while imposing the penalty. Given this and the facts of the matter, we are of the view that the amount of penalty at the rate of ₹ 10 lakh on this violation is on the higher side particularly when the appellant did provide part of the information readily available with them.
Non-reporting of the variations relating to the proceeds/funds raised through preferential allotment- It is an admitted fact that, during the interim, part of the funds were loaned out to various entities. Even if these funds have come back subsequently and in some cases with interest the matter needed to be disclosed to the Stock Exchange in terms of the requirements of Section 21 of SCRA and clause 43 of the Listing Agreement which has not been done.
Note from paragraph 23 of the impugned order that the claim of the appellant that in all cases they received interest on the loans given to other parties is not correct as in four out of eight instances no interest has been received and in one instance in fact even the full amount of principal also was not received (in place of an advance against property of ₹ 1.75 crore appellant has received only ₹ 1.71 crore). In any case from the same paragraph we note that 41% of the allotment proceeds were invested in shares and another 45.31% was loaned out to seven entities out of which three did not pay any interest and in one instance of advance against the property instead of getting the property only part of the advance was returned. So the contention in the impugned order that the proceeds were not used according to the objective specified cannot be faulted and the same was not reported is an admitted fact. Given these facts imposition of penalty of ₹ 20 lakh cannot be said to be arbitrary or harsh.
We reduce the penalty amount imposed under section 15A(a) of SEBI Act from ₹ 10 lakh to ₹ 5 lakh and retain the penalty amount imposed under section 23E of SCRA at ₹ 20 lakh.
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2020 (4) TMI 315
Private placement of securities - Allotment of Unsecured Fully Convertible Debentures (FCDs) in excess of 500 members - increase in the subscribed capital of the Company - section 71(5) - issuance of FCDs by the Company was public issue OR not? - WTM directed to cancel the FCDs and forthwith refund the money collected till date through the issuance of FCDs including the application money collected from investors,restriction to the number of shareholders to whom the debentures would be issued - appointment of trustees - HELD THAT:- Shareholders in their 68th Annual General Meeting held on 28th September, 2015 passed a special resolution to allot and issue 1,92,900 Fully Convertible Debentures of ₹ 250/- with the condition that the shareholders will have no right to renounce the offer in favour of any person and that these debentures would be mandatorily converted into shares upon maturity. Thus, we find from the resolution that the increase in the subscribed capital of the Company was caused by the exercise of an option which was a term, namely, a condition that the issuance of the debentures cannot be renounced in favour of any other person - provision of section 62(3) was duly complied with by the Company and was fully applicable. Further, there is nothing to indicate that the conditions mentioned in Rule 18 were not complied with. In fact the WTM has failed to notice this provision.
Once this provision is applicable which is an exception to the issuance of share capital under section 62 the same is not a public offer and, therefore, the provisions of part I of Chapter III of the Companies Act are not applicable. Accordingly, the provisions of section 40 which are required to be complied with in case of a public issue is not required to be followed as in the instant case we find that the issuance of FCDs by the Company was not a public issue and the Company was not mandated to comply with the requirement of public issue under Part I of Chapter 3 of the Companies Act.
Company had passed a special resolution under section 62(3) read with section 71 in respect of issuance of FCDs. The prospectus and the explanatory statement clearly state that the only members holding equity shares were eligible for allotment. It is clear that the offer of FCDs was made to the existing shareholders of the Company. Consequently, the Company was not required to ensure compliance with the limit of allottees as applicable in the case of private placement of securities.
WTM was enamoured with the provisions of Section 42 and 62(1)(2) and fortified her findings by referring to Rule 13 of the Debenture Rules and 14(2)(b) of the Securities Rules. The WTM went to the extent of quoting these Section and Rules in extenso but failed to quote or even look into the provisions of section 62(3), 71 and Rule 18 of the Debenture Rules. Had any effort been made to consider these provisions, there would be no doubt that a different conclusion would have been arrived at instead of brushing aside with the observation "the trigger for action in the present case in offer of FCDs itself and not of exercising an option to convert a debenture into shares of the Company". Clearly, the WTM has not understood the import of the exception clause, namely Section 62(3). We find that the WTM was more enamoured with the restriction of 200 persons contemplated in Section 42 and Rule 14(2)(b) of the Securities Rules and revolved its order around these provisions.
No offer can be made to its members exceeding 500 for the subscription of its debentures unless the Company, before such offer or issue has appointed a trustee. Thus, the restriction is that debentures could be issued to only 500 persons if there is no trustee appointed by the Company. However the restriction of 500 persons is done away if a trustee was appointed by the Company. In the instant case, it is an admitted fact that a trustee was appointed. Thus there was no restriction to the number of shareholders to whom the debentures would be issued.
In the light of the aforesaid, the impugned order passed by the Whole Time Member cannot be sustained.
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2020 (3) TMI 1283
Violation of Listing Agreement read with Section 21 of the Securities Contracts (Regulation) Act - penalty of ₹ 30 lakh has been imposed on the appellants - HELD THAT:- There is no allegation that the results are not disclosed. Hence the alleged violation is in terms of only some variations which are about 10% of the reported net profits for the financial year 2010- 11. The explanation furnished by the appellants is in terms of mistakes committed in terms of minor heads /sub-heads. Given that, there is no allegation of non reporting and, therefore, the appellants had complied with the mandatory requirement of Clause 41 we give benefit of doubt to the appellants in terms of the explanation provided and do not intend to impose any penalty on this ground.
We do not agree with the contention of the appellants as regards inordinate delay in the proceedings since we note that the appellants are also partly responsible for the delay in completing the investigation by not providing all the details / information sought by SEBI from October 2012 till July 2015. As explained in the aforesaid paragraphs, the contention of the appellants that substantive compliance of Clause 36 of the Listing Agreement has been made cannot be accepted since important / material information relating to transferee entity (IKAB), a related party, its affiliation to the appellants as a group entity, the detailed consideration of the transactions, etc. were either not disclosed or disclosed after considerable time.
Therefore, the finding in the impugned order that the appellants have violated the true spirit of Clause 36 cannot be faulted. Similarly, the submission that Clause 50 is not violated because SEBI has no mandate on the accounting standards has no merit. A reading of Clause 50 makes it clear that the stated accounting standards have to be mandatorily followed by a listed entity. Accordingly, we uphold the finding in the impugned order that the appellants have violated Clause 36 and Clause 50, alongwith the stated accounting standards.
While upholding the impugned order partially, we are also of the considered view that the penalty imposed on the appellants needs to be reduced. Therefore, some of the disclosures were made by the appellants and, therefore, it is a case of partial disclosure rather than non-disclosure; delay on the part of the respondent in completing the proceedings and the benefit of doubt given to the appellants on one of the alleged violations, we reduce the penalty imposed on the appellant No. 1 from ₹ 20 lacs to ₹ 10 lacs and on appellant Nos. 2 and 3 from ₹ 5 lacs each to ₹ 3 lacs each thereby reducing the total amount of penalty from ₹ 30 lacs to ₹ 16 lacs. The appellants are directed to pay the penalty amount within four weeks from the date of this order.
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2020 (3) TMI 920
Money mobilization - money collected by the Company for teak plantation scheme was in the nature of Collective Investment Scheme (CIS) as defined in section 11AA of the Securities and Exchange Board of India Act - scheme was being carried on without requisite registration under the SEBI Act - HELD THAT:- In Appeal No. 378 of 2017 were appointed as directors for a limited period between 2008 and 2009. During this period, no amount was collected under the CIS. There is no finding that the amount collected had matured during the period when these appellants were the directors. Consequently, in our opinion, these directors could not be fastened the liability to refund the amount as they had neither collected the money nor were responsible for disbursement of the money to the investors at that stage. Admittedly the said appellants after their resignations are not involved in the affairs of the company. Consequently, no direction could be issued to them to wind up the investment scheme or to restrain them from selling the assets of the company in which they are not the directors. The impugned order in so far as the appellants in Appeal is concerned cannot be sustained.
Appellants in Appeal No. 55 of 2018 and 56 of 2018 no interference is required in the impugned order. The investment made by the investors had matured in 2012 during the period when the appellants were the directors in the company and were responsible for the refund of the money. The appellants failed to refund the amount and therefore are liable to refund the amount alongwith interest as directed by the WTM. The contention that they were not responsible for the affairs of the company or that they had never participated in any Board's meeting is only an afterthought which has been raised without any cogent proof. In fact, the appellant did not file any reply and only sought time to collate the particulars and file a detailed reply which he failed to do so.
The appellant in Appeal No. 55 of 2018 only made a bald assertion that he was not responsible for the day to day operations and management of the company without filing any resolution of the Board of Directors to show the he did not participate in any meeting. In any case, the amounts had matured during the period they were directors and thus, were responsible for the refund of the money to the investors. The decisions relied upon them that they were only liable to the extent of collection made by them is not applicable to the instant case as they are liable for the refund of the money collected by the company which was liable to be refunded during the period when the said appellants were directors. Consequently, Appeal lacks merit.
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2020 (3) TMI 586
Failure to make the necessary disclosures regarding creation/invocation/release of certain pledge transactions and off-market transactions/purchase of shares in the company - contention of the appellants is that Regulation 29 of the SAST Regulations is not applicable and is only applicable to the pledgee - penalty has been imposed for violation of Regulation 29(2) and 29(3) which provides that an acquirer who holds shares or voting rights entitling them to 5% or more of the shares or voting rights in the target company shall disclose every acquisition or disposal of shares representing 2% or more within two working days - HELD THAT:- Whenever a share which is pledge is invoked meaning thereby the shares are sold, the necessary consequence which follows is the reduction in the shareholding of that particular entity. In the instant case, whenever the pledged shares of a particular appellant was invoked, there was a change in the shareholding of that appellants and, consequently, the appellants under Regulation 29(2) read with 29(3) was required to disclose the change in the shareholding within two working days of the revocation of the shares to the stock exchange as well as to the target company. Admittedly, as per the chart indicated after paragraph 21 of the impugned order, no disclosures were made by the appellants.
A perusal of the chart shows two such transactions of the Appellant No. 1 Anjaneya Holdings Pvt. Ltd. that when their share pledges were invoked on August 28, 2012 and November 2, 2012, the percentage of the shareholding was less than 2% being 1.21% and 1.82% respectively. Thus, for the said two transactions penalty under section 29(2) and 29(3) could not be invoked to that extent. The said appellant Anjaneya Holdings Pvt. Ltd. is entitled for relief. Other transactions of all the appellants describing violation for non-disclosure under Regulation 29(2) and 29(3) does not suffer from any error and the order of the AO to that extent is maintained.
The contention of the appellants is patently erroneous in as much as the provisions of Regulation 13 provides for a continual disclosures of the shareholding or voting rights and if the shareholding falls below a certain percentage as provided in the said regulations then it is incumbent for the person to make the necessary disclosures. Thus, whenever the pledging of the shares of the appellants were invoked, the appellants were required to make the necessary disclosures as it involved a change in the shareholding. Thus, the contention of the appellants cannot be accepted.
We also find that the Appellant No. 1 had also indulged in off-market transaction which resulted in the change in the shareholding and such change is required to be disclosed under Regulation 13(4A) and 13(5) of the PIT Regulations. Since, the same was not done, the penalty imposed was justified. We also find that when the pledge was revoked, the said revocation also triggered the requirement to make the disclosures under Regulation 31(2) and 31(3) of the SAST Regulations which again was not made by the Appellant No. 1.
Order of the AO is affirmed with the modification that the penalty of ₹ 15 lacs imposed upon the Appellant No. 1 for violation of Regulation 29(2) read with 29(3) is reduced to ₹ 10 lacs. All other imposition of penalties against the appellants are affirmed. The appeal is partly allowed to the extent stated aforesaid.
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2020 (3) TMI 573
Violation of Section 6A(4)(b)(iii) of the Insurance Act, 1938 - transfer of shares made without previous approval of the authority and, therefore, such transfer of shares are null and void ab initio - HELD THAT:- Referring to communication of IRDAI vide their letter dated February 4, 2020 and their reply filed before this Tribunal, it is apparently clear that damage control measures have been adopted by Respondent No. 1 subsequent to the impugned orders dated December 4, 2019 and December 27, 2019. The communication/order of IRDAI dated February 4, 2020 has largely diluted its own order dated December 4, 2019 and December 27, 2019. The stand of the Respondent No. 1 as depicted in paragraph No. 21 of their reply makes is apparently clear that prior to any transfer of the shares in question, the authority is required to be in a position to carry out due diligence in order to ascertain fulfillment of Fit and Proper criteria and financial soundness of the transferee.
Stand of the respondent No. 1 that the use of the word "transfer" as depicted as per the provisions of Section 6A(4)(b)(iii) of the Insurance Act would also include any form of transfer of shares including a pledge is not being considered at this stage and is left open.
Dispose of the appeal with the direction that the observation in the impugned orders that the transfer/pledge of the shares in question are null and void ab initio is incorrect and to that extent, the order is set aside. We also record that IDBI Trusteeship Services Ltd. Respondent No. 2 is holding the pledged shares as a custodian and will make every endevour to find a suitable buyer. As and when a suitable buyer is found suitable application would be made before IRDAI for appropriate approval to enable the IRDAI to carry out due diligence and to ascertain fulfillment of Fit and Proper criteria, financial soundness, etc. We also make it clear that so long as the IDBI Trusteeship Services Ltd. Respondent No. 2 is holding the shares in the capacity as a trustee/custodian, IDBI Trusteeship Services Ltd. Respondent No. 2 will not exercise any control over RGIC or make changes or have a say in the management or decision making process of RGIC or exercise any voting rights in respect of the said RGIC shares.
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2020 (3) TMI 568
Unregistered Collective Investment Scheme (hereinafter referred to as "CIS") - violation of Section 12 (1B) of the SEBI Act, 1992 and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999 - fund mobilizing activity of VBDP through the scheme of allotment of land post September 2013 - fraudulent practice in terms of Regulation 4(2)(t) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations, 2003") - Interim order also called upon the Noticees to show cause as to why suitable directions/prohibitions under Sections 11, 11(4), 11B and 11AA of the SEBI Act read with Regulation 65 of the CIS Regulations, 1999 and Regulation 11 of the PFUTP Regulations, 2003, should not be issued/imposed? - HELD THAT:- As perused the material available on record as inclined to agree with the observations in the Interim order and find that the 'Scheme' of allotment of lands/developing colony/plots, as offered by VBDP satisfies the four requirements of a CIS as defined in Section 11AA of the SEBI Act.
Consequently, Section 12 (1B) of the SEBI Act, 1992 as well as Regulation 3 of the CIS Regulations prohibits carrying on CIS activities without obtaining Certificate of Registration from SEBI. VBDP had not obtained a certificate of registration from SEBI for offering the 'Scheme' which has been found to be CIS in the previous paras. Therefore, VBDP has violated Sections 12(1B) of the SEBI Act, 1992 and Regulation 3 of the CIS Regulations. Noticee 2 and 3 are directors of VBDP with effect from August 03, 2010 and continues to be directors till date and thus Noticee nos. 2 and 3 are responsible for the violations of provisions of law by VBDP.
Regulation 4 (2) (t) was inserted in the PFUTP Regulations 2003 with effect from September 13, 2013 and as per the said provision the raising of funds by VBDP under its 'Scheme' without seeking registration from SEBI or filing any offer document as required under the CIS Regulations amounts to illegal mobilisation of funds and therefore the Noticees have also violated Regulation 4 (2) (t) of the PFUTP Regulations, 2003.
Directions
a. VBDP and its Directors, viz. Yogendra Bisay and Jitendra Bisay shall wind up its existing CIS and refund the contributions or payments collected from investors under the schemes with returns due to the investors within a period of three months from the date of this order.
b. Upon completion of the refund as directed above, within a further period of fifteen days, the Noticees shall submit a winding up and repayment report to SEBI in the format provided under regulation 73 of the CIS Regulations. The report shall be supported by the proof of the trail of funds claimed to be refunded, bank account statements of the company indicating refund to the investors and receipt from the investors acknowledging such refunds along with a certification of such repayment from two independent Chartered Accountants.
c. The Noticees shall not divert any funds raised from public at large which are kept in bank account(s) and/or in the custody of VBDP or its Directors and they shall not alienate or dispose of or sell or create any encumbrance on any of the assets of VBDP except for the purpose of making refunds to its investors as directed above.
d. The Noticees shall provide inventory of all the assets purchased in the name of the Noticees including all assets movable and/or immovable wherein Noticees have interest directly or indirectly in whatsoever manner, to SEBI within a period of fifteen days from the date of this order.
e. The Noticees are restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities market, directly or indirectly, till the directions for refund/repayment to the investors are complied with, as mentioned above, to the satisfaction of SEBI and repayment completion certificate is submitted to SEBI and thereafter for a further period of four years from the date of completion of the refund, as directed above.
Restrain to access securities market and prohibition from buying, selling or otherwise dealing in securities shall extend to their existing holding of securities including the units of mutual funds.
f. Noticee nos. 2 and 3 shall be restrained from holding position as directors or key managerial personnel of any listed company for a period of four years from the date of this Order.
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2020 (2) TMI 1655
Offence under SEBI - self trades - restrain orders - Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control - whether alleged self-trades in MBL proprietary account were non-intentional, non-manipulative, inadvertent and accidental? - violation of provisions of Regulation 3 (a),(b),(c),(d), Regulations 4(1), 4 (2) (a) (g) of PFUTP Regulations and Clause A(3), A( 4) & A(5) of Broker Regulations - HELD THAT:- Self-trades had impact on the price of the shares of GNCL, however, self-trades were so designed to appear that the volume creation is negligible but were in fact motivated by the manipulative intention of creation of false price ascension. Thus, preponderance of probability is that these trades are intentional self-trades. Therefore, we conclude that the impugned self-trades by MBL are intentional and manipulative self-trades.
MBL contented that in order to check the price of the scrip, MBL placed a single share buy order and these insignificant quantum of trading could not impact either the price or volume of the scrip. In this regard, we note that single share buy order placed by MBL got matched with the already available large sell order of MBL at a price higher than the last traded price thereby establishing the higher LTP. Further, such order placement pattern of MBL were observed in large number of MBL self-trades and the same were repetitive in nature.
We note that due to such trading pattern, MBL had positive LTP contribution of Rs. 289.35 through 5,041 self-trades. Further, we also note the observation of Hon’ble Securities Appellate Tribunal (SAT) in order dated February 25, 2020 in the matter of Mrs. Kalpana Dharmesh Chheda and others Vs. SEBI that [2020 (2) TMI 1420 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] “…. when the appellants were holding a large number of shares, their selling miniscule quantity of one share each on more than four dozen occasions is nothing but a strategy of manipulation and unfairly benefiting by off-loading the entire shareholding after raising the price to considerable levels…..”. Though the said observation of the Hon’ble SAT was rendered in the context of manipulative trading pattern adopted by single share transaction, the same equally holds good in the present factual matrix of the case as well, in respect of manipulative self-trades through single share transaction.
Thus, in view of the observation of Hon’ble SAT, that manipulation in the scrip can be done by single share order placement method also, which has precisely happened in the present matter, in such a scenario, volume created by such trades / self-trades in the scrip is irrelevant / immaterial. Thus, considering at the pattern of trading done by MBL and the fact that MBL had derived benefit through that particular scheme or nature of trading, the trading pattern adopted by MBL is of a manipulative and unfair nature and would fall within the ambit of the PFUTP Regulations. Hence, we merit in the submission of MBL that single share order placement could not impact either the price or volume of the scrip.
Whether MBL have violated the provisions of Sections 12A(a), (b), (c) of SEBI Act read with Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e) and 4(2)(g) of PFUTP Regulations? - The modus operandi adopted by MBL is that it had continuously placed single share buy order immediately after placing sell order of large quantity at a price higher than the last traded price. These single share buy order got matched with its own sell order of large quantity resulted into self-trade of 1 shares. This single share self-trades had increased the price of shares of GNCL, which benefit MBL. This pattern of single share self-trades which were repetitive in nature by MBL is observed to be manipulative with the intention to inflate the scrip price. Thus, MBL has acted in a manner which led to a misleading appearance of trading in the scrip and manipulated the price of the scrip without any intention of change of ownership of the securities.
In view of the findings mentioned at paragraph 23, 24, 25 and 26 above and modus operandi adopted by MBL, it of the view that alleged violations of provisions of Sections 12A(a), (b), (c) of SEBI Act read with Regulations 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e) and 4(2)(g) of the PFUTP Regulations against MBL stand established.
Whether MBL by acting as broker and counterparty broker for self-trades in its own account on NSE, has failed to exercise due skill and care, thereby violated the provisions of Clauses A (2) of the Code of Conduct for Stock Brokers as specified under Schedule II read with Regulation 7 of Brokers Regulations, 1992 read with Regulation 9 of Brokers (Second Amendment) Regulations, 2013? - As already held that self-trades executed by MBL in its proprietary account are intentional self-trades through single shares self-trades with manipulative intention of creation of false price ascension. It is noted such conduct is an intentional conduct of MBL. Therefore, where MBL has intentionally committed a fraudulent activity of self-trades, the requirement that it should have exercised due skill, care and diligence while trading in the shares of GNCL in its proprietary account, does not arise. Thus, alleged violation of provisions of Clauses A (2) of the Code of Conduct for Stock Brokers as specified under Schedule II read with Regulation 7 of Brokers Regulations, 1992 read with Regulation 9 of Brokers (Second Amendment) Regulations, 2013 against MBL does not get attracted in view of the finding on the intentional self-trades by MBL.
SEBI appropriate directions against MBL - As modus operandi adopted by MBL is that it had placed single share buy order immediately after placing sell order of large quantity at a price higher than the last traded price thereby establishing the higher LTP. These single share order got matched with its own sell order of large quantity resulted into self-trade of 1 shares. MBL through the execution of self-trades of 1 shares, had artificially increased the price of the scrip for its own benefit. This pattern of single share self-trades by MBL were repetitive. Thus, considering at the pattern of trading done by MBL and the fact that MBL had derived benefit through that particular scheme or nature of trading, the trading pattern adopted by MBL is of a manipulative and unfair nature with the intention to inflate the scrip price which resulted into violation of PFUTP Regulations. It goes without saying once the higher price is established by these manipulative self-trades, the other trades by other counter parties, which happen subsequent to this manipulated self-trades, are executed at a price artificially hiked by self-trades.
Order - As in exercise of the powers conferred upon under Sections 11, 11(4) and 11B read with Section 19 of the Securities and Exchange Board of India Act, 1992, hereby restrain MBL from buying, selling or otherwise dealing in securities, in its proprietary account, directly or indirectly, for a period of four (4) years from the date of this order. Needless to say, in view of prohibition on sale of securities, it is clarified that during the period of restraint, the existing holding, including units of mutual funds, of MBL shall remain frozen.
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2020 (2) TMI 1420
Violation of SEBI PFUTP Regulations, 2003 - appellants created a misleading appearance of trading and was manipulating the price of the scrip to help offload the shares they were holding - penalty imposed under Section 15 HA of the SEBI Act, 1992 - HELD THAT:- Looking at the pattern of trading done by the appellants and the fact that the appellants have derived considerable financial benefit through that particular scheme or nature of trading we are of the view that the trading pattern adopted by the appellants is of a manipulative and unfair nature and would squarely fall within the ambit of the PFUTP Regulations.
The pattern of trade clearly establishes this as it is on 49 occasions that the appellants sold 1 to 5 shares, mostly one share, when in fact the buy orders available in the system was much higher. This behavior cannot be justified in terms of normal rational expectations of a seller. It is on record that the appellants were among the top two net sellers during the relevant period. When the appellants were holding a large number of shares (Appellant No. 1 – 15045 shares and Appellant No. 2 – 1009 shares), their selling miniscule quantity of one share each on more than four dozen occasions is nothing but a strategy of manipulation and unfairly benefiting by off-loading the entire shareholding after raising the price to considerable levels.
Penalty imposed on the appellants is on the higher side, particularly, when the entire price rise in the scrip is not on account of the trading done by the appellants. In fact, we note that even when the appellants were not trading between December 24, 2013 to February 17, 2014 the price of the scrip had gone up from ₹ 152 to 182. Similarly, on intermittent dates as well there were trading by others which raised the price as the appellants traded on only 55 days out of the investigation period or even the relevant period which runs into 14 months and 7 months respectively. Therefore, while calculating the profits earned by the appellants and in deciding the quantum of penalty based on the same these facts should have been taken into account as mitigating factors beyond what is apparently done by the AO.
While upholding the impugned order on merit we reduce the amount of penalty on Appellant No. 1 from ₹ 45 lakh to ₹ 20 lakh and from ₹ 5 lakh imposed on the Appellant No. 2 to ₹ 2 lakh.
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2020 (2) TMI 1419
Abnormal price rise in the scrip - off-market transfer - appellants, among others, have been restrained from dealing in the securities market, directly or indirectly, for a period of 4 years - HELD THAT:- The impugned transactions, in the facts and circumstances of the matter, would fall in the realm of violations of PFUTP Regulations. Individual argument that each entity’s trade is miniscule and only on a few days alone etc. is not sufficient to rebut the findings in the impugned order. The appellants have not given the details of their off-market transactions with an entity which is also found to be part of the group which manipulated the scrip of RMCL. The unwillingness of the appellants in giving the details of those off-market transactions and in turn placing buy orders above LTP in the market subsequently cannot be viewed in isolation.
The argument submitted by appellants that no further connection has been established therefore has no merit in the totality of the facts and circumstances of the case. In such matters, the preponderance of probability based on the totality of circumstances, as held by the Apex Court in the matter of Kishore R. Ajmera [2016 (2) TMI 723 - SUPREME COURT ] squarely applies.
We note from the impugned order that there has been a division of the noticees into two categories: 12 of them have been imposed a restraint for 4 years while 7 of them have been let off with a warning. This is apparently based on the magnitude of trade and the contribution to the LTP. By the same reasoning we are of the view that the restraint imposed on Neetu Gupta cannot be sustained particularly when she was only a seller who traded only on two occasions. However, being part of the group and recipient of the off-market deal we do not propose to completely exonerate her. Similarly given the facts of the matter we are of the considered view that a uniform restraint of 4 years imposed on the appellants is harsh.
We are of the considered view that a warning is sufficient to meet the ends of justice in respect of Neetu Gupta.
For others we reduce the period of restraint from 4 years to 1 year and from 4 years to 2 years respectability. Directions in the impugned order are modified accordingly.
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2020 (2) TMI 1417
Misfeasance committed by the company - Liability of directors - Collective Investment Scheme - part of the mobilization of the fund was collected during the period when the appellant was appointed as a director and therefore have been held liable - WTM directed the company and its directors including the appellant to abstain from collecting any money from the investors or to carry out any Collective Investment Scheme including the nd further restrained the appellant and others from accessing the securities market and prohibited them from buying, selling or otherwise dealing in securities market for a period of 4 years - THAT:- Misfeasance committed by the company -HELD THAT:- An independent director shall be held liable only in respect of such acts of omission or commission by a Company which had occurred with his knowledge, attributable through a Board processes, and with his consent or connivance or where he had not acted diligently.
In the instance case, there is no finding by the WTM that the acts of the Company in the collection of the funds had occurred with the appellant's knowledge or that the appellant was part of the decision making processes through Board's resolution or that the funds and the activities of the Company was being done with his consent or connivance. Further, we find that there is no finding that the appellant had not acted diligently. In fact, the record indicates the appellant was only appointed for a period of 5 months and had not attended any meeting of the Board.
Thus the impugned order in so far as the appellant is concerned cannot be sustained and is quashed. The appeal is allowed to that extent.
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2020 (2) TMI 1002
Fraudulent and Unfair Trade Practices Relating to Securities Market - Creating artifice/scheme - appellant restrained from dealing in the securities market, directly or indirectly, for a period of five years from the date of the ad-interim ex-parte order - HELD THAT:- An unknown company suspended from trading for long; off-market buying of 1,050 shares of the said company which constitutes more than 2% of its share capital and which is in the name of an unknown person (Kushal Jain) on the recommendation of a person from the native place of the appellant with no prior connection etc. can be treated as only a fiction rather than normal business. Coupled with the finding that the appellant had other transactions off-market with Gromo as given in Table 2 page 13-14 of the impugned order is sufficient evidence to prove the connection between Gromo, the appellant and entities in the Kamalakshi Group, many of whom are inter connected in the matter as explained in the said table. Moreover, out of 1,050 shares of Gromo obtained off-market in an inexplicable way by the appellant more than half of it was sold in small tranches; most of the time placing sell order at far away prices than LTP. The said trading pattern and the other connections as explained above is sufficient enough to prove that the appellant was part of the group that created the artifice/scheme and therefore finding in the impugned order that the appellant has violated the stated provisions of the PFUTP Regulations cannot be faulted.
Five year restraint imposed on the appellant has been in operation since February 20, 2015. However, the appellant never challenged the ex-parte interim order and filed this appeal belatedly with a delay of 101 days only on March 25, 2019 when there was hardly 1 year left to complete the restraint period.
The orders relied on by the appellant are distinguishable in the facts of the present matter and in law since subsequent Judgements of the Hon'ble Supreme Court in the matter of Securities and Exchange Board of India v. Kishore R. Ajmera [2016 (2) TMI 723 - SUPREME COURT] and SEBI v. Rakhi Trading (P.) Ltd. [2018 (2) TMI 580 - SUPREME COURT] whereby it has been conclusively held that preponderance of probability is sufficient in confirming violations like market manipulation as direct evidence in such matters may not be forthcoming.
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