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SEBI - Case Laws
Showing 341 to 360 of 555 Records
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2019 (10) TMI 1510
Ingenuine preferential allotment of shares - disgorgement of ill-gotten gains - matter relating to buying and selling of shares of the company and, upon an analysis of the trading activity in the scrip of the company, it found that 37 entities were acting together as a group and had adopted a fraudulent device and artifice to defraud the genuine shareholders of the company by falsely portraying fraudulent transactions as genuine preferential allotment of shares and offloading the shares allotted pursuant to the preferential allotment thereby earning illegal profits - Orders against 37 entities restraining them from accessing the securities market and further prohibiting them from buying, selling or dealing in the securities market either directly or indirectly and further directed them to keep in an escrow account an amount of ₹ 6 crore which they had earned illegally from sale of the shares allotted in preferential allotment by the company - contention of some of the appellants that they were only employees in the company and had no knowledge of the fraudulent activities
HELD THAT:- We find that the contention of some of the appellants that they were only employees in the company and had no knowledge of the fraudulent activities is patently baseless and cannot be accepted. Each of the appellants were aware of the activities being done through their accounts and, therefore, it is inconceivable to believe that they were not aware of their bank accounts, trading accounts or the demat accounts being utilized by Shri Rajesh Ranka. The contention that they were not signatories to these accounts is a mere afterthought as, except one, others have not filed an FIR to this effect. However, there is nothing to show that this appellant (in Appeal No. 71 of 2019) pursued the matter in any manner. Further, we find that the appellants were beneficiaries to the profits which came into these accounts.
All the appellants were acting in concert as majority of the appellants had a common e-mail and address of Rajesh Ranka who is alleged to be an employee in the company and to whom a power of attorney was also given to the bank to send all e-mails and statements of accounts. This fact has not been denied by any of the appellants.The contention that the appellant Rajesh Ranka cannot be held guilty either for debarment or for disgorgement as he was neither a preferential allottee nor profited by the sale of these shares is patently erroneous. Rajesh Ranka has been found to be acting in concert with the appellant and other entities in adopting fraudulent devices and was operating all the accounts of the appellants through the power of attorney given to him. In certain instances, there has been evidence of transfer of funds from one account to the other account. The WTM has further found that he had access to the e-mail account of all the appellants and was also the authorized signatory of the bank account of all the other appellants. Not only that, the bank statement of the appellants was being sent to him. Therefore, he was part of the fraud and even though he may not be an allottee himself but was involved in the manipulation or fraud in concert with others.
The contention made by the appellants that they have not made profits nor sold the shares, and therefore, cannot be made liable for disgorgement either individually or jointly is patently misconceived - The contention that since the profit has not been computed, the amount cannot be disgorged under Section 11B is patently erroneous. A feeble attempt was made by one of the appellants that the expenses incurred by the appellants in the transactions should be deducted from the profits or wrongful gains made by them. Such submission cannot be considered in the absence of any amount being brought on record to show the actual expenses incurred by the appellants. The contention raised is misconceived and an afterthought. The contention by some of the appellants that they were not signatories to the bank accounts, trading accounts or the demat accounts and that a fraud was played upon them and, therefore, they should not be made liable for disgorgement is patently erroneous. We are of the opinion that by renting their demat account, trading account etc., the appellants were concealing the identity of the fraudster and, thus, were acting not only in concert but in connivance with the said fraudster. The appellants cannot, thus, escape from the liability of debarment and the wrongful gains made by them.
From the aforesaid, it is clear that a person can be directed to disgorge amount equivalent to the wrongful gain made by him. By such contravention, the liability to disgorge the amount is individual and not collective. Thus, we are of the opinion that the direction of the WTM directing the appellants to pay the amount jointly or severally is against the provisions of Section 11B and to that extent, it cannot be sustained. The order of the WTM is consequently, modified to the extent that the liability of the appellants in question except Rajesh Ranka to disgorge the amount is to the extent of the profit earned by them as calculated by the WTM under Table 9. In the event of failure by these appellants to pay the amount, it would be open to SEBI to recover the amounts in the order of hierarchy stipulated in paragraph 145(e) of the impugned order. We are of the view that in view of the role played by Rajesh Ranka, the disgorgement is jointly and severally for which we do not find any fault with the order of the WTM. Appeal dismissed.
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2019 (10) TMI 1053
Financial results uploaded in XBRL mode did not contain the audit report - Imposition of a fine for violation of Regulation 33 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulation, 2015 - HELD THAT:- Regulations and the circular require the financial results to be disseminated to the public for a desired purpose so that the investors are made aware of the financials of the Company. Thus, the limited audit report alongwith the financial results are required to be uploaded within 30 minutes of the conclusion of the Board of Directors. The financial results have price sensitive information and cannot remain unpublished and, therefore, the said price sensitive information is required to be disseminated within 30 minutes alongwith an audit report.
This was not done. The financial results uploaded in XBRL mode did not contain the audit report which is a vital element and, therefore, filing of the financial result in XBRL mode is not compliance of Regulation 33 read with circular of 30th March, 2017. Thus, when a particular act is required to be done in a particular manner the same is required to be done in that manner alone and not in any other manner.
in the given case the imposition of fine is excessive. There is no doubt that the limited audit report alongwith the financial results in PDF form was uploaded on the NSE website as well as on the Company’s website within 30 minutes of the conclusion of the Board meeting. The financial results were also published in the newspapers. Thus, there was no deliberate intention on the part of the appellant to violate Regulation 33 of the Listing Regulations. The violation, if any, appears to been done by inadvertent mistake, by a human error. Considering the aforesaid we are of the opinion that in the given circumstances and in the interest of justice the penalty is reduced to ₹ 2,50,000/- which the appellant shall pay to the respondent within four weeks from today. In the circumstances of the case, the appeal is partly allowed
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2019 (10) TMI 1052
Non-disclosure of a tax demand under Clause 36 of the Equity Listing Agreement prescribed by the Stock Exchange (hereinafter referred to as ‘Listing Agreement’) by the Company - appellant is a private Company and is a minority shareholder in New Delhi Television Ltd. made a complaint to the stock exchange as well as to the Securities and Exchange Board of India based on which adjudication proceedings were initiated by the Adjudicating Officer under Sections 23A and 23E of the Securities and Exchange Board of India Act, 1992 read with 23-I of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as ‘SCRA’) - as contented the penalty of ₹ 2 crores should not have been imposed upon the Company but should have been imposed on the Key Managerial Personnel of the Company who took a conscious decision of not disclosing the event under Clause 36 of the Listing Agreement
HELD THAT:- We find that parallel proceedings for the same offence, namely, violation of Clause 36 of the Listing Agreement was also initiated against Key Managerial Personnel which also culminated into an order dated 16th March, 2018 being passed by the Adjudicating Officer under Section 15A(b) of the SEBI Act as well as under Section 23A(a) and Section 23E of the SCRA for violation of Regulation 13(6) of SEBI (Prohibition of Insider Trading) Regulations (“PIT Regulations” for convenience) read with Clauses 2.1 and 7.0(ii) of Schedule II for Code of Corporate Disclosure Practices for Prevention of Insider Trading specified in Schedule II read with Regulation 12(2) of PIT Regulations as well as violation of Clause 36 of the Listing Agreement imposing penalties against the Key Managerial Personnel. Thus, the grievance of the appellant to the extent that the Key Managerial Personnel should be penalized has now been set at rest.
The contention of the appellant that the remaining seven alleged violations should also be considered as they were part of the appeal that was filed before this Tribunal is patently misconceived - learned counsel tried to impress upon the Tribunal by placing reliance on the additional affidavit dated 17th November, 2015 contending that the said affidavit was part of the record of the Tribunal which contained the allegations and, therefore, the said allegations were required to be considered by the WTM.
Contention of the appellant is patently misconceived and cannot be accepted. The order of the Tribunal dated 12th October, 2017 clearly rejected the contention of the appellant for making the representation on issues other than the issue which related to the order dated 4th June, 2015. The Tribunal rejected the modification application holding that permitting the appellant to make a representation on issues which are not the subject matter of appeal would amount to enlarging the scope of the representation beyond the grievances set out in the memo of appeal. Thus, the allegations made in the additional affidavit could not be considered. In any case, we find that the additional affidavit on which reliance has been made was filed on 17th November, 2015 much after the disposal of the appellant’s appeal on 10th October, 2017 and disposal of his modification application dated 12th October, 2017. Any additional affidavit filed after the disposal of the appeal cannot form part of the memo of appeal.
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2019 (10) TMI 1051
Off market transfer of shares - intra group transfers - Violation of the provisions of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ( ‘PFUTP Regulations’) - Penalty imposed - HELD THAT:- So far as the appellant Mr. G. Moorthi is concerned his own submission would show that he had transferred substantive shares to Mr. Sudhir and Mrs. Madhu Jhunjhunwala off market without any consideration for management of portfolio by promising a commission of 15 percent. The record would show that Mr. Sudhir and Mrs. Madhu Jhunjhunwala had another story to tell. Be that as it may. It is clear from the records that the share were not transferred with an intention to transfer the beneficial ownership. The record would show that during the same period Mr. Sudhir and Mrs. Madhu Jhunjhunwala as well as the present appellant Ritika had purchased bulk of shares from the platform of BSE and NSE and thereafter the same were sold in different quantities. More notably the percentage of trading of this group would show that they have contributed substantially in the buying and selling during that period i.e.8,34,472. Similarly, the sale was also of the substantive proportion i.e. 14,55,160.
Most important factor is the intra group transfers between appellant Ritika and Mr. Sudhir and Mrs. Madhu Jhunjhunwala on BSE platform, which occurred within less than a minute which has been highlighted by the Adjudicating Officer
Analysis of the trading of Mr. Sudhir and Mrs. Madhu Jhunjhunwala with appellant Ritika would clearly show that it cannot just be a coincidence that exact quantity of buy and sell would match within a time difference of less than one minute.
The trades also points toward the one and only fact that the trades entered into by the appellant alongwith other group members was not a genuine transfer. In that view of the matter, the order of the Adjudicating Officer in this regard requires no interference. Both the appeals are thereby dismissed with no order as to costs.
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2019 (10) TMI 1050
Non-disclosure of certain material information in the offer documents - Diversion of IPO proceeds and other funds to entities which purchased the appellants’ shares to ensure full subscription to the IPO of the appellants - Penalty for contravention where no separate penalty has been provided u/s 15HB - HELD THAT:- The Tribunal while considering the aforesaid two charges found that the appellant had partially failed to ensure proper disclosure of material information in the prospectus. It was not a case of complete non-disclosure of material information and, as we have found that the partial nondisclosure, was at best, a technical violation. In one instance, the information was given to the Merchant Banker who failed to disclose it in the RHP and, in the two other instances, the disclosure was made in the prospectus but not at the relevant place. Thus, it cannot be said that there was complete nondisclosure of material information in the prospectus.
Insofar as the second charge of diversion of IPO proceeds is concerned the Tribunal in its earlier order held that the charge of violating PFUTP Regulations was not established by any cogent reasoning or convincing evidence. The Tribunal also found that the purchase of land by the appellant was genuine and not illegal or fabricated
Since the appellant had already undergone a considerable period of debarment pursuant to the order of SEBI, the Tribunal reduced the debarment from ten years to seven years for the partial disclosure of information in the prospectus. In the ultimate analysis, the order of debarment was for violation of partial disclosure in the prospectus and not for violation of PFUTP Regulations. The AO while imposing the penalty has not factored this debarment while fixing the quantum of penalty. Further, in our opinion, the factors contemplated under Section 15J was also not considered by the AO in the right perspective. Penalty can be imposed for failure to carry out a statutory obligation under the SEBI’s Act. Factors contemplated under Section 15J are required to be taken into consideration before imposing a penalty. If it is found that a party has not acted deliberately, then the authority has a discretion, to be exercised judicially, whether in a given case, after taking into consideration of all the relevant circumstances, as to whether a penalty should be imposed or not. Even if a minimum penalty is prescribed, the authority, after considering the circumstances of the case and other factors enumerated in Section 15J would be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act.
The direction of the AO to penalize all the directors is wholly unwarranted. Merely because the appellants are directors does not make them liable. The AO must give a specific finding that all the appellants as Directors were responsible for the alleged violation and were in charge of the affairs of the Company. In the instant case, there is no shred of evidence to show that the alleged act was committed by any of the Directors from which a reasonable inference could be drawn that the said Directors could also be vicariously liable. Vicarious liability can be inferred against a Company and its Directors only if the requisite assertions / allegations are averred in the Show Cause Notice so as to make the Company and its Directors vicariously liable for the violation of the provisions of the Act and its Regulations. The assertions / allegations should also include that the Director / Directors were in charge of and responsible for the business of the Company and by virtue of their position they are liable for penalty. In the instant case, no such allegations has been made in the SCN.
This is a fit case where no penalty could be imposed and the question of imposing the maximum penalty in the given facts and circumstance does not arise. The AO has clearly exceeded its power in imposing the maximum penalty. The AO has misinterpreted the order of Securities Appellate Tribunal (SAT).
Maximum penalty of ₹ 1 crore each imposed upon the appellants is grossly disproportionate to the violation. In our view the order of debarment which was reduced by this Tribunal from ten years to seven years was more than sufficient penalty to cover the technical violation for imposition of penalty for violating the provision of Section 11C of the SEBI Act, 1992 and the ICDR Regulations. 23. In the light of the aforesaid, the appeal is allowed. The imposition of penalty of ₹ 1 crore each on the appellants is set aside
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2019 (10) TMI 1049
Belated disclosures under the PIT and SAST Regulations - an attempt was made to justify the disclosures made belatedly on the strength that the appellants were unaware of the sale of its shares made by the lenders and that the delay if any, was thus, liable to be condoned - penalty of ₹ 40 lacs imposed for violation of Regulations 13(3), 13(4), 13(4A) and 13(5) of SEBI ‘PIT Regulations’ read with Regulations 29 and 31 of the Securities and Exchange Board of India ‘SAST Regulations’ - HELD THAT:- Appellants were duty bound to make the necessary disclosures within the stipulated period under the PIT and SAST regulations. Non-disclosures within the stipulated period violated the provisions of the aforesaid regulations and, consequently, the penalty became leviable. Thus, to that extent, the order of the AO holding the appellants guilty of violating the provisions of the PIT and SAST Regulations cannot be faulted and is upheld.
Considering the factors enumerated under Section 15J of the SEBI Act, we find that there was no disproportionate gain or unfair advantage gained by the appellants as a result of the default nor anything has come on record to indicate that the delayed disclosures resulted in a loss caused to an investor. However, considering the repetitive nature of the default and the fact that the company has now been wound up and taking into consideration all the facts and circumstances of the case, we think that in the larger interest of justice, the quantum of penalty should be reduced from ₹ 40 lacs to ₹ 30 lacs would meet the ends of justice.
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2019 (10) TMI 1048
Condonation of delay in filing appeal - Show cause notice not served on appellant - HELD THAT:- We find that due procedure for serving the show cause notice was duly followed by SEBI in accordance with the Rule 7 of the Inquiry Rules. The summons was sent at the address that was obtained by SEBI from the stock exchange. However, the fact remains that the appellant had resigned and left the service of Pioneer Securities Pvt. Ltd. in 2006 and thereafter joined Elite. The fact that the appellant had joined Elite and was working till 2017 when the attachment order was served cannot be disputed by the respondent as attachment order was served through his employer which formed the basis of his termination from his service.
When the appellant came to know about the impugned order sometime in May 2017, he made an attempt to find out the matter and took steps to file a complaint before the EOW and representation before SEBI. We are constraint to observe that satisfactory explanation has not been given by the appellant for the period from May 2017 till September 2018 that is the date when the appeal was eventually filed,
Appellant has made out a case that the show cause notice was not served upon him. Since the appellant had left the last known address available with SEBI and was working with another company and at another place, we are of the opinion that affixation of the show cause notice at the last known address, in the given circumstances does not amount to sufficient service and, thus, a benefit of doubt has to be given to the appellant.
An opportunity should be given to the appellant to contest the matter on merits especially when a huge penalty has been imposed upon him and when there is an allegation that a fraud has been played upon the appellant by his ex-employer. We are of the opinion that the appellant is entitled to contest the matter on merits. We are also of the opinion that the delay of five years should be condoned on payment of costs.
Sufficient cause has been shown by the appellant for condoning the delay. We are also of the opinion that in the larger interest of justice the delay should be condoned and the appellant should be allowed to contest the matter on merits. Consequently, for the reasons stated aforesaid, the delay in filing the appeal is condoned on payment of costs of ₹ 2 lacs which shall be paid by the appellant to the respondent on or before August 10, 2019.
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2019 (10) TMI 1047
Unjust/ unlawful gains to the tune of US$ 92 million - violations noticed by SEBI relating to the issue of Global Depository Receipts (“GDRs”) by Cals Refineries Limited (“Cals”), a listed Indian company - HELD THAT:- Appellants claim that they were not associated with the GDR issue is untenable. An issue process is over only when the proceeds from the issue is fully utilized as planned. GDR issue is akin to an IPO or FPO, except that in this case of GDR it is issued to investors abroad. In the case of IPO/FPO utilization of proceeds are also monitored by SEBI and in case of violation penal and remedial action are taken.
We agree with the submission (as well as the judgments relied on by the appellants) that equitable remedy demands that disgorgement has to be made from the point of unjust enrichment or where the chickens come to roost. We cannot accept the arguments that no such unjust enrichment has been made by the appellants nor disgorgement has to be made from where the unjust enrichment rests finally. If one entity who has unjustly enriched knowingly transferring those proceeds further to some other entity does not prevent the authorities from disgorging the same from the original beneficiary of unjust enrichment.
The choice is clearly that of the authority to pursue and disgorge an illegal gain from any point of a chain, if such a chain exists. Tracing to the last point of the chain is an exercise in futility and is not needed. When the proof of unjust enrichment is right before the eyes of an authority chasing the mirage of further transfers itself cannot be supported.
Apart from submitting that US $ 92 million just got transferred from one account to another and to a third party on the same day, appellants have no real explanation as to how 25 million GDRs of Cals worth US $ 92 million has come to rest on Asia Texx account and why it was further transferred and that too free of cost to Gagan Rastogi. It is also on record that Gagan Rastogi has sold a part of these GDRs, 2.8 million, and received US$ 8.96 million in November 2011. This finding and now admitted fact is against the stand of the appellants in their reply to SEBI dated October 9, 2013 that neither him (Gagan Rastogi) nor Asia Texx had ever converted a single GDRs of Cals into equity shares and continue to hold the entire 25 million GDR.
Therefore, it is clearly evident and admitted that GDRs worth US $ 92 million was transferred by Honor to the account of Asia Texx on March 26, 2009, who in turn transferred the same to the account of Gagan Rastogi free of cost on July 9, 2009. Accordingly, the money transferred from the account of Cals to the account of Asia Texx got accrued to Asia Texx and in turn to Gagan Rastogi in the form of 25 million GDR to the tune of the same value of US $ 92 million with each GDR being worth US$ 3.68 at that time. Since the amount involved was US $ 92 million which come into the hands (account) of the Asia Texx and thereafter to Gagan Rastogi this amount is unjust enrichment in their hands.
Therefore, direction to disgorge this amount jointly and severally from the appellants as held in the impugned order does not suffer from any legal infirmity.
In the matter before us we hold that the appellants have made unjust/ unlawful gains to the tune of US$ 92 million beyond any doubt.
Given the circuitous scheme adopted by the appellants using the proceeds of the Cals GDR issue and in making unlawful gain the finding in the impugned order that the appellants have violated Section 12A of SEBI Act and PFUTP Regulations, 2003 cannot be faulted.
In the instant matter it is quite clear from the fact that the appellants have made wrongful gain in terms of the US$ 92 million received as advance from Cals since the Agreement to supply refinery machinery was not implemented nor the said amount was returned to Cals, by Asia Texx. US$ 92 million is exactly the same amount of wrongful gain made which has been directed to be disgorged by the entities who directly benefited from the wrongful gains. Therefore, there is no conflict between the explanation under Section 11B of the SEBI Act and what is directed by the impugned order.
Argument of the appellant that the economic reality needs to be considered while imposing penalty or directing disgorgement etc. because the GDRs have declined in value over time as the market conditions, including that of Cals, have changed over the years. While on the face of it, it appears a sound argument, such an argument cannot be accepted for reason that if the economic conditions had changed positively more than the unlawful gained could not be disgorged. Such an approach would vitiate the very foundation of disgorgement as an equivalent amount of unlawful gain to be disgorged which itself is one of the defenses put forth by the appellants.
Therefore, changes in the economic conditions in the given context has to be accepted as a business risk of the appellants, not to be vitiated in the application of the legal principle on disgorgement. Hence the submission of the appellants that they are willing to surrender the remaining GDRs or the underlying shares, instead of US$ 92 million cannot be accepted.
Finding that the agreement between Cals and Asia Texx dated February 05, 2009 is nothing but a scheme or artifice to siphon off the funds of Cals for the unlawful gain of Gagan Rastogi and Asia Texx, entities related to Cals stands fully sustained. Here it is pertinent to reiterate that the appellant Gagan Rastogi was a promoter of Cals through his 33% holdings in SRM Exploration Pvt. Ltd. as well as being son of Deep Rastogi, who was a Director of Cals at the relevant time.
Given the above facts and position of law we uphold the impugned order. Both the Appeals are dismissed with no orders on costs. Consequently, appellants are directed to jointly and severally pay SEBI an amount of US$ 92 million, along with simple interest at the rate of 6% per annum from March 27, 2009 till the date of payment, within 30 days from today.
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2019 (10) TMI 112
Related party transactions - Sale of assets of the Company - additional transactions without PB Notice - as submitted Company had sought shareholders approval through special resolution inter alia regarding the sale of assets of the Company - As submitted that since Respondent no.17 JMF ARC has acquired 26% of the equity of Respondent no.2 Company against the provisions of the Takeover Regulations, 2011 it should have been prohibited by the Respondent no.1 SEBI from participating in the voting under the provisions of Regulation 32 of the Takeover Regulations - HELD THAT:- During the pendency of the appeal, in view of the directions of Respondent no.1 SEBI in the impugned order, Respondent Company had issued fresh PB Notice adding the explanatory note further explaining the additional transactions. We were told at the Bar that the process of voting is complete and the date of declaration of the result was scheduled as 18th September, 2019. Therefore, vide order dated 13th September, 2019 we directed Respondent no.2 Company not to declare the results of the postal ballot in question till we deliver the judgement. In view of the dismissal of Appeal no.357 of 2019 the interim order will have to be vacated. Hence the following order.
In the result, Appeal filed by ITC Ltd. fails while Appeal filed by JMF ARC is allowed. The interim order dated is hereby vacated.
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2019 (10) TMI 111
Default of Service of notices and orders - non service of show cause notice personally - Unpublished price sensitive information used by MD to sale of shares - violation of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) and the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as ‘PIT Regulations’) - HELD THAT:- In the instant case, we do not find anything on record to indicate that any effort was made by the respondent to serve the show cause notice personally. We do not find that any effort was made to serve at the place where he carried on business or had worked for gain. Thus, without complying with the procedure adopted under Clause (a) and (b) of Rule 7 the respondent cannot take direct steps for affixation under Clause (c). Further, we find that the show cause notice that was sent by speed post came back undelivered. No effort was made to find out as to whether the appellant was residing at that premises or not
Mode of service prescribed under Rule 7 is not exhaustive and other modes of service was always available in addition to the modes of service prescribed under Rule 7 i.e. for example publication of the notice in an appropriate newspaper or service through email. In this regard, we find that SEBI was corresponding with the appellant through email and information was supplied by the appellant through email. This mode could have easily been adopted by the respondent which they failed to do so. Instead the Adjudicating Officer made efforts to get the show cause notice served through the broker of the appellant. It is strange that when the email id of the appellant was known to the respondent which is quoted in the impugned order, but made no effort to serve the show cause notice or the notice for date of hearing through email.
In addition to the modes prescribed under the Rules of 1995, other modes could also be utilized such as O29R2 of CPC or under the Securities and Exchange Board of India (Manner of Service of Summons and Notices issued by the Board) (Amendment) Regulations, 2007 which has been issued in exercise of the powers conferred by Section 30 of the SEBI Act, 1992 which provides various modes for tendering notice to a person which also includes service by electronic mail service.
Consequently, we are of the opinion that sufficient service was not made upon the appellant. Since the show cause notice was not served upon the appellant a vital right was denied to him to reply to the show cause notice and thereafter to defend himself. Such denial of right is violative of the principles of natural justice as embodied under Article 14 of the Constitution of India.
The impugned order, being an ex-parte order, suffers from the vice of natural justice and cannot be sustained. The impugned order is accordingly quashed. The appeal is allowed
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2019 (10) TMI 110
Insider trading - violation Securities and Exchange Board of India - PFUTP Regulations as well as Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 - HELD THAT:- The trading pattern of the parties except Mr. R. Venkatachalam would show that these parties entered into buy and sell order of the shares in miniscule proportion for a price much lower than LTP on the given date within seconds to three minutes. Further, within seconds or minutes their orders matched. Three other persons had transacted only on four occasions out of 18 transactions.
Appellant Mrs. Rajasekharan Devaki is the wife of appellant Mr. Rajasekharan and are admittedly connected to Mr. Venkatachalam. Though appellant Mr. Srivatsan has no direct connection it is a fact that not only he knew some friends of Mr. Venkatachalam, the trading pattern as detailed supra would on preponderance of probabilities, show that there was meeting of minds between the parties. The impugned order of the Adjudicating Officer in this regard therefore cannot be faulted with. As regards the violation of the PIT Regulations it is an admitted fact that the said regulation has been violated though for small quantity of shares. The Adjudicating Officer has taken note of this and therefore the penalty of ₹ 3 lakhs on this count was imposed. Considering all these facts on record we do not find any reason to interfere in the impugned order.
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2019 (10) TMI 109
Insider trading based on the unpublished price sensitive information (“UPSI”) - Violation of provisions of the PIT Regulations, 1992 read with section 12A of the SEBI Act - As contended that the work orders which the company had procured was in the ordinary course of business and, in any case, when the shares were purchased, the company had not bagged the contract and was only found to be the lowest price bidder (L1) and that being the lowest price bidder did not mean that the contract was issued in favour of the company nor being (L1) could be considered as a price sensitive information - HELD THAT:- Having perused the letter dated September 15, 2010 given by SEBI and the reply dated September 24, 2010 given by the appellant we find that the information sought was the relationship of the appellant with the other entities. A perusal of the said letter would indicate that the information sought was as to what was the relationship of the appellant with other entities, namely, whether they were relatives or not. Information was supplied by the appellant in accordance with the provisions of the Companies Act, 1956. The letter of SEBI does not explicitly states that the appellant was required to furnish the information with regard to his professional or working relationship with the other entities. Even though the Appellant No. 1 may have professional or working relationship with the other entities, we are of the opinion that since there was no explicit clarity in the information sought the reply given by the appellant, being in accordance with the provisions of the Companies Act, 1956, was not misleading. SEBI ought to have been more professional and should have asked clear cut information which is explicit and is not vague. Consequently, we are of the opinion that the imposition of penalty in so far as providing misleading information cannot be sustained.
Having perused the letter dated September 15, 2010 given by SEBI and the reply dated September 24, 2010 given by the appellant we find that the information sought was the relationship of the appellant with the other entities. A perusal of the said letter would indicate that the information sought was as to what was the relationship of the appellant with other entities, namely, whether they were relatives or not. Information was supplied by the appellant in accordance with the provisions of the Companies Act, 1956. The letter of SEBI does not explicitly states that the appellant was required to furnish the information with regard to his professional or working relationship with the other entities.
Even though the Appellant No. 1 may have professional or working relationship with the other entities, we are of the opinion that since there was no explicit clarity in the information sought the reply given by the appellant, being in accordance with the provisions of the Companies Act, 1956, was not misleading. SEBI ought to have been more professional and should have asked clear cut information which is explicit and is not vague. Consequently, we are of the opinion that the imposition of penalty in so far as providing misleading information cannot be sustained.
Admittedly, the appellants have been found to be connected persons under section 2(c) of the PIT Regulations and were also found to be deemed to be connected persons under section 2(h). The appellants were also found to be insiders under section 2(e) of the PIT Regulations and were found to have traded in the shares having knowledge of the price sensitive information. Consequently, all the appellants being connected persons have been held to be equally liable to pay the amount of penalty jointly and severally. We thus do not find any error in this regard.
For the reasons stated aforesaid the appeal is partly allowed. The order of the AO imposing a penalty of ₹ 40,00,00,000/- (Rupees Forty Crore Only) under section 15G and section 15HA of the SEBI Act against the appellants for violation of Regulation 3 and 4 of the PIT Regulations read with section 12A(d) and (e) of the SEBI Act is affirmed. The imposition of penalty of ₹ 20 lakhs (Rupees Twenty Lakhs Only) under section 15A(a) of the SEBI Act for submitting misleading information to SEBI and penalty of ₹ 38 lakhs (Rupees Thirty Eight Lakhs Only) upon Appellant Nos. 1 and 2 for violation of Regulation 8A(1) and (2) of the Takeover Regulations, 1997 are quashed.
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2019 (9) TMI 1562
Compounding of offence - violation of Regulation 7(1) and (2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 - HELD THAT:- As appellants states that the appellants have already deposited a sum of ₹ 1,50,000/- (Rupees one lakh fifty thousand) on 2nd May, 2019 and that the interest amount due till the date of deposit @ 12% p.a. would be deposited within two weeks.
Respondents state if the said amount is so deposited, the respondents would have no objection, in the given facts of the case, to compounding of the offence subject to any penalty which may be imposed under Section 24(2) of the said Act.
In view of the facts set out herein and the age of the directors, despite the earlier reservation expressed by the respondents in the counter affidavit on account of the conduct of the appellants, we are inclined to compound the offence on the aforesaid amount being paid as assured before us by learned counsel for the appellants, subject to the penalty amount of ₹ 2,00,000/- (Rupees two lakhs). This amount should also be deposited with the Securities and Exchange Board of India within the same period of two weeks.
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2019 (9) TMI 1496
Violations of the provisions of the SEBI Act, 1992 and the SEBI ‘PIT Regulations 1992’ - irregularities in the scrip of AstraZeneca Pharma India Limited - penalty of ₹ 1 lakh has been imposed for violating the code of conduct - HELD THAT:- We find that the stand taken by the appellant namely that they had submitted the draft model code of conduct to the holding Company for approval took time has not been disbelieved while holding that there has been an inordinate delay of two years in adopting the model code of conduct.
If two years taken by the Company is taken as an yardstick to suggest an inordinate delay in adopting the model code of conduct then by the same standard, SEBI is guilty of issuing a show cause notice for alleged violations of the model code of conduct after more than 15 years. Admittedly, the amendments were made in the PIT Regulations in 2002 and even though there was no time limit requiring the listed companies to adopt the model code of conduct, nonetheless the appellant Company AZPIL adopted the model code of conduct in the year 2004. No action was taken by SEBI over all these years and only woke up after 15 long years for the alleged violations. In our view, for this inordinate delay, proceedings could not have been launched nor can the question of imposition of penalty could arise. We are thus of the opinion that for the inordinate delay no penalty could be levied and consequently the impugned order imposing a penalty of ₹ 1 lakh on the appellant Company AZPIL is patently erroneous and cannot be sustained.
No period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine Pharmaceuticals, Madras and Others, [1989 (7) TMI 100 - SUPREME COURT] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case.
When the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc - See Adjudicating Officer, SEBI vs. Bhavesh Pabari [2019 (3) TMI 197 - SUPREME COURT]
Model code of conduct violation - trading window was required to be closed on March 3, 2014 and could only be opened after 24 hours after the information referred to in Clause 3.2.3 was made public which in the instant case was not done - Penalty imposed on Pawan Singhal the Compliance Officer - Trading window shall be closed during the time information referred to in para 3.2.3 is unpublished. Under clause 3.2.4 the trading window shall be opened 24 hours after information referred to in para 3.2.4 is made public. The AO has imposed a penalty upon the Compliance Officer / appellant for not closing the trading window on March 3, 2014. Once intimation was sent by the Company to the stock exchange disseminating the requisite information about the delisting, it was the duty of the Compliance Officer to close the trading window. Thus, there was a violation committed by the Compliance Officer. However, we find that admittedly no trading was done. No one gained nor any loss was suffered by any investors. Thus the violation if any was technical. Thus, we are of the opinion that no penalty could be imposed on the appellant and only a warning is issued to the Compliance Officer to be careful in future.
The impugned order imposing penalty upon the appellant Pawan Singhal cannot be sustained.
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2019 (9) TMI 1477
Violation of the SEBI Act and PFUTP Regulations - Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control - HELD THAT:- Given the above provisions of the SEBI Act and PFUTP Regulations it is evident that the appellant, along with other entities in the Vishvas group have indulged in synchronized and circular trading and contributed substantially in raising the LTP. The exact figures relating to each category of trading and LTP contribution is given in the impugned order. What is disputed by the appellant is that she had no connection with the Vishvas group and synchronization / circularity happened just by chance. However, given the proximity of time between trading by these entities and the number of such instances of trades we are unable to appreciate this submission of the appellant. The contention of the appellant is that appellant was trading as a sub broker and the matter was remanded to SEBI by this Tribunal on April 29, 2016 mainly on this ground. As clearly demonstrated in the impugned order that the appellant could not produce any evidence relating to her contention that she was trading on behalf of a client, namely, Perfect Car Scanners Pvt. Ltd.
Trading by the Vishvas Group as a whole and individually by the appellant was substantial quantity as explained in para 4 (supra) of this order and there were synchronized trades, reversal trades as well as manipulation of LTP. Therefore, the findings in the impugned order that the appellant has violated the stated provisions of SEBI Act and PFUTP Regulations 2003 cannot be faulted.
The orders relied on by the appellant do not come to her help.he trading details, its nature, time etc. reveal the manipulation in the scrip of Gangotri. Apart from stating that that the appellant has no connection with the Vishvas group the appellant could not explain why and how so many of her trades were in the nature of synchronized and reversed trades and that too most of the times within a few seconds with trades of other entities in the Vishvas group. Such synchronization and reversal of trade is not possible without a prior meeting of minds as held in SECURITIES AND EXCHANGE BOARD OF INDIA VERSUS KISHORE R. AJMERA [2016 (2) TMI 723 - SUPREME COURT].
The submission that the penalty imposed is too harsh also does not have any merit. On remand by this Tribunal and on reconsideration the AO of SEBI has reduced the amount of penalty from ₹ 60 lakh to ₹ 25 lakh. Further, the penalty imposable under Section 15HA of SEBI Act is three times the amount of profit or ₹ 25 crore whichever is higher. Therefore, while imposing an amount of ₹ 25 lakh only as penalty the AO has factored in all the mitigating circumstances including that the appellant might have made loss. Therefore, in the given facts and circumstances, we do not find any reasons to interfere with the amount of penalty imposed
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2019 (9) TMI 1314
Offer price sought to be paid to the public shareholders calculated erroneously and contrary to the Takeover Regulations, 2011 - definition of “frequently traded shares” - whether the amended definition of Regulation 2(1)(j) would be applicable or the old definition would be applicable has to be considered and decided by some authority? - HELD THAT:- In the instant case, we do not find as to how the offer price of ₹ 55.22 was arrived at by the merchant banker as approved by SEBI. Further, the question that the offer price should be considered as on the date the public announcement of the offer was made i.e. on November 17, 2017 or on the date when the Merger Agreement on May 24, 2016 was made is also required to be considered. Since, we find that the authority has not considered these aspects it will not be appropriate for this Tribunal to consider these propositions at this stage.
We find that the appellant had written several emails to SEBI intimating them that the offer price was required to be calculated as per the unamended definition of frequently traded shares. It seems that SEBI has not dealt with the objections raised by the appellant while finalizing the offer price of the acquirer. We dispose of this appeal directing the appellant to file a consolidated representation afresh annexing the earlier emails.
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2019 (9) TMI 799
Non furnishing the information pursuant to the summons - Violation of Section 11C(3) read with Section 11(2)(i) of SEBI Act, 1992 - penalty under Section 15A(a) of the SEBI Act, 1992 - HELD THAT:- We find that admittedly the information sought by summons dated December 9, 2014 was eventually supplied after more than one and half years on February 17, 2016 in adjudication proceedings. Prior to that such information was not supplied.
Information is required to be furnished to the investigating authority. If information is not furnished, it would hamper the investigation which was precisely being done in the instant case. The alleged irregularities in the trading in the scrips of the appellant Company could not be investigated on account of non-furnishing of the information. Such non-furnishing of the information hampered the investigation and, therefore, penalty becomes leviable.
We find that it is not a case where it could be said that there was total non co-operation on the part of the appellant Company. Admittedly, most of the information was submitted though the information as per summons dated December 9, 2014 was furnished only at the stage of hearing in the adjudicating proceedings. Thus, even though information was provided by the appellant Company belatedly, we also find that even after the issuance of the show cause notice in the adjudication proceedings no reply was filed and therefore the violation of the alleged provisions stood admitted by the appellant Company.
Thus, we are of the opinion that imposition of penalty is justified. However, in the circumstances since eventually the information was supplied during the pendency of the adjudication proceedings coupled with the fact that the Managing Director of the Company had appeared and cooperated in the proceedings the penalty of ₹ 5 Lakhs appears to be on the higher side. We, accordingly, reduce the quantum of penalty from ₹ 5 Lakhs to ₹ 2 Lakhs.
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2019 (9) TMI 593
Transaction on the exchange - whether petitioner’s transactions were not through the exchange? - alternative remedy before the Securities Appellate Tribunal - HELD THAT:- Shares were transferred from the applicant’s account to broker account, which the broker did not return. It is further pointed out that there was no trade executed on the exchange. The transaction is therefore, construed as a loan transaction and therefore, not recommended for payment. This recommendation of the Committee was accepted by Respondent No.3 and the claim of the petitioner was accordingly rejected.
We do not find that the Respondent No.3 has committed any error. It may be that the previous Circulars issued by the SEBI from time to time, do not specifcally include a clause that in case of transaction not executed through the platform of BSE, the claim would not be entertained by the Respondent No.3. Nevertheless, there is no instance cited before us by the petitioner that any such claim in the past was entertained and allowed. The case of the petitioner was considered and disposed of after the Circular dated 23rd February, 2017 was issued. The Circular was therefore, correctly applied. In any case, Clause (b) of paragraph 2 of the said Circular can be seen as clarifcatory in nature and explicitly declares the policy of the SEBI to entertain only those claims of investors which arise out of the transaction carried out through the platform of BSE and not outside.
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2019 (9) TMI 592
Legality and veracity of the order passed by the Whole Time Member (‘WTM’) of SEBI under Sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 which empowers SEBI to issue directions in the nature of remedies in the interest of the securities market and investors in securities - whether SEBI as a market regulator could be said to have jurisdiction to pass any of the directions as contained in the SCN?
HELD THAT:- The show cause notice was issued on February 14, 2009 and August 26, 2009. The impugned order was passed on January 10, 2018. It took SEBI nine long years to complete the proceedings and the fault lay entirely on SEBI. The request of the appellants to cross examine certain individuals whose statements were relied upon by SEBI was rejected. This Tribunal on June 1, 2011 allowed the appeal and directed SEBI to allow cross examination. SEBI did not do so and took the matter to the Supreme Court and kept it pending for six years. The Supreme Court on January, 2017 held that the stand of SEBI was incorrect and directed that cross examination and inspection should be allowed to the appellants.
During the pendency of the proceedings, the appellants were carrying on their business and auditing listed companies to the satisfaction of the shareholders and / or of the investors without any blemish. Over the last decade, the appellants have adopted extensive remedial measures as per SEC / PCAOB settlement orders. The independent monitors appointed by SEC / PCAOB have certified that remedial measures have been successfully implemented, meaning thereby that the audit quality met with the requisite standards. Thus looking from this angle also, the order of debarment was not the appropriate choice.
Considering the aforesaid we are of the view that the order of WTM debarring the PW firms to audit listed company on the ground of PW network or projecting it as a PW brand cannot be sustained.
There is no doubt that there has been a professional lapse on the part of the auditors in conducting the audit especially their failure to seek direct confirmation from the Bank relating to Bank Balances and fixed deposits. These lapses amounted to negligence. Action has already been taken by ICAI against the auditors. Negligence is the breach of duty caused by omission to do something which a reasonable man is guided by these considerations to do something which a prudent and reasonable man would not do so. Negligence becomes actionable on account of a lapse or omission amounting to negligence. In the concept of negligence amounting to an offence, the element of mens rea must be shown to exist, but under Torts, negligence becomes actionable on account of lapse or omission.
Once you breach your duty, negligence becomes actionable as there has been a failure to attain that standard of care.
A professional such as an auditor comes under a category of persons professing some special skill. Any task which is required to be performed with a special skill would generally be undertaken to be performed only if the person possesses the requisite skill for performing that task. The only assurance which such professional can give is, that he is possessed of the requisite skill in that branch of profession which he is practicing and that he would be exercising his skill with reasonable competence. This is what a person / Company approaching the professional can expect.
A professional may be held negligent if he is not possessed of the requisite skill which he professed to have possessed or he did not exercise with reasonable competence. The standard to be applied for judging whether the person charged has been negligent or not, would be that of an ordinary competent person exercising ordinary skill in that profession. It is not necessary for that person to possess the highest level of expertise in that branch which he practices.
WTM found that for this negligence, the auditors and the firms benefitted by way of charging a fee. WTM was of the opinion that this wrongful gain was liable to be disgorged. We find that for this professional lapse, there has been a breach of duty and failure to maintain that standard of care. For this lapse / negligence, we are of the opinion that the appellants were not justified to retain this amount. In our opinion, the WTM was justified in disgorging the said amount along with interest. The power was rightly exercised under Section 11 and 11-B of the SEBI Act to persons who in some way was associated with the securities market as well as under the Companies Act.
Order of the WTM of SEBI debarring the PW firms as well as the two auditors from auditing listed Companies cannot be sustained and is quashed. Directions to listed Companies not to engage any audit firm forming part of PW network is also quashed
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2019 (9) TMI 591
Annulment of a trade - whether the respondent-NSE Clearing Ltd. being a recognized clearing corporation is akin to a recognized stock exchange or not? - application for redressal of their grievances before SEBI - HELD THAT:- An order of the recognized stock exchange is appealable under Section 23L of the Act. Some of the duties and functions of a recognized stock exchange has been transferred to a clearing corporation namely, NSE Clearing Ltd. This clearing corporation has been recognized under Section 4 read with Section 8-A(4) which provision is to recognize a stock exchange. Thus if an order of a recognized stock exchange is appealable under Section 23L, the functions and duties of a recognized stock exchange which have been transferred to a clearing corporation would also be appealable under Section 23L. A clearing corporation cannot stand on a better footing or cannot stand outside the provisions of the SCRA Act especially when a superior body, namely, the recognized stock exchange’s orders are appealable under Section 23L.
In the light of the aforesaid, we hold that the appeal filed by the ISSL is appealable under Section 23L against a decision of the NCL. The objection raised by SEBI is, thus, rejected.
ISSL has questioned the legality and validity of the order of NCL dated 24th June, 2019 whereby their application for annulment of the trade was rejected. NCL was of the opinion that since parallel investigation in relation to fraud is being conducted by SEBI and EOW, the said corporation was not willing to start a parallel investigation. We find that the issue as to whether the trades have to be annulled on account of fraud has not as yet been decided by the clearing corporation on merits.
A fraud, if any, should be crystalized and decided and should not percolate the entire securities market. Whether there has been a fraudulent transfer of mutual funds units by Allied to ISSL is a question which is required to be decided by some authority. Whether fraud has been perpetuated or whether a trade should be cancelled on a preponderance of probability that a fraud has been perpetuated, is again a question which is required to be decided by an authority. It is not appropriate for this Appellate Tribunal to go into the question at this stage. Such matter is required to be decided by an authority. Since NCL has refused to decide the application for annulment of trade on the ground that parallel investigation is being conducted by SEBI, we dispose of all the aforesaid appeals with the following directions:-
(i) All the appellants will file an appropriate application for redressal of their grievances before SEBI by 8th July, 2019 annexing their earlier applications / complaints / emails and praying for specific relief / reliefs.
(ii) Counter-parties like Citi Bank and similarly connected entities may appear before SEBI and place their objections, if they so desire.
(iii) SEBI will consider all the complaints and applications and provide an opportunity of hearing to the appellants, to all interested parties and take a conscious decision by reasoned and speaking order;
(iv) All the parties will appear before SEBI on 10th July, 2019 at 3 p.m. on which date SEBI will hear and decide the matter, and if for some reason, the hearing is not concluded on that day, SEBI will hear the same on a day to day basis till it is concluded. SEBI would thereafter pass an order on or before 17th July, 2019.
(v) Since an interim direction had been granted by the Supreme Court of India by its order dated 26.6.2019, we direct that the Nifty Option Contract on the F&O Segment of NSE which was to expire on 27th June, 2019 will remain in abeyance till 22nd July, 2019.
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