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SEBI - Case Laws
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2023 (11) TMI 64
Unfair Trade Practices relating to Securities Market - scheme of using the GDR proceeds to fund a subscriber to the GDR issue was a fraudulent scheme and violative of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations - non-disclosure of the loan agreement and the pledge agreement was violative of Clause 36 of the Listing Agreement as well as Section 21 of the SCRA Act read with Clause 32 and 50 of the Listing Agreement - penalty imposed on company and directors and MCDs
HELD THAT:- We find that this modus operandi in the instant appeals is the same and has been dealt with by this Tribunal in a large number of matters relating to the GDR issue wherein the Tribunal has held that non-disclosure of the loan agreement and the pledge agreement was totally fraudulent and violative of the Listing Agreement. This Tribunal also held that the company and its MDs were aware of the execution of the pledge agreement as well as loan agreement and it was no longer open to them to deny the existence of the said agreements. This Tribunal also held that the company and its Directors misled SEBI into believing that there were more subscribers to the issue and not one subscriber.
We also held that company and its MDs were aware of the pledge agreement, non-disclosure of the pledge agreement and loan agreement invited penalty. Corporate announcement did not disclose the fact that the subsisting pledge agreement facilitated the subscribers to subscribe to the GDR issue. The corporate announcement was misleading and presented a distorted version to the investors and created a false version inducing the investors to deal in securities - in the light of the aforesaid decisions the findings against the appellants in the instant appeals does not require any interference nor we require to give elaborate reasons. The findings of the AO are upheld.
Quantum of penalty and on the issue of proportionality - SEBI has passed various orders against company and its directors imposing different penalties for identical / similar offences. In a large number of penalties ranging from Rs. 25 lakh to Rs. 1.25 crore have been imposed upon the companies which we have appropriately reduced to Rs. 25 lakh. Similarly, for managing director considering the factor in each of the case the penalties have been reduced to Rs. 10 lakh and Rs. 20 lakh. Similarly, in many cases the penalty ranging from Rs. 5 lakh and Rs. 10 lakh have been imposed upon the directors. In a large number of cases, we have exonerated independent directors.
Thus without going into the specific details, in the instant case, we find that penalty imposed against the company is appropriate as in many other cases we have been reduced the penalty against the company to Rs. 25 lakh. Thus, the penalty imposed by the AO against the company noticee nos. 1 needs no interference. Similarly, we find that the penalty of Rs. 25 lakh imposed upon the noticee nos. 2 who is the CMD is also appropriate and commensurate with the alleged violation as he was the signatory to the account charge agreement / pledge agreement. In so far as noticee nos. 3, 4, 5 and 6 are concerned, we find that noticee nos. 3 was non-executive director and noticee nos. 4, 5 and 6 were independent directors. There is no evidence to show that all these noticees apart from being signatory to the resolution of the board of directors were not involved in the day-to-day affairs of the company nor were they aware or monitor the issuance of the GDR issue.
Independent directors cannot be penalized when they are not part of day-to-day affairs of the company. See Prafull Anubhai Shah vs SEBI [2021 (6) TMI 1159 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] and Rajesh Shah vs SEBI [2021 (7) TMI 1433 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] - Thus the penalty imposed upon notice nos. 3 to 6 to the tune of Rs. 10 lakh each are set aside.
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2023 (11) TMI 18
Ex-parte ad interim order - Appropriation of a fixed deposit - squaring off the loans of related parties - diversion of funds and its circuitous routing which was solely for the benefit of the promoter group as the appellant was the Managing Director and was not only in control over ZEEL but, being a key managerial personnel, was also in control of the seven associate entities - investigation revealed that Axis Bank instead of squaring off the credit facility of EGML had adjusted the fixed deposit against the credit facility given to seven related entities of ZEEL - restraint order passed by the respondent pursuant to the ad interim order and the confirmatory order restraining the appellant to function as a Managing Director
HELD THAT:- As round tripping of funds happened in a few minutes. Can it be said that each of the transaction was a sham or a fictitious transaction? There was a reason for making the payments. Everyone owed someone, the receptionist paid his debt, the chef paid his debt, the wife paid her debt and the milkman paid his debt. Everything works on credit and through the aforesaid payments everyone was happy. This is how the system works. Can it be said that the entire transaction done by the aforesaid entities was a sham transaction on account of proximity of time?
We find that the transaction between the ZEEL and the first entity was validly explained and therefore, at this stage, it was not necessary to go into the context of a larger transaction involving the circular rotation of funds. The decisions cited by the respondent in this regard are not applicable at this stage.
Chairperson has proceeded on the presumption that the appellant was involved in the affairs of the Essel Group companies including the borrower entities other than ZEEL. We find that this finding is based on pure surmises and conjectures. There is no material whatsoever which would demonstrate that the appellant was involved in the alleged transactions.
The finding that Essel Group companies were involved in the layering of the funds transactions and were under the influence / control of the appellant by virtue of its shareholding and shareholding of his family members is patently erroneous. There is nothing on record to show that the appellant had participated in the affairs of the borrower entities or any other Essel Group entity. We find that the appellant is neither an authorized signatory nor a director in the borrower entities and was not involved in the operation, financing or day to day management of the affairs of the borrower entities. In the absence of any active role of the appellant in Essel Group companies / borrower entities, the presumption drawn by the Chairperson that the appellant had exercised control over borrower entities is patently erroneous.
The word “control” has been mostly used by the Chairperson to show that the appellant had an active role in the borrower entities Essel Group companies which is based on presumptions.
Finding that the appellant exercised control over the borrower entities / Essel Group companies was based on presumptions in the absence of any material evidence to show that the appellant was actually in positive control of the Essel Group companies / borrower entities.
The finding that the appellant had exercised control over Sprit Infrapower & Multiventures Private Limited Churu Enterprises LLP through shareholding interest and designated partners is again stretching the matter a bit too far in the absence of material evidence to show that the appellant was actively involved in the day to day management of these two entities.
We further find that the direction that if the appellant is allowed to continue as the Managing Director in ZEEL it would impede or tamper with the investigation is erroneous in as much as we do not find any single incident to show that the appellant has obstructed in the investigation conducted so far.
We are also of the opinion that the impugned order relies upon the bank statement which cannot be tampered and which cannot be changed and therefore the presumption that if the appellant is allowed to continue as Managing Director in ZEEL it would impede or tamper with the investigation is patently erroneous. The finding that the appellant should be kept away from the helm of affairs of ZEEL so that the appellant may not exercise his influence over relevant entities to misdirect the course of investigation is patently erroneous.
We also find that the Chairperson has applied different yardstick regarding the alleged transaction arising out of ZEEL. On one hand the Chairperson has based its finding on a preponderance of probability while on the other hand has refused to accept the evidence filed by the appellant and has rejected the same on the ground that the documents do not prove the genuineness of the transaction beyond a reasonable doubt. This contrary stand taken by the Chairperson is, in our opinion, arbitrary. In any case, an incorrect application of the principles of preponderance of probability has been applied.
Whether a proper balance has been made by the impugned directions on the rights, liberties or interest of the person keeping in mind the purpose which it was intended to serve? - Doctrine of proportionality has not been correctly applied and a correct balance has not been made. Considering the genuineness of the documents so produced by the appellant, the first leg of the transaction was validly explained which indicates that the funds moved pursuant to a long standing commercial business relationship. The entries in the bank statement are not fictitious or sham transactions and therefore proceeding and issuing directions on the basis of preponderance of probabilities is, in our opinion, at this stage arbitrary and excessive. The directions ex facie, is punitive and not preventive and is based on incorrect apprehensions and on the basis of preponderance of probabilities.
Ex-parte ad interim order could have been passed in extreme urgent cases and that such power should be exercised sparingly and should not be exercised in a routine manner. Considering the facts and circumstances of the present case, we do not find that any extreme urgent situation existed in 2023 which warranted the WTM to pass an ex-parte ad interim order with regard to a certain set of transactions which occurred in the year 2019.
We find that 99.97% of the shareholders of ZEEL had reposed complete faith in the appellant as recent as into 2022 to continue as Managing Director and Chief Executive Officer of the merged entity between ZEEL and Sony. Pursuant to the ex-parte ad interim order NCLT has approved the scheme of amalgamation in which the appellant would hold the post of a Managing Director of the merged entity. This aspect has wrongly been construed by the Chairperson that it will wield substantial power of management of the affairs of the merged company upon the appellant which he cannot be permitted to do so.
In our opinion such approach is unwarranted apart from the fact that there is no evidence to show that the appellant exercised positive control over the borrowed entities. The fact that greater responsibility (if any) has come upon the appellant pursuant to the merger, then all the more reason that the appellant should be allowed to continue rather than putting the merger to continue headless when 99.97% of the shareholders reposed faith in the appellant to continue as Managing Director of the merged entity.
Structure of the merged entity is that Sony Group would have the majority shareholding in the merged entity and will also have majority members in the board of directors and would have right to appoint key managerial personnel like Chief Financial Officer, Chief Compliance Officer, Company Secretary etc. the appellant would be just one of the nine directors of the merged entity. Hence, his continuation as the Managing Director in the merged entity would have no impact on the investigation.
Chairperson while confirming the ad interim order directed the investigation to be completed in eight months. No reason was given as why eight months is required to complete the investigation especially when only bank transactions are to be looked into.
During the course of arguments, it has been stated by the respondent that other LoCs given by the promoter group of the appellant including the LoC given by the father of the appellant to the tune of Rs. 4210 crore are now being scrutinized and therefore comprehensive investigation is being done and consequently these five transactions which is impugned in the order is only part of the wider investigation. In view of the aforesaid, we are of the view that prima facie the diversion of funds has not as yet been proved.
Sufficient explanation backed by genuine document have been shown by the appellant and having validly discharged their burden. The investigation is going on and considering the track record of SEBI for which we take judicial notice, no investigation is completed within the stipulated period. We have seen that on numerous occasions whenever this Tribunal or the superior Court has directed SEBI to complete the investigation within a stipulated period, the same has not been done and applications after applications are being filed by SEBI seeking time to extend the period of investigation.
The impugned order cannot be sustained and is quashed insofar as it relates to the appellant. The restraint order passed by the respondent pursuant to the ad interim order and the confirmatory order restraining the appellant to function as a Managing Director and as directed in paragraph 108(ii) of the impugned order is set aside. The appeal is allowed. The appellant shall, however, cooperate in the investigation.
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2023 (10) TMI 1393
Insider Trading Allegations - Appellants to be guilty of insider trading under the Prohibition of Insider Trading Regulations, 1992 - promoters of the complainants Prannoy Roy and Radhika Roy also carried out insider trading in the scrip of NDTV during the investigation period. - Non Compliance with NDTV's Code of Conduct - WTM found that Prannoy Roy and Radhika Roy had traded while in possession of price sensitive information and accordingly directed them to disgorge the unlawful gains and also prohibited them from accessing the securities market for a period of 2 years.
HELD THAT:- The trades of Prannoy Roy and Radhika Roy is during PSI-6. In Quantum Securities [2023 (2) TMI - SECURITIES APPELLATE TRIBUNAL MUMBAI] as already held that PSI-6 was not a price sensitive information and, therefore, the charge of insider trading during that period cannot be sustained. The matter of Prannoy Roy and Radhika Roy is thus squarely covered by the decision of this Tribunal in Quantum Securities (Supra) which fact is not disputed by the learned counsel for the respondent.
As we find that Prannoy Roy and Radhika Roy had secured pre-trade clearance from the Compliance Officer of NDTV which is an admitted fact in the show cause notice and, therefore, the trades executed by these two entities was in conformity with the NDTVs Code of Conduct and the PIT Regulations. There is no finding in the impugned order to the effect that the Compliance Office had acted improperly in granting permission to these two entities to sell during the period when the trading window was closed.
The impugned order passed by the WTM against Prannoy Roy and Radhika Roy cannot be sustained.
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2023 (10) TMI 1258
Insider trading in the scrip of the Company - corporate announcement regarding an update on the real estate operation of the Company - penalty of Rs. 10 lakhs u/s15G(i) of the SEBI Act imposed - allegation levelled against the appellant [Vice Chairman and Managing Director of the Company and also a Member of the Audit Committee] was that the Company made corporate announcement regarding an update on the real estate operation of the Company for third quarter on the Bombay Stock Exchange and the National Stock Exchange of India Limited - corporate announcement revealed that the Company during its second quarter had achieved a new sales volume which was up by 5.6% as compared to the preceding quarter - appellant as urged that the real estate operational data was not a price sensitive information - HELD THAT:- Corporate announcement regarding update on the real estate operation of the Company was a price sensitive information. UPSI has been defined under Regulation 2(1)(n) which means any information that is not generally available and which upon becoming generally available is likely the materially affect the price of the securities.
In the instant case, the real estate operational update were part of the financial results for the quarter ended 30.09.2017. It was a price sensitive information and upon announcement it had a material impact in as much as the price of the scrip increased.
Appellant was in possession of this price sensitive information and had traded in the scrip during the period in question. In our opinion, obtaining necessary pre clearance and making requisite disclosures were not enough to show that his trades were not motivated by UPSI.
Regulation 4 of the PIT Regulations prohibits any insider from trading in securities while in possession of UPSI. The proviso to Regulation 4 of the PIT Regulations gives a window to the insider to prove his innocence by demonstrating the circumstances under which he has traded. In the instant case, the appellant is an insider and, therefore, it was upon him to prove that the trades were not motivated by UPSI. We find that no plausible explanation has been given in this regard.
Appellant had traded in the scrip of the Company while in possession of UPSI and had violated Section 12A(d) and (e) of the SEBI Act, 1992 and Regulation 4(1) of the PIT Regulations. No error in the impugned order. Appeal fails.
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2023 (10) TMI 1173
Writ petitions by minority shareholders of Bharat Nidhi Ltd. (‘BNL’) - Request to place on record a compilation of documents - complains to the SEBI of violation by BNL of various provisions of the Securities laws - allegation of violations pertaining to the minimum public sharing norms (“MPS”) as also violations in respect of the promoters disclosure in shareholding in BNL - as contented that BNL was earlier listed on the Delhi Stock Exchange and after the same ceased to be functional, BNL had sought listing of its share at the Calcutta Stock Exchange, which is also not functional. BNL is now stated to be on the Dissemination Board of the National Stock Exchange.
HELD THAT:- The contents of Regulation 29 to the effect “may not be released to the public” is with a further rider that “only if the same prejudices the Board and/or the applicant”. These contents are quite, significant, by virtue of which Regulation 29 cannot be read as a blanket or a mandatory bar on non supply of documents and information.
By no stretch of imagination, can it be said that the petitioners in the present case, who are minority shareholders and in such capacity, being part owners of the company to the extent of their shareholding, are persons who are alien/outsiders to the company (BNL), moreover they are integral to the company, having an inextricable concern and interest in the functioning and management of the company.
Thus the word ‘public’ as used in Regulation 29 can in no manner be made attributable to shareholders of BNL like the petitioners. This apart, if such contention as urged on behalf of the respondents that the petitioners are ‘public’ and therefore, they are not entitled to receive information by the applicability of Regulation 29, if accepted, the same yardstick and parameters become applicable to respondent Nos. 3 to 9, who are also shareholders of BNL, who are hence not a different class, than that of the petitioners. The petitioners as also respondent Nos. 3 to 9 belong to the same species as shareholders
As it cannot be countenanced that some shareholders can take shelter under Regulation 29 to plead confidentiality of settlement information, against a group of other shareholders, so as to bring about an effect that information in relation to settlement be not supplied to such persons of their own class who are similarly situated. No shareholder can take a position that he cannot disclose any information on the affairs of the company to other shareholders. This would bring about a situation of disharmony, distrust causing damage to the management and functioning of the company.
None of the contentions as urged on behalf of respondent Nos. 2 to 9 in opposing the prayer of the petitioners to furnish documents would persuade us to hold that there was any embargo legal and/or factual for such documents not to be furnished/supplied to the petitioners.
The objection of such respondents that the petitioner ought not to have raised such plea on the documents at the midst of the final hearing, as this itself would show that no prejudice was caused to the petitioners, in our opinion, is certainly not a tenable contention, for more than one reason.
Moreover, as observed above, the case of the petitioners is that the very basis of the SEBI undertaking investigation on the complaints as made by the petitioners of BNL violating the rules, regulations and norms as prescribed by SEBI, being violated by BNL and the same forming subject matter of investigation by SEBI and the resultant show cause notice were foundational facts, hence, in such context, it was the petitioners’ entitlement to receive all the documents in that regard. Such documents therefore have all relevancy as law would contemplates in the present lis between the parties. Thus, the impression of respondent Nos. 2 to 9 that the petitioners should not be provided with such documents, is not acceptable.
Once it is the entitlement of the petitioners in law to receive such documents, they need to be furnished such documents, unless furnishing of these documents would stand prohibited in law, which is certainly not a situation in the present facts.
Regulations are framed under the SEBI Act, 1992. The avowed object and intention of the Act is to protect the interests of investors in securities and to promote the development of, to regulate the securities market. Thus, all actions which are taken by the SEBI and through the various bodies as constituted under the Act and the regulations are required to act considering the paramount interest of the investors. For such reasons as well, we do not find as to why the petitioners ought not to be entitled to the documents. We do not find that there is any impediment whatsoever in law or otherwise for the documents, as demanded, to be supplied to the petitioners.
We are inclined to grant to the petitioners interim relief in terms of prayer clause (g).
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2023 (10) TMI 683
Violation of Buyback Regulations and PFUTP Regulations 3 and 4 of the SEBI - Fraudulent and Unfair Trade Practices relating to Securities Market - allegation of misleading public announcement designed to influence the decisions of investors - Company wrote to SEBI informing that it could not ensure buyback of 50% of the amount earmarked as required under Regulation 14(3) of the Buyback Regulations. It requested SEBI to release the cash Escrow amount containing 2.5% of buyback size u/r 15B of the Buyback Regulations
HELD THAT:- The investigation report clearly held that the Company had complied with relevant provisions of Regulation 15B (8) of Buyback Regulations (for release of amount deposited in Escrow account by the Company) holding that “No major impact on price / volume was observed on the basis of any of the corporate announcement made by Cairn during the investigation period”. The Company could not have foreseen or predicted that the stock markets would witness this bullish trend at the time when the decision for going for a buyback was taken nor could the Company be aware at the time of making the public announcement that the traded price of the scrip would be above the maximum buyback price on 68 days out of 123 trading days.
Thus, allegation that the Company had made misleading public announcement on January 14, 2014 designed to influence the decision of investors and to induce sale or purchase of its securities is not proved.
Company failed to show intent towards completing the buyback by not putting enough buy orders at appropriate time and therefore acted fraudulently - As we find that out of 123 trading days available to the Company to conclude the buyback, on 55 days at BSE and 54 days at NSE, the closing price of the scrip was lesser or equal to maximum buyback price of Rs. 335/-.
Closing price was more than maximum buyback price of Rs. 335/- per share from April 2, 2014 to April 23, 2020 and from May 12, 2014 to July 22, 2014 - out of 123 days available to the Company to complete the buyback, it placed buy orders on 82 days on NSE and on all 123 days on BSE.
It is also noted that the SEBI (Buyback of Securities) Regulations, 1998 do not lay down any method or procedure for conducting the buyback. The Company appointed professional merchant bankers and brokers for the buyback transaction and deposited Rs. 143.12 crores in an Escrow account. It cannot be faulted for adopting a prudent and cautious approach by placing few buy orders at the initial stage of the buyback period. Placement of large buy orders at the initial stage could have affected the price of the scrip and possibility of the price going above the maximum price even earlier could not be ruled out.
The Company could not have perceived that in last 2-3 months of the buyback period the price would not be favourable.
There is nothing on record to indicate that the Company instructed the intermediaries to prefer one Stock Exchange over another. The Company utilized Rs. 1225.45 crores in the buyback process and in our view this is not a paltry sum to invest for a non-serious effort to buyback the shares. The above indicates that it cannot be conclusively proved that the Company showed no intent to successfully complete the buyback and there by acted fraudulently.
Thus, we hold that the violations of provisions of Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(K) and (r) of the PFUTP Regulations and Regulations 19(1)(a) of the Buyback Regulations are not proved against the Company.
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2023 (10) TMI 358
Request to place on record a compilation of documents - request as made to place on record the compilation of documents, and at this stage, when the Court had already commenced with the final hearing of the proceedings is strongly objected by petitioners - HELD THAT:- We find much substance in the contentions as urged on behalf of the petitioners by Mr. Seervai and Mr. Joshi. At the outset, we may observe that we cannot accept a compilation of documents to be placed on record of the proceedings at the stage the present proceedings stand, that is the Court having already commenced final hearing on the petitions. More particularly on a crucial issue the petitioners have already and quite substantively having argued their case for the entire second session yesterday.
It may be that such averments are made in the affidavit as noted by us above, however, such averments would not confer any right or entitlement on respondent no. 2 to place on record a big bunch of documents, at the midst of the final hearing as requested by Mr. Dhond in his oral application. This would be certainly contrary to the basic rule the Court would adopt on pleadings.
Also after such long lapse of time and that too after the proceedings have commenced final hearing and the petitioners had commenced their arguments and quite substantially it would not be fair to the petitioners that new material documents unknown to the parties are permitted to be placed on record. It would also not be fair to the process of adjudication of the proceedings. Moreover, this would be completely contrary to the basic law of pleadings under which any plea to be taken by a party which may be on documents or otherwise would be required to be taken by way of a pleading in that regard, and such documents on which a plea is taken are required to form part of the record, in a manner known to law. This is the normal rule, so that such plea and documents are made known to all the parties on which the parties can advance their case before the Court.
If we permit such compilation of documents to be placed on record, we permit a completely new course of action, which would be permitting respondent no. 2 to make out a case on documents which are not part of the record and on which there is no specific pleading on any such document and above all which are not in the knowledge of the petitioners. This can certainly cause a grave and serious prejudice to the petitioners.
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2023 (10) TMI 357
Penalty imposed by SEBI - petitioner's PAN No. given in the order does not belong to him, but to a third party - According to the first respondent, the petitioner is liable to pay interest on the penalty amount from 16.06.2017 till 11.05.2023 - HELD THAT:- If the facts of this case is tested on the touchstone of Section 220 of the Income Tax Act, it will be evident that the first respondent cannot claim any interest, since the order of SEBI imposing the penalty carries a wrong PAN particulars. It may be that the petitioner might have chosen to challenge that order before the appellate Tribunal and also before this Court, but vis-a-vis the payment of interest, it must be fastened on the person satisfying all the features that goes to identify the person conclusively, argued the counsel.
First respondent submitted that if the petitioner is aggrieved by the order of the appellate Tribunal, he ought to approach the Hon'ble Supreme Court u/s 15-Z and challenge it. And if it is against such other orders of the Board or the adjudicating officer, then the petitioner ought to approach the SEBI Appellate Tribunal u/s 15T. Hence, the present writ is not entertainable. Secondly, so far as the present dispute itself is concerned, the petitioner knew against whom the order of penalty was passed, and it is hence he has to approach the appellate Tribunal, and it is too late in the day for the petitioner to plea innocence.
This Court concurs with the submission of the counsel for the first respondent on both the scores. It is not in dispute that the SEBI has imposed the penalty on the petitioner and he had also paid it. The interest is but incidental to it. Therefore, the petitioner cannot escape paying the interest component as is now demanded. The PAN particulars are, but one of the mode to identify an individual, and merely because a wrong PAN number is given, it does change the individual, more so when the petitioner had paid the penalty without demur. Turning to the maintainability, the petitioner ought to have challenged it in the manner provided under the Act.
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2023 (9) TMI 1103
Unregistered investment advisory activities - Investment advisory services with guaranteed assured returns causing monetary loss to the complainants - Challenging direction to Refund the monies received from the investors towards investment advisory services - HELD THAT:- We find that in the instant case the direction to refund the amount has been issued under Section 11 of the SEBI Act we are of the opinion that SEBI has a power to direct refund of amount in the interest of the investors or to promote development of the securities market. In any case, such power is also derived under Regulation 35 of the Intermediaries Regulations. In our opinion the direction to refund the amount is squarely covered under Regulation 35. The contention that Regulation 35 is only with regard to collection of money under any scheme is patently erroneous. The word “scheme” is wide enough to include a device which the appellant have carried out in the form of giving advisory services without obtaining registration. In view of the aforesaid, the contention raised by the appellant does not survive.
As contended that the appellant at best can only be entitled to refund the amount till the date when the appellant was a partner in the firm but after the dissolution of the partnership the appellant is not entitled for the action of the respondent in carrying out advisory services. In our opinion the submission cannot be accepted as there is no clear cut evidence to show that the partnership had validly dissolved. In the absence of any cogent proof the submission cannot be accepted.
We of the view that since appellants were carrying out advisory services without registration the direction to refund the amount by the WTM does not suffer from any error of law.
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2023 (9) TMI 575
Violation of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 - Related party transactions without taking prior approval of the Audit Committee and Board as required under the LODR Regulations - two Independent Directors continued to remain as Independent Directors inspite of appointment of their relatives in the Company/ overseas subsidiary which was also violative of the LODR Regulations - penalty of Rs. 25 lakhs under Section 23E of the SCRA against the Company and Rs. 10 lakh each on the two Independent Directors and Rs. 4 lakhs on the Company Secretary - HELD THAT:- Company and the Company Secretary failed to disclose this event under Regulation 30 of the LODR Regulations. Under Regulation 6, the Compliance Officer is responsible for ensuring conformity with the regulatory provisions applicable to a listed company and, therefore, the Company Secretary failed to discharge his duties.
We find that the appellants had committed violations of various provisions of the LODR Regulations. The said violations are however not that serious warranting imposition of high penalties.
In the instant case, the Company has been penalized under Section 23E of the SCRA. In Suzlon Energy Ltd. & Anr. vs. SEBI [2020 (2) TMI 1704 - ITAT MUMBAI] this Tribunal has held that Section 23E of the SCRA is not the charging provision for imposition of penalty for violation of the Listing Agreement and that the correct provision is Section 23A(a) of the SCRA.
We find that penalty under Section 23A is from a minimum of Rs. 1 lakh to a maximum of Rs. 1 crore and under Section 23E of the SCRA a penalty is up to a maximum of Rs. 25 crores.
Thus imposition of penalty amounting to Rs. 25 lakhs is excessive and arbitrary in the facts and circumstances of the given case. This Tribunal by an interim order dated 22.11.2022 had directed the said Company to deposit a sum of Rs. 10 lakhs which they have done. Considering the aforesaid, we are of the opinion, that for the violation committed by the Company noticee no. 1 the penalty of Rs. 25 lakhs is reduced to 10 lakhs.
Two independent directors are concerned i.e. noticees no. 2 and 3 the imposition of penalty of Rs. 10 lakhs each in the given circumstances is high and excessive. We find that the relatives of the independent directors were not appointed in the Company but in an overseas subsidiary Company. Company re-designated the independent directors as non-independent directors though at a belated stage. Considering the aforesaid, in the given circumstances the penalty is reduced to Rs. 5 lakhs each.
For the Company Secretary a penalty of Rs. 4 lakhs has been imposed for violation of Regulation 6(2)(a) i.e. for not disclosing the appointment of the forensic auditor. As the Company and its directors have been penalized the imposition of penalty against the Company Secretary should be the minimum penalty. We, consequently reduce the penalty of Rs. 4 lakhs to Rs. 1 lakh.
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2023 (9) TMI 574
Fraudulent issuance of GDRs by the Company - Company had misled the investors in believing that the GDR issue was successful whereas there was only one subscriber - penalty of Rs. 1 crore for violation of Section 12A of SEBI on ex-managing director of the company as filled this appeal - HELD THAT:- We find that the proceeds of the GDR issue were received by the Company belatedly and was utilized for the purpose for which the GDR was issued. There is no diversion of funds and no wrongful dealings in securities other than the fact that amount was received belatedly. The AO has himself given a finding that no disproportionate gain is attributed to the appellants nor any finding that any loss was caused to the shareholders or investors.
Whether the penalty imposed by the AO was harsh and excessive? - As the appellant had resigned on January 14, 2008. The money raised through GDRs has been received by the Company and has not been misappropriated. The same has been utilitised for the purpose for which the GDR was issued which fact has not been disputed. Thus, it is not a case of defalcation of the funds.
Thus, the imposition of penalty upon the appellant after 12 years from date of resigning is excessive. In a large number of cases we have reduced the penalty to Rs. 10 lakh.
While affirming the order of the AO for the violations committed by the Company we reduce the penalty from Rs. 1 crore to Rs. 10 lacs. The appeal is partly allowed. In the circumstances of the case, parties shall bear their own costs.
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2023 (8) TMI 1388
Fraudulent use of Colocation facility in NSE - possible violation pertaining to dark fibre connectivity provided by Sampark in connivance / collusion with employees of NSE, with the stockbrokers and the role of the stockbrokers who allegedly benefited from the preferential access to colo facility by way of P2P connectivity from an un-authorised service provider - direction to disgorge an amount alongwith interest and other directions have been issued to ‘NSE - noticee nos. 1, Way2wealth Brokers Pvt. Ltd.- noticee nos. 8 and GKN Securities Pvt. Ltd. noticee nos. 12 - With regard to other noticees, a restraint order has been passed for different periods restraining the said noticees / appellants directly or indirectly from holding any position or being associated with any listed company.
HELD THAT:- As on a reading of the provisions of Section 12A of the SEBI Act and Regulation 3 & 4 of PFUTP Regulations, it is apparently clear that the object of Section 12A & PFUTP Regulations is to curb “market manipulations”. The manipulative and deceptive devices must be in relation to “securities” and must be by a person “dealing in securities”. The Supreme Court has enlarged the scope of “fraud” under the PFUTP Regulations to cover an action or omission even without deceit if such act or omission had the effect of inducing another person to deal in securities. Thus, “inducement” became more significant where ‘fraud’ was required to be proved. The Supreme Court held that fraud can be inferred on a preponderance of probabilities. However, the inferential conclusion must be arrived at from proven and admitted facts.
Further, fraud cannot be proved only on alleged negligence, as amounting to collusion and connivance. The Supreme Court in Kanaiyalal’s case [2017 (9) TMI 1269 - SUPREME COURT] has categorically held that the element of “inducement” must exist and should be proved before holding that a person is guilty of fraud. In the instance case, there is no finding that NSE had induced someone and thereby played a fraud in the securities market. There is no cogent evidence to show that the NSE is guilty of “inducement”. In the absence, of any evidence, the charge of fraud is not proved, nor the provisions of Regulation 3 and 4 of PFUTP Regulations applicable.
We find that the charge of fraud is not made out under any circumstances. In order to establish the charge of fraud, SEBI is required to establish that the fraud was induced which, in the instant case, is missing. Merely on surmises and conjunctures one cannot come to a conclusion that a fraud was committed by NSE and that was induced in connivance with the two stockbrokers.
In the instant case, we find that it was the two stockbrokers who came forward with an application to get P2P connectivity through Sampark and, thus, on this short point, the question of NSE inducing W2W or GKN to subscribe to the co-location facility with the promise of faster access does not arise.
There is no relevancy of the latency advantage from P2P connectivity as no trading or live data was transmitted on these lines and, therefore, the question of NSE facilitating laying of cable, etc. and, therefore, depicting fraudulent or unfair trade practices does not arise.
Due diligence was not carried out by NSE while allowing Sampark to provide P2P connectivity without finding as to whether Sampark had a valid license for that purpose. We have held that there was lack of due diligence and, thus, negligence on the part of NSE. Lack of due diligence and / or negligence cannot amount to fraud as defined under Regulation 2(c) unless there is evidence to show that there was a deliberate intention on the part of NSE to commit a fraud by misrepresentation or by concealment of fact or by such act or omission under any other law specifically declares it to be fraudulent. In the absence of any such evidence, we are of the opinion that the charge of fraud under Regulations 3 and 4 of the PFUTP Regulations read with Section 12A of the SEBI Act is not proved.
Order of disgorgement - Disgorgement means that the act of giving up something, namely profit obtained by illegal or unethical acts. It is a repayment of ill-gotten gains by the wrong doer. Disgorgement is also an equitable remedy that is designed to prevent a wrongdoer from unjustly enriching himself as a result of his illegal conduct. It is not necessary that in each and every case there should be a direction to disgorge profits merely because the provisions of the Act or Regulations have been violated. Disgorgement should be ordered only where persons have made gains or averted loss/losses as a result of their illegal / unethical acts.
The disgorgement can be of an amount equivalent to the amount earned or gain made or loss averted by such contravention. Before an order of disgorgement could be issued, the WTM has to arrive at a specific finding that NSE had made a wrongful gain. In the absence of any finding that NSE had made a wrongful gain, the question of disgorgement does not arise. In the instant case, the WTM in paragraph nos. 70.1 without giving any finding that NSE had made a wrongful gain through P2P connectivity deemed it proper to direct NSE to deposit a reasonable portion of the revenue earned through its colo facility which has nothing to do with the alleged P2P connectivity. The two are totally different. There is no finding that NSE has charged an additional fee or revenue for P2P connectivity.
Portion of the revenue earned by NSE through its colo facility cannot be made part of disgorgement. Revenue earned by NSE from colo facility is not an unlawful gain and, thus, the direction to disgorge an amount from the revenue earned is wholly erroneous and illegal.
We have found that NSE was negligent in not carrying out due diligence while allowing an unauthorized vendor to provide P2P connectivity to its TMs. For this negligent act, direction under Section 11 and 11B of the SEBI Act other than disgorgement could be issued.
In view of the aforesaid, the direction to disgorge an amount of Rs. 62.58 crore alongwith interest cannot be sustained and to that extent is quashed and other directions given under Section 11 and 11B read with Section 12A of the SEBI Act are sustained and are appropriate for the violations found by us.
Denial of services to certain stockbrokers resulting in dissemination and non-adherence to principles of fairness - Chitra Ramkrishna – Noticee Nos. 3 - As given the lack of due diligence and negligence committed by NSE in not verifying the license, we are of the opinion that in the given circumstances, it is presumed that when the matter came to the light that Sampark did not have a valid license, it must have brought this fact to the knowledge of the MD. In any case, the appellant noticee nos. 3 is morally responsible for this lapse which she cannot escape.
WTM directed that Chitra Ramakrishna shall not hold any position in any stock exchange, clearing corporation, depository for a period of three years. Further she will not hold any position in a listed company for three years.
The powers conferred on SEBI under Section 11 and 11B is to protect the interests of investors in securities and to promote the development of and to regulate the securities market. Therefore, the measure to be adopted by SEBI is remedial and not punitive. In a given case a measure of debarring a person from entering the securities market will be justified, but in our view, by no stretch of imagination debarring noticee nos. 3 for the alleged lapse could be remedial in nature. A remedial action is to correct a wrong or a defect. Preventive measure can be issued in a given case of unfair trade practice or where fraud is proved. In the instant case, the above is lacking and debarring the noticee would be clearly punitive and violation of Article 19(1)(g) of the Constitution of India as it takes away the fundamental right to carry on its business.Thus, the direction to debar the appellant noticee nos. 3 cannot be sustained and is quashed. At best penalty could be imposed upon appellant noticee nos. 3.
Mr. Ravi Varanasi (Noticee nos. 5), Mr. Nagendra Kumar SRVS (Noticee Nos. 6) and Mr. Deviprasad Singh (Noticee Nos. 7) - non-verification of Sampark’s license and, therefore, there was lack of due diligence and negligence on their part - The direction that the appellants shall not hold any position either directly or indirectly or be associated directly or indirectly with any stock exchange, clearing corporation or depository or any intermediary registered with SEBI for a period of two years is harsh and excessive and cannot be sustained and is quashed. Such direction if implemented would lead to automatic termination of their services which can never be the intention of the Regulator. In addition to the aforesaid, the additional direction against Mr. Ravi Varanasi of being debarred from holding any position either directly or indirectly or have been associated directly or indirectly with any listed company in any of the stock exchanges recognized by SEBI for a period of three years also cannot be sustained and is quashed. However, for the violation found by us, a penalty, if any, can be imposed.
The contention that there has been a gross violation of principles of natural justice as permission to cross-examine those persons whose reports, statements, mails, letters were considered by NSE becomes immaterial as it does not touch upon the issue in which the appellant has been found guilty.
Way2Wealth Brokers Pvt. Ltd., noticee nos. 8 and Mr. M. R. Shashibhushan, noticee nos. 9 - W2W had given an undertaking to NSE that the end line of P2P connectivity will terminate at their office which was located in the BSE premises. Instead of terminating at their office the P2P connectivity was directly connected to its colo rack at BSE premises. This direct connection was in violation of the undertaking given by them to NSE. The contention that W2W was unaware is patently erroneous. The contention of noticee nos. 9 that he was not aware of such irregularities is patently erroneous. Their internal correspondence between noticee nos. 9 and its employee Rima Shrivastav clearly indicates that they were aware of the irregularities. We, thus, find that the broker W2W and its Chief Executive Officer noticee nos. 9 to be guilty of these irregularities.
For the reasons stated earlier on the issue of disgorgement with NSE and for the same reason, we find that the direction to disgorge a sum of Rs. 15.34 crore alongwith the interest cannot be sustained and is quashed. For the violations committed by the broker, the direction of the WTM not to accept, induct or enroll any new client for a period of one year and not to undertake any trades in its proprietary account for a period of two years was appropriate. The direction against noticee nos. 9 Mr. Shashibhushan not to hold any position with any stock exchange, clearing member, etc. for a period of two years is harsh and inappropriate and cannot be sustained and is quashed. However, for the violation found by us, appropriate penalty could be imposed, if any.
GKN Securities noticee nos. 12, Ms. Sonali Gupta noticee nos. 13, Mr. Om Prakash Gupta noticee nos. 14 and Mr. Rahul Gupta noticee nos. 15 - As already held that preferential treatment was not given by NSE to GKN nor latency advantage was given in the P2P connectivity. Further, inspite of knowing that Sampark did not have the requisite license, it does not point out to collusion between GKN and NSE and, therefore, the finding of preferential treatment, discrimination to others and collusion between NSE and GKN cannot be sustained and, to that extent, the charges cannot be sustained.
In view of the aforesaid, the question of disgorgement of unlawful gains does not arise and for the reasons stated aforesaid, while considering the case of NSE, the direction to disgorge unlawful gain of Rs. 4.9 crore against GKN does not arise and cannot be sustained. However, the direction restraining the noticee from accepting new client for a period of one year and not to undertake any trades in its proprietary account for a period of two years is justified. Appropriate penalty, if any, can be imposed.
Appeal is partly allowed. The direction to disgorge an amount of Rs. 62.58 crore alongwith interest cannot be sustained and to that extent the order is quashed. Other directions passed by the WTM under Section 11 and 11B read with 12A of the SEBI Act are affirmed and are appropriate for the violations found by us.
Since we have set aside the unlawful gains, we direct SEBI to refund a sum of Rs. 62.58 crore along with interest accrued on it to the appellant within four weeks from today. We further vacate the direction given to the appellant for depositing the revenues emanating from colocation facility, etc. in an escrow account and the details to be submitted to SEBI from time to time.
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2023 (8) TMI 710
Delisting orders from DSE - Rishab Ispat Ltd., of which the petitioner herein was a former Director, was listed on the Delhi Stock Exchange was suspended from DSE on account of non-compliance with certain norms of the respondent no. 1/Securities and Exchange Board of India (hereinafter ‘SEBI’) - Directions to Stock Exchanges to deal with companies exclusively listed on non-operational stock exchanges - Scope of exit policy for all derecognized/non-operational stock exchanges - On 10.10.2016, SEBI issued a circular facilitating the exit of derecognized/non-operational stock exchanges and shareholders of the Exclusively Listed Companies (hereinafter 'ELCs') by allowing them to get listed on the nationwide stock exchanges after complying with the diluted listing norms, failing which they will be moved to the Dissemination Board - HELD THAT:- Since Rishabh Ispat Ltd., had neither got itself listed on a nationwide stock exchange, nor had provided an exit option to all of its shareholders, and furthermore, had also not provided a plan of action to BSE, the impugned action/order dated 30.04.2018 was taken.
It can, thus, be seen that firstly, Rishabh Ispat Ltd., received a letter from BSE dated 20.10.2016, seeking from it and also from its management, compliance with SEBI's circular dated 10.10.2016. Secondly, the circular of SEBI itself provided under paragraph 6 that coercive actions may be taken against the promoters/directors of ELCs that have failed to demonstrate the adequacy of efforts for providing exit to their shareholders in conformity with the exit mechanism, as provided for under the said circular; and thirdly, Rishabh Ispat Ltd., did in fact, fail to demonstrate the adequacy of efforts for providing exit to its shareholders in conformity with the exit mechanism.
Since the provisions of the circular dated 10.10.2016 had been violated by Rishabh Ispat Ltd., and also because the requirements of paragraph 3 of the circular dated 01.08.2017 had been met, BSE rightfully, in discharge of its obligations under SEBI's circular dated 01.08.2017, took the action/order dated 30.04.2018.
This court finds that sufficient opportunity of hearing was provided to Rishabh Ispat Ltd., as also to the petitioner, in order for BSE to have taken the action/order dated 30.04.2018.
The argument of the learned counsel for the petitioner that the petitioner having resigned from the post of the Director on 05.03.2018, and therefore, the action/order dated 30.04.2018 could not have been taken against the petitioner, is also liable to be rejected as the same is found to be baseless.
If at all such an argument is to be accepted, then every director, who blatantly violates the mandatory terms of the circulars of the SEBI dated 10.10.2016 and 01.08.2017, could simply resign and claim impunity from the coercive actions that are envisaged by SEBI. The object and purpose for which the circulars were issued would, therefore, get frustrated.
It must be seen that when the circular dated 01.08.2017 was issued by SEBI, in furtherance of which BSE took the impugned action/order dated 30.04.2018, the petitioner remained a Director of Rishabh Ispat Ltd. Importantly, it must also be considered, that the terms of the order dated 01.08.2017 do not require a person to hold a continued position of directorship in the ELC. The circular dated 01.08.2017, specifically paragraph 3, merely requires non-compliance with the circular dated 10.10.2016 on the part of an ELC.
The petitioner’s representations that are placed on record may now be briefly considered. It may be noted that the first representation placed on record is a joint letter by the petitioner and one Sh. Naresh Kumar Jain, Director, Rishabh Ispat Ltd., dated 28.04.2018.The letter is addressed to SEBI and is concerned with an action taken by SEBI on 04.04.2018. The petitioner, in the present petition, has not assailed any order/action of SEBI dated 04.04.2018. This court, therefore, finds this representation to be wholly irrelevant.
The second representation is a letter by the petitioner addressed to SEBI, dated 13.11.2019. This letter is again not concerned with the action/order of BSE dated 30.04.2018. This court does not find the representations to be either relevant or supporting the case of the petitioner insofar as the present writ petition is concerned.
In relation to the submission of the learned counsel for the petitioner, that the order dated 30.04.2018 is non-speaking and therefore violative of Section 11(4) of the SEBI Act, this court finds it to be wholly without merit. The action/order dated 30.04.2018 was taken by BSE and not by SEBI. While the action/order was taken by BSE, it was complying with, and taken in furtherance of, the circular dated 01.08.2017 of SEBI. With this factual matrix, this court, is unable to find any relevance or applicability of Section 11(4) of the SEBI Act.
This court is, therefore, of the considered opinion that the circulars dated 10.10.2016 and 01.08.2017 issued by SEBI are legally valid, and are part of a structured scheme that deals with the situation of ELCs, and the manner in which the shareholders associated with such ELCs are to be protected.
This court also does not find any infirmity in the order dated 30.04.2018 passed by BSE.
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2023 (8) TMI 202
Violation of Regulation 11(1) of the SAST Regulations - Non issue of open offer as warrants were converted into shares - SAST Regulations retrospective or prospective application - AO held that the promoters of Reliance and persons acting in concert acquired the shares and voting rights on 7th January, 2000 which is the date of acquisition and on which date the obligation to make a public announcement for an open offer under Regulation 11(1) was triggered, and that the acquisition of 6.83% of the shares was in excess of the ceiling of 5% prescribed under Regulation 11(1) of the SAST Regulations and, therefore, it triggered the obligation to make an open offer - penalty under Section 15H of the SEBI Act imposed - whether the promoters were liable to make a public announcement under Regulation 3(2) of the 2011 SAST Regulations. ?
HELD THAT:- Tribunal erred in concluding that the appellants were required to make an open offer in terms of Regulation 3(2) of the SAST Regulations as it failed to consider the definition of the term ‘shares’ as contemplated in the SAST Regulations as well as in the 2011 SAST Regulations. The Tribunal only followed the decision in Sohel Malik [2008 (10) TMI 730 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] and Eight Master Capital Fund [2009 (7) TMI 1386 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] which as we have pointed out is distinguishable on facts as well as on law. In any case, it was not a case involving warrants. Further, in our view, the obligation cast on the appellants to make an open offer which was triggered under the SAST Regulations had to be made under the 2011 SAST Regulations since the SAST Regulations had been repealed.
Bombay High Court in M. Sreenivasalu Reddy and Ors. vs. Kishore R. Chabbaria & Ors. [1999 (4) TMI 570 - HIGH COURT OF BOMBAY] is squarely applicable in the instant appeal as held that a person who has acquired securities convertible into equity shares carrying voting rights prior to the coming into force of the 1994 SAST Regulations is not an ‘acquirer’ under the 1994 SAST Regulations and that the conversion of such securities into shares carrying voting rights is not an acquisition triggering a public announcement under the 1994 SAST Regulations.
Thus we hold:
(i) in terms of Regulation 11(1) read with Regulations 2(1)(b) and 2(1)(k) and 14(1) and (2) of the SAST Regulations an obligation to make a public announcement for an open offer is triggered at the time of acquisition of such convertible securities.
(ii) The contention of the respondent that under Regulation 11(1) read with Regulation 14(2) an obligation to make an public announcement for an open offer is triggered under the SAST Regulations at the time of conversion of warrants into equity shares carrying voting rights is rejected.
(iii) Only a person who acquires such convertible securities after coming into effect the SAST Regulations will be an ‘acquirer’ within the meaning of Regulation 2(1)(b) of the SAST Regulations and only such acquisition will be ‘an acquisition’ governed by the SAST Regulations. Further, a person who has acquired convertible securities before SAST Regulations coming into force will not be an ‘acquirer’ for the purpose of the SAST Regulations in as much as there is no acquisition under the SAST Regulations. The right to obtain shares was vested in the appellants in 1994 when detachable warrants were issued. Such vested rights cannot be rendered nugatory on the enactment of the SAST Regulations.
(iv) We further hold that the appellants who acquired the warrants on 12th January, 1994 were not “acquirer” within the meaning of Regulation 2(1)(b) of the SAST Regulations and that there is no acquisition by them under the SAST Regulations and, consequently, the provision of the SAST Regulations cannot be applied to the warrants allotted to them on 12th January, 1994. The detachable warrants that was acquired prior to the coming into force of the SAST Regulations were not governed by any of the provisions of the SAST Regulations.
Thus, taking into account the scope, purpose and objective of the SAST Regulations, we are of the opinion that since the acquisition took place on 12th January, 1994 much before the enforcement of the SAST Regulations, we are of the opinion that the appellants are not acquirers under the SAST Regulations.
Whether the SAST Regulations had a retrospective application or a retroactive application with regard to the warrants that was acquired in January, 1994? - As held that the obligation to make a public announcement under Regulation 11(1) is triggered at the time of acquisition of the warrants and not at the time of conversion of such warrants into equity shares with voting rights. If the appellants are directed to make a public announcement in respect of the equity shares of the Company allotted to the persons acting in concert in January, 2000 by conversion of warrants held by them then it will be a retrospective application of the SAST Regulations. Admittedly, the SAST Regulations is not retrospective in their application and there is nothing in the Regulations suggesting its application prior to its enforcement i.e. prior to 20th February, 1997. In our view, “retrospective application” or “retroactive application” of the SAST Regulations is not relevant.
The Companies Act gave the warrant holders the right to receive shares carrying voting rights upon conversion of warrants without any obligation attached to such warrants. The obligation to make an open offer is a substantive obligation under the SAST Regulations and if the legislature decided to impose an obligation on warrants and other convertible instruments outstanding at the time of enactment of the SAST Regulations it could have done so by inserting a specific provision for the same. Admittedly, there is no such provision under the SAST Regulations dealing with warrants and other convertible instruments outstanding at the time to enactment of these Regulations.
Period of limitation:- As we are of the opinion that there has been an inordinate delay in the issuance of the show cause notice. Even though there is no period of limitation prescribed in the Act and the Regulations for issuance of a show cause notice and for completion of the adjudication proceedings, nonetheless, the authorities are required to exercise its powers within a reasonable period. In AO, SEBI vs Bhavesh Pabari, [2019 (3) TMI 197 - SUPREME COURT] the Supreme Court held that an authority is required to exercise its powers within a reasonable period.
Admittedly, it took 11 years from the date of the commission of the alleged violation in January, 2000 to issue a show cause notice.
It took SEBI 9 long years to decide the consent application. The impugned order has come after 21 years of the alleged violation. We find that the delay has caused serious prejudice to the appellant. There is an inordinate delay in the initiation of the proceedings but also in the disposal of the proceedings. The impugned order, thus, is liable to be set aside also on this ground.
Penalty of Rs. 25 crores has been imposed u/s 15H of the SEBI Act which came into existence with effect from 8th September, 2015 - As the provision 15H existing as on January, 2000, would apply which at that point was a maximum penalty of Rs. 5 lakh, Thus, in our opinion, a penalty of Rs. 25 crores could not have been imposed and even assuming that the violation had occurred, a maximum penalty of Rs.5 lakhs could be imposed.
We find that the appellant has not violated Regulation 11(1) of the SAST Regulations. The imposition of penalty upon the appellant is without any authority of law. Consequently, the impugned order cannot be sustained and is quashed. The appeal is allowed. All the misc. applications are accordingly disposed of.
We have been informed that the penalty amount pursuant to the impugned order was deposited by the appellants under protest. Since we have set aside the impugned order, the respondent is directed to refund the amount of Rs. 25 crore within four weeks from today. In the circumstances of the case, parties shall bear their own costs.
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2023 (8) TMI 201
Violation of the SEBI (Prohibition of Insider Trading) Regulations - Financial assistance to the preferential allottees - limiting genuine capital infusion - direction of the WTM directing the appellants to pay the amount jointly or severally - HELD THAT:- We are of the opinion, that when the Company uses its own funds and distribute it to the allottees for the purpose of subscription to the shares it deceives the genuine investors and falsely leads the investors to invest in the shares of the Company. Such scheme in our opinion perpetuates a fraud on the ordinary investors and gives a false impression that there was an infusion of funds through preferential allotment.
We are further of the opinion, that this kind of fraudulent act which is an unfair device was meant to deceive the investors and such act is clearly prohibited u/s 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations. In view of the aforesaid, the contention raised by the learned counsel for the Company does not hold any merit.
Direction of the WTM directing the appellants to pay the amount jointly or severally - 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 - 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.
There is no inter se connection of noticees no. 10, 11 and 14 with the other noticees except that these noticees are connected to the Company noticee no. 1.
In our view, the directions to pay the penalty amount jointly and severally was not proper and is arbitrary. The appellants have been found to be part of the scheme planned by the Company and have been involved in transferring the funds to the preferential allottees for subscription of the preferential allotment of the shares. The AO has imposed a penalty of Rs. 46 lakhs upon 23 noticees to be paid joint and severally which works out to Rs. 2 lakhs per noticee. However, considering the peculiar facts and circumstances of the present case, which shall not be treated as a precedent in other cases, we are of the opinion, that the penalty of Rs. 4 lakhs would be just and proper for each of the appellants i.e. noticees no. 10, 11 and 14.
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2023 (8) TMI 200
Order directing SEBI to appoint another Whole Time Member (WTM) - no WTM at the present moment to hear and decide the matter - Delegation of Statutory and Financial Powers - HELD THAT:- As a result of the delegation of powers stipulated in serial no. 19 and 19A, only the WTM under Serial no. 19 can consider the appellants reply and objection for modification / vacation of the ex-parte ad-interim order dated June 12, 2023.
It is not known as to when the Central Government will appoint new WTM. The matter is one of urgency since the appellants have been restrained from acting as a directors and / or key managerial personnel of the company and have been further restrained from accessing the securities market and that is why we have framed the timeline to the WTM to pass an order within a stipulated period.
We also find that under Clause 3(2) of the Order of 2019, the power and functions delegated to any member or officer of the Board or authority could be exercised by any officer or authority, higher in grade or rank or position.
We direct SEBI to appoint another WTM and if no WTM is available, then any authorised officer higher in grade or rank or position to the WTM would hear and decide the matter. This would be in consonance with the Clause 3(2) of the Order of 2019 relating to delegation of powers dated July 31, 2019. The person who is appointed shall pass the order within the stipulated period as per paragraph no. 32 of our order dated July 10, 2023.
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2023 (8) TMI 199
Siphoning of the funds of the listed company through related entities - offence under SEBI Act - Need for Urgent provisional action for passing ex parte ad interim order - As contented issue relates to the financial year 2019-20 and therefore there was no emergent circumstances which led the respondent to pass an interim order after more than 3 years - HELD THAT:- In the instant case the WTM has found that the related entities of ZEEL had defaulted in the repayment of the loan taken by them, as a result of which, the fixed deposit given by ZEEL was encashed by the Bank.
The related entities alleged that the money was eventually repaid to ZEEL along with interest. In this regard, the details of the payment was sought by SEBI and the information supplied by ZEEL led to a further enquiry which showed prima facie a round tripping of the funds by ZEEL. It was found that the funds originated from ZEEL and listed companies of Essel Group and ultimately through multiple layers the funds travelled back to ZEEL within 2 to 3 days. This evidence based on bank statements prima facie led to a conclusion that there has been a siphoning of the funds of the listed company through related entities and which is to the detriment of the shareholders and the investors.
These bank statements made the WTM to observe prima facie that there has been a siphoning of the funds and round tripping of the funds from ZEEL to ZEE through related entities.
Contention of the appellants that the transaction related to the financial year 2019-20 and therefore there was no tearing hurry to pass such kind of interim order at this stage is not acceptable. There is nothing on record to indicate that the details of the repayment made by the related entities was made known to the SEBI or to the Stock Exchange in 2019-20. These details only surfaced when ZEEL provided the information on May 8, 2023. Thus, prima facie at this stage there is no delay in the passing of the impugned order.
Contention that no prima facie case existed in passing the impugned order is wholly erroneous. The contention that the conclusion of siphoning of the funds cannot be arrived at on the basis of the bank statements is an attractive argument but such contention cannot be considered in view of the fact that a prima facie opinion was arrived at based on objective facts indicating diversion of funds from a listed company which was not in the interest of its shareholders and the investors coupled with the fact that no evidence of any sort has been placed before us to show that the prima facie finding is perverse.
In the instant case we find that an ex parte ad interim order was issued considering the sense of urgency which was infused by a host of circumstances, namely, diversion of funds from a listed company to related parties which are controlled by the appellants. In the absence of any evidence being filed by the appellants before us, we do not find any perversity, irregularity, illegality or irrationality in passing of the impugned order.
Since the appellants have failed to provide any cogent evidence barring the fact that one of the entities, namely, Pen India Ltd. which according to the appellants is not a related entity, we are of the opinion that the appellants should file an appropriate reply for vacation / modification of the impugned order dated June 12, 2023.
No possible reason to interfere in the impugned order at this stage and we dispose of the appeals directing the appellants to file a reply / objection along with a stay vacating application to the ex parte ad interim order dated June 12, 2023 within two weeks from today.
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2023 (8) TMI 198
Delay in the initiation of the proceedings by SEBI - False impression given to the investors regarding the subscription of the GDR - HELD THAT:- We find that the GDR was issued by the Company on December 12, 2007 and the present show cause notice was issued on June 9, 2019 after an undue delay of 12 years.
we are of the opinion that there has been an inordinate delay in the issuance of the show cause notice. Even though there is no period of limitation prescribed in the Act and the Regulations for issuance of a show cause notice and for completion of the adjudication proceedings, nonetheless, the authorities are required to exercise its powers within a reasonable period. In AO, SEBI vs Bhavesh Pabari [2019 (3) TMI 197 - SUPREME COURT] the Supreme Court held that an authority is required to exercise its powers within a reasonable period.
Thus we are of the opinion that power to adjudicate has not been exercised within a reasonable period. Consequently, no penalty could be imposed.
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2023 (7) TMI 1496
Maintainability of petitioner’s challenge against the impugned Order of Trial Court allowing reference to arbitration u/s 115 of the CPC - Revisional jurisdiction of the High Court.
HELD THAT:- This Court has limited powers which can be exercised under Section 115 of the CPC. Not every order of the Trial Court can be regarded as an order that can be put under the ambit of revisional jurisdiction of the High Court.
In view of the instant matter, Trial Court has referred the dispute of the petitioner for arbitration u/s 8 of the Act, 1996. Considering the facts of the instant case, there is a reference to arbitration as per the AOF executed between the petitioner and respondent no. 2.
This Court is of the view that any agreement that contains an arbitration clause must be referred to arbitration in an application under Section 8 of the Act, 1996. The same must be done because the parties have already consented to arbitration. Since the AOF in the instant case contains the arbitration clause, it has to be referred to arbitration for the necessary adjudication. The Court in this scenario cannot adjudicate upon whether the disputes which are arbitrable under the agreed terms between the parties.
Hon’ble Supreme Court in Magma Leasing & Finance Ltd. v. Potluri Madhavilata, [2009 (9) TMI 592 - SUPREME COURT] has strictly narrated its view with regard to the cases wherein reference to the arbitration has not been allowed by the Court despite existence of an arbitration clause in the agreement.
The application filed before the learned Trial Court has been properly accompanied by the AOF, which outlines the petitioner’s rights and obligations and acknowledgment of the same by the petitioner therein. It evidently specifies that any dispute between the “client and stock broker‟ should be referred to arbitration. In addition, Chapter-11 of the National Stock Exchange of India Byelaws provides for arbitration between trading members and constituents deriving from or relating to dealings, contracts, and transactions made subject to the byelaws, rules, and regulations of the Exchange.
On bare perusal of the reliefs sought by the petitioner before the learned Trial Court, it is ex facie apparent that the petitioner’s primary concern is against respondent no. 2. The reference to arbitration is mandatory for adjudication of the dispute in the present petition. The petitioner's contention that the current dispute is a tripartite dispute and not a bipartite dispute is not sustainable.
Conclusion - This Court is of the view that the learned Trial Court has not committed any error of law that can be the subject matter to be exercised by this Court exercising its revisional powers u/s 115 of the CPC. Section 8 of the Act, 1996 refers to a clause that limits Court's interference in the arbitration procedure. This Court has serious objections to the extent of interference on the grounds of the arbitrability of the subject matter, and the competence of the arbitral tribunal to deal with it. Section 8 of the Act, 1996 continues to serve as a hope for arbitration, forming the basis for mandating the parties to follow the model of arbitration where an arbitration agreement exists.
With regards to the maintainability of the revision petition, the learned Trial Court has rightly determined that its jurisdiction to hear the suit does not exist due to the presence of an arbitration clause. After relying upon the aforementioned judgments, it is concluded that the observations made therein apply to the facts of the case in hand.
Therefore, it is held that the learned Trial Court did not have the jurisdiction to hear a dispute after an application for arbitration under Section 8 of the Act, 1996 was filed. As a result, the learned Trial Court has correctly allowed the said application under Section 8 of the Act, 1996. In such a case, refusing to refer the matter to arbitration would be a failure of justice, causing irreparable harm to the parties and violating the settled principles of law.
This Court is of the view that no case of revision as defined under Section 115 of CPC has been made out by the petitioner as no such cause exists wherein the learned Trial Court has failed to exercise its jurisdiction as per law. The learned Trial Court has neither acted illegally in the exercise of its jurisdiction nor has there been any material irregularity. Accordingly, the issue framed above has been decided.
This Court finds no infirmity in the impugned Order in Civil Suit passed by the learned Senior Civil Judge, Patiala House Court, New Delhi.
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2023 (7) TMI 1491
Scope of settlement proceedings - discretion vested in SEBI with an obligation - SEBI (Settlement Proceedings) Regulations, 2018 (“Regulations”) - HELD THAT:- Viewed from any perspective, these Petitions, like the Settlement Application, are entirely without substance. We understand quite clearly now that the only purpose of the Settlement Application and indeed these Writ Petitions was to prolong and delay the adjudication of the show cause notice. If there was any doubt about this, it is surely put to rest by one look at the prayers in the Binny Petition, and in particular prayer clause (b) which is really the prayer that is being sought, for a stay of the adjudication on the show cause notice. Interestingly, although prayer clause (a) ought to be really for a certiorari not a mandamus, there is not even a prayer for a direction to SEBI to reconsider the Settlement Application. An order on this Writ Petition would effectively put an end to all SEBI action as a regulator. That is simply unthinkable.
These Petitions have taken an inordinate amount of time when our dockets are already overcrowded. We believe these Petitions are now fit cases for orders of costs.
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