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SEBI - Case Laws
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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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2023 (7) TMI 1440
Defalcation of the proceeds from the preferential issue - allegation of mis-utilization of the proceeds - inordinate delay in the issuance of the show cause notice - show cause notice alleged that there was deviation from the object of the issue and, therefore, the appellants have violated Clause 43 of the Listing Agreement / Regulation 32 of the SEBI-LODR Regulations - As per AO company had deviated from the object of the issue and did not utilize the proceeds from the preferential issue as per the objects and that subsequent ratification by the shareholders of the company will not make any difference to the violation of the Clause 43 of the Listing Agreement. The AO accordingly imposed the penalties.
HELD THAT:- There is an inordinate delay in the issuance of the show cause notice. The preferential issue was made in August 2013 and the show cause notice was issued on January 5, 2023. The issuance of the preferential issue was known to the stock exchange as well as to SEBI and, therefore, there is no justification for issuance of show cause notice at this belated stage.
We are of the opinion that the impugned order in so far as it relates to the appellants cannot be sustained.
Even otherwise we find that admittedly there was a deviation in the object of the issue and the money was utilized for some other purposes by the company. The matter was placed before the shareholders in the extra ordinary general meeting of the company and the object of the issue was ratified by the shareholders on September 29, 2017. Thus, prior to the issuance of the show cause notice, the alleged deviation by the company was ratified and, therefore, in our opinion, there was no violation of any provisions of the LODR Regulations or of the listing agreement on the date when the show cause notice was issued.
Ratification made by the shareholders of the company validates an act already done and even though the company initially utilized the proceeds of the preferential issue for a different purpose in variance of the objects specified, nonetheless, the variance in the utilization of the proceeds should ratified and became authorized pursuant to the special resolution passed by the shareholders on September 29, 2017.
We are of the view that no penalty could be imposed for the alleged deviation. We also find that there is no charge of defalcation of the proceeds from the preferential issue.
Thus, the impugned order in so far as it relates to the appellants cannot be sustained and is quashed. The appeals are allowed.
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2023 (7) TMI 1128
SEBI requisite legal power vested in it to direct the petitioner bank - nature of powers conferred upon SEBI - recovery of debts due to banks and FIs - prevention of auctioning the mortgaged property - do the persons or classes of persons referred to in Section 12 necessarily have to be registered with SEBI in order to be subject to its powers under Section 11B? - petitioner is aggrieved by the impugned emails/communications dated 29.01.2021 and 18.03.2021 by which SEBI directed the petitioner bank to comply with the orders dated 29.05.2018 and 14.12.2018 and not to proceed against the mortgaged property under Section 13 of the SARFAESI Act, 2002 without prior permission of the SEBI - HELD THAT:- One plain meaning that can be given to Section 11B(1)(iii)(a), it being, that persons or class of persons referred to in Section 12, are referred irrespective of the registration under Section 12. In other words, in order for Section 11B(1)(iii)(a) to be attracted, one may only need to fall in the person or class of persons referred to in Section 12 irrespective of their registration with SEBI.
It may be true that this construction, casts the web of powers that SEBI enjoys, to a larger degree than the other narrower construction would have. But merely on the basis of the consequences, this court cannot limit the plain meaning of a text.This court is therefore of the opinion that Section 11B(1)(iii)(a) of the SEBI Act, 1992 allows for directions to be given to persons or class of persons referred to in Section 12 of the SEBI Act, 1992 irrespective of the persons or class of persons being registered with SEBI.
In the facts of the instant case, SEBI does have the power to direct the petitioner bank, however, that power must be exercised with due caution. It must not be exercised so as to curtail the effect of other laws.
From the above analysis, it can be concluded that SEBI is possessed with powers under the SEBI Act, 1992 to direct the petitioner bank in specific, and banks in general, regardless of them being registered with SEBI.
The orders passed by Whole Time Member of SEBI are applicable to the petitioner bank, they however do not prevent the petitioner bank from auctioning the mortgaged property being Villa in Gurgaon under the provisions of the SARFAESI Act, 2002.
The impugned emails dated 29.01.2021 and 18.03.2021 are found to be erroneous and wholly without jurisdiction.
The proceedings under the SARFAESI Act, 2002 are to be treated as a carve out to, and remain unaffected by, the orders and directions passed under the SEBI Act, 1992.
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2023 (7) TMI 586
Offences under SEBI - collective investment schemes without applying for registration - petitioner (directors) was summoned for the offences under Sections 24(1) and 27 of the SEBI Act - company never initiated any steps for winding up of the schemes and for repayment to the investors despite notices - HELD THAT:- The complaint filed by respondent, SEBI makes a specific averment that the present petitioner was the director and was in-charge of and responsible to the company for the conduct of its business for the relevant period of time in terms of Section 27 SEBI Act, 1992. No documents have been produced on record to rebut the aforesaid averment made by the respondent to demonstrate that making the petitioner stand trial would be an abuse of process of the Court.
It is pertinent to state that the question as to whether the present petitioner shall be liable as the director of the accused company with regard to the violations committed by the said entity in question is a matter of trial and shall be adjudicated before the Trial Court of competent jurisdiction. This Court need not examine disputed factual issues involved in the present case while exercising the jurisdiction u/s 482 of Code of Criminal Procedure.
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2023 (7) TMI 3
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2023 (7) TMI 2
Offence under SEBI Act - fraudulent scheme of issuing GDR with an ulterior motive - whether the appellants had played part in the fraudulent scheme of issuing GDR with an ulterior motive? - HELD THAT:- No ground to interfere with the impugned order passed by the Securities Appellate Tribunal [2022 (3) TMI 1539 - THE SECURITIES APPELLATE TRIBUNAL MUMBAI]
The civil appeal is, accordingly, dismissed.
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2023 (6) TMI 1464
WTM issued an ex-parte ad-interim order cum show cause notice - HELD THAT:- We dispose of the appeal with the direction that it would be open to the appellant to file an appropriate reply within three weeks from today questioning the interim direction. If such an appropriate reply is filed and an application is made for vacation of the interim order, the authority will consider and pass appropriate orders after giving an opportunity of hearing.
The direction contained in paragraph nos. 32(b) shall remain in abeyance. The appeal is disposed of with the aforesaid directions.
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2023 (6) TMI 1337
Professional misconduct of statutory Auditors - Forensic Audit Report shows irregularities in financial statements apparently showing profits through inflated sales and non-existent purchases and sales noticed by SEBI - allegation of books of accounts of ARL were manipulated - Allegation of price and trade movement in the scrip of ARL - violations of various provisions of SEBI Act, 1992 and PFUTP Regulations 2003 - as per SEBI Noticees being statutory auditors had been conspiring with the management and/or were knowingly negligent in their job so as to facilitate the Company in defrauding the shareholders and investors - HELD THAT:- There is no dispute to the finding that the Noticees were instrumental in preparing accounts of ARL.We find that there are strong evidences in this matter available on records to point out that there has been gross negligence and dereliction of duty on the part of Noticees.
However, at the same time we can turned a blind eye to the fact that the Noticees had issued a Qualified Report highlighting certain irregularities in the financials of the Company that were taken up for limited review for the quarter ended 31-12-2014.
The instances of being unprofessional or being negligence would be difficult to equate with committing fraud in connivance with the management, where evidences are not sufficient to demonstrate that the Noticees had actually manipulated the books of accounts with knowledge and fraudulent intention.
In the absence of any tangible evidence, the question of fraud committed by the them would be difficult to survive and therefore in the absence of any material to establish knowledge/collusion/connivance of the Noticees with such fraudulent scheme, the Noticee cannot be brought under disciplinary/penal jurisdiction of SEBI.
With respect to any possible connivance or collusion by the Noticees with the Company or its management, it is acknowledged that, in such matter it is very difficult to find out either a written agreement or such agreement of minds and the same has to be culled out from the acts of the parties.
However, there has to be some evidence to support such meeting of minds before attributing to the Noticees of actively colluding with the Company. In the present matter, we don’t find sufficient evidence from the record to make an assertive statement that there was an agreement or understanding suggesting that the Noticees were acting in connivance and collusion with the Company or its management in executing their fraudulent scheme.
However, at the same time, while dealing with the submission of the Noticees for being granted exoneration based on the observations in the peer review conducted by the ICAI, it may be stated that primary objective of peer review is not to find out deficiencies but to improve the quality of services rendered by members of the profession.
Under the circumstances, while granting benefit of doubt to the Noticees with respect to alleged commission of fraud by the Noticees, it would sufficient that to meet the end of justice so as to address the gross negligence and sheer professional misconduct as displayed by the Noticees as the Statutory Auditor of the Company which has been deliberated and established beyond doubt in the preceding paragraphs, the instant proceedings are disposed of with the following directions.
Directions - We find that the materials brought forth in the Investigation while propounding the allegation against the Noticees herein, lack the tenacity to withstand legal scrutiny required in the matter pertaining to violation of the PFUTP Regulations, 2003 or suchlike. Accordingly, we are constrained to dispose of the present proceedings qua the Noticees with a cautionary advice to be careful while dealing in the securities market.
However, looking at the glaring misconduct and dereliction of duties and abhorrence of due diligence while conducting statutory audit as glaringly displayed by the Noticees, it is directed that a certified copy of this order be forwarded to ICAI and NFRA for appropriate action, if any, as deemed fit at their end.
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2023 (6) TMI 1252
Penalty for violation of Section 15HB of SEBI Act, 1992 - justification for the Tribunal to reduce the penalty below Rs. 1,00,000/- which is the minimum as permissible - HELD THAT:- Tribunal has not taken into consideration the effect and mandate of Section 15HB of the SEBI Act, 1992.
Taking into consideration the facts and circumstances of this case, there appears no justification in calling upon the respondent and we modify the order impugned and the penalty of Rs.75,000/- as inflicted upon noticee no.5 (Mr. Sandip Ray) and noticee no.6 (Mr. Rajkumar Sharma), as referred to in para no. 13 of the order impugned, is modified and substituted to Rs.1,00,000/- in terms of Section 15HB of SEBI Act, 1992 and with this modification the present appeals stand disposed of.
We make it clear that if the respondents have any objection in reference to the modification made by this Court, they are always at liberty to make an application, if so advised.
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2023 (6) TMI 331
Fraudulent activities under SEBI - issue of 80,800 false share certificates, forging signatures of genuine investors on the transfer documents and verifying fake share certificate and forging signatures and approving fraudulent transfer etc. - as per SAT[Mumbai] WTM passed ex-parte ad-interim order correctly in terms of Section 11 in the interest of the investors - HELD THAT:- No good ground and reason to interfere with the impugned judgment and hence, the present appeals are dismissed.
Pending application(s), if any, shall stand disposed of.
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2023 (6) TMI 195
Offence under SEBI - person responsible for the commission of the offence - person responsible for the carrying out the business - liability of director - allegation of Fraudulent and Unfair Trade Practices - Additional Session Judge set aside the summoning order qua the Respondent No. 1 while observing that the Complaint filed did not contain any material to suggest that the Respondent No. 1 herein was responsible for the carrying out the business of IHIL - HELD THAT:- It is now trite law that a Director cannot ipso facto, simply by virtue of being the director of a Company, be arraigned as an Accused by the SEBI [Refer to: SEBI v. Gaurav Varshney [2016 (7) TMI 642 - SUPREME COURT]. By virtue of being a juristic person the acts attributed to a Company are attributed to the officers at the helm of affairs.
Every person responsible for the commission of the offence or with the knowledge of whom the offence was committed, is liable for the offence. There is now burgeoning jurisprudence both under the SEBI Act, and under the Negotiable Instruments Act, 1881 which suggests that the liability is fastened upon an individual by virtue of being in charge, and being responsible when the offence was committed, and not merely on the basis of holding a designation or office in the company.
Even an individual not holding a particular designation in the Company, but who was at the helm of affairs at the relevant time can be held liable. Hence, such vicarious criminality is not attributed to individuals simply by virtue of the position held by them in the company.
The Director or officer of the company needs to have played a role in the functioning of the Company or in the commission of the offence, as recorded in the Complaint, to be arraigned as an Accused. There must be specific averments against the Accused Director detailing the manner in which the Director was responsible for the conduct of the business.
A company may have numerous Directors, however, it is apposite to state that to make each of these Directors accused persons simply by virtue of their position in the Company is not the true import of Section 27 of the SEBI Act.
As stated, there is not even a bald cursory averment which ties Respondent No. 1 to the allegations of price manipulation of IHILs stock. It appears that the Respondent No. 1 has been arraigned as an Accused solely by virtue of him being a Director in IHIL.
On the contrary, the statements of Accused Nos. 16 and 10, categorically stated that the day to day affairs of IHIL were being handled by Mr. Prakash Gupta, Accused No. 16, Shri L.R. Maurya, Accused No. 10 and Shri. Shririam Maurya, Accused No. 11. It must also be noted that the Summoning Order dated 29.03.2000 was quashed qua similarly placed Accused Persons i.e., Mr. Vinod Kumar, also a Director of IHIL, Accused No. 12 and Mr. Pankaj Goel, Accused No. 20. In light of this, this Court does not find any reason to interfere with the order dated 24.03.2009 passed by the Learned Additional Session Judge in Revision Petition.
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2023 (5) TMI 1419
Fraudulent and Unfair Trade Practices under SEBI Act -manipulation or structured trade - imposition of penalties for creating misleading appearance of trading through miniscule trades - HELD THAT:- No arguments / submissions was made against the findings given by the AO with regard to the shares being received off- market by noticees no. 1, 2 and 3. No arguments was raised that the receipt of the shares was with consideration or that the finding of the AO that it was received without consideration is incorrect. The violation of spot delivery u/s 2(i) (a) of the SCRA was also not contested. Consequently, the finding of the AO that the shares of the Company Wisec Global Limited were received by noticees no. 1, 2 and 3 without any consideration from a director of the Company Kolluru Surya Prakash Venkata is affirmed. The violation of Section 2(i) read with Regulations 13, 16 and 18 of the SCRA is also affirmed.
The fact that false information was furnished by noticee no. 1, namely, that the off-market transaction was a loan transaction is also affirmed, since this point was not argued before us.
Thus, it is clear that noticees no. 1, 2 and 3 received the shares of the Company Wisec Global Ltd. from its Director Kolluru Surya Prakash Venkata without consideration and with the sole intention of increasing the price of the scrip which was the motive.
We find that these noticees were selling the shares in miniscule quantities creating NHP and by such trades increased the price of scrip which was manipulative and violative of Regulations 3 and 4 of the PFUTP Regulations.
The contention that there was no manipulation or structured trade is patently erroneous in as much as we find that the trading pattern of the buyers and the sellers was that they traded in close proximity of time inter-se between them.
The buy and sell orders were placed within a short time interval varying from 1 minute to 2,3 or 4 minutes.
Such trading pattern as found by the AO cannot occur by accident or by coincidence. The trading pattern leads to an inference that there was a meeting of minds with a pre-determined plan and, therefore, there was a collusion between the parties. Such trades executed, in our opinion, are not genuine and were done with a fraudulent intent to create artificial volume in the scrip.
Consequently, the findings that noticees no. 1, 2 and 3 have manipulated the price of the scrip through small trades does not suffer from any error of law. The trading pattern of noticees no. 1, 2 and 3 with noticees no. 9, 11 and 12, clearly indicates that these structured trades were done with the intent of creating artificial volumes and misleading appearance of trading with the intent of misleading the investors. Such structured trades were violative of Section 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations. The decisions cited by the learned counsel for the appellants are not applicable to the facts of the present case.
For the reasons stated aforesaid, we do not find any error in the impugned order. All the appeals fail and are dismissed with no order as to costs. Misc. Application are disposed off accordingly.
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2023 (5) TMI 1395
Application moved seeking clarification of order - also passing of an appropriate direction thereby directing the learned Additional Session’s Judge-05, Patiala House Court, Delhi to take on record the documents, more specifically stated in para 3 of the application.
HELD THAT:- Admittedly, the petitioner has obtained the certified copies of such documents and has filed before the learned Trial Court but the same were not taken on record by the learned Trial Court, hence this petition.
The arguments raised by the learned counsel for the petitioner is vehemently opposed by the learned counsel for the respondent. He submits the matter is already a disposed of matter and no further directions can be issued.
We agree to the submissions made by the learned counsel for the respondent. If the learned Trial Court had failed to take on record such documents, such an order may be challenged by the petitioner herein before the appropriate forum. The application stands dismissed.
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2023 (5) TMI 1162
Condonation of delay - inordinate delay in approaching the Tribunal - As decided by SAT there is an inordinate delay in approaching the Tribunal with no adequate reason to condone the delay at this belated stage - HELD THAT:- We find no error in the order of the Securities Appellant Tribunal, Mumbai.
Appeal is accordingly dismissed. Pending application, if any, stands disposed of.
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2023 (5) TMI 985
PIL - Suspension of Admission to Dealings on the Exchange - millions of investors who are being duped by the unscrupulous promoters of the companies - Petitioner holding a Bachelor’s Degree in Law stating that he is espousing the cause millions of investors who are being duped by the unscrupulous promoters of the companies as the promoters of the companies vanish after siphoning off the hard-earned money of the investors - Scope of Appeal to Securities Appellate Tribunal.
HELD THAT:- It is the duty of the SEBI to protect the interest of the investor in securities and to promote the development of, and to regulate the securities market by such measures as it thinks fit. Meaning thereby, the SEBI is empowered to take all such measures in the interest of investors and such measures may include regulating the business in stock exchange, registering and regulating the working of stock brokers, performing such functions and exercising such powers under the Provisions SCRA, as may be delegated by the Central Government. The aggrieved investor can certainly prefer an Appeal before the Securities Appellate Tribunal (SAT) in case he is aggrieved in the matter of delisting of the security.
Delisting regulations provide Provisions with respect to the rights of the share-holders and all kind of checks and balances are in place under the Regulations. It is pertinent to note that Section 23(2) of the SCRA gives a special power to SEBI to penalize any person who contravenes the Provisions inter alia Section 21 or Section 21A or Section 22, and a punishment upto 10 years or a fine which may extend up to Rs. 25 crores can be inflicted.
Not only this, as stated in the written reply filed by the SEBI, for vanishing companies, the exercise was undertaken by the Registrars of companies and action has been initiated in the matter against them. Thus in short, the statutory provisions do provide a robust mechanism to safeguard the interest of investors and by no stretch of imagination, it can be said that the interest of investors is not at all protected.
Appeal against any order/ decision for recognized stock exchange before the SAT and any person aggrieved in the matter by the order or decision of the recognized stock exchange or the adjudicating officer or any order made by the SEBI under Section 4B can prefer an Appeal, therefore, an efficacious remedy is also available under the statutory provisions.
The statutory provisions governing the field make it very clear that a transparent mechanism of delisting the securities, adequate participation and/ or representation of public shareholders in the process of delisting is in place, and a remedy is also available to aggrieved investor in the matter of delisting. Not only this, even in case of compulsory delisting, which is a disciplinary mechanism, an aggrieved investor may file an Appeal before the SAT against the decision of the recognized stock exchange delisting the securities under Section 21A(2) of the SCRA.
In the considered opinion of this Court, in view of the reply filed by the SEBI, Government of India and Bombay Stock Exchange, no further orders are required to be passed in the present PIL, and the interest of the investors is certainly protected under the Statutory Provisions governing the field.
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2023 (5) TMI 771
Public issue of shares - payout to the shareholders - Persons acquiring shares to make public announcement in certain cases - accused offered the public to acquire 20% of the capital of M/s. Damania Airways Limited in terms of Clause 40 B of the listing agreement of the Stock Exchange, Mumbai - non-despatch of consideration amounts to a violation of Regulation 20 - acquirers replied to the show cause notice stating inter alia that the liquidity crunch in the market caused the delay and that they had already despatched more than 70% of the consideration.
HELD THAT:- All procedures to the offer, including payment of consideration to the shareholders who have accepted the offer, would be completed within four weeks from the date of closure of the offer. The offer closed on 29 February 1996; Khemkas should have made the payments to the shareholders on or before 28 March 1996. the complainant has produced on record letters from the Manager of the Offer and Khemka Brothers dated 9 April 1996, 25 April 1996, 10 July 1996 and 17 August 1996 wherein it is unambiguously admitting that the acquirers, i.e. Khemka Brothers have not been able to pay the shareholders who have accepted the offer and cited liquidity crunch in the market as the reason for their failure. As has been explained above, the Regulation requires that the payout to the shareholders who have accepted the offer is to be made within four weeks from the closure of the offer. Prima facie failure on the part of the acquirer to meet the obligation amounts to a breach of Regulations 20 and 22. Section 24(1) of the SEBI Act makes it clear that any SEBI Act, Rules and Regulations breach would invite prosecution.
As there was sufficient material available with the complainant, which prima facie indicates a violation of Regulations 20 and 22. Regulation 33 confers discretion on the Board having regard to the facts and circumstances of the case to investigate into the books of account or other records. Based on the report of such investigation under Regulation 36, the Board has the power to issue directions as contemplated under Regulation 39. Regulation 39 expressly saves the power of the Board to initiate criminal prosecution under Section 24 of the Act.
Conjoint reading of Regulation 33, along with Regulation 39, confers discretion on the Board to initiate an investigation if such investigation appears to be necessary to the Board.
In the facts of the case, there was sufficient material to demonstrate that there was sufficient material based on correspondence between the Managers of the accused and the complainant wherein the accused admitted that they have not been able to pay the shareholders who had accepted the offer. Furthermore, the accused cited the liquidity crunch in the market as the reason for their failure. Therefore, in the facts of the case, it is not necessary for the Board to lodge an investigation as per Chapter V into the violation of Regulations 20 and 22.
In the absence of incontrovertible documents such as Form 32 under the Companies Act, 1932 or other material to show the applicant's resignation, the SEBI Special Judge has rightly held that the applicant has failed to make out a case for discharge. Hence, there is no merit in the criminal applications. No case is made out for quashing the complaint or charges.Both criminal applications are dismissed.
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2023 (5) TMI 448
Validity of Second Freeze Order - imposition of Bank Guarantee for repatriation of amount, which was realized in favour of the appellant company - imposition of the bank guarantee and the freeze orders passed by the respondent, were solely imposed on the grounds of criminal proceedings being alive against one Dharmesh Doshi, who is alleged to be connected to the appellant company.
HELD THAT:- While perusing through the documents on record, it has come to notice that the said Dharmesh Doshi, on the basis of whom the condition of bank guarantee was imposed, has now been discharged of the alleged offences by the Trial Court. It is also important to note that the said Dharmesh Doshi , who has been discharged of the alleged crime, was never an employee/share holder/director or a key managerial person in the appellant company - Since the said Dharmesh Doshi was in no way connected to the appellant company herein, the trial faced by him, was in his individual capacity, and not vicariously on behalf of the appellant company.
In such a circumstance, wherein the appellant company and the accused Dharmesh Doshi are two separate entities, and the appellant company is in no way connected to the concerned Investigation, the operation of the freeze order against the appellant company, is not legally tenable - Since the appellant company is not connected to the alleged crime, and has not found mention in the FIR or the chargesheet, the freeze order against the appellant company’s properties is redundant qua the investigation, since the appellant company itself is not necessary for the conclusion of the investigation.
It has also come to notice that the operation of the freeze order has been active for a period of 17 years and has caused huge losses to the appellant company. The purpose of the freeze order, and the bank guarantee in extension of the freeze order, can only be in operation to aid in the investigation against the alleged crime. Since the investigation against the appellant company is redundant, hence, the freeze of the appellant company’s assets and the bank guarantee imposed in furtherance of the freeze order also becomes redundant.
The condition imposed upon the appellant to furnish a bank guarantee by the Courts below, is not liable to be sustained and is therefore set aside - Appeal allowed.
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2023 (5) TMI 447
Filling of a casual vacancy - requirement of approval through a special resolution from the shareholders of the Company, before such appointment - appointment of a person who has attained the age of 75 years - Rejection of waiver application - application was filed for waiver of the fine on account of non-compliance of Regulation 17(1A) of the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015 - HELD THAT:- A reading of Section 152(2) and Section 161(4) makes it clear that a Director can only be appointed by the shareholders of the Company in the general meeting. However, in case where the office of a Director is vacated before his term of office expires which results in a casual vacancy then such casual vacancy can be filled by the Board of Directors which shall subsequently be approved by the members in the immediate next general meeting - from a reading of Section 161(4) of the Companies Act read with the proviso to Rule 4(1) of the Rules it is clear that a casual vacancy which occurs in the office of the Director is required to be filled up by the Board of Directors within three months from the date of such vacancy and such appointment is required to be approved by the members in the next general meeting.
Regulation 25 of the LODR Regulations, 2015 relates to obligations with respect to Independent Director - The said provision provides that where an Independent Director resigns or is removed from the Board of Directors. Such Independent Director is required to be replaced by a new Independent Director within three months from the date of such vacancy - Regulation 17(1A) provides that no person shall be appointed or continue the directorship as a Non- Executive Director who has attained the age of 75 years unless a special resolution is passed to that effect by the members in the general meeting - A perusal of the Regulation 17(1C) indicates that the listed entity shall ensure that the appointment of a person on the Board of Directors is approved by the shareholders at the next general meeting or within a period of three months from the date of appointment whichever is earlier.
Thus, upon the death of Dr. Chauhan on 22nd November, 2020, a casual vacancy in the office of Independent Director came into existence which could be filled up by the Board of Directors under Section 161(4) of the Companies Act read with Regulation 17(1C) of the LODR Regulations and proviso to Rule 4 of the Rules. Such appointment was required to be subsequently approved by the shareholders of the Committee in the next general meeting - the finding of the respondent that no persons can be appointed or continued to be appointed as a Non-Executive Director unless prior approval of the shareholders is made is erroneous.
The impugned order cannot be sustained. No penalty could have been imposed for violation of Regulation 17(1A) of the LODR Regulations. Nothing has been brought on record to indicate violation of any provision of the Companies Act or Regulation 17(1C) of the LODR Regulations.
Appeal allowed.
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2023 (4) TMI 1370
Complaint u/s 200 of Cr.P.C. r/w Sections 24(1), 27 of SEBI against the petitioners -Respondent notified regulations for regulating the activities of Collective Investment Scheme Companies titles as Securities and Exchange Board of India (Collective Investment Scheme) Regulations Act,1999 but petitioners have not complied with the respondent directives meant to protect the interests of the investors
HELD THAT:- No investor or customer has lodged any complaint with the respondent that the petitioners have cheated them and apart from the above said reason, the respondent has not levelled any specific allegation in that regard in the complaint. In the absence of any complaint, there was no cause of action to lodge the complaint. These are all the grounds have to be given into the fulfledged complaint and the complaint was lodged by the respondent, after recording the evidence. The Trial Court found prima-facie made out and had taken cognizance. Therefore, the complaint cannot be thrown out.
As relying on M. Jayanthi [2019 (12) TMI 1319 - SUPREME COURT] and Arvind Khanna [2019 (10) TMI 672 - SUPREME COURT] the points raised by the petitioner cannot be considered by this Court under Section 482 Cr.P.C.
In view of the above discussion, this Court is not inclined to quash the proceedings in C.C.No.6435 of 2004 on the file of the XXIII Metropolitan Magistrate, Saidapet, Chennai. While pending this matter, this Court, by an order dated 25.01.2016, appointed an Auditor of one M/s. Brahmayya & Co., in order to settle the issue. However, the petitioners did not settle the same and nothing proceeded further. Therefore, the appointment of Auditor also now stand cancelled.
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2023 (4) TMI 1269
SEBI power to initiate proceedings against statutory auditor - irregularities and misstatements in the financial statements ignored by auditors - Investigation alleged that CAS and KKM had been acting against the fiduciary capacity, and that instead of working in the interest of shareholders of CG Power, they facilitated the scheme of cleaning up the books of accounts of CG Power, despite being aware of the irregularities and misstatements in the financial statements of CG Power - violation of provisions of section 12A(a), (b) and (c) of the SEBI Act, 1992 and Regulations 3(b), (c) and (d), 4(1) and 4(2)(f) of the PFUTP Regulations, 2003.
Inordinate delay in issuing the SCN i.e. about 5-6 years old - HELD THAT:- There is no provision under SEBI Act which prescribes a time limit for taking cognizance of a breach of the provision of SEBI Act and Rules and Regulations made thereunder. Further, as per Section 11C of SEBI Act, SEBI can initiate investigation at any point of time, for any period of alleged violation or any period of alleged transactions. In this regard, we note that SEBI initiated the investigation as soon as information regarding the issue came to its notice. Examination relating to this case are complex and time consuming process, which may require detailed analysis of the case facts as the current case involves multiple layers of transactions between multiple entities including entities situated in foreign jurisdictions. Subsequently, pursuant to the completion of examination, SCN was issued on October 18, 2021.
Thereafter, we note that all the relevant information relied on for crystallizing the allegations against the Noticees have been provided to them and there was no delay the way it has been argued by Noticee No.1. Further, Noticee No.1 has also not specified how the delay, if any, has caused prejudice to it.
Whether inspection and copies of certain documents sought was not provided? - As all relevant material relied upon in the instant proceedings have been provided to Noticee and exhaustive reply has also been filed by Noticee No.1 as already detailed in the preceding paragraphs. Further, Noticee No.1 has also not sufficiently demonstrated how the documents sought by it were relevant to the allegation in the present case of not disclosing the fact of the case and how this ground of non-availability of information has caused prejudice to it, thus the principles of natural justice have been complied with and the Noticee No.1's request in this regard are without merits.
Default by Auditors - As despite being aware of the irregularities and misstatements in the financials of CG Power, Noticee No. 1 and 2 facilitated the scheme of cleaning of the books of account by the company and allowed to show the financials of the company as true and fair by certifying the same in its audit report for 2016-17 and 2017-18 respectively. Accordingly, I note that by doing so, they have violated the provisions of Sections 12A(a), (b) and (c) of the SEBI Act, 1992 and Regulations 3(b), (c) and (d), 4(1) and 4(2)(f) of the PFUTP Regulations, 2003.
Does the violation, if any, on part of the Noticees attract penalty under Section 15HA of the SEBI Act? - As the alleged violation of the provisions of Sections 12A(a), (b) and (c) of the SEBI Act, 1992 and Regulations 3(b), (c) and (d), 4(1) and 4(2)(f) of the PFUTP Regulations, 2003 stands established against the Noticees and accordingly the Noticees are liable for monetary penalty under Section 15HA of the SEBI Act.
How much penalty should be imposed on the Noticees taking into consideration the factors mentioned in Section 15J of the SEBI Act? - After considering all the facts and circumstances of the case and the factors mentioned in the provisions of Section 15-J of the SEBI Act, and in exercise of the powers conferred upon me under section 15-I of the SEBI Act, read with Rule 5 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995 Penalty of Rs.5,00,000/- (Rupees Five Lakh Only/-) need to imposed. The Noticees shall remit / pay the said amount of penalty within 45 days of receipt of this order through online payment facility available on the website of SEBI
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