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2021 (8) TMI 1314 - AT - SEBIViolation of the securities laws - Misstatement in the prospectus - IPO proceeds were diverted and misutlised by the Company - some amount of the IPO proceeds were disbursed to certain entities under the pretext of advances towards work contracts for IPO objectives, but in fact, no substantial work contracts were executed - Directors of the Company known as Birla Pacific Medspa Ltd. have been restrained from accessing the securities market directly or indirectly, in any manner and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for a period of two years - HELD THAT - Merely because the word ICD was not mentioned in the interim use of funds in the prospectus does not become a case of misstatement in the prospectus nor does it become a deliberate part of larger design to come out with an IPO and, thereafter, funding the operations of its group company through ICDs thereby siphoning of the money from the genuine investors. In our opinion, the word liquid instrument is wide enough to include ICDs The finding that because the word corporate was included in the resolution of the Board of Directors dated 11 July, 2011 indicates that the prospectus lacked material particulars is patently erroneous as we have held that liquid instruments includes ICDs and, therefore, there was no misstatement in the prospectus. Consequently, the prospectus did not lack material particulars. Further, the resolution of 11 July, 2011 was not in contradiction or in violation of the terms indicated in the prospectus but only clarified the deployment of the IPO proceeds on a temporary basis. Such clarification in our opinion was in consonance with the use of the word liquid instruments given in the prospectus. The offer document is required to contain all material disclosures to enable the investors/subscribers to take an informed decision and that such disclosure must be prompt, true and fair. In the instant case, the disclosures made in the prospectus were material disclosures which were true, fair and adequate. There is no finding of the WTM that the disclosures made in the prospectus were not true and fair or were inadequate. The use of the word corporate in the resolution of the Board of Directors dated 11 July, 2011 does not make the prospectus untrue or inadequate. In our view, the resolution of the Board of Directors was in accordance with the disclosures made in the prospectus. The usage of the word corporate in the resolution does not dilute the statement made in the prospectus. In fact, it only clarifies it. Thus, there is no breach of Regulation 57(1), 60(4)(a) and 60(7)(a) of ICDR Regulations, 2009 and Clause 2 (XVI) (B) (2) of Part A of Schedule VIII read with Regulation 57(2)(a) of ICDR Regulations, 2009. The contention raised by appellant that they were denied inspection of documents in violation of the principles of natural justice or on the issue that the proceedings were initiated belatedly or on the issue that the appellants being Non-Executive Director/Non Independent Executive Director no liability could be fastened upon them as they had a limited role to play in affairs of the Company need not be gone into as we are satisfied that the appellants did not commit any breach of the ICDR Regulations nor made any misstatement in the prospectus. The impugned order in so far as it relates to the appellants cannot be sustained and is quashed. All the appeals are allowed. In the circumstances of the case, parties shall bear their own costs. All the misc. applications are accordingly disposed of.
Issues Involved:
1. Misstatement in the Prospectus 2. Utilization of IPO Proceeds 3. Interim Use of Funds 4. Compliance with ICDR Regulations Issue-wise Detailed Analysis: 1. Misstatement in the Prospectus: The appellants were accused of making misleading statements in the prospectus regarding the utilization of IPO proceeds. The Whole Time Member (WTM) alleged that the company had no plan from the inception to utilize the funds as per the prospectus, thus committing fraud on IPO subscribers. The WTM concluded that the company’s resolution dated 11 July 2011, which included the word "corporate" for the temporary utilization of funds, indicated deliberate misstatements in the prospectus. However, the Tribunal found that the word "including" in the prospectus was illustrative and not exhaustive, thus covering ICDs under "liquid instruments." The Tribunal held that there was no misstatement in the prospectus, and the actions taken by the company did not indicate any deliberate misstatement or larger design to misuse the IPO proceeds. 2. Utilization of IPO Proceeds: The company issued 6,51,75,000 equity shares, raising Rs. 65.17 crores, with the proceeds to be used for establishing 55 outlets, brand promotion, working capital, issue expenses, and contingencies. The WTM found that the company diverted Rs. 14 crores to support its share price on the listing day, disbursed Rs. 33.4 crores under false pretenses of work contracts, and invested Rs. 31 crores in ICDs to group companies, contrary to the prospectus. The Tribunal, however, noted that the subsequent non-utilization of IPO proceeds as per the prospectus does not imply a misstatement. It concluded that the company’s actions might be a violation of the terms and conditions of the prospectus but did not constitute a misstatement. 3. Interim Use of Funds: The prospectus allowed for temporary investment of IPO proceeds in interest or dividend-bearing liquid instruments, including deposits with banks and mutual funds. The WTM argued that investing in ICDs was not specified and thus constituted a misstatement. The Tribunal countered this by interpreting "liquid instruments" broadly to include ICDs, referencing previous judgments like P.G. Electroplast v. SEBI, which held that non-mention of ICDs in the prospectus was a technicality and not a misstatement. The Tribunal emphasized that "liquid instruments" are those easily tradable and convertible to cash, which includes ICDs. 4. Compliance with ICDR Regulations: The WTM found violations of Regulations 57(1), 60(4)(a), and 60(7)(a) of the ICDR Regulations, 2009, which require true, fair, and adequate disclosures in the offer document. The Tribunal disagreed, stating that the disclosures in the prospectus were material, true, fair, and adequate. It found no evidence that the disclosures were untrue or inadequate. The Tribunal held that the resolution of 11 July 2011 was in line with the prospectus and did not constitute a breach of the ICDR Regulations. Consequently, the Tribunal quashed the WTM’s findings and concluded that the appellants did not commit any breach of the ICDR Regulations or make any misstatement in the prospectus. Conclusion: The Tribunal allowed the appeals, quashing the impugned order against the appellants. It ruled that there was no deliberate misstatement in the prospectus, and the utilization of IPO proceeds in ICDs did not violate the ICDR Regulations. The Tribunal found the WTM’s conclusions to be based on surmises and conjectures, not supported by evidence. All appeals were allowed, and the parties were directed to bear their own costs.
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