2022 (7) TMI 1477 - AT - SEBI

Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - Global Depository Receipts issued to sole subscriber - WTM as debarred from accessing the securities market for a period of five years and imposed a penalty of Rs. 5 lakhs for violation of the provisions of Section 12A(a) (b) (c) of SEBI Act r.w.r. 3(a) (b) (c) (d) and 4(1) of the SEBI ( PFUTP Regulations ) - HELD THAT - Merely by participating as an Independent Director in the resolution of the Board of Directors on 16th March 2010 does not make the appellant a part of the fraudulent scheme and arrangement of the Company with regard to the issuance of the GDR. Resolution only directs opening of a bank account with EURAM Bank account for the purpose of receiving subscription money in respect of GDR and authorises the Managing Director to sign such documents as required. By being part of such resolution does not make the appellant part of a fraudulent scheme in as much the resolution of 16th March 2010 does not by itself makes it a fraudulent resolution. It is the subsequent acts of the Company and its Managing Directors by issuing a pledge agreement for the purpose of providing guarantee to Vintage so that it could secure a loan for the purpose of subscribing to the GDR issue makes it fraudulent. However there is no evidence to indicate that the appellant was party to the execution of the pledge agreement nor there is anything on record to indicate that he was aware of the loan agreement or the pledge agreement. A specific assertion was made by the appellant that he was not part of the day to day affairs and management of the Company. This fact has not been disputed by the respondent. Therefore unless and until there is further evidence to indicate that the appellant had participated in the issuance of GDR and/or knew about the fraudulent scheme in our opinion the restraint order passed by the WTM and the penalty imposed by the AO on the ground that the appellant was part of the fraudulent scheme cannot be sustained. In view of the aforesaid the impugned orders passed by the WTM and AO cannot be sustained and are quashed. Both the appeals are allowed.

Summary

Issues:
1. Debarment from securities market for 5 years by WTM
2. Penalty of Rs. 5 lakhs imposed by AO for violation of SEBI Act and PFUTP Regulations

Analysis:
1. The appeals were filed against orders debarment and penalty. The WTM debarred the appellant from the securities market for 5 years, while the AO imposed a penalty of Rs. 5 lakhs for violating SEBI Act and PFUTP Regulations.

2. The resolution passed by the Board of Directors authorized the opening of a bank account with EURAM Bank for receiving GDR subscription money. Investigation revealed the issuance of 50 lakh GDR to Vintage, with the Company acting as a guarantor for a loan granted by EURAM Bank. The authorities found the actions violative of SEBI Act, PFUTP Regulations, and Listing Agreement, leading to penalties.

3. The appellant, an Independent Director, claimed no involvement in GDR issuance or Company management. The penalty was imposed based on his presence at the Board meeting. However, the Tribunal found no evidence linking him to the fraudulent scheme, as he was not aware of loan or pledge agreements.

4. The Tribunal noted the appellant's limited role and lack of awareness regarding the fraudulent scheme. The respondent's contention about the appellant's role in the audit committee was dismissed as it was not part of the original show cause notice.

5. The Tribunal rejected the respondent's attempt to introduce new documents, citing Order 41 Rule 27 of the Code of Civil Procedure. Previous judgments emphasized that mere participation in a resolution does not imply involvement in fraudulent acts, especially for non-executive directors not involved in daily operations.

6. Considering the lack of evidence implicating the appellant in the fraudulent scheme, the Tribunal quashed the WTM and AO orders, allowing the appeals without costs. The decision was digitally signed for immediate action by concerned parties.