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2020 (1) TMI 524 - AT - SEBIMis-utilised public issue proceeds contrary to the stated intent of investment in the company's subsidiary and augmenting the company's working capital - violating the provisions of Regulation 57 (1), Clause (XV10)(2) of Part A of Schedule VIII and regulation 60(4) of SEBI (Issuance of Capital Disclosure Requirements) Regulations 2009 ( ICDR Regulations ) read with Section 12A(a), (b) and (c) of the SEBI Act, 1992 and; regulations 3(b)(c)(d), regulations 4(1) and 4(2)(f), (k) and (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations 2003 ( PFUTP Regulations ) - Whether IGSL made false statements in its RHP and prospectus with respect to raising bridge loans? - Whether IGSL failed to disclose acceptance of deposits under Section 58A of the Companies Act, 1956, thereby violating regulation 57(1) of the ICDR Regulations? - HELD THAT - Referring to submissions of Mr. Modi that the Company was entitled to withdraw the earlier investment made in IFPL cannot be disputed. WTM in the impugned order at page no.25 at table no.7 had taken efforts to show that IFPL continues to reduce advancing loans against shares but increasing the same against unsecured loans, however, what would be the market constraint for the subsequent period cannot be gauged and the same are not part of the present enquiry. In the circumstances, in our view, this charge of making a wrong/false disclosure in the ICDR of funding ₹ 30 crores to IFPL for advancing loan against shares holds no water. Undisclosed Bridge loan - In financial world, bridge loan is understood as a short term accommodation availed by an entity awaiting the permanent financial resources. In the present case, as per the Company itself short term accommodation was sought from KRSPL and the same was repaid on 3rd August, 2011 i.e. post receipt of IPO money. These facts itself clarify that the bridge loan was raised by the Company. However, in the prospectus it was positively declared that the Company has not raised any bridge loan. Thus on this count it can clearly be declared that a false/wrong declaration was made in the prospectus in violation of ICDR Regulations. Security Deposits - WTM held that though the issue of security deposit in view of the provisions of Section 55A of the Companies Act, the jurisdiction would lie with the Central Government, for the purposes of disclosure of the deposit under ICDR Regulations the SEBI would have jurisdiction - In our view, the finding of the WTM cannot be faulted with. During investigation the Company emphatically came with a case that all these transactions were security deposits. It is clear that ₹ 21.61 crores was repaid post IPO. Only when the show cause notice was issued the Company came with a case that it was not a security deposit but an amount kept in an account for adjustment towards the debit balance of the related accounts. It is, however, a fact that the amount was repaid after the IPO proceeds were received. As found, the deposits were more than 25% of the IPO proceeds and was therefore material information under the ICDR Regulations. The decision of the WTM that the Company failed to disclose the deposits in the prospectus and, therefore, violated the Regulation therefore needs no interference. To conclude, the charge that the Company has misulitised part of the fund by failing to appropriate the necessary amount towards money advanced by its subsidiaries specifically cannot be sustained. The charge of bridge loan is proved to the extent of the aspect of raising the same from KRSPL. The next charge of non disclosure of security deposit in the prospectus also stands proved. Disclosures by independent directors - As urged that the appellants being independent director had no knowledge of the relevant non disclosures - Appellant therein were independent directors and were not involved in the day to day management and control of the Company. In the circumstances, the argument of the respondent SEBI that they had put their signatures in the prospectus were taken into consideration. It was finally concluded that disclosures could not be attributed to them as they were independent director and they were not associated in the day to day management or control over the Company. In the circumstances, the appeal was allowed.
Issues Involved:
1. Mis-utilization of IPO proceeds. 2. False statements regarding raising bridge loans. 3. Non-disclosure of acceptance of deposits. Issue-wise Detailed Analysis: 1. Mis-utilization of IPO proceeds: The appellants were accused of not utilizing the IPO proceeds as per the stated objectives in the prospectus, specifically regarding the investment in the subsidiary IFPL and augmenting the company's working capital. The SEBI investigation revealed that instead of using the funds for the declared purposes, the company diverted them to other uses, including purchasing shares and increasing unsecured loans. The tribunal found that the prospectus conveyed a dominant message that the funds would be used for lending against shares, which was not adhered to. However, the tribunal concluded that the charge of mis-utilization of IPO proceeds could not be sustained as the company had the discretion to revise its business plan and funding strategy, as mentioned in the prospectus. 2. False statements regarding raising bridge loans: The company declared in the prospectus that no bridge loans were raised to be repaid from IPO proceeds. However, SEBI's investigation found that the company had received funds from four entities shortly before the IPO and repaid them immediately after receiving the IPO proceeds. The tribunal determined that the transactions with three entities could not be considered bridge loans as the funds were repaid from the client account and not from IPO proceeds. However, the transaction with KRSPL was deemed a bridge loan as it was a short-term loan repaid from IPO proceeds, contradicting the prospectus declaration. Thus, the charge of making a false statement regarding bridge loans was upheld. 3. Non-disclosure of acceptance of deposits: SEBI found that the company had accepted significant security deposits from individuals which were not disclosed in the prospectus. The company initially described these transactions as security deposits but later claimed they were adjustments against debit balances of related accounts. The tribunal found that the deposits were material information that should have been disclosed in the prospectus. The non-disclosure of these deposits was deemed a violation of the ICDR Regulations, and the charge was upheld. Separate Judgments: - Appeal No. 361 of 2018: The tribunal found that one out of three charges was not sustainable. Consequently, the period of restraint on the company was reduced from four years to three years, and the restrictions on associating as Directors or KMPs were limited to three years from January 1, 2019. - Appeal No. 362 of 2018: The appellants, being independent directors, were not held responsible for the non-disclosures as they were not involved in the day-to-day management of the company. The appeal was allowed, and the impugned order against them was set aside. - Appeal No. 363 of 2018: The appellant, a non-executive director, was also not held responsible for the non-disclosures as he was not involved in the day-to-day affairs of the company. The appeal was allowed, and the impugned order against him was set aside. Conclusion: The tribunal partially allowed the appeal of the company and its directors, reducing the period of restraint. The appeals of the independent and non-executive directors were fully allowed, setting aside the impugned orders against them. The tribunal's decision was based on the specific roles and responsibilities of the appellants and the evidence presented.
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