2021 (8) TMI 398 - HC - SEBI

Fraudulent and Unfair Trade Practices - settlement in terms of SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 seeked - HELD THAT - Petitioners are entitled to move application for settlement even at the appellate stage. However, for the said purpose, the petitioners would have to move appropriate application before the appellate forum. The said applications thereafter be rooted to the High Powered Advisory Committee which may examine the aspect keeping in view the fact that other similarly situated two companies (supra) have been allowed to get the matter settled and settlement orders have been passed in relation to the other similarly situated companies (supra). The issue with regard to the condition as laid down by the Internal Committee can also be examined by the High Powered Advisory Committee and it may take its own decision in this regard. As on today, so far as this Court is concerned, it is of the confirmed opinion that such a precondition is not existing and the same only related to the earlier settlement applications. This Court concludes that no relief can be granted to the petitioner for revival of the settlement applications and the petitioner has to move afresh application if so chooses in terms of Regulation 7 of the Settlement Regulations, 2018. If such afresh application for settlement is moved, it shall be placed before the High Powered Advisory Committee as provided under Regulation 7 of the Settlement Regulations, 2018 and a decision shall be taken at the earliest. However, taking into consideration that the orders have already been passed under Section 11B of the SEBI Act, 1992, there can be no precondition of depositing the amount of 50% over the settlement amount. The said condition would only operate after the settlement is arrived at and determined by the concerned Committee. Similarly, in relation to settlement of penalty also, the aforementioned observations will equally apply.

Summary

Issues Involved:
1. Allegations of fraudulent GDR subscription.
2. SEBI's imposition of financial penalties.
3. Petitioner's settlement applications under SEBI regulations.
4. Condition imposed by SEBI for settlement.
5. Allegations of coercion and discrimination by SEBI.
6. Petitioner's withdrawal of settlement applications.
7. Petitioner's request for revival of settlement applications.
8. Petitioner's right to file fresh settlement applications.

Detailed Analysis:

1. Allegations of Fraudulent GDR Subscription:
The petitioner, a Company involved in manufacturing and services, issued Global Depository Receipts (GDRs) to raise funds. SEBI alleged that the GDR subscription was fraudulent, as it was subscribed by only one entity, Vintage, which took a loan from Euram Bank where the petitioner had deposited the GDR subscription. SEBI found that the GDR proceeds were pledged to secure the loan, and this pledge agreement was suppressed by the petitioner, constituting fraud under SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

2. SEBI's Imposition of Financial Penalties:
SEBI issued a show cause notice to the petitioner for contravening provisions of the SEBI Act and Regulations, proposing financial penalties. The petitioner contested these allegations but decided to approach for settlement under SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014.

3. Petitioner's Settlement Applications:
The petitioner filed two settlement applications to resolve the proceedings initiated by SEBI. During the hearings, SEBI imposed a condition that the settlement applications would only be considered if the funds raised through GDRs were brought back to the petitioner-Company or into India.

4. Condition Imposed by SEBI for Settlement:
The petitioner argued that the condition to repatriate the GDR proceeds was coercive, arbitrary, and unreasonable. They claimed that the funds were used for business purposes abroad, and it was impossible to bring them back. Despite representations, SEBI did not relent, leading the petitioner to withdraw their settlement applications under duress.

5. Allegations of Coercion and Discrimination by SEBI:
The petitioner contended that SEBI's condition was discriminatory, as other companies with similar allegations were allowed to settle without such conditions. They argued that SEBI's action amounted to coercion, and the withdrawal of their settlement applications should be treated as void ab-initio.

6. Petitioner's Withdrawal of Settlement Applications:
The petitioner formally withdrew their settlement applications, stating it was due to the impossibility of meeting SEBI's condition. SEBI accepted the withdrawal and proceeded with the show cause notices on merits, resulting in penalties against the petitioner.

7. Petitioner's Request for Revival of Settlement Applications:
The petitioner sought revival of their original settlement applications, arguing that the withdrawal was under duress. SEBI opposed this, stating that the withdrawal was voluntary and without coercion. The court found no evidence of duress in the withdrawal process.

8. Petitioner's Right to File Fresh Settlement Applications:
The court held that the petitioner could file fresh settlement applications under Regulation 7 of the Settlement Regulations, 2018, even at the appellate stage. These applications would be examined by the High Powered Advisory Committee, considering the fact that other similarly situated companies were allowed to settle. The court clarified that there would be no precondition of depositing 50% over the settlement amount until the settlement is determined by the Committee.

Conclusion:
The court concluded that no relief could be granted for the revival of the original settlement applications. The petitioner must file fresh applications if they choose, and these should be considered by the High Powered Advisory Committee. The writ petition was disposed of in these terms, with no order as to costs.