2023 (9) TMI 575 - AT - SEBI

Violation of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 - Related party transactions without taking prior approval of the Audit Committee and Board as required under the LODR Regulations - two Independent Directors continued to remain as Independent Directors inspite of appointment of their relatives in the Company/ overseas subsidiary which was also violative of the LODR Regulations - penalty of Rs. 25 lakhs under Section 23E of the SCRA against the Company and Rs. 10 lakh each on the two Independent Directors and Rs. 4 lakhs on the Company Secretary - HELD THAT - Company and the Company Secretary failed to disclose this event under Regulation 30 of the LODR Regulations. Under Regulation 6, the Compliance Officer is responsible for ensuring conformity with the regulatory provisions applicable to a listed company and, therefore, the Company Secretary failed to discharge his duties. We find that the appellants had committed violations of various provisions of the LODR Regulations. The said violations are however not that serious warranting imposition of high penalties. In the instant case, the Company has been penalized under Section 23E of the SCRA. In Suzlon Energy Ltd. Anr. vs. SEBI 2020 (2) TMI 1704 - ITAT MUMBAI this Tribunal has held that Section 23E of the SCRA is not the charging provision for imposition of penalty for violation of the Listing Agreement and that the correct provision is Section 23A(a) of the SCRA. We find that penalty under Section 23A is from a minimum of Rs. 1 lakh to a maximum of Rs. 1 crore and under Section 23E of the SCRA a penalty is up to a maximum of Rs. 25 crores. Thus imposition of penalty amounting to Rs. 25 lakhs is excessive and arbitrary in the facts and circumstances of the given case. This Tribunal by an interim order dated 22.11.2022 had directed the said Company to deposit a sum of Rs. 10 lakhs which they have done. Considering the aforesaid, we are of the opinion, that for the violation committed by the Company noticee no. 1 the penalty of Rs. 25 lakhs is reduced to 10 lakhs. Two independent directors are concerned i.e. noticees no. 2 and 3 the imposition of penalty of Rs. 10 lakhs each in the given circumstances is high and excessive. We find that the relatives of the independent directors were not appointed in the Company but in an overseas subsidiary Company. Company re-designated the independent directors as non-independent directors though at a belated stage. Considering the aforesaid, in the given circumstances the penalty is reduced to Rs. 5 lakhs each. For the Company Secretary a penalty of Rs. 4 lakhs has been imposed for violation of Regulation 6(2)(a) i.e. for not disclosing the appointment of the forensic auditor. As the Company and its directors have been penalized the imposition of penalty against the Company Secretary should be the minimum penalty. We, consequently reduce the penalty of Rs. 4 lakhs to Rs. 1 lakh.

Summary

Issues:
- Violation of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Summary:
1. The appeals were against an order imposing penalties for noncompliance with SEBI regulations regarding related party transactions and independence of directors.
2. The Company was found to have entered into related party transactions without proper approval and had appointed relatives of independent directors in violation of regulations.
3. SEBI conducted an investigation based on the Company's annual report, leading to penalties being imposed by the Adjudicating Officer.
4. The appellants were charged with not following due process for related party transactions, independence of independent directors, and non-disclosure of a forensic audit.
5. Arguments were heard from both the Appellant's and Respondent's counsels.
6. Regulation 23(2) of the LODR Regulations mandates prior approval of the audit committee for related party transactions.
7. The Company admitted to not seeking prior approval for certain transactions, leading to a violation of the regulation.
8. Regulations prohibit the appointment of relatives of independent directors in listed companies to maintain independence.
9. Independent directors violated regulations by having relatives appointed in the Company's subsidiary, leading to conflicts of interest.
10. Failure to disclose the appointment of a forensic auditor was a violation of Regulation 30 of the LODR Regulations.
11. The Company Secretary failed to ensure compliance with regulatory provisions, leading to penalties.
12. Violations of LODR Regulations were found, but penalties were deemed excessive.
13. Different sections of the SCRA allow for varying penalty amounts based on the severity of violations.
14. The penalty imposed on the Company was reduced from Rs. 25 lakhs to Rs. 10 lakhs.
15. Penalties for the independent directors were reduced from Rs. 10 lakhs each to Rs. 5 lakhs each due to specific circumstances.
16. The penalty for the Company Secretary was reduced from Rs. 4 lakhs to Rs. 1 lakh considering the penalties already imposed.
17. The appeals were partly allowed, and the order was modified accordingly.
18. The digitally signed order was directed to be acted upon, and certified copies were made available from the Registry.