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2023 (10) TMI 683 - AT - SEBIViolation of Buyback Regulations and PFUTP Regulations 3 and 4 of the SEBI - Fraudulent and Unfair Trade Practices relating to Securities Market - allegation of misleading public announcement designed to influence the decisions of investors - Company wrote to SEBI informing that it could not ensure buyback of 50% of the amount earmarked as required under Regulation 14(3) of the Buyback Regulations. It requested SEBI to release the cash Escrow amount containing 2.5% of buyback size u/r 15B of the Buyback Regulations HELD THAT - The investigation report clearly held that the Company had complied with relevant provisions of Regulation 15B (8) of Buyback Regulations (for release of amount deposited in Escrow account by the Company) holding that No major impact on price / volume was observed on the basis of any of the corporate announcement made by Cairn during the investigation period . The Company could not have foreseen or predicted that the stock markets would witness this bullish trend at the time when the decision for going for a buyback was taken nor could the Company be aware at the time of making the public announcement that the traded price of the scrip would be above the maximum buyback price on 68 days out of 123 trading days. Thus, allegation that the Company had made misleading public announcement on January 14, 2014 designed to influence the decision of investors and to induce sale or purchase of its securities is not proved. Company failed to show intent towards completing the buyback by not putting enough buy orders at appropriate time and therefore acted fraudulently - As we find that out of 123 trading days available to the Company to conclude the buyback, on 55 days at BSE and 54 days at NSE, the closing price of the scrip was lesser or equal to maximum buyback price of Rs. 335/-. Closing price was more than maximum buyback price of Rs. 335/- per share from April 2, 2014 to April 23, 2020 and from May 12, 2014 to July 22, 2014 - out of 123 days available to the Company to complete the buyback, it placed buy orders on 82 days on NSE and on all 123 days on BSE. It is also noted that the SEBI (Buyback of Securities) Regulations, 1998 do not lay down any method or procedure for conducting the buyback. The Company appointed professional merchant bankers and brokers for the buyback transaction and deposited Rs. 143.12 crores in an Escrow account. It cannot be faulted for adopting a prudent and cautious approach by placing few buy orders at the initial stage of the buyback period. Placement of large buy orders at the initial stage could have affected the price of the scrip and possibility of the price going above the maximum price even earlier could not be ruled out. The Company could not have perceived that in last 2-3 months of the buyback period the price would not be favourable. There is nothing on record to indicate that the Company instructed the intermediaries to prefer one Stock Exchange over another. The Company utilized Rs. 1225.45 crores in the buyback process and in our view this is not a paltry sum to invest for a non-serious effort to buyback the shares. The above indicates that it cannot be conclusively proved that the Company showed no intent to successfully complete the buyback and there by acted fraudulently. Thus, we hold that the violations of provisions of Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(K) and (r) of the PFUTP Regulations and Regulations 19(1)(a) of the Buyback Regulations are not proved against the Company.
Issues Involved:
1. Allegation of making misleading public announcement regarding buyback of shares. 2. Allegation of failing to show intent towards completing the buyback and acting fraudulently. Summary: Issue 1: Allegation of making misleading public announcement regarding buyback of shares The respondent alleged that the Company made a misleading announcement on January 14, 2014, regarding the buyback of shares without any intent to fulfill it, thus influencing the decision of investors. The Board of Directors approved the buyback proposal on November 26, 2013, and the shareholders approved it on January 6, 2014. The public announcement was made on January 14, 2014. The investigation report concluded that there was no major impact on the price/volume due to the announcement. The Company could not have foreseen the bullish trend in the stock market, which resulted in the traded price of the scrip being above the maximum buyback price on 68 out of 123 trading days. Therefore, the allegation that the Company made a misleading public announcement designed to influence investors is not proved. Issue 2: Allegation of failing to show intent towards completing the buyback and acting fraudulently The respondent argued that the Company did not place enough buy orders at appropriate times, indicating a lack of intent to complete the buyback. The Company placed buy orders on 82 out of 123 trading days on NSE and on all 123 days on BSE. The SEBI (Buyback of Securities) Regulations, 1998, do not specify the method or procedure for conducting the buyback. The Company appointed professional merchant bankers and brokers and deposited Rs. 143.12 crores in an Escrow account. The Company adopted a cautious approach to avoid affecting the scrip price. The Company utilized Rs. 1225.45 crores in the buyback process, indicating a serious effort to complete the buyback. Therefore, it cannot be conclusively proved that the Company showed no intent to complete the buyback and acted fraudulently. Conclusion: The violations of Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(K) and (r) of the PFUTP Regulations and Regulation 19(1)(a) of the Buyback Regulations are not proved against the Company. Consequently, the allegations against Appellant nos. 2 and 3 and the Appellant in Appeal no. 486 of 2021, who signed the public advertisement, are also not proved. The appeals are allowed, and the order dated May 19, 2021, of the AO is set aside.
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