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TMI Blog2015 (8) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... No.173 of 2013 - - - Dated:- 30-9-2014 - J.P. Devadhar, Jog Singh and A. S. Lamba, JJ. For The Appellant : Mr. K. Ravi, Advocate with Mr. R. Murugan and Mr. A.H. Nagi, Advocates For The Respondent : Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mihir Mody, Advocate Per : Justice J.P. Devadhar 1. Appellants are aggrieved by impugned order passed by Whole Time Member of Securities and Exchange Board of India (SEBI) on 31st December, 2012 whereby the appellants are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, for a period of two years from the date of the said order. 2. It is not in dispute that before filing the preset Appeal, appellants had filed a writ petition before the Madras High Court and pursuant to an order passed in the aforesaid writ petition, implementation of the impugned order was stayed and that interim order has continued till date. 3. Relevant facts are that in the year 2010, appellant No.1 whose shares are listed on the Bombay Stock Exchange (BSE) and Madras Stock Exchange, offered to its shareholders 3,51,60,000 equity shares of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) Did not publish advertisements in the newspapers informing the investors about the material developments that happened in its rights issue. Regulation 60(4) of the ICDR Regulations vi) Did not enter into a valid agreement with Knack before engaging it as its Registrar to the Issue in the rights issue. Regulation 5(5) of the ICDR Regulations vii) Failed to hand over records of signatures, etc, to Knack Regulation 53A of the DP Regulations read with SEBI Circular D CC/FITTC/CIR-15/2002 dated December 27, 2002. 2. Appellant No.2 Mr. A. Venkataramani (Promoter) i) Mr. A. Venkataramani neglected his responsibility as the promoter of the Company in ensuring that CAFs were properly dispatched to the shareholders within the prescribed timeframe laid down in the regulations. Regulation 54(1) of the ICDR Regulations ii) Mr. A. Venkataramani was in the knowledge of the deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d further enquiry and asked appellant No.1 company to drop the issue at once. In fact, by a letter dated 5/1/2011 SEBI directed Vivro (merchant banker) to instruct appellant No.1 to refund entire subscription proceeds. Vivro, in turn, addressed a letter to that effect to appellant No.1. Accordingly, appellant No.1 refunded the entire subscription amount on 8th January, 2011. Thus, the defect being fully cured and no loss caused to any of the investors, SEBI is not justified in restraining appellant No.1 from entering the securities market for two years. By invoking provisions contained in Section 11(1), 11(4) 11(B) of Securities and Exchange Board of India, Act, 1992 impugned order is passed against appellant No.1 as a punitive measure which is beyond the scope of aforesaid provisions. Moreover, neither in the show-cause notice nor in the impugned order it is stated that the restraint order was required to be made with a view to protect either the interests of investors or the securities market. In any event, for violations of ICDR Regulations committed by Knack (RTI), appellant No.1 could not be penalized. Accordingly, it is submitted that charges (i) and (ii) framed and held ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant No.1 had entered into an MoU with Knack. Merely because the said MoU was not stamped, it could not be said that there is no agreement and accordingly it could not be said that Regulation 5(5) of ICDR Regulations is violated. 13. With reference to charge no.(vii), learned counsel for appellant No.1 submitted that in the absence of any specific charge as to which record mentioned in the regulation/circular dated December 27, 2002, have not been maintained and furnished to Knack, SEBI is not justified in holding that appellant No.1 has violated any regulation or violated circular dated December 27, 2002. Submissions relating to charges levelled against appellant No.2 :- 14. With reference to four charges levelled against appellant No.2, counsel for appellants submitted that appellant No.2 was only a promoter and not a director of appellant No.1 company and thus, appellant No.2 was not in charge of the day to day affairs of the company. In the absence of any statutory responsibility cast upon a promoter under the SEBI Act or rules/regulations framed thereunder, in the present case, appellant No.2 could not be said to have violated any regulation framed by SEBI and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot arrive at findings on serious charges like forgery, corrupt practice or fraud on the basis of preponderance of probabilities and wherever the charge entails serious consequences, the charge must be proved beyond doubt and the standard of proof in such case would be the standard of proof required in a criminal trial. 17. Reliance is also placed by counsel for appellants on the following decisions in support of his contention that SEBI has no jurisdiction to pass a punitive order under Section 11 or Section 11(4) or Section 11B of SEBI Act: a) Sterlite Industries (India) Ltd. vs. SEBI [(2001) 34 SCL 485] b) Ritesh Agarwal anr. Vs. SEBI [(2008) 8 SCC 205] c) Videocon Intl. Ltd. vs. SEBI [(2002) 38 SCL 422] Submissions on behalf of Respondents 18. Mr. Rustomjee, learned counsel appearing on behalf of respondent while supporting the order impugned in the appeal submitted that once primary responsibility of appellant No.1 for not sending CAFs to eligible shareholders in the manner specified under the ICDR Regulations is accepted, appellant No.1 cannot escape from the clutches of Section 11(1), 11(4) 11B of SEBI Act which inter alia empowers SEBI to restrain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the securities market for two years. 21. Argument that once the appellant No.1 at the instance of SEBI has refunded the entire subscription amount to the investors for not dispatching CAFs through registered post/speed post, SEBI ought to have dropped the proceedings and ought not to have further investigated the matter is without any merit, because, Knack, appointed as RTI by appellant No.1 had represented to SEBI that CAFs were sent through certificate of posting and to find genuineness of that representation, it was necessary for SEBI to carry further investigation. In fact, on further probe, it is found that the representation made by Knack was a false representation based on got up document created by Knack and accordingly by an order dated November 8, 2012 the certificate of registration granted to Knack has been suspended for a period of three months. Since appellant No.1 had floated the rights issue, it was the primary responsibility of appellant No.1, to ensure that CAFs are dispatched in the manner specified under regulation 54(1) of ICDR Regulations. Since appellant No.1 failed to discharge that responsibility, appellant No.1 cannot escape liability by alleging th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to be in compliance with regulation 5(5) of ICDR Regulations. In para 43 of the impugned order, it is recorded that appellant No.1 has not produced any proof to show that it had handed over the signature records to Knack. Irrespective of the fact that these charges are all trivial charges, in the facts of present case, since the CAFs were not dispatched inspite of specific provision under ICDR Regulations and advertisement issued by appellant No.1 did contain false statement, no fault can be found with the decision of SEBI in restraining the appellant No.1 from accessing the securities market for a period of two years. 24. Arguments that no opportunity was given to appellants to cross examine Vivro, Knack as also the postal authorities is without any merit, because, firstly, there is no request on record made by appellants in writing to that effect. Secondly, claim of appellants that during the course of hearing they were told that opportunity to cross examine aforesaid persons would be given is also not supported by documents on record. Thirdly, once the appellants admit that CAFs were not dispatched by registered post/speed post/under postal certificate and that the adve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnounces that the rights issue has been fully subscribed. In these circumstances, restraint order passed against appellant No.2 cannot be faulted. 26. Argument that there are several inconsistencies and mutually contradictory statements in the impugned order is also without any merit. What is stated in para 24 and 32 of the impugned order is that although there is no direct evidence to establish that appellants and Knack have connived, from the material on record it can be inferred that the conduct of appellant No.1 in not dispatching CAFs but still issuing an advertisement that CAFs have been dispatched by registered post/speed post was with a view to facilitate appellant No.2 who is the promoter of appellant No.1 to subscribe to the unsubscribed shares under the rights issue even when adequate funds were not there, was nothing but a device adopted by appellant No.2 with a view to strengthen his shareholding in the appellant No.1 company, without complying with open offer obligation under the Takeover Regulations, 1997. Various decisions relied upon by the counsel for appellants have no bearing on the facts of present case, because, in none of these cases, applicability of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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