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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 ..... s 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 Rs. 10 each for cash at par aggregating to Rs. 35.16 crore on rights basis. The rights issue opened on November 18, 2010 and closed on December 16, 2010. Vivro Financial Services Pvt. Ltd. ("Vivro" for short) a SEBI registered merchant banker was the lead manager to the rights issue and Knack Corporate Services Pvt. Ltd. ("Knack" for short), a SEBI registered Registrar to Issue and Share Transfer Agent, was the Registrar to the rights issue ("RTI" for short). 4. During the course of routine inspection of Knack carried out by SEBI, it was noticed that there were several complaints from the investors regarding non receipt of "Composite Application Forms" ("CAFs" for short) for subscribing to the rights issue of the company. Apart from above, several other discrepancies were also noticed during the course of said routine inspection. 5. In view of the discrepancies noticed, show-cause notices were issued to both the appellants alleging that they have violated v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors about the factual position leading to the refund of the issue proceeds. Regulation 60(4) of the ICDR Regulations iv) Mr. A. Venkataramani, being the main promoter of the Company, was responsible for making proper disclosures by the Company. Regulations 3(c), 3(d), 4(2)(f) and 4(2)(k) of the PFTUP Regulations. 6. Appellants filed replies to the show-cause notices denying the allegations made against them in the show-cause notices. Personal hearing was also afforded to the appellants. After considering the reply as also arguments advanced at the personal hearing, Whole Time Member of SEBI has passed the impugned order on 31st December, 2012. Challenging the aforesaid order dated 31st December, 2012, initially a writ petition was filed and thereafter pursuant to the order passed by the Madras High Court, appellants have filed the present appeal. As noted earlier, implementation of the impugned order has remained stayed all these years in view of the interim order passed by the Madras High Court. Submissions relating to charges levelled against appellant No.1: 7. As regards charges (i) and (ii) levelled and upheld against appellant No.1, Mr. K. Ravi, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 at 3.12 p.m. In both drafts Vivro had left out certain particulars to be filled in later, one such particular being the date and mode of dispatching the CAFs. In the advertisement issued on 15/11/2010 it was wrongly stated that the CAFs were dispatched "through Registered Post/Speed Post by November 13, 2010". By a corrigendum issued on December 6, 2010, the error in the advertisement was rectified. Since the lapse, if any, in issuing advertisement with incorrect statement is by Vivro, SEBI is not justified in penalizing appellant No.1 especially when SEBI has absolved Vivro from charge No.(iii). 10. With reference to charge No.(iv), it is contended by counsel for appellant No.1 that neither SEBI had addressed any letter directing appellant No.1 to refund subscription proceeds nor there was any instruction issued to appellant No.1 to make a public statement that appellant No.1 was refunding the subscription amount on instructions from SEBI. Therefore, voluntary corporate announcement made by appellant No.1 could not be said to have been made fraudulently so as to attract regulation 2(c) of PFTUP Regulations and consequently penalizing appellant No.1 on ground that PFUTP Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Knack, however, without giving any such opportunity impugned order has been passed in gross violation of the principles of natural justice and hence impugned order is liable to be quashed and set aside. 16. Counsel for appellants further submitted that in para 24 of the impugned order, it is stated that no material is brought on record to establish the allegation that the appellants have colluded with Knack in forging the proof of dispatching the CAFs. However, in para 32 of the impugned order it is stated that there is strong preponderance of probability that a plan, scheme and device was orchestrated between appellant No.1, appellant No.2 and Knack to deliberately deprive the eligible public shareholders to subscribe to the rights issue and to enable appellant No.2 to increase and consolidate his shareholding in the company, by subscribing to shares beyond his entitlement under the guise of subscribing to unsubscribed portion of rights issue at low cost and without attracting the obligation to make an open offer under the Takeover Regulations, 1997. Similarly in para 35 of the impugned order, it is recorded that since conduct of Vivro is not part of the proceedings, conduct o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for SEBI that in the year 2009 the managing director of Knack was employed with Kaashyap Technologies (a group company) wherein appellant No.2 is chairman and managing director and the premises from which Knack operates belong to appellant No.2. In these circumstances, counsel for SEBI submitted that the restraint order passed against appellants under Section 11, 11(4) and11B of SEBI Act cannot be said to be without jurisdiction. In support of above contention, reliance is placed by counsel for SEBI on a decision of this Tribunal in case of Libord Finance Ltd. vs. SEBI (Appeal No.38 of 2008 decided on 31.3.2008). Findings 19. We have carefully considered rival submissions. 20. On perusal of the impugned order, it is seen that there were several complaints from the investors regarding non receipt of CAFs in relation to rights issue from the appellant No.1 company. As per regulation 54(1) of ICDR Regulations, it was mandatory for the issuer-appellant No.1 company to dispatch the abridged letter of offer along with CAFs through registered post or speed post to all the existing shareholders at least three days before the date of opening of the rights issue. Admittedly, CAFs were nei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by Knack, appellant No.1 cannot now turn around and say that appellant No.1 cannot be held liable for the false statement made in the advertisement, because, the advertisement was released by Vivro. Very fact that appellant No.1 claims to have approved draft advertisement based on the confirmation given by Knack that CAFs have been dispatched by registered post/speed post and the said false statement was to the benefit of appellant No.2 who as a promoter to the rights issue could subscribe to the unsubscribed shares, SEBI was justified in drawing an inference that not sending CAFs but issuing a false advertisement was a game plan of appellant No.2 to strengthen his shareholding in appellant No.1 company. From the order passed by SEBI against Vivro on December 20, 2013, it is seen that though the advertisement of appellant No.1 was issued by Vivro, Vivro had relied upon the confirmation given by appellant No.1 as well as Knack that CAFs were dispatched through registered post/speed post. Fact that Vivro has been let off with a warning would not absolve appellant No.1 from the consequences of issuing false advertisement, because, admittedly the advertisement was issued in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants want to cross examine Knack and postal authorities, especially when appellants contend that they are not parties to the wrongful acts committed by Knack. Therefore, argument that the impugned order has been passed in violation of the principles of natural justice cannot be accepted. 25. Arguments advanced on behalf of appellant No.2 are equally without any merit, because, as per the letter of offer, appellant No.2 who is the promoter of appellant No.1 was to play a major role by subscribing to the unsubscribed share under the rights issue. In para 30 of the impugned order, it is recorded that managing director of Knack was employed with Kaashyap Technologies in the year 2009 and at that time appellant No.2 was the chairman and managing director of Kaashyap Technologies. Moreover, it is seen that the premises from which Knack operates belong to appellant No.2. These findings recorded in the impugned order are not disputed. In view of the close proximity of Knack with appellant No.2 and failure of Knack in not dispatching CAFs was to the benefit of appellant No.2 in subscribing to the unsubscribed shares under the rights issue, adverse inference drawn by SBEI that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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