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TMI Blog2017 (8) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the decision of the Forward Markets Commission is relevant. We also note that, though subsequent to the impugned order, the RBI has cancelled the certificate of registration granted to the Sahara Sponsor to carry on the activities of NBFC and has initiated steps to wind up the Sahara Sponsor under the RBI Act, with the Allahabad High Court (Lucknow Bench) restraining the Company from alienating its assets. In the result, we find no merit in the appeal. Accordingly, appeal is dismissed with no order as to costs. Consequently, Misc. Application No. 188 of 2017 becomes infructuous and the same is also disposed of accordingly. - Appeal NO. 428 of 2015 And Misc. Application NO. 188 of 2017 - - - Dated:- 28-7-2017 - MR. J.P. DEVADHAR, MR. JOG SINGH AND MR. C.K.G. NAIR For The Appellant : Gaurav Joshi, Senior Advocate Piyush Raheja, Sahil Gandhi and Ms. Vidhi Shah, Advocates For The Respondent : Kevic Setalvad, Sr. Advocate, Mihir Mody and Nishant Upadhyay, Advocates ORDER Dr. C.K.G. Nair, Member Appellants are aggrieved by the order dated July 28, 2015 passed by the Whole Time Member ('WTM' for short) of Securities and Exchange Board of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ** ** (aa) the applicant is a fit and proper person; (b)** ** ** Criteria for fit and proper person 7A. For the purpose of determining whether an applicant or the mutual funds is fit and proper person the Board may take into account the criteria specified in schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008. Terms and conditions of registration 10. The registration granted to a mutual fund under regulation 9, shall be subject to the following terms and conditions- (a) the trustees, the sponsor, the asset management company and the custodian shall comply with the provisions of these regulations; (b) the mutual fund shall forthwith inform the Board, if any information or particulars previously submitted to the Board was misleading or false in any material respect; (c) the mutual fund shall forthwith inform the Board, of any material change in the information or particulars previously furnished, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the applicant or the intermediary, the principal officer and the key management persons by whatever name called (a) integrity, reputation and character; (b) absence of convictions and restraint orders; (c) competence including financial solvency and networth. 4. Basic facts in this appeal are not disputed. However, for giving a comprehensive background relevant facts are stated as follows:- (a) On the basis of a Memorandum of Understanding between the Sahara India Financial Corporation Ltd. (Sahara Sponsor) and an existing mutual fund namely First India Mutual Fund, Sahara Sponsor applied to respondent SEBI for becoming sponsor of First India Mutual Fund on March 11, 2003. The appellants submitted all relevant details as per Mutual Fund Regulations. On November 13, 2003 SEBI granted approval to Sahara Sponsor for sponsoring First India Mutual Fund. On March 19, 2004 the Sahara Sponsor acquired 100% of shareholding of First India Asset Management Pvt. Ltd. and subsequently the name of the company was changed to Sahara Asset Management Company P. Ltd. Similarly, on April 1, 2004 on the basis of the request of the Sahara Asset Management Company the nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants made the following submissions:- (a) The sole reason for the impugned order against the appellants was on account of the proceedings by SEBI against two Sahara Group Companies namely SIRECL and SHICL. But these proceedings were pending since 2010 before SEBI and no action was contemplated or initiated against the appellants herein. There has been no allegation of any violation of Mutual Fund Regulations by the appellants except an alleged non-reporting of an action taken by SEBI against the said two group companies. Since action was taken by SEBI itself, this information was available with SEBI. (b) The appellants herein and the two group entities viz. SIRECL and SHICL are separate legal entities and as such SEBI should not have pierced the corporate veil in proceedings against the appellants herein. Piercing the corporate veil is against the canons of law and only constitutional courts have the power to do so. Settled legal position is that distinct corporate personality of a company can be disregarded only in a situation where the incorporation of the company itself is to perpetuate fraud or to carry out a fraudulent objective. Since no such allegation has been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently informed on September 8, 2014 that he ceased to be a Director of Sahara Sponsor w.e.f. September 2, 2014. Though subsequently he was reappointed as an Additional Director it was as a Non Executive Director. Thus over the years Mr. Subrata Roy Sahara ceased to play any role in the management of Sahara Sponsor. (g) The findings of the Hon'ble Supreme Court relied on by the respondent SEBI relating to the offence of Mr. Subrata Roy Sahara in the case of the two group companies is restricted to the facts in that particular case. The appellants herein were not even parties to those matters and are independent legal entities and hence Mr. Sahara's involvement in the two group companies cannot be transfixed on to the companies in the present appeal. In any case there is no order against Mr. Sahara finding him to be guilty of any offence involving moral turpitude or any economic offence. His detention order by the Hon'ble Supreme Court is only in relation to the issue of non-refund of the amounts ordered to be repaid by SIRECL and SHICL having no bearing in the present matter. (h) In conclusion, the Learned Senior Counsel for the appellants stated that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cancel a certificate of registration in such manner as may be determined by the Regulations. Accordingly, the relevant provisions of Mutual Fund Regulations, 1996 and Intermediaries Regulations 2008 have been invoked in deciding whether the appellants are fit and proper. (b) The Appellant No. 3 as the Sponsor of Sahara Mutual Fund (Appellant No. 2) holds 40.12% of the equity in Sahara AMC which along with preference shareholding becomes 46%. The remaining equity in the Sahara AMC is held by other Sahara Group Companies. Preferential shares of Sahara AMC are also held by Sahara group entities. (c) Mr. Subrata Roy Sahara holds 79.80% of the equity in the Sahara Sponsor and 53.34% of its preference shareholding. An additional 8.78% of equity is held by the wife of Mr. Subrata Roy Sahara thereby making the total shareholding of Mrs. and Mr. Subrata Roy Sahara more than 87% in Sahara Sponsor. (d) The Hon'ble Supreme Court in its order dated May 5, 2014 while dealing with the list of properties belonging to the Sahara Group Companies and furnished by the Petitioner Mr. Subrata Roy Sahara in the matter of SIRECL and SHICL observed that nothing can move without his (Mr. Sah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t orders against him and his Group Companies. Therefore the findings in the impugned order that he is not a fit and proper person cannot be faulted. Mr. Sahara owns 80% of the equity capital and 53% of the preference capital of the Sahara Sponsor and is in an absolute position to control the Sahara Sponsor which makes the Sahara Sponsor also not a fit and proper person. Though subsequent to receiving the Show Cause Notice in the present matter Mr. Sahara resigned from the Board of Directors of Sahara Sponsor on September 2, 2014, he rejoined the Board of Sahara Sponsor on November 3, 2014. He was also a Director of Sahara AMC till September 8, 2014. (k) Though Mr. Sahara was obliged to file changes in his status as provided in Mutual Fund Regulations subsequent to the orders of SEBI and the judgments of the Hon'ble Supreme Court cited above, he did not submit this information to SEBI. The argument that this fact was known to SEBI cannot be accepted because it is mandated on the Sahara Sponsor to file returns and affidavits, as per the Regulations. (l) Citing various judgments it was submitted that lifting of corporate veil is allowed when it is intended to find out who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sponsor. All these provisions indicate clear and continued action and obligation of the sponsor in the Mutual Fund. 9. The argument that only the Applicant Company as a sponsor is to be fit and proper and the requirement that the Promoter/Director need not be fit and proper cannot be accepted. Regulation 7A of the Mutual Fund Regulations, 1996 read with Schedule-II of the SEBI (Intermediaries) Regulations, 2008 specify that the fit and proper criteria applies to the Principal Officer and the key managerial persons of the sponsor by whatever name called and should possess integrity, reputation and character; absence of any convictions and restraint orders and competence including solvency and net worth. We note that the documents submitted by Mr. Subrata Roy Sahara at the time of filing applications on behalf of the Sahara Sponsor for the mutual fund registration clearly indicated his designation as the Managing Director (Worker) and Chairman against the Key Managerial Personnel of the Applicant. In the absence of any further documentation this position continued till he resigned from the Board of the Sahara Sponsor on September 2, 2014. He was also in the Board of Directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sahara's resignation from the Board of Directors of the Sahara Sponsor on March 22, 2017 does not alter the ground reality regarding his control over the Sahara Sponsor in which he continue to hold about 80% of the equity capital. 11. We find no merit in the arguments of the appellants that the Sahara Sponsor need not have to make separate declarations under the Mutual Fund Regulations on account of the orders against the group companies and their Promoters/Directors as applicable to Mr. Subrata Roy Sahara since these facts were known to SEBI. Fact that SEBI may be knowing is not a ground for not filing the periodic statements/declarations as and when status of the sponsor changes as provided for under the relevant regulations. Since Mutual Fund Regulations state that change in status must be informed it has to be done as and when required. Accordingly, the finding in the impugned order that the Sahara Sponsor did not file the correct position relating to the fit and proper status of its lead Promoter and Director consequent to the SEBI order dated June 23, 2011 on the two group companies cannot be faulted. 12. The requirement that the fit and proper criterion of an entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of holidays under the Industrial Disputes Act. Bacha F. Guzdar (supra) is in the context tax liability of an ordinary shareholders dividend. Order in respect of Electronics Corporation of India Ltd. (supra) is regarding the power of the State Government to levy tax on the company land etc; the order of the Court of Appeals is on lifting the corporate veil except where corporate identity is a mere facade concealing the true facts. Balwant Rai Saluja (supra) is in the context of Air India's responsibility to the employees hired by its subsidiaries; Order on Western Coalfields Ltd. (supra) in the context of taxation powers of the Special Area Authority and the order of Delhi Development Authority (supra) is in the context of willful disobedience of the court orders which specifically states that 'lifting veil is not allowed except where protection of public interest is of paramount importance'. 15. The present appeal before us is regarding the fit and proper status of a Promoter/Director of Sahara Sponsor who holds about 80% of its capital and who controls all Sahara Group Companies and hence on the fit and proper status of Sahara Sponsor to continue as Sponsor of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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