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TMI Blog2020 (1) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... in a compact statement like received, but applicable once forest clearance is received ; a clear case of not only partial/inadequate disclosure but also to the effect of concealment. Instead of disclosing a rejection everything else has been disclosed. The emphasis made by the learned counsel for the appellants also on various correspondences by different authorities seeking approval for the project from MoEF including the letter from the Prime Minister's Office ( PMO ) to the MoEF also does not absolve the appellants from the required disclosures in the prospectus/under the Listing Agreement. The PMO letter is a reply to a VIP reference with a copy to MoEF clearly stating that forwarded for its consideration and appropriate action most expeditiously . Appropriate action could be another rejection by the MoEF; approval cannot be assumed. We do not propose to deal with the contention of the learned senior counsel for ESL that ESL has undergone a CIRP and all claims relating to penalties etc. have been permanently extinguished and so on under the approved Resolution Plan. We would just state that those issues would be addressed by the appropriate authorities under applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals are filed challenging the order of the Adjudicating Officer ( AO for convenience) of the Securities and Exchange Board of India ( SEBI for convenience) dated March 31, 2016. By the said order a penalty of ₹ 1 crore has been imposed on M/s Electrosteel Limited ( ESL for convenience; Appellant in Appeal No. 223 of 2016) for violation of Regulation 57(1) and Regulation 57(2)(a)(ii) of the SEBI (Issue of Capital and Disclosure Requirement) Regulations, 2009 (hereinafter referred to as ICDR Regulations ). Further a penalty of ₹ 1 crore has been imposed jointly and severally on three Merchant Bankers (Appellants in Appeal No. 202 of 2016) for violation of Regulation 57(1), Regulation 57(2)(a)(ii) and Regulation 64(1) of the ICDR Regulations and Regulation 13 of SEBI (Merchant Bankers) Regulations, 1992 (hereinafter referred to as Merchant Bankers Regulations ). Similarly, a penalty of ₹ 50 lakh each has been imposed on M/s Electrosteel Castings Limited ( ECL for convenience; Appellant in Appeal No. 224 of 2016) under Section 23A(a) and 23E of the Securities Contract (Regulation) Act, 1956 ( SCRA for convenience) for violation of Clause 36 of the Listing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ( FAC ) of MoEF. Operational part of this communication is reproduced below:- After discussing the proposal in detail, the FAC rejected the proposal on account of being part of core zone of Singhbhum Elephant Reserve and critical to wildlife conservation which also desired that the State Government to submit a detailed report on the present status of other four mines located in the core of Singhbhum Elephant Reserve. However, the Government will be at liberty to request for reconsideration of the proposal as per guideline (ii) In view of the above, I am further directed to request you to kindly submit a detailed report on the present status of all four other mines located in the core of Singhbhum Elephant Reserve. (g) On January 16, 2009, the MoEF wrote to ECL, conveying rejection of the proposal for environmental clearance for the project proposed by ECL, consequent to the advice of the FAC dated October 04/November 04, 2008. (h) On July 10, 2009 Jharkhand Government has requested MoEF to reconsider the matter and sought approval for the said project. (i) The matter was further taken up by ECL on July 24, 2009 and by Government of Jharkhand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 04.10/04.11.2008 and strongly contended that this letter was not a rejection by the MoEF but it only conveyed the advice of the FAC. Further it was contended that this so-called rejection by the FAC was only a first step in the entire process and invariably such rejection is done as a first step but there is a provision for reconsideration under guideline (ii) as indicated in the same letter. Accordingly, the ECL, Government of Jharkhand, Ministry of Steel, Government of India, Prime Minister's Office have all pursued the matter for reconsideration of the application which finally fructified in February 2012 when all approvals were received. Therefore, at no stage the MoEF rejected the proposal and therefore there was no need for making such disclosure in the IPO Prospectus. In fact, it was contended, that if such a disclosure was made it would have been factually incorrect and the appellant (as well as other appellants) would have been hauled up by SEBI for making such factually incorrect disclosures. 6. It was also contended that the appellant was fully aware of the need for making every disclosure in a true and fair manner and accordingly highlighted various scen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant that the appellant-company has undergone Corporate Insolvency Resolution Process (CIRP) and on the culmination of the same following National Company Law Appellate Tribunal ( NCLAT ) approval the appellant-company has been now taken over by M/s. Vedanta Ltd. who was the successful bidder in the CIRP. Further, on 18.09.2018 the appellant applied for delisting and the same has been effected by 20.12.2018 by giving exit to all its public shareholders. Therefore, as per the approved resolution plan all penalties/fines etc. against the appellant stand written off in full and permanently extinguished. Therefore, even if it is held that the appellant has violated the ICDR Provisions relating to disclosures in the prospectus no penalty shall be imposed on the appellant. Appeal No. 224 of 2016 8. As already stated ECL is the parent company of ESL, and the one primarily responsible for obtaining all the approvals etc. for the proposed mining project in question. ECL is a listed company and was incorporated in 1955, engaged in the business of manufacturing ductile iron pipes and cast iron pipes for more than 50 years. It is this appellant who entered into a MoU w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial information relating to the company issuing the prospectus for an IPO and therefore violated 64(1) of ICDR Regulations. 11. The learned counsel Shri Somasekhar Sundaresan, appearing for the appellants contended that whatever information was material was disclosed in the prospectus. It was vehemently argued by the learned counsel that the so-called rejection of the application for the mining lease license of ECL was not a rejection at all, because, FAC was only an Advisory Body. He also cited the relevant extracts relating to the functions of the FAC in support of his contentions. Rejection by the FAC, therefore, is not a rejection by MoEF; the MoEF had never rejected the proposal rather through after 1 and years of the IPO the project was approved by the MoEF. It was further contended that at the relevant time several clearances had been already obtained and the stage of each clearance, either obtained or pending, has been categorically stated in a tabular format at Page 110 of the prospectus. In the said table against Environmental Clearances what is recorded is that the Approving Authority is MoEF; approval received in respect of coking coal and in respect of iron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso urged that the allegation of suppression of information was raised for the first time only in the impugned order and that point was not raised either in the show cause notice or in any of the subsequent proceedings lasting for 2.5 years. There was no such suppression of information as all the relevant information was disclosed under the risk factors . Further quoting the Dictionary meanings of diligence, due diligence, material, material fact, materially affected etc. the learned counsel contended that diligence of a very high order was followed by the appellants in disclosing all material facts in the Prospectus. 13. In any case, the learned senior counsel submits that the penalty of ₹ 1 crore imposed on the appellants, who are just the Merchant Bankers, at the maximum amount of penalty imposable under Section 15HB of the SEBI Act is too harsh even if it is held that there was a technical violation. It is not a fit case for imposition of heavy penalty and far from the maximum amount of penalty, it was argued. The learned counsel relied on the judgements passed by this Tribunal in the matters of Kotak Mahindra Capital Co. Ltd. v. SEBI [2017] 78 taxmann.com 329 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including site inspection reports, wherever required, to the Committee for its advice thereon. (2) The Committee shall have due regard to all or any of the following matters while tendering its advice on the proposals referred to it under sub- rule (1), namely:- (a) Whether the forests land proposed to be used for non-forest purpose forms part of a nature reserve, national park, wildlife sanctuary, biosphere reserve or forms part of the habitat of any endangered or threatened species of flora and fauna or of an area lying severely eroded catchment; (b) Whether the use of any forest land is for agricultural purposes or for the rehabilitation of persons displaced from their residences by reason of any river valley or hydro-electric project; (c) Whether the State Government or the other authority has certified that it has considered all other alternatives and that no other alternatives in the circumstances are feasible and that the required area is the minimum needed for the purpose; and (d) Whether the State Government or the other authority undertakes to provide at its cost for the acquisition of land of an equivalent area and afforestat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upply iron ore for a 20 year period to ESL were all disclosed by ECL which was making an investment of over 700 crores in ESL. 18. In this context it is worthwhile to quote paragraphs 187 and 198 of the impugned order which read as follows:- 187. Thus to sum up, it is noted from all of the above that ECL had obtained Iron Ore Mine in the State of Jharkhand for the purpose of implementing ESL's project. At a time when ESL was scheduled to commence commercial production of its 2.2 MTPA Integrated Steel and Ductile Iron Spun Pipes plant in Jharkhand in October 2010, the status of the forest diversion proposal of the Iron Ore Mine of ECL was that MoEF had rejected the said proposal at the in-principle stage itself after considering the proposal. Further, though the State Government had requested for reconsideration of the proposal by MoEF as per guideline 4.14(ii), no visible event had taken place indicating a reversal by MoEF of its decision of rejection of the proposal. ECL had already at this stage invested approx. 44% of its networth and 68% of its total investments in the said project. Further, the strong concern felt by ECL at the relevant point of time tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a temporary halt which would affect the time schedule, cost, production etc. in the said project was undoubtedly a material event for both ESL and ECL. Therefore, we find no reason to interfere with the findings in the impugned order that the rejection letter communicating either the view of the Forest Clearance Division and/or the decision of the MoEF regarding rejection of Environmental Clearance because of rejection of forest clearance were material information to be disclosed in the IPO Prospectus under ICDR by ESL and under Clause 36 of the Listing Agreement by ECL. 20. The contention of the appellants is that such rejection is part of the process and application for reconsideration is inbuilt under guideline 4.14 of the Forest Conservation Act, 1980. Guideline Clarification 4.14 under Forest Conservation Act, 1980 refers to 'Rejection/Reopening of Cases' and reads as follows: 4.14 Rejection /Reopening of Cases: (i) In cases where the State Government is requested to furnish clarifications or additional information relating to a proposal, all particulars should be made available to the Central Government within 60 days. If such particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure performance, profitability and even viability of the business even if it was considered only an initial rejection it was a material information to be disclosed irrespective of whether finally the project got clearance or not. 22. Learned counsel for the appellants over emphasised the letter dated 04.10/04.11.2008 whereby rejection of the Forest Clearance Division was conveyed and argued that it was not a final rejection because it was not issued by the MoEF after considering the advice of the FAC. However, we are constrained to state that all the counsel for the appellants made only a feeble/passive reference to the January 16, 2009 letter which categorically rejected (even assuming that it was for the time being) Environmental Clearance for the project proposed by ECL on the basis of the rejection by FAC. For facility, letter of January 16, 2009 is extracted hereunder:- To, M/s Electrosteel Castings Limited 40, Stephen House, 4 BBD Bag (East), Kolkata- 700 001 e-mail: [email protected] Subject: Dirsumburu Iron Ore Mining Project of M/s Electrosteel Castings Limited, located in Kodoliabad Reserved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for receipt of approval from the Ministry of Environment and Forests, Government of India. Only upon receipt of such approval, Government of Jharkhand shall execute the necessary mining lease in favour of ECL. There can be no assurance that the approval from the Ministry of Environment and Forests will be received in a timely manner and we may have to obtain iron ore supplies from other sources. Further, there can be no assurance we will be able to obtain coal supplies either in sufficient quantities or acceptable quantities, or at all. We may also have to purchase the raw materials at a higher price from the market for carrying out our operations, which may cause a delay in our commercial production, thereby having an adverse effect on our business, financial condition and results of operations. (emphasis added) 24. Further the (then) Current Status of development of Iron Ore and Coking Coal Mines of ECL as shown at Page 110 of the Prospectus is reproduced below: Permit Approving Authority Coking Coal Iron Ore Mine Allocation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us correspondences by different authorities seeking approval for the project from MoEF including the letter from the Prime Minister's Office ( PMO ) to the MoEF also does not absolve the appellants from the required disclosures in the prospectus/under the Listing Agreement. The PMO letter is a reply to a VIP reference with a copy to MoEF clearly stating that forwarded for its consideration and appropriate action most expeditiously . Appropriate action could be another rejection by the MoEF; approval cannot be assumed. 26. We do not propose to deal with the contention of the learned senior counsel for ESL that ESL has undergone a CIRP and all claims relating to penalties etc. have been permanently extinguished and so on under the approved Resolution Plan. We would just state that those issues would be addressed by the appropriate authorities under applicable laws. 27. However, in the interest of justice we tend to agree with the submissions of the appellants in Appeal No. 202 of 2016 and in 223 of 2016 that non-disclosure of the initial round rejection of the mining project proposal in the Prospectus is not in the category where maximum penalty is imposable. H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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