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TMI Blog2020 (1) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... ances warranting such a drastic measure. Applying the aforesaid test, we find that considering the allegations spelled out in the ex-parte ad-interim order which we need not refer on merits at this stage, we find that upon the examination of the evidence, a prima facie opinion was correctly arrived at by the WTM based on objective facts indicating diversion of funds from a listed Company which was not in the interest of its shareholders. It was thus extremely necessary that an action on urgent basis was required to stop further defalcation/ diversion/ siphoning of the funds of the Company and to protect the interest of the investors and its shareholders and to instill confidence in the securities market. Such measures if not taken while the iron was hot would defeat the regulatory measures that has been provided to SEBI under the SEBI Act. We are of the opinion that, in the instant case, there was ample evidence to show urgency and, considering the material that has been brought on record, the matter being serious, warranted an inference by the regulator. Whether such transactions indicated in the ex-parte ad-interim order was dully authorized or not by the RAC or whether suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Exchange Board of India ( SEBI for convenience) wherein the following directions under Section 19 read with Sections 11(1), 11(4) and 11B of the SEBI Act, 1992 has been issued, namely: (i) Noticees no. 2-5 i.e. Gautam Thapar, V. R. Venkatesh, Madhav Acharya and B. Hariharan are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities in any manner whatsoever, either directly or indirectly, till further orders. (ii) Noticees no. 2-5 are restrained from being associated with any intermediary registered with SEBI or any listed entity or its material unlisted subsidiary, till further orders. (iii) The concerned stock exchanges are permitted to allow the aforementioned persons/entities at paragraph 6.1(i) to square off their existing open positions in the Futures and Options segment, if any, immediately. The aforementioned persons/entities shall not be allowed to take fresh positions or increase their open positions or execute trades. Further, the concerned stock exchanges shall ensure that no fresh positions are created for the aforementioned persons/entities. (iv) Noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector, Finance and Chief Financial Officer of the Company. Appellant No. 4 was the Non-Executive Director of the Company till March 2019 and Appellant No. 5 is an unlisted holding Company and a promoter of the Company in which 87% of the shares are held by Appellant No. 1. 3. The immediate cause of action which instigated the chain of events was the outcome of the Board Meeting held on August 19, 2019 which started at 3:00 P.M. and ended at 4:00 A.M on the next day. In this meeting the Appellant No. 1 as a Chairman of the Company was present. On the basis of the minutes of the Board, the Company made a corporate announcement on August 20, 2019 disclosing the following namely: A. The Board of Directors ( Board ) as well as Risk and Audit Committee ( RAC ) of CG Power held a meeting to inter alia consider and discuss the status of annual financial statements of the Company as well other related matters. B. The Operations Committee was made aware of some unauthorised transactions by certain employees of the Company and was also made aware of a letter received by the Company from a financing company (subsequently revealed as Aditya Birla Finance Limited) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the officials of the Company on August 22, 2019. The Company thereafter submitted a Preliminary Investigation Report based on which SEBI sought responses from the appellants. Replies were filed by the Appellant No. 1 on August 29, 2019 and August 30, 2019. SEBI after considering the Preliminary Investigation Report given by the Company and further considering the Audit Report, prima facie found that there was a serious misstatement of accounts and diversion of funds from the Company and its subsidiaries in violation of the SEBI Act, SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003 ( PFUTP Regulations for convenience) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ( LODR Regulations, 2015 for convenience). SEBI upon examining the evidence, prima facie found that the appellants had perpetrated certain irregularities which included: i. The use of certain assets of the Company as collateral including being Co-Borrower and/or Guarantor for enabling third parties to obtain loans without due authorisation from the Board of CG Power. ii. Routing transactions through subsidiaries, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interests of the shareholders would be severely affected as the transactions prima facie was designed to divert/ siphon off the money from the Company which rightly belonged to the shareholders. The WTM further found that the action on the part of the appellants amounted to a fraud on its public investors for which a detailed forensic audit was required to bring out the complete picture and the extent of the misappropriation/ misstatement. In order to prevent further diversion/ siphoning of the funds the WTM found it necessary to pass an ex-parte ad-interim order, which have already been extracted earlier. 8. We have heard the learned senior counsel Shri Janak Dwarkadas for the Appellants and the learned senior counsel Shri Iqbal Chagla for Respondent No. 1 and the learned senior counsel Shri Amit Desai for Respondent No. 2 at some length. 9. Shri Dwarkadas the learned senior counsel contended that by passing the ex-parte ad-interim order the respondent has already placed the appellant guilty without trial. Without considering the reputation of the appellants, SEBI has proceeded in haste in holding that the appellants have siphoned off the money as petty thieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellants had made a request to the Company to provide certain documents which either has been refused or provided hedged with certain conditions, namely, that the said documents will not be used before any authority if it is detrimental to the interests of the Company. It was thus contended that the denial of the documents by the Company was in gross violation of the principles of natural justice. In view of the aforesaid, the learned senior counsel contended that in the absence of any urgency, there was no reason for this ex-parte ad-interim order to continue any further. It was contended that the appellants shall file their appropriate replies after receiving the relevant documents and would participate in the proceedings but prayed that the ex-parte ad-interim order should not be allowed to operate. 10. On the other hand, Shri Chagla the learned senior counsel for SEBI contended that, SEBI has the power to pass ex-parte ad-interim orders pending investigation under Sections 11 11B of the SEBI Act in order to protect the interest of the investors. The learned senior counsel contended that during the preliminary inquiry and upon examination of the evidence t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong with the entire record to SEBI from where appellants if they so desire could make an appropriate inspection. 12. Having heard the learned senior counsels for the parties, we find that SEBI has power to pass ex-parte ad-interim order pending investigation under Sections 11 11B of the SEBI Act. What has been disputed is, that considering the facts and circumstances in the instant case, there was no urgency to pass an ex-parte ad-interim order. The appellants in support of their submission have relied upon a decision of this Tribunal in North End Foods Marketing Pvt. Ltd. v. SEBI [2019] 105 taxmann.com 69/153 SCL 340 (SAT-Mum) where in this Tribunal held as under: 17. In our opinion, the impugned order is harsh and unwarranted. We are of the opinion that there was no real urgency at this late stage in passing an ex-parte restraint order which virtually amounts to passing a final order. The period of trades is 2017-2018. At the time when the impugned order was passed the future contracts had been executed. The lean season was over. There is nothing on record to indicate that the sales made by the appellants was on a higher side indicating manipulation in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter providing SEBI with details of its business asked for SEBI's advice on whether or not its activities fell within the purview of a CIS. It is also a matter of record that SEBI did not clarify the situation in any manner whatsoever for shocking period of around 8 years. SEBI in its letter dated October 21, 2013 wrote to MP Mr. Patil that the Appellant's activities did not satisfy the conditions of Section 11AA of the SEBI Act and therefore, none of the schemes time sharing business fell within the ambit of a CIS. A perusal of the original files produced by SEBI as well as that of Reply-Affidavit filed by it undoubtedly points out that the Respondent had taken a view on file that the time sharing business does not fall within the definition of CIS. This view was nurtured by the Respondent till it was changed as a result of either the judgment in the case of PGF Ltd. by the Hon'ble Supreme Court on 12th March, 2013 and/or the intervention of MP Mr. Patil by a letter dated 2nd July 2013 calling upon SEBI to investigate the case of Appellant regarding applicability of CIS to the time sharing business. 31. We have examined Sections 11(1), 11(4) and 11B read with S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interim orders in certain cases, it must do so only upon showing the existence of circumstances which warrant such a drastic measure. It is a settled position of law that a decision, be it judicial, quasi-judicial or administrative, on a question, without offering an opportunity of a hearing will suffer from the vice of unfairness. It is well settled that if there is authority to decide and determine to the prejudice of another person, the duty to give a fair hearing is implicit in the exercise of such power. 34. It is indeed accepted that the necessity for speed may call for immediate action in a given case and the need for promptitude may exclude the duty of giving a pre-decisional hearing to the person affected. At the same time, in such situations, there is an inherent need to show that the danger to be averted or the act to be prevented is so imminent that the pre-decisional hearing must be dispensed with. In the present matter, no such urgency has been brought to our notice. In fact, we feel that by asking the Appellant to stop all its activities, the customers who wish to avail of the schemes of the Appellant by going on holiday or vacation, are being put to loss. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder is misconceived and cannot be accepted. 17. We are however of the view that the appellants are entitled for supply of documents from the Company so that they may file an appropriate reply before SEBI. Denial of such documents by the Company or by SEBI would be in violation of principles of natural justice as embodied in Article 14 of the Constitution of India. Without going into the controversy as to whether requisite documents were supplied or not, we are of the opinion that, if any, document is requested by the appellants either from the Company or from SEBI the same would be supplied in accordance with law. 18. We therefore, find no merit in the appeal and is dismissed with the following directions: (a) The appellants shall file a reply before the WTM of SEBI on or before October 15, 2019. In the event the appellants want further time then appropriate application will be filed before the WTM of SEBI which will be considered and appropriate orders would be passed. (b) In the event any document is required by the appellants either from Company or from SEBI a formal request to that effect shall be made by the appellants which document(s) sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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