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TMI Blog2020 (1) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... WTM in the impugned order at page no.25 at table no.7 had taken efforts to show that IFPL continues to reduce advancing loans against shares but increasing the same against unsecured loans, however, what would be the market constraint for the subsequent period cannot be gauged and the same are not part of the present enquiry. In the circumstances, in our view, this charge of making a wrong/false disclosure in the ICDR of funding ₹ 30 crores to IFPL for advancing loan against shares holds no water. Undisclosed Bridge loan - In financial world, bridge loan is understood as a short term accommodation availed by an entity awaiting the permanent financial resources. In the present case, as per the Company itself short term accommodation was sought from KRSPL and the same was repaid on 3rd August, 2011 i.e. post receipt of IPO money. These facts itself clarify that the bridge loan was raised by the Company. However, in the prospectus it was positively declared that the Company has not raised any bridge loan. Thus on this count it can clearly be declared that a false/wrong declaration was made in the prospectus in violation of ICDR Regulations. Security Deposits - WTM hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rakash Shah, Chinmay Paradkar, Advs. and Meit Shah, Practicing Company Secretary for the Appellant. Mustafa Doctor, Sr. Adv., Anubhav Ghosh and Ms. Rashi Dalmia, Advs. for the Respondent. JUDGMENT M.T. Joshi, All the present appeals have been filed by Inventure Growth and Securities Ltd. (hereinafter referred to as 'the Company/IGSL') as well as its directors during the relevant period. They are aggrieved by the order of the respondent Securities and Exchange Board of India (hereinafter referred to as 'SEBI') for holding them alongwith others guilty of committing three different acts vide order dated 6th August, 2018. Appellants except Arvind Gala and Bhavi Gandhi were prohibited from accessing the securities market for a period of four years from the date of the order. They were further prohibited from associating themselves with any listed Company or partners in a partnership firm with effect from 1st February, 2019 and appellant Arvind Gala and Appellant Bhavi Gala were warned to exercise due care and diligence. The appellant Company went into an Initial Public Offer of equity shares in July and August, 2011. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VIII and regulation 60(4) of SEBI (Issuance of Capital Disclosure Requirements) Regulations 2009 ( ICDR Regulations ) read with Section 12A(a), (b) and (c) of the SEBI Act, 1992 and; regulations 3(b)(c)(d), regulations 4(1) and 4(2)(f), (k) and (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations 2003 ( PFUTP Regulations ). (ii) Whether IGSL made false statements in its RHP and prospectus with respect to raising bridge loans and thereby violated regulations 57(1) and 57(2) read with clause 2(VII)(G) and clause (XVI) (B)(2) of Part A of Schedule VIII of the ICDR Regulations. (iii) Whether IGSL failed to disclose acceptance of deposits under Section 58A of the Companies Act, 1956, thereby violating regulation 57(1) of the ICDR Regulations? 4. Show cause notices were issued to the appellants. Certain additional documents were called for in view of the explanation given in the reply. After hearing the parties, the WTM came to the conclusion that except the charge of mis-utilisation of IPO proceeds contrary to the intent of augmenting the interim working capital all other charges are established. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43,430 7 Sub-total (4+5+6) 3,51,85,939 48,43,07,792 42,66,18,255 7. From this table WTM found that before IPO, IFPL had advanced money against shares in the amount of ₹ 37 crores Five lakh and odd which was marginally increased to ₹ 46.96 crores immediately after IPO but decreased in the month of March, 2012 to ₹ 26. 33 crores. As against this, unsecured loans started increasing and a new segment of advance against gold and advance against equipment was started by IFPL. 8. To show that in the prospectus a different picture of object of IPO in this regard was painted by the Company the WTM quoted from clause (a) of the object of the issue which is as under:- IFPL's lending business includes providing loans secured by shares held by customers of IFPL. Our Company [IGSL] is mainly engaged in the broking business, and IFPL helps our customers to leverage their equity market positions to take increased exposure. Thus, revenues are generated via two verticals; firstly interest income by IFPL's lending activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant Company and its directors in Appeal no.361 of 2018 submitted that the term 'dominant message' has been newly invented by WTM. It could not be found in the show cause notice. If the prospectus is read as a whole, he submits that the message that was conveyed to the investors was that IFPL was a non banking financial Company. It was dealing in various non banking finance transactions including advancing money against the shares to the customers. These customers would be the clients of the Company. He submits that money being fungible and the market being dynamic, the statistics of day or a month as found in the above table would not show that there was any violation of the object of the IPO proceeds. He submits that the company had every right to withdraw the earlier funding lent to its subsidiaries IFPL and infuse the funds received from IPO proceeds as can be seen from the table. He therefore submits that the market dynamics would have to be understood and it has to be appreciated that advance of money towards the shares would depend on the market condition generally. He therefore submitted that the appeal be allowed in this regard. Mr. P.N. Modi furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clients before extending finance to them. The customer funding is provided against a margin of approximately 25-50% and is available only for purchase of shares which form part of our Approved List of securities . This list is decided by the management and reviewed from time to time. 15. Upon hearing both the sides in our view the charge cannot be sustained. It should be noted that pre IPO period as per the table put by the WTM in the impugned order, IFPL the subsidiary of the Company had advanced 37.5 crores of loan against the shares. Thereafter in post IPO, as on 30th September, 2011, it went to around ₹ 48 crores. The submissions of Mr. Modi that the Company was entitled to withdraw the earlier investment made in IFPL cannot be disputed. WTM in the impugned order at page no.25 at table no.7 had taken efforts to show that IFPL continues to reduce advancing loans against shares but increasing the same against unsecured loans. However, what would be the market constraint for the subsequent period cannot be gauged and the same are not part of the present enquiry. In the circumstances, in our view, this charge of making a wrong/false disclosure in the ICDR of fundin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the payment of the amount. The impugned order itself accepts that the amount was lying in the BSE clients account and the same was paid from the very same account. No diversion of funds is found or even alleged. 17. The documents filed by the appellant clearly showed that an amount of ₹ 47 crores was lying in its client account at the time of IPO. The amount of three entities was also lying in the BSE client account and the same was paid from the same account only. There are no allegations that funds from IPO proceeds were diverted from the proceeds. Hence the suspicion of the WTM on the basis of period of transaction would not amount to proof of the same. In our view therefore the transactions regarding these three entities cannot be termed as a bridge loan repaid from the IPO proceeds. As regards the fourth entity namely KRSPL transaction, it was explained by the Company, that the amount was taken as a short term loan as a working capital. Therefore, according to it the said loan cannot be considered as a bridge loan. It was a loan from director for that purpose. WTM held that this infact is an admission of the existence of interim financial arrange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prospectus it was positively declared that the Company has not raised any bridge loan. Thus on this count it can clearly be declared that a false/wrong declaration was made in the prospectus in violation of ICDR Regulations. Security Deposits 20. During investigation it was found that in the month of August, 2011 the Company had paid a sum of ₹ 7.51 crores to Mrs. Heena Sanjay Shah and Mrs. Usha Atul Shah each. The prospectus revealed that Mrs. Usha had been a shareholder of the Company. When these facts were put to the Company during investigation, it explained these transactions vide letter dated 27th January, 2016. It explained that the money was received in September, 2010 as a security deposit/advance and refunded back in August, 2011 (para 20 of the SCN). During investigation therefore further details were sought vide letter dated 1st February, 2016. The Company explained as under:- For reference of your honour, we clarify that money was deposited by them in advance to explore their future opportunities in bullish/bearish market in share/securities business but they did not entered in to any transaction and money was refunded back when they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not change the colour of the fund and the fact remains that it was received from our registered clients. 25. Further it is submitted that Mrs. Heena Sanjay Shah and Mrs. Usha Atul Shah are wives of promoters of Bishakha Diamonds Pvt. Ltd. and Anchor Leasing Pvt. Ltd. which had debit balances as under during the period when the funds remained with us: Client Code Client Name Highest Debit Balance Date HNI010 Bishakha Diamonds Pvt. Ltd. 9,62,14,993.46 April 26, 2011 HNI008 Anchor Leasing Pvt. Ltd. 2,19,42,609.96 May 26, 2011 TOTAL 11,81,57,603.42 Relevant extract of ledger for the month of April 2011 of these clients is attached as Annexure 2. As per accepted practice and approved, the credit of these clients (Heena Sanjay Shah Usha Atul Shah) was available with us for adjusti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Only when the show cause notice was issued the Company came with a case that it was not a security deposit but an amount kept in an account for adjustment towards the debit balance of the related accounts. It is, however, a fact that the amount was repaid after the IPO proceeds were received. 26. As found, the deposits were more than 25% of the IPO proceeds and was therefore material information under the ICDR Regulations. The decision of the WTM that the Company failed to disclose the deposits in the prospectus and, therefore, violated the Regulation therefore needs no interference. 27. To conclude, the charge that the Company has misulitised part of the fund by failing to appropriate the necessary amount towards money advanced by its subsidiaries specifically cannot be sustained. The charge of bridge loan is proved to the extent of the aspect of raising the same from KRSPL. The next charge of non disclosure of security deposit in the prospectus also stands proved. 28. In Appeal no.361 of 2018 at para 5.3 describe appellant no.2 Nagji K. Rita as a Chairman and Managing Director. Appellant no.3 Virendra D. Singh as a Whole time Director. Appellant no.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, this Tribunal has noted that the appellant therein were independent directors and were not involved in the day to day management and control of the Company. In the circumstances, the argument of the respondent SEBI that they had put their signatures in the prospectus were taken into consideration. It was finally concluded that disclosures could not be attributed to them as they were independent director and they were not associated in the day to day management or control over the Company. In the circumstances, the appeal was allowed. 33. The appellants in Appeal no.362 of 2018 are also independent directors. In Appeal no.361 of 2018, we find the Company had Whole Time Directors, Managing Directors etc. Considering all these facts on record in our opinion appellant in Appeal no.362 of 2018 cannot be held responsible for the non disclosure as detailed above. In Appeal no.363 of 2018 the appellant was the non executive director during the relevant period. He was also neither responsible for the day to day affairs of the Company nor for the transaction of raising of bridge loan under the name of short term accommodation or deposit which was sometimes described by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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