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TMI Blog2021 (1) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts ('GDR' for short). Based on the aforesaid resolution, the process of issuance of GDR was initiated and, on October 19, 2007, a resolution of the board of directors was passed resolving to open a bank account with Lisbon Bank for the purpose of receiving the subscription money in respect of GDR. The resolution also authorized Mr. Rajinder Singh Negi, a director of the Company to sign all documents and process the necessary transactions in relation to the GDR issue. The resolution further authorized Banco Efisa, S.F.E., S.A. ('Banco' for short) a bank based in Lisbon "to use the subscription money as security in connection with loans if any". Since much depends on the interpretation of this resolution the same is extracted hereunder:- "RESOLVED THAT the bank account be kept opened with Banco Efisa S.A. ("the Bank") or any branch of Banco Efisa S.A., including the Offshore Branch, for the purpose of receiving subscription money in respect of the Global Depository Receipt issue of the Company. RESOLVED FURHTER THAT Mr. Rajinder Singh, Director of the company be and is hereby authorized to sign, execute, any application, agreement, escrow agreement, document, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of this agreement Clifford availed loan from Banco for subscribing the GDR issue. It was further alleged that the Company did not inform BSE about the execution of the Account Charge Agreement or the Credit Agreement and alleged that the GDR proceeds were diverted to the extent of US $ 8.90 million. This act of concealing and suppressing the material facts was in violation of the provisions of Section 12A of SEBI Act, 1992 and Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short). 5. The WTM, after considering the matter, passed the impugned order directing the company to take steps for refund of the money from Banco and also debarred the appellant from accessing the securities market for a period of 5 years. 6. The WTM found that the act of the Company in the GDR issue resulted in the commission of a fraud under PFUTP Regulations. The WTM further found that the resolution dated October 19, 2007 allowed Banco to use the funds as security in connection with the loan on which basis the loan was given to Clifford and such transaction which was executed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction with a loan. The resolution did not stipulate that the proceeds would be used as security in connection with a loan taken by another entity. The resolution could also mean that the proceeds would be utilized by the bank as security in connection with a loan taken by the company itself. Thus, from the resolution dated January 30, 2008 one cannot arrive at a conclusion that this was the first step or the starting point of a fraudulent arrangement through which the company could facilitate the financing of the GDR subscription by Vintage. It may be noted here that when the resolution of January 30, 2008 was passed Vintage was nowhere in the picture. The pledging of the shares on May 5, 2009 in favour of Vintage and the loan taken by Vintage in order to subscribe to the GDR issues was done at a time when the appellant admittedly was not involved in the affairs of the company as he had ceased to be a director prior to that date. There is no evidence to establish that the appellant Adi Cooper remained associated with the company or with other directors even after he resigned on October 10, 2008. 9. We further find that the resolution of January 30, 2008 authorizing the bank to uti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der." "4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely :- (a) ............ (b) ............ ** ** ** (f) publishing or causing to publish or reporting or causing to report by a person dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financing of the GDR issue. It was urged that the appellant being a director in the Company for more than 10 years and was chairman of various committees such as remuneration committee, investors grievances committee, chairman of debt committee. He was, thus, deemed to be involved in the day-to-day affairs and management of the Company. It was also contended that the appellant was signatory to various resolution of the board of directors and therefore the contention that the appellant only participated in policy decision matters was not correct. The learned senior counsel for the respondent, thus, urged that the fact that the appellant was involved in the day-to-day affairs and being a director for more than 10 years was deemed to have knowledge of the GDR issue and therefore was rightly found guilty of violating the provisions of the SEBI Act and PFUTP Regulations. The learned senior counsel, thus, urged that the appellant being a director cannot escape his liability under the SEBI Act and PFUTP Regulations. 11. The learned senior counsel contended that the decision of this Tribunal in Adi Cooper (supra) matter is distinguishable and, in any case, the respondent has filed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the appellant, being a director for more than 10 years, was deemed to be involved in the day-to-day affairs and management of the Company nor there is any finding that the appellant was chairman of various committees and therefore deemed to be involved in the day-to-day affairs of the Company. There is no finding that the credit agreement and the charge account agreement were in the knowledge of the appellant. On the other hand, it is the consistent case of the appellant that he was a practicing chartered accountant and a non-executive independent director and was only involved in policy decisions. These facts have not been disputed nor controvert by any documentary evidence before the WTM. 15. We also find that the reliance of section 27 of the SEBI Act is patently erroneous. Section 27 is not applicable if the offence is committed without the knowledge of the incumbent. We have already held that there is no finding given by the WTM that the appellant was involved in the day-to-day affairs and management of the Company. On the other hand, a specific case was stated by the appellant that the fraud was committed by the mastermind, namelyly, the chairman, managing director an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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