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TMI Blog2021 (8) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... j Arora, Ms. Rashi Dalmia and Mr. Karthik Narayan, Advocates i/b. ELP, Mr. Chander Uday Singh, Senior Advocate with Mr. Abhiraj Arora, Ms. Rashi Dalmia and Mr. Karthik Narayan, Advocates i/b ELP ORDER Tarun Agarwala, Presiding Officer:- This group of appeals are against a common order dated 23 October, 2020 passed by the Whole Time Member ('WTM' for short) and are being taken up together. By the impugned order, the appellants, being Directors of the Company known as Birla Pacific Medspa Ltd. have been restrained from accessing the securities market directly or indirectly, in any manner and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for a period of two years. 2. The facts leading to the filing of the present appeal is, that the Company came out with red herring prospectus on 18 March, 2011 which was followed by prospectus on 29 June, 2011 at the time of its Initial Public Offer ('IPO' for short) with the following objects of the issue, namely: 1. To meet the capital expenditure towards establishing 55 outlets of Evolve Medspa across various cities and places. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VESTMENT OF THE SURPLUS PROCEEDS FROM THE INITIAL PUBLIC ISSUE OF THE COMPANY The Chairman informed the Board members that it is proposed to invest the surplus proceeds from the Initial Public Issue of the Company. As per the prospectus the Board has authority to deploy the proceeds received from the Issue in interest or dividend bearing liquid instruments including deposits with banks and investment in mutual funds, corporates and other financial products such as capital protected funds, derivative linked debt instruments, other fixed and variable return instruments, listed debt instruments and rated debentures, except for equity/equity related instruments. After brief discussion, following resolution was passed: "RESOLVED THAT the surplus proceeds from the Initial Public Issue of the Company be invested in interest or dividend bearing liquid instruments including deposits with Banks & investment in Mutual funds units, corporates and other financial products. RESOLVED FURTHER THAT Shri P.V.R. Murthy-Director, Shri Venkateshwarlu Nelabholta - Director and Shri Saharsh Daga - Authorised Signatory be and are hereby severally authorized to sign all documents and to do all such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the securities laws which ultimately led to issuance of a show cause notice dated 27 March, 2017. The WTM has summarised the charge in the show cause notice in para 23 and for facility the same is extracted hereunder: "23. Coming to the merits of the case, I note that the facts stated in the SCN indicate a broad scheme of wrongdoings by BPML, that originates with making misleading statements in the Prospectus in respect of objects of the IPO and interim use of funds and ends at diverting the IPO proceeds by giving it to third parties under the pretext of works contract, giving of ICD's to group companies and channeling IPO funds through intermediate entities for supporting the price of its own scrip on the listing day. The findings of the investigation as narrated in the SCN can broadly be summarized on the following three fronts: a. IPO proceeds worth Rs. 14 Crores were diverted and mis-utilized by BPML, to support the price of its own shares on the listing day. The proceeds were channeled through two layers of entities. b. IPO proceeds worth about 33.4 Crores were disbursed to certain entities under the pretext of advances towards work contracts for IPO objectives, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments including deposits with banks, mutual funds etc. but could not invest the money in ICDs which was not specifically stated in the prospectus. The WTM found that the IPO proceeds invested in ICDs was not a liquid instrument and that investment in ICDs was not contemplated in the prospectus. 13. The WTM further concluded that the IPO proceeds were to be utilised to set up evolve centres as per the prospectus but within 12 days of the signing of the prospectus it was revealed that setting up of Evolve Centres was deferred owing to adverse macro-economic conditions prevailing in the country, and such deferring of main object clause of issue on the pretext of unfavourable macro-economic conditions and thereby deploying the IPO proceeds in the ICDs of group companies shows that the disclosures made in the prospectus lacked in material particulars and were untrue and inadequate and, therefore, violative of Regulation 57 and 60 of the ICDR Regulations. 14. The WTM further came to the conclusion that the resolution dated 11 July, 2011 passed by the Board of Directors included the word 'corporate' for temporary utilisation of funds and such inclusion of the word 'corporate' was delibe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as went into the details of the profile of each of the Director, the constitution and the members of the project managing committee. It was contended that the Company and its Directors have deliberately made incorrect disclosures and such misstatement in the prospectus was deliberate and part of a larger design to come out with an IPO and divert the IPO proceeds to group companies through ICDs. 20. Having heard the learned counsel for the parties and having perused the relevant clauses of the prospectus with regard to the interim use of funds and having perused the resolution of the Board of Directors dated 11 July, 2011, we are of the opinion that the finding given by the WTM that there is a misstatement in the prospectus which was done deliberately from the very inception in order to misuse the IPO proceeds and divert the IPO proceeds through ICDs to group companies is perverse and based on surmises and conjectures which a prudent person cannot arrive at. It is settled law that a finding must be based on some facts but in the instant case the facts which has been brought on record shows that there is no misstatement in the prospectus and, therefore, the question of having some u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the word 'ICD' was not mentioned in the interim use of funds in the prospectus does not become a case of misstatement in the prospectus nor does it become a deliberate part of larger design to come out with an IPO and, thereafter, funding the operations of its group company through ICDs thereby siphoning of the money from the genuine investors. In our opinion, the word 'liquid instrument' is wide enough to include ICDs. In South India Corporation Pvt. Ltd. v. Kamarajar Port Ltd. Manu/TN/0971/2016, the Madras High Court observed that inter corporate deposit is a liquid asset. 24. The finding that because the word 'corporate' was included in the resolution of the Board of Directors dated 11 July, 2011 indicates that the prospectus lacked material particulars is patently erroneous as we have held that liquid instruments includes ICDs and, therefore, there was no misstatement in the prospectus. Consequently, the prospectus did not lack material particulars. Further, the resolution of 11 July, 2011 was not in contradiction or in violation of the terms indicated in the prospectus but only clarified the deployment of the IPO proceeds on a temporary basis. Such clarification in our opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect on the issuer, by issuing public notices in all the newspapers in which the issuer had issued pre-issue advertisement under regulation 47 or regulation 55, as the case may be: (a) in case of public issue, between the date of registering final prospectus or the red herring prospectus, as the case may be, with the Registrar of Companies, and the date of allotment of specified securities; ........................................................................ .............................. ........................ (7) Any advertisement or research report issued or caused to be issued by an issuer, any intermediary concerned with the issue or their associates shall comply with the following : (a) it shall be truthful, fair and shall not be manipulative or deceptive or distorted and it shall not contain any statement, promise or forecast which is untrue or misleading; "SCHEDULE VIII Disclosures in Offer Document, Abridged Prospectus and Abridged Letter of Offer PART A Disclosures in Red Herring Prospectus, Shelf Prospectus and Prospectus ........................................................................... (2) An issuer making a public issue of specified s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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