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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 ..... is wide enough to include ICDs 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 opinion was in consonance with the use of the word liquid instruments given in the prospectus. The offer document is required to contain all material disclosures to enable the investors/subscribers to take an informed decision and that such disclosure must be prompt, true and fair. In the instant case, the disclosures made in the prospectus were material disclosures which were true, fair and adequate. There is no finding of the WTM that the disclosures made in the prospectus were not true and fair or were inadequate. The use of the word corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with Mr. Abhiraj 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 acr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstituted held a meeting on 1 July, 2011 and resolved to deploy the funds in Inter Corporate Deposits ( ICDs for short) with group companies. Similar resolution was also made by the Board of Directors in its meeting held on 11 July, 2011. The extracts of the minutes of the meeting of the Board of Directors of the Company is extracted hereunder: Extract of the Minutes of the Meeting of the Board of Directors of BPML, held on July 11, 2011: 4. INVESTMENT 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 THA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntee as approved by the Company in the Meeting. 8. It was alleged that the Company made misstatement in the prospectus and that the IPO proceeds were diverted and misutlised by the Company and that some amount of the IPO proceeds were disbursed to certain entities under the pretext of advances towards work contracts for IPO objectives, but in fact, no substantial work contracts were executed. 9. Accordingly, an investigation was carried out for violation of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue objectives. 12. The WTM after considering the material evidence on record came to the conclusion that the principal evidence recording misstatement made in the prospectus was on the basis of the minutes of the meeting of the Board of Directors dated 11 July, 2011 vis- -vis the clause relating to interim use of funds in the prospectus. The WTM found that the prospectus indicated that the IPO proceeds could be temporarily invested in interest bearing liquid instruments 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 deploy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent. In fact, the arguments stretched to those violations which are part of consideration before the Adjudicating Officer and an effort was made to prejudice the mind of the Tribunal by making forays into the allegations which are subject matter of consideration before the Adjudicating Officer and were not relevant to the issue in hand. The respondent invited our attention, taking us threadbare into the details with regard to the issues involved in the prospectus as well 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 misstatem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spectus. 22. In P.G. Electroplast v. SEBI, in appeal no. 281 of 2017 decided on 25 June, 2019 the appellant, in the said case, had disclosed in the prospectus that the Company intended to invest the IPO proceeds in an interest bearing instrument. The Company subsequently invested the IPO proceeds in ICDs which was objected by SEBI. This Tribunal held that non mention of ICDs in the prospectus was only technical and it cannot be a case of misstatement. 23. In our view, merely because 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y materials, advertisements and research reports. 60(1) (4) The issuer shall make prompt, true and fair disclosure of all material developments which take place during the following period mentioned in this sub-regulation, relating to its business and securities and also relating to the business and securities of its subsidiaries, group companies, etc., which may have a material effect 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 un ..... 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