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TMI Blog2023 (2) TMI 1243X X X X Extracts X X X X X X X X Extracts X X X X ..... r directions imposed by the WTM and the penalty imposed by the AO was harsh and excessive? HELD THAT:- Where the punitive measure is harsh or disproportionate to the offence which shocks the conscience it is within the discretion of the Court to exercise the doctrine of proportionality and reduce the quantum of punishment to ensure that some rationality is brought to make unequals equal. In our opinion, the penalty imposed is excessive and disproportionate to the violation and is also discriminatory. Excessive penalty imposed upon the Company does not make any sense. In the instant case, there are public shareholders and workers. The Company is a running concern. Penalising the Company with such heavy penalty is in fact penalising the shareholders which is not justifiable especially for a running company. Further, the money raised through GDRs has been received by the Company and has not been misappropriated. The same has been utilitised for the purpose for which the GDR was issued which fact has not been disputed. Thus, it is not a case of defalcation of the funds. While affirming the order of the AO for the violations committed by the Company we reduce the penalty ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh. - Justice Tarun Agarwala, Presiding Officer And Ms. Meera Swarup, Technical Member Mr. Somashekar Sundaresan, Advocate with Ms. Rasika Ghate, Advocate i/b Triad Law Chambers, Mr. Deepak Dhane, Advocate with Mr. Aditya Thanvi, Advocate i/b Triad Law Chambers, Mr. Mihir Nerurkar, Advocate with Mr. Jenil Shah, Advocate i/b Ganesh and Company And Mr. Shoryendu Ray, Advocate i/b Wadhwa Law Offices, Ms. Yugandhara Khanwilkar, Advocate with Ms. Rasika Ghate, Advocate i/b Triad Law Chambers for the Appellant. Mr. Shyam Mehta, Senior Advocate with Mr. Abhiraj Arora, Ms. Misbah Dada and Mr. Deepanshu Agarwal, Advocates i/b ELP for the Respondent. ORDER Per : Justice Tarun Agarwala, Presiding Officer 1. Six appeals has been filed by Zenith Steel Pipes and Industries Limited and its Directors against two orders dated March 30, 2021 passed by the Whole Time Member ( WTM for short) and order dated June 16, 2022 passed by the Adjudicating Officer ( AO for short) in the matter relating to issuance of Global Depositories Receipts ( GDRs for short). Another appeal has been filed by European American Investment Bank AG ( Euram Bank for short) against the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge purportedly repaid USD 8.53 million of the loan amount in several tranches to EURAM Bank till December 14, 2012 and thereafter defaulted of the balance amount of USD 14.55 million. The Company vide letter dated September 5, 2012 directed Euram Bank to set off the pledged deposits against the outstanding loan. 6. Securities and Exchange Board of India (hereinafter referred to as SEBI ) conducted an investigation in the issuance of the GDR and found that Vintage was the sole subscriber to the GDR and that the Company did not disclose this fact with clarity that only one entity had subscribed to the entire GDR and, therefore, misled the investors. Further, the loan agreement and the pledge agreements were not disclosed to the stock exchange or to the shareholders of the Company. 7. Accordingly, a show cause notice dated April 2, 2019 was issued to show cause as to why action should not be taken for the alleged violation of the provisions of Section 12A(a), (b), (c) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the SEBI Act ) read with Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR was effected through a fraudulent arrangement were guilty of the fraud and, accordingly, appropriate orders were passed by the WTM and AO respectively. 9. We have heard Shri Somasekhar Sundaresan, Shri Deepak Dhane, Mr. Mihir Nerurkar and Ms. Yugandhara Khanwilkar, the learned counsel for the appellant in respective appeals and Shri Shyam Mehta, the learned senior counsel assisted by Shri Abhiraj Arora, Ms. Misbah Dada and Shri Deepanshu Agarwal, the learned counsel for the respondent. 10. The proceeds of the GDR issue were received partly by the Company and that too belatedly and same amount was adjusted by Euram Bank against default committed by Vintage. However, there is no diversion of funds and no wrongful dealings in securities other than the fact that the portion of amount deducted by the Euram Bank for default committed by Vintage. The AO has himself given a finding that no disproportionate gain is attributed to the appellants nor any finding that any loss was caused to the shareholders or investors. 11. Considering the above, the only ground urged by the learned counsel for the appellants was that the directions imposed by the WTM and the penalty imposed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortionality is now well established in our jurisprudence and is a recognised facet of Article 14 of the Constitution of India. In Andhra Pradesh Dairy Development Corporation Federation vs. B. Narasimha Reddy and Others (2011) 9 SCC 286, the Supreme Court held: 29. It is a settled legal proposition that Article 14 of the Constitution strikes at arbitrariness because an action that is arbitrary, must necessarily involve negation of equality. This doctrine of arbitrariness is not restricted only to executive actions, but also applies to legislature. Thus, a party has to satisfy that the action was reasonable, not done in unreasonable manner or capriciously or at pleasure without adequate determining principle, rational, and has been done according to reason or judgment, and certainly does not depend on the will alone. However, the action of legislature, violative of Article 14 of the Constitution, should ordinarily be manifestly arbitrary. There must be a case of substantive unreasonableness in the statute itself for declaring the act ultra vires of Article 14 of the Constitution. (Vide: Ajay Hasia etc. v. Khalid Mujib Sehravardi, Reliance Airport Developers (P) Ltd. v. Airports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vintage Rs.25,00,000/- (Rupees Twenty Five Lakhs) 30th August 2019 3. Visu International Ltd. April 2006 9.66 Seazun Rs.1,25,00,000/- (Rupees 1 Crore Twenty-Five Lakhs) 18th March 2021 4. GV Films Ltd. April 2007 40 Whiteview Rs.25,00,000/- (Rupees Twenty-Five Lakhs) 29th January 2020 5. Aksh OptiFibre Ltd. Sept 2010 25 Vintage Rs.10,15,00,000/- (Rupees Rupees Ten Crore Fifteen Lakhs) 28th February 2020 6. Rana Sugars May, 2006 18.00 Rs.10,00,000 (Rupees Ten Lakhs) 29th February 2018 7. Sybly Industries Ltd. June 9, 2008 6.99 Vintage Rs.10,30,00,000/- (Rupees Rupees Ten Crore Thirty Lakhs) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said appellant contending that the dealings done by the appellant was done strictly in accordance with laws of Austria. Further, Dubai Financial Services Authority also undertook an investigation into the role and activities of the appellant. After investigation, the said Authority had closed the investigation concluding that the appellant had not committed any wrongdoings. It was, thus, contended that these aspects were not considered by the WTM while passing the impugned order. 22. In this regard we find that the appellant Euram Bank was registered as a Foreign Institutional Investor (FII) with SEBI in the year 2008 and that an entity known as India Focus Cardinal Fund (IFCF) was registered with SEBI as a sub account of the appellant. The role played by Euram Bank while granting a fraudulent structured loan to Vintage was dubious. The pledge agreement executed by Euram Bank with the Company pledging the GDR shares prior to its actual issuance for the purpose of securing the loan given to Vintage was totally dubious. 23. The WTM also found that IFCF undertook the role of off-loading the converted shares of GDR in the Indian market which was done with the active role of the ..... 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