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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 ..... ustice 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 order of the WTM. Since the issue is common, all the appeals are being decided together. The WTM by the impugned order has restrained the Company Zenith Birla (India) Ltd. (hereinafter referred to as the 'Company'), Chairman and its Managing Director from accessing the securities market for a period of three years and one year respectively. The AO by the impugned order has imposed a sum of Rs.10 crore upon the Company and Rs.10 lakh each upon the Chairman and Managing Director. The WTM has warned Euram Bank to ensure that all future dealings in the Indian Securities Market is done strictly in accordance with law. 2. The facts leading to the filing of the present appeal is, that the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements 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 Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations'). The show cause notice alleged that the Company had issued the GDRs amounting to USD 22.99 million which was subscribed only by Vintage and that Vintage has paid the subscription amount by obtaining the loan from EURAM Bank. The Company had also executed a pledge agreement by which the GDR proceeds were pledged for the loan taken by Vintage. It was also alleged that the Director had executed the pledge agreement and that the pledge agreement was also an integral part of the loan agreement. The show cause notice further alleged that the Company reported to the stock exchange that the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 AO was harsh and excessive. 12. In Excel Corp Care Limited vs Competition Commission of India & Anr, (2017) 8 SCC 47, the Supreme Court held: "92. Even the doctrine of "proportionality" would suggest that the court should lean in favour of "relevant turnover". No doubt the objective contained in the Act, viz., to discourage and stop anti-competitive practices has to be achieved and those who are perpetrators of such practices need to be indicted and suitably punished. It is for this reason that the Act contains penal provisions for penalising such offenders. At the same time, the penalty cannot be disproportionate and it should not lead to shocking results. That is the implication of the doctrine of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, 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 Authority of India, Bidhannagar (Salt Lake) Welfare Assn. v. Central Valuation Board, Grand Kakatiya Sheraton Hotel and Towers Employees and Workers Union v. Srinivasa Resorts Limited, and State of T.N. v. K. Shyam Sunder.)" 15. In matters relating to punitive measures the emphasis has shifted from the wednesbury principle of unreasonable to one of proportionality. A disproportionate punitive measure which does not commensurate with the offence would be violative of Article 14 of the Constitution of India. We are of the opinion that in the rapid growth of administrative law it has become the need and necessity to control possible abuse of discriminatory power by administrative authorities. In this regard, certain pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.25 lakhs whereas in the case of the appellant Company who raised 6.99 million USD has been awarded Rs.10,30,00,000/-. In Sybly Industries Ltd. v. SEBI, appeal no.381 of 219 and other connected appeals decided on 14th July, 2022 penalties ranging from Rs.10 lakhs to Rs.10.30 crores were imposed which were reduced to Rs.25 lakhs on the Company and Rs.10 lakhs on the Managing Director. Thus, in our opinion, the penalty imposed is excessive and disproportionate to the violation and is also discriminatory. 18. We find that such 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. 19. While affirming the order of the AO for the violations committed by the Company we re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the strength of the observation that the appellant subsequently took corrective steps in removing Arun Panchariya as Director from its joint venture Euram Bank Asia Ltd. (EBAL). 24. Considering the findings given by the WTM we are of the opinion that the warning given by the WTM to the appellant bank does not suffer from any manifest error. 25. In view of the aforesaid, the violations found against the Company and the Directors are affirmed. Appeal no. 554 of 2021 and 634 of 2022 of the Company, Zenith Steel Pipes and Industries Limited are partly allowed. The debarment is reduced to the period undergone and penalty is reduced from Rs. 10 crore to Rs. 25 lakh. The Appeal nos. 555 of 2021 (Yashovardhan Birla), 657 of 2021 (European American Investment Bank AG), 373 of 2022 (Mahender Singh Arora), 633 of 2022 (Yashovardhan Birla) and 635 of 2022 (Mahender Singh Arora) are dismissed. In the circumstances of the case, parties shall bear their own costs. 26. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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