2012 (2) TMI 626 - AT - Companies Law

Appellant wins case on due diligence and share allocation issues. Tribunal rules no violation.

M/s Enam Securities Private Limited Versus Securities and Exchange Board of India

The appellant successfully defended against allegations of failing to exercise due diligence in disclosing Rabobank as a promoter, biased allocation of ... - Issues Involved:1. Failure to exercise due diligence in disclosing Rabobank as a promoter.2. Failure to exercise due diligence in disclosures for allocation of shares to QIBs.3. Failure to properly monitor the flow of applications and other matters post-closure of the public issue.Summary:1. Failure to exercise due diligence in disclosing Rabobank as a promoter:The appellant was charged with not disclosing Rabobank International Holding B.V. (Rabobank) as a promoter of Yes Bank Ltd. in the IPO prospectus. The Board argued that Rabobank's 20% shareholding was part of the 49% promoters' contribution required by the RBI, and its omission misled investors. The appellant contended that Rabobank was a co-promoter only for the banking license application and not a promoter under the DIP guidelines. The Tribunal agreed with the appellant, noting that Rabobank was consistently not treated as a promoter in financial statements and the DRHP cleared by the Board. The Tribunal concluded that the Board failed to prove Rabobank met the DIP guidelines' definition of a promoter, and thus, the appellant did not violate due diligence requirements.2. Failure to exercise due diligence in disclosures for allocation of shares to QIBs:The appellant was accused of exercising discretion in a biased manner by favoring foreign institutional investors over mutual funds and banks in the QIB category. The appellant argued that the DIP guidelines allowed discretion in QIB allotments and that it followed set norms. The Tribunal found that the company, in consultation with the merchant banker, had the discretion to decide allotments and had laid down criteria for this purpose. The Tribunal rejected the Board's claim that the criteria were arbitrary, affirming that the appellant did not breach the DIP guidelines.3. Failure to properly monitor the flow of applications and other matters post-closure of the public issue:The appellant was found guilty of not adequately monitoring the flow of applications, leading to shares being allotted to applicants with non-existing DP IDs and other irregularities. The appellant argued that it had deputed experienced officers to monitor the RTA's work and verified applications selectively. The Tribunal noted that the primary responsibility lay with the RTA and that the appellant had taken reasonable steps to ensure compliance. The Tribunal concluded that the appellant did not violate the regulatory framework.Conclusion:The appeal was allowed, and the impugned order was set aside with no order as to costs.