2015 (7) TMI 377 - AT - Companies Law

SEBI Regulations Penalties Upheld for GHCL Limited, Chairman, and Secretary, Partial Appeal Success for Promoters

GHCL Limited And Others Versus Securities and Exchange Board of India

The Tribunal upheld penalties imposed on GHCL Limited, its Company Secretary, and Chairman for violating SEBI regulations, while partially allowing ... Penalty u/s 15HA of SEBI Act, 1992 read with Section 23A and 23E of SCR Act, 1956 - Incorrect reporting of promoter's shareholding to stock exchanges - Wrongly and illegally projected their shareholdings far in excess of their real shareholding by taking into consideration shareholdings of third parties - Violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(f) of PFUTP Regulations, 2003, read with Sections 12A(a), (b) and (c) of SEBI Act, 1992 - Violation of Regulations 13(3) and 13(5) of the SEBI PIT Regulations, 1992 - Validity of legal opinions - Non reporting of purchase or sale of shares to the stock exchanges. Held that:- Incorrect reporting of promoter's shareholding to stock exchanges - In the case in hand, the appellants claim that they had included shares of third parties in their shareholdings on the basis of certain arrangements between the third parties and the appellants and some of the said parties (only 2 or 3 in number) had denied such arrangements. It has been categorically held that the appellants could not have included the shares of third parties into their shareholdings as per the law and hence have been rightly held guilty of violating the provisions of law by SEBI in the impugned order. This finding of SEBI is being upheld by this Tribunal in light of the discussion made hereinabove. Therefore, even if an opportunity to cross examine those 2 or 3 third parties was granted to the appellants, it would not have served any purpose and would also not have made any difference in the findings reached by SEBI. Hence such an opportunity would have been superfluous and a mere formality. Moreover, no prejudice shown to have been caused to the appellants by not granting the cross-examination of those 2-3 witnesses. There is sufficient material on record to prove the violations in question by the appellants which indeed formed the basis of the impugned order. Validity of legal opinions - It is settled law that legal opinions are only advisory in nature and not binding on anyone. Therefore, no legal infirmity can be attributed to the impugned order which holds all the appellants guilty of violating the PFUTP Regulations, 2003 and imposes monetary penalties on them. Non reporting of purchase or sale of shares to the stock exchanges - Four ingredients must be satisfied before attracting the provisions of Regulation 7(1A). A person may be acquirer under SAST Regulations but may not acquire shares as a “person acting in concert” with other and as such he shall not be obliged to make disclosures under Regulation 7(1A) of the SAST Regulations unless he individually crosses the threshold of 2%. In the case in hand the learned adjudicating officer has not recorded any specific finding that there was an understanding or agreement, direct or indirect, among the 10 appellants. In the absence of any such finding or evidence on record, none of the 10 appellants can be held guilty of violating Regulation 7(1A) of the SAST Regulations, 1997. Violation of Regulations 13(3) and 13(5) of the SEBI PIT Regulations, 1992 - If we simply read Regulations 13(3) and 13(5) of the PIT Regulations, we note that a person or promoter is required to make a disclosure to the stock exchange if his shareholding undergoes 2% alongwith his aggregate shareholding. Thus, this provision is almost pari-materia with the provisions of Regulation 7(1A) of the SAST Regulations, 1997. Violation of Regulation 7(1A) of SAST Regulations, 1997, if any, would automatically trigger violation of Regulations 13(3) and 13(5) of the PIT Regulations, 1992. Since we have already held that the charge of violation of Regulation 7(1A) of SAST Regulations, 1997 has not been proved against the ten promoters, including Carissa which is one of the ten promoters, the charge of violation of Regulations 13(3) and 13(5) of PIT Regulations, 1992 qua Carissa must also fail. - In totality appeal nos. 6, 7 and 8 of 2014 are dismissed and appeal nos. 9 to 18 of 2014 are partly allowed in terms of abovesaid. Issues Involved:1. Imposition of monetary penalties on GHCL Limited, its Company Secretary, and its Chairman.2. Alleged incorrect shareholding disclosures by GHCL Limited and its promoters.3. Violations of SEBI regulations by GHCL Limited and its promoters.4. Legal interpretations and defenses raised by the appellants.5. Examination of precedent cases and SEBI orders cited by appellants.6. Specific penalties imposed on the ten promoters for violating SEBI regulations.7. Additional allegations against M/s. Carissa Investment Pvt. Ltd. for violating PIT Regulations.Issue-wise Detailed Analysis:1. Imposition of Monetary Penalties on GHCL Limited, its Company Secretary, and its Chairman:The appellants challenged the order dated October 25, 2013, which imposed monetary penalties ranging from Rs. 7 lakh to Rs. 50 lakh on each appellant. GHCL Limited was fined Rs. 50 lakh, the Company Secretary Rs. 10 lakh, and the Chairman Rs. 25 lakh. The penalties were imposed for violating SEBI regulations, specifically Regulations 3(a), (b), (c), (d), 4(1), and 4(2)(f) of the PFUTP Regulations, 2003, read with Sections 12A(a), (b), and (c) of the SEBI Act, 1992.2. Alleged Incorrect Shareholding Disclosures by GHCL Limited and its Promoters:The main charge against GHCL Limited and its promoters was the transmission of incorrect shareholding information to stock exchanges, which misled the public and investors. The promoters allegedly projected their shareholdings as higher than they were by including third-party shares. This was treated as a violation of SEBI regulations and led to the issuance of a Show Cause Notice on December 12, 2011.3. Violations of SEBI Regulations by GHCL Limited and its Promoters:The appellants were found guilty of violating various SEBI regulations, including PFUTP Regulations, 2003, SEBI Act, 1992, and SC(R)A, 1956. The Adjudicating Officer held that the appellants had engaged in fraudulent and unfair trade practices by making false shareholding disclosures. The penalties were imposed under Section 15HA of the SEBI Act, 1992, and Sections 23A and 23E of the SC(R)A, 1956.4. Legal Interpretations and Defenses Raised by the Appellants:The appellants argued that they had sought legal opinions, which advised them that including third-party shares in the promoters' shareholding was permissible. They also contended that the proforma prescribed by Clause 35 of the Listing Agreement did not explicitly prohibit such inclusion. However, the Tribunal rejected these arguments, stating that the law required promoters to disclose only their own shareholdings and not third-party shares.5. Examination of Precedent Cases and SEBI Orders Cited by Appellants:The appellants cited several cases and SEBI orders to argue against the penalties. However, the Tribunal found these cases distinguishable and not applicable to the present case. The Tribunal emphasized that the appellants' actions amounted to unfair trade practices and that legal opinions were advisory and not binding.6. Specific Penalties Imposed on the Ten Promoters for Violating SEBI Regulations:The ten promoters were each fined Rs. 7 lakh for violating Regulations 7(1A) and 8(2) of the SAST Regulations, 1997, and Rs. 5 lakh for violating PFUTP Regulations, 2003, read with Section 12A(a), (b), and (c) of the SEBI Act. In the case of M/s. Carissa Investment Pvt. Ltd., an additional penalty of Rs. 2 lakh was imposed for violating PIT Regulations, 1992.7. Additional Allegations Against M/s. Carissa Investment Pvt. Ltd. for Violating PIT Regulations:M/s. Carissa Investment Pvt. Ltd. was also charged with failing to disclose changes in its shareholding under Regulations 13(3) and 13(5) of the PIT Regulations, 1992. The Tribunal found that the Adjudicating Officer had not provided sufficient reasoning for this finding and quashed the additional penalty.Conclusion:The Tribunal upheld the penalties imposed on GHCL Limited, its Company Secretary, and its Chairman for violating SEBI regulations. However, it partially allowed the appeals of the ten promoters, quashing the penalties for violating Regulation 7(1A) of the SAST Regulations but upholding the penalties for violating PFUTP Regulations. The additional penalty against M/s. Carissa Investment Pvt. Ltd. for violating PIT Regulations was also quashed.