2020 (3) TMI 1283 - AT - SEBI

Tribunal upholds violations, reduces penalties for Listing Agreement breaches

The Tribunal upheld violations of Clauses 36 and 50 of the Listing Agreement and related accounting standards but reduced penalties due to partial ... Violation of Listing Agreement read with Section 21 of the Securities Contracts (Regulation) Act - penalty of ₹ 30 lakh has been imposed on the appellants - HELD THAT:- There is no allegation that the results are not disclosed. Hence the alleged violation is in terms of only some variations which are about 10% of the reported net profits for the financial year 2010- 11. The explanation furnished by the appellants is in terms of mistakes committed in terms of minor heads /sub-heads. Given that, there is no allegation of non reporting and, therefore, the appellants had complied with the mandatory requirement of Clause 41 we give benefit of doubt to the appellants in terms of the explanation provided and do not intend to impose any penalty on this ground. We do not agree with the contention of the appellants as regards inordinate delay in the proceedings since we note that the appellants are also partly responsible for the delay in completing the investigation by not providing all the details / information sought by SEBI from October 2012 till July 2015. As explained in the aforesaid paragraphs, the contention of the appellants that substantive compliance of Clause 36 of the Listing Agreement has been made cannot be accepted since important / material information relating to transferee entity (IKAB), a related party, its affiliation to the appellants as a group entity, the detailed consideration of the transactions, etc. were either not disclosed or disclosed after considerable time. Therefore, the finding in the impugned order that the appellants have violated the true spirit of Clause 36 cannot be faulted. Similarly, the submission that Clause 50 is not violated because SEBI has no mandate on the accounting standards has no merit. A reading of Clause 50 makes it clear that the stated accounting standards have to be mandatorily followed by a listed entity. Accordingly, we uphold the finding in the impugned order that the appellants have violated Clause 36 and Clause 50, alongwith the stated accounting standards. While upholding the impugned order partially, we are also of the considered view that the penalty imposed on the appellants needs to be reduced. Therefore, some of the disclosures were made by the appellants and, therefore, it is a case of partial disclosure rather than non-disclosure; delay on the part of the respondent in completing the proceedings and the benefit of doubt given to the appellants on one of the alleged violations, we reduce the penalty imposed on the appellant No. 1 from ₹ 20 lacs to ₹ 10 lacs and on appellant Nos. 2 and 3 from ₹ 5 lacs each to ₹ 3 lacs each thereby reducing the total amount of penalty from ₹ 30 lacs to ₹ 16 lacs. The appellants are directed to pay the penalty amount within four weeks from the date of this order. Issues Involved:1. Violation of Clause 36 of the Listing Agreement.2. Violation of Clause 41 of the Listing Agreement.3. Violation of Clause 50 of the Listing Agreement and related Accounting Standards.4. Delay in issuing the show cause notice by SEBI.Detailed Analysis:1. Violation of Clause 36 of the Listing Agreement:The appellants were penalized for not adequately disclosing the transfer of their stock broking and depository participants business to IKAB, a related party. The significant information such as the name of the transferee entity, its affiliation, sale consideration, mode of receipt, and profits/losses realized were not disclosed. The Tribunal found that these were material facts that should have been disclosed immediately as per Clause 36, which mandates informing the exchange of all events impacting the company's performance and price-sensitive information. The Tribunal upheld the finding that the appellants violated Clause 36 by not making full disclosure.2. Violation of Clause 41 of the Listing Agreement:The appellants were accused of inadequate disclosure relating to variations in profit or exceptional/extraordinary items. The Tribunal noted that the variation was around Rs. 30 lakh, approximately 10% of the reported net profits for the financial year 2010-11. The appellants attributed this to bona fide errors in accounting. Given that there was no allegation of non-reporting and the mandatory requirement of Clause 41 was complied with, the Tribunal gave the appellants the benefit of the doubt and decided not to impose any penalty on this ground.3. Violation of Clause 50 of the Listing Agreement and Related Accounting Standards:The appellants were found non-compliant with Accounting Standards (AS-3, AS-18, and AS-24) due to non-disclosure in financial statements relating to the discontinuation of key business operations, related party transactions, and incorrect accounting of interest paid/miscellaneous income and cash flow statements. The Tribunal rejected the appellants' contention that SEBI had no mandate to adjudicate on these matters, citing Clause 50, which mandates compliance with all Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI). The Tribunal upheld the finding that the appellants violated Clause 50 and the related accounting standards.4. Delay in Issuing the Show Cause Notice by SEBI:The appellants argued that the show cause notice was issued with an inordinate delay of 8 to 10 years, which should invalidate the impugned order. The Tribunal noted that SEBI had been seeking information from October 2012, and the appellants were partly responsible for the delay by not providing complete information until July 2015. The Tribunal distinguished this case from Ashok Shivlal Rupani, where the delay was solely on SEBI's part, and concluded that the delay did not warrant setting aside the impugned order.Conclusion:The Tribunal upheld the findings of violations of Clauses 36 and 50 of the Listing Agreement and related accounting standards. However, it reduced the penalties imposed on the appellants, considering the partial disclosures made and the delay in proceedings. The penalty on Appellant No. 1 was reduced from Rs. 20 lakh to Rs. 10 lakh, and on Appellant Nos. 2 and 3 from Rs. 5 lakh each to Rs. 3 lakh each, reducing the total penalty from Rs. 30 lakh to Rs. 16 lakh. The appellants were directed to pay the reduced penalty within four weeks from the date of the order. The appeal was partly allowed with no order as to costs, and the Misc. Application No. 649 of 2019 was disposed of as infructuous.