2019 (9) TMI 1496 - AT - SEBI

Tribunal Overturns Penalties on Company & Officer Due to SEBI's Delay; Emphasizes Timely Regulatory Actions.

The Tribunal quashed the penalties imposed on the listed company and its Compliance Officer, allowing their appeals. It ruled that the penalties were ... Violations of the provisions of the SEBI Act, 1992 and the SEBI ‘PIT Regulations 1992’ - irregularities in the scrip of AstraZeneca Pharma India Limited - penalty of ₹ 1 lakh has been imposed for violating the code of conduct - HELD THAT:- We find that the stand taken by the appellant namely that they had submitted the draft model code of conduct to the holding Company for approval took time has not been disbelieved while holding that there has been an inordinate delay of two years in adopting the model code of conduct. If two years taken by the Company is taken as an yardstick to suggest an inordinate delay in adopting the model code of conduct then by the same standard, SEBI is guilty of issuing a show cause notice for alleged violations of the model code of conduct after more than 15 years. Admittedly, the amendments were made in the PIT Regulations in 2002 and even though there was no time limit requiring the listed companies to adopt the model code of conduct, nonetheless the appellant Company AZPIL adopted the model code of conduct in the year 2004. No action was taken by SEBI over all these years and only woke up after 15 long years for the alleged violations. In our view, for this inordinate delay, proceedings could not have been launched nor can the question of imposition of penalty could arise. We are thus of the opinion that for the inordinate delay no penalty could be levied and consequently the impugned order imposing a penalty of ₹ 1 lakh on the appellant Company AZPIL is patently erroneous and cannot be sustained. No period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine Pharmaceuticals, Madras and Others, [1989 (7) TMI 100 - SUPREME COURT] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case. When the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc - See Adjudicating Officer, SEBI vs. Bhavesh Pabari [2019 (3) TMI 197 - SUPREME COURT] Model code of conduct violation - trading window was required to be closed on March 3, 2014 and could only be opened after 24 hours after the information referred to in Clause 3.2.3 was made public which in the instant case was not done - Penalty imposed on Pawan Singhal the Compliance Officer - Trading window shall be closed during the time information referred to in para 3.2.3 is unpublished. Under clause 3.2.4 the trading window shall be opened 24 hours after information referred to in para 3.2.4 is made public. The AO has imposed a penalty upon the Compliance Officer / appellant for not closing the trading window on March 3, 2014. Once intimation was sent by the Company to the stock exchange disseminating the requisite information about the delisting, it was the duty of the Compliance Officer to close the trading window. Thus, there was a violation committed by the Compliance Officer. However, we find that admittedly no trading was done. No one gained nor any loss was suffered by any investors. Thus the violation if any was technical. Thus, we are of the opinion that no penalty could be imposed on the appellant and only a warning is issued to the Compliance Officer to be careful in future. The impugned order imposing penalty upon the appellant Pawan Singhal cannot be sustained. Issues:1. Delay in adopting the model code of conduct by the listed company.2. Imposition of penalty on the listed company for violating the code of conduct.3. Compliance officer's failure to close the trading window within the specified time.Analysis:Issue 1: Delay in adopting the model code of conduct by the listed companyThe investigation revealed irregularities in the scrip of a listed company for possible violations of SEBI regulations. A show cause notice was issued after a significant delay of more than 15 years from the alleged violation period. The appellant argued that the delay prejudiced their case as necessary correspondence was no longer available. The Tribunal noted the delay in adopting the model code of conduct by the listed company but also highlighted the inaction by SEBI for over 15 years. It was held that the penalty imposed due to the delay was unjustified, and proceedings could not be initiated after such a prolonged period.Issue 2: Imposition of penalty on the listed company for violating the code of conductThe listed company was penalized for violating the code of conduct related to insider trading regulations. The Tribunal acknowledged the delay in adopting the model code of conduct but emphasized that SEBI also failed to act promptly. It was observed that the penalty imposed on the listed company was erroneous due to the inordinate delay in issuing the show cause notice. The Tribunal concluded that no penalty could be levied based on the principle that regulatory actions should be taken within a reasonable time frame.Issue 3: Compliance officer's failure to close the trading window within the specified timeThe Compliance Officer was penalized for not closing the trading window within the stipulated time frame after the dissemination of delisting information. The Tribunal found a technical violation by the Compliance Officer but noted that no actual trading occurred, resulting in no gains or losses for investors. Consequently, the Tribunal decided that a penalty was unwarranted, and only a warning was issued to the Compliance Officer to be cautious in the future.In conclusion, the Tribunal allowed the appeals filed by the listed company and the Compliance Officer, quashing the impugned orders imposing penalties. The Tribunal emphasized the importance of timely regulatory actions and highlighted the need for adherence to the code of conduct while considering the circumstances of each case.