2022 (7) TMI 1428 - AT - SEBI

Appeal delay condoned, SEBI penalties reduced for violations under LODR and PFUTP regulations.

The delay in filing the appeal was condoned, allowing it to proceed. SEBI imposed trading restrictions and penalties for violations of regulations, ... Violation of the SEBI Act - misrepresentation of financials and violation of the accounting standards - non-furnishing of information to the Forensic Auditor was violative of Section 11(2)(i) of the SEBI Act - appellants were debarred from accessing the securities market - Penalty imposed - HELD THAT:- A clear finding has been given that there is no misappropriation of the funds of the Company nor there is any manipulation in the price of the scrip. No fraud has been played by the Company and its Directors to its investors and shareholders. Further, finding given is, that the violation of the LODR Regulations gave no disproportionate gain to anyone nor created any unfair advantage to the appellants nor any specific loss was caused to any investor. Thus, in the absence of any finding of any fraudulent activities or misappropriation of funds or diversion of fund, we are of the opinion that the directions of debarment and the penalty given for violation of the LODR Regulations appears to be harsh and excessive. In the instant case, the appellants were debarred from accessing the securities market for a period of one year w.e.f. July 08, 2021 this period of debarment has already been undergone by the appellants. Consequently, no further orders are required to be passed on this score. In so far as the penalty is concerned, we are of the opinion, that the quantum is harsh and excessive and does not commensurate with the alleged violation of non-disclosure under the LODR Regulations. Since no disproportionate gain was caused to any person nor caused any loss to any investor nor caused any unfair advantage to the Company or its Directors we are of the opinion that the penalty should be reduced by 75% meaning thereby that a penalty of 25% of the penalty imposed by the WTM would be just and proper in the circumstances of the case. Accordingly, while affirming the violation committed by the appellants, we reduce the penalty to 25% of the penalty imposed by the WTM. The appeal is partly allowed. In the circumstances of the case, parties shall bear their own costs. Issues:- Delay in filing the appeal condonation- Trading restrictions by SEBI and penalties imposed- Violations of LODR and PFUTP Regulations- Appellants' contentions on procedural lapses- Respondent's argument on the gravity of violations- Findings on misappropriation, fraud, and unfair advantage- Debarment and penalty considerationsDelay in filing the appeal condonation:The delay in filing the appeal was condoned based on the reasons stated in the application, allowing the appeal to proceed.Trading restrictions by SEBI and penalties imposed:SEBI had restrained the appellants from accessing the securities market and dealing in securities, along with imposing penalties totaling Rs. 67 lakhs, based on violations and non-compliance with regulations.Violations of LODR and PFUTP Regulations:The appellants were found to have misrepresented financials, violated accounting standards, and failed to comply with LODR Regulations. However, there was no violation of PFUTP Regulations as no misappropriation or fraud was found.Appellants' contentions on procedural lapses:The appellants admitted lapses in compliance with LODR Regulations, attributing them to procedural and technical issues rather than intentional misconduct. They argued that penalties were disproportionate considering no fraudulent activities or misappropriation occurred.Respondent's argument on the gravity of violations:The respondent contended that the violations were serious, justifying the directions and penalties imposed by SEBI.Findings on misappropriation, fraud, and unfair advantage:The tribunal found no misappropriation of funds, manipulation in stock prices, fraud on investors, or disproportionate gains. As no specific losses were incurred, the debarment and penalties were deemed excessive.Debarment and penalty considerations:The appellants had already undergone the one-year debarment period by the time of the appeal. The tribunal reduced the penalty by 75%, considering the lack of disproportionate gain, loss, or unfair advantage, and affirmed the violation while partially allowing the appeal.This detailed analysis covers the issues involved in the legal judgment, providing insights into the violations, contentions of the parties, and the tribunal's findings and decisions.