2018 (8) TMI 835 - AT - Companies Law

Appeals dismissed, exceptions for Appeal No. 306. SEBI's findings upheld, directions valid post delisting.

The appeals were dismissed except for Appeal No. 306 of 2016, where two appellants were given the benefit of doubt. The tribunal upheld the findings of ... Violation of certain provisions of SEBI Act, 1992 - misleading corporate announcements which led to increase in its share price and substantial increase in the volume of trading in its shares - incorrect information on promoters’ shareholding - fraudulent preferential allotment of 290 lakh shares to seven connected entities /persons without real inflow of funds. Held that:- We find it quite inexplicable on the reluctance of all the appellants to share details regarding their obtaining the shares of PCL. Given this reluctance, we find no fault in the decision of the WTM of SEBI in taking a notional value of ₹ 1 per share as acquisition cost while calculating disgorgement. Given the connection between erstwhile promoters or directors of PCL, the preferential allotment, cross directorship of various entities, usages of same address and telephone nos. etc. by some of the entities, the financial transactions between some of the entities, the offmarket transactions of shares of PCL between some of the promoters and directors of PCL connection between these entities have been conclusively established. However benefit of doubt given to two appellants. Given the above facts and finding in the impugned order that appellants in all appeals, except Appellant nos. 2 and 3 in Appeal no. 306 of 2016, have violated Regulation 3(a), 3(b), 3(c), 3(d), 4(1), 4(2)(e), (k) and (r) of the PFUTP Regulations, 2003 cannot be faulted. Similarly, finding in the impugned order that the beneficiaries of the preferential allotment have violated Regulation 8(3) and Regulation 10 of SAST Regulations, 1997 also cannot be faulted. The appellants in Appeal No. 374, 375 and 376 of 2017 are therefore liable for the violations of SAST Regulations, 1997 in addition to the violation of the PFUTP Regulations, 2003, common to all appellants, except Appellant nos. 2 and 3 in Appeal no. 306 of 2016. Issues Involved:1. Violation of SEBI Act, 1992, PFUTP Regulations, 2003, and SAST Regulations, 1997 by various entities.2. Allegations of aiding and abetting a fraudulent scheme by Platinum Corporation Ltd. (PCL).3. Misleading corporate announcements and manipulation of share prices.4. Misrepresentation of promoters' shareholding and failure to disclose changes in shareholding pattern.5. Fraudulent preferential allotment of shares without real inflow of funds.6. Directions issued by SEBI including restraint from dealing in securities, disgorgement of unlawful gains, and requirement to make an open offer.7. Legal arguments regarding the delay in proceedings, the role of appellants, and the validity of the directions issued by SEBI.Issue-wise Detailed Analysis:1. Violation of SEBI Act, 1992, PFUTP Regulations, 2003, and SAST Regulations, 1997:The appellants were found to have violated Section 12A(a), (b), and (c) of the SEBI Act, 1992, Regulations 3(a) to 3(d), 4(1), 4(2)(e), (f), (k), and (r) of PFUTP Regulations, 2003, and Regulation 8(3) and Regulation 10 of SAST Regulations, 1997. The violations were related to manipulative and deceptive practices in the securities market, fraudulent schemes, and failure to make required disclosures.2. Allegations of aiding and abetting a fraudulent scheme by PCL:The appellants were charged with aiding and abetting a fraudulent scheme launched by PCL and its directors/promoters. The scheme involved misleading corporate announcements that led to an increase in share price and trading volume, followed by offloading shares in the market to make unlawful gains.3. Misleading corporate announcements and manipulation of share prices:PCL made several misleading corporate announcements between July 2005 and September 2006, which resulted in an increase in share price from Rs. 1.19 to Rs. 3.15 and a substantial increase in trading volume. The promoters of PCL transferred shares off-market to related entities, who then sold the shares in the market after these announcements, making unlawful gains of Rs. 12 crore.4. Misrepresentation of promoters' shareholding and failure to disclose changes in shareholding pattern:PCL and its directors provided incorrect information on promoters' shareholding for 11 quarters (from March 2005 to September 2007) to BSE and failed to make relevant disclosures regarding changes in shareholding pattern as required by SAST Regulations, 1997.5. Fraudulent preferential allotment of shares without real inflow of funds:PCL made a fraudulent preferential allotment of 290 lakh shares to seven connected entities/persons without real inflow of funds. The allottees, including four directors of the company, acquired 21.32% of the post-issue paid-up capital of the company but failed to make an open offer as prescribed by SAST Regulations, 1997.6. Directions issued by SEBI:SEBI issued various directions, including restraint from dealing in the securities market for three to five years, disgorgement of unlawful gains, and a direction to make a public announcement to acquire shares of PCL in terms of Regulation 10 of SAST Regulations for fraudulent preferential allotment of shares. The appellants were categorized into two groups based on their involvement in the fraudulent scheme and preferential allotment.7. Legal arguments regarding the delay in proceedings, the role of appellants, and the validity of the directions issued by SEBI:The appellants argued that the restraint order under Section 11/11B of SEBI Act was used as a punishment, which was not the intention of these sections. They also contended that the delay in proceedings caused irreparable damage, and their role in the alleged conspiracy was not proved. Additionally, they argued that the preferential allotment was vitiated, making the direction to make an open offer legally invalid. However, the tribunal found no merit in these arguments except for two appellants in Appeal No. 306 of 2016, where the connection to PCL was not established.Conclusion:The appeals were dismissed except for Appeal No. 306 of 2016, where two appellants were given the benefit of doubt. The tribunal upheld the findings of SEBI regarding the violations of PFUTP Regulations, 2003, and SAST Regulations, 1997, and the directions issued, including the requirement to make a public announcement for an open offer, were deemed valid and enforceable even after the compulsory delisting of PCL.