Tribunal quashes order, allows appeal partly, directs forensic audit of Tree House.

The Tribunal quashed the confirmatory order and the ad-interim ex-parte order restraining the appellants from dealing in the securities market. However, it upheld the direction for a forensic audit of Tree House, with the appellants required to cooperate fully. The appeal was partly allowed, with no orders on costs.

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Issues Involved:
1. Challenge to the confirmatory order by SEBI's Whole Time Member (WTM).
2. Allegations of related party transactions involving trustees.
3. Decline in business and performance of Tree House.
4. Alleged irregularities in furniture and fixtures expenditure.
5. Continuation of restraint order and forensic audit directive.

Issue-wise Detailed Analysis:

1. Challenge to the Confirmatory Order by SEBI's WTM:
The appellants challenged the confirmatory order dated November 16, 2018, which upheld the directions from the ad-interim ex-parte order dated March 7, 2018. The order restrained the appellants from accessing the securities market and directed a forensic audit of Tree House's accounts from the financial year 2011-12. The appellants argued that the WTM's order was passed without considering the prima facie findings of the Bombay High Court and without any contrary conclusion, simply confirming the ex-parte order.

2. Allegations of Related Party Transactions Involving Trustees:
The appellants contended that the WTM's order was based on the incorrect assumption that trustees of a public trust are related parties under the Companies Act, 2013, and SEBI Act/Rules/Regulations. They argued that trustees are not related parties as per the definitions in Section 2(76) of the Companies Act, 2013, and Regulation 2(1)(zb) of the LODR Regulations, 2015. The appellants emphasized that Mr. Giridharilal Bhatia, a trustee, had no personal/business interest or gain from the transactions, and hence, these were not related party transactions requiring disclosure.

3. Decline in Business and Performance of Tree House:
The appellants attributed the decline in Tree House's business and performance during 2015-16 and 2016-17 to the malafide actions of Zee Group promoters, including attempts to take over Tree House. They argued that the decline in the number of schools and profits was due to these external factors, not due to any mismanagement or diversion of funds. They provided evidence from annual reports and the Bombay High Court's anticipatory bail order to support their claims.

4. Alleged Irregularities in Furniture and Fixtures Expenditure:
The appellants addressed the allegations of irregularities in furniture and fixtures expenditure by stating that all records were available, and the expenditure was justified as standardized furniture and fixtures were essential for their centers. They argued that the closure of schools due to external factors led to incurred costs irrespective of the closure.

5. Continuation of Restraint Order and Forensic Audit Directive:
The Tribunal found no urgency for the ex-parte interim order or its continuation, as there was no prima facie evidence of manipulation of books, misrepresentation of financials, or diversion of funds. The order was based on presumptions rather than evidence. The Tribunal noted that the forensic audit was still underway, and no report had been submitted to indicate any findings of wrongdoing. The Tribunal held that SEBI could issue a fresh show cause notice if substantial new material/evidence emerged.

Conclusion:
The Tribunal quashed and set aside the confirmatory order dated November 16, 2018, and the ad-interim ex-parte order dated March 7, 2018, as far as the direction restraining the appellants from dealing in the securities market. However, it upheld the direction for a forensic audit of Tree House, with the appellants required to cooperate fully. The appeal was partly allowed, with no orders on costs.

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