2020 (1) TMI 524 - AT - SEBI

Tribunal reduces restraint period, dismisses IPO misuse charge, upholds false statements, clears independent directors

Inventure Growth and Securities Ltd. Versus Securities & Exchange Board of India

Inventure Growth and Securities Ltd. Versus Securities & Exchange Board of India - TMI Issues Involved:1. Mis-utilization of IPO proceeds.2. False statements regarding raising bridge loans.3. Non-disclosure of acceptance of deposits.Issue-wise Detailed Analysis:1. Mis-utilization of IPO proceeds:The appellants were accused of not utilizing the IPO proceeds as per the stated objectives in the prospectus, specifically regarding the investment in the subsidiary IFPL and augmenting the company's working capital. The SEBI investigation revealed that instead of using the funds for the declared purposes, the company diverted them to other uses, including purchasing shares and increasing unsecured loans. The tribunal found that the prospectus conveyed a dominant message that the funds would be used for lending against shares, which was not adhered to. However, the tribunal concluded that the charge of mis-utilization of IPO proceeds could not be sustained as the company had the discretion to revise its business plan and funding strategy, as mentioned in the prospectus.2. False statements regarding raising bridge loans:The company declared in the prospectus that no bridge loans were raised to be repaid from IPO proceeds. However, SEBI's investigation found that the company had received funds from four entities shortly before the IPO and repaid them immediately after receiving the IPO proceeds. The tribunal determined that the transactions with three entities could not be considered bridge loans as the funds were repaid from the client account and not from IPO proceeds. However, the transaction with KRSPL was deemed a bridge loan as it was a short-term loan repaid from IPO proceeds, contradicting the prospectus declaration. Thus, the charge of making a false statement regarding bridge loans was upheld.3. Non-disclosure of acceptance of deposits:SEBI found that the company had accepted significant security deposits from individuals which were not disclosed in the prospectus. The company initially described these transactions as security deposits but later claimed they were adjustments against debit balances of related accounts. The tribunal found that the deposits were material information that should have been disclosed in the prospectus. The non-disclosure of these deposits was deemed a violation of the ICDR Regulations, and the charge was upheld.Separate Judgments:- Appeal No. 361 of 2018: The tribunal found that one out of three charges was not sustainable. Consequently, the period of restraint on the company was reduced from four years to three years, and the restrictions on associating as Directors or KMPs were limited to three years from January 1, 2019.- Appeal No. 362 of 2018: The appellants, being independent directors, were not held responsible for the non-disclosures as they were not involved in the day-to-day management of the company. The appeal was allowed, and the impugned order against them was set aside.- Appeal No. 363 of 2018: The appellant, a non-executive director, was also not held responsible for the non-disclosures as he was not involved in the day-to-day affairs of the company. The appeal was allowed, and the impugned order against him was set aside.Conclusion:The tribunal partially allowed the appeal of the company and its directors, reducing the period of restraint. The appeals of the independent and non-executive directors were fully allowed, setting aside the impugned orders against them. The tribunal's decision was based on the specific roles and responsibilities of the appellants and the evidence presented.