Company Cleared of Misleading Announcements and Share Buyback Allegations; Appeals Allowed, Previous Order Set Aside

The court found that the allegations against the Company regarding misleading public announcements and lack of intent to complete a share buyback were not substantiated. The investigation revealed no significant impact on stock prices due to the announcement, and the Company demonstrated a serious effort to conduct the buyback, including placing orders and utilizing substantial funds. Consequently, violations of relevant regulations were not proven. The appeals were allowed, and the previous order by the AO dated May 19, 2021, was set aside.

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Issues Involved:
1. Allegation of making misleading public announcement regarding buyback of shares.
2. Allegation of failing to show intent towards completing the buyback and acting fraudulently.

Summary:

Issue 1: Allegation of making misleading public announcement regarding buyback of shares

The respondent alleged that the Company made a misleading announcement on January 14, 2014, regarding the buyback of shares without any intent to fulfill it, thus influencing the decision of investors. The Board of Directors approved the buyback proposal on November 26, 2013, and the shareholders approved it on January 6, 2014. The public announcement was made on January 14, 2014. The investigation report concluded that there was no major impact on the price/volume due to the announcement. The Company could not have foreseen the bullish trend in the stock market, which resulted in the traded price of the scrip being above the maximum buyback price on 68 out of 123 trading days. Therefore, the allegation that the Company made a misleading public announcement designed to influence investors is not proved.

Issue 2: Allegation of failing to show intent towards completing the buyback and acting fraudulently

The respondent argued that the Company did not place enough buy orders at appropriate times, indicating a lack of intent to complete the buyback. The Company placed buy orders on 82 out of 123 trading days on NSE and on all 123 days on BSE. The SEBI (Buyback of Securities) Regulations, 1998, do not specify the method or procedure for conducting the buyback. The Company appointed professional merchant bankers and brokers and deposited Rs. 143.12 crores in an Escrow account. The Company adopted a cautious approach to avoid affecting the scrip price. The Company utilized Rs. 1225.45 crores in the buyback process, indicating a serious effort to complete the buyback. Therefore, it cannot be conclusively proved that the Company showed no intent to complete the buyback and acted fraudulently.

Conclusion:

The violations of Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(K) and (r) of the PFUTP Regulations and Regulation 19(1)(a) of the Buyback Regulations are not proved against the Company. Consequently, the allegations against Appellant nos. 2 and 3 and the Appellant in Appeal no. 486 of 2021, who signed the public advertisement, are also not proved. The appeals are allowed, and the order dated May 19, 2021, of the AO is set aside.

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