2023 (7) TMI 1440 - AT - SEBI

Securities tribunal quashes penalties for preferential issue proceeds misuse citing shareholder ratification and delayed notice

Alps Motor Finance Ltd. and Ors. Versus Securities & Exchange Board of India

Alps Motor Finance Ltd. and Ors. Versus Securities & Exchange Board of India - TMI Issues:1. Delay in issuance of adjudication proceedings2. Alleged violation of regulations and listing agreement3. Ratification of deviation in object of issue by shareholdersIssue 1: Delay in issuance of adjudication proceedingsThe Tribunal noted an inordinate delay in the issuance of the show cause notice, highlighting that the preferential allotment was made in August 2013, but the notice was issued in January 2023. Emphasizing the principle of reasonable time for exercising powers, the Tribunal referred to various precedents, including the case of Ashlesh Gunvantbhai Shah vs. SEBI, to establish that the authority must act within a reasonable period. The Tribunal concluded that the delay in this case was unreasonable, leading to the decision that no penalty could be imposed due to the delayed adjudication proceedings.Issue 2: Alleged violation of regulations and listing agreementThe show cause notice alleged a deviation from the object of the issue, citing violations of Clause 43 of the Listing Agreement, LODR Regulations, and PFUTP Regulations. The Adjudicating Officer imposed penalties on the company and a director based on evidence of deviation from the issue's object. However, the Tribunal found that the shareholders had ratified the deviation in an extraordinary general meeting, validating the act retrospectively. Referring to the case of Terrascope Ventures Limited vs. SEBI, the Tribunal explained the concept of ratification and concluded that the ratification by the shareholders authorized the variance in utilization of proceeds, thereby quashing the penalties imposed.Issue 3: Ratification of deviation in object of issue by shareholdersThe Tribunal emphasized that the ratification by the shareholders validated the act of utilizing proceeds for a different purpose, despite the initial deviation from the specified objects. Noting the absence of defalcation charges, the Tribunal held that no penalty could be imposed for the alleged deviation. Ultimately, the impugned order concerning the appellants was deemed unsustainable and quashed, with the appeals allowed and no costs awarded. The order was directed to be digitally signed by the Private Secretary, and certified copies were made available from the Registry upon payment of usual charges.