TaxTMI 
TaxTMI 
2013 (4) TMI 652
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....t 'Tribunal') upholding the order passed by SEBI dated April 18, 2011 restraining the appellant for a period of two years from buying, selling or dealing in securities and the order passed by the adjudication officer dated July 28, 2011 imposing a monetary penalty of 50 lacs under Section 15HA of SEBI Act. 3. The appellant was the promoter as well as a whole time Director of M/s Pyramid Saimira Theatre Limited (PSTL), a company registered under the Companies Act, 1956. The shares of PSTL were listed on Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange (NSE) at the relevant time. The company was involved in the business of Exhibition (Theatre), Film and Television, Content Production, Distribution, Hospitality, Food & Beverage, Animation and Gaming and Cine Advertising etc. The company had nine Directors, including the appellant herein. The investigation department of SEBI noticed that the company had committed serious irregularities in its books of accounts and showed inflated profits and revenues in the financial statements and lured the general public to invest in the shares of the company based on such false financial statements thereby violated the provisions of S....
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....ly, the Whole Time Member (WTM) of SEBI, in exercise of powers conferred under Section 19 of the SEBI, held that the Directors were found guilty for the violation of Section 12A of SEBI Act, 1992 and Regulation 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e), 4(2)(f), 4(2)(k), 4(2)(r) of the Regulations 2003. WTM of SEBI then, in exercise of the powers conferred on him under Section 19 read with Sections 11, 11B and 11(4) of the SEBI Act and Regulation 11 of Regulations 2003, passed an order restraining the appellant and other Directors for a period of two years and three years respectively from buying, selling or dealing in securities in any manner whatsoever or accessing the securities market directly or indirectly and from being Director of any listed company. 7. The Adjudicating Officer also held that the appellant and others have violated the provisions of Section 12A of SEBI Act and Regulation 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e), 4(2)(f), 4(2)(k), 4(2)(r) of Regulations 2003 and took the view that the appellant and other Directors are liable for monetary penalty under Section 15HA of SEBI Act whereby a penalty of 50 lacs was imposed on the appellant. 8. The above order, a....
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....41.87 24556.12 2501.87 25225.72 13794.81 8069.04 Other 23.24 13.68 231.75 152.90 144.05 12.94 - 2.08 - Income Total 6780.13 12285.11 14650.54 23294.77 24700.17 25027.81 25225.72 13796.89 8069.04 Income Total 6122.60 9936.44 12513.42 19718.54 22366.93 22886.72 23478.48 12997.58 6859.02 Expenditur e Net profit 583.47 1600.77 1511.31 2986.50 -311.22 1349.72 870.42 -7474.35 -8527.25 loss Equity 2827.64 2827.65 2827.65 2827.65 2827.65 2827.65 2827.65 2827.65 2827.65 Face value of shares(in Rs.) 10 10 10 10 10 10 10 10 10 13. The above facts and figures would indicate that the net sales for the quarter ended June 30, 2007 doubled as compared to the previous quarter. In the subsequent quarters, till the quarter ended September 30, 2008, that upward trend had continued....
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....break up. Further it was also noticed that the entire amount of Rs.75 crore from own theatres in Andhra Pradesh was accounted by single journal voucher which did not have any other supporting documents in support of those consolidated entries or journal vouchers, despite assurance to provide the same. Those facts lead the SEBI to conclude that those revenues disclosed inflated figures in its annual report for 2007-08 and thereby misled the investors. 18. The company disclosed no stock exchanges on January 30, 2009 that it had entered into agreement with 802 theatres as on June 30, 2008. Out of 802 agreements, the company could show only 257 original agreements to SEBI officials which lead SEBI to conclude that the balance 545 agreements never existed. The fictitious revenues had converted to 'theatre collection receivables' which in turn had been converted to 'security deposits'. It was noticed security deposits were not genuine but were created to hide receivables in the balance sheet since outstanding receivables for a period of six months had to be compulsorily disclosed in its annual report. The SEBI therefore concluded the company had made a false corporate announcement to ....
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....tive or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder; (d) engage in insider trading; (e) deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder; (f) acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognised stock exchange in contravention of the regula....
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....ing or that contains information in a distorted manner and which may influence the decision of the investors; l) ....... (p) ....... (q) ....... (r) planting false or misleading news which may induce sale or purchase of securities." 23. The object and purpose of the above-mentioned statutory provisions are to curb "market manipulation". Palmer's Company Law, 25th Edition (2010), Volume 2 at page 11097 states: "Market manipulation is normally regarded as the "unwarranted" interference in the operation of ordinary market forces of supply and demand and thus undermines the "integrity" and efficiency of the market." See also Gower & Davies - Principles of Modern Company Law, 9th Edition (2012) at page 1160. 24. Reference may also be made to the penalty provisions which is contained in Chapter VI A of the SEBI Act of which we are mainly concerned with Section 15HA which deals with penalty for fraudulent and unfair trade practices and Section 15J which deals with the factors to be taken into account by the adjudicating officer while adjudging the quantum of penalty. Those provisions are given below for easy reference: "15HA. Penalty for fraudulent and unfair trade....
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....d to lay before it a balance-sheet as at the end of and a profit and loss account for the financial year. 27. Clause 41 of Listing Agreement between the SEBI and the concerned companies requires the companies to furnish to stock exchange and to publish unaudited financial result on a quarterly basis in the prescribed format. Section 55A of the Companies Act deals with the powers of SEBI which says some of the provisions referred to therein, so far as they relate to issue and transfer of securities and non-payment of dividends in the case of listed companies be administered by SEBI. Further, it is also indicated that how the books of accounts have to be kept by the company, so also with regard to audit of account etc. finds a place in the Companies Act, so also the qualification and disqualification of the Managing Directors. 28. We notice in this case that the Directors of the company had clearly violated provisions of Section 12A of SEBI Act read with Regulations 3 and 4 of 2003 Regulations. Companies whose securities are traded on a public market, disclosure of information about the company is crucial for the accurate pricing of the companies' securities and also for the ef....
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....rovide against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially. 34. The facts in this case clearly reveal that the Directors of the company in question had failed in their duty to exercise due care and diligence and allowed the company to fabricate the figures and making false disclosures. Facts indicate that they have overlooked the numerous red flags in the revenues, profits, receivables, deposits etc. which should not have escaped the attention of a prudent person. For instance, profit as on quarter ending June 2007 was three times more than the preceding quarter, it doubled in the quarter ending December 2007 over the preceding quarter. Further, there was disproportionate increase in the security deposits i.e. Rs. 36.05 crore in September 2007 to Rs. 270.38 crore in December 2007 as compared to increase in the number of theatres during the same period. They have participated in the board meetings and were privy to those commissions and omissions. Securities Market - Market abuse 35. Prevention of market abuse and preservation of market integrity is the hallmark of Securities Law. Sec....
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....arned is forearmed" the fundamental principle underlying the Companies Act has been that of disclosure. If the public and the members were enabled to find out all relevant information about the company, this, thought the founding fathers of our company law, would be a sure shield. The shield may not have proved quite so strong as they had expected and in more recent times, it has been supported by offensive weapons." 38. The Companies Act casts an obligation on the company registered under the Companies Act to keep the Books of accounts to achieve transparency. Previously, it was thought that the production of the annual accounts and it preparation is that of the Accounting Professional engaged by the company where two groups who were vitally interested were the shareholders and the creditors. But the scenario has drastically changed, especially with regard to the company whose securities are traded in public market. Disclosure of information about the company is, therefore, crucial for the accurate pricing of the company's securities and for market integrity. Records maintained by the company should show and explain the company's transactions, it should disclose with reasonable....
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....accounts, the balance-sheet and financial statement and laying of the same before the company at the Annual General Meeting and filing the same before the Registrar of the Companies as well as before SEBI, the Directors of the company have greater responsibility, especially when the company is a registered company. Directors of the companies, especially of the listed companies, have access to inside knowledge, such as, financial position of the company, dividend rates, annual accounts etc. Directors are expected to exercise the powers for the purposes for which they are conferred. Sometimes they may misuse their powers for their personal gain and makes false representations to the public for unlawful gain. 41. We have indicated, so far as this case is concerned, the subsequent conduct of pledging their shares at artificially inflated prices, based on inflated financial results and raising loan on them would indicate that they had deliberately and with full knowledge committed the illegality and hence the principle of "acta exteriora indicant interiora secreta" (meaning external actions reveals inner secrets) applies with all force, a principle which this Court applied in Sahara'....