TaxTMI 
TaxTMI 
2016 (8) TMI 968
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....nge Board of India Act, 1992 ("SEBI Act" for short) aggregating to Rs. 3 crore for violating the provisions contained in the SEBI Act and the Regulations made thereunder. Additionally penalty of Rs. 5 lac is imposed on Mr. Sandeep Baid (Appellant in Appeal No. 404 of 2014) under Section 23H of Securities Contracts (Regulation) Act, 1956 ("SCRA" for short) for not complying with clause 49 of the Listing Agreement read with Section 21 of SCRA. 3. At the relevant time Mr. Sandeep Baid (Appellant in Appeal No. 404 of 2014) was the Whole Time Director of RDB Rasayans Ltd. ("RDB" for short) Mr. Sunder Lal Dugar (Appellant in Appeal No. 403 of 2014) was the Promoter and Chairman of RDB. Mr. Mahendra Pratap Singh, Mr. Prabir Kumar Sarkar and Mr. Sachin Shridhar, (Appellants in Appeal Nos. 402, 401 & 432 of 2014) were the Independent Directors of RDB. 4. Facts relevant for the purpose of these appeals are as follows:- a) At the relevant time RDB was a public limited company engaged in the manufacture of PP Tape, PP woven sacks, Woven Fabrics, Industrial woven fabric etc. RDB Realty & Infrastructure Ltd. ("RDBRIL" for short) is a group/sister company of the RDB group engaged in the ....
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....herein partial relief was granted to RDB. Challenging the Calcutta High Court order, SEBI filed an SLP before the Apex Court. On 22.09.2014, by consent SLP was disposed of, whereby, the writ petition filed by RDB before the Calcutta High Court stood withdrawn and SEBI was required to pass orders within three months and till then, RDB was directed not to alienate fixed assets up to the value of Rs. 6.5 crore and it was directed that the amounts lying in the escrow account shall continue to remain in the escrow account. k) On 19.12.2014 the WTM of SEBI passed final order whereby the RDB and its Directors including the appellants were debarred from entering into the securities market till 28.12.2015. Appellants as also RDB have filed appeals to challenge the said order of WTM dated 19.12.2014 by filing Appeal Nos. 514 of 2015 and 532, 533 & 534 of 2015 which are all being heard along with these appeals. l) On 30.07.2013 a show cause notice was issued by AO of SEBI calling upon the appellants herein to show cause as to why inquiry should not be held against the appellants and why penalty should not be imposed under Section 15HA and 15HB of SEBI Act for violating the provisions co....
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....n Appeal No. 404 of 2014 cannot be faulted. 9. Now, turning to the aggregate penalty of Rs. 3 crore imposed on all the appellants, it may be noted that the said penalty is imposed for the following reasons:- a) Penalty of Rs. 1 crore is imposed under Section 15HB of SEBI Act, because the appellants as directors of RDB did not disclose all material information in the offer document that are true and adequate as contemplated under the ICDR Regulations and misutilized the IPO proceeds by giving loan to RDBRIL in violation of the ICDR Regulations. b) Penalty of Rs. 1 crore is imposed under Section 15HA of SEBI Act on ground that apart from violating ICDR Regulations, the appellants are also guilty of violating the PFUTP Regulations. c) Penalty of Rs. 1 crore is imposed under Section 15HA of SEBI Act on ground that the appellants, in violation of PFUTP Regulations have routed IPO proceeds in a circuitous manner so as to provide funds to four trading clients who had traded in the shares of RDB on the first day of listing RDB shares and had incurred huge losses. Violation of ICDR Regulations. 10. In the present case, the DRHP filed by RDB in March 2010 was approved by SE....
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.... give loan was with reference to the IPO proceeds to be received by RDB. 13. Above conclusion is corroborated from the fact that on 12.09.2011 itself RDB decided to call Extra Ordinary General Meeting (EOGM) on 28.09.2011 by curtailing the notice period of 21 days so as to seek approval for giving loan to RDBRIL from the pre IPO shareholders. In the EOGM held on 28.09.2011 (after the IPO closed on 23.09.2011 and before allotment of shares) the pre IPO shareholders approved giving loan up to Rs. 50 crore to RDBRIL. Even on 28.09.2011, apart from the IPO proceeds there were no other funds that could be treated as surplus and transferred to RDBRIL by way of loan. It is relevant to note that on 05.10.2011 IPO funds of Rs. 34.25 crore was credited to the RDB's bank account and on 07.10.2011 at 11.00 A.M. the Audit Committee of RDB recommended to the Board that the unutilized IPO funds should be invested in high quality interest bearing instruments and further recommended giving loan to the RDB group companies which would be repayable on demand. However, before the Board of RDB could consider the above recommendation of the Audit Committee at 5.00 P.M. on 07.10.2011 and approve the dr....
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....to the IPO, RDBRIL had taken Rs. 7.28 crore from RDB as inter corporate loan at an interest rate of 15% per annum and since RDBRIL could not repay the said loan within the stipulated time RDBRIL had sought extension of time in the last week of August 2011 and accordingly RDB had granted 90 days time to RDBRIL for repayment of loan. With these facts on record, it is not open to the appellants to contend that giving loan to RDBRIL amounts to placing IPO funds from one pocket to another. Thus, in the facts of present case, resolution passed on 12.09.2011 to give loan up to Rs. 50 crore to RDBRIL being a resolution relating utilization of IPO proceeds was a material information which ought to have been disclosed. Apart from the above, when statement was made in the offer documents that the IPO proceeds would be invested in high quality interest bearing liquid instruments, utilizing the IPO proceeds by giving loan to RDBRIL amounts to misutilizing the IPO funds in violation of ICDR Regulations. Violation of PFUTP Regulations. 16. Failure to disclose aforesaid material information to the investors and misutilizing the IPO funds contrary to the statement made in the offer document w....
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....ablish that the object of passing the resolution on 12.09.2011 was to transfer IPO funds as loan to RDBRIL and by curtailing the notice period from 21 days to 15 days, RDB chose to seek approval from the pre IPO shareholders for giving IPO proceeds as loan to RDBRIL. Thus, RDB and its directors resorted to manipulative and deceitful method to suppress material information from the offer documents which in violation of PFUTP Regulations. 18. It is also relevant to note that on 28.09.2011 the AGM and EOGM of RDB were held and filing in relation to AGM was made before the Registrar of the Companies ("ROC" for short) on 28.09.2011 itself, whereas, filing in relation to EOGM dated 28.09.2011 was made before the ROC on 19.10.2011 i.e. much after the allotment of shares to the IPO subscribers. Since the EOGM resolution dated 28.09.2011 related to the approval given by the pre IPO shareholders to give loan up to Rs. 50 crore, inference drawn by the AO that the filing relating to EOGM resolution dated 28.09.2011 was withheld till 19.10.2011 with a view to suppress vital information from the investors till the shares were allotted to the IPO subscribers cannot be faulted. 19. It is con....
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....al information was not disclosed even to the book running lead manager. In these circumstances, the inference drawn by the AO that RDB and its directors in a manipulative and deceptive manner suppressed material facts from investors and misutilized the IPO proceeds by giving loan to RDBRIL instead of investing the IPO proceeds in high quality interest bearing liquid funds as represented to the investors in the offer document, cannot be faulted. 21. Argument of the appellants that IPO process was completed before the AGM / EOGM held on 28.09.2011 is without any merit, because, admittedly no allotments were made till 28.09.2011 and if requisite disclosures were promptly made, it was open to any investor who had applied for shares to withdraw from the offer before the allotments were made. Fact that no investor has made any grievance cannot be a ground for RDB to escape from penal liability for suppressing material facts in the offer documents in violation of PFUTP Regulations. By no stretch of imagination resolution passed on 12.09.2011 to give loan up to Rs. 50 crore to RDBRIL and the resolution dated 28.09.2011 wherein 5 out of 10 pre IPO shareholders of RDB approved giving loan....
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...., findings recorded by the AO in the impugned order that RDBRIL was not financially sound on account of its inability to repay the entire loan amount at one go cannot be faulted. Assuming that RDBRIL was financially sound on account of assets held by it, very fact that RDBRIL could not repay the loan on demand and repaid it in installments clearly supports the view taken by the AO that giving loan to RDBRIL could not be said to be an investment in high quality interest bearing liquid instruments. 23. Apart from the above, RDB had taken loan from the Axis Bank and as per the loan agreement it was obligatory on part of RDB to take prior permission of Axis Bank before giving loan to RDBRIL. Admittedly, no such permission was taken from Axis Bank by RDB. Fact that Axis Bank did not deem it fit to take action for the said breach of the contract and the fact that the Axis Bank subsequently enhanced the loan limit and granted extension of time to repay the said loan cannot be a ground for the appellants to contend that no action be taken against RDB and its directors for violating the ICDR Regulations and PFUTP Regulations. In the impugned order, reference is made to the breach of the ....
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....aid amount was in the hands of four trading clients who had traded in the shares of RDB on the first day of trading and incurred losses, cannot be an independent ground to hold that the IPO proceeds have been routed in a circuitous manner so as to fund four trading clients, because, firstly, SEBI has not disbelieved the case of the appellants that transfer of IPO proceeds by RDB to RDBRIL was by way of loan. AO cannot hold on one hand that IPO proceeds were transferred as loan to RDBRIL and on the other hand hold that IPO proceeds were circuitously routed to four clients through RDBRIL. Secondly, by 31.03.2012, entire loan amount with interest has been received back by RDB from RDBRIL. With these facts on record it is not open to SEBI on one hand to contend that RDB gave IPO proceeds as loan to RDBRIL in violation of ICDR Regulations/ PFUTP Regulations and on the other hand contend that the IPO proceeds have been transferred in a circuitous manner so to fund four trading clients who had traded in the shares of RDB on the first day of listing. 27. Apart from the above, as rightly contended by the counsel for appellants, in the impugned order no link or connection is established b....