TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 1505
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....le II of the SEBI (Intermediaries) Regulations, 2008 ("Intermediaries Regulation") and hence rejecting the Appellant's application for renewal of registration as Merchant Banker ("MB"). 2. Further, the Appellant has filed three Miscellaneous Applications all in which the Applicant had acted as a BRLM. These are as follows: * MA No. 130 of 2015 in Appeal No. 275 of 2014 for staying the operation of Impugned Order dated March 21, 2014 passed by SEBI against the Appellant under Sections 11(1), 11(14) and 11(b) of the SEBI Act, in the matter of the IPO of PG Electroplast Limited; * MA No. 117 of 2015 in Appeal No. 129 of 2014 for staying the operation of Impugned Order dated March 3, 2014 passed by SEBI against the Appellant under Sections 11(1), 11(14) and 11(b) of the SEBI Act, in the matter of the IPO of Bharati Global Infomedia Limited; and * MA No. 118 of 2015 in Appeal No. 187 of 2014 for staying the operation of Impugned Order dated April 11, 2014 passed by SEBI against the Appellant under Section 12(3) of the SEBI Act read with Regulation 28(2) of SEBI (Intermediaries) Regulations, 2008 in the matter of the IPO of Bharati Global Infomedia Limited. 3. These three MAs....
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....ages on the two IPOs, which resulted in inaccurate/inadequate disclosures in the RHP/Prospectus. Order dated March 3, 2014 passed in the matter of BGIL barred the Appellant from indulging in the securities market in any manner for a period of five years from the date of the order. 9. Further, order dated March 21, 2014 prohibited the Appellant from taking up any new assignment or involvement in a new issue of capital, including IPO, follow-on issue, etc. in the securities market for a period of five years. Further, Order dated April 11, 2014 was passed by SEBI suspending the certificate of registration of the Appellant as MB for a period of six months from March 3, 2014. 10. SEBI issued a show cause notice ("SCN") dated June 16, 2014 to the Appellant on the ground that the Appellant did not satisfy the criteria for "Fit and Proper Person" as understood under Regulation 8 read with Regulations 6A and 8A(5) of the SEBI (Merchant Bankers) Regulations, 1992 and Schedule II of the Intermediaries Regulations, 2008. The Appellant responded to this SCN on July 18, 2014. SEBI, in turn, issued another SCN on January 7, 2015, based on an extreme allegation that the Appellant did not comply ....
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.... with Schedule II of the Intermediaries Regulations. 14. Coming to the MAs mentioned above, it has been submitted by the Appellants in the aforementioned MAs that SEBI is constantly ignoring the fact that the above-mentioned three impugned orders have been challenged before this Tribunal and are pending merely because no order has been passed by the Tribunal staying the operation of the three impugned orders. 15. It is submitted that SEBI cannot assume that the Appeals filed by the Appellants will be dismissed and the three impugned orders in the respective Appeals would attain finality. Additionally, the impugned orders cannot be the basis for an allegation that the Appellant is not a "Fit and Proper Person" under the Intermediaries Regulations, especially in light of the possibility that they may be quashed by this Tribunal. 16. It is further submitted that the Appellant's business as an MB has been practically shut down by SEBI on the basis of the three impugned orders and now SEBI is proceeding a step further to ensure that the remaining business of the Appellant as a Stock Broker and as a Depositary Participant also crumbles to the ground. The Appellant submits that its....
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.... person." "Regulation 6A of the MB Regulations" "Criteria for fit and proper person. 6A. For the purpose of determining whether an applicant or the merchant banker is a fit and proper person the Board may take into account the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008." "Schedule II of the Intermediaries Regulation" "Criteria for determining a 'fit and proper person' For the purpose of determining as to whether an applicant or the intermediary is a 'fit and proper person' the Board may take account of any consideration as it deems fit, including but not limited to the following criteria in relation to the applicant or the intermediary, the principal officer and the key management persons by whatever name called- (a) integrity, reputation and character; (b) absence of convictions and restraint orders; (c) competence including financial solvency and networth." 21. On a bare perusal of the provisions cited above, it is borne out that an MB has to fulfill the criteria for a Fit and Proper Person as provided under Schedule II of the Intermediaries Regulations. Six criteria have been....
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....whole time director, or managing partner has been declared insolvent and has not been discharged; (d) an order, other than an order of suspension of certificate of registration as an intermediary, restraining, prohibiting or debarring the applicant or the intermediary, or its whole time director or managing partner from dealing in securities in the capital market or from accessing the capital market has been passed by the Board or any other regulatory authority and a period of three years from the date of the expiry of the period specified in the order has not elapsed; (e) an order cancelling the certificate of registration of the applicant or the intermediary has been passed by the Board on the ground of its indulging in insider trading, fraudulent and unfair trade practices or market manipulation and a period of three years from the date of the order has not elapsed; (f) an order withdrawing or refusing to grant any license/approval to the applicant or the intermediary, or its whole time director or managing partner which has a bearing on the capital market, has been passed by the Board or any other regulatory authority and a period of three years from the date of the order....
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....nst the Appellant had been passed, the Appellant would've been excluded from being considered as unfit in accordance with Regulation 3(2)(d). 27. Therefore, the intention of the law-maker with respect to the criteria for fit and proper persons can be traced back to the Regulations of 2004 wherein certain orders, with respect to entities whose wrongdoings or lapses in judgment were condonable, were deliberately kept out of the purview of the said regulations. From an analysis of the scheme of the Regulations of 2004 it is borne out that the underlying philosophy of the regulations was to ensure that trespasses of a serious nature would not go unpunished and that undesirable elements would be kept out of the securities market. This is evident from the wrongdoings that were considered to be mandatory disqualifications under the Regulations of 2004. On an examination of the eight events which necessarily disqualified a person from being a fit and proper person, we note that these were instances of moral turpitude, securities law fraud, insolvency, indulgence in unfair trade practices, insider trading etc. In other words, offences which were considered to be particularly serious an....
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....quashed the remainder of the punishment imposed vide Impugned Orders dated March 3, 2014 and March 21, 2014 in Appeal Nos. 275 of 2014 and 129 of 2014 respectively, by partially upholding the aforesaid orders, we are not inclined to uphold the decision impugned in the present appeals, because, the orders dated March 3, 2014 and March 21, 2014 were passed on the footing that after undergoing the penalty imposed therein the appellant would be entitled to carry on business as usual. In our orders passed in Appeal Nos. 275 and 129 of 2014, the punishment imposed vide Impugned Orders dated March 21, 2014 and March 3, 2014 we have held that the penalty imposed is excessive and the penalty already undergone is far in excess and disproportionate to the violation committed by the appellant. 29. We, therefore, find in the facts of present case that, the fact that the restraint order passed against the appellant has been upheld cannot be a ground to hold that the appellant is not a fit and proper person to seek renewal of registration as a Merchant Banker. It is not the case of SEBI that in every case where a restraint order is passed against any person, that person must be held to be not a ....
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.... Edelweiss Capital Ltd., the MB was charged of failure to exercise due diligence by not adopting independent professional judgments in verifying the records/visiting the places of issuer company, not providing the correct information and/or misleading information in the offer document, failed to supervise the activities of Syndicate Member Registrars, etc. by order dated 11th May 2011. The MB was accused of committing Clause 4, 6, 7 of Code of Conduct as stipulated in Regulation 13 of MB Regulations; SEBI Circular dated 27th April, 2008; Clauses 5.1.1, 5.1.2, 5.4.3.1, 7.3.1, 7.4.1, 7.7.7 and 16.2.2.2 of erstwhile DIP Regulations and Regulation 18(2) of SAST Regulations. This matter was also resolved by SEBI preferring settlement of Rs. 15 lac inspite of any other harsh/harsher action against the Eddelweiss. The proposal of Eddelweiss was settled by way of consent accepted by SEBI. In fact it is pertinent to note that the present appellant, namely, Almondz has also preferred an application for consent mechanism which was declared by SEBI for unknown reasons. D. In the case of Kotak Mahindra Capital Co. Ltd., SEBI by its order dated 27th August, 2009 held that the MB had failed to ....
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....mposed by SEBI in similar cases range from just a warning or token punishment for a day to the imposition of a fine of Rs. 1 crore. Further, in cases where there are repeated offences, registration has been denied. However, in the facts of the present case, since the fault of the Appellant is limited in as much as the Appellant has relied upon the Statutory Auditor's reports and the statements issued by the two Issuer Companies, instead of looking into the banks statement, by no stretch of imagination can it be said that the Appellant is not a fit and proper person for carrying on business as a Merchant Banker. 31. To sum up, the appellant has been subjected to numerous proceedings, under various Regulations and consequent different punishments for the same charge of lack of due diligence in respect of the two IPOs pertaining to the two issuer companies almost during the same period. These punishments are:- * 5 years in case of the IPOs of PGEL under the ICDR Regulations read with the MB Regulations by order dated March 21, 2014. * 5 years in case of the IPOs of BGIL under the ICDR Regulations read with the MB Regulations by order dated March 3, 2014. * 2 years under the....
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....rd as MB in exercising proper due diligence. Therefore, Aryaman's application was rejected. This case is therefore different from the Appellant's, since Aryaman had acted unsatisfactorily as an MB on a number of occasions and had failed to meet the criterion of being a fit and proper person repeatedly. 34. We now come to the case of Parsoli Corporation Limited, a stock broker with NSE and BSE, and also a depositary participant of CDSL. Parsoli was found to have fraudulently transferred and dematerialized fake shares in favour of its promoter/front entities. Several orders were passed against Parsoli and its directors. It is pertinent to note that 80,800 fake share certificates were issued by Parsoli, signatures of genuine investors were forged on transfer documents, fraudulent transfer and dematerialization of those fake share certificates was approved in favour of 22 promoter/front entities, resulting in blatant violation of Regulations 3 and 4 of the PFUTP Regulations. Therefore, order dated July 27, 2010 restrained Parsoli from accessing the securities market in any manner for a period of seven years. A monetary penalty of Rs. 4.05 crore was further imposed upon Parsoli....
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....ble for renewal. This conclusion was arrived at by SEBI owing to the egregious conduct of Mr. Subroto Roy Sahara who is even today under judicial custody due to wrongdoings committed through his companies, namely, Sahara Commodity Services Corporation Limited and Sahara Housing Investment Corporation Limited. Two criminal complaints were also filed by SEBI against the companies and their directors/promoters. These companies were directed by SEBI to refund the money collected from subscribers of Optionally Fully Convertible Debentures with interest at 15% p.a. from the date of receipt of money till the date of repayment. Further, Mr. Subroto Roy Sahara was restrained from associating himself with any listed public company and any public company intending to raise money from the public till the time of such repayment. The Sahara Group was forbidden from alienating any property; and all its bank accounts, including those of its promoters/directors were frozen. In this case as well, the conduct attributed to Mr. Subroto Roy cannot be equated with that of the Appellants at any level, doing so would be a monumental folly. 37. Grishma Securities Pvt. Ltd. (Grishma) was a stockbroker regi....
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....ishment that can be imposed upon an intermediary. Therefore, this weapon in SEBI's arsenal must be wielded sparingly only in cases of repeated offences committed with impunity by intermediaries. 39. In such a situation we need to look at the true rationale behind the imposition of punishments on companies. In our considered opinion, SEBI's aim in imposing punishments upon companies should be to make companies law-compliant so as to ensure that the interests of the securities market are secured. SEBI should not view punishments from a perspective of thinning the herd, rather it should help in fostering a healthy environment where intermediaries act cautiously and responsibly under the overall supervision of the market regulator. The punishment should not only be reasonable but must fit the violation or breach of law for which the entity is sought to be penalized. It is true that neither can a straitjacket formula be prescribed nor can a general pattern of reasonableness be laid down to be invariably applied in all cases. A certain degree of subjectivity is involved in the process of imposition of punishments on different persons depending upon the facts and circumstances of....