TaxTMI 
TaxTMI 
2019 (10) TMI 1050
X X X X Extracts X X X X
X X X X Extracts X X X X
.... scrips of the Company following the day of listing and consequently initiated an investigation into the said scrip. Based on the preliminary findings an ad-interim ex-parte order was passed on December 28, 2011 which was confirmed on October 31, 2012. Subsequently, a Show Cause Notice (SCN) was issued on January 16, 2013 alleging nondisclosure of certain information such as amount raised through Inter Corporate Deposits (ICDs), board resolution dated August 17, 2011, purchase orders for plant and machinery, names of certain suppliers etc. Diversion of IPO proceeds and diversion of funds through purchase orders was also alleged. The Whole Time Member ('WTM' for short) after giving an opportunity of hearing and after considering their replies passed an order dated March 11, 2014 prohibiting the appellants from raising any capital from the securities market and further restrained them from dealing in the securities market in any manner for a period of ten years. The appellants were also directed to recover all the monies which were not recovered by the appellants and submit a report to SEBI. The appellants were also directed that the monies so recovered should be deposited in the esc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecoverable owing to ICDs, cancelled contracts pertaining to land purchase, except an amount of Rs. 3.77 crore as explicated hereinabove with respect to which the Appellant has initiated the winding up of the company called Supreme. It shows the respect for and earnest desire of the Appellant to abide by SEBI's regulatory directions. Further, it remains undisputed that ICDs which were given out of the IPO Proceeds to the tune of Rs. 32 crore given as ICDs to Saptrishi, Raw Gold and Wattkins. Today, however, this amount of Rs. 32 crore has been received by the Appellant, albeit with certain amount of delay. It is also to be noted that minutes of the annual general meeting held on September 12, 2012, attached as Exhibit F2 of the Appeal clarify that unequivocal permission was granted to the Board of the Appellant, as per Section 61 of the Companies Act, 1956, to alter the utilization of the IPO Proceeds and to use the proceeds as the directors deemed fit. Therefore, looking into the totality of the facts and circumstances of the case in hand, the Respondent should not have imposed the punishments of debarment from the market for a long period of one decade. Given that, some of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 6. The AO considered the findings of the Tribunal and found the appellants guilty of the following:- (a) Non-disclosure of ICD agreements which were in the form of bridge loan in the prospectus. (b) Non-disclosure of its Board Resolution dated August 17, 2011 to invest the IPO proceeds in ICDs of other companies and (c) Disclosure of agreements for purchase of land executed with other entities. 7. The AO on the aforesaid basis passed the impugned order holding that the appellants had violated the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ('ICDR Regulations' for short) and Section 11C(2) and (3) the SEBI Act, 1992 and consequently imposed a penalty of Rupees One Crore each on the appellants under Section 15HB of the SEBI Act, 1992. The appellants being aggrieved by the said order has filed the present appeal. 8. We have heard Shri Shyam Mehta, the learned senior counsel alongwith Ms. Rishika Harish, the learned counsel for the appellants and Shri Mustafa Doctor, the learned senior counsel alongwith Shri Mihir Mody, the learned counsel for the respondent. 9. With regard to the findings arrived at by the AO we are of the opinion that the Tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d not have disclosed this information in the Draft RHP, which was filed on September 23, 2010 or even in the RHP which was filed, after incorporating SEBI's suggestions and on being approved by the Company's Board of Directors on August 17, 2011. This Board Resolution was communicated by the Appellant to its Merchant Banker on August 17, 2011 itself whose duty it was to incorporate this factum of bridge loan in the Prospectus. The Merchant Banker seems to have a great hurry to file the RHP on the same date due to which the bridge loan aspect did not find a mention either in the RHP or the Prospectus." 11. On the issue of non-disclosure of the Board's resolution dated August 17, 2011 to invest the IPO proceeds in ICDs of other companies, the Tribunal in its earlier order found that the appellant had disclosed in the prospectus that the Company intends to invest the IPO proceeds in interest bearing liquidity instruments, and thus the Tribunal held that the appellant satisfied the disclosure requirements as per the ICDR Regulations. The Tribunal was, however, of the view that the appellant should have disclosed in categorical terms that the IPO proceeds were to be invested in ICDs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mount of Rs. 80 crore between the date of filing of the RHP and the date of filing the Prospectus. Out of the Rs. 80 crore (approximate value), around Rs. 37 crore was paid in advance to the aforementioned entities in pursuance of the said land deals, however, the details regarding the same were not mentioned at the appropriate place in the Prospectus. The Appellant, however, stated that it had "not entered into any commitment for any strategic initiatives..." which as per the Respondent is a misstatement. The Appellant's defense that the aforesaid agreements did not need to be disclosed since they fell under the "General Corporate Purpose" head cannot be accepted because the money allocated towards general corporate purposes was only Rs. 21.4 crore as opposed to the Rs. 80 crore which was sought to be spent on the land purchase agreements. In this regard, therefore, the Impugned Order does not carry any legal infirmity." 13. After considering the aforesaid findings given by the Tribunal, the AO held that the allegations regarding nondisclosure of ICD agreements which were in the form of bridge loan, non-disclosure of its Board resolution dated August 17, 2011 to invest the IPO p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribunal reduced the debarment from ten years to seven years for the partial disclosure of information in the prospectus. In the ultimate analysis, the order of debarment was for violation of partial disclosure in the prospectus and not for violation of PFUTP Regulations. The AO while imposing the penalty has not factored this debarment while fixing the quantum of penalty. Further, in our opinion, the factors contemplated under Section 15J was also not considered by the AO in the right perspective. 17. Under Section 15HB a maximum penalty of Rs. 1 crore can be imposed. For facility, the said provision is extracted hereunder:- "15HB. Penalty for contravention where no separate penalty has been provided.- Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees." 18. Penalty can be imposed for failure to carry out a statutory obligation under the SEBI's Act. Factors contemplated under Section 15J are required to be taken into consideration before imposing a penalty. If it is found that a ....