AI Drafter 
TaxTMI 
TaxTMI 
2020 (1) TMI 366
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....ependent auditor/audit firm for conducting a detailed forensic audit of the books of accounts of appellant no. 1, namely, Tree House Education and Accessories Limited ('Tree House' for short) from the financial year 2011-12. 2. The relevant background of the matter is the following. Appellant No. 1, Tree House was incorporated on July 10, 2006. On August 26, 2011 Tree House was listed on BSE & NSE. Appellant nos. 2, 3 and 4 are promoters/Directors and appellant no. 5 is the Chief Project Director of Tree House. Mr. Rajesh Bhatia and Mrs. Geeta Bhatia (appellant nos. 2 and 3) together held about 35% paid up share capital of Tree House. Appellant no. 4 is the father-in-law of the appellant no. 2 and father of appellant no. 3 and held 0.11% of the share capital of Tree House. 3. In the third quarter of 2015-16 Tree House entered into discussion with promoter of Zee Group Companies for exploring possibility of merger between the two companies. On December 23, 2015 a Board resolution approving merger with the swap ratio of 5.3:1 was passed. On August 16, 2016, after certain developments, Zee Learn Ltd. intimated to the Stock Exchanges that the swap ratio of 5.3:1 earlier a....
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....SEBI Act/Rules/Regulations. 5. Elaborating the contention relating to the finding in the anticipatory bail order dated December 19, 2017 passed by the Bombay High Court in respect of appellant no. 2, Mr. Rajesh Bhatia, the learned senior counsel quoted following part of para 8 of the said order:- "there is no substance in the allegation of the informant that there was something amissed in the applicant's Company which forced him to file the present FIR. If there would have been some substance in the contention of the informant's allegations, he after the lodgment of the present crime on 31.1.2017 would not have been purchased the aforesaid shares from the market. Thus, prima facie it appears that the first informant lodged the first complaint on 23.11.2016 and the alleged subsequent complaint dated 12.12.2016 and the present crime on 31.1.2017 with malafide intention to bring down the price of shares of the applicant's company in the market. The motive/intention of the first informant behind filing the present crime can be safely discerned from the concluding paragraphs of his complaints written to the Joint Commissioner of Police on 23.11.2016 and 12.12.201....
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.... Section 2(76) of the Companies Act, 2013 provides a comprehensive list of related parties with reference to a Company and a trust is not covered under the said definition. Further, the trustees in a public charitable trust are custodians of public interest and have no personal/business interest nor any personal gain/interest. Therefore, transfer of funds by a Company (here, Tree House) to the educational trusts in which Mr. Giridharilal Bhatia was a Trustee was not a related party transaction and hence no disclosure was required under any applicable laws. Mr. Giridharilal Bhatia was not even a founder Trustee of these Trusts and he was included as a Trustee to safeguard the interests of Tree House which is lending large sums to those Trusts to run schools. 8. In short, the learned senior counsel for the appellants submits that the impugned order passed by SEBI is without any merit and defective since it does not consider the explanations given by the appellants regarding the context in which the business of the appellant Company Tree House was affected and that too despite such an explicit finding by the Bombay High Court in its anticipatory bail order (supra) and the explicit ....
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....curred irrespective of whether the schools get closed down because such closure happened in very short time during 2015-16 due to a host of factors relating to the Zee group accusations and complaints. 12. The learned senior counsel for the appellant, relying on the order of this Tribunal dated March 7, 2019 in the matter of North End Foods Marketing (P.) Ltd. v. SEBI [2019]105 taxmann.com 69/153 SCL 340 (SAT - Mum.), submitted that continuation of the restraint order is adversely affecting the appellant from pursuing its profession having substantial and serious consequences and that too without explicitly considering the detailed submissions made by the appellant before the WTM of SEBI. 13. We have also heard the learned senior counsel Shri Kevic Setalvad appearing on behalf of respondent SEBI who contended that the investigation relating to the books of accounts of Tree House is from the year 2012-13 onward, not only from the time of 2015-16 during which Tree House allegedly have certain problems with the Zee Group; SEBI is not concerned with those type of disputes between business entities; it is concerned with the general interest of the investors in listed companies as ....
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....es, more than two per cent of its paid-up share capital; (vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity; (viii) any body corporate which is- (A) a holding, subsidiary or an associate company of such company; (B) a subsidiary of a holding company to which it is also a subsidiary; or (C) an investing company or the venturer of the company. Explanation.-For the purpose of this clause, "the investing company or the venturer of a company" means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate]; (ix) such other person as may be prescribed;' LODR Regulations, 2015 'Definitions 2. (1) In these regulations, unles....
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....e reliable evidence in the form of orders of the High Court etc. available. 18. Similarly, we are unable to agree with the contentions of SEBI that a trustee of a public charitable trust is a related party going by the correct reading of the definition in the Companies Act as well as in the LODR Regulations, unless there is evidence to show that those Trusts have been set up or operating for the benefit of the appellant(s). Moreover, there is nothing on record to show that Mr. Giridharilal, the trustee has personally benefited in any manner not only by virtue of being a trustee or in general by any other means. Similarly, we are also unable to appreciate fully the allegations relating to the inflated expenditure on furniture and fixtures etc. particularly in the absence of any evidence on diversion of money/resources belonging to Tree House being shown. How far SEBI can reassess or reevaluate business decisions and audited figures given in financial reports of a company unless explicit proof/evidence relating to siphoning off or manipulation of accounts is available is also a question that needs to be answered by SEBI. In the absence of such information authorities are not in a ....
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.... to safeguard the interests of the investors and to maintain the integrity of the market. The purpose of passing an ex parte interim order is to prevent further mischief or where the act to be prevented is imminent or where action to be taken brooks no delay. 22. In Liberty Oil Mills v. Union of India AIR 1984 SC 1271 the Supreme Court held that the urgency must be infused by a host of circumstances, viz. large scale misuse and attempts to monopolise or corner the market. The Supreme Court further held that the regulatory agency must move quickly in order to curb further mischief and to take action immediately in order to instill and restore confidence in the capital market. 23. In view of the aforesaid, we find that in the instant case no case of urgency was made out in the first instance for grant of an ex parte interim order. There was no prima facie finding of manipulation of the books of account or misrepresentation of financials or diversion/siphoning off the funds of the Company. The inference drawn was purely based on presumption and not on the basis of any evidence. Till date no report has been submitted by the independent auditor/audit firm. Thus continuation of an ....