TaxTMI 
TaxTMI 
2023 (2) TMI 1430
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 12A of the SEBI Act, 1992 read with Regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short) and Section 21 of the Securities Contracts (Regulation) Act, 1956 ('SCRA' for short) read with Clause 36 of the Listing Agreement. 2. The facts leading to the filing of the present appeal is, that the matter is in respect of the issuance of GDRs by the Company whereby a fraudulent scheme was devised by the Company and its Directors. In this regard, the Board of Directors of the Company passed a resolution dated April 26, 2010 authorising European American Investment Bank AG (hereinafter referred to as 'EURAM Bank') located outside India to receive the subscription money in respect of the GDR issued by the Company. The resolution further resolved that Mr. Sandeep Jindal, Managing Director and Mr. Rajinder Jindal, Director were authorised to sign, execute any application, agreement, documents as required by the EURAM Bank for the aforesaid purpose. The Board of Directors also resolved that the Bank was further authorised to use the funds so deposited in the Bank account of the Com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....agreement by which the GDR proceeds were pledged for the loan taken by Vintage. It was also alleged that the Director had executed the pledge agreement and that the pledge agreement was also an integral part of the loan agreement. The show cause notice further alleged that the Company reported to the stock exchange that the Company had successfully closed its GDR issue of USD 38.75 million. Such information was misleading and distorted as it did not contain the fact that the entire GDR issue was subscribed by one entity through a loan taken by that entity on the basis of pledging the proceeds by the Company and, thus, misled the investors by indicating that the GDRs were successfully subscribed. It was also alleged that the Company furnished wrong information to SEBI by providing false list of GDR subscribers whereas only one entity had subscribed to the GDR issue. The show cause notice alleged that the announcement misled the Indian retail investors and induced investors to deal in the shares of the Company in the Indian capital market and, therefore, the scheme of issuance of GDR was fraudulent violating Section 12A(a), (b), (c) of the SEBI Act read with Regulations 3 and 4 of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oportionate and it should not lead to shocking results. That is the implication of the doctrine of proportionality which is based on equity and rationality. It is, in fact, a constitutionally protected right which can be traced to Article 14 as well as Article 21 of the Constitution. The doctrine of proportionality is aimed at bringing out "proportional result or proportionality stricto sensu". It is a result oriented test as it examines the result of the law in fact the proportionality achieves balancing between two competing interests: harm caused to the society by the infringer which gives justification for penalising the infringer on the one hand and the right of the infringer in not suffering the punishment which may be disproportionate to the seriousness of the Act." 13. Similar view was expressed by the Delhi High court in Rajkumar Dyeing and Printing Works Pvt. Ltd. In Rajendra Yadav, the Supreme Court held that the doctrine of equality applies to all those who are found guilty. The Supreme Court held: "9. The doctrine of equality applies to all who are equally placed; even among persons who are found guilty. The persons who have been found guilty can also claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....necessity to control possible abuse of discriminatory power by administrative authorities. In this regard, certain principles have been evolved by Courts, namely, that if an action is taken by an authority which is contrary to law or which is improper or where the action taken is unreasonable then the Court of law is duty bound to interfere with such action and one such mode of exercising power is to exercise the doctrine of proportionality. Where the punitive measure is harsh or disproportionate to the offence which shocks the conscience it is within the discretion of the Court to exercise the doctrine of proportionality and reduce the quantum of punishment to ensure that some rationality is brought to make unequals equal. 16. In this regard, the appellants have produced various orders passed by SEBI against various companies and its Directors wherein different penalties have been imposed for similar/identical offence. In the instant case, the AO has penalised the appellant Company of Rs. 10.30 crore and the Managing Director of Rs. 20 lakh and other directors of Rs. 10 lakh. In similar matters lesser penalty has been awarded. For facility, a comparative table is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y raised through GDRs has been received by the Company and has not been misappropriated. The same has been utilitised for the purpose for which the GDR was issued which fact has not been disputed. Thus, it is not a case of defalcation of the funds. 19. A penalty has also been imposed upon the Company for violation of Section 23E of the SCRA Act for non-disclosure under the Listing Agreement. The imposition of penalty under Section 23E is wholly erroneous in as much as Section 23E is not applicable. 20. In Suzlon Energy Ltd. v. SEBI, appeal no.201 of 2018 decided on 3rd May, 2021, this Tribunal held: "17. The AO held that since Clause 36 of the Listing Agreement was violated, in addition to the penalty imposed under Section 23A(a), the provisions of Section 23E of the SCRA is also invoked. In our view, the imposition of penalty under Section 23E is patently erroneous. The AO has committed a manifest error in invoking Section 23E of the SCRA. 18. Section 23E has nothing to do with the violation of the provisions of the Listing Agreement especially Clause 36. Section 23E provides that where a Company fails to comply with the listing conditions or delisting cond....