TaxTMI 
TaxTMI 
2026 (7) TMI 1372
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....the Respondent : Mr. J.P. Sen, Senior Advocate with Ms. Khushbu Chhajed, Ms. Khushbu Trivedi and Mr. Pulkit Awasthi, Advocates ORDER Per: Justice P.S. Dinesh Kumar, Presiding Officer (Oral) This appeal is directed against order dated May 30, 2023 passed by the WTM (Whole Time Member), SEBI issuing various directions contained in paragraph No.7 of the impugned order. 2. We have heard Mr. Pradeep Sancheti, learned Senior Advocate for the appellants and Mr. J. P. Sen, learned Senior Advocate for the respondent-SEBI. 3. Brief facts of the case are, one Saurabh Luthra filed a complaint with SEBI stating inter alia that Educomp Solutions Limited ('Educomp' for short-Noticee No. 1), a listed Company had inflated its sales and revenu....
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....ted or continued during the moratorium period. 6. Appellants submitted a common reply mainly stating that: • The SCN was issued after expiry of 13 years after investigation. This inordinate delay had not been explained by SEBI and on that ground the present proceeding should be discontinued and the SCN be withdrawn; • The statutory definition of 'control' in Section 4(1)(a) of the Companies Act, 1956 and in Accounting Standards 18 and • 21 had been artificially enlarged. The ingredients to establish control as existing in Section 4(1)(a) of the Companies Act, 1956 Act were not satisfied. The relationship between Educomp and ESSPL also did not fall within the definition of control as defined in AS 21....
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....ng that ESSPL is Educomp's subsidiary is unsustainable in law as also the other finding that the transactions have taken place between related parties. 11. In reply, Mr. Sen, learned Senior Advocate for the SEBI submitted that there are several circumstances which show that Educomp could exercise control over the ESSPL such as the business that the Educomp had transferred to ESSPL and the corporate guarantee given by Educomp in favour of ESSPL to secure credit facilities. 12. In substance, Mr. Sen's argument is that the attending circumstances show that ESSPL was a subsidiary of Educomp. He vehemently urged that the attending circumstances also have to be considered to decide whether ESSPL was a subsidiary Company. 13. We have care....
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....f the present examination, upon a reading of Section 4 of the 1956 Act, as brought out above, it is gathered that for a relationship of holding company (Company A) and subsidiary company (Company B) to subsist between the said companies, any one of the following conditions should be satisfied: a. Company A holds more than half in nominal value of Company B's equity share capital; b. Company A has the power to exercise at its discretion, without the consent or concurrence of any other person, to appoint or remove all or a majority of the directors of Company B; or c. Company B is a subsidiary of Company C, and Company C is a subsidiary of Company A." 17. Condition (a) requires Company A to hold more than hal....
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.... of ESSPL by virtue of being the singular provider of capital, business and guarantees, and the promoters/shareholders of ESSPL being long standing employees of ESL. This ensured that ESL had the discretion to change the majority of directors of ESSPL without the consent or concurrence of any person. Accordingly, during the said financial years ESSPL was a subsidiary of ESL. It is clear without any doubt that this arrangement between ESL and ESSPL helped the former in recognising a major portion of its revenue upfront thereby misleading investors. 5.58. In view of the same, I find that ESL failed to disclose ESSL as its subsidiary for FYs 2009-10, 2010-11, 2011-12 and 2012-13." (Emphasis Supplied) 19. In para 5.57 above the W....