TaxTMI 
TaxTMI 
2023 (11) TMI 1457
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....s Regulations. A penalty of Rs. 4 crore has been imposed upon Deccan Chronicle Holdings Ltd. (hereinafter referred to as 'DCHL') noticee nos. 1 and noticee nos. 2, 3 and 4 have been imposed a penalty of Rs. 1.30 crore each. 2. The facts leading to the filing of the present appeals is, that noticee nos. 1 is a company in the business of printing and publishing newspapers, namely, Deccan Chronicle, Asian Edge, Financial Chronicle, and Andhra Bhoomi. Noticee Nos. 2, 3 and 4 are directors / promoters of the company. The respondent conducted investigation into the affairs of the company to ascertain whether the promoters of the company had made any fraudulent pledging of shares and made adequate disclosures in accordance with Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as 'SAST Regulations') during the period October 2011 to December 2012. An investigation was also carried out to ascertain as to whether there was any understatement of the liabilities by the company in the books of accounts for the financial year 2008-09 to 2011-12 in violation of the PFUTP Regulations. 3. The sh....
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....denied the alleged violations. The AO after considering the material evidence on record found that the charges levelled against the appellants stood proved. The AO found that the outstanding loans and interest in the annual reports for the financial years 2008-09 to 2011-12 was understated and that without having adequate free reserves, an announcement was made for buy back of its equity shares. The AO also found that the appellants misled the uninformed investors who might have been influenced or induced by the investment decisions taken by the appellants especially when the scrip price was declining since May 2010 and that the appellants failed to make disclosures with respect to encumbered shares with various lenders and also failed to make disclosures for invocation of the pledge of shares. The AO also found that the company failed to make necessary compliances of the listing agreement. Accordingly, penalties were imposed upon the appellants and other noticees. 6. We have heard Mr. Vikram Nankani, the learned senior counsel with Mr. KRCV Seshachalam, Mr. Kunal Katariya, Mr. Sahebrao Wamanrao Buktare, Ms. Ashmita Goradia, Ms. Sabeena Mahadik, Mr. Mehul Talera, Mr. Mangesh Avh....
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....epted by National Company Law Tribunal, Hyderabad (hereinafter referred to as 'NCLT') and Moratorium Order under Section 14 of the Insolvency and Bankruptcy Code (hereinafter referred to as 'IBC') came into existence / operation with effect from July 19, 2017. The show cause notice was issued subsequent to the Moratorium Order on August 3, 2017. Further, the resolution plan as applied by the company was approved by the NCLT by an order dated June 3, 2019. This order of approval was set aside by National Company Law Appellate Tribunal (hereinafter referred to as 'NCLAT') on January 21, 2022. Further, the Hon'ble Supreme Court set aside the order of the NCLAT dated January 21, 2022 and remitted the matter again to NCLAT for a fresh decision by an order dated May 10, 2022. NCLAT vide order dated September 2, 2022 approved the resolution plan. 12. The learned counsel for the company submitted that the show cause notice issued was wholly erroneous and without any authority of law especially when the Moratorium Order under Section 14 of the IBC had crept in. Further, once a resolution plan has been approved, it was not open to the AO to pass an order imposi....
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....ion applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove. For these reasons, NCLAT judgment must also be set aside on this count." 16. The aforesaid decision was considered by this Tribunal in Monnet Ispat and Energy Ltd. vs. SEBI Appeal No. 238 of 2020 decided on October 29, 2020. 17. This Tribunal considered the provisions of Section 31 of the IBC which reads as under :- "9. In this regard Section 31(1) of the IBC reads as follows :- "31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in subsection (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being ....
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....ate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not - (a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court: Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled: Provided further that every person who was a "designated partner" as defined in clause (j) of section 2 of the Limited Liability Partner....
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.... (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process." 22. A perusal of the aforesaid indicates that IBC expressly mandates that the liability of a corporate debtor for any offence committed prior to the commencement of the Corporate Insolvency Resolution Process (hereinafter referred to as 'CIRP') shall cease and cannot be prosecuted after the resolution plan is approved, if the plan results in the change in the management and control of the corporate debtor. In the instant case, we find that there has been a change in the management and control of the corporate debtor and, consequently, the penalty could not be imposed. 23. The contention of the respondent is that SEBI was entitled to issue a show cause notice and was entitled to crystalize the claim and file the same before the resolution professional or the Liquidator even after the ....
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....use notice was issued after 8 years on August 3, 2017. Further, a reply was filed on September 12, 2017. But no hearing took place till November 2020 nor any reason has been recorded as to why the matter could not proceed in these three years. It was, thus, urged that there was an inordinate delay in the issuance of the show cause notice as well as in the disposal of the proceedings and, therefore, on this short ground, the order should be set aside. It was also urged that the charge of fraud has been proved on the basis of preponderance of probability and adverse inferences without adducing any proof of material to establish the charge has been drawn. The respondent has not considered the principles as laid down by this Tribunal in Sterlite Industries Ltd. vs. SEBI [(2001) 34 SCL 485 (SAT)], Videocon International vs. SEBI [(2002) 4 CLJ 402 (SAT) and M/s. Vintel Securities Pvt. Ltd. vs. AO Appeal No. 219 of 2009. 28. 3. It was urged that the appellants cannot be held liable for the alleged violations committed by the company and that only 'officers in default' can be held liable and penalized. It was urged that the appellants cannot be termed as 'officer in default&....
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....ng the interest and financing charges to the profit and loss account, is in contravention of particular accounting standards. No such accounting standards have been shown to have been violated. 3. The allegation made by SEBI that DCHL has not disclosed certain loans and further allegation that these loans were netted off against certain receivables in the balance sheets is grossly incorrect and submitted that this allegation was made without actually understanding the accounting procedure and accounting entries made in the books of accounts of DCHL. The DCHL has never netted off or setoff any loans and receivables in the balance sheet. The company had certain advertisement receivables or debtors from DCM and all these receivables (debtors) were accounted to DCM account on the last date of the financial year. In other words, DCM account was debited with amounts receivable from DCM which were grouped under different accounts. The company had taken certain short term loans from banks and financial institutions in lieu of receivables from DCM. To differentiate, loans taken by the company for its purpose and loans taken in lieu of receivables from DCM, the DCHL had accounted al....
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....liability of repayment of the aforesaid lay with DCHL alone and no other party. iii. The Appellants have however presented a case / story based on some private arrangement between DCHL and DCM, pursuant to which it is claimed that in the DCM would take over the liability of loans taken by DCHL, in case of failure of payment obligations by DCM for sale of advertisement space. iv. This arrangement admittedly was never disclosed to the shareholders of DCHL. v. In any case, this arrangement, however, cannot, and did not, lead to discharge of DCHL's liability to Banks/Financial Institutions as regards loans taken by DCHL. This is admitted by the Appellant in as much as they admit that they reinstated such liability in the books of DCHL on April 1 i.e., in the beginning of the next FY. vi. There is no reflection of this liability in the books of DCM. vii. Admittedly, there is no NOC / approval from the banks to transfer the liability from DCHL to DCM. This position holds good even when a private agreement is in place. 32. We also find that the same set of persons / promoters were controlling DCM and DCHL. Further, these transactions and....
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....d up capital during the financial year 2011-12. We, therefore, hold that without having adequate free reserves, the company carried out buy back of its shares which misled the uninformed investors and shareholders about the perceived valuation and adequate free reserves of the company and which may have influenced the decision of the investors especially when the price of shares was declining since May 2010. We, therefore, find that the company had manipulated its financials and that the announcement over the buy- back of its securities was made in the absence of adequate reserves and that the company carried out the buy back of shares beyond the prescribed limit. 35. The contention of the appellants that SEBI had no jurisdiction to penalize the appellants under Section 77A of the Companies Act relating to buy back especially after repeal of the Companies Act and, consequently, no action can be taken under Section 465 of the Companies Act is wholly erroneous. The contention that since the Companies Act stood repealed only pending proceedings are saved and since the show cause notice was issued much after the repeal of the Companies Act, therefore, no penalty can be imposed for v....
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.... the publisher of the two newspapers 'Deccan Chronicle' and 'Andhra Bhoomi'. Use of words in that context like "Our brands" or "developing the 'Deccan Chronicle' brand" cannot by any stretch be construed to mean claim of ownership. 37. The contention of the appellants cannot be accepted. In this regard, we find that :- 1. DCM owed a sum of Rs. 4,084.81 crore to DCHL on account of non-payment of advertisement charges, interest and financial charges and above stated amount remained outstanding dues for years. No steps were taken by the company to recover the said amount; hence liability had been accruing in the books of DCHL with each passing day. 2. In order to settle the said dues, a settlement agreement was entered into between DCM and DCHL on September 28, 2012 wherein DCM agreed to transfer, assign, sell all its rights, title, interest, etc. in the brands "Deccan Chronicle" and "Andhra Boomi" to DCHL for a consideration of Rs. 2,905.32 crore and the said dues were settled in terms of the settlement agreement dated September 28, 2012 executed between DCM and DCHL. 3. However, it was observed from the disclosures / statements r....
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....y dealt with in para nos. 83 to 90 of the impugned order. In particular, we find that the execution / signing of NDU is not in dispute. The fact that some of the banks have invoked pledge and sold the shares is also a matter of record and moreover as per SEBI's Circular dated 23rd September, 2011, the listed companies were mandated that the promoters disclose encumbrance created on their shareholding. The prescribed format itself refers to definition of encumbrance under the SAST Regulations, 2011, which in turn defines the same under Regulation 28(3) to mean by way of pledge, lien, etc. and, therefore, there could be no doubt that NDU in fact created a lien on the shares, in as much as, the Owner is contractually bound not to deal with the shares. iii. Further, on a bare perusal of the said NDUs, it is clear that the essence and spirit of all these agreements have essentially been to create a pledge / encumbrance in favour the respective financial institutions. As regards, the contention of the appellants that NDU was required to be disclosed only pursuant to the SEBI circular dated August 05, 2015, we find that the Regulation 31(1) of the SEBI (SAST) Regulations, 201....
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....ative lien given in favour of another party, usually a lender. When a restriction is created on the rights of the holder of securities through an agreement and operates as an encumbrance on the securities, then the same is required to be disclosed to the stock exchange under the SAST Regulations. The AO from paragraph no. 83 to 90 of the impugned order has dealt in detail on the contents of the agreements and has come to conclusion that these agreements create an encumbrance on the rights of the holder of securities. The AO came to the conclusion that this encumbrance was not disclosed and failed to comply with the Regulations 31 of the SAST Regulations. We find that the aforesaid finding does not suffer from any error of law and we hold that noticee nos. 2, 3 and 4 have failed to make disclosure under Regulation 31 of the SAST Regulations. 41. Considering the aforesaid, the submission raised by the appellants noticee nos. 2, 3 and 4 on the aforesaid issues is bereft of any merit. The allegation that the charge of fraud has not been proved and is based on preponderance of probability is patently erroneous. The AO has considered the material and has rightly come to the conclusion....
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....ppeal No. 559 of 2020 decided on January 4, 2022. 45. It was urged that delay in initiating proceedings as well as adjudication has caused prejudice in as much as questions in relation to write off of loans, netting of liability, buy back limits, compliances with listing agreements, disclosures of NDUs are all matters handled by experts such as chartered accountants, auditors, merchant bankers, company secretaries and basis advise of such experts the company and its board of directors act. The benefit of these experts who contemporaneously handled matters and the record of the company including audit committee and management committee minutes are not available to the appellants. Besides, the appellants are no longer in the management upon commencement of CIRP on July 5, 2017, whereafter the show cause notice was issued on August 3, 2017. Hence, apart from the fact that delay per se is prejudicial, the appellants have suffered actual prejudice. 46. The AO held that there is no period of limitation prescribed under the SEBI Act or the Regulations for the issuance of the show cause notice or for completion of the adjudication proceedings and, consequently, came to the conclusion....