SAT | The word ‘liquid instrument’ wide enough to include ICDs while ‘Corporate’ substantiates the Prospectus: States assumption ‘stretched a bit too far’

Securities Appellate Tribunal (SAT): The Coram of Tarun Agarwala, Presiding Officer and M.T. Joshi, J. Judicial Member while allowing all the appeals on a group of appeals against a common order passed by the Whole Time Member, quashed the impugned order in so far as it relates to the appellants.

In the present matter, an appeal was filed against an impugned order of SEBI, where the appellants were restrained from accessing the securities market directly or indirectly, in any manner and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner for a period of two years.

It was alleged that the Company made misstatement in the prospectus and that the IPO proceeds were diverted and misutlised by the Company and that some amount of the IPO proceeds were disbursed to certain entities under the pretext of advances towards work contracts for IPO objectives, but in fact, no substantial work contracts were executed.

It was alleged that the Company had no plan from the very inception to utilise the money as per the prospectus and that the Company had played a fraud upon the IPO subscribers who had trusted the management with their money to be utilized as per issue objectives.

It was contended that the Company and its Directors have deliberately made incorrect disclosures and such misstatement in the prospectus was deliberate and part of a larger design to come out with an IPO and divert the IPO proceeds to group companies through ICDs.

The Coram stated, “We are of the opinion that the finding given by the WTM that there is a misstatement in the prospectus which was done deliberately from the very inception in order to misuse the IPO proceeds and divert the IPO proceeds through ICDs to group companies is perverse and based on surmises and conjectures which a prudent person cannot arrive at”.

The Coram even exclaimed that the finding based on the facts were ‘strechted a bit too far’, and further stated,

“If the IPO proceeds were not utilized in the manner stated in the prospectus it does mean that the subsequent action taken by the Company indicates that there was a misstatement in the prospectus”.

The Coram opined,

“The word ‘including’ is a term of extension. It imports addition and is generally used to enlarge the meaning of the preceding words. Therefore, it could include any other debt instrument such as ICDs. “Liquid instrument” means an instrument which is easily tradable, ie, an instrument which is available at the drop of a hat. An instrument which can be securely, and quickly exchanged for legal tender or which can be converted to hard cash or which can be readily converted to cash. The mere fact that the word “ICDs” was not indicated specifically in the interim use of funds in the prospectus does not mean that the interim use of funds cannot be deployed in the ICDs and can only be deployed to such instruments which were indicated in the prospectus”.

[Mohandas Shenoy Adige v. Securities and Exchange Board of India, 2021 SCC OnLine SAT 263, decided on 26-8-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

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