Securities Appellate Tribunal, Mumbai (SAT): While dealing with the appeal preferred by the appellants against the order dated 08-06-2021 of the Whole Time Member (‘WTM'), the Coram of Tarun Agarwala, J. (Presiding Officer), M.T. Joshi, J. (Judicial Member), Meera Swarup (Technical Member) held that the directions of debarment and the penalty given by the WTM were harsh and excessive. Therefore, the Court, while partly allowing the appeal, reduced the penalty.
An instant appeal had been filed challenging the order of WTM through which the appellants were restrained from accessing the securities market for a period of 1 year and a penalty was also imposed.
The appellant is a trading company dealing in investment in infrastructure development, investment in shares/ securities and also renders consultancy and advisory services on financial products.
On 09-06-2017, Ministry of Corporate Affairs issued a letter vide which 331 shell companies were listed against whom SEBI was directed to take appropriate action. On 07-08-2017, SEBI placed trading restrictions on the appellant company and its directors, which was challenged by the appellants through an appeal that was disposed of. On further investigation, an interim order was passed by SEBI on 09-11-2017 which included a direction to conduct a Forensic Audit.
Based on the Audit Report show cause notice was issued for violating provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, (‘LODR') 2015, non- furnishing of information to the forensic auditor, violation of other provisions of LODR Regulations and violation of Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market (‘PFUTP') Regulations,2003.
The WTM found that the appellant violated provisions of LODR Regulations and violated Section 11(2)(I) of the SEBI Act by not furnishing information to the Forensic Auditor. But WTM did not find any violation of SEBI PFUTP Regulations, 2003 as there was no misappropriation of the funds nor had the Company or its Directors caused a fraud upon the investors. No unfair advantage was taken nor was any loss incurred by the investors. The WTM accordingly debarred the appellants from accessing the securities market for a period of one year and imposed different amounts of penalties.
The counsel for the appellants accepted that the Company has made certain lapses and failed to comply with LODR Regulations, but the lapse was not intentional and happened on account of procedural and technical issues. He contended that the entire enquiry was initiated with regard to the allegations that the company was a shell company which was false. He also brought to the notice of the Court that the WTM gave a clear chit of non-violation of the PFUTP Regulations., 2003
The counsel for the respondent contended that the directions and penalties imposed by the WTM were just and proper.
Observation and Analysis:
The Court observed that there was no misappropriation of the funds, and no fraud was done by the company or directors to its investors.
Further, it was observed that the company or the directors gained anything by violating LODR Regulations, 2015.
According to the Court's opinion, the directions of debarment and the penalty given by the WTM were harsh and excessive. It was observed that the period of debarment has already been undergone by the appellants, hence no orders were passed in that regard.
Further, the Court said that the penalty should be reduced. Therefore, a penalty of 25% of the penalty imposed by the WTM would be just and proper.
[V.B. Industries Limited v. SEBI, Appeal No. 750 of 2021, decided on 29-07-2022]
Advocates who appeared in this case :
Mr. Vinay Chauhan, Advocate with Mr. K.C. Jacob, Mr. Harish Khedekar and Ms. Dhvani Asher, Advocates i/b Vis Legis Law Practice, Advocates, for the Appellants;
Mr. Gaurav Joshi, Senior Advocate with Mr. Chirag Shah and Ms. Daksha Kasekar, Advocates i/b Mansukhlal Hiralal & Co., Advocates, for the Respondent.