Securities and Exchange Board of India (SEBI): In the instant matter, an Adjudicating Officer appointed by SEBI under S. 151 of SEBI Act, 1992, was looking into the alleged non-disclosure of certain material information by Piramal Enterprises Ltd. (PEL) and non-compliance of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 (LODR Regulations). A notice was also sent to Piramal Pharma Ltd. seeking their reply on the alleged violations.
While deliberating over the matter, the Adjudicating Officer, Biju S., concluded that Piramal Pharma Ltd. cannot be held accountable for the alleged violations of PEL as it was not was not incorporated or listed at the time when the material events took place. Upon careful reading of provisions of LODR Regulations, the Adjudicating Officer noted that any compliance required to be made under LODR Regulations, has to be made by the “listed entity”. Since Piramal Pharma not a listed company at the time of the alleged violation, thus they could not have made the disclosures under LODR Regulations. Therefore, considering the fact that at the relevant time, the pharmaceutical business vested with PEL, the Adjudicating Officer was of the opinion that the responsibility to make disclosure with respect to the alleged violations falls with PEL.
Background and Allegations: Piramal Pharma Ltd. is material subsidiary of PEL and was incorporated on 04-03-2020. In November 2019, National Green Tribunal had imposed a penalty of Rs. 8.32 crores on PEL on account of environmental pollution. Furthermore, a unit in Digwal, Telangana faced closure directions by the TSPCB.
On 14-02-2023, it was informed that the Digwal Plant was transferred to the books of the Piramal Pharma Ltd., as part of the sale and transfer of the pharmaceutical business of PEL by way of restructuring of the pharmaceutical business in 2020.
The demerger process in 2022 did not bring any change in it and Digwal plant continues to be with Piramal Pharma Ltd. As per Clause 4 of Composite Scheme of Arrangement of 2022 with respect to the demerger available on NSE, it was stated that, “All the liabilities relating to the Demerged Undertaking [pharma business of PEL], as on the Appointed Date [01-04-2022] shall become the liabilities of the Resulting Company [PPL] by virtue of this Scheme”.
Thus, it was alleged that Piramal Pharma Ltd. did not disclose the material event of imposition of penalty of Rs. 8.32 Crores by the National Green Tribunal since “the incident was not a material event in terms of the Company’s Code for Fair Disclosure of Information and Determination of Materiality” (“Materiality Policy”). Therefore, it was alleged that by not disclosing the aforesaid material event, Piramal Pharma Ltd. violated the provisions of Regulation 4(1)(d), 30(3) and 30(4) read with Clause 8 of Para B of Part A of Schedule III of LODR Regulations.
It was further alleged that Piramal Pharma Ltd. did not disclose the material event of shutting down of Digwal Plant, Telngana in 2019 on account of environmental pollution vide an order of Telangana State Pollution Control Board in November 2018. Therefore, it was alleged that by not disclosing the aforesaid material event, Piramal Pharma Ltd. has violated the provisions of Regulation 4(1)(d), 30(3) and 30(4) read with Clauses 2 and 8 of Para B of Part A of Schedule III of LODR Regulations.
It was further alleged that Piramal Pharma Ltd. made a misrepresentation in Business Responsibility Reports (BRR) with respect to imposition of penalty and shutting down of plant and therefore, violated the provisions of Regulation 34(2)(f) read with Regulation 4(1)(c) of LODR Regulations and SEBI Circular CIR/CFD/CMD/10/2015 dated 04-11-2015.
Replies by Piramal Pharma Ltd: Replying to the show cause notice, Piramal Pharma submitted the following replies-
Piramal Pharma could not have made the disclosure in question as it did not exist at the relevant time. The TSPCB and NGT Orders (2018 and 2019 respectively) were issued prior to the Company’s incorporation and before it became a listed entity on 19-10-2022. Hence, the allegation of nondisclosure cannot be legally sustained and cannot be considered as misrepresentation. The TSPCB and NGT Orders were not issued against Piramal Pharma and did not affect it.
Regulation 4 of the LODR Regulations prescribes ‘Principles Governing Disclosures and Obligations’. A Company has a duty to disclose facts correctly and not suppress material facts. In this case, the Piramal Pharma did not issue disclosures in relation to the TSPCB and NGT Orders because it was not and could not have been a material fact for the Company. It cannot be expected from Piramal Pharma Ltd. to make disclosures of events, that transpired in 2019, in Business Responsibility Report of 2023. Therefore, Regulation 4 has not been violated and alleging in the broad brush its violation would be a perversity in the facts and in law.
Since Piramal Pharma Ltd. was incorporated in 2020 and listed in 2022 (in the Financial Year 2022-2023), it cannot be alleged that the Company failed to file the correct Annual Reports or a Business Responsibility Report. The requirement for a Business Responsibility Report for the Company will only arise for the first time in FY 2022-23 in accordance with Regulation 34 of the LODR Regulations.
Assessment by Adjudicating Officer: Perusing the allegations and the replies, the Adjudicating officer was of the opinion that Piramal Pharma is not accountable for the material non-disclosures and the responsibility lies with PEL.
Taking note of Clause 4 of Composite Scheme of Arrangement of 2022 with respect to the demerger of PEL, wherein it was stated that , “All the liabilities relating to the Demerged Undertaking [pharma business of PEL], as on the Appointed Date shall become the liabilities of the Resulting Company [PPL] by virtue of this Scheme; the Officer noted that the liability is passed on to the transferee company pursuant to the scheme of arrangement. However, as regards the liability for making the disclosure under the provision of the LODR in concerned, the Adjudicating Officer pertinently noted that Piramal Pharma Ltd. was not a listed company at the relevant time, therefore it cannot be held liable for the events which took place before its incorporation and listing.
The Adjudicating Officer was of the view that the instant case is not fit to impose any monetary penalty on Piramal Pharma Ltd.
[In respect of Piramal Pharma Ltd., 2023 SCC OnLine SEBI 224, decided on 31-08-2023]
Advocates who appeared in this case :
Advocate Sumit Agrawal (Partner), Advocate Pratham Darad (Principal Associate), and Advocate Krishi Jain (Associate) from Regstreet Law Advisors acted on behalf of Piramal Pharma Limited.
*Order by Biju S., Adjudicating Officer
