Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal, Mumbai (SAT): While lifting the restriction of buying or selling any securities, laid down by SEBI on employees of Infosys for allegedly violating the insider trading regulations, the Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) reiterated the settled law that burden of proof is always upon the prosecution, SEBI to prove that he had access to UPSI.

Instant appeal had been filed questioning the confirmatory order confirming the ex-parte ad-interim order whereby the appellant was restrained from buying or selling any securities, either directly or indirectly, till further orders.

Factual Background


SEBI had conducted an examination in respect of the trading activities of two partnership firm – M/s Capital One Partners and M/s Tesora Capital in the scrip of M/s Infosys Ltd.

Prima Facie it was observed that corporate announcement of audited financial results was made by Infosys on 15th July, 2020. The information relating to the financial results was an Unpublished Price Sensitive Information (UPSI) which came into existence on 29-6-2020 and came to an end on 15-7-2020 when the results were announced.

Further, it was found that the appellant was a Senior Corporate Counsel of Infosys and, being an officer/employee of Infosys, was reasonably expected to have access to the UPSI and, on a preponderance of probability basis, the appellant was in possession of UPSI and thus, was an insider under Regulation 2(1)(g) of the PIT Regulations.

On pre-liminary examination it was revealed that the appellant was in close connection with another employee Mr Venkata Subramaniam who was a Senior Principal and was designated person who was reasonably expected to and be in possession of UPSI and therefore, Mr Venkata was also an insider.

The appellant was closely connected to Mr Amit Bhutra, who was a partner in Capital One partner and Tesora Capital and passed on the UPSI to his cousin who in turn traded in the scrip of the Company prior to the announcement of the financial results. The examination further revealed that the two partnership firms through their trading had generated proceeds of Rs 279.51 lakhs in Capital Once Partners and Rs 26.82 lakhs in Tesora Capital.

Hence, an ex-parte ad-interim order was passed against the appellant.

Analysis and Decision


The WTM prima facie concluded that the appellant was an insider and since he was working as a Senior Corporate Counsel, he was expected to have access to UPSI or expected to be in possession of UPSI, being a connected person.

In Coram’s opinion, the impugned order confirming the ex-parte ad-interim order could not be sustained for the following reasons:

  • Under Regulation 3(5) of the PIT Regulations, 2015 all listed companies are mandated to maintain SD database containing details of all the persons with whom UPSI is exchanged alongwith the date and time stamping and verifiable audit trails. A specific finding has been given by the WTM that the SD data base which captures details of only those designated persons who had direct access to UPSI does not include the name of the appellant or of the designated person Mr. Venkata Subramaniam. Therefore, prima facie appellant 1 and other noticee Mr Venkata apparently did not have direct access to UPSI.
  • WTM further notes that there were 600 odd employees in Infosys who were classified as designated persons and further found that such classification as designated persons itself does not mean per se that such designated persons ipso facto were in possession of UPSI coupled with the fact that Mr. Venkata’s name was not found in the SD data base and, therefore, he had no direct access to UPSI.
  • Further, the telephonic conversation between the appellant and Mr. Venkata alognwith proof of certain emails exchanged between them indicates that the telephone calls were relating to some official matters regarding their respective domain of responsibilities in the Company. The telephone call discussions were relating to maternity benefits through Employees‟ State Insurance Corporation rather than through Infosys and, consequently, the initial burden upon the appellant stood discharged, namely, that he was not having any UPSI nor UPSI was passed on from Mr. Venkata to appellant in this telephonic conversation.
  • Burden of proof was wrongly placed upon the appellant that he did not pass on UPSI to Mr Amit Bhutra. It is settled law that the burden of proof is always upon the prosecution, namely, SEBI to prove that he had access to UPSI or that he was an insider.
  • In any case, the onus had been successfully discharged and continuation of the interim order on prima facie suspicion or preponderance of probability or reasonably expected to have access to UPSI appears to be farfetched only on the strength that the appellant was an employee in the Company and expected to have inside information.

Hence, in absence of evidence, the continuation of the interim order was unjustified especially when the appellant did not trade in the scrip and there was not any finding that he was a party to unlawful gain.

Therefore, debarring a person from accessing the securities market was not justified. The confirmatory order, as well as the interim order, cannot be sustained or quashed. [Pranshu Bhutra v. SEBI, Appeal No. 689 of 2021, decided on 25-4-2022]


Advocates before the Tribunal:

Mr. Mustafa Doctor, Senior Advocate with Mr. Anirudh Hariani, Mr. Anil Choudhary, Mr. Rahul Das and Ms. Sudarshana Basu, Advocates i/b. Finsec Law Advisors for the Appellant.

Mr. Shiraz Rustomjee, Senior Advocate with Ms. Nidhi Singh, Ms. Deepti Mohan, Ms. Binjal Samani, Ms. Aditi Palnitkar and Ms. Moksha Kothari, Advocates i/b. Vidhii Partners for the Respondent.

Appeal No. 689 of 2021:

Mr. Pramod Nair, Senior Advocate with Ms. Aakansha Luhach and Ms. Payal Saraogi, Advocates for the Appellant.

Mr. Shiraz Rustomjee, Senior Advocate with Ms. Nidhi Singh, Ms. Deepti Mohan, Ms. Binjal Samani, Ms. Aditi Palnitkar and Ms. Moksha Kothari, Advocates i/b. Vidhii Partners for the Respondent.

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Jammu and Kashmir and Ladakh High Court

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SEBI (Collective Investment Schemes) (Amendment) Regulations, 2022 

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Government revokes restrictions on banks as to payment of dividend in case of unamortised expenditure on account of enhancement in family pension 

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Government notifies sporting events of national importance 

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Case BriefsSupreme Court

Supreme Court: The bench of MR Shah and Sanjiv Khanna*, JJ has held that mere exercise of the right by the pawnee to record himself as the ‘beneficial owner’, which is a necessary precondition before the pawnee can exercise his right to sell, is not ‘actual sale’ and would not affect the rights of the pawnor of redemption under Section 177 of the Contract Act.

The Court observed,

“Every transfer or sale is not ‘actual sale’ for the purpose of Section 177 of the Contract Act. To equate ‘sale’ with ‘actual sale’ would negate the legislative intent.”

The Court was deciding the question as to whether the Depositories Act, 1996 read with the Regulation 58 of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 has the legal effect of overwriting the provisions relating to the contracts of pledge under the Contract Act, 1872 and the common law as applicable in India.

The Court, in a 86-pages-long verdict, explained that the Depositories Act distinguishes between the ‘registered owner’ and the ‘beneficial owner’, i.e., the de facto owner, but this does not in any manner contradict or lay down a rule which is contrary to the provisions of Sections 176 and 177 of the Contract Act. These sections, given the objective and purpose behind them, would still apply to any pledge deed and do not get diluted or overridden by the provisions or requirements of the Depositories Act. Section 10, a non obstante provision, which prevails over existing enactments by law, treats the ‘depository’ as the ‘registered owner’ and the shareholder/holder as a ‘beneficial owner’. It does not undermine or rewrite the provisions of the law of pledge and mutual obligations and rights of the pawnee and pawnor.

Further, the non-obstante part of sub-regulation (8) to Regulation 58 serves a limited objective and purpose: the pawnee must record itself as a ‘beneficial owner’ before he proceeds to sell the pledged securities. Without the pawnee being accorded the status of a ‘beneficial owner’, a pawnee cannot proceed to sell the pledged dematerialized securities. A contractual term cannot overwrite the requirement of Sections 7 and 10 of the Depositories Act, which is reflected in sub-regulation (8) to Regulation 58 as pe which the pawnee must be recorded as the ‘beneficial owner’ before the pledged dematerialized securities are sold.

“This requirement of sub-regulation (8) to Regulation 58 does not circumscribe or limit the contractual rights and obligations agreed upon between the parties on the agreed terms, including the pawnee’s right to sell the pawned goods. While the contractual terms are fundamental and determine the rights and obligations inter se the parties including when the pawnee would be entitled to get his name substituted as a ‘beneficial owner’ under the 1996 Regulations, however, the contractual terms are not permitted to override the Contract Act as explained above in so far as it regulates the rights and obligations of the pawnee and pawnor, and the requirement of compliance with Regulation 58(8).”

The Court noted that it is absolutely necessary that the pawnee must be accorded status of ‘beneficial owner’ to enable him to exercise his right to sell the pledged dematerialized securities. The object is to ensure compliance with the procedure prescribed for the sale of dematerialised securities and not to interfere with the freedom to contract as long as they comply with the Contract Act and other laws. Further, if the terms of the pledge document violate Regulation 58(8), the pledge is not rendered void or illegal, albeit enforcement of the pledge viz. the dematerialised securities will be rendered unattainable unless steps are taken to act in accordance with the procedure prescribed by the 1996 Regulations. The pawnee would be entitled to sue the pawnor for recovery of money, breach of contract and may even apply for injunction/restrain on sale of dematerialised securities. However, third-party rights on transfer of the dematerialized securities, unless injuncted by a prior court order, would not be affected as long as the transfers are in terms of the Depositories Act and the 1996 Regulations.

Stating that while interpretating the law relating to commercial matters and commerce the court must consider the real-world impact and consequences, the Court held that the expression ‘actual sale’ in Section 176 read in the context of the Depositories Act and the 1996 Regulations have to be given a meaning. The expression ‘actual sale’ used in Section 177 should be read as ‘the sale by the pawnee to a third person made in accordance with the Depositories Act and applicable by-laws and rules’. It also means and requires compliance with Section 176 of the Contract Act.

The reasoning that prior notice under Section 176 of the Contract Act would interfere with transparency and certainty in the securities market and render fatal blow to the Depositories Act and the 1996 Regulations is farfetched as it fails to notice that the right of the pawnee is to realise money on sale of the security. The objective of the pledge is not to purchase the security. Purchase by self is conversion and does not extinguish the pledge or right of the pawnor to redeem the pledge.

Hence, the Court did not find any derogation or conflict between Section 176 of the Contract Act and sub-regulations (8) and (9) of Regulation 58. Regulation 58(8) entitles the pawnee to record himself as a ‘beneficial owner’ in place of the pawnor. This does not result in an ‘actual sale’. The pawnee does not receive any money from such registration which he can adjust against the debt due. The pledge creates special rights including the right to sell the pawn to a third party and adjust the sale proceeds towards the debt in terms of Section 176 of the Contract Act.

[PTC INDIA FINANCIAL SERVICES LIMITED v. VENKATESWARLU KARI, 2022 SCC OnLine SC 608, decided on 12.05.2022]


*Judgment by: Justice Sanjiv Khanna

Legal RoundUpWeekly Rewind


TOP STORY OF THE WEEK


Anganwadi Workers/Helpers entitled to payment of gratuity; ‘Time to take serious note of their plight’ 

In a relief to the Anganwadi workers and helpers working tirelessly at the grassroot level, the Supreme Court has held that the Anganwadi Workers and Helpers are employed by the State Government for wages in the establishments to which the Gratuity Act applies, hence, they are entitled to payment of Gratuity.  

The Court also observed that the Anganwadi Workers/Helpers have been entrusted with the important tasks of providing food security to children in the age group of 6 months to 6 years, pregnant women as well as lactating mothers, apart from rendering pre-school education. And for all this, they are being paid very meagre remuneration and paltry benefits. 

Therefore, it is high time that the Central Government and State Governments take serious note of the plight of Anganwadi Workers/Helpers who are expected to render such important services to the society. 

Read more… 


SUPREME COURT


Producing false/fake certificate is a grave misconduct; Dismissal of service justified in such cases 

In a case where an employee had produced a fake certificate for seeking employment, the Supreme Court has held that producing the false/fake certificate is a grave misconduct and dismissal of service is a justified punishment in such cases. 

In the case at hand, while the disciplinary authority had imposed a punishment of dismissal from service on the delinquent, the Bombay High Court had directed reinstatement of the respondent without any back wages and other benefits.  

The Supreme Court, however, agreed with the disciplinary authority’s decision and observed:  

“The question is one of a TRUST. How can an employee who has produced a fake and forged marksheet/certificate, that too, at the initial stage of appointment be trusted by the employer? Whether such a certificate was material or not and/or had any bearing on the employment or not is immaterial. The question is not of having an intention or mens rea. The question is producing the fake/forged certificate.” 

Read more… 


‘Can’t allow mass absorption of over 11,000 workers based on a flawed Report’. SC forms new Committee to put an end to the long drawn LIC versus temporary employees’ battle  

In a long drawn battle between Life Insurance Corporation of India (LIC) and its temporary/badli/part-time employees over claim for absorption, a 3-judge bench of Supreme Court has appointed a two-member committee to carry out fresh verification of the claims of workers who were working between 20 May 1985 and 4 March 1991 and who claim to have been employed for at least 70 days in Class IV posts over a period of three years or 85 days in Class III posts over a period of two years shall be carried out. 

Finding the report of the previous committee faulty, the Supreme Court observed, 

“A public employer such as LIC cannot be directed to carry out a mass absorption of over 11,000 workers on such flawed premises without following a recruitment process which is consistent with the principles of equality of opportunity governed by Articles 14 and 16 of the Constitution. Such an absorption would provide the very back-door entry, which negates the principle of equal opportunity and fairness in public employment.” 

Read all about the newly formed committee and its tasks and timelines on the SCC Online Blog.  

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High Courts


Madras High Court| Ban the practice of two-finger test on victims of sexual offences by medical professionals

Stating that two-finger test cannot be permitted to be continued, the Division Bench of Madras High Court directed the State Government to ban the practice of two-finger test on victims of sexual offences by the medical professionals. 

Court observed that, 

“…it is necessary for us to put an end to the practice of the two-finger test. We find that the two-finger test is being used in cases involving sexual offences particularly, on minor victims.” 

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Bombay High Court| Advocate to maintain dignity & decorum of Court, no room for arrogance and no license to intimidate Court

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Bench also expressed that, “It has to be borne in mind that casting scurrilous aspersions not only has the inevitable effect of undermining the confidence of the public in the judiciary but also has the tendency to interfere with the administration of justice.” 

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Bombay High Court| Declaration of reciting religious verses at someone’s residence: Act of breaching personal liberty of another person?

Stating that, “Great power comes with greater responsibility”, the Division Bench of Bombay HC expressed that, the expectation of responsible behaviour or responsible conduct from those persons who are active in public life cannot be an extra expectation but would be a basic one. 

High Court stated that the declaration of the petitioners that they would recite religious verses either in the personal residence of another person or even at a public place is firstly,  encroachment upon another person’s personal liberty and secondly, if a declaration is made with particular religious verses would be recited on the public street, the State government is justified in carrying an apprehension that such act would result in disturbance of law and Order. 

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Delhi High Court| Whether absence of rule of law or utter disregard for the same propels a country towards inevitable ruin? 

Expressing that, attempts to circumvent or undermine judicial decisions need to be viewed seriously in order to ensure that the functioning of our country is unhindered, especially during turbulent times, Delhi High Court held that, 

“It is only the rule of law which not only cements the civilised functioning of a country, but also drives a country towards progress and development.” 

With regard to contempt, the Court observed that, 

“The underlying purpose of the law of contempt is meant to serve public interest and build confidence in the judicial process. This flows from how the functioning of a democratic society is sustained by the rule of law and wilful violation of the same would enable anarchy.” 

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Legislation Updates 


IFSCA issues framework for FinTech entity in IFSCs 

The International Financial Services Centres Authority (IFSCA) has issued a detailed “Framework for FinTech Entity in the IFSCs” in order to develop and regulate financial products, financial services and financial institutions in the International Financial Services Centres (IFSC) and to encourage promotion of financial technologies (‘FinTech’) across the spectrum of banking, insurance, securities, and fund management in IFS. 

Read more… 


SEBI (Custodian) (Amendment) Regulations, 2022 

The Securities and Exchange Board of India has issued the Securities and Exchange Board of India (Custodian) (Amendment) Regulations, 2022 to amend Securities and Exchange Board of India (Custodian) Regulations, 1996. 

The amendment modifies Regulation 8 dealing with Procedure and grant of certificate and inserts clause (7) to provide that a custodian holding a certificate of registration as on the date of commencement of the Securities and Exchange Board of India (Custodian) (Amendment) Regulations, 2022, may provide custodial services in respect of silver or silver related instruments held by a mutual fund only after taking prior approval of the Board. 

Read more…  


Income-tax (Ninth Amendment) Rules, 2022 

On April 21, 2022, the Central Board of Direct Taxes (CBDT) has issued the Income-tax (Ninth Amendment) Rules, 2022 to amend Income-tax Rules, 1962 and introduces Conditions for furnishing return of income by persons referred in section 139 (1) of the Act.  

Read more … 


 

 

Business NewsNews

Mr Anand Subramanian had been asked to pay a sum of Rs 2,04,87,575 (Rupees Two Crore Four Lakh Eighty-Seven Thousand Five Hundred and Seventy-Five Only) to the Securities Exchange Board of India (SEBI).

In the event of non-payment of the dues, SEBI shall recover the money by one or more of the following modes:

  • Attachment and sale of your movable property
  • Attachment of your bank accounts
  • Attachment and sale of your immovable property
  • Arrest and detention in prison
  • Appointing a receiver for the management of your movable and immovable properties

The above-said demand notice was issued in the matter of Governance Issues of the National Stock Exchange and the amount has to be paid in 15 days.


Securities Exchange Board of India

Certificate No. 4699 of 2022

[Dt. 26-4-2022]

Legislation UpdatesRules & Regulations

On 11th April, 2022, Securities and Exchange Board of India issues Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (3rd Amendment) Regulations, 2022. This regulation comes into effect with immediate effect and aims to replace “asset cover” with “security cover” for the listed debt with Securities and Exchange Board of India (SEBI). Asset cover certificate is used to monitor the adequacy of assets charged against the debt obligations of the person issuing it. It is submitted to the Debenture Trustee.

Key amendments:

  • According to regulation 54, “Asset cover” is the ability of any entity in which it is able to repay debt obligations. It is the extent to which the company’s assets regulate risk management.
  • By regulation 3, “Asset cover” is replaced by “security cover” in regulation 54.
  • Listed entities are under the obligation to provide documents and certificates. The debt securities are non-convertible and the “asset cover” has to be maintained at cent percent or at a higher rate.
  • As per the provisions of regulation 54(2) asset cover certificate and statement of value of pledged securities need to be submitted in quarterly, half-yearly, year-to-date.
  • Following are the amendments that are to be incorporated in regulation 54
    1. in sub-regulation (1),
    2. before the words and symbols “listed non-convertible debt securities”, the word “secured” shall be inserted;
    3. the words “asset cover or higher asset cover” shall be replaced with the word “security cover or higher security cover”;
    4. after the words “principal amount”, the words “and the interest thereon” shall be inserted;
    5. in sub-regulation (3), the words “asset cover” shall be replaced with the words “security cover”.
  • The listed entities have to forward the documents and intimations to the debenture trustees under regulation 56 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
  • Asset cover” is maintained at hundred percent or higher capacity offer document/ Information Memorandum and/or Debenture Trust Deed.
  • In regulation 56(1)(d), the words “asset cover or higher asset cover” is replaced with the words “security cover or higher security cover”.

Shubhi Srivastava, Editorial Assistant has reported this brief

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

18 Reports to Read


Competition Commission of India (CCI)


Star India providing bouquet of channels at lesser prices resulting significant loss in consumer base of Asianet Digital Network: Star India abusing dominance of its position? 

The Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) noted allegations against Star India for providing a bouquet of channels at lesser prices resulting in denying of market access and also amounting to unfair pricing.

Read full report here…

7 entities indulged in anti-competitive agreement for supply of signages for branches/offices/ATMs of SBI: E-mails exchanged between parties formed basis for manipulation of bidding process

Noting that in respect of cases concerning cartels that are hidden or secret, there is little or no documentary evidence and may be quite fragmentary, Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members)  imposed penalties on 7 entities and signages for bid-rigging activities and cartelization with respect to the supply of signage for branches, offices and ATMs of State Bank of India.

Read full report here…

Forcing buyers to purchase insurance policies?  Even if dealers offer to sell insurance policies to customers, customers may yet have option to buy such policies from alternative channels

The Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) addressed a matter wherein it was alleged that certain Car Companies were abusing their dominant position and denying the cashless claim to consumers if the insurance policy had not been obtained through them, their dealers or their insurance broking companies.

Read full report here…


Customs, Excise and Service Tax Appellate Tribunal (CESTAT)


Amount deposited during the investigation, ipso facto, becomes pre-deposit when the assessee carries the dispute before the Appellate Forum

Anil Choudhary (Judicial Member) dismissed applications filed by the Revenue pertaining to rectification of mistakes.

Read full report here…


Income Tax Appellate Tribunal (ITAT)


Notice issued against a dead person is null and void and all consequent proceedings/orders being equally tainted are liable to be set aside

The Coram of Amit Shukla (Judicial Member) and Pradip Kumar Kedia (Accountant Member) allowed an appeal against a revisional order passed under Section 263 of the Income Tax Act, 1961.

Read full report here…

Does Income Tax Act prohibit HRA Exemption On Rent Paid To Wife?

An appeal was filed by the assessee against the order of CIT(A)-21, New Delhi dated 21-01-2019 before the bench comprising of Sh. A. D. Jain (Vice-President) and Dr. B. R. R. Kumar (Accountant Member).

Read full report here…


National Consumer Disputes Redressal Commission (NCDRC)


When a Statute provides for a particular period of limitation, it has to be scrupulously applied, as an unlimited limitation leads to a sense of uncertainty

The Coram of Justice R.K. Agrawal (President) and Dr S.M. Kantikar (Member) expressed that, when a Statute provides for a particular period of limitation, it has to be scrupulously applied, as an unlimited limitation leads to a sense of uncertainty.

Read full report here…

Will Tax deducted at source be attracted on compensation awarded under Consumer Protection Act “in the form of simple interest”?

The Coram of Dinesh Singh (Presiding Member) and Justice Karuna Nand Bajpayee (Member) expressed that in the ‘service’ of ‘housing construction’, if, in a particular case, “compensation” is computed “by way of interest” on the deposited amount it shall not be differently treated than the other cases in which the term “interest” may not at all be used in computing the compensation.

Read full report here…

If a person conceals facts about pre-existing fatal disease at the time of taking insurance, would it be a breach of insurance contract?

The Coram of Dinesh Singh (Presiding Member) and Karuna Nand Bajpayee (Member) upheld the decision of the District Commission with respect to concealment of pre-existing fatal diseases at the time of taking insurance.

Read full report here…

Consensus between dentists and patients essential to standardize treatment plans and methods: No X-ray conducted prior to performing root canal treatment: Read how NCDRC found dentist negligent

Expressing that, the consensus between the dentists and patients is essential to standardize treatment plans and methods, Coram of Justice R.K. Agrawal (President) and Dr S.M. Kantikar (Member) addressed a case of dental negligence and remarked that,

“The teeth are only part of the face and it cannot be simply concluded that the whole face will become more beautiful once the teeth become neat.”

Read full report here…


National Company Law Tribunal (NCLT)


Whether Shareholders have the right to remove Directors of a company? NCLT explains in light of Companies Act, 2013

Expressing that the management of business affairs in a company is not a sole duty of a Director, the results of a company’s performance is a team of work of Board of Directors, the Coram of Ashok Kumar Borah, Judicial Member and Shyam Babu Gautam, Technical Member, held that, Companies Act gives shareholders the right to remove the Directors of the company.

Read full report here…

National Company Law Tribunal orders insolvency proceedings against Supertech: Indebted and defaulted repayment of loan

The Coram of P.N. Prasad, Judicial Member and Rahul Bhatnagar, Technical Member, declared insolvency proceedings against the builder Supertech Limited.

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Logix Insolvent? NCLT initiates insolvency proceedings against Logix City Developers

The Coram of Bachu Venkat Balaram Das (Judicial Member) and Narender Kumar Bhola (Technical Member) initiates insolvency proceedings against Logix City Developers due to default in payment.

Read full report here…


National Company Law Appellate Tribunal (NCLAT)


Reduction of Capital’ is a ‘Domestic Affair’ of a particular company in which, ordinary, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails

“A ‘special resolution’ is required to determine those matters for which the Act requires a ‘special resolution’ and except these matters in all other situations an ‘Ordinary Resolution’ is to be passed.”

Read full report here…


National Green Tribunal (NGT)


Unregulated tourism activities resulting in damage to environment in eco-sensitive Himalayan States of India: NGT takes suo motu cognizance

The Coram of Justice Adarsh Kumar Goel (Chairperson) and Justice Sudhir Agarwal (Judicial Member), Prof. A. Senthil Vel (Expert Member) and Dr Vijay Kulkarni (Expert Member) took suo moto cognizance based on media report highlighting the damage to the environment in eco-sensitive Himalayan States of India due to unregulated tourism.

Read full report here…


Securities Exchange Board of India (SEBI)


Can SEBI proceed against a Chartered Accountant for lack of due diligence? SAT analyses

The Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) while addressing a matter whether a Chartered Accountant could be held guilty by SEBI for lack of due diligence, held that,

Lack of due diligence can only lead to professional negligence which would amount to a misconduct which could be taken up only by ICAI.


Uttar Pradesh Real Estate Appellate Tribunal


Developer issued two allotment letters, increasing cost of a unit in second by correcting taxes, lease rent and advance maintenance charges: Read whether UPRERA finds it to be illegal

The Division Bench of Justice Dr D.K. Arora (Chairman) and Rajiv Misra (Administrative Member) set aside the decision of the Regulatory Authority and held that the developer did not conceal the details of the project including the status of the same.

Read full report here…


West Bengal Taxation Tribunal


Can States levy ‘Entry Tax’?

The Coram of Justice Malay Marut Banerjee (Chairman) and Suranjan Kundu (Judicial Member) and Chanchalmal Bachhawat (Technical Member), expressed that, Article 304(a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation.

Read full report here…

Case BriefsDistrict Court

Rouse Avenue, District Court, New Delhi: Sanjeev Aggarwal, Special Judge (PC Act) (CBI)-02, dismissed a bail application Anand Subramanian while observing that,

“…investigations are going on and the investigating agency is in the process of removing the secret veil to show to the Court the true face of this Himalyan Yogi, who is as elusive as anecdotal Himalyan Yeti.”

During 2010 to 2014, Sanjay Gupta owner and promoter of OPG Securities Private Limited abused the server architecture of the National Stock Exchange (NSE) in criminal conspiracy with unknown officials of NSE.

Sanjay Gupta along with the help of his brother-in-law and other unknown persons, managed the data centre staff of NSE who passed the information regarding switching on time of NSE exchange servers.

OPG Securities was also given access to servers that were technologically latest and least crowded at that particular period, which resulted in OPG being the first one to log in on the Exchange Server of NSE.

Unfair access to co-location facility was also obtained by Sanjay Gupta which helped his company to get geta before everyone else which allowed a split-second faster access to the data feed of NSE.

Further, source information revealed that on receiving the complaints of exploitation of TBT architecture by OPG Securities Pvt. Ltd., SEBI conducted enquiry and according to its Technical Advisory Committee (TAC) report, OPG Securities gained materially by exploiting the TBT architecture of NSE.

In order to ensure the favorable report from SEBI in the on-going enquiry being carried out against the role of OPG Securities Pvt. Ltd in the misuse of TBT architecture of NSE, Sanjay Gupta dishonestly and fraudulently influenced the official of SEBI for which bribe money was exchanged between Sanjay Gupta and some unknown officials of SEBI.

One Ajay Narottam Shah had been instrumental in exploitation of NSE TBT architecture. Source revealed that he had collected NSE trade data in the name of carrying out research and subsequently, passed it to private persons who in turn developed an algo software named ‘Chanakya’ which was later sold to selected brokers.

OPG securities had been illegally trading in certain countries and also raised funds from abroad.

Hence, the above stated information revealed offences punishable under Sections 120 B and 204 of Penal Code, 1860 and Section 66 of the IT Act 2000 alongwith Sections 7,12 and 13(2) read with 13(1)(d) of PC Act 1988 against Sanjay Gupta, Aman Kokrady, Ajay Narottam Shah, M/s OPG Securities Pvt. Ltd., unknown officials of SEBI & NSE and other unknown persons for entering into criminal conspiracy for attempt to give and receive bribe, abuse of official position, unfair access of TBT servers of NSE for wrongful gain, for manipulating the server of NSE and for destroying the electronic evidences.

Analysis and Decision


Court expressed that the main duty of the SEBI is to regulate the Indian Capital Markets, it monitors and regulates the stock markets and protects the interests of the investors by enforcing rules and regulations.

SEBI has no powers to determine the criminality of the accused in offences other than with which the SEBI Act deals, though some times, there may be some overlapping, as observed earlier while deciding the anticipatory bail application of co-accused Chitra Ramkrishna, although it is a completely different matter that all this while the SEBI has looked other way with regard to launching criminal proceedings against the present accused as well as other accused persons involved in the co-location scam, despite being the market watch dog.

It was alleged that the co-accused Chitra Ramkrishna by misusing her official position had appointed the accused in NSE and re-designated the pose of accused as Group Operating Officer and advisor to MS without bringing the same to the notice of NRC and the Board and substantial powers alike to that of MS were delegated to the present accused and he was in knowledge of important and confidential information regarding the working of NSE.

Being posted at NSE, it was the public duty of the accused to protect the interest of common investors, rather he indulged in criminal conspiracy and caused huge advantage to various trading members/brokers, thus he had committed grave economic offence.

There were no allegations that the accused tried to abscond at any point of time. However, with regard to tampering and influencing the witnesses, considering that the accused was holding a pole position in NSE, there were strong chances that he may influence the relevant witnesses or tamper with evidence.

The Bench expressed that, the investigations are going on and the investigating agency is in the process of removing the secret veil to show to the Court the true face of this Himalyan Yogi, who is as elusive as anecdotal Himalyan Yeti.

Considering the grave and serious allegations against the present accused, no bail was granted. [Anand Subramanian v. CBI, 2022 SCC OnLine Dis Crt (Del) 11, decided on 24-3-2022]

High Court Round UpHigh CourtsLegal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

Here are our interesting picks from the stories reported this week:


To operate in State of Maharashtra, Uber and other unlicensed aggregators to apply for license before 16th March 2022: Bom HC


The Division Bench of Dipankar Datta, CJ and Vinay Joshi, J., directed UBER and other transport aggregators who have not obtained a license as per Section 93(1) of the Motor Vehicles Act to apply for the license before 16th March 2022 otherwise they shall not be able to operate in the State of Maharashtra.

Read full report, here…


Wife leaves matrimonial home and never returns after several requests and legal notice under S. 9 of HMA, alleges husband of several cruelties without any evidence: Would it amount to desertion and cruelty by wife? Del HC answers


Noting the separation of 12 years between the husband and wife, the Division Bench of Vipin Sanghi and Jasmeet Singh, JJ., found that the wife had subjected the husband to desertion and cruelty, hence decree of divorce be granted.

Read full report, here…


Right of residence under DV Act is exclusive to and isolated from any right that may arise under S. 9 of Hindu Marriage Act, 1955: Del HC


“The existence of the strained relationship between the Petitioner and the Respondent has been well established by the fact that there are more than about 60 criminal and civil cases pending between the parties.”

Read full report, here…


Law on Theft | Daughter-in-law thrown out of matrimonial home and accused of removal of letters from possession of matrimonial home: Whether Del HC will find her guilty under S. 380 IPC or not?


Chandra Dhari Singh, J., noted that instant dispute has arisen out of matrimonial discord between two people which had also, led to the filing of more than 50 criminal and civil cases between not only the husband and the wife but also their family members. It was found that for the sole purpose of harassing the other party such cases were filed by persons with no just cause or reason and substantial ground for allegations.

Read full report, here…


SC-ST Act is prospective or retrospective? Kar HC quashes criminal proceedings for offences committed in the year 1975


“…it has been a settled principle of criminal jurisprudence that when the act complained of is not an offence when committed; a free citizen cannot be brought to book merely because such act is criminalized in a subsequent legislation.”

Read full report, here…


Wife, a banker, misusing her position to get details of in-laws’ bank accounts to show husband evading payment of maintenance: Is wife guilty of criminal breach of trust? Court analyses


Manner of bringing the information before Court of law may not be morally right but it cannot be said by this act of petitioner that, petitioner caused or intended to cause any wrongful loss to petitioners or to cause wrongful gain to herself as merely by disclosing this information, no pecuniary benefit is stated to have been received by petitioner and if any maintenance or any other amount is granted by Court of law, that cannot be termed to be wrongful gain to petitioner.

Read full report, here…


Spanking on back of a woman without her consent, by a man would constitute an offence under Stalking as defined under S. 354D (1)(i) IPC? Court explains


Mere presence is not ground for common intention for proving the prior meeting of minds.

Read full report, here…


7 entities indulged in anti-competitive agreement for supply of signages for branches/offices/ATMs of SBI: E-mails exchanged between parties formed basis for manipulation of bidding process

Noting that in respect of cases concerning cartels that are hidden or secret, there is little or no documentary evidence and may be quite fragmentary, Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members)  imposed penalties on 7 entities and signages for bid-rigging activities and cartelization with respect to the supply of signage for branches, offices and ATMs of State Bank of India.

Read full report, here…


Can SEBI proceed against a Chartered Accountant for lack of his due diligence? SAT analyses

“Lack of due diligence can only lead to professional negligence which would amount to a misconduct which could be taken up only by ICAI.”

Read full report, here…

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal, Mumbai: The Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) while addressing a matter whether a Chartered Accountant could be held guilty by SEBI for lack of due diligence, held that,

Lack of due diligence can only lead to professional negligence which would amount to a misconduct which could be taken up only by ICAI.

Background

An appeal was filed against the order passed by the Whole Time Member of Securities and Exchange Board of India whereby the appellant who was a statutory auditor/chartered accountant had been prohibited from issuing any certificate of audit and had been restrained from rendering any other auditing services to any listed companies and intermediaries for a period of one year.

Factual Matrix

Deccan Chronicle Holdings Limited, its promoters, directors, and Chartered Accountant (appellant) were issued show cause notice after investigation, wherein it was alleged that the company had understated its outstanding loans to the tune of Rs 1339.17 crores in the year 2008-9 and had also wrongly disclosed the difference between the actual and reported outstanding loans for the FYs 2009-10 and 2010-11.

Misleading Financial Information

Further, it was alleged that the company had manipulated its financials and failed to make necessary disclosure and that the promoters of the company wrongly transferred loans on the last day of the FY and reverted it on the first day of the financial year, thus misleading financial information.

In view of the above, show cause notice alleged that the appellant had violated Section 12A(a), (b) and (c) of the Securities and Exchange Board of India Act, 1992 read with Regulation 3(a), (b), (c) and (d) and Regulation 4(1), 4(2)(f), (k) and (r) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

WTM’s Conclusion

WTM concluded stating that the company had made wrong misleading or inadequate disclosures to the stock exchange and had understated the outstanding loans and interest and financial changes in the annual returns.

Further, it held that the appellant under Sections 224 and 227 of the Companies Act, 1956 owes an obligation towards the shareholders to report true and correct facts about the financials of the company and audit is caused to report correctly and faithfully under Section 227 of the Companies Act.

Additionally, the WTM held that the appellant overlooked the reporting of the outstanding loans and that he was not diligent and cautious and that it was his obligation to check the details of the outstanding loan from the bank and through other independent sources which he failed to do so and thereby did not adhere to the Auditing Assurance Standard (AAS)  and consequently allowed the fudging of the books of accounts by the company which suggested that the appellant colluded with the other notices.

Analysis, Law and Decision

Tribunal held that the impugned order could not be sustained for the following reasons:

In the Bombay High Court decision of Price Waterhouse Co. v. SEBI, WP No. 5249 of 2010, it was held that while exercising the powers under the SEBI Act, it is not open to SEBI to encroach upon the powers vested with the Institute under Chartered Accountant Act, 1949.

However, in a given case, if there is material against the C.A. to the effect that he was instrumental in preparing false and fabricated accounts in connivance, then SEBI is entitled to pass appropriate orders under Section 11(4) of the SEBI Act in the interest of the investors or securities market and is entitled to take measures as prescribed in the said section.

Further, SAT in its decision of Price Waterhouse Co. v. SEBI, Appeal No. 6 of 2018, found that the scope of the enquiry was only restricted to the charge of professional negligence since the C.A/C.A Firm were not dealing directly in the securities. This Tribunal held that in absence of inducement, fraud was not proved nor there was connivance or collusion by the C.A.s and therefore, the provision of section 12 (A) of SEBI Act and Regulation 3 & 4 of PFUTP Regulations are not applicable.

In the present matter, A.O. found that due diligence was not carried out by the appellant and there was no finding that the appellants were instrumental in preparing false and fabricated accounts or have connived in preparation or falsification of the books of account. Additionally, the Coram found that the appellants had manipulated the books of accounts with knowledge and intention, in the absence of which, there was no deceit or inducement by the appellants.

In the absence of any inducement, the question of fraud committed by the appellants does not arise.

Tribunal found that the appellant as a statutory auditor was not responsible for the preparation and falsification of the books of accounts, the financials of the company and the balance sheet of the company.

Concluding the matter, Coram held that once CA was not found responsible for the preparation of financials of company, merely because he was not cautious will not suggest that he colluded with the promoters and directors of the company.

In view of the above discussion, Tribunal allowed the appeal, and the impugned order did not sustain so far as it concerned the appellant (CA). [Mani Oommen v. SEBI, 2022 SCC OnLine SAT 60, decided on 18-2-2022]


Advocates before the Tribunal:

Mr. Chetan Kapadia, Advocate with Mr. Rahul Sarda, Mr. KRCV Seshachalam, Ms. Sabeena Mahadik, Mr. Aayush Kothari, Mr. Sagar Hate, Advocates i/b. Visesha Law Services for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr. Karthik Narayan, Mr. Harshvardhan Nankani, Mr. Shourya Tanay, Advocates i/b. ELP for the Respondent.

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

Appellate Tribunal for Electricity (APTEL)


State commission disallows benefit of increase in the tariff based on the change in law provision; Tribunal directs reconsideration

A Coram of R.K. Gauba (Officiating Chairperson) and Sandesh Kumar Sharma (Technical Member) decided on an appeal which was filed by Solar Power Project Developer (“SPD”) assailing order passed by respondent Bihar Electricity Regulatory Commission (“the State Commission”) disallowing the benefit of increase in the tariff based on the change in law provision with respect to increased Operation and Maintenance (O&M) costs of its 10MW solar power generating system.

Read full report, here…


 Customs, Excise and Service Tax Appellate Tribunal (CESTAT)


Whether Membership Subscription Charges, which is an essential service for business promotion, will be eligible for CENVAT Credit? CESTAT explains

While taking into consideration various of kinds of charges and whether they would qualify to be eligible for CENVAT Credit, P. Dinesha (Judicial Member) held that Membership Subscription charges are essential for business promotion and hence eligible for refund claim.

Read full report, here…

Unless 7.5% of the penalty is deposited when the penalty is in dispute, the appeal cannot be entertained by the Tribunal

The Coram of Sulekha Beevi, C.S. (Judicial Member) and P. Anjani Kumar (Technical Member) decided on an appeal which was filed in the matter of non-compliance with the pre-deposit.

Read full report, here…

Whether the services provided by CRS companies to the appellant can be subjected to levy of service tax under the OIDAR services? CESTAT addresses

The Coram of Dilip Gupta (President) and P.V. Subba Rao (Technical Member) took up an appeal which was filed by Air India to assail that part of the order by which the demand of service tax of Rs. 37,58,23,581/- has been confirmed against the total amount of service tax that was proposed in the show cause notice. It was for the reason that there was no liability pay service tax prior to 18-04-2006. The Commissioner had also ordered for recovery of interest under section 75 of the Finance Act, 1994 and penalty under Sections 76, 77 and 78 of the Finance Act.

Read full report, here…


National Consumer Disputes Redressal Commission (NCDRC)


 Can flat owners be prevented from use of certain open spaces and facilities by builders? NCDRC answers

While noting whether the flat owners can be prevented from the use of certain common spaces, the Coram of Justice R.K. Agarwal (President) held that under the provisions of the Maharashtra Apartment Ownership Act 1970 and even Maharashtra Ownership Flats (Regulation of the promotion of construction, sale management and transfer) Act, 1963, a Society had to be formed by the builder and the entire building premises including the open space in question was to be transferred to the Society or a legal body for its maintenance and further, as per Section 6 of the MAOA 1970, each flat owner is entitled to an undivided interest in the common areas and the facilities.

Read full report, here…

Can doctors alleged of medical negligence be exempted from legal proceedings as they are busy and conscious about their duties towards patients? NCDRC answers in a transfer application

The Coram of Dr S.M. Kantikar (Presiding Member) and Binoy Kumar (Member) while allowing an application for transfer expressed that,

“…it is true that the doctors are busy and conscious about their duties towards the patient, but they are not exempted from the legal proceedings and duty bound to attend the court proceedings (physical or virtual mode) either through their Counsel or on their own.”

Read full report, here…

Patient developed serious complications after being operated which were promptly treated by doctors, yet she died. Would this amount to ‘medical negligence’? NCDRC analyses

The Coram of Justice R.K. Agarwal (President) and Dr S.M. Kantikar (Member) analyses a matter wherein a patient developed serious issues after being operated, which led to her death, hence the doctors/hospital were alleged for medical negligence.

Read full report, here…

Homebuyer invests his hard-earned money to get legal possession of flat, yet gets subjected to a 6-year delay: Read how NCDRC provided relief to consumer

While addressing a case wherein there was a delay of 6 years in handing over the possession to the buyer, the Coram of Dr S.M. Kantikar (Presiding Member) and Binoy Kumar, Member, held that in view of catena of Supreme Court decisions on the said issue, the buyer was entitled to get legal possession along with compensation.

Read full report, here…

Builder took money from homebuyer for formation of Co-operative Housing Society, but never formed so: Read why the homebuyer approached Commission

The Coram of R.K. Agrawal (President) and Dr S.M. Kantikar (Member) addressed a matter wherein the builder took money from the purchaser for the formation of a co-operative housing society but failed to do so and when asked for the refund, he did not return the money as well.

Read full report, here…


National Company Law Tribunal (NCLT)


Operational Creditor is under obligation to recover money from its client and not agent: NCLT decides while dismissing a petition filed under S. 9 IBC

The Coram of H.V. Subba Rao (Judicial Member) and Chandra Bhan Singh (Technical Member) dismissed a petition filed under Section 9 of the IBC while noting that no operational debt existed under Section 5(8) and expressed that,

Operational Creditor being the Principal was always under obligation to recover the money from the client and not from his agent unless the agent failed to perform his duties.

Read full report, here…

In case of an application being filed under S.7 of IBC, will insufficiency of stamp duty be looked into? NCLT decides

The Coram of H.V. Subba Rao, Judicial Member addressed the relevancy of insufficiency of stamp duty under Section 7 proceedings of Insolvency and Bankruptcy Code, 2016

“…a Section 7 application under the IBC can be filed in a simple form prescribed in the Code even without any pleadings.”

Read full report, here…

Mumbai International Airport Limited temporarily restrained from removing Jet Airways assets from its premises including MIAL’s hangar: Airline’s representatives, workmen, etc. allowed access for maintenance of assets

The Coram of Kapal Kumar Vohra, Technical Member and Justice P.N. Deshmukh, Judicial Member, while addressing a matter wherein Jet Airways requested Mumbai Airport not remove its assets from its premises, expressed that,

“…it is to be noted that one of the principal objectives of the Code is to provide for revival of the CD and every attempt ought to be made to revive the CD and Liquidation being the last resort.”

Read full report, here…


National Company Law Appellate Tribunal (NCLAT)


 If a case was filed under IBC, can penalty be imposed under Companies Act? NCLAT addresses

The Coram of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical Member) held that if the Intervention Application was filed under the IBC, then, any penalty to be imposed should have been under the provisions of IBC and not the Companies Act.

Read full report, here…

If granting exclusion of time would help Corporate Debtor from liquidation, should NCLAT allow such exclusion? Here’s what NCLAT says 

The Coram of Justice M. Venugopal (Judicial Member) and Dr Ashok Kumar Mishra (Technical Member) held that if granting exclusion of time helps the Corporate Debtor to revive, the basic objective of Insolvency and Bankruptcy Code will eb achieved.

Read full report, here…

Can application filed under S. 95(1) read with S. 60(1) IBC be rejected on ground that no Corporate Insolvency Resolution Process was pending against Corporate Debtor? NCLAT addresses

If CIRP or Liquidation Proceeding of a Corporate Debtor is pending before an NCLT, application relating to Insolvency Process of Corporate or Personal Guarantor should be filed before same NCLT.

Read full report, here…

EPC Construction Resolution: NCLAT allows distribution of Rs 223 crores from available cash balance among creditors and lenders

The Bench of Justice Ashok Bhushan (Chairperson) and Dr. Alok Srivastava (Technical Member) allowed the distribution of INR 223 crore from the cash balance available with EPC Construction among its creditors and lenders.

Read full report, here…


Securities Exchange Board of India (SEBI)


 Zee Insider Trading Case | In absence of direct evidence, matters of insider trading are to be tested on what grounds? SEBI lifts restrictions on 10 entities

The Coram of Santosh Kumar Mohanty (Whole Time Member) lifted restrictions imposed on 10 Entities who were alleged in insider trading, though the Tribunal added that the said relaxation was being granted subject to the outcome of appeal proceedings filed by SEBI against SAT Order before Supreme Court.

Read full report, here…

Op EdsOP. ED.

Introduction

On 28-9-2021, Securities and Exchange Board of India (SEBI) in its Board meeting approved changes in the related party transaction (RPT)  framework under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR).[1] The changes were based on the recommendations of the Working Group,[2] constituted in November 2019, to review the policy space pertaining to related-party transactions.

The approved changes in the form of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)(Sixth Amendment) Regulations, 2021 were notified on 6-11-2021. Major modifications under this amendment include the widening of the definition of “related party”, revision of materiality threshold, and the requirement of “prior” approval of shareholders for material related-party transactions. These modifications have been made in an attempt to provide greater scrutiny of RPTs, taking into account the abuse of the relevant provisions, thus considering the interests of the shareholders.

This article seeks to analyse certain aspects of the aforementioned amendment and highlight the ambiguities therein. It then moves on to deal with threefold modifications in the provisions dealing with material related-party transactions and point out the issues pertaining to shareholders’ approval for existing contracts/arrangements. While taking note of the legislative intent, it also aims to provide possible interpretation of the provisions where such issues lie. Finally, it concludes with the possible steps to clarify the ambiguities that have arisen and have put companies in a confused state.

Major modifications and their analysis

Definition of “related party”

The definition of a related p(RP) has been significantly changed by this amendment. It has been broadened to include any person or entity who is part of the promoter group of the listed entity as well as any person or entity holding equity shares of 20% or more either directly or as a beneficial interest under Section 89 of the Companies Act, 2013[3] (the Act).  Due to this, all the promoter groups which hold control in interlinked groups will come under the scrutiny of LODR. Further, as a result of including persons with 20% or more shares in the definition of “related party”, LODR will cover every individual holding a decision-making power and significant shareholding.

Definition of “related-party transaction”

While the erstwhile definition included only a transaction between a listed entity and its related party, now it also includes transactions between a listed entity or its subsidiary and related parties of the listed entity or its subsidiary.

(i) Cross RPTs

As mentioned above, now that RPTs will also include transactions between a subsidiary and its related parties, it is likely that the threshold of INR 1000 crores or 10% of annual consolidated turnover of the listed entity, for seeking shareholders’ approval will reach sooner than usual. As per Section 2(87) of the Companies Act, 2013[4], a “subsidiary” company will also include subsidiaries that are based abroad. If a foreign subsidiary enters into a transaction with another company, the Audit Committee and the shareholders of the parent Indian company will have a deciding factor in the success of that transaction. This will create a conflict of laws and jurisdictional issues.

This amendment could also be challenged on the ground that it violates the principle of separate legal existence. Further, the foreign subsidiaries will be governed by the laws of their place of incorporation. Therefore, there is no clarity as to how the implementation of these provisions be interpreted. To avoid all the hassle, a possible solution could be to grant certain exemptions and provide detailed guidance specifically in relation to foreign subsidiaries.

(ii) “Purpose and effect” clause

An important aspect of the amendment is that it will also include the transactions between a listed entity or its subsidiary with an unrelated party which has the “purpose and effect” of causing a benefit to the related party. This provision will come into effect from 1-4-2023.

This provision has been borrowed from the UK (Para 11.1.5 of Financial Conduct Authority Handbook).[5] It would be interesting to see how the “purpose and effect” is going to be interpreted. Since the word “and” has been used, both purpose and effect have to be read together while determining the impact of a transaction. In a situation where a transaction has not been entered into intentionally for the benefit of a related party, it will not be considered an RPT just because it is indirectly benefiting a related party. While the effect can be seen explicitly, it would be a difficult task to determine the purpose as it might not be evident. It will have to be determined on the basis of facts and circumstances.

The authors believe that this provision would be very beneficial in keeping a check on fraudulent and camouflaged transactions. The provision brings into effect the “smoke test” propounded by the  Supreme Court of India in Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd.[6] to detect collusive or sham transactions which create an illusion of transfer of money when in reality the transaction has been entered into with an ulterior motive.

It will prevent the companies from bypassing approval processes by entering into transactions with unrelated parties. However, the regulatory authorities should contemplate and provide guidance on the investigation to determine the “purpose and effect”. This will prevent the companies from exploiting the loopholes and will also give them a clear understanding of the provision.

(iii) Exclusions in the definition

Until now, the companies have been forming separate RPT policy and made certain exclusions in line with the LODR and the Act. However, this Amendment has brought in certain exclusions in the definition of RPT itself. These exclusions include the issue of specified securities on a preferential basis, certain corporate actions like payment of dividends, etc., and lastly, acceptance of deposits by banks, etc. With this amendment, it can be concluded that the companies will not be in a position to make any further exclusions apart from what is mentioned in the provision.

Threefold modification in the provisions dealing with material related-party transactions

Before proceeding further, it is important to note that an RPT as defined under Regulation 2(1)(zc),[7] shall be construed to include a single transaction or a group of transactions in a contract.

Modifications in the provisions dealing with material RPTs are threefold. First, under Regulation 23(4)[8] the requirement of approval of material RPTs from the shareholders has been made “prior” to the entering of such transactions. Second, the threshold of determining the materiality of RPTs has been changed and now stands as a value above: (i) INR 1000 crores; or (ii) 10% of annual consolidated turnover of the listed entity, whichever is lower. Third, the scope of RPTs has been expanded to cover cross-RPTs.

Thus, these modifications when collectively interpreted would mean, related-party transaction/s including cross-RPTs that exceed the materiality threshold will require prior shareholders’ approval.

Issues pertaining to shareholders’ approval for existing contracts/arrangements

In the light of these changes, there are certain issues that arise. Though the modification in the materiality threshold is applicable with effect from 1-4-2022,it has the potential to trigger changes on the part of a company’s compliance requirement prior to the effective date. The provision of compliance requirement of shareholders’ approval [Regulation 23(4)] uses the term “material related party transactions” and not “material related party contracts”. Therefore, there is a possibility of the amendment affecting contract/centered into prior to the effective date of changed materiality threshold if such contract/s have transactions to be carried on or after 1-4-2022.

Example:

A company with a turnover of INR 2000 crores for the financial year 2019-2020, enters into a contract worth INR 1500 crores with a related party. When the contract was entered into, the materiality threshold was a value exceeding 10% of the consolidated turnover of the past financial year, hence shareholders’ approval for carrying out this contract was not a requirement. Some transactions under this contract are to be executed after the end of Financial Year (FY) 2020-2021. The question here is,

In the light of the changed materiality threshold, are companies required to reclassify the ongoing RPTs as material and non-material since an ongoing contract (which crosses the changed materiality threshold) may have transactions to be executed on or after FY 2021-2022?

If such a reclassification is required, certain follow-up questions would arise. Apart from shareholders’ approval for material RPTs that will be executed after the end of FY 2021-2022,

Will it be required for continuation of RPTs under a contract/s reclassified as material? and,

Will it be required for ratification of completed RPTs forming part of a contract reclassified as material?

Analysis: Is reclassification of ongoing RPTs required

Regulation 23(6) provides for the application of Regulation 23 to all prospective transactions, therefore, the application of the amended provision would apply to transactions taking place after the end of FY 2021-2022. However, these prospective transactions may be part of contracts or arrangement centered into prior to 1-4-2022.

Before the notification of the amendment i.e. before 6-11-2021, companies entered into contracts or arrangements, keeping in view the10% threshold and not taking into account cross-RPTs. Some of these contracts or arrangements may consist of transactions to be carried on or after 1-4-2022. If these contracts or arrangements cross the revised materiality threshold, the question that arises is:

Is shareholders’ approval under such types of contracts required only for the transactions that will be executed after the end of FY 21 or it is required for all the RPTs aggregated under those contracts?

Through the reading of Regulation 23(6) of the LODR, it is clear that transactions to be executed after the end of FY 2021 (including the ones that are part of ongoing contracts or arrangements) that cross the revised materiality threshold will require prior shareholders’ approval. Therefore, in the absence of reclassification of ongoing contracts considering the changed materiality threshold and the inclusion of cross-RPTs, companies may face ramifications. These ramifications may come in the form of breach of contract if transactions that are to be executed after the end of FY 2021 under such ongoing contracts are denied shareholders’ approval.

The second part of the above-posed question can be further divided into two sub-questions:

(i) Will the RPTs (to be executed before 1-4-2022 under a contract/s reclassified as material require shareholder’s approval for continuation?

(ii) Will the completed RPTs forming part of a contract be reclassified as material, require shareholders’ approval ratifying it?

The answer to these questions depends on the applicability of Regulation 23(8) in light of the present amendment.

Regulation 23(8) states,

23(8). All existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations.[9]

This regulation has been in place from the date of the notification of the LODR i.e. 2-9-2015. There is an absence of additional words such as, “as amended from time to time”, after “these regulations” or any explanation stating that the date of notification as provided in Regulation 23(8) would change with respect to the date of notification of amendments that may be made in Regulation 23. In such an absence, it appears that the date of notification suggested in the regulation is 2-9-2015 i.e. the date of the publication of the Regulations in the Official Gazette [Regulation 1(2) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)Regulations, 2015[10]].

If the date of notification is taken as 2-9-2015, then, Regulation 23(8) does not become applicable in the light of the present amendment and answer to the above questions i.e. the requirement of shareholders’ approval for completed RPTs and RPTs to be executed before 1-4-2022 under ongoing contracts, is unclear.

Now, if it considered that by “these regulations” as mentioned in Regulation 23(8) is meant these regulations as amended from time to time, then the date of notification will become 9-11-2021 i.e. the date on which Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)(Sixth Amendment) Regulations, 2021 has been notified in the Official Gazette. However, this amendment is to come into force from 1-4-2022.

If this interpretation is taken, there is confusion as to which date out of the two will be considered for the purpose of Regulation 23(8).

If we analyse the impact of such an interpretation ignoring this confusion, it can be concluded that the companies will have to reclassify the ongoing RPTs and take the approval of shareholders for all the RPTs aggregated under the material related party contracts or arrangements.

Further, in the background of the circular issued by SEBI on 22-11-2021[11], listed entities have to place an array of information before the Audit Committee and the shareholders, and if ongoing contracts have to comply with Regulation 23(8), they will have to be taken to the shareholders accompanied by information as mandated under the SEBI circular.

Not only this, the amendment has increased the disclosure requirements manifold. The listed entities will have to give in the details of loans, deposits, etc. and the purpose for which this amount will be utilised by the beneficiaries under Regulation 23(9) in a specified format.

Another important aspect of the amendment is that the Audit Committee is also supposed to grant prior approval for “material modification” in a RPT. However, a major problem here is the definition of “material”. This has not been clarified by SEBI. It is the prerogative of the Audit Committee to decide whether a transaction will constitute “material modification”. Leaving this decision solely on the Audit Committee without any guidelines or clarification might create confusion and bring in transactions under scrutiny unnecessarily. 

Conclusion

Following the notification of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)(Sixth Amendment) Regulations, 2021 which has brought changes in the RPT regime taking note of prevailing loopholes which have been exploited, neglecting the interest of various stakeholders, several questions have arisen, some of which have been discussed in this article.

The broadening of the definition of RPT will have a significant impact in terms of bringing many more transactions under the scanner. It will prevent fraud and help in putting a check on sham transactions. Even though SEBI has included transactions with a third party having the purpose and effect” of benefiting a related party, the interpretation of “purpose and effect” needs to be clarified in further guidance notes and circulars. Further, by bringing the transactions entered into by subsidiaries and especially foreign subsidiaries under scrutiny, the principles of separate legal entity and autonomy of making independent decisions has been gravely affected.

The major question is the impact of the changed materiality threshold and inclusion of cross-RPTs on ongoing contracts which if reclassified considering these modifications will become material RPTs. The position in this regard as of now is ambiguous. What is clear from the reading of Regulation 23(6) is that the RPTs crossing the revised materiality threshold, to be executed after the end of FY 2021-2022 will require “prior” shareholders’ approval.

However, it is unclear if the RPTs under a contract or an arrangement (which consists of RPTs that will be executed after FY 2021-2022) need reclassification and subsequently require shareholders’ approval for continuation or ratification as the case may be.

Though the intention of the changed RPT framework is better corporate governance and protecting the interests of the minority, however, these changes have put a cumbersome compliance burden on the companies. It might also bring up practical difficulties especially to the big corporate houses with a large number of subsidiaries. Further, due to lack of clarity in certain matters as discussed in this article, these changes can put companies in confusing positions and they might end up unintentionally breaching the amended provisions.

Clarifications on the part of SEBI dealing with issues arising out of the modified Listing Regulations (LODR) will, therefore, be welcomed in order to balance the interests of the companies as well as its stakeholders.


*Fourth year student, BA LLB (Hons.), Hidayatullah National Law University, Raipur, Chhattisgarh.

**Third year law student at Hidayatullah National Law University.

[1]Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015,

[2]Report of the Working Group on Related Party Transactions, 27-1-2020<https://www.sebi.gov.in/reports-and-statistics/reports/jan-2020/report-of-the-working-group-on-related-party-transactions_45805.html>.

[3]Companies Act, 2013, S. 89.

[4]Companies Act, 2013, S. 2(87).

[5]LR 11.1 Related party transactions, <https://www.handbook.fca.org.uk/handbook/LR/11/1.html>.

[6](2021) 3 SCC 475.

[7]Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regn. 2(1)(zc).

[8]Securities and Exchange Board of India (Listing Obligations and DisclosureRequirements) Regulations, 2015, Regn. 23(4).

[9]Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regn. 23(8).

[10]Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regn. 1(2).

[11]Disclosure Obligations of Listed Entities in Relation to Related Party Transactions, SEBI/HO/CFD/CMD1/CIR/P/2021/662, 22-11-2021,

<https://www.sebi.gov.in/legal/circulars/nov-2021/disclosure-obligations-of-listed-entities-in-relation-to-related-party-transactions_54113.html>.

Appointments & TransfersNews

Central Government appoints Smt. Madhabi Puri Buch, Former Whole Time Member, Securities and Exchange Board of India as Chairman of the Securities and Exchange Board of India (SEBI), initially for a period of three years from the date of assumption of charge of the post, or until further orders, whichever is earlier.


Ministry of Finance

[Notification dt. 28-2-2022]

Case BriefsSupreme Court

Supreme Court: In a case where the Court was dealing with the violation of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations 2003 [PFUTP Regulations], the bench of Dr. DY Chandrachud* and Sanjiv Khanna, JJ has held that as a general rule, SEBI is duty bound to disclose all the relevant material, including the Investigation Report, in order to give reasonable opportunity to be heard to the notice. However, as an exception, it can redact information that impinges on the privacy of third parties.

Regulatory Framework of PFUTP Regulations

Regulation 9 envisages that the investigating authority must submit a report to the appointing authority upon the completion of its investigation in the course of which all relevant facts have to be taken into account. The investigating authority may even submit an interim report, if necessary, in the interest of investors and the securities market or, if directed by the appointing authority.

Regulation 10 empowers the Board to either issue a direction or take action as is specified in Regulations 11 and 12. The words of Regulation 10 indicate that the Board “after consideration of the report referred to in regulation 9, if satisfied that there is a violation of these regulations and after giving a reasonable opportunity of hearing to the persons concerned”, takes action under Regulations 11 and 12. As a result of the mandate of Regulation 10, the Board has to consider the investigation report as an intrinsic element in arriving at its satisfaction on whether there has been a violation of the regulations.

Duty to Disclose Investigative Material

After going through a number of judgments, the Court summarized the following principles:

  1. A quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication; and
  2. An ipse dixit of the authority that it has not relied on certain material would not exempt it of its liability to disclose such material if it is relevant to and has a nexus to the action that is taken by the authority.

In all reasonable probability, such material would have influenced the decision reached by the authority. Thus, the actual test is whether the material that is required to be disclosed is relevant for purpose of adjudication. If it is, then the principles of natural justice require its due disclosure.

The purpose of disclosure of information is not merely individualistic, that is to prevent errors in the verdict but is also towards fulfilling the larger institutional purpose of fair trial and transparency. Since the purpose of disclosure of information targets both the outcome (reliability) and the process (fair trial and transparency), it would be insufficient if only the material relied on is disclosed. Such a rule of disclosure, only holds nexus to the outcome and not the process. Therefore, as a default rule, all relevant material must be disclosed.

It would be fundamentally contrary to the principles of natural justice if the relevant part of the investigation report which pertains to the noticee is not disclosed. The noticee has to be given a reasonable opportunity of hearing. The requirement of a reasonable opportunity would postulate that such material which has been and has to be taken into account under Regulation 10 must be disclosed to the noticee. If the report of the investigation authority under Regulation 9 has to be considered by the Board before satisfaction is arrived at on a possible violation of the regulations, the principles of natural justice require due disclosure of the report.

“Merely because the investigating authority has denied placing reliance on the report would not mean that such material cannot be disclosed to the noticee. The court may look into the relevance of the material to the proposed action and its nexus to the stage of adjudication. Simply put, this entails evaluating whether the material in all reasonable probability would influence the decision of the authority.”

However, it was held that the right to disclosure is not absolute. It needs to be determined if the non-disclosure of the investigative report is protected by any of the exceptions to the rule.

Exceptions to the Duty to Disclose

The Court noticed that there could be a wide range of sensitive information that the investigation report submitted under Regulation 9 may cover, ranging from information on financial transactions and on other entities in the securities market, which might affect third-party rights. The report may contain market sensitive information which may impinge upon the interest of investors and the stability of the securities market. Hence,

“The requirement of compliance with the principles of natural justice cannot therefore be read to encompass the right to a roving disclosure on matters unconnected or as regards the dealings of third parties. The investigating authority may acquire information of sensitive nature bearing upon the orderly functioning of the securities market. The right of the noticee to disclosure must be balanced with a need to preserve any other thirdparty rights that may be affected.”

However, merely because a few portions of the enquiry report involve information on third-parties or confidential information on the securities market, the SEBI does not have a right to withhold the disclosure of the relevant portions of the report. SEBI can only claim non-disclosure of those sections of the report which deal with third party personal information and strategic information on the functioning of the securities mark.

Therefore, SEBI should determine such parts of the investigation report under Regulation 9 which have a bearing on the action which is proposed to be taken against the person to whom the notice to show cause is issued and disclose the same. It can redact information that impinges on the privacy of third parties. It cannot exercise unfettered discretion in redacting information. On the other hand, such parts of the report which are necessary for the noticee to defend his case against the action proposed to be taken against him need to be disclosed. It is needless to say that the investigating authority is duty-bound to disclose such parts of the report to the noticee in good faith. If the investigating authority attempts to circumvent its duty by revealing minimal information, to the prejudice of the noticee, it will be in violation of the principles of natural justice. The court/appellate forum in an appropriate case will be empowered to call for the investigation report and determine if the duty to disclose has been effectively complied with.

[T. Takano v. SEBI, 2022 SCC OnLine SC 210, decided on 18.02.2022]


*Judgment by: Justice Dr. DY Chandrachud


Counsels

For appellant: Advocate Ashim Sood

For SEBI: Senior Advocate CU Singh

Legislation UpdatesRules & Regulations

On January 14, 2022, the Securities and Exchange Board of India notifies Securities and Exchange Board of India (Foreign Portfolio Investors) (Amendment) Regulations, 2022 to further amend the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019.

Key amendment:

In the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019:

  • In sub-regulation (1) of regulation 7, the words “National Securities Depositories Limited” shall be substituted with the word “the Board”.

Regulation 7 provides:

Certificate of registration.—(1) The designated depository participant shall on behalf of the Board grant the certificate of registration, bearing registration number generated by National Securities Depositories Limited, as specified in the First Schedule to an applicant if it is satisfied that the applicant is eligible and fulfils the requirements as specified in these regulations.

  • In Chapter VIII-A, after regulation 43A, the following regulation shall be inserted, namely,

Exemption from strict enforcement of the regulations in other cases.
43B. (1) The Board may suo motu or on an application made by a foreign portfolio investor, for reasons recorded in writing, grant relaxation from the strict enforcement of any of the provisions of these regulations, subject to such conditions as the Board deems fit to impose in the interests of investors and the securities market and for the development of the securities market, if the Board is satisfied that:

(a) the non-compliance is caused due to factors beyond the control of the entity; or
(b) the requirement is procedural or technical in nature.

(2) The application referred to under sub-regulation (1) shall be accompanied by a non-refundable fee of US $ 1,000 payable by way of NEFT/ RTGS/ IMPS or any other mode allowed by the Reserve Bank of India in the designated bank account of the Board.”

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): SK Mohanty, Whole Time Member, while acting immediately on the matter, was of the opinion that the Noticees were liable to be held jointly and severally responsible for active collusion, for the unlawful gain through illicit means. And further directed to disgorge the amount so gained, while restricting them from the securities market for an appropriate period.

In the instant matter it was alleged and was further established through investigation that the Noticees were the administrators of a telegram channel where they potrayed themselves to be experienced analysts and researchers, further inducing and manipulating investors. The features of the telegram of sending bulk messages were successfully misused for ‘illicit activities like manipulating the stock prices by repeatedly sending unfounded stock recommendations’. The same was advertised through facebook (Meta) and WhatsApp, resulting in members in thousand digits.

The description on the Telegram Channel was:

“We are team of 4 Research Analysts with combined experience of 40 years. All calls are for study purpose only. Taking any trade consultant your financial advisor. We are in the process of getting SEBI Research Analyst Registration.”

The Tribunal was very blatant in its approach towards the Noticees, when it said,

“The tips circulated through the Channel create an inducing impact which are then followed by the subscribers and ironically, such stock tips may also prove to be true, if large number of recipients of such tips believe it and collectively act on it. Slowly and gradually, after seeing the price of the said thinly traded scrip actually rising, more and more subscribers start believing in the tips and start acting on it, which further strengthens the belief of such tips being genuine, as large number of individuals end up acting on such tips and by their collective buying actions, convert the deceitful, specious and baseless tips to realty”… “Such collective belief by the large base of subscribers of the channel in the stock recommendations given by the Noticees would lead to a bull run in the said scrips and propel the scrip price/volume upwards, ultimately giving a golden opportunity to the Noticees to make unlawful profits by selling their shares in the same scrip”.

The Tribunal even cited the relevant observations by the Supreme Court in N. Narayanan v. SEBI, (2013) 12 SCC 152 and Kishore Ajmera v SEBI, (2016) 6 SCC 368 on the pertinent matter.

The concerns of the Tribunal came out in such words:

“…Such dubious acts of the Noticees are quite alarming hence, it becomes imperative to act immediately and restrain them from perpetuating such fraudulent activities in the securities market through any other scheme and in any other manner thereby further threatening the integrity of the securities market.”

“…Nevertheless, SEBI being entrusted with the mandate of protecting the interest of the investors cannot be a mute spectator irrespective of the technology used by the delinquents and such delinquents need to be kept out of the walls of the securities market”.

“…b) The alleged scheme of enticing and inducing others to deal in certain securities thereby creating adverse and artificial impact on the price and volume of those scrips, has been ingenuously crafted and implemented in a manner that it was an impossible task for the common investors to identify any dubious hidden intent behind such messages and tips that were being circulated amongst them through the Telegram Channel”.

Resultantly, the Tribunal restricted all the Noticees from the securities market, impounded banks accounts of the Noticees jointly and severally and directed to open an escrow amount to deposit the amount.[Stock Recommendations using Social Media Channel (Telegram), In re,2022 SCC OnLine SEBI 5, decided on 12-1-2022]


Agatha Shukla, Editorial Assistant has reported this brief.

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

Armed Forces Tribunal (AFT)


Punishment of “Severe Reprimand” after summary trial not a “service matter”; Tribunal has no jurisdiction to deal with such issues

“While interpreting a provision or Statute affecting jurisdiction of courts, their exclusions or inclusions, their extent should be understood in a manner as is explicitly expressed by the law-maker and clearly implied from their intention. All exclusions must either be explicitly expressed or clearly implied.”

Read more…

 “Gross injustice done is a case of mind set and adhering to old junk system”; Tribunal imposes exemplary cost of Rs. 75,000 on government for not implementing the order of the High Court for about 23 years

The public interest demands that administration must abide by the promises held out to citizens. It is totally immoral to go back from the promises held out by the mighty state to the detriment of a small people.

 Read more…


Customs, Excise and Services Tax Appellate Tribunal (CESTAT)


 Whether the supplementary invoices relate to the date of original clearance or the date on which the supplementary invoice was raised? Tribunal answers

 The Coram of Dilip Gupta (President) and P.V. Subba Rao (Technical Member) partly allowed an appeal which was filed assailing order-in-original passed by the Commissioner of Central Excise, Customs & Service Tax, Cochin.

Read more…


Competition Commission of India (CCI)


TRP Scam: CCI orders closure of information filed against BARC alleging contravention of Competition Act

The Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) refused to examine the information filed against Broadcast Audience Research Council on merits.

Read more…


Consumer Disputes Redressal Commission, Gujarat State, Ahmedabad


Hospital is liable with respect to medical negligence that may be direct liability or vicarious liability which means the liability of an employer for the negligent act of its employees.

Read more…


Income Tax Appellate Tribunal (ITAT)


‘Power’ of conducting IPL is vitally distinct from ‘Object’ of BCCI: ITAT explains substantive law, allows BCCI to continue registration under S. 12-A of Income Tax Act to avail tax exemption benefits

A two-Member Bench of Pramod Kumar (Vice President) and Ravish Sood (Judicial Member) allowed the Board of Control for Cricket in India (“BCCI”) to continue with its registration under Section 12-A of the Income Tax Act, 1961 making it eligible for income tax exemption benefits. The main controversy arose regarding the commercial nature of the Indian Premier League (“IPL”) organised by BCCI, however, there is significant discussion on substantive law in the decision of the Appellate Tribunal.

Read more…

Will hostel facility which is incidental to providing education as per object of assessee be a charitable purpose exempted under S. 11 of Income Tax Act? ITAT answers

Coram of Anil Chaturvedi (Accountant Member) and Suchitra Kamble (Judicial Member) allowed the appeal filed by the assessee challenging the assessment order made by the Income Tax authorities.

Read more…


National Consumer Disputes Redressal Commission (NCDRC)


Law on Builder-Buyer Dispute | 9-years delay in delivering possession of apartment: Read NCDRC’s decision on refund and interest

In a builder-buyer dispute, Coram of Justice R.K. Agrawal (President) and Dr S.M. Kantikar (Member) noting the 9 years delay in delivery of possession of the apartment directed refund to the buyer.

Read more…

Law on Unfair Trade Practice | Builder insisting to sign on papers which stated that “buyer was receiving villa in full ready condition” even when it was not in a livable condition: Is builder’s act under ‘unfair trade practice’? NCDRC decides

Offering possession of incomplete construction and without obtaining “Completion Certificate” does not justify the act of the builder.

Read more…

Law on Force Majeure | Builder taking shelter of “Force Majeure” clause for delay in handing over possession: Justified or not? Read what NCDRC says

Expressing that the builder cannot take shelter of “Force Majeure” while delay in handing over possession Coram of C. Viswanath (Presiding Member) and Ram Surat Ram Maurya (Member) directed for a refund of buyers’ amount along with interest.

Read more…

Does an arbitration clause in an agreement bar consumer forum’s jurisdiction? NCDRC answers relying on SC decision

Coram of Justice R.K. Agrawal (President) and Dr S.M. Kantikar (Member)reiterated that the presence of an arbitration clause in the agreement does not bar the jurisdiction of consumer fora.

Read more…

Condonation of Delay: Is it a matter of right? NCDRC explains

Expressing its opinion of ‘Condonation of Delay’, Coram of C. Viswanath (Presiding Member) and Justice Ram Surat Ram Maurya (Member) dismissed the present appeal calling it an abuse of process of law.

Read more…

Under what circumstances will a person cease to be a consumer? Significance of indulging in commercial activities by buying and selling property: Explained

Coram of Justice Deepa Sharma (Presiding Member) and Subhash Chandra (Member)directed a full refund of the principal amount along with interest, due to failure of delivering timely possession of an apartment purchased by the complainant.

Read more…


National Company Law Appellate Tribunal (NCLAT)


Existence of Dispute prior to issuance of Demand Notice-NCLT and NCLAT in rhythm, rejects appeal

The Coram of Ashok Bhushan, J (Chairperson), Jarat Kumar Jain, J (Judicial) and Dr Ashok Kumar Mishra (Technical) while dismissing an appeal found no infirmity in the order of the Adjudicating Authority.

Read more…


Securities Appellate Tribunal (SAT)


Relents unrelentingly | Tribunal concerns and the concerns of the concerned counterbalanced- 4 weeks and 2000 crore, to lift attachment order while withdraws for some on exigencies and age

“…we are of the opinion that even though it would have been appropriate for the respondent to await the result of the decision of this Tribunal, however, there is no embargo upon the Recovery Officer to proceed independently to recover the amount under Section 28A of the SEBI Act since there was no stay of the impugned order”.

Read more…


Securities Exchange Board of India (SEBI)


Exception granted for gifting shares in an acquisition| Proposed acquirer to file report within 21 days post-acquisition

S.K. Mohanty, Whole Time Member, while deciding an order, granted exemption to the Anived Family Trust (Proposed Acquirer) from complying with the requirements of Regulation 3(2) of the Takeover Regulations, 2011 with respect to the proposed direct acquisition in the, Renaissance Global Limited (Target Company), by way of proposed transaction as mentioned in the Application.

Read more…

Assuring profits in a market already subjected to risk- Debarred from the market for subjecting others to risk

“Investments in securities markets are subject to risks and hence the returns are unpredictable. Therefore, guarantee of assured profits by the Noticee in any manner through its plans/schemes is fraudulent and might have induced the investors to invest in such plans/schemes”.

Read more…


Telecom Disputes Settlement & Appellate Tribunal (TDSAT)


Dual Till, Light Touch Regulation and exclusion from liability to pay UDF by transit passenger; Telecom Tribunal’s decision deals a blow to BIAL

“An impression is created by isolated reading of Section 13(1)(d) that the Authority can only monitor such performance standards relating to quality as have been set specifically by the Central Government or its authorized authority. But full reading of the provisions in the Act and the binding effect of the Concession Agreement easily lead to the conclusion that power under Section 13(1)(d) is an additional power and it does not take away powers and duties of the Authority to monitor quality of the services on the basis of current prevailing national and international practices and the standards.”

Read more…

Op EdsOP. ED.

The doctrine of ‘double jeopardy’ protects a person from being punished again for the same offence, following a valid conviction or acquittal. It emanates from the legal maxim ‘non bis in idem’, which translates literally from Latin as ‘not twice in the same thing‘.

This rule is well recognised under Indian law and even finds place in the fundamental rights guaranteed under our Constitution. Article 20(2) of the Indian Constitution states “No person shall be prosecuted and punished for the same offence more than once”. Likewise, Section 300 of the Code of Criminal Procedure, 1978 (“CrPC”) protects a person once acquitted or convicted, from re-trial for the same offence or on the same facts for any other offence. Section 26 of the General Clauses Act, 1897 further goes on to protect from double prosecution under two or more enactments, limiting the prosecution and punishment to any one of those enactments.

The landmark case on the subject is the case of Thomas Dana v. State of Punjab [1], wherein a Constitutional Bench of five Judges of the Supreme Court evaluated the three requirements for double jeopardy i.e., prosecution, punishment and same offence and held that if these three requirements are satisfied, then the protection under Article 20(2) of the Constitution is guaranteed.

However, the question of ‘identity of offence’ is one to be determined on the facts and circumstances of a particular case. In a recent decision, the Securities Appellate Tribunal (“SAT”) in the case of PVP Ventures Ltd. v. Bombay Stock Exchange Ltd.[2], has held that Bombay Stock Exchange (“BSE”) and National Stock Exchange (“NSE”) can separately impose a penalty for violations of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). The penalty imposed was for non-compliance of provisions of Regulation 17 (Board of Directors) and Regulation 19 (Nomination and remuneration committee) of the LODR Regulations in two consecutive quarters.

The Appellant did raise a defence of double jeopardy and cited a former decision of Securities Appellate Tribunal (“SAT”).[3], wherein SAT considering this objection as a plausible one, referred this question to SEBI. In response to this, SEBI informed the Tribunal that it had considered the matter and took a conscious decision that separate penalties could be imposed by the stock exchanges. Following the suit, SAT has now diverged from its previous prima facie view. While making the reference to SEBI, SAT had observed that “the violation, if any, made by the appellant is of Regulation 17(1) of LODR Regulations. It is not a Stock Exchange based violation where each Stock Exchange would be within its right to impose a fine. Prima facie only one fine could be imposed and not two sets of fines by the Stock Exchanges. This aspect of a violation of the LODR Regulations, in our opinion, is required to be considered by SEBI.

Justifying the double whammy, SEBI while deciding the reference held the issuer company accountable for making a conscious decision of listing on multiple bourses, which may also entail consequence such as penalties from each exchange. SEBI also observed that the LODR Regulations put in place a framework, where the primary responsibility for monitoring compliance was assigned to the stock exchanges. In terms of Regulation 97 of the LODR Regulations, recognised stock exchanges have been mandated to monitor the compliance with the provisions of the regulations, by entities listed on such exchanges. Exchanges have simultaneously been empowered to take action against listed entities for non-compliances, inter alia by way of penalties, suspension of trading activities, etc.

Pertinently, as per the regulatory requirements prescribed under both the Companies Act and securities law, entities are mandatorily required to seek listing only on any one stock exchange having country wide terminals. While listing on multiple bourses may include additional liquidity, visibility, access to more trading members, etc., it may assail multiple penalties in case of a default. Even in the regime of Listing Agreements, prior to the LODR Regulations, non-compliance would have assailed consequences under each such agreement.

What therefore emerges, is that the doctrine of double jeopardy is not applicable in case of actions by multiple exchanges under the LODR Regulations.


 *Deputy Managing Partner, Naik, Naik & Company, Mumbai

** Senior Associate, Naik, Naik & Company, Mumbai

[1] 1959 Supp (1) SCR 274.

[2] 2021 SCC OnLine SAT 90.

[3] W.S. Industries (India) Limited vs. BSE Ltd. 2019 SCC OnLine SAT 389

Op EdsOP. ED.

A. Reforms to the independent directors’ regime

 The modern business corporations are often shrouded with a perplexing issue – which stakeholder should perform the governance activity and what is the appropriate way that one must bestow risks and rewards on various stakeholders of the company? According to one school of thought, the corporate entity is a “legal fiction”[1] wherein the managers undertake various profit-making activities keeping in mind the interests of the shareholders of such entity. Whereas there is an opposing view which considers the corporate entity as a “social being”[2] i.e. it owes obligations towards not only shareholders, but also towards the employees and the society.

The Securities Exchange Board of India (SEBI) vide consultation paper dated 1-3-2021 (Consultation Paper), proposed a slew of measures to address the extant corporate governance scenario in India[3] and thereafter, SEBI at its board meeting of 29-6-2021 (Board Meeting), retracted certain proposals which were aimed at overhauling the Indian corporate governance framework, while duly approving several other proposals.[4]

In the Consultation Paper, SEBI noted that an independent director (ID) is a critical spoke in the entire wheel of corporate governance, especially in the case of safeguarding minority shareholders’ rights.[5]Subsequent to the corporate sector being confronted with two recent corporate governance failures viz. the dismissal of Nusli Wadia (ID at certain Tata group companies) for supporting the minority shareholder group in the Tata v. Mistry dispute[6] and PNB Bank – Nirav Modi scam[7], SEBI attempted to solve two pertinent issues (i.e. conflict of interest arising from proximity of ID with the promoter and insufficient protection of minority shareholders’ rights) by promoting the UK and Israel model of appointment/reappointment of IDs.[8]

Accordingly, in the Consultation Paper, SEBI proposed for appointment and reappointment of IDs through “dual approval” route i.e.

“(i) approval of shareholders;

(ii) approval by ‘majority of the minority’ (simple majority) shareholders.

The approval at point (i) above, shall be through ordinary resolution in case of appointment and special resolution in case of reappointment. If either of the approval thresholds are not met, the person would have failed to get appointed/re-appointed as ID.

Further, in such case, the listed entity may either:

(i) propose a new candidate for appointment/reappointment; or

(ii) propose the same person as an ID for a second vote of all shareholders (without a separate requirement of approval   by ‘majority of the minority’), after a cooling-off period of 90 days but within a period of 120 days. Such approval for appointment/reappointment shall be through special resolution and the notice to shareholders will include reasons for proposing the same person despite not getting approval of the shareholders in the first vote.”

Similarly, in the Consultation Paper, SEBI promoted for a dual approval system for removal of IDs as well. However, in its Board Meeting, SEBI disregarded this dual approval approach entirely and mentioned that any appointment, reappointment, and removal of IDs shall be carried out through a special resolution in the listed companies.[9] The amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015[10], reflecting this approach will be effective from 1-1-2022. It is noteworthy that the SEBI Board of Directors also agreed to make a reference to the Ministry of Corporate Affairs, for giving greater flexibility to the companies while deciding the remuneration for all directors (including IDs), which may include profit-linked commissions, sitting fees, Employees Stock Ownership Plans (ESOPs), etc., within the overall prescribed limit specified under the Companies Act, 2013[11]. This would certainly enable companies to a great extent in securing qualified and competent directors.

However, these laudatory measures may not be adequate in distancing IDs from their alleged entwined relationship with the promoter group and thereby, lingering doubts remain regarding IDs being truly “independent” or not.

It is worthwhile to note that the Report of Kumar Mangalam Birla Committee on Corporate Governance in the year 2000 made a forward-looking statement that the corporate governance mechanism needs to be dynamic to cater to the needs of increased competition in the markets and rapidly evolving technological systems.[12] It is not all water under the bridge yet and the regulators could give more teeth to the relevant listing regulations so that the listed entities adhere to 3Cs approach (i.e. compliance, conduct and competence) while selecting, removing and setting out the roles and responsibilities of IDs.

B. Proposed reforms to the promoter regime

In a welcome move and in line with SEBI’s continuous efforts to adopt international best practices, SEBI had floated a consultation paper earlier this year in May 2021 proposing a shift from the concept of a “promoter” to a “person in control”.[13] This would be a most fundamental change, potentially impacting current regulations under the Indian companies’ law, restructuring & insolvency law, banking & insurance law and the merger-control regime, particularly in the context of “control”.

The proposed reform is an acknowledgement of the current scenario relating to ownership and control of a number of Indian companies, which is indeed shifting from the traditional family-owned, closely held structures, to widely dispersed shareholding, with institutional and private equity investments and often, nothaving a clearly identifiable “promoter” or “promoter group”, a concept which in itself is fairly unique to the Indian companies.

The Consultation Paper has even cited that:

The aggregate shareholdings of promoters in the top 500 listed entities in terms of market value, peaked at 58% in 2009 and is showing a downward trend. The promoters’ shareholding was approximately 50% in 2018. At the same time, the shareholding of institutional investors in the top 500 listed companies, in terms of market value, increased from approximately 25% in 2009 to 34% in 2018[14].

This is also a reflection of continuing control deals across sectors by private equity investors, and often tailored to unique situations in the Indian mergers & acquisitions and private equity regime.

One needs to be mindful about the fact that the “promoter” concept is deeply entrenched amongst Indian companies and the proposed reform will also require a mindset change, which the consultation paper has appropriately planned for by proposing that such reform is carried out over a period of 3 years.

On 6-8-2021, the SEBI Board of Directors gave its in-principle approval to “shifting from the concept of promoter to ‘person in control’ or ‘controlling shareholders’ in a smooth, progressive and holistic manner”[15].


*Partner at Quillon Partners (formerly Platinum Partners, Mumbai). Rohan’s LinkedIn profile can be accessed at https://in.linkedin.com/in/rohan-kumar-a53187a.

**Senior Legal Manager at SpiceJet Limited, an airline company in India. Shinjni’s LinkedIn profile can be accessed at https://in.linkedin.com/in/shinjnikharbanda.

The authors would like to clarify that the views mentioned in this article are the authors’ personal views and do not reflect the views of their respective organisations.

[1]Lynn S. Paine and Suraj Srinivasan, A Guide to the Big Ideas and Debates in Corporate Governance, Harvard Business Review (2019) <https://hbr.org/2019/10/a-guide-to-the-big-ideas-and-debates-in-corporate-governance>.

[2]Gerald F. Davis, Marina V.N. Whitman and Mayer N. Zald, The Responsibility Paradox, Stanford Social Innovation Review (Winter 2008) <https://ssir.org/articles/entry/the_responsibility_paradox>.

[3]SEBI, Consultation Paper on Review of Regulatory Provisions related to Independent Directors, SEBI Reports and Statistics (March 2021) <https://www.sebi.gov.in/reports-and-statistics/reports/mar-2021/consultation-paper-on-review-of-regulatory-provisions-related-to-independent-directors_49336.html>.

[4]SEBI, SEBI Board Meeting, SEBI Press Releases (June 2021) <https://www.sebi.gov.in/media/press-releases/jun-2021/sebi-board-meeting_50771.html>.

[5]SEBI, Consultation Paper on Review of Regulatory Provisions related to Independent Directors, SEBI Reports and Statistics (March 2021) <https://www.sebi.gov.in/reports-and-statistics/reports/mar-2021/consultation-paper-on-review-of-regulatory-provisions-related-to-independent-directors_49336.html>.

[6]UmakanthVarottil, SEBI’s Backtrack on Independent Directors, The Indian Express (July 2021) <https://indianexpress.com/article/opinion/columns/tata-mistry-corporate-dispute-nusli-wadia-sebi-appointment-removal-of-independent-directors-7403380/>.

[7] Param Pandya, Public Sector Banks in India: Revisiting Regulatory and Corporate Governance in the Light of the PNB Scam, South Asia @ LSE blog (30-5-2018) <https://blogs.lse.ac.uk/southasia/2018/05/30/public-sector-banks-in-india-revisiting-regulatory-and-corporate-governance-in-the-light-of-the-pnb-scam/>

[8]SEBI, Consultation Paper on Review of Regulatory Provisions related to Independent Directors, SEBI Reports and Statistics (March 2021) <https://www.sebi.gov.in/reports-and-statistics/reports/mar-2021/consultation-paper-on-review-of-regulatory-provisions-related-to-independent-directors_49336.html>.

[9]SEBI, Consultation Paper on Review of Regulatory Provisions related to Independent Directors, SEBI Reports and Statistics (March 2021) <https://www.sebi.gov.in/reports-and-statistics/reports/mar-2021/consultation-paper-on-review-of-regulatory-provisions-related-to-independent-directors_49336.html>.

[10]Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

[11]Companies Act, 2013.

[12]SEBI, Report of the Kumar Mangalam Birla Committee on Corporate Governance, SEBI Reports (2002) <https://www.sebi.gov.in/media/press-releases/oct-1999/corporate-governance_18186.html>.

[13]SEBI, Consultation Paper on Review of the regulatory framework of promoter, promoter group and group companies as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, SEBI Reports (11-5-2021) <https://www.sebi.gov.in/reports-and-statistics/reports/may-2021/consultation-paper-on-review-of-the-regulatory-framework-of-promoter-promoter-group-and-group-companies-as-per-securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-re-_50099.html>.

[14]SEBI, Consultation Paper on Review of the regulatory framework of promoter, promoter group and group companies as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, p. 6, SEBI Reports (11-5-2021) <https://www.sebi.gov.in/reports-and-statistics/reports/may-2021/consultation-paper-on-review-of-the-regulatory-framework-of-promoter-promoter-group-and-group-companies-as-per-securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-re-_50099.html>.

[15]SEBI, Minutes of SEBI Board Meeting, SEBI Press Releases (6-8-2021)

<https://www.sebi.gov.in/media/press-releases/aug-2021/sebi-board-meeting_51707.html>

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI)-Madhabi Puri Buch, Whole Time Member, while exercising powers under Section 19 read with Sections 11(1), 11(4) and 11B (1) and 11B(2) of the Securities and Exchange Board of India Act, 1992 restricted the Noticees involved in manipulation of the scrip.

In the present matter the show cause notice alleged that 21 connected entities (i.e. the ECL group) and 10 amalgamation allottees acted in concert in the scheme in manipulating the scrip price and facilitated in sale of shares by amalgamation allottees at a higher price thereby enabling the 10 amalgamation allottees to make wrongful gains. It was found during the investigation connected Noticees 1 to 18 (ECL group entities) acted in concert in trading in small quantity, at price above LTP, as counter parties to each other’s trades, etc. manipulated the price of the scrip and created a misleading appearance of trading in the scrip. And the 10 amalgamation allottees connected to the ECL Group sold majority of shares at a higher price to these connected ECL Group entities not buy any share during the IP except one. Thus Noticee 1 to 18, are alleged to have violated Section 12 A (a), (b), (c) of SEBI Act 1992, Regulation 3 (a), (b), (c), (d), 4(1) and 4(2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. And through the trading patterns Noticee 31 showed the Noticee was not acting as a genuine buyer and had no bona fide intention to buy in-spite of sufficient sell order quantity being available in the market. And Noticee 32 by virtue of being in promoter and promoter group, for non-disclosure of acquisition of the shares of the company.

The Tribunal after considering the contentions and the submissions put forth was of the view that,

Few Noticees have contended that the price and volume rise was result of the corporate  announcements  and  listing  and  the  same  has  not  been  considered during the price volume analysis. It is worthwhile to mention here that, at the time when   the   price   of   ECL   share   was   going   up,   there   were   no   corporate  announcements other than declaration of financial results, shareholding pattern and  appointment/change  of  directors”. It found that the 18 connected Noticees traded among themselves and manipulated the price of the scrip and created misleading appearance of trading in the scrip”.

It considered the facts established and further stated that,

“All these above facts confirm that the price and volume movements by the connected Noticees was a calibrated effort towards price increase. Further being an illiquid scrip the entities acting in concert can easily manipulate the volume and price acting counter parties to each other’s trades. Since the number of the traders available for the scrip are not too many, the execution is difficult and therefore time difference between the order placing and the execution time are immaterial as the same are played by the manipulators itself”.

The Tribunal referred to the SAT’s order Bhavesh Pabari v. SEBI decided on July 3, 2012,

 “…We agree with the adjudicating officer that matching of a large number of trades between the selected set of persons/entities for a considerable period of time in illiquid scrip cannot be a coincidence. Therefore, the adjudicating officer has rightly concluded that on the basis of the material on record, it is established that the appellant acted in collusion with others and created artificial volumes in the market and also influenced price of the scrip by placing and executing a large number of buy orders at a price higher than the last traded price and indulged in unfair trade practices”.

The Tribunal considered that the contentions put forth by the Noticees were not tenable because the Noticees are participants in the scheme. And therefore, restricted the Noticees from the securities market for different relevant periods. Also directed them to disgorge the amount so collected.[Excel Castronics Limited, In re, 2021 SCC OnLine SEBI 241, decided on 01-10-2021]


Agatha Shukla, Editorial Assistant has reported this brief.