Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): Soma Majumder, Adjudicating Officer, imposed a 25 crore penalty on Yes Bank Ltd. (YBL), and separate penalties on the three senior executives of its private wealth management team for perpetrating fraud on its customers by influencing them to alter their investment positions from fixed deposits (FD) to risky AT-1 bonds.

In the pertinent matter, the Bank was allegedly involved in the sale of AT1 bond fraudulently, which started in 2016 and continued till 2019. It appeared that YBL wanted to free up ‘shelf space’ for institutional investors to subscribe to further capital of YBL. Therefore, the Noticees devised a devious scheme to dump the AT1 bonds on their hapless customers acted through its employees including the three senior executives to perpetrate such fraudulent acts on its hapless and unsuspecting customers, some of whom were influenced to even alter their investment positions from FDs to these risky AT1 bonds. In order to do that, the Noticees highlighted the AT1 bonds as earning high interest vis-à-vis the FDs. The omission on the part of the Noticees to forward the relevant documentation to the investors customers indicated suppression of material facts and thus misrepresentation Some of the customers also closed the FDs and used the money to buy the AT1 bonds.

Noticee 1 had put forth 52 submissions and Noticee 2 had put 15 additional submissions.

While addressing the demand of the Noticees to cross-examine the complainants, it was held that, “…I note that while the impugned complaints have been the basis of initiation of investigation by SEBI, the charges in the SCN have been alleged on the basis of the detailed fact-finding which investigation conducted. Cross-examination is meant for assisting the Noticees to rebut the evidence against them while contesting the matter. However, since the complaints of the investors are not primarily relied upon in this proceedings, the question of cross-examination does not arise and hence no prejudice is caused to the Noticees by not acceding to their request for cross-examination…”.

The tribunal after looking into all the submissions so made, took note of all the evidences, documents and the proximate facts and circumstances, and was thus of the opinion that “It is clear that to further their own cause, the Noticees devised a scheme to purposely suppress the risk factors of the AT-1 bonds and to highlight the attractive features and also distorted and misrepresented the material facts, so that their customers could be influenced to invest in these risky bonds, some of who also shifted their investments from FDs to these bonds. It is clear that the Noticees had an intention to defraud the customers while making the sales pitch to their customers which is why they did not institute any of the aforesaid safeguards. It cannot be a matter of coincidence that such a large number of customers, i.e. 1311, were influenced and induced to invest in these risky bonds…”.

It further observed that, “It is seen from the facts of the instant case that these AT-1 bonds were ‘down sold’ in order to make ‘shelf space’ for the Institutional Investors to subscribe to further capital which may be issued by the YBL. So it was in the interest of Noticee1 to make shelf space and make the Institutional investors to subscribe to further capital and therefore Noticee 1 decided to facilitate the down selling of these AT-1 bonds…”.

It also took note of the fact that I note that initially, AT1 bonds were allowed to be issued only to institutional investors. Thereafter, vide its circular dated September 01, 2014, RBI allowed Banks to issue AT1 Bonds to individual investors but also mandated issuers to appropriately disclose to the investors, the unique features along with the risks associated with the bonds. And therefore, the issuer had the fiduciary duty to make sure that the features and risks of the instrument were known to the investors. And the difference between a subordinated bond and a fixed deposit should have been made clear while highlighting that it is not covered by deposit insurance.

Therefore the Tribunal exclaimed that,“ I conclude that the AT-1 bonds were sold to the customers of YBL by the Noticees without adopting adequate safeguards to protect their interests and without sufficient due diligence”. “…I conclude that the allegation that Noticees 1 to 4 violated Regulations 3(a), 3(c), 3(d) and 4(1) of PFUTP Regulations and Sections 12A(b) & 12A(c) of the SEBI Act and Noticees 1 and 2 also violated Regulation 4(2)(s) of PFUTP Regulations, read with Explanation (1) to Regulation 4(2) of PFUTP Regulations stands established. Further, Noticees 3 and 4 have submitted that the amendment to Section 4(2)(s) of PFUTP Regulations came into effect only in February 2019 after they had left the employment of YBL…”.

Resultantly a penalty of 25 crores was imposed on Yes Bank Ltd. a penalty of Rs 1 crore on Vivek Kanwar, head of private wealth management, and Rs 50 lakh each on Ashish Nasa and Jasjit Singh Banga.[Yes Bank Limited, In re, Order/SM/MG/2021-22/11306-11309, decided on 12-04-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): K Saravanan, Adjudicating authority, imposed a penalty of Rs 2 crore on Reliance Industries Ltd. (RIL), while making the noticees responsible not only on their own behalf but also on behalf of the minor noticees, being their natural guardians.

The issue herein was that, 12 crore equity shares of Rs 10/- each were allotted by RIL to 38 allottee entities on January 07, 2000. The allotment was made consequent to the exercise of the option on warrants attached with 6,00,00,000 – 14% NCD of Rs. 50/- each aggregating to Rs. 300,00,00,000 (PPD IV) issued in the year 1994.  Therefore, the allegation against the Noticees was to the effect that 6.83% shares that were acquired by RIL promoters together with Persons Acting in Concert (PACs) in exercise of option on warrants attached with Non-Convertible Secured Redeemable Debentures (NCD), which was in excess of ceiling of 5% prescribed in Regulation 11(1) of Takeover Regulations, without making any public announcement for acquiring shares.  Moreover, since the promoters and PACs did not make any public announcement for acquiring shares, it was alleged that they had violated the provisions of regulation 11(1) of Takeover Regulations. Resultantly, adjudication proceedings were initiated under Section 15H of the SEBI Act, 1992 against 36 promoters and PACs, which includes the 34 Noticees and 2 other entities.

Subsequently, certain preliminary issues were made pertaining to the jurisdiction, power of SEBI, which the Noticees believed should be adjudicated upon. And the adjudicating authority dealt with all the preliminary issues substantively one by one. While dealing with one of the preliminary issue to initiate proceedings after an inordinate delay, it was of the opinion “…In any event, even the delay, as argued, is not relevant to the present proceeding as the violation is a substantive violation in the nature of an “economic offence”…”.

Issues

  1. Whether the Noticees have violated the provisions of Regulation 11(1) of Takeover Regulations?
  1. Does the violations, if established, attract monetary penalty under Section 15H of SEBI Act, 1992? If yes, then what would be the monetary penalty that can be imposed upon the Noticees, taking into consideration the factors mentioned in Section 15J of the SEBI Act, 1992 read with Rule 5(2) of the Rules?

 The adjudicating authority while acting in affirmation stated, “Noticees have acquired 6.83% shares of RIL consequent to exercise of option on warrants attached with Non-Convertible Secured Redeemable Debentures (NCD), which was in excess of ceiling of 5% prescribed in Regulation 11(1) of Takeover Regulations, without making any public announcement for acquiring shares and, thus, have violated the provisions of Regulation 11(1) of Takeover Regulations. Further remarked, “…In the instant case, the violation was not one which was committed once and for all but that which continues till date. The violation is a disobedience…”.

The adjudicating authority while holding the RIL in default stated, “…I note that the Hon’ble Supreme Court of India in the matter of SEBI v. Shri Ram Mutual Fund (2006) 68 SCL 216 held thatonce the violation of statutory regulations is established, imposition of penalty becomes sine qua non of violation and the intention of parties committing such violation becomes totally irrelevant. Once the contravention is established, then the penalty is to follow.“…It is an admitted fact that the Noticees did not make the public announcement as per the mandatory requirement of Regulation 11 of the Takeover Regulations and the open offer being a consequential and necessary part thereof, which was absolute in nature. Such a failure is a continuing violation till discharge…”.

“…the warrants were issued in the year 1994 much before their coming into existence of the Takeover Regulations. At the same time, I note that the entire scheme of Takeover Regulations rest on the pedestal of ‘control’.  “…In effect, I note that the Noticees have neither complied with in obtaining the approval of shareholders supplying them with the prescribed details nor have they come out with a public announcement till date. Thus, I note that the Noticees have been enjoying all rights attached to the impugned acquisition without complying with the relevant law…”.

Thus, the violation of Regulations 11(1) of the Takeover Regulations made the Noticees liable for penalty under Section 15H of the SEBI Act, 1992.

While deciding on the penalty, the adjudicating authority was of the opinion that, “…With regard to the above factors to be considered while determining the quantum of penalty, I note that no quantifiable figures or data are available on record to assess the disproportionate gain or unfair advantage and amount of loss caused to an investor or group of investors as a result of the default committed by the Noticee. However, the fact remains that the Noticees by their failure to make public announcement, deprived the shareholders of their statutory rights/ opportunity to exit from the company…”

Therefore imposed Rs 25,00,00,000 penalty, to be paid jointly and severally, under Section 15H of SEBI Act, 1992 for violation of Regulation 11(1) of Takeover Regulations.[Reliance Industries Ltd., In re, Order/KS/AE/2021-22/11266-11299, decided on 07-04-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): S.K. Mohanty (Whole Time Member) in a detailed 92 paged order, barred six individuals and seven entities from the securities market for varying periods and directed some to disgorge illegal gains. Further made clear distinctions from the cases referred to, in regards with the instant matter, specifying very categorically the different factual threads.

The present matter pertains to the issuance of GDR by Zenith Birla (India) Limited and the independent and concerted efforts of the other Notices.. It had issued 1.81 million GDRs for USD 22.99 million in 2010. Thereafter, all the 1.81 million GDRs were cancelled and converted into equity shares. Post cancellation of the aforesaid GDRs, it was noticed that 4,77,30,000 shares of Zenith on conversion of 1,377,667 GDRs were sold in the Indian securities market through FII-sub-account namely India Focus Cardinal Fund  (IFCF). Similarly, 1,15,06,560 shares of Zenith on the conversion of 319,626 GDRs were sold in the Indian securities market through FII-sub account namely High Blue Sky Emerging Market Fund.  DRThe Company had concealed material facts from its shareholders and investors of Indian securities market and thereby had prevented them from taking an informed decision while dealing in the shares of the Company.

There were certain submissions made by the parties which the Court dealt with suitably, for instance, “…I note that the instant proceedings are in the nature of quasi-judicial proceedings and the provisions of Indian Evidence Act, 1872 are not strictly applicable to such proceedings. Further, the principle under Section 65 (a) of the said Act, itself provides for admissibility of a document as a secondary evidence under certain condition inter alia, when the original is in possession of the person against whom the document is sought to be proved, or of any person out of reach of, or not subject to the process of the Court. As stated in the beginning, the copies of the documents relied upon in the SCN to prove the allegations, were actually obtained during investigation through the help of overseas securities market regulators and the copies of all such documents relied upon in the SCN have been duly made available to the Noticees. The Noticees have filed their written replies to the SCN by referring to those documents, hence the objection to the reliability on those documents at this stage is without any reason and does not explain as to how these copies of documents have caused prejudice in defending their interest and contesting the allegations made against in the SCNs…”.

“Noticee no. 6 should understand that the instant proceeding is an inquisitional proceeding where an entity is required to offer comments / replies in response to the allegation levelled in the SCN. It is not an adversarial proceeding i.e. a dispute resolution proceeding where respective counter parties present their respective claims to a third neutral party, or an adjudicator for deciding the dispute…””… Hence the contention of the Noticee no. 6 is not tenable and he is expected to only confine his submissions in rebutting the allegations made against him in the SCN…”.

The Court further remarked, “On the basis of close connection of IFCF and HBS with AP and the role played by the AP, Vintage, IFCF and HBS in implementing the fraudulent scheme of GDR issue of Zenith, it is the call of justice that all these entities should be made jointly and severally liable to disgorge the said illegal gains earned by IFCF and HBS. Therefore, in my considered view, the gains made by these Noticees by selling such shares are liable to be disgorged since the underlying shares of those GDRs for which no consideration was paid by Vintage, were sold and unlawful gains were made out of such sale by these Noticees…”. Therefore, such acts providing partial and distorted information to the public about issuance of GDRs by the Company were observed to be acts falling in the category of fraudulent acts.

Common submission by some of the Noticees:

GDR were issued by the Company in 2010 while SEBI had issued SCN after 9 years of the GDR and such inordinate delay of around 9 years is unjustified and unfair.

Replying to which the court exclaimed, “….The submissions advanced by the Noticees may give a semblance of credibility on first blush, however, after scrutiny of the records before me, I am of the view that the aforesaid observations of the Noticees and the decisions relied upon by them would neither be applicable nor be helpful to the Noticees, as the facts and the context of the matters referred to above are distinguishable from the facts of the present matter…”

While taking cognizance of the individual and active role of the Noticees in connivance with Zenith, the Court took note of the role of the Bank also. The Court gave due credit to the corrective steps that the Bank took by removing the director from its joint venture, further dissolving and transferring its sub account. And therefore it stated, “…in my opinion, though the acts of the Noticee no. 13 are in violation of the provisions alleged in the SCN, taking cognizance of the aforesaid mitigating measures taken by it as a bank and as a FII, the matter needs to be considered accordingly…”.[Zenith Birla (India) Ltd, In re, 2021 SCC OnLine SEBI 75, decided on 30-03-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal (SAT): A Coram of Tarun Agarwala, J., (Presiding Officer) and M.T. Joshi, J., (Judicial Member) while dismissing an appeal held that separate penalties by the stock exchanges could be imposed.

In the present matter, BSE and NSE separately imposed a penalty of Rs 12 lakh for violation of Regulation 17 and 19 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), in two consecutive quarters. The stock exchanges suspended the trading activities of the appellant considering the non-payment of penalty amount.  The appellant contended that the default was made only in the first quarter. Further, contended that, separate penalties for the same offence cannot be imposed by the two stock exchanges separately.

The Coram resultantly found defaults in both consecutive quarters. While relying on the SEBI’s conscious decision in W.S. Industries (India) Limited v. BSE Ltd. (Appeal No. 8 of 2019 decided on 19.09.2019) held that, separate penalties by the stock exchanges could be imposed.[PVP Ventures Ltd. v. Bombay Stock Exchange Ltd., Appeal No. 543 of 2019, decided on 17-03-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): G Mahalingam, (Whole Time Member) while revising the recommendations made by the Designated Authority (DA) considering the serious lapses of the Noticee (Book Running Lead Manager) in regards with carrying out due diligence, were taken note of. Resultantly, Noticee is prohibited from accepting any new clients for a period of three months.

The present matter was brought out from an investigation carried out by SEBI into the IPO of Sudar Industries Ltd. (SIL), for which Ashika Capital Limited (Noticee) was the Book Running Lead Manager (BRLM), in which certain lapses were found on account of BRLM. In the instant case the Delegated Authority had observed that the issuer company did not disclose the transactions of Addon Exports, A R Fabrics, Elim Traders, RJ Traders and Shalom Fashion, which were proprietorship firms of employees of SIL and persons connected to it, in the related party transaction. The Noticee contended that there was nothing on record that could have raised an iota of suspicion that the proprietorships in question were connected with the employees and there were no standard guidelines for the due diligence process.

Issues raised were:

  1. Non-disclosure of Independent director’s involvement in key strategic and financial decisions
  2. Heavy dependence on few buyers/suppliers and non-disclosure of the buyers and suppliers being related to the promoters and the promoter group
  3. Wrong disclosures made in the offer document regarding KMPs
  4. Non – Disclosure of Related Party Transactions

The enquiry report indicated clearly that SIL was very much dependent on its clients for around 80% of its revenues and further established a cogent pecuniary relationship.

It was thus held, “…It was further noted that the Noticee had merely relied on an undertaking and information given by the issuer company instead of independently verifying the facts by examination of documents. Thus, the merchant banker in the present case has mechanically disclosed the information provided by the issuer without exercising reasonable diligence to ensure adequate, true and fair disclosures in the prospectus. The Noticee by not independtly exercising adequate diligence has deprived the investors of material information to enable them to make a balanced and well informed decision, which clearly breached the obligations imposed…”.

While stressing on the need for diligence, a landmark judgment of the Supreme Court was referred to, Chander Kanta Bansal V. Rajinder Singh Anand (2008) 5 SCC 117 “…According to Oxford Dictionary (Edn. 2006),the word “diligence” means careful and persistent application or effort. “Diligent” means careful and steady in application to one’s work and duties, showing care and effort. As per Black’s law Dictionary (18thEdn), “Due Diligence” means the diligence reasonably expected from, and ordinarily exercised by, a person who seeks to satisfy a legal requirement or to discharge an obligation. According to Words and Pharses by Drain-Dyspnea (PermanentEdn.13-A)“due diligence”, in law, means doing everything reasonable, not everything possible.“ Due Diligence” means reasonable diligence. It means such diligence as a prudent man would exercise in the conduct of his own affairs…”.

Further stated that, “…I find that the recommendation is not commensurate with the gravity of the lapses/acts of negligence attributable to the Noticee. Hence, I am inclined to appropriately revise the recommendation and pass suitable directions…”.

[Sudar Industries Limited, In re, WTM/GM/EFD 1 – DRA 4/ 81/2020-21, decided on 17-03-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): G. Mahalingam (Whole Time Member), while exercising powers conferred under Section 12(3)  read with Section 19 of the SEBI Act and Regulation 27(5) of the Intermediaries Regulations, cancelled the certificate of registration of the Alliance Intermediaries and Network Private Limited (Noticee), on account of activity and willful issuance of fake and bogus contract notes against receipt of cash to show fictitious transactions as genuine ones and enable its clients to book fictitious speculative gains and short/long term gains/losses for tax purposes.

In the pertinent case, it was found by the Noticee was registered with the Securities and  Exchange  Board of  India as a  member of  Inter-Connected  Stock Exchange of India Limited. During 2004  to  2007,  contract notes were issued by intermediaries (i.e. person of any business in the market) to clients (individual entities) on behalf of the Noticee on accepting cash from intermediaries and giving cheques by the Noticee to intermediaries.  The Noticee was earning a commission of 0.15% for the deposit of cash in its various companies. Counsel appearing before the Investigating authority also presented the modus operandi of for issuing fake contract notes for speculative profits/losses on behalf of clients.

Therefore, recorded that as per the findings of the Income  Tax  Department, the Noticee was engaged in making accommodation entries for clients to facilitate speculative short term / long term profits/losses. And further noted that the activities of the Noticee, were inherently fraudulent and were aimed at aiding and abetting tax frauds. And held that the Noticee was no longer a ‘fit and proper person and thereby in respect of Alliance Intermediaries and Network Private Limited has violated  Regulation  5(e)  read with  Regulation  5A  of the  Stock  Brokers  Regulations read with provisions of  Schedule II of the Intermediaries Regulations.[Alliance Intermediaries and Network Private Limited, In re, 2021 SCC OnLine SEBI 24,  decided on 09-03-2021]

Case BriefsHigh Courts

Kerala High Court:  N. Nagaresh, J., addressed the instant petition filed by a Non-Banking Finance Company to challenge show-cause notices issued by the Securities and Exchange Board of India. The petitioner had sought to declare that the show-cause notices were ultra vires to the provisions of the Companies Act, 1956, the provisions of the Securities and Exchange Board of India Act, 1992, and were violative of Article 14 and Article 19(1)(g) of the Constitution.

Brief facts of the case were, the petitioner company was a Public Limited Company registered with the Reserve Bank of India (RBI). It had been subjected to stringent monitoring by its Auditors and RBI Inspectors. To augment its capital base and resources, the petitioner had made a private placement of equity shares several time. Such private placements were made to very few persons who were associated with the petitioner as member/staff/borrower. Applications for equity shares were given to specific persons. SEBI had issued a letter dated 19-10-2017, seeking information from the petitioner regarding alleged deemed public issue and had called for information from the petitioner. On not being satisfied with the information and documents provided by the petitioner, SEBI had issued a show-cause notice dated 05-04-2019.

The petitioner, while relying on the judgment of the Supreme Court in Joint Collector Ranga Reddy District v. D. Narsing Rao, (2015) 3 SCC 695, contended that there had been 19 years of inordinate delay and laches in proceeding against the petitioner. Also, in spite of requests, the copies of the complaints on the basis of which the show-cause notice was issued were not made available to the petitioner, thereby offending the settled principles of natural justice.

The Bench noticed that the petitioner-Company had passed resolutions authorising issue of equity shares to any person including existing members of the Company in any manner the board may deem fit. The language of the resolution indicated that what was intended by the Company was not strictly private placement. The language of the resolutions indeed gives rise to a suspicion or indication that the Company proposed to issue shares to the public. It is for the said reason that the SEBI sought explanation from the petitioner. The Bench stated,

“It was true that the information sought for by the SEBI related back to the year 2001. However, the required information are those which are required by the petitioner to be statutorily maintained. Therefore, the delay in issuing these Show Cause Notices, cannot cause prejudice to the petitioner.”

Hence, the Bench stated, it could not be said that jurisdictional facts necessary to initiate proceedings did not exist. Even if the petitioner-company was incapacitated to provide any information required by the SEBI, it could very well give reasoned explanation for the same to the SEBI.  Lastly, it was held the issue being at show-cause stage, it would not be appropriate for the Court to interfere with the statutory proceedings at this stage. Thus, the petition was dismissed.[BRD Securities Ltd. v. SEBI, 2021 SCC OnLine Ker 1027, decided on 25-02-2021]


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Case BriefsTribunals/Commissions/Regulatory Bodies

Security and Exchange Board of India (SEBI): S.K. Mohanty, (Whole Time Member) had granted exemptions to Pantone Finvest Ltd., from complying with the requirements of regulation 3(2) read with regulation 10(1)(a)(ii) of the Takeover Regulations 2011 with respect to direct acquisitions in Tata Communications Ltd.

Pantone Finvest Ltd. had proposed acquisition of equity shareholdings of 26.12% in Tata Communications Ltd. as the government had shown its intention to divest its shareholding in the Company partly through the OFS process and partly through sale to a strategic partner i.e., Pantone. Such an increase in shareholding of the Pantone from the current holdings of 48.87% to 58.87% in the Company would trigger an open offer obligation under regulation 3(2) of Takeover Regulations 2011.

The Board noted that both Pantone and government were part of the promoter group of the Company for more than three years in the past thereby, the proposed transaction was eligible for general exemption under regulation 10(1)(a)(ii) of Takeover Regulations 2011. However, it was further noted that the proviso of regulation 10(1)(a) of Takeover Regulations 2011 had mandated that the price should be within the prescribed threshold.

The issue in the instant case was that neither Pantone nor government could determine whether the price arrived at in the OFS process would be in accordance with the proviso of regulation 10(1)(a) of Takeover Regulations 2011. If the discovered price was not within the prescribed range, the transaction would not be eligible for automatic exemption. Therefore, an exemption application had been filed under regulation 11 of Regulations 2011.

The Board observed that the proposed acquisition would make no change in either total equity share capital or total share capital of the Company. Hence, the Board had granted an exemption to Pantone from complying with the requirements of regulation 3(2) read with regulation 10(1)(a)(ii) of the Takeover Regulations 2011 with respect to the proposed direct acquisitions in the Company. However, the exemption was limited to requirements of making an open offer and Pricing Condition and not from disclosure requirements under Chapter V of the Regulations.  [Acquisition of shares and voting rights in Tata Communication Ltd., In Re., WTM/SKM/CFD/5 of 2020-21, decided on 23-02-2021]


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Securities Appellate Tribunal (SAT): Justice Tarun Agarwala, Presiding Officer, Dr C.K.G. Nair  Member and Justice M.T. Joshi, Judicial Member affirmed the impugned order and allowed the appeal partly.

The present appeal has been filed against the order dated August 31, 2020, passed by the Adjudicating Officer i.e. AO of Securities and Exchange Board of India i.e. SEBI imposing a penalty of Rs. 8 lakh for violation of Regulation 3 and 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 i.e. PFUTP Regulations.

A show-cause notice was issued in the trading of the scrip of Malabar Trading Company Ltd. i.e. ‘MTCL’. It was alleged that the appellant had contributed to more than 5% of the total market positive LTP through 63 trades for a total quantity of 4304 shares during patch-1. It was further alleged that the appellant placed sell orders in the range of 1 to 500 shares when the respective buy order quantity was in the range of 100 to 3400 shares especially when more shares were available, inspite of which the appellant on most of the dates traded only on one share. It was, thus, alleged that the appellant was manipulating the share price and created a misleading appearance of trading in the scrip by such trades thereby violating Regulation 3 and 4 of PFUTP Regulations. The AO found that the appellant had no bonafide intention to sell when sufficient buy orders were available and despite having adequate holdings in the scrip of MTCL sold only one share per transactions which resulted in the creation of positive LTP and thus created a false misleading appearance of trading in the securities market. The AO, thus, held that such trading pattern amounts to manipulation of the price of the scrip.

The Tribunal observed that except on three occasions the appellant only sold one share at a time on a daily basis. This trading pattern created a misleading appearance with the intention to manipulate the market if not the price. Thus, even if there is no connection with the buyer the trading pattern shows a concerted effort to manipulate the market and therefore it was observed that the appellant was not acting as a genuine seller. It was further observed that appellant had no bonafide intention to sell because inspite of sufficient buy orders being placed with abundant quantity being available in the market the appellant was only placing sell orders of one share at a time. This clearly shows his intention of manipulating the market for vested reasons.

The Court thus held that the finding of the AO that the appellant had violated the provisions of Regulation 3 and 4 of PFUTP Regulations does not suffer from any error of law. The Court further held “in the given circumstances when the appellant was only selling miniscule quantity the penalty of Rs. 8 lakh is harsh and excessive and does not commensurate with the alleged violations. Given the surrounding circumstances we are of the opinion that the penalty of Rs. 1 lakh in the given circumstances shall be just and sufficient.”

In view of the above, the appeal was allowed and impugned order affirmed.[Tanuj Khandelwal v. SEBI, 2021 SCC OnLine SAT 78, decided on 04-01-2021]


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Security and Exchange Board of India (SEBI): Ananta Barua, (Whole Time Member) found Chairman of Future Group, Kishor Biyani and its other promoters indulged in insider trading. The Board, in addition to a year ban on Kishor Biyani, Anil Biyani and Future Corp. Resource Pvt. Ltd. (FCRPL), had also imposed the penalty of Rs 1 crore on each.

The order was passed in connection with an announcement dated 20-04-2017 related to the “Composite Scheme of Arrangement between FRL, BSPL, PHRPL and their respective Shareholders”. SEBI had passed a show-cause notice regarding the said arrangement, alleging insider trading and wrongful gain thereby.

Whether there was an Unpublished Price Sensitive Information (UPSI)?  

On 20-04-2017, Future Retail Ltd. (FRL) made a corporate announcement to the stock exchanges regarding segregation of certain business of FRL through a Composite Scheme of Arrangement between FRL, BSPL and PHRPL and their respective Shareholders. The information related to scheme of arrangement, which resulted in the de-merger of certain business from FRL, had its own appreciable impact on the price of the shares of FRL and therefore, information was price sensitive.

Regulation 2(1) (n) of the Prevention of Insider Trading (PIT) Regulations, 2015 prescribes as under:

“………(n) “unpublished price sensitive information” means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities”

Therefore, the information which was disclosed to the stock exchanges by FRL on 20-04-2017, prior to its disclosure was UPSI.

Whether Noticees except Noticee 7, are insiders?

The definition of “insider”, as given in Regulation 2(1)(g) of PIT Regulations, 2015 showed that any person,

  • who is connected person; or
  • who is in possession of or having access to UPSI,

Regulation 2(1)(d)(ii)(j) of PIT Regulations, 2015 inter alia provides that a company wherein a director of a company or his immediate relative or banker of the company, has more than ten per cent. of the holding or interest, shall be deemed to be connected person unless the contrary is proved. Noticee 2, Kishor Biyani had been shown as person exercising significant influence on FRL being significant beneficial owner of shares held by noticee 1 FCRPL in FRL. Kishor Biyani, having held beneficial interest in 32% shares of FCRPL was an insider as per the provisions.  Noticee 3, Anil Biyani, (Promoter of FRL) being immediate relative of Kishor Biyani was deemed to be connected persons in terms of the Regulations, 2015. FCRPL, being a connected entity was an insider as mentioned above. Noticee 4, the employee trust formed by FCRPL i.e., FCRPL Employee Welfare Trust (FCRPLWT) was deemed to be a connected person. Noticee 5 and 6 i.e., Rajesh Pathak  and Rajkumar Pande were also directors in other group companies of Future Group and had frequent communication with Kishor Biyani which had suggested direct or indirect association of with FRL, which was the requirement under Regulation 2(1)(d) of the PIT Regulations, 2015 for terming a person as “connected person”.  Noticee 8, Arpit Maheshwari was part of the emails where issue related to the scheme was being discussed. Since, he was privy to the UPSI, he was an insider in terms of Regulations 2(1)(g)(ii) of PIT Regulations, 2015.

Whether Noticees except Noticee 7, have traded in the securities of FRL when in possession of the UPSI?

The Board observed that FCRPL purchased Rs. 36,25,000 shares and FCRPLWT purchased Rs. 8,00,500 shares, of FRL during the period of UPSI. While Kishor Biyani and Anil Biyani who were insiders of FRL and were holding beneficial interest in 32% and 15% shares in FCRPL, respectively, were the persons who took the decisions for impugned trades on behalf of FCRPL, in the shares of FRL during the UPSI period. Noticee 5, in consultation with noticee 6, had issued instructions to IDBI to purchase the shares of FRL on behalf of noticee 4 during the UPSI period. IDBI then placed the order with Sajag Securities Pvt. Ltd., Stock Broker of Noticee 4, for purchasing the shares of FRL. While noticee 8 employed with FRL as Deputy Manager, had traded in the scrip of FRL during the period of UPSI. The Board held,

“Once it is established that an insider when in possession of UPSI has traded in the securities then it is a natural inference that such trades were on the basis of the UPSI.”

SEBI observed that noticee 7 (as a compliance officer of FRL) had violated Clause 4 of the Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders as specified in Schedule B read with Regulation 9(1) of PIT Regulations, 2015 as he failed to close the trading window with respect to the aforesaid announcement dated 20-04-2017. The Board further noticed that as per the list of people/entities submitted by FRL to whom pre-clearance was given for trading in the scrip of the FRL, noticee 7 gave pre-clearance to FCRPL for trading in the scrip of FRL while knowing the fact that FCRPL and its directors i.e. Kishor Biyani and Anil Biyani were insiders and might have access to the UPSI.

Directions:

In view of the aforesaid findings, SEBI issued following directions:

  • FCRPL, Kishor Biyani, Anil Biyani along with noticees 5 and 6 were restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, for a period of one (1) year;
  • Noticees 1, 2, 3, 5 and 6 were restrained from buying, selling or dealing in the securities of the Future Retail Limited (FRL) for a period of two (2) years;
  • Noticee 8 was restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, for a period of one (1) year; and further from buying, selling or dealing in the securities of the Future Retail Limited (FRL), for a period of two (2) years;
  • FCRPL, Kishor Biyani and Anil Biyani were directed to jointly and severally disgorge an amount of Rs. 17,78,25,000.
  • Noticee 8 was directed to disgorge an amount of Rs. 13,320 along with an interest at the rate of 12% per annum to Investor Protection and Education Fund (IPEF).
  • FCRPL and FCRPLWT were directed to jointly and severally disgorge an amount of Rs. 2,75,68,650 along with an interest at the rate of 12% per annum.
  • Penalty of Rs. 1 crore was imposed on FCRPL, Kishor Biyani and Anil Biyani each which was directed to be paid within a period of 45 days,
  • Noticee 5 and 6 were imposed with a penalty of Rs. 25 lakh, each and were directed to pay their respective penalties within a period of 45 days;
  • Noticee 7 was imposed with penalty of Rs. 10 lakh, and was directed to pay penalty within a period of 45 days,

However, SEBI clarified that the obligation of the noticees in respect of settlement of securities, purchased or sold in the cash segment of the recognized stock exchange(s), would be allowed to be discharged irrespective of the restraint/prohibition. Further, all open positions, if any, of the noticees, in the F&O segment of the recognised stock exchange(s), were permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order. [Future Retail Ltd., In Re., WTM/AB/IVD/ID3/23 of 2020-21, decided on 03-02-2021]


Kamini Sharma, Editorial Assistant has put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Security and Exchange Board of India (SEBI): Madhabi Puri Buch, (Whole Time Member) issued ex-parte order against National Stock Advisory Research (NSAR) on finding out its indulgence in unauthorised activities.

SEBI had received a complaint against NSAR, a proprietorship firm of Neeraj S Lodhi alleging that NSAR was an unregistered stock advisory firm; was in the business of taking money from small investors by providing them wrong trading tips and calls, and after receipt of money they did not respond to phone calls and messages of investors.

After conducting the examination in this matter, the Board noticed that neither NSAR nor its proprietor Neeraj S Lodhi was registered with SEBI in any capacity. The Board observed that NSAR had been putting information in public domain/advertising by using website namely www.nationalstockadvisory.com about the various services offered by it in securities market. It was also observed that various plans/packages were being offered by NSAR to avail Services. Thus, NSAR was prima facie, holding itself out as an investment Adviser without obtaining registration from SEBI and observing mandated regulations. Regulation 3(1) of SEBI (Investment Advisers) Regulations, 2013 states that:

“…no person shall act as an investment Adviser or hold itself out as an investment Adviser unless he has obtained a certificate of registration from the Board under these regulations”.

The Board held the activities of NSAR, prima facie, in violation of Section 12(1) of SEBI Act, 1992 read with regulation 3(1) of the IA Regulations, 2013. Therefore, to prevent NSAR from collecting any more funds from the public and indulging in unauthorized investment advisory activities, the Board by way of interim ex-parte order issued the following directions against NSAR and its proprietor Neeraj S Lodhi:

  • to cease and desist from acting as an investment advisor including the activity of acting and representing through any media (physical or digital) as an investment advisor,
  • not to divert any funds collected from investors
  • not to dispose of or alienate any assets,
  • to immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, communications etc.
  • not to access the securities market and buy, sell or otherwise deal in securities, either directly or indirectly, in any manner whatsoever;
  • to provide a full inventory of all assets held in their name,
  • ICICI Bank and SBI are directed not to permit any debits/withdrawals and not to allow credits, from/to the following bank accounts, without the permission of SEBI.
  • The Depositories are directed to ensure, that they neither permit any debits nor any credits in the demat accounts held by Neeraj S Lodhi.

[National Stock Advisory Research, In Re.,  WTM/MPB/IMD/WRO-ILO/ 171 of 2021, decided on 01-02-2021]


Kamini Sharma, Editorial Assistant has put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Madhabi Puri Buch, Whole Time Member, SEBI in an interim order has restrained Hemant Ghai, co-anchor of a television show Stock 20-20 on CNBC Awaaz and his wife and mother from directly or indirectly dealing in securities until further orders. On analysing the trading pattern of Jaya Hemant Ghai and Shyam Mohini Ghai (wife and mother of Hemant Ghai) for the period between January 1, 2019 to May 31, 2020  it was seen that Hemant Ghai in the name of his wife and mother undertook a large number of “Buy-Today-Sell-Tomorrow” trades in synchronisation with the recommendations made in his morning show. Shares were bought on the previous day to the recommendations being made on the Stock 20-20 show and sold immediately on the recommendation day.

In violation of the SEBI Act, 2002 and Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003 over Rs 100 crore in 90 trades were executed in trading accounts of the two family members which led to gains of approximately 3 crores as per the preliminary investigation.  Call data records of Hemant Ghai were also analysed which indicated regular communications with an equity analyst who handled the trades for the account of his wife and mother. Also, there was no data of call records from the registered numbers of his wife and mother to the brokers, therefore it was prima facie inferred that Mr Hemant Ghai was the one handling the transactions.

Also it was noted by SEBI that a discernible increase in price and volume of the recommended scrip on the day of recommendation took place frequently over the course of the relevant period. The preponderance of probability was that a buy recommendation given on the show had a significant positive effect on the price and volume of the scrip.

SEBI passed an ex-parte order to protect the interests of investors and preserve the safety and integrity of the securities market, granting the accused 21 days to file a reply or seek in-person hearings. Besides the bar or trading in securities and the freezing of their bank accounts, SEBI  also impounded the banks accounts of the accused to the extent of Rs 2.95 crore. CNBC, the employer of Mr Ghai was also advised to take action against Mr Ghai as per their rules of conduct and to inform readers of the action taken by SEBI.

[In the matter of CNBC Awaaz “Stock 20-20” Show co-hosted by Mr. Hemant Ghai, WTM/MPB/ISD/ 166 /2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): S.K. Mohanty, (Whole Time Member) while holding the Noticees liable for manipulative trade practises explained,

“Establishment of direct quantified damage/loss to an investor in personam is not an essential ingredient to prove the charges of the price manipulation. The very acts of marking up the price of scrip higher by manipulative trading practices even by a selected few persons can induce the investors in rem.”

 Background

 A show caused notice (SCN) was issued by SEBI against the Noticees to ascertain whether the unusual price movement noticed in the scrip of Anukaran Commercial Enterprises Ltd.(“the Company”) was normal or it was caused by unscrupulous acts leading to any possible manipulation of the price of the scrip of the Company. The shares of the Company were listed on BSE. The price of the scrip saw an abnormal rise, which was not supported by any corporate announcements or material changes in the business activities of the Company. In this period, the first trade was executed at INR 35.15 whereas the last trade was executed at INR 256.25 and the scrip witnessed a sharp increase in price by INR 221.20 with just 60 trades executed within a period of 43 trading days. It is noticed that 16 entities sold the shares of the Company at a price higher than the last traded price (“LTP”) and contributed to the positive LTP. The investigation further revealed that out of the said 16 sellers, top 03 sellers have contributed more than 65% to the market positive LTP variance of the scrip.

Observations

 Regarding allegations against Noticee 1, the Board observed that, he had executed trades in minuscule quantities as over the period of 20 days, he had sold only 12 shares and further over a period of 15 trading days, and he preferred to sell only 1 share at a time aggregating to 15 shares. The notice 1 had been indulged in execution of sell trades with a minimum possible lot on each day, with an apparent motive to set a high closing price of the scrip, by contributing to the LTP variance to maximum possible limit, fixed by the Stock Exchange. It was also observed that, transfer of 100 shares of the Company to Noticee 1 by Noticee 2 was not genuine and was done only for the purpose of enabling manipulation in the price of the shares. Noticing the unique and unusual pattern of selling 01 share at a time on a continuous basis over a long period, trading in miniscule quantities by the Noticee no. 1 immediately after receipt of those 100 shares from notice 2, that consistently resulted in contributing to the LTP etc., the Board had reached to the findings that, the transactions were carried out with some ulterior motive to disturb market mechanism by artificially raising the price of shares of the Company.

It was further noticed that, Noticee 3 and Noticee 4 were involved in short selling of the shares, and by executing such trades in minimal quantities, they had indulged in the manipulation of the price of the scrip of the Company. Noticee 3 and 4 were involved in a series of unusual elements such as, absence of any other sellers on those trading days; execution of (short sale) trades at the fag end of the day leaving no time to off-set the contract; no intention of making profits; all trades being executed at prices higher than the LTP, no genuine effort to consolidate their shares stock when the scrip was witnessing price rise on a continuous basis etc. Therefore, there could not be any motive except; intention to carry out an agenda to manipulate the price.

The Board, while holding the Noticees liable for violating Regulation 3 (a), (b), (c), (d) and 4 (1), 4(2), (a) and (e) of PFUTP Regulations expressed,  “The market is governed by written rules and well established market practices have evolved over the period of time and any person resorting to any peculiar pattern of trading which has a cascading effect of distorting the market mechanism by way of creating artificial trading, leading to rise in the price of a scrip through manipulative trades by no means can be held as normal and fair trading in the market.”

Directions

On the basis of above considerations, the Board restrained all the Noticees from accessing the securities market and further prohibited them from buying, selling or otherwise dealing in securities or being associated with the securities market in any manner, for a period of six months. It was directed that, the existing holding of securities including the holding of units of mutual funds of the Noticees shall remain frozen. Further, all open positions, if any, of the aforesaid Noticees in the F&O segment of the stock exchange, were permitted to be squared off, irrespective of the prohibition imposed by this Order.[Anukarana Commercial Enterprises Ltd., In Re., 2021 SCC OnLine SEBI 3, decided on 08-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Security and Exchange Board of India (SEBI): Madhabi Puri Buch, (Whole Time Member) imposed certain restrictions on GJ Advisory Services and Profit Ideas Advisory Services (“Noticees”) for indulging in unregistered Portfolio Management Services.

SEBI received several complaints against noticees alleging unregistered portfolio management activities. On examination, the Board noticed that the noticees had undertaken the management of funds as well as securities of their clients and the fees/funds were collected through the Banks Accounts of the noticees. It was found out that both the noticees were engaged in ‘portfolio management services. The Board observed that by virtue of providing unregistered Portfolio Management Services, the noticees had collected an amount of Rs 8,89,23,049 as fees towards the management of funds and securities of clients.  Thus, the activities noticees were prima facie, in violation of Section 12(1) of SEBI Act read with Regulation 3 of Portfolio Management Services (“PMS”) Regulations.

The Board opined that permitting the investors to receive a portfolio management service from an unregistered entity would cause irreparable injury to the development of the securities market as the objective of SEBI is not only the protection of investors but also orderly development of securities market. Hence, the Board held that Gourav Jain and Poonam Jain who were the proprietors of GJ advisory and Profit Ideas respectively, were liable for unregistered portfolio management services and, therefore, the Board issued following orders against the noticees:

  1. to cease and desist from acting as a portfolio manager and to solicit or undertake such activity or any other activities in the securities market.
  2. Not to divert any funds raised from investors.
  3. Not to dispose of or alienate any assets, or any interest or investment or charge on any of such assets held in their name, except with the prior permission of SEBI.
  4. Immediately withdraw and remove all advertisements, materials etc. in relation to their portfolio management activity or any other unregistered activity in the securities market.
  5. Not to access the securities market and buy, sell or otherwise deal in securities in any manner.

Consequently, the directions were made to the Banks not to allow any debits/ withdrawals and not to allow any credits to the accounts of the noticees, without permission of SEBI. The Depositories were also directed to ensure, till further directions, that no debit or credit be permitted in the demat accounts held by noticees. [GJ Advisory services and Profit Ideas Advisory Services, In Re., 2021 SCC OnLine SEBI 2, decided on 04-01-2021]

Legislation UpdatesRules & Regulations

Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2021
SEBI amends the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.
In regulation 20,
(i) in clause (iv) of the proviso to sub-regulation (6), the symbol “,” shall be substituted with the symbol “:”
(ii) after clause (iv) of the proviso to sub-regulation (6), the following proviso shall be inserted, namely, –

“Provided further that clauses (i) and (ii) shall not apply to an Alternative Investment Fund in which each investor other than the Manager, Sponsor, employees or directors of the Alternative Investment Fund or employees or directors of the Manager, has committed to invest not less than seventy crore rupees (or an equivalent amount in currency other than Indian rupee) and has furnished a waiver to the Alternative Investment Fund in respect of compliance with the said clauses, in the manner specified by the Board.”


Securities Exchange Board of India

[Notification dt. 08-01-2021] 

Legislation UpdatesRules & Regulations

Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2021

In Regulation 112 of Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, the existing clause (b) along with the proviso shall be substituted with the following, namely, –

“(b) where the equity shares of the issuer are frequently traded on a stock exchange for a period of at least three years immediately preceding the reference date, and:

(i)  the issuer has redressed at least ninety-five per cent of the complaints received from the investors till the end of the quarter immediately preceding the month of the reference date, and;

(ii)  the issuer has been in compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for a minimum period of three years immediately preceding the reference date:

Provided that if the issuer has not complied with the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, relating to the composition of the board of directors, for any quarter during the last three years immediately preceding the date of filing of draft offer document/offer document, but is compliant with such provisions at the time of filing of draft offer document/offer document, and adequate disclosures are made in the offer document about such non-compliances during the three years immediately preceding the date of filing the draft offer document/offer document, it shall be deemed as compliance with the condition:

Provided further that where the promoters propose to subscribe to the specified securities offered to the extent greater than higher of the two options available in clause (a) of sub-regulation (1) of regulation 113, the subscription in excess of such percentage shall be made at a price determined in terms of the provisions of regulation 164 or the issue price, whichever is higher.”

In Regulation 115, the existing proviso after clause (c), shall be omitted.

In Regulation 167, after the existing sub-regulation (4), the following new proviso shall be inserted, namely, –

“Provided that the lock-in provision shall not be applicable to the specified securities to the extent to achieve 10% public shareholding.”


Securities Exchange Board of India

[Notification dt. 08-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Security and Exchange Board of India (SEBI): B J Dilip, (Adjudicating Officer) imposed the penalty of 25 crores and 15 crore respectively on Reliance Industries Ltd. (RIL) and its MD,  Mukesh D. Ambani for making unfair and undue profits by means of fraudulent trade practices.

SEBI conducted an investigation into trading in the scrip of Reliance Petroleum Ltd. (RPL) to ascertain whether there was any violation of the provisions of SEBI Act, 1992.

A resolution was passed by BoD of RIL on 29-03-2007 which inter alia approved the operating plan for the year 2007-08 and resource requirements for the next two years, i.e., approximately Rs. 87,000 crore. Thereafter, RIL had entered into a scheme of manipulative trades in respect of the sale of 5% (up to 22.5 crore RPL shares) of RIL stake in RPL. However, before undertaking sale transactions in the Cash Segment, RIL fraudulently booked large short positions in the RPL November Futures through 12 Agents with whom it had entered into an agreement to circumvent position limits for a commission payment. Consequently, RIL fraudulently earned nearly 93% of open interest in RPL November Futures. RIL also undertook transactions in RPL shares in the cash segment. By employing these devices and acting through its 12 Agents, RIL had clandestinely accumulated position limits far in excess of limits permissible for a single client. The above steps in the F&O segment in view of its planned sale of 22.5 crore of RPL Shares in the cash segment was naturally expected to trigger steep price declines in the cash segment and alongside in the futures segment. The only way to take advantage of the sharp price decline would be by taking large positions in futures markets. By roping in 12 agent entities to act on its behalf, RIL had proportionately amplified its position taking capacity in futures which was fraudulent in nature as defined in section 12A (a), (b) & (c) of the SEBI Act and Regulations 3 and 4 of Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market (PFUTP Regulations) Regulations, 2003.

The Board observed that after the sale of shares on 29-11-2007, RIL still had 2.21 crore shares left to sell out of the 22.50 crores shares which suggested that RIL’s real objective was to bring down the RPL share price by dumping huge quantity of shares in the cash segment during the last 10 minutes to influence the settlement price in F&O segment. The manipulative and deceptive transactions of RIL were prima-facie, covered under the definition of ‘fraud’ and therefore were “fraudulent”, as defined under regulation 2(1) (c) of the PFUTP Regulations, 2003

Managing Director of RIL,  Mukesh D. Ambani had been held liable for manipulative trading done by RIL. SEBI observed that it was difficult to believe that entire asset sale to raise Rs 87,000 crore could be done without the supervision of MD, that too when the said amount was a substantial percentage of its total assets and its turnover. It was held that Mukesh D. Ambani, being the Chairman and Managing Director of RIL, was responsible for its day-to-day affairs and thereby, liable under Section 15HA of SEBI Act for the manipulative trading done by RIL.

In view of the above, the Board imposed the penalty of 25 crore and 15 crore on RIL and its MD respectively. It was also observed that Navi Mumbai SEZ Pvt. Ltd. and Mumbai SEZ Ltd. had allegedly aided and abetted RIL by providing funds to agents appointed by RIL, for making the margin payments for the short positions in RPL November Futures. Therefore, penalty of 20 crore and 10 crore respectively were imposed on them as well. The Board disposed of the matter with further directions that the said amount of penalty should be remitted or paid within 45 days of receipt of order. [Reliance Petroleum Ltd. In Re.,  2021 SCC OnLine SEBI 1, decided on 01-01-2021]

Case BriefsTribunals/Commissions/Regulatory Bodies

Security and Exchange Board of India (SEBI): S. K. Mohanty, (Whole Time Member) granted exemptions to the United Provinces Sugar Company Ltd. from the requirements of complying with Minimum Public Shareholding (“MPS”) norms as mandated under rule 19 (2) (b) of provisions of Securities Contracts (Regulations) Rules, 1957 (“SCRR”) and further from the provisions of regulation 27(3)(d) of SEBI(Delisting of Equity Shares) Regulations, 2009 (“Delisting Regulations, 2009”).

The company filed an application before SEBI under Regulation 25A of Delisting Regulations, 2009 seeking certain relaxations for voluntary delisting of the company. The equity shares of the Company were listed on CSE for more than 40 years, of which 94.88% were held by the promoters and the balance shares representing 5.12% were held by 274 public shareholders. There had been no change in the shareholding of the promoters and promoter group of the Company since 1997. The Company asserted that since CSE is non-operational and it is not listed on any nationwide stock exchange, there is no investor interest in the shares of the Company and hence, various methods prescribed by SEBI to achieve MPS compliance were not feasible. It was submitted that since most of the public shareholders were inactive, it was highly unlikely to receive the required 90% consent from such public shareholders for delisting.

The issues before the Board were:

  • Whether a company can be exempted from minimum public shareholding requirement and also
  • Whether the requirement for receiving the consent of the shareholders holding at least 90% of public shareholding of a company, as mandated under Regulation 27(3) (d) of the Delisting Regulations, 2009 can be relaxed?

The Board noted that SEBI Circular CIR/MRD/DSA/18/2014 dated 22-05-2014, inter-alia, exempted companies which were listed exclusively on de-recognized or non-operational stock exchanges from the requirements of MPS prescribed in rules 19(2)(b) and 19A of SCRR and Clause 40A of the Listing Agreement, for the purpose of enabling such companies to opt for voluntary delisting.

For the aforesaid reasons, SEBI, in the interest of investors granted relaxation from the applicability of regulation 27(3) (d) of Delisting Regulations, 2009 to the Company, with further directions that, the Company should ensure compliance with provisions of all other applicable laws including regulation 27(3)(c) of Delisting Regulations, 2009. Additionally, the Applicant should cause to publish the newspaper advertisement in at least one national newspaper in English and in local vernacular newspapers in each State where its public shareholders are residing, as per the addresses available in its records, announcing its delisting proposal within 30 days of this Order, and at least 10 days before the letter is sent to the public shareholders seeking their consent for the delisting proposal. [Delisting of The United Provinces Sugar Company Ltd., In Re., 2020 SCC OnLine SEBI 214, decided on 21-12-2020]