SAT
Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellant Tribunal, Mumbai: The Bench of Tarun Agarwala, J., Presiding Officer, and Meera Swarup, Technical Member, while allowing the appeals held that the shareholders of the company by passing a Special Resolution can ratify the Director’s Breach of Duty.

Background of the case

The Appellant, Terrascope Ventures Ltd., previously known as Moryo Industries Ltd., made a preferential issue of 63,50,000 shares for Rs. 25/- per share to 42 persons in a Special Resolution passed under Section 81(1A) of the Companies Act, 1956 on 01-10-2012. On the same date, an Extra Ordinary General Meeting (hereinafter as EOGM) was held and the shareholders were informed that the proceeds from the preferential issues would be utilised for the following uses-

  • capital expenditure including the acquisition of companies/business

  • funding long-term working capital requirements

  • Marketing

  • setting up offices abroad and

  • for other approved corporate purposes.

The proceeds collected were used for purchasing shares and extending loans and advances to other companies. On 29-09-2017, in the Annual General Meeting, the shareholders ratified the acts of the directors for not utilising the proceeds for their original objectives.

Securities Exchange Board of India (hereinafter SEBI) conducted the investigation and held that the variance of the utilization of the proceeds from the preferential issue cannot be legitimized by subsequent ratification passed by the shareholders in the Special Resolution and such ratification violates Regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and Clause 43 of the Listing Agreement.

Analysis and Decision

In the light of the above-mentioned facts, the Bench relied upon the judgment of the Supreme Court in National Institute of Technology v. Pannalal Choudhury, (2015) 11 SCC 669, wherein, the expression “ratification” was explained as-

“29. The expression “ratification” means “the making valid of an act already done”. This principle is derived from the Latin maxim “ratihabitio mandato aequiparatur” meaning thereby “a subsequent ratification of an act is equivalent to a prior authority to perform such act”. It is for this reason that the ratification assumes an invalid act which is retrospectively validated.

30. The expression “ratification” was succinctly defined by the English Court in one old
case, Hartman v. Hornsby as under: “Ratification” is the approval by act, word, or conduct, of that which was attempted (of accomplishment), but which was improperly or unauthorisedly performed in the first instance.”

Therefore, the Bench opined that once the company ratifies the utilization of the proceeds, the acts, and deeds done by the directors on behalf of the company become valid. Hence by allowing the appeal the Bench held that since the utilization of the proceeds had been ratified, there was no variance in the utilization of the proceeds and consequently there was no violation of Clause 43 of the Listing Agreement.

[Terrascope Ventures Ltd v. SEBI, 2022 SCC OnLine SAT 179, decided on 02-06-2022]


Advocates who appeared in this case :

Deepak Dhane, Advocate with Shantibhushan Nirmal, and Sneha Ramnathan, Advocates i/b. Profess Law Associates, Advocates, for the Appellant.

Suraj Chaudhary, Advocate with Nidhi Singh, Binjal Samani, Aditi Palnitkar, and Moksha Kothari, Advocates i/b. Vidhii Partner, Advocates, for the Respondent.

SEBI
Legislation UpdatesRules & Regulations

On 25-07-2022, the Securities and Exchange Board of India has issued SEBI (Issue of Capital and Disclosure Requirements) Third Amendment) Regulations, 2022 to amend the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

The amendment inserts a Chapter X-A dealing with Social Stock Exchange (‘SSE’).

Key Points:

  1. Applicablilty:
    • to a Not-for-profit Organization seeking to get registered and raise funds through a SSE.
    • To a Not-for-profit Organization seeking to get registered and raise funds through a SSE.
    • a For Profit Social Enterprise seeking to be identified as a Social Enterprise under the provisions of this Chapter.
  2. SSE will be accessible only to institutional investors and non-institutional investors.
  3. Every SSE will constitute a Social Stock Exchange Governing Council to have an oversight on its functioning.
  4. This chapter also covers the eligibility conditions for being identified as a Social Enterprise.
  5. A Not-for-Profit Organization must mandatorily seek registration with a SSE before it raises funds through a SSE.
  6. Other features covered under this chapter are:
    • Fund raising by social enterprise;
    • Ineligibility for raising of funds;
    • Issuance of Zero Coupon Zero Principal Instruments;
    • Eligibility for issuance of Zero Coupon Zero Principal Instruments;
    • Procedure for public issuance of Zero Coupon Zero Principal Instruments by a Not-for-Profit Organization;
    • Procedure for private issuance of Zero Coupon Zero Principal Instruments by a Not-for-Profit Organization;
    • Contents of the fund-raising document;
    • Deemed compliance with Securities Contracts (Regulation) Rules, 1957;
    • Termination of listing of Zero Coupon Zero Principal Instruments from the Social Stock Exchange.
SEBI
Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): Dark Fibre/Leased Line connectivity allowed to certain Stock Brokers, the Adjudicating Officer In the matter relating to Dark Fibre/ Leased Line connectivity allowed to certain Stock Brokers, the Adjudicating Officer Suresh B Menon has who was CEO of NSE at the relevant time;observed some irregularities in respect of co-location and corporate governance at National Stock Exchange Limited (‘NSE’) for which it has been penalized with Rs. 7 crores fine. Chitra Ramakrishna, who was CEO of NSE at the relevant time; and Key Management Persons Subramanian Anand, and Ravi Varanasi were fined with Rs. 5 Crores each.

In 2015, a whistleblower approached SEBI alleging various irregularities in respect of Co-location and corporate governance at NSE. A Cross Functional team of SEBI Officials was formed to examine the issues. There were irregularities with respect to certain brokers getting Point to Point (P2P) dark fiber connectivity from Sampark Infotainment Private Limited (‘Sampark’).

The stock brokers and the person associated with the securities market violated the following provisions:

  1. Securities and Exchange Board of India Act, 1992 (‘SEBI ACT’)
  2. Securities Contracts (Regulation) Act, 1956 (‘SCRA’)
  3. Rules and Regulations made under SEBI (Stock Exchanges and Clearing Corporations) Regulations, 2012 (‘SECC Regulations’)
  4. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (‘PFUTP’)
  5. SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (‘Stock Broker Regulation’)

Issues:

The NSE’s employees were investigated for the illegal relation with the stock brokers on the basis that they were benefiting from preferential access to the exchange system. Sampark illegally arranged the cabling in the co-location rack of NSE that other stock brokers suffered with lower latency compared to other trading members connected to Sampark. Several other identities indulged in fraudulent and unfair trade practices related to the securities market.

The Court observed:

  1. The mode of communication adopted for making changes to the existing circulars violated the principle of transparency.
  2. Preferential treatment was shown by NSE by allowing Sampark to provide P2P connectivity.
  3. W2W had a lower latency advantage due to the manner in which P2P connectivity was provided through Sampark
  4. NSE facilitated the arrangement between Sampark and Reliance in an attempt to give post facto legitimacy to an unauthorized activity of Sampark.
  5. NSE acted fraudulently, without any verification of license facilitated an arrangement to regularize and give ex post facto legitimacy to an unauthorized activity of Samaprk and thereby NSE failed in ensuring fair, equal and transparent access to all its members.
  6. NSE did not maintain and preserve the books of account and document.
  7. W2W and GKN, in collusion with the employees of NSE and Sampark made significant profit due to unfair latency advantage available with them.

Noticing that the act on the part of the Noticees had a huge impact on the market, the Court observed,

“Stock Brokers like W2W and GKN made unfair gains at the cost of other stock brokers who had complied with the guidelines and circulars of NSE, in this regard.”

Order and Penalty:

The Court, exercising the powers conferred upon it under Section 15-I of the SEBI Act, 1992 read with rule 5 of the Adjudication Rules, imposed monetary penalties on all the Noticees.

NSE Limited was penalized Rs 5 Crores charged under Section 15-HA of the SEBI Act, 1992, Rs. 1 Crore charged under Section 15-HB of the SEBI Act, 1992 and Rs. 1 Crore under Section 23-H of the SCRA, 1956. Chitra Ramakrishna, Subramanian Anand and Ravi Varanasi were fined with Rs. 5 Crores each. Remaining Noticees have been fined with penalties ranging from R. 10 Lakhs to Rs. 6 Crores.

The Noticees have been directed to pay the said amounts within 45 days of the receipt of the order by the way of Demand Draft in favor of “SEBI- Penalties Remittable to Government of India”.

[Dark Fibre/Leased Line connectivity allowed to certain Stock Brokers by NSE, In re, ADJUDICATIONORDER Ref. No. ORDER/SBM/ASR/2022-23/17390-17407, order dated 28.06.2022]

Business NewsNews

The Competition Commission of India (CCI) has approved Kora Master Fund LP investment of up to 10% ($75 million) in Edelweiss Securities Limited under sub-section (1) of Section 31 of the Competition Act.

The notification relates to a proposed investment by Kora in Edelweiss Securities Limited (ESL) and Edelweiss Global Investment Advisory Business (EGIA) Subsidiaries of up to INR equivalent to $75 million, as set out in the Share Subscription Agreement.

The Acquirer is a foreign portfolio investor (FPI) registered with the Securities Exchange Board of India (SEBI). Its principal activity is that of investment holding and related activities.

The Target Entities belong to the Edelweiss Group, with Edelweiss Financial Services Limited (EFSL) as the ultimate holding company, are broadly engaged in the Edelweiss Global Investment Advisory Business.


Ministry of Corporate Affairs

[Press Release dt. 16-10-2019]

Legislation UpdatesRules & Regulations

No. SEBI/LAD-NRO/GN/2019/14.—In exercise of the powers conferred by Section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Securities and Exchange Board of India hereby, makes the following regulations to further amend the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, namely,–

1. These regulations may be called the Securities and Exchange Board of India (Debenture Trustees) (Amendment) Regulations, 2019.

2. They shall come into force on the date of their publication in the Official Gazette.

3. In the Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993, –
(1) in Regulation 7A,-
(i) after the words “net worth of” and before the words “crore rupees”, the word “two” shall be substituted with the
word “ten”;

(ii) following proviso shall be inserted, namely:-

 “Provided that a debenture trustee holding certificate of registration as on the date of commencement of the Securities and Exchange Board of India (Debenture Trustees) (Amendment) Regulations, 2019 shall fulfil the net worth requirements within three years from the date of such commencement.”

(2) in Regulation 15, in sub-regulation (2), after clause (b), following provisos shall be inserted, –

“Provided that a debenture trustee may seek the consent of debenture holders through e-voting, wherever applicable;

Provided further that the requirement to convene a meeting of all debenture holders in case of a default in payment obligation by the issuer, shall not be applicable in case of debentures issued by way of public issue.”


[Notification dt. 07-05-2019]

Securities Exchange Board of India