Securities Appellate Tribunal
Mr. Rajinder Singh vs Sebi on 6 January, 2023
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing: 06.12.2022
Date of Decision: 06.01.2023
Appeal No.467 of 2022
Mr. Rajinder Singh
Jalan, TR 9/3,
Tropicana, Petaling Jaya,
Selangor. ...Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C-4A, G Block,
Bandra Kurla Complex,
Mumbai - 400 021. ...Respondent
Mr. Dikshat Mehra, Advocate with Ms. Honey
Chandnani, Advocate i/b Rajani Associates for the
Appellant.
Mr. Sumit Rai, Advocate with Mr. Mihir Mody, Mr.
Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b. K
Ashar & Co. for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Ms. Meera Swarup, Technical Member
Per: Justice Tarun Agarwala, Presiding Officer
2
1.The present appeal has been filed against the order dated 4th May, 2022 passed by the Adjudicating Officer (hereinafter referred to as the „AO‟) imposing a penalty of Rs.20 lakhs for violation of Section 12A(a), (b) and
(c) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the „SEBI Act‟) read with Regulations 3(a), (b), (c) and (d), 4(1) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the „PFUTP Regulations‟).
2. The facts leading to the filing of the present appeal is, that the MPS Infotecnics Ltd. („MPS‟ for short) is a listed company and the shareholders in the extraordinary general meeting held on January 30, 2007 resolved and approved the issuance of Global Depository Receipts („GDR‟ for short). Based on the aforesaid resolution, the process of issuance of GDR was initiated and, on October 19, 2007, a resolution of 3 the board of directors was passed resolving to open a bank account with Lisbon Bank for the purpose of receiving the subscription money in respect of GDR. The resolution also authorized Mr. Rajinder Singh Negi, a director of the Company to sign all documents and process the necessary transactions in relation to the GDR issue. The resolution further authorized Banco Efisa, S.F.E., S.A. („Banco‟ for short) a bank based in Lisbon "to use the subscription money as security in connection with loans if any".
3. It transpires that thereafter on October 29, 2007 the Credit Agreement was executed between Clifford Capital Partners A.G.S.A. („Clifford‟ for short) with Banco wherein Banco agreed to give a loan to Clifford. On October 30, 2007, Account Charge Agreement was executed by the director of the Company Mr. Rajinder Singh Negi with Banco on the basis of which it enabled Clifford to avail a loan from Banco for subscribing to the GDR. Based on the Credit Agreement and Account 4 Charge Agreement, a loan was availed by Clifford from Banco which was used to subscribe to the GDR issue of the Company for which the circular was issued on December 4, 2007 and the public announcement was made on BSE Limited („BSE‟ for short) on December 5, 2007. GDR of 4.65 million was issued amounting to US $ 9.99 million. Further, Clifford was the sole subscriber to the GDR issue on the basis of a loan taken under the Credit Agreement.
4. After 11 years, a show cause notice dated January 31, 2018 was issued to various noticees including the appellant alleging that Clifford was the sole subscriber to the GDR issued by the Company and that the subscription amount was paid by obtaining a loan under a Credit Agreement dated October 29, 2007 from Banco and that Mr. Rajinder Singh Negi signed an Account Charge Agreement dated October 30, 2007 which was an integral part of the Credit Agreement and on the basis of this agreement Clifford availed loan 5 from Banco for subscribing the GDR issue. It was further alleged that the Company did not inform BSE about the execution of the Account Charge Agreement or the Credit Agreement and alleged that the GDR proceeds were diverted to the extent of US $ 8.90 million. This act of concealing and suppressing the material facts was in violation of the provisions of Section 12A of SEBI Act, 1992 and Regulation 3 and 4 of the PFUTP Regulations.
5. On the same issue the AO also issued a show cause notice and after considering the matter the AO passed an order dated 27th January, 2021 imposing a penalty of Rs.20 lakhs upon the appellant Mr. Rajinder Singh. The appellant filed Appeal no.362 of 2021 contending that show cause notice was never served and the order of the AO was passed without giving an opportunity of hearing. This Tribunal by an order of 22nd February, 2022 allowed the appeal of Mr. Rajinder Singh and 6 remanded the matter to the AO to pass a fresh order after giving an opportunity of hearing.
6. Based on the aforesaid direction an opportunity of hearing was given to the appellant and thereafter the impugned order was passed finding the appellant guilty of violating Regulations 3 & 4 of the PFTUP Regulations and Section 12A of the SEBI Act. The AO accordingly imposed a penalty of Rs.20 lakhs on the appellant.
7. We have heard Mr. Dikshat Mehra, Advocate assisted by Ms. Honey Chandnani, Advocate for the appellant and Mr. Sumit Rai, Advocate assisted by Mr. Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates for the Respondent.
8. The appellant contends that he was Non-executive Independent Director and was invited as an invitee in the board‟s meeting of 19th October, 2007 when the alleged resolution as passed wherein the appellant was authorized to open an account on behalf of the 7 Company. It was contended that the appellant was appointed on 19th October, 2007 and resigned on 9th September, 2009. Based on the board resolution dated 19th October, 2007 the appellant merely signed the Account Charge Agreement on 30th October, 2007 as he was located in London at that point of time. It was urged that apart from signing the Account Charge Agreement he had no other role to play in the affairs of the Company nor was involved in the fraudulent scheme nor was involved in the day to day management of the affairs of the Company.
9. It was also urged that the appellant‟s responsibility has been placed higher than that of the executive management and whereas the Managing Director of the Company has been imposed a penalty of Rs.10 lakhs. The AO has imposed a penalty of Rs.20 lakhs in spite of noticing that the appellant was a Non-Executive Independent Director.
8
10. It was urged that this Tribunal in Mr. Venkaitaraman Iyer Subramoniam v. SEBI, Appeal no.610 of 2019 decided on 9th October, 2020 after noticing that the said appellant being a Non-Executive and Independent Director and an employee who had signed the Account Charge Agreement on the dictates of the Company and had not benefitted from the disputed transaction reduced the penalty from Rs.15 lakhs to Rs.5 lakhs. It was, thus, urged that in view of the aforesaid, the appellant should be exonerated of the charges leveled against him and in alternative the quantum of penalty should be reduced proportionally.
11. On the other hand, the contention of the respondent is that the appellant was not appointed as an Non- Executive Independent Director but was appointed as an Additional Director as is clear from the resolution of the Board of Directors dated 19th October, 2007 and, therefore, he cannot escape his liability on the ground that he was only a Non-Executive Director or the fact 9 that he was not involved in the day to day affairs of the Company.
12. Having heard the learned counsel for the parties, we find that there appears to be some confusion with regard to the position which the appellant held in the Company. The resolution of the Board of Directors dated 19th October, 2007 clearly indicates that the appellant was invited as an invitee and on the same date he was appointed as an Additional Director in the Company. The WTM however has given a finding that the appellant was appointed as a Non-Executive Independent Director. Considering the finding given by the WTM we proceed with the assumption that the appellant was appointed as a Non-Executive Independent Director.
13. We also find from the board resolution dated 19th October, 2007 that the appellant was invited as an invitee and, therefore, we can safely presume that prior to 19th October, 2007 the appellant had no role to play 10 in the affairs of the Company in any capacity as a Director or as an Non-Executive Independent Director.
14. Admittedly, the appellant was appointed on 19th October, 2007 and continued in that capacity till 9th September, 2009 i.e. after almost two years. The contention that the appellant only signed the Account Charge Agreement as he was based in London cannot be believed in the absence of any evidence to show that the appellant was based in London throughout this period.
15. The appellant admits that he had signed the Account Charge Agreement pursuant to the resolution dated 19th October, 2007 which only authorized the appellant to open a bank account and did not authorize to execute an Account Charge Agreement. On what basis did the appellant execute the Account Charge Agreement is not known but the fact remains that he did execute the Account Charge Agreement pursuant to the resolution dated 19th October, 2007 and, therefore, 11 facilitated in the fraudulent activities of the Company. Thus, the finding of the AO that the appellant was involved in the fraudulent activities and had violated Section 12A read with Regulations 3 and 4 of the PFUTP Regulations does not suffer from any error of law.
16. We however found that the Managing Director who was responsible for the affairs of the Company was found to be actively involved in the fraudulent scheme hatched by the Company. The AO in the order of 27th January, 2021 had imposed a penalty of Rs.10 lakhs which order was affirmed by this Tribunal in the Appeal no.361 of 2021 filed by the Managing Director, Mr. Sanjiv Bhavnani decided on 22nd February, 2022. We are of the opinion that the appellant being a Non- Executive Independent Director cannot be placed on a higher pedestal than that of the Managing Director especially when there is only a finding that he had signed the Account Charge Agreement and there is no 12 finding that he was involved in the day to day affairs of the Company.
17. We also find that in a similar matter in the appeal of Venkaitaraman Iyer Subramoniam v. SEBI, Appeal no.610 of 2019 decided on 9th October, 2020, the said appellant being Non-executive Director and an employee had signed the Account Charge Agreement this Tribunal had reduced the penalty from Rs.15 lakhs to Rs.5 lakhs.
18. Considering the aforesaid, we are of the opinion that even though the appellant is guilty of Regulations 3 and 4 of the PFTUP Regulations read with Section 12A of the SEBI Act the quantum of penalty in the given facts appear to be excessive and is required to be reduced in consonance with the penalty imposed upon the Managing Director.
19. Consequently, while affirming the violations committed by the appellant we reduce the penalty from Rs.20 lakhs to Rs.10 lakhs. In the circumstances of the 13 case, parties shall bear their own costs. The appeal is partly allowed.
20. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup Technical Member RAJALAKS Digitally signed by HMI RAJALAKSHMI 6.1.2023 HARISH HARISH NAIR Date: 2023.01.10 RHN NAIR 12:25:52 +05'30'