Securities Appellate Tribunal
Kotak Mahindra Capital Company Limited ... vs Sebi on 30 September, 2016
Author: J.P. Devadhar
Bench: J.P. Devadhar
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 31.08.2016
Date of Decision : 30.09.2016
Appeal No. 63 of 2015
1.Kotak Mahindra Capital Company Limited 27 BKC, 1st Floor, Plot No. C-27, "G" Block, Bandra Kurla Complex, Bandra (East), Mumbai- 400 051
2. DSP Merrill Lynch Limited 16th Floor, Express Towers, Nariman Point, Mumbai- 400 021
3. Edelweiss Financial Services Limited Edelweiss House, 14th Floor, Off. CST Road, Kalina, Mumbai- 400 098
4. ICICI Securities Limited ICICI Centre, H.T. Parekh Marg, Churchgate, Mumbai- 400 020
5. IDBI Capital Markets and Securities Limited 3rd Floor, Mafatlal Centre, Nariman Point, Mumbai- 400 021
6. SBI Capital Markets Limited 202, Maker Tower 'E', Cuffe Parade, Mumbai- 400 005 ...Appellants Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent 2 Mr. Darius Khambata, Senior Advocate with Mr. Aditya Mehta, Ms. Ipsita Dutta, Ms. Gazal Rawal and Ms. Garima Joshi, Advocates i/b Cyril Amarchand Mangaldas, for Appellants.
Mr. Kevic Setalwad, Senior Advocate with Mr. Saurabh Bachhawat, Advocate i/b K. Ashar & Co. for the Respondent.
CORAM: Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member Per: Justice J.P. Devadhar (Majority View)
1. Six appellants herein have filed the present appeal to challenge the order passed by the Adjudicating Officer ("AO" for short) of Securities and Exchange Board of India ("SEBI" for short) on 28th November, 2014. By the said order, the AO has imposed penalty of `1 crore on the appellants under Section 15HB of the Securities and Exchange Board of India Act, 1992 ("SEBI Act" for short) on ground that the appellants as Book Running Lead Managers to the initial public offer of Credit Analysis and Research Limited have failed to ensure that true and adequate material disclosures were made in the Red Herring Prospectus and thus, the appellants have violated various provisions contained in the SEBI (Issue of Capital and Disclosure requirements) Regulations, 2009 ("ICDR Regulations" for short) and the provisions contained in the SEBI (Merchant Bankers) Regulations, 1992 ("the Merchant Banker Regulations" for short). By the said order, the appellants are called upon to pay the aforesaid monetary penalty of `1 crore jointly and severally within the time stipulated therein.
2. Facts relevant to the present appeal are as follows: 3
a) Credit Analysis & Research Ltd. ("CARE" for short) is a company engaged in the financial services sector.
All the six appellants were appointed by CARE as the Book Running Lead Managers ("BRLM" for short) for the Initial Public Offer ("IPO" for short) for sale of shares of CARE through an offer for sale.
b) On 30th September, 2011 Draft Red Herring Prospectus (DRHP) of CARE was filed with SEBI for selling 71,99,700 equity shares of CARE through the IPO, having face value of `10 each at a price to be determined on the basis of book building process prescribed under the ICDR Regulations framed by SEBI. The IPO structure contemplated transfer of equity shares of CARE by certain shareholders resident in India to investors resident in India and also to eligible non resident investors including Foreign Institutional Investors (FIIs), Foreign Venture Capital Investors registered with SEBI, multilateral and bilateral Development Financial Institutions, Qualified Foreign Investors (QFIs).
c) Foreign Direct Investment ("FDI" for short) in India is regulated through the Foreign Exchange Management Act, 1999 ("FEMA" for short) and various regulations framed thereunder, including the 4 Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 ("FEMA Regulations" for short).
d) Reserve Bank of India ("RBI" for short) is the nodal regulatory authority for all matters connected with foreign exchange transactions in India. Section 10(4) and Section 11(1) of FEMA empowers RBI to issue general or special directions or orders to 'Authorised Persons' as RBI deems fit for the purpose of securing compliance of the provisions of FEMA and any rules, regulations, notifications or directions issued thereunder by RBI. The circulars issued by RBI are operational instructions issued to Banks etc. and these circulars are generally known as 'A.P. (DIR series) Circulars. On 1st July of every year, RBI issues a 'Master Circular' which consolidates all the existing circulars at one place.
e) The Department of Industrial Policy and Promotion ("DIPP" for short) under the Ministry of Commerce and Industry frames the FDI Policy in India outlining the sectors in which FDI is allowed, conditions attached to it and the sectoral caps. It also lays down the sectors in which FDI is automatic and those sectors which require approval of the Government of 5 India. The FDI policy framed by DIPP is notified by RBI as amendment to the FEMA Regulations.
f) Regulation 5 of the FEMA Regulations enumerates the categories of foreign investors who are permitted to invest in Indian Securities subject to the conditions set out in the respective schedules. Regulation 5 of FEMA Regulation consists of the following sub-
regulations:-
Regulation 5 of FEMA Regulations Sub- Deals with Applicable Regulation Schedule 5(1) Investments by persons or entities resident outside Schedule 1 India (other than citizens of/ entity incorporated in Bangladesh and Pakistan) under the Foreign Direct Investment Scheme (FDI Scheme) 5(2) Investments by registered Foreign Institutional Schedule 2 Investors ('FIIs') under the Portfolio Investment Scheme (PIS Scheme) 5(3)(i) Investments by Non Resident Indians ('NRIs') in Schedule 3 shares and debentures of an Indian Company under Portfolio Investment Scheme (PIS Scheme) 5(3)(ii) Investments by NRIs in shares and debentures of Schedule 4 an Indian Company on non-repatriation basis other than under PIS Scheme 5(4) Investments in securities other than shares and Schedule 5 debentures of an Indian Company by NRIs or registered FIIs or QFIs or any other person resident outside India included in Schedule 5 5(5) Investments by registered Foreign Venture Capital Schedule 6 Investors (FVCI) 5(6) Trades of Registered FIIs in exchange traded
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derivative contracts approved by RBI/ SEBI to be subject to limits and margin requirements prescribed by RBI/ SEBI, as well as stipulations 6 regarding collateral securities as directed by RBI from time to time 5(7) Investment by NRIs in exchange traded derivative contracts approved by SEBI from time to time out of INR funds held in India on non-repatriable basis subject to limits prescribed by SEBI 5(7A) Investment by QFIs in shares of India Company Schedule 8 5(8) To purchase, hold or sell Indian Depository Para 2 of Schedule 7 Receipts (IDRs) of eligible companies resident outside India and issued in Indian Capital Market by registered FIIs including sub-accounts of FIIs or NRIs Under the FDI Policy, FIIs could invest in a particular issue of an Indian Company either under Schedule 1 or Schedule 2, however, FIIs could not avail both routes simultaneously for a particular issue.
g) In exercise of powers conferred under FEMA Regulations RBI has granted general permission to following categories of non-residents to participate in a public offer and purchase shares of an Indian Company Viz (i) Non-residents or entities incorporated outside India under the Foreign Direct Investment Scheme ('FDI Scheme') subject to terms and conditions specified in Schedule 1 of the FEMA Regulations, including the sector specific conditions contained in Annexure B thereto (ii) Registered Foreign Institutional Investors ('FIIs') under the Portfolio Investment Scheme subject to terms and conditions specified in Schedule 2 and (iii) Non- 7 resident Indians ('NRIs') investing on non repatriation basis subject to terms and conditions specified in Schedule 4 of the FEMA Regulations. In relation to the FDI scheme, para 5(c) of Schedule 1 of the FEMA Regulations read with the consolidated FDI policy (Circular 2 of 2011 issued by DIPP) provides that transfer of shares by a resident to a non-resident shall be as per the pricing guidelines issued by RBI.
h) The sector specific policy for foreign investment, specified in Annexure B to Schedule 1 of the FEMA Regulations applicable to investments under the FDI Scheme enumerates the FDI limit allowed for each sector/activity, subject to applicable laws/regulations.
In respect of Non-Banking Finance Companies ('NBFCs) such as CARE engaged in Credit Rating Agency activity, which is classified as 'Non-Fund based activity,' Serial No: 24(2) in Annexure B to Schedule 1 of FEMA Regulations provides that for any Foreign Direct Investment under Schedule 1, US$ 0.5 million be brought upfront for all permitted Non- Fund based NBFCs irrespective of the level of foreign investment subject to the conditions set out therein. This minimum capitalization norms of bringing foreign capital upfront set out in Annexure B to Schedule 1 is not to be found in any other Schedules 8 of the FEMA Regulations. Thus, the minimum capitalization norms set out in Annexure B to Schedule 1 of the FEMA Regulations apply only when investments are made by non-resident investors covered under Schedule 1 and the said norms do not apply to the non-resident investors covered under other Schedules of FEMA Regulations.
i) CARE in its DRHP filed on 30.09.2011, proposed to offer its shares through the IPO to residents and to eligible non-residents covered under Schedule 1 and also to non-residents covered under various other Schedules of FEMA Regulations. Thus, as per the DRHP, CARE would have been required to comply with the minimum capitalization norms only in respect of investments by non-residents covered under Schedule 1 of the FEMA Regulations.
j) Since CARE wanted its offer price to be discovered through the book building process prescribed under the ICDR Regulations, CARE wrote a letter to RBI on 19.10.2011 seeking its approval for sale of IPO shares at a price determined through the book building process instead of determining the offer price under the RBI Pricing Guidelines as stipulated under regulation 10A(c)(ii) of FEMA Regulations (in force 9 until amendments were made with effect from 04.11.2011).
k) On 04.11.2011 RBI issued A.P. (DIR Series) Circular No. 43 wherein it was stated that as a measure to further liberalize and rationalize the procedures and policies governing FDI in India, it has now been decided to allow, inter-alia, transfer of shares from resident to non-resident without the approval of RBI subject to the condition that where the investee company is in the financial sector, then:-
i) NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-
TRS with the AD bank and;
ii) The FDI policy and FEMA Regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc. are complied with.
l) On 02.12.2011 RBI responded to CARE's letter dated 19.10.2011 by advising CARE to proceed with the 10 IPO in accordance with RBI Circular No: 43 dated 04.11.2011.
m) On 15.05.2012 CARE addressed a letter to RBI seeking exemption from the requirement of obtaining NOCs from the regulators of the non-resident investors, since the non-resident investors who would invest in the IPO through the book building process were not identifiable in advance.
n) By letter dated 22.06.2012 RBI reiterated its earlier stand and advised CARE to comply with the requirements of Circular No. 43 dated 04.11.2011.
o) On 31/08/2012 CARE once again wrote back to RBI explaining the practical difficulties in requiring the non-resident investors to obtain NOCs from their respective regulators.
p) By a letter dated 26.09.2012 RBI agreed to exempt non-resident investors participating in the offer for sale from the requirement of obtaining NOC from their respective regulators, subject to the condition that:-
i) The minimum capitalization norms applicable to NBFCs are strictly adhered to.
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ii) The post issue pattern of shareholding of the company be submitted to RBI on completion of the process.
iii) The reporting formalities in terms of AP DIR 63 dated April 22, 2009 read with AP DIR 43 dated November 4, 2011 be adhered to.
q) By a letter dated 05.10.2012 CARE informed RBI that it is proposing the offer, only to the following categories viz:-
i) Resident investors.
ii) Foreign institutional Investors ("FIIs" for short) and sub accounts registered with SEBI and investing in the offer under the portfolio investment scheme in accordance with regulation 5(2) and Schedule 2 of FEMA Regulations.
iii) Non-resident Indians investing in the offer on non- repatriation basis under regulation 5(3)(ii) and Schedule 4 of the FEMA Regulations.
iv) Qualified Foreign Investors ("QFIs" for short) investing in the offer in accordance with the provisions of the 12 Master Circular on Foreign Investment in India dated 02.07.2012 and Schedule 8 of FEMA Regulations.
It was also emphasized in the said letter that as the minimum capitalization norm set out in Clause 6.2.24 of the Consolidated FDI Policy dated 10.04.2012 is applicable only in case of foreign direct investment by non-residents covered under regulation 5(1) read with Schedule 1 of FEMA Regulations, the offer of CARE is being restricted to the FIIs covered under Schedule 2, NRIs covered under Schedule 4 and QFIs covered under Schedule 8 of the FEMA Regulations, so that there is no question of complying with the minimum capitalization norms in the present case.
r) After processing the DRHP filed by CARE on 30.09.2011, SEBI by its letter dated 24.09.2012 permitted CARE to proceed with the IPO subject to compliance of the observations made by SEBI in the said letter. Accordingly, on compliance of the said observations, CARE filed its Red Herring Prospectus ("RHP") dated 24.11.2012 with the Registrar of Companies ("ROC" for short) on 26.11.2012 and forwarded a copy of the said RHP to SEBI on 27.11.2012. It was specifically disclosed in the RHP that non-residents other than FIIs (investing under 13 Schedule 2) Eligible NRIs (applying under Schedule
4) and Eligible QFIs (covered under Schedule 8) would not be permitted to invest in the IPO. It was also disclosed in the RHP that RBI vide its letter dated 26.09.2012 had granted exemption from the NOC required to be obtained by non-resident investors to whom the offer was made and offered that letter for public inspection.
s) On 06.12.2012 the CARE IPO opened for subscription by anchor investors at 10:00 a.m. and closed at 03:30 p.m. Thereafter, CARE received a letter from RBI dated 06.12.2012 wherein it was stated that the FIIs (covered under Schedule 2) and QFIs (covered under Schedule 8) could acquire shares under the IPO subject to compliance of minimum capitalization norms.
t) On 07.12.2012 the offer of CARE opened for subscription by retail investors, Qualified Institutional Buyers ("QIBs" for short) and Non- Institutional Investors. On the same day i.e. on 07.12.2012, CARE wrote a letter to RBI stating therein that in the RHP of CARE, non-residents covered under Schedule 1 were not permitted to participate in the offer and since the non-residents covered under Schedule 2, 4, and 8 alone were permitted to participate in the offer, as per 14 the FEMA Regulations, the said non-resident investors covered under Schedule 2, 4 and 8 were not required to comply with the minimum capitalization norms.
u) Apart from addressing aforesaid letter dated 07.12.2012, personal meetings were also held between the officials of CARE and RBI. In the said meeting RBI officials insisted on CARE complying with the minimum capitalization norms in relation to investments by non-resident investors covered under Schedule 2 & 8. Since the IPO had already opened for subscription, in the interest of the offer and the investors, CARE by its letter dated 10.12.2012 agreed to comply with the minimum capitalization norms in respect of investments made by non-residents covered under Schedule 2 & 8 and requested RBI to grant nine months time to comply with the minimum capitalization norms as required in the letter of RBI dated 06.12.2012. By its letter dated 10.12.2012 RBI gave six months time to CARE to comply with the minimum capitalization norms.
v) On 11.12.2012, prior to the closer of subscription by retail investors, QIBs and non- institutional investors CARE published its addendum dated 10.12.2012 in the relevant newspapers. In the said addendum all the 15 events that took place from time to time and the circumstances in which CARE agreed to comply with the minimum capitalization norms were set out. On 11.12.2012 at 3:00 p.m. CARE IPO closed for subscription by retail investors, QIBs and non- institutional investors. It is not in dispute that CARE has complied with the minimum capitalization norms in relation to investments by non-resident investors covered under Schedule 2 & 8, within the time stipulated by RBI.
w) On 07.10.2013 SEBI issued a show cause notice alleging that appellants as BRLMs to the IPO of CARE failed to ensure that full and complete disclosures were made in the RHP of CARE which amounts to suppressing material facts in the RHP and attempt to mislead the investors into believing that RBI had unconditionally exempted non-residents from obtaining NOC from their respective regulators for participating in the offer of CARE. By the said show cause notice, appellants were called upon to show cause as to why an inquiry should not be initiated for violating Clause 1 of form C in Schedule VI referred to in regulation 8(2)(b), 57(1), 57(2)(a)(ii) and 64(1) of the ICDR Regulations and regulation 13 of the 16 Code of Conduct of the SEBI Merchant Bankers Regulations, 1992.
x) By their common Advocates' letter dated 16.01.2014, appellants replied to the said show cause notice wherein all allegations made in the show cause notice were denied. Thereafter, personal hearing was offered to the appellants. Subsequent to the personal hearing, written submissions were also filed on behalf of the appellants.
y) By the impugned order dated 28.11.2014 the AO of SEBI rejected the arguments of the appellants and held that the appellants have violated provisions contained in the ICDR Regulations as also Merchant Bankers Regulations and accordingly levied penalty of ` 1 crore under regulation 15HB of the SEBI Act and directed the appellants to pay the said penalty jointly and severally.
z) Challenging the aforesaid order, present appeal is filed.
3. We have heard Mr. Khambata learned Senior Advocate who has appeared on behalf of appellants and Mr. Setalwad learned Senior Advocate who has appeared on behalf of respondent-SEBI. 17
4. Basically following issues arise for our consideration in the present appeal, viz:-
a) Whether the AO is justified in holding that the condition imposed in the letter of RBI dated 26.09.2012 to comply with the minimum capitalization norms applicable to NBFCs was a material information required to be disclosed in the RHP of CARE so as to enable the investors to take an informed investment decision and failure to make such disclosure amounts to not making true and adequate disclosures in the RHP and consequently amounts to violating the provisions contained in the ICDR Regulations and Merchant Bankers Regulations?
b) Alternatively, whether the appellants are justified in contending that under the FEMA Regulations, the minimum capitalization norms are prescribed only to investments by non-resident investors covered under Schedule 1 and since the non-resident investors covered under Schedule 1 were not permitted to participate in the offer of CARE, directions contained in the letter of RBI dated 26.09.2012 regarding compliance of the minimum capitalization norms was not a material information for the investors permitted to participate in the offer of CARE and therefore non- 18 disclosure of the said information in the RHP cannot be said to be in violation of the provisions contained in the ICDR Regulations and Merchant Bankers Regulations.
c) Whether the AO is justified in holding that failure to disclose in the RHP, the information relating to strict compliance of minimum capitalization norms referred to in the letter of RBI dated 26.09.2012 and the representation made by CARE to RBI on 05.10.2012 amounts to suppressing material facts in the RHP of CARE and an attempt to mislead the investors into believing that RBI had unconditionally exempted eligible non-resident investors from the requirement of obtaining NOC from their respective regulators for participating in the offer of CARE.
d) Whether the AO is justified in holding that failure on part of appellants to disclose in the RHP of CARE, information relating to strict compliance of the minimum capitalization norms stipulated in the letter of RBI dated 26.09.2012 constitutes failure to exercise due diligence and therefore, the appellants are guilty of violating the provisions contained in the ICDR Regulations and Merchant Bankers Regulations. 19
5. Thus, it is evident that in the impugned order the appellants are held guilty of violating ICDR Regulations and Merchant Bankers Regulations primarily on the ground that in the RHP of CARE, the conditions imposed in the letter of RBI dated 26.09.2012 for exempting the non-resident investors participating in the offer of CARE from the requirement of obtaining NOC from their respective regulators has not been disclosed. The conditions imposed by RBI in its said letter dated 26.09.2012 were, firstly, minimum capitalization norms applicable to NBFCs be strictly adhered to. Secondly, the post issue pattern of shareholding of the company be submitted by CARE to RBI on completion of the process. Thirdly, the reporting formalities in terms of RBI Circular No: 63 dated 22.04.2009 read with Circular No: 43 dated 04.11.2011 be adhered to.
6. Object of the disclosure provisions contained in the ICDR Regulations and Merchant Bankers Regulations is to ensure that the offer document contains all material disclosures which are true and adequate so as to enable the applicants permitted to participate in the offer to take an informed investment decision. In other words, the disclosures made in the offer documents must be those disclosures which are material to the applicants permitted to participate in the offer to take an informed investment decision.
7. In the present case, the second and third conditions set out in the letter of RBI dated 26.09.2012 are the obligations to be discharged by CARE after the completion of the IPO process and the said two conditions were not material for the investors permitted to participate in 20 the offer to take an informed investment decision. Thus, those two conditions set out in the letter of RBI dated 26.09.2012 have not been considered as material information for the investors permitted to participate in the offer to take an informed investment decision. The only question therefore, to be considered is, whether, in the facts of present case, the condition imposed by RBI for exempting the non-resident investors participating in the offer from the requirement of obtaining NOC from their regulators subject to strict compliance of minimum capitalization norms applicable to NBFCs was a material information required to be disclosed in the RHP so as enable the investors permitted to participate in the offer to take an informed investment decision.
8. At the outset, it is relevant to note that under the FEMA Regulations, investments by non-resident investors in NBFCs engaged in non fund based activities (such as CARE) is subject to compliance of minimum capitalization norms only when investments are made under the route specified in Schedule 1 of the FEMA Regulations. Non residents investing through the routes specified in Schedule 2 to 8 of the FEMA Regulations are not required to comply with the minimum capitalization norms. In other words, under the FEMA Regulations minimum capitalization norms have to be complied by non-resident investors only when the investments are made under the route specified in Schedule 1 and the said norms are not applicable when investments are made under the routes specified in Schedule 2 to 8 of the FEMA Regulations.
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9. It is not in dispute that CARE in its DRHP filed on 30.09.2011 had proposed to offer shares of CARE in the IPO, inter alia, to non-resident investors covered under Schedule 1 to whom alone, the minimum capitalization norms were applicable. However, in the light of RBI's letter dated 26.09.2012 CARE decided not to permit investment by non- residents covered under Schedule 1 of the FEMA Regulations so that there was no question of complying with the minimum capitalization norms. Accordingly, in the RHP the offer was made only to those non- resident investors to whom the minimum capitalization norms were not applicable. In such a case, the condition imposed by RBI for strict compliance of minimum capitalization norms applicable to NBFCs was not a material information for the investors permitted to participate in the offer of CARE to take an informed investment decision. In other words, since the minimum capitalization norms were not applicable to the investors permitted to participate in the offer of CARE, non disclosure of the information relating to compliance of minimum capitalization norms cannot be said to be failure to disclose material information, because the said information was not applicable to the investors permitted to participate in the offer of CARE to take an informed investment decision.
10. It is relevant to note that RBI in its letter dated 26.09.2012 had not directed CARE to ensure compliance of minimum capitalization norms across the board. On the contrary, RBI had specifically stated in the said letter that 'minimum capitalization norms applicable to NBFCs be strictly adhered to'. Words 'applicable to NBFCs' used in the letter of RBI dated 26.09.2012 clearly indicates that the minimum capitalization norms have 22 to be complied with wherever it is made applicable to NBFCs. As per Annex B to Schedule 1 of the FEMA Regulations, NBFCs (such as CARE) engaged in the Credit Rating Agency, minimum capitalization norms are applicable only in relation to investments made by non- residents covered under the route specified in Schedule 1 and the said norms are not applicable to the investments made by non-residents covered under routes specified in Schedules 2 to 8 of the FEMA Regulations. Thus, the condition imposed in the letter of RBI dated 26.09.2012 simply means that if the offer is also made to non-resident investors under Schedule 1, then, the non-resident investors covered under Schedule 1 shall strictly comply with the minimum capitalization norms. In the present case, CARE in its RHP has not permitted non- resident investors covered under Schedule 1 to participate in the offer. In fact, CARE permitted non-resident investors covered under Schedule 2, 4 & 8, to participate in the offer, to whom the minimum capitalization norms were not applicable. Since the exemption granted by RBI on 26.09.2012 was subject to strict compliance of minimum capitalization norms applicable to NBFCs, CARE decided not to permit the non- resident investors to whom the said norm were applicable. Thus, the minimum capitalization norms being not applicable to the non-resident investors permitted to participate in the offer, CARE was justified in disclosing that RBI by its letter dated 26.09.2012 has exempted the non- resident investors permitted to participate in the offer from the requirement of obtaining NOC from their regulators. In such a case, it cannot be said that half truth has been disclosed in the RHP, because, in the RHP what was relevant for the investors permitted to participate in 23 the offer alone was disclosed. Since compliance of minimum capitalization norms were not applicable to the investors permitted to participate in the offer, it was not disclosed in the RHP. In these circumstances, non-disclosure of the information relating to compliance of minimum capitalization norms cannot be said to be failure to disclose material information in the RHP.
11. It is not the case of SEBI that under the FEMA Regulations or under any Circular or Notification or Press release issued by RBI, the minimum capitalization norms have been made applicable to non- resident investors covered under Schedule 2 to 8 of FEMA Regulations. In fact, in response to a query raised by this Tribunal, counsel for SEBI fairly stated that there is no provision in the FEMA Regulations and there is no rule, regulation, circular, notification or press release issued by RBI purporting to apply the minimum capitalization norms to non-residents investing under the routes other than the route specified in Schedule 1 to the FEMA Regulations. In other words, it is fairly conceded by counsel for SEBI that in law minimum capitalization norms are applicable only to non-resident investors covered under Schedule 1 & the said norm are not applicable to non-resident investors covered under Schedule 2 & 8. Therefore, when RBI by its letter dated 26.09.2012 sought compliance of minimum capitalization norms applicable to NBFCs, it is apparent that RBI was seeking strict compliance of minimum capitalization norms only if the investments are made by non-resident investors covered under Schedule 1. Since CARE in its RHP had not permitted the non-resident 24 investors covered under Schedule 1, disclosing the said norms in the RHP did not arise at all.
12. Letter addressed by RBI on 26.09.2012 was in the context of DRHP filed by CARE on 30.09.2011, wherein, CARE had proposed the offer not only to non-resident investors covered under Schedule 2 & 8 but also to the non-resident investors covered under Schedule 1. Inspite of the practical difficulties expressed by CARE in implementing the minimum capitalization norms in case of non-resident investors covered under Schedule 1, since RBI in its letter dated 26.09.2012 directed CARE to comply with the said norms wherever applicable, appellants in exercise of their due diligence advised CARE not to permit non-resident investors covered under Schedule 1 to participate in the offer so that there was no question of complying with the minimum capitalization norms and consequently no question of disclosing the said norms in the RHP. Therefore, in the facts of present case, the AO is not justified in holding that non-disclosure of the information relating to compliance of minimum capitalization norms constitutes failure to disclose material information for the investors permitted to participate in the offer for taking informed investment decision and that such failure is in violation of ICDR Regulations and Merchant Bankers Regulations.
13. It is relevant to note that in the RHP dated 24.11.2012 CARE had disclosed that RBI by its letter dated 26.09.2012 had granted exemption from the requirement of obtaining NOCs from the regulators of the non- resident investors to whom the offer was made in the RHP and further 25 offered inspection of the said letter dated 26.09.2012. Without recording a finding in the impugned order, as to how the condition imposed in the letter of RBI dated 26.09.2012 regarding compliance of the minimum capitalization norms applicable to NBFCs was a material information for the investors permitted to participate in the offer to take an informed investment decision, the AO could not have held that CARE has failed to disclose material information in the RHP. Admittedly, neither the provisions contained in the FEMA Regulations nor the circulars/notifications/press releases issued by RBI stipulate that minimum capitalization norms have to be complied with by non-resident investors covered under Schedule 2 & 8. There is no material on record to suggest that at any time in the past, minimum capitalization norms have been made applicable to non-resident investors covered under Schedule 2 & 8. In these circumstances, the AO is not justified in holding that the condition imposed in the letter of RBI dated 26.09.2012 regarding strict compliance of minimum capitalization norms applicable to NBFCs, ought to have been disclosed in the RHP, because, in the facts of present case, the said norms were not applicable to the investors who were permitted to participate in the offer of CARE.
14. If we uphold the decision of the AO that CARE ought to have disclosed in the RHP, the information contained in the RBIs letter dated 26.09.2012 relating to strict compliance of minimum capitalization norms applicable to NBFCs, then, it would mean that even if the said information was not applicable to the investors permitted to participate in the offer, CARE was obliged to disclose such information in the RHP. 26 When the provisions contained in the ICDR Regulations and Merchant Bankers Regulations specifically provide that the offer document shall contain all material disclosures which are true and adequate so as to enable the applicants to take an informed investment decision, the AO is not justified in holding that the appellants ought to have ensured disclosure of the information relating to compliance of minimum capitalization norms, even if the said norms were not applicable to the investors who were permitted to participate in the offer of CARE. Such a finding recorded by the AO which is contrary to the spirit of the provisions contained in the FEMA Regulations cannot be accepted.
15. Findings recorded in the impugned order, that apart from disclosing in the RHP the conditions imposed in the letter of RBI dated 26.09.2012 the appellants ought to have ensured disclosure of the letter addressed by CARE to RBI on 05.10.2012, is also without any merit. By the letter dated 05.10.2012, CARE had simply informed RBI that in view of the practical difficulties in complying with the minimum capitalization norms applicable to non-resident investors covered under Schedule 1, CARE has decided not to permit non-resident investors covered under Schedule 1 to participate in the offer, so that there was no question of complying with the minimum capitalization norms. In fact, in the RHP dated 24.11.2012, CARE has not permitted non-resident investors covered under Schedule 1 to participate in the offer. Thus, what was stated in the letter dated 0 5.10.2012 was actually reflected in the RHP. Therefore, the AO is not justified in holding that the appellants have failed to disclose minimum capitalization norms referred to the letter of 27 RBI dated 26.09.2012 and the letter dated 05.10.2012 addressed by CARE to RBI.
16. Fact that RBI by its letter dated 06.12.2012 directed CARE to comply with the minimum capitalization norms in relation to investments by non-residents covered under Schedule 2 & 8 of the FEMA Regulations could not be a ground for AO to infer that RBI in its earlier letter dated 26.09.2012 had required CARE to comply with the minimum capitalization norms in relation to investments by non-residents covered under Schedule 2 & 8.
17. As noted earlier, there is nothing on record to suggest that at any time in the past, minimum capitalization norms have been made applicable to non-resident investors covered under Schedule 2 & 8. Even in the letter of RBI dated 26.09.2012 it is not stated that minimum capitalization norms would be applicable to non-resident investors covered under Schedule 2 & 8. On the contrary, it is specifically stated in the said letter that minimum capitalization norms applicable to NBFCs be strictly followed. It obviously means that wherever the said norms are not applicable, the said norms need not be complied. Thus, it cannot be said that by letter dated 26.09.2012 RBI called upon CARE to apply the norms to non-resident investors covered under Schedule 2 & 8. It is only by a letter dated 06.12.2012, RBI for the first time called upon CARE to comply with the minimum capitalization norms in relation to investments by non-resident investors covered under Schedule 2 & 8. Thereupon, CARE by its letter dated 07.12.2012 brought to the notice of RBI that neither the FEMA Regulations nor any rule or regulations framed by RBI 28 nor any circular or notification or press release issued by RBI contemplate that the minimum capitalization norms have to be complied with by non-resident investors covered under Schedule 2 & 8. Since the RBI officials during the course of personal meetings insisted on compliance of minimum capitalization norms by non-resident investors covered under Schedule 2 & 8 to whom the offer was made, CARE in consultation with the appellants took a conscious decision that since the IPO offer had already opened, in the interest of the offer and in the interest of investors, it would be just and proper to comply with the minimum capitalization norms in relation to investments by non-residents covered under Schedule 2 & 8. Thus, in the absence of any FEMA Regulations and in the absence of any circular or notification or press release issued by RBI, fact that RBI on 06.12.2012 directed CARE to apply the minimum capitalization norms in relation to investments by non-resident investors covered under Schedule 2 & 8 and the fact that CARE agreed to comply with the said direction in the circumstances stated earlier, it cannot be inferred that RBI by its letter dated 26.09.2012 had directed CARE to apply the minimum capitalization norms in relation to investments by non-resident investors covered under Schedule 2 & 8. Therefore, findings recorded by AO that the appellants, in the RHP of CARE have suppressed material facts contained in the letter of RBI dated 26.09.2012 cannot be accepted.
18. Appellants are justified in contending that in view of the decision of RBI in case of National Buildings Construction Corporation Limited and DLF Limited dated 06.09.2011 and 13.04.2006 respectively, the 29 appellants had reason to believe that minimum capitalization norms are applicable only in relation to investments by non-resident investors covered under Schedule 1 of the FEMA Regulations. In those two decisions RBI had categorically held that minimum capitalization norms are not applicable to non-resident investors covered under Schedule 2 of the FEMA Regulations. The views expressed by RBI in the said two decisions could not be said to be the views applicable only to those two cases, because, the views expressed by RBI in the said two decisions were with reference to the provisions of law then prevailing and hence those views would apply to all cases till the law is amended. Admittedly, the law has not been amended till date. Therefore, when the consistent view of RBI was that minimum capitalization norms are applicable only to non-resident investors covered under Schedule 1 and even in the letter dated 26.09.2012 RBI had specifically directed CARE to comply with the minimum capitalization norms applicable to NBFCs, the AO committed an error in holding that the information contained in the letter dated 26.09.2012 relating to compliance of minimum capitalization norms was a material information, because, in the facts of present case, the said norms were not applicable to the non-resident investors permitted to participate in the offer to take an informed investment decision.
19. Fact that CARE agreed to comply with the directions contained in the letter of RBI dated 06.12.2016 and in its addendum dated 10.12.2012 published in the relevant newspapers on 11.12.2012 had referred to the information contained in the letters dated 26.09.2012 and 05.10.2012 could not be a ground for the AO to hold that the very same information 30 ought to have been disclosed in the RHP dated 24.11.2012. As rightly contended by the counsel for appellants, disclosure of the above information became necessary in view of the letter of RBI dated 06.12.2012 and the events that took place thereafter. In the present case, on receiving letter dated 26.09.2012 from RBI, CARE in consultation with appellants decided not to permit non resident investors covered under Schedule 1, so that there was no question of complying with the minimum capitalization norms referred to in letter of RBI dated 26.09.2012 and accordingly addressed a letter to RBI on 05.10.2012 stating therein that the offer was restricted non-resident investors covered under Schedule 2,4 & 8 of the FEMA Regulations to whom minimum capitalization norms were not applicable. Thus, as on 24.11.2012 when RHP was issued, the minimum capitalization norms referred to in the letter of RBI dated 26.09.2012 were not applicable to non-resident investors permitted to participate in the offer viz non-resident investors covered under Schedule 2, 4 and 8. It is only on receipt of letter issued by RBI on 06.12.2012 and the discussions held thereafter, CARE agreed to apply minimum capitalization norms to non-resident investors covered under Schedule 2 & 8 and in that context it became necessary to disclose in the addendum aforesaid facts so as to justify the circumstances under which CARE agreed to apply minimum capitalization norms to non- resident investors covered under Schedule 2 & 8 of FEMA Regulations. Therefore, the AO is not justified in holding that the disclosures made in the addendum, could have been made in the RHP dated 24.11.2012. 31
20. Strong reliance was placed by counsel for SEBI on the letter of RBI dated 21.05.2014. It appears that the said letter was addressed by RBI pursuant to the clarifications sought by the AO during the adjudication proceedings. In the aforesaid letter of RBI dated 21.05.2014 it is merely recorded that in terms of RBI Circular No. 53 dated 17.12.2003, acquisition of shares by FIIs (non-resident investors covered under Schedule 2) under the Portfolio Investment Scheme in the circumstances set out therein shall be treated as investment under the FDI Policy and all the FDI conditionalities including minimum capitalization norms are made applicable. The said letter does not record that under the FEMA Regulation or under any circular, notification or press release issued by RBI perusal of the RBI, the minimum capitalization norms applicable to non-resident investors covered under Schedule 1 have been made applicable to non-resident investors covered under Schedule 2 & 8 of FEMA Regulations. In fact, perusal of the RBI Circular No. 53 dated 17.12.2003 clearly shows that by the said Circular RBI permitted SEBI registered FIIs to buy or sell equity shares/debentures to the Indian Companies not only through the Stock Exchanges in India but also otherwise than on Stock Exchange at a price approved by SEBI/RBI as per the terms and conditions prescribed in the annexure thereto. Neither in the said Circular No. 53 dated 17.12.2003 nor in the annexure to the said Circular it is stated that minimum capitalization norms applicable to non-resident investors covered under Schedule 1 have been made applicable to non-resident investors covered under Schedule 2 & 8. It is equally relevant to note that in the said letter it is clearly stated that only those communications which are issued by way of A.P. (DIR Series) 32 Circulars or Notifications or Press Releases issued under the provisions of FEMA 1999 which are in the public domain can be made applicable across the board. Therefore, in the absence of any provision in the FEMA and the regulations made thereunder and in the absence of any circular, notification or press release issued by RBI purporting to apply the minimum capitalization norms to investments by non-resident investors covered under Schedule 2 & 8, the inference drawn by the AO that as per the letter of RBI dated 26.09.2012, minimum capitalization norms were applicable to investors to whom the offer was made in the RHP and therefore CARE ought to have disclosed the same in the RHP cannot be sustained.
21. During the course of hearing we had called upon SEBI to place on record any instance in the past to show that minimum capitalization norms have been made applicable to non-resident investors covered under Schedule 2 & 8 of FEMA Regulations. Counsel for SEBI, fairly stated that SEBI is not in a position to show that at any time in the past minimum capitalization norms have been applied to non-resident investors covered under Schedule 2 & 8 of FEMA Regulations. Even in the letter of RBI dated 01.08.2016 (annexed to the Additional Affidavit of SEBI dated 26.08.2016) it is clearly stated that no data is available with RBI to show that minimum capitalization norms have been made applicable in the past to investments by non-resident investors covered under Schedule 2 & 8 of the FEMA Regulations. Thus, the aforesaid letter of RBI dated 01.08.2016 establishes beyond any shadow of doubt that there is no provision in law by which minimum capitalization norms 33 have been made applicable to non-resident investors covered under Schedule 2 & 8 and for the first time RBI by its letter dated 06.12.2012 sought to apply minimum capitalization norms to investments made by non-resident investors covered under Schedule 2 & 8 of the FEMA Regulations. In these circumstances, merely because CARE in the facts of the present case agreed to apply minimum capitalization norms to non- resident investors covered under Schedule 2 & 8 as directed by RBI vide letter dated 06.12.2012, it cannot be inferred that RBI vide its letter dated 26.09.2012 had directed CARE to apply minimum capitalization norms to non-resident investors covered under Schedule 2 & 8 of FEMA Regulations and consequently hold that non-disclosure of the above information was in violation of ICDR Regulations and Merchant Bankers Regulations. It is equally important to note, that in the letter dated 06.12.2012 it is not stated that RBI in its earlier letter dated 26.09.2012 had called upon CARE to apply the minimum capitalization norms to non-resident investors covered under Schedule 2 & 8 of the FEMA Regulations. Thus, it is clear, that RBI by its letter dated 06.12.2012, for the first time called upon CARE to comply minimum capitalization norms in relation to investments by non-resident investors covered under Schedule 2 & 8 and on CARE seeking time to comply, RBI readily granted six months time. It is not in dispute that CARE has complied with the directions contained in the letter of RBI dated 06.12.2012 within the stipulated time. In these circumstances, the AO is not justified in holding that the appellants have failed to disclose material information in the RHP and thereby violated the provisions contained in the ICDR 34 Regulations and Merchant Bankers Regulations. Consequently, penalty imposed against the appellants cannot be sustained.
22. To sum up, we hold that:-
a) Under the FEMA Regulations minimum capitalization norms are applicable only to investments made by non
-resident investors covered under Schedule 1 and the said norms are not applicable to the non-resident investors covered under Schedule 2 to 8 of the FEMA Regulations. Even RBI as the Nodal Regulatory Authority has not issued any Circular or Notification or Press release extending the minimum capitalization norms to the non-resident investors covered under Schedule 2 to 8 of the FEMA Regulations.
b) In the present case, pursuant to the representation made by CARE, RBI by its letter dated 26.09.2012 exempted the non-resident investors from the requirement of obtaining NOCs from their regulators subject to strict compliance of minimum capitalization norms applicable to NBFCs. Thus, it is apparent from the letter of RBI dated 26.09.2012 that all non-
resident investors were exempted from obtaining NOC from the regulators, except in case of non-
resident investors covered under Schedule 1, where the exemption was to be subject to strict compliance 35 of minimum capitalization norms specified under the FEMA Regulations.
c) Although CARE in its DRHP had proposed to offer shares to non-resident investors covered under Schedule 1, in its RHP, CARE did not permit investment by non-resident investors covered under Schedule 1 and permitted investment by residents and non-resident investors covered under Schedule 2, 4 & 8 to whom the minimum capitalization norms were not applicable. Therefore, disclosure made in the RHP that by a letter dated 26.09.2012 RBI has exempted the non-resident investors permitted to participate in the offer (i.e. non-resident investors covered under Schedule 2, 4 & 8) from the requirement of obtaining NOC from their regulators cannot be faulted.
d) Fact that CARE in its RHP did not disclose that the exemption under the letter of RBI dated 26.09.2012 was subject to compliance of minimum capitalization norms applicable to NBFCs cannot be a ground to hold that CARE has suppressed material information in the RHP, because, the said condition was not applicable to the non-resident investors permitted to participate in the offer of CARE and consequently the said condition was not a material information for the investors permitted to participate in the offer to take 36 an informed investment decision. In other words, non-disclosure of an information which is not at all material for the investors permitted to participate into offer to take an informed investment decision would not amount to suppressing material information in the RHP.
e) Object of disclosure provisions contained in the regulations framed by SEBI is to ensure that the investors permitted to participate in the offer get true and adequate information for taking an informed investment decision. In the present case, minimum capitalization norms were not applicable to the investors permitted to participate in the offer and therefore, no fault could be found with CARE for not disclosing in its RHP dated 24.11.2012 the information which was not applicable to the investors permitted to participate in the offer.
f) Fact that RBI by its letter dated 06.12.2012 for the first time directed CARE to apply minimum capitalization norms to non-resident investors covered under Schedule 2 & 8, and fact that CARE agreed to implement the said direction cannot be a ground to hold that in the RHP dated 24.11.2012 CARE ought to have disclosed that the minimum capitalization 37 norms were applicable to the investors permitted to participate in the offer. In the letter dated 26.09.2012 RBI had not directed that minimum capitalization norms shall be applied across the Board. On the contrary, by the said letter RBI specifically directed CARE to comply minimum capitalization norms applicable to NBFCs. Therefore, when the RHP was issued on 24.11.2012 the minimum capitalization norms being not applicable to the investors permitted to participate in the offer, no fault can be found with CARE for not disclosing the obligation relating to compliance of the minimum capitalization norms as the said norms were not applicable to the investors permitted to participate in the offer.
g) Admittedly, on receiving letter from RBI dated 06.12.2012, CARE has issued addendum to the RHP disclosing that as per the letter of RBI dated 06.12.2012 non-resident investors covered under Schedule 2 & 8 would also be required to comply with the minimum capitalization norms and accordingly the said norms have been complied by CARE within the time stipulated by RBI.
h) Admittedly, there is no provision contained in the FEMA Regulations and there is no Circular, Notification or Press release issued by RBI making 38 the minimum capitalization norms applicable to non- resident investors covered under Schedule 2 & 8. Counsel for SEBI has admitted that no evidence is available with SEBI to suggest that prior to 06.12.2012, RBI had sought compliance of minimum capitalization norms by non-resident investors covered under Schedule 2 & 8. Even RBI by its letter dated 01.08.2016 has stated that no data is available with RBI to show that in the past, minimum capitalization norms were made applicable to non- resident investors covered under Schedule 2 & 8 of the FEMA Regulations.
23. Accordingly, in the facts of present case, decision of the AO that disclosing the letter of RBI dated 26.09.2012 in the RHP, but not disclosing in the RHP that RBI by the said letter dated 26.09.2012 had sought strict compliance of minimum capitalization norms applicable to NBFCs amounts to suppressing material information in the RHP and thus violative of the provisions contained in the ICDR Regulations and Merchant Bankers Regulations cannot be sustained, because, minimum capitalization norms were not applicable to the investors permitted to participate in the offer of CARE and the said norms had no bearing on the investors permitted to participate in the offer of CARE to take an informed investment decision. In other words, in the facts of present case, no fault can be found with CARE for not disclosing the norms which were not applicable to the investors to whom the offer was made 39 in the RHP dated 24.11.2012. Fact that subsequent to the RHP dated 24.11.2012, RBI by its letter dated 06.12.2012 directed CARE to apply minimum capitalization norms to non-resident investors covered under Schedule 2 & 8 and CARE in the circumstances of the case complied with the said direction cannot be a ground to hold that information relating compliance of minimum capitalization norms were suppressed in the RHP dated 24.11.2012. Once it is held that there was no infirmity in the RHP of CARE, then it cannot be said that the appellants without exercising due diligence have issued certificate to the effect that the RHP of CARE contains true and adequate information. Consequently, appellants cannot be said to have violated the Merchant Bankers Regulations.
24. In the result, decision of the AO that the appellants have violated the provisions contained in the ICDR Regulations and Merchant Bankers Regulations cannot be sustained. Consequently, penalty of ` 1 crore imposed on the appellants cannot be sustained.
25. Appeal is accordingly allowed in the aforesaid terms with no order as to costs.
Sd/-
Justice J.P. Devadhar Presiding Officer Sd/-
Dr. C.K.G. Nair Member 30.09.2016 Prepared & Compared By: PK 40 Per: Jog Singh (Minority View)
1. I have had the privilege of going through the judgment written by the Ld. Presiding Officer. With respect, I am unable to agree with the same.
2. The moot question involved in the present case is whether true and adequate disclosure of material information has been made by the six Appellants who have acted as the BRLMs for CARE in its IPO, as required by the ICDR Regulations.
3. As per the ICDR Regulations, a company which intends to float an IPO cannot directly do this on its own but only through merchant bankers/BRLMs registered with and regulated by SEBI. Regulation 5 enshrined in Chapter 2 of the ICDR Regulations provides for the appointment of Merchant Bankers and other intermediaries and lays down that the Issuer Company shall appoint merchant bankers to carry out all obligations in respect of the issue of securities floated by the issuer company. It is, therefore, necessary, before dealing with the submissions of both the parties, to list the various regulations involved in the present matter for the sake of convenience :-
Regulation 8(2)(b), 57 (1), 57 (2) (a) (ii) and 64 (1) of the ICDR Regulations Documents to be submitted before opening of the issue "8 (2) The lead merchant banker shall submit the following documents to the Board after issuance of observations by the Board or after expiry of the period stipulated in sub-
regulation (2) of regulation 6 if the Board has not issued observation:
(b) a due diligence certificate as per Form C of Schedule VI, at the time of registering the prospectus with the Registrar of the Companies."41
Manner of disclosures in the offer document "57 (1) The offer document shall contain all material disclosures which are true and adequate so as to enable the applicants to take an informed investment decision. (2) Without prejudice to the generality of sub-regulation (1):
(a) the red-herring prospectus, shelf prospectus and prospectus shall contain :
(i) the disclosures specified in Schedule Ii of the Companies Act, 1956; and
(ii) the disclosures specified in Part A of Schedule VIII, subject to the provisions of Parts B and C thereof."
Due diligence "64 (1) the lead merchant bankers shall exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents."
Regulation 13 of the Merchant Bankers Regulations Code of conduct.
"Every merchant banker shall abide by the Code of Conduct as specified in Schedule III. Read with the following clauses:
Clause 1- A merchant banker shall make all efforts to protect the interests of investors.
Clause 4- A merchant banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment.
Clause 6- A merchant banker shall ensure that adequate disclosures are made to the investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision.
Clause 7- A merchant banker shall endeavour to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision. Clause 20- A merchant banker shall not make untrue statement or suppress any material fact in any documents, reports or information furnished to the Board." 42
4. At the outset, it may be noted that the scheme of the ICDR Regulations, read with the Code of Conduct as prescribed by the Merchant Bankers Regulations, casts a duty upon merchant bankers/book-running lead managers to be vigilant and, through their due diligence exercise, to ensure that all material information disclosed in the offer documents is true and adequate for consumption of the investors, so as to assist them in making an informed and balanced investment decision.
5. Certain relevant definitions of the ICDR Regulations have been analysed hereinafter. Regulation 2(1)(f) explains book building as the process whereby the demand and price of certain securities is assessed and determined. Regulation 2(1)(g) defines a book runner as a merchant banker appointed by the issuing company to undertake the book building process. Regulation 2(1)(p) explains an "initial public offer" as an offer of specified securities by an unlisted issuer to the public for subscription and includes an offer for sale of specified securities to the public by any existing holders of such securities in an unlisted issuer; Regulation 2(1)(r) defines issuer as any person, meaning any judicial entity, making an offer of securities. Regulation 2(1)(x) defines the term "offer document" as red herring prospectus, prospectus, shelf prospectus and information memorandum in case of a public issue and letter of offer in case of a rights issue. Regulation 2(1)(zd) defines a "qualified institutional buyer" as including a foreign institutional investor and sub account (other than a sub-account which is a foreign corporate or foreign individual), registered with the Board (Regulation 2(1)(zd)(ii)).
6. Although Part A of Schedule VIII captures what comprises of disclosures, there is no exact definition of "material" in the ICDR Regulations. The Black's Law Dictionary (Tenth Edition) defines 'Material' inter alia as 'Of 43 such a nature that knowledge of the item would affect a person's decision making; significant; essential.' Therefore, it needs to be noted that the word 'material' means 'important'. However, purely by virtue of being important, the information may not per se be complete in all respects. Regulation 57 of the ICDR distinguishes between material disclosure on one hand, and true and adequate information in an attempt to strike a balance between information on the other, which is important and complete. From an investor's standpoint, an RHP is the source of all information required in order to make an investment decision. Consequently, investors expect real facts to be mentioned in the RHP in order to assess the situation before putting their money in the market. Hence, disclosures in the RHP should be based on actual facts at the time of the issue and not on speculation or hypotheses. Having said that, a clear picture of facts as they stand on the date of the RHP, must be provided in the said offer document. Regulation 8 of the ICDR Regulations states that at the time of registering the offer document with the Registrar of Companies or filing the letter of offer with the designated stock exchange, the merchant banker submits a due diligence certificate to SEBI certifying inter alia that the comments of SEBI have been updated and that all "material information" has been disclosed.
7. Regulation 64 of the ICDR Regulations imposes on merchant bankers, in clear terms, the obligation of conducting proper due diligence. It states that the lead banker must satisfy itself regarding the adequacy and truth of the disclosures made in the offer documents. It is pertinent to note here that the ICDR does not stop at entailing true disclosure, but go on to specifically include the requirement of adequate disclosure as well. Even clauses 4 and 6 of the Code of Conduct as prescribed in the Merchant Bankers Regulations state that a BRLM must ensure adequate disclosure in the offer documents based on 44 its independent due diligence. Failing this duty, merchant bankers may be held liable by SEBI for lack of due diligence.
8. In particular, Regulations 57(1) and 64(1) of the ICDR Regulations make it the primary duty of the BRLM concerned to protect the interests of investors during an IPO by casting upon the BRLMs the mandatory duty to ensure true and adequate disclosure of everything material to the company floating the IPO. This is achieved, as stated above, through the process of a thorough exercise of due diligence conducted by the merchant bankers/BRLMs of all the information available with them regarding the company and its antecedents.
9. Let us now recapitulate, in brief, certain facts and events leading up to the present proceedings.
A. The DRHP was filed by the Appellants, in the capacity of authorised BRLMs on behalf of CARE, with SEBI on September 30, 2011. It is evident from the DRHP that the same was premised and advanced on the basis of the regulatory structure as enunciated by the Consolidated FDI Policy, the FEMA Regulations and the relevant SEBI Regulations. B. Application dated October 19, 2011 was made to RBI seeking its approval for the transfer of 7,199,700 equity shares to eligible non- resident investors. This approval was required under erstwhile Regulation 10(A)(c)(ii) of the FEMA Regulations since CARE, the issuer company, was a company engaged in the financial services sector.
C. Circular No. 43 dated November 4, 2011 was issued by RBI stating that transfer of shares from an Indian resident to a non-resident investor will not require RBI's approval if the following conditions were satisfied: 45
a NOCs to be obtained from the regulators of the company in which investment was sought to be made, along with NOCs from regulators of the transferor and transferee of shares; and b Requirements under the FDI Policy and FEMA Regulations to be met, including the Minimum Capitalization Norm (MCN).
D. The RBI, while returning the first application dated October 19, 2011 without approving or disapproving the proposed investment structure, vide letter dated December 2, 2011 asked CARE to take a look at its application in light of the abovementioned Circular dated November 4, 2011.
E. After consultations with the Appellants, CARE's Letter dated May 15, 2012 undertook to the RBI that the IPO would indeed adhere to the FDI Policy and the FEMA Regulations as required by law. In addition, exemption was sought from one of the two aforementioned conditions viz. the NOC requirement, emanating from the erstwhile Regulation 10(A)(b)(v)(a) of the FEMA Regulations, with respect to foreign investors, on the ground that the investors were a hitherto unidentifiable pool of entities.
F. RBI rejected the request for exemption to foreign investors regarding NOCs required from their respective regulators vide letter dated June 22, 2012. In the said letter, RBI stated that NOCs from respective regulators of the resident investee company, resident transferors and non-resident investors should be filed with the RBI at the time of submission of Form FC-TRS with the Authorised Dealer Bank. G. Vide letter dated August 31, 2012 CARE, after discussions with the Appellants and legal advisors, once again sought RBI's exemption only 46 with respect to NOCs required to be obtained from foreign regulators, implying that all other conditions and requirements as per the FDI Policy and the FEMA Regulations would be complied with including MCN.
H. Finally, vide letter dated September 26, 2012, RBI acceded to CARE's request and granted exemption from the requirement imposed on proposed foreign investors from obtaining an NOC from their respective foreign regulators. However, this exemption was granted on the basis of strict compliance with three following conditions:
a That the MCN be strictly adhered to, i.e., 0.5 million dollars be collected by CARE upfront;
b That the post-issue shareholding pattern of CARE be submitted to RBI on completion of the offer;
c That the reporting formalities in terms of A.P. DIR Series Circular 63 dated April 22, 2009 read with A.P. DIR Series Circular 43 dated November 04, 2011 be adhered to. I. CARE, however, after consulting the Appellants, sent letter dated October 5, 2012 to RBI purportedly changing the structure of the IPO which had been proposed continuously since the DRHP was filed way back on September 30, 2011. The letter asserted that CARE was to offer equity shares only to FIIs under the PIS Scheme in accordance with Regulation 5(2) and Schedule 2 of the FEMA Regulations, to NRIs under Regulation 5(3)(iii) and Schedule 4 of the FEMA Regulations and to QFIs under Schedule 8 of the FEMA Regulations. The said letter sought to explain that the abovementioned investment structure did not fall under FDI as per Regulation 5(1) and Schedule 1 of the FEMA Regulations and supposedly would not attract MCN. 47 J. In this background, the RHP dated November 27, 2012 was then filed with SEBI by the Appellants on behalf of CARE. The RHP mentioned on page 228, as part of disclosures regarding "Government and Other Approvals", that "RBI by letter dated 26th September 2012 exempted eligible non-residents, in their capacity as transferee entities, from the requirement to obtain a no-objection certificate from their respective regulators in relation to participating in the IPO". However, the conditions on the basis of which the said exemption was granted were conspicuously absent.
K. The RHP also listed letter dated September 26, 2012 under the head "Material Contracts and Documents for Inspection". L. CARE's Letter dated October 5, 2012, unilaterally deciding that the MCN did not apply to its proposed IPO, was not disclosed anywhere in the RHP.
M. But, the RBI vide letter dated December 6, 2012 instructed CARE once again to comply with the MCN of 0.5 million dollars upfront investment by FIIs and QFIs. The IPO opened for anchor investors on December 6, 2012 itself.
N. On December 7, 2012, CARE wrote to RBI stating that on the very same day i.e. December 7, 2012, the IPO would open to the public and close on December 11, 2012. Vide the aforesaid letter, it was contended, once again, that the MCN was not applicable to the IPO in question. O. On December 10, 2012, CARE, on the advice of the Appellants and its legal advisors, wrote to the RBI finally conceding and accepting that MCN would be required to be complied with and sought nine months' time to ensure compliance with the same. RBI responded on the same day, graciously granting time of six months for the MCN to be made good. After receiving RBI's response, CARE apprised SEBI of the 48 correspondence that had taken place between itself and RBI and that MCN would have to be complied with "in accordance with applicable law and approvals".
P. Subsequently, CARE issued an addendum in newspapers regarding the applicability of the MCN to the IPO it intended to float. SEBI noticing the inadequacy of material disclosures in the RHP issued the SCN to the Appellants which eventually led to the passing of the Impugned Order.
10. I have thoroughly perused the Appeal along with all documents produced by both parties. Having given a brief preface to the issues before this Tribunal which need consideration, I shall now deal with the issues that have arisen in the present appeal.
11. As matters stand today, it has been accepted by the Appellants as well as the company CARE that MCN ought to have been satisfied in accordance with law. Vide letter dated December 10, 2012, the Appellants have even sought time from the RBI for compliance with the MCN. In view of these facts, and looking at the trajectory of the developments regarding MCN in the present matter, can it be said that the Appellants exercised proper due diligence by failing to ensure that all relevant information in letters dated September 26, 2012 and October 5, 2012 was properly disclosed in the RHP?
12. In light of the foregoing discussion, it is borne out that material and adequate disclosure is disclosure of information which the investors should have at their disposal to decide whether or not they wish to invest in a particular company. How that information is used by the investors, the extent to which it is to be relied upon by the investors and whether or not that information is actually relied upon by the investors to conclude whether a certain investment opportunity is feasible, are not criteria which should weigh 49 in the minds of BRLMs when it comes to actual disclosure of such information by BRLMs in the offer documents. The company concerned (in this case CARE), in fact, heavily relies upon the knowledge, experience and the expertise of the BRLMs in this regard.
13. In respect of the instant appeal, it is a fact, as stated above, that the RHP, on page 228, did consider it important to disclose RBI's letter dated September 26, 2012 where exemption was granted to foreign investors from seeking NOCs from their regulators. It, thus, becomes evident that the exemption which was a crucial development in itself as it was in favour of CARE was disclosed, and the MCN condition on which the exemption was based, also being a mandatory requirement which was sought to be circumvented vide letter dated October 5, 2012, was not specifically disclosed. I fail to understand how information regarding a certain exemption from a regulator is considered material enough for disclosure purposes, but the non- negotiable condition on which that very exemption is based is not considered material enough to be disclosed. The Appellants' argument that by listing RBI's letter dated September 26, 2012 under the "Material Contracts and Documents for Inspection", the Appellants allowed investors the opportunity to peruse the said letter does not hold ground for the simple reason that if including the said letter in a list of material documents open to inspection was considered good enough for disclosure purposes, why was the need felt to specifically disclose the exemption granted on page 228 of the RHP under "Government and Other Approvals". Furthermore, having then specifically disclosed the exemption, for the sake of good order, the Appellants ought to have ensured specific disclosure of even the condition on which the exemption in question was granted by the RBI. By no stretch of imagination can it be considered true and adequate disclosure to invite the investors' attention to a 50 particular regulatory approval by specifically disclosing the same, and then failing to invite the investors' attention to the strict conditions on the basis of which the exemption in question was granted.
14. Let us now come to a letter dated October 5, 2012 whereby a unilateral decision was taken, without involving the RBI, that the MCN apparently did not apply to the IPO in question. This was not only unfair but also to obviously skirt regulatory norms. Once the RBI had specifically directed vide its letter dated September 26, 2011 that in light of the facts and circumstances of the IPO, exemption to foreign investors from seeking their regulators' NOC could only be granted if certain conditions were satisfied, including strict compliance with MCN, it was the Appellants' duty to disclose in the RHP that it had decided not to comply with a direct order of the RBI vide letter dated October 5, 2012. It is a matter of record that CARE, on the advice of the Appellants, and RBI had been engaging for over a year on the basis of the understanding that the IPO was inviting investment under the FDI route. Not waiting for the response of the RBI while taking the decision to change the proposed investment structure cannot be said to evidence good order and satisfaction of the Appellants' duty of due diligence in any manner. Similarly, the factum of not waiting for the RBI's response to letter dated October 5, 2012 and not seeking clarification regarding the same, point towards a rather hurried approach on the part of the Appellants, which is in complete contradiction to the conduct of a responsible and diligent merchant banker. Therefore, I agree with the findings of the Ld. AO that letter dated October 5, 2012 reflected the level of compliance, or the lack thereof in this case, with a strict order of an expert agency such as the RBI. The following paragraphs of the Impugned Order being relevant are reproduced hereinbelow:
"1.1 It is observed from the above that though the exemption granted by RBI vide its letter dated 51 September 26, 2014 to eligible Non-Residents investors, in their capacity as transferee entities, from the requirement of obtaining a NOC from their respective regulators in relation to participating in the Offer was disclosed in the RHP dated November 24, 2012 under the para on 'Government and Other Approvals', the conditions based on which the said exemption was granted by RBI and the status of its compliance were not disclosed in the RHP. Further, the factual status of filing of reply dated October 5, 2012 by CARE with RBI, whereby CARE in consultation with the BRLMs and the legal Counsels and the applicable legal framework, believed that the minimum capitalization norms applicable to NBFCs engaged in non-fund based activities shall not be applicable to the company in respect of the offer since they had restricted the category of foreign investors who could participate in the Offer, was also not disclosed in the RHP.
1.2 It was, hence, inter alia alleged in the SCN that full and complete disclosure in the matter of grant of exemption to Non Resident Investors from the requirement of obtaining NoC from their respective regulators in relation to their participation was not made in the RHP. The SCN inter alia also pointed out that even the subsequent correspondence made by the company with RBI i.e. letter dated October 5, 2012 was not included in the RHP. The SCN had, thus, inter alia alleged that the BRLMs/Noticees had failed to ensure in the RHP that all material disclosures which are true and adequate, so as to enable the applicants to take an informed investment decision were made."
15. It follows that the said letter, which in my considered opinion constituted material information, ought to have been properly disclosed by the Appellants in the RHP. A prudent and responsible Merchant Banker, as a matter of good order and conduct, would have disclosed to the public the decision of the investee company to not satisfy the MCN, especially in light of the fact that the RBI had ordered specific observation and compliance with the same.
16. It is indubitably true that RBI is indeed the nodal agency, and in fact the authority that has the final say, in all matters related to foreign exchange, 52 whether FDI or PIS or any other mechanism instituted to bring forex into the Indian economy. The relevant extract of the Impugned Order is reproduced hereinbelow:
"........... Thus, in the matter under consideration I note that RBI which is the nodal regulatory authority for all matters connected with foreign exchange transactions in India, has after examining the issue given its ruling regarding applicability of minimum capitalization norms to the Offer, even after the BRLMs claimed that the Offer was restricted through the PIS route."
17. The Appellants engaged constantly and regularly with the RBI for over a year, i.e. since the filing of the DRHP in September 2011, regarding the IPO which was to be structured under the FDI Policy. Multiple letters have been brought on record to evidence the same. It is a matter of record that exemption was sought from the requirement of obtaining NOCs from the foreign regulators of the foreign investors subscribing for shares in the IPO. It is pertinently noted that no exemption whatsoever was sought even once from the RBI regarding the compliance with the MCN since compliance with the MCN was mandatory for investment through the FDI route in companies engaged in the financial services sector.
18. It is clear that between the filing of the DRHP and the RHP - a period of almost a year - the Appellants' sole focus was to ensure that foreign investors be exempted from the abovesaid requirement of obtaining NOCs from their respective regulators. Once that was achieved on September 26, 2012, i.e. when RBI issued a letter granting the requested exemption but only on the fulfillment of certain non-negotiable criteria, within ten days thereafter, CARE, after consultation with the Appellants, attempted to unilaterally alter its entire investment to circumvent the compliances under the FDI route, and the MCN in particular. The hurry with which the investment structure was purportedly altered and RHP issued without seeking RBI's 53 opinion/clarification was clearly done with a view to circumvent regulatory norms.
19. It was obligatory on the Appellants to seek RBI's clarification, before filing the RHP, on whether or not the MCN had to be met especially since, on the Appellants' own showing, the investment structure which had been planned for the IPO over a period of one year, was sought to be changed drastically within a period of ten days between September 26, 2012 and October 5, 2012. I, therefore, uphold the AO's finding that as prudent Merchant Bankers, the latter ought to have sought RBI's clarification on the MCN issue instead of unilaterally changing an investment structure with respect to which RBI and CARE had been engaged in discussions for a rather long period of time. This is true especially since eventually CARE readily agreed to RBI's view regarding applicability of the MCN and, in turn, was granted six months by the RBI to satisfy the said requirement. In my considered view, it was the Appellants' endeavour as CARE's BRLMs to sheathe CARE from the requirement to bring in the 0.5 million dollars upfront to satisfy the MCN.
20. The requirement of MCN with respect to the IPO was not only mandatory, but in fact the exemption granted to foreign investors from obtaining NOCs from their respective regulators vide RBI's letter dated September 26, 2012 was granted on the basis of fulfillment of the MCN and certain other conditions. The act of the Appellants in disclosing only the exemption in the RHP without disclosing that it was conditioned on certain mandatory compliances can in no way be countenanced. The Appellants state that letter dated October 5, 2012 to RBI purportedly changed the investment structure proposed to be followed in the IPO. Firstly, as emphasized above, such a decision ought not to have been arrived at unilaterally without seeking the RBI's approval/clarification beforehand. Secondly, even if the aforesaid 54 stand of the Appellants that the investment structure of the IPO had been changed was to be accepted, the question that begs to be answered is why the Appellants spoke of the Consolidated FDI Policy in the RHP at all. The Appellants cannot be allowed to blow hot and cold in the same breath. It is a matter of fact that on page 116 of the RHP the following information applicable under the FDI route was provided to investors -
"In case of non-banking financial companies undertaking non- fund based activities, which include credit rating agencies, USD 0.5 million should be brought in upfront by the foreign investor irrespective of the level of foreign investment"
21. If the Appellants would have us believed that it had indeed been decided to alter the proposed investment structure by excluding FDI, then it logically follows that there was no need to mention information related to the MCN of USD 0.5 million which the Appellants claim was not applicable to the IPO in the RHP. It, therefore, emerges that the Appellants have made completely divergent and even contradictory disclosures in the RHP. These conflicting conclusions and indications in the RHP reflect a clear disjunct between what the Appellants claimed the investment structure to be on the one and what they tried to achieve on the other by one, successfully getting prospective investors exempted from complying with the NOC requirement and two, trying to circumvent the MNC of USD 0.5 million. It is pertinent to mention here that both the abovesaid requirements which the Appellants tried to avoid complying with are requirements which flow from the FDI Policy, in particular Circular No. 43 dated November 4, 2011. The following paragraph of the Impugned Order being relevant is reproduced hereinafter:
"1.19. In the matter, I note that the BRLMs / Noticees considered the exemption granted by RBI to non-resident investors participating in the Offer from the requirement of obtaining a NoC from their respective regulators, which is inter alia one of the conditions under the FDI Route where an investee company is in the financial sector, material enough to be disclosed in the RHP of CARE. On the other hand, I find that the 55 BRLMs / Noticees did not consider the condition imposed by RBI regarding applicability of minimum capitalisation norm while granting such exemption, which is the other condition under the FDI route material enough to be disclosed in the RHP. The fact that BRLMs could apply different legal standards to arrive at divergent conclusions with respect to the same issue of applicability of conditionalities linked to the FDI Scheme to the Offer, therefore, appears to be with a purpose to circumvent RBI's directive regarding applicability of minimum capitalization norm to the Offer"
22. Similarly, why was the letter dated September 26, 2012 even disclosed, when according to the Appellants that letter itself pertained to investment under the FDI route which was apparently not supposed to be followed after CARE issued letter dated October 5, 2012 to the RBI ostensibly changing the investment structure from FDI to other modes of investment. No satisfactory response is forthcoming from the Appellants in this regard. The Appellants, therefore, ought to have ensured that both, RBI's letter dated September 26, 2012 stating that MCN was applicable as well as CARE's letter dated October 5, 2012 contending that MCN was inapplicable were fairly disclosed in the RHP to ensure that foreign investors had all material information at their disposal to take an informed decision regarding whether to invest or not in the forthcoming IPO. Ultimately, the Appellants today have rightly accepted that MCN was mandatory.
23. The Code of Conduct, prescribed under Schedule III of the Merchant Bankers Regulations, clearly states that it is the responsibility of the merchant bankers to an issue to conduct proper due diligence and ensure true and adequate disclosure in the offer document. Therefore, disclosures made in offer documents need to be true and also adequate - meaning complete. Half baked information as was supplied to the investors in the present condition cannot be said to be true and adequate disclosure. It, therefore, falls to reason that at the time the RHP was filed, non-disclosure therein regarding the MCN points 56 obviously to the lack of proper due diligence on the Appellants' part since the Appellants clearly failed to ensure true and adequate disclosure. The following paragraph of the Impugned Order being relevant has been reproduced hereinunder:
"3. In the RHP, I find that the BRLMs, by disclosing only the half-truth with respect to RBI's letter dated September 26, 2012, had misled the non-resident investors into believing that RBI had unconditionally exempted the non-resident investors from obtaining an NOC from the respective regulators in relation with their participation in the offer. The fact that RBI had exempted the non-resident investors from obtaining a NoC from the respective regulators in relation to their participation in the Offer, subject to the company strictly adhering to the minimum capitalization norms as per the FDI Policy and FEMA Regulations, was concealed from the non-resident investors in the RHP."
24. Even if the BRLMs are ever in doubt as to the materiality of information, they should opt to include such information in the offer documents, unless cogent and strong reasons exist for the merchant bankers to not disclose the information concerned. The standard to be applied is what a prudent merchant banker under similar circumstances would have done and the same would largely be determined by the Code of Conduct as specified in Schedule III Regulation 13 of the Merchant Bankers. In the case of Almondz Global Securities Ltd., vide judgment dated May 13, 2016, this Tribunal has categorically stated that even though analysing bank statements may not be absolutely necessary in the facts and circumstances of a given case, Almondz should have, as a responsible merchant banker perused the bank statements of the company concerned to ensure that nothing material had escaped Almondz's notice. The dispute in Almondz revolved around the concept of due diligence and the lengths to which the merchant banker/book running lead manager should go to ensure true and adequate disclosure of material information in the offer documents. Almondz was hired as the book running lead manager for IPOs floated by two companies, namely, PG Electroplast ("PGEL") and 57 Bhartiya Global Infomedia Ltd. ("BGIL"). In case of PGEL, Almondz was held guilty for not analysing the bank statements and thereby not being able to disclose the inter corporate deposits given to and by PGEL from and to other companies in the offer documents. In the case of BGIL, Almondz had failed to disclose certain related party transactions and inter corporate deposits in the offer documents. Therefore, in respect of both companies, Almondz was held liable for non-disclosure of material information. It is pertinent to reproduce certain paragraphs of judgment dated May 13, 2016 in the matter of Almondz vs. SEBI which elucidate the responsibility of merchant bankers in ensuring true and adequate disclosure in offer documents:
Para 61-
"Analysing the fund flow in the Issuer Company's accounts... ...would have revealed the true financial position of the Issuer Company's financial dealings to prospective investors more vividly".
"True and accurate disclosures are important for common investors to take an informed decision regarding investment in the upcoming IPO. The purpose for which the disclosures are required to be made will, thus, be frustrated if the same were inaccurate or untrue or incomplete".
Para 64-
"Albeit, it is not mandatory for an MB to look into the bank statements it would have been prudent for the Appellant to peruse the bank statements instead of merely relying on the Statutory Auditor's Report and the statement of the Issuer Company".
25. It is pertinent to note that in the case of Almondz for want of a more vivid depiction of the issuer company's position in the offer documents, this Tribunal held the merchant banker i.e. Almondz liable for failing to disclose material information in the matter of the IPOs of PGEL and BGIL. In the present case, the Appellants have deliberately not disclosed the conditional nature of the exemption granted by the RBI for the NOC, thereby failing to honour the Code of Conduct that governs the actions of merchant bankers/ 58 book running lead managers. In the instant case, it is established from a plain reading of the law that RBI is the nodal authority for matters pertaining to the FEMA Regulations and that the Appellants, as advisors to the Issuer Company alongwith the Issuer Company itself, were in constant communication with RBI since October 19, 2011. In light of the aforementioned facts, the Appellants should have acted prudently and sought for a clarification from the RBI instead of proceeding with the filing of the RHP on 27 th November 2011. It may be reiterated that in case of an IPO, the company in question hires a Merchant Banker(s) as a SEBI registered intermediary which advises the company throughout the process of the IPO from the beginning to the end.
26. From the foregoing analysis of the facts of the matter before this Tribunal, it becomes evident that the BRLMs had always been in possession of letters dated September 26, 2012 and October 5, 2012. Moreover, the exemption granted to foreign investors from obtaining NOCs contained in letter dated September 26, 2012 was even considered material enough for purposes of disclosure. In my considered view, in such a situation, the condition based on the strict compliance of which the exemption was granted also should have been properly disclosed to ensure not only disclosure simplicitor but also adequate and true disclosure as required by the Regulations. Accordingly, I hold that the Appellants failed to exercise proper due diligence in the matter of the IPO of CARE by not disclosing true and adequate factual position in the offer document in question.
27. The Impugned Order is, accordingly, upheld and the Appeal is hereby dismissed, however, with no order as to costs.
Sd/-
Jog Singh Member 30.09.2016 Prepared & Compared by PTM 59 *Per Majority:
As per the majority decision, the appeal is allowed and the impugned order is set aside with no order as to costs. Per Minority:
As per the minority decision, the appeal is dismissed and the impugned order is upheld with no order as to costs.
Sd/-
Justice J.P. Devadhar Presiding Officer Sd/-
Jog Singh Member Sd/-
Dr. C.K.G. Nair Member *Inserted pursuant to order dated 04.10.2016