Securities Appellate Tribunal
Brij Kishore Sabharwal vs Sebi on 20 July, 2023
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision : 20.07.2023
Appeal No. 620 of 2023
Alps Motor Finance Ltd.
49, Gujranwala Town,
Part - II, New Delhi - 110009. ....Appellant
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
With
Appeal No. 621 of 2023
Brij Kishore Sabharwal
49, Gujranwala Town,
Part - II, New Delhi - 110009. ....Appellant
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Kushal Shah, Advocate i/b Prakash Shah & Associates for the
Appellants.
2
Mr. Sumit Rai, Advocate with Mr. Ravishekhar Pandey, Advocate i/b.
MDP & Partners for Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Ms. Meera Swarup, Technical Member
Per : Justice Tarun Agarwala, Presiding Officer (Oral)
1.Two appeals have been filed against a common order dated May 23, 2023 wherein the Adjudicating Officer (hereinafter referred to as 'AO') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') has imposed a penalty of Rs. 6 lakh on the company Alps Motor Finance Ltd. and a sum of Rs. 20 lakh on Brij Kishore Sabharwal who is a director in the company.
2. The facts leading of the filing of the present appeal is, that the company made six preferential allotments during the period June 2013 to August 2013. Necessary disclosure on the stock exchange platform was made by the company. Subsequently, an investigation was made and the stock exchange submitted the report indicating possibility of the mis-utilization of the proceeds in 2016. Based on this report, SEBI carried further investigation in 2019. The AO was appointed in December 2022 and the show cause notice was issued on January 5, 2023.
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3. The show cause notice alleged that there was deviation from the object of the issue and, therefore, the appellants have violated Clause 43 of the Listing Agreement / Regulation 32 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirement), Regulations, 2015 (hereinafter referred to as 'LODR Regulations') and Regulations 3 and 4 of the (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market), Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations').
4. The AO after considering the material evidence on record and after giving an opportunity of hearing concluded that the company had deviated from the object of the issue and did not utilize the proceeds from the preferential issue as per the objects and that subsequent ratification by the shareholders of the company will not make any difference to the violation of the Clause 43 of the Listing Agreement. The AO accordingly imposed the penalties.
5. We have heard Mr. Kushal Shah, Chartered Accountant for the appellants and Mr. Sumit Rai, the learned counsel with Mr. Ravishekhar Pandey, the learned counsel for the respondent.
6. At the outset, we are of the opinion that there is an inordinate delay in the issuance of the adjudication proceedings. Preferential allotment was made in August 2013. This fact was known to the 4 stock exchange and to SEBI. No action whatsoever was taken. BSE Ltd. itself took cognizance of the alleged violation in 2016 in spite of which it took SEBI another five years to issue a show cause notice in 2023.
7. In our view, there is an inordinate delay in the issuance of the show cause notice. The preferential issue was made in August 2013 and the show cause notice was issued on January 5, 2023. The issuance of the preferential issue was known to the stock exchange as well as to SEBI and, therefore, there is no justification for issuance of show cause notice at this belated stage.
8. In Ashlesh Gunvantbhai Shah vs. SEBI Appeal No. 169 of 2019 alongwith connected appeals decided on January 31, 2020, this Tribunal held :-
"12. Having considered the matter we are of the view that there has been an inordinate delay on the part of the respondent in initiating proceedings against the appellants for the alleged violations. The controversy in this regard is squarely covered by a decision of this Tribunal in Mr. Rakesh Kathotia & Ors. vs SEBI in Appeal No. 7 of 2016 decided by this Tribunal on May 27, 2019. The relevant paragraph is extracted herein below :-
"23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in 5 Government of India vs, Citedal Fine Pharmaceuticals, Madras and Others, [AIR (1989) SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v. Palitana Sugar Mill (2004) Vol.12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) Vol. 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 held :
"There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc.
13. Similar view was again relied in Ashok Shivlal Rupani & Ors. vs. SEBI (Appeal No. 417 of 2018 along with other connected appeals decided on August 22, 2019) and again in Sanjay Jethalal Soni & Ors. vs. SEBI in Appeal No. 102 of 2019 and other connected appeals decided on November 14 2019.
14. We also find that in the case of Ashok Shivlal Rupani (supra) the period of investigation was January 4, 2010 to January 10, 2011 in the scrip of M/s. Oregon Commercial Ltd. and the show cause notice issued on November 20, 6 2017 which this Tribunal held that there was an inordinate delay. In the instant case, the same scrip was investigated for the same period and there is a delay of 7 years in issuing the show cause notice. To this extent, the facts are common. Further, Civil Appeal No. 8444 - 8445 of 2019 Securities and Exchange Board of India vs. Ashok Shivlal Rupani & Anr., etc. was dismissed by the Supreme Court on November 15, 2019 thus affirming the decision of this Tribunal.
15. In the light of the aforesaid, we are of the opinion that there has been an inordinate delay in the issuance of the show cause notice. Even though there is no period of limitation prescribed in the Act and Regulations in the issuance of a show cause notice or for completion of the adjudication proceedings the authority is required to exercise its powers within a reasonable period as held recently in Adjudicating Officer, Securities and Exchange Board of India vs. Bhavesh Pabari (2019) SCC OnLine SC 294. In the instant case, we are of the opinion that the power to adjudicate has not been exercised within a reasonable period and therefore no penalty could be imposed."
9. In Sanjay Jethalal Soni and Ors. vs. SEBI Appeal No.102 of 2019 decided on November 14, 2019, this Tribunal held :-
"11. Having heard the learned counsel for the parties at some length we find that the respondent had investigated the scrips of Shree Global Tradefin Ltd. for the period March 1, 2009 to January 10, 2011 in September 2011. Pursuant thereto, a show cause notice dated April 20, 2012 was issued for the violation found during the investigated period March 1, 2009 to November 30, 2009. The respondents thereafter waited for another five years to issue a second show cause notice dated July 20, 2017 for the investigated period April 1, 2010 to January 10, 2011 which had been investigated in September 2011. We find that the respondents were aware of the alleged 7 violation and thus there is no justification for waiting for more than five years to issue the second show cause notice dated July 20 2017. In our view there is an inordinate delay in initiating the proceedings."
10. In view of the aforesaid decisions, we are of the opinion that the impugned order in so far as it relates to the appellants cannot be sustained.
11. Even otherwise we find that admittedly there was a deviation in the object of the issue and the money was utilized for some other purposes by the company. The matter was placed before the shareholders in the extra ordinary general meeting of the company and the object of the issue was ratified by the shareholders on September 29, 2017. Thus, prior to the issuance of the show cause notice, the alleged deviation by the company was ratified and, therefore, in our opinion, there was no violation of any provisions of the LODR Regulations or of the listing agreement on the date when the show cause notice was issued.
12. In Terrascope Ventures Limited vs. SEBI Appeal No. 116 of 2021 decided on June 2, 2022, this Tribunal held :-
"10. In National Institute of Technology and Another vs Pannalal Choudhury and Another (2015) 11 SCC 669, the Supreme Court has explained the expression "ratification" as under :-8
"29. The expression "ratification" means "the making valid of an act already done". This principle is derived from the Latin maxim "ratihabitio mandato aequiparatur" meaning thereby "a subsequent ratification of an act is equivalent to a prior authority to perform such act". It is for this reason, the ratification assumes an invalid act which is retrospectively validated.
30. The expression "ratification" was succinctly defined by the English Court in one old case, Hartman v. Hornsby as under :
"Ratification‟ is the approval by act, word, or conduct, of that which was attempted (of accomplishment), but which was improperly or unauthorisedly performed in the first instance."
13. In view of the aforesaid decision, it is clear that the ratification made by the shareholders of the company validates an act already done and even though the company initially utilized the proceeds of the preferential issue for a different purpose in variance of the objects specified, nonetheless, the variance in the utilization of the proceeds should ratified and became authorized pursuant to the special resolution passed by the shareholders on September 29, 2017.
14. In view of the aforesaid, we are of the view that no penalty could be imposed for the alleged deviation. We also find that there is no charge of defalcation of the proceeds from the preferential issue. 9
15. In view of the aforesaid, the impugned order in so far as it relates to the appellants cannot be sustained and is quashed. The appeals are allowed with no order as to costs.
16. 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 PRAMILA Digitally signed Technical Member 20.07.2023 TANAJI by PRAMILA TANAJI MISAL PTM Date: 2023.07.21 MISAL 14:56:31 +05'30'