Securities Appellate Tribunal
Tatia Global Vennture Ltd. & Ors. vs Sebi on 24 August, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing: 9.6.2022
Date of Decision: 24.8.2022
Misc. Application No.186 of 2022
And
Appeal No.570 of 2021
1.Tatia Global Vennture Ltd.
New No.29, Old No.12, Mookathal Street, IInd Floor, Purasawalkam, Chennai - 600 007.
2. Mr. S. Pannalal Jain Tatia Jai Villa No.9, Still Water Court, Sunrise Avenue, Neelangarai, Chennai - 600 041.
3. Mr. S.P. Bharat Jain Tatia Jai Villa No.9, Still Water Court, Sunrise Avenue, Neelangarai, Chennai - 600 041.
4. Mr. Arun Kumar Bafna 16/14, Vathiyar Kandapillai Street, Choolai, Chennai - 600 112.
5. Ms. D. Hemamlini No.125, Sachidanandam Street, Chennai - 600 012.
6. Mr. E. Subbarayan No.5, 1st Floor, Krishna Homes, MGR Street, Karunanaithipuram, Chennai - 600091.
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7. Ms. S. Shobha L-Block No.37/F, First Avenue, Anna Nagar East, Chennai - 600102.
8. Ms. Narmrata Parekh T-13, 4th Main Road, Anna Nagar, Chennai - 600 040. ...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 Mr. Prakash Shah, Advocate with Mr. Kushal Shah, C.A. i/b. Prakash Shah and Associates for the Appellants. Mr. Akash Rebello, Advocate with Mr. Abhiraj Arora, Ms. Anshu Mehta, Mr. Shourya Tanay and Mr. Harshvardhan Nankani, Advocates i/b. ELP for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member Ms. Meera Swarup, Technical Member Per: Justice Tarun Agarwala, Presiding Officer
1. The present appeal has been filed against the order dated 28th May, 2021 passed by the Whole Time 3 Member („WTM‟ for short) restraining the appellant nos.1, 2, 3, 6 and 8 from accessing the securities market and further prohibiting them from buying, selling or otherwise dealing in securities directly or indirectly or being associated with the securities market, in any manner, whatsoever for a period of one year. Likewise appellant nos.5 and 7 were restrained and prohibited for 6 months from the date of the order. In addition to the above, the WTM also imposed penalties of different amounts totaling Rs.91 lakhs.
2. The facts leading to the filing of the present appeal is, that on 9th June, 2017 the Ministry of Corporate Affairs issued a letter annexing a list of 331 shell companies and requesting SEBI to take appropriate action under the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the „SEBI Act‟) and its regulations.
3. Based on the said letter, SEBI issued an order dated 7th August, 2017 placing trading restrictions on the 4 appellant Company, its Directors and promoters. The Company made a representation on 9th August, 2017 as well as filed appeal no.216 of 2017 which was disposed of by this Tribunal by an order of 11th September, 2017 directing SEBI to decide the representation.
4. Subsequently, based on further investigation SEBI passed an ex-parte ad-interim order dated 9th October, 2017 which included a direction for appointment of a forensic auditor to verify misrepresentations including financial and misuse of funds in books of accounts of the Company. A confirmatory order dated 28th December, 2018 was passed.
5. Based on the forensic audit report and further investigation made by SEBI a show cause notice dated 26th October, 2010 was issued. The broad charges in the show cause notice are as follows:
a. "TGVL has not taken Audit committee's yearly omnibus approval for entering into related party transactions. b. Minutes of meeting of unlisted subsidiaries have not been placed at the board meetings of TGVL.5
c. No member of management was present at any of the independent director's meetings that took place between April 2015 and March 2018.
d. TGVL has not disclosed material deviation from the main activity of the company.
e. Independent directors having peculiar relationship with TGVL by owning equity shares of TGVL."
6. The WTM after considering the replies of the appellant and the material evidence on record concluded that the appellant misrepresented its financials and violated the accounting standards. The WTM found that various provisions of LODR Regulations was not complied with during the three financial years and there were lapses on the part of the Company in not making the disclosures within the stipulated period. The WTM further found that non- furnishing of information to the forensic auditor was violation of Section 11(2)(i) of the SEBI Act. The WTM further found that there was no violation of Section 12A of the SEBI Act and Securities and Exchange Board of India (Prohibition of Fraudulent 6 and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as „PFUTP Regulations‟) as there was no misappropriation of the funds nor the Company nor its Directors had played a fraud upon the investors nor was there any disproportionate gain or unfair advantage nor any specific loss was incurred by any investor. The WTM accordingly for the above violations debarred the appellant from accessing the securities market for specified periods and imposed different amounts of penalties on the appellants.
7. We have heard Mr. Prakash Shah, Advocate assisted by Mr. Kushal Shah, C.A. for the appellant and Mr. Akash Rebello, Advocate assisted by Mr. Abhiraj Arora, Ms. Anshu Mehta, Mr. Shourya Tanay and Mr. Harshvardhan Nankani, Advocates for the respondent.
8. On the issue of failure to furnish information to the forensic auditor we find from a perusal of paragraph 51 of the impugned order that the following information is 7 alleged to be not provided to the forensic auditor, namely, Sr. Date of Information sought Mode of No. seeking seeking such information information (email or through letter or any other please specify)
1. 10th May, Agreement with Prince Telephonic 2019 Foundation Ltd.
2. 10th May, Supporting documents Telephonic 2019 for general expenses conversation incurred
3. 24th April, Agreement with Email 2019 & ashram online, make 27th May, my innerwear and 2019 opti products
4. 24th April, Agreement with Email 2019 subsidiaries
9. Based on the above, the WTM has held in paragraph 52 of the impugned order that the appellants have submitted list of replies it had provided to the forensic auditor but was unable to provide the document information mentioned in paragraph 51 of the impugned order. We find that this finding by the WTM 8 is totally erroneous. From a perusal of the evidence that has been filed in the appeal we find that whatever information was sought from the appellants were provided. With regard to the information regarding agreement with Prince Foundation Ltd., is concerned the sale agreement was duly provided through email dated 14th May, 2019. In this regard, a specific assertion has been made by the appellant in paragraph 5.6 of the memo of appeal which has not been denied by the respondent in their reply. Thus, we are satisfied that the information sought by the forensic auditor with regard to the agreement of Prince Foundation Ltd., was duly supplied by the appellants. We, however, find in the written submission filed by the respondent that an assertion has been taken for the first time, namely, that the appellant was required to supply the loan agreement and instead had supplied the sale agreement. This is a new fact which has been brought by the respondents in their written submissions. No such assertion was 9 argued nor has been made by the respondents either in their reply nor any such contention is found in the impugned order. We are, thus, satisfied that information relating to agreement with Prince Foundation Ltd., was duly supplied by the appellants.
10. Similarly, the appellants have provided supporting documents for general expenses incurred which was provided to the forensic auditor vide email dated 28th June, 2019. These facts have not been disputed by the respondent.
11. Insofar as agreement with Ashram Online and agreement with subsidiaries is concerned we find that the WTM in paragraph 33 of the impugned order has given a categorical finding that although a formal agreement is not necessary for creating Inter Corporate Deposits („ICDs‟ for short) the WTM, however, held in paragraph 52 of the impugned order the details regarding the terms of loan, repayment schedule, etc should have been provided.
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12. We have perused the entire impugned order and we do not find that any such details were asked for by the forensic auditor. In the absence of any such details being brought on record, we are of the opinion that the finding given by the WTM holding that the terms of the loan agreement, repayment schedule etc., was required to be supplied by the appellant is based on surmises and conjectures.
13. In view of the aforesaid, we are satisfied that whatever information that was sought by the forensic auditor through telephonic conversation and otherwise, was duly supplied. It is not a case where there has been willful defiance on the part of the appellants in not supplying the information. Consequently, we are satisfied that the imposition of penalty of Rs.30 lakhs under Section 15A(a) of the SEBI Act is not justified.
14. Certain arguments were raised by the appellant with regard to non-compliance of the LODR Regulations. In one such instance it was urged that the Company was 11 required to take approval of inter party transaction from the Audit Committee under Regulation 23(3) which had not been taken. The ground urged by the appellant is that the Company was not required to take approval from the Audit Committee for entering into related party transactions as they were Inter Corporate Deposits which fell under Section 186 of the Companies Act and such Inter Corporate Deposits were disclosed in the financial statements and the annual reports for the financial years 2015-16, 2016-17, 2017-
18.
15. We are of the opinion that irrespective of Section 186 of the Companies Act, Regulation 23(3) of LODR stipulates that inter party transaction requires prior approval of the audit committee and since approval was not taken, the Company had violated Regulation 23(3) of the LODR Regulations.
16. Similarly, a finding has been given by the WTM for violation of Regulation 23(2) of the LODR Regulations 12 for not placing the minutes of the meeting of the subsidiary companies for approval from the shareholders of the parent Company. It was urged that the minutes of the meeting of the subsidiaries was not placed before the Board since it was a related party transaction with the subsidiaries which does not require approval from the audit committee under Regulation 23(5). Be that as it may. The minutes of the meeting of the subsidiary Company was required to be placed before the shareholders of the Company for its approval which admittedly was not done.
17. We, thus, find that the Company had made certain lapses and failed to comply with the LODR Regulations. However, these lapses are not intentional but such lapses occurred on account of procedural and technical issues. Insofar as Inter Corporate Deposits with subsidiaries is concerned the fact remains that these ICDs were reflected in the financial statements and annual reports of the Company. Thus, violation of 13 Regulation 23(3) and 23(2) at best can only be called a procedural lapse.
18. We also find that the entire enquiry was initiated with regard to the allegation that the Company was a shell Company which fact was found to be false. Further, the WTM has given a clear finding that there was no violation of the PUTP Regulations and there was no diversion of funds nor there was any manipulation in the price of the scrip and, consequently, no fraud or unfair advantage was caused to any shareholder or investor. In the absence of any specific loss being caused to anyone it was contended that the penalty imposed in the given circumstances was totally disproportionate to the alleged violation apart from being harsh and excessive.
19. Admittedly, a clear finding has been given by WTM that there is no misappropriation of funds of the Company nor there is any manipulation in the price of the scrip. The WTM has given a categorical finding 14 that Section 12A of the SEBI Act or PFUTP Regulations have not been violated.
20. In the absence of any finding of any fraudulent activities or misappropriation of funds or diversion of funds, we are of the opinion that direction of debarment and the penalty given for violation of the LODR Regulations appears to be harsh and excessive.
21. We also find that debarment and penalties have been imposed upon appellant nos.4, 5 and 7. These appellants were Independent Directors and were not involved in the day to day affairs of the Company. Further, allegations against them pertains to land transactions that had taken place in the year 2008-2009 when appellant no.5 and 7 was not even associated with the Company. Under Section 149(12) of the Companies Act, 2013 Non-Executive Director and Independent Director cannot be held liable unless they have knowledge of commission of wrongdoing by the Company or had not acted diligently. In the instant 15 case, the appellant nos.4, 5 and 7 were not involved in the day to day affairs of the Company. Further finding is that many of the relevant documents were not placed before the audit committee and, therefore, on these grounds these appellants, being Independent Directors could not be penalized. Similarly, we are of the opinion that the direction for debarment and penalty on the Chief Financial Officers, appellant nos.6 and 8 is also harsh and excessive.
22. In the instant case, we find that the violation of the LODR Regulations gave no disproportionate gain to anyone nor created any unfair advantage to the appellant nor any specific loss was caused to any investors and, therefore, in our opinion the direction of debarment and penalty imposed for violation of the LODR Regulations appears to be harsh and excessive. This Tribunal while entertaining the appeal had passed an interim order on 3rd September, 2021 and had granted an interim order staying the effect and 16 operation of the impugned order provided the appellant deposits 25% of the penalty amount.
23. This Tribunal further directed that the amount was required to be kept in an interest bearing which would be subject to the result of the appeal.
24. Accordingly, while affirming the violation committed by the Company with regard to non- compliance of the LODR Regulation, we direct that the period undergone towards debarment of the appellants is sufficient for the aforesaid violations and, consequently, the period is reduced to the period underwent by the appellants. In addition to the aforesaid, we reduce the penalty directing the appellant Company to pay a sum of Rs.10 lakhs for violation of the LODR Regulations. The penalties imposed upon the other appellants are set aside. The appeal is partly allowed. In the circumstances of the case, parties shall bear their own costs. Any excess amount deposited by the appellant pursuant to the interim order shall be 17 refunded by the respondent along with interest accrued, if any, within four weeks. Misc. application no.186 of 2022 is also disposed of accordingly.
25. 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 Justice M.T. Joshi Judicial Member Ms. Meera Swarup Technical Member RAJALA Digitally signed by RAJALAKSHMI 24.8.2022 KSHMI HDate:
NAIR 2022.08.29 H NAIR 14:49:34 +05'30' RHN