Securities Appellate Tribunal
Mr. I.S. Sukhija vs Sebi on 20 September, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 14.09.2021
Date of Decision : 20.09.2021
Misc. Application No. 583 of 2021
And
Appeal No. 406 of 2020
Mr. Gurmeet Singh
House No. 1768, Phase - 3,
B-2, Mohali, SAS Nagar,
Punjab - 160 059. ..... Appellant
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,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
WITH
Misc. Application No. 584 of 2021
And
Misc. Application No. 887 of 2021
And
Appeal No. 408 of 2020
Mr. I.S. Sukhija
House No. 1019, Sector - 44B,
Chandigarh Sector 36, ..... Appellant
Chandigarh - 160 047.
2
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,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
WITH
Appeal No. 483 of 2020
Mr. Gurmeet Singh
House No. 1768, Phase - 3,
B-2, Mohali, SAS Nagar,
Punjab - 160 059. ..... Appellant
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,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
3
WITH
Appeal No. 491 of 2020
Mr. I.S. Sukhija
House No. 1019, Sector - 44B,
Chandigarh Sector 36,
Chandigarh - 160 047. ..... Appellant
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,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
AND
Appeal No. 100 of 2021
Mr. Gurmeet Singh
House No. 1768, Phase - 3,
B-2, Mohali, SAS Nagar,
Punjab - 160 059. ..... Appellant
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,
Chartered Accountant i/b Prakash Shah & Associates and
Mr. Gurmeet Singh for the Appellant.
4
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
WITH
Appeal No. 101 of 2021
Mr. I.S. Sukhija
House No. 1019, Sector - 44B,
Chandigarh Sector 36,
Chandigarh - 160 047. ..... Appellant
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,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
WITH
Appeal No. 102 of 2021
Mr. H. S. Anand
House No. 3445,
Sector 71,
Mohali - 160 071. ..... Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
5
Mr. Prakash Shah, Advocate with Mr. Kushal Shah,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
WITH
Appeal No. 337 of 2021
Mr. I.S. Sukhija
House No. 1019, Sector - 44B,
Chandigarh Sector 36,
Chandigarh - 160 047. ..... Appellant
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,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
WITH
Appeal No. 338 of 2021
Mr. H. S. Anand
House No. 3445,
Sector 71,
Mohali - 160 071. ..... Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
6
Mr. Prakash Shah, Advocate with Mr. Kushal Shah,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
AND
Appeal No. 339 of 2021
Mr. Gurmeet Singh
House No. 1768, Phase - 3,
B-2, Mohali, SAS Nagar,
Punjab - 160 059. ..... Appellant
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,
Chartered Accountant i/b Prakash Shah & Associates and Mr.
Gurmeet Singh for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody,
Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K.
Ashar & Co. for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Justice M.T. Joshi, Judicial Member
Per : Justice Tarun Agarwala, Presiding Officer
1.These ten appeals have been filed against four orders. Two orders have been passed by the Adjudicating Officer ('AO' for short) and two orders have been passed by the 7 Whole Time Member ('WTM' for short) of the Securities and Exchange Board of India ('SEBI' for short). Appeal no. 406 of 2020 has been filed by Mr. Gurmeet Singh against an order dated June 30, 2020 whereby the AO has imposed a penalty of Rs. 1 crore. Appeal no. 408 of 2020 has been filed by Mr. I.S. Sukhija against an order dated June 30, 2020 whereby the AO has imposed a penalty of Rs. 20 lakh. In Appeal no. 483 of 2020 filed by Mr. Gurmeet Singh and Appeal no. 491 of 2020 filed by Mr. I.S. Sukhija are against the order of WTM dated October 27, 2021 whereby Mr. Gurmeet Singh has been debarred for a period of two years from accessing the securities market and Mr. I.S. Sukhija has been debarred for a period of one year from accessing the securities market. Appeal no. 100 of 2021, Appeal no. 101 of 2021 and Appeal no. 102 of 2021 have been filed by Mr. Gurmeet Singh, Mr. I.S. Sukhija and Mr. H.S. Anand respectively against the WTM's order dated October 27, 2020 whereby Mr. Gurmeet Singh has been debarred for two years and Mr. I.S. Sukhija and Mr. H.S. Anand have been debarred for one year. Appeal no. 337 of 2021, Appeal no. 338 of 20021 and Appeal no. 339 of 2021 have been filed by Mr. I.S. Sukhija, Mr. H.S. Anand and 8 Mr. Gurmeet Singh respectively against an order of AO dated February 3, 2021 whereby a penalty of Rs. 25 lakh, Rs. 15 lakh and Rs. 1 crore has been imposed.
2. The aforesaid orders have been issued in relation to two Global Depository Receipt ('GDR' for short) issues made by the Company in the year 2008 and 2010. Since the facts and the modus operandi are common, all these appeals are being decided together.
3. Investigation in the GDR issue of Beckons Industries Ltd. (hereinafter referred to as 'the Company') was made to ascertain whether the GDR was issued with appropriate consideration and whether appropriate disclosures were made with respect to the Listing Agreement, if any, made by the Company. Based on the aforesaid, separate show cause notices were issued for separate GDR. The Company issued 24,92,640 GDRs for USD 10.54 million and another 14,38,333 GDRs was issued for USD 5 million. The underlined purpose for issuance of the GDR was for establishing a subsidiary in UAE.
4. The Board of Directors of the Company passed a resolution dated February 21, 2008 for issuance of a GDR and 9 also resolved to open a bank account in Euram Bank for the purpose of depositing the GDR proceeds and accordingly authorized Mr. Gurmeet Singh, Managing Director to sign relevant documents on behalf of the Company. Based on the said resolution the Company issued the aforesaid two GDRs.
5. Investigation in the issuance of the GDR revealed that the Company did not make adequate disclosure under the Listing Agreement and that certain monies had also been diverted. Accordingly, separate show cause notice was issued alleging that the sole subscriber to the GDR issue was Vintage FZE (hereinafter referred to as 'Vintage') and the subscription amount paid by Vintage was through a Loan Agreement with Euram Bank. This loan was secured through an Account Charge Agreement with Euram Bank by the Company. It was alleged that the Account Charge Agreement was the integral part of the Loan Agreement which allowed Vintage to avail the loan in order to subscribe to the GDR issue which was fraudulent and such Loan Agreement and Account Charge Agreement was not disclosed to the Stock Exchange. Based on the replies filed by the appellants the authorities found that GDR issue was prearranged and premeditated plan of the Company and whereas Vintage was 10 the sole subscriber which received loan in order to subscribe to the GDR issue which device / scheme was fraudulent and such non-disclosure of the Loan Agreement and Pledge Agreement created a false impression in the minds of genuine investors. The authorities held that the resolution was passed wherein the Managing Director to authorized to sign the documents and therefore the Managing Director was fully aware of the fraudulent scheme. Insofar as Mr. I.S. Sukhija and Mr. H.S. Anand were concerned it was alleged that these appellants who are directors facilitated the execution of the scheme by passing the resolution dated February 21, 2008. The transactions undertaken by the Company pursuant to the resolution was not intimated to the Stock Exchange and that the independent directors who acted as Trustees of stakeholders should have taken steps and measures in furtherance of the interest of the shareholders which in the instant case was not carried out with due diligence. In one of the appeals it has also been stated that Mr. I.S. Sukhija was a Member of the Audit Board and should have raised objections as to why the GDR proceeds has been given as a loan to Vintage and why it has not came back to the bank accounts of the Company. On the aforesaid basis, the WTM passed an 11 order of debarment and the AO passed the order of imposition of penalty.
6. Having heard the learned counsel for the parties we find that insofar as Mr. H.S. Anand is concerned the AO in its order dated June 30, 2020 found that he had only attended the meeting of February 21, 2008 and took no part in any subsequent board meetings of the Committee and was associated with the Company only for providing his technical expertise on product quality and was not involved in any financials of the Company. The AO further found that merely being signatory to the resolution authorizing issuance of GDR and opening a bank account with Euram Bank to receive the proceeds of GDR could not warrant any adverse conclusion against Mr. H.S. Anand and therefore held that the said appellant Mr. H.S. Anand did not commit any violation.
7. In spite of giving this finding, another AO, without considering the earlier order, passed an order dated February 3, 2021 imposing a penalty of Rs. 15 lakh upon the appellant Mr. H.S. Anand on the ground that being an Independent Director he acts as Trustee of the shareholders and should have taken such steps and measures as necessary to protect 12 the interest of the shareholders and has therefore not acted responsibly and should have made enquiries or confronted the management by questioning them as to why GDR proceeds should be kept as security for any loan in an overseas bank.
8. In our opinion the subsequent order of the AO finding the Director Anand guilty is patently erroneous and cannot be sustained. Once an AO comes to a conclusion that Mr. H.S. Anand had nothing to do with the day-to-day affairs of the Company and was only associated in providing technical expertise on product quality and was not involved in any financials of the Company it was no longer open to the AO to take a different view on another GDR issue when the facts and modus operandi were all common. We are of the opinion that the regulator should be consistent in its stand and should not take contradictory views on the same issue.
9. We are further of the opinion that in view of the categorical finding that being a non-executive independent director, the said appellant was never involved in the day-to- day affairs of the Company nor was part of the decision making process relating to the GDR issue, the said appellant cannot be held guilty only on the basis of being a signatory to 13 a resolution. In Prafull Anubhai Shah vs. SEBI, Appeal No. 389 of 2021 decided on June 28, 2021, we have held that being a signatory to a resolution is not sufficient to point fingers of committing a fraud. Thus, the order of the AO imposing a penalty upon Mr. H.S. Anand and the order of the WTM debarring him for one year cannot be sustained.
10. Insofar as Mr. I.S. Sukhija is concerned the stand is that he was non-executive independent director and was never involved in the day-to-day affairs of the Company nor was part of the decision making process relating to the GDR. The appellant further contended that he had not signed any Agreement with any entity and that his role as non-executive independent director was very limited and restricted and therefore had not violated provisions of Section 12A of the SEBI Act, 1992 or Regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations' for short). In this regard a stand has been taken by the respondent that he was regularly attending the board meetings and therefore was aware of the affairs of the Company. It was further contended that Mr. I.S. Sukhija was Chairman of the Audit Committee and therefore should have 14 raised objection as to why the GDR proceeds have not been brought back in the bank accounts of the Company and therefore should have raised an objection as to why the proceeds of the GDR was given as a loan to Vintage. By not raising such objections, the complicity of the appellant was apparent. In this regard, the respondent has filed an application under Order 41 Rule 27 of the Code of Civil Procedure seeking permission to bring on record additional documents which are Annual Reports of the Company. The purpose is to show that the said appellant Mr. I.S. Sukhija was Chairman of the Audit Committee.
11. In our view, the application of the respondent seeking permission to bring on record the additional documents cannot be allowed as it does not come within the parameters of the grounds given in Order 41 Rule 27 of the Code of Civil Procedure. Nothing has been stated as to why these documents which are in the public domain could not be considered by the authorities while considering the matter. Nothing has been brought on record to indicate as to why such documents which was within their knowledge could not be brought on record. In any case, reliance upon these 15 documents are misplaced. Merely because Mr. I.S. Sukhija was the Chairman of the Audit Committee does not mean that he was party to the fraudulent scheme, if any. The observations made by the authorities in the impugned orders that he should have raised questions as to why the GDR proceeds was not brought into the Company's account or why the loan was given to the Vintage from the GDR proceeds are not matters which comes under the purview of the audit committee. In any case, we find that there was no need to raise such questions as the loan in one case was paid immediately and in the other case was paid within a couple of months. Further, the evidence which has come on record indicates that the GDR proceeds were utilized for the purpose for which the resolution for issuance of the GDR was passed. Thus, the finding of the authorities that a fraud has committed by the Company is patently erroneous. When the proceeds have come into the Company and have been utilized for the purpose of setting up a subsidiary in UAE the funds have been utilized for the purpose for which the GDR was issued. Thus, in our view merely because the appellant Mr. I.S. Sukhija was part of the resolution which approved the issuance of the GDR and opening of a bank account with 16 Euram Bank does not lead to a conclusion that the appellant was part of the scheme of the alleged fraud which in any case was not in existence. Thus, imposition of penalty by the AO and debarment by the WTM was wholly erroneous on this appellant.
12. Insofar as the case of Mr. Gurmeet Singh is concerned, we find that admittedly he was the Managing Director of the Company and was involved in the day-to-day affairs of the Company. He cannot contend that he was not aware of the affairs of the Company. Further, he is the signatory to the execution of the Loan Agreement and Pledge Agreement. In fact, he was authorized to sign various documents on behalf of the Company. Admittedly, the Company was required to disclose the Loan Agreement and the Pledge Agreement to the Stock Exchange under the Listing Agreement. By not disclosing, the shareholders and the investors have been misled and consequently there has been a violation of the Listing Agreement. We, however, find that the modus operandi of issuance of GDR by the Company even though it was acted in a deceptive manner as the Loan Agreement and the Pledge Agreement was not disclosed to the Stock 17 Exchange under the Listing Agreement, nonetheless, it does not indicate that a fraud has been committed by the Company or by the appellant Mr. Gurmeet Singh. This is on account of the fact that nothing has come on record to show that any loss was incurred by the shareholders or by any of the investors coupled with the fact that proceeds were utilized by the Company for the desired purpose. Thus, the violation is non- disclosure of the Loan Agreement and the Pledge Agreement under the Listing Agreement for which penalty was rightly imposed upon the Managing Director Mr. Gurmeet Singh. However, the quantum imposed is wholly excessive and does not commensurate with the misconduct. There is nothing on record to indicate that any shareholder or investors have suffered any loss on account of conversion of GDR into equity shares which was sold in the Indian market. Thus, we are of the opinion that for non-disclosure of the Loan Agreement and the Pledge Agreement to the Stock Exchange under the Listing Agreement the penalty of Rs. 20 lakh in each GDR issue would be just and proper in the circumstances of the case and the debarment against Mr. Gurmeet Singh is upheld.
18
13. We also find that the present appeals are squarely covered by the decisions of this Tribunal in Adi Cooper vs Securities and Exchange Board of India (Appeal No. 124 of 2019 decided on November 5, 2019), Adesh Jain vs Securities and Exchange Board of India (Appeal no. 217 of 2020 decided on November 19, 2020), Govind Das Pasari vs Securities and Exchange Board of India (Appeal no. 201 of 2019 decided on April 30, 2021), Prafull Anubhai Shah vs. SEBI (Appeal No. 389 of 2021 decided on June 28, 2021), Rajesh Shah vs Securities and Exchange Board of India (Appeal no. 433 of 2021 decided on July 5, 2021) and S.N. Sharma vs Securities and Exchange Board of India (Appeal no. 472 of 2020 decided on September 7, 2021).
14. For the reasons stated aforesaid, the impugned orders insofar as it relates to the appellants in Appeal no. 408 of 2020 (Mr. I.S. Sukhija vs. SEBI), Appeal no. 491 of 2020 (Mr. I.S. Sukhija vs SEBI), Appeal no. 101 of 2021 (Mr. I.S. Sukhija vs SEBI), Appeal no. 102 of 2021 (Mr. H.S. Anand vs SEBI), Appeal no. 337 of 2021 (Mr. I.S. Sukhija vs SEBI) and Appeal no. 338 of 2021 (Mr. H.S. Anand) are quashed and appeals are allowed. Appeal no. 406 of 2020 (Mr. Gurmeet Singh vs SEBI) and Appeal no. 339 of 2021 (Mr. 19 Gurmeet Singh) insofar as it relates to Mr. Gurmeet Singh are partly allowed. While affirming the finding against the said appellant, the penalty of Rs. 1 crore is reduced to Rs. 20 lakh to be paid by the appellants in each GDR issue. Insofar as Appeal no. 483 of 2020 (Mr. Gurmeet Singh vs SEBI) and Appeal no. 100 of 2021 (Mr. Gurmeet Singh vs SEBI) the said appeals are dismissed with no order as to costs.
15. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, 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. Parties will act on production of a digitally signed copy sent by fax and/or email.
Justice Tarun Agarwala Presiding Officer Justice M.T. Joshi Judicial Member 20.09.2021 RAJALA Digitally by signed msb KSHMI NAIR RAJALAKSHMI H Date: 2021.09.25 H NAIR 06:40:50 +05'30'