Securities Appellate Tribunal
Mukund Bhardwaj vs Sebi on 4 January, 2023
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 14.12.2022
Date of Decision : 04.01.2023
Appeal No. 950 of 2022
Indian Infotech and Software Ltd.
110, 1st Floor, Golden Chamber,
Pre Co-op. Society Limited,
New Line Road, Andheri West,
Mumbai- 400 053 ...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. Kunal Kataria, Advocate with Ms. Rinku Valanju,
Advocate i/b R V Legal for the Appellant.
Mr. Akash Rebello, Advocate with Ms. Karishma Motla and
Mr. Aditya Sarangarajan, Advocates i/b Mansukhlal Hiralal &
Co. for the Respondent.
WITH
Appeal No. 951 of 2022
Varsha Poddar
HD-35, Shachindralal Sarani,
Aswininagar, Baguiati,
Rajarhat Gopalpur (m),
North 24 Parganas,
West Bengal- 700 059 ...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
2
Ms. Rinku Valanju, Advocate with Mr. Kush Khandelwal and
Ms. Akshita Sharma, Advocates i/b R V Legal for the
Appellant.
Mr. Akash Rebello, Advocate with Ms. Karishma Motla and
Mr. Aditya Sarangarajan, Advocates i/b Mansukhlal Hiralal &
Co. for the Respondent.
WITH
Misc. Application No. 1618 of 2022
And
Misc. Application No. 1619 of 2022
And
Misc. Application No. 1620 of 2022
And
Appeal No. 1009 of 2022
Harish Joshi
Gobind Agarwalla Complex,
House No. 624, R. B. Lane,
Opp. Marwari Thakurbari,
Assam- 785 001 ...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
Ms. Rinku Valanju, Advocate with Mr. Kush Khandelwal and
Ms. Akshita Sharma, Advocates i/b R V Legal for the
Appellant.
Mr. Akash Rebello, Advocate with Ms. Karishma Motla and
Mr. Aditya Sarangarajan, Advocates i/b Mansukhlal Hiralal &
Co. for the Respondent.
3
WITH
Misc. Application No. 1621 of 2022
And
Misc. Application No. 1622 of 2022
And
Misc. Application No. 1623 of 2022
And
Appeal No. 1010 of 2022
Kamal Nayan Sharma
H. No. 301, Siddharth Colony,
Delhi Road, Sonepat- 131 001 ...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
Ms. Rinku Valanju, Advocate with Mr. Kush Khandelwal and
Ms. Akshita Sharma, Advocates i/b R V Legal for the
Appellant.
Mr. Akash Rebello, Advocate with Ms. Karishma Motla and
Mr. Aditya Sarangarajan, Advocates i/b Mansukhlal Hiralal &
Co. for the Respondent.
AND
Misc. Application No. 1624 of 2022
And
Misc. Application No. 1625 of 2022
And
Misc. Application No. 1626 of 2022
And
Appeal No. 1011 of 2022
Mukund Bhardwaj
R V Legal Mittal Tower,
'B' Wing, 13th Floor,
Office No. 134,
Nariman Point,
Mumbai- 400 021 ...Appellant
4
Versus
Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai- 400 051 ...Respondent
Ms. Rinku Valanju, Advocate with Mr. Kush Khandelwal and
Ms. Akshita Sharma, Advocates i/b R V Legal for the
Appellant.
Mr. Akash Rebello, Advocate with Ms. Karishma Motla and
Mr. Aditya Sarangarajan, Advocates i/b Mansukhlal Hiralal &
Co. for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Ms. Meera Swarup, Technical Member
Per: Justice Tarun Agarwala, Presiding Officer
1.These five appeals are on the same issue and are being taken up together. Two of these appeals being Appeal Nos. 950 of 2022 Indian Infotech and Software Ltd. and 951 of 2022 Varsha Poddar are against an order dated September 30, 2022 passed by the Adjudicating Officer ("AO" for convenience) of the Securities and Exchange Board of India ("SEBI" for convenience) imposing a penalty of Rs. 13 lakhs on Indian Infotech and Software Ltd. and Rs. 7 lakhs on Varsha Murarka/ Varsha Poddar. Three appeals have been filed against the order dated June 15, 2022 passed by the AO imposing a penalty of 5 Rs. 8 lakhs each on Harish Joshi (Appeal No. 1009 of 2022) and Kamal Nayan Sharma (Appeal No. 1010 of 2022) and a sum of Rs. 7 lakhs on the appellant Mukund Bharadwaj (Appeal No. 1011 of 2022).
2. The AO after considering the replies of the appellants and after considering the material evidence on record came to the conclusion that the appellants had misrepresented its financials and violated the accounting standards. The AO found that various provisions of the SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015 ("LODR Regulations" for convenience) were not complied with during the financial years in question and there were lapses on the part of the Company not making the disclosures within the stipulated period. The AO, however, found that there was no misappropriation of the funds but found that the appellant- Company had indulged in fraudulent or unfair trade practice in violation of Regulation 4(2)(f) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" for convenience). Even though false and misleading news were published by the Company in the Annual Reports the AO, 6 however, found that there was no disproportionate gain or unfair advantage nor any specific loss was incurred by any investor.
3. The AO accordingly imposed a penalty of Rs. 13 lakhs upon the Company Indian Infotech and Software Ltd. and Rs. 7 lakhs on Varsha Murarka/ Varsha Poddar and Rs. 8 lakhs each on Harish Joshi and Kamal Nayan Sharma and a sum of Rs. 7 lakhs on the appellant Mukund Bharadwaj.
4. We have heard Mr. Kunal Kataria and Ms. Rinku Valanju, the learned counsel for the appellants and Mr. Akash Rebello, the learned counsel for the respondent.
5. Having heard the learned counsel for the parties we are of the opinion that the controversy involved in the present appeals are squarely covered by various decisions of this Tribunal, namely, Appeal no. 750 of 2021, V.B. Industries Limited & Ors. vs SEBI, decided on July 29, 2022, Appeal no. 471 of 2022, Dalmia Industrial Development Limited vs SEBI and other connected appeals decided on September 1, 2022, Appeal no. 801 of 2021, SVAM Software Ltd & Ors. vs SEBI decided on October 13, 2022 and Tatia Global Vennture Ltd. & Ors. vs SEBI decided on August 24, 2022 wherein similar 7 controversies the debarment passed by the WTM was set aside and the penalties was reduced appropriately.
6. 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.
7. 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 AO has given a clear finding that there was no violation of the PFUTP 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.
8. Admittedly, a clear finding has been given by AO that there is no misappropriation of funds of the Company nor there is any manipulation in the price of the scrip. 8
9. In the absence of any finding of misappropriation of funds or diversion of funds, we are of the opinion that the penalty for the said violation appears to be harsh and excessive.
10. We find that no disproportionate gain was caused to anyone nor created any unfair advantage to the appellants nor any specific loss was caused to any investors and, therefore, in our opinion the direction for imposition of penalty appears to be harsh and excessive.
11. In Suzlon Energy Limited & Anr. vs. SEBI in Appeal No. 201 of 2018 decided on May 03, 2021 we have held that the penalty under Section 23E of the SCRA Act cannot be imposed for violation of listing conditions. This judgement has not as yet been set aside by a higher court and is therefore binding on SEBI inspite of which we find that that penalty of Rs. 5 lakhs has been imposed under Section 23E of the Securities Contracts (Regulation) Act 1956 ("SCRA Act" for convenience) against the Company Indian Infotech and Software Ltd. Thus, the penalty of Rs. 5 lakhs imposed under the said is totally erroneous.
9
12. We may add that the decision of this Tribunal in Suzlon (supra) is binding on the AO and is required to be followed. The mere fact that SEBI has filed an appeal before the Supreme Court is not sufficient for the AO not to give effect to the order of the Tribunal in Suzlon's case. While disposing off quasi- judicial matters, the AO is bound by the decision of the appellate Tribunal. The principle of judicial discipline requires that the order of the Tribunal should be followed unreservedly by the AO. Non-compliance of orders of the Tribunal has resulted in undue harassment to the litigant. In this regard, the Supreme Court in Union Of India And Ors. vs. Kamlakshi Finance Corporation Ltd. 1992 Supp (1) Supreme Court Cases 648 held:
"The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department in itself an objectionable phrase and is the subject matter of 10 an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws."
13. Varsha Poddar and Harish Joshi were non-executive independent directors. They were not involved in the day to day affairs and management of the Company and are therefore not concerned with the alleged misrepresentation of the financials. Merely because they were part of the audit committee does not mean that the appellants were aware of the misrepresentation being made by the Company. The imposition of penalty upon them is wholly erroneous. In view of various decisions passed by this Tribunal which has been noted in the impugned order but not considered.
14. We also find that the imposition of penalty on the other directors is harsh and excessive.
15. Considering the aforesaid, while affirming the violation committed by the Company, we reduce the penalties as follows:-
11
(i) Indian Infotech and Software Ltd.- Rs. 5 lakhs.
(ii) Kamal Nayan Sharma- Rs. 5 lakhs.
(iii) Mukund Bhardwaj- Rs. 4 lakhs.
(iv) The penalty against Varsha Poddar and Harish Joshi are set aside.
16. The aforesaid directions have been issued by the Tribunal in exercise of its powers provided under Rule 21 of the Securities Appellate Tribunal (Procedure) Rules, 2000 to secure the ends of justice. In any case the Supreme Court in SEBI vs. Sunil Krishna Khaitan & Ors. 2022 SCC OnLine SC 862 has held that the Tribunal has plenary powers holding:
90. The appeal before the Appellate Tribunal under Section 15T, is the first appeal against the decision of the Board or the adjudicating officer.
First appeal is a continuation or is co-terminus with the proceedings of the original adjudicating authority. The first appeal is a valuable right of the party aggrieved, and all questions of fact and law decided by the Board or the adjudicating authority, including exercise of discretion whether within the law, are open for full consideration and examination. The Appellate Tribunal, in the absence of any limit, has plenary powers in disposing of an appeal. It can do what the Board/ authorities can do and also direct them to do what they have failed to do. The 12 position as to the power of the Appellate Tribunal has been appropriately summarized in Swedish Match (supra), wherein it has been held:
"84. It may be true that the Board in its impugned order dated 4-6-2002 proceeded on a wrong premise that having regard to the proviso appended to Regulation 12, Regulation 12 would be attracted. But SAT, in our opinion, rightly construed the provisions of Regulations 11 and 12 in arriving at a finding that Regulation 11 would be attracted and Regulation 12 would not be. The Tribunal was entitled to take a different view of the matter from that of the Board with a view to sustain the ultimate result in the appeal in exercise of its appellate power. Such a power in the appellate court/tribunal is akin to or analogous to the principles contained in Order 41 Rule 33 of the Code of Civil Procedure. Even otherwise, before us the judgment of the Tribunal is in question, this Court is required to consider the correctness or otherwise of the Tribunal. In any event, the reasoning of the Tribunal shall prevail over the Board."
17. In view of the aforesaid, Appeal No. 950 of 2022 Indian Infotech and Software Ltd., Appeal No. 1010 of 2022 Kamal 13 Nayan Sharma and Appeal No. 1011 of 2022 Mukund Bhardwaj are partly allowed. Appeal No. 951 of 2022 Varsha Poddar and Appeal No. 1009 of 2022 Harish Joshi are allowed. All the misc. applications are disposed of accordingly.
18. In the circumstances of the case, parties shall bear their own costs.
19. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup Technical Member 04.01.2023 PRERNA Digitally signed by PRERNA MANISH MANISH KHARE PK KHARE Date: 2023.01.09 16:28:13 +05'30'