Annaswamy Venkatramani vs Sebi

Annaswamy Venkatramani A5 2N Floor, Madarasapattinam, 95, Karpagam Avanue, 4th Street, Sai Nagar, RA Puram, Chennai - 600 028. .....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. Joby Mathew, Advocate with Ms. Tanya Gupta and Ms. Nitiksha Parmar, Advocate i/b Joby Mathew & Associates for the Appellant.

Mr. Vishal Kanade, Advocate with Mr. Mihir Mody, Mr. Arnav Misra and Mr. Harshvardhan Melanta, Advocates i/b K. Ashar & Co. for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member

Per : Justice Tarun Agarwala, Presiding Officer (Oral) 2

1.

The present appeal has been filed challenging the order

dated June 28, 2022 passed by the Adjudicating Officer ('AO'

for short) of the Securities and Exchange Board of India

('SEBI' for short) imposing a penalty of Rs. 5 lakh under

Section 15HB of the Securities and Exchange Board of India

Act, 1992 ('SEBI Act' for short) for failure to comply with

the directions issued by the Whole Time Member ('WTM' for

short) under Section 11(1), 11(4) and 11(B) of the SEBI Act

vide its order dated January 2, 2019.

2. There is a delay in the filing of the appeal. Having heard

the learned counsel for the parties, we are of the opinion that

in the peculiar facts and circumstances of the case the delay

should be condoned. We accordingly condone the delay. The

application is allowed.

3. The appellant was Chairman and Non-Executive

Direction of the Company Sanraa Media Limited. This

Company came out with the Global Depository Receipts

('GDRs') issue in 2008. The appellant resigned as Chairman

and Non-Executive Director of the Company with effect from

April 20, 2010. A show cause notice dated February 12, 2018

was issued alleging that the GDR issued by the Company was

only subscribed by one entity through a loan taken under a 3

credit agreement and that Company had pledged GDR

proceeds for the loan taken by that entity and that such loan

agreement and pledge agreement was not disclosed to the

Stock Exchange. It was alleged that the GDR was not

genuinely subscribed and investors were misled. The WTM

after considering the matter passed an order dated January 2,

2019 directing the Company to recover a sum of USD 27. 244

million from the Clifford Capital Partners A.G.S.A.

('Clifford" for short). The WTM also restrained the appellant

and other directors from buying, selling and otherwise dealing

in securities for a period of 5 years. Thereafter, a show cause

notice dated February 12, 2018 was issued by the AO to show

cause why penalty should not be imposed for the same cause

of action. The AO passed an order dated November 29, 2019

imposing a penalty of Rs. 5 lakh against which the Appeal no.

89 of 2020 was filed by the appellant which was dismissed by

this Tribunal by an order dated September 2, 2022.

4. The AO issued a show cause notice dated November 20,

2020 alleging that the appellant has failed to comply with the

order of the WTM dated January 2, 2019. After considering

the matter and evidence on record the AO passed the 4

impugned order imposing a penalty of Rs. 5 lakh for non-

compliance of the order of the WTM.

5. Admittedly, an order under Section 11B was passed by

the WTM on January 2, 2019. The question that arises for

consideration is, that if the order of the WTM passed under

Section 11B is not complied by the appellants, is it open to

SEBI to initiate proceedings for imposition of penalty under

Section 15HB of the SEBI Act. For facility, the provisions of

11B and 15HB are extracted hereunder:-

"Power to issue directions 11-B.

Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,-

(i) in the interest of investors, or orderly development of securities market; or

(ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interests of investors or securities market; or

(iii) to secure the proper management of any such intermediary or person, it may issue such directions,-

(a) to any person or class of persons referred to in section 12, or associated with the securities market; or 5

(b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market.

Explanation.-For the removal of doubts, it is hereby declared that the power to issue directions under this section shall include and always be deemed to have been included the power to direct any person, who made profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act or regulations made thereunder, to disgorge an amount equivalent to the wrongful gain made or loss averted by such contravention.

Penalty for contravention where no separate penalty has been provided.

15-HB. Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees."

6. According to the respondent, the directions issued under

Section 11B are not penalty and, therefore, for non-

compliance of the directions of the WTM, a penalty under

Section 15HB could be issued. It was urged, that under

Section 15HB whoever fails to comply with the directions

issued by the Board for which no separate penalty has been

provided, shall be liable to pay a penalty. 6

7. In our opinion, the contention raised by the respondent

nor the impugned order can be sustained.

8. Directions issued under Section 11B are under Chapter-

II of the SEBI Act, which gives powers to the Board to issue

such directions as are necessary to protect the interest of the

investors in securities and to promote the development of, and

to regulate the securities market by such measures as it thinks

fit. Such directions issued under 11B are in the nature of

orders which are passed after due enquiry.

9. Black's Law Dictionary Seventh Edition defines

'direction' to mean an order. The word 'order' has also been

defined in the same Black's Law Dictionary Seventh Edition

as a command, direction or instruction, a written direction or

command delivered by a court or judge. Thus, direction and

order are synonymous terms and are interchangeable.

10. In Rajinder Nath vs. Commissioner Of Income Tax

(1979) 4 SCC 282, the Supreme Court held that a direction is

an order issued by the authority or Court which is empowered

to give while deciding the case before it.

11. Section 15HB is under Chapter-VIA of the SEBI Act,

which provides for penalties and adjudication. A perusal of 7

Chapter-VIA would indicate that penalties have been

provided for specific violations, for example, under Section

15A, a penalty is provided for failure to furnish information,

return, etc. Under Section 15B penalty is provided for failure

by any person to enter into agreement with clients. Penalty is

provided under Section 15C for failure to redress investors'

grievances and so forth. Section 15HB is a residuary clause

meaning thereby that where specific penalties have not been

provided elsewhere under Chapter-VI, then a penalty could be

awarded under Section 15HB for failure to comply with any

provisions of the Act, Rules, Regulations or directions issued

by the Board.

12. The word 'directions' issued by the Board under Section

15HB is different and distinct from the directions issued

under Section 11B after due enquiry and adjudication. There

are many directions issued under the Regulations and the

Circulars requiring a person to do an act in a certain manner.

For example, a person is required to comply with a certain

provision within a stipulated period. Failure to comply with

such directions issued by the Board under the Act,

Regulations, Rules or Circulars if not complied with may

invite penalty. If penalty is not specified under Chapter-VIA 8

from Section 15-A to Section 15-HAA for failure to comply

with such type of directions then penalty can be imposed after

adjudication under the residuary clause Section 15HB.

13. In our opinion, Section 15HB cannot be invoked for

noncompliance of any directions issued under Section 11B

after enquiry and adjudication.

14. Thus, an adjudicatory order passed under Chapter IV or

under Chapter VIA, after enquiry and adjudication can be

enforced like a decree under Section 28A. Penalty

proceedings cannot be initiated for non-compliance under

Section 15HB.

15. We are further of the opinion that appellant having

resigned in 2010 was not in a position to comply with the

direction of the WTM to bring back the money from Clifford

as he was no longer in-charge of the Company. Thus, there is

no willful failure on the part of the appellant to comply with

the order of the WTM.

16. In view of the aforesaid, we are of the view that the

provisions of Section 15HB cannot be utilized for imposition

of penalty for non-compliance of an order of the WTM passed

under Section 11B of the SEBI Act.

9

17. Consequently, the impugned order cannot be sustained

and is quashed. The appeal is allowed with order as to costs.

The miscellaneous application is disposed of.

18. 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

28.06.2023 MADHUKAR SHAMRAO Digitally signed by MADHUKAR SHAMRAO BHALBAR Date: 2023.07.03 15:06:41 +05'30'

msb BHALBAR