Jagdish Prakash & Another vs Sebi

IN THE SECURITIES APPELLATE TRIBUNAL AT MUMBAI DATED THIS THE 11TH DAY OF JUNE, 2026 CORAM: Justice P.S. Dinesh Kumar, Presiding Officer Ms. Meera Swarup, Technical Member Dr. Dheeraj Bhatnagar, Technical Member Appeal No.684 of 2023 [Along with Misc. Application No.991 of 2023] 1. Jagdish Prakash F-5/2, DLF City Phase 1, Sikanderpur, Ghosi (68), Gurgaon Haryana - 122022. 2. Shantanu Prakash F-5/2, DLF City Phase 1, Sikanderpur, Ghosi (68), Gurgaon Haryana - 122022. .....Appellants (By Mr. Pradeep Sancheti, Senior Advocate with Ms. Ragini Singh, Mr. Karan Ratti Kapoor, Ms. Pallavi Bali, Ms. Priya Rai and Mr. Mihir Rathod, Advocates i/b. ThinkLaw Advocates for the Appellants.) Securities and Exchange Board of India SEBI Bhavan II, Plot No.C-7, G-Block, Bandra Kurla Complex, Bandra (E), Mumbai-400051. .....Respondent (By Mr. J.P. Sen, Senior Advocate with Ms. Khushbu Chhajed, Ms. Khushbu Trivedi and Mr. Pulkit Awasthi, Advocates 2 i/b. MDP Legal for the Respondent.) THIS APPEAL IS FILED UNDER SECTION 15T OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 TO SET ASIDE THE ORDER DATED MAY 30, 2023 PASSED BY THE WTM, SEBI.

THIS APPEAL COMING ON FOR HEARING THIS DAY, THE TRIBUNAL MADE THE FOLLOWING: ORDER Per: Justice P.S. Dinesh Kumar, Presiding Officer (Oral) This appeal is directed against order dated May 30, 2023 passed by the WTM1, SEBI issuing various directions contained in paragraph No.7 of the impugned order. 2. We have heard Mr. Pradeep Sancheti, learned Senior Advocate for the appellants and Mr. J. P. Sen, learned Senior Advocate for the respondent-SEBI. 3. Brief facts of the case are, one Saurabh Luthra filed a complaint with SEBI stating inter alia that Educomp Solutions Limited ('Educomp' for short-Noticee No. 1), a listed Company had inflated its sales and revenues from FY 2008-09 onwards, which resulted in increase in the share price to ₹5,600/- per share and Educomp had written off more than ₹900 Crore of trade advances given for purchase of fixed assets. SEBI carried 1 Whole Time Member 3 out an investigation into the matter and issued a common show cause notice to Educomp and appellants (Noticee Nos.2 and 3) alleging inter alia that:  Educomp had shown ESSPL as a third party, instead of a subsidiary and not consolidating the financial statements upto FY 2012-13;  Significant transactions with ESSPL were shown as third party transactions in the financial statements for FY 2009- 10 to 2012-13, even though they were related party transactions.

4. Noticees were called upon to show cause as to why directions under Securities laws mentioned therein should not be issued. Noticees submitted their replies. 5. Educomp submitted its reply to the show cause notice stating that Educomp was undergoing Corporate Insolvency Resolution Proceedings before the National Company Law Tribunal, Principal Bench, New Delhi. One Mahender Khandelwal had been appointed as a Resolution Professional ('RP' for short). No proceeding could be instituted or continued during the moratorium period. 6. Appellants submitted a common reply mainly stating that:  The Statutory Auditors had confirmed that standard audited procedures were followed. The investigation report did not contain any adverse findings against the statutory auditors of Educomp;  An independent agency2 appointed by the RP conducted a review of Educomp's transactions from inception and in that report no issue was raised with regard to ESSPL being Educomp's subsidiary;  When the Company law was changed in 2013, appropriate disclosure was made. BDO India LLP 5 7. After hearing the noticees, the WTM has passed the impugned order.

This appeal is presented only by the Noticee Nos.2 and 3. 8. Mr. Sancheti, learned Senior Advocate for the appellants submitted that the gravamen of the charge against the noticees is that ESSPL was, in fact, a subsidiary Company of Educomp, but it was not shown as a subsidiary. 9. He submitted that the WTM has noted the conditions to be satisfied to treat a Company as a subsidiary in paragraph No.5.17 of the impugned order and held that conditions (a) and (c) are not applicable in this case and for reasons stated in the order, he has incorrectly held ESSPL as a subsidiary. 10. He further submitted that the condition (b) is express in its nature and it requires a Company to have full power to appoint or remove all or majority of the directors to another Company to treat it as a subsidiary, but the order does not disclose as to how Educomp could exercise such power. Therefore, WTM's finding that ESSPL is Educomp's subsidiary is unsustainable in law as also the other finding that the transactions have taken place between related parties. 11. In reply, Mr. Sen, learned Senior Advocate for the SEBI submitted that there are several circumstances which show that Educomp could exercise control over the ESSPL such as the business that the Educomp had transferred to ESSPL and the 6 corporate guarantee given by Educomp in favour of ESSPL to secure credit facilities.

12. In substance, Mr. Sen's argument is that the attending circumstances show that ESSPL was a subsidiary of Educomp. He vehemently urged that the attending circumstances also have to be considered to decide whether ESSPL was a subsidiary Company. 13. We have carefully considered the contentions urged by the learned Senior Advocate for the appellants and the respondent. 14. The point that arises for determination in this appeal is whether ESSPL is a subsidiary of Educomp? 15. The meaning of 'holding Company' and 'subsidiary' is given in Section 4 of the Companies Act, 1956 and it reads as follows: or (c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary." (Emphasis Supplied) 16. The learned WTM has extracted the above provision of law in para 5.16. However, while analysing the case he has considered three factors by holding thus: 17. Condition (a) requires Company A to hold more than half in the nominal value of Company B's equity shares. In the case on hand, the admitted position is, the shares of ESSPL were held by Abhinav Dhar and Pramod Thatoi equally.

Subsequently, Ashok Mehta acquired Abhinav Dhar's 50% shareholding in 8 ESSPL. It is relevant to note that Educomp had no shareholding in the ESSPL. Hence, condition (a) is not fulfilled. 18. With regard to condition (b), the WTM has recorded various irrelevant and untenable findings without precisely explaining as to how Educomp could appoint or remove all or majority of the directors of ESSPL when 100% of shares of ESSPL were held by two individuals, namely, Ashok Mehta and Pramod Thatoi. To repeated queries made by this Tribunal as to how condition (b) was satisfied, learned Senior Advocate for SEBI submitted that the attending circumstances will have to be considered. It is settled that when statute stipulates a condition, it has to be construed strictly. No material is brought on record by the WTM to suggest that any other person other than Ashok Mehta and Pramod Thatoi held any share in ESSPL. Hence, no other person much less Educomp could appoint or remove a Director on ESSPL's board. Hence, we do not deem it necessary to advert the elaborate discussion made by the WTM. Suffice to note that based on elaborate discussion, he has recorded following finding: (Emphasis Supplied) 19. In para 5.57 above the WTM has noted that Educomp by being the singular provider of capital, business, guarantee etc. had discretion to change the majority of Directors of ESSPL.

This finding is based on attending circumstances extraneous to the statutory requirement of the Companies Act, 1956 and hence, perverse. The definition of 'control' has been incorporated in the Companies Act, 2013, and it is irrelevant for the period under consideration. 20. Condition (c) applies to a stepdown subsidiary and it is not applicable in the facts of this case. 21. The resultant position is ESSPL is not a subsidiary of Educomp. Accordingly, we answer the point for consideration in the negative. 22. The remaining allegations pertain to related party transactions. In view of our finding that ESSPL is not a subsidiary of Educomp, consideration of those allegations is unnecessary. 23. Hence the following: