M/S. Shreeyash Industries Ltd.(Now ... vs Sebi
- CitationAppeal No. 368 of 2017
Ratio decidendi
The rule this decision rests on
Disclosure obligations under the listing agreement and the PIT Regulations apply irrespective of whether a disclosed announcement, or its later non-execution, actually moves the market price; a company must make the required disclosure as the rules require, and cannot escape liability on the ground that the disclosure had no market impact, since such impact cannot be foreseen at the time of disclosure. A company that has disclosed receipt of an order which it later becomes aware it cannot execute is under a duty to disclose that non-execution within the time stipulated by the listing rules; the company's knowledge, at the time of the order and thereafter, that its capacity to perform depended on an uncertain acquisition is relevant to whether the original and subsequent disclosures were correct, and failure to disclose non-execution for an extended period constitutes a violation irrespective of whether the adjudicating officer's findings concerned the contract's performance as such. A managing director and compliance officer who are responsible for the company's disclosures may be held liable for the company's violation of disclosure obligations under the listing agreement and PIT Regulations, where the facts show they were aware of the relevant price-sensitive information and failed to ensure its timely disclosure. Procedural fairness is satisfied where the regulator conducts a full investigation and the adjudicating officer issues a show cause notice, affords an opportunity to reply, and grants a personal hearing; the non-disclosure of the identity or copy of a complaint that triggered the investigation does not, in itself, vitiate the proceedings.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
Order Reserved on: 21.02.2018 Date of Decision : 06.03.2018
Appeal No. 368 of 2017 1.
M/s. Shreeyash Industries Ltd.
(Now known as Nutricircle Ltd.) 5-8-272, Flat No. 201, Ayeshya Residency, Opp. City Convention Centre, Public Garden Road, Nampally, Hyderabad - 500 002.
2. Manoj Kumar Saraogi Plot No. 26, Anand, Banjara Colony Road No. 12, Banjara Hills, Hyderabad - 500 034.
3. Sunil Kumar Agarwal 15B, Santosh Nagar, Street No. 4, Old Hyderabad, Telangana - 500 059. .....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. Ramesh Mishra, Practicing Company Secretary with Mr. Loknath Mishra, Advocate for the Appellant.
Mr. Aditya Mehta, Advocate with Ms. Aashta Vidhi, Advocate i/b Dave & Girish & Co. for the Respondent.
CORAM : Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member
Per : Dr. C.K.G. Nair, Member
1. This appeal has been filed challenging the order passed by the
Adjudicating Officer ('AO' for short) of Securities and Exchange Board of
India ('SEBI' for short) on October 31, 2017. By the said order varying
amounts of monetary penalty has been imposed against the three appellants
for violation of Clause 36(7) of Listing Agreement read with section 21 of 2 Securities Contract (Regulations) Act, 1956 ('SCRA' for short) and Clause
2.1 of Schedule II of Regulation 12(2) of SEBI (Prohibition of Insider
Trading) Regulations, 1992 ('PIT Regulations' for short).
2. Appellant No. 1 is a company incorporated in June, 1993, originally
as Shreeyash Industries Ltd and subsequently renamed as Nutricircle
Limited. This company, engaged in the business of manufacturing, trading
and export of textiles and garments is listed on the Bombay Stock Exchange
Ltd. (BSE). Appellant No. 2 is the Managing Director of the company and
Appellant No. 3 is the Compliance Officer.
3. The company had disclosed receipt of 4 major orders from different
parties to the BSE on different dates as follows:-
Order Value Date of Date of Name of Buyer (Rs in Intimation to Order Crores) stock exchange 13.02.2012 M/s Trade Point, New Delhi Rs. 6.96 14.02.2012 20.06.2012 M/s Colombo Trade, Italy Rs. 21.30 25.06.2012 M/s Silver Solution, South 06.07.2012 Rs. 23.92 09.07.2012 Africa 16.07.2012 Hapan Trade, South Africa Rs. 24 17.07.2012
However, the company could not execute these orders and the said
information was communicated to the BSE only on November 14, 2014
after a lapse of more than two years. The very fact that bagging the orders
had been disclosed promptly by the company to the BSE makes it clear that
the appellants were aware that the said information was price sensitive but
still failed to disclose non-execution of those orders within the stipulated
time.
4. We have heard the Learned Counsel Shri Ramesh Mishra and
Shri Aditya Mehta appearing on behalf of the appellants and for SEBI
respectively and perused the records placed before us.
5. We find no merit in the arguments advanced by the Learned Counsel
for appellants. Submission that investigation of SEBI was initiated on a
complaint received from one Mr. Anil Kumar Sharma, copy of which was 3
not given to the appellants was prejudicial to appellants has no merit since
SEBI did a full investigation and the impugned order has been passed after
following the due process like issue of show cause notice to the appellants
and providing opportunity for reply and personal hearing etc.
6. Argument that appellants made sincere efforts to honour the
commitments under 4 orders received by them and reported to the BSE but
could not execute it because their efforts to acquire 3 other companies,
particularly, SMM Paper Marketing Private Ltd. ('SMM' for short) as the
company did not have enough working capital, plants, machinery and
manpower to execute the order does not have merit since the company itself
knew on July 10, 2012 that its efforts in acquiring SMM was not
materializing. The order bagged on July 16, 2012 and informed to BSE on
July 17, 2012 is subsequent to this date. In respect of the orders bagged on
June 20, 2012 and on July 6, 2012 the execution dates communicated to
BSE were August 30, 2012 and August 5, 2012 respectively. These short
periods provided for executing the orders indicate that the company could
not have honoured the commitments to start with, given that admittedly its
capacity to honour the commitments was dependent on acquiring SMM. The
argument that the company's efforts to acquire SMM failed and hence could
not execute the orders was not taken into account by SEBI in the impugned
order has no merit as the impugned order is not concerned with the
company's execution of the contract or otherwise but with the correct
disclosures relating to price sensitive information such as acquiring orders
and its implementation or non-implementation. When the company itself
was not aware that its capacity enhancing efforts by acquiring SMM was not
materializing, which was also intimated to the BSE on July 12, 2012 it could
have disclosed its inability to execute the orders bagged from 4 different
parties within the stipulated time frame.
4
7. It is on record that SMM informed the appellant vide letter dated
July 10, 2012 that the proposed acquisition of the former by the latter is not
taking place in view of various reasons indicated in that letter of which the
appellant was fully aware of the same. However, the appellant made the 4th
announcement relating to bagging of another order dated July 16, 2012
(informed to BSE on July 17, 2012). It is also on record that the appellant
itself had written to various parties on August 14, 2012 that they were
unable to supply the material as per the order. Thus, by August 14, 2012
appellant was fully aware of their inability to enhance their capacity by
acquiring SMM etc. and had already informed to the parties that various
purchase orders cannot be honoured. The argument that the appellant has
informed BSE about non-execution of the orders in time does not have any
merit when in fact BSE was informed only on November 14, 2014. So the
findings in the impugned order that there was a delay of more than two
years in disclosing non-execution of the 4 orders received during February -
July 2012 and promptly informed to the BSE within a few days of each
cannot be faulted.
8. Argument that these announcements relating to bagging of 4 orders
had no impact on the market or price of the scrip has no merit since
disclosures have to be made as per rules irrespective of whether post facto
such disclosures make any impact on the market or not. This is particularly
important as it is impossible to foresee the impact of such disclosures. In
any case we note from the impugned order that two of the announcements
did make some impact on the price of the scrip.
9. In view of the above reasons findings in the impugned order that the
company and its managing director have violated Clause 36(7) of Listing
Agreement read with section 21 of SCRA and Clause 2.1 of Schedule II of
Regulation 12(2) of PIT Regulations and Appellant No. 3 have failed to 5
disclose non-execution of the order bagged by the company and violated
Clause 3.2 of Schedule II of Regulation 12(2) of PIT Regulations cannot be
faulted.
10. The penalty imposable under Section 23A(a) of SCRA is not less
than Rs.1 lac for each day during which such failure continues subject to a
maximum of Rs.1 crore for each such failure. Similarly, under Section
15HB of SEBI Act the penalty imposable shall not be less than Rs.1 lac
which may extend to Rs.1 crore. The AO has imposed a penalty of only
Rs.7 lac, Rs.5 lac and Rs.2 lac, respectively on Appellant Nos. 1, 2 and 3
and that too in respect of four late disclosures, each one after 2 years, after
considering the mitigating factors under Section 23J of SCRA and 15J of
SEBI Act. Accordingly, the penalty imposed is not unreasonable by any
yardstick.
11. Accordingly, appeal is dismissed with no order as to costs.
Sd/-
Justice J.P. Devadhar Presiding Officer
Sd/-
Dr. C.K.G. Nair Member
06.03.2018 Prepared and compared by: msb
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