Mukund Bhardwaj vs Sebi

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'