Neycer India Limited vs Sebi
- CitationAppeal No. 104 of 2018
Ratio decidendi
The rule this decision rests on
A modified rehabilitation scheme sanctioned by the BIFR under SICA, which extended time for dilution of promoter/investor shareholding only up to the rehabilitation period, does not extend the time for compliance with a minimum public shareholding requirement introduced by a later amendment to the Securities Contracts (Regulation) Rules, where no order of the BIFR extending time for that requirement exists after the amendment's insertion. A company's failure to meet a statutory minimum public shareholding requirement within the period prescribed by the rule is a contravention of that rule, and the authority is not in error in so holding. Where the date on which compliance was in fact achieved is established by reliable contemporaneous documents (board minutes, allotment filings with the Registrar of Companies, and the list of allottees) that are not disputed, the finding that compliance was achieved at a later date fixed by reference to erroneous periodic shareholding filings cannot stand; the erroneous filings for several quarters do not themselves establish the date of compliance. Where a penalty rests on an erroneous finding as to the date of compliance, and the contravention is established but the penalty was fixed on that erroneous basis, the penalty may be reduced to reflect the correct period of default, having regard to the appellant's status as a sick company.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
Order Reserved On: 04.05.2018 Date of Decision : 16.05.2018
Misc. Application No. 94 of 2018 And Appeal No. 104 of 2018
Neycer India Limited Manasa, No. 145, St. Mary's Road, Alwarpet, Chennai- 600 018 ...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. Ankit Lohia, Advocate with Mr. Ajai Achuthan, Advocate i/b Bharucha & Partners for the Appellant.
Mr. Vishal Kanade, Advocate with Mr. Shantanu Mitra and Mr. Anubhav Ghosh, Advocates i/b Desai & Diwanji for the Respondent.
CORAM: Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member
Per: Justice J.P. Devadhar
Misc. Application No. 94 of 2018
There is delay of 01 day in filing the appeal. By this Miscellaneous
Application, applicant seeks condonation of the said delay. For the
reasons stated in the application, delay is condoned.
Miscellaneous Application is disposed of accordingly. 2
Appeal No. 104 of 2018
1.
This appeal is filed to challenge the order passed by the
Adjudicating Officer ("AO" for short) of Securities and Exchange Board
of India on 04.01.2018. By the said order penalty of ` 7.5 lac is imposed
on the appellant under Section 23E of the Securities Contracts
(Regulations) Act, 1956 ("SCRA" for convenience) for violating Clause
40A of the Listing Agreement read with Rule 19A of Securities Contracts
(Regulation) Rules, 1957 inserted with effect from 04.06.2010 ("SCRR"
for convenience) read with Section 21 of the SCRA.
2. The appellant company incorporated on 12.05.1960 had filed a
reference before the Board of Industrial Finance Reconstruction ("BIFR"
for convenience) under Section 15(1) of the Sick Industrial Companies
(Special Provisions) Act, 1985 (SICA) for determination of the measures
to be adopted for revival of the appellant which had become a sick
company. On 30.09.1992 BIFR declared the appellant as a sick company
under the provisions of SICA. On 16.11.1994 BIFR sanctioned a scheme
for revival of the company. As the said scheme failed to revive the
company, a modified rehabilitation scheme was sanctioned by the BIFR
on 17.10.2008.
3. The modified rehabilitation scheme dated 17.10.2008 permitted the
appellant extension of time beyond the stipulated period in the SEBI
Guidelines/ Regulations to dilute the promoters/investors shareholding
till completion of the period of implementation under the modified
rehabilitation scheme.
3
4. It is not in dispute that under Rule 19A inserted to SCRR with
effect from 04.06.2010, it was obligatory on part of all the listed
companies including the appellant to achieve 25% Minimum Public
Shareholding ("MPS"). Since several companies including the appellant
failed to achieve the requirement of Rule 19A, the Whole Time Member
("WTM" for convenience) of SEBI passed an ex-parte restraint order on
4th June, 2013 against several companies including the appellant and
issued several directions as more particularly set out therein.
5. Admittedly, thereafter the appellant took steps to comply with the
MPS norms contained in Rule 19A by issuing fresh equity shares to the
public investors in terms of the Board Resolution dated 06.09.2013 and
accordingly filed a reply to the ex-parte order dated 04.06.2013.
6. Thereupon the WTM of SEBI passed an order on 16.02.2015
rejecting the plea of the appellant basically on ground that in the
shareholding pattern filed by the appellant for the quarter ended
September 2013 till September 2014, the public shareholding was less
than 25% which was in contravention of Rule 19A. Since the MPS norm
was achieved in the quarter ended September 2014, the WTM of SEBI by
the said order dated 16.02.2015 revoked the directions contained in the
ex-parte order dated 04.06.2013 and directed initiation of adjudication
proceedings against the appellant for the delayed compliance of Rule
19A.
4
7. Accordingly, adjudication proceedings were initiated and by the
impugned order dated 04.01.2018 the AO has held that the MPS norms
were complied belatedly in the quarter ended September 2014 and
accordingly imposed penalty of ` 7.5 lac on the appellant under Section
23E of SCRA.
8. On behalf of the appellant it is submitted that in view of the order
passed by the BIFR on 17.10.2008, time to dilute the promoter/ investors
shareholding stood extended till completion of the rehabilitation scheme.
Since the rehabilitation scheme continued beyond September 2014 and in
the meantime the MPS norms were achieved on 06.09.l2013 it could not
be said that the appellant had violated Rule 19A of SCRR. Alternatively,
it is submitted that since the MPS norm was in fact complied on
06.09.2013, the AO by relying on the order passed by the WTM of SEBI
is not justified in holding that the MPS norm was complied in the quarter
ended September 2014 and the AO is not justified in imposing penalty of
` 7.5 lac on the erroneous assumption that the MPS norms were complied
in the quarter ended September 2014.
9. We find that the aforesaid arguments raised on behalf of the
appellant deserve partial acceptance.
10. No doubt that the BIFR by its order dated 17.10.2008 had
permitted extension of time beyond the period stipulated in the SEBI
guidelines/ regulations to dilute the promoters/ investors shareholding till
completion of the period of modified rehabilitation scheme. As rightly 5
contended by counsel for SEBI, para 11.1 of the said order dated
17.10.2008 clearly records that the rehabilitation period under the
modified rehabilitation period was till the year 2010-2011. Since Rule
19A was inserted to SCRR with effect from 04.06.2010, i.e. after the
order of BIFR dated 17.10.2008 and time line of 3 years for compliance
of MPS was fixed by amending Rule 19A with effect from 09.08.2010,
appellant is not justified in contending that the BIFR by its order dated
17.10.2008 extended the time for compliance set out in Rule 19A which
was not in existence on 17.10.2008. In any event, in the absence of any
order passed by BIFR extending time for compliance of MPS after
insertion of Rule 19A, decision of the AO that the appellant violated Rule
19A by failing to comply with the MPS norm within the stipulated period
therein cannot be faulted.
11. However, findings recorded by the AO that the MPS norms were
achieved by the appellant in the quarter ended September 2014 cannot be
sustained in view of the following documents brought on record:-
a) Minutes of the Board Meeting dated 06.09.2013,
wherein fresh issue of equity shares to the public
investors were approved.
b) Form 2 filed before Registrar of Companies (ROC)
containing details of the allotment of equity shares
made on 06.09.2013.
6
c) List of allottees submitted to ROC wherein names of
the public investors to whom the fresh equity shares
were issued on 06.09.2013 have been disclosed.
Neither the genuineness of the aforesaid documents brought on
record for the first time nor the correctness of the facts set out
therein have been doubted by SEBI. In fact, counsel for SEBI
fairly stated that the facts set out in the aforesaid documents are
correct. Thus, it is apparent that the MPS norms were achieved by
the appellant on 06.09.2013 and not in the quarter ended
September 2014 as erroneously held in the impugned order.
12. AO committed the aforesaid error in view of erroneous
shareholding pattern filed by the appellant for the quarter ended
September 2013, December 2013, March 2014, June 2014 and September
2014, wherein the issuance of fresh equity shares on 06.09.2013 were not
at all reflected and the public shareholding was shown at less than 25%.
No doubt that the appellant had contended before the WTM of SEBI that
the shareholding pattern disclosed in the aforesaid filing were erroneous,
however, in the absence of documentary evidence in support of the above
claim, the WTM rejected the plea of the appellant and held on the basis
of the filing made by the appellant that the MPS norms were complied in
the quarter ended September 2014. Following the decision of WTM, the
AO has held that the MPS was achieved in the quarter ended September
2014. Thus, the appellant is guilty of making erroneous filings relating to
shareholding pattern for several quarters. However, fact that the 7
appellant had made erroneous filings for several quarters cannot be a
ground to hold that the MPS norms were achieved in the quarter ended
September 2014 when in fact the MPS norms were achieved on
06.09.2013. Since the penalty of ` 7.5 lac is imposed on the basis of
erroneous finding that the MPS norms were achieved in the quarter ended
September 2014, the appellant company which is a sick company is
entitled to reduction in the penalty.
13. Accordingly, while upholding the decision of the AO that the
appellant is guilty of violating Rule 19A of SCRR, we reduce the penalty
from ` 7.5 lac to ` 2 lac for the reasons stated above.
14. Appeal is disposed of in the aforesaid terms with no order as to
costs.
Sd/-
Justice J.P. Devadhar Presiding Officer
Sd/-
Dr. C.K.G. Nair Member 16.05.2018 Prepared & Compared By: PK
This page reproduces a public judgment and a summary of it. It is research material, not legal advice, and it is no substitute for advice from an advocate on your own facts.
Research this judgment with Miss Lucy
Ask what it holds, what has followed it, and what it means for your matter — in plain English, with the citations.
Try Miss Lucy free