Radford Global Limited vs Sebi

Order Reserved On: 28.01.2020 Date of Decision : 11.02.2020

Appeal No. 345 of 2019

Radford Global Limited 702, Wellington Business Park-1, Near Marol Naka Metro Station, Asan Pada Road, Marol, Andheri, Mumbai- 400 059 ...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

Mr. Jaikishan Lakhwani, Advocate i/b J. L. Legal Advisors for the Appellant.

Mr. Vishal Kanade, Advocate with Mr. Kaushal Parsekar, Advocate i/b Legasis Partners for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M. T. Joshi, Judicial Member

Per: Dr. C.K.G. Nair

1.

Vide the order impugned in this appeal issued by the

Adjudicating Officer ("AO" for convenience) of the Securities

and Exchange Board of India ("SEBI" for convenience) on

February 26, 2019 a total penalty of ` 30 lakh has been imposed 2

on the appellant. Out of this ` 10 lakh has been imposed under

Section 15A(a) of the SEBI Act, 1992 for violation of Sections

11(2)(i) and 11C(3) of the SEBI Act and ` 20 lakh has been

imposed under Section 23E of Securities Contracts (Regulation)

Act, 1956 ("SCRA" for convenience) for violation of Section 21

of the SCRA read with Clause 43 of the Listing Agreement.

Aggrieved by these directions this appeal has been filed.

2. The appellant Radford Global Limited ("RGL") is a

company listed on the Bombay Stock Exchange Limited

("BSE" for convenience). SEBI conducted an investigation

covering the period from February 27, 2012 to March 24, 2014

relating to the company. During the investigation SEBI issued a

summons to the appellant under Section 11(2)(i) and 11C(3) of

SEBI Act, 1992 seeking production of certain information and

documents. However the appellant failed to produce some of

the material called for and not appeared before the AO. Hence

an adjudication procedure under Section 15A(a) of SEBI Act

was initiated against the appellant. Further it was also noticed

during the investigation that the appellant made a preferential

allotment on February 16, 2012 and the proceeds of the said

issue were partly utilized for purposes other than what was

disclosed in its objectives. Variations in this utilization had to 3

be disclosed to the Stock Exchange on a quarterly basis, which

was not done. Therefore, adjudication proceedings was also

initiated under Section 23E of SCRA alleging violation of

Section 21 of SCRA read with Clause 43 of the Listing

Agreement.

3. Following appointment of an AO on November 16, 2017 a

show cause notice dated December 27, 2017 was issued to the

appellant for the alleged violations as stated in the aforesaid

paragraph. In the show cause notice it was alleged that despite

SEBI summons and reminders dated July 26, 2017, August 23

and 24, 2017 the company has failed to furnish complete

information. Similarly, it was alleged that proceeds of the

preferential allotment were found to be transferred to various

entities in the form of loans and advances, advance against

property etc. After giving time to file reply to the show cause

notice, opportunity of hearing, inspection of documents etc. the

impugned order has been passed on February 26, 2019.

4. It is the contention of the learned counsel for the appellant

Shri Jaikishan Lakhwani, that whatever documents available

with the appellant were provided to SEBI in response to the

notice of summons as well as seeking information. Further it

was contended that though the period of preferential allotment 4

was during 2012 the AO had asked documents much prior to the

same, even as old as 20 years, which were not available to the

appellant particularly when the appellant had a completely new

management in position. In any case, it was contended that the

AO has gone beyond the scope of the investigation by seeking

information and copies of the documents much prior to

February 27, 2012, which was beyond the investigation period.

Therefore, in short it is the contention of the appellant that all

information sought in respect of 8 queries as in annexure to

summons dated July 26, 2017 was provided and information

relating to queries 9 and 10 could not be provided because those

were not available with the appellant as these documents were

relating to 1990's. It was further contended that information

sought subsequently were also obtained from the R&T Agent

and given to the AO.

5. As regards the second charge of non-disclosure of

variations in utilization of the funds/ proceeds from the

preferential allotment it was submitted by the learned counsel

for the appellant that funds were raised for acquisition of

immovable property and for its development as per the objective

of the preferential allotment. Since the entire amount of ` 13.65

crore was not immediately needed for this purpose as 5

acquisition of property and its development would take some

time, in the interim surplus funds were given as loans to various

entities. These loans were fully returned along with interest

which also was utilized by the appellant for the stated purpose

and as such there is no misutilization of the funds raised through

the preferential allotment.

6. We have also heard the learned counsel for the respondent

SEBI, Shri Vishal Kanade, who reiterated the findings in the

impugned order and contended that investigation suffered on

account of appellant's non-cooperation.

7. The relevant questions to be considered are whether the

appellant has violated provisions of Section 11C(3) of the SEBI

Act by its non-compliance of summons issued by SEBI and

whether Clause 43 of the Listing Agreement has been violated

by not disclosing to the Stock Exchange the alleged variations

between the projected utilization of funds and the actual

utilization of funds raised through the preferential allotment.

These Sections are produced for convenience below:-

"Relevant provisions of SEBI Act:

11C. (3) The Investigating Authority may require any intermediary or any person associated with securities market in any 6

manner to furnish such information to, or produce such books, or registers, or other documents, or record before him or any person authorized by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation.

Relevant provisions of Listing Agreement: 43 (1) The company agrees that it will furnish on a quarterly basis a statement to the BSE indicating the variations between projected utilisation of funds and/ or projected profitability statement made by it in its prospectus or letter of offer or object/s stated in the explanatory statement to the notice for the general meeting for considering preferential issue of securities and the actual utilisation of funds and/ or actual profitability."

8. It is an admitted fact that part of the information sought

vide the summons was not furnished by the appellant to SEBI.

These details are at paragraph 16, page 22 to 25 of the

impugned order. We are of the considered view that the stand

taken by the appellant that the documents are old and therefore 7

could not be produced cannot be supported as most of the

documents not submitted relate to share allotment and related

documents which are expected to be available to the appellant

company. Moreover, the impugned order in paragraph 19 has

clearly articulated how non-submission of certain information

by the appellant has hampered the investigation into market

manipulation by some entities such as Manisha Jayesh Shah and

Artiben S. Kansara etc. At the same time, we note that

investigation was relating to the period 2012-2014 and

documents were sought in 2017 for periods much prior to 2012.

Therefore, though the appellant may be charged with non-

submission of full information the submission of the appellant

that the management of the appellant was new etc. has to be

given some weightage while imposing the penalty. Given this

and the facts of the matter, we are of the view that the amount of

penalty at the rate of ` 10 lakh on this violation is on the higher

side particularly when the appellant did provide part of the

information readily available with them.

9. As regards non-reporting of the variations relating to the

proceeds/ funds raised through preferential allotment it is an

admitted fact that, during the interim, part of the funds were

loaned out to various entities. Even if these funds have come 8

back subsequently and in some cases with interest the matter

needed to be disclosed to the Stock Exchange in terms of the

requirements of Section 21 of SCRA and Clause 43 of the

Listing Agreement which has not been done. Further, we note

from paragraph 23 of the impugned order that the claim of the

appellant that in all cases they received interest on the loans

given to other parties is not correct as in four out of eight

instances no interest has been received and in one instance in

fact even the full amount of principal also was not received (in

place of an advance against property of ` 1.75 crore appellant

has received only ` 1.71 crore). In any case from the same

paragraph we note that 41% of the allotment proceeds were

invested in shares and another 45.31% was loaned out to seven

entities out of which three did not pay any interest and in one

instance of advance against the property instead of getting the

property only part of the advance was returned. So the

contention in the impugned order that the proceeds were not

used according to the objective specified cannot be faulted and

the same was not reported is an admitted fact. Given these facts

imposition of penalty of ` 20 lakh cannot be said to be arbitrary

or harsh.

9

10. In the result, we reduce the penalty amount imposed under

Section 15A(a) of SEBI Act from ` 10 lakh to ` 5 lakh and

retain the penalty amount imposed under Section 23E of SCRA

at ` 20 lakh.

11. Appeal is partly allowed with no orders on costs.

Appellant is directed to pay the penalty within four weeks from

today.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 11.02.2020 Prepared & Compared By: PK