Tree House Education And Accessories ... vs Sebi

Date of Decision : 29.08.2018

Misc. Application No. 250 of 2018 And Appeal No. 300 of 2018

1.

Tree House Education and Accessories Limited 702, Morya House, 'C' Wing, Off. Link Road, Andheri (W), Mumbai - 400 053.

2. Mr. Rajesh Bhatia 202, Morya Regency, Khar (West), Mumbai - 400 052.

3. Mrs. Geeta Bhatia 202, Morya Regency, Khar (West), Mumbai - 400 052.

4. Mr. Giridharilal S. Bhatia 102, Morya Regency, Khar (West), Mumbai - 400 052.

5. Mr. Hiten Trivedi 1102, Nazarene Building, Road No. 13, Near Central Avenue, Chembur (East), Mumbai - 400 071. ...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. Pradeep Sancheti, Senior Advocate with Mr. Pulkit Sharma and Mr. Saurabh Bachhawat, Advocates i/b Mr. Akshay Bafna and Mr. Sagar Shete for Rizwan Merchant & Associates for Appellants.

Mr. Mustafa Doctor, Senior Advocate with Ms. Vidhi Jhawar, Advocate i/b The Law Point for the Respondent.

CORAM : Dr. C.K.G. Nair, Member 2

Per : Dr. C.K.G. Nair (Oral)

Misc. Application No. 250 of 2018:-

By this Misc. Application appellant seeks condonation of 117 days

delay in filing this appeal. For the reasons stated in the Misc. Application,

delay is condoned. Misc. Application is disposed off accordingly.

Appeal No. 300 of 2018:-

1. This appeal is filed challenging the ad-interim ex-parte order dated

March 7, 2018 passed by the Whole Time Member ('WTM' for short) of

Securities and Exchange Board of India ('SEBI' for short). By the said

order, inter alia, appellants herein are restrained from accessing the

securities market directly or indirectly and the National Stock Exchange of

India Ltd. ('NSE' for short) has been directed to appoint a forensic auditor

to audit the books of accounts of the appellant company, namely, Tree

House Education and Accessories Ltd. from the financial year 2011-12

onwards.

2. It is the submission of the Learned Senior Counsel appearing on

behalf of the appellants that after initiation of the investigation the

ad-interim ex-parte order was passed after about 15 months. Moreover, the

appellants promptly replied to all the communications received from SEBI

seeking detailed information. Despite such cooperation, neither an

opportunity of being heard was given to the appellants nor the submissions

made in their replies are dealt with in the impugned order. It is further

pointed out that certain abnormal developments in the governance of the

company had happened in the year 2016 which led to certain media reports

etc. It was based on such media reports that the investigation was initiated 3

and hence it was all the more imperative that the appellants were given an

opportunity of presenting their views and facts before the WTM. It is also

submitted that on the 2016 governance issues relating to the company

alternative remedies have been sought in the appropriate forum and

injunctions have been obtained from the High Court etc. Though these facts

were also pointed out in the replies furnished by the appellants to SEBI

while responding to SEBI's communications these aspects are not even

touched upon in the impugned order. It is further submitted in relation to the

allegations that funds had been transferred to related parties the

non-applicability of the relevant provisions of the Companies Act was also

specifically pointed out by the appellants. The non-applicability of the

provisions of the Companies Act, 2013 cited by the appellants is not even

mentioned in the impugned order, though the said order charges the

appellants with non-compliance of related party disclosure requirements.

3. Learned Senior Counsel Mr. Mustafa Doctor appearing on behalf of

SEBI, on the other hand, submitted that the violations noticed in the books

of accounts etc of the company is not only relating to the year 2016 but, as

stated in the impugned order, it is from the year 2011-12 onwards. Further,

if the claim of the appellants that an attempted coercive takeover of the

company in the year 2016 is the reason for all the ills the company is facing

a forensic audit is the best option to address that issue. Therefore, a forensic

audit is in the interest of the appellants, not against them, as it will bring out

all the facts relating to the affairs of the company and other appellants.

4. I note that the impugned order was issued on March 7, 2018. On May

9, 2018 NSE informed the Appellant No. 1 (company) about the

appointment of a Forensic Auditor. On May 28, 2018 Appellant No. 1

informed NSE that they are in the process of filing an appeal challenging the 4

SEBI order dated March 7, 2018. On June 4, 2018 appellants gave similar

reply to the forensic auditor as well who sought documents for review on

June 11, 2018. On June 19, 2018 SEBI sought status of the appeal filed

before this Appellate Tribunal from Appellant No. 2 who is the Managing

Director of the Company. On June 22, 2018 Appellant No. 1 informed SEBI

that they are in the process of filing the appeal. Finally appeal was filed only

on August 21, 2018.

5. Given the above facts there has been delay on the part of the

appellants in filing this appeal. In the interim, the forensic auditor has

already been appointed and their process has started. Therefore, granting a

stay on the impugned order as sought by the appellants at this juncture does

not serve any purpose. Accordingly, it would be appropriate to deal with the

issue in the normal process wherein a confirmatory order is to be issued by

SEBI.

6. Following this, Learned Senior Counsel for the appellants submits

that treating the ad-interim ex-parte order (impugned order) as the show

cause notice the appellants will give comprehensive reply to SEBI within a

period of three weeks from today. He further submits that the appellants

would also cooperate with the forensic auditor in the interim though subject

to the constraints on availability of documents because of parallel

proceedings before different authorities and the fact that most of the

documents, including electronic documents are with other investigating

agencies.

7. Learned Senior Counsel for SEBI seeks two months time to pass the

confirmatory order subject to the appellants not seeking additional time in

filing replies and / or in rescheduling of hearing dates etc. 5

8. Accordingly, appellants are granted three weeks time to file their

replies and WTM of SEBI shall pass the confirmatory order within two

months thereafter.

9. Appeal is disposed of on the above terms with no order as to costs.

Sd/-

Dr. C.K.G. Nair Member 29.08.2018 Prepared and compared by:msb