M. T. Joshi, J
1. Aggrieved by the directions of the learned Whole Time Member (hereinafter referred to as “WTMâ€) of the Securities and Exchange Board of
India (hereinafter referred to as “SEBIâ€) vide impugned order dated September 29, 2020 restraining appellant Mohandas Adige for a period of
one year and appellant Yashovardhan Birla for a period of two years from accessing the securities market and further prohibiting from buying, selling
or otherwise dealing in securities including units of mutual funds, directly or indirectly, vide the common order, the present appeals are preferred.
2. The learned WTM has passed the order concluding that the present appellants along with Noticee No. 1 Birla Cotsyn (India) Limited (hereinafter
referred to as “the Companyâ€), Noticee No. 2 Mr. P.V.R. Murthy and Noticee No. 4 Mr. Y.P. Trivedi had committed violations of Section
12A(a),(b) and (c) of Securities and Exchange Board of India Act, 1992 read with Regulations 3(a),(b),(c) and (d) and 4(1),(2)(f),(k) and (r) of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP
Regulations, 2003).
3. The allegations are as under:
The noticee Company along with the present appellants who were it’s directors and other noticees perpetrated an arrangement in respect of
issuance of Global Depository Receipts (hereinafter referred to as “GDRâ€). Therefore, the investigation was conducted. It was found that the
Company on March 15, 2010 issued GDR worth USD 24.99 million. The proceeds of the GDR were deposited with European American Investment
Bank (hereinafter referred to as “EURAM Bankâ€) Austria. Lead Manager to the transaction was Pan Asia Advisors Ltd. The GDR however
were subscribed only by one entity namely Vintage FZE (hereinafter referred to as “Vintageâ€). The said Vintage had obtained loan for
subscribing to GDR through credit agreement from the very same EURAM Bank and the present Company itself had provided security for the loan
obtained by Vintage from EURAM Bank by pledging all the GDR proceeds by executing account charge agreement. The fact that the GDR was
subscribed by only one entity and that the entire GDR proceeds was provided as a security for the loan obtained by the subscriber was not disclosed
to the Stock Exchanges. Thereafter, the GDR proceeds partly came in trickles over a period of one year as detailed in the record. Thus alleging fraud
in the episode, the show cause notice was issued.
4. The defense of the present appellant Mohandas was that he was Independent Director and of appellant Yashovardhan Birla Non-Executive
Director. They were party only to the resolution carried by the Board of Director for issuing the GDR. Vide the same resolution another noticee Mr.
P.V.R. Murthy, the director and the company secretary, were authorized to act on behalf of the Company in this regard. The next transaction of
executing account charge agreement of pledging the GDR was executed by those two entities without any knowledge of the appellants and therefore
they cannot be blamed for the same. The learned WTM however did not agree with the submissions for the reasons recorded in the impugned order.
Hence the present appeal.
5. We have heard Mr. Somasekhar Sundaresan, the learned Advocate appearing on behalf of the appellant in Appeal No. 511 of 2020 and Mr.
Pradeep Sancheti, the learned Senior Advocate in Appeal No. 38 of 2021 and Mr. Chander Uday Singh, the learned Senior Advocate appearing on
behalf of the respondent.
6. The record shows that the Board of Directors of the Company including the present appellant in a meeting dated December 21, 2009 approved
issuing of GDR. Vide the same Resolution the Board of Director has authorised inter alia to use the GDR proceeds as security in connection with a
loan and had authorised the director Mr. P.V.R. Murthy the another noticee to sign any application, agreement etc. as may be required by the
EURAM Bank.
7. During the pendency of the proceedings before SEBI the present appellant Yashovardhan Birla filed an application for settlement of the dispute
under the relevant rules. Ultimately however the settlement did not take place and thereafter a common reply was filed by the present two appellants
and others except Mr. Murthy.
8. Beside raising the issue of delay in issuing the show cause notice and certain objection for non-supply of documents, on merit of the case the
appellants submitted that the present company is the joint venture between Yash Birla Group and P.B. Bharadwaj (Chairman Sunflag Group) which
was entered during the year 2006-2007. The appellant Yashovardhan Birla, was the non-executive, co-chairman of the company while appellant
Mohandas Adige was independent director of the same. Since another noticee Mr. P.V.R. Murthy was having vast experience in the field of finance,
especially fund raising, and since he had worked with various reputed Merchant Bankers over the 20-25 years, the Board of Directors authorized him
to carry out the necessary formalities related to the GDR issue. The present appellants only consented for raising the capital through GDR and Mr.
P.V.R. Murthy and Mr. Tushar Dey, Company Secretary later on appears to have entered into the account charge agreement where under the GDR
proceeds were secured against the loan granted to the Vintage. These two entities were never specifically authorised to execute pledge agreement in
respect of the said GDR issue. These two entities were authorised by the Board of Directors in the best interest of the company for the above
reasons. These two entities never informed them that they had entered into pledge agreements with EURAM Bank and thus the appellants were not
part of any scheme, device, artifice etc. conceived by the Lead Manager to manipulate the Indian investors.
9. Mr. Pradeep Sancheti, the learned senior counsel for the appellant Mr. Yashovardhan Birla submitted that partial process of the GDR had actually
admittedly returned to the company. Appellant Yashovardhan Birla, was the non-executive- co-chairman of the company during the relevant period.
The Resolution of the Board of Director to which the appellant was party had not authorised Mr. P.V.R Murthy and Mr. Tushar Dey, Company
Secretary for entering into pledge agreement in respect of the GDR issue. The appellant has not gained anything from the GDR proceeds. In view of
the return of the proceeds of GDR later on, no loss is caused either to the company or the investors. He further submitted that the learned WTM
suddenly recorded in the impugned order that he had visited the website of the Registrar of Companies and found that the appellant was the promoter
of the company. However, no allegations in this respect were made in the show cause notice. Therefore, relying on the various judgement of the
Tribunal like Adi Cooper vs. SEBI Appeal No. 124 of 2019 decided on 05.11.2019 and Pritha Bag vs. SEBI (Appeal No. 291 of 2017) decided on
14.02.2019 contended that the appeal be allowed.
10. Mr. Somasekhar Sundaresan, the learned counsel for the appellant Mohandas Adige submitted that the appellant was an independent director of
the company. He had bonafide consented to the Board Resolution of raising funds for the company through GDR and nothing further. Behind his back
and without his knowledge another noticee Mr. P.V.R. Murthy and Mr. Tushar Dey, Company Secretary had executed the account charge
agreement for which the appellant cannot be blamed. He further submitted that this Tribunal had exonerated another noticee Mr. Y. P. Trivedi against
whom also the similar order was passed by the learned WTM vide the present common impugned order. In the circumstances, he submitted that the
appeal be allowed.
11. On the other hand, Mr. Chander Uday Singh, the learned Senior Advocate for the respondent submitted that the copy of the account charge
agreement would show that schedule no. 1 of the same was signed by both the present appellants, while the main agreement was signed by Mr.
P.V.R. Murthy and Mr. Tushar Dey, Company Secretary. These documents were provided to the appellant in the proceedings. He pointed that the
appellants did not comment in their reply regarding their signatures in the document and now suddenly in the appeal memorandum, the signatures are
denied. He further submitted that while the appellant Yashovardhan Birla in reply to the show cause notice himself detailed that he was the co-
chairman of the company, it cannot be denied that he was the promoter of the same.
12. Mr. Singh further submitted that, though appellant Mr. Mohandas Adige claims innocence on the ground that he was an independent director and
had only participated in the Board meetings authorising the raising of funds and authorising Mr. P.V.R. Murthy, in fact he was the member of the
audit committee. In such circumstances, Mr. Chander Uday Singh, adverted our attention to the adverse inference drawn by the learned WTM that
though the GDR proceeds did not receive to the company for a long period, none of them had raised any grievance about the same. He submitted that
raising of GDR in the amount of around Rs. 114 crore was a momentous event for the company. Thus non-receipt of GDR proceeds for a long period
cannot simply remain forgotten by appellant Yashovardhan Birla who was the co-chairman of the company and appellant Mohandas Adige who was
the member of the audit committee of the company during the relevant period.
13. Upon hearing both the sides in our view the appeals are liable to be dismissed for the following reasons.
In the case of Mr. Y.P. Trivedi, who was noticee no. 4 in the present proceedings, this Tribunal has exonerated as he was an independent director
simpliciter. Same was the case of Adi Cooper (Supra) in which the reliance is placed by the appellant Mohandas Adige. In the case Pritha Beg the
issue was as to who would be an officer in default for a liability against a company under Section 5 of The Companies Act, 1956. In the present case
we are dealing with a case of fraud purported to have committed by the concerned entities with a common intention.
So far as Appellant Mr. Mohandas is concerned, he was the member of the audit committee. Not only this, he himself has also annexed to the present
appeal memorandum as annexure II, the snapshot of list detailing the various directorships held by the appellant. It would show that right from 2006 till
2014 he was the director of numbers of companies including the Birla Group Companies and thus cannot be called as innocent independent director.
Above all, this seasoned director was the member of the audit committee which handled/reviewed the financial matters of the Company during the
period GDR proceeds vanished from the accounts of the Company. Taking into consideration all these facts, in our view it would be naive to conclude
that the appellant Mohandas was only an independent director and had innocently consented to the Board decision authorising Mr. P.V.R. Murthy to
deal with the GDR including loan if any.
14. So far as appellant Mr. Yashovardhan Birla is concerned his own reply to the show cause notice would show that he was the co-chairman of the
company. Further his reply would show that the present Company was the part of the joint venture between Yash Birla Group and P.B. Bharadwaj.
In the circumstances, even if we ignore the finding of the learned WTM that the appellant was also found to be promoter of the company from the
official website, still it cannot be gainsaid that the appellant - the co-chairman of the Company remained silent over a period of years though the
substantive amount of the GDR did not receive to the company allegedly due to the certain malpractices of another noticee Mr. Murthy. There is
nothing on record to show that he at any time raised any concern in this regard. Learned WTM has therefore rightly drawn an adverse inference
against him.
Both the appeals thus lack merit.
15. In the circumstances of the case, the following order:
ORDER
16. Both the Appeals are hereby dismissed without any order as to costs.
17. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor
a certified copy of this order could be issued by the Registry. In these circumstances, 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. Parties will act on production of a digitally
signed copy sent by fax and/or email.
