Tarun Agarwala, Presiding Officer
1. The appellant has challenged the order dated November 17, 2021 passed by the Whole Time Member (hereinafter referred to as ‘WTM’) of Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) imposing a penalty of Rs. 7 lacs under Section 15HB of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) for violating provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as ‘LODR Regulations’).
2. A show cause notice was issued to the appellant and 10 other noticees to show cause as to why suitable directions should not be passed under Section 11 and 11B of the SEBI Act for violation of Section 12A of the SEBI Act , Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’) and violation of various provisions of the LODR Regulations.
3. The charge under the show cause notice in brief was :-
a) Misrepresentation including its financials and / or business and / or violation of LODR Regulations.
b) Misuse of the books of accounts / funds of the company including facilitation accommodation entries and / or entering into transactions to the detriment of the minority shareholders and, therefore, reneging on the fiduciary responsibility cast on the board and key managerial personnel.
4. The WTM after considering the material evidence on record found that the company had misrepresented its financials and misused books of accounts and the funds and that there was non-disclosure of the facts and figures in the financial statements with regard to related parties. The WTM found :-
i. Misrepresented financials relating to investments in other companies.
ii. Misrepresented financials relating to trade advances paid to other companies.
iii. Misrepresented financials on account of accepting and extending loans and advances to various entities.
iv. Misrepresented financials on account of recording sales/purchases without any actual transactions.
v. Violated LODR on account of non-disclosure and incorrect disclosure of related party transactions.
vi. Misrepresented financials relating to of trade payables and trade receivables.
vii. Misrepresented financials on account of improper grouping of assets/ liabilities in the financial statements.
viii. Misrepresented financials on account of recording unusual transactions in the financial statements of the Company.
ix. Misrepresented financials on account of improper disclosure of unquoted shares.
5. The WTM however found that the charge of PFUTP Regulations could not be proved but there were violations of the LODR Regulations.
6. The WTM accordingly imposed a penalty of Rs. 20 lakh upon the company and Rs. 7 lakh upon the appellant who was the director and Chief Financial Officer.
7. The learned counsel for the appellant submitted that the appellant was appointed as an executive director of the company from September 30, 2014 and resigned on August 26, 2016 and during his term the appellant was looking after the internal policies and procedures of the company and was not a part of any committee. It was urged that the alleged violations relating to loans, related party transactions, negligible movements of trade receivables / payable, recording of sales / purchases, investment in various companies were not part of the duties entrusted to the appellants and that he was only looking after general management of the company and, therefore, these violations are not applicable to him.
8. Having heard the learned counsel for the appellant, we find that the statement made by the appellant cannot be accepted. A specific finding has been given that there was misrepresentation in the books of accounts and there was misrepresentation of the financial statement of the company. A specific finding has been given that there was non-disclosure of facts and figures in the financial statements relating to the related parties. The appellant was Chief Financial Officer which has not been disputed and, therefore, the appellant cannot disassociate with the financial affairs of the company. Being a Chief Financial Officer, the appellant was responsible for the financial statement of the company.
9. Since a specific finding has been given by the WTM that there was financial misrepresentation of the statement of the company which is not disputed, we are of the opinion that the penalty imposed, in the instant case, is just and proper which is neither excessive nor arbitrary. Consequently, we do not find any error in the impugned order. The appeal fails and is dismissed.
10. 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.
