BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 189 of 2012
Date of decision: 25.10.2012 - Chartered Capital and Investment Limited
711, Mahakant, Opp V. S. Hospital
Ellisbridge, Ahemedabad – 380 006. - Mohib Noman Khericha
711, Mahakant, Opp V. S. Hospital
Ellisbridge, Ahemedabad – 380 006. - Manoj Kumar Ramrakhyani
711, Mahakant, Opp V. S. Hospital
Ellisbridge, Ahemedabad – 380 006. ……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. Somasekhar Sundaresan, Advocate with Mr. R. Hegde, Advocate for
Appellants.
Mr. Shiraz Rustomjee, Senior Advo cate with Mr. Mihir Mody, Mr. Mobin
Shaikh, Advocates for the Respondent.
CORAM : P. K. Malhotra, Member & Presiding Officer (Offg.)
S. S. N. Moorthy, Member
Per : P. K. Malhotra (Oral)
The appellants in this appeal are aggrieved by the order dated
September 7, 2012 passed by the whole tim e member of the Securities and
Exchange Board of India (the Board) confirming earlier ex-parte ad interim order
dated December 28, 2011 restraining the appellants from taking up any new
assignment or involvement on any new i ssue of capital includi ng Initial Public
2
Offerings (IPO), follow-on issue etc. in th e securities market, in any manner, till
further directions. It is prayed that the directions contained in the impugned order
against the appellants be set aside and pending the hearing and final disposal of
the appeal, the operation and implem entation of the impugned order may be
stayed.
- The facts leading to the passing of th e impugned order, in brief, are that
RDB Rasayans Limited (the company) came out with an IPO of shares during the
period September 21, 2011 to September 23, 2011. The Board noticed wide
fluctuations in the share price of the company on the first day of listing of its
shares. The preliminary investigations carried out by the Board interalia revealed
that the company had deviated from the stat ed objectives of the IPO. It was also
noticed by the Board that the offer document contained various misstatements and
some vital information was missing. It wa s also noticed by the Board that the
company had mis-utilized the IPO pro ceeds to fund trading clients who had
incurred losses on account of their trading in the shares of the company on the day
of listing. - The appellant no. 1 is registered with the respondent Board as a category
one merchant banker and was merchant banker for the IPO of the company and
acted as the lead manager to the issue. Appellant no. 2 is the Managing Director
and appellant no. 3 is the Vi ce-President and Company S ecretary of appellant
no. 1. It is alleged by the Board that there is failure on the part of appellant no. 1
to exercise due diligence a nd failure to maintain satisf actory standards in all the
aspects of the offering, veracity and adequacy of the disclosures in the prospectus
of the company. The Board found that th e company, in its board meeting dated
September 12, 2011 had passed a resolution to grant some of its surplus funds by
way of loan to RDB Realty, one of its group company, to the extent of ` 50 crores
for the business purpose. The consent of shareholders was also accorded in the
extra ordinary general meeting held on September 28, 2011. This fact was not
disclosed in the RHP and the pros pectus. The Board came to a prima-facie 3
conclusion that this omission amounts to lack of due diligence on the part of the
appellants in discharging its duty as a merchant ba nker and, therefore, pending
investigation, it passed an ex-parte ad interim order on December 28, 2011
prohibiting the appellants from taking up any new assignment or involvement in
any new issue of capital including IPO, follow-on issue etc. from the securities
market until further directions. The said order also contains certain directions
under Section 11, 11A and 11B of the Secu rities and Exchange Board of India
Act, 1992 (the Act) against the company as well as certain other entities. The
order was also treated as a show cause notice and the appellants were given an
opportunity to file their objections. - Inspite of the reply filed by the appe llants and personal hearing granted to
them, the Board failed to pass any order. The appellants approached this
Tribunal for setting aside the impugned or der. By our order dated August 29,
2012, we disposed of the appeal directing the Board to complete the
investigations, qua the appellants, w ithin a period of two weeks and pass
appropriate orders. In co mpliance with the said dire ctions, the Board passed an
order on September 7, 2012, confirming the directions against the appellants
issued vide ex-parte ad interim order dated December 28, 2011. - It is the case of the appellants th at the impugned order merely confirmed
the interim order on the ground that invest igations are pending. No reasons are
recorded by the respondent Board for continuation of the interim order apart from
repetition of what was said in the ex-par te ad interim order. The order suffers
from non application of mi nd and fails to consider relevant material and
submissions made by the appellants. The impugned order does not furnish any
evidence or material to justify continuation of the interim order. Learned counsel
for the appellants submitted that despite the fact that nine months have elapsed
since passing of the order stating that the investigations are pending, the
respondent Board has failed to bring any material on record to prove the charge of
negligence or non exercise of due diligence by the a ppellants in its duty as a 4
merchant banker in handling the IPO of th e company. It was further stated that
the whole time member of the Board hi mself has acknowledged that there is an
omission on the part of the company to inform the merchant banker about the
board meeting held on September 12, 2011 and the extra ordinary general meeting
held on September 28, 2011. The appellants have already been deprived to do
their business in the garb of interim order for a long period and there is no
justification to continue the impugned order pending investigations. - Learned senior counsel for the respondent Board supported the order
passed by the whole time member on the ground that the submissions made by the
appellants in response to the show cause notice were considered before passing
the impugned order. The investigation is still on and a final view on further
course of action in the matter will be taken by December 31, 2012. Therefore, no
interference in the impugned order is call for. - After hearing learned counsel for th e parties and perusing the material
available on record, we find that a larg e number of parties are involved in the
matter and the investigation in the matter is continuing, therefore, we are, not
inclined to intervene in the investigation at this stage. However, in so far as
continuation of the interim order against the appellants is concerned, we find that
the only lapse noted against the appellants relates to information regarding the
board meeting of the company held on September 12, 2011 and extra ordinary
general meeting held on September 28, 2011. The impugned order itself records
that the company had failed to bring it to the notice of the appellants. It is further
seen that the draft red herring prospectus was filed by the appellants as early as on
March 20, 2010 i.e. much prior to the happe ning of these events. The appellants
have already undergone a rest raint for more than nine months pursuant to the
interim order. A final view on the conduct of the appellants can be taken on
completion of investigation. It is settled legal positi on that interim orders are
passed on the basis of prima facie findings which are tentative and such orders are
passed as a temporary arrangement to preserve the status quo till the matter is 5
decided finally to ensure that the matter does not become either infructuous or a
fait accompli before the final hearing. No such case is made out against the
appellants in the impugned order. There is an acknowledgment on the part of the
Board that the information about the boa rd meeting of the company, held on
September 12, 2011 and extra ordinary ge neral meeting held on September 28,
2011 was not provided by the company to the appellants. The appellants have
already suffered restraint for a period of nine months and if ultimately found
guilty of not exercising due diligence, appropriate order can be passed against
them on conclusion of the proceedings. The balance of convenience, therefore,
lies in favour of the appellants. Having re gard to the facts and circumstances of
the case, the equity of the case demands that the interim order against the
appellants be vacated pendi ng investigation by the Boar d. We, therefore, set
aside the impugned order confirming the ex -parte ad interim order against the
appellants. The Board is directed to complete the investigation and take
appropriate decision qua the appellants by December 31, 2012. We may make it
clear that nothing stated herein should be taken as an expression of opinion by us
on any of the issues raised before us by the parties.
No costs.
Sd/-
P. K. Malhotra
Member &
Presiding Officer (Offg.) Sd/-
S. S. N. Moorthy
Member
25.10.2012
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