BEFORE THE SECU RITIES APPELLATE T R I BU N A L
M U M BA I
Appeal N o. 104 of 2011
Date of decision: 29.06.2011
V. Natarajan
Old # 48 – A, New # 42,
Mahadevan Street,
West Mambalam,
Chennai – 600 033.
…… Appellant
Versus
Securities and Excha n ge Board of India
SEBI Bhavan, Plot No. C ‐ 4A, G‐ Block,
Bandra Ku rla Complex, Bandra ( Ea s t ) ,
Mumbai – 400 051. …… Respondent
Mr. J. J. Bhattt, Advocate for the Appellant.
Mr. Shiraz R u s t o m je e , Advocate with Ms. Harshada Nagare, Advocate for the
Respondent.
CORAM : Justice N.K. Sodhi, Pre s iding Officer
P. K. Malhotra, Member
S.S.N. Moo r thy, Member
Per : J u s t i ce N.K. Sodhi, Presiding Officer (Oral)
This appeal is directed against t he order dated April 18, 2011 passed by
the whole time m em b e r of the Securities and Excha nge Board of India (for
short the Board) restraining the appellant from buying, selling a nd dealing in
securities in any m a n n e r whatsoever or accessing the securities market
directly or indirectly f or a period of three ye ars from the date of the order. He
has also been restrained from holdi ng an office of a director in any listed
company for the same period.
2
- The appellant at t he relevant t i m e was the chairman cum whole time
director of a company called Pyramid Saimira Theatre Ltd. ( f or short the
company) whose shares were lis t e d on different stock exchanges in the
country. It is alleged that during the financial year 2007 ‐ 08 the board of
directors of the company i nf l a te d its revenues and prof its by fictitious entries
in its accounts and disclosed the same in quarterly and annual accounts to the
stock exchanges and thereby mislead the i nv e s ti ng public in their investment
decisions. Investigatio ns carried out by the Board revealed that t he company
had committed serious irregularities in i ts books of accounts and by showin g
inflated pr ofits and r e v e n u e s it lured the general public to invest in the s hares
of the company. It ha s been found that t he financial r e s u lts as d is c l o s e d to the
public through the stock exchanges w e re f a ls e and inaccurate and the finding
in this regard is not b eing challe nged before us. It is also not in issue that the
appellant b eing the chairman and whole t i m e director was a part of the board
of directors which a pproved t he financia l results. This being so, we are
satisfied that the provisions of Regulations 3 and 4 of the Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair Trade
Practices re lating to Securities Market) Regulations, 2003 were violated.
These regulations, among others , prohibit any person from employin g any
device, scheme or artifice to defraud in connection with dealing in or issue of
securities which are listed or proposed to be listed on an exchange. They also
prohibit pe rsons from engaging in any act, practice, course of b u sin e s s which
operates or would operate as f r au d or deceit upon any person in connecti on
with any d e aling in or issue of secu rities that are listed on stock exchanges.
These regulations also prohibit persons f ro m indulging in a fraudulent or
unfair trade practice in securities which includes publishing any information 3
which is not true or which he d oe s not believe to be true. Any advertisement
that is misleading or contains information in a distorted manner which may
influence the decision of the i nv e s to r s is also an u nf air trade practice in
securities which is pr ohibited. The regulations also make it clear that pla nti ng
false or misleading news whic h may induce the public for selling or
purchasing securities would a ls o come within the ambit of unfair trade
practice in securities. It is by now well u nd e r s t o o d that unaudited financial
results that are required to be published by every listed company on a
quarterly basis do form the b a s is for the investing public to take informed
decisions. Any false information or false accounts depicting i nf l a t e d revenues
and profits by fictitio us entries in accounts is, indeed, a very s e rio u s wrong
doing which directly impacts t he securities market and t he investors. Since
the appella nt was a pa rt of the board of directors which approved t he financia l
results of the company which w e re actually false and untrue, we are satisfied
that the appellant is guilty of the charges levelled against him. Having regard
to the nature of the serious m a r ke t violation committed by the appellant, the
Board was justified in keeping him out of the market for a per iod of thre e
years and not allowing him to be a director on any listed company for t ha t
period.
- It is contended by the learned counsel for t he appella nt t ha t his client
was financially illiterate and was not even a graduate and was not a member
of the a u d it committee that submitted its r e por t to the board of directors. That
may be so but we do not t hi n k t ha t t hi s would be a mitigating factor. He was
the chairman of the c ompany and a whole time director looking after its day
to day affairs and havi ng approve d the financial results which were untrue, he 4
cannot escape his responsibility by pleading that the financial accounts had
been approved by t he audit committee set up under Section 292A of the
Companies Act, 1956. It is also argued by the learned counsel for the
appellant that the a ppellant had resigned from the directorship of the
company in April, 2008. That is so but no action is being taken against him for
the financi a l results published thereafter. In any case, the appella nt continued
as chairman emeritus of the com pany thereafter though he claims that he was
never invited to attend any meetings thereafter.
In the res u lt, we find no merit in the a ppeal and the same stands
dismissed with no or der as to costs.
Sd/-
Justice N. K. Sodhi
Presiding Officer
Sd/‐
P. K. Malhotra
Member
Sd/‐
S.S.N. Moorthy
Member
29.06.2011
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