Securities and Exchange Board of India Vs Terrascope Ventures Limited Etc. (Supreme Court of India)
Supreme Court held that diversion of funds raised through preferential allotment for purposes other than those stated in offer document/prospectus/notice establishes as fraud and the same cannot be cured by consequent shareholder ratification.
Facts- The present appeals, u/s. 15Z of the Securities and Exchange Board of India Act, 1992, call in question the correctness of the order dated 02.06.2022 passed by the Securities Appellate Tribunal. The Tribunal set aside the orders of the Adjudicating Officer dated 29.04.2020. The Adjudicating Officer had imposed monetary penalties on the respondent-company as well as on the respondent individuals who were the Managing Director (Mr. Manoharlal Saraf) and Director-(Mrs. Geeta Manoharlal Saraf) respectively, for violations of the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, and the Securities Contracts (Regulation) Act, 1956.
Conclusion- When a company offers private placement or goes public, the legal regime mandates fair disclosure and transparency. The investors and all other stakeholders concerned with the securities market irrespective of whether they ultimately subscribe to the shares or not, adjust their affairs based on the disclosure made.
It is very clear from the facts that the respondents had from the very inception had no intention to use the funds for the stated objects and their only object was to somehow raise the funds and divert it for the purpose they ultimately did.
