M/s New Delhi Television Limited Vs SEBI (SAT Mumbai)
SAT upheld the order of SEBI penalising the Company and its Directors for non- disclosure of tax demand on the grounds that any information which have effect on the operations of the Company is price sensitive and must be disclosed immediately to the Stock exchange. However, penalty levied on Compliance Officer was reversed on the grounds that being an employee the Compliance Officer works under the direction of Board/Managers of the Company.In the same matter SAT inferrred that it is the obligation of the Company to ensure that all the disclosures are available in Public Domain and mere couriering the same to the Stock exchange is not complete compliance.
Read Full Text of the Order of Securities Appellate Tribunal, Mumbai
1. Even though different orders have been passed by the Adjudicating Officer (“AO” for convenience) of the Securities and Exchange Board of India (“SEBI” for convenience) the issue involved is more or less the same and is also interlinked and therefore both the appeals are being decided together.
2. Appeal No. 358 of 2015 has been filed against the order dated June 04, 2015 passed by the AO of SEBI imposing a penalty of Rs. 25,00,000/- (Rupees Twenty Five Lakhs only) for violation of Section 23A of the Securities Contracts (Regulation) Act, 1956 (“SCRA” for convenience) and Rs. 1,75,00,000/- (Rupees Once Crore Seventy Five Lakhs only) for violation of Section 23E of the SCRA for failure to comply with Clause 36 of the Listing Agreement. Appeal No. 150 of 2018 has been filed against the order dated March 16, 2018 passed by the AO imposing penalties under Section 15A(b) of the SEBI Act, 1992 (“SEBI Act” for convenience) as well as under Section 23A(a) and Section 23E of the SCRA for violation of Regulation 13(6) of SEBI (Prohibition of Insider Trading) Regulations (“PIT Regulations” for convenience) read with Clauses 2.1 and 7.0(ii) of Schedule II for Code of Corporate Disclosure Practices for Prevention of Insider Trading specified in Schedule II read with Regulation 12(2) of PIT Regulations as well as violation of Clause 36 of the Listing Agreement.
3. The facts leading to the filing of Appeal No. 358 of 2015 is, that on September 30, 2009 the appellant filed the return of income for the Assessment Year 2009-2010 under Section 139(1) of the Income Tax Act, 1961 (“IT Act” for convenience) declaring a loss of Rs. 64.83 crores. The appellants’ return was selected for scrutiny pursuant to which a draft assessment order dated March 31, 2013 was framed under Section 143(3) read with Section 144C(1) of the IT Act wherein the total income was computed at Rs. 641.08 crores. Aggrieved by the draft assessment order, the appellant filed objections before the Disputes Resolution Panel (“DRP” for convenience) under Section 144C(10) of the IT Act. The DRP by an order dated December 31, 2013 confirmed the addition of Rs. 642.54 crores and, in addition thereto, enhanced the assessment by a further amount of Rs. 254.75 crores. Based on the aforesaid, a final order assessment order under Section 144C(13) of the IT Act was passed by the AO on February 21, 2014 where under the income of the appellant was determined at Rs. 838.33 crores. Thus a demand of Rs. 450 crore was raised.
4. The said final assessment order dated February 21, 2014 was received by the appellant on February 27, 2014. It is alleged that they consulted a tax lawyer who opined that the alleged tax demand was illegal and advised the appellant to institute an appeal. It was further contended that the management of the appellant also discussed the implication of the final assessment order and took a conscious decision for not making any disclosure about the final assessment order and the demand initiated thereto to the Stock Exchange under Clause 36 of the Listing Agreement. It was contended that the appellant filed an appeal before the Income Tax Appellate Tribunal (“ITAT”) and an interim order dated March 21, 2014 was passed by which the balance demand was stayed till April 21, 2014 subject to payment of ` 5 crores before March 31, 2014.
5. As per Clause 41 of the Listing Agreement it is alleged that the audited financial results for the financial year 2013- 2014 was uploaded on the appellants’ website in which the appellant made the disclosure in relation to the alleged tax liability of 450 crores. Based on the aforesaid disclosure the Stock Exchange asked for necessary clarification, based on which the appellant disclosed the information to National Stock Exchange of India Limited (“NSE” for convenience) vide letter dated May 26, 2014 and to BSE Limited (“BSE” for convenience) vide letter dated May 29, 2014.
6. In the light of the aforesaid, a show cause notice dated February 12, 2015 was issued calling upon the appellant to show cause why penalty should not be imposed under Section 23A and 23E of the SCRA for violation of Clause 36 of the Listing Agreement. The AO after calling for the reply and after giving an opportunity of hearing found that the appellant had violated provision of Clause 36 of the Listing Agreement by belatedly disclosing the tax demand raised by the Assessing Officer pursuant to the assessment order. The AO found that for the violation of Clause 36 of the Listing Agreement monetary penalty was attracted under Section 23A and 23E of the SCRA and accordingly imposed a penalty totaling Rs. 2 crores.
7. We have heard Ms. Fereshte Sethna, the learned counsel assisted by Shri Adhiraj Malhotra the learned counsel for the appellant and Shri Kevic Setalvad the learned senior counsel assisted by Shri Anupam Surve, Advocate on behalf of the respondent.
8. A preliminary objection was raised by the learned counsel for the appellant that in view of Regulation 16(2) of the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2014, the settlement order should have been placed by SEBI before the Tribunal for appropriate orders. Since the said order was not placed, SEBI should not be given an audience nor can they be heard in these proceedings. It was contended that under the aforesaid regulations the appellant had filed an application for settlement of specified proceedings which was rejected by SEBI, against which the Writ Petition has been filed which is pending consideration. In order to deal with this preliminary submission it would be appropriate to extract paragraph 16 of the Regulations of 2014 which is as under:-
“Settlement of the proceedings pending before the Tribunal or any court.
16. (1) Save as otherwise provided in these regulations, the provisions with regard to settlement of specified proceedings shall mutatis mutandis apply to an application for settlement of any proceeding pending before the Tribunal or any court.
(2) The proposal of settlement along with the settlement terms or rejection thereof shall be placed before such Tribunal or court for appropriate orders.”
From a perusal of the aforesaid, it is apparently clear that there is no such mandate on the part of SEBI to produce the order of settlement before the Tribunal. In fact, if an application for settlement was filed by the appellant before SEBI, it is appellant who should bring this fact and produce the order before the Tribunal. Consequently, the objection raised by the learned counsel for the appellant is devoid of merit and is rejected.
9. In this regard, the learned counsel on an earlier occasion had prayed for adjournment of the proceedings on the ground that the rejection order was challenged in the High Court which was pending. This Tribunal directed the appellant to obtain an interim order from the High Court. Since no interim order was obtained inspite of several opportunities we have proceeded to hear the matter on merits.
10. On merits, it was contended that an absurd demand was raised by the Assessing Officer and such high-pitched assessment was not only illegal but was passed without any application of mind. It was contended that the management of the company took legal advice from a tax lawyer who advised them to file an appeal based on which the appeal was filed and an interim order was obtained wherein the tax demand was stayed subject to certain conditions. It was contended that it was not necessary for the appellant to immediately intimate the Stock Exchange with regard to the development and the outcome of the assessment order and that the appellant was allowed a reasonable time and opportunity to arrange its affairs and take remedial action before the Appellate Authority/ Court before making the disclosure under Clause 36 of the Listing Agreement. It was thus contended, that the word “immediately” as stipulated in Clause 36 of the Listing Agreement does not mean that information with regard to the tax demand should be made public instantly and that a reasonable period should be allowed to be given in view of the Guidance Note on Clause 36 of the Listing Agreement issued by the Stock Exchange. It was further contended that under Clause 41 of the Listing Agreement the audited financial results are required to be filed within sixty days from the end of the financial year and accordingly submitted that a reasonable period under Clause 36 has to be allowed to the company/appellants to disclose the material information under Clause 36 of the Listing Agreement. It was thus contended that the information was given belatedly on May 08, 2014 when the audited financial results were uploaded, hence there was a substantial compliance of Clause 36 of the Listing Agreement. It was further contended that the quantum of penalty was also arbitrary, excessive and had been imposed without considering the factors contemplated under 15J of the SCRA read with Rule 5 of Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 2005.
11. In support of her submissions, the learned counsel for the appellant has placed reliance on [2008] 173 Taxman 468 (Delhi) High Court of Delhi Soul_* v Deputy Commissioner of Income-tax, AIR 1979 SC 1666 M/s. Concord of India Insurance Co. Ltd., v Smt. Nirm ala Devi and Others, 2003 SCC OnLine SAT 3 Sundaram Finance Ltd. & Ors. v Securities and Exchange Board of India, Almondz Global Securities Ltd. v Securities and Exchange Board of India (Appeal No. 222 of 2015 decided on 13.05.2016) and 1969(2) SCC 627 M/s. Hindustan Steel Ltd. v State of Orissa.
12. At the outset, we may indicate that the stand of the appellant before SEBI was that they took a conscious decision not to disclose the information under Clause 36 of the Listing Agreement. In the memorandum of appeal, the same stand has been taken. For facility, the relevant portion of the memorandum of appeal is extracted hereunder. Under the heading “points to be considered”, paragraph (b) is extracted hereunder:
“(b) The SEBI failed to appreciate that the Appellant had bonafide and reasonable basis pursuant to which it took the view that no disclosure of the Tax Demand was required and the same was not material.”
Further relevant portion of paragraph 5(e)(iv) is extracted hereinunder:
“5(e)(iv). Accordingly, as required under Clause 36 of the Listing Agreement, the management came to a bonafide, informed and practicable decision that the Appellant company was not required to disclose the Assessment Order under Clause 36.”
The learned counsel before us, however, argued that the disclosure was made belatedly.
13. On the other hand, the learned counsel for the respondent contended that the order passed by the AO does not suffer from any manifest error of law in as much as the appellant had clearly violated the provision of Clause 36 of the Listing Agreement and since necessary disclosure was not made, appropriate penalty was imposed which requires no interference.
14. We have heard the learned counsel for the parties at some length. Before proceeding further, it would be appropriate to refer to Clause 36 of the Listing Agreement which is extracted hereunder:
“Apart from complying with all specific requirements, the Issuer will intimate to the Stock Exchanges, where the company is listed immediately of events such as strikes, lock outs, closure on account of power cuts, etc. and all events which will have a bearing on the performance / operations of the company as well as price sensitive information both at the time of occurrence of the event and subsequently after the cessation of the event in order to enable the security holders and the public to appraise the position of the Issuer and to avoid the establishment of a false market in its securities. In addition, the Issuer will furnish to stock exchange(s) on request such information concerning the Issuer as the stock exchange(s) may reasonably require. The material events may be events such as:
a. Change in the general character or nature of business.
b. Disruption of operations due to natural
c. Commencement of Commercial Production/Commercial Operations
d. Developments with respect to pricing/realisation arising out of change in the regulatory framework
e. Litigation /dispute with a material impact The Company will promptly after the event inform the Exchange of the developments with respect to any dispute in conciliation proceedings, litigation, assessment, adjudication or arbitration to which it is a party or the outcome of which can reasonably be expected to have a material impact on its present or future operations or its profitability or financials.
f. Revision in Ratings
g. Any other information having bearing on the operation/performance of the company as well as price sensitive information which includes but not restricted to;
