Allowed

Integrated Amusement Ltd. v. SEBI

SAT8 Sept 2001

Case brief

AI extract

What is this about?

The Tribunal quashed an ex-parte debarment order passed by SEBI against the appellants, a listed company alleged to be 'vanishing,' remanding the matter in the interest of investors to allow the company to submit documentary evidence on fund utilization.

What did the court decide?

The impugned order of debarment is set aside and the matter is remanded to the Respondent for further inquiry and appropriate orders after the Appellants furnish requisite information.

Integrated Amusement Ltd. Vs. SEBI — Securities and Capital Markets | SAT (2001)

Allowed

Integrated Amusement Ltd. v. SEBI

SAT8 Sept 2001

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Case brief

AI extract

What is this about?

What did the court decide?

The impugned order of debarment is set aside and the matter is remanded to the Respondent for further inquiry and appropriate orders after the Appellants furnish requisite information.

¶18

During the course of a personal hearing granted in the inquiry, the Appellant company’s Managing Director and one Shri B.P.Kanani, a Chartered Accountant had submitted that the Appellant had shifted its registered office from the address stated in the prospectus to the project site and this change was duly notified to the Registrar of Companies and the stock exchanges. It has been stated in the order that the Respondent informed the representatives that "from the facts and circumstances prima-facie it appears that the company and its directors had misappropriated and misutilised the money raised through the public issue and entrusted to them by the public and have fraudulently induced the public by deceiving them to subscribe to the issue of the company". As per the order, the Appellants were "advised to clarify and submit documents in support of the utilisation of the money raised by the company from the public for the purposes as disclosed in the offer documents". According to the Respondent’s version the representatives "agreed and undertook to submit documents, annual accounts, and statement on end use of funds from the date of the public issue", till the date of hearing, within 15 days of the date of hearing (18.11.1999 was the date of hearing). It has been stated that it was made clear to them that in case they fail to furnish these requisite particulars, the Respondent would presume that Appellants had no explanation to give and the matter will be decided on that assumption. The Appellants failed to submit the information as promised and in that context the Respondent drew adverse inference and issued the impugned direction. The Chairman, SEBI, who had issued the order in exercise of the powers of the Respondent, under section 4(3) of the Act felt that "the directors who have been entrusted with the funds have misappropriated the money for their own use in violation of the directions of law and contract between the company and the investors in contravention of law". In this context he stated "I observe that the State Government be requested to initiate appropriate criminal action in the matter under the India Penal Code, 1860 or any other relevant state law through the police against the company and its directors". He had also viewed that Shri B.P.Kanani who had appeared for the Appellant Company during the personal hearing, did not furnish the details of the account of funds despite an undertaking given by him. He felt that Shri Kanani’s action may amount to professional misconduct and viewed that the matter be referred to the Institute of Chartered Accountants of India to take appropriate action against him.

¶31

She submitted that the Appellant Company was considered as a vanishing company by the task force on the basis of the information furnished by ASE. However subsequently, ASE reported that the Appellant Company, which was declared as vanished, was found existing at its changed address. Therefore, before the matter could be concluded on merits it was decided to grant an opportunity of personal hearing to the Appellant Company and its directors. Even though the representatives of the Appellants had submitted that funds collected have been utilised for the purposes mentioned in the prospectus, that the project could not be completed because of shortage of funds, they could not produce any document in support of the submission. According to the learned Representative, during the course of hearing the Respondent had asked for the details of utilisation of the funds raised through the public issue and the representatives at that time had submitted that the documents concerning the financial affairs of the Appellant were not readily available at the time of personal hearing and gave an undertaking to submit the same later. She submitted that even though vide letter dated 30.11.1999, the Appellant company was advised to send the details, till the issuance of the impugned order there was no response. Thus the allegation that they were not given opportunity to explain their case was unfounded. According to her the Appellants had failed to file reports/documents with Registrar of Companies and stock exchange. Non-compliance of the requirements of the listing agreement, especially failure to furnish financial data etc., is detrimental to the interests of investors. She submitted that in the light of the submissions made by the Appellants, there existed a prima facie case that the Appellants had not made proper utilisation of the funds raised through public issue. Reasons, if any, justifying non-utilisation or misutilisation of funds by the Appellant Company could not be given by them though ample opportunities were provided. It was made clear to the Appellants’ representatives during the personal hearing that in case they fail to submit the documents as per the undertaking given by them, adverse inference will be drawn and appropriate action will follow. Since they failed to fulfill their own assurance, the Respondent was constrained to draw an adverse inference against them and issued impugned direction, exparte the Appellants. Referring to the applicability of Limitation Act, she submitted that the default under the facts of the instant case was in the nature of continuing default and as such not barred by limitation.

¶52

The main reason based on which the impugned order has been issued is an inference, in the absence of relevant material before the Respondent, that the Appellants had misused the fund collected from the public for purposes other than for which it was collected. The Appellants though promised to furnish the requisite details did not do so. The Appellants have explained the reasons for the same as serious illness and death of a close relative of the Managing Director. Medical papers in support have been produced. Application of funds is a matter, which can be verified from the records of the Appellant Company. In terms of section 11(2) (i) the Respondent is empowered to call for information, etc. from the Appellant Company also for the reason that it is also a person associated with the securities market. The Appellants have not refused to furnish the details, but they had putforth certain reasons, which disabled them to furnish the requisite information. During the proceedings before the Tribunal, the Appellants had expressed their willingness to produce the records/information before the Respondent. In fact the Appellants have annexed copies of the Appellant company’s audited Annual Accounts for the years ended on 31.3.1995, 31.3.1996, 31.3.1997 31.3.1998 and 31.3.1999 to the appeal. As per the Appellant Company’s balance sheet as on 31.3.1999, Rs.754.22 lakhs have been shown as capital work in progress and fixed assets net of depreciation has been valued at Rs.47.33 lakhs. I am of the view that the fund utilisation by the Appellant Company need be looked into with reference to its records in the context of the charge of misuse of funds raised from the public issue. Since the Appellants have expressed their willingness to make available the requisite information, in depth study of the same would be useful to reach at a definite conclusion and also to pursue the matter thereafter, if considered necessary, to protect the interests of the investors. Since the impugned order is based on inference and exparte the Appellants, it is felt proper that the Appellant be given one more opportunity to furnish the information to the Respondent in a reasonable time frame and the Respondent in the light of that information, will pass appropriate orders in accordance with the provisions of the law. The Department of Company Affairs may also be requested, if so desired, to examine the books of accounts and other records of the Appellant company to ascertain the utilisation of the funds and if necessary follow up the matter.

Integrated Amusement Ltd. v. SEBI

Case brief

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What did the court decide?

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Coram

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Integrated Amusement Ltd. v. SEBI

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

Similar cases

What the court decided

A compact analysis

Statutes considered