Monday, October 13, 2014

SEBI News Contd.


 SEBI’s Interim Measure in an Insider Trading Case
Findings of SEBI’s investigation
- The information relating to the acquisition was a deemed 'price sensitive information' until it was published;

Vaneesa Agrawal

Decoding SEBI’s insider trading rules »


SEBI under CBI Lens

Will SEBI's draconian

powers be curtailed now?

Looking back, ever since the exclusive regulator for stock markets came into being, there have been quite many instances in which its sporadic deeds/ impulsive actions, verging on not merely draconian but dictatorial disposition, have become questionable. That has been so, not merely in the larger public interests and health of the economic activity, but  even on strictly legal grounds. One such instance, as recalled, is when SEBI, blatantly acting in excess of its vested powers, gone ahead in a cavalier fashion to mandate the requirement of PAN for 'demat accounts', going overboard. That was so done dogmatically assuming power it did not have, single handed with no known consultation or deliberation; and without even caring to take a conscious note of what the IT Act, of which PAN is a special creature, itself provides.
Albeit that has now faded into past history, if itching to know the critical viewpoints on that episode, a couple of articles published in Taxmann journal may be read.  




Like critique on certain other
related aspects is to be found on a search of the ICL Blogs, in public domain- TOPIC Sebi AND SAT

Dec 24

Not unrealted THIS >

Flipping gains? Don’t bet on it

SEBI has learnt its lessons and plugged loopholes that were exploited by fly-by-night operators to boost listing prices »


< It was also found that in some companies, the IPO proceeds flowed through many layered transactions into accounts of stock market intermediaries. These intermediaries, in turn, used the funds to manipulate the stock price in the period after listing.>

Nov 21

 SEBI Reforms – Part 1: Insider Trading

Overall, some of the changes are indeed significant, given the mixed success of the present insider trading regime. However, as is usually the case, a lot will lie in the wording of the regulations and their interpretation.

Nov 6

DLF gets tribunal nod to redeem MF investments

SAT allows realtor to do so for serving Rs 1,806-cr loans

<  The realty major has moved SAT against market regulator Securities and Exchange Board of India (Sebi)’s order banning the company from accessing the securities market for three years.
“The order doesn’t stop the company from doing business. It is reasonable to allow the company to redeem mutual fund units as and when necessary,” said J P Devadhar, presiding officer, SAT, on Wednesday. >

SEBI norms and clause 35 of listing agreement don't require promoters to make disclosure of encumbered shares
Neither any regulation of SEBI nor clause 35 of the Listing Agreement casts an obligation on promoter to make disclosures of shares encumbered to listed company. SEBI was not justified in directing listed company to disclose details of shares to stock exchange which were 'otherwise encumbered' by promoter.
a) SEBI imposed penalty upon appellants under Section 23E of the Securities Contract Regulation Act and Section 15HA of the SEBI Act for allegedly violating clause 35 of the Listing Agreement and Regulations 3(d) and 4(2)(f) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
b) Issue raised in appeal was:
Whether a listed Company was required to disclose details of 'otherwise encumbered' shares held by the promoter under clause 35 of the Listing Agreement even though there was no obligation cast upon the promoter to make such disclosures to the listed Company?
The Securities Appellate Tribunal held as under:
1) Since neither any regulation of SEBI nor clause 35 of the Listing Agreement would casts an obligation on the promoter to make disclosure of encumbered shares to the listed Company, and
2) In the absence of such disclosure made by promoter, SEBI was not justified in directing the listed Company to disclose details of shares which were 'otherwise encumbered' by the promoter. Accordingly, penalty imposed by SEBI was to be set aside. – GOLDEN TOBACCO LTD. V. SECURITIES AND EXCHANGE BOARD OF INDIA (2014) 51 51 (SAT - MUMBAI)

 Nov 1


Disclosure of “Encumbrances” on Shares - Indian Corporate ...

< another order involving Golden Tobacco Limited, the SAT ruled against any disclosure requirement on the company to disclose any “encumbrances” on its shares imposed on promoters through the restraint order of an arbitrator. Both these orders involved the interpret..

In Quest of Jnana Vistara>>>>>> » Hill Properties Ltd vs. Union Bank (Supreme ... » Shantikumar D Majithia vs. DCIT (ITAT ... » CIT vs. Devdas Naik (Bombay High Court ...

encumbrance - The Free Dictionary

Understanding the encumbrance certificate - The Hindu

DEFINITION of 'Encumbrance'

< A claim against a property by another party. Encumbrance usually impacts the transferability of the property and can restrict its free use until the encumbrance is removed. The most common instances of an encumbrance occurs in real estate such as an outstanding mortgage or unpaid property taxes. However, encumbrance can also be used in an accounting context to refer to restricted funds inside an account that are to be used only for a specific liability.>

Invocation of pledge by PFI requires disclosure under SEBI regulations....

Oct 31

< NRI investors move SEBI against ICICI Venture

Clause 35 requires the company to disclose to the stock exchange the details of “shares pledged or otherwise encumbered”. On account of such failure, SEBI’s adjudicating officer imposed penalties under section 23E of the Securities Contracts (Regulation) Act, 1956 and section 15HA of the Securities and Exchange Board of India Act, 1992. It is against this order that the company preferred an appeal to SAT. ...
15.       … SEBI has created an anomalous situation, because, promoter/promoter group who have details of shares that are ‘otherwise encumbered’ are not obliged to disclose the same to the listed Company, whereas, listed Companies to whom such details are not furnished by the promoter/promoter group are made to disclose such details to the Stock Exchange. …
In any event, it would be wholly unnecessary to require a disclosure of such matters to the stock exchanges....
The genesis of the requirement to disclose pledge and other encumbrances arose after the Satyam scandal where promoter shares were pledged to financial institutional unbeknownst to the remaining shareholders. The drastic fall of the promoter shares upon invocation of the pledge adversely affected the shareholders. Hence, if a pledge or other encumbrance is likely to result upon invocation in a divestment of promoter share, then that is information worthy of disclosure to the other shareholders. But, in a restraint order or negative covenant, that objective does not even exist. To the contrary, the promoter is unable to sell the shares and exit from the company, which ought to be of additional comfort to shareholders rather than something that shakes the foundations of their trust in the company and its promoters. Although the SAT did not adopt the approach of analyzing these issues and objectives, they are consistent with the ultimate conclusion it arrived at.....

However, the Adjudicating Officer, in the present case, has neither found fault with the order passed in case of Dewan Housing Finance Corporation Ltd. (Supra) nor assigned any reason for taking a view contrary to the view taken therein. Such an attitude on part of the Adjudicating Officer of SEBI deserves to be condemned. View taken by one Adjudicating Officer of SEBI cannot be disregarded by another Adjudication order without assigning any reasons. It is high time that SEBI takes remedial measures and ensure that its Adjudicating Officers respect orders passed by each other. We make it clear, respecting each others order does not mean that even an erroneously order, passed by the Adjudicating Officer must be followed blindly. In such a case, contrary view could be taken by recording reasons for taking such contrary view.

Tentative (leaving open to a detailed study):

On a first reading of the narrated episode, again reading in between lines, more than one point of doubt requiring special attention or consideration (or re- ) are noted to arise:

1.       From the viewpoint of corporate good governance, which as per one’s understanding  is after all the ultimate objective/aim of all such regulations, does it not,  by implication, compulsively mean that  the faulted disclosure requirement , instead of being vetoed, be mandated and made to apply, apart from the company,  primarily to those creating a charge on the shareholding as spoken of, as well?

2.        But for such disclosure, why and how any charge created without the knowledge of the ‘company’ could be legally binding and enforceable/ serve as a defence  against the company  or the rest of the shareholders /stakeholders?

3.       WRT the para. which reads, - “However, the Adjudicating Officer, in the present case, has neither found fault with the order passed in case of Dewan Housing Finance Corporation Ltd. (Supra) nor assigned any reason for taking a view contrary to the view taken therein.... “-

Is not the aspect of serious concern rightly touched upon something which is all the time happening in tax cases, historically but dis- comfortingly , at every stage of assessment/appeal  proceedings, often to the chagrin of taxpayers,; more so, despite the rules / principles of interpretation of ‘law’ enunciated by case law, but remained to be taken a conscious note of and followed e.g. the concept of ‘PRECEDENT’, the maxim “STARE DECISIS”, so on?

But then, there seems to be no effective or foolproof  way even thought of ,so as to be in place,  to ward off such ongoing systemic deficiencies/  failures !


 Sebi order to hit DLF's debt reduction plans

Does not SEBI's Order ostensibly lack in wisdom, just as underscored by the proverbial act sourced from "resentment  in a way that can only cause injury to oneself". To put it  in the familiar words, - "cut off one's nose to spite one's (own) face"?

SEBI, going by the subsequent developments, cannot be regarded to have duly considered the inherent potentials of its Order before passing it. Consequently, the investors ' rights and interests, which the Regulator was supposed to keep in focus and protect and safeguard,  have come to be set at naught , and gravely jeopardized; and, it is not just the share holders , but the whole lot of others , being stakeholders in its comprehensive sense, have been brought to suffer and bear the brunt of it. The point of poser that begs for an upright answer is, whether the regulator could have avoided or obviated such unsavory consequences had it intelligently thought of and diligently resorted to any other possible  alternative course of action, preferably open to it, so that its objective of disciplining  only those individuals targeted by it, and only them none else, has been accomplished? Perhaps, expectantly, the answer, yes or no, from a competent and binding source (of authority) will not be forthcoming in the immediate future. 


The Securities and Exchange Board of India’s decision to bar real estate giant DLF and its top ma... »


Foreign Direct Investment: Trusts as Investment Vehicles

OFFHAND (sharing own thoughts, simply to provoke more on any possible useful lines)

On a first reading, one is tempted to compliment the writer , as a law student in his advanced stage of studies, for the pains taken in embarking on an academic study in a singular way of his own and producing a write-up for the benefit of the lawyers community. The burden of the song is not quite clearly understood. Nonetheless,  the main thrust , as understood (open to correction with an appropriate reasoning , if were considered materially wrong), is seen to be that  for FDI, in order to be assured of protection, 'units', as opposed to 'equity' may prove , in comparison, a better (if not a safer) bet , as a 'trust vehicle'. In the ultimate analysis, however, what ought not to be forgotten is, whatever the law or regulations, be it extant or proposed, the expected fulfillment of trust, even partially, is wholly going to depend upon meeting the criteria, and in turn the attitude and behavior of each and everyone of the homo sapiens, independent of the size of the section of the people,  involving self and thereby becoming a 'vested interest' - in its ideal or other sense.

While on the academic discussion, those really interested may wish and care to look up, among others, a clarification noted to have been lately issued by a 'competent authority' on a connected point (for ready reference- HERE Trust/trustee as a partner in Limited Liability Partnerships (LLPS) - Clarification on TaxGuru (which , as commented, appears to be incomplete and lacking in clarity).
Back to the writer, besides the rest, for a further study, with the hope of more light being thrown on his chosen topic; and if possible, with suggestions for any practical solutions.

Oct 14
Sebi's decision in DLF case is unusually harsh because of the collateral fallout and possible disproportionately large cost to other stakeholders,



click here.

Hit hard by Sebi order, DLF loses Rs 7,500 crore market value
That SEBI ‘s severe  blow against DLF, without bothering to go into right or wrong of it,  has come 7 years after DLF ‘s  IPO and filing of the complaint does not reflect  well on the ‘speed’ of the functioning of the regulator. The prolonging of the entire process, whatever be the reasons, is far too long to be lightly taken.
Going by simplistic common sense, the regulator cannot be said to have acted diligently, for due diligence, after fully weighing the pros and cons of the action, and its inherent harmful potentials; and , after considering and weighing the other  related options preferably  open. For, while the promoters have been barred from raising money via the bourse,  not only the faulted company but also its  public investors who have been made to suffer. As such, the regulator’s role in the episode eventually resulting in a marked market gloom cannot be commended; if at all, from the viewpoint of the investors, besides the other stake holders, deserve to be only ridiculed and condemned.   



Front Page

DLF barred from accessing capital market for 3 years 


DLF had raised Rs 9,187 crore through an initial public offering (IPO) in 2007.

“...the case of active and deliberate suppression of material information to mislead and defraud securities market investors in connection with the issue of shares of DLF in its IPO is clearly made out in this case,” said the Sebi order, dated October 10.

"DLF wishes to reassure its investors and all stakeholders that it has not acted in contravention of law, either during its IPO or otherwise. DLF and its board were guided by and acted on the advise of eminent legal advisors, merchant bankers and audit firms while formulating the offer documents. DLF will defend itself fully against any adverse findings and measures contained in the order passed by Sebi. DLF has full faith in the judicial process and is confident of vindication of its stand in the near future,” the company said.

< BL 

SEBI bars DLF, 6 directors from market for three years

As reported elsewhere in the media, while reassuring its investors and all stakeholders that it has not acted in contravention of law, either during its IPO or otherwise, in defense, it has been claimed that DLF and its board were guided by and acted on the advice of eminent legal advisers, merchant bankers and audit firms while formulating the offer documents.

Should that be , and eventually proved to be, so, then the most intriguing but reprehensible common sense question that consequently arises is this :- Do not anyone or more of those,- under whose expert and eminent advice /guidance the company says to have acted, if established,- are,  jointly and severally,  answerable, hence have to share and  bear the brunt of it all.

Tail piece:

Sebi order on DLF: 10 things to know


Financial Planning


Unless financial experts prove, in measurable terms, the ‘value’ of their advice to investors, and are ready to be held accountable for it, they stand to lose their relevance.

BL (selected ) ON CORPORATE AUDIT (mrl)
  Inspection of audit quality | Business Line 

 Companies Bill needs a relook | Business Line 

From moderator to regulator? | Business Line 

The Hindu Business Line : Thursday, December 25, 2003

Corruption audit direly needed | Business Line

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