(The following post is contributed by Yogesh Chande, an advocate practising in Mumbai)
SEBI’s whole time member in an order dated 26 March 2012 (Order), has revoked the directions which were issued by an interim order dated 8 March 2010 (which has been discussed earlier) against the entities mentioned in paragraph 4 of the Order. One of the issues which required to be examined by the whole time member was a reference received by SEBI from RBI as regards incorrect disclosure made by the erstwhile listed bank (Bank) regarding the shareholding pattern of the promoter group of the Bank.
Interestingly, in paragraph 9 of the Order the SEBI whole time member has observed as follows in relation to the incorrect shareholding of the said entities:
The second issue to be examined is whether any such attempt at camouflaging the real level of share holding by promoters should be considered as a serious, very serious or fatal threat to the securities market. Again, as a baseline, the securities regulations are disclosure based and the securities market regulator does expect that all disclosures should be true and fair. I am of the opinion that such an offence would have been considered as very serious or fatal if the wrongful disclosures would have led genuine investors into trades that would eventually expose them to much greater risk. I have noted that there is no allegation as to any price or volume manipulation by the promoters. Therefore, I am of the opinion that purely from a securities market point of view, the severity of the offence could be considered not very grave.
While there may not be any allegation as to any price or volume manipulation by the promoters, it is possible to argue that an incorrect disclosure of shareholding amounts to indulging in fraudulent and unfair trade practice,[1] thereby misleading the investors and depriving of correct information at the relevant point of time to the shareholders and investors.
The words underlined above could be a possible defence available going forward to companies/promoters in cases where shareholding is incorrect and there is no allegation of any price manipulation, notwithstanding that the incorrect reporting of shareholding was deliberate.
– Yogesh Chande
[1] Section 15HA of the Securities and Exchange Board of India Act, 1992 read with applicable provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003.
this order of SEBI against the promoters of BOR is a precedent violating basic premise on which SEBI was formed i.e."……..promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto"
Reaction:
Imponderables / Points requiring a ‘very grave’ but in-depth consideration:
1. In his wisdom, the whole time member is, it may be noted, has couched /clothed his ‘opinion’ in the safest language possible; to be precise, for a ready perception, the words/terms highlighted in caps. may help:
The second issue to be examined is whether any such attempt at camouflaging the real level of share holding by promoters should be considered AS A SERIOUS, VERY SERIOUS OR FATAL THREAT TO THE SECURITIES MARKET. Again, AS A BASELINE, the securities regulations are disclosure based and the securities market regulator does expect that all disclosures should be TRUE AND FAIR. I AM OF THE OPINION that such an offence would have been considered as very serious or fatal if the wrongful disclosures would have led genuine investors into trades that would eventually expose them to MUCH GREATER risk. I have noted that there is no allegation as to any price or volume manipulation by the promoters. THEREFORE, I AM of the opinion that PURELY FROM A SECURITIES MARKET POINT OF VIEW, the severity of the offence could be considered NOT VERY GRAVE.
2. The term ‘TRUE AND FAIR’, likely to sound familiar, as it is a term used/adopted for ages even for so-believed more serious matters such as, for a statutory auditor in his reporting, of an onerous nature, on the ‘audited final accounts’ of a corporate under the company law. May be, looking back, it was CONSIDERED a fair or very fair usage; in that, the word ‘fair’ USED IN CONJUNCTION WITH. -FOLLOWING A COMPARATIVELY MEANINGFUL/CARRYING CONVICTION,-WORD ‘TRUE’ was adequate or ‘fail (or full) proof enough to suit those times; that is, when concept of ‘fair’ used to be construed, and taken for granted, in its profound sense.
In our 'changed' times, however, the point of grave concern requiring a soulful examination is that – how fair it is fair to any longer continue with the selfsame usage; knowing full well that its true significance has faded into insignificance/oblivion since long.
3. Is, at all, the impression given to the effect that the whole- time member’s individual opinion will have the effect of ‘revoking’ the earlier order wholly correct; so as to be legally regarded as the ‘final’ word in the matter?
strange order. on the other hand sebi goes against companies for minor delays in filing of disclosures, esp under sast etc.