| The Tax Publishers 2022 TaxPub(CL) 2838 (SAT- Mum) : (2022) 173 SCL 0578 SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992
Section 15HA Section 81
Shareholders ratified utilization of proceeds of preferential issue, which was in variance to original object of preferential issue, therefore, acts and deeds done by company became valid, neither there was any variance in utilization of the proceeds nor there was violation of Listing Agreement, order of penalty was quashed.
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Penalty for fraudulent and unfair trade practices - Appeal against imposition of penalty for non-utilisation of proceeds of preferential issue as per EOGM - Utilization of proceeds ratified by shareholders - Whether there is any variance in utilization of proceeds or there is violation of Listing Agreement
Company proposed utilization of proceeds of preferential issue in respect of capital expenditure, setting up offices and funding long terms working capital requirements in Extra Ordinary General Meeting (EOGM). Therefore, the company made a preferential issue in accordance with a Special Resolution passed under section 81(1A) of the Companies Act, 1956. However, the proceeds were utilized by the company for other purposes. Therefore, a special resolution was passed in Annual General Meeting, wherein utilization of the proceeds were ratified, which was in variance to original object of the preferential issue. AO imposed penalty under section 15HA of SEBI Act upon the company, as the variance so made between projected utilization of funds and actual utilization of funds was not disclosed under clause 43 of the Listing Agreement. The company filed an appeal against the order on the ground that there was no violation of the Listing Agreement. Held: Once the utilization of the proceeds have been ratified by shareholders of the company, acts and deeds done by the company becomes valid and authorized and therefore, there was no variation of the utilization of the proceeds. Since the utilization of the proceeds have been ratified, there was no variance in the utilization of the proceeds and consequently there was no violation of clause 43 of the Listing Agreement. Thus, the orders passed by the AO could not be sustained and were quashed.
Distinguished to:Ajay Jain v. Registrar of Companies NCT of Delhi & Haryana 2010 (119) DRJ 545; Dr. A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India AIR 1963 SC 1185
REFERRED : National Institute of Technology v. Pannalal Choudhary (2015) 11 SCC 669
FAVOUR : In favour of appellant
A.Y. :
IN THE SECURITIES APPELLATE TRIBUNAL, MUMBAI BENCH
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