BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved on: 13.03.2019 Date of Decision : 29.03.2019 Appeal No. 130 of 2017 Corporate Strategic Allianz Ltd. 101, Prerak Apartment, 61, Pritamnagar, Near Hope Hospital, Ellisbridge, Ahmedabad – 380 006. ….. Appellant Versus Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051. …… Respondent Mr. Deepak R. Shah, Advocate for the Appellant. Mr. Karan Bhosale, Advocate with Mr. Shantanu Mitra and Mr. Nishant Upadhyay, Advocates i/b Desai & Diwanji for the Respondent. CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Per : Justice Tarun Agarwala, Presiding Officer

1. The present appeal is filed against the order of the

Adjudicating Officer (‘AO’ for short) of Securities and Exchange Board of India (‘SEBI’) dated February 22, 2017 passed under Section 15-I of the SEBI Act, 1992 read with Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (“SEBI Adjudication Rules” for short).

2. The facts leading to filing of the appeal is, that the

appellant is a Merchant Banker and was the Lead Manager of two IPO issues in Amrapali Capital and Finance Services Ltd. (‘ACFL’ for short) and ACE Tours Worldwide Ltd. (‘ATWL’ for short). An inspection team of SEBI examined whether the appellant acting as a Lead Manager to the issue had exercised due diligence in the prospectus of issue of shares of ACFL and ATWL. Based on the inspection, a show cause notice (SCN) was issued indicating that the Merchant Banker had not disclosed on their website the track record of performance of public issues managed by them and therefore violated clause 4 of the circular of SEBI dated January 10, 2012. It was also indicated in the SCN that the figures relating to intangible assets were disclosed as “Fixed Assets” in the offer document whereas such intangible assets should have been shown as revenue expenses, since prepaid expenses towards advertisement should not be booked as intangible assets. The SCN alleged that the prospectus was not in compliance with clause 4, 6 and 7 of Schedule III of SEBI (Merchant Banker) Regulations, 1992 and Regulation 57(1) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. The appellant was thus called upon to show cause as to why an enquiry should not be held in terms of Rule 4 of SEBI Adjudication Rules and why a penalty should not be imposed under Section 15 HB of SEBI Act, 1992.

3. Pursuant to the reply submitted by the appellant and

after giving an opportunity of hearing the AO found that the appellant had failed to exercise due diligence and care in execution of his role as a Lead Manger to the issue and accordingly imposed a penalty of Rs. 5 lakh for non- disclosure of the reference to web link and Rs. 10 lakh for accounting of prepaid advertisement expenses as intangible assets under the head “Fixed Assets”.

4. We have heard Shri Deepak Shah, learned counsel for

the appellant. The basic contention of the appellant as reflected in the impugned order is that the prospectus of ACFL was required to contain a reference to its website of the Merchant Banker where post issue performance of the public issue managed by it was disclosed. He stated that though the web link was not specifically given the prospectus contained the website name. However, the AO found that clause 4 of the circular dated January 10, 2012 was not adhered to.

5. In order to appreciate the submissions made by the

learned counsel for the appellant, it would be essential to take a look at the Circular dated January 10, 2012. For facility the said Circular is extracted hereunder:- “SEBI regulations require that the offer document shall contain adequate disclosures so as to enable investors to take well informed investment decisions. Further, a merchant banker is required to exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosures in the offer documents. Therefore, it is necessary for investors to evaluate the post-issue performance of the issuer in terms of disclosures made in the offer documents. This will also enable them to understand the level of due diligence exercised by the merchant bankers. In view of the above, it has now been decided in consultation with the merchant bankers that they shall disclose the track record of the performance of the public issues managed by them. The track record shall be disclosed for a period of three financial years from the date of listing for each public issue managed by the merchant banker. The format for disclosure of track record is given in the Annexure to this circular. The track record shall be disclosed on the website of the merchant banker and a reference to this effect shall be made in the offer documents of public issues managed in the future. In case more than one merchant banker is associated with a public issue, all merchant bankers who have signed the due diligence certificate, as disclosed in the offer document, shall disclose the track record.”

6. The circular indicates that the Merchant Banker shall

disclose its track record of the performance of the public issues managed by it for a period of three financial years in the format prescribed in the prospectus. It further provides that the track record shall also be disclosed on the website of the Merchant Banker and reference to this effect shall also be made in the offer document.

7. In the instant case, admittedly the requisite disclosure of

the track record of performance of the public issue managed by the appellant was disclosed in the offer document, namely, the prospectus. It is also admitted that the same information was also disclosed on the website of the Merchant Banker. The website was also indicated in the prospectus. What was not shown in the prospectus was reference of the track record made in the offer document to be seen on the website and on that basis a finding has been given by the AO that the appellant did not exercise due diligence nor ensured proper care and thus violated the Code of Conduct for Merchant Banker and was, therefore, liable for penalty.

8. In our opinion, the imposition of penalty on this aspect

is patently erroneous. The import of the Circular is that the track record of the performance of the public issue managed by the Merchant Banker should be disclosed not only in the prospectus but also on the website of the Merchant Banker. The Circular also provides that the web link also be indicated in the prospectus. All the three ingredients are present in the instant case. Merely because a reference of the track record to be linked to the website was not specifically written in the prospectus will not violate the Circular. What is required to be seen is whether there has been substantial compliance of the Circular which is the instant case. Consequently, the non-linking of the track record as shown in the offer document on the website could at best be an inadvertent error for which no penalty could be imposed. Thus, the imposition of penalty by the AO on this score is incorrect and not justifiable.

9. On the issue of “Intangible Assets” we find that the

Company had entered into an agreement with Bennett Coleman & Co. Ltd. for advertisement for the purpose of enhancing the brand value of the Company. The Company and the Auditors of the Company were of the view that such expenditure which has a long lasting effect would help in the growth of the business of the Company and, therefore, the expenditure incurred for such brand building is an intangible assets and accordingly indicated the prepaid advertisement expenses as an intangible assets under the head “Fixed Assets”. The AO was of the opinion that such information disclosed as an intangible assets under the head “Fixed Assets” was not in conformity with the accounting policies and that it should have been shown as a revenue expenditure under the head profit and loss account and consequently came to the conclusion that a distorted state of affairs of the Company was shown and therefore the Merchant Banker did not exercise due diligence.

10. In our opinion, the AO has travelled beyond his brief

and jurisdiction. The balance sheet has been duly audited by the Statutory Auditors and accepted by the Income Tax Authorities. It is not open to the AO to question the entries in the balance sheet. The AO is not an expert to juggle the accounting figures and hold as to which entry should come under “Fixed Assets” or under the “Revenue Expenditure”. The Merchant Banker has only disclosed what the balance sheet was showing for which purpose the Merchant Banker cannot be found at fault. Consequently on this score the imposition of penalty was patently misconceived and cannot be sustained.

11. In the light of the aforesaid, the impugned order cannot

be sustained and is quashed. The appeal is allowed. In the facts and circumstances of the case, there shall be no order on costs. Sd/- Justice Tarun Agarwala Presiding Officer Sd/- Dr. C.K.G. Nair Member 29.03.2019 Prepared and compared by:msb