SAT imposes Penalty for Non-Appointment of CS & Independent Directors

Advance Lifestyles Limited Vs BSE Limited (Securities Appellate Tribunal) Appellant made a representation to the authorities requesting for waiver / reduction of the penalty contending that for not appointing the Company Secretary and two independent directors on the Board / audit committee, the penalty may be waived under the exceptional circumstances as carved out in the circular dated May 3, 2018. The representation was rejected and the appellant was directed to deposit a penalty of Rs. 20,40,000/-. Having heard the learned counsel for the parties, we find that admittedly, the appellant has violated various provisions of the Listing Regulations. The limited prayer made before us was that due to unforeseen events, the stock exchange should have taken the events as a mitigating factor to waive or reduce the quantum of penalty. In this regard, taxguru.in we find that the exceptions carved out in the circular dated May 3, 2018 relates to certain events which in the instant case was not existing. Further, we find that there no justification or any reason has been given as to why a Company Secretary and the two independent directors could not be appointed. In the absence of any cogent reasons, we do not find any justification to reduce the quantum of penalty. FULL TEXT OF THE SECURITIES APPELLATE TRIBUNAL MUMBAI 1. For the reasons stated in the application, the delay in filing the appeal is condoned. Appeal No. 531 of 2019 1. The present appeal has been filed against the order of Bombay Stock Exchange Limited (hereinafter referred to as, ‘BSE’) dated August 19, 2019 and October 7, 2019 whereby a total penalty of Rs. 20,40,000/- has been imposed for non compliance of various provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as, ‘Listing Regulations’). 2. The facts leading to the filing of the present appeal is, that the appellant is a public listed company and have more than 6800 shareholders. Under the Listing Regulations, the appellant was required to comply with various provisions and upon failure penalties could be imposed for non-compliance. In this regard, SEBI issued a circular dated May 3, 2018 known as taxguru.in “Standard Operating Procedure” which streamlined the process and adopted an uniform approach in the matter of levy of fines for non-compliance of certain provisions of the Listing Regulations. The said circular also provided a discretion to the stock exchange to deviate from the circular dated May 3, 2018 under exceptional circumstances only after recording reasons in writing. Thus, flexibility and discretion was provided to the stock exchange for levying penalties for non-compliance of the Listing Regulations. 3. The exceptional circumstances indicated a list of events which could be considered by the stock exchange for waiving or reducing the quantum of penalty. The exceptional events were natural calamity, seizure of books / computers by regulatory / statutory authorities, the compliances not approved by the Board, directions issued by the Court / regulator which prevented from making the requisite disclosure and accidental damage. 4. The appellants made the following violations of the Listing Regulations - Regulation Details Fine 31 Shareholding Pattern 1000 33 Financial results 35000 27(2) Corporate Governance Report 1000 27(2) Corporate Governance Report 22000 34 Annual Report 10000 13(3) Adequate steps for investor complaints 29000 44 Voting rights 10000 17(1) Composition of BOD including appointment of woman Director 460000 17(1) Composition of BOD including appointment of woman Director 460000 18(1) Constitution of Audit Committee 184000 18(1) Constitution of Audit Committee 184000 19(1)/19(2) Constitution of nomination and remuneration Committee 184000 20(2) Constitution of Stakeholder relationship Committee 184000 20(2) Constitution of Stakeholder relationship Committee 184000 6(1) Appointment of qualified CS as Compliance Officer 92000 Total Basic Fine 20,40,000 5. The first seven violations as indicated aforesaid were complied by the appellant but the remaining violations have not been complied till date and the violation is continuing till date. In this regard, the appellant made a representation to the authorities requesting for waiver / reduction of the penalty contending that for not appointing the Company Secretary and two independent directors on the Board / audit committee, the penalty may be waived under the exceptional circumstances as carved out in the circular dated May 3, 2018. The representation was rejected and the appellant was directed to deposit a penalty of Rs. 20,40,000/-. 6. Having heard the learned counsel for the parties, we find that admittedly, the appellant has violated various provisions of the Listing Regulations. The limited prayer made before us was that due to unforeseen events, the stock exchange should have taken the events as a mitigating factor to waive or reduce the quantum of penalty. In this regard, taxguru.in we find that the exceptions carved out in the circular dated May 3, 2018 relates to certain events which in the instant case was not existing. Further, we find that there no justification or any reason has been given as to why a Company Secretary and the two independent directors could not be appointed. In the absence of any cogent reasons, we do not find any justification to reduce the quantum of penalty. 7. For the reasons stated aforesaid, we do not find any merit in the appeal. Dismissed.