SAT dismisses appeal against SEBI order penalising a company for mis-utilizing IPO proceeds

The Securities Appellate Tribunal (SAT) at Mumbai upheld an order of the Securities and Exchange Board of India (SEBI) which penalised Tarini International and its directors for having mis-utilized proceeds of its Initial Public Offering (IPO). [Tarini International Ltd & Ors v. SEBI].The allegations against the company were that it diverted the IPO proceeds by resorting to unfair means behind the back of the investors and violated the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations (ICDR Regulations).The Bench of Presiding Officer Justice Tarun Agarwala and Judicial Member Justice MT Joshi found no infirmities in the reasoning of SEBI.“Considering all the above facts which clearly prove that the appellant Tarini and its directors i.e. the other appellants have mis-utilized the IPO proceeds, we do not find any infirmity in the impugned order,” the Bench held dismissing the appeals..In 2014, the company issued a prospectus for an IPO in the Small and Medium Enterprise segment in a public issue of 39,78,000 equity shares of the face value of ₹10 each, at a price of ₹41 per share, aggregating to ₹16,30,98,000.SEBI conducted an investigation on the basis of some complaints questioning whether or not the IPO proceeds were properly utilized.In the course of investigation, prima facie, it found that approximately ₹15.40 crore was not utilized by Tarini for the object as stated in the prospectus. The same amount was diverted to various group companies and other entities..SEBI found that Tarini had furnished details of ₹7.94 crore, which was transferred by it mostly to various group entities on the ground of need of working capital. It was, however, found that these funds were used by these group entities for transfer to third parties which had purchased the shares of the company.It was, therefore, concluded that Tarini used proceeds of the IPO for buying its own shares by using conduits in violation of the stated objects of the IPO.The Whole Time Member (WTM) at SEBI directed Tarini to bring back the amount diverted to group entities alongwith interest. Tarini was also restrained from accessing the securities market for a period of four years.Penalties ranging from ₹5 lakh to ₹5 crore were also imposed on the company and its directors.Aggrieved by this order, Tarini approached SAT seeking quashing of the order..Senior Advocate JP Sen with Advocates Vaibhav Ghogre and Govind Solanke appeared for Tarini.Senior Advocate Kevic Setalvad with Advocates Manish Chhangani, Ravi Shekar Pandey and Samreen Fatima, briefed by The Law Point, appeared for SEBI..[Read order]