Case: Securities &amp; Exch.Board Of India Vs. M/S Informetics Valuation &amp; Rating P.Ltd

scope under the regulations for the time to be extended any further. The information sought must be in relation to the five years preceding the date of the application. In this view of the matter, we are of the opinion that the directions issued by the SAT that the Board could not have directed the respondent to produce the Audited Accounts for the two years beyond the date of the application, are in consonance with the provisions of the regulations. Under Regulation 7, the Board would have the power to seek further information or clarification for the purpose of processing of the application. This further information would relate only to the basic information with regard to the Audited Accounts for the five years preceding the date of the application. Therefore, the observations made by SAT as noticed above are perfectly justified. 25. This now brings us to the final submission made by Mr. C.U. Singh that the Board was within its power to ask for the Audited Accounts of the applicant for the 5 years preceding the date of the application. It is true that under Regulation 4(e), an applicant has to show that it has continuous net worth of minimum Rs.100 crores as per its Audited Annual Accounts for the previous five years prior to the filing of the application with the Board. Clause 2 of Form A provides the “Eligibility Criteria”. Under Clause 2(1), the applicant has to indicate the category to which the promoters of the applicant company belong under Regulation 4, which in this case was 4(e). Clause 2(3) provides that the applicant shall “enclose a Chartered Accountant’s certificate certifying the continuous net worth of Rs.100 crores for five years, in case the promoter referred to in Regulation 4(e)”. As noticed above, Regulation 4(e) postulates that the proof of net worth on the basis of the audited accounts for five years prior to the filing of the application has to be given. It is not disputed before us that the applicant has submitted the Chartered Accountant’s certificate certifying the continuous net worth of Rs.100 crores for five years on the basis of M/s. Coment (Mauritius) Limited bankers certificate. It is noticed by the SAT in the impugned order that the certificate was accepted by the Board and no clarification was sought from the respondent in regard to the certificate furnished by the Chartered Accountant. Mr. C.U. Singh submitted that the certificate submitted by the Chartered Accountant was issued on the basis of the certificate of ING Private bank dated 29th May, 2009 confirming that M/s. Coment (Mauritius) Limited had a continued net worth of over Rs.100 crores as per its Annual Accounts for the previous five years. It is not certified on the basis of the Audited Accounts, therefore, the certificate did not satisfy the requirements under the regulations. 26. We are of the opinion that the submission made by Mr. C.U. Singh has substance and cannot be brushed aside. The certificate actually provided by the Chartered Accountants is as under:- “NET WORTH CERTIFICATEWe certify that for previous five years continuous Net worth of M/s. Coment (Mauritius) Limited, Les Cascade Building, Edith Cavell Street, Port Louis, Mauritius is over Rs.100 crores (Rupees One Hundred Crores).The above information is given in strictest confidence at the request of our client for the purpose of filing application before Securities and Exchange Board of India.FOR M/S RAJNISH & ASSOCIATESCHARTERED ACCOUNTANTSCertified True CopySd/-(PARTNER)Place : New Delhi Membership No. 081180Date: 29.05.2009” 27. We are satisfied that the aforesaid certificate did not conform to the provisions contained in the regulations which requires that the certificate of the Chartered Accountant should be in confirmation of the Audited Accounts of the promoters/applicant for the five years preceding the date of the application. We are unable to approve the observations made by SAT that “neither the regulations nor the eligibility criteria in Form A requires the applicant to produce the annual accounts of the promoter.” We are also unable to approve the observations of SAT that “it is doubtful whether the Board could have asked for this information without doubting the veracity or the correctness of the certificate of the Chartered Accountant that accompanied the application.” The certificate of the Chartered Accountant is evidence of the required net worth of the promoter. Therefore, it has to be in strict conformity with Regulation 4(e). Since the certificate issued by the Chartered Accountants did not categorically state that it is based on the audited accounts for the 5 years preceding the date of application, the Board certainly had the power to direct the respondent to produce the audited accounts. That being so, under Regulation 6, it was the duty of the Board to have rejected the application of the respondent.28. Surprisingly, however, the Board continued to grant further time to the respondent to remove the objections even beyond the maximum sixty days permissible under the proviso to Regulation 6. It appears that the enquiries continued from 20th August, 2009 till March 1, 2011 when the show cause notice was issued to the respondent. The application of the respondent is not rejected till 21st July, 2011. The delay in the rejection of the application of the respondent was wholly unwarranted. It allowed the respondent a latitude not permissible under the regulations. Taking advantage of this latitude, the respondent has provided the Audited Accounts for the five years preceding the date of application. Not only this, we are informed that by now the respondent has even produced before this Court in a sealed cover the Audited Accounts of M/s. Coment (Mauritius) Limited for the subsequent two years upto 31st December, 2010 also.29. Since the Board had extended the time to the respondent, even though not permissible in law, we are not inclined to modify the directions issued by the SAT. Especially in view of the submission of Mr. Suri that respondent is willing at this stage to produce the Audited Accounts of the promoter even for the subsequent two years.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]27. We are satisfied that the aforesaid certificate did not conform to the provisions contained in the regulations which requires that the certificate of the Chartered Accountant should be in confirmation of the Audited Accounts of the promoters/applicant for the five years preceding the date of the application. We are unable to approve the observations made by SAT thatthe regulations nor the eligibility criteria in Form A requires the applicant to produce the annual accounts of theWe are also unable to approve the observations of SAT thatis doubtful whether the Board could have asked for this information without doubting the veracity or the correctness of the certificate of the Chartered Accountant that accompanied theThe certificate of the Chartered Accountant is evidence of the required net worth of the promoter. Therefore, it has to be in strict conformity with Regulation 4(e). Since the certificate issued by the Chartered Accountants did not categorically state that it is based on the audited accounts for the 5 years preceding the date of application, the Board certainly had the power to direct the respondent to produce the audited accounts. That being so, under Regulation 6, it was the duty of the Board to have rejected the application of the respondent.28. Surprisingly, however, the Board continued to grant further time to the respondent to remove the objections even beyond the maximum sixty days permissible under the proviso to Regulation 6. It appears that the enquiries continued from 20th August, 2009 till March 1, 2011 when the show cause notice was issued to the respondent. The application of the respondent is not rejected till 21st July, 2011. The delay in the rejection of the application of the respondent was wholly unwarranted. It allowed the respondent a latitude not permissible under the regulations. Taking advantage of this latitude, the respondent has provided the Audited Accounts for the five years preceding the date of application. Not only this, we are informed that by now the respondent has even produced before this Court in a sealed cover the Audited Accounts of M/s. Coment (Mauritius) Limited for the subsequent two years upto 31st December, 2010 also.29. Since the Board had extended the time to the respondent, even though not permissible in law, we are not inclined to modify the directions issued by the SAT. Especially in view of the submission of Mr. Suri that respondent is willing at this stage to produce the Audited Accounts of the promoter even for the subsequent two years.