N Narayanan vs Adjudicating Officer, Sebi

3. The appellant was the promoter as well as a whole time Director of M/s Pyramid Saimira Theatre Limited (PSTL), a company registered under the Companies Act, 1956. The shares of PSTL were listed on Bombay Stock Exchange Ltd. (BSE) and National Stock Exchange (NSE) at the relevant time. The company was involved in the business of Exhibition (Theatre), Film and Television, Content Production, Distribution, Hospitality, Food & Beverage, Animation and Gaming and Cine Advertising etc. The company had nine Directors, including the appellant herein. The investigation department of SEBI noticed that the company had committed serious irregularities in its books of accounts and showed inflated profits and revenues in the financial statements and lured the general public to invest in the shares of the company based on such false financial statements thereby violated the provisions of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003 (for short ‘Regulations 2003’). Consequently, a notice was issued to the appellant and to the other Directors stating that they had violated Section 12A of SEBI Act and Regulation 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e), 4(2)(f), 4(2)(k), 4(2)(r) of Regulations 2003 and were directed to show cause why appropriate directions as deemed fit and proper under Sections 11, 11B and 11(4) of the SEBI Act read with Regulation 11 of Regulations 2003 be not issued against them.

6. On facts, the officer found that all the above-mentioned violations had been established. Consequently, the Whole Time Member (WTM) of SEBI, in exercise of powers conferred under Section 19 of the SEBI, held that the Directors were found guilty for the violation of Section 12A of SEBI Act, 1992 and Regulation 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e), 4(2)(f), 4(2)(k), 4(2)(r) of the Regulations 2003. WTM of SEBI then, in exercise of the powers conferred on him under Section 19 read with Sections 11, 11B and 11(4) of the SEBI Act and Regulation 11 of Regulations 2003, passed an order restraining the appellant and other Directors for a period of two years and three years respectively from buying, selling or dealing in securities in any manner whatsoever or accessing the securities market directly or indirectly and from being Director of any listed company.

7. The Adjudicating Officer also held that the appellant and others have violated the provisions of Section 12A of SEBI Act and Regulation 3(b), 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e), 4(2)(f), 4(2)(k), 4(2)(r) of Regulations 2003 and took the view that the appellant and other Directors are liable for monetary penalty under Section 15HA of SEBI Act whereby a penalty of 50 lacs was imposed on the appellant.

12. The quarterly unaudited financial results of the company for the quarter ended 31st March 2007 to the quarter ended 31st March 2009 shows the following details:

17. On theatre income of Rs. 303.46 crore from Tamil Nadu region included consolidated credit entries of Rs.244 crore with corresponding consolidated debits ‘Theatre Collections Receivable Account’. The account did not show any income from April 2008 onwards. The journal vouchers in respect of those entries did not carry any such narration such as daily collection report number, name of theatre etc. The receivables were adjusted against cost of content, transferred to advance/security deposit account or remained unrealized. As on March 31, 2008, the total receivables of the company from Tamil Nadu region were Rs. 38.58 crore. Out of that, Rs.2.19 crore was outstanding against 162 theatres and the balance Rs. 36.39 crore outstanding in one account only which did not contain the theatre wise break up. Further it was also noticed that the entire amount of Rs.75 crore from own theatres in Andhra Pradesh was accounted by single journal voucher which did not have any other supporting documents in support of those consolidated entries or journal vouchers, despite assurance to provide the same. Those facts lead the SEBI to conclude that those revenues disclosed inflated figures in its annual report for 2007-08 and thereby misled the investors.

Corporate Governance and Directors

Securities Market – Market abuse

Disclosure and Transparency:

42. Above being the factual and legal position, we are of the view that the SEBI has rightly restrained the appellant for a period of two years from the date of that order from buying, selling or dealing with any securities, in any manner, or accessing the securities market, directly or indirectly and from being Director of any listed company and that the adjudicating officer has rightly imposed a penalty of Rs.50 lakhs under Section 15HA of SEBI Act. The appeals are, therefore, dismissed. However, there will be no order as to costs.

A word of caution: