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BEFORE THE SECURITIES APPELLATE TRIBUNALMUMBAIOrder Reserved On: 23.10.2019Date of Decision : 14.11.2019Misc. Application No. 381 of 2016AndAppeal No. 223 of 2016Electrosteel Steels Ltd.801, Uma Shanti Apartments,Kanke Road,Ranchi- 834 008Jharkhand AppellantVersusSecurities and Exchange Board of India,SEBI Bhavan, Plot No. C-4A, G-Block,Bandra-Kurla Complex, Bandra (East),Mumbai - 400 051 RespondentMr. P.N. Modi, Senior Advocate with Mr. Neville Lashkari,Ms. Tushna Thapliyal and Mr. Manish Chhangani, Advocatesi/b Khaitan & Co. for the Appellant.Mr. Vikram Nankani, Senior Advocate with Mr. AnubhavGhosh, Advocate i/b The Law Point for the Respondent.WITHMisc. Application No. 382 of 2016AndAppeal No. 224 of 2016Electrosteel Castings Ltd.Rajgangapur, DistrictSundargarh,Orissa AppellantVersusSecurities and Exchange Board of India,SEBI Bhavan, Plot No. C-4A, G-Block,Bandra-Kurla Complex, Bandra (East),Mumbai - 400 051 Respondent
2Mr. Sagar Ghogre, Advocate with Mr. Aditya Khanna,Advocate for the Appellant.Mr. Vikram Nankani, Senior Advocate with Mr. AnubhavGhosh, Advocate i/b The Law Point for the Respondent.WITHMisc. Application No. 144 of 2016AndAppeal No. 202 of 20161. Edelweiss Financial Services LimitedEdelweiss House, Off C.S.T. Road,Kalina,Mumbai-400 0982. Axis Capital Limited1st Floor, Axis House,C-2, Wadia International Centre,PB Marg, Worli,Mumbai- 400 0253. SBI Capital Markets Ltd.202, Maker Tower ‘E’, Cuffe Parade,Mumbai- 400 005 AppellantsVersusSecurities and Exchange Board of India,SEBI Bhavan, Plot No. C-4A, G-Block,Bandra-Kurla Complex, Bandra (East),Mumbai - 400 051 RespondentMr. Somasekhar Sundaresan, Advocate with Ms. Aashni Dalaland Mr. Siddhesh S. Pradhan, Advocates i/b J. Sagar Associatesfor Appellants.Mr. Vikram Nankani, Senior Advocate with Mr. AnubhavGhosh, Advocate i/b The Law Point for the Respondent.CORAM: Justice Tarun Agarwala, Presiding OfficerDr. C.K.G. Nair, MemberJustice M. T. Joshi, Judicial Member
3Per: Dr. C.K.G. Nair1.These three appeals are filed challenging the order of theAdjudicating Officer (“AO” for convenience) of the Securitiesand Exchange Board of India (“SEBI” for convenience) datedMarch 31, 2016. By the said order a penalty of 1 crore hasbeen imposed on M/s Electrosteel Limited (“ESL” forconvenience; Appellant in Appeal No. 223 of 2016) forviolation of Regulation 57(1) and Regulation 57(2)(a)(ii) of tions”). Further a penalty of 1 crore has been imposedjointly and severally on three Merchant Bankers (Appellants inAppeal No. 202 of 2016) for violation of Regulation 57(1),Regulation 57(2)(a)(ii) and Regulation 64(1) of the ICDRRegulations and Regulation 13 of SEBI (Merchant Bankers)Regulations, 1992 (hereinafter referred to as “Merchant BankersRegulations”). Similarly, a penalty of 50 lakh each has beenimposed on M/s Electrosteel Castings Limited (“ECL” forconvenience; Appellant in Appeal No. 224 of 2016) underSection 23A(a) and 23E of the Securities Contract (Regulation)Act, 1956 (“SCRA” for convenience) for violation of Clause 36of the Listing Agreement.Since, the impugned order iscommon to all these appeals, by consent of parties the appeals
4are heard together and decided by this common order, takingAppeal No. 223 of 2016 as the lead matter.2.The substantive question raised in these appeals is whethernon-disclosure of the ‘rejection’ of Forest Clearance (“FC” forconvenience) by the Ministry of Environment and Forests(“MoEF” for convenience) on an application for iron ore miningfiled by ECL was material to an Initial Public Offer (“IPO” forconvenience) made by ESL and for disclosure under Clause 36of the Listing Agreement for ECL.3.ECL is the parent company of ESL; while the former is inthe business of manufacturing cast iron pipes the later ismanufacturing various types of steels. Iron ore is a core rawmaterial/ input in their manufacturing process and therefore fortheir overall business. For the said application made by ECLfor project clearance, various clearances were required forobtaining iron ore mining blocks in the Kodalibad ReserveForest, West Singhbhum District of Jharkhand.Appeal No. 223 of 20164.Facts relevant are as follows:a)Following a Memorandum of Understanding(“MoU” for convenience) between ECL and
5Government of Jharkhand for setting up asteel manufacturing plant, ECL promoted theappellant-company ESL in December 2006.b)On January 20, 2007 ECL made a proposal totheForestDepartment,GovernmentofJharkhand for diversion of forest land atKodolibad for mining.c)OnApril17,2008GovernmentofJharkhand forwarded the said proposal toMoEF, Government of India for approval.d)On July 21, 2008 ECL agreed to supply ironore (and coking coal) to ESL on a cost plustwenty percent basis for 20 years from the dateof commencement of commercial al Committee of MoEF tal clearance subject to obtainingWild Life Clearance, since the project was inan Elephant Reserve.f)On October 04, 2008 (later on November 11,2008 clarified that the date of the said letter isNovember 04, 2008) FC Division of MoEFwrote to the Principal Secretary (Forest),Government of Jharkhandcommunicatingrejection of the said proposal by the Forest
6Advisory Committee (“FAC”)ofMoEF.Operational part of this communication isreproduced below:“After discussing the proposal indetail, the FAC rejected the proposalon account of being part of core zone ofSinghbhumElephantReserveandcritical to wildlife conservation whichalso desired that the State Governmentto submit a detailed report on thepresent status of other four mineslocated in the core of SinghbhumElephantReserve.However,theGovernment will be at liberty to requestfor reconsideration of the proposal asper guideline (ii)In view of the above, I am furtherdirected to request you to kindly submita detailed report on the present statusof all four other mines located in thecore of Singhbhum Elephant Reserve.”g)On January 16, 2009, the MoEF wrote toECL, conveying rejection of the proposal forenvironmental clearancefortheprojectproposed by ECL, consequent to the advice ofthe FAC dated October2008.04/November04,
7h)On July 10, 2009 Jharkhand Government hasrequested MoEF to reconsider the matter andsought approval for the said project.i)The matter was further taken up by ECL onJuly 24, 2009 and by Government of Jharkhandon September 18, 2009 etc.j)On March 25, 2010 the appellant filed a DraftRed Herring Prospectus (“DRHP”) for the IPOwith SEBI.k)Subsequent correspondence in the matter ofclearance for the said mining project by MoEFto Government of Jharkhand on May 03, 2010;ECL to the Prime Minister on July 13, 2010;by Ministry of Steel, Government of India toMoEF on July 23, 2010; by Ministry of Steel,Government of India to MoEF on July 23,2010; by office of the Prime Ministerforwarding a copy of the reply to a VIPreference to MoEF “for its considerationand appropriate action most expeditiously” etc.l)On September 11, 2010 the appellant filed theRed Herring Prospectus (“RHP”) with SEBI.OnSeptember 21, 2010 IPO opened andclosed on September 24,m)2010.On February 04, 2012 MoEF approveddiversion of forest land for the said project andonFebruary13,2012an“in-principle
8approval” was communicated by MoEF toPrincipal Secretary (Forest), Government ofJharkhant) subject to a detailed set of 29conditions.n)Following the complaints received by SEBIsince 2011, in March/April 2013 SEBI soughtdetails from the Appellant, the MerchantBankers and ECL (all appellants in threeappeals) to explain why rejection of ForestClearance was not expressly disclosed in theprospectus filed by the appellant on September11, 2010.o)On September 20, 2013 a show cause noticewas issued to the appellants stating thatrejection of forest clearance ought to have beendisclosed in the Prospectus as well as to ng filing of reply by the appellant(s)and personal hearing, written submissions etc.and after seeking several further clarificationsat various dates from all the appellants inthese appeals and after providing ons etc. the impugned order waspassed on March 31, 2016 imposing the statedpenalties on the appellants for the statedviolations.
95.Learned senior counsel Shri P.N. Modi, appearing onbehalf of the appellant ESL, vehemently argued that MoEF hadnever rejected the Forest Clearance; rather the application wasalways under consideration/ reconsideration as the relevantprovisions in law as well as the chronology events indicate. Hefurther emphasised the letter dated 04.10/04.11.2008 andstrongly contended that this letter was not a rejection by theMoEF but it only conveyed the advice of the FAC. Further itwas contended that this so-called rejection by the FAC was onlya first step in the entire process and invariably such rejection isdone as a first step but there is a provision for reconsiderationunder guideline (ii) as indicated in the same letter. Accordingly,the ECL, Government of Jharkhand, Ministry of Steel,Government of India, Prime Minister’s Office have all pursuedthe matter for reconsideration of the application which finallyfructified in February 2012 when all approvals were received.Therefore, at no stage the MoEF rejected the proposal andtherefore there was no need for making such disclosure in theIPO Prospectus. In fact, it was contended, that if such adisclosure was made it would have been factually incorrect andthe appellant (as well as other appellants) would have been
10hauled up by SEBI for making such factually incorrectdisclosures.6.It was also contended that the appellant was fully aware ofthe need for making every disclosure in a true and fair mannerand accordingly highlighted various scenarios in the prospectusunder the heading “risk factors”. He drew particular attention to“risk factor” No. 3, 10 and 12 which explain scenarios relatingto failure to obtain or renew a number of approvals/ sanctions/licenses/ registration and permits to develop and operate themines and consequent impact on their business. The appellant’soperations having significant raw material requirements and thepossibility of adverse impact on operations in case of inabilityto ensure the availability of raw material at competitive priceswere all disclosed. More particularly as risk factor 12 it isstated “In case ECL is unable to develop its mines, we may beunable to procure raw material under the current arrangement,and may have to procure raw material from the market at ahigher price which may adversely affect our business and resultsof operations”. Under this heading it was also stated that “inrespect of ECL’s proposed iron ore mines at Kodolibad,Jharkhand, execution of mining lease is pending for receipt ofapproval from the MoEF, Government of India. Only uponreceipt of such approval, Government of Jharkhand shall
11execute the necessary mining lease in favour of ECL. There canbe no assurance that the approval from the MoEF will bereceived in a timely manner and we may have to obtain iron oresupplies from other sources”. Quoting the above the learnedcounsel emphasised that at no stage the appellant had disclosedthat all necessary approvals have been received nor theappellant was sure of getting all approvals or even sure ofgetting raw materials in the required quantity or at competitiveprices. Therefore, the learned counsel contended that sufficientdisclosure was made regarding all possible scenario relating toapprovals, availability of raw materials as per the agreement orfrom other sources and how it may affect competitive prices.Therefore, no investor was misled by the alleged insufficientdisclosure and there had been no investor complaints despite thefact that more than 60% of the subscribers to the IPO wereQualified Institutional Buyers (QIB’s) who are well informedinvestors. It was also contended that as per ICDR Provisions, incase of pending Government approvals, it should be disclosedas “risk factors” only which had been done in the instant matter.7.It was also contended by the learned senior counsel for theappellant that the appellant-company has undergone CorporateInsolvency Resolution Process (CIRP) and on the culminationof the same following National Company Law Appellate
12Tribunal (“NCLAT”) approval the appellant-company has beennow taken over by M/s. Vedanta Ltd. who was the successfulbidder in the CIRP.Further, on 18.09.2018 the appellantapplied for delisting and the same has been effected by20.12.2018 by giving exit to all its public shareholders.Therefore, as per the approved resolution plan all penalties/fines etc. against the appellant stand written off in full andpermanently extinguished. Therefore, even if it is held that theappellant has violated the ICDR Provisions relating todisclosures in the prospectus no penalty shall be imposed on theappellant.Appeal No. 224 of 20168.As already stated ECL is the parent company of ESL, andthe one primarily responsible for obtaining all the approvals etc.for the proposed mining project in question. ECL is a listedcompany and was incorporated in 1955, engaged in the businessof manufacturing ductile iron pipes and cast iron pipes for morethan 50 years. It is this appellant who entered into a MoU withthe Government of Jharkhand for setting up a steelmanufacturing plant and thereby promoted ESL, Appellant inAppeal No. 223 of 2016.
139.Leaned counsel Shri Sagar Ghogre representing theappellant, submits that he adopts all arguments relating to thedisclosures in the prospectus made by learned senior counselShri Modi in Appeal No. 223 of 2016. In addition, he submitsthat the alleged violation in respect of the appellant is nondisclosure under Clause 36 of the Listing Agreement as the said‘rejection’ of forest clearance for the pro
March 31, 2016. By the said order a penalty of 1 crore has been imposed on M/s Electrosteel Limited (“ESL” for convenience; Appellant in Appeal No. 223 of 2016) for violation of Regulation 57(1) and Regulation 57(2)(a)(ii) of the SEBI (Issue of Capital and Disclosure Requirement)
