In December 2013, SEBI imposed a penalty of more than Rs. 53 crores, one of the largest penalty orders in SEBI’s history, on 16 entities and 9 of their directors for their involvement in the IPO fraud relating to Brooks Laboratories.
Each of these entities filed appeals before the Securities Appellate Tribunal challenging the order. The Tribunal noted that the entities were guilty of not responding to the notices issued to them from time to time and filing cryptic and monotonous replies without dealing with the issues raised. However, the Tribunal also noted that they were effectively not afforded an opportunity of a personal hearing as required under the SEBI rules governing holding of inquiries by adjudicating officers. In light of this, the SEBI order was set aside in December 2015 and the matter was remanded to SEBI where the entities were to be permitted to file a detailed reply and appear before SEBI to make their submissions, subject to them paying minimal costs to SEBI.
The Adjudicating Officer of SEBI accepted replies from all the entities and provided them an opportunity of a personal hearing. He recently passed an order against 22 of the 25 entities wherein he observed that the entities, acting along with the directors of Brooks Labs, had aided in creating fraudulent inter-corporate deposits and in the syphoning/ diversion of IPO proceeds for the repayment of such inter-corporate deposits. His findings are identical to those contained in the original order from 2013.
However, the penalty imposed against these 22 entities has been reduced from approximately Rs. 48 crores in the original order to less than Rs. 17 crores in the present order. While the provisions governing imposition of penalty require the adjudicating officer to consider the actual disproportionate gain or unfair advantage received by these entities, a perusal of the facts shows no correlation between the actual gains and the penalty imposed. These entities may again have a fit case for filing an appeal challenging the quantum of penalties imposed.