Tribunal quashes Sebi ban on Yashovardhan Birla, 8 others

The Securities Appellate Tribunal has quashed a Sebi order that had barred Yashovardhan Birla and others from the securities market for two years for alleged mis-utilisation of IPO proceeds.

Sebi, in October 2020, restrained Birla Pacific Medspa Ltd, Yashovardhan Birla and eight others from the securities market for two years for mis-utilisation of IPO proceeds.

Birla Pacific Medspa Ltd, which came out with offer documents in March 2011, had floated its over Rs 65-core initial public offering in June 2011.

The regulator, in its order, said that the company made misstatements in the prospectus in respect of the objects of the IPO.

Pursuant to Sebi's order, Yashovardhan Birla and other individuals moved SAT. These individuals were the signatories to the prospectus of Birla Pacific Medspa.

In its order dated August 26, SAT said that appellants did not make any misstatement in the prospectus.

It, further, said that the finding given by Sebi that there is a misstatement in the prospectus which was done deliberately from the very inception in order to misuse the IPO proceeds and divert the proceeds through inter-corporate deposits (ICDs) to group companies is "perverse and based on surmises and conjectures which a prudent person cannot arrive at".

"It is settled law that a finding must be based on some facts but in the instant case the facts which has been brought on record shows that there is no misstatement in the prospectus and, therefore, the question of having some ulterior design from the very inception to divert the proceeds through ICDs is in our opinion stretching it a bit too far," it added.

If the IPO proceeds were not utilised in the manner stated in the prospectus it does mean that the subsequent action taken by the company indicates that there was a misstatement in the prospectus, the tribunal noted.

According to the tribunal, the interim use of funds in the prospectus clearly indicates that the IPO proceeds could be temporarily invested in interest or dividend bearing liquid instruments including deposits with bank, mutual funds etc.

"In our view, merely because the word ICD was not mentioned in the interim use of funds in the prospectus does not become a case of misstatement in the prospectus nor does it become a deliberate part of larger design to come out with an IPO and, thereafter, funding the operations of its group company through ICDs thereby siphoning of the money from the genuine investors," SAT said.

It further said that the appellants did not commit any breach of the ICDR (Issue of Capital and Disclosure Requirements)  Regulations nor made any misstatement in the prospectus.

Accordingly, SAT said, "The impugned order in so far as it relates to the appellants cannot be sustained and is quashed".