SAT Reduces SEBI Ban On Riddhi Siddhi Gluco Biols, Promoters To 6 Months, Upholds MPS, Fraud Findings

The Securities Appellate Tribunal (SAT) has reduced the debarment imposed by the Securities and Exchange Board of India (SEBI) on Riddhi Siddhi Gluco Biols Ltd., its Chairman and Managing Director Ganpatraj Chowdhary, and several connected entities.

The Tribunal partly modified SEBI's order by reducing the period of debarment, which had been imposed for longer durations by SEBI, to six months for Riddhi Siddhi Gluco Biols Ltd, its promoters including Ganpatraj Chowdhary and certain connected entities, and to three months for several other noticees, while upholding SEBI's findings on violation of minimum public shareholding norms and fraudulent trading.

The appeal filed by Riddhi Siddhi Gluco Biols Ltd., Ganpatraj Chowdhary and Siddharth Chowdhary was dismissed, while the remaining appeals were partly allowed.

The order was passed by a coram of Presiding Officer Justice P.S. Dinesh Kumar and Technical Members Meera Swarup and Dr. Dheeraj Bhatnagar.

The appeals challenged orders passed by SEBI in connection with alleged violations of securities laws during a proposed delisting of the company. The allegations related to trading in the scrip, non-disclosure of promoter group entities and breach of minimum public shareholding (MPS) requirements.

The proceedings arose from a proposal by Ganpatraj Chowdhary to delist the company's shares from the Bombay Stock Exchange (BSE). BSE granted in-principle approval and the delisting offer remained open from March 6 to March 12, 2018. The price discovered in the reverse book building process was Rs 630 per share. Following complaints from investors, SEBI directed BSE to keep the delisting on hold. The in-principle approval was withdrawn on December 26, 2018.

SEBI investigated trading in the company's scrip for the period between December 1, 2016 and March 12, 2018. It found that Stuti Trademart Pvt Ltd, Siwana Agri Marketing Ltd and Vital Connections Pvt Ltd were not disclosed as promoter group entities, resulting in incorrect disclosure of promoter shareholding.

SEBI also alleged that promoters and connected entities traded in the scrip and tendered shares at fraudulently arrived prices. SEBI further alleged that the company failed to comply with the minimum public shareholding norms.

After issuing show cause notices, the Adjudicating Officer imposed a penalty of ₹5 lakh each on the appellants in Appeal No. 543 of 2021, including Riddhi Siddhi Gluco Biols Ltd, Ganpatraj Chowdhary and Siddharth Chowdhary. The Whole Time Member directed the company and connected entities to comply with the MPS requirements and debarred them from accessing the securities market for specified periods.

Before the Tribunal, the parties disputed whether certain entities formed part of the promoter group and whether trades in the company's scrip were carried out to project the share as a liquid scrip during the proposed delisting.

The tribunal held that Stuti, Siwana and Vital formed part of the promoter group, resulting in public shareholding falling below the statutory threshold. Referring to Rule 19A(2) of the Securities Contracts (Regulation) Rules, 1957, the Tribunal observed:

“Rule 19A(2) of Securities Contracts (Regulations) Rules, 1957, prescribes that where a public shareholding in a listed company falls below 25% at any time, such company shall bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall in the manner specified by the SEBI. In view of the public shareholding having fallen below 25%, we hold that Riddhi Siddhi did not comply with the MPS norms during the period of FY 2014-15 and 2015-16.”

The tribunal further held that for the financial year ending March 31, 2018, inclusion of Vital as part of the promoter group reduced public shareholding below 25%, resulting in violation of the MPS requirement.

On the allegation of fraudulent trading, the Tribunal observed:

“The fact that these connected persons have traded in the illiquid scrip coupled with the fact that they are connected, fortifies SEBI's theory that there was an attempt to project the scrip as a 'liquid scrip' to avoid violation at ₹1600/- per share.”

However, the tribunal noted that the delisting did not take place and that several entities had traded in small quantities. It therefore reduced the period of debarment to six months for certain entities and to three months for others, while otherwise upholding SEBI's findings.

For Appellants: Senior Advocate J.P. Sen, Advocates Nirav Shah, Yugandhara Khanvilkar, Ashwini Hariharan, Yash Momaya, Munaf Virjee, Rushabh Parekh, Mithali Shetty, Neha Anchlia, Rushin Kapadia, Kamakshi, Gayatri Mohite and Deepak Shah

For Respondent: Advocates Vyom Shah, Khushbu Chhajed, Nishit Dhruva, Rasika Ghate and Khushbu Trivedi