SAT Upholds ₹5 Lakh Penalty on Som Distilleries for Misleading Disclosure On ₹100 Crore Fund Raise

The Securities Appellate Tribunal has recently upheld a Rs 5 lakh penalty on Som Distilleries & Breweries Ltd, holding that the company failed to clearly inform investors that it had dropped a proposed Rs 100 crore preferential issue after initially citing “unforeseen circumstances” for cancelling a shareholders' meeting.

A bench of Presiding Officer Justice P.S. Dinesh Kumar, Technical Member Meera Swarup and Technical Member Dr. Dheeraj Bhatnagar dismissed the company's appeal against SEBI's order dated November 30, 2023.

The proceedings arose from a SCORES complaint, following which SEBI conducted an examination to ascertain possible violation of LODR Regulations for the period between December 9, 2022 and February 2, 2023.

On December 9, 2022, the company made a corporate announcement informing that its Board of Directors had approved an expansion plan of approximately Rs 100 Crores for setting up new facilities and had approved raising capital through issue of convertible equity warrants on a preferential basis.

On December 15, 2022, the company made another corporate announcement stating that an Extraordinary General Meeting of members would be held on January 7, 2023 for consideration and approval of the issuance of convertible equity warrants.

On January 2, 2023, the company made a further announcement stating that the meeting scheduled on January 7, 2023 was cancelled owing to “unforeseen and unavoidable circumstances.”

The tribunal noted that the first announcement was made on December 9, 2022 and the meeting was scheduled nearly one month later on January 7, 2023.

“A corporate announcement with regard to any expansion of facilities shall have impact on Company's share price,” the tribunal observed. It further noted, "Once the corporate announcement indicating expansion is announced, there is possibility of increase in the share price.”

Referring to the January 2 disclosure, the tribunal observed:

“On January 2, 2023, a clever announcement was made stating that the meeting was cancelled. That would not disclose a clear message that Company had cancelled its proposal to issue convertible equity warrants.”

The tribunal further recorded that in the announcement made on January 27, 2023, the Director (Finance) stated that the preferential issue had been deferred due to lesser needs of the funds, and that the audio recording was uploaded on January 27, 2023 with transcript uploaded on February 2, 2023.

It held that the reasons disclosed on January 2 and January 27, 2023 were completely different.

In paragraph 12 of the order, the bench stated:

“Here is a case, the Company in its first corporate announcement gave an impression that convertible equity warrants would be issued to raise ₹100 Crores and nearly after one month a clever announcement was made stating that the 'meeting was cancelled' due to unforeseen circumstances, whereas the actual reason was lesser need of funds.”

Observing that the adjudicating officer “has rightly held” and imposed a monetary penalty, the tribunal held that no exception could be taken to the impugned order and dismissed the appeal.

For Appellant: Advocate Kunal Mehta

For Respondent: Advocates Vishal Kanade, Nidhi Singh, Komal Shah and Nishin Shrikhande