Listed co tries to pass on blame of violation to sick employee, Sebi finds otherwise

Under ICDR Regulations, an issuer is required to make an application seeking in-principle approval to the stock exchange(s) on the same day when the notice is sent to its shareholders for approval.

A listed entity tried to pass on the blame for violating Sebi (Issue of Capital and Disclosure) Regulations (or ICDR Regulations) to its company secretary who was incapacitated from acute gastrities.

But the market regulator's investigations revealed that the employee had alerted the company Muzali Arts about his ill-health and that it was the company that failed to delegate his responsibilities effectively.

An order issued by the Securities and Exchange Board of India (Sebi) on May 13 fined Muzali Arts Rs 2 lakh and found the charges against the company secretary as not established.

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Background

The regulator had started investigations into the company's affairs after there were allegations that Muzali Arts had not followed the mandated procedure for a preferential issue.

The company had proposed a preferential allotment of equity shares to non-promoters and the proposal had been approved by its Board on September 7, 2022. But it had applied to the BSE for in-principal approval for the issue only ten days later on September 17, 2022.

Under ICDR Regulations, an issuer is required to make an application seeking in-principle approval to the stock exchange(s) on the same day when the notice is sent to its shareholders for approval.

Muzali Arts submitted that the delay was "inadvertently" caused by its company secretary Rohit Raghunath Jadhav. It also submitted that, to ensure that its investors are not adversely affect, it had utilised the funds only after it received the in-principle approval from BSE.

Jadhav, meanwhile, submitted that he had informed the company that he was ill a day before the Board meeting. He had been down with acute gastrities "accompanied by severe symptoms including vomiting and high
grade fever". On September 6, 2022, Jadhav had sent an email to the company's managing director informing the latter about this medical emergency.

In the letter, Jadhav also suggested delegating his responsibilities to an individual or team, and stated that he would provide the documentation and support remotely as needed.

The regulator considered these submissions and stated, in the order, that the company had acknowledged Jadhav's mail but failed to take any step to alert the stock exchange on time.

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The order stated, "I observe that Noticee 2 (Jadhav) by intimating Noticee 1 (Muzali Arts) of his inability to carry out his function as company secretary on medical ground had taken steps to ensure that necessary compliance is done in his absence."

In view of this, the regulator's Adjudicating Officer did not filed the allegations made against Jadhav established.