Hi Tech Pipes Limited vs National Stock Exchange Of India Limited And Others

Tarun Agarwala, Presiding Officer

The present appeal has been filed against the two impugned orders dated November 18, 2019 passed by the National Stock Exchange of India

Limited (‘NSE’ for short) (Respondent No. 1) imposing a fine of Rs. 4,40,000/- plus 18% GST each on the two applications for trading

approvals for the new allotted shares of 2,25,000 in favour of Mr. Anish Bansal, a promoter of the company. The appellant has also challenged the

order dated March 20, 2020 passed by the Respondent No. 2, Securities and Exchange Board of India (‘SEBI’ for short) by which the

appellant’s application for waiver of the fine has been declined.

The facts leading to the filing of the present appeal is, that the appellant is engaged in the business of manufacturing and supply of steel pipes hollow

sections tubes, cold rolled coils and strips along with variety of other galvanized products. The appellant is a listed company on the NSE. On March 28,

2018 the company had issued and allotted 5,00,000 Fully Convertible Equity Warrants to the promoters and to persons belonging to the Non-Promoter

category. On this basis 2,25,000 warrants were issued and allotted to one promoter named Mr. Anish Bansal.

The appellant upon receipt of the full consideration allotted 1,00,000 and 1,25,000 equity shares pursuant to the Conversion of Warrants to Mr.

Anish Bansal on September 16, 2019 and September 25, 2019 respectively.

Subsequent to the allotment of 2,25,000 shares to Mr. Anish Bansal, two applications for listing approval was filed before NSE on September 28,

2019 and October 10, 2019. NSE, respondent No. 1 granted listing approval on October 14, 2019.

Based on the aforesaid approval granted by NSE, the appellant applied to National Securities Depository Limited (‘NSDL’ for short) on

October 22, 2019 for issuance of a Credit Confirmation Certificate. Certain documents were asked by NSDL on November 4, 2019 which was

supplied on November 5, 2019 and thereafter NSDL provided a Credit Confirmation Certificate on November 13, 2019. Upon receipt of the aforesaid

Credit Confirmation Certificate, the appellant applied for trading approvals for the newly allotted equity shares of 2,25,000 to Mr. Anish Bansal on

November 15, 2019.

Without considering the proper facts, a fine of Rs.4,40,000 plus 18% GST each on the two applications contending that there is a delay of 22 days in

applying for trading approvals which was violative of SEBI’s circular dated August 19, 2019.

The appellant thereafter applied to SEBI on November 27, 2019 for waiver of the fine which was declined by SEBI by order dated March 20, 2020.

The appellant has thereafter filed the present appeal.

We have heard Shri Rishi Sood, the learned counsel for the appellant, Shri Rashid Boatwalla, the learned counsel for the NSE (Respondent No. 1)

and Shri Vishal Kanade, the learned counsel for the SEBI (Respondent No. 2) through video conference.

The stand of the learned counsel for the appellant is, that there is no delay on the part of the appellant in applying for trading approvals before NSE

(Respondent No.1). The procedural delay in obtaining the Credit Confirmation Certificate was at the behest of NSDL which was not within the

control of the appellant. It was thus alleged that no penalty should be imposed for procedural delay since there was no deliberate inaction on the part

of the company in not complying with the circular of SEBI.

Shri Rashid Boatwalla, the learned counsel for the NSE (Respondent No. 1) submitted and admitted that one of the documents which is required

for applying for trading approvals is that the company must file the Credit Confirmation Certificate from the appropriate depository which in the instant

case was NSDL. It was contended that there has been a delay on the part of the appellant in not only applying for Credit Confirmation Certificate but

also that there was lack of due diligence on the part of the company in not expediting the process for obtaining Credit Confirmation Certificate from

NSDL. Since there was a delay of 22 days, appropriate fine has been imposed on each of the two applications. It was urged that there is no error in

the imposition of fine imposed by NSE (Respondent No. 1).

Shri Vishal Kanade, the learned counsel for SEBI (Respondent No. 2) contended that the listing approval was granted by NSDL on October 14,

2019 and, as per circular dated August 19, 2019 of SEBI, the application for trading approvals was required to be filed within 7 working days. In the

instant case, the appellant did not take immediate steps but filed the application before NSDL for obtaining Credit Confirmation Certificate after more

than seven days and only applied on October 22, 2019. This indicates that the appellant failed to take appropriate steps to expedite the process of

applying for Credit Confirmation Certificate. Further, related documents were not filed by the appellant before the NSDL and therefore it shows that

the appellant failed to take necessary steps to expedite the process of furnishing documents and obtaining Credit Confirmation Certificate. The learned

counsel urged that the appellant willfully neglected to adhere to the standard operating procedure pursuant to the circular dated August 19, 2019 and

failed to adhere to the timeline. It was thus contended that on account of these reasons SEBI declined to waive the fine imposed by NSE.

Having heard the learned counsel for the parties we find that under the circular dated August 19, 2019 a listing company is required to make an

application for trading approval to the stock exchange within 7 working days (emphasis is ours) from the date of grant of listing approval by the stock

exchange. In this regard, the listing approval was granted by NSE on October 14, 2019. October 14 was a Monday and the company was required to

file an application within 7 working days which means that the application should be filed by October 23, 2019 after excluding Saturday and Sunday

which are non-working days. We find that the appellant applied for Credit Confirmation Certificate before NSDL on October 22, 2019 and therefore

in our opinion it was applied within the stipulated period of 7 working days. The contention of the learned counsel for the SEBI (Respondent No. 2)

that it was applied after 7 working days is incorrect. The application is required to be filed within 7 working days which in the instant case have been

done within the stipulated period.

The learned counsel for NSE (Respondent No. 1) and SEBI (Respondent No. 2) admitted that one of the documents which is mandatorily required

for final trading approval of shares issued on preferential/private placement basis is the credit confirmation certificate from NSDL / CDSL for credit

of specified securities to the beneficiaries accounts. This fact is also depicted in Annexure 11 to the memo of appeal as one of the essential

documents to be annexed to the application for grant of trading approvals.

In the instant case, we find that the appellant had applied within the stipulated period of 7 working days on October 22, 2019. NSDL granted the

Credit Confirmation Certificate on November 13, 2019 and the appellant thereafter applied before NSE (Respondent No. 1) for trading approvals on

November 15, 2019. In our opinion, time taken by the appellant to apply for trading approvals was within 7 working days and therefore there is no

delay. According to us, the appellant took 6 working days to file an application before NSDL and took one daythereafter to file an application for

trading approvals before NSE (Respondent No. 1). Thus the application was filed within 7 working days.

Thus, in our opinion, there is no violation of the circular dated August 19, 2019. The application was filed within stipulated period of 7 working

days. We are further of the opinion that the delay caused before NSDL was only a procedural delay and no motive can be imputed upon the appellant.

In any case, a fine cannot be imposed on account of a procedural delay which was not caused at the instant of the appellant. It is not a case of willful

negligence or lack of due diligence. Consequently, we are of the opinion that the finding of NSE (Respondent No. 1) that there was a delay of 22 days

in filing the application for grant of trading approvals was totally erroneous and cannot be sustained. We are further of the opinion that SEBI

(Respondent No. 2) also completely overlooked the fact that there was no delay nor there was any willful default on the part of the appellant. We also

are of the opinion that SEBI in the instant case should have interfered in the order passed by NSE.

For the reasons stated aforesaid, the impugned orders dated November 18, 2019 passed by NSE (Respondent No. 1) and order / communication

dated March 20, 2020 passed by SEBI (Respondent No. 2) cannot be sustained and are quashed. The appeal is allowed with no order as to costs.

The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor

a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Presiding Officer on

behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally

signed copy sent by fax and/or email.