SAT Reduces SEBI Market Ban On Riddhi Siddhi Gluco Biols And Promoters To Six Months, Upholds MPS And Fraud Findings
Pranav B Prem
The Securities Appellate Tribunal (SAT) has partly modified an order passed by the Securities and Exchange Board of India (SEBI) against Riddhi Siddhi Gluco Biols Ltd., its Chairman and Managing Director Ganpatraj Chowdhary and several connected entities, reducing the period of debarment from accessing the securities market while upholding the findings relating to violation of minimum public shareholding (MPS) norms and fraudulent trading in the company’s shares. The Tribunal reduced the debarment period imposed on the company, its promoters and certain connected entities to six months and further reduced the period to three months for several other entities involved in the matter.
The decision was delivered by a Bench of Justice P.S. Dinesh Kumar (Presiding Officer), Meera Swarup (Technical Member) and Dr. Dheeraj Bhatnagar (Technical Member) while deciding multiple appeals filed against orders passed by SEBI’s Adjudicating Officer and Whole Time Member concerning alleged violations of securities laws.
The proceedings arose from a proposal initiated by Ganpatraj Chowdhary to delist the shares of Riddhi Siddhi Gluco Biols Ltd. from the Bombay Stock Exchange (BSE). The stock exchange had granted in-principle approval for the delisting proposal, and the reverse book building process remained open between March 6 and March 12, 2018, during which a price of ₹630 per share was discovered. However, following complaints from investors, SEBI directed BSE to keep the delisting process on hold, and the in-principle approval was subsequently withdrawn.
SEBI thereafter initiated an investigation into trading in the company’s shares during the period between December 2016 and March 2018. The regulator alleged that certain entities, including Stuti Trademart Pvt. Ltd., Siwana Agri Marketing Ltd., and Vital Connections Pvt. Ltd., had not been disclosed as promoter group entities. According to SEBI, the non-disclosure resulted in incorrect reporting of promoter shareholding and led to a breach of the statutory requirement that at least 25% of a listed company’s shares must remain with the public.
During the proceedings before the tribunal, the appellants argued that the entities in question were not part of the promoter group and relied on a family arrangement within the Chowdhary family to justify their classification as public shareholders. The tribunal, however, rejected this contention. It held that the statutory definition of “promoter group” under the SEBI regulations includes immediate relatives such as brothers and sisters and also extends to corporate entities where common shareholding thresholds are met. Applying these provisions, the tribunal concluded that the entities in question fell within the promoter group.
The tribunal also examined SEBI’s finding that public shareholding in the company had fallen below the mandated threshold. Referring to Rule 19A(2) of the Securities Contracts (Regulation) Rules, 1957, the Bench observed that a listed company must maintain at least 25% public shareholding and restore the minimum level within a specified time if it falls below that threshold. The tribunal held that Riddhi Siddhi Gluco Biols Ltd. had failed to comply with the minimum public shareholding requirement during the relevant financial years.
The tribunal further considered allegations that promoters and connected entities had traded in the company’s shares in order to create artificial liquidity in what was otherwise an illiquid scrip. SEBI had alleged that coordinated trades among connected entities were intended to project the shares as frequently traded so as to facilitate the delisting process through the reverse book building mechanism.
After reviewing the trading data and the relationships between the entities involved, the tribunal held that the connections among the parties and their trading pattern supported SEBI’s conclusion that the transactions were undertaken to portray the shares as a liquid scrip. The Bench observed that genuine investors would ordinarily avoid trading in illiquid securities and that the coordinated trading activity among connected persons strengthened SEBI’s case that there was an attempt to manipulate the market perception of liquidity.
While affirming SEBI’s findings on violations of minimum public shareholding norms and fraudulent trading, the tribunal considered the question of proportionality in relation to the penalties imposed. It noted that the delisting ultimately did not take place and that certain entities had traded in relatively small quantities of shares.
Taking these circumstances into account, the tribunal partly allowed several appeals and reduced the period of debarment from accessing the securities market. The period of restriction for Riddhi Siddhi Gluco Biols Ltd., its promoters and certain connected entities was reduced to six months, while the debarment period for several other noticees was reduced to three months.
Accordingly, the tribunal dismissed one of the appeals filed by the company and its promoters, while partly allowing the remaining appeals by modifying the duration of the market ban imposed by SEBI, without disturbing the regulator’s findings regarding violation of securities laws and minimum public shareholding norms.
Cause Title: Riddhi Siddhi Gluco Biols Limited and Ors v. Securities and Exchange Board of India
Case Number: Appeal No. 543 of 2021
Coram: Justice P.S. Dinesh Kumar (Presiding Officer), Meera Swarup (Technical Member) and Dr. Dheeraj Bhatnagar (Technical Member)
