SAT reduces fine on Electrosteel, merchant bankers in IPO non-disclosure case

In a case of non-disclosure of key information to investors in IPO papers, the Securities Appellate Tribunal on Thursday reduced the amount of penalty levied by markets regulator Sebi on Electrosteel Steel and its three merchant bankers - SBI Cap, Axis Capital and Edelweiss Financial.

The matter pertains to the IPO of Electrosteel Steels Ltd (ESL), promoted by Electrosteel Castings Ltd (ECL) in September 2010, for which Axis Capital, SBI Capital Markets and Edelweiss Financial Services were the Book Running Lead Managers.

The tribunal in a order said it has reduced the amount of penalty of Rs 1 crore imposed on ESL to Rs 50 lakh. Further, it lowered the Rs 1 crore fine slapped by the regulator on the three merchant bankers to Rs 50 lakh.

As far as the appeal of ECL is concerned, the Securities Appellate Tribunal (SAT) said the penalty of Rs 50 lakh imposed by Sebi on the company cannot be termed "as excessive or harsh". Therefore, no interference is needed.

While reducing the penalty on the merchant bankers, the tribunal noted that it tend to agree with their submissions that non-disclosure of the initial round rejection of the mining project proposal in the prospectus is not in the category where maximum penalty is imposable.

"We consider the continued efforts of these appellants (ESL and ECL) in pursuing the matter further for reconsideration etc as well as in detailing the risk factors with possibilities of not getting the final approval etc as disclosed in the prospectus as mitigating factors," it added.

The ruling comes following appeals filed by these entities challenging an order passed by Sebi in March 2016, wherein a fine of Rs 1 crore was imposed on the three bankers, a penalty of another Rs 1 crore on the issuer company ESL and Rs 50 lakh on ECL.

The Sebi order came following its probe into complaints that the company did not disclose in IPO documents that its proposal for an iron ore mine in Jharkhand was rejected by the Ministry of Environment and Forest.

After receiving complaints, Sebi had sought comments from ESL and the merchant bankers for failing to ensure disclosure in initial public offering (IPO) papers regarding rejection of the proposal for forest clearance of Kodolibad Iron ore mine.

From the replies, it was observed that the in-principle approval for ECL's proposal for diversion of forest land for Kodolibad Iron Ore Mine was rejected by the MoEF.

It was further observed that after the rejection, ECL had requested the state government to recommend its proposal to MoEF again, and subsequently, the MoEF had granted in-principle approval to ECL for diversion of forest land for the purpose of the iron ore mine, subject to fulfilment of 29 conditions.

In their submissions before Sebi, ECL and ESL had stated the merchant bankers advised and considered that "it was not required to disclose the said interim rejection, since the same was not a final decision and was only an interim step in the process involved".