SEBI: Penalizes, bars MD & Directors forflouting Accounting Norms

Order of Penalty under the SEBI Act, 2013 & Securities Contracts (Regulation) Act, 1956 for Violation of AS-18 & Regulation 48, 31(1) & 33 (2) (a) of LODR Regulation, 2015 read with Section 27 of SEBI Act in the matter of Sharon Biomedicine Limited.

Provisions Involved:

• Regulation 48 of SEBI (LODR) Regulations, 2015 states that a listed entity shall comply with all applicable
  Accounting Standards;
• Regulation 31(1) states that the Listed entity shall submit to Stock Exchanges a statement showing
  holding of securities and shareholding pattern separately for each class of securities; and
• Regulation 33(2)(a) states that the quarterly financial Statements submitted shall be approved by Board
  of Directors and it doesn’t contain any false or misleading statement or figures and do not omit any
  material fact which make the financial statements misleading.

Facts of the Case for Regulation 48 of LODR Regulations-

• The Subject Company (Sharon Biomedicine Limited) is misrepresenting the financial & books of accounts
  by overstating sales & purchases.
• It was observed that sales and purchases from related parties were not commensurate with the
  corresponding receipts and payments, the cash flows from trading activities did not match up with the
  high volumes of trades recorded in the books.
• The Violations alleged in the SCN pertain to the period starting from July 1, 2011 to March 31, 2017 and
  the said violations came to light only after the Forensic Audit Reports were submitted by the Forensic
  Auditor. There was contention that as the Forensic Audit has been conducted by the Auditor based on
  incomplete information and documents, as the Company failed to furnish various supporting documents
  and evidences (like it failed to furnish proof of movement of goods, purchase and sale agreements),
  thereby SEBI notes that adverse inferences against the Company have been drawn on the basis of
  observations and findings in the Forensic Audit Reports.
• Further, it was observed that there was Non-Reporting of Related Party Transaction in Financial
  Statements. Also there were delays in submission of financial statements, Quarterly compliance report
  and Statement of shareholding pattern to the exchanges.
• As per Section 27 of the SEBI Act, 1992, where an offence has been committed by a company, every
  person who at the time the offence was committed was in charge of, and was responsible to, the
  company for the conduct of the business of the company, as well as the company, shall be deemed to
  be guilty of the offence and shall be liable to be proceeded against and punished .

Decision on Violation –

• The Noticees are restrained from accessing the securities market and are further prohibited from buying,
  selling or otherwise dealing in securities, either directly or indirectly, in any manner whatsoever, for a
  period of 3 years from the date of the order.
• The Noticees are restrained from holding any position of Director or key managerial personnel in any
  listed company or any intermediary registered with SEBI, or associating themselves with any listed public
  company or a public company which intends to raise money from the public or any intermediary
  registered with SEBI, in any capacity, for a period of 3 years from the date of the Order.
  Order of Penalty under the SEBI Act, 2013 & Securities Contracts (Regulation)
  Act, 1956 for Violation of AS-18 & Regulation 48, 31(1) & 33 (2) (a) of LODR Regulation,
  2015 read with Section 27 of SEBI Act in the matter of Sharon Biomedicine Limited.
• The Noticees are hereby imposed with monetary penalties under Sections 15HA and 15HB of the SEBI
  Act, 1992 and Section 23H of the SCRA, 1956, as per the details mentioned in the Table below:

Ashutosh Sharma, Audit Associate, SW India