The adjudication proceedings stemmed from SEBI's examination of the company's disclosures relating to regulatory actions initiated by the GST authorities in 2021. SEBI found that Madhav Copper failed to promptly inform the stock exchanges of material events, despite their significant impact on the company and its investors.
According to the order, GST authorities conducted a search at the company's premises on 7 July 2021. The company disclosed the development to the stock exchanges only on 22 July 2021, a 15-day delay. The disclosure also revealed that the GST department had alleged fake billing involving more than the company's FY20-21 turnover and had provisionally attached the company's land, building, machinery, inventory and bank accounts.
SEBI rejected the company's contention that the search was only provisional and, therefore, did not warrant immediate disclosure. The regulator noted that the alleged GST evasion of around ₹137 crore was a material event considering the company's turnover of about ₹383 crore and net worth of around ₹46 crore.
The regulator also observed that the company's share price fell sharply from ₹83.45 on 7 July 2021 to ₹51.45 on 22 July 2021, and further declined to ₹39.10 by 29 July 2021 after the disclosure, underscoring the materiality of the information.
SEBI also held that the company delayed disclosing the provisional attachment of its assets by the GST department by 15 days, despite the action qualifying as a material regulatory event under the LODR Regulations.
Further, SEBI found that Madhav Copper failed to provide any explanation for the delayed disclosures, as required under Regulation 30(6) of the LODR Regulations. Although the company later stated that the delay was caused by verification with statutory authorities, SEBI noted that no such explanation accompanied the delayed disclosures made to the stock exchanges.
The regulator also held that the company failed to provide regular updates on the progress of the GST proceedings. While Madhav Copper argued that references in its annual reports and CRISIL rating reports constituted updates, SEBI said these disclosures did not adequately inform investors about material developments. It further observed that the company appeared to rely on rating disclosures rather than independently updating the market on the GST proceedings.
SEBI additionally found that the company failed to disclose the cancellation of its GST registration when it occurred. Instead, it informed the stock exchanges only after the GST registration was restored in April 2023. The regulator held that the cancellation and restoration of a key regulatory approval were material events requiring separate disclosures.
While determining the penalty, SEBI noted that there was no quantifiable evidence of disproportionate gains or investor losses arising from the violations and that no previous enforcement action had been taken against the company. Nevertheless, it held that Madhav Copper had failed to comply with its statutory disclosure obligations under the SEBI Act and the LODR Regulations, warranting a penalty of ₹10 lakh.
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