under section 15-i of securities and … · adjudication order in the matter of m/s. electrosteel...

______________________________________________________________________________________Adjudication Order in the matter of M/s. Electrosteel Steels Ltd. and M/s. Electrosteel Castings Ltd. of 140

BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. AK/AO- 8-12/2016] ________________________________________________________________________

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992

READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING

PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AND SECTION 23-I OF

SECURITIES CONTRACTS (REGULATION) ACT, 1956 READ WITH RULE 5 OF

SECURITIES CONTRACTS (REGULATION) (PROCEDURE FOR HOLDING INQUIRY AND

IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 2005

In respect of

Axis Capital Ltd. (PAN: AAACU8367M); SBI Capital Markets Ltd. (PAN: AAACS7914E); Edelweiss Financial Services Ltd. (PAN: AAACE1461E)

And in respect of

M/s. Electrosteel Steels Ltd. (formerly M/s. Electrosteel Integrated Ltd.) (PAN:

AABCE6875H)

In the matter of Initial Public Offer (IPO) of M/s. Electrosteel Steels Ltd. (formerly M/s.

Electrosteel Integrated Ltd.)

And in respect of

M/s. Electrosteel Castings Ltd. (PAN: AAACE4975B)

________________________________________________________________________

FACTS OF THE CASE

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had received a

complaint inter-alia stating that though the proposal for iron ore mine of M/s.

Electrosteel Castings Limited (hereinafter referred to as ‘ECL’), the promoter of M/s.

Electrosteel Steels Limited (formerly M/s. Electrosteel Integrated Ltd.) (hereinafter


referred to as ‘ESL’), at Kodolibad, Jharkhand was rejected by the Ministry of

Environment and Forest (presently Ministry of Environment, Forest & Climate Change

‘MoEF&CC’) (hereinafter referred to as ‘MoEF’), however, the fact thereof was not

disclosed in the Red Herring Prospectus of Initial Public Offer (IPO) of ESL and also to

the shareholders and financial institutions.

2. SEBI sought comments from ESL and the Book Running Lead Managers, viz. Axis Capital

Ltd., SBI Capital Markets Ltd. and Edelweiss Financial Services Ltd. (hereinafter

collectively referred to as ‘BRLMs’) for failing to ensure disclosure in the Draft Red

Herring Prospectus (hereinafter referred to as ‘DRHP’) / Red Herring Prospectus

(hereinafter referred to as ‘RHP’) /Prospectus of ESL regarding rejection of the

proposal for forest clearance of Kodolibad Iron ore mine. Further comments were also

sought from ECL, the listed promoter company of ESL, for the failure to disclose the

material event viz. rejection of forest clearance for iron ore mine by MoEF to the stock

Exchanges for onward dissemination to the shareholders in accordance with clause 36

of the Listing Agreement.

3. From the replies, it was inter alia observed that the in-principle approval for ECL’s

proposal for diversion of forest land for Kodolibad Iron Ore Mine was rejected by MoEF,

and MoEF vide letter dated November 04, 2008 had communicated the same to the

Government of Jharkhand. It was further observed that post the said rejection, ECL vide

letter dated May 27, 2009 had requested the State Government to recommend its

proposal to MoEF again, and the State Government vide its letters dated July 10, 2009

and September 18, 2009 had requested MoEF to reconsider the proposal. Subsequently,

MoEF vide its letter dated February 13, 2012 granted in-principle approval to ECL for

diversion of forest land for the purpose of the iron ore mine, subject to fulfillment of 29

conditions stated in the said letter.

4. It was observed that as on the date of filing of the prospectus with RoC i.e. September

29, 2010, in absence of a positive decision from MoEF, the rejection of the proposal for

forest clearance for Kodolibad Iron Ore Mine was a material event requiring disclosure

in the DRHP/ RHP/ Prospectus of ESL. The BRLMs and ESL stated that various

disclosures regarding pendency of the proposal with MoEF and risk factors were

included in the prospectus. However, it was observed that the BRLMs/ ESL had failed to


disclose the fact of rejection of ECL’s proposal of forest clearance for Kodolibad Iron Ore

Mine in the DRHP/ RHP/ Prospectus of ESL. It was also observed that ECL had inter alia

stated that allocation of mine would help ECL in achieving cost effectiveness and

reducing the cost of production.

5. It was inter alia alleged that the BRLMs had failed to ensure adequate disclosures of the

fact of rejection of the proposal for forest clearance of Kodolibad iron ore mine in the

DRHP/ RHP/ Prospectus of ESL and had, therefore, violated the provisions of

Regulation 57(1), Regulation 57(2)(a)(ii) and Regulation 64(1) of SEBI (Issue of Capital

and Disclosure Requirement) Regulations, 2009 (hereinafter referred to as ‘ICDR

Regulations’) and Regulation 13 of SEBI (Merchant Bankers) Regulations, 1992

(hereinafter referred to as ‘Merchant Bankers Regulations’). Further, it was alleged

that ESL had failed to disclose the fact of rejection of the proposal for forest clearance of

Kodolibad iron ore mine in the DRHP/ RHP/ Prospectus of ESL and had, therefore,

violated the provisions of Regulation 57(1), Regulation 57(2)(a)(ii) of ICDR Regulations.

It was also alleged that by omitting to disclose the said material information in the RHP,

the disclosures made by BRLMs and ESL in the RHP dated September 29, 2010 were

misleading. Also, that by not disclosing the rejection of forest clearance for Kodolibad

Iron Ore Mine to the stock exchanges, it was alleged that ECL had violated Clause 36 of

the Listing Agreement read with Section 21 of the Securities Contract (Regulation) Act,

1956 (hereinafter referred to as ‘SCRA’).

APPOINTMENT OF ADJUDICATING OFFICER

6. The undersigned was appointed as the Adjudicating Officer vide Order dated August 16,

2013 under rule 4 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by

Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘Rules’) read with sub-

section (2) of Section 15I of SEBI Act to inquire into and adjudge under Section 15HB of

the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI

Act’) for the alleged violation of the provisions of ICDR Regulations and Merchant

Bankers Regulations by the BRLMs and for the alleged violation of the provisions of

ICDR Regulations by ESL. The undersigned was also appointed as Adjudicating Officer

vide order dated August 16, 2013 under rule 4 of Securities Contract (Regulation)

(Procedure for Holding Inquiry and Imposing Penalties by Adjudication Officer) Rules,


2005 (hereinafter referred to as ‘SCR Rules’) read with sub-section (1) of Section 23 I of

SCRA to inquire into and adjudge under Section 23A(a) and 23E of the SCRA for the

alleged violation of the provisions of Listing Agreement read with Section 21 of the

SCRA by ECL.

SHOW CAUSE NOTICE, HEARING AND REPLY

7. Show Cause Notice No. EAD-6/AK/VS/24165/2013, EAD-6/AK/VS/24165/2013 and

EAD-6/AK/VS/24168/2013 dated September 20, 2013 (hereinafter referred to as

‘SCN1’) were issued to the BRLMs respectively under rule 4 of the Rules to show cause

as to why an inquiry should not be held and penalty be not imposed under Section 15HB

of SEBI Act for the alleged violation specified in the said SCN. Show Cause Notice No.

EAD-6/AK/VS/24161/2013 and EAD-6/AK/VS/24159/2013 dated September 20, 2013

(hereinafter referred to as "SCN2" and "SCN3") were issued to ESL and ECL

respectively, under rule 4 of the Rules and Rule 4 of SCR Rules, to show cause as to why

an inquiry should not be held and penalty be not imposed under Section 15HB of SEBI

Act against ESL and under 23A(a) and 23E of the SCRA against ECL for the alleged

violations specified in the said SCN. The said SCN was delivered and acknowledged by

the BRLMs, ESL and ECL.

8. The BRLMs vide common letter dated October 10, 2013 inter alia sought time for four

weeks for filing reply to the SCN. Similarly, ESL and ECL vide individual letters each

dated October 08, 2013 inter alia sought time of thirty days for filing reply to the SCN.

Subsequent to the same, vide letter dated November 01, 2013, J. Sagar Associates on

behalf of the BRLMs requested for grant of an opportunity to undertake inspection of

documents and records in relation to the SCN. Vide individual letters dated November

19/ 21, 2013, the BRLMs informed that they have appointed J. Sagar Associates,

Advocates and Solicitors, Authorised Representatives (hereinafter referred to as ‘AR of

BRLM’) for undertaking inspection of documents and to carry out all related deeds with

respect to the extant adjudication proceedings against the BRLMs. Also, vide individual

letters dated November 4, 2013, ESL and ECL requested to undertake the inspection of

documents in relation with the notice and provide copies of the same. Vide the said

letters, ESL and ECL also inter alia informed that they had appointed Khaitan & Co. as

their legal counsel(s), Authorised Representatives (hereinafter referred to as ‘AR of


ESL/ECL’) to represent them in the matter and undertake inspection of documents. Vide

email dated November 11, 2013, the BRLMs were advised to specify the documents for

which the inspection was sought. Vide letter dated November 15, 2013, AR of BRLMs

inter alia stated that it may not be possible to specify or list out the documents required

for inspection, since the BRLMs are not aware of the documents in possession of SEBI.

AR of BRLMs vide the said letter requested that an opportunity to inspect all the records

& documents which SEBI possesses and which led to the issuance of the SCN may be

provided along with their copies. Further, vide email dated November 11, 2013, ESL and

ECL were also advised to specify the documents for which the inspection was sought.

Vide individual letters dated November 14, 2013, ESL and ECL also requested to seek

inspection of all the documents and records in SEBI’s possession, leading to the issuance

of the SCN along with the copies of the documents. Accordingly, an opportunity of

inspection was provided to the BRLMs, ESL and ECL on December 10, 2013.

9. Inspection of following documents and copies thereof were given to the BRLMs:

a) Order communicating appointment of Adjudicating Officer dated August 20, 2013;

b) Copies of the Complaints dated August 24, 2011, September 16, 2011 and November

23, 2011;

c) Copy of SEBI letter dated March 25, 2013 issued to ESL;

d) Copy of SEBI letter dated March 25, 2013 issued to BRLMs;

e) Copy of letter dated April 18, 2013 received from ESL;

f) Copy of letter dated April 18, 2013 received from BRLMs.

10. Inspection of following documents and copies thereof were given to ESL and ECL:

a) Order communicating appointment of Adjudicating Officer dated August 20, 2013;

b) Copies of the Complaints dated August 24, 2011, September 16, 2011 and November

23, 2011;

c) Copy of SEBI letter dated March 25, 2013 issued to ESL;

d) Copy of SEBI letter dated March 25, 2013 issued to ECL;

e) Copy of SEBI letter dated March 25, 2013 issued to BRLMs;

f) Copy of letter dated April 18, 2013 received from ESL;

g) Copy of letter dated April 17, 2013 received from ECL;

h) Copy of letter dated April 18, 2013 received from BRLMs.


11. Vide letter dated December 16, 2013, BRLMs requested to confirm that there are no

other documents other than the above in possession of SEBI, whether relied upon or

otherwise. Vide email dated December 18, 2013, it was informed that all relevant

documents relied upon while issuing the SCN had been provided as an annexure to the

SCN and vide inspection dated December 10, 2013.

12. The BRLMs filed their replies to the SCN vide individual letters dated December 31,

2013, the details of which have been brought out at the later part of this order. ESL and

ECL filed individual replies dated December 27, 2013, the details of which have also

been brought out at the later part of this order. In the interest of natural justice, an

opportunity of hearing was provided to the BRLMs, ESL and ECL on January 07, 2014

vide individual hearing notices dated December 30, 2013. Vide individual letters dated

January 02/03, 2014, the BRLMs requested for rescheduling the hearing to any date

during or after the fourth week of January, as their legal counsels were pre-occupied on

January 07, 2014. Similarly, ESL and ECL requested for grant of four weeks time for

preparing their submissions and presenting the matter. Vide email dated January 06,

2014, the BRLMs were informed that their request for postponement of the hearing has

been acceded to, and they were given another opportunity for personal hearing on

January 28, 2014. Similarly, vide email dated January 06, 2014, ESL and ECL were

informed that their request for postponement of the hearing has been acceded to, and

they were given another opportunity for personal hearing on January 27, 2014.

13. Mr. Somasekhar Sundaresan, Mr. Ravichandra S. Hegde and Ms. Aashni Dalal from J

Sagar Associates (AR (JSA)); Mr. Anay Khare, Mr. M. Natarajan and Ms. Lakha Nair from

Axis Capital Ltd.; Ms. Sunita Kumari and Mr. Bhaskar Chakraborty from SBI Capital

Markets Ltd.; Mr. B. Renganathan, Mr. Sachin Khandelwal and Mr. Sumeet Lath from

Edelweiss Financials Ltd. (hereinafter collectively referred to as Authorised

Representatives – ‘ARs of BRLMs)’) appeared on behalf of the BRLMs. The AR of the

BRLMs reiterated in detail the submissions made vide letters dated December 31, 2013.

During the hearing, the following documents were submitted:

Copies of the following Case Laws:

o Order of the Hon'ble Securities Appellate Tribunal (hereinafter referred to as

‘SAT’) in the matter of JM Mutual Fund & JM Capital Management Pvt. Ltd. Vs.

SEBI dated November 22, 2004;


o Order of the Hon'ble SAT in the matter of Imperial Corporate Finance &

Services Pvt. Ltd. Vs. SEBI dated July 30, 2004;

List of correspondence and events between the date of the alleged rejection of

proposal (October 04, 2008) and the date of in-principle approval received for

diversion of forest land submitted by ECL.

The ARs of BRLMs stated that they would make further submissions by February 14,

2014. The ARs of BRLMs were inter alia also advised to submit past non-compliance of

SEBI Act and Regulations made thereunder by any of the BRLMs and action taken by

SEBI in the past, if any, against any of the BRLMs during the last five years.

14. Mr. P N Modi - Senior Counsel, Mr. Neville Lashkari - Counsel, Ms. Tushna Thapliyal from

Khaitan & Co. and Shri Arun Gadoria from ECL (hereinafter referred to as Authorised

Representatives - "ARs of ESL/ECL") appeared on behalf of ESL and ECL. During the

hearing, ARs of ESL/ ECL reiterated in detail the submissions made vide letter dated

December 27, 2013 and submitted copies of following case laws:

Hon'ble SAT Order - M/s Vijay Textiles Ltd Vs SEBI dated April 28, 2011

Order of the Whole Time Member dated September 13, 2013 in the matter of

M/s. Gennex Laboratories Ltd.

During the hearing ARs of ESL/ ECL submitted the summary of the reply dated

December 27, 2013. ARs of ESL/ ECL were advised to submit the supporting documents

for the instances mentioned in Annexure-A to the aforesaid submission. The ARs of

ESL/ECL were also advised to submit the information/documents and further

submissions by February 10, 2014 and were informed to submit past non-compliance of

SEBI Act and Regulations made thereunder by ESL/ECL and action taken by SEBI in the

past, if any, against them in the past five years.

15. Vide letter dated February 14, 2014, AR of BRLMs forwarded Note on Submissions

containing the submissions made by them on behalf of the BRLMs at hearing held on

January 28, 2015, which are dealt in the later part of the Order. Along with the said Note

on Submissions, a detail of past regulatory actions taken by SEBI against the BRLMs was

also forwarded. Similarly, ESL and ECL vide letter dated February 10, 2014, filed further

written submissions through its AR, which are dealt in the later part of the order.


16. During the proceedings, it was observed that vide letter dated January 16, 2009, MoEF

had unconditionally also rejected ECL’s proposal for Environment Clearance for the

Kodolibad Iron Ore Mining Project of ECL. In the said letter, MoEF had inter alia noted

that the proposed project was located within the core area of the Singbhum Elephant

Reserve, which is critical to wildlife conservation, and that the Forest Advisory

Committee (hereinafter referred to as ‘FAC’) had rejected the proposal for diversion of

the forestland for the said project. Hence, letter Ref: EAD-6/AK/VS/9580/2014, EAD-

6/AK/VS/9581/2014 and EAD-6/AK/VS/9593/2014 dated March 28, 2014 were

further issued to the BRLMs and letter Ref: EAD-6/AK/VS/9605/2014 and EAD-

6/AK/VS/9593/2014 dated March 28, 2014 were further issued to ESL/ ECL, wherein it

was inter alia pointed out that the disclosures made in the RHP gave an appearance to

the investing public that environment clearance was received with respect to the iron

ore mine, whereas, the fact of the matter was that the same was unconditionally

rejected by MoEF vide letter dated January 16, 2009. The BRLMs and ESL/ ECL were

advised to offer their comments, if any, in the matter. Further vide the said letter dated

March 28, 2013, it was also clarified to the BRLMs that they had violated Regulation 13

of Merchant Bankers Regulations read with the following clauses of Code of Conduct for

Merchant Bankers as specified in Schedule III:

Clause 1 - A merchant banker shall make all efforts to protect the interests of investors;

Clause 4 - A merchant banker shall at all times exercise due diligence, ensure proper

care and exercise independent professional judgment;

Clause 6 - A merchant banker shall ensure that adequate disclosures are made to the

investors in a timely manner in accordance with the applicable regulations and

guidelines so as to enable them to make a balanced and informed decision;

Clause 7 - A merchant banker shall endeavour to ensure that the investors are provided

with true and adequate information without making any misleading or exaggerated

claims or any misrepresentation and are made aware of the attendant risks before

taking any investment decision;

Clause 20 - A merchant banker shall not make untrue statement or suppress any

material fact in any documents, reports or information furnished to the Board.

17. BRLMs and ESL/ ECL were given fifteen days time to offer their comments. Vide letter

dated April 07, 2014, AR of BRLMs sought additional period of four weeks upto May 13,

2014 for filing its reply to the aforesaid letter. Vide email dated April 23, 2014, the


BRLMs were granted time till May 09, 2014 to file their reply. Vide emails/ letters dated

April 16, 2014 and April 21, 2014, ESL and ECL sought time till May 30, 2014 to file their

reply to letter dated March 28, 2014. Vide email dated April 21, 2014, ESL and ECL were

also granted time till May 09, 2014.

18. Vide letter dated May 09, 2014, the BRLMs filed detailed individual replies to letter

dated March 28, 2014 which have been dealt with in the later part of the Order.

However, the broad issues brought out by the BRLMs through their submissions are

mentioned below:

(a) That whether a disclosure in relation to permissions, approvals and its status with

respect to the parent company of the issuer was at all required to be made, when

admittedly the same did not form a part of the objects of the issue?

(b) That if the disclosure was indeed required, whether such disclosures pertaining to

the approvals were appropriately disclosed?

(c) That if the disclosures were not appropriately disclosed as alleged, whether such non

disclosures pertained to the material adverse factors of the Issuer Company, which

had a significant influence on the decision making of the Investor?

(d) That whether their professional judgment in making appropriate disclosures to the

extent of what ought to be disclosed was faulty or blameworthy, which had a

potential bearing on the investment decision?

(e) That whether the disclosures made did not at all cover the risks associated with non-

obtaining of the permissions?

(f) That whether at all there has been a rejection in real sense, especially considering

the controversy surrounding the issues relating to environment and forest approvals

within the Ministry?

(g) That did they as merchant bankers, at any point of time, had any reasons to believe

that the required permissions wouldn’t come through?

(h) That did the applicable rules and regulations of the regulator mandate detailed

disclosures even for non- issuer companies?

(i) That even assuming, there had been a difference between the professional judgment

exercised by them as merchant bankers and the judgment supposedly required to be

exercised as per SEBI’s expectation, whether at all there had been any loss caused to

the investors, in as much as the investors would not have invested in the Issuer


Company had they exercised and disclosed such factors, which in the opinion of SEBI

was required?

19. On May 9, 2014, ESL and ECL filed individual detailed replies to letter dated March 28,

2014, which are dealt in the later part of the order.

20. Thereafter vide hearing notice dated May 21, 2014, the BRLMs were given another

opportunity of personal hearing on June 06, 2014. Similarly, vide hearing notice dated

May 21, 2014, ESL and ECL were given another opportunity of personal hearing on June

05, 2014. The BRLMs vide individual letters dated May 26/29, 2014 requested to

reschedule the hearing to any date during or after fourth week of June. This request of

the BRLMs was acceded to and the personal hearing was rescheduled to June 27, 2014.

Also, ESL and ECL vide emails/ letters dated May 29, 2014 requested to reschedule the

hearing to a date after June 15, 2014. This request of ESL and ECL too was acceded to

and the personal hearing was accordingly rescheduled to June 26, 2014.

21. Mr. Somasekhar Sundaresan, Mr. Ravichandra S. Hegde and Ms. Aashni Dalal from J

Sagar Associates, Mr. Anay Khare, Mr. M. Natarajan and Ms. Lakha Nair from Axis

Capital Ltd.; Ms. Sunita Kumari from SBI Capital Markets Ltd.; Mr. Sachin Khandelwal

from Edelweiss Financials Ltd., the Authorised Representatives (ARs of BRLMs)

appeared on behalf of the BRLMs. The ARs reiterated the submissions made vide letters

dated May 09, 2014. The ARs stated that they would make further submission by July

11, 2014. Vide letter dated July 11, 2014, ARs on behalf of the BRLMs forwarded a Note

on Submissions containing the submissions at the personal hearing held on June 27,

2014.

22. Ms. Tushna Thapliyal from Khaitan & Co. and Shri. Arun Gadoria from ECL (ARs of

ECL/ESL) appeared on behalf of ESL and ECL. The ARs of ECL/ESL reiterated in detail

the submissions made vide letter dated May 09, 2014 and submitted the following

documents:

i) Copies of Case law – Shiva Cement Limited vs. Union of India dated March 4,

2014;

ii) MoEF Notification dated September 14, 2006.


23. During the hearing, clarification was sought from ARs of ESL/ ECL as to whether ECL

had reverted back to the MoEF with regard to the rejection of Environment Clearance by

MoEF, despite Expert Appraisal Committee (hereinafter referred to as "EAC") of MoEF

recommending the project for Environment Clearance, subject to obtaining prior

clearance from wild life angle. In response, the ARs of ESL/ECL informed that since ECL

was pre-occupied with pursuing the matter with MoEF for Forest Clearance, ECL did not

revert back to MoEF with respect to rejection of Environment Clearance communicated

by MoEF vide letter dated January 16, 2009. ARs of ESL/ECL requested that they desired

to make further submissions in the matter. The ARs of ESL/ECL were advised to make

their submissions by July 11, 2014. Vide letter dated July 11, 2014, AR's filed the written

submissions which are dealt in the later part of the order.

24. On a perusal of correspondence annexed by the BRLMs/ ESL/ECL along with their

individual submissions, it was noted that ECL in its letter dated November 17, 2010 to

the Hon’ble Chief Minister of Jharkhand had inter alia mentioned that the Forest

Diversion Proposal of Kodolibad Iron Ore mine was twice rejected by the FC Division of

MoEF and sent back to the State Government. Hence vide email dated October 10, 2014,

the BRLMs/ESL/ECL were inter alia requested to provide a copy of the letter of MoEF

rejecting the proposal on second occasion. The BRLMs were also requested to update

the status of the conditions imposed by MoEF while granting in-principle approval for

diversion of forest land vide letter dated February 13, 2012 and provide the

subscription and allotment details category-wise.

25. The BRLMs vide their individual letters dated October 30, 2014, after re-confirming

with the issuer company ESL as well as the promoter of the issuer company i.e. ECL,

inter alia clarified that the two letters referred in the subject letter dated November 17,

2010 refer to letters from MoEF dated November 04, 2008 and January 16, 2009. It was

further also stated that the extract referred to by SEBI of ECL’s letter of November 17,

2010, issued after closure of IPO of ESL, ought not to be read in isolation and without

reference to the other contents of the said letter as well as the entire factual context

pertaining to ECL’s proposal for diversion of forestland. The BRLMs also informed that

ECL had complied with all conditions imposed by MoEF while granting in-principle

approval. The relevant details regarding subscription and allotment were also provided.


26. ESL vide letter dated October 14, 2014 and ECL vide letter dated October 13, 2014

informed that they will provide the necessary information and data by November 10,

2014. Subsequently, ESL and ECL vide individual replies dated October 30, 2014 inter

alia also clarified that the twice rejected referred to in ECL’s letter dated November 17,

2010 to the Chief Minister of Jharkhand are references to MoEF’s letter dated November

04, 2008 and January 16, 2009. ESL also informed that ECL had complied with all the

conditions imposed by MoEF while granting in-principle approval.

27. It was, thus, noted that the BRLMs/ESL/ECL had clarified that the “twice rejected”

referred to in ECL’s letter dated November 17, 2010 to the Chief Minister of Jharkhand

were references to MoEF’s letters dated November 04, 2008 and January 16, 2009. On

perusal of the said two MoEF’s letters, it was noted that MoEF’s letter dated November

04, 2008 addressed to the Government of Jharkhand was for communicating the

rejection of proposal of diversion of 55.79 ha forest land for mining of Iron Ore in favour

of ECL in West Singbhum District of Jharkhand. However, letter dated January 16, 2009

was the letter addressed by MoEF to ECL communicating the rejection of ECL’s proposal

for environment clearance by MoEF. On the contrary, it was noted that ECL’s letter

dated November 17, 2010 addressed to the Hon’ble Chief Minister of Jharkhand had

inter alia brought to the notice of the Hon’ble Chief Minister that the forest diversion

proposal of Kodolibad Iron Ore Mine itself was twice rejected by the FC division and

sent back to the State Government. Thus, it was noted from the same that ECL vide letter

dated November 17, 2010 had pointed out that the forest diversion proposal itself was

twice rejected by the FC division of MoEF. However, BRLMs/ESL/ECL appeared to

clarify rejection of the forest diversion proposal as one occasion and rejection of the

environment clearance as the second occasion.

28. It was further also observed from Vol III of the ‘First Report on Illegal Mining of Iron and

Manganese Ores in the State of Jharkhand’ of the Justice M.B.Shah Commission available

in public domain that ECL’s proposal for forest diversion was again considered in the

meeting of FAC dated September 10, 2010. From a copy of FAC Minutes of the said

meeting annexed to the said Report and available in public domain, it was noted that the

FAC Minutes had recorded that as no new fact or material in addition to what had been

submitted earlier had been brought to the notice of the FAC, the Committee again

recommended the proposal for rejection. As per the said minutes, the Committee had


noted that a detailed report on the present status of all mines located in the core of

Singhbhum Elephant Reserve was awaited from the State Government. The Committee

had also noted therein that the proposal of ECL was recommended for rejection on

account of being part of core zone of Singhbhum Elephant Reserve and that the opening

of this proposed site for mining will lead to disturbances to wildlife, pollution to the

rivers and fragmentation & depletion of forest resources in this region as per Wild Life

Institute of India (WII)’s observation in its report dated October 03, 2008.

29. In view of the above, letters Ref: EAD-6/AK/RSL/31241/2014, EAD-6/AK/RSL/

31239/2014 and EAD-6/AK/RSL/31243/2014 dated November 03, 2014 were sent to

BRLMs. Also letter Ref: EAD-6/AK/RSL/31237/2014 dated November 03, 2014 and

letter Ref: EAD-6/AK/RSL/31233/2014 dated November 03, 2014 were sent to ESL and

ECL respectively. Vide the said letters, BRLMs/ ESL/ ECL were again requested to clarify

the discrepancies noted as above between their individual replies dated October 30,

2014 and ECL’s letter dated November 17, 2010, as also vis-à-vis information available

in public domain (Vol III of the ‘First Report on Illegal Mining of Iron and Manganese

Ores in the State of Jharkhand’ of the Justice M.B.Shah Commission) that the forest

diversion proposal of ECL itself was twice rejected by FAC of MoEF – once in 2008 and

again in 2010.

30. In response, the BRLMs vide their individual letters dated November 10, 2014 inter alia

pointed out that prospectus of ECL was dated September 29, 2010 and the subject

Minutes of the Meeting of the FAC as referred to in the clarification were signed after the

date of the Prospectus (i.e. October 1, 2010). It was also pointed out that the Minutes of

the said meeting do not appear to be available on the MoEF website as on date. Further

it was also pointed out that details sought referred to a letter dated November 17, 2010,

which too was a date well after completion of the issue. BRLMs stated that therefore any

inference or findings drawn on the basis of such documents after the closure of the issue

would be incorrect and inappropriate and irrelevant to the present proceedings.

Without prejudice to the above, the BRLMs vide their individual letters dated November

10, 2014 inter alia reiterated the submissions made in their individual replies dated

October 30, 2014. It was further stated that on enquiring with ESL and ECL, they were

informed that ECL had not participated in such meeting, nor, any correspondence in this

regard was ever received by ECL.


31. ESL and ECL vide individual letters dated November 10, 2014 inter alia denied that FAC

Minutes of September 10, 2010 are in public domain and/ or were in public domain at

the relevant point of time. It was inter alia further placed on record vide the said letters

that only upon receipt of letter/ email dated November 03, 2014 and Annexure thereof

that they saw the FAC minutes of September 10, 2010 i.e. four years after the event,

however, authenticity or correctness of the information cannot be verified. Vide the said

letters, ESL and ECL inter alia, therefore, sought any material in SEBI’s possession that

MoEF rejected the forest diversion proposal in 2010 including any correspondence

between MoEF and the State Government, as the minutes of FAC meeting of September

10, 2010 are/ were not available on MoEF’s website.

32. Hence, vide letter dated February 09, 2015, the following details were sought directly

from MoEF by invoking sub-section 2 of section 15-I of SEBI Act and under sub-section

2 of section 23-I of SCRA:

i) When did the rejection by FAC of MoEF in its meeting held on September 09, 2010

became known to ECL/ the State Government?

ii) Copy of the MoEF’s letter communicating the aforesaid rejection to ECL/ the State

Government;

iii) Whether the said rejection was otherwise available in public domain and details

thereof;

iv) Copy of letter received by MoEF from Principal Secretary of Ministry of Steel;

v) Copies of ECL’s letters dated August 13, 2010, August 11, 2010 and September 20,

2010 annexed to the said letter received by MoEF from Principal Secretary of

Ministry of Steel;

vi) Copy of reply sent by MoEF to Principal Secretary of Ministry of Steel, if any;

vii) Any other related document/ information.

33. In response, MoEF vide letter dated March 27, 2015 sent some document copies.

However, since the specific information/ details sought vide letter dated February 09,

2015 were not received, MoEF was requested to provide the same vide letter dated

April 21, 2015. The same was followed up with MoEF vide letters dated May 18, 2015

and June 09, 2015. MoEF sent its reply vide letter dated June 15, 2015 annexing

therewith certain document copies.


34. On perusal of the aforesaid letters of MoEF and document copies provided therewith,

the following was inter alia noted:

that the FAC of MoEF in its meeting held on September 10, 2010 had again

recommended for rejection the proposal of ECL for diversion of forest land for

Kodolibad Iron Ore Mine project;

that the recommendations of FAC dated September 10, 2010 were not

communicated to the State Government. However, MoEF’s reply was silent as

regards communication, if any, directly with ECL;

that from ECL’s letter dated August 11, 2010 to MoEF, it was noted that directors of

MoEF had held meeting with Secretary, MoEF on August 09, 2010 in the matter of

rejection of forest diversion proposal of ECL for Kodolibad Iron Ore Mine, just prior

to the FAC meeting held on September 09, 2010;

that further ECL vide letter dated November 17, 2010 addressed to the Hon’ble

Chief Minister of Jharkhand had inter alia mentioned that the forest diversion for

Kodolibad Iron Ore Mine was twice rejected by the FC division and sent back to the

State Government;

that ECL, just prior to the opening of IPO of ESL for subscription on September 21,

2010, had itself acknowledged the actual fact at the point of time that the forest

diversion proposal for its Kodolibad Iron Ore Mine was rejected by FAC of MoEF

vide its letter no. F.No. 8-35/2008-FC dated November 04, 2008, by stating as so in

its correspondence dated August 11, 2010 with MoEF. However, this factual aspect

that the proposal of forest diversion was rejected at the In-Principle stage itself was

not disclosed as such in the prospectus of ESL by the BRLMs.

35. It was also noted that the Hon’ble Supreme Court vide Order dated August 04, 2006 in

I.A. No. 1598 to 1600 (T. N. Godavarman Thirumulpad v. Union of India) had

observed that: “in case MoEF disagrees with the recommendations of the FAC, it shall

record in writing and communicate to the said FAC. The FAC may after considering all

such reasons, pass such further orders as it thinks fit; provided where the Government still

disagrees with the order passed by FAC, it may seek appropriate direction from the Hon’ble

Supreme Court.”


36. Thus, it was observed that inspite of the fact that the recommendation of FAC played a

crucial role in proposals for forest diversion, the BRLMs failed to disclose to the

investors the MoEF/ FAC’s decision of rejection of the forest diversion proposal at the

in-principle stage itself. This was also despite MoEF having concurred with the views of

FAC and communicated the same to the State Government and ECL.

37. In view of the above, additional comments, if any, based on the aforesaid facts that

emerged from MoEF letters dated March 27, 2015 and June 15, 2015 and the document

copies provided therewith were sought from the BRLMs vide letter Ref: EAD-

6/AK/8825/2015/1/2/3 dated July 06, 2015 and from ESL and ECL vide letters Ref:

EAD-6/AK/RSL/18821/2015 and EAD-6/AK/RSL/18823/2015 dated July 06, 2015

respectively.

38. In response, BRLMs vide individual letters dated July 24, 2015 inter alia stated that the

process adopted of issuing repeated letters/ e-mails which are in effect supplementary

allegations and notices in the garb of clarificatory letters/ supplementary materials is

incorrect and impermissible in law. In the matter, the BRLMs referred to Order dated

January 15, 2015 passed by the Hon’ble Securities Appellate Tribunal (SAT) in the

matter of Purshottam Budhwani v SEBI (Appeal No. 53 of 2013), wherein a similar

procedure had been found to be improper and baseless. It was also pointed out by the

BRLMs vide their aforesaid individual letters that Section 15 I of the SEBI Act, under

which the Adjudicating Officer is appointed by SEBI, enables the Adjudicating Officer to

only look into the merits of the matter placed before the officer by SEBI and the

responses provided by the BRLMs, and thereafter to adjudicate the controversy

between SEBI and the Noticees. However, in the present case, the Adjudicating Officer

had taken the task of investigating into the matter which ought to have been done by

SEBI before the issuance of the SCN and not after receipt of the reply and submissions in

the matter. Vide the said individual letters, the BRLMs inter alia also sought an

opportunity of inspection of new documents and records to enable them to prepare

their response.

39. As regards the BRLMs contention inter alia regarding conducting investigation process

under the garb of adjudication proceedings, it was clarified vide letter dated July 30,

2015 that the information / details / documents were sought from MoEF vide letters


dated February 09, 2015 and April 21, 2015 by invoking the powers available to the

adjudicating officer under sub-section 2 of section 15-I of SEBI Act, 1992. Further, that

as a principle of natural justice, information / details / documents received from MOEF

were provided to the BRLMs seeking additional comments of the BRLMs, if any, based

on facts that emerged from MOEF letters dated March 27, 2015 and June 15, 2015 and

document copies provided therewith. Also, vide the said letter, an opportunity to

inspect new documents i.e. the letters / documents which were provided as annexures

to letter dated July 06, 2015 was provided on August 10, 2015. Accordingly on August

10, 2015, the AR on behalf of the BRLMs undertook inspection of documents in

connection with letter dated July 06, 2015 issued to them. The AR on behalf of the

BRLMs undertook to make further submissions by August 25, 2015 in the matter.

40. Vide individual letters dated August 25, 2015, the BRLMs while reiterating their earlier

submissions, inter alia further stated that the issue raised in the letter dated July 06,

2015 were based on assumptions, conjecture and surmise and thereby unsustainable.

That as a result of contradictory, conflicting, fragmented and inconsistent allegations

made in a piecemeal manner vide multiple notices, letters and emails, SEBI has

rendered it impossible for the BRLMs to understand the allegations against it and

effectively provide a response to the same. It was also inter alia stated that the quoted

observations made by the Hon’ble Supreme Court in Order dated August 4, 2006 (I.A.

No. 1598 to 1600) (T. N. Godavarman Thirumulpad v. Union of India) referred to in

the letter under reply, were made by the Hon’ble Supreme Court in relation to a peculiar

situation concerning the issuance of temporary working permissions in cases of

renewal of mining leases & the said procedure prescribed therein, and cannot be

applied generally to all cases. Particularly, the said observations of the Hon’ble Supreme

Court have no application to the facts and circumstances of the present case.

41. In this regard, the BRLMs cited the judgment dated March 24, 2014 passed by the

Hon’ble National Green Tribunal in Appeal No. 73/2012 (Sudiep Shrivastava v. State

of Chattisgarh & Ors.), wherein the Hon’ble Tribunal was inter alia seized of the issue

as to “whether the advice rendered by FAC is binding on the Minister dealing with the

proposal for granting approval to the forest clearance” and also considered the

observations of the Hon’ble Apex Court in the T.N. Godavarman case as referred to by


SEBI in the letter under reply. In this regard, the BRLMs have stated that the following

observations of the Hon’ble Tribunal are relevant:

“15. To meet the submissions of the respondents, learned counsel for the appellant has

placed reliance on the order dated 4th August 2006 passed by the Hon’ble Supreme Court in

I.A No. 1598-1600 in WP(C) no. 202/1995: T.N Godawaramn Thirumulkapad Versus Union

of India and others:(2010)13SCC 740. He particularly invited our attention to the

following directions at Para 20(x) to (xii) in the Said order:

[…]

16. It is pointed out to us by the respondents that the Hon’ble Supreme Court was

considering a peculiar situation arising out of issuance of temporary working permissions

(TWP) in cases of renewal of mining leases without following the procedure under the FC

Act and had laid down the pre-conditions and procedure for grant of TWP’s vide para 20

in said judgment. It is correct that the Hon’ble Supreme Court was not dealing with the

case of grant of approval for fresh mining licenses and was dealing with the peculiar

situation before it. This is apparent from a bare perusal of the order:

““18. On considerations thereof, the conditions precedent for the grant of TWP’s as well as

the procedure for their grant shall be as provided hereinafter. At the outset, it is clarified

that TWPs shall be granted only where the following conditions are satisfied.

Preconditions:

19.(i) TWPs can only be granted for the renewal of mining leases, and not where the lease

is being granted for the first time to the applicant user agency:

(ii) The mine is not located inside any national park/sanctuary notified under sections 18,

26-A or 35 of the Wild Life (Protection) Act, 1972…”

[…]

19. In the entire scheme of FC Act and the rules made therein there is no provision which

give the meaning of the word ‘advice’ or makes the acceptance of the advice tendered by

the FAC obligatory. The formation of the FAC is for the purposes of ensuring the fair and

fully informed decision by the Minister without any arbitrariness in the matter of grant of

approval under Section 2 of the FC Act. […]


20. Given a proper meaning to the word “Advise” used in section 3 of the FC Act and the

rules framed there under, it is not difficult to see that the function of FAC is to give advice

or to make recommendations to the Central Government (MoEF) which the Central

Government is under obligation to consider but is free to take such decision granting

approval to the proposal with or without conditions or rejecting the same after such

further enquiry as it may consider necessary. In other words, considering the scheme of the

FC Act and the Rules made thereunder, in our considered view, such an advice is not

binding stricto senso on the Central Government (Minister of State Environment and

Forest) but the Central Government remains under obligation to duly consider the advice

of the FAC and pass a reasoned order either accepting with or without condition or

rejecting the same based on facts, studies and such other authoritative material, if

necessary gathered from further enquiry.”

[Emphasis supplied]

42. Further, vide the said individual letters dated August 25, 2015, BRLMs have stated that

the allegations in letter dated July 06, 2015 are recorded on the basis of minutes of the

meeting held by FAC on September 10, 2010. The BRLMs have pointed out that the

minutes of the FAC meeting dated September 10, 2010 were never shared with them,

nor were they available in the public domain. It has been stated further that such

minutes were provided to them for the first time along with letter dated July 06, 2015,

however, it did not change the scope of the proceedings, nor, the submissions made

earlier. The BRLMs have also stated that it is also a matter of record from the perusal of

the correspondence provided that the minutes of the FAC were never in the public

domain. In the matter, the BRLMs have emphasized that MoEF also clarified that it did

not inform the State Government of the decision taken at FAC meeting on September 10,

2010. Also, that MoEF did not even make a mention of the FAC meeting held in

September 2010 while providing the status update to the Planning Commission.

43. Further, in response to letter dated July 06, 2015, ESL and ECL vide individual letters

dated July 27, 2015 submitted their replies. ESL/ ECL vide the said reply while

reiterating their earlier submissions has inter alia further stated that the present

enquiry is a random and roving enquiry and unconnected to the allegations in the SCN.

It has been stated that ECL’s letter to the Chief Minister dated November 17, 2010 and/


or the recommendations of FAC are of no relevance to the allegations raised in the SCN,

which were restricted to alleged non-disclosure in ESL’s IPO/ under clause 36 of Listing

Agreement (in respect of forest clearance for Kodolibad Iron Ore Mine). Further, both

ESL/ ECL in addition to submissions made earlier, have denied that FAC minutes of

September 2010 were in public domain. Also, ESL/ ECL too have stated that reference to

directions passed by the Hon’ble Supreme Court on August 04, 2006 in I.A. no. 1598-

1600 are of no relevance to the present case as they were passed in the context of

mining activity inside national parks/ sanctuaries and issue of Temporary Working

Permissions for renewal of mining lease, and are not applicable when considering grant

of approval for fresh mining lease. Further, ESL/ ECL have denied that ECL was aware of

the second rejection by FAC in September 2010 by way of any communication with

MoEF, other than by means of written correspondence. Further, it has been pointed out

that it is MoEF’s own assertion that MoEF did not communicate the recommendation of

FAC dated September 10, 2010 to the State Government.

44. In the aforesaid letter dated July 06, 2015 sent to ESL/ ECL, another opportunity of

hearing was granted to ESL/ ECL on August 06, 2015. Ms Tushna Thapliyal and Mr.

Arun Gadoria (ARs) appeared on behalf of ESL and ECL. The ARs reiterated the

submissions made vide individual letters dated July 27, 2015. Further, during the

personal hearing the ARs submitted the following case laws:

Tolaram Relumal and Ano v State of Bombay – (1955) 1 SCR 158

Sudiep Srivastava v State of Chattisgarg and Others – Judgment dated

March 24, 2014. Appeal no. 73/2012 before the National Green Tribunal,

New Delhi;

Tourist Hotel v. State of Andhra Pradesh and Ano. – (1975) 1 LLJ 211 AP

Copy of the Forest (Conservation) Act, 1980

Copy of the Forest Conservation Rules, 2003

Copy of the Clause 36 of the Listing Agreement

45. Further, during the personal hearing, it was pointed out to the ARs of ESL/ ECL that vide

individual letters dated November 10, 2014 of ESL and ECL, in response to letter dated

November 03, 2014, ECL and ESL had inter alia stated that “twice rejected” in ECL’s

letter dated November 17, 2010 to Chief Minister refers to MoEF’s letters dated

November 04, 2008 and January 16, 2009. However from records, it was noted that


November 17, 2010 letter of ECL to the Chief Minister referred to the fact that forest

diversion proposal of Kodolibad Iron Ore mine was twice rejected by the FC division,

whereas letter dated January 16, 2009 is with respect to rejection of environment

clearance and not with respect to forest diversion proposal.

46. Vide hearing notice dated September 04, 2015, another opportunity of personal hearing

was granted to the BRLMs on September 22, 2015. Mr. Somasekhar Sundaresan, Mr.

Ravichandra S. Hegde and Ms. Aashni Dalal from J. Sagar Associates, Mr. Anay Khare, Mr.

M. Natarajan and Ms. Lakha Nair from Axis Capital Ltd., Mr. Bhaskar Chakraborty from

SBI Capital Markets Ltd., Ms. Bhavana Kapadia from Edelweiss Financial Services Ltd.

(Authorized Representatives – ARs of BRLMs) appeared on behalf of the BRLMs. The

ARs reiterated the submissions made vide individual letters dated July 24, 2015 and

August 25, 2015. The BRLMs were requested to submit copy of the letter dated August

13, 2010 and/ or September 20, 2010 of ECL addressed to the MoEF, Ministry of Steel or

any other authority in the matter of forest clearance of Kodolibad Iron Ore Mine Project,

if any.

47. Vide letter dated October 06, 2015, the AR on behalf of the BRLMs submitted a Note on

Submissions summarizing the key submissions made under instructions from and on

behalf of the BRLMs in the matter. It was also submitted by the AR that as per

instructions, no letter dated August 13, 2010 and/ or September 20, 2010 of ECL

addressed to MoEF, Ministry of Steel, or, any other authority in the matter of forest

clearance of Kodolibad iron ore mine project is available with the BRLMs. Also that the

BRLMs reconfirmed with the issuer company ESL and were informed that no such letter

is available in their records as well. Similar individual emails dated September 10, 2015

were also received from each of ECL and ESL confirming that as per their records, there

is no letter from ECL to Ministry of Steel dated September 20, 2010. Further while

reiterating the submissions already made, the Note on Submissions from BRLMs also

pointed to the fact that uploading of the minutes of the FAC on the website of MoEF had

commenced pursuant to the Order of the Hon’ble Supreme Court requiring

transparency in conduct of affairs of FAC. It was stated therein that therefore prior to

July 06, 2011 i.e. the date of the Hon’ble Supreme Court Order, the minutes of FAC’s

proceedings were not available in public domain.


CONSIDERATION OF ISSUES AND FINDINGS

48. I have carefully perused the written submissions wherever submitted by the BRLMs,

ESL and ECL as well as by AR of BRLMs on behalf of the BRLMs and by AR of ECL/ESL on

behalf of ECL/ESL, the facts put forth during the hearings and the documents available

on record. The allegation against the BRLMs is of failing to ensure adequate disclosure

of the fact of rejection of proposal of forest clearance for Kodolibad Iron Ore Mine in the

DRHP/ RHP/ Prospectus of ESL, and therefore violating the provisions of Regulation

57(1), Regulation 57(2)(a)(ii) and Regulation 64(1) of the ICDR Regulations and

Regulation 13 of Merchant Bankers Regulations. The allegation against ESL is of failing

to disclose the fact of rejection of proposal of forest clearance for Kodolibad Iron Ore

Mine in the DRHP/ RHP/ Prospectus of ESL, and therefore violating the provisions of

Regulation 57(1) and Regulation 57(2)(a)(ii) of the ICDR Regulations. Further, the

allegation against ECL is of failing to disclose the fact of rejection of proposal of forest

clearance for Kodolibad Iron Ore Mine to the Stock Exchanges and therefore violating

the provisions of Clause 36 of the Listing Agreement read with Section 21 of the SCRA.

49. The relevant provisions referred above reads as follows:

Regulation 57 (1), 57 (2) (a) (ii) of the ICDR Regulations

Manner of disclosures in the offer document

57 (1) The offer document shall contain all material disclosures which are true and

adequate so as to enable the applicants to take an informed investment decision.

(2) Without prejudice to the generality of sub-regulation (1):

(a) the red-herring prospectus, shelf prospectus and prospectus shall contain:

(ii) the disclosures specified in Part A of Schedule VIII, subject to the provisions

of Parts B and C thereof.

Due diligence.

64 (1) The lead merchant bankers shall exercise due diligence and satisfy himself about all

the aspects of the issue including the veracity and adequacy of disclosure in the

offer documents.


Regulation 13 of the Merchant Bankers Regulations

Code of conduct.

13 Every merchant banker shall abide by the Code of Conduct as specified in Schedule

III. The specific provisions are:

a. Clause 1 - A merchant banker shall make all efforts to protect the interests of

investors.

b. Clause 4 - A merchant banker shall at all times exercise due diligence, ensure

proper care and exercise independent professional judgment.

c. Clause 6 - A merchant banker shall ensure that adequate disclosures are made to

the investors in a timely manner in accordance with the applicable regulations and

guidelines so as to enable them to make a balanced and informed decision.

d. Clause 7 - A merchant banker shall endeavour to ensure that the investors are

provided with true and adequate information without making any misleading or

exaggerated claims or any misrepresentation and are made aware of the attendant

risks before taking any investment decision.

e. Clause 20 - A merchant banker shall not make untrue statement or suppress any


Clause 36 of Listing Agreement

"…..The Company will also immediately inform the Exchange of all the events which will

have bearing on the performance/ operations of the company as well as price sensitive

information.….."

Section 21 of SCRA

Conditions for Listing

21 Where securities are listed on the application of any person in any recognized stock

exchange, such person shall comply with the conditions of the listing agreement with that

stock exchange.

50. Before proceeding to examine the issues involved in the matter, from MoEF’s reply

dated June 15, 2015, I have taken note of the fact that the recommendation of FAC dated

September 10, 2010 of rejection of the forest diversion proposal for the Kodolibad Iron


Ore Mine of ECL on a second occasion was not communicated to the State Government.

Also that MoEF has started uploading the minutes of the FAC meetings, only in

pursuance to directions contained in Hon’ble Supreme Court Order dated July 06, 2011.

Hence, there is no record pertaining to uploading of the minutes of FAC meeting dated

September 10, 2010 on the website of MoEF (presently MoEF&CC). Thus, I find from

the available records that there is nothing on record to suggest that the rejection of

ECL’s proposal for forest diversion by FAC in September 2010 on a second occasion was

officially communicated to the State Government/ ECL by MoEF. This issue arose

because on a perusal of ECL’s letter dated November 17, 2010 to the Hon’ble Chief

Minister of Jharkhand, it came to be realized that ECL had inter alia highlighted therein

that the Forest Diversion Proposal of its Kodolibad Iron Ore mine was twice rejected by

the FC (Forest Conservation) Division of MoEF and sent back to the State Government.

However, I note here that the BRLMs, the issuer company ESL as well as the promoter of

the issuer company i.e. ECL have all inter alia clarified that the two letters referred in

the subject letter dated November 17, 2010 refer to – (i) letter from MoEF dated

November 04, 2008 to the State Government and (ii) letter from MoEF dated January

16, 2009 addressed to ECL. On perusal of the said two letters issued by MoEF, I note that

letter dated November 04, 2008 was issued by the FC division i.e. the Forest

Conservation division of MoEF, however, letter dated January 16, 2009 was issued by IA

division i.e. the Environmental Impact Assessment division of MoEF, and not the FC

division. Further, I find that MoEF has not commented as regards communication, if any,

directly with ECL. However, in the absence of any evidence to support the prima facie

impression gathered from reading of ECL’s letter dated November 17, 2010, I accept the

contention of the BRLMs, the issuer company ESL and the promoter listed company ECL

that the minutes of the FAC meeting held on September 10, 2010 again recommending

rejection of forest diversion proposal for Kodolibad Iron Ore Mine of ECL on a second

occasion were never shared with ECL, nor, available in public domain. In view of the

same, I do not propose to take forward the issue with regard to the rejection by FAC

of the forest diversion proposal for Kodolibad Iron Ore Mine of ECL on a second

occasion in September 2010 and will proceed with the matter at hand accordingly.

51. Further, I find that the BRLMs have cited Order dated January 15, 2015 passed by the

Hon’ble Securities Appellate Tribunal (SAT) in the matter of Purshottam Budhwani

v SEBI (Appeal No. 53 of 2013) to state that issuing repeated letters/ e-mails in the


garb of clarificatory letters/ supplementary materials is incorrect and impermissible in

law, and that the Hon’ble SAT had considered a similar procedure followed in the

aforesaid cited case to be improper and baseless. Unlike the case of Purshottam

Budhwani v SEBI, where reply based on SCN and not on ‘supplementary material letters’

was considered, in the extant case, I find that all submissions made by the BRLMs, the

issuer ESL and its promoter ECL have been taken on record. Also, as can be seen from

above, at every stage, an opportunity of personal hearing was given to BRLMs, issuer

ESL and its promoter ECL. Thus, the proceedings were conducted as per the principles

of natural justice. Hence, the facts in the extant case are different from the aforesaid case

referred by the BRLMs. Besides, even in the said case of Purshottam Budhwani v SEBI

referred by the BRLMs, I note that the Hon’ble SAT has remanded back to SEBI for issue

of fresh SCN by incorporating all the details. Further, I find that this concern was raised

by the BRLMs after issue of letters in the matter of purported second rejection by FAC

on September 2010. However, in view of the fact that I do not propose to take forward

the issue with respect to second rejection by FAC in September 2010, the contention

itself is no longer relevant.

52. With this in place, we now move ahead to examine one by one the issues involved in the

matter. The issues that arise for consideration in the present case are:

a) What is to be considered as ‘material disclosure’ from the investors point of view

and what is the significance of the phrase ‘offer document shall contain all material

disclosures which are true and adequate’ as per Regulation 57(1), Regulation

57(2)(a)(ii) and Regulation 64(1) of the ICDR Regulations?

b) In which case, whether the actual status of the forest diversion proposal of

Kodolibad Iron Ore Mine of ECL was material disclosure required to be disclosed in

the Initial Public Offer (hereinafter referred to as ‘IPO’) of ESL so that the investors

investing in the IPO of ESL could take an informed investment decision?

c) If so, whether the disclosure made in the DRHP/ RHP and prospectus of IPO of ESL

with respect to the status of ‘forest clearance’ and ‘environmental clearance’ for the

Kodolibad Iron Ore Mine of ECL were true and adequate as per Regulation 57(1),

Regulation 57(2)(a)(ii) and Regulation 64(1) of the ICDR Regulations, as applicable

to the BRLMs/ issuer ESL?

d) If not, whether the BRLMs and the issuer ESL suppressed material facts regarding

rejection of ‘forest clearance’ and ‘environment clearance’ by MoEF with respect to


the Kodolibad Iron Ore Mine of ECL in the RHP of IPO of ESL and thereby misled the

investors who invested in the issue by concealing the factual status of the

clearances from them?

e) If so, did the BRLMs fail to exercise proper due-diligence on their part in violation

of Clause 1 of Form C of Schedule VI of Regulation 57(1), Regulation 57(2)(a)(ii)

and Regulation 64(1) of the ICDR Regulations and Regulation 13 of the Merchant

Bankers Regulations read with clauses 1, 4, 6, 7 and 20 of Code of Conduct for

Merchant Bankers as specified in Schedule III?

f) Does the violation, if any, on the part of the BRLMs attract monetary penalty under

Section 15HB of the SEBI Act?

g) If so, what would be the monetary penalty under Section 15HB of SEBI Act against

the BRLMs and the issuer ESL taking into consideration the factors mentioned in

Section 15J of the SEBI Act?

h) Further, what constitutes events having a bearing on the performance/ operations

of a company as well as price sensitive information, which are required to be

immediately disclosed to the stock exchanges in accordance with Clause 36 of the

Listing Agreement?

i) In which case, whether the rejection of the proposal for forest clearance for

Kodolibad Iron Ore Mine of ECL by MoEF was a event having a bearing on the

performance/ operations of ECL as well as a price sensitive information, which was

required to be immediately disclosed to the stock exchanges in accordance with

Clause 36 of the Listing Agreement read with Section 21 of SCRA?

j) If so, whether such disclosure was made by ECL to the concerned stock Exchanges

where the shares of the company were listed?

k) Does the violation, if any, on the part of ECL attract monetary penalty under Section

23A(a) and 23E of the SCRA?

l) If so, what would be the monetary penalty under Section 23A(a) and 23E of the

SCRA against ECL taking into consideration the factors mentioned in Section 23J of

the SCRA?

53. I note that the BRLMs, ESL and ECL have inter alia denied all allegations made in

the complaints and the SCN/ letters issued to them. ESL has inter alia also stated

that the contentions, allegations and averments in the complaints, SEBI’s letter and

SCNs are contrary to and inconsistent with events that transpired leading to receipt


of in-principle approval by ECL from the Central Government. Further, the BRLMs

have inter alia stated that there was no independent enquiry or any investigation

conducted by SEBI in the present case. The BRLMs have stated that without any

independent evaluation of facts and records, selectively recording the

acknowledgement made by the BRLMs without appreciating the content of the said

responses, such acknowledgment cannot in any manner be construed as admission

of fault by the BRLMs. The BRLMs vide letter dated December 31, 2013 have inter

alia stated that the word ‘rejection/ rejected’ in their earlier response cannot be

construed to be an acknowledgement of rejection as alleged in the complaint

letters filed with SEBI, as the word rejection was coined in the reply in context of

the letter of SEBI which was under reply. The BRLMs have stated that the

Adjudicating Officer, hence, ought to consider all submissions made without

limiting to or relying only upon the documents relied upon and annexed to the SCN,

and, follow the adversarial system to consider whether at all SEBI’s observations &

allegations are sustainable to warrant the initiation of the present proceedings. The

BRLMs have also stated that ESL in its reply has pointed out that the complainants

were neither investors nor shareholders of the company.

54. In the matter, all submissions made by the BRLMs, ESL and ECL both written and at

the personal hearing, as well as documents placed on record, are given due

consideration. I find that SCN is generally issued based on an investigation or

preliminary inquiry conducted by SEBI, and an adjudicating officer so appointed, is

required to conduct a quasi-judicial enquiry and accordingly penalize or acquit the

persons charged. Further, as regards the suggestion of the BRLMs of following the

adversarial system, I note here that fairness to the BRLMs is better protected in the

adversarial system. However, some of the good features of the Inquisitorial system

can also be adopted to strengthen the adversarial system and make it more

effective. This includes leading evidence with the object of seeking the truth and

focusing on justice to the investors. Further, I find that Courts have also

consistently opined that though trials in India are adversarial, there are instances

where shades of the inquisitorial system seep in, like in Public Interest Litigations

and examination of witnesses. The Hon’ble Supreme Court in Makhan Lal Bangal

v. Manas Bhunia & Ors (2001) 2 Supreme Court Cases 652 has held as follows:

“Though the trials in India are adversarial, the power vesting in the court to ask any


question to a witness at any time in the interest of justice gives the trial a little touch

of its being inquisitorial.” Similarly, in Manohar Joshi v. State of Maharashtra

reported in MANU/SC/1218/2011, the Hon’ble Supreme Court held as follows:

“By its very nature the PIL is inquisitorial in character. Access to justice being a

Fundamental Right and citizen's participatory role in the democratic process itself

being a constitutional value, accessing the Court will not be readily discouraged.”

Taking all of the same into consideration, the Order is being passed by following

the adversarial system and exercising the powers available to the Adjudicating

Officer under Section 15I(2) of the SEBI Act and Rule 4(6) of SEBI (Procedure for

Holding Inquiry and imposing Penalties by Adjudicating Officer) Rules, 1995.

55. Further, it is a settled law that where an authority makes an Order in exercise of

a quasi-judicial function, it must record its reasons in support of the Order it

makes. Every quasi-judicial order has to be supported by reasons. Similarly, in the

extant case, I propose to pass a speaking Order giving reason in support and after

observing the principles of natural justice.

56. I further note that vide letter dated December 31, 2013, the BRLMs have inter alia

stated that to hold them guilty of the alleged violations, it is important that each of

the grounds mentioned below will have to be dismissed by the Adjudicating Officer

with justifiable reasons:

That there was no “rejection” of the Proposal made by ECL and it was merely a

communication issued by the MoEF which inter alia informed the inability of the

FAC to recommend acceptance of the Proposal;

That there is no provision for rejection of Proposal, more particularly by the FAC

which is a mere recommending body to assist the MoEF, under the applicable rules

and regulations formulated by MoEF as amended from time to time;

That the same Proposal which was submitted by ECL in 2007, was considered by

the MoEF (which is the deciding authority) and in-principle approval was granted

by the Central Government on February 13, 2012. No fresh Proposal had ever been

submitted;

That the reconsideration of the Proposal cannot mean considering a “rejected”

Proposal. Without prejudice to the above, it is to be noted that, even if the Proposal

were to have been rejected by MoEF, such rejection would not have been fatal to


the public issue made by the Issuer Company save and except the cost factors as

mentioned in the Risk Factors;

That the Proposal and the underlying events pertained to ECL and not the Issuer

Company. Adequate disclosures and risk factors pertaining to the Issuer Company

have been admittedly provided in the Prospectus;

That even assuming without admitting that there was indeed a rejection of

Proposal, the said rejection is not fatal to the object and purpose of the public

issue, and therefore lacks “materiality”;

That it is incorrect to state that there was no visible event that had taken place

indicating a reversal of the initial decision of rejection;

That they have taken all necessary care and exercised due diligence in the conduct

of their affairs in the matter as expected from the merchant banker or any

regulatory bodies.

57. I note here that the BRLMs, ESL and ECL have all endeavoured to provide a

complete chronology of events in the matter, the scheme of the applicable law

along with all necessary records in support thereof. Taking the same into

consideration, we will now move ahead to examine one by one each of the issues

listed as above at Para 52 above.

A) The first issue for consideration is what is to be considered as ‘material

disclosure’ from the investors point of view and what is the

significance of the phrase ‘offer document shall contain all material

disclosures which are true and adequate’ as per Regulation 57(1),

Regulation 57(2)(a)(ii) and Regulation 64(1) of ICDR Regulations?

58. BRLMs Submission vide letter dated December 31, 2013 in the matter:

That the ICDR Regulations do not provide for any cut and dried formula to

identify materiality of information in any offer document;

The word materiality is also not defined in the ICDR Regulations. Therefore, it is

prudent and reasonable that the materiality of a given fact be judged on the

basis of the following criterion:

Whether the failure to disclose such fact has resulted in providing

inadequate information to the shareholders;


Whether the failure to disclose such fact has resulted in depriving the

shareholders to take an informed decision;

Whether such fact, when disclosed would have changed the decision of the

investors who would have taken a different decision than what was taken in

the absence of disclosure of such fact.

59. I note that ICDR Regulations under Regulation 57(1) states that the offer document

shall contain all material disclosures which are true and adequate so as to enable

the applicants to take an informed investment decision. Thus, I note that disclosure

of all material facts in the RHP is a matter of legal obligation. However, as pointed

out by the BRLMs, what is ‘material disclosure’ has not been defined under the

ICDR Regulations. It is based on the disclosures made in the prospectus that an

investor decides whether to invest in a particular company or not. I agree with the

submissions made by BRLMs as above. I note that ‘material disclosure’ has to be

determined objectively from the view point of a reasonable investor. Accordingly, I

note that the assessment of the materiality of an event or development requires a

contextual determination that takes into account all of the relevant circumstances,

including the nature of the event or development and its consequences to the

issuer's business.

60. Here it, however, needs to be noted that the word ‘material’ means ‘important’. The

Black's Law Dictionary (Tenth Edition) defines 'Material' inter alia as 'Of such a

nature that knowledge of the item would affect a person's decision making;

significant; essential.' Further, Materiality is not the same as completeness. One

might possess all material information without necessarily possessing all true and

adequate information. Hence, I find that the ICDR Regulations has tried to strike a

balance by requiring issuers to disclose in the offer document all material

disclosures which are true and adequate, so as to enable the investors to take an

informed investment decision.

61. Now to examine what constitutes material disclosures that are true and adequate

from the investors’ point of view, we need to look at the aspect of what investors

expect in a disclosure. Investors, in general, expect explicit statements bringing out

the real facts and how it would affect their investments or that of the issuer


company. Hence, disclosures in prospectus should be based on actual facts at the

time of the issue and not based on some speculation or hypothesis. In case any

event or outcome happens, which may directly or indirectly affect the issuer

company and / or investors, an investor has the right to know and the issuer/

BRLMs is required to inform the investors all the facts necessary to ensure the

understanding of what has occurred. Concern regarding what impact such truthful

disclosure would have on an investor should not weigh in the mind of the issuer

while making disclosures in the prospectus. Further, the subjective views of the

issuer, if any, thus, does not factor into this analysis. Thus, true and adequate

disclosure is said to be made, if the disclosure is accurate and not misleading and

does not omit a fact that is either material itself or is necessary to understand the

facts that have been disclosed, so as to enable the investors investing in the issue to

take an informed investment decision.

62. Besides, I note that Regulation 57(2)(a)(ii) of the ICDR Regulations states that the

RHP, shelf prospectus and prospectus shall contain disclosures specified in Part A

of Schedule VIII subject to the provisions of Parts B and C thereof. Also as per 64(1)

of the ICDR Regulations, BRLMs are required to exercise due diligence and satisfy

themselves about all the aspects of the issue including the veracity and adequacy of

disclosure in the offer documents.

B) In which case, the next issue for consideration is whether the factual

status of the forest diversion proposal of Kodolibad Iron Ore Mine of

ECL was a material disclosures required to be disclosed in the IPO of

ESL, so that the investors investing in the IPO of ESL could take an

informed investment decision?

63. BRLMs Submission vide letter dated December 31, 2013 in the matter:

that the information pertaining to the rejection of proposal by an advisory

committee pertains to the approval to be obtained from ECL and not ESL;

that rejection or approval of the Proposal would not have any material

bearing on the Issuer Company ESL, except to the limited extent of increasing

the cost of procuring the raw materials, which cannot, by any stretch of


imagination, be construed as a material factor affecting the business of the

Issuer Company ESL or its working;

That the fact that the Proposal was pending approval from MoEF was a fact

clearly borne out from the facts mentioned in various letters;

That in addition to the same, the Prospectus contained several Risk Factors

whereby, the possibility of the Proposal being rejected was also accounted for.

Further, the Risk Factors also intimated the investors that alternative

arrangements by Issuer Company would have to be made to procure the raw

materials in the event of the rejection of forest clearance. Therefore, the

disclosure or non-disclosure of the alleged rejection cannot have any material

bearing on the decision of the investors.

64. ESL’s Submission vide letter dated February 10, 2014 in the matter:

The so called rejection as per records was only an initial response as a part of

the process and was certainly not a final decision;

The initial so called rejection was more in the nature of clarifying that the

proposal had not yet been accepted because of the lack of relevant information

and material, which was called for by the very same letter.

65. I note the following from the replies submitted by the BRLMs & the issuer company

ESL and from the disclosures that were made in the RHP of IPO of ESL:

(a) Promoter Company: ECL incorporated on November 26, 1955 was the

promoter company of ESL incorporated on December 20, 2006. As of the date

of the RHP, ECL was holding 38.70% in ESL;

(b) Mining Blocks: ECL had obtained mining blocks of iron ore and coking coal

in the State of Jharkhand and had set up ESL for implementing 2.2 MTPA

Integrated Steel and Ductile Iron (DI) Spun Pipes project in Jharkhand. The

object of the IPO of ESL was to part finance the construction of this Integrated

Steel and Ductile Iron pipe plant (Rs. 249.24 crore) and margin money

towards bank guarantees (Rs. 22 crore);


(c) No Operating History: ESL did not have any operating history from which

investors could evaluate ESL’s future prospects and viability. Neither was the

project appraised by any bank/ financial institution.

(d) Raw Material Linkage: The success of ESL’s operations, as disclosed in the

RHP, was to depend upon, among other things, ESL’s ability to source raw

materials at competitive prices, for which the project was to source a

significant portion of its raw material requirements from the mines of ECL.

(e) Competitive Strengths disclosed in the RHP: The DRHP/ RHP/ Prospectus

of ESL inter alia disclosed the following as ESL’s primary Competitive

Strengths:

Well experienced promoter: ESL was promoted by ECL, which was in the

business of manufacturing Cast Iron pipes for over four decades and Ductile

Iron Spun Pipes since the last 15 years;

Raw material linkages for iron ore and coking coal: Iron ore and coking

coal are critical inputs for success of an integrated steel project. As per the

agreement dated July 21, 2008, ECL had agreed to supply iron ore and

coking coal to ESL on a cost plus twenty percent basis for a piod of 20 years

from the date of commencement of commercial production (which as per

RHP was to commence from October 2010). Procurement of these raw

materials from ECL was to enable ESL to reduce its operating costs and

ensure a steady supply of coal and iron ore. It was to insulate ESL from

demand-supply volatility in the market, to a significant extent. Also,

procurement of coal and iron ore from the same mine was to ensure that

the raw material was of consistent quality, thereby reducing the lead time

in adjusting ESL’s blast furnace;

Low Cost of Production: As per the agreement dated July 21, 2008, ECL

had agreed to supply 100% iron ore and 30% of coking coal requirement of

ESL on a cost plus twenty percent for a period of 20 years from the date of

commencement of commercial production. This assured availability of iron

ore and coking coal from mines allocated to ECL was to ensure that ESL will

be able to reduce its operating costs. These factors were expected to help

ESL become one of the lowest cost producers of steel.


(f) Current status of development of Iron Ore and Coking Coal Mines of ECL:

The disclosure of ‘current status of development of Iron Ore and Coking Coal

Mines of ECL’ at Page 110 of the RHP, in itself, makes it explicitly clear that the

BRLMs and the issuer company themselves at the time of issue considered the

factual status of ‘forest clearance’ and ‘environment clearance’ with respect to

the Kodolibad Iron Ore Mining Project of ECL to be a material disclosure in the

IPO of ESL.

(g) Serious apprehension expressed by ECL with various authorities: ECL

through various correspondences made to various authorities subsequent to

MoEF’s letter dated November 04, 2008 addressed to the Government of

Jharkhand, brought out in detail in the later part of this Order, had inter alia

highlighted therein that its major investment in ESL was envisaged mainly on

the basis of allocation of the Kodolibad Iron Ore Mine, and that ESL’s Project

would become a non-starter in the absence of Captive source of Iron Ore.

(h) Basis for Issue Price: Under the head ‘Basis for Issue Price’ in the RHP, the

qualitative and quantitative factors which the BRLMs believed justified the

Issue Price were mentioned. The qualitative factors inter alia included raw

material linkages for iron ore & coking coal and low cost of production.

Further, the RHP disclosed that since the issuer company ESL did not have any

operating history, hence quantitative factors such as Adjusted Weighted

Average Earnings Per Share (EPS), Price/ Earnings Ratio (P/E) in relation to

Issue Price and Return on Net Worth were not applicable. Thus, I find that in

view of absence of any quantitative factors for the basis for issue price, the

issue price appears to have been entirely based on the qualitative factors.

Therefore, the factual status of the forest diversion proposal of Kodolibad Iron

Ore Mine of ECL was a material disclosures required to be disclosed in the IPO

of ESL, since raw material linkage resulting in low cost of production was one

of the significant factor making the project economically and financially viable.

Also, it was having a bearing on the issue price of ESL.


66. Thus, from all of the above, I note that the primary raw materials utilised in the

production of Ductile Iron pipes are iron ore and low ash content coal. Further, as

per the RHP, an upturn in the steel industry had led to a sudden and sharp increase

in iron ore prices in India. And, it was the assured availability of iron ore (100%)

and coking coal (30%) from mines allocated to ECL, which was to ensure that ESL

will be able to reduce its operating costs, and was also one of the basis for the issue

price.

67. Hence, the status of ECL’s proposal for diversion of forest land for mining of iron

ore in Kodolibad Reserve Forest was material for ESL’s project, more so, since

commercial production as per the RHP was to commence from October 2010.

68. In the matter, I find that the BRLMs have stated that the fact that the Proposal was

pending approval from MoEF was a fact clearly borne out through ECL’s various

letters with various authorities. However, I find that the investors investing in the

IPO of ESL were kept totally ignorant about the serious apprehension that was

raised by ECL with various authorities highlighting the fact that ESL’s project

would be in great difficulty due to rejection of forest clearance by MoEF. Further, I

find that the BRLMs and ESL have stated that the possibility of the forest diversion

proposal being rejected was also accounted for by incorporating appropriate risk

factors. However, there is a difference between notional and factual, which has

been explained in detail in later part of the Order.

69. Thus, I note that the issuer company ESL had no previous operating history.

Further, the project was not apprised by any bank/ financial institution.

Moreover, ESL had entered into raw material linkage with its promoter ECL for

the primary raw materials iron ore and coking coal to insulate ESL’s project

from the sudden and sharp increase in prices. Also, this was one of the crucial

basis for the issue price, in absence of any quantitative factors available.

Further, RHP of ESL had projected that the commercial operations would

commence from October 2010. In view thereof, ECL had raised concerns with

various authorities in the country inter alia highlighting the fact that without

the back-up of the vital raw material i.e. iron ore, ESL’s project may not be

economically and financially viable. Over and above the same, disclosure of


‘current status of development of Iron Ore and Coking Coal Mines of ECL’ in the

RHP of ESL, made it explicitly clear that the BRLMs and the issuer company

themselves at the time of issue considered the factual status of ‘forest

clearance’ and ‘environment clearance’ with respect to the Kodolibad Iron Ore

Mine of ECL to be a material disclosure in the IPO of ESL. Hence the factual

status of the forest diversion proposal of Iron Ore Mining Project of the parent

company ECL as on the date of the RHP, was a material disclosure for the IPO

of ESL.

C) If so, whether the disclosure made in the DRHP/ RHP and prospectus of

IPO of ESL with respect to the status of the forest diversion proposal for

the Kodolibad Iron Ore Mine of ECL was true and adequate as per

Regulation 57(1), Regulation 57(2)(a)(ii) and/ or Regulation 64(1) of

the ICDR Regulations?

70. BRLMs vide letter dated December 31, 2013 while denying the allegations made

have inter alia submitted as follows:

That providing incorrect facts in the Prospectus would amount to providing

misleading information and thereby defeat the very purpose for which SEBI

has prescribed the detailed disclosure requirements;

that the proposal was pending approval from the MoEF and that the MoEF

was seized of the matter. Therefore any information or any statement contrary

to the said fact would have amounted to misleading information;

That any contrary disclosure would in fact have deprived the investors from

taking an informed decision, as their decision would have therefore been on

the basis an untrue and misleading disclosures;

Further that the materiality and adequacy of information in the Prospectus

will have to be judged on the basis of facts pertaining to the Issuer company,

the information contained in the Prospectus, and whether such information

was adequate for the investor to make an informed decision to invest in the

Issuer Company;


In the alternative, materiality of a fact can be looked into from another

perspective, by referring to the Risk Factors section as provided under the

ICDR Regulations. The Risk Factors as contained in the ICDR Regulations, give

broad frame work to decide materiality;

That the proceedings are initiated based on certain complaints which are

frivolous and suspect. The letters written to the complainants in response to

the complaints were returned to the sender for the reason “address not found”.

The companies which complained to SEBI against the issuer company which

formed the basis of the present proceedings are struck off from the Registrar of

the Companies. The complainants were not even the shareholders of the issuer

company. The same has been pointed out only to demonstrate the background

of the complainants in the present case.

71. ESL vide letter dated December 27, 2013 has also denied all allegations made and

inter alia submitted as follows:

That they treat the responses set out in letters dated February 07, 2012 and

April 18, 2013 as an integral part and parcel of their reply to the SCN;

That as regards the complaints received by SEBI, the complainants were

neither investors nor shareholders of the company. ESL had responded to the

complaints by itself and through Merchant Bankers. Further, the replies

addressed to the complainants were returned by the postal authorities with

the envelopes marked ‘incorrect/ insufficient address’. This indicates that the

complaints were frivolous, mischievous and with malafide intention to create

hindrance and obstacle for ESL;

That, thus, the complainant on whose complaint the SCN is set as one of the

basis, in itself lacks merit. Hence, no credence can be given to such baseless and

frivolous complaints.

72. Complaints Aspect: Before moving forward to examine whether the status of the

forest diversion proposal for the Kodolibad Iron Ore Mine of ECL as disclosed in the

RHP of ESL was true and adequate, we will first look at the complaints aspect so

strongly contended by the BRLMs, ESL and ECL. The BRLMs, ESL and ECL have inter

alia stated that ulterior motives may have sparked such complaints. However, the

question here is whether this justifies ignoring the reported allegations in such


complaints. When SEBI had received complaints alleging independently verifiable

facts, and it appeared desirable to inquire more thoroughly into the alleged facts, the

same could not have been ignored, especially when investor interest was served by

looking into the allegations made in such complaints. Hence, I find that SEBI had

rightly referred the complaints received to the BRLMs, the issuer company ESL and

ECL to offer their comments. Further, it is based on such prima facie enquiry and

taking into consideration the comments offered by each of the BRLMs, issuer ESL

and promoter ECL, SEBI felt that the matter was deemed fit for adjudication. I, thus,

do not agree with the BRLMs, ESL and ECL’s contention that the complaints ought to

have been rejected outright and the present proceedings closed, more so, when SEBI

did not need the complainants to ascertain the veracity of the facts alleged in the

complaints. Further, even if the complainants are not traceable/ defunct company,

etc., the allegation against the Noticees cannot abate on simply that ground. The

complaint may have been the trigger for the initiation of the prima facie enquiry by

SEBI, but, the proceedings do not in any way rely upon the traceability/ genuineness

of the complainants. Rather, it hinges on whether or not the alleged violations were

committed by the BRLMs, the issuer ESL and the listed promoter company ECL.

73. An overview of the Forest (Conservation) Act, 1980, Environmental Impact

Assessment (EIA) Notification and role played by MoEF in clearing the

projects from environment and forestry angle:

The Forest (Conservation) Act, 1980

The Forest (Conservation) Act 1980 was enacted to help conserve the country’s

forests. The Forest (Conservation) Act, 1980 (hereinafter referred to as ‘Forest

Conservation Act’) came in force with effect from October 25, 1980. Under the

provisions of this Act, prior approval of the Central Government is essential for

diversion of forest lands for the non-forestry purposes. The basic objective of the

Act is to regulate the indiscriminate diversion of forest lands for non forestry uses

and to maintain a logical balance between the developmental needs of the country

and the conservation of natural heritage. Since 1980, Rules and Guidelines have

been framed for diversion of forest land for non-forestry purposes. The

consideration of the Forest Conservation Act pertains to the floral and faunal


significance of the forest land proposed to be diverted, feasible alternatives,

number and nature of beneficiaries and nature and extent of the benefits likely to

accrue from the proposed diversion. Further under the provisions of the Forest

Conservation Act, Central Government may constitute a Committee consisting of

such number of persons as it may deem fit to advice the Government with regard to

– (i) the grant of approval under Section 2; and (ii) any other matter connected

with the conservation of forests which may be referred to it by the Central

Government.

The relevant provisions viz. Section 2 and Section 3 of the Forest Conservation Act

as amended are reproduced below:

“2. Restriction on the dereservation of forests or use of forest land for

non-forest purpose. Notwithstanding anything contained in any other law for

the time being in force in a State, no State Government or other authority shall

make, except with the prior approval of the Central Government, any order

directing-

(i) that any reserved forest (within the meaning of the expression "reserved

forest" in any law for the time being in force in that State) or any portion

thereof, shall cease to be reserved;

(ii) that any forest land or any portion thereof may be used for any non-forest

purpose;

(iii) that any forest land or any portion thereof may be assigned by way of

lease or otherwise to any private person or to any authority, corporation,

agency or any other organisation not owned, managed or controlled by

Government;

(iv) that any forest land or any portion thereof may be cleared of trees which

have grown naturally in that land or portion, for the purpose of using it for

reafforestation.”

“3. Constitution of Advisory Committee. The Central Government may

constitute a Committee consisting of such number of persons as may deem fit

to advise that Government with regard to-

(i) the grant of approval under Section 2; and


(ii) any other matter connected with the conservation of forests which may be

referred to h by the Central Government.”

Environmental Impact Assessment (EIA) Notification:

By notification of MoEF S.O. 60 (E) dated January 27, 1994, issued under sub-

section (1) and clause (v) of sub-section (2) of section 3 of the Environment

(Protection) Act, 1986 (29 of 1986) (hereinafter referred to as the ‘Environment

Protection Act’), read with clause (d) of sub-rule (3) of rule 5 of the Environment

(Protection) Rules, 1986, (hereinafter referred to as ‘Environment Protection

Rules’), the Central Government imposed certain restrictions and prohibitions on

the expansion or modernization of any activity or new projects being undertaken in

any part of India, unless environmental clearance has been accorded by the Central

Government or the State Government in accordance with the procedure specified

in the notification published as S.O. 80 (E) dated January 28, 1993. Subsequently, in

exercise of the powers conferred by sub-section (1) and clause (v) of sub-section

(2) of section 3 of the Environment Protection Act, read with clause (d) of sub-rule

(3) of rule 5 of the Environment Protection Rules and in supersession of the

notification number S.O. 60 (E) dated January 27, 1994, MoEF came out with

Environment Impact Notification, SO 1533(E) dated September 14, 2006. The

notification inter alia directed that on and from the date of its publication, the

required construction of new projects or activities or the expansion or

modernization of existing projects or activities listed in the Schedule to the

notification shall be undertaken in any part of India only after the prior

environmental clearance is taken from the Central Government or the State Level

Environment Impact Assessment Authority (hereinafter referred to as ‘SEIAA’),

duly constituted by the Central Government, in accordance with the procedure

specified in the said notification.

The notification classified projects under two categories 'A' & 'B'. Category A

projects (including expansion and modernization of existing projects) require

clearance from MoEF and category B projects require clearance from SEIAA. As per

the projects/ categories listed as Category A in the Schedule thereto, projects or


activities for the mining of minerals involving a mining lease area of 50ha or more

fall under Category ‘A’. Further EIA Notification lays down the form and

requirements of an application for Environment Clearance as well as the stages to

be followed as applicable for the various categories of applications, as defined

therein. These stages include the ‘Scoping’ of applications to determine the terms of

Reference(TOR) and preparation of the EIA Report in respect of the

project/activity for which Environment Clearance is sought, ‘Public Consultation’

stage to address the concerns of the local persons affected by the proposed

project/activity, and ‘Appraisal’ stage involving a detailed scrutiny of the

application by the Expert Appraisal Committee. The EIA Notification further sets

out the time frames for the completion of the various stages involved in the grant of

Environment Clearance.

Role played by Ministry of Environment & Forests (MoEF) (presently Ministry

of Environment, Forest & Climate Change ‘MoEF&CC’)

Ministry of Environment & Forest (MoEF) (presently Ministry of Environment,

Forest & Climate Change ‘MoEF&CC’) is the nodal agency in the Central

Government for planning, promotion, co-ordination and overseeing the

implementation of India’s environmental and forestry policies and programmes.

Thus, MoEF is the clearing arm for projects from environment and forestry angle.

The primary concern of the MoEF under the Government structure are

implementation of policies and programmes relating to conservation of the

country’s natural resources including lakes and rivers, its biodiversity, forests and

wildlife, ensuring the welfare of animals and prevention and abatement of

pollution. These objectives are well supported by a set of legislative and regulatory

measures, aimed at the preservation, conservation and protection of the

environment. As at the relevant point of time, the Forest Conservation Act

including Forest Conservation Rules made thereunder, prescribed the necessary

guidelines for use of forest land for non forest activities. The Forest Conservation

Act and Rules made thereunder try to make a balance between forest conservation

and economic development. The process of decision making involving diversion of

forest land for non forest purpose has been decentralized, depending on the area of

forest land diversion. If the forest land is more than 40 hectare, diversion is to be


approved by MoEF, which is generally based on the recommendation of the Forest

Advisory Committee (FAC) and if the project involves up to 40 hectare, MoEF

regional office handles this with the State Advisory Group. The decision based on

scrutiny of up to 5 hectare is taken directly by MoEF regional office. The FAC

advises the MoEF on whether the forest land should be allowed to be diverted, and

if yes, then under what conditions and restrictions.

As per para 4.2 of the Guidelines issued under the Forest Conservation Act, forestry

clearance is accorded in two stages: In-Principle (Stage-I) and Final (Stage-II). In

the first stage, the proposal shall be agreed to in-principle, and after receipt of

compliance report from the State Government in respect of compliance of the

stipulated conditions, formal approval under the Act is issued.

MoEF has also constituted an Expert Appraisal Committee (EAC) for environmental

appraisal of mining projects for evaluating the Project proposal as well as the EIA

Report, and to advise the government on whether the environmental clearance

should be granted. As per the EIA Notification, MoEF has to consider the

recommendations of the EAC concerned and convey its decision to the applicant

within forty five days of the receipt of the recommendations of the EAC concerned,

except as provided below. The Notification inter alia states that MoEF shall

normally accept the recommendations of the EAC concerned. In cases where it

disagrees with the recommendations of the EAC concerned, the MoEF shall request

reconsideration by the EAC concerned within forty five days of the receipt of the

recommendations of the EAC concerned while stating the reasons for the

disagreement. An intimation of this decision shall be simultaneously conveyed to

the applicant. The EAC concerned, in turn, shall consider the observations of the

MoEF and furnish its views on the same within a further period of sixty days. The

decision of the MoEF after considering the views of the EAC concerned shall be

final and conveyed to the applicant by the MoEF within the next thirty days. The

Notification further states that in the event that the decision of the MoEF is not

communicated to the applicant within the period specified as above, the applicant

may proceed as if the environment clearance sought for has been granted or denied

by the MoEF in terms of the final recommendations of the EAC concerned. Further

that on expiry of the period specified for decision by the MoEF as above, the


decision of the MoEF and the final recommendations of the EAC concerned shall be

public documents.

After the enactment of Forest Conservation Act and subsequently the Environment

Protection Act, the requirement of environment assessment and appraisal was

extended to mining projects where diversion of forest land was involved. Projects

or activities for the mining of minerals involving a mining lease area of 50ha or

more require clearance from MoEF. EAC makes its recommendations for approval

or rejection of projects on merit. After recommendation of the EAC, the proposals

are then processed by MoEF for approval/ rejection.

74. Thus, for any mining project inter alia there are two mandatory clearance

procedures that need to be complied with. One is the Environment clearance

process under the Environment Protection Act and the other is the Forest

clearance process under the Forest Conservation Act. MoEF in discharge of its

statutory function accords Forest and Environment clearances to projects as per

the procedures laid down in Forest Conservation Act and the Environment

Protection Act and the Rules famed thereunder. As per the RHP of ESL, it was only

on receipt of final clearance that mining lease could be executed in favour of ECL.

75. Environment Clearance not the subject matter of present proceedings: In the

present proceeding, I find that the factual status of Environment Clearance is not

the subject matter of the present proceedings. However during the proceedings, it

came within knowledge that MoEF vide letter dated January 16, 2009 had also

decided to reject the proposal for environmental clearance for the Iron Ore Mine of

ECL located in Kodoliabad Reserve Forest, Jharkhand in view of the fact that:

(i) the proposed project was located within the core area of the Singbhum

Elephant Reserve, which is critical to wildlife conservation; and

(ii) FAC had rejected the proposal for diversion of forestland for the said

project as communicated vide letter dated October 04, 2008 (to be read as

‘November 4, 2008’, as per the corrigendum dated November 11, 2008 issued

by MoEF clarifying the date of issue of the letter).


76. Notification SO 1533(E) dated September 14, 2006: I find here that as per SO

1533(E) dated September 14, 2006, environmental clearance from MoEF was

required for going ahead with the Kodolibad Iron Ore Mine of ECL.

77. Power to Adjudicate: I find that Section 15I of SEBI Act inter alia provides as

follows:

“Power to adjudicate.15-I. (1) For the purpose of adjudging under sections 15A, 15B,

15C, 15D, 15E, 15F, 15G,15H, 15HA and 15HB, the Board shall appoint any officer not

below the rank of a Division Chief to be an adjudicating officer for holding an inquiry

in the prescribed manner after giving any person concerned a reasonable opportunity

of being heard for the purpose of imposing any penalty .

(2) While holding an inquiry the adjudicating officer shall have power to summon

and enforce the attendance of any person acquainted with the facts and

circumstances of the case to give evidence or to produce any document which in the

opinion of the adjudicating officer, may be useful for or relevant to the subject-matter

of the inquiry and if, on such inquiry, he is satisfied that the person has failed to

comply with the provisions of any of the sections specified in sub- section (1), he may

impose such penalty as he thinks fit in accordance with the provisions of any of those

sections.”

78. The appointment order merely records the opinion of the Board, usually formed

after an investigation or preliminary inquiry that a person/ entity may have

committed a particular violation. An adjudicating officer is required to conduct a

quasi-judicial enquiry, and accordingly penalize or acquit the persons/ entities

charged. Every quasi-judicial enquiry will unearth certain facts which may reveal

new violations. In general, all issues arising out of a subject matter are to be dealt

together and not split into separate cause of actions. And an adjudicating officer

being a quasi-judicial officer cannot turn a blind eye to the violations that his/ her

inquiry may reveal.

79. In the present context, it is usual for criminal courts to add and remove charges. I

find that under section 216 of the Criminal Procedure Code (hereinafter referred to

as ‘CrPC’), it is possible for any court to alter or add any charge at any time before

judgment is pronounced by reading or explaining such alteration or addition to the


accused. In HasanbhaiValibhai Qureshi v. State of Gujarat, AIR 2004 SC 2078,

the Hon’ble Supreme Court held: "Therefore, if during trial the Trial Court, on a

consideration of broad probabilities of the case, based upon total effect of the

evidence and documents produced is satisfied that any addition or alteration of the

charge is necessary, it is free to do so, and there can be no legal bar to appropriately

act as the exigencies of the case warrant or necessitate." The only bar to such an

exercise is when the law expressly declares a court not to take cognizance of

particular charge. On a clear and plain reading of section 15I, I do not find any such

limitation laid down by the SEBI Act. Further, Section 32 of the SEBI Act permits

the application of principles contained in other laws. I, thus, note that to a limited

extent it is permissible to draw upon principles contained in criminal law even

during the course of civil adjudication, when the law is silent on certain issues.

80. In the given case, I find that violation with respect to mis-statement in the

DRHP/RHP/Prospectus regarding the status of environment clearance, if any,

would attract the same violation of Regulation 57(1), 57(2)(ii), 64(1) of ICDR

Regulations and Regulation 13 of Merchant Bankers Regulations, which are akin to

the violations already charged in the present proceedings. In view of the same,

SEBI was also of the view that it may not be necessary to include any fresh charges

in the matter, and to treat the alleged violation as part of the violations already

alleged in the present proceedings. Hence, I hold that it would be lawful for me to

proceed with the adjudication of the same as well. In the context, reference may be

made to the judgment of the Hon’ble Supreme Court in Criminal Appeal No.656

OF 2005 Rafiq Ahmed @ Rafi vs State of U.P., [2011] 11 S.C.R. 907 wherein the

apex court inter alia held that ‘26. Therefore, where the offences are cognate offences

with commonality in their feature, duly supported by evidence on record, the Courts

can always exercise its power to punish the accused for one or the other, provided the

accused does not suffer any prejudice as afore-indicated.’ Thus, if a criminal court,

which has a higher burden of complying with fundamental rights of the parties, can

proceed against cognate violations after giving reasonable opportunity, I am of the

view that the same can be certainly done in a civil adjudication, especially since

reasonable opportunity has been provided, unless the BRLMs and issuer ESL can

show substantial prejudice.


81. Further, like all procedural laws, Section 15-I of the SEBI Act and the SEBI

(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer)

Rules, 1995 are quasi-judicial processes that contain only a bare framework, they

are designed to further the ends of justice and not to frustrate them by the

introduction of endless technicalities. Of course, the rights of the noticees have to

be kept in mind and safeguarded. However at the same time, it cannot be forgotten

that the investors’ rights also have to be safeguarded. And such right of the noticees

has been safeguarded by issuing individual supplementary show cause notices/

letters and advising the noticees to furnish reply/ comments, if any, on the same.

Further on receipt of the reply, an opportunity of personal hearing was also given.

Hence, I intend to also look at the aspect of whether there was violation, if any, of

Regulation 57(1), 57(2)(ii), 64(1) of ICDR Regulations and Regulation 13 of

Merchant Bankers Regulations with respect to the status of ‘environment

clearance’ of the Kodolibad Iron Ore Mine of ECL as well.

82. True and adequate disclosures of forest diversion proposal of Iron Ore Mine

of ECL: With this in place, we now move ahead to examine whether the status of

forest diversion proposal of Kodolibad Iron Ore Mine of ECL was true and adequate

as per Regulation 57(1), Regulation 57(2)(a)(ii) and/ or Regulation 64(1) of the

ICDR Regulations. To ascertain the same, we need to weigh what was disclosed in

the DRHP/ RHP/ prospectus of ESL against information that was not disclosed, and

how a reasonable investor would have placed the undisclosed information vis-à-vis

the disclosed information. The following steps would be involved in the process:

a) Determine what was the factual status of the forest diversion proposal of

Kodolibad Iron Ore Mining Project of ECL as on the date of filing of the DRHP

with SEBI/ RHP/ Prospectus with RoC;

b) Determine the disclosures that were made in the RHP of IPO of ESL with

respect to the forest diversion proposal of Kodolibad Iron Ore Mining

Project of ECL and with respect to the arrangement between ECL and ESL

for supply inter alia of iron ore;


c) Determine whether all material disclosures with respect to the same were

disclosed in the DRHP/ RHP/ Prospectus based on actual facts at the time of

the issue and not based on speculation or hypothesis.

What was the factual status of the forest diversion proposal of Kodolibad Iron

Ore Mining Project of ECL as on the date of filing of DRHP with SEBI/ RHP/

Prospectus with RoC?

83. The factual status of forest diversion proposal as on the date of filing of DRHP with

SEBI/ RHP/ Prospectus with RoC is as given below:

a) Correspondence between ECL, Government of Jharkhand and MoEF from

the date of filing of the proposal upto the issue of letter dated November

04, 2008/ January 16, 2009 by MoEF are outlined below chronologically:

i. Vide letter dated January 20, 2007, ECL filed its proposal before the Nodal

Officer, Department of Forest, Jharkhand for diversion of 55.790 hectare of the

forest land inter alia for mining of iron ore in the Kodolibad Reserve Forest of

Saranda Forest Division in West Singbhum District;

ii. ECL’s proposal for the Iron Ore Mining Project exceeded 40 hectares and

therefore the Forest & Environment Department, Government of Jharkhand by its

letter dated April 17, 2008 forwarded the proposal to MoEF for obtaining its

approval for de-reservation of the reserved forest;

iii. MoEF (FC Division) vide letter dated October 4, 2008 (hereinafter referred to as

letter dated November 4, 2008, as per the corrigendum dated November 11, 2008

issued by MoEF clarifying the date of issue of the letter) addressed to the Principal

Secretary (Forest), Government of Jharkhand informed that:

the proposal dated April 17, 2008 filed by the Government of Jharkhand

regarding diversion of 55.79 hectares forest land for mining of iron ore in

favour of ECL in Saranda Forest Division in West Singhbhum District of

Jharkhand seeking approval under the Forest (Conservation) Act, 1980 was


placed before the FAC on June 11, 2008 and October 10, 2008 and the

Committee (FAC) noted that:

o there were already 27 mines existing in the area which are located in

eastern part of the Saranda, while the proposed mine was located in the

new area and the nearest existing mine was 6.50 km away;

o further that the Wildlife Institute of India (WII) in its report dated

October 03, 2008 had inter-alia informed that “the opening of proposed

site for mining will lead to disturbances, pollution to the rivers and

fragmentation and depletion of forest resources and in this region, Saranda

Forest Division is the only un-fragmented forest having dense mixed forests.

The increasing pollution in the Koyna river system has not been a matter of

concern for wild animal only but also to the people who are largely

dependent on this water resources.”

that after discussing the proposal in detail, the FAC took the following view/

actions:

o FAC rejected the proposal on account of being part of core zone of

Singhbhum Elephant Reserve and critical to wildlife conservation;

o FAC desired that the State Government submit a detailed report on the

present status of all other four mines located in the core of Singhbhum

Elephant Reserve;

that taking the same into consideration, MoEF vide their aforesaid letter

informed that:

o the State Government would be at liberty to request for

reconsideration of the proposal as per guideline 4.14(ii); and

further;

o in view of the above, the State Government was requested to submit

a detailed report on the present status of all four other mines located

in the core of Singhbhum Elephant Reserve.


b) Correspondence between ECL, Government of Jharkhand and MoEF from

the date of MoEF’s aforesaid letter dated November 04, 2008 upto the

filing of DRHP dated March 25, 2010 with SEBI/ RHP dated September

11, 2010 with RoC/ Prospectus dated September 29, 2010 with ROC

(Issue Opened on September 21, 2010 and Closed on September 24,

2010) are outlined below chronologically:

i. ECL vide letter dated November 17, 2008 wrote to the office of the Principal

Secretary (Forest), Government of Jharkhand giving their view points on each of

the points raised by FAC while rejecting their forest diversion proposal of

Kodolibad Iron Ore Mining Project in West Dinghbhum District, Jharkhand. Further,

while requesting the Government of Jharkhand vide their aforesaid letter to

represent their proposal strongly and expeditiously to the MoEF for favourable

reconsideration of the proposal as per Guidelines 4.14 (ii) as prescribed by MoEF, it

was inter alia highlighted therein that they propose to start production by 2010 for

which they would need the availability of iron ore by early 2010, and that delay in

approval of the forest diversion proposal would be a major setback inter alia to

them;

ii. MoEF vide letter dated January 16, 2009 informed ECL that in view of the fact that

the proposed project was located within the core area of Singhbhum Elephant

Reserve which is critical to wild life conservation, and that FAC had rejected the

proposal for diversion of forestland for the said project as communicated vide

MoEF’s letter dated October 04, 2008 (to be read as November 04, 2008), MoEF

had decided to reject the proposal for environment clearance for the project;

iii. ECL vide letter dated January 29, 2009 informed the Inspector General of

Forest, MoEF (FC Division) that the Government of Jharkhand is actively

considering the Iron Ore Mining Project and would shortly make the appropriate

request to Ministry for reconsideration of the proposal of diversion of forestland

for its Iron Ore Mine located in Kodoliabad Reserved Forest, Singhbhum (West)

Jharkhand. It was further inter alia stated therein that in view of the unstable

political situation prevailing in the state, the proposal for reconsideration would

take some extra time beyond the prescribed period;


iv. Inspector General of Forests, MoEF vide letter dated January 29, 2009

forwarded the aforesaid letter to the Principal Secretary, Government of

Jharkhand requesting the Government of Jharkhand to indicate their views in the

matter;

v. The Government of Jharkhand vide letter dated May 26, 2009 advised ECL to

represent its case with supporting documents to the several observations made by

MoEF, FC Division vide letter dated November 11, 2008 (appears to have

inadvertently referred to as November 11, 2008 instead of letter dated November 04,

2008) addressed to the Principal Secretary (Forest), Government of Jharkhand;

vi. ECL vide unsigned letter (as per document on record) dated May 27, 2009

addressed to the Chief Secretary, Government of Jharkhand submitted a note

listing out the observations made by MoEF (FC Division) and their response to the

same. Vide the said letter, ECL requested for recommending their forest diversion

proposal again to the MoEF;

vii. Thereafter vide letter dated July 10, 2009, the Government of Jharkhand

forwarded the letter of ECL dated May 27, 2009 to the MoEF;

viii. ECL vide letter dated July 24, 2009 addressed to the Senior Assistant Inspector

General of Forest, MoEF inter alia annexed the note listing out the observations

made by MoEF (FC Division) and their response to the same that was earlier sent to

the Chief Secretary, Government of Jharkhand vide unsigned letter dated May 27,

2009. A copy of letter dated December 23, 2008 addressed to the Principal Chief

Conservator of Forests, Jharkhand by the Divisional Forest Officer, Saranda giving

the current status of the mines as required by MoEF letter dated November 04,

2008 was also enclosed. The letter further inter alia brought to the notice of MoEF

that the Steel Plant is at an advanced stage of construction and that they expect it to

come into production by mid-2010;

ix. MoEF vide letter dated August 03, 2009 had directed the Chief Secretaries of All

States to ensure compliance with the Scheduled Tribes and other Traditional


Forest Dwellers (Recognition of Forest Rights) Act, 2006 that had become effective

from January 01, 2008, in respect of proposals of diversion of forest land for non-

forest purposes under the Forest (Conservation) Act, 1990. Accordingly the

Divisional Forest officer vide letter dated February 19, 2010 had directed the Circle

officer to obtain a No Objection Certificate from the relevant Gram Sabha and

certification under the Scheduled Tribes and Other Traditional Forest Dwellers

(Recognition of Forest Rights) Act, 2006;

x. ECL vide letter dated September 09, 2009 requested the Department of Forest

and Environment, Government of Jharkhand to address a letter to MoEF to

reiterate its recommendation and urgency for clearance of the forest diversion

proposal on the basis of its original recommendation and its subsequent letter

dated July 10, 2009. The letter inter alia further added that the Steel Project was at

an advanced stage with production expected to commence by September, 2010 and

that the Project would become a non-starter in the absence of Captive source of

Iron Ore. Vide the said letter, ECL urged the Government of Jharkhand that they

need Forest Clearance for Iron Ore Mine urgently;

xi. Vide letter dated September 18, 2009, the Forest and Environment Department,

Government of Jharkhand, brought the aforesaid to the notice of MoEF while

requesting MoEF to take appropriate action with respect to the application filed by

ECL for the proposed Iron Ore Mining Project;

xii. On March 25, 2010, the DRHP of ESL was filed with SEBI. As per the draft DRHP,

the commercial operations were to commence from October 2010;

xiii. Senior Assistant Inspector General of Forest, MoEF (FC Division) vide letter dated

May 03, 2010 addressed to the Principal Secretary (Forest), Government of

Jharkhand informed that the matter was again referred to the Competent

Authority pursuant to the State Government’s letter dated July 10, 2009 and the

Competent Authority had desired to have a detailed list along with the present

status of all active/ passive mines and other activities in the core zone of Singbhum

Elephant Reserve at the earliest to enable the MoEF to take a comprehensive view


in the matter. Accordingly, vide the aforesaid letter, the Government of Jharkhand

was advised to submit the same at the earliest;

xiv. ECL sent letters dated July 13, 2010 and July 14, 2010 to the then Hon'ble Prime

Minister and the then Hon’ble Minister for Environment & Forest respectively

seeking their intervention in the matter of forest clearance of its Iron Ore Mine. The

letters highlighted the fact that full financial closure for the project of Rs. 7,262

crore had been achieved and the company has already spent nearly Rs. 4,500 crore

on its implementation. It was further brought out in the said letters that the

company targets to start commissioning the project by September 2010 and to

complete the project in phases in the near future. The concluding part of the letters

again stressed upon the fact that without the back-up of the vital raw material i.e.

iron ore, the project may not be economically viable;

xv. The Principal Secretary on behalf of the then Hon’ble Prime Minister vide

letter dated August 10, 2010 forwarded the copy of representation of ECL to

MoEF for considering the matter and for appropriate action most expeditiously;

xvi. ECL vide letter dated August 11, 2010 inter alia informed MoEF the realistic

position about the presence of Elephants in the Eastern part of the Saranda Forest

Division, where most of their mines were located. It was inter alia also informed

vide the said letter that most of the elephant population were on the Western Side

of the Saranda Forest Division where there were no mines. Also that their group

company ESL was putting up an Integrated Steel Plant in Jharkhand for which out

of the project cost of Rs. 7,262 crore, they had already made an investment of Rs.

4,331.15 crore till end July 2010, and that they expected to start commissioning the

project in 2-3 months time and complete the same by March 2011. It was reiterated

therein that for providing raw materials for the said project, the Government of

Jharkhand had allocated a iron ore mine viz. Dirsumburu Mine, also known as

Kodolibad Iron Ore Mine in the Saranda Forest Division of Jharkhand, for which the

forest diversion proposal was rejected by FAC of MoEF and sent back to the State

Government stating that they could forward the case again to the MoEF for

reconsideration. The concluding para of the letter highlighted the fact that their


Steel Project was about to start production very shortly and that they urgently

need Iron Ore, without which the Project would be in great difficulty;

xvii. The RHP was filed with RoC on September 11, 2010. The IPO of ESL opened on

September 21, 2010 and closed on September 24, 2010;

xviii. The Prospectus dated September 29, 2010 of ESL was filed with ROC. As per the

Prospectus, the commercial operations were to commence from October 2010.

c) Correspondence between ECL, Government of Jharkhand and MoEF

subsequent to the filing of the prospectus dated September 29, 2010 with

ROC are outlined below chronologically:

i. ECL vide letter November 17, 2010 requested the Hon’ble Chief Minister of

Jharkhand to take up the issue of Forest Clearance of Kodolibad Iron Ore Mine in

the Eastern part of Saranda Forest, Jharkand at the highest levels in Delhi. It was

inter alia brought out therein that ECL has promoted a major Greenfield Steel

Project in Jharkhand for which the first phase project cost was approx. Rs. 7,500

crore, of which Rs. 6,000 crore had already been spent and that the first phase of

the plant was expected to be commenced in 2011. It was further highlighted that

the major investment was envisaged mainly on the basis of allocation of the

Kodolibad Ion Ore Mine. The letter also pointed out that the Forest Diversion

Proposal of Kodolibad Iron Ore mine was twice rejected by the FC Division of MoEF

and sent back to the State Government, and that the State Government on both the

occasions had satisfactorily answered the issues raised by MoEF while reiterating

its recommendation. The letter further raised some apprehension about hesitation

in MoEF for granting Mine Leases in the Elephant Core Zone of Saranda Forest

Division, and the concern felt by ECL that in case the project of ECL is denied forest

clearance, it would put their project at a great risk;


ii. Thereafter, ECL vide letter dated November 29, 2010 forwarded documents to the

Director, Ministry of Steel, New Delhi to take up their case with the then Prime

Minister of India;

iii. ECL vide letter dated January 20, 2011 addressed to the Ministry of Mines, New

Delhi inter alia reiterated that their group company ESL’s Integrated Steel Project

in Jharkhand with an investment of Rs. 7,000 crore was at an advanced stage of

completion, with almost Rs. 6,000 crore already spent, and was expected to come

into production by June 2011. Vide the said letter, ECL further raised its

apprehension about their being left with no captive source for sourcing Iron Ore in

absence of forest clearance from MoEF;

iv. ECL vide letter dated February 21, 2011 addressed to the then Hon’ble Minister

of Finance sought the intervention of the Hon’ble Finance Minister by taking up

the matter at the highest level at MoEF as well as with the Group of Ministers, to

help them obtain Forest Clearance for Iron Ore Mine for the Steel Project, through

their promoted company ESL in Jharkhand. It was again inter alia brought out

therein that the State Government had twice recommended the proposal for forest

clearance to the MoEF, meeting and clarifying the issues raised by the MoEF,

however, inspite of that MoEF had rejected the proposal. It was further brought out

vide the said letter that the very viability to any Integrated Plant depends on the

availability of Iron Ore, and there had been large scale closure of Iron Ore Mines in

Orissa and Jharkhand, thereby depleting the availability of Iron Ore. It was further

highlighted through the said letter that the Steel Project was envisaged on supply

of Iron Ore from Captive Iron Ore Mine, and in case Iron Ore was not available to

them, the very viability of Steel Project would get seriously jeopardized;

v. The Secretary, Ministry of Steel vide its letter dated March 08, 2011 inter alia

requested MoEF to study all the possibilities and come out with such a feasible

solution which will take care of MoEF’s concern regarding the elephant protection

in Saranda forest, at the same time ensure that the steel investment in the country

as well as the economic growth of Jharkhand State does not get seriously affected;


vi. Thereafter vide letter dated April 02, 2011, the Chief Minister of Jharkhand

addressed a letter to the Minister of State for Environment and Forests,

Government of India requesting him to look into the matter;

vii. ECL vide letter dated April 23, 2011 addressed to the Hon’ble Chief Minister,

Government of Jharkhand requested that the matter regarding granting of forest

clearance for the Iron Ore Mine connected to the project may be taken up with the

Union Minister of State for Environment and Forests during his upcoming visit to

Ranchi. It was again inter alia reiterated therein that the Steel Plant would be fully

operational in 2011 and in case the Forest Clearance for the Iron Ore Mine is not

granted immediately, the project would be affected very severely;

viii. ECL vide another letter dated July 04, 2011 addressed to the Hon’ble Minister of

Finance again brought to the Hon’ble Minister’s attention their earlier letter dated

February 21, 2011 and requested to take up the issue at the next Group of

Minister’s meeting, to expedite the forest clearance for their Iron Ore Mine. It was

here too reiterated that they had made substantial progress and were on the verge

of starting production, but, without captive source of Iron Ore, their large Steel

Project would not be financially viable;

ix. MoEF vide its letter dated February 13, 2012 addressed to the Principal

Secretary (Forests), Government of Jharkhand on the proposal referred by the

State Government vide letter dated April 17, 2008 conveyed its in-principle

approval for diversion of 55.79 ha forest land in Kodolibad RF for Dirsumburu

Mine for mining of iron ore in favour of ECL, subject to the fulfillment of 29

conditions imposed thereof. On a perusal of the said letter it is observed that even

while giving the in-principle approval as such, MoEF at condition no. (11) had

noted verbatim as below:

“The issue of Singhbhum Elephant Reserve and the Core Area containing all those

mines is still a factor to be considered. Therefore, the State Government shall

undertake a complete and detailed study on impact of mining activity on Singhbhum

Elephant Reserve, local flora and fauna and possible pollution of river Koyna.”


Determine the disclosures that were made in the Prospectus of ESL with

respect to the status of ‘forest clearance’ and ‘environment clearance’ for the

iron ore project of ECL and also with respect to the arrangement between

ECL and ESL for supply inter alia of iron ore

84. The following disclosures were inter alia made in the prospectus of ESL in relation

to the proposal of iron ore mine of ECL and the arrangement between ECL and ESL

for supply inter alia of iron ore:

The arrangement between ECL and ESL for the long term supply of coking

coal and iron ore were disclosed in Chapter – “Our Business, page 105, 106,

109, 138, and 139”;

Following are the extracts from the prospectus:

Page 105-106 - Raw material linkages for iron ore and coking coal

Iron ore and coking coal are critical inputs for success of an integrated steel project.

The project envisages part of captive power, which will be based on gas recovery from

the coke oven, BF-BOF processes or from coal. As per the agreement dated July 21,

2008, ECL has agreed to supply iron ore and coking coal to our Company on a cost

plus twenty percent basis for a period of 20 years from the date of commencement of

commercial production. Procurement of these raw materials from ECL shall enable us

to reduce our operating costs, ensure a steady supply of coal and iron ore. This would

also insulate our Company from demand – supply volatility in the market, to a

significant extent. Also, procurement of coal and iron ore from the same mine will

ensure that the raw material is of consistent quality thereby reducing the lead time in

adjusting our blast furnace.

Low Cost of Production

As per the agreement dated July 21, 2008, ECL has agreed to supply iron ore and 30%

of our coking coal requirement on a cost plus twenty percent for a period of 20 years

from the date of commencement of commercial production. We believe that the

assured availability of iron ore and coking coal from mines allocated to ECL will


ensure that we will be able to reduce our operating costs and ensure a steady supply

of coal and iron ore, at a lower cost. The major capital equipment for the plant is

based on Chinese technology which provides higher productivity with lower costs. We

believe that these factors will result in strong project economics and help us to

become one of the lowest cost producers of steel. Besides this, our locational

advantage also enables us to enjoy lower costs.

Page 109 - Iron Ore

Iron Ore will be sourced from ECL’s captive mine on a cost plus basis. ECL has been

allocated an iron ore deposit spread over an area of 192.5 hectares in the Kodolibad

Reserve Forest. Proposal for the forest diversion is with Ministry of Environment and

Forest for grant of clearance. On receipt of the final clearance, mining lease

agreement should be executed in favour of ECL.

Page 138-139 - Other Agreements

1. Coking Coal Supply Agreement between our Company and ECL.

2. Iron-Ore Supply Agreement between our Company and ECL

Our Company and ECL (the “Supplier”) (the “Parties”) have entered into an

agreement dated July 21, 2008 (the “Agreement”) for supply of Iron Ore – Lump and

Fines (the “Product”) by the Supplier to our Company in accordance with the terms of

this Agreement. The period of contract (“Contract Period”) shall be 20 years

commencing from date of the commencement of commercial operations of the 2.2

MTPA integrated steel and ductile iron pipes project in the State of Jharkhand (the

“Project”) with an extended period of 3 years.

The Agreement, inter alia, provides that:

(i) The Supplier shall supply total contract quantity ‘(TCQ’) of 7,980,000 metric

tonnes of Iron Ore – Lump and 67,630,000 metric tonnes of Iron Ore – Fines during

the Contract period on a priority basis (399,000 metric tonnes each year of Iron Ore –

Lump and 3,381,500 metric tonnes of Iron Ore - fines);

(ii) Our Company is to reimburse ECL a fixed component in relation to capital cost

recovery (for depreciation of relevant equipment), operation and maintenance


charges, statutory expenses, transportation, handling and storage charges and fixed

profit @ 20% based on reimbursement of costs;

(iii) On occurrence of an event of default by ECL, our Company shall have a right to

appoint an expert agency for opinions and ECL shall abide by the suggestions and

operate the mine in accordance with the recommendations by the expert; and

(iv) On occurrence of an event of default by our Company, ECL shall have a right to

suspend the supplies of the product. If the contract is in suspension for a period of 3

years or if the mine operation is abandoned, the Contract shall be terminated.

Our Company shall have the right to assign this Agreement in favour of the

commercial banks and financial institutions finalised by our Company for grant of

financial assistance for setting up the Project (the “Lenders”) to secure its borrowings

with prior consent of ECL. ECL shall have the right to assign its rights and obligations

under this agreement provided that the terms of this agreement shall be binding on

the assignee.

The Current Status of development of Iron Ore and Coking Coal Mines of ECL as

shown at Page 110 of the Prospectus is reproduced below:

Permit Approving Authority

Coking Coal Iron Ore

Mine Allocation Ministry of Coal Received Received Approval of Mining Plan

Ministry of Coal Received Received

SPCB JSPCB Received NoC Received Environmental Clearance

MoEF Received Received, but applicable once Forest Clearance is

received Railway Transport Clearance

Railway Board Received To be received alongwith Forest Clearance

Forest Clearance MoEF Not applicable

Forest diversion proposal already submitted

Signing of Mining Lease

State Government of Jharkhand

Received Will be applied for after Forest Clearance is

received


Risk Factors brought out in the prospectus relevant to the issue at hand:

Page 5 - Risk factor 4

Since we have no operating history, we may not able to operate effectively which may

have a material adverse impact on our future performance.

Our Project is still in the construction phase and we do not currently have any

revenue generating operations, and we have no significant operating history from

which one can evaluate our business, future prospects and viability. One should not

evaluate our prospects and viability based on the performance of ECL or other

affiliates. Commercial operations of our Project are not scheduled to commence until

October 1, 2010, and our prospects must be considered in light of the risks and

uncertainties inherent in new business ventures. As a result, we cannot give any

assurance about our future performance or that our business strategy will be

successful.


There may be a cost or time overrun if we are unable to commence operations as

expected and which may adversely affect our project cost and the results of our

operations.

Steel and D.I. Pipe plants typically have long gestation period. The scheduled

completion target for our Project is an estimate and is subject to delays as a result of,

among other things, contractor performance shortfalls, unforeseen engineering

problems, dispute with workers, force majeure events, availability of financing,

unanticipated cost increases or changes in scope and inability in obtaining certain

property rights, fuel supply and government approvals, any of which could give rise to

cost overruns or the delay in our implementation schedule. We have extended our

commencement of production date from April 01, 2010 to October 01, 2010. Failure

to complete the project according to its specifications or schedule, if at all, may give

rise to potential liabilities as a result, our returns on investments may be lower than

originally expected, which may have a material adverse impact on the business

operations of our Company.



Our operations will have significant raw material requirements, and we may not be

able to ensure the availability of the raw materials at competitive prices, which may

adversely affect results of our operations.

The success of our operations will depend on, among other things, our ability to

source raw materials at competitive prices. Our Project will source a significant

portion of its raw material requirements from the mines of ECL. Our Company’s

requirement of coking coal is proposed to be primarily met from a mix of ECL’s coking

coal mine at Parbatpur (30%) and other sources (70%). Currently, we have not

entered into any firm arrangement for purchase of our balance coking coal

requirement. We may be unable to procure our coking coal requirement or may have

to procure it at a higher price, which may adversely affect our results of operations

and financial performance. Further, in case ECL is unable to perform its obligations

under the iron ore supply agreement, we have may have to procure it at a higher

price, which may adversely affect our results of operations. For details of the raw

material arrangements for the Project see the chapter titled “Our Business” on page

105 of this Red Herring Prospectus.

Page 8 and 9 - Risk factor 12

In case ECL is unable to develop its mines, we may be unable to procure raw material

under the current arrangement, and may have to procure raw material from the

market at a higher price which may adversely affect our business and results of

operations.

The Iron Ore and Coking Coal mines of ECL are currently under development. In case

ECL is unable to develop its mines, we would be unable to procure raw materials

under the current arrangement, which may adversely affect our business and results

of operations. Further, in respect of ECL’s proposed iron ore mine at Kodolibad,

Jharkhand, execution of mining lease is pending for receipt of approval from the

Ministry of Environment and Forests, Government of India. Only upon receipt of such

approval, Government of Jharkhand shall execute the necessary mining lease in

favour of ECL. There can be no assurance that the approval from the Ministry of

Environment and Forests will be received in a timely manner and we may have to


obtain iron ore supplies from other sources. Further, there can be no assurance we

will be able to obtain coal supplies either in sufficient quantities or acceptable

qualities, or at all. We may also have to purchase the raw materials at a higher price

from the market for carrying out our operations, which may cause a delay in our

commercial production, thereby having an adverse effect on our business, financial

condition and results of operations.”

85. It is, inter alia, thus observed from the above that it was disclosed in the prospectus

that the current status of development of Iron Ore Mine of ECL was:

Environment Clearance: ‘Received, but applicable once Forest Clearance is

received’;

Forest Clearance: ‘Forest diversion proposal already submitted’.

Determine whether all material disclosures with respect to the ‘Forest

Clearance’ and ‘Environmental Clearance’ of Kodolibad Iron Ore Mining

Project of ECL were disclosed in the DRHP/ RHP/ Prospectus based on actual

facts at the time of the issue and not based on speculation or hypothesis.

Forest Clearance:

86. From the above analysis, I find that FAC had rejected the proposal on account of

being part of core zone of Singhbhum Elephant Reserve and critical to wildlife

conservation. FAC had further desired that the State Government submit a detailed

report on the present status of all other four mines located in the core of

Singhbhum Elephant Reserve.

87. MoEF vide letter dated November 04, 2008 informed the Government of Jharkhand

that the State Government would be at liberty to request for reconsideration of the

proposal as per guideline 4.14(ii). MoEF also requested the Government of

Jharkhand to submit a detailed report on the present status of all four mines

located in the core of Singhbhum Elephant Reserve.


88. In the matter, the BRLMs vide letter dated December 31, 2013 have inter alia

submitted as follows:

That FAC has only advisory role to play in the approval process and FAC is not

a decision-making authority;

That mere recommendation of the FAC cannot in any way be considered as the

decision of the MoEF, as FAC lacks the power and function to decide on a

proposal;

That it is upon the advice and recommendation of the FAC, without being

bound to accept such advice, that the Central Government considers the

proposal before it and tenders a decision thereon;

That MoEF letter dated October 4, 2008 (read as November 4, 2008) stating

that FAC had purportedly ‘rejected’ the Proposal and noting its observations in

support of its view, is therefore not a decision of the Central Government on the

Proposal filed by ECL, but, merely a letter from the MoEF communicating the

inability of the FAC to recommend the Proposal of ECL;

Therefore the use of the term ‘rejected’ as loosely used in the correspondence

cannot be understood or construed as a rejection of the Proposal by the MoEF;

that ECL’s Proposal had never been rejected for forest clearance by the MoEF,

even though the letter dated October 4, 2008 (read as November 4, 2008) uses

the word “rejection”;

that moreover, the reading of the said letter makes it clear that there is also a

direction to the State Government to furnish a detailed report on all the four

mines located in the core of Singhbhum Elephant Reserve;

that vide letter dated November 4, 2008, the MoEF communicated the

recommendation of the FAC on the Proposal to the Department of Forests and

Environment, Government of Jharkhand in view of the observations made

therein, and advised the concerned department of the State Government to

submit the Proposal for reconsideration along with further information as to

the status of the other mines located in the core zone of the Singhbhum

Elephant Reserve. This is what has been prescribed under Guideline 4.14;

The provision relating to rejection of proposal has been omitted from the Rules

post the amendments made to Forest Conservation Rules, 2003 in 2004;


Further sub-clause (ii) contained in Guidelines 4.14 which contained similar

provision on rejection as quoted above, also seems to be deleted as the

Guideline 4.14 as it stands today does not contain sub-clause (ii);

that the Guideline only sets a time frame to submit the proposal and there

cannot be any contrary interpretations in this regard.

89. Rule 7 and 8 of Forest (Conservation) Rules, 2003 have been verbatim

reproduced below:

“7. Committee to advise on proposals received by the Central Government:

(1) The Central Government shall refer every proposal, complete in all respects,

received by it under sub-rule (3) of rule 6 including site inspection reports, wherever

required, to the Committee for its advice thereon.

(2) The Committee shall have due regard to all or any of the following matters while

tendering its advice on the proposals referred to it under sub-rule (1), namely:-

(a) Whether the forests land proposed to be used for non-forest purpose forms part of

a nature reserve, national park, wildlife sanctuary, biosphere reserve or forms part of

the habitat of any endangered or threatened species of flora and fauna or of an area

lying severely eroded catchment;

(b) Whether the use of any forest land is for agricultural purposes or for the

rehabilitation of persons displaced from their residences by reason of any river valley

or hydro-electric project;

(c) Whether the State Government or the other authority has certified that it has

considered all other alternatives and that no other alternatives in the circumstances

are feasible and that the required area is the minimum needed for the purpose; and

(d) Whether the State Government or the other authority undertakes to provide at its

cost for the acquisition of land of an equivalent area and afforestation thereof.”

“8. Action of the Central Government on the advice of the Committee

The Central Government shall, after considering the advice of the Committee tendered

under Rule 7 and after such further enquiry as it be necessary, grant approval to the

proposal with or without any conditions or reject the same within 60 days of its

receipt.”


90. I note further that Rule 8 as above has been omitted by Forest (Conservation)

Amendment Rules, 2004. However vide the said amendment, the following has

been added in rule 7:

‘i) in sub-rule (1) for the words, brackets and figures “sub-rule (3) of rule 6” the words

brackets and figures “sub-rule(6) of rule 6” shall be substituted.

ii) After sub-rule (1), the following sub-rule shall be inserted, namely:

“(1A) These proposals shall be processed and put up before the Committee and the

recommendations of the Committee shall be placed within a period of ninety days of

the receipt of such proposals from the State Government or the Union Territory

Administration, as the case may be, before the Central Government for its decision.”

iii) in sub-rule (2), in clauses (c) & (d), at both places, for the words “or the other

authority”, the words “or the Union Territory Administration, as the case may be” shall

be substituted.’

91. Thus, I note that under Rule 8 of Forest (Conservation) Rules, 2003, the Central

Government could grant approval to the proposal with or without any conditions

or reject the same within 60 days of receipt of the advise of FAC. There was no

timeline for processing of the proposals, placing the same before the FAC, and

placing the recommendations of the FAC before the Central Government. The same

has been amended vide Forest (Conservation) Amendment Rules, 2004 whereby

timeline of 90 days from the receipt of the proposal from the State Government or

the Union Territory Administration, as the case may be, has been set for processing

of the proposals, placing the same before the FAC and placing the

recommendations of the FAC before the Central Government, after which the

Central Government is to take its decision on the proposal.

92. From the above, I note that provision relating to action by the Central Government

to grant approval to the proposal with or without any conditions or reject the same

within 60 days of receipt of advice of the FAC, has only been modified slightly to the

effect that the Central Government would take its decision i.e. either to grant

approval or to reject the proposal, for which the proposal has to be placed before it

with the recommendation of the FAC within 90 days of receipt of the proposal from

the State Government or the Union Territory Administration, as the case may be.


93. I, however, find it noteworthy to mention here that from a perusal of the Order of

the National Green Tribunal (Tribunal) in the matter of Sudiep Srivastava Vs.

Union of India & Ors. (Appeal No. 73/ 2012) provided by the BRLMs that the

Tribunal in the said case had taken note of the fact put forth before it that the

implementation of amendment to Forest (Conservation) Amendment Rules, 2004

has been stayed by the Hon’ble Supreme Court vide Order dated February 02,

2004 in I.A.No. 1126 in I.A.No. 703/2000 in Writ petition (c) No. 202/1995. In

fact, I find that the Tribunal in the judgment issued on March 24, 2014 in the

said matter of Sudiep Srivastava vs. Union of India & Ors. has observed that in

effect Rule 7 has to be read sans the amended Rule 1A and with Rule 8. The

BRLMs/ AR of BRLMs do not appear to have taken the said Supreme Court Order

into consideration while submitting inter alia that the provision relating to

rejection of proposal have been omitted from the Rules, post the amendments

made to Forest Conservation Rules, 2003 in 2004. Further I note that even

otherwise, the amendment by replacing the phrase “grant approval …. or reject the

same….” with “… for its decision” had not taken away/ diluted MoEF’s power to

reject a proposal, wherever required under law.

94. Further, I note that MoEF on July 02, 2004 had issued a Handbook of Forest

Conservation Act, Rules, Guidelines etc. updated till June 2004, which is a

compilation of Forest Conservation Act along with the Rules made thereunder and

guidelines and clarifications issued by the MoEF. As regards para 4.14 of the

guidelines on Forest Conservation Act with respect to Rejection/ Reopening of

cases, I do not find any revision having taken place pursuant to Forest

(Conservation) Amendment Rules, 2004. Besides, I note that the BRLMs appear to

have made a mere guesswork while submitting that sub-clause (ii) contained in

Guideline 4.14 also seems to have been deleted since Rule 8 has been omitted

pursuant to Forest (Conservation) Amendment Rules, 2004. No supporting circular

from MoEF to that effect deleting sub-clause (ii) contained in Guideline 4.14

pursuant to Forest (Conservation) Amendment Rules, 2004 has been placed on

record. It appears preposterous on the part of the BRLMs to presume that MoEF on

November 04, 2008, would have referred to a repealed clause in its guideline, while

giving the State Government liberty to request for reconsideration of the proposal.


Besides, I note that ECL itself vide its letter dated November 17, 2008, addressed to

the Government of Jharkhand, had inter alia requested the State Government to

represent their proposal to the MoEF for favourable reconsideration as per

Guideline 4.14(ii) as prescribed by MoEF. I have also here taken note of the fact

that neither ESL nor ECL, have made any such submission regarding deletion of

sub-clause (ii) contained in Guideline 4.14 pursuant to Forest (Conservation)

Amendment Rules, 2004, while making submissions in response to the SCN. Thus,

from all of the above, it becomes clear that sub-clause (ii) contained in Guideline

4.14 is very much in place and has not been deleted as assumed by the BRLMs.

95. I find that Guideline & Clarification 4.14 under Forest Conservation Act, 1980

refers to ‘Rejection/ Reopening of Cases’ and reads as follows:

“4.14 Rejection / Reopening of Cases

(i) In cases where the State Government is requested to furnish clarifications or

additional information relating to a proposal, all particulars should be made

available to the Central Government within 60 days. If such particulars are not

received within a maximum of 90 days, the proposal may be rejected by the Central

Government for non-furnishing of essential information. Such cases could be reopened

provided the following conditions are satisfied:

(a) all the required information has been made available

(b) delay in providing the information is satisfactorily explained, and

(c) there is no change in the proposal in terms of scope, purpose and other important

aspects.

(ii) some cases, the State Government comes up with a request for reconsideration

of the proposal after it has been considered and rejected by the Ministry. Such request

should be made within three months from the date of the issue of the rejection letter.

The request should give a detailed justification for reconsideration as well as

comments on the grounds on which the proposal was rejected by the Ministry.”

96. Thus, from the above, I note that the crucial factor that distinguishes guideline

4.14(i) from guideline 4.14(ii) is that under the former, the proposal may be

rejected by the Central Government for non-furnishing of essential information,


whereas, under the latter, the proposal stands rejected after the proposal has been

considered by the Ministry. Hence, in case of request to be made for

reconsideration, in the former case it is sufficient to merely provide the required

information along with explaining the delay in providing the information, whereas,

in the latter case, it is necessary to give a detailed justification for reconsideration

of the proposal by the Ministry as well as comments on the grounds on which the

proposal was rejected by the Ministry within three months from date of issue of the

rejection letter. This distinction between the two clauses 4.14(i) and 4.14(ii),

explained as above, is of immense significance for proper interpretation of MoEF’s

letter dated November 04, 2008.

97. I note that both BRLMs and the issuer company ESL’s contention is that FAC has

merely a recommendatory role, and the power to decide for grant of approval vests

with the Central Government (the MoEF). In support thereof, I find that ESL/ECL

have submitted the National Green Tribunal’s judgment in the matter of Sudiep

Srivastava. On perusal of the provisions of the Forest Conservation Act, the Forest

Conservation Rules, the guidelines and the aforesaid judgment, I agree with the

said argument made by the BRLMs, the issuer company ESL and the promoter

company ECL that decisions of FAC are advisory/ recommendatory in nature, and

that though the Central Government is obliged to consider the advice of FAC, such

recommendations/ advice are not binding on the Central Government. However, in

the case at hand, I find that MoEF by providing liberty to the State Government vide

letter dated November 04, 2008 to request for reconsideration of the proposal as

per guideline 4.14(ii), had made it clear that it too had concurred with the advice of

the FAC and rejected ECL’s proposal after consideration of the same.

98. ICDR Regulation under Regulation 57(1) mandates that offer document shall

contain all material disclosures which are true and adequate to enable the

applicants to take an informed investment decision. An indicative list of such

material disclosures have been included under Schedule VIII of the ICDR

Regulations. The same too includes any material disclosures as deemed necessary. I

note here that ESL has inter alia submitted that there is no provision in the ICDR

Regulations which requires that every step taken in the process of obtaining a

government approval has to be disclosed, rather ECL has stated that this would


have been contrary to instruction 1(a) which specifically mandates that only

relevant and updated information should be disclosed in the offer document. Also

that forest clearance for mining iron ore pertained to ECL, and not to ESL. However,

I note that any material development having impact on performance and prospects

of the issuer company is indeed material, requiring true and adequate disclosure in

the RHP. It has already been brought out in earlier part of this Order as to how ECL

had raised concerns with various authorities inter alia highlighting the fact that

without the back-up of the vital raw material i.e. iron ore from the mines of ECL,

ESL’s project may not be economically and financially viable. Hence, the fact that it

was not merely FAC that had rejected ECL’s Kodolibad Iron Ore Mine proposal for

diversion of forest land, but, MoEF too after due consideration of the proposal, had

at the relevant point of time rejected the proposal, was a material fact requiring a

factual disclosure in the RHP of ESL.

99. I have here taken note of the submission made by the BRLMs that the letter

referred to in the SCN viz. January 16, 2009 is not the date of communication of

rejection of forest clearance, as the same was communicated by MoEF to the State

Government earlier vide its letter dated November 04, 2008. However, from the

above it becomes clear that it was not merely FAC, but, MoEF too vide letter dated

November 04, 2008 had rejected ECL’s proposal for forest diversion after

considering the proposal. It is in this backdrop, I find that the BRLMs submission

that letter dated November 04, 2008 was not a decision of the Central Government

on the proposal filed by ECL, but, merely a letter from MoEF communicating the

inability of FAC to recommend the proposal of FAC, lacks any factual basis. It is also

for this very reason that the contention of the issuer company ESL and ECL vide

individual letters dated December 27, 2013 that ECL’s proposal was not rejected/

declined/ disapproved by the MoEF does not stand. Also, the emphasis laid by ESL

and ECL vide their respective letters dated December 27, 2013 on the fact that

Government of Jharkhand had in its letter dated September 18, 2009 referred to

the ‘return of proposal’ by FAC under MoEF, and not to the ‘rejection of the

proposal’, too does not stand any merit. I am of the considered opinion that a letter

of the State Government of Jharkhand cannot throw light on what was meant by the

word ‘rejection’ in the letter of MoEF. MoEF has unambiguously used the language


‘rejection of proposal by FAC’ and ‘liberty given to the State Government to request

for reconsideration of the proposal as per guideline 4.14(ii)”.

100. Here, I find that the BRLMs and the issuer company ESL appear to have

strategically maneuvered the facts by using their own guess work so as to conclude

that ECL’s proposal for forest clearance had never been rejected by MoEF, and

thereby justify its actions. Further, I note that the two issues i.e. rejection of ECL’s

forest diversion proposal of Iron Ore Mining Project in West Dinghbhum District,

Jharkhand and seeking the details on the present status of the other four mines

located in the core of Singhbhum Elephant Reserve, as can be seen from a perusal

of MoEF’s letter dated November 04, 2008, were independent of each other. MoEF

at the relevant point of time had not given any indication that the outcome of

details of other four mines sought by MoEF from the State Government would

positively or otherwise, alter the view of MoEF with respect to the ECL’s project.

101. I note that the issuer company ESL and its promoter company ECL vide individual

letters dated December 27, 2013 has inter alia stated that the word ‘rejected’ used

in MoEF’s letters dated November 04, 2008 and January 16, 2009 should not be

read in isolation or general context, but, should be read in the context of the events

that transpired.

102. In the matter, I find it pertinent to mention here that it is after taking into

consideration the provisions of the law as applicable at the relevant point of time,

and not by reading the word ‘rejected’ in isolation or in general context, I conclude

that disclosure to the effect that ‘Forest diversion proposal already submitted’ did

not give a true and adequate picture to the investors of the factual status of forest

clearance. This is more so in view of the fact that it was within knowledge of the

BRLMs and the issuer ESL that MoEF had rejected at the in-principle stage itself,

the proposal of ECL for diversion of forest land under guideline 4.14 (ii) i.e. after

consideration of the proposal, on account of being part of core zone of Singhbhum

Elephant Reserve and critical to wildlife conservation. I find that the BRLMs and

the issuer ESL’s contention that it was not the decision of the Central Government

to reject the forest clearance proposal is based on its own surmises, conjectures

and presumptions. Also, the submission made by ESL and ECL that MoEF’s letter


dated November 04, 2008 was an initial reaction/ first response of MoEF without

considering the proposal fully on merits, also sans logic, when MoEF by referring to

guideline 4.14(ii) had made it clear at the relevant point of time that the proposal

was not rejected merely for non-furnishing of essential information, but, was

rejected after its consideration. I note here that ESL has put forth in its submission

that MoEF’s letter dated November 04, 2008 indicated that the proposal could be

submitted for reconsideration pursuant to guideline 4.14(ii) upon providing

further information. However, since the proposal was rejected after consideration

by MoEF under guideline 4.14(ii), the proposal could be requested for

reconsideration only after giving a detailed justification for reconsideration as well

as comments on the grounds on which the proposal was rejected by MoEF. And the

timeline for the said process was three months from the date of issue of the

rejection letter. It is pertinent to note here that such timeline has been

incorporated only under guideline 4.14(ii), and not under guideline 4.14(i).

103. I note further that along with the submissions made by ESL and ECL pursuant to

hearing held on January 27, 2014, the AR of ESL and ECL have inter alia submitted

examples of MoEF and/ or FAC reconsidering its decision regarding use of forest

land. It is, however, not clear whether all these cases were rejected by MoEF under

guideline 4.14(ii), as in the extant case. Further, I find that all the four instances

cited therein viz. Chiria Iron Ore Mine, Saranda Forest, Jharkhand; Malangtoli Iron

Ore Mine, Keonjhar District, Orissa; Laterite Mining, East Godavari District, Andhra

Pradesh; Coal Blocks, Hasdeo-Arand Forest Regions, Chattisgarh were granted

approval by MoEF in 2011/ 2012, i.e. subsequent to the IPO of ESL. Further, even

otherwise, it is not as if reversal of decision of FAC/ MoEF in a few cases can

universally be applied to all cases across the board. I note that in the case of

Vedanta Aluminium Ltd. (Decided On: 23.11.2007) by the Hon’ble Supreme

Court, the Court has observed that how much damage to the environment and

ecology has got to be decided on the facts of each case. Hence, from whichever

angle the issue is viewed, the reversal of its decision by MoEF in the four aforesaid

cases cannot support issuer ESL and the BRLMs decision of not disclosing the

factual status of forest diversion proposal in the IPO of ESL.


104. Further, I also find from the judgment of the National Green Tribunal in the

matter of of Sudiep Srivastava that the Tribunal has held that the opinion of FAC

is of an expert body and to overturn the same, there should be appropriate

reasoning weighty enough to tilt the scales in favour or against the proposal

examined, and the same cannot be brushed aside on mere conjectures and

imaginative grounds. The observations made by the National Green Tribunal in

the matter are brought out verbatim herein below:

“the advice of the FAC springs from its opinion- an opinion of an expert body and to

overturn the same there should be appropriate reasoning backed by data the expert's

opinion carries its value, not only persuasive but weighty enough to tilt the scales

either in favour or against the proposal examined and as such cannot be brushed aside

on conjectures or imaginative grounds having no basis anywhere. Mere expression of

the fanciful reasons relating to environmental concerns without any basis in fact

situation, scientific study or past experience would not render the advice of the FAC- a

body of experts inconsequential. The Minister rejecting the recommendation of such

expert body must bear in mind that he is countering an expert opinion/viewpoint and

in doing so he must meet it with such opinion or viewpoint which it would outweigh

both by content and quality as aforesaid.”

105. Thus from the detailed analysis brought out as above, I note that the BRLMs

and the issuer ESL based on undisclosed assumption drawn upon through its

own imagination, failed to disclose the factual status of forest clearance of

ECL’s Iron Ore Mine in the RHP of ESL. And such disclosure made on the basis of

conjectures, cannot support the arguments put forth by the BRLMs and ESL that

the disclosure in the IPO of ESL with respect to the forest clearance were true

and adequate.

Environment Clearance:

106. In the 19th meeting of the EAC for Environment Impact Assessment of Mining

Projects of the MoEF held on September 23-25, 2008, the proposal of Iron Ore

Mining Project of ECL in District West Singhbhum, Jharkhand (Reconsideration


Case) was discussed. It is inter alia noted from the Summary Record of the said

meeting that the proposal was earlier considered by the EAC during its meeting

held on September 24-26, 2007, wherein EAC had sought additional information/

clarification on various related issues. Based on the additional information/

clarifications submitted by the proponent, the proposal was considered further. It

was inter alia recorded that based on the presentation made and discussions held,

the Committee recommended the project for environment clearance, subject to

obtaining prior clearance from wildlife angle as the project was located in the core

zone of Singhbhum Elephant Reserve.

107. Subsequent to the same, MoEF vide letter dated January 16, 2009, in response to

ECL’s letter dated May 07, 2007 and subsequent letters dated June 09, 2007 and

June 12, 2008 inter alia communicated to ECL that MoEF had decided to reject the

proposal for environmental clearance for the Dirsumburu Iron Ore Mining Project

of ECL located in Kodoliabad Reserve Forest, District Singhbhum (West) Jharkhand

in view of the fact that –

(i) the proposed project was located within the core area of the Singbhum

Elephant Reserve, which is critical to wildlife conservation; and

(ii) FAC had rejected the proposal for diversion of forestland for the said

project as communicated vide letter dated October 04, 2008 (to be read as

‘November 4, 2008’, as per the corrigendum dated November 11, 2008 issued

by MoEF clarifying the date of issue of the letter).

108. Thus, I note here from the documents on record that MoEF had decided to

unconditionally reject the proposal for environment clearance. I find that the said

decision of MoEF was not solely on the basis of the purported rejection of forest

clearance by FAC as claimed by the BRLMs and ESL, but, also because it had

independently too noted that the proposed project was located within the core

area of the Singbhum Elephant Reserve, critical to wildlife conservation. Hence, it

becomes evident that the concern of MoEF flows from its own independent finding

that the proposed project was located within the core area of the Singbhum

Elephant Reserve, coupled together with the fact that FAC too had rejected the

proposal for diversion of forestland for the said project. Besides, MoEF has to

enforce Forest (Conservation) Act, 1980, Environmental (Protection) Act, 1986 and


other applicable laws passed by the Parliament. In the present case as at the

relevant point of time, I find that MoEF preferred to differ from the view of EAC and

unconditionally rejected the ECL’s proposal for environment clearance clearly

recording its reasons for the same.

109. Hence, disclosure made in the RHP to the effect ‘Received, but applicable once Forest

Clearance is received’ was not a true disclosure of the status of the environment

clearance of ECL’s Iron Ore Mine. In the matter, I note that BRLMs have inter alia

pursuant to issue of letter dated March 28, 2014 submitted that MoEF had not

followed the procedure laid down under paragraph (8) of EIA Notification for

rejection of prior Environmental Clearance, hence ECL was entitled to proceed as if

environmental clearance has been granted in terms of the recommendation of the

EAC. Similarly, ESL and ECL vide individual letters dated May 09, 2014 have inter

alia stated that decision conveyed by MoEF vide letter dated January 16, 2009 was

not in accordance with paragraph 8(v) of EIA Notification, in as much as MoEF had

relied upon the purported rejection of forest clearance, which it specifically

precluded from doing under paragraph 8(v) of EIA Notification.

110. In the matter, I note that MoEF which is the nodal regulatory agency in the Central

Government for overseeing the implementation of India’s environmental and

forestry policies and programmes had vide letter dated January 16, 2009 (i.e. much

before the filing of DRHP with SEBI/ RHP/ Prospectus with RoC) communicated to

ECL that it had decided to reject the proposal for environmental clearance for the

Dirsumburu Iron Ore Mining Project of ECL located in Kodoliabad Reserve Forest,

giving its reasons for such decision. I find that after receipt of letter dated January

16, 2009 from MoEF, ECL had never challenged the issue before MoEF or preferred

any appeal before any Court regarding contravention of paragraph (8) of EIA

Notification by MoEF. Hence the fact as it stood as at the filing of prospectus with

RoC was that MoEF had unconditionally rejected the environment clearance for the

Iron Ore project of ECL.

111. In the matter, I note that BRLMs vide letter dated May 09, 2014 have inter alia

further submitted as follows:


that although Environment Clearance (EC) and Forest Clearance (FC)

approvals both fall under the authority of the MoEF, this authority is conferred

under two distinct statutes, the Environment Protection Act, 1986 and the

Forest Conservation Act respectively. Further, that the approvals for

Environment Clearance and Forest Clearance are under the purview of two

separate divisions of MoEF, the IA Division and the FC division respectively and

that the rules and procedure applicable to the two approvals are also distinct

and required to be dealt with and considered separately;

That the disclosures made in the prospectus were true and accurate

description of the current status of development of the Iron Ore mine in

conformity with the recommendation of the EAC of the MoEF (IA Division);

That the purported ‘rejection’ of Environmental Clearance vide the subject

letter issued by the IA Division of MoEF was not a rejection at all, in that it

erroneously relied on a mere advice / recommendation of the FAC (FC

Division);

That further, the applicable law and rules pertaining to the grant of

Environmental Clearance preclude the regulatory authority from making

decisions on Environmental Clearance based on receipt of other clearances

prior to Environmental Clearance;

That events and correspondence subsequent to the subject letter evidence that

the Environmental Clearance had not been rejected at all, and in fact was

subsequently approved by the EAC during the 7th Meeting of the MoEF (IA

Division) held on May 15 to 17, 2013 after consideration of all the facts and

circumstances including the subject letter;

That without prejudice to the above, even if the environmental clearance were

to have been rejected by MoEF, such rejection would not have been fatal to the

public issue made by the Issuer Company, save and except to the extent of cost

factors of the business of the Issuer Company, which had been adequately

disclosed in the offer documents under the heading ‘Risk Factors.’ In particular

Risk Factor Nos. 10 and 12 and pages 7-8 of the offer documents, clearly

disclosed the potential risks associated with the effect of non-availability of

raw materials, including supply of iron-ore from ECL’s iron ore mine, on the

business of the Issuer Company;


That the environmental clearance and the underlying events pertained to ECL,

the promoter of the Issuer Company, and not the Issuer Company itself.

Adequate disclosures and risk factors pertaining to the Issuer Company,

including the effect of non-operation of the iron ore mines of ECL on the

business of the Issuer Company, have admittedly been provided in the offer

documents filed by the Issuer Company;

That even assuming without conceding that there was indeed a rejection of

environmental clearance, the said rejection cannot be said to be fatal to the

object and purpose of the public issue, and therefore lacks “materiality.”

112. The relevant portion of para 8 of EIA Notification 2006, which details the

procedure to be followed for grant or rejection of prior environment clearance is

brought out below:

“8. Grant or Rejection of Prior Environmental Clearance (EC)

(i) The regulatory authority shall consider the recommendations of the EAC or SEAC

concerned and convey its decision to the applicant within forty five days of the receipt

of the recommendations of the Expert Appraisal Committee or State Level Expert

Appraisal Committee concerned or in other words within one hundred and five days

of the receipt of the final Environment Impact Assessment Report, and where

Environment Impact Assessment is not required, within one hundred and five days of

the receipt of the complete application with requisite documents, except as provided

below.

(ii) The regulatory authority shall normally accept the recommendations of the Expert

Appraisal Committee or State Level Expert Appraisal Committee concerned. In cases

where it disagrees with the recommendations of the Expert Appraisal Committee or

State Level Expert Appraisal Committee concerned, the regulatory authority shall

request reconsideration by the Expert Appraisal Committee or State Level Expert

Appraisal Committee concerned within forty five days of the receipt of the

recommendations of the Expert Appraisal Committee or State Level Expert Appraisal

Committee concerned while stating the reasons for the disagreement. An intimation

of this decision shall be simultaneously conveyed to the applicant. The Expert

Appraisal Committee or State Level Expert Appraisal Committee concerned, in turn,


shall consider the observations of the regulatory authority and furnish its views on

the same within a further period of sixty days. The decision of the regulatory

authority after considering the views of the Expert Appraisal Committee or State

Level Expert Appraisal Committee concerned shall be final and conveyed to the

applicant by the regulatory authority concerned within the next thirty days.

(iii) In the event that the decision of the regulatory authority is not communicated to the

applicant within the period specified in sub-paragraphs (i) or (ii) above, as

applicable, the applicant may proceed as if the environment clearance sought for has

been granted or denied by the regulatory authority in terms of the final

recommendations of the Expert Appraisal Committee or State Level Expert Appraisal

Committee concerned.

(iv) On expiry of the period specified for decision by the regulatory authority under

paragraph (i) and (ii) above, as applicable, the decision of the regulatory authority,

and the final recommendations of the Expert Appraisal Committee or State Level

Expert Appraisal Committee concerned shall be public documents.

(v) Clearances from other regulatory bodies or authorities shall not be required prior to

receipt of applications for prior environmental clearance of projects or activities, or

screening, or scoping, or appraisal, or decision by the regulatory authority concerned,

unless any of these is sequentially dependent on such clearance either due to a

requirement of law, or for necessary technical reasons.

(vi) …………”.

113. In the matter, I note that the BRLMs vide its individual letters dated May 09, 2014,

have also further referred to circular issued by the MoEF bearing reference no. J-

11013/41/2006-IA.II(I) dated December 02, 2009, wherein the MoEF (IA Division)

has considered the issue pertaining to the procedure to be followed for the grant of

environmental clearance under EIA Notification for proposals which involve

forestland and/or wildlife habitat, with particular reference to the provisions of

para 8(v) of the EIA Notification, and clarified as follows:

(i) “The proposals for environmental clearance will not be linked with the clearances

from forestry and wildlife angle even if it involves forestland and or wildlife

habitat as these clearances are independent of each other and would in any case

need to be obtained as applicable to such projects before starting any activity at

site.


(ii) While, considering such proposals under EIA Notification, 2006, specific

information on the following should be obtained from the proponent:

(a) Whether the application for diversion of forestland involved in the project has

been submitted? If so, what is the status of grant of forestry clearance? It

would be essential that in such cases, the application for diversion of

forestland has been submitted by the project proponent before they come for

environment clearance and a copy of the application submitted for forestry

clearance along with all its enclosures should also be submitted by the

proponent along with their environment clearance application.

(b) Information about wildlife clearance, as applicable to the project should also

be obtained. The project proponent should submit their application for wildlife

clearance/ clearance from Standing Committee of the National Board for

Wildlife to the Competent Authority before coming for environment clearance

and a copy of their application should be furnished along with environment

clearance application.

(iii) The proposal from environmental angle will be appraised by the respective Expert

Appraisal Committee and recommendations made on the same which will be

processed by the IA Division and approval obtained from the Competent Authority.

However, while granting environmental clearance to projects involving forestland,

wildlife habitat (core zone of elephant/tiger reserve etc.) and or located within 10

km of the National Park / Wildlife Sanctuary […] a specific condition shall be

stipulated that the environmental clearance is subject to their obtaining prior

clearance from forestry and wildlife angle including clearance from the Standing

Committee and the National Board for Wildlife as applicable. Further, it will

categorically be stated in the environmental clearance that grant of

environmental clearance does not necessarily implies that forestry and wildlife

clearance shall be granted to the project and that their proposals for forestry and

wildlife clearance will be considered by the respective authorities on their merits

and decision taken. The investment made in the project, if any, based on

environment clearance so granted, in anticipation of the clearance from forestry

and wildlife angle shall be entirely at the cost and risk of the project proponent

and Ministry of Environment & Forests shall not be responsible in this regard in

any manner.


(iv) A copy of the clearance letter, besides others, shall also be endorsed to (i) IGF(FC)

MoEF, (ii) IGF(WL) MoEF …

Note: There will not be any need to refer the files relating to grant of

environmental clearance from IA Division to FC Division or Wildlife Division

during consideration of proposals under EIA Notification, 2006, as done at

present in view of course of action stipulated at paras 2(i) – (iv) above.”

114. I note from the above that the aforesaid circular dated December 02, 2009 lays

down the procedure for consideration of proposals for grant of environment

clearance under EIA Notification. The said circular while emphasizing that

proposals for environment clearance will not be linked with clearances from

forestry and wildlife angle, however, makes it a point that specific information from

the proponent is obtained inter alia about the status of grant of forest clearance,

while considering the proposals under EIA Notification. Besides, the circular inter

alia also stipulates incorporating specific condition to the effect that the grant of

environmental clearance does not necessarily implies that forestry and wildlife

clearance shall be granted to the project, and that the proposals for forestry and

wildlife clearance will be considered by the respective authorities on their merits

and decision taken. The circular also adds a caveat to forewarn that the investment

made in the project, if any, based on environment clearance so granted, in

anticipation of the clearance from forestry and wildlife angle shall be entirely at the

cost and risk of the project proponent and MoEF shall not be responsible in this

regard in any manner.

115. Thus I note from the above that MoEF vide the aforesaid circular dated December

02, 2009, while delinking the environment clearance from clearance from forestry

and wildlife angle, had, however, taken utmost care to ensure that grant of

environment clearance to a project does not send a positive signal that forest and

wildlife clearances would follow. However, on the contrary, I find that in the DRHP

of IPO of ESL filed with SEBI on March 25, 2010/ RHP filed with RoC on September

11, 2010 / Prospectus filed with RoC on September 29, 2010, the BRLMs and the

issuer ESL on the other hand, concealed the very factual aspect regarding rejection

of Environment Clearance by MoEF. Besides, I note that as per para 8 (v) of EIA

Notification, Clearances from other regulatory bodies or authorities shall not be


required prior to receipt of applications for prior environmental clearance of

projects or activities. However, in the case at hand, I find that both the environment

clearance and forest clearance were with the same regulatory body i.e. MoEF.

116. I note here that the BRLMs have inter alia stated that the subject letter dated

January 16, 2009 was erroneous on two counts, namely in that it relied on a

purported decision of the FC division, and further it relied on a mere

recommendation of an advisory committee (the FAC), not even a final decision of

the MoEF. As such, the BRLMs have submitted that the subject letter could have no

bearing on the EAC’s decision to recommend the grant of Environment Clearance to

the proposal, subject to the applicable forest clearance. Further that any contrary

disclosure would in fact have deprived the investors from taking an informed

decision.

117. I also note that ESL and ECL vide their individual letters dated May 09, 2014 have

inter alia stated that at the meeting held on September 23-25, 2008, EAC

recommended ECL’s Iron Ore Mine for environment clearance, subject to ECL

obtaining prior clearance from wild life angle. Hence, the subsequent MoEF letter of

January 16, 2009 was of no relevance in light of EAC’s recommendation in as much

as EIA Notification provides that MoEF shall normally accept the recommendations

of the EAC (Paragraph 8(ii) of EIA Notification).

118. I note here that both FAC set up under Forest Conservation Act and Forest

Conservation Rules made thereunder and EAC set up under the EIA Notification are

advisory Committees. They play an advisory role. Their advice though may not be

binding stricto senso on MoEF, but, MoEF remains under obligation to duly

consider the advice of the FAC/ EAC while conveying its decision.

119. I note that in the case at hand, the BRLMs and the issuer company ESL applied

different standards while making disclosures in the RHP with respect to status of

forest clearance and with respect to status of environment clearance of the Iron

Ore Mine of ECL located in Kodoliabad Reserve Forest, Jharkhand. As far as forest

clearance is concerned, BRLMs predicated that mere recommendation of the FAC

cannot in any way be considered as the decision of the MoEF. Here, the BRLMs and


ESL argued that MoEF is not bound by the advice of FAC, in order to construe that

ECL’s Proposal had never been rejected for forest clearance by the MoEF. The

BRLMs and ESL have argued that such recommendations/ advice are not binding

on the Central Government. This is despite the fact that MoEF vide letter dated

November 04, 2008 had provided liberty to the State Government to request for

reconsideration of the proposal as per guideline 4.14 (ii), thus, implying that the

proposal of ECL was rejected by MoEF too after consideration of the proposal by

MoEF. In support of its view, BRLMs even went ahead and made guesswork to

conclude that sub-clause (ii) contained in Guideline 4.14 also seems to have been

deleted, since Rule 8 had been omitted pursuant to Forest (Conservation)

Amendment Rules, 2004. Thus, as regards forest clearance is concerned, BRLMs

neither went by the recommendation of FAC, nor, the communication by MoEF to

the State Government, but, artfully manipulated the facts to conclude that the

proposal of forest clearance was never rejected by MoEF, and that it was under

active consideration by MoEF. On the other hand, as regards status of environment

clearance is concerned, the BRLMs and the issuer ESL took the view that the RHP

constituted a true and accurate description of the status of Environment Clearance

in conformity with the recommendations of the EAC. This is despite the fact that

MoEF vide letter dated January 16, 2009 had communicated to ECL the rejection of

ECL’s proposal for Environment Clearance. Thus, it appears that BRLMs and the

issuer had pre-meditated to conceal from the investors investing in the IPO of ESL,

material factual aspect that forest and environment clearance of ECL’s Iron Ore

Mining project were both rejected by MoEF as at the relevant point in time.

120. I note here that the BRLMs have submitted that the fundamental flaw is the

premise that Environment Clearance is linked to Forest Clearance, which has been

clarified and rectified vide MoEF’s circular dated December 02, 2009. However,

from a perusal of circular dated December 02, 2009, it becomes clear that circular

also requires that specific information inter alia about the status of grant of forest

clearance has to be obtained from the proponent before considering a proposal

involving forestland and/ or wildlife habitat under EIA Notification. Further, the

circular inter alia also stipulates incorporating specific condition to the effect that

the grant of environmental clearance does not necessarily imply that forestry and

wildlife clearance shall be granted to the project, and that the proposals for


forestry and wildlife clearance will be considered by the respective authorities on

their merits and decision taken.

121. BRLMs and the issuer ESL have also brought out that subsequent to grant of in-

principle approval of forest clearance vide MoEF’s letter dated February 13, 2012,

during the 7th meeting of the Reconstituted Committee of the EAC for Environment

Appraisal of Mining Projects of the MoEF (IA Division) held from May 15 to 17,

2013, the EAC recommended granting Environment Clearance after detailed

reconsideration of all facts and records including the subject letter dated January

16, 2009. However, just because at a later date, the Environment Clearance was

granted by MoEF, does not mean that facts that were concealed in the prospectus

can become acceptable.

122. Here, I find that BRLMs have stated that the disclosures made at page 110 of the

offer documents pertaining to Environment Clearance for the Iron Ore project of

ECL as “Received, but applicable once forest clearance is received” was because - (i)

EAC had recommended the grant of Environment Clearance during its meeting in

September 2008, subject to obtaining clearance from the wildlife angle; (ii) that a

plain reading of para 8(ii) and (iii) of the EIA Notification 2006 states that MoEF

normally accepts the recommendations of the EAC; and (iii) para 8(iii) under the

EIA Notification goes even further and states that in the event that the decision of

the regulatory authority is not communicated within the time period set out

therein, namely within forty-five days of the receipt of the recommendations of the

EAC, the applicant is entitled to proceed as if the environmental clearance sought

for had been granted in terms of the final recommendations of the EAC. In view of

the same, the BRLMs have submitted that hence the disclosures made in the offer

documents constituted a true and accurate description of the status of

Environment Clearance in conformity with the recommendations of the EAC, and

there is no untrue information contained therein. Also that the subject letter dated

January 16, 2009 is not relevant to the grant of Environmental Clearance, as it

erroneously relies on a mere recommendation of the FAC. ESL and ECL have also

similarly stated that MoEF did not make the request for reconsideration by EAC

within 45 days as per the requirement of paragraph 8(ii) of EIA Notification.

Further, that MoEF did not intimate ECL of its decision to disagree with the


recommendations of the EAC. MoEF letter dated January 16, 2009 came after more

than three months, under the circumstances, ECL was entitled to the benefit of the

deeming provision in paragraph 8, and could proceed as if environment clearance

sought for had been granted in terms of the final recommendations of the EAC. It

has been stated that the alleged rejection of the environment clearance by MoEF

was against the provisions of paragraph 8 of the EIA Notifcation and hence void. In

support of the same, ESL and ECL have cited the judgment of the National Green

Tribunal in Shiva Cements Ltd. ESL and ECL have inter alia submitted that it is

clear in light of the said judgment that an applicant is entitled to the benefit of the

deeming provision in paragraph 8(iii) of the EIA Notification, if MoEF does not

follow the procedure and timelines prescribed in paragraph 8(ii) of the EIA

Notification.

123. Here firstly, I note that EAC had recommended the project for environment

clearance subject to obtaining prior clearance from wildlife angle, as the project

was located in the core zone of Singhbhum Elephant Reserve. The BRLMs and ESL

have stated that the disclosure with respect to Environment Clearance was in

conformity with the recommendations of the EAC. However, I find that the

condition of obtaining prior clearance from wildlife angle imposed by EAC while

making its recommendation was also suppressed by the BRLMs and issuer ESL.

From a perusal of circular dated December 02, 2009 issued by the MoEF, I note that

clearance from wildlife angle is different from forest clearance. Hence, I find that

the disclosure with respect to Environment Clearance was not even in conformity

with the recommendations of the EAC.

124. Further as regards timelines put forth, I note that EAC in the meeting held on

September 23-25, 2008 had decided to recommend the project for environment

clearance, subject to obtaining prior clearance from wildlife angle. MoEF vide letter

dated January 16, 2009, conveyed its decision of rejecting the proposal for

environment clearance. Whether the procedure that has been laid down under

para 8 of EIA Notification was followed by MoEF or not, is not clear from the

documents on record.


125. However, even presuming that the procedure under EIA Notification was not

followed by MoEF, in which case too, I note that MoEF which is the nodal

regulatory agency in the Central Government for overseeing the implementation of

India’s environmental and forestry policies and programmes, had vide letter dated

January 16, 2009 i.e. much prior to the filing of DRHP with SEBI on March 25, 2010,

communicated to ECL that it had decided to reject the proposal for environmental

clearance for the Dirsumburu Iron Ore Mine of ECL located in Kodoliabad Reserve

Forest, District Singhbhum (West) Jharkhand, giving its reasons for such decision.

After receipt of letter dated January 16, 2009 from MoEF, I find that ECL had never

challenged the issue before MoEF or preferred an appeal before the National

Environment Appellate Authority (NEAA)/ Court regarding contravention of

paragraph (8) of EIA Notification by MoEF.

126. Unlike the same, in the case of Shiva Cement Ltd., an appeal was filed before the

National Green Tribunal (hereinafter referred to as ‘Tribunal’) on various

grounds. Some of the grounds were that letter sent by MoEF to the Chief Secretary

of the State to conduct public hearing pursuant to EAC recommending issuance of

EAC was not in accordance with law; that MoEF should have taken a decision on

the recommendation of EAC either way within 45 days, failing which EIA

Notification mandates that on expiry of 45 days, MoEF is deemed to have granted

environment clearance. In the said matter, I find that it is after perusing the entire

records including the original file in the matter, apart from the provisions of EIA

Notification, and after giving anxious thought to the issue involved in the case, the

Tribunal had set aside the impugned MoEF’s Order and allowed Shiva Cement’s

application. However while passing the said Order, the Tribunal made it clear that

MoEF can always invoke the provisions of the Environment (Protection) Act and

Rules made thereunder, whenever there are any environment violation by Shiva

Cement. I find that the Tribunal after perusing the file in the matter had noted that

there was nothing on record to show that the file was referred back to EAC for

reconsideration, regarding necessity of public hearing within the time frame set as

per the Regulation. Hence in absence of record and failure of the MoEF to send the

matter back to EAC for re-consideration, the Tribunal had concluded that the

recommendation of issuance of environment clearance made by EAC on the

proposal of Shiva Cement for expansion of mining capacity had attained finality.


127. I note that nothing has been brought on record to show that facts in the said

referred case of Shiva Cement Ltd. are similar to the facts in the extant case. The

environment clearance in the said case of Shiva Cement Ltd. was for expansion of

the mining capacity of existing mine, whereas the extant case of ECL was for new

mine and not for expansion of existing mine. I, thus, note that the circumstances

and the facts of the aforesaid case referred by ESL/ ECL are otherwise different to

the facts of the extant case as has been brought out above in detail.

128. In the matter, I further refer to the case of Krishnadevi Malchand Kamathia &

Ors. V. Bombay Environmental Action Group & Ors. [2011] 3 S.C.R. 291, wherein

the Hon’ble Supreme Court has observed that “even if the order/notification is

void/voidable, the party aggrieved by the same cannot decide that the said

order/notification is not binding upon it. It has to approach the court for seeking such

declaration. The order may be hypothetically a nullity and even if its invalidity is

challenged before the court in a given circumstance, the court may refuse to quash

the same on various grounds including the standing of the petitioner or on the ground

of delay or on the doctrine of waiver or any other legal reason.”

129. I also refer to the case of M. Meenakshi v. Metadin Agarwal [(2006) 7 SCC 470]

wherein the Hon’ble Supreme Court held that “It is a well-settled principle of law

that even a void order is required to be set aside by a competent court of law in as

much as an order may be void in respect of one person but may be valid in respect of

another. A void order is necessarily not non est. An order cannot be declared to be

void in a collateral proceeding and that too in the absence of the authorities who

were the authors thereof. The orders passed by the authorities were not found to be

wholly without jurisdiction. They were not, thus, nullities.”

130. Also in the matters of State of Kerala v. M.K. Kunhikannan Nambiar Manjeri

Manikoth Naduvil (dead) & Ors., AIR 1996 SC 906; Tayabbhai M. Bagasarwalla

& Anr. v. Hind Rubber Industries Pvt. Ltd. etc, AIR 1997 SC 1240; M. Meenakshi

& Ors. v. Metadin Agarwal (dead) by L.Rs. & Ors. (2006) 7 SCC 470; and Sneh

Gupta v. Devi Sarup & Ors., (2009) 6 SCC 194, the Hon’ble Supreme Court held

that whether an order is valid or void, cannot be determined by the parties. For


setting aside such an order, even if void, the party has to approach the appropriate

forum.

131. Further, in the matter of State of Punjab & Ors. v. Gurdev Singh, Ashok Kumar,

AIR 1991 SC 2219, the Hon’ble Supreme Court had held that a party aggrieved by

the invalidity of an order has to approach the court for relief of declaration that the

order against him is inoperative and therefore not binding upon him. While

deciding the said case, the Court placed reliance upon the judgment in Smith v. East

Ellore Rural District Council, [1956] 1 All ER 855 wherein Lord Radcliffe observed:-

“An order, even if not made in good faith is still an act capable of legal

consequences. It bears no brand of invalidity on its forehead. Unless the necessary

proceedings are taken at law to establish the cause of invalidity and to get it

quashed or otherwise upset, it will remain as effective for its ostensible purpose as

the most impeccable of orders.”

132. Also in the matter of Sultan Sadik v. Sanjay Raj Subba & Ors., AIR 2004 SC 1377,

the Hon’ble Supreme Court took a similar view observing that once an order is

declared non-est by the Court only then the judgment of nullity would operate erga

omnes i.e. for and against everyone concerned. Such a declaration is permissible if

the court comes to the conclusion that the author of the order lacks inherent

jurisdiction/competence and therefore, it comes to the conclusion that the order

suffers from patent and latent invalidity.

133. Thus, from all of the above it emerges that even if an order is void/ voidable, the

party aggrieved by the same cannot decide that the said order is void or non-est on

its own accord. It has to approach the competent forum/ court for seeking such

declaration. Hence, in view of MoEF’s circular dated December 02, 2009, the

BRLMs could not have on its own accord taken a view that MoEF’s letter dated

January 16, 2009 was not relevant for grant of environment clearance, without ECL

referring the issue back to MoEF/ appropriate forum for review. Hence the

disclosure made in the DRHP/ RHP/ Prospectus with respect to the ‘Environment

Clearance’ as “Received, but applicable once forest clearance is received” based on

EAC’s recommendation during its meeting in September 2008, completely ignoring

MoEF’s letter dated January 16, 2009, thus, concealed the factual status of


‘Environment Clearance’ from the investors participating in the issue. The BRLMs

contention that the word ‘reject’ used in the subject communication was colloquial

in nature/ applied in casual manner, and in terms of law not an unconditional/

final conclusive determination in regards to the environment clearance is again

based on BRLMs own surmise and conjectures. Besides, presumptions as such

made by the BRLMs were not even disclosed in the RHP. Hence, the issuer ESL and

the BRLMs could not have disclosed in the RHP that the current status of

Environment Clearance was ‘Received, but applicable once Forest Clearance is

received’, based on a suo moto interpretation of EIA Notification read with MoEF

Circulars, despite a letter from MoEF clearly rejecting the Environment Clearance.

134. I find it pertinent to mention here that as has been brought out, MoEF’s letter dated

January 16, 2009 too did not merely rely on recommendation of FAC. It

independently had also taken note of the fact that proposed project was located

within the core area of the Singbhum Elephant Reserve. Besides, I note here that

though the environment and forest clearances were independent of each other

under the respective Acts and Rules, both were required to be in place before any

activity could be undertaken. Thus, they had a direct inter-linkage as far as ECL’s

Kodolibad Iron Ore Mine was concerned.

135. Thus from all of the above, I conclude that the factual status of ‘forest

clearance’ and ‘environment clearance’ with respect to the Kodolibad Iron Ore

Mining Project of ECL, the parent company of the issuer company ESL, was a

material disclosure required to be disclosed in the IPO of ESL. The test for

materiality is objective in nature and is not affected by the subjective

assessment or optimistic hopes or views of the BRLMs and the issuer company.

In fact, disclosure of ‘current status of development of Iron Ore and Coking Coal

Mines of ECL’ in the RHP of ESL, made it explicitly clear that the BRLMs and the

issuer company themselves at the time of issue, considered the factual status of

‘forest clearance’ and ‘environment clearance’ with respect to the Kodolibad

Iron Ore Mine of ECL to be a material disclosure in the IPO of ESL. Hence, the

argument now made by the BRLMs to the effect that rejection (if any) or

approval of ECL’s proposal of forest clearance cannot be considered as a

material factor affecting the business of the issuer company or its working,


when ECL had raised serious concerns with various authorities inter alia

highlighting the fact that without the back-up of the vital raw material i.e. iron

ore, ESL’s project may not be economically and financially viable, baffles logic. I

find further from detailed analysis brought out above that disclosure made in

the DRHP/ RHP/ Prospectus with respect to ‘forest clearance’ and ‘environment

clearance’ of the Iron Ore Mine of ECL were not true and adequate, and were

based on BRLMs & the issuer ESL’s own presumptions and surmises.

D) If not, whether the BRLMs and the issuer ESL suppressed material facts

regarding rejection of ‘forest clearance’ and ‘Environment Clearance’

by MoEF with respect to the Kodolibad Iron Ore Mine of ECL in the RHP

of IPO of ESL, and thereby misled the investors who invested in the

issue by concealing the factual status of the clearances from them?

136. I find what is most important under the ICDR Regulations is ‘true and adequate

disclosures’ and not ‘false disclosures’, ‘half-truths’ or ‘hypothetical disclosures’.

True and adequate disclosures assist investors in making informed investment

decision. Therefore, true and adequate disclosure of all material issues is

warranted. Disclosures in the RHP have to be limited to factual information and

cannot be based on undisclosed presumptions.

137. In the matter, I note that the BRLMs vide letter dated December 31, 2013 have inter

alia submitted that the forest diversion proposal of ECL was under active,

comprehensive and favourable consideration by the MoEF during the pendency of

the reconsideration request. It is stated that hence at the time of filing of the

prospectus of ECL, the initial rejection was not a material factor to adversely affect

the public issue or to affect the investment decision of the investors. More

particularly, the BRLMs have pointed out that upon review of ECL’s letters dated

January 29, 2009, May 27, 2009 and May 03, 2010 which were all issued before the

filing of the prospectus, it can be clearly established that the decision of MoEF was

pending as MoEF was seized of the matter.


138. In view of the same, we will one by one review the aforesaid letters pointed out by

the BRLMs in support of their argument that the decision of MoEF was pending and

that MoEF was actively engaged in favourably considering the proposal of ECL for

forest diversion:

Letter dated January 29, 2009 is letter sent by ECL to MoEF referring to

MoEF’s letter dated November 04, 2008, informing MoEF that Government of

Jharkhand is actively considering the project of diversion of forestland for

Dirsumburu Mine for mining of Iron ore in favour of ECL, and would shortly

make the appropriate request to MoEF for consideration of the proposal. It was

further stated therein that due to the unstable political situation prevalent in

the State, it is expected to take some extra time beyond the prescribed period

and that they will get the proposal for reconsideration as soon as political

situation in Jharkhand stabilizes.

I find that this letter appears to have been written by ECL, on behalf of the State

Government to communicate to MoEF that the State Government may not be able

to meet the prescribed time period of three months from the date of the issue of

the rejection letter, as stipulated under guideline 4.14(ii), for giving a detailed

justification for reconsideration and comments on the grounds on which the

proposal was rejected by the MoEF. Thus, the letter, I find, is more of a concern

felt on the part of ECL that MoEF may not reconsider its proposal, even if State

Government were to request under guideline 4.14(ii) for reconsideration after the

stipulated three months from the date of the issue of the rejection letter. The said

letter other than making ECL’s aforesaid concern known to MoEF, does not even

indicate any initial steps taken by the State Government in that direction. In fact,

on perusal of a copy of the said letter, I find that though ECL was representing to

MoEF on behalf of the State Government, not even a copy of the said letter was

marked to the State Government for information purpose also. Thus, the letter

means nothing other than bringing to fore the said concern felt by ECL.


Letter dated May 27, 2009 is again ECL’s letter to the Government of

Jharkhand enclosing a note listing out ECL’s response to the observations

made by MoEF.

This is in response to the Government of Jharkhand’s letter dated May 26, 2009 to

ECL requesting ECL to represent their case with supporting documents on the

several observations made by MoEF vide letter dated November 04, 2008. The

copy of letter provided is observed to be unsigned. Thus I find that even this letter,

other than merely demonstrating ECL’s view point on the observations made by

MoEF, does not go beyond.

Letter bearing No. 8-35/2008-FC dated May 03, 2010 from Sr. Assistant

Inspector General of Forests to the Principal Secretary, Government of

Jharkhand informed the State Government that the proposal of ECL for

diversion of forestland for mining of Iron Ore in favour of ECL was again

referred to the Competent Authority pursuant to State Government’s letter

dated July 10, 2009. The Competent Authority had desired to have the detailed

list along with the present status of all active/ passive mines and any other

activities in the core zone of Singhbhum Elephant Reserve at the earliest, to

enable the MoEF to take a comprehensive view in the matter. Accordingly, the

Government of Jharkhand vide the said letter was requested by MoEF to submit

a detailed list along with the present status of all active/ passive mines and

other activities in the core zone of Singhbhum Elephant Reserve to enable the

MoEF to take a comprehensive view in the matter.

On perusal of the said letter dated May 03, 2010 from MoEF, it is observed that

the said letter referred to letter dated July 10, 2009 of the Government of

Jharkhand to MoEF. It is noted that vide the said letter dated July 10, 2009, State

Government had merely forwarded to MoEF, ECL’s response dated May 27, 2009

on the observations of MoEF in its letter dated November 04, 2008. As regards the

detailed report on the present status of the other four mines located in the core of

Singhbhum Elephant Reserve sought by MoEF vide its letter dated November 04,

2008 from the Government of Jharkhand, ECL under the ‘Response’ column had

mentioned ‘Action to be taken by the State Government’. It is noted that the State


Government had neither taken the trouble to supplement ECL’s note with its

comments on the issues raised by MoEF, nor, even put an effort to provide the

details with respect to issues which rested with itself. It is in this context that

letter dated May 03, 2010 of MoEF needs to be viewed. Since the detailed report

on the present status of the mines located in the core of Singbhum Elephant

Reserve, sought by MoEF from the Government of Jharkhand vide its letter dated

November 04, 2008, was not provided by the Government of Jharkhand vide its

letter dated July 10, 2009, the Competent Authority of MoEF vide letter dated May

03, 2010 had called for the said report and other activities in the core zone of

Singhbhum Elephant Reserve. The same neither gives any indication that MoEF

was actively looking into ECL’s proposal, nor, that it was favourably considering

ECL’s proposal for reversing its earlier decision communicated vide letter dated

November 04, 2008. Further, I note here that the State Government too vide its

letter dated July 10, 2009 had merely referred ECL’s letter to the MoEF for further

action. Thus, I note that even the State Government vide its letter dated July 10,

2009, had not made any favourable recommendation to the MoEF for

reconsideration of ECL’s proposal. Thus, when viewed in the proper perspective,

the said letter dated May 03, 2010 of MoEF too did not give any indication that

MoEF was actively engaged in favourably reversing its earlier decision

communicated vide letter dated November 04, 2008.

139. In addition to the above, in the Note on Submissions summarizing the key

submissions made that was filed subsequent to hearing held on September 22,

2015, the AR of the BRLMs have highlighted certain correspondences viz.

November 17, 2008, July 24, 2009, September 18, 2009 and May 03, 2010 to inter

alia state that the status of ECL’s application was under consideration and not at all

rejected. Letter dated May 03, 2010 has already been analyzed in detail as above.

Now, we will one by one also review the other letters pointed out by the BRLMs in

support of their argument that ECL’s application was under consideration and not

at all rejected:

Letter dated November 17, 2008 is ECL’s letter to the Government of

Jharkhand pursuant to letter dated November 04, 2008 of MoEF, giving its


account on the issues raised by FAC of MoEF, and stressing upon the

Government of Jharkhand to strongly and expeditiously make a representation

for favourable re-consideration of the proposal as per guideline 4.14(ii) as

prescribed by MoEF.

I find that this letter was sent by ECL to the State Government requesting it to

represent before MoEF for a favourable re-consideration under Guidelines 4.14

(ii) as prescribed by MoEF. This does not support the BRLMs argument that status

of ECL’s application was under consideration by MoEF and not at all rejected. In

fact, even the State Government had not acted upon MoEF’s letter at this stage.

Thus, this does not in any way support BRLMs argument. The said letter, however,

confirms that guideline 4.14(ii) prescribed by MoEF was very much in place at the

relevant point of time, and not deleted, as put forth by the BRLMs in its

submissions.

Letter dated July 24, 2009 is again ECL’s letter to MoEF (FC) division for

updating MoEF that they had given their observations to the Government of

Jharkhand on the various observations made by MoEF in its letter dated

November 04, 2008. Vide the said letter, ECL requested MoEF to process the

proposal for diversion of forest land.

I find that this request made by ECL to MoEF, did not, in any manner change the

status from where it stood as at MoEF’s letter dated November 04, 2008. It, thus,

does not support the BRLMs argument that status of ECL’s application was under

consideration by MoEF and not at all rejected. In fact, I see no change of status

from MoEF’s side after its communication dated November 04, 2008.

Letter dated September 18, 2009 is a letter from the Government of

Jharkhand to the MoEF, referring to the State Government’s letter dated July

10, 2009 to the MoEF, and requesting to take further action for clearance of

Forest Diversion proposal of ECL.

However, I find that the said letter too did not give any indication that the

proposal was under consideration/ active consideration by MoEF. As has been


brought out earlier, vide the said letter dated July 10, 2009, State Government

had merely forwarded to MoEF, ECL’s response dated May 27, 2009 on the

observations of MoEF in its letter dated November 04, 2008, for further action. It

had neither taken the trouble to supplement ECL’s note with its comments on the

issues raised by MoEF, nor even put an effort to provide the details with respect to

issues which rested with itself. I also note here that the emphasis laid by ESL and

ECL vide their respective letters dated December 27, 2013 on the fact that

Government of Jharkhand had in its letter dated September 18, 2009 referred to

the ‘return of proposal’ by FAC under MoEF, and not to the ‘rejection of the

proposal’, too does not stand any merit. I am of the considered opinion that a

letter of the State Government of Jharkhand cannot throw light on what was

meant by the word ‘rejection’ in the letter of MoEF. MoEF has unambiguously

used the language ‘rejection of proposal by FAC’ and ‘liberty given to the State

Government to request for reconsideration of the proposal as per guideline

4.14(ii)”. In light of the same, I find no reason to muddle or confuse the usage of

the word ‘rejection’ on the conjectures of the BRLMs and ESL.

140. I further find that the issuer company ESL and ECL too have made a similar

argument vide letter dated December 27, 2013 that from the numerous

correspondence exchanged on the subject with the Central Government, it is very

evident that the proposal was under active consideration and not rejected as on the

date of filing of the prospectus.

141. Further, I find that ESL and ECL vide individual letters dated December 27, 2013

have stated that it was learnt by ECL from the numerous personal interactions with

the Government department that the proposal was not rejected. Also, that the

letters dated November 04, 2008 and January 16, 2009 were written primarily

with the object of receiving further information, and not in the context of rejection

(as generally understood) of the proposal. I find there is no supporting basis for the

argument made.

142. I find that ESL and ECL have also inter alia pointed out that the following letters

from MoEF substantiates that the proposal of ECL was under consideration and

pending as on the date of prospectus:


Letter bearing No. 8-35/2008-FC dated 29 January 2009 from Inspector

General of Forests to the Principal Secretary, Government of Jharkhand

with subject “Diversion of 55.790 hectares forestland for Dirsumburu Mine for

mining of Iron Ore in favour of M/s Electrosteel Castings Limited in Saranda

Forest Division in West Singhbhum district of Jharkhand”.

In the matter, I find that ECL vide letter dated November 17, 2008 had written to

the office of the Principal Secretary (Forest), Government of Jharkhand giving

their view points on each of the points raised by FAC while rejecting their forest

diversion proposal. Vide the said letter, it had requested the Government of

Jharkhand to represent their proposal strongly and expeditiously to the MoEF for

favourable reconsideration of the proposal as per Guidelines 4.14 (ii) as

prescribed by MoEF. However, despite the same, I find that as of January 29, 2009

i.e. almost 3 months from the date of rejection, the Government of Jharkhand had

not corresponded with MoEF on the issue, after the receipt of MoEF’s letter dated

November 04, 2008. On the contrary, I note that ECL itself vide their said letter

dated January 29, 2009 had gone a step further and informed the Inspector

General of Forest, MoEF (FC Division) that the Government of Jharkhand is

actively considering the Iron Ore Mining Project and that it would shortly make

an appropriate request to Ministry for reconsideration of ECL’s proposal of

diversion of forestland. No supporting letter from the Government of Jharkhand to

that effect was enclosed with the said letter sent by ECL to MoEF. ECL had further

inter alia also stated in its letter dated January 29, 2009 to MoEF that in view of

the unstable political situation prevailing in the state, the proposal for

reconsideration would take some extra time beyond the prescribed period.

However, there was no direct correspondence by the State Government with

MoEF in the matter, subsequent to MoEF’s letter dated November 04, 2008

communicating the rejection of forest clearance for ECL’s Iron Ore Mine. Thus, in

such a situation, the normal response of MoEF was to seek the views of the

Government of Jharkhand on the letter of ECL. I find that this act of MoEF did not

give any impression that the proposal was under the active consideration of MoEF

and not “rejected” as on the date of filing of RHP with RoC. On the contrary, I note

from the aforesaid that both the authorities viz. the Government of Jharkhand as


well as the MoEF had not given any positive indication in the matter. Hence, it

was ECL’s own hypothetical presumption that the matter was under active

consideration by MoEF and not rejected as on the date of filing of RHP with RoC.

Letter bearing No. 8-35/2008-FC dated May 03, 2010 from Sr. Assistant

Inspector General of Forests to the Principal Secretary, Government of

Jharkhand with subject “Providing a list of all active / passive mines and other

activities in the core zone of Singhbhum Elephant Reserve in Saranda Forest

Division in West Singhbhum district of Jharkhand”

Already discussed in detail at Para 138 of the Order. In fact, I find here that even

the State Government, though being aware of the fact that request for

reconsideration of ECL’s proposal for forest diversion was required to be

submitted to MoEF within three months of the rejection letter of MoEF, had also

not acted upon actively for a favourable reconsideration of the matter. And this

was despite the fact that ECL was persistently following up the matter with the

State Government.

143. I find further that the BRLMs have inter alia also stated that:

from a review of letters addressed by the government functionaries, it is clear

that the proposal of forest clearance was being considered appropriately by

the MoEF and therefore the status of the proposal was rightly disclosed in the

offer document as pending for approval;

that there were several letters exchanged between ECL and MoEF whereby

even the letters from MoEF record that the proposal of forest clearance was

being considered by MoEF;

that it defies logic to state that although there were several events pursuant to

the ‘rejection’ which resulted in the proposal being actively considered and

finally approved, the offer document ought to have referred to the alleged

rejection ignoring all other facts and submissions.

144. In view of the submissions made by the BRLMs as aforesaid, I find it necessary to

even review the other correspondence exchanged between ECL, the State

Government, MoEF and different government functionaries, before the filing of the


prospectus with RoC. The details of the correspondence exchanged after MoEF’s

letter dated November 04, 2008 and before the filing of the prospectus with RoC

have already been chronologically brought out in detail at Para 83(b) above. The

correspondences namely are, ECL’s letter dated November 17, 2008 to the State

Government, ECL’s letter dated January 29, 2009 to MoEF, MoEF’s letter dated

January 29, 2009 to the State Government, State Government’s letter dated May 26,

2009 to ECL, ECL’s letter dated May 27, 2009 to the State Government, ECL’s letter

dated July 24, 2009 to MoEF, ECL’s letter dated September 09, 2009 to the State

Government, State Government’s letter dated September 18, 2009 to MoEF,

MoEF’s letter dated May 03, 2010 to the State Government, ECL’s letters dated July

13, 2010 and July 14, 2010 to the then Hon'ble Prime Minister and the then Hon’ble

Minister for Environment & Forest, letter from Office of the then Hon’ble Prime

Minister dated August 10, 2010 to MoEF, ECL’s letter dated August 11, 2010 to

MoEF.

145. The analysis of correspondences other than those that have already been

examined are brought out below:

Government of Jharkhand vide letter dated May 26, 2009 advised ECL to

represent its case with supporting documents to the several observations made

by MoEF, FC Division vide letter dated November 11, 2008 (appears to have

inadvertently referred to as November 11, 2008 instead of letter dated November

04, 2008) addressed to the Principal Secretary (Forest), Government of

Jharkhand

It is noted that under guideline 4.14(ii), State Government had the liberty to

request the proposal rejected by the MoEF for reconsideration within three

months from the date of the issue of the rejection letter, giving a detailed

justification for reconsideration as well as comments on the grounds on which the

proposal was rejected by the MoEF. However, I note that in the extant case, it was

vide the said letter dated May 26, 2009 i.e. after six months from the date of

rejection letter of MoEF that State Government advised ECL to represent its case.

Thus, I note that the request for reconsideration was not even done by the State

Government within the timeline stipulated by the guideline. Further, though ECL


had directly informed MoEF on behalf of the State Government that due to the

unstable political situation prevalent in the State, State Government is expected

to take some extra time beyond the prescribed period, no such letter has been sent

by State Government to MoEF. Further, even a copy of ECL’s letter to MoEF was

not marked to the State Government for information. Thus under the

circumstances, I note that neither was the the proposal of forest clearance of

ECL’s Iron Ore Mine being considered favourably by the MoEF, nor, by the State

Government.

ECL vide letter dated September 09, 2009 requested the State Government

to address a letter to MoEF to reiterate its recommendation and urgency for

clearance of the forest diversion proposal on the basis of its original

recommendation and its subsequent letter dated July 10, 2009.

The aforesaid letter of ECL to the State Government does not support BRLMs

argument that that the proposal of forest clearance was being favourably or

otherwise considered by MoEF. On the contrary, detailed analysis of

correspondences between ECL, State Government and MoEF brought out in the

earlier paras of the Order indicate that even the State Government was merely

referring to MoEF, letters forwarded by ECL to it.

ECL sent letters dated July 13, 2010 and July 14, 2010 to the then Hon'ble

Prime Minister and the then Hon’ble Minister for Environment & Forest

respectively seeking their intervention in the matter of forest clearance of its

Iron Ore Mine. The Principal Secretary on behalf of the then Hon’ble Prime

Minister vide letter dated August 10, 2010 forwarded the copy of

representation of ECL to MoEF for considering the matter and for appropriate

action most expeditiously.

It is noted that ECL had sent letters dated July 13, 2010 and July 14, 2010 to the

then Hon'ble Prime Minister and the then Hon’ble Minister for Environment &

Forest respectively seeking their intervention in the matter of forest clearance of

the Captive Iron Ore Mine for ESL’s Steel Plant in Jharkhand. The letters

highlighted the fact that full financial closure for the project of Rs. 7,262 crore


had been achieved and that already nearly Rs. 4,500 crore had been spent on its

implementation. It was further brought out in the said letters that the company

targets to start commissioning the project by September 2010 and to complete

the project in phases in the near future. The concluding part of the letters stressed

upon the fact that without the back-up of the vital raw material i.e. iron ore, the

project may not be economically viable. It is in this context that the Principal

Secretary on behalf of the then Hon’ble Prime Minister forwarded the copy of the

said representation of ECL to MoEF vide its letter dated August 10, 2010, for

considering the matter and for appropriate action most expeditiously. Under such

circumstances, PMO forwarding letter sent by ECL to it, for appropriate action by

MoEF most expeditiously cannot be construed to mean that the proposal was

being actively and favourably being considered by the deciding authority MoEF.

ECL vide letter dated August 11, 2010 inter alia informed MoEF that its group

company ESL was putting up an Integrated Steel Plant in Jharkhand, which was

expected to start commissioning in 2-3 months time. It was reiterated therein

that for providing raw materials for the said project, the Government of

Jharkhand had allocated a iron ore mine, for which the forest diversion

proposal was rejected by FAC of MoEF and sent back to the State Government

stating that they could forward the case again to the MoEF for reconsideration.

The concluding para of the letter highlighted the fact that their Steel Project

was about to start production very shortly and that they urgently needed Iron

Ore, without which the Project would be in great difficulty.

This too I note is ECL’s letter sent directly to MoEF highlighting its concern in

view of rejection of forest clearance, however, it does not indicate any positive

step from MoEF’s side.

146. Thus, it becomes clear from all of the above that the submissions so assiduously

made by the BRLMs and the issuer ESL that the current status of the forest

diversion proposal of ECL as at the time of issue was that it was being actively,

comprehensibly and favourably being considered by MoEF and was pending for

approval is based on hypothetical arguments without any reasonable ground.

Further, I note that even the basis on which such hypothetical presumptions have


been made, have not been disclosed in the RHP. Also, detailed analysis of all the

relevant correspondences pursuant to MoEF’s letter dated November 04, 2008 and

before the filing of the prospectus with RoC, brought out as above and through the

earlier paras, clearly indicates that no visible event had taken place indicating a

reversal by MoEF of its initial decision of rejection of the proposal of forest

diversion. In view of the same, the fact that ECL itself was aggressively

representing its case at various levels with various authorities including the State

Government and MoEF, cannot stand at a higher pedestal to conceal the factual

status of the forest diversion proposal from the investors.

147. Here, I find that it is the MoEF that is ultimately in charge of deciding how mining

takes place in a given jurisdiction, and forest and environmental clearances are

central to the mining projects. In the matter, I further find that the Hon’ble

Supreme Court of India in M.C. (35) 38 Mehta vs Union of India (2004) 12 SCC

118 had laid down a principle that “If an activity is allowed to go ahead, there may

be irreparable damage to the environment and if it is stopped, there may be

irreparable damage to economic interest. In case of doubt, however, protection of

environment would have precedence over the economic interest.” The above has been

further reiterated in the judgment In Re: Vedanta Aluminium Ltd. (Decided On:

23.11.2007) by the Hon’ble Supreme Court. It has been stated therein: “As a

matter of preface, we may state that adherence to the principle of Sustainable

Development is now a constitutional requirement. How much damage to the

environment and ecology has got to be decided on the facts of each case. While

applying the principle of Sustainable Development one must bear in mind that

development which meets the needs of the present without compromising the ability

of the future generations to meet their own needs is Sustainable Development.

Therefore, courts are required to balance development needs with the protection of

the environment and ecology. It is the duty of the State under our Constitution to

devise and implement a coherent and co-ordinated programme to meet its obligation

of Sustainable Development based on inter-generational equity (See: A.P. Pollution

Control Board v. Prof. M.V. Nayudu MANU/SC/0032/1999 : [1999]1SCR235 ).

Mining is an important revenue generating industry. However, we cannot allow our

national assets to be placed into the hands of companies without proper mechanism

in place and without ascertaining the credibility of the User Agency.”


148. In view of the above principle laid down by the Hon’ble Supreme Court in 2004 that

protection of environment would have precedence over the economic interest and

reasserted again in 2007, there was every likelihood that even on re-consideration

of the proposal, MoEF may have considered protection of environment more

important than economic interest. Also, I find that ECL had sent letter dated

November 17, 2010 addressed to the then Hon’ble Chief Minister of Jharkhand,

immediately after the filing of the prospectus with RoC, pointing out that their

Forest Diversion Proposal of Kodolibad Iron Ore mine was twice rejected by the FC

Division of MoEF and sent back to the State Government, despite the State

Government on both the occasions having satisfactorily answered the issues raised

by MoEF and reiterated its recommendation. This clearly negates the claim made

by the BRLMs, ESL and ECL that the proposal was under active & favourable

consideration by the MoEF and not rejected.

149. Thus, what emerges from all of the above is that the rejection of ‘forest

clearance’ and ‘environment clearance’ by MoEF was knowingly suppressed by

the BRLMs and the issuer company ESL. I further conclude that the RHP was

misleading not only because of what was stated in the RHP, but, also because of

what was concealed. And such concealed facts in the RHP cannot become

acceptable, just because ECL received forest clearance and environment

clearance from MoEF at a much later date. I, thus, conclude that the BRLMs and

the issuer ESL failed to make a complete and candid disclosure in the

prospectus of ESL about the factual status of the forest diversion proposal of

ECL as at the time of IPO of ESL, thus, misleading the investors investing in the

IPO of ESL.


E) If so, did the BRLMs fail to exercise proper due-diligence on their part

in violation of Clause 1 of Form C of Schedule VI of Regulation 57(1),

Regulation 57(2)(a)(ii) and Regulation 64(1) of the ICDR Regulations

and Regulation 13 of the Merchant Bankers Regulations read with

clauses 1, 4, 6, 7 and 20 of Code of Conduct for Merchant Bankers as

specified in Schedule III?

150. I find that the BRLMs vide their letter dated December 31, 2013 while denying

the allegation of incomplete or inadequate information in the offer document have

inter alia submitted as follows:

that they acted professionally, diligently and have provided all the material

and correct information to the investors at all times and there was no

concealment of any information as incorrectly alleged in the SCN;

that they had exercised their judgment based on adequate documents and

diligence and there cannot be any allegation of lapse or breach of duty of care

and diligence against them;

that they had also held detailed discussions and meetings with the issuer

company as well as the representatives of the parent company to ensure that

all the details and information pertaining to the issuer company and the risk

factors mentioned in the prospectus were adequate and complete in all

respects;

That not only have facts not been appreciated, even the law has not been

appreciated before deciding to initiate proceedings;

That it is necessary to demonstrate that the contrary view was unprofessional

or illegal and that they had made misstatements for penalty to be imposed;

That they have not made any untrue statement or suppressed any facts,

material or otherwise;

That neither has there been any repetitive nature of default, nor has there

been any unlawful gain;

That there has been no loss caused to the investors as incorrectly stated in the

complaint;


151. In the matter, I find that the determination of whether the BRLMs were duly

diligent or not does not involve any complex definition or criteria. It is based on a

simple fact as to whether the BRLMs took ‘all reasonable steps’, which must be

considered in the specific context of the ‘particular issue’ which comprised the

contravention in question, and not in the context of a broader duty of care. The

standard to be applied is what a reasonable Merchant Banker in the particular

circumstances of the particular case would have done and will largely be governed

by the Code of Conduct as specified in Schedule III Regulation 13 of Merchant

Banker Regulations read with the following clauses:

Clause 1 - A merchant banker shall make all efforts to protect the interests of

investors.

Clause 4 - A merchant banker shall at all times exercise due diligence, ensure proper

care and exercise independent professional judgment.

Clause 6 - A merchant banker shall ensure that adequate disclosures are made to the

investors in a timely manner in accordance with the applicable regulations and

guidelines so as to enable them to make a balanced and informed decision.

Clause 7 - A merchant banker shall endeavour to ensure that the investors are

provided with true and adequate information without making any misleading or

exaggerated claims or any misrepresentation and are made aware of the attendant

risks before taking any investment decision.

Clause 20 - A merchant banker shall not make untrue statement or suppress any


152. I, thus, consider that the test for due diligence as twofold:

a. Firstly, whether the issue was reasonably foreseeable; and

b. If so, did the BRLMs take all reasonable care by taking all reasonable steps to

ensure that the contravention did not occur?

153. With this in place, it is essential to first determine whether the contravention was

reasonably foreseeable. I find that MoEF vide letter dated November 04, 2008 had

informed the Government of Jharkhand that FAC had rejected ECL’s proposal of

diversion of forestland for mining of Iron ore in favour of ECL on account of being

part of core zone of Singhbhum Elephant Reserve and critical to wildlife

conservation. Vide the said letter, MoEF, however, gave liberty to the State


Government to request for reconsideration of the proposal as per guideline

4.14(ii).

154. A detailed analysis of guideline 4.14 has been brought out at Paras 86 to 105 above.

From the same, I note that in view of the reference made to guideline 4.14(ii) by

MoEF, it becomes quite apparent that MoEF after consideration of ECL’s proposal

at the relevant point of time had rejected the forest diversion proposal for Iron Ore

Mine of ECL, and it was not merely FAC’s recommendation.

155. Also, the two issues i.e. rejection of ECL’s forest diversion proposal of Iron Ore

Mining Project in Jharkhand and seeking the details on the present status of the

other four mines located in the core of Singhbhum Elephant Reserve, as can be seen

from a perusal of MoEF’s letter dated November 04, 2008, were independent of

each other. MoEF had not given any indication that the outcome of details of other

four mines sought by MoEF from the State Government would positively or

otherwise, alter the view of MoEF with respect to the ECL’s project.

156. Further, detailed analysis of all the relevant correspondences pursuant to MoEF’s

letter dated November 04, 2008 and before the filing of the prospectus with RoC,

brought out in the earlier part of the Order, clearly indicates that no visible event

had taken place indicating a reversal by MoEF of its initial decision of rejection of

the proposal of forest diversion.

157. It is also noted that though EAC in its meeting held on September 23-25, 2008 had

recommended the Iron Ore Mine of ECL for environment clearance subject to

obtaining prior clearance from wildlife angle, MoEF vide letter dated January 16,

2009 had communicated to ECL that it had decided to reject the said proposal as

well. The reason as per MoEF’s letter was that the proposed project was located

within the core area of the Singbhum Elephant Reserve, which was critical to

wildlife conservation, and that FAC had rejected the proposal for diversion of

forestland for the said project. As per the documents on record, I do not find any

further correspondence by ECL with MoEF on the matter, pursuant to MoEF’s letter

dated January 16, 2009 and prior to the filing of the prospectus with RoC.


158. Thus, I note that the issue which resulted in the BRLMs contravening the relevant

provisions of ICDR Regulations was clearly within the knowledge of the BRLMs and

reasonably foreseeable. Further, as has been brought out in the earlier part of the

Order, in absence of any operating history for ESL, the project not being apprised

by any bank/ financial institutions, raw material linkage with ECL resulting in low

cost of production forming one of the fundamental basis for the issue price in

absence of any quantitative factors available, ECL the promoter of ESL having

raised concerns with various authorities inter alia highlighting the fact that without

the back-up of the vital raw material i.e. iron ore, the project may not be

economically and financially viable, commercial operations were projected to

commence from October 2010 in the RHP, the factual status of the forest diversion

proposal of Iron Ore Mine of ECL as on the date of the RHP was a material

disclosure for the IPO of ESL.

159. In which case, the next question that arises is did the BRLMs take all reasonable

care by taking all reasonable steps as specified in the Code of Conduct under

Schedule III Regulation 13 of Merchant Bankers Regulations specifically read with

clauses (1), (4), (6), (7) and (20), just as a reasonable Merchant Banker in the

particular circumstances of the particular case would have done, to prevent the

reasonably foreseeable problem from occurring. I note here that the Hon’ble

Supreme Court in the matter of Chander Kanta Bansal vs. Rajinder Singh Anand

[(2008) 5 SCC 117] has discussed the concept of ‘due diligence’ and observed that

due diligence means ‘reasonable diligence; …. such diligence as a prudent man would

exercise in the conduct of his own affairs.’

160. In the extant case, I note that the BRLMs inter alia disclosed in the RHP of ESL that

the current status of development of Iron Ore Mine of ECL with respect to

Environment Clearance was ‘Received, but applicable once Forest Clearance is

received’ and with respect to Forest Clearance was ‘Forest diversion proposal

already submitted’. Together with the same, risk factors such as there can be no

assurance that the approval from MoEF will be received in a timely manner, as

such, iron ore supplies may have to be obtained from other sources at a higher

price from the market for carrying out the operations, which may cause a delay in


commercial production, thereby adversely effecting on business, financial

condition and results of operations, etc. were incorporated in the RHP of ESL.

161. It is noted that the BRLMs have argued that they had not made any untrue

statement or suppressed any facts or material. I find that disclosures in the RHP of

ESL as aforesaid did not give a true and adequate picture to the investors of the

factual status of forest clearance and environment clearance of Iron ore Mine of

ECL. This was despite the fact that it was within knowledge of the BRLMs that

MoEF had rejected the proposal of ECL for diversion of forest land on account of

being part of core zone of Singhbhum Elephant Reserve and critical to wildlife

conservation at the in-principle stage itself. Also that environment clearance stood

rejected by MoEF. In fact, the investors were not even made aware of the basic fact

that forestry clearance is accorded by MoEF in two stages: In-Principle (Stage-I)

and Final (Stage-II).

162. In the matter, I note further that vide Note on Submissions submitted by the AR on

behalf of the BRLMs vide letter dated February 14, 2014, it has inter alia been

submitted that the entire procedure for forest clearance can prove time consuming

and involve various stages and steps. It has been further stated that disclosure at

each stage and step was not necessary, what was necessary was to discuss the

implications of final approval not being granted. It has been stated that it was

neither feasible nor advisable for every intermediate development to be reported

from time to time and that is why listed companies with interests in mining do not

make intermediate developments in processing of their proposals under listing

agreement to the stock exchanges. Likewise it would not be appropriate for a

document such as RHP being updated from time to time to reflect intermediate

developments of this nature.

163. It has been submitted further that in case of an industry involving interface with a

governmental authority for any approval or licensing, where the approach of the

relevant authority may vary from time to time, it would be important to assess

whether each development represents a material development. Thus, I note from

the same that the BRLMs also agree that material developments with respect to

application made for government approvals need disclosure in the RHP. I note that


as per para 4.2 of the guidelines issued by the MoEF under the Forest Conservation

Act, forestry clearance for all projects are given in two stages. In first stage, the

proposal has to be agreed to in-principle, in which usually the conditions relating

to transfer, mutation and declaration as Reserved Forest/ Protected Forest

(RF/PF) under the Indian Forest Act, 1927 of equivalent non-forest land for

compensatory afforestation and funds for raising compensatory afforestation

thereof are stipulated. And after the receipt of compliance report from the State

Government in respect of the stipulated conditions, formal approval is issued. Thus,

all proposals for diversion of forest land require in-principle approval under the

Forest Conservation Act. In the given case, the materiality of forest diversion

proposal of ECL to ESL’s Steel project has already been brought out in detail in the

earlier part of the Order. MoEF by providing liberty to the State Government to

request for reconsideration of the proposal as per guideline 4.14 (ii), had implied

that the forest diversion proposal of the Iron Ore Mine of ECL was rejected by

MoEF after consideration of proposal by MoEF. Hence under no circumstances,

development as aforesaid, much prior to the filing of the draft Offer document of

ESL with SEBI, could have been viewed as an intermediate development in

processing of the proposal by any prudent Merchant Banker.

164. I note further that the AR of the BRLMs in the Note on Submissions submitted vide

its letter dated February 14, 2014 summarizing the key submissions at the hearing

held on January 28, 2014 has inter alia also stated that companies in corporate

groups such as Tatas, Jindals and others who pursue mining leases in various forest

areas would face this prospect. The AR has stated that a search by the BRLMs had

not provided evidence of specific disclosure of each development at each stage

having been made by any listed company. Again, the AR of BRLMs in the Note on

Submissions submitted vide its letter dated October 06, 2015, summarizing the key

submissions made at the hearing held on September 22, 2015 under instructions

from and on the behalf of the BRLMs, has inter alia stated that listed companies

whose securities are traded on the Exchanges too are never required to disclose

every intermediate development. It was claimed by the AR vide the said letter that

no mining company that is listed is known to have made such filing.


165. On perusal of the latest corporate announcements made on BSE website by listed

companies, I note that M/s. NHPC Ltd. on April 17, 2015 had informed BSE that

Ministry of Environment, Forests & Climate Change (formerly MoEF) vide its letter

dated April 15, 2015 had accorded in-principle approval for diversion of forest land

in favour of M/s. NHPC Ltd. for construction of Dibang Multipurpose Project on

Dibang River, in Lower Dibang valley district of Arunachal Pradesh. Hence, I find

that the argument of the AR on behalf of the BRLMs vide letter dated October 06,

2015 that no listed mining company is known to have made such filing is incorrect.

166. Thus, by analogy and from all of the above, I note that grant or rejection of in-

principle approval by MoEF was definitely a material disclosure and cannot be

viewed to be an insignificant intermediate development.

167. I note here that the BRLMs have cited the judgment of the Hon'ble SAT in the

matter of Imperial Corporate Finance & Services Pvt. Ltd. (hereinafter referred to

as ‘Imperial’) (Date of Order- July 30, 2004). In the said matter, I note that

Imperial was appointed as the Lead Manager to the rights issue of shares issued by

M/s. Gammon (India) Ltd. (hereinafter referred to as ‘Gammon’). It was found by

SEBI subsequent to a complaint received that a criminal case pending against the

Chairman and Managing Director of Gammon was not disclosed. Accordingly,

Imperial was found by SEBI to have failed to exercise due diligence. However,

Imperial had taken immediate steps upon receipt of the complaint to provide an

exit opportunity to the shareholders. In the matter, the Hon'ble SAT had observed

that lack of due diligence will arise only when the appellant was furnished with the

information and that was suppressed in the letter of offer. In the said case, SAT had

noted that no such material had been placed before the Tribunal. In fact, SAT has

stated that on the contrary, the finding of the Enquiry Officer clearly indicates that

Imperial was not apprised of the criminal case during the due diligence enquiry

with the company and its directors. Under the circumstances, the Hon'ble SAT had

held that there was no fault with the Lead Manager Imperial. Contrary to the same,

I find that in the case at hand, the BRLMs though were aware of the rejection of

forest clearance and environment clearance by MoEF, concealed the said material

fact from the investors. Further, the basis of deviation from this fact on record was


not even disclosed in the RHP. Thus, the investors investing in the IPO of ESL were

kept in the dark about the said material fact.

168. BRLMs have also cited the judgment of the Hon'ble SAT in the matter of JM

Mutual Fund and JM Capital Management Pvt. Ltd. (collectively referred to as

‘JM’) (Date of Order- November 22, 2004). In the said matter, I find that the

sponsors JM Financial and Investment Consultancy Services Pvt. Ltd. (hereinafter

referred to as ‘sponsors’) were visited with an Order by SEBI for violating certain

provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,

1997, and a penalty of Rs. 1.8 lacs was levied on the sponsors by SEBI on October

20, 2000. The sponsors appealed before the Hon’ble SAT and SAT by its Order

dated March 14, 2001 confirmed SEBI’s Order reducing the penalty from Rs. 1.8

lacs to Rs. 1 lac. The Order of the Hon’ble SAT had, thus, become final on March 14,

2001. This piece of information was not disclosed in the offer document prepared

by JM. However, it is observed that JM had taken immediate remedial steps as soon

as they became aware of the issue. In this matter too, the Hon'ble SAT had noted

that there was no finding that JM had knowledge of the penalty imposed on the

sponsors. SAT had also noted that there was no proof that the sponsor had passed

on the information to JM Capital Management Ltd., and that it had failed to disclose

the information inspite of the same. However contrary to the same, in the case at

hand, the BRLMs were well aware of the rejection and yet failed to disclose the said

fact in the RHP of ESL.

169. I note here that it has not been the case of the BRLMs that the fact regarding

rejection of forest clearance and environment clearance with respect to Kodolibad

Iron Ore Mine of ECL was made known to them by ECL. Thus, I note that the

aforesaid cases cited by the BRLMs cannot support the BRLMs case. On the

contrary, in the extant case, the BRLMs were furnished with the information and

that was suppressed in the RHP of ESL. Hence, in the extant case, there is a clear

case of lack of diligence on the part of the BRLMs.

170. In the matter, I note that the BRLMs have further argued that the risk factors

mentioned in the prospectus were adequate and complete in all respects. I note

that risk factors inter alia brought out the possibility that the approval from MoEF


may not be received in a timely manner. In which case, it was stated in the RHP that

they may have to obtain iron ore supplies from other sources or would be required

to purchase the raw materials at a higher price from the market for carrying out

their operations. It was further stated in the RHP that this may cause a delay in

commercial production, thereby having an adverse effect on ESL’s business,

financial condition and results of operations. It was also stated therein that the

execution of mining lease was pending for receipt of approval from MoEF.

171. However, I find there is a difference between knowing that a contingent event may

occur, which may make the project economically unviable at any time in future, and

that such an event had already occurred. Thus, the difference lies between possible

happening of an event and actual happening of an event. Possibility is that which

might chance to happen or may not happen. On the other hand, actuality is what

has already come into being and exists. Once an event takes place, it is real and not

just potentially real. The difference between such possibility and actuality is

therefore having potential knowledge versus having actual knowledge. And it is this

actual knowledge that was privy to the promoter of the issuer company ECL, and

with it the issuer company ESL and the BRLMs, which was concealed from the

investors in the RHP of ESL. In fact, when the actual fact was on record, the

question of subjectively bringing out as a contingent event through risk factors

loses relevance. Especially in case of Government approvals which are material to

the issuer, disclosure should be based on what is the actual status as at the relevant

point of time, which can be objectively verifiable, and cannot be based on what the

BRLMs and the issuer believe to be the interpretation or the likely outcome. As

regards such predictions, the BRLMs and the issuer may choose silence or

elaborate in the RHP with the factual basis as then known, but, they cannot conceal

facts or disclose half-truths.

172. What is important here is whether an appropriate degree of prudence and

diligence was brought in for arriving at what is claimed to be a reasonable decision

at the time it was made, and whether the basis of reaching such decision was

disclosed in the RHP. I note here that the BRLMs have inter alia stated that they had

taken all necessary care and exercised due diligence in the conduct of their affairs

in the matter as expected from the BRLMs or any regulatory body. In the matter, I


would like to reiterate that the due diligence exercised by the BRLMs need to be

considered in the specific context of the ‘particular issue’ which comprised the

contravention in question, and not in the context of broader duty of care. A detailed

analysis of facts brought out in the earlier part of the Order, taking into

consideration the Scheme of the Applicable Law, the submissions made by the

BRLMs and facts on record, I conclude that the BRLMs and the issuer ESL did not

take reasonable steps to avoid the particular issue from occurring. On the contrary,

I find that the disclosures made by the BRLMs in the RHP of ESL with respect to the

forest clearance and environment clearance of Iron Ore Mine of ECL, was based on

hypothetical undisclosed assumption of their own making, rather than on factual

documents on record.

173. As per Regulation 57(1) of ICDR Regulations, offer documents should contain all

material disclosures which are true and adequate so as to enable the applicants to

take an informed investment decision. Further, an indicative list of such material

disclosures have been included under Schedule VIII of the ICDR Regulations. I find

it pertinent to mention here that disclosures in the RHP have to acknowledge the

occurrence of an event and consider the impact of such events beyond risk factors.

However, in the extant case, I note that the BRLMs concealed even the factual

aspects about a material event, which could reasonably be expected to have a

material unfavorable impact upon the company's revenues and income. The

hypothetical presumptions based on which the BRLMs and ESL did not disclose the

factual status of ‘Forest Clearance’ and ‘Environment Clearance’ of the Iron Ore

Mine of ECL does not appear convincing.

174. In view of all of the above, I conclude that BRLMs failed to exercise proper due-

diligence on their part in violation of Clause 1 of Form C of Schedule VI of

Regulation 57(1), 57(2)(a)(ii), 64(1) of SEBI ICDR Regulations and Regulation

13 of Merchant Bankers Regulations read with the clauses 1,4,6,7 and 20, and

kept the investors participating in the Offer in the dark about the factual aspect

regarding the forest diversion proposal of the Iron Ore Mine of ECL.


F) Further what constitutes events having a bearing on the performance/

operations of a company as well as price sensitive information, which

are required to be immediately disclosed to the stock exchanges in

accordance with Clause 36 of the Listing Agreement?

175. The requirement of making necessary disclosures by listed companies to the stock

exchanges, and through them to the investors, about the events which are likely to

have a bearing on the performance/ operations of the company as well as the price

sensitive information, is contained in clause 36 of the listing agreement that is

executed between the stock exchange(s) and the listed company. This agreement is

executed by every listed company with the stock exchange(s) where its securities

are listed and it has a statutory force.

176. In the matter, I note that Clause 36 of the Listing Agreement elaborates certain

such events which are likely to have a bearing on the performance/ operations of

the company as well as are price sensitive information. These events include (but

not restricted to) changes that can reasonably be expected to have a bearing on the

present or future operations or profitability; or litigations/ disputes which can

reasonably be expected to have a impact on its present or future operations or

profitability or financials; or revision in its ratings; etc. In the matter, I find that the

Hon’ble SAT in the matter of M/s. Helios and Matheson Information Technology

Limited vs. SEBI in Appeal No. 69 of 2011 vide Order dated (Date of decision:

16.11.2011) has observed that

“A reading of the aforesaid clause makes it clear that a company has to immediately

inform the stock exchange(s) of the events which would have a bearing on its

performance/operations as well as price sensitive information. …………..

……… Price sensitive information when published is likely to materially affect the

price of the securities of a company and it is for this reason that clause 36 of the

listing agreement mandates that such information should be made public at the

earliest. …………….. Non-disclosure of price sensitive information is, thus, viewed

seriously.”


G) In which case, whether the rejection of the proposal for forest

clearance for Kodolibad Iron Ore Mine of ECL by MoEF was an event

having a bearing on the performance/ operations of ECL as well as a

price sensitive information, which was required to be immediately

disclosed to the stock exchanges in accordance with Clause 36 of the

Listing Agreement read with Section 21 of SCRA?

177. I note from submissions made by ECL that ECL has denied that the rejection of

forest clearance for Kodolibad Iron Ore Mine was price sensitive information for

ECL. ECL has stated that it has been in the business since more than sixty years and

has continued to manufacture cast iron pipes and ductile iron pipes, regardless of

being unable to extract/ mine iron ore from the Kodolibad mine. ECL vide its letter

dated July 27, 2015 has further stated that even as on date, the State Government

has not executed a mining lease with ECL, and ECL is not yet mining iron ore from

Kodolibad mine. ECL has inter alia further stated that it was not bound under

clause 36 of the Listing Agreement to make disclosures to the stock exchange with

respect to application made for license for mining iron ore, allocation of the

Kodolibad Iron Ore Mine, applications made for various permissions and approvals

under various laws including environmental laws in connection with carrying out

mining activities, and status of ECL’s applications for the permissions and

approvals sought.

178. In the matter, I, however, note from a perusal of the BSE website that the following

Corporate Announcements had been made by ECL on BSE in connection with its

proposed investment in ESL’s 2.2 MTPA Integrated Steel Project in Jharkhand:


07 May 2007

Electrosteel Castings - Outcome of Board Meeting 15:52

Electrosteel Castings Ltd has informed BSE that the Board of Directors of the Company at its meeting held on May 07, 2007 has granted its approval to invest upto Rs 500 crores in Equity of Electrosteel Integrated Ltd., an Associate Company, which would be setting up a 1.3 MT per annum Integrated Steel Plant in the State of Jharkhand, Such equity investment would be in a phased manner over a period of 2.5 years.

22 Jun 2007


Electrosteel Castings Ltd has informed BSE that the Board of Directors of the Company at its meeting held on June 22, 2007, inter alia, has approved investment of upto Rs 630 Crores in Equity of Electrosteel Integrated Ltd, an Associate Company in a phased manner over a period of 2.5 years. This decision supercedes the Board decision taken in its meeting held on May 07, 2007 wherein investment of upto Rs 500 crores was approved.

21 Jul 2008


Electrosteel Castings Ltd has informed BSE that the Board of Directors of the Company at its meeting held on July 21, 2008, inter alia, has accorded its consent towards the enhancement of the investment in equity of Electrosteel Integrated Ltd, an associate Company from Rs 630.00 crores to Rs 735.00 crores which will be required in a phased manner for increase in capacity from 1.3 MTPA to 2.2 MTPA of integrated steel Plant in Jharkhand.

179. Similarly, I note from a perusal of the NSE website that the following Corporate

Announcements had been made by ECL on NSE in connection with its proposed

investment in ESL’s 2.2 MTPA Integrated Steel Project in Jharkhand:


07 May 2007

Electrosteel Castings – Investment 16:23

Electrosteel Castings Ltd has informed the Exchange that: "The Board of Directors of the Company in the Meeting held today (May 07, 2007) has granted its approval to invest upto Rs.500 crores in Equity of Electrosteel Integrated Ltd, an Associate Company, which would be setting up a 1.3 MT per annum Integrated Steel Plant in the State of Jharkhand. Such equity investment would be in a phased manner over a period of 2.5 years".

25 Jun 2007

Electrosteel Castings - Investment/ Others 11:57

……The Company had informed the Exchange that the Board of Directors of the Company in its Meeting held on May 07, 2007 granted its approval to invest upto Rs.500 crores in Equity of Electrosteel Integrated Ltd, an Associate Company, which would be setting up a 1.3 MT per annum Integrated Steel Plant in the State of Jharkhand. Such equity investment would be in a phased manner over a period of 2.5 years. The Company has now informed the Exchange that "The Board has also approved investment of upto Rs 630 Crores in Equity of Electrosteel Integrated Limited, an Associate Company in a phased manner over a period of 2.5 years. This decision supercedes the Board decision taken in its meeting held on 7th May 2007 wherein investment of upto Rs. 500 crores was approved".

21 Jul 2008


Electrosteel Castings Ltd has informed the Exchange that "The Board has accorded its consent towards the enhancement of the investment in equity of Electrosteel Integrated Limited, an associate Company from Rs.630.00 crores to Rs.735.00 crores which will be required in a phased manner for increase in capacity from 1.3 MTPA to 2.2 MTPA of integrated steel plant in Jharkhand".

180. ECL is the promoter of ESL. From the annual report of ECL for Financial Year 2007-

08, I note that the Net Worth of ECL as on March 31, 2008 was approx. Rs. 1,180

crore. I further note from the above that Board of Directors of ECL had as on July

2008 accorded its consent towards investment of Rs. 735 crore in a phased manner

for increasing the capacity of ESL’s Integrated Steel Plant in Jharkhand from 1.3

MTPA to 2.2 MTPA. Thus, I note that as on July 2008, the Board of Directors of ECL


had given its consent for investment of as much as approx. 62% of the net-worth of

ECL in ESL.

181. It is further observed from the para on ‘Build-up of Promoter Shareholding’ in the

prospectus of IPO of ESL under the Section on ‘Capital Structure’ that ECL had

invested Rs. 700 crore in ESL for the project during the period from July 2007 to

January 2010. Further, from the Annual Report of ECL for Financial Year 2009-10, I

note that the Net Worth of ECL as on March 31, 2010 was approx. Rs. 1,583 crore.

Thus, I note that as on March 31, 2010, as much as approx. 44% of the net-worth of

ECL was already invested in ESL. Further, it is also noted from Schedule 6 forming

Part of Accounts that total investment of ECL in equity shares of other companies

and units of mutual funds as on March 31, 2010 was approx. Rs. 1023.96 crore.

Thus, it is observed that out of the same, Rs. 700 crore i.e. approx. 68% was

invested in ESL as on March 31, 2010. Thus, I note that as on March 31, 2010, major

investment of ECL (approx. 68%) was in ESL and it comprised approximately 44%

of the networth of ECL.

182. Further, as has been discussed in the earlier part of this Order, ECL had obtained

mining blocks of coking coal (by Ministry of Coal in July 2005) and iron ore (by

Ministry of Mines in June 2006) in the State of Jharkhand for the purpose of

implementing ESL’s 2.2 MTPA Integrated Steel and Ductile Iron Spun Pipes plant in

Jharkhand. ECL had also agreed to supply 100% iron ore and 30% of coking coal

requirement of ESL on a cost plus twenty percent for a period of 20 years from the

date of commencement of commercial production. As per the RHP of ESL, the

primary raw materials utilised in the production of Ductile Iron pipes is iron ore

and low ash content coal, and an upturn in the steel industry had led to a sudden

and sharp increase in iron ore prices in India. Thus, it was the assured availability

of iron ore (100%) and coking coal (30%) from mines allocated to ECL, which was

to ensure that ESL, which had no operating history, would be able to reduce its

operating costs and make the project economically and financially viable.

183. In respect of coking coal mine, Government of India had accorded prior approval

under section 5(1) of the Mines and Mineral (Development & Regulation) Act, 1957

on August 17, 2007, whereas for Iron Ore Mine, Ministry of Mines, Government of


India had accorded the approval on June 01, 2006. However, since the Iron Ore

Mine allocated to ECL was located in Kodolibad forest reserve in West Singhbhum

district of Jharkhand, Section 2 of the Forest Conservation Act as amended inter

alia required the State Government to also obtain prior Central Government

approval for de-reservation of the forest area/ use of forest land for non-forest

purpose.

184. A detailed discussion in the preceding paras of the Order has clearly brought out

that MoEF had rejected at the in-principle stage itself, the proposal of ECL for

diversion of forest land under guideline 4.14 (ii) i.e. after consideration of the

proposal, on account of being part of core zone of Singhbhum Elephant Reserve and

critical to wildlife conservation. Through detailed analysis, it has also been brought

out therein that the submission made by ECL/ ESL that MoEF’s letter dated

November 04, 2008 was an initial reaction/ first response of MoEF without

considering the proposal fully on merits, sans logic, when MoEF by referring to

guideline 4.14(ii) had adverted at the relevant point of time to the fact that the

proposal was not rejected merely for non-furnishing of essential information, but,

was rejected after its consideration. ECL / ESL have put forth in their submission

that MoEF’s letter dated November 04, 2008 indicated that the proposal could be

submitted for reconsideration pursuant to guideline 4.14(ii) upon providing

further information. However, the fact of the matter was that since the proposal

was rejected after consideration by MoEF under guideline 4.14(ii), the proposal

could be requested for reconsideration only after giving a detailed justification for

reconsideration as well as comments on the grounds on which the proposal was

rejected by MoEF. And the timeline for the said process was three months from the

date of issue of the rejection letter. During the said prescribed time period, the

State Government had not even requested for reconsideration of the proposal.

Further, though ECL has stated that ECL’s proposal for forest diversion of the Iron

Ore Mine was not rejected and was under active consideration, it is observed from

detailed analysis brought out at preceding paras of the Order that the same is

based on hypothetical arguments without any reasonable ground.

185. Further, it has been noted in the preceding paras of the Order that ECL itself

through various correspondences made to various authorities had inter alia


highlighted therein that its major investment in ESL was envisaged mainly on the

basis of allocation of the Kodolibad Iron Ore Mine, and that ESL’s Project would

become a non-starter in the absence of Captive source of Iron Ore.

186. I note that in the Annual Report of Financial Year 2009-10, ECL had inter alia stated

that the implementation of the project is progressing satisfactorily and ESL had

acquired the required land, received all statutory clearances and placed almost all

the orders for supply of plant and machinery and that the construction work at site

was in full swing. Thus, I find that ECL felt it material to disclose the status of ESL’s

plant in the Annual Report. Further, the DRHP of IPO of ESL dated March 25, 2010

and RHP dated September 11, 2010 had made it publicly known that commercial

production of ESL’s project was to commence from October 2010. However, at this

stage too, the status of forest diversion proposal for the Iron Ore Mine of ECL was

that MoEF had rejected the same after consideration of the proposal and that no

visible event had taken place indicating a reversal by MoEF of its initial decision of

rejection of the proposal of forest diversion.

187. Thus to sum up, it is noted from all of the above that ECL had obtained Iron Ore

Mine in the State of Jharkhand for the purpose of implementing ESL’s project. At

a time when ESL was scheduled to commence commercial production of its 2.2

MTPA Integrated Steel and Ductile Iron Spun Pipes plant in Jharkhand in

October 2010, the status of the forest diversion proposal of the Iron Ore Mine of

ECL was that MoEF had rejected the said proposal at the in-principle stage itself

after considering the proposal. Further, though the State Government had

requested for reconsideration of the proposal by MoEF as per guideline 4.14(ii),

no visible event had taken place indicating a reversal by MoEF of its decision of

rejection of the proposal. ECL had already at this stage invested approx. 44% of

its networth and 68% of its total investments in the said project. Further, the

strong concern felt by ECL at the relevant point of time that ESL’s project could

become economically and financially unviable in view of MoEF’s rejection of

forest diversion proposal for Iron Ore Mine of ECL, stands reflected in the

various letters sent by ECL to various authorities including to the then Prime

Minister of India. Thus, even if it is accepted that rejection of forest diversion

proposal by MoEF at the in-principle stage in November 2008 may not be


considered to be price sensitive at that stage, however, it was certainly an event

which would have had a bearing on the performance/ operation of ECL at a

time when ESL’s Steel Plant was to commence commercial production in

October 2010, as made publicly known through the RHP of ESL. Thus, from the

same, I conclude that the said information was definitely price sensitive, which

required ECL to make the necessary disclosure under Clause 36 of the Listing

Agreement read with Section 21 of SCRA to the Stock Exchanges at the earliest.

H) If so, whether such disclosure was made by ECL to the concerned stock

Exchanges where the shares of the company were listed?

188. It is observed from records that ECL had invested approx. 44% of its net-worth and

68% of its total investments in ESL’s project. However, ECL did not at any stage

make any disclosure to the stock Exchanges, where its stock was listed, regarding

rejection by MoEF at the in-principle stage itself of the forest diversion proposal of

its Iron Ore Mine. This was despite the fact that the same was to supply 100% of

the primary raw material iron ore required for ESL’s plant, so as to reduce its

operating cost and make ESL’s project financially and economically viable.

189. I find here that ECL has stated that the process and follow up in such matters

normally takes several years, hence, any such disclosure made, would have been at

the least premature and at the worst mischievous, untrue and misleading. This

view of ECL, I find, to be erroneous, absurd and totally unfounded in facts. This is

because MoEF in its guidelines has made a clear distinction between rejection after

consideration of the proposal by it and rejection due to non-furnishing of essential

information. In ECL’s case, it is clear from the detailed discussions brought out in

the preceding paras of the Order that the forest diversion proposal of ECL for the

Iron Ore Mine at Kodolibad was not in process, but, was in fact rejected by MoEF

after consideration. Also, even though ECL was following up with various

authorities raising its concerns regarding non-viability of ESL’s project without the

forest clearance for its Iron Ore Mine as at the date of commencement of

commercial production i.e. October 2010 (made publicly known in IPO of ESL), no


visible event had taken place indicating a reversal by MoEF of its initial decision of

rejection of the proposal of forest diversion.

190. I find here that ECL has stated that in the past, SEBI has taken action against parties

for making corporate announcements of proposed contracts, transactions, etc. and

penalized such parties by holding that the same were false, since the same

ultimately did not fructify. ECL has stated that hence they correctly believed that

only the final decision ought to be reported and not every interim step in the

process. In support of its view, ECL has referred to the Order passed by the

Hon’ble SAT in Appeal No. 49 of 2011 dated April 28, 2011 in the matter of M/s.

Vijay Textiles Ltd. vs. SEBI and Order dated September 13, 2013 passed by the

Learned Whole Time Member in the matter of Gennex Laboratories. ECL has

stated that both excessive reporting and inadequate reporting invite action by

SEBI, there are no detailed guidelines as to what should and should not be

reported, it is left to the discretion of the listed companies, as such, ECL concluded

that every step in the process need not be reported.

191. I note here that in the case of Gennex Laboratories Ltd. (hereinafter referred to as

‘GLL’) referred to by ECL, GLL had made five corporate announcements. When

these announcements were made, there was positive improvement in the share

price of GLL. Out of five corporate announcements, three announcements were not

implemented by GLL. The stock exchange was not intimated about their non-

implementation. It is hence alleged that GLL and its directors had made these false

corporate announcements to create artificial volume in the scrip and manipulate

the same in a fraudulent manner. The Learned Whole Time Member of SEBI after

examining the facts and circumstances of the matter concluded that GLL and its

Promoter cum Chairman and Executive Director planted false announcements in

order to create an opportunity for its Promoter cum Chairman and Executive

Director to offload his shares in the market at inflated prices and to generate

artificial interest in the scrip of GLL.

192. Further, I note that in case of Vijay Textiles Ltd. vs. SEBI, the company Vijay

Textiles Ltd. (hereinafter referred to as ‘VTL’) had made a corporate

announcement relating to bagging of an export order worth Rs.20 crore based only


on a letter of intent received to purchase fabrics, and not based on any firm order

placed by the purchaser. In the matter, the Learned Adjudicating Officer had held

that the company deliberately made false and misleading corporate

announcements so that when price of the scrip increased, the promoters and

directors could sell their shares and earn a huge profit at the behest of gullible

investors. However, the Hon’ble SAT vide Order dated April 28, 2011 observed that

since the negotiations between the parties had reached a level where the purchaser

had sent a letter of intent and VTL was wanting a letter of credit to be opened, it

was reasonable to infer that VTL treated the letter of intent as an Order on the

basis of which it made public announcement. Further, SAT observed that after the

receipt of the letter of intent, VTL pursued the matter with the purchaser for

opening a letter of credit and when this did not happen, the company made an

announcement that the export order did not fructify on account of the failure of the

buyer to open a letter of credit. The Hon’ble SAT held that merely because the

purchase order did not eventually come through, does not mean that the

announcement made was false and misleading. Further, the Hon’ble SAT here held

that price of the scrip went up not because of the announcement regarding the

export order, but, because of other corporate announcements which were far more

price sensitive.

193. Firstly, I find here that in both the aforesaid cases, it was due to the attendant

circumstances in the said cases post such corporate announcement, such as

increase in price/ volume of the scrip, promoters off-loading a substantial part of

their holdings and making huge profits that SEBI prima facie felt that GLL & VTL

had violated the provisions of SEBI (Fraudulent and Unfair Trade Practices relating

to Securities Market) Regulations, 2003 by making false/ misleading corporate

announcements. In the matter of VTL, after the Learned Adjudicating Officer

imposed penalty upholding the prima facie view held by SEBI, VTL appealed before

the Hon’ble SAT. In the matter, SAT observed that it is common ground between

the parties that the information was price sensitive and according to the listing

Agreement had to be sent to the stock exchange for dissemination to the public.

Thus, I note that the Hon’ble SAT did not find fault with VTL making a public

announcement on the basis of letter of intent sent by the purchaser, even before

the purchaser placing a firm order with it. In fact, I find that SAT did not agree with


the adjudicating officer that the company deliberately made a false corporate

announcement regarding the export order. Thus, it is clear from the same that

whether a particular interim step in the process is to be considered as price

sensitive or not, will depend on the facts and circumstances of each case. Therefore,

I find that the argument put forward by ECL that only the final decision ought to be

reported and not every interim step in the process cannot sustain.

194. I note that AR on behalf of ECL has inter alia further contended that if a provision is

capable of two interpretations, then the interpretation which exempts from penalty

must be chosen, rather than the interpretation which imposes the penalty. Also,

that if there is ambiguity in law/ rules, then the Noticee is entitled to the benefit of

doubt, and the interpretation which exempts the Noticee from penalty ought to be

adopted. Further, that if the violation is visited with penalty, the same must be

strictly construed in favour of the Noticee and if the language of the provision is not

clear, it cannot be interpreted to the disadvantage of the Noticee. To support the

said contentions, ECL has cited a number of cases. The same are discussed below

with a short discussion in respect of the facts of each case:

(i) UBS Securities Asia Ltd. vs. SEBI, (SAT Order dated Sept 9, 2005 in Appeal

no. 97 of 2005, paras 37,42,96)

In the cited case, SEBI’s Order had inter alia held that in respect of

Regulation 15A of the SEBI (Foreign Institutional Investors) Regulations,

1995 (hereinafter referred to as ‘FII Regulations’), it is not sufficient to

be only a regulated entity. It is also necessary that when the ODIs have

been issued against the securities listed in the Indian market, they should

also comply with the requirements of Indian regulator i.e., ‘Know Your

Client’ (KYC) requirement of Regulation 15A of FII Regulations. It should

be possible to know the names and addresses of the investors and

shareholders as and when asked for by the regulator. Whatever

‘information’ SEBI sought from UBS pertained to KYC – i.e., Regulation

15A of the FII Regulations. SEBI could not accept the contention of UBS

that ODIs have been issued by an affiliate i.e., UBS AG, London, of the FII

(i.e., UBS Securities Asia Limited) which is a regulated entity in London


and accordingly the requirements stipulated in Regulation 15A of FII

Regulations were not applicable in its case. The fact that UBS London

has provided access to the offshore clients through ODIs to Indian

securities market; it was stated that it has to verify their antecedents

and also ensure that KYC norms as specified in Regulation 15A are fully

adhered to. The Order of SEBI had held that it is the duty of UBS / its

affiliate that prior to issue of ODIs against underlying Indian securities, it

should have completed the ‘know your client’ requirements by asking its

clients all the questions that the regulations required.

In the matter, UBS Securities, in their appeal to SAT, contended that

the regulations do not prescribe any specific question which should have

been asked by the appellant. It submitted that in the absence of any

clear guidance from the respondent and the regulations, the scope and

extent of KYC requirement under Regulation 15A of the FII Regulations

would be highly inexact and flexible, because the interpretation would be

left to the respondent at subsequent point of time. It was submitted that

a plain reading of Regulation 15A makes it quite clear that it did not call

for knowing the ultimate beneficiary or the persons behind the client

who had entered into an agreement. It was argued that the phrase ‘know

your client’ has not been defined by the respondent anywhere, and in the

absence of a clear definition in the provision, the regulation cannot be

given a wide interpretation, such as to cover the names and addresses of

top five investors/ clients. In this context, it was argued further that

there could not be any case against the appellant, if it does not arise

from a reasonable construction of the statute, and in view of the

ambiguity in the law, the Court must lean towards the construction

which exempts the accused from the penalty.

In the matter, the Hon’ble SAT held that SEBI did not have a clear and

explicit understanding of the KYC requirement. SAT held that SEBI could

have added the necessary words such as ‘ultimate beneficiaries’ to make

the KYC unambiguous. It could also have been prescribed as a part of the

Compliance Report to be submitted by the FIIs. SAT observed that it was


quite evident that there was some vagueness about the KYC requirement

under Regulation 15A of the FII Regulations, hence, held that in view of

the established legal position that if a violation of such vague regulation

occurs which can place the consequence of penalty, it could not be visited

in favour of the accused.

(ii) UPSE Securities v. NSE (SAT Order dated July 04, 2012 in Appeal No. 105 of

2012, para 5)

In the said matter, a total monetary penalty of Rs 45,000/- was imposed

by NSE on UPSE Securities for certain irregularities noticed by NSE

during the course of inspection of the books of account. Out of the total

penalty of Rs. 45,000/-, a penalty of Rs. 25,000/- was imposed for not

maintaining one ledger account for the clients who were also acting as

sub-broker.

In the matter, the Hon’ble SAT held that there was no clarity in the

regulation that even in respect of client who is acting in dual capacity

i.e., as a client and as a sub-broker of the broker, separate account is to

be maintained in respect of transactions as client and as sub-broker. SAT

noted further that after NSE directed the appellant to maintain separate

accounts in its dealings as a client and as a sub-broker, the appellant had

complied with the requirements. It is in this context that the Hon’ble SAT

held that keeping in view the ambiguity in the existing regulation,

penalty of Rs.25,000/- imposed on this count was uncalled for.

(iii) Dilip Kumar Sharma v. State of MP, [(1976) 1 SCC 560, Para 22]:

In the cited case, the accused was sentenced to death under section 303

of the Indian Penal Code, which states that “Whoever, being under

sentence of imprisonment for life, commits murder, shall be punished

with death”. The Hon’ble Supreme Court in the matter was of the

opinion that when section 303 speaks of a person under sentence of

https://webmail.sebi.gov.in/owa/redir.aspx?C=2X61d2pQLEa5kqzff2Y4AyeNP-62XtMIhW_TyN1BSO1AywrsLpmbAw7DvRC_aGMbCCk4Cgtfvko.&URL=https%3a%2f%2findiankanoon.org%2fdoc%2f793437%2f


imprisonment for life, it means a person under an operative executable

sentence of imprisonment for life. A sentence once imposed, but, later set

aside is not executable and, therefore the court convicting the accused of

murder cannot take such a sentence into account for imposing the

sentence of death by the application of section 303. In this regard, the

Hon'ble Supreme Court stated that if two constructions are possible

upon the language of the statute, the Court must choose the one which is

consistent with good sense and fairness, and eschew the other which

makes its operation unduly oppressive, unjust or unreasonable, or which

would lead to strange, inconsistent results or otherwise introduce an

element of bewildering uncertainty and practical inconvenience in the

working of the statute.

(iv) Tolaram Relumal v. State of Bombay, [(1955)1 SCR 158, paras 8 and 9]

In the said matter, the appellants were charged for having received a

premium in respect of grant of a lease under section 18(1) of the

Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, which

provides that- if any landlord either himself or through any person

receives any fine, premium or other like sum or deposit or any

consideration, other than the standard rent in respect of the grant,

renewal or continuance of a lease of any premises, such landlord shall be

punished in the manner indicated by the section.

In the matter, the Hon’ble Supreme Court held that the oral agreement

made between parties did not constitute a lease, but, it amounted to an

agreement to grant a lease in future. The Court held that the language of

section 18(1) ‘in respect of the grant, renewal or continuance of a lease’

envisaged the existence of a lease and the payment of amount in respect

of that lease or with reference to that lease. The Court observed that

Section 18 does not make the intention punishable, it makes an act

punishable which act is related to the existence of a lease. It does not

make receipt of money on an executory contract punishable, on the other

https://webmail.sebi.gov.in/owa/redir.aspx?C=2X61d2pQLEa5kqzff2Y4AyeNP-62XtMIhW_TyN1BSO1AywrsLpmbAw7DvRC_aGMbCCk4Cgtfvko.&URL=https%3a%2f%2findiankanoon.org%2fdoc%2f793437%2f


hand it only makes receipt of money on the grant, renewal or

continuance of the lease of any premises punishable. The Court observed

that unless the lease comes into existence, no offence can be said to have

committed by any person receiving the money. It is in this context that

the Honb’le Supreme Court observed that it is a well settled rule of

construction of penal statutes that if two possible and reasonable

constructions can be put upon a penal provision, the Court must lean

towards that construction which exempts the subject from penalty

rather than the one which imposes penalty.

(v) Khemka And Co.(Agencies) Pvt. Ltd. v. State of Maharashtra, (1975) 2 SCC

22.

In the case, the contention on behalf of the assessee was that there is no

provision in the Central Act for imposition of penalty for delay or default

in payment of tax, and, therefore, imposition of penalty under the

provisions of the State Act for delay or default in payment of tax is

illegal. The rival contention on behalf of the Revenue was that the

provision for penalty for default in payment of tax as enacted in the State

Act, is applicable to the payment and collection of the tax under the

Central Act, and is incidental to and part of the process of such payment

and collection.

The Hon’ble Supreme Court held that the deeming provision-in

the Central Act that the tax as well as penalty levied under the Central

Act will be deemed as if payable under the general sales tax law of the

State cannot possibly mean that tax or penalty imposed under any State

Act will be deemed to be tax or penalty payable under the Central Act.

The Court held that words "for this purpose" cannot have the effect of

enlarging the content of tax and the content of penalty payable under

the Central Act. Liability to pay tax as well as liability to pay penalty is

created by the Central Act. It is in this context that the Hon’ble Supreme

Court observed that the imposition of a pecuniary liability, which take


the form of a penalty or fine for a breach of a legal obligation,

cannot be relegated to the region of mere procedure and machinery

for the realization of tax. The Court observed that such liabilities must be

created by clear, unambiguous, and express enactment. The language

used should leave no serious doubts about its effect so that the persons

who are to be subjected to such liability for the infringement of law are

not left in a state of uncertainty as to what their duties or liabilities are.

(vi) CIT Vs. Naga Hills Tea Co. Ltd.[(1973) 4 SCC 200, Para 6]

The Hon’ble Supreme Court held that if a provision of a Taxing Statute

can be reasonably interpreted in two ways, that interpretation which is

favourable to the assessee, has got to be accepted. This is a well accepted

view of law.

195. As regards the cases referred by ECL as above, I note that the said cases except UBS

Securities Asia Limited vs. SEBI and UPSE Securities vs. NSE, do not deal with SEBI

Act or SCRA. Further, nothing has been brought on record to show that facts in the

so referred cases are similar to the facts in the extant case. Besides, I note that the

circumstances and the facts of the aforesaid cases referred by the AR on behalf of

ECL are otherwise different to the facts of the extant case as has been brought out

above in detail.

196. In the matter, I note here that Clause 36 of the Listing Agreement clearly mandates

that listed entities should immediately inform the Exchange of all the events which

will have bearing on the performance / operations of the Company as well as any

price sensitive information. An indicative list of ‘material’ events has been

provided. However, there cannot be an exhaustive list of all price sensitive events

for the simple reason that the obligation to disclose price sensitive information

having a bearing on the performance/ operations of the company depends upon

the facts of each case. Thus, in the first place, I do not find any ambiguity in the law/

rules as contended by ECL.


197. Further, I find that it is a settled position that SEBI Act is pre-eminently a social

welfare legislation seeking to protect the interests of small investors; hence, while

interpreting its provisions, its larger objective should be kept in mind. In this

regard, I note that the Hon’ble Supreme Court in SEBI vs Ajay Agarwal, AIR 2010

SC 3466 has laid down the principle to be adopted while interpreting the SEBI Act

as follows: “It is a well known canon of construction that when Court is called upon to

interpret provisions of a social welfare legislation, the paramount duty of the Court is

to adopt such an interpretation as to further the purposes of law and if possible

eschew the one which frustrates it.”

198. Given the significant penalties that breach of clause 36 of Listing Agreement

attracted, ECL could have carefully weighed up the potential consequences of not

disclosing the particular information which was affecting its major investment. It

was necessary for ECL to weigh the rejection of forest diversion proposal for its

iron ore mine by MoEF against the backdrop of the previous information regarding

investment of Rs. 700 crore in ESL’s plant that was disclosed to the market and the

iron ore agreement entered by ECL with ESL for ESL’s plant. Further, the fact that

ECL had made its concern regarding ESL’s project becoming unviable/non-starter

in absence of forest clearance by MoEF known to several authorities including to

the then Prime Minister of India, in itself, indicated that the event was material for

ECL, hence, price sensitive and should have been disclosed promptly. The

disclosures required to be made under clause 36 of the listing agreement were

mandated on listed companies to enable the shareholders and the public to be

appraised of the factual position of the Company.

199. Thus, I find that in the extant case, ECL by not making appropriate disclosure to

the stock Exchange regarding rejection by MoEF of the forest diversion

proposal of its iron ore mine has clearly violated clause 36 of the listing

agreement read with Section 21 of SCRA.


I) Does the violation, if any, on the part of the BRLMs and the issuer

company ESL attract monetary penalty under Section 15HB of the SEBI

Act? If so, what would be the monetary penalty under Section 15HB of

SEBI Act against the BRLMs and the issuer company ESL, taking into

consideration the factors mentioned in Section 15J of the SEBI Act?

Similarly, does the violation, if any on the part of ECL, the promoter

company of ESL, attract monetary penalty under Section 23A(a) and

23E of the SCRA? If so, what would be the monetary penalty under

Section 23A(a) and 23E of the SCRA against ECL, taking into

consideration the factors mentioned in Section 23J of the SCRA?

200. The Hon’ble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual

Fund [2006] 68 SCL 216(SC) held that “In our considered opinion, penalty is

attracted as soon as the contravention of the statutory obligation as contemplated

by the Act and the Regulations is established and hence the intention of the parties

committing such violation becomes wholly irrelevant…”.

201. In view of the foregoing, I am convinced that it is a fit case to impose monetary

penalty under Section 15HB of the SEBI Act against the BRLMs and the issuer ESL

which reads as follows:

Penalty for contravention where no separate penalty has been provided

15HB. Whoever fails to comply with any provision of this Act, the rules or the

regulations made or directions issued by the Board thereunder for which no separate

penalty has been provided, shall be liable to a penalty which may extend to one crore

rupees.

202. Similarly, I am convinced that it is a fit case to impose monetary penalty under

Section 23A(a) and 23E of the SCRA which reads as follows:


Penalty for failure to furnish information, return, etc.-

23A Any person, who is required under this Act or any rules made thereunder.-

(a) To furnish any information, document, books, returns or report to a recognized

stock exchange, fails to furnish the same within the time specified therefor in the

listing agreement or conditions or bye-laws of the recognized stock exchange,

shall be liable to a penalty of one lakh rupees for each day during which such

failure continues or one crore rupees, whichever is less for each such failure.

Penalty for failure to comply with provision of listing conditions or delisting

conditions or grounds

23E If a company or any person managing collective investment scheme or mutual

fund, fails to comply with the listing conditions or delisting conditions or

grounds or commits a breach thereof, it or he shall be liable to a penalty not

exceeding twenty five crore rupees.

203. While determining the quantum of monetary penalty under Section 15HB of SEBI

Act and Section 23A(a) and 23E of the SCRA, I have considered the factors as

stipulated in Section 15-J of SEBI Act and Section23-J of the SCRA, which reads as

under:

15J - Factors to be taken into account by the adjudicating officer

While adjudging quantum of penalty under Section 15-I, the adjudicating officer shall

have due regard to the following factors, namely:

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,

made as a result of the default;

(b) the amount of loss caused to an investor or group of investors as a result of the

default;

(c) the repetitive nature of the default.


23J - Factors to be taken into account by adjudicating officer

While adjudging the quantum of penalty under section 23-I, the adjudicating officer

shall have due regard to the following factors, namely:

(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable,

made as a result of the default;

(b) the amount of loss caused to an investor or group of investors as a result of the

default;

(c) the repetitive nature of the default.

204. In view of the charges as established, the facts and circumstances of the case and

the judgments referred to and mentioned hereinabove, the quantum of penalty

would depend on the factors referred in Section 15-J of SEBI Act and Section 23-J of

SCRA stated as above. As per Section 15 HB of the SEBI Act, whoever fails to comply

with any provision of the Act, the rules or the regulations made or directions issued

by the Board thereunder for which no separate penalty has been provided, shall be

liable to a penalty which may extend to one crore rupees. Further, under Section

15-J of the SEBI Act, the adjudicating officer has to give due regard to certain

factors which have been stated as above while adjudging the quantum of penalty.

Similarly, under Section 23A(a), any person, who is required under the SCRA or any

Rules made there under to furnish any information, document, books, returns or

report to a recognised stock exchange, fails to furnish the same within the time

specified in the listing agreement or conditions or bye-laws of the recognised stock

exchange, shall be liable to a penalty of one lakh rupees for each day during which

such failure continues or one crore rupees, whichever is less for each such failure.

Further, under 23E of the SCRA, if a company or any person managing collective

investment scheme or mutual fund, fails to comply with the listing conditions or

delisting conditions or grounds or commits a breach thereof, it or he shall be liable

to a penalty not exceeding twenty-five crore rupees. Under Section 23-J of the

SCRA, the adjudicating officer has to give due regard to certain factors which have

been stated as above while adjudging the quantum of penalty.

205. I note that the BRLMs have stated that there has been no gain made, nor, has there

been any investor grievance in the said matter. Similarly, I find that ECL/ ESL have


also stated that there was no malafide intention or motive in not reporting, and

that the same has not caused loss or harm to anyone or gain or benefit to the

company or its promoters. This, however, cannot be a defense when the BRLMs/

ESL/ECL had suppressed material facts from investors/ shareholders. Besides,

when investors/ shareholders were kept completely ignorant of the fact that the

forest clearance proposal of ECL’s Iron Ore Mine was rejected by MoEF, the

question of receiving complaints from investors/ shareholders on the said issue did

not arise.

206. Further, I note from records that each of the three BRLMs, who have signed the due

diligence certificate in the present case, have been issued administrative warnings/

deficiency letters by SEBI on one or more occasions during the last five years

advising to be careful and/ or diligent in future and/ or not to repeat the

irregularities observed in respect of disclosures/ to improve their compliance

standards etc., pursuant to inspection of their books and records or otherwise as

below:

Axis Capital Ltd. was issued vide letter dated January 10, 2013, an

administrative warning pursuant to inspections of books and accounts during

the period June 4-5, 2014, advising it to be careful in future and improve its

compliance standards. Another administrative warning was issued to Axis

Capital Ltd on August 1, 2014 pursuant to inspections of books and accounts

conducted on September 19, 2013 for discrepancies observed in sample KYCs.

Further, a warning letter dated December 02, 2015 was also issued to Axis

Capital Ltd. in the matter of proposed public issue of Paranjpe Schemes

(Construction) Ltd., as during the processing of the offer document, due

diligence was found lacking in certain areas like non disclosure of names of

certain promoters in DRHP, delay in replying to SEBI’s queries, risk factors not

disclosed in descending order of materiality.

SBI Capital Market Services Limited in the RHP of IPO of Mundra Port and

Special Economic Zone Ltd. (Mundra Port) was advised vide SEBI’s letter dated

January 13, 2010 to be careful and diligent in future and to ensure that the

disclosures made in the Offer document are true and fair and reflect the factual


position accurately. Again vide SEBI’s letter dated November 25, 2011, SBI

Capital Market Services Limited was advised to be careful in future and to avoid

recurrence of instances brought out during inspection conducted in September–

October 2010, which inter alia included allotments made to SEBI prohibited

persons. Once again vide SEBI’s letter dated July 15, 2013, a deficiency letter

was issued to SBI Capital Market Services Limited advising not to repeat the

irregularities observed in future pursuant to inspection conducted in September

2012.

Edelweiss Financial Services Limited vide SEBI’s letter dated November 20,

2012 pursuant to inspection conducted during June 2012 was issued an

administrative warning inter alia advising to be careful in future and to improve

compliance standards. Subsequent to the same, again vide SEBI’s letter dated

August 12, 2013, Edelweiss Financial Services Limited was issued a deficiency

letter pursuant to inspection of their books and records conducted in September

2012, wherein they were inter alia advised not to repeat in future the

irregularities observed, which inter alia included non-disclosure of material

information in terms of SEBI circular no. CIR/ MIRSD/ 1/2012 dated January 10,

2012.

207. I note further that in the matter of Initial Public Offer of Credit Analysis and

Research Limited (CARE), penalty of Rs. 1 crore under Section 15 HB of the SEBI

Act (to be paid jointly and severally) has been imposed upon six merchant bankers,

including SBI Capital Market Services Limited and Edelweiss Financial Services

Limited for violation of Clause 1 of Form C of Schedule VI of Regulation 8(2)(b),

Regulation 57 (1), Regulation 57(2)(a)(ii) and Regulation 64(1) of ICDR

Regulations and Regulation 13 of Merchant Bankers Regulations read with clauses

1, 4, 6, 7 and 20 of Code of Conduct for Merchant Bankers as specified in Schedule

III. The merchant bankers have appealed against the said Order before the Hon’ble

SAT and presently the matter is pending before SAT.

208. Thus, I find from the conduct of the BRLMs that the default has been repetitive in

nature.


209. As regards the extant case, I note that the BRLMs have stated that without

prejudice, even if the proposal was rejected by MoEF, such rejection would not

have been fatal to the object and purpose of the public issue made by ESL, save and

except the cost factors which were mentioned in the risk factors. Also that the

proposal and the underlying events pertained to ECL & not ESL, and with respect to

the same, adequate disclosures and risk factors were admittedly provided in the

prospectus of ESL. I note here from the detailed analysis brought out in the

preceding paras of the Order that the facts regarding rejection of forest clearance

and environment clearance were so obviously material to the IPO of ESL that there

was no cognizable issue as to the materiality. It definitely had an impact for the

reasonable investor investing in the IPO of ESL.

210. In the matter, BRLMs have further pointed out that no fresh proposal had been

submitted by ECL, in-principle approval was granted on February 13, 2012 on the

same proposal which was submitted by ECL in 2007. It has been submitted that

this too clearly points to the fact that the proposal was continuously under process

and MoEF had not closed the file. Further, the issuer company ESL and the

promoter ECL too have asserted the fact that had the forest diversion proposal of

ECL been rejected, the Central Government would not have issued in-principle

approval by its letter dated February 13, 2012. They have also pointed out that the

said in-principle approval refers to letter dated April 17, 2008 of the Government

of Jharkhand, hence it is clearly established that the proposal of ECL was not

rejected by MoEF’s letters dated November 04, 2008 and January 16, 2009, in fact,

the process of grant of in-principle approval had not concluded.

211. In the matter, at a later time MoEF did provide in-principle approval for the same

proposal does not negate the fact that the material facts regarding rejection of

forest clearance and environment clearance were indeed concealed from investors

at the time of the issue. In fact, I do not find any reasonable ground based on which

the fact on record as per MoEF’s letters dated November 04, 2008 and January 16,

2009 with respect to forest and environment clearance of ECL’s Iron Ore Mine was

not disclosed in the RHP. For there to be reasonable ground, there must exist facts

in support of such non-disclosure at the relevant point of time. The detailed

analysis brought out in the preceding part of the Order, does not support such a


finding. And events occurring after the closure of IPO cannot be considered to

justify the disclosures made in the RHP/ prospectus. In fact, I find it is important

not to look at the situation based on what subsequently happened. The assessment

of what was disclosed in the RHP/ prospectus cannot be made with the benefit of

the hindsight. It is not a science and involves the exercise of judgement and

common sense.

212. Thus, I note that this argument of the BRLMs/ issuer too does not stand any

reasonable ground, since an event that had occurred almost one and a half year

after the issue cannot be used to corroborate a presumption made by the BRLMs

and the issuer at the time of the issue. It may be pertinent to mention here that

reasonable ground would mean that there was sufficient objective foundation as at

the time of filing of the prospectus with RoC for the presumption made as such by

the BRLMs and the issuer. And the discussions above make it clear that there was

no such objectively reasonable basis for the BRLMs and the issuer at the relevant

point of time.

213. Further, I note that the BRLMs and the issuer ESL have argued that disclosures

were made through risk factors explicitly dealing with the potential risk of ECL

being unable to execute the mining lease and develop its mines, that there could be

no assurance about receipt of iron ore supplies from the mine, execution of mining

lease being pending for receipt of approval from MoEF, etc. However, risk factors

cannot reasonably be interpreted as stating of the actual facts. This is because the

contingent nature of the risk factor negates the impression that actual facts are

being asserted. In the matter, I find that a materiality judgment can properly be

made only by those who have all the facts i.e. in the extant case, responsibility was

on the BRLMs and the issuer i.e. ESL. However, I note that the BRLMs and the issuer

ESL, instead of disclosing the factual status of forest clearance and environment

clearance of the Iron Ore Mining project of ECL which was material for ESL, had

suppressed facts/ incorporated half-truth based on undisclosed presumptions

made by the BRLMs and the issuer ESL.

214. Investors are the backbone of the securities market. Investor protection in the true

sense means providing the potential investor with all the information which is


necessary for him/ her to take an informed investment decision. In the case in

hand, I find that the investing public remained ignorant of such vital information,

though the BRLMs and the issuer ESL were under unquestionable duty of making

true and adequate statements about all material facts in the RHP. The fact on

record establishes without doubt that the BRLMs and the issuer ESL failed to

comply with their duty with respect to the particular issue under consideration.

The arguments made by the BRLMs and the issuer ESL for not disclosing the true

status of forest and environment clearance in the RHP of ESL does not stand merit,

as detailed analysis made in the preceding paras of the Order shows that the

presumptions made by BRLMs and the issuer ESL, in itself, had no underlying basis.

215. Further, the fact that MoEF eventually indeed granted in-principle approval on the

basis of the original application and no revised application was ever filed with

MoEF, that the file number had remained unchanged etc. are trivial technical

issues. The same cannot undermine the material fact that MoEF at the relevant

point of time by giving liberty to the State Government to request for

reconsideration of the proposal as per guideline 4.14(ii), had clearly spelt out that

the forest diversion proposal of ECL for the Iron Ore Mining project was rejected by

it at the in-principle stage after consideration of the proposal. Here, the BRLMs

could not have interpreted that the word ‘reject’ in the MoEF’s communication was

used in a casual manner.

216. Further, the submissions made by the BRLMs that rejection of forest clearance by

MoEF vide its letter dated November 04, 2008 was not a conclusive determination

of merits as it was not capable of a legal challenge in a writ proceeding, is also not

correct. I note here that BRLMs and issuer ESL have submitted that under the

National Environment Appellate Authority Act, an aggrieved person at the point of

time could only challenge the grant of an environment clearance within 30-days of

the grant decision. An applicant could not challenge the denial of a clearance.

However, I note that the High Courts are empowered under article 226 of the

Constitution to issue a writ for enforcement of any legal right and also grant a stay

in such matter, if required. In this regard, I do not find any legal challenge by ECL in

the matter of rejection of forest clearance or environment clearance by MoEF,

either as regards procedural lapse or on merits of assessment.


217. Investors invest in an issue based on disclosures contained in the RHP. It is, hence,

that true and adequate disclosure of all material facts assumes significance. A half

truth represented as a whole truth tantamounts to false statement. I note that in

the extant case, the BRLMs and the issuer ESL made hypothetical presumptions

with respect to MoEF’s communication denying forest and environment clearance

to justify its actions. However, such presumptions were neither supported by any

evidence, nor, were the presumptions disclosed in the RHP. The BRLMs and the

issuer ESL cannot, other than what is on record, make their own undisclosed

presumptions to distort facts disclosed in the RHP/ prospectus. And such

distorted/ undisclosed facts were material in the sense that a reasonable investor

could have considered it to be important in making an informed investment

decision.

218. I find here that ECL/ ESL have stated that the merchant bankers in the present

case, who were SEBI registered intermediaries and experts in the field, 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.

I note here that ICDR Regulations furthers the purpose of investor protection under

SEBI Act by promoting true and adequate disclosure of all material information in

the RHP, so as to enable the investors to take an informed investment decision.

Suppression/ half-truths about material facts in the prospectus are harmful for the

investors as they are being persuaded to invest without true and adequate

information. Such omission or misrepresentation becomes material if there is a

substantial likelihood that a reasonable investor would consider it important in

deciding to invest. This obligation placed by ICDR Regulations to make true and

adequate disclosure of all material information in the RHP is equally applicable to

issuers and merchant bankers handling the issue alike. Thus, ESL/ ECL cannot

shake itself free of the legal obligation imposed on it to make true and adequate

disclosures in the RHP, by merely stating that they went by the merchant banker’s

advice.

219. In the matter, I find that ECL/ ESL has referred to Para 16 of SEBI Adjudication

Order No. EAD – 2/83/2012 dated 10.10.2012 in M/s. Vakrangee Softwares Ltd.


(hereinafter referred to as ‘VSL’). On perusal of the said Order, I note that it was

inter alia alleged in the said case that VSL had wrongly included two names under

the category of Promoters in the quarterly shareholding pattern filed with the

stock Exchange pursuant to the listing agreement upon the advice of a professional

company secretary, which were excluded later, again by virtue of professional

advice given by a new company secretary. It was alleged that by doing so VSL had

misled the public at large. In the facts of the said case as aforesaid, I find that the

Learned Adjudicating Officer had observed that that a company generally acts upon

professional advices, and the corroborative evidences available on record was

insufficient to prove that VSL had misled the public. Contrary to the facts of the said

case, I find that in the extant case obligation was cast on the issuer ESL to make

true and adequate disclosures under the ICDR Regulations, and the corroborative

evidence available on record is sufficient to prove that the facts concealed were

material from a reasonable investor’s point of view to taken an informed

investment decision. Also, I find that nothing prevented ESL/ ECL from consulting

the Legal Advisors to the Issue in the matter as well, or seek the guidance from

SEBI under the Informal Guidance Scheme or otherwise, when ECL itself had

serious concern about the project becoming a non-starter due to the rejection of

the forest clearance of its Iron Ore Mine by MoEF.

220. I note here that the BRLMs have submitted that even the worst case scenario of

implication of final approval not being granted by MoEF was disclosed through

appropriate risk factors. However, disclosing through risk factors that an untoward

event may occur when an event is contingent is prudent, but, to caution only

through risk factor that it is possible for an unfavourable event to happen, when

the event has already occurred, is to deceive. In fact, such misinformation by the

issuer company and its merchant bankers results in creating a misinformed

investor, thereby reducing the investor protection measures to a farce. There was

no reason for the BRLMs and the issuer company ESL to keep the investing public

in the dark about the factual status of the forest diversion proposal of Iron Ore

Mine of ECL, when it was imperative and obligatory on their part to disclose all

material developments having impact on performance and prospects of the issuer.

This attempt by the BRLMs and the issuer ESL of suppressing material facts/

providing half truth/ misleading facts about the material development concerning


forest clearance and environment clearance of Iron Ore Mine of ECL, has to be

perceived as depriving the investors from making an informed investment

decision. In the matter, the issuer company ESL has argued that rejection of ECL’s

proposal for diversion of forest land cannot be considered as a material event

requiring disclosure in the prospectus of ESL. This argument I find, to be a gross

understatement in view of the detailed analysis of the materiality of the said fact

that has been discussed in the preceding paras.

221. In this context, I would like to refer to the rule laid down in the case of New

Brunswick and Canada Railway Company Vs. Muggeridge (1860) 1 Dr. & Sm.

363, 381, wherein it has been observed by Vice-Chancellor, Kindersley as

follows:

“………those who issue a prospectus holding out to the public the great advantages

which will accrue to persons who will take shares in a proposed undertaking, and

inviting them to take shares on the faith of the representations therein contained, are

bound to state everything with strict and scrupulous accuracy, and not only to

abstain from stating as fact that which is not so, but to omit no one fact within their

knowledge the existence of which might in any degree affect the nature, or extent, or

quality of the privileges and advantages which the prospectus holds out as

inducements to take shares.”

This is often referred to as the “Golden Rule” for drafting of prospectus.

222. To sum up, I note that the BRLMs and the issuer ESL chose to ignore the important

facts for trivial technicalities and undisclosed hypothetical presumptions, so as to

mislead a reasonable investor investing in the IPO of ESL. In the matter, I find that

it has been claimed that investors did not suffer any loss. However, I note here that

the raw material linkage with ECL resulting in low cost of production formed one of

the fundamental basis for the issue price, in absence of any quantitative factors

available for the issuer company ESL. Further at this juncture, I neither find it

necessary nor feasible to go into the mechanics of how the investors/ shareholders

would have taken a decision on investing, etc., if they were made aware of the facts

that were concealed. I find that in the extant case, not only was there a deviation

from facts on record, the reason for such deviation too was not made known to the

investors.

https://webmail.sebi.gov.in/owa/redir.aspx?C=yFAwDl7FhE-UGZfKCRtz78_oTMCqXtMICiDIwAFfG0VwHoCN5V1hloz8PDyXuLShwRGx2F_GAeM.&URL=https%3a%2f%2fen.wikipedia.org%2fwiki%2fRichard_Torin_Kindersley


223. I note from a copy of the Final Post Issue Monitoring Report dated October 19,

2010 submitted by the BRLMs to SEBI that 92,558 applicants [Retail (92,255), Non-

Institutional (NIIs)(261), Qualified Institutional Buyers (QIBs) (42)] (before

technical rejections) had applied for the IPO of ESL of issue size Rs. 285 crore. I

note here that when a development that was material to the very economic and

financial viability of the project of the issuer company had actually occurred, the

BRLMs and the issuer did have a legal obligation under the ICDR Regulations to

make true and adequate disclosure of such event or development in the RHP.

Similarly, the listed company ECL too had an obligation under the listing agreement

entered with the stock exchanges to disclose the rejection of the proposal for forest

clearance for Kodolibad Iron Ore Mine to the Stock Exchanges where the shares of

ECL were listed, when ECL had made a major investment of approx. 68% in ESL

and it comprised approx. 44% of its net-worth. However, the BRLMs, the issuer ESL

and its promoter ECL all failed to disclose this material fact to the investors/

shareholders. And such violation of ICDR Regulations by the Issuer, ICDR

Regulations and Merchant Bankers Regulations by the BRLMs and of Listing

Agreement entered by ECL with the stock Exchanges, could not only result in

serious loss of credibility for the BRLMs/ESL/ECL, but, also undermine investor

confidence in the fairness and integrity of the securities market. I further find here

that the default on the part of the BRLMs has been repetitive in nature. Such

repetitive default by market intermediaries can undermine the effectiveness of

securities regulation, hence needs to be viewed seriously. However, I am

constrained by the fact that the maximum penalty under Section 15HB of the SEBI

Act is Rupees One Crore only.


ORDER

224. After taking into consideration all the facts and circumstances of the case and

having regard to the nature and gravity of the charges established:

a. I impose the maximum penalty prescribed under Section 15HB of the SEBI

Act i.e. Rs.1,00,00,000/- (Rupees One Crore only), on the BRLMs viz. SBI

Capital Markets Ltd., Axis Capital Ltd. and Edelweiss Financial Services

Ltd. in the matter of IPO of M/s. Electrosteel Steels Limited for the violation

of Regulation 57(1), Regulation 57(2)(a)(ii) and Regulation 64(1) of the

ICDR Regulations, 2009 and Regulation 13 of the Merchant Bankers

Regulations, 1992. The BRLMs shall be jointly and severally liable to pay

the said monetary penalty will be commensurate with the violations

committed by the BRLMs;

b. I impose the maximum penalty prescribed under Section 15HB of the SEBI

Act i.e. Rs. 1,00,00,000/- (Rupees One Crore only), on the issuer

company M/s Electrosteel Steels Limited (ESL) for the violation of

Regulation 57(1) and Regulation 57(2)(a)(ii) of the ICDR Regulations, 2009.

The said monetary penalty will be commensurate with the violations

committed by the issuer company ESL;

c. I impose a penalty of Rs. 50,00,000/- (Rupees Fifty lacs only) under

Section 23A(a) and Rs.50,00,000/- (Rupees Fifty lacs only) under Section

23E of the Securities Contract (Regulation) Act, 1956 on the listed company

M/s. Electrosteel Castings Limited (ECL) for the violation of Clause 36 of

the Listing Agreement read with Section 21 of Securities Contract

(Regulation) Act, 1956. The said monetary penalty will be commensurate

with the violations committed by the listed company ECL.

225. The BRLMs, ESL and ECL shall pay the said amount of penalty by way of demand

draft in favour of “SEBI - Penalties Remittable to Government of India”, payable at

Mumbai, within 45 days of receipt of this Order. The said demand draft should be


forwarded to Shri Jayant Jash, Chief General Manager, Corporation Finance

Department, SEBI Bhavan, Plot No. C–4 A, “G” Block, Bandra Kurla Complex, Bandra

(E), Mumbai – 400 051.

226. In terms of rule 6 of the Rules, copies of this Order are sent to the BRLMs, ESL and

ECL and also to Securities and Exchange Board of India.

Date: March 31, 2016 Anita Kenkare

Place: Mumbai Adjudicating Officer

under section 15-i of securities and … · adjudication order in the matter of m/s. electrosteel...

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