Adjudication Order in The Matter of M/s Electrosteel Steels Limited and M/s Electrosteel Castings Limited.

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)
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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
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Adjudication Order in the matter of M/s. Electrosteel Steels Ltd. and M/s. Electrosteel Castings Ltd.
Page 1 of 140
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 ECLs
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
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disclose the fact of rejection of ECLs 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 subsection (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,
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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
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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 SEBIs 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.
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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;
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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.
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16. During the proceedings, it was observed that vide letter dated January 16, 2009, MoEF
had unconditionally also rejected ECLs 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, EAD6/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 EAD6/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
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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 nonobtaining 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 wouldnt 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 SEBIs 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
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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.

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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 Honble 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 ECLs 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 ECLs 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.
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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 ECLs letter dated November 17,
2010 to the Chief Minister of Jharkhand are references to MoEFs 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 ECLs letter dated November 17, 2010 to the Chief Minister of Jharkhand
were references to MoEFs letters dated November 04, 2008 and January 16, 2009. On
perusal of the said two MoEFs letters, it was noted that MoEFs 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 ECLs proposal
for environment clearance by MoEF. On the contrary, it was noted that ECLs letter
dated November 17, 2010 addressed to the Honble Chief Minister of Jharkhand had
inter alia brought to the notice of the Honble 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 ECLs 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
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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 ECLs letter dated November 17, 2010, as also vis--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.
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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 SEBIs 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 MoEFs 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 MoEFs 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 ECLs 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.
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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, MoEFs reply was silent as
regards communication, if any, directly with ECL;
that from ECLs 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 Honble
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 Honble 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 Honble
Supreme Court.
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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/ FACs 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: EAD6/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 Honble 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
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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 Honble 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 Honble 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 Honble 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
Honble National Green Tribunal in Appeal No. 73/2012 (Sudiep Shrivastava v. State
of Chattisgarh & Ors.), wherein the Honble 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 Honble Apex Court in the T.N. Godavarman case as referred to by
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SEBI in the letter under reply. In this regard, the BRLMs have stated that the following
observations of the Honble 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 Honble 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 Honble 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 TWPs vide para 20
in said judgment. It is correct that the Honble 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 TWPs 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. []
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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 ECLs letter to the Chief Minister dated November 17, 2010 and/
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or the recommendations of FAC are of no relevance to the allegations raised in the SCN,
which were restricted to alleged non-disclosure in ESLs 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 Honble Supreme Court on August 04, 2006 in I.A. no. 15981600 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 MoEFs 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 ECLs
letter dated November 17, 2010 to Chief Minister refers to MoEFs letters dated
November 04, 2008 and January 16, 2009. However from records, it was noted that
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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 Honble 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 Honble Supreme Court Order, the minutes of FACs
proceedings were not available in public domain.
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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.
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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 MoEFs 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
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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 Honble 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
ECLs 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 ECLs letter dated November 17, 2010 to the Honble 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 ECLs 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
Honble 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
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garb of clarificatory letters/ supplementary materials is incorrect and impermissible in

law, and that the Honble 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 Honble 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
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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, SEBIs letter and
SCNs are contrary to and inconsistent with events that transpired leading to receipt
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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 SEBIs 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 Honble 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
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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 Honble 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
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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;
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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
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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
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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.
ESLs 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);
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(c) No Operating History: ESL did not have any operating history from which
investors could evaluate ESLs future prospects and viability. Neither was the
project appraised by any bank/ financial institution.
(d) Raw Material Linkage: The success of ESLs operations, as disclosed in the
RHP, was to depend upon, among other things, ESLs 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 ESLs 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 ESLs 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.
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(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
MoEFs 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 ESLs 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.
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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 ECLs proposal for diversion of forest land for mining of iron
ore in Kodolibad Reserve Forest was material for ESLs 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 ECLs 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 ESLs 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 ESLs 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, ESLs project may not be
economically and financially viable. Over and above the same, disclosure of
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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;
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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
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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 ECLs 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 countrys
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
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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
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(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 subsection (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
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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 Indias 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
countrys 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
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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
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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).
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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
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accused. In HasanbhaiValibhai Qureshi v. State of Gujarat, AIR 2004 SC 2078,

the Honble 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 Honble 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.
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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--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;
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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.
ECLs 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
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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;
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;
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;
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.
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b)
Correspondence between ECL, Government of Jharkhand and MoEF from

the date of MoEFs 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
MoEFs 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;
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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
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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 nonforest 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 Governments 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
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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 Honble 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 Honble 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
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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 Honble 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;
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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 ESLs 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 Honble Minister
of Finance sought the intervention of the Honble 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 MoEFs 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;
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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 Honble 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 Honble Minister of
Finance again brought to the Honble Ministers attention their earlier letter dated
February 21, 2011 and requested to take up the issue at the next Group of
Ministers 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.
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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
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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 ECLs 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
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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
Coking Coal
Iron Ore
Received
Received
Received
Received
JSPCB
MoEF
Received
Received
Railway
Transport
Clearance
Forest Clearance
Railway Board
Received
NoC Received
Received, but applicable
once Forest Clearance is
received
To be received alongwith
Forest Clearance
MoEF
Signing of Mining
Lease
State
Government of
Jharkhand
Not
applicable
Received
Mine Allocation
Approval of
Mining Plan
SPCB
Environmental
Clearance
Approving
Authority
Ministry of Coal
Ministry of Coal
Forest diversion proposal

already submitted
Will be applied for after
Forest Clearance is
received
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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.
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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 Companys
requirement of coking coal is proposed to be primarily met from a mix of ECLs 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 ECLs 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
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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.
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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 ECLs 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;
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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.
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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.
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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 Honble 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 MoEFs 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.
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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,
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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 MoEFs
letter dated November 04, 2008.
97.
I note that both BRLMs and the issuer company ESLs 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 Tribunals 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 ECLs 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
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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,
ESLs project may not be economically and financially viable. Hence, the fact that it
was not merely FAC that had rejected ECLs 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 ECLs 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 ECLs 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
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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 ECLs 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 ECLs
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 MoEFs 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 ECLs 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 MoEFs 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 ESLs 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 MoEFs letter
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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 MoEFs 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 Honble 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.
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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
ECLs 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
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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
ECLs 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
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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 ECLs 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 ECLs 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 Indias 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:
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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 ECLs iron ore mine, on the
business of the Issuer Company;
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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,
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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. J11013/41/2006-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.
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(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.
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(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
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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 EACs 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 ECLs 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 EACs 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
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ESL argued that MoEF is not bound by the advice of FAC, in order to construe that
ECLs 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
ECLs 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 ECLs 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 MoEFs 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
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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 inprinciple approval of forest clearance vide MoEFs 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
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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.
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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
Indias 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 MoEFs Order and allowed Shiva Cements
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.
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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 Honble 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 Honble 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 Honble Supreme Court held
that whether an order is valid or void, cannot be determined by the parties. For
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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 Honble 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 Honble 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 MoEFs circular dated December 02, 2009, the
BRLMs could not have on its own accord taken a view that MoEFs 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
EACs recommendation during its meeting in September 2008, completely ignoring
MoEFs letter dated January 16, 2009, thus, concealed the factual status of
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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, MoEFs 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 ECLs
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 ECLs proposal of forest clearance cannot be considered as a
material factor affecting the business of the issuer company or its working,
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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, ESLs 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 ESLs 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 ECLs 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.
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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
MoEFs 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 ECLs 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.
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Letter dated May 27, 2009 is again ECLs letter to the Government of
Jharkhand enclosing a note listing out ECLs response to the observations
made by MoEF.
This is in response to the Government of Jharkhands 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 ECLs 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 Governments 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, ECLs 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
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Government had neither taken the trouble to supplement ECLs 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 ECLs proposal, nor, that it was favourably considering
ECLs 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 ECLs 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 ECLs 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 ECLs 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 ECLs application was under consideration and not
at all rejected:
Letter dated November 17, 2008 is ECLs letter to the Government of
Jharkhand pursuant to letter dated November 04, 2008 of MoEF, giving its
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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 ECLs application was under consideration by MoEF and not at all rejected. In
fact, even the State Government had not acted upon MoEFs 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 ECLs 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 MoEFs letter dated November 04, 2008. It, thus,
does not support the BRLMs argument that status of ECLs application was under
consideration by MoEF and not at all rejected. In fact, I see no change of status
from MoEFs 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 Governments 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
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brought out earlier, vide the said letter dated July 10, 2009, State Government
had merely forwarded to MoEF, ECLs 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 ECLs 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:
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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 MoEFs 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 ECLs 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 MoEFs letter dated November 04, 2008
communicating the rejection of forest clearance for ECLs 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
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well as the MoEF had not given any positive indication in the matter. Hence, it
was ECLs 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 ECLs 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
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prospectus with RoC. The details of the correspondence exchanged after MoEFs
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, ECLs letter dated November 17, 2008 to the State
Government, ECLs letter dated January 29, 2009 to MoEF, MoEFs letter dated
January 29, 2009 to the State Government, State Governments letter dated May 26,
2009 to ECL, ECLs letter dated May 27, 2009 to the State Government, ECLs letter
dated July 24, 2009 to MoEF, ECLs letter dated September 09, 2009 to the State
Government, State Governments letter dated September 18, 2009 to MoEF,
MoEFs letter dated May 03, 2010 to the State Government, ECLs letters dated July
13, 2010 and July 14, 2010 to the then Hon'ble Prime Minister and the then Honble
Minister for Environment & Forest, letter from Office of the then Honble Prime
Minister dated August 10, 2010 to MoEF, ECLs 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
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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 ECLs 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
ECLs 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 Honble 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 Honble 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 Honble Minister for Environment &
Forest respectively seeking their intervention in the matter of forest clearance of
the Captive Iron Ore Mine for ESLs Steel Plant in Jharkhand. The letters
highlighted the fact that full financial closure for the project of Rs. 7,262 crore
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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 Honble 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 ECLs letter sent directly to MoEF highlighting its concern in
view of rejection of forest clearance, however, it does not indicate any positive
step from MoEFs 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
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been made, have not been disclosed in the RHP. Also, detailed analysis of all the
relevant correspondences pursuant to MoEFs 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 Honble
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 Honble 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.
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148.
In view of the above principle laid down by the Honble 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 Honble 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.
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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;
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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 ECLs 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
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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 ECLs proposal
at the relevant point of time had rejected the forest diversion proposal for Iron Ore
Mine of ECL, and it was not merely FACs recommendation.
155.
Also, the two issues i.e. rejection of ECLs 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 MoEFs 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 ECLs project.
156.
Further, detailed analysis of all the relevant correspondences pursuant to MoEFs

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 MoEFs 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 MoEFs letter
dated January 16, 2009 and prior to the filing of the prospectus with RoC.
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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 Honble
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
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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
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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 ESLs 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.
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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 inprinciple 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
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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 Honble SAT and SAT by its Order
dated March 14, 2001 confirmed SEBIs Order reducing the penalty from Rs. 1.8
lacs to Rs. 1 lac. The Order of the Honble 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
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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 ESLs 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
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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 duediligence 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.
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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
Honble 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.
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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 ECLs 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 ESLs 2.2 MTPA Integrated Steel Project in Jharkhand:
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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
18:24
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
18:04
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 ESLs 2.2 MTPA Integrated Steel Project in Jharkhand:
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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
18:07
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 200708, 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 ESLs 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
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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 ESLs 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
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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 MoEFs 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 MoEFs 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 ECLs 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
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highlighted therein that its major investment in ESL was envisaged mainly on the
basis of allocation of the Kodolibad Iron Ore Mine, and that ESLs 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 ESLs
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 ESLs 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 ESLs 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 ESLs project could
become economically and financially unviable in view of MoEFs 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
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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 ESLs 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 ESLs 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 ESLs plant, so as to reduce its
operating cost and make ESLs 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 ECLs 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 ESLs 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
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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
Honble 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 nonimplementation. 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
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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 Honble 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 Honble 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 Honble 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 Honble 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 Honble 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
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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, SEBIs 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
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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 Honble 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
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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 Honble 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 Honble 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 Honble Supreme Court in the matter was of the
opinion that when section 303 speaks of a person under sentence of
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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 Honble 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
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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 Honble 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 Honble 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 Honble Supreme
Court observed that the imposition of a pecuniary liability, which take
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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 Honble 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.
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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 Honble 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 ESLs plant that was disclosed to the market and the
iron ore agreement entered by ECL with ESL for ESLs plant. Further, the fact that
ECL had made its concern regarding ESLs 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.
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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 Honble 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:
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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.
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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
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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 ECLs 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 SEBIs 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 SEBIs 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
______________________________________________________________________________________
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position accurately. Again vide SEBIs 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 SEBIs 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 SEBIs 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 SEBIs 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 Honble
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.
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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 MoEFs 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 MoEFs letters dated November 04, 2008 and January 16,
2009 with respect to forest and environment clearance of ECLs 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
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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
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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 MoEFs 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.
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Page 134 of 140
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 MoEFs 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 bankers
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.
______________________________________________________________________________________
Page 135 of 140
(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 investors 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
______________________________________________________________________________________
Page 136 of 140
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 ECLs
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.
______________________________________________________________________________________
Page 137 of 140
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), NonInstitutional (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.
______________________________________________________________________________________
Page 138 of 140
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
______________________________________________________________________________________
Page 139 of 140
forwarded to Shri Jayant Jash, Chief General Manager, Corporation Finance

Department, SEBI Bhavan, Plot No. C4 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

Place: Mumbai
Anita Kenkare
Adjudicating Officer
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Page 140 of 140

Adjudication Order in The Matter of M/s Electrosteel Steels Limited and M/s Electrosteel Castings Limited.

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Adjudication Order in The Matter of M/s Electrosteel Steels Limited and M/s Electrosteel Castings Limited.

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

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

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

That whether their professional judgment in making appropriate disclosures to the

ii) MoEF Notification dated September 14, 2006.

CONSIDERATION OF ISSUES AND FINDINGS

Regulation 13 of the Merchant Bankers Regulations

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

What is to be considered as material disclosure from the investors point of view

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

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

Whether the failure to disclose such fact has resulted in providing

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

that the information pertaining to the rejection of proposal by an advisory

imagination, be construed as a material factor affecting the business of the

That providing incorrect facts in the Prospectus would amount to providing

Further that the materiality and adequacy of information in the Prospectus

In the alternative, materiality of a fact can be looked into from another

That as regards the complaints received by SEBI, the complainants were

complaints. When SEBI had received complaints alleging independently verifiable

An overview of the Forest (Conservation) Act, 1980, Environmental Impact

significance of the forest land proposed to be diverted, feasible alternatives,

Environmental Impact Assessment (EIA) Notification:

approved by MoEF, which is generally based on the recommendation of the Forest

Environment Clearance not the subject matter of present proceedings: In the

accused. In HasanbhaiValibhai Qureshi v. State of Gujarat, AIR 2004 SC 2078,

Correspondence between ECL, Government of Jharkhand and MoEF from

FAC rejected the proposal on account of being part of core zone of

the State Government would be at liberty to request for

in view of the above, the State Government was requested to submit

Correspondence between ECL, Government of Jharkhand and MoEF from

Correspondence between ECL, Government of Jharkhand and MoEF

Forest diversion proposal

Page 7 - Risk factor 10

Determine whether all material disclosures with respect to the Forest

MoEF also requested the Government of

Further sub-clause (ii) contained in Guidelines 4.14 which contained similar

Rule 7 and 8 of Forest (Conservation) Rules, 2003 have been verbatim

8. Action of the Central Government on the advice of the Committee

that although Environment Clearance (EC) and Forest Clearance (FC)

That the purported rejection of Environmental Clearance vide the subject

required prior to receipt of applications for prior environmental clearance of

forestry and wildlife clearance will be considered by the respective authorities on

Also in the matters of State of Kerala v. M.K. Kunhikannan Nambiar Manjeri

In addition to the above, in the Note on Submissions summarizing the key

Letter dated September 18, 2009 is a letter from the Government of

Letter bearing No. 8-35/2008-FC dated 29 January 2009 from Inspector

from a review of letters addressed by the government functionaries, it is clear

In view of the submissions made by the BRLMs as aforesaid, I find it necessary to

That it is necessary to demonstrate that the contrary view was unprofessional

Page 100 of 140

I, thus, consider that the test for due diligence as twofold:

Page 101 of 140

Government to request for reconsideration of the proposal as per guideline

Further, detailed analysis of all the relevant correspondences pursuant to MoEFs

Page 102 of 140

Page 103 of 140

commercial production, thereby adversely effecting on business, financial

Page 104 of 140

Page 105 of 140

On perusal of the latest corporate announcements made on BSE website by listed