Securities Appellate Tribunal
Mr. Amit Khandelwal & Ors. vs Sebi on 19 July, 2023
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision: 19.07.2023
Misc. Application No. 806 of 2022
And
Appeal No. 308 of 2022
1.Hit Kit Global Solutions Ltd.
Office No. G-48, Ground Floor, Evershine Mall, PCS Ltd. Link Road, Near Chincholi Bunder Road, Malad (W), Mumbai- 400 064
2. Mr. Kamal Agrawal 5-B/702, Alica Nagar CHS Ltd., Akurli Road, Near Lokhandwala Foundation School, Lokhandwala Township, Mumbai- 400 101
3. Mr. Rajesh Mavani A-D/4, Hermes CHS Ltd., Bhatt Lane, Off. S.V. Road, Borivali (W), Mumbai- 400 092 ...Appellants Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai- 400 051 ...Respondent Mr. P N Modi, Senior Advocate with Mr. Neville Lashkari, Ms. Prachi Pandya and Ms. Monica Salian i/b Corporate Attorneys for the Appellants.
Mr. Akash Rebello, Advocate with Mr. Akash Jain and Ms. Veena Hari, Advocates i/b Mansukhlal Hiralal & Co. for the Respondent.
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WITH Misc. Application No. 555 of 2022 And Appeal No. 402 of 2022
1. Mr. Amit Khandelwal B1/712, Tapovan View Society, Opp. Rani Sati Nagar, Malad (E), Mumbai- 400 097
2. Mr. Arvind Sharma B-208, Govind Nagar, Visava Building, D. Haji Bapu Road, Chincholi Fatak, Govind Nagar, Malad, Mumbai- 400 097
3. Mr. Pavan Kale 104, Emerald Karama-B- Building, Street 6 A, Karama, Dubai
4. Mrs. Kiran Nagpal 13-405, New Malwani Kinara CHS, Chatrapati Shivaji Raje, Kandivali East, Mumbai- 400 067 ...Appellants Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai- 400 051 ...Respondent Mr. Neville Lashkari, Advocate with Mr. Sayeed Mulani, Advocate i/b Mulani & Co. for the Appellants. Mr. Akash Rebello, Advocate with Mr. Akash Jain and Ms. Veena Hari, Advocates i/b Mansukhlal Hiralal & Co. for the Respondent.
3CORAM: Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member Per: Justice Tarun Agarwala, Presiding Officer (Oral)
1. Two appeals have been filed against the order dated February 28, 2022 passed by the Whole Time Member ("WTM" for short) restraining the appellants from accessing the securities market and further prohibiting them from buying, selling or otherwise dealing in securities directly or indirectly or being associated with the securities market, in any manner, whatsoever for certain period as specified in the impugned order. In addition to the above, the WTM also imposed penalties of different amounts totaling Rs. 88 lakhs.
In Appeal No. 308 of 2022 the Appellant No. 1 is the Company against whom a penalty of Rs. 40 lakhs has been imposed. Appellant No. 2 is the Managing Director and Chief Executive Officer ("CEO") against whom a penalty of Rs. 30 lakhs has been imposed and Appellant No. 3 is the Chief Financial Officer ("CFO") against whom a penalty of Rs. 6 lakhs has been imposed. In Appeal No. 402 of 2022 four noticees have filed appeals who are all Independent Directors and against them a penalty of Rs. 3 lakhs each has been imposed.
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2. The facts leading to the filing of the present appeal is, that on 9th June, 2017 the Ministry of Corporate Affairs issued a letter annexing a list of 331 shell companies and requesting SEBI to take appropriate action under the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the "SEBI Act") and its regulations.
3. Based on the said letter, SEBI issued an order dated 7th August, 2017 placing trading restrictions on the appellant Company, its Directors and promoters. The Company filed an appeal which was disposed of by this Tribunal by an order of September 17, 2017 directing SEBI to decide the representation.
4. Subsequently, based on further investigation SEBI passed an order dated September 07, 2017 which included a direction for appointment of a forensic auditor to verify misrepresentations including financial and misuse of funds in books of accounts of the Company. Subsequently, the interim order was confirmed.
5. Based on the forensic audit report and further investigation made by SEBI a show cause notice dated August 24, 2020 was 5 issued. The broad charges in the show cause notice are as follows:-
A. Violations of LODR Regulations due to misrepresentation including of financials and misuse of funds/ books of accounts.
B. Other violations of LODR Regulations.
C. Violation of Section 11(2)(i) and 11(2)(ia) of SEBI Act, 1992 for non-furnishing of information/ Non- cooperation by the Company.
D. Violations of PFUTP Regulations, 2003.
6. The WTM after considering the replies of the appellant and the material evidence on record concluded that the appellant misrepresented its financials and violated the accounting standards. The WTM found that various provisions of LODR Regulations was not complied with during the three financial years and there were lapses on the part of the Company in not making the disclosures within the stipulated period. The WTM further found that there was no violation of Section 12A of the SEBI Act and Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as "PFUTP Regulations") as there was no misappropriation of the funds nor the Company nor its Directors had played a fraud upon the investors nor was there any disproportionate gain or unfair advantage nor any specific loss was incurred by any 6 investor. The WTM accordingly for the above violations debarred the appellant from accessing the securities market for specified periods and imposed different amounts of penalties on the appellants.
7. We have heard Shri P. N. Modi, the learned senior counsel and Shri Neville Lashkari, the learned counsel for the appellants and Shri Akash Rebello, the learned counsel for the respondent.
8. Having heard the learned counsel for the parties, we are of the opinion that the controversy involved in the present appeals are squarely covered by various decisions of this Tribunal, namely, Appeal no. 750 of 2021, V.B. Industries Limited & Ors. vs. SEBI, decided on July 29, 2022, Appeal no. 471 of 2022, Dalmia Industrial Development Limited vs. SEBI and other connected appeals decided on September 1, 2022, Appeal no. 801 of 2021, SVAM Software Ltd & Ors. vs. SEBI decided on October 13, 2022, Tatia Global Vennture Ltd. & Ors. vs. SEBI decided on August 24, 2022 and Venmax Drugs and Pharmaceuticals Ltd. vs. SEBI in Appeal no. 759 of 2021 and other connected appeals decided on November 14, 2022 and JMD Ventures Limited & Ors. vs. SEBI, Appeal no. 404 of 2022 decided on March 17, 2023 and Prakash Kumar Jajodia vs. SEBI, Appeal No. 723 of 2021 and other connected appeals 7 decided on July 17, 2023 wherein similar controversies the debarment passed by the WTM was set aside and the penalties was reduced appropriately.
9. We, thus, find that the Company had made certain lapses and failed to comply with the LODR Regulations. However, these lapses are not intentional but such lapses occurred on account of procedural and technical issues.
10. We also find that the entire enquiry was initiated with regard to the allegation that the Company was a shell Company which fact was found to be false. Further, the WTM has given a clear finding that there was no violation of the PFUTP Regulations and there was no diversion of funds nor there was any manipulation in the price of the scrip and, consequently, no fraud or unfair advantage was caused to any shareholder or investor. In the absence of any specific loss being caused to anyone it was contended that the penalty imposed in the given circumstances was totally disproportionate to the alleged violation apart from being harsh and excessive.
11. Admittedly, a clear finding has been given by WTM that there is no misappropriation of funds of the Company nor there is any manipulation in the price of the scrip. The WTM has 8 given a categorical finding that Section 12A of the SEBI Act or PFUTP Regulations have not been violated.
12. In the absence of any finding of any fraudulent activities or misappropriation of funds or diversion of funds, we are of the opinion that direction of debarment and the penalty given for violation of the LODR Regulations appears to be harsh and excessive.
13. In the instant case, we find that the violation of the LODR Regulations gave no disproportionate gain to anyone nor created any unfair advantage to the appellant nor any specific loss was caused to any investors and, therefore, in our opinion the direction of debarment and penalty imposed for violation of the LODR Regulations appears to be harsh and excessive.
14. The appellants in Appeal No. 402 of 2022 are the Independent Directors they were not involved in the day to day running of the affairs of the Company and in the absence of any finding that they were involved in the day to day affairs of the running of the Company these appellants cannot be penalized.
15. While affirming the violation committed by the Company with regard to non-compliance of the LODR Regulations we direct that period undergone towards debarment of the appellants is sufficient for the aforesaid violation and 9 consequently the period is reduced to the period underwent by the appellants. In addition to the above, we reduce the penalty directing the appellant Company to pay a sum of Rs. 15 lakh for violation of LODR Regulations. The penalties imposed on the other appellants are set aside.
16. By an interim order dated June 24, 2022 we had directed the appellants to deposit a sum of Rs. 35 lakhs which they have done. Since we have reduced the penalty amount we direct the respondent to refund the excess amount within four weeks from today.
17. In view of the aforesaid, the appeals are partly allowed. The misc. applications are disposed off accordingly.
18. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup Technical Member PRERNA Digitally signed 19.07.2023 by PRERNA PK MANISH MANISH KHARE Date: 2023.07.24 KHARE 15:19:38 +05'30'