Securities Appellate Tribunal
Shri Bakul Ramniklal Parekh & Ors. vs Sebi on 7 April, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 24.03.2021
Date of Decision : 07.04.2021
Appeal No. 527 of 2019
1.Shri Bakul Ramniklal Parekh Flat No. 7/B, 3rd Floor, Aashish Building, Plot No. 253, Sion Matunga Main Road, Sion, Mumbai - Maharashtra - 400 022.
2. Shri Milan Ramniklal Parekh 3B/191, Kalpataru Aura, LBS Road, Ghatkopar (West), Mumbai-Maharashtra-400 086.
3. Action Financial Services (India) Ltd. 46 & 47, Rajgir Chambers, 6th Floor, 12/14, S.B. Road, Fort, Mumbai, Maharashtra - 400 001.
4. Smt. Yoshita Gupta A-1801, Tharwani Riveria, Plot No. 37, Sector-35, Kharghar, Navi Mumbai, Maharashtra-410 210.
5. Shri Girish Vyas A-403, Vinayak Unique Building, Bldg No. 1, Gokul Township Bolinj, Near Muljibhai Mehta School, Thane, Maharashtra-401 303.
6. Shri Raja Gupta A-1801, Tharwani Riveria, Plot No. 37, Sector-35, Kharghar, Navi Mumbai, Maharashtra-410 210.
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7. Shri Kamalkant Laxmilal Jain 101/102, Shram Safalya Apartment, SVS Road, Opp. Motiba Rice Mill, Virar (E), Thane, Maharashtra-401 305. ..... 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 Ms. Sonal, Advocate i/b Juris Matrix for Appellants. Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody and Mr. Arnav Misra, Advocates i/b K. Ashar & Co. for the Respondent CORAM : Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member Per : Justice Tarun Agarwala, Presiding Officer
1. The appellants have filed an appeal against the order passed by the Adjudicating Officer ('AO' for short) of the Securities and Exchange Board of India ('SEBI' for short) dated August 21, 2019 imposing a penalty of Rs. 5 lakh each for violation of Section 12A(a),(b) & (c) of the Securities and Exchange Board of India Act, 1992 read with Regulation 3 & 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 ('PFUTP Regulations' for short).
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2. The facts leading to the filing of the present appeal is, that SEBI received information from Income Tax Department alleging that certain entities were misusing the stock exchange mechanism by generating bogus Long Term Capital Gains (LTCG) in many scrips including the scrip of the Company Action Financial Services (India) Limited ('AFSL/Company' for short). SEBI accordingly investigated the matter for alleged price manipulation of the scrip based on which a show cause notice was issued alleging that the Company had made four preferential allotment of the equity shares during the investigation period 2009-2012 and that the preferential allottees received the funds from the Company in connection with the preferential allotment.
3. After considering the reply filed by the appellants the AO by the impugned order came to the conclusion that the Company funded the other entities to subscribe for the preferential allotment of shares which was for the purpose of raising the price of the scrip. The AO found that the preferential allotment of shares was financed by the Company thereby giving a false impression to the public that there was infusion of funds through preferential allotment. Such acts, omissions and concealment on the part of the Company, its 4 directors and promoters of the fraudulent act has falsely induced the investors to invest in the securities of the Company. The AO found that the entire transaction done by the appellants was a fraudulent act and was violative of PFUTP Regulations. Accordingly, AO imposed a penalty on the noticees.
4. We have heard Ms. Sonal, the learned counsel for the appellant and Shri Shyam Mehta, the learned senior counsel for the respondent.
5. At the outset it may be stated here that no submissions were made by the learned counsel with regard to appellants nos. 1 to 6. The only submission made were with regard to the penalty imposed against the appellant no.7. It was contended that only 18,500 shares of AFSLwere allotted which were valued at Rs 7 lakh out of the total of 24 lakh shares allotted by the Company. It was further contended that the appellant is still holding on to the said shares and have not sold it and therefore he cannot be charged for manipulating the price of the scrip. It was further contended that amount given by the Company was a loan towards the professional fees to be adjusted in future as the appellant was a Chartered 5 Accountant and was providing accounting services to the Company.
6. Having heard the learned counsel for the appellant and having perused the impugned order, we find that a common ground was taken by all the appellants before the AO, namely, that the appellants were in dire need of finance and had taken an advance / loan from the Company. All the appellants contended that they had not employed any fraudulent devices or manipulated the price of the scrip or contravened any provisions of the Act.
7. Having heard the learned counsel for the parties and having perused the records we find that the Company had transferred its funds to the preferential allottees to enable them to subscribe to the Company's shares. This fact has not been disputed and, the only contention raised was that it was an advance. Some of the appellants contended that it was a loan and according to appellant no. 7 it was an advance towards professional fees to be adjusted in future. We are of the opinion that when a Company raises its capital, issuance of shares is considered as capital infusion and an ordinary investors perceives it as a capital infusion which is essential for strengthening the Company's financial fundamentals. 6 When a preferential allotment is made by a listed Company it gives an impression that genuine capital infusion is being brought into the Company. When the Company uses its own funds and distributes it to the allottees for the purpose of subscribing to the shares, it deceives the genuine investors and in fact falsely leads them to invest in the shares of the Company. Thus, we are of the opinion that the Company along with the management and allottees receiving such funds from the Company were perpetuating a fraud on the ordinary investing public who were deceived to invest in in the securities of the Company.
8. We accordingly find that when preferential allotment of shares by a listed Company is financed by the Company itself it gives a false impression that there was infusion of funds to its capital through preferential allotment. The action on the part of the Company, its management and the allottees including the appellants in particular have made fraudulent acts which is an unfair device, to deceive the investors. Such acts, omissions and concealment is prohibited under Section 12A of the SEBI Act read with Regulation 3 and 4 of the PFUTP Regulations. In view of the aforesaid admitted facts, the loan was given as an advance towards future professional 7 fees cannot be accepted. We find from the perusal of the record that the appellants have been changing its stand at every stage.
9. In view of the aforesaid, we do not find any error in the impugned order passed by the AO. The appeal fails and is dismissed with no order as to costs.
10. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the registry. In these circumstances, 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. Parties will act on production of a digitally signed copy sent by fax and/or email.
Justice Tarun Agarwala Presiding Officer Justice M.T. Joshi Judicial Member 07.04.2021 RAJALA Digitally by signed msb KSHMI RAJALAKSHMI NAIR H Date: 2021.04.09 H NAIR 08:58:44 +05'30'