Securities Appellate Tribunal
Deepak Mishra vs Sebi on 8 June, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 21.04.2021
Date of Decision : 08.06.2021
Appeal No. 77 of 2020
Deepak Mishra
9, Temasek Boulevard, #30-03
Suntec Tower 2,
Singapore 038989. ..... Appellant
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. Somshekhar Sunderasan, Advocate with Mr. Abhishek
Venkatraman, Mr. Dikshat Mehra, Advocates i/b Rajani Associates
for the Appellant.
Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody, Advocate
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
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1.The present appeal has been filed against the order dated August 28, 2019 passed by the Whole Time Member (hereinafter referred to as 'WTM') of Securities and Exchange Board of India (hereinafter referred to as 'SEBI') against the appellant and other entities for being involved in fraudulent Global Depository Receipts (hereinafter referred to as 'GDRs') issues of Transgene Biotech Ltd. (hereinafter referred to as 'the company / TBL') including the diversion of the GDR proceeds and consequently, the appellant has been debarred from accessing the securities market for a period of three years from the date of the impugned order.
2. The background leading to the filing of the present appeal is, that pursuant to complaints regarding fraud in the issuance of the GDRs, investigation was made by SEBI, pursuant to which an ex- parte ad-interim order dated November 20, 2014 was passed against the Company and its directors i.e. noticees Nos. 1, 2, 3, and 4 restraining them from issuing any shares or convertible instruments. Subsequently, a confirmatory order was passed against those noticees on March 9, 2016.
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3. Thereafter, a show cause notice dated April 26, 2018 was issued in which the appellant was also included as a noticee No. 6 alleging that the appellant has also violated Section 12A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') read with Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations'). In the show cause notice, it was alleged that the Company issued two GDRs on February 22, 2011 for USD 23 million and on October 23, 2011 for USD 17.5 million. It was alleged that the Company issued a power of attorney to Ms. Lok Teng Teng Dorothy (hereinafter referred to as 'Ms. Dorothy / Dora') authorizing her to act as a Liaison Officer between the Company and Investec Bank (Switzerland) AG (hereinafter referred to as 'Investec Bank') where the proceeds of the GDRs was to be deposited. It was alleged that based on the issuance of the GDRs, the proceeds were deposited in this Investec Bank, but was subsequently transferred to various entities such as SyMetric Sciences Ltd. (hereinafter referred to as 'Symetric'), Asia First Technologies Ltd. (hereinafter referred to as 'Asia First Technologies'), Transgene BiotekHK Ltd. (hereinafter 4 referred to as 'TBHK'), Sristek Consulting Pvt. Ltd. (hereinafter referred to as 'Sristek'), Bluejet Express Pte. Ltd. (hereinafter referred to as 'Bluejet') and Fundabilis Pte. Ltd. (hereinafter referred to as 'Fundabilis'). The show cause notice alleged that the Company and its directors, namely, noticee Nos. 1 to 4 launched a scheme for issuance of two GDRs and the proceeds were diverted by them to other entities. This diversion was covered up by backdated agreements / invoices / false statements with regard to the utilization of the GDRs proceeds. It was alleged that the Company and its directors made false declaration in their annual report for the financial year 2010-11, 2011-12 and 2012-13 incorrectly stating that the proceeds made to various entities were advances.
4. In so far as the appellant is concerned, the show cause notice alleged that the appellant, noticee No. 6 provided all information to Allshore Fiduciary Services Pte. Ltd. (hereinafter referred to as 'Allshore') for setting up TBHK and coordinating arrangements between Allshore and provided administrative and managerial services to the company. It was alleged that the appellant provided all instructions from the Company to Allshore through email ID [email protected] for delivery of GDRs, fund transfer 5 from the Company's account and TBHK's account, fund transfer from TBHK's account to other entities and issuing instructions to Allshore to transfer the funds to Fundabilis in which the appellant was the beneficiary.
5. Before the WTM, the contention of the appellant was that he was an agent of Sristek and entities instructed by Sristek in connection with the setting up of various subsidiaries of Sristek. The appellant contended that he had no connection with the company and its promoters or directors and that the e-mail ID was accessible by several persons including the Shilpi Choudhary, Nirmal Kotecha, Allshore and the appellant. It was contended that the instructions issued to Allshore were in fact prepared by Mr. Nirmal Kotecha who was the master mind behind the GDRs issue which draft instructions were received by the appellant and then it was issued by the appellant to Allshore. It was contended that the appellant was only acting on the instruction of others and other than coordinating the matter, he had no role to play. It was further contended that the appellant was not a director in Fundabilis and only held one share and that too as a nominee of Mr. Nirmal Kotecha. In support of his submission, the appellant relied upon a document known as declaration of trust deed 6 dated June 30, 2010 which stated that the appellant could not duly transfer or dispose of the shares and forward the dividends and profits to Mr. Nirmal Kotecha.
6. The WTM after considering the evidence of all the noticees found all the noticees including the appellant guilty of violating Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. The WTM found that the appellant had a direct connection with the Company and was forwarding letters of the Company to Allshore for transfer of funds. In this regard, the WTM relied upon the e-mail dated March 2, 2018 which contained the letters of the Company dated February 22, 2011 and October 3, 2011. The WTM further found that various e-mails were sent by the appellant requesting the authority to transfer funds from Asia First Technologies to Fundabilis. The WTM further found that the declaration of trust deed signed by the appellant had contained no countersignature of Nirmal Kotecha, and was only a piece of paper on which no reliance could be placed. The WTM, therefore, concluded that the activities of the appellant indicated that he was involved in the scheme of diversion of GDRs proceeds from the Company and TBHK to various entities and facilitated the fraudulent 7 scheme of the Company by legitimizing diversion of GDRs proceeds through backdated agreements / invoices, etc. The WTM have also concluded that he not only aided the company in the fraudulent scheme but was also a beneficiary of the GDR proceeds.
7. We have heard Mr. Somshekhar Sunderasan, the learned counsel alongwith Mr. Abhishek Venkatraman, Mr. Dikshat Mehra, the learned counsel for the appellant and Mr. Shyam Mehta, the learned senior counsel alongwith Mr. Mihir Mody, the learned counsel for the respondent through video conference.
8. According to the appellant, the sole question that arises for consideration is, whether the appellant could be charged with aiding and abetting a fraudulent issue of GDRs and fraudulent deployment of GDRs proceeds in the course of coordination, documentation and correspondence support. It was urged that the sweeping finding given by the WTM that the appellant was involved in the entire scheme of the diverting proceeds of the GDRs issue and legitimizing beneficiary of the GDRs issue was wholly erroneous and based on erroneous appreciation of the evidence.
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9. At the outset, it was urged that the proceedings were initiated belatedly. The GDRs issue was made in the year 2011 and that the show cause notice against the appellant was issued only on April 26, 2018, after seven long years and, therefore, this inordinate delay in initiating proceedings should be quashed. It was contended that the information relating to the GDRs issue was available in the public domain since 2011. Consequently, proceedings initiated against the appellant in April 2018, when the show cause notice was issued, was wholly belated.
10. It was contended that the finding of the WTM that the appellant had issued instructions on behalf of the company and that the appellant issued instructions for movement of funds from one entity to another for which the appellant was the beneficiary of the GDRs proceeds were wholly incorrect. The appellant contended that he was engaged as a consultant by Alchemy Ventures Pte. Ltd. (hereinafter referred to as 'Alchemy') vide an engagement letter dated June 3, 2010 to provide secretarial and administrative services to Sristek including the setting up of subsidiaries of Sristek and to coordinate documentation and correspondence with third party that Sristek was dealing with. It was contended that the TBL's letters 9 dated February 22, 2011 and October 23, 2011 which were addressed to Investec Bank containing instructions to receive the GDRs in the account held with Investec Bank was sent through e-mail by Ms. Dorothy / Dora of Allshore and were not sent by the appellant. It was, thus, contended that based on these two letters, the WTM has erroneously came to a finding that the appellant was working with the Company and was involved in the transfer of funds from one entity to another. It was contended that the e-mail ID was accessed by various persons which fact is not disputed by the respondent. But the WTM has erroneously held that the appellant was fraudulently aiding and abetting the company. From a perusal of the mails sent from this e-mail ID, it was contended that incriminating evidence, e- mail, relied upon by the WTM was not issued by the appellant. It was contended that the appellant's role in the transactions around the GDRs issue and the payments thereafter was purely administrative and secretarial and involved supporting with documents and evidence from various parties such as Allshore. This was done on the request made by Mr. Nirmal Kotecha and Allshore and also for incorporation of the subsidiaries of the Company and executed the sending of instructions to transfer funds as instructed by them. It was contended that the appellant was unaware that the end use of the proceeds of the 10 GDRs issue was fraudulent or was violative for the disclosure made by the Company to its shareholders. It was further contended that the draft of the e-mails were in fact prepared from the office of Mr. Nirmal Kotecha and saved in the 'drafts' folder which the appellant was asked to send to Allshore. It was contended that mere fact that the e-mails were sent requesting to transfer of funds does not mean that the appellant was a party to the fraud. Since the appellant, in any way, have no information that would have lead him to believe these funds transfer are not for services rendered by those entities. The appellant contended that there is no evidence on record to show that the appellant had knowledge of the fraudulent GDRs issue or that the funds were going to be diverted inconsistent with the GDRs issue. It was further contended that the appellant had no role to play in the execution of the backdated agreements between the company and Asia First Technologies and that the alleged agreements were sent by Mr. Sampath Kumar Meesala (noticee No. 7) to the common e-mail ID. It was also contended that the appellant had just one share of Fundabilis which received USD 9.8 million out of the total USD 40.5 million from the GDRs issue. It was alleged that the Fundabilis was a body corporate incorporated in the British Virgin Islands and that these shares were held for the trust for the benefit of the Nirmal 11 Kotecha. It was urged that there was no requirement for the British Virgin Islands to countersign such declaration of trust by Mr. Nirmal Kotecha which fact has not been considered by the WTM. It was contended that there was no requirement for obtaining countersignature of Nirmal Kotecha. It was contended that the beneficiary of the GDRs proceeds in a particular account was Mr. Nirmal Kotecha and the appellant is nothing to do with these proceeds. It was, thus, contended that the charge against the appellant that he had aided and abetted the fraudulent GDRs issue or was responsible for the diversion of the GDRs through backdated documents or he was beneficiary to the GDRs issue is totally erroneous and based on mis-appreciation of the evidence.
11. On the other hand, the respondent contended that all acts were being done by the appellant on behalf of the Company. In this regard, the engagement letter of the appellant by Alchemy dated June 3, 2010 shows that the letter was in fact addressed to the Company and pursuant to this authority the appellant performed various acts on behalf of the Company and other entities mentioned in the impugned order. Further, based on this authority, the appellant addressed several mails either on behalf of the Company / TBL or on behalf of 12 the other entities issuing instruction to transfer the proceeds of the GDRs issue from one account to another account. It was contended that in addition to the e-mail dated March 2, 2018 containing the company's letter dated February 22, 2011 and October 3, 2011, the appellant had issued various other emails dated October 26, 2011, November 18, 2011, December 1, 2011, December 19, 2011, December 30, 2011 and February 3, 2012, wherein the appellant had issued instructions to transfer the GDRs proceeds from the account of TBHK to Asia First Technologies account and to Sristek and to Binewing, etc. Further, the instructions were issued by the appellant vide e-mails dated November 3, 2011 and March 11, 2011 and December 21, 2011 for transferring the GDRs proceeds from Asia First Technologies to Alchemy account or to other entities account. It was contended that all these e-mails clearly indicated that the appellant was in-charge of the distribution of GDRs proceeds received by the Company and that the funds were transferred only on his instructions. The learned counsel for the respondent further contended that Fundabilis received an amount of USD 11 million from the GDRs proceeds upon the instructions by the appellant in which he is a beneficiary. It was urged that the declaration of the trust dated June 3, 2010 relied by the appellant was neither stamped 13 nor notarized nor countersigned by Nirmal Kotecha and, therefore, it was a useless piece of paper which had no evidentiary value.
12. Having heard the learned counsel for the parties at some length, we find that the WTM had taken cognizance of an e-mail dated March 2, 2018 which contained the letter of the Company dated February 22, 2011 and October 3, 2011 issued by the Company containing a request to transfer funds of GDRs issues. This e-mail is from the same common e-mail ID which was being used by the several persons and this particular mail sending the instructions has been sent by Ms. Dorothy / Dora. Thus, the finding of the WTM relying upon these two documents is per se erroneous. This, however, does not let off the appellant as we find that he had a role to play in the entire scheme of the GDRs issue issuing instructions for transfer of the proceeds from one account of the company or from another account of the subsidiaries of the company to other entities including Fundabilis. The other e-mails, some of which, we have indicated in the preceeding paragraph clearly indicates the role of the appellant in issuing instructions to various entities for transfer of the funds to other entities. These e-mails did not show that they have been issued under the instructions of any particular person. The 14 authorization letter dated June 3, 2020 under which he received instructions from Alchemy to coordinate documentation and correspondence with any third party assigning through which he has issued instructions to various entities clearly indicates that he was issuing instructions on behalf of the Company and was in-charge of distribution of the GDRs proceeds received by the Company. We are of the opinion that from a perusal of all the e-mails and the evidence that has come on record, the GDRs proceeds were transferred on the instructions of the appellant. Thus, even though the appellant was not a director or promoter of the Company, nonetheless, the appellant had a direct role in the diversion of the GDRs proceeds from the account of the Company and its subsidiary companies to other entities.
13. In addition to the aforesaid, the clinching evidence is, that Fundabilis has also received an amount of USD 11 million from the GDRs proceeds. The lot of noise was made by the appellant that he only held one share in Fundabilis and that too as a nominee of the mastermind Nirmal Kotecha. The evidence on record indicates that Fundabilis was an entity with a capital of one share which admittedly 15 was held by the appellant in his name and, therefore, the appellant was the beneficiary of USD 11 million of the GDRs proceeds.
14. The contention that the appellant was only a nominee of Mr. Nirmal Kotecha as per the declaration of the trust deed dated June 3, 2010 cannot be accepted. We find that this is only a piece of paper signed only by the appellant. This piece of paper has no evidentiary value unless it is shown to have been filed in any bank or in any transactions by which it would show that the appellant was bound by the terms and conditions stipulated in the declaration of the trust deed. Presumption regarding the non genuineness of the document by the WTM has been held on the ground that it is neither stamped nor the notarized nor countersigned by Mr. Nirmal Kotecha. We do not find any fault in this reasoning. Nothing has been brought on record to show that these documents were received by any competent authority either in the British Virgin Islands or by any authority under the laws of the British Virgin Islands. Consequently, these documents which are unilaterally self-serving are not impeccable evidence in the eyes of the law.
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15. In view of the aforesaid, we do not find any error in the impugned order. The appeal fails and is dismissed with no order as to costs.
16. 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 08.06.2021 RAJALA Digitally by signed PTM KSHMI NAIR RAJALAKSHMI H Date: 2021.06.12 H NAIR 18:00:50 +05'30'