Securities Appellate Tribunal
Paresh Vora Huf & Others vs Sebi on 15 October, 2025
IN THE SECURITIES APPELLATE TRIBUNAL AT
MUMBAI
DATED THIS THE 15TH DAY OF OCTOBER, 2025
CORAM : Justice P. S. Dinesh Kumar, Presiding Officer
Ms. Meera Swarup, Technical Member
Dr. Dheeraj Bhatnagar, Technical Member
Appeal No. 669 of 2022
Between
1. Paresh Vora HUF
503, Maharaja Apartment,
Opp. Telephone Exchange,
SV Road, Malad West
Mumbai - 400 064.
2. Jiten Vora HUF
402, Saral Apartment,
Opp. Indian Overseas Bank,
Marve Road, Malad West,
Mumbai - 400 064.
3. Varsha Vora
402, Saral Apartment,
Opp. Indian Overseas Bank,
Marve Road, Malad West,
Mumbai - 400 064.
4. Kankuben Vora
402, Saral Apartment,
Opp. Indian Overseas Bank,
Marve Road, Malad West,
Mumbai - 400 064.
5. Arpita Vora
503, Maharaja Apartment,
Opp. Telephone Exchange,
SV Road, Malad West
Mumbai - 400 064.
6. Paresh Vora
503, Maharaja Apartment,
2
Opp. Telephone Exchange,
SV Road, Malad West
Mumbai - 400 064.
7. Jiten Vora
402, Saral Apartment,
Opp. Indian Overseas Bank,
Marve Road, Malad West,
Mumbai - 400 064.
8. Vaibhav Enterprises (Proprietary
concern of Paresh Vora)
503, Maharaja Apartment,
Opp. Telephone Exchange,
SV Road, Malad West
Mumbai - 400 064.
9. Rajdeep Enterprises (Proprietary
concern of Jiten Vora)
Shop No. 9, Daruwala Compound,
S. V. Road, Malad (West),
Mumbai - 400 064. .... Appellants
Mr. Kunal Katariya, Advocate with Ms. Ashmita Goradia, Mr.
Sahebrao Wamanrao Buktare, Advocates and Mr. Shardul
Shah, CA i/b Shah & Ramaiya, Chartered Accountants for
the Appellants.
And
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. .... Respondent
Mr. Sumit Rai, Advocate with Mr. Bhushan Shah, Mr. Gaurav
Edekar, Advocates i/b Mansukhlal Hiralal & Co. Advocate for
the Respondent.
WITH
Appeal No. 809 of 2022
Between
3
1. Anukaran Commercial Enterprises
Limited
6/45, Old Anand Nagar,
Western Express Highway,
Santacruz (East),
Mumbai - 400 055.
2. Kushal Shah
5, Ramyakunj, Golibar Road,
T. P. S. lii, Santacruz (East),
Mumbai - 400 055.
3. Paras Mehta
A/8th Floor, Satra Signature CHS
Ltd.
Cts No. 6b, Gulmohar Road,
Opp. Gangandeep, Vile Parle West,
Mumbai - 400 056. .... Appellants
Mr. Rushin Kapadia, Advocate i/b R V Legal for the
Appellants.
And
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra
(East), .... Respondent
Mumbai - 400 051.
Mr. Sumit Rai, Advocate with Mr. Bhushan Shah, Mr. Gaurav
Edekar, Advocates i/b Mansukhlal Hiralal & Co. Advocate for
the Respondent.
WITH
Appeal No. 810 of 2022
Between
Raj Radhika Property and Developers
Pvt. Ltd.
102,1st Floor, A Wing,
Sigma Emerald Building,
4
Off. Anand Nagar,
Vishal CHSL, Santacruz (East),
Mumbai - 400 055. .... Appellant
Ms. Rinku Valanju, Advocate with Mr. Amit Kumar, Advocate
i/b R V Legal for the Appellant.
And
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra
(East), .... Respondent
Mumbai - 400 051.
Mr. Sumit Rai, Advocate with Mr. Bhushan Shah, Mr. Gaurav
Edekar, Advocates i/b Mansukhlal Hiralal & Co. Advocate for
the Respondent.
And
Appeal No. 63 of 2023
And
Misc. Application No. 1712 of 2022
And
Misc. Application No. 1711 of 2022
Between
Faiyaz Rangwala
3/1001, Zahra Court,
8th Road, Khar West,
Mumbai - 400 052. .... Appellant
Ms. Rinku Valanju, Advocate with Mr. Amit Kumar, Advocate
i/b R V Legal for the Appellant.
And
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra
5
(East), .... Respondent
Mumbai - 400 051.
Mr. Sumit Rai, Advocate with Mr. Bhushan Shah, Mr. Gaurav
Edekar, Advocates i/b Mansukhlal Hiralal & Co. Advocate for
the Respondent.
THESE APPEALS ARE FILED UNDER SECTION 15T OF
SEBI ACT, 1992 TO SET ASIDE ORDER DATED JULY 29,
2022 (EX-A) PASSED BY AO, SEBI.
THESE APPEALS HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON JULY 10, 2025, COMING ON FOR
PRONOUCEMENT OF ORDER THIS 15TH DAY, OF
OCTOBER 2025 THE TRIBUNAL MADE THE
FOLLOWING :
ORDER
Per: Dr. Dheeraj Bhatnagar, Technical Member These appeals are directed against the common Impugned order dated July 29, 2022 passed by the AO 1 of the SEBI2 levying joint and several penalty of Rs. 30,00,000/- under Section 15HA of SEBI Act3 on the appellants for their involvement in the alleged fraudulent preferential allotment of shares made by ACEL4 in violation of Section 12A(a), (b),
(c) of the SEBI Act and Regulations 3(a), (b), (c), (d) and 4(1) of the PFUTP Regulations5.
Joint and several Penalty of Rs. 30,00,000/- has been imposed on the following appellants: -
1AO-Adjudicating Officer 2 SEBI- Securities and Exchange Board of India 3 Securities and Exchange Board of India Act, 1992 4 Anukaran Commercial Enterprises Limited 5 PFUTP Regulations- Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 6 Sr. Appeal Name of the Noticee No No. Appellants No.(as per SCN) 1 669 of Paresh Vora HUF 4 2022 Jiten Vora HUF 5 Varsha Vora 6 Kankuben Vora 7 Arpita Vora 8 Paresh Vora 10 Jiten Vora 11 Vaibhav Enterprises 13 (Proprietary Concern of Paresh Vora) Rajdeep Enterprises 14 (Proprietary Concern of Jiten Vora) 2 809 of Anukaran 1 2022 Commercial Enterprises Limited Kushal Shah 2 Paras Mehta 17 3 810 of Raj Radhika 15 2022 Properties and Developers Private Limited 4 63 of Faiyaz Rangwala 18 2023
2. Brief facts of the case as per pleadings are as under:-
(i) ACEL (Noticee No. 1/appellant) is a public company (listed at BSE) engaged inter-alia, in the business of real estate and infrastructure, investment and trading in shares and securities.
(ii) Mr. Kushal Shah (Noticee No. 2/appellant) is the Managing Director cum Executive Director of ACEL.
His father Mr. Praveen shah is a retired senior official of MCGM6, it is an admitted fact that Mr. 6 MCGM-Metropolitan Corporation of Greater Mumbai 7 Praveen Shah is well acquainted with the Vohra family.
(iii) Noticee Nos. 3 to 14 constitutes the 'Vora Family'.
Vora family works as "AA" category registered contractors with MCGM7 for almost 3 decades.
(iv) On March 2, 2012, ACEL made preferential allotment of its shares and issued 50,00,000 (Fifty lakhs Only) shares to 47 non-promoter entities, out of which 11,40,000 shares were allotted to Noticee Nos. 3 to 11 (hereinafter referred to as 'allotee appellants') for an amount of Rs. 3,42,00,000/- (Rupees Three Crore Forty Two Lakhs only).
(v) Noticee Nos. 16, 17 and 18 were executive directors of ACEL at the time of the alleged fraudulent preferential allotment. Mr. Paras Mehta (Noticee No. 17) and Mr. Faiyaz Rangwala (Noticee No. 18) resigned as executive directors on March 2, 2012. Noticee No. 16 did not file appeal.
(vi) In 2015, SEBI received references from
Department of Income tax alleging price
manipulations in the scrip of ACEL and use of Stock Exchange mechanism for generating bogus Long Term Capital Gains.
(vii) SEBI conducted an investigation in the scrip of ACEL for the period January 1, 2012 to January 6, 2015 (Investigation Period/IP). The investigation commenced on June 7, 2017 and concluded on 7 Metropolitan Corporation of Greater Mumbai 8 December 12, 2019, which suggested violation of PIT Regulations, 19928 and PFUTP Regulations by the Appellants and others.
(viii) Based on this, SEBI issued two Show cause Notices (SCN) dated August 3, 2021 (SCN I) and November 29, 2021 (SCN II), calling upon the appellants to show cause as to why inquiry should not be initiated.
(ix) After affording an opportunity of personal hearing to the appellants, Ld. AO, SEBI passed the impugned order dated July 29, 2022, by which the appellants were held guilty of orchestrating and participating in the fraudulent scheme of funding preferential allotment of ACEL, using company's own funds in violation of Section 12A(a), (b), (c) of the SEBI Act and Regulations 3(a), (b), (c), (d) and 4(1) of the PFUTP Regulations.
3. Out of 19 Noticees in the impugned order, penalty has been imposed on all noticees except Noticee Nos. 3 (Mr. Bhavanji Vora HUF) Noticee No. 12 (Kapoor Trader, proprietary concern of Mr. Bhavanji Vora) and (Late) Mr. Bhavaji Vora (Noticee No. 9), as proceedings stood abated due to death of Mr. Bhavanji Vora (noticee No. 9) during the pendency of proceedings.
4. We have heard Mr. Kunal Katariya, in Appeal No. 669 of 2022, Mr. Rushin Kapadia in Appeal No. 809 of 2022 and Ms. Rinku Valanju in Appeal Nos. 810 of 2022 and 63 of 2023 8 SEBI (Prohibition of Insider Trading ) Regulations, 1992 9 learned advocates for the appellants and Mr. Sumit Rai learned advocate for the respondent SEBI.
5. Since these appeals arise out of the common impugned order, they are being disposed of by this common order.
6. Learned advocates appearing for appellants submitted that there is a gross and inordinate delay in the issuance of SCNs9, as the transactions pertain to years 2011-2012 while the SCNs were issued only in 2021 and the impugned order was passed in the year 2022. Thus, there is a delay of more than 10 years in passing of the impugned order.
6.1 It was submitted that whether there is an unreasonable delay in issuance of the SCNs would depend on the facts of each case. He drew our attention to the orders of this tribunal in Jolly Plastics Vs Securities and Exchange Board of India10 and Geetaben Joshi & Anr. vs. Securities and Exchange Board of India11:-
Jolly Plastics (Supra) "4. Without going into the merits of the case, we find that the preferential allotment was made on 2nd May, 2012 whereas the show cause notice was issued on 10th August, 2021 that is after more than nine years. The AO has rejected the plea of delay in the issuance of the show cause notice on the ground that no specific prejudice would be caused to the appellant. In our opinion, long delay itself causes prejudice.
.............
10. In view of the aforesaid, we are of the opinion that in view of the inordinate delay in the issuance of show cause notice the impugned 9 Show Cause Notice 10 SEBI Appeal No. 752 of 2022 11 SEBI Appeal No. 650 of 2022 10 order cannot be sustained and is quashed. The appeal is allowed. All the misc. applications are accordingly disposed of."
(Emphasis supplied) Geetaben Joshi & Anr. vs. Securities and Exchange Board of India "11. In our view, there is an inordinate delay in the issuance of the show cause notice. The preferential issue was made in May 2011 and the show cause notice was issued on October 20, 2021. The issuance of the preferential issue was known to the Stock Exchange as well as to SEBI and, therefore, there was no justification for issuance of the show cause notice at this belated stage.
.........
15. In view of the aforesaid, without going into the merits, we are of the view that the impugned orders passed against the appellants cannot be sustained and are quashed. All the appeals are allowed with no order as to costs. The misc. applications are disposed of accordingly."
(Emphasis Supplied) It was submitted that since the facts of the present case are much similar to the above cited cases, the appeal ought to succeed on this ground itself.
Alleged fraudulent preferential allotment
7. Mr. Kunal Katariya, learned advocate appearing for the appellants in Appeal No. 669 of 2022 (Paresh Vora and Ors.) submitted that there is a finding in the Impugned Order against Noticees Nos. 3 to 14 (Vora Family) that they facilitated the alleged fraudulent preferential allotment of shares made by ACEL (Noticee No. 1). He further submitted 11 that the Impugned order records that ACEL (Noticee No. 1) transferred fund to the tune of Rs. 10,47,50,000/- (Rupees Ten Crore Forty Seven Lakhs Fifty Thousand only) to the proprietorship concerns of Vora family viz. Kapoor traders (Noticee No. 12), Vaibhav Enterprises (Noticee No. 13) and Rajdeep Enterprises (Noticee No. 14) (conduit entities), who, in turn, transferred the said amount to noticee Nos. 3 to 11 (preferential allotees). There is a finding in the impugned order that the said allottees utilized the said amount transferred to conduit entities by ACEL, in subscribing to the preferential allotment of shares of ACEL.
7.1 Mr. Katariya submitted that the transfer of Rs. 10,47,50,000/- (Rupees Ten Crore Forty Seven Lakhs and Fifty Thousand Only) between ACEL and Vora Family (Noticee Nos. 12 to 14) in various tranches is a legitimate fund transaction. Further, the amount transferred from ACEL to Vora family (Rs. 10.47 crores) is far in excess of the amount involved in the application for preferential allotment (Rs. 3.42 Crores). Moreover, Ld. AO has also failed to consider the fact that ACEL made substantial payment to Noticee Nos. 13 and 14 even after the said preferential allotment of shares was over. This shows that ACEL and Vora family were in business relationship for a long time and the impugned transfer of fund was not part of alleged self-financing of preferential shares of ACEL.
7.1.1 He further argued that the impugned order erroneously mixed up two separate streams of fund transactions between ACEL and Vora family. He explained that one set of transactions pertain to transfer of funds amounting to Rs. 10,47,50,000/- (Rupees Ten Crore Forty Seven Lakhs and Fifty Thousand Only) from ACEL to Noticee 12 Nos. 12, 13 and 14 (conduit appellants), respectively, during November 23, 2011 to March 14, 2012, comprising of an amount of Rs. 3.03 Crore to Noticee No. 12, an amount of Rs. 3.20 Crore to Noticee No. 13 and an amount of Rs. 4.24 Crore to Noticee No. 14, under various MoUs executed by them with ACEL. It is contended that the said MoUs were executed during October 2011 and January 2012. The other set of transactions pertain to transfer of funds amounting to Rs. 3.42 Crores, from the 'allottee appellants' (Noticee Nos. 3 to 11) to ACEL for subscription in the preferential allotment, transacted on the very same or the next day of receipt of funds by them.
7.1.2 Referring to the chart tendered by SEBI during the course of hearing (July 3, 2025), he submitted that the impugned order proceeds only on the basis that SEBI has been able to identify an alleged one to one fund flow between ACEL and the proprietorship of Vora family (Noticee Nos. 12-
14). He contended that said chart ignores transactions done prior to January 2012. The actual amount transferred to noticee No. 12 to 14 was Rs. 11.91 crore considering also funds transferred in the period prior to January 2012, while allottee appellants transferred only Rs. 3.42 crores to ACEL for preferential shares.
7.1.3 Further, refuting the submission of the respondent SEBI that prior to the impugned fund transfer, Vora family did not possess adequate funds to subscribe to the preferential issue, Shri Katariya submitted that during the relevant time, the Vora Family had unencumbered fixed deposits of Rs. 4.71 Crores, which was adequate to subscribe to preferential shares.
137.1.4 He submitted that SEBI has attempted to take a myopic view of the fund transfer issue alleging that the one to one transfers are sufficient to show fraud. In Puneet Goenka vs SEBI,12 this Tribunal had a chance to consider a similar situation. It was alleged that Zee Entertainment Enterprises Ltd. had indirectly funded certain promoter entities to show fulfilment of payment obligations of the said entities towards Zee (Paragraph Nos. 9 and 10). According to SEBI, such one to one transfers were good enough to make out a case for fraud. This Tribunal relied on the settled doctrine of "ante lite motam" followed by the Hon'ble Supreme Court in Murugan Vs State of Tamil Nadu13 and held that when the transactions are explained separately on the basis of contemporaneous record, SEBI is obligated to examine the same instead of brushing it aside.
7.1.5 It was also submitted that in the present case too, SEBI does not dispute the existence of the MoUs but have merely held that the same do not have any economic rationale. It is settled law that fiscal authorities in adjudication cannot question the commercial wisdom of the assesse. Furthermore, the balance sheets which were prepared by ACEL for the financial year 2011-12 and 2012-13 uploaded on the website of BSE also show that the entire sum was appropriated for the MCGM contracts.
7.2 Shri Katariya submitted that proprietary concerns are not separate legal entities and that the transactions from proprietary concerns of Vora family (Noticee Nos. 12, 13 and 14) to the individual proprietors (Noticee No. 9, 10 &
11) and to family members are transactions in ordinary course. However, the same have been wrongly held to be 12 SEBI Appeal No. 714 of 2023 13 (2011) 6 SCC 111 14 fraudulent and Noticee Nos. 13 and 14 have been wrongly considered to be conduit entities.
7.3 He further submitted that the fund transfers from M/s. Raj Radhika to Noticee Nos. 13, 14 were in the nature of loan transactions, for repayment of the amount to ACEL it tendered in pursuance of MoUs. However, Ld. AO failed to appreciate the same.
7.4 It was submitted that the Ld. AO failed to follow the settled position of law that fiscal authorities have no jurisdiction to question economic rationale of transactions as held in the case of CIT vs. Dhanrajgirji Raja Narasingirji14. The finding by the Ld. AO in the Impugned order that the transfer of funds by ACEL for the tenders which were not yet awarded was devoid of economic rationale, is without merit. The impugned order failed to appreciate the fact that Vora Family entities being existing civil contractors had good reason to believe that they would get the contract.
7.5 Shri Rushin Kapadia, learned advocate appearing in Appeal No. 809 of 2022 (for ACEL, Kushal Shah and Paras Mehta) made the following submissions :-
7.5.1 Shri Rushin Kapadia submitted that ACEL came out with a preferential issue of shares on March 2, 2022 for an issue size of 15 crores, made to 47 non-promoters entities (including the Noticee Nos. 3 to 11). He submitted that the issue was in due compliance with the SEBI (ICDR) Regulations, 2009. However, the Ld. AO wrongly found the allotment to be fraudulent and concluded that ACEL had routed funds for funding its own preferential allotment.14 [1974 (3) SCC 520] Paragraph No. 7 15
7.5.2 Explaining the transfers of a sum of Rs. 10.46 crore from ACEL to Noticee Nos. 12 to 14 during the period November 23, 2011 to March 14, 2012, Shri Kapadia submitted that the said fund transfers are purely commercial transactions in furtherance of the MoUs executed for the purpose of applying for tenders of MCGM (jointly with the Noticee Nos. 12 to 14). The MoUs were duly registered and stamped, and the copies of the same were also provided to SEBI to show legitimacy of transaction.
He submitted that Noticee Nos. 12 to 14 duly returned the whole amount to ACEL (between February 2013 to March 2013) when the tenders were not awarded to ACEL. However, SEBI has failed to appreciate these genuine transactions of payments and repayments and passed the impugned order without any application of mind.
7.5.3 With regard to the other transactions involving fund transfer to the tune of Rs. 11.75 crores between ACEL and M/s. Raj Radhika Property limited (Noticee No. 15), he submitted that ACEL had entered into a property deal with M/s. Raj Radhika Property Ltd for acquisition and development of a plot in Mumbai in 2013. In furtherance of the deal, ACEL paid an advance amount of Rs. 11.75 crore to Raj Radhika for purchase of a residential plot. He submitted that the deal did not materialize and M/s. Raj Radhika returned the entire advance to ACEL.
7.6 Shri Kapadia also submitted that Mr. Kushal Shah (Noticee No. 2) and Mr. Paras Mehta (Noticee No. 17) had no role to play in the alleged transactions and they have been vicariously held liable, by virtue of being executive directors in ACEL. He submitted that the statutory regime under the 16 SEBI Act did not provide for vicarious liability of directors for any 'civil contraventions' by the Company in 2012.
8. Ms. Rinku Valanju appearing for M/s. Raj Radhika Property and developers Private Limited (Noticee No. 15) in Appeal No. 810 of 2022 adopting the arguments made by Shri Rushin Kapadia in Appeal No. 809 of 2022 and Shri Kunal Katariya in Appeal No. 669 of 2022, submitted that the transfer of fund from ACEL to the preferential allottees (via Noticee Nos. 12-14) was a legitimate and genuine transfer of fund.
She submitted that M/s. Raj Radhika is engaged in the business of real estate development and construction. It received an amount of Rs. 11.75 crores from ACEL in 2013 (one year after the preferential issue), towards acquisition and development of the plot situated at Santacruz, Mumbai. Out of the said amount, appellant paid an amount of Rs. 51 lakhs as a token payment to the seller. However, the deal did not materialize on account of non-submission of certain documents by the seller, due to which the entire fund along with interest was returned to ACEL by noticee Nos. 12 to 14.
9. Ms. Rinku Valanju, Ld. Advocate appearing for Mr. Faiyaz Rangwala (Noticee No. 18) reiterated the submissions made by other appellants and additionally submitted that the appellant, who was the Executive director of ACEL, had resigned from directorship on March 2, 2012.
She submitted that the appellant Mr. Rangwala never attended board meetings of ACEL nor was he involved in the alleged preferential allotment process of ACEL. In fact, the appellant had no knowledge of the said preferential allotment and had not signed any documents with regard to same. It 17 was alleged that the Company Secretary of ACEL erroneously used the appellant's name in the minutes book of the board meetings and the resolution passed in meetings held during the said allotment. She submitted that a charge of fraud cannot be levied merely based on suspicion, surmises and conjectures.
9.1 Ms. Rinku further submitted that the Ld. AO failed to appreciate the fact the entire preferential allotment was done in compliance with ICDR regulations. Moreover, Regulation 77 of the ICDR Regulations specifically provides that full consideration shall be paid by the allotees at the time of allotment of shares, which has been actually done in the present case. Without prejudice, she also submitted that the ICDR Regulations do not provide for any prohibition for a company to fund its own preferential allotment.
9.2 She also submitted that the Impugned order completely ignores the fact that the element of 'fraud' is missing in the present case. Requirement of 'intention' is sine qua non to prove fraud under the PFUTP Regulations. In the present case no such intention on the part of appellant has been brought out in the Impugned order or even in the SCN. Furthermore, SEBI has not adduced any evidence to show that the Appellant had played a fraud on the Shareholders of ACEL. She also submitted that the case of SEBI is completely based on circumstantial evidences.
9.3 The learned advocate submitted that there was no basis to levy penalty "jointly and severally" on the appellant, as there is no linkage between the appellant and other entities. It was further submitted that it is a general rule of construction of statutes that penalty imposed is always individual in nature except otherwise provided in the penal 18 provision. She pointed out that Section 15HA of SEBI Act under which penalty has been imposed, uses the expression "any person" as opposed the expression "any person or persons acting in concert".
9.4 Further, she submitted that the quantum of monetary penalty imposed in the impugned order is without application of principles laid down by the Apex Court from time to time under Section 15J of the SEBI Act. The Impugned order fails to take into account that the appellant has not made any disproportionate gain or unfair advantage. Undoubtedly, no loss has been caused to any investors or group of investors as a result of the alleged fraud.
10. In response, Shri Sumit Rai, learned advocate appearing for the Respondent SEBI made detailed submissions.
10.1 Refuting the argument of the appellants with regard to delay in issuance of SCN, Shri Rai submitted that the SCN has been issued to the Appellants without any delay, and any assertion to the contrary is devoid of any merit. Elaborating the facts, he further submitted that the SEBI's investigation commenced pursuant to references received from the Income Tax Department in April 2015. Initially, the reference and investigation was in relation to price manipulation by more than 140 entities, who allegedly used stock exchange mechanism for generating bogus long-term capital gains. Thereafter, during the interregnum of this investigation in 2017, SEBI suspected self-funding of preference shares by ACEL. Thus, an investigation in the matter commenced on June 7, 2017, which concluded on December 12, 2019.
Thereafter, the adjudication proceedings were approved and SCNs were issued to Noticee Nos. 1 to 18 on August 3, 19 2021 (SCN I) and to Noticee No. 19 on November 29, 2021 (SCN II). Respondent has in fact acted in a reasonable and diligent manner while proceeding against the appellants. Thus the argument taken by the Appellants alleging inordinate delay in issuing SCN is devoid of merit.
10.1.1 Shri Rai also submitted that there is no limitation period prescribed for initiation of Adjudication proceedings under the SEBI Act. Moreover, there are catena of judgments in which Hon'ble Apex court has held that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be a reasonable time would depend on the facts and circumstances of each case, the nature of the default, prejudice caused to the concerned party, etc. Therefore, the appellants must demonstrate that the delay in issuance of SCN has caused them prejudice.
10.1.2 The reliance placed by the appellants on Geetaben Joshi (Supra) is misplaced and irrelevant, as the delay aspect is date-based and more particularly based on the facts and circumstances of each case. He further submitted that the Hon'ble Supreme Court has noted in identical cases that delay by itself is not sufficient to dismiss the entire subject matter. To buttress his submissions, he placed reliance on Tilak Ventures Ltd. Vs Securities and Exchange Board of India.15 10.2 Shri Rai submitted that the contention of the appellants that the impugned order erroneously mixed up two separate transactions to allege routing of funds is completely erroneous and misplaced and as such, deserves to be dismissed in limine. Refuting the contentions of the conduit appellants (Noticee Nos. 12-14) that they received funds as 15 Civil Appeal No. 1611-1613 of 2022 20 EMD16 for MCGM Contracts (in pursuance of MoUs), Mr. Rai submitted that the said contention cannot be accepted as ACEL started transferring funds much earlier than the dates of MCGM tender to Noticee Nos. 12-14 from October 2011 onwards, whereas, MCGM tenders were supposed to open for bid only in April/May 2012.
10.2.1 Shri Rai submitted that the allotee appellants (Noticee Nos. 3-11) had subscribed to the preferential allotment with the monies received from the conduit appellants (Noticee Nos. 12-14), who in turn had received it from ACEL. He contended that the same is evident from the bank statement of ACEL (Annexure A of Reply), which shows that the conduit appellants (Noticee Nos. 12-14) had transferred funds to the allotee Appellants on the same day or the next day, who in turn transferred more or less such exact funds to ACEL. He pointed out that prior to the said transfer, the allotee appellants did not have sufficient funds to subscribe to the allotment.
10.3 Refuting the contention of the Appellants that there is no provision in any law that prohibits a company from funding its own preferential shares, Mr. Rai submitted that this contention is untenable, as Section 77(2) of the Companies Act, 1956 [Corresponding with Section 67(2) of the Companies Act, 2013] explicitly provide for restrictions on purchase by a company, or loans by a company for purchase, of its own or its holding Company's Shares.
Section 77(2) of the Companies Act, 1956 reads as under:-
16Earnest Money Deposit 21 "77. RESTRICTIONS ON PURCHASE BY COMPANY, OR LOANS BY COMPANY FOR PURCHASE, OF ITS OWN OR ITS HOLDING COMPANY'S SHARES "...........................
(2) No public company, and no private company which is a subsidiary of a public company, shall give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or in its holding company:
Provided that nothing in this sub-section shall be taken to prohibit -
(a) the lending of money by a banking company in the ordinary course of its business; or
(b) the provision by a company, in accordance with any scheme for the time being in force, of money for the purchase of, or subscription for, fully paid shares in the company or its holding company, being a purchase or subscription by trustees of or for shares to be held by or for the benefit of employees of the company, including any director holding a salaried office or employment in the company; or
(c) the making by a company of loans, within the limit laid down in sub-section (3), to persons (other than directors 1 [***] or managers) bona fide in the employment of the company with a view to enabling those persons to purchase or subscribe for fully paid shares in the company or its holding company to be held by themselves by way of beneficial ownership ......................................................".
10.3.1 He further refuted the submission of the appellants that commercial and economic wisdom is not open for judicial review, and submitted that while it is trite law that a court 22 ought not to interfere in matter of commercial contract, a court cannot close its eyes to the evident fraud being perpetrated under the garb of economic wisdom. Moreover, it is a well settled law that self-funding is in violation of the PFUTP Regulations. Section 55A of the Companies Act, 1956 (corresponding with Section 24 of the Companies Act, 2013) vests powers on SEBI to take actions in relation to issue and transfer of securities.
10.4 With regard to the contention of the appellants regarding treating transfer of funds from M/s Raj Radhika (Noticee No. 15) to the Conduit appellants (Noticee Nos. 12-
14) as a loan transaction, Shri Rai submitted that the contention is baseless, as no document has been placed on record to substantiate the claim that interest had been paid by the conduit appellants for the alleged loan.
10.5. Further, Mr. Rai submitted that in 2013, M/s. Raj Radhika received funds amounting to Rs. 11.75 crores from ACEL in various tranches (in March 2013). He refuted the contention of the appellants that the said fund transfer was meant for acquisition and development of a plot (worth Rs. 20 crores) situated at Santacruz (East) Mumbai and submitted that Raj Radhika instead transferred funds to Conduit Appellants (Noticee Nos. 12-14) during March 9, 2013 to March 22, 2013, either on the same day or the next day of receipt of funds from ACEL. Thereafter, the Conduit appellants transferred the funds in various tranches to ACEL. He submitted that M/s. Raj Radhika has failed to explain as to why only a small amount of Rs. 51,00,000/- was utilized for the real estate project. He submitted that these transactions clearly establish that the funds of ACEL 23 were being routed through Raj Radhika to the conduit Appellants.
10.6 Shri Sumit Rai refuted the contentions of the appellants that the total transaction value of Vora Family with ACEL is significantly higher than the amount transferred by 'allotee appellants' for subscribing to the preferential allotment. He submitted that as long as evidence indicates that the preferential allotment money on one-to-one basis came from ACEL, the argument that the conduit appellants had other transactions or business with ACEL ought to be disregarded.
11. With regard to the contentions of Mr. Faiyaz Rangwala (Noticee No. 18) that he was not involved in the day to day transactions of the business, nor did he attend board meeting, Mr. Rai submitted that Noticee No. 18 being Executive Director of ACEL was a party to the special resolution dated January 27, 2012 pertaining to preferential allotment in question. He also submitted that breach of the PFUTP Regulations invites liability on directors irrespective of the nature of directorship. Furthermore, liability has been imposed on the board of directors not only by virtue of day- to-day operations of the company, but out of board process.
11.1 Learned advocate for the SEBI further submitted that Hon'ble Supreme Court and this tribunal have held in catena of cases that it is the responsibility of a director to identify deficiencies wherever possible by employing verification and scrutiny expected of a prudent man. Moreover, the meetings of board of directors of a company are not merely rituals. To support his contentions, he placed reliance on N. Narayan 24 Vs Adjudicating officer, Securities and Exchange Board of India17:-
"27. SEBI Act read with Regulations of the Companies Act would indicate that the obligations of the Directors in listed companies are particularly onerous especially when the Board of Directors makes itself accountable for the performance of the company to shareholders and also for the production of its accounts and financial statements especially when the company is a listed company.
.............
30. Responsibility is cast on the Directors to prepare the annual records and reports and those accounts should reflect 'a true and fair view'. The over-riding obligation of the Directors is to approve the accounts only if they are satisfied that they give true and fair view of the profits or loss for the relevant period and the correct financial position of the company. (Emphasis Supplied)
31. Company though a legal entity cannot act by itself, it can act only through its Directors. They are expected to exercise their power on behalf of the company with utmost care, skill and diligence. This Court while describing what is the duty of a Director of a company held in Official Liquidator v. P.A. Tendolkar (1973) 1 SCC 602 that a Director may be shown to be placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of business of the company even though no specific act of dishonesty is provide against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially."
(Emphasis Supplied) 17 (2013) 12 SCC 152 25 11.2 Mr. Rai submitted that Mr. Faiyaz Rangwala has been an Executive Director of the Company from September 8, 2009 to March 2, 2012. During the relevant financial year 2011-12, he attended 8 out of 9 Board Meetings. Furthermore, the impugned order refers to the Director's report, which was presented as part of the Annual Report of the Company, which shows that he along with other directors had approved the preferential allotment of shares of ACEL. Therefore, the appellant cannot absolve himself of the liability arising directly of his actions.
11.3 As regards to the contention that under PFUTP Regulations 'intention' is pre-requisite to prove 'fraud' and charge of fraud cannot be made merely on the basis of suspicion, Shri Rai submitted that it is a well settled position in law that the object and purpose of PFUTP Regulations is to "safeguard investors from market manipulations which undermines the integrity and efficiency of the Securities Market".
To support his contention, he placed reliance on SEBI vs. Shri Kanaiyalal Baldevbhai Patel & Ors.18, wherein the Hon'ble Supreme Court held that 'mens rea' or 'proof beyond reasonable doubt' is not an indispensable requirement for the purposes of Regulations 3 and 4 of the PFUTP Regulations. Rather, the correct test is one of 'Preponderance of probabilities'.
In view of this, he argued for dismissal of appeals.
12. We have carefully considered the facts of the case based on rival submissions and records placed before us.
18(2017) 15 SCC 1 26
13. Section 77(2) of the Companies Act, 1956 explicitly places restriction on purchase by a company, of its own or its holding companies' shares. It is the case of the respondent that the company ACEL transferred its own funds to noticee Nos. 12, 13 and 14, who in turn, passed on the same to noticee Nos. 3 to 11, to subscribe in preferential shares of ACEL immediately thereafter. Invoking the powers vested under Section 55A of the Companies Act, 1956, the respondent SEBI held such alleged self-funding of preferential shares as in violation of PFUTP Regulations.
13.1 It is admitted fact that ACEL and its promoters knew the Vora family for a long time. Vora family entities were working as civil contractors and there were regular business transactions between the ACEL group and Vora entities from time to time. During the inspection period, it is seen that M/s. ACEL had transferred an amount of Rs. 3,03,50,500/- (Rs. 3 Crores Three Lakhs Fifty Thousand and Five hundred only) to M/s. Kapoor Trader (Noticee No. 12 and Proprietary concern of Bhavanji Vora) between January 24, 2012 to March 12, 2012; an amount of Rs. 3,19,99,500/- to Vaibhav enterprises (Noticee No. 13 and proprietary concern of Paresh Vora) between January 23, 2012 to March 14, 2012; and an amount of Rs. 4,24,00,000/- to M/s. Rajdeep Enterprises (Noticee No. 14 and proprietary concern of Jiten Vora) between January 20, 2012 to March 5, 2012 in several tranches.
Appellants' case is that such transfer was towards payment of Earnest Money Deposit (EMD) for the contracts relating to MCGM. Soon thereafter, these three entities transferred the amounts in separate tranches to Noticees Nos. 3 to 11 (allotee appellants). Eventually, these Noticees 27 Nos. 3 to 11, in turn, transferred funds aggregating to Rs. 3,42,00,000/- (Rupees Three Crore Forty Two Lakhs only) to M/s. ACEL during January 2012 to March 2012. In lieu thereof, the company ACEL issued preferential shares to these allottees (i.e. Noticees Nos. 3 to 11) on March 2, 2012.
13.2 Thus, there is a clear connection in respect of flow of fund amounting to Rs. 10.47 crores from ACEL to allottee entities (Noticee Nos. 3 to 11) through the conduit entities (Noticee Nos. 12 to 14). All these entities pertain to Vora family. Further, these noticee Nos. 3 to 11 transferred Rs. 3.42 crore to ACEL in close proximity of time. It is also an undisputed fact that there has been a long standing business relationship between ACEL group and Vora family. However, the entire amount passed on to Noticees Nos. 12 to 14 has not been passed on through Noticees Nos. 3 to 11 to ACEL for preferential issue, and significant funds may have been for other purposes. Evidently, to the extent of Rs. 3.42 crore, the funds for preferential allotment were sourced from ACEL only. Whether there were such fund transfers in the past as well or there was excess transfer over Rs. 3.42 crore to these entities is immaterial to examine the alleged violation.
In view of this, we find no merit in the claim of the appellant that the entire amount of money of Rs. 10.47 Crore given to Noticees Nos. 12, 13 and 14 (Vora family entities/Conduits) was exclusively used for the purpose of procuring the tenders for MCGM contracts. Eventually, a significant part of it, amounting to Rs. 3.42 crore was used for subscription in preferential shares of ACEL.
13.3 It is evident that there is a close proximity in the timing of fund flow from ACEL to Vora family (conduits entities) and in turn, for its further transfer through Noticee 28 Nos. 3 to 11 to ACEL for the subscription in preferential shares. Noticee Nos. 3 to 11 eventually were allotted the preferential shares in ACEL. The fact that the conduits entities also had business relationship with ACEL, as evident in the form of other transactions, does not rule out the finding that the company ACEL self-funded its preferential shares through transfer of its funds alongside funds for business purposes. In view of this, violation of Section 77(2) of the Companies Act, 1956 stands established. Hence, the company ACEL and its KMPs are held liable for self-financing of companies own preferential shares and in violation of PFUTP Regulations, and Regulation 77(2) of the Companies Act, 1956. For facilitating the same, the Noticee Nos. 12, 13 and 14 (conduits entities) and Noticees nos. 3 to 11 (allottee appellants) are also held to be in violation of the PFUTP Regulations.
13.4 Allegedly, one M/s. Raj Radhika Property and Developers Pvt. Ltd. (Noticee No. 15) too had received Rs. 11.75 Crore from ACEL during March 2013 to May 2013 (Appeal No. 810 of 2022). We find that in this case the transfer for Rs. 7.5 Crore by ACEL took place during March 8, 2013 to May 29, 2013, which was almost a year after the issue of preferential shares of ACEL. In view of this, we find no ground for any violation in respect of funds transferred to it by ACEL. Moreover, conduit Noticees No. 12, 13, and 14 were already in receipt of fund of Rs. 10.47 crore, which is much above the requirement of funds for preferential issue (Rs.3.42 crore). In view thereof, the Appeal No. 810 of 2022 is allowed.
13.5 We have already held executive director and all KMPs of the ACEL responsible for the violation. Mr. Faiyaz Rangwala in Appeal No. 63 of 2023 has contended that he did not participate in day to day transaction of the company or 29 preferential allotment process and that Company Secretary of the company has erroneously used his name in the minutes of the meeting and resolution passed by the board of directors. We find this a bald submission and note that he has been an executive director of the company and participated in 8 out of 9 board meetings during FY 2011-12. He resigned on March 2, 2012 on the day of preferential allotment. We also find that the process of preferential allotment of shares has also been concluded on that date. Therefore, we find no merit in his case and of other KMPs of the company.
13.6 A common ground taken in these appeals is regarding inordinate delay in the proceedings. It is evident that though it is highly desirable, as of now no limitation period has been prescribed for initiation of the adjudication proceedings in the SEBI Act. There are judicial decisions holding that where period of limitation is not prescribed, such power is to be exercised within a reasonable time. As submitted by the respondent, investigation started with the references made by Income Tax Department in 2015 in respect of price manipulation by more than 140 entities. Based on such intelligence from such investigation, SEBI came across information such as self-funding of preferential shares by ACEL in 2017 and such investigation was over by December 2019. Thereafter, the adjudication proceeding was approved and SCNs were issued during August 2021 to November 29 2021 to various entities. The appellants have not questioned the respondent's submission on this fact.
13.7 We are in agreement with respondent's submission that delay by itself is not sufficient to dismiss entire subject matter and, in this regard, reliance is placed on Tilak Ventures 30 (Supra) decision. In view of the above discussion, we pass the following :-
ORDER i. Appeal Nos. 669 of 2022, 809 of 2022 and 63 of 2023 are dismissed.
ii. Appeal No. 810 of 2022 is allowed. The impugned order is set aside.
iii. Interlocutory application(s), if any, stand disposed of.
iv. No costs.
Justice P.S. Dinesh Kumar
Presiding Officer
Ms. Meera Swarup
Technical Member
Dr. Dheeraj Bhatnagar
Technical Member
15.10.2025 MRS Digitally signed
by MRS PRAMILA
PRAMILA Date: 2025.10.15
PTM
15:44:54 +05'30'