Supreme Court - Daily Orders
Securities And Exchange Board Of India vs Il And Fs Securities Services Ltd. on 21 September, 2021
Bench: Vineet Saran, Aniruddha Bose
ITEM NO.5 Court 9 (Video Conferencing) SECTION XVII
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Civil Appeal No(s).5395-5398/2019
SECURITIES AND EXCHANGE BOARD OF INDIA Appellant(s)
VERSUS
IL AND FS SECURITIES SERVICES LTD. & ORS. Respondent(s)
(IA No.52655/2021 - APPROPRIATE ORDERS/DIRECTIONS, IA No.48158/2021
- APPROPRIATE ORDERS/DIRECTIONS, IA No.9179/2021 - INTERVENTION
APPLICATION, IA No.22341/2021 – INTERVENTION/IMPLEADMENT, IA
No.87069/2020 – INTERVENTION/IMPLEADMENT, IA No.84110/2021 -
MODIFICATION OF COURT ORDER)
WITH
C.A. No.6773-6776/2019 (XVII)
C.A. No.6241-6244/2019 (XVII)
C.A. No.6768-6771/2019 (XVII)
C.A. No.6767/2019 (XVII)
(IA No.117487/2019 - EXEMPTION FROM FILING C/C OF THE IMPUGNED
JUDGMENT, IA No. 117489/2019 - PERMISSION TO FILE ADDITIONAL
DOCUMENTS/FACTS/ANNEXURES, IA No.117486/2019 - STAY APPLICATION)
Date : 21-09-2021 These matters were called on for hearing today.
CORAM : HON'BLE MR. JUSTICE VINEET SARAN
HON'BLE MR. JUSTICE ANIRUDDHA BOSE
For Appellant(s) Mr. Anuj Berry, Adv.
Mr. P.S.S. Bhargava, Adv.
Mr. S. S. Shroff, AOR
Mr. Shyam Divan, Sr. Adv.
Mr. Dhruv Malik, Adv.
Ms. Mahak Saboo, Adv.
Ms. Sharmistha Ghosh, Adv.
Mr. Sanam Tripathi, Adv.
Ms. Mrinmayee Sahu, AOR
Mr. Pratap Venugopal, Adv.
Ms. Surekha Raman, Adv.
Mr. Akhil Abraha Roy, Adv.
Signature Not Verified
Mr. Vijay Valsan, Adv.
Digitally signed by
DEEPAK SINGH
Date: 2021.09.28
M/S. K J John And Co, AOR
15:32:37 IST
Reason:
For Respondent(s) Mr. K.V. Viswanathan, Sr. Adv.
Mr. Sidharth Luthra, Sr. Adv.
1
Ms. Gauri Rasgotra, Adv.
Mr. Sumit Attri, Adv.
Mr. Adarsh Saxena, Adv.
Mr. Vikash Kumar Jha, Adv.
Ms. Nikitha Shenoy, Adv.
Ms. Drishti Das, Adv.
Mr. Yash Johri, Adv.
Mr. Varun Srinivasan, Adv.
M/S. Cyril Amarchand Mangaldas Aor, AOR
Mr. Vikram B. Trivedi, Adv.
Mr. Rashid Boatwalla, Adv.
Mr. Nagarkatti Kartik Uday, AOR
Mr. Pruthvi Dhinoja, Adv.
Mr. Mukul Rohatgi, Sr. Adv.
Mr. Guru Krishna Kumar, Sr. Adv.
Mr. Ajay Bhargava, Adv.
Mr. Mahesh Agarwal, Adv.
Ms. Trishala Trivedi, Adv.
Mr. Rishabh Parikh, Adv.
Ms. Raddhika Khanna, Adv.
M/S. Khaitan & Co., AOR
Mr. Rishi Awasthi, Adv.
Mr. Smarhar Singh, AOR
Mr. Sandeep Bisht, Adv.
Mr. Yati Ranjan, Adv.
Mr. Ranjan Kumar Pandey, AOR
Mr. Ashish Prasad, Adv.
Mr. Abhiraj Arora, Adv.
Mr. Rohit Sharma, Adv.
Mr. J. Rajesh, Adv.
Mr. Mahfooz Ahsan Nazki, AOR
Ms. Pratiksha Sharma, AOR
Mr. Ankit Acharya, Adv.
Mr. Shreyas Awasthi, Adv.
Mr. Sidharth Sethi, AOR
Mr. Divyanshu Goyal, AOR
Mr. Pushpdeep Singh Sodhi, Adv.
Ms. Shikha Sinha, Adv.
Mr. Mayank Kapoor, Adv.
UPON hearing the counsel the Court made the following
O R D E R
I.A No.84110/2021
This application has been filed by the appellant/respondent 2 no.5/Dalmia Cements (Bharat) group (for short, “applicant/Dalmia”) seeking modification of the order dated 16.03.2021 passed by this Court, which in turn had modified the earlier order dated 27.08.2019. The offending portion of the order dated 27.08.2019 of which the modification was sought earlier is extracted below:
“3. On the option being exercised, IL & FS Securities Services Limited shall convert/encash the mutual funds, and the amount realised would be deposited in a fixed deposit in a Nationalised Bank for a period of six months to earn maximum interest. The deposit would be in the name of IL & FS Securities Services Limited and abide by further orders/directions of this Court.” After hearing the parties at length and for detailed reasons given in the order dated 16.03.2021, the said condition of the order dated 27.08.2019 was modified as under:
“10. Therefore, we modify the Interim Order dated 27.08.2019 to the extent that the Mutual Fund units of Respondent No.5-Applicant, kept with the Respondent No.1-ISSL, be released in favour of the Respondent No.5-Applicant by way of transfer of the said Mutual Fund units and crediting the same in the demat account of the Respondent No.5-Applicant.
This is subject to the Applicant furnishing requisite Bank Guarantee of equivalent value as the Mutual Fund units, to the satisfaction of the Trial Court. The Respondent No.5-Applicant shall comply with this requirement within one month of filing of application for release of Mutual Fund units (along with a copy of this order) before the Trial Court. The Trial Court shall also dispose of such application expeditiously. It is clarified that the Interim Order dated 27.08.2019 shall continue to operate as it was as against the other parties/non- Applicants herein.” In compliance of the above-said order, it is admitted by the parties that the bank guarantee for a sum of Rs.344.07 crores was furnished by the applicant/Dalmia. Subsequent to the furnishing of 3 the bank guarantee, the mutual funds were transferred in the account of the applicant/Dalmia.
Thereafter, according to the applicant/Dalmia, there has been change in the circumstances, inasmuch as respondent no.1/SEBI had passed detailed orders dated 02.07.2021 in the cases of respondent no.4/Allied Financial Services Pvt. Ltd. as well as respondent No.1/IL & FS Securities Services Ltd. This application has been filed seeking modification of the order dated 16.03.2021 with the following prayers:
“(a) Allow the present application seeking modification of order dated 16.03.2021 passed by this Hon’ble Court in IA No.100812 of 2020 after SEBI’s orders dated 02.07.2021 passed against ISSL/Respondent No.1 and Allied/Respondent NO.4; and/or
(b) Modify order dated 16.03.2021 passed by this Hon’ble Court in IA No.100812 of 2020 in Civil Appeal No.5395-5398 of 2021 and direct the Chief Metropolitan Magistrate (East), Karkardooma Courts, Delhi to release the original Bank Guarantee No.OGT0005210053201 dated 23.03.2021 of IndusInd Bank Limited amounting to Rs.344.07 crores furnished by Dalmia Cement (Bharat) Ltd./Applicant pursuant to order dated 16.03.2021 passed by this Hon’ble Court on such terms and condition as may deem fit by this Hon’ble Court;
(c) Pass such order(s) as this Hon’ble Court may deem fit.” The relevant paragraphs no.84, 85 & 150 of the order of SEBI dated 02.07.2021 are extracted below:
“84. In view of the above discussion, including the admission by AFSPL, I hold that ASPL has fraudulently misrepresented to NEPL, the status of the MF units in its demat account by sending a non- genuine holding statement, while the MF units were actually fraudulently transferred for using as collateral by AFSPL.4
85. Therefore, in summary, I find that 85.1. From the very start of the relationship with DCEL and OCL, AFSPL laid the groundwork to ensure that details of any transactions in these accounts would not come to the notice of DCEL and OCL. This was done by way of entering incorrect communication details in the DPM system of NSDL so that the CAS and transaction alerts would never reach the clients.
85.2. At the same time, DCEL and OCL were given the impression that their correct communication details are on record. This was done by sending them CMLs, which reflected the communication details given by DCEL and OCL. In fact, these details were completely different from the details captured in the DPM system of NSDL.
85.3. AFSPL has sent statement of holdings to DCEL and OCL which do not depict the true status of their holdings. AFSPL has knowingly misrepresented to DCEL and OCL that their units were available in their accounts as on a particular date, when actually these units were not in these accounts on those dates.
85.4. The holding statement, purportedly stamped and signed by NSDL, which was provided by AFSPL to DCEL and OCL at their request, was non-genuine and misleading in nature and did not reflect the true status of the holdings in the accounts of DCEL and OCL.
85.5. This conduct of AFSPL in actively concealing the status of the holdings of DCEL and OCL can also be seen in its email dated November 09, 2018, wherein it has confirmed that the holdings of DCEL and OCL are intact with it, whereas actually these accounts had nil holdings as on that date and had been posted as collateral with the clearing member, ISSL.
85.6. Just before quarter end 31/12/2017 and financial year end 31/03/2018, AFSPL ensured that it fraudulently transferred these MF units to the accounts of DCEL and OCL. As explained above, the reason could to escape scrutiny of independent auditor verification when finalizing financial statements. It is seen that immediately after the quarter and financial year ends, the MF units are 5 again moved out of the accounts. It is noted that without prejudice to the above reason, the conduct of transfer of MF units was to only conceal the true state of affairs i.e., that the MF units were encumbered and that the holdings would be taken away soon again, thereby, making such transfers a fraudulent one on this score.
85.7. ASPL has fraudulently misrepresented to NEPL, the status of the MF units in its demat account by sending a non-genuine holding statement, while the MF units were actually fraudulently transferred for using as collateral by AFSPL.” .........................
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150. In view of the above, I, in exercise of the powers conferred upon me under Sections 11(1), 11(4A), 11B(1) and 11B(2) of the SEBI Act, 1992, and Sections 19(1), 19(2) and 19G of the Depositories Act, 1996, read with Section 19 of the SEBI Act, 1992, hereby issue the following directions:
150.1. AFSPL and Mr. Awanish Kumar Mishra are restrained from accessing the securities market and from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, for a period of seven (07) years from the date of this Order.
150.2. Mr. Awanish Kumar Mishra is restrained from associating with a listed entity, a material subsidiary of a listed entity or a SEBI registered intermediary in any capacity, either directly or indirectly, in any manner whatsoever, for a period of seven (07) years from the date of this Order.
150.3. Mr. Himanshu Arora is restrained from accessing the securities market and from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, for a period of three (03) years from the date of this Order.
150.4. Mr. Jitendra Tiwari is restrained from accessing the securities market and from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, for a period 6 of one (01) year from the date of this Order.
150.5. The following penalty is levied on the Noticees:
Awanish Kumar Himanshu Jitendra
Under Section AFSPL
Mishra Arora Tiwari
Rs. Rs. Rs.
Rs. 2,00,00,000/-
Section 15HA of 2,00,00,000/- 10,00,000/- 5,00,000/-
(Rs. Two Crores
the SEBI Act, (Rs. Two (Rs. Ten lakhs (Rs. Five
only)
1992 Crores only) only) lakhs only)
Rs. Rs.
Rs. 50,00,000/- Rs. 2,00,000/-
Section 15HB of 50,00,000/- 1,00,000/-
(Rs. Fifty lakhs (Rs. Two lakhs
the SEBI Act, (Rs. Fifty lakhs (Rs. One
only) only)
1992 only) lakh only)
Rs. Rs.
Section 19G of Rs. 50,00,000/- Rs. 2,00,000/-
50,00,000/- 1,00,000/-
the Depositories (Rs. Fifty lakhs (Rs. Two lakhs
Act, 1996 (Rs. Fifty lakhs (Rs. One
only) only)
only) lakh only)
Rs. Rs. Rs.
Rs. 3,00,00,000/-
Total 3,00,00,000/- 14,00,000/- 7,00,000/-
(Rs. Three Crores
(Rs. Three (Rs. Fourteen (Rs. Seven
only)
Crores only) lakhs only) lakhs only)
We have heard Mr. Mukul Rohatgi, learned senior counsel
appearing for the applicant/respondent no.5 Dalmia, Mr. K.V.
Viswanathan and Mr. Sidharth Luthra, learned senior counsel
appearing for respondent no.1/IL & FS Securities Services Ltd, Mr. C.U. Singh, learned senior counsel for the appellant/SEBI, Mr. Sunil Jain and Sandeep Bisht, learned counsel for the respondent no.4/Allied Financial Services Pvt. Ltd., Mr. Rishi K. Awasthi, learned counsel appearing for the retail investors as well as Mr. Kunal Katariya learned counsel for respondent no.6/Novjoy Emporium Pvt. Ltd. (which is not a party in the present application) who has argued in support of the applicant/Dalmia.
The submission of Mr. Mukul Rohatgi, learned senior counsel for the applicant/Dalmia is that according to him it is not 7 disputed that the ownership of the mutual funds is of the applicant/Dalmia group and as such in light of the orders of SEBI dated 02.07.2021 and the observations made in the body of the orders, the security which has been furnished in lieu of the mutual funds in the form of bank guarantee needs to be waived as in the aforesaid facts the ownership of the mutual funds of the applicant/Dalmia is not disputed. It is contended that for furnishing the bank guarantee, the applicant is unnecessarily saddled with huge expenses amounting to Rs.3.05 crores per annum towards commission for issuance of bank guarantee and in addition a sum of RS. 103.22 crores of the applicant’s funds are blocked towards margin for issuance of aforesaid bank guarantee of Rs.344.07 crores. It has been contended that the worth of the applicant company is over 18,000 crores, with a turnover of over 8,000 crores per annum and, as such, if at all any security is to be furnished, the same may be in the form of corporate guarantee and not in the form of bank guarantee. It is further contended that the applicant/Dalmia has suffered because of the fraud committed by respondent no.1/IL & FS Securities Services Ltd as well as respondent no.4/Allied Services Pvt. Ltd. and the applicant/Dalmia should not be made to further suffer because of such fraud regarding which a clear finding has been recorded by SEBI in the orders dated 02.07.2021.
Mr. K.V. Viswanathan and Mr. Sidharth Luthra, learned senior counsel for the contesting respondent no.1 have stated that the applicant, along with respondent no. 4/Allied Financial Services 8 Pvt. Ltd., was a part of the fraud, if any, that was committed, and they were equally responsible for pledging the mutual funds and as such the condition of providing bank guarantee for release of the mutual funds in favour of the applicant/Dalmia is perfectly justified and does not call for any modification.
Mr. Sunil Jain and Mr. Sandeep Bisht learned counsel for respondent no.4/ Allied Financial Services Pvt. Ltd. have supported the submissions of Mr. K.V. Viswanathan to the extent of opposing the prayer for modification of the order dated 16.03.2021 and so has Mr. Rishi K. Awasthi, learned counsel for the retail investor. Mr. Kunal Katariya learned counsel appearing for Novjoy Emporium Pvt. Ltd. (which is not a party in the present application) has explained the entire modus operandi of the transactions which take place in such cases and we appreciate the clarity with which he has explained the same to us.
Having heard the learned counsel for the parties at length and having gone through the record, and also keeping in view the findings recorded by the SEBI about the degree of involvement of the applicant/Dalmia in the said transactions, as revealed in records before us, as well as the involvement of respondent no.4 and tentative findings of fraud by respondent no.4, and also keeping in view that by a separate order penalty has also been imposed on respondents no.1 and 4 by the SEBI (without there being any finding of fraud against respondent no.1), we modify the order dated 16.03.2021 to the following extent:
That instead of bank guarantee for a sum of Rs.344.07 crore, 9 which has been furnished by applicant/Dalmia in terms of our order dated 16.03.2021, the applicant/Dalmia shall now furnish a bank guarantee for a sum of Rs.100 crores and further it shall furnish a security to the extent of Rs.300 crores of an unencumbered asset, the value of which may be duly certified by the Chartered Accountant-cum-Valuer, who have no conflict of interest having regard to the parties involved and interest in the subject matter and may be any one of the following.
1. PricewaterhouseCoopers Private Limited
2. Ernst and Young
3. KPMG The bank guarantee already furnished by the applicant/Dalmia to the extent of Rs.344.07 crores shall stand discharged on the applicant/Dalmia fulfilling the above conditions to the satisfaction of the Trial Court. The applicant/Dalmia shall also file an affidavit before this Court to the extent that the asset, which is being furnished as security, is an unencumbered property.
It is clarified that any observations made in this order will not affect the merits of the case, when the appeals are heard on merits.
In view of the aforesaid directions, the Interlocutory Application is disposed of.
I.A. NO. 48158/2021.
This application, filed by respondent no.1/IL & FS Securities 10 Services Ltd., is also disposed of in terms of the above order. The main appeals as well as the other applications be placed before the appropriate Bench.
(ARJUN BISHT) (PRADEEP KUMAR) (ASHWANI THAKUR) (COURT MASTER (SH) (BRANCH OFFICER) AR-CUM-PS 11