Securities Appellate Tribunal
Basant Malpani vs Sebi on 16 November, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 05.07.2022
Date of Decision : 16.11.2022
Appeal No. 203 of 2019
Shiv Kumar Agarwal
B-21, Akash Tower,
Opp. Premchand Nagar,
Judges Bungalow Road,
Bodakdev, Ahmedabad - 380 054. ... Appellant
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ...Respondent
Mr. Vinay Chauhan, Advocate with Mr. K. C. Jacob, Advocate i/b
Corporate Law Chambers India for the Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr.
Shourya Tanay, Advocates i/b ELP for the Respondent.
With
Appeal No. 255 of 2019
Madhudevi Agarwal
B-21, Akash Tower,
Opp. Premchand Nagar,
Judges Bungalow Road,
Bodakdev, Ahmedabad - 380054. ... Appellant
2
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ...Respondent
Mr. Vinay Chauhan, Advocate with Mr. K. C. Jacob, Advocate i/b
Corporate Law Chambers India for the Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr.
Shourya Tanay, Advocates i/b ELP for the Respondent.
With
Appeal No. 350 of 2019
1. Pawankumar Agarwal
2. Rosydevi Agarwal
3. Roselabs Ltd.
(Formerly known as Singhal
Overseas Ltd.)
F-22, Akash Tower,
Opp. Premchand Nagar,
Bodakdev, Ahmedabad - 380054. ..... 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. Rajvi Patel, Advocate for the Appellants.
3
Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr.
Shourya Tanay, Advocates i/b ELP for the Respondent.
With
Appeal No. 462 of 2019
Sanjay Thakkar
66, Yogiraj, M. B. Patel Farm House Road,
Vatva Road, Jasodanagar,
Ahmedabad - 382445. ..... 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. Kunal Katariya, Advocate with Mr. Jash Joshi, Advocate for the
Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr.
Shourya Tanay, Advocates i/b ELP for the Respondent.
With
Appeal No. 101 of 2020
Roselabs Finance Ltd.
Lodha Excelus, N. M. Joshi Marg,
Mahalaxmi, Mumbai - 400 011. ..... Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
4
Mumbai - 400 051. ... Respondent
Mr. Zal Andhyarujina, Senior Advocate with Ms. Shruti Sardessai,
Mr. Mehul Jain, Mr. Aniruddha Banerji, Advocates i/b Bharucha &
Partners for the Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr.
Shourya Tanay, Advocates i/b ELP for the Respondent.
With
Misc. Application No. 609 of 2021
And
Appeal No. 447 of 2021
Basant Malpani
503, Madhav Villa, Madhe Singh Circle,
Bani Park, Jaipur - 02016, Rajasthan. .... 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. P. R. Ramesh, Advocate with Ms. Mona Vora, AOR for the
Appellant.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr.
Shourya Tanay, Advocates i/b ELP for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Justice M. T. Joshi, Judicial Member
Ms. Meera Swarup, Technical Member
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Per : Justice M. T. Joshi, Judicial Member
1. Present appeals are preferred aggrieved by the separate
orders of the learned Adjudicating Officer (hereinafter referred to as
'AO') of the respondent Securities and Exchange Board of India
(hereinafter referred to as 'SEBI') imposing penalty on different
dates, in the same issue concerning trading in the shares of Gujarat
Arth Ltd. (hereinafter referred to as 'GAL or the company'). Those
are therefore are being decided by the present common order.
2. The AO passed order imposing penalty for violation of the
provisions of Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a), (d), (e),
(f), (k) and (r) 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'), Regulation 10 of the Securities and
Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 (hereinafter referred to as 'SAST
Regulations') as well as Regulation 7(1), (1A) read with Regulation
7(2) of the SAST Regulations and Regulation 13(1), (3), (4) read
with 13(5) of the Securities and Exchange Board of India
6
(Prohibition of Insider Trading) Regulations, 1992 (hereinafter
referred to as 'PIT Regulations').
3. The appellant Shiv Kumar Agarwal, appellant Madhudevi
Agarwal, appellant Pawankumar Agarwal, Rosydevi Agarwal and
Roselabs Ltd. were the common noticees in one proceeding. Vide
order dated January 28, 2019, monetary penalty was imposed upon
these appellants directing to pay different amounts of penalties for
different violations. Aggrieved by the said order, appeal nos. 203 of
2019, 255 of 2019 and 350 of 2019 are filed.
4. Appeal No. 462 of 2019 is filed by the appellant Sanjay
Thakkar, aggrieved by the order dated April 26, 2019 wherein he is
penalized under the similar regulations. Appeal No. 101 of 2020 is
filed by the appellant Roselabs Finance Ltd., aggrieved by the order
dated December 23, 2019. The company is penalized for
Rs. 2,53,72,500/- for the same violation. Similarly, Basant Malpani
in Appeal No. 447 of 2021 is penalized for Rs. 1,30,00,000/- vide
order dated March 24, 2021.
5. The allegation is that appellant Shiv Kumar Agarwal,
Madhudevi Agarwal, Pawankumar Agarwal, Rosydevi and Roselabs
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Ltd. (formerly known as Singhal Overseas Ltd.) being a directors /
promoters of the company or persons acting in concert had off-
market transactions / transfer of shares to one Right Finstock Pvt.
Ltd., Cavalier Securities Ltd. (hereinafter referred to as 'Cavalier')
and appellant Basant Malpani. Out of them Right Finstock had in
off-market transactions, transferred shares to appellant Sanjay
Thakkar. Roselabs Finance Ltd. and Roselabs Ltd. were disclosed
as persons acting in concert as regards the company. It is alleged
that all of them acting in concert with each other and had violated
the provisions of the Regulations as detailed (supra).
6. Before we proceed, it would be appropriate to refer to the
relevant provision of the regulations which are extracted
hereunder :-
PFUTP Regulations
Reg. 3. Prohibition of certain dealings in securities
"No person shall directly or indirectly--
(a) buy, sell or otherwise deal in securities in a
fraudulent manner;
(b) use or employ, in connection with issue, purchase
or sale of any security listed or proposed to be listed
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in a recognized stock exchange, any manipulative or
deceptive device or contrivance in contravention of
the provisions of the Act or the rules or the
regulations made thereunder;
(c) employ any device, scheme or artifice to defraud
in connection with dealing in or issue of securities
which are listed or proposed to be listed on a
recognized stock exchange;
(d) engage in any act, practice, course of business
which operates or would operate as fraud or deceit
upon any person in connection with any dealing in or
issue of securities which are listed or proposed to be
listed on a recognized stock exchange in
contravention of the provisions of the Act or the rules
and the regulations made thereunder."
Reg. 4 - Prohibition of manipulative, fraudulent and
unfair trade practices
"(1) Without prejudice to the provisions of regulation
3, no person shall indulge in a fraudulent or an unfair
trade practice in securities.
(2) Dealing in securities shall be deemed to be a
fraudulent or an unfair trade practice if it involves
fraud and may include all or any of the following,
namely :--
(a) indulging in an act which creates false or
misleading appearance of trading in the
securities market;
(d) paying, offering or agreeing to pay or offer,
directly or indirectly, to any person any money
or money's worth for inducing such person for
dealing in any security with the object of
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inflating, depressing, maintaining or causing
fluctuation in the price of such security;
(e) any act or omission amounting to
manipulation of the price of a security;
(f) publishing or causing to publish or reporting
or causing to report by a person dealing in
securities any information which is not true or
which he does not believe to be true prior to or
in the course of dealing in securities;
(k) an advertisement that is misleading or that
contains information in a distorted manner and
which may influence the decision of the
investors;
(r) planting false or misleading news which may
induce sale or purchase of securities."
SAST Regulations
Reg. 10 - Acquisition of fifteen per cent or more of
the shares or voting rights of any company.
"No acquirer shall acquire shares or voting rights
which (taken together with shares or voting rights, if
any, held by him or by persons acting in concert with
him), entitle such acquirer to exercise [fifteen] per
cent or more of the voting rights in a company, unless
such acquirer makes a public announcement to
acquire shares of such company in accordance with
the Regulations."
Reg. 7(1) - Acquisition of 5 per cent and more
shares or voting rights of a company
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"7(1). Any acquirer, who acquires shares or voting
rights which (taken together with shares or voting
rights, if any, held by him) would entitle him to more
than five per cent or ten per cent or fourteen percent.
or fifty four per cent. or seventy four per cent shares
or voting rights in a company, in any manner
whatsoever, shall disclose at every stage the
aggregate of his shareholding or voting rights in that
company to the company and to the stock exchanges
where shares of the target company are listed."
"7(1A). Any acquirer who has acquired shares or
voting rights of a company under sub-regulation (1)
of regulation 11, shall disclose purchase or sale
aggregating two percent. or more of the share capital
of the target company to the target company, and the
stock exchanges where shares of the target company
are listed within two days of such purchase or sale
along with the aggregate shareholding after such
acquisition or sale."
"7(2.) The disclosures mentioned in sub-regulations
(1) and (1A)] shall be made within two days of, -
(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the
case may be."
Insider Trading Regulations
"13(1). Any person who holds more than 5% shares
or voting rights in any listed company shall disclose
to the company in Form A, the number of shares or
voting rights held by such person, on becoming such
holder, within 2 working days of :--
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(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the
case may be."
"13(3). Any person who holds more than 5% shares
for voting rights in any listed company shall disclose
to the company in Form C the number of shares or
voting rights held and change in shareholding or
voting rights, even if such change results in
shareholding falling below 5%, if there has been
change in such holdings from the last disclosure made
under sub-regulation (1) or under this sub-regulation;
and such change exceeds 2% of total shareholding or
voting rights in the company."
"13(4). Any person who is a director or officer of a
listed company, shall disclose to the company and the
stock exchange where the securities are listed in Form
D, the total number of shares or voting rights held and
change in shareholding or voting rights, if there has
been a change in such holdings of such person and his
dependents (as defined by the company) from the last
disclosure made under sub-regulation (2) or under
this sub-regulation, and the change exceeds Rs. 5 lakh
in value or 25,000 shares or 1% of total shareholding
or voting rights, whichever is lower."
"13(5). The disclosure mentioned in sub-regulations
(3) and (4) shall be made within 51[two] working
days of :
(a) the receipts of intimation of allotment of shares, or
(b) the acquisition or sale of shares or voting rights,
as the case may be."
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7. The appellants had denied any of such violations. However,
the impugned orders came to be passed. Hence the present appeals.
8. We have heard Mr. Vinay Chauhan, Mr. K. C. Jacob, Ms.
Rajvi Patel, Mr. Kunal Katariya, Mr. Jash Joshi, the learned counsel
and Mr. Zal Andhyarujina, the learned senior counsel with Ms.
Shruti Sardessai, Mr. Mehul Jain, Mr. Aniruddha Banerji, Mr. P. R.
Ramesh, the learned counsel with Ms. Mona Vora, AOR for the
appellants and Mr. Pradeep Sancheti, the learned senior counsel
with Mr. Abhiraj Arora, Mr. Shourya Tanay, the learned counsel for
the respondent.
9. Since different roles are assigned to the different group of
appellants, it would be worthwhile to decide the present appeals in
the similar fashion as decided by the learned AO.
Appeal Nos. 203, 255 and 305 of 2019
10. The common charge against the present appellants is that
they being director / promoter / person acting in concert had issued
misleading corporate announcement on November 1, 2003,
December 22, 2003 and January 16, 2004 regarding the acquisition
13
of business of one Poonam Industries and preferential / right issue
which did not materialize at all. These announcements lured
investors to create artificial volume and price rise. During the said
period, these appellants transferred shares before the misleading
announcements were made to various entities who thereafter sold
those shares through market and off-market transfers. While
disposing the shares in the above fashion, they had violated the
provisions of SAST Regulations and PIT Regulations as the transfer
of the shareholding was not disclosed as required by SAST and PIT
Regulations. These transfers were more than 15% shares and,
therefore, the disclosure was required to be made.
11. As regards the liquidity of the shares of the company, the
order records that from August 1, 2003 to October 6, 2003 the scrip
of the company traded on only three days with one trade on each
day for a price of Rs. 8.05. However, from October 2003 i.e. when
first of the announcement was made the trading activity started and
major volume was observed on January 16, 2004 which was
8,04,675 shares. The price also rose and ultimately the price and
volume started declining and the scrip closed to Rs. 4.63 in February
2004 which thereafter slided at Rs. 1.25 on December 20, 2004.
14
SEBI alleges that announcements were misleading as though on
November 1, 2003, the company announced that it had acquired the
business of Poonam Industries Ltd. alongwith their registered
trademark Poonam Sarees, the company has terminated its
arrangement with Poonam Industries for using this brand name, as
company had withheld the royalty amount. Further, the company
explained to SEBI during investigation that there was no preferential
allotment to increase the authorised share capital, though on
December 22, 2003 the said announcement was made by the
company. During this period also the price of the scrip rose as
detailed in paragraph no. 16 of the impugned order.
12. The order further records that the present appellants had
totally transferred 11,82,880 shares of the company to various
entities including the Cavalier and Basant Malpani. The details of
the same are given in the impugned order. Thereafter, on October
21, 2003, these appellants received back 5,75,600 shares from the
entities other than the above two entities. But again, these
appellants transferred those 5,75,600 shares on October 23, 2003 to
Cavalier. Out of these securities, 2,97,200 shares were transferred
15
to Basant Malpani. The details of the transfer, re-acquisition and
again transfer are given in paragraph no. 22 of the impugned order.
13. Appellant Shiv Kumar Agarwal represented all these
appellants and all the appellants filed similar replies before SEBI.
Appellant Shiv Kumar Agarwal claimed that he ceased to be
member of board of director of the company as on October 9, 2003
and, therefore, had no concern with any of the impugned
announcements. The other appellants submitted that they sold their
shareholding in October 2003 and, therefore, were not concerned
with any of the activities thereafter. According to them, initially
Cavalier had made a mistake in transfer of some of the shares to
some of the entities as mentioned in the table below paragraph no.
22 of the impugned order. Therefore, these shares were re-
transferred to the respective appellants and then were transferred to
the real buyer of the same as detailed in the table.
14. The learned counsel for the appellants vehemently submitted
that while appellant Shiv Kumar Agarwal ceased to have any
concern with the company with effect from October 9, 2003, the
transfer / re-transfer of the shares was the result of the mistake
committed by the Cavalier and, therefore, they denied any role in
16
any subsequent announcements or increase in the rise in the trading
volume/price of the shares.
The learned counsel for the appellants submitted that Shiv
Kumar Agarwal himself, his wife Madhudevi and his brother
Pawankumar Agarwal and Pawankumar's wife Rosydevi and group
companies were the part of the promoter group of the company.
This group was holding around 48.58% share capital of the
company. The appellant Shiv Kumar Agarwal was holding around
4.04% shares till September 2003. He was the managing director of
the company and appellant Madhudevi was one of the directors. All
of them have decided to exit from the company as the business of
the company was not doing well. They sold their shareholding to
Cavalier a registered sub-broker with SEBI which was interested in
buying the entire stake. Thus, between December 25, 2002 to
October 9, 2003, appellant Shiv Kumar Agarwal and Madhudevi
Agarwal submitted their resignation letters with the company after
the said exit. The buyer thereafter had appointed its own directors
on the board of the company. Post-exit of the promoter group, the
appellants had no role to play in the affairs of the company.
Cavalier had committed some mistake in further transfer of the
17
shares to the various entities and therefore the shares were again re-
transferred to the appellants The respective appellants thereafter
transferred the shares to the correct buyers as detailed in the order.
15. Upon hearing the appellants, we do not find any force in the
above submissions. Though appellant Shiv Kumar Agarwal claims
that he resigned from the company on October 9, 2003, the MCA
records shows that he was director till January 11, 2004. Not only
this, but also the annual report of the year 2003-2004 of the
company confirmed that he was managing director of the company
till January 14, 2004. The learned AO has pointed that in the said
annual report, the resignation of the other two directors, namely,
Madhudevi Agarwal and Muralidhar Minda is specifically noted
alongwith the appointment of four new directors. The composition
of board as detailed in the annual report would show that the
appellant Shiv Kumar Agarwal became an independent executive
director. In view of the same, the case of the appellants that they
had no concern with the misleading announcements does not hold
any water.
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16. There is nothing on record to show that transfer and re-
transfer of the shares was done due to any mistake by Cavalier and,
therefore, this submission cannot be accepted.
17. The volatility in the price and volume of the shares on the
stock exchange platform coupled with the financial of the company
as noted in the order and as submitted by the appellants themselves
that the company was not doing well if juxtaposed with the
misleading announcements would show that all these misleading
announcements were made with the purpose of increase in the
trading volume and price.
18. In the circumstances, the violation of Regulations 3 and 4 of
the PFUTP Regulations, SAST Regulations and PIT Regulations as
detailed in the impugned order are affirmed.
19. The appellants have relied in the judgment of Suhas Bhand
vs. State of Maharashtra & Anr. [(2009) SCC OnLine Bom 1245],
wherein in the fact of that case the Hon'ble Bombay High Court had
decided the question of law relating to the resignation of a director
of a company. In the present case, on facts, it is crystal clear that the
appellant Shiv Kumar Agarwal did not resign from the board of
19
directors on the date as claimed by him as the annual report clearly
belies his statement. He also relied on the judgment of Shamlal
Madanlal Khetan vs. SEBI [(2021) SCC OnLine SAT 756],
wherein this Tribunal was considering the onus to prove the date of
ceasing of a director of the company upon his resignation. In that
case, the learned WTM of SEBI solely relied on the record of the
Ministry of Corporate Affairs by disbelieving the evidence provided
by the appellants. In the fact of the present case, however, the onus
is discharged by SEBI on facts.
20. The appellants generally pleaded that there was inordinate
delay in initiation of the proceedings against them. The record
shows that within a period of less than six years from the date of the
transactions, proceedings were initiated. Further, no definite
prejudice is shown by any of the appellants which according to them
might have caused due to the delay in initiation of the proceedings.
In the circumstances, the ratio in the cases of Adjudicating Officer,
SEBI vs. Bhavesh Pabari [(2019) 5 SCC 90], MBL & Company
Ltd. vs. SEBI (Appeal No. 494 of 2020) decided on May 13, 2022,
Pooja Vinay Jain vs. SEBI [SAT order dated March 17, 2020], N.
Narayanan vs. Adjudicating Officer, SEBI [(2013) 12 SCC 152] all
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of which are decided in the facts of the respective cases would not
be applicable in the present case.
21. In the circumstances, Appeal Nos. 203, 255 and 350 of 2019
will have to be dismissed.
Appeal No. 462 of 2019
22. Appellant Sanjay Thakkar, in the present appeal is
additionally alleged to have violated the provisions of Section
15A(a) and (b) of the SEBI Act for non-compliance of the summons
issued to him during the investigation, besides the violations under
the SAST Regulations, PFUTP Regulations and PIT Regulations.
23. Admittedly, he received 3,50,000 shares of the company in
off-market transactions from Right Finstock Pvt. Ltd. on January 16,
2004 which is as referred in the above order regarding the appellant
Shiv Kumar Agarwal and Ors. Around the same time, the corporate
announcements alleged to be misleading were made by the company
and the present appellants sold 2,05,000 shares within two days and
rest of the shares were sold through market and off-market transfers.
The appellant submitted before SEBI that he was an ordinary lay
21
investor cum trader with a poor financial in stock market. Due to
his innocence, unintentionally the lapse, if any, has occurred. He
was not connected with the company and its promoters or any of
person acting in concert. His trading through the platform of the
stock exchanges was in January while the corporate announcements
were made in November and December.
24. The learned AO took into consideration the copy of the
income tax return of the appellant for the relevant year. Further, it
was found that the bank statement by the appellant did not indicate
any transaction towards purchase / sale of the shares of the
company. It was also pointed out that majority of the shares were
sold by him in the market within a day and the balance shares were
transferred back to Right Finstock Pvt. Ltd.
25. Upon hearing both the sides, in our view, finding of the
learned AO needs no interference. The appellant submitted that he
is a lay investor with a poor financials but his income tax returns
however shows otherwise. As action of re-transfer of portion of the
shares to Right Finstock Pvt. Ltd. and off-loading remaining shares
in the market, while his bank statement does not evidence of
transaction of purchase and sale of shares by the company off-
22
market would certainly show that he had entered into non-genuine
trades in violation of the PFUTP Regulations.
26. As regards the SAST Regulations, admittedly, the appellant
had acquired more than 10% of the share capital of the company and
no disclosure regarding the same was made. Therefore, he was in
violation of Regulation 7 of the SAST Regulations and Regulation
13 of the PIT Regulations.
27. As regards the non-compliance with the summons issued by
the respondent SEBI during investigation dated May 6, 2008 and
August 12, 2008, though there is some evidence that the appellant
sent one individual to attend SEBI, the information sought was not
completely provided. The appellant went on seeking for some
additional time to submit the information sought. Though he
acknowledges both the summons, subsequently, he has submitted
that he did not remember if he received any summons. Therefore,
AO has rightly imposed penalty under Section 15A(a) of the SEBI
Act on this count. However, no reasons are recorded as to why
maximum penalty of Rs. 1 crore is imposed. In the facts of the case,
in our view, a penalty of Rs. 5 lac would be just and sufficient.
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28. The appellant has taken the plea in delay in launching of the
proceeding, it is to be noted that the transaction of acquisition and
disposal of the shares are of the year 2004. Show cause notice was
issued to him on March 18, 2010. Thus, there is no inordinate delay
in issuing the show cause notice. Further, the fact that he did not co-
operate with the investigation as detailed (supra) is the additional
reason for some delay. Considering all these facts on record, we do
not find any reason recorded by the learned AO. The appeal
therefore is liable to be dismissed without any order as to costs.
Appeal No. 101 of 2020
29. The present appellant during the relevant period was the
promoter of the company. In fact, the appeal memo records that the
appellant was promoted by appellant Pawankumar Agarwal,
Rosydevi Agarwal, Singal Overseas Ltd., Sadiram Industries Pvt.
Ltd. and appellant Shiv Kumar Agarwal and Madhudevi Agarwal
alongwith others were holding 61.78% of the equity share capital of
the present appellant. Annexure IV to the show cause notice issued
to the appellant would show that alongwith other promoters and the
persons acting in concert, the present appellant had transferred
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256,695 shares to one Kaushtubh Credit and Holdings Pvt. Ltd. on
October 10, 2003. Those were received back by the appellant on
October 20, 2003. Thereafter again the appellant transferred those
shares to Cavalier on October 23, 2003. Respondent SEBI charged
the appellant for violation of PFUTP and SAST Regulations being
the person acting in concert with other promoters as detailed (supra).
According to SEBI, the off-market transfer, re-transfer and again
transfer of the shares coupled with the misleading announcements
and spurt in the trading in the shares was an act in violation of
PFUTP Regulations for which the present appellant is also
responsible. Further for non-disclosure of transfer, the violation of
relevant provisions of the SAST Regulations has also occurred. In
the circumstances, show cause notice was issued to the present
appellant on December 15, 2009.
30. The present appellant contended that though it was
promoted by the concerned appellants as recorded above, in the year
2008 one Poonam Fast Foods Pvt. Ltd. acquired majority of the
equity shares of the appellant from the erstwhile management by
way of open offer under the relevant regulations of the SAST
Regulations, 1997. Copy of the open offer is filed on record. Not
25
only this, subsequently, in June 2013 Arihant Premises Pvt. Ltd. i.e.
the present promoters of the appellant acquired 74.25% of the
shareholding of the appellant company again in terms of SAST
Regulations and the copy of the second open offer is also filed on
the record. While this second open offer was made on May 6, 2013,
the show cause notice was already issued but the information of this
show cause notice dated December 15, 2009 was not available in the
public domain. The earlier promoter i.e. Poonam Fast Foods Pvt.
Ltd. did not inform the present management of the appellant about
the show cause notice or the pending proceedings. Thereafter, after
the gap of six years respondent SEBI issued another show cause
notice dated December 15, 2009 and, at that time, the appellant
came to know of the proceedings. Thereupon, they started making
enquiry about the transactions by issuing letters to the concerned
stockbrokers. These stockbrokers however did not give any
information to the present management. Reply from the appellant in
show cause notice however was sought. Ultimately, on February
28, 2018 Pravin Ratilal Share and Stockbrokers Ltd. sent a letter to
the appellant stating that the documents requested by the appellant
belonged to Cavalier i.e. the sub-broker and, therefore, the appellant
should obtain information from it. Ultimately, the appellant filed
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reply to the show cause notice on June 15, 2018 highlighting the
above facts. It submitted that the erstwhile management of the
appellant company had entered into the transaction to transfer its
entire shareholding in the company to Cavalier through off-market
transfers. The equity shares were initially transferred to the demat
account maintained with Khandwala Integrated Financial Services
Pvt. Ltd. in three tranches as per the instructions received from
Cavalier. However, the appellant was informed by the Cavalier that
the shares of the company were erroneously transferred to the wrong
account. Thereafter, on October 20, 2003, the shares were
transferred back to the appellant's demat account and were
successfully transferred to the correct demat account of the Cavalier
on October 23, 2003. Thus, there is no acquisition of fresh or
additional shares. There is no material to know that the appellant
was involved in any fraudulent activity in violation of the PFUTP
Regulations. There are only transactions of transfer of the shares as
detailed above. However, grave and serious violation of fraud are
made against the appellant which required to indicate the particular
fraud and manipulation purported and hence it wanted exoneration.
27
31. The learned AO however concluded that the appellant was
admittedly person acting in concert, who transferred the shares
through off-market transactions as detailed above alongwith Shiv
Kumar Agarwal and other persons acting in concert. Further,
misleading announcement as detailed (supra) were made as regards
the company. Though the appellant Shiv Kumar Agarwal made a
statement that he had resigned from the company long before the
announcement was made, material as detailed while discussing the
appeal of Shiv Kumar Agarwal and Ors. would show that he
continued to be independent executive director of the company and,
therefore, the appellant was also guilty of the violation of the
regulations.
32. As regards the change in control of the appellant on two
occasions after the alleged violations, the learned AO observed that
the appellant is a juristic entity. Any change in the control of the
appellant would not affect the liability which has occurred due to an
act of the company i.e. the appellant. In the circumstances, noting
that it is difficult to quantify the exact disproportionate gains or
unfair advantage enjoyed by the appellant or the consequent losses
28
suffered by the investors, a composite penalty of Rs. 2,53,72,500/-
was imposed upon the appellant.
33. Learned counsel for the appellant submitted that there is no
specific charge in the show cause notice against the appellant though
allegations of the violation of the PFUTP Regulations are made.
Further, though the appellant was a promoter group entity, it was not
a person acting in concert as under the SAST Regulations, 1997, the
promoters were not "deemed to be person acting in concert" which
provision came in existence by subsequent Securities and Exchange
Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 (hereinafter referred to as 'SAST Regulations,
2011'). It was submitted that there was a delay of six years from the
issue of show cause notice till the decision by the AO. The show
cause notice was issued after a lapse of five years without any
reason. Due to the delay appellant was unable to make any effective
representation as the control of the appellant changed twice and
despite it's best efforts the present management was unable to get
the information required to answer the show cause notice. Even
otherwise, the only allegations against the appellant is of transfer
and re-transfer of shares as detailed (supra) which ipso facto cannot
29
establish that the appellant was involved in any fraudulent activity in
violation of PFUTP Regulations. It is also submitted that no
explanation for imposing huge penalty of Rs. 2,53,72,500/- is given
in the impugned order and, therefore, he wanted that the appeal be
allowed.
34. The submission that the AO has used the subsequently
amended provisions of SAST Regulations, 2011 for branding the
present appellant as person acting in concert is wrong. The
provisions of SAST Regulations, 2011, in this regard, shows that the
promoter is deemed to be a person acting in concert. In the essence,
even when no material is found to show that a person is acting in
concert with the acquirers/transferrors of the shares but if he is a
promoter then by applying the deeming provisions he would be
termed as person acting in concert. Here, in the present case, the
facts on record as detailed by the appellant himself and as found
from the record would show that all the promoters in unison
transferred the shares to Cavalier and others as detailed (supra).
Their contention is that all of them had decided together to exit from
the company. In the circumstances, nothing more is required to
show that the present appellant is a person acting in concert with
30
other promoters of the company. Therefore, there is no need to find
as to whether they were deemed person acting in concert.
Therefore, the arguments of the appellant in this regard will have to
be rejected.
35. Further, when the appellant's submission and the facts on
record show that the appellant has transferred the shares as detailed
in the order, clearly there was violation of SAST Regulations, 1997.
As regards the violation of PFUTP Regulations, the facts would
show that while the promoters transferred the shares and got re-
transferred from Cavalier, etc., in the same period the company
when one of the promoter, namely, Shiv Kumar Agarwal was the
independent executive director made misleading announcements as
detailed (supra). Thereupon, the trading on the platform of the
exchanges started with much vigour. Thus, the appellant in concert
with other promoters was instrumental in causing the same. The
appellant's participation in the same, thus, is amply clear.
36. Thus, finding that the present appellant has committed the
violation of the relevant regulations of the SAST Regulations and
PFUTP Regulations, so far as the quantum of penalty is concerned,
31
is the same however the same cannot be sustained for the following
reasons :-
The present appellant had change of the management upon
change of control twice after the disputed transactions of the year
2008. One Poonam Fast Foods Pvt. Ltd. earlier acquired the
appellant and thereafter the present appellant through Arihant
Premises Pvt. Ltd. came in the control of the appellant. The
violations of SAST Regulations as well as of PFUTP Regulations
were committed by the person acting in concert i.e. appellant Shiv
Kumar Agarwal and others who were also the then promoter of the
present appellant. Though, the learned AO is legally correct in
making a statement that the appellant is a juristic person and,
therefore, it cannot be escape the liability, still the fact would show
that imposing a huge penalty of Rs. 2,53,72,500/- (though reasons
not detailed, may be this exact figure was arrived at upon
computation of the shares transferred by the appellant), is not
justifiable. Therefore, taking into consideration, the above facts that
the violation was not committed by the present promoter group, in
our view, the penalty imposed is excessive one. In the
circumstances, the case will have to be remanded back to the learned
32
AO to appreciate the facts stated above and compute the penalty
accordingly.
37. The appellant has submitted that due to the delay and due to
the fact of change of control, they could not effectively reply to the
show cause notice as they did not get the information as detailed
(supra). In our view, the only fact that is relevant is the transfer and
re-transfer of shares by this appellant in the month of October 2003.
No more information was required and, therefore, no prejudice is
caused to the appellant so far as that aspect is concerned.
Appeal No. 447 of 2021
38. The present appellant had received 2,97,200 shares from
Singhal Overseas Ltd., another promoter of the company on October
11, 2003. From October 14, 2003, the present appellant started
trading in the shares on the platform of the exchanges by buying as
well as selling the shares of the company. He has totally bought and
sold 9,01,738 shares (11.10%) and 7,69,471 shares (9.48%) during
the period when the misleading announcements as detailed (supra)
were made.
33
The appellant made contradictory statements in his reply
before the learned AO. He submitted that he was on a friendly term
with Cavalier management which requested him to assist in trading
in the shares of the company as they had no facility to trade at BSE.
The appellant had a demat account. Cavalier transferred 2,97,200
shares of the company to him in off-market transactions. As per the
direction of the personnel of Cavalier he transacted in the shares.
He submitted that during the same period, he availed the loan of
Rs. 3 lac from Cavalier and repaid Rs. 6,81,198/- on October 5,
2005. Rs. 3,81,198/- was towards consideration of sale of 2,97,200
shares of the company while Rs. 3 lacs towards the loan amount.
39. Thus, while he claims, only as friend he transacted in the
shares of the company as per the direction that has been given by the
Cavalier, in the next breath he said that he purchased those shares at
purchase price of Rs. 3,81,198/- from Cavalier.
40. The appellant has contributed to 11.10% of the volume on
the buy side and 9.48% on the sell side when misleading
announcements were made by the company. The appellant had
earlier never traded in the scrip of the company. All these facts
34
would clearly show that the appellant is also involved in the
violation of the PFUTP Regulations.
41. The percentage of the share in which he transacted was also
in violation of the SAST Regulations. He would therefore be liable
to pay the penalty of Rs. 20 lacs under Section 15HA of the SEBI
Act as detailed in the impugned order by the AO.
The learned AO has also imposed a penalty of Rs. 10 lacs under
Section 15A(b) of the SEBI Act for non-disclosure of the acquisition
of these shares and takeovers. Considering the facts and
circumstances as detailed supra, we find that the learned AO in his
discretion has imposed a penalty which needs no interference.
42. The appellant was also charged for non-submission of
information sought for by SEBI though summons and remainders
were issued to him during the investigation. The appellant has
accepted the lapse in the proceedings. He submitted that due to his
health problem was unable to attend those summons which are
giving information. He further clarified that the information and
document relating to investigation against the noticees were already
available with SEBI. The learned AO took a note of the decisions of
35
this Tribunal in M/s. Asian Films Production and Distribution Ltd.
vs. SEBI Appeal No. 203 of 2010 decided on January 19, 2011 and
Rich Capital & Financial Services Limited & Anr. vs. SEBI
Appeal No. 51 of 2013 decided on October 22, 2013. AO observed
that it was a serious obstruction in the investigation and the
appellant despite providing several opportunities have not appeared
before SEBI. Therefore, maximum penalty of Rs. 1 crore as
provided under Section 15A(a) of the SEBI Act was imposed upon
the appellant. We find that whatever information was sought by the
investigating authority i.e. regarding the transaction carried by the
appellant was available with SEBI. The appellant has not denied
that he has not produced the information and stated that due to his
health problem he was unable to attend the hearing.
43. Considering all these facts and circumstances on record, the
penalty imposed by the AO is harsh. In our view, Rs. 5 lacs on this
count in the facts and circumstances would meet the end of justice.
44. In the result, the following order :-
36
ORDER
45. The Appeal Nos. 203 of 2019, 255 of 2019 and 350 of 2019 are dismissed without any order as to costs.
46. Appeal No. 462 of 2019 is hereby partly allowed only to the extent of penalty imposed under Section 15A(a) of the SEBI Act. The penalty of Rs. 1 crore imposed by the learned AO on this count is reduced to the penalty of Rs. 5 lacs.
47. Appeal No. 101 of 2020 is hereby allowed. The direction of the learned AO to pay a composite penalty of Rs. 2,53,72,500/- is hereby set aside. Instead the case is remanded back. The learned AO is directed to recalculate the penalty in view of the findings recorded in paragraph no. 36 above, upon hearing the appellant afresh on the limited aspect of the quantum of the penalty. The appellant is directed to appear before the learned AO on 22nd December 2022 for the purposes of the hearing.
48. Appeal No. 447 of 2021 is party allowed to the extent of imposition of penalty under Section 15A(a) of the SEBI Act. The penalty of Rs. 1 crore imposed on this count by the learned AO is 37 hereby set aside. Instead the appellant is directed to pay a penalty of Rs. 5 lacs on this count.
49. Rest of the orders of the learned AO are hereby confirmed.
50. 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 Justice M. T. Joshi Judicial Member Ms. Meera Swarup RAJALAKS Digitally signed by Technical Member HMI RAJALAKSHMI 16.11.2022 HARISH HARISH NAIR Date: 2022.11.23 NAIR 17:31:07 +05'30' PTM