Securities Appellate Tribunal
Nirmal N. Kotecha vs Sebi on 2 March, 2020
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 20.12.2019
Date of Decision : 02.03.2020
Appeal No. 261 of 2018
Nirmal N. Kotecha
601, Sukh Castle,
Bhandarkar Road,
Matunga,
Mumbai - 400 019. ..... 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. Gaurav Joshi, Senior Advocate with Ms. Raksita Poddar,
Mr. Aditya Bhansali, Mr. Jitendra Sharda, Mr. Shikhar Sthapak,
Advocates and Ms. Nirali Mehta, Practicing Company Secretary i/b
Mindspright Legal for the Appellant.
Mr. Rafique Dada, Senior Advocate with Mr. Abhiraj Arora,
Mr. Vivek Shah, Ms. Misbah Dada, Advocates i/b ELP for the
Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C. K. G. Nair, Member
Justice M. T. Joshi, Judicial Member
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Per : Justice M. T. Joshi, Judicial Member
1. A newspaper report based on a forged letter purported to have
been issued by respondent Securities and Exchange Board of India
(hereinafter referred to as 'SEBI') directing the promoter Mr. P. S.
Saminathan of Pyramid Saimira Theatre Ltd. (hereinafter referred to
as 'PSTL') on December 21 and December 22, 2008 to make an
open offer to acquire shares of the PTSL, had caused respondent
SEBI to make investigation in the matter and to file a First
Information Report with the police.
2. The investigation by SEBI led to the present appellant Mr.
Nirmal Kotecha, as one of the conspirators in the episode, amongst
others, like one Mr. Rakesh Sharma said to be originator of the news
and also the acquaintance of the present appellant.
3. The investigation of respondent SEBI revealed that the present
appellant was concerned with the circulation of the forged letter, as
well, sold large number of shares within a short span of opening of
the trades on the stock exchanges on December 22, 2008 - Monday
till PSTL revealed by 10:30 a.m. to the stock exchanges about the
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non-existence of such a letter. It also revealed that the present
appellant who was the biggest investor in PSTL had also in the
immediate past, resorted to artificial inflation of the trading volumes
and the stock price of the PSTL through various synchronized trades,
reversal trades, self trades, etc. through front entities. In the
circumstances, it is alleged that, the appellant had violated Section
12A (a), (b) and (c) of the Securities and Exchange Board of India
Act, 1992, (hereinafter referred to as 'SEBI Act') and Regulations
3(a), (b), (c), (d), 4(1), 4(2)(a), (b), (d), (e), (f), (g), (k) & (r) of
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').
4. A show cause notice was issued to the appellant. The appellant
denied the allegations. He denied any connection either with Mr.
Rakesh Sharma or any of the front entities detailed in the show cause
notice. SEBI, however, found that the present appellant had indulged
in unfair trade practices. Therefore, he was restrained from accessing
the securities market, in any manner, for a period of 14 years vide the
interim order. The said period was reduced to the period already
undergone by him as 9 years had passed from the date of the passing
of the interim order till the passing of the impugned order dated
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March 22, 2018. Additionally, the appellant was also directed to
disgorge an amount of Rs. 32,50,882/- with interest, etc. Hence the
present appeal.
5. We have heard Mr. Gaurav Joshi, the learned senior counsel
with Ms. Raksita Poddar, Mr. Aditya Bhansali, Mr. Jitendra Sharda,
Mr. Shikhar Sthapak, the learned counsel and Ms. Nirali Mehta,
Practicing Company Secretary for the appellant and Mr. Rafique
Dada, the learned senior counsel with Mr. Abhiraj Arora, Mr. Vivek
Shah, Ms. Misbah Dada, the learned counsel for the respondent.
6. Number of submissions were made from both the sides relating
to the material on record to buttress the respective cases of the
appellant and the respondent on the issue of probabilities and the
connection of the appellant with front entities, more particularly with
one Mr. Amol Kokane who had traded with different entities. Mr.
Gaurav Joshi, the learned senior counsel for the appellant submitted
that so far as the criminal case is concerned no chargesheet is filed
against the present appellant and in fact the investigating officer had
given a clean chit to the appellant in this regard. He further relied
upon the judgments of the Hon'ble Supreme Court of India in the
cases of Union of India vs. M/s Chaturbhai M. Patel & Co. [(1976)
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1 SCC 747], Parsoli Corporation Ltd. & Ors. vs. Securities and
Exchange Board of India [(2011) SCC Online SAT 106] and
submitted that in the case of fraud merely a suspicion cannot take
place of proof and higher degree of preponderance of probabilities
are required. In our view, however, an inference of an investigating
officer during investigation is not required to be considered in the
present proceedings.
7. The material revealed that Mr. Rakesh Sharma who was an
executive from one Adfcators PR Pvt. Ltd. has caused to circulate the
report of the letter. A reply of the appellant would reveal that he was
acquainted with Mr. Rakesh Sharma. It was alleged that the said Mr.
Rakesh Sharma in connivance with the appellant and one Mr. Rajesh
Unnikrishnan, a reporter with the Economic Times and Dharmesh
Shah, a childhood friend of the appellant had caused the fake news to
be circulated on the basis of the forged SEBI letter.
8. Though the statements of Mr. Rakesh Sharma recorded by
SEBI during the investigation were not relied, during the proceedings
by SEBI as Mr. Rakesh Sharma was not offered for any cross-
examination, the learned Whole Time Member (hereinafter referred
to as 'WTM') found that atleast a piece of statement of Mr. Rakesh
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Sharma that the conspiracy was hatched on December 20, 2008 in the
afternoon in Pritam Hotel at Dadar (East), Mumbai is corroborated
by the tower location of the mobile numbers of the appellant, Mr.
Rakesh Sharma and Rajesh Unnikrishnan at the relevant time i.e. at
about 12 noon in contradistinction to the statement of the appellant
that he was far away from this location, at Ghatkopar. Various other
probabilities were taken into consideration by the WTM while
concluding that the appellant was one of the conspirators. We find
that there is a direct proof in this regard which requires to be
considered prominently.
9. One Ms. Mittal Acharya, during the relevant period, was
working as an Account Assistant with M/s. Kotecha Capital Services
Pvt. Ltd., a family concern of the appellant. Her first statement was
recorded by respondent SEBI on January 7, 2010. The statement
revealed that Ms. Mittal Acharya used to directly report to the
appellant. An envelope in which the alleged forged letter was sent to
Mr. P. S. Saminathan was shown to Ms. Mittal Acharya by the
respondent SEBI. She said that the address of Mr. P. S. Saminathan
written on the envelope was written by her. During her statement
dated January 9, 2010, she added that the said address was written by
her on the direction of the appellant Nirmal Kotecha. On the fateful
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day, the appellant called her in his cabin and told that for some
urgent work she should write the address on the envelop as dictated
by him. She explained that she did not know regarding the content in
the envelope.
10. Ms. Mittal Acharya was sufficiently cross-examined from
the side of the respondent on January 10, 2017. Her memory was
tested to find as to how she could recollect the minor incident of
writing an address on the envelope. She explained that since the
concern run by the appellant was a small business and since
immediately after the incident, SEBI officers started visiting the
office as well as her house relating to the investigation and since she
was concerned with all these episodes she recollected the event.
Except this statement, there is nothing in the cross-examination
which would discredit her earlier statement as stated (supra). There
is no suggestion in the cross-examination of Ms. Mittal Acharya to
show that the address over the disputed envelope is not in her
handwriting. This would definitely go to show that on the instruction
of the appellant his assistant Ms. Mittal Acharya had addressed the
forged letter to Mr. P. S. Saminathan.
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11. The trading pattern of the appellant of December 22, 2008
would show that on the opening of the market he sold 6,54,101
shares before 10:30 a.m. on the Bombay Stock Exchange (BSE)
platform i.e. before Mr. P. S. Saminathan explained to the stock
exchanges that he is not in receipt of any such letter. The WTM by
adding selling of shares by the appellant on NSE, calculated unlawful
gains of Rs. 38,74,981/- in the following manner :-
Total no. shares Sold as on 654101
December 22, 2008 before 10:30
am (A)
Average price of the shares (in 80.39
Rs.) - (B)
Close Price of the shares as on 75.42
December 19, 2008 (in Rs.) - (C)
Price before 10:30 am on 4.97
December 22 - Close price on
December 19 (D = B - C)
If Ill-gotten profit that is purported to have been made is *
D*A 654101 x 5.761 32,50,882
"Thus, the Noticee had made a unlawful gain of Rs. 38,74, 981/-."
Therefore, the disgorgement to that extent was directed.
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12. Shri Gaurav Joshi, the learned senior counsel for the appellant
submitted that the trading pattern would show that since June 2008
the appellant was selling the shares of PSTL as he wanted to
disinvest from the same and, therefore, the sale of the particular day
only should not have been taken into consideration by WTM.
13. However, while deciding the next of the issue of synchronized
trades, self trades, etc. of that period also we are coming to the
conclusion that the appellant either himself or through his front
entities had indulged in market manipulation and, therefore, sale of
earlier period would not be an excuse.
14. Coming to the issue as to whether the appellant either himself
or through his front entities had indulged in fraudulent activities as
detailed (supra), the following facts are required to be taken into
consideration.
15. One Mr. Sandeep Gavhane (since deceased) was working as
an accountant with the appellant. Said Mr. Sandeep Gavhane was
brother-in-law of Mr. Amol Kokane. The appellant was using a
mobile connection of Mr. Amol Kokane bearing No. 9819988816.
The appellant explained that in order to have his personal transaction
different from the business transactions, he used to use this mobile
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number for personal purposes. SEBI during the investigation,
however, found that the monthly bill of the said mobile number used
to be upto Rs. 40,000/-. Besides, admittedly, the said mobile was
also used for business purposes. This, Mr. Amol Kokane - a student,
was allegedly used as a front entity by the appellant by opening the
trading account with M/s. India Capital Markets Pvt. Ltd. (ICMPL),
on the very day the appellant had opened the account of the said
entity. The transactions of crore of rupees were made in the account
of Mr. Amol Kokane with various entities as detailed in the
impugned order. Besides, in the month of September, October 2008,
a huge amount was transferred in the account of Mr. Amol Kokane
as detailed in paragraph No. 4.4 of the impugned order. Through this
Mr. Amol Kokane's account, following trades in PSTL shares were
made from June 1, 2008 to December 19, 2008.
BSE NSE GROSS
ACROSS BOTH
EXCHANGES
BUY QTY BY
4,59,084 93,909 5,52,993
AK
SELL QTY BY
4,21,974 1,31,019 55,29,93
AK
NET ATY BY
37110 -37110 0
AK
GROSS QTY BY
8,81,058 2,24,928 11,05,986
AK
% contribution of
79.66% 20.34% 100%
each exchange
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16. It can be thus, gathered that 5,52,993 shares were bought
through this account and exact number of shares of PSTL were sold.
In the details of the said trading pattern, respondent SEBI alleged that
these trades were in the nature of circular and reversal trades with
one Ms. Priyanka Darshan Desai, Inventure Growth & Securities
Ltd., Ankit Girishkumar Vasani, DKG Securities Pvt. Ltd.
17. The appellant's case is that he had nothing to do with Mr.
Amol Kokane or his trading pattern. He merely used the mobile
connection of Mr. Amol Kokane. Mr. Darshan Desai, the proprietor
of ICMPL has also stated that Mr. Sandeep Gavhane was the real
client behind the account of Mr. Amol Kokane. Therefore, the
appellant defended that he is not in any way concerned with the
account of Mr. Amol Kokane and with other so called entities though
he had some minor connection with them as brought out during the
course of the investigation.
18. Besides all the probabilities, as appreciated by the WTM in
the impugned order, we have the statements of Mr. Amol Kokane on
record. On February 27, 2009, he made a statement to the
investigation officer of SEBI that the account was being operated by
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his brother-in-law Mr. Sandeep Gavhane for his boss Mr. Nirmal
Kotecha. He used to merely put signatures on the documents as per
their directions. Even the mobile number was obtained by them. He
never used the said mobile. He additionally stated that Mr. Sandeep
Gavhane (who had died by that time) used to get salary of Rs. 12,000
per month from the appellant, out of which an amount of Rs. 4,000/-
was being spent by the said Mr. Sandeep Gavhane for paying rent for
his accommodation. He further stated that upon death of Mr.
Sandeep Gavhane in an accident, he had requested the appellant to
provide some compensation upon which the appellant shown
readiness to pay Rs. 4,000/- immediately. Upon further persuasion,
the appellant became ready to pay a compensation of Rs. 2 lacs to the
sister of Mr. Amol Kokane i.e. wife of deceased Sandeep Kokane.
During his next statement dated June 25, 2009, he resiled from his
earlier statement naming the appellant in the transaction and stated
that he has signed various documents as per the directions of his
deceased brother-in-law and nothing more.
19. Mr. Amol Kokane was cross-examined by the respondent on
October 10, 2013. During this cross-examination, he stated that in
fact deceased Sandeep Gavhane had caused the said account to be
opened in which the transactions of crore of rupees were done as
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detailed (supra). As already pointed out, Mr. Amol Kokane had
already resiled from the statement implicating the appellant in the
transaction during his second statement recorded by SEBI. During
this cross-examination however, it was not challenged that deceased
Sandeep Gavhane (since deceased) was getting a salary of Rs.
12,000/- per month from the appellant out of which a major expenses
i.e. rent of Rs. 4,000/- per month.
20. Thus, the fact that the mobile number of Mr. Amol Kokane
was being used by the appellant, the fact that the said Mr. Amol
Kokane's brother-in-law Mr. Sandeep Gavhane was working with
the appellant, said Mr. Sandeep Gavhane did not have any
wherewithal for transacting into the shares of the PSTL worth crore
of rupees would clearly show that the account of Mr. Amol Kokane
was used as front by the appellant for carrying transactions in the
shares of the PSTL. Though the appellant relied on the statement of
Mr. Darshan Desai, the trading member that he (Mr. Darshan Desai)
transacted in the account of Mr. Amol Kokane on the instruction of
Mr. Sandeep Gavhane, it is noteworthy that the trading in the account
continued even after the death of Mr. Sandeep Gavhane. The
defense of the appellant as supported by his share broker in this
regard cannot be accepted for the reasons detailed (supra).
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21. The details of the synchronized and reversal trades with
various entities are detailed by the WTM from paragraph No. 4.26
(7) to (27) of the impugned order. These details would show that
from the account of Mr. Amol Kokane synchronized trades were
made in PSTL continuously within a short period ranging from
minutes to a day, with various entities and between themselves as
detailed in the impugned order. The connection of all these entities
in one or the other way with the appellants is also brought out in
detail. For example, the appellant had advanced interest free loan of
Rs. 25 lacs to the wife of one of the director of Inventure Growth and
Securities Ltd. This company had thereafter indulged in circular and
reversal trading of PSTL shares. Similarly, the appellant was in
touch with Radha Krishna Garg, almost on a day to day basis, as
revealed from call data record of their mobile numbers. This Mr.
Garg was an employee of one DKG Securities Pvt. Ltd. - an entity
involved in circular and reversal trades of PSTL shares.
22. Besides the trades through Mr. Amol Kokane's account, the
appellant has also entered into self trades on October 24, 2008 and
October 27, 2008 of 1,25,568 and 1,92,985 shares of PSTL
respectively. This was the respective contribution of 47.75% and
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66.25% to the market quantity. The appellant explained that as he
wanted to shift his position from one broker to another, the same
resulted into inadvertent self trades. The learned WTM however,
rightly observed that transfer of position from one broker to another
could have been done more easily by giving suitable direction to the
depository without misusing the stock exchange mechanism, thereby
creating a false impression of transfer of beneficial ownership and
increasing the volume in the trades. The explanation provided by the
appellant is not plausible.
23. Besides this, there were admittedly, cross trading of substantive
shares of PSTL, between the appellant and Mr. P. S. Saminathan,
without any fund transfer. The appellant gave an explanation that it
was not sale and purchase of the shares but was in the nature of a
loan transaction as detailed in his statement. However, this
transaction also gave a misleading impression of trading in the
market. The exact statement dated January 29, 2009 of the appellant
would amplify the fact which is as under :-
"Q. 6. How many shares of PSTL did you sell to Shri P.
S. Saminathan ?
A. 6. I sold 13.70 lakh shares to Shri P. S. Saminathan
in June 2008. The sale was made through the common
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broker Keynote Capitals Ltd. I also sold around 3 lakh
shares of Shri P. S. Saminathan on November 19, 2008
through the broker JM Financial.
Q. 7. Did you receive the consideration for the
aforesaid sell transactions ?
A. 7. I had sold the shares to Shri P. S. Saminathan and
as per the agreement with him, I had transferred the sale
proceeds back to him. I instructed my broker Keynote
Capital, vide my letter dated June 26, 2008, to transfer
the credit in my account of Rs. 34 crores received
towards the sell of the shares, to the account of Shri P. S.
Saminathan. As per the agreement, Shri P. S.
Saminathan had to pay that money to me within six
months. I am submitting the said loan agreement and the
letter to the broker Keynote Capitals Ltd. for your
consideration. Shri Saminathan has not made any
payment to me for the same till date though the last date
for the said payment was December 31, 2008, as per the
agreement. I have sent a legal notice to Shri P. S.
Saminathan and also initiated arbitration proceedings
against him.
I have received the payment for the sale of shares to Shri
P. S. Saminathan done through J. M. Financial in
November 2008.
Q. 8. Please comment on the disclosure made by Shri
P. S. Saminathan under regulation 3(3) of SEBI (SAST)
Regulations, 1997 to buy shares from you at a price of
Rs. 200 on November 28, 2008. Whether you felt the
announcement was genuine as the market price
prevailing at that point of time was less than 100 and
Shri P. S. Saminathan had agrees to pay Rs. 200 to you
when he had not paid any money for his earlier
acquisition from you.
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A. 8. I was happy to see the announcement made by
Shri P. S. Saminathan at huge premium to the market
price. The same he had offered me orally."
24. Considering all the material on record, therefore, the impugned
order of the WTM cannot be faulted with. In the result, the
following order :-
ORDER
25. The appeal is hereby dismissed without any order as to costs.
Sd/-
Justice Tarun Agarwala Presiding Officer Sd/-
Dr. C. K. G. Nair Member Sd/-
Justice M. T. Joshi Judicial Member 02.03.2020 Prepared & Compared by PTM