Indian Kanoon - Search engine for Indian Law

3. Thereafter, a show cause notice dated April 26, 2018 was issued in which the appellant was also included as a noticee No. 6 alleging that the appellant has also violated Section 12A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') read with Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations'). In the show cause notice, it was alleged that the Company issued two GDRs on February 22, 2011 for USD 23 million and on October 23, 2011 for USD 17.5 million. It was alleged that the Company issued a power of attorney to Ms. Lok Teng Teng Dorothy (hereinafter referred to as 'Ms. Dorothy / Dora') authorizing her to act as a Liaison Officer between the Company and Investec Bank (Switzerland) AG (hereinafter referred to as 'Investec Bank') where the proceeds of the GDRs was to be deposited. It was alleged that based on the issuance of the GDRs, the proceeds were deposited in this Investec Bank, but was subsequently transferred to various entities such as SyMetric Sciences Ltd. (hereinafter referred to as 'Symetric'), Asia First Technologies Ltd. (hereinafter referred to as 'Asia First Technologies'), Transgene BiotekHK Ltd. (hereinafter referred to as 'TBHK'), Sristek Consulting Pvt. Ltd. (hereinafter referred to as 'Sristek'), Bluejet Express Pte. Ltd. (hereinafter referred to as 'Bluejet') and Fundabilis Pte. Ltd. (hereinafter referred to as 'Fundabilis'). The show cause notice alleged that the Company and its directors, namely, noticee Nos. 1 to 4 launched a scheme for issuance of two GDRs and the proceeds were diverted by them to other entities. This diversion was covered up by backdated agreements / invoices / false statements with regard to the utilization of the GDRs proceeds. It was alleged that the Company and its directors made false declaration in their annual report for the financial year 2010-11, 2011-12 and 2012-13 incorrectly stating that the proceeds made to various entities were advances.

6. The WTM after considering the evidence of all the noticees found all the noticees including the appellant guilty of violating Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. The WTM found that the appellant had a direct connection with the Company and was forwarding letters of the Company to Allshore for transfer of funds. In this regard, the WTM relied upon the e-mail dated March 2, 2018 which contained the letters of the Company dated February 22, 2011 and October 3, 2011. The WTM further found that various e-mails were sent by the appellant requesting the authority to transfer funds from Asia First Technologies to Fundabilis. The WTM further found that the declaration of trust deed signed by the appellant had contained no countersignature of Nirmal Kotecha, and was only a piece of paper on which no reliance could be placed. The WTM, therefore, concluded that the activities of the appellant indicated that he was involved in the scheme of diversion of GDRs proceeds from the Company and TBHK to various entities and facilitated the fraudulent scheme of the Company by legitimizing diversion of GDRs proceeds through backdated agreements / invoices, etc. The WTM have also concluded that he not only aided the company in the fraudulent scheme but was also a beneficiary of the GDR proceeds.

10. It was contended that the finding of the WTM that the appellant had issued instructions on behalf of the company and that the appellant issued instructions for movement of funds from one entity to another for which the appellant was the beneficiary of the GDRs proceeds were wholly incorrect. The appellant contended that he was engaged as a consultant by Alchemy Ventures Pte. Ltd. (hereinafter referred to as 'Alchemy') vide an engagement letter dated June 3, 2010 to provide secretarial and administrative services to Sristek including the setting up of subsidiaries of Sristek and to coordinate documentation and correspondence with third party that Sristek was dealing with. It was contended that the TBL's letters dated February 22, 2011 and October 23, 2011 which were addressed to Investec Bank containing instructions to receive the GDRs in the account held with Investec Bank was sent through e-mail by Ms. Dorothy / Dora of Allshore and were not sent by the appellant. It was, thus, contended that based on these two letters, the WTM has erroneously came to a finding that the appellant was working with the Company and was involved in the transfer of funds from one entity to another. It was contended that the e-mail ID was accessed by various persons which fact is not disputed by the respondent. But the WTM has erroneously held that the appellant was fraudulently aiding and abetting the company. From a perusal of the mails sent from this e-mail ID, it was contended that incriminating evidence, e- mail, relied upon by the WTM was not issued by the appellant. It was contended that the appellant's role in the transactions around the GDRs issue and the payments thereafter was purely administrative and secretarial and involved supporting with documents and evidence from various parties such as Allshore. This was done on the request made by Mr. Nirmal Kotecha and Allshore and also for incorporation of the subsidiaries of the Company and executed the sending of instructions to transfer funds as instructed by them. It was contended that the appellant was unaware that the end use of the proceeds of the GDRs issue was fraudulent or was violative for the disclosure made by the Company to its shareholders. It was further contended that the draft of the e-mails were in fact prepared from the office of Mr. Nirmal Kotecha and saved in the 'drafts' folder which the appellant was asked to send to Allshore. It was contended that mere fact that the e-mails were sent requesting to transfer of funds does not mean that the appellant was a party to the fraud. Since the appellant, in any way, have no information that would have lead him to believe these funds transfer are not for services rendered by those entities. The appellant contended that there is no evidence on record to show that the appellant had knowledge of the fraudulent GDRs issue or that the funds were going to be diverted inconsistent with the GDRs issue. It was further contended that the appellant had no role to play in the execution of the backdated agreements between the company and Asia First Technologies and that the alleged agreements were sent by Mr. Sampath Kumar Meesala (noticee No. 7) to the common e-mail ID. It was also contended that the appellant had just one share of Fundabilis which received USD 9.8 million out of the total USD 40.5 million from the GDRs issue. It was alleged that the Fundabilis was a body corporate incorporated in the British Virgin Islands and that these shares were held for the trust for the benefit of the Nirmal Kotecha. It was urged that there was no requirement for the British Virgin Islands to countersign such declaration of trust by Mr. Nirmal Kotecha which fact has not been considered by the WTM. It was contended that there was no requirement for obtaining countersignature of Nirmal Kotecha. It was contended that the beneficiary of the GDRs proceeds in a particular account was Mr. Nirmal Kotecha and the appellant is nothing to do with these proceeds. It was, thus, contended that the charge against the appellant that he had aided and abetted the fraudulent GDRs issue or was responsible for the diversion of the GDRs through backdated documents or he was beneficiary to the GDRs issue is totally erroneous and based on mis-appreciation of the evidence.