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2018 (4) TMI 682 - AT - Companies LawProhibition from accessing the securities market directly or indirectly - SEBI advising the appellant to dissociate from discharging the obligations as a Merchant Banker in view of the 3 year restraint imposed by the order of the WTM of SEBI - Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control - Held that - Provisions in the SEBI Act, PFUTP Regulations and the clarification given by the Hon ble Supreme Court merchant banking is undoubtedly an act of dealing in securities and therefore direction to a Merchant Banker not to undertake merchant banking business when under restraint is fully justified. There is no suspension or cancellation of the license of the Merchant Banker in the instant matter requiring separate procedure to be followed. In any case, the requirement of following the procedure laid out in the Intermediaries Regulations, 2008 would arise when a fresh matter is taken up against a Merchant Banker not when a restraint order is imposed on it on account of serious PFUTP violations. As such, both the appeals are without any merit and liable to be dismissed. No merit in the argument of the appellant company that its present management is completely disconnected from the management prior to 2008. Similarly, we find no merit in the arguments of the appellant that Ashok Shah as a separate entity has been penalized by a separate order of SEBI and as such the impugned orders herein is a double whammy to the appellant company. There is all round lack of credibility in the arguments submitted by the appellant in the context of the fact that they are neither willing to give details of their past association nor their present association nor any documents related details regarding dealing in the shares of Platinum. In fact, on a question from the Bench whether there is any other order passed by SEBI against the appellant, the Learned Senior Counsel for the appellant stated in the negative. When he was told that two other appeals are pending before this Appellate Tribunal against the appellant the Senior Counsel had no information about the same because we note that separate Counsel was engaged in respect of those two appeals and the Learned Senior Counsel in these appeals was kept in dark about those matters - the appellants are suppressing facts and providing only misleading information just to take this Appellate Tribunal for a ride. As evidenced from the records of RoC produced before us, that Ashok Shah continued to be in the board of the appellant company intermittently as director / managing director though for short spells on each occasion. It is also on record that Ashok Shah and related entities hold majority stake (58%) in the appellant company. As such, we do not find any merit in the arguments of the appellant that the appellant company had a clean break with its past directors / management, which is far from the truth. Given these continued association of Ashok Shah and related entities with the appellant company the latter s unwillingness to produce details relating to the dealings in the shares of Platinum, including their argument that shares belonged to Mahavir Impex, become dubious and as such cannot be accepted. The argument that the respondent did not follow the procedure laid out in suspending / cancelling the merchant banking license is without any merit, because no such order has been passed by the WTM of SEBI in the order dated August 12, 2016 - When the WTM s order dated August 12, 2016 has clearly found the appellant liable for violation of PFUTP Regulations, 2003 and accordingly the appellant is restrained from accessing the securities market and the registration of the appellant as a Merchant Banker has not been either suspended or cancelled by the impugned communication dated December 22, 2016, the question of following the procedure for suspending or cancelling the license does not arise at all. Accordingly, we do not find any merit in the arguments regarding violation of natural justice. No merit in these appeals and both appeals are dismissed with no order as to costs. Consequently,
Issues Involved:
1. Prohibition from accessing the securities market and disgorgement order. 2. Alleged involvement in fraudulent activities and connection with Platinum Corporation Ltd. 3. Validity of SEBI's directive to dissociate from merchant banking activities without following due procedure. 4. Alleged violations by the erstwhile management and the current management's responsibility. 5. Compliance with the principles of natural justice. Issue-wise Detailed Analysis: 1. Prohibition from accessing the securities market and disgorgement order: The appellant was prohibited from accessing the securities market and directed to disgorge ?20,64,745/- along with interest from February 2007. This was based on the allegation that the appellant received 10 lakh shares from Tushar Shah, a promoter of Platinum, sold them, and made unlawful gains. The appellant argued that these shares belonged to Mahavir Impex and were sold on their behalf, retaining only ?45,000 as service charges. However, the tribunal found no credible evidence supporting this claim. 2. Alleged involvement in fraudulent activities and connection with Platinum Corporation Ltd.: The investigation revealed that Platinum made misleading corporate announcements, leading to an increase in share price and trading volume. Promoters of Platinum offloaded shares and made unlawful gains. The appellant was connected to the promoters and received shares through off-market transactions. The tribunal noted that Ashok Shah and Hiralal Shah, directors of the appellant, were also directors of Platinum, indicating a close association. The tribunal dismissed the appellant's claim of no involvement due to lack of credible evidence and continued association with the promoters. 3. Validity of SEBI's directive to dissociate from merchant banking activities without following due procedure: The appellant argued that SEBI's directive to dissociate from merchant banking activities without following the due procedure under SEBI (Intermediaries) Regulations, 2008, was invalid. The tribunal clarified that the communication did not suspend or cancel the license but advised the appellant to desist from merchant banking due to the restraint order. The tribunal upheld SEBI's action, stating that a merchant banker charged with PFUTP violations cannot discharge its functions as it indirectly deals in the securities market. 4. Alleged violations by the erstwhile management and the current management's responsibility: The appellant contended that the alleged violations occurred under the erstwhile management, and the current management had no connection with the past directors or Platinum. However, the tribunal found that Ashok Shah and related entities continued to hold a significant stake (58%) in the appellant company, indicating a continued association. The tribunal dismissed the argument of a clean break with the past management, as the appellant failed to provide credible details regarding their dealings in Platinum shares. 5. Compliance with the principles of natural justice: The appellant argued that the principles of natural justice were violated as SEBI did not follow the due procedure for suspending or canceling the merchant banking license. The tribunal rejected this argument, stating that the restraint order was due to serious PFUTP violations, and the requirement of following the procedure under Intermediaries Regulations, 2008, does not apply in such cases. The tribunal cited the Supreme Court's ruling that principles of natural justice need not be followed when it leads to an empty formality. Conclusion: The tribunal found no merit in the appellant's arguments and dismissed both appeals. The prohibition from accessing the securities market and the directive to dissociate from merchant banking activities were upheld. The tribunal emphasized the appellant's continued association with the promoters of Platinum and the lack of credible evidence to support their claims. The principles of natural justice were deemed not violated as the restraint order was justified due to serious PFUTP violations.
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