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SEBI - Case Laws
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2024 (11) TMI 738
Validity of SEBI Settlement Proceedings Regulations - scope of Regulations 6(1)(f) and 13(2)(ba) of the SEBI (Settlement Proceedings) Regulations, 2018 - Communication by which the petitioners’ settlement proposal came to be rejected - non following specific “condition precedent(s)” that they would have to comply with for consideration of their settlement applications - allegation of petitioners’ conduct of stalling or delaying the adjudication of the SCN.
Allegations about the noticees acting in concert while acquiring shares of Abans Enterprises Ltd. (AEL) without making the required disclosures under the SAST Regulations. There are allegations about the noticees creating false and misleading appearance of trade and contributing to price rise by manipulative trading practices leading to inflated contribution of net market Long Term Plan (LTP) during the prescribed patches.
HELD THAT:- The SCN dated 29 August 2023 issued to 8 noticees, including the petitioners, gives a glimpse into the allegations against the noticees. Since the adjudication of the SCN is in progress, it would be premature to comment one way or the other on the various allegations contained therein. We cannot help observing that the allegations in the SCN, if proven, are indeed grave.
Mr Daruwalla was justified in contending that the main objective of the petitioners, and perhaps the other noticees, was to stall, as long as possible, the adjudication on the SCN dated 29 August 2023. Regulation 8 of the Settlement Regulations provides that filing an application for settlement of any specified proceedings shall not affect the continuance of the proceedings ‘save that the passing of the final order shall be kept in abeyance till the application is disposed of’. Thus, as long as the settlement applications remained pending, no final order could be made on the SCN dated 29 August 2023.
The record shows that the petitioners made all kinds of applications and even refused to cooperate with the personal hearing offers. Requests in the applications, at times, contradicted each other.
From the record, we cannot dismiss Mr Daruwalla’s contention about the petitioners are attempting to stall the proceedings in the SCN, including by way of filing settlement applications and then even insisting that no orders be passed on the settlement applications until the preliminary or other issues raised by them in the SCN were first resolved.
From the above perspective, the conduct of the present petitioners is no different from that of the petitioners in Binny Limited V/s. Securities and Exchange Board of India [2023 (7) TMI 1491 - BOMBAY HIGH COURT] There, Binny Limited, by submitting a settlement proposal and insisting that the same should have been considered “on merits” had sought a restraint on the proceedings in the Show Cause Notice issued to them alleging massive diversion of funds of several crores leading to loss to investors and an adverse impact on the integrity of the market.
Excessive delegation and manifest arbitrariness in the SEBI Settlement Regulations - Considering the scope and the actual provisions of the SEBI Act, 1992, it is too much to suggest that there is any case of excessive delegation involved in vesting the SEBI with the powers to frame regulations for dealing with proposals for settlement by defaulters. Section 15-JB specifically empowers the SEBI to determine the settlement terms and procedure for settlement. The SEBI or its Board must consider the nature, gravity, and impact of defaults. These, coupled with the very purpose of enacting the SEBI Act, offer more than sufficient guidelines for formulating the Settlement Regulations and their implementation. Accordingly, the argument based upon any alleged excessive delegation is liable to be rejected and is hereby rejected.
Applying the test in the context of Settlement Regulations, which is subordinate legislation, there is nothing to suggest any failure to account for vital facts required by the SEBI Act or the Constitution to be considered. The impugned Regulations conform with the parent Acts. There is no serious charge for the regulations defying constitutional values or lacking logical consistency. Therefore, the charge of manifest arbitrariness cannot stick.
The Constitution Bench has also held that a provision can be struck down as manifestly arbitrary if its determining principle does not align with constitutional values and lacks logical consistency. The standard laid down is that the courts, while testing the validity of a law on the grounds of manifest arbitrariness, must determine if the statute is capricious, irrational, and without an adequate determining principle or excessive and disproportionate. Again, nothing in the impugned provisions suggests they lack any determining principle or logical consistency. The impugned provisions are not capricious, irrational and/or excessively disproportionate.
In Franklin Templeton Trustee Services (P.) Ltd. V/s. Amruta Garg And Ors. [2021 (7) TMI 751 - SUPREME COURT] explained that the principle of manifest arbitrariness requires something to be done in exercise in the form of delegated legislation, which is capricious, irrational or without adequate determining principle. Delegated legislations that are forbiddingly excessive or disproportionate can also be manifestly arbitrary. These observations were made in the context of a challenge to the constitutional validity of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.
Hon’ble Supreme Court, while upholding the constitutional validity of the SEBI, 1996 Regulations, held that since the Regulations are like economic regulations while exercising the power of judicial review, the Court would exercise restraint unless clear grounds justify interference.
The Court reiterated that manifest arbitrariness requires something to be done in the form of delegated legislation, which is capricious, irrational, or without an adequate determining principle. Delegated legislations that are forbiddingly excessive or disproportionate can also be manifestly arbitrary. The Court concluded that the SEBI 1996 Regulations did not suffer from the vice of manifest arbitrariness. Incidentally, the decision of the Division Bench of Gujarat High Court in Alka Synthetics Ltd. [1998 (12) TMI 452 - HIGH COURT OF GUJARAT] was also approved in this case.
Thus, applying the above principles, we think a challenge based on excessive delegation or manifest arbitrariness has no merit.
We detect no infirmity whatsoever regarding the impugned rejection letter. The condition precedent(s) did not prevent the petitioners’ proposal from being considered by the HPAC and, finally, the panel of WTMs. We see nothing unreasonable, irrational or capricious in the conditions itself. Merely because such conditions may not be to the liking of the petitioners, such conditions cannot be styled as arbitrary or unreasonable.
The conditions must be considered in the backdrop of the allegations in the SCN about the petitioners acting in concert with the other noticees. There are allegations about common directors or employees, trustees, common bank accounts, common signatories and manipulations. The question at this stage is not whether those allegations are correct. However, from the show cause notice, it is difficult to state that the allegations are based on no prima facie material. Therefore, to say that the conditions should never have been imposed, particularly the condition regarding the other noticees joining in the settlement proposal, cannot be accepted. As noted earlier, it is not the petitioners' right to insist that their settlement proposal be accepted on the terms they deem most appropriate.
The scope of judicial review in examining counterproposals by experts is minimal. It is not for the Courts to second-guess or suggest counterproposals. There is discretion vested in the authorities. This does not appear to be a case where such discretion has been exercised unreasonably, capriciously, or irrationally. Fairness is not a one-way street; litigation is not a chess game. The settlement regulations need to be pragmatically construed, having regard to their objective and balancing the interests of the defaulters and the public interest. The scheme of the settlement regulations contemplates exchange proposals and counterproposals to see if some settlement could be reached without compromising the public interest. Therefore, there is nothing wrong if the IC suggests terms, adding that it would not favourably recommend a settlement should such terms not be agreed to.
Petitioners have even declined to furnish proper information about the disclosures to the waivers or undertakings by arguing that the same would prejudice their case in the SCN. The proceedings in the SCN are also stalled for one reason or another. At least, prima facie, even the settlement application appears to have been made only to benefit from the provisions of Regulation 8, which requires that the final order in the SCN be kept in abeyance until the settlement application is disposed of.
Petitioners perhaps expected to benefit from the tremendous pressure on the Court’s docket and the consequent inability to decide issues of constitutionality or ultra vires on a priority basis. Often, the strategy is to challenge the constitutional validity of some provision, launch long-winded arguments and, in an alternate, insist on interim relief until the Court can cull out some time despite the tremendous pressure on its docket - As in Binny Limited [2023 (7) TMI 1491 - BOMBAY HIGH COURT] noticed and adversely commented upon this tendency. In this case, however, Mr Gaurav Joshi, the learned Senior Advocate for the petitioners, was focused and precise. Thus no merit in this petition and consequently dismiss the same.
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2024 (11) TMI 617
Proceedings against executive director for the alleged fraudulent activities of the company - as argued petitioner had tendered resignation and resigned from the said Amrit Projects Limited and all its group of companies in the year 2013 - HELD THAT:- An executive director is a senior-level executive responsible for the overall management and leadership of an organization. The executive director reports to the board of directors and is responsible for setting the strategic direction for the organization, overseeing day-to-day operations, and ensuring the organization’s goals and objectives are met.
Executive directors are appointed by the board and in this case as submitted by Mr. Ganguly, appearing for the SEBI, that the petitioner herein was also a member of the Board of Directors.
As petitioner submits that the petitioner was only an executive director and received only a salary of Rs. 25,000/- and he was not involved in any of the day-to-day affairs of the company and he has, thus, prayed for quashing of the proceedings against him.
It is not denied by the petitioner that he was an executive director of the company herein and a member of the Board of Directors as stated by the opposite party during the period of the alleged offence in the present case. A prima facie case has also been made out before the whole time member of the SEBI against the petitioner and others.
Thus, the petitioner was prima facie a member of the Board of Directors (subject to being proved otherwise during trial), during the period of alleged offence and a prima facie case against him was also found, as held by the whole time member of the Securities and Exchange Board of India.
Considering the fact that there is a prima facie case against the petitioner, it will be a clear abuse of the process of law, if this Court interferes in the proceedings before the trial Court against the petitioner herein.
On perusal of the order of the learned Special Judge, the learned Judge has rightly applied the appropriate provisions of law in deciding the prayer for discharge and the said order being in accordance with law requires no interference by this Court.
The trial before the Special Judge is at the stage of evidence and one witness has already been examined, wherein the petitioner has also participated.
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2024 (11) TMI 529
PIL seeking several reliefs to deal with the menace of entities issuing financial instruments like Agro Bonds, Plantation Bonds, etc. (Financial Schemes) luring investors with promises of high returns but without any tangible securities leaving the investors in a lurch - SEBI instituted this Public Interest Litigation when there was no effective regulatory and statutory framework to control the mushrooming number of entities indulging in such financial schemes
HELD THAT:- By orders made in this petition, the Deputy Commissioner of Police was appointed as the Investigating Officer and directed to file reports in sealed covers at the final hearing. However, we could find no such reports in the file, and ultimately, it turned out that the Deputy Commissioner of Police did not file any such Reports. Accordingly, we adjourned the matter to enable the learned A.P.P. to obtain instructions.
We find that the Reserve Bank of India was directed to appoint three auditors to investigate the affairs of the first respondent Company. One of the auditors submitted its report to the Deputy Commissioner of Police. However, no inquiry report has been filed as directed in our order dated 16.06.1998. Therefore, this direction should be complied with within eight weeks of today by filing the inquiry report before the Company Court in company petition no. 226/1998.
Official Liquidator oversees respondents nos.1 to 5 and 7 properties. He should take steps in the best interest of the investors, make reports to the Company Court, and hereafter act under the orders and guidance of the Company Court. The issue of attachment, sale, etc., of the assets of respondents nos.1 to 5 and 7 will now be considered by the Company Court in Company Petition No. 226/1998. The further issues of repayment of the invested amounts or at least proportionate invested amounts will also be dealt with in the Company Petition in terms of the procedure prescribed. This will involve inviting of claims, adjudication of claims, formulation of schemes, etc.
The pending notices of motion and civil applications do not survive and are disposed of. However, this does not preclude any parties from filing similar notices of motion, interim applications, etc., in Company Petition.
This petition is accordingly disposed of after detagging the Company Petition
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2024 (9) TMI 1499
Commercial transactions undertaken by and between private entities involving acquisition of shares of a life insurance company - Allegations of fraudulent acts and undue profits made by certain entities in the purchase and sale of equity shares of a life insurance company - HELD THAT:- This Court is of the view that where a field is regulated and where an appropriate regulator has either already taken note of and addressed the transaction or is investigating the said transaction, the Court in writ jurisdiction should not interfere. In such a situation, the regulator must be allowed to do its job.
Writ of Mandamus being a public law remedy may be issued against a private body discharging public functions, however, it cannot be used for enforcement of purely private contracts between parties.
The tendency to examine commercial transactions from the perspective of reasonableness in Article 226 jurisdiction is to be eschewed as it would make every valuation, sale, purchase of shares or property or every merger, acquisition, de-merger, subject to judicial review.
If according to the petitioner, there is a criminality involved in the aforementioned transactions, as seems to be unarticulated submission, the petitioner is always at liberty to file appropriate proceedings in accordance with law.
This Court also finds that though a personal allegation has been made against Chairperson SEBI, yet neither the writ petition has been amended nor she has been impleaded as a respondent. This Court is of the view that even if the Chairperson of SEBI has had a professional relationship with Max group in the past, it will not take away the Regulator’s obligation and duty to decide the matter in accordance with law. Also, if the final decision of SEBI is in any manner influenced or affected because of the alleged erstwhile professional relationship of its Chairperson, the Petitioner shall surely be entitled to agitate the said ground at that stage.
Consequently, keeping in view the fact that the Petitioner challenges private commercial transactions between commercial entities as well as the fact that shareholders of the public limited company have approved the transactions and in addition insurance and banking sectors are regulated and the independent sectoral regulators, namely, SEBI and RBI are seized of the controversy, this Court is of the view that it should not act as a ‘super regulator’ and interfere in exercise of Article 226 jurisdiction.
Accordingly, this Court disposes of the present writ petition with a direction to SEBI and RBI to complete the investigation as expeditiously as possible. If, after completion of any investigation, any further action is required to be taken, the same shall be taken by independent sectoral regulators in accordance with law.
This Court clarifies that the rights and contentions of all the parties are left open including with regard to the locus standi of the Petitioner and maintainability of the present writ petition.
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2024 (9) TMI 845
Offence u/s 205(1A) and 205A of Companies Act - criminal proceedings under Section 482 of Cr.P.C - accused company declared a dividend of but failed to deposit the amount in a separate bank account within five days and did not disburse it to the shareholders within thirty days - respondent-M/S. Securities and Exchange Board of India (SEBI) admits that the amount has actually been paid. He, however, submits that under the statutory provisions, the appellants do not have an escape and therefore, the High Court [2022 (5) TMI 1652 - KARNATAKA HIGH COURT] has rightly declined to quash the proceedings.
HELD THAT:- Considering the facts and circumstances of the case, we feel that interest of justice would be best served if the appellants are put to terms for the violation committed by them instead of allowing the trial to proceed.
We, accordingly, impose a fine of Rs. 25,00,000/- (Rupees Twenty Five Lakhs) to be paid by the appellants which shall be deposited in Account No. 90552010165915 of the Armed Forces Battle Casualties Welfare Fund, Canara Bank, Branch South Block, Defence Headquarters, within eight weeks from today.
This order is being passed in the peculiar facts and circumstances of the case and would not be treated as a precedent. If the appellants, after depositing the said amount in the aforesaid fund file proof of deposit with the Registry of this Court within ten weeks from today,the criminal proceedings initiated by the respondent-SEBI would stand closed.The appeals stand allowed to the above extent.
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2024 (9) TMI 250
Siphon off funds from the Reliance - public listed company by structuring them as ‘loans’ to credit unworthy conduit borrowers - disproportionate lending - Moving of funds from the public listed company to non-descript and financially weak privately held companies connected with the Reliance ADA group - HELD THAT:- Credit defaults in financing business are not by themselves unusual or suggestive of fraudulent activity. Inter-corporate loans or related party transactions (subject to disclosures and compliance with law) are also not per se illegal or suspicious. However, the facts and circumstances of this case clearly indicate that the defaults are the culmination of an elaborate and coordinated design to move funds from the public listed company to non-descript and financially weak privately held companies connected with the Reliance ADA group.
Adequate disclosures around this were not made to the Public shareholders of RHFL, evidenced by the absence of any material disclosures mandated by securities law. SEBI’s investigation was not the only one to arrive at this conclusion. Separately the reports of PWC (RHFLs statutory auditor) and that of Grant Thornton (forensic auditor appointed by lead bank of consortium of creditors of RHFL– Bank of Baroda) have also arrived at similar conclusions. Significantly, NFRA’s order dated April 26, 2024 has also arrived at similar conclusions.
The facts of this case is particularly disturbing since it reveals complete breakdown of governance in a large listed company apparently orchestrated by and/ or at the behest of the promoter aided by the indulgent KMPs of the company. The Company which was subject to the regulatory framework laid down by NHB and subsequently RBI (as an HFC) as well as by SEBI (as a listed company) did not seem to care about the need to maintain high standards of governance. This is also a peculiar case where the company’s management has brazenly defied the diktat of its own Board that had raised concerns about GPCL lending and asked the company management to ensure compliance with the law.
By preponderance of probability, the mastermind behind the fraudulent scheme is the Chairman of ADAG – Anil Ambani (Noticee No.2). It is also apparent that Noticees 3 to 5, KMPs of the company, played an active role in perpetrating the fraudulent scheme. While Noticee No. 2 was not a director in RHFL, he has used his position as ‘Chairperson of the ADA group’ and his significant indirect shareholding in the holding company of RHFL to orchestrate the fraud thereby not just adversely affecting RHFL’s stakeholders but also the confidence in the integrity of governance structures in regulated financial sector entities.
As a director and a KMP of both the listed company as well as its holding company, Noticee 3 – Amit Bapna - has clearly fallen well short of the standards of governance that was expected from him. The ‘watchman’ appointed by the Board to arrest the continuing decline in the financial stability of the public listed company, turned out to be part of the group that executed the fraudulent scheme. Similarly, Noticee no. 4 in capacity of CEO of RHFL was the central point of communication between the Board of Directors, all the personnel involved in Corporate Operations of the Company, and with all the senior management personnel like CRO, Operational Heads, Company Secretary etc. who were reporting to Noticee no. 4. This Order has elaborated on his direct involvement in the fraud by approving the ‘loans’ to ineligible customers, defying the decision of RHFL’s board, and his wanton non-compliance with the legal mandate to make true and fair disclosures. The Company continued to disburse large quantum of GPC loans despite Noticee Nos. 3- 5 being directly aware of the Board’s directions not to do so. Both Noticee Nos. 4 and 5 had also signed off on CEO/ CFO certifications actively hiding the true state of affairs in RHFL. Noticee Nos. 6-28 have played the role of being either recipients of illegally obtained loans or conduits to enable illegal diversion of monies from RHFL.
Subsequently, most of the GPCL borrowers’ accounts turned NPAs and as a consequence of the same, RHFL defaulted in its payment obligations towards its lenders which has culminated in its Resolution under RBI Framework. As a result, the company’s public shareholders have been left high and dry. As a point of reference, as of March 2018, the RHFL scrip price had closed at around INR 59.60. By March 2020, as a result of this egregious scheme to hollow out the company by siphoning out significant funds, and as clarity emerged about the extent of the fraud involved, the share price had collapsed to INR 0.75. Even as on date, there are more than 9 lakh shareholders that are invested in RHFL.
The findings made in the foregoing paragraphs of this Order have established the existence of a fraudulent scheme, orchestrated by Noticee No. 2 and administered by the KMPs of RHFL, to siphon off funds from the public listed company (RHFL) by structuring them as ‘loans’ to credit unworthy conduit borrowers, and in turn, to onward borrowers, all of whom have been found to be ‘promoter linked entities’ i.e. entities associated/ linked with Noticee 2 (Anil Ambani). The relationship of onward borrowers with Noticee No. 2 is described in Table - 28 of this Order.
It is well established through various decisions of the Hon’ble Supreme Court, Hon’ble High Courts and Hon’ble SAT that the scope of the power under Section 11B of the SEBI Act is wide, under which directions can be passed to order refunds/ bring back monies/ disgorge illegal gains made by any person in violation of securities law.
Investigation in the matter has concluded that the Noticees were involved in perpetrating a fraudulent scheme by disbursing GPC ‘loans’ resulting in erosion of the company’s finances due to such loans ventually being declared NPA. Though the Interim Order cum SCN explicitly alleges that promoter/ promoter linked entities were beneficiaries of the funds diverted from RHFL, the gains they made haven’t been quantified and persons haven’t been directed to show cause why a specific gain should not be refunded or disgorged. I note that Investigation Report and Interim Order contain repeated references to promoter-linked entities being the beneficiaries of the funds diverted from RHFL. Also, the Investigation Report and Interim Order contain repeated references to GPC ‘loans’ given by RHFL being rendered NPA. From the aforesaid two sets of references, it may be inferred that NPAs of RHFL were equated with the benefits made by promoter linked entities for the purposes of Show Cause Notice issued to the Noticees.
There is a need to quantify such receipts/ gains and ascertain the real beneficiaries behind the web of companies as illustrated in images at Annexure B1-B3 and discussed in paragraph 54.5 above. Therefore, in compliance with principles of natural justice, I find that illegal gains, if any, must be quantified. Noticees who have made the said gain must be identified, and an opportunity should be granted to Noticees’ to rebut the findings of SEBI on the illegal gains/ benefits made by them, before any direction is passed with respect to such gains.
In view of the above and absence of any findings made in the Interim Order cum SCN regarding illegal gains made by Noticee Nos. 3-5, it is not a fit case for issuance of directions for recovery of remuneration against these Noticees. However, the Noticees conduct warrants remedial and punitive directions with respect to their association with the securities market, intermediaries and listed companies considering the serious damages that they have done to the integrity of the securities market.
Considering the egregious nature of the fraud perpetrated in this case, I am of the view that the maximum possible penalty must be imposed on all Noticees except against Noticee Nos. 1 and 5 for the reasons cited in paragraphs 67 and 68 respectively.
Directions:
(i) Noticee No. 1 is restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of 6 months, from the date of coming into force of this order.
(ii) Noticee Nos. 2 – 25 and 27 are restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, for a period of 5 years, from the date of coming into force of this order.
(iii) Noticee No. 2 is restrained from being associated with the securities market including as a director or Key Managerial Personnel in any listed company, holding/ associate company of any listed company, or in any intermediary registered with SEBI, for a period of 5 years, from the date of coming into force of this direction.
(iv) Noticee Nos. 3 - 5 are restrained from being associated with the securities market including as a director or Key Managerial Personnel in any listed company, or any intermediary registered with SEBI, for a period of 5 years, from the date of coming into force of this direction.
(v) The present proceedings initiated against Noticee No. 26 (Reliance Broadcast Network Limited) and Noticee No. 28 (Reliance Capital Limited) shall be decided by separate orders for the reasons mentioned at paragraphs 50.2 and 50.3 above.
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2024 (8) TMI 1345
Routing of funds to the Indian Securities Market by Noticee/Mr. Vijay Mallya -Violation of SEBI Act and PFUTP Regulations - financial route i.e. the FII route was used by the Noticee to trade in the Indian Securities market by concealing his identity - layering the transactions in the names of various overseas registered entities and opening accounts in their names in UBS-UK Bank, even though the Noticee himself was the actual beneficial owner of each of these front entities
HELD THAT:- Noticee in abusing the framework of the FII Regulations and dealing in securities of listed companies of his group of companies in India, indirectly, in a fraudulent manner and by employing a manipulative and deceptive artifice, thereby, indulging in purchase and sale of securities of Herbertsons / USL clearly was detrimental to the investors at large and was with an intention to deceit the market players in violation of the provisions of Regulation 3(a), (b) and (d) of the PFUTP Regulations, 2003 and Section 12A(a) and 12A(c) of SEBI Act, 1992.
The shareholding pattern of Herbertson available on the BSE website for the quarter ending December 31, 2005 that Phipson, McDowell and UBHL were shown as Indian Promoters of Herbertsons holding 53,49,775 shares (56.18%), 4,59,809 shares (4.83%) and 22,46,756 (23.59%), respectively.
As Phipson was wholly owned subsidiary of McDowell and Herbertsons was subsidiary of Phipson. Thus, find that all the said companies were belonging to the same group i.e. UB group of which the Noticee was the Chairman. These shares of Herbertsons were partially transferred to Matterhorn through block deals dated February 28, 2006 and March 03, 2006. Post such transfer of shares, Matterhorn Ventures was shown as a Non-Promoter Public Shareholder under sub-section of ‘FIIs’ in Shareholding Pattern of Herbertsons as on March 31, 2006.
As already found entire transaction in the shares of Herbertsons and USL was funded by the Noticee, indirectly, through VNHL by routing funds through overseas bank accounts and therefore, the shareholding of Matterhorn Ventures of 9.98% shares of Herbertsons actually belonged to the promoter category being totally funded by the Noticee.
Noticee/Mr. Vijay Mallya indeed had misrepresented the truth and concealed a material fact known to him that the shareholding shown in the name of Matterhorn actually belonged to the promoter category as the same was totally funded by the Noticee thereby, violating the provisions of Regulation 4(2)(f) of the PFUTP Regulations, 2003.
Section 11 of the SEBI Act, 1992 confers a duty on the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market. The said objectives are all interlinked.
Noticee, in the instant case, has devised a scheme to indirectly trade in the shares of his own group companies through layered transactions / fund flow using his overseas related companies through FII route in order to keep his identity masked and trade in the Indian Securities market in defiance of the regulatory norms. Such acts of the Noticee are not only fraudulent and deceptive but are a threat to the integrity of the securities market.
Earlier, also WTM, SEBI had debarred the Noticee from accessing the securities market and prohibited him from buying, selling or otherwise dealing in the securities in any manner for a period of 3 years from the date of the said order (i.e. from June 01, 2018 till May 31, 2021) for manipulative activities such as diversion of funds and / or improper transactions in the scrip of USL in violation of the PFUTP Regulations, 2003 read with the SEBI Act,1992. SEBI had also restrained the Noticee from holding a position as Director or Key Managerial Person of a listed Company for a period of 5 years from the date of the said order (i.e. from June 01, 2018 till March 31, 2023).
The said order was challenged before the Hon’ble SAT, which later was dismissed due to want of prosecution which ultimately resulted in attainment of finality of the directions issued by the WTM, SEBI in the order dated June 01, 2018. Thus, I find that the Noticee has been indulging in manipulative and fraudulent activities and indulging in unfair trade practices while dealing in the securities market in violation of the securities laws.
Thus, find that appropriate directions under Section 11B read with Section 11(1) of the SEBI Act, 1992 in order to protect the market integrity and deter such activities from the markets would meet the ends of justice.
ORDER:-
The Noticee is hereby restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, for a period of three (3) years from the date of this order.
The Noticee is further restrained from associating himself with any listed company or proposed to be listed company, in any capacity, directly or indirectly, for a period of three (3) year from the date of this order.
As during the period of restraint, the existing holding of securities including the holding of units of mutual funds of the Noticee shall remain frozen.
The obligation of the debarred Noticee, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, can take place irrespective of the restraint /prohibition imposed by this Order only, in respect of pending unsettled transactions, if any. All open positions, if any, of the Noticee debarred in the present Order, in the F&O segment of the stock exchanges, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order.
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2024 (8) TMI 1283
Validity of criminal proceedings once settlement before the SEBI on the adjudication side concluded - allegation of fraudulent activities committed in the Initial Public Offering (IPO) of the shares - Jurisdiction of Single Judge OR Division Bench - whether the respondent had made out a case for quashing the proceedings will be independently decided by the Division Bench which will now hear the matter on remand? - HELD THAT:- The first round of proceedings arising out of Writ Petition [2018 (2) TMI 2119 - BOMBAY HIGH COURT] was heard and disposed of by the Division Bench, with the Division Bench rejecting the contention of the respondent and dismissing the Writ Petitions. When the matter travelled to this Court, the respondent withdrew the Special Leave Petition with liberty to file a fresh petition.
We feel that on the facts of this case considering the earlier order of the Division Bench and the order of this Court granting liberty to file a fresh petition, the present case in the second-round ought to have been heard by the Division Bench. We are refraining from pronouncing on the aspect whether there was any clever manipulation of the prayers to clutch at jurisdiction since anything said would prejudice the case of the parties. We say nothing more on this at this stage.
Ld. Single Judge, who heard Writ Petition took the view that in view of the consent terms passed by SEBI, it would not be in the interest of justice to continue with the criminal proceedings as it would tantamount to an abuse of the process of the law.
We have now adopted, we are refraining from commenting on the contentions of the parties with regard to the merits of the matter.
As to whether the respondent had made out a case for quashing the proceedings will be independently decided by the Division Bench which will now hear the matter on remand. The Division Bench will not be influenced by the observations of the previous Division Bench, the order of the Single Judge and also by the present order which we have now passed. The Division Bench will independently decide the matter on its own merits and in accordance with law.
Considering that the FIR was registered in 2006, we request the Division Bench to take up the matter and dispose of the two Writ Petitions expeditiously and, in any event, not later than three months from today.
Since we are remitting the matter, we are inclined to grant an interim stay of further proceeding pending before the Special Judge (CBI), Greater Mumbai for a period of four weeks from today. Parties are at liberty to approach the Division Bench hearing the matter for appropriate extension/modification of this interim order and the Division Bench shall after hearing the parties make such order as it deems fit.
We have held above, the impugned order [2022 (1) TMI 1451 - BOMBAY HIGH COURT] is set aside and the matter is remitted to the High Court of Judicature at Bombay.
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2024 (8) TMI 1282
Freezing of demat accounts held by the petitioner with NSDL are freezed at the behest of BSE / NSE under the directives of the SEBI on account of an alleged default of Shrenuj in compliance of the SEBI (LODR) Regulations - HELD THAT:- The petitioner, a practicing gyneacologist, did not exceed his professional position, to take interest in the formation of Shrenuj or to promote or manage its day-to-day affairs. Also, after the incorporation of the company and constitution of the Board of Directors, the status and role of the petitioner as a promoter had come to an end. Hence, the obligation of non-submission of Financial Results and non-compliance with the provisions of SEBI (LODR) Regulations could not have been fastened and imposed on the petitioner.
Now coming to the impugned action of freezing of the demat accounts of the petitioner on the basis of SEBI Circular, it does not contemplate freezing of the demat account of the promoter in the manner as resorted qua the petitioner.
Also the circular dated 26 October 2016, provided that at the first instance to freeze the entire shareholding of the “promoter” and the “promoter group” in the listed company which is held liable for non-compliance for two consecutive periods, and on a failure to comply with the notice issued by the concerned stock exchange as per paragraph 3 of Annexure II of Circular dated 30 November, 2015. It is significant that the second part of paragraph 2.2 of the Circular provides that in addition to the freezeing of shares in the non-compliant listed company, the holdings in the demat accounts of the promoter and promoter group in other securities shall be frozen to the extent of the liability which shall be calculated on a quarterly basis.
In the present case, there is nothing placed on record that there is a semblance of compliance of paragraph 2.2 of the Circular even assuming that the same is applicable to the petitioner.
No show cause notice or a prior opportunity of a hearing was granted to the petitioner before the letters dated 23 March 2017 and 13 April 2017 were addressed to the SHCIL by NDSL, freezing not only the petitioner’s shares in Shrenuj but also the other shareholding of the petitioner in ITC Limited. For such reason also, the impugned action on the part of NSDL is required to be held to be brazenly illegal, unreasonable and arbitrary.
As applicability of the Circular 26 October 2016 is concerned, in our opinion, this circular cannot make a provision when it provides in paragraph 2.2 that in addition to the freeze of shares in the non-compliant listed entity, the holdings in the demat accounts of promoter and promoter group in other securities shall also be frozen to the extent of liability which shall be calculated on a quarterly basis. This would be contrary to the statutory requirements.
For all these reasons, to generally and/or casually freeze the securities of the promoters in a company other than the defaulter company, is an action in the teeth of the provisions of the SEBI Act as also illegal, arbitrary and unreasonable, violative of Articles 14, 21 and 300A of the Constitution. Circulars cannot have an overriding effect on the statutory provision under which it is issued and cannot be implemented in defiance of principles of natural justice.
Looked from any angle, under none of the provisions of law and regulations, the impugned action of the respondent to freeze the petitioner’s demat account can be sustained.
Even recovery of the amount from the petitioner’s demat account which is held with the depositories would certainly be governed by the provisions of the Depositories Act, 1996 and even if any fine, penalty, is to be recovered, it would be required to be recovered strictly adhering to the provisions of law which we have noted hereinabove. The recovery can also be in terms of what has been provided under Section 19F which necessarily attracts the provisions of Section 19H in regard to adjudication. Thus, looked from any angle, the impugned action of freezing the petitioner’s demat account is grossly illegal, arbitrary and unconstitutional.
For the aforesaid reasons, in our opinion, the freezing of the petitioner’s demat account qua all the shares held by him was unwarranted, unjustified and in patent defiance of the principles of natural justice and brazenly illegal.The petitioner shall be free to deal with all his shares as held in the Demat accounts in question.The SEBI/BSE/NSE are directed to jointly pay to the petitioner cost of Rs.30 lakhs within a period of two weeks from today.
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2024 (8) TMI 856
Trading based on the stock recommendations given by Guest Experts appearing on Zee Business Channel - Sharing of non-public information regarding recommendations, by Guest Experts to Profit Makers in advance - Pattern of correlation of trades of suspect entities with recommendations made by guest experts - HELD THAT:- Profit generated in the accounts of the Profit Makers are quite substantial, when compared with the profits on trades otherwise executed in the accounts of these Profit Makers. It is also seen that from the trades that are observed to have been executed based on the advantage of advance receipt of information about recommendations of Guest Experts, the Noticees have collectively earned substantial profit to the tune of INR 7,41,29,648 from 1047 instances, constituting 54% of the total profit earned during the relevant period.
From the above, it can be seen that a considerable portion of their respective profit was earned through trades based on recommendations vis- a-vis their total trades. Further, Table No. 31 also provides the detailed breakup of the profit earned by the Noticee No. 1 to 5 (Guest Expert wise) and number of instances of trades executed based on the sharing of recommendation by Guest Experts.
Sharing of profits amongst Noticees - From the screenshots of WhatsApp Chat, it is seen that there are certain messages shared between Nirmal Kumar Soni and Guest Experts which had picture of currency notes in them (highlighting the serial number of the note). Further, in the statements recorded on January 19, 2023 of Noticee Nos. 1, 11, 12, 14 and 15 (produced in the subsequent paragraph), it has been admitted by Guest Experts that they had a profit-sharing arrangement with Nirmal Kumar Soni for sharing their recommendations with Nirmal Kumar Soni prior to giving the recommendations on Zee Business. Some of the Statements also shows that the amount already paid to the Guest Experts in cash and the balance amount to be paid to them by Nirmal Kumar Soni.
There was an arrangement between Nirmal Kumar Soni and Guest Experts to share the wrongful gain earned through recommendation based trades. The evidence in the form of statement further shows the arrangement entered into amongst Profit Makers and Guest Experts that profit earned through recommendation based trades would be shared among them in terms of the oral agreement.
As observed in the course of investigation Nirmal Kumar Soni, having received the information from Guest Experts, had executed trades not only in his own account but also in the accounts of Noticee Nos. 3, 4 and 5. Pursuant to the generation of profit, the same got shared among them as per their understanding. However, in the case of Noticee No. 2, it is observed that after receipt of information from Guest Experts, trades were executed in his own account.
Hence, it is held, prima facie, that an amount of INR 7,41,29,648 calculated as per Table No. 30 and 31 is a profit which has been earned by Profit Makers from trades executed on the basis of advance receipt of non-public information of recommendations provided by Guest Experts. Enablers have helped Profit Makers in executing these transactions. A part of the profit has also been shared with Guest Experts.
Examination of violation of provisions of SEBI Act and regulations made thereunder - There are evidences of connections amongst Noticees, sharing of advance information about recommendations of Guest Experts with Profit Makers, taking advance position in trades by these Profit Makers based on such advance non-public information. Apart from evidences, these acts of commission have also been admitted by Noticees in deposition made before the investigating authority. These acts are detrimental to the interest of integrity of the securities market and also adverse to the interest of investors who invest based on recommendations of Guest Experts totally unaware of any scheme being employed by them. Further, it has been set out in detail that the unfair gains so earned by Profit Makers have also been shared with Guest Experts which has been admitted under statement on oath and there are evidences of such gains being shared through non-banking channels. Hence, not only Noticees have dealt in securities while in possession of non-public information, they have also devised a scheme to defraud investors in connection with dealing in listed securities. All this seen together would clearly demonstrate that there is a prima facie case of violation of provisions of section 12A of SEBI Act and Regulations 3 and 4 of PFUTP Regulations. This finding is further strengthened in subsequent paragraphs.
The act of Profit Makers in trading in securities on the basis of advance information gives them undue, unfair and illegal advantage over investors who otherwise invested in such securities based on recommendation without being aware of the manipulative scheme entered into by Profit Makers and Guest Experts with the help of Enablers.
Thus there is a prima facie case of manipulative, fraudulent and unfair trade practice carried out by Noticees which ultimately generated large amount of unlawful gains (approximately INR 7.41Crore) in the accounts of Noticee nos. 1 to 5. Infact, a thorough analysis of facts and legal position lead me to the conclusion that all the five violations listed earlier at para 148 of this order with respect to Section 12A of the SEBI Act and Regulations 3&4 of PFUTP Regulation have been committed in this case.
Noticee No. 15 namely Simi Bhaumik, being a registered Research Analyst, falls under the purview of the RA Regulations. As already been seen that Simi Bhaumik shared her recommendations with Partha Sarathi Dhar (registered as spouse in the AOF provided by Bank) before recommending the same on Zee Business thereby facilitating Partha Sarathi Dhar to trade based on such prior knowledge of recommendations.
As can be inferred from the evidence gathered during the investigation, the trading instances of Partha Sarathi Dhar were significantly influenced by the advance information provided by Simi Bhaumik - spouse is included as associate in terms of the definition under regulation 2(1)(b) of SEBI (Intermediaries) Regulations. It has been found and recorded above that Partha Sarthi Dhar, spouse of Simi Bhaumik had traded in scrip/contract after receipt of information pertaining to her recommendation to be broadcasted on the Zee Business. It is therefore, held prima facie that Simi Bhaumik has violated provisions of regulation 16(2) of SEBI (Research Analyst) Regulations, 2014 by sharing information with her husband who dealt in those securities and made unfair profits.
Need for interim ex-parte order - It is a fit case to pass ad interim ex parte order to insulate the securities market from the mischievous act of Noticees and also to prevent these Noticees in conducting similar activities which are prima facie against the interest of investors as well as against the development of securities market. Further, there is an urgency to protect the wrongful gains from getting siphoned off beyond the regulatory reach.
Urgency of this interim ex parte order as Investors education is very important as it empowers investors to protect their own interest. It is important for investors to exercise due diligence before accepting any free flowing advice on TV or social media. There are many experts who are spreading financial literacy in India and empowering investors to take their own decision. Most of the experts fall in this category and are doing a very good job which has resulted in robust securities market that we have today. However, the same cannot be said about a few other experts who take advantage of their mass following to make unfair profits by misguiding innocent investors. This is a fit case to invoke the statutory powers vested in SEBI to pass interim directions against Noticees through this order.
Joint and several liability - Noticees are jointly and severally liable for impounding of the proceeds (to the tune of INR 7,41,29,648/-) generated from the trades which are not in conformity with the provisions of securities laws as mentioned in the below table. Such joint and several liability is restricted amongst those Noticees who made these unfair profits, who enabled certain Noticee to make unfair profits or whose recommendations led to such unfair profits. This amount is arrived at based on Table no 30 where details of unlawful gains made by Profit Makers is computed separately for each of them.
The amount of wrongful gain for which the Noticees are jointly and severally liable, is accordingly arrived at the below table no 33. It is clarified that the Noticee mentioned at column no. 1 is jointly and severally liable for the amount of wrongful gains, mentioned at column no. 2, along with Noticees mentioned at column 3. Joint and several liabilities of Noticees mentioned at column no. 3 is restricted to the extent of the amount mentioned against their respective names in Table 30. In addition, Nirmal Kumar Soni is also held as joint and several liable for the amount along with SAAR Commodities, Manan Sharecom Private Limited and Kanhaya Trading Limited for the amount mentioned against their respective names.
Ex-parte Interim Order - It is a fit case to pass interim directions to insulate the securities market and investors from the mischievous acts of the entities and also to urgently prevent these entities from continuing with their prima facie fraudulent activities while dealing in the securities market.
All the prima facie findings recorded in this Order shall be treated as allegations to the violations of the provisions of the SEBI Act, 1992 and PFUTP Regulations against the respective Noticees, and the instant order may be treated as an interim order cum show cause notice to the Noticees. Hence, the Noticees are hereby called upon to show cause as to why suitable directions, including the following, should not be issued/imposed against them under Sections 11(1), and 11B(1) of the SEBI Act, 1992, as proposed hereunder:
a) Direction to disgorge an amount equivalent to the alleged unlawful profits made on account of the scheme as described above, along with interest.
b) Directing them to refrain from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period.
c) Directing the registered RAs to refrain from undertaking any activity relating to research advisory.
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2024 (8) TMI 798
Offences by companies - liability of directors/person responsible - resignation of the present petitioners - Criminal Complaint pending qua the petitioners - HELD THAT:- As petitioners has placed on record the certified copy of Form-32, which had been placed before the learned Trial Court by SEBI itself. The Form-32, as placed on record, clearly reflects that the petitioners had resigned on 23.02.1998, which was much before the cause of action alleged to have arisen in the present complaint. There is no other record.
Respondent no. 2 does not dispute the authenticity of the said document as the same has been filed by them. The contention of the learned counsel for respondent no. 2 is that the letter dated 27.04.1998 reflecting the names of the petitioners as directors was issued much after the alleged date of resignation, again, is not tenable as the document-Form 32, has been recognised in law to be a public document to be regarded as evidence regarding whether a person is a director of a company or not. The said letter dated 27.04.1998 cannot override Form-32.
In the present case, Form-32, has been placed by respondent no. 2 itself before the learned Trial Court. In view of the above, the present petition is allowed. The Criminal Complaint pending qua the petitioners is hereby quashed.
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2024 (8) TMI 797
Violation of securities laws - unregistered investment advisory - activities of rendering investment advisory services or any other services had been carried out without obtaining the mandatory registration from the SEBI, as statutorily required - HELD THAT:- Noticee no. 1 has admitted providing investment advisory services to at least 290 unique investors during the period March 11, 2020 to August 29, 2023 and through these activities of providing investor advisory for which no registration was obtained from SEBI, the Noticee no. 1 has earned more than INR 12 Crore as fee from the clients.
As the prima facie violation on the part of the Noticee no. 1 has been established, it is to be seen as to who all are the natural persons, who are to be held liable in terms of section 27 of the SEBI Act.
The activities of providing investors advisory or other activities for which registration is essential, have not stopped and are on-going. It has also noticed that the Noticee no. 4, Mr. Rahul Ananta Gosavi, who was employed with the Noticee no. 1 as Executive Assistant to CMD (since October, 2015) has become its Director w.e.f September 22, 2023. Therefore, the above two persons i.e. Noticees nos. 4 and 5 are also alleged to be liable for the acts and omissions on part of the Noticee no. 1, and further making them liable for the directions to be issued which need to be complied with by the Noticee no.1. There is nothing on record to indicate that subsequent to the resignation of Noticees nos. 2 and 3, the alleged activities of providing investment advisory has stopped, as agreements entered into by the Noticee no. 1 are long duration agreements.
The prima facie observations/findings contained in this Order are made on the basis of the material available on record. In light of the alleged violations of the provisions of the SEBI Act, 1992, IA Regulations and PFUTP Regulations by the Noticees, this Order shall be treated as a Show Cause Notice under sub-section (1) of section 11, clause (d) of sub-section (4) of section 11, sub-section (4A) of section 11, sub-section (1) of section 11B, and sub-section (2) of section 11B, section 11D of SEBI Act 1992, read with clause (d) of sub-regulation (1) of regulation 11 of PFUTP Regulations, read with SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 2005, calling upon Noticees to show cause as to why following directions shall not be passed against them:
a) Direction to disgorge an amount equivalent to the total gains made on account of alleged unregistered investment advisory along with interest;
b) Direction to restrain them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period;
c) Directions for imposition of penalty under sub-section (4A) of section 11 and sub-section (2) of section 11B read with section 15EB and section 15HB of the SEBI Act, 1992 for carrying out unregistered investment advisory activities;
d) Directions for imposition of penalty under sub-section (4A) of section 11 and sub-section (2) of section 11B with section 15HA of the SEBI Act, 1992 for violation of provisions of PFUTP Regulations; and
e) Directions for imposition of penalty under sub-section (4A) of section 11 and sub-section (2) of section 11B read with clause (a) of section 15A of the SEBI Act, 1992 for not providing email dump
The Noticees may file their replies to SEBI within 21 days from the date of receipt of this Order and avail an opportunity of personal hearing in the matter, if they so desire. This Order is without prejudice to any other action that SEBI may initiate under the securities laws, as deemed appropriate, against the above mentioned persons/entities.
This Order shall come into force with immediate effect and shall be in force till further Orders.
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2024 (8) TMI 796
Collective Investment Scheme (“CIS”) - Scheme / arrangement operated through the Growpital platform - whether the Entities have prima facie violated any provisions of SEBI Act , CIS Regulations and SEBI -PFUTP Regulations - HELD THAT:- Prima facie the instant scheme / arrangement offered / operated through the Growpital platform falls within the definition of CIS.
The activities of Growpital, as brought out from the various materials described above, show that prima facie a CIS is being operated. However, no material is available on record to indicate that any of the Entities involved in the instant arrangement has formed a Collective Investment Management Company that has obtained a certificate under CIS Regulations. This prima facie leads to a conclusion that there is violation of Section 12(1B) of SEBI Act read with Regulation 3 of the CIS Regulations.
Additionally, as brought out in the preceding paragraphs, over ₹132 crore has been mobilized through the Growpital platform in ZF Project 1 LLP alone. In fact, the website of Growpital had advertised that an amount in excess of ₹160 crore has been mobilized. The activity of illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on any collective investment scheme by any person also amounts to a fraudulent practice in terms of Regulation 4(2)(t) of PFUTP Regulations.
Considering that no prior registration was obtained in the instant matter, the Growpital platform is being used to illegally mobilize funds from the public, which amounts to a fraudulent practice in terms of Regulation 4 (2) (t) of PFUTP Regulations.
The amount of money, prima facie, observed to have been mobilized in the Growpital escrow account of over ₹ 184 crore, indicates the magnitude of the prospective threat of investors getting lured to the unregistered activities being carried out by the Entities. In light of the same, in order to ensure that additional funds are not mobilized through the Growpital platform under its scheme / arrangement / plans and to safeguard the assets acquired from the funds of the investing public until full facts and materials are brought out and final decision is taken in the matter, pending completion of the detailed examination initiated by SEBI, there is a need to pass an ad-interim ex-parte order to protect the interests of investors at large.
Order by way of this ad interim ex-parte order, the following directions - Growpital and the directors / designated partners are directed:
i. To cease and desist from floating any CIS, directly or indirectly, and cease to solicit or undertake such activity determined as CIS, in any manner whatsoever, until further orders.
ii. Not to collect any money from new partners / investors or any additional sum of money from existing partners / investors in existing schemes / plans, until further orders.
iii. Not to divert any funds collected from partners / investors, kept in bank account(s), payment wallets and/or in their custody, until further orders.
iv. Not to dispose of or alienate any assets, whether movable or immovable, or any interest or investment or charge on any of such assets including moneys lying in bank accounts belonging to the Entities, except with the prior permission of SEBI, until further orders.
v. To provide a full inventory of all the assets held by them, whether movable or immovable, or any interest or investment or charge on any of such assets, including details of all bank accounts, demat accounts and mutual fund investments, immediately, but not later than 15 working days from the date of receipt of this order.
vi. To immediately withdraw and remove all websites, advertisements, representations, literatures, brochures, materials, publications, documents, communications, etc. in relation to the unregistered CIS activities or any other unregistered activity in the securities market, until further orders.
vii. Not to access the securities market and buy, sell or otherwise deal in securities in any manner whatsoever, directly or indirectly, until further orders.
viii. To submit the details of partners / investors (contact number, address, date of enrolment) who have contributed to the ZF Project LLPs (now or in the past) through Growpital or any other platform and to submit details of contributions received from each such partner / investor immediately, but not later than 15 working days from the date of receipt of this order.
If the aforementioned entities have any open positions in any exchange traded derivative contracts, as on the date of the order, they can close out / square off such open positions within 3 months from the date of order or at the expiry of such contracts, whichever is earlier. Further, the aforesaid entities are permitted to settle the pay-in and pay-out obligations in respect of transactions, if any, which have taken place before the close of trading on the date of this order.
Cashfree Payments India Private Limited is directed not to accept any payments made through Growpital or on behalf of Growpital. Further, no funds shall be transferred to the escrow account of Farm Silo Tech LLP / Growpital until further orders.
Banks, depositories and Registrar and Transfer Agents are directed to freeze the bank accounts, demat accounts belonging to the Entities and not to allow transfer or redemption of securities of the Entities named in paragraph 27.1.
The Order shall be sent to all the Entities, Market Infrastructure Institutions, Banks and Registrar and Transfer Agents to ensure compliance with the directions.
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2024 (8) TMI 25
Defalcation of the proceeds from the preferential issue - allegation of mis-utilization of the proceeds - inordinate delay in the issuance of the show cause notice - as decided by SAT [2023 (7) TMI 1440 - THE SECURITIES APPELLATE TRIBUNAL, MUMBAI] issuance of the preferential issue was known to the stock exchange as well as to SEBI and, therefore, there is no justification for issuance of show cause notice at this belated stage. No penalty could be imposed for the alleged deviation. We also find that there is no charge of defalcation of the proceeds from the preferential issue.
HELD THAT:- We do not find any good ground and reason to interfere with the impugned judgment and hence, the present appeals are dismissed.
The question(s) of law is left open.
Pending application(s), if any, shall stand disposed of.
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2024 (7) TMI 935
Liquidation of attached assets - time-bound public auctions - refund of the due amount to all the investors as well as various statutory, foreseen or unforeseen liabilities - Direction to SEBI to liquidate the attached assets in a time-bound manner and disburse the sale proceeds to genuine investors as early as possible - HELD THAT:- The entire process in the case in hand might take more than a year, it seems to us that fixation of monthly honorarium may not be desirable. Similarly, we do not want to leave it for the learned Chairperson or members of the HPSC to fix their own honorarium as it is likely to cause embarrassment to them. Considering all these aspects in view, we issue the following directions:-
(i) The Chairperson of the HPSC shall be entitled to an honorarium of Rs. 2 lakhs per sitting day, when effective proceedings are held. This will be in addition to travelling, boarding and other miscellaneous expenses as may be incurred in discharging the assigned responsibilities;
(ii) The learned Member, who is a former Judge of the High Court shall be entitled to an honorarium of Rs. 1.50 lakhs per sitting day, when effective proceedings are held. This will be in addition to travelling, boarding and other miscellaneous expenses as may be incurred in discharging the assigned responsibilities;
(iii) The Member nominated by SEBI shall not be entitled to any remuneration—since he is a full-time officer of SEBI. However, he shall be entitled to travelling, boarding, and other miscellaneous expenses as may be incurred in discharging the assigned responsibilities;
(iv) The Member Secretary cum Nodal Officer of the Committee shall be entitled to an honorarium of Rs. 75 thousand per sitting day, when effective proceedings are held. This will be in addition to travelling, boarding and other miscellaneous expenses as may be incurred in discharging the assigned responsibilities;
(v) Remuneration of experts like Chartered Accountant, Civil Engineer, Architect, Certified Valuer etc. shall be determined by the HPSC; and
(vi) The expenditure towards honorarium, hiring of office, secretarial assistance, as well as for following the prescribed procedure of auction, etc., shall be reimbursed from the sale proceeds. The initial expenditure shall be reimbursed from the sale proceeds of the properties which have already been sold, namely, the amount which the SEBI will transfer to the Escrow Account.
The States of Chhattisgarh, Maharashtra, Madhya Pradesh, Rajasthan, Uttar Pradesh and Haryana are hereby directed through their Chief Secretaries and Financial Commissioners (Revenue), to extend full cooperation and provide complete assistance as may be required by the HPSC for the purpose of execution and fulfilment of the assigned task. There must not be any delay on their part to comply with the instructions as may be received from the Chairperson of the HPSC.
Directors General of Police of the above-mentioned States are directed to provide assistance, if so required for the purpose of securing and protecting possession of the properties of the Companies. In addition, the HPSC, if so required, may deploy private guards for the protection of the properties of the Companies.
SEBI and the Petitioners are also directed to extend full cooperation to the HPSC.
To facilitate the sale and disbursement process and keeping in mind the period of incarceration already undergone, Petitioner Nos. 1 and 2 are directed to be enlarged on interim bail to the satisfaction of the MPID Court, Mumbai in Case No. 7 / 2016. This will be treated as interim bail in all of the FIRs. We order this on the basis of the special facts of the case, in exercise of our power under Article 142 of the Constitution of India.
HPSC shall be at liberty to seek further guidelines or clarifications as may be required, for which its Member Secretary cum Nodal Officer shall be at liberty to move an appropriate application before this Court.
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2024 (5) TMI 1227
Condonation of delay in filing appeal - constrained to file the appeal after SEBI had instituted an appeal before this Court against the order of the Securities Appellate Tribunal “SAT” - HELD THAT:- From a reading of the impugned order, it appears that while the appellants have succeeded on the first issue, an order of remand has been passed on the second issue to the Whole Time Member by SAT.
Appellants, submits that, as a matter of fact, after the order of SAT, a notice was issued to the appellants requiring them to file written submissions before the Whole Time Member which they have complied with. However, it has been submitted that no hearing has taken place before the Whole Time Member and since an appeal has been filed by SEBI against the order of SAT, these appeals may be tagged with the companion appeal filed by SEBI.
In the facts and circumstances, we condone the delay. Issue notice.
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2024 (5) TMI 798
Validity of freezing the Demat Accounts of the petitioners by the Calcutta Stock Exchange (CSE) - petitioner no. 1 forms a part of the “promoter group” as defined under regulation 2 (1) (w) of the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“2015 Regulations”) and the family of the petitioners control the management and affairs of the proforma respondent no. 5-Company.
HELD THAT:- In the present case, petitioner no. 1 has subsequently issued e-mails to the respondent no. 1, showing his willingness to deposit the fines. Although no such intention appears from the conduct of the petitioners to comply with the other formalities, which were amply clarified to the petitioners by the several e-mails, notice and publication made by the CSE, the fact remains that no separate notice was given to the petitioner no. 1/promoter before freezing the Demat Accounts where the petitioner no. 1 is a joint holder.
Clause 5 of Annexure-I specifically distinguishes between the first notice, which is to be given to the listed entity itself, and the second notice which is to be given not to the listed entity but the promoter of the non-compliant entity. The said requirement having not been satisfied by the CSE/respondent no. 1, the impugned act of freezing the Demat Accounts of the petitioners was unlawful and not sustainable in the eye of law.
It cannot be denied that the stages prior to the same have been duly complied with by respondent no. 1. Hence, the laches on the part of respondent no. 1 can be rectified if a notice as contemplated in Clause 5 of Annexure–I is issued prior to freezing the Demat Accounts of the petitioner.
Accordingly is allowed on contest, thereby setting aside the Notice dated January 1, 2024, insofar as the petitioners are concerned and the e-mails dated January 3, 2024 and January 5, 2024 issued by the respondent no. 1 and quashing the freezing of the Demat Accounts of the petitioners.
Nothing in this order, however, shall preclude respondent no. 1 from proceeding afresh with issuance of a notice to the petitioner no. 1 and the other promoters/promoter group of the proforma respondent no. 5-Company individually under the second limb of Clause 5 of Annexure-I of the SEBI Circular dated January 22, 2020 to ensure compliance with the requirements and pay fines within ten days from the date of such notice.
In the event the defaults are not made good by compliance with the requirements and payment of fine, the respondent no. 1 shall be at liberty to proceed as per the procedure laid down in Clause 6 of Annexure-I of the said Circular by intimating the depositories to freeze the entire shareholding of the promoters as well as other securities held in the Demat Accounts in case of failure of the non-compliant listed entity/proforma respondent no. 5-Company to comply with the requirements and pay the fine levied under the said Circular.
In the said notices, the respondent no. 1 shall specify the exact amount of fine payable by the petitioners.
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2024 (3) TMI 1183
Recovery proceedings by SEBI - Maintainability of provisions of IBC over the provisions of the SEBI Act - notice was challenged by the appellants on the ground that the same cannot be enforced as the proceedings under the Insolvency and Bankruptcy Code, 2016 and the provisions of the Provincial Insolvency Act, 1920 initiated against the appellants are pending and the orders of interim moratorium have been passed - penalty imposed and sought to be recovered from the appellants by issuing the impugned certificate fall within the meaning of ‘fine’, which is excluded under clause (a) of sub-section (15) of Section 79 of IBC and therefore, the interim moratorium order issued in favour of the appellant No. 1 has no application to the penalty sought to be recovered under the impugned certificate
HELD THAT:- Once an application is admitted under Section 100, a moratorium shall commence in relation to all the debts and shall cease to have effect at the end of the period of 180 days beginning with the date of admission of the application or on the date the adjudicating authority passes an order on the repayment plan under Section 114, whichever is earlier.
In the instant case, so far as appellant No. 1 is concerned, the period of moratorium commenced on 04.02.2022 which cease to operate on expiry of 180 days i.e., 04.08.2022. Similarly, in respect of appellant No. 2, the period of moratorium commenced on 13.12.2022 and the same expired on efflux of 180 days on 13.06.2023. The writ petition was heard by the learned Single Judge on 19.09.2023. Thus, it is evident that no moratorium was in force in favour of the appellants. Therefore, respondents No. 1 and 2 were justified in issuing the impugned certificate under Section 28A of the SEBI Act. It is pertinent to note that the provisions of Chapter IV of IBC, namely Sections 121 to 124 do not apply to the facts of the case as the application under Section 122 was not filed when the Certificate under Section 28A of the SEBI Act was issued. The issue whether the impugned levy is a fine or a penalty is also not required to be decided in the facts and circumstances of the case and we keep the same open to be adjudicated in an appropriate proceeding.
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2024 (3) TMI 1143
Jurisdiction/Validity of show-cause notice issued u/s 11(1), 11(2)(b), 11(4) and 11(B) of SEBI Act - as submitted show-cause notice is identical to what was issued to the Petitioner on the earlier occasion which came to be adjudicated and on which Petitioner was discharged and exonerated - Petitioner had earlier moved this Court by filing a Petition, however, the same was withdrawn by the Petitioner with liberty to approach the Security Appellate Tribunal and on such Interim Application came to be passed by the Tribunal ordered that in the interest of justice, the Respondent be directed to give an opportunity of a cross-examination and personal hearing and when an opportunity of a personal hearing before the WTM would be given to the Petitioner, the Petitioner could raise all issues including that of jurisdiction
Contention as urged on behalf of the Petitioner is that the impugned show-cause notice is without jurisdiction and the issue of jurisdiction is required to be decided as a preliminary issue before the show-cause notice itself is taken up for adjudication.
HELD THAT:- It appears to be not the case that the Petitioner at any point of time including in the proceedings filed before the tribunal had given up his case that the impugned show-cause notice was without jurisdiction. In fact, the Tribunal itself has observed that the Petitioner would be permitted to raise the issue of jurisdiction in the proceeding of the show-cause notice to be held on 16th February, 2024.
Thus we are of the opinion that the present Petition can be disposed of by directing the concerned Officer of the Respondent to decide the issue of jurisdiction being raised by the Petitioner as a preliminary issue and only after such issue is decided, take an appropriate call on the adjudication of the show-cause notice. All contentions of the parties in that regard are expressly kept open.
Petitioner shall be intimated the date on which the Petitioner would be heard on the issue of jurisdiction and appropriate orders in deciding such issue be passed as expeditiously as possible.
We clarify that till the issue of jurisdiction is decided, the concerned officer of the Respondent shall not adjudicate the show-cause notice on merits including recording of any evidence of the same.
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2024 (3) TMI 988
Rejection of Petitioner’s Settlement Applications - delay on the part of the Petitioner in making compliances of submission of documents and as per the Settlement Regulations, 2018 and more particularly Regulation 6(1)(b) - Petitioner made a representation to the Respondent requesting the Respondent to consider such documents by condoning the delay, which according to the Petitioner was not attributable to the Petitioner and for reasons which where not in Petitioner’s control - HELD THAT:- Certainly there was delay on the part of the Petitioner in not complying with the time lines on submission of the documents, which according to the Petitioner were relevant in regard to the Settlement Applications and as demanded by the Respondent in the course of the proceedings. We also find that the Respondent was required to follow the provisions of the Regulations in question.
Considering the peculiar facts of the case and the reasons which are set out by the Petitioner, in our opinion in not submitting these documents within the prescribed time, the Petitioner would certainly deserve an opportunity of his Settlement Applications being considered by the Respondent and it ought not to become inconsequential on account of a delay of 15 days in submission of the documents. This would certainly cause prejudice to the Petitioner. We are thus inclined to set aside the impugned order passed by the Respondent and restore the proceedings of the Settlement Applications with the Respondent to be decided in accordance with law.
Petitioner submits that the documents are already part of the record of the Settlement Applications, hence, there would not be any impediment for the Respondent to decide the Settlement Applications as filed by the Petitioner expeditiously.
Let the decision on the Settlement Applications be taken as expeditiously as possible within period of eight weeks from the date of copy of the order is made available to the parties.
All contentions of the parties on the adjudication of the Settlement Applications are expressly kept open.
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