2019 (12) TMI 1150 - AT - SEBI

Order of the Whole Time Member ( WTM ) of SEBI restraining appellants from accessing the securities market directly or indirectly for a period of 10 years - direction to refund the investors/clients money with interest at the rate of 15% per annum from the date when the repayment became due till the date of actual payment - HELD THAT - The appellant is a promoter and therefore by virtue of holding majority stake of more than 51% she is in control of Kassa. Therefore we find no lacuna in the impugned order in holding the appellant guilty of the various provisions specified therein and the consequent directions issued thereunder. A common submission made by four of the appellants (excluding Manoj Kumar Agrawal) is that the impugned order does not crystallize the amount to be repaid/refunded to investors/clients and when the principal amount itself is not determined interest liability also becomes inconclusive and hence the order is unimplementable. It is also contended by them that the Demand Notice/Recovery Certificate dated December 18 2018 has travelled beyond the impugned order. When the impugned order itself does not crystallize the amount due the Recovery Certificate for 80, 97, 62, 785/- could not be issued by the Recovery Officer who is not an Adjudicating Authority. Further the Recovery Officer does not tell what is the amount to be adjusted in coordination with the NSE and BSE as directed in the impugned order. We find some merit in these submissions; it is not clear from the Recovery Certificate how the amount has been arrived at; what is the interest liability; whether payments made to various parties by NSE and BSE have been taken into account etc. In the light of the above while upholding the impugned order on merit we remit the matter to SEBI to specifically decide the following issues (i) The Recovery Officer shall crystallize the exact amount of liability for refund/repayment to investors/clients and issue a revised certificate. (ii) The WTM shall reconsider the period of restraint imposed on Manoj Kumar Agrawal (appellant in Appeal No. 346 of 2017). (iii) The WTM shall consider the request of Manoj Kumar Agrawal for liquidation of his mutual funds units. The appropriate authority shall pass fresh order(s) on the above issues within a period of three months from the date of the receipt of this order after giving an opportunity of hearing to the appellant(s).

Issues Involved:
1. Restraint from accessing the securities market.
2. Refund of investors' money with interest.
3. Violations of securities laws by Kassa and its appellants.
4. Relationship and roles of the appellants.
5. Demand notice and recovery certificate.
6. Arguments and defenses of the appellants.
7. SEBI's powers and actions.
8. Determination of liability and period of restraint.

Detailed Analysis:

1. Restraint from Accessing the Securities Market:
The appellants were restrained from accessing the securities market directly or indirectly for a period of 10 years. This decision was based on the findings of multiple violations of securities laws by Kassa and its directors/promoters, including the diversion of investor funds to group entities, engaging in activities other than stock broking, and failing to segregate proprietary and client funds.

2. Refund of Investors' Money with Interest:
Four appellants, excluding Manoj Kumar Agarwal, were directed to refund the investors/clients' money with interest at the rate of 15% per annum from the date of repayment due till the actual payment date. This was based on SEBI's findings of funds collected by Kassa in the form of loans from investors, promising high returns, and the siphoning off of these funds to group entities.

3. Violations of Securities Laws by Kassa and its Appellants:
Investigations revealed several violations by Kassa and the appellants, including:
- Diverting funds of investors to group entities.
- Engaging in activities other than stock broking, such as collecting money from clients promising assured returns.
- Failing to segregate proprietary and client funds.
- Non-redressal of investor grievances within a month.
- Violating various provisions of the SEBI Act, 1992, SEBI (Stock Brokers and Sub-brokers) Regulations, 1992, SEBI (Portfolio Managers) Regulations, 1993, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

4. Relationship and Roles of the Appellants:
The appellants' connections to Kassa and their roles were as follows:
- Siddharth Shankar: Former Director of Kassa and consultant.
- Nikita Shankar: Wife of Siddharth Shankar and proprietor of group entities.
- Manoj Kumar Agrawal: CFO and Compliance Head of Kassa.
- Anjana Kumar: Promoter of Kassa and wife of Ashok Kumar, MD of Kassa.
- Ashok Kumar: Managing Director of Kassa.

Each appellant attempted to distinguish their roles and responsibilities, arguing their limited involvement or lack of connection to Kassa's day-to-day management.

5. Demand Notice and Recovery Certificate:
A recovery/demand notice dated December 18, 2018, was issued to four appellants (excluding Manoj Kumar Agrawal), directing them to pay jointly and severally a sum of ?80,97,62,785 along with returns due to investors within 15 days. The appellants argued that the impugned order did not crystallize the amount to be repaid, making the demand notice unimplementable.

6. Arguments and Defenses of the Appellants:
- Siddharth Shankar: Claimed to be only a consultant with no connection to Kassa's management.
- Nikita Shankar: Argued that she was only a nominal proprietor of group entities managed by Ashok Kumar.
- Manoj Kumar Agrawal: Contended that he was not the CFO and had no significant role in the alleged violations.
- Anjana Kumar: Claimed to be a housewife with no role in Kassa's management, despite holding 51.65% of its shares.
- Ashok Kumar: Argued that the schemes were run by employees without his knowledge and that he was not given sufficient opportunity to defend himself.

7. SEBI's Powers and Actions:
SEBI's actions were upheld as just and fair, with the Tribunal rejecting the appellants' arguments that the investors were in pari delicto (equally at fault) and therefore not entitled to reliefs. The Tribunal emphasized SEBI's regulatory powers over brokers and its authority to direct refunds and impose penalties.

8. Determination of Liability and Period of Restraint:
The Tribunal upheld the impugned order on merit but remitted the matter to SEBI to specifically decide the following issues:
- Crystallize the exact amount of liability for refund/repayment to investors/clients.
- Reconsider the period of restraint imposed on Manoj Kumar Agrawal.
- Consider Manoj Kumar Agrawal's request for liquidation of his mutual funds units.

Conclusion:
The appeals were disposed of with directions to SEBI to pass fresh orders on the specified issues within three months, after giving an opportunity of hearing to the appellants. The Tribunal found no merit in most of the appellants' arguments, upholding SEBI's findings and actions while addressing specific concerns regarding the determination of liability and the period of restraint.

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