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TMI Blog2017 (5) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... inspite of receiving requisite documents appellants (excluding Prabhakara Gupta) failed and neglected to file detailed reply to the show cause notices till May 2014. Moreover, during the period from 2011 till May 2014 appellants, including Prabhakara Gupta consistently failed and neglected to participate in the proceedings before the WTM even though their request for keeping the proceedings in abeyance till conclusion of the criminal trial was repeatedly rejected and repeatedly the appellants were warned that ex-parte order would be passed if they fail to avail the opportunity of hearing. In these circumstances, in the facts of present case, argument of the appellants that the impugned order is violative of the principles of natural justice cannot be accepted. Email admittedly sent by Ramalinga Raju on 07.01.2009 as also the statements of the appellants recorded by SEBI and the documents referred to in the show cause notices issued to the appellants clearly establish that the appellants were instrumental/ involved in inflating/ manipulating the books of Satyam during the period from 2001 to 2008. That information was a price sensitive information and while in possession of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Member ( WTM for short) of Securities and Exchange Board of India ( SEBI for short) in his order dated July 15, 2014. By the said order the WTM has held that the appellants who were the then Chairman, Managing Director, Chief Financial Officer ( CFO for short), Vice President (Finance), Head (Internal Audit) of Satyam Computer Services ( Satyam for short) respectively are guilty of violating the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ( PFUTP Regulations for short) and SEBI (Prohibition of Insider Trading) Regulations, 1992 ( PIT Regulations, 1992 for short). By the said order, apart from restraining the appellants from accessing the securities market and prohibiting the appellants from buying, selling or otherwise dealing in securities, directly or indirectly for a period of 14 years, the WTM has directed the appellants to disgorge the unlawful gains arising on sale/ pledge of Satyam shares during the period from 2001-2008 as more particularly set out in para 140 of the impugned order dated July 15, 2014 with interest at the rate of 12% per annum from 07.01.2009 till the date of payment. Since all these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam s problem was solved, it was hoped that Maytas payment can be delayed. But that was not to be. What followed in the last several days is common knowledge. I would like the Board to know: 1. That neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years excepting for a small proportion declared and sold for philanthropic purposes. 2. That in the last two years a net amount of ₹ 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation. I am confident they will stand by the company in this hour of crisis. In light of the above, I fervently appeal to the board to hold together to take some important steps. Mr. T.R. Prasad is well placed to mobilize support from the government at this crucial time. With the hope that members of the Task Force and the financial advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well. Under the circumstances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible. I am now prepared to subject myself to the laws of the land and face consequences thereof. (B. Ramalinga Raju) Copies marked to 1. Chairman SEBI 2. Stock Exchanges 3. On the basis of above email, SEBI carried out detailed investigation of Satyam which revealed the following:- a) Books of account of Satyam as on 30.09.2008 disclosed balance of ₹ 1782.60 crore in its current a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but it was the Monthly Bank Statement that was used for the purpose of monthly closing of the bank ledger and preparation of monthly bank reconciliation statement. The changes for prior entries were carried out through the rectification module available in the accounting package. The transactions in the monthly bank statement which were not appearing in the daily bank statement were accounted as and when the differences were identified. It was also observed that certain transactions in the daily bank statement were not accounted for without assigning reasons. Further, transactions already accounted for were reversed. Monthly bank statements were found to be manipulated by showing additional entries largely in the nature of extra receipts. Thus, it was observed that fake monthly bank statements were being prepared at the end of every month containing desired debit/credit entries, which were additional to the daily statements and the accounts were drawn up on the basis of fake monthly bank statements which obviously reflected false balances. e) As per the books of Satyam, the amounts kept in Fixed Deposit ( FD ) with Citibank, HDFC Bank, HSBC Bank, ICICI Bank BNP Paribas as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial number and project ID which was then passed on to other tools for approval and then finally the invoice for delivery to the customer was generated at the IMS level. j) Apart from the above, the system adopted by Satyam also enabled porting of data through MS Excel directly at the IMS stage. In such a situation, all the fields were entered in the IMS manually by a process known as excel porting . When excel porting was done, there was no need for the data to pass through all the stages referred to above. However, it was necessary to have the Admin ID to generate invoices through excel porting. It was observed that Admin ID and password required for the one-step intervention through excel porting was with Mr. G. Ramakrishna, the then V.P. (Finance) and was made available to the accounts receivable team working under him, which included Mr. Srisailam Chetkuru, Mr. K. Malla Reddy and Mr. Suresh Kumar, who were responsible for entering invoice data on the system. k) Mr. Malla Reddy in his statement stated that he used to receive an excel attachment from Mr. Srisailam Chetkuru, who was his reporting manager, and Mr. Srisailam instructed Mr. Malla Reddy to hide the invoices m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imated to Mr. G. Ramakrishna, (to whom he was reporting), that Mr. Srinivas was asking him to make the changes, in the MIS, whereupon Mr. Ramakrishna informed Mr. Ramarao Remella that as the CFO Mr. Srinivas knew the rationale for the change better and therefore the changes in MIS be carried out as directed by Mr. Srinivas. n) Investigation revealed that there were 27 invoices in the IMS in relation to the development of certain customized products by the customers who were nonexistent. Investigation carried out in relation to one such non- existent customer called Cellnet Inc. revealed the follows:- i) On 9 April, 2006, Mr. Rama Raju, MD had sent an email to Mr. TR Anand requesting Mr. Anand to develop a proposal on the lines set out in the attachment to the said email. In that email, Mr. Rama Raju had directed Mr. Anand that the team should not know that he had mooted the proposal and therefore only the attachment to the email be forwarded to the team members and not the email. Copy of the email was also marked to Mr. Ramalinga Raju. ii) Accordingly, on 18 April, 2006 Mr. Anand had sent to Mr. Rama Raju a software project conceived, designed and built on the line suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess to the OFF module in Oracle Financials was removed. Mr. Prabhakara Gupta further stated that Mr. Rama Raju had directed him to close the observations regarding the reconciliation of the invoices and told him that Mr. Ramakrishna would take care of the same. Similarly, Mr. Ramakrishna told his team that reconciliation had been done in the Citigroup case and directed them to close the observations in the Citigroup report. Thereupon, Mr. Prabhakara Gupta advised his team to close the observations in the Citigroup report, as he could not over rule the directions given by Rama Raju. Prabhakara Gupta stated that same approach was also taken in other cases. Thus, the Internal Audit team headed by Prabhakara Gupta, inspite of noticing the mismatch between the invoices in the IMS Oracle Financials as far back as in the 1st quarter of 2007-08, closed its observations and filed false reports by recording that the observations has been settled or to check compliance on scheduled date or settled. To be verified in future . The above invoices indentified in the Internal Audit Reports were among the 7561fake invoices noticed during the course of investigation. p) Investigation revea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigation revealed that Satyam had received ₹ 1425 crore through cheques drawn on behalf of the said 37 entities on various dates in 2007- 2008, however, none of these receipts were reflected in the Oracle Financials. It was further observed that an amount of about ₹ 194.6 crore was paid by Satyam to various entities. These payments were reflected in the Oracle Financials, but shown as advances paid on behalf of Panchakalyani Agro Farms Pvt. Ltd. Various cheques amounting to ₹ 194.6 crore paid by Satyam were signed either by Mr. Ramalinga Raju or Mr. Rama Raju. It was, therefore, observed that the amount of ₹ 1425 crore was received by Satyam but was not reflected in the books and financial statements, however, an amount of ₹ 194.6 crore paid by Satyam was recorded in the Oracle Financials in an incorrect and misleading manner. u) As per the books of Satyam, net addition to TDS for assessment year 2008-09 (financial year 2007-08) was ₹ 88.73 crore, whereas the TDS amount reflected in the audited balance sheet was ₹ 61.04 crore and the actual amount of TDS for which the benefit was claimed in the income tax return filed by Satyam for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in fact Satyam issued 32,76,94,738 equity shares in the ratio of 1:1 to the shareholders in October 2006 on the basis of false financial position disclosed in the books and made available to the public. On the above announcement made in April 2006, there was a rally in the scrip of Satyam on the NSE and BSE. As the bonus was issued on the basis of false and manipulated financial position, it was considered that Satyam declared bonus with a view to mislead the investors and to maintain an artificial price of Satyam in the market. y) In December 2008, Satyam purported to acquire Maytas Properties Ltd. and Maytas Infra Ltd. which was abandoned on account of stiff opposition by the shareholders. Thereupon, Satyam announced that a proposal to buy back its shares would be considered at the Board meeting to be held on 29.12.2008. All these steps were taken even though Satyam was in financial crisis and was not even able to meet its regular payment obligations. Mr. Ramalinga Raju, in his statement admitted that Satyam lacked the capacity to buy-back the shares and that the announcement was made to gain additional time to sort out the issues faced by Satyam. As a result of the above a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs be kept in abeyance on the ground that the criminal proceedings initiated against the appellants were going on a day to day basis and as per the order passed by the Apex Court it was necessary for the appellants to attend the criminal court on regular basis. Although, SEBI offered personal hearing on Saturdays when the criminal court was not functioning, the appellants expressed their inability to avail personal hearing on Saturdays inter alia on ground that on Saturdays they instruct their lawyers and prepare for the hearing on the next working day. The request made by the appellants was repeatedly rejected and the appellants were repeatedly warned that in case of failure to avail the opportunity of personal hearing, ex-parte order would be passed. Ultimately, by notice dated 30.04.2014 final opportunity of personal hearing was offered to the appellants on 12.05.2014. In the said notice it was clearly stated that pendency of CBI trial would not be accepted as a justifiable ground for their nonattendance on the date fixed for personal hearing. They were also advised that the proceedings cannot be kept abeyance anymore, as sufficient time and opportunities of being heard have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Assuming that there is no violation of the principles of natural justice, whether the WTM is justified in holding that the appellants are guilty of violating the SEBI Act, PFUTP Regulations and the PIT Regulations, 1992. c) Assuming that the appellants are guilty of violating the SEBI Act and the regulations made thereunder, whether the WTM is justified in restraining the appellants from accessing the securities market for a period of 14 years and directing the appellants to disgorge unlawful gains quantified against each appellant with interest @ 12% per annum from 07.01.2009 till payment. Violation of the principles of natural justice. 9. Basic argument of the appellants is that, when the appellants had repeatedly sought inspection of the documents and had sought crossexamination of the persons whose statements were relied upon in the show cause notice/ supplementary show cause notices, the WTM, without offering inspection of documents and without offering crossexamination could not have proceeded to pass ex-parte order against the appellants. Appellants contend that they had repeatedly requested the WTM to keep the proceedings in abeyance in view of the ongoing cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of the appellants after the FIR was filed by CBI on 09.01.2009. Consequently, the WTM could not have passed the impugned order based on the inadmissible statements of the appellants. e) In the absence of any independent corroborative evidence, the WTM could not solely rely on the email and inadmissible statements of the appellants and arrive at a conclusion that the appellants are guilty of violating SEBI Act and the regulations made thereunder and further the WTM could not have relied upon the statements of co-accused and various other persons, that too without offering cross-examination of those persons to the appellants. f) Since the officer who had recorded the statements of the appellants was not allowed to be cross-examined, the statements recorded by those officers of SEBI were involuntary statements which had no evidentiary value. g) Even if it is held that the email sent by Mr. Ramalinga Raju on 07.01.2009 was admissible in evidence, the WTM ought to have considered the email in its entirety and not only a part of that email. h) Relying on various decisions of this Tribunal as well as the decisions of the Apex Court including the decision of this Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments/cross examination, none of the appellants (except Prabhakara Gupta) filed detailed reply and none of the appellants including Prabhakara Gupta deemed it proper to appear before the WTM whenever personal hearings were offered to them. During the period from March 2010 till May 2014 appellants repeatedly sought adjournment either on ground that inspection of documents/ crossexamination was not offered or on ground that the criminal trial initiated against them was going on a day to day basis. Even Prabhakara Gupta in his reply stated that unless records of Satyam are furnished he cannot give meaningful reply to the charges levelled against him. 15. Argument of the appellants that they could not file their detailed reply, because, all documents lying with them were taken away by other government agencies after the email of Ramalinga Raju dated 07.01.2009 is without any merit, because, before commencement of the criminal trial initiated by CBI against the appellants in February 2011 requisite documents of Satyam were furnished to the appellants. In none of their letters the appellants had stated that apart from the records of Satyam furnished to them in the criminal trial, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 09.05.2014 (received by SEBI on 12.05.2014) and Ramalinga Raju Rama Raju by their letters dated 26.05.2014 sought cross-examination of the persons named therein, could not be a ground for them not to appear before the WTM on 12.05.2014. Therefore, in the facts of present case, appellants (except Prabhakara Gupta) who are guilty of not filing detailed reply to the show cause notice/ supplementary show cause notices and the appellants including Prabhakara Gupta who are guilty of not availing the opportunity of personal hearing repeatedly offered to them, are not justified in contending that the impugned order is passed in violation of the principles of natural justice. 18. Argument advanced on behalf of the appellants that once CBI filed FIR on 09.01.2009, appellants became accused persons under Article 20(3) of the Constitution and therefore, statement of appellants who were accused persons could not be recorded after 09.01.2009 under Article 20(3) of the Constitution is without any merit, because, firstly, FIR filed by CBI was not in relation to the violation committed by the appellants under the securities laws and therefore, on filing of FIR by CBI, appellants cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments/ statements/ cross- examination by filing an appeal before this Tribunal. In the present case, repeated requests made by the appellants to keep the proceedings in abeyance till the criminal trial was over was repeatedly rejected and the appellants were repeatedly warned that ex-parte order would be passed if they do not avail the opportunity of personal hearing. However, the appellants neither challenged the aforesaid decision nor participated in the proceedings by availing the opportunity of personal hearing offered to them. Thirdly, in case of Price Waterhouse fact that requisite documents were furnished to them before commencement of the criminal trial, were neither raised nor considered, whereas, in the present case, specific plea of SEBI is that requisite documents of Satyam were furnished to the appellants before the commencement of the criminal trial and that fact is not disputed by the appellants. Fourthly, Apex Court in case of Price Waterhouse has specifically recorded that the directions given in that case are general directions given as and by way of clarifications without going into the merits of the case. Therefore, directions given in the facts of Price Water ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the appellants have violated SEBI Act, PFUTP Regulations, 2003 PIT Regulations, 1992, it would be appropriate to quote relevant provisions, which read thus:- SEBI Act, 1992 Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. 12A. No person shall directly or indirectly (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognized stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognized stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in securities; (k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors; (r) planting false or misleading news which may induce sale or purchase of securities. Regulation 3 4 of PIT Regulations, 1992. PROHIBITION ON DEALING, COMMUNICATING OR COUNSELLING Prohibition on dealing, communicating or counselling on matters relating to insider trading. 3. No insider shall- (i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange when in possession of any unpublished price sensitive information; or (ii) communicate [or] counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information shall not deal in securities: Provided that nothing contained above shall be applicable to any communication required in the ordinary course of business [or profession or employment] or under any law. Violation of provisions relating to insider trading. 4. Any insider w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in the email unequivocally shows that the books of Satyam were inflated/ manipulated with the sole object of the promoters of continuing to have control over Satyam, namely, Ramalinga Raju and his family members. Inflating/ manipulating the books is a serious offence under the SEBI Act and the PFUTP Regulations. d) If the financial status of Satyam as reflected in the books were true, then there was no reason for Ramalinga Raju to arrange ₹ 1230 crore over a period of two years which were admittedly not reflected in the books of Satyam. This fact recorded in the email of Mr. Ramalinga Raju clearly justifies the conclusion drawn by the WTM that Ramalinga Raju was the chief orchestrator in inflating/ manipulating the books of Satyam. e) Contents of email dated 07.01.2009 were reiterated and confirmed by Mr. Ramalinga Raju in his statements recorded on 4th, 5th 6th February 2009. The said statements recorded by SEBI were not retracted by Mr. Ramalinga Raju at any time till passing of the impugned order. Thus, the email and statements of Ramalinga Raju conclusively establish that he was the chief orchestrator in inflating/ manipulating the books of Satyam for se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the above argument advanced by counsel for the appellant is without any merit and hence rejected. i) Although statements of V. Srinivas, G. Ramakrishna and other employees of Satyam further establish that Ramalinga Raju was involved in inflating/ manipulating the books of Satyam, in our opinion, the email dated 07.01.2009 and the unretracted statements of Ramalinga Raju are sufficient to uphold the decision of the WTM that Ramalinga Raju had violated the SEBI Act, PFUTP Regulations and PIT Regulations. Mr. Rama Raju 26. Decision of the WTM that Mr. Rama Raju had violated SEBI Act, PFUTP Regulations PIT Regulations cannot be faulted for the following reasons:- a) Mr. Rama Raju brother of Ramalinga Raju was the promoter/ Managing Director ( MD for convenience) of Satyam during the period from 2001 to 2008 and during that period the books of Satyam are found to have been inflated/ manipulated. b) As MD of Satyam, Mr. Rama Raju had access to all the financial dealings of Satyam. On 21.01.2002 the Board of Directors ( BoD for short) of Satyam had passed a resolution authorizing either Mr. Ramalinga Raju/ Mr. Rama Raju to invest or place any fixed deposit from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et Inc. enquiring about the purchase order dated 09.04.2006. Copy of that email was marked by John Elite to Rama Raju. In the eIMS records of Satyam it was shown that payment of USD 98,20,000 has been received from CellNet Inc. However, investigation carried out by SEBI revealed that CellNet Inc. was a fictitious entity and in fact Satyam had not received any payment from CellNet Inc. Above facts clearly show that Rama Raju was involved in inflating/ manipulating the records of Satyam. e) From 2005 onwards Mr. Rama Raju as M.D. of Satyam had signed CEO Certification in compliance with Clause 49 of the Listing Agreement whereby he had assured the investors that the books of Satyam are maintained in accordance with law. However, investigation carried out by SEBI revealed that the books of Satyam were inflated/ manipulated for several years. Thus, it is evident that Rama Raju by his CEO certification made the investors to believe that the books of Satyam were maintained in accordance with law when in fact it was not true. f) As an MD of Satyam, Rama Raju had signed Income Tax returns and audited balance sheets which to his knowledge did not reflect true state of affairs. Moreo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances, findings recorded by the WTM that Rama Raju had violated SEBI Act, PFUTP Regulations and PIT Regulations cannot be faulted. k) Although statements of V. Srinivas (CFO), G. Ramakrishna (VP, Finance) and other employees of Satyam further establish the involvement of Rama Raju in inflating the books of Satyam, in our opinion, facts set out hereinabove are sufficient to hold that Rama Raju had violated Section 12A of SEBI Act, regulation 3 4 of PFUTP Regulations, 2003 PIT Regulations, 1992. Mr. V. Srinivas 27. Decision of the WTM that V. Srinivas had violated SEBI Act, PFUTP Regulations, 2003 PIT Regulations, 1992 cannot be faulted for the following reasons. a) During the period i.e. during the period from 2001 to 2008 V. Srinivas was the Senior Vice president/ Chief Financial Officer ( CFO for short) overseeing the departments of Finance, Legal, Secretarial and Corporate Services of Satyam. b) In his statement recorded on 10.01.2009, V. Srinivas admitted that although he had doubts about the availability of the bank deposits of Satyam shown in the books, he had not taken any specific action because the same were verified and certified by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of investigation conducted by SEBI. d) Inspite of the fact that the bank balances reflected in the books of Satyam were not true, as CFO and Head of Finance, V. Srinivas was party to the issuance of bonus shares, raising funds through ADS issue and buy back of Satyam shares etc. from time to time, which were all intended to mislead the investors in believing that Satyam was financially sound which were factually not true. e) As CFO of Satyam, V. Srinivas had signed CFO Certification as required under Clause 49 of the Listing Agreement to the effect that the books of Satyam were maintained in accordance with law. Since it is established that the books of Satyam were inflated/ manipulated for several years, it is apparent that the CFO certification given by V. Srinivas were totally false. It is impossible to believe that during the period from 2001 to 2008 V. Srinivas as CFO Head of Finance was oblivious of the fact that the bank balances/ FDR s reflected in the books of Satyam were totally false and far from truth. f) V. Srinivas had regularly made various public statements including press releases regarding financial performance, assets, liabilities etc. of Satyam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the impugned order passed without giving inspection of documents/cross-examination is bad in law. In other words, V. Srinivas who is himself guilty of not acting fairly, who is guilty of not filing reply for several years and who is guilty of not availing the repeated opportunity of personal hearing offered to him, is not justified in contending on the basis of various decisions, that failure to furnish inspection of requisite documents/ cross- examination has caused prejudice to him and therefore the impugned order is liable to be quashed and set aside. j) Reliance placed on a decision of the Apex Court in the case of State Bank of India v/s Chandra Govindji reported in (2000) 8 SCC 532 is misplaced, because, in that case adjournment was granted by accepting the plea for adjournment. In the present case, plea raised for keeping the proceedings in abeyance till the criminal trial was over has been specifically rejected from time to time. Therefore, reliance placed on the decision of the Apex Court in case of State Bank of India (supra) is misplaced. k) Although statement of G. Ramakrishna (V.P. Finance) and several others establish involvement of V. Srinivas in inflat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent had transactions additional to the transactions in the daily statements. Since the type of transactions which occur in both the daily statements and monthly statements were similar, the accounting for the same was done similarly. d) In his statement recorded on 13.01.2009 Ramakrishna further admitted that he had noticed differences in the entries that appear in the daily bank statements vis a vis the monthly bank statements of BoB New York Branch, however, as per the instructions given by Ramalinga Raju 6-8 years back, the monthly bank statements were taken as the final statement for the purpose of accounting and reconciliation. e) In his statement recorded on 16.01.2009 Ramakrishna admitted that the monthly bank statements had more receipts than the receipts reflected in the daily bank statements. As a result, bank balances shown in the financial statements were more than the actual bank balances. Ramakrishna admitted that he had never brought to the notice of the audit committee the material impact of reliance upon monthly bank statements on the books of accounts maintained by Satyam especially when the monthly bank statements were not tallying with the daily bank st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as since we have been told that this is an arrangement let us not question . Ramakrishna admitted that the above explanation was not satisfactory, however, he did not pursue it further and instructed his staff to prepare the books on the basis of monthly statements. Ramakrishna has also admitted that he had passed on the instructions received from Ramalinga Raju, Rama Raju and V. Srinivas to his subordinates to prepare the draft accounts on the basis of monthly statements. h) Aforesaid unretracted admissions contained in the statements of Ramakrishna clearly negate the statements/ arguments of Ramakrishna he was not aware of the fact that the books of Satyam were manipulated for several years. In these circumstances, decision of the WTM that Ramakrishna was involved in inflating/ manipulating the books of Satyam for several years in gross violation of SEBI Act and PFUTP Regulations cannot be faulted. i) From the facts set out hereinabove, it is apparent that G. Ramakrishna (V. P. Finance) of Satyam was privy to the fact that the books of Satyam were inflated/ manipulated for several years, which was a price sensitive information and while in possession of that UPSI, G. Ramak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S were among the fake invoices inserted in the system to inflate performance of Satyam. d) Prabhakara Gupta in his statement admitted that subsequent to the Internal Audit reporting the disparity in the invoices shown in the IMS and Oracle Financials, the access to OFF module in Oracle Financials was removed for the Internal Audit team. Prabhakara Gupta admitted that some time in July 2008, Rama Raju telephoned and directed Prabhakara Gupta to close the audit observations relating to the mismatch of invoices found in the two systems of Satyam and that Ramakrishna would take care of it. Prabhakara Gupta stated that he could not overrule the directions given by Rama Raju and therefore advised his team to close the observations made in case of Citigroup. Accordingly, it was recorded in the report that the audit observation has been settled. e) Investigation carried out by SEBI revealed that the audit observations were closed in case of Citigroup without any reconciliation. Very fact that Prabhakara Gupta even after noticing the mismatch of invoices, agreed to close the observations without any reconciliation clearly justifies the conclusion drawn by the WTM that Prabhakara Gupta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not violated SEBI Act and the PFUTP Regulations. i) Fact that Prabhakara Gupta and his team did not have any role in the preparation of financial statements does not absolve Prabhakara Gupta as Head of Internal Audit from the obligation to ensure that the financial statements were prepared in accordance with law. Very fact that Prabhakara Gupta sought to close the audit observation without reconciliation and failed to bring it to the notice of the audit committee itself is in gross violation of the Inter Audit Manual. Therefore, the finding recorded by the WTM that Prabhakara Gupta even after noticing serious irregularities in the financial statements permitted the inflated/ manipulated financial statements to go as genuine financial statements in gross violation of SEBI Act and PFUTP Regulations cannot be faulted. j) Argument that Prabhakara Gupta had no reason to believe that the mismatch between the two systems of Satyam was due to the accounting fraud committed by Satyam is falsified by his own conduct in falsely closing the audit observations regarding the mismatch of invoices in the two systems of Satyam as settled. Making the above false statement in the audit report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nga Raju had admitted that the basic reason for inflating the books of Satyam was that the promoter group of Satyam apprehended that reporting poor performance of Satyam may result in the control of Satyam being taken over by third parties especially when the promoters held a small percentage of equity of Satyam. Investigation carried out by SEBI revealed that Ramalinga Raju as Chairman and Rama Raju as, MD of Satyam were instrumental in creating fictitious invoices, fictitious receipts etc. on the basis of which fictitious monthly bank statements were prepared, whereas, V. Srinivas (CFO), G. Ramakrishna (V. P. Finance) and Prabhakara Gupta (Head, Internal Audit) inspite of noticing introduction of fictitious documents, allowed the books of Satyam being prepared on the basis of those fictitious documents. In such a case, reason as to why V. Srinivas, G. Ramakirshna and Prabhakara Gupta have been treated on par with Ramalinga Raju and Rama Raju and uniformly restrained from accessing the securities market for 14 years is not set out in the impugned order. In the absence of reasons recorded in the impugned order, it is difficult to ascertain the basis on which uniform restraint order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were liable to be treated as illegal gain made by Ramalinga Raju and Rama Raju especially when the show cause notice dated 19.06.2009 seeking to recover the said illegal gain from the connected entities was pending. The WTM was very well aware of the said show cause notice dated 19.06.2009 and in fact, the very same WTM was considering the cause shown by the connected entities in reply to the show cause notice dated 19.06.2009. Therefore, decision of the WTM in treating the illegal gain made by the connected entities as the illegal gain made by Ramalinga Raju and Rama Raju without assigning reasons is wholly unjustified. c) It is interesting to note that the very same WTM has disposed of the show cause notice dated 19.06.2009 by order dated 10.09.2015, wherein he has held that the illegal gain made by the connected entities were liable to be disgorged by the respective member of the connected entity group, jointly and severally with Ramalinga Raju and Rama Raju. Thus, in relation to the illegal gain made by the connected entities, the WTM has passed two different orders which are mutually contradictory. It is unfortunate that SEBI is defending both the orders passed by the very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual member of the connected entity and without assigning any reason held that the said illegal gain be disgorged by individual member of the connected entity group jointly and severally with Ramalinga Raju and Rama Raju. Inspite of the above glaring inconsistency, argument of SEBI that the said inconsistency being favourable/ beneficial, the appellants cannot make a grievance, is really astonishing. g) Similarly, direction given by the WTM that Ramalinga Raju Rama Raju must jointly and severally disgorge ₹ 1258.88 crore is also without any merit. According to SEBI, in September 2006, Ramalinga Raju, Rama Raju and their spouses had transferred shares of Satyam held by them to SRSR Holdings Pvt. Ltd. ( SRSR for short) a company wholly owned by Ramalinga Raju, Rama Raju and their family members. Between October 2007 and September 2008, SRSR pledged the Satyam shares transferred by Ramalinga Raju, Rama Raju and their spouses with a view to enable 10 group entities belonging to Ramalinga Raju and Rama Raju s family to avail loan from financial institutions. Without recording reasons in the impugned order as to how pledging Satyam shares through SRSR to avail loan for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ramalinga Raju and Rama Raju. Thus, the WTM has passed mutually contradictory orders and mechanically, SEBI is seeking to defend both the orders. Without expressing any opinion on the merits of the order dated 10.09.2015, we hold that the impugned order dated 15.07.2014 passed by the WTM treating ₹ 1258.88 crore being the loan sanctioned on pledge of Satyam shares was the illegal gain made by Ramalinga Raju and Rama Raju and directing them to disgorge the said of ₹ 1258.88 crore jointly and severally cannot be sustained, because, in the impugned order, the WTM has not recorded any reason as to why ₹ 1258.88 crore was the illegal gain made by Ramalinga Raju and Rama Raju, when the show cause notice dated 19.06.2009, issued to SRSR, SEBI had considered that the amount of ₹ 1258.88 crore being the loan sanctioned on pledge of Satyam shares was the illegal gain made by SRSR. k) Similarly, quantum of illegal gain determined in case of V. Srinivas, G. Ramakrishna and Prabhakara Gupta are also faulty, because in all the three cases the WTM has taken the closing price prevailing on the dates on which Satyam shares were sold/ transferred by those three persons an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the appellants were instrumental/ involved in inflating/ manipulating the books of Satyam during the period from 2001 to 2008. That information was a price sensitive information and while in possession of that unpublished price sensitive information, appellants had sold/ transferred shares of Satyam and made huge profits. In these circumstances, decision of the WTM that the appellants violated the provisions contained in the SEBI Act, PFUTP Regulations and PIT Regulations, 1992 cannot be faulted. c) For the reasons stated in para 33 hereinabove, we hold that the decision of the WTM in uniformly restraining all the appellants from accessing the securities market for 14 years without assigning any reasons is unjustified. Similarly, the quantum of illegal gain directed to be disgorged by each appellant is based on grounds which are mutually contradictory and also without application of mind. In these circumstances, we set aside the impugned order to the extent it relates to the period for which the appellants are restrained from accessing the securities market and the quantum of illegal gain directed to be disgorged by the appellants and remand the matter to the file of the WTM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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