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TMI Blog2010 (11) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... years 2003-05, it transpired that certain entities opened many demat accounts in fictitious/benami names and these entities cornered/acquired the shares of those companies allotted in the IPOs by making large number of applications of small value so as to make them eligible for allotment under the retail category. The strategy adopted was that subsequent to the receipt of IPO allotment, these fictitious/benami allottees transferred the shares to their principals called the key operators who controlled their accounts and who, in turn, transferred most of the shares to the financiers who had originally made available funds for executing the game plan. In view of the booming market, the key operators in some cases and the financiers in most of the cases then sold most of the shares on the first day of listing or soon thereafter thereby making a windfall gain of the price difference between the issue price and the listing/sale price. The appellants are alleged to have played the role of financiers by financing some of the transactions of two key operators namely, Mr. Purushotam Budhwani and M/s. Sugandh Estates and Investment Pvt. Ltd. referred to hereinafter as Budhwani and Sugandh re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terate that : there was no game-plan as alleged, the relationship between the Noticees and the so-named key operators was always on principal to principal basis, post disbursement of loan by the Noticees to SEIPL, and PB, all decisions and actions were taken by the so-named key-operators solely on their own account, at their respective risks, costs and consequences and the Noticees had played no role whatsoever in such decisions and/or actions. It is also the case of the appellants that loans were given to SEIPL and PB in the ordinary course on well recognized commercial terms and the said borrowers deployed the same in the manner deemed appropriate by the said borrowers at their sole risks, costs and consequences . The appellants admit that they accepted a part of their loan repayment by transfer of shares but deny that they were involved in any attempt to corner the shares meant for retail investors or that they were privy to or involved in any scam as alleged by the Board. 5. On a consideration of the material available on the record, the reply furnished by the appellants and after affording to them a personal hearing, the whole time member of the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the appellants had merely lent the money to the key operators without being a party to the game plan of cornering shares in the IPOs, then they are right in contending that they did no wrong but if they were instrumental in getting the applications filed through the key operators by giving finance to them, then obviously it were the appellants who were cornering the shares through a manipulative process as found by the Board. Let us see which of the two versions is correct. 7. The fact that the appellants had provided funds to Budhwani and Sugandh which funds they utilised for making large number of applications in the retail category for the allotment of shares in different IPOs is not in dispute. The details of the funds provided by the appellants to the two key operators for different IPOs, the number of applications filed by them and the shares allotted in those IPOs alongwith other necessary information including the refunds received are contained in Table A which has been relied upon in paragraph 5 of the impugned order. This table which has not been disputed by the appellants is reproduced hereunder for facility of reference: * valued at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... key operators without executing any document(s) or taking any security. The appellants in their written submissions filed on the conclusion of the hearing have clearly stated that THERE IS NO NEXUS BETWEEN THE APPELLANTS AND PB OR SUGANDH . They have given detailed reasons in paragraph 19 of their submissions as to why there is no nexus between them. Assuming this to be so, (though we are holding to the contrary) we wonder how such large sums of money could be given on loan without any documentation or security to persons with whom the appellants had no nexus. To say the least, this is most incredible and we are not willing to accept this argument. Besides the mere ipse dixit of the appellants, there is no material on the record to show that they advanced loans to the two key operators. Since the appellants had provided funds to them, the onus to establish that those were given as loans only as money lending transactions was on the appellants and they have miserably failed to discharge the same. We also cannot lose sight of the fact that both the appellants are practicing chartered accountants by profession and are not money lenders. We also have on record the stand taken by Budh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the ill-gotten gains made by them. The whole time member has directed the appellants to disgorge a sum of ₹ 4.05 crores (a round figure) on account of the ill-gotten gains made by them. In addition, he has also directed them to pay ₹ 1.95 crores as interest on the aforesaid amount which has been calculated at the rate of 12 per cent per annum. The learned senior counsel for the appellants strenuously challenged this part of the order by contending that the Board has no power to direct any delinquent to disgorge the ill-gotten gains made by him. The argument is that there is no provision in the Act which gives such a power to the Board and in the absence of a specific provision, a direction to disgorge could not be issued. He also challenged the calculations made by the whole time member in the impugned order regarding the notional profit on the unsold shares and argued that no direction for disgorgement could be issued on unrealised gains. The learned senior counsel also very strenuously challenged the direction regarding the payment of interest on the amount sought to be disgorged. 9. The question whether the Board has the power to direct a delinquent to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disgorgement. The next argument of the learned senior counsel is that the Board was in error in taking into account the unrealized gains for the shares which are still being held by the appellants and the said amount should be omitted for calculating the gains. It is true that the appellants did not sell all the shares that were cornered by them through the key operators and that some of them are still lying in their demat accounts. The whole time member in the impugned order has worked out the notional gain with reference to the closing price of the shares on the first day of listing and deducted the issue price therefrom. As at present advised, we can think of no better way of calculating the notional gain made by the appellants. Even if there is a better method of calculating the notional gains, we do not think that the method adopted by the whole time member is in any way arbitrary or unfair calling for our interference. Surely the appellants cornered the shares through illegal means and they cannot be heard to say that notional profits should not be worked out merely because they continue to hold some of them. They cannot be allowed to unjustly enrich themselves. We, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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