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TMI Blog2018 (2) TMI 1330X X X X Extracts X X X X X X X X Extracts X X X X ..... osure obligations under the aforesaid regulations is up to ₹ 1 crore. However, the AO after considering all mitigating factors has imposed penalty of ₹ 5 lac which cannot be said to be excessive or unreasonable. Strong reliance on the statement contained in the SEBI investigation report to the effect that there were no debit and credit entries in the demat statement of the Agrawal family during the investigation period is not acceptable because, admittedly appellant had handed over shares of EIIL in physical form to Shambhu Agrawal. In such a case question of making any debit or credit entry in the demat account does not arise at all. Once it is established that the appellant had adopted a modus operandi for trading in the shares of EIIL belonging to the appellant in violation of the regulations framed by SEBI, then irrespective of the fact that the appellant had received any consideration or not, the appellant is bound and liable to face the consequences for violating SEBI Act and the regulations framed thereunder. Fact that lesser penalty has been imposed on the Agrawal group cannot be a ground to take lenient view towards the appellant, because, the appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15A(b) of SEBI Act, 1992 for the violations allegedly committed by the appellant, the AO of SEBI after considering all mitigating factors has imposed aggregate penalty of ₹ 1 crore. Appellant, however, submits that in the facts of present case, penalty ought not to have been imposed on the appellant and alternatively submits that the penalty imposed is exorbitant and disproportionate to the violations allegedly committed by the appellant. 3. Facts relevant for deciding the issues raised in this appeal are as follows:- a) Appellant who was the promoter and director of Empower Industries India Ltd. ( EIIL for convenience) held 3,90,050 shares of EIIL out of 5,00,000 shares issued by EIIL. Thus, the appellant held nearly 80% of the total shareholding of EIIL. b) In the month of October 2004, the appellant admittedly handed over 1,25,000 shares of EIIL in physical form along with 5 unsigned blank transfer deeds (share transfer forms) to Mr. Shambhu Agrawal (finance broker) who was to arrange personal loan of ₹ 1 crore to the appellant. However, without arranging the loan, Mr. Shambhu Agrawal on 01.11.2004 transferred the aforesaid 1,25,000 shares in the name of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005 Bombay Stock Exchange Ltd. ( BSE ) received a letter dated 08.03.2005 from EIIL wherein it was stated that the Board meeting scheduled on 08.03.2005 has been cancelled/ postponed as the directors of the company had gone out of station and that any further notice in that regard would be given to the stock exchange in due course. j) As Mr. Shambhu Agrawal could not arrange loan of ₹ 1 crore, appellant on 25.03.2005 returned the advance amount of ₹ 5 lac to Mr. Shambhu Agrawal in cash and on 31.03.2005 Mr. Shambhu Agrawal returned 2,15,500 shares (1,82,150 in physical form + 33,350 in demat account) to the appellant. At that time, appellant claims that he realised for the first time that 2,15,500 shares (2,13,000+2500) returned by Mr. Shambhu Agrawal were not the original shares given by the appellant to Mr. Shambhu Agrawal but the shares belonging to 5 different parties. However, appellant claims that since equal quantity of shares were returned, the appellant did not take any action against Mr. Shambhu Agrawal. k) SEBI after conducting an enquiry in respect of the aforesaid transactions, passed an order on 31.01.2013 which was set aside by this Tribunal on 23.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 has erroneously held that the expert evidence cannot be relied upon without any other corroborative evidence. In that case, witness to the will in dispute, had deposed before the Court which was contrary to the expert evidence. In that context the Apex court held that when substantive evidence of the attesting witness to the will was available, the opinion of a handwriting expert cannot override the substantive evidence. In a subsequent case reported in AIR 1980 SC 531 (Murarilal v/s State of Madhya Pradesh) the Apex Court had held that it would be unjustifiable to reject the opinion of an expert on the sole ground that it was not corroborated. Thus, the impugned decision which is based on misinterpretation of the Apex Court decision deserves to be quashed and set aside. d) In para 43 48 of the impugned order the AO has recorded that in the absence of any objection raised by the RTA, it must be presumed that the shares were transferred after following the due procedure and accordingly the AO has rejected the plea of the appellant that the transfer deeds were forged and fabricated. It is submitted that without calling for the documentary evidence to show that due procedure wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue of legitimacy/ forgery of the appellant s signatures on the transfer deeds, inter alia, by calling upon the RTA to explain as to how RTA permitted transfer of shares despite variation in the signatures on the transfer deeds. Since the AO has failed to comply with the directions given by this Tribunal, the impugned order is liable to be quashed and set aside. i) As the shares belonging to the appellant were transferred on the basis of forged/ fabricated transfer deeds, it cannot be said that the appellant knowingly transferred shares to any of the parties and consequently the appellant cannot be held guilty of violating the SAST Regulations or the PIT Regulations. Therefore, any manipulation in the price or volume of the shares or any circular movement of the shares by any third parties cannot be attributed to the appellant. Hence, the finding recorded by the AO that the appellant has violated the PFUTP Regulations cannot be sustained. j) Although 1,25,000 shares, and 2,13,000 shares were handed over by the appellant to Mr. Shambhu Agrawal, the finance broker, for arranging loan of ₹ 1 crore, the appellant had received only ₹ 5 lac as token advance from Mr. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of any alleged manipulation. Therefore, appellant could not be said to have taken advantage of the alleged price/ volume manipulation by selling the shares of EIIL. m) As regards the alleged misleading corporate announcements made by EIIL, it is submitted that the appellant was not the person who communicated either of the corporate announcements to the stock exchange. There were five directors in EIIL at the relevant time yet the appellant alone is held liable for the misleading corporate announcement which is wholly unjustified. n) The corporate announcement made on 02.03.2005 was legitimate and genuine and there is nothing on record to suggest that the same was bogus or fabricated. Merely, because, the company could not ultimately come out with any rights or preferential issue could not be a ground to hold that the corporate announcements made were false and intended to lure the investors. The corporate announcement made on 02.03.2005 did not state that EIIL had decided to come out with the rights or preferential issue of shares. What was announced was that a Board Meeting has been scheduled on 08.03.2005 to consider as to whether to come out with any such rights/ pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of this Tribunal dated 23.04.2014 clearly shows that there was no direction given to the AO to pass fresh order only after recording additional evidence. The said order merely records that since the appellant claims that the shares belonging to the appellant have been transferred by forging the signature of the appellant on the share transfer forms and in support of the above contention the appellant relied on a report of Forensic Expert which became available after the original order was passed by the AO on 31.01.2013, this Tribunal set aside the order dated 31.01.2013 and remanded the matter by directing the AO to pass fresh order, inter alia by recording additional evidence, if found necessary, on the issue relating to forgery in the light of the report of the Forensic Expert produced by the appellant. Thus, the AO had the discretion either to record additional evidence or not to record additional evidence in relation to the plea of forgery raised by the appellant. Therefore, argument of the appellant that the impugned order is passed by disregarding the direction given in the order dated 23.04.2014 cannot be accepted. 8. In the impugned order the AO has held that the sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2,15,500 shares returned by Shambhu Agrawal, 1,82,150 shares were in physical form and 33,350 shares were transferred directly to the demat account of the appellant. It is not in dispute that immediately after 31.03.2005 appellant got the 1,82,150 shares in physical forms transferred to his own name. Assuming that on 31.03.2005 the appellant for the first time came to know that shares of EIIL handed over to Shambhu Agrawal have been fraudulently transferred by Shambhu Agrawal, very fact that the appellant instead of taking action against Shambhu Agrawal for transferring the shares allegedly by committing forgery chose to get the 1,82,150 shares in physical form transferred from the name of third parties to the name of the appellant clearly shows that either Shambhu Agrawal had transferred the shares with the consent of the appellant or that the appellant had acquiesced to the transfer of shares being effected by Shambhu Agrawal. Thus, assuming that the shares of EIIL belonging to the appellant were transferred by forging the signature of the appellant, that fact has no bearing in the present case, because, penalty is imposed on the appellant for acquiring shares of EIIL from thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order is that the appellant as a promoter- director of EIIL was instrumental in issuing misleading corporate announcement on 02.03.2005 and therefore guilty of violating the PFUTP Regulations. The corporate announcement made by EIIL on 02.03.2005 was that in the meeting Scheduled to be held on 08.03.2005 the Board would inter-alia consider options and plans for expansion/ growth of the company and also consider increase in authorized capital and issue of rights/ preferential shares. However, no such meeting was held on 08.03.2005 and by a letter dated 08.03.2005 (received by the BSE on 11.03.2005) the stock exchange was informed that the Board meeting Scheduled on 08.03.2005 has been cancelled/ postponed as the directors of the company had gone out of station and that any further notice in that regard would be given to the stock exchange in due course. 16. It is not in dispute that immediately after the above corporate announcement made at 11.02 AM and 4.44 PM on 02.03.3005, the price of the EIIL scrip increased from the closing price of ₹ 100.15 on 01.03.2005 to ₹ 101.90 on 02.03.2005 and the volume increased from daily trading volume of 3685 shares to average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all the aforesaid 3,40,500 shares of EIIL (1,25,000+2500+2,13,000) were handed over/ transferred by the appellant to Shambhu Agrawal/ Ruchiraj Shares Stock Brokers Pvt. Ltd. so that on Shambhu Agrawal arranging loan of ₹ 1 crore, the said shares could be offered as collateral security. b) Instead of arranging loan of ₹ 1 crore, Shambhu Agrawal on 01.11.2004 transferred 1,25,000 shares received from the appellant to his own name and to the name of his other family members. Similarly, on 25.02.2005 Shambhu Agrawal transferred 2,13,000 shares received from the appellant to the name of 22 entities. c) Finding of fact recorded in para 33 and 34 of the impugned order is that the Agrawal family during the period from 02.03.2005 to 11.03.2005 sold 1,07,000 shares of EIIL which was 49% of the total market volume during the investigation period. d) In para 37 of the impugned order the AO has recorded a finding that out of the 22 entities to whom the shares of EIIL belonging to the appellant were transferred by Shambhu Agrawal, some of the entities sold 63,300 shares of EIIL during the investigation period, wherein majority of the counter parties to the trades were e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares of EIIL belonging to the appellant during the period of corporate announcement which resulted in increase in the price and volume of the EIIL scrip. Thus, it is apparent that corporate announcement was nothing but a device adopted to lure the investors to trade in the shares of EIIL. Since the corporate announcement was not even considered by the Board it is abundantly clear that the said corporate announcement was not made with bonafide intentions. 20. In these circumstances, finding recorded by the AO that the appellant was instrumental in issuing misleading corporate announcement on 02.03.2005 in gross violation of the PFUTP Regulations cannot be faulted. Penalty imposable for such fraudulent and unfair trade practices under Section 15HA of SEBI Act is up to ₹ 25 crore. In the present case, the AO after considering all mitigating factors has imposed penalty of ₹ 20 lac under Section 15HA which cannot be said to be excessive or unreasonable. 21. Second charge held against the appellant is that the appellant has failed to comply with the public announcement/ open offer obligation contained in regulation 10 11(1) of the Takeover Regulations, 1997. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as imposed penalty of ₹ 75 lac as against the penalty of ₹ 25 crore imposable under Section 15H(ii) of SEBI Act which cannot be said to be excessive or unreasonable. 25. Third charge held against the appellant is that the appellant has violated regulation 7(1A) read with regulation 7(2) of the Takeover Regulations and regulation 13(4) read with regulation 13(5) of the PIT Regulations. 26. In para 60 and 61 of the impugned order, the AO has set out the obligation of the appellant to make disclosures under the aforesaid regulations when the shareholding of the appellant in EIIL stood reduced from 53.01 to 9.91% and thereafter increased from 9.91% to 43.01% on 31.03.2005. Assuming that on 31.03.2005 appellant came to know about the transfer of shares belonging to the appellant, after 31.03.2005 appellant ought to have made disclosures which the appellant failed to do. Similarly, when shares of EIIL in the name of third parties were transferred to the name of the appellant disclosures ought to have been made, but the appellant failed to make disclosures. Thus, in the facts of present case, decision of the AO that the appellant has violated the disclosure obligations c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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