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TMI Blog2019 (12) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... lf 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Securities Market) Regulations, 2003 ("PFUTP Regulations" for short), SEBI Portfolio Managers Regulations, 1993 and various Clauses of the Circulars issued by SEBI in respect of stockbrokers. After providing an opportunity of hearing, replies etc. the order impugned in all these appeal was issued on September 05, 2017. Subsequently, a Recovery/demand notice dated December 18, 2018 was received by four of the appellants (except Manoj Kumar Agrawal) directing them ( and others who are not in appeal) to pay jointly and severally a sum of ₹ 80,97,62,785 along with returns due to investors etc. within 15 days of the receipt of the said notice. 3. Though the show cause notice was issued to 19 noticees and directions are passed against 17 of them only 5 of them have preferred appeal. It is important to note that Kassa has not preferred an appeal. Since all the appeals relate to the same impugned order, they are heard together and are disposed by this common decision. 4. Investigations revealed a number of violations of securities laws by Kassa and other appellants as follows:- (i) Diverted funds of the investors to group entities of the company who derived economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the account of Kassa to the group entities against which the impugned order has been passed. Because of such transferring/siphoning off of the clients/investors funds for the benefit of group entities of the Directors/Promoters the WTM of SEBI has considered all these entities as one single economic entity by relying on the order in the matter of Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622. 6. The relationship/connection between the appellants as given in the impugned order are as below. Name of the Appellants Relationship/Connection Mr. Siddharth Shankar Ex-Director of Kassa Finvest (1995-2005) and son of Ashok Kumar (M.D. of Kassa Finvest). He was also a director of Kassa Holdings (1990-2013) and Kassa Financials (1990-2013). Mrs. Nikita Shankar Wife of Siddharth Shankar and director of group companies of Kassa Finvest. Mr. Manoj Kumar Agrawal Manoj Agrawal is the CFO and (Manoj Agrawal) Compliance Head of Kassa Finvest. Mrs. Anjana Kumar Promoter of Kassa Finvest, Ex-director of Kassa (1995 to 2003) and wife of Ashok Kumar (M.D. of Kassa Finvest). Mr. Ashok Kumar * Managing Director of Kassa Finvest * Holds 5% of Kassa F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents relating to a tripartite agreement/settlement between the appellant and one Kamla Narain has not been considered relevant by the WTM though such arrangements are permitted in law. In any case, the demand notice for ₹ 80.97 crores could not have been issued by SEBI as many of the so called investors were not genuine clients and these investments were for assured returns. Appeal No. 37 of 2018 11. The appellant in this appeal was proprietor of AARB Capital ("AARB" for convenience), proprietor of GUGU Trading, GVC Capital and G&G Impex ("Group Firms" for convenience) which are trading clients of Kassa. These entities were allegedly managed by Ashok Kumar, appellant in Appeal No. 197 of 2018 who is also the father in law of the appellant. The appellant is also the wife of Siddharth Shankar, son of Ashok Kumar and former Director of Kassa, Kassa Holding and Kassa Financials. 12. Learned counsel for the appellant Shri Zal Andhyarujina, submitted that the appellant was not a party to the ex-parte ad-interim order dated March 19, 2015. Only in April 2015 SEBI asked her statements on investigations relating to Kassa and she submitted the trading ledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in fact considered by the WTM it would have been evident that Kassa owed a net amount of ₹ 3,98,000 to AARB rather than AARB owing anything to Kassa. Therefore, the entire allegation that money belonging to Kassa was diverted to AARB and thereby bringing the appellant into wrongdoing of Kassa gets nullified. 15. In the light of the above, it was contended that the demand notice dated December 18, 2018 could not have been issued to the appellant as the Recovery Officer had no jurisdiction to issue such a demand notice. Moreover, the impugned order does not quantify any penalty to be paid as such there was no failure to pay a penalty or to comply with the directions of the Board within the meaning of Section 28A of the SEBI Act. Even otherwise the joint and several liability of ₹ 80.97 crore (approximately) does not give the details or particulars and as such cannot be implemented. 16. In short, the appellant's contention is that she is not directly connected with Kassa; though she was associated with certain group entities as a Proprietor those entities were managed by Ashok Kumar; all the payments made by AARB to Kassa were not considered in calculating the lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make refund of the monies collected from clients/investors. Further, she has also been directed to pay a sum of ₹ 80.97 crores (approximately) with returns due to investors along with the interest etc. jointly and severally with other noticees by the Recovery/Demand Notice dated December 18, 2018. 21. Learned counsel Mr. Zal Andhyarujina, appearing on behalf of the appellant submitted that the appellant is a 69 years housewife; has no experience of either company matters or share market; is a shareholder only in name; no role in day-to-day management and hence not in-charge of the company and not even a promoter as defined under Section 2(69) of the Companies Act, 2013. Hence the impugned order is completely arbitrary solely on the basis that she holds 51.65% of the share capital of Kassa and her husband Ashok Kumar is the Managing Director of Kassa. For facility, Section 2(69) of the Companies Act, 2013 is extracted hereunder: 'Section 2(69)- "promoter" means a person- (a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or (b) who has control over the affairs of the company, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the appellant Shri Ankit Lohia, took a preliminary objection on the ground that the impugned order was passed without giving sufficient opportunity for the appellant to represent his case before the WTM. It is a matter of record, it was urged, that the show cause notice issued on February 29, 2016 was returned undelivered; the appellant was in the custody of EOW; the show cause notice was ultimately served only on February 27, 2017 and received by the appellant on March 03, 2017; the appellant's request for various documents were not fully adhered to and only one personal hearing was granted to the appellant on April 18, 2017 in which the appellant could not defend himself fully because of the non-availability of many documents. 29. Learned counsel for the appellant further contended that though by designation the appellant was the Managing Director of Kassa, in actual practice the schemes which were found to be violative of the securities laws was run by two employees namely; Anil Dhawan and Manoj Agrawal, at the back of the appellant. The salary structure and the job profile of these employees also show that they were taking decisions on such matters. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l No. 153 of 2017, dated 17-3-2018]. Further, the Recovery Certificate has been issued without considering the profits realised by the appellant. Even if, it is held that the appellant was involved in siphoning off ₹ 3,35,22,009/- a joint and several liability of about ₹ 81 crores could not have been imposed on the appellant. In short, the learned counsel for the appellant urged that the Recovery Certificate is unimplementable, overstated liability of each appellant is not proved, payments already made not taken into account and in any case issued on the basis of the impugned order which was in a sense an ex-parte order so far as the appellant is concerned since he was given only limited opportunity of responding to the various allegations and all documents were not made available to him. 34. We have heard the learned senior counsel for the respondent SEBI, who took us through the background of the matter as to how Kassa defaulted which let to considerable loss to a large number of investors also undermining the faith of the investors in the securities market. Kassa itself is not even an appellant so are many of the other entities against whom directions have been pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er into with investors/clients and what type of due diligence and care it has to take and how the books/documents have to be maintained etc. in great detail. All these Regulations and Circulars are explained in detail in the impugned order. In any case, the principle of in pari delicto may be applicable in individual cases but not against the statutory authority like SEBI as in the present case performing its statutory functions. 37. The appellants' reliance on orders of this Tribunal in Sudha Gupta (Supra) and Kabir Oberoi (Supra) does not come to the aid of the appellants because what is held in these orders is only the inapplicability of support from Investors Protection Fund to those parties. There was no finding that those parties were in pari delicto and as such were not entitled for any reliefs. Rather these orders held that they are entitled for relief from the broker itself but are not entitled for relief from the Investor Protection Fund. As far as SEBI's powers regarding directions to the brokers in matters where some of the investors/clients were knowingly committing illegality we hold that all such powers of SEBI are well established. When SEBI has the powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ughter in law of Ashok Kumar. The submission that she was Proprietor of the Group entities only in name and all decisions were taken and the group entities were managed by her father in law, Ashok Kumar, does not have any merit as the Director/Proprietor is equally liable for the action of the Companies/entities. We are also not convinced by the calculations produced by the appellant stating that instead of the appellant's proprietary concern AARB owing anything to Kassa it is Kassa which owed ₹ 3,98,000 to AARB. Moreover no submissions are forthcoming with respect to other three group entities. 40. We do not agree with the submissions made by the learned counsel for the appellant Manoj Kumar Agrawal (Appellant in Appeal No. 346 of 2017). His submission that he was neither the CFO nor discharging the function of CFO cannot be accepted in the absence of any record to show that there was another CFO in Kassa. On the contrary all other appellants have contended that he was discharging the functions of CFO in Kassa. Moreover, we note that he has been Vice President/Senior Vice President of Finance for a long period in the company and his involvement in mobilising funds from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;promoter" includes: (i) the person or persons who are in control of the issuer; Both the above provisions clearly show 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. 42. We find no merit in the submissions made by learned counsel for the appellant (in Appeal No. 197 of 2018) Ashok Kumar. The substantive argument of the appellant in terms of in pari delicto has been dealt in previous paragraphs of this order and we completely rejected that argument. Further the appellant's efforts to hoist the blame fully on to two employees namely; Anil Dhawan and Manoj Agrawal, who were working under him stating that he had no role is completely unbelievable on the face of records to the contrary. A letter written by this appellant to various clients/prospective clients, promising assured returns on investment is on record. We also do not agree with the submissions that sufficient opportunity was not given to him though, only one ..... X X X X Extracts X X X X X X X X Extracts X X X X
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