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TMI Blog2021 (12) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... 83 5. Saira Mohammed Afzal Khan November 01, 2021 09376390 6. Mr. Maheshkumar Amritlal Patel October 10, 2019 AVHPP7565K 7. Mr. Mohammed Alibhai Kothawala August 22, 2017 ADUPK0440R 2. Pursuant to an investigation conducted by the Securities and Exchange Board of India (hereinafter referred to as "SEBI"), it was found that the Target Company and its promoters/directors namely Mr. Zafar Yunus Sareshwala, (Managing Director and CEO) and Mr. Uves Yunus Sareshwala (Joint Managing Director) (hereinafter referred to as "Acquirers" and collectively referred to as entities/Noticees") were engaged in fraudulent activities inter alia by way of issuance of 80,800 fake share certificates, forging signatures of genuine investors on the transfer documents. The said entities further went on to the extent of verifying those fake share certificates and forging signatures, approving fraudulent transfer even when there were apparent deficiencies in the transfer documents. It was also observed that they have further indulged in dematerialization of those fake share certificates to effect transfers in favour of 22 promoter's/front entities and thereby have defrauded its shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, and compulsorily delist Parsoli Corporation Ltd., if the public shareholding reduces below the minimum level in view of aforesaid purchase." 4. Being aggrieved of the SEBI Order, an Appeal No.146 of 2010 was preferred before the Hon'ble Securities Appellate Tribunal (hereinafter referred to as "SAT/Tribunal"). Having heard the parties, the Hon'ble SAT while affirming the findings made in the SEBI Order and dismissing the aforesaid appeal, vide its order dated January 12, 2011 (hereinafter referred to as "First SAT Order") inter alia held that "Fraud of the worst kind was perpetrated by Parsoli Corporation Ltd. and its promoters/directors on the shareholders of this company who were deprived of their shares and when caught, the directors compensated the shareholders by crediting shares in their demat accounts through off market transactions." 5. Against the First SAT Order, appeals under Section 15Z of the Securities and Exchange Board of India Act, 1992 ( hereinafter referred to as "the SEBI Act, 1992") was preferred before the Hon'ble Supreme Court of India bearing Civil Appeal Nos. 2927-2928 of 2011 and the Hon'ble Supreme Court of India, vide its order dated May 02, 2011 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in physical form, their shares had been fraudulently transferred by the directors/promoters of Parsoli by forging their signatures and also on the basis of forged/duplicate share certificates. Could there be a more serious fraud relating to the securities market? The possibility that the appellants would not cheat/defraud their shareholders in future cannot be ruled out having regard to their conduct in the past. Obviously, the Board was concerned about the shareholders and the question is how to protect them from fraudsters. It is with a view to protect the interest of the shareholders generally that the impugned directions have been issued. Let us not forget that section 11(1) of the Act enjoins a duty on the Board to protect the interests of the shareholders and it would have failed in performing that duty if it had not intervened. The nature of the directions is such which would give an exit route to the shareholders. The two directors have been told to make a public offer to the shareholders of Parsoli and purchase the shares of those who offer at a price determined in accordance with the delisting regulations. The shareholders are not bound to offer their shares. This direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable on record and replies of the Acquirers, the Adjudicating Officer (hereinafter referred to as "AO") vide its order dated June 22, 2018 (hereinafter referred to as "AO Order") found the Acquirers guilty of the charge of non-compliance with the direction issued under the SEBI Order dated July 27, 2010 as the Acquirers/Noticees have failed to make a public offer through a merchant banker to acquire shares of Target Company from public shareholders as directed in the SEBI Order and consequently, the AO imposed a monetary penalty on the Acquirers. The said AO Order further reiterated/confirmed that the onus of valuation remained on the Acquirers and did not shift to BSE and also the onus of complying with the aforesaid directions issued under the SEBI Order as recorded in paragraph 3 above continues to lie on the Acquirers of the Target Company. 8. It is also noted that subsequently, the Acquirers vide letter dated July 12, 2018 have submitted a public announcement for acquisition of up to 1,69,37,847 equity shares of INR 10/- each constituting 60.43% of the equity share capital of the Target Company at a price of INR 0.25/-only per share and have submitted Detailed Public State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e BSE had mentioned that Aryaman Financial Services Limited (hereinafter referred to as "AFSL") has been appointed as the valuer and AFSL is yet to accept the assignment. The Acquirers then made their submissions vide letter dated January 07, 2019 and February 05, 2019 and emails dated February 06, 2019, February 25, 2019 and March 05, 2019 stating that the unusual trading volume in the month of March 2010 be investigated and that the current public offer for the Target Company be allowed to be made as per the offer document filed by the MB of the Target Company. 11. SEBI vide its letter dated April 12, 2019 addressed to one of the Acquirers i.e., Mr. Zafar Yuns Sareshwala had informed the Acquirers that their submissions regarding investigation of the unusual trading volume in the month of March 2010 have no merit for the reasons that the snap investigation conducted by the NSE and the BSE did not indicate any concentration by trading member/clients contributing to the price variation and prima facie no connection of top clients with the Target Company was observed and hence, that the obligation to make the public offer to acquire shares of the Target Company was triggered on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its several emails had requested the MB of the Target Company to provide the requisite documents/information that are vital for the valuation of the share price to ensure the completion of the public offer as directed in the SEBI Order. The Independent Valuer had inter-alia sought Audited Financial Reports from F.Y. 2008 to F.Y. 2019, Quarterly Financial for F.Y. 2009 to F.Y. 2011, details of Share Price Movement one year prior to July 27, 2010 and from July 27, 2010 to March 31, 2012. The MB in turn had sought the requisite information from the Acquirers and the Target Company, however, in spite of several exchange of communications, the requisite information was not provided to the Independent Valuer by the Acquirers and the Target Company. 15. In view of such a glaring recalcitrant approach shown by the Acquirers and the Target Company in providing relevant information to the Independent Valuer, SEBI vide letter dated October 09, 2019, sent an advisory (hereinafter referred to as "First Advisory") to the Acquirers with a copy to the MB of the Target Company, asking them to co-operate with the Independent Valuer and provide the requisite information/ documents immediately, faili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation required by the Independent Valuer would compel for initiation of appropriate proceedings including issuance of suitable directions. 18. Upon receipt of the Second Advisory, the Acquirers vide letter dated July 15, 2020, inter-alia submitted that upon disposal of their Appeal No. 293 of 2019 by the Hon'ble SAT vide order dated January 28, 2020, they have filed another appeal on March 18, 2020, which is pending for hearing. They also requested to allow AFSL to continue with the valuation, as the same was suggested by the Exchange. 19. From the above noted factual background and perusal of the materials before me, it is observed that the whole controversy has arisen out of an investigation which was conducted in the year 2010, wherein the Acquirers were found to be engaged in committing fraud of very serious and demeaning nature on the shareholders of the Target Company. They were found inter alia engaged in issuance of fake share certificates, forging signatures of genuine investors on the transfer documents, verifying those fake share certificates and forged signatures and approving transfer of those false and fabricated share certificates by ignoring deficiencies in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Tribunal has strongly observed that the direction of making public offer by the Acquirers as recorded in the SEBI Order cannot be said to be perverse or arbitrary and the same is a reasonable direction to protect the interest of the shareholders of the Target Company by giving them an exit opportunity at a fair price. While rejecting the contention of the financial burden likely to be caused on the Acquirers on account of making public offer in terms of the direction issued in the SEBI Order, the Hon'ble SAT has further held that having cheated and defrauded own shareholders, one cannot claim to have defence of being burdened with a financial liability. If such direction causes a financial liability, so be it as it is only incidental as the main object is to protect the interest of shareholders and therefore, the direction to make a public offer through a merchant banker to acquire shares from the public shareholders by paying them the price determined in terms of the regulation 23 of the Delisting Regulations has been upheld as reasonable in the facts and circumstances of the case. 21. Keeping the aforesaid factual matrix and the strong observations made by the Hon'ble Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal mandate of making an public offer in compliance with the SEBI Order read with the First Advisory dated October 09, 2019 and the Second Advisory dated July 12, 2020, without any further delay. In my considered view, considering the fact that the SEBI Order has attained finality, it is obligatory upon the Acquirers to make the public offer in terms of the regulation 23 of the Delisting Regulations read with the observation of SEBI, if any, by taking July 27, 2010 as the relevant date to compute and calculate the fair price at which the shares of the shareholder will be acquired. 24. In this regard, as recorded in paragraph 8 above, I observe that the Acquirers, by relying upon the financials and share price as prevailing in the year 2017 and 2018 have made the public offer at just INR 0.25 /- per share. SEBI vide letter dated September 26, 2018, inter alia advised the MB that offer price should be arrived at in the manner prescribed in regulation 23 of the Delisting Regulations by adopting valuations based on the share prices, financials, etc. of the financial year 2009-10, along with the interest payable for the period, the public offer has been delayed. I note that order di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price. Further, I have also seen that vide Second Advisory dated July 12, 2020, the Target Company through its Compliance Officer was advised to provide full co-operation to the SEBI appointed Independent Valuer. However, no positive action was seen on the part of the Target Company as well. Thus, I am convinced that based on the materials available on record, there is an urgent need to crystalize the liability of the Acquirers by calculating the offer price in terms of regulation 23 of the Delisting Regulations. 26. In this regard, for the purpose of calculating the offer price, the relevant provisions are extracted hereunder: The Delisting regulations, 2009 23. Rights of public shareholders in case of a compulsory delisting (1)............... (2)............... (3)............... Explanation: for the purpose of sub-regulation (1),- (a) ............... (b) value of the delisted equity shares shall be determined by the valuer having regard to the factors mentioned in regulation 15. Offer Price 15. (1) ............ 15.(2) The floor price shall not be less than- (a) where the equity shares are frequently traded in all the recognised stock exchanges where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving been upheld by the Hon'ble SAT and the Hon'ble Supreme Court of India. Further, the Acquirers have failed to cooperate with the Independent Valuer despite issuance of First and Second Advisories. I note that adequate opportunities and time have already been provided to the Acquirers to comply with the requirements of law regarding the public offer and the aforestated SEBI's directions issued in this regard. By failing to comply with the directions issued vide SEBI's order dated July 27, 2010, the Acquirers have acted adverse to the interest of the shareholders of the Target Company, by denying them the right to exit at a fair price as per SEBI's directions including the aforesaid two advisories. 30. In the aforestated facts and these circumstances, in order to protect the interest of shareholders and to avoid any further delay in the matter and to implement/execute the directions contained in the SEBI Order dated July 27, 2010 which has long back become final and binding on the Acquirers in light of the First and Second SAT Orders and Second Supreme Court Order, it is imperative to issue further appropriate directions against the Acquirers, which would require the Acquirers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pending completion of the public offer, Mr. Zafar Yunus Sareshwala and Mr. Uves Yunus Sareshwala are restrained from buying, selling or dealing in securities market in any manner whatsoever or accessing the securities market directly or indirectly and/or remaining associated with the securities market in any manner whatsoever, except for the purpose of complying with directions of making public offer. 33. Further, keeping in view the misconduct and non-compliances by the aforesaid Acquirers/entities as discussed in the foregoing paragraphs, Mr. Zafar Yunus Sareshwala and Mr. Uves Yunus Sareshwala are called upon to show cause as to why the suitable directions, including the following, should not be issued/imposed against them under Sections 11(1), 11(4)(d) and 11B(1) of the SEBI Act: i. direction to disgorge an amount equivalent to the gain made by them by not complying with direction of public offer along with interest; ii. direction to restrain them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period. 34. This Order is without prejudice to any other action that SEBI may initiate under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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