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TMI Blog2022 (3) TMI 1539X X X X Extracts X X X X X X X X Extracts X X X X ..... icial Member Mr. Nithish Bangera, PCS for the Appellant Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K. Ashar & Co. for the Respondent Mr. M.J. Bhatt, Advocate for the Appellant Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody, Mr. Arnav Misra and Mr. Mayur Jaisingh, Advocates i/b K. Ashar & Co. for the Respondent ORDER Per : Justice M. T. Joshi, Judicial Member 1. All the present appeals are arising out of the same issue of Global Depository Receipts (hereinafter referred to as "GDRs") by the appellant Farmax India Ltd. (hereinafter referred to as "Farmax") in two tranches on June 29, 2010 and August 14, 2010 in the amount of US$ 71.91 million. According to respondent SEBI, in fact issuing these GDRs and thereafter converting those GDR by way of cancellation into equity shares in the Indian market was nothing but a fraudulent scheme hatched by the present appellants along with other co-noticees i.e. Mr. Arun Panchariya, Vintage FZE (hereinafter referred to as "Vintage), Mr. Mukesh Chauradiya and three other noticees i.e. India Focus Cardinal Fund (hereinafter referred to as "IFCF"), Highblue Sky Emerging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r referred to as "EURAM Bank") was warned to ensure that all its future dealings in the Indian securities market be done strictly in accordance with law. Different directions were issued to other entities who had not appealed against the directions. 3. As can be seen from the impugned the orders the matter concerns the same modus operandi applied in issue of GDRs by different companies regarding which this Tribunal had already passed many orders wherein similar orders were challenged by the parties therein concerning different companies and different entities. 4. So far as the present episode is concerned, according to respondent SEBI the facts are as under:- 5. On June 29, 2010 and August 14, 2010 the GDRs were issued by appellant Farmax. Immediately after issuing the GDRs the appellant Farmax made corporate announcements to Bombay Stock Exchange Limited ("BSE Limited") that the company had successfully concluded placement of all GDRs. The fact that there was a sole subscriber to the GDR was not disclosed. The facts however revealed that Vintage - the wholly owned entity of Arun Panchariya had solely subscribed to those GDR. For that purpose, Vintage had availed a loan from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancellation of GDR started from August 09, 2010 and continued till December 04, 2010. Vintage transferred 12,58,000 GDRs to India Focus Cardinal Fund and 3,85,865 GDRs to Clariden Leu AG. The depository to the GDR was the Bank of New York Mellon. Upon sale of equity shares converting the GDRs in Indian market, said bank issued Termination Notice to appellant Farmax on March 16, 2015. Shares worth Rs. 53.48 crore were sold pre and post termination of GDR scheme in Indian securities market. Vintage however had defaulted in making repayment of loan to the extent of US$ 56.60 million. Thus, share sold by two funds i.e. India Focus Cardinal Fund and Highblue Sky Emerging Market Fund were the shares which were issued without proper consideration i.e. even though some of the GDR proceeds were appropriated by EURAM Bank upon default of payment by Vintage to the above extent. The role of each of the entities including the present appellants is detailed in the impugned. 6. All the contesting noticees as well as the appellant denied the allegations or blamed noticee no. 3 Mr. Arun Panchariya for the episode. 7. The learned WTM as well as the AO however did not agree with the defense and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the entities who had filed appeal before us. Appeals of Farmax India Limited and Mr. M. Srinivasa Reddy, M.D. 10. The appellant Mr. Srinivasa Reddy submitted that he had signed blank documents and handed over them to appellant Sanjay Aggarwal and another noticee no. 6 Mr. Mukesh Chauradiya for the purposes of GDR issue. It was also claimed that his signatures were forged. The learned WTM, therefore, noted that contradictory stands were taken by this appellant. The resolution passed by Farmax dated January 30, 2010 would show that it has authorized the use of the funds in the bank account as a security in connection with loans if any. The learned WTM, therefore, concluded that the proceeds of the GDR could not have been used for security in connection with any loan and in fact there was no loan obtained by Farmax from appellant EURAM Bank and, therefore, the very Board Resolution according to the learned WTM would show that these appellants were very well aware of the transactions to follow. These appellants have submitted that when the funds did not reach appellant Farmax they made efforts to proceed against appellant EURAM Bank as well as First Information Report ("FIR") was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as single point of contact in India between these entities. Draft of the disclosure to be made to the stock exchanges, seeking copies of Memorandum of Association etc. of appellant Farmax, obtaining photos of directors etc. were the activities those were carried by these appellants. The appellant Nithish Bangera was also a recipient of the emails in connection with the above activities. The appellant Sanjay Aggarwal had submitted that the draft Resolution provided by him did not contain the term of pledging of the bank account where GDR proceeds were to be kept. He however, did not place the copy of the email sent by him to the appellant Farmax in this regard. The appellant Sanjay Aggarwal had sent email seeking blank TT slips with signatures of the concerned and directed that the same be forwarded to noticee no. 6 Mr. Mukesh Chauradiya, the entity connected with noticee Arun Panchariya. The learned WTM observed that an advisor to a company would not seek blank transfer slips from the issuer company and this fact alone would have raised reasonable apprehension of wrongdoing in the mind of appellant Sanjay Aggarwal, if he was not involved in any fraudulent scheme. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anage, seeking copies of certain documents related to the directors and seeking copies of memorandum of association, article of association etc. According to the appellant he ceased to be an employee of La Richesse w.e.f March 03, 2010. He had submitted a letter to that effect issued by La Richesse. The WTM however noted that even after this purported resignation from La Richesse, he had sent an email dated June 28, 2010 to Farmax seeking copies of it's Memorundum of Association etc. and further appellant Sanjay Aggarwal sent an email on this date that this appellant Nithish Bangera would be travelling to Hyderabad to collect certain documents from the Officials of Farmax. The WTM, therefore, observed that had the appellant Nithish Bangera ceased to be employee of La Richesse it would not have been possible for him to travel to Hyderabad to collect documents on behalf of La Richesse. Therefore, the WTM concluded that this appellant Nithish Bangera continued to work for La Richesse. The WTM further observed that the very fact that this appellant was also recipient of earlier emails wherein appellant Sanjay Aggarwal had directed Farmax to forward blank signed transfer slips to notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inference of involvement of the present appellant in the fraudulent scheme issue of GDR on the ground that the copies of email sent by appellant Sanjay Aggarwal were also forwarded to this appellant which included seeking signature on certain blank documents etc. Other work of the appellant like raising invoice, correspondence for write up on directors etc. was the insignificant and routine activity. The appellant was merely an employee of appellant Sanjay Aggarwal and the observation made by the learned WTM as regard the appellant Sanjay Aggarwal that he was an "advisor" and responsible chartered accountant would not be applicable in this case. One email forwarded to him seeking blank TT slips from the Farmax would not lead to believe that this appellant was aware of the entire fraudulent scheme of GDR issue. The evidence in this regard is lacking. The appeal therefore deserves to be allowed as regard the present appellant. Prospect Capital Ltd. and John Behar 21. While the appellant Prospect Capital Ltd. has acted as a Lead Manager to the GDR issue, the appellant no. 2 Mr. John Behar, was the Chief Executive of the appellant Prospect Capital Ltd. According to SEBI both these ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and evaluating all possible information which may have a bearing on the issue for the purpose of the listing of GDR issue aboard 'outside of territory and jurisdiction of India'; (b) assessing the market for the purpose of the issue and marketing the issue; (c) obtaining confirmation of acceptance of subscription acceptance from the initial investors to the GDR issues; (e) receipt of confirmation of subscription monies received in the requisite company's escrow account opened/ maintained by the company with the escrow account holding bank; (f) receipt of depository's (depository's banks) confirmation of issue of instructions to the clearing systems of the GDR subscribers and confirmation from the requisite foreign stock exchange of the listing of GDRs issue; (g) ensuring that the issuer company complies with applicable non-Indian legal formalities in respect of the same." "100. It is true that if in the discharge of its functions as Lead Managers, the respondents had confined to their activities to any of the procedures set out in the said paragraph, it will be for the respondents to demonstrate before the appellant and come out unscathed. However, if under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swer in the very same judgement of Supreme Court of India in the case of SEBI vs. Pan Asia Advisors Ltd. (Supra). Pan Asia Advisors Ltd. also had challenged the jurisdiction of SEBI on the ground that it was an entity based in United Kingdom (UK). The majority members of Securities Appellate Tribunal had accepted the said challenge and, therefore, SEBI had challenged the said decision before the Supreme Court. Therefore, the Supreme Court was required to mainly deal with the issue of jurisdiction of SEBI in such matters. In paragraph no. 30.5 the Supreme Court has noted the challenge of Pan Asia Advisors Ltd. and Arun Panchariya that they are the authorities which were subject to the control of Financial Conduct Authority (UK) and SEBI has no jurisdiction over them. The Supreme Court considered the rival submissions and various statutory provisions relating to the issue of GDR. In paragraph no. 80 following observations were made:- "80. Having thus noted the statutory prescription relating to the issuance of GDR based on the underlying shares of the issuing company, the manner in which such GDRs were being traded in the global market with the support and assistance of Lead Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WTM recorded the following facts to come to the conclusion that the present appellant has also violated the relevant provisions of PFUTP Regulations, 2003. Though loan to subscribe to the GDR was granted to Vintage, the present appellant did not ask for any collateral security from Vintage. However, before any GDR proceeds could be received by Farmax, vide the pledge agreement the future GDR proceeds of Farmax were accepted by this appellant EURAM Bank as a security for the loan made to Vintage. The learned WTM observed that the structure of the transaction thus speak for volume in itself. It was also found that the present appellant EURAM Bank was found involved in the various other GDR issues of the Indian Companies investigated by SEBI. Further, the connection of the appellant EURAM Bank with noticee Arun Panchariya was also noted. It was found that they had a joint venture in the year 2009 i.e. EURAM Bank Asia Limited. Thus, the learned WTM inferred that these two entities knew each other well enough to trust each other to pursue common business interests. Further, when Farmax had made some enquiry with the EURAM Bank vide email dated November 25, 2010 this appellant - it's b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the respondent SEBI however submitted that since the appellant was registered as FII in India, the impugned order i.e. the warning is also issued regarding the activities in India and, therefore, SEBI has every jurisdiction to pass such order. 34. Before dealing with the arguments the alleged fraudulent activity of the appellant and the question as to whether principle of issue estoppel would arise it would be fruitful to first deal with the issue of jurisdiction. As already observed in the case of appellant Prospect Capital Ltd. (Supra) we find that the Supreme Court of India in the case of SEBI vs Pan Asia (Supra) had already finally concluded that respondent SEBI has jurisdiction to deal with the foreign entities in case their activities causes an effect in the Indian securities market. Therefore respondent SEBI has every jurisdiction to pass the impugned order. 35. As regard the principle of issue estoppel, we have gone through the order passed by another WTM dated September 05, 2017 in the case of issue of GDRs by six other companies. We find that, in that case the investigation was not directed to probe the role of the present appellant of providing f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two accounts i.e. one in the account of Vintage of granting loan and another in the account of Farmax of receiving the GDR proceeds and holding the same as a security for the loan advance to Vintage. In the process, appellant EURAM had earned interest and the loan remained fully secured by the GDR proceeds. It would be naive to believe that EURAM Bank did not know the purpose for which the GDRs are issued and whether the pledging of the GDR proceeds for a stranger could be an object or purpose of issuing GDR. 37. The learned counsel for the appellant relying on the case of Dilip S. Pendse vs SEBI Appeal No. 80 of 2009 decided on November 19, 2009 submited that the preponderance of probability to prove the charge of fraud is higher than the regular one. Considering the status of the appellant as an International Bank; that it was registered as a foreign investment institute in India, having connection with the noticee Arun Panchariya, in our view the above test is satisfied in the present case. 38. In the result, the present appeal also fails. 39. Hence the following order : ORDER Appeal No. 214 of 2020 filed by Nithish Bangera is hereby allowed without any order as to ..... 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