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TMI Blog2024 (8) TMI 1345X X X X Extracts X X X X X X X X Extracts X X X X ..... period from January 01, 2006 to March 31, 2008. However, wherever deemed necessary, period outside the investigation period is considered. 2. The investigation, prima facie, revealed that that the Noticee had used a sub-account i.e. Matterhorn Ventures, a Foreign Institutional Investor (FII), as an investment vehicle to indirectly trade in scrips of his own group entities in India i.e. Herbertsons Limited ('Herbertsons') and USL. Thus, the investigation revealed that the amounts paid to Matterhorn Ventures were routed by the Noticee by opening various beneficiary accounts with UBS and routing these funds through these accounts, indirectly, to the Indian Securities Market. It was observed that this financial route (FII route) was taken by the Noticee in the names of various overseas registered entities, thereby, concealing the true identity of his investments in Indian Securities market. Furthermore, it was observed that the said FII was shown as a non-promoter public shareholder in the shareholding pattern of Herbertsons whereas, Matterhorn Venture's holding of 9.98% shares actually belonged to the promoter category. 3. In view of the above, it was alleged that the acts of the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the people's faith and trust in SEBI as the protector of securities law in India. 4.3 The Hon'ble Supreme Court has repeatedly held that in the absence of any period of limitation, the authority is required to exercise its powers within reasonable period. 5. I note from the records available in the file that after seeking consent from FCA for sharing the copies of emails dated May 24, 2007 and May 25, 2007 with the Noticee, SEBI, vide letter dated October 26, 2023, while stating that the relevant extract of the bank statements of VNHL has been already shared along with the SCN issued as Annexure C, granted an opportunity to the Noticee to inspect the aforementioned emails. The said letter was duly delivered to the Noticee. Considering that the Noticee neither availed the opportunity to inspect the documents nor filed any reply to the said letter even after approx. 1 year 3 months from the issuance of the SCN, upon allocation of the said matter to me, in compliance with the principles of natural justice, it was felt appropriate to grant an opportunity of hearing to the Noticee in the matter. Accordingly, an opportunity of hearing was provided to the Noticee on March 14, 2024. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Noticee was advised to file his reply to the Noticee before the scheduled date of hearing i.e. May 28, 2024. Vide email dated May 27, 2024, the Noticee filed his reply to the SCN vide letter dated May 27, 2024. The Noticee in the said reply reiterated his submissions made in the letter dated June 15, 2023 and further stated that the said proceedings initiated against him by SEBI appear to be to perpetuate the order dated March 31, 2008 passed by the former Whole Time Member, SEBI under Sections 11(1), 11(4) and 11B of the SEBI Act, inter alia, restraining the Noticee from "holding position as Director or Key Managerial Person of a listed company for a period of fine years from the date of this order" which expired on May 31, 2023. The submissions of the Noticee in a nutshell are summarized as under: 6.1 The proceedings initiated by SEBI against the Noticee for the purported transactions and monetary dealings for the period of 2006 and 2007 are with egregious delay. 6.2 Under the various Regulations framed under the SEBI Act and circulars issued by SEBI, books of accounts and records are required to be maintained for either 5 or 8 years. For instance, (i) Regulation 15 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.7 Therefore, the Noticee submits that the SCN is non-est, void and cannot be proceeded with. Further, he states that the hearing purportedly scheduled by SEBI on May 28, 2024 is an empty formality to make a show of having allegedly complied with the principles of natural justice and that SEBI should cease and desist to proceed any further with the SCN or any investigation in the matter. 7. From the chronology of events of the case, it is noted that the SCN was issued to the Noticee on April 13, 2023 in the subject matter. Further, an opportunity to inspect the requested documents was provided to the Noticee vide SEBI letter dated October 26, 2023 and further, were provided to him vide SEBI email dated April 12, 2024. However, it is noted that the Noticee, did not respond on merits or on the violations alleged in the SCN. Also, despite providing two opportunities of hearing to the Noticee on March 14, 2024 and May 28, 2024, the Noticee has not availed of the same. However, considering that "audi alteram partem" being one of the fundamental principles of natural justice which lays down the proposition that a fair opportunity of answering / defending the case must be granted before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der for facility of reference: PFUTP Regulations, 2003: 3. Prohibition of certain dealings in securities No person shall directly or indirectly- a) buy, sell or otherwise deal in securities in a fraudulent manner; b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; c) ................. d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on are cognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. 4. Prohibition of manipulative, fraudulent and unfair trade practices (2). Dealing in securities shall be deemed to be a manipulative fraudulent or an unfair trade practice if it involves any of the following- (a)......... ............ (e)............... (f) knowingly publishing or causing to publish or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion raised by the Noticee, I find it pertinent to look at the chronology of events, before and after, initiation of the instant proceedings for the alleged violations of securities laws in respect of the Noticee. 14. I find that pursuant to the findings from FSA's communication dated January 22, 2010, vide which certain information was provided to SEBI by FSA, SEBI, suo-moto had taken up the matter for further investigation to ascertain whether there was any routing of funds to Indian Securities market by the Noticee through his bank accounts with UBS AG, London to trade, inter alia, in the scrip of UB group companies during the period from April 01, 2006 to March 31, 2008. I also find that an email query dated August 01, 2013 was also received from Economic Times, inter alia, seeking clarification as to whether FSA had confirmed some of the names including that of the Noticee to SEBI about routing of funds to India and if SEBI has investigated into the same. In order to investigate into the transactions, the email communications provided by FSA between an employee of UBG AG viz. Jaspreet Ahuja and the Noticee were examined. Further, I find that in order to ascertain the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had to collect and collate information and data from various sources including approaching foreign regulators for assistance in procuring information and documents from concerned entities outside India from several jurisdictions. The foreign regulators also had to collect this information from the concerned entities in order to furnish it to SEBI. Thus, the process of collection of information in the matter was complex, tedious and time consuming. It is noted that as the activity under investigation was that of routing of funds through entities located in different jurisdictions, reliance is placed on the decision of the Hon'ble SAT in the case of Jindal Cotex Ltd and Others Vs. SEBI (Appeal No. 376 of 2019 decided on February 05, 2020), wherein, while dealing with a plea of delay, the Hon'ble Tribunal observed that, "............arguments on delay in investigation and consequently affecting natural justice are also devoid of any merit in the matter since this Tribunal is aware of the complexity involved in the entire manipulative GDR issue; how long it took SEBI to gain information relating to the various entities from multiple jurisdictions in the matter of PAN Asia Advisors Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of hearing i.e. May 28, 2024 27.05.2024 Noticee filed his preliminary objections on initiation of the proceedings against him. No reply filed on merits. Submitted that opportunity of hearing provided to him is an empty formality to show compliance with principles of natural justice. 28.05.2024 Did not avail of the opportunity of hearing. 31.05.2024 Last and final opportunity of hearing was provided to the Noticee on June 13, 2024 and vide the said SEBI email, Noticee was advised to file his reply on merits on or before the scheduled date of hearing. 13.06.2024 Noticee neither filed any reply on merits nor appeared for the hearing scheduled on this date. 18. From the above chronology of events, it can be seen that the SCN was issued to the Noticee on April 13, 2023 in the subject case. The Noticee has only raised objection on the delay involved in initiating action. Further, vide SEBI letter dated October 26, 2023, an opportunity to inspect the documents was also provided to the Noticee. However, the said opportunity was not availed by the Noticee. Further, vide email dated April 12, 2024, clarification on the documents sought was also provided. It is noteworthy that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to evade the present proceedings and the allegations levelled in the SCN and further, to camouflage such allegations by highlighting the delay. 21. Here, I would like to place reliance on the observations of the Hon'ble SAT in the case of Anant R Sathe Vs. SEBI (Appeal No. 150 of 2020) decided on July 17, 2020, wherein, the Hon'ble SAT, while re-affirmed the principle elucidated in the decision in the case of Shruti Vora Vs. SEBI (Appeal Lodging No. 28 of 2020) decided on February 12, 2020, observed that the authority is required to supply the documents that they rely upon while serving the show cause notice which if done is sufficient for the purpose of filing an efficacious reply in defence. 22. In view of the above facts and chronology of events, it is concluded that even though the transactions alleged in the instant proceedings are for the period of 2006 - 07, I find the SEBI investigation required collection and collation of data / information from foreign authorities with respect to foreign entities and that the entire fact finding process in the matter was complex, tedious and time consuming given the fact that it involved approaching cross border regulators for assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court has observed as under: "Natural justice is no unruly horse, no lurking landmine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential procedural propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice without reference to the administrative realities and other factors of a given case can be exasperating. Courts cannot look at law in the abstract or natural justice as a mere artefact... If the totality of circumstances satisfies the Court that the party visited with adverse order has not suffered from denial of reasonable opportunity the Court will decline to be punctilious or fanatical as if the rules of natural justice were sacred scriptures." 25. In the instant case, as can be seen from the preceding paragraphs, ample opportunities have been given to the Noticee to file his reply to the SCN on merits and to defend his case. Further, in compliance with the abovementioned principle of natural justice, opportunities of hearing were granted to him with sufficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyee of UBS) and email id viz. [email protected] was investigated by SEBI. The contents of the said communication are reproduced as under: "# Total number of shares bought: 633,333 shares @ average price of Rs. 398.43 # Total number of shares sold: 408, 333 shares @ average price of Rs. 952.24 # Total Loan Amount: USD 6,150,000 # Net Gain Till Date: approx. USD 5.51 million # Price movement today: closing Rs. 1142 High Rs. 1195 Low Rs. 1130" 29. UBL, during the investigation, vide email dated January 31, 2023, had confirmed that the email id [email protected] belonged to the Noticee. Further, upon analysing and examining the email communication along with the price volume data of the scrip of United Spirits Limited ("USL") as on May 24, 2007, it was noted that the communication between the Noticee and Jaspreet Ahuja was referring to the trades in the scrip of USL during the relevant period, details of which are as under: (source: BSE email dated December 09, 2022) TRADE DATE SCRIP LONG NAME OPEN RATE HIGH RATE LOW RATE CLOSE RATE NO OF TRADES NO OF SHARES TRADED 2007-05-24 UNITD SPR 1171.00 1195.00 1130.00 1142.05 9730 277688 30. I further note that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RVICES 10189632 HSBC BANK PLC 13/03/2006 USD 72,714 369939 F G IA90 36993901 UBS AG LONDON 22/03/2006 USD 50,000 VENTURE NEW HOLDING LTD NO ACCOUNT NUMBER QUOTED UBS AG SINGAPORE 07/08/2006 USD 5,00,000 UB GULF FZE 1701270501 SCB 08/08/2006 USD 90,000 BIRCHWOOD HILLS INC IA90 38945801 UBS AG LONDON 08/08/2006 USD 1,50,000 SUNCOAST VALLEY INC IA90 38945901 UBS AG LONDON 08/08/2006 USD 1,50,000 BAYSIDE ENTERPRISE INCIA90 38946001 UBS AG LONDON 14/09/2006 USD 13,000 UBS FEE 09/02/2007 USD 1,65,000 369939 F G IA90 36993901 UBS AG LONDON 01/03/2007 USD 3,00,000 VENTURE NEW HOLDING LTD NO ACCOUNT NUMBER QUOTED UBS AG SINGAPORE 01/03/2007 USD 3,00,000 364567 U V IA90 36993901 UBS AG LONDON 23/07/2007 USD 25,50,000 VENTURE NEW HLDG LTD NO. 1009156 11381540007 UBS AG SINGAPORE 23/07/2007 USD 25,50,000 369939 F G IA90 36993901 UBS AG LONDON 01/08/2007 USD 9,50,000 VENTURE NEW HLDG LTD NO. 1009156 11381540007 UBS AG SINGAPORE 01/08/2007 USD 9,50,000 369939 F G IA90 36993901 UBS AG LON ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UBS AG SINGAPORE 01/03/2006 USD 3,50,040 VENTURE NEW HLDG LTD NO. 1009156 138154 UBS AG SINGAPORE 08/08/2006 USD 1,50,000 364567 U V IA90 36456701 UBS AG LONDON 19/09/2006 USD 20,301 UBS FEE 02/10/2006 USD 10,819 UBS BAHAMAS LTD 52017/01.10 UBS AG BAHAMAS 23/07/2007 USD 20,50,000 VENTURE NEW HLDG LTD NO. 1009156 11381540007 UBS AG SINGAPORE 03/01/2008 USD 15,000 UBS FEE (v) Account No - 389460 (Bayside Enterprise Inc) DATE CURREN CY DEBIT AMOUNT CREDIT AMOUN T NAME OF COUNTERPARTY COUNTER PARTY ACC NO COUNTERPARTY BANK NAME 17/01/2006 USD 1,43,510 364567 U V IA90 36456701 UBS AG LONDON 22/02/2006 USD 17,00,040 VENTURE NEW HOLDING LTD 138154 UBS AG SINGAPORE 01/03/2006 USD 3,50,040 VENTURE NEW HOLDING LTD 138154 UBS AG SINGAPORE 08/08/2006 USD 1,50,000 364567 U V IA90 36456701 UBS AG LONDON 15/09/2006 USD 20,301 UBS FEE 02/10/2006 USD 10,819 UBS TRUSTEES (BAHAMAS) LTD 52017/01.10 UBS (BAHAMAS) LTD 23/07/2007 USD 20,50,000 VENTURE NEW HLDG LTD 1009156 11381 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/2007 OUTGOING PAYMENT: HIGHLAND TRADING; DEBIT: 11381540007 CREDIT: 11003130001 VENTURE NEW HLDG LTD NO. 1009156 HIGHLAND TRADING UBS AG LONDON (LONDON BRANCH) Debit USD - 25,50,000 7/23/2007 OUTGOING PAYMENT: SUNCOAST VALLEY; DEBIT: 11381540007 CREDIT: 11003130001 VENTURE NEW HLDG LTD NO. 1009156 SUNCOAST VALLEY UBS AG LONDON(LONDON BRANCH) Debit USD - 20,50,000 8/1/2007 OUTGOING PAYMENT: HIGHLAND TRADING; DEBIT: 11381540007 CREDIT: 11003130001 VENTURE NEW HLDG LTD NO. 1009156 HIGHLAND TRADING UBS AG LONDON (LONDON BRANCH) Debit USD -9,50,000 9/7/2007 OUTGOING PAYMENT: MATTERHORN VENTURES SPC; DEBIT: 11381540007 CREDIT: 11003130001 VENTURE NEW HLDG LTD NO. 1009156 MATTERHORN VENTURES SPCREMITTANCE DEUTSCHE BANK (MAURITIUS) LTD PORT LOUIS Debit USD - 21,00,000 8/14/2008 INCOMING PAYMENT: CONTINENTAL ADMINISTRATION; DEBIT: 11835920002 CREDIT: 11381540007 CONTINENTAL ADMINISTRATION SERVICES LTD. 138 154 Credit USD 1,23,67,000 33. From the analysis of the transactions appearing in the above statements, the following is noted: 33.1 Amount of $ 2,050,000 was received in the bank account of VNHL each, from Bayside, Birchwood and Suncoast as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said shares of Herbertson were purchased by Matterhorn immediately on the very next day from the date the funds were transferred by VNHL to Matterhorn. The fund transferred / received to / from Matterhorn Ventures SPC by VNHL is displayed as under: Transaction Booking Date Particulars Credit/ Debit Local Ccy Base Amount (USD) 2/27/2006 OUTGOING PAYMENT: BEING SUBSCRIPTION FOR ZINALROTHORN; DEBIT: 11381540007 CREDIT: 11390140008 ONE OF OUR CLIENT MATTERHORN VENTURES SPC BEING SUBSCRIPTION FOR ZINALROTHORN Debit USD -51,00,000 3/2/2006 OUTGOING PAYMENT: BEING SUBSCRIPTION OF ZINALROTHORN SHARE CLASS; DEBIT: 11381540007 CREDIT: 11390140008 138 154 MATTERHORN VENTURES SPC BEING SUBSCRIPTION OF ZINALROTHORN SHARE CLASS Debit USD -8,50,000 3/14/2006 INCOMING PAYMENT: REDEMPTION IN ZINALROTHORN; DEBIT: 11390140008 CREDIT: 11381540007 Credit USD 1,77,465.70 9/7/2007 OUTGOING PAYMENT: MATTERHORN VENTURES SPC; DEBIT: 11381540007 CREDIT: 11003130001 VENTURE NEW HLDG LTD NO. 1009156 MATTERHORN VENTURES SPCREMITTANCE DEUTSCHE BANK (MAURITIUS) LTD PORT LOUIS Debit USD -21,00,000 37. The fund flow, along with the dates, is as shown below: 38. I further note fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in my view...." 41. From the analysis of the above email communication between Jaspreet Ahuja and the Noticee, it is noted that a net gain of $5.51 Million was made by the Noticee from the purchase and sale of the shares of USL. Upon calculating the profits based on the purchase / sale of shares of USL, I find that a profit of $5.69 million was made till the date of the said email communication i.e. May 2007. The table showing the profit calculation is as under: Company Date when the trade was executed and were settled (Please indicate separate date) Type Of Transaction Buy/ Sale Cr/ Dr Quantity Amt (INR) Exchange Rate Conversion Date Amt. (INR) Amt. (USD) Trade Date Settled Date HERBERTSONS LTD 28/02/2006 02/03/2006 Clearing House Trade Buy Cr 829,900 218,554,165 44.29 28-Feb-06 218,554,165 4,934,617 HERBERTSONS LTD 03/03/2006 07/03/2006 Clearing House Trade Buy Cr 120,100 33,027,500 44.11 03-Mar-06 33,027,500 748,838 HERBERTSONS LTD 27/10/2006 08/12/2006 Corporate action Event - Merger Debit - Dr 950,000 - 251,581,665 5,683,455 UNITED SPIRITS LTD 27/10/2006 08/12/2006 Corporate action Event - Merger Cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Cost of 950,000 shares of Herebertsons converted into 633,333 shares of USL (i.e., 5683455/633333 * 408333) 42. The abovementioned details of purchase and sale of shares of USL and the profits made by executing the said trades further substantiates that the email correspondence between the Noticee and the employee of UBS viz. Jaspreet Ahuja dated May 24, 2007 and May 25, 2007 was with respect to the trades in the shares of USL. 43. From the foregoing, I find that the email communication between the Noticee with one of the employees of UBS viz. Jaspreet Ahuja clearly reveals the reference being made to the trades executed in the scrip of USL by using the bank accounts held by the Noticee and his related entities with UBS. The Price volume data for USL as on May 24, 2007 further substantiates the same. I find that, in order to trade in the shares of USL and Herbertson, the Noticee devised a scheme of opening multiple accounts in various names with UBS including the names of Bayside, Suncoast, Birchwood, etc. of which the Noticee was the ultimate Beneficial owner. These three entities had transferred a total amount of $6.15 mn to VNHL whose Beneficial owner was again the Noticee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutions which are incorporated outside India and which propose to make investments in the Indian securities market on behalf of sub-account, who are also established or incorporated outside India. 46. Further, on perusal of Regulation 15A(1) of the FII Regulations, I find that the said provision states that no FII may issue, or otherwise deal in off shore derivative instruments (ODIs), directly or indirectly, unless such ODIs are issued only to persons who are regulated by an appropriate foreign regulatory authority and such ODIs are issued after compliance with 'know your client' norms. Therefore, the FII Regulations govern only such aspects of the investments made through FIIs which are made only on behalf of sub-accounts who are resident outside India or issue ODIs to persons in a foreign territory who are regulated by an appropriate regulatory authority. Thus, I note that the FII Regulations and the framework around it were made for orderly channelization of foreign investments into India. Therefore, the FII Regulations are not meant to serve as a conduit for Indian entities to invest or reinvest in India by using their bank accounts held with overseas accounts or by using th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispensable requirement and the correct test is one of preponderance of probabilities. Merely because the operation of the aforesaid two provisions of the 2003 Regulations invite penal consequences on the defaulters, proof beyond reasonable doubt as held by this Court in Securities and Exchange Board of India Vs. Kishore R. Ajmera (supra) is not an indispensable requirement. The inferential conclusion from the proved and admitted facts, so long the same are reasonable and can be legitimately arrived at on a consideration of totality of the materials, would be permissible and legally justified." 50. In addition, attention is also drawn on the observations of the Hon'ble Supreme Court in the case of N. Narayanan Vs. Adjudicating Officer, Securities and Exchange Board of India (2013) 12 SCC 152, wherein, the Hon'ble Apex Court, while stressing upon the importance of prevention of market abuse and prevention of market integrity, stated that, "35. Prevention of market abuse and preservation of market integrity is the hallmark of Securities Law. Section 12A read with Regulations 3 and 4 of the Regulations 2003 essentially intended to preserve 'market integrity' and to prevent 'Market a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons actually belonged to the promoter category being totally funded by the Noticee. In view of the same, I find and conclude that the Noticee indeed had misrepresented the truth and concealed a material fact known to him that the shareholding shown in the name of Matterhorn actually belonged to the promoter category as the same was totally funded by the Noticee thereby, violating the provisions of Regulation 4(2)(f) of the PFUTP Regulations, 2003. 53. I note that Section 11 of the SEBI Act, 1992 confers a duty on the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market. The said objectives are all interlinked. In order to develop the securities market, it is necessary that the interest of investors is protected. Any manipulation in the market would impact the interest of investors adversely. The existence of manipulative practices would result in loss of trust of these investors in the Indian securities market impacting market integrity. In view of the same, a robust securities market is important for the growth and development of the economy. Thus, it is important that market is regulated and steps are t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealing in the securities market in violation of the securities laws. 55. In view of the aforesaid findings, I find that appropriate directions under Section 11B read with Section 11(1) of the SEBI Act, 1992 in order to protect the market integrity and deter such activities from the markets would meet the ends of justice. ORDER AND DIRECTIONS 56. In view of the foregoing observations and findings, I, in exercise of the powers conferred upon me under Section 11(1) and 11B read with Section 19 of the SEBI Act, 1992, hereby direct the following: 56.1 The Noticee is hereby restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, for a period of three (3) years from the date of this order; 56.2 The Noticee is further restrained from associating himself with any listed company or proposed to be listed company, in any capacity, directly or indirectly, for a period of three (3) year from the date of this order; 56.3 Further, during the period of restraint, the existing holding of securities including the holding of units of mu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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