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TMI Blog2022 (4) TMI 1650X X X X Extracts X X X X X X X X Extracts X X X X ..... ential allotment was made. This is another indication to show that the promoter directors and the connected entities were cornering the entire free float of the shares of the Company so that they could control the buying and selling of the shares. Evidence has come indicating that inspite of large buy orders pending during Patch 1-A and Patch 1-B no sale were being made and only miniscule shares were being sold so that the price of the shares could rise since it was found that the shares that was being sold was above the LTP. We also find that during Patch 1-A, 4560 shares were sold by 13 noticees and whereas only 3910 shares were delivered, the balance 650 shares were not delivered. The selling of these miniscule shares above LTP raised the price from Rs. 11/- to Rs. 173.65. These 3910 shares which were sold by the connected noticees were traced back to Anant Fin Consultancy Pvt. Ltd. and, therefore, the scheme got exposed to the extent that the Company wanted to keep the free float of the shares between the promoter directors and its connected noticees so that they could control the market to increase the price of the shares. This view is based on the finding that the connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arwal, Vivek Karwa, Geeta Mishra, Praveen Kumar Mishra, Sanjay Kumar, Manisha Sharma, Ashok Kumar Maheshwari, Manish Maheshwari, Mahak Maheshwari, Manoj Agarwal, Narender Kumar, Mahabir Pershad HUF, Sanjay Kumar HUF, Arun Kumar HUF, Narender Kumar HUF, Divya Agarwal, Shubham Agarwal, Ashish Agarwal, Bakliwal Vyapaar Private Limited, Deepak Kumar Agarwal, Jasmine Commodities Pvt. Ltd., Aviral Industries Ltd, Seema Kapoor, Sanjay Kapoor, Sapna Kapoor, Sunil Kapoor, Vinay Kumar Agarwal, Santosh Kumar Agarwal, Kavita Awasthi, Rishi Kant Awasthi, KPK Fin Consultancy Pvt. Ltd., Paramjeet Singh, Shrishti E Systems Pvt. Ltd., Subodh Agarwal, Mr. Raj Kumar, Sulabh Engineers and Services Ltd., Deepa Mittal, Manoj Kumar Agarwal, Santosh Kumar Agarwal, Sandhya Agarwal, Manish Agarwal, Ruchi Agarwal, Krishana Agarwal, Mridula Agarwal, Kamta Prasad Pandey, Akhilesh Kumar Agnihotri, Jeetendra Kumar Agnihotri, Vasundhara Capital & Securities Ltd., Renu Agarwal, Raj Kumar Agarwal, Subodh Agarwal (HUF), Class Commercial Pvt. Ltd. (Formerly known as Scope Vyapar Pvt. Ltd.), Bitter Commercial Private Limited (Formerly known as SKM Travels Pvt. Ltd.), Apex Commotrade Pvt. Ltd., Signet Vinimay Private L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h entities who had violated the SEBI Act, 1992, Rules and Regulations. 3. In the matter of Sulabh Engineers and Services Limited SEBI conducted an investigation for the period December 1, 2011 to January 7, 2015 in order to ascertain as to whether there was any violation of the provisions of the SEBI Act and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" for short). The investigation was divided into four patches. Patch 1-A was for the period December 1, 2011 to August 16, 2012 wherein there was a price rise by selling miniscule quantity of shares by connected noticees. Patch 1-B was price rise before the pre-split of the shares and beginning of the sale of the shares by the preferential allottees for the period August 17, 2012 to February 1, 2013. Patch- 2 was for the period February 4, 2013 to July 22, 2014 which was price rise and sale of the shares post split of the shares and Patch - 3 was the price fall during the period July 23, 2014 to January 06, 2015. 4. In the investigation, it was found that Manoj Kumar Agarwal, noticee no. 9 and Deepa Mittal, noticee no. 10 acquired 1,09,650 shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept for one sell order no trades were executed inspite of large buy orders pending on the Stock Exchange platform. 7. During Patch 1-A connected noticees started selling miniscule quantity of shares despite holding large number of shares. The miniscule sale of shares was made above the LTP and, as a result of the sale, the price of the scrip started increasing. It was noticed that during Patch 1-A period, the price moved from Rs. 11/- to Rs. 173.65 in 8 months. There was an increase by Rs. 162.65. It was also found that connected noticees had entered into 116 trades and 4560 shares were sold by 13 noticees but only 3910 shares were delivered and balance 650 shares were not delivered deliberately. Investigation further revealed that these 3910 shares sold by these 13 noticees were traced back to Anant Fin Consultancy Pvt. Ltd. who was connected to the Company Sulabh Engineers and Services Limited through a common director. 8. In Patch 1-B it was further found that during the period August 17, 2012 to February 1, 2013 the price increased from Rs. 173.65 to Rs. 494/- i.e. an increase by Rs. 300.35. In this period 21 connected noticees sold on 89 days. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 11 and 11B of the SEBI Act should not be issued for violating Regulation 3 and 4 of the PFUTP Regulations. 11. Investigation was against 471 entities. The show cause notice was, however, issued to 150 noticees. The WTM exonerated 46 noticees but found that 104 noticees had violated Regulation 3 and 4 of the PFUTP Regulations and accordingly appropriate orders were passed against them restraining them from accessing the securities market. Out of 104 noticees who were found guilty only 52 noticees have filed the present appeals which are being heard and decided together. 12. The appellants filed their respective replies before WTM and contended that they had not violated the provisions of SEBI Act, Rules and Regulations framed there under. The WTM after considering the material evidence on record and after considering the replies and the arguments made by the respective noticees passed the impugned order restraining them for specified periods as mentioned in the impugned order. 13. The WTM held that appellants were connected with the Company or with the promoter or promoter group or were connected to Subodh Agarwal or with Anil Khemka who in turn were connected to the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers were being placed above LTP and that a single trade was executed on 116 trading days. The WTM observed that there was a pattern, namely, that these 13 noticees were placing orders above LTP thereby increasing the price and causing misleading appearance of trading. Further, out of 4560 shares only 3910 shares were delivered and the remaining 650 shares were not delivered by noticee nos. 17, 18, 21, 22 and 29 who were connected through Subodh Agarwal. The WTM further found that the non-delivery of the shares was advantageous to the noticees as it increased the price of the scrip and, by defaulting, the free float did not reduce and the noticees continued to control the supply of the shares in the market. The WTM further found that these 3910 shares which was delivered was traced back to Anant Fin Consultancy Pvt. Ltd. who had acquired the shares through the erstwhile promoters and then transferred it to 13 entities. Thus, a premeditated scheme was hatched to sell miniscule shares in order to increase the price in spite of large orders being pending in the market. 18. The WTM found that in Patch 1-B out of 21 connected entities to whom show cause notice were issued, only 17 had i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kushal Shah, Authorised Representative appeared in respective appeals and Shri Pradeep Sancheti, Senior Advocate and Ms. Nidhi Singh, Advocate for the respondent. 22. Certain common contentions were raised by the appellants which are being dealt herewith. 23. It was contended that there was an inordinate delay in the initiation of the proceedings as well as in the culmination of the proceedings and therefore on this short ground the impugned order was liable to be set aside. It was urged that the period of investigation was from December 1, 2011 to January 7, 2015. The investigation was completed on March 16, 2017 and the show cause notice was issued on July 31, 2017 and the hearing was concluded by the WTM on January 23, 2019 and the impugned order was passed on September 3, 2020. Thus, there was a delay of 20 months from the last submissions made by the appellants. It was urged that the authority was required to pass orders within a reasonable period. There was no justification on the part of the respondent in belatedly issuing the show cause notice and in passing the impugned order. In support of this contention, the appellants have relied upon the decision of Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been brought on record by the investigating agencies. Further, assimilating the submissions and putting it down in writing is a time consuming process and requires a lot of care and diligence on the part of the authority in passing an order based on appreciation of evidence. Such appreciation of evidence which is bulky and large in the instant case does require a considerable period of time to pass the impugned order. Thus, in our view there is no inordinate delay in the initiation of the proceedings nor there any inordinate delay in passing of the impugned order though we feel that the respondent should strive to deliver orders at the earliest without any undue delay. The contention raised by the appellants is misconceived and is rejected. The decisions cited by the learned counsel for the appellants are distinguishable and not applicable in the peculiar facts and circumstances of the present case. 25. Some of the appellants urged that the WTM has travelled beyond the allegations made in the show cause notice. It was urged that the WTM has tinkered with the allegations made in the show cause notice and appears to have made a fresh investigation. It was alleged that the WTM h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2021. 28. The contention of Manoj Kumar Agarwal that the promoters along with connected entities had acquired 85.11% of the total shareholding of the Company is incorrect. It was contended that the new promoters had acquired only 60.14% of the total shareholding of the Company and that the new promoters directors had no connection with the other entities who had acquired 24.97%, namely, Samtal Financial Systems Pvt. Ltd., Anant Fin Consultancy Pvt. Ltd. etc. It was contended that in this regard Samtal Financial Systems Pvt. Ltd, Rajendra Kaur and Dilip Kumar Agarwal have not been made noticees and no show cause notices have been issued to them and therefore the alleged connection with the connected entities is per se erroneous and was liable to be set aside. It was also urged in the alternative that if the appellants along with the other promoters had controlled the entire free float of the shares of the Company then they would have violated the minimum shareholding requirements but no such allegation to that effect was made in the show cause notice. It was further contended that the Company and its promoters had no connection with the preferential allottees and the finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice manipulation. The appellant contended that she had no financial dealing with any of the primary accused persons including noticees no. 1 and 9 nor did she trade in the shares of the Company until November 2014 i.e. at the fag end of the investigation period and only sold less than 5% of her shareholding. It was also contended that the appellant shareholding got diluted from 29% in February 2011 to 2.43% after the preferential allotment in March 2011 and further was reduced to 0.74% after the issuance of the second preferential allotment in March 2012. Further, the appellant ceased to be a director w.e.f. February 14, 2013. Such facts have not been taken into consideration while passing the impugned order. The contention that the appellant was connected to Subodh Agarwal on the basis of a memorandum of association of 2007 is wholly erroneous and too remote. It was contended that the entire tenor of charges against the appellant in the show cause notice is that of direct participation and perpetration in the fraudulent scheme and consequent deriving of benefit. It was contended that the aforesaid charge has not been proved and that the entire finding is based only on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch cannot be lead to any conclusion that Mr. Subodh Agarwal was acting hand in glove with the promoters / directors of the Company for the purpose of manipulating the price of the scrip of the Company. 32. Having heard the learned counsel for the parties, and having perused the impugned order and other documents that has been brought on record one finds that the new promoters, namely, Manoj Kumar Agarwal and Deepa Mittal had orchestrated a plan and carried out a scheme by artificially increasing the price of the shares of the Company along with other connected noticees. Admittedly, Manoj Kumar Agarwal and Deepa Mittal were the whole time directors of the Company and, therefore, they had knowledge of the financial position of the Company. It has come on record that the financial position of the Company was very weak. In the financial year 2009 the profit was only 0.09 crores, in 2010 it was 0.05 crores, in 2011 it was 0.01 crores, in 2012 it was 0.15 crores and in 2013 it was 0.43 crores and in 2014 it was 0.37 crores. It is clear that the profits of the Company had reduced significantly from financial year 2008-2009 to 2010-2011 and in subsequent financial years it had a negligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been raised that these are historic connections which has no relevance to the issue in hand. In fact, in our opinion, there is a direct close connection between the new promoters and Subodh Agarwal. The historic connection in fact discloses more closeness. Further, various noticees who are connected with Subodh Agarwal are connected to the Company and its promoter directors. We are of the opinion that Subodh Agarwal was part of the scheme orchestrated by the promoter directors of the Company. 34. The contention that the Company had informed the BSE about the increase in price and that it had no knowledge of any manipulation or connection between the promoter directors and other noticees is wholly erroneous as we are of the opinion that the said letter was only a smoke- screen / distraction to overcome the tacit understanding amongst the appellant, its promoter directors, and other noticees with regard to the scheme that was orchestrated and executed. 35. We also find that the acquisition of 17.64% of the shares by the two connected entities Samtal Financial System Pvt. Ltd. and Anant Fin Consultancy Pvt. Ltd. took place on March 21, 2011 and May 31, 2011 and was not spread ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in the 1st set, have reaped huge profit and this by itself indicates a strong presumption of them being aware of the manipulation in the scrip of the shares. The chart below will indicate the profits made by the appellants. Name of Promoter Initial Investment (in Rupees) Sell Value (in Rupees) Manoj Kumar Agarwal (Noticee No. 9/A. No. 355 of 2021 27,10,000 10,95,45,280 Deepa Mittal (Noticee No. 10/A. No. 354 of 2021) 26,80,000 93,71,250 Krishana Agarwal (Noticee No. 13/A. No. 357 of 2021) 40,00,000 5,86,14,534 Sandhya Agarwal (Noticee No. 15/A. No. 357 of 2021) 1,20,00,000 3,77,13,755 Manish Agarwal (Noticee No. 12/A. No. 357 of 2021) 40,00,000 7,78,03,350 Ruchi Agarwal (Noticee No. 14/A. No. 357 of 2021) 1,20,00,000 4,51,51,000 37. The WTM in paragraph 125 and 126 of the impugned order has held that there is no record to establish that Santosh Kumar Agarwal who is one of the promoters was in-charge of and responsible for the conduct of the business or day to day affairs of the running of the business of the Company or was aware of the financial planning of the Company and therefore held that Sant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icee no. 56 who has filed appeal no. 478 of 2020, Akhilesh Kumar Agnihotri, noticee no. 17 who has filed Appeal no. 479 of 2021, Jeetendra Kumar Agnihotri, noticee no. 26 who has filed Appeal no. 480 of 2021, Renu Agarwal, noticee no. 20 who has filed Appeal no. 482 of 2021, Raj Kumar Agarwal, noticee no. 19 who has filed Appeal no. 483 of 202, Subodh Agarwal (HUF), noticee no. 28 who has filed Appeal no. 484 of 2021, Class Commercial Pvt. Ltd. (formerly known as Scope Vyapar Pvt. Ltd.), noticee no. 103 who has filed Appeal no. 803 of 2021, Bitter Commercial Private Limited (formerly known as SKM Travels Pvt. Ltd.), noticee no. 49 who has filed Appeal no. 804 of 2021, Apex Commotrade Pvt. Ltd., noticee no. 50 who has filed Appeal no. 805 of 2021, Signet Vinimay Private Limited, noticee no. 48 who has filed Appeal no. 806 of 2021, Runicha Merchants Pvt. Ltd., noticee no. 57 who has filed Appeal no. 807 of 2021, Winall Vinimay Pvt. Ltd., noticee no. 67 who has filed Appeal no. 808 of 2021, Sankalp Vincom Private Limited, noticee no. 45 who has filed Appeal no. 809 of 2021 and Spice Merchants Private Limited, noticee no. 51 who has filed Appeal no. 810 of 2021. 41. These appellants a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on entries through bogus companies. In his evidence he stated that the Company in question was managed by one Subodh Agarwal and that many noticees to whom accommodation entries were provided have traded in the scrip of the Company. Evidence which is undisputed records that Subodh Agarwal was directly connected through the promoter directors Manoj Kumar Agarwal and Deepa Mittal and was part of the scheme orchestrated by the promoter directors of the Company. Further, various entities and connected noticees were connected to Subodh Agarwal either directly to a common directorship or through off-market transaction or where common shareholders in a Company. 44. We find that many of these entities / noticees connected through Subodh Agarwal traded during various patch periods and were responsible for a fraudulent scheme in the scrip of the Company. 45. All the aforesaid noticees were found to have indulged in trading in the scrip of the Company which resulted in the increase of the price. We are in complete agreement with the findings arrived at by the WTM and see no distinguishable factors to come to a different conclusion. We may also point out that when the pattern of trading was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rfetched. Further, no finding has been given of any connection with the counter party in the absence of which no fraud or manipulation charge could be levelled. It was contended in any case the trades executed were minuscule which would have no impact on the price of the scrip nor on the contribution to positive LTP. The sellers also contended that the trades were miniscule which had no impact to the contribution of positive LTP nor raise the price of the scrip. The allegation that the trades executed by the sellers manipulated the price of the scrip by placing orders above LTP were totally unsubstantiated and could not form the basis of arriving at an adverse finding against the appellants. Some of the appellants had received shares of the scrip of the Company off market. The contention of these appellants was that there was long time gap between the receipt of the shares in off market the sale of the shares on market. The counter parties to the sell trades executed by the appellants have not been made parties to the show cause notice and therefore the purported connection of the appellants as alleged in the show cause notice or in the impugned order is not established on the touc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company and controlled the free float which resulted in a position that there was a lot of demand for purchase of shares but the shares were only being sold in miniscule quantities and that too were sold above LTP with deliberate intention to jack up the price. 51. Further, 16 connected entities which acquired shares from the erstwhile promoters pointed out to a common intent of cornering the shares of the Company so that the entire paid up share capital except 300 shares was cornered by the promoter group and the connected entities. 52. We are satisfied that connected noticees devised a scheme so as to manipulate the price of the scrip which was a dormant scrip. The scheme involved allotment of shares to connected entities, announcing a stock split, pumping up the share price artificially and eventually providing an exit to the other connected entities so that huge profits could be earned. 53. Perusal of the show cause notice and the impugned order shows that the connection was established in the impugned order which has not been disputed by the appellants. 54. It is well settled principle that two entities who are transferring shares in off market can be considered as conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2020, noticee no. 137 Sunil Kapoor Appeal no. 480 of 2020, noticee no. 138 Ashok Kumar Maheshwari Appeal no. 398 of 2020, noticee no. 139 Vivek Karwa Appeal no. 375 of 2020, noticee no. 140 Roopchandra Kumar (appeal not filed), noticee no. 141 Sabreen (appeal not filed), noticee no. 142 Sanjay Kumar HUF Appeal no. 400 of 2020, noticee no. 143 Arun Kumar HUF Appeal no. 400 of 2020, noticee no. 144 Raj Kumar Appeal no. 131 of 2021, noticee no. 145 Manish Maheshwari Appeal no. 398 of 2020, noticee no. 146 Mahak Maheshwari Appeal no. 398 of 2020, noticee no. 147 Sajan Kumar Agarwal Appeal no. 374 of 2020, noticee no. 148 Narender Kumar HUF Appeal no. 400 of 2020, noticee no. 149 Shubham Agarwal Appeal no. 437 of 2020 and noticee no. 150 Ashish Agarwal Appeal no. 437 of 2020, Surendra Kumar Gupta, noticee no. 8, Appeal no. 324 of 2020, Divya Agarwal, noticee no. 2, Appeal no. 401 of 2020, Praveen Kumar Mishra, noticee no. 7, Appeal no. 376 of 2020, Geeta Mishra, noticee no. 3, Appeal no. 376 of 2020, Sanjay Kumar, noticee no. 5, Appeal no. 377 of 2020, Pranveer Singh, noticee no. 6, Appeal no. 365 of 2020. Majority of the appellants in this set are preferential allottees except notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only sold a small portion of the total shareholding and still hold a substantial portion. It was contended that if the appellants had any thought of price manipulation it would have off loaded the entire shares. It was urged that action of the respondent was wholly arbitrary as well as discriminatory. 58. There is no doubt that private placements of shares are rarely given to unknown entities and consequently it can be safely presumed that preferential allottees are known the Company. One could easily club the preferential allottees in the premeditated scheme to benefit them from the price manipulation which was launched by the promoter directors. However, we find that out of 66 preferential entities 31 preferential entities have been exonerated by the WTM. No reasons have been given as to why these preferential allottees who were exonerated had sold shares worth Rs. 132 crore. In the instant case, there is no finding that these preferential allottees had increased the price of the scrip or contributed to positive LTP. Further, there is no finding that these preferential allottees had any connection with the counter parties. Thus, merely because the appellants reaped in huge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arma, 364 of 2020 filed by Sanjeev Sanghi, 453 of 2020 filed by Deepak Kumar Agarwal, 480 of 2020 filed by Seema Kapoor, Sanjay Kapoor, Sapna Kapoor and Sunil Kapoor, 398 of 2020 filed by Ashok Kumar Maheshwari, Manish Maheshwari and Mahak Maheshwari, 375 of 2020 filed by Vivek Karwa, 131 of 2021 filed by Raj Kumar, 374 of 2020 filed by Sajan Kumar Agarwal, 437 of 2020 filed by Shubham Agarwal and Ashish Agarwal, 324 of 2020 filed by Surendra Kumar Gupta, 401 of 2020 filed by Divya Agarwal, 376 of 2020 filed Geeta Mishra and Praveen Kumar Mishra, 377 of 2020 filed by Sanjay Kumar and 365 of 2020 filed by Pranveer Singh are allowed. The impugned order insofar as it relates to these appellants is quashed. The matter is remitted to the WTM to re-decide the matter insofar as these appellants are concerned in the light of the observation made above after giving them an opportunity of hearing. All other appeals are dismissed. The miscellaneous applications are disposed of. In the circumstances of the case, parties shall bear their own costs. 62. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digita ..... X X X X Extracts X X X X X X X X Extracts X X X X
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