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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 ..... 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 Limited, Runicha Merchants Pvt. Ltd., Winall Vinimay Pvt. Ltd., Sankalp Vincom Private Limited, Spice Merchants Private Limited Versus Securities and Exchange Board of India, Mumbai Appeal Nos. 423 of 2020, 375 of 2020, 376 of 2020, 377 of 2020, 435 of 2020, 398 of 2020, 399 of 2020, 400 of 2020, 401 of 2020, 437 of 2020, 452 of 2020, 453 of 2020, 462 of 2020, 463 of 2020, 480 of 2020, 501 of 2020, 531 of 2020, 492 of 2020, 493 of 2020, 553 of 2020, 555 of 2020, 67 of 2021 With Misc. Application No. 91 of 2021 And Appeal No. 131 of 2021 With ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011 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 (44.30%) of the total share capital of the Company through a share purchase agreement with the erstwhile promoters in February 2011. Thereafter the aforesaid two noticees acquired 39,200 shares (15.83%) through an open offer. Thus, the two promoters acquired 1,48,850 shares i.e. 60.14% of the total share capital of the Company for Rs. 53.09 lakh. Investigation further revealed that on March 21, 2011 14 noticees bought 54,800 shares (22.14%) of the total share capital from the erstwhile promoter family and on May 31, 2011 two connected n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected 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. It was observed that the noticees wanted to increase the price without increasing the free float which was done on two basis, non-delivery of shares after selling the same in the market which happened on 13 instances by 5 noticees and further Anant Fin Consultancy Pvt. Ltd. transferred 13,550 shares to 23 noticees and, out of 23 noticees, 13 connected notices were sellers and therefore it was noticed that the connected noticees were trading among themselves so that the free float remained with them so that the price of the scrip kept on incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 Company. The WTM had exhaustively dealt the connection of each of the noticees with the Company in paragraph 24 of the impugned order. 14. While dealing with the 150 noticees the WTM divided noticees into 4 groups in the following manner:- (a) Group A of Noticees who are connected to the company through its promoter directors (PDs) and being a preferential allottee, namely, Noticee Nos. 1, 2, 4 to 16, 31, 32, 83, 123 to 127, 129, 131 to 139, 142 to 148. (b) Group B of Noticees who are connected to Subodh Agarwal and hence connected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 indulged in manipulation of the shares and exonerated four noticees. It was observed that there were total 28 noticees who were trading among themselves and had manipulated the price and caused misleading appearance of trading. It was also found that 17 noticees were trading every other day over above the LTP and that a total of 95 trades were executed which were being traded amongst themselves through 13 noticees who were sellers in Patch 1-A but became buyers in Patch 1-B. Thus, the free float remained with the Company and the noticees. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 Anil Rai vs State of Bihar in Criminal Appeal no. 387 of 1998, wherein it was observed that justice delayed is justice denied. The appellant further relied upon certain decisions of this Tribunal in Ashok Shivlal Rupani vs Securities and Exchange Board of India in Appeal no. 417 of 2018 decided on August 22, 2019, Anilkumar Nandkumar Harchandani & Ors. vs Securities and Exchange Board of India in Appeal no. 75 of 2019 decided on December 5, 2019 and Mr. Rajiv Bhanot & Ors. vs Securities and Exchange Board of India in Appeal no. 396 of 2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing 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 had made several deletions, additions and amendments of the data as provided in the show cause notice which is not reflected in the impugned order. In this regard, we find that the said allegations are patently erroneous and does not amount to tinkering of the data given in the show cause notice. If one column of a table in the show cause notice has not been included in the table given in the impugned order it makes no difference since we find that the figures which have been given in the table are accurate and relevant to the issue that was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the preferential allottees are automatically connected persons with the Company and its directors is based on surmises and conjectures. It was further contended that 31 preferential allottees out of the total of 66 preferential allottees have been exonerated who had sold shares worth Rs. 132 crores during the investigation period and, therefore, the finding in the impugned order that the remaining preferential allottees had a direct connection with the Company and were part of the fraudulent scheme to manipulate the price for personal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that the appellant is the promoter director and connected to the Company. It was contended that the entire exercise carried out by the respondent demonstrate a predetermined approach and the finding arrived at is based on non-application of mind. 31. The other promoters and appellants in the 1st set have raised similar pleas. Santosh Kumar Agarwal contended that he was a non-executive director and was not involved nor was in charge nor was responsible for the running of the day to day affairs of the Company and this fact has been accepted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 negligible profit. Further, huge unsecured loans and advances aggregating Rs. 16.72 crores for financial year 2013-2014 and Rs. 17.13 crores for financial year 2014-2015 were seen. Further, the admitted position is, that even though the Company was a listed Company its shares were never traded on the Stock Exchange platform except for a single trade on October 09, 2009. The trading in the scrip was observed from December 01, 2011 onwards after the scheme was hatched. We also find that there was no major corporate announcement during the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed 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 over a period of time. The acquisition made on March 21, 2011 was around the same time when the first preferential 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 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 Santosh Kumar Agarwal, being a non-executive director of the Company, was not part of the orchestrated scheme nor was involved in the manipulation of the price of the scrip. In spite of this finding the WTM has debarred Santosh Kumar Agarwal from accessing the securities market for a period of 5 years. 38. In Chintalapati Srinivasa Raju vs SEBI (2018) 7 SCC 443, the Supreme Court held:- "Non-executive directors are, therefore, persons who are not involved in the day to day affairs of the running of the Company and are not in-charge of and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 are alleged to be price manipulators who have traded either on the buy side or on the sell side in various patches and are connected not only to Subodh Agarwal but also to the Company. 42. Subodh Agarwal contended that he has no connection with the Company or other noticees. The said appellant contended that he is not a director or officer in Sulabh Engineers and Services Ltd. i.e. the Company and is the Managing Director in Raghuvansh Agrofarm Limited which has a turnover of Rs. 140 crores. The finding that the appellant is connected w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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 similar by all the notices, then individual transactions, howsoever miniscule it may be, loses its relevance, in which case, trading pattern of the appellants as a group is required to be considered and that is what the WTM has endeavored and has given a finding that the trades executed not only raised the price but the noticees have also benefited tremendously by making huge profits through this manipulative scheme. We are in complete agreement with the findings given by WTM and do not find any reason to differ on this. 46. The WTM has gon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 touchstone of the connivance. It was alternatively contended that the trades executed by these appellants was miniscule and cannot be held to be manipulative or fraudulent. 49. In this regard we find that the Company was taken over by the new promoters which had carried out and / or orchestrated plan by artificially increasing the price of the shares of the scrip of the Company so that the new promoters as well as the connected entities could benefit by selling substantial value of shares at manipulated price. The modus operandi can be seen tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 connected entities. For the purpose of establishing a connection, it is irrelevant whether off market transaction is of the underlying scrip or of any other scrip for. The rationale is that the mere fact the appellants have transacted in off market are thus connected with each other. The entities who have an off market transfer have a common link and they know each other to enter into an off market transaction. 55. Thus, the appellants together with other noticees including the promoter directors etc together launched a fraudulent scheme by usin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20, 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 noticee nos. 128, 130, 140 and 141 who have purchased shares through off market from an entity who is connected to Subodh Agarwal and therefore connected with the Company. The common submission in this group is that there is no allegation of price manipulation against the appellants. The show cause notice does not allege that the appellants have indulged in price manipulation of the scrip. The only contention is, that they were allottees under the preferential allotment and therefore were connected to the Company. Insofar as the four other noticee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 profits by selling the shares cannot make them part and parcel of the fraudulent scheme hatched by the Company and the new promoters including Subodh Agarwal. 59. Some of the preferential allottees, namely, noticee no. 2, 3, 5, 6, 7 and 8 are also alleged to have received some shares from another entity in which Subodh Agarwal was a director and on that basis these preferential allottees have been booked. In our opinion, merely because these preferential allottees also received some shares from another entity in which Subodh Agarwal was a ..... 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