Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
MUMBAI
Dateofdecision:15/01/2015
AppealNo.91of2013
PurshottamBudhwani
B2,HimalayaSociety,
MilindNagar,Asalfa,
Ghatkopar(W),Mumbai400084.
Appellant
Versus
SecuritiesandExchangeBoardofIndia
SEBIBhavan,PlotNo.C4A,GBlock,
BandraKurlaComplex,
Bandra(E),Mumbai400051.
Respondent
Mr.SunitShah,AdvocateandMr.H.D.Dave,AdvocatefortheAppellant
Mr.ShirazRustomjee,SeniorAdvocatewithMr.RushinKapadia,Advocate
i/bK.Ashar&Co.fortheRespondent.
CORAM: JusticeJ.P.Devadhar,PresidingOfficer
A.S.Lamba,Member
Per:A.S.Lamba
1.
This is an appeal filed by Purshottam Budhwani (Appellant) Vs. The
Whole Time Member, SEBI (Respondent) against impugned order
No.WTM/MSS/ISD/98/2011 dated May 23, 2011 passed by Ld. Whole Time
Member, ordering Appellant to disgorge Rs.9,39,38,030/, comprising
Rs.5,87,11,269 towards unlawful gain made by Appellant and Rs.3,52,26,761
towardssimpleinterestattherateof10%perannumforsixyears(200511)
on unlawfulgains, within 15 daysfrom dateoforder.Thedisgorgement is
-2-
arisingduetocertainactivitiesofAppellantduring2005whichwillbedealt
subsequentlyinconnectionwithInitialPublicOffer(IPO)of13companies.
2.
ActivitiesofAppellantrelatingtoIPOof13companiesare:
Additionofnamesofseveralactualexistingpersonswhocould
beidentifiedandtheiraddressverifiedonbasisoftheirelection
votingcards,asjointaccountholderstohisexistingornewly
open bank accounts, stating address of joint account holder as
his own address and obtaining welcome letter from concerned
bankforjointaccountholder.
-3-
3.
InviewofApplicants,abovementionedactivities,Appellantwasable
was
called
upon
to
show
cause
vide
letter
-4-
4.
InresponsetoSCNdatedMay20,2010AppellantappearedbeforeLd.
WTMonMarch1,2011andmadepreliminarysubmissionsandsoughttime
forwrittensubmission,whichhedidvideletterdatedMarch7,2011,butdid
notappearbeforeLd.WTMafterappearanceonMarch1,2011,despiteample
opportunities, and accordingly Ld. WTM disposed off proceedings in terms
ofSCNandAppellantswrittensubmissions.
5.
Appellanthadinhispreliminarysubmissions,submittedthat;(i)heis
whileSCNwasissuedbyanOSD,whichisnotpermissible;(vii)Principlesof
-5-
6.
seriatim,asfollows:
(i)
(ii)
SAT had, in the matter of Karvy Stock Broking Ltd. vs. SEBI,
held that it is clear from language of Section 11(4) of SEBI Act
thatthemeasuresthatSEBImaytakeintheordersitmaypass
would be either pending investigation or enquiry or on
completion of such investigation or enquiry, thus Section 11B
explicitlyenablesSEBItoissuesuitabledirectionsaftermaking
anenquiryalso.
(iii)
-6-
(v)
SAT had observed in Karvy Stock Broking Ltd. Vs. SEBI that
disgorgement is not a penalty but monetary equitable remedy
andthusdoesnotamounttodoublejeopardy,ifanentityhasto
pay penalty under Section 15HA of SEBI Act and at the same
time the same entity has to disgorge unlawful gains under
Section 11(B) of SEBI Act, for the same act of violation of
SecuritiesLaws.
(vi)
-7-
7.
preliminaryobjectionsofAppellant,exceptregardingissuanceofSCNbyan
OSDandissuanceofdirectionsbyLd.WTMandinthiscontentionLd.WTM
may confirm that OSD, who issued SCN had authority to issue SCN, in
writing,fromcompetentauthorityunderrelevantSectionofSEBIAct,1992or
regulations framed thereunder, to issue SCN and that SEBI Act, 1992 or
regulations framed thereunder allows issuance of SCN by one functionary
anditsadjudicationbyanotherfunctionary.
8.
On merits of the case, the Appellant has submitted that, (i) same
-8-
9.
applications, with same address, Ld. WTM has stated that due diligence of
Registrar/Issuer is not expected to detect all kinds of frauds, including one
perpetratedbyAppellantanditdoesnotabsolveAppellantofmanipulative
charge against the Appellant. While accepting that Registrar/Issuer is not
expected to detect all kinds of frauds in concerned IPO, yet a fraud of the
kindperpetratedbyAppellantbymaking235to5884applicationseachin13
IPOs, which were signed in same form and style, which were having one
common address, all applications were numbered serially, perhaps
applications in some cases were submitted in floppies and not in material
form, and all these applications were printed and not handwritten, leaves
one wondering why Registrar/Issuer could not detect a fraud of this
magnitude,perpetratedinnotonebutin13IPOsandAppellantwasnotthe
only key operator carrying out these kinds of activities in relation to IPOs
from20032005,buttherewereseveralotherkeyoperatorsintheseIPOs,who
perpetrated the same kind of fraud in all these IPOs, though with a little
variationhereandthereandthattooinengineeringnamesforopeningdemat
accountsbymakingdifferentcombinationsbycombiningonesurnamewith
50names,etc.,wasnotdictatedbyRegistrar/IssuerofIPOthenwhatsortof
frauddetectionsystemsexistedwithRegistrar/IssuersofIPOs,whichmakes
atotalmockeryofduediligencesystemofIssuer/RegistraroftheseIPOs.
10.
RegardingsubmissionofAppellantofnoinvestorsgrievanceagainst
him,argumentofLd.WTMisaccepted.Itisalsostatedthatfraudcommitted
-9-
byAppellantwasagainstsecuritiesmarketinparticularandnotagainstany
individualinvestororgroupofinvestorsbutagainstallinvestors,ingeneral
and,asexpected,noinvestorcomplainedorexpressedhisgrievanceagainst
this kind of fraud by Appellant, although genuine investors did suffer by
lesserallocationofsharesinIPOsthantheirentitlementsduetoallocationof
sharesagainstapplicationsengineeredbyappellant.
11.
ThisTribunalalsoagreeswithLd.WTMregardingsetoffofexpenses
ofinperpetratingfraudfromdisgorgementamountandthattheseexpenses
have not been allowed and should not be allowed. Regarding setoff for
income tax paid on unlawful gains, this Tribunal is of the view that same
cannotbeallowedandAppellanthastheviableoptionofclaimingrefundof
same,fromincometax,authorities.
12.
ThisbringsustothelastsubmissionofAppellantregardingdeducting
deductionsof(i)interestondisgorgement,(ii)profitoffinancer,(iii)Natural
gains,itwillbebettertofirstlookathowthedisgorgementamounthasbeen
gotbuiltup,beforeconsideringreliefssoughtbyAppellant.
13.
For TCS shares it is seen that 20 shares were allotted for 602
applications each and 17 shares were allotted for 1939 applications, which
addupto45003shares,against44994sharesatpage8ofSCN.Similarlyfor
GokuldasExport,itisstatedthatpage11ofSCNthatnumberofapplications
was1425andeachapplicationwasallotted15shares,onfirmallotmentbasis,
andhencenumberofsharestransferredfrom1425applicantstoAppellants
demat should be 21325; whereas number of applications is shown as 956
applications and total shares transferred to demat account of Appellant as
-10-
14340.Noofapplicationsat1425isalsoborneoutfromamountinvestedfor
application money for 1425 applications at Rs..6,35,90,625 @ Rs.44,625 per
application.SimilarlyforNectarLifesciences,numberofapplicationsis1500,
as at page 13 of SCN, for which amount of applications is Rs.7,20,00,000 @
Rs.48,000for1500applications.Firmallotmentforeachapplicationis25and
hencenumberofsharestransferredtodemataccountsofAppellantshouldbe
37,500, whereas in table at page 9 of SCN is shown as 18,950 shares against
1074applications.
14.
DiscrepanciesintotalavailabilityofsharesforTCS,GokuldasExports
andNectarLifesciencesneedstobereconciled.
15.
marketis8200andoffmarketsaleis36,794,whereaselsewhere8200issalein
offmarket,whilesaleinmarketis36,794.Thisneedsreconciliation.
16.
transfereesafterthat,isonfouroccasions,atpricesrangingfromRs.37to50
from 08/08/2005 to 18/08/2005, when market price was higher and these
transfers were at instance of Dushyant Dalal. As per formula in extent for
calculating gains these prices should be calculated at closing price of
concerned scrip on day of listing and hence this price has to be taken into
account for these four offmarket sale, for calculating unlawful gain of
Appellant.
17.
266 shares against applications, thus 15,65,144 shares were allotted and
Brought to you by http://StockViz.biz
-11-
indemataccounts(atpage9ofSCN)is9,77,180(CDSL)and588,644(NSDL)
whichaddupto15,65,824.Thishastobereconciled.
18.
Inpara8dofImpugnedOrder(page9),itisstatedthat,asperSCN,
AppellantisliableforillegalgainsofRs.7.78crore,andhasnotbeenaskedto
disgorge illegalgainofRs.0.87, whichhefacilitatedothersto make.Asa
matteroffact,thisisillgottengainofDushyant,asshownatpage14ofSCN
(Rs.87,78,724 to be enact) and Dushyant is not in others to make and this
amount is not included in amount of Appellant for disgorgement but
Dushyant has been asked to disgorge, in a separate order of disgorgement
againsthim.OthersinotherstomakeareChavdaornotnamedandall
such transactions are in respect of shares of various scrips in offmarket
transactionsandincludedinamountfordisgorgementagainstAppellantand
not included in amount to be disgorged from Dushyant and since these
others have not been asked to disgorge separately, which add to
Rs.2,12,31,078, inclusion of this amount in amount to be disgorged by
Appellant,incorrect.
19.
TheamountofRs.2,12,31,078hasbeenarrivedatafterincluding20,000
-12-
20.
Inanycase,takingunlawfulgainofothersfrom23850ofShopperStop
21.
Nowcomingtopara8cofImpugnedOrderatpages9and10,itisnot
22.
NowcomingtocaseofGokuldasExport,inwhichitisstatedthat,out
of14,340transferredtodemataccountofAppellant,1299sharesweresoldin
Brought to you by http://StockViz.biz
market and 13041 sold in offmarket and these offmarket transfers are to
-13-
others(i.e.notDushyant).Appellantisstatingthat hehadtransferred7787
sharesofGokuldastoDushyant.Thisclaimmaybeacceptedbutithastobe
considered that while arriving at illgotten gain, Appellant has taken sale
priceofshareatRs.425,whichisthesameasissueprice;whichmeansshares
were transferred in offmarket. Since Appellant has not disputed shares
transferredofsharesasshowninSCNinmarketoroffmarket,itcanbe
consideredthatsharestransferredtoDushyantwereoffmarketandincluded
in 14,340 transferred in offmarket. This cannot be otherwise, since shares
transferred in market in this case is only 1299, whereas shares claimed
transferredtoDushyantis7887.
23.
Itisalsoseenfromtableatpage14ofSCNthatDushyanthasnotbeen
accounted for illgotten gains from Gokuldas shares. Hence it may be that
Appellanthadsold7887sharesofGokuldastoDushyant,butstillitisnota
caseofdoublecounting.
24.
claimstohavesold2000sharestoLLPhulwani,320toLLPulwani(HUF)and
63,975toDushyant,forwhichillgottengainsforYesBank,isdisputed.These
three sales total to 66,295 shares. Besides these three, Appellant also claims
thathesold20,000sharestoRajKumarJain@Rs.57pershare,butdoesnot
stateifthesesharesareoffmarketoronmarket,butdifferenceisonlyRs.3.80
between rate of illgotten profit, worked out by Ld. WTM and illgotten
profit, claimed by Appellant i.e. Rs.76,000 only. In this case also, it is seen
thatmajorchunkofsaletothreefinancersistoDushyantandDushyantill
gottenprofitdoesnotincludeonlyillgottenprofitfromsaleofYesBank.For
Brought to you by http://StockViz.biz
othertwofinancers,theyhavenotbeenaskedtodisgorgeandhencegainto
-14-
financersinoffmarketsale,isnotbeingcountedtwice.CaseofRajukumar
Jainisnotclear,asstatedearlier.
25.
However,inreliefgrantedtoAppellantbyLd.WTMofRs.1,91,50,741
26.
However,stillthefollowingfactsarenotcleartothisTribunalandon
this,thefollowingcommentsareoffered:
MajorityofdisputedclaimbyAppellantwasonaccountofsale
of shares by Appellant to other parties, which did not include
Dushyant, who have not been asked to disgorge and hence
claim of disgorgement from Appellant, on behalf of this other
parties was justified and cannot be termed double
disgorgement.
IncaseLd.WTMissatisfiedthatthereismeritingrantingrelief,
based on reasons, he is entitled to grant relief, to the extent
justified but this fiftyfifty approach is not appreciated, since
-15-
27.
Duringthecourseofhearing,Ld.CounselforAppellantstatedthathis
clienthasbeenaskedtodisgorgeillgottengainonsharesofthesevarious13
scrips in his demat account, which are part of total transferred shares from
variousdemataccountsandnowavailablewithhim,aftertransferringothers
shares in market and offmarket transactions. These shares in Appellants
demat account have been frozen by Respondent and Appellant represented
thathecannotpayillgottengainsofsharesofthese13scrips,sincehisdemat
accountholdingtheseshares,iffrozenbyRespondent.Tribunalfeelsinthis
respect that this submission has merit and Respondent is also directed that
thissubmissionofAppellantbeconsideredappropriately,sothatAppellant
isabletosellhissharesforpaymentofdisgorgementamount.
28.
Order is set aside and case is remanded back to Respondent for taking
necessaryactionanddecidingthematter,afteraffordinghearingtoAppellant
andmostimportantlytopassanorderbasedonsoundreasoning,logicand
rationalconsiderations.
15/01/2015
Prepared&Comparedby
Ddg/PTM
Sd/
JusticeJ.P.Devadhar
PresidingOfficer
Sd/
A.S.Lamba
Member