Tribunal affirms WTM's order, modifies liability for disgorgement based on individual profits.

The Tribunal affirmed the WTM's order with modifications, holding that the liability for disgorgement should be individual based on the profit earned by each appellant, except for one individual who was held jointly and severally liable due to a significant role in the fraudulent activities. The appeals were disposed of with no order as to costs.

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Issues Involved:
1. Legitimacy of preferential allotment of shares.
2. Alleged fraudulent activities and manipulation of the securities market.
3. Joint and several liability for disgorgement.
4. Individual liability and extent of disgorgement.
5. Validity of claims regarding lack of knowledge and involvement in fraudulent activities.
6. Legitimacy of profits earned and calculation of disgorgement amount.

Issue-wise Detailed Analysis:

1. Legitimacy of Preferential Allotment of Shares:
The company allotted 3 crore shares through preferential allotment to 31 entities on March 13, 2012, which became 30 crore shares after a stock split in November 2012. SEBI found that 37 entities acted together to defraud genuine shareholders by portraying fraudulent transactions as genuine preferential allotments and offloading the shares, thereby earning illegal profits.

2. Alleged Fraudulent Activities and Manipulation of the Securities Market:
SEBI's enquiry revealed that the entities adopted a fraudulent device to defraud shareholders by sending SMS recommendations to buy the company's scrip. The investigation found that the entities shared common contact details and authorized Rajesh Ranka to manage their accounts, indicating concerted fraudulent activities. SEBI issued an ad-interim ex-parte order restraining 37 entities from accessing the securities market and directing them to keep Rs. 6 crore in an escrow account.

3. Joint and Several Liability for Disgorgement:
The WTM ordered the appellants to disgorge Rs. 6,78,85,716/- jointly and severally, along with 12% interest p.a. from November 5, 2013, until payment. The hierarchy for recovery in case of non-payment was specified. The appellants contested this, arguing that liability should be individual and not joint and several.

4. Individual Liability and Extent of Disgorgement:
The Tribunal found that each appellant was aware of the fraudulent activities and benefited from the profits. The contention that they were merely employees or unaware of the activities was rejected. The Tribunal modified the WTM's order, stating that liability should be individual based on the profit earned by each appellant, except for Rajesh Ranka, who was liable jointly and severally due to his significant role.

5. Validity of Claims Regarding Lack of Knowledge and Involvement in Fraudulent Activities:
The appellants argued that they were unaware of the fraudulent activities, with some claiming to be victims of fraud by Rajesh Ranka or Mahesh Shah. The Tribunal found these claims baseless, noting that the appellants were aware of their accounts being used and had benefited from the profits. The Tribunal dismissed the argument that they were not signatories to the accounts, as they had not pursued any legal action to substantiate their claims.

6. Legitimacy of Profits Earned and Calculation of Disgorgement Amount:
The Tribunal upheld the WTM's calculation of profits earned by each appellant, rejecting the argument that disgorgement should not include notional profits. The Tribunal found that the appellants had earned profits and were liable for disgorgement. The contention that expenses should be deducted from the profits was dismissed due to lack of evidence.

Conclusion:
The Tribunal affirmed the WTM's order with modifications, stating that the liability for disgorgement should be individual based on the profit earned by each appellant, except for Rajesh Ranka, who was liable jointly and severally. The appeals were disposed of with no order as to costs.

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