2022 (3) TMI 1539 - AT - SEBI

SEBI's Appeal Decisions Uphold Penalties, Farmax Penalty Reduced, Nithish Bangera Cleared

Nithish Bangera, Sanjay Aggarwal, European American Investment Bank AG, Farmax India Limited, Mr. M. Srinivasa Reddy, M.D. Farmax India Ltd. Versus Securities and Exchange Board of India

Nithish Bangera, Sanjay Aggarwal, European American Investment Bank AG, Farmax India Limited, Mr. M. Srinivasa Reddy, M.D. Farmax India Ltd. Versus ... Issues Involved:1. Issuance and conversion of Global Depository Receipts (GDRs) by Farmax India Ltd.2. Alleged fraudulent scheme involving various parties.3. Penalties imposed by SEBI.4. Role and actions of individual appellants and entities.5. Jurisdiction of SEBI over foreign entities.Detailed Analysis:1. Issuance and Conversion of GDRs by Farmax India Ltd.:The appeals concern the issuance of GDRs by Farmax India Ltd. in two tranches on June 29, 2010, and August 14, 2010, amounting to US$ 71.91 million. SEBI alleged that the issuance and subsequent conversion of these GDRs into equity shares in the Indian market constituted a fraudulent scheme involving Farmax and other co-noticees.2. Alleged Fraudulent Scheme:SEBI contended that the GDR issuance was part of a fraudulent scheme orchestrated by Farmax, Arun Panchariya, Vintage FZE, and other entities. Vintage, wholly owned by Arun Panchariya, was the sole subscriber to the GDRs, having availed a loan from EURAM Bank. Farmax had pledged the GDR proceeds to secure this loan, indicating that the GDR proceeds were not at Farmax's disposal but were used as collateral for Vintage's loan.3. Penalties Imposed by SEBI:The Whole Time Member (WTM) of SEBI directed Farmax to bring back the outstanding amount of US$ 72.20 million and restrained it from accessing the securities market for five years. Managing Director Mr. Srinivasa Reddy was similarly restrained. Sanjay Aggarwal and Nithish Bangera faced two-year prohibitions. Prospect Capital Ltd. and John Behar were barred from rendering services in connection with securities for two years. EURAM Bank was warned to ensure future compliance with Indian securities laws.4. Role and Actions of Individual Appellants and Entities:Farmax India Limited and Mr. M. Srinivasa Reddy:Mr. Srinivasa Reddy claimed he signed blank documents handed over to Sanjay Aggarwal and Mukesh Chauradiya. The WTM noted contradictory stands and concluded that Farmax and Mr. Reddy were aware of the transactions, as evidenced by a Board Resolution authorizing the use of funds as security. The appeals by Farmax and Mr. Reddy were dismissed, but the penalty on Farmax was reduced from Rs. 12 crore to Rs. 5 crore.Sanjay Aggarwal and Nithish Bangera:Sanjay Aggarwal and Nithish Bangera were found to have facilitated the fraudulent GDR issue. Aggarwal provided drafts for Board Resolutions and sought blank transfer slips, indicating his involvement. Bangera, despite claiming to have resigned, was found to have continued involvement. Aggarwal's appeal was dismissed, while Bangera's appeal was allowed, and the order against him was set aside.Prospect Capital Ltd. and John Behar:Prospect Capital Ltd., as the Lead Manager, and John Behar were found to have provided incorrect investor lists and failed to procure genuine investors. Their connection with Arun Panchariya and failure to adhere to due diligence were noted. Their appeals were dismissed.European American Investment Bank AG (EURAM Bank):EURAM Bank was found to have accepted GDR proceeds as collateral for a loan to Vintage, indicating its involvement in the fraudulent scheme. Despite previous exoneration in another case, the principle of issue estoppel was not applicable. The appeal by EURAM Bank was dismissed.5. Jurisdiction of SEBI Over Foreign Entities:The Supreme Court of India in SEBI vs. Pan Asia Advisors Ltd. established that SEBI has jurisdiction over foreign entities if their actions affect the Indian securities market. This precedent confirmed SEBI's authority to proceed against the appellants in this case.Conclusion:The appeals by Farmax India Ltd., Mr. M. Srinivasa Reddy, Sanjay Aggarwal, Prospect Capital Ltd., John Behar, and EURAM Bank were dismissed, affirming SEBI's findings and penalties, except for the reduction in the penalty imposed on Farmax. The appeal by Nithish Bangera was allowed, setting aside the order against him.