TaxTMI 
TaxTMI 
2017 (5) TMI 794
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....f Satyam Computer Services ("Satyam" for short) respectively are guilty of violating the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP" Regulations" for short) and SEBI (Prohibition of Insider Trading) Regulations, 1992 ("PIT Regulations, 1992" for short). By the said order, apart from restraining the appellants from accessing the securities market and prohibiting the appellants from buying, selling or otherwise dealing in securities, directly or indirectly for a period of 14 years, the WTM has directed the appellants to disgorge the unlawful gains arising on sale/ pledge of Satyam shares during the period from 2001-2008 as more particularly set out in para 140 of the impugned order dated July 15, 2014 with interest at the rate of 12% per annum from 07.01.2009 till the date of payment. Since all these appeals arise from a common order passed by the WTM on 15.07.2014, all these appeals are heard together and disposed of by this common decision. 2. The accounting fraud committed by Satyam came to light on 07.01.2009 when the then Chairman of Satyam Mr. B. Ramalinga Raju addressed an email to the Board of Directo....
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....m was solved, it was hoped that Maytas' payment can be delayed. But that was not to be. What followed in the last several days is common knowledge. I would like the Board to know: 1. That neither myself, nor the Managing Director (including our spouses) sold any shares in the last eight years - excepting for a small proportion declared and sold for philanthropic purposes. 2. That in the last two years a net amount of Rs. 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers. 3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated r....
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....I am marking copies of this statement to them as well. Under the circumstances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My continuance is just to ensure enhancement of the board over the next several days or as early as possible. I am now prepared to subject myself to the laws of the land and face consequences thereof. (B. Ramalinga Raju) Copies marked to 1. Chairman SEBI 2. Stock Exchanges" 3. On the basis of above email, SEBI carried out detailed investigation of Satyam which revealed the following:- a) Books of account of Satyam as on 30.09.2008 disclosed balance of Rs. 1782.60 crore in its current account with Bank of Baroda, New York Branch ("BoB" for short) whereas, the actual balance in the current account as per BoB was Rs. 50.72 crore. b) Satyam was maintaining two sets of statements for its current account in BoB, i.e. daily bank statements and Monthly Bank Statements. 'Daily Bank Statement' was received through email which was printed and filed in the accounts wing and the 'Monthly Bank Statement' was received through 'internal' courier from i....
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....alse balances. e) As per the books of Satyam, the amounts kept in Fixed Deposit ("FD") with Citibank, HDFC Bank, HSBC Bank, ICICI Bank & BNP Paribas as on 30.09.2008 was Rs. 3318.37 crore., when in fact Satyam had FD of only Rs. 9.96 crore with two banks (Rs. 1.32 crore with Citibank and Rs. 8.64 crore with BNP Paribas Bank). f) Investigation revealed that the Fixed Deposit Receipts ("FDRs") were maintained in the office of the Chairman of Satyam and taken from there by a single designated official of the accounts wing and handed over to another official of the wing who would in turn show them to the auditors as and when requested. From the records of Satyam as well as the books held with the auditors, it was noted that two sets of letters of confirmation of balances of FDRs were available with the auditors i.e.- (i) Confirmation received directly in the office of the auditors, in the prescribed format which would inter-alia state the balances of all FDRs held by Satyam with the respective bank as on a particular quarter ending date. (ii) Confirmation from the bank received by Satyam and addressed to the auditors but not in the prescribed format. The said confirmation w....
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.... excel attachment from Mr. Srisailam Chetkuru, who was his reporting manager, and Mr. Srisailam instructed Mr. Malla Reddy to hide the invoices mentioned in the attachment while updating collections in the IMS. At the end of the month, or mid-month, he used to import excel files from a server folder into the IMS and generate invoices against the imported data. Mr. Malla Reddy further stated that he used to hide the invoices raised by him in the system. Mr. Malla Reddy had also stated that he used to receive the BoB, New York branch statement on a daily basis and monthly basis. When the monthly statement was received through the office of the then Chairman, an excel sheet containing details of customers names, invoice numbers, credit amount, was also received based on fake invoices. On updating, they used to return the monthly statement and excel sheet to the treasury. Above position was also corroborated by Mr. P.B.V. Suresh Kumar (then Executive, Finance of Satyam). Mr. Malla Reddy and Mr. Suresh Kumar stated that about 300 to 400 such fake invoices were generated each quarter resultantly showing inflated revenues in the books. l) Mr. V.V.K Raju the then Senior V.P., Finance of....
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....u. ii) Accordingly, on 18 April, 2006 Mr. Anand had sent to Mr. Rama Raju a software project conceived, designed and built on the line suggested by Mr. Rama Raju. The software product named as 'DRM Rightsman' was intended to help music and video companies to expand their offerings in the online space. iii) It is interesting to note that even before the "DRM Rightsman" software product proposal was conceived and designed, Mr. Anand had received an email dated 9th April, 2006 itself from one Mr. John V. Elite, of M/s Cellnet Inc, wherein it was stated that Mr. John V. Elite had approached Satyam vide purchase order dated 9, April 2009 for a project on DRM Rightsman and asked Mr. Anand to provide him (Mr. John) a high-level design and progress made in the deliverable packet as on date. Copy of the said email was also marked to Mr. Rama Raju. iv) Investigation carried out by SEBI on the internet revealed that the Cellnet Inc. did not exist at the address mentioned in the email. Further it was noticed that there did not exist, the website www.cellnetinc.net, which was given as URL of Cellnet Inc. in the email of Mr. John Elite. Thus, it was noted that Cellnet Inc. was a fictiti....
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.... indentified in the Internal Audit Reports were among the 7561fake invoices noticed during the course of investigation. p) Investigation revealed that on the basis of fictitious invoices alone the revenues of Satyam were overstated to the extent of Rs. 4782.75 crore between 2003- 04 and September 2008. The over-stated revenues necessarily had a bearing on the actual margins earned by Satyam Computers vis-à-vis the margins declared and published in the financial statements. In other words, the inflation of Satyam's sales revenues by the huge amount of at least Rs. 4782 crore had a direct impact on the Earnings Per Share ("EPS" for short) and other ratios and norms used to evaluate the value of equity shares of Satyam in the market. q) For the September 2008 quarter, Satyam had reported a revenue of Rs. 2,700 crore and an operating margin of Rs. 649 crore (24% of revenues) as against actual revenues of Rs. 2,112 crore and an actual operating margin of Rs. 61 crore (3% of revenues). If the sales recorded in the fictitious invoices were excluded, then Satyam would actually have reported a loss as early as in the 3rd quarter of the year 2007-2008 itself and the EPS would ac....
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.... which the benefit was claimed in the income tax return filed by Satyam for the same period was only Rs. 42.68 crore. Similar, mismatch was noticed in the earlier assessment years as well. v) Under clause 49 of the Listing Agreement, the CEO, (Mr. Rama Raju) and the CFO (Mr. V. Srinivas) were required to issue periodic certification to the effect, inter alia, that (i) the financial statements of Satyam do not contain any materially untrue statement or omit any material fact or contain misleading statements (ii) the financial statements present a true and fair view of Satyam's affairs and are in compliance with existing accounting standards, and applicable laws (iii) no transactions entered into by Satyam during the year which are fraudulent, illegal or violative of Satyam's code of conduct (iv) they accept responsibility for establishing and maintaining internal controls for financial reporting and have evaluated the effectiveness of internal control systems of Satyam pertaining to financial reporting, have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls and the steps they have taken or propose to take to recti....
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.... time to sort out the issues faced by Satyam. As a result of the above announcement made by Satyam, the Satyam scrip at NSE had risen from Rs. 157.1 to Rs. 178.4 (about 13.55%) before closing at Rs. 169.5 (about 7.89%). Similar upward movement was also noticed at BSE. z) During the relevant period, Satyam had published a quarterly Investor News Update called "Investorlink", in which various business and financial "highlights" and information regarding the performance of Satyam were given. Each edition of the "Investorlink" contained Chairman's address by Mr. Ramalinga Raju wherein Satyam was shown to have sound financial position when in fact the said information was false and misleading. Similarly, Mr. V. Srinivas and others had also made various public statements from time to time including press releases in which they had made various statements regarding financial performance, assets, liabilities, etc. which were false and misleading. 4. On the basis of the aforesaid investigation report, show cause notice/ supplementary show cause notices were issued to the appellants during the period from March 2009 to March 2010 calling upon them to show cause as to why they should no....
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.... as sufficient time and opportunities of being heard have been given to them in adherence to the principles of natural justice. It was also made clear, that if the appellants fail to avail the last opportunity of personal hearing (either in person or through their authorized representative), SEBI will proceed to conclude the matter and pass such order as it deems fit, based on the material available on record without any further intimation. However, none appeared on 12.05.2014 and therefore the case against the appellants was closed for orders. 6. Mr. V. Srinivas vide letter dated 09.05.2014 (received by SEBI on 12.05.2014) and Mr. B Ramalinga Raju & Mr. Rama Raju, vide letter dated 26.05.2014, requested for cross-examination of certain persons named therein. However, rejecting the request for cross examination as a device adopted to delay the proceedings, the WTM of SEBI passed the impugned order on 15.07.2014 holding that the appellants are guilty of violating Section 12A (a) (b) (c) of the SEBI Act and regulation 3(b)(c) and (d) and regulation 4(1) and 4(2),(a),(e),(f),(k), and (r) of the PFUTP Regulations and regulations 3 and 4 of the PIT Regulations. By the said order the ....
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....yance in view of the ongoing criminal trial initiated against the appellants by CBI and the WTM even after rejecting that request had repeatedly granted adjournment from 2011 till May 2014. In such a case, it is submitted that abruptly in May 2014 the WTM could not have proceeded to close the hearing and pass exparte order on 15.07.2014 especially when the criminal trial was nearing completion and in fact the criminal trial was concluded on 26.06.2014. Accordingly, appellants submit that the impugned order which is passed in gross violation of the principles of natural justice is liable to be quashed and set aside. 10. Appellants further submit that the WTM was not justified in proceeding to pass ex-parte order for the following reasons:- a) Since the WTM had granted adjournment regularly even after rejecting the plea for keeping the proceedings in abeyance the appellants had every reason to believe that on 12.05.2014 the proceedings would be adjourned. b) After the email addressed by Mr. Ramalinga Raju on 07.01.2009, all the documents lying with the appellants were taken away by various governmental agencies. Thereafter, the appellants who ceased to be associated with Sat....
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.... the decision of this Tribunal in case of Price Waterhouse (Appeal No. 208 of 2011 decided on 01.06.2011) and decision of the Apex Court in case of SEBI v/s Price Waterhouse (Appeal No. 6003-6004 of 2012 decided on 10.01.2017) it is submitted on behalf of the appellants that without giving inspection of documents and without permitting cross-examination, the WTM could not have proceeded to pass ex-parte order especially when the criminal trial initiated by CBI in respect of the very same violations was going on a day to day basis before the Additional Chief Metropolitan Magistrate at Hyderabad. 11. We see no merit in the above contentions. 12. Ramalinga Raju in his email dated 07.01.2009 and also in his statements recorded by SEBI had admitted that the books of Satyam were inflated/ manipulated for several years. Similarly other appellants have also admitted in their statements recorded by SEBI that the books of Satyam were inflated/ manipulated for several years. However, appellants contend that without giving inspection of documents sought for and without permitting cross-examination of the persons whose statements were relied upon in the show cause notice/supplementary sho....
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....to them in the criminal trial, inspection of any other document was necessary for filing their detailed reply to the show cause notices issued to them by SEBI. Thus, the conduct of the appellants in expressing their inability to file detailed reply on ground that all documents were taken away by CBI and other governmental agencies without disclosing the fact that requisite documents of Satyam were furnished to them in the criminal trial is wholly unjustified. Appellants have not made out a case that any other specific document which was not furnished to them before commencement of the criminal trial was necessary for filing a detailed reply and failure to furnish to those documents has caused prejudice to the appellants. 16. During the period from March 2010 till May 2014 repeated requests made by the appellants to keep the proceedings initiated by SEBI in abeyance till completion of criminal trial initiated by CBI was repeatedly rejected by SEBI and the appellants were repeatedly warned that ex-parte order would be passed if the appellants fail to avail the opportunity of hearing offered. Inspite of repeated warnings given, appellants, repeatedly failed and neglected to attend ....
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....ng of FIR by CBI, appellants could not be said to be 'accused persons' under the securities laws. Secondly, SEBI had recorded the statements of the appellants while in judicial custody after 09.01.2009 pursuant to the order passed by the Apex Court. Once the Apex Court, subsequent to the filing of FIR by CBI on 09.01.2009, permitted SEBI to record the statements of appellants, it is not open to the appellants to contend that their statements recorded while in custody by SEBI are in contravention of Article 20(3) of the Constitution. Hence, the WTM was entitled to dispose of the show cause notices, inter alia based on the statements of appellants recorded by SEBI. 19. If at all the appellants were aggrieved by the decision of SEBI in refusing to keep the proceedings in abeyance till the criminal trial was over, the appellants could have challenged that decision of SEBI. However, the appellants neither challenged the decision of SEBI nor participated in the proceedings by availing the opportunity of personal hearing offered to them during the period from March 2010 till 12.05.2014. Thus, the appellants by their conduct have driven the WTM to proceed ex-parte and hence, appellants ....
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....iven in the facts of Price Waterhouse cannot be said to be the ratio laid down by the Apex Court applicable to all other cases. In these circumstances, appellants are not justified in contending that the directions given by the Apex Court in case of Price Waterhouse must be applied to the case of the appellants. 22. Argument of the appellants that the WTM while granting adjournments to the relatives/family members of Ramalinga Raju from time to time till the criminal trial was over was not justified in refusing to grant to the appellants is without any merit because, relatives/ family members of Ramalinga Raju had participated in the proceedings and adjournments were granted to them on merits and on ground of ongoing criminal trial. As held by the Apex Court in case of Sahara India Real Estate Corporation Ltd. v/s SEBI reported in (2013) 1 SCC 1, the rules of natural justice being founded on principles of fairness can be available only to a party which has itself been fair, and therefore, deserves to be treated fairly. In the present case, appellants who are guilty of not being fair for the reasons stated above are not justified in contending that the WTM acted unfairly by refus....
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....thereunder; (d) engage in insider trading; (e) deal in securities while in possession of material or non-public information or communicate such material or nonpublic information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder; (f) acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognized stock exchange in contravention of the regulations made under this Act.]" "Regulation 3 & 4 of PFUTP Regulations, 2003. Prohibition of certain dealings in securities 3. No person shall directly or indirectly- (a) ........... (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized....
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....lty of insider trading. Mr. Ramalinga Raju 25. Decision of the WTM that Mr. Ramalinga Raju had violated aforesaid provisions contained in the SEBI Act, PFUTP Regulations & PIT Regulations cannot be faulted for the following reasons:- a) Mr. Ramalinga Raju was the Promoter/Chairman of Satyam during the period from 2001 to 2008 and during that period the books of Satyam were found to be inflated/ manipulated. b) In the email admittedly sent by Mr. Ramalinga Raju on 07.01.2009, he had stated that the Balance Sheet of Satyam as of 30.09.2008 contained inflated (nonexistent) cash and bank balance of Rs. 5040 crore, (as against Rs. 5361 crore reflected in the books), contained non-existent accrued interest of Rs. 376 crore on nonexistent fixed deposits, contained understated liability of Rs. 1230 crore which was arranged by him and that there was overstated debtors position to the extent of Rs. 490 crore. He had stated in the email that for the September quarter (Q2), revenue of Rs. 2700 crore and an operating margin of Rs. 649 crore was reported as against the actual revenue of Rs. 2112 crore and an actual operating margin of Rs. 61 crore, which had resulted in artificial ca....
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....nga Raju had sold/ disposed of Satyam shares while being in possession of unpublished price sensitive information. ("UPSI" for short). Dealing in shares of a listed company while in possession of the UPSI of that company is prohibited under the PIT Regulations, 1992. f) Very fact that the books of Satyam were directed to be prepared on the basis of monthly bank statements received from the office of Chairman Ramalinga Raju and the fact that Ramalinga Raju in his unretracted statement had admitted to have given instruction to V. Srinivas (CFO) to 'inflate performance' of Satyam so that it was in line with 'market expectations' establishes beyond any shadow of doubt that Ramalinga Raju was instrumental in inflating/ manipulating the books of Satyam. g) Apart from inflating/ manipulating the books of Satyam to show high performance, Mr. Ramalinga Raju as Chairman of Satyam resorted to issuing Bonus shares to the shareholders, raised funds for expansion through American Depository Share issue, attempted to acquire group concerns, sought to buy back shares of Satyam etc. so as to mislead the investors in believing that Satyam was financially strong which was not factually true. In....
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.... of Satyam from 2001 onwards. During the period from 2001 to 2008 fictitious fixed deposits were shown in the books of Satyam and as on 30.09.2008 the fixed deposit as per the books of Satyam was Rs. 3318.17 crore when in fact, Satyam had fixed deposit of only Rs. 9.96 crore. c) Investigation carried out by SEBI revealed that on 26.10.2006 Mr. Rama Raju as MD of Satyam had sent a letter to the General Manager, HSBC Ltd. at Chennai, stating that Satyam had remitted a wire transfer of USD 70 million equivalent to Rs. 316.75 crore to the Chennai branch on value dated 27.10.2006 and requested that the said funds be placed in rupee deposits as per the instructions given therein. Above letter was found to be a false letter addressed by Mr. Rama Raju, because, HSBC to whom the letter was addressed, confirmed that no such wire transfer was received from Satyam. Investigation carried out by SEBI further revealed that the amount set out in the above letter was one of the fictitious fixed deposits shown in the books of Satyam. In these circumstances, the inference drawn by the WTM that Rama Raju was involved in generating letters requesting the creation or renewal of fictitious fixed depos....
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....ous issues, announcements and press releases relating to financial performance, assets, liabilities etc. of Satyam wherein rosy picture was shown about Satyam which were all false and intended to maintain an artificially high price of Satyam in the market. Adopting a manipulative device to lure the investors to invest in the shares of that company is prohibited under the SEBI Act and the PFUTP Regulations. h) While in possession of the unpublished price sensitive information relating to the books of Satyam being inflated for several years, Rama Raju had sold shares of Satyam and made illegal gains which is prohibited under the PIT Regulations. Therefore, the decision of the WTM that Rama Raju has violated PIT Regulations cannot be faulted. i) Counsel for Rama Raju submitted that based on the internet search the WTM could not have arrived at a conclusion that Cellnet Inc. was a fictitious entity. We see no merit in the above contention, because, firstly, it is not the case of Rama Raju that the dealing with Cellnet Inc. was in fact genuine and secondly, in the books of Satyam it was shown that payments have been received from Cellnet Inc., but actually amounts were not receive....
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....ave periodic interactions with me along with Shri G. Ramakrishna, VP, Finance. In those interactions which started 3-4 years back, both of them used to stress on the importance of keeping up the company performance in line with the market expectations. They used to tell us that it is very important to show good results to attract customers, employees etc. and they used to say that we shall show inflated results. This, they said, needs to be done only for a limited period of time after which we can stop the practice. Both myself and G. Ramakirishna were not convinced of his argument and used to resist these directions. But, we yielded to their pressure fully believing that they will quickly rectify the situation. But that was not the case and this practice was continued for quite some time for reasons better know to them - maybe with an intention to protect the share price. Neither me nor Shri Ramakrishna got any extraordinary benefit for doing this. We only continued to cooperate in view of the long standing relationship earnestly believing that this practice will be put to an end very quickly. On the basis of the aforesaid statement, WTM has concluded that V. Srinivas was invol....
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....made by V. Srinivas only with a view to facilitate creation of artificial market credibility for Satyam in gross violation of SEBI Act and PFUTP Regulations. g) From the facts set out hereinabove it is apparent that V. Srinivas as CFO was privy to the fact that the books of Satyam were inflated/ manipulated for several years, which was a price sensitive information and while in possession of that UPSI, V. Srinivas had sold 9,75,242 shares of Satyam during the period from 2001-2008 and made illegal profits. Therefore, the decision of the WTM that V. Srinivas made illegal gains in violation of PIT Regulations cannot be faulted. h) Various decisions were relied upon by the counsel for V. Srinivas in support of his contention that the WTM was not justified in taking only the inculpatory part of the retracted statement ignoring the earlier statement of V. Srinivas dated 10.01.2009. In our opinion, reading the statements of V. Srinivas dated 10.01.2009 and 20.02.2009 together with the retracted statement of V. Srinivas dated 14.10.2010 it is apparent that the statement made by V. Srinivas on 20.02.2009 is in consonance with the investigation report which reveals that the books of S....
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....ulation 3 & 4 of the PFUTP Regulations and PIT Regulations, 1992. Mr. G. Ramakrishna 28. Decision of the WTM that G. Ramakrishna had violated SEBI Act, PFUTP Regulations, 2003 and PIT Regulations, 1992 cannot be faulted for the following reasons:- a) During the period from 2001 to 2008, Ramakrishna worked as General Manager (Finance), Assistant Vice President (Finance) & Vice President (Finance) of Satyam. b) In his statement recorded on 13.01.2009 Ramakrishna stated that he was responsible for taking care of Global Payroll, Indian, US & IFRS GAAP financial statements and their audit, raising of invoices with correct local taxes, treasury functions and that he used to report to Senior Vice President V. Srinivas. c) In answer to Question No. 10, Ramakrishna stated as follows:- "Q10. Please elaborate on the peculiarity you have realized about the banking arrangements and also elaborate on the possible truthfulness as a result of the peculiarity. A10. About 6-8 years back, in a meeting called by the Chairman, Shri B. Ramalinga Raju, in the presence of CFO Shri V. Srinivas, Managing Director Shri B. Rama Raju, myself and Manager-Finance Shri Venkatapathy Raju, we w....
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....f concealment/ misreporting and whenever he had raised question, V. Srinivas (CFO) used to say " do not bother, Senior Management will take care of issues arising if any." f) In his statement recorded on 03.03.2009 in answer to Question No. 6 Ramakrishna stated as follows:- "A6: The process of raising invoices starts from creation of a project ID and ends as a penultimate process of consolidation of the billing advice by the business unit finance. The final step is raising of the invoices based on the billing advices available. To the extent of this process, there was never any deviation. The application itself had inbuilt controls to make sure that no invoice can be raised without the consolidation billing advice being available for my team. The invoices raised were the only ones which were accounted in the financials and to that extent, periodic reconciliations were made. Any fictitious invoice could have come into existence only because a fictitious billing advice was made available in the application. Even in the case of excel porting, the advice for the excel porting comes to my team from the business unit finance only with reasons for the need for the excel porting. Aft....
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....egal gains in violation of SEBI Act and PIT Regulations cannot be faulted. j) Argument of the appellant that failure to give inspection of documents, failure to furnish statement of Venkatapathy Raju and failure to give an opportunity to cross-examination of the persons whose statements were relied upon, has caused prejudice is unsustainable, because, G. Ramakrishna is himself guilty of not filing detailed reply to the show cause notices even after requisite documents were furnished to him before commencement of the criminal trial in February 2011 and Ramakrishna is himself guilty of not availing the repeated opportunity of personal hearing offered to him. In such a case, Ramakrishna is not justified in contending that prejudice is caused to him on account of SEBI failing to give inspection of documents and failing to provide copy of the statement/ cross-examination. Without acting fairly in the proceedings initiated by SEBI G. Ramakrishna is not justified in contending that the WTM has acted unfairly against him. k) Although statement of V. Srinivas and several others further establish involvement of Ramakrishna in inflating/ manipulating the books of Satyam for several year....
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....to believe that the books of Satyam were inflated/ manipulated and therefore, the finding recorded by the WTM that Prabhakara Gupta had violated SEBI Act and PFUTP Regulations cannot be faulted. f) Under the Satyam's Internal Audit Manual, Prabhakara Gupta as Head of Internal Audit was duty bound to bring to the notice of audit committee the irregularities if any found in the financial statements during the course of Internal Audit. Although it is contended that the mismatch in the IMS and Oracle Financials was not considered to be a major irregularity so as to report it to the Audit Committee, in our opinion, very fact that Prabhakara Gupta closed the audit observations without any reconciliation clearly shows that Prabhakara Gupta made false observations in the audit report obviously with a view to ensure that the audit committee is kept in dark about the fake invoices noticed during the course of internal audit on the basis of which the books of Satyam were inflated/ manipulated. g) Argument advanced by counsel for Prabhakara Gupta that there was no reason for Prabhakara Gupta and his team to suspect that the mismatch was due to fake invoices and that they genuinely believ....
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....lied upon by the counsel for Prabhakara Gupta in support of the contention that the impugned order passed without offering inspection of documents/cross-examination is bad in law. We see no merit in this contention, because, admittedly requisite documents were furnished to the appellant before commencement of the criminal trial in February 2011. Prabhakara Gupta has not made out any case that even after receipt of those documents any particular document was necessary to effectively deal with the charge levelled against him and failure to furnish that document has caused prejudice. Apart from the above, Prabhakara Gupta who is guilty of not availing the repeated opportunity of personal hearing is not justified in contending that the impugned order is passed in violation of the principles of natural justice. l) From the facts set out hereinabove, it is apparent that Prabhakara Gupta, Head (Internal Audit) was privy to the fact that the books of Satyam were inflated, which was a price sensitive information and while in possession of that UPSI, Prabhakara Gupa had sold 95,064 shares of Satyam and 4950 ADS of Satyam during the period from 2001- 2008 and made illegal profits, in viola....
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....wholly unsustainable in law and the said directions are given without application of mind as can be seen from the following:- a) By show cause notices issued in the year 2009-10, Ramalinga Raju and Rama Raju were called upon to show cause as to why they should not be directed to disgorge jointly and severally Rs. 543.93 crore being the illegal gain arising on sale/transfer of Satyam shares while in possession of UPSI during the period from 2001-2008 which were sold/ transferred by Ramalinga Raju, Rama Raju and several other connected entities/ persons ('connected entities' for convenience) named therein. Thus, the show cause notice requited Ramalinga Raju and Rama Raju to disgorge not only the illegal gain made by them but also required them to disgorge the illegal gain made by the connected entities. In the meantime, on 19.06.2009 (on 15.09.2009 in case of B. Rama Raju, Jr.) show cause notice was also issued to the connected entities calling upon them to show cause as to why illegal gains made by each member of the connected entity group should not be directed to disgorge the illegal gains individually. Thus, on one hand, illegal gain made by the connected entities were conside....
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.... by individual member of the connected entity group jointly and severally with Ramalinga Raju and Rama Raju clearly shows that the WTM did not agree with his own decision contained in the impugned order dated 15.07.2014. In such a case, WTM ought to have recorded reasons as to why the order dated 15.07.2014 was erroneous and the reason as to why he is taking a contrary view in his order dated 10.09.2015. Instead, in para 63 of the order dated 10.09.2015 the WTM has recorded that the order dated 15.07.2014 is also correct and enforceable, however, the WTM has recorded that the same amount shall not be recovered twice. Thus, the decision of SEBI in seeking to enforce the direction contained in the order dated 15.07.2014 in relation to the illegal gain made by the connected entities, even after finding it to be erroneous is wholly unjustified. e) Fact that two sets of mutually contradictory show cause notices issued by SEBI to the parties could be decided by two separate orders, did not mean that the WTM must also pass two orders which are mutually contradictory in nature. f) Argument advanced by counsel for SEBI that Ramalinga Raju and Rama Raju cannot make any grievance about ....
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....verally. h) Fact that the financial institutions while sanctioning loan to the 10 group entities took the market value of Satyam shares pledged by SRSR and the market value of Satyam shares was based on inflated/manipulated books of Satyam could not be a ground for the WTM to hold that the sanctioned loan of Rs. 1258.88 crore was the unlawful gain made by Ramalinga Raju and Rama Raju. Even if higher loan was sanctioned on the basis of inflated price of Satyam scrip, loan sanctioned with an obligation to repay could not by itself constitute gain under any provision of the securities laws. i) Apart from the above, facts on record reveal that out of the sanctioned loan of Rs. 1258.88 crore, the loan availed by the 10 group entities was Rs. 1219.25 crore and the loan repaid by the said 10 group entities on account of invocation of pledge and by other modes was to the extent of Rs. 1215.83 crore. Thus, the balance loan repayable was only to the extent of Rs. 3.43 crore. All these facts were available before the WTM. In such a case, decision of the WTM holding that the sanctioned loan of Rs. 1258.88 crore represents the illegal gain made by Ramalinga Raju and Rama Raju clearly show....
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....cquisition and the taxes paid. However, in the impugned order, the WTM has neither recorded the quantum of sale proceeds realised by the above three persons nor considered their plea for reducing the cost of acquisition and taxes paid from the sale proceeds received. In these circumstances, in the absence of material facts, we have no option to set aside the impugned order to the extent it relates to restraining the appellants from accessing the securities market and the quantum of illegal gain directed to be disgorged by V. Srinivas, G. Ramakrishna & Prabhakara Gupta. 34. In the result, we pass the following order:- a) Argument of the appellants that the impugned order passed on 15.07.2014 without giving inspection of documents and without permitting the appellants to cross-examine the persons whose statements were relied upon in the show cause notice, is violative of the principles of natural justice cannot be accepted because, admittedly, before commencement of the criminal trial in February 2011 all documents relating to the charge of inflating/ manipulating the books of Satyam were made available to the appellants and inspite of receiving requisite documents appellants (....