AI Drafter 
TaxTMI 
TaxTMI 
2010 (5) TMI 914
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....ibe to the IPO, an applicant must have bank account and the demat account, whose numbers are to be mentioned in the application. Demat account is an electronic account of a beneficiary, opened and maintained with any of the approved Depository Participants (hereinafter referred to as DP). Shares allotted to successful applicants in the IPO, are electronically credited to their respective demat accounts. Demat accounts are opened by the DPs only for those applicants who hold an account with a bank also. Opening of a bank account and the demat account has to be in compliance with "Know Your Customer" (KYC) norms prescribed by the Reserve Bank of India and SEBI, respectively. 1.2 During the year 2005, Infrastructure Development Finance Company Ltd. (hereinafter referred to as IDFC) came out with an IPO-opened for subscription from dt. 15.07.2005 to dt. 22.07.2005. In this IPO 40,36,00,000 (forty crore thirty six lakh) shares were on offer, out of which 14,12,60,000 (fourteen crore twelve lakh sixty thousand) shares were reserved for Retail Individual Investors (hereinafter referred to as RII). The price band for subscription was between Rs. 29/- to Rs. 34/-. The final issue price w....
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....rs in off market transaction. These individuals/entities including Sh. Parag Priyakant Jhaveri, Sh. Dipak Jashvantlal Panchal, Sh. Purshottam Ghanshyamdas Budhawani, Sh. Manoj Gokulchand Seksaria, Sh. Kantilal Jitmal Jain were referred to as "key operators" by the SEBI in its report. The persons who provided the finance for IPO subscription and were the ultimate beneficiaries in the scheme of cornering of retail allotment were referred to as financiers by SEBI in its report. 1.5 During the investigation it was found that based upon fraudulently prepared/forged documents, a large number of bank accounts and demat accounts were clandestinely opened by the key operators in fictitious/benami names, and using the identity of the said bank accounts and demat accounts, the key operators put in applications in the said fictitious/benami names while subscribing to the IPO and thus predatorily cornered a large number of shares, which were actually reserved for allotment to genuine RIIs. The investigation revealed that Sh. Parag P. Jhaveri, one of the directors of M/s. Sugandh Estates and Investment Private Ltd. (hereinafter referred to as SEIPL) having his account with Vijaya Bank, Ambawa....
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....or acquiring the said shares. The said entities have thus fraudulently deprived the genuine RIIs, of their right to purchase/acquire shares, which were legitimately reserved for them. 1.7 Sh. Jitender Kumar Lalwani purchased 23,79,772 RII category IDFC shares from Sh. Parag P. Jhaveri, Sh. Kamal P. Jhaveri, Jayesh P. Khandwala HUF, Sugandh Estate Investment Pvt. Ltd. and Amadhi Investments and others in off market transactions and out of these, 22,21,808 shares were transferred to his demat account on dt. 11.8.2005 i.e. prior to date of listing of IDFC shares on stock exchange, 1,37,020 shares were transferred to his demat account on dt. 12.8.2005 and remaining shares were transferred in the month of September and October 2005. Most of the above shares were sold on 12th August 2005 i.e. the date of listing and thereby Sh. Jitender Kumar Lalwani made financial gain of Rs. 7,00,57,692/-. 1.8 Consequent to the investigation conducted, SEBI, Mumbai office through its Chief General Manager, Sh. R. Ravichandran, filed a written complaint dt. 20.2.2006 against key operators/financiers etc. including the appellant Sh. Jitender Kumar Lalwani on the fraud committed in the Initial Publi....
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....n such offences is thirty lakh rupees or more; 5. Attachment of property involved in money laundering- (1) Where the Director, or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that- (a) any person is in possession of any proceeds of crime; (b) such person has been charged of having committed a scheduled offence; and (c) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding ninety days from the date of the order, in the manner provided in the Second Schedule to the Income Tax Act, 1961 (43 of 1961) and the Director or the other officer so authorized by him, as the case may be, shall be deemed to be an officer under sub-rule (e) of rule 1 of the Schedule: ..................... 2.1 It was contended that fo....
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....es in appellant's demat account and sale of IDFC shares by the appellant on the day of listing are perfectly legal and did not involve contravention of any law. He argued that the statement of Sh. Parag P. Jhaveri was taken behind the appellant's back and was never confronted to him. He further argued that Sh. Parag P. Jhaveri neither provided any details like when and how the alleged funds of Rs. 4.76 crore were provided by the appellant for making 1000 applications in subscribing IDFC IPO against which 2,66,000 shares were cornered nor any corroborating material was brought on record by the defendant to prove the same. 2.4 The Counsel argued that the CBI, in its charge-sheet filed in the case, has given its finding that the appellant was not charge-sheeted as no evidence of criminal involvement was found against him during the investigation and Sh. Jitender Kumar Lalwani has purchased the shares of IDFC in a legal manner. He submitted that majority of the shares were purchased from Jayesh P. Khandwala HUF (9,49,818 shares), Amadhi Investments (2,65,468 shares) who have not even been charge sheeted by the CBI and CBI, in its charge sheet filed in the case, has given its....
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....l he could corner 73,00,104 shares of IDFC out of 14.12 crore shares meant for RII, which amounts to 5.16%. Further, with the help of Shri Aditya Gupta (A-9) and Shri Phanindra Kumar (A-11), he transferred the illegally cornered shares to his Demat account by issuing forged Delivery Instructions Slips (DIS). He disposed off all the shares cornered in that illegal manner for a profit of about Rs. 8.63 crores. Para 24 on page 19 of the CBI charge sheet: That the fictitious applications put in by Shri Parag Jhaveri (A-2) were allotted with 266 shares each and in all he could corner 35,14,392 shares of IDFC out of 14.12 crore shares meant for RII, which amounts to 2.48%. Further, with the help of Shri Aditya Gupta (A-9) and Shri Phanindra Kumar (A-11), he transferred the illegally cornered shares to his Demat account by issuing forged Delivery Instructions Slips (DIS). He disposed off all the shares cornered in that illegal manner for a profit of about Rs. 15 lacs. Para 26 on page 20 of the CBI charge sheet: That Shri Purshottam Budhwani (A-3) submitted 5,590 applications in the names of fictitious persons in whose names demat accounts were fraudulen....
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....at the shares could be purchased in off market transaction, which was a permissible activity under the SEBI guidelines. He further states that the appellant found the proposal attractive and asked his friend Sh. Yashwant Thakkar to purchase the shares with the condition that the payment will be made after the shares were transferred in appellant's demat account. Sh. Yashwant Thakkar arranged purchase of shares in off market transaction on different rates and on different dates and the shares were transferred to appellant's demat account on dt. 11.8.2005, dt. 12.8.2005, dt. 2.9.2005, dt. 8.9.2005 and dt. 5.10.2005. He further submitted that the appellant was short of funds at that point of time, therefore, the appellant requested Sh. Yashwant Thakkar to make payment for purchase of shares and for which, appellant agreed to pay interest to Sh. Yashwant Thakkar. He further states that the appellant thought that the listing of IDFC shares may not be at a very high premium, therefore, the appellant asked his broker to sell all his shares on the day of listing. He submitted that all these transactions of purchase, sale and payments are reflected in the appellant's books of ac....
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....nder Indian Penal Code and other Acts including section 467 of Indian Penal Code, which is a scheduled offence, in terms of Section 2(y) of the Act. He also drew our attention to the modus operandi adopted by these key operators for opening of fictitious/benami bank and demat accounts, submitting applications for subscription of share of IDFC IPO in the name of fictitious/benami persons, cornering of shares reserved for RII category, transfer of shares from demat account of fictitious/benami allottees of shares to one demat account of key operator, transfer of shares from key operator's demat account to financiers and sale of shares on the day of listing. 3.2 The Counsel submitted that the said Sh. Parag P. Jhaveri, key operator and director of M/s. Sugandh Estate & Investment Pvt. Ltd., in his statements dt. 9.2.2008 and dt. 2.4.2008, recorded u/s. 50 of the Act, stated, inter alia, that he is one of the directors of SEIPL holding majority shares 99.95% in the company and under specific arrangements, utilized funds on behalf of certain entities/financiers by deploying the same in the specific IPOs. He further states that while explaining the specific arrangement, Sh. Parag ....
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....counts, he had furnished the residential address of his cousin Mr. Sh. pal M. Jhaveri A/3, Vishal Flat, Ambawadi, Ahmedabad; k. That 35,17,850 shares of IDFC were got allotted against 13225 applications; 1. That while giving details about the financiers who had been providing funds for the aforesaid activity i.e. acquiring IDFC shares fraudulently from RII category, he, inter-alia, furnished the said details which among others also included Sh. Jitender Kumar Lalwai, the present appellant; m. That he also disclosed that besides the demat a/c of SEIPL, demat account no. 10004600 and demat account no. 10004626 of himself and of his brother Sh. Kamal P. Jhaveri respectively, were also used by him to transfer shares of IDFC to the appellant." 3.3 The Counsel further submitted that the appellant provided funds to the tune of Rs. 4.76 crores for making 1000 applications for subscribing shares reserved for RII category in the IDFC IPO, to the key operator Sh. Parag P. Jhaveri. He drew our attention to the copy of the order of SEBI, para 10.6 on page 34 to 36 which is detail of financiers of M/s. Sugandh Estates & Investments Pvt. Ltd. and para 10.7 on page 37....
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....urnish the details of funds received from respective financier as under: S. No. Name of Financiers Amt. of fund No. of Application (i) --------- (xii) Jitendra Lalwani 4,76,00,000 1000" Q. 18 In your answer to question no. 9 above, you have furnished the details of funds received from different financiers for subscribing to IPO of IDFC in RII category. Please furnish the details of shares received/allotted against respective funds received from each financiers which were subsequently transferred to the common demat account of SEIPL for further transfers to each financiers? A. 18 The details of IDFC shares transferred are as under: S. No. Name of Financiers No. of Shares (i) --------- (xii) Jitendra Lalwani 266000 Total 2721690 All these shares were transferred to respective financiers before the date of listing as off market transaction. Statement dt. 2.4.2008: Q. 1 In your statement dated 9.2.2008 you had stated that shares of IDFC were transferred to many financiers including Jitendra Lalwani as off market transaction from the demat acco....
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....n the particular entry of 06-06-2007 in token of having seen the said document. I have to state that the funds utilized by me for making the above mentioned payments/expenditures in respect of purchase/acquisition of property at A-9/31, Vasant Vihar, New Delhi have been out of profits derived from the sale of around 22 lakh RII category shares of IDFC which had been acquired during August, 2005 followed by sale thereof, almost simultaneously on the date of listing itself. However, the said profits were intermixed with my available funds, and thereafter utilized, temporarily for other various investments/disbursements, and after a chain of payments/receipts, were finally utilized for acquiring the above mentioned property." 3.6 The Counsel submitted that the appellant has without admitting or denying the charges initiated by SEBI, has remitted a sum of Rs. 9,62,40,761/- vide demand draft dated December 28, 2009 which included Rs. 7,40,31,355/- towards disgorgement amount and Rs. 2,22,09,406/- towards settlement charges to SEBI for settlement of the proceedings initiated against the appellant and argued that the settlement order shows admission of guilt on the part of the appellan....
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....the appellant provided funds to the tune of Rs. 4.76 crore for 1000 applications for subscribing IDFC IPO in RII category, the thus illegally cornered shares of IDFC IPO, which were reserved for RII category, were transferred to appellant in off market transaction before listing of the shares on stock exchange. 6. To unravel the complexity of the facts of the case, it is important to understand the following facts of the case: "The IDFC IPO was open for subscription from dt. 15.7.2005 to dt. 22.7.2005, the shares were allotted and credited to demat accounts of investors on dt. 5/6.8.2005, shares so allotted/credited were transferred as off market transactions to financiers prior to listing of the issue i.e. prior to dt. 12.8.2005. The appellant purchased 23,79,772 shares of IDFC and out of this, 22,21,808 shares were transferred to his demat account on dt. 11.8.2005, 1,37,020 shares were transferred to his demat account on dt. 12.8.2005 and remaining shares were transferred to his demat account in the month of September and October 2005. The defendant has contended that the appellant was in the know of the illegal modus operandi of the key operator, the appellant provid....
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....A. 3 SEIPL had received above referred 2 cheques from Jitendra Lalwani, through office of Yashwant Thakkar, having its office at 319-320, Narayan Chambers, Ashram Road, Ahmedabad. Q. 4 It is observed that the payments against the 266000 shares of IDFC transferred from demat account of SEIPL were received much late after the actual transfer of shares as off market transactions to Jitendra Lalwani. In this regard please state as to how and when the funds were arranged for the aforesaid shares? A. 4 As regards to the applications for IDFC Ltd. IPO subscription in RII category SEIPL had arranged margin money to the tune of Rs. 1,19,00,000/-(being 25% of application money) and balance 75% of application money i.e. Rs. 3,57,00,000/- was taken as loan from M/s. Karvy Stock Broking Ltd. for 1000 applications for Jitender Lalwani. Q. 5 Please state about the source of funds for the above margin money of Rs. 1,19,00,000/- paid by SEIPL for 1000 IDFC Ltd. IPO applications in RII category? A. 5 Margin money of Rs. 1,19,00,000/- was paid by SEIPL out of funds of Rs. 1,70,00,000/- received from M/s. Amadhi Investment Ltd. having its office at 13/14, Radha Kunj....