AI Drafter 
TaxTMI 
TaxTMI 
2013 (2) TMI 833
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....anhaiya Mining and Minerals Private Limited (Kanhaiya) iv. Krishnum Investments Private Limited (Krishnum) v. Lakhi Packaging Private Limited (Lakhi) vi. Ramji Agri Business Private Limited (Ramji) vii. Ramkrishna Fabrication and Machineries Private Limited (Ramkrishna) viii. Runicha Alloys and Steel Private Limited (Runicha) ix. Simple Mining and Power Private Limited (Simple) x. Taitan Management Services Private Limited (Taitan) 2. The reference made by the ITD stated that none of the dummy companies had proper offices and that the directors of these dummy companies were of no means to carry out huge transactions running into millions of rupees. As per the said reference, ITD conducted survey under Section 133A of the Income Tax Act, 1961 at the premises of the dummy companies and found that the companies were not traceable at their given addresses. The original documents relating to the ten dummy companies and their directors (bank statements, demat statements, correspondence from brokers, dividend vouchers, contract notes, correspondence with shareholders, tax invoices, income tax returns filed, income tax ackno....
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....issue, QIB/QIP placement, preferential allotment or loans or pledge/revocation of pledge of promoter shares. Among the several scrips in which Dangi group was trading, their role was taken up for examination in their dealings in the shares of Hubtown Ltd. (Hubtown) (earlier known as Ackruti City Ltd.); Welspun Corp Ltd. (earlier known as Welspun - Gujarat Stahl Rohren Ltd.) (WCL), Brushman (India) Ltd. (BIL) and RPG Transmission Ltd. (RPG). 6. In view of the above findings in various scrips and noticing that such operations were possibly continuing in the market to the detriment of the investing public, SEBI vide ad-interim ex-parte order dated December 2, 2010, (interim Order) (available on SEBI website www.sebi.gov.in) issued directions against, inter alia, Mr. Sanjay Dangi, his associates & promoter entities of 4 companies i.e. MIL, Hubtown, WCL & BIL. In the said interim Order, 10 Dangi entities and 14 Ashika entities were restrained from accessing the securities market and further prohibited from buying, selling or dealing in securities in any manner whatsoever, till further directions. 7. The entities were grouped as Ashika entities since they were all clients of broker....
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.... that on February 06, 2007, MIL successfully completed the offer and allotment of Zero Coupon Unsecured FCCBs for USD 23 Million, with a conversion price of ` 565 per share. As per the announcement made by MIL, the bonds would have a maturity period of five years and one day and shall be convertible. In view of the prima facie finding that certain dummy companies were incorporated to deal in the scrip of MIL and the reference from ITD pointing out to possible manipulation by Dangi/ Ashika group entities for influencing the FCCB pricing, SEBI conducted detailed investigations in respect of dealings in the scrip of MIL. 11. From the bank statements of Ramji, Runicha, Ambaji, Kanhaiya and Inco it was observed that these companies had availed loans from SICOM Limited (SICOM) to make the payments to MIL for conversion of the share warrants allotted to them. The loans were provided to these companies against, inter alia, comfort letter of MIL and postdated cheques towards principal and interest from Shri Nandlal Maloo (promoter/ MD of MIL). From the information furnished by the dummy companies, MIL, bank transaction counterparties of dummy companies, etc., it was observed that many cu....
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....kishore Bhattad received Rs. 4,80,000/- each from Nihal Gilts Private Limited and Raghav Finvest Private Limited, both being promoters of MIL. 14. It was observed from the demat account opening forms of the promoters of MIL that for the accounts held with ICICI the email id furnished by Mahesh Maloo, Lalchand Maloo HUF, Murli S Maloo, Bajranglal Maloo HUF, Nandlal Maloo HUF, Sunilkumar Sobhagmal Maloo, Lalchand Bankatlal Maloo and Bajranglal Bankatlal Maloo was also [email protected]. 15. It was observed that in the bank account opening form of Taitan, the address of one of its directors, i.e., Poonamchand Bhattad was mentioned as '102, Jai Bhawani Society, Wardhaman Nagar, Nagpur' (address of MIL being '101, Jai Bhawani Society, Wardhaman Nagar, Nagpur') and his phone number was 2738634 (same phone number as mentioned in Kamalkishore Bhattad's account with IL&FS Securities Services Limited). It was observed that Poonamchand Bhattad was also a director of Ambaji. It was further observed that the address in the driving license (issued in March 2004) of Lalit Loya, who was a director of Krishnum and Ramji, was 'C/o M/s. Murli Agro Products Limited, MIDC, Dhurkheda Tah, Umrer....
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....ies a/c opening form Simple IDBI Demat a/c opening form Krishnum IDBI Demat a/c opening form 3 c/o Vidya Amar Fulzale, Ambedkar Square, bypass Road, Umrer, Nagpur 441203 Ramji IDBI Demat a/c opening form; Guiness Securities a/c opening form Runicha IDBI Demat a/c opening form Krishnum Guiness Securities a/c opening form 4 2nd Floor, Bind Apartment, Gandhi X Ray, Gandi Putla, Nagpur -8 (Address of late Deepti Raja, wife of Amit Raja CA) Kamalkishore Bhattad IDBI Bank a/c opening form of Krishnum Krishnum Fortis a/c opening form; IDBI demat a/c opening form Common e mail address 1 [email protected] (e-mail address of Amit Raja CA) Krishnum Guiness Securities a/c opening form; ROC Filings Simple Guiness Securities a/c opening form; ROC Filings Taitan Guiness Securities a/c opening form; ROC Filings Lakhi Guiness Securities a/c opening form; ROC Filings 16. It was observed that all the dummy companies had used the services of Bhagwati Commercial and Financial Services Private Limited (promoters/directors of Bhagwati Commercial & F....
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....hare warrants of MIL. 20. It was also observed from the bank statements of dummy companies that a number of companies had invested in them as shareholders. The information obtained from MCA website during investigation indicated that all these companies (shareholders of dummy companies) were based out of Kolkata (registered office being in Kolkata) and had common directors. APPOINTMENT OF ADJUDICATING OFFICER 22. The undersigned was appointed as the Adjudicating Officer vide order dated March 30, 2012 and the said appointment was conveyed vide proceedings of the Whole Time Member dated April 11, 2012 to inquire and adjudge under Section 15A(a) of the SEBI Act, 1992 alleged violations of provisions of Section 11C(2) & 11C(3) of SEBI Act, 1992 committed by SFPL. SHOW CAUSE NOTICE, HEARING & REPLY 23. Show Cause Notice (SCN) in terms of the provisions of Rule 4(1) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (Adjudication Rules) was issued to SFPL on January 04, 2013, calling upon it to show cause as to why an inquiry should not be held against it under Rule 4(3) of the Adjudication Rules for the alleged....
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.... prior to change in management. • The summons and notices that were received by Sagar Fintrade Pvt. Ltd. after the Company had undergone change in management were replied to and documents furnished to SEBI. However, in view of an ongoing Income Tax proceedings, all relevant and required information and documents could not be available to the Company. • Subsequently, the Company since merged with Lucky Holdings Pvt. Ltd.) has provided all relevant documents and information as available with the Company on assuming control of Sagar Fintrade Pvt. Ltd. pursuant to a change in management in April 2009. The Company has provided all information as available from the records and would endeavour to assist SEBI in every possible manner. • The delay in providing all possible required information to SEBI occasioned due to circumstances wholly beyond the reasonable control of the Company and its officers. There has been no wilful or deliberate neglect or withholding of any information or documents that was in the domain of the Company. • As the delay was inadvertent, no adverse inference should be drawn against the Company or its officers and ....
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....rmed that the replies issued during the period 2011 in response to summons received from SEBI were issued on our instruction, advice and knowledge. All such replies form part of the Show Cause Notice dated January 04, 2013 issued by SEBI." ISSUES FOR CONSIDERATION 30. After perusal of the material available on record, I have the following issues for consideration, viz., A. Whether SFPL has violated provisions of Section 11C(2) and 11C(3) of the SEBI Act, 1992? B. Whether SFPL is liable for monetary penalty under Section 15A(a) of the SEBI Act, 1992? C. What quantum of monetary penalty should be imposed on SFPL/LHPL taking into consideration the factors mentioned in Section 15J of the SEBI Act, 1992? FINDINGS 31. On perusal of the material available on record and giving regard to the facts and circumstances of the case, I record my findings hereunder. ISSUE 1: Whether SFPL has violated provisions of Section11C(2) and 11C(3) of the SEBI Act, 1992? 32. The provisions of Section 11C(2) and 11C(3) of the SEBI Act, 1992 read as under: Section 11C(2) and Section 11C(3) of the SEBI Act, 1992 11C(2): Without prejudice to the provisions of sections 235 to 241....
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....h the information by October 20, 2011 and the said summons was duly delivered to SFPL by Speed Post. I note that vide letter dated October 15, 2011, (received by SEBI on October 31, 2011) as additional response to summons dated September 06, 2011, SFPL submitted that it had also invested ` 28,50,000 in Krishnum. It also submitted detail of investment in Krishnum & Ramji, bank statement of IDBI Bank account, annual report for years ended March 31, 2006 & March 31, 2009 and detail of investment as on March 31, 2006. 36. Another summons dated November 01, 2011 was also issued to SFPL asking it to submit the desired information by November 08, 2011. This summon was duly delivered on November 03, 2011. However, no response was received to the said summons. 37. Thereafter, another summons dated December 22, 2011 was issued to SFPL asking it to submit information by December 28, 2011. This summons was also duly delivered and vide letter dated nil received on January 16, 2012, SFPL submitted only the list of its shareholders as on December 31, 2009. I further note that all the summonses clearly stated that in case of default by SFPL, SEBI will initiate adjudication proceedings agains....
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.... to 31/12/2009; details of shareholders of SFPL on quarterly basis for 01/04/2005 to 31/12/2009; connection with certain Kolkata based entities (shareholders of dummy companies); details regarding investment in Ramji; list of investments in other private limited companies; etc. Summons delivered. No reply received. 5. December 22, 2011 Details of bank accounts (including account statements) of SFPL and its promoters / directors for 01/04/2005 to 31/12/2009; details of shareholders of SFPL on quarterly basis for 01/04/2005 to 31/12/2009; connection with certain Kolkata based entities (shareholders of dummy companies); details regarding investment in Ramji and Krishnum; etc. Partial reply vide letter dated nil, received by SEBI on January 16, 2012 SFPL only submitted a list of its shareholders as on 31/12/2009. 39. It is observed that all the summonses were issued after the date of merger i.e. June 2011. However, neither SFPL (original entity) nor LHPL (merged entity) brought the fact of change of management and merger to the notice of the IA. Consequent to the merger/amalgamation, all the assets, rights, d....
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....ocess as it precludes the IA from carrying out further and deeper investigation because of paucity of time. Even then, SFPL did not furnish bank statements for the required period and details of shareholders on a quarterly basis as required vide summons dated September 06, 2011. It also did not submit information regarding rationale for investing in Ramji and list of all private limited companies in which it was a shareholder during the period from April 01, 2005 to December 31, 2009. 43. Since no reply was received from SFPL in response to summons dated October 12, 2011, the information was again sought vide summons dated November 01, 2011. There was no response to this summons also. Thereafter, another summons dated December 22, 2011 was issued asking for various information/documents. However, vide letter dated nil, received on January 16, 2012, SFPL submitted only the list of its shareholders as on December 31, 2009. 44. SFPL did not furnish the required bank statements and details of shareholders on a quarterly basis; rationale for investment in Ramji and Krishnum; who approached SFPL for investment in Ramji and Krishnum; etc. Further, SFPL did not submit the names of ot....
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....LHPL vide its reply dated February 11, 2013 and also during the course of personal hearing has, inter alia, submitted that SFPL had undergone a change in management in April 2009 pursuant to which new directors were appointed and thereafter in June 2011 SFPL had merged with LHPL. LHPL also submitted that the details called for in the summonses relate to a period which was prior to the change of management in SFPL. I am of the view that a change in management would not absolve SFPL from complying with SEBI summonses. LHPL further submitted that time it was preoccupied with an Income Tax proceeding and that it had provided all documents/information which was available from record. As already observed, the fact of merger of SFPL into LHPL, which happened before the issue of summonses, was not informed to the IA at the relevant time. Also, the fact that there was an Income Tax proceeding during the time SEBI summonses were issued cannot be accepted as a plausible reason for not submitting complete details/information in response to SEBI summonses. Despite receiving the five summonses SFPL did not bother to furnish detailed information as required by the IA which hampered the investigat....
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....with the investigating officer and promptly produce all documents, records, information as may be necessary for the investigations. If persons are allowed to flout the summons issued to them during the course of the investigations, the Board as the watchdog of the securities market will not be able to perform its duties in protecting the interests of the investors and safeguarding the integrity of the securities market.......". 49. From the forgoing paragraphs it is observed that SFPL failed to provide the required documents and information to the IA. The said details which were sought vide the summons dated September 06, 2011, September 22, 2011, October 12, 2011, November 01, 2011 and December 22, 2011 were relevant and important in the whole Investigating Process. Thereby, it is established that SFPL has violated the provisions of Section 11C(2) & 11C(3) of the SEBI Act, 1992. ISSUE 2: Whether SFPL is liable for monetary penalty under Section 15A(a) of the SEBI Act, 1992? 50. The provisions of Section 15A(a) of the SEBI Act, 1992 read as under: Penalty for failure to furnish information, return, etc.: Section 15A If any person, who is required under this Act or....