TaxTMI 
TaxTMI 
2018 (2) TMI 1330
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....TP Regulations" for short), SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("SAST Regulations, 1997") and the Securities and Exchange Board of India (Prevention of Insider Trading) Regulations, 1992 ("PIT Regulations, 1992" for short). 2. Penalty imposable under Section 15HA is up to Rs. 25 crore. Similarly penalty imposable under Section 15H is up to Rs. 25 crore and penalty imposable under Section 15A is up to Rs. 1 crore. Thus, as against the penalty of Rs. 51 crore imposable under Section 15HA, 15H & 15A(b) of SEBI Act, 1992 for the violations allegedly committed by the appellant, the AO of SEBI after considering all mitigating factors has imposed aggregate penalty of Rs. 1 crore. Appellant, however, submits that in the facts of present case, penalty ought not to have been imposed on the appellant and alternatively submits that the penalty imposed is exorbitant and disproportionate to the violations allegedly committed by the appellant. 3. Facts relevant for deciding the issues raised in this appeal are as follows:- a) Appellant who was the promoter and director of Empower Industries India Ltd. ("EIIL" for convenience) held 3,90,050 shar....
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.... plans, acquisition and any other related matter for growth of the company and also consider increase in the authorised capital and issue of rights/ preferential shares. h) After the above corporate announcement, market price of EIIL shares increased from the closing price of Rs. 100.12 on 01.03.2005 to Rs. 101.90 on the next trading day and the volume of trading increased from average daily trading volume of 3685 shares to average daily trading volume of 22606 shares during the investigation period (16.12.2005 to 11.03.2005). i) On 11.03.2005 Bombay Stock Exchange Ltd. ("BSE") received a letter dated 08.03.2005 from EIIL wherein it was stated that the Board meeting scheduled on 08.03.2005 has been cancelled/ postponed as the directors of the company had gone out of station and that any further notice in that regard would be given to the stock exchange in due course. j) As Mr. Shambhu Agrawal could not arrange loan of Rs. 1 crore, appellant on 25.03.2005 returned the advance amount of Rs. 5 lac to Mr. Shambhu Agrawal in cash and on 31.03.2005 Mr. Shambhu Agrawal returned 2,15,500 shares (1,82,150 in physical form + 33,350 in demat account) to the appellan....
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....ut recording any additional evidence and without recording any finding that the signatures on the two sets of the transfer deeds are genuine or legitimate signatures of the appellant. It is submitted that even to the naked eye it is evident that the signatures on the two sets of transfer deeds are different. In these circumstances, it is submitted that the impugned order passed by the AO by ignoring the expert report is liable to be quashed and set aside. c) The AO by relying on a decision of the Apex Court in the case of Shashi Kumar v/s Subodh Kumar reported in AIR 1964 SC 529 has erroneously held that the expert evidence cannot be relied upon without any other corroborative evidence. In that case, witness to the will in dispute, had deposed before the Court which was contrary to the expert evidence. In that context the Apex court held that when substantive evidence of the attesting witness to the will was available, the opinion of a handwriting expert cannot override the substantive evidence. In a subsequent case reported in AIR 1980 SC 531 (Murarilal v/s State of Madhya Pradesh) the Apex Court had held that it would be unjustifiable to reject the opinion of an expert o....
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....because, the appellant had simply handed over shares in physical form along with unsigned transfer forms so as to obtain loan of Rs. 1 crore. It is only when the loan was advanced the appellant would have signed the blank transfer deeds and at that point of time collateral/ security would have been created. Therefore, the AO is not justified in holding that the appellant had given the shares as collateral/ security for the loan without receiving any loan. h) As per the direction given by this Tribunal in the earlier round of litigation on 23.04.2014, it was incumbent upon the AO to adjudicate upon the issue of legitimacy/ forgery of the appellant's signatures on the transfer deeds, inter alia, by calling upon the RTA to explain as to how RTA permitted transfer of shares despite variation in the signatures on the transfer deeds. Since the AO has failed to comply with the directions given by this Tribunal, the impugned order is liable to be quashed and set aside. i) As the shares belonging to the appellant were transferred on the basis of forged/ fabricated transfer deeds, it cannot be said that the appellant knowingly transferred shares to any of the parties and co....
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....ion of the regulations framed by SEBI. l) Fact that the appellant after the investigation period had sold 26000 shares at the rate of Rs. 120 - Rs. 127 per share in June 2005 could not be a ground to hold that the appellant had taken advantage of the alleged manipulation in the price of the scrip. In the impugned order it is recorded that the price and volume manipulation took place during the investigation period from 16.02.2005 to 11.03.2005 and by 11.04.2005 the prices had come down to Rs. 97.80. The subsequent increase in price in June 2005 to Rs. 120 - Rs. 127 is not alleged to be a consequence of any alleged manipulation. Therefore, appellant could not be said to have taken advantage of the alleged price/ volume manipulation by selling the shares of EIIL. m) As regards the alleged misleading corporate announcements made by EIIL, it is submitted that the appellant was not the person who communicated either of the corporate announcements to the stock exchange. There were five directors in EIIL at the relevant time yet the appellant alone is held liable for the misleading corporate announcement which is wholly unjustified. n) The corporate announcement....
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....appellant is that the impugned order is passed by disregarding the direction given by this Tribunal on 23.04.2014 in Appeal No. 61 of 2013. It is contended that as per the direction given by this Tribunal on 23.04.2014, the AO could pass the impugned order only after recording additional evidence in relation to the plea of the appellant that the shares have been transferred by forging the signature of the appellant on the transfer deeds. Since, the impugned order is passed without recording any additional evidence it is submitted that the impugned order is liable to be quashed and set aside. 7. Perusal of the order of this Tribunal dated 23.04.2014 clearly shows that there was no direction given to the AO to pass fresh order only after recording additional evidence. The said order merely records that since the appellant claims that the shares belonging to the appellant have been transferred by forging the signature of the appellant on the share transfer forms and in support of the above contention the appellant relied on a report of Forensic Expert which became available after the original order was passed by the AO on 31.01.2013, this Tribunal set aside the order dated 31.01.20....
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....f third parties. To a specific query raised by this Tribunal regarding the balance shares, counsel for the appellant fairly stated that appellant has no explanation to offer. Thus, it is evident that the appellant handed over in all 3,38,000 shares whereas, Shambhu Agrawal returned only 2,15,500 shares that were in the name of third parties. Therefore, argument of the appellant that he did not take action against Shambhu Agrawal for forgery on account of receiving equal quantity of shares handed over to Shambhu Agrawal is contrary to facts on record and hence unsustainable. 11. It is interesting to note that out of 2,15,500 shares returned by Shambhu Agrawal, 1,82,150 shares were in physical form and 33,350 shares were transferred directly to the demat account of the appellant. It is not in dispute that immediately after 31.03.2005 appellant got the 1,82,150 shares in physical forms transferred to his own name. Assuming that on 31.03.2005 the appellant for the first time came to know that shares of EIIL handed over to Shambhu Agrawal have been fraudulently transferred by Shambhu Agrawal, very fact that the appellant instead of taking action against Shambhu Agrawal for transferri....
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....s. Assuming that on 31.03.2005 appellant came to know that 3,38,000 shares of EIIL handed over by the appellant to Shambhu Agrawal were transferred by forging the signature of the appellant after 31.03.2005 appellant could not have acquired shares of EIIL in excess of the limits prescribed, without following the obligations prescribed under the regulations framed by SEBI. 14. With this background, we may now consider the arguments advanced on behalf of the appellant in relation to the charges held proved against the appellant in the impugned order. 15. First charge held against the appellant in the impugned order is that the appellant as a promoter- director of EIIL was instrumental in issuing misleading corporate announcement on 02.03.2005 and therefore guilty of violating the PFUTP Regulations. The corporate announcement made by EIIL on 02.03.2005 was that in the meeting Scheduled to be held on 08.03.2005 the Board would inter-alia consider options and plans for expansion/ growth of the company and also consider increase in authorized capital and issue of rights/ preferential shares. However, no such meeting was held on 08.03.2005 and by a letter dated 08.03.2005 (received ....
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....orporate announcement dated 02.03.2005 the appellant in October 2004 had handed over 1,25,000 shares of EIIL in physical form along with unsigned blank share transfer forms to Shambhu Agrawal a finance broker. Thereafter, on 27.01.2005, appellant transferred 2500 shares of EIIL from his demat account to the pool account of Ruchiraj Shares and Stock Brokers Pvt. Ltd. On 31.01.2005 appellant rematerialized 2,40,500 shares of EIIL and handed over 2,13,000 rematerialized shares to Shambhu Agrawal along with unsigned share transfer forms. On a query raised by this Tribunal, counsel for the appellant admitted that all the aforesaid 3,40,500 shares of EIIL (1,25,000+2500+2,13,000) were handed over/ transferred by the appellant to Shambhu Agrawal/ Ruchiraj Shares & Stock Brokers Pvt. Ltd. so that on Shambhu Agrawal arranging loan of Rs. 1 crore, the said shares could be offered as collateral security. b) Instead of arranging loan of Rs. 1 crore, Shambhu Agrawal on 01.11.2004 transferred 1,25,000 shares received from the appellant to his own name and to the name of his other family members. Similarly, on 25.02.2005 Shambhu Agrawal transferred 2,13,000 shares received from the appel....
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....llant and Shambhu Agrawal in utilizing the shares of EIIL belonging to the appellant for trading on market during the period when misleading corporate announcement was made. 19. Aforesaid facts on record establish beyond any shadow of doubt that the appellant was instrumental in issuing misleading corporate announcement on 02.03.2005. Thus, on one hand appellant was instrumental in issuing corporate announcement by EIIL on 02.03.2005 which was admittedly not considered by the Board of EIIL at any time thereafter and on the other hand appellant in connivance with Shambhu Agrawal manipulated a device for trading in the shares of EIIL belonging to the appellant during the period of corporate announcement which resulted in increase in the price and volume of the EIIL scrip. Thus, it is apparent that corporate announcement was nothing but a device adopted to lure the investors to trade in the shares of EIIL. Since the corporate announcement was not even considered by the Board it is abundantly clear that the said corporate announcement was not made with bonafide intentions. 20. In these circumstances, finding recorded by the AO that the appellant was instrumental in issuing mislea....
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.... form and it is the appellant who took steps to transfer the said 1,82,150 shares in the name of third parties to the name of the appellant. Thus, it is apparent that acquiring shares of EIIL in excess of the limits prescribed, without making public announcement/ open offer was in gross violation of regulation 10 & 11(1) of the Takeover Regulations. 24. Penalty imposable under Section 15H(ii) of SEBI Act for failure to comply with regulation 10 & 11(1) of the Takeover Regulations is up to Rs. 25 crore. However, in the facts of present case, the AO after taking into consideration all mitigating factors has imposed penalty of Rs. 75 lac as against the penalty of Rs. 25 crore imposable under Section 15H(ii) of SEBI Act which cannot be said to be excessive or unreasonable. 25. Third charge held against the appellant is that the appellant has violated regulation 7(1A) read with regulation 7(2) of the Takeover Regulations and regulation 13(4) read with regulation 13(5) of the PIT Regulations. 26. In para 60 and 61 of the impugned order, the AO has set out the obligation of the appellant to make disclosures under the aforesaid regulations when the shareholding of the appellant in....