TaxTMI 
TaxTMI 
2014 (2) TMI 1406
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.... Pvt. Ltd., Laksh Mercantile Pvt. Ltd., Madan Multitrade Pvt. Ltd., Maginot Trading Company Pvt. Ltd., Montreal Trading Company Pvt. Ltd., Newtree Mercantile Company Pvt. Ltd., Niti Mercantile Company Pvt. Ltd., Palaash Construction Pvt. Ltd., Prajay Trading Company Pvt. Ltd., Real Star Trading Company Pvt. Ltd., Sarveshwara Trading Company Pvt. Ltd., Sea View Trading Company Pvt. Ltd., Seaview Multitrade Company Pvt. Ltd., Skyview Trading Company Pvt. Ltd., Starview Constructions Pvt. Ltd., Starview Mercantile Company Pvt. Ltd., Sulochana Mercantile Pvt. Ltd., Superhouse Trading Company Pvt. Ltd., Topcare Constructions Pvt. Ltd., Topcare Trading Company Pvt. Ltd., Vinay Mercantile Pvt. Ltd., Watergate Mercantile Company Pvt. Ltd., Colorshop Trading Company Pvt. Ltd., Geonet Trading Company Pvt. Ltd., Infinite Mercantile Company Pvt. Ltd., Punit Mercantile Pvt. Ltd., Superfine Trading Company Pvt. Ltd., Acrow Constructions (P) Ltd., Acrow Realcon Pvt. Ltd., Allcon Estate (P) Ltd., Alpha (India) Properties Ltd., Avera Engineering (P) Ltd., Avera Machinery (P) Ltd., Avera Properties (P) Ltd., Avon Realcon (P) Ltd., Axtel Properties (P) Ltd., Badal Realty (P) Ltd., Bodal Conpro (P) Lt....
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....ransfer of shares of BoR by entities listed in the reference during the period between June 2007 and December 2009 ('Investigation Period' for convenience) to find out as to whether those entities had violated SEBI Act and Rules and regulations made thereunder. 3. Even after making reference to SEBI to consider as to whether there were violations committed by promoters of BoR under SEBI Act, it was open to RBI to initiate proceedings against promoters of BoR on ground that RBI guidelines have been violated. However, fact that RBI has not initiated any proceedings against promoters of BoR for alleged violation of RBI guidelines would not vitiate proceedings initiated by SEBI against promoters of BoR for allegedly violating SEBI Act and regulations made thereunder, because RBI as banking sector regulator and SEBI as capital market regulator operate in different fields and exercise powers vested in them under RBI Act and SEBI Act respectively which are independent of each other. Question, therefore to be considered in these 14 appeals is whether appellants who are promoters of BoR and persons allegedly connected with them have violated provisions of SEBI Act, Rules/Regulati....
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....) shall pass appropriate order on merits without being influenced by observations made by WTM in his order dated March 26, 2012. 5. As per the investigation report, Promoter group controlled by Tayal family had in collusion with/in concert with Tayal group, Yadav group had traded in BoR shares amongst themselves and thereby enabled promoters to make fraudulent misrepresentation to the investors. Therefore, promoter group controlled by Tayal family as well as Tayal group/Yadav group/Silvassa group entities had violated regulation 3 (a)(b)(c)(d) as also regulation 4(1), 4(2)(f) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ('PFUTP Regulations, 2003' for short) read with section 12A(a)(b) and (c) of SEBI Act, 1992 and that some of them had also violated regulation 8(2) and 11(1) and 11(2) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ('SAST Regulations, 1997' for short). Investigation report, further concluded that some of the persons had violated section 11C (2)(3) and (5) of SEBI Act by not responding to summons issued to them. Accordingly, on receiving authorization, AO....
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....ile Pvt. Ltd. 6. Palash Construction Pvt. Ltd. Room No. 1, 2nd Floor 105, Damoder Building Princess Street, Mumbai- 400 002 7. Sarveshwara Trading Company Pvt. Ltd. 8. Aim Multitrade Company Pvt. Ltd. H-157,Dr.Babasaheb Ambedkar Nagar, S M Road, Kokari Agar, Sion Koliwada, Mumbai- 400 003 9. Anoop Multitrade Pvt. Ltd. 10. Watergate Mercantile Company Pvt. Ltd. 11. Highzone Trading Company Pvt. Ltd. 12. Hiren Trading Company Pvt. Ltd. 13. Inorbit Trading Company Pvt. Ltd. 14. Laksh Mercantile Pvt. Ltd. 15. Madan Multitrade Pvt. Ltd. 16. Superhouse Trading Company Pvt. Ltd. 17. Montreal Trading Company P. Ltd. 18. Newtree Mercantile Co P Ltd. 19. Niti Mercantile Company Pvt. Ltd. 20. Prajay Trading Company Pvt. Ltd. 21. Real Star Trading Company P Ltd. 22. Sea View Trading Company P Ltd. 23. Seaview Multitrade Company Pvt. Ltd. 24. Skyview Trading Company Pvt. Ltd. 25. Starview Constructions Pvt. Ltd. 26. Starview Mercantile Co Pvt. Ltd. 27. Sulochana Mercantile Pvt. Ltd. 28. Topcare Constructions Pvt. Ltd. 29....
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....cord, AO has held that above four group entities were inter-connected with each other by having common addresses, common directors as also by transfer of shares and transfer of funds within the group as more particularly set out in the impugned order. It is further held in the impugned order that promoters of BoR in connivance with other group entities have concealed correct information from investors regarding their shareholding in BoR and their act culminated into fraud on investors and securities market and thus Tayal family as also four group entities have violated PFUTP Regulations, 2003 and some entities violated SAST Regulations, 1997 and hence were liable for monetary penalty. 11. With this background, we now consider arguments advanced by counsel on both sides in the respective appeals. Appeal No. 68 of 2013 (Sanjay Kumar Tayal vs. SEBI) 12. Penalty of Rs. 5 crore (Rs. 4 crore under section 15HA and Rs. 1 crore under section 15A(a) of SEBI Act) has been imposed upon appellant, Sanjay Kumar Tayal on ground that he had indulged in fraudulent and unfair trade practices relating to securities under PFUTP Regulations, 2003 and failed to comply with summons issued un....
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....xpose them to much greater risk. In the present case, it is not even alleged that there is any price or volume manipulation and there is no allegation that any investor has suffered on account of alleged violations. In these circumstances, imposition of hefty penalty of Rs. 4 crore upon appellant under Section 15HA of SEBI Act for alleged violation of PFUTP Regulations, 2003 is wholly unjustified. e) Similarly imposition of penalty of Rs. 1 crore under Section 15A(a) of SEBI Act for alleged non compliance of summons is also unjustified, because, on receipt of summons appellant had sought short adjournment and had agreed to appear and produce documents on the adjourned date. Since no such opportunity to appear and produce documents was given, AO was not justified in holding that appellant had failed to comply with the summons and impose penalty of Rs. 1 crore against appellant. 14. Mr. Rustomjee, learned counsel appearing on behalf of SEBI, on the other hand extensively argued in support of impugned order. 15. On careful consideration of rival submissions, we find it difficult to accept arguments advanced by counsel for appellant for following reasons: a) Whe....
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.... be rejected. c) Fact that RBI has permitted merger of BoR with ICICI Bank cannot be a ground for appellant to escape penal liability for violating SEBI Act and regulations made thereunder, because permission granted by RBI for merger of BoR with ICICI Bank was not in lieu of offences committed by appellant under SEBI Act and regulations made thereunder. In other words, having violated SEBI Act and regulations made thereunder, appellant cannot avoid penal liability merely because, subsequent to such violations RBI has permitted merger of BoR with ICICI Bank. d) Similarly, fact that there is nothing on record to suggest that camouflaging real level of shareholding by promoters of BoR including appellant has led genuine investors to trade in shares of BoR, cannot be a ground for appellant to escape penalty even after violating SEBI Act and regulations made thereunder, because SEBI Act does not contemplate imposition of penalty on a person violating SEBI Act only if investors suffer on account of such violations. That may be a factor to be taken into account by AO while determining the quantum of penalty. Therefore, fact that there is no evidence to show that any inv....
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....estigating officer that above summons has been received on May 28, 2011 and it would not be possible to appear with documents on May 31, 2011 and requested for another date for appearance and production of documents. Without considering merits of above request and without giving any opportunity for production of documents or appearance, show cause notice was issued and by impugned order penalty of Rs. 1 crore has been imposed upon appellant by AO under Section 15A(a) of SEBI Act for non-compliance of summons issued to appellant. Since dispute in this case related to 2007-2009 period and since summons was issued in May 2011, it would have been just and proper for the investigating officer to consider reasonable request of appellant and fix another date for appearance/production of documents, especially when appellant had agreed to appear and produce documents on the next date fixed by investigating officer. Since reasonable opportunity for production of documents was not given to appellant, we deem it proper to set aside penalty of Rs. 1 crore imposed upon appellant under Section 15A(a) of SEBI Act. Accordingly, we uphold penalty of Rs. 4 crore imposed under Section 15HA and set asi....
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....led to appear with documents on May 19, 2011, however said summons was received by appellants after May 19, 2011 and hence compliance of that summons did not arise at all (see page 338 in Appeal No. 75 of 2013). Similarly, by second summons dated May 26, 2011 appellants were called upon to appear and produce documents on May 30, 2011. According to appellants second summons was received on May 30, 2011 and hence by letter dated May 31, 2011 they sought another date for appearance and production of documents (see page 351 in Appeal No. 75 of 2013). In these circumstances, in our opinion, imposition of penalty under Section 15A(a) on ground that appellants have failed to comply with the summonses is unjustified. Accordingly, penalty levied under Section 15A(a) of SEBI Act on each of appellants is set aside. 24. As regards imposition of penalty under Section 15A(b) is concerned, according to SEBI, (see para 53 & 54) under regulation 8(2) of SAST Regulations, 1997 appellants, having retained control over BoR along with persons acting in concert ("PAC" for short) with them, were under obligation to make continual disclosures, disclosing the number and percentage of shares held by them....
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....nected with other groups in view of common address, common directors, transfer of shares and transfer of funds amongst alleged four groups. Each appellant is a distinct legal entity and merely because some appellants had common address and some appellants had common directors it could not be presumed that appellants were inter connected with each other so as to impose penalty upon appellants for alleged lapses, if any, committed by Promoter group. d) In para 31 of impugned order it is erroneously held that funds received by appellants in alleged Yadav group from other group entities were for purchase of shares of BoR when in fact those payments were received towards price of goods sold by appellants to those group entities. Merely because price of goods sold by appellants were received from Promoter/Tayal group either directly or indirectly (on account of payments made to third parties for and on behalf of appellants) it could not be inferred that Promoter/Tayal group had transferred funds to appellants for purchase shares of BoR on behalf of Promoter/Tayal group. Purchase of BoR shares on market were made by appellants on their own behalf and payments made by Promoter/Tay....
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.... AO has held that charge under regulation 11(1) of SAST Regulations, 1997 does not stand established. If regulation 11(1) is not attracted, then for the same reason, regulation 11(2) would not be attracted because concept of PAC could be invoked only if appellants along with promoters were involved in acquisition BoR shares in the past (under regulation 11(1)) and also involved in acquisition of additional shares of BoR along with Promoter group. Since BoR shares acquired by 9 Yadav group entities during investigation period were on their own behalf and those appellants were not involved in Promoter group acquiring BoR shares in the past, appellants could not be said to have violated regulation 11(2) of SAST Regulations, 1997 and consequently, imposition of penalty of Rs. 10 lac under Section 15H(ii) of SEBI Act for alleged violation of regulation 11(2) of SAST Regulations, 1997 is unjustified. i) With reference to two appellants in Appeal No. 82 of 2013, it is contended that merely because those two appellants were directors in most of alleged Yadav group companies, they could not be singled out and subjected to penalty on ground that they have allegedly violated PFUTP Re....
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....ed in her statement recorded on oath before the investigating officer of SEBI on 31.01.2011 that she works as Account Assistant with Dilip S. Mehta, proprietor of Dilip S. Mehta and Co, Chartered Accountants on a monthly salary of Rs. 10,000/- and that the companies in which she is shown as director are formed by Shri Mahadev Duggar, an employee of Dilip S. Mehta and Co. who as on that was not traceable. Sangeeta Sawant in her statement further admitted that except by name she did not know personally Girish Chand Yadav who is supposed to be co-director along with her in 30 out of 35 entities in Yadav group. Sangeeta Sawant further admitted that neither she was aware of the business carried on by the entities in which she was a director nor she was aware of acquisition of shares of BoR by the said companies and that she had lent her name to be director of Yadav group companies because she was told that she would get some benefit out of it, however, so far she has not got any benefit out of it. Sangeeta Sawant further admitted that personally she did not know Pravin Kumar Tayal, but she knew that he is operating the entities in which she is shown as director. c) Correctness ....
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....ing in securities. In the present case, there is no doubt that off market transfer of BoR shares from Promoter group to Yadav group were effected with the sole intention of fraudulently misrepresenting to the investors that in compliance of RBI circular dated February 28, 2005 Promoter group controlled by Tayal family have diluted their shareholding in BoR, when in fact there was no change in the shareholding because, both the Promoter group as also Yadav group were controlled by Tayal family. In these circumstances, decision of AO that Yadav group entities by conniving with Promoter group have violated PFUTP Regulations, 2003 cannot be faulted. f) Neither before AO nor before this Tribunal appellants have produced any evidence to show that acquisition of 62,26,800 and 25,99,715 shares of BoR in off market from Promoter group and Tayal group respectively (see para 26 and 27) were genuine business transactions carried out for valuable considerations. Save and except claiming that off market transactions are legally permissible transactions, appellants have not adduced any evidence to show that in respect of aforesaid shares of BoR acquired in off market appellants have paid....
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....ities which were also controlled by Tayal family. Since Yadav group entities incorporated as distinct legal entities have connived with Promoter group in making fraudulent misrepresentation to the investors, AO was justified in holding that Yadav group entities have violated PFUTP Regulations, 2003. h) It is interesting to note that Sangeeta Sawant (appellant in Appeal No. 82 of 2013) is claimed to be director in 30 out of 35 Yadav group entities. However on March 22, 2013 Board of Directors of all 35 Yadav group entities passed identical resolutions authorizing Sangeeta Sawant as director or ex-director of all 35 companies to file appeal before this Tribunal against impugned order dated February 14, 2013 (see pages 265 to 299 in Appeal No. 84 of 2013). Accordingly on April 1, 2013 Sangeeta Sawant filed Appeal No. 84 of 2013 before this Tribunal as director/ex-director of all 35 Yadav group entities. It is only when office of this Tribunal raised objections regarding authorization issued in the name of ex-director, fresh authorizations have been issued in favour of a person who is presently director in those companies. Thus, it appears that Sangeeta Sawant was director in ....
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....this Tribunal in case of Phiroze Sethna Pvt. Ltd. (supra) it is contended that appellants could not be considered as PAC's with Promoter group, because, in the absence of any finding by AO that appellants had acted as PAC's along with Promoter group in acquisition of BoR shares in the past, appellants could not be treated as PAC's covered under regulation 11(2) of SAST Regulations, 1997. Submission is that as per aforesaid decisions, appellant could be said to be PAC under regulation 11(2) only if appellants were also PAC's when BoR shares were acquired in the past by Promoter group to the extent specified in regulation 11(1). In our opinion, arguments advanced on behalf of appellants is not in consonance with the ratio laid down by Apex court in case of Swedish Match (supra). In any event, in the facts of present case, it is not in dispute that prior to the investigation period, Promoter group held 44.18% shares of BoR, and during the investigation period Yadav group/Silvassa group entities acquired BoR shares in off market from Promoter group and also acquired BoR shares on market. As a result, combined shareholding of Promoter group along with PAC's including....
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.... of BoR shares on market and since both Yadav group and Promoter group were controlled by Tayal family, AO was justified in holding that Yadav group entities acted as PAC's of Promoter group in acquisition of BoR shares with a view to control BoR. m) Argument that penalty imposed upon appellants is arbitrary and harsh is also without any merit because, after considering all mitigating factors, nominal penalty is imposed upon appellants in Appeal No. 84 of 2013 as also against two common directors who are appellants in Appeal No. 82 of 2013, as against higher penalty prescribed under SEBI Act for violating PFUTP Regulations, 2003 and SAST Regulations, 1997. 29. For aforesaid reasons, we confirm penalty imposed upon appellants in Appeal No. 82 of 2013 and Appeal No. 84 of 2013 under Section 15HA, 15A(a) and 15H(ii) of SEBI Act. Appeal No. 83 of 2013 and Appeal No. 85 of 2013 (Silvassa Group) 30. These two appeals are filed by 44 out of 45 entities situated at Silvassa and 3 directors of those companies respectively against whom penalties have been imposed under Section 15HA/15A(a)/15H(ii) of SEBI Act. 31. Mr. Andhyarujina learned counsel appearing on behal....
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....ummons counsel for appellants adopted arguments advanced by counsel for appellants in Appeal No. 68 of 2013. f) Relying on Apex Court decision in Daiichi Sankyo Company Ltd. vs. Jayaraman Chirugupati & Ors. (Civil Appeal No. 7148 of 2009 decided on July 8, 2010) it is contended that in the absence of concrete finding that transaction in BoR shares by one appellant namely Dulron Procon Pvt. Ltd. were with the common objective of achieving substantial acquisition of shares of target company and thereby gain control of the target company, appellant could not be held to be PAC under SAST Regulations, 1997. 32. We see no merit in above contentions for following reasons: a) Although 44 appellants in Appeal No. 83 of 2013 are distinct legal entities duly registered under Companies Act 1956, for sake of convenience AO has considered all these appellants as Silvassa group because all these 44 entities are situated at Silvassa. Fact that these Silvassa group entities were connected with Promoter/Tayal group is established from following facts: i) Most of Silvassa group entities were incorporated after RBI circular dated February 28, 2005 which required every pro....
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.... the ledgers produced by appellants it is seen that on November 13, 2009 Acrow Constructions Pvt. Ltd. ('Acrow' for short) a Silvassa group entity acquired in off market 4,85,653 and 2,34,456 shares of BoR from two Yadav group entities, namely Hiren Trading Co. Pvt. Ltd., and Niti Mercantile Co. Pvt. Ltd., respectively (see page 1456 in Appeal No. 83 of 2013). From ledger account produced by Acrow for the period 1.4.2009 to 31.3.2010, it is seen that for acquisition of 4,85,663 BoR shares from Hiren Trading Co. Pvt. Ltd. in off market Acrow claims to have paid by way of book adjustment Rs. 3,76,87,449/-(at page 1458). Similarly, as per ledger account of Niti Mercantile Co. Pvt. Ltd. (at page 1459) maintained by Acrow, consideration paid by Acrow to Niti Mercantile Co. Pvt. Ltd. for acquisition of 2,34,456 BoR shares is Rs. 19,92,877/- by way of book adjustment. Thus as per ledger account, on November 13, 2009 Acrow has acquired in off market 4,85,663 BoR shares for Rs. 3,76,87,449 and 2,34,456 shares for Rs. 19,92,877/-. No explanation was offered before AO as to the circumstances under which on November 13, 2009, 4,85,663 shares were purchased at Rs. 77.60 per share and 2,....
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.... by them to Silvassa group entities in off market, have also paid Rs. 15.23 crore to stock brokers of Silvassa group entities. AO has held that amount of Rs. 15.23 crore paid by some Tayal group entities to stock brokers were for purchase of BoR shares on market in the name of Silvassa group entities. Neither in the memo of appeal nor in the arguments advanced before us it is demonstrated as to how findings recorded by AO that amount of Rs. 15.23 crore paid by some Tayal group to stock brokers of Silvassa group were for purchase of BoR shares in the name of Silvassa group entities is erroneous. Therefore, in the facts of present case, it is evident that Yadav group entities as also Silvassa group entities have colluded with Promoter group entities in misrepresenting to the investors that shareholding of Promoter group in BoR has been diluted when in fact by unnatural method shareholding of Promoter group has been consolidated by resorting to off market transfers as also by acquisition of BoR shares on market for which funds were partially provided by Promoter/Tayal group entities. In these circumstances, decision of AO that Yadav group as also Silvassa group have violated PFUTP Reg....
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....ompanies in which appellants in Appeal No. 85 of 2013 have been found guilty, these directors being in charge of the affairs of the respective companies are also liable. Above finding of AO is not controverted by appellants in Appeal No. 85 of 2013. In these circumstances, we see no reason to interfere with the order of AO in imposing penalty upon these appellants under Section 15HA of SEBI Act. 33. For aforesaid reasons, penalty imposed upon appellants in Appeal No. 83 of 2013 & 85 of 2013 under Section 15HA and Section 15H(ii) of SEBI Act are upheld and penalty imposed under Section 15A(a) is set aside. Appeal No. 74 of 2013 (Representing part of Tayal group) 34. Ms. Ketki Belapurkar, learned counsel appearing on behalf of appellants has adopted arguments advanced by counsel for other parties. 35. Appeal No. 74 of 2013 is filed by 5 Tayal group entities and 1 Silvassa group entity (Brescon Infra Private Limited). For reasons stated in our order in Appeal No. 72 of 2013 (Promoter group) and Appeal No. 83 of 2013 penalty imposed under Section 15HA is upheld and penalty imposed under Section 15A(a) is set aside. Appeal No. 66 of 2013 & Appeal No. 73 of 2013 (Nav....
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....not in dispute. However, out of total Rs. 520 crore paid during the year, payment of Rs. 57.94 (Rs. 30.83 crore to brokers + Rs. 27.11 crore direct payment) is held by AO to be funds transferred for acquisition of BoR shares on market by Yadav/Silvassa group entities. In the impugned order, even after considering ledger accounts AO has not assigned any reason as to why payment of Rs. 57.94 crore alone out of total payment of Rs. 520 crore would amount to funding for acquisition of BoR shares. 40. Argument of SEBI that burden was on appellants to prove that funds transferred were towards the cost of fabrics purchased is without any merit, because appellants have produced ledgers in support of their claim and if AO did not agree with entries in the ledger, reasons ought to have been recorded in the impugned order for such disagreement. In para 43 of impugned order AO has made certain observations in relation to ledger accounts but none of those observations are applicable to the case of appellants herein and in fact are applicable to appellants in other groups. It is relevant to note that unlike other appellants in the group, there is neither off market transfer of BoR shares nor ....
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....e funds transferred for acquisition of BoR shares. Having called for ledger accounts and having considered ledger accounts, without assigning any reason AO was not justified in rejecting the contention of appellants that Rs. 57.94 crores were paid towards cost of goods purchased. Argument that ledgers were produced for the first time before AO and not before the investigating authority does not enhance the case of SEBI because AO has not rejected the ledgers produced by appellants and on the contrary made observations which are not applicable to the case of appellants. 43. Argument that 6 appellant companies in which Navin Tayal and Saurabh Tayal were Non-Executive Chairman have transferred funds to Yadav/Silvassa group entities for purchase of BoR shares is evident from the fact that the companies to which funds are transferred have common addresses and also common directors is without any merit. In our opinion, mere fact that the companies to which funds were transferred have common addresses or common directors alone would not be sufficient to reject the contentions raised by appellants especially when AO has not held that Yadav/Silvassa group entities are fictitious entities....
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....se, in our opinion, AO has failed to assign any reason as to why appellants herein should be considered on par with other group entities and why payments amounting to Rs. 57.94 crores out of total payment of Rs. 520 crores amounted to transfer of funds for acquisition of BoR shares. In these circumstances, we hold that appellants herein cannot be said to have violated PFUTP Regulations, 2003 and hence penalty imposed upon them under Section 15HA of SEBI Act cannot be sustained. 46. As regards imposition of penalty under Section 15A(a) on some of the appellants herein, we set aside the said penalty for reasons set out in Appeal No. 68 of 2013. Appeal No. 76 of 2013 (Directors) 487 Appellants herein are directors of various companies. Ms. Ketki Belapurkar, learned counsel appearing on behalf of appellants has adopted arguments advanced by counsel for appellants in Appeal No. 66 of 2013 and 81 of 2013. 48. From para 49 and 50 of the impugned order it is seen that the appellants herein are inter-alia directors of Tayal group of companies in Appeal No. 80 of 2013 and Appeal No. 81 of 2013. Since we have allowed Appeal No. 80 of 2013 and Appeal No. 81 of 2013 by setting as....