TaxTMI 
TaxTMI 
2018 (12) TMI 1979
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtaking any activity in the securities market, directly or indirectly, in any manner whatsoever till further directions. 2. NSE and SEBI had carried out inspection of F6 Finserve and made the following observations based on analysis of samples: a. The broker had not maintained segregation between own and clients' securities. The broker met its proprietary ("PRO") pay-in obligations from the client's securities. b. NSE in its inspection had found that the broker had utilized securities belonging to other clients to meet pay-in obligations of client K. K. Advisor Pvt. Ltd on 100 instances. During the inspection conducted by SEBI, it was informed that three of its employees acting in collusion with the client had sold shares of its clients and that it had filed an FIR against the said employees. SEBI observed that the broker had failed to exercise due diligence which led to mis-utilization of client securities. c. There was a difference between quantity of securities available in Register of Securities (RoS) and holding statement of beneficiary accounts. d. The broker had availed overdraft facilities by pledging client securities. e. The broker mis-utilized client funds....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../DoP/SE/Cir-11/2008 dated April 17, 2008 and SMD/SED/CIR/93/23321 dated November 18, 1993 for raising funds by pledging securities of clients. e. Not fully complied with SEBI Circular CIR/DNPD/7/2011 dated August 10, 2011 read with SEBI Master Circular No. CIR/DNPD/1/2012 dated January 02, 2012 regarding short collection/non collection of client margins in derivatives segment by making wrong reporting about margin collection. Further, F6 Finserve has not fully complied with the provisions of NSE Circular No. NSE/INSP/19583 dated December 14, 2011. f. Regulation 21 of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as "Stock Broker Regulations") for failing to cooperate with the inspecting authority and failing to provide complete information to the inspecting authority. g. Failure to comply with Clauses A (2) and A (5) of the Code of Conduct read with Regulation 9 (f) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. 4. The interim order directed the noticees were to file their objections / replies, if any, within twenty one (21) days from the date of the interim order and, if they so desire, to avail themselves of an opportun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an, 2016 offered him to join his business when in lieu of repayment of his funds. iii. Mr. Parveen Sharma along with his wife Ms. Asha Sharma joined F6 Finserve as Additional Non-Designated Directors w.e.f. April 11, 2016 and had nothing to do with the working of the company. He was only taking care of the Computer Department and making of an online trading app. iv. He has never dealt with any client, signed any bank loan papers or cheques, nor received any payment in FY 2017-18 and has not signed on any of the company's balance sheet. v. That Kotak Mahindra Bank informed him that they have his personal guarantee along with other directors to repay loan which is approx. Rs. 21 crores, and he does not recall signing personal guarantee papers as the bank never given a copy of the signed papers. vi. The Noticees have also enclosed copies of the following: a) Complaint dated May 25, 2018 to the SHO, Gurugram Police Station against Mr. Pankaj Goel, b) MCA21 records of directorship of Noticee nos. 4 and 6 to 10, and c) Terms of Sanction of Agreement by Kotak Mahindra Bank wherein the property of the Noticees is given as mortgage for working capital and the Noticees 4 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cee no. 3 i.e. Mr. Pankaj Goel stating that all responsibilities and liabilities inter alia incidental, consequential, supplemental and any other liabilities which are de- hors, whether past or present, are assumed by Mr. Pankaj Goel for all transactions and business carried on by the said company (keeping Mr. Sanjay Anand and Ms. Kavita Anand indemnified at all times) and that no other director is liable. xii. Mr. Sanjay Anand also submitted that he had given a loan of Rs. 73 lakhs to Mr. Pankaj Goel in 2012. When he demanded his money back, Mr. Pankaj Goel promised to repay the borrowed amount by way of transferring monthly salary to Ms. Kavita Anand, wife of Mr. Sanjay Anand if she became the director of the company, and that once the amount is repaid she can leave the company. Further, as Mr. Sanjay Anand was looking for business opportunities he was induced to become the director of the company by Mr. Pankaj Goel. The said offer was accepted by both Mr. Sanjay Anand and Ms. Kavita Anand. He was also pressurized to mortgage his house with the bank to bring new funds for an IPO which the company was planning to come out with. The Noticees mortgaged their house which is jointl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....State of Maharashra and Another [(2014) 16 SCC 1], o K. K. Ahuja vs. V. K. Arora and Another [(2009) 10 SCCC 48] ix. The Noticees submitted that impugned transactions were carried out without their knowledge and consent, and therefore, they ought not to be made liable for any penal action since no fault is committed by them. x. The case of the Noticees falls under the proviso to section 27 of the SEBI Act. xi. The Noticees deny that they violated any circular issued by Stock Exchange and/ or SEBI, Regulation 21 of Stock Brokers Regulations and Clauses A (2) and A (5) of the Code of Conduct read with Regulation 9 (f) of Stock Brokers Regulations. xii. The proceedings against Noticee no. 9 and 10 may be dropped in light of the above submissions. 8. Hearing in the matter was scheduled on November 02, 2018 through video IP phone between SEBI's Northern Regional Office in New Delhi and SEBI, Head Office, Mumbai. The notice of hearing was communicated through letter dated October 08, 2018 which was served on Noticee nos. 4, 6 to 10. Noticee nos. 9 to 10 vide email dated October 26, 2018 sought an adjournment. Accordingly, hearing of Noticee nos. 9 and 10 was fixed on Nove....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he complaint, and (vii) Kotak's notice of demand under section 13(2) of the SARFAESI Act and its reply. Consideration of Replies and Submissions in Personal Hearing 10. I have perused the interim order cum show cause notice, replies, submissions filed by the noticees and documents available on record to consider whether the interim order dated May 29, 2018 shall be confirmed or not. At the outset, as regards the submissions of the noticees that the principles of natural justice have not been followed while passing the ad-interim exparte order, I note that the interim order has been passed under sections 11 (4), 11B and 11C of the SEBI Act on the basis of prima facie findings observed during the preliminary examination/inquiry undertaken by SEBI, and they have been given an opportunity of hearing before passing of this order. The facts, circumstances and the reasons necessitating issuance of directions by the interim order have been examined and dealt with in the said interim order. The interim order has also been issued in the nature of a show cause notice affording the Noticees a post-decisional opportunity of hearing. I also note that the power of SEBI to pass interim orde....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The law with regard to doing away with the requirement of pre-decisional hearing in certain situations is also well settled. The following findings of the Hon'ble Supreme Court of India in the matter of Liberty Oil Mills & Others v. Union Of India & Other (1984) 3 SCC 465 are pertinent: "It may not even be necessary in some situations to issue such notices but it would be sufficient but obligatory to consider any representation that may be made by the aggrieved person and that would satisfy the requirements of procedural fairness and natural justice. There can be no tape-measure of the extent of natural justice. It may and indeed it must vary from statute to statute, situation to situation and case to case. Again, it is necessary to say that pre-decisional natural justice is not usually contemplated when the decisions taken are of an interim nature pending investigation or enquiry. Ad-interim orders may always be made ex-parte and such orders may themselves provide for an opportunity to the aggrieved party to be heard at a later stage. Even if the interim orders do not make provision for such an opportunity, an aggrieved party have, nevertheless, always the right to make app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Non - Executive Director on 03/04/2017 11/04/2016 - 01/01/2018 7 Mr. Deepak Goel Director Non - Executive Director on 03/04/2017 27/01/2005 - 01/01/2018 8 Ms. Ruchika Goel Director Non - Executive Director on 03/04/2017 24/10/2016 - 01/01/2018 14. The Noticee no. 4, 6, 7 & 8 have contended that they were past non-executive directors of the company, and hence they cannot be held liable for the violations committed by the company. The notice nos. 9 & 10 have contended that they were past directors of the company at the time of passing the interim order and not involved in the day to day activities of the company. In this regard, I note that the noticees were directors of F6 Finserve when the violations alleged in the interim order had occurred. 15. The Noticees in their replies have stated that they are Non-Executive directors and were not involved in the management of the company. Section 166 of the Companies Act, 2013 which is also applicable private companies clearly lays down the duties and responsibilities of directors without making a distinction between executive and non- executive directors. As per section 166 (3), a director of a company shall exercise his du....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ees that they had resigned or that they are non-executive directors, and hence, are not liable for violations committed by the company. 17. Mr. Parveen Sharma along with reply has enclosed letter dated April 05, 2017 from Kotak Mahindra Bank, Delhi Aerocity Branch to F6 Finserve which refers to its earlier sanction letter dated June 17, 2016 conveying sanction for the facilities to F6 Finserve. Through the said letter, the company was informed that the facilities in the annexure were renewed/ reviewed/ enhanced. The details are as under: Terms of Sanction Sr. no. Facilities Margin Existing Amount (in Cr.) Proposed Amount (in Cr.) Status Validity 1 Overdraft against property 153.8% 14.00 16.00 Renewed with Enhancement March 26, 2018 2 Margin STL - 5.00 6.00 Renewed with Enhancement 3 Financial BG 50% 10.00 12.00 Renewed with Enhancement 4 Adhoc limit - Margin STL - 1.00 1.00 Renewed with Enhancement Total 25.00 29.00 For the facility at sr. no. of the above Table, the following security / first and exclusive mortgage charge had been created: Sr. no. Name of the owner Description of the Property 1 Mr. P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ognizant of but liable for fraud in the conduct of business of the company even though no specific act of dishonesty is provided against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the company even superficially." 19. Noticee no. 9 and 10 have relied on the order of the Hon'ble SAT in Vikas Bengani v. Adjudicating Officer and SEBI, Pepsico India Holdings Pvt. Ltd. v. Food Inspector and Another to submit that the interim order does not elucidate the nature of the violation committed by them and that they have been bundled up with other directors. The said submissions have also been made by the other Noticees. I note that the interim order states in para 21 that in terms of section 179 of the Companies Act, 2013, the Board of Directors of a company shall be entitled to exercise all such powers and do all such acts and things as the company is authorized to exercise and do. Therefore, the said order further notes that the Board of Directors being responsible for the conduct of the business of a company are liable for any non-compliance of law and such liability shall be upon the individual directors also. I also note that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ared unconstitutional by a competent Court. If the proposition laid down in Ganpatrai (supra) is followed the same will lead to disastrous consequences. Any two individuals would be allowed to contract out of a statutory liability. It is well settled that there can be no contract which could defeat the provision of any law. This is one of the important facets of section 23 of the Contract Act." 23. Notwithstanding the above, presently the matter is under examination/ forensic audit and the exact involvement of each of the Directors/ Noticees would be fixed based on all the documents, evidences etc. that may be ascertained. Till such time, it is necessary in the interest of investors, that the interim order dated May 27, 2018 to be continued. 24. As per information provided by Banks, Stock Exchanges, Depository Clearing member, and Depositories, the total available funds and securities as on December 04 & 05, 2018 in the accounts of F6 Finserve & F6 Commodities are as under- Deposit & Claims with Exchanges Entity name Deposit available with Exchange (s) Deposit available with Clearing Corporation Total No. of claims received Claim Value (In Rs.) BSE 24,30,307.00 Nil....