TaxTMI 
TaxTMI 
2023 (11) TMI 18
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.... ('WTM' for short) with certain modifications. 2. The facts leading to the filing of the present appeal is, that the appellant Punit Goenka is the Managing Director and Chief Executive Officer of Zee Entertainment Enterprises Ltd. ("ZEEL" for short) since January 1, 2010. 3. In November 2019 three Independent Directors of ZEEL resigned (wrongly mentioned as two in the ad interim order) after raising concerns over several issues and one such issue was appropriation of a fixed deposit of Rs. 200 crore of ZEEL by Yes Bank Limited for squaring off the loans of related parties of Essel Group. 4. The respondent conducted an examination regarding the events leading to the resignation of the independent directors. The examination revealed that Subhash Chandra issued a 'Letter of Comfort' dated September 4, 2018 to Yes Bank Ltd. regarding credit facilities availed by Essel Green Mobility Ltd. (EGML). Through this 'Letter of Comfort' it was stated that ZEEL would ensure that a fixed deposit of at least Rs. 200 crore would be made available to the Bank at all times while the loan remained outstanding and, in the event of a default, the bank could appropriate the fixed deposit towards....
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....g the ex-parte ad interim order directing the appellant and Shri Subhash Chandra that they would cease to hold any position of a director or a Key Managerial Personnel in any listed company or its subsidiaries till further orders, it also directed the appellant to file their reply / objections, if any, within 21 days. Instead of filing a reply the appellant and Shri Subhash Chandra chose to file an appeal before this Tribunal. 8. Against the ex-parte ad interim order, two appeals were filed, one by the appellant Shri Punit Goenka and the other by Shri Subhash Chandra. Both the appeals were disposed by an order dated July 10, 2023 directing the said appellants to file an appropriate reply for vacation / modification of the ex-parte ad interim order and that if such a reply along with such vacating application was filed, the WTM would decide the matter after giving an opportunity of hearing within a specified period. Based on the aforesaid direction, replies were filed and the matter was heard by the Chairperson of SEBI who after considering the matter passed the impugned order dated August 14, 2023 confirming the ex-parte ad interim order with the following modification, namely- ....
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....eipt of funds. The WTM came to the conclusion that ZEEL's owned funds and funds from other listed companies of Essel Group were used to give an impression that the associate entities had indeed returned the money they owed to ZEEL as result of revocation of LoC given by Mr. Subhash Chandra. 11. The WTM also came to the conclusion that prima facie the modus operandi adopted showed that Rs. 143.90 crore out of Rs. 200 crore had been transferred from ZEEL / other listed companies of Essel Group to falsely portray repayment of due amounts to ZEEL from associate entities. 12. The WTM accordingly came to a prima facie conclusion that funds had been siphoned of from ZEEL and other listed companies of Essel Group which ultimately benefited the promoter family. 13. The WTM also came to the conclusion that the subsequent disclosure by ZEEL in its annual report showing receipt of funds from associate entities was false and that ZEEL misrepresented the financial statements in its annual report. 14. The WTM also came to the conclusion that the appellant, being the Managing Director and Chief Executive Officer of ZEEL at the time when the funds were moved out of ZEEL for being routed....
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....sactions beyond the first leg of bank transfer of monies by ZEEL to its subsidiary or associate entities since the appellant was not connected with the associate entities. It was also contended that the transactions made by ZEEL to its subsidiary or associate entities were backed by appropriate documentation, namely, memorandum of understanding, agreements and invoices which were duly approved by relevant authorities and that these transactions were also approved by the audit committee. It was, thus, urged that so long as ZEEL had made payments for valuable consideration, the subsequent utilization of funds by other parties to repay ZEEL does not constitute diversion of funds nor does it cause any loss to ZEEL. It was also urged that the appellant was not in control of the day to day transaction of the associate entities and had no access or right to operate its bank accounts and was not involved in the operations, financing or control of the borrower entities nor has the appellant benefited from the alleged impugned transactions. It was also urged that the transaction were genuine and legitimate and consequently there was no misrepresentation in the annual reports nor any false su....
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....ending circumstances and the entities involved in the transaction prima facie leads to a conclusion on a preponderance of probability that the transactions were circular initiated by ZEEL and ended with ZEEL. (ix) A prima facie scheme was orchestrated to the effect that ZEEL had received money from its six associate entities equivalent to the FD amount wherein circular fund transfers had taken place to show receipt of funds from ZEEL to associate entities which was a sham transaction on account of the fact that the entire set of transactions were completed within a few days and at each stage / leg of the scheme, the funds had moved immediately upon receipt of the same by the transferee. (x) Merely by explaining the first leg of transfer made by ZEEL to associate entities is not sufficient to exonerate the appellant inasmuch as there are a plethora of circumstances which are inextricably linked with the fund transaction which prima facie leads to a conclusion as not genuine transactions. (xi) The transactions made by ZEEL to its associate entities being backed by necessary documentation such as memorandum of understanding and agreements only indicates a lo....
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....d deposit of Rs. 200 crore. (xix) The scheme was employed to benefit the seven associate entities and ultimately the appellant who is an integral part of Essel Group. (xx) The Entity No. 1, namely, Mr. Subhash Chandra who was the then Chairman was actively involved in designing and execution of the scheme which was in violation of the securities laws and since the appellant Entity No. 2 was the Managing Director and Chief Executive Officer during the period when the scheme was designed, he was aware of the liquidation of the fixed deposit by Yes Bank Ltd. and the fact that ZEEL was involved in three of the impugned transactions which prima facie are not found to be genuine transaction. The appellant being involved in the designing and execution of the scheme was also found to be prima facie in violation of the securities laws. (xxi) The impugned fund transactions prima facie was not genuine in nature and consequently the disclosure made by ZEEL in its annual reports was incorrect. (xxii) The appellant prima facie have benefited at the expense of ZEEL and its public shareholders and that appellant not acted in good faith, due diligence and care an....
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....ned order. It was urged that the reason attributed in the ex-parte ad interim order was on different ground and now by the impugned order the ex-parte ad interim order has been confirmed based on totally different ground which is at complete variance of the ground given in the ex-parte ad interim order. It was urged that the basic reason for issuing the ex-parte ad interim order in restraining the appellant to hold any position of a Director in a listed company or its subsidiaries was to obviate the possibility of further diversion of funds. This aspect has been given a complete go by and was not considered as a necessary ingredient for confirming the confirmatory order but the restraint order was allowed to continue on the ground that the continuation of the appellant as the Managing Director could impede a fair and transparent investigation. 23. The learned senior counsel contended that there is no material on record to demonstrate that the appellant or any of the entities connected with him have failed to cooperate with the respondent in the investigation or have in any manner impeded the progress of the investigation. On the other hand, the respondent had earlier investigate....
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....e ex-parte ad interim order reposes the faith of the 99.997% of the shareholders of ZEEL in the appellant as Managing Director of the merged company and therefore the finding that the appellant appears to be operating a listed company like sole proprietorship firm is patently erroneous and based on surmises and conjectures. Further, pursuant to the merger as approved by the scheme of merger, a completely different entity has come into existence and its corporate structure would be completely different and independent from the erstwhile ZEEL. It was urged that the resultant merger entity will have necessary corporate governance measures in place being a subsidiary of a global conglomerate Sony Corporation, Japan which would be listed on the Tokyo Stock Exchange. Further 50% of the shareholding will be held by the Sony Group. It was thus contended that the finding given in the impugned order that the appellant would be entrusted with substantial powers of management with regard to the affairs of the management company and that the appellant should be kept out of the management till the final outcome of the investigation is purely erroneous, harsh and, at the same time, without any me....
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.... urged that there was also no evidence of the appellant's involvement either in the transactions in question or in orchestrating the alleged scheme. The presumption drawn is based on surmises and conjectures. It was urged that the findings that Living Entertainment Enterprises Pvt. Ltd. (LEEPL) entity was under the influence of the appellant since the appellant and one Anil Chougule worked together is patently erroneous and is against the material evidence on record in as much as the appellant had never worked with Anil Chougule. Further, the appellant only held 2% shareholding in Sprit Infrapower & Multiventures Private Limited which in turn held 50% shareholding in New Media Broadcasting Pvt. Ltd. which in turn further held 100% shareholding of LEEPL. It was, thus, urged that the appellant effectively held 1% indirect shareholding of LEEPL and consequently, the finding that the appellant exercised influence over the group entities is patently erroneous. It was also urged that similarly the appellant did not exercise any control through its shareholding interest either in Sprit Infrapower & Multiventures Private Limited or in Churu Enterprises LLP. 30. The findings that the app....
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.... doubt. On the other hand, it was contended that the findings given in the impugned order is based on preponderance of probability. It was urged that this clearly demonstrate non-application of mind. It was urged that there was an incorrect application of the principles of preponderance of probability and that the impugned order failed to accord appropriate weightage to the material furnished by the appellant. 34. Dr. Singhvi, the learned senior counsel contended that doctrine of preponderance of probability was wrongly applied and that the impugned order has drawn inferences based on hypothetical facts while disregarding the material evidence on record. It was contended that before applying the principles of preponderance of probability and to draw any inference it was necessary to establish the foundational facts which did not exist in the instant case. It was urged that the foundational facts must be established before the presumption could be made. 35. It was also urged that preponderance of probability invoked in the impugned order was contrary to the contemporaneous events and the principle of ante lite motam was not considered in the impugned order though the same was ....
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....BI 2010 SCC OnLine SAT 35, ArcelorMittal India Private Limited vs. Satish Kumar Gupta (2019) 2 SCC 1, Ramesh Chandra Sharma and Ors. vs State of Uttar Pradesh and others (2023) SCC Online SC 162, Zenith Steel Pipes and Industries Limited vs SEBI (Appeal No 554 of 2021 decided on February 21, 2023), Apar Industries Ltd. Vs Union of India Through Ministry of Railways and Others (2023) SCC Online Bom 350 and SEBI vs Kishore Ajmera (2016) 6 SCC 368. 39. On the other hand, Shri Darius Khambatta, the learned senior counsel for the respondent contended that the five transactions in question clearly indicates round tripping of the funds from ZEEL to ZEEL and consequently prima facie there appears to be a diversion of funds to the detriment of the shareholders. The learned senior counsel urged that the ad interim order which has now been merged with the confirmatory order does not suffer from any error of law and that the said confirmatory order should continue during the pendency of the investigation. 40. It was urged that the appellant has neither produced any material nor denied the flow of funds among the entities in the manner set out in the interim order. The learned senior coun....
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....e fixed deposit created by ZEEL and its encashment by Yes Bank towards the alleged loan taken by the seven associates companies. 44. The learned senior counsel contended that the appellant had full knowledge about the diversion of funds and its circuitous routing which was solely for the benefit of the promoter group as the appellant was the Managing Director and was not only in control over ZEEL but, being a key managerial personnel, was also in control of the seven associate entities. 45. In support of his submissions the learned senior counsel placed reliance upon a decision of the Supreme Court in Official Liquidator, Supreme Bank Ltd v. P.A. Tendolkar (1973) 1 SCC 602 wherein the Supreme Could held that the conduct of the founder Directors was such that an inference of their complicity could not be ignored. Reliance was also made of another decision of Supreme Court in N Narayan v. AO, SEBI (2013) 12 SCC 152 in which it was held that the directors occupying a certain position in a company were deemed to have knowledge of certain information and events. On this basis, the learned senior counsel for the respondent urged that the appellant, being in a position of Managing D....
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....owed fraudulent intention. It was, thus, urged that the transaction between ZEEL and the first entity in the five transactions must be viewed in the context of the larger transactions involving circular rotation of funds and should not be divorced from its context particularly proximity in timings and interconnectedness of the transaction and related status of the parties involved. 49. The learned senior counsel further contended that the in any case the appellant did not satisfy the first leg of the transaction and the documents so filed was not sufficient to establish a valid transaction beyond a reasonable doubt. The learned senior counsel contended that based on the bank statements it was clear that there was a circuitous routing of the funds and that the initial burden was discharged by SEBI and the onus now shifted upon the appellant which he failed to discharge miserably and the documents so supplied was not sufficient to satisfy the genuineness of the transactions. The learned senior counsel pointed out that the Chairperson considered all the documents in the impugned order in great detail and held that first leg of each of the five transactions was invalid giving approp....
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....imited to keep the appellant away from exercising any influence over the management of ZEEL during the investigation. Further, the direction to complete the investigation within eight months was just and proper. It was urged that the period of eight months was required to complete a wider investigation since now the respondent finds that there are a large number of transactions running into Rs. 2000 crore involving companies owned, controlled or otherwise related to promoters. Further additional Letter of Comfort issued by the appellant and his father has come into existence including a LoC to the tune of Rs. 4210 crore issued by Mr. Subhash Chandra in his capacity as Chairman of Essel Group. Therefore, the direction to complete the investigation in eight months is aimed to ensuring a comprehensive investigation in the matter. The five transactions in question is only part of the wider investigation which is being carried out by SEBI. 53. It was also urged that ZEEL - Sony merger has nothing to do with the passing of the impugned order and the fact that the merger received 99.97% approval from ZEEL shareholders after the passing of the ad interim order has no relevance to the al....
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....2. Essel Green Mobility Ltd. 17.10 27-Sep-19 3. Essel Corporate Resources Pvt. Ltd. 22.30 30-Sep-19 4. Essel Utilities Distribution Company Ltd. 19.20 30-Sep-19 5. Pan India Infraprojects Pvt. Ltd. 36.90 30-Sep-19 6. Essel Business Excellence Services Pvt. Ltd. 23.00 10-Oct-19 7. Pan India Network Infravest Ltd. 49.30 01-Oct-19 8. Living Entertainment Enterprises Pvt. Ltd. 17.40 01-Oct-19 Total 200.00 57. The ad interim order discloses that Rs. 143.90 crore originated from ZEEL / listed companies of Essel Group and their subsidiaries and the money was received by ZEEL eventually. The round tripping of the funds is depicted here under:- Sl.No. Name of Listed Entity/its Subsidiaries Amount due (INR in crore) Associate Entity benefited Amount (INR in crore) 1. ZEEL 17.1 Essel Green Mobility Ltd. 40.1 23 Essel Business Excellence Services Pvt. Ltd. 2. Zee Studios Ltd. (wholly owned subsidiary of ZEEL) 17.4 Living Entertainment Enterprises Pvt. Ltd. 66.7 49.3 Pan India Network Infravest Ld. 3. Zee Akaash News P....
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.... with LEEPL was not a stand-alone payment but was part of the ongoing contractual payments over several years. The details of payment made in the financial year 201819 and 2019-20 was depicted in paragraph 76 of the reply. It was contended that the transactions with LEEPL was backed by all necessary documents including agreements, addendums and invoices after obtaining appropriate payment authorization. 62. Similarly, EBESPL was formed on July 10, 2013 and was engaged in managing business support functions such as finance and accounting, back-office transaction, processing services and other IT and IT enabled shared services. ZEEL entered into a Master Service Agreement with EBESPL on September 16, 2016 as amended on May 19, 2017 for outsourcing of various business processes such as finance, accounts, human resource etc. In paragraph 82 of the reply it was stated that Rs. 9 crore was paid to EBESPL on September 26, 2019 under the master service agreement. The payments were duly recorded in the audited financial statement for the financial year 2018-19 and 2019-20. The payment of Rs. 9 crore was not a stand-alone payment but was part of the ongoing contractual payments and detail....
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.... The invoices which has been issued for services rendered to ZEEL pursuant to these agreements are proof that the agreements were genuine and valid and that monies were transferred pursuant to these agreements. In addition the transactions were audited by the statutory auditors and further the transactions were also approved by the audit committee. Similarly payment of Rs. 9 crore from ZEEL to EBESPL was also made pursuant to the Master Service Agreement and professional service agreement. The invoices produced before this Tribunal indicates that it was issued for services rendered to ZEEL pursuant to these agreements. We are, thus, satisfied the transfer of funds of Rs. 8.35 crore from ZEEL to LEEPL and Rs. 9 crore to EBESPL was genuine and was made pursuant to the agreement which was executed in the year 2016. 66. The Chairperson has doubted the aforesaid transactions on the presumption that ZEEL paid Rs. 8.35 crore to LEEPL and Rs. 9 crore to EBESPL when it was supposed to receive an amount of Rs. 17.4 crore from LEEPL and Rs. 23 crore from EBESPL. In this regard, we are of the opinion that there was an ongoing contractual relationship between the two parties and hence withho....
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....ggregation, broadcasting, digital media etc. for the past 30 years. This company was started by Dr. Jayantilal Gada who is a reputed personality in the industry and has made several successful and award-winning movies in the past. It was contended that the PIL is a professionally managed company and has nothing to do with ZEEL. PIL is neither an associate company nor a related party of ZEEL and therefore the appellant nor ZEEL nor ZSL had any control over the affairs of the PIL. 71. The fact that PIL was an independent company and was not an associate nor group company nor subsidiary nor related party of ZEEL has not been considered by the Chairperson and the same has been conveniently ignored for reasons best known to the Chairperson. On the other hand, the Chairperson tried to dissect the agreements that was entered between ZSL and PIL contending that the details regarding how much work was done on the first agreement when this strategic call was obtained to make remake rights and the correspondence in this regard has not been enclosed and therefore there is nothing to show that the amount paid under the first agreement would be adjusted under the second agreement. Further, th....
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....EEL. Thus the findings of the Chairperson that the genuineness of the transaction is doubtful and that the documents so filed does not establish the transfer of funds pursuant to the agreement is patently erroneous. 74. The flow of funds of the third transaction as depicted in paragraph 20 of the ad interim order is extracted here under:- 75. From the aforesaid it can be seen that ZEEL paid Rs. 41.16 crore to Kyoorius Communications Pvt. Ltd. (KCPL) and eventually ZEEL received Rs. 23 crore from EBESPL. In this regard it was contended that KCPL was founded by one Mr. Rajesh Kejriwal who is an expert in branding, design management and innovative marketing. Over the years KCPL has been organizing marquee events such as kyoorius design awards, kyoorius creative awards etc. Its design platform has evolved to become India's largest and world's second largest design conference as on date. These events are organized in association with large media companies like Viacom18, ABP News, ZEEL etc. KCPL is, thus, engaged in advertising and publicity business. ZEEL in the past had entered multiple commercial transaction with KCPL since financial year 2017. ZEEL had been sponsoring events wh....
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....e agreements so executed with KCPL is not a fictitious document and same are genuine documents and payments have moved pursuant to these agreements. Further, we find that Rs. 41.16 crore was paid by ZEEL to KCPL and only Rs. 23 crore is alleged to have been received by ZEEL from EBESPL and therefore there is a discrepancy and complete routing of funds has not been found. 76. The flow of funds of the fourth transaction which is depicted in paragraph 23 of the ad interim order is extracted here under:- 77. From the aforesaid it can be seen that Zee Akaash News Pvt. Ltd. is a wholly owned subsidiary of Zee Media Corporation Ltd. and part of Essel Group and had paid Rs. 7.2 crore to Norfolk Media Solutions Pvt. Ltd. and ZEEL has received a sum of Rs. 14.8 crore from Pan India Infraprojects Pvt. Ltd. (PIIPL). In this regard we find that Zee Akaash News Pvt. Ltd. paid a security deposit of Rs. 7.2 crore to Norfolk Media Solutions Pvt. Ltd. to acquire certain capital goods. The transactions did not materialize and the money was returned. Zee Akaash News Pvt. Ltd. also paid Rs. 7.6 crore to Midrex Media and Cable Pvt. Ltd. for purchase of certain capital goods. The bank statement of ....
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....fillment of payment obligations of the Associate Entities towards ZEEL". 81. This was the alleged foundational fact which was prima facie evidenced by the WTM and this prima facie observation led the WTM to pass an order restraining the appellant from holding any position in a listed company. This foundational fact in our opinion is not established. Out of five transactions two transactions relate to PIL and Dish Infra Services Pvt. Ltd. We find that PIL is an independent company and is not a listed company of Essel Group nor is it promoter family owned entity nor is it an associate company nor is it a related party entity. Similarly, Dish Infra Services Pvt. Ltd. is also no longer a related party entity and has nothing to do with the Essel Group since March 2019. Thus, the foundational fact that the funds had originated from ZEEL and through group companies and that the funds moved through layers of associate companies of ZEEL and eventually found its way back to ZEEL has not been established. 82. Once the foundational fact has not been established, the Chairperson committed a manifest error in confirming the ad interim order on the ground of presumptions, assumptions / prep....
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....sidered and cannot be brushed aside on mere ipse dixit. The words "ante lite motam" means "before the law suit was started". The doctrine is, that if something was done before a legal dispute arose, then it was done at a time when the declarant had no motive to lie. In our view the said principle is squarely applicable. The document which was in existence before the date of the alleged transactions can be relied upon safely as held by the Supreme Court in Murugan alias Settu (supra). The Chairperson should have examined the probative value of the contents of the document instead of brushing it aside on the sole ground that it does not provide proof of the movement of funds. 86. We are, thus, satisfied that the first leg of the transaction has been validly explained through documents which has not been disputed by the respondent and which are genuine. We are satisfied that at this stage the transfer of funds moved pursuant to long standing commercial business relationship through memorandum of understanding / agreements / service agreements etc. and that these transactions are not sham transactions. The appellant has validly explained the first leg of the transaction and conseque....
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....ependent entities and therefore the allegation that there was round tripping of funds from ZEEL to ZEEL through layered transactions from associate companies / related companies / group companies of ZEEL is incorrect. Once this fact is writ large then the burden has not been discharged by SEBI and still remains with SEBI to prove through some semblance of evidence that there was round tripping of funds. Proximity of timing is a factor to be considered but that alone cannot be the sole factor to come to a conclusion of any fraudulent transactions being carried out by ZEEL. 90. In the light of the aforesaid, the contention that the entire transaction has to be looked at as a whole is not correct in the given facts of the present case. At the threshold, we reiterate that the burden was upon SEBI to allege round tripping of funds. SEBI may invoke "substance over form" principle or "piercing the corporate veil" test only after it is able to establish on the basis of the facts and circumstances surrounding the transaction that the impugned transaction was a sham or a fictitious transaction. In the given case, we find that nothing has come to light to hold that there was a round trippi....
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.... A customer checks into a hotel and asks for a room. The receptionist informs the customer that a room is available for Rs. 2000/- per day. The customer wants to see the room before he checks in. The receptionist asks the customer to deposit Rs. 500/- in advance. The customer deposits Rs. 500/- in advance. The receptionist calls a waiter and tells him to show the customer the room in question. The receptionist owes Rs. 500/- to the chef in the hotel and he accordingly pays the chef with that Rs. 500/- which was deposited by the customer. The chef owes Rs. 500/- to the butcher and pays Rs. 500/- to the butcher. The butcher gives Rs. 500/- to his wife who in turn pays Rs. 500/- to the milkman who had supplied milk on credit. The milkman owed Rs. 500/- to the receptionist and accordingly pays Rs. 500/- to the receptionist. All this happens within a few minutes. The customer comes back after seeing the room and says that he was not satisfied with the condition of the room and asks the receptionist to refund the advance he had given. The receptionist pays back Rs. 500/- to the customer and the customer leaves. 94. The above round tripping of funds happened in a ....
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.... as under:- "51. Thus, the expression "control", in Section 29-A(c), denotes only positive control, which means that the mere power to block special resolutions of a company cannot amount to control. "Control" here, as contrasted with "management", means de facto control of actual management or policy decisions that can be or are in fact taken. A judgment of the Securities Appellate Tribunal in Subhkam Ventures (I) (P) Ltd. v. SEBI [Subhkam Ventures (I) (P) Ltd. v. SEBI, 2010 SCC OnLine SAT 35], made the following observations qua "control" under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, wherein "control" is defined in Regulation 2(1)(e) in similar terms as in Section 2(27) of the Companies Act, 2013. The Securities Appellate Tribunal held : (SCC OnLine SAT para 6) "6. ... The term control has been defined in Regulation 2(1)(c) of the Takeover Code to "include the right to appoint majority of the Directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agree....
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....ization. If yes, he is in control but not otherwise. In short control means effective control." 98. In view of the aforesaid, the finding that the appellant exercised control over the borrower entities / Essel Group companies was based on presumptions in the absence of any material evidence to show that the appellant was actually in positive control of the Essel Group companies / borrower entities. 99. The finding that the appellant had exercised control over Sprit Infrapower & Multiventures Private Limited Churu Enterprises LLP through shareholding interest and designated partners is again stretching the matter a bit too far in the absence of material evidence to show that the appellant was actively involved in the day to day management of these two entities. 100. We further find that the direction that if the appellant is allowed to continue as the Managing Director in ZEEL it would impede or tamper with the investigation is erroneous in as much as we do not find any single incident to show that the appellant has obstructed in the investigation conducted so far. 101. We are also of the opinion that the impugned order relies upon the bank statement which cannot be tamp....
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....he transaction beyond a reasonable doubt. This contrary stand taken by the Chairperson is, in our opinion, arbitrary. In any case, an incorrect application of the principles of preponderance of probability has been applied. 103. This Tribunal by its earlier order dated July 10, 2023 had directed the respondent to consider the proportionality of the directions given in the ex-parte ad interim order. The Chairperson has considered the doctrine of proportionality in paragraphs 76 to 85 of the impugned order holding that the directions given in the ex-parte ad interim order is preventive and not punitive in nature and that such directions does not violate Article 19(a)(g) of the Constitution of India. The Chairperson further held that the direction is only a temporary restraint which is aimed at preventing the appellant from impeding or obstructing in fair and transparent investigation in the matter. Further, the conduct of the appellant is such that he is not suitable to be part of a listed company. 104. The approach adopted by the Chairperson is misplaced. The Chairperson has not understood the concept of the doctrine of proportionality which is a facet of Article 14 of the Con....
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....producing medical equipment such as life-saving drugs, personal protective equipment or sanitisers, would be exempted by way of Section 65(2), while justly compensating the workers for supplying their valuable labour in a time of urgent need. However, a blanket notification of exemption to all factories, irrespective of the manufactured product, while denying overtime to the workers, is indicative of the intention to capitalize on the pandemic to force an already worn down class of society, into the chains of servitude." 105. This Tribunal in Zenith Steel Pipes and Industries Limited vs SEBI (Appeal No 554 of 2021 and other connected appeals decided on February 21, 2023) held:- "14. Undoubtedly, the doctrine of proportionality is now well established in our jurisprudence and is a recognised facet of Article 14 of the Constitution of India. In Andhra Pradesh Dairy Development Corporation Federation vs. B. Narasimha Reddy and Others (2011) 9 SCC 286, the Supreme Court held: "29. It is a settled legal proposition that Article 14 of the Constitution strikes at arbitrariness because an action that is arbitrary, must necessarily involve negation of equality. This doc....
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....entral Cooperative Bank Employees Association. The Supreme Court said:- 17. So far as the doctrine of proportionality is concerned, there is no gainsaying that the said doctrine has not only arrived in our legal system but has come to stay. With the rapid growth of administrative law and the need and necessity to control possible abuse of discretionary powers by various administrative authorities, certain principles have been evolved by courts. If an action taken by any authority is contrary to law, improper, irrational or otherwise unreasonable, a court of law can interfere with such action by exercising power of judicial review. One of such modes of exercising power, known to law is the "doctrine of proportionality". 18. "Proportionality" is a principle where the court is concerned with the process, method or manner in which the decision-maker has ordered his priorities, reached a conclusion or arrived at a decision. The very essence of decision-making consists in the attribution of relative importance to the factors and considerations in the case. The doctrine of proportionality thus steps in focus true nature of exercise-the elaboration of a rule of permissibl....
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.... has directed that the investigation should be completed within eight months and under the garb of temporary restraint the appellant is expected to disassociate from ZEEL and its subsidiaries as well as with the merged entity for ten months or more after which proceedings may be initiated by issuance of a show cause notice. Thus, the directions so issued during the pendency of the investigation is harsh and clearly punitive. In SEBI vs Kishore Ajmera (2016) 6 SCC 368 the Supreme Court held that proof of an allegation must be in the form of direct substantive evidence and in the absence of direct substantial evidence proof may be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations. The Supreme Court held that Courts cannot be helpless and it is the judicial duty to take note of the immediate and proximate facts surrounding the events on which the charges are founded. Applying the aforesaid test we find that a heavy burden of proof was upon the respondent. Merely on the basis of bank entries and proximity of time cannot lead to a conclusion to hold that the transactions were fictitious or sham or that the f....
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....being done on mere possibilities without any concrete evidence as on date then, in our opinion, passing an ad interim order was wholly unjustified and, in any case, the continuation of the interim order till the completion of the investigation is per se arbitrary and cannot be sustained. 112. The finding in the impugned order that the appellant would impede or tamper the investigation is patently erroneous. Such directions cannot be passed on mere presumptions in the absence of any material being brought on record which demonstrates that the appellant or any of the entities connected with him have failed to cooperate with the investigation or impeded in any manner in the progress of the investigation. The apprehension expressed in the impugned order is without any factual basis. We are further of the opinion that the Chairperson was bound to examine the directions passed in the ad interim order on the touch stone of the finding contained therein but could not have imported fresh reasoning which were alien to the interim order. 113. The entire investigation is based on bank account statements which cannot be tampered by the appellant and therefore the question of impeding in t....
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....some shred of evidence to come to a prima-facie conclusion that the appellants are indulging in unfair trade practices in cornering the market with a manipulative intent to manipulate the price. Passing a restraint order which virtually puts a stoppage on the appellants right to trade based on a needle of suspicion, in our opinion, is harsh and unwarranted. 18. In the absence of in depth analysis based on evidence, we are of the opinion that in the facts and circumstances of the present case, it was not such an urgent case where the WTM should have exercised its powers. In our opinion, the respondent is empowered to pass an ex-parte interim order only in extreme urgent cases and that such power should be exercised sparingly. In the instant case, we do not find that any extreme urgent situation existed which warranted the respondent to pass an ex-parte interim order. We are, thus, of the opinion that the impugned order is not sustainable in the eyes of law as it has been passed in gross violation of the principles of natural justice as embodied in Article 14 of the Constitution of India. Accordingly, the appellants are entitled to the reliefs claimed." 117. In Dr. Udayan....
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....cided on March 27, 2023, this Tribunal held:- "29. From the aforesaid, it is clear that ad-interim orders can be passed in case of urgency or where it is found that the noticee is about to dispose of the property. In the absence of any finding that the appellants will defalcate the unlawful gains, the impounding order constitutes malice in law. Further, the power must be exercised with extreme care and caution and should be resorted to only as a last resort or measure. Merely by stating that the appellants may divert the unlawful gains is not based on any cogent evidence rather on surmises and conjectures and formation of unguided subjected satisfaction which is not permissible". 119. Considering the aforesaid we are of the opinion that the ex-parte ad interim order could have been passed in extreme urgent cases and that such power should be exercised sparingly and should not be exercised in a routine manner. Considering the facts and circumstances of the present case, we do not find that any extreme urgent situation existed in 2023 which warranted the WTM to pass an ex-parte ad interim order with regard to a certain set of transactions which occurred in the year 2019. ....
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.... funds has not as yet been proved. Sufficient explanation backed by genuine document have been shown by the appellant and having validly discharged their burden. The investigation is going on and considering the track record of SEBI for which we take judicial notice, no investigation is completed within the stipulated period. We have seen that on numerous occasions whenever this Tribunal or the superior Court has directed SEBI to complete the investigation within a stipulated period, the same has not been done and applications after applications are being filed by SEBI seeking time to extend the period of investigation. Considering the fact that a wider investigation is now being undertaken by SEBI to consider the various LoC issued by ZEEL and its promoter companies, we are of the opinion that there is no real urgency and therefore this Tribunal will not place any impediment in restricting the period of investigation but considering the peculiar circumstances that has been brought on record and, in view of the fact that the foundational facts have not been established coupled with the fact that the respondent has restrained the appellant on a preponderance of probabilities while r....