TaxTMI 
TaxTMI 
2024 (8) TMI 1345
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....egulations framed thereunder during the period from January 01, 2006 to March 31, 2008. However, wherever deemed necessary, period outside the investigation period is considered. 2. The investigation, prima facie, revealed that that the Noticee had used a sub-account i.e. Matterhorn Ventures, a Foreign Institutional Investor (FII), as an investment vehicle to indirectly trade in scrips of his own group entities in India i.e. Herbertsons Limited ('Herbertsons') and USL. Thus, the investigation revealed that the amounts paid to Matterhorn Ventures were routed by the Noticee by opening various beneficiary accounts with UBS and routing these funds through these accounts, indirectly, to the Indian Securities Market. It was observed that this financial route (FII route) was taken by the Noticee in the names of various overseas registered entities, thereby, concealing the true identity of his investments in Indian Securities market. Furthermore, it was observed that the said FII was shown as a non-promoter public shareholder in the shareholding pattern of Herbertsons whereas, Matterhorn Venture's holding of 9.98% shares actually belonged to the promoter category. 3. In view of the a....
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....ental impact on the market or investor confidence or undermine the people's faith and trust in SEBI as the protector of securities law in India. 4.3 The Hon'ble Supreme Court has repeatedly held that in the absence of any period of limitation, the authority is required to exercise its powers within reasonable period. 5. I note from the records available in the file that after seeking consent from FCA for sharing the copies of emails dated May 24, 2007 and May 25, 2007 with the Noticee, SEBI, vide letter dated October 26, 2023, while stating that the relevant extract of the bank statements of VNHL has been already shared along with the SCN issued as Annexure C, granted an opportunity to the Noticee to inspect the aforementioned emails. The said letter was duly delivered to the Noticee. Considering that the Noticee neither availed the opportunity to inspect the documents nor filed any reply to the said letter even after approx. 1 year 3 months from the issuance of the SCN, upon allocation of the said matter to me, in compliance with the principles of natural justice, it was felt appropriate to grant an opportunity of hearing to the Noticee in the matter. Accordingly, an o....
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.... of natural justice, the said request of the Noticee was acceded to and the Noticee was advised to file his reply to the Noticee before the scheduled date of hearing i.e. May 28, 2024. Vide email dated May 27, 2024, the Noticee filed his reply to the SCN vide letter dated May 27, 2024. The Noticee in the said reply reiterated his submissions made in the letter dated June 15, 2023 and further stated that the said proceedings initiated against him by SEBI appear to be to perpetuate the order dated March 31, 2008 passed by the former Whole Time Member, SEBI under Sections 11(1), 11(4) and 11B of the SEBI Act, inter alia, restraining the Noticee from "holding position as Director or Key Managerial Person of a listed company for a period of fine years from the date of this order" which expired on May 31, 2023. The submissions of the Noticee in a nutshell are summarized as under: 6.1 The proceedings initiated by SEBI against the Noticee for the purported transactions and monetary dealings for the period of 2006 and 2007 are with egregious delay. 6.2 Under the various Regulations framed under the SEBI Act and circulars issued by SEBI, books of accounts and records are re....
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....CN after a lapse of 15 years cannot and does not amount to SEBI exercising its powers within reasonable period. 6.7 Therefore, the Noticee submits that the SCN is non-est, void and cannot be proceeded with. Further, he states that the hearing purportedly scheduled by SEBI on May 28, 2024 is an empty formality to make a show of having allegedly complied with the principles of natural justice and that SEBI should cease and desist to proceed any further with the SCN or any investigation in the matter. 7. From the chronology of events of the case, it is noted that the SCN was issued to the Noticee on April 13, 2023 in the subject matter. Further, an opportunity to inspect the requested documents was provided to the Noticee vide SEBI letter dated October 26, 2023 and further, were provided to him vide SEBI email dated April 12, 2024. However, it is noted that the Noticee, did not respond on merits or on the violations alleged in the SCN. Also, despite providing two opportunities of hearing to the Noticee on March 14, 2024 and May 28, 2024, the Noticee has not availed of the same. However, considering that "audi alteram partem" being one of the fundamental principles of natur....
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....Regulations, 2003 which have a bearing on the allegations made against the Noticee. These relevant provisions are reproduced hereunder for facility of reference: PFUTP Regulations, 2003: 3. Prohibition of certain dealings in securities No person shall directly or indirectly- a) buy, sell or otherwise deal in securities in a fraudulent manner; b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; c) ................. d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on are cognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. 4. Prohibition of manipulative, fraudulent and unfair trade practices (2). Dealing in securities shall be deemed to be ....
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....s 2006 and 2007 and initiation of the instant proceedings with such a delay has put the Noticee to a serious, unfair and inequitable handicap which is violative of all norms of fairness, equity and principles of natural justice. 13. In order to deal with the said objection raised by the Noticee, I find it pertinent to look at the chronology of events, before and after, initiation of the instant proceedings for the alleged violations of securities laws in respect of the Noticee. 14. I find that pursuant to the findings from FSA's communication dated January 22, 2010, vide which certain information was provided to SEBI by FSA, SEBI, suo-moto had taken up the matter for further investigation to ascertain whether there was any routing of funds to Indian Securities market by the Noticee through his bank accounts with UBS AG, London to trade, inter alia, in the scrip of UB group companies during the period from April 01, 2006 to March 31, 2008. I also find that an email query dated August 01, 2013 was also received from Economic Times, inter alia, seeking clarification as to whether FSA had confirmed some of the names including that of the Noticee to SEBI about routing of funds to ....
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....l from FSA in 2010 and further, only after ascertaining certain fundamental data and facts, in 2014 i.e. after appointment of the Investigating Authority, SEBI had started with the detailed and formal investigation into the activities of the Noticee. For the said purpose, SEBI had to collect and collate information and data from various sources including approaching foreign regulators for assistance in procuring information and documents from concerned entities outside India from several jurisdictions. The foreign regulators also had to collect this information from the concerned entities in order to furnish it to SEBI. Thus, the process of collection of information in the matter was complex, tedious and time consuming. It is noted that as the activity under investigation was that of routing of funds through entities located in different jurisdictions, reliance is placed on the decision of the Hon'ble SAT in the case of Jindal Cotex Ltd and Others Vs. SEBI (Appeal No. 376 of 2019 decided on February 05, 2020), wherein, while dealing with a plea of delay, the Hon'ble Tribunal observed that, "............arguments on delay in investigation and consequently affecting natural justic....
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....20, 2024 to file reply was granted and further, next date of hearing was scheduled on May 28, 2024 and communicated to the Noticee. 20.05.2024 Noticee sought another extension till May 27, 2024 to file his reply. 24.05.2024 The said request was again acceded to and Noticee was advised to submit his reply on or before the date of hearing i.e. May 28, 2024 27.05.2024 Noticee filed his preliminary objections on initiation of the proceedings against him. No reply filed on merits. Submitted that opportunity of hearing provided to him is an empty formality to show compliance with principles of natural justice. 28.05.2024 Did not avail of the opportunity of hearing. 31.05.2024 Last and final opportunity of hearing was provided to the Noticee on June 13, 2024 and vide the said SEBI email, Noticee was advised to file his reply on merits on or before the scheduled date of hearing. 13.06.2024 Noticee neither filed any reply on merits nor appeared for the hearing scheduled on this date. 18. From the above chronology of events, it can be seen that the SCN was issued to the Noticee on April 13, 2023 in the subject case. The Noticee has only raised objection....
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....and did not avail the opportunities of hearing provided to him further substantiates the position that the Noticee, has willingly, not participated in the proceedings and the same cannot be ignored. I find that raising an objection of delay, without even attempting to defend the charges levelled on him in the SCN appears to be a tactic devised by the Noticee to evade the present proceedings and the allegations levelled in the SCN and further, to camouflage such allegations by highlighting the delay. 21. Here, I would like to place reliance on the observations of the Hon'ble SAT in the case of Anant R Sathe Vs. SEBI (Appeal No. 150 of 2020) decided on July 17, 2020, wherein, the Hon'ble SAT, while re-affirmed the principle elucidated in the decision in the case of Shruti Vora Vs. SEBI (Appeal Lodging No. 28 of 2020) decided on February 12, 2020, observed that the authority is required to supply the documents that they rely upon while serving the show cause notice which if done is sufficient for the purpose of filing an efficacious reply in defence. 22. In view of the above facts and chronology of events, it is concluded that even though the transactions alleged in the instant ....
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....osition that a fair opportunity of answering / defending the case must be granted before passing of an order by an authority against any person. The said opportunity has to be real, reasonable and effective. Therefore, denial of such opportunity of being heard can make a proceeding void ab initio. In Chairman Mining Board Vs. Ramjee 1977 AIR 965 SC, the Hon'ble Supreme Court has observed as under: "Natural justice is no unruly horse, no lurking landmine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential procedural propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice without reference to the administrative realities and other factors of a given case can be exasperating. Courts cannot look at law in the abstract or natural justice as a mere artefact... If the totality of circumstances satisfies the Court that the party visited with adverse order has not suffered from denial of reasonable opportunity the Court will decline to be punctilious or fanatical as if....
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....atterhorn Ventures shown in the non-promoter public shareholding category in the shareholding pattern of Herbertsons actually belonged to the promoter category, thereby violating the provisions of Regulation 4(2)(f) of the PFUTP Regulations. 28. I note from the material available on record and from the SCN that an email communication dated May 24, 2007 between Jaspreet Ahuja (employee of UBS) and email id viz. [email protected] was investigated by SEBI. The contents of the said communication are reproduced as under: "# Total number of shares bought: 633,333 shares @ average price of Rs. 398.43 # Total number of shares sold: 408, 333 shares @ average price of Rs. 952.24 # Total Loan Amount: USD 6,150,000 # Net Gain Till Date: approx. USD 5.51 million # Price movement today: closing Rs. 1142 High Rs. 1195 Low Rs. 1130" 29. UBL, during the investigation, vide email dated January 31, 2023, had confirmed that the email id [email protected] belonged to the Noticee. Further, upon analysing and examining the email communication along with the price volume data of the scrip of United Spirits Limited ("USL") as on May 24, 2007, i....
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....OUNT CREDIT AMOUNT NAME OF COUNTERPARTY COUNTER PARTY ACC NO COUNTERPA RTY BANK NAME 17/01/2006 USD 1,27,824 BIRCHWOOD HILLS INC IA90 38945801 UBS AG LONDON 17/01/2006 USD 1,43,510 BAYSIDE ENTERPRISE INC IA90 38946001 UBS AG LONDON 17/01/2006 USD 1,43,570 SUNCOAST VALLEY INC IA90 38945901 UBS AG LONDON 30/01/2006 GBP 9,293 OASIS CORPORATE SERVICES NO ACCOUNT NUMBER QUOTED HSBC BANK PLC 08/03/2006 GBP 9,293 RETURNE OF FUNDS OASIS CORPORATE SERVICES 10189632 HSBC BANK PLC 13/03/2006 USD 72,714 369939 F G IA90 36993901 UBS AG LONDON 22/03/2006 USD 50,000 VENTURE NEW HOLDING LTD NO ACCOUNT NUMBER QUOTED UBS AG SINGAPORE 07/08/2006 USD 5,00,000 UB GULF FZE 1701270501 SCB 08/08/2006 USD 90,000 BIRCHWOOD HILLS INC IA90 38945801 UBS AG LONDON 08/08/2006 USD 1,50,000 SUNCOAST VALLEY INC IA90 38945901 UBS AG LONDON 08/08/2006 USD 1,50,000 BAYSIDE ENTERPRISE INCIA90 38946001 UBS....
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.... OF COUNTERPARTY COUNTER PARTY ACC NO COUNTERPART Y BANK NAME 17/01/2006 USD 1,27,824 364567 U V IA90 36456701 UBS AG LONDON 22/02/2006 USD 17,00,040 VENTURE NEW HOLDING LTD 138154 UBS AG SINGAPORE 01/03/2006 USD 3,50,040 VENTURE NEW HOLDING LTD 138154 UBS AG SINGAPORE 08/08/2006 USD 90,000 364567 U V IA90 36456701 UBS AG LONDON 15/09/2006 USD 20,301 UBS FEE 02/10/2006 USD 10,822 UBS TRUSTEES (BAHAMAS) LTD 52017/01.10 UBS BAHAMAS LTD 23/07/2007 USD 20,50,000 VENTURE NEW HLDG LTD NO. 1009156 11381540007 UBS AG SINGAPORE 03/01/2008 USD 15,000 UBS FEE (iv) Account No - 389459 (Suncoast Valley Inc) DATE CURREN CY DEBIT AMOUNT CREDIT AMOUNT NAME OF COUNTERPARTY COUNTER PARTY ACC NO COUNTERPARTY BANK NAME 17/01/2006 USD 1,43,570 364567 U V IA90 36456701 UBS AG LONDON 22/02/2006 USD 17,00,040 VENTURE NEW HLDG LTD NO. 1009156 138154 UBS AG SINGAPORE 01/03....
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....DEBIT: 11381540007 CREDIT: 11390140008 138 154 MATTERHORN VENTURES SPC BEING SUBSCRIPTION OF ZINALROTHORN SHARE CLASS Debit USD -8,50,000 3/2/2006 INCOMING PAYMENT: BAYSIDE ENTERPRISE INC; DEBIT: 11003130001 CREDIT: 11381540007 BAYSIDE ENTERPRISE INC IA90 138 154 Credit USD 3,50,000 3/2/2006 INCOMING PAYMENT: BIRCHWOOD HILLS INC; DEBIT: 11003130001 CREDIT: 11381540007 BIRCHWOOD HILLS INC IA190 138 154 Credit USD 3,50,000 3/2/2006 INCOMING PAYMENT: SUNCOAST VALLEY INC; DEBIT: 11003130001 CREDIT: 11381540007 SUNCOAST VALLEY INC IA90 138 154 Credit USD 3,50,000 3/14/2006 INCOMING PAYMENT: REDEMPTION IN ZINALROTHORN; DEBIT: 11390140008 CREDIT: 11381540007 Credit USD 1,77,465.70 3/22/2006 OUTGOING PAYMENT: HIGHLAND TRADING; DEBIT: 11381540007 CREDIT: 11003130001 VENTURE NEW HOLDING LTD HIGHLAND TRADING UBS AG LONDON (LONDON BRANCH) Debit USD - 50,000.00 3/1/2007 OUTGOING PAYMENT: HIGHLAND TRADING; DEBIT: 11381540007 CREDIT: 11003130001 VENTURE NEW HOLDING LTD HIGHLAND TRADING UBS AG LONDON (LONDON BRANCH) Debit USD -3,00,000 7/23/2007 OUTGOING PAYMENT: BAYSIDE INC; DEBIT: 11381540007....
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....om Matterhorn Ventures in the account of VNHL. 34. In view of the above, the fund flow between the Noticee to the various overseas entities in which the Noticee was the ultimate beneficial owner is displayed pictorially as under: 35. I note that during the investigation period, Matterhorn was a SEBI registered sub- account of FII - Matterhorn Advisory Singapore Pte Ltd with Code - 2000975 and had traded in the scrip of USL. An analysis of the transactions undertaken by Matterhorn in the scrip of USL during the period January 01, 2006 to December 31, 2008, as provided by the Custodian, ICICI Bank, revealed that Matterhorn had acquired 9,50,000 shares of Herbertsons through block deals in the following manner: DEAL DATE CLIENT NAME DEAL TYPE QUANTITY PRICE (INR) AMT (INR) (Mn) AMT (USD)(Mn)* 28-Feb-06 Matterhorn Ventures Buy 8,29,900 263.35 21,85,54,165 4.93 Phipson Distillery Ltd Sell 3,73,000 263.35 9,82,29,550 McDowell Co. Ltd Sell 4,56,900 263.35 12,03,24,615 03-Mar-06 Matterhorn Ventures Buy 1,20,100 275 3,30,27,500 0.75 Phipson ....
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.... Phipson was partially transferred to Matterhorn through block deals on February 28, 2006 and March 03, 2006 and post these transfers of shares, Matterhorn was shown as a Non-Promoter Holding under sub- section of FIIs in the Shareholding Pattern of Herbertsons as on March 31, 2006. Post- merger of Herbertsons with McDowell (merger effective from July 01, 2005), Matterhorn was allotted 6,33,333 shares of USL in exchange to 9,50,000 shares of Herbertsons in the ratio of 2:3 on October 27, 2006. McDowell was later renamed as USL on October 17, 2006. 40. Furthermore, in addition to the email communication mentioned in the preceding paragraph no. 28 above, FCA, vide letter dated January 15, 2018, had provided some more email communications between the Noticee and Jaspreet Ahuja in the same mail trail with the same subject line. Some of the relevant correspondence between the Noticee and Jaspreet Ahuja in email/s dated May 25, 2007 is as under: Vijay Mallya - "Is the net gain of $ 5.51 mio after paying ALL loans?" Jaspreet Ahuja - "Only the gain on the sale to date is 5.51 $ and the loan taken was 6.15 $" Vijay Mallya - "So Jazzy what's the net gain after p....
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....de Sale Dr 71,529 64,206,870 44.02 01-Feb-07 64,206,870 1,458,584 UNITED SPIRITS LTD 29/01/2007 01/02/2007 Clearing House Trade Sale Dr 22,490 20,183,079 44.02 01-Feb-07 20,183,079 458,498 UNITED SPIRITS LTD 31/01/2007 02/02/2007 Clearing House Trade Sale Dr 12,000 10,769,574 44.01 02-Feb-07 10,769,574 244,707 UNITED SPIRITS LTD 31/01/2007 02/02/2007 Clearing House Trade Sale Dr 50,786 45,574,114 44.01 02-Feb-07 45,574,114 1,035,540 UNITED SPIRITS LTD 15/05/2007 17/05/2007 Clearing House Trade Sale Dr 5,040 4,282,155 40.61 17-May-07 4,282,155 105,446 UNITED SPIRITS LTD 15/05/2007 17/05/2007 Clearing House Trade Sale Dr 17,767 15,090,656 40.61 17-May-07 15,090,656 371,600 UNITED SPIRITS LTD 16/05/2007 18/05/2007 Clearing House Trade Sale Dr 40,193 35,274,536 40.38 18-May-07 35,274,536 873,565 UNITED SPIRITS LTD 16/05/2007 18/05/2007 Clearing House Trade Sale Dr 62,000 54,420,419 40.38 18-May-07 54,420,419 1,347,....
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....ward to Matterhorn Ventures for subscription to one of its share classes. Matterhorn Ventures (SEBI Code 2000975) was found to be a registered sub-account of an FII - Matterhorn Advisory Singapore Pte Ltd. that operated during investigation period. I further find that from the amount transferred by VNHL to Matterhorn (which was routed through the Noticees using overseas accounts of certain entities owned by the Noticee), Matterhorn had immediately purchased the shares of Herbertsons, a company listed in India at the relevant time, which was promoted and controlled by the Noticee. Further, Matterhorn had acquired 9,50,000 shares in Herbertsons on February 28, 2006 and March 03, 2006 through block deals as mentioned in preceding paragraph no. 39. Subsequently, pursuant to merger of Herbertsons with USL, Matterhorn Ventures was allotted 6,33,333 shares of USL in exchange to 9,50,000 shares of Herbertsons in the ratio of 2:3 on October 27, 2006. 44. From the fund flow between the entities, all owned and controlled by the Noticee along with the email correspondence between the Noticee and the employee of UBS, I find that the Noticee had indirectly used the sub-account of the FII i.e.....
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.... however, noted from the modus operandi adopted by the Noticee in the instant case that this financial route i.e. the FII route was used by the Noticee to trade in the Indian Securities market by concealing his identity by way of layering the transactions in the names of various overseas registered entities and opening accounts in their names in UBS-UK Bank, even though the Noticee himself was the actual beneficial owner of each of these front entities. I find that as the investments through the FII route are only meant for persons /entities resident outside India to facilitate them to have an exposure in the Indian securities market, from the scheme devised by the Noticee, it is clearly established that the Noticee has, by way of a design, abused the FII mechanism /route for investing his surplus funds kept abroad and had not revealed the same to the investors of these companies in India. I, therefore, find that the Noticee has glaringly resorted to making investments through the FII route by masking his identity under the garb of an FII i.e. Matterhorn Ventures to the detriment of the interest of shareholders of Indian companies. 48. Here, reliance is placed on the judgement o....
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.... Securities market is based on free and open access to information, the integrity of the market is predicated on the quality and the manner on which it is made available to market. 'Market abuse' impairs economic growth and erodes investor's confidence. Market abuse refers to the use of manipulative and deceptive devices, giving out incorrect or misleading information, so as to encourage investors to jump into conclusions, on wrong premises, which is known to be wrong to the abusers." 51. In view of the above, after considering the totality of the facts and material available, I, without any hesitation, find that the said acts of the Noticee in abusing the framework of the FII Regulations and dealing in securities of listed companies of his group of companies in India, indirectly, in a fraudulent manner and by employing a manipulative and deceptive artifice, thereby, indulging in purchase and sale of securities of Herbertsons / USL clearly was detrimental to the investors at large and was with an intention to deceit the market players in violation of the provisions of Regulation 3(a), (b) and (d) of the PFUTP Regulations, 2003 and Section 12A(a) and 12A(c) of SEBI Act, 1992. ....
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....o discourage any manipulation or wrong practice in order to protect the interest of investors, keep the trust of the investors intact as well as to develop the securities market. To achieve the objectives of the SEBI Act, 1992, SEBI, as a market regulator, is entrusted under the statute to take such measures as it deems fit. Thus, the power to take all measures, as may be necessary, to discharge its duty under the statute has been conferred in widest amplitude. Pursuant to the said objective, PFUTP Regulations, 2003 have been formulated with the main objective of preventing fraudulent activities in order to boost investor confidence in the securities market and to provide an environment conducive to increased participation and investment in the securities market. 54. I find that the Noticee, in the instant case, has devised a scheme to indirectly trade in the shares of his own group companies through layered transactions / fund flow using his overseas related companies through FII route in order to keep his identity masked and trade in the Indian Securities market in defiance of the regulatory norms. Such acts of the Noticee are not only fraudulent and deceptive but are a threat....