TaxTMI 
TaxTMI 
2023 (11) TMI 1285
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng to the company's balance sheet having recorded non-existent bank balances and accrued interest, understated liabilities and overstated debtors position as a result of manipulation of books of accounts and other company records. SEBI carried out investigation into the affairs of SCSL to ascertain, particularly, whether the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act") and Rules and Regulations framed thereunder have been violated. The investigation revealed that the directors and employees of SCSL namely Mr. B Ramalinga Raju (Ex-Chairman), Mr. B Rama Raju (Ex-Managing Director), Mr. Vadlamani Srinivasa (Ex-Chief Financial Officer), Mr. G Ramakrishna (Ex-Vice President, Finance) and Mr. V. S. Prabhakara Gupta (Ex-Head 'Internal Audit') had, since January 2001, connived and collaborated in overstatement, fabrication, falsification and misrepresentation of books of account and financial statements of SCSL. They presented a rosy picture about the financials of SCSL before its investors in order to mislead them and ultimately to defraud them. The investigation found material that corroborated the confession of Ramali....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame of Noticees Amount (INR) Mode of transaction B Ramalinga Raju and B Rama Raju 543.93 Crores Sale of shares 1,258.88 Crores Pledge of shares Vadlamani Srinivas 29.5 Crores Sale of shares G Ramakrishna 11.5 Crores Sale of shares 3. SEBI vide order no. WTM/RKA/EFD-SRO/108-117/2015 dated September 10, 2015 (hereinafter referred to as "Second SEBI order") passed directions inter alia against the relatives/ associates of Noticee No. 1 and Noticee No. 2 including B. Suryanarayana Raju (hereinafter referred to as "Noticee No.3" / "BSR") and SRSR Holdings Private Limited (hereinafter referred to as "SRSR" / "Noticee No.4") to disgorge quantified illegal / unlawful gains made by them and to restrain them for a period of 7 years for violation of provisions of Section 12A (d) and (e) of the SEBI Act and regulation 3(i) of the PIT Regulations. Further, inter alia Mr. B. Ramalinga Raju, Mr. B. Rama Raju, Mr. B. Suryanarayana Raju and SRSR were directed to disgorge the wrongful gain made by them, with simple interest @12% per annum from January 07, 2009 till the date of payment. The disgorgement directions were as under: 3.1. Mr. B. Ramalinga....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t and quantum of illegal gains on the grounds that (a) without considering the merits of each case, SEBI could not have imposed uniform restraint order against all the appellants; and (b) First SEBI order in case of Ramalinga Raju and Rama Ramu and Second SEBI order passed against the appellants are mutually contradictory because in First SEBI order it is held that the unlawful gains specified therein are made by Ramalinga Raju and Rama Raju and in Second SEBI order it is held that the said gains are the unlawful gains made by the appellants herein. The Orders also directed that the cost of acquisition of shares be considered while computing the unlawful gain. 7. An appeal was preferred against the Second SAT order before the Hon'ble Supreme Court and Order dated May 14, 2018 was passed by Hon'ble Supreme Court (hereinafter referred to as "SC Order"). Hon'ble Supreme Court vide said order exonerated all the appellants except SRSR Holdings Pvt. Ltd. and B. Suryanarayana Raju and upheld the finding of Second SAT order dated August 11, 2017 in respect of SRSR Holdings Pvt. Ltd. and B. Suryanarayana Raju. 8. Subsequently, in Civil Appeal No. 8242 of 2017 filed by G. Ramakrishna a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in that the SFIO's report as well as the aforesaid judgment clearly and unmistakably point to his complicity, unlike that of the other family members, in the fraud committed from 2001 onwards." (emphasis supplied) Similarly, with respect to SRSR, the Hon'ble Supreme Court inter alia quoted the following extracts of the Second SAT Order and stated its agreement with the said extracts: "Thus, on one hand Ramalinaga Raju and Rama Raju manipulated the books of Satyam and ensured that the market price of Satyam were higher and on the other hand through SRSR got the Satyam shares pledged and obtained higher loan on the basis of higher market price of Satyam shares... mode and the manner in which SRSR was incorporated, mode and the manner in which shares of Satyam were transferred by Ramalinga Raju, Rama Raju and their wives to SRSR and the mode and the manner in which the shares of Satyam were pledged and the pledged amounts were utilized, leave no manner of doubt that SRSR was a front entity established by Ramalinga Raju and Rama Raju for off loading their shareholding in Satyam..." (emphasis supplied) 10. In compliance with the remand directions of Hon'ble SAT vide First and Second....
X X X X Extracts X X X X
X X X X Extracts X X X X
....813 12. Since the Fourth SEBI Order was passed 'in partial modification' of the Second SEBI Order, the net result was that while Ramalinga Raju and Rama Raju continued to jointly and severally liable for the illegal gains made by Suryanarayana Raju and SRSR Holdings Pvt. Ltd. as well, the gains computed individually were reduced owing to deductions for cost of acquisition of shares/ taxes paid/ loan amount satisfied using invoked SCSL shares. SAT order dated February 02, 2023: 13. With regard to the enforcement of Third SEBI order and Fourth SEBI Order the said orders also stated as follows: (i) Third SEBI Order (para 33): "As directed by the Hon'ble Supreme Court in C.A. Nos. 11298/2017, 8242/2017, and 10215/2017 this Order shall come into effect from such date as the Hon'ble Supreme Court directs. Till such decision of the Hon'ble Supreme Court, the Noticees shall continue to abide by their undertakings submitted to the Hon'ble Supreme Court in the aforementioned Appeals" (ii) Fourth SEBI Order (para 24): "As directed by the Hon'ble Supreme Court in C.A. Nos. 9493/2017 and 9524/2017, this Order shall come into effect from such date a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r within four months after giving an opportunity of hearing to all the appellants on the following issues:- 1. The WTM will consider the intrinsic value while calculating the unlawful gain. 2. The unlawful gain, if any, will be calculated individually for all the appellants by the WTM. 3. The WTM will consider the issue on interest. 4. The WTM will reconsider the issue on period of restraint afresh for all the appellants. 5. The WTM will reconsider the issue on pledge of shares." 15. Hon'ble SAT vide the Third SAT Order dated February 02, 2023 stated that "... The matter is remitted to the WTM to pass a fresh order within four months after giving an opportunity of hearing to the all the appellants..." Subsequently Hon'ble SAT decided MA no. 703 of 2023 vide order dated June 13, 2023 inter alia stating that "....we dispose of the matter directing Whole Time Member to decide the matter as per directions given in paragraph 120 of our order dated February 2, 2023 on or before November 30, 2023..." III. SUPPLEMENTARY SHOW CAUSE NOTICE AND HEARING: 16. Pursuant to the Third SAT order, an opportunity of hearing was granted to all 6 Not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....023 on request of Noticee no. 1 to 5. Noticee No. 6 neither appeared for hearing nor requested for adjournment. Hearing concluded qua Noticee No. 6. Noticee No. 1 to 5 September 15, 2023 Adjourned to 29.09.2023 on request of Noticee No. 1 to 5. Noticee No. 1 to 5 September 29, 2023 Adjourned to 13.10.2023 due to declaration of holiday on 29.09.2023. Noticee No. 1 to 5 October 13, 2023 Partly heard and adjourned to 25.10.2023. Noticee No. 1 to 5 October 25, 2023 Hearing concluded in respect of Noticee No. 1 to 5. 20. During the course of hearings, for Noticee No. 1 & 3 the AR had submitted summarized note titled "Note on the Intrinsic Value of the Shares and Quantum of Disgorgement"; for Noticee no. 3, the AR had submitted summarized note titled "Note on the Effect of the 2002 Amendment to the SEBI (Prohibition of Insider Trading) Regulations, 1992"; for Noticee No. 4, the AR submitted summarized note titled "SRSR's loan and pledge of shares - No unlawful gains". The AR also submitted a "General Note along with the Judgments thereto". The AR made the oral argument in line with said notes. 21. The copy of record of proceeding of hearing dated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r. Therefore, their common replies are recorded under one head and their additional replies are recorded separate head. The common replies of of Noticee Nos. 1, 2 & 3 are summarized in brief as under: 24.1. The SSCN issued by SEBI is ex facie unsustainable in law and is beyond the scope of remand directed by 3rd SAT Order. 24.2. Intrinsic Value: 24.2.1. SEBI has not disclosed the relevance of NSE IT Index in calculating the intrinsic value of a share. The NSE IT Index, cannot form the legal basis for calculating the unlawful gain. It was not part of the original show cause notice. The methodology adopted by SEBI for arriving at the intrinsic value is faulty and ought not to be used, as the same will not enable SEBI in arriving at an accurate value in an objective and scientific manner. 24.2.2. While calculating unlawful gains, the intrinsic value of the stocks is to be excluded. The valuation of company is driven by several factors, primarily by intangible assets the company builds over a period. The implied asset base of SCSL, while arriving at the market capitalisation, would comprise of Fixed Assets; Current Assets, including cash balances; Br....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is INR 4782.75 Crores. On 06 January 2009, before the news of the scam broke out, the price of SCSL's share was INR 178.95/- per share. After the so-called scam became public, the intrinsic value fell to INR 103/- as analyzed earlier. Therefore, the intrinsic value of the share comes to 57.56% (103/178.95*100) which in other words means that the quantum of wrongful gain is 42.44%. 24.2.9. In 2009, when the cumulative fictitious revenues were INR 4,782.75 Crore, the wrongful gain is 42.44% of the sale consideration. However, it is to be noted that the cumulative fictitious revenues upto 31 March 2005 were only INR 522.66 Crores which amounts to 10.9% of the total falsification. The wrongful gain should be only 4.63% (10.9% of 42.44%) of the sale consideration in May, 2005. 24.2.10. SEBI has not made out any case to how the NSE IT Index is appropriate in order to ascertain the intrinsic value of the shares of SCSL. Assuming whilst denying that it is relevant, the Noticee states that the correlation between the NSE IT Index and SCSL share price ought to have been examined considering the weight of SCSL share in the NSE IT Index. 24.2.11. The methodology ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m any prior date. There is no legal rationale for seeking to recover interest from the date of the email dated January 07, 2009 24.4.6. The interest rate of 12% per annum with effect from January 07, 2009 is arbitrary, excessive, and exorbitant. Further, the WTM has imposed lower interest rates in other proceedings in the past. There must be parity in therates of interest levied. There is no basis for the Ld. WTM to levy such a high rate of interest in the present case, that too without any reasons. 24.4.7. The rate of interest of 12% per annum ought to be reduced to 2% per annum considering the huge amounts involved and long passage of time of over 14 years since January 2009 and by applying the principle of parity 24.5. Period of Restraint: 24.5.1. The period of restraint already undergone (over 14 years) by Noticee No. 1 & 2 since the beginning of investigations shall be taken into consideration and no further restraint be imposed on the Noticee No. 1 & 2. 24.5.2. The 7-year debarment imposed on Noticee No. 3 by Second SEBI order dated September 10, 2015 has already been served by the Noticee No. 3. Hence, the restraint order be lifte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....NR 58 per share is not a proper or valid factor to ascertain the intrinsic value. The said offer price merely represents an offer made during a distress sale. The offer was a commercial decision taken by Tech Mahindra to earn profit, and nothing more. The Noticee No. 1 has adopted INR 103 as the intrinsic value of each share on the basis of 3 month average, 6 month average and 9 month average from July 01, 2009. The said averages would represent the stabilisation and normalization of the share price over a period of time, post the negative news which caused the volatility in share price. 25.5.2. Denominator of 249.50 - SEBI's approach insists on correlating the share price of Satyam with the NSE IT Index is an incorrect approach. The market index is a metric that measures market fluctuations based on market trends. Market trends are linked to factors such as speculation and expectation of investors, government policies, supply and demand, etc. These factors determine the market value of the share price, and not the intrinsic value of a particular share. In fact, the intrinsic price of a share is independent of, and unrelated to, the fluctuations in the market. The intrinsi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of their date/year of sale of shares would be a faulty exercise. 26. Additional submission of B Suryanarayana Raju is summarized as under: 26.1. Considering the calculation of intrinsic value as mentioned at paras above, in the earlier years when inflation of revenues was lower, the intrinsic value would be higher, hence, there was no wrongful gain made by the Noticee No. 3. 26.2. Further, considering the methodology suggested by SAT i.e. taking the intrinsic value as INR 323.35/- as mentioned at para above, and Noticee No. 3 had sold all his shares in the years 2002 and 2003 when price of SCSL shares was between INR 260/- to 320/-, the total wrongful gain made by the Noticee No. 3 comes to approximately INR 1.39 Crores. 26.3. Trades Executed prior to 20-02-2002 PIT Regulations Amendment: 26.3.1. Prior to 20 February 2002, the test for being found guilty of insider trading under Regulation 3(i) of the PIT Regulations, was that of "dealing in securities on the basis of UPSI" as opposed to 'when in possession of' UPSI. There is no allegation in the SCN that the Noticee No. 3 dealt in securities on the basis of price sensitive information....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 27.1.7. Noticee No. 4 has transferred the entire loan amount of INR 1219.25 crores (received by pledging the shares) to SCSL to fund its operations. In this regard, Reliance placed on Hon'ble Supreme Court of India in civil appeal no. 563 of 2020 in SEBI V/s Abhijit Ranjan and Hon'ble SAT Appeal No. 536 of 2021 in Rajeev Vasant Sheth & others V /s SEBI. 27.1.8. Noticee No. 4 had to pledge the shares and infuse the proceeds into SCSL in order to facilitate its functioning. In case, the Noticee No. 4 had any intention of benefiting from the proceeds of pledge of shares, it would have sold the shares instead of pledging them. Alternatively, it would have not deposited the pledge proceeds with SCSL. In view of the above, the ratio laid down by the Hon'ble Supreme Court of India and Hon'ble SAT (supra) would be applicable to the facts and circumstances of the case and accordingly and also after accounting for the said amount of INR 1230.40 Crores infused into SCSL, there is no unlawful gain made by the Noticee No. 4. 27.1.9. The act of 'pledging' doesn't fall within the ambit of 'dealing in securities' and hence the act of 'pledging'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e previous SCNs issued by SEBI. This query also exceeds the scope of the Hon'ble SAT's remand Order. In remand proceedings, SEBI cannot improve on its case. Strictly without prejudice to the said submission, SRSR must be given benefit of the cost of acquisition of the shares for calculating the disgorgement amount. 27.3.2. The finding of the Hon'ble SAT vide Order dated August 11, 2017 that SRSR was a "front" entity established by Noticee Nos. 1 and 2 for offloading their shares of SCSL, was only in the context of deciding whether SRSR was an "insider" within the meaning of Regulation 2(e) of the SEBI (PIT) Regulations. The Hon'ble Supreme Court affirmed was merely that SRSR was an "insider". Nothing more can be read into this aspect, let alone using such a finding for computing unlawful gains. 27.3.3. It is a settled position of law, and as affirmed by the SAT Order dated February 02, 2023, that a Noticee cannot be worse-off upon remand. 27.3.4. By way of the above query, it would appear that SEBI is effectively seeking to lift the corporate veil of SRSR. It is impermissible. The corporate veil may be pierced only in rare and exceptional ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a Raju and others on the issues of (a) Benefit of amendment to PIT Regulations of the year 2002; (b) Interest on the amount to be disgorged to the extent applicable to his facts and circumstances. 28.3. Intrinsic Value: 28.3.1. Noticee No. 5 placed reliance on para 78 & 79 of Third SAT order. 28.3.2. The employee stock options at a strike price are in the nature of perquisite provided to an employee and the same shall be treated as part of the salary and cannot be subjected to the rigors of the Securities Laws. 28.3.3. Noticee has been allotted Stock options worth 3,60,000 shares on post bonus and post-split basis (36,000 stocks on presplit and pre-bonus basis) before the commencement of the alleged fraud period i.e., before 31-3- 2001 and the acceptance amount was paid on 24-12-1999 and 15-11- 2000. Therefore, these 3,60,000 shares are historic in nature and are allotted to the Noticee well before the alleged UPSI period and hence taking the original cost of acquisition without taking into consideration the market value of the shares would lead to a faulty calculation of unlawful gain. Thus, market value of shares as on the date of acceptance of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Less: Clerical error INR 11,21,984 c. Less: Shares acquired prior to UPSI period INR 11,98,31,305 d. Amount to be disgorged (a-b-c). INR 3,56,44,698 28.6.2. Therefore, the amount to be disgorged comes to INR 3,56,44,698/-. 28.7. Submissions on Interest to be Paid on Disgorgement Amount 28.7.1. None of Show Cause Notices issued by SEBI mention anything about the levying of interest and quantum of interest and period for which interest needs to be paid and therefore, SEBI has failed to put notice on this issue of interest which is in violation of principles of natural justice. In this regard, reliance is placed on decision of Hon'ble Supreme Court in the matter of Reckitt & Colman of India Limited vs Collector of Central Excise dated October 29, 1996 and Gorkha Security Serl'ices vs Govt. of NCT Of Delhi & Ors dated August 04, 2014. Thus, the issue of interest was never raised by SEBI in the SCN and hence, a case for interest had never been canvassed by SEBI which Noticee No. 5 had never been required to meet. The Noticee No. 5 now cannot be asked to pay any interest on the disgorgement amount. 28.7.2. Without prejudice ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove mentioned criteria, the fair value computation and the amount of illegal gain for the shares is (% inflation in share price = 77.06% / Total fictitious sales during April 2003 to September 2008, multiplied with Cumulative Fictitious Sales as per the last quarterly published results), for each date of sale of shares. 29.3.5. For example for 3,000 shares sold on 12-12-2003 the % inflation in Sale Price is equal to 72.43 / 478,275 * 77.06 %. Applying this formula / calculation for sale of shares from December 2003 to November 2007, the illegal gains is INR 1,05,26,264/- (calculation in tabular form is enclosed). 29.4. Trades Executed prior to 20-02-2002 PIT Regulations Amendment: 29.4.1. The shares sold by Noticee No. 6 before February 20, 2002 is 1,20,000 shares with sale value of INR 2,78,21,500/-. 29.4.2. To charge an Insider of Insider Trading violations, it has to be established that (a) prior to 20-02-2002 the insider has traded 'on the basis of' UPSI; and (b) after 20-02-2002 the insider has traded 'while in possession of' UPSI. 29.4.3. The case of SEBI is that the Noticee No. 6 has sold the shares of SCSL 'while in possession o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.......In light of the above we request you to kindly let us know of the method that SEBI proposes to employ for the computation of the intrinsic value of the shares, as per the principles laid down by the Hon'ble Securities Appellate Tribunal to enable us to give our submissions on the same. It is settled law that the authority has to notify the Noticee as to the cause he has to show and address...". In the hearing dated April 11, 2023 all the Noticees have heard jointly and said submission of SRSR was discussed and in the context of the said submission, the AR of all Noticees who appeared for hearing conveyed their view that SEBI must formally notify the Noticees as to the cause they have to show and address. This inter alia would require SEBI to specify the quantum and manner of computation of unlawful gains proposed to be done vis-a-vis Noticee. The record of proceedings of hearing dated April 10, 2023 was sent to the AR of the Noticees and was acknowledged by them. Therefore, SSCN dated June 06, 2023 was necessitated due to the submissions made by Noticee Nos. 1 to 5, and in compliance with principles of natural justice they were given opportunities to show cause on the issues....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elve into the merits of the case only to the limited extent of determination of aforesaid issues with respect to each Noticee. Staying within the scope of the limited remand, I now proceed to consider the matter afresh on aforesaid issues. A. Issue of Intrinsic Value/ underlying value / value of Satyam shares had the fraud been known: 33. The Noticees have contended that intrinsic value of Satyam shares must be deducted before illegal gain is arrived at. The Noticees have also relied on the specific direction of the Hon'ble SAT in para 120 of the Third SAT Order, to argue that the intrinsic value must be considered while calculating the unlawful gain made. Relevant extracts of the Hon'ble SAT's observations leading up to the specific direction of the Hon'ble SAT are reproduced below for reference: "68. .... On the issue of disgorgement, we find that the requirement to disgorge ill-gotten gains is based on the principle that the person guilty ought not to be permitted to unjustly enrich himself by taking the offending action. In the case of a gain made by sale of securities, such gain would ordinarily be the amount realised by the sale of shares less the acquisition c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d much prior to the fraud having commenced or price sensitive information having been available, the intrinsic value of shares must be deducted from the sale value in order to arrive at the unlawful gain. 35. The previous SEBI order i.e. the Third and Fourth SEBI orders were passed pursuant to the remand by the First and Second SAT Orders which had specifically directed deduction of cost of acquisition and taxes paid before illegal gains are computed. During the course of the proceedings the Noticees had then also contended that intrinsic value must be deducted from the gain to arrive at the unlawful gain. The then WTM, SEBI had (in the Third SEBI Order) found that in accordance with the specific mandate of the directions of the First and Second SAT orders, SEBI was only required to consider cost of acquisition and taxes, and that the promoter noticees did not provide details of the costs of acquisition unlike the details provided by the employee noticees (Srinivas, Ramakrishna and Gupta). Further, the following was observed with respect to the concept of 'intrinsic value' in the order: "......The concept of intrinsic value of share is not circumscribed by a sharp defin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quid market, i.e., absent any fraud, unfair trading, insider trading, or illegal information asymmetry of any kind, the fair value of the shares at a point in time is simply the traded price of the share, determined by willing buyers and willing sellers. In such cases, while there could be a wide range of analyst views on what the textbook "intrinsic value" of the underlying company "ought" to be, they would remain individual opinions that cannot argue in the present with the hard-nosed truth of the price established in a free and fair market between willing buyers and willing sellers. At best, one could posit that the current market price, the meeting point of current supply and demand, represents the consensus opinion of all participants in the market, with all their diverse opinions and expectations. A participant in the market can scarcely expect sympathy - let alone any compensation - if the free, fair, and liquid market does not give him or her the price that he or she expects based on a particular textbook valuation model. 38. What if the market is liquid and frequently traded, but not entirely free and fair? Consider an illustrative case of insider trading, where an insi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the market itself, rather than from one of the myriad Corporate Finance textbook approaches to determine the "intrinsic value" of a share at any point in time. 41. Given this background, it does not make sense to mechanically interpret and limit the phrase "intrinsic value" of the shares to imply a theoretical Corporate Finance textbook valuation exercise. Instead, for the purpose of the specific context of insider trading in this case, I hereinafter use the phrase "intrinsic value" of a share to mean the answer to the question: "what is the price the insider would have accessed in the first place, had the market been aware of the UPSI?" The difference between the actual price accessed by the insider and such "intrinsic value" of the share can then be used to determine the illegal gains of (or losses averted by) the insider. 42. What if after the initial move after the information becomes public, the prices happen to move substantially over the next few days? Should that in turn impact the anchor "intrinsic value" of the share in question? The answer would wholly depend on the specific context of each case. As a logical approach, however, one would have to reasonably estim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atic and unsystematic. Systematic risk refers to the risk inherent to the entire market or entire sector, and includes factors such as macroeconomics (e.g. interest rates, growth prospects, inflation, and geopolitics), and overall market sentiment. Akin to the maxim that a rising tide lifts all boats, a steady growth in positive sentiment in the economy, for instance, can support the prices of all shares. On the other hand, unsystematic risk refers to idiosyncratic risk that is unique to a company. Business risk, fraud risk, operational risk, or legal risk that are unique to an entity are examples of unsystematic risk. 47. When trying to arrive at the "intrinsic value" of a share, particularly across long intervals of time, one must differentiate between the movement in the share price because of systematic factors, and idiosyncratic factors unique to the company. For instance, the noticees have contended that in comparison to the Tech Mahindra open offer price of INR 58 on April 22, 2009, the price of SCSL was INR 73.25 on July 1, 2009, a rise of 26%. What they fail to point out is that the broader IT index, which is a basket of major IT stocks, moved up from 2,495 to 3,527 dur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... smaller move in the IT index was entirely attributable to the fall in the share price of its constituent Satyam alone. Over the next few days, Satyam share price remained at or around these depressed levels, closing at INR 179 on January 6, 2009. The promoters finally admitted to their fraud on January 7, 2009. While suspicions had been swirling, the egregious nature and extent of fraud that the promoters confessed to still shocked the market. The price of Satyam shares fell dramatically to close at INR 40.3 on January 7, 2009, and thereafter hit an intraday low of just INR 6 per share on January 9, 2009. 52. Pursuant to the confession of fraud in SCSL by Mr. B. Ramlinga Raju (then Chairman of SCSL) on January 07, 2009, the Government of India ("GOI") filed Company Petition 1 of 2009 with Company Law Board ("CLB"). Pursuant to the proceedings instituted by GOI with the CLB under Sections 388B, 397 and 398 read with Sections 401 to 408 of the Companies Act, 1956, the CLB, on January 9, 2009, suspended the then-existing Board of Directors and passed orders directing the GOI to nominate up to ten (10) directors on SCSL's Board. Further, as per the CLB order dated February 19, 2009....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orrelation between IT Index and Satyam between 17.12.2007 and 16.12.2008 (before negative news about SCSL started percolating) = 94% (~1 year history) 55.3. Correlation between IT Index and Satyam between 17.12.2008 and 31.12.2010 = 36.0% (full fraud came to light on 07.01.2009, but negative news started percolating from December 17, 2008) - indicating that the move in SCSL during this period had a significant unsystematic component, given the idiosyncratic fraud risk that came to light in the interim. 55.4. Correlation between IT Index and Satyam between 22.04.2009 and 31.12.2010 = 20.8% (Tech Mahindra takeover announced on 22.04.2009) - essentially, reflective of the deep scars that the promoters had inflicted on SCSL, Satyam continued to underperform the broader market even after Tech Mahindra takeover; while IT index grew by over 200% during this period, Satyam (Tech Mahindra) only grew by 14%. 55.5. Tech Mahindra announced an open offer to purchase 20% of shares at a price of Rs 58 per share on April 22, 2009. However the market price on 22.04.2009 (Rs. 46.9) was well below INR 58, and stayed below INR 58 till end of May 2009. 56. Given all of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le candidate to pick. 59. At this stage, we have a price of SCSL as of December 16, 2008 (closing price of INR 226.6), before the rumours started to bring the prices down, and the Tech Mahindra offer price of INR 58, announced on April 22, 2009, as the anchor for determination of the "intrinsic value" of the share. I reiterate that the nature of the admissions by the promoters on January 7, 2009 were so shocking that every other company-specific news (unsystematic factors) in the interregnum simply pale in terms of impact and relevance. To that extent, at least in terms of company specific news, the price as of April 22, 2009 can be reasonably posited to be a good indicator of what the price as of December 16, 2008 would have been, had the market known of the UPSI on the date. What about the systematic factors though? 60. The period of 2008 and 2009 was a volatile period in the overall market, since this was when the Global Financial Crisis unfolded, and then the recovery commenced. While disregarding company-specific news, one must still ensure that the overall movements in the markets themselves are considered. As on December 16, 2008, the IT index was at 2,266. It rose to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t completely misrepresents the vital value of trust in determination of the price of a security, and seeks to attach a price to this basic hygiene requirement of integrity. I will consider this issue in greater detail later in this order. Alternative approaches to calculating illegal gain as proposed by Noticees 64. The Noticees have argued that instead of the calculation of intrinsic value proposed by SEBI in the SSCN dated June 06, 2023 the market price of the share one day before the alleged manipulation of books of accounts commenced must be considered for arriving at the unlawful gain. The market price of Satyam shares on December 29, 2000 i.e. the trading prior to commencement of investigation period, was INR 325.35 per share. This argument is disingenuous on several counts. First, the noticees have conveniently ignored the fact that there was a 1:1 bonus issue effective October 2006. As a result, to start with, for a like comparison with the ex-bonus SCSL prices after October 2006, SCSL prices prior to that need to be halved. Second, the noticees have conveniently ignored the systematic factors during the intervening periods. In December 2000, stock prices in the IT in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....06, 2009 and therefore the intrinsic value would be (103/178.95) x100 i.e. 57.56% and the wrongful gain would be 42.44%. The noticees proceed to argue that since the inflation in revenues was lesser in the earlier years of the scam and since bulk of their shares were sold during these earlier years, the percentage of illegal gain made by them must be significantly lower. In this regard, computations from Noticees 1 to 3 are as follows: Table No. - 7 Quantification of unlawful gains of Noticee No. 1 & 2 each Financial year Inflated Revenues (Rs. Cr) as per original SEBI order 15/7/2014 (cumulative) Inflated Revenues as a proportion of total inflation in revenues of Rs. 4782.76 crores Inflation in shares prices in respective years (when the inflation in share prices is 42.44% after the total fraud came to light) Transaction date Sale value of SCSL shares in INR Unlawful gains in INR A B C [(B/4782.76)*100] D (C*42.44%) E F (E*D 2008-09 4782.76 100% 42.44% N.A. N.A. N.A. 2004-05 522.66 10.93% 4.64% 30/05/2005 26,62,50,000 1,23,54,000 Table No. - 8 Quantification of unlawf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l to conduct an open and competitive bidding process which contemplated the selection of an investor to acquire a controlling interest in SCSL at an agreed upon price per Share. Based on the order of the CLB and the in-principle approval of SEBI, on March 9, 2009, SCSL commenced the formal process of identifying a strategic investor and initiated the competitive bidding process by inviting interested bidders to register their interest to participate in a competitive bidding process ("Bid Process"). The Bid Process included the selection of a successful bidder to subscribe to such number of Shares that would immediately following the allotment represent 31% of the Diluted Share Capital of the Company through a preferential allotment of equity shares, make a consequent public offer under the Regulations and if, upon having made the Public Offer, the investor acquired less than 51% of the Fully Diluted Share Capital pursuant to the Preferential Allotment and the Public Offer, at the successful bidder's option, subscribe to additional shares by way of subsequent preferential allotment to take the bidder's shareholding up to 51% of the Fully Diluted Share Capital. As noted earlier, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... eyes, by passing off what is a systematic move in markets as a unique unsystematic move in SCSL (Tech Mahindra) alone. The 3, 6, and 9 month average in the IT index from July 1, 2009 was 4,327, 4,806, and 5,144 respectively. Compared to the IT index of 2,495 as on April 22, 2009, this represented a 73.4%, 92.6%, and 106.1% rise in the IT index respectively. In contrast, compared to the Acquirer's open offer price of Rs 58, the 3, 6, and 9-month average price in SCSL starting from July 1, 2009 represented a 77%- 79% rise. In fact, seen from April 22, 2009 to December 31, 2010, the IT index rose by 118%, while SCSL (Tech Mahindra) prices rose only by 55%. A rising tide of a sharp recovery in the aftermath of the Global Financial Crisis was raising all prices, and if anything, the prices of SCSL (Tech Mahindra) was underperforming the market over time. I cannot accept what is a systematic increase in all prices (with SCSL in fact underperforming the market) as an unsystematic and idiosyncratic reflection of SCSL's worth alone. 70. The noticees refute the anchor for the intrinsic value of INR 58 on the ground that there was minimal participation (0.11%) to the open offer made by Te....
X X X X Extracts X X X X
X X X X Extracts X X X X
...." of the share cannot be applied to sales by the insiders in 2005, since the extent of the fraud by the promoters was "only" Rs 522.66 crores at that time. The noticees suggest we should use perhaps a proportionate and linear approach, which ascribes a higher intrinsic value to a "lower" quantum of fraud. This argument completely misrepresents the vital value of trust in determination of the price of a security, and seeks to attach a price to this basic hygiene requirement of integrity. Our capital market ecosystem survives on trust. When there is any doubt whatsoever about the integrity of the promoters of a company, the valuation of that company is doomed. Unlike financial results, where one can ascribe some degree of correlation and proportionality between the nature of the results and the performance of the share, trust and integrity is a bare minimum hygiene requirement. One is either a fraud, or not. There is no such thing as a half- fraud or a quarter-fraud. Further, investors and market stakeholders had implicit trust in SCSL, as a benchmark for good governance. The group and the promoters had over the years won several prestigious awards, including the Golden Peacock Award....
X X X X Extracts X X X X
X X X X Extracts X X X X
....000 343.75 17,18,750 72.43 1.17 20,065 13-Dec-2003 2,000 343.75 6,87,500 72.43 1.17 8,026 15-Mar-2005 27,152 409.05 1,11,06,526 389.85 6.28 6,97,893 16-Jun-2005 30,384 483.45 1,46,89,145 522.66 8.42 12,37,454 25-Apr-2006 20,733 762.75 1,58,14,096 1184.86 19.10 30,19,791 09-Nov-2007 31,678 426.5 1,35,10,667 2515.08 40.52 54,74,811 1,33,947 6,33,70,434 1,05,26,264 75. Unlike the promoter noticees who chose to rely on inflation in revenues as a benchmark, G Ramakrishna has taken inflation in fictitious sales as a benchmark to compute illegal gain. Again this is financially favourable to the noticee since a large chunk of shares sold were during the years when the quantum of inflated sales was lesser in comparison to later years. While this computation doesn't explicitly seek out the 'intrinsic value' of Satyam shares, the emphasis on the 'lesser fraud' when shares were sold by Ramakrishna cannot be accepted for the reasons already elaborated in the earlier paragraphs. 76. As is evident from all the above computat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ility for illegal gains made by the Noticees is required to be borne by them individually. Consequently, Ramalinga Raju and Rama Raju cannot be made jointly and severally liable either for the unlawful gains made by Suryanarayana Raju or for the unlawful gains made by SRSR. C. Issue of Interest on Unlawful gain 80. Hon'ble SAT vide its Third SAT Order directed WTM to consider the issue on interest. In this context, relevant paragraphs of Third SAT order are as read as follows: "...... 117. The WTM in its two orders has directed the appellants to disgorge the amount along with simple interest @ 12% p. a. with effect from January 7, 2009 till the date of payment. The WTM in the impugned order has rejected the contention of the appellants on the issue of rate of interest on the short ground that this Tribunal had not specifically set aside the rate of interest in its orders. 118. In this regard, we find that this Tribunal had set aside the order of disgorgement and had directed the WTM to decide the issue of disgorgement afresh on merits. In our opinion, interest becomes payable after the computation of the disgorgement is made. Once the amount o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Supreme Court referred to the decision of the Hon'ble Bombay High Court in Prabhavati Ramgarib B. v. Divisional Railway Manager [(2010) 4 Mah LJ 691] wherein it was held that interest was payable in equity. The Hon'ble Bombay High Court held as under: "35. The petitioner's claim for interest would fall within the ambit of the words "or other rule of law" in section 4(1). The other rule of law being on grounds of equity. Even under the Interest Act, 1839, interest was payable under the proviso to section 1 which reads: "Provided that interest shall be payable in all cases in which it is now payable by law." Interest was payable by law under that Act in equity. This was recognized in a series of judgments. For instance in Trojan and Co. v. Nagappa Chettiar, 1953 SCR 789, the Supreme Court, in paragraph 23, observed that it was well settled that interest is allowed by a Court of equity in the case of money obtained or retained by fraud. Interest was, therefore, awarded in equity. .... .. 36. The position is not different under the Interest Act, 1978. The words, in section 4(1) "or other rule of law" would include interest payable in equity. In fact, interest has been....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ffers under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, simple interest has been imposed at the rate of 10% per annum after the Hon'ble Supreme Court's decision in Clariant International Limited and Another v. Securities and Exchange Board of India, [(2004) 8 SCC 524]. The Court held - ".....30. Interest can be awarded in terms of an agreement or statutory provisions. It can also be awarded by reason of usage or trade having the force of law or on equitable considerations. Interest cannot be awarded by way of damages except in cases where money due is wrongfully withheld and there are equitable grounds therefore, for which a written demand is mandatory......... We, therefore, direct, having regard to the peculiar facts and circumstances of the case, that the interest of justice would be sub-served, if the rate of interest is directed to be paid at 10% per annum from March 1998 till 2003" 87. I note from several orders passed by SEBI in cases involving violation of PFUTP Regulations and PIT Regulations, the interest on disgorgement amount is generally imposed at the rate of 12 % per annum simple interest. Most of these orders have been upheld by the Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has been for SEBI to impose simple interest on illegal gains to be disgorged at the rate of 12% to be calculated from the date of violation/ last date of investigation period till the date of payment. I do not find any extraordinary reason to differ with the prevailing norm in the facts of this case. Any other rate of interest imposed can only be viewed as exceptions which are based on the specific circumstances of a particular case. The exceptional circumstance that the Noticees have pointed to, in their replies to the SSCN, is that there has been a lapse of long time of over 14 years in this case. I do not find this contention to be justifiable. The first SCN in this case was issued on March 09, 2009 i.e. 2 months after the confession of Ramalinga Raju that lead to the investigation by SEBI. Para 34(a) of the First SAT Order held as follows: "... all documents relating to the charge of inflating/ manipulating the books of Satyam were made available to the appellants and inspite of receiving requisite documents appellants (excluding Prabhakara Gupta) failed and neglected to file detailed reply to the show cause notices till May 2014. Moreover, during the period from 2011 till May....
X X X X Extracts X X X X
X X X X Extracts X X X X
....impugned sale of shares while in possession of UPSI. Yet, a lenient view was already taken in the earlier SEBI orders by imposing interest only from January 07, 2009 i.e. the date the fraud came to light and not from the date of the cause of action. 89. In view of all of the above, I find that imposition of simple interest on illegal gains at the rate of 12% from January 07, 2009 till date of payment, is neither arbitrary nor excessive by any standard. On the contrary it is imposed judiciously in the facts and circumstances of this case and is consistent with past precedents. D. Issue of Period of Restraint 90. Hon'ble SAT vide its Third SAT Order directed WTM to reconsider the issue on period of restraint afresh for all Noticees. In this context, relevant paragraphs of third SAT order are reproduced below for reference: "...... 116. In our opinion, this approach of the WTM is patently erroneous and cannot be sustained for the following reasons:- 1. No reason has been given as to why the magic figure of 14 years of restraint was appropriate. 2. No reason is given, nor any discussion is made with regard to the restraint of 14 years agains....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 92.2. Noticee No. 3 & 4 has already served the 7-year debarment imposed on them by Second SEBI order. Hence, the restraint order be lifted immediately. 92.3. Noticee No. 5 & 6 has already completed the seven years of restraint imposed by SEBI. The seven year period ended on July 14, 2021. Therefore, the restraint imposed on Noticee No. 5 & 6 be lifted without any delay. 93. Before I proceed further, I am required to consider para 33 of the Third SEBI Order and para 24 (read with para 5) of the Fourth SEBI Order. Both Orders recorded that the respective orders would come into effect only from such date as the Hon'ble Supreme Court directs, in accordance with the directions passed by the Hon'ble Supreme Court; such directions were passed in C.A Nos. 11298/2017, 8242/2017, 10215/2017, 9493/2017 and 9524/2017. Thus the findings in the Third and Fourth SEBI Orders as well as all directions whether with respect to disgorgement or restraint or otherwise, could have taken effect only from such date as directed by the Hon'ble Supreme Court. Importantly, as elaborated in para 8 of this Order, the aforesaid paras of the Third and Fourth SEBI Orders also recorded the directions o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mposed by Second SEBI order and in view of the observations of the Third SAT Order, any further period of restraint would tantamount to these noticees being worse of on remand which according to the Hon'ble SAT is not sustainable. 94.3. V Srinivas and G Ramakrishna - The First SEBI Order had imposed a restraint of 14 years against these two noticees from the date of the order. Pursuant to remand by SAT, in partial modification of the First SEBI Order, SEBI passed the Third SEBI Order whereby this period of restraint was reduced to 7 years. It was also clarified that the period already undergone shall be taken into account for calculating the period of restraint. Consequently, the period of debarment earlier ordered by SEBI has already been undergone/completed by these 2 noticees. 95. Notwithstanding the above observations/ findings, directions passed in this Order, including with respect to period of restraint shall be subject to the directions of the Hon'ble Supreme Court, as discussed in paras 8 and 93 above. E. Issue of Pledge of Shares 96. The First SEBI Order concluded that SRSR had pledged shares of Satyam in order to obtain funds in the name of connected en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ma Raju clearly shows total non-application of mind on part of the WTM." (emphasis supplied) 98. Based on the aforesaid observations and the material submitted before SEBI, the Fourth SEBI Order was passed, in which the following was stated, in the context of unlawful gain made by way of pledge of shares: "19.2 From the above two SAT orders, what transpires is that SAT had upheld SEBI's contention that SRSR Holdings had violated PIT Regulations but it did not view the receipt of money from pledge of shares as illegal gain since there was an obligation to repay and that the loan was repaid with only Rs 3.43 crore remaining unpaid. The Hon'ble Supreme Court upheld the decision in the second SAT Order thereby meaning that SRSR Holdings was infact liable for having violated PIT Regulations. ... 19.3 ... Therefore the amounts raised by SRSR for the benefit of the Satyam group entities to the extent of the loan amount realised by liquidation of SCSL shares would become part of the illegal gains liable to be disgorged. As per the annexures filed along with submissions made by SRSR Holdings before SEBI, while Rs 540,43,82,089 was repaid out of 'other sou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed why the amount raised by way of pledge of Satyam shares held by SRSR which was eventually invoked and sold, should not be considered as illegal / unlawful gain made by SRSR which is liable for disgorgement. 102. In response to the SSCN, SRSR (Noticee No. 4) submitted that on September 16, 2006 it had acquired 2,78,64,000 shares of SCSL through a block deal in the stock exchange paying approximately INR 815/- per share for a total consideration of INR 2,266 Crores. Out of the total availed loan amount of INR 1,219.26 Crores, an amount of INR1,215.83 Crores was already repaid partly by invoking the pledge and the outstanding loan is only INR 3.43 Crores. There was nothing wrong / unusual about repayment of loan amount on account of invocation of pledge and by other modes. The Noticee No. 4 claims to have not obtained any unlawful gains as the Hon'ble SAT has categorically determined that loan amounts accompanied by liability to repay cannot be considered as unlawful gains under any securities law. Further, most of the loan amount has been repaid and since the cost of acquisition being more than the loans obtained, there is no basis for issuing a disgorgement direction again....
X X X X Extracts X X X X
X X X X Extracts X X X X
....borrower. Any collateral is pledged as a security, to be forfeited by the borrower/ pledger in the event of a default on the loan. Both the lender and the borrower/ pledger usually expect the borrower to repay the loan out of other cashflows, rather than by them forfeiting the collateral. Invocation and sale of collateral is not the normal route for repayment of a loan - this occurs only when there is a default in repayment of the loan. In the instant case, the promoter entity borrowers defaulted on loan availed of by using the shares held by another promoter entity namely - SRSR. The liability to the lenders was not directly extinguished. Therefore, the lenders took over and enforced the collateral, i.e., inter alia, sold the pledged shares of SCSL, owned by SRSR, in the market, between late December 2008 and early January 2009, before the UPSI became public. As insiders, SRSR and the other promoters were well aware of the inflated nature of Satyam's scrip due to the manipulation of books and accounts of Satyam. Had the loans been repaid using other funds of SRSR or the promoters, other than from sale of pledged Satyam shares (belonging to SRSR), or had the additional demands for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns, and instead allowed the loans to be extinguished by sale of overvalued Satyam shares by the lenders in the market, when the UPSI was still not public. Sans the availability of the artificially inflated shares as pledged instruments, SRSR/ the promoters would have had to look for other sources to repay these loans. Given this overall context, I find that the promoter group loan liabilities extinguished through sale of Satyam shares by the lenders, involved unlawful gains made by SRSR along with Ramalinga Raju and Rama Raju, akin to them having directly conducted such sales of SCSL shares in the market. 108. In summary, by defaulting on repayment of the loan, and failing to top up the collateral, and hence allowing the lenders to sell the shares in the market to extinguish their loan liability, SRSR and the Raju brothers effectively and implicitly sold overvalued shares in the market to extinguish promoter liability, prior to the UPSI becoming public. While the trigger to sell the shares may have been pulled by the lenders, they were not stopped from doing so by SRSR and the Raju brothers, who should have instead arranged for alternate funds to extinguish the loan obligations ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h settlement of the bulk deal claimed by SRSR pertained to ICICI Bank. 110. Upon perusal of the said bank account details the following transactions are observed to have taken place on September 18, 2006 i.e. the settlement date for the sale of shares from the Raju brothers and their wives (B Nandini Raju and B. Radha) [B Ramlinga Raju, B. Rama Raju, B Nandini Raju and B. Radha are collectively referred to as "Raju Family"] to SRSR through block deal mechanism on the stock exchange: 110.1. Raju Family received a loan of total amount of approx. INR 2,266 crore from an NBFC arm of DSP Merrill Lynch Limited (stock broker for both Noticee No. 4 and Raju Family) ("DSP") under an agreement dated September 15, 2006 executed between Raju Family, Noticee No. 4, DSP Merrill Lynch Capital Limited (NBFC) and ICICI Bank Limited. 110.2. On receipt of said loan, the Raju Family in turn transferred approx. INR 2,266 crore to Noticee No. 4 (SRSR). 110.3. SRSR in turn had transferred approx. INR 2,266 crore to DSP towards purchase of SCSL shares from Raju Family. 110.4. Raju Family received approx. INR 2,266 crore from DSP towards sale of SCSL shares to SRSR. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acquisition is more than the loans obtained, there is no basis for issuing a disgorgement order against SRSR. Nonetheless, intrinsic value of the Satyam shares may be considered for deduction from the illegal gains made by SRSR, as has been discussed elsewhere in this Order. Other contentions with respect to pledge of shares 112. Noticee no. 4 submitted that the act of 'pledging' doesn't fall within the ambit of 'dealing in securities' and hence the act of 'pledging' does not attract Regulation 3 of PIT Regulations. Further, it has submitted that it has transferred the entire loan amount of Rs 1219.25 crores (received by pledging the shares) to SCSL to fund its operations and had no intention of benefiting from the proceeds of pledge of shares. Therefore, according to SRSR, the ratio of Hon'ble Supreme Court of India in Civil appeal no. 563 of 2020 in SEBI vs. Abhijit Ranjan and Hon'ble SAT Appeal No. 536 of 2021 in Rajeev Vasant Sheth & others vs. SEBI would be applicable in its case. 113. The facts of the present case differ from those in the cited decisions. In Abhijit Ranjan case, the insider claimed to have had sold the shares while in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of Noticee No. 4. 115. In any case, I do not find these arguments to be relevant at this stage of the proceedings. As earlier discussed, the merits of the case i.e. whether SRSR was an 'insider' or not and whether it had violated PIT Regulations by way of pledging Satyam shares, has already been determined by the Hon'ble Supreme Court vide its order dated May 14, 2018. Therefore, any attempt to re-open or re-look at the conclusions arrived at by the Hon'ble Supreme Court is not permissible. Therefore I do not find any merit in the contention that the cases of Abhijit Ranjan and Rajeev Vasant Sheth must be considered. VI. UNLAWFUL GAIN TO BE DISGORGED - RECALCULATED 116. Having deliberated on the issues as directed by the Hon'ble SAT in the Third SAT Order, I now proceed to re-calculate the unlawful gain to be disgorged. The re- calculation takes into account the following: 116.1. Value of Satyam shares, had the true state of financial affairs been known to the shareholders (intrinsic/underlying value) 116.2. Exclusion of shares sold prior to 20.02.2002 116.3. Removal of clerical errors 117. Noticee No. 3, 5 & 6 submitted that prior to the 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Noticees have dealt in / sold / transfer SCSL shares on the basis of UPSI, I am of the view that any sale consideration arising out of shares sold by the Noticees prior to February 20, 2002 shall not be considered for computation of unlawful gains liable to be disgorged. 119. The details of SCSL shares sold by Noticee No. 3, 5 & 6 on or prior to February 20, 2002 are as under: Table No. 11 - Noticee No. 3 Date of SCSL Share sold / Transfer No. of shares sold / transfer Price in INR Sale value in INR 22.01.2001 71,000 425.40 3,02,03,400 22.01.2001 80,000 425.40 3,40,32,000 22.01.2001 80,000 425.40 3,40,32,000 05.02.2001 25,000 403.65 1,00,91,250 05.02.2001 13,000 403.65 52,47,450 05.02.2001 19,500 403.65 78,71,175 05.02.2001 5,000 403.65 20,18,250 05.02.2001 2,000 403.65 8,07,300 Total 2,95,500 12,43,02,825 Table No. 12 - Noticee No. 5 Date of transfer from demat account after sale No. of Shares Closing price of the Day (INR) Sale Value in INR 06-Mar-01 1,000 244.6 2,44,600 13-Mar-01 28,000 199.95 55,98,600 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be deducted while computing unlawful gains liable to be disgorged from respective Noticee. Table No. 14 Noticee No. No. of shares sold / transfer Sale value in INR 3 2,95,500 12,43,02,825 5 3,90,500 6,72,05,065 6 1,20,000 2,78,21,500 121. Noticee No. 2 (Rama Raju) submitted that there is calculation error in the consideration for 6,00,000 shares sold by him. The sale value of 6,00,000 shares at INR 444.66/- per share comes to INR 26,67,50,000/-. However, SEBI has considered the total sale amount of 6,00,000 SCSL shares as INR 29,54,35,195/-. The said error occurred on account of addition of quantum of shares sold by Mr. Rama Raju Jr., to the aforesaid amount. In this regard, from the document available on record, I find that while in possession of UPSI, B Rama Raju on May 30, 2005 had sold 6,00,000 shares at INR 443.75/- per share for a consideration of INR 26,62,50,000/- instead of INR 29,54,35,195/- as mentioned in SSCN. 122. After considering the intrinsic value, details of taxes paid, shares sold prior to February 20, 2002 and removal of clerical error, the unlawful gains made by Noticee no. 1 to 4 which is liable to be disgorged is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to February 20, 2002 would not be considered for calculating unlawful gains. Hence, I am of the view that no benefit of intrinsic value can be extended for 3,60,000 shares of the Noticee because these shares are not at all considered for calculation of unlawful gains. 125. Noticee no. 5 submitted that there is a clerical error in calculating the sale value of shares sold on December 11, 2008. According to him, SEBI had considered the closing price of December 11, 2007 instead of closing price of December 11, 2008. In this regard, from the available data, I note that the closing price of SCSL share on December 11, 2008 was Rs 224.45 instead of Rs 442.65 (INR 442.65 is the closing price on December 11, 2007). Therefore, the sale value of 5,142 SCSL shares taken in calculating unlawful gains in First SEBI was in excess INR 11,21,984/- (442.65 - 224.45 = 218.20 * 5142). Hence, I find that INR 11,21,984/- must be deducted from total sale value as mentioned in First SEBI Order, while calculating unlawful gains liable to be disgorged. 126. After considering the cost of cost of acquisition, details of taxes paid, shares sold prior to February 20, 2002 and removal of clerical error, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... I Less: Capital gains tax Not submitted by the Noticee N, 6, hence not applicable J Less: STT (Average STT rate for relevant period is taken as 0.100 percent) on Total Sale Value of shares sold after 20.02.2002 87,260.43 Net unlawful gains (E-H-I-J) 3,83,65,354.40 127. From Table no. 15, 17 & 18 above, the amount of unlawful gains made by Noticee no. 1 to 6 which is liable to be disgorged is as under: Table No. 19 Noticee No. Name of the Noticee Amount of Unlawful gain made (INR) 1 B Ramalinga Raju 20,43,46,875 2 B Rama Raju 20,43,46,875 3 B Suryanrayana Raju 51,44,41,030 4 SRSR Holding Private Limited 518,36,55,714 5 V Srinivas 9,58,26,672 6 G Ramkrishna 3,83,65,354 Total 624,09,82,520 ORDER 128. In view of the above, I, in exercise of the powers conferred upon me under section 11, 11(4) and 11B of the SEBI Act read with section 19 of the SEBI Act, 1992, and regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003, and regulation 11 of the Securities and Exchan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Branch Name RTGS Code Beneficiary Name Beneficiary Account No. Bank of India Bandra Kurla Branch BKID 0000122 Securities and Exchange Board of India 012210210000008 * Noticees who are making e- payment are advised to forward the details and confirmation of the payments so made to the Enforcement department of SEBI for their records as per the format provided in Annexure A of Press Release No. 131/2016 dated August 09, 2016 which is reproduced as under: 1. Case Name: 2. Name of the payee: 3. Date of payment: 4. Amount paid: 5. Transaction No: 6. Bank Details in which payment is made: 7. Payment is made for: (like penalties/disgorgement/recovery/settlement amount and legal charges along with order details: 131. As directed by the Hon'ble Supreme Court in C.A.Nos.11298/2017, 8242/2017 10215/2017, 9493/2017 and 9524/2017 this Order shall come into effect from such date as the Hon'ble Supreme Court directs. Also, the Noticees shall continue to abide by the directions of the Hon'ble Supreme Court, referred to in para 7 of this Order. 132. A copy of thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing starting period as 2 year prior to the start of fraud till 2 year period after the fraud came into light). The movement of NSE IT index and movement of price of SCSL shares during the period from 01.01.1999 to 31.12.2010 as obtained from Bloomberg Terminal is attached as Annexure - C. Additionally factor which has also been taken into consideration is that Negative news about SCSL had started in December 2008. The analysis is as under: 5.1. Correlation between IT Index and Satyam between 01.01.1999 and 16.12.2008 (before negative news about SCSL started percolating) = 93.5% (~ 10 year history) 5.2. Correlation between IT Index and Satyam between 17.12.2007 and 16.12.2008 (before negative news about SCSL started percolating) = 94% (~1 year history) 5.3. Correlation between IT Index and Satyam between 17.12.2008 and 31.12.2010 = 36.0% (full fraud came to light on 7/1/2009, but negative news started percolating in December 2008) 5.4. Correlation between IT Index and Satyam between 22.04.2009 and 31.12.2010 = 20.8% (Tech Mahindra takeover announced on 22/4/23) - essentially, correlation remained damaged even after Tech Mahindra takeover. IT index....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2006, these four Raju's had transferred their individual holdings in SCSL to SRSR, which had pledged those shares for the loans taken by various promoter group entities. 7.3. The movement of SCSL shares from Raju's Family to SRSR is just like transferring the shares from individual person to artificial person representing natural person. 7.4. Hence, SCSL shares held by SRSR are historically held shares of Raju's family. 7.5. In December 2008, on account of shortfall in margin, which were required to maintain in accordance with terms of contract because of a fall in share price of SCSL, the lenders / trustee had invoked the pledged and sold those historically held SCSL shares in market to the tune of Rs. 675,39,48,813/-. 7.6. Thus, SRSR had indirectly sold SCSL shares in market to the investors. 7.7. Therefore, for calculation of unlawful gain, on invocation of pledge of historically held shares, the aforesaid intrinsic value method may be considered. 8. After considering the intrinsic value, the unlawful gain made by B Rama Raju, B Ramalinga Raju, B. Suryanarayana Raju and SRSR is as under: Noticee Total Sale amount in INR....