TaxTMI 
TaxTMI 
2024 (11) TMI 794
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....in the matter was taken by Securities and Exchange Board of India (SEBI) pursuant to various complaints of malpractices and manipulations indulged by certain individuals/entities for different Initial Public Offerings (IPOs). 2. So far as the present case is concerned, the complaint refers to two IPOs and Scam therein. The IPO is an established Financial System through which the company enters into Capital Market, to raise funds from the investors by issuing authorized shares as per the guidelines of SEBI. To subscribe the IPO, the applicant is required to maintain a Bank and Demat Account to be mentioned in the application. It is used not only for allotment of shares but for refund of the amount to unsuccessful applicants. 3. In the year 2005, applications pursuant to the IPOs were made by the accused to get maximum allotment of shares by adopting malpractices and manipulations. The modus operandi was explained in the complaint and thereupon the FIR was lodged followed by recording of the ECIR/01/AZO/2007 on 27.10.2007 in the matter of IDFC IPO and as ECIR/01/AZO/2008 on 02.05.2008 in the matter of YBL IPO. It was found that the applications to seek allotment of shares were ....
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....sed by the appellants. On the registration of the FIR, the respondent attached the Bank and Demat Accounts found involved in the case. The challenge to the Provisional Attachment Order so as its confirmation has been made by the appellants on various grounds. Arguments of counsel for the appellants Issue No.1 5. The learned counsel for the appellants submitted that the allegations against the appellant are not tenable on the face of it. However, assuming that the Bank and Demat Accounts were opened in fictitious name to seek allotment of maximum shares in the IPOs, the amount involved with allotment of shares alone could have been taken to be the 'proceeds of crime'. In the instant case, even the money refunded to the unsuccessful applicants has been considered to be the `proceeds of crime' though the amount was procured on loan from the Bank or financed by the Financiers. In fact, the amount landed to the appellants was not tainted money so as to consider it to be the `proceeds of crime'. On refund of the amount to the unsuccessful applicants, it was never used for illegal purposes so as to attach the Bank and Demat Accounts, thus attachment of the Bank Account is not sus....
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....e Key Operator and the appellants for the fraud played by them in connivance. The respondent, however, attached the shares in the Demat and the Bank Accounts, which was even for the refund of amount of the unsuccessful applications. The prayer was accordingly made to cause interference as the amount returned out of unsuccessful applications, could not have been considered to be the `proceeds of crime'. Issue No.2 10. The second argument was raised on the justification for continuance of the attachment of the Bank and Demat Accounts when SEBI has already recovered the unlawful gain from the appellant. It is submitted that the issue and the allegation raised against the appellant was subject matter of proceedings before the SEBI in regard to the alleged application for allotment of shares in the IPO and illegality therein. The proceedings culminated with the payment of alleged unlawful gains made by the appellant. Once the SEBI determined the amount of unlawful gains to a sum of Rs. 4.05 Crores with interest thereon of Rs. 1.95 Cores, there was no reason to continue the provisional attachment when the amount aforesaid was satisfied by the appellant. 11. The SEBI has taken no....
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....the 'proceeds of crime' and accordingly it was attached. If the refund amount was 'proceeds of crime', then all the similarly placed should have been given the same treatment but in many cases, the refund amount was not subjected to attachment. Therefore, even discrimination was caused by the respondent which also vitiates the impugned order. The prayer was accordingly made to set aside the impugned order. Arguments of the counsel for the respondent 15. The appeal has been vehemently contested by the respondent on all the issues. Elaborate arguments were made by the counsel for the respondent and would be referred while recording finding in reference to the arguments of the appellant to avoid bulkiness of the order. 16. The learned counsel submitted that substantially the issues raised by the appellants have already been dealt with by this Tribunal in pursuance to the provisional attachment made prior to the attachment in question. It was in the case of the appellant himself who filed the appeal for challenge to the earlier order of the Adjudicating Authority bearing Appeal No. 24 of 2008 decided by the order dated 23.08.2011. The aforesaid order was passed by this Tribuna....
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....es pursuant to the IPOs. It is a fact that the shares allotted pursuant to the finances made by the appellant were even transferred to him by Mr. Budhwani. If the sequence of the events is taken into consideration, the finance was made for illegal purpose. Thus, the entire amount involved therein would be considered to be the 'proceeds of crime'. It cannot be considered to be the 'proceeds of crime' only to the extent of successful applications leaving the refund amount pursuant to unsuccessful applications. The entire amount was used in illegal manner with criminal intention of cheating at the cost of genuine applicants who were deprived to get allotment of shares because of fraudulent act of the appellant and others. Thus, the entire amount used for the fraudulent acts has rightly been considered to be the 'proceeds of crime'. The position would have been different if the amount financed by the appellant and even the financial institution would have been used in legal manner. The amount was used with transfer in the Bank accounts in the name of fictitious persons to seek maximum allotment of shares. At the relevant time, with opening and allotment of shares, price were going up a....
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....pants M/s Pratik Stock Vision Pvt. Ltd., Mumbai, ING Vysa, Mumbai, Karvy etc. by forging the signature of respective demat account holders. He used mainly three addresses for the purposes of opening of the said demat accounts. Sh. Puroshottam Budhwani with the help of above fraudulently opened bank and demat accounts, made 1594 applications in fictitious names to subscribe to. YBL shares and clandestinely cornered 1,68,750 shares which were actually reserved for allotment to genuine retail individual investors. Similarly, Puroshottam Budhwani made 5877 applications in fictitious names to subscribe to Infrastructure Development Finance Corporation Ltd. (in 12 sport IDFC) shares offered in IPO and clandestinely cornered 15,63,016 shares. The shares so allotted to the said demat account holders were first transferred by him to his own demat accounts by forging signature on delivery instruction slip and these shares were finally transferred through off market transactions to respective beneficiaries/financers and some shares remained lying in the demat account of the Appellant. It was also revealed that Sh. Dushyan Natwarlal Dalal and his H.U.F. were among the persons who provided fina....
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....ur of my own source (my capital or borrowed funds) or over draft account." 70. It was also noted that no document in the form of agreement, promissory note, hundi, bill etc. was executed between the Appellant and PurushottamBudhwani evidencing the terms and conditions like rate of interest, period of funding, due date for repayment, interest receivable on due date etc., on which funds were provided. No evidence was placed on record by the Appellant to prove that the purported loans were given on principal-to-principal basis on recognized commercial terms and relationship between lender and the borrower was always at arm's length. 71. It was observed that funds were provided on eleven occasions when an IPO was open for subscription and on all the eleven occasions, the repayment of funds was partly by way of transfer of shares allotted in IPOs and remaining by way of issue of cheques. It was also noted that shares received towards adjustment of purported loan were of that company's IPO for which finance was extended. Appellant did not produce any document showing that they were authorized to carry out financing activities. Similarly Appellant could not expla....
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....COST OF 20550 SHARES OF ILFS INVESTMART 2568750.00 11.8.2005 N.T. DALAL HUF NIMISHA D.N. DALAL HUF CHHADVA FAMILY COST OF IDFC SHARES @ 34= 144000 SHARES NTD HUF, 56000 SHARES NIMISHA, 5000 SH. DND HUF, 239400 SHARES CHHADVA FAMILY 15109600.00 18.10.2005 NIMISHA KADAKIA COST OF 14120 SHARES OF SUZLON @ 510 A/C NIMISHA 1412 SHARES AND REST A/C RND 7201200.00 1.11.2005 R.N. DALAL BEING COST OF 1412 SUZLON SHORT CREDITED TO MR. P. BUDHWANI IN OCT. 05, NOW PASSED 720120.00 75. The Appellant filed appeal against the order dt. 21.7.2009 of SEBI for disgorgement of unlawful gain as referred to by the Respondent before the Securities Appellate Tribunal, Mumbai which was dismissed and vide order dt. 12.11.2010 in appeal no. 182 of 2009 of Dushyant N. Dalal and Ms. Puloma D. Dalal Vs. Securities and Exchange Board of India, it was held that there is no material on the record to show that they advanced loans to the two key operators on commercial terms and that the relationship between the Appellant and key operator ze. PurushottamBudhwani was not one of lender and borrower as claimed by the Appellant. Relevant para of the order is adverted to a....
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....heir written submissions filed on the conclusion of the hearing have clearly stated that "THERE IS NO NEXUS BETWEEN THE APPELLANTS AND PB OR SUGANDH". They have given detailed reasons in paragraph 19 of their submissions as to why there is no nexus between them. Assuming this to be so, (though we are holding to the contrary) we wonder how such large sums of money could be given on loan without any documentation or security to persons with whom the appellants had no nexus. To say the least, this is most incredible and we are not willing to accept this argument. Besides the mere ipse dixit of the appellants, there is no material on the record to show that they advanced loans to the two key operators. Since the appellants had provided funds to them, the onus to establish that those were given as loans only as money lending transactions was on the appellants and they have miserably failed to discharge the same. We also cannot lose sight of the fact that both the appellants are practicing chartered accountants by profession and are not money lenders. We also have on record the stand taken by Budhwani in one of his replies to the Board that there was prior understanding between the appel....
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....etermination was only to find out illegal gain out of the allotment. The provisions of the Act of 2002 are quite different and distinct to the provisions of the SEBI Act, 1992. The FIR followed by ECIR was recorded finding commissioning of scheduled offence and the 'proceeds of crime' in the hands of the appellant. It is taking into consideration the amount involved and used for illegal purpose to cheat the public and, therefore, the entire amount therein was considered to be the 'proceeds of crime'. The satisfaction of the amount determined by the SEBI would not absolve the appellant from commission of the scheduled offence, otherwise the appellant would have challenged the FIR or ECIR but no such challenge has been made. Thus, we do not find any substance even in the second argument. 25. The third issue is alleging discrepancies and contradictions in the orders qua the amount. According to the appellant, the total amount involved in the matter and referred is of Rs. 22,75,30,193/- which include the sale proceeds of Rs. 1,33,17,004/- and refund amount of Rs. 18,59,50,536/-. We do not find any discrepancy or contradiction in the amount and otherwise the final amount has been ref....