TaxTMI 
TaxTMI 
2017 (6) TMI 1412
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....d Exchange Board of India ("SEBI"), vide an ad interim ex-parte order dated May 8, 2015 (hereinafter referred to as "interim order"), restrained 178 entities, including the Noticees, mentioned above, from accessing the securities market and further prohibited them from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, till further directions. 2. The interim order was passed in view of the prima facie findings about a scheme/device or artifice involving a facade of preferential issue of equity shares of Pine Animation Limited (hereinafter referred to as "Pine") in order to provide fictitious Long Term Capital Gains ("LTCG") to preferential allottees and "promoter related entities" (i.e. entities to whom Pine's promoters directly/indirectly transferred their shares in physical form). It was observed that after the release of shares from compulsory lock-in period, the preferential allottees and the promoter related entities were provided exit at an artificially inflated price by the entities related/connected amongst themselves and with Pine (hereinafter referred to as "Exit Providers"), by misusing stock exchange system, for making ....
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....ys. The traded quantity was insignificant and the share price remained between Rs. 1006 (unadjusted and Rs. 100.6 adjusted to share split) and Rs. 910 (unadjusted and Rs. 91 adjusted to share split). h) During the period from December 17, 2013 to January 30, 2015, i.e., after the lock-in period got over, there was substantial increase in the traded volume of the shares of Pine. It was observed that a group of connected/related entities were acting as counterparties to the trades done by the Preferential allottees/Promoter related entities. The direct/indirect relationship was observed among these entities from the analysis of information in Know Your Client ("KYC") forms, bank statements, off-market transactions amongst them and the information available on the Ministry of Corporate Affairs ("MCA") website. i) The interim order observes that the sharp rise in price and volume of the scrip was not supported by any acceptable market factors such as fundamentals, trading history, corporate announcements, etc. but was on account of non-genuine and manipulative trading in the scrip by certain entities. 3. After passing of the ad interim ex-parte order and during the....
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....ne as per Annual Report for the year ending on March 31, 2014. (ii) Mr. Brij Bhushan Singal, Mr. Pankaj Dhanji Goshar and Mr. Praveen K Arora were the preferential allottees. The details of number of shares allotted and the profit/gain made by these persons are as under: Profit/gain made by the preferential allottees Sl.No. Name Number of shares allotted Profit earned on the sale of shares (Rs. ) 1 Brij Bhushan Singal 12,00,000 1,17,22,500 2 Pankaj Dhanji Goshar 6,00,000 87,60,49,695 3 Praveen K Arora 1,00,000 1,07,63,600 (iii) Mr. Madanlal Jain and Mr. Moolchand Jain had received physical shares in off-market deals from Mr. Nimesh S Joshi who had received it from one of the promoters of Pine - First Entertainment. Mr. Mukesh Kumar Jain had received physical shares in off market deal from Mr. Roshni N Joshi who had also received it from First Entertainment. Mr. Vikas Jain had received physical shares in off-market deals from Mahaganapati Financial Services Pvt. Ltd. who had received it from another promoters of Pine - Unique Image. The details of shares purchased by these promoter related entities in off mar....
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....73 12 Function Financial Consultants Pvt. Ltd 1,84,000 1,74,25,376 13 Rochi Dealcom Private Limited 1,60,758 1,43,90,679 14 Helpful Investment Advisory Pvt. Ltd. 1,40,625 1,33,08,545 15 Topwell Properties Private Limited 1,25,000 1,18,87,560 16 Rangan Vincom Private Limited 82,344 77,77,925 17 Ladios Trading Private Limited 71,889 67,42,126 18 Shivkhori Construction Private Limited 55,000 51,36,995 19 Mc Pride Distillery Private Ltd 47,900 44,78,510 Summary of replies/submissions of the Noticees 7. All the 27 Noticees have filed their replies in the matter. Subsequent to filing of reply, an opportunity of hearing was granted to them on December 30, 2016. Authorised Representative or counsel appeared for hearing on behalf of Mr. Krishnakumar O. Murarka, Mc Pride Distillery Pvt. Ltd., Mr. Mukesh Kumar Jain, Mr. Moolchand Jain, Mr. Vikas Jain, Mr. Madan Lal Jain and Mr. Praveen Arora on December 30, 2016. Mr. Pankaj D Goshar requested for another date of hearing and accordingly, he was heard on January 12, 2017. Other noticees, though filed their replies, did not appear for hearing. S....
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....have any link/connection/nexus with Pine, its promoters/directors, exit providers and other persons referred to in the interim order except Mr. Neeraj Singal, Mrs. Ritu Singal and Brij Bhusan Singal- HUF, who are his family members. No material has been bought on record to demonstrate any kind of nexus or prior agreement /arrangement. * SEBI has not laid out any basis on which it has been alleged that he had any unaccounted income. He purchased shares of Pine from his own funds and the sale proceeds were utilised for his own business and financial purposes (copy of bank statement has been submitted). He sold 1,25,000 shares on June 2 and 3, 2014 and there were many occasions when his sell order could not get executed. He is still holding 1,18,75,000 shares of Pine. * The order has been passed in violation of principles of natural justice as no opportunity of hearing was granted to him. * The directions passed against him by the interim order were not warranted as there was no urgency. It is neither preventive or remedial nor curative. (iii) Pankaj Dhanji Goshar (Preferential Allottee) - Replied vide letters dated October 27, 2015, December 23, 20....
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.... Moolchand Jain, Mukesh Kumar Jain and Vikas Jain (Promoter related entities) - Madanlal Jain, Moolchand Jain and Mukesh Kumar Jain are sons of Manjilal Jain. Vikas Jain is son of Molchand Jain. The replies of these four persons are similar. It has been submitted that: * They have not been provided with all documents requested by them. * That they are not acquainted with the preferential allottees or the promoters of Pine. Merely because they had purchased shares of Pine from certain individual it cannot be alleged that they are connected with Pine and its promoters/directors. * They are investors and regular trader in the securities market. They invested in the shares of Pine on the advice of their father as he came across an advertisement in newspaper around January 2013 where in one investor wanted to sell his stake in Pine. * That, on majority of occasions, the sale volume of the shares sold by them was insignificant percentage of the total traded volume and cannot by any stretch of imagination be said to be part of the alleged scheme. (vi) Replies furnished by exit providers Dreamlight Exim Private Limited, Duari Marketing Pvt. Ltd.....
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.... that though Function Financial Consultants Pvt. Ltd., Helpful Investment Advisors Pvt. Ltd. and Topwell Properties Pvt. Ltd. shared common directors and Shivkhori Construction Pvt. Ltd. and Topwell Properties Pvt. Ltd. shared common director their trading and investment activity are not related as shareholders are different. * Topwell Properties has submitted that banking transactions with Divya Dristi Merchants, Alishan Estate Pvt. Ltd., Signet Vinimay Pvt. Ltd. and Sankalp Vinimay Pvt Ltd. were in the normal course and not related to trading in the shares of Pine. * There was no urgency in passing of the interim order and it has been passed in violation of the principles of natural justice. (viii) Mc Pride Distillery Private Limited (Exit provider) - Replied vide letters dated September 20, 2016, October 5, 2016 and January 6, 2017. * It is not connected/related to Pine nor is part of any alleged group. * It is a bona fide investor and the shares of Pine were bought in the normal course of business on the basis of market information. * It has not manipulated the share price of Pine since the shares were bought by it ....
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....ral noticees have, interalia, requested for copies of investigation report, statements recorded etc. In this regard it is important to mention here that the interim order refers to a preliminary inquiry undertaken by SEBI and the findings of the enquiry have been brought out in the interim order. A detailed investigation in the matter is still in progress and an investigation report will only be available after conclusion of the investigation. It is also noted that several Noticees have carried out an inspection of documents in the matter or requested for copies of documents. The copies of documents and information gathered by SEBI during the preliminary inquiry, which were relied upon by SEBI for the purpose of passing of the interim order, have been provided to them. In view of the above, I do not find any merit in this contention of the Noticees. Director of Pine 12. Krishnakumar Omprakash Murarka has submitted that he had no relation/nexus either with the preferential allottees or with any other shareholders of the company and that he was appointed as Non-Executive Independent Director of Pine with effect from May 28, 2014 i.e., after the preferential allotment, and he wa....
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....0 per share within a short span of few months from the revocation of the suspension in trading of shares of Pine. This could only be possible if the preferential allottees had some prior understanding with Pine, its promoter and directors and the exit providers with regard to the dubious plan, device and artifice which has been prima facie found in the interim order. It has also been pointed out in the interim order that the preferential allottees were the beneficiaries of the scheme. In such circumstances, I find it difficult to accept that preferential allottees were not aware of the device, scheme and plan in question. 15. Pankaj Dhanji Goshar and Praveen K Arora have stated that they are genuine investors and they came to know about the preferential allotment through a corporate presentation made before them. These preferential allottes have failed to explain as to what convinced them to invest in the company. Further, no explanation has been provided as to how they were selected by the Company for making the presentation to them. The fact that such presentations were made to few persons, individually, itself suggests existence of prior understanding between the company, its....
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.... Ltd. who had received those shares from the promoters of Pine. No copy of any newspaper advertisement has been furnished to substantiate the claim that these entities were led by a newspaper advertisement. As these promoter related entities had purchased shares in off-market deals from other promoter related entities, such purchases could be possible only if these promoter related entities had nexus with the company or its directors. Further, the entities have also failed to explain the rationale for their investment in the shares of a company like Pine which was bereft of any fundamental financial strength. In such circumstances, and at this stage, I agree with the prima facie finding that transfer of shares in physical form was under a prior arrangement for some sort of ulterior and unlawful gains. It is also noted that majority of the shares sold by these persons were bought by exit providers by creating artificial demand for the shares of the company during the period December 17, 2013 to January 30, 2015. In my view, this cannot be termed as mere coincidence especially when sellers have nexus with the company and buyers i.e. Exit Providers. The facts and circumstances of this....
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....th the Preferential Allotees and the Promoter related entities. Between May 22, 2013 and June 19, 2013 the share price of the company increased by 113% and during the period from June 20, 2013 to December 16, 2013 the shares were traded only on 13 trading days with miniscule volume. Subsequently, when the period of lock-in got over, there was substantial increase in traded volume and the preferential allottees and promoter related entities started selling the shares of Pine at higher prices. From the analysis of trades during the period from May 22, 2013 to December 16, 2013, it has been observed in the interim order that the shares of Pine were not in demand by the general investors and it saw very low trading volume on most of the trading days and hence could not have commanded the price observed during December 17, 2013 to January 30, 2015, when preferential allottees and promoter related entities offloaded their shareholding in Pine. In such circumstances, a sudden supply if not matched by similar demand would have led to price fall. Considering this, any rational investor would not have dumped a large number of shares without facing the risk of a significant price fall until a....
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....k miniscule, however, when considered in a group perspective the contribution of the individual entities in the entire scheme becomes more evident as alleged in this case. Therefore, I do not accept this contention also. 24. In the instant case, exit providers had acted as buyers when the preferential allottees and the promoter related entities were selling the shares of Pine after the lock-in period. These persons bought shares of Pine at high prices and in huge volume by putting in large amount of money as detailed in the Table at para 6(iv) of this order. Such trading behaviour of the exit providers cannot be justified on any economic rationale and indicates existence of premeditated arrangement among the entities of the Pine group. Further, as has been mentioned earlier had these entities not traded/dealt in the scrip of Pine during the relevant period, it would not have been possible for the preferential allotees and the promoter related entities to offload/sell in large numbers at such price in such a stock that has hardly any intrinsic value. 25. In view of the above, I find that exit providers had prima facie acted in concert and misused the exchange platform to provi....
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....istillery Private Ltd AACCM6582E 28. The Noticees have requested for removal of the restraint imposed vide the interim order. It is worth mentioning that the case in hand is peculiar as large number of entities have been restrained and the ongoing investigation in the matter may take time to complete. I am also conscious that the restraint order should not cause disproportionate hardship or avoidable loss to the portfolio of the Noticees. That is why, Noticees were granted several relaxations, such as allowing investment in mutual fund units, permission to liquidate existing portfolio and keep the proceeds in escrow account and even utilize 25% of the proceeds for meeting exigencies, etc. in the past vide letters dated January 15, 2016, January 19, 2016, January 20, 2016, January 29, 2016 and June 30, 2016. Now at this stage, considering the facts and circumstances of this case and submissions made before me, I deem it appropriate to make further relaxations in the interim directions. 29. Considering the above, I, in exercise of the powers conferred upon me under section 19 of the SEBI Act, read with sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issu....