TaxTMI 
TaxTMI 
2016 (6) TMI 1502
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....d income into accounted one. It was observed that after the release of compulsory lock-in period, the preferential allotees and the promoter related entities were provided exit at a high price by the entities related/connected amongst themselves and with Pine (hereinafter referred to as "Exit Providrs"). In the process Exit Providers and allotees artificially increased the volume of the scrip and misused securities market system for making illegal gains and to convert ill-gotten gains into genuine one to avail fictitious long term capital gains (LTCG"). The modus operandi used by these entities is as under: a) On December 13, 2012, Pine made a preferential allotment of 1,50,00,000 equity shares at the price of Rs. 10 per share (hereinafter referred to as the "1st preferential allotment") to 49 entities. b) Thereafter, the promoters namely, First Entertainment Pvt. Ltd. and Unique image Production Pvt. Ltd. who were holding shares in physical form, transferred their entire holdings i.e. 9,27,400 shares to 6 entities, who in turn transferred the shares to 62 entities (the total of 68 entities, hereinafter referred to as "Promoter related entities ") during the perio....
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....kdrop, SEBI, vide an ad interim ex-parte order dated May 08, 2015 (hereinafter referred to as "interim order"), restrained Pine along with other 177 entities, from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions. 4. While the proceedings pursuant to the interim order were going on, an appeal was filed before the Hon'ble Securities Appellate Tribunal ("SAT") by Mr. Mahendra B Mittal and Ms. Pooja Mahendra Mittal (hereinafter collectively referred to as "the Noticees") challenging the interim order. Hearing in this regard was conducted before Hon'ble SAT on April 07, 2016, May 19, 2016 and May 23, 2016 when Hon'ble SAT directed SEBI to pass an appropriate order in the matter. In terms of the directions of Hon'ble SAT, I deem it necessary to conclude these proceedings in respect of the Noticees. 5. It is noted that pursuant to the interim order, the Noticees carried out an inspection of documents on July 02, 2015 and SEBI, vide letter dated July 07, 2015, provided the documents relied upon by SEBI for passing the interim order, to the Noticees. An opportunity o....
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.... in the order to the trading of the Noticees. h. The prohibition from accessing and dealing in the securities market directly or indirectly, in any manner whatsoever, till further directions, is an absolute direction, which has throttled their business and crippled their operations. i. They are regular income tax payers and during the financial year 2014-15, they have paid income tax amounting to Rs. 44.98 lakhs. During the financial year 2014-15, they have paid taxes aggregating to Rs. 2,84,018/- in the form of STT on sale of shares of Pine alone. j. 62% of the shares sold by them were sold to parties other than the alleged exit providers. k. There is no reason as to why the directions issued against the Noticees issued vide the interim order ought to be continued. There is indeed no reason to doubt the integrity or credentials of the Noticees. There are no circumstances to indicate that their trading in the securities market would otherwise cause any disruption to or would be a cause for concern to the integrity of the market or to the interest of other investors in the market. The case of the Noticees should be seen in light of the following t....
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....as not been provided to them despite repeated requests. In this regard, I note that the interim order refers to a preliminary inquiry undertaken by SEBI the findings whereof have been brought out in the interim order. It is important to mention here that there is no formal "report" for the said preliminary inquiry which can be handed over to the Noticees by SEBI. The findings of the said preliminary inquiry by SEBI have been brought out in the interim order. A detailed investigation in the matter is in progress and a formal investigation report will only be prepared after conclusion of the said investigation. It is also noted that the Noticees have carried out an inspection of documents in the matter and every document/information gathered by SEBI during the preliminary inquiry, which was relied upon by SEBI for the purpose of the interim order, was provided to the Noticees. In view of the above, I do not find any merit in the above submission of the Noticees in this regard. 8. The Noticees have contended no opportunity of hearing was provided to them and no information was sought from them by SEBI before passing the interim order. In this regard, I note that the interim order h....
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....assed by SEBI in the interests of investors or the securities market. It is pertinent to note that the interim order in the present case was passed under the provisions of sections 11(1), 11(4) and 11B of the SEBI Act. The second proviso to section 11(4) clearly provides that "Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned". Further, various Courts, while considering the aforesaid sections of the SEBI Act have also held that principles of natural justice will not be violated if an interim order is passed and a post-decisional hearing is provided to the affected entity. In this regard, the Hon'ble Bombay High Court in the matter of Anand Rathi & Others Vs. SEBI (2002) 2 Bom CR 403, has held as under: "It is thus clearly seen that pre decisional natural justice is not always necessary when ad-interim orders are made pending investigation or enquiry, unless so provided by the statute and rules of natural justice would be satisfied if the affected party is given post decisional hearing. It is not that natural justice is not attracted when the orders of suspension ....
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....r if ex-parte orders are passed, then to say that objections thereupon would amount to post-decisional hearing. Second Proviso to Section 11 of the SEBI Act provides adequate safeguards for adhering to the principles of natural justice, which otherwise is a case herein also..." 11. In view of the above, I find that the interim order passed by SEBI was not in disregard of the principles of natural justice since, reasons for passing the interim order have been clearly stated in the interim order and, in accordance with the settled law, the Noticees were afforded a post-decisional opportunity to file their replies and avail personal hearing. I, therefore, reject the contention of the Noticees in this regard. 12. The Noticees have contended that they have been regularly dealing in shares since the year 1990 and dealing in shares is their only business activity. They also submitted that they have been investing in shares on the advice of Mr. Bal Krishan Mittal, father of Mr. Mahendra Mittal, who, being a reputed individual in the securities market and the financial industry, used to receive tips from many prospective entities and intermediaries. Further, they were made aware of th....
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....atisfactory documentary evidence to explain how they were approached by Pine for the preferential allotment, or in providing the details of the offer made by Pine to them and other details of communication between them and Pine in that regard. It is important to note that financing of a company by way of preferential allotment, as found in this case, pre-supposes a nexus and prior understanding amongst the issuer, its promoters/directors and the allottees. 14. The above facts and circumstances indicate that Pine and the Noticees were acting in concert towards a common objective that has been brought out in the interim order. Considering the background of Pine, the investment made by the Noticees cannot be termed as a rational investment behavior and such investment, as in this case, could be possible only if the preferential allotees had nexus with Pine and its promoter/directors and the issue of such shares was under a prior arrangement between them for an objective other than providing equity capital to the company. This is further substantiated by the fact that funds received as proceeds of preferential allotments were immediately transferred by Pine to various entities on th....
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.... in the matter were in progress, after consideration of the facts and circumstances of the matter, SEBI granted certain interim relief(s) to the entities including the Noticees vide letters dated January 20, 2016, permitting them: 1. "to subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed; 2. to avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc. 3. to sell the securities lying in your demat accounts as on the date of the interim order, other than the shares of the companies which are suspended from trading by the concerned stock exchange, in orderly manner under the supervision of the stock exchanges so as not to disturb the market equilibrium and deposit the sale proceeds in a interest bearing escrow account with a nationalised bank. 4. the sale proceeds lying in the aforesaid escrow account shall be dealt with and utilised under the supervision of the concerned stock exchange as provided hereunder:- a. the sale proceeds may be kept in a fixed deposit with a nationalised bank or may be utilised for subscription to units of th....