TaxTMI 
TaxTMI 
2025 (6) TMI 1893
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....Company reported profit on account of 'Other Income'. While LSIL reported negligible revenues, its balance sheet showed huge trade receivables. Its 'debtor days' increased from 118 days in FY11 to 58,416 days in FY24 and its cash from operating activities was either nil or negative from FY16 to FY24. 3. Despite poor financials, the share price of LSIL, post resumption of trading in the scrip on July 23, 2024 (trading in the scrip remained suspended for more than 10 years due to penal reasons), rose by over ten times from Rs. 22.50 to a high of Rs. 267.50 between July 23, 2024 and September 27, 2024, with the Company reaching a peak market capitalisation of approx. Rs. 22,700 Crore. However, the share price fell thereafter, touching a low of Rs. 42.39 on November 21, 2024. The share price rose again to Rs. 136.87 on December 23, 2024. 4. The scrip price was not found to be influenced either by the financials or by the positive corporate announcements. Therefore, the trade data of LSIL was analysed. It was observed that post resumption of trading in the scrip on July 23, 2024, the scrip opened daily at upper circuit limits for 48 consecutive days till September 27, 2024 a....
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....r of LSIL, i.e., M/s Profound Finance Pvt. Ltd. ("Profound"/ "PFPL"). He was the Director (Operations, UAE) in Robochef India Pvt. Ltd. ("Robochef"), in which LSIL had announced acquisition of 75% stake in November 2024. The connections between several Noticees in this matter are pictorially represented as follows : 8. It was observed that JPP started selling shares of LSIL when the scrip price was rising (reaching a peak of Rs. 267.50 on September 27, 2024). Most of the sales by JPP took place during this period of price rise. Analysis of the bank statements of JPP revealed that soon after selling shares, JPP remitted approx. Rs. 70.91 Lakh to Dubai. 9. It was also observed that certain relatives of the directors/owners of Robochef offloaded shares of LSIL held by them and made windfall gains, while LSIL was planning to acquire stake in Robochef. The trading pattern of Mr. Suresh Goyal, the father of the owner of Robochef, was found to be instrumental in contributing liquidity to the LSIL scrip during the period when its price was rising. 10. In view of the sudden price movement in the scrip without any meaningful change in fundamentals, the dubious transfer of shares to ....
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....list of specific documents in advance, attended the inspection on March 10, 2025. Noticee 4 did not avail of the opportunity of inspection granted to him. 15. Subsequently, vide letter dated March 12, 2025, the authorised representatives of Noticee 1 and 3, inter alia, again requested for inspection of complete set of documents that formed part of the material on record but which was not provided to them previously. In this regard, vide email dated April 1, 2025, it was, inter alia, clarified to the Noticees that inspection of all the specific documents mentioned by Noticees were already provided to them. However, they were advised to mention specific documents which they still desired to inspect. 16. In response to the above, the authorised representatives of Noticee 1 and 3, vide letter dated April 3, 2025, inter alia, sought for copies of certain documents, viz., internal notes relating to appointment of investigating authority under section 11C of the SEBI Act, 1992 and initiation of proceedings under sections 11(1), 11(4) and 11B(1) of the SEBI Act. They also sought complete details of share transfer transaction between ex-director of LSIL, Ms. Suet Meng Chay and JPP; an....
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....e complete set of documents available with it but only provided the documents that have been enlisted in the ex parte Order. SEBI's insistence towards the Noticees filing a reply in the absence of all the documents was against the principles of natural justice and fair play. This was against the principles laid down by Hon'ble Supreme Court in its judgment in the matter of T. Takano vs. SEBI. (e) The Interim Order was passed merely on the basis of an examination pursuant to a news article in NDTV Profit. The Order was passed within 7 days from the publication of the article and harsh restrictions were imposed even though there was no urgency. The observations of the Hon'ble Supreme Court in the matter of SEBI vs. Udayant Malhotra lay down a fundamental principle that the power to issue ex parte directions has to be sparingly used when the situation so warrants. (f) SEBI has overlooked the order of the Hon'ble Securities Appellate Tribunal ("SAT") passed in the matter of Bhoruka Financial Services Ltd. vs. SEBI, where it was, inter alia, held that the power to issue interim orders cannot be exercised unless an enquiry or an investigation is pending. (g) Th....
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....o have caused the price rise. (o) SEBI failed to take into account the fact that since the trading suspension in the scrip was revoked after a period of 10 years, all the investors who had their investments in the Company and were stuck for the last 10 years restarted trading, creating liquidity and demand in the scrip. (p) As the investigation in the matter was supposed to be completed by May 15, 2025, a copy of the Investigation Report should be provided to them. (q) Restrictions contained in the Interim Order qua PFPL may be revoked and PFPL, which had not sold any shares of LSIL in the past, would undertake to not sell or create any third-party rights over any shares held by them. 21. Noticee 2, vide replies dated April 12, 2025 and May 20, 2025 has submitted, inter alia, the following: (a) The concerns expressed in its Interim Order did not justify any urgency in the matter. (b) There was no allegation in the Order of any connection of the Noticee with LSIL. Further, the Noticee, as a seller, could not have had any role in the price rise. (c) The Noticee was an NRI settled in Dubai for the last more than 27 years and cur....
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.... travel to India at that time to open a demat account due to COVID restrictions and it was only in October 2022 that Ms. Suet Meng Chay executed documents pertaining to share transfer to the Noticee and thereafter, the Noticee was able to travel to India to open a demat account and the shares were transferred in his name. (g) Despite the share transfer, the trading in LSIL scrip was suspended and shares subscribed for benefit of the Fund remained blocked and there were recoveries to be made in various parts of the globe including in Vietnam, Philippines, Sri Lanka and Bangladesh where substantial funds were to be recovered by EZY Group, which would be applied towards settlement of dues of employees. (h) Once the trading suspension on LSIL scrip was revoked, it was logical to sell the LSIL shares and utilise the sale proceeds towards legal expenses and reimbursements to be made. Personally also, the EZY Group owed a huge debt to the Noticee, i.e., his salaries, remuneration and gratuity. (i) The Noticee sold a total of 1,06,500 shares of LSIL in tranches which was a mere 0.1% of the total shares held as a trustee of the Fund and the sale proceeds received ....
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....e most of his orders were not placed when the price of the scrip was at a high, as evident from the details recorded in the Interim Order. (o) All actions taken by Noticee in respect of share transfer and sale of shares were fully transparent and in compliance with applicable regulations. (p) The Noticee may be allowed to sell further shares of LSIL for the benefit of employees who were eagerly waiting for the outcome of the matter. 22. Noticee 4 vide his replies dated April 21, 2025 and May 19, 2025 has submitted, inter alia, the following : (a) The Interim Order alleged that the Noticee dumped his entire shareholding in LSIL while LSIL intended to purchase stake in Robochef. This now incorrect since he purchased shares of LSIL in November 2024. (b) The mention of Noticee's relationship with Robochef's director in the Interim Order to issue directions against the Noticee was out of context, as the Noticee was neither a promoter nor related to the promoter or the promoter group of LSIL, or a majority shareholder either in LSIL or Robochef. (c) The Noticee was holding the LSIL shares for a long time when there was no marketability of t....
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....icees were neither directors or majority shareholders of LSIL or had any connection with any person from LSIL. They did not even know about the proposed acquisition of Robochef at the time of sale of shares and which had not been done till date. (c) The shares of LSIL were held by Noticee 5 for more than 10 years due to trading suspension and when the suspension was revoked, the price started increasing due to increased demand. The Noticee decided to not sell the shares immediately so as to get a return from the investment. However, the price started to fall in October 2024 and thus, with a view to exit and make a decent return, the shares were sold at much lower than the peak price of Rs. 267.50. If there was a fraudulent intention, the shares would have been sold at much higher prices. (d) Thereafter, in November 2024, the price of LSIL shares started to fall and 10,000 shares of LSIL were purchased by Noticee 5 with the intention to hold the shares for longer given that LSIL scrip was in demand. These shares were still being held by Noticee 5 and if there was an intention to manipulate the price of the scrip, the same would have been sold when the prices rose s....
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.... fall in share price within a span of a few months. Further, certain entities connected to Robochef, a company proposed to be acquired by LSIL, offloaded shares of LSIL during price rise period. Further, one of the Noticees, JPP, an NRI holding 12.12% of the total shareholding of LSIL was found to have received the said shares at a nominal consideration of USD 1. 26. The apparent pump and dump scheme in the scrip of LSIL, a zero-revenue company, was also evident from the number of public shareholders in LSIL increasing from 3892 on June 30, 2024 to 6106 on December 31, 2024. It is pertinent to note that 99.66% of the shares of LSIL are held by only four shareholders, which include Noticees 2 and 3. Thus, the grounds cited in the Interim Order were sufficient for the issuance of Interim Order. 27. The Noticees also submitted that there was no connection between the Noticees, viz., LSIL, JPP, relatives of Robochef, etc. and there was no basis for passing the directions against the Noticees. 28. I find that the facts of the case are intriguing. LSIL, a zero-revenue company since many years, planned to acquire Robochef, a company owned by family members of Noticees 4 to 6 who ....
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.... submitted that he sold some of the shares whose sale proceeds were purportedly applied for legal expenses, realisation of his gratuity (which amounted to more than USD 500,000 which was stated to be verifiable from any member of the EZY Group) and for partly settling the accounts of other employees located as far as Singapore and Philippines. 34. JPP has further submitted that even though he was a trustee of the Fund set up for the benefit of the employees, the proceeds received by him from sale of LSIL shares were almost entirely used by him, since he purportedly had received an oral assurance during signing of the settlement agreement that dues incurred by him for EZY Group would be cleared first. 35. I note that none of the abovementioned contentions and claims have been backed by any documentary evidence whatsoever. During the personal hearing, JPP was specifically asked to submit documentary evidences in support of the abovementioned contentions. However, he has failed to submit any documentary proof in this regard. In absence of any documentary evidence adduced by the Noticee in support of his narrative, I am not inclined to accept the same. 36. I further note that ....
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.... LSIL by the parents of owners of Robochef (which was intended to be acquired by LSIL, a zero-revenue company) in close proximity to the announcement of the proposed acquisition by LSIL cannot be dismissed as mere coincidence. It is important to note that Noticee 4, the father of one of the owners of Robochef, was solely responsible for contributing 30% of the total trading volume during the first patch of price rise of LSIL scrip. 43. The Noticees 4 and 5 have also contended that due to suspension of trading in LSIL, they were holding the shares for more than 10 years before selling the same. They have submitted that they purchased more shares after the announcement of acquisition of Robochef. Noticees 4, 5 and 6 have also contended that that had their intention been to manipulate the scrip price, they would have sold at peak price rather than somewhere in between. Further, the Noticees submitted that they could not possibly cause manipulation in the scrip due to their miniscule holdings in LSIL. 44. I note that definite findings regarding roles of Noticees in the entire matter are yet to emerge, pending completion of the detailed investigation. Further, their transactions a....