TaxTMI 
TaxTMI 
2023 (8) TMI 1668
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....une 19, 2023 issued by the Whole Time Member ('WTM' for short) of the Securities and Exchange Board of India ('SEBI' for short) directing the appellants to deposit Rs. 136.40 crores jointly and severally along with 226 noticees plus interest @ 12% per annum and has further restrained the appellants from accessing the securities market during pendency of the proceedings. As a result of this interim order the bank accounts and the demat accounts have been frozen. 3. We have heard Shri Pesi Modi, the learned senior counsel with Shri Rushin Kapadia, Shri Anil Shah, Ms. Kritika A. Nahate and Ms. Mamta Chaoji, the learned counsel for the appellant in Appeal no. 568 of 2023, Shri Shyam Mehta, the learned senior counsel with Shri Rushin Kapadia, Ms. Rinku Valanju and Shri Amit Kumar, the learned counsel for the appellant in Appeal no. 577 of 2023 and Shri Gaurav Joshi, the learned senior counsel with Shri Mihir Mody, Ms. Shilpa Joshi, Shri Arnav Misra and Shri Harshvardhan Melanta, the learned counsel for the respondent in both the appeals. 4. The contention of the appellants is, that there was no urgency in the issuance of the ex parte ad interim order cum show cause notice at this ....
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....ed by the appellant and therefore the direction of impounding and deposit to be made jointly and severally with the other noticees does not arise. 6. The appellant Mauria Udyog Limited ('Mauria' for short) contended that it is not known as to how the respondent has calculated the unlawful gain in the absence of any detailed investigation. It was contended that the appellant Mauria has nothing to do with the alleged trades and the alleged profits made as depicted in Table 12 had nothing to do with the appellant. Further, allegations that the appellant had transferred the proceeds to the ultimate beneficiaries is patently erroneous. It was contended that the alleged proceeds alleged proceeds never came into corpus to the appellant Mauria. 7. Before we deal with the submissions of the appellants it is essential to narrate in brief the background and the facts of the case led to the filing of the present appeals. The appellant Econo is a broker and contends that it has 48671 registered clients and over 100 employees. SEBI noticed a sharp rise in the price and volumes in 5 scirps, namely, Mauria Udyog Ltd. 7NR Retail Ltd., Darjeeling Ropeway Company Ltd., GBL Industries Ltd and Vi....
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....d strongly recommending buy recommendations which was initiated by the master mind Mr. Hahif Shekh. At this stage the collaborators entered the scene and who were found to be connected to each other to multiple fund transaction, common phone numbers etc. These collaborators traded among themselves mostly intra trades increasing volume inspite of incurring losses. The trading pattern was found to be manipulative. Through these collaborators the momentum in the scrips in question which had no financial fundamentals caught the eyes of the unsuspecting investors through bulk SMS and, at this stage, the Off loaders who were connected to the promoters of the Company of the scrips in question and with connected entities of Mr. Hanif Shekh started off-loading their shares and made profits. The investigation and also show cause notice revealed that these Off loaders was only a façade to hide the ultimate beneficiaries. The investigation further revealed that these off-loaders received shares off-market purportedly from the promoters of the Company and were thus front entities of the promoters. 10. It was also alleged that the Off loaders transferred the proceeds to the promoter re....
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....holly incorrect and that the appellants had nothing to do with the alleged scheme orchestrated by Mr. Hanif Shekh. It was urged that the impugned order is not only arbitrary but is also punitive and therefore the order should be set aside and the appeal should be allowed. 14. On the other hand, the learned senior counsel for the respondent contended that the charges are serious and based on the investigation report the ex parte ad interim order cum show cause notice was passed. It was urged that there was no delay on the part of the respondent in passing the impugned order and even though the transaction may relate to the period 2017 - 2019 nonetheless pursuant to the investigation the charges were found to be serious warranting immediate action and therefore the impugned order was passed in order to prevent the appellants and other noticees from infiltrating the market. It was urged that the appellant Econo was controlled and managed by Mr. Hanif Shekh and its connected entities and continuation of the appellant as broking firm would seriously hamper the securities market. The appellant Econo has been found to be a conduit a....
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....tion to be taken brooks no delay. Thus, pre-decisional hearing is not always necessary when ex-parte ad-interim orders are made pending investigation or enquiry unless provided by the statute. In such cases, rules of natural justice would be satisfied, if the affected party is given a post-decisional hearing. 17. In Anand Rathi and Others vs Securities and Exchange Board of India, 2002 (1) Mh.L.J. 522 a Division Bench of the Bombay High Court while interpreting the provisions of Section 11 and 11B of the SEBI Act held:- "31. 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 or like orders of interim nature are made. The distinction is that it is not always necessary to grant prior opportunity of hearing when ad-interim orders are made and principles of natural justice will be satisfied if post decisional hearing is given if demanded. In this regard the follow....
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....s. AIR (1984) SC 1271, the Supreme Court held that the urgency must be infused by a host of circumstances and further held that the regulatory agency must move quickly in order to curb further mischief and take action immediately in order to instill and restore confidence in the capital market. There is no doubt that only under emergent circumstances and spelling out a case of urgency that an ad interim ex parte orders can be passed. Such exercise of regulatory measures in the form of ad-interim ex-parte orders can only be done upon the existence of circumstances warranting such a drastic measure. 15. Applying the aforesaid test, we find that considering the allegations spelled out in the ex- parte ad-interim order which we need not refer on merits at this stage, we find that upon the examination of the evidence, a prima facie opinion was correctly arrived at by the WTM based on objective facts indicating diversion of funds from a listed Company which was not in the interest of its shareholders. It was thus extremely necessary that an action on urgent basis was required to stop further defalcation/ diversion/ siphoning of the funds of the Company and to protect the interes....
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....raded in the scrip in question but has acted as conduit in transferring the profits to the master mind Mr. Hanif Shekh and its connected entities through layered transactions. Details regarding transfer of the funds finds place in the impugned order cum show cause notice and in the investigation report. We find that large sums of money have been transferred through layered transactions. 21. In addition to the aforesaid, we also find that there is a direction connection of the appellant broking firm with the master mind Mr. Hanif Shekh. We find from the perusal of Table 20 of the impugned order that mother of the master mind Mr. Hanif Shekh was holding 55% shareholding in the appellant Econo. In addition, a close entity of Mr. Hanif Shekh, namely, Sanjay Kotak was the Chief Executive Officer in the appellant Company. Further, Mr. Hanif Shekh's e-mail address shows his association and connection with the appellant Company. These facts at the moment have not been disputed and the only allegation made is that the connection shown in the impugned order of the appellant Company with Mr. Hanif Shekh is irrelevant. Such contention is unacceptable as in our opinion, the master mind who h....