TaxTMI 
TaxTMI 
2023 (6) TMI 1510
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....r, Advocates i/b. MDP & Partners, Mr. Ravishekhar Pandey, Advocate with Ms. Rasika Ghate, Ms. Shefali Shankar, Advocates i/b. MDP & Partners for the Respondent. ORDER Per : Justice Tarun Agarwala, Presiding Officer 1. Seven noticees out of 26 noticees have challenged a common order dated September 16, 2022 passed by the Adjudicating Officer ('AO' for short) of the Securities and Exchange Board of India (hereinafter referred to as 'SEBI") imposing penalties for violating the provisions of Section 12A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the 'SEBI Act') read with Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as 'PFUTP Regulations'). The penalties imposed upon noticee at Sr. No. 2 of the impugned order is Rs. 2.14 crore, noticee at Sr. No. 3 is Rs. 76 lakh, noticee at Sr. No. 5 is Rs. 19 lakh, noticee at Sr. No. 6 is Rs. 30 lakh and noticees at Sr. No. 22, 23 and 24 is Rs. 8 lakh to be paid jointly and severally. 2. The show cause notice alleged that on January 28, 2015 and January....
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....at Sr. No. 11 is not fraudulent nor misleading nor violative of any provisions of Regulations 3 and 4 of the PFUTP Regulations. It was also urged that noticee at Sr. No. 2 had a common address with one of the promoters of the noticee at Sr. No. 1, namely, noticee at Sr. No. 16 which cannot lead to a conclusion that noticee at Sr. No. 2 was connected with one of the promoters of the Company and therefore was part of the scheme of conspiracy. It was urged that the appellants having sold the shares at a higher price cannot lead to a conclusion that the sale made by them were fraudulent or manipulative. It was contended that preferential allottees had no connection with the noticees at Sr. No. 22, 23, and 24 and therefore they cannot be penalized only on the ground of selling the shares at a higher price nor can they be held part of an orchestrated scheme. In support of his submissions the learned counsel placed reliance upon a decision of this Tribunal in Praveen Kurele vs SEBI and other connected appeals, Appeal no. 319 of 2020 decided on April 29, 2020. 6. The arguments appears to be attractive, namely, that the appellants had received money from an entity who is noticee at Sr. N....
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.... and an ordinary investors perceives it as a capital infusion which is essential for strengthening the Company's financial fundamentals. When a preferential allotment is made by a listed Company it gives an impression that genuine capital infusion is being brought into the Company. When the Company uses its own funds and distributes it to the allottees for the purpose of subscribing to the shares, it deceives the genuine investors and in fact falsely leads them to invest in the shares of the Company. Thus, we are of the opinion that the Company along with the management and allottees receiving such funds from the Company were perpetuating a fraud on the ordinary investing public who were deceived to invest in in the securities of the Company. 8. We accordingly find that when preferential allotment of shares by a listed Company is financed by the Company itself it gives a false impression that there was infusion of funds to its capital through preferential allotment. The action on the part of the Company, its management and the allottees including the appellants in particular have made fraudulent acts which is an unfair device, to deceive the investors. Such acts, omissions....
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....s capital infusion and an ordinary investors perceives it as a capital infusion which is essential for strengthening the Company's financial fundamentals. Allotment of preferential shares gives an impression that there is genuine capital infusion being brought into Company but when Company uses its own funds for allotment of shares to preferential holders it deceives the genuine investors and falsely leads them to invest in the shares of the Company. Such routing of funds and allotment of shares through this scheme is a fraud on the securities market. 10. Thus, we find that the appellants being noticees at Sr. No. 2, 3, 5 and 6 of the impugned order are guilty of violating Section 12A of the SEBI Act and Regulation 3 and 4 of the PFUTP Regulations. The AO has rightly directed the said noticee to disgorge the unlawful gains made by them while allotting the shares in the open market. 11. The appellants at Sr. No. 22, 23 and 24 of the impugned order contends that they are not connected either to noticee at Sr. No. 2 to 8 who have sold their shares in the open market and made profits nor are they connected to the Company or its promoters nor are they connected to any of the entit....