TaxTMI 
TaxTMI 
2018 (6) TMI 1867
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....lready undergone the prohibition of six years and as such the appeal has virtually become infructuous. However, the appellant wants to pursue the appeal for the reason that the said order passed by SEBI is erroneous and that erroneous order is affecting the credibility of the appellant in the international market and therefore, it is necessary to contest the appeal on merits. 3. Facts relevant for the present appeal are as follows:- a) Appellant is a private company incorporated in Mauritius, holding a Category I Global Business Licence. Appellant is also a registered sub-account with SEBI under the foreign institutional investor registration of Credo Capital Plc since November 2003. Credo Capital Plc is incorporated in England and Wales. b) The appellant was originally established in October 2002 by a client of Credo Capital Plc for the purpose of carrying out Global Depository Receipts ("GDRs")/ADR arbitrage transactions in the Indian market, i.e. inter alia buying of GDRs, converting them and selling the underlying shares in India at a profit. c) Dispute in the present case relates to the fraudulent arrangement regarding subscription of GDRs issued ....
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....et. It is not in dispute that most of the underlying shares sold by IFCF and the appellant were purchased by the counter parties who were related to Mr. Arun Panchariya. j) On the basis of above facts revealed during the investigation, SEBI initiated proceedings and by an order dated 20.06.2013 held that PAN Asia and Mr. Arun Panchariya being persons associated with the securities market have acted detrimental to the interests of investors by entering into prohibited arrangement with the promoters of the six Issuer Companies. Accordingly, SEBI debarred PAN Asia and Mr. Arun Panchariya from rendering services in connection with instruments that are defined as 'securities' under Section 2(h) of Securities Contracts (Regulation) Act, 1956 ("SCRA" for short) in the Indian market or in any way dealing with them directly or indirectly for a period of 10 years and further prohibited them from accessing capital market directly or indirectly for a period of 10 years. k) On appeal filed by PAN Asia and Mr. Arun Panchariya, this Tribunal by a majority decision dated 30.09.2013 set aside the decision of SEBI dated 20.06.2013 on ground that SEBI had no jurisdiction over the cr....
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....cribed to their GDRs through Vintage which was wholly owned by Mr. Arun Panchariya. Thus, the investors in India were falsely made to believe that the foreign investors have shown keen interest in the scrip of the six Issuer Companies when in fact the GDRs were not subscribed by foreign investors but by Mr. Arun Panchariya through Vintage, which was wholly owned by Mr. Arun Panchariya. Secondly, the GDRs so acquired were then transferred to IFCF (an entity controlled by Mr. Arun Panchariya) and the appellant who converted the GDRs into underlying shares and sold the said shares in the Indian securities market to the counter parties who were the entities controlled by Mr. Arun Panchariya. These transactions gave an impression that the investors in India have started subscribing to the shares of Issuer Companies when in fact the shares were sold and acquired by the entities controlled by Mr. Arun Panchariya. 5. During the course of arguments counsel for SEBI fairly stated that the appellant is not involved in the first stage of the fraud committed by Mr. Arun Panchariya. In fact, nowhere in the impugned order it is stated that the appellant was aware of the loan taken by Vintage f....
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....he shares obtained from the conversion of the GDRs on the Indian investors." 8. On the basis of aforesaid facts, SEBI has inferred that the second stage fraud was committed by Mr. Arun Panchariya with the assistance of the appellant by adopting the following modus operandi:- a) Vintage (controlled by Mr. Arun Panchariya) gave Millions of USD as loan to Credo to pass on the same to the appellant and the appellant agreed to use such funds to buy GDRs of the Issuer Companies from Vintage through Euram Bank, thereafter convert the GDRs into shares and sell the same in Indian markets and use the sale proceeds to repeat the same process again and again. As per the loan agreement, the profits of such trading and balance remaining funds, if any, with the appellant were to be handed over to Vintage. b) The underlying shares sold by the appellant were purchased by counter parties who were the entities controlled by Mr. Arun Panchariya. Thus, the appellant bought the GDRs belonging to Mr. Arun Panchariya from the loan provided by Mr. Arun Panchariya and, thereafter, sold the underlying shares to the entities controlled by Mr. Arun Panchariya. Aforesaid transactions gave a....
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....he loan agreement signed by Mr. Arun Panchariya for being given to the appellant was not involved in the fraud, then by the same yard stick the appellant who got loan from Credo could not be said to have involved in the fraud. Between Credo and the appellant, Credo was directly connected to Mr. Arun Panchariya, because, he had signed the loan agreement as authorized representative of Vintage. In such a case, giving the benefit of doubt to Credo but denying the benefit of doubt to the appellant who was indirectly connected with Mr. Arun Panchairya is wholly unjustified. In other words, WTM of SEBI is not justified in holding in one breath that signing of the loan agreement between Vintage and Credo by Mr. Arun Panchariya on behalf of Vintage does not show direct involvement of Credo in the fraud perpetrated through the subscription/ trading in GDRs and in another breath holding that signing of the loan agreement by Mr. Arun Panchariya on behalf of Vintage in the loan agreement between Vintage and Credo was sufficient to hold the appellant (not a party to the contract between Vintage and Credo) was privy to the fraud sought to be perpetrated by Mr. Arun Panchariya on the investors in....
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.... and fact that the accounts between the appellant and Vintage has not been settled till date cannot be a ground to presume that the appellant was privy to the fraud committed by Mr. Arun Panchariya on the investors in India, because, neither the acquisition of GDRs from Euram Bank was prohibited nor there was any obligation on part of the appellant to terminate the contract which is found to be legal. 16 Fact that the appellant on acquisition of GDRs converted them into underlying shares and sold them in the Indian market could not be a ground to hold that the appellant had dumped the shares of the six Issuer Companies, because, in law the appellant was entitled to convert the GDRs and sell the underlying shares in the Indian market. 17. It is interesting to note that in the order passed in case of M/s Mavi Investment Fund Limited ("Mavi") on 25.09.2013, SEBI has held that acquisition of the GDRs of the six Issuer Companies and selling the underlying shares in the Indian market by Mavi to the counter parties controlled by Mr. Arun Pancharia, do not decisively establish that Mavi was privy to the fraud committed by Mr. Arun Panchariya and accordingly gave benefit of doubt to M....