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2025 (11) TMI 783
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....e Respondent : Mr. Sumit Rai, Advocate with Mr. Bhushan Shah, Mr. Gaurav Edekar, Advocates i/b Mansukhlal Hiralal & Co. Advocate ORDER Per: Dr. Dheeraj Bhatnagar, Technical Member These appeals are directed against the common Impugned order dated July 29, 2022 passed by the AO AO-Adjudicating Officer of the SEBI SEBI- Securities and Exchange Board of India levying joint and several penalty of Rs. 30,00,000/- under Section 15HA of SEBI Act Securities and Exchange Board of India Act, 1992 on the appellants for their involvement in the alleged fraudulent preferential allotment of shares made by ACEL Anukaran Commercial Enterprises Limited in violation of Section 12A(a), (b), (c) of the SEBI Act and Regulations 3(a), (b), (c), (d) and 4(1) of the PFUTP Regulations PFUTP Regulations- Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. Joint and several Penalty of Rs. 30,00,000/- has been imposed on the following appellants: - Sr. No Appeal No. Name of the Appellants Noticee No. (as per SCN) 1 669 of 2022 Paresh Vora HUF 4 Jiten Vora HUF 5 Varsha V....
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.... of Insider Trading) Regulations, 1992 and PFUTP Regulations by the Appellants and others. (viii) Based on this, SEBI issued two Show cause Notices (SCN) dated August 3, 2021 (SCN I) and November 29, 2021 (SCN II), calling upon the appellants to show cause as to why inquiry should not be initiated. (ix) After affording an opportunity of personal hearing to the appellants, Ld. AO, SEBI passed the impugned order dated July 29, 2022, by which the appellants were held guilty of orchestrating and participating in the fraudulent scheme of funding preferential allotment of ACEL, using company's own funds in violation of Section 12A(a), (b), (c) of the SEBI Act and Regulations 3(a), (b), (c), (d) and 4(1) of the PFUTP Regulations. 3. Out of 19 Noticees in the impugned order, penalty has been imposed on all noticees except Noticee Nos. 3 (Mr. Bhavanji Vora HUF) Noticee No. 12 (Kapoor Trader, proprietary concern of Mr. Bhavanji Vora) and (Late) Mr. Bhavaji Vora (Noticee No. 9), as proceedings stood abated due to death of Mr. Bhavanji Vora (noticee No. 9) during the pendency of proceedings. 4. We have heard Mr. Kunal Katariya, in Appeal No. 669 of 2022, Mr. Rushin Kapa....
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....at the impugned orders passed against the appellants cannot be sustained and are quashed. All the appeals are allowed with no order as to costs. The misc. applications are disposed of accordingly." (Emphasis Supplied) It was submitted that since the facts of the present case are much similar to the above cited cases, the appeal ought to succeed on this ground itself. Alleged fraudulent preferential allotment 7. Mr. Kunal Katariya, learned advocate appearing for the appellants in Appeal No. 669 of 2022 (Paresh Vora and Ors.) submitted that there is a finding in the Impugned Order against Noticees Nos. 3 to 14 (Vora Family) that they facilitated the alleged fraudulent preferential allotment of shares made by ACEL (Noticee No. 1). He further submitted that the Impugned order records that ACEL (Noticee No. 1) transferred fund to the tune of Rs. 10,47,50,000/- (Rupees Ten Crore Forty Seven Lakhs Fifty Thousand only) to the proprietorship concerns of Vora family viz. Kapoor traders (Noticee No. 12), Vaibhav Enterprises (Noticee No. 13) and Rajdeep Enterprises (Noticee No. 14) (conduit entities), who, in turn, transferred the said amount to noticee Nos. 3 to ....
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....erred to noticee No. 12 to 14 was Rs. 11.91 crore considering also funds transferred in the period prior to January 2012, while allottee appellants transferred only Rs. 3.42 crores to ACEL for preferential shares. 7.1.3 Further, refuting the submission of the respondent SEBI that prior to the impugned fund transfer, Vora family did not possess adequate funds to subscribe to the preferential issue, Shri Katariya submitted that during the relevant time, the Vora Family had unencumbered fixed deposits of Rs. 4.71 Crores, which was adequate to subscribe to preferential shares. 7.1.4 He submitted that SEBI has attempted to take a myopic view of the fund transfer issue alleging that the one to one transfers are sufficient to show fraud. In Puneet Goenka vs SEBI SEBI Appeal No. 714 of 2023, this Tribunal had a chance to consider a similar situation. It was alleged that Zee Entertainment Enterprises Ltd. had indirectly funded certain promoter entities to show fulfilment of payment obligations of the said entities towards Zee (Paragraph Nos. 9 and 10). According to SEBI, such one to one transfers were good enough to make out a case for fraud. This Tribunal relied on the settled doctri....
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.... non-promoters entities (including the Noticee Nos. 3 to 11). He submitted that the issue was in due compliance with the SEBI (ICDR) Regulations, 2009. However, the Ld. AO wrongly found the allotment to be fraudulent and concluded that ACEL had routed funds for funding its own preferential allotment. 7.5.2 Explaining the transfers of a sum of Rs. 10.46 crore from ACEL to Noticee Nos. 12 to 14 during the period November 23, 2011 to March 14, 2012, Shri Kapadia submitted that the said fund transfers are purely commercial transactions in furtherance of the MoUs executed for the purpose of applying for tenders of MCGM (jointly with the Noticee Nos. 12 to 14). The MoUs were duly registered and stamped, and the copies of the same were also provided to SEBI to show legitimacy of transaction. He submitted that Noticee Nos. 12 to 14 duly returned the whole amount to ACEL (between February 2013 to March 2013) when the tenders were not awarded to ACEL. However, SEBI has failed to appreciate these genuine transactions of payments and repayments and passed the impugned order without any application of mind. 7.5.3 With regard to the other transactions involving fund transfer to the tune....
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....ment and had not signed any documents with regard to same. It was alleged that the Company Secretary of ACEL erroneously used the appellant's name in the minutes book of the board meetings and the resolution passed in meetings held during the said allotment. She submitted that a charge of fraud cannot be levied merely based on suspicion, surmises and conjectures. 9.1 Ms. Rinku further submitted that the Ld. AO failed to appreciate the fact the entire preferential allotment was done in compliance with ICDR regulations. Moreover, Regulation 77 of the ICDR Regulations specifically provides that full consideration shall be paid by the allotees at the time of allotment of shares, which has been actually done in the present case. Without prejudice, she also submitted that the ICDR Regulations do not provide for any prohibition for a company to fund its own preferential allotment. 9.2 She also submitted that the Impugned order completely ignores the fact that the element of 'fraud' is missing in the present case. Requirement of 'intention' is sine qua non to prove fraud under the PFUTP Regulations. In the present case no such intention on the part of appellant has been brought out i....
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.... a reasonable and diligent manner while proceeding against the appellants. Thus the argument taken by the Appellants alleging inordinate delay in issuing SCN is devoid of merit. 10.1.1 Shri Rai also submitted that there is no limitation period prescribed for initiation of Adjudication proceedings under the SEBI Act. Moreover, there are catena of judgments in which Hon'ble Apex court has held that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be a reasonable time would depend on the facts and circumstances of each case, the nature of the default, prejudice caused to the concerned party, etc. Therefore, the appellants must demonstrate that the delay in issuance of SCN has caused them prejudice. 10.1.2 The reliance placed by the appellants on Geetaben Joshi (Supra) is misplaced and irrelevant, as the delay aspect is date-based and more particularly based on the facts and circumstances of each case. He further submitted that the Hon'ble Supreme Court has noted in identical cases that delay by itself is not sufficient to dismiss the entire subject matter. To buttress his submissions, he placed reliance on Tilak V....
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....urpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or in its holding company: Provided that nothing in this sub-section shall be taken to prohibit - (a) the lending of money by a banking company in the ordinary course of its business; or (b) the provision by a company, in accordance with any scheme for the time being in force, of money for the purchase of, or subscription for, fully paid shares in the company or its holding company, being a purchase or subscription by trustees of or for shares to be held by or for the benefit of employees of the company, including any director holding a salaried office or employment in the company; or (c) the making by a company of loans, within the limit laid down in sub-section (3), to persons (other than directors 1 [***] or managers) bona fide in the employment of the company with a view to enabling those persons to purchase or subscribe for fully paid shares in the company or its holding company to be held by themselves by way of beneficial ownership ......................................................". 10.3.1 He furt....
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....regarded. 11. With regard to the contentions of Mr. Faiyaz Rangwala (Noticee No. 18) that he was not involved in the day to day transactions of the business, nor did he attend board meeting, Mr. Rai submitted that Noticee No. 18 being Executive Director of ACEL was a party to the special resolution dated January 27, 2012 pertaining to preferential allotment in question. He also submitted that breach of the PFUTP Regulations invites liability on directors irrespective of the nature of directorship. Furthermore, liability has been imposed on the board of directors not only by virtue of day-to-day operations of the company, but out of board process. 11.1 Learned advocate for the SEBI further submitted that Hon'ble Supreme Court and this tribunal have held in catena of cases that it is the responsibility of a director to identify deficiencies wherever possible by employing verification and scrutiny expected of a prudent man. Moreover, the meetings of board of directors of a company are not merely rituals. To support his contentions, he placed reliance on N. Narayan Vs Adjudicating officer, Securities and Exchange Board of India (2013) 12 SCC 152: - "27. SEBI Act read wit....
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.... settled position in law that the object and purpose of PFUTP Regulations is to "safeguard investors from market manipulations which undermines the integrity and efficiency of the Securities Market". To support his contention, he placed reliance on SEBI vs. Shri Kanaiyalal Baldevbhai Patel & Ors. (2017) 15 SCC 1, wherein the Hon'ble Supreme Court held that 'mens rea' or 'proof beyond reasonable doubt' is not an indispensable requirement for the purposes of Regulations 3 and 4 of the PFUTP Regulations. Rather, the correct test is one of 'Preponderance of probabilities'. In view of this, he argued for dismissal of appeals. 12. We have carefully considered the facts of the case based on rival submissions and records placed before us. 13. Section 77(2) of the Companies Act, 1956 explicitly places restriction on purchase by a company, of its own or its holding companies' shares. It is the case of the respondent that the company ACEL transferred its own funds to noticee Nos. 12, 13 and 14, who in turn, passed on the same to noticee Nos. 3 to 11, to subscribe in preferential shares of ACEL immediately thereafter. Invoking the powers vested under Section 55A of the Compan....
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....transfers in the past as well or there was excess transfer over Rs. 3.42 crore to these entities is immaterial to examine the alleged violation. In view of this, we find no merit in the claim of the appellant that the entire amount of money of Rs. 10.47 Crore given to Noticees Nos. 12, 13 and 14 (Vora family entities/Conduits) was exclusively used for the purpose of procuring the tenders for MCGM contracts. Eventually, a significant part of it, amounting to Rs. 3.42 crore was used for subscription in preferential shares of ACEL. 13.3 It is evident that there is a close proximity in the timing of fund flow from ACEL to Vora family (conduits entities) and in turn, for its further transfer through Noticee Nos. 3 to 11 to ACEL for the subscription in preferential shares. Noticee Nos. 3 to 11 eventually were allotted the preferential shares in ACEL. The fact that the conduits entities also had business relationship with ACEL, as evident in the form of other transactions, does not rule out the finding that the company ACEL self-funded its preferential shares through transfer of its funds alongside funds for business purposes. In view of this, violation of Section 77(2) of the Compa....