TaxTMI 
TaxTMI 
2014 (7) TMI 1401
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....), S. V. Stock Land (Stock Land), Troop Trac Marketing Pvt. Ltd. (Troop Trac Marketing) RAJEEV KUMAR AGARWAL, WHOLE TIME MEMBER For the Appearing Parties : VCL for Mr. Bhuwanesh Bansal, Mr. Vijay Jhindal Self, Ms. Shubha Jhindal for Mr. Vijay Jhindal, Mr. Vinay Talwar, MFL for Mr. Vijay Jhindal, Mr. J. P. Madaan Self, Mr. R. K. Garg, CBS System, Anupama, Brut Finance, Chankya Apparels, Chankya Overseas, Cosmo Corporate, Fashion Tech, Flair Finance, Heritage Corporate, Perfect Car, Rajat Stock, Troop Trac Chits, Troop Trac Exports, Troop Trac Electrodes, Wisdom Publishing, Stock Land, Troop Trac Marketing ORDER 1. Vital Communications Ltd. (hereinafter referred to as "VCL" or 'the company" ) was promoted by Mr. Vinay Talwar in the year 1995. VCL came out with an initial public offering (IPO) of 20,00,000 equity shares of Rs.10/- each at par in December 1995 and its shares were listed at Delhi Stock Exchange (DSE) with effect from February 26, 1996. 2. During the period September-December 1999, sudden rise in price and volume of the scrip of VCL was noticed. The price of scrip had increased up from Rs.9/- on September 01, 1999 to Rs. 144/- on February 10, 2000. SEB....
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.... (4) VCL was to receive Rs.9 Crore in cash from these preferential allottees. VCL has given directly Rs.30.5 Lacs and indirectly Rs.1.68 Crore to the preferential allottees. In aggregate, VCL has financed more than 20% of the preferential allotment by itself. In addition, it was also observed that VCL has given more than Rs.1 Crore to CBS System as advances during the period which in turn transferred these funds to some of the preferential allottees. (5) Prior to allotment of preferential issue VCL has transferred Rs.58.75 lacs to Anupama which in turn transferred Rs.43.75 lacs to Chankya Apparels, Chanakya Overseas, Cosmo Corporate, Heritage Corporate, Perfect Car, Rajat Stock, Troop Trac Chits, Troop Trac Electrodes and Wisdom Publishing. This Fund was then used by these preferential allottees including Anupma as application money. (6) VCL had received Rs.1.5 Crore as application money from the preferential allottees. Thus, more than 30% of the application money was re-circulated by VCL for the preferential allotment. (7) After the allotment (December 6, 1999 to January 29, 2000), VCL transferred Rs. 2.1 Crore to Anupma. Anupma transferred Rs.1.....
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.... 500000 10 Rajat Stock 500000 11 Mr. Naresh Kumar 500000 12 Mr. Jyoti Prakash 500000 13 Troop Trac Electrodes 500000 14 Mr. Dharmender Kumar 500000 15 Wisdom Publishing 500000 Total 7200000 (12) Thus, in the copy of minutes of board meetings of VCL, name of five allottees were different from the list provided by VCL to SEBI vide its letter dated November 21, 2002. Therefore, VCL provided inconsistent and misleading information regarding the details of preferential allottees to SEBI as well as exchanges. (13) It was noted that preferential allotment was made by VCL as described in the following table: Table No. 3 - Preferential Allotment of Shares by VCL and consideration thereof Sl. No. Name No. of shares allotted Amount received (in Rs.) 1 Anupama 200000 2500000 2 Brut Finance 500000 6250000 3 Chankya Apparels 500000 6250000 4 Chankya Overseas 500000 6250000 5 Cosmo Corporate 500000 6250000 6 Fashion Tech 500000 6250000 7 Flair Finance 500000 6250000 8 Heritage Corporate 50000....
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....ce, Perfect Car, MFL, Anupama, Troop Trac Exports, Fashion Tech, Troop Trac Electrodes, Brut Finance in the demat account opening form with the depository participants Alankit Assignment and Abhipra Capital Services Ltd. 6 Mr. J.P. Madaan He was director of VCL from January 22, 2000 to June 30, 2007. 7 Mr. R. K. Garg He was director of VCL during April 2002 to July 2002. 8 CBS System a) Mr. Vijay Jhindal was the authorized person to operate the bank account at the Federal Bank; b) Mr. Vijay Jhindal was named as the director of CBS System in the bank account opening form of the Federal Bank .; c) Received huge sum from V/CL prior as well as post preferential allotment of equity shares. 9 Anupama a) Mr. Vijay Jhindal was the authorized person to operate the bank account at the Federal Bank; b) Mr. Vijay Jhindal was named as the director of Anupama in the bank account opening form of the Federal Bank; c) Had banking transactions with Fashion Tech, Perfect Car, Troop Trac Chits, Chanakya Apparels, Rajat Stock, Cosmo Corporate, Chanakya Overseas, VCL, Wisdom Publishing, Troop Trac Electrodes, Heritage Corporate and Flair Finance; d) Had....
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....Wisdom Publishing, Troop Trac Chits, Flair Finance, Perfect Car, MFL, Anupama, Troop Trac Exports, Fashion Tech, Troop Trac Electrodes, Brut Finance in the demat account opening form with the depository participants Alankit Assignment and Abhipra Capital Services Ltd. c) Mr. R. K. Mishra is the common director for Cosmo Corporate, Troop Trac Chits, Flair Finance, Chanakya Apparels. 14 Fashion Tech a) Had banking transactions with Anupama. b) Common phone number of Rajat Stock, Cosmo Corporate, Chanakya Apparels, Troop Trac Marketing, Wisdom Publishing, Troop Trac Chits, Flair Finance, Perfect Car, MFL, Anupama, Troop Trac Exports, Fashion Tech, Troop Trac Electrodes, Brut Finance in the demat account opening form with the depository participants Alankit Assignment and Abhipra Capital Services Ltd .; c) Mr. Ram Singh is the common director of Rajat Stock, Troop Trac Exports, Fashion Tech, Chanakya Overseas. 15 Flair Finance a) Had banking transactions with MFL, Anupama, Mr. Vijay Jhindal, Ms. Shubha Jhindal, Brut Finace. b) Common phone number of Rajat Stock, Cosmo Corporate, Chanakya Apparels, Troop Trac Marketing, Wisdom Publishing, Troop Trac Chits, ....
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....trodes, Brut Finance in the demat account opening form with the depository participants Alankit Assignment and Abhipra Capital Services Ltd.; c) Mr. R. K. Mishra is the common director for Cosmo Corporate, Troop Trac Chits, Flair Finance, Chanakya Apparels. 20 Troop Trac Exports a) Common address of Troop Trac Exports, Heritage Corporate and Mr. Atul Kumar, Director of Brut Finance; b) Common phone number of Rajat Stock, Cosmo Corporate, Chanakya Apparels, Troop Trac Marketing, Wisdom Publishing, Troop Trac Chits, Flair Finance, Perfect Car, MFL, Anupama, Troop Trac Exports, Fashion Tech, Troop Trac Electrodes, Brut Finance in the demat account opening form with the depository participants Alankit Assignment and Abhipra Capital Services Ltd.; c) Mr. Pankaj Kumar is the common director of Brut Finance, Troop Trac Marketing, Perfect Car, Anupama, Troop Trac Exports, Troop Trac Electrodes. d) Mr. Ram Singh is the common director of Rajat Stock, Troop Trac Exports, Fashion Tech, Chanakya Overseas. 21 Troop Trac Electrodes a) Had banking transaction with Anupama. b) Common phone number of Rajat Stock, Cosmo Corporate, Chanakya Apparels, Troop Trac Marketing....
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....pama 49983 10,00,000 14/12/1999 Anupama 49984 15,00,000 17/12/1999 Anupama 49981 18,00,000 17/12/1999 CBS Systems 49985 7,50,000 23/12/1999 Anupama 49987 10,00,000 28/12/1999 Anupama 49988 2,50,000 11/01/2000 Rajat Stock 65142 500000 11/01/2000 Cosmo Corporate 65126 150000 03/02/2000 Anupama 65174 1800000 25/02/2000 Anupama 71064 1500000 (17) The above bank account of VCL (A/c No. 1400301043178 with Bank of Rajasthan, Barakhambha Road, Delhi) was opened on March 08, 1999. Mr. Vinay Talwar was the Managing Director of VCL and also authorized person for operating the said account. Mr. Vijay Jhindal was one of the Directors of VCL as stated in the said bank account. (18) Another bank account of VCL (A/c No. CA347 with Federal Bank, Karol Bagh, New Delhi) was opened on March 11, 1999 wherein Mr. Vijay Jhindal was authorized person as well as director of VCL. From the transactions details in this account bank, it was observed that large amount of money was transferred by VCL to CBS System and Anupama as described in the following tables : Table No. 6- Fu....
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.... 2,75,000 14/01/2000 Wisdom Publishing 1,25,000 14/01/2000 Troop Trac Chits 2,50,000 17/01/2000 Rajat Stock 2,00,000 17/01/2000 Heritage Corporate 16,00,000 19/01/2000 Heritage Corporate 2,50,000 22/01/2000 Wisdom Publishing 6,50,000 25/01/2000 Heritage Corporate 15,00,000 25/01/2000 Cosmo Corporate 1,00,000 27/01/2000 Wisdom Publishing 4,75,000 27/01/2000 Troop Trac Electrodes 1,75,000 18/04/2001 VCL 20,00,000 19/04/2001 VCL 10,00,000 02/05/2001 VCL 4,00,000 01/05/2001 ISF Securities Ltd. 4,00,000 (20) It was observed that VCL had used its own funds indirectly for subscription of its own shares in the preferential allotment. The banking transactions of VCL and some of the preferential allottees revealed that VCL had given advances to Anupama and CBS Systems who in turn had transferred the funds to the 15 preferential allottees. The same money had come back to VCL purportedly as the consideration towards the preferential allotment of equity shares. (21) Following transactions undertaken by few other related entities also establish that th....
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.... Amount () Remark 06/12/1999 VCL 142481 3,50,000 Money was deposited in the account one/two day prior by cash or related entities. 14/12/1999 VCL 142483 6,50,000 05/01/2000 Shubha Jhindal 142484 2,50,000 17/01/2000 VCL 142485 2,50,000 29/04/2000 VCL 142487 45,00,000 13/05/2000 VCL 142488 7,50,000 17/03/2001 Anupama 142492 30,00,000 29/03/2001 Anupama 142493 20,00,000 E. Further, Fashion Tech received Rs. 30 lacs on March 14, 2001 and transferred the same amount to Anupama on March 15, 2001. Similarly, Further, Fashion Tech received Rs.20 lacs on April 10, 2001 and transferred the same amount to Anupama on April 11, 2001. Fashion Tech transferred Rs.20 lacs on April 11, 2001 to Anupama. In this manner, a total of Rs. 50 lacs was transferred to Anupama by Fashion Tech. (22) The investigations revealed another set of activities by VCL during 2002. It was noted that in the months of May/June, 2002, VCL had issued a spate of advertisements in newspapers to the effect that a meeting of its board of directors was to be held shortly inter alia, to consider buy....
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....ed in the financial year 2001-02 compared to previous year. (26) The preferential allotment of shares was approved in the board meeting held on June 14, 2002 when VCL was still considering buyback of shares. The preferential allotment was done at a price of Rs. 10/- against the stated price of Rs. 35/- in the advertisement, which indicates that the advertisement was an attempt to benchmark the price of the scrip to the levels of Rs. 30-35 when the scrip is actually trading in the range of Rs. 5-10. Thus, VCL was intentionally issuing misleading advertisements to induce an demand in the market. (27) When VCL issued the advertisement on bonus issue of shares on June 17, 2002 VCL was not eligible for issuing bonus shares as its paid up capital consisted of partly paid up shares. Therefore, the motive behind the advertisement on bonus issue, even when VCL was not eligible as per law to issue bonus shares, was to lure the investors to buy the shares of the company so that promoter related entities can offload the shares into the market. (28) Further it was revealed that during the period from May 2, 2002 to July 31, 2002 a total of 71.14 lakh shares were sold ....
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....1 VCL 1) VCL and its promoters and directors orchestrated ploy to create an artificial demand for shares of VCL and induce innocent investors for purchasing shares so as to absorb sales by the promoter related entities. 2) VCL had used its funds indirectly for purchase of its own shares. 3) Knowingly published factually incorrect information in its advertisement. Regulations 3, 4, 5(1) and 6(a) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (the PFUTP Regulations, 1995) read with regulations 3, 4(2)(f) and 4(2)(k) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (the PFUTP Regulations, 2003). Section 77 of the Companies Act, 1956. 24/05/2005 1) VCL gave misleading information to the public and exchange with regard to preferential allotment. 2) Information on details of preferential allottees given to SEBI and Exchange was inconsistent. 3) Indulged in mala fide intention to increase the price and thus manipulated the market. 4) Failed to make disc....
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....referential allottees / sellers who sold the fraudulently issued shares after the misleading announcements. Thereafter, the fund was transferred to Vijay Jhindal and his related entities. Further Vijay Jhindal also gave wrong information to SEBI regarding MFL and Avisha Credit. Regulations 3, 4(a) and 4(b), 5(1)(a) and (b), 6(a) and (d) of the PFUTP Regulations, 1995 17/09/2007 5. MFL MFL received fund from the preferential allottees / sellers who sold the fraudulently issued shares after the misleading announcements. Thereafter, the fund was transferred to Mr. Vijay Jhindal and his related entities. Further Mr. Vijay Jhindal also gave wrong information to SEBI regarding MFL and Avisha Credit. Regulations 3, 4(a) and 4(b), 5(1)(a) and (b), 6(a) and (d) of the PFUTP Regulations, 1995 Regulations 6(a) of the PFUTP Regulations 1995 read with regulation 3(c) and 3(d), of the PFUTP Regulations, 2003. 17/09/2007 6. Mr. J. P. Madaan VCL and its promoters and directors orchestrated ploy to create an artificial demand for shares of VCL and induce innocent investors for purchasing shares so as to absorb sales by the promoter related entities. Regulations 3....
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.... and 6(a) of the PFUTP Regulations, 1995 as well as regulation 10 and 11 of the Takeover Regulations, 1997 17/09/2007 12 Chanakya Overseas One of the allottee in the preferential allotment which assisted VCL in raising money from the market at the cost of gullible investor in fraudulent manner. Regulations 3 and 6(a) of the PFUTP Regulations, 1995 as well as regulation 10 and 11 of the Takeover Regulations, 1997 17/09/2007 13 Cosmo Corporate One of the allottee in the preferential allotment which assisted VCL in raising money from the market at the cost of gullible investor in fraudulent manner. Regulations 3 and 6(a) of the PFUTP Regulations, 1995 as well as regulation 10 and 11 of the Takeover Regulations, 1997 17/09/2007 14 Fashion Tech One of the allottee in the preferential allotment which assisted VCL in raising money from the market at the cost of gullible investor in fraudulent manner. Regulations 3 and 6(a) of the PFUTP Regulations, 1995 as well as regulation 10 and 11 of the Takeover Regulations, 1997 17/09/2007 15 Flair Finance One of the allottee in the preferential allotment which assisted VCL in raising money fr....
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....3 and 6(a) of the PFUTP Regulations, 1995 as well as regulation 10 and 11 of the Takeover Regulations, 1997 17/09/2007 23 Troop Trac Marketing One of the allottee in the preferential allotment which assisted VCL in raising money from the market at the cost of gullible investor in fraudulent manner. Transfer of funds to MFL after receiving from various preferential allottees. Thus, aided and abetted Mr. Vijay Jhindal and MFL, in committing the fraud on innocent investors. Regulations 3 and 6(a) of the PFUTP Regulations, 1995 as well as regulation 10 and 11 of the Takeover Regulations, 1997 Regulations 6(a) of the PFUTP Regulations, 1995 read with regulation 3(c) and 3(d), of the PFUTP Regulations, 2003. 17/09/2007 6. The allegations/charges contained in the common SCN dated May 24, 2005 issued to VCL, Mr. J. P. Madaan, Mr. R. K. Garg, Ms. Shubha Jhindal, Mr. Vinay Talwar and Mr. Vijay Jhindal were considered by SEBI and vide order dated February 20, 2008 restrained VCL and its directors, namely, Mr. J. P. Madaan, Mr. R. K. Garg, and Mr. Vijay Jhindal, from accessing the securities market and prohibit them from buying, selling and dealing in securities in any man....
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.... Table No. 16 - Details of advertisements by VCL Date of issuance of advertisement Date appeared in the newspapers Newspaper Matter in the advertisement 20/05/2002 27/05/2002 and 28/05/2002 Economic Times Buyback of upto 10,00,000 shares at the maximum price of Rs.30/- 29/05/2002 Business Standard 27/05/2002 28/05/2002 Business Standard Preferential allotment of equity shares upto Rs.20 lacs at the rate of Rs.35/- (Market price at BSE Rs.7.55/-) 29/05/2002 Economic Times 17/06/2002 24/06/2002 Economic Times Issue of Bonus shares in the ratio of 8:10 (2) The board of directors of VCL had rejected the proposals of buy-back of its shares and issue of bonus shares whereas preferential allotment of shares had been approved. However, the preferential allotment was made at just Rs.10/- per share as against the advertised rate of Rs.35/- per share. (3) Normally, such advertisements are issued after the Board decision regarding the price/quantity of shares to be preferentially allotted. However in the instant case, the advertisements were issued at the proposal stage itself. (4) Also all the prop....
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....ertisements, the average volume of trading in the scrip increased by 200% indicating that more investors had traded during the relevant period, ostensibly considering this advertisement to be true. Thus, the announcement of buy- back of shares and its subsequent withdrawal resulted in a pecuniary loss to the investors who were influenced to purchase shares on the basis of the advertisement. (12) Even though the volume increased based on the investor's expectation of a buyback, the price of the scrip did not positively respond. On the other hand, the price of the scrip went down after the advertisement period and thereby resulted in loss to investors who bought shares expecting pecuniary gains, consequent to the advertisements. (13) Similarly, while the advertisements dated May 28 and 29, 2002 proposed preferential issue of shares at Rs.35/-, the board of VCL in its meeting held on June 14, 2002 approved the preferential allotment of shares at a price of Rs.10/-, which indicates that the advertisement was an attempt to benchmark the price of the scrip to the levels of Rs.30-35 when the scrip was actually trading in the range of Rs.3-12. (14) When the c....
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.... of shares was directly and indirectly paid to MFL, a company belonging to Mr. Vijay Jhindal. The details of fund transfers from/to MFL is mentioned below: Table No. 17 - Details of fund transfers to/from MFL Funds transfer to MFL Funds transfer from MFL Date Transferor Amount (Rs.) Date Transferee Amount 15/04/2002 Avisha Credit 450000 15/04/2002 Banwarilal Goel 335000 16/04/2002 Issued as self cheque 115000 28/05/2002 Shubha Jhindal 200000 28/05/2002 100000 28/05/2002 Angoori Devi (Mother) 100000 25/06/2002 500000 02/07/2002 VCL 2500000 01/07/2002 Flare Finance 2000000 05/07/2002 Troop Trac Marketing 4000000 06/07/2002 Shubha Jhindal (Wife) 2000000 08/07/2002 VCL 2000000 15/07/2002 Perfect Car 1000000 16/07/2002 Saroj Ganda 1000000 20/08/2002 Mangla Ltd. 2350000 21/08/2002 115000 21/08/2002 Shubha Jhindal....
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.... Anupama Sold the shares issued in a fraudulent manner and transferred the funds to MFL. Also transferred shares issued in a fraudulent manner to Stock Land which were offloaded in the market. Thus, aided and abetted Mr. Vijay Jhindal and his entity MFL, in committing the fraud on innocent investors. Regulations 6(a) of the PFUTP Regulations, 1995 read with regulation 3(c) and (d) and regulation 13 of the PFUTP Regulations, 2003. 12/07/2012 5. Cosmo Corporate Transfer of shares issued in a fraudulent manner to Stock Land which were offloaded in the market Thus, aided and abetted Mr. Vijay Jhindal and his entity MFL, in committing the fraud on innocent investors. Regulations 6(a) of the PFUTP Regulations, 1995 read with regulation 3(c) and (d) and regulation 13 of the PFUTP Regulations, 2003. 12/07/2012 6. Fashion Tech Sold the shares issued in a fraudulent manner and transferred the funds to MFL. Thus, aided and abetted Mr. Vijay Jhindal and his entity MFL, in committing the fraud on innocent investors. Regulations 6(a) of the PFUTP Regulations, 1995 read with regulation 3(c) and (d) and regulation 13 of the PFUTP Regulations, 2003. 12/07/20....
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.... 12/07/2012 13. Wisdom Publishing Transfer of shares issued in a fraudulent manner to Stock Land which were offloaded in the market Thus, aided and abetted Mr. Vijay Jhindal and MFL, in committing the fraud on innocent investors. Regulations 6(a) of the PFUTP Regulations, 1995 read with regulation 3(c) and (d) and regulation 13 of the PFUTP Regulations, 2003. 12/07/2012 14. Stock Land Selling shares after receiving from preferential allottees which were issued in a fraudulent manner and transfer of funds to MFL through preferential allottees. Thus, aided and abetted Mr. Vijay Jhindal and MFL, in committing the fraud on innocent investors. Regulations 6(a) of the PFUTP Regulations, 1995 read with regulation 3(c) and (d) and regulation 13 of the PFUTP Regulations, 2003. 06/07/2012 15. Troop Trac Marketing Transfer of shares issued in a fraudulent manner to Stock Land which were offloaded in the market Thus, aided and abetted Mr. Vijay Jhindal and MFL, in committing the fraud on innocent investors. Regulations 6(a) of the PFUTP Regulations, 1995 read with regulation 3(c) and (d) and regulation 13 of the PFUTP Regulations, 2003. 12/07/2012....
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....the board of VCL with effect from May 17, 2001 and as such he was not aware of the spate of advertisements issued in the months of May-June, 2002 by VCL. (3) He was not the director of VCL during the period of publication of advertisements regarding bonus, buyback of shares, and preferential issue of shares and their discussion in the board meeting of VCL. (4) He was not the director of VCL and as such was not responsible for the publication of advertisement regarding the proposed buyback of shares at Rs.30/- per share when the share price was trading between Rs.3/- at the proposal stage itself. (5) He was not the director of VCL when its board had rejected the proposal of buyback of shares and preferential allotment at just Rs.10/- per share as against the advertised rate of Rs.35/- per share. (6) He was not the director of VCL during April 29, 2002 to May 20, 2002 when there was unusual movements in the price and volume. (7) The sale proceeds that were transferred by Stock Land, Anupama, Fashion Tech, Troop Trac Marketing and Rajat Stock to MFL was in the ordinary course of business as MFL is an NBFC. However, he is not the beneficiary....
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....le Delhi High Court seeking damages for his removal from the post of the managing director and to reclaim the 3,38,000 shares owned by him which VCL and its promoter Mr. Vijay Jhindal had refused to handover. (4) Vide its order dated February 20, 2008 SEBI had concluded that he was merely used as a front for the nefarious activities of Mr. Vijay Jhindal and that had no role to play in any of the said activities. (5) The period as stated in the SCN when VCL provided the requisite information and replies to SEBI was subsequent to his removal from the board of VCL on September 6, 2000 and as such he cannot be proceeded against for providing misleading information in terms of regulation 5(a) of the PFUTP Regulations, 1995, provisions of section 11 C(6) (a) and (b) of the SEBI Act, 1992. (6) The violations of the SEBI Act were carried out by Mr. Vijay Jhindal and his associates for their personal benefit and he has nothing to do with any of it. (7) VCL had informed SEBI that 7.2 lacs shares were allotted to REPL on October 6, 2000 @Rs. 125/- (including Rs. 115/- premium). The said allotment was subsequent to his removal from the board of VCL on Septem....
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.... (7) He came to know about the sale of shares by the preferential allottees much after the sale of shares. (8) The ex-chairman Mr. Vinay Talwar has alleged that Mr. Vijay Jhindal was behind all the mala fide activities of VCL. However, Mr. Vinay Talwar has not made any allegations against him. (9) He was not connected with MFL or any of the 15 preferential allottees. (10) He has never transacted in the scrip of VCL and has not received any consideration of any nature whatsoever. (11) He came to know about the transfer of funds in the companies like MFL through the SCNs. (12) Further, he does not have any relation with any of the entities who have sold the shares or to whom the funds have been transferred. (13) The advertisement were issued on the behest of the promoters of VCL only. He was looking after the administrative matters and had no knowledge related to the corporate actions such as bonus issue, buyback of shares, preferential allotment as envisaged by the promoters of VCL. (14) V/CL had not employed any company secretary at that point of time. Further, since none of the directors was a professional like ch....
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....is relevant to mention the following judgment of Hon'ble Supreme Court in the case of Haryana Financial Corporation vs. Kailashchand Ahuja [2008 (9) SCC 31] :- " ... the theory of reasonable opportunity and principle of natural justice have been evolved to uphold the rule of law and to assist the individual to indicate his just rights. Whether, in fact, prejudice has been caused to an employee or not on account of denial to him of the report has to be considered on the facts and circumstances of each case. Even in cases where procedural requirements have not been complied with, action cannot be ipso facto illegal or void, unless it is shown that non-observance has prejudicially affected the delinquent." 13. Since it is clear now that the noticees in the instant case are not willing to avail the opportunities afforded to them and are adopting dilatory and delaying tactics, there would not be any denial of natural justice, if these proceedings are concluded within timeline provided by Hon'ble SAT on the basis of material available on record. 14. I have carefully considered the SCNs dated September 17, 2007, July 06, 2012 and July 12, 2012, issued to the respect....
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....ket;" ....... "Prohibition of misleading statements to induce sale or purchase of securities 5. (1) No person shall make any statement, or disseminate any information which - (a) is misleading in a material particular; and (b) is likely to induce the sale or purchase of securities by any other person or is likely to have the effect of increasing or depressing the market price of securities, if when he makes the statement or disseminates the information- (i) he does not care whether the statement or information is true or false; or (ii) he knows, or ought reasonably to have known that the statement or information is misleading in any material particular. ...." Prohibition on unfair trade practice relating to securities 6. No person shall - (a) in the course of his business, knowingly engage in any act, or practice which would operate as a fraud upon any person in connection with the purchase or sale of, or any other dealing in, any securities; (b). (c). &nb....
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....n four working days of - (a) the receipt of intimation of allotment of shares; or (b) the acquisition of shares or voting rights, as the case may be. (3) Every company, whose shares are acquired in a manner referred to in sub-regulation(1) shall disclose to all the stock exchanges on which the shares of the said company are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under sub-regulations(1). CHAPTER III SUBSTANTIAL ACQUISITION OF SHARES OR VOTING RIGHTS IN AND ACQUISITION OF CONTROL OVER A LISTED COMPANY Acquisition of fifteen or more of the shares or voting rights of any company. 10. No acquirer shall acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise fifteen percent or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations. Consolidation of holdings 11. (1) No acquirer who, together with persons act....
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....d Form was filed in RoC on June 06, 2002 with Rs.3,000/- as late fee. Vide his letter dated December 05, 2007, Mr. Vijay Jhindal submitted a copy of Form 32 wherein the receipt of RoC was dated June 06, 2001 bearing no. 74302 with a late fee of Rs. 3,000/-. If Mr. Vijay Jhindal had resigned on May 17, 2001, the filing of Form 32 within 30 days, i.e., till June 15, 2001 did not require any payment of late fee. Thus, the enclosed receipt was not for the attached Form 32 claimed to be filed June 06, 2001. 16. Vide letter dated February 12, 2008, Mr. Vijay Jhindal submitted another copy of the said Form 32 wherein the receipt of RoC was dated June 04, 2001 bearing no. 4488 without any late fee. I note that in the records of RoC the said Form 32 was filed on June 06, 2002 with no. 74302 and not on June 06, 2001. In view of these facts, I find that Mr. Vijay Jhindal has submitted different RoC receipts in respect of Form 32 to SEBI on different occasions and thus has tried to mislead with false and fabricated documents. 17. Mr. J. P. Madaan has further contended that he was an employee director, working under the direct instructions from Mr. Vijay Jhindal. Further, the proposals of....
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....ut their actions are independent and different and cannot be the basis to say that he has a relationship or any connection with company post resignation. I find that Mr. Vijay Jhindal played the central role in transferring funds from the bank accounts of MFL to the bank accounts of his connected entities. In view of these facts, the contention of Mr. Vijay Jhindal that he was not the director of VCL during the said period does not hold good. 19. Mr. Vijay Jhindal has also contended that MFL is an NBFC and the money received by it was on account of the business activities and that he is not the beneficiary of the said money/funds as alleged either directly or indirectly. In this regard, as explained above, I find that during the relevant period, the preferential allottees had transferred the sale proceeds to MFL (an entity promoted by Mr. Vijay Jhindal and his family members) which in turn transferred the proceeds either to Mr. Vijay Jhindal or to his related entities including VCL. In view of these facts, do not find any merit in the contentions of Mr. Vijay Jhindal that he was not the beneficiary of the funds. 20. I note that Mr. Vijay Jhindal gave wrong information about M....
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....e by VCL in December, 1999. I note that the bank account of VCL (A/c 1400301043178), Bank of Rajasthan, Barakhambha Road, Delhi) was opened on March 08, 1999. In the list of directors submitted by company, Mr. Vinay Talwar was the Managing Director and also authorized person. 23. I note that in the instant case, none of the noticees have submitted any reply on merits of the case. They have not disputed - (a) any of the facts based on which connection/relation amongst them was alleged; (b) their trades in the scrip of VCL; (c) the fund transfers amongst them; or (d) the issuance of the alleged misleading advertisements by VCL. 24. I note that on December 14, 1999, VCL made preferential allotment of 72,00,000 shares to fifteen entities, namely, Anupama, Brut Finance, Chankya Apparels, Chanakya Overseas, Cosmo Corporate, Fashion Tech, Flair Finance, Heritage Corporate, Perfect Car, Rajat Stock, Troop Trac Chits, Troop Trac Exports, Troop Trac Electrodes, Wisdom Publishing and Troop Trac Marketing @ Rs. 10/- each at a premium of Rs. 2.50/-. The requisite consideration for the said allotment was Rs.9 crore. I note that prior to the preferential allotment VCL had transferred Rs.58.....
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....ttees but had not received full consideration as its preferential allotment was financed by VCL itself as discussed hereinabove. I, therefore, find that the consideration for the shares allotted to the respective allottees in the preferential allotment of VCL has not been fully paid by the preferential allottees and the shares were allotted by VCL to the preferential allottess under a fraudulent scheme, artifice and device employed by the VCL, its promoters/directors and preferential allottes who acting in concert amongst themselves and also with VCL and its promoters/directors, illegally and fraudulently acquired 70.25% shares in VCL. In this case, it is established that the payments made by VCL to the preferential allottees passed through various entities, viz. CBS System and Anupama to finally reach the subscriber bank account and in turn to VCL in the form of application money for the preferential allotment. After the sale of shares, the sale proceeds came back to VCL through layers of entities related to Mr. Vijay Jhindal. In view of these facts, I find that the whole scheme of VCL, its promoters/directors and the preferential allottess was a ploy to defraud the investors in s....
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....k the price of the scrip to the levels of Rs.30-35 when the scrip was actually trading in the range of Rs. 3-12. When VCL issued the advertisement on bonus issue of shares on June 17, 2002, it was not eligible for issuing bonus shares, as its share capital was not fully paid up and sufficient reserves were not available. Further, in its advertisements regarding the buy-back, VCL had proposed using reserves of Rs. 7 crore for buyback of shares. However, the balance sheet of VCL for the financial year ending March 31, 2002 shows reserves of just Rs. 4.68 crores. 29. I also note that these advertisements were issued at the proposal stage itself and there was no legal requirement for their publication. Further, all these corporate actions were contradictory in nature as buyback reduces the number of outstanding shares while preferential allotment and bonus issue increases the number of outstanding shares. In view of these facts, I find that VCL was not in a position to comply with the financial and legal requirements of buy-back of shares or issue of bonus shares and it had proposed to proceed with the abovementioned corporate actions and issued the advertisements to that only to mi....
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....fluence the decision of the investors are specifically declared fraudulent and unfair trade practices under regulation 4(2) (k) of these Regulations. I, therefore, find that by making false, misleading and distorted announcements, VCL and its directors indulged in fraudulent, manipulative and unfair activities relating to the securities market that are prohibited under sections 11(2)(e) of the SEBI Act and regulations 3(b),(c) and (d), regulation 4(1) and 4(2) of the PFUTP Regulations, 1995 as alleged in the SCNs read with regulation 3, 4(2)(f), (k) and regulation 13 of the PFUTP Regulations, 2003. I note that these prohibition under PFUTP Regulations, 1995 are pari materia the prohibitions under PFUTP Regulations,2003 thus, the following rulings of Hon'ble SAT in matter of V. Natarajan vs. SEBI (Order dated June 29, 2011 in Appeal no. 104 of 2011) would be relevant in the context of this case :- " ... we are satisfied that the provisions of 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 were violated. These regulations, among others, prohibit any ....
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....00 to March 31, 2007 therefore, the misleading advertisements pertaining to the buyback of shares, bonus and preferential issue of shares during period May-June2002 were issued when he was the director. The unusual aspect of these advertisements were that they were issued at proposal stage itself and the price/quantity mentioned in the advertisements are normally decided in the board meeting and announcement after that. Also all these corporate actions were opposite in nature as buyback reduces the number of outstanding shares while preferential allotment and bonus issue increases the no. of outstanding shares. Thus, these advertisements were a ploy to mislead the investors and by issuing the same has resulted in a pecuniary loss to the investors. f) The issue of buyback, preferential allotment and bonus shares were discussed in the board meetings of VCL on June 04, 2002, June 14, 2002 and July 05,2002 respectively. All these meetings were chaired by Mr. J. P. Madaan and the proposal for all these corporate actions were put forth by him and the minutes of the Board Meeting were also signed by him. g) Mr. R. K. Garg, other director of VCL was also present in the bo....
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....ite disclosures with regard to the same under regulation 7 of the Takeovers Regulations, 1997 was not made. Such active concealment of the material information about substantial acquisition of shares coupled with hiding the identity of the preferential allottees clearly shows fraudulent and deceitful behavior of the preferential allottees and VCL. As regards the obligation make open offer under regulations 10 and 11 of the Takeovers Regulations, 1997, I am of the view that the said acquisition of 70.25% shares by the preferential allottees was not in accordance with law under regulation 10. Further, such acquisition was illegal and fraudulent and the preferential allottees cannot be allowed to enjoy the benefit of their holdings on account of such acquisitions or to further increase their stake in VCL. 35. A company being a legal person having separate and independent existence than its shareholders acts through its board of directors who individually and collectively hold the position of trust and have fiduciary duties towards the company, the shareholders and other stakeholders. It is settled position that while alleging vicarious liabilities on the directors, the company shou....
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....goori Devi (mother of Mr. Vijay Jhindal). MFL received part of the sale consideration from some of preferential allottees who sold their shares during May-July 2002 based on false misleading advertisements issued by VCL at the proposal stage itself and she cannot escape liability in this regard. 38. Considering the above facts and circumstances, I, in order to protect the interest of investors and the integrity of the securities market, in exercise of powers conferred upon me by virtue of section 19 read with sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 read with regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and regulation 44 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 hereby: (a) restrain the following entities from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for the period as mentioned in the following table :- Sr. No. Entities PAN Period 1 ....