TMI Blog2010 (5) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount, whose numbers are to be mentioned in the application. Demat account is an electronic account of a beneficiary, opened and maintained with any of the approved Depository Participants (hereinafter referred to as DP). Shares allotted to successful applicants in the IPO, are electronically credited to their respective demat accounts. Demat accounts are opened by the DPs only for those applicants who hold an account with a bank also. Opening of a bank account and the demat account has to be in compliance with Know Your Customer (KYC) norms prescribed by the Reserve Bank of India and SEBI, respectively. 1.2 During the year 2005, Infrastructure Development Finance Company Ltd. (hereinafter referred to as IDFC) came out with an IPO-opened for subscription from dt. 15.07.2005 to dt. 22.07.2005. In this IPO 40,36,00,000 (forty crore thirty six lakh) shares were on offer, out of which 14,12,60,000 (fourteen crore twelve lakh sixty thousand) shares were reserved for Retail Individual Investors (hereinafter referred to as RII). The price band for subscription was between ₹ 29/- to ₹ 34/-. The final issue price was fixed at ₹ 34/- per share and shares were allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s including Sh. Parag Priyakant Jhaveri, Sh. Dipak Jashvantlal Panchal, Sh. Purshottam Ghanshyamdas Budhawani, Sh. Manoj Gokulchand Seksaria, Sh. Kantilal Jitmal Jain were referred to as key operators by the SEBI in its report. The persons who provided the finance for IPO subscription and were the ultimate beneficiaries in the scheme of cornering of retail allotment were referred to as financiers by SEBI in its report. 1.5 During the investigation it was found that based upon fraudulently prepared/forged documents, a large number of bank accounts and demat accounts were clandestinely opened by the key operators in fictitious/benami names, and using the identity of the said bank accounts and demat accounts, the key operators put in applications in the said fictitious/benami names while subscribing to the IPO and thus predatorily cornered a large number of shares, which were actually reserved for allotment to genuine RIIs. The investigation revealed that Sh. Parag P. Jhaveri, one of the directors of M/s. Sugandh Estates and Investment Private Ltd. (hereinafter referred to as SEIPL) having his account with Vijaya Bank, Ambawadi Branch, Ahmedabad opened 40 current accounts in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us fraudulently deprived the genuine RIIs, of their right to purchase/acquire shares, which were legitimately reserved for them. 1.7 Sh. Jitender Kumar Lalwani purchased 23,79,772 RII category IDFC shares from Sh. Parag P. Jhaveri, Sh. Kamal P. Jhaveri, Jayesh P. Khandwala HUF, Sugandh Estate Investment Pvt. Ltd. and Amadhi Investments and others in off market transactions and out of these, 22,21,808 shares were transferred to his demat account on dt. 11.8.2005 i.e. prior to date of listing of IDFC shares on stock exchange, 1,37,020 shares were transferred to his demat account on dt. 12.8.2005 and remaining shares were transferred in the month of September and October 2005. Most of the above shares were sold on 12th August 2005 i.e. the date of listing and thereby Sh. Jitender Kumar Lalwani made financial gain of ₹ 7,00,57,692/-. 1.8 Consequent to the investigation conducted, SEBI, Mumbai office through its Chief General Manager, Sh. R. Ravichandran, filed a written complaint dt. 20.2.2006 against key operators/financiers etc. including the appellant Sh. Jitender Kumar Lalwani on the fraud committed in the Initial Public Offer of shares of Infrastructure Development Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of property involved in money laundering- (1) Where the Director, or any other officer not below the rank of Deputy Director authorized by him for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that- (a) any person is in possession of any proceeds of crime; (b) such person has been charged of having committed a scheduled offence; and (c) such proceeds of crime are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime under this Chapter, he may, by order in writing, provisionally attach such property for a period not exceeding ninety days from the date of the order, in the manner provided in the Second Schedule to the Income Tax Act, 1961 (43 of 1961) and the Director or the other officer so authorized by him, as the case may be, shall be deemed to be an officer under sub-rule (e) of rule 1 of the Schedule: . .................... 2.1 It was contended that for initiating provisional attachment proceedings under the Act, any person must be in po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of listing are perfectly legal and did not involve contravention of any law. He argued that the statement of Sh. Parag P. Jhaveri was taken behind the appellant's back and was never confronted to him. He further argued that Sh. Parag P. Jhaveri neither provided any details like when and how the alleged funds of ₹ 4.76 crore were provided by the appellant for making 1000 applications in subscribing IDFC IPO against which 2,66,000 shares were cornered nor any corroborating material was brought on record by the defendant to prove the same. 2.4 The Counsel argued that the CBI, in its charge-sheet filed in the case, has given its finding that the appellant was not charge-sheeted as no evidence of criminal involvement was found against him during the investigation and Sh. Jitender Kumar Lalwani has purchased the shares of IDFC in a legal manner. He submitted that majority of the shares were purchased from Jayesh P. Khandwala HUF (9,49,818 shares), Amadhi Investments (2,65,468 shares) who have not even been charge sheeted by the CBI and CBI, in its charge sheet filed in the case, has given its finding that no evidence has come to show their knowledge of forgery and other off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .16%. Further, with the help of Shri Aditya Gupta (A-9) and Shri Phanindra Kumar (A-11), he transferred the illegally cornered shares to his Demat account by issuing forged Delivery Instructions Slips (DIS). He disposed off all the shares cornered in that illegal manner for a profit of about ₹ 8.63 crores. Para 24 on page 19 of the CBI charge sheet: That the fictitious applications put in by Shri Parag Jhaveri (A-2) were allotted with 266 shares each and in all he could corner 35,14,392 shares of IDFC out of 14.12 crore shares meant for RII, which amounts to 2.48%. Further, with the help of Shri Aditya Gupta (A-9) and Shri Phanindra Kumar (A-11), he transferred the illegally cornered shares to his Demat account by issuing forged Delivery Instructions Slips (DIS). He disposed off all the shares cornered in that illegal manner for a profit of about ₹ 15 lacs. Para 26 on page 20 of the CBI charge sheet: That Shri Purshottam Budhwani (A-3) submitted 5,590 applications in the names of fictitious persons in whose names demat accounts were fraudulently opened by him. For arranging funds for the application, he had availed loan from KCL, Hyderabad by forging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lines. He further states that the appellant found the proposal attractive and asked his friend Sh. Yashwant Thakkar to purchase the shares with the condition that the payment will be made after the shares were transferred in appellant's demat account. Sh. Yashwant Thakkar arranged purchase of shares in off market transaction on different rates and on different dates and the shares were transferred to appellant's demat account on dt. 11.8.2005, dt. 12.8.2005, dt. 2.9.2005, dt. 8.9.2005 and dt. 5.10.2005. He further submitted that the appellant was short of funds at that point of time, therefore, the appellant requested Sh. Yashwant Thakkar to make payment for purchase of shares and for which, appellant agreed to pay interest to Sh. Yashwant Thakkar. He further states that the appellant thought that the listing of IDFC shares may not be at a very high premium, therefore, the appellant asked his broker to sell all his shares on the day of listing. He submitted that all these transactions of purchase, sale and payments are reflected in the appellant's books of accounts and the appellant has paid income tax on the gain arising out of these transactions. The Counsel took us t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d offence, in terms of Section 2(y) of the Act. He also drew our attention to the modus operandi adopted by these key operators for opening of fictitious/benami bank and demat accounts, submitting applications for subscription of share of IDFC IPO in the name of fictitious/benami persons, cornering of shares reserved for RII category, transfer of shares from demat account of fictitious/benami allottees of shares to one demat account of key operator, transfer of shares from key operator's demat account to financiers and sale of shares on the day of listing. 3.2 The Counsel submitted that the said Sh. Parag P. Jhaveri, key operator and director of M/s. Sugandh Estate Investment Pvt. Ltd., in his statements dt. 9.2.2008 and dt. 2.4.2008, recorded u/s. 50 of the Act, stated, inter alia, that he is one of the directors of SEIPL holding majority shares 99.95% in the company and under specific arrangements, utilized funds on behalf of certain entities/financiers by deploying the same in the specific IPOs. He further states that while explaining the specific arrangement, Sh. Parag P. Jhaveri stated as under: a. That, whenever any party (financier) wanted to subscribe to IPO i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 35,17,850 shares of IDFC were got allotted against 13225 applications; 1. That while giving details about the financiers who had been providing funds for the aforesaid activity i.e. acquiring IDFC shares fraudulently from RII category, he, inter-alia, furnished the said details which among others also included Sh. Jitender Kumar Lalwai, the present appellant; m. That he also disclosed that besides the demat a/c of SEIPL, demat account no. 10004600 and demat account no. 10004626 of himself and of his brother Sh. Kamal P. Jhaveri respectively, were also used by him to transfer shares of IDFC to the appellant. 3.3 The Counsel further submitted that the appellant provided funds to the tune of ₹ 4.76 crores for making 1000 applications for subscribing shares reserved for RII category in the IDFC IPO, to the key operator Sh. Parag P. Jhaveri. He drew our attention to the copy of the order of SEBI, para 10.6 on page 34 to 36 which is detail of financiers of M/s. Sugandh Estates Investments Pvt. Ltd. and para 10.7 on page 37 which is detail of profit made by the financiers of M/s. Sugandh Estates Investments Pvt. Ltd. and stated that the name of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. of Application (i) --------- (xii) Jitendra Lalwani 4,76,00,000 1000 Q. 18 In your answer to question no. 9 above, you have furnished the details of funds received from different financiers for subscribing to IPO of IDFC in RII category. Please furnish the details of shares received/allotted against respective funds received from each financiers which were subsequently transferred to the common demat account of SEIPL for further transfers to each financiers? A. 18 The details of IDFC shares transferred are as under: S. No. Name of Financiers No. of Shares (i) --------- (xii) Jitendra Lalwani 266000 Total 2721690 All these shares were transferred to respective financiers before the date of listing as off market transaction. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FY 2007-08 ₹ 5,64,00,010/- Further as per the ledger statement of your account with Union Bank of India there is a payment of ₹ 64,00,010/- in the date 06-06-2007 vide cheques no. 609043 for pay order towards stamp fee in respect of A-9/31, Vasant Vihar, New Delhi. What have you to state with regard to the source of funds out of which the above mentioned payments/expenses to the extent of ₹ 8,64,00,010/- were made/met? A. 4 I have affixed my dated signatures on the particular entry of 06-06-2007 in token of having seen the said document. I have to state that the funds utilized by me for making the above mentioned payments/expenditures in respect of purchase/acquisition of property at A-9/31, Vasant Vihar, New Delhi have been out of profits derived from the sale of around 22 lakh RII category shares of IDFC which had been acquired during August, 2005 followed by sale thereof, almost simultaneously on the date of listing itself. However, the said profits were intermixed with my available funds, and thereafter utilized, temporarily for other various investments/disbursements, and after a chain of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old the shares on the day of listing in stock exchange and made huge profits there from. And, since the offence committed included offence u/s. 467 of the Indian Penal Code which was a scheduled offence under the Act, the gains made from the above offence are proceeds of crime and as the same has been projected as untainted property, an offence u/s. 3 of the Act has been committed and the property is liable for attachment under the Act. Other contentions of the defendant are that the appellant was in the know of the illegal modus operandi of the key operators, the appellant provided funds to the tune of ₹ 4.76 crore for 1000 applications for subscribing IDFC IPO in RII category, the thus illegally cornered shares of IDFC IPO, which were reserved for RII category, were transferred to appellant in off market transaction before listing of the shares on stock exchange. 6. To unravel the complexity of the facts of the case, it is important to understand the following facts of the case: The IDFC IPO was open for subscription from dt. 15.7.2005 to dt. 22.7.2005, the shares were allotted and credited to demat accounts of investors on dt. 5/6.8.2005, shares so allotted/credite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2008 Q. 2 When how you received payments against transfer of these 266000 shares of IDFC Ltd. from Jitendra Lalwani? A. 2 The details of payments received against these shares are as under: S. No. Cheque no. Date Amount (i) 723634 13.8.2005 90,44,000/- (ii) 438506 26.8.2005 8,00,000/- The above 2 cheques were deposited in SEIPL's HDFC Bank Ltd. account no. 0062000026467 with Navrangpura Branch, Ahmedabad. Q. 3 From whom you received the aforesaid 2 cheques for an aggregate amount of ₹ 98,44,000/-? A. 3 SEIPL had received above referred 2 cheques from Jitendra Lalwani, through office of Yashwant Thakkar, having its office at 319-320, Narayan Chambers, Ashram Road, Ahmedabad. Q. 4 It is observed that the payments against the 266000 shares of IDFC transferred from demat account of SEIPL were received much late after the actual transfer of shares as off market transactions to Jitendra Lalwani. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence has come to show that appellant was in the knowledge of forgery and other offences committed by the key operators. The CBI findings further states that the appellant had purchased IDFC shares from key operators in a legal manner. The CBI has, in its charge sheet, gave a detailed list of entities/individuals, who provided finance to key operators and this list does not include the name of appellant as financier to key operators. The CBI, in its charge sheet, has also identified the amount of profit made by different individuals/entities which would fall in the category of proceeds of crime. This detail also does not include the name of the appellant. 10. In view of the facts of the case as discussed above coupled with the charge sheet filed by the CBI and self contradictions in the statements of Sh. Parag P. Jhaveri, the appellant's contentions that he was not in the know of illegal activities of the key operators for cornering shares; he was not a financier for subscribing shares of IDFC IPO; the shares were acquired by him in a legal manner and the payment for purchase of shares were explained by the him etc., have substantial force and appears convincing. We are t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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