TMI Blog2018 (4) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... mposed on it on account of serious PFUTP violations. As such, both the appeals are without any merit and liable to be dismissed. No merit in the argument of the appellant company that its present management is completely disconnected from the management prior to 2008. Similarly, we find no merit in the arguments of the appellant that Ashok Shah as a separate entity has been penalized by a separate order of SEBI and as such the impugned orders herein is a double whammy to the appellant company. There is all round lack of credibility in the arguments submitted by the appellant in the context of the fact that they are neither willing to give details of their past association nor their present association nor any documents related details regarding dealing in the shares of Platinum. In fact, on a question from the Bench whether there is any other order passed by SEBI against the appellant, the Learned Senior Counsel for the appellant stated in the negative. When he was told that two other appeals are pending before this Appellate Tribunal against the appellant the Senior Counsel had no information about the same because we note that separate Counsel was engaged in respect of thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es ORDER Per : Dr. C.K.G. Nair (Oral) 1. These two appeals have been filed by the appellant aggrieved by two orders of Securities and Exchange Board of India ( SEBI for short). Appeal No. 4 of 2017 is filed against the order dated August 12, 2016 passed by the Whole Time Member ( WTM for short) of SEBI wherein the appellant (among others) has been prohibited from accessing the securities market directly or indirectly, and is prohibited from buying, selling or otherwise dealing in securities, directly or indirectly for a period of 3 years and further the appellant is directed to disgorge the unlawful gain of ₹ 20,64,745/- along with interest thereon from February 2007 till payment. Appeal No. 20 of 2017 is filed against the direction of SEBI vide their letter dated December 22, 2016 advising the appellant to dissociate from discharging the obligations as a Merchant Banker in view of the 3 year restraint imposed by the order of the WTM of SEBI dated August 12, 2016 (impugned in Appeal No. 4 of 2017). Since the order impugned in the second appeal is a consequential direction of SEBI following the WTM s order impugned in Appeal No. 4 of 2017, it is evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant aided and abetted Platinum and its promoters and directors and thereby violated provisions of Sections 12A(a),(b) (c) of SEBI Act, 1992 read with Regulation 3(a), 3(b), 3(c) 3(d), 4(1) 4(2)(e) of PFUTP Regulations, 2003. Hence, 3 years restraint from the securities market and direction to disgorge the amount of unlawful gains made imputing the acquisition cost at ₹ 1 per share since the appellant did not provide any details relating to the purchase and its costs etc. 5. The Learned Senior Counsel Shri P.N. Modi appearing on behalf of the appellant except on the last date of hearing strenuously argued that the appellant did not receive any shares of Platinum; their alleged 10 lakh shares shown against the appellant was in fact shares belonging to another entity by the name Mahavir Impex who was not even questioned by SEBI. Since Mahavir Impex did not have a demat account, his shares were kept in the appellant s demat account and on instruction of Manish Shah of Mahavir Impex the appellant sold the shares through the broker Kotak Securities in January 2007 and kept ₹ 45,000/- as service charges and paid remaining ₹ 29,90,000/- to Mahavir Impex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of natural justice and has to be quashed and set aside forthwith. The appellant also relied on the decision of this Tribunal in the case of Almond Global Securities Ltd. vs SEBI (Appeal No. 275 of 2014 decided on May 13, 2016) wherein it was held that in every case where a restraint order is passed against a person that person may not become an unfit and improper person. Therefore, in the instant matter when the WTM did not find the appellant to be unfit and improper it was not within the powers of an officer of SEBI to declare the appellant not fit and proper and that too without following any due process as provided in the Intermediaries Regulations 2008. 8. Shri Keval Ponkiya, Learned Counsel who appeared on behalf of the appellant on the last day of hearing also reiterated the above contentions made by the Learned Senior Counsel Shri P.N. Modi. 9. Shri Pradeep Sancheti, Learned Senior Counsel appearing on behalf of SEBI walked us through the full facts relating to the impugned order dated August 12, 2016. Platinum has changed its name multiple times since its incorporation as Kanugo Lease and Investment Ltd. in July 17, 1992. The name was finally changed to Platinum Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors during the same period. Accordingly, the appellant received 10 lakh shares from Tushar Shah, one of the promoters of Platinum on August 4, 2006. On the same day Vashi Construction also received 10 lakh shares from Tushar Shah through off-market transaction. Ashok Shah and Hiralal Shah were directors of Vashi Construction. Further, Rudra Securities received a total of 24 lakh shares through off-market transfer from Jayesh Shah, another promoter of Platinum during August 30, 2006 September 4, 2006. The registered address of Rudra Securities was the residence of Ashok Shah. Similarly, Hiralal Shah (father of Ashok Shah, past director of Platinum and director of the appellant company during investigation period), Meena Shah (wife of Ashok Shah), Sarlaben H Shah (mother of Ashok Shah), Induram Developers Pvt. Ltd. (wherein Ashok Shah and Hiralal Shah were directors) and Exdon Trading managed by Ashok Shah are all part of the noticees in the present matter, some of them on separate appeals before us. 12. Regarding Appeal No. 20 of 2017 the Learned Senior Counsel for SEBI stated that the entire arguments of the appellant that the present directors and management of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations and therefore restrained from the securities market cannot discharge its functions as a Merchant Banker because merchant banking is indirectly dealing in securities market. For ease of reference we reproduce the relevant sections of SEBI Act and PFUTP Regulations, 2003 which reads as under: SEBI Act, 1992 12. (1) No stock-broker, sub- broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker , underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the [regulations] made under this Act: Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. 12A. No person shall directly or indirectly- ( a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under. Further, Regulation 11 of PFUTP Regulations, 2003 reads thus:- 11. (1) The Board may, without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) of section 11 and section 11B of the Act, by an order, for reasons to be recorded in writing, in the interests of investors and securities market, issue or take any of the following actions or directions, either pending investigation or enquiry or on completion of such investigation or enquiry, namely:- 12 ( a) suspend the trading of the security found to be or prima facie found to be involved in fraudulent and unfair trade practice in a recognized stock exchange; ( b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; ( c) suspend any office-bearer of any stock exchange or self-regulatory organization from holding such positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ework which mandates me to take notice of the conceptual and definitional problem it brings along. Fraud is among the most serious, costly, stigmatizing, and punitive forms of liability imposed in modern corporations and financial markets. Usually, the antifraud provisions of the security laws are not coextensive with common-law doctrines of fraud as common-law fraud doctrines are too restrictive to deal with the complexities involved in the security market, which is also portrayed by the changes brought in through the 2003 regulation to the 1995 regulation. 15. In the light of the above provisions in the SEBI Act, PFUTP Regulations and the clarification given by the Hon ble Supreme Court merchant banking is undoubtedly an act of dealing in securities and therefore direction to a Merchant Banker not to undertake merchant banking business when under restraint is fully justified. There is no suspension or cancellation of the license of the Merchant Banker in the instant matter requiring separate procedure to be followed. In any case, the requirement of following the procedure laid out in the Intermediaries Regulations, 2008 would arise when a fresh matter is taken up against a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. The argument that the respondent did not follow the procedure laid out in suspending / cancelling the merchant banking license is without any merit, because no such order has been passed by the WTM of SEBI in the order dated August 12, 2016 (impugned order in Appeal No. 4 of 2017). Argument that the procedure required under the Intermediaries Regulations have been violated and thereby natural justice has been violated have no merit because the appellant has been charged with major violations of conspiring with other entities and thereby violating the provisions of PFUTP Regulations. In such a case, question of observing the principle of natural justice does not arise. The Hon ble Supreme Court in the matter of Karnataka State Road Transport Corporation and Another vs SG Kotturappa and Anr. (2005 3 SCC 409) has held that the principles of natural justice are not required to be complied with when it will lead to an empty formality. When the WTM s order dated August 12, 2016 has clearly found the appellant liable for violation of PFUTP Regulations, 2003 and accordingly the appellant is restrained from accessing the securities market and the registration of the appellant as a Me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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