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TMI Blog2019 (12) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... due till the date of actual payment. 2. The relevant background of the matter is the following. During 2014 SEBI received a number of complaints relating to investor grievances and mobilisation of funds etc. by M/s Kassa Finvest Private Limited ("Kassa" for convenience), a trading member of the National Stock Exchange of India Limited ("NSE" for convenience) and BSE Ltd. ("BSE" for convenience). SEBI initiated an investigation relating to the dealings of Kassa on February 23, 2015. Pending investigation, SEBI vide ad interim ex parte order dated March 19, 2015 restrained Kassa and its directors from accessing the securities market till further orders. During the investigation a number of violations of securities laws had been noticed by SEBI. Accordingly, a show cause notice was issued on February 29, 2016 to Kassa, its directors/promoters, group persons/entities and some of the employees directing to show cause as to why action should not be taken against them for violating various provisions of SEBI Act, 1992, Securities Contract Regulation Rules, 1957, SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returns. Returns promised were in the range of 9%-13% when deposits were in the form of shares and 18% - 27% when deposits were in the form of funds. Such activity is violative of Rule 8(f) of the SCRR. Further, such activities have also violated Rule 3 of PMS Regulations because Kassa carried out operations as a portfolio manager without obtaining a certificate/registration from SEBI. Similarly, funds to the tune of Rs. 46.83 crores have been transferred from clients' bank accounts maintained by Kassa which HDFC Bank and Canara Bank to the business bank account of Kassa maintained with HDFC Bank and Canara Bank during the period 2008-2015. Further, funds to the tune of approximately 26.45 crores have been transferred from business accounts/clients' accounts maintained with various banks to related/group/associate persons/entities (against whom the impugned order has been passed). Similar siphoning off clients' securities/mutual fund units have also been noticed by SEBI. Hence, the finding that a total amount of Rs. 80.97 crores have been diverted/siphoned off from the account of Kassa to the group entities against which the impugned order has been passed. Because of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y connected with Kassa in its day-to-day management. 9. It was further contended by the learned senior counsel for the appellant that all the records relating to his consultancy fee, TDS and reimbursement of other expenses from time to time are available. These details are also reflected in the audited balance sheets of Kassa for various financial years. In addition to certificates from a chartered accountant the appellant has produced his income tax returns, which also show consultancy income on a year to year basis. The learned WTM also records the fact that the appellant received consultancy fee and reimbursement for a period of 7 years during April 2008 to March 2015. It was further contended that there is a serious error in the impugned order while calculating the alleged benefits accrued to the appellant. In one place it is stated that the amount in question is Rs. 2.06 crores while in another place stated that it is Rs. 2.60 crores. 10. The learned senior counsel for the appellant further submitted that there has been a number of mistakes in the impugned order relating to the payments and refund between the appellant and Kassa. Further documents relating to a tripartite ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... association with either Kassa or with its alleged wrongdoing. This fact is also emphasized in the statement made by Anil Dhawan, President of Kassa and Vivek Agarwal, Deputy General Manager ('DGM') Finance of Kassa that the client codes relating to group entities with which the appellant is associated as a proprietor were in fact handled directly by Ashok Kumar and the payments to be made to all the companies belonging to Ashok Kumar were decided by Manoj Kumar Agarwal, Anil Dhawan and Ashok Kumar. All these show that Ashok Kumar was the real Proprietor of the entities and all the activities of these entities were managed by Ashok Kumar and appellant's name was only used. 14. The learned counsel further contended that whatever payments are received by AARB from Kassa is only by means of trading profits due to this entity and even here the trading was done by Ashok Kumar and not by the appellant. Further all the monies paid to Kassa by AARB was also not taken into account in the impugned order and evidences in the form of bank statement in HDFC Bank produced were not fully considered. If all these aspects were in fact considered by the WTM it would have been evident th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Kassa. He has not made any illegal gain. Given these facts the appellant had no role in the illegal activities of Kassa and, therefore, the impugned order is liable to be quashed qua the appellant. 19. Learned counsel further submitted that without prejudice to the above submissions, restraint of 10 years imposed on the appellant is too harsh particularly since he was an employee only and not a Director or KMP and grouping him with the Managing Director and other Director etc. and handing over the same punishment is both beyond law and too harsh. It was also submitted that he may be allowed to liquidate the existing portfolio as he has no other source of income. Appeal No. 38 of 2018 20. The appellant is the single largest shareholder of Kassa, holding 51.65% of shares. She is the wife of Ashok Kumar, MD of Kassa and was a former Director of Kassa for 8 years during 1995 to 2003. She was one of the entities debarred from accessing the securities market vide ex-parte ad interim order dated March 19, 2015. She has been restrained for a period of 10 years as well as made jointly and severally liable to make refund of the monies collected from clients/investors. Further, she has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is held by such person; Provided further that such financial institution, scheduled bank and foreign institutional investor shall be treated as promoter for the subsidiaries or companies promoted by them or for the mutual fund sponsored by them;' 22. Further, the learned counsel for the appellant also relied on a number of judgements to prove his contentions. Relying on the order of Subhkam Ventures (I) (P.) Ltd. v. SEBI [Appeal No. 8 of 2009, dated 15-1-2010] it was contended that since the appellant was not in control or in-charge of Kassa the appellant is not liable for any violation committed by Kassa. 23. Further, it was contended that even if the appellant is held to be a promoter she is not liable to be charged because she was not in-charge of the day-to-day management of the company as defined under Section 141 of the Negotiable Instruments Act, 1881, which is substantially similar to Section 27 of the SEBI Act, as follows:- "141. Offences by companies.- (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant; there was no direction in the impugned order to make any payment as no amount was specified in the impugned order and the Recovery Officer has no right to specify the amount which is not part of the impugned order. 25. Further, it was submitted that the corporate veil of Kassa could not have been pierced since neither the show cause notice nor the impugned order itself has proved the necessity of doing so and hence it is a breach of natural justice. 26. Learned counsel for the appellant also sought to distinguish the orders relied on by the respondent SEBI in the impugned order namely Delhi Development Authority (supra). Appeal No. 197 of 2018 27. The appellant was the Managing Director of Kassa at the relevant time holding 5% of the shares of Kassa. In addition he owned associated companies' Kassa Holdings & Consultants Private Limited ("Kassa Holding"), M/s Mystic Cures Pvt. Ltd. ("Mystic Cures") and managed the group entities M/s. Guru Trading, M/s. GVC Capital, M/s. AARB Capital and M/s. G&G Impex. 28. The learned counsel for the appellant Shri Ankit Lohia, took a preliminary objection on the ground that the impugned order was passed without giving sufficient op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving at the amount of Rs. 80,97,62,785/-. It also does not factor in the details provided by the appellant to SEBI of 10 groups of investors whose loans amounted to approximately Rs. 64 crores. As urged earlier since these parties were in pari delicto as held in a number of judgements they cannot be granted any reliefs. Such judgements include: Sanjay Ramchandra Shirke v. State of Maharashtra [Bail Application 1848 of 2018, 27-9-2018] passed by Bombay High Court), Suman Lata Sharma v. Vinod Kumar Sharma 2017 SCC OnLine Del 11395 and Kuju Collieries Ltd. v. Jharkhand Mines Ltd. AIR 1974 SC 1892. 33. Similarly, it was further contended that this Tribunal itself held in the appeals filed by some of these investors that they were not entitled to get any benefit out of the Investors Protection Fund because their investments were not genuine and not in the securities market. Such judgements include: Smt. Sudha Gupta v. National Stock Exchange of India Ltd. [Appeal No. 355 of 2017, dated 15-3-2018] and Kabir Oberoi v. SEBI [Appeal No. 153 of 2017, dated 17-3-2018]. Further, the Recovery Certificate has been issued without considering the profits realised by the appellant. Even if, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. We find this argument not only devious but one which has to be rejected outright because this argument can vitiate the very legal foundation of the securities market. Here is a broker who is under a two-tier regulatory structure, by SEBI and the stock exchanges, and operating under tight regulatory restraints (Broker Regulations and Code of Conduct) in conducting the business of brokerage under the securities laws and the exchange by laws etc. Their claim that the investors are guilty in equal measure is tantamount to stating that some of the so called investors would barge into their office and forcefully make deposit for which the broker has no responsibility or accountability. This is not how a broker's business is to be run despite the principle of caveat emptor notwithstanding. If a broker is accepting such transactions in the nature of loans the broker is squarely responsible for this illegality as it has been told by various securities laws how and what type of transactions a broker is supposed to enter into with investors/clients and what type of due diligence and care it has to take and how the books/documents have to be maintained etc. in great detail. All these R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh this purported tripartite agreement. Moreover, when the appellant informed Kassa that he settled an amount of Rs. 14360578/- due to Kassa by paying to Kamla Narain on April 05, 2015 the acceptance letter by Kamla Narain is dated September 26, 2016. Accordingly, these documents are clearly afterthoughts and devoid of veracity. Therefore we find no reason to fault the finding in the impugned order that these are afterthoughts and the evidence now produced has no substance. We agree with the submission that two different figures Rs. 2.06 crores and Rs. 2.6 crores are given at different places in the impugned order, which the learned senior counsel for the respondent clarified that one is with the consultancy fee and the other is net of it which appears logical. In any case such typographical error does not undermine the substantive finding in the impugned order. 39. Similarly, we find no merit in the contentions of Nikita Shankar (Appellant in Appeal No. 37 of 2018) wife of Siddharth Shankar and daughter in law of Ashok Kumar. The submission that she was Proprietor of the Group entities only in name and all decisions were taken and the group entities were managed by her father in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a long period of 8 years during 1995 to 2003. Moreover, she is not just a promoter but holds 51.65% of shares of Kassa by virtue of which she is in absolute control of the company. Whether she has appointed any Director by virtue of this position is immaterial as it is a choice open to her. In any case her husband is the Managing Director of Kassa by holding just 5% of the equity shares of the Company. Therefore, effectively by virtue of being the promoter in control of the company she is allowing the Managing Director who is her husband to run the Company. By no stretch of imagination the appellant can claim shelter under either ignorance or lack of any role/function in the company. Section 2(69) of the Companies Act clearly states that a "promoter" inter alia means a person: (a). ** ** ** (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; Further, according to Regulation 2(za) of ICDR Regulations, 2009 "promoter" includes: (i) the person o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order. When the impugned order itself does not crystallize the amount due the Recovery Certificate for Rs. 80,97,62,785/- could not be issued by the Recovery Officer who is not an Adjudicating Authority. Further the Recovery Officer does not tell what is the amount to be adjusted in coordination with the NSE and BSE as directed in the impugned order. We find some merit in these submissions; it is not clear from the Recovery Certificate how the amount has been arrived at; what is the interest liability; whether payments made to various parties by NSE and BSE have been taken into account etc. 44. In the light of the above, while upholding the impugned order on merit we remit the matter to SEBI to specifically decide the following issues: (i) The Recovery Officer shall crystallize the exact amount of liability for refund/repayment to investors/clients and issue a revised certificate. (ii) The WTM shall reconsider the period of restraint imposed on Manoj Kumar Agrawal, (appellant in Appeal No. 346 of 2017). (iii) The WTM shall consider the request of Manoj Kumar Agrawal for liquidation of his mutual funds units. 45. The appropriate authority shall pass fresh order(s) on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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