TMI Blog2019 (12) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... s travelled beyond the impugned order. When the impugned order itself does not crystallize the amount due the Recovery Certificate for ₹ 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. 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. The appropriate authority s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations, 2003 ( PFUTP Regulations for short), SEBI Portfolio Managers Regulations, 1993 and various Clauses of the Circulars issued by SEBI in respect of stockbrokers. After providing an opportunity of hearing, replies etc. the order impugned in all these appeal was issued on September 05, 2017. Subsequently, a Recovery/demand notice dated December 18, 2018 was received by four of the appellants (except Manoj Kumar Agrawal) directing them ( and others who are not in appeal) to pay jointly and severally a sum of ₹ 80,97,62,785 along with returns due to investors etc. within 15 days of the receipt of the said notice. 3. Though the show cause notice was issued to 19 noticees and directions are passed against 17 of them only 5 of them have preferred appeal. It is important to note that Kassa has not preferred an appeal. Since all the appeals relate to the same impugned order, they are heard together and are disposed by this common decision. 4. Investigations revealed a number of violations of securities laws by Kassa and other appellants as follows:- (i) Diverted funds of the investors to group entities of the company who derived economic benefits out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d off from the account of Kassa to the group entities against which the impugned order has been passed. Because of such transferring/siphoning off of the clients/investors funds for the benefit of group entities of the Directors/Promoters the WTM of SEBI has considered all these entities as one single economic entity by relying on the order in the matter of Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622. 6. The relationship/connection between the appellants as given in the impugned order are as below. Name of the Appellants Relationship/Connection Mr. Siddharth Shankar Ex-Director of Kassa Finvest (1995-2005) and son of Ashok Kumar (M.D. of Kassa Finvest). He was also a director of Kassa Holdings (1990-2013) and Kassa Financials (1990-2013). Mrs. Nikita Shankar Wife of Siddharth Shankar and director of group companies of Kassa Finvest. Mr. Manoj Kumar Agrawal Manoj Agrawal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 2.06 crores while in another place stated that it is ₹ 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 agreement/settlement between the appellant and one Kamla Narain has not been considered relevant by the WTM though such arrangements are permitted in law. In any case, the demand notice for ₹ 80.97 crores could not have been issued by SEBI as many of the so called investors were not genuine clients and these investments were for assured returns. Appeal No. 37 of 2018 11. The appellant in this appeal was proprietor of AARB Capital ( AARB for convenience), proprietor of GUGU Trading, GVC Capital and G G Impex ( Group Firms for convenience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 that Kassa owed a net amount of ₹ 3,98,000 to AARB rather than AARB owing anything to Kassa. Therefore, the entire allegation that money belonging to Kassa was diverted to AARB and thereby bringing the appellant into wrongdoing of Kassa gets nullified. 15. In the light of the above, it was contended that the demand notice dated December 18, 2018 could not have been issued to the appellant as the Recovery Officer had no jurisdiction to issue such a demand notice. Moreover, the impugned order does not quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 also been directed to pay a sum of ₹ 80.97 crores (approximately) with returns due to investors along with the interest etc. jointly and severally with other noticees by the Recovery/Demand Notice dated December 18, 2018. 21. Learned counsel Mr. Zal Andhyarujina, appearing on behalf of the appellant submitted that the appellant is a 69 years housewife; has no experience of either company matters or share market; is a shareholder o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments 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 business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 opportunity for the appellant to represent his case before the WTM. It is a matter of record, it was urged, that the show cause notice issued on February 29, 2016 was returned undelivered; the appellant was in the custody of EOW; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 held that the appellant was involved in siphoning off ₹ 3,35,22,009/- a joint and several liability of about ₹ 81 crores could not have been imposed on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oundation 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 Regulations and Circulars are explained in detail in the impugned order. In any case, the principle of in pari delicto may be applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 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 ₹ 2.06 crores and ₹ 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 law, Ashok Kumar, does not have any merit as the Director/Proprietor is equally liable for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoter 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 or persons who are in control of the issuer; Both the above provisions clearly show that the appellant is a promoter and therefore by virtue of holding majority stake of more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covery 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 above issues within a period of three months from the date of the receipt of this order after giving an opportunity o ..... 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