TMI Blog2009 (9) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... k Exchange of India Limited on October 19, 2005. It was further revealed that Ms. Himani Patel, the appellant herein had received 10160 shares of Suzlon from 635 different demat accounts in off market transactions of 16 shar es each. It further transpired that 61 persons filed 635 multiple applications for 96 shares each and that a sum of ₹ 48960/- had been deposited alongwith each applicati on. The Board also found that money was routed through 22 different bank accounts in which the appellant was the first account holder and that each application was allotted 16 shares. The basis of allotment by the issuer company to the retail investors was 6:1. In other words, for every 6 shares applied for by a retail investor, he was allotted 1 share. The application money for each application was given by the appellant whic h was debited to her account and that the refunds received for the exce ss number of shares applied for was received back in the accounts of the appellant. On the basis of the findings recorded by the investigating officer, the Board served on the appellant a show cause notic e dated June 5, 2008 stating all the aforesaid facts therein. Noticing that the appellant h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares so purchased by them to her demat account and this was as per the obligations undertaken by them under the lending arrangement. Regarding the consideration for the transfer of the securities to her demat account, this is what she said in her reply: That the consideration for the transfer of the securities to my demat account towards repayment of the loan would be calculate based on the cost of borrowing the funds from me. It is pertinent to mention here that when the investigations were ordered some time in the year 2006, the Board by an ex-parte order dated April 27, 2006 pending the investigations, restrained, among others, the appellant from buying, selling or dealing in the securities till further orders. This detailed ex parte order was treated as a show cause notice and a post decisional hearing was given to all those against whom the interim directions had been issued. The appellant filed her reply to the ex parte order and took the same stand which is reproduced hereunder : I am an investor in securities as well as a financier to creditworthy investors ( Loanees ) who are in need of capital to make investments in the securities market. I have entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the appellant under Chapter VIA of the Act for imposing monetary penalty for her wrongful acts. The Adjudicating Officer by his separate order dated October 31, 2008 also found that the charges levelled against the appellant stood established and accordingly imposed a monetary penalty of ₹ 55 lacs on her. Appeal no.2 of 2009 has been filed against this order. Since both the appeals aris e out of the same set of facts and allegations made against the appellant and they have been argued together, they are being disposed of by a common order. We have heard the learned counsel for the parties on both sides. The whole time member in the impugned order has found th at the appellant ope ned 22 joint bank accounts with 61 persons with herself as the first account holder and that all these persons made a total of 643 applications in the Suzlon IPO. He further found that out of these applications 635 applica tions were allotted 16 shares each and that the appellant financed all these applications and that there were debits of ₹ 48,960/- for each application in her bank account. The shares that were allotted on these applications were credited to 635 demat accounts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or for a value of not more than ₹ 1 lac. A reading of this definition makes it clear that it is inherent that a person who wants to apply as a retail investor must not exceed the limit and if one were to apply in different names, it is obvious that he is trying to manipulate the provisions of the guidelines and corner shares more than what he may otherwise be entitled to. Clause 11.3.5 of the guidelines lays down the procedure for allocation / allotment where a company makes an issue to the public through 100% book building process. It is common ground between the parties that Suzlon had come out with a public issue through the book building process. The said clause of the guidelines alongwith the second proviso reads as under : 11.3.5 Allocation / Allotment Procedure (i) In case an issuer company makes an issue of 100% of the net offer to public through 100% book building process- (a) not less than [35%] of the net offer to the public shall be available for allocation to retail individual investors; (b) not less than [15%] of the net offer to the public shall be available for allocation to non-institutional investors i.e. investors other than retail individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and reservation. Now coming to the facts of the present case, we are in agreement with the findings recorded by the whole time member that it was the appellant who filed multiple applications in the names of different persons with a view to subvert the allotment in the IPO and corner larger number of shares than the number to which she would have otherwise been entitled to had she filed a single application in her own name. It is not in dispute that after the applications were received, Suzlon had allotted shares in the retail category in the proportion of 6:1, that is, for every six shares applied for, one share was allotted in the retail category. By filing 635 multiple applications, the appellant succeeded in getting 16 shares on each application and managed to corner 10,160 shares in different demat accounts which, as already observed, were transferred to her demat account in off market transactions which she later sold in the market. This conduct of the appellant not only subverted the allotment process but was also fraudulent in nature. We say so in the light of the findings recorded by the whole time member which have not been disputed before us. It is admitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which is referred to in one of the columns in the said chart. If the appellant had really lent money to the applicants for applying for the shares of Suzlon, there is no reason why she should be paying commission to them. It is obvious that the applicants had lent their names for the allotment of shares to the appellant so that she could corner the portion of the retail segment more than her entitlement. In this view of the matter we have no hesitation in holding that the appellant was guilty of violating Regulations 3 and 4 of the Regulations and also the guidelines and section 12 (A) of the Act. The learned counsel appearing for the appellant strenuously argued that the conduct of the appellant did not fall within the Regulations 3 and 4 of the Regulations and, therefore, the findings recorded in the impugned order could not be sustained. We cannot agree with him. A bare reading of Regulation 3 would show that it prohibits a person from buying, selling or otherwise dealing in securities in a fraudulent manner. It also prohibits a person from employing any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not exceed the total profits realized as the result of the unlawful activity. In a disgorgement action, the burden of showing that the amount sought to be disgorged reasonably approximates the amount of unjust enrichment is on the Board. It is thus clear that a person who has unjustly enriched himself by his unlawful conduct should be required to disgorge the illegal gains made by him. We have already held that the conduct of the appellant in cornering large number of shares in the retail category of Suzlon IPO was fraudulent and that by her wrongful conduct she had unjustly enriched herself to the extent of ₹ 33,52,636/-. The whole time member was justified in requiring the appellant to disgorge the aforesaid amount. No fault can thus be found with any pa rt of the order passed by the whole time member. This brings us to Appeal no. 2 of 2009 in which the adjudicating officer has also found that the appellant was guilty of misconduct in as much as she cornered shares more than her entitlement in retail category of Suzlon IPO. The findings recorded by the adjudicating officer cannot but be upheld in view of our findings recorded earlier. Section 15(H)(A) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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