TMI Blog2019 (10) TMI 1510X X X X Extracts X X X X X X X X Extracts X X X X ..... hares and offloading the shares allotted pursuant to the preferential allotment thereby earning illegal profits - Orders against 37 entities restraining them from accessing the securities market and further prohibiting them from buying, selling or dealing in the securities market either directly or indirectly and further directed them to keep in an escrow account an amount of ₹ 6 crore which they had earned illegally from sale of the shares allotted in preferential allotment by the company - contention of some of the appellants that they were only employees in the company and had no knowledge of the fraudulent activities HELD THAT:- We find that the contention of some of the appellants that they were only employees in the company and had no knowledge of the fraudulent activities is patently baseless and cannot be accepted. Each of the appellants were aware of the activities being done through their accounts and, therefore, it is inconceivable to believe that they were not aware of their bank accounts, trading accounts or the demat accounts being utilized by Shri Rajesh Ranka. The contention that they were not signatories to these accounts is a mere afterthought as, except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts and that a fraud was played upon them and, therefore, they should not be made liable for disgorgement is patently erroneous. We are of the opinion that by renting their demat account, trading account etc., the appellants were concealing the identity of the fraudster and, thus, were acting not only in concert but in connivance with the said fraudster. The appellants cannot, thus, escape from the liability of debarment and the wrongful gains made by them. From the aforesaid, it is clear that a person can be directed to disgorge amount equivalent to the wrongful gain made by him. By such contravention, the liability to disgorge the amount is individual and not collective. Thus, we are of the opinion that the direction of the WTM directing the appellants to pay the amount jointly or severally is against the provisions of Section 11B and to that extent, it cannot be sustained. The order of the WTM is consequently, modified to the extent that the liability of the appellants in question except Rajesh Ranka to disgorge the amount is to the extent of the profit earned by them as calculated by the WTM under Table 9. In the event of failure by these appellants to pay the amount, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d artifice to defraud the genuine shareholders of the company by falsely portraying fraudulent transactions as genuine preferential allotment of shares and offloading the shares allotted pursuant to the preferential allotment thereby earning illegal profits. 3. As a result of the aforesaid enquiry, SEBI issued an ad-interim ex-parte order dated November 5, 2013 against 37 entities restraining them from accessing the securities market and further prohibiting them from buying, selling or dealing in the securities market either directly or indirectly and further directed them to keep in an escrow account an amount of ₹ 6 crore which they had earned illegally from sale of the shares allotted in preferential allotment by the company. The company was also restrained from raising any additional capital through the securities market either directly or indirectly. The said ad-interim ex-parte order was subsequently confirmed on May 7, 2015. 4. Subsequently thereto, after investigation a common show cause notice dated November 15, 2016 was issued to 36 entities to show cause as to why suitable actions/directions in terms of Sections 11(4) and 11B of the Securities and Exchange Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r debarring the appellants from accessing the securities market directly or indirectly for a period of 10 years from the date of completion of disgorgement. The appellants were further restrained from dealing in the securities market, in any manner, for a period of 10 years and were made jointly and severally liable to disgorge an amount of ₹ 6,78,85,716/- alongwith simple interest calculated at the rate of 12% p.a. with effect from November 5, 2013 till the date of payment. The WTM further directed that in the event there was a failure to pay the amount by the appellants and the other noticees jointly and severally SEBI would consider the recovery of amounts either from Jagadish Vital, thereafter from the legal representatives of Late Maheshchandra Shah and thereafter from Rajesh Ranka, or thereafter from Manjulaben Shah and thereafter from other preferential allottees and lastly from SMS Techsoft i.e. the company in the aforesaid order of hierarchy. 7. Some of the appellants being aggrieved by the said order have filed the present appeals. 8. We have heard Shri Deepak Shah, Shri Pulkit Sharma, Shri Saurabh Bachhawat and Shri Vikas Bengani, the learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed against them as they were themselves a victim of fraud. 13. In Appeal No. 256 of 2019, the appellants contended that their bank accounts, demat accounts, trading accounts were forged and that they are not signatories to these accounts. It was contended that since the appellants have not earned any profits from the alleged shares, no disgorgement order could have been issued against them. 14. On the other hand, the learned counsel for the respondent contended that the order of WTM does not suffer from any error of law and is liable to be affirmed. It was contended that a fraudulent scheme was adopted and all the appellants were linked with each other in one way or the other and benefited from such fraudulent activities. It was contended that an effort was made to divert the attention on Mahesh Shah who apparently died soon thereafter. It was further contended that the disgorgement has been calculated on each of the appellants based on the profits made by them. Such amount was liable to be paid by them jointly and severally. 15. Having heard the learned counsel for the parties at some length, we find that the contention of some of the appellants that they were only emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated which the WTM has directed the appellants to disgorge the amount jointly or severally. The contention that since the profit has not been computed, the amount cannot be disgorged under Section 11B is patently erroneous. A feeble attempt was made by one of the appellants that the expenses incurred by the appellants in the transactions should be deducted from the profits or wrongful gains made by them. Such submission cannot be considered in the absence of any amount being brought on record to show the actual expenses incurred by the appellants. The contention raised is misconceived and an afterthought. The contention by some of the appellants that they were not signatories to the bank accounts, trading accounts or the demat accounts and that a fraud was played upon them and, therefore, they should not be made liable for disgorgement is patently erroneous. We find that the appellants in Appeal No. 256 of 2019 had received compensation of ₹ 15,000/- per month for renting their demat accounts. We are of the opinion that by renting their demat account, trading account etc., the appellants were concealing the identity of the fraudster and, thus, were acting not only in concert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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