TMI Blog2023 (8) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... id, the contention raised by the learned counsel for the Company does not hold any merit. Direction of the WTM directing the appellants to pay the amount jointly or severally - 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 - 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. There is no inter se connection of noticees no. 10, 11 and 14 with the other noticees except that these noticees are connected to the Company noticee no. 1. In our view, the directions to pay the penalty amount jointly and severally was not proper and is arbitrary. The appellants have been found to be part of the scheme planned by the Company and have been involved in transferring the funds to the preferential allottees for subscription of the preferential allotment of the shares. The AO has imposed a penalty of Rs. 46 lakhs upon 23 noticees to be paid joint and severally which works out to Rs. 2 lakhs per noticee. However, considering the peculiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount was paid during March 2011. Noticees no. 9 to 13 are the conduits and, through these entities, the money was paid to the allottees and these entities were funded by noticee no. 1, namely, the Company. 4. Noticee no. 1 i.e. Unisys Softwares and Holding Industries Limited is the Company filed Appeal No. 552 of 2022, Notice no. 10 Vibhuti Multi Trade Pvt. Ltd. filed Appeal No. 125 of 2023, Noticee no. 11 Allbright Electricals Pvt. Ltd. filed Appeal No. 290 of 2023 and Noticee no. 14 Scan Infrastructure Limited filed Appeal No. 739 of 2022 and they are the conduits for the transfer of the monies to the allottees. 5. SEBI conducted an investigation into the affairs of the Company with regard to the disclosure requirements under the PIT Regulations and funding by the Company to the preferential allottees in the preferential allotment made by it on March 28, 2011. The show cause notice alleged that the promoters of the Company acquired the shares of the Company on October 01, 2011 which resulted in the change of their shareholding on account of transfer of the shares exceeding Rs. 5 lakhs in value or 25,000 shares or 1% of the total shareholding or voting rights and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de in the similar modus operandi, details of which has been given in paragraph 2(x) of the impugned order. 8. In view of the aforesaid, it was alleged that the Company had given financial assistance to the preferential allottees i.e Noticees no. 2-8 to enable them to subscribe and buy the shares of the Company on a preferential basis on March 28, 2011 thereby limiting genuine capital infusion to that extent. It was alleged that Noticees No. 9 to 23 were acting as conduits and facilitated the Company and gave financial assistance in connection with the subscription made by the preferential allottees. 9. The noticees denied the charge leveled against them. The Company contended that money given to Grafton Merchant Private Limited, Noticee no. 12 and Allbright Electricals Pvt. Ltd. Noticee no. 11 were given in the course of business and had nothing to do with the preferential allotment of the shares given to noticees no. 2-8. It was contended that the Company was having regular financial dealings with Grafton Merchant Private Limited and Allbright Electricals Pvt. Ltd. and the money paid to them was not paid towards the amount advanced by them to the preferential allottees. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the appellants and Shri Suraj Chaudhary, the learned counsel for the respondent. 14. The contention of the learned counsel for the Company is, that they have not devised any fraudulent scheme with regard to allotment of the preferential shares. It was contended that the finding of the AO that the Company had in fact funded the preferential allottees is based on surmises and conjectures. The payment made by the Company to Grafton Merchant Private Limited and to Allbright Electricals Pvt. Ltd. was in the usual course of business and that some amount was paid to Allbright Electricals Pvt. Ltd. for purchase of shares of other Company to which the said entity has acknowledged. It was urged, that the Company had no knowledge that the funds were utilized by Allbright Electricals Pvt. Ltd. for funding the preferential allottees. It was thus contended that the finding that there was a fraudulent intent on the part of the Company in devising such a scheme was wholly erroneous. It was urged, that the Company has not violated Section 77(2) of the Companies Act by giving financial assistance for purchase of its own shares which was allotted validly to noticees no. 2-8 on preferential b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied and we are of the confirmed opinion that the money received by the allottees was the funds which was funded by the Company through the conduits. Such round tripping of the funds was totally fraudulent. 18. In Farooq Kasam Hawa Ors. vs. SEBI in Appeal No. 448 of 2020 and other companion appeals decided on June 10, 2022 the facts in that appeal was:- 14. On 28th November, 2013, noticee no. 12 Mihir Consulting and Trading Company received Rs. 1 crore from noticee no. 13 AA Plus Commodity Broking P. Ltd. Noticee no. 12 also received Rs. 5 lakhs from Mainak Comtrade Pvt. Ltd., noticee no. 15. Upon receiving the aforesaid amount noticee no. 12 transferred Rs. 15 lakhs each to 7 preferential allottees i.e. noticee no. 5 to 11. Upon receiving the said amount noticee no. 5 to 11 transferred the funds to the Company towards application money for preferential allotment on 29th November, 2013. On 30th November, 2013, the Company issued Rs. 64,25,000 shares of Rs. 10 each under preferential allotment to 49 entities including noticee nos. 5 to 11. The shares of the Company was listed on BSE in the category of Trade to Trade group with effect from 12th June, 2014. Prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akul Ramniklal Parekh Ors. vs. SEBI in Appeal No. 527 of 2019 decided on April 17, 2021 this Tribunal held:- 7. Having heard the learned counsel for the parties and having perused the records we find that the Company had transferred its funds to the preferential allottees to enable them to subscribe to the Company s shares. This fact has not been disputed and, the only contention raised was that it was an advance. Some of the appellants contended that it was a loan and according to appellant no. 7 it was an advance towards professional fees to be adjusted in future. We are of the opinion that when a Company raises its capital, issuance of shares is considered as capital infusion and an ordinary investors perceives it as a capital infusion which is essential for strengthening the Company s financial fundamentals. When a preferential allotment is made by a listed Company it gives an impression that genuine capital infusion is being brought into the Company. When the Company uses its own funds and distributes it to the allottees for the purpose of subscribing to the shares, it deceives the genuine investors and in fact falsely leads them to invest in the shares of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the direction to disgorge an amount jointly and severally has been used loosely without understanding the true import of the meaning of joint and several liability. All persons who aid or direct or join in the committal of a wrongful act, are joint tortfeasors. To constitute a joint liability, the act complained of must be joint and not separate. Where two or more persons combine together to commit an act, it is a joint action which amounts to a tort. The liability of joint tortfeasors i.e. the liability that an individual or business either shares with other tort-feasor or bears individually without the others. Thus, joint tort-feasors are jointly and severally liable for the whole damage resulting from the tort. In assessing damages against joint tortfeasors or several tort-feasors causing same or indivisible damage, one set of damages will be fixed, and joint tort-feasors may be assessed according to the aggregate amount of the injury resulting from the common act or acts. The reason being is that where the cause of action is one and indivisible then all persons become liable jointly and severally. 92. The mere coincidence of a number of persons doing a series of acts wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubts, it is hereby declared that the power to issue directions under this section shall include and always be deemed to have been included the power to direct any person, who made profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act or regulations made thereunder, to disgorge an amount equivalent to the wrongful gain made or loss averted by such contravention. 21. 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, it would be open to SEBI to recover th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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