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TMI Blog2023 (3) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to as 'SEBI') has passed an ex-parte ad-interim order dated March 2, 2023 against 31 noticees issuing a slew of directions, namely, directing the noticees to deposit the unlawful gains in an escrow account in a nationalized bank towards illegal gains made by them and further directing the bank to freeze all debits till such time an escrow account is opened and the amount is transferred. The WTM also directed the depositories to suspend all debits and restrained the noticees from disposing or alienating any assets or property. The WTM also directed the noticees to provide full inventory of all the assets or investments held in their name, jointly and severally, whether movable or immovable including details of all bank accounts, demat accounts, mutual fund investments, etc. 2. Four noticees out of 31 noticees have filed two appeals questioning the validity and legality of the ex-parte ad-interim order. Appeal No. 284 of 2023 has been filed by Arshad H. Warsi, Maria Goretti Warsi and Iqbal Hussain Warsi who have arrayed as noticees nos. 28, 29 and 30 in the impugned order. Appeal No. 285 of 2023 has been filed by Aahuti Rasik Mistry who has been arrayed as noticee nos. 27 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of the case in order to protect the securities market and the investors. It was urged that it was a classic case of pump and dump scheme whereby through an orchestrated scheme, the noticees in the impugned order including the appellants through a coordinated involvement have made illegal gains by way of alleged fraudulent and manipulative scheme which was violative of Section 12A of the SEBI Act read with Regulations 3 and 4 of the PFUTP Regulations. It was urged that the appellants in the instant case were volume creators who have induced unsuspecting investors to deal in the scrip. 7. The facts leading to the filing of the present appeals is, that the appellant nos. 1 in Appeal No. 284 of 2023 is an actor in Bollywood and works in the entertainment industry. Appellant Nos. 2 is his wife who is an author and a chef and appellant nos. 3 is a brother of the appellant nos. 1 and is also the employee manager of the appellant nos. 1 and manages the business, accounts, taxes and properties of the appellant nos. 1. The appellant Aahuti R. Mistry in Appeal No. 285 of 2023 is a talent manager of the appellant Arshad Warsi. The appellants contended that Arshad Warsi was working on a mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assified as volume creators and profit makers and noticee nos. 27 has been classified as a volume creator. 11. Based on the above, the WTM, prima-facie, came to the conclusion and held in paragraph nos. 6.9 of the impugned order that various noticees collectively helped to create trading volumes and interest in the scrip and spread false and misleading YouTube videos and, therefore, induced unsuspecting investors to buy the scrip of Sadhna at elevated prices, thereby, prima-facie, violating the provisions of the PFUTP Regulations. 12. In paragraph no. 19 of the impugned order, the WTM, primafacie, concluded that the noticees including the appellants were involved in a scheme / device to manipulate the volume of Sadhna through the trades of some of the noticees and through buy recommendations made through YouTube videos which, prima-facie, induced small investors to deal in Sadhna. In paragraph no. 28, the WTM, prima-facie, found that the modus operandi indicates that the noticees were engaged in the coordinated scheme to induce unsuspecting investors to acquire securities in the scrip in question to buy at inflated price thereby making illegal gains at the cost of new investors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e connected to the company, its shareholders or key managerial personnel. (iv). The appellants are not connected with other volume creators or net sellers other than noticee no. 1 who is connected only to the appellants, namely, Arshad Warsi and his talent manager Aahuti R. Mistry. (v). There is nothing to indicate that the appellants by their conduct had created any interest on any investor to trade in the scrip of Sadhna. (vi). The appellants have not spread any false and misleading information regarding the scrip in question. (vii). There is no evidence to indicate that the appellants had induced unsuspecting investors to buy the scrip in question. 17. The only allegation against the appellants are that they are volume creators and are connected to noticee no. 1. In this regard, we find that the appellants had purchased the shares in July from another volume creator and had sold it to another volume creator as is clear from paragraph nos. 16.7 and 17.11 of the impugned order. Thus, the appellants by selling the shares have made profit was not at the expense of any unsuspecting gullible investor. 18. A person dabbles in the stock exchange to make profits and there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icee no. 27. 22. In view of the aforesaid, the direction issued by the WTM against the appellants in appeal no. 284 of 2023 is also harsh and unwarranted and cannot be sustained. 23. In North End Foods Marketing Pvt. Ltd. & Anr. vs. SEBI (supra), this Tribunal held as under :- "13. Having heard the learned senior counsel at length, we find that it is no more res integra that SEBI has power to pass ex-parte interim orders, pending investigation, which power flows from Section 11 and 11B of the SEBI Act. A plain reading of Section 11 and 11B shows that SEBI has to protect the interests of the investors in securities and to regulate the securities market by such measures as it thinks fit and such measures may be for any or all of the matters provided in sub-section 2 of Section 11 of the Act. SEBI has power to pass interim orders and such interim orders can also be passed exparte. Interim orders are passed in order to prevent further possible mischief of tampering with the securities market. If during a preliminary enquiry, it is found prima-facie, that the person is indulging in manipulation of the securities market, it would be obligatory for SEBI to pass an interim order or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards disgorgement can be directed to be deposited in advance unless it is adjudicated and quantified unless there is some evidence to show and justify the action taken. An order of the like nature can only be passed during the pendency of the proceedings and such orders cannot be passed at the time of initiation of the proceedings. Further, no order of the like nature can be passed without recording its satisfaction and cannot be based on the basis of possibility." "10. In this regard, we may refer to the provisions of Order 38 Rule 5 to 13 of the Code of Civil Procedure, 1908 which lays down the parameters for attachment before judgment. The said principles are fully applicable in the instant case. The object of attachment before judgment is to prevent any attempt on the part of the appellant to defeat the realization of the final order on disgorgement that may be passed against the appellant. But this principle applies only when it is found that the appellant is about to dispose of the property in question. Further, this principle can only be applied when there is evidence to show that the appellant has acted, or is about to act with the intent to obstruct or delay the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalization of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is necessary for the purpose of protecting the interest of the government revenue." "51. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub- Section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a similar provision contained in Section 45 of the Gujarat Value Added Tax Act 2003 , one of us (Hon'ble Mr Justice M R Shah) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v State of Gujarat observed: "26. Section 45 of the VAT Act confers power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eptember 14, 2022], wherein the Hon'ble Supreme Court held that even on a strong possibility of diminution of assets would suffice to attach the property. This decision, in our opinion, is not helpful to the respondent and, in fact, helps the appellants. In this case, the bank guarantee given by the respondent was not being refunded and accordingly, the Hon'ble High Court directed Essar House Pvt. Ltd. to deposit Rs. 47.41 crore which order was challenged before the Hon'ble Supreme Court. The Hon'ble Supreme Court while dismissing the appeal found that the Hon'ble High Court had considered that the appellant was heavily indebted and did not have the assets other than the assets disclosed in the affidavit in reply and, therefore, in that light, the Hon'ble Supreme Court came to the conclusion that even if that they are exist the strong possibility by diminution of assets which was sufficient for the High Court to pass an order to protect the interest of the respondent. The Hon'ble Supreme Court, therefore, found that the attachment of the order was justified. In the instant case, there is no such evidence. 31. We however find that there is an admission of the appellant Arshad Warsi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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