TMI Blog2023 (3) TMI 1438X X X X Extracts X X X X X X X X Extracts X X X X ..... l gains, the impounding order constitutes malice in law. Further, the power must be exercised with extreme care and caution and should be resorted to only as a last resort or measure. Merely by stating that the appellants may divert the unlawful gains is not based on any cogent evidence rather on surmises and conjectures and formation of unguided subjected satisfaction which is not permissible. We however find that there is an admission of the appellant Arshad Warsi that he is connected with noticee no. 1 who is alleged to have been the main player in the promoting the videos and thereby misleading the investors. Investigations are still going on and the possibility of the appellants being involved in the manipulative scheme cannot be ruled out. However, at this stage, the impugned order is bereft of any evidence against the appellants requiring passing of such strong and harsh order. However, balance of convenience is required to be considered at this stage. Considering the aforesaid following directions passed :- (i). The appellants are restrained from trading in the scrip of Sadhna during the pendency of the investigation. (ii). The appellants shall deposit 50% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther 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 impugned order. 3. The ex-parte ad-interim order has been issued under Section 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act ) for, prima-facie, finding a violation of Section 12A of the SEBI Act re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 movie assignment given by noticee nos. 1 Manish Mishra and while working in that film, the appellants were induced and persuaded by noticee no. 1 to trade in the shares of the scrip of Sadhna Broadcast Ltd. (hereinafter referred to as Sadhna ). 8. The appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and accordingly, prima-facie, found violation of Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. 13. The WTM in paragraph no. 32 held that all the noticees are individually liable to disgorge the illegal gains individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is no harm if a person buys and sells the shares to make profits. In the instant case, the facts that the appellant bought the shares on one occasion and then sold it does not make the appellants a volume creator and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keting 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 that matter an ex-parte interim order in order to safeguard the interests of the investors and to maintain the integrity of the market. Normally, while passing an interim order, the principles of natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 adjudication of the proceedings that may be passed against him. We are of the opinion that there is no finding that the appellant will remove the property or will dispose of all the property or that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that he is connected with noticee no. 1 who is alleged to have been the main player in the promoting the videos and thereby misleading the investors. Investi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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