9911796707
TMI Blog2023 (11) TMI 1285X X X X Extracts X X X X X X X X Extracts X X X X ..... , understated liabilities and overstated debtors position as a result of manipulation of books of accounts and other company records. SEBI carried out investigation into the affairs of SCSL to ascertain, particularly, whether the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as "SEBI Act") and Rules and Regulations framed thereunder have been violated. The investigation revealed that the directors and employees of SCSL namely Mr. B Ramalinga Raju (Ex-Chairman), Mr. B Rama Raju (Ex-Managing Director), Mr. Vadlamani Srinivasa (Ex-Chief Financial Officer), Mr. G Ramakrishna (Ex-Vice President, Finance) and Mr. V. S. Prabhakara Gupta (Ex-Head 'Internal Audit') had, since January 2001, connived and collaborated in overstatement, fabrication, falsification and misrepresentation of books of account and financial statements of SCSL. They presented a rosy picture about the financials of SCSL before its investors in order to mislead them and ultimately to defraud them. The investigation found material that corroborated the confession of Ramalinga Raju that promoter shares were pledged, which was executed through a company - SRSR Holdings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares 1,258.88 Crores Pledge of shares Vadlamani Srinivas 29.5 Crores Sale of shares G Ramakrishna 11.5 Crores Sale of shares 3. SEBI vide order no. WTM/RKA/EFD-SRO/108-117/2015 dated September 10, 2015 (hereinafter referred to as "Second SEBI order") passed directions inter alia against the relatives/ associates of Noticee No. 1 and Noticee No. 2 including B. Suryanarayana Raju (hereinafter referred to as "Noticee No.3" / "BSR") and SRSR Holdings Private Limited (hereinafter referred to as "SRSR" / "Noticee No.4") to disgorge quantified illegal / unlawful gains made by them and to restrain them for a period of 7 years for violation of provisions of Section 12A (d) and (e) of the SEBI Act and regulation 3(i) of the PIT Regulations. Further, inter alia Mr. B. Ramalinga Raju, Mr. B. Rama Raju, Mr. B. Suryanarayana Raju and SRSR were directed to disgorge the wrongful gain made by them, with simple interest @12% per annum from January 07, 2009 till the date of payment. The disgorgement directions were as under: 3.1. Mr. B. Ramalinga Raju and Mr. B. Rama Raju to disgorge INR 56,16,85,195 (i.e., sum of INR 26,62,50,000 and INR 29,54,35,1950) jointly and severally; 3.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellants; and (b) First SEBI order in case of Ramalinga Raju and Rama Ramu and Second SEBI order passed against the appellants are mutually contradictory because in First SEBI order it is held that the unlawful gains specified therein are made by Ramalinga Raju and Rama Raju and in Second SEBI order it is held that the said gains are the unlawful gains made by the appellants herein. The Orders also directed that the cost of acquisition of shares be considered while computing the unlawful gain. 7. An appeal was preferred against the Second SAT order before the Hon'ble Supreme Court and Order dated May 14, 2018 was passed by Hon'ble Supreme Court (hereinafter referred to as "SC Order"). Hon'ble Supreme Court vide said order exonerated all the appellants except SRSR Holdings Pvt. Ltd. and B. Suryanarayana Raju and upheld the finding of Second SAT order dated August 11, 2017 in respect of SRSR Holdings Pvt. Ltd. and B. Suryanarayana Raju. 8. Subsequently, in Civil Appeal No. 8242 of 2017 filed by G. Ramakrishna against the First SAT order, the Hon'ble Supreme Court vide its order dated 21.07.2017 (as corrected by its order dated 15.09.2017) and in Civil Appeal No. 11298 of 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 2001 onwards." (emphasis supplied) Similarly, with respect to SRSR, the Hon'ble Supreme Court inter alia quoted the following extracts of the Second SAT Order and stated its agreement with the said extracts: "Thus, on one hand Ramalinaga Raju and Rama Raju manipulated the books of Satyam and ensured that the market price of Satyam were higher and on the other hand through SRSR got the Satyam shares pledged and obtained higher loan on the basis of higher market price of Satyam shares... mode and the manner in which SRSR was incorporated, mode and the manner in which shares of Satyam were transferred by Ramalinga Raju, Rama Raju and their wives to SRSR and the mode and the manner in which the shares of Satyam were pledged and the pledged amounts were utilized, leave no manner of doubt that SRSR was a front entity established by Ramalinga Raju and Rama Raju for off loading their shareholding in Satyam..." (emphasis supplied) 10. In compliance with the remand directions of Hon'ble SAT vide First and Second SAT orders, SEBI passed two orders - one order dealing with Noticees who were promoters/relative of promoters of SCSL and the other with respect to the Noticees who were employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Suryanarayana Raju and SRSR Holdings Pvt. Ltd. as well, the gains computed individually were reduced owing to deductions for cost of acquisition of shares/ taxes paid/ loan amount satisfied using invoked SCSL shares. SAT order dated February 02, 2023: 13. With regard to the enforcement of Third SEBI order and Fourth SEBI Order the said orders also stated as follows: (i) Third SEBI Order (para 33): "As directed by the Hon'ble Supreme Court in C.A. Nos. 11298/2017, 8242/2017, and 10215/2017 this Order shall come into effect from such date as the Hon'ble Supreme Court directs. Till such decision of the Hon'ble Supreme Court, the Noticees shall continue to abide by their undertakings submitted to the Hon'ble Supreme Court in the aforementioned Appeals" (ii) Fourth SEBI Order (para 24): "As directed by the Hon'ble Supreme Court in C.A. Nos. 9493/2017 and 9524/2017, this Order shall come into effect from such date as the Hon'ble Supreme Court directs. Till such decision of the Hon'ble Supreme Court, the Noticees shall continue to abide by the directions of the Hon'ble SAT (in its order dated August 11, 2017) and the Noticees' undertakings submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the appellants by the WTM. 3. The WTM will consider the issue on interest. 4. The WTM will reconsider the issue on period of restraint afresh for all the appellants. 5. The WTM will reconsider the issue on pledge of shares." 15. Hon'ble SAT vide the Third SAT Order dated February 02, 2023 stated that "... The matter is remitted to the WTM to pass a fresh order within four months after giving an opportunity of hearing to the all the appellants..." Subsequently Hon'ble SAT decided MA no. 703 of 2023 vide order dated June 13, 2023 inter alia stating that "....we dispose of the matter directing Whole Time Member to decide the matter as per directions given in paragraph 120 of our order dated February 2, 2023 on or before November 30, 2023..." III. SUPPLEMENTARY SHOW CAUSE NOTICE AND HEARING: 16. Pursuant to the Third SAT order, an opportunity of hearing was granted to all 6 Noticees on March 21, 2023. Due to administrative exigency, the hearing in the matter was rescheduled to April 11, 2023. Noticee No. 4 viz., SRSR filed written submission dated April 10, 2023 wherein the Noticee No. 4, inter alia, insisted that "the authority has to notify the Noticee as to the cause he h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 5 October 13, 2023 Partly heard and adjourned to 25.10.2023. Noticee No. 1 to 5 October 25, 2023 Hearing concluded in respect of Noticee No. 1 to 5. 20. During the course of hearings, for Noticee No. 1 & 3 the AR had submitted summarized note titled "Note on the Intrinsic Value of the Shares and Quantum of Disgorgement"; for Noticee no. 3, the AR had submitted summarized note titled "Note on the Effect of the 2002 Amendment to the SEBI (Prohibition of Insider Trading) Regulations, 1992"; for Noticee No. 4, the AR submitted summarized note titled "SRSR's loan and pledge of shares - No unlawful gains". The AR also submitted a "General Note along with the Judgments thereto". The AR made the oral argument in line with said notes. 21. The copy of record of proceeding of hearing dated April 11, 2023, October 13, 2023 and October 25, 2023 was sent to Noticees and same was acknowledged by the ARs of Noticee No. 1 to 5. 22. Prior to the hearing dated October 25, 2023, in the context of the submission of Noticee No. 4 that it had acquired SCSL shares through a block deal for a consideration of INR 2,266 crore, bank account statements were called for by SEBI. The AR of Noticees we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Index in calculating the intrinsic value of a share. The NSE IT Index, cannot form the legal basis for calculating the unlawful gain. It was not part of the original show cause notice. The methodology adopted by SEBI for arriving at the intrinsic value is faulty and ought not to be used, as the same will not enable SEBI in arriving at an accurate value in an objective and scientific manner. 24.2.2. While calculating unlawful gains, the intrinsic value of the stocks is to be excluded. The valuation of company is driven by several factors, primarily by intangible assets the company builds over a period. The implied asset base of SCSL, while arriving at the market capitalisation, would comprise of Fixed Assets; Current Assets, including cash balances; Brand value (SCSL operated in over 65 countries); Customer loyalty (SCSL had 165 fortune 500 companies); and Human resources (SCSL had an experienced and well-trained work force of 53,000 associates/employees). 24.2.3. SEBI's consideration of INR 58/- per share as the intrinsic value of SCSL is without any plausible explanation and logic. The shares of SCSL at a price of INR 58/- per share is only an offer made during a distress sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongful gain is 42.44% of the sale consideration. However, it is to be noted that the cumulative fictitious revenues upto 31 March 2005 were only INR 522.66 Crores which amounts to 10.9% of the total falsification. The wrongful gain should be only 4.63% (10.9% of 42.44%) of the sale consideration in May, 2005. 24.2.10. SEBI has not made out any case to how the NSE IT Index is appropriate in order to ascertain the intrinsic value of the shares of SCSL. Assuming whilst denying that it is relevant, the Noticee states that the correlation between the NSE IT Index and SCSL share price ought to have been examined considering the weight of SCSL share in the NSE IT Index. 24.2.11. The methodology suggested by SAT is more appropriate i.e. the value of the share one day before the alleged manipulation of the books of account could be taken into consideration i.e. December 29, 2000 - INR 323.35 per share. 24.3. Joint and several Liability 24.3.1. Liability for disgorgement cannot be "joint and several". This issue is no longer res integra. The findings of Hon'ble in third SAT order operate as res judicata in the present remand proceedings. 24.3.2. Hon'ble SAT vide third SAT order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be reduced to 2% per annum considering the huge amounts involved and long passage of time of over 14 years since January 2009 and by applying the principle of parity 24.5. Period of Restraint: 24.5.1. The period of restraint already undergone (over 14 years) by Noticee No. 1 & 2 since the beginning of investigations shall be taken into consideration and no further restraint be imposed on the Noticee No. 1 & 2. 24.5.2. The 7-year debarment imposed on Noticee No. 3 by Second SEBI order dated September 10, 2015 has already been served by the Noticee No. 3. Hence, the restraint order be lifted immediately. 25. Additional submissions of B Ramalinga Raju and B Rama Raju are summarized as under: 25.1. Considering the calculation of intrinsic value as mentioned at aforesaid paras, the amount of wrongful gain that needs to be disgorged from Noticee No. 1 and Noticee No. 2 is INR 1.23 Crores each (i.e., 4.63% of INR 26,62,50,000/-). 25.2. Sale of shares were for philanthropic purpose and Noticee No. 1 & 2 had not unjustly enriched themselves. Sale proceed were utilized towards medical emergencies through the 108-ambulance scheme in the erstwhile state of Andhra Pradesh and for B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correlating the share price of Satyam with the NSE IT Index is an incorrect approach. The market index is a metric that measures market fluctuations based on market trends. Market trends are linked to factors such as speculation and expectation of investors, government policies, supply and demand, etc. These factors determine the market value of the share price, and not the intrinsic value of a particular share. In fact, the intrinsic price of a share is independent of, and unrelated to, the fluctuations in the market. The intrinsic value of the share is premised on the fundamentals of the Company. Therefore, the IT Index (which measures market trends) cannot be correlated to the intrinsic value of the share. The illustration of the Adani Group stocks post the Hindenburg Report may be viewed as an analogy. If the intrinsic value is linked to market forces, then there would be no difference between the market price of a share and its intrinsic value. 25.5.3. The IT Index should not be considered at all while considering the intrinsic value of the share and cannot be made the basis for calculating the unlawful gain 25.6. Rama Raju additionally submitted as under: 25.6.1. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approximately INR 1.39 Crores. 26.3. Trades Executed prior to 20-02-2002 PIT Regulations Amendment: 26.3.1. Prior to 20 February 2002, the test for being found guilty of insider trading under Regulation 3(i) of the PIT Regulations, was that of "dealing in securities on the basis of UPSI" as opposed to 'when in possession of' UPSI. There is no allegation in the SCN that the Noticee No. 3 dealt in securities on the basis of price sensitive information. 26.3.2. A similar argument was advanced on behalf of Ms. B.Jhansi Rani in the appeal preferred by her which was upheld by the second SAT order. 26.3.3. Out of the 27,89,000 shares, the Noticee had sold 2,95,000 shares for an aggregate value of INR 12,17,66,530/- prior to February 20, 2002. Therefore, sum of INR 12,17,66,530/- is liable to be deducted from any computation of ill-gotten gains and the consequential amount to be disgorged. 27. Noticee No. 4 - SRSR Holdings Private Limited: The replies of Noticee No. 4 is summarized in brief as under 27.1. Pledge of shares: 27.1.1. On September 16, 2006, the Noticee No. 4 acquired 2,78,64,000 shares of SCSL prior to issue of bonus shares through a block deal in the sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e SAT (supra) would be applicable to the facts and circumstances of the case and accordingly and also after accounting for the said amount of INR 1230.40 Crores infused into SCSL, there is no unlawful gain made by the Noticee No. 4. 27.1.9. The act of 'pledging' doesn't fall within the ambit of 'dealing in securities' and hence the act of 'pledging' does not attract Regulation 3 of PIT Regulations. 27.1.10. SEBI has erred in holding that sale or invocation of pledge by NBFC's and the amount derived from such invocation is an 'unlawful gain' in the hands of Noticee No. 4. Moreover, there is no whisper of any such allegation in the SCN issued in 2009. The Noticee submits that the new allegation in the SSCN transcend beyond the allegations in the main SCN. The scope of SSCN cannot go beyond the remand directions contained in the Order dated February 2, 2023. In the absence of any such allegation in the main SCN, the SSCN is in gross violation of principles of natural justice. Therefore, the allegation of 'wrongful gain' by sale of shares is outside the scope of the main SCN issued by SEBI and the said allegation in the SSCN is not te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, and as affirmed by the SAT Order dated February 02, 2023, that a Noticee cannot be worse-off upon remand. 27.3.4. By way of the above query, it would appear that SEBI is effectively seeking to lift the corporate veil of SRSR. It is impermissible. The corporate veil may be pierced only in rare and exceptional cases. Inter-alia, shareholding and control of a company is not enough to justify piercing the corporate veil. SRSR, a company, is a distinct and separate legal entity from its shareholders / directors / promoters. No case has been made out for lifting the veil. The veil cannot be pierced by simply raising the present query. There are no grounds made out in the present SSCN or in any of the previous SCNs. There are no valid grounds for piercing the corporate veil. 27.3.5. Merely because the shares were acquired from Noticee Nos. 1 and 2 and their wives cannot mean that SRSR should be deprived of the benefit / deduction of acquisition costs. By doing so, SEBI would completely be disregarding the corporate veil. This is impermissible in law. 27.4. It is agreed upon that the loan raised by the 10 entities against the pledge of Satyam shares is not unlawful gain in the h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hence taking the original cost of acquisition without taking into consideration the market value of the shares would lead to a faulty calculation of unlawful gain. Thus, market value of shares as on the date of acceptance of the warrants should be taken into account. 28.3.4. As per the calculation submitted by the Noticee, the intrinsic value with regard to 3,60,000 shares comes to INR 13,98,40,000/- and an amount of INR 2,00,08,695 was to deducted towards cost of acquisition while calculating the disgorgement amount by SEBI at para 10.4 of the SSCN. Noticee No. 5 submitted that an additional amount of INR 11,98,31,305/- should be deducted from the disgorgement amount. 28.4. Trades Executed prior to 20-02-2002 PIT Regulations Amendment: 28.4.1. To charge an Insider of committing violation of Insider Trading, it has to be established that (a) prior to 20-02-2002 the insider has traded 'on the basis of' UPSI; and (b) after 20-02-2002 the insider has traded 'while in possession of' UPSI. 28.4.2. The case of SEBI is that the Noticee No. 5 has sold the shares of SCSL 'while in possession of UPSI'. SEBI has failed to establish that Noticee No. 5's trades (shares sold) that happ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticee No. 5 now cannot be asked to pay any interest on the disgorgement amount. 28.7.2. Without prejudice to the above, it is further submitted that the interest rate of 12% is arbitrary, excessive, and exorbitant. SEBI has charged an interest rate of 4% in the matter of Kirloskar Brothers case, 6% in the matter of NDTV and 6% in the matter of Gagan Rastogi. Therefore, the principle of parity should be applied to the case of the Noticee No. 5 and a lower rate of interest should be considered and request a simple interest of 2% per annum may be levied. 28.8. Period of Restraint 28.8.1. Noticee No. 5 has already completed the seven years of restraint imposed by SEBI. The Seven year period ended on 14/7/2021. Therefore, the restraint imposed on Noticee No. 5 may be lifted without any delay. 29. Noticee No. 6 - G. Ramakrishna: The replies of Noticee No. 6 is summarized in brief as under: 29.1. The issue of SSCN is beyond the scope of remand made by Third SAT order and is untenable in law. 29.2. The Noticee No. 6 had suffered a Brain Stroke on 10-04-2023 and had suffered paralytic stroke on the left side limbs and was hospitalized on 11-04-2023 and was therefore not able to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session of UPSI'. SEBI has failed to establish that all trades of Noticee No. 6's (shares sold) that happened prior to 20-2-2002 (120000 shares having a value of Rs 278.21 Lakhs) was 'on the basis of' UPSI. 29.4.4. No finding is recorded in the First SEBI order that the Noticee no. 6 had sold shares of SCSL on the basis of UPSI (in the case of all trades prior to 20-2-2002 Amendment), therefore, the amount of Rs 278.21 lakhs realized by the Noticee no 6 (by selling 1,20,000 shares) should be excluded while computing the disgorgement amount. 29.4.5. Noticee No. 6 placed reliance on SRSR Holdings Pvt Ltd. & Others Vs SEBI (Appeal No 462/2015) (Date of Decision: 11-8-2017) that "As there is no finding recorded in the impugned order that Jhansi Rani sold shares of Satyam on the basis of UPSI, impugned order passed against Jhansi Rani cannot be sustained". 29.5. Interest on Disgorgement Amount 29.5.1. The interest rate of 12% is arbitrary, excessive, and exorbitant in view of the fact that the interest rates have come down drastically over the years. 29.5.2. Section 4(2) of the Interest Act, 1978 allow interest 'at such rate as the court may consider reasonable'. Section 3(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from or fresh adjudication of the points decided in the Third SAT Order. In view of the same, I do not find any merit in the submission of the Noticees that issuance of SSCN is beyond the scope of remand. 31. The Hon'ble SAT vide the First SAT order has given its verdict on facts confirming the liability of the Noticee No. 1, Noticee No. 2, Noticee No. 5 and Noticee No. 6 herein for "fraud" in SCSL, as concluded by SEBI in the First SEBI order and proceeded to hold that they have traded during the relevant period while in possession of the Unpublished Price Sensitive Information (UPSI). Further, Hon'ble SAT vide its Second SAT order and Hon'ble Supreme Court vide order dated May 14, 2018 has given its verdict on facts confirming the liability of the Noticee No. 3 and Noticee No. 4 herein for "insider trading" in SCSL, as concluded by SEBI in the Second SEBI order and proceeded to hold that they had traded during the relevant period while in possession of the UPSI. Accordingly, the Hon'ble SAT has upheld First SEBI order and Second SEBI order on merits concurring with SEBI on its findings with respect to the involvement of respective Noticees in the fraud/ insider trading thereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned orders is usually applied by SEBI in many cases while computing the disgorged amount but is not the only method adopted by SEBI. 71. In a given case, the "net profit" method may be appropriate; in a another case, "the intrinsic value" may be appropriate and yet in another case, "market absorption" method could be most suitable. ... 73. In the instant case, the WTM has adopted the "net profit" method, namely, the difference between the cost of acquisition of shares and the amount realised by sale less statutory taxes. ... 79. But where shares purchased were historic and includes bonus shares and these shares have grown in value over the years, in such cases, the calculation of unlawful gain by taking the value of the original cost of acquisition would not be the appropriate method. .... The underlying value of the shares which would be akin to the cost of acquisition in the instant case has to be reduced from the sale value while computing the unlawful gain. Thus, in cases where the acquisition of the shares which had no co-relation to the alleged wrong and the acquisition of shares was not based on UPSI, then, in our opinion, the calculation of unlawful gain has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proxy for intrinsic value, although book value does not take into account the future growth potential. The market traded price of a share may not mirror the intrinsic value as the market price loads in investor expectations regarding future prospects. Given the nebulousness of the concept of intrinsic value, there is no one objective or uniform methodology of arriving at it. Leaving aside this practical difficulty of arriving at an objective number, the more important question that needs to be addressed is whether persons who are themselves instrumental in perpetrating a fraud, should be given benefit of the intrinsic value while computing the disgorgement amount. Any act done with a clear motive of fraud places the self-interest of reaping unlawful gains uppermost and, in the process, there is scant regard for other common investors or market integrity. Given this backdrop associated with a fraud, it is open to question whether allowing a carve out for lawful gain will sit well with a transaction mired in an ulterior and fraudulent motive. This would certainly, tantamount to conferring underserving benefits to such person and may actually act as a moral hazard rather than as a str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this event, there is illegal information asymmetry, where unlike the insider seller, the buyer in the market is unaware of the impending negative UPSI, and is therefore paying a price higher than he/ she would have been willing to pay, had he/ she been aware of the UPSI. How would one determine the unlawful gain enjoyed (or loss averted) by the insider? Logically, it would be the difference between the sale proceeds enjoyed by the insider, and the lower value the insider would have received had the market been aware of the UPSI. The key question to ask, therefore, would be - "what is the price the insider would have obtained in the first place, had the market then been aware of the UPSI?" 39. How should one go about answering this question? With the working assumption that the change in the traded price of the share between the time of the insider's trade and the time of the information becoming public, is wholly or substantially attributable to the event of the UPSI becoming public, the price of the share after the information becomes public itself could be a reasonable estimate of the price the insider would have originally accessed, had the market been aware of the UPSI. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... significant pieces of new information. 43. Let us now look at this specific case of insider trading in Satyam in some more detail, in order to arrive at a plausible methodology to arrive at the "intrinsic value" of the share. In the current case, it transpires that there was a prolonged period of time where a fair market in Satyam shares did not really exist. Between 2001 and late 2008/ early January 2009, by their own admission and as an established fact, an egregious fraud was perpetuated by the promoters and noticees that the public at large was unaware of. Public suspicion of something being seriously wrong in the affairs of the Satyam group only emerged towards the end of 2008. 44. To that extent, being aware of this crucial UPSI during this extended period between 2001 to early January 2009, whenever the noticees directly or indirectly offloaded Satyam shares in the market, they were receiving substantially higher consideration for these shares from unknowing and unsuspecting buyers. The consideration was far more than the amount that any such buyers would have been willing to pay had they been aware of the egregious fraud perpetrated by the promoters. There can be no doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the others. As I shall point out later, much of the price points that that the noticees have quoted, similarly attempt to portray what was essentially a systematic move across the market as an idiosyncratic SCSL move. 48. In the case under consideration, the nature of the admissions by the promoters in January 2009 were so shocking, so deleterious to the core reputation of a company that had otherwise built the image of being standard bearers of good governance, and so destructive of investor value and stakeholder trust in the company and the group, that every other company-specific news in the interregnum simply pale in terms of impact and relevance. The confession to the fraud was the one unsystematic factor that dominated the price of SCSL shares at the time, causing it to severely underperform the rest of the market. 49. Nevertheless, frequently traded stock prices are rarely - if ever - static, even in the absence of any fresh company specific information. Systematic factors operate at all times. Macro and sectoral developments, or just plain changes to market sentiment, can bring about flows that move prices of the overall market, and hence specific sectors and indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Mahindra Limited) along with Tech Mahindra Limited (PAC), won the bid to become the new owner of SCSL. The Acquirer bid INR 58 per share, higher than Larsen & Tubro's bid of INR 45.90 per share, and Wilbur Ross's bid of INR 20 per share. This gave the Acquirer a controlling stake of 51% in the company. Under terms of the bid, the Acquirer had to mandatorily make an open offer to SCSL's existing shareholders for another 20%. Media reports at the time do not support the noticees' contention that the Acquirer picked up the stake at a bargain or distressed price. If anything, it was noted that the Acquirer's price was significantly higher than the other bidders' price, and also higher than the secondary market price for the stock. In fact, even after the Acquirer purchased the majority stake at Rs 58 per share, and launched an open offer for 20% of the holdings at the same price on April 22,2009, the secondary market price of SCSL stayed below Rs 58 for the next 40 days. Media reports of the time also suggested that some major existing shareholders would not be able to participate in the Acquirer's open offer, on account of lock-in restrictions. 54. Under terms of the offer, the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the all-time low seen intraday on January 9, 2009 (around INR 6), the Tech Mahindra open offer price (INR 58) announced on April 22, 2009, the market closing price on April 22, 2009 (INR 46.9), or the average closing price between April 22, 2009 and May 29, 2009 (INR 47.7), all come to mind. 57. My over-arching consideration, however, is to arrive at a reasonable price at a point in time that best reflects the fair price of the stock for a significant number of shares, amidst the considerable uncertainty and chaos in a market still shell-shocked by the trust destruction following the explosive admissions by the promoters. From the price action and the news flow after January 7, 2009, it does appear that the markets remained shaken by the extent of the fraud confessed to by the promoters, and considerable uncertainty around the true picture of affairs in the company persisted for several days thereafter. To my mind, therefore, amongst all the candidates, the considered Tech Mahindra open offer price of INR 58 per share, announced on April 22, 2009, qualifies best as the anchor for determining the "intrinsic value" of the share in this particular case. 58. As an aside, I note that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s INR 58 by this 10.11% to account for this overall change in market (on account of systematic factors) in the interim period. That makes the "intrinsic value" of the share, as of December 16, 2008, at INR 52.67, or 23.25% of the market price of INR 226.6 on December 16, 2008. 61. From the above, we posit that it is reasonable to estimate that the "intrinsic value" of the share on December 16, 2008, was 23.25% of the closing price of the day. Extrapolating from this, given that shares were directly or indirectly offloaded by the noticees at different points of time, we posit that the "intrinsic value" of the share at any point of time during the period of the UPSI was 23.25% of the share price accessed by the insider. Note that this approach acknowledges that notwithstanding the egregious breach of trust by the promoters, the franchise continued to retain value even after the full facts came to the fore. In contrast to the previous WTM's order, we do not implicitly ascribe nil intrinsic value. 62. I do not represent that this 23.25% is perfectly accurate and precise - as argued earlier, given we are answering a hypothetical "what might have been" question, it is impossible to kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... averaged 2271, down 32.2% from the levels of December 2000. 65. In summary, I do not find merit in this contention of the Noticees given the facts and circumstances of this case. It appears that this disingenuous argument (given it ignores the 2006 bonus issue and ignores the sharp systematic movement in the markets over time) is rooted in an attempt to curry financial benefit to the noticees by hook or crook, since if this so-called "cost of acquisition" is adopted, the resultant illegal gain would be significantly reduced. Noticees have urged that this figure be adopted pointing to the observation made by Hon'ble SAT in the Third SAT Order. I have perused the Third SAT order. The Hon'ble SAT has not specified a particular price as the deductible cost of acquisition; the reference to INR 323.35 was merely to suggest the various possible methods of computing cost of acquisition. In the facts of this case, the fraud was perpetrated over an 8-year period. The said period i.e. the years 2000 and 2001 were a volatile period for IT stocks. After the dot-com bust of 2000, price of Satyam scrip along with other IT stocks had fallen during 2001 and in the beginning of 2002. Considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transaction date Sale value of SCSL shares in INR Unlawful gains in INR A B C [(B/4782.76)*100] D (C*42.44%) E F (E*D) 2008-09 4782.76 100% 42.44% 2001-02 NIL NIL NIL Nov-Dec 2002 32,01,00,000 0 2002-03 NIL NIL NIL Sep to Dec 2003 40,96,00,000 0 2003-04 213.21 4.46% 1.89% 11/19/2004 2,06,00,000 4,00,000 Less: Taxes paid (limited to unlawful gain amount) 4,00,000 Disgorgement amount 0 67. As noted earlier, the rationale behind the aforesaid contention appears to be rooted in what is more financially beneficial to the noticees. I do not find the proposal to be rational, reasonable or justifiable. 68. The argument that the open offer price proposed by Tech Mahindra was a fire sale price, is not tenable. The fire sale took place immediately after the shocking revelation by Ramalinga Raju on January 07, 2009. The panic selling led to the stock market price crumbling down to intraday low as INR 6.3 on January 09, 2009. The subsequent recovery was a cautious one, since the extent of the fraud and the veracity of the confession remained a lingering doubt. In light of the confession by Ramalinga Raju, the Government of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on April 22, 2009 was INR 46.9, which was well below the open offer price of INR 58. It stayed below Rs 58 till June 1, 2009. Rama Raju's contention that the open offer price of INR 58 could be offered only because compliances were relaxed, does not further his contention. To supplement this with hard numbers, the average IT index for 3 months from April 22, 2009 was 3,265, or 30.9% higher than the IT index as on April 22, 2009. In contrast, the average price of SCSL from 3 months from April 22, 2009 was Rs 63.7, just 9.8% higher than the Acquirer's bid of Rs 58. Even with the relief of a new respectable management in place, the market still gave the Acquirer a relatively poor return compared to the overall IT index. Even three months into the acquisition, there was simply nothing in the market to suggest that the Acquirer had made a good bargain; if anything, the evidence suggests the contrary. 69. Let us now consider the contentions of Ramalinga Raju, Rama Raju and Suryanarayana Raju that the intrinsic value should be INR 103 and not INR 58 as was proposed in the SSCN. The reason for this, according to their contention, is that the three-month, six- month and nine-month avera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and its shareholders with a view to ensure that confidence was revived in the integrity of the securities market. The fact that Tech Mahindra then bid for the preferential allotment and subsequently followed up with an acquisition of shares through an open offer, likely resulted in a renewed optimism in the prospects of the company. Media reports also suggested that some large shareholders could not participate in the open offer because of lock-in restrictions. In addition, despite the announcement of Rs 58 as the open offer price on April 22, 2009, the secondary market price of SCSL stayed below this level till June 1, 2009. The secondary market did eventually reach 73.25 as on July 1, 2009, or 26.3% higher than the Rs 58 offer price. However, between April 22, 2009 and July 1, 2009, the IT index itself moved up from 2,495 to 3,527; a 41.3% rise. If anything, there was a much larger systematic move underway in IT shares during that period, and SCSL was in fact underperforming that systematic move up. Once again, the noticees seem to be trying to obfuscate what was in fact a larger systematic move in the underlying market and IT sector, as an unsystematic reflection of SCSL' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years when the promoters sold their shares, these noticees appear to be seeking to reduce their culpability by pointing to the lesser gain they made. This is far from the truth. The large scale of the fraud in Satyam was built up from the early 2000s. It was not an overnight exercise. The promoters/ management played the central role in this build up. Further, much of the promoter holding was moved to SRSR Holdings Pvt Ltd for raising funds through pledge of shares and then offloaded later due to invocation of the security. In view of the above, I am unable to accept the contention that the intrinsic value was higher in earlier years of the fraud. 74. Noticee No. 6 - G Ramakrishna, has adopted yet another method of computing illegal gain without specifically alluding to 'intrinsic value'. According to him, the fair value computation and the amount of illegal gain should be based on the following formula - 77.06%/Total fictitious sales during April 2003 to September 2008 multiplied by Cumulative Fictitious Sales as per last quarterly published results). 77.06% has been arrived at by the noticee as a percentage fall in the price of Satyam from INR 178.95 to INR 41.05 on January 07, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoters. There can be no doubt of the core fact, therefore, that given the egregious and shocking nature and extent of the fraud, the noticees enjoyed substantial unlawful gain from every instance of offloading of Satyam shares by them during this period. Arguments presented by noticees to obfuscate this basic truth, or to claim that there was in fact little or no unlawful gain, are disingenuous, and brazen insults to public intelligence and common sense. 77. The approaches proposed by the noticees are clearly whimsical and a race to the bottom, that cannot be relied on for the purposes of computation of underlying value/ notional cost of acquisition as directed by the Hon'ble SAT B. Issue of Joint and Several Liability: 78. As noted earlier in this Order, the Second SEBI Order directed that the liability for illegal gains made by associated entities/ relatives would be borne by Ramalinga Raju and Rama Raju as well, jointly and severally. The Third and Fourth SEBI Orders (passed pursuant to the remand of the First and Second SEBI Orders) only partially modified the directions inter alia by revisiting the quantum of unlawful gains made by each noticee. 79. The directions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest, especially when it has been urged that SEBI has been imposing lower rate of interest in a large number of matters...." (emphasis supplied) 81. Pursuant to the aforesaid, Noticees vide SSCN were advised to show cause as to why they should not be directed to pay simple interest at the rate of 12% per annum on the unlawful gains from January 07, 2009 till the date of payment in addition to the illegal/ unlawful gains proposed to be disgorged from them. 82. Noticees contented that: 82.1. The interest is payable only after computation of the disgorgement amount is made and the date on which the disgorgement amount is finally quantified, would represent the date of the cause of action for payment of the disgorgement amount not from any prior date. 82.2. Since the amount of disgorgement is yet to be computed, the question of levying interest at the rate of 12% per annum from January 7, 2009 till the date of payment does not arise at all. The interest rate of 12% per annum with effect from January 07, 2009 is arbitrary, excessive, and exorbitant. 82.3. SEBI has charged an interest rate of 4% in the matter of Kirloskar Brothers case, 6% in the matter of NDTV and 6% in the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f SCSL while in possession of UPSI which is in violation of PIT Regulations. Therefore, I am of the view that interest is payable because the Noticees had received unlawful benefit (illegal gains), which the Noticees were not entitled to. 85. Rate of interest for the violation of Securities laws have generally been based on applicable statutory provisions, case laws or past precedents. For instance, In Deemed Public Issue cases, the interest on refund have, in most cases, been imposed at the rate of 15%. Under Section 73(2) of the Companies Act, 1956, if monies received from applicants to a public issue were not repaid within a period of 8 days after the company became liable to repay, the company and directors who were officers in default were mandated to repay the money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed. Further, in terms of rule 4D of the Companies (Central Governments) General Rules and Forms, 1956, the rates of interest, for the purposes of Section 73(2), was 15 per cent per annum. Hence, as per Section 73(2) read with Rule 4D, the applicable rate of interest on refund amount was 15% per annum. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are ordered to disgorge the ill-gotten gains." 2 Navin Tayal and ors in the matter of Bank of Rajasthan August 02, 2021 PIT Regulations 12% From date of transaction/violation till date of order i.e. May 27, 2010 to December 31, 2015. "The appellants made unlawful gains in 2010 and have earned interest on it, and therefore, the authority was justified in imposing interest on the disgorged amount from the date of the cause of action and not from the date of the order." 3 SMS Techsoft (India) Limited October 18, 2019 PFUTP Regulations 12% From the last date of investigation period i.e. November 05, 2013, till the date of payment 4 Dhyana Finstock Ltd June 10,2022 PFUTP Regulations 12% From the last date of investigation period i.e. July 27, 2015 till the date of payment 5 KLG Capital Services Limited July 29,2022 PIT Regulations 12% From the day after the UPSI was published i.e. February 29, 2008 till the date of order 6 Palred Technologies Limited June 15,2022 PIT Regulations 12% From the date of buy transaction till January 31,2016 (date of interim order) 7 Top Class Capital Markets Pvt. Ltd in the mater of Aurobi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore it cannot even be justifiably argued that SEBI delayed in initiation of proceedings in this case. In this context, I find the observations of the Hon'ble SAT in its order dated August 02, 2021 in the matter of Navin Kumar Tayal and Ors. Vs. SEBI to be instructive. The Hon'ble SAT held that ".....It was urged that the rate of interest awarded is excessive and arbitrary and further the interest could only be levied from the date of the order and not from the date of cause of action. This contention cannot be accepted. The appellants made unlawful gains in 2010 and have earned interest on it, and therefore, the authority was justified in imposing interest on the disgorged amount from the date of the cause of action and not from the date of the order...." (emphasis supplied). This SAT order is also relevant in the context of the Noticees' contention that interest can only be calculated after SEBI computes the amount of disgorgement, and that since the amount of disgorgement is yet to be computed the question of levying interest at the rate of 12% per annum from January 07, 2009 till the date of payment does not arise at all. In view of the aforementioned orders of the Hon'ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid, the WTM has wrongly misconstrued the order of the Hon'ble Supreme Court and, consequently, the finding that B. Suryanarayana Raju and SRSR Holdings Pvt. Ltd. are equal perpetrators is without any basis. 4. In our view, B. Suryanarayana Raju and SRSR Holdings Pvt. Ltd. cannot be worse off on remand. The increase in period of restraint over and above the earlier order of remand is wholly illegal and cannot be sustained..." 91. In this regard, vide SSCN- 91.1. Noticee Nos. 1 to 4 were advised to show cause as to why they should not be restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of 14 years. 91.2. Noticee No. 5 & 6 were advised to show cause as to why they should not be restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of 7 years. 92. With regard to the period of restraint, Noticees inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of 14 years from July 15, 2014 and are currently under continued debarment. However, they claim that they had not dealt in securities market since the beginning of investigation and thereby had already served 14 year restraint period. The conclusion that Ramalinga Raju and Rama Raju had orchestrated the whole Satyam fraud, was upheld by the First SAT Order. However, taking into consideration the period of debarment already undergone, and considering that the Third SAT Order has directed that noticees cannot be worse of on remand, I find that these noticees are required to undergo remaining period of debarment as directed in the First and Fourth SEBI orders. 94.2. Suryanarayana Raju and SRSR Holdings Pvt. Ltd. - The Second SEBI Order had imposed a restraint of 7 years against these two noticees from the date of the order. Pursuant to remand by SAT, in partial modification of the Second SEBI Order, SEBI passed the Fourth SEBI Order whereby this period of restraint was increased to 14 years, taking into account the observations of the Hon'ble Supreme Court in its order dated May 14, 2018. However, the Third SAT order dated February 02, 2023 has observed that these noticees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the two orders were remanded back to SEBI for reconsideration of the directions for disgorgement and restraint. The First SAT order made certain important observations in this context. The relevant extracts are reproduced below: "h) Fact that the financial institutions while sanctioning loan to the 10 group entities took the market value of Satyam shares pledged by SRSR and the market value of Satyam shares was based on inflated/manipulated books of Satyam could not be a ground for the WTM to hold that the sanctioned loan of `1258.88 crore was the unlawful gain made by Ramalinga Raju and Rama Raju. Even if higher loan was sanctioned on the basis of inflated price of Satyam scrip, loan sanctioned with an obligation to repay could not by itself constitute gain under any provision of the securities laws. i) Apart from the above, facts on record reveal that out of the sanctioned loan of `1258.88 crore, the loan availed by the 10 group entities was `1219.25 crore and the loan repaid by the said 10 group entities on account of invocation of pledge and by other modes was to the extent of `1215.83 crore. Thus, the balance loan repayable was only to the extent of ` 3.43 crore. All th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. In the absence of any discussion that the shares of Satyam was purchased for valuable consideration, we are of the opinion that the finding of the WTM on the issue of unlawful gain on pledge of shares is without any application of mind and without following the direction of the Tribunal and, therefore, the said finding cannot be sustained." (emphasis supplied) 100. The above observations provide context to the Hon'ble SAT's direction in para 120 to "reconsider the issue on pledge of shares". The above observations indicate that the following issues need to be addressed in this Order in the context of pledge of shares by SRSR - 100.1. Can a loan sanctioned by financial institutions to promoter group entities amount to unlawful gain by SRSR, Ramalinga Raju and Rama Raju? 100.2. When an insider allows the sale of pledged shares by a lender to extinguish a loan liability, while in possession of UPSI, does this involve an unlawful gain? 100.3. Whether the valuable consideration paid by SRSR for acquisition of Satyam shares is required to be deducted from the gain, if any, made by SRSR to compute illegal gain? 101. Taking into consideration the Fourth SEBI Order (wherein the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Satyam shares transferred to it by the Raju brothers and their wives), would in effect be the gain of Ramalinga Raju and Rama Raju as well. 104. In the First SAT order, the Hon'ble SAT also observed that "Even if higher loan was sanctioned on the basis of inflated price of Satyam scrip loan sanctioned with an obligation to repay could not by itself constitute gain under any provision of the securities laws." Therefore, what is now in question is whether loans extinguished through sale of pledged shares could be regarded as involving any unlawful gain. 105. The First SAT Order stated that 'facts on record reveal that out of the sanctioned loan of INR 1258.88 crore, the loan availed by the 10 group entities was INR 1219.25 crore and the loan repaid by the said 10 group entities on account of invocation of pledge and by other modes was to the extent of INR 1215.83 crore.' Based on the material available on record, the Fourth SEBI Order had noted that the repayment of the amount of INR 1215.83 crore was by way of sale of Satyam shares (INR 675,39,48,813) as well as through other sources (INR 540,43,82,089). I have considered the observations made in the First and Second SAT order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s problem was solved, it was hoped that Maytas' payments can be delayed. But that was not to be. What followed in the last several days is common knowledge. I would like the Board to know: ... 2. That in the last two years a net amount of 12.30 billion rupees was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers." (emphasis supplied) 107. While the confession email and the submissions of the noticees have attempted to justify the pledge of shares explaining the bonafide purpose for which loans were taken, the indisputable fact is that loans were raised against the collateral of overvalued Satyam shares. Crucially, rather than repay the loan di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition is more than the loans obtained, there is no basis for issuing a disgorgement order against the Noticee. Further, in its additional reply dated October 31, 2023, SRSR has argued that "Merely because the shares were acquired from Noticee Nos.1 and 2 and their wives cannot mean that SRSR should be deprived of the benefit/deduction of acquisition costs." In this regard, I am drawn back to the conclusions of the Second SAT order upheld by the Hon'ble Supreme Court in its 2018 order (discussed above), wherein SRSR was described as a 'front entity' and that the shares were transferred to it by the Raju brothers merely to enable its eventual offloading in the market so that the benefit of artificially inflated shares would accrue to the promoters. The shares simply moved from individual promoters to a body corporate promoter which was nothing but an alter ego of the promoters. Again, this is supported by the aforementioned confession email of Ramalinga Raju. However, the Noticees have repeatedly in their submissions before me contended that shares were acquired by SRSR for valuable consideration at a higher price. Therefore, in addition to the existing material on record, I call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dging of SCSL shares by SRSR and selling of the said pledged shares in the market on account of invocation of pledge by financial institutions (due to margin shortfall) amounted to an indirect sale of SCSL shares by SRSR on behalf of the Raju brothers. Further, due to invocation of pledge, the liability to repay the loans was also extinguished. The contention that shares were acquired by SRSR from the Raju family (which as observed in the Second SAT order were the promoters of Satyam) for 'valuable consideration' appears to be an attempt to lend artificial legitimacy to the transactions. The so-called acquisition of shares can only be viewed as movement of shares from the left pocket to right pocket of the main perpetrators of the scam- Ramalinga Raju and Rama Raju. Allowing the deduction of this bogus cost i.e. the cost of acquisition, on the strength of the aforementioned round tripping of funds would end up in grossly injuring the confidence of investors in the integrity of the securities market. In view of the same, I do not find any reason to deduct the claimed cost of acquisition of Satyam shares amounting to INR 2,266 crore from the unlawful gain made by SRSR. I also do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pledging the securities when in possession of UPSI. Thus, the prohibition contained in the PIT Regulations do not apply to bonafide pledge of securities, but apply only to pledge of securities by an insider when in possession of UPSI. In the present case, shares of Satyam were transferred by Ramalinga Raju, Rama Raju and their wives to SRSR a company owned by Ramalinga Raju, Rama Raju and their family members while in possession of UPSI. Moreover, before transferring the shares of Satyam, Ramalinga Raju and Rama Raju became Directors of SRSR and thereafter on transfer of shares, SRSR pledged those shares for obtaining loan to the entities owned by Ramalinga Raju and his family members. In these circumstances, decision of the WTM of SEBI that acquisition and pledge of Satyam shares by SRSR was a device adopted for off loading the shares of Satyam when in possession of UPSI and hence violative of regulation 3 of the PIT Regulations cannot be faulted...". From the second SAT order, I note that expression 'dealing in securities' is wide enough to cover all types of dealing in securities including the act of 'pledging the securities' by an insider when in possession of UPSI. Hence, I d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note the Hon'ble SAT's finding in the Second SAT order which states as follows: "....Similarly, in para 65 of the impugned order it is held that Jhansi Rani sold shares of Satyam 'when in possession' of UPSI and therefore she has violated regulation 3 of the PIT Regulation. It is relevant to note that Jhansi Rani sold the shares of Satyam prior to the amendment of regulation 3 on 20.02.2002. On the date on which Jhansi Rani sold the shares of Satyam, the prohibition under regulation 3 was that no 'insider' shall trade in the shares of the company 'on the basis' of UPSI. The words 'on the basis' was substituted by the words 'when in possession' with effect from 20.02.2002. Thus, sales effected by Jhansi Rani could be said to be violative of regulation 3, only by establishing that she had sold the shares of Satyam not only when in possession of UPSI but also on the basis of UPSI. As there is no finding recorded in the impugned order that Jhansi Rani sold shares of Satyam on the basis of UPSI, impugned order passed against Jhansi Rani cannot be sustained..." Relying on the finding of Hon'ble SAT and considering the fact that there is no finding in First SEBI order and Second SEBI ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 10-Dec-01 5,000 267.65 13,38,250 11-Dec-01 5,000 258.9 12,94,500 09-Jan-02 5,000 296.15 14,80,750 12-Feb-02 7,500 287 21,52,500 13-Feb-02 12,500 288.5 36,06,250 20-Feb-02 30,000 279.1 83,73,000 Total 1,20,000 2,78,21,500 Note: Considering the settlement period in 2002, I note that on February 20, 2002, 30,000 shares were transferred from the demat account of Noticee No 6, however the said shares would have been sold prior to February 20, 2002, hence the sale consideration of said shares were excluded from the calculation of unlawful gains. 120. From the above, I note that sale consideration mentioned in the below table arises out of SCSL shares sold by the Noticee No. 3, 5 & 6 prior to February 20, 2002 and the same shall be deducted while computing unlawful gains liable to be disgorged from respective Noticee. Table No. 14 Noticee No. No. of shares sold / transfer Sale value in INR 3 2,95,500 12,43,02,825 5 3,90,500 6,72,05,065 6 1,20,000 2,78,21,500 121. Noticee No. 2 (Rama Raju) submitted that there is calculation error in the consideration for 6,00,000 shares sold by him. The sale value of 6,00,000 shares at INR 444.66/- p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,84,704 17.09.2001 45,000 24,44,522 08.10.2001 37,500 22,34,475 Total 4,60,000 2,57,96,461 124. From Table no. 12 & 16 I note that prior to February 20, 2002 Noticee had acquired 4,60,000 shares and sold 3,90,500 shares. Thus, I note that 3,60,000 shares which according to the Noticee were acquired by him prior to commencement of fraud period / UPSI period (fraud period started from 1.04.2001 as claimed by Noticee) were already sold by Noticee prior to February 20, 2002. I have already concluded above in this order that the sale value of shares which were sold prior to February 20, 2002 would not be considered for calculating unlawful gains. Hence, I am of the view that no benefit of intrinsic value can be extended for 3,60,000 shares of the Noticee because these shares are not at all considered for calculation of unlawful gains. 125. Noticee no. 5 submitted that there is a clerical error in calculating the sale value of shares sold on December 11, 2008. According to him, SEBI had considered the closing price of December 11, 2007 instead of closing price of December 11, 2008. In this regard, from the available data, I note that the closing price of SCSL share on December ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02 = 23.25% of (C) 2,02,88,050.91 E Total Sale Value after deduction of intrinsic value: (C-D) 6,69,72,383.10 F Cost of acquisition of SCSL shares acquired after 20.02.2002 3,71,59,307.18 G Less: Intrinsic value on Cost of acquisition of SCSL shares acquired after 20.02.2002 = 23.25% of (F) 86,39,538.92 H Total Cost of Acquisition after deduction of intrinsic value: (F-G) 2,85,19,768.26 I Less: Capital gains tax Not submitted by the Noticee N, 6, hence not applicable J Less: STT (Average STT rate for relevant period is taken as 0.100 percent) on Total Sale Value of shares sold after 20.02.2002 87,260.43 Net unlawful gains (E-H-I-J) 3,83,65,354.40 127. From Table no. 15, 17 & 18 above, the amount of unlawful gains made by Noticee no. 1 to 6 which is liable to be disgorged is as under: Table No. 19 Noticee No. Name of the Noticee Amount of Unlawful gain made (INR) 1 B Ramalinga Raju 20,43,46,875 2 B Rama Raju 20,43,46,875 3 B Suryanrayana Raju 51,44,41,030 4 SRSR Holding Private Limited 518,36,55,714 5 V Srinivas 9,58,26,672 6 G Ramkrishna 3,83,65,354 Total 624,09,82,520 ORD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borne individually. 130. The Noticees shall pay the said amount within 45 (forty five) days from the date of this Order becoming effective, by way of demand draft drawn in favour of "Securities and Exchange Board of India", payable at Mumbai or by e-payment* to SEBI account as detailed below. Name of the Bank Branch Name RTGS Code Beneficiary Name Beneficiary Account No. Bank of India Bandra Kurla Branch BKID 0000122 Securities and Exchange Board of India 012210210000008 * Noticees who are making e- payment are advised to forward the details and confirmation of the payments so made to the Enforcement department of SEBI for their records as per the format provided in Annexure A of Press Release No. 131/2016 dated August 09, 2016 which is reproduced as under: 1. Case Name: 2. Name of the payee: 3. Date of payment: 4. Amount paid: 5. Transaction No: 6. Bank Details in which payment is made: 7. Payment is made for: (like penalties/disgorgement/recovery/settlement amount and legal charges along with order details: 131. As directed by the Hon'ble Supreme Court in C.A.Nos.11298/2017, 8242/2017 10215/2017, 94 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L shares on April 22, 2009. The same may be calculated by analyzing the movement of NSE IT index vis-à-vis movement of price of SCSL shares during the period from 01.01.1999 to 31.12.2010 (i.e. for comparison taking starting period as 2 year prior to the start of fraud till 2 year period after the fraud came into light). The movement of NSE IT index and movement of price of SCSL shares during the period from 01.01.1999 to 31.12.2010 as obtained from Bloomberg Terminal is attached as Annexure - C. Additionally factor which has also been taken into consideration is that Negative news about SCSL had started in December 2008. The analysis is as under: 5.1. Correlation between IT Index and Satyam between 01.01.1999 and 16.12.2008 (before negative news about SCSL started percolating) = 93.5% (~ 10 year history) 5.2. Correlation between IT Index and Satyam between 17.12.2007 and 16.12.2008 (before negative news about SCSL started percolating) = 94% (~1 year history) 5.3. Correlation between IT Index and Satyam between 17.12.2008 and 31.12.2010 = 36.0% (full fraud came to light on 7/1/2009, but negative news started percolating in December 2008) 5.4. Correlation between IT I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SR was a company formed by Mr. Ramalinga Raju, Mr. Rama Raju and their wives Smt. Nandini Raju and Smt. Radha Raju. 7.2. In September 2006, these four Raju's had transferred their individual holdings in SCSL to SRSR, which had pledged those shares for the loans taken by various promoter group entities. 7.3. The movement of SCSL shares from Raju's Family to SRSR is just like transferring the shares from individual person to artificial person representing natural person. 7.4. Hence, SCSL shares held by SRSR are historically held shares of Raju's family. 7.5. In December 2008, on account of shortfall in margin, which were required to maintain in accordance with terms of contract because of a fall in share price of SCSL, the lenders / trustee had invoked the pledged and sold those historically held SCSL shares in market to the tune of Rs. 675,39,48,813/-. 7.6. Thus, SRSR had indirectly sold SCSL shares in market to the investors. 7.7. Therefore, for calculation of unlawful gain, on invocation of pledge of historically held shares, the aforesaid intrinsic value method may be considered. 8. After considering the intrinsic value, the unlawful gain made by B Rama Raju, B ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
