BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI
Appeal Nos.94, 94A, 96 to 100/03
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Date of Hearing
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6.9.04
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Date of Decision
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15.9.04
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In the matter of:
Appellants : Mr. Ramesh Shah, Mumbai (94/03)
Ms. Pina Shah, Mumbai (94A/03)
Rajesh Mehta, Mumbai (96/03)
Deepal Mehta (97/03)
Kashmira Mehta (98/03)
Kaushal Mehta (99/03)
M/s. Deepal Corporation (100/03)
Respondent : Securities and Exchange Board of India, Mumbai
Appellant by : Shri Somasekhar Sundaresan, Advocate
Respondent by : Shri Kumar Desai, Advocate
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
Per: Justice Kumar Rajaratnam, Presiding Officer
All the appeals are taken up together for final disposal with the consent of parties. A common order is passed by consent of parties as common questions of law arise for consideration and the appellants are challenging the correctness of the common order passed by the respondent.
2. The impugned order relates to 13 persons. All the 13 persons have been debarred from the securities market for a period of five years by an order dated 25th of June 2003 for violating Regulation 6(a) of the SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to the securities market) Regulations, 1995 and exercising powers u/ss. 11 and 11B of the SEBI Act. The order was to take immediate effect. Although the impugned order relates to 13 persons, only seven persons have preferred the appeal. The others have accepted the impugned order as final and binding on them.
3. The facts very briefly are as follows: A company by name Anik Ship Breaking Industries Ltd., hereinafter referred to as the ‘company’ came up with a public issue of 1,09,31,100 equity shares of ten rupees each for cash. The company issued prospectus dated 31st of January 1996. SEBI carried out preliminary investigation and it came to the conclusion that the 13 entities aided and abetted the company to make the public issue appear as if the public issue was fully subscribed and thereby creating an illusion of full subscription and cheating the public. The 13 entities alone constituted 35% of public issue and if this 35% is excluded, the public issue would have flopped as the public subscription was below 90%. The modus operandi was to take advantage of the stockinvests amounting to Rs.75 lakhs issued by the Bank of Rajasthan for the public issue of the company. The stockinvests was astutely divided amongst the entities in the following manner:
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St.Inv No.
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Name and address of the applicant
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Number of shares applied
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No. of
shares
allotted
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Amount (Rs.)
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1.
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876178
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Deepal Mehta, Atit Shopping Ent. Pvt. Ltd. Shop No,10, Off Apna Bazar, D N Nagar, Andheri (W) Mumbai 400 053
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400000
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389300
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1000000
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2.
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876179
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Ramesh Shah, 53, Juhu Alaknanda, Gulmohar, X – Road No.10, Juhu-Vile-Parle (W), Mumbai 400 049
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400000
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389300
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1000000
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3.
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876180
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Kaushal Mehta, Atit Shopping Ent. Pvt. Ltd. Shop No.10, Off Apna Bazar, D N Nagar, Andheri (W) Mumbai 400 053
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400000
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389300
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1000000
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4.
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876181
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Kashmira Mehta, Atit Shopping Ent. Pvt. Ltd. Shop No.10, Off Apna Bazar, D N Nagar, Andheri (W) Mumbai 400 053
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400000
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389300
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1000000
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5.
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876182
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Kashmira Mehta, Atit Shopping Ent. Pvt. Ltd. Shop No.10, Off Apna Bazar, D N Nagar, Andheri (W) Mumbai 400 053
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400000
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389300
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1000000
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6.
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876185
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Pina Shah, 53, Juhu Alaknanda, Gulmohar, X – Road No.10, Juhu-Vile-Parle (W), Mumbai 400 049
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200000
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194700
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500000
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7.
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876187
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Dhayalal Shah, 281, New Reay Road, Cabin No.11, Darukhana, Reay Road, Mumbai – 400 010
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600000
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584000
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1500000
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8.
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876188
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Ramesh Shah, 281, New Reay Road, Cabin No.11, Darukhana, Reay Road, Mumbai – 400 010
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200000
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194700
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500000
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TOTAL
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3000000
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2919900
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7500000
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The prices were common. Curiously, a fixed deposit of Rs.80 lakhs was marked as lien for the stockinvests. The fixed deposit was in the name of one of the appellants, Mr. Rajesh Mehta. Another curious aspect of this case is that the allotment consideration was debited from the account of one R.R. Investment as payment towards application money. R.R. Investment is a partnership concern of three of the appellants. R.R. Investment maintained an account with the Bank of Rajasthan and it received a credit of Rs.100 lakhs from the account of one Deepal Corporation, which also maintained an account with the Bank of Rajasthan. All the applicants are at the same address. These applicants were allotted 25 lakh shares on 14.5.96. What is more curious is M/s. Deepal Corporation received Rs.100 lakhs on 14.5.96 from the company as return of loan. Deepal Corporation, as stated earlier, was closely connected with the appellants. It is clear that a total of 38,93,100 shares amounting to approx. 35% of the public issue size has been funded directly by M/s. R.R. Investments (both through stockinvests issued by Bank of Rajasthan and United Western Bank).
M/s. Deepal Corporation received an amount of Rs.100 lakhs on 14.5.96 from ASBIL (vide instrument No.002154 drawn on Times Bank). The 13 applicants are related to each other in terms of either common address or in terms of being relatives of each other or in terms of having received funding from a common source. M/s. R.R. Investments and M/s. Deepal Corporation are connected to each other in terms of having a common partner. The most outrageous part of the transaction was that all the appellants sold back the shares to Meeti Investment Consultancy Pvt. Ltd. It was a group company of the company ASBIL. Even during the enquiry, the appellants appear to have admitted that they were approached by the company and that the shares would be bought back from them at a specified rate. We cannot think of a greater conspiracy in manipulating a new issue to be listed. The admission of the appellant speaks for itself.
4. Mr. Somasekhar, the learned senior counsel for the appellant, was not able to persuade us with respect to the merits of the case. He had two valid points, which require our attention. The first point made was that the matter related to a new issue in the year 1996 and the show cause notice relied on by the respondent is dated February 7, 2003. It was submitted that it was well neigh impossible to answer a charge after seven years. There was no records available with the appellants to defend themselves. Mr. Somasekhar relied on the judgment of the Supreme Court reported in (1987) 4 ACC 611. The learned counsel also relied on the judgment reported in AIR (1952) SC 343, wherein it was, relying on a judgment, submitted that admissions in part should not be taken into account and the admission should be read as a whole. The second point urged by Mr. Somasekhar was that the entire handiwork was done by the company and the appellants were mere tools in the hands of the company. This was amply proved by the fact that the company bought back all the shares issued to the appellants.
5. Mr. Desai, the learned senior counsel for the respondent, submitted that there is no doubt that the chief manipulator was the company but submitted that the debarment of the appellant for five years was just and equitable.
6. We have given our anxious consideration to the facts and circumstances of the case. It cannot be denied that two show cause notices were issued, one in 2002 and the other in 2003, with respect to an occurrence that took place in 1996. We are unable to understand why it has taken seven years to issue show cause notice. These investments, which involved fraud, ought to be investigated expeditiously. In this case, the company was not touched from 1996 to 2003, when ultimately the impugned order was passed. The company and its associates have made a quick buck at the expense of the investors. In the meanwhile, all the shares of the appellants have been bought back by the sister-company of ASBIL.
7. It is common ground that the shares were bought back by the company without much profit. In other words, the appellants were more victims of the crime, although they may have been willing participants.
8. We feel that the ends of justice will be met if a distinction is made between the company, who is the main culprit, and the appellants who have played into the hands of the company. Taking into account the delay in the enquiry and also taking into account that, even according to SEBI, the appellants "aided and abetted ASBIL (the company) in securing minimum subscription in its public issue", we feel that the appellants cannot be placed on par with the company. SEBI, in its order has held as follows:
"Therefore, it is clear that ASBIL and its directors have grossly violated section 69(4) Section 77 of the Companies Act and the applicants have aided and abetted the contravention of the provision of the Companies Act with the intention of defrauding other investors in the said public issue. The applicants have violated Regulation 6 of SEBI (Prohibition of Fraudulent & Unfair Trade Practices relating to the securities market) Regulations, 1995. The said regulation stipulates that, "in the course of his business, knowingly engaged in any act, or practice which would operate as a fraud upon any person in connection with the purchase or sale of, or any other dealing in, any securities. It is observed that the applicants have colluded with ASBIL to defraud the investors in the public issue, the investments made by the applicants in the public issue were not genuine investments and were made with a view to facilitating the repayment of loan by ASBIL. The applicants have thus acted in contravention of the prohibition laid down by Clause (a) of Regulation 6 of the said regulations."
9. It was submitted that two of the appellants were hardly 20 years of age when the alleged transaction took place. It is further submitted that Mr. Rajesh Mehta and Mr. Ramesh Mehta are elderly persons and have good track record. All the individual appellants before us are closely related to each other and realise their folly.
10. In these circumstances, ends of justice will be met if the period of debarment of five years is reduced to two years from the date of the impugned order. The appellants have already suffered one year of debarment. It is but right that they should suffer one more year. Accordingly, the order is modified that the period of debarment of the appellants is reduced from five years to two years only in so far as the appellants are concerned. The order is modified accordingly.
11. No order as to costs.
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Justice Kumar Rajaratnam
Presiding Officer
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Sd/-
B. Samal
Member
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Place: Mumbai
Date: 15st September, 2004.