IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Appeal No.153 of 2005

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����������������������������������������������������������������������������������� Date of Decision������ 21.08.2006

 

Manoj H. Ganeriwal

Smt. Madhu M. Ganeriwala

 

��Appellants

Versus

 

Securities & Exchange Board of India

Ms. G. Babita Rayudu

Adjudicating Officer

Securities & Exchange Board of India

 

 

 

��Respondents

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Shri Rajiv Narula, Advocate with Shri Kamal Agarwal, C.A. for the Appellant

 

Shri Ravi Hegde, Advocate with Shri Ananat Upadhyay, Advocate for the Respondent

 

CORAM:

����������� Justice N.K. Sodhi, Presiding Officer

����������� Shri C. Bhattacharya, Member

����������� Shri R.N. Bhardwaj, Member

 

Per : Justice N.K. Sodhi, Presiding Officer (Oral)

 

����������� This appeal under section 15T of the Securities and Exchange Board of India Act, 1992 (for short �the Act�) is directed against the order dated August 19, 2005 passed by the Adjudicating Officer holding the appellants guilty of acquiring 5.58% of the unlisted shares of Design Auto Systems Ltd. (DASL) on January 29, 2002 without complying with the provisions of Regulation 7(1) & (2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short �the Regulations�).Facts giving rise to this appeal which are not in dispute lie in a narrow compass and these may first be noticed.

����������� Manoj H. Ganeriwala and his wife Smt. Madhu M. Ganeriwala are the appellants before us and they have a joint demat account with the Stock Holding Corporation of India Ltd.Bonanza Bio-tech Ltd. (BBL) transferred 50 lac shares to the demat account of the appellants and it is said that this transfer was without the knowledge and consent of the appellants.On 22.11.2001 Manoj (appellant no.1) on the instructions of BBL transferred 50 lac shares to the account of Pinnacle Finstock Ltd. through Khandwala Investment Financial Services Ltd. (for short �Khandwala�).Why BBL transferred the shares in the account of the appellants without their knowledge has not been disclosed to the Securities and Exchange Board of India (for short �the Board�) and not even to us in the appeal.Thereafter on 12.12.2001 one Murli Nair also transferred another 10 lac shares of DASL in the demat account of the appellants.He, too, is said to have transferred them without the knowledge and consent of the appellants.It is also said that this transfer was fraudulent.On 29.01.2002 one Coverage & Consultants a limited company through Khandwala transferred 2,78,180 shares to the demat account of the appellants.On the same day, that is, on 29.01.2002 another company by the name of Pinnacle Finstock also transferred another 47,11,320 shares through Khandwala in the demat account of the appellants.With these transfers the appellants had 59,89,500 shares of DASL lying in their account which constituted 5.58% of the total issued capital of DASL.On 04.03.2002 appellant no.1 on the instructions of BBL transferred 8,75,000 shares to another company by the name of Arihant Capital Markets.He also transferred on 14.03.2002 47,14,500 shares to BBL.On the same day, that is, on 14.03.2002 he transferred another 10 lac shares to the aforesaid Murli Nair.With these transfers the circle gets complete and the appellants are left with no shares in their demat account.

����������� As is clear from the aforesaid transactions which are admitted by the appellant, they had 59,89,500 shares of DASL in their account which amounts to 5.58% of the total paid up equity capital of DASL.This percentage figure has at some of the places in the impugned order been referred to as 5.49% but the learned counsel for the appellant confirms that the correct figure is 5.58%.Admittedly, the appellants had not complied with Regulation 7(1) of the Regulations in as much as they had not disclosed their shareholding in DASL to that company.The Board then appointed an adjudicating officer to enquire into the violation of section 15H of the Act read with Regulation 7(1) of the Regulations.The adjudicating officer issued a notice dated March 23, 2005 calling upon them to show cause why enquiry be not held against them in terms of Rule 4 of the Securities and Exchange Board (Procedure for Holding Enquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 and why penalty be not imposed under section 15A(b) of the Act.The appellants filed their detailed reply which makes a very interesting reading.It was stated that the transfer of 50 lac shares by BBL in their account was without their knowledge and consent and that they have neither purchased nor acquired the shares.It was further pleaded that these could have been erroneously transferred to their account by unknown persons.As regards the transfer of 10 lac shares by Murli Nair in the account of the appellants, it was stated that the said transfer was fraudulent and without any intimation, knowledge or authorization from the appellant.The appellants also took the stand that on receipt of instructions from BBL in November, 2001 50 lac shares were transferred to the account of Pinnacle Finstock Ltd. through Khandwala. As to why the appellants received on 29.01.2002 shares by way of transfer from Coverage Consultant Ltd. and Pinnacle Finstock Ltd. they have not furnished any explanation in their reply.As regards the transfer made by the appellant to Arihant Capital Markets it is stated that the said transfer was made under instructions of BBL.Ten lac shares which the appellants received from Murli Nair fraudulently were transferred back on 14.03.2002 as per the reply filed by the appellant.The reply was considered by the adjudicating officer who did not believe the story as put forth by the appellants and we also find it very difficult to accept what has been stated on behalf of the appellants.A fanciful story has been made out which makes no sense.The vital questions which give rise to suspicion remain unanswered.The appellants pleaded before the Board as well that they had not acquired the shares and the same had been inadvertently/fraudulently transferred to their accounts.The adjudicating officer did not accept this stand taken by the appellants and concluded that they had acquired the shares and since they failed to comply with Regulation 7(1) of the Regulations, he imposed a penalty of Rs.1.5 lacs by the impugned order.Hence this appeal.

����������� We have heard the learned counsel for the parties.As already noticed earlier, the story as put forth by the appellants cannot be believed.Why should a company like BBL transfer as many as 50 lac shares to the account of the appellants without their knowledge and consent.The demat account has numbers and obviously that account number must have reached BBL before the transfer took place.Again, the appellants transferred 50 lac shares to Pinnacle Finstock on the instructions of BBL.If they had received the shares by mistake from BBL there was no reason for the appellants to transfer those shares in the name of Pinnacle Finstock on the asking of BBL.There is obviously a big game plan and the appellants have been successful in not disclosing the same to the adjudicating officer.Shares were transferred in the account of the appellant without their knowledge not only from BBL but also from one Murli Nair.The shares are then transferred back in two lots by Coverage Consultant and Pinnacle Finstock on 29.01.2002.The learned counsel for the appellant informs us that these are the very shares which appellant no.1 had transferred to Pinnacle Finstock on the instructions of BBL.Even this part of the story does not appear to be correct.Appellant no.1 had transferred 50 lac shares to Pinnacle Fin Stock but Pinnacle Finstock has transferred back only 4,71,132 shares to appellant no.1 and another 2,78,180 shares are coming from Coverage Consultant Ltd.There is still a shortfall of some shares.No one knows where they are.The story set up by the appellants makes no sense.We are, therefore, in agreement with the findings recorded by the adjudicating officer.It is common case of the parties that the shares had been transferred in the demat account of the appellants and their case is that they have not acquired these shares.The onus to prove this fact lies on the appellants.They have miserably failed to discharge the onus and the story with which they have come up is just not believable.We have therefore no hesitation in holding that the appellants acquired 5.58% shares of DASL and did not disclose their acquisition to that company.This is violation of the Regulation 7(1) of the Regulations and the adjudicating officer was right in imposing a penalty of Rs.1.5 lacs.No fault can, thus, be found with the impugned order.

����������� In the result, the appeal fails and the same stands dismissed with no order as to costs.

 

 

 

����������������������������������������������������������������������������������������������������������� Sd/- ���������������������������

����������������������������������������������������������������������������������������������� Justice N.K. Sodhi

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����������������������������������������������������������������������������������������������� C. Bhattacharya

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RRN