IN THE SECURITIES APPELLATE TRIBUNAL MUMBAI Appeal No.153 of 2005 ����������������������������������������������������������� ����������������������������������������������������������������������������������� Date
of Decision������ 21.08.2006
����������������������������������������������������������������������� Shri Rajiv Narula, Advocate
with Shri Kamal 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 ����������������������������������������������������������������������������������������������� Presiding
Officer ����������������������������������������������������������� ����������������������������������������������������������������������������������������������� C.
Bhattacharya ����������������������������������������������������������������������������������������������� Member ����������������������������������������������������������������������������������������������������������������������������������������������� Sd/- ����������������������������������������������������������������������������������������������� R.N.
Bhardwaj ����������������������������������������������������������������������������������������������� Member RRN |