Bharatiya Global Infomedia Ltd. vs Sebi

Association and Ors. [AIR 2016 SC 326]. These cases

however are on the scope of powers of the court under Article

226, under Article 227 of the Constitution of India and the

scope of review. In fact in the present appeal against the order

of the Adjudicating officer the jurisdiction of this Tribunal is

wider, as this Tribunal has to examine the correctness of the

finding of facts also.

5. In a nutshell, the impugned order covers the following

facts. The findings of the Adjudicating Officer, the

submission of both the sides and finding of this Tribunal are

detailed herein under separate headings.

1. Wrong statements/Mis-utilization of Fund

utilization:

a. In the RHP as well as the prospectus the appellants

had disclosed nine objects of the IPO on which total

expenses were estimated at Rs.5553.08 lakhs.

b. The Respondent no.1 informed the Stock Exchange

on November 14, 2011 that the IPO proceedings had

been utilized as per the object of the issue.

5 c. The Respondent however found that the said funds

were not utilized as mentioned in the RHP or

prospectus.

d. The table of the same is given by the Adjudicating

Officer in Para no.11 which reads as under:-

S. Category To be Utilized Utilized in N. utilized as (as Per crore per RHP/ Company) (investigation Prospectus in crore findings) in crore

1. Setting up its owned 3.960 0.410 0.410 corporate office at Noida 2 Relocation of branch 5.936 4.024 1.524 office at Mumbai 3 Up-gradation of 13.655 9.389 0.000 Digital post production studio 4 Investment in IT 8.392 3.910 0.400 division 5 Expansion of R&D 6.567 4.321 0.035 Technology centre and advance made to Avance technologies (paid before IPO and recovered from IPO fund) 6 Repayment of bank 2.697 2.931 2.931 borrowing 7 Working capital 5.050 4.9106 2.396 requirement 8 General Corporate 6.500 2.115 0.855 expenses 9 Meeting the issue 2.774 2.690 2.690 expenses Total 55.53 34.70 11.241 6

e. It was thus concluded that 67.60 percent of the

funds were not utilized for the objects disclosed in the

RHP and prospectus.

f. The Adjudicating Officer concluded that even as

per the information supplied by the appellant there was

a deviation as detailed in the table.

g. He further concluded that though the said

information is not supported by documentary evidence

still the figures as detailed supra would show that

Appellant no.1 Company made a wrong and misleading

statement in the prospectus and misutilised the IPO

proceeds.

h. The reply/letter of the Appellant no.1 dated 12th

December, 2011 sent to the Respondent SEBI raising

objection to the passing of the interim order would

show that the appellant had accepted utilization of the

IPO as detailed above. The appellant's merely added

that as on the date, the utilization was in the amount of

Rs.43.88 crore. The learned counsel for the appellant

submitted that there were various factors in this regard.

However, no definite answer could be given even in the

reply.

7

i. The necessary conclusion therefore would be that

the appellant failed to utilize the IPO proceeds for the

stated purpose in the RHP and prospectus. The findings

of the Adjudicating Officer on this count therefore

requires no interference.

2. Wrong disclosure regarding the vendor's details

and non disclosures of new vendors and payment

a. In the RHP and prospectus the names of suppliers

and vendors were detailed to whom the funds were

intended to be paid. The details regarding expected

time schedule etc were given.

b. As per the disclosure though the names of certain

vendors were given it was declared that Appellant No.1

did not pay any amount to these vendors or suppliers.

According to SEBI, during investigation it was however

found that Appellant no.1 had placed orders and made

payment much before the RHP date, before the

prospectus date and before the date of allotment of

securities.

c. The details are given in the impugned order as under: 8

S. Supplier Quotation Payment Buy Invoice Amount Total Amount Total N Name date date order date in lakh as per paid in paid as o date (as per invoice lakh (as per invoice) in per bank bank lakhs account) account Remark 1 21-Jun- 20-Jun- 07-Sep- 175.94 191.4 11 11 11 2 23-Jun- 20-Jun- 16-Sep- 221.77 178.6 Quotation as Houston 11 11 11 well as the 3 Technologies 20-Jun- 24-Jun- 20-Jun- 12-Sep- payments date Ltd. were before the 11 11 11 11 32.36 430.07 69 439 RHP date 4 Quotation as well as 5 Quantum the payments Hi-Tech date were Merchandising 20-Jun- 23-Jun- - 28-Sep- 35.14 35.14 36 36 before the RHP Pvt. Ltd. 11 11 11 date 28-Jun- 12-Sep- 134.87 130 11 11 6 09-Sep- 65.89 11

7 14-Sep- 44.62 11 8 Quotation as well as the Vivid IT payments date Solutions 02-Jul-11 were before the Pvt Ltd. 02-Jul-11 04-Jul-11 1.11 1.11 1.11 1.11 1.11 prospects date 9 02-Jul-11 16-Sep- 57.94 60 Quotation date was on 11 the RHP date and 10 05-Jul-11 19-Sep- 39.46 payments date Himalayan 28-Jun-11 11 were before the 11 Times Pvt. 21-Sep- 46.89 prospectus Ltd. - 11 80 140 date 12 06-Jul-11 02-Sep- 02-Sep- 17.13 50 Quotation date was on the RHP Millennium 11 11 date and 13 Automation 06-Jul-11 03-Sep- 03-Sep- 56.5 50 200 payments date & 11 11 were before the 14 Systems 21-Jun-10 08-Jul-11 06-Sep- 06-Sep- 160.19 233.82 100 prospectus date Limited 11 11 Total 10859.81 1089.8 1066.11 1066.11

From the above table the Adjudicating Officer

concluded that the date of quotation in 13 instances was

prior to RHP date and in the case of Serial no.8 i.e.

Vivid IT Solutions Pvt. Ltd. the quotation was prior to

the prospectus date. Above all it was found that the

amount of Rs.6.05 crores was already paid to the

vendors even before the RHP date and Rs.4.61 crores 9

were paid to the vendors before the prospectus date as

well as the allotment of securities date. The

Adjudicating Officer highlighted that in case of

Millennuim Automation & Systems Limited, Serial

nos.12, 13 and 14 above though the quotation was dated

21.6.2010 i.e. one year prior to the RHP the same does

not figure either in RHP or in the prospectus.

d. Appellant no.1 submitted that in the prospectus

itself it was clarified that actual vendors may be

different from those mentioned in the prospectus. The

Appellant no.1 had paid advance to the vendors for

taking advantage of competitive pricing. The payment

was paid by raising Inter Corporate Deposits

(hereinafter referred to as 'ICD') of Rs.15 crore. The

disclosure of name of the vendors in the prospectus

would not have an adverse effect on the informed

decision of any investors. In the prospectus it was

mentioned that pending the receipt of the issue

proceeds, Appellant no.1 may be required to make

initial payment to the various suppliers in order to

obtain the competitive rates quoted by them. 10

e. The learned counsel for the appellant therefore

submits that no fault can be found with the appellants

on that count.

f. In our view, however, when the vendors were

already shortlisted and even payments were made to

them as detailed supra the appellant could have very

well disclosed the same in the RHP or prospectus. The

details of the vendors to whom Appellant no.1 had

transacted was a material information for the investing

public and in the circumstances the findings of the

Adjudicating Officer in this regard will have to be

confirmed.

3. Non disclosure of purchase of office space at

Kolkata and respective payments made to the sellers

in this regard.

a. The Appellant no.1 has in his statement to the Stock

Exchanges declared that it had spent an amount of

Rs.2.50 crores from the IPO proceeds for the purchase

of office at Kolkata. The copy of the agreement

submitted in the proceedings before the Adjudicating

Officer by Appellant no.1 however showed that a

payment of Rs.1 core was made by it to the vendors on 11

2nd July, 2011, Rs.1.5 crores on 5th July, 2011 just

within three days of the RHP date and before

prospectus date.

b. The vendor was one Dhanmangal Developers Private

Limited (Dhanmangal).

c. These amounts were stated to be an advance towards

the total consideration of Rs.5 crores.

d. The Adjudicating Officer pointing towards the

provisions of Regulation 60(4) of ICDR Regulations

concluded that the statement in the RHP and prospectus

that on the dates the Appellant no.1 had not entered into

any commitment for an strategic initiative was wrong.

e. The Adjudicating Officer further pointed out that the

statement made in para 73 of the RHP that the

Appellant no.1 has not purchased or proposed to

purchase any property from the proceeds of the issue

was also a wrong statement.

f. The Adjudicating Officer has further examined the

transaction between the Appellant no.1 and

Dhanmangal and found that Dhanmangal had no

wherewithal at all to fulfill the promise of providing

office space at Kolkata.

12

g. According to the appellants the deal was entered for

the purpose of establishing pan India presence of the

Company. The said deal was even ratified by

shareholders in postal ballot in March, 2012. However,

as SEBI had objected to the said deployment of funds,

the appellant no.1 is calling back the amount. An

amount of Rs.50 lakh could be recovered and the efforts

to recover the balance amount were going on.

h. The Adjudicating Officer examined the copy of the

agreement and found that in fact Dhanmangal was not

in the business of developing any non-agricultural

property as it was clearly stated in the agreement that

Dhanmangal was into the business of agricultural land

developing. The assets of Dhanmangal were only in

cash and bank balance of merely 3.43 lakhs as against

loans and advances of Rs.77.72 lakhs. Hence the

Adjudicating Officer concluded that there was

misutilisation of funds of Rs.2.5 crores from the IPO

proceeds for the purpose other than mentioned in the

RHP/prospectus.

i. He also found that only an amount of Rs.50 lakhs

was recovered and, therefore, Adjudicating Officer 13

concluded that these facts of deployment of substantive

amount would have to be viewed seriously. The

learned counsel for the appellant pointed to us an

additional letter sent to Adjudicating Officer to show

that an amount of Rs.1.5 crore could be recovered from

Dhanmangal.

j. The learned counsel for respondent SEBI submitted

that the admitted facts would show that though prior to

the RHP date and prospectus date the Appellant no.1

had paid 50% of the consideration for purchase of office

in Kolkata, the Appellant no.1 in RHP made a positive

statement that the Appellant no.1 did not intend to

purchase any property.

Taking into consideration all the facts that the

appellant did not disclose the fact of entering into a

contract of purchase of office from Dhanmangal at

Kolkata which was not dealing in non-residential

property, which had no wherewithal for honoring the

same premises, clearly proves that the appellant had

withheld material information in RHP as well as in the

prospectus.

14

4. Non disclosure of availing services from Jupiter

Infraenergy Limited.

a. It was alleged that the Appellant no.1 had paid an

amount of Rs.30 lakhs out of a total consideration of

Rs.5 crores to one Juipter Infra Energy Limited (JIL)

prior to the date of the prospectus. Thereafter from time

to time payment was made totaling Rs.251.50 lakhs.

However, the fact of payment and availing the services

of JIL was not disclosed in the prospectus nor any

public notice was issued as required by ICDR

Regulations.

b. It was further found that appellant Rakesh Bhatia

and appellant Rajeev Kumar Agarwal at certain point of

time were Directors and major shareholders

respectively in JIL. It was also found that three

employees of the Appellant no.1 Company working as

office boys and hardware maintenance employees were

shown as Director of JIL since 2005. The appellants in

the reply to the show cause notice on this issue did not

deny the payment made to JIL. They did not answer the

allegations regarding the connection of JIL with

Appellant no.1 as detailed supra. On the other hand, 15

during the pendency of the proceedings it was found

that an amount of Rs.180.75 lakhs was transferred from

JIL to the account of Appellant no.1 and an amount of

Rs.32.45 lakhs remained with JIL.

c. The learned counsel for the appellant submitted all

the details were not required to be given in the

prospectus and non disclosure of availing the services

of JIL would not have any material impact on the

decision process of the investors.

d. Upon considering the above facts as noted by the

Adjudicating Officer it is difficult to accept the

submissions. The facts clearly stare towards the stark

reality that JIL was nothing but a shadow of the

Appellant no.1 and the very fact that substantive

amount was returned from the account of JIL to the

account of Appellant no.1 during the period of

pendency of proceedings before the Adjudicating

Officer would show that the initial availing of the

services of JIL is suspicious.

Further Non-disclosure of substantive payment in

the prospectus or by a public notice had certainly

caused breach of the ICDR Regulations.

16

5. Wrong disclosure regarding purchase order

placed for the equipment.

a. The RHP as well as the prospectus of the Appellant

no.1 has affirmed that the Appellant no.1 had not placed

orders for 81.48% of the plant and machinery

equipment etc for proposed expansion as specified in

the objects of the issue. During the investigation,

respondent SEBI has found that as on the prospectus

date, orders were already placed in the value of

Rs.30.64 crore i.e.55% and on the date of prospectus

and in the value of Rs.16.03 cores i.e.29% on RHP date.

b. Appellant no.1 replied that all the documents and

information in this regard was provided to the Merchant

Banker. However, the Merchant Banker defaulted in

making the disclosure in the RHP and prospectus. The

Adjudicating Officer found that wrong disclosures were

made by the appellant Company in RHP and prospectus

which had affected the process of informed decision to

be taken by the investors.

c. Learned counsel for the appellant submits that as

per Regulation 64 of the ICDR Regulations the lead

Merchant Banker is required to exercise due diligence 17

and satisfy itself about all the aspects of the issue

including the veracity and adequacy of the disclosure in

RHP. In fact the Appellant no.1 had produced all

documents in this regard to the Merchant Banker and,

therefore, the appellant cannot be faulted with for the

negligence of the lead Merchant Banker.

d. In our view the appellant cannot escape the

responsibility by blaming the lead Merchant Banker in

this regard. The findings of the Adjudicating Officer

for these reasons are required to be confirmed.

e. Learned counsel for the appellant relies on the

observation of this Tribunal made in the judgement

dated 15th March, 2015 in Appeal no.331 of 2014 in the

case of DLF Limited vs. SEBI. In the said case at

paragraph no.48 this Tribunal has interalia observed

that the primary responsibility of making true and

adequate disclosure lie on the statutory auditor or

merchant bankers. In paragraph no.49 it was observed

that the merchant banker has to ensure the truthfulness

and adequacy of the disclosure contained in the offer

document.

18

f. A reading of the observation however would show

that in the said case no action was taken against the

merchant banker by SEBI. Further in the present case,

the copy of the order passed by this Tribunal, filed by

the appellant in the case of present merchant banker

would show that merchant banker had in fact taken care

for making true and adequate disclosure regarding the

relations etc. However, the appellant made the wrong

declaration as detailed supra.

g. Therefore, the observations made in the DLF Ltd

are not relevant in the present case.

6. Non disclosure of source of funds already

deployed and to be repaid from the IPO proceeds.

a. During the investigation, respondent SEBI had

sought information regarding the repayment of amount

from IPO proceeds towards the funds already deployed.

From time to time queries were made with Appellant

no.1 and Appellant no.1 appears to have put three

different versions at three different points of time when

further queries were made by the respondent SEBI.

From all those statements made by Appellant no.1 it

could be gathered that Appellant no.1 had raised an 19

amount of Rs.7 crores prior to the RHP in the nature of

Inter Corporate Deposits (hereinafter called as 'ICD').

This fact however was not disclosed in the RHP.

Further an amount of Rs.8 crore through ICD was

obtained before the prospectus date as well as the date

of allotment of securities. This fact also was not

disclosed either in the prospectus or by issuing any

public notice as required by the Regulations. On the

other hand, there was positive statement in the RHP as

well as in the prospectus "our company has not raised

any bridge loan against the proceeds of the present

issue". The explanation given by the Appellant no.1

showed that there was no formal agreement entered into

while taking the above ICD and memorandum in the

form of letters only were available. These memoranda

provided about the rate of interest to be paid. However,

the subsequent payment from the IPO proceeds would

show that only principal was returned.

b. The explanation of the Appellant no.1 was that

considering the share capital plus free reserves of the

Company it was well within the power of the Board of

Directors to borrow the amount through ICDs. The 20

Board of Directors was not required to take any specific

approval for the same. As regards the absence of any

agreements, the Appellant no.1 submitted that as it

enjoyed a reputation in the market, without entering

into a written agreement the lender advanced the loans

through ICDs. Therefore it shall not be assumed that

any contravention had taken place. Further, as a period

of six months had passed in between finalization of

DRHP, the Appellant no.1 required funds for

implementation of the project and to take advantage of

the competitive rates offered by the lenders. Therefore

the money was borrowed.

c. The Adjudicating Officer however remarked that

ICDs of Rs.15 crore should have added to the total

liability of the Company in the RHP and in the

prospectus. The Adjudicating Officer therefore

concluded that the IPO proceeds utilized for repayment

towards ICDs was beyond the objects than those

mentioned in the RHP/prospectus.

d. The leaned counsel for the appellant submits that

the delay which occurred in finalization of the RHP by

respondent SEBI required the appellant to raise the loan 21

within its power. The loan was obtained from market

where no formal agreement was required. The learned

counsel therefore submitted that the conclusions of the

Adjudicating Officer in this regard are wrong.

e. The learned counsel for the respondent placed

reliance on the observation of this Tribunal in Appeal

no.224 of 2017 in Corporate Strategic Allianz Ltd. vs.

SEBI dated 29.3.2019. In that case after taking into

consideration the scheme of regulations this Tribunal

has found that non disclosure of details of bridge loan or

other financial arrangement are specifically required to

be indicated in the prospectus etc.

Upon hearing both the sides we are of the opinion

that the appellant is missing the point. The issue is not

as to whether the Board of Directors were empowered

to raise the money but as to whether they should have

disclosed this event in RHP and prospectus. The events

had taken place prior to the RHP and the prospectus and

before the listing date.Therefore, the appellants could

have very well disclosed these facts in RHP, in the

prospectus and by issuing a public notice thereby giving

information to the investor public about this material 22

fact. The conclusion of the Adjudicating Officer in this

regard therefore needs no interference.

7. Investments in Contradiction with RHP and

prospectus.

a. Respondent SEBI found that Appellant no.1

Company without any approval of the Board of

Directors had given loan from IPO proceeds to three

entities for the amount of Rs.12.50 crores in the nature

of ICDs without examining the reliability of those three

entities. Said amount could not be recovered though

vide ex-parte order dated December 28, 2011

respondent SEBI had directed appellant Company to

call back these ICDs from the three entities.

The Appellant no.1 explained that the decision of

investment in the ICDs was taken on the basis of

recommendations of audit committee. Subsequently, it

was ratified by the Board of Directors. Even the

shareholders by way of postal ballot consented for the

same. At the time of agreement the three entities agreed

to repay the amount within three days and the same

term was incorporated in the ICD agreement. As a

result of protracted correspondence through legal notice 23

the Appellant no.1 could recover an amount of Rs.6.50

crores from these parties. It was explained by another

letter dated April 2, 2014 that the money advanced to

these entities was interest bearing short term deposits.

Upon receiving objections from SEBI, Appellant no.1

started the process of recovering the money and only a

sum of Rs.1 crore remained to be recovered from one of

the entities i.e. Darshan Tradelink P. Ltd.

In the circumstances, the Adjudicating Officer

found that while according to the Appellant no.1 the

agreement itself was merely for three days, the

explanation that when the respondent SEBI objected, it

started the process of recovering the money would not

lie in the mouth of the Appellant no.1 Company. It was

further found that in fact the said amount was found to

have been utilized by these entities for trading in the

scrip of Appellant no.1 and suffered loss.

d. The learned counsel for the appellant submitted

that investment in the ICDs was approved by the Board

of Directors and the shareholders also agreed through

postal ballot. She further submitted that the

Adjudicating Officer however, completely ignored 24

these facts. However, in our view, the very fact that

though the investment was merely for three days, the

fact that Appellant no.1 thought it fit not to pursue the

recovery of the same till respondent directed would

show that the IPO proceeds were diverted not only for

the purpose beyond the objective of IPO but also the

subsequent findings regarding the use of IPO proceeds

for trading in the scrip of the Appellant no.1 would

show that part of the IPO proceeds were not utilized for

the purposes as claimed in the DRHP or the prospectus.

8. Non disclosure of related party transactions and

Directors relatives details

a. One of the object of the IPO was to purchase

property from Gadeo Electronics (hereinafter referred to

as 'Gadeo') for Rs.5.96 crores. As per the RHP Rs.2

crore were already paid to Gadeo by issue of 2,00,000

shares and balance of Rs.3.96 crore was to be paid from

the IPO proceeds. The amount was 7.2% of the IPO

proceeds. During investigation respondent SEBI had

sought the list of Appellant no.1's director's relatives.

List of 25 relatives was given. However the name of

Richa Mittal, (one of the partners of Gadeo) did not 25

figure in the list. During the investigation respondent

SEBI however found that the partners of Gadeo during

the relevant period were Richa Mittal (sister-in-law of

appellant Sanjeev Kumar) and R.K. Mittal (father of

same appellant). Both of them were related to present

appellant Sanjeev Kumar Mittal. Ninety five percent of

the partnership firm was owned by Richa Mital and five

percent by R.K. Mittal. As explained above both of

them are the relatives of appellant Sanjeev Kumar.

The Appellant no.1's version regarding this non

disclosure is that though all these facts were disclosed

to the Merchant Banker during the process of due

diligence, the non disclosure of names in the list of

relatives is a mistake on the part of Merchant Banker.

The mistake of the Merchant Banker cannot be

attributed to the appellants.

The Adjudicating Officer, reproducing the

provision of Section 6(c) of the Companies Act, 1956

and the relevant provision of ICDR Regulations, held

that non disclosure of name of Richa Mittal and R.K.

Mittal in relation to the purchase, was in breach of the

ICDR Regulations. Learned counsel for the appellant 26

submits that the appellant in its reply has explained that

vide letter dated 7.2.2011 sent to the Merchant Banker

had in the form given the details of Richa Mittal as

brother's wife. However the Merchant Banker in the

capacity of Book Running Lead Manager (hereinafter

referred to as 'BRLM') drafted the letter dated 7th

February, 2011 and sent over email to the appellant

wherein no such disclosure was made and the same was

routinely signed by the Directors. The learned counsel

additionally submits that the Merchant Banker -

Almondz Global Securities Ltd. (hereinafter referred to

as 'Almondz') is absolved on this issue by this Tribunal

in Appeal no.129 of 2014 vide decision dated 13.5.2016

(copy of judgment Annexure 'A-1').

d. The learned counsel for the respondent pointed out

that as per the appellants themselves in the DRHP these

facts are not disclosed and the Merchant Banker is

blamed on this count. This Tribunal exonerated

Merchant Banker on this count on the ground that the

present appellant Company itself had not disclosed

these facts and therefore the Merchant Banker, was

given benefit of doubt.

27

Upon considering the rival pleas in our view the

claim of the appellants that the Merchant Bankers is to

be blamed cannot be accepted. The documents were

admittedly vetted and signed by the appellants. Further

admittedly as pointed out earlier when the respondent

SEBI specifically made query regarding the relatives of

directors, the name of Richa Mittal did not find place in

the list of 25 relatives. The lame excuse in the reply to

the show cause notice that the appellants assumed that

the disclosure was required to be made for sister-in-law

means the wife's sister only and not the brother's wife

and therefore the name of Richa Mittal being brother's

wife was not mentioned is ridiculous and contrary to

each other. The appellants claim that they had

disclosed name of Richa Mital as a related party to the

Merchant Banker and found fault with the banker in this

regard, and again they answer that according to them

sister-in-law does not mean brother's wife but only

wife's sister. The explanation is absolutely not

convincing. The findings of the Adjudicating Officer

therefore needs no interference.

28

9. Diversion of funds to promoters and promoter

related entities

a. In the RHP/prospectus the appellant had averred that

"No part of the issue proceeds, will be paid by our

company, as consideration to promoters, directors,

promoter group entities and key managerial personnel".

Respondent SEBI had examined the bank statement of

the appellant and found that from the IPO proceeds an

amount of Rs.125.96 lakhs was paid to appellant Rakesh

Bhatia, his son Gaurav Bhatia, Rakesh Bhatia HUF and

related entities of the promoters namely BGIL Films and

Technologies and Number one Finsec Pvt. Ltd. During

the investigation the appellants submitted that these

payments were repayment towards the loan received

from the entities and the amount of loan was disclosed in

RHP. Further as the same cannot be termed as

consideration as declared in the RHP/prospectus as

mentioned above the same was not required to be

disclosed. The appellants also put the legal dictionary

meaning of "Consideration" in the reply as "something

of value given by both the parties to a contract that

induces them to enter into agreements to perform mutual 29

performances". However during investigation the

appellant explained that an amount of Rs.2,60,000/- paid

to Gaurav Bhatia out of the above amount was

employee's advance and after the SEBI's interim order

even recovered it from Gaurav Bhatia with interest. The

Adjudicating Officer therefore observed that the

explanation that it was a loan is merely an afterthought.

b. The learned counsel for the appellant submitted that

repayment of unsecured loans cannot be considered a

consideration of any contract. Therefore there is no

violation of the statement made in RHP as quoted above.

c. We find that it was merely mentioned in the

RHP/prospectus that the appellants have raised the loan

but it was not disclosed that these loans would be repaid

from IPO proceeds. Further the repayment of the said

loan to the appellant Rakesh Bhatia, his son and his HUF

and further later on dubbing the part of the same as an

employee's advance to Gaurav Bhatia is nothing but a

ruse. In the circumstances, the finding of the

Adjudicating Officer in this regard needs no

interference.

10. Wrong disclosure in the objects of the issue 30

a. The allegation in this contention are twofold. First

allegation is that though Appellant no.1 Company had

declared in RHP/prospectus that an advance payment of

Rs.2.65 crores was made to Avance Technologies

Limited (hereinafter referred to as 'Avance') prior to

the IPO, later on in the fund utilization table, the entire

cost of Rs.6.57 crores was shown payable to Avance

from IPO proceeds without discounting the advance

already made. The second allegation is that in fact the

amount of Rs.2.65 crore shown to be paid to Avance by

way of advance in effect is a circuitous transfer of

money out of which only Rs.50 lakhs remained with the

Avance and rest of the cash came to the Appellant no.1.

b. As regards the first of the allegation no specific reply

was given by the appellants. As regards the second

allegation it was submitted that the alleged circuitous

transaction of this amount from the Appellant no.1 to

Avance and from Avance to three different entities i.e.

Priority Exports P. Ltd., Satshri Multitrade Private Ltd.

and Saptrishi Suppliers Private Limited which

ultimately went to coffers of Appellant no.1 were

nothing but business transfers in good faith with 31

bonafide intention. It is explained that it is only a

coincidence that the payment and repayments were

made within the same period which is branded as a

return of amount to the Appellant no.1 through

circuitous transactions.

c. The appellants had claimed that advance was paid to

Avance to expedite the timely delivery of one Building

Management System. However, there is no explanation

as to why from the IPO proceedings entire amount is

shown toward the utilization while an amount of

Rs.2.65 crores was allegedly already paid by the

Appellant no.1 towards advance.

d. As regards the circuitous transactions the diagram of

those transactions placed by the Adjudicating Officer in

para no.32 of the impugned order would show that

within a period from 8th June, 2011 to 15th June, 2011

the amount of Rs.2.15 crore returned to the coffer of

Appellant no.1 leaving an amount of Rs.50 lakh with

Avance. The appellant could have very well supported

these transactions which occurred "by coincidence" by

documentary evidence like services rendered etc. In 32

that view of the matter, the findings of the Adjudicating

Officer on this count cannot be faulted with.

11. Diversion of IPO proceeds to traders

a. It was alleged that an amount of Rs.10.53 crores of

the IPO proceeds had reached two groups immediately

after the receipt of the same by Appellant no.1 either

directly or indirectly which was used by these two

groups in trading of the scrip of the Appellant no.1 on

the listing day itself.

b. These two groups are GRD group and Korp group.

While GRD group consists of five entities, Korp group

consists of four entities as listed in the impugned order.

It was found by the respondent SEBI that Rs.7.5 crore

was transferred by Appellant no.1 to two group entities

of GRD group. This amount reached the stock broker

entity, the GRD Securities P. Ltd. which had traded on

behalf of other entities namely Marutinanadan

Infosolutions, Jalan Cement Works Ltd., Orbit

Financial Consultant Private Ltd and Swift Tie Up

Private Limited. A summary of the trade is given by

the Adjudicating Officer at para 38 of the impugned

order. The fund movement chart is given in paragraph 33

no.39. Respondent SEBI had inspected the Income Tax

returns of all these entities and found that they had

either less income or nil income and incurred loss in

crores while trading in the shares of Appellant no.1

which were compensated by Appellant no.1 in the

above fashion. The respondent SEBI had unearthed the

connection between all these entities and detailed the

same in paragraph no.40 of the impugned order. The

respondent SEBI found that 90 percent of the trades on

the listing day were made by GRD as a broker. Buy

trades were by their group entities.

c. As regards the Korp group the respondent SEBI

found that Appellant no.1 Company had transferred one

crore each to three entities of this group namely

Abhilasha Exports Pvt. Ltd, Skylight Distributors

Private Limited and Subhshree Hirise Pvt. Limited. Out

of the said amount Rs.2.9 crores reached Divya Drishti

Traders Private Ltd. (DDTPL). Additionally Appellant

no.1 transferred an amount of Rs.53 lakhs directly to

DDTPL. Out of this amount DDTPL had transferred

Rs.89 lakhs to Wheelers Developers Private Limited

(Wheelers) and Rs.1.97 crores to Korp Securities Ltd. 34

(Korp). One another entity namely Divya Drishti

Merchants Private Ltd. (DDMPL) is also the group

Company of the Korp group. While one Rajesh Kumar

Agarwal is the common director of DDMPL, DDTPL

and Wheelers, director of Korp is Sushil Kumar

Agarwal who is the brother of Rajesh Kumar Agarwal.

Anuj Agarwal son of Sushil Kumar Agarwal is also

director of Korp. The details of the transactions are

given in the subsequent paragraph.

According to SEBI, thus total amount of Rs.10.24

crores from the IPO proceeds was transferred to these

two group by Appellant no.1. These two groups had

synchronized and structured trade with Mr. V.P. Patel

(VPP). This VPP and the entities of two groups had

entered into two trades with a buy and sell order within

time difference of 4 seconds and 2 seconds respectively.

This VPP had also executed two structured trades to

these group entities within 16 seconds on NSE. The

entity wise details are given in para nos.46, 47 and 48

of the impugned order. It was additionally alleged that

these two groups and VPP had even provided exit to the

top four allottees of the IPO through structured trades of 35

86 percent of the shares to these top four allottees. The

details of the same are given by the Adjudicating

Officer in para 50 of the impugned order. Additionally

further 38 allottees were given exit route by executing

structured trades by these two groups with one Shika

Somani. Further, 2,57,324 shares were purchased from

one Shree Bahubali International Private Limited and

72,493 shares from PELP Securities Ltd. by GRD, Korp

and VPP group and in turn gave exit to their allottees

client through structured trades. The details are given

in para no.51 of the impugned order.

d. It is therefore alleged that Appellant no.1 had a prior

understanding with all these entities and thus an amount

of Rs.10.53 crore i.e. Rs.7.10 crore (GRD group) and

Rs.3.43 crores (Korp group) was diverted to

compensate the loss incurred by them while trading in

the shares of the appellant in a manipulative manner on

the very date of listing.

The Appellant no.1 vide letter dated 12th February,

2014 submitted that they had no connection with any of

these group of entities. Vide subsequent letter dated 2nd

April, 2014 the appellants explained that in fact the 36

amount was advanced to these entities as interest

bearing short term deposits. When SEBI during

investigation raised objection the Appellant no.1 started

the process to recover the said amount and more than 83

percent of the amount was recovered. A sum of Rs.1

crore however still remained to be recovered from one

of the entities.

The learned counsel for the appellant submitted

that though different trades may have been executed by

different entities on the day of listing of the shares of

the appellant, no connection could be established

between these entities and the appellant. Merely money

was advanced by the appellant to some of the entities as

interest bearing short term deposit from IPO proceeds to

benefit the Appellant no.1 Company.

e. According to us, the fact however remains that IPO

proceeds were utilized by the appellants for the

purposes beyond the object of the IPO. It is further a

fact that while substantive amount was transferred to

these entities, immediately preceeding the day of listing

of the shares on 1st August, 2011 as "short term interest

bearing deposit" some part of the amount was recovered 37

by the Appellant no.1 only after investigation by SEBI

and still as on 2nd April, 2014 a sum of Rs.1 crore

remained to be recovered. The very fact that the

amount was transferred by Appellant no.1 to these

entities but these entities in-turn indulged in

synchronized trade with different groups as detailed

above would point towards the only fact that the IPO

proceeds was used for manipulating the shares of the

Appellant no.1. The findings of the Adjudicating

Officer on this count also therefore needs no

interference.

12. Failure by Audit Committee

a. The offshoot of the above allegations is that the

Audit Committee of the Appellant no.1 failed to notice

this fund diversion. It did not record anything in its

minutes of the meeting and did not make any

recommendations to the Appellant no.1 Company.

Appellant Rakesh Bhatia, the Executive Director and

appellant Sanjeev Kumar Mittal were the members of

the Audit Committee while appellant Rajeev Kumar

Agarwal was one of the signatories to the certification

of the report.

38

In the circumstances, the respondent SEBI alleged

that these appellants had perpetrated a fraud on the

investors, and suppressed facts in the Auditing. The

appellants replied that the Audit Committee

recommendations dated 16th July, 2011 were put up

before the Board meeting held on the same date. The

Board of Directors empowered appellant Rakesh Bhatia

to advance and receive ICDs from these entities. At

page no.38 of the prospectus it was already notified by

the appellant that the appointment of monitoring agency

is not required in accordance with clause 16 of ICDR

Regulations, 2009. Therefore no agency was appointed

for the purpose of monitoring the utilization of issue

proceeds. Utilization of proceeds would be disclosed

under a separate head in the Company's balance sheet

of the next year. Accordingly, in the next balance sheet

the details of fund utilization including investment in

the above ICDs is given and the same was presented to

the shareholders and it was ratified in Postal Ballot in

March 2012 and subsequently in its Annual General

Meeting held in September, 2012. Further, the

recommendations of the Audit Committee were ratified 39

by the Appellant no.1 which was accepted by 99.93%

of the shareholders.

b. Learned counsel for the appellant on the above lines

submitted that everything was revealed to the Appellant

no.1 as well as to the shareholders and that they have

ratified the act of the appellant of investing in ICDs.

The Adjudicating Officer however held that the

undertaking of the Audit Committee in its report that all

the disclosure made in the offer document were true and

correct is a wrong certification. The Adjudicating

Officer further expressed the view that these appellants

have perpetrated a fraud on the investors by entering

into above manipulations.

c. The Adjudicating Officer lastly found that though

from time to time the appellants were advised to

recover the amount, said directions were not complied

with as on the date of passing of the order. He held that

an amount of Rs.10.53 crore to two groups i.e. GDR

group and Korp group was diverted by the appellant for

trading in a manipulative manner causing loss to the

shareholders. The Adjudicating Officer therefore held

the Audit Committee responsible for wrong 40

certification. In the circumstances, merely because the

shareholders accepted the general financial statement

without being aware of the above details, in our view

also, can not absolve the Audit Committee.

Penalty

Aggregate penalty of Rs.15.50 lakh in the

following manner was imposed.

Sr. Name of the Noticee Penal Amount of No. provision (i.e. Penalty (`) Section under SEBI Act) 1. Bharatiya Global 15HA 5 Crores Infomedia Limited 15HB 1 Crore

2. Shri Rakesh Bhatia 15HA 4 Crores Promoter Chairman and Managing Director, 15HB 1 Crore Audit Committee Member 3. Shri Sanjeev Kumar 15HA 3 Crores Mittal Executive Director, 15HB 1 Crore Audit Committee Member 4. Shri Rajeev Kumar 15HA 25 lakhs Agarwal Manager (Finance) 15HB 25 lakhs

TOTAL 15.50 Crores

The learned counsel for the appellant relying on the

case of Adjudicating Officer, SEBI vs. Bhavesh Pabari

decided by the Supreme Court of India on 28th 41

February, 2019, submits that when the Adjudicating

Officer was not able to find any unfair advantage, the

maximum penalty under Section 15HB of Rs.1 crore

and Rs.5 crores under Section 15HA of the SEBI Act is

uncalled for. The learned counsel therefore submits that

the appeal be allowed or alternatively the penalty be

modified. On the other hand, learned counsel for the

respondent opposed the plea. He submitted that the

documents on record and even explanations to the

charge given by the appellants would show that the

investor public was misled by suppressing the material

facts or transactions which occurred prior to RHP, post

RHP and before issue of shares. Not only this, the IPO

proceeds were misused for entering into manipulative

trades. Some of the substantive amount was diverted by

making payment to a firm at Kolkata for purchasing

office which was not even dealing in non-residential

premises. There were diversion of funds to the relatives

of the Appellant no.2 to 4 and different explanations

were given at different point of time on this count

contradictory to each other. He therefore submitted that

the appeal be dismissed in toto.

42

6. Upon hearing both the sides in our view for the reasons

already recorded hereinabove there is no merit in the present

appeal. In the circumstances, the following order.

The appeal is hereby dismissed with no order as to

costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

25.6.2019 Prepared and compared by RHN