Final Order in the matter of Pankaj Piyush Trade and Investments Ltd.[SAT Appeal No.:446/2021]

Final Order in the matter of Pankaj Piyush Trade and Investments Ltd.

WTM/AB/IVD/ID9/10103/2020-21

SECURITIES AND EXCHANGE BOARD OF INDIA FINAL ORDER

UNDER SECTIONS 11(4) and 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.

In respect of: Noticee Name of the entity PAN No. No. 1. Pankaj Piyush Trade and Investments Ltd AABCP3140N 2. Vinod Kumar Bansal AEPPB6994R 3. Renu Bansal BEYPB2265P 4. Seema Mangal AJVPM5737E 5. Ankit Agarwal AIOPA4947L 6. Radha Agarwal AICPA0124F 7. Fidelo Power & Infrastructure Ltd. AAECR3872J 8. SMC Power Generation Ltd. AAGCS3066B 9. Radhika Kapur AFFPK5696G 10. Girish Kapur AEHPK7076D 11. Harvinder Singh AAUPS1629R 12. Puja Arora AHLPA1290Q 13. Gagan Arora AAKPA9468J 14. Om Prakash Tarsem Chand AAGPG5608L 15. Mukesh Steel Traders (Prop. Mukesh Gupta) AAHPG7994A 16. Enn Emm Machines Pvt. Ltd. AABCE9857D 17. India Finsec Ltd. AAACD2872L (The aforesaid entities shall hereinafter be individually referred to by their names or respective Noticee no. or collectively referred to as ‘the Noticees’)

In the matter of Pankaj Piyush Trade and Investments Ltd.

1. SEBI conducted investigation in the scrip of Pankaj Piyush Trade and Investments Ltd. (hereafter referred to as ‘PPTIL’ / ‘the Company’) for the period from December 28, 2011 to October 18, 2013. On conclusion of investigation, a show cause notice dated April 3, 2017 (‘SCN’) was issued against the Noticees for the alleged violation of section 12A(a), 12A(b) and 12A(c) of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act, 1992’) and Regulation 3(b), 3(c), 3(d), 4(1) and 4(2)(a) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations, 2003’), by engaging in a fraudulent scheme by creating a sham appearance of receipt of funds through a preferential allotment of non-convertible preference shares, which indirectly, for the most part, was financed by PPTIL itself through round tripping of funds using conduit entities. The SCN also alleges that PPTIL attempted to issue bonus shares by capitalizing the securities premium account, which account itself was created from the funds that were allegedly received from the impugned preferential allotment and thus indirectly financed by PPTIL.

Show Cause Notice, Replies, Inspection of Documents, Personal Hearing and Submissions:

2. The findings of the investigation, as contained in the SCN and the allegations against the Noticees thereon, are given as follows:

a. As on March 31, 2012, the share capital of PPTIL stood at Rs. 40 lakhs divided into 4,00,000 equity shares of Rs. 10 each. The shares were listed at BSE. Subsequently, the issue of 20 lakhs non-cumulative non-convertible preference shares of Rs. 10 each at an issue price of Rs. 100/- (including a premium of Rs. 90/- per share) to Noticee no. 7 on preferential basis was approved by shareholders in EGM held on Jun 30, 2012. It was observed that Noticee no. 2, who was the promoter of PPTIL was also the co-promoter of Noticee no. 7.

b. Funds amounting to Rs. 20 crores were transferred by Noticee no. 7 to PPTIL in 27 tranches (amounts ranging from Rs. 28 lakh to Rs. 1.94 crore) during Jun 8, 2012 to Jun 29, 2012. It was observed that the funds were received for preferential allotment before the approval at EGM. On examination of the bank account statements of PPTIL and Noticee no. 7, it was revealed that in a few instances, PPTIL transferred funds to certain entities, which in turn transferred the same to Noticee no. 7. Noticee no. 7 then transferred the same to PPTIL. This cycle was repeated 18 times. The entities involved in such transactions were Noticee nos. 7 to 17.

c. As mentioned above, Noticee no. 2, who was the promoter of PPTIL was also the co-promoter of Noticee no. 7. The connection among Noticee no. 7, the entities who transferred funds and PPTIL are as shown in the Table below:

Table 1: Connection amongst entities. Fidelo Power & Infrastructure Limited: - Gagan Arora:- Preferential allottee of PPTIL Received funds from PPTIL 1 7 Received funds from entities at sl. no. 2-11 Transferred funds to FIdelo SMC Power Generation:- Om ParkashTarsem Chand:- Received funds from PPTIL Received funds from PPTIL 2 8 Transferred funds to Fidelo Transferred funds to Fidelo Radhika Kapur:- Mukesh Steel Traders:- Received funds from PPTIL Received funds from PPTIL 3 9 Transferred funds to Fidelo Transferred funds to Fidelo Girish Kapur:- Enn Emm Machines:- Received funds from PPTIL Received funds from PPTIL 4 10 Transrred funds to Fidelo Transferred funds to Fidelo and India Finsec Harvinder Singh:- India Finsec Limited:- Received funds from PPTIL Received funds from Enn Emm Machines 5 11 Transferred funds to Fidelo Transferred funds to Fidelo Puja Arora:- Received funds from PPTIL 6 Transferred funds to Fidelo d. The fund transfers between PPTIL and the entities mentioned above and between the said entities and Noticee no. 7 is given as under:

Fund transfers between PPTIL & Entities Fund transfers between entities and Fidelo Fund transferred by PPTIL to Group-2 entities Funds transferred by Group-2 entities to Fidelo Amount Amount Date Transferred to Date Transferor (Rs. lakh) (Rs. lakh) 11-Jun-2012 SMC Power 180 11-Jun-2012 SMC Power 180 12-Jun-2012 SMC Power 125 12-Jun-2012 SMC Power 225 12-Jun-2012 SMC Power 100 13-Jun-2012 SMC Power 225 13-Jun-2012 SMC Power 125 14-Jun-2012 SMC Power 216 13-Jun-2012 SMC Power 100 15-Jun-2012 Girish Kapur 100 14-Jun-2012 SMC Power 100 15-Jun-2012 Radhika Kapur 100 14-Jun-2012 SMC Power 116 15-Jun-2012 Harvinder Singh 50 15-Jun-2012 Girish Kapur 100 18-Jun-2012 Puja Arora 35 15-Jun-2012 Radhika Kapur 100 18-Jun-2012 Gagan Arora 50 15-Jun-2012 Harvinder Singh 50 18-Jun-2012 Gagan Arora 50 18-Jun-2012 Puja Arora 35 19-Jun-2012 Mukesh Steel 50 18-Jun-2012 Gagan Arora 50 19-Jun-2012 Mukesh Steel 50 18-Jun-2012 Gagan Arora 50 19-Jun-2012 Om Parkash 50 19-Jun-2012 Mukesh Steel 50 19-Jun-2012 Om Parkash 50 19-Jun-2012 Mukesh Steel 50 20-Jun-2012 Enn Emm 50 19-Jun-2012 Om Parkash 50 20-Jun-2012 Enn Emm 50 19-Jun-2012 Om Parkash 50 20-Jun-2012 India Finsec 55 19-Jun-2012 Enn Emm 85 20-Jun-2012 India Finsec 60 20-Jun-2012 Enn Emm 67 20-Jun-2012 Enn Emm 60 e. Some instances of the cycle mentioned above is given: a) Fund transfer of Rs. 2.25 crore amongst the entities Noticee no. 8, 7 and PPTIL on Jun 12, 2012 and Jun 13, 2012

Explanation: PPTIL transferred Rs. 2,25,00,000 to Noticee no. 8 in 2 tranches on Jun 12, 2012. Noticee no. 8 transferred the same amount i.e. Rs. 2.25 crore to Noticee no. 7 on Jun 12, 2012. Noticee no. 7 then transferred the same amount i.e. Rs. 2.25 crore to PPTIL on Jun 13, 2012 in 2 tranches as payment towards preferential allotment.

b) Fund transfer of Rs. 1 crore amongst Noticee no. 9, Noticee no. 7 and PPTIL on Jun 15, 2012 and Jun 16, 2012 c) Fund transfer of Rs. 1 crore amongst Noticee no. 11, Noticee no. 7 and PPTIL on Jun 15, 2012 and Jun 16, 2012 f. The bank account statement of the entities were also analysed and the flow of funds among the entities was traced. Some of the transactions are given below: a) Fund transfer of Rs. 2.25 crore amongst Noticee no. 8, 7 and PPTIL on Jun 12, 2012 and Jun 13, 2012

Funds flow between Group-2 entities Entity Opening Bal on Received Paid Receiving Entity Giving Date of Receipt Amount (in Amount (in Funds (in Rs. Funds Date of Transfer (in Rs. Lakh) Rs. Lakh) Date of Transfer Rs. Lakh) Lakh) PPTIL 12/06/2012 33.62 194 12/06/2012 125 SMC 12/06/2012 100 SMC Total 225 SMC 12/06/2012 84.33 225 12/06/2012 225 Fidelo Fidelo 13/06/2012 0 225 13/06/2012 125 PPTIL 13/06/2012 100 PPTIL Total 225 Explanation: PPTIL transferred Rs. 2.25 crore to Noticee no. 8 in 2 tranches on Jun 12, 2012. The opening balance of Noticee no. 8 on Jun 12, 2012 was Rs. 84.33 lakhs. It received Rs. 2.25 crore from PPTIL. On the same of day, Noticee no. 8 transferred. 2.25 crore to Noticee no. 7. Noticee no. 7 received Rs. 2.25 crore from Noticee no. 8. Noticee no. 7 transferred Rs. 2.25 crore to PPTIL in 2 tranches on Jun 13, 2012 as a payment towards preference shares. From the table, it was observed that Noticee no. 7 did not have enough funds to pay PPTIL. Noticee no. 7 was able to pay PPTIL only after receiving the funds through Group-2 entities.

g. The reason for the fund transfers were obtained from PPTIL and Noticee no. 7. The analysis of the replies is given below: a) PPTIL: It was observed that PPTIL transferred funds of Rs. 16.43 crore to 9 entities from Jun 11, 2012 – Jun 20, 2012. Explanation was sought from PPTIL about the reason for the transfer of funds along with supporting evidence. PPTIL gave reasons such as short term loan and advance payment towards purchase of plot. The details of transfers made by PPTIL to various entities as submitted by PPTIL and the comments on the same is given below:

Fund transfers by PPTIL to entities (Amount in Rs. Lakhs) Fund transfers By PPTIL to Entities Date on Jun Entity Amount (Rs Reason given Comments 2012 Lakhs) by PPTIL 11 – 14 SMC 846 Unsecured loan Loan agreement was not submitted by PPTIL but mentioned as an advance.

15 Radhika Kapur 100, Advance Documentation related to the advance payment for payment was not submitted by PPTIL property 15 Girish Kapur 100 Advance Documentation related to the advance payment for payment was not submitted by PPTIL property 15 Harvinder Singh 50 Communication a) In earlier communication the reason for the dated Nov 20, transfer of funds was given as short term loan 2012 – Short but it was later mentioned as advance term loan payment towards property purchase. b) On perusal of the documentation of advance payment, it was observed that the value of the plot was Rs. 25 lakhs. But the advance payment was for Rs. 50 lakhs. c) Also there was a delay in the repayment of Communication advance on cancellation of the property deal dated Aug 25, which attracted penalty payments. But the 2014 - Advance details of penalty payments was not submitted payment for by PPTIL property d) The agreement was not made on stamp paper and the location of the plot was not specifically identified in the agreement. 18 Puja Arora 35 Communication a) In earlier communication the reason for the dated Nov 20, transfer of funds was given as short term loan 2012 – Short but it was later mentioned as advance term loan payment towards property purchase. b) On perusal of the documentation of advance payment, it was observed that the value of the plot was Rs. 25 lakhs.

But the advance payment was for Rs. 35 lakhs. c) Also there was a delay in the repayment of Communication advance on cancellation of the property deal dated Aug 25, which attracted penalty payments. But the 2014 - Advance details of penalty payments was not submitted payment for by PPTIL property d) The agreement was not made on stamp paper and the location of the plot was not specifically identified in the agreement. 18 Gagan Arora 100 Communication a) In earlier communication the reason for the dated Nov 20, transfer of funds was given as short term loan 2012 – Short but it was later mentioned as advance term loan payment towards property purchase. b) On perusal of the documentation of advance payment, it was observed that the value of the plot was Rs. 50 lakhs. But the advance payment was for Rs. 1 crore c) Also there was a delay in the repayment of Communication advance on cancellation of the property deal dated Aug 25, which attracted penalty payments. But the 2014 - Advance details of penalty payments was not submitted payment for by PPTIL property d) The agreement was not made on stamp paper and the location of the plot was not specifically identified in the agreement.

19 Mukesh Steel 100 Short term loan Proof of receipt of interest and the principal Traders at 9% interest per was not submitted by PPTIL annum

19 Om Parkash 100 Short term loan Proof of receipt of interest and the principal Tarsem Chand at 9% interest per was not submitted by PPTIL annum 19 &20 Enn Emm 212 Advance Documentation related to the advance Machines payment for payment was not submitted by PPTIL property Total 1,643 b) FIDELO: It was observed that Noticee no. 7 received funds of Rs. 17.83 crore from 10 entities from Jun 11, 2012 – Jun 20, 2012. Explanation was sought from Noticee no. 7 about the reason for the receipt of funds along with supporting evidence. Noticee no. 7 provided the reason as refund of advance payment towards purchase of plot. The details of funds received by Noticee no. 7 from various entities as submitted by Noticee no. 7 and the comments on the same is given below:

Fund receipts by Noticee no. 7 Funds received by Fidelo from the entities Date on Entity Amount Reason given by Comments Jun 2012 (Rs.) Fidelo 11-14 SMC 8,46,00,000 Advance payment Documentation related to the advance payment for property was not submitted by Fidelo 7-21 India Finsec 2,52,00,000 Advance payment Documentation related to the advance payment for property was not submitted by Fidelo 15 Radhika Kapur 1,00,00,000 Advance payment Documentation related to the advance payment for property was not submitted by Fidelo 19 Om Parkash 1,00,00,000 Advance payment Documentation related to the advance payment Tarsem Chand for property was not submitted by Fidelo

18 Gagan Arora 1,00,00,000 Advance payment Documentation related to advance payment was for property not submitted by Fidelo. 15 Girish Kapur 1,00,00,000 Advance payment Documentation related to the advance payment for property was not submitted by Fidelo 20 Enn Emm 1,00,00,000 Advance payment Documentation related to the advance payment Machines for property was not submitted by Fidelo 18 Mukesh Steel 1,00,00,000 Advance payment Documentation related to the advance payment Traders for property was not submitted by Fidelo 15 Harvinder 50,00,000 Advance payment Documentation related to the advance payment SIngh for property was not submitted by Fidelo 18 Puja Arora 35,00,000 Advance payment Documentation related to the advance payment for property was not submitted by Fidelo Total 17,83,00,000 h. On the basis of analysis of the replies of PPTIL and Noticee no. 7, it is revealed that PPTIL had taken a differing stand with respect to the reason for fund transfers during the course of the investigation. For e.g. PPTIL in its earlier communication dated Nov 20, 2012 mentioned that the fund transfers to Noticee no. 11, 12 and 13 was short term loan but in its later communication dated Aug 25, 2014 mentioned that it was advance payment towards purchase of property. Both PPTIL and Noticee no. 7 failed to produce documentary proof to substantiate their claims about the transactions. The funds transferred by Noticee no. 7 to PPTIL were circulated multiple times to create an appearance of receipt of payment, in entirety, towards preferential issue of shares.

i. Noticee no. 2, 3, 4, 5 and 6, were the directors of PPTIL at the time when PPTIL indulged in the transactions discussed hereinabove. Thus, it is observed that PPTIL along with its directors Noticee no. 2 to 6, and entities namely Noticee no. 7 to 17 engaged in a fraudulent scheme of issuing non-convertible preference shares without receipt of actual consideration from the allotees. The appearance of the payment of funds was created through circular rotation of funds among themselves.

j. The detailed analysis of fund transfers made by Noticee no. 7 to PPTIL towards the preferential allotment is given as below:

Analysis of fund transfers made by Noticee no. 7 to PPTIL towards preferential allotment S.No. Date of fund transfer by Noticee Amount Paid Amount Round no. 7 to PPTIL (in Rs. Lakhs) Tripped (in Rs. Lakhs) 1 8th Jun 2012 110 0 2 9th Jun 2012 75 0 3 11th Jun 2012 28 0 4 12th Jun 2012 194 180 5 13th Jun 2012 115 115 6 13th Jun 2012 110 110 7 13th Jun 2012 150 150 8 13th Jun 2012 75 75 9 14th Jun 2012 15 0 10 14th Jun 2012 75 11 14th Jun 2012 75 216 12 14th Jun 2012 66 13 15th Jun 2012 50 250 14 16th Jun 2012 50 15 16th Jun 2012 50 16 16th Jun 2012 50 17 16th Jun 2012 50 18 19th Jun 2012 90 135 19 19th Jun 2012 80 20 19th Jun 2012 50 150 21 19th Jun 2012 50 22 19th Jun 2012 50 23 25th Jun 2012 75 210 24 25th Jun 2012 75 25 27th Jun 2012 60 26 29th Jun 2012 85 0 27 29th Jun 2012 47 0 Total 2,000 1,591 k. The investigation further revealed that the Board of Directors of PPTIL at its meeting held on July 18, 2012 recommended the issue of bonus shares in the ratio of 45:1 through capitalisation of securities premium account. For the issuance of bonus shares at this ratio, a free reserve of Rs. 18 crores would have been required. As per Reg. 94 (1) of SEBI (ICDR) Regulations 2009, "the bonus issue shall be made out of free reserves built out of the genuine profits or securities premium collected in cash only and reserves created by revaluation of fixed assets shall not be capitalised for the purpose of issuing bonus shares".

l. As per the balance sheet submitted by PPTIL, the securities premium account of PPTIL during the FY ending Mar 2012 and 2013 are as given below:

Comparison of Reserves and Surplus of PPTIL for F.Y. ending 2012 and 2013 Reserves and Surplus of PPTIL for FY ending Mar 2013 (in Rs FY ending Mar 2012 (in lakhs) Rs lakhs) Securities Premium 1800 - Account Capital Reserve 2456.69 2456.69 General Reserve 5.6 5.6 Surplus/Deficit in P&L (1859.61) (1862.58) Total 2402.68 599.71 m. From the above table, it is observed that PPTIL did not have enough balance in its securities premium account during the financial year ending 2012. It was further observed that PPTIL made a preferential allotment to Noticee no. 7 in July 2, 2012 due to which funds amounting to Rs. 20 crore was purportedly received by PPTIL. For the purpose of the preferential allotment, PPTIL funded Noticee no. 7 by round tripping of funds as shown above. Thereafter, the amount collected (partly in cash and mostly through round tripping of funds) was credited into the share capital account and share premium account of PPTIL. It is also revealed that the amount credited to the share premium account i.e. Rs. 18 crore, ostensibly funded by the preferential allottee was the exact amount proposed to be capitalised for the issue of bonus shares. Therefore, it is concluded that PPTIL made a preferential allotment to Noticee no. 7 for the purpose of crediting its securities premium account which would enable it to execute the bonus issue.

n. In view of the above, it is alleged that the Noticees have violated Section 12A (a), (b), (c) of SEBI Act, 1992 read with Regulations 3 (b), (c), (d), 4 (1), 4 (2)(a) of PFUTP Regulations, 2003 by engaging in a fraudulent scheme of issuing non-convertible preference shares by creating an appearance of the payment of funds through circular rotation of funds among themselves during June 2012. It is also alleged that PPTIL attempted to issue of bonus shares without collecting the securities premium in cash.

3. The Noticee nos. 1 to 17 were, therefore, called upon to show cause as to why directions under Sections 11(4) and 11B of the SEBI Act, 1992, should not be issued against them for violation of the aforementioned regulations of PFUTP Regulations, 2003. Noticee No.1 is additionally called upon to show cause as to why directions including restraining it from proceeding with the bonus issue of shares as approved by the Board of Directors on July 18, 2012 should not be issued against it.

4. Noticee no. 1, 2, 3, 4, 5 and 6 vide their reply dated April 18, 2017, Noticee no. 17 vide its reply dated September 1, 2017 and Noticee no. 8 vide its reply dated April 24, 2017, had sought inspection of documents from SEBI. I note that SEBI, vide email dated July 14, 2020, had intimated to the said Noticees that an inspection of documents, can be arranged at any time at SEBI Head Office by intimating the date and time of visit in advance. I note that, pursuant to the communication of the said email, no request for inspection was received from any of the said Noticees. I also note that vide the said email dated July 14, 2020, the said Noticees were also informed that all documents that have been relied upon by the SCN have already been made part of the Annexure to the SCN. The request for inspection of Investigation Report in the matter was not allowed by SEBI for the reason that all the findings that were relevant and relied upon by SEBI while issuing the SCN, have already been reproduced in the SCN along with the relevant Annexures. With regard to the request for cross-examination and/or providing copy of statement recordings done during investigation, SEBI had denied the same, as no statement recordings were relied upon by the SCN. In view of the above, I note that adequate opportunity for inspection of documents had been provided by SEBI, however, the said Noticees failed to avail the same.

5. An opportunity of personal hearing was granted to all the Noticees in the matter on August 13, 2020. On the scheduled date of hearing, Noticee no. 1, 2, 3, 4, 5, 6, 11, 12, 13 and 17, were heard through audio-video web-conference. None appeared for Noticee no. 7, 8, 9, 10, 14, 15 and 16, and neither a request for adjournment was received from them. From the record of service of hearing notice for the hearing scheduled on August 13, 2020, it was observed that adequate material was not available to confirm the delivery of hearing notice to Noticee no. 9, 10 and 14, hence, another opportunity of personal hearing was granted to Noticee no. 9, 10 and 14 on November 4, 2020. On the scheduled date, none of the said Noticees appeared for the hearing, neither any request for adjournment was received from them. I note that Noticee no. 14, 15 and 16 have neither filed any reply to the SCN, nor availed the opportunity of personal hearing that was granted to them. The matter is being proceeded ex-parte qua Noticee no. 14, 15 and 16.

6. The key contentions raised by Noticee no. 2, 3, 4, 5 and 6 while adopting Noticee no. 1’s merit based reply dated August 10, 2020, at the time of personal hearing held on August 13, 2020 and vide Noticee no. 1’s written submissions dated August 25, 2020, are as follows:

a. Admittedly, the present violations relate to preference issue in June 2012. Admittedly, the SCN was issued in April 2017 i.e. after atleast five years of the impugned transactions. Clearly there has been extraordinary inordinate delay in the issuance of the SCN. The aforesaid inordinate delay has severely prejudiced us and the delay has not been explained by SEBI.

b. We reiterate that the issuance of 20 Lacs 6% non-cumulative redeemable preference shares to Noticee no. 7 was made in the ordinary course of business in consonance with the applicable provisions of law. The context of fund transfer by PPTIL to other entities is set out hereinbelow:

Transfer of amount to Noticee no. Rs. 846 Lacs were transferred to Noticee 8 (SMC Power Generation) no. 8 during June 11 to 14, 2012, as unsecured loan/ advance. We may point out that the said amount was returned by Noticee no. 8 during FY 2013-14 in multiple tranches. Due to passage of time, we are not in a position to trace out the copy of the agreement entered with Noticee no. 8.

Transfer of amount to Noticee no. Rs. 100 Lacs each were transferred to 9 and 10 (Ms. Radhika Kapur and Noticee no. 9 and 10, as advance towards Mr. Girish Kapur) purchase of property which was owned by them in Panchsheel Park, New Delhi. Since, the deal for purchase of property did not fructify, we had sought the refund of amounts and accordingly, the said amounts of Rs. 2 Crores were returned by them in November/ December 2012. Transfer of amount to Noticee no. Rs. 50 Lacs was transferred to Noticee no. 11 (Mr. Harvinder Singh) 11, as advance towards purchase of property which was owned by him in Rohini, New Delhi. Since, the deal for purchase of property did not fructify, we had sought the refund of amounts and accordingly, the said amounts of Rs. 50 lacs were returned by Noticee no. 11 on November 19, 2012. With regards to the alleged discrepancies, with regard to the advance payment for purchase of property, as pointed out by the SCN, we state that the same was an inadvertent error. Transfer of amount to Noticee no. Rs. 35 Lacs was transferred to Noticee no. 12 (Ms. Puja Arora).

12, as advance towards purchase of property which was owned by her in Rohini, New Delhi. Since, the deal for purchase of property did not fructify, we had sought the refund of amounts and accordingly, the said amounts of Rs. 35 lacs were returned by Noticee no. 12 on November 17, 2012. With regards to the alleged discrepancies, with regard to the advance payment for purchase of property, as pointed out by the SCN, we state that the same was an inadvertent error. Transfer of amount to Noticee no. Rs. 100 Lacs was transferred to Noticee no. 13 (Mr. Gagan Arora) 13, as advance towards purchase of property which was owned by him in Rohini, New Delhi. Since, the deal for purchase of property did not fructify, we had sought the refund of amounts and accordingly, the said amounts of Rs. 100 lacs were returned by Noticee no. 13 in January to August 2013. With regards to the alleged discrepancies, with regard to the advance payment for purchase of property, as pointed out by the SCN, we state that the same was an inadvertent error. Transfer of amount to Noticee no. Rs. 100 Lacs was transferred to Noticee no. 15 (M/s.

Mukesh Steel Traders) 15 as an unsecured loan. The said loan amount was paid by Noticee no. 15, alongwith interest of Rs. 9,00,250/- in August 2013. Transfer of amount to Noticee no. Rs. 100 Lacs was transferred to Noticee no. 14 (Mr. Om Prakash Tarsem 14 as an unsecured loan. The said loan Chand) amount was paid by Noticee no. 14, alongwith interest of Rs. 9,00,250/- in August 2013. Transfer of amount to Noticee no. Rs. 212 Lacs was transferred to Noticee no. 16 (M/s.Enn Emm Machines) 16, as advance towards purchase of property in New Delhi. Since, the deal for purchase of property did not fructify, we had sought the refund of amounts and accordingly, the said amounts of Rs. 212 lacs were returned by Noticee no. 16 during May 2013 to March 2014. Due to passage of time, we are not in a position to trace out the copy of the agreement entered with Noticee no. 16.

c. Further, we had received the entire amount towards subscription from Noticee no. 7. The bonafide utilization/ transfer of funds made by us to various entities in particular context in the ordinary course of business has not been appreciated properly and has been viewed suspiciously by connecting the same to issuance of non-cumulative non-convertible preference shares. We reiterate that there is no nexus between the same as insinuated in the SCN.

d. In any event it is submitted that the entire amount which was transferred by us to various person or entities (viz. Noticee no. 8, 9, 10, 11, 12, 13, 14, 15 and 16) had come back to the coffers of PPTIL (pursuant to the non-fructification of purchase of property or repayment of loans or advances with interest. The return of amounts transferred has also been corroborated and certified by M/s. V. N. Purohit and Co., Chartered Accountants vide their certificated dated August 1, 2020. It is not the case of SEBI that the amount siphoned off/ round tripped (as alleged) are still at large and have not come back. In fact, much prior to issuance of SCN, the amounts which are alleged to be round tripped / siphoned off had already come back to PPTIL.

e. With regard to Noticee no. 2 being the co-promoter of Noticee no. 7, we would like to state that this is not the fact, as Noticee no. 2 was never associated with Noticee no. 7.

f. The amount of 20 Crores arising from the preference issue, over the years, has been utilized by PPTIL for its business purpose. Same is borne out by the books of the Company. Consequent to the utilization of the said amounts over the years into the business operations of the Company, the Company’s networth has increased from around Rs. 3 Crores in FY 2012-13 to around Rs. 26 Crores in FY 2019-20.

g. As a consequence of the preference issue, the Company or its shareholders have not been adversely impacted in any manner. It may be appreciated that the said preference issue did not result in any dilution of voting rights of the shareholders or did not confer any voting rights on Noticee no. 7. The Company, over the years, has not even paid any dividend to Noticee no. 7.

h. The bonus issue, which has been adverted in the SCN, though contemplated, was never undertaken by the Company, due to non-grant of permission by SEBI. There have been no investor complaints against the Company.

7. The key contentions raised by Noticee no. 4, 5 and 6 vide their separate merit based reply dated August 11, 2020 and at the time of personal hearing held on August 13, 2020, are as follows:

a. Noticee no. 5 was independent non-executive director of PPTIL from April 12, 2012 to August 12, 2014. Noticee no. 6 was independent non-executive director of PPTIL from April 12, 2012 to May 29, 2017. Noticee no. 4 was non-executive director of PPTIL from March 3, 2011 and thereafter became independent director from July 15, 2012 and continued to be independent director till April 30, 2016.

b. As the independent director, we were not involved in day to day affairs and management of the Company. During our limited tenure as independent directors, we were not involved in any alleged round tripping of funds, which is the allegation in the SCN.

c. We have not attended the board meeting held on June 4, 2012, wherein the issuance of preference shares was approved. In fact, during the FY 2012-13, we had attended very few board meetings owing to our personal difficulties.

d. There is not even a whisper or shred of evidence on record to show that there is any act committed by us (i.e. the alleged round tripping), from which a resonable evidence can be drawn that we could be held liable.

e. Significantly, it may be noted that, there is no allegation that, we have made any profits in any manner by virtue of the alleged activities.

f. We adopt the reply filed by Noticee no. 1 dated August 10, 2020, contesting the allegations levelled in the SCN. The said reply be read as part and parcel of our reply.

g. Even if it is held that PPTIL has violated any of the provisions of SEBI Act, 1992, we cannot be held liable for the same because of the reasons as stated above.

8. I note that Noticee no. 7 has not filed any reply nor has it appeared for personal hearing in the matter. However, I note that M/s. Yamini Investments Company Ltd. (on behalf of Noticee no. 7) vide its merit based reply dated July 20, 2020 and April 22, 2017, has raised the following key contentions to the SCN:

a. Vide its order dated May 9, 2014, passed by the Hon’ble High Court of Bombay, Noticee no. 7 got merged with Yamini Investments Company Ltd. The present proceedings were not either initiated or pending on the effective date of merger. It is therefore submitted that as per the scheme of amalgamation, as approved by the High Court of Bombay, we cannot and ought not to be held responsible / accountable for any proceedings which were not initiated or pending as on effective date of merger.

b. We would like to submit that none of the promoters or directors of Noticee no. 7 are associated with us and we have no knowledge or information about their dealings with PPTIL, prior to merger of Noticee no. 7 with us.

c. The SCN states that Noticee no. 2 was also promoter of Noticee no. 7, which is factually incorrect.

9. The key contentions raised by Noticee no. 8 vide its merit based reply dated April 24, 2017, are as follows:

a. We have no relation/ connection with the promoter/ director of Noticee no. 7 and PPTIL, either directly or indirectly except financial dealings with them, which have been carried out in the ordinary course of our business. We have never been part of any decision making process in any manner either directly / indirectly for issuance of non-convertible preference shares by PPTIL and also bonus issue as proposed by them.

b. On perusal of SCN, we do not find mention of our name or our role in the issuance of non-convertible preference shares and existence of any linkage in scheme/ arrangement PPTIL or other Noticees. Therefore, in our view SCN is misconceived and misdirected against us suffers from misjoinder against us as co-Noticee.

10. The key contentions raised by Noticee no. 9 and 10 vide their separate merit based reply dated May 5, 2017, are as follows:

a. We had agreed to sell our property through estate agent named ‘Sawhney Properties’ to Noticee no. 7 on December 3, 2011. As guided by Sawhney Properties, we were issued Receipt Cum Agreement dated December 3, 2011 on the pre-printed format of Sawhney Properties. Accordingly, we received a sum of Rs. 1 Crore each as advance against property from Noticee no. 7 on December 3, 2011.

b. Subsequently, we were informed by Sawhney Properties that Noticee no. 7 is not interested in buying the said property, however, there was another buyer viz. PPTIL who was willing to buy the same property. Accordingly, we received Rs. 1 Crore each on June 15, 2012 as advance from PPTIL and in turn we paid Rs. 2 Crore back to Noticee no. 7 for the cancelled deal. As guided by Sawhney Properties, we were issued another Receipt Cum Agreement dated June 15,

2012 on the pre-printed format of Sawhney Properties for the new deal with PPTIL.

c. Unfortunately, the balance amount payable by PPTIL was not forthcoming and hence, we decided to cancel the deal and refunded the money to PPTIL in four tranches.

d. We find it astonishing to note that our name is included as one of the group entities connected to PPTIL and Noticee no. 7 without any relation, connection or association with them except few and stray financial transactions relating to sale of property.

11. The key contentions raised by Noticee no. 11 vide its merit based reply dated February 1, 2019, Noticee no. 12 vide its merit based reply dated January 31, 2019 and Noticee no. 13 vide its merit based reply dated January 30, 2019 and at the time of personal hearing held on August 13, 2020, are as follows:

a. We do not have any relation with PPTIL or any of its directors, except that Noticee no. 11 and 13 were the erstwhile shareholders of PPTIL. We have never applied for any shares of PPTIL in rights issue/ IPO / preferential allotment.

b. Facts about transactions between us and Noticee no. 7:

Noticee no. 11 Entered into an agreement to sell one half undivided share in property to Noticee no. 7 on April 1, 2012 and received a sum of Rs. 50,00,000/-as earnest money from Noticee no. 7 on April 3, 2012, against total sale consideration of Rs. 2,00,00,000/-. The balance payment was to be made on or before June 13, 2012. Noticee no. 7 failed to make the balance payment on time, hence, the deal was cancelled and the whole amount received was refunded to Noticee no. 7 after mutual discussion, inspite of having provision of deduction of Rs. 5,00,000/-. Noticee no. 12 Entered into an agreement to sell property owned by me to Noticee no. 7 on March 10, 2012 and received a sum of Rs. 35,00,000/- as earnest money from Noticee no. 7 on March 12, 2012, against total sale consideration of Rs. 2,00,00,000/-. The balance payment was to be made on or before June 12, 2012. Noticee no. 7 failed to make the balance payment on time, hence, the deal was cancelled and the whole amount received was refunded to Noticee no. 7 after mutual discussion, inspite of having provision of deduction of Rs. 3,50,000/-. Noticee no. 13 Entered into an agreement to sell property owned by me to Noticee no. 7 on April 2, 2012 and received a sum of Rs. 1,00,00,000/- as earnest money from Noticee no. 7 on April 3, 2012, against total sale consideration of Rs. 2,50,00,000/-. The balance payment was to be made on or before June 2, 2012. Noticee no. 7 failed to make the balance payment on time, hence, the deal was cancelled and the whole amount received was refunded to Noticee no. 7 after mutual discussion, inspite of having provision of deduction of Rs. 5,00,000/-.

c. The facts about the transactions that took place between us and PPTIL:

Noticee no. 11  Agreed to acquire 100 sq. meter land and to sell the land to PPTIL @ 2,50,000/- per sq. meter.  As per the agreement if the vendor failed to acquire the land and transfer to purchaser, the vendor shall return earnest money deposit to the purchaser. Since, the agreement was cancelled on the request of PPTIL, there was no default on my part, therefore the amount was refunded without interest with mutual consent.  In previous communication to SEBI, the reason for transfer of funds by PPTIL was mentioned as short term loan. This was a mistake. A clause in the agreement which related to payment of interest @15% p.a. in case vendor fails to execute the deal, was misconstrued as loan arrangement.  On the question of discrepancy in the value of the plot being Rs. 25 Lacs and the advance payment being Rs. 50 Lacs, I submit that there was some clerical mistake, with respect to the agreement, submitted earlier to SEBI. The rate was in advertently written as ‘Rs. 2,50,00/- per sq. mtr.’, whereas the correct rate was Rs. 2,50,000/- per sq. mtr., which can be gauged from the comma between the figures, and Rs. 25 Lacs has not been mentioned anywhere in the whole agreement. After realizing the mistake, a fresh agreement on stamp paper was executed.  On the question of agreement that was furnished to SEBI being unstamped, I state that the agreement was executed on plain paper, but later it was properly executed on stamp paper. In spite of stamp paper agreement, normal paper agreement has been submitted to SEBI during investigation.

Noticee no. 12  Agreed to acquire 100 sq. meter land and to sell the land to PPTIL @ 2,50,000/- per sq. meter.  As per the agreement if the vendor failed to acquire the land and transfer to purchaser, the vendor shall return earnest money deposit to the purchaser. Since, the agreement was cancelled on the request of PPTIL, there was no default on my part, therefore the amount was refunded without interest with mutual consent.  In previous communication to SEBI, the reason for transfer of funds by PPTIL was mentioned as short term loan. This was a mistake. A clause in the agreement which related to payment of interest @15% p.a. in case vendor fails to execute the deal, was misconstrued as loan arrangement.  On the question of discrepancy in the value of the plot being Rs. 25 Lacs and the advance payment being Rs. 35 Lacs, I submit that there was some clerical mistake, with respect to the agreement, submitted earlier to SEBI. The rate was in advertently written as ‘Rs. 2,50,00/- per sq. mtr.’, whereas the correct rate was Rs. 2,50,000/- per sq. mtr., which can be gauged from the comma between the figures, and Rs. 35 Lacs has not been mentioned anywhere in the whole agreement.

After realizing the mistake, a fresh agreement on stamp paper was executed.  On the question of agreement that was furnished to SEBI being unstamped, I state that the agreement was executed on plain paper, but later it was properly executed on stamp paper. In spite of stamp paper agreement, normal paper agreement has been submitted to SEBI during investigation. Noticee no. 13  Agreed to acquire 200 sq. meter land and to sell the land to PPTIL @ 2,50,000/- per sq. meter.  As per the agreement if the vendor failed to acquire the land and transfer to purchaser, the vendor shall return earnest money deposit to the purchaser. Since, the agreement was cancelled on the request of PPTIL, there was no default on my part, therefore the amount was refunded without interest with mutual consent.  In previous communication to SEBI, the reason for transfer of funds by PPTIL was mentioned as short term loan. This was a mistake. A clause in the agreement which related to payment of interest @15% p.a. in case vendor fails to execute the deal, was misconstrued as loan arrangement.  On the question of discrepancy in the value of the plot being Rs. 50 Lacs and the advance payment being Rs. 1 Crore, I submit that there was some clerical mistake, with respect to the agreement, submitted earlier to SEBI.

The rate was in advertently written as ‘Rs. 2,50,00/- per sq. mtr.’, whereas the correct rate was Rs. 2,50,000/- per sq. mtr., which can be gauged from the comma between the figures, and Rs. 50 Lacs has not been mentioned anywhere in the whole agreement. After realizing the mistake, a fresh agreement on stamp paper was executed.  On the question of agreement that was furnished to SEBI being unstamped, I state that the agreement was executed on plain paper, but later it was properly executed on stamp paper. In spite of stamp paper agreement, normal paper agreement has been submitted to SEBI during investigation.

12. The key contentions raised by Noticee no. 17 vide its merit based reply dated September 1, 2017 and August 10, 2020, at the time of personal hearing held on August 13, 2020 and vide its written submissions dated August 25, 2020, are as follows:

a. Admittedly, the present violations relate to preference issue in June 2012. Admittedly, the SCN was issued in April 2017 i.e. after atleast five years of the impugned transactions. Clearly there has been extraordinary inordinate delay in the issuance of the SCN. The aforesaid inordinate delay has severely prejudiced us and the delay has not been explained by SEBI.

b. We have been unnecessarily been dragged into the whole affair of preferential issue by PPTIL. We categorically submit that we have nothing to do with the preferential issue made by PPTIL. The two transactions viz. transfer of 115 Lacs to Noticee no. 7 on June 20, 2012 and receipt of funds from Noticee no. 16 on the same day, which are alleged to be transferred to Noticee no. 7, based on which allegations have been levelled qua us, have not been appreciated properly and holistically. Both the transactions are independent and executed in ordinary course of business. From Noticee no. 16 we were receiving back our own funds i.e. Rs. 112 lacs, which we had earlier given to them. Further, to Noticee no. 7, we were returning the funds, which we had taken from them earlier. Return of amount of Rs. 115 Lacs on June 20, 2012 to Noticee no. 7 was part of larger sum of Rs. 270 Lacs. Significantly, SEBI has not found any fault with the refunds of total amounts of Rs. 120 lacs (pre- 20.06.2012) and 27 lacs (post- 20.6.2012) made by us to Noticee no. 7. We had no knowledge or control over usage of funds by Noticee no. 7, post receipt from us.

c. In so far as transfer of Rs. 115 Lacs on June 6, 2012 is concerned, following sequence of events may be noted:

i. On April 26, 2012, April 30, 2012 and May 1, 2012, Noticee no. 7 has given total of Rs. 270 Lacs to us, towards delivery of 40,000 bonds of 12.75% IIFL 2018. Due to inability at our end, we were not in a position to deliver 40,000 bonds of IIFL to Noticee no. 7 and we had accordingly informed Noticee no. 7 about the same. Subsequently, on multiple dates during the said period, we had refunded the entire Rs. 270 Lacs to Noticee no. 7.

d. With regard to receipt of funds from Noticee no. 16, following sequence of events may be noted:

i. On May 2, 2012 and May 14, 2012, we had paid an amount of Rs. 112 Lacs to Noticee no. 16 towards share application money. ii. On June 20, 2012, Noticee no. 16 returned the share application money to us and regretted its inability to allot shares to us.

e. We are a Non-Deposit taking non-systematically important Non-Banking Finance Company engaged primarily in the business of loan against property, Inter Corporate Deposits, advancing short term loans, credits to individual and corporates. We are also listed on BSE and public shareholding in the company is to the extent of 52%. Our subsidiary company IFL Finance Ltd. which is operating as a Housing Finance Company and has got the license from National Housing Bank, is doing very well and has reached a loan book size of Rs. 80 Crores. It may be appreciated that before giving license to IFL Finance Ltd., NHB had conducted rigorous screening of the operations and business of Noticee no. 17 and its promoters/ directors, only then license was granted to IFL Finance Ltd. We therefore, respectfully submit that, given the stakes involved in the matter, our submissions be appreciated properly and holistically. The burden of sins of Noticee no. 7 should not be fastened on to us, due to two stray fund transactions.

We submit that if any action is taken against us, or any punitive directions are issued against us, the same would have a contagion, cascading and materially adverse impact not only on us, but also our subsidiary company. Same would completely derail the entire operations of IFL Finance Ltd. and would also potentially invite adverse strictures/ actions from NHB which would be hugely detrimental to us.

Consideration of issues and findings thereon:

13. I have perused the allegations made in the SCN and considered the submissions made by the Noticees in their replies, written submissions and during the personal hearing. Before dealing with various contentions raised by the Noticees regarding merits of the case, it would be appropriate to deal with preliminary objections raised by some of them.

14. Noticee no. 1, 2, 3, 4, 5, 6 and 17 have raised a preliminary objection to the issuance of SCN in the present matter. It is the case of the said Noticees that the inordinate delay in the issuance of SCN in the present matter has prejudicially affected their rights to put forward an effective defense and thus has resulted in violation of the principles of natural justice. I note that investigation in the present matter was initiated by SEBI in September 2012, after a reference being received from BSE on the proposed bonus issue by PPTIL in September 2012. Investigation involved examining the following tranches: 1) Analysis of preferential allotment and proposed bonus Issue, 2) Trading Price-Volume Analysis, 3) Analysis of Synchronized/ Self/ Reversal Trades, 5) LTP, First Trades, Circular Trade Analysis, 6) New High Price Analysis, 7) Order Log Analysis and 8) Fund Flow Analysis. In order to carry out the aforesaid tranches of investigation, the following activities were involved: 1) Examination of trades of various entities, 2) collecting data from various sources such as exchanges, depositories, banks, etc. 3) Examination of funds flows, 4) Seeking responses from various delinquent entities, etc. and thereafter, various dots were connected to get the complete picture and thus, investigation was concluded on March 2016. Thus investigation in the matter was onerous, time consuming and complex owing to involvement of round tripping of funds in 18 cycles amongst 12 entities. After conclusion of investigation, SCN dated April 3, 2017 was issued and served upon the 17 Noticees in the matter. The first date of personal hearing was given to the Noticees on June 6, 2019 before another WTM of SEBI. However, in the meantime, due to re-allocation of cases amongst the various quasi-judicial authorities of SEBI, the matter was placed before the undersigned for determination in July, 2020 and in compliance with the principles of natural justice, it was decided to give fresh hearing opportunity to all the Noticees before the undersigned. The personal hearing in the matter before the undersigned began on August 13, 2020 and concluded on November 4, 2020.

15. In view of the discussion in the previous para, I note that there is no ‘unexplained delay’ that would vitiate the entire proceedings per se. Notwithstanding the same, I also note that there is no provision in the SEBI Act, 1992 which may have the effect of prohibiting SEBI from taking action beyond a particular period of time in a given case. In Ravi Mohan & Ors. v. SEBI and other connected appeals decided on August 08, 2013, Hon’ble Securities Appellate Tribunal, Mumbai (hereinafter referred to as ‘Hon’ble SAT’) while referring to its own decision in HB Stockholdings Ltd. v. SEBI (Appeal no. 114 of 2012) decided on August 27, 2013 and decision of Hon’ble Supreme Court in Collector of Central Excise, New Delhi v. Bhagsons Paint Industry (India) reported in 2003 (158) ELT 129 (S.C.), observed as under:

“....Based on decision of this Tribunal in case of HB Stockholdings Ltd. vs. SEBI (Appeal no. 114 of 2012 decided on 27.08.2013) it is contended on behalf of the appellants that in view of the delay of more than 8 years in issuing the show cause notice, the impugned order is liable to be quashed and set aside. There is no merit in this contention, because, this Tribunal while setting aside the decision of SEBI on merits has clearly held in para 20 of the order, that delay itself may not be fatal in each and every case. Moreover, the Apex Court in case of Collector of Central Excise, New Delhi vs. Bhagsons Paint Industry (India) reported in 2003 (158) ELT 129 (S.C) has held that if there no statutory bar for adjudicating the matter beyond a particular date, the Tribunal cannot set aside the adjudication order merely on the ground that the adjudication order is passed after a lapse of several years from the date of issuing notice....”

16. The observations made by Hon’ble SAT in the aforesaid case, were reiterated by it, in a subsequent order in the matter of Kunal Pradip Savla & Ors. v. SEBI (Appeal no. 231 of 2017) decided on April 04, 2018. Further, I note that, while all relevant information relied on for crystallizing the allegations against the Noticee no. 1, 2, 3, 4, 5, 6 and 17, have been provided to them, said Noticees (except Noticee no. 1) have failed to specifically identify any document which they could not retrieve due to delay in initiation of proceedings which has impacted their defence in the present proceedings or has rendered the same ineffective.

17. Without prejudice to aforesaid findings, I note that Noticee no. 1,2,3,4, 5, 6 and 17, have been provided with all the documents that have been relied upon in the SCN. Noticee no. 1, 2, 3, 4, 5, 6 and 17 have filed their detailed replies and Noticee no. 1 and 17 have filed written submission, raising all possible contentions in their defence. I also note that Noticee no. 1, 2, 3, 4, 5, 6 and 17 have not specifically pointed out any document which they could not retrieve due to alleged delay in initiation of proceedings which has impacted their defence or cause any prejudice in the present proceedings or has rendered the same ineffective. Hence, I do not find merit in the contention of the Noticee no. 1, 2, 3, 4, 5, 6 and 17 that efflux of time has affected their ability to retrieve evidence to defend themselves. In view of the above, I am unable to accept the preliminary submissions made by the said Noticees regarding delays and subsequent laches in issuance of SCN in the instant proceedings.

18. I note that, in the Extra Ordinary General Meeting dated June 30, 2012, PPTIL had received the approval of its shareholders for making of a preferential issue of 20 lakhs non-cumulative non-convertible preference shares of Rs.10/- each at an issue price of Rs.100/- (including a premium of Rs. 90/- per share) to Noticee no. 7. I note that the consideration of Rs. 20 Crore for the said preferential issue, was received from the prospective allottee i.e. Noticee no. 7, during June 08- June 20, 2012, even before the approval of the shareholders was taken in the EGM held on June 30, 2012. The preferential allotment in favour of Noticee no. 7 was made on July 2, 2012. Soon after the preferential issue, the board of directors of PPTIL at its meeting held on July 18, 2012, approved a bonus issue in the ratio of 45:1 by proposing to capitalize the securities premium account to the extent of Rs.18 Crores. The entire share premium of Rs. 18 Crores which was received in the preferential allotment, was proposed to be capitalized by the bonus issue. BSE alerted SEBI, pursuant to which the investigation was initiated in the matter and conclusion thereof, show cause notice in the matter was issued.

I note that the SCN in the present case has brought out a charge of ‘engaging in a fraudulent scheme’ by creating a sham appearance of receipt of funds from Noticee no. 7 through preferential allotment, which allegedly, indirectly for the most part, was financed by PPTIL itself (i.e. issuer company) through round tripping of funds of the issuer company using conduit entities i.e. Noticee no. 8 to 17 and thereafter allotment was made to sole allottee i.e. Noticee no. 7. It is alleged in the SCN that PPTIL transferred funds to certain entities, which in turn transferred the same to Noticee no. 7 and Noticee no. 7 then transferred the same to PPTIL. The SCN alleges that, this cycle of circular rotation of funds was repeated 18 times. The SCN also alleges that PPTIL attempted to issue bonus shares by capitalizing the securities premium account, which account itself was created from the funds that were allegedly indirectly received from PPTIL through the preferential allotment. In view of the aforementioned alleged scheme of fraud, Noticee no. 7, PPTIL and its then presiding directors i.e. Noticee no. 2 to 6 alongwith the conduit entities i.e. Noticee no. 8 to 17, have been called upon by the SCN to show cause as to why directions under sections 11(4) and 11B of the SEBI Act, 1992, should not be issued against them for the alleged violation of Section 12A(a), 12A(b), 12A(c) of SEBI Act, 1992 and Regulations 3(b), 3(c), 3(d), 4(1), 4(2)(a) of PFUTP Regulations, 2003.

19. I note that the principal question for determination before me in the present proceedings is to determine whether PPTIL, through the help of conduit entities has indirectly funded the preferential allotment, as alleged by the SCN. The SCN, with the help of certain examples, explains the modus operandi adopted by PPTIL in channelizing the funds of the Company into the account of Noticee no. 7. One such example is reproduced below:

Fund transfer of Rs. 1 crore amongst Noticee no. 9, Noticee no. 7 and PPTIL on Jun 15, 2012 and Jun 16, 2012

I note that, for every stage of funds transfer, as displayed in the above example, the said Noticees have furnished explanation for each transfer. Similarly, for every transfer of funds that have been alleged by the SCN, the Noticees herein have provided their explanation for such transfers and claimed that each transaction that have been entered by them, was independent and genuine, and entered in the ordinary course of business. The Noticees have submitted that that they were never associated with the scheme of fraud, as alleged by the SCN, to aid/ facilitate the preferential allotment of PPTIL. In view of the foregoing, it becomes imperative for me to determine whether the transfer of funds between Noticee no. 1 and Noticee no. 7 to 17 were genuine transfer of funds in the ordinary course of business or the said transfers of funds were non-genuine transfers for round tripping of funds to aid / facilitate the preferential allotment made by Noticee no. 1. In order to determine the said issue, the contention of the Noticee no. 1 and Noticee no. 7 to 17 alongwith my observations thereon have been tabulated below:

Transfer of Rs. 8.46 Crores between June 11, 2012 to June 14, 2012 from Noticee no. 1 to Noticee no. 8. Reply of Noticee no. Submission of Noticee no. 1 Observations: 8 during in the present proceedings: investigation: 1. Noticee no. 1 has failed to provide any Rs. 846 Lacs were transferred to documentary proof like the Loan The impugned transfer Noticee no. 8 during June 11 to Agreement or ‘Agreement to Sell’ or were short term loan in 14, 2012, as unsecured loan/ copy of resolution passed by its board the regular course of advance. We may point out that under section 372A(a) of the business. the said amount was returned by Companies Act, 1956 in support of its Noticee no. 8 during FY 2013-14 claims. It also has failed to provide any in multiple tranches. Due to details in respect of the loan like the passage of time, we are not in a tenure of the loan, the rate of interest position to trace out the copy of being charged, the terms of the agreement entered with repayment, etc. Noticee no. 8. 2. Noticee no. 8 has also failed to provide Submission of Noticee no. 8 in any documentary proof like the Loan the present proceedings: Agreement or copy of resolution passed by its board under section We have no relation/ connection 293(d) of the Companies Act, 1956 in with the promoter/ director of support of its claims. It also has failed Noticee no. 7 and PPTIL, either to provide any details in respect of the directly or indirectly except loan like the tenure of the loan, the rate financial dealings with them, of interest being charged, the terms of which have been carried out in repayment, etc. the ordinary course of our business. 3. Though Noticee no. 1 claims to have received the amount back from Noticee no. 8 in FY 2013-14. However, from the copies of Ledger Account and the bank statement, as provided by Noticee no. 1, it is evident that no interest was ever charged/received by Noticee no. 1 for the purported short term loan. Thus, I note that the impugned transfer was nothing more than a circular rotation of funds under the pretext of transactions in the ordinary course of business.

4. Noticee no. 1 states that the transfer was an unsecured loan and an advance at the same time. I note that money transferred as an advance would mean an advance payment for a future delivery of goods and services, whereas a transfer as a loan would entail lending of money for earning interest. Thus, the claim of Noticee no. 1 that the impugned transfer was loan as well as an advance is self-contradictory.

5. Striking and unexplainable co-incidence that the amount of money which is received from Noticee no. 1 by Noticee no. 8, the same amount of money is owed by Noticee no. 8 to Noticee no. 7. Another striking co-incidence is the timing of receipt of money from Noticee no. 1 and the timing of transfer of money to Noticee no. 7 being the same i.e. between June 11, 2012 to June 14, 2012.

6. Noticee no. 1 was called upon to provide the documents for the transactions with Noticee no. 8 in July 2014 itself, during the investigation in the matter. Hence, the contention that it is unable to produce the loan agreement due to efflux of time is untenable.

7. Vide a second letter of inquiry dated May 13, 2015, during investigation, Noticee no. 8, was specifically called upon by SEBI to provide copies of loan agreements with Noticee no. 1. However, I note that Noticee no. 8 had conveniently filed to reply to the said letter.

Subsequent transfer of Rs. 8.46 Crores between June 11, 2012 to June 14, 2012 from Noticee no. 8 to Noticee no. 7. Reply of Noticee no. Submission of Noticee no. 8 in Observations: 7 during the present proceedings: investigation: 1. For the same impugned fund transfer, We have no relation/ connection Noticee no. 7 claims that it was an Noticee no. 8 is a with the promoter/ director of advance towards sale of property but client. The narration in Noticee no. 7 and PPTIL, either Noticee no. 8 claims that it was a short the Ledger account of directly or indirectly except term loan. Both Noticee no. 7 and 8 Noticee no. 8 in the financial dealings with them, have failed to provide any books of Noticee no. 7 which have been carried out in documentary proof like the Loan for the impugned the ordinary course of our Agreement or the ‘Agreement to Sell’ transfer reads as business. or copy of board resolution authorizing ‘Being RTGS received the said transfers, in support of their as an advance against respective claims. property refund”. 2. Striking and unexplainable co- Reply of Noticee no. incidence that the amount of money 8 during which is received from Noticee no. 1 investigation: by Noticee no. 8, the same amount of money is owed by Noticee no. 8 to The impugned transfer Noticee no. 7. Another striking co-were short term loan in incidence is the timing of receipt of the regular course of money from Noticee no. 1 and the business. timing of transfer of money to Noticee no. 7 being the same i.e. between June 11, 2012 to June 14, 2012.

3. Vide a second letter of inquiry dated May 13, 2015, during investigation, Noticee no. 8, was specifically called upon by SEBI to provide copies of loan agreements with Noticee no. 7. However, I note that Noticee no. 8 had conveniently failed to reply to the said letter.

Transfer of Rs. 1 Crore each on June 15, 2012 by Noticee no. 1 to Noticee no. 9 and 10. Subsequent transfer of Rs.1 Crore by Noticee no. 9 and 10, each to Noticee no. 7 on June 15, 2012. Submission of Noticee no. 1 in Observations: the present proceedings: 1. The ‘Receipt Cum Agreement’ dated Rs. 100 Lacs each were December 3, 2011 and June 15, 2012, transferred to Noticee no. 9 and as purportedly executed by Noticee 10, as advance towards no. 9 and 10 with Noticee no. 7 and purchase of property which was Noticee no. 1, are not duly stamped, owned by them in Panchsheel hence, inadmissible. While they seem Park, New Delhi. Since, the deal to have been stamped as ‘Receipts’, for purchase of property did not but they remain unstamped as fructify, we had sought the refund ‘Agreements’. of amounts and accordingly, the said amounts of Rs. 2 Crores 2. In its reply dated July 30, 2014 were returned by them in (Annexure 6 to SCN) to SEBI during November/ December 2012. investigation, Noticee no. 7 had called Noticee no. 9 and 10 as its ‘clients’. Submission of Noticee no. 9 However, after reading the reply of and 10 in the present Noticee no. 9 and 10, I find that proceedings: Noticee no. 9 and 10 were not ‘clients’ Reply of Noticee no. to Noticee no. 7 rather they appear to 7 during 1. We had agreed to sell our be the ‘suppliers’ to Noticee no. 7. investigation: property through estate agent Therefore, I note that there is named ‘Sawhney Properties’ inconsistency in the response of Noticee no. 9 and 10 to Noticee no. 7 on December Noticee no. 7 and Noticee no. 9-10 are clients.

The 3, 2011. As guided by with regards to the same transaction. narration in the Ledger Sawhney Properties, we were account of Noticee no. issued Receipt Cum 3. Striking and unexplainable co- 9 and 10 in the books Agreement dated December incidence that the amount of money of Noticee no. 7 for the 3, 2011 on the pre-printed which is received from Noticee no. 1 to impugned transfer format of Sawhney Noticee no. 9 and 10, the same reads as ‘Being RTGS Properties. Accordingly, we amount of money is owed by Noticee received as an received a sum of Rs. 1 Crore no. 9 and 10 to Noticee no. 7, due to advance against each as advance against cancellation of the deal. Another property refund” property from Noticee no. 7 on striking co-incidence is the December 3, 2011. cancellation of deal with Noticee no. 7 and receipt of advance money from 2. Subsequently, we were Noticee no. 1 happening on the same informed by Sawhney day. Another striking happenstance is Properties that Noticee no. 7 the unexplained cancellation of both is not interested in buying the the property deals executed by said property, however, there Noticee no. 9 and 10, with Noticee no. was another buyer viz. PPTIL 1 as well as Noticee no. 7. who was willing to buy the same property.

Accordingly, 4. During investigation, SEBI vide letter we received Rs. 1 Crore each dated June 27, 2014, had called upon on June 15, 2012 as advance Noticee no. 9 and 10 to provide the from PPTIL and in turn we reason for fund transfers from Noticee paid Rs. 2 Crore back to no. 1 and 7, alongwith the related Noticee no. 7 for the cancelled documentation. In their replies to the deal. As guided by Sawhney said letter, Noticee no. 9 and 10 failed Properties, we were issued to furnish any reason for the impugned another Receipt Cum transfer of funds and only provided Agreement dated June 15, copies of confirmed ledger account of 2012 on the pre-printed Noticee no. 1 and 7. I note that the format of Sawhney Properties Ledger Account so provided contained for the new deal with PPTIL. a vague narration of the transaction such as ‘Being RTGS made as an 3. Unfortunately, the balance advance” or “Being RTGS received as amount payable by PPTIL refund of advance”. I note that it was was not forthcoming and only after the issuance of the SCN, hence, we decided to cancel Noticee no. 9 and 10 have furnished the deal and refunded the complete reasons for the fund money to PPTIL in four transfers and provided the purported tranches. documentary evidence in support of their claims.

I note that, despite specific inquiry by SEBI, the reasons for the impugned transfer of funds and the related documents were never provided by Noticee no. 9 and 10 at the time of investigation. Such a delinquent conduct of Noticee no. 9 and 10 raises suspicion on the genuineness of their claims.

 Transfer of Rs.50 Lacs on June 15, 2012 from Noticee no. 1 to Noticee no. 11 and subsequent transfer of the same amount on the same day from Noticee no. 11 to Noticee no. 7.  Transfer of Rs.35 Lacs and Rs.1 Crore on June 18, 2012 from Noticee no. 1 to Noticee no. 12 and 13 respectively, and subsequent transfer of the same amount on the same day from Noticee no. 12 and 13 to Noticee no. 7. Reply of Noticee no. Submission of Noticee no. 11, Observations: 7 during 12 and 13 in the present investigation: proceedings: 1. The ‘Receipt’ dated March 10, 2012, Noticee no. 11, 12 and 1. Noticee no. 11 entered into an purportedly issued by Noticee no. 12 to 13 are shareholders of agreement to sell one half Noticee no. 7, the ‘Receipt’ dated April Noticee no. 7. The undivided share in property to 2, 2012, purportedly issued by Noticee narration in the Ledger Noticee no. 7 on April 1, 2012 no. 13 to Noticee no. 7 and the Receipt’ account of Noticee no. and received a sum of Rs. dated April 1, 2012, purportedly issued 11, 12 and 13, in the 50,00,000/- as earnest money by Noticee no. 11 to Noticee no. 7, are books of Noticee no. 7 from Noticee no. 7 on April 3, all in the nature of ‘Agreements’ and for the impugned 2012, against total sale not merely ‘Receipts’.

While they seem transfer reads as consideration of Rs. to have been stamped as ‘Receipts’, ‘Being RTGS received 2,00,00,000/-. Noticee no. 12 but they remain unstamped as as an advance against entered into an agreement to ‘Agreements’ and hence, inadmissible property refund” and sell property owned by me to as evidence. “Being RTGS made as Noticee no. 7 on March 10, an advance against 2012 and received a sum of 2. Striking and unexplainable co-property”. Rs. 35,00,000/- as earnest incidence that the amount of money money from Noticee no. 7 on which is received from Noticee no. 1 to March 12, 2012, against total Noticee no. 11, 12 and 13, the same sale consideration of Rs. amount of money is owed by Noticee 2,00,00,000/-. Noticee no. 13 no. 11, 12 and 13 to Noticee no. 7 due entered into an agreement to to cancellation of deal. Another striking sell property owned by me to co-incidence is the cancellation of deal Noticee no. 7 on April 2, 2012 with Noticee no. 7 and receipt of and received a sum of Rs. advance money from Noticee no. 1 1,00,00,000/- as earnest happening on the same day.

Another money from Noticee no. 7 on striking happenstance is the April 3, 2012, against total unexplained cancellation of both the sale consideration of Rs. property deals executed by Noticee no. 2,50,00,000/-. 11, 12 and 13, with Noticee no. 1 as well as Noticee no. 7. 2. Noticee no. 7 failed to make the balance payment on time, 3. While replying to SEBI email dated July hence, the deals were 21, 2014 during investigation, PPTIL cancelled and the whole had vide its letter dated August 25, amount received was 2014 furnished copies of three refunded to Noticee no. 7 by separate ‘Agreements for purchase of Noticee no. 11, 12 and 13. Land’, executed by Noticee no. 1 with Noticee no. 11, 12 and 13. I note that 3. Noticee no. 11 and 12 had the said agreements as furnished by agreed to acquire 100 sq. mtr. PPTIL were apparently unstamped and and Noticee no. 13 had executed on plain paper. The present agreed to acquire 200 sq. mtr. SCN has drawn an adverse inference of land and to sell the land to on such unstamped agreements. To PPTIL @ 2,50,000/- per sq. this contention, Noticee no. 11, 12 and meter.

As per the agreements 13 have produced before me copies of if the vendor failed to acquire three separate ‘Agreements for the land and transfer to Purchase of Land’ executed on 100 purchaser, the vendor shall rupees Non-judicial Stamp Paper and return earnest money deposit submitted that the earlier Agreements to the purchaser. Since, the which were furnished before SEBI agreements were cancelled during investigation had errors and on the request of PPTIL, there hence the said agreements were was no default on our part, cancelled and fresh agreements were therefore the amount was executed with Noticee no. 11, 12 and refunded without interest with 13 on June 18, 2012. The pertinent mutual consent. question that begs answer is why were the fresh agreements dated June 18, 4. On the question of 2012, never brought to the notice of agreements that was SEBI before the issuance of the SCN furnished to SEBI being in the present matter, especially even unstamped, we state that the after being aware of the on-going agreements were executed investigation by SEBI in the present on plain paper, but later they matter. were properly executed on stamp paper.

4. I also note that the fresh agreements dated June 18, 2012 contains a promise by Noticee no. 11, 12 and 13 Submission of Noticee no. 1 in that they would purchase land in future the present proceedings: and then sell it to Noticee no. 1, for which Noticee no. 1 has paid earnest 1. Rs. 50 Lacs was transferred money. The astounding fact about the to Noticee no. 11, as advance said agreements is that no specific towards purchase of property parcel of land is identified and which was owned by him in mentioned in the agreements. The Rohini, New Delhi. Since, the agreements are absolutely vague in deal for purchase of property that sense. did not fructify, we had sought the refund of amounts and 5. While replying to SEBI inquiries during accordingly, the said amounts investigation, PPTIL in its letter dated of Rs. 50 lacs were returned November 20, 2012 had stated that by Noticee no. 11 on transfer of funds to Noticee no. 11, 12 November 19, 2012. With and 13 was a short term loan, however, regards to the alleged vide its letter dated August 25, 2014 to discrepancies, with regard to SEBI, PPTIL had said that the reason the advance payment for for transfer was advance payment purchase of property, as towards purchase of property.

PPTIL pointed out by the SCN, we contends that the earlier state that the same was an communication was an inadvertent inadvertent error. error, but I am not inclined to accept the same. I note that, such inadvertent 2. Rs. 35 Lacs was transferred errors by PPTIL while replying to to Noticee no. 12, as advance regulatory inquiries, in case of all the towards purchase of property said three Noticees is not a mere which was owned by her in matter of chance. Rohini, New Delhi. Since, the deal for purchase of property 6. During investigation, SEBI vide letter did not fructify, we had sought dated June 27, 2014, had called upon the refund of amounts and Noticee no. 11 and 12 to provide the accordingly, the said amounts reason for fund transfers from Noticee of Rs. 35 lacs were returned no. 1 and 7, alongwith the related by Noticee no. 12 on documentation. In their replies to the November 17, 2012. With said letter, Noticee no. 11 and 12 failed regards to the alleged to furnish any reason for the impugned discrepancies, with regard to transfer of funds and only provided the advance payment for copies of ledger accounts of Noticee purchase of property, as no. 1 and 7. I note that the Ledger pointed out by the SCN, we Accounts so provided contained a state that the same was an vague narration of the transaction such inadvertent error. as ‘Being RTGS made as an advance” or “Being RTGS received as refund of 3. Rs. 100 Lacs was transferred advance”.

I note that it was only after to Noticee no. 13, as advance the issuance of the SCN, Noticee no. towards purchase of property 11 and 12 have furnished complete which was owned by him in reasons for the fund transfers and Rohini, New Delhi. Since, the provided the purported documentary deal for purchase of property evidence in support of their claims. did not fructify, we had sought Thus, I note that, despite specific the refund of amounts and inquiry by SEBI, the reasons for the accordingly, the said amounts impugned transfer of funds and the of Rs. 100 lacs were returned related documents were never by Noticee no. 13 in January provided by Noticee no.11 and 12 at to August 2013. With regards the time of investigation. Such a to the alleged discrepancies, delinquent conduct of Noticee no. 11 with regard to the advance and 12 raises suspicion on the payment for purchase of genuineness of their claims. property, as pointed out by the SCN, we state that the same was an inadvertent error. Transfer of Rs.1 Crore on June 19, 2012 from Noticee no. 1 to Noticee no. 15 and subsequent Transfer of Rs.1 Crore on June 19, 2012 from Noticee no. 15 to Noticee no. 7.

Reply of Noticee no. Submissions of Noticee no. 1 Observations: 7 during in the present proceedings: investigation: 1. The purported ‘Loan Facility Rs. 100 Lacs was transferred to Agreement” with Noticee no. 15, as Noticee no. 15 is a Noticee no. 15 as an unsecured furnished by PPTIL is unstamped and, client. The narration in loan. The said loan amount was hence, inadmissible. the Ledger account of paid by Noticee no. 15, alongwith Noticee no. 15 in the interest of Rs. 9,00,250/- in 2. Even if it were presumed that the books of Noticee no. 7 August 2013. transfer of funds from Noticee no. 1 to for the impugned Noticee no. 15 was a short term loan transfer reads as then, the amount payable by Noticee ‘Being RTGS received no. 15 including interest @ 9% p.a. as an advance against (after deducting TDS @10% on property refund” and interest) must tally with the actual “Being RTGS made as amount returned. However, they don’t. an advance against While the amount payable by Noticee property”. no. 15, comes to an amount of Rs. 1,08,54,388/-, but the amount received by Noticee no. 1 from Noticee no. 15 Submissions of in July/August 2013 is only Noticee no. 15: Rs.1,08.73,472/-

No reply received from 3. Noticee no. 7 has failed to furnish any Noticee no. 15. Matter documentation pertaining to advance is ex-parte qua payment for property like ‘Agreement Noticee no. 15. for Sale”.

4. Striking and unexplainable co-incidence that the amount of money which is received from Noticee no. 1 by Noticee no. 15 as short term loan, the same amount of money is paid by Noticee no. 15 to Noticee no. 7 as advance for purchase of property. Another striking co-incidence is the receipt of short term loan from Noticee no. 1 and payment of advance money to Noticee no. 7, happening on the same day.

5. In view of the above, I find that the transfer of funds between Noticee no. 1, 15 and 7 was nothing but a circular rotation of funds without any underlying genuine transaction and the fund transfers were used to facilitate and aid the scheme of dubious preferential allotment of PPTIL. Transfer of Rs.1 Crore on June 19, 2012 from Noticee no. 1 to Noticee no. 14 and subsequent transfer of Rs.1 Crore on June 19, 2012 from Noticee no. 14 to Noticee no. 7. Reply of Noticee no. Submissions of Noticee no. 1 Observations: 7 during in the present proceedings: investigation: 1. The purported ‘Loan Facility Rs. 100 Lacs was transferred to Agreement” with Noticee no. 14, as Noticee no. 14 is a Noticee no. 14 as an unsecured furnished by PPTIL is unstamped and, client. The narration in loan. The said loan amount was hence, inadmissible. the Ledger account of paid by Noticee no. 14, alongwith Noticee no. 14 in the interest of Rs. 9,00,250/- in 2. Even if it were presumed that the books of Noticee no. 7 August 2013. transfer of funds from Noticee no. 1 to for the impugned Noticee no. 14 was a short term loan transfer reads as Submissions of Noticee no. 14 then, the amount payable by Noticee ‘Being RTGS received in the present proceedings: no. 14 including interest @ 9% p.a. as an advance against (after deducting TDS @10% on property refund” and No reply received from Noticee interest) must tally with the actual “Being RTGS made as no. 14. Matter is ex-parte qua amount returned. However, they don’t. an advance against Noticee no. 14. While the amount payable by Noticee property”. no. 14, comes to an amount of Rs. 1,08,54,388/-, but the amount received by Noticee no. 1 from Noticee no. 14 in July/August 2013 is only Rs.1,08.73,472/-.

3. Noticee no. 7 has failed to furnish any documentation pertaining to advance payment for property.

4. Striking and unexplainable co-incidence that the amount of money which is received from Noticee no. 1 by Noticee no. 14 as short term loan, the same amount of money is paid by Noticee no. 14 to Noticee no. 7 as advance for purchase of property. Another striking co-incidence is the receipt of short term loan from Noticee no. 1 and payment of advance money to Noticee no. 7, happening on the same day.

5. In view of the above, I find that the transfer of funds between Noticee no. 1, 14 and 7 was nothing but a circular rotation of funds without any underlying genuine transaction and the fund transfers were used to facilitate and aid the scheme of dubious preferential allotment of PPTIL. Transfer of Rs. 2.12 Crores between June 19, 2012 and June 20, 2012 from Noticee no. 1 to Noticee no. 16 and subsequent transfer of Rs.1 Crore on June 20, 2012 from Noticee no. 16 to Noticee no. 7.

Reply of Noticee no. Submissions of Noticee no.1 Observations: 7 during in the present proceedings: investigation: 1. Noticee no. 1 has conveniently failed Rs. 212 Lacs was transferred to to provide any documents in support of Noticee no. 16 is a Noticee no. 16, as advance its claims that the transfer was made client. The narration in towards purchase of property in towards payment as advance for the Ledger account of New Delhi. Since, the deal for purchase of property. I note that Noticee no. 16 in the purchase of property did not Noticee no. 1 was called upon to books of Noticee no. 7 fructify, we had sought the refund provide the documents for the for the impugned of amounts and accordingly, the transactions with Noticee no. 16 in July transfer reads as said amounts of Rs. 212 lacs 2014 itself. Hence, the contention that ‘Being RTGS received were returned by Noticee no. 16 it is unable to produce the same sue to as an advance against during May 2013 to March 2014. efflux of time is untenable. property refund”. Due to passage of time, we are not in a position to trace out the 2. Noticee no. 7 also fails to provide any Submissions of copy of the agreement entered documentary proof in support of its Noticee no. 16: with Noticee no. 16. claims.

No reply received from 3. Striking and unexplainable co- Noticee no. 16. Matter incidence that on the day when money is ex-parte qua is transferred by Noticee no. 1 to Noticee no. 16. From Noticee no. 16 as advance towards the records available purchase of property, the same day at MCA 21 Portal, money is transferred by Noticee no. 16 status of Noticee no. to Noticee no. 7 as advance payment 16 is shown as ‘Strike-for purchase of property. Another Off’. striking happenstance is the unexplained cancellation of the property deals executed by Noticee no. 1 with Noticee no. 16 and the return of funds worth Rs. 2.12 Crore after a period of approx. two years of deal cancellation and that too in multiple tranches.

4. In view of the above, I find that the transfer of funds between Noticee no.

1, 16 and 7 was nothing but a circular rotation of funds without any underlying genuine transaction and the fund transfers were used to facilitate and aid the scheme of dubious preferential allotment of PPTIL. Transfer of Rs. 1.12 Crores on June 20, 2012 from Noticee no. 16 to Noticee no. 17 Submissions of Noticee no. 16 Observations: in the present proceedings: 1. From the records available on MCA 21 No reply received from Noticee Portal, I find that Noticee no. 16 has no. 16. Matter is ex-parte qua not passed any special resolution for Noticee no. 16. From the records issuance of shares on private available at MCA 21 Portal, placement basis during the FY 2012-status of Noticee no. 16 is shown 13. Neither is the case that Noticee no. as ‘Strike-Off’. 16 were to make public issue of shares. Noticee no. 17 has also not Submissions of Noticee no. 17 furnished copy of any resolution in the present proceedings: passed by Noticee no. 16 for issue of shares. The question that begs answer 1. The two transactions viz. is to how was share application money transfer of 115 Lacs to accepted by Noticee no. 16 even Noticee no. 7 on June 20, before the authorization or without the 2012 and receipt of funds authorization, for issue of shares by from Noticee no. 16 on the the shareholders of PPTIL. same day, which are alleged to be transferred to Noticee 2. From the records available at MCA 21 no. 7, based on which Portal, for the FY 2012-13, I find that allegations have been levelled the Authorised Share Capital of qua us, have not been Noticee no. 16 was Rs. 40 Lacs. How appreciated properly and would Noticee no. 16 consider holistically. Both the allotment of equity shares worth 1.12 transactions are independent Crores when it was authorised to issue and executed in ordinary course of business.

2. With regard to receipt of funds shares to the maximum limit of Rs. 40 from Noticee no. 16, following Lacs only. sequence of events may be noted. On May 2, 2012 and 3. From Point 1 and 2 above, I conclude May 14, 2012, we had paid an that the transfer of funds between amount of Rs. 112 Lacs to Noticee no. 16 and 17 was nothing but Noticee no. 16 towards share a circular rotation of funds without any application money. On June underlying genuine transaction and a 20, 2012, Noticee no. 16 part of this circular rotation of funds returned the share application was used to facilitate and aid the money to us and regretted its scheme of dubious preferential inability to allot shares to us. allotment of PPTIL.

4. It is pertinent to note that at the relevant time of impugned fund transfers, Noticee no. 2 and 3, who were directors on the board of PPTIL, were also the directors on the board of Noticee no. 17.

5. Striking and unexplainable co-incidence is the receipt of Share Application money from Noticee no. 16 and the return of money to Noticee no. 7 on the same day.

7. During investigation, SEBI vide letter dated June 27, 2014, had called upon Noticee no. 17 to provide the reason for fund transfers to Noticee no. 1, 7 and 16, along with the related documentation. In its reply to the said letter, Noticee no. 17 failed to furnish any reason for the impugned transfer of funds and only provided copies of ledger accounts of Noticee no. 1, 7 and 16, as in the books of Noticee no.

17. I note that the Ledger Accounts so provided contained a vague narration of the transactions with Noticee no. 16 such as ‘Being amount paid as an advance” or “Being amount received as an advance refund”. I note that the Ledger Accounts did not mention anything about the Share Application Money. However, it was only after the issuance of the SCN, Noticee no. 17 has furnished detailed reasons for the fund transfers and provided the purported documentary evidence in support of its claims. It is also pertinent to note that while replying to the SCN, the Ledger Account of Noticee no. 16 in the books of Noticee no. 17 (as furnished as Annexure to reply), contains a different narration which reads as “Being share application money paid” and “Being amount received towards share application money return”. This is a striking discrepancy. I also note that, despite specific inquiry by SEBI, the reasons for the impugned transfer of funds and the related documents were never provided by Noticee no. 17 at the time of investigation. Such a delinquent conduct of Noticee no. 17 raises suspicion on the genuineness of their claims.

Transfer of Rs. 1.15 Crores on June 20, 2012 from Noticee no. 17 to Noticee no. 7. Reply of Noticee no. Submissions of Noticee no. 17 Observations: 7 during in the present proceedings: investigation: 1. According to Noticee no. 17, the 1. The two transactions viz. impugned transfer of money to Noticee Noticee no. 17 is a transfer of 115 Lacs to no. 7 was part-return of money owed client. The narration in Noticee no. 7 on June 20, by Noticee no. 17 to Noticee no. 7, the Ledger account of 2012 and receipt of funds since it had failed to deliver 40,000 Noticee no. 17 in the from Noticee no. 16 on the bonds of 12.75% IIFL 2018 to Noticee books of Noticee no. 7 same day, which are alleged no. 7 as agreed earlier. for the impugned to be transferred to Noticee transfer reads as no. 7, based on which 2. On April 26, 2012, April 30, 2012 and ‘Being RTGS made as allegations have been levelled May 1, 2012, Noticee no. 7 has given an advance” and qua us, have not been total of Rs. 2.7 Crore to Noticee no. 17, “Being RTGS received appreciated properly and towards delivery of 40,000 bonds of as an advance return”. holistically.

Both the 12.75% IIFL 2018. However, transactions are independent according to Noticee no. 17, it was and executed in ordinary unable to deliver the IIFL bonds as course of business. promised and hence the deal was cancelled and the money was being 2. In so far as transfer of Rs. 115 returned. Lacs on June 6, 2012 is concerned, following 3. From the reply dated September 1, sequence of events may be 2017, as furnished by Noticee no. 17, noted. On April 26, 2012, April I note that the purported contract for 30, 2012 and May 1, 2012, delivery of 12.75% IIFL 2018 was in Noticee no. 7 has given total the nature of a forward contract which of Rs. 270 Lacs to us, towards according to the then prevailing delivery of 40,000 bonds of provisions of law, was invalid and 12.75% IIFL 2018. Due to illegal. I find the explanation as inability at our end, we were presented by Noticee no. 17 for the not in a position to deliver impugned transfer of funds to Noticee 40,000 bonds of IIFL to no. 7, as untenable, as to why would Noticee no. 7 and we had someone enter into a transaction accordingly informed Noticee which was per se illegal in the first no. 7 about the same. place.

Rather, I find the transaction to Subsequently, on multiple be nothing but a circular rotation of dates during the said period, funds between Noticee no. 17 and we had refunded the entire Noticee no. 7, wherein, a part of the Rs. 270 Lacs to Noticee no. 7. said rotation of funds was used to facilitate and aid the scheme of dubious preferential allotment of PPTIL.

4. Without prejudice to point 3 above, I note the following: The documents provided by Noticee no. 17 alongwith its reply, in support of its claims about the agreement to purchase IIFL Bonds for Noticee no. 7 are: 1. Proforma Invioce issued by Noticee no. 17 to 7. 2. Letter issued by Noticee no. 17 to 7, regretting the non-consummation of the transaction. I note that, both the documents are an inconclusive, unauthentic and unreliable proof of the purported transaction. Both the documents are issued by Noticee no. 17 itself and lack the corroboration by an independent third party. I also note that none of these documents were ever presented to SEBI at the time of investigation. The Proforma Invoice as annexed to reply of Noticee no. 17, does not even indicate the claim of Noticee no. 17, that an advance of 2.7 Crores was received by Noticee no. 17 from Noticee no. 7 for the said deal.

5. Striking and unexplainable co-incidence is the receipt of Share Application money from Noticee no. 16 and the return of money to Noticee no. 7 on the same day.

6. It is pertinent to note that at the relevant time of impugned fund transfers, Noticee no. 2 and 3, who were directors on the board of PPTIL, were also the directors on the board of Noticee no. 17.

5. In its reply dated July 30, 2014 (Annexure 6 to SCN) to SEBI during investigation, Noticee no. 7 had called Noticee no. 17 as its ‘client’. However, after reading the reply of Noticee no. 17, I find that Noticee no. 17 claims Noticee no. 7 as his ‘client’. Therefore, I note that there is inconsistency in the response of Noticee no. 7 and Noticee no. 17 with regards to the same impugned transaction.

8. During investigation, SEBI vide letter dated June 27, 2014, had called upon Noticee no. 17 to provide the reason for fund transfers to Noticee no. 1, 7 and 16, along with the related documentation. In its reply to the said letter, Noticee no. 17 failed to furnish any reason for the impugned transfer of funds and only provided copies of ledger accounts of Noticee no. 1, 7 and 16, as in the books of Noticee no. 17. I note that the Ledger Accounts so provided contained a vague narration of the transactions with Noticee no. 7 such as ‘Being RTGS made for amount paid as an advance return” or “Being amount received as an advance”. I note that the Ledger Accounts did not mention anything about the IIFL 2018 Bonds. However, it was only after the issuance of the SCN, Noticee no. 17 has furnished detailed reasons for the fund transfers and provided the purported documentary evidence in support of its claims. It is also pertinent to note that while replying to the SCN, the Ledger Account of Noticee no. 7 in the books of Noticee no. 17 (as furnished as Annexure to reply), contains a different narration which reads as “Being advance received against sale of IIFL 2018 bonds”. This is a striking discrepancy. I also note that, despite specific inquiry by SEBI, the reasons for the impugned transfer of funds and the related documents were never provided by Noticee no. 17 at the time of investigation. Such a delinquent conduct of Noticee no. 17 raises suspicgenuineness of thei claims.

20. In addition to the observations as noted in the third column of the table above, from the analysis of the fund transfers, some more peculiar facts emerge:

a. From almost all the purported deals claimed to have been entered by Noticee no. 8 to 17, either with Noticee no. 1/ Noticee no. 7 or other entities, as transactions in the ordinary course of business, such as advance against purchase of property, share application money paid and advance for purchasing bonds of IIFL, I note that none of it has been consummated and ultimately been cancelled, without any reason. It is too much coincidence. I rather find it to be dubious. Even after the deals were being cancelled, no penalty or interest was being charged for the delayed payments. Further, in certain cases no documents were furnished at all except for the Ledger accounts. In certain other cases the documents furnished in support of their claims were either unstamped or under stamped and thus, inadmissible.

b. The consideration of Rs. 20 Crore for shares to be allotted in the preferential allotment was already paid by Noticee no. 7 to PPTIL, between June 8, 2012 to June 29, 2012, even before the receipt of approval of shareholders in EGM held on June 30, 2012 for making preferential allotment.

c. From the material available on record, I note that, during investigation, ample opportunity was provided to PPTIL and Noticee no. 7 to 17 to explain and substantiate with documentary evidence the reasons for fund transfers, however, I find that Noticee no. 13, 14 and 15 conveniently chose to ignore the same. While Noticee no. 1, 7, 8, 9, 10, 11, 12, 16 and 17, availed the opportunity and furnished their replies, but as noted in the table above many of the replies were vague and without supporting documentary evidence. I note that in certain cases, the reasons furnished by some of the Noticees during investigation is different from the reason furnished by them in response to the present SCN such as in the case of transaction of Noticee no. 17 with Noticee no. 16, wherein Noticee no. 17 earlier mentioned it as an ‘Advance’ and later mentioned it as ‘Share Application money’. Therefore, I note that such conduct of the Noticee no. 1 and Noticee no. 7 to 17, raises suspicion on the genuineness of the transactions claimed by them.

21. In view of the analysis in the foregoing paragraphs, I am convinced that the transfer of funds between Noticee no. 1 and Noticee no. 7 to 17 was not a genuine transfer of funds in the ordinary course of business, as claimed by the Noticees to the present proceedings and I find that the said transfers of funds were merely designed to aid / facilitate funding of its own preferential allotment by Noticee no. 1 and to facilitate creation of share premium account for making bonus issue by Noticee no. 1. I find that Rs. 15.91 crore i.e. around 80 % of the preferential allotment was indirectly funded by PPTIL itself, through the help of conduit entities i.e. Noticee no. 8 to 17, thereby creating a misleading appearance of a successful preferential allotment. I find that Noticee no. 1 and Noticee no. 7 to 17, have indulged in an unfair trade practice in securities. Therefore, I find that Noticee no. 1 and Noticee no. 7 to 17 have violated the provisions of Regulations 3(c) and Regulation 4(1) of PFUTP Regulations, 2003 and section 12A(b) of SEBI Act, 1992. For the aforesaid violations, I note that Noticee no. 1, 8, 9, 10, 11, 12, 13, 14, 15 and 17, are liable for appropriate directions under Section 11B of the SEBI Act, 1992. As far as Noticee no. 7 is concerned, I note that Noticee no. 7 has been dissolved and merged with M/s. Yamini Investments Company Ltd. Thus, I find that directions under section 11B of SEBI Act, 1992 against M/s. Yamini Investments Company Ltd., are not warranted in the present case. Further, from the records available at MCA 21 Portal, I note that Noticee no. 16 has been struck off from the Register of Companies. Hence, issuance of any directions under Section 11B of SEBI Act, 1992 against Noticee no. 16, is also infructuous.

22. I note that Noticee no. 1 has contended that the funds which were transferred by it to Noticee no. 8, 9, 10, 11, 12, 13, 14, 15 and 16, have all been returned back to the coffers of PPTIL much before the issuance of SCN in the present matter. I note that, the fact that the funds have returned back to PPTIL is not relevant and material at all for the purpose of these proceedings. As noted in the previous paragraphs, almost all the deals entered by Noticee no. 1 with Noticee no. 8 to 16 have not been consummated and ultimately been cancelled. Further, almost all the entities with which Noticee no. 1 claims to had entered deals with, had another set of deals involving equivalent amounts with Noticee no. 7, which have also been cancelled. The funds which were involved in these deals, ultimately ended up with Noticee no. 1 as payment consideration from Noticee no. 7 for the preferential allotment. These facts expose, the shady nature of such deals and raises serious doubt on their genuineness and intrigues one to question as to the existence of such deals, at the time of transfer of funds by Noticee no. 1 to Noticee no. 8-16. It is not the allegation in the SCN that the funds have been siphoned off, rather the allegation in SCN is very clear that Noticee no. 1, with the help of conduit entities has indirectly financed its own preferential allotment. Thus, by entering into certain non-genuine transactions (in the garb of short term loan, advance against purchase of property, share application money, etc.),

Noticee no. 1 has channelized the funds through conduit entities for its own advantage. I also note that though the SCN in the present matter came to be issued in April 2017 but the inquiries for the present matter were started by SEBI in October 2012 itself. Thus, Noticee no. 1 was aware of the pending investigation by SEBI since October 2012 itself. Hence, I am more inclined to believe that the decision to collect back the funds from the conduit entities is nothing but more than an afterthought.

23. I note that some of the Noticees have raised the contention that Noticee no. 2 was not the co-promoter of Noticee no. 7, as alleged by the SCN and thus the linkage being drawn by the SCN, to link PPTIL with Noticee no. 7 is misplaced. In this regard, I note that there is no material on record to prove that Noticee no. 2 was the co-promoter of Noticee no. 7, however, notwithstanding the same, from the records available at MCA 21 Portal, I find that Noticee no. 1 and Noticee no. 7 share the same Registered office address which is “314, 3rd Floor, Opposite Plot No. 39, R.G. Mall Sector-9, Rohini New Delhi North West DL 110085 IN”. Therefore, the contention being raised by the said Noticees, may no more be relevant.

24. I note that Noticee no. 2 and 3 were the executive directors on the board of Noticee no. 1 during the FY 2012-13. Being the executive directors and being in-charge of the conduct of the affairs of the Company, they cannot plead ignorance about the wrongdoings by Noticee no. 1. Being at the helm of affairs at PPTIL at the relevant point in time and being responsible for the day to day operations of the Company, I find that, Noticee no. 2 and 3 are also liable for violation of Regulations 3(c) and Regulation 4(1) of PFUTP Regulations, 2003 and Section 12A(b) of SEBI Act, 1992.

25. I also note that Noticee no. 5 was independent non-executive director of PPTIL from April 12, 2012 to August 12, 2014. Noticee no. 6 was independent non-executive director of PPTIL from April 12, 2012 to May 29, 2017. Noticee no. 4 was non-executive director of PPTIL from March 3, 2011 and thereafter became independent director from July 15, 2012 and continued to be independent director till April 30, 2016.

26. Noticee no. 4, 5 and 6 have sought refuge under the pretext that since they were independent directors on the board of PPTIL, they were not participant in the day to day management and affairs of PPTIL and it is their case that the SCN has failed to bring out any evidence on record to show that there is any act committed by them from which a reasonable inference can be drawn that they were liable.

27. From the Annual Report of PPTIL, I find that for the FY 2012-13 and FY 2013- 14, Noticee no. 4, 5 and 6 were the members of the Audit Committee of PPTIL. I note that in accordance with the Clause 49 of the erstwhile equity listing agreement, it was the specific responsibility of the Audit Committee to review the quarterly, half yearly and annual financial statements of PPTIL and to oversee the financial reporting process and the disclosure of the financial information by PPTIL, in order to ensure that the financial statements were correct, sufficient and credible. It was observed that, because of indulging in the dubious activity of indirectly financing its own preferential allotment, funds amounting to 15.91 Crores was round tripped 18 time among PPTIL, Noticee no. 7 and other entities. The funds were round tripped to Noticee no. 7 through Noticee no. 8 to 17, to show the purported receipt of funds by PPTIL without receiving the entire amount in its accounts. Therefore, I note that, the financial statements of PPTIL for the quarter ended June 2012, half year ended September 2012, quarter ended December 2012 and FY 2012-13, were misrepresented and did not give a true and fair view.

It was the responsibility of the Audit Committee to review the financial statement before being placed before the board of directors for approval. The Audit Committee had held four meetings in the FY 2012-13 on the following dates: May 30, 2012, August 9, 2012, November 11, 2012 and February 10, 2013. Noticee no. 5 and 6 had attended all the four Audit Committee meetings and Noticee no. 4 had attended three Audit Committee meetings. I note that, according to the Annual Report, the minutes of the Audit Committee meetings were regularly placed before the board of directors of PPTIL. The Agenda for each meeting of the board of directors and the meeting of the Committee(s) was also regularly handed over to the members well in advance, according to the Annual Report. Thus, the plea of being ignorant about the wrongdoings of PPTIL since they did not attend many of the board meetings in FY 2012-13, as being taken by Noticee no. 4, 5 and 6 herein, are not tenable. I note that it is not the case of Noticee no. 4, 5 and 6 that they had raised their concerns, during the Audit Committee meetings or the board meetings.

In view of the above, I find that Noticee no. 4, 5 and 6 were aware through board process, about the alleged fraudulent activities of PPTIL. Therefore, I find that Noticee no. 4, 5 and 6 have violated Section 12A(b) of SEBI Act, 1992 and Regulation 3(c) and 4(1) of PFUTP Regulations, 2003, as alleged in the SCN and therefore, liable for appropriate directions under Section 11B of the SEBI Act, 1992.

28. I note that, the Securities Premium account that was created by PPTIL in the FY 2012-13, out of the dubious proceeds of the impugned preferential allotment was also non-genuine to the extent of 80% of its value. Therefore, I note that the proposed bonus issue by PPTIL by capitalising the said Securities Premium account is not tenable.

Directions:

29. In view of the above, I, in exercise of the powers conferred upon me under Sections 11(4) and 11B (1) of SEBI Act, 1992 read with Section 19 of the SEBI Act, 1992, hereby direct that:

i. Noticee no. 1 shall not act upon resolution of its board of directors, passed in their meeting held on July 18, 2012 pertaining to bonus issue;

ii. Noticee no. 1 is 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 one (1) year, from the date of this order;

iii. Noticee no. 2 and 3, being the executive directors of the Company, are 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 three (3) years, from the date of this order;

iv. Noticee no. 8, 9, 10, 11, 12, 13, 14, 15 and 17 are 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 eighteen (18) months, from the date of this order;

v. Noticee no. 4, 5 and 6, being the independent directors of the Company, are 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 six months, from the date of this order.

30. This order comes into force with immediate effect. The obligation of the aforesaid Noticees, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, can take place irrespective of the restraint/ prohibition imposed by this Order only, in respect of pending unsettled transactions, if any. Further, all open positions, if any, of the Noticees debarred in the present Order, in the F&O segment of the stock exchanges, are permitted to be squared off, irrespective of the restraint/ prohibition imposed by this Order.

31. A copy of this Order shall be served on the Noticees, recognized Stock Exchanges, Depositories, Registrar and Share Transfer Agents of Mutual Funds to ensure compliance with the above directions.

Sd/- Place: Mumbai ANANTA BARUA Date: January 15, 2021 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA