In the matter of Aastha Broadcasting Network ltd

WTM/RKA/IVD/ID-08/ 31 /2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: RAJEEV KUMAR AGARWAL, WHOLE TIME MEMBER ORDER UNDER SECTIONS 11 AND 11B OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 In respect of: 1. Chneena Impex Pvt. Ltd. 2. CEEAN Impex Pvt. Ltd. 3. Smitasha Impex Pvt. Ltd. 4. Prarekha Exim Pvt. Ltd. 5. Bicharshil Traders Ltd. In the matter of Aastha Broadcasting Network Ltd. Date of Hearing: April 12, 2012 Appearances For Noticees: 1. Mr. Vinay Chauhan, Advocate 2. Mr. Prashant Ingle, Advocate, and 3. Mr. Hiren H Doshi, Authorized Signatory. For SEBI: 1. Mr. Santosh Kumar Shukla, Joint Legal Adviser 2. Mr. S. Prabhakar, Asst. General Manager 3. Mr. T. Vinay Rajneesh, Asst. Legal Adviser, and 4. Mr. Parag Kumar Sinha, Asst. Legal Adviser. 1. Aastha Broadcasting Network Limited ('Aastha') is a public limited company and its shares are listed on the Bombay Stock Exchange Ltd. ('BSE'). As on 31st March, 2001, the paid up equity share capital of Aastha was 10,00,00,000 divided into 1 crore equity shares of 10/- each. Out of these, 7,00,000 shares were issued on March 31, 2000 and remaining 93,00,000 shares were allotted to various entities on preferential basis pursuant to the extraordinary general meeting held on May 16, 2000. Out of these 93,00,000 shares, 51,00,000 shares were allotted on August 14, 2000 to the promoter group entities and 42,00,000 shares were allotted to other Kolkata based entities. Chneena Impex Pvt. Ltd., CEEAN Impex Pvt. Ltd., Smitasha Impex Pvt. Ltd., Parekha Exim Pvt. Ltd. and Bicharshil Traders Ltd. are from amongst the promoter group entities that were allotted shares in the said preferential allotment.

2. The 7,00,000 shares that were issued and allotted on March 31,2000 were already listed on BSE before the allotment of remaining 93,00,000 shares. On August 16, 2000 Aastha applied to BSE for listing of the said 93,00,000 shares and also gave intimation of the preferential allotment. BSE was, however, not satisfied with the replies of Aastha to its queries regarding receipt of full consideration from the allottees in respect of preferential allotment. BSE also examined the trading pattern in the shares of Aastha for the period November 20, 2000 to February 16, 2001 and forwarded its report to SEBI. The BSE report brought out that Aastha had issued 93,00,000 shares on preferential allotment basis in August 2000 to several entities and some of these entities appeared to be related to each other and also with Aastha. Further, these entities had traded in the shares of Aastha in significant quantities during this period. 3. SEBI conducted investigations into the said preferential allotment and the trading in the scrip of Aastha for possible violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 ('PFUTP Regulations') and SEBI (Disclosure and Investor Protection) Guidelines, 2000 ('DIP Guidelines').

Preliminary investigation brought out that the shares issued by Aastha on preferential allotment basis were dematerialized without receipt of listing permission from the BSE. Preliminary investigation also revealed that only a part of the monies towards the preferential allotment of shares were received by Aastha and those were re-routed for preferential allotment and the same funds were re-circulated as the allotment consideration from the allottees. It was also found that out of the above mentioned 93,00,000 shares issued in preferential allotment, 1,19,373 shares were transferred by the allottees in off-market transactions to the entities related to Aastha. 4. During pendency of the investigations, SEBI, vide an ad-interim order January 15, 2004, issued directions prohibiting the preferential allottees and other entities to whom the shares had been transferred by the allottees, from buying, selling or dealing in securities of Aastha till further orders. In addition, the shares of Aastha lying in the demat accounts of the allottees and other entities were directed to be frozen till further orders.

There were in all 30 such entities against whom these directions were issued. The ad-interim order was confirmed vide order dated June 15, 2004 after providing opportunities of personal hearing to these entities. 5. Based on the facts found after conclusion of the investigations the show cause notices(SCN) dated August 06, 2004 were issued to Aastha and 39 entities alleging violation of various clauses of the DIP Guidelines, 2000 and Regulations 5(1) and 6(a) of the PFUTP Regulations, 1995. 6. While the proceedings commenced pursuant to the SCN dated August 06, 2004 were pending, Aastha filed a Writ Petition No. 1240 of 2005 before the Hon'ble High Court of Bombay seeking directions to SEBI and BSE to permit trading in the 93,00,000 equity shares issued on August 14, 2000. Vide order dated July 12, 2005, the Hon'ble High Court of Bombay directed Aastha to appear before SEBI on July 25, 2005 and SEBI was directed to pass the order within six weeks from the date of receipt of the order. After hearing the submission of Aastha and other entities, SEBI passed the final order dated September 06, 2005 prohibiting Aastha and other 39 entities from buying, selling and dealing in securities and accessing the capital market till January 14, 2007. In addition, SEBI directed that the shares of Aastha lying in the demat account of 17 entities (i.e. the entities covered in ad-interim, confirmatory and final order of SEBI dated January 15, 2004, June 15, 2004 and September 06, 2005 respectively) would continue to remain frozen in their demat accounts till January 14, 2007. 7. In the above order dated September 06, 2005, it was also observed that -"…. it will be open for SEBI to explore the possibility of taking up civil proceedings against the entities involved for appropriate remedies.” Accordingly, SEBI filed civil suit before Hon’ble High Court of Bombay, bearing Suit No. 2620 of 2006 against Aastha and others for cancellation of 93,00,000 shares allotted on the preferential basis by Aastha.

8. Meanwhile, Aastha and other entities challenged SEBI order dated September 06, 2005 before Hon’ble Securities Appellate Tribunal ('SAT'). Vide order dated February 06, 2006, SAT dismissed the appeals filed by them. 9. SEBI passed another order dated June 07, 2006 against remaining 13 entities (entities covered in ad-interim/confirmatory orders dated January 15, 2004 and June 15, 2004, respectively but not covered in final order dated September 06, 2005) directing that the shares of Aastha held in their demat accounts would remain frozen till January 14, 2007. 10. SEBI moved a notice of motion (no. 3180 of 2006) in the aforesaid suit for interim order of injunction restraining Aastha and other defendants from selling, transferring, alienating or creating third party rights in respect of the shares of Aastha allotted in the aforesaid preferential allotment. By order dated January 12, 2007, learned single Judge of the Hon'ble High Court of Bombay declined to grant any ad-interim relief to the SEBI. SEBI challenged the said order dated January 12, 2007 before the Hon’ble Division

Bench of the High Court of Bombay. Vide order dated March 07, 2007 the Hon’ble Division Bench dismissed the appeal of SEBI. 11. In order to ensure that the illegally acquired shares are not traded in the market, thereby contaminating the market, SEBI vide its ex-parte ad-interim order dated January 19, 2007 directed that the preferentially allotted shares of Aastha lying in the demat accounts of 30 (17+13) entities (i.e. entities covered in ad-interim/confirmatory orders dated January 15, 2004 and June 15, 2004, respectively) shall be frozen permanently and accordingly an opportunity was provided to the 30 entities to file their objections, if any, and to avail an opportunity of personal hearing, if they so desire, within 15 days from date of the order. 12. The entities did not file any objection to the ex-parte ad-interim order dated January 19, 2007 and instead, only five of those entities, namely Chneena Impex Pvt. Ltd., CEEAN Impex Pvt. Ltd., Smitasha Impex Pvt. Ltd., Prarekha Exim Pvt. Ltd. and Bicharsil Traders Ltd. ('the noticees') filed an appeal before Hon'ble SAT against the said order of SEBI.

Vide order dated July 22, 2009 the Hon'ble SAT dismissed the appeals. Thereafter, these five entities filed Civil Appeal Nos. 8066-8067 of 2009 against the SAT order dated July 22, 2009 before the Hon’ble Supreme Court. Vide order dated August 02, 2010, the Hon’ble Supreme Court set aside the order of SAT and observed that one more opportunity of hearing is required to be given to appellants by SEBI. The relevant extract of the Hon’ble Supreme Court order are reproduced below: “Since the original order passed by SEBI was in effect an ex-parte order, we are of the view that one more opportunity is required to be given to the appellants. Accordingly, the appellants herein will respond and submit their objections to the order, which is Annexure p-10 to the paper book, within a period of six weeks. On receipt of the said objections, Securities and Exchange Board of India will de novo consider the matter in accordance with law”. 13. It is important to note that since only the noticees had challenged the SEBI order dated January 19, 2007 before SAT and SAT order dated July 22, 2009 before the Hon’ble Supreme Court, the above order of the Hon’ble Supreme Court is limited only with respect to the noticees.

14. Pursuant to the above order of the Hon’ble Supreme Court, Aastha filed a reply dated October 15, 2010 ( received on November 02,2010) in response to the ex-parte ad-interim order for itself and on behalf of the allottees in the preferential allotment including but not limited to Chneena Impex Pvt. Ltd., Smitasha Impex Pvt. Ltd., CEE-AN Impex Pvt. Ltd., Bicharshil Trades Ltd. and others. SEBI vide letter dated April 28, 2011 informed

Aastha that the reply filed by Aastha can't be accepted as a submission in reference to the aforementioned order of the Hon'ble Supreme Court since the granting of opportunity of hearing in terms of said order is limited only to the noticees who preferred the appeal before the Hon'ble Supreme Court. SEBI further stated in the said letter that it is yet to receive reply from the noticees in the matter. 15. The noticees, thereafter, filed their replies vide letters dated May 16, 2011 to SEBI. An opportunity of personal hearing was granted to the five noticees on April 12, 2012. On behalf of the noticees, Mr. Vinay Chauhan & Mr. Prashant Ingle, advocates along with Mr. Hiren H Doshi, the authorized representative appeared before me and made oral submissions. The noticees have inter alia made the following submissions: a) It is denied that preferential allotment made is fraudulent, illegal and opposed to public policy as alleged. It is denied that a preferential allotment by dubious methods had been made that lead to perpetration of fraud or injured the interest of any investors as alleged.

Further, none of the shareholders of Aastha have ever alleged that any fraud has been perpetrated on them. b) Out of five charges, two charges were dropped by SEBI in its final order dated September 06, 2005. Further, out of the remaining three charges, two charges of non-disclosure of details of monies utilized out of the preferential issue and non-communication of lock-in details to the registrar are technical in nature. The entire issue was, therefore, relating to the allegation of non-receipt of money against preferential allotment of shares and end use of funds raised therein. c) The monies towards the preferential allotment were actually received from the allottees subsequently. d) The penalty already imposed by SEBI vide order dated September 06, 2005 (freezing of shares till January 14, 2007 for a period of three years from the date of the first ex-parte ad-interim order dated January 15, 2004 and seven years since preferential allotment) is sufficient and further directions issued by SEBI vide its ex-parte ad-interim order permanently freezing the shares is not only ultra vires but also highly excessive and grossly disproportionate. e) In the light of the High Court direction, the passing of ex-parte ad-interim is violative of the High Court order.

SEBI has passed the ex-parte ad-interim order in order to get over the decision of the Hon’ble High Court. Further, passing of the ex-pate ad-interim order amounts to interference with the judicial process as SEBI having once approached the Hon'ble High Court is now seeking to undo the order of the High Court vide the ex-parte ad-interim order without any new ground. Definitely, what

SEBI cannot do directly it cannot do the same indirectly also. Directions issued by SEBI vide the impugned order are without authority. f) The direction to permanently freeze the shares issued by Aastha, by way of preferential allotment, is not only ultra vires the powers of SEBI but is also wholly unwarranted, unjustified and legally untenable. g) SEBI has no power, authority or jurisdiction to pass the ex-parte ad-interim order that too without any notice to Aastha and/or shareholders and is against principles of natural justice. h) The ex-parte ad-interim order is against principles of double jeopardy enshrined in the Constitution of India and is therefore unconstitutional and not maintainable. The ad-interim order is also in violation of Article 19(1)(g) of the Constitutional of India. 16. I have carefully considered the Hon'ble Supreme Court order dated August 02, 2010, replies of the noticees, oral submissions made during the hearing and other material available on record. There is no gainsaying the fact that vide its earlier order dated September 6, 2005, SEBI found that the preferential allotment made by Aastha to different entities including the noticees was illegal and was a result of fraud and manipulation.

The appeals filed against this order before the Hon'ble SAT were dismissed vide order dated February 06, 2006. No appeal was preferred against the SAT order and the findings therein have, therefore, become final. The question that now arises for consideration is whether the illegally allotted shares to the noticees without receipt of allotment money should be frozen permanently. 17. I note that the issue relates to allotment of shares of Aastha on preferential basis without receipt of full consideration/allotment money. Aastha and the entities including the noticees which were allotted the shares had committed serious irregularities in the matter of allotment of preferential shares and played a fraud on the shareholders/investors of Aastha. It was found by SEBI and upheld by SAT that the money which originated from Aastha came back to it within a span of three days and in the process shares were allotted to the noticees and other entities. Funds were rotated through intermediaries who were merely name lenders and Aastha received only a meager sum of 2.83 crores as against total allotment money of 9.3 crores.

Payments made by Aastha to its group entities passed through various entities to finally reach the subscriber bank account and in turn to Aastha in the form of application money for the preferential allotment. For the purpose of understanding, an illustration on rotation of funds among Aastha and its promoter group entity is shown below:

Entity Date Opening Receipts ( ) Payments ( ) Entity giving Bal ( ) receiving funds funds Aastha 15-Jul-00 4975 2500000 2500000 Sunrise Movies Sunrise 17-Jul-00 1715 2500000 2500000 Cheneena Impex movies Cheneena 18-Jul-00 7952 2500000 2500000 Aastha Impex 18. It is observed from the above table that Aastha first issued Cheque no: 576901 dated July 15, 2001, a/c no. 13295, Oriental Bank of Commerce, Mumbai for 25 lacs in favour of Sunrise Movies ostensibly as advance for purchase of film rights and song. Incidentally, Aastha had earlier received these funds from another preferential allottee- CMM Ltd. Sunrise Movies, in turn, gave this amount of 25 lacs to Cheneena Impex vide cheque no. 765116 dated July 17, 2001 drawn on a/c no 7370, Indian Overseas Bank, Fort Branch, Mumbai ostensibly as its shares application money. The same 25 lacs was routed is borne out by the finding that the opening balances in all the all the accounts as specified were negligible and that there were no other entries in these accounts. 19. It has been upheld by SAT, vide its order February 06, 2006 that the aforesaid acts are grave irregularities and amount to fraud.

The findings of SAT have become conclusive since no appeal was preferred against this order of SAT by any entity. I note that the noticees have contended that the monies towards the preferential allotment were actually received by Aastha from the allottees, subsequently. As demonstrated above, I note that the entire application money has not come to Aastha. I also note that the same contentions were raised earlier before SEBI and SAT which were not accepted. These findings of SEBI regarding non-receipt of entire application monies by Aastha have been upheld by Hon'ble SAT in its order dated February 06, 2006. 20. I note that the noticees have also contested that they have already undergone the punishment and any further direction of permanently freezing the shares would be not only ultra vires but also highly excessive and grossly disproportionate. In my view, the question is not that of quantum of punishment but that of the shares which were allotted to the noticees and other entities continue to remain tainted. It is established that the shares were allotted without receipt of full consideration /allotment money.

Since these tainted shares are already dematerialised, the circulation of these shares in the market through trading or otherwise transfer can be prevented by freezing them permanently. If this is not done, the noticees who got the shares fraudulently might offload those shares in the market and reduce the value of the existing shareholders. It will also shake the investor confidence. The freezing of the tainted shares permanently is meant to prevent the breach of the integrity of the securities market and not to impose any punishment to the noticees. Punishment awarded to the noticees earlier or their having undergone the same, would not remove the taint from the shares and they pose a continuing threat to the securities market and, therefore, they cannot be allowed to be traded or moved freely in the market. 21. The noticees have further argued that SEBI has passed the ex-parte ad-interim order in order to get over the decision of the Hon’ble High Court. In my view, the purpose and object of the present proceedings is to prevent the tainted shares lying in the demat accounts of the noticees from getting off-loaded into the securities market.

I note that the purpose of civil suit filed by SEBI before the Hon'ble High Court and that of these proceedings are different. I, therefore, do not agree with this argument of the noticees. 22. I find that permanent freezing of preferentially allotted shares of Aastha lying in the demat accounts of the noticees is in the larger interest of the investors and the securities market and by no means can it be said to be without jurisdiction. It furthers the objects of the SEBI Act, 1992. The SEBI Act has been promulgated to protect the interests of the investors in securities and to promote the development of, and to regulate the securities market and for the matters connected therewith or incidental thereto. Section 11 of the SEBI Act, sets out the powers and functions of SEBI. Both under Section 11 and 11B, a duty is cast upon SEBI to protect the interest of investors in securities and to promote and regulate the securities market, by such measures as it thinks fit and by issuing such directions as it may deem necessary. These provisions of SEBI Act, in my view, give powers to SEBI to permanently freeze the illegal shares lying in one's demat account for protecting the interest of the investors.

23. The contention of the noticees that the passing of order permanently freezing the shares is double jeopardy and is also violation of Article 19(1)(g) of the Constitutional of India is not tenable. I find that the principle of double jeopardy is not applicable to civil proceedings like the one before hand. Moreover, action contemplated in the present proceedings is not in the nature of penalty or punishment to the noticees but to insulate the securities market from the tainted shares. I further find that Article 19(1)(g) of the Constitution of India does not give freedom to commit illegal acts and deal in illegally allotted shares.

24. I find that in the instant case the preferential allotment is irregular and illegal for the reasons and grounds discussed in detail vide aforesaid orders passed by SEBI wherein the preferential allotment itself was found to be fraudulent. If the said illegally allotted shares are not frozen permanently, there is every likelihood of those shares being off-loaded into the market further contaminating it. Floating these tainted shares freely in the market would disturb the equilibrium of the market. Hence, in my view, the freezing of these tainted shares would be a step to protect the interest of investors and the securities market. 25. In view of the aforesaid facts and circumstances of the case, I, in exercise of the powers conferred upon me by virtue of Section 19 read with Section 11 and 11B of Securities and Exchange Board of India Act, 1992, I hereby direct that the preferentially allotted shares of Aastha Broadcasting Network Limited lying in the demat accounts of the following entities viz., 1) Chneena Impex Pvt. Ltd., 2) CEEAN Impex Pvt. Ltd., 3) Smitasha Impex Pvt. Ltd., 4) Prarekha Exim Pvt. Ltd., and 5) Bicharshil Traders Ltd. shall remain frozen permanently. 26. This order shall come into force with immediate effect.

RAJEEV KUMAR AGARWAL DATE: August 29, 2012 WHOLE TIME MEMBER PLACE: Mumbai SECURITIES AND EXCHANGE BOARD OF INDIA