Jagdish Vital vs Sebi

Date of Decision : 19.06.2023

Misc. Application No. 693 of 2023 And Misc. Application No. 638 of 2023 And Appeal No. 490 of 2023

Jagdish Vital 325, Patel Road, Ramnagar, Coimbatore - 641 009. ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), ...Respondent Mumbai - 400 051

Mr. Aman Kacheria, Advocate with Mr. Rahul Agarwal and Ms. Aprajita Mahto, Advocates i/b Agarwal and Dhanuka Legal, Advocates for the Appellant.

Mr. Suraj Chaudhary, Advocate with Mr. Manish Chhangani, Ms. Samreen Fatima, Mr. Sumit Yadav and Mr. Abhay Chauhan, Advocates i/b The Law Point for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member

Per : Justice Tarun Agarwala, Presiding Officer (Oral) 2

1.

The appellant has challenged the order of the Whole Time

Member („WTM‟ for short) of the Securities and Exchange

Board of India („SEBI‟ for short) dated July 27, 2018, Demand

Notice dated September 3, 2020, Recovery Certificate dated

June 9, 2022 and the Public Notice dated February 4, 2023

inviting bids for sale of the property of the appellant.

2. The facts leading to the filing of the present appeals is,

SMS Techsoft (India) Ltd. (hereinafter referred to as, „the

company‟) allotted 3 crores shares through preferential

allotment to 31 entities on March 13, 2012. After stock split in

the ratio 1:10 in November 2012, these 3 crores shares became

30 crores shares. The allotment of shares had a lock in period

of one year and thus, the allottees could not sell the shares

during the lock in period. Around the time when the lock in

period was coming to an end, Short Text Messages (SMS) were

sent to various investors on their mobiles recommending

purchase of the scrip of the company which was a listed

company on the BSE Ltd. (BSE) and Coimbatore Stock

Exchange Ltd. SEBI noticing the recommendations through

these SMS undertook an enquiry in the matter relating to buying

and selling of shares of the company and, upon an analysis of

the trading activity in the scrip of the company, it found that 37 3

entities were acting together as a group and had adopted a

fraudulent device and artifice to defraud the genuine

shareholders of the company by falsely portraying fraudulent

transactions as genuine preferential allotment of shares and

offloading the shares allotted pursuant to the preferential

allotment thereby earning illegal profits.

3. As a result of the aforesaid enquiry, SEBI issued an ad-

interim ex-parte order dated November 5, 2013 against 37

entities restraining them from accessing the securities market

and further prohibiting them from buying, selling or dealing in

the securities market either directly or indirectly and further

directed them to keep in an escrow account an amount of Rs. 6

crore which they had earned illegally from sale of the shares

allotted in preferential allotment by the company. The company

was also restrained from raising any additional capital through

the securities market either directly or indirectly. The said ad-

interim ex-parte order was subsequently confirmed on May 7,

2015.

4. Subsequently thereto, after investigation a common show

cause notice dated November 15, 2016 was issued to 36 entities

to show cause as to why suitable actions/directions in terms of

Sections 11(4) and 11B of the Securities and Exchange Board of 4 India Act, 1992 (hereinafter referred to as, „SEBI Act‟) should

not be issued including disgorgement of ill-gotten gains should

not be initiated against these entities for the violation of

provisions of Section 12A of the SEBI Act read with

Regulations 3 and 4 of the 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‟).

5. The WTM after considering the evidence and the replies

filed by the appellants, passed an order dated July 27, 2018

debarring the appellants from accessing the securities market

directly or indirectly for a period of 10 years from the date of

completion of disgorgement. The appellants were further

restrained from dealing in the securities market, in any manner,

for a period of 10 years and were made jointly and severally

liable to disgorge an amount of Rs. 6,78,85,716/- alongwith

simple interest calculated at the rate of 12% p.a. with effect

from November 5, 2013 till the date of payment. The WTM

further directed that in the event there was a failure to pay the

amount by the appellants and the other noticees jointly and

severally SEBI would consider the recovery of amounts either

from Jagadish Vital, thereafter from the legal representatives of 5

Late Maheshchandra Shah and thereafter from Rajesh Ranka, or

thereafter from Manjulaben Shah and thereafter from other

preferential allottees and lastly from SMS Techsoft i.e. the

company in the aforesaid order of hierarchy.

6. Some of the noticees filed Appeal no. 393 of 2018 and

other companion appeals which was heard and decided by an

order dated October 18, 2019. This Tribunal affirmed the order

of the WTM with regard to the violations committed by the

appellants. This Tribunal also affirmed the direction to disgorge

an amount but held that the direction of the WTM directing the

noticees to pay the amount jointly or severally was not correct

to that extent. The order of the WTM was modified to the extent

that the liability of the noticees including the appellants except

Rajesh Ranka cannot be recovered jointly and severally and that

it would be open to the SEBI to recover the amounts in the order

of hierarchy stipulated in paragraph 145(e) of the impugned

order.

7. The appellant is the Managing Director and did not

challenge the order dated July 27, 2018 in spite of receiving the

impugned order, as a result of which, a Notice of Demand dated

September 3, 2020 was issued and thereafter a recovery

certificate dated June 9, 2022 was issued. Since the amount was 6

not paid a public notice has been issued dated February 4, 2023

for sale of his property. At this stage the appellant has filed the

present appeal.

8. There is an inordinate delay of 167 days in questioning the

veracity and legality of the order dated July 27, 2018 passed by

the WTM. The ground urged is that there is no delay in the

filing of the appeal in as much as pursuant to the public notice

dated February 4, 2023 the appeal has been filed on May 9,

2023 and therefore there is no delay.

9. Having heard the learned counsel for the appellant we find

that the impugned order of the WTM dated July 27, 2018 was

duly received by the appellant. No steps whatsoever were taken

by the appellant to file an appeal. Whereas, other noticees had

filed appeal which was eventually decided by this Tribunal on

December 18, 2019, the appellant, in his wisdom, chose not to

file an appeal. We also find that the appellant received a

demand notice dated September 3, 2020 and thereafter the

recovery certificate was issued on June 9, 2022 and, even at that

stage, the appellant took no steps to file an appeal. It is only

when the auction notice was issued on February 4, 2023 that the

present appeal has been filed. In our opinion, the issuance of the

public notice dated February 4, 2023 will not condone the delay 7

with regard to challenging the order of the WTM dated July 27,

2018.

10. The demand notice, recovery notice and the auction notice

all stems from the order of the WTM dated July 27, 2018. Since

there is an inordinate delay in filing the appeal we are of the

opinion that the appeal cannot be condoned especially in the

absence of any plausible explanation given by the appellant.

11. In Basawaraj and Anr. vs. Special Land Acquisition

Officer, (2013) 14 SCC 81 the Supreme Court held that the

discretion to condone the delay has to be exercised judicially

based on facts and circumstances of each case and that

sufficient cause cannot be given a liberal interpretation if lack of

bonafide is attributed to a party. The Supreme Court further held

that delay cannot be condoned on equitable ground beyond the

limits permitted expressly by statute.

12. The Supreme Court in Ram Nath Sao vs Gobardhan Sao

[2002 (3) SCC 195] held that the expression "sufficient cause"

should receive a liberal construction so as to advance substantial

justice when no negligence or inaction or want of bonafide is

imputable to a party. The same view was reiterated by the

Supreme Court in Madanlal vs. Shyamlal, (2002) 1 SCC 535. 8

13. In Balwant Singh (Dead) vs Jagdish Singh & Ors, (2010)

8 SCC 685 Supreme Court held that the expression "sufficient

cause" means the presence of legal and adequate reasons. The

decisions cited by the learned counsel for the appellant are of no

avail and, in any case, not applicable in the present

circumstance of the case.

14. This Tribunal is possessed with the exercise of judicial

discretion in condoning the delay if sufficient or adequate

reason is given. It is also a settled proposition of law that the

law of limitation may harshly affect a particular party but it has

to be applied with all its rigour when the statute so prescribes.

The court has no power to extend the period of limitation on

equitable grounds as held by the Supreme Court in Basawaraj

and Anr. (supra). In the instant case we do not find any legal or

adequate reasons to condone the delay.

15. For the reasons stated aforesaid, we do not find any reason

to condone the ordinate delay in filing the appeal. The

miscellaneous application for condoning the delay is rejected on

the ground of laches, as a result of which, appeal is also

dismissed with no order as to costs.

9

16. This order will be digitally signed by the Private Secretary

on behalf of the bench and all concerned parties are directed to

act on the digitally signed copy of this order. Certified copy of

this order is also available from the Registry on payment of

usual charges.

Justice Tarun Agarwala Presiding Officer

Ms. Meera Swarup Technical Member

19.06.2023 MADHUKAR Digitally MADHUKAR signed by

SHAMRAO SHAMRAO BHALBAR Date: 2023.06.26

msb BHALBAR 17:27:14 +05'30'