M/S. Krishna Enterprises vs Sebi

Date of decision: 20/04/2016

Misc. Application No.84 of 2015 And Appeal No.131 of 2015

M/s. Krishna Enterprises No.98A, Old No.134, Gandhi Salai, Valanchery, Chennai - 600 042. ... Appellant

Versus

Securities and Exchange Board of India having its registered office at SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

WITH Misc. Application No.85 of 2015 And Appeal No.132 of 2015

M/s. Rajesh Service Centre No.62A, Mathiazhagan Street, Nehru Nagar, Velachery, Chennai - 600 042. ... Appellant

Versus

Securities and Exchange Board of India having its registered office at SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. Anant Upadhyay, Advocate for Appellants.

Dr. Mrs. Poornima Advani a/w Ms. Amrita Joshi, Advocates i/b The Law Point for the Respondent. -2-

CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member

Per : Justice J.P. Devadhar (Oral)

Misc. Application No. 84 of 2015 in Appeal No.131 of 2015 and Misc. Application No.85 of 2015 in Appeal No.132 of 2015:

By these two Misc. Applications, each appellant is seeking

condonation of 119 days delay in filing these Appeals. For the reasons stated

in the respective Misc. Applications, the delay is condoned. Both Misc.

Applications are disposed of accordingly.

Appeal Nos. 131 & 132 of 2015:

1. Appellants in these two appeals are aggrieved by the order passed by

the Adjudicating Officer ("AO" for short) of Securities and Exchange Board of

India ("SEBI" for short) on 26th November 2013 under Section 15I of the SEBI

Act, whereby penalty of Rs.10 lac under Section 15HA of SEBI Act is imposed

on each of the appellant for violating Section 12A(b) and (c) of the SEBI Act

and a penalty of Rs.10 lac under Section 15HA of SEBI Act is imposed on each

of the appellant for violating Regulation 3(c) & (d) of the SEBI (Prevention of

Fraudulent and Unfair Trade Practices Relating to Securities Market)

Regulations, 2003 ("PFUTP Regulations" for short).

2. On perusal of the impugned order it is seen that the appellants are

held guilty of aiding and abetting Edserv Softsystems Ltd. ("ESL" for short)

in siphoning off its 'Initial Public Offer' ("IPO" for short) proceeds and

thereby cause loss to the investors who were already the shareholders of ESL

or who applied and were allotted shares under the IPO. The impugned order -3-

records that it is not established that the appellants were the actual

beneficiary of the siphoned amount. However, penalty is imposed on ground

that the appellants in collusion, acted as channel to transfer the siphoned off

IPO proceeds to other layers.

3. Contention of the appellants is that they had received the amount from

ESL for establishing Heal Laboratories/Head Office and supply of

computers/accessories and based on the invoices and valuers report [referred

to in para 12(vi) & (vii) of the impugned order] the appellants had contended

before the AO that the amount received by them from ESL was utilized for

the purpose for which it was received and therefore, the allegation that the

appellants acted as a channel for ESL to siphon off its IPO proceeds is devoid

of any merit.

4. Fact that ESL has Heal Laboratories/Head Office is not in dispute.

Assuming that there is some discrepancy in the invoices and valuers report

submitted by the appellants, without establishing that the Heal

Laboratories/Head Office etc. were set up by a person other than the

appellants, the AO could not have rejected the claim of the appellants that

they had established the Heal Laboratories/Head Office for ESL and arrive at

a conclusion that the appellants had received amounts from ESL for

transferring the siphoned off IPO amount to other layers. Moreover, there is

nothing on record to suggest that ESL has been held to be guilty of siphoning

off the IPO proceeds, because, it is only if ESL is held guilty of siphoning off

IPO proceeds, the question of considering the question as to whether the

appellants had colluded with ESL arises. In these circumstances, we had

called upon Counsel for SEBI to take instructions in that behalf. -4-

5. At the last hearing, we had also brought it to the notice of the Counsel

for SEBI that the impugned order imposing penalty under Section 15HA of

SEBI Act is in conflict with various other orders passed by the AOs of SEBI

under Section 15HA of SEBI Act. It was brought to the notice of Counsel for

SEBI that in the present case, the AO has found the violation of Section

12A(b)&(c) and violation of regulation 3(c)&(d) of PFUTP Regulations are

two independent violations and accordingly imposed penalty under Section

15HA for two violations separately whereas, in several other cases, for

example in the case of Kejas Parmar vs. SEBI *(Appeal No. 419 of 2014), the

AO of SEBI has held that where there is violation under Section 12A(b)&(c)

and also violation under regulation 3(c)&(d) of PFUTP Regulations, then both

the provisions have to be read together and in such a case common penalty is

imposable under Section 15HA of SEBI Act. In view of conflicting orders

passed by the AOs of SEBI, we called upon the Counsel for SEBI to take

instructions and accordingly adjourned the matter.

6. Today, when the matter was called out, Counsel for SEBI fairly stated

that there are several orders passed by the AOs of SEBI wherein violation of

Section 12A(b)&(c) and violation of regulation 3(c)&(d) of PFUTP

Regulations have been read together and penalty under Section 15HA of SEBI

Act have been imposed on the footing that both violations constitute as one

offence. Thus, it is conceded by SEBI that the order impugned in these

appeals, wherein the AO has considered the violation of Section 12A(b)&(c)

and violation of regulation 3(c)&(d) as two independent offences and

accordingly imposed two independent penalties, is in conflict with other

orders passed by AOs of SEBI. In spite of the fact that the impugned order is

in conflict with orders passed by other AOs of SEBI, for example order passed -5-

in *Appeal No. 419 of 2014, Counsel for SEBI submitted that she has

instructions to defend the order impugned in the present appeal. In other

words, SEBI is arguing before us that the orders passed by the AOs of SEBI

even if they are mutually contradictory must be upheld by this Tribunal.

7. We are surprised by the attitude adopted by SEBI. Under the SEBI

Act, it is the duty of SEBI to ensure that the orders passed by the AOs

promote the development of the securities market and are in the interests of

the securities market. If the orders passed by the AO are not in public

interest, then under Section 15I(3), SEBI is empowered to review the orders

passed by the AO. Passing conflicting orders would not promote the

development of the securities market and would not be in the interests of the

securities market. Therefore, by defending the conflicting orders passed by

the AOs, SEBI is neither promoting the development of the securities market

nor acting in the interests of the securities market. On the contrary, by

defending the conflicting orders, SEBI is encouraging the AOs to pass

conflicting orders which are detrimental to the interests of the securities

market. It does not lie in the mouth of SEBI to argue in one breath that one

AO is justified in holding that violation of Section 12A(b)&(c) and violation of

regulation 3(c)&(d) constitute on offence and in another breath to argue that

another AO is also justified in holding that violation of Section 12A(b)&(c)

and violation of regulation 3(c)&(d) of PFUTP Regulations constitute two

independent offences and accordingly penalty has to be imposed under

Section 15HA of SEBI Act.

8. It is relevant to note that under Section 15HA of SEBI Act the AO is

empowered to impose penalty up to Rs.25 crore. In such a case, treating -6-

violation of Section 12A(b)&(c) and violation of regulation 3(c)&(d) as one

offence or two independent offence depending on the sweet will of the AO

would be hazardous to the securities market. Therefore, the conduct of SEBI

in supporting the orders passed by its AOs which are mutually contradictory

in nature and give leverage to the AOs to impose penalty as it suits them,

clearly shows that SEBI is blindly supporting the orders passed by its AOs in

spite of the fact that the said orders are detrimental to the interests of the

securities market. Such a conduct on part of SEBI is disgraceful to say the

least.

9. Since SEBI is not in a position to take a definite stand on the question

as to whether violation of Section 12A(b)&(c) and violation of regulation

3(c)&(d) of PFUTP Regulations constitute one offence or two offence, we set

aside the impugned order and remand the matters to the file of AO for fresh

decision on merits and in accordance with law as has been done in *Appeal

No.419 of 2014. On remand, we hope that at least the AOs of SEBI ensure that

the fresh order to be passed is in the interests of the securities market.

10. Both appeals are disposed of in the above terms with no order as to

costs.

Sd/- Justice J.P. Devadhar Presiding Officer Sd/- Jog Singh Member

Sd/- Dr. C.K.G. Nair Member *Amended pursuant to order dated 26.04.2016.

20/04/2016 Prepared & compared by-ddg -7-

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

Date of decision: 26/04/2016

Misc. Application No.84 of 2015 And Appeal No.131 of 2015

M/s. Krishna Enterprises No.98A, Old No.134, Gandhi Salai, Valanchery, Chennai - 600 042. ... Appellant

Versus

Securities and Exchange Board of India having its registered office at SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

WITH Misc. Application No.85 of 2015 And Appeal No.132 of 2015

M/s. Rajesh Service Centre No.62A, Mathiazhagan Street, Nehru Nagar, Velachery, Chennai - 600 042. ... Appellant

Versus

Securities and Exchange Board of India having its registered office at SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. Anant Upadhyay, Advocate for Appellants.

Dr. Mrs. Poornima Advani a/w Ms. Amrita Joshi, Advocates i/b The Law Point for the Respondent. -8-

CORAM : Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per : Justice J.P. Devadhar (Oral)

ORDER:

It is brought to our notice that in paragraphs 5, 6 and 9 of our order

dated 20/04/2016 passed in the above Appeals, the Appeal Number in case of

Kejas Parmar is inadvertently typed as "Appeal No. 188 of 2014" instead of

"Appeal No. 419 of 2014".

The inadvertent error be corrected accordingly.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

26.04.2016 Prepared & Compared By: PK