Mr. Udaksh Kumar Verma vs Sebi

Date of Decision: 29.08.2017

Misc. Application No. 186 of 2017 And Appeal No. 134 of 2017

Mr. Udaksh Kumar Verma House No. 109, Near Hanuman Mandir, Ward No. 08, Jiratola Rajnandgaon, Chhattisgarh- 491 888 ...Appellant

Versus

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

Ms. Purnima Gupta, Advocate for the Appellant.

Mr. M.P. Rao, Senior Advocate with Ms. Sonam Shethia, Advocate i/b Juris Corp. for the Respondent.

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. 186 of 2017

Counsel for the appellant does not press the Miscellaneous

Application, in view of the fact that the appellant has already paid the

court fees payable on Appeal No. 134 of 2017.

Miscellaneous Application is accordingly disposed of with no

order as to costs. 2

Appeal No. 134 of 2017

1.

This appeal is filed to challenge the communication issued by the

Recovery Officer ("RO" for short) of Securities and Exchange Board of

India ("SEBI" for short) on 06.04.2017. By the said communication it is

held that since Vee Realties India Limited ("the Company" for short) and

its present directors have failed to refund the amounts directed to be

refunded to the investors within the time stipulated in the order passed by

the Whole Time Member ("WTM" for short) of SEBI on 03.03.2016 the

RO is entitled to attach the bank accounts not only of the company and its

present directors but also the bank accounts of its past directors including

the appellant for the purpose of refunding the amounts to the investors as

per the order of WTM dated 03.03.2016.

2. Facts relevant to the present appeal are as follows:-

a) The company which was incorporated on 12.10.2010

was engaged in Fund mobilization activity under

various schemes floated by it. Appellant was one of

the directors of the company since inception.

Appellant resigned as a director of the company from

23.01.2014.

b) The schemes floated by the company were considered

to be Collective Investment Scheme ("CIS" for short)

and since the CIS was run without obtaining 3

certificate of Registration from SEBI proceedings

were initiated against the company and pending

further investigation, by an ex-parte order dated

02.12.2014 the WTM of SEBI inter alia directed the

company, its present and past directors (i) including

the appellant not to collect any fresh money from the

investors, (ii) not to launch any new schemes,

(iii) submit full inventory of assets, (iv) not to dispose

of or alienate the assets and (v) not to divert any fund

raised from public.

c) After considering the objections filed and the

arguments advanced, the WTM of SEBI by his order

dated 03.03.2016 held that running CIS without

registration was in violation of SEBI Act and the

SEBI (Collective Investment Schemes) Regulations,

1999 and the Securities and Exchange Board of India

(Prohibition of Fraudulent and Unfair Trade Practices

relating to Securities Market) Regulations, 2003

("PFUTP" Regulations" for short). In para 27 of the

said order dated 03.03.2016, the WTM issued various

directions against the company, its present and past

directors.

d) Direction contained in Para 27(b) of the order dated

03.03.2016 was that company and its present directors 4

specifically named therein shall wind up the existing

CIS and refund the money collected by the company

from the investors within the time stipulated therein.

Thus, the obligation to refund the amounts to the

investors under para 27(b) of the order dated

03.03.2016 has been restricted to the company and its

present directors. Consequently, there was no

obligation on part of past directors including the

appellant to make any refund to the investors.

e) The WTM of SEBI has recorded in para 27(f) of his

order dated 03.03.2016 that the company and its

present directors as well as the past directors

including the appellant are restrained from accessing

the securities market and prohibited from buying,

selling or otherwise dealing in securities market for a

period of 4 years.

f) As the company and its present directors failed to

refund the amounts to the investors within the

stipulated time, the RO issued a certificate on

14.10.2016 under Section 28A of SEBI Act read with

Section 222 of the Income Tax Act, 1961 and called

upon the company, its present directors and the past

directors including the appellant to pay ` 22.41 crore

along with returns due to the investors, further 5

interest, all costs, charges and expenses incurred. On

14.10.2016 itself the bank accounts of the appellant

were attached by the RO.

g) Challenging the attachment of bank accounts the

appellant filed Appeal No. 7 of 2017 before this

Tribunal and also made a representation to the RO for

lifting the attachment inter alia on ground that there

was no obligation cast on the appellant to refund the

money due to the investors under the order passed by

the WTM on 03.03.2016.

h) In view of the fact that the representation made by the

appellant was already heard by the RO and the order

was awaited, this Tribunal on 20.02.2017 permitted

the appellant to withdraw Appeal No. 7 of 2017 with

liberty to challenge the decision of RO if adverse to

the appellant.

i) By his communication dated 06.04.2017 the RO

rejected the representation made by the appellant by

holding that as per para 26(c) of the order dated

03.03.2016 the appellant was liable for contraventions

committed by the company in launching and operating

unregistered CIS and as per para 27(g) of the order

dated 03.03.2016, if the company and its directors 6

(past and present) fail to comply with the directions

including the direction to refund, then SEBI is entitled

to initiate recovery proceedings against the company

and others responsible which includes the appellant.

j) Challenging the communication of the RO dated

06.04.2017 the present appeal is filed.

3. Before considering the rival submissions it would be appropriate to

quote Para 26(c) and para 27 of the order passed by the WTM of SEBI on

03.03.2016 which reads thus:-

"26(c). I therefore, find the Mr. Panchulal Pandhare

Motiram, Ms. Rekha Neware, Mr. Nilesh

Keshorav Gajbhiye, Mr. Buddhadas Premdas

Ramteke and past directors Mr. Bhikam Chand

Sahu, Mr. Ganeshram Verma, Mr. Ramesh

Kumar Sahu, Mr. Panna Lal Sahu,

Mr. Kamlesh Verma, Smt. Gayatri Verma,

Mr. Udaksh Kumar Verma and Mr. Ved

Prakash Verma, liable for the contraventions

committed by the Company in launching and

operating unregistered CIS and contravening

regulation 4(2)(t) of the PFUTP Regulations.

27. In view of the foregoing, in the interest of

investors and the securities market, I, in 7

exercise of the powers conferred upon me

under Section 19 of the Securities and

Exchange Board of India Act, 1992 and

Sections 11(1), 11B, and 11(4) thereof and

regulation 65 of the SEBI (Collective

Investment Schemes) Regulations, 1999, hereby

issued the following directions:

a) Vee Realties India Limited and its

directors Mr. Panchulal Pandhare

Motiram, Ms. Rekha Neware, Mr. Nilesh

Keshorav Gajbhiye, Mr. Buddhadas

Premdas Ramteke and past directors

Mr. Bhikam Chand Sahu,

Mr. Ganeshram Verma, Mr. Ramesh

Kumar Sahu, Mr. Panna Lal Sahu,

Mr. Kamlesh Verma, Smt. Gayatri

Verma, Mr. Udaksh Kumar Verma and

Mr. Ved Prakash Verma, shall abstain

from collecting any money from the

investors or launch or carry out any

Collective Investment Schemes including

the scheme which have been identified as

a Collective Investment Scheme in this

Order.

8

b) Vee Realties India Limited and its

directors Mr. Panchulal Pandhare

Motiram, Ms. Rekha Neware, Mr. Nilesh

Keshorav Gajbhiye, Mr. Buddhadas

Premdas Ramteke shall wind up the

existing Collective Investment Schemes

and refund through 'Bank Demand

Draft' or Pay Order', the money

collected by the said company under the

schemes with returns which are due to its

investors as per the terms of offer within

a period of three months from the date

of this Order and thereafter within a

period of fifteen days, submit a winding

up and repayment report to SEBI in

accordance with the SEBI (Collective

Investment Schemes) Regulations, 1999,

including the trail of funds claimed to be

refunded, bank account statements

indicating refund to the investors and

receipt from the investors acknowledging

such refunds.

In case the Company has made refunds

as claimed in its submission, it shall

produce the proof for such repayment as 9

directed above and also submit a

certificate from Chartered Accountant as

directed in sub-paragraph (d) below.

c) Vee Realties India Limited, its promoters

and its directors Mr. Panchulal

Pandhare Motiram, Ms. Rekha Neware,

Mr. Nilesh Keshorav Gajbhiye,

Mr. Buddhadas Premdas Ramteke, shall

not alienate or dispose off or sell any of

the assets of the Company except for the

purpose of making refunds to its

investors as directed above.

d) After completing the aforesaid

repayments in terms of sub paragraph

(b) above, the Company, Vee Realties

India Limited shall file a certificate of

such completion with SEBI, within a

period of 15 days, from two independent

peer reviewed Chartered Accountants

who are in the panel of any public

authority or public institution. For the

purpose of this Order, a peer reviewed

Chartered Accountant shall mean a

Chartered Accountant, who has been 10

categorized so by the Institute of

Chartered Accountants of India ('ICAI').

e) Vee Realties India Limited and its

directors Mr. Panchulal Pandhare

Motiram, Ms. Rekha Neware, Mr. Nilesh

Keshorav Gajbhiye, Mr. Buddhadas

Premdas Ramteke and past directors

Mr. Bhikam Chand Sahu,

Mr. Ganeshram Verma, Mr. Ramesh

Kumar Sahu, Mr. Panna Lal Sahu,

Mr. Kamlesh Verma, Smt. Gayatri

Verma, Mr. Udaksh Kumar Verma and

Mr. Ved Prakash Verma are also

directed to provide a full inventory of all

their assets and properties and details of

all their bank accounts, demat accounts

and holdings of shares/ securities, if held

in physical form.

f) Vee Realties India Limited and its

directors Mr. Panchulal Pandhare

Motiram, Ms. Rekha Neware, Mr. Nilesh

Keshorav Gajbhiye, Mr. Buddhadas

Premdas Ramteke and past directors

Mr. Bhikam Chand Sahu, 11

Mr. Ganeshram Verma, Mr. Ramesh

Kumar Sahu, Mr. Panna Lal Sahu,

Mr. Kamlesh Verma, Smt. Gayatri

Verma, Mr. Udaksh Kumar Verma and

Mr. Ved Prakash Verma are restrained

from accessing the securities market and

are prohibited from buying, selling or

otherwise dealing in securities market for

a period of 4 years.

g) In the event of failure by Vee Realties

India Limited and its directors

Mr. Panchulal Pandhare Motiram,

Ms. Rekha Neware, Mr. Nilesh Keshorav

Gajbhiye, Mr. Buddhadas Premdas

Ramteke and past directors Mr. Bhikam

Chand Sahu, Mr. Ganeshram Verma,

Mr. Ramesh Kumar Sahu, Mr. Panna Lal

Sahu, Mr. Kamlesh Verma, Smt. Gayatri

Verma, Mr. Udaksh Kumar Verma and

Mr. Ved Prakash Verma, to comply with

the above directions, the following

actions shall follow:-

- Vee Realties India Limited and its

directors Mr. Panchulal Pandhare 12

Motiram, Ms. Rekha Neware,

Mr. Nilesh Keshorav Gajbhiye,

Mr. Buddhadas Premdas Remteke and

past directors, Mr. Bhikam Chand

Sahu, Mr. Ganeshram Verma,

Mr. Ramesh Kumar Sahu, Mr. Panna

Lal Sahu, Mr. Kamlesh Verma,

Smt. Gayatri Verma, Mr. Udaksh

Kumar Verma and Mr. Ved Prakash

Verma, shall remain restrained from

accessing the securities market and

would further be prohibited from

buying, selling or otherwise dealing

in securities, even after the period of

4 years of restraint imposed in sub-

paragraph (f) above, till all the

Collective Investment Schemes of the

Company are wound up and all the

monies mobilized through such

schemes are refunded to its investors

with returns which are due to them.

- SEBI would make a reference to the

State Government/ Local Police to

register a civil/ criminal case against

the Company, its promoters, directors 13

and its managers/ persons in-charge

of the business and its schemes, for

offences of fraud, cheating, criminal

breach of trust and misappropriation

of public funds;

- would also make a reference to the

Ministry of Corporate Affairs to

initiate appropriate action as deemed

fit.

- SEBI would make a reference to the

Ministry of Corporate Affairs to

restrain above mentioned noticee

directors from being directors in

other companies.

- SEBI shall initiate attachment and

recovery proceedings under the

SEBI Act and rules and regulations

framed thereunder against the

Company and others responsible.

(emphasis supplied)

4. Basic argument advanced by counsel for the appellant is that the

obligation to refund the amount as per para 27(b) of the order passed by

the WTM of SEBI on 03.03.2016 is only on the company and the present 14

directors and therefore, the RO is not justified in holding that for the

failure on part of the company and its present directors to comply with

the above directions, the past directors including the appellant are liable

to refund the amount of ` 22.41 crore to the investors. Accordingly, it is

submitted that the impugned communication issued by the RO on

06.04.2017 deserves to be quashed and set aside.

5. We see merit in the aforesaid argument advanced on behalf of the

appellant.

6. The directions given in para 27 of the order of WTM dated

03.03.2016 may be summarized as follows:-

a) the company, its present directors and past directors

including the appellant shall abstain from collecting

any money from the investors and shall not launch

any CIS.

b) the company and its present directors namely

Mr. Panchulal P. Motiram, Ms. Rekha Neware,

Mr. Nilesh K. Gajbhiye and Mr. Buddhadas P.

Ramteke shall wind up the existing CIS and refund

the money collected by the company under the

schemes with returns which are due to the investors as

per the terms of offer within a period of three months. 15

c) the company its promoters and its present directors

shall not alienate or dispose off or sell any of the

assets of the company except for the purpose of

making refunds to the investors.

d) after completing repayments the company shall file a

certificate of such completion.

e) the company, its present directors and past directors

including the appellant are directed to provide full

inventory of their assets and properties and details of

all their bank accounts, demat accounts.

f) the company, its present directors and past directors

including the appellant are restrained from accessing

the securities market and are prohibited from buying,

selling or otherwise dealing in securities market for a

period of 4 years.

g) In the event of failure by the company, its present

directors and past directors (including the appellant)

in complying with the aforesaid directions, the

following actions shall follow:-

- the company, its present directors and past

directors including the appellant shall remain 16

restrained from accessing the securities

market even after the period of 4 years

restraint imposed under para 27(f) is over, till

all the CIS of the company are wound up and

all the monies mobilized through such

schemes are refunded to the investors with

returns which are due to them.

- SEBI would make a reference to the State

Government/ Local Police to register a Civil/

Criminal case against the company, its

promoters, directors and its managers/ person

in charge of the business and its schemes, for

offence of fraud, cheating, criminal breach of

trust and misappropriation of public funds.

- would also make a reference to the Ministry

of Corporate Affairs ('MCA') to initiate

appropriate action as deemed fit.

- SEBI would make a reference to MCA to

restrain the present/ past directors of the

company from being directors in other

companies.

- SEBI shall initiate attachment and recovery

proceedings under the SEBI Act and rules 17

and regulations framed thereunder against the

company and others responsible.

7. From the aforesaid directions contained in the order of the WTM

dated 03.03.2016 it is abundantly clear that as per para 27(b), the

obligation to wind up the CIS and refund the amount collected from the

investors is only on the company and its present directors specifically

named therein. Since past directors including the appellant are not

directed under para 27(b) of the order dated 03.03.2016 to refund the

amount to the investors, the RO could not have held that if the company

and its present directors fail to refund the amount within the stipulated

time, then the past directors are also liable to refund the amount to the

investors.

8. Fact that the WTM of SEBI in para 26(c) of the order dated

03.03.2016 has held that the company, its present directors and the past

directors including the appellant are liable for the contraventions

committed by the company in launching and operating unregistered CIS

and contravening regulation 4(2)(t) of the PFUTP Regulations could not

be a ground for the RO to hold that if the company and its present

directors fail to refund the amount to the investors within the stipulated

time, then the past directors including the appellant are also liable to

refund the amount to the investors.

9. The WTM of SEBI in his order dated 03.03.2016 after holding that

the company, its present directors and past directors are guilty of 18

violating SEBI Act and the regulations made thereunder has deemed it fit

to direct the company and its present directors to refund the money

collected by the company to the investors and further restrain the

company, its present directors and the past directors including the

appellant from accessing the securities market for 4 years. The WTM

has further directed in para 27(g) that if the company and its present

directors fail to refund the amounts to the investors within the stipulated

time or the company, its present directors and past directors including the

appellant fail to furnish full inventory of all there assets and properties,

then the restraint order passed under para 27(f) shall continue even after

the expiry of 4 years till all the CIS of the company are wound up and all

the monies mobilized through such schemes are refunded to the

investors. Thus, as per the order of WTM, if the company and its present

directors failed to refund the amount within the stipulated time, then as a

consequence of such failure the restraint imposed on the company, its

present directors and also the past directors including the appellant was to

continue even beyond 4 years till all the CIS were wound up and all

amounts were refunded to the investors by the persons directed to refund,

namely, the company and its present directors.

10. The RO has committed a serious error in construing that the WTM

in para 27(g) of the order has held that in the event of failure by the

company and its directors (past and present) to comply with directions

including the directions to refund, SEBI shall initiate recovery

proceedings against the company and its present/ past directors. The

words 'other responsible' in para 27(g) is referable only to the persons 19

who are directed to refund the money to the investors namely the

company and its present directors. If the reasoning given by the RO is

accepted it would mean that the WTM in para 27(b) of the order has

directed the company and its present directors named therein to refund

the money collected by the company to the investors within the time

stipulated therein and if they fail, then in para 27(g) the WTM has held

that SEBI shall initiate attachment and recovery proceedings and recover

the money not only from the company and its present directors but also

from the past directors including the appellant. Accepting such reasoning

would amount to rewarding the persons who fail to comply with the

directions given by the WTM of SEBI. In our opinion, the concerned RO

is either incapable of understanding the clear and unambiguous language

used in the order of WTM or bent upon distorting the order of WTM for

extraneous reasons.

11. In the guise of implementing the order of the WTM, it is not open

to the RO to rewrite the order of WTM and seek to introduce obligations

which are not to be found in the order of WTM. In our opinion, it is high

time for SEBI to take a fresh look at their officers who are worthy of

discharging the duties as RO.

12. Argument advanced by counsel for SEBI that the appellant has not

challenged the order of WTM and therefore the order of WTM has

attained finality has no bearing on the issues raised herein. What the

appellant wants is that the RO must follow the order of WTM as it is and

not to distort the order. Similarly, fact that the WTM has passed separate 20

and independent directions against the present directors and past directors

does not mean that the obligation cast upon the company and its present

directors can be shifted by the RO to the past directors.

13. For all the aforesaid reasons we quash the impugned

communication issued by the RO on 06.04.2017 and direct the RO to lift

the attachment levied on the bank accounts of the appellant forthwith.

14. Appeal is allowed in the aforesaid terms with costs quantified at

` 25000/- to be paid by SEBI to the appellant within a period of four

weeks from today. It would be open to SEBI to recover the costs of

` 25000/- from the concerned RO if deemed fit.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G. Nair Member 29.08.2017 Prepared & Compared By: PK