Mrs. Anjna Kumar vs Sebi

Order Reserved On: 03.07.2019 Date of Decision : 26.09.2019

Misc. Application No. 01 of 2019 And Appeal No. 371 of 2017

Mr. Siddharth Shankar 5 Pine Drive, DLF Farms, Chattarpur, Mehrauli, New Delhi- 110 030 ...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

Mr. Pradeep Sancheti, Senior Advocate with Mr. Shrey Sancheti, Ms. Akanksha Agarwal, Mr. Neerav B. Merchant and Mr. P. N. Mehta, Advocates i/b PNM Legal for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Misc. Application No. 2 of 2019 And Appeal No. 37 of 2018

Mrs. Nikita Shankar 5 Pine Drive, DLF Farms, Chattarpur, Mehrauli, New Delhi- 110 030 ...Appellant

Versus 2

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

Mr. Zal Andhyarujina, Advocate with Mr. Shrey Sancheti, Ms. Akanksha Agarwal, Mr. Neerav B. Merchant and Mr. P. N. Mehta, Advocates i/b PNM Legal for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 346 of 2017

Mr. Manoj Kumar Agrawal BA/ 48-C, Ashok Vihar-I, Delhi- 110 052 ...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

Mr. Rajesh Khandelwal, Advocate with Ms. Mugdha Modi, Advocate i/b Juris Link for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar & Co. for the Respondent.

WITH Appeal No. 38 of 2018 Mrs. Anjna Kumar 5 Pine Drive, DLF Farms, Chattarpur, Mehrauli, New Delhi- 110 030 ...Appellant

Versus 3

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

Mr. Zal Andhyarujina, Advocate with Ms. Akanksha Agarwal, Mr. Shrey Sancheti, Mr. Neerav B. Merchant and Mr. P. N. Mehta, Advocates i/b PNM Legal for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar & Co. for the Respondent.

AND Misc. Application No. 426 of 2018 And Appeal No. 197 of 2018 Ashok Kumar 5, Pine Drive, DLF Chattarpur, Mehrauli, New Delhi- 110 030 ...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

Mr. Ankit Lohia, Advocate i/b Yasmin Bhansali & Co. for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar & Co. for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M. T. Joshi, Judicial Member 4

Per: Dr. C.K.G. Nair

1.

These 5 appeals have been filed challenging the order of

the Whole Time Member ("WTM" for short) of the Securities

and Exchange Board of India dated September 5, 2017. By the

said order all the appellants, among others, have been restrained

from accessing the securities market directly or indirectly for a

period of 10 years. Further four of them, excluding Manoj

Kumar Agarwal, have been directed to refund the

investors/clients money with interest at the rate of 15% per

annum from the date when the repayment became due till the

date of actual payment.

2. The relevant background of the matter is the following.

During 2014 SEBI received a number of complaints relating to

investor grievances and mobilisation of funds etc. by M/s Kassa

Finvest Private Limited ("Kassa" for convenience), a trading

member of the National Stock Exchange of India Limited

("NSE" for convenience) and BSE Ltd. ("BSE" for

convenience). SEBI initiated an investigation relating to the

dealings of Kassa on February 23, 2015. Pending investigation,

SEBI vide ad interim ex parte order dated March 19, 2015

restrained Kassa and its directors from accessing the securities

market till further orders. During the investigation a number of 5

violations of securities laws had been noticed by SEBI.

Accordingly, a show cause notice was issued on February 29,

2016 to Kassa, its directors/promoters, group persons/entities

and some of the employees directing to show cause as to why

action should not be taken against them for violating various

provisions of SEBI Act, 1992, Securities Contract Regulation

Rules, 1957, SEBI (Prohibition of Fraudulent and Unfair Trade

Practice relating to Securities Market) Regulations, 2003

("PFUTP Regulations" for short), SEBI Portfolio Managers

Regulations, 1993 and various Clauses of the Circulars issued

by SEBI in respect of stockbrokers. After providing an

opportunity of hearing, replies etc. the order impugned in all

these appeal was issued on September 05, 2017. Subsequently,

a Recovery/demand notice dated December 18, 2018 was

received by four of the appellants (except Manoj Kumar

Agrawal) directing them ( and others who are not in appeal) to

pay jointly and severally a sum of ` 80,97,62,785 along with

returns due to investors etc. within 15 days of the receipt of the

said notice.

3. Though the show cause notice was issued to 19 noticees

and directions are passed against 17 of them only 5 of them

have preferred appeal. It is important to note that Kassa has not 6

preferred an appeal. Since all the appeals relate to the same

impugned order, they are heard together and are disposed by

this common decision.

4. Investigations revealed a number of violations of

securities laws by Kassa and other appellants as follows:-

i) Diverted funds of the investors to group entities of

the company who derived economic benefits out of

siphoning off funds.

ii) Engaged in activities other than stock broking

business such as collecting money from clients/

investors promising assured returns to them.

iii) Failed to segregate proprietary funds and clients'

funds and misutilized/ diverted funds/ securities of

clients/investors and siphoning off the

funds/securities of clients to group persons/ entities.

iv) Failed to comply with the requirement of periodical

settlement of client accounts.

v) Non-redressal of investors' grievances within a

month of the date of receipt of complaints.

vi) By the above stated commissions the company and

its directors/ promoters management have violated

various provisions of SEBI Act, 1992, SEBI (Stock 7

Brokers and Sub-brokers) Regulations, 1992, SEBI

(Portfolio Managers) Regulations, 1993 ("PMS

Regulations" for short), Securities Contract

(Regulations) Rules, 1957 ("SCRR" for short) and

various provisions of SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to

Securities Market), Regulations, 2003 and various

Circulars issued by SEBI.

5. It is also noted by SEBI that funds to the tune of ` 55

crores (approximately) was collected by the company in the

form of loans from various investors and by promising high

returns. Returns promised were in the range of 9%-13% when

deposits were in the form of shares and 18% - 27% when

deposits were in the form of funds. Such activity is violative of

Rule 8(f) of the SCRR. Further, such activities have also

violated Rule 3 of PMS Regulations because Kassa carried out

operations as a portfolio manager without obtaining a

certificate/ registration from SEBI. Similarly, funds to the tune

of ` 46.83 crores have been transferred from clients' bank

accounts maintained by Kassa which HDFC Bank and Canara

Bank to the business bank account of Kassa maintained with

HDFC Bank and Canara Bank during the period 2008-2015. 8 Further, funds to the tune of approximately 26.45 crores have

been transferred from business accounts/ clients' accounts

maintained with various banks to related/group /associate

persons/ entities (against whom the impugned order has been

passed). Similar siphoning off clients' securities /mutual fund

units have also been noticed by SEBI. Hence, the finding that a

total amount of ` 80.97 crores have been diverted/ siphoned off

from the account of Kassa to the group entities against which

the impugned order has been passed. Because of such

transferring/ siphoning off of the clients/ investors funds for the

benefit of group entities of the Directors/ Promoters the WTM

of SEBI has considered all these entities as one single economic

entity by relying on the order in the matter of Delhi

Development Authority vs. Skipper Construction Company (P)

Ltd. & Anr. 1996 SCC (4) 622.

6. The relationship/connection between the appellants as

given in the impugned order are as below.

Name of the Appellants Relationship/Connection

Ex-Director of Kassa Finvest (1995-2005) and son of Ashok Kumar (M.D. of Kassa Mr. Siddharth Shankar Finvest).

He was also a director of Kassa Holdings (1990-2013) and Kassa Financials (1990- 2013).

Mrs. Nikita Shankar Wife of Siddharth Shankar and director of group companies of Kassa Finvest.

Mr. Manoj Kumar Agrawal Manoj Agrawal is the CFO and 9

(Manoj Agrawal) Compliance Head of Kassa Finvest.

Mrs. Anjana Kumar Promoter of Kassa Finvest, Ex-director of Kassa (1995 to 2003) and wife of Ashok Kumar (M.D. of Kassa Finvest).

 Managing Director of Kassa Finvest  Holds 5% of Kassa Finvest.

Mr. Ashok Kumar  He and Umashankar Sharan Shrivastav together hold 10%.

Though, the factual aspects as above are not fully refuted by the

appellants each of the appellants tried to distinguish their

respective roles and responsibilities. The crux of the

submissions of each appellant is as follows:

Appeal No. 371 of 2017

7. This appeal is filed by Siddharth Shankar who is the son

of Ashok Kumar, the Managing Director of Kassa at the

relevant time. Further, Siddharth Shankar was a Director of

Kassa during 1994 till 2005. He was also the Director of group

Companies namely Kassa Holdings and Kassa Financials during

1990 till 2013.

8. Learned senior counsel Shri Pradeep Sancheti, appearing

on behalf of Siddharth Shankar submits that the appellant is

neither a shareholder of Kassa nor a Director of Kassa at the

relevant time. He ceased to be a Director long back in 2005. At

the relevant time he has no other connection with Kassa except 10

that he was a consultant drawing an annual salary/consultancy

fee of ` 6 lakhs. The only allegation against the appellant is that

an amount of ` 2.06 crores was lent/paid to the appellant by

Kassa over a period of 8 years. There is no finding that the

appellant was in any way connected with Kassa in its day-to-

day management.

9. It was further contended by the learned senior counsel for

the appellant that all the records relating to his consultancy fee,

TDS and reimbursement of other expenses from time to time are

available. These details are also reflected in the audited balance

sheets of Kassa for various financial years. In addition to

certificates from a chartered accountant the appellant has

produced his income tax returns, which also show consultancy

income on a year to year basis. The learned WTM also records

the fact that the appellant received consultancy fee and

reimbursement for a period of 7 years during April 2008 to

March 2015. It was further contended that there is a serious

error in the impugned order while calculating the alleged

benefits accrued to the appellant. In one place it is stated that the

amount in question is ` 2.06 crores while in another place stated

that it is ` 2.60 crores.

11

10. The learned senior counsel for the appellant further

submitted that there has been a number of mistakes in the

impugned order relating to the payments and refund between the

appellant and Kassa. Further documents relating to a tripartite

agreement/settlement between the appellant and one Kamla

Narain has not been considered relevant by the WTM though

such arrangements are permitted in law. In any case, the

demand notice for ` 80.97 crores could not have been issued by

SEBI as many of the so called investors were not genuine

clients and these investments were for assured returns.

Appeal No. 37 of 2018

11. The appellant in this appeal was proprietor of AARB

Capital ("AARB" for convenience), proprietor of GUGU

Trading, GVC Capital and G&G Impex ("Group Firms" for

convenience) which are trading clients of Kassa. These entities

were allegedly managed by Ashok Kumar, appellant in Appeal

No. 197 of 2018 who is also the father in law of the appellant.

The appellant is also the wife of Siddharth Shankar, son of

Ashok Kumar and former Director of Kassa, Kassa Holding and

Kassa Financials.

12

12. Learned counsel for the appellant Shri Zal Andhyarujina,

submitted that the appellant was not a party to the ex-parte ad-

interim order dated March 19, 2015. Only in April 2015 SEBI

asked her statements on investigations relating to Kassa and she

submitted the trading ledgers of the firms with which she is

associated as well as her Income Tax Returns for five years. On

February 29, 2016 SEBI issued a show cause notice to the

appellant on which the attorneys of the appellant appeared

before the WTM of SEBI in addition to filing written

submissions on June 21, 2017. Subsequently, vide the

impugned order dated September 05, 2017 the appellant, along

with others, has been debarred from accessing the securities

market for a period of 10 years and has been jointly and

severally made responsible for refund to the investors/ clients.

This is pursuant to the alleged findings that the appellant has

violated various provisions of the PFUTP Regulations.

13. The learned counsel for the appellant contended that the

appellant was never a promoter/ director of Kassa. Though she

was the proprietor of certain group firms it was only in name as

all the decisions of these entities had been taken by Ashok

Kumar, appellants' father in law. These aspects are very clear

from the various observations of the WTM himself in the 13

impugned order. Further, it was contended that the appellant

was incorrectly included in the group of Kassa but failed to

either conduct any investigation or to provide any proof relating

to the appellant's association with either Kassa or with its

alleged wrongdoing. This fact is also emphasized in the

statement made by Anil Dhawan, President of Kassa and Vivek

Agarwal, Deputy General Manager ('DGM') Finance of Kassa

that the client codes relating to group entities with which the

appellant is associated as a proprietor were in fact handled

directly by Ashok Kumar and the payments to be made to all the

companies belonging to Ashok Kumar were decided by Manoj

Kumar Agarwal, Anil Dhawan and Ashok Kumar. All these

show that Ashok Kumar was the real Proprietor of the entities

and all the activities of these entities were managed by Ashok

Kumar and appellant's name was only used.

14. The learned counsel further contended that whatever

payments are received by AARB from Kassa is only by means

of trading profits due to this entity and even here the trading

was done by Ashok Kumar and not by the appellant. Further all

the monies paid to Kassa by AARB was also not taken into

account in the impugned order and evidences in the form of

bank statement in HDFC Bank produced were not fully 14

considered. If all these aspects were in fact considered by the

WTM it would have been evident that Kassa owed a net amount

of ` 3,98,000 to AARB rather than AARB owing anything to

Kassa. Therefore, the entire allegation that money belonging to

Kassa was diverted to AARB and thereby bringing the appellant

into wrongdoing of Kassa gets nullified.

15. In the light of the above, it was contended that the demand

notice dated December 18, 2018 could not have been issued to

the appellant as the Recovery Officer had no jurisdiction to

issue such a demand notice. Moreover, the impugned order

does not quantify any penalty to be paid as such there was no

failure to pay a penalty or to comply with the directions of the

Board within the meaning of Section 28A of the SEBI Act.

Even otherwise the joint and several liability of ` 80.97 crore

(approximately) does not give the details or particulars and as

such cannot be implemented.

16. In short, the appellant's contention is that she is not

directly connected with Kassa; though she was associated with

certain group entities as a Proprietor those entities were

managed by Ashok Kumar; all the payments made by AARB to

Kassa were not considered in calculating the liability in the 15

impugned order; and since the impugned order does not

quantify the penalty/refunds the Recovery Officer could not

have issued the demand notice that too without clearly

quantifying the obligations.

Appeal No. 346 of 2017

17. The appellant was the CFO/ Vice President/ Senior Vice

President and Compliance Officer of Kassa during the relevant

time and has been debarred from the securities market for a

period of 10 years by the impugned order.

18. Learned counsel for the appellant Shri Rajesh Khandelwal,

submitted that the appellant was not the Chief Finance Officer

("CFO") as is claimed in the impugned order but was only Vice

President/ Senior Vice President of accounts. The WTM failed

to appreciate the fact that his role was only maintaining the

books of accounts and he had no occasion to comprehend and

dissent with the directions given by the Managing Director of

Kassa. Mr. Ashok Kumar and Mr. Siddharth Shankar were the

de facto final authority; he was only vaguely aware of the facts

relating to loans in the form of funds and securities and was not

in a strategic position to conclude the management's

involvement in such malafide activities. He was not a Key 16

Managerial Personnel ('KMP') and had no role in day-to-day

management of Kassa. He has not made any illegal gain.

Given these facts the appellant had no role in the illegal

activities of Kassa and, therefore, the impugned order is liable

to be quashed qua the appellant.

19. Learned counsel further submitted that without prejudice

to the above submissions, restraint of 10 years imposed on the

appellant is too harsh particularly since he was an employee

only and not a Director or KMP and grouping him with the

Managing Director and other Director etc. and handing over the

same punishment is both beyond law and too harsh. It was also

submitted that he may be allowed to liquidate the existing

portfolio as he has no other source of income.

Appeal No. 38 of 2018

20. The appellant is the single largest shareholder of Kassa,

holding 51.65% of shares. She is the wife of Ashok Kumar,

MD of Kassa and was a former Director of Kassa for 8 years

during 1995 to 2003. She was one of the entities debarred from

accessing the securities market vide ex-parte ad interim order

dated March 19, 2015. She has been restrained for a period of

10 years as well as made jointly and severally liable to make 17

refund of the monies collected from clients/ investors. Further,

she has also been directed to pay a sum of ` 80.97 crores

(approximately) with returns due to investors along with the

interest etc. jointly and severally with other noticees by the

Recovery/ Demand Notice dated December 18, 2018.

21. Learned counsel Mr. Zal Andhyarujina, appearing on

behalf of the appellant submitted that the appellant is a 69 years

housewife; has no experience of either company matters or

share market; is a shareholder only in name; no role in day-to-

day management and hence not in-charge of the company and

not even a promoter as defined under Section 2(69) of the

Companies Act, 2013. Hence the impugned order is completely

arbitrary solely on the basis that she holds 51.65% of the share

capital of Kassa and her husband Ashok Kumar is the Managing

Director of Kassa. For facility, Section 2(69) of the Companies

Act, 2013 is extracted hereunder:

"Section 2(69)- "promoter" means a person--

(a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or

(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or 18

(c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act:

Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;

It was submitted that she was not a promoter also in terms of

Securities and Exchange Board of India (Issue of Capital and

Disclosure Requirements) Regulations, 2009. For facility,

Regulation 2(za) of ICDR Regulations, 2009 is extracted

hereunder:-

Regulation 2(za)- "promoter" includes:

(i) the person or persons who are in control of the issuer;

(ii) the person or persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities are offered to public;

(iii) the person or persons named in the offer document as promoters:

Provided that a director or officer of the issuer or a person, if acting as such merely in his professional capacity, shall not be deemed as a promoter:

Provided further that a financial institution, scheduled bank, foreign institutional investor and 19

mutual fund shall not be deemed to be a promoter merely by virtue of the fact that ten per cent or more of the equity share capital of the issuer is held by such person;

Provided further that such financial institution, scheduled bank and foreign institutional investor shall be treated as promoter for the subsidiaries or companies promoted by them or for the mutual fund sponsored by them;

22. Further, the learned counsel for the appellant also relied on

a number of judgements to prove his contentions. Relying on

the order of M/s. Subhkam Ventures (I) Pvt. Ltd. vs. SEBI

(Appeal No. 8 of 2009 decided on 15.01.2010) it was contended

that since the appellant was not in control or in-charge of Kassa

the appellant is not liable for any violation committed by Kassa.

23. Further, it was contended that even if the appellant is held

to be a promoter she is not liable to be charged because she was

not in-charge of the day-to-day management of the company as

defined under Section 141 of the Negotiable Instruments Act,

1881, which is substantially similar to Section 27 of the SEBI

Act, as follows:-

"141. Offences by companies.-

(1) If the person committing an offence under section 138 is a company, every person who, at the time 20

the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence:

Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-

section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.--For the purposes of this section, 21

(a) "company" means anybody corporate and includes a firm or other association of individuals; and

(b) "director", in relation to a firm, means a partner in the firm."

24. Relying on the order of SMS Pharmaceutical Ltd. vs.

Neeta Bhalla & Anr. 2005 8 SCC 89, KK Ahuja vs. VK Vora &

Anr. 2009 10 SCC 48 it was contended that similarly placed

entities namely; Millie Roses Ltd. and Doyen Vyapar Pvt. Ltd.

holding 26% and 12.44% of shares of Kassa respectively have

not been held liable under the impugned order and hence the

appellant also deserves to have the same dispensation and

cannot be held vicariously liable when there is a Managing

Director or other Directors. Therefore, the WTM vide the

impugned order has made the appellant a victim of

discriminatory and unequal treatment merely on the ground of

being the wife of the Managing Director of Kassa. As regards

the demand notice dated December 18, 2018 the appellant has

not been even served with the notice; the fact that the demand

notice is served on other persons in the same address is not a

service upon the appellant; there was no direction in the

impugned order to make any payment as no amount was

specified in the impugned order and the Recovery Officer has 22

no right to specify the amount which is not part of the impugned

order.

25. Further, it was submitted that the corporate veil of Kassa

could not have been pierced since neither the show cause notice

nor the impugned order itself has proved the necessity of doing

so and hence it is a breach of natural justice.

26. Learned counsel for the appellant also sought to

distinguish the orders relied on by the respondent SEBI in the

impugned order namely Delhi Development Authority vs.

Skipper Construction 1996 (4) SCC 622.

Appeal No. 197 of 2018

27. The appellant was the Managing Director of Kassa at the

relevant time holding 5% of the shares of Kassa. In addition he

owned associated companies' Kassa Holdings & Consultants

Private Limited ("Kassa Holding"), M/s Mystic Cures Pvt. Ltd.

("Mystic Cures") and managed the group entities M/s. Guru

Trading, M/s. GVC Capital, M/s. AARB Capital and M/s. G&G

Impex.

28. The learned counsel for the appellant Shri Ankit Lohia,

took a preliminary objection on the ground that the impugned 23

order was passed without giving sufficient opportunity for the

appellant to represent his case before the WTM. It is a matter of

record, it was urged, that the show cause notice issued on

February 29, 2016 was returned undelivered; the appellant was

in the custody of EOW; the show cause notice was ultimately

served only on February 27, 2017 and received by the appellant

on March 03, 2017; the appellant's request for various

documents were not fully adhered to and only one personal

hearing was granted to the appellant on April 18, 2017 in which

the appellant could not defend himself fully because of the non-

availability of many documents.

29. Learned counsel for the appellant further contended that

though by designation the appellant was the Managing Director

of Kassa, in actual practice the schemes which were found to be

violative of the securities laws was run by two employees

namely; Anil Dhawan and Manoj Agrawal, at the back of the

appellant. The salary structure and the job profile of these

employees also show that they were taking decisions on such

matters. Therefore, it was a conspiracy hatched by some

clients/ complainants and a few key officials of Kassa to malign

the appellant and his family.

24

30. In any case, the so called clients were actually not

investors in the securities market and they were high networth

individuals including qualified chartered accountants who

understood all intricacies of securities market/ financial market

and they were fully aware of the nature of transactions and any

alleged illegality involved. On this ground, this Appellate

Tribunal also had set aside the appeals filed by a few of such

investors. Moreover, when they were indulging in the

transactions which were in the nature of loan which are illegal

according to SEBI and when these investors were party to such

illegality they cannot be granted any reliefs by SEBI because

such parties are in pari delicto.

31. It was further contended that the appellant had provided

all details relating to the alleged siphoning off an amount of

` 3,35,22,009/- from the account of Kassa stating that most of

these payments were in the form of salary etc. and there were

apparent error in including the payments made to one Ashok

Kumar, who is not the appellant, and therefore there was grave

mistakes in the calculations.

32. It was further contended that the Recovery Certificate

dated December 18, 2018 provided no basis for arriving at the 25

amount of ` 80,97,62,785/-. It also does not factor in the details

provided by the appellant to SEBI of 10 groups of investors

whose loans amounted to approximately ` 64 crores. As urged

earlier since these parties were in pari delicto as held in a

number of judgements they cannot be granted any reliefs. Such

judgements include: Sanjay R. Shirke vs. State of Maharashtra

(dated September 27, 2018 passed by Bombay High Court),

Suman Lata Sharma vs. Vinod Kumar Sharma reported in

2017 SCC OnLine Del 11395 and Kuju Collieries Ltd. vs.

Jharkhand Mines Ltd. & Ors. reported in 1974 AIR 1892.

33. Similarly, it was further contended that this Tribunal itself

held in the appeals filed by some of these investors that they

were not entitled to get any benefit out of the Investors

Protection Fund because their investments were not genuine and

not in the securities market. Such judgements include: Sudha

Gupta (Appeal No. 355 of 2017 dated March 15, 2018) and

Kabir Oberoi (Appeal No. 153 of 2017 dated May 17, 2018).

Further, the Recovery Certificate has been issued without

considering the profits realised by the appellant. Even if, it is

held that the appellant was involved in siphoning off

` 3,35,22,009/- a joint and several liability of about ` 81 crores

could not have been imposed on the appellant. In short, the 26

learned counsel for the appellant urged that the Recovery

Certificate is unimplementable, overstated liability of each

appellant is not proved, payments already made not taken into

account and in any case issued on the basis of the impugned

order which was in a sense an ex-parte order so far as the

appellant is concerned since he was given only limited

opportunity of responding to the various allegations and all

documents were not made available to him.

34. We have heard the learned senior counsel for the

respondent SEBI, who took us through the background of the

matter as to how Kassa defaulted which let to considerable loss

to a large number of investors also undermining the faith of the

investors in the securities market. Kassa itself is not even an

appellant so are many of the other entities against whom

directions have been passed in the impugned order. Relying on

Skipper Construction (supra) he emphasised that all the entities

who have been beneficiaries of diversion of funds are treated as

one 'economic unit' and hence a joint and several liability for

refund has been rightly imposed upon them by the impugned

order. He further reiterated the role of each of the appellant in

the matter and how in isolation each of them claims to be

innocent or having limited or no role in the entire episode. 27

Given their clearly articulated roles the directions in the

impugned order are just and fair. We have also perused the

documents produced before us.

35. We do not find merit in most of the arguments put forth by

the counsel for various appellants.

36. At the outset, we would like to deal with one submission

made by most of the appellants that since the investors were in

pari delicto they are not entitled to any reliefs through SEBI.

This is a devious argument adopted by the appellants; some of

whom were Directors/ Promoters of Kassa and some who were

connected entities who are beneficiaries of diversion of funds

from Kassa. In fact, even while claiming no connection with

Kassa and its Managing Director these appellants are taking this

devious argument that the clients of the broker were not

investors in the securities market but were engaged in illegal

loan type transactions. We find this argument not only devious

but one which has to be rejected outright because this argument

can vitiate the very legal foundation of the securities market.

Here is a broker who is under a two-tier regulatory structure, by

SEBI and the stock exchanges, and operating under tight

regulatory restraints (Broker Regulations and Code of Conduct) 28

in conducting the business of brokerage under the securities

laws and the exchange by laws etc. Their claim that the

investors are guilty in equal measure is tantamount to stating

that some of the so called investors would barge into their office

and forcefully make deposit for which the broker has no

responsibility or accountability. This is not how a broker's

business is to be run despite the principle of caveat emptor

notwithstanding. If a broker is accepting such transactions in

the nature of loans the broker is squarely responsible for this

illegality as it has been told by various securities laws how and

what type of transactions a broker is supposed to enter into with

investors/ clients and what type of due diligence and care it has

to take and how the books/ documents have to be maintained

etc. in great detail. All these Regulations and Circulars are

explained in detail in the impugned order. In any case, the

principle of in pari delicto may be applicable in individual cases

but not against the statutory authority like SEBI as in the present

case performing its statutory functions.

37. The appellants' reliance on orders of this Tribunal in

Sudha Gupta (Supra) and Kabir Oberoi (Supra) does not come

to the aid of the appellants because what is held in these orders

is only the inapplicability of support from Investors Protection 29

Fund to those parties. There was no finding that those parties

were in pari delicto and as such were not entitled for any reliefs.

Rather these orders held that they are entitled for relief from the

broker itself but are not entitled for relief from the Investor

Protection Fund. As far as SEBI's powers regarding directions

to the brokers in matters where some of the investors/ clients

were knowingly committing illegality we hold that all such

powers of SEBI are well established. When SEBI has the

powers to direct even unlisted Companies and their Directors

who had mobilised funds from public (deemed public issue) by

issuance of securities of various types or where entities have

mobilised funds through Collective Investment Schemes and

when these entities themselves were otherwise outside the

purview of SEBI it would be perverse even to state that SEBI

does not have such powers over brokers which are highly

regulated entities both by the Exchanges and SEBI. Therefore,

this argument is totally untenable and we accordingly reject it

both from the angle of the so called illegality of the action of the

investors/ clients as well as from the view point of explicit

powers of SEBI.

38. We do not find any merit in the submissions made by

Siddharth Shankar (Appellant in Appeal No. 371 of 2017) that 30

his entire connection with Kassa was that of being only a

consultant nor we agree with his contention that whatever

money was lent/ paid to the appellant beyond the consultancy

fee was returned to a third party. If he was only a consultant of

Kassa it is not clear to us how he was entitled to receive such a

huge amount of ` 1.75 crores as a loan through an unregistered

purported loan agreement in the first place and how a tripartite

agreement with Kamla Narain, a client of Kassa and Kassa

could be entered into and why the liability of Kassa was

neutralized through this purported tripartite agreement.

Moreover, when the appellant informed Kassa that he settled an

amount of ` 14360578/- due to Kassa by paying to Kamla

Narain on April 05, 2015 the acceptance letter by Kamla Narain

is dated September 26, 2016. Accordingly, these documents are

clearly afterthoughts and devoid of veracity. Therefore we find

no reason to fault the finding in the impugned order that these

are afterthoughts and the evidence now produced has no

substance. We agree with the submission that two different

figures ` 2.06 crores and ` 2.6 crores are given at different

places in the impugned order, which the learned senior counsel

for the respondent clarified that one is with the consultancy fee

and the other is net of it which appears logical. In any case such 31

typographical error does not undermine the substantive finding

in the impugned order.

39. Similarly, we find no merit in the contentions of Nikita

Shankar (Appellant in Appeal No. 37 of 2018) wife of Siddharth

Shankar and daughter in law of Ashok Kumar. The submission

that she was Proprietor of the Group entities only in name and

all decisions were taken and the group entities were managed by

her father in law, Ashok Kumar, does not have any merit as the

Director/ Proprietor is equally liable for the action of the

Companies/ entities. We are also not convinced by the

calculations produced by the appellant stating that instead of the

appellant's proprietary concern AARB owing anything to Kassa

it is Kassa which owed ` 3,98,000 to AARB. Moreover no

submissions are forthcoming with respect to other three group

entities.

40. We do not agree with the submissions made by the learned

counsel for the appellant Manoj Kumar Agrawal (Appellant in

Appeal No. 346 of 2017). His submission that he was neither

the CFO nor discharging the function of CFO cannot be

accepted in the absence of any record to show that there was

another CFO in Kassa. On the contrary all other appellants 32

have contended that he was discharging the functions of CFO in

Kassa. Moreover, we note that he has been Vice President/

Senior Vice President of Finance for a long period in the

company and his involvement in mobilising funds from various

clients is quite clear from the impugned order and other

documents including copies of agreements signed with clients

where the appellant is signatory for Kassa as Senior Vice

President, Finance produced before us. As Compliance Officer

he was, according to law expected to be in-charge of all the

provisions relating to regulatory compliance. However, since he

was not found to have made any illegal gain the impugned order

does hold him liable for refund of the funds mobilised from

various clients/ investors. Therefore, we find some merit in the

submission that a uniform period of 10 years of debarment from

the securities market imposed on the appellant appears

disproportionate, given the fact that he was only an employee,

though a senior one, and was working under the overall

direction of the Managing Director who is considered the key

person in the entire episode.

41. We find no merit in the submissions made by Mrs. Anjna

Kumar, (Appellant in Appeal No. 38 of 2018) that just because

she is holding majority stake of Kassa she is not liable to be 33

punished for any violation because effectively she had no role in

the functioning of Kassa or its day-to-day management.

Moreover, her contention that she is only a house wife and ill-

informed on matters relating to companies or securities market

has no merit because we note that she was a former Director of

Kassa for a long period of 8 years during 1995 to 2003.

Moreover, she is not just a promoter but holds 51.65% of shares

of Kassa by virtue of which she is in absolute control of the

company. Whether she has appointed any Director by virtue of

this position is immaterial as it is a choice open to her. In any

case her husband is the Managing Director of Kassa by holding

just 5% of the equity shares of the Company. Therefore,

effectively by virtue of being the promoter in control of the

company she is allowing the Managing Director who is her

husband to run the Company. By no stretch of imagination the

appellant can claim shelter under either ignorance or lack of any

role/ function in the company. Section 2(69) of the Companies

Act clearly states that a "promoter" inter alia means a person:

(a) ......

(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise;

34

Further, according to Regulation 2(za) of ICDR Regulations, 2009 "promoter" includes:

(i) the person or persons who are in control of the issuer;

Both the above provisions clearly show that the appellant is a

promoter and therefore by virtue of holding majority stake of

more than 51% she is in control of Kassa. Therefore, we find

no lacuna in the impugned order in holding the appellant guilty

of the various provisions specified therein and the consequent

directions issued thereunder.

42. We find no merit in the submissions made by learned

counsel for the appellant (in Appeal No. 197 of 2018) Ashok

Kumar. The substantive argument of the appellant in terms of

in pari delicto has been dealt in previous paragraphs of this

order and we completely rejected that argument. Further the

appellant's efforts to hoist the blame fully on to two employees

namely; Anil Dhawan and Manoj Agrawal, who were working

under him stating that he had no role is completely unbelievable

on the face of records to the contrary. A letter written by this

appellant to various clients/ prospective clients, promising

assured returns on investment is on record. We also do not

agree with the submissions that sufficient opportunity was not

given to him though, only one personal hearing was given. 35

There is nothing on record to show that he had sought any

further personal hearing. In any case he could have given

written submissions since there was a gap of 5 months between

his personal hearing and the date of the impugned order.

Moreover, we note the submission made by his own daughter in

law (appellant in Appeal No. 37 of 2018 Nikita Shankar) who

states that not only on matters of Kassa but even in the matters

of the group entities the appellant herein was fully in-charge of

their day-to-day affairs. Therefore, his submission that the

entire issue was a conspiracy between certain clients,

complainants and key officials of Kassa does not have any merit

at all. Given these facts and records we find no merit in the

submissions of the appellant.

43. A common submission made by four of the appellants

(excluding Manoj Kumar Agrawal) is that the impugned order

does not crystallize the amount to be repaid/ refunded to

investors/ clients and when the principal amount itself is not

determined interest liability also becomes inconclusive and

hence the order is unimplementable. It is also contended by

them that the Demand Notice/ Recovery Certificate dated

December 18, 2018 has travelled beyond the impugned order.

When the impugned order itself does not crystallize the amount 36

due the Recovery Certificate for ` 80,97,62,785/- could not be

issued by the Recovery Officer who is not an Adjudicating

Authority. Further the Recovery Officer does not tell what is

the amount to be adjusted in coordination with the NSE and

BSE as directed in the impugned order. We find some merit in

these submissions; it is not clear from the Recovery Certificate

how the amount has been arrived at; what is the interest

liability; whether payments made to various parties by NSE and

BSE have been taken into account etc.

44. In the light of the above, while upholding the impugned

order on merit we remit the matter to SEBI to specifically

decide the following issues:

i) The Recovery Officer shall crystallize the exact

amount of liability for refund/ repayment to

investors/ clients and issue a revised certificate.

ii) The WTM shall reconsider the period of restraint

imposed on Manoj Kumar Agrawal, (appellant in

Appeal No. 346 of 2017).

iii) The WTM shall consider the request of Manoj

Kumar Agrawal for liquidation of his mutual funds

units.

37

45. The appropriate authority shall pass fresh order(s) on the

above issues within a period of three months from the date of

the receipt of this order after giving an opportunity of hearing to

the appellant(s). All the Appeals are disposed of on above

terms with no orders on costs. Consequent to disposal of the

appeals Misc. Applications for stay of the impugned order have

become infructuous and are dismissed as such.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 26.09.2019 Prepared & Compared By: PK