Order in respect of Comfort Intech Ltd, Comfort Fincap Ltd and Comfort Securities Ltd;[SAT Appeal No.63 /2017,468 /2016][SAT Appeal No.:316/2016]

Sl. No. Entities PAN Authorised Representative 1 Comfort Fincap Ltd. (CFL) AABCP4792J Mr. Joby Mathew, Advocate 2 Comfort Securities Ltd. (CSL) AABCC9625R Mr. Ranjit Bhonsale, 3 Comfort Intech Ltd. (CIL) AAACC5567H Advocate The above entities are hereinafter collectively referred to as “the noticees” or individually by their respective names.

1. Securities and Exchange Board of India (SEBI), vide an ad interim ex-parte order dated December 19, 2014 (hereinafter referred to as “interim order”) restrained First Financial Services Limited (hereinafter referred to as "First Financial" or "the company") and 151 other entities including the noticees herein from accessing the securities market and further prohibited them from buying, selling or dealing in securities in any manner whatsoever, till further directions. The interim order was passed taking into account facts and circumstances more particularly described therein and summarised inter alia as under:- (a) Trading in the shares of First Financial was suspended by BSE from June, 2000 for non compliance of the Equity Listing Agreements and was revoked in July 2011. (b) Thereafter, on December 08, 2011, First Financial had made a preferential allotment of 54,50,000 equity shares at the price of ₹20/- per share (hereinafter referred to as the "1stpreferential allotment"). (c) On April 28, 2012, it made another preferential allotment of 24,50,000 equity shares at the price of ₹20/- per share (hereinafter referred to as the "2nd preferential allotment"). Thus, in total, First Financial allotted 77,00,000 equity shares to 83 persons/entities. (d) In spite of poor and meagre fundamentals, tarnished track record of long period of suspension of trading and below par market price, First Financial was able to garner funds

Order in the matter of First Financial Services Limited aggregating to ₹15,40,00,000/- from the preferential allottees at a premium of ₹10/- per share within a short span of five months of revocation of suspension. First Financial even did not exist at the registered and corporate office addresses available as per BSE’s record. (e) The equity shares allotted on preferential basis to aforesaid allottees were locked-in for a period of one year, i.e., up to December 07, 2012 and April 27, 2013 respectively in the instant case in terms of the Securities and Exchange Board of India (Issue of Capital And Disclosure Requirements) Regulations, 2009. Thus, these shares held by the said 83 allottees pursuant to preferential allotment were not tradable till December 07, 2012 and April 28, 2013 respectively. (f) During the period from May 15, 2012 to February 08, 2013 (Patch 1), the price of the scrip rose from `5/- to `263/-, i.e., an increase of 5,160% (53 times) with an average volume of 23 shares per day and total volume of 2653 shares in 115 trading days with an average of 1 trade per day. (g) Thus, the price in the scrip had increased during the lock-in period on the shares held by the aforesaid allottees.

Such sharp rise in price of the scrip was not supported by any acceptable market factor such as fundamentals, trading history, corporate announcements, etc. as discussed in the interim order but was on account of non-genuine and manipulative trading in the scrip by certain entities. (h) Thereafter, from February 11, 2013 to December 12, 2013 (Patch 2), the scrip was traded with an average volume of 41,252 shares per day and total volume of 86,21,776 shares in 209 trading days. As compared to Patch1, in Patch-2 the average volume had increased by 179256% (1793 times) and average price increased by 193%. During this period, the preferential allottees sold their shares and a group of entities named as First Financial Group in the interim order, acting as buyers provided exit to the preferential allottees thereby created artificial volume. (i) Most of the trades were taking place between the preferential allottees and the entities of First Financial Group as described in the interim order. During this period, the preferential allottees were selling and in the process gaining a huge profits/gains.

(j) On December 13, 2013, the equity shares of First Financial were split in the ratio of 1:10. Consequent to these actions, paid up share capital of First Financial increased to ₹80,74,76,000 comprising 8,07,47,600 shares (i.e. an increase of 7,70,00,000 shares) as on quarter ending December 31, 2013.

(k) Pursuant to the stock split, price of the scrip opened at ₹17.7 on December 13, 2013 and fell to as low as ₹7 as on March 31, 2014. During this period, the scrip was traded with an average volume of 8,02,667 shares per day and total volume of 6,01,90,286 shares in 75 trading days. (l) The funds received as proceeds of preferential allotment were utilised for purposes other than those disclosed and were transferred to various entities on the same day or next day and was never retained in the company for expansion of its business or execute its future plans as envisaged in the special resolution passed under section 81(1A) of the Companies Act, 1956. (m) It was inter alia noted that:- (i) Even when substantial number of shares, i.e., 77 lakh shares were locked-in and non transferable/tradable, price of the scrip increased substantially to the extent of 5160% with a very small chunk of volume/purchases by certain entities; (ii) After the expiry of the lock-in period (i.e., in Patch 2), the average volume increased astronomically by 1,79,256% (1793 times) and average price increased by 193% on account of trading amongst First Financial Group and the preferential allottees. (n) Following modus operandi was observed in the matter: (i) Firstly, shares were allotted on preferential basis to 83 entities by First Financial. A company which was dormant or suspended for 11 years with nil activity was able to garner funds amounting to `15.40 crore (about 42 times of its share capital) by way of preferential allotment. (ii) During the lock-in period, the price of the scrip increased from `5/- to `300/-during the examination period. (iii) After the expiry of lock-in, the preferential allottees sold the shares to the entities of First Financial Group, thereby raking in huge profits.

(o) It was, thus, prima facie observed that the preferential allottees acting in concert with the entities of First Financial Group misused the stock exchange system to generate fictitious long term capital gains (LTCG). In the process, the entities of First Financial Group and preferential allottees artificially increased the volume and price of the scrip and misused securities market system for making illegal gains and to convert ill-gotten gains into genuine one. 2. The allegation against noticees herein as mentioned in the interim order is that they had played a key role in the whole process of preferential allotment that had resulted into huge profitable exit to the preferential allottees. This allegation is made on the basis of following:

(a) Money received through two preferential allotments was immediately transferred by First Financial to several entities including the noticees. Further, several other entities who had received funds from First Financial after the preferential allotment had later transferred those funds back to First Financial and the said funds were further transferred by First Financial to various entities and majorly to noticees herein; (b) The noticees herein are connected to First Financial on the basis of factors described in Table VII in Para 25 of the interim order. Further, Mr. Anil Agrawal HUF (karta Mr. Anil Agrawal, promoter/director of the noticees), Mr. Suresh Khandelia and Ms. Manju Khandelia, two promoters of CFL at the relevant time had also subscribed to the preferential allotment of equity shares of First Financial. This prima facie indicates that noticees and its directors share close relationship with First Financial which can not be termed as mere commercial /business relationship; (c) CSL had acted as a stock broker for some of the exit providers for their trades in the scrip of First Financial during Patch 2 of the Examination Period which again can not be a mere coincidence.

3. Pursuant to the aforesaid interim order, the noticees herein filed their replies and availed opportunities of personal hearings on February 24, 2015 through their authorised representative Mr. Joby Mathew, Advocate who made common submissions on behalf of all these noticees. These noticees also filed additional written submissions after personal hearings in the matter. While the proceedings pursuant to the interim order were underway two separate appeals were filed before the Hon'ble Securities Appellate Tribunal ("the Hon'ble SAT"), one by CSL and another by CIL challenging the interim order and seeking certain interim reliefs. The Hon'ble SAT, vide its order dated September 04, 2015, disposed of the said appeals with the direction to SEBI to pass an appropriate order in accordance with law preferably within two months from the date of the said order. Vide the said order, the Hon’ble SAT also permitted these appellants to make fresh representation in respect of the interim reliefs to SEBI within a period of three days and directed SEBI to consider the representation of the appellants and pass appropriate order within two weeks thereafter.

Accordingly, vide their separate letters dated September 9, 2015, CSL and CIL filed their respective representations before SEBI seeking following interim reliefs: Name of Interim relief sought the Entity CSL 1. Permission to carry on trading in its proprietary account except trading in the scrip of First Financial. 2. Permission to carry on the activities as market maker. 3. Permission to carry on the activities of merchant banker in the SME Segment.

4. Permission to sell the shares lying in its beneficiary accounts. 5. Permission to deal with the securities to rectify errors while trading on behalf of the clients. CIL 1. Permission to deal in securities except the securities issued by First Financial. 2. Permission to deal in securities offered by their clients as security for loans extended against securities; such dealing may include pledge, sale and transfer of securities to our client's margin account and transfer from our client's margin account to their client's account. 3. Permission to redeem and/or transfer of mutual fund units. 4. After considering their requests, vide separate letters dated September 23, 2015 and January 07, 2016, SEBI permitted the noticees as following: (a) CSL to carry on the activities of merchant banker and to deal with error account (tagged as “S164”) for rectifying the trades entered on behalf of its clients; (b) CIL and CFL to operate account tagged as client margin account whereby they can: (i) open a new demat account and tag it as client margin account; (ii) create pledge on client securities for the purpose of giving them loan, return these securities on repayment thereof by the client and invoke the pledge in case of default by the client; (iii) sell client securities from the client margin account on account of default by client to pay the margin money or repay the loan; (iv) transfer client's securities from their beneficiary accounts (that have been frozen) to the newly created client margin account pursuant to the satisfaction of the depository that these securities pertain to clients; (v) close or invoke any existing pledge/lien marked to their beneficiary accounts.

5. The above interim reliefs were granted subject to the following: I. no proprietary dealing or buy or sale of securities in proprietary capacity shall be made from their newly created margin account; II. in case of sale of securities from the client margin account, CIL and CFL has to satisfy the exchange/depository that the securities pertains to the client who has defaulted to pay the margin money or repay the loan amount. III. sale of client's shares from the client margin account shall be under the supervision of the stock exchange/depository. IV. CIL and CFL comply with requirements of the stock exchange/depository, if any, in this regard. V. an audit trail may be maintained for each and every transaction in the said demat account. 6. Subsequently, the noticees being NBFCs and stock broker have represented that exposing their portfolio of securities held by them in their demat accounts to any adverse movement in the market may affect their financial as well as operational stability in the market that may cause unnecessary hardship to them and is therefore avoidable. Further, their businesses have been suffering for lack of working capital and that they are unable to utilize the proceeds of genuine investments made by them through legal means for business purposes or their urgent personal and professional needs.

In view of the same, vide separate letters dated January 15, 2016, the noticees were allowed: (i) to subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed; (ii) to avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc. (iii) to sell the securities lying in your demat accounts as on the date of the interim order, other than the shares of the companies which are suspended from trading by the concerned stock exchange, in orderly manner under the supervision of the stock exchanges so as not to disturb the market equilibrium and deposit the sale proceeds in a interest bearing escrow account with a nationalised bank. (iv) to utilise and deal with the sale proceeds, lying in the aforesaid escrow account under the supervision of the concerned stock exchange, as provided hereunder:- (a) the sale proceeds may be kept in a fixed deposit with a nationalised bank or may be utilised for subscription to units of the mutual funds which shall always be held in the demat form and if such units are redeemed the proceeds thereof shall be credited to the aforesaid escrow account or may be utilised for subscription to the units of mutual funds; (b) the noticees may utilise upto 25% of the value of their portfolio as on the date of the interim order for their business purposes and/or for meeting other exigencies.

(Explanation: For the purposes of determining the portfolio value of the entities, the value of portfolio of securities lying in the demat account/s (individual and joint both) on the date of the interim order after excluding the value of shares that have been suspended from trading as on the date of the communication shall be considered. For NBFCs and stock brokers the value of portfolio shall exclude the value of clients' securities lying in their demat accounts.) (v) The aforementioned window for sale of shares lying in respective portfolio shall be withdrawn if the noticees execute any trade beyond those mentioned in clause (iii) above. The aforesaid reliefs shall be subject to the supervision of the stock exchanges and depositories. 7. While the matter was under consideration, CIL again filed an appeal before the Hon'ble Securities Appellate Tribunal ("the Hon'ble SAT"),seeking following reliefs: (i) Permission to sell the shares lying in its beneficiary accounts (ii) Permission to deal in securities except the securities issued by First Financial.

(iii) Permission to deal with securities offered by their clients as security for loans extended against securities including invocation of pledge and sale of shares to recover monies in case of default, transfer of shares from its margin account to borrowers margin account where the loan is repaid in full except in the scrip of First Financial. (iv) Permission to redeem and/or transfer of mutual fund units subscribed by them (v) SEBI may be directed to ensure that the interim relief granted to it vide letter dated September 23, 2015 be put into operation without any delay. 8. The Hon'ble SAT, vide its order dated April 04, 2016, disposed of the said appeal with the direction to SEBI to hear CIL once again and pass an appropriate order within two months from the date of the said order and to do the needful so as to implement the directions contained in SEBI letter dated September 23, 2015. As directed by the Hon'ble SAT, an opportunity of hearing was granted to CIL on April 21, 2016 where Mr Ranjit Bhonsale, Advocate appeared and made collective submissions on behalf of the noticees.

During the hearing, the advocate reiterated the submissions made by the noticees in their earlier representations as mentioned above and sought 10 days time to file the written submissions. The noticees filed their written submission to SEBI on May 06, 2016. The replies and submissions of the noticees herein are inter alia summarised as under: (a). The directions passed against the noticees are unnecessary, harsh, disproportionate and in gross violation of the principles of natural justice. No urgency has been shown by SEBI for the restraint since the transactions took place 2 years ago. Thus, the restraint imposed by SEBI on the noticees appears to be penal in nature. Such action in an ex parte manner is not permitted under the Securities and Exchange Board of India Act, 1992 (the SEBI Act, 1992) or the Securities and Exchange Board of India (Stock Broker and Sub Broker) Regulations, 1992. (b). Transfer of funds between First Financial and the noticees were for various purposes that were commercial in nature like lending of funds to First Financial in the capacity of a NBFC, receipt of funds from First Financial towards repayment of loan and interest amount, towards payment of security deposit and monthly rent for the premise taken on rent by First Financial.

Fund was also received by CSL (in its capacity as a stock broker) from First Financial to trade on its behalf in various other listed scrips. (c). Anil Agrawal, the Karta of Anil Agrawal HUF is the promoter and director of the noticees and the HUF is one of the preferential allottees. However, this cannot be the basis to allege that the noticees were connected to First Financial. The profit made by Anil Agrawal HUF is its own and the noticees are in no way concerned with the same or have benefited from the same. Further, Suresh Khandelia and Manju Khandelia were part the promoter group of CFL in the past and currently they do not hold any shares of CFL. (d). The noticees are not concerned about the loan taken by one of their directors, namely, Mr. Jugal Chandrakant Thacker from First Financial. (e). It is not clear how the noticees are connected to First Financial on the basis of appearance of Ranisati Dealer Pvt. Ltd. (“Ranisati”) in the bank statement of CFL since no connections are shown between Ranisati and First Financial. Further, Ranisati borrowed and repaid money to CIL during Patch-1 of examination period and therefore could not have been buyer to any of the sale by the preferential allottees in the scrip of First Financial.

(f). Monies lent by the noticees to entities including First Financial, Lakshya Global Logistics Pvt. Ltd. (“Lakshya”), BLC Trading Agencies Pvt. Ltd. (BLC), Ranisati, Prefer Abasan Pvt. Ltd. (“Prefer”) and ISG Traders Ltd. (“ISG”) was in the course of their businesses as an NBFC. Thus, these entities are not connected to the noticees except as constituents and their transactions with them have been commercial in nature. (g). The noticees are not connected with First Financial or any of the preferential allottees (other than Anil Agrawal HUF) or with the persons or entities that are mentioned in the interim order (except for the transactions/relations with few entities including First Financial that are commercial in nature and incidental to it being a stock broker or NBFC) (h). Out of the total buyers listed in the interim order, only 8 buyers purchased shares of First Financial through CSL which was nothing but a coincidence. (i). The noticees have neither played any role in the preferential allotment of shares by First Financial nor have traded in the shares of First Financial. Further, the noticees are neither concerned with the trades between the preferential allottees and the entities of First Financial Group (as described in the interim order) nor concerned with the profit made by any of the preferential allottees.

(j). There is no allegation of misuse of the securities market or violation of the provisions of the PFUTP Regulations or the SEBI Act as alleged in case of preferential allottees and the First Financial Group in the said interim order. (k). The noticees have prayed that directions against them be revoked immediately and they may be discharged from the present proceedings and pending completion of investigation in the matter: (i) the noticees be permitted to redeem and/or transfer mutual funds units subscribed to by them.

(ii) CSL be permitted to: - carry on the activities of market maker; - carry on the activities of merchant banker in the SME segment; - trade in its proprietary account except in the scrip of First Financial; - sell the shares lying in the beneficiary accounts; and - deal with the securities to rectify errors while trading on behalf of the clients. (iii) In their capacity as NBFCs, CIL and CFL be permitted to deal in securities including pledge, sale and transfer of securities offered by their clients as security for loans, redeem and/or transfer of mutual fund units and trade in securities except in the scrip of First Financial. (iv) During hearing held on April 21, 2016 the noticees submitted that SEBI, in its order dated April 20, 2015 in respect of First Financial has already noted that transfer of `11 crore to the Comfort Group entities and receipt of `4 crore from the Comfort Group, is a typographical error and being mentioned inadvertently instead of `3,78,36,757 and 30,53,197 respectively. Hence, the allegations in this regard are not correct. 9. In this case the several requests of the noticees seeking certain reliefs have already been disposed of by granting them permissible interim reliefs and communicated vide letters dated September 23, 2015, January 07,2016 and January 15,2016.

In this regard, vide its letter dated May 06,2016, CIL has raised certain concerns with regard to mode/route, suggested to them by the stock exchanges for implementation of interim relief granted to them vide letter dated January 15, 2016. I note that these concerns relate to implementation of interim relief already granted to the respective noticees and are administrative or operational in nature and applicable to all the concerned entities in general. These concerns have been dealt with separately with stock exchanges/depositories. 10. Now at this stage, in view of submissions made by the noticees and in the facts and circumstances so far brought on record, the limited issue to be considered is whether the direction in the interim order qua the notices need to be continued, revoked or modified in any manner. 11. I have carefully considered the allegations and the submissions of the noticees herein and have perused the relevant documents and material available on record. Before dealing with submissions of the noticees on merit it is deemed necessary to deal with the preliminary contentions raised by them.

The first such contention is that the interim order has been passed in complete disregard of the principles of natural justice in as much as no opportunity of hearing was provided to the noticees. In this regard, I note that the interim order has been passed on the basis of prima facie findings observed during the preliminary examination/inquiry undertaken by SEBI. The facts and circumstances necessitating issuance of directions by the interim order have been examined and dealt with in the said interim order. The interim order has also been issued in the nature of show cause notice affording the noticees a post decisional opportunity. This position has been upheld in various judgements of the Hon'ble SAT, the Hon'ble High Courts and the Hon'ble Supreme Court. Relevant portions of few such judgments are referred to hereinafter:- (a) Hon'ble Bombay High Court in Anand Rathi & Others Vs. SEBI (2002 (2) BomCR 403 upheld the procedure of post decisional hearing in such matters and observed as under: "31. It is thus clearly seen that pre decisional natural justice is not always necessary when ad-interim orders are made pending investigation or enquiry, unless so provided by the statute and rules of natural justice would be satisfied if the affected party is given post decisional hearing.

It is not that natural justice is not attracted when the orders of suspension or like orders of interim nature are made. The distinction is that it is not always necessary to grant prior opportunity of hearing when ad-interim orders are made and principles of natural justice will be satisfied if post decisional hearing is given if demanded. 32. Thus, it is a settled position that while ex parte interim orders may always be made without a pre decisional opportunity or without the order itself providing for a post decisional opportunity, the principles of natural justice which are never excluded will be satisfied if a post decisional opportunity is given, if demanded." (b) Hon'ble High Court of Judicature for Rajasthan at Jaipur in the matter M/s. Avon Realcon Pvt. Ltd. & Ors Vs. Union of India & Ors (D.B. Civil WP No. 5135/2010 Raj HC) has held that: “…Perusal of the provisions of Sections 11(4) & 11(B) shows that the Board is given powers to take few measures either pending investigation or enquiry or on its completion. The Second Proviso to Section 11, however, makes it clear that either before or after passing of the orders, intermediaries or persons concerned would be given opportunity of hearing.

In the light of aforesaid, it cannot be said that there is absolute elimination of the principles of natural justice. Even if, the facts of this case are looked into, after passing the impugned order, petitioners were called upon to submit their objections within a period of 21 days. This is to provide opportunity of hearing to the petitioners before final decision is taken. Hence, in this case itself absolute elimination of principles of natural justice does not exist. The fact, however, remains as to whether post-decisional hearing can be a substitute for pre-decisional hearing. It is a settled law that unless a statutory provision either specifically or by necessary implication excludes the application of principles of natural justice, the requirement of giving reasonable opportunity exists before an order is made. The case herein is that by statutory provision, principles of natural justice are adhered to after orders are passed. This is to achieve the object of SEBI Act. Interim orders are passed by the Court, Tribunal and Quasi

Judicial Authority in given facts and circumstances of the case showing urgency or emergent situation. This cannot be said to be elimination of the principles of natural justice or if ex-parte orders are passed, then to say that objections thereupon would amount to post-decisional hearing. Second Proviso to Section 11 of the SEBI Act provides adequate safeguards for adhering to the principles of natural justice, which otherwise is a case herein also…" 12. I, therefore, do not find any violation of principles of natural justice while passing the interim order as has been contended by the noticees herein. 13. The noticees have raised another preliminary contention that no emergency situation existed warranting such an ex parte ad-interim order. It may be noted that the time taken to arrive at such decision/action is dependent on the complexity of the matter, its scale and modus operandi involved and other attendant circumstances. The power under section 11 and 11B of the SEBI Act, 1992 can be invoked at any stage, i.e. either during pendency or on completion of enquiry/inquiry or investigation.

In this case, as discussed hereinabove, the purpose of the interim order is to achieve the objectives of investor protection and safeguarding the market integrity by enforcing the provisions of the SEBI Act, 1992. I, therefore, do not find any merit in the contention of the noticees in this regard. 14. Having dealt with the preliminary contentions of the noticees, I now proceed to deal with submissions of the noticees on merit. It is alleged in the interim order that the noticees had received `1,30,00,000 out of proceeds of the first preferential allotment and `2,48,36,757 out of proceeds of the second preferential allotment. It is further alleged that certain entities, who had received funds from First Financial after the preferential allotments, had transferred the funds back to First Financial and a major part of the funds so received by First Financial was transferred to the noticees. The interim order further states that approximately `11 crore had been transferred to the noticees by First Financial and `4.10 crore had been received back by First Financial during the Examination Period.

In this regard, it has now been brought on record that the said `11 crore includes the aforesaid receipt of `1,30,00,000 out of proceeds of the first preferential allotment and `2,48,36,757 out of proceeds of the second preferential allotment by the noticees. The said amount of `11 crore also includes the funds received from First Financial other than the proceeds of preferential allotment. It is worthwhile to mention here that approximately `11 crore had been transferred to the noticees by First Financial and `4.26 crore had been received back by First Financial. A summary of such funds flow extracted from the bank statements of First Financial is given as following:

Table I: Year-wise funds flow between First Financial and noticees Year Noticees To First Financial (in `) From First Financial (in `) 2011 CFL - 91,72,347 CIL - 90,00,000

2012 CIL 2,75,00,000 3,85,00,000 CSL 50,92,778 5,26,41,679 2013 CIL - 5,61,668 CSL - 99,059 2014 CIL 1,00,00,000 89,187 CSL - 20,224 TOTAL 4,25,92,778 11,00,84,164

15. CIL and CFL have contended that they had entered into separate loan agreements (dated March 29, 2011 and dated July 15, 2011, respectively) with First Financial for providing it loans to the tune of `4 Crore and `90 lakhs, respectively in their ordinary course of business as NBFCs and the fund transfers by First Financial to them as alleged in the interim order were by way of repayment of the said loans. In this regard, it is noted that as per Annual Reports of First Financial from 2010 to 2014, its directors were taking care of its operations and the company was planning to appoint more staff to improve its business. It is, however, noted that the loan agreements relied upon by CIL and CFL were signed by one “Gajendra Mishra” (as an authorised representative of First Financial) who was not its director/employee at the relevant time. It is also neither claimed nor proved by these noticees that said “Gajendra Mishra” was having authority of First Financial to execute such agreements. In view of this fact, this claim remains unsubstantiated and is, therefore, rejected. 16. CIL has claimed that, prior to the Examination Period, an amount of `3.75 crore was lent by it to First Financial as mentioned hereinafter: Table II: Disbursement to First Financial Sr. No. Date Amount Disbursed (`) 1 04/03/2011 34,22,320 2 07/03/2011 65,77,680 3 25/02/2012 1,90,00,000 4 28/02/2012 85,00,000 Total 3,75,00,000 17. From the bank statement submitted by CIL it is seen that there is no debit to show disbursement of funds to First Financial (as mentioned in above Table-I) to the tune of `1 crore on two occasions, i.e., `34,22,320 on March 04, 2011 and `65,77,680 on March 07, 2011. The bank statement of First Financial also does not show any receipt of such funds by it from CIL on these dates. Thus, the claim of CIL that it had disbursed total `1 crore as loan to First Financial on March 04, 2011and March 07, 2011 is not supported by any documentary evidence and hence, can not be accepted. 18. CIL has further claimed that its loan of `3.75 crore as well as interest thereon was repaid by First Financial to it prior to as well as during the Examination Period in the following manner:

Table III: Repayment by First Financial Sr. No Date Particulars Amount repaid (`) 1 27/04/2011 Interest payment 1,12,596 2 07/07/2011 Interest payment 4,05,000 3 04/10/2011 Interest payment 1,55,000 4 04/11/2011 Interest payment 2,49,666 5 28/02/2012 Repayment of Loan 1,65,00,000 6 29/02/2012 Repayment of Loan 75,00,000 7 05/03/2012 Repayment of Loan 3,50,000 8 31/03/2012 Repayment of Loan 75,00,000 9 20/06/2012 Repayment of Loan 10,00,000 10 22/06/2012 Repayment of Loan 10,00,000 11 31/07/2012 Repayment of Loan 5,00,000

19. From the above Table, it is noted that interest totaling to an amount of approximately `9.18 lakh was paid by First Financial to CIL during April 2011 to November 2011, i.e., much prior to the actual disbursal of loan on February 25, 2012 and February 28, 2012. From the bank account statement submitted by CIL it is noted that First Financial had not made any payment to it during April 2011 to November 2011 much less towards any interest payment as claimed by CIL. Hence, CIL has failed to substantiate such claimed payments with any documentary evidence such as its bank account statement. In fact, the bank statements of First Financial also do not show any such payments made by it to CIL. I, therefore, reject this claim that First Financial had paid the aforesaid amount of `9.18 lakh during April 2011 to November 2011 towards interest on any pre-existing loan. 20. It is noted that total amount of `2.75 crore was paid by CIL to First Financial on February 25, 2012 and February 28, 2012 as stated in above Table -1. However, it is intriguing to note that the major part (i.e., `2.40 crore) of the amount of `2.75 crore, claimed to have been disbursed by CIL to First Financial on February 25, 2012 and February 28, 2012, was repaid by First Financial on February 28, 2012 and February 29, 2012, i.e., on the date of disbursal of a part of claimed loan itself or on the next date.

This type of financing transaction creates suspicion about its true purpose and can not be just a coincidence. I, therefore, find that CIL is not able to offer any plausible explanation with regard to transfer of said amount of `2.40 crore from First Financial to CIL. 21. In addition to its above claims, CIL has also claimed that an amount of `1 crore was received by it from First Financial towards the security deposit for leasing of a commercial property to First Financial at Kolkata at monthly rent of `15,000/- in terms of a Commercial Lease Agreement dated December 14, 2011 and the said Commercial Lease Agreement was terminated in January 2014 when CIL had returned the said amount of security deposit to First Financial. From the copies of its bank account statement for the month of December 2011 and January 2012 submitted by CIL it is noted that CIL had received total `1 crore from First Financial (i.e., `90 lakh on December 14,2011 and `10 lakh on January 28, 2012). CIL has not furnished any bank account statement that could show refund of said security deposit as claimed by CIL.

However, from the bank account statement of First Financial it is noted that during February 2014 to April 2014 total `1 crore was paid by CIL to First Financial in the following manner:- Date Amount ( `) 06/02/2014 15,00,000 07/03/2014 15,00,000 28/04/2014 30,00,000 30/04/2014 40,00,000 Total 1,00,00,000 22. Even if it is to be assumed that the aforesaid amount was initially paid by First Financial to CIL towards the security deposit for leasing of the commercial property First Financial should have paid agreed rent of `15,000/- per month and maintenance charges to CIL till January 2014 when said Commercial Lease Agreement was terminated according to CIL. CIL has relied upon its ledger statement to show entries towards receipt of maintenance charges, etc. Such ledger entries are not supported by any bank account statement. Thus, CIL has failed to prove receipt of rent and maintenance charges on the basis of any credible evidence such as bank account statement. It is further noted from the records that the registered office of CFL was having the similar address as that of the property leased to First Financial by CIL.

In view of these facts and circumstances, I find that the claim of CIL regarding leasing of the said property to First Financial is not substantiated at all. 23. With regard to allegation of receipt of a part of proceeds of preferential allotments by it from First Financial, CFL has claimed that it had lent `90 lakh to First Financial in the ordinary course of business as an NBFC pursuant to the loan agreement dated July 15, 2011 which, subsequently, First Financial returned to it with interest. In support of this claim CFL has submitted a copy of the loan agreement dated July 15, 2011 and its Form 26AS for the Assessment Year 2012-13 claiming deduction of tax by First Financial from the interest on the aforesaid loan. It is noted that CFL has not furnished the date of disbursal of any such loan and has failed to furnish any credible evidence such as its bank account statement showing such disbursal of loan pursuant to loan agreement dated July 15, 2011. First Financial had transferred an amount of `91,72,347 to CFL between October 03, 2011 and December 14, 2011, from the proceeds of the preferential allotment which CFL, in its submission, claims to be a repayment of the purported loan availed by First Financial from it.

Such financial transaction clearly establishes connection between First Financial and CFL. This apart, it is relevant to mention that this unexplained financial assistance purportedly availed by First Financial in July 2011, that is around the time when the scheme of preferential allotment was orchestrated, can not be just a coincidence. I, therefore, do not accept this claim of CFL. 24. I further note that apart from aforesaid financing certain additional factors have also been relied upon in Table VII of the interim order to indicate connection amongst noticees and First Financial. One of such additional factors is that Mr. Jugal Chandrakant Thacker (one of the directors of the noticees) had received a sum of `15 lakh from First Financial on February 25, 2013. In this regard, CIL has claimed that Mr. Jugal Chandrakant Thacker (its independent director) had borrowed the said money from First Financial in his personal capacity on February 25, 2013 and that loan was repaid by him with interest on March 25, 2014. From statements of two bank accounts of Mr. Jugal Chandrakant Thacker submitted by CIL, it is noted that there was debit of total `15 lakh from the said bank accounts in favour of First Financial as claimed but there was no interest payment on said loan.

Thus, this type of fund arrangement, i.e., interest free loan indicate the connection between First Financial and Mr. Jugal Chandrakant Thacker during 2013 and 2014. At this stage, there is no allegation that Mr. Jugal Chandrakant Thacker was party to any aspect of entire scheme alleged in the interim order and there is even no material to prima facie indicate utilistaion of this money lent by First Financial to independent director of CIL in the scheme in question. However, certain facts such as financial transactions between First Financial, CFL and CIL during 2011-12 and later in February 2013 fund transfer (interest free) by First Financial to an independent director of the noticees near to the time when preferential allottees started exiting /selling the shares of First Financial create doubt and suspicion about veracity of such fund transaction and needs further investigation. 25. As per the interim order, Ranisati, Prefer and Padma Impex Pvt. Ltd. (Padma) are alleged to have acted as exit providers to certain preferential allottees in this case. Ranisati had fund transactions with CIL and CFL and Prefer had fund transactions with CIL in the year 2011 and 2012. As mentioned in Table III of the interim order Ranisati and Bina Hemanshu Mehta are major shareholders of Padma.

First Financial had transferred total amount of `2.42 crore out of the proceeds of preferential allotment to Bina Hemanshu Mehta between September 8 to 14, 2011. With regard to its fund transactions with Ranisati, CIL and CFL have admitted to have lent money to Ranisati from time to time in the ordinary course of business as NBFC. However, they have not substantiated such contention on the basis of any evidence such as copy of loan agreement, bank account statement, etc. It is further noted that while in its letter dated January 27, 2015 CIL had denied any relation with Ranisati, whether commercial or otherwise, in its letter dated September 09, 2015 it has submitted that it had lent about `3.8 crore to Ranisati during Patch I that were being repaid during the same period. It is noted from the copy of Form 26AS of CIL for the Assessment Year 2011-12 that Ranisati had deducted TDS on interest paid to CIL during the Financial Year 2010-11 which clearly indicates that CIL had financial transaction with Ranisati even prior to Patch I. Similarly, in case of fund transfer with Prefer, CIL vide its reply dated January 27, 2015, has claimed to have lent monies to Prefer as an NBFC whereas in its reply dated September 09, 2015, it has claimed that an amount of `1 crore was paid by it to Prefer as advance on December 29, 2011 for purchase of property from Prefer by it that failed to fructify.

Such self contradictory submissions of CIL raise doubt on the veracity of its claim. Further, these facts establish connection of Ranisati with CIL and CFL and connection of Prefer with CIL. 26. With regard to alleged fund transfers from CIL to Lakshya, whose director is from amongst the preferential allottee and one of the debarred entities in interim order, CFL has claimed that the fund transfer on April 30, 2012 and June 06, 2012 amounting to `1 crore was a loan from it to Lakshya in the ordinary course of business. However, CFL has failed to substantiate this claim on the basis of any credible evidence. The ledger statement relied upon by it is self prepared internal document and can not establish such claim in absence of relevant documents such as bank statement, loan agreement, etc. Thus the claim of CFL remains unsubstantiated and hence rejected. Be that as it may, I note from the available records that there were fund transactions of Lakshya with CFL during 2012 and 2013 and Lakshya with First Financial during September 2012. These fund transactions between Lakshya with CFL and Lakshya with First Financial not only show connection between them but occurrence of these transactions at the relevant time i.e when the alleged scheme was operational indicate that these fund transactions has certainly a role to play in the whole scheme of affair and cannot be a mere coincidence.

This is corroborated with the fact that the directors of Lakshya were allottees in the preferential allotment of First Financial as noted in Table VII of the interim order and were ultimate beneficiaries to the scheme in question. Thus such unexplained fund transactions amongst connected entities, during the period when the scheme in question was orchestrated, is also doubtful and needs investigation to find out their significance in alleged scheme in question. 27. CSL has contended that funds received from First Financial were towards the purchase and sale of shares by First Financial through them. As admitted by CSL, the fact that a part of the proceeds of second preferential allotment money was transferred to CSL who acted as broker to First Financial in itself suggest the connection between CSL and First Financial. This apart, it is also worth to note that CSL had acted as a merchant banker/consultant to the preferential issue by First Financial. This fact further corroborates the connection between CSL and First Financial. With regard to usage of this fund received by CSL from First Financial it is not clear from the ledger statement furnished by CSL, that these funds were used exactly for the purchase of shares as claimed by it as no mapping of funds (i.e., date-wise receipt vs date-wise utilisation) has been provided.

Such unexplained fund transaction amongst CSL and First Financial during the time when the alleged scheme was orchestrated and was in operation coupled with involvement of one of their group company's director Mr. Anil K. Nevatia in determining the price of shares for allotment in the preferential issue along with other facts and circumstances as discussed hereinabove strongly suggest CSL's involvement in the scheme in question. 28. I note from the interim order that the fund transfers between CIL, CFL, other entities as brought out in Table VII of the interim order and First Financial had two facets. One, to demonstrate connection between them and the other to show prima facie role of the noticees in the preferential allotments by First Financial. As discussed hereinabove, there were unexplained financial transactions between CIL, CFL and First Financial. Such financing transactions, in my view, can happen only if the parties are connected with each other. 29. As regards, the allegation that the noticees had played a key role in the whole process of preferential allotments that had resulted into huge profitable exit to the preferential allottees it is noted that this allegation is based upon the connection between CIL, CFL and First Financial, exit providers, viz. Ranisati and Prefer and following facts and circumstances:- (a) Money received through two preferential allotments was immediately transferred by First Financial to several entities including the noticees.

Further, several other entities who had received funds from First Financial after the preferential allotment had later transferred those funds back to First Financial and the said funds were further transferred by First Financial to various entities and majorly to noticees herein; (b) Mr. Anil Agrawal is the promoter/director of the noticees and karta of Anil Agrawal HUF. The said HUF has subscribed to the preferential allotment of equity shares orchestrated by First Financial. Further, Mr. Suresh Khandelia and Ms. Manju Khandelia, two promoters of CFL at the relevant time had also subscribed to the preferential allotment of equity shares orchestrated by First Financial. (c) Further, CSL had acted as a stock broker for some of the preferential allottees and exit providers for their trades in the scrip of First Financial during Patch 2 of the Examination Period. 30. With regard to receipts of a part of proceeds of preferential allotments, as discussed hereinabove the noticees have failed to give any plausible reply. It is noted that, during the period September 2011 - April 2012, total approximately `11 crore were received by the noticees from First Financial.

Out of this total amount, `3,78,36,757 were received from the proceeds of preferential allotments directly from First Financial. The noticees had also received monies out of proceeds of preferential allotments from First Financial once it was routed back to it by other entities who had received the same from First Financial. It is undoubtedly clear that approximately `11 crore received by the noticees includes the amounts from proceeds of preferential allotments so received by the noticees and other amounts received by First Financial from other entities and then transferred to the noticees. CIL and CFL, at this stage have failed to explain the purpose for which this amount was received by them from First Financial. Similarly, as discussed above, CSL has not clearly demonstrated by showing date-wise receipt of funds vs date of purchase of specific shares out of such funds. 31. Admittedly, Mr. Anil Agrawal was the common promoter of the noticees at the relevant time. CFL, vide its letter dated January 15, 2015, has admitted that Mr. Suresh Khandelia and Ms. Manju Khandelia were part of the promoter group of CFL in the past.

From the shareholding pattern disclosed by CFL on BSE it is noted that Mr. Suresh Khandelia and Ms. Manju Khandelia were its promoters having total 1.84% shareholding in CFL from December 2012 to September 2013. Mr. Anil Agrawal HUF, Mr. Suresh Khandelia and Ms. Manju Khandelia had subscribed to the preferential allotments of First Financial. Being the preferential allottees who sold shares allotted to them after lock-in period under the alleged fraudulent scheme, they were the beneficiaries of the alleged scheme in question. They have also been separately debarred by the interim order for this reasons. 32. With regard to the allegation that CSL had acted as stock broker for certain exit providers, i.e., buyers, it has contended that only 8 buyers out of total 57 buyers have purchased the shares of First Financial through it which was nothing but a coincidence. In this regard, it is noted that during the Examination Period, total of 25 entities had traded in the scrip of First Financial through CSL out of which 17 entities were preferential allottees and the remaining 8 entities were the exit providers/buyers.

The fact that CSL being broker to 25 entities (17 beneficiaries and 8 exit providers) for their trading in the same scrip (i.e., First Financial) during same point of time under the alleged scheme cannot be merely coincidence and would be possible because of concerted action amongst CSL and its such clients. 33. As per the interim order Mr. Anil K. Nevatia is the director of Comfort Group and also the director of Splash Media & Infra Ltd in which First Financial has invested during the examination period. In this regard it is further noted that later on Mr. Anil Agrawal HUF along with CIL and CFL became promoter of Splash Media & Infra Ltd with 49% shareholding along with management control. It is also gathered that Mr. Anil K. Nevatia, in his capacity as Chartered Accountant, has submitted the valuation certificate of First Financial to BSE for pricing of its equity shares issued on preferential basis.

34. It is noted that between August 10, 2011 and October 29, 2012 CIL and CFL had transferred funds to as well as received funds from exit providers namely, Ranisati and Prefer. These fund transactions had happened prior to the period when these exit providers traded in the scrip during the year 2013. Such financial transactions have not been satisfactorily explained and need further investigation. 35. Considering the facts and circumstances as discussed above especially unexplained and suspicious fund transfer from First Financial to the noticees, the promoters/directors of the noticees that are beneficiaries in the scheme of preferential allotment prima facie employed to provide bogus LTCG benefits to the allottees, connection of noticees with exit providers as well as with certain other preferential allottees and the series of other transactions as mentioned in the interim order strongly indicate crucial involvement of the noticees in the scheme/device/ artifice in question.

36. In view of the above, I find that the noticees have not been able to make out a prima facie case or show any balance of convenience in their favour for revocation of the interim order. Further, reasonable interim reliefs as mentioned hereinabove have already been granted to them. I am also of the view that the facts and circumstances of this case and the material available on record justify the continuation of the directions except as allowed hereinabove. 37. I, therefore, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issued vide ad-interim ex-parte order dated December 19,2014 against the noticees subject to interim reliefs already granted to them.

38. A copy of this order shall be served on all recognized stock exchanges and depositories.

Sd/- DATE: JUNE 2nd, 2016 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA