Order in respect of Representation of Ms. Rohini Vijaysingh Patwardhan in the matter of Mishka Finance and Trading Limited.;[SAT Appeal No.83 /2017]

WTM/GM/ISD/13/FEB/2017 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER In the matter of Mishka Finance and Trading Limited Representation dated January 17, 2017 -Ms.Rohini V. Patwardhan (“the Noticee”) In continuation of orders dated April 17, 2015, July 05, 2016, August 26, 2016 & September 26, 2016.

Background 1. Securities and Exchange Board of India ("SEBI"), vide an ad interim ex-parte order dated April 17, 2015 (hereinafter referred to as “interim order”) in the matter of Mishka Finance and Trading Ltd (hereinafter referred to as “Mishka”), restrained 129 entities, from accessing the securities market and further prohibited them from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever, till further directions.

2. The directions issued by SEBI vide the abovesaid interim order, were confirmed vide order dated July 05, 2016 (hereinafter referred to as “the confirmatory order”) qua the noticee subject to certain relaxations as mentioned therein. Subsequently, the noticee filed an appeal before the Hon’ble Securities Appellate Tribunal (“SAT”) challenging the confirmatory order. While the said appeal was pending before the Hon’ble SAT, SEBI passed an order dated August 26, 2016 confirming the directions issued vide the interim order with respect to other 99 entities subject to certain additional relaxations mentioned therein and the same was also extended to the noticee. When the aforesaid appeal came up for hearing on August 30, 2016, Hon’ble SAT directed noticee to make a fresh application before SEBI. Thereafter, the noticee vide letter dated September 1, 2016, filed a fresh application / letter and as per the direction of Hon’ble SAT, a clarification to SEBI confirmatory order dated August 26, 2016 was issued vide order dated September 26, 2016.

3. Noticee again filed an appeal and Hon’ble SAT vide its order dated December 29, 2016 noted as under: “….. it has been fairly submitted by the Appellant, without prejudice to her other submissions, that even if she is found guilty after investigation is completed by the Respondent in its entirety, the Appellant’s liability would not go beyond Rs. 2.00 crores in any case in having her executed trades in the scrip of Mishka. In view of this, the Appellant submits that the Respondent erroneously attached her assets and those of her paralysed husband’s assets worth more than Rs. 7 crores. It is therefore, prayed that the Appellant’s investment attached in excess of Rs. 2 crores, in any event, ought to be released by the Respondent. We see some force in this submission and accordingly, direct that, if so advised, the Appellant may make a representation before SEBI to that effect, which shall be considered by SEBI within four weeks of the filing of the representation and appropriate order shall be passed in accordance with law in this regard.”

4. I have noted that after the ad interim ex-parte order dated April 17, 2015, the noticee was granted following reliefs vide letter dated January 20, 2016, which were later extracted and made part of the order dated July 5, 2016 :- 1. “to subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed; 2. to avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc. 3. 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. 4. the sale proceeds lying in the aforesaid escrow account shall be dealt with and utilised 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. 5. The aforementioned window for sale of shares lying in respective portfolio shall be withdrawn if you execute any trade beyond those mentioned in point (3) above. The aforesaid reliefs shall be subject to the supervision of exchanges and depositories. The concerned depositories / exchanges may be contacted in this regard.

……. …to utilise upto 25% of the value of your portfolio as on the date of the interim order for your business purposes and/or for meeting other exigencies.”

5. Based on the representation of the noticee, further reliefs were granted in respect of securities jointly held by her (as a second holder) with her husband,vide letters dated May 16, 2016 and June 09, 2016. These relaxations were also mentioned in the order dated July 5, 2016. Relevant portion of the said letter is reproduced here: “ 1 ……………………………. 2 … Competent Authority has permitted you to sell/redeem those mutual fund units, which are shown in Mr. VijaySingh Patwardhan's name while filing the Income Tax Return for the Financial Year 2013-14 and in the CA certified balance sheet of Mr. VijaySingh Patwardhan as on March 31, 2015, and in which you are appearing as second holder and Mr. VijaySingh Patwardhan is appearing as first holder. The concerned Mutual Fund Houses may be contacted in this regard.

3 Further, Competent Authority has also permitted you to transfer those securities, which are shown in your husband's name as per the balance sheet as on March 31, 2015 duly certified by Chartered Accountant, from the demat account, held jointly by you as second holder and Mr. VijaySingh Patwardhan as first holder, to the demat account held in his individual name. The aforesaid relief shall be subject to the supervision of exchanges and depositories. The concerned depositories / exchanges may be contacted in this regard." 6. I, also note that vide orders dated August 26, 2016 & September 26, 2016, the noticee was granted the following further reliefs :- i) enter into delivery based transactions in cash segment in the securities covered in NSE Nifty 500 Index scrips and/ or S&P BSE 500 scrips; ii) subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed; iii) deal in Debt/Government Securities; iv) invest in ETF v) avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc.; vi) tender the shares lying in their demat account in any open offer/delisting offer under the relevant regulations of SEBI; Further considering business and personal exigencies and liquidity problems submitted by the restrained entities I allow them further relaxations/reliefs as under:- (a) They are permitted to sell the securities lying in their 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 an interest bearing escrow account with a nationalized bank. (b) They may deal with or utilize the sale proceeds lying in the aforesaid escrow account under the supervision of the concerned stock exchange provided as under:- i. the sale proceeds may be utilised for investments permitted in para 84; ii. upto 25% of the value of the portfolio as on the date of the interim order or the amount* in excess of the profit made /loss incurred or value of shares purchased to give exit, whichever is higher, may be utilized for business purposes and/or for meeting any other exigencies or address liquidity problems etc.

* The amount will include the value of portfolio in the demat account.

Explanation 1 - For the purposes of determining the portfolio value of the entities except Ms. Rohini Vijaysingh Patwardhan and Vimal Banawarilal Jain, 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.

Explanation 2 - With respect to Ms. Rohini Vijaysingh Patwardhan and Vimal Banwarilal Jain, it is clarified that for the purposes of determining the portfolio value of the entities, the value of portfolio of securities lying in the demat account/s, in which they are the first holder, 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. Representation 7. Pursuant to the directions of Hon’ble SAT vide order dated December 29, 2016, the noticee filed a representation to SEBI on January 17, 2017 and an email dated February 3, 2017, stating inter alia as under :- …….. a) Though your order dated August 26, 2016 and clarification vide order dated September 26, 2016 allow me to withdraw my investments under the supervision of the Exchanges and allow me to invest and deal as mentioned in Para 84 of the order dated August 26, 2016 the same is subject to supervision of the Exchange and with some restraints. b) The Exchanges have gone ahead to put in place a procedure whereby I have to inform them about my transactions to be executed one day in advance and also involve custodians who seek to charge Rs. 15000/-per quarter (Rs. 60000/- annually) apart from other charges that I will be required to incur for no cause. A copy of the Exchange Relief Procedure and the fee structure for debarred entities from custodian reflecting the charges is attached as Exhibit 2 and 3 for your ready reference. c) Further, as on date, I hold my investments in MFs in physical form, which, when released, should be allowed to be continued in physical form and should not have to be mandatorily dematerialised as directed in your order dated August 26, 2016. d) Requirement of maintaining Escrow Account may be withdrawn as shares worth Rs. 2 crores will remain in the demat account under freeze. e) So in light of the direction of the Hon,ble SAT dated December 29, 2016, which found merit in my submissions even after going through the relief already offered to me by your orders, it can be construed that the relief needs to be more complete and should not be under restrictions or involve incurring additional costs in perpetuity for no reason what so ever. 8. The noticee in the said representation dated January 17, 2017 therefore requested for the following reliefs:

I. Complete unconditional access should be allowed to all her investments in excess of Rs. 2.00 crores. For this, she shall retain investments of Rs. 2.0 crores in the demat account already under freeze. II. To be permitted to open a new demat account and allow balance securities to be moved to that new demat account which is not subject to any freeze or restraint. III. She may be permitted to hold and redeem MFs in physical form and should not be mandatorily dematerialised as directed in the order dated August 2016. IV. She would abide by the directions of exchanges for opening a new trading account to generate a new unique client code for her future transactions. V. To be allowed to transact freely as before, but she will abide by the investment directions as recorded in para 84 of SEBI order August 26, 2016 in the matter of Mishka. VI. To issue appropriate directions to exchanges, depository participants and mutual funds to implement aforesaid reliefs at I to IV with immediate effect without any further delay.

9. Subsequent to the said representation, the noticee had sent an e-mail on 3rd February, 2017 primarily reiterating her difficulties that were narrated in the earlier representation. Additionally, the noticee had also sought permission to acquire MFs in physical form and appropriate direction to be issued to all MFs in this regard.

Consideration 10. I have carefully considered the representation made by the noticee. The question that arises for consideration is whether unconditional access should be allowed to the noticee to deal in her frozen demat account excluding the separate carve out of investment valued at Rs. 2 crores (approximate) being the alleged profit amount. 11. The interim order was passed in view of the prima facie findings about a scheme/device or artifice involving a façade of preferential issue of equity shares of Mishka in order to provide fictitious Long Term Capital Gains ("LTCG") to preferential allotees and promoter related entities (i.e. entities to whom Mishka’s promoters directly/indirectly transferred their shares in physical form). It was observed that after the expiry of compulsory lock-in period, the preferential allotees, their transferees and the promoter related entities were provided exit at an artificially inflated price by the entities related/connected amongst themselves and with Mishka, by misusing stock exchange system, for making unlawful gains and to convert ill-gotten gains into genuine one to avail LTCG.

12. In this connection, it is observed that in order to safeguard the interests of the genuine investors and to protect the integrity of the securities market, the interim order and the confirmatory order, have put certain restraints on several entities, including the noticee based on the prima facie findings against them, pending investigation. The then Whole Time Member of SEBI being conscious of the fact that the restraint order of April 17, 2015, should not cause disproportionate hardship to the entities and in order to avoid erosion in the value of securities due to volatility, to maintain some investment avenue in capital market and to address the need of funds for meeting the business or other exigencies of the debarred entities, granted certain common reliefs vide subsequent orders dated August 26, 2016 to all entities and vide the order dated September 26, 2016, to certain other entities, including the noticee. The relaxations granted are aimed at maintaining balance between providing investment avenues to the debarred entities and safeguarding the interests of genuine investors and protecting the integrity of the securities markets.

13. I have noted from the order dated August 26, 2016 that the noticee by selling four lakh shares presumably made a profit of Rs. 1.977 crores which constitutes about 50 times of the original investment, within a short period of 16 months. In the instant case, it is undisputed that trading in the scrip of Mishka was suspended from January 07, 2002 to May 09, 2012 on account of non-payment of listing fees and during the financial year 2011-12, Mishka had incurred a loss of Rs.12 Lakh. Further, there was no trading in the scrip of Mishka till February

13, 2013. I find that the noticee had invested in Mishka at a time when the company lacked sound fundamentals. Moreover from the order dated July 5, 2016, it appears that the noticee is a promoter related entity and had bought shares of Mishka off market. The role of the noticee and veracity of her submissions are under investigation.

14. Before dealing with the specific requests of the noticee, I wish to clarify that the reliefs allowed in para 85 of the confirmatory order dated 26 August, 2016, so as to meet the business and personal exigencies/ liquidity problems of the restrained entities deal only with the sale of securities lying in their demat accounts as on the date of the interim order excluding the securities of suspended companies. The said para 85 does not deal with securities held as on date of the interim order in the physical form. The noticee is therefore free to continue to hold MFs if the same are in physical form as on the date of interim order. This aspect has been clarified in para 4 (iii) of the order dated 26th September, 2016 passed in a connected representation submitted by the noticee, to the effect that all the entities are free to dematerialize the securities held in physical form and thereafter sell the said securities subject to stock exchange supervision. Thus, only if the noticee intends to sell the MFs she will have to dematerialise the same.

15. Now considering the noticee’s request for dispensing with the supervision at the level of stock exchange over the permitted withdrawals / liquidation of securities and involvement of custodian for this purpose, it is clarified that the noticee can exercise the option either to keep the securities upto the extent mentioned in para 85(b)(ii)of order dated August 26,2016 as securities in her demat account; or sell the securities in her demat account and deposit the sale proceeds upto the extent mentioned in para 85(b)(ii) in an escrow account with a nationalized bank bearing interest. It is clarified that the sale of securities from the demat account would necessarily involve the supervision of the exchanges and the related expenditure of custodian charges, which cannot be dispensed with, in this order. The supervision of the exchanges and the related custodian expenditure cannot be relaxed in favour of the noticee as the same has been made part of the order as a measure to ensure market equilibrium and avoid further manipulations so as to protect the interest of the securities market and investors. The noticee has sought permission to allow her to acquire mutual fund investments in physical form by modifying the requirement of having it in a demat account, as directed earlier. With respect to the noticee's request for acquiring fresh MFs in physical form, it is seen that the relaxations in para 84 of the order dated 26 August, 2016 permits the same and does not stipulate that it should be held in demat form. However, it is clarified that the MFs in physical form though can be bought and held by the noticee freely, the sale of the same should be through her demat account and under the supervision of the exchange. In this connection, it is relevant to emphasise that the generation of LTCG is a fall out of the huge transfers or sales of the securities involved through multiple layers. Therefore, it is all the more important to put in safeguards to ensure that sale of securities after the interim order and before conclusion of the investigation/ enforcement action should not be allowed in the matter in favour of any particular entity.

16. With regard to the relaxations already available to the noticee, I observe from Explanation 2 to 85 (b) of the order dated August 26, 2016 that there is a specific relaxation granted to the noticee to the effect that only those demat accounts where the noticee is the first account holder is covered as part of the restraint order and not those accounts where she is a second account holder. This relief was granted on the basis of specific request made by the noticee as an exception. This relief is over and above the reliefs granted to majority of the other entities covered in the order, whereby their portfolio value is computed by taking account of those securities lying in the demat accounts (individual and joint ) as on the date of the interim order. In other words, in the case of most of the other entities, all demat accounts are affected by the restraint order, irrespective of whether they are the first account holder or joint account holder. Thus the noticee is already enjoying more relaxations than most of the other entities involved in the matter.

17. To sum up, the grounds brought out by the noticee before me to relax all the conditions with respect to withdrawals from her demat account are neither reasonable nor compelling. The ameliorating relief sought by the noticee would effectively tantamount to revoking the order of restraint passed against the noticee amongst others. The grant of relief based on her husband’s health grounds and other difficulties faced by her, as pleaded in her representations would amount to meting out preferential treatment and rendering individualised relief/relaxation, which would not be in the interest of the securities market or the investors. The relaxations sought, if granted, to the noticee at this stage i.e. pending investigation, would undermine the relevance of such restraint orders passed in exercise of statutory powers and would discriminate against other similarly placed entities covered in the orders.

18. In view of the aforesaid, I find that there is no merit in the representation. Accordingly, the requests of the noticee that she should be allowed to sell without any restriction of supervision of the Stock Exchange and without involving the custodians cannot be allowed. Likewise, the noticee’s request to dispense with maintaining an escrow account also cannot be granted.

19. The representation dated January 17, 2017 and e-mail dated 3rd February, 2017 of the noticee stand disposed accordingly.

DATE: February 16, 2017 G MAHALINGAM PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF NDIA