Order in the matter of Dhyana Finstock in respect of Shailesh Baldevbhai Patel and Harshadkumar Baldevbhai Patel

UNDER SECTIONS 11, 11 (4) AND 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 AND IN CONTINUATION OF ORDERS DATED JUNE 01, 2016 AND APRIL 24, 2018 AND IN COMPLIANCE WITH THE ORDER DATED JULY 09, 2019 OF HON’BLE SECURITIES APPELLATE TRIBUNAL - IN THE MATTER OF DHYANA FINSTOCK LIMITED.

In respect of:

Sl. No. Noticees /Name of the entities 1 Shailesh Baldevbhai Patel 2 Harshadkumar Baldevbhai Patel

1. The instant proceedings are arising out of and in compliance with the order dated July 09, 2019 passed by the Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”) in Misc. Application no. 343 of 2019 in Appeal no. 222 of 2017. The Hon’ble SAT, while disposing of the Misc. Application vide its above referred order, have inter alia directed as under: “4. In our opinion, an application for this purpose should be filed before the Whole Time Member. If such an application is filed the Whole Time Member shall decide the same within four weeks. The Misc. Application is disposed of as above.”

2. Pursuant to the aforesaid order of Hon’ble SAT, Mr. Shailesh Baldevbhai Patel and Mr. Harshadkumar Baldevbhai Patel (hereinafter referred to as “the applicants”) have filed a joint application/representation dated July 10, 2019 (hereinafter referred to as “the representations”), praying for release of payment for trades executed on July 27, 2015 in the scrip of Dhyana Finstock Limited (hereinafter referred to as “Dhyana” or “the company”). Therefore, in compliance of the said directions of Hon’ble SAT, I proceed to Order in the matter of Dhyana Finstock Limited dispose of the representations.

3. Before adverting to the representations received in the matter, it is felt imperative to note the background of the matter and same in brief is narrated hereunder.

(a) Certain investors in the securities market, made complaints to Bombay Stock Exchange (hereinafter referred to as “BSE”), stating therein that they had entered into buy trades in the scrip of Dhyana on July 27, 2015, based on investment advice received from 2 websites viz. www.bsebull.in and www.stockaxis.com.

(b) Based on its preliminary analysis, BSE observed prima facie that the case pertains to misuse of stock exchange mechanism in order to generate Long Term Capital Gains (hereinafter referred to as “ LTCG”) by manipulations, wherein prospective buyers were enticed to buy the shares with the ulterior motive of providing exit to few shareholders/preferential allottees of Dhyana. BSE, accordingly, sought permission from Securities and Exchange Board of India (hereinafter referred to as “SEBI”), to withhold the pay-out for the trades executed on July 27, 2015 in the scrip of the Dhyana. Considering the preliminary findings from the analysis carried out by BSE, it was thought fit and proper in the interest of securities market to allow BSE to withhold the pay-out for the trades executed on July 27, 2015 in the scrip of the company. Subsequently, an examination into the trading in the scrip of the company for the period of June 12, 2014 to July 27, 2015, was carried out by SEBI. Consequent to the said examination, SEBI passed an Ad interim ex-parte order dated June 01, 2016 (hereinafter referred to as “the interim order”) inter alia directing that:- “…64. In view of the foregoing, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me in terms of Section 19 read with Section 11(1), 11 (4) and Section 11B of SEBI Act, 1992, pending investigation and passing of final order in the matter, hereby direct as following:– a) BSE shall withhold the pay-out of funds for the trades executed on July

27, 2015 and keep the same in interest bearing escrow account…”

4. I note from the records that vide aforesaid interim order, 76 entities were restrained from accessing the securities market and from buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions. The names of Mr. Shailesh Baldevbhai Patel and Mr. Harshadkumar Baldevbhai Patel, the applicants herein, are found mentioned at Serial no. 51 and Serial no. 52, respectively, in the said list of 76 entities, against whom restraint order was passed.

5. The entities, who were restrained by the aforesaid interim order were granted personal hearing, and eventually, separate confirmatory orders, viz., dated August 24, 2016; October 10, 2016; October 28, 2016; November 01, 2016 and May 26, 2017, have been passed whereby the directions issued vide the above mentioned interim order have been confirmed against 75 entities and revoked against one entity. I further note that the directions issued under the interim order have been confirmed against the two applicants herein vide confirmatory order of SEBI dated May 26, 2017. It is also observed that vide an order dated April 24, 2018, SEBI has revoked the directions issued vide interim order dated June 01, 2016, against 34 entities and allowed the interim directions to continue against remaining 41 entities.

6. Subsequently, after completion of investigation in the matter, a Show Cause Notice dated April 20, 2018 (hereinafter referred to as “the SCN”) has been issued to 81 entities in which the names of Mr. Shailesh Baldevbhai Patel & Mr. Harshadkumar Baldevbhai Patel have been mentioned as Noticee no. 34 and Noticee no. 37, respectively. For the ease of convenience, Mr. Sailesh Baldevbhai Patel will be hereinafter referred to as ‘Noticee no. 34’ and Mr. Harshadkumar Baldevbhai Patel will be referred to as ‘Noticee no. 37’.

7. It is also relevant to mention here that recently SEBI has passed an order dated June 24, 2019 on the basis of a letter dated April 10, 2019 of BSE wherein BSE informed that apart from the 75 entities, whose pay-out for the trades in the scrip of Dhyana executed on July 27, 2015 have been withheld in terms of the interim directions passed by SEBI, the pay-outs of certain other entities for the trades executed in the said scrip on July 27, 2015, also continue to be withheld by them although no action qua those other entities is either pending or initiated as no violations have been observed in the investigation report against such entities. Under the circumstances, by an order dated June 24, 2019, BSE has been directed to release the pay-out of sale proceeds to such other entities for their trades executed on July 27, 2015 in scrip of the company (Dhyana) except for the entities against whom the interim directions are continuing.

8. Coming back to the present proceedings, it is noted that the two applicants herein had approached the Hon’ble SAT by filing a Misc. Application no. 343 of 2019 in Appeal no. 222 of 2017. As noted from para 3 of the order of Hon’ble SAT dated July 09, 2019, various reliefs were prayed for in the said application, however, at the time of hearing, only one relief, i.e., directions to SEBI to release pay-out of funds or Rs. 14 lakhs along with interest, if any, withheld for the trades of July 27, 2015, was pressed for. The Hon’ble SAT disposed of the application vide their order dated July 09, 2019, with a direction as stated at para -1 of this order.

9. In pursuance of the aforesaid order and directions of Hon’ble SAT, the applicants have filed the representations. The representations also contain some submissions/objections pertaining to the ongoing Adjudication proceedings against the applicants. Nevertheless, the relevant portion of the representations pertaining to the present proceedings before me are reproduced hereunder:

“…With reference to above mentioned Order of Hon’ble SAT we hereby apply for release of payout which is withheld for almost four years vide SEBI’s Interim Order and Confirmatory Order. You are requested to decide the same within 4 weeks.

You are also requested to comply with the SAT order dated 30th January, 2018 wherein it was directed to pass the appropriate order “as expeditiously as possible”.

You are requested to take into consideration all our previous oral and written communications in this regard to various departments of SEBI in deciding our application. One biggest issue is that the original payout was withheld on the doubt/hypothesis of probable SMS/LTCG case, wherein in SCN dated 20th April, 2018 SEBI has not relied on its previous assumptions/hypothesis of probable SMS/LTCG case. In SCN, SEBI came out with new irrelevant charges of manipulation in LTP which has nothing to do with the reason of withholding of payout. In the circumstance you are requested to release the payout together with interest.”

10. I have carefully gone through the above stated representations dated July 10, 2019. The interim measure of withholding of pay-out is based on a prima facie case against the entities, who were found to have dealt in the scrip in a fraudulent manner, as stated in the interim order, which has been subsequently confirmed by various orders (as mentioned in para 5) passed qua the respective entities. As stated above that after the completion of the investigation, instructions have been issued to BSE vide order dated April 24, 2018, to release the pay-out of the entities against whom no prima facie case were made out and further vide order dated June 24, 2019, the release of pay-out of entities against whom no action whatsoever was initiated has also been directed.

11. It is noted that the case of the applicants doesn’t fall either in the category of entities against whom no case could be made out in investigation report or the category of entities against whom no action was ever initiated. Instead, from the records and perusal of the SCN, it is observed that the acts of the applicants or trades executed by them in the scrip of Dhyana have been alleged to be in violations of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”) as the applicants have been alleged to have committed serious breach like indulging in manipulating the price of the scrip of Dhyana by contributing to the LTP. I further note that the SCN has inter alia alleged making of unlawful gain by the applicants and contemplates passing of directions which may include directions in the nature of disgorgement of the alleged unlawful gains made by the applicants.

12. I note here that the SCN in the matter has been issued to 81 entities asking them to file reply to the allegations made in the SCN within a period of 21 days from the receipt of the SCN. It is also observed that many entities have been served with the SCN, through affixture or other substituted modes of service. After effecting the service of SCN, the noticees have been provided with an opportunity of personal hearing in compliance with the principles of natural justice. Considering the number of noticees, i.e., 81, the process of personal hearing has been spread over a period, to enable entities to defend their case properly through their personal hearing. I also note that the proceedings emanating from the SCN have been concluded on July 11, 2019 with completion of hearing of noticees who availed the opportunity granted to them. Some of these entities have sought time to file written submission or to provide more explanation/clarification as have been sought during the course of hearing. Subject to the above, the hearings in the matter was concluded on July 11, 2019, and after receipt of the additional written explanation/clarifications etc., the ongoing proceedings would be completed.

13. On perusal of the representations filed by the applicants, it is noted that the applicants are advancing the release of their pay-out on the sole ground that the hypothesis of probable SMS/ LTCG case against them are missing in the SCN issued to them.

14. It may be appreciated that pursuant to complaints received and preliminary examination thereon and based on prima facie observations, directions were issued by SEBI vide ex-parte interim order dated June 01, 2016 which were subsequently confirmed after affording opportunities to the parties including the applicants. Subsequently, after completion of investigation, SCN has been issued against 81 persons/entities including the applicants. As stated above, opportunity of personal hearing to 81 noticees have been granted over the period commencing from February 07, 2019 till the last hearing, which was concluded on July 11, 2019. Post their personal hearing, many of the noticees have requested for time so that they can file their written submissions on the SCNs served on them. At this stage, it has been brought to my notice that few of the noticees, who have not filed reply and further failed to appear for personal hearing so far, have now submitted written replies and have also requested for personal hearing. Thus, the ongoing proceedings is now at an advance stage and shall be completed after affording opportunities of hearing to those noticees who have made a request.

15. On perusal of the SCN and material available on record, it is noted that there are several other noticees who are similarly placed as the applicants, and in their submissions made before me, have advanced similar arguments praying for release of their pay-outs on the ground that no case is made out in the SCN on merit against them. The submissions of the applicants and several other noticees who are similarly placed in terms of facts and circumstances, are under consideration for final determination. Therefore, any observation or finding on the prayer for release of pay-out as made by the applicants at this advance stage of the proceedings, may cause prejudice to the interest of similarly placed noticees or would practically amount to deciding the issues in the proceedings finally on merit qua similarly placed noticees as well, which cannot be the intent behind disposing of the prayers of the applicants.

16. From the perusal of the representations filed by the applicants, it is also observed that the applicants have not made any specific ground or any ground that can be distinguished from the grounds taken by similarly placed other noticees, in support of the prayer made for release of pay-out, other than what have been submitted during the course of hearing on the allegations made under the SCN. In the absence of any specific ground warranting urgent interference, at this advance stage of the proceedings, the request of the applicants for release of pay-out is premature and acceding to the same would tantamount to finally disposing of the SCN qua the applicants in respect of all the allegations made in the SCN.

17. It is also noted from the SCN that some of the noticees who are similarly placed with the applicants are found to be either connected or there have been transactions executed between them. Therefore, in the absence of any compelling specific reason, singling out the release of pay-out only for the applicants would be prejudicial to other noticees, at least qua those noticees who have been imputed with similar or identical allegations, as imputed against the applicants. Moreover, any decision at this stage to accede to the prayer of the applicants for release of pay-out, would further delay the final determination of the proceedings as it may lead to flooding of similar applications by other entities praying for release of their pay-outs which may defeat the very purpose of the original directions issued for withholding the pay-outs.

18. It is noted that the applicants have based their request of release of pay-out on the ground that the charge of manipulation of LTP cannot be a ground to withhold the pay-out. In this regard, I note that there are other serious charges also against the applicants under PFUTP Regulations for price manipulation, allegations for making unlawful gain etc., for which the proceedings may lead to passing of directions, which may include directions in the nature of disgorgement of the alleged unlawful gains made by the applicants.

19. In view of aforesaid observations, I find that the request of release of pay-out by the applicants is not tenable at this stage for the reasons recorded above. The process of disposing the entire proceedings against all the 81 noticees has commenced and efforts are being made to dispose of the proceedings as expeditiously as possible after hearing and considering the replies and written submission filed by the noticees including that of the applicants in the matter. Therefore, the request of the applicants for immediate release of pay-outs is not being acceded to, at this stage.

20. I accordingly, dispose of the representation made by the applicants.

Sd/- Date: August 01, 2019 S. K. MOHANTY Place: Mumbai WHOLE TIME MEMBER