Order in the matter of Vikas WSP Limited

WTM/RKA/EFD-DRA-III/ 50 /2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under section 11 read with 11B of the Securities and Exchange Board of India Act, 1992 read with regulation 11 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995-in respect of M/s. Pradeep Aggarwal & Associates- In the matter of Vikas WSP Limited.

1. Based on complaints of Mr. B.M Jindal -promoter and ex-director of Vikas WSP Limited (hereinafter referred to as "the company" /"VWL") and news paper reports, SEBI conducted investigation into the affairs relating to buying, selling or dealing in shares of the company. The shares of VWL were listed on the Bombay Stock Exchange (BSE), Delhi Stock Exchange (DSE), Cochin stock Exchange and Ahmadabad Stock Exchange and were traded in the permitted category on the National Stock Exchange at the relevant time. One of the findings of the investigation was that the shares allotted under promoters' quota by VWL were sold during lock-in period. In this regard, the investigation had, inter alia, revealed that:

(a) VWL had come came out with public issue of 44,86,500 equity shares of ₹10/- each for cash at par aggregating ₹448.65 lacs (the issue). Dynamic Superways and Exports Ltd.(hereinafter referred to as 'Dynamics') was the Registrar and Transfer Agents (RTA) and Union Bank of India (UBI), a registered merchant banker with SEBI, acted as a Lead Manager for the said public issue. The public issue had opened on December 14,1993 and closed on December 17,1993 and shares in the public issue were allotted on February 07, 1994. (b) It was mentioned in the prospectus of the company that out of the 39,88,200 equity shares to be allotted to the promoters, 24,92,490 equity shares, being 25% of the total issued capital after the public issue, shall be locked-in period of 5 years and the balance 14,95,710 shares shall be locked-in for a period of 3 years from the date of allotment in the issue or commercial production, whichever is later. (c) DSE, the Regional Stock Exchange of VWL, informed that they had received a certificate from M/s. Pradeep Aggarwal & Associates, Chartered Accountants, certifying that "As per the books and records of M/s Vikas WSP Ltd., of Siwani, Haryana verified by us, we certify that the company has allotted under mentioned equity shares out of the promoters quota of the company. The share Order in the matter of Vikas WSP Limited certificates of these shares are bearing rubber stamp enfacement as ‘Not to be sold transferred/hypothecated’ for the period mentioned hereunder:-

Distinctive No. No. of Shares Period upto which not transferable 14,95,261 to 39,87,750 24,92,490 February 07, 1994 to February 06, 1999 39,87,751 to 54,83,460 14,95,710 February 07, 1994 to February 06, 1997 Total 39,88,200 (d) Based on the above mentioned certificate, DSE, vide their letter dated February 9,1994, informed VWL that the afore mentioned shares allotted to the promoters of VWL were not transferable for a period of 3-5 years from the date of their allotment in the public issue. (e) BSE, vide notice No. 1396/94 dated March 7, 1994, had also informed to its members that the aforementioned shares of VWL allotted to the promoters etc. were not transferable upto the date mentioned against them and would not be considered good delivery in the market till then. (f) However, the shares allotted under the promoter's quota which were under locked-in as stated above had been sold by following promoters during the lock-in period:

Sl. no. Name of the Promoter No. of Shares Sold 1 Rameshchand Jindal 205002 2 Babulal Jindal 62100 3 Anchi Devi Jindal 34600 4 Sita Devi Jindal 217400 5 Bimla Devi Jindal 167300 6 Lalita Devi Jindal 181400 7 Narender Jindal 142000 8 Manjoo Jindal 50900 9 Krishna Jindal 91200 10 Sonia Jindal 57900 11 Sushil Jindal 127590 Total 13,37,392 (g) The sale of these shares under lock-in period was possible because the enfacement was not made on the said share certificates. Therefore, it was alleged that M/s Pradeep Aggarwal and Associates, Chartered Accountant had facilitated the above promoters to commit fraud by his act of falsely certifying a fact as true, which fact he did not know to be true or correct. This allegation was made on basis of submissions of M/s Pradeep Aggarwal and Associates, Chartered Accountant vide letter dated January 09, 2003 wherein he had submitted during the investigation that:

 The certificate dated February 09, 1994 was issued after verifying the minute book, register of members maintained by the company, as well as their cash book and ledger in which the application money received for the said shares were entered and recorded.  As per the proceedings of the board of directors meeting recorded in the minute book of the company, the allotment of said shares are made out of promoter's quota having lock-in period of 3-5 years and the share certificate of these shares are non-transferable up to the lock-in period and rubber stamp will be enfaced on all share certificates compulsorily.  In register of members, before the shares distinctive numbers 14,95,261 to 39,87,750, it was mentioned that these shares have a lock-in period of 5 years and before shares distinctive nos. 39,87,751 to 54,83,460 the lock-in period of 3 years was mentioned and noted as non-transferable/hypothecation, before the lock-in period mentioned.  He had obtained an undertaking from the directors of the company that these shares will not be transferred/sold/hypothecated before the above mentioned lock-in period.

(h) In view of the above, it was alleged that M/s Pradeep Aggarwal & Associates, Chartered Accountant had issued the certificate dated February 09, 1994 without actually verifying the share certificates. The false certificate issued by M/s Pradeep Aggarwal & Associates, Chartered Accountant facilitated the promoters of the company to sell their shares prior to expiry of lock-in period. (i) As per then applicable the SEBI (Disclosure and Investor Protection) Guidelines, 2000 (DIP Guidelines) in any public issue, the equity capital to be subscribed by promoters, directors, friends, relatives and associates should not be less than 25% of the total issued equity capital upto `100 crores and 20% for the issue above `100 crores and this promoter's contribution shall not be diluted for a lock-in period of 5 years from the date allotment in the issue or commercial production, whichever is later. The DIP Guidelines further provided that the share certificates issued to promoters, friends, relatives, and associates, etc. should carry the inscription "not transferable" for a period of 3 or 5 years as may be applicable from the date allotment in the issue or commercial production, whichever is later.

2. Based on the above, a Show Cause Notice dated April 25, 2003 (SCN) was issued to M/s Pradeep Aggarwal & Associates, Chartered Accountant (hereinafter referred to as "the noticee") alleging that by issuing false certificate, stating that the promoters' shares under lock-in period were carrying the rubber stamp "Not to be sold /transferred/hypothecated" the noticee had fraudulently misguided the DSE and other stock exchanges and facilitated the promoters to sell the shares prior to expiry of lock-in period. Thereby he had violated regulation 5 (1) (a) and (b)

of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 (hereinafter referred to as 'the PFUTP Regulations') and the DIP Guidelines. The noticee was called upon to show cause, as to why directions under section 11B read with regulation 11 of the PFUTP Regulations should not be issued against him. 3. The noticee filed his reply dated May 12, 2003 to the SCN wherein he made the following submissions: (i) That books and records of VWL were checked by him while issuing the certificate dated February 09, 1994 in addition to physical verification of those share certificates. He had never said that the certificate dated February 09, 1994 was issued without physically verifying the share certificates. (ii) SEBI had sent letter dated January 03, 2003 along with a copy of the letter dated March 04, 1994 (sent by Dynamics, addressed to VWL) which stated that Dynamics had delivered promoters' quota shares to VWL's representative Mr. Rajesh Singhal on March 04, 1994 by hand without bearing 'non-transferable' clause. In this respect, the noticee has submitted that the letter dated March 04, 1994 relates to VWL and its RTA (Dynamics), and that the noticee is in no way concerned with it.

However, when the noticee took up this matter with VWL after receiving copy of this letter, the company, vide its letter dated May 6, 2003 stated that it did not know anything about Dynamic's letter dated March 04, 1994 and that there was no employee or representative of VWL named Mr. Rajesh Singhal and confirmed that share certificate of promoters were received by VWL duly stamped "NOT TO BE SOLD/ TRANSFERRED/ HYPOTHECATED" from Dynamics before obtaining certificate from the noticee and the same was also physically verified by the noticee. (iii) Moreover, the complainant Mr. B.M Jindal, promoter and ex-director of VWL had, in fact, admitted that shares, for which objection was made, were bearing lock-in stamp as he himself has said that:- "As per the SEBI rules promoter's shares are to be stamped. Lock-in period 5 years or 3 years as the case may be. If the share certificate bearing lock-in period stamp appear in the market then it comes to the knowledge of the buyers that promoters are off loading their holdings. But Mr. B.D Aggarwal, Director of the company found a new way so as none could smell the promoters offloading.

Mr. B.D Aggarwal first transferred the promoters shares in some fictitious names and in the names of some relatives and then destroyed the certificate in those fictitious and relative's names. Thereafter, he obtained new share certificates and sold those shares in the market. This way no share certificate bearing lock-in period appeared in the market and the investors kept buying in their mind that promoters holding remain to extend of 54 % as that of beginning."

4. An opportunity of personal hearing was given to the noticeee on June 30, 2004 which he had availed and made oral as well as written submission dated June 30, 2004 before the then Whole Time Member of SEBI. The noticee had, based on a letter dated February 08, 1994 of Dynamics, submitted that the concerned share certificates did bear 'non-transferable' stamp on both sides of the share certificates. However, the order in the matter was reserved and could not be passed. 5. The matter has been brought before me during December 2015. In compliance of principles of natural justice an opportunity of personal hearing was granted to the noticee on February 16, 2016 before me. The noticee vide letter dated February 10, 2016 submitted that on January 31, 2016 he had met with a road accident and suffered a serious head injury and he would not be able to attend the personal hearing scheduled on February 16, 2016. He submitted a medical certificate to this effect. Alongwith this letter, he also filed his additional written submissions contained in his letter dated January 28, 2016 wherein he has submitted that- (i) On SEBI's complaint in the matter, ICAI had issued a Show Cause Notice dated November 12, 2007 to him and he had replied to the same vide letter dated November 23, 2007. Being satisfied with his submissions the council of ICAI had concluded and held as under: "The council was prima facie of the opinion that you are not guilty of any professional or other misconduct.

Therefore, the papers relating to the case have been filed." (ii) Vide order no. WTMN/218/IVD/9/04 dated September 09, 2004 passed under sections 11 and 11B of the SEBI Act against VWL and its directors SEBI has already held that there was nothing on record to corroborate that the share certificates in question were not stamped with remarks "Not to be sold/Transferred/ Hypothecated". In para 4.1.1 of the said order it has been finally held as under : "I note that there is nothing to corroborate that the certificates in respect of shares subjected to lock-in were not stamped with the remarks "Not to be sold/ Transferred/ Hypothecated". These shares were found to have been transferred within the promoter group as a consequence of the partition in the family and the transfer of the said 13,37,392 shares was not in the ordinary course and was inevitable result of the operation of law. " (iii) It is evident from the copies of the relevant share certificates that they were duly stamped with inscription "The Shares shall not be sold/Transferred/Hypothecated before 7th February 1999".

In this regard, he has submitted copies of several share certificates as described in the following table:

Sl. No. Distinctive numbers Name of the holder 1 2345061 to 2345160 Babu Lal Jindal 2 2406661 to 2406760 Babu Lal Jindal 3 2095161 to 2095260 Ramesh Chand Jindal 4 2035261 to 2035360 Ramesh Chand Jindal 5 2904461 to 2904560 Sita Devi Jindal 6 2844561 to 2844660 Sita Devi Jindal 7 3209261 to 3209360 Lalita Devi Jindal 8 3208261 to 3208360 Lalita Devi Jindal 9 3802261 to 3802360 Sonia Jindal 10 3860061 to 3860160 Sonia Jindal 6. The noticee, however, did not seek any further adjournment or opportunity had left the matter that in case his personal attendance is required then the same may be scheduled after two months. 7. In this regard it is noted that this is a very old case relating to the public issue and allotment of shares during 1993-1994. The SCN in this case had been issued on April 25, 2003 in view of sale of shares during the year 1998-1999. The hearing in the matter had been concluded on June 30, 2004 before the then Whole Time Member of SEBI. However, the proceedings have yet not been concluded by an order. The matter has been brought before me in December 2015. I am of the view that interest of justice would not be met if the matter is further delayed by adding procedural intricacies if sufficient opportunities have been provided.

It is noted that the noticee has filed his reply to the SCN, has availed the opportunity of personal hearing on June 30, 2004 which he had availed and made oral as well as written submission dated June 30, 2004 before the then Whole Time Member. He has further filed written representations, vide his letters dated January 28, 2016 and February 10, 2016 and has not insisted for additional opportunity of personal hearing in the matter. Considering these facts and circumstances, I am of the view that principles of natural justice have been complied with in this matter and the mater can be proceeded with on the basis of SCN, replies/submissions of the noticee and relevant material available on record. 8. I note that the charge of violation of provisions of regulation 5 (1) (a) and (b) of the PFUTP Regulations and those of the DIP Guidelines has been leveled against the noticee in the SCN on the basis of allegation that it had issued false certificate dated February 09, 1994 without actually verifying the share certificates which facilitated the promoters of the company to sell their shares during the lock-in period.

I find that the SCN is ambiguous and vague with regard to charge of violation of the DIP Guidelines as it nowhere it brings out as to what was obligation of the noticee under the DIP Guidelines and under which provision thereof. It is relevant to mention that the obligation to inscribe to share certificate with "Non-transferability" of locked-in shares is on the issuer company, the merchant banker and its RTA. The auditors do not have obligation to comply with then applicable provisions of the DIP Guidelines. Thus, I find that the charge in this regard is without any basis.

9. With regard to charge of violation of the PFUTP Regulations it is relevant to mention that it is settled position that there must be convincing preponderance of probability to support the allegation of fraud and fraudulent practices. Merely, probablising or endeavouring to prove the fact on the basis of preponderance of probability and incomplete circumstantial evidence is not sufficient to establish a serious charge of fraud and fraudulent act. [Padola Veera Reddy Vs. State of Andhra Pradesh AIR 1990 SC 79; Sterlite Industries Vs. SEBI (2001) 34 SCN 485 (SAT)]. Further, having regard to the gravity of the wrong doing higher must be the preponderance of probabilities in establishing such charges. In this regard, I note that in the matter of Mousam Singha Roy v. State of West Bengal (2003) 12 SCC 377, the Hon'ble Supreme Court held as under:- "It is also a settled principle of criminal jurisprudence that the more serious the offence, the stricter the degree of proof, since a higher degree of assurance is required to convict the accused. This principle applies to civil cases as well where the charge is to be established not beyond reasonable doubt but on the preponderance of probabilities.

The measure of proof in civil or criminal cases is not an absolute standard and within each standard there are degrees of probability." 10. In this case, the charge of violation of provisions of regulation 5 (1) (a) and (b) of the PFUTP Regulations has been leveled alleging issuance of false certificate dated February 09,1994 by the noticee. In this regard, the allegation of falsifying the certificate has been leveled in view of the submissions of the noticee made during the investigation, vide his letter dated January 09, 2003 as mentioned hereinabove. I note that those submissions of the noticee do not indicate at all that the certificate issued by him was false. The SCN says that the noticee had issued the certificate dated February 09, 1994 without physically verifying the share certificates and on this ground it alleges that the certificate of the noticee was false. The SCN is silent as to how this certificate was false. The SCN is further silent about any factor suggesting complicity or connivance of the noticees with promoters in the sale of their shares as alleged. 11. From the SCN it is noted that in his letter dated January 09, 2003 the noticee had stated that he issued the certificate dated February 09, 1994 after verifying several documents of the company, minutes of the proceedings of its board of directors which had indicated that the shares allotted under promoters' quota had lock-in period of 3-5 years and mentioned that the share certificate of those shares will be enfaced compulsorily inscribing thereon the non-transferability of those shares up to the lock in period.

Further, the register of members of the company mentioned before the shares distinctive numbers 14,95,261 to 39,87,750 that those shares had a lock-in period of 5 years and before shares distinctive nos. 39,87,751 to 54,83,460 the lock-in period of 3 years was mentioned. He had also obtained undertaking from the directors of VWL that those shares will not be transferred/sold/hypothecated before the applicable lock-in periods. In this regard, it is to be kept in mind that it is not the obligation of auditor to ensure that the share certificate in question should have inscription thereon about 'non-transferability' of promoters' shares during the lock-in period. Such obligation is cast upon the issuer company, lead manager and the RTA who are the entities to ensure all compliances with regard issuance, allotment of shares, printing and dispatch of share certificates. Dynamics, the RTA in the public issue, vide its letter dated February 08,1994 addressed to VWL had confirmed that the share certificates did bear non-transferable rubber stamp on their both sides. In view of these facts and circumstances, the noticee cannot be expected to suspect records of the company unless he had any such reason to suspect.

In the facts and circumstances of this case, I find that, at the relevant time, the noticee had no reason to suspect anything amiss about the inscription of non-transferability of promoters' shares during lock-in period on the share certificates. This fact has been further corroborated by the letter of VWL dated May 06, 2003 wherein it had confirmed that the share certificates of the promoters were stamped "NOT TO BE SOLD/TRANSFERRED/HYPOTHECATED" and were received by it from Dynamics before obtaining the certificate dated February 09, 1994 from the noticee. Thus, the basis of allegation that the noticee issued false certificate to facilitate promoters in sale of their shares fails. 12. In this regard, it is also pertinent to note that with regard to the liability and obligation of Dynamics for not inscribing "not transferable" on the promoters' quota shares, after enquiry under regulation 13(4) of the SEBI (Procedure For Holding Enquiry By Enquiry Officer And Imposing Penalty Regulations), 2002 (hereinafter referred to as 'Enquiry Regulations'), SEBI acknowledged its obligations and vide order dated October 29, 2004 directed it to be more careful in future.

In this order, it was concluded that Dynamics "was aware that 25% of the shares issued to the promoters were under lock-in for a period of five years and another 15% of the shares for a period of three years and they had made 'watch and transfer' instruction in their computer system against the shares allotted to promoters. DSEL seems to have not have not received the specific distinctive number of shares under lock -in for five years and three years respectively and had therefore failed in exercising due care and diligence in discharging its responsibilities as registrar to VWL". However, considering the fact that first lot promoters' quota of shares were received for transfer only after four and a half years and also that stipulated 25% was maintained for five years and no harm was caused to the investors or market, therefore the directions were issued. 13. Further, with regard to UBI, i.e., the Lead Manager to the public issue of VWL vide order dated November 01, 2004 SEBI concluded, after enquiry, that primary responsibility of handling share certificates and ensuring inscription of "non transferability" clause lies with the registrar to the issue, in this case, Dynamics.

It was found that UBI had relied upon the post issue report signed on the basis of certification of RTA to the effect that shares under lock-in were inscribed with the "non-transferability" clause. Further, the RTA neither brought the fact of having handed over the share certificate to the company, to their notice, nor did it inform them regarding non-receipt of details of locked-in shares form the company. Considering these facts, the Lead Manager was exonerated. 14. With respect to the allegation against the company, its promoters and directors, vide order dated September 09, 2004 SEBI has finally concluded that there is nothing to corroborate that the certificates in respect of shares subjected to lock-in were not stamped with the remarks "Not to be sold/Transferred/Hypothecated". 15. In view of the above, I do not agree that the noticee issued any false certificate and fraudulently misguided the DSE and other stock exchanges by issuing any false certificate. 16. Coming to the merit of the charge as to whether the noticee had fraudulently facilitated the promoters to commit fraud by selling the shares prior to expiry of lock-in period, it is noted that the SCN is unclear as to how the noticee had facilitated the above promoters to commit fraud by his act of falsely certifying a fact as true, which fact he did not know to be true or correct as alleged in the SCN.

In fact, with respect to the allegation against the promoters with regard to sale of their shares prior to expiry of applicable lock-in period, vide order dated September 09, 2004, SEBI has finally concluded that there is no substantiating evidence to show that the company, its directors and promoters had indulged in any sale or transfer of shares in violation of regulation 3, 4(b), 5 (1) (a) and (b) of the PFUTP Regulations. In the said order it has been found that: "These shares were found to have been transferred within the promoter group as a consequence of the partition in the family and the transfer of the said 13,37,392 shares was not in the ordinary course and was inevitable result of the operation of law. 4.1.2 I further note that apart from holding shares in the company that were subject to three/ five years lock-in period, the promoters were also holding certain shares which were free and not subject to any lock-in period. The promoters were thus holding a substantial number of shares which were free of any such encumbrance and that the shares which were sold by some of the promoters, relatives, friends etc. were either part of the free shares or were those shares whose lock-in period was over.

4.1.3 Moreover, I note that the said transfer of shares took place around the time when the lock-in period of the said shares was about to get over. 4.1.4 In view of the foregoing, I do not find any substantiating evidence to show that the company, its directors and promoters have indulged in any sale or transfer of shares in violation of Regulation 3, 4(b) & 5 (1) (a & b) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities market) Regulations, 1995." 17. Thus, besides the fact the no material has been found to suggest that the noticee had fraudulently facilitated the promoters to commit fraud by selling the shares prior to expiry of lock-in period, the main charge against the promoters itself has been dropped. Thus, this basis of allegation in the SCN also does not survive. 18. I further note that a reference was made by SEBI to the Institute of Chartered Accountants of India (ICAI) on March 24, 2003 for initiating disciplinary action against the noticee for the violations as alleged in this case. ICAI, after independent enquiry, vide its order no. 25-CA(S-9)/ 2007/DC has exonerated the noticee of any professional or any other misconduct.

19. Considering the above, I do not find the noticee guilty of any charge leveled in the SCN. The SCN is accordingly disposed of.

Sd/- DATE: APRIL 21st, 2016 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA