Order in the matter of Vital Communications Limited[SAT Appeal No.:44/2019][SAT Appeal No.:443/2019 & Misc.App.No.581/2019][SAT Appeal No.:318/2019 & Misc. App. No. 398/2019][SAT Appeal No.:321/2019 & Misc. App. No. 401/2019][SAT Appeal No.:442/2019 & Misc. App. No. 549/2019][SAT Appeal No.:444/2019 & Misc. App. No. 550/2019]

WTM/GM/EFD/DRA-I/59/2018-19 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 In respect of: - Sl. No. NOTICEES PAN 1. Vital Communications Limited AAACV2016L 2. Vijay Jhindal AADPJ9438J 3. Shubha Jhindal AAGPJ0051N 4. Vinay Talwar AAAPT0316L 5. Master Finlease Private Limited AAACM6050D 6. J. P. Madaan AIAPM8977E 7. Rajinder Kumar Garg Not Available (DIN-01140754) 8. CBS Systems Ltd Not Available 9. Anupama Communications Pvt. Ltd. AACCA4565H 10. Brut Finance (India) Pvt. Ltd. AABCB9386Q 11. Chankya Apparels Pvt. Ltd. AAACC0866H 12. Chankya Overseas Pvt. Ltd. AAACC0868K 13. Cosmo Corporate Services Ltd. AAACC3529P 14. Fashion Tech India Ltd. AAACF0332R 15. Flare Finance (India) Ltd. AAACF2044G 16. Heritage Corporate Services Ltd. AAACH2120D 17. Perfect Car Scanners Pvt. Ltd. AAACP7864J 18. Rajat Stock Investments Pvt. Ltd. AAACR4085K 19. Troop Trac Chits Pvt. Ltd. AAACT0601P 20. Troop Trac Exports Pvt. Ltd. AABCT6785F 21. Troop Trac Electrodes Pvt. Ltd. Not Available 22. Wisdom Publishing Pvt. Ltd. AAACW0942L 23. S. V. Stock Land Not Available 24. Troop Trac Marketing Pvt. Ltd. AABCT6800D

In the matter of Vital Communications Limited

Background 1. Pursuant to an investigation, Securities and Exchange Board of India (SEBI) had passed an order dated July 31, 2014 in the matter of Vital Communications Limited (Vital / VCL / the In the matter of Vital Communications Limited company) whereby it had inter alia debarred the Noticees from accessing the securities market for violation of inter alia regulation 3, 4, 5 and 6 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (PFUTP Regulations, 1995) read with regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (PFUTP Regulations, 2003). The said order dated July 31, 2014 had recorded inter alia the following major observations and findings: a) VCL had issued 72 Lakh new equity shares for value of Rs.9 crore to 15 preferential allottees, on December 14, 1999. The company had used its own money to partially finance the preferential allotment. b) During the period May-June, 2002, VCL had issued several false and misleading corporate announcements relating to buy-back of its shares, issue of bonus shares and preferential issue of shares.

All these announcements had created artificial demand for the scrip of the company. c) After the misleading advertisements, some of the preferential allottees who were allotted shares during December 1999 sold 71.14 Lakh shares on net basis in market during May 02, 2002 to July 31, 2002 and the sale proceeds were transferred to the accounts of Master Finlease Pvt. Ltd. (MFL), a company promoted by Mr. Vijay Jhindal (promoter-director of VCL during that period of time) and his family. MFL, in turn, transferred funds either to Shri Vijay Jhindal or to his related entities including VCL. d) The whole scheme of things starting from preferential allotment during December 1999 to 15 entities which were connected to VCL, its promoters and directors and to each other, and the subsequent sale of shares by these entities in the market during May-July 2002 and the flow of sale proceeds to the accounts of promoters and their companies was carried out as a devise to enable fraudulent gains to the promoters and directors and to defraud the investors in securities market. 2. Thereafter, SEBI passed an order dated December 16, 2014, inter alia directing the Investigation Department of SEBI to examine the feasibility of quantifying the ill-gotten gains, if any, made by the entities mentioned in the SEBI order dated July 31, 2014 and issue requisite notice for disgorgement of the same.

After the said investigation, pursuant to complaints filed by Shri Harishchandra Gupta and Smt. Ramkishori Gupta (together referred to as ‘the complainants’) regarding losses suffered by them due to false corporate announcements made by VCL during May-June 2002, SEBI re-examined the matter and passed another order dated April 01, 2016 inter alia directing that the exact figure of ill-gotten gains by Vital Communications Ltd., its promoters/ directors, preferential allottees and MFL be looked into and the disgorgement proceedings against those who perpetrated fraud on the investors be initiated at the earliest. In compliance with the aforementioned order, investigation was again initiated to ascertain the exact amount of ill-gotten gains, if any. Investigation by SEBI to ascertain ill-gotten gains and its findings: 3. The focus of the abovementioned investigation was to ascertain the ill-gotten gains made by VCL, its promoters / directors, preferential allottees and MFL by selling the shares that were allotted to the 15 preferential allottees. The previous investigations by SEBI had noted that the aforesaid preferential allotment was made on December 14, 1999 and the shares were sold by the preferential allottees during May 02, 2002 to July 31, 2002. Accordingly, the period of investigation was taken as the following: (a) June 01, 1999 to May 31, 2000 – For ascertaining the amount of preferential allotment financed by VCL.

(b) May 02, 2002 to July 31, 2002 – For calculating the ill-gotten gains made by the preferential allottees by selling shares in market. 4. Based on the previous investigations and the SEBI order dated July 31, 2014, a total of 24 entities were identified. The connections between these entities have already been established in para 4(14), page nos. 6-10 of SEBI order July 31, 2014. The details of these 24 entities along with the roles played by each entity in the scheme are described in table below: `Table 1 - Details of suspected entities S. Name of Entity Role No. VCL allotted shares to 15 preferential allottees during December 1999 in a fraudulent manner by funding its own 1 VCL (Noticee no. 1) shares issued to 15 preferential allottees. Further, it also knowingly published factually incorrect information in its advertisements during May - June 2002.

S. Name of Entity Role No. Vinay Talwar was director in VCL when the shares were allotted to preferential allottees in a fraudulent manner. 2 Mr. Vinay Talwar (Noticee no. 4) He was also an introducer in the bank accounts of various preferential allottees (viz. (Cosmo Corporate, Fashion Tech, Heritage Corporate, Rajat Stock and Wisdom Publishing). Vijay Jhindal was director in VCL when the shares were 3 Mr. Vijay Jhindal (Noticee no. 2) allotted to preferential allottees in a fraudulent manner. Vijay Jhindal, J. P. Madaan and R. K. Garg were directors of 4 Mr. J. P. Madaan (Noticee no. 6) VCL and attended the board meetings in which the issue of misleading advertisements was discussed. Mr. Rajinder Kumar Garg (Noticee The payments for such advertisements were made by MFL (a 5 no. 7) company promoted by Vijay Jhindal and its family members). The sale proceeds after sale of shares by preferential allottees 6 MFL (Noticee no. 5) reached the bank accounts of Ms. Shubha Jhindal through MFL. Shubha Jhindal was a director of MFL. The sale proceeds after 7 Ms. Shubha Jhindal (Noticee no. 3) sale of shares by preferential allottees reached the bank accounts of Ms. Shubha Jhindal through MFL.

Instrumental in selling shares in the market after receiving from preferential allottees which were issued in a fraudulent S. V. Stock Land (hereinafter referred 8 manner. to as "SVS" or Noticee no. 23) Instrumental in transfer of funds between preferential allottees and MFL. Large amount of money was given by company to Anupama CBS System Ltd (hereinafter referred Communications Pvt. Ltd. and CBS Systems during the year 9 to as "CBS" or Noticee no. 8) 1999-2000 which was then transferred to various preferential allottees to subscribe for the allotment of shares. Anupama Communications Pvt. Ltd. 10 (hereinafter referred to as "Anupama" or Noticee no. 9) Brut Finance (India)Pvt. Ltd. 11 (hereinafter referred to as "Brut" or Noticee no. 10) Chankya Apparels Pvt. Ltd. 12 (hereinafter referred to as "CAPL" or These 15 preferential allottees (sl no. 10 to 24) received the Noticee no. 11) shares in a fraudulent manner during December 1999 as the Chankya Overseas Pvt. Ltd. amount of preferential allotment was funded by VCL itself. 13 (hereinafter referred to as "COPL" or Further, these entities sold these shares during April 2002 to Noticee no. 12) July 2002 when company issued misleading advertisements.

Cosmo corporate Services Ltd. 14 (hereinafter referred to as "Cosmo" or Noticee no. 13) Fashion Tech India Ltd. (hereinafter 15 referred to as "Fashion" or Noticee no. 14) Flare Finance (India) Ltd. (hereinafter 16 referred to as "Flare" or Noticee no. 15)

S. Name of Entity Role No. Heritage Corporate Services Ltd. 17 (hereinafter referred to as "Heritage" or Noticee no. 16) Perfect Car Scanners Pvt. Ltd. 18 (hereinafter referred to as "Perfect" or Noticee no. 17) Rajat Stock Investments Pvt. Ltd. 19 (hereinafter referred to as "Rajat" or Noticee no. 18) Troop Trac Chits Pvt. Ltd. 20 (hereinafter referred to as "TTCPL" or Noticee no. 19) Troop Trac Exports Pvt. Ltd. 21 (hereinafter referred to as "TTEXPL" or Noticee no. 20) Troop Trac Electrodes Pvt. Ltd. 22 (hereinafter referred to as "TTELPL" or Noticee no. 21) Wisdom Publishing Pvt. Ltd. 23 (hereinafter referred to as "Wisdom" or Noticee no. 22) Troop Trac Marketing Pvt. Ltd. 24 (hereinafter referred to as "TTMPL" or Noticee no. 24)

5. As stated in the SEBI order July 31, 2014, VCL made preferential allotment of 72,00,000 shares to the following 15 entities on December 14, 1999:- Table 2 - Details of preferential allottees S. No. Name of Preferential Allottee No. of shares allotted Total Amount (in Rs.) 1 Anupama 200000 2500000 2 TTMPL 500000 6250000 3 Perfect 500000 6250000 4 Flare 500000 6250000 5 Cosmo 500000 6250000 6 Fashion 500000 6250000 7 Heritage 500000 6250000 8 Rajat 500000 6250000 9 Wisdom 500000 6250000 10 TTCPL 500000 6250000 11 TTEXPL 500000 6250000 12 COPL 500000 6250000 13 Brut 500000 6250000 14 CAPL 500000 6250000 15 TTELPL 500000 6250000 TOTAL 7200000 90000000

6. The bank accounts statements of VCL and preferential allottees obtained from Federal Bank and the details of payments received from allottees were analysed. Based on the said analysis, investigation observed a pattern of circular movement of funds between VCL, Anupama and other preferential allottees, details of which are summarised in the table below: Table 3 - Fund movements between VCL, Anupama and other preferential allottees Amount Amount Amount Sende Recei from Chequ Sender's Sender's Receiver's Receiver's from VCL from Pref Date r's ver's Anupama e No. Name Account Number Name Account Number to Allottees Bank* Bank* to Pref Anupama to VCL Allottees 08/12/1999 143852 VCL FB 13820200003479 Anupama TVB 9665 950000 09/12/1999 49982 VCL BoR 43178 Anupama TVB 9665 1350000 09/12/1999 83172 Anupama TVB 9665 Perfect TVB 9581 700000 10/12/1999 83171 Anupama TVB 9665 TTCPL FB 13820200003420 650000 10/12/1999 83176 Anupama TVB 9665 Perfect TVB 9581 300000 11/12/1999 49983 VCL BoR 43178 Anupama TVB 9665 1000000 11/12/1999 73177 Anupama TVB 9665 Rajat BoR 43208 425000 11/12/1999 83175 Anupama TVB 9665 CAPL FB 341 200000 11/12/1999 83229 Perfect TVB 9581 VCL BoR 43178 1000000 14/12/1999 49984 VCL BoR 43178 Anupama TVB 9665 1500000 14/12/1999 83178 Anupama TVB 9665 COPL FB 13820200003487 300000 14/12/1999 83179 Anupama TVB 9665 Cosmo BoR 43186 800000 14/12/1999 142464 CAPL FB 341 VCL BoR 43178 200000 14/12/1999 142483 TTCPL FB 13820200003420 VCL BoR 43178 650000 14/12/1999 143856 VCL FB 13820200003479 Anupama TVB 9665 1075000 14/12/1999 947167 Rajat BoR 43208 VCL FB 13820200003479 425000 15/12/1999 143864 COPL FB 13820200003487 VCL BoR 43178 300000 15/12/1999 947208 Cosmo BoR 43186 VCL FB 13820200003479 800000 16/12/1999 83173 Anupama TVB 9665 TTMPL TVB 9590 1000000 16/12/1999 83183 Anupama TVB 9665 VCL BoR 43178 400000 400000 16/12/1999 83281 TTMPL TVB 9590 VCL BoR 43178 1000000 16/12/1999 143855 VCL FB 13820200003479 Anupama TVB 9665 450000 17/12/1999 49981 VCL BoR 43178 Anupama TVB 9665 750000 18/12/1999 143858 VCL FB 13820200003479 Anupama TVB 9665 1200000 20/12/1999 83182 Anupama TVB 9665 Wisdom BoR 43216 950000 21/12/1999 83180 Anupama TVB 9665 Wisdom BoR 43216 1000000 21/12/1999 947145 Wisdom BoR 43216 VCL FB 13820200003479 950000 22/12/1999 947146 Wisdom BoR 43216 VCL FB 13820200003479 1000000 23/12/1999 49987 VCL BoR 43178 Anupama TVB 9665 1000000 24/12/1999 83188 Anupama TVB 9665 Rajat BoR 43208 1000000 24/12/1999 460252 VCL FB 13820200003479 Anupama TVB 9665 1075000 27/12/1999 947172 Rajat BoR 43208 VCL FB 13820200003479 1000000 28/12/1999 49988 VCL BoR 43178 Anupama TVB 9665 250000 31/12/1999 83191 Anupama TVB 9665 Cosmo BoR 43186 175000 31/12/1999 83192 Anupama TVB 9665 Wisdom BoR 43216 1250000 03/01/2000 947147 Wisdom BoR 43216 VCL FB 13820200003479 2050000 03/01/2000 947210 Cosmo BoR 43186 VCL FB 13820200003479 1375000 05/01/2000 460261 VCL FB 13820200003479 Anupama TVB 9665 1660000 07/01/2000 83197 Anupama TVB 9665 TTELPL FB 343 1500000 10/01/2000 143504 TTELPL FB 343 VCL BoR 43178 100000 10/01/2000 143505 TTELPL FB 343 VCL BoR 43178 1400000 11/01/2000 460253 VCL FB 13820200003479 Anupama TVB 9665 2000000 12/01/2000 83200 Anupama TVB 9665 Heritage BoR 43194 1900000 13/01/2000 65148 VCL BoR 43178 Anupama TVB 9665 500000 13/01/2000 65149 VCL BoR 43178 Anupama TVB 9665 150000 13/01/2000 947193 Heritage BoR 43194 VCL FB 13820200003479 1800000 14/01/2000 92653 Anupama TVB 9665 TTCPL FB 13820200003420 250000 14/01/2000 92654 Anupama TVB 9665 Cosmo BoR 43186 275000

Amount Amount Amount Sende Recei from Chequ Sender's Sender's Receiver's Receiver's from VCL from Pref Date r's ver's Anupama e No. Name Account Number Name Account Number to Allottees Bank* Bank* to Pref Anupama to VCL Allottees 14/01/2000 92655 Anupama TVB 9665 Wisdom BoR 43216 125000 14/01/2000 460263 VCL FB 13820200003479 Anupama TVB 9665 1800000 17/01/2000 92656 Anupama TVB 9665 Heritage BoR 43194 1600000 17/01/2000 142485 TTCPL FB 13820200003420 VCL BoR 43178 250000 17/01/2000 947150 Wisdom BoR 43216 VCL FB 13820200003479 125000 18/01/2000 143859 VCL FB 13820200003479 Anupama TVB 9665 250000 18/01/2000 947195 Heritage BoR 43194 VCL FB 13820200003479 1700000 19/01/2000 92658 Anupama TVB 9665 Heritage BoR 43194 250000 20/01/2000 947196 Heritage BoR 43194 VCL FB 13820200003479 250000 20/01/2000 960202 Cosmo BoR 43186 VCL FB 13820200003479 100000 21/01/2000 460266 VCL FB 13820200003479 Anupama TVB 9665 100000 21/01/2000 460270 VCL FB 13820200003479 Anupama TVB 9665 1600000 21/01/2000 460271 VCL FB 13820200003479 Anupama TVB 9665 550000 22/01/2000 92659 Anupama TVB 9665 Wisdom BoR 43216 650000 24/01/2000 947152 Wisdom BoR 43216 VCL FB 13820200003479 650000 25/01/2000 92661 Anupama TVB 9665 Heritage BoR 43194 1500000 25/01/200i0 460274 VCL FB 13820200003479 Anupama TVB 9665 650000 25/01/200i0 460275 VCL FB 13820200003479 Anupama TVB 9665 125000 27/01/2000 92660 Anupama TVB 9665 TTELPL FB 343 175000 27/01/2000 92663 Anupama TVB 9665 Wisdom BoR 43216 475000 27/01/2000 947197 Heritage BoR 43194 VCL FB 13820200003479 1500000 27/01/2000 960204 Cosmo BoR 43186 VCL FB 13820200003479 175000 28/01/2000 947153 Wisdom BoR 43216 VCL FB 13820200003479 475000 29/01/2000 143510 TTELPL FB 343 VCL BoR 43178 175000 29/01/2000 460273 VCL FB 13820200003479 Anupama TVB 9665 1800000 31/01/2000 92667 Anupama TVB 9665 TTELPL FB 343 1800000 02/02/2000 65174 VCL BoR 43178 Anupama TVB 9665 1800000 02/02/2000 143512 TTELPL FB 343 VCL BoR 43178 1800000 02/02/2000 460277 VCL FB 13820200003479 Anupama TVB 9665 110000 23/02/2000 92673 Anupama TVB 9665 TTELPL FB 343 1500000 24/02/2000 143514 TTELPL FB 343 VCL BoR 43178 1500000 25/02/2000 71064 VCL BoR 43178 Anupama TVB 9665 1500000 26/02/2000 83193 Anupama TVB 9665 Rajat BoR 43208 1000000 26/02/2000 92674 Anupama TVB 9665 Fashion BoR 43160 500000 29/02/2000 947247 Fashion BoR 43160 VCL FB 13820200003479 500000 29/02/2000 960501 Rajat BoR 43208 VCL FB 13820200003479 1000000 28/03/2000 71091 VCL BoR 43178 Anupama TVB 9665 2000000 29/03/2000 71093 VCL BoR 43178 Anupama TVB 9665 2000000 30/03/2000 71094 VCL BoR 43178 Anupama TVB 9665 2500000 04/04/2000 78546 VCL BoR 43178 Anupama TVB 9665 400000 22/04/2000 78572 VCL BoR 43178 Anupama TVB 9665 8000000 24/04/2000 92682 Anupama TVB 9665 Fashion BoR 43160 4500000 24/04/2000 92683 Anupama TVB 9665 COPL FB 13820200003487 3500000 25/04/2000 143865 COPL FB 13820200003487 VCL BoR 43178 3500000 25/04/2000 947249 Fashion BoR 43160 VCL FB 13820200003479 4500000 26/04/2000 78578 VCL BoR 43178 Anupama TVB 9665 3500000 26/04/2000 460282 VCL FB 13820200003479 Anupama TVB 9665 4500000 28/04/2000 92693 Anupama TVB 9665 TTCPL FB 13820200003420 4500000 28/04/2000 92694 Anupama TVB 9665 COPL FB 13820200003487 1500000 29/04/2000 142487 TTCPL FB 13820200003420 VCL BoR 43178 4500000 01/05/2000 460280 VCL FB 13820200003479 Anupama TVB 9665 4500000 02/05/2000 99551 Anupama TVB 9665 Rajat BoR 43208 2000000 02/05/2000 99552 Anupama TVB 9665 VCL FB 13820200003479 2000000 2000000 02/05/2000 99553 Anupama TVB 9665 CAPL FB 341 500000 02/05/2000 143867 COPL FB 13820200003487 VCL BoR 43178 1500000 03/05/2000 78600 VCL BoR 43178 Anupama TVB 9665 1500000 03/05/2000 78598 VCL BoR 43178 Anupama TVB 9665 4500000 03/05/2000 142466 CAPL FB 341 VCL BoR 43178 500000 03/05/2000 960504 Rajat BoR 43208 VCL FB 13820200003479 2000000 06/05/2000 78583 VCL BoR 43178 Anupama TVB 9665 5000000 06/05/2000 78599 VCL BoR 43178 Anupama TVB 9665 500000

Amount Amount Amount Sende Recei from Chequ Sender's Sender's Receiver's Receiver's from VCL from Pref Date r's ver's Anupama e No. Name Account Number Name Account Number to Allottees Bank* Bank* to Pref Anupama to VCL Allottees 06/05/2000 460284 VCL FB 13820200003479 Anupama TVB 9665 4000000 09/05/2000 99562 Anupama TVB 9665 VCL BoR 43178 100000 100000 10/05/2000 83236 Perfect TVB 9581 VCL BoR 43178 750000 10/05/2000 83289 TTMPL TVB 9590 VCL BoR 43178 250000 10/05/2000 97823 Flare TVB 9573 VCL BoR 43178 250000 10/05/2000 99563 Anupama TVB 9665 Perfect TVB 9581 750000 10/05/2000 99564 Anupama TVB 9665 Flare TVB 9573 250000 10/05/2000 99565 Anupama TVB 9665 TTMPL TVB 9590 250000 10/05/2000 99568 Anupama TVB 9665 Fashion BoR 43160 250000 10/05/2000 99574 Anupama TVB 9665 Rajat BoR 43208 150000 12/05/2000 85756 VCL BoR 43178 Anupama TVB 9665 950000 12/05/2000 99569 Anupama TVB 9665 COPL FB 13820200003487 250000 12/05/2000 99570 Anupama TVB 9665 TTCPL FB 13820200003420 750000 12/05/2000 99571 Anupama TVB 9665 TTEXPL FB 13820200003446 250000 12/05/2000 99572 Anupama TVB 9665 CAPL FB 341 250000 12/05/2000 99573 Anupama TVB 9665 TTELPL FB 343 275000 13/05/2000 142467 CAPL FB 341 VCL BoR 43178 250000 13/05/2000 142488 TTCPL FB 13820200003420 VCL BoR 43178 750000 13/05/2000 143515 TTELPL FB 343 VCL BoR 43178 275000 13/05/2000 143525 TTEXPL FB 13820200003446 VCL BoR 43178 250000 13/05/2000 143868 COPL FB 13820200003487 VCL BoR 43178 250000 13/05/2000 947252 Fashion BoR 43160 VCL FB 13820200003479 250000 13/05/2000 960506 Rajat BoR 43208 VCL FB 13820200003479 150000 15/05/2000 85772 VCL BoR 43178 Anupama TVB 9665 1575000 15/05/2000 460285 VCL FB 13820200003479 Anupama TVB 9665 400000 19/05/2000 99581 Anupama TVB 9665 Brut CB 0-413325-005 5250000 20/05/2000 935508 Brut CB 0-413325-005 VCL FB 13820200003479 5250000 22/05/2000 460287 VCL FB 13820200003479 Anupama TVB 9665 5250000 TOTAL 76270000 49925000 51925000 * TVB implies The Vysya Bank, CB implies CitiBank, FB implies Federal Bank, BoR implies Bank of Rajasthan

7. From the above table, investigation observed that during December 1999 to May 2000, VCL had transferred Rs. 7.62 crore (approx.) to Anupama who had further transferred Rs. 4.99 crore (approx.) to 14 other preferential allottees. The preferential allottees had thereafter transferred Rs 5.19 crore (approx.) back to VCL as consideration for the allotment of shares. Hence, investigation concluded that VCL had indirectly provided funds to the preferential allottees for subscribing to its shares to the tune of Rs. 4.99 crore. 8. From bank account statements of VCL, investigation observed several transactions in which VCL had transferred approx. Rs. 2.57 crore to CBS (Noticee no. 8) during November 1999 to May 2000. The bank account of CBS was maintained with Catholic Syrian Bank, Connaught Place Branch, New Delhi. The below mentioned fund movements were observed in the bank account statements of TTEXPL (Noticee no.20) and COPL (Noticee no.12):-

Table 4 - Fund movements between VCL, CBS, TTEXPL and COPL Chequ Sender' Sender's Receiver's Receive Receiver's Date Sender's Bank Amount e No. s Name Account Number Name r's Bank Account Number 22/04/2000 141779 Catholic Syrian Bank TTEXPL FB 13820200003446 5000000 28/04/2000 143524 TTEXPL FB 13820200003446 VCL BoR 43178 5000000 04/12/1999 308693 Catholic Syrian Bank COPL FB 13820200003487 700000 09/12/1999 143863 COPL FB 13820200003487 VCL BoR 43178 700000

9. It was observed that both the preferential allottees (i.e. TTEXPL and COPL) received funds from an unknown entity whose account was with Catholic Syrian Bank, Connaught Place Branch, New Delhi. After receiving funds from the entity, both allottees transferred the funds to VCL as part of consideration for the shares allotted to them. It was also observed that the balance in the bank account of both these allottees was in the range of Rs. 1000-2000, before they received the amount from that entity. Hence, it was inferred that the aforementioned 2 allottees used the funds provided by the entity (whose account was maintained with Catholic Syrian Bank) to pay for the shares allotted to them. 10. The cheque numbers (141779 and 308963) from which the aforementioned 2 allottees received funds from the entity were noted and the bank account statements of other preferential allottees were analysed. On analysis, several credit entries were observed in the bank account statements of the preferential allottees and the cheque numbers were of the same series as the aforementioned 2 cheque numbers. It was also observed that after receiving the funds, almost all the preferential allottees transferred the amount to VCL as consideration for shares allotted to them. Details of such transactions are given in the table below: Table 5 - Fund movements between VCL, CBS and other preferential allottees Cheque Sender' Sender's Sender's Account Receiver's Receiver's Receiver's Amount from Pref Date No. s Name Bank Number Name Bank Account Number Allottees to VCL 22/04/2000 141780 CSB CAPL FB 341 4500000 24/04/2000 142465 CAPL FB 341 VCL BoR 43178 4500000 04/12/1999 308693 CSB COPL FB 13820200003487 700000 09/12/1999 143863 COPL FB 13820200003487 VCL BoR 43178 700000 01/12/1999 308690 CSB Cosmo BoR 43186 150000 02/12/1999 947207 Cosmo BoR 43186 VCL FB 13820200003479 150000 20/12/1999 141751 CSB Cosmo BoR 43186 800000 21/12/1999 947209 Cosmo BoR 43186 VCL FB 13820200003479 800000 24/12/1999 141752 CSB Cosmo BoR 43186 1200000 03/01/2000 947210 Cosmo BoR 43186 VCL FB 13820200003479 1375000 05/01/2000 141755 CSB Cosmo BoR 43186 2275000 07/01/2000 947216 Cosmo BoR 43186 VCL FB 13820200003479 2000000 25/11/1999 308684 CSB Fashion BoR 43160 500000

Cheque Sender' Sender's Sender's Account Receiver's Receiver's Receiver's Amount from Pref Date No. s Name Bank Number Name Bank Account Number Allottees to VCL 25/11/1999 947243 Fashion BoR 43160 VCL FB 13820200003479 500000 26/11/1999 308686 CSB Fashion BoR 43160 300000 29/11/1999 947244 Fashion BoR 43160 VCL FB 13820200003479 300000 30/11/1999 308687 CSB Fashion BoR 43160 200000 01/12/1999 947245 Fashion BoR 43160 VCL FB 13820200003479 200000 05/05/2000 141785 CSB Flare TVB 9573 5000000 05/05/2000 97821 Flare TVB 9573 VCL BoR 43178 5000000 06/12/1999 308694 CSB Heritage BoR 43194 250000 08/12/1999 947191 Heritage BoR 43194 VCL FB 13820200003479 250000 29/04/2000 141783 CSB Perfect TVB 9581 4500000 29/04/2000 83232 Perfect TVB 9581 VCL FB 13820200003479 4500000 29/11/1999 308689 CSB TTEXPL FB 13820200003446 600000 03/12/1999 TTEXPL FB 13820200003446 TTELPL FB 343 600000 06/12/1999 143502 TTELPL FB 343 VCL BoR 43178 600000 01/12/1999 308691 CSB TTELPL FB 343 400000 02/12/1999 143503 TTELPL FB 343 VCL BoR 43178 400000 22/04/2000 141779 CSB TTEXPL FB 13820200003446 5000000 28/04/2000 143524 TTEXPL FB 13820200003446 VCL BoR 43178 5000000 02/05/2000 141784 CSB TTMPL TVB 9590 5000000 02/05/2000 83285 TTMPL TVB 9590 VCL BoR 43178 5000000 25/11/1999 308685 CSB Wisdom BoR 43216 600000 25/11/1999 947143 Wisdom BoR 43216 VCL FB 13820200003479 600000 27/11/1999 308688 CSB Wisdom BoR 43216 400000 30/11/1999 947144 Wisdom BoR 43216 VCL FB 13820200003479 400000 24/12/1999 141753 CSB Wisdom BoR 43216 1000000 03/01/2000 947147 Wisdom BoR 43216 VCL FB 13820200003479 2050000

11. From the above table, it was observed that whenever preferential allottees were receiving funds, the corresponding cheque numbers from which funds were credited belonged to series of either 141751 to 141785 or 308684 to 308694. Further, after receiving the funds, the preferential allottees transferred the funds to VCL. The total amount which got credited into the bank accounts of preferential allottees through the aforementioned cheque numbers was Rs.3.33 crore (approx.). It was also observed that the aforementioned cheque numbers were of Catholic Syrian Bank, Connaught Place Branch, New Delhi, where the bank account of CBS (Noticee no. 8) was also maintained.

12. Based on the aforesaid observations, investigation concluded the following, regarding overall funding by VCL to the preferential allottees:

a) VCL had transferred Rs. 7.62 crore (approx.) to Anupama during December 1999 to May 2000. b) Thereafter, Anupama transferred Rs. 4.99 crore (approx.) to 14 other preferential allottees. Hence, there was a clear trail of Rs.4.99 crore (approx.) being funded by VCL to preferential allottees through Anupama. c) VCL transferred Rs. 2.57 crore (approx.) to CBS during November 1999 to May 2000 and during the same time, preferential allottees received money to the tune of Rs. 3.33 crore (approx.) from an entity whose account was maintained with Catholic Syrian Bank, Connaught Place Branch, New Delhi (the same bank and branch in which account of CBS was maintained). Therefore, it was inferred that VCL was involved in transferring the funds to preferential allottees through CBS which were ultimately used for paying the consideration amount for shares to VCL. Further, the SEBI order dated July 31, 2014 had also recorded that VCL had given funds to CBS which in turn transferred these funds to some of the preferential allottees.

13. The earlier investigations and the SEBI order dated July 31, 2014 had already established that VCL, Anupama, CBS and preferential allottees were connected to each other and were part of the manipulative scheme. It was also observed that VCL had transferred funds to CBS and Anupama who in turn transferred the money to the preferential allottees. The said transaction were carried out during November 1999 to May 2000 i.e. at the same time that the preferential allotment of share had taken place.

14. Based on the observations and findings made above, the investigation concluded that VCL had completely funded its own preferential allotment during December 1999. In other words, 15 preferential allottees were allotted 7200000 shares of VCL at zero cost.

15. It was observed that out of 15 preferential allottees, five allottees viz. Fashion (Noticee no. 14), Anupama (Noticee no. 9), Perfect (Noticee no. 17), TTEXPL (Noticee no. 20) and Rajat (Noticee no. 18) had traded in the market. The remaining ten preferential allottees had transferred their shares to these five entities and one entity, i.e. SVS (Noticee no. 23) in the off market. These six Noticees then sold the shares in the market and transferred funds to MFL (Noticee no.5) during May 2002 to July 2002. The details of trades executed by the aforementioned 6 entities during May 01, 2002 to July 31, 2002 are given in the table below:

Table 6 - Details of trades of preferential allottees / other connected entities who have sold shares in market during May 2002 - July 2002 Sell Buy Amount Sell Amount Net Sell Net Sell S. Name of Buy Broker / Sub Broker Quantity (in Rs.) (in Rs.) Quantity Amount (in No. Entity Quantity Rs.) VSE Securities Ltd. / 1 SVS Thakkar Stock Brokers 55,89,261 84,32,852 5,80,56,984 7,30,87,484 28,43,591 1,50,30,500 Pvt. Ltd. 2 Rajat TCP Stock Brokers Ltd. 23,69,305 34,69,327 2,59,11,491 3,28,04,574 11,00,022 68,93,083 Integrated Master 3 TTEXPL 41,46,429 60,19,134 3,91,09,225 5,17,80,638 18,72,705 1,26,71,413 Securities Pvt. Ltd. 4 Fashion UPSE Ltd. / Saroj & 5 Perfect 19,72,327 33,32,577 2,00,73,489 3,10,69,725 13,60,250 1,09,96,236 Co. 6 Anupama TOTAL 1,40,77,322 2,12,53,890 14,31,51,189 18,87,42,421 71,76,568 4,55,91,232

16. As already observed above, VCL had issued 72 lakh shares through preferential allotment in December 1999 and the cost of 72 lakh shares in the hands of preferential allotment was nil. Further, the above table shows that during the period of May 2002 - July 2002, which was the same as the period of misleading advertisements (May 2002 - June 2002), the preferential allottees had net sold 71.76 lakhs (approx.) shares in the market amounting to Rs.4.56 crore (approx.). Considering the same, the investigation concluded that the ill-gotten gains made in the above scheme was Rs.4,55,91,232, as calculated in the Table 7 hereunder:-

Table 7: Ill-gotten gains made in the above scheme Sale value of shares : Rs.4,55,91,232 Acquisition cost of shares 0 Profit Rs.4,55,91,232

17. Since it had already been held in the SEBI Order dated July 31,2014 that VCL (Noticee no. 1), its directors (Noticee nos. 2, 4, 6 and 7), Ms.Shubha Jhindal (Noticee no.3) and three other entities, viz. MFL, CBS and SVS (Noticee nos. 5, 8 and 23) were involved in a fraudulent scheme involving issue of shares to preferential allottees, false misleading advertisements and generation and receipt of ill-gotten gains, and since these Noticees had helped the 15 preferential allottees to generate the profit, the investigation concluded that all these Noticees were involved in generation of the abovementioned ill-gotten gains. Hence, ill-gotten gains to the extent of Rs.4,55,91,232/- were allegedly made by VCL, along with its directors, preferential allottees and three other entities, viz. CBS, SVS and MFL (Noticee nos. 1 to 24) by indulging in a fraudulent scheme in violation of Regulations 3, 4, 5, 6 of the PFUTP

Regulations, 1995 read with Regulations 3 and 4 of the PFUTP Regulations, 2003, as already brought out in the SEBI order dated July 31, 2014. Show Cause Notice, replies and personal hearings: 18. In view of the above, common notice dated January 19, 2018 (SCN) was issued to the Noticees calling upon them to show cause as to why appropriate directions u/s 11B of the SEBI Act, 1992 for disgorgement of the ill-gotten gains should not be issued against them. The SCN was served upon the Noticees by way of Speed Post Ack. Due / affixture/ email/ newspaper publication. Thereafter, Shri Vinay Talwar (Noticee no. 4) replied to the SCN vide his letter dated February 21, 2018. Ms. Shubha Jhindal (Noticee no. 3) vide letter dated March 12, 2018 sought four weeks’ time to file reply. However, no reply was subsequently filed by her. VCL (Noticee no. 1) vide letter dated April 09, 2018 requested SEBI for various documents and their inspection. SEBI vide letter dated April 24, 2018 provided an opportunity of inspection of documents on May 08, 2018 and also clarified to VCL that all relevant documents had already been provided to it with the SCN.

Another opportunity of inspection of documents was provided to VCL by scheduling it on June-13-14, 2018 and the same was availed by it on July 14, 2018. VCL vide various emails made requests for certain documents, in response to which SEBI clarified to it that all relevant documents had already been provided to it. However, no reply regarding the charges in the SCN was received from VCL. Shri JP Madaan replied to the SCN vide letter dated April 13, 2018. As regards the other Noticees, no response was received from them in respect of the SCN. 19. An opportunity of personal hearing was provided to the Noticees by scheduling the same on May 22, 2018. The notices of hearing were served through Speed Post Ack. Due / newspaper publication. VCL (Noticee no. 1), Shri Vinay Talwar (Noticee no. 4) and Shri JP Madaan (Noticee no. 6) vide their emails / letters dated May 10, 2018 and May 18, 2018 and May 21, 2018 respectively requested for adjournment of the hearing. As regards the rest of the Noticees, none of them attended the personal hearing on May 22, 2018. Further, personal hearings for VCL, Shri Vinay Talwar and Shri JP Madaan were rescheduled on June 28, 2018. VCL (through its authorized representative, Shri Jaikishan Lakhwani, Advocate) and Shri Vinay Talwar (though his authorized representatives led by Shri Pradeep Sancheti, Senior Advocate) attended the said hearing.

However, Shri JP Madaan requested for another opportunity of hearing which was granted to him on July 11, 2018. Shri Madaan attended the said hearing through his authorized representative, Shri KRCV Seshachalam (Advocate). VCL, Shri Vinay Talwar and Shri JP Madaan made further written submissions vide letters dated June 28, 2018; July 05, 2018 and July 07, 2018 respectively. 20. Shri Vinay Talwar vide his letters dated February 21, 2018 and July 05, 2018 and during the personal hearing made inter alia the following submissions: (a) SEBI’s order dated February 20, 2008 in the matter of VCL, wherein charges against the Noticee were dropped, had become final and binding on all the parties including SEBI. (b) The Noticee was forcibly and wrongly removed as a Director / Managing Director of the company w.e.f. 06.09.2000. The same is supported by copies of Form-32 filed by the company with RoC, public notice issued by the company and various other records, enclosed with the reply. Thereafter, he had no involvement in VCL. The false corporate announcements and the sale of shares resulting in illegal gains referred to in the SCN were made during May-July 2002 which is much after the Noticee was removed as a director of the company and his relationship with VCL had ended.

The SEBI order dated February 20, 2008 had also exonerated him in respect of the fraudulent transactions. (c) The SCN itself states that the ill-gotten gains referred therein were made through trades conducted during May 01, 2002 to July 31, 2002 by six entities who sold the shares and transferred the funds to MFL (an entity of Vijay Jhindal, Noticee no. 2). The Noticee had nothing to do with the illegal gains as he was not a preferential allottee and he neither sold the shares nor received the proceeds thereof. Thus, on the face of the records, it is apparent that no illegal gains had been made by the Noticee. (d) The order of disgorgement cannot be made against the Noticee who has not made any sale of shares nor received any ill-gotten gains from the alleged transactions. (e) In the SCN, there is no allegation of sale of shares or receipts of proceeds thereof by the Noticee. However, SEBI is wrongfully trying to club all entities together, irrespective of the fact whether they have made any ill-gotten gains or not. (f) It is a settled principle of law that ill-gotten gains have to be firstly computed for each party based upon the sale proceeds realized minus the cost of acquisition, and only thereafter can the same be recovered from the respective entity, to the extent of the ill-gotten gains made by them.

No uniform order applicable to all parties to pay jointly or severally can be made and any such order against any entity has to be based upon the ill-gotten gains by the said entity. An entity cannot be asked to pay back the gains made by another party. The same principle is also inherent in Section 11B of the SEBI Act, 1992. (g) The SCN is contrary to the law laid down by the Hon’ble SAT in various cases and also to the principles of disgorgement followed by SEBI in other matters. (h) The Noticee has already suffered a more severe punishment / penalty vide order dated July 31, 2014 in the form of debarment for his negligence for the incidents which happened during the period up to 06.09.2000 when the Noticee was a director of the company. The said period of debarment was excessive since a uniform restraint order was passed against all the Noticees without considering the role played by each of them in the preferential allotment of shares by VCL and their subsequent sale, resulting in gains. 21. Shri J.P. Madaan vide his letters dated April 13, 2018 and July 07, 2018 and during the course of personal hearing has submitted inter alia the following: (a) The Noticee has not incurred any gains by virtue of his position as an employee of the company.

He never held any shares nor traded in the scrip of the company. (b) He had no role in the preferential allotment of shares by the company carried out during December 1999, as he was appointed as a director in the company only on 22.01.2000. Even after being appointed as director, he was merely involved in the administrative affairs of the company and the day-to-day activities and financial matters of the company fell out of the purview of his job specifications. (c) As regards the false and misleading advertisements issued by the company, considering the discussions in the board meeting and other facts and circumstances placed before him by other promoters/directors, he had in good faith believed the intention behind the advertisements to be genuine and without any mala fide. (d) The alleged misleading advertisements were issued by the company under the aegis and guidance of Shri Vijay Jhindal, who being a promoter and director controlled the company.

(e) The Noticee denies the allegation that he had aided and abetted the issuance of fraudulent and misleading advertisements by VCL. Further, the Noticee was not involved in the generation of ill-gotten gains, as alleged in the SCN. (f) In the SCN, there is no observation against the Noticee regarding the preferential allotment by VCL in December 1999 and the indirect provision of funds by VCL to 15 preferential allottees. Thus, the allegation regarding his role in generation of ill-gotten gains is misconceived and baseless. (g) The Noticee had no knowledge of sale of shares in the open market after the fraudulent advertisements. It was only on the receipt of SCN that he became aware about the modus operandi of fraud referred therein. (h) The Noticee is not connected with any of the preferential allottees or the entities to whom funds were transferred or the entities who sold the shares. He was not involved in the alleged fund transfers. (i) Since the Noticee did not make any illegal gains, he cannot be directed to disgorge the same. Such directions can be imposed only on such wrongdoers who have made illegal gains.

The same is also inherent in power under Section 11B of the SEBI Act, 1992. (j) The Noticee has already been penalised in the matter by SEBI vide order dated July 31, 2014 whereby he was debarred from the securities market for a period of three years. Since SEBI has failed to prove any accrual of illegal gains to the Noticee, the direction of disgorgement should not be passed against him. 22. VCL vide its written submissions dated June 28, 2018 and during the course of personal hearing submitted inter alia the following: (a) SEBI has not furnished various documents to the Noticee, as requested by it. (b) The alleged disgorgement of the ill-gotten gains, as referred to in the SCN, pertain to acts done by the past directors of VCL and other entities, mentioned in the SCN. VCL was not a party to any unjust enrichment or ill-gotten gains. All relations, direct or indirect, with the past directors of the company, which were the only nexus connecting VCL to the matter, have been completely severed even before the SCN was issued. The said directors have vacated the office and hold no relationship with the company.

The company is being run by a different set of directors. (c) VCL, which has a separate legal existence, did not receive any consideration or share in the alleged ill-gotten gains. (d) The allegations pertaining to the ill-gotten gains by VCL is nowhere reflected in the bank accounts of the company nor has SEBI explained the possibility of any ill-gotten gains by VCL. SEBI has itself admitted that the alleged gains were parked into the accounts of certain entities and finally into the account of MFL. The failure to prove VCL’s share in any ill-gotten gains absolves VCL of any liability arising out of the acts of its directors and other Noticees. (e) The SCN is in conflict with the SEBI order dated July 31, 2014, as regards the amounts of fund transferred to Anupama, CBS and various preferential allottees. (f) Due to the proceedings by SEBI, the shareholders of the company are suffering as they have no means to liquidate their investment. Consideration of issues 23. I have considered the facts of the case and the allegations against the Noticees as contained in the SCN, the replies and the submissions of the Noticees and other material available on record.

I note that the present proceedings are limited to determining the exact quantum of illegal gains made pursuant to the violations already established against the Noticees in the SEBI order dated July 31, 2014 and the liability of the individual Noticees for the purpose of disgorgement of illegal gains. Consequently, the role of the Noticees in the fraudulent dealings pertaining to preferential allotment by VCL, false corporate announcements and subsequent sale of shares to make illegal gains, as conclusively settled by the said order, cannot be revisited. With these fetters, I proceed to decide the issues at hand. 24. I note that except the three Noticees, viz. VCL, Shri Vinay Talwar and Shri JP Madaan, none of the other Noticees have responded to the charges in the SCN. I further note that sufficient opportunities have been provided to the Noticees to put forth their case. Thus, I proceed to decide the issues ex-parte in respect of the said Noticees who have not responded to the SCN, based on material available on record. Needless to say, the submissions of the three Noticees, who have replied to the SCN, have been considered while deciding the issues.

25. I note that the investigation has arrived at the exact quantum of the ill-gotten gains in this matter, by taking into account the zero cost of acquisition of shares by the preferential allottees and the net proceeds of sale of the shares, as calculated in Table-6 under para 15 above. The ill-gotten gains as calculated by the investigation and mentioned in Table-7 under para 16 above come to Rs.4,55,91,232/-. I note that none of the Noticees has challenged the fact that illegal gains were made as a result of fraudulent dealings, as detailed in the SEBI order dated July 31, 2014 and summarized hereinabove. The quantum of such illegal gains made in the entire process, as calculated by the investigation and mentioned in the SCN, has also not been disputed by the Noticees, except VCL, which has cited certain contradictions in the SEBI order dated July 31, 2014 and SCN, as regards the amounts of fund transferred to Anupama, CBS and various preferential allottees. In this regard, I note that while the SEBI order dated July 31, 2014 has primarily dealt with the role of the Noticees in the fraud and manipulations without quantifying the actual illegal gains, the SCN has relied on a subsequent investigation carried out specifically for the purpose of quantifying the ill-gotten gains and initiating disgorgement proceedings in respect of the same.

Thus, the figures of ill-gotten gains, as calculated by the investigation and mentioned in the SCN, have to be given precedence, in case of any contradiction with figures in the order dated July 31, 2014 or any other record. 26. As regards Shri Vinay Talwar (Noticee no. 4), I have considered the submissions made by him. Shri Talwar has rested his case primarily on the ground that since he had left the company much before the false corporate announcements and the sale of shares by the preferential allottees and since he had not received any ill-gotten gains, he cannot be made liable for disgorgement of any ill-gotten gains. I note that while the SEBI order dated July 31, 2014 has already established the role of the Noticee in the fraudulent preferential allotment for which he was debarred from securities market for a period of three years, the current proceedings is limited to quantifying the ill-gotten gains and disgorgement of the same. I note that the Hon’ble SAT in the matter of Karvy Stock Broking Limited Vs. SEBI (Order dated 02.05.2008 in Appeal no. 06 of 2007) has held as follows:

“ (5) Before we deal with the contentions of the parties, it is necessary to understand what disgorgement is. It is a common term in developed markets across the world though it is new to the securities market in India. Black’s Law Dictionary defines disgorgement as “The act of giving up something (such as profits illegally obtained) on demand or by legal compulsion.” In commercial terms, disgorgement is the forced giving up of profits obtained by illegal or unethical acts. It is a repayment of ill-gotten gains that is imposed on wrongdoers by the courts. Disgorgement is a monetary equitable remedy that is designed to prevent a wrongdoer from unjustly enriching himself as a result of his illegal conduct. It is not a punishment nor is it concerned with the damages sustained by the victims of the unlawful conduct. Disgorgement of ill-gotten gains may be ordered against one who has violated the securities laws/regulations but it is not every violator who could be asked to disgorge. Only such wrongdoers who have made gains as a result of their illegal act(s) could be asked to do so. Since the chief purpose of ordering disgorgement is to make sure that the wrongdoers do not profit from their wrongdoing, it would follow that the disgorgement amount should not exceed the total profits realized as the result of the unlawful activity.

In a disgorgement action, the burden of showing that the amount sought to be disgorged reasonably approximates the amount of unjust enrichment is on the Board.” 27. From the above judgment of the Hon’ble SAT, it is clear that disgorgement can be directed only against such wrongdoers who have made gains as a result of their illegal act(s). In the instant case, I note that Shri Vinay Talwar had been removed from the directorship of the company with effect from 06.09.2000 which is after the preferential allotment during December 1999 but much before the false corporate announcements and sale of shares by preferential allottees during May-July 2002. Further, SEBI order or the subsequent investigation has not recorded any finding about any receipt of ill-gotten gains by him. Thus, there is no proof of Shri Vinay Talwar having received an ill-gotten gains in this matter. Considering these facts in light of the abovementioned judgment of the Hon’ble SAT, I hold that Shri Vinay Talwar (Noticee no. 4) is not liable to disgorge the ill-gotten profits in this matter. 28. As regards Shri JP Madaan (Noticee no. 6), I note that he has also rested his case on the ground that since he did not receive any monetary benefit out of the proceeds of sale of shares by the preferential allottees, he cannot be directed to disgorge any illegal profit.

I note that similar to the case of Shri Vinay Talwar (Noticee no. 4), while the SEBI order dated July 31, 2014 has established his role in the fraudulent dealings for which he was debarred from the securities market for a period of three years, the said order and the subsequent investigation has not recorded any accrual of monetary benefits to the Noticee as a consequence of his involvement in the fraudulent dealings. Thus, on similar lines as in case of Shri Vinay Talwar, I hold that Shri JP Madaan (Noticee no. 6) is not liable to disgorge the ill-gotten gains in this matter. 29. As regards VCL (Noticee no. 1), I note that it had played a direct role in the abovementioned fraudulent dealings involving preferential allotment of shares funded by itself, false corporate announcements which resulted in the ill-gotten gains. The same has conclusively been established by the SEBI order dated July 31, 2014. VCL has contended that the directors of the company, referred to in the SCN, have left the company and that it is now run by a different set of directors. It has also contended that VCL, having a separate legal existence, cannot be made liable for the acts of its past directors.

I note that the said argument is without any merit. A mere change of directors does not have a bearing on the legal status or existence of a company, which as per VCL’s own admission has a distinct identity. Moreover, the SEBI order dated July 31, 2014 had not only indicted its past directors but also the company itself for the said fraudulent dealings. In fact, the order dated July 31, 2014 also records that VCL had also received funds through MFL after the sale of shares by the preferential allottees. Thus, the company cannot absolve itself from the liabilities arising on account of such fraudulent dealings and receipt of ill-gotten gains. Thus, the direct and active role of the company in such manipulative dealings and generation of the resultant ill-gotten gains and also receipt of funds out of the said ill-gotten gains by VCL stand established, which makes it liable to disgorge the ill-gotten profits. 30. As regards the rest of the Noticees, I note from the SEBI order dated July 31, 2014 and the findings of subsequent investigations that the Noticee nos. 9-22 and 24 are the preferential allottees who received shares in the preference allotment funded by VCL and subsequently sold the said shares after false corporate announcements by VCL, either directly or indirectly, and transferred the sale proceeds to MFL.

CBS (Noticee nos. 8) has acted as a conduit between VCL and the preferential allottes in respect of funding of preferential allotment by VCL. SVS (Noticee no. 23) has facilitated the preferential allottees in offloading shares after the false corporate announcements and was instrumental in transferring of funds between preferential allottees and MFL which in turn reached Vijay Jhindal, Shubha Jhindal and related entities including VCL. MFL (Noticee no. 5) has facilitated the transfer of proceeds of the sale of shares by preferential allottees (i.e. ill-gotten gains) to Ms.Shubha Jhindal, Vijay Jhindal and his related entities, including VCL. Shri Vijay Jhindal (Noticee no. 2) and Ms. Shubha Jhindal (Noticee no. 3) have received funds after sale of shares by preferential allottees which were transferred to them through MFL (an entity promoted and controlled by Vijay Jhindal). Shubha Jhindal was also a promoter/director of MFL. Hence, I find that apart from VCL (Noticee no. 1), the Noticees nos. 2, 3, 5 and 8-24 also had a direct and active role in the fraud and manipulation and generation of resultant ill-gotten gains.

I have no doubt that these entities (i.e. Noticee nos. 1, 2, 3, 5 and 8-24), who had played a direct and active role in the fraud in collusion with each other, have collectively benefitted from the resultant ill-gotten gains as a group. The same is further bolstered by the fact that out of these entities (i.e. Noticee nos. 1, 2, 3, 5 and 8-24), except VCL (Noticee no. 1), none of the Noticees has responded to the SCN even after sufficient opportunities. As regards Shri Rajinder Kumar Garg (Noticee no. 7), I find that by failing to respond to the SCN even after sufficient opportunities, he has presented himself as an acquiescing party in the entire fraud and the resultant ill-gotten gains. Thus, I hold that the Noticee nos. 1, 2, 3, 5 and 7-24 have collectively made the ill-gotten gains of Rs.4,55,91,232/- as calculated above and are liable to disgorge the same. 31. I note that the Hon’ble SAT, vide order dated April 30, 2013 in Appeal no. 207/2012 (Mrs. Ramkishori Gupta & Anr. Vs SEBI & Ors.), while deciding on the claims for compensation made by the complainants in this matter, has observed that in case SEBI finds VCL guilty of playing fraud on the investors, it may consider directing the concerned entity or VCL to refund the actual amount spent by the complainants on purchasing the shares with appropriate interest as per law.

Further, SEBI vide order dated April 01, 2016 had observed that it was appropriate to take on record the complainants’ claims for compensation for the losses suffered by them and that the same may be considered in accordance with the provisions of the SEBI Act, 1992 and the Regulations framed thereunder. In this regard, I note that the Hon’ble SAT, vide the abovementioned order has inter alia held that: "8. The Appellants have raised a twofold issue in the present appeal. Firstly, they seek a clear relief in the form of a direction to the BSE and VCL to compensate them for the alleged losses suffered on account of purchase/sale of 1,71,773 shares of the company in question. The claim is to the tune of Rs.51,53,190 in the form of damages for the alleged loss. Secondly, the Appellants have raised grievances regarding misleading advertisements by VCL in various newspapers which motivated the Appellants to purchase the shares of the company. Such allegations have also been made against the BSE. 9. ... … … In view of this legal position, the prayer of the Appellants seeking a direction to the SEBI to grant them compensation to the tune of Rs.51,53,190/- for the alleged loss suffered on account of the purchase/sale of 1,71,773 shares of VCL is totally misconceived and is hereby rejected.

In fact, the Appellants’ prayer for compensating him for the alleged loss is in the nature of a claim for damages on account of such alleged fraudulent and misleading representations by the VCL through various advertisements. This aspect needs to be looked into by a civil court of competent jurisdiction in a trial and not by SEBI under the SEBI Act, 1992 for the simple reason that SEBI has neither the expertise nor infrastructure for this purpose. There is no mandate in law requiring SEBI to do so in case any investor suffers loss on account of trading in shares etc. Such jurisdiction is not envisaged anywhere in the entire scheme of the SEBI Act, 1992. In fact, the law of damages/compensation is a complex area and SEBI is not supposed to undertake the same for reasons stated hereinabove.” 32. The above judgment makes it amply clear that any restitution by SEBI of the losses suffered by the complainants is outside the scope of SEBI. Further, as regard the observation of the Hon’ble SAT that SEBI may pass a direction to VCL to compensate the losses suffered by the complainants, I have duly considered the submissions and claims of the complainants as recorded in the SEBI Order dated December 16, 2014 and April 01, 2016. However, I find that such a direction is not feasible for a variety of reasons.

First of all, the fraud committed in this matter by the Noticees has not only affected the complainants but also a large number of investors who had traded during the relevant time. The shares held by the complainants in this matter were not directly issued to them by the company but were purchased by them in the secondary market where the shares frequently change hands. It would be unfair to compensate only the complainants selectively as there are many others who may have suffered similar losses by trading in the scrip. Any selective restitution only to the complainants would go against the principle of protecting the interest of the investors as a class. However, considering the fact that the fraud in the matter dates back to the year 2002 or before, the identification of each of such investors and the quantification of losses suffered by each of them for the purpose of restitution to investors as a class is a hugely complex task beyond the capacity of SEBI. Further, while the complainants may have suffered losses in this matter, they cannot deny the fact that any investment in the securities market carries inherent risks, which an investor is expected to factor in.

Thus, having considered all the facts and circumstances in totality, I deem it fit not to issue any direction regarding restitution of losses to the complainants. Directions 33. In view of the above, in exercise of powers conferred upon me under Sections 11, 11B read with Section 19 of the Securities and Exchange Board of India Act, 1992, I hereby issue the following directions: (a) The Noticee nos. 1, 2, 3, 5 and 7-24 (i.e. VCL, Vijay Jhindal, Shubha Jhindal, MFL, Rajinder Kumar Garg, CBS, Anupama, Brut, CAPL, COPL, Cosmo, Fashion, Flare, Heritage, Perfect, Rajat, TTCPL, TTEXPL, TTELPL, Wisdom, SVS and TTMPL) shall, jointly and severally, disgorge the unlawful gain, as calculated in Table 7 under para 16 above, totalling to Rs.4,55,91,232/- (Rupees Four Crore Fifty Five Lakh Ninety One Thousand Two Hundred Thirty Two Only). They shall also pay interest on this unlawful gain at the rate of 10% per annum from August 01, 2002 till the date of payment. The above-named Noticees 1, 2, 3, 5 and 7-24 shall disgorge the abovementioned amount with applicable interest within 45 days from the date of receipt of this order, by way of crossed demand draft drawn in favour of “Securities and Exchange Board of India”, payable at Mumbai.

In case the aforesaid amount is not paid within the specified time, the above named Noticee nos. 1, 2, 3, 5 and 7-24 shall be restrained from buying, selling or dealing in securities market in any manner whatsoever or accessing the securities market, directly or indirectly, for a period of five years from the end of the specified time of 45 days. The same shall be without prejudice to SEBI’s right to initiate appropriate enforcement action under SEBI Act, 1992 including Recovery, Adjudication or Prosecution. (b) Copy of this Order shall be forwarded to the recognized stock exchanges and depositories for information and necessary action.

Place: Mumbai G. MAHALINGAM Date: September 28, 2018 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA