Order with respect to Mr. Dilip Pendse, Mr. A.L Shilotri, Pat Financial Consultants Pvt. Limited and Superior Financial Consultancy Services Pvt. Limited[SAT Appeal No.:62/2017]281/2016]222/2016]

WTM/PS/60/IVD/JUNE/2016 SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 In the matter of Backdated Transactions in the shares of Global Telesystems Limited and Global E-Commerce Services Limited In respect of: 1. Mr. Dilip S. Pendse, 2. Mr. A.L. Shilotri, 3. Pat Financial Consultants Pvt. Limited and 4. Superior Financial Consultancy Services Pvt. Limited. Appearances: Date of hearing: November 24, 2015 Mr. A.L. Shilotri appeared along with his Mr. Atul S. Tungare, Advocate. For SEBI: Dr. Anitha Anoop, General Manger; Mr. Pradeep Kumar, Assistant General Manager and Ms. Anamika Ahir, Assistant Manager. Date of hearing: February 03, 2016 and April 01, 2016 Mr. Pesi Mody, Senior Advocate; Mr. Neveille Lashkari, Advocate; Mr. S.H. Merchant, Advocate; Mr. Rihal Kazi, Advocate; Mr. Bharat Patel and Mr. Vishal Patel appeared for Pat Financial Consulatants Pvt. Limited and Superior Financial Consultancy Services Pvt. Limited. For SEBI: Dr. Anitha Anoop, General Manger; Mr. Pradeep Kumar, Assistant General Manager; Mr. Ankit Bhansali, Assistant General Manager and Ms. Anamika Ahir, Assistant Manager. Date of hearing: May 09, 2016 Mr. D.S. Pendse appeared along with Mr. V.M. Singh, Advocate For SEBI: Mr. Pradeep Kumar, Assistant General Manager and Ms. Anamika Ahir, Assistant Manager.

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) on receipt of a complaint dated October 18, 2002, from Tata Finance Limited (hereinafter referred to as ‘TFL’ or ‘the Company’) conducted an investigation in the rights issue of TFL. The complaint had stated as under: a. TFL had come out with a rights issue of 9% cumulative convertible preferences shares aggregating to `90.93 crores in March 2001. b. For the same, TFL was required to furnish the financial statement of its subsidiary companies including that of Niskalp Investment and Trading Co. Limited (hereinafter referred to as ‘Niskalp’) in the offer document. c. Niskalp during the relevant period had suffered huge losses on account of erosion in the value of its investments (to the tune of `190 crores due to fall in the stock market) and payment of an interim dividend (@45% for the year 2000-01 resulting into cash outflow of `10.81 crores). d. In order to ensure that Niskalp’s accounts did not reflect the losses and as the loss and ‘non-performing assets’ (NPA) provisioning of Niskalp as on September 30, 2000 were lower compared to December 31, 2000, financials of Niskalp were disclosed for the period ending September 30, 2000, in the offer document instead for the period ending December 31, 2000. e. The complaint alleged certain fictitious backdated transactions of sale and purchase in the shares of Global Telesystems Limited (hereinafter referred to as ‘GTL’) and Global E-Commerce Services Limited (hereinafter referred to as ‘GECS’) between Niskalp and TFL.

2. During the course of investigation, the trading details (trade-order log) and demat account statements were analysed and the statements of various persons were recorded. The investigation prima facie found backdating of the transactions of sale of shares of GTL and GECS in September 2000 by Niskalp and purchase by TFL and reversal of such trades in December 2000 were at the behest of Mr. D.S. Pendse (Ex. Managing director of TFL and ex-director of Niskalp), Mr. A.L. Shilotri (Ex. President and Chief Executive Officer of Niskalp) and broking firms/ entities connected to Mr. Bharat J. Patel and his relatives/ associates. Such fictitious/ backdated transactions in the scrip of GTL and GECS had converted the loss of `14.59 crore to a profit of `11.45 as on September 30, 2000 in the books of Niskalp. Further, such profit in the hands of Niskalp was disclosed in the offer document for the purposes of the rights issue of TFL. The shares of TFL were listed on the Bombay Stock Exchange (hereinafter referred to as ‘BSE’) and the National Stock Exchange (hereinafter referred to as ‘NSE’) at the relevant point of time.

3. On completion of the investigation, SEBI issued a show cause notice (hereinafter referred to as ‘SCN’) dated May 04, 2009 to Mr. D.S. Pendse and Mr. A.L. Shilotri under Sections 11, 11B and 11(4) of the SEBI Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 alleging therein that the backdating of the transactions of sale and accounting entries for the scrip of GTL and GECS in the books of Niskalp were given in order to give a better picture of its half yearly accounts in the ‘letter of offer’ of TFL and to induce the purchase/ subscription to the rights issue of TFL. The SCN further alleged that the acts of Mr. D.S. Pendse and Mr. A.L. Shilotri were in violation of the Regulations 5(1), 6(a) and 6(d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 1995 (hereinafter referred to as ‘PFUTP Regulations’) read with Regulations 4(1), 4(2)(f), (k), (r), 13(2) and 13(3) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003.

SEBI also issued a SCN dated May 04, 2009 to the entities namely Pat Financial Consultants Pvt. Limited (hereinafter referred to as ‘Pat’) and Superior Financial Consultancy Services Pvt. Limited (hereinafter referred to as ‘Superior’) under Sections 11, 11B and 11(4) of the SEBI Act read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, alleging therein that they had aided and abetted Mr. D.S. Pendse and Mr. A.L. Shilotri in backdating the transactions of sale and purchase of shares of GTL and GECS. The SCN alleged that the acts of Pat and Superior were in violation of Regulations 6(a) and 6(d) of the PFUTP Regulations read with the Regulations 4(1), 4(2)(p), 13(2) and 13(3) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003.

4. Thereafter, Mr. D.S. Pendse sought an inspection of the documents. Accordingly, an inspection of documents was granted to him on July 17, 2009. Vide letter dated September 07, 2009, reply was submitted by him through his advocates. In the said letter, while requesting for dropping of the proceedings, he stated as under: a. The complaint dated October 18, 2002 and the SCN seek to protect certain high ranking officers of Tata group and seek to make him a proverbial scapegoat. The SCN has been issued almost 6 years after commencement of the investigation and relates to the transactions in the year 2000. The SCN does not explain the delay. b. The impugned transactions are relating to the year 2000 or latest March 2001, i.e. prior to the coming into force of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003. The provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003, could not be made applicable to him as the alleged wrong doings relates to the period of September 2000. c. The impugned transactions would be one out of numerous transactions done by TFL/ Niskalp and he cannot be expected to remember after almost a decade the details of each and every transactions.

He has no knowledge or recollection that the shares of GECS in the demat account of Niskalp were pledged with the HDFC Bank or any other bank at the relevant time. Further, no profit or motive is attributable to him in respect of the alleged wrong doing. For the period when he was in charge of TFL, all the statutory records had correctly reflected the transactions carried out by TFL. d. He sought cross examination of the author of the complaint, Mr. Bharat Jayantilal Patel, Mr. Prashant Jayantilal Patel, Mr. Pankaj Jayantilal Patel, Mr. Subodh K. Shah, Mr. P.R. Ramesh (partner of S.B. Billimoria & Co., CA), Mr. S. Sivaram (partner of M/s. Sahni Natrajan & Bahl), Mr. Jose Peter (director of Niskalp and Vice-President of TFL) and Mr. A.L. Shilotri. e. He had submitted a letter to the directors of TFL, conveying his decision not to continue with TFL as its Managing Director beyond May 31, 2001, on which date his term as Managing Director of TFL was expiring. This letter was accepted by the Board of Directors of TFL at its Special Board Meeting held on February 08, 2001 and Mr. Subodh K. Shah (who was the Deputy Managing Director of TFL from January 01, 2001), was appointed as the Managing Director (designate) w.e.f. February 09, 2001.

As he was serving the notice period, effective management and decision making was in the hands of Mr. Subodh K. Shah. Further, the rights issue of TFL including the audit of the accounts of TFL and its subsidiary namely Niskalp were being monitored by Mr. Subodh K. Shah. f. He was not a party to any scheme of antedating of the documents or sale and buyback of the shares of TFL by Niskalp. The books of Niskalp and the entries in respect of the transactions referred reflected the dates of September 2000. g. The accounts of TFL and Niskalp, were audited by the statutory auditors of TFL and Niskalp namely S.B. Billimoria & Company for the purposes of rights issue in March 2001, who had not raised any objection of any nature at that time. h. He was not involved in any manipulation of accounts or execution of any antedated documents to conceal the losses of TFL or fraudulent transaction to artificially inflate the profits of Niskalp.

5. Mr. A.L. Shilotri through Mr. Atul S. Tungare vide letter dated July 15, 2009, replied to the SCN and stated as under: a. The SCN is belated and he is not in a position to deal with all the aspects due to lapse of almost nine years from the date of the transactions. Due to the same, he is not able to lay his hands on important papers and documents. b. On the same set of allegation, he is being prosecuted by CBI, Mumbai and the same is pending before the Additional Chief Metropolitan Magistrate. In view of the same, he cannot be compelled to be a witness against himself. Once his defense is disclosed, it would be easy for the complainant to fill up the lacunas in their case by manipulating the evidence. In view of the same he will suggest his defence at the trial of the criminal prosecution when the witnesses will be examined on oath and he would get the right to cross examination. c. On the relevant dates he was in no way concerned with the TFL. He was the CEO of Niskalp which was a subsidiary of TFL. His job was to invest the funds of Niskalp in various securities by using his knowledge and experience in investment and finance sector under the guidance of the Board of Niskalp. He was not concerned with the Rights Issue of TFL. He was not even a shareholder of TFL and was not concerned with the day-to-day book entries and the audit of accounts.

d. If TFL had disclosed the financial position of Niskalp ending on September 30, 2000 in its offer document, it was the sole decision of the board of TFL. e. He was not concerned with the book keeping and accounts or back dated transaction. Before issuing statement as regards the financial position of Niskalp, TFL must have studied the audited report of Niskalp. f. He was never a party to any irregular transactions and all the transaction, if any, ordered by him were in the regular course of business. g. He requested for cross examination of the persons namely Mr. P.R. Ramesh, Mr. Subodh K. Shah and Ms. S. Sivaram.

6. Pat and Superior vide separate letters both dated November 18, 2009, requested for inspection of the documents. SEBI vide its letter dated August 06, 2010, granted an opportunity of inspection of the documents to these on August 17, 2010. On the date fixed the authorized representatives of Pat and Superior inspected the relied upon documents. Thereafter, SEBI vide its letters both dated August 23, 2010, supplied the copies of inspected documents to Pat and Superior. While proceeding further, opportunities of personal hearing were granted to Pat and Superior on November 12, 2010, however, the same was postponed to December 02, 2010, due to certain administrative exigencies.

7. In the meantime, Pat and Superior vide letters dated November 04, 2010, submitted the preliminary reply to the SCN. The submissions made in brief, are as under: a. Since the issuance of SCN, for the first time vide letter dated August 23, 2010, SEBI informed these that the statements of the witnesees and other documents are made part of the record. They requested for cross-examination of Mr. P.R Ramesh, Mr. Subodh K. Shah, Mr. A.L Shilotri, Mr. S. Sivaram, Mr. D.S. Pendse, Mr. Jose Peter and the author of the complaint. b. SEBI has no jurisdiction or authority to inquire into the matters involving shares of a company which are not even listed. Sections 11, 11B and 11(4) of the SEBI Act, 1992 in the exercise of which the present SCN is issued, are enacted to regulate the working of intermediaries like that of stock brokers, share transfer agents, sub-brokers, etc. They are neither registered as a stock broker nor as a sub-broker or otherwise and as such we are not an intermediary within the meaning of SEBI Act or the rules thereunder. Therefore, the SCN against these is void, bad in law and is liable to be withdrawn. c. The SCN has been issued without any authority or power.

The name and designation of the signatory of the SCN is not mentioned and a vague statement is made that the SCN is issued with the approval of the Competent Authority. Nothing is mentioned as to how the signatory of the notice has derived authority from the Competent Authority. d. There are simultaneous and prior civil as well as criminal proceedings initiated by TFL against these which are pending. These are based on the same cause of action as stated in the SCN and are pending before the Hon'ble Bombay High Court as well as in the court of Chief Metropolitan Magistrate, Esplanade, Mumbai. These proceedings involve common issues to those covered in the present SCN. Defending the allegations contained in the present SCN will compel them to disclose their defense and evidence in the said pending proceedings and will prejudice their rights and contentions in the aforesaid pending proceedings. The same could also be used against them in such pending proceedings and in view of the same the present SCN may not be proceeded with. e. The law imposing criminal liability has to be applied prospectively and not retrospectively.

The PFUTP Regulations have been repealed and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 have come into force on July 17, 2003. The same inflict penalty of criminal nature and cannot be applied retrospectively to the transactions of shares in question under the SCN, which were effected in September, 2000. f. The purchase of 16,35,100 shares of GECS as on September 29, 2000 from Niskalp was genuine transaction and there was no intention to commit fraud on any person. They purchased 16,35,100 shares of GECS from Niskalp on the basis of representations made by Mr. Shilotri, the then Director and CEO of Niskalp and the same was a genuine transaction acted upon by the buyer and seller. g. The books of accounts of Niskalp and/or TFL are their internal affairs and looked into by their management. PAT and Superior cannot be held responsible for any alleged violation of the books of accounts of a different independent authority.

h. The present SCN has been issued on May 04, 2009, for the alleged violations in dealing of shares transacted in September, 2000. The transactions are more than 9 years old. They are experiencing great difficulties in tracing the relevant records which would have enabled these to effectively deal with the violations alleged in the SCN. The Section 209(4)(A) of Companies Act, 1956 provides that the books of account of every company relating to a period of not less than 8 years immediately preceding the current year together with vouchers relevant to the entry in the ‘books of accounts’ shall be preserved in good order. Thus, the issue of the SCN at such belated stage has caused great difficulty. i. Pat and Superior were not aware that TFL was coming out with rights issue of 9% Cumulative Convertible Preference Shares in or about March, 2001. They are also not aware of any profits booked by Niskalp.

8. Considering the requests of the noticees, opportunities of cross examination on the various dates was granted. A detailed table of such opportunities is mentioned in the table below: a. Opportunities of cross examination granted to Mr. D.S. Pendse: Witness Date Status Mr. S. Sivaram 15/06/2011 Noticee expressed his inability to appear for conducting the cross examination. 20/06/2011- Noticee expressed his inability to appear for conducting the cross 22/06/2011 examination. 02/08/2011 Noticee expressed his inability to appear for conducting the cross examination. 26/08/2011 Witnesses failed to confirm his presence for cross-examination. &30/08/2011 05/09/2011 The cross-examination proceedings were adjourned on the request of the noticee as time was sought to examine the documents. 22/09/2011 Witness was present and the proceedings of cross examination were conducted. As the proceedings could not be completed, the same were adjourned for further date. 01/11/2011 Noticee expressed his inability to appear for conducting the cross examination. 26/09/2012 – Witness was present for the cross-examination, however, the noticee 28/09/2012 failed to enter appearance. The opportunity of cross examination of Mr. S. Sivaram was closed. 14/12/2015 Witness was recalled on the application of the noticee. However, the noticee had remained absent. 03/02/2016 Witness expressed his inability to appear for the cross-examination. 02/03/2016 Witness was again recalled on the request of the noticee and the proceedings of cross-examination were conducted and completed.

Mr. Jose Peter 20/06/2011 Noticee expressed his inability to appear for conducting the cross examination. 20/06/2011- Noticee expressed his inability to appear for conducting the cross 22/06/2011 examination. However, the witness was present. 01/08/2011, Witnesses failed to confirm his presence for cross-examination. 26/08/2011, 30/08/2011. 12/09/2011 Noticee requested copies of several documents before conducting the cross-examination. 13/10/2011 Noticee refused not go ahead with the cross-examination of any witness until the cross-examination of Mr. S Sivaram is complete. Cross-examination was adjourned. 27/11/2012 Witness was present and the proceedings of cross examination were conducted. As the proceedings could not be completed, the same were adjourned for further date. 28/10/2014 Witness was present and the cross examination in respect of him was completed. Mr. Subodh 15/06/2011 Noticee expressed his inability to appear for conducting the cross K. Shah examination 20/06/2011- Noticee expressed his inability to appear for conducting the cross 22/06/2011 examination. 01/08/2011 Witnesses vide letter dated July 07, 2011 expressed his inability to appear for conducting the cross-examination.

26/08/2011, Witnesses failed to confirm his presence for cross-examination. 30/08/2011 28/10/2014 Witness was present and the proceedings of cross examination were conducted. As the proceedings could not be completed, the same were adjourned for further date. 20/11/2014 Further proceedings of cross examination were conducted. As the proceedings could not be completed, on this date, the same were adjourned for further date. 21/11/2014 Witness was present and further proceedings of cross examination were conducted and completed. Mr. A.L. 15/06/2011 Noticee expressed his inability to appear for conducting the cross Shilotri examination. 20/06/2011- Noticee expressed his inability to appear for conducting the cross 22/06/2011 examination. 02/08/2011 Noticee expressed his inability to appear for conducting the cross examination. 26/08/2011, Witnesses failed to confirm his presence for cross-examination. 30/08/2011, 28/10/2014 26/11/2014 The witness requested for postponing the cross examination proceedings for a period of eight weeks. 13/05/2015 Witness expressed his inability to appear for the cross examination 21/07/2015 Witness was present, however, the noticee failed to appear for the cross examination, inspite of due intimation.

The opportunity of cross examination of Mr. A.L. Shilotri was closed. Mr. Bharat 15/06/2011 Noticee expressed his inability to appear for conducting the cross Patel examination. 20/06/2011- Noticee expressed his inability to appear for conducting the cross 22/06/2011 examination.

02/08/2011 Noticee expressed his inability to appear for conducting the cross examination. 26/08/2011, Witnesses failed to confirm his presence for cross-examination. 30/08/2011, 28/10/2014, 04/12/2014, 21/01/2015 12/05/2015 Witness vide letter dated May 07, 2015, expressed inability to appear for the cross examination. 24/07/2015 Noticee expressed his inability to appear for conducting the cross examination. The witness remained absent. 06/08/2015 Witness vide email dated August 05, 2015 expressed his inability to appear for the cross examination. Mr. Prashant 15/06/2011 Noticee expressed his inability to appear for conducting the cross J. Patel examination. 20/06/2011- Noticee expressed his inability to appear for conducting the cross 22/06/2011 examination. 01/08/2011 Witnesses failed to confirm its presence for cross-examination. Another date for cross-examination was granted. 26/08/2011, Witnesses failed to confirm his presence for cross-examination. 30/08/2011, 28/10/2014 04/12/2014 Witness vide letter dated December 01, 2014 expressed inability to appear for the cross examination.

21/01/2015 Noticee vide email dated January 12, 2015 expressed his inability to appear for conducting the cross examination. The witness remained absent. 17/04/2015 Noticee expressed his inability to appear for conducting the cross examination. The witness remained absent. 12/05/2015 Witness vide letter dated May 07, 2015, expressed inability to appear for the cross examination. 24/07/2015 Noticee expressed his inability to appear for conducting the cross examination. The witness remained absent. 06/08/2015 Witness failed to confirm the presence for the cross examination. Mr. Pankaj 15/06/2011 Noticee expressed his inability to appear for conducting the cross Patel examination. 20/06/2011- Noticee expressed his inability to appear for conducting the cross 22/06/2011 examination. 01/08/2011, Witnesses failed to confirm his presence for cross-examination. 26/08/2011, 30/08/2011, 28/10/2014 04/12/2014 Witness vide letter dated December 01, 2014 expressed his inability to appear for the cross examination. 21/01/2015 Noticee vide email dated January 12, 2015 expressed his inability to appear for conducting the cross examination.

17/04/2015 Noticee expressed his inability to appear for conducting the cross examination. The witness remained absent. 12/05/2015 Witness vide letter dated May 07, 2015, expressed inability to appear for the cross examination. 24/07/2015 Noticee expressed his inability to appear for conducting the cross examination. The witness remained absent.

06/08/2015 Noticee vide email dated August 07, 2015, expressed his inability to appear for conducting the cross examination. The witness remained absent. Mr. P.R. 15/06/2011 Noticee expressed his inability to appear for conducting the cross Ramesh examination. 20/06/2011- Noticee expressed his inability to appear for conducting the cross 22/06/2011 examination. 02/08/2011 Noticee expressed his inability to appear for conducting the cross examination. 26/08/2011, Witnesses failed to confirm his presence for cross-examination. 30/08/2011 Another date for cross-examination was granted. 29/09/2011 Proceedings cancelled due to certain administrative exigencies 10/10/2011 Noticee requested not go ahead with the cross-examination of any witness until the cross-examination of Mr. S Sivaram is complete. Cross-examination was adjourned for further date. 25/11/2014- Witness vide his e-mail dated November 18, 2014, expressed his 26/11/2014 inability to appear for cross examination. 09/12/2014 Witness was present and the proceedings of cross examination were conducted. 09/01/2015 Proceedings cancelled due to certain administrative exigencies 16/04/2015 Witness vide his e-mail dated February 24, 2015, expressed his inability to appear for the cross examination. 29/04/2015 Witness was present and the proceedings of cross examination was conducted and completed.

b. Following opportunities of cross examination were granted to Mr. A.L. Shilotri: Witness Date Status Mr. Subodh 20/10/2014 Witness was present and the proceedings of cross examination were K. Shah conducted. Mr. S. Sivaram 21/10/2014 Witness was present and the proceedings of cross examination were conducted. Mr. P.R. 25/11/2014 - Witness vide e-mail dated November 18, 2014 expressed his inability Ramesh 26/11/2014 to appear for the cross-examination on the date fixed. 09/12/2014 Witness was present and the proceedings of cross examination were conducted and completed. c. Following opportunities of cross examination were granted to Pat: Noticee Date Status Mr. D.S. 05/12/2012 Noticee failed to confirm the presence for the cross examination Pendse 28/10/2014 Noticee vide letter dated October 13, 2014, expressed his inability to appear for the cross-examination on the date fixed. 05/12/2014 Noticee failed to confirm the presence for the cross examination 15/04/2015 Noticee vide letter dated April 16, 2014, expressed his inability to appear for cross-examination on the fixed date as it received summons from Sessions Court, in a SEBI related matter for the same date. 22/07/2015 Noticee failed to appear for the cross examination Mr. A.L. 21/10/2014 Noticee vide letter dated October 13, 2014, expressed his inability Shilotri to appear for the cross-examination on the date fixed.

02/01/2015 The witness expressed his inability to appear for the cross examination on the scheduled date. 15/04/2015 Noticee vide letter dated April 16, 2014 expressed inability to appear for cross-examination on the fixed date as it has received summons from Sessions Court, in a SEBI related matter for the same date. 20/07/2015 Noticee failed to confirm the presence for the cross examination Mr. Subodh 21/10/2014 Noticee vide letter dated October 13, 2014, expressed inability to K. Shah appear for the cross-examination on the date fixed. 18/03/2015 – Director of the noticee vide e-mail date March 13, 2015, informed 19/03/2015 about its unavailability 14/05/2015 Noticee failed to appear for cross examination 20/07/2015 Noticee failed to appear for cross examination Mr. S. Sivaram 21/10/2014 Noticee vide letter dated October 13, 2014, expressed inability to appear for the cross-examination. 18/03/2015 – Director of the noticee vide e-mail date March 13, 2015, informed 19/03/2015 about its unavailability 07/08/2015 Noticee failed to confirm the presence for the cross examination Mr. Jose Peter 21/10/2014 Noticee vide letter dated October 13, 2014, expressed inability to appear for the cross-examination.

18/03/2015 – Director of the noticee vide e-mail date March 13, 2015, informed 19/03/2015 about its unavailability. 14/05/2015 Noticee failed to appear for cross examination Mr. P.R. 25/11/2014- Witness vide email dated November 18, 2014, expressed inability to Ramesh 26/11/2014 appear for the cross-examination. 09/12/2014 Noticee failed to confirm the presence for the cross examination 18/03/2015 – Director of the noticee vide e-mail dated March 13, 2015, informed 19/03/2015 about the unavailability 14/05/2015 Noticee failed to appear for cross examination d. Following opportunities of cross examination were granted to Superior: Noticee Date Status Mr. A.L. 06/12/2012 Witness expressed his inability to appear for cross examination. Shilotri 21/10/2014 The letter communicating the schedule of cross examination had returned undelivered. 02/01/2015 The witness expressed his inability to appear for the cross examination on the scheduled date. 15/04/2015 Noticee vide letter dated April 15, 2014, expressed inability to appear for cross-examination on the fixed date as it had received summons from Sessions Court, in a SEBI related matter, for the same date.

20/07/2015 Noticee failed to confirm the presence for the cross examination. Mr. Subodh 21/10/2014 The letter communicating the schedule of cross examination had K. Shah returned undelivered. 18/03/2015 – Director of the noticee vide e-mail date March 13, 2015, informed 19/03/2015 about its unavailability. 14/05/2015 Noticee failed to appear for cross examination 20/07/2015 Noticee failed to appear for cross examination

Mr. S. Sivaram 21/10/2014 The letter communicating the schedule of cross examination had returned undelivered. 18/03/2015 – Director of the noticee vide e-mail date March 13, 2015, informed 19/03/2015 about the unavailability 07/08/2015 Noticee failed to confirm the presence for the cross examination Mr. Jose Peter 21/10/2014 The letter communicating the schedule of cross examination had returned undelivered. 18/03/2015 – Director of the noticee vide e-mail date March 13, 2015, informed 19/03/2015 about its unavailability 14/05/2015 Noticee failed to appear for cross examination Mr. D.S. 21/10/2014 The letter communicating the schedule of cross examination had Pendse returned undelivered. 05/12/2014 Noticee vide letter dated December 01, 2014, requested time to collate the data 15/04/2015 Noticee vide letter dated April 15, 2014 expressed inability to appear for cross-examination on the fixed date as it has received summons from the Sessions Court. 22/07/2015 Noticee failed to confirm the presence for the cross examination Mr. P.R. 25/11/2014- Witness vide email dated November 18, 2014, expressed his inability Ramesh 26/11/2014 to appear for the cross-examination on the date fixed.

09/12/2014 Noticee vide letter dated December 01, 2014, requested time to collate the data 18/03/2015 – Director of the noticee vide e-mail date March 13, 2015, informed 19/03/2015 about its unavailability 14/05/2015 Noticee failed to appear for the cross examination 9. While the above discussed cross examination proceedings were being conducted, the noticees namely Pat and Superior vide email dated July 16, 2015, raised a preliminary issue on the jurisdiction and argued that there are simultaneous and prior pending civil and criminal proceedings initiated by TFL against them on the same cause of action and defending the allegations contained in the present SCN, will compel these to disclose the defense and evidence available with them. It was argued that the same will prejudice their rights and contentions in the pending proceedings and requested that the present SCN should be kept in abeyance and the cross examination of witnesses be postponed. The request of Pat and Superior for keeping the proceedings in abeyance was rejected as the cross examination dates were fixed as per their convenience.

It was also communicated to Pat and Superior that the preliminary issue raised would be dealt in the final order after the completion of the cross-examination and the personal hearing.

10. Thus, upon granting ample opportunities of cross examination to Mr. D.S. Pendse, Mr. A.L. Shilotri, Pat and Superior (hereinafter collectively referred to as the ‘noticees’)

(as detailed in paragraph 8 above), SEBI proceeded further and granted opportunities of personal hearings to Mr. D.S. Pendse and Mr. A.L. Shilotri on November 19, 2015 and to Pat and Superior on November 20, 2015. The schedule of the personal hearing was intimated to the respective noticees vide letters dated October 12, 2015. The noticees along with the letter were provided with status of cross-examination of respective witnesses and the copies of cross-examination proceedings.

11. The noticee Mr. D.S. Pendse vide his letter dated October 26, 2015, while requesting for adjournment of the personal hearing again sought for further cross examination of Mr. S.Sivaram, Mr. Bharat Patel, Mr. Pankaj Patel, Mr. Prashant Patel, Mr. A.L. Shilotri and Mr. F.J. Da Cunha. - The request of Mr. D.S. Pendse to cross examine Mr. F.J. Da Cunha was rejected as he had only made a complaint to SEBI and no statement was recorded by SEBI. I note that Mr. F.J. Da Cunha had authorized Mr. Jose Peter to appear on his behalf and answer the questions in the matter. It is seen that Mr. Jose Peter has already been cross-examined by Mr. Pendse on October 28, 2014.

- As the cross examination of Mr. S.Sivaram was partly held on September 22, 2011 and the same was incomplete, the request to have Mr. S.Sivaram cross examined by Mr. D.S. Pendse was allowed. The cross examination of Mr. S. Sivaram was fixed for December 14, 2015. Mr. D.S. Pendse vide his email dated December 01, 2015 and December 14, 2015, requested for rescheduling of the cross examination proceedings. Although such request was not accepted in the first instance, subsequently, the same was granted in the interest of justice. Accordingly, an opportunity for cross-examining Mr. S.Sivaram was scheduled for first on February 03, 2016, but re-scheduled to March 02, 2016. On the date fixed, the cross-examination proceedings were conducted and completed.

- Regarding the opportunity of cross-examination of other witnesses, Mr. D.S. Pendse and his advocate were informed that SEBI had made various attempts over the past 3-4 years to produce the other witnesses for cross-examination. The witnesses, viz., Mr. Bharat Patel, Mr. Pankaj Patel and Mr. Prashant Patel remained absent during the entire proceedings.Mr. D.S. Pendse has already cross examined the witnesses namely

Mr. S. Sivaram (cross examined on September 22, 2011 and March 02, 2016), Mr. Subodh Shah (cross-examined on October 28, 2014, November 20, 2014 and November 21, 2014), Mr. Jose Peter (cross examined on November 27, 2012 and October 28, 2014) and Mr. P.R. Ramesh (cross-examined on December 09, 2014 and April 29, 2015).

SEBI had also produced Mr. A.L. Shilotri on July 21, 2015. Mr. A.L. Shilotri’s cross examination was scheduled on several previous occasions i.e. June 15, 2011, June 20, 2011 – June 22, 2011, August 02, 2011, August 26, 2011, August 30, 2011, October 28, 2014, November 26, 2014 and May 13, 2015. However, as the said witness was located out of the country and he had cited illness as a reason for inability to be present for the cross examination, he could not be produced on such dates. Finally on July 21, 2015, when SEBI managed to produce Mr. A.L. Shilotri, Mr. D.S. Pendse failed to turn up for conducting the cross examination. As Mr. D.S. Pendse did not avail the opportunity for cross-examination on the date fixed, Mr. A.L. Shilotri made a request that he should be discharged, which was granted.

- I could not have further accommodated the request of Mr. D.S. Pendse for further cross examination as SEBI had already taken substantial efforts to produce the witnesses and several opportunities were scheduled in the process. The matter is old and long drawn and I note that in the interest of justice, it could not be delayed further. Therefore, an opportunity of personal hearing was granted to Mr. D.S. Pendse on March 30, 2016. However, Mr. D.S. Pendse vide his letter dated March 10, 2016, again requested for an opportunity of cross examining Mr. Bharat Patel, Mr. Pankaj Patel, Mr. Prashant Patel, Mr. A.L. Shilotri and Mr. F.J. Da Cunha. Vide another letter dated March 17, 2016, Mr. Pendse again requested that he be first given the opportunity to cross-examine the aforesaid persons and requested SEBI to adjourn/ re-schedule the personal hearing to a date after completion of the cross-examination.

- SEBI vide its letter dated March 23, 2016, reiterated that the opportunity to cross-examine Mr. A.L. Shilotri was closed due to the non-appearance of Mr. D.S. Pendse, inspite of due intimation and the witnesses namely Mr. Bharat Patel, Mr. Pankaj Patel, Mr. Prashant Patel had remained absent. Later vide letter dated March 28, 2016, Mr.

Pendse requested for re-scheduling of the personal hearing. His request was considered and the hearing was re-scheduled to April 18, 2016. The hearing was later re-scheduled to May 03-05, 2016, due to certain administrative exigencies. Mr. D.S. Pendse vide letter dated April 26, 2016, requested for an adjournment on the ground that his advocate is engaged in another matter and thereafter he was travelling. Vide this letter, he requested for fixing the next date of hearing after June 06, 2016. The request of Mr. Pendse was rejected and the same was communicated to him vide letter dated April 28, 2016.

- Thereafter, Mr. D.S. Pendse vide letter dated May 02, 2016, submitted two applications i.e. for re-call of the order communicated vide letter dated March 23, 2016, in respect of cross-examination of certain witnesses and for fixing fresh date of personal hearing. He further failed to appear for the personal hearing on May 03, 2016. In the interest of justice, one more opportunity of personal hearing was granted to him on May 09, 2016. On the date fixed Mr. D.S. Pendse along with Mr. V.M. Singh, Advocate appeared for the personal hearing and made submissions in respect of his application dated May 02, 2016 regarding recall of the order communicated vide letter dated March 23, 2016. The noticee was informed that the said application would be considered and decided in the final order and he was advised to make submission on merits of the case. The noticee was also informed during the course of personal hearing that as the matter is old, the hearing would be held on a day to day basis till the completion of the submissions by Mr. Pendse. However, no submissions were made on merits and the matter was adjourned to the next day. Mr. D.S. Pendse failed to appear on the next day i.e. May 10, 2016, for the personal hearing. In the interest of justice, Mr. D.S. Pendse was granted time till May 23, 2016, for filing the written submissions, if any. The same was communicated to him vide letter dated May 11, 2016. However, no written submissions have been filed by him, till date.

I note that Mr. D.S. Pendse was free to draw adverse inferences for the witnesses who were not produced. However, Mr. D.S. Pendse has failed to make any written submissions. Mr. D.S. Pendse, at different stages of the proceedings, tried to dodge the conclusion of this proceeding and lastly by not filing any written submissions. I note that the transactions dealt in the matter are of the year 2000-2001, the SCN was issued in the year 2009 and thereafter the matter was pending for cross-examination of the witnesses. I note that the statements are only corroborative to the main evidences and the noticee, Mr. D.S. Pendse has failed to make any argument in respect of the main evidences. From the above and the numerous opportunities already afforded to the Mr. D.S. Pendse in the matter of cross-examination of the witnesses and also for making submissions, I find that there is no violation of the principles of natural justice. Accordingly, I dispose of the application of the Mr. D.S. Pendse dated May 02, 2016, as being without merits.

12. Mr. A.L. Shilotri vide his letter dated October 29, 2015, requested to re-schedule the personal hearing. The request was considered and the hearing was re-scheduled to November 24, 2015. In the meantime, Mr. A.L. Shilotri vide letter dated November 05, 2015, submitted the reply to the SCN, which was taken on record. On the date fixed for hearing Mr. A.L. Shilotri appeared alongwith Mr. Atul S. Tungare, Advocate and made oral submissions. Thereafter, Mr. A.L. Shilotri vide another letter dated April 06, 2016, filed certain additional submissions, which were also taken on record. His submissions, in brief, are as under: a. Niskalp was wholly owned subsidiary of TFL and TFL was holding 99.90% shares of Niskalp. The office of Niskalp and TFL was in the same premises. Niskalp was managed by the board of TFL and it had no staff of its own. All the books of accounts of Niskalp were maintained in the regular course of business by the staff on the payroll of TFL. Niskalp was an investment arm of TFL and its business was to make investments from and out of the funds provided by TFL. Niskalp had no employees except him and a Company Secretary named Mr. P. B. Karyekar.

Mr. P.B. Karyekar was not reporting to him at any point of time and he was drawing his salary from TFL and was reporting to Mr. Ramanujan, Chief Financial Officer of TFL. b. Before his appointment as President and CEO of Niskalp on February 11, 2001, he was working as Vice President of TFL. In that capacity he was supposed to advise TFL in the matter of equity investments. The decisions as regards the investments advised/ recommended by him were to be taken by the Investment Committee, who were the members on the Board of TFL. He was in no way concerned with day to day entries in the books of accounts, sales and purchase registers, register relating to pay in and pay outs and any other back office business. c. As a president and CEO of Niskalp, he was in no way concerned with the success or failure of the ‘offer for Rights Issue’ made by TFL. He was not to be benefited by the ‘offer of Rights Issue’ and the only persons, who could be interested to ensure that the Rights Issue would be a success were TFL and its Board, who were interested in raising funds under the issue. d. He was working as Vice President (Investment) with TFL till February, 2001. Vide letter dated February 02, 2001, he was informed that his services had been transferred from TFL to Niskalp w.e.f. February 05, 2001 and he was given continuity of service upon such transfer and asked to continue to be based at Dubhash House.

Till his services were terminated, he drew his salary from TFL. No staff was working under him at Niskalp and he was supposed to report to the Chairman and Board of Directors who were nominated by TFL. e. When TFL had decided to come out with the Rights Issue, Niskalp was in losses due to fall in the stock market. Before offering Rights Issue, the TFL was supposed to furnish financial statements of all its subsidiary companies. The Board of TFL must have instructed its accounts and finance department to submit the financial position of its subsidiaries as on the relevant date for the purpose of Rights Issue. The account and finance department of TFL must have submitted the financial position of its subsidiaries including that of Niskalp to the Board of TFL. Therefore the Board of TFL and its highrank officer cannot say that they did not know the financial position of Niskalp as on September 30, 2000 and December 31, 2000. f. It was the decision of the Board of TFL to disclose the financial position of Niskalp for the period of six months ending on September 30, 2000 instead of December 31, 2000. g. TFL had published the ‘letter of offer’ of Rights Issue on or about January 31, 2001. The datum line for the entitlement of Rights Issue for the shareholders was February 17, 2001 and the Rights Issue was to open on March 30, 2001. He was appointed CEO of Niskalp on February 05, 2001 vide letter transferring his services from TFL to Niskalp.

h. After publication of the letter of offer for Rights Issue by TFL, a complaint was made to SEBI against the Board of TFL about the non-disclosure of relevant information relating to the financial position of Niskalp. SEBI took cognizance of the complaint and sought explanation from the Board of TFL. The influential persons of the Board of TFL had decided to use few persons in lower management as scape goats. He has not been named by any of the witnesses. The brokers who named him have not been cross examined by him. Further, the broker namely Mr. Prashant Patel and Mr. Dilip Pendse were given opportunity to cross examine him, but they have failed to cross examine him. Mr. Bharat J. Patel was also given an opportunity to cross examine him, however, he also failed to do the same. Therefore, there is no case against him. i. The investors were given options to withdraw their monies from the rights issue not once but twice and that no investor has ever lost any money due to the alleged anomalies in the ‘letter of offer’. j. The concept of internal transactions between the parent company and its subsidiary is not unknown in corporate world.

In such kind of transactions, no physical transfer of shares take place and no brokerage is paid to the brokers, however for the account purpose, broking entity is used. Merely because no brokerage is paid, SEBI could not have jumped to a conclusion that the transactions were fictitious. The report of A. Furgusson which was invited by TFL itself, had heavily indicted the management of TFL and hence the same was not produced before the Competent Authority. k. During the course of proceedings, SEBI had examined Mr. Subodh K. Shah as a witness. In his cross examination, Mr. Subodh K. Shah stated that before recording of his statement by SEBI, he had gone through the copy of the report prepared by Y.M. Kale, partner, A. Furgusson & Co. and that his statement before SEBI was based on the report of Y.M. Kale. Further, it has been said by him that the Y.M. Kale report was not brought on record before SEBI. Mr. Subodh Shah stated that it was Mr. D.S. Pendse who had asked him if the transactions for sale of GTL shares could be done between Niskalp and TFL. Mr. Subodh Shah also stated that in the meeting held in the chamber of Mr. D.S.

Pendse in March 2001, no decision whatsoever was taken regarding the sale of shares between Niskalp and TFL. Mr. Subodh Shah stated that he did not have any personal knowledge regarding the internal transactions of the shares, if any, between Niskalp and TFL and he came to know about the backdating transactions from the report of Y.M. Kale of A. Furgusson & Co. Thus, there is nothing against Mr. A.L. Shilotri in the evidence of Mr. Subodh K. Shah. l. Mr. P.R. Ramesh, partner, S.B. Billimoria and Co. in his cross examination, stated that he was aware that Niskalp was in the business of trading in securities and financing. S.B. Billimoria and Co. were the auditors of both TFL and Niskalp. The witness admitted that he was aware that he was preparing the account of TFL for the financial year 2000-2001 for the purpose of Rights Issue and that the statement of account would form the ‘letter of offer’. Further, Mr. D.S. Pendse had informed him that TFL had decided to proceed with the Rights Issue with the results of Niskalp for the period ending on September 30, 2000, instead for the period ending on December 31, 2000, but he was not aware of the reason for such change.

The witness further stated that he did not seek any explanation from the Board of TFL for such change, as it was in compliance with law. Mr. P.R. Ramesh stated that though for giving clear picture before publishing the Rights Issue, the accounts for the last quarter ending on December 31, 2000 could have been given, since the requirement of law was to include the account up to a period not earlier than six months from the date of offer, it was the choice of the Company to consider inclusion of the results. m. Mr. S. Sivaram in his cross examination has not uttered a word against Mr. A.L. Shilotri. Mr. S. Sivaram admitted that the audit report was signed by the senior partner Mr. Dinesh Bahl and that he had no personal knowledge as regards the transactions referred to in his statement before SEBI. Mr. S. Sivaram also admitted that he had knowledge about the transactions, as the supervisor on the job would have, based on the documents and he was not personally summoned by SEBI to appear before it for recording statement. n. The statement of Mr. D.S. Pendse supports the case of Mr. A.L.

Shilotri. Most of the Board meetings of the Niskalp were chaired by Mr. J.E. Talaulicar. The statement of Mr. Jose Peter further supports the case of Mr. A.L. Shilotri that all the decisions relating to investment were made by the board of TFL. o. No broker has been examined as a witness to substantiate the charge that Mr. A.L. Shilotri had placed orders verbally for the alleged transactions. It was stated that Sahani Natarajan and Bahl published the audit report part-IV in August, 2001. In June 2001 itself, Mr. Y.M. Kale of A. Furgusson & Co. had already handed over his preliminary report to TFL in which he had commented upon several irregularities in the functioning of TFL inter alia including backdating certain transactions. The very auditors did not notice any irregularities in respect of the said transactions in their earlier reports submitted by way of Audit Report nos. 1, 2 and 3, in the course of audit. p. As can be seen from the evidence of the internal auditor, Mr. S. Sivaram, he had remarked in his audit reports for the earlier financial years 1998-1999 and 1999-2000 that there was a basic anomaly in the system which permitted backdation of records and in those financial years also, he had noticed accounting of transactions not backed by approvals/ supporting documents.

Moreover, the transaction was between a parent company and its subsidiary and therefore there was no need for movement of scrip and even book entries were suffice. Such internal transactions are perfectly legal as per any accounting standards and the inference drawn by the SEBI is absolutely unwarranted.

13. While replying to the hearing letters of SEBI, the noticees namely Pat and Superior vide letters dated November 16, 2015 and November 20, 2015, respectively submitted the following: a. SEBI does not have jurisdiction to investigate into the transaction in the shares of GECS. b. It would be imperative for SEBI to decide the aforesaid issue as a preliminary issue and pass a reasoned order thereon prior to proceeding with the cross examination of the witnesses or the SCN under reference. c. There are simultaneous and prior civil as well as criminal proceedings initiated by TFL against these which are pending adjudication. These proceedings involve common issues to those covered by the SCN. In view of the same, defending these allegations contained in the present SCN will compel these to disclose the defense and evidence available with them in the present proceedings. The same will prejudice their rights and contentions in the aforesaid pending proceedings. d. They have never given up rights in the matter to cross examine the witnesses and non-appearance cannot be deemed to be any waiver on their part.

On the date fixed for personal hearing, Pat and Superior failed to turn up for the personal hearing. In the interest of justice, one more opportunity of personal hearing was granted to these on January 19, 2016. Superior vide letter dated January 13, 2016, requested for the copy of the minutes of the hearing for November 20, 2015 and confirmed the presence for the personal hearing on January 19, 2016. SEBI vide its e-mail dated January 14, 2016 replied that no minutes of the proceedings were recorded on November 20, 2015, as the noticees were absent. Vide another e-mail dated January 19, 2016, Mr. Bharat Patel, director of Pat requested for re-scheduling of the personal hearing. The request was considered and the matter was re-scheduled to February 03, 2016.

On the date fixed, Mr. Bharat Patel and Mr. Vishal Patel appeared for Pat and Superior along with Mr. Pesi Modi, Senior Counsel, Mr. Neveille Lashkari, Advocate; Mr. S.H. Merchant, Advocate; Mr. Rihal Kazi, Advocate. The representatives made submissions on the preliminary arguments made vide letter dated November 16, 2015. The request made by the representatives for cross-examination of the witnesses was rejected, in view of the earlier opportunities granted and not availed by them. The representative thereafter, made submissions on the merits of the case. However, as the submissions could not be completed and the hearing was adjourned to March 15, 2016. In the meantime, Pat and Superior vide email dated March 14, 2016, requested for an adjournment due to non-availability of their counsel. The request was considered and the matter was adjourned to April 01, 2016. On the date fixed, the authorized representative submitted a compilation of the documents containing the minutes of cross-examination of Mr. Jose Peter, Mr. Subodh Shah, Mr. P.R. Ramesh, Mr. Dilip S. Pendse, Mr. S. Sivaram recorded before the ‘Designated Authority’ under the SEBI (Intermediaries) Regulations, 2008. The same were taken on record. The representatives also requested time for filing the written submissions. The request was considered and two weeks’ time was granted to these for filing the written submissions and supporting documents, if any. Pat and Superior vide letters dated April 21, 2016 and April 22, 2016 respectively gave the written submissions, which were taken on record. The submissions in brief are as under:

i. GECS was an unlisted company, Pat and Superior were unlisted companies and not intermediaries registered with SEBI. No trades were executed on the stock exchange either in accordance with the stock exchange mechanism or otherwise, which are being investigated and/ or are in issue in the present matter. Therefore SEBI has no jurisdiction to issue the SCN to them. ii. The noticees had no role to play in the internal accounting procedures of Niskalp/ TFL or in respect of the drafting/ disclosures in the ‘letter of offer’. The sale of shares of GECS was never concluded. There was no delivery or payment and the same should never have been shown in Niskalp’s account as a concluded sale nor could they have booked any profits in respect thereof. Therefore, there is no cause of action or jurisdiction fact which would justify taking any action including issuance of SCN against them. Despite the same, the learned WTM has decided not to hear the said issues as a preliminary issue and has heard the entire matter on merits. However, the issue of jurisdiction still remains to be adjudicated upon. iii. Numerous proceedings are already pending on the same allegations. The present matter is squarely in issue pending trial and adjudication before the Hon’ble Bombay High Court. For SEBI to pass orders at this stage, would amount to interference with proceedings pending before the Hon’ble Bombay High Court. SEBI has also filed a criminal complaint before the Sessions Court on the very same allegations and the same is pending before the Hon’ble Court. Even the CBI has file Criminal Complaint before the Metropolitan Magistrate, Mumbai on the very same allegations and the same is pending for hearing. iv. The extraordinary delay in the proceedings has caused tremendous prejudice to the noticees. v. SEBI’s entire allegations in the SCN of back dating of documents, fictitious transactions, etc. are based only on the alleged statements of various parties as allegedly recorded by SEBI in the year 2004-05, copies whereof were forwarded by SEBI to them under cover of letter dated August 23, 2010. Several of the said statements contain contradictory allegations to the statements allegedly made by other deponents. Yet these are all purportedly relied upon by SEBI and that too without any explanation or reference in the SCN, nor was any supplementary SCN issued by SEBI.

Since SEBI has relied upon inter alia the statements of Mr. S. Sivram and Mr. D.S. Pendse, the same are binding upon SEBI and these expressly record that there was no back dating or fictitious transactions which totally contradicts and belies the allegations in the SCN, and therefore the SCN is bound to be dismissed or discharged against them. vi. The noticees were offered certain opportunities of cross examination, the same were adjourned for various reasons. SEBI vide its e-mail dated November 20, 2015, refused to grant the noticees any further opportunity of cross examination. During the course of personal hearing, they had requested for one last chance to cross examine the parties whose statements were being relied upon by SEBI. However, the same was not granted. Upon the same, the advocate for the noticee had suggested that in connected matter relating to the sale of GTL shares 6 out of 7 witnesses had been cross examined in year 2012 and only 1 witness remained to be cross examined, the cross examination of the last witness therein could also be completed and then the noticees be allowed to rely upon the cross examination of all such witnesses for the present matter also.

However, the request was not considered and it was orally ruled that whilst the noticees could produce and rely upon the cross examination of the witnesses done so far in the said other matter, he would not wait for the cross examination of the last witness as the said other matter is before the Enquiry Officer under the Intermediate Regulations. Thereafter, they were constrained to rely upon the cross examination of the witnesses as was available from the said other matter. vii. As per the statement of Mr. Bharat J. Patel, a few days before September 29, 2000, Mr. D.S. Pendse and Mr. A.L. Shilotri had approached Mr. Bharat J. Patel and told him that they had negotiated with some foreign party for the purchase of GECS shares @ `310 per share, but as RBI permissions were awaited and they wanted them as middle men in the deal. Pat had therefore issued the said letter dated September 29, 2000. Further, as they could not arrange the ultimate client, at their request, the trades were later reversed on November 28, 2000, by Niskalp repurchasing the shares from Superior. There was no delivery of shares and no payment. viii.

The letter dated September 29, 2000 was only an ‘agreement to sell’ and not a sale. The same ex-facie show that the delivery and payment were intended to happen at future date, the payment was to be effected 7 days after the delivery of the shares so that Pat could deliver the shares and get the payment from the proposed ultimate buyer. In such transaction, Pat was to act as a broker and was to receive brokerage. Niskalp had failed and neglected to get the ultimate buyer and to deliver the shares. Therefore, admittedly no payment was ever made. It has also been said that the brokerage was not paid. In effect, there was no concluded sale of shares and Niskalp could never have shown the same in its account as a concluded sale and could never have at any time purported to book any profits in its accounts on the basis of the said letter dated September 29, 2000. Therefore the mischief, if any, was by Niskalp alone. ix. No reasonable/ responsible auditor could having seen the letter dated September 29, 2000; demat statements showing that the shares had never been delivered; the bank statements showing that no money was paid would have allowed to book the alleged profit of ‘sale’ in the accounts of Niskalp/ TFL. x. As alleged in the SCN, if the letters were backdated and created in March 2001, then the auditors/ accountants were fully aware of the resale and reversal.

The same was before the ‘letter of offer’. Therefore, there was no obligation to disclose the same but the letter dated November 28, 2000 was suppressed. The same was the mischief of the auditors, the accountants, the BRLM (DSP Meryl Lynch) and the Board of Directors of TFL and Niskalp. xi. The impugned transaction was a huge single transaction of about `50 crores, which partly converted Niskalp’s loss into a profit. The value of the transaction was about 25% of the total portfolio of Niskalp, which was worth about `218 crores. Despite the same, the auditors allowed Niskalp’s account to show and book a profit for a transaction which was never concluded and the same was allowed/ approved by BRLM and the Board of Directors of Niskalp. The same is complete failure and lack of due diligence on the part of the auditors/ BRLM/ Board of Directors of Niskalp and TFL. xii. As regards, the query during the course of personal hearing that if the sale as intended under the said letter dated September 29, 2000 had never concluded and if not then what was the reasons for recording a reversal thereof by the letter dated November 28, 2000, it has been submitted that at the relevant time, information regarding the proposed merger between GTL and GECS, was in the public domain.

Because of the same, there was a huge potential for the shares of GECS and the value to jump up, inter alia since its unlisted shares would become listed shares of GTL. In view of the same, there was no downside in issuing of the said letter dated September 29, 2000. If Niskalp delivered the shares and brought the proposed ultimate buyer as promised, they would have earned brokerage. If Niskalp did not get the buyer, the shares had huge potential value as aforesaid. If Niskalp did not deliver the shares, there was no obligation to pay for the same, but, they could have sued Niskalp for damages and brokerage, if the share value went up. If the shares value went down, even then they could have sued for their brokerage. In order to avoid such situation and close out the outstanding obligation and liability to Pat and Superior, Niskalp asked them, Niskalp asked them to reverse the trades at the same price. The noticees agreed because of the long standing relationship and because they would also earn brokerage on such reversal. Unfortunately, however, even the brokerage has not been paid to date. xiii.

SEBI had vetted the ‘letter of offer’ and permitted Niskalp’s accounts to be as of September 2000, without furnishing any explanation for such deviation. Even the Board of Directors of TFL and Niskalp; the BRLM of the said ‘letter of offer’; the auditors of TFL and Niskalp permitted the said deviation without any reason and no charge has been made out against them for ‘aiding and abetting’ as alleged against Pat and Superior. xiv. If the noticees were co-conspirators with Niskalp, then the said letters would logically have been far more explicit in recording the actual sale and the shares would have been transferred to and parked with Pat and Superior. Further, the said letter would have been backdated to show a sale in November 2000, to themselves and the reversal would have been effected as a purchase by Niskalp in January 2001 from Pat and Superior, so that the accounts of Niskalp could have also been made as of December 2000 as was done for TFL and all other subsidiaries. Further, there would have been no brokerage payable to Pat and Superior so that the record could reflect a concluded sale. xv.

As the letters dated September 29, 2000 and November 28, 2000 were bonafide and genuine, that Niskalp had to deviate and make their accounts as of September 2000, i.e., in between the dates of the aforesaid letters. The letter of Pat and Superior have been misused by Niskalp, TFL, their respective Boards of Directors, the auditors, the BRLM concerned, etc. to falsify the accounts of Niskalp as disclosed in the said ‘letter of offer’. xvi. TFL would have published its quarterly accounts as of September 2000 and December 2000, within one month of the end of each quarter as required by the listing agreement. Niskalp’s accounts would have been incorporated in such disclosed accounts. It is not known/ disclosed as to whether the accounts of Niskalp had reflected the purported sale/ profit in such accounts. If the same was in fact accounted for then it cannot be said that the same was backdated/ fictitious. If however, the same was not reflected, the same highlight the mischief of the auditors that even after the disclosures in September and December 2000, they changed the accounts in March 2001, showing the non-existing profits, even though in December they must have shown a loss. xvii.

The ‘letter of offer’ is dated March 20, 2001. The approval of SEBI was prior to that date. The Board Resolution of the Board of Directors of TFL approving the ‘letter of offer’ for the offer was apparently on January 04, 2001. Prior to the same, the accounts had to be finalized. Therefore in any event, there could never have been any backdating of the said impugned letters in March 2001 as incorrectly alleged. xviii. Niskalp could not have booked profits for the transactions which admittedly never took place due to failure to deliver the shares. In any event, as of March 2001, admittedly both the impugned letters were part of the record of Niskalp. Therefore in any event no profits could have been booked. It is reiterated that the accounts of Niskalp ought not to have reflected the proposed transactions at all, since the same never fructified. Niskalp choose to incorrectly allege that there was a sale on the basis of the letter dated September 29, 2000, then it was also bound to disclose the repurchase/ reversal under the letter dated November 28, 2000. In either event, the net result would have been nil and no profits could have been booked.

The mischief was in booking the notional profit on the basis of the letter dated September 29, 2000 while ignoring the letter dated November 28, 2000. xix. The statements relied upon by SEBI are contradictory, however, these shows that the impugned letters of Pat and Superior could never have been fabricated in March 2001, as alleged in the SCN. Mr. P.R. Ramesh in his statement dated June 16, 2004 has inter alia stated that on 19-20 March, 2001, he had sought supporting documents in respect of purported sale of GECS shares, Mr. Karyekar had informed him that the sale of GECS shares would be accounted at `347 instead of `310 to which he objected. He had instructed not to pass any accounting entries without supporting documents. The only document provided was the letter dated September 29, 2000, on the basis of which he had approved the accounts and the ‘letter of offer’ information. Further, the profits booked were reversed only in March 2002, since the shares had not been delivered. Mr. Subodh Shah in his statement dated July 01, 2004 has stated that he had attended a meeting in March 2001, at which it was discussed that Niskalp had suffered losses for quarters ending September 2000 and December 2000, Mr. D.S.

Pendse and Mr. Shilotri had suggested showing in the accounts, the purported sale of said shares, but he opined that the same could not be done, as the returns of TFL had already been filed for the quarter ended September 2000 and December 2000. The same proves that Niskalp’s accounts for the quarter ended September 2000 and December 2000 did not show any such booked profit since the transaction never took place. Therefore, the mischief was on the part of Niskalp/ TFL/ the BRLM/ the auditor/ the Board of Directors, in subsequently booking such profits in March 2001. Mr. S.Sivaram has stated that GECS shares were sold on September 30, 2000 @ `310 per share through Pat and Superior and a profit of `9.81 crore was booked by Niskalp even though no payment was ever received. He alleged that there was no board resolution authorizing purchase/ sale of shares. Further, the accounting entry for the sale of shares was not recorded in the books of accounts of Niskalp till October 31, 2000. Mr. Jose Peter in his statement dated April 25, 2005 had stated that there were internal audit reports of Niskalp for the periods of July 2000-October 2000, November 2000- December 2000 and January 2001 to February 2001, which covered 100% transactions, but the same did not show any sale of GECS shares.

He alleged that only in March 2001, the entities were backdated to show the purported sale of GECS shares, but he admits that even then the reversal under letter dated November 28, 2000 was on record. He also said that the accounting software of Niskalp permitted retrospective entries and the same must have been misused by Niskalp and Mr. D.S. Pendse to perpetuate the fraud.

Mr. D.S. Pendse in his statement has stated that the transactions of sale of shares were undertaken as per the approval granted by the Board of Directors and only the accounting entries were made in the books of Niskalp in March 2001. Further, the decision for the sale of shares was taken by himself, Mr. A.L. Shiklotri and Mr. Subodh Shah in consultation with Mr. Talaulikar and Dr. F.A. Mehta. The said decision was taken in September 2000 and the orders were placed by Mr. Shilotri and not by him. The investment portfolio of Niskalp was reviewed at every board meeting. The Board had discussed the sale and purchase of shares and all directors were aware of the same. Even the auditor’s report which was included in the ‘letter of offer’ was unqualified, therefore Mr. P.R. Ramesh could not allege that there was any backdating irregularity. xx. In the cross-examination proceedings before the Designated Authority, Mr. Jose Peter has confirmed that before filing of the offer document with SEBI, the final accounts were approved by the Board of Directors and certified by the auditors. Pat and Superior have submitted that as the ‘letter of offer’ is dated March 20, 2001, SEBI’s approval would have been much prior thereto and the certification by the auditors and the approval of the board would have had to be much prior thereto, therefore, it cannot be alleged that the impugned letter were backdated/ created in March 2001. Mr. Subodh Shah also in his cross-examination before the Designated Authority has stated that he does not remember the Board of Directors of TFL had approved the ‘letter of offer’ before or after January 2001. From the same, it implies that the Board approval may have been prior to January 2001 and the question of the impugned letter being backdated in March 2001 does not arise.

Mr. P.R. Ramesh in his cross-examination before the Designated Authority has stated that he had signed the audit report on March 19, 2001, even though the impugned letter of September 29, 2000 was not produced on March 19, 2001 and prior thereto. It has been argued by Pat and Superior that ex facie the auditor admits that he signed the audit report containing the wrong booked profit for the proposed transaction without ever having seeing the letter dated September 29, 2000. The same shows that the auditors cannot contend that the letter dated September 29, 2000 misled them into believing that the transaction was concluded. xxi. The impugned letter dated September 29, 2000 and November 28, 2000 were not backdated or fictitious and the allegation is irrelevant. The same could never have been accounted as a concluded transaction and Niskalp could never have been booked profits for the transactions which admittedly never took place due to the failure to deliver the shares. In any event, as of March 2001, admittedly both these impugned letters were part of the record of Niskalp. Therefore, in any event no profits could have been booked.

It is reiterated that the accounts of Niskalp ought not to have reflected the proposed transaction at all since the same never fructified. However, if it chose to incorrectly allege that there was sale on the basis of the letter dated September 28, 2000, then it was also bound to disclose the repurchase/ reversal under the letter dated November 28, 2000. In either event, the net result would have been nil and no profits could have been booked. The mischief was in booking the notional profit on the basis of the letter dated September 29, 2000 while ignoring the letter dated November 28, 2000.

14. While proceeding further, I note that the noticees have raised certain preliminary issues during the course of proceedings. Before proceeding with the merits of the case, let me consider these preliminary issues raised by the noticees:

a. The noticees namely Pat and Superior have argued that SEBI does not have jurisdiction to investigate into the transactions in the shares of GECS: Pat and Superior have also argued that they had no role to play in the internal accounting procedures of Niskalp/ TFL or in respect of the drafting/ disclosures in the ‘letter of offer’. Further, it has also been said that the sale of shares of GECS was never concluded.

In this regard, I note that the present proceedings relates to the mis-statements in the offer document of the rights issue of TFL (a listed company). The prima facie findings of the investigation have revealed backdated and fictitious transactions between TFL and its subsidiary namely Niskalp. Further, the profits shown to have been made with such backdated and fictitious transactions were disclosed in the ‘letter of offer’ of TFL. Such activities have been alleged to be in violation of the provisions of the PFUTP Regulations.

In view of the same, jurisdiction of SEBI extends to all the persons who were involved in such execution of backdated and fictitious transactions as alleged in the SCN. Further, I note that SEBI has the jurisdiction to examine the nature of all the transactions which had a bearing on the investors in the securities market. Having aided and assisted the noticees in their fraudulent activities, the argument of Pat and Superior that as they were not registered as a stock broker/ sub-broker or otherwise and that no trades were executed on the stock exchange as such the SCN issued against these is void and bad in law, finds no merit.

b. Further, the noticees namely Pat and Superior are persons associated with the securities market and are within the scope of Sections 11, 11(4) and 11B of the SEBI Act. In this regard, I place my reliance on the judgment of the Hon’ble High Court of Gujarat in the matter of Karnavati Fincap Vs. SEBI [(1996) 10 SCL 5 (GUJ)]. The relevant extract of the same is as under: “….. In ordinary meaning, the persons associated with the securities market would include all and sundry who have something to do with the securities market. …… The words “persons associated with the securities market” are of much wider import than intermediaries. ……It is inconceivable to think that a buyer or seller of a scrip is not a person associated with securities market, where or through which he transacts his business, whether as trader or as investor, of selling or buying the required scrip.”

The words ‘all and sundry’ above would also include Pat and Superior as the letters admittedly issued by these were used to book profits in books of Niskalp and the same were disclosed in the ‘letter of offer’ of TFL.

c. Multiple proceedings: Pat and Superior in respective submissions have argued that numerous proceedings are already pending on the same allegations and the present matter is squarely covered in the pending trial and adjudication before the Hon’ble Bombay High Court. It has also been said that when Hon’ble High Court is seized of the matter, there is no reason for SEBI to deal with it and the same may amount to interference with the administration of justice by the Hon’ble High Court. Pat and Superior have further submitted that SEBI has also filed a Criminal Complaint before the Sessions Court on the very same allegations and the same is pending.

As discussed above, the issue involved in the present proceedings is ‘mis-statements in the offer document of the rights issue of TFL’. For the same, SEBI has alleged the violation of the provisions of the relevant provisions of the PFUTP Regulations and deciding such issue which is in the jurisdiction of SEBI, in my opinion, will not amount to any interference with the administration of justice by the Hon’ble High Court.

d. Delay: The noticees have argued that the transactions are of the year 2001 and the proceedings suffer from various delays and latches. The noticees have argued that they are experiencing great difficulties in tracing the relevant records which would have enabled them to effectively deal with the violations as alleged in the SCN. I note that the proceedings have taken time, however, the same was due to various reasons. However, such delay cannot justify exoneration. I have also seen that the cross examination proceedings have gone on for a longer duration. Further, I note that the noticees were aware of the pending proceedings and are therefore expected to possess the relevant records for necessary defence.

e. I note that certain noticees have alleged that the entire Board of TFL, auditors and others concerned are also responsible for the violations. In this regard, I note that the present proceedings are with respect to the noticees against whom the SCNs were issued and the allegation levelled by them is not a subject matter of the present SCNs. Therefore, the same cannot be decided in the present proceedings.

f. Mr. D.S. Pendse in his submissions has requested that before proceeding further with the matter, he be first given the cross examination of Mr. Bharat Patel, Mr. Pankaj Patel, Mr. Prashant Patel, Mr. A.L. Shilotri and Mr. F.J Da Cunha. I have already dealt with this issue at para 11 above.

The noticees namely Pat and Superior also sought cross-examination of the persons upon whose statements SEBI has relied upon. In this regard, it is important to note that sufficient opportunities of cross examination of the witnesses was given to these two, the details of the same is reproduced in the paragraph 8 above. However, Pat and Superior had failed to appear and conduct the cross examination of the witnesses. Thereafter, during the course of personal hearing, the request of the counsel for Pat and Superior to place the proceedings of cross-examination as was conducted in the proceedings under the SEBI (Intermediaries) Regulations, 2008 was allowed and the same were also taken on record.

15. While proceeding further, I note that TFL was a Non Banking Finance Company, at the relevant point of time. Niskalp was an investment company and was a subsidiary of TFL, which was primarily engaged in investments and share trading activities. TFL in its Board meeting held on January 04, 2001, had decided to come out with a rights issue of 9% Cumulative Convertible Preference Shares (CCPS). This was confirmed by a further resolution in the board meeting held on January 29, 2001. The rights issue of the Company had opened on March 30, 2001 and closed on April 30, 2001. For the rights issue, TFL was required to furnish the financial statements of its subsidiary companies in its ‘letter of offer’. Niskalp being one of the subsidiary companies of TFL, its financial statements were also required to be incorporated in the offer document. As discussed earlier, Niskalp had suffered huge losses during the year 2000- 01. In view of the same, the financials of Niskalp for the period ending September 30, 2000, were disclosed instead of the period ending December 31, 2000. Considering the above, the issue that now arises for my consideration are as under: a. Whether there was any mis-statement in the ‘letter of offer’ of the rights issue of TFL? b. Whether such mis-statement was due to any falsification of records? If yes, then who were responsible for the same?

16. Whether there was any mis-statement in the ‘letter of offer’ of the rights issue of TFL?

a. I note that the ‘letter of offer’ of TFL was dated March 20, 2001. Pursuant to the opening of the rights issue of TFL on March 30, 2001, SEBI had received a complaint in April, 2001 alleging non-disclosure of the losses of Niskalp in the ‘letter of offer’ of TFL. On receipt of such complaint, SEBI sought comments from TFL.

It is noted from TFL’s letter dated April 30, 2001 (which is publically available) that TFL had informed its shareholders that there was substantial erosion in the value of the stocks held by it and that Niskalp had incurred an actual loss `14.57 crore as on September 30, 2000 and a provisional loss of `79.37 crores for the year ended March 31, 2001, as against a disclosed profit of `11.46 crores for the six month period ended September 30, 2000. Vide its aforesaid letter, TFL also gave an option to the applicants in the rights issue to withdraw their subscriptions.

b. From the above, it is noted that TFL had given false disclosures in its ‘letter of offer’ about the financials of Niskalp. The false disclosure was corrected by TFL and a letter in this regard was issued to the investors. TFL in an attempt to mend its mistake, also had given the withdrawal option to its subscribers. These details confirms that there was mis-statement in the ‘letter of offer’ of the rights issue of TFL.

17. Whether such mis-statement was due to any falsification of records? If yes, then who were responsible for the same? a. As discussed earlier, TFL had incurred an actual loss of `14.57 crore as on September 30, 2000. However, such losses were shown to have been converted into a profit of `11.45 crore as on September 30, 2000 and the same were disclosed in the offer document of TFL for its rights issue. The SCN has alleged that such profits were shown out of the transactions between TFL and Niskalp of 2,88,400 shares of GTL and 16,35,100 shares of GECS (an unlisted company during the relevant period).

b. For better understanding of the transactions, let me consider the alleged transactions executed between TFL and Niskalp as detailed in the SCN: Date Broker Sale client Qty. Price Buy Client Qty. Price 27/09/2000 Bharat J. Patel Niskalp 56,400 `1135 (including TFL 56,400 `1141 (including brokerage brokerage of `6 per share) of `6 per share) 29/09/2000 Bharat J. Patel Niskalp 1,00,000 `1160 (including TFL 1,00,000 `1166 (including brokerage of `6 per share) brokerage) 20/09/2000 JHP Securities Niskalp 32,000 `1350 - `1447 TFL 32,000 `1405 - `1448 (including Pvt Limited brokerage of `7 per share) 25/09/2000 JHP Securities TFL 20,000 `1183.50 - `1192 Pvt Limited (including brokerage of `6 per share) 26/09/2000 JHP Securities Niskalp 20,000 `1127 (including Pvt Limited brokerage of `6 per share) 27/09/2000 JHP Securities Niskalp 20,000 `1129 - `1138 (including TFL 20,000 `1129 - `1139 (including Pvt Limited brokerage of `6 per share) brokerage of `6 per share) 28/09/2000 JHP Securities TFL 20,000 `1134 (including brokerage Pvt Limited of `6 per share) 29/09/2000 JHP Securities Niskalp 20,000 `1160 - `1158 (including Pvt Limited brokerage of `6 per share) 27/09/2000 Prashant J. Niskalp 20,000 `1119 - `1126 (including TFL 20,000 `1125 - `1126 (including Patel brokerage of `6 per share) brokerage of `6 per share)

28/09/2000 Prashant J. Niskalp 20,000 `1125 - `1158 (including TFL 20,000 `1125 (including brokerage Patel brokerage of `6 per share) of `6 per share) 13/12/2000 Bharat J. Patel TFL 1,30,000 `1166 - `1197 (including Niskalp 1,30,000 `1172 - `1203 brokerage of `6 per share) 14/12/2000 Bharat J. Patel TFL 1,58,400 `1192 - `1204 (including Niskalp 1,58,400 `1184 - `1204 (including brokerage of `6 per share) brokerage of `6 per share)

From the above, it is noted that Niskalp had claimed to have sold 2,88,400 shares of GTL towards the end of September 2000 through the brokers, such shares were purchased by TFL through the same broker. Further, in the month of December 2000, similar quantity of shares were shown to have been purchased back by Niskalp from TFL through the broker namely Bharat J. Patel.

c. The transactions in the scrip of GECS as alleged in the SCN are as under: i. Pat vide its letter dated September 29, 2000, intimated to Niskalp that 16,35,100 shares of GECS have been sold on its behalf @ `310 per share less brokerage of `1.65 i.e. a net rate of `308.35 per share. The letter also states that the delivery of the shares would be made within a maximum period of two months and payment within 7 days after delivery. ii. Superior vide its letter dated November 28, 2000, intimated to Niskalp that 16,35,100 shares of GECS have been purchased back on its behalf @ `310 per share plus brokerage of `1.60 i.e. net rate of `311.60 per share. The said letter also stated that the delivery of the shares would be made within seven days and payment would be made immediately.

d. The SCN has alleged the above transactions in the scrip of GTL and GECS were planned during March 2001 and backdated to September 2000 and December 2000. In support of such allegation, SCN has relied upon the demat statement of Niskalp. I note that the entry in the demat statement is the basic proof of transaction in a scrip. I have perused the demat statement of Niskalp and note that there was only one credit entry of GECS shares for 16,35,100 shares as on July 10, 2000 and a debit entry of GECS shares for 16,35,100 shares as on April 19, 2001. No other transaction in the shares of GECS are seen in such demat statement. Further, the demat statement also do not find any entry of the sale and purchase of GTL shares during the period of September – December 2000. Further, the investigation has also revealed that the shares of GTL were pledged with HDFC Bank by Niskalp and the same could not have been sold without the prior approval of HDFC.

I note that there was no physical/ demat transfer of shares of GTL. Also, the transactions are not supported by any payment receipts to the broker. From the trade - order log details as received from the stock exchanges, it has been revealed that no purchase/ sale transactions in the scrip of GTL were executed for the client codes assigned to Niskalp and TFL by the broker involved. There is no evidence available to show that the trades were actually done through the stock exchange mechanism and the available facts suggests that these were off-market transactions.

As the demat statement of Niskalp does not record the movement of any shares of GECS and GTL during the relevant period of September 2000 to January 2001, the same suggests that such transactions never happened. The SCN has alleged that the accounting entries in relation to GTL and GECS shares in the books of Niskalp were to show a better picture of its half yearly accounts in the ‘letter of offer’ of TFL. However, all the noticees have maintained that the alleged transactions were genuine and there was no backdation/ misstatement in the ‘letter of offer’.

e. The submissions of the noticees regarding genuineness of the transactions have to be considered in detail. For the same, let me examine the role of each of the noticees in the alleged transactions: i. Mr. D.S. Pendse: I note that the ‘letter of offer’ of TFL was dated March 20, 2001 and issue was to close on April 30, 2001. At the relevant point of time, Mr. D.S. Pendse was the Managing Director of TFL and a director of Niskalp. From the minutes of the board meeting of TFL dated February 08, 2001, it is noted that Mr. D.S. Pendse had handed over his resignation from the post with a request to be relieved from the services w.e.f. May 31, 2001. The said resignation was accepted by the Board of TFL and Mr. Subodh K. Shah was appointed as Managing Director of the Company w.e.f. June 01, 2001. As per available record, it is noted that the subject ‘letter of offer’ was signed by Mr. D.S. Pendse on March 20, 2001. As a Managing Director of the Company, Mr. D.S. Pendse was primarily responsible for the ‘letter of offer’.

Mr. D.S. Pendse in his submissions dated September 07, 2009, has argued that as he was serving the notice period, effective management and decision making was in the hands of Mr. Subodh K. Shah. I have seen the minutes of the Board Meetings held on the date of his handing over of resignation and thereafter. From the same, it is noted that Mr. Subodh K. Shah had attended the meetings in the capacity of Deputy Managing Director till May 25, 2001. Till May 25, 2001 and Mr. D.S. Pendse had seemed to play a major role in such Board Meetings.

I note that Mr. D.S. Pendse while cross examining Mr. Subodh K. Shah on November 21, 2014, had placed the minutes of the meeting of TFL dated October 30, 2000, on record. I have perused these, wherein the proposal for restructuring of the balance sheet of Niskalp was discussed. The relevant extract of the said minutes is as under: “Mr. D.S. Pendse, Managing Director, advised the Board that Niskalp had on its portfolio various long term investments in unquoted Equity Shares as well as Non-Convertible Debentures, acquired either to support … or as strategic investments in certain ventures/ Group companies. … These investments were funded mainly by way of ICDs from Tata Finance apart from ICDs from the market and loans from Banks, as a result of which, the Capital Adequacy Ratio of the Company was constantly under pressure. It was therefore proposed that investments aggregating Rs. 100 crores and securitization transaction with ICMIPL of the net exposure not exceeding Rs.70 crores be transferred to Tata Finance at cost of market value, whichever is lower. After discussion, the Board approved the proposal and directed the Management to report before the end of the year, the total amount of investment transferred to the Company and its impact on profitability, cash flows, borrowings of Niskalp and the Company.” I note that these minutes are not of much help to Mr. Pendse, as also explained in the SCN, the same pertains only to investment in unquoted shares or strategic investment in group companies. Further, the transaction as noted in the letter of Pat dated September 29, 2000 regarding GECS shares was definitely before the board meeting held on October 30, 2000. Further, the approval of the Board of TFL was definitely for future transactions and the same was not related to the transactions in the scrip of GTL and GECS. It is further noted that the letters of Pat and Superior dated September 29, 2000 and November 28, 2000 respectively were though addressed to Niskalp, the same had referred the name of Mr. D.S. Pendse.

The same also suggests that Mr. D.S. Pendse had played an important role in the alleged transactions. I note that Mr. D.S. Pendse was the Managing Director of TFL and was responsible for the ‘letter of offer’ for the Rights Issue of TFL. It is also to be noted that Mr. D.S. Pendse himself had signed the ‘letter of offer’. Therefore, he cannot escape the liability for mis-statements in the ‘letter of offer’. At the relevant point of time, he was also a director of Niskalp. It is a fact that the ‘letter of offer’ contained false disclosure about the financials of Niskalp. I also note that Mr. D.S. Pendse himself had given withdrawal option to the subscribers to the Rights Issue. In view of the discussion above, Mr. D.S. Pendse cannot escape the responsibility of declaring false/ misleading account statement of Niskalp in the ‘letter of offer’ of TFL.

ii. While proceeding further, I note that Niskalp was the subsidiary of TFL. As per the submissions of Mr. A.L. Shilotri, he was appointed as CEO of Niskalp on February 06, 2001, prior to the same, he was working as Vice President (Investments) of TFL. He also argued that being the President and CEO of Niskalp, he was not concerned with the success or failure of the offer for rights issue of TFL. In this regard, I refer to the SEBI order dated January 02, 2004, in the matter of TFL wherein it was discussed that he was hand in glove with Mr. D.S. Pendse. Further, Hon’ble SAT vide its order dated May 21, 2004, has held that Mr. A.L. Shilotri was aware of the bad state of Niskalp and such sensitive information was not available with the general public at the relevant time. Considering the observation of Hon’ble SAT, Mr. A.L. Shilotri cannot distance himself from (the financial position of) Niskalp and his knowledge about the financial status of Niskalp. Further, inspite of the knowledge about the financial position, he had not raised his voice when the profits were shown wrongly in the books of Niskalp. As regards, the submission of Mr. A.L. Shilotri the report of A. Furgusson & Co. had indicted the management of TFL, however, I note that no such report has been relied upon in the present proceedings.

iii. I note that the noticees namely Pat and Superior have not denied the issuance of the letter dated September 29, 2000 and November 28, 2000. It has been submitted that the letter dated September 29, 2000 was only an ‘agreement to sell’ and not a sale of shares. I have perused the text of the letter of Pat dated September 29, 2000, addressed to Niskalp, the same has also been reproduced below for reference: “We refer to discussion with you. We today confirm having sold for you 16,35,100 shares of Global E-commerce Services @Rs.310/- per share less Brokerage Rs.1.65 ie net rate of Rs.308.35 on following terms & conditions. Delivery - within maximum two months Payment – 7 days after delivery Kindly acknowledge the same as token of your acceptance” As per the letter dated September 29, 2000, the delivery of the shares of GECS had to happen within two months and payment was to be made seven days after the delivery. It is a fact that no delivery of shares had happened. The demat statement of Niskalp also confirms the same. Pat has argued that its interest in the transactions was only brokerage, which admittedly had remained unpaid. I note that the text of the letter of Pat clarifies that the sale of shares of GECS was not concluded as no delivery of shares had happened. Taking note of the same, the auditor of Niskalp ideally should not have allowed booking of profit on such sale of GECS shares during the quarter 2000. I also note that the alleged transactions were of high value and the same should not have missed by the auditors/ BRLM/ Board of Directors of Niskalp and TLF.

The submission of Pat and Superior to the query that if the sale as intended under the letter dated September 29, 2000, had never been concluded then what were the reasons for recording a reversal thereof vide letter dated November 28, 2000. This appears to be a mere afterthought. Pat and Superior have argued that the shares of GECS had huge potential due to the news of proposed merger between GTL and GECS and they had no risk if Niskalp had delivered the shares and brought the buyer, in such case they would have earned brokerage and otherwise they could have sued Niskalp for damages and brokerage. I note that admittedly the brokerage as stated in the letters dated September 29, 2000 and November 28, 2000 are yet to be paid by Niskalp. Further, neither Pat nor Superior informed SEBI about any action initiated against Niskalp for recovery of such amount. All these indicate, that the stated transaction never happened and were mere book entries for wrongfully/ falsely showing profits at the hands of Niskalp.

I also note that Pat had not received the brokerage from Niskalp for the first leg of transaction and admittedly no delivery of shares was made to it. In view of the same, there was no requirement from its sister concern (Superior) who till November 2000 was a stranger to the transaction to make any reverse transaction. At this stage, I have perused the letter of Superior dated November 28, 2000, addressed to Niskalp. The relevant text of the same is reproduced below: “We refer to discussion with you. We today confirm having bought for you 16,35,100 share of Global E-commerce Services @ Rs.310/- per share plus Brokerage Rs.1.60 i.e. net rate of Rs.311.60 on following terms & conditions. Delivery – within seven days Payment – immediately Kindly acknowledge the same as token of your acceptance” From the discussion above, it is important to note that quantity and price of GECS shares was exactly same as was proposed to be sold for Niskalp by Pat. It is the case of Superior that such transaction was to close the outstanding obligation and liability to Pat. This submission cannot be accepted for the reason that the obligation, if any, was on Pat and Superior was a stranger to the transaction.

Considering the discussion above and the manner of dealings by Pat and Superior it can be said that they had definitely accommodated/ helped Niskalp by issuing letters which mentioned fictitious sale and purchase of GECS shares, which were never enforced. They did not even know to whom the shares were being sold by Pat. Pat and Superior while arguing further have submitted that if they were the co-conspirators with Niskalp then the letters would have been more explicit in recording the sale and the shares would have been delivered to Pat. Further, the reversal would have effected as a purchase by Niskalp in January 2001, so that the accounts of Niskalp could have been made as of December 2000. Such submission of Pat and Superior could have been of consideration, if there had been any delivery of the shares of GECS to Niskalp. However, as stated above, the transactions as indicated in the letter of Pat had never happened.

Pat and Superior have also argued that as of March 2001, both the letters of Pat and Superior were part of the records of Niskalp and in such case no profit could have been booked. However, in the present case as detailed above, the actual losses of Niskalp were shown as profit in the ‘offer document’ of TFL. In view of the above discussion, I note that the letter of Pat had definitely helped the co-conspirators to show profits in the books of Niskalp and further by the letter of Superior attempt was made to cover up the transaction in the scrip of GECS. Therefore, I conclude that Pat and Superior by such false letters had aided and abetted Niskalp in showing fictitious profits as represent in the ‘letter of offer’ for rights issue.

f. As per the allegations in the SCN, the letter of Pat and Superior dated September 29, 2000 and November 28, 2000 respectively were created in March 2001. I note that these documents formed the basis to support the misleading statement about the profits of Niskalp to induce the interest of investors and falsification of the accounts/ records. The transactions in the shares of GTL were not on stock exchange and the shares of GTL were pledged with HDFC Bank. Further, there is no transfer of shares of GTL and GECS in the demat statement of Niskalp. Thus, showing such transactions in the books of Niskalp was not proper and showing profit out of such transaction was definitely a misleading statement.

18. At this stage, I note the argument of the noticees that they have not been granted opportunities to cross-examine the persons on whose statements SEBI has relied upon. I note that the allegation levelled in the SCNs are not solely on the basis of the statement of persons. SEBI in its SCNs have relied upon various documents available on record. Further, the observations and findings made in paragraphs 16 and 17 above are on the basis of documents other than the statements of persons. Therefore, in my view, the case is proved without reference to the statements.

19. The facts as discussed above, shows that Mr. D.S. Pendse was the Managing Director of TFL and Director of Niskalp and had signed the ‘letter of offer’ pertaining to the Rights Issue of TFL. Therefore, he was fully incharge of the Rights Issue of TFL during the relevant period and his involvement in the misleading statements cannot be wished away. Considering the admitted mis-statement made in the ‘letter of offer’ pertaining to the rights issue regarding the accounts of Niskalp, it can be concluded that the affairs of the companies were mismanaged to commit fraud on the investors.

In view of the same, the charges against Mr. D.S. Pendse of violation of the provisions of Regulation 5(1), 6(a) and (d) of the PFUTP Regulations read with the relevant provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003 stands proved.

20. For the facts stated in the earlier paragraphs, it can be said that as CEO of Niskalp, Mr. A.L. Shilotri was required to be aware of the financial transactions of Niskalp and had not raised any voice or concern when the losses were converted to profits in the hands of Niskalp. Mr. A.L. Shilotri in his submission has argued that the investors were given options to withdraw their monies from the rights issue not once but twice and that no investor has ever lost any money due to the alleged anomalies in the ‘letter of offer’. This submission is of no relevance as it has already been proved that there were misstatements in the rights issue ‘letter of offer’.

In view of the same, I find that Mr. A.L. Shilotri had violated the provisions of Regulation 5(1), 6(a) and (d) of the PFUTP Regulations read with the relevant provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003.

21. From the discussions above, Pat and Superior by issuing letters regarding the fictitious transactions aided and abetted Niskalp in making backdated/ fictitious transactions in the shares of GECS. Accordingly, Pat and Superior are found to have violated Regulation 6(a) of the PFUTP Regulations also stands proved.

22. For the above reasons, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11B and 11(4), hereby issue the following directions: a. The noticees namely Mr. D.S. Pendse and Mr. A.L. Shilotri are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of three (3) years. Mr. D.S. Pendse and Mr. A.L. Shilotri are also hereby restrained from holding any Key Managerial position in any listed company for a period of three (3) years. b. The noticees namely Pat Financial Consultants Pvt. Limited and Superior Financial Consultancy Services Pvt. Limited are restrained from accessing the securities market and are prohibited from buying, selling or otherwise dealing in securities market for a period of three (3) years.

23. The order shall come into force with immediate effect.

Date : June 21st, 2016 PRASHANT SARAN Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA