Pavan Kumar Kuchana vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved on : 13.07.2022 Date of Decision : 15.07.2022 Misc. Application No. 468 of 2022 And Appeal No. 374 of 2022 Ravi Kusam Plot No. 151, Seshadri Enclave, Venkatdri Township-IV Phase, Chowdhari Guda (Village), Ghatkesar (Mandal), ...Appellant Medchal District- 500 088, Telangana. Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent Mr. Ankit Lohia, Advocate with Ms. Rishika Harish, Mr. Aditya Bhansali, Ms. Akshaya Bhansali, Advocates and Ms. Nirali Mehta, Practicing Company Secretary i/b Mindspright Legal for the Appellant. Mr. Abhiraj Arora, Advocate with Mr. Shourya Tanay, Advocate i/b ELP for the Respondent. WITH Misc. Application No. 469 of 2022 And Appeal No. 375 of 2022 Ramaswamy Kuchana H No. 1-7-1266/1, Advocates Colony, RD:8, Balasamudram, Warangal-506 002, Telangana. ...Appellant 2 Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent Mr. Ankit Lohia, Advocate with Ms. Rishika Harish, Mr. Aditya Bhansali, Ms. Akshaya Bhansali, Advocates and Ms. Nirali Mehta, Practicing Company Secretary i/b Mindspright Legal for the Appellant.

Mr. Abhiraj Arora, Advocate with Mr. Shourya Tanay, Advocate i/b ELP for the Respondent. WITH Misc. Application No. 470 of 2022 And Appeal No. 376 of 2022 Durga Kuchana H No. 1-7-1266/1, RD:8, Balasamudram, Warangal-506 002, Telangana. ...Appellant Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent Mr. Ankit Lohia, Advocate with Ms. Rishika Harish, Mr. Aditya Bhansali, Ms. Akshaya Bhansali, Advocates and Ms. Nirali Mehta, Practicing Company Secretary i/b Mindspright Legal for the Appellant. Mr. Abhiraj Arora, Advocate with Mr. Shourya Tanay, Advocate i/b ELP for the Respondent. 3 WITH Misc. Application No. 471 of 2022 And Appeal No. 377 of 2022 Pavan Kumar Kuchana H No. 1-7-1266/1, RD:8, Balasamudram, Warangal-506 002, Telangana. ...Appellant Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent Mr. Ankit Lohia, Advocate with Ms. Rishika Harish, Mr. Aditya Bhansali, Ms. Akshaya Bhansali, Advocates and Ms. Nirali Mehta, Practicing Company Secretary i/b Mindspright Legal for the Appellant.

Mr. Abhiraj Arora, Advocate with Mr. Shourya Tanay, Advocate i/b ELP for the Respondent. CORAM : Justice Tarun Agarwala, Presiding Officer Justice M.T. Joshi, Judicial Member Ms. Meera Swarup, Technical Member Per : Justice Tarun Agarwala, Presiding Officer 1. There is a delay in the filing of the appeals. For the reasons stated in the applications and in view of the order of Supreme Court in Suo Moto Writ Petition (Civil) No. 3 of 2020 dated March 23, 2020, March 8, 2021, April 27, 2021 and 4 January 10, 2022, the delay in the filing of the appeals are condoned. The applications are allowed. 1. Four appeals have been filed against a common order dated August 10, 2021 passed by the Adjudicating Officer („AO‟ for short) of the Securities and Exchange Board of India („SEBI‟ for short) imposing different penalties for violation of Section 12A of the SEBI Act, 1992 read with Regulation 3 and 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 („PFUTP Regulations‟ for short). Since the issue is common, all the 4 appeals are being decided together.

2. SEBI conducted an investigation into the irregularities in the Initial Public Offering („IPO‟) of Taksheel Solutions Ltd. for the period May 2011 to December 2011 following huge volatility in the price of the scrip on the date of listing of the IPO on October 9, 2011. The investigation revealed that the books of the Company were manipulated and IPO proceeds were siphoned off. Accordingly, an ex parte ad interim order dated December 28, 2011 was issued whereby the appellants were restrained from accessing / dealing in the securities market, directly or indirectly. The appellants were also directed 5 to call back the Inter Corporate Deposits („ICD‟ for short). The interim order was subsequently confirmed on October 25, 2013. 3. On completion of the investigation, a show cause notice dated January 6, 2014 was issued by the Whole Time Member („WTM‟ for short) alleging several violations such as nondisclosure of the cancelation of allotment of land at Warangal; factually incorrect disclosure about the pan-global presence of offices/employees of TSL; non-disclosure of transactions of TSL with M/s Wiselink Technologies Pvt. Ltd. ("WTPL") which also involved a Key Managerial Person ("KMP"); non-disclosure of related party transactions in respect of Verisoft Business Solutions Pvt. Ltd.; nondisclosure of ICDs raised by TSL prior to the IPO.

The show cause notice also alleged misuse/ siphoning off IPO proceedings and manipulation of books of accounts of TSL; proceeds used to repay the pre-existing liability of Rs.34.50 crore through ICDs; siphoning off funds to multiple clients and vendors of TSL located in United States of America ("USA") which were companies connected to TSL and Pavan Kuchana; diversion of Rs. 3.50 crores to one Dinesh Kumar Singhi through WTPL; transfer of Rs. 23 crore to Silverpoint as ICD and about 60% of 6 the IPO proceeds which is Rs. 48.34 crore were utilized for the purposes other than disclosed in the offer document. 4. The show cause notice alleged that the TSL, Pavan Kuchana and Ramaswamy Kuchana violated provisions of Section 12A(a), (b) and (c) of SEBI Act, 1992 read with Regulations 3 (a), (b), (c), (d), 4(1), 4(2), (a), (d), (e), (f), (k) and (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" for short) and also Regulations 57 (1), 58(1), 60 (1), 60 (4)(a), 60 (7)(a), 57 (2)(a), Clauses 2 (VII)(B)(4), (2)(VII)(G), 2(IX) (12) and 2 (XVI)(B)(2) of Part A of Schedule VIII and Clause (IX) of Part D of Schedule VIII of SEBI (Issue Of Capital And Disclosure Requirements) Regulations, 2009 ("ICDR Regulations" for short).

Durga Kuchana and Ravi Kusum were associated/ involved/ created/ incorporated fictitious entities as vendors/ clients of TSL in the USA and these vendors/ clients were used to siphon off the IPO proceeds, which were later recorded as expenditure and revenue. Accordingly, they have violated provisions of Section 12A(a), (b) and (c) of the SEBI Act read with Regulations 3(b), (c) and (d), Regulations 4(1), 4(2)(e), (k) and (r) of the PFUTP Regulations, 2003. 5. The WTM after considering the material evidence on record and after considering the submissions of the appellant restrained the appellant from accessing the securities market directly or indirectly for a further period of 3 years. The appellant being aggrieved by the aforesaid order of the WTM filed Appeal no. 70 of 2019 (Pavan Kuchana vs SEBI) and other companion appeals which was dismissed by judgment dated October 26, 2020 passed by this Tribunal. This Tribunal affirmed the findings of the WTM and held:- 6. Based on the same violation, a separate show cause notice was issued by the AO. The AO after considering the replies and material evidence on record has passed the impugned order dated August 10, 2021 imposing separate penalties on the appellants.

7. We have heard Shri Ankit Lohia, the learned counsel assisted by Ms. Rishika Harish, Shri Aditya Bhansali, Ms. Akshaya Bhansali and Ms. Nirali Mehta for the Appellant and Shri Abhiraj Arora, the learned counsel assisted by Shri Shourya Tanay for the Respondent. 8. The findings given by the AO is more or less similar to the findings given by the WTM. The findings given by the WTM has already been affirmed by this Tribunal in its order dated October 26, 2020. Thus, the violations committed by the appellants are upheld. 9. The only question that arises for consideration in the present appeal is, whether the penalty imposed upon the appellant is proportionate to the violation committed by the 10 appellants. The AO while considering the factors contemplated under Section 15J of the SEBI Act found that the appellants have acted in a manner highly detrimental to the interest of the securities market and the investors at large. Further, the fraudulent activities carried out by the appellants posed a real threat to the integrity of the securities market and the same were very serious in nature.

10. In this regard, this Tribunal observed in its judgment dated October 26, 2020 that the violation graphically described in the impugned order was not only of a very serious magnitude but also fell in a rare category of extreme manipulation. This Tribunal further found that some of the associated entities i.e. promoters / directors / officials clearly played out a well crafted strategy of fraud in trying to depict the Company as a big player in the area of technology by presenting a rosy, bombastic profile of having global operations when in fact there was none. This Tribunal found that there was violations relating to misuse of funds and non-disclosure of ICD transactions and that virtually the entire IPO proceeds have been mis-utilized being a case of extreme manipulation. 11. Considering the findings given by us in our judgment dated October 26, 2020 the penalty imposed upon the appellant Pavan 11 Kumar Kuchana and Ravi Kusam is neither arbitrary nor disproportionate and therefore the penalty imposed is justified. 12. However, in the case of Durga Kuchana, a penalty of Rs. 1 crore has been imposed.

In this regard, we find that the role of Durga Kuchana was the same as that of the appellant Ravi Kusam. Durga Kuchana was instrumental in setting up of 4 entities abroad and enabled the transfer of funds by the Company to these 4 entities. In the case of Ravi Kusam, he was instrumental in incorporating 8 entities abroad and also helped Durga Kuchana in setting up the 4 entities. All these entities were found to be front entities set up to help the Company in the manipulative scheme. We are of the opinion that when AO has imposed a sum of Rs. 50 lakh on Ravi Kusam there is no reason why a penalty of Rs. 1 crore is imposed upon Durga Kuchana for the same violation. We, therefore, in the circumstances of the case, reduce the penalty in the case of Durga Kuchana from Rs. 1 crore to Rs. 50 lakh. 13. Similarly, in the case of the appellant Ramaswamy Kuchana, a penalty of Rs. 1 crore has been imposed. In this regard in our order of October 26, 2020 we found that appellant Ramaswamy Kusam had no role to play in the manipulative activities but was responsible as a director as he was signatory of 12 various offer documents.

Other than that the appellant Ramaswamy Kuchana had no role to play in the day to day affairs of the management of the Company and hence he was absolved of any role in the fraud committed by the Company. Considering the finding given by us in our judgment dated October 26, 2020 we are of the opinion that penalty of Rs. 1 crore imposed upon Ramaswamy Kuchana is harsh and excessive. Considering the factor that appellant had no role to play in the day to day affairs of the management and he was absolved of any role played by the Company we reduce the penalty from Rs. 1 crore to Rs. 25 lakh. 14. In view of the aforesaid, Appeal nos. 374 of 2022 and 377 of 2022, Ravi Kusam and Pavan Kumar Kuchana respectively are dismissed. Insofar as appeals of Ramaswamy Kuchana and Durga Kuchana being Appeal nos. 375 of 2022 and 376 of 2022, the violation committed by the said appellants are affirmed. The penalty in the case of Durga Kuchana is reduced from Rs. 1 crore to Rs. 50 lakh and in the case of Ramaswamy Kuchana, the penalty is reduced from Rs. 1 crore to Rs. 25 lakh. The appeals are partly allowed.

In the circumstances of the case, parties shall bear their own costs. 15. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges. Justice Tarun Agarwala Presiding Officer Justice M.T. Joshi Judicial Member Ms. Meera Swarup Technical Member RAJALA Digitally by signed 15.07.2022 KSHMI NAIR RAJALAKSHMI H Date: 2022.07.21 H NAIR 11:45:47 +05'30' msb