Rajesh Ranka vs Sebi

Date: 25.11.2019

Appeal No.441 of 2019

Rajesh Ranka G-13, Orchid Garden, Girdharnagar, Shahibaug, Ahmedabad, Gujarat. ..... 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. Harsh Kesharia, Advocate for the Appellant.

Mr. Chirag Bhavsar, Advocate with Ms. Eram Quraishi, Advocate i/b. MDP & Partners for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per : Justice Tarun Agarwala (Oral)

1.

Failure to comply with the interim order dated

5th November, 2013 and confirmatory order dated 17th May,

2015 issued under the provisions of Section 11(1), 11(4) and 2 11B of the Securities and Exchange Board of India Act, 1992

(hereinafter referred to as 'SEBI Act') resulted in the passing

of the impugned order imposing a penalty of Rs.50,00,000/-

upon the appellant against which the present appeal has been

filed. The facts leading to the filing of the present appeal is

as follows.

2. SMS Techsoft (India) Ltd. (hereinafter referred to as,

'the company') allotted 3 crores shares through preferential

allotment to 31 entities on March 13, 2012. After stock split

in the ratio 1:10 in November 2012, these 3 crores shares

became 30 crores shares. The allotment of shares had a lock

in period of one year and thus, the allottees could not sell the

shares during the lock in period. Around the time when the

lock in period was coming to an end, Short Text Messages

(SMS) were sent to various investors on their mobiles

recommending purchase of the scrip of the company which

was a listed company on the BSE Ltd. (BSE) and Coimbatore

Stock Exchange Ltd. SEBI noticing the recommendations

through these SMS undertook an enquiry in the matter

relating to buying and selling of shares of the company and,

upon an analysis of the trading activity in the scrip of the

company, it found that 37 entities were acting together as a 3

group and had adopted a fraudulent device and artifice to

defraud the genuine shareholders of the company by falsely

portraying fraudulent transactions as genuine preferential

allotment of shares and offloading the shares allotted

pursuant to the preferential allotment thereby earning illegal

profits.

3. As a result of the aforesaid enquiry, SEBI issued an ad-

interim ex-parte order dated November 5, 2013 against 37

entities restraining them from accessing the securities market

and further prohibiting them from buying, selling or dealing

in the securities market either directly or indirectly and

further directed them to keep in an escrow account an amount

of Rs. 6 crore which they had earned illegally from sale of

the shares allotted in preferential allotment by the company.

The company was also restrained from raising any additional

capital through the securities market either directly or

indirectly. The said ad-interim ex-parte order was

subsequently confirmed on May 7, 2015.

4. Subsequently, pursuant to a show cause notice dated

15th November, 2016, the Whole Time Member passed an

order dated 27th July, 2018 restraining the appellant and other

entities from dealing in securities market for a period of 10 4

years and was also made the appellant and others jointly and

severally liable to disgorge an amount of Rs.6,78,85,716/-

along with simple interest calculated at the rate 12% per

annum with effect from 5th November, 2013 till the date of

payment.

5. The appellant being aggrieved by the order of the

Whole Time Member filed an Appeal no.408 of 2018 which

was clubbed along with other appeals and was dismissed by

judgement dated 18th October, 2019. This Tribunal held that

the appellant along with others were acting in concert and

that the appellant held a power of attorney on behalf of the

other entities. This Tribunal found that the appellant was not

only acting in concert with other entities but was also

adopting fraudulent devices and was operating all the

accounts of the appellants through the power of attorney

given to him and that he was part of the fraud even though he

may not be an allottee himself but was involved in the

manipulation or fraud in concert with others. This Tribunal

also held that the appellant was jointly and severally liable to

disgorge the amount as per the order passed by the Whole

Time Member.

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6. For non compliance of the ex-parte interim order dated

5th November, 2013 and confirmatory order dated 17 th May,

2015, SEBI directed the appellant to deposit a sum of

Rs.6,00,11,512/- in an escrow account within 30 days. The

Adjudicating Officer issued a notice dated 10th March, 2017

to show cause as to why penalty should not be imposed for

non compliance of the aforesaid orders.

7. The Adjudicating Officer after considering the reply

and after taking into consideration the seriousness and

gravity of the irregularities committed by the appellant

imposed a penalty of Rs.50,00,000/- under Section 15HB of

the SEBI Act.

8. Having heard the learned counsel for the appellant we

find that an ex-parte interim order dated 5th November, 2013

was issued directing the appellant and others to deposit

Rs.6,00,11,512/- in an escrow account within 30 days. The

said direction has not been complied with till date even after

a lapse of 6 years. This Tribunal in the appeal of the

appellant also found that he was acting in concert with others

and had played a fraud upon the investors. This Tribunal

also held that he was jointly and severally liable to disgorge

the amount.

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9. In the light of the aforesaid, we do not find any

manifest error in the order of the Whole Time Member

imposing a penalty of Rs.50 lakhs for non compliance of the

orders of SEBI which admittedly has not been complied with

by the appellant till date.

10. For the reasons stated aforesaid we do not find any

merit in the appeal. Dismissed.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

25.11.2019 Prepared and compared by RHN