Religare Finvest Ltd. vs Sebi

Date of Hearing : 19.12.2019 Date of Decision : 29.01.2020

Appeal No. 304 of 2019

Religare Finvest Ltd. 9th Floor, Tower B, Paras Twin Towers, Sector - 54, Golf Course Road, Gurugram, Haryana - 122 002. ..... Appellant

Versus

Securities & Exchange Board of India SEBI Bhavan, Plot No. C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

Mr. Ravichandra Hegde, Advocate with Mr. Robin Shah, Advocate i/b Parinam Law Associates for the Appellant. Mr. Shiraz Rustomjee, Senior Advocate with Ms. Shreya Parikh, Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates i/b ELP 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, Presiding Officer 2

1.

The appellant has filed the present appeal against the ex-parte

order cum show cause notice dated October 17, 2018 as well as

against the confirmatory order dated March 14, 2019 passed by the

Whole Time Member (hereinafter referred to as, 'WTM') of the

Securities and Exchange Board of India (hereinafter referred to as,

'SEBI') under Section 11(1), 11(4) and 11B of the Securities and

Exchange Board of India Act, 1992 (hereinafter referred to as, 'SEBI

Act') read with Regulation 11 of the Securities and Exchange Board

of India (Prohibition of Fraudulent and Unfair Trade Practices related

to Securities Market) Regulations, 2003 (hereinafter referred to as,

'PFUTP Regulations').

2. The facts leading to the filing of the appeal is, that the appellant

is a non banking finance company and is registered with the Reserve

Bank of India and is engaged in the business of lending loans. The

appellant is a subsidiary of Religare Enterprises Ltd. (hereinafter

referred to as, 'REL').

3. The issue essentially pertains to the affairs of the Fortis

Healthcare Ltd. (FHL) which were being managed by the erstwhile

promoters, namely, Shri Malvinder Mohan Singh and Shri Shivinder

Mohan Singh (hereinafter referred to as, "the Singh Brothers"). It is

alleged that the Singh Brothers siphoned off the funds of FHL to 3

promoter related entities through layers of companies which were

controlled by them. Such siphoning off the funds was detrimental to

the shareholders of FHL. On the basis of an article which reported

the siphoning off the funds of FHL and, on the basis of discussions

with the auditors of the company, SEBI conducted a preliminary

examination and appointed a forensic auditor to look into the account

and books of the FHL. On the basis of the report given by the

forensic auditor, the WTM passed an ex-parte order dated October

17, 2018 directing FHL to recover a sum of Rs. 403 crores alongwith

interest from the appellant and other entities and further directing the

appellant that it was jointly and severally liable to pay Rs. 403 crores

plus interest. The appellant and other entities were also restrained

from disposing of the assets pending investigation. By the said ex-

parte order, SEBI directed the appellant and other noticees to file a

reply, if any, within three weeks. In the ex-parte order, the WTM

noted that as per the forensic auditor report the appellant had

received a sum of Rs. 200 crores from three companies, namely, Best

Healthcare Pvt. Ltd., Fern Healthcare Pvt. Ltd. and Addon Realty

Pvt. Ltd. and, thus, the appellant was a beneficiary of the Rs. 200

croes which they were liable to refund to FHL.

4. The details of the payment allegedly received by the appellant

is extracted hereunder :-

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Sr. Amount in (Rs. Name of the Company No. Crores) i. Best Healthcare Pvt. Ltd. ("Best") 75 ii. Fern Healthcare Pvt. Ltd. ("Fern") 25 Addon Realty Pvt. Ltd. ("Addon") iii. [allegedly routed through Modland 100 Wares Pvt. ("Modland") Total Amount 200

5. The appellant being aggrieved by the ex-parte interim order

filed their replies and additional replies and denied the allegations of

being a beneficiary of Rs. 200 crores. The appellant vehemently

contended that the three companies had not transferred the funds to

the appellant. Various documents were filed by the appellant to

show that in fact the appellant had given the funds to the three

companies as a loan and that three companies have repaid the loan

given to the appellant alongwith interest. Thus, the appellant firmly

contended that they did not owe any funds to the said three

companies and, therefore, there was no question of making any

payments to FHL.

6. The appellant further raised objections and prayed for

modification of the ex-parte order contending that they owe about

Rs. 7036 cores to various banks and financial institutions and in the

event the payments were not made to them, in that event they would 5

become defaulters and, consequently prayed that the restraint order

should be modified accordingly. The submission of the appellant

was duly recorded in the paragraph 12 of the confirmatory order.

7. The WTM after giving an opportunity of hearing confirmed

the impugned order observing in paragraph 16 that the appellant

failed to rebut the prima-facie findings and the allegations made

against them in the interim order. For facility, paragraph 16 of the

confirmatory order is extracted hereunder :-

"16. I have considered the facts of the case, the charges against the Noticees and the replies/submissions made by them. I find that the Noticees have failed to effectively rebut the prima facie findings and the allegations made against them in the Interim Order. I further note that the detailed investigation in the matter is still in progress which is supposed to reveal all the layers of the alleged fraud as well as expose the specific role of each entity. Considering the same, at this stage, I am not inclined to vacate the directions passed vide the Interim Order, except modifying the directions to the extent as mentioned below."

8. We have heard Shri Ravichandra Hegde, the learned counsel

alongwith Mr. Robin Shah, the learned counsel for the appellant and

Shri Shiraz Rustomjee, the learned senior counsel alongwith

Ms. Shreya Parikh, Mr. Abhiraj Aroa, Mr. Vivek Shah, the learned

counsel for the respondent.

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9. It was urged by the appellant that the submissions of the

appellant was not even considered and the impugned order has been

passed mechanically without considering the objections raised by the

appellant. It was further contended that the WTM had passed

another order on March 14, 2019 wherein the WTM while passing an

order under Section 11 and 11B directed the appellant alongwith

REL to recover a sum of Rs. 2315.09 crores which included two of

the companies which the WTM in the impugned order had directed

the appellant to refund. It was contended that in one order the WTM

has directed the appellant to refund the amount and in another order

the WTM had directed the appellant to recover the amount from the

same companies and, therefore, urged that contradictory orders have

been passed without considering the material and the evidence that

was filed by the appellant.

10. On the other hand, the respondent have tried to justify the

impugned order on the ground that the objections raised by the

appellant were considered and thereafter the ex-parte interim order

was confirmed holding that the appellants were unable to effectively

rebut the prima-facie, findings given in the ex-parte interim order. It

was also contended that the detailed investigations in the matter are

under progress and it would not be fit to vacate the interim order at

this stage. The learned senior counsel further contended that the 7

second order passed by the WTM was in relation to another

investigation against another entity. Whereas in the impugned order

the order was passed in relation to the affairs of the FHL and the

second order of the same date was passed in the matter of REL and,

therefore, the issue relates to two different, distinct companies even

though some of the entities may be common.

11. Having heard the learned counsel for the parties at some

length, we find that the impugned orders cannot be sustained. The

submission of the appellant contending that they had never taken

loans or borrowed the money from the companies has not been dealt

with by the WTM. A categorical submission was made that the

appellant had given a loan to the three companies which has been

refunded by them along with interest. In support of their submissions

documents have been provided. It was, thus, imperative upon the

WTM to consider the objections and deal with them and then give a

finding on it which in the instant case was lacking. We find that the

submissions raised by the appellant was set aside in one sentence in

paragraph 16 of the impugned order, namely, "failed to effectively

rebut the prima-facie finding". In our view, this one line finding is

insufficient.

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12. We may remind that the respondent is a quasi-judicial authority

and is required to give reasons while passing the order. The

impugned order does not contain reasons nor deals with the

submissions and, therefore, we are of the opinion that the impugned

order was passed without any application of mind. When the

appellant categorically states that no amount is due and loans were

given which were repaid alongwith interest, it was essential for the

respondent to give a finding on the issue which in the instant case has

not been done.

13. We also find that a specific plea was taken by the appellant

that they owe Rs. 7036 crores to various banks and financial

institutions and if not paid, the appellant would be declared

defaulters which will lead to further legal consequences. A specific

plea was raised that the restraint order passed in the ex-parte interim

order should be modified which again was not considered and the ex-

parte order was mechanically confirmed.

14. We find that the WTM has passed two orders which appears

to be contradictory to each other. In the impugned order, the

appellant is required to refund a sum of Rs. 200 crores which is

alleged to have been paid by the three companies. In another order

the WTM has directed the appellant to recover more than Rs. 2000 9

crores some of which from two of the companies mentioned in the

impugned orders. This aspect should have been considered by the

WTM before confirming the interim order.

15. In the light of the aforesaid, the impugned orders cannot be

sustained and are quashed in so far as it relates to the appellant. The

matter is remitted to the WTM to pass a fresh order if they so desire

after giving an opportunity of hearing to the appellant. In order to

balance the equities, we direct the appellant to maintain its assets

worth Rs. 200 crores for a period of three months from today. If the

WTM is unable to pass the order within the aforesaid period, this

limited restraint order that we have passed will come to an end. In

the circumstances of the case, parties shall bear their own costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member

29.01.2020 Prepared & Compared by PTM