Sanjeev Arora vs Sebi

Date of Decision : 31.08.2017

Appeal No. 100 of 2016

Ritesh Properties and Industries Ltd. Phase-VIII, Focal Point, Chandigarh Road, Ludhiana - 141 011. ...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. P.N. Modi, Senior Advocate with Mr. N.P.S. Chawla, Ms. Kalpana Desai and Ms. Nikita Panhalkar, Advocates i/b Vaish Associates for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Tomu Francis and Mr. Vivek Shah, Advocates for the Respondent.

WITH Appeal No. 101 of 2016

Sanjeev Arora Flat No. H-1002, Catriona Apartments, Ambience Island, NH-8, Gurgaon - 122 001. ...Appellant

Versus

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

Mr. P.N. Modi, Senior Advocate with Mr. N.P.S. Chawla, Ms. Kalpana Desai and Ms. Nikita Panhalkar, Advocates i/b Vaish Associates for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Tomu Francis and Mr. Vivek Shah, Advocates for the Respondent. 2

WITH Appeal No. 102 of 2016

Roop Kishore Fatehpuria 375 CX Model Town Extn. Ludhiana - 141 002. ...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. I.S. Ratta, Advocate for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Tomu Francis and Mr. Vivek Shah, Advocates for the Respondent.

WITH Appeal No. 103 of 2016

Rajiv Arora 1108/1, Tagore Nagar, Civil Lines, Ludhiana - 141 001. ...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. N.P.S. Chawla, Advocate for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Tomu Francis and Mr. Vivek Shah, Advocates for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair, Member (Oral) 3

1.

These appeals are preferred by the appellants aggrieved by the

impugned order dated January 13, 2016 passed by the Whole Time Member

('WTM' for short) of Securities and Exchange Board of India ('SEBI' for

short). By the said order the appellants herein have been restrained from

accessing the securities market directly or indirectly for a period of 3 years

from the date of the order for violation of Securities and Exchange Board of

India (Prohibition of Fraudulent and Unfair Trade Practices Relating to

Securities Market) Regulations, 2003 ('PFUTP Regulations, 2003). Since

the impugned order is common to all appeals, we heard the appeals together

and dispose them off by this common order.

2. We heard the matter in detail relating to Appeal No. 100 of 2016,

Ritesh Properties and Industries Limited ('Company' for short) as the lead

matter. Appellant in Appeal No. 101 of 2016 is the Managing Director and

appellants in Appeal Nos. 102 of 2016 and 103 of 2016 are Directors of the

Company.

3. SEBI conducted an investigation into the trading / dealings in the

scrip of the Company covering the period from July 14, 2006 to May 20,

2008. It was observed that the share price of the Company rose from ` 3.52

on July 13, 2006 to ` 123.50 on May 21, 2008. In parallel, the volume of

trading also increased substantially from 5440 shares to 71,702 shares

during the same period. The investigation revealed that the Company had

made several misleading announcements regarding its projects / plans and

also had delayed certain required disclosures to the stock exchanges. These

include:-

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(a) Announcement of a Collaboration Agreement between the

Company and Ansal Townships and Projects Ltd., regarding a

joint venture but without backing up with detailed project

plans and profit sharing mechanism etc. thereby selectively

disclosing some information and suppressing certain other

information;

(b) Premature public announcement on January 8, 2007, stating

that the Punjab Govt. had approved the project of the company

as Mega Project with all requisite approvals, while the crucial

permission from the Punjab Pollution Control Board ('PPCB'

for short) was actually received more than two years later in

February 2009;

(c) On February 2, 2008, the Company made an announcement

regarding their decision of the board to issue 1,92,308 equity

shares of the Company at a premium of ` 120 to NDTV Ltd.

However, subsequently on April 1, 2008, when NDTV

withdrew the proposed subscription the Company did not

disclose this information to the stock exchanges;

(d) On may 17, 2008 the Company made an announcement of

their plan to open 500 retail outlets of their fully owned

subsidiary namely Femella Fashions but actually opened only

about 7 outlets and

(e) The Company made irregular preferential allotment of its

shares / warrants to its related entities on various occasions. 5

4. The investigation also revealed certain misleading financial

statements and inappropriate accounting practices. These include sale

proceeds of a flat being shown as "Income from Operations" rather than

under the head "Other Income"; charging the collaborator's (Ansal

Townships and Projects Ltd.) share of the sale proceeds under 'material

consumed' etc.

5. In short, the impugned order holds that the appellant made several

misleading public announcements relating to various plans / activities and

resorted to inaccurate / inappropriate accounting practices regarding revenue

sharing and categorization of operating / non-operating income etc, in order

to present a rosy picture on the performance of the Company and thereby

manipulated its share price and therefore violated provisions of the PFUTP

Regulations 2003. Hence vide the impugned order SEBI imposed 3 years

restraint on the Company and its Directors (appellants) from dealing in the

securities market directly or indirectly.

6. Shri P.N. Modi, Learned Senior Counsel for the appellant in Appeal

No. 100 of 2016 extensively argued the matter. He submitted that:-

(a) The appellant was a BIFR Company till 2005 after which it

managed to revive on the basis of a scheme floated by the

Government of Punjab for developing a Mega City with over

40 acres of land to develop both green (non-polluting)

industries and as well as residential area on a 60 : 40 basis.

The share price of the Company increased substantially from

its BIFR days to post revival and development of this new

project purely on its merit because the project was expected to 6

generate revenue of more than ` 800 crore. While the work

relating to the industrial portion is almost complete, the work

relating to the residential part is yet to commence because of

the inability of the Company to generate sufficient funds

following the impugned order. Accordingly, far from helping

the investors including the subscribers in the project the

impugned order is adversely impacting all of them.

(b) The allegations in the impugned order are factually not correct

and the Company has not received any complaint directly or

indirectly from any investor. The Company has about 17,000

public shareholders.

(c) Two adjudication orders passed by the Adjudicating Officers

of SEBI (dated November 30, 2010 and August 31, 2012,

against the Company and its Managing Director respectively)

on the basis of the same allegations as in the impugned order,

imposed only nominal penalties on the appellants (` 1 lakh and

` 10 lakh respectively). This Tribunal reduced the penalty of `

10 lakh to ` 1 lakh and SEBI did not appeal against the same.

All these indicate that the alleged offences were of non-serious

nature.

(d) While SEBI is empowered to take action under Section 11 and

11B etc over and above the adjudication process such action is

resorted to only in the case of serious offences and the charge

in the impugned order that "serious contraventions are alleged

and monetary penalty alone would not be sufficient to

safeguard the market integrity" is not based on sufficient facts 7

/ evidence. Therefore, when the Adjudicating Officers had let

off the Company and its Managing Director and this Appellate

Tribunal had further reduced the penalty there was no reason

for the appellant to invoke Section 11 and 11B procedure.

(e) The approval granted by the Government of Punjab for the

Mega Project on April 12, 2006 was not subject to any

conditions. It had stated that the PPCB shall grant its NOC and

consent to operate. Both, the Directorate of Industries which

approved the project and the PPCB, were under the control of

the Chief Minister. As such, the Company's announcement

that it got all necessary approvals for commencing the Mega

Project was fully in order. Moreover, the Adjudicating

Officer's order dated August 31, 2012 had held that noticee

was not guilty of any charge on this ground. Since the

approval was for only green category industrial projects, the

PPCB clearance was only incidental though it is a fact that it

was actually received only in February 2009. However, work

on the project started in January 2007, soon after its

announcement.

(f) The agreement with NDTV for a preferential allotment was

only for a small percentage of shares (1.65% of the total

equity) and the announcement had only a marginal impact on

the share price. However, price was still lower than the 2008

prices which was consistently above ` 100.

(g) The statement in the impugned order that no plan was

produced regarding the announcement on behalf of its 8

subsidiary for opening 500 outlets is incorrect as there was a

detailed Project Report / Project Information Memorandum

which was produced before the Whole Time Member on

September 23, 2015. However, because of changes in the

global economic scenario and the advent of on-line marketing

the appellant changed the proposed model to on-line trading

after opening 7 outlets.

(h) Regarding the misleading financial statements etc. and the

controversies surrounding 'operational income' versus 'other

income' etc. it was urged that the Company had in fact

changed its Articles of Association to include real estate as

part of its business and therefore showing the sale proceeds of

a property as operational income was within the correct

accounting procedure. The Institute of Chartered Accountants

of India ('ICAI' for short) disposed of the reference by SEBI

stating that there was no misconduct by the Auditor.

7. In short, the Learned Senior Counsel for the appellant argued that the

public announcements were made as per correct business plans, there were

no suppression of facts, the accounting practices followed were in order

both from its procedural angle as also since the ICAI did not find any fault

and a project report on retail showrooms was produced before WTM of

SEBI. All these facts indicate that the impugned order imposing a harsh

punishment on the appellant was ill-conceived as there were only some

minor violations which had been dealt with by the Adjudicating Officer

('AO' for short) of SEBI itself as well as this Appellate Tribunal. 9

8. We have heard the extensive arguments made by the Learned Senior

Counsel for appellant and the submissions made by Shri Pradeep Sancheti,

Learned Senior Counsel for the respondent SEBI. We have also perused the

records produced before us. Fact that the AO has passed adjudication order

against the Company and its Directors does not preclude the WTM of SEBI

to exercise powers under Section 11 & 11B of SEBI Act, because the two

proceedings contemplated under the SEBI Act are independent of each

other.

9. While directions given by the WTM under the SEBI Act in the facts

of present case cannot be faulted, we find that some of the findings recorded

by the WTM of SEBI cannot be sustained as can be seen from the

following:-

(a) In the impugned order the WTM has held that the Company

has made false corporate announcement on January 8, 2007

regarding the NOC from the PPCB. The AO in his order dated

August 31, 2012 had exonerated and held that the Company

cannot be said to be guilty of the above charge. Without

finding fault with the decision of the AO and without setting

out the reasons for disagreeing with the decision of the AO,

the WTM of SEBI could not have taken a contrary view that

too without any basis. In fact, the approval granted by the

Punjab Government to the Company specifically directs the

PPCB to grant its NOC to the Company. In these

circumstances finding recorded by the WTM that the

Company had made false corporate announcement on January

8, 2007 cannot be sustained.

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(b) In the impugned order it is held that the Company has not

furnished any evidence such as market survey, funds

earmarked, places identified etc to suggest that it had taken

some steps in order to substantiate that it actually had plans to

open 500 outlets and the announcement made in that behalf

was genuine. Above finding of the WTM is falsified by the

Detailed Report / Project Information Memorandum, a copy of

which was furnished to SEBI on September 23, 2015. Since

the WTM has failed to consider the research analysis report,

the aforesaid findings recorded by the WTM cannot be

sustained.

(c) In the impugned order it is held that the Company has not

submitted any evidence that it had actually received ` 1.5 crore

as compensation. In fact the show cause notice issued to the

appellant itself records that the Company had received `

1.5. crore which was declared as income from operations.

Thus, the above finding recorded by the WTM which is

contrary to the show cause notice cannot be sustained.

10. In these circumstances, since some of the charges held proved in the

impugned order cannot be sustained, while upholding the impugned order

on merit, we are of the considered view that the period of restraint imposed

on the appellant needs to be reduced. We note that the appellants have

already undergone restraint of about 20 months out of the 36 months

imposed from the date of the impugned order i.e. January 13, 2016. We are 11

of the view that the period of 20 months of restraint already undergone by

the appellants would meet the ends of justice.

11. Accordingly, while upholding the order of WTM, we restrict the

restraint order imposed on the appellants only upto the date of passing this

order.

12. All appeals are disposed of on above terms with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G. Nair Member 31.08.2017 Prepared & compared by: msb