Shri Shailendra Prasad Badoni vs Sebi

Order Reserved on : 12.9.2019 Date of Decision : 24.9.2019

Appeal No.474 of 2018 Shri Shailendra Prasad Badoni A-77, Sector-2, Defence Colony, Dehradun-248001, Uttarakhand. .... Appellant

Versus

1.

Zeestar Multi Club & Tours Pvt. Ltd.

201, 2nd Floor, Doon Plaza, 59 Gandhi Road, Dehradun 248001, Uttarakhand.

2. Shri Mrinal Atal (DIN 02268049) PAN AGKPA9503(C) A-51, East of Kailash, New Delhi - 110065.

3. Shri Surendra Kumar (DIN 02268134) PAN ASHPK4559K 1124/3, R.K. Puram, New Delhi - 110022.

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

Mr. Shailendra Prasad Badoni, Appellant-in person.

Mr. Anubhav Ghosh, Advocate i/b. The Law Point for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member 2

Per : Justice Tarun Agarwala

1. A complaint dated 30th June, 2010 was received by

Securities and Exchange Board of India (hereinafter referred

to as 'SEBI') indicating that Zeestar Multi Club & Tours Pvt.

Ltd. were raising funds from the public under the garb of a

Collective Investment Scheme (hereinafter referred to as

'CIS') without obtaining a Certificate of Registration. After

due enquiry, a show cause notice was issued to the Directors

including the appellant to show cause why penalty should not

be imposed under Section 15D of the Securities and

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

'SEBI Act') for violation of the CIS Regulations. After

considering the reply, the Adjudicating Officer found that the

scheme that was being run by the Company was a CIS

scheme without taking appropriate registration under the

Securities and Exchange Board of India (Collective

Investment Scheme) Regulations, 1999 (hereinafter referred

to as 'CIS Regulations) and, therefore, the appellant and

other directors had violated Section 12(1B) of the SEBI Act

and Regulation 3 of the CIS Regulations. The Adjudicating

Officer after considering the mitigating circumstances 3

imposed a penalty of Rs.5 lakhs upon the appellant. The

appellant being aggrieved has filed the present appeal.

2. We have heard the appellant in person and Shri

Anubhav Ghosh, learned counsel for the respondent SEBI.

The background leading to the filing of the appeal is that the

appellant is an ex-employee of the Indian Air Force and after

retirement joined as Area Manager of Uttarakhand region for

Star Auto Cabs firm for distribution of mineral water and

beverage on a salary of Rs.9000/- per month. In the month of

March, 2010, the owner of this firm induced the appellant to

join as a Director of the new Company called Zee Star Multi

Club and Tours Pvt. Ltd. The appellant was offered an

assured return based on which the appellant became the

original signatory to the Memorandum and Articles of

Association of the Company which was incorporated on 13th

March, 2010 which apparently launched the CIS scheme

without obtaining a registration.

3. The appellant apparently gave a sum of Rs.3.9 lakhs to

the original owner/promoter for becoming a Director based

on which he was given charge of the Uttarakhand region and

an office was opened at Dehradun in May, 2010 but was

closed by the development authority on 26th June, 2010 i.e. 4

after one month. It has also come on record that the appellant

invested his own money while he was in Dehradun in the said

scheme and when the Company closed its operations in

October, 2010 he found that the appellant Company was only

keen to collect the money but was not keen to return the

money. Accordingly, the appellant lodged a complaint as

well as First Information Report (FIR) in Dehradun as well as

in Delhi and resigned on 20th January, 2011 which was

accepted on 26th February, 2011. The appellant requested the

owners/original promoters to refund the money which he had

invested but to no avail. The appellant became a victim of

the fraudulent scheme which was floated by the Company in

which he was induced to become a director.

4. In the light of the aforesaid facts, the Adjudicating

Officer imposed a maximum penalty of Rs.30 lakhs on the

main promoters but considering the mitigating circumstances

and finding that the appellant was instrumental in lodging the

FIR in order to curb the illegal activity of the Company,

imposed a penalty of Rs.5 lakhs only.

5. Having considered the matter we find that admittedly

the appellant had became a Director and was signatory to the

Memorandum and Articles of Association based on which 5

the Company was incorporated for running the CIS scheme.

Since the scheme was initiated without being registered the

same was in violation of Section 12(1B) of the SEBI Act.

Thus, the appellant cannot escape his responsibility as a

director of the Company.

6. We however find that the appellant was given charge of

the Dehradun office which functioned only for a brief period

from May, 2010 to 26th June, 2010. Evidence had also come

that the appellant himself had invested a sum of Rs.8 lakhs in

the scheme. No evidence has come on record to show as to

how much money was collected from the Dehradun office

where the appellant was given the charge. Further, finding of

the Adjudicating Officer is, that the disproportionate gains

cannot be quantified nor the magnitude of the losses suffered

by the investors could be measured. Thus considering the

fact that the appellant himself was a victim of the fraud

generated by the Company coupled with the fact that the

appellant was also induced in taking the post of Director

coupled with the fact that major culprits who ran the show

are other Directors to whom a maximum penalty was

imposed, we are of the opinion that in the exceptional facts

and circumstances of the present case the penalty imposed on 6

the appellant is excessive. We accordingly are of the opinion

that the minimum penalty of Rs.1 lakh would be just and

proper in the given circumstances. In the light of the above,

the appeal is partly allowed. The impugned order is affirmed

except that the penalty imposed is reduced from Rs.5 lakhs to

Rs.1 lakh.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

24.9.2019 Prepared and compared by RHN