Shri Tushar Shah vs Sebi

Order Reserved on: 23.04.2018

Date of Decision : 28.06.2018

Appeal No. 416 of 2016

Shri Tushar Shah Nakula Chanda Giri, Near Arti Hospital, Weigh Bridge Road, At Sundra, Post Barbil, Dist. Keonjhar, Odisha - 758 035. .....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. J.P. Sen, Senior Advocate with Mr. Shyam Shelat, Advocate i/b Shelat Associates for Appellants.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Pulkit Sukhramani, Ms. Vidhi Jhawar and Mr. Nikhil Ratti Kapoor, Advocates i/b The Law Point for the Respondent.

WITH Appeal No. 477 of 2016

Shri Parag Shah Tulsidham Society Darshnna Apt. Bh. Shishu Bipini School, Room B-2, Una 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 2

Mr. Shyam Shelat, Advocate i/b Shelat Associates for Appellants.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Pulkit Sukhramani, Ms. Vidhi Jhawar and Mr. Nikhil Ratti Kapoor, Advocates i/b The Law Point for the Respondent.

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

Per : Dr. C.K.G. Nair, Member

1.

These two appeals have been filed challenging the order of the

Adjudicating Officer ('AO' for short) of Securities and Exchange Board of

India ('SEBI' for short) dated November 30, 2015. By the said order penalty

of Rs. 72 lakh each has been imposed on the appellants under Section 15HA

of the Securities and Exchange Board of India Act, 1992 ('SEBI Act' for

short) and Regulations 3(a) (b) (c), 4(1), 4(2)(e) of the Securities and

Exchange Board of India (Prohibition of Fraudulent and Unfair Trade

Practices Relating to Securities Market) Regulations, 2003 ('PFUTP

Regulations, 2003' for short). Since these appeals arise from the same

impugned order, by consent of parties, both the appeals are heard together

and are disposed of by this common decision.

2. It has been held in the impugned order that the appellants were

promoters of a company by the name Platinum Corporation Limited ('PCL'

for short). PCL made a series of corporate announcements between July

2005 and January 2008. Three of these announcements have been

considered positive in terms of impacting the price of the scrip by SEBI.

These positive announcements were made on (i) July 20, 2005 relating to a

strategic tie-up with M/s. Cartesian Computer Limited for development of

software for defence; (ii) on September 06, 2005 bagging an order worth Rs.

60 Million from M/s. Alps BPO Services Limited and (iii) on November 29, 3

2006 relating to entering into construction business with claims of projects

approved by Government. These announcements contributed to raising the

price of the scrip and various entities, including the appellants herein have

transferred shares to connected persons off market as well as pooled shares

from various persons and offloaded those shares subsequent to the corporate

announcements thereby generating abnormal returns by trading in the shares

of the PCL, and hence violated the provisions of PFUTP Regulations, 2003.

3. The basic argument of Shri J.P. Sen, Learned Senior Counsel

appearing on behalf of the appellants alongwith Learned Counsel

Shri Shyam Shelat is that the appellants were never promoters but came to

hold 40 Lakh shares each of PCL. The company (PCL) wrongly disclosed

them as promoters but the appellants were never promoters of the company.

It is on record that this wrong disclosure was taken up with PCL by Tushar

Shah (Appellant in Appeal No. 416 of 2016) on November 28, 2006 and

PCL replied on February 25, 2007 confirming that the appellant was never a

promoter of PCL and also promising that the records will be corrected

accordingly. Similarly, Parag Shah (Appellant in Appeal No. 477 of 2016)

had taken up the matter with PCL on May 15, 2007 to which PCL replied on

July 15, 2007 confirming that Parag Shah was also never a promoter of PCL

and also stating that the mistakes in the records will be rectified. The

Managing Director of PCL, Pratik Shah, has also given a notarized affidavit

on March 28, 2014 to this effect stating that the promoter holding statement

given by PCL to BSE contained inadvertent errors.

4. Learned Senior Counsel for the appellants also argued that

disclosures made by PCL during 2004-07 were held to be wrong even by the

WTM of SEBI in his order dated August 12, 2016. This also corroborates

that the company was filing wrong returns and therefore the appellants were 4

in fact not the promoters. Further, the appellants had transferred 40 lakh

shares each by August 23, 2006, well before the last disputed corporate

announcement, as evidenced from their transaction statement dated July 2,

2010 provided by NSDL.

5. Further, it was argued that in a related matter of Shri Manish

Ashokbhai SEBI vide its order dated January 5, 2012 imposed a penalty of

only Rs. 2 lakh against the appellant therein and this Appellate Tribunal,

therefore, had reduced the penalty in respect of a similarly placed appellant

Bhalchandra K Patel from Rs. 10 lakh to Rs. 2 lakh vide its order dated

August 24, 2012. Since the case of the appellants herein and the appellants

in the cited cases are all emanating from the same matter of PCL the penalty

of Rs. 72 lakh each imposed on the appellants herein is arbitrary and highly

excessive. That is why when the appellants herein challenged the earlier

order of the AO of SEBI dated October 1, 2012, this Appellate Tribunal

quashed and set aside that order vide its order dated August 27, 2014 and

remanded the matter to AO, SEBI on which the impugned order has been

passed.

6. In conclusion, Learned Senior Counsel reiterated that the appellants

had nothing to do with the corporate announcements made by PCL; they

were never promoters of PCL; they were just ordinary shareholders of PCL

who sold their shares in the normal course of business and therefore not

committed any violations. In any event even if it is argued that while

transferring their shares they had benefited from the corporate

announcements of PCL the penalty imposed at the rate of 3 times the

alleged profits made is too harsh and excessive when in similarly placed

cases penalty of only Rs. 2 lakh was imposed by SEBI and where penalty of 5

Rs. 10 lakh was imposed by SEBI this Appellate Tribunal had reduced it to

Rs. 2 lakh.

7. Learned Senior Counsel Shri Pradeep Sancheti appearing on behalf

of the respondent SEBI walked us through various documents and submitted

that the appellants herein are indeed promoters of PCL since 2001 as held in

the impugned order in para 21 and as per the details of their shareholding

filed with BSE by PCL. The letters cited by the appellants purportedly

received from PCL dated February 25, 2007 and July 15, 2007 are

afterthought since even in the filing by PCL for the quarter ending

September 2007 these appellants were continued to be shown as promoters.

As such, neither the letters nor the affidavit filed in the year 2014 has any

veracity. He submitted that there are several documents linking these

entities and their connection to PCL is on record and separate orders have

been issued against them by SEBI. For instance, from the list of beneficiary

accounts / trading accounts being operated by Ashok Hiralal Shah 21

entities, many of whom are on appeal before us either in these appeals or

against the WTM order dated August 12, 2016, the common mobile number

9824019596 which admittedly belongs to Ashok Shah has been given as

their contact number in their documentation relating to depository accounts.

These details are part of the records in one of the appeals (Appeal No. 306

of 2016) filed against the WTM's order dated August 12, 2016 on the same

matter of PCL. Since appellants were indeed promoters and hence were

party to the fraudulent scheme a higher penalty of Rs. 72 lakh each has been

imposed on them vis-à-vis appellants in similar matters (supra) cited by the

appellants.

8. We do not find any merit in the arguments put forth by the Learned

Counsel for the appellants. The misleading corporate announcements are not 6

in dispute and are found to be violative of the relevant regulations as upheld

by this Tribunal in our orders dated February 1, 2018 and June 28, 2018 in

the matter of Corporate Strategic Allianz Limited vs. SEBI (Appeal No. 4 of

2017) and Pratik Minerals Pvt. Ltd. vs SEBI (Appeal No. 303 of 2016). The

argument of the appellants that they were never promoters of PCL has no

merit because of the records to the contrary available and perused by us. In

all the quarterly filings starting March 31, 2001 till September 30, 2007

names of Jayesh Shah, Tushar Shah and Parag Shah have been shown as

promoters in the shareholding pattern filed by the company with BSE.

While Tushar Shah and Parag Shah are on appeal here. Jayesh Shah has not

even on appeal despite the fact that he had appealed against an earlier order

passed by the AO, SEBI on October 1, 2012 which was remanded by this

Appellate Tribunal on August 27, 2014. Though, thereafter, Jayesh Shah

appeared before the AO and submitted that he would provide details to show

that he was not a promoter neither did he provide any details, nor has he

appealed against the order which is impugned in these appeals. Such a long

period of filing before the stock exchange by a listed company cannot be an

oversight or mistake but what is more interesting about the filing is that in

some of the filing (for the quarter ending February 31, 2004) these three

names i.e. Jayesh Shah, Tushar Shah and Parag Shah were shown both in

the promoter and non-promoter category. We do not consider that this is an

inadvertent omission or error rather we hold that these are clever steps taken

by the company and the promoters, including the appellants herein to

deliberately mislead the public.

9. Appellants' reliance on the WTM order dated August 12, 2016 has

no merit, since the WTM's order dated August 12, 2016 does not state that

the appellants were not promoters of PCL but only state that the 7

shareholding of promoters (Jayesh Shah, Tushar Shah and Parag Shah) were

either under reported or over reported at different points of time between

March 31, 2005 to March 31, 2007. Fact that shares were transferred by

August 2006 does not make any difference since 2 of the 3 major

misleading corporate announcements had been made by the Company prior

to that date and the appellants got the benefit of the same while disposing

off their entire shareholding. As demonstrated the common mobile number

becomes another point of convergence between the promoters and the

related entities. Since they were promoters their argument that they had no

role in the misleading corporate announcements also has no merit. Another

interesting fact emerging from these appeals (and in all appeals on the PCL

matter) is the unwillingness of the appellants to disclose the details of their

obtaining the shares of PCL; though the appellants attribute it to memory

loss emanating from considerable delay in issuing the SCNs. We have been

shown records by the respondent that even in some of the related matter on

PCL adjudicated during 2011-12 (SEBI order dated January 19, 2012

upheld by this Appellate Tribunal by its order dated April 8, 2013) against

some of the group entities no one could recall or produce details relating to

their transactions in PCL shares. In fact, if the appellants could produce

documents relating to how they happened to hold the admitted 40 lakh

shares of PCL each that could have been to their advantage. The very fact

that they are unwilling to produce any documents relating to the same is

sufficient to prove that the appellants are not forthright in their stand.

10. The trajectory of travels of these appellants is also strikingly similar.

Both Parag Shah and Tushar Shah happened to be holding 40 lakh shares of

PCL since 29.12.2004. They are not able to prove how they have got these

shares or on what basis etc. They transferred these shares (not sold) to

different entities (Parag Shah transferred 20 lakh shares to one Bipin Shah, 8

10 lakh shares to Parvati Minerals and 10 lakh shares to Prateek Minerals -

all related entities - for a proposed loan). Tushar Shah transferred (not sold)

20 lakh shares to one Bharat Shah and 20 lakh shares to one of the nominees

of Bharat Shah for a proposed loan). Both of them did not get the promised

loans. Both of them did these transfers in 2006 and both of them left their

original address (2 B Sumedh Complex, Ahmedabad) sometime in 2006.

Tushar Shah went to Odisha and Parag Shah went to Una, Gujarat (and

Jayesh Shah went to Junagadh district of Gujarat). Both of them did write

identical letters to the company (Pentium Infotech Ltd./ PCL) during

November 2006 and May 2007 seeking to delete their name from

classifying them as promoters and got similar replies thereon. They never

tried to do so since March 2001 despite the fact that as major shareholders

they would have been getting the annual report of the company on a regular

basis.

11. Accordingly, we find no merit in the submissions that the appellants

were not part of the promoter group; had no role in the corporate

announcements, and had not benefitted in anyway. The orders cited by the

appellants regarding disproportionality in the quantum of penalty imposed

on the appellants' vis-à-vis the appellants in the cited orders are

distinguishable in view of the fact that the appellants herein were indeed

promoters of PCL. Accordingly, we find no merit in the argument of

disproportionality in the quantum of penalty as well.

12. The penalty of Rs. 72 lakh each is imposed under Section 15HA of

SEBI Act. The penalty imposable under this section shall not be less than 5

lakh rupees but which may extend to 25 crore rupees or three times the

amount of profits made, whichever is higher. In the instant case, the profit

made is calculated at Rs. 24 lakh each by taking a notional cost of 9

acquisition of rupees one per share and the average sell price of Rs. 1.60 per

share. Given the admitted fact that none of the appellants in the matter of

PCL, including the appellants herein, has provided details of acquisition cost

etc to SEBI, the finding in the impugned order that Rs. 24 lakh profit has

been made cannot be faulted. Similarly, as against the maximum of Rs. 25

crore each imposable under Section 15HA of SEBI Act the penalty imposed

is only Rs. 72 lakh each which cannot be faulted.

13. In the result, both the appeals are dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 28.06.2018 Prepared and compared by:msb