Transgene Bioteck Ltd. And Others vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision: 11.02.2020

Appeal No. 599 of 2019

1.

Transgene Bioteck Ltd.

2. Dr. K. Koteswara Rao

3. Mr. Soma Sekhar Marthi

4. Mr. Narayana Murthy Pentyala

M/s. Transgene Bioteck Ltd.

Plot 69 & 70, IDA Ballaram, Sangareddy Dt.- 502 325 For Appellants No. 2 to 4 ...Appellants

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. L. S. Shetty, Advocate with Mr. U. R. Naik and Mr. Prasad Bhabal, Advocates i/b L. S. Shetty and Associates for Appellants.

Mr. Shyam Mehta, Senior Advocate with Mr. Shehaab Roshan, Advocate i/b K. Ashar & Co. 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. The appellants being aggrieved by the order of the Whole

Time Member ("WTM" for convenience) of Securities and

Exchange Board of India ("SEBI" for convenience) dated

August 28, 2019 have filed the present appeal. 2

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

appellant no. 1 Transgene Biotek Ltd. issued GDR for the

purpose of raising capital from overseas market for expansion of

its present business activities. These 50 lakh shares were issued

in two tranches raising US$ 40.5 million. Certain complaints

were received regarding diversion of monies raised through

GDR issues and, based on a preliminary enquiry, SEBI issued

an ex-parte ad-interim order dated November 20, 2014

prohibiting the appellant no. 1 from issuing any further equity

shares or any other instrument convertible into equity shares and

further restrained the other appellants from accessing the

securities market etc. Thereafter, a confirmatory order dated

March 03, 2016 was passed confirming the ex-parte ad-interim

order.

3. The appellants and other entities filed six separate appeals

before this Tribunal which was dismissed by judgement dated

August 17, 2017. Thereafter, upon completion of investigation

a show cause notice dated April 26, 2018 was issued alleging

that the appellants had devised a scheme under which the

appellant company made two GDR issues, the proceeds of

which were diverted by them and subsequently involved in

covering up of diversion of GDR issues by legitimizing the

same through back-dated agreement/ invoices, by making false 3 statement with regard to utilization of GDR proceeds

into annual reports for the financial year 2010-11, 2011-12 and

2012-13.

4. The WTM after considering the submission and the

evidence on record held that the company had devised a

fraudulent scheme by making two GDR issues, proceeds of

which were diverted and thereafter covering up the diversion of

the funds through back-dated agreements/ invoices and by

making false statements with regard to the utilization of GDR

proceeds in the annual report. The WTM further found that the

company failed to inform the Stock Exchange with regard to the

price sensitive information with regard the agreements entered

with other entities.

5. Before this Tribunal the only contention raised by the

appellant was that they have not committed any fraud nor

defrauded any investor and in fact the appellants were victims

of fraud and forgery committed by one Mr. Nirmal Kotecha and

his associates. It was contended that the promoters/ or directors

of the company never received the GDR proceeds nor

misappropriated it. Such contention was repelled by the WTM

in the impugned order and cannot be accepted by us as we find

that the appellants have not denied the fact that the company

had made two GDR issues nor has denied the fact that the 4 proceeds of the two GDR issues were transferred to

various entities as brought out in the show cause notice. The

only defense is that such transfer was made on the advice of

Mr. Nirmal Kotecha on whose advice the company floated a

subsidiary in Hong Kong and entered into agreement with Asia

First Technologies Ltd. (AFTL) and SyMetric Sciences Inc.

(symetric) for purchase of technology and thus the diversion of

the GDR proceeds was done at the behest of Mr. Nirmal

Kotecha cannot believed. The contention that the first

information report has been lodged against Mr. Nirmal Kotecha

cannot be a ground to mitigate the direct involvement of the

appellant in the fraudulent scheme and diversion of the proceeds

through two other entities.

6. We accordingly do not find any manifest error in the order

of the WTM. The appeal fails and is dismissed.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 11.02.2020 Prepared & Compared By: PK