Vipul Shah vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Hearing : 03.06.2019 Date of Decision : 10.06.2019

Appeal No. 68 of 2016 Vipul Shah Y--1102, Sacred Heart Township, Wanorie, Pune - 411 040. Maharashtra. ..... 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. Kunal Katariya, Advocate with Mr. Neerav B. Merchant, Mr. Bharat Merchant, Mr. Kunal Kothary, Advocates i/b Thakordas & Madgavkar for the Appellant. Mr. Kumar Desai, Advocate with Mr. Chirag Bhavsar, Advocate i/b MDP & Partners 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

1.

The appellant has filed the present appeal against the order dated

December 30, 2015 passed by the Adjudicating Officer (hereinafter

referred to as, 'AO') of Securities and Exchange Board of India

(hereinafter referred to as, 'SEBI') imposing a penalty of Rs. 4 crores

for failure to make disclosures under Regulations 13(3), 13(4A) read 2 with 13(5) of Securities and Exchange Board of India (Prohibition of

Insider Trading) Regulations, 1992 (hereinafter referred to as, 'PIT

Regulations') and Regulations 29(2), 29(3), 30(2) and 30(3) of the

Securities and Exchange Board of India (Substantial Acquisition of

Shares and Takeovers) Regulations, 2011 (hereinafter referred to as

'SAST Regulations').

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

1994 Parikh Herbals Pvt. Ltd. was incorporated as a Company. In

2006, the appellant was issued 12,65,150 shares of Rs. 10/- each. The

shares of the company were suspended for trading on Bombay Stock

Exchange (BSE) and Pune Stock Exchange from 1997 which

continued till the year 2012. During this period, it is alleged that the

Company suffered heavy losses and, consequently on November 15,

1997 the appellant resigned as a director. On January 13, 2012, the

suspension of the company was revoked by the BSE and on July 27,

2012, the Company's name was changed to Safal Herbs Ltd. On

August 1, 2012 the shares of the company were split from face value of

Rs. 10/- to face value of Re. 1/-.

3. After the revocation of the suspension of trading of the shares of

the company, the appellant sold 6,00,000 shares on September 25,

2012, 16,98,000 shares on October 27, 2012 and 29,32,000 shares on

December 26, 2012. Since requisite disclosures under Regulations 3 13(3), 13(4A) and 13(5) of PIT Regulations as well as the disclosures

under Regulations 29(2) and 29(3) read with Regulations 30(2) and

30(3) of the SAST Regulation was not made, a show cause notice was

issued to the appellant to show cause as to why a penalty should not be

imposed under Section 15A(b) of the Securities and Exchange Board

of India Act, 1992 (hereinafter referred to as, 'SEBI Act').

4. The appellant contested the show cause notice and filed a reply

contending that he had never sold the shares and, therefore, was not

liable to make any disclosures under the PIT or the SAST Regulations.

It was contended that the physical share certificates had been lost or

misplaced and were not traceable.

5. Considering the aforesaid stand taken by the appellant, the AO

summoned the Registrar and Transfer Agent (RTA) of the Company

who submitted that the RTA had received 5,23,000 shares on different

dates for transfers and that the transfers were effected after it was

approved by the Transfer Committee of the Company. It was also

submitted that the transfer was approved only after due compliance of

all the requirements including verification of the signatures of the

appellant on the share transfer forms from the specimen signatures of

the appellant maintained in the Company. The appellant thereafter

filed written submissions contending for the first time that the

signatures on the share transfer forms were forged. In support of this 4 contention, the appellant subsequently, filed an opinion of an expert

showing that the signatures on the share transfer forms are not his.

6. The AO after considering all aspects of the matter did not accept

the contention raised by the appellant and found that the signatures in

the share transfer forms were those of the appellant. Since, the sale of

shares made by the appellant had exceeded the benchmark limit as

prescribed under the PIT Regulations, the penalty of Rs. 4 crores was

imposed.

7. We have heard Mr. Kunal Katariya, the learned counsel for the

appellant alongwith Mr. Neerav Merchant, Mr. Bharat Merchant,

Mr. Kunal Kothary and Mr. Kumar Desai, the learned counsel for the

respondent. Before us, the learned counsel for the appellant made the

following submissions :-

a. The share transfer form was for transfer of the Rs. 10 share

certificate which could not be transferred as in the

meanwhile, the shares were split from Rs. 10 to Re. 1/- per

share and, consequently, the appellant was entitled to

receive the split share of Re. 1/- each and only thereafter

the Re. 1/- share certificate could have been transferred

through the share transfer form to a third party, which in

the instant case, was not done and, therefore, the alleged

transfer of shares was wholly illegal.

5 b. The appellant had never sold the shares and the same had

been misplaced / lost.

c. The signatures on the share transfer forms were not that of

the appellant and the same are forged. The opinion of the

expert provided by the appellant was not considered by the

AO and was brushed away casually.

d. The statement was wrongly relied upon and no opportunity

was given to the appellant to cross-examine the RTA.

e. These share transfer forms indicate that majority of the

shares were transferred to parties who were based in

Gujarat whereas the appellant is based at Pune and, thus, it

was not possible for the appellant to transfer shares to the

parties based in various places in Gujarat.

f. The signatures of the witnesses on the shares transfer forms

were different and, thus, leads to a presumption that

forgery on large scale was made.

g. The penalty imposed is excessive and disproportionate and,

in any case, the mitigating factors specified in the Section

15J have not been considered.

8. On the other hand, the contention of the learned counsel for the

respondent is, that the appellant had never stated that his signatures

were forged at any time before the AO during the course of hearing. It

is only after the closure of the hearing that the appellant in his written 6 submission took a stand for the first time that his signatures were

forged. It was further contended that no complaint was made by the

appellant about the loss of shares at any moment of time and that the

complaint was made only after a show cause notice was issued which

appears to be an afterthought. It was also contended that the penalty

imposed was just and fair in the peculiar facts and circumstances of the

case.

9. Having heard the learned counsel for the parties at some length,

we find that the contention raised by the learned counsel for the

appellant cannot be accepted. We find that the consistent stand of the

appellant was that he had never sold the shares and that the physical

shares were misplaced or lost and were not traceable. In order to verify

this aspect the Registrar Transfer Agent was called who produced the

share transfer forms as well as the original certificates which showed

the signatures of the appellant. It was found that the signatures of the

appellant matched with the specimen signatures kept with the

Company. The contention of the appellant that the expert opinion

provided by the appellant with regard to his signatures was not taken

into consideration is patently misconceived. The AO considered the

expert opinion and found that it was not necessary as there were ample

evidence to show that the signatures on the share transfer forms were

that of the appellant. We are further of the opinion that no attempt was

made by the appellant to get the signatures appended in the share 7 transfer form compared with the specimen signatures kept with

Company. Verifying and comparing the signatures of the appellant on

the share transfer forms with the signatures of the appellant on other

documents like PAN Card, Passport, Bank signatures are immaterial

when specimen signatures of the appellant are kept with the Company.

The primary evidence for comparing the signatures is the specimen

signatures kept with the Company. If for some reason, the specimen

signatures was not available with the Company then only the signatures

of the appellant on the PAN Card, Passport etc. would become

relevant. In the instant case, no steps were taken by the appellant to

verify and compare his signatures with the specimen signatures kept

with the Company. Thus, no reliance can be placed on the expert

opinion provided by the appellant. For the same reasons, the allegation

that no opportunity was given to the appellant to cross-examine the

Registrar and Transfer Agent is patently erroneous and an afterthought.

No such stand was taken by the appellant before the AO in this regard

nor any such application was made to this effect. The fact that the

transfers were made at various places in Gujarat is immaterial. What is

material is the signature of the appellant on the shares transfer

certificates.

10. The contention that the signatures of the witness are different in

the share transfer forms cannot be accepted at this stage. Such stand

was not taken before the AO nor any ground has been taken before us 8 in this appeal. Such arguments cannot be made without there being a

ground in the appeal.

11. The contention that the physical shares of Rs. 10/- each could not

have been transferred unless the split share certificates were given is

patently erroneous. The Companies Act did not at any stage prohibit

the transfer of pre-split shares to the transferee. The contention raised

does not have any merit.

12. Thus, the contention of the appellant that he had never sold the

shares cannot be believed in as much as the signatures of the appellant

on the share transfer form was duly verified from the specimen

signatures kept with the Company. The contention that the signatures

on the share transfer forms were forged was rightly disbelieved.

13. The appellant held 1,26,51,500 shares constituting 12.65% of the

total paid up capital of the company and off-loaded 52,30,000 shares

which constituted 5.23%. Regulation 13(3) required the appellant to

make the disclosure with respect to the change in the shareholding,

when such change exceeded 2% of the total shareholding in the

company. Under Regulation 13(4A) of the PIT Regulations, any

person who is a promoter is required to disclose to the company and to

the stock exchange the change in the shareholding if such change

exceeds Rs. 5 lac in value or 25,000 shares or 1% of the total

shareholding or voting rights whichever is lower. Since the appellant 9 had sold 52,30,000 shares, it exceeded the benchmark limit as

prescribed under Regulation 13(4A) of the PIT Regulations. The

appellant was required to disclose change in the shareholding within

two days from the date of sale which apparently was not done. Under

Regulations 29(2) and 29(3) of the SAST Regulation, 2011, the

acquirer was required to disclose the disposal of shares representing

2% or more within two days of the sale. The sale made by the

appellant resulted in the decrease in his shareholding which exceeded

the benchmark limit as prescribed under Regulation 29(2) of the SAST

Regulations. Such disclosures were required to be made which was not

done. Thus, the appellant had violated the aforesaid Regulations.

14. A penalty of Rs. 4 crore has been imposed under Section 15A of

the SEBI Act. The AO while imposing the maximum penalty took into

consideration the judgment of the Hon'ble Supreme Court in the matter

of SEBI vs Roofit Industries Ltd. [(2016) 12 SCC 125] in which it

was held that the factors contemplated under Section 15J cannot be

taken into consideration once a violation of the Regulations were

found.

15. In our opinion, the imposition of a penalty of Rs. 4 crores on

the aforesaid ground is not correct. We find that the decision of the

Hon'ble Supreme Court in Roofit Industries Ltd. (supra) has been held

to be no longer a good law by a larger bench of the Hon'ble Supreme 10 Court in Civil Appeal No. 11311 of 2013 Adjudicating Officer, SEBI

vs. Bhavesh Pabari decided on February 28, 2019 wherein the

Hon'ble Supreme Court has held that Roofit Industries had erroneously

and wrongly held that Section 15J would not be applicable.

16. We also find that in a near identical matter of Bhupendra Shah

also a promoter in Safal Herbs Ltd. had sold 13.15% of its

shareholding in violation of Regulations 13(3), 13(4A), 29(2) and

29(3) of the PIT Regulations and SAST Regulations. In the case of

Bhupendra Shah, the AO had imposed a penalty of Rs. 13 lacs whereas

in the case of the appellant the maximum penalty of Rs. 4 crores has

been imposed. We are thus, of the opinion that the imposition of

penalty is grossly disproportionate to the violation committed by the

appellant. Further, the factors contemplated under Section 15J have

not been considered.

17. For the reasons stated aforesaid, we affirm that part of the order

of the AO holding that the appellant had violated the provisions of

Regulations 13(3), 13(4A), and 13(5) of the PIT Regulations and

Regulations 29(2), 29(3), 30(2) and 30(3) of the SAST Regulations and

to that extent the order of the AO is affirmed. We, however, do not

agree with the order of the AO imposing a penalty of Rs. 4 crores and

to that extent the order of the AO cannot be sustained and is set aside.

The appeal is consequently, partly allowed. The matter is remitted to 11 the AO to re-decide only the quantum of penalty, in the light of the

observations made above after giving an opportunity of hearing to the

appellant. For this purpose, the appellant shall appear before the AO

on June 25, 2019 at 11 A.M. on which date the AO will decide the

matter after giving an opportunity of hearing. In the event, for some

reason, the matter is not decided on that date, the AO will positively

decide the same within four weeks thereafter.

18. 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

10.06.2019 Prepared & Compared by PTM