Voltaire Leasing And Finance Ltd. & Ors. vs Sebi

Order Reserved: 6.1.2021 Date of Decision: 15.3.2021

Appeal No.409 of 2020

1.

Voltaire Leasing and Finance Ltd.

79, Bhagyodya Building, 3rd Floor, Nagin Das Master Road, Fort, Mumbai - 400023.

2. Dilip Rajkumar Patodia Flat No.A-602, Floor No.6, Sheetal Kund CHS Ltd., Subhash Lane Daftary Road, Malad East Mumbai Maharashtra-400097.

3. Amalesh Sadhu Palpara Bibirhat East, Chandernagore, Hooghly, West Bengal-712316. ...Appellants

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C4-A, G Block, Bandra Kurla Complex, Mumbai-400051. ...Respondent

Mr. Vikas Bengani, Advocate for the Appellants.

Mr. Vishal Kanade, Advocate with Ms. Nidhi Singh, Ms. Kinjal Bhatt and Mr. Hersh Choudhary, Advocates i/b. Vidhii Partners for the Respondent.

2

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

Per: Justice M.T. Joshi, Judicial Member

1. Aggrieved by the order of the Whole Time Member

(„WTM‟ for short) of respondent Securities and

Exchange Board of India dated 30th April, 2020

whereby the present appellants are restrained from

accessing the securities market in any manner for a

period of two years each the present appeal is

preferred. Appellant no.1 is a listed company carrying

in business in finances etc. Appellant nos.2 and 3 were

the Managing Director and Chief Financial Officer

respectively during the relevant period.

2. Respondent SEBI had received a reference from

Department of Income Tax, Chandigarh for possible

violation, if any, of the provisions of Securities and

Exchange Board of India Act, 1992 (hereinafter

referred to as „SEBI Act") and Rules and Regulations

made thereunder. Respondent SEBI therefore

conducted investigation in the scrip of the appellant 3

no.1 Company for a period between August 12, 2014

to July 31, 2015 termed as the investigation period by

the respondent. In this period, the scrip opened on the

BSE Ltd. at Rs.2.42 and reached a high price of

Rs.32.10 and closed at the same price. Respondent

SEBI found the noticee Looklike Trade Pvt. Ltd.,

Badriprasad Chiripal and Richi Consultants P. Ltd.

(termed as group no.1 in the impugned order) through

off market transactions transferred shares of the

appellant no.1 Company to 13 other noticees. These

13 other noticees thereafter in miniscule quantities

from 5 shares to 15 shares sold the same on the

exchange platform for a higher price though in fact for

a lesser price they had obtained much more shares

from the above group 1 sellers. During these 88 days

average trading in the scrip was 15 shares per day.

Besides those 13 sellers three other sellers were also

involved in raising the price by putting one share each

for sale on the market platform though they did not

have any shares with them. These transactions of 3 4

other noticees ultimately resulted in stock exchanges

taking actions under the relevant rules.

3. Out of the three group 1 entities, Looklike Trade

Pvt. Ltd was found to be connected with the appellant

by way of fund transfer and it was also a preferential

allottee of the appellant no.1. This Looklike Trade Pvt.

Ltd had also made off market transfers of certain

shares to other in group 1 entities who eventually

transferred to 13 entities as detailed above of Group 2

entities the shares which were ultimately sold by them

as detailed supra.

Respondent SEBI found that the appellant no.1

Company was suspended from the stock exchange

platform for some period in 2010. Thereafter for

considerable period 4 years except 2 trades for 700

shares no transaction at all took place and the shares

were infrequently transacted. On August 12, 2014 it

traded for Rs. 2.42 which is the starting date of

investigation period. Then the minuscule sale of shares

by the 13 entities/noticees described above in minscule 5

quantity for higher price the share reached the peak

price of Rs. 32.10.

The Company‟s performance however did not match

with this phenomenal rise. The profit after tax of the

appellant no.1 Company in the year 2013-14 was

Rs.24.5 lakhs, 2014-15 it reduced to Rs. 20.1 lakh and

in 2015-16 it again fell to Rs.4.2 lakhs only.

Considering all these facts the show cause notices were

issued to the appellant and other entities for violation

of the provisions of Securities and Exchange Board of

India (Prohibition of Fraudulent and Unfair Trade

Practices relating to Securities Market) Regulations,

2003.

4. It appears that none of the 16 sellers (termed as

group 3 in the impugned order) had appeared before

the WTM. Similarly, group 1 entities who have sold in

off market transactions to those sellers also did not

contest the proceedings. Similarly, appellant nos.2 and

3 did not also put their appearance however the

appellant no.1 contested the proceedings. 6

5. It was the case of appellant no.1 that preferential

allotment to Looklike Trade Pvt. Ltd was done in

accordance with laws and regulations. Further, on

January 29, 2014 an intimation of an open offer for

acquiring the shares of appellant no.1 company had

been made by the acquirer at the price of Rs.50 when

the market price at that time was Rs.2.52 per shares.

The open offer opened on March 12, 2015 and closed

on March 25, 2015 at a price of Rs.50 per share at a

substantial premium over the prevailing market price

which was Rs.21.90 and Rs.22.93 on those days.

Therefore, the price rise may have occurred because of

this takeover exercise. Further, it was explained that

an amount of Rs.27,25,000 was paid to Looklike Trade

Pvt. Ltd. by the appellant no.1 Company as it owed

money to it and, therefore, this transaction cannot be

branded as connection between the appellant and

Looklike Trade Pvt. Ltd. for carrying any

manipulative trade on the platform of the stock 7

exchange. It was therefore submitted that the

proceedings be dropped.

6. Respondent SEBI called for specific document like

bank statements etc. from the appellant no.1 to show

that the transactions were genuine. The Appellant had

placed certain books of accounts and certificate from

Chartered Accountant in this regard.

7. Considering all the material before her the learned

WTM did not believe the explanation. Further, finding

that there was a connection inter-se between the

miniscule seller and the connection of the appellant

no.1 with Looklike Trade P. Ltd. in the nature of

financial transaction and the said Looklike Trade Pvt.

Ltd. being connected with the miniscule sellers the

impugned order came to be passed. Hence the present

appeal.

8. Heard Mr. Vikas Bengani, Advocate for the

Appellant and Mr. Vishal Kanade, Advocate assisted

by Ms. Nidhi Singh, Ms. Kinjal Bhatt and Mr. Hersh

Choudhary, Advocates for the Respondent. 8

9. The record would show that there was phenomenal

price rise in the share of the appellant no.1 Company

during the investigation period. The fundamentals of

the Company as detailed supra however did not match

with said price rise. The appellant no.1‟s case is that

due to the takeover exercise an acquirer who had

offered price at the rate of Rs.50 per share during the

same period the price rise has occurred.

10. The impugned order shows that the open offer was

had opened and closed in the month of March, 2015.

At the time of closure the price of the scrip was

Rs.22.93. From the date of announcement of the open

offer till the start of the investigation period i.e. August

12, 2014 there has been no trading at all in the scrip of

the Company. Thereafter in the end of open offer i.e.

till March 25, 2015 the price of the scrip rose from

Rs.2.42 to Rs.22.93. Therefore, the WTM reasoned

that even if the explanation of the appellant no.1 is

accepted that the price rise was due to the open offer

however it does not explain why the rise in the price 9

continued to increase even after the open offer was

concluded.

It was further found that the change in the management

due to the takeover exercise was also just a show. The

documents showed that the acquirer was not any new

acquirer but very Appellant Dilip Patodia who was

already acting as a Joint Managing Director of the

Company from October 1, 2014. Prior to it he was an

independent director in the board of the Company from

October 29, 2013. In the circumstances, the increase in

the price of the scrip at 1226% was held to be not

attributable to the open offer or to the "change in the

management".

So far as financial transaction of the appellant no.1

with Looklike Trade Pvt. Ltd. is concerned, during

personal hearing the appellant no.1 Company

submitted that it had allotted 80,000 shares in

preferential allotment to the Looklike Trade Pvt. Ltd.

It had received some advances against these shares.

However, the appellant no.1 could not deliver the 10

shares to Looklike Trade Pvt. Ltd. Therefore, an

amount of Rs.27.25 lakh was returned to Looklike

Trade P. Ltd. The document uploaded by appellant

no.1 on the MCA website however showed that the

appellant no.1 had allotted 80,000 share to Looklike

Trade P. Ltd for a total consideration of Rs.40 lakhs on

August 3, 2013. This fund transfer of Rs.27 lakhs was

made in January, 2015 i.e. after about one and half

year of the transactions. Some unauthenticated ledgers

which didi not bear the stamp of the company, and

bills were placed before the WTM to show that the

funds were received and transferred. Therefore the

appellant no.1 Company was directed by WTM to

submit the bank statement etc. However, except the

certificate of the Chartered accountant based on the

books of accounts no documents were placed before

the WTM.

11. The learned counsel for the appellant submitted

that in view of the takeover there was a rise in the price

of the shares. Further, the fund transfer transaction 11

between the appellant no.1 and the Looklike Trade P.

Ltd. is reasonably explained. In the circumstances, he

submitted that the appellants were not instrumental in

any way in any price rise.

12. However, taking into consideration all the facts

that the takeover cannot be instrumental in the price

rise, that the appellant no.1 failed to place trustworthy

documents justifying fund transfer, in the background

of the performance of the appellant no.1 and trading

pattern of the miniscule seller in our view does not call

for any interference in the impugned order. The

connection between the appellant no.1 and Looklike

Trade P. Ltd. who had made off market transfer of the

shares to the miniscule sellers is clearly established. In

the circumstance the following order. The appeal is

hereby dismissed without any order as to costs.

13. The present matter was heard through video

conference due to Covid-19 pandemic. At this stage it

is not possible to sign a copy of this order nor a

certified copy of this order could be issued by the 12

registry. In these circumstances, this order will be

digitally signed by the Private Secretary on behalf of

the bench and all concerned parties are directed to act

on the digitally signed copy of this order. Parties will

act on production of a digitally signed copy sent by fax

and/or email.

Justice Tarun Agarwala Presiding Officer

Dr. C. K. G. Nair Member

Justice M.T. Joshi Judicial Member RAJALA Digitally signed 15.3.2021 by RAJALAKSHMI KSHMI HDate:

NAIR 2021.03.15 RHN H NAIR 11:59:46 +05'30'