Mr. Hassan Ali & Others vs SEBI on 6 October 2026

ORDER

[Per: Dr. Dheeraj Bhatnagar, Technical Member]

This appeal is directed against order dated 15.03.2022 passed by the AO1, SEBI2 imposing various penalties against different appellants for violation of Securities laws3 as under:

Sr. No. Penalty Violations Imposed on Amount and basis

1. 15HA of the SEBI Act

For violation of Regulation 3(a),

(b) ,

(c) , (d) and 4(1) of

(i) L. Naga Rama Krishna (Noticee 9 & appellant; No. 4),

(ii) L Muneashwari (Noticee No. & Appellant No.3); Rs. 90 lakhs; Joint and Several basis

1 Adjudicating Officer 2 Securities Exchange Board of India 3 Regulation 3(4) of SEBI (Share Based Employees Benefit) Regulations, 2014 and Regulation 3(a), (b), (c), (d) and 4(1) of PFUTP Regulations read with Section 12A(a)(b)(c) of SEBI Act.

PFUTP Regulations read with Section 12A(a), (b),

(c) of the SEBI Act. and

(iii) Kepler Information Systems Pvt. Ltd. (Noticee

& Appellant No.2).

15HA of the SEBI Act

For violation of Regulations 3(a),

(b) ,

(c) , (d) and 4(1) of PFUTP Regulations read with Section 12A(a)(b)(c) of SEBI Act

(i) Hassan Ali (Noticee No.3 & Appellant No. 1), (ii) L Naga Visweswara Rao (Noticee No.10 & Appellant No. 5),

(iii) Muninder Raja Arram (Noticee No. 11 &Appellant No. 6), (iv)Prabhakar Rao Kallur (Noticee No.15 & Appellant No. 7), (v) Sreedhar Karanam (Noticee No. 19 & Appellant No. 8), (vi)Sudheer Koppineni (Noticee No. 20 & Appellant No. 9); and (vii) Sunitha Arram

Appellant No. 10).

Rs.

lakhs; Joint and Several basis

15HB of the SEBI Act

For violation of Regulations 3(4), 3(6), 5, 6 and 13 of SBEB Regulations read with Section 27(1) of SEBI Act.

L Naga Ramakrishna (Noticee No. 9 & Appellant No. 4).

Rs. 5 lakhs

15HB of the SEBI Act

For violation of Regulation 3(4) of SBEB L Muneashwari (Noticee No.8 & Appellant No. 3). Rs. 1 lakhs

Regulations read with Section 27(2) of SEBI Act.

15HB of the SEBI Act

For violation of Regulation 3(6) of SBEB Regulations read with Section 27(2) of SEBI Act.

(i) Prabhakar Rao Kallur (Noticee No.

& Appellant No.7) and

(ii) Sreedhar Karanam (Noticee No. 19 & Appellant No. 8).

Rs. 1 lakhs on each.

2. We have heard Mr. Ravi Prakash, learned Advocate for the appellants and Mr. Sumit Rai, learned Advocate for the SEBI.

3. Brief facts of the case are, as under:

 Bodhtree Consulting Limited (‘Company’ or ‘BCL’ for short) a public limited company, was engaged in providing IT services, etc. The company was promoted by one Mr. Sanjay Verma.

 Based on certain alerts, SEBI conducted an investigation into the affairs of the Company between 2.3.2017 and 26.3.2018.

 Investigation revealed that on 22.02.2017, one Hassan Ali (appellant No. 1), an employee of the company, had received 1,00,000 shares of BCL

through an off-market transfer in his demat account from BCL Employees Benefits Trust (‘Trust’ for short).

 Out of this, Hassan Ali sold 94,000 shares in market for ₹88.67 Lakhs on 7.2.2018.

 Subsequently, Hasan Ali transferred an amount of Rs.82 Lakh to L. Naga Visweswara Rao (Noticee Nos.10), Muninder Raja Arram (Noticee Nos. 11) and Sunitha Arram (Noticee Nos. 21), as loan. In turn, Noticee No. 10, 11 and 21 transferred funds to the extent of Rs.72.50 Lakh to Noticee No.5, (Kepler Information Systems Private Limited) (‘Kepler’ for short).

 The remaining 6,000 shares of BCL received by Hassan Ali were transferred to Kepler’s demat account. In the delivery slip, the transaction was shown as ‘gift’. Kepler is an entity promoted by Noticee Nos.9 and 10. Noticee Nos.8 and 9 together hold 99.57% of its total shareholding.

 Allegedly, the above transactions benefitted promoters of Kepler, who are relatives of Managing Director, L. Naga Krishna (Noticee No. 9) of BCL.

 An SCN4 was served upon Noticees to show cause as to why an inquiry should not be held and penalty be not imposed against them. Thereafter, personal hearing was granted and after adjudication, SEBI passed the impugned order.

4 12.11.2020

4. Before us, Mr. Ravi Prakash, learned Advocate for the appellant submitted that based on decided parameters, BCL Trust allotted cost-free shares of BCL to certain employees, including Appellant No. 1, who was allotted 1,00,000 shares. This was in accordance with the sign-on conditions in their appointment letters. He submitted that such allotment is not held as illegal. Subsequently, after one year, the appellant No. 1 sold these shares in market at the prevailing market price and there is no allegation of fraud regarding the same.

5. He submitted that the loans given by the Appellant No. 1 to Appellant 5, 6 and 10 were independent transactions between them, being friendly loans, which carried interest rate of 10% per annum and secured by promissory notes. This transaction in no way, affected the share market. Appellant 5, 6 and 10 in turn had further extended loans to Appellant No. 2 Kepler, which was a facet of their family business. These loans are duly accounted for in the ledger account of Appellant 5, 6 and 10, in appellant No. 2’s books.

6. Mr. Ravi Prakash submitted that Appellant No.1 has adequate capacity to extend such loan, having net worth of over USD 300,000 and had worked with several prestigious institutions to transform their digital presence and manual IT processes. The amount received by him from the sale of BCL shares was an excess amount lying in his bank account which he invested by giving loans.

7. Mr. Prakash submitted that neither SEBI has identified any person who was induced to deal in BCL securities nor established manipulation of price or volume in BCL scrip by the appellants from which inducement could be inferred. He submitted that, subsequent loans to notice No. 10,11 and

21, and their corporate investment in Appellant No. 2 does not, by itself constitute manipulation of securities market. He submitted that, SEBI as a Regulator cannot question the commercial wisdom of private parties of what they do with their money or property, unless the Regulator finds, with cogent evidence that such transactions are themselves sham or have manipulative or fraudulent effect on the securities market. He relied on the judgment of the Apex Court in SEBI v. Rakhi Trading (P) Ltd.5

8. Mr. Prakash submitted that none of the events starting from BCL trust allotting shares to the appellant no. 1 and ending with corporate loan to appellant No. 2, whether considered individually or cumulatively, can be identified as securities-market Fraud under PFUTP Regulations.

He submitted that SEBI’s allegation of fraud against the appellants is not justified as loans given as private financial transactions had no link with the securities market and thus cannot be held as ‘fraud’ under the securities laws. He relied on the judgment of Hon’ble Supreme Court of India in Reliance Industries Ltd. & Ors. v. SEBI6 and contended that inducing another person to deal in securities is necessary ingredient to constitute ‘fraud’.

9. In reply, Mr. Sumit Rai Ld. Advocate for SEBI submitted that the purpose of promulgating the regulatory framework through SEBI circulars dated January 17, 20137; May 13, 20138; November 29, 20139 and June 27, 201410 regarding 5 (2018) 13 SCC 753 6 Appeal No. 4015 of 2020 decided on 29.5.2026

9 CIR/CFD/POLICYCELL/14/2013 10 CIR/CFD/POLICYCELL/3/2014

allotment of shares to Employee welfare trusts and subsequent transfers to employees was to curb such Trust’s secondary market dealings and to prevent market manipulation. He submitted that ESOP & ESPS guidelines11 and SBEB Regulations12 were framed for enhanced disclosures of secondary market.

10. Mr. Rai submitted that non-formation of SBEB scheme by BCL in itself is a violation of SEBI Circulars, thus the appellants have violated securities law. He submitted that it is immaterial whether there was a named scheme or not as shares were transferred to employees by BCL Trust on behalf of BCL, which were further traded in secondary market. He submitted that the absence of a scheme would not absolve the appellants and BCL from regulatory obligations.

11. Mr. Rai further submitted that appellants, BCL, its directors, BCL Trust and its trustees had violated provisions of Regulation 3(4) of SEBI Regulations by nominating Managing director and Key Managerial person of BCL as trustees of BCL trust. Secondly, no details were submitted by appellants regarding the basis for selecting employees for giving rewards in the form of cost free shares of BCL. He submitted that there was no contractual obligation for transferring shares to employees nor the terms and quantity of such transfer were specified in the document relied upon by the appellant.

12. He submitted that the BCL shares held by the Trust out of which 1,00,000 shares were given to appellant no.1, 11 Securities & Exchange Board Of India (Employee Stock Option Scheme And Employee Stock Purchase Scheme) Guidelines, 1999 12 SEBI (Share Based Employee Benefits) Regulations, 2014

were shares earlier held by the erstwhile promoter, Sanjay Verma, and his wife Ritu Verma, which were transferred to corpus of the trust by them in 2003 for some consideration.

13. He submitted that the decision to allot shares to appellant No.1 was taken by the Trust only after the appointment of appellant No. 4 as managing Director of BCL in 2015. He further submitted that even though there was no price/volume manipulation in BCL scrip, trades undertaken by Appellant No.1 were with an intention to defraud the shareholders of BCL. The entire web of transactions resulted in transfer of wealth of the shareholders of BCL to Appellant No. 2 (Kepler). Appellants have not submitted any evidence to show that the loans were legitimate as admittedly there were no recorded terms of repayment, interest, security etc. The loans have not been repaid, and only an amount of ₹8.10 lakhs has been repaid out of the principal amount of loan of ₹82 lakhs and the Appellant No.1 has taken no steps to recover the rest of the amount, thus raising the question of legitimacy of the loans.

14. He concluded his arguments by submitting that shares of listed company were used to play fraud on innocent shareholders of BCL by circumventing the regime of regulatory framework around employee stock option schemes.

15. We have carefully considered the facts of the case based on the submissions from both sides and the documents produced before us.

16. Undisputed facts of the case are:

 BCL (noticee No. 2) was initially listed on Madras Stock Exchange (MSE) on June 4, 1996 with the original name Anant Resources Ltd. Subsequently, it was listed on BSE on May 4, 2015, when MSE was deregistered.

 BCL Trust (noticee No. 1) was formed on January 2, 2003 for the purpose of general welfare of its employees and their families.

 The erstwhile promoter of the company Mr. Sanjay Verma and his wife Mrs. Ritu Verma exited the company and transferred 7,20,600 and 75,100 shares of BCL respectively to the said Trust.

 As per the respondent, the trust had acquired the BCL shares from Mr. Sanjay and Mrs. Ritu Verma by transferring an amount of Rs. 7,95,700/- and the bank statement of the BCL and the trust shows that the same was out of fund of the company through the Trust. This fact has not been disputed by the appellants.

17. Subsequently, the Remuneration committee of BCL in its meeting held on May 28, 2014 passed a resolution authorizing the Trust to grant shares of BCL to its employees. The trust held its meeting on January 13, 2015 and March 6, 2015 in which it was decided to allot the shares to the following employees based on certain criteria identified, inter alia, performance of employees, as under :-

Guru Prasad B. 50,000 shares Hassan Ali 1,00,000 shares Anil Gandhi 20,000 shares

18. Subsequently, after one year, Mr. Hassan Ali (appellant No. 1) disposed of 94,000 shares out of 1,00,000 BCL shares allotted to him for a consideration of Rs. 87,69,473. Undisputedly, the said transactions were made to unrelated persons on the floor of Stock Exchange at the prevailing market price. Thereafter, the appellant advanced loans amounting to Rs.82,00,000 to noticee Nos. 10, 11 and 21 as short-term loans repayable with interest, bulk of which is still pending. Appellant No.1 claims that the said loan was against issue of promissory notes, copy of which was provided to the respondent. Subsequently, these 3 noticees further advanced loans aggregating to Rs. 72,50,000 to noticee No. 5 (Kepler). Interest of Rs. 35,60,722 has accrued and is shown outstanding in the books of noticee No. 3 for FY 2021-22. There is no further evidence of subsequent repayment of these loans to noticee No. 3.

19. It is SEBI’s finding that noticee Nos. 10, 11 and 21 are related to the promoters of BCL, as noticee No. 10 is the brother of noticee No. 9, who is the MD of BCL. Further, 99.57% shares of Kepler were held by noticee Nos. 8 and 9, who through their connected entities had transferred funds to Kepler out of the loans received from Noticee No. 3.

20. In the light of the above facts, we have framed the following questions to decide the appeal.

I. Whether the shares allotted by the BCL trust for the benefit of BCL employees were in violation of SEBI (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 and equity listing agreement read with the circulars dated January 17, 2013; May 13, 2013; November 29, 2013 and June 27,2014 and SBEB Regulations.

21. The SEBI (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 guidelines were issued to regulate the issue of “Employees Stock Option Scheme” (ESOS) and “Employees Stock Purchase Scheme” (ESPS).

Under the said guidelines, ‘Employees Stock Option’ has been defined as under :- “(2A). “employee stock option” means the option given to the whole-time Directors, Officers or employees of a company which gives such Directors, Officers or employees, the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a predetermined price.”

‘Employees Stock Purchase Scheme’ has been defined as under :- "(4). “employee stock purchase scheme (ESPS)" means a scheme under which the company offers shares to employees as part of a public issue or otherwise.”

22. Keeping in view the fact that in the instant case, there was no mandatory vesting period or any option given at a discount to employees to purchase or subscribe at a later date, such gratuitous granting of cost-free shares of BCL by the Trust cannot be treated as an ESOP scheme. Likewise, since these shares were not offered as purchase option during a public issue, it cannot be held as ESPS either.

ESOS and ESPS, as the case may be, are offered to employees of the company and require passing of a special resolution by the company in the AGM. Thus, such granting was not covered under the SEBI Guidelines for ESOP and ESPS, till SEBI issued above circulars in 2013 in this regard.

Subsequently, vide circular13 dated January 17, 2013, the SEBI issued directions for inserting a new Clause 35C in the equity listing agreement, which required that all employees benefit schemes in the nature of providing securities of the company, existing before insertion of this clause, shall be aligned with SEBI ESOP and ESOS guidelines, on or before January 30, 2013. This was based on SEBI’s observation that some listed entities had framed employees benefit schemes by using mechanism of Trust to deal in securities in secondary market and thereby manipulating the price of the scrip. Thereafter, on receipt of representations, where such Trusts had already acquired shares before June 30, 2013, SEBI vide its circular14 dated May 13, 2013 clarified as under:

“The circular No. CIR/CFD/DIL/3/2013 dated January 17, 2013 is applicable to all employee benefit schemes involving the securities of the company provided that the schemes are set up, managed or financed by the company directly or indirectly. Thus, the circular shall be applicable if any of the following conditions are satisfied:

a) if the company has set up the scheme or the trust/agency managing the scheme; or

b) if the company has direct or indirect control over the affairs of the scheme or the trust/agency managing the scheme; or

c) if the company has extended any direct or indirect financial assistance to the employee benefit schemes or the trust/agency managing such schemes”.

Evidently, both conditions are satisfied in this case.

23. Further, specifically with regard to non-ESOP employee schemes, the following was clarified :- “Existing employee benefit schemes involving securities of the company which does not involve granting of options for purchase of securities by employees shall be permitted to either :

a) to hold the securities of the company already acquired by them beyond December 31, 2013 provided the schemes have been aligned with SEBI (ESOS and ESPS) Guidelines 1999; or

b) dispose off the securities of the company held by them by December 31, 2013.”

24. As held by us, subsequent to issue of circulars dated January 17, 2013; May 13, 2013; November 29, 2013 and June 27, 2014 by the SEBI, the company was required to align with the SEBI ESOP/ESPS guidelines. These circulars provided that even an existing non-ESOP/non-ESPS employee welfare scheme has to be aligned with SEBI ESOP guidelines, 1999. Further, vide the circular dated May 13, 2013, SEBI had directed to dispose of securities of the company held by such Trusts/ Non ESOP/Non-ESPS schemes, on or before December 31, 2013, unless such schemes are aligned with guidelines. It is evident that the company did not align the scheme with the applicable guidelines of SEBI nor did dispose of securities.

25. We do not find merit in the submission of the appellant that the circular dated January 17, 2013 was brought to address the concern of the SEBI only with regard to acquisition of shares from secondary market by such Trusts

and in case of BCL there was no secondary market dealing in BCL shares. Undisputedly, the key objective of the BCL Trust was Employee welfare, which included allotting cost- free shares to employees. Thus, being an employee welfare scheme, it was required to be aligned with the 1999 guidelines in terms of 2013 circulars.

26. It is further confirmed by the resolution of BCL’s remuneration committee dated May 28, 2014 as also in the minutes of the Trust meeting held on January 13, 2014 and March 6, 2015 that such cost free allocation of shares to select 3 employees, was in the nature of employee benefit scheme. Thus, even though the Trust / the company may not have formed any ESPS/ESOS scheme, the resulting benefit goes to the select employees as non-ESOP benefit scheme. Undoubtedly, the company and the Trust did not follow the ESOP and ESPS guidelines of SEBI pursuant to 2013 circular and allotted shares to three employees in violation of the same. In view of the above, we hold that the appellant Nos. 3 and 4 have violated SEBI Regulation 3(4) and 3(6) read with Section 27(2) of the SEBI Act.

27. Secondly, noticee Nos. 2 and 9 are held to be in violation of SBEB Regulation 5, 6 and 13 for non-formation of Compensation Committee for not taking shareholders’ approval for the scheme, and for non-compliance of getting certificate from the Auditors and hence, penalties imposed under Section 15HB for these violations read with Section 27(1) of SEBI Act are upheld. Penalty under Section 15HB for violation of SBEB guidelines for non-compliance with the circular dated January 17, 2013 and other circulars is also upheld in case of noticee Nos. 2 and 9. Noticee No. 2 BCL (appellant No. 1) has paid the amount of penalty of Rs. 8

lakhs and we have dismissed the appeal vide order dated December 4, 2025 as the company is into CIRP15.

28. Thirdly, company and its directors have also been charged for violation of Regulation 3(4) of the SBEB Regulations which provide that any person can be appointed as trustee, except in cases were the person is, (i) director, KMP or promoter of the company, or its group company including its holding/associate company or any of its relatives, or (ii) beneficially holds 10% or more of the paid- up share capital or voting rights of the company. It is seen that CMD (noticee No. 9) and one of the independent directors were appointed as the trustee of the Trust in 2015, following which the above beneficial allotment of shares to noticee Nos. 3 was made. As held by us, the company was required to align the existing scheme of non- ESOP employee benefit in accordance with the SEBI ESOP guidelines in terms of circular dated May 13, 2013 and subsequent circulars. For non-compliance with Regulation 3(4), the learned AO was justified in imposing penalty under Section 15HB in respect of the Noticee Nos. 8 and 9(appellant Nos. 3 and 4 respectively). Accordingly, the same is upheld qua these appellants.

29. Fourthly, Noticee Nos. 2, 4, 9, 15 and 19 have been charged for violation of Regulation 3(6) of the SBEB Regulations which provides that the trustee should ensure that appropriate approval from the shareholders is taken by the company in order to enable the Trust to implement the scheme and undertake the secondary acquisition for the purpose of the scheme. We note that undisputedly, no 15 Corporate Insolvency Resolution Process.

secondary acquisition has been made after the SBEB Regulations were brought in effect. However, there is no evidence that the company took shareholders’ approval, which in terms of ESOP guidelines, should have been obtained by a special resolution for implementing the scheme. Thus, the Trust implemented the scheme without ensuring appropriate approval from the shareholders. In view of this, penalty against these Noticee Nos. 9, 15 and 19 (appellant Nos. 4, 7 and 8 respectively) is upheld.

30. Lastly, the learned AO has held Mr. L Naga Rama Krishna (appellant No. 4) who is the MD of BCL to be in violation of Regulation 5, 6 and 13 of the SBEB Regulations on the ground of failure to comply with the requirements of having a compensation committee; taking shareholders’ approval and obtaining certificate from Auditors of compliance of the scheme with the requirement of approval by the AGM. Further, allegedly the company failed to disclose the shareholding of the Trust as “non-promoter and non-public” shareholding before the stock exchange and were required to follow the accounting standard as prescribed by ICAI. Since we have dismissed the appeal of the company, which has paid full amount of penalty, on the same grounds the penalty levied against the MD of the company, Notice No.9 (Appellant No. 4) is also upheld.

II. Whether the appellant Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 have violated PFUTP Regulations read with Section 12A(a), (b), (c) of the SEBI Act?

31. We note that the allegation of fraud made rests on the following three limbs:

i. Fraudulently not disclosing the information about the employee benefit scheme of BCL Trust to SEBI [BCL (Noticee No. 4) and its MD (Noticee Nos. 9), Noticee 15 and Noticee 19 are charged].

ii. Allotment of 1,00,000 shares of BCL by the BCL Trust to notice no. 3 in 2017, in violation of SBEB Regulations [BCL (Noticee No. 2) and its MD (Noticee Nos. 9) are charged].

iii. Indirect Transfer by Noticee No. 3 of an amount of Rs. 72.5 lakhs out of the sale proceeds of 94,000 BCL shares, through notice No. 10, 11 and 21 to noticee No. 5 company (which is controlled by relatives of MD of BCL) and transfer of balance 6,000 BCL shares to notice No. 5 without receiving any consideration.

32. Regarding the 1st limb of charge of non-disclosure of the Employee welfare scheme to the SEBI, undisputedly the BCL Trust was formed in 2003. Though there was no defined scheme of Employees welfare but one of the objectives of the Trust was employee welfare. Rewarding the selected employees by granting cost-free shares of BCL was not new and even in 2010, some employees were given BCL shares, which were not in the nature of ESOP or ESPS. Thus, till the issue of circular dated January 17, 2013 and subsequent circulars, when non-ESOP/Non-ESPS schemes were brought within the ambit of the SEBI (ESOP) and SEBI (ESPS) guidelines, 1999, there was no requirement of disclosure by the Trust.

33. Undisputedly, the cost-free shares approved for noticee number 3 and two other employees in 2014-15, which were vested upon them in 2017, were out of corpus of Trust comprising shares transferred by erstwhile promoters of BCL to the said Trust in 2003. Even though we have upheld the charge of failure to align non-ESOP/Non- ESPS employee benefit scheme with SBEB Regulation, 2014 subsequent to issuance of circulars dated January 17, 2013 read with Circulars dated May 13, 2013, November 29, 2013 and June 27,2014, it is only a technical violation. The Trust which executed the scheme was formed way back in 2003 and had granted similar cost-free shares to other employees in the past in 2010, which have not been questioned. Therefore, it cannot be held that the granting of shares by the Trust in 2013 to noticee no. 3 was allegedly to perpetuate the fraud.

34. With regard to the Limb-2 of the charge, we find no reason to hold that the allotment of shares to noticee No. 3 was made in a deceitful manner. It is not the case of the SEBI that the criteria followed for identifying eligible employees was for benefitting the noticee no. 3 only, as based on the same criteria, two other employees were also granted 70,000 shares and such allotment has not been held as fraudulent. Secondly, there is no allegation that noticee No. 3 was ineligible. Noticee No. 3 was working with the company since 2002 and such allotment was as per the sign-on conditions and based on specified criteria, inter alia his performance. Even though we have upheld the charge of failure of obtaining shareholder’s approval by special resolution by the company, the same cannot be held as

fraudulent. Thus, we find no merit in the allegation that allotment of shares to noticee No. 3 was fraudulent.

35. Regarding Limb-3 of the charge, we note that after allotment of shares in 2017, noticee No. 3 sold 94,000 shares after holding it for a year on the floor of stock exchange at the prevailing market rate. Further, there is no charge that the noticee No. 3 or BCL have dealt deceitfully in securities of BCL in the market, which could have caused any unlawful loss to other investors. The only basis for charge of fraud by the AO is transfer of large part of sale proceeds of 94,000 shares by noticee 3 to noticee Nos. 10, 11 and 21, statedly as loans and subsequent transfer of funds amounting to Rs. 72 Lakh by noticee Nos. 10, 11, and to noticee No.

as an interest-bearing loan. Furthermore, remaining 6,000 shares allotted to notice No. 3 were transferred to Noticee No. 5, without receiving consideration, though the appellant contends that the same was to set off existing liability in the nature of outstanding dues payable by noticee No. 3 to noticee no. 5. The AO has questioned veracity of these transactions on the following grounds:

i. The promoters of noticee No. 5 and MD of BCL are relatives;

ii. There is no evidence of refund of the loan;

iii. There is no evidence of Interest-servicing;

iv. No evidence that such loans were given against promissory notes.

36. With regard to veracity of loan, the appellant No.1 submits that he had furnished a copy of the promissory notes against which loans were given to notice no. 10, 11

and 21. The appellant’s contention is that he is a well-paid professional and has net worth of USD 3,00,000 and had deployed surplus funds in extending loans to noticee Nos. 10, 11 and 12, whom he knew well. Further, the finding that no loan repayment has taken place is incorrect as Kepler (appellant No. 2) has made repayment of an amount of Rs.8,10,000/- to L. Naga Vishweswara Rao (appellant No. 5). The observation of the AO that no proof of interest servicing or payment of tax was available, does not change the nature of the transaction.

37. We are in agreement with the contention of the appellant that loans given by him out of proceeds of share sale against Promissory notes issued by borrowers, were independent private financial transactions, duly supported by his creditworthiness. The theory of allotment of shares by the Trust to noticee No. 3 allegedly for the purpose of transferring the sale proceeds to the related entities of BCL’s MD falls flat, as such cost-free shares were allotted to other two beneficiary employees too and further, there is no allegation with respect to eligibility of the notice No. 3 for such allotment.

38. We also note that BCL Trust, which owned shares of BCL that were transferred to Noticee No. 3, has been exonerated by the AO. The BCL shares held in the corpus of the Trust (since 2003) are not assets of BCL, even though consideration for initial acquisition may have been provided to Trust by it, and hence the allegation that there was transfer of wealth of shareholders of BCL is unfounded. In view of this Limb-3 of the charge of Fraud also does not sustain.

39. In our considered view, in the absence of illegality in share allotment by BCL to notice No. 3, and considering that the share sale on the stock exchange platform has been held as genuine, no allegation of fraud can be sustained as there is no deceitful dealing in shares of BCL merely on the allegation of giving Loans to relatives of MD of BCL.

40. In this regard, we respectfully follow the Hon’ble Supreme Court of India in Reliance (supra):

“176. We may, with a view to obviate any confusion, clarify that inducing another person or their agent to deal in securities, remains a strict requirement for establishing fraud. This Court in SEBI v. Rakhi Trading (P) Ltd., reported in (2018) 13 SCC

753. This Court held therein that once the factum of manipulation was established, there is no requirement to establish whether other persons were induced to deal in securities, as such manipulation is deemed to have taken place because of inducement.”

(emphasis supplied)

41. In view of this, the charge of violation of PFUTP Regulations read with Section 12A, is not sustainable. Hence the following :-

ORDER

i. Appeal is allowed in part.

ii. Penalty under Section 15HA levied on Noticee Nos. 3, 5, 8, 9, 10, 11, 15, 19, 20 and 21 (appellant Nos.1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 respectively) is set aside.

iii. Penalty under Section 15HB in respect of noticee No. 8 (appellant No. 3), noticee No. 9 (appellant

No. 4), noticee No. 15 (appellant No. 7), noticee No. 19 (appellant No. 8) is upheld.

iv. Pending interlocutory application(s), if any, stand disposed of.

v. No costs.

Justice P. S. Dinesh Kumar Presiding Officer

Ms. Meera Swarup Technical Member

Dr. Dheeraj Bhatnagar Technical Member 06.10.2026 PTM MRS PRAMILA Digitally signed by MRS PRAMILA Date: 2026.10.13 16:16:19 +05'30'