Rohini Vijaysingh Patwardhan vs Securities and Exchange Board of India on 29 December 2016

1. The Appellant herein is a senior citizen aged about 65 years who has been a regular investor in the securities market over the past many years. Vide ad-interim order dated April 17, 2015, a total of 129 entities were restrained from accessing the securities market and dealing in securities in any manner by the Respondent SEBI till further orders. It appears that a significant increase was noticed in the volume and price of the scrip of Mishka Finance and Trading Limited (“Mishka”) on the BSE between February 14, 2013 and December 31, 2014, which prompted a preliminary inquiry by SEBI into dealings in the said scrip. During the said examination period, the price of the shares of Mishka moved between Rs. 29.05 to Rs. 57 and the traded volume escalated to a high of 2,97,319 shares.

2. A prima facie view was arrived at against 129 entities for violation of provisions of Regulations 3(a),(b),(c), (d); 4(1); 4(2)(a),(b),(e) and (g) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”). It was alleged that Mishka had issued preference shares worth Rs. 6.74 crore with the intent to provide false long term capital gains (“LTCG”) to Mishka’s preferential allottees and promoter related entities.

3. Vide Impugned Order dated July 5, 2016, SEBI confirmed the directions issued vide the ad-interim order mentioned above. A post- decisional personal hearing dated August 13, 2015 was provided to the Appellant in which the Appellant put forth all her submissions in detail.

4. Further, SEBI vide Order dated August 26, 2016 made the ad interim ex parte order absolute against 99 entities as well as Mishka, while diluting the Impugned Order with respect to all the aforementioned 99 entities, including the Appellant herein, to the following extent: “84. Considering the above, I, in exercise of the powers conferred upon me under section 19 of the SEBI Act, read with sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issued vide the ad interim ex parte order dated April 17, 2015 as against the aforesaid 99 Noticees except that they can :- (a) enter into delivery based transactions in cash segment in the securities covered in NSE Nifty 500 Index scrips and / or S&P BSE 500 scrips;

(b) subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed;

(c) deal in Debt / Government Securities; (d) invest in ETF; (e) avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, etc.; (f) tender the shares lying in their demat account in any open offer / delisting offer under the relevant regulations of SEBI;”

“85. Further considering business and personal exigencies and liquidity problems submitted by the restrained entities I allow them further relaxations / reliefs as under :- (a) They are permitted to sell the securities lying in their demat accounts as on the date of the interim order, other than the shares of the companies which are suspended from trading by the concerned stock exchange, in orderly manner under the supervision of the stock exchanges so as to disturb the market equilibrium and deposit the sale proceeds in an interest bearing escrow account with a nationalized bank.

(b) They may deal with or utilize the sale proceeds lying in the aforesaid escrow account under the supervision of the concerned stock exchange provided as under :-

i. the sale proceeds may be utilized for investments permitted in para 84; ii upon 25% of the value of the portfolio as on the date of the interim order or the amount* in excess of the profit made / loss incurred or value of shares purchased to give exit, whichever is higher, may be utilized for business purposes and / or for meeting any other exigencies or address liquidity problems etc.

* The amount will include the value of portfolio in the demat account.

Explanation 1 – For the purposes of determining the portfolio value of the entities except Ms. Rohini Vijaysingh Patwardhan and Vimal Banawarilal Jain, the value of portfolio of securities lying the demat account/s (individual and joint both) on the date of the interim order after excluding the value of shares that have been suspended from trading as on the date of the communication shall be considered. For NBFCs and stock brokers, the value of portfolio shall exclude the value of clients’ securities lying in their demat accounts.

Explanation 2 – With respect to Ms. Rohini Vijaysingh Patwardhan and Vimal Banwarilal Jain, it is clarified that for the purposes of determining the portfolio value of the entities, the value of portfolio of securities lying in the demat account /s, in which they are the first holder, on the date of the interim order after excluding the value of shares that have been suspended from trading as on the date of the communication shall be considered.

(c) The aforesaid reliefs shall be subject to the supervision of exchanges and depositories. The stock exchanges may use the existing mechanism available for implementing the similar interim relief earlier granted to some of the entities.”

“86. It is, however, clarified that the aforesaid exceptions / relaxation / reliefs shall be available

(a) To the aforesaid 99 Noticees and those restrained entities in respect of whom the confirmatory orders have already been passed as mentioned in para 10 above.

(b) The common interim reliefs already granted in the matter earlier are subsumed in the aforesaid general relaxations / reliefs. The specific reliefs granted if any, to any of the Noticees shall remain in operation.”

5. It is pertinently noted that the Order dated August 26, 2016 has not been challenged before us in the present Appeal.

6. Subsequently, a clarificatory order dated September 26, 2016 was passed by the Respondent to the effect as mentioned below: “ i) It is clearly mentioned in para 86 of the Order dated August 26, 2016 that reliefs / relaxations / exceptions granted vide the said order shall also be available to those entities in respect of whom the confirmatory orders have already been passed as mentioned in para 10 of the order. Thus, paragraphs 84, 85 and 86 of order dated August 26, 2016 shall always be read with paragraph 10 thereof.

ii) All the entities to whom the order dated August 26, 2016 is applicable have been allowed to subscribe to units of the mutual funds so subscribed; deal in Debt / Government Securities; invest in ETF; enter into delivery based transactions in cash segment in the securities covered in NSE Nifty 500 Index scrips and / or S&P BSE 500 scrips, etc. in the manner as mentioned in the paragraph 84 read with paragraphs 85 and 86 of the order dated August 26, 2016.

iii) All the entities, to whom the order dated August 26, 2016 is applicable, are free to dematerialize the securities held in physical form and thereafter sell the said securities in the manner as mentioned in paragraph 85 of the order. The proceeds of such sale can also be utilized in accordance with paragraph 84 read with paragraphs 85 and 86 of the order.”

7. The crux of the Appellant’s case is that she was never part of any scheme to provide fake LTCG to allottees of Mishka’s preferential shares and that all trades executed by her were genuine. She submits that all investments on her behalf were made by one of the Appellant’s family advisors – Mr. Ashok Jain since the Appellant’s husband was bedridden since 2010. The Impugned Order does not substantiate any allegations made against the Appellant in any manner whatsoever.

8. The Appellant submits that the Respondent has not tried to deal with the present matter speedily and the delay in passing the Impugned Order has not been explained in any manner. Such a delay has caused great hardship and mental trauma to the Appellant owing to her age and her husband’s unfortunate condition. It is submitted by the Appellant that income tax returns and financial statements of the Appellant’s husband prove that his holdings in Mishka were acquired with his own resources.

9. SEBI’s case in a nutshell is that through preferential allotment of Mishka’s shares a scheme was set into motion for exit providers, preferential allottees and Promoter related entities. The sharp increase in traded volume and share price of Mishka, without their being any reason for the same during the Examination Period, was a result of the artifice and design of Mishka and 128 other entities. Further, no material corporate announcement was made during the Examination Period by Mishka which could result in such an escalation in the price of its scrip. The increase in price, it is submitted by the Respondent, is not supported by its fundamentals or any other genuine factor.

10. The Respondent submits that Mishka has had an uninspiring and dubious past. Trading in the scrip of Mishka was suspended between January 2002 and May 2012 for non-payment of listing fees. Further, between May 10, 2012 and September 23, 2012, there was no trading in the scrip of Mishka at all. With this tarnished record, it is inexplicable how Mishka managed to get funds to the tune of Rs. 6,74,64,500/- from around 46 entities through preferential allotment at a premium of Rs. 75 per share within four months of the suspension being revoked. It is, therefore, the Respondent’s submission that the scheme employed in the present case is definitely a case of money laundering and tax evasion, but since the securities market was used to effect such a devious plan, the same amounts to misuse of the market and manipulative transactions in securities.

11. Coming back to the submissions of the Appellant, it has also been fairly submitted by the Appellant, without prejudice to her other submissions, that even if she were found guilty after the investigation is completed by the Respondent in its entirety, the Appellant’s liability would not go beyond Rs. 2 crore in any case on account of her having executed trades in the scrip of Mishka. In view of this, the Appellant submits that the Respondent erroneously attached her assets and those of her paralyzed husband’s assets worth more than Rs. 7 crore. It is, therefore, prayed that the Appellant’s investments attached in excess of Rs. 2 crore, in any event, ought to be released by the Respondent. We see some force in this submission and, accordingly, direct that, if so advised, the Appellant may make a representation before SEBI to that effect, which shall be considered by SEBI within four weeks of the filing of the representations and appropriate order shall be passed in accordance with law in this regard.

12. Since the investigation into the present matter is still going on, at this stage, we find it unnecessary to go into the merits of the contentions raised by both parties, which are kept open. It goes without saying that the Appellant shall be at liberty to approach this Tribunal in the event of any grievance against SEBI’s final order passed after the investigation into the present matter is completed.

13. The appeal and also misc. application stands disposed of accordingly.

Sd/- Justice J. P. Devadhar

Presiding Officer

Sd/-

Jog Singh

Member

29.12.2016 Prepared & Compared by PTM