Case: 1. SEBI, 2. In Re: Bharthari Financial Services Limited Vs 1. Sun Grow Datasoft Private Limited (Formerly Known as Elite Computer Technics Limited) and its Directors Namely, Mr. V.M. Jindal, Mr. Rajesh Gupta and Mr. K.K. Agarwal. Securities and Exchange Board of India
| Judges | K.M. Abraham, Member |
| Issue | Company Law |
| Judgement Date | March 05, 2009 |
| Court | Securities and Exchange Board of India |
Order:
K.M. Abraham, Member
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It was brought to the notice of Securities and Exchange Board of India (hereinafter referred to as SEBI) that there were irregularities in the public issue of Bharthari Financial Services Limited (hereinafter referred to as the company) which came out in the year 1995. It was alleged that the promoters of the company and other persons associated with the promoters had prima facie indulged in irregularities in respect of the public issue of the company and the subsequent allotment of shares with the assistance of the Registrar to the Issue, namely M/s. Sungrow Datasoft Private Limited (Formerly known as Elite Computer Technics Limited). It was further alleged that there were speculative grey market operations preceding the listing of the equity shares of the company. In view of the above, SEBI initiated an investigation inter alia into the dealings in the shares of the company. The investigation conducted by SEBI found that, the company came out with a public issue of 13,50,000 equity shares of Rs. 10/- each for cash at par aggregating to Rs. 1.35 crores. The issue opened on September 29, 1995 and closed on October 5, 1995. The equity shares of the company were inter alia listed at Delhi Stock Exchange Association Limited (hereinafter referred to as DSE). Pursuant to the investigation, SEBI, vide order dated December 12, 2002, permanently debarred the company and its Chairman cum Whole Time Director namely, Mr. S.K. Gupta from associating with the capital market related activities, and from accessing the capital market, as stated therein. SEBI, vide a separate order (dated December 12, 2002) also prohibited one Ashok Chawla, who was found to be an associate of Mr. S.K. Gupta, from dealing in securities for a period of five years. The Hon'ble Securities Appellate Tribunal (SAT), Mumbai vide order dated June 2, 2006 (in appeal No. 51 of 2003) while affirming the findings recorded by SEBI against the company and its Chairman cum Whole Time Director, modified the period of prohibition to 7 years. In the said order, Hon'ble SAT inter alia observed, "The Board referred to two of its earlier orders debarring Shri S.K. Gupta from accessing the capital market for a period of 5 years each. In one of those cases, Shri S.K. Gupta was found to have indulged in identical manipulative activities where the public issue had been oversubscribed in connivance with the aforesaid Ashok Chawla. The modus operandi was also the same and stock invests had been obtained from Sangli Bank, Karol Bagh Brach, New Delhi. There appears to be a link between S.K. Gupta, Ashok Chawla and the said Bank."
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The investigation conducted by SEBI inter alia observed the acceptance of late applications and irregular allotment in the public issue of the company. It was observed that twenty seven applications approximately for 1 lakh to 1.2 lakh shares involving application money to the tune of Rs. 10 to 12 lakh was accompanied by stock invests issued by Sangli Bank, Karol Bagh Branch, New Delhi were received after the date of the closure of the issue. These stock invests were dated November 23, 1995, whereas the public issue of the company was closed on October 5, 1995. It was observed that though the applications accompanying the said stockinvests were withdrawn on December 1, 1995 (before the finalization of the basis of allotment), allotment was made against the said applications and the shares were dispatched to those applicants. M/s. Sungrow Datasoft Private Limited is hereinafter referred to as the noticee for the sake of brevity. It was also alleged that the noticee had submitted fake final collection certificate in the name of Corporation Bank (one of the Bankers to the Issue). Besides, there were other allegations against the noticee, such as submission of false information in respect of seventy eight day report, discrepancy in the amount of realization of stockinvest and fabrication of documents, non submission of information and non-maintenance of records etc. As the noticee was registered with SEBI as a Registrar to the Issue, an Enquiry Officer was appointed to enquire into the alleged violations committed by it. The Enquiry Officer, vide report dated March 13, 2000 inter alia observed, "In this case, for the reasons mentioned above, I find that the RTI is guilty of fraud and his registration is liable to be cancelled. However, the Registration of the Intermediary with SEBI expired on 31-03-1998, their registration with SEBI was valid from 01-04-1995 to 31-03-1998......., therefore the question of suspension or cancellation of the registration of M/s. Sun Grow Datasoft Pvt. Ltd. as an intermediary does not arise."
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Thereafter, SEBI issued separate notices dated February 14, 2003 under Section 11B of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the Act) asking the noticee and its directors namely, Mr. V.M. Jindal, Mr. Rajesh Gupta and Mr.K.K. Agarwal to show cause inter alia as to why appropriate directions should not be issued debarring them from accessing and associating with the capital market for a suitable period. Mr. V.M Jindal vide letter dated nil (received by SEBI on July 18, 2003) requested SEBI to grant him two months time to file his reply. Thereafter, Mr. V.M. Jindal vide his letter (received by SEBI on August 25, 2003), inter alia stated that he had resigned from the directorship of the noticee in the year 1999 and that he had filed a formal intimation with the Registrar of Companies, Delhi and Haryana on June 2, 2000. According to him, the functions of the noticee were being looked after by Mr.K.K. Agarwal since 1996. Mr.K.K. Agarwal, vide letter dated July 17, 2003 inter alia stated that he had joined the noticee as a director only in the year 1996, much after the public issue of the company. Thereafter, vide letter dated July 24, 2004, he forwarded the copy of Form 32 filed with the Registrar of Company Affairs. No reply is received by SEBI from the noticee. Subsequently, an opportunity of hearing was granted by SEBI to the noticee and its directors on December 4, 2003, June 2, 2004 and September 17, 2004. Mr. V.M. Jindal vide his letter dated June 01, 2004 sought excuse from personal appearance and stated that his written submissions be considered by SEBI. Mr. K.K Agarwal and Mr. Rajesh Gupta had availed the opportunity of hearing before the then Whole Time Member. Thereafter, Mr. Rajesh Gupta filed his submissions vide letter dated September 17, 2004. In the said letter, Mr. Rajesh Gupta inter alia stated that he had already made his submissions. Submissions of Mr. Rajesh Gupta in brief are as follows:
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That he did not attend any board meeting of the noticee since 1996 and that he subsequently resigned from its directorship in the year 1999.
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He had not been looking after the affairs of the noticee actively.
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That as a director of the noticee, he had acted in accordance with law.
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The registration of the noticee had expired in the year 1998 and therefore, no further action needs to be taken against him.
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Mr. Rajesh Gupta further requested that a lenient view be taken in the matter. Thereafter, SEBI granted another opportunity to the noticee and its directors on October 17, 2008. Neither the noticee nor its directors appeared before me on the said date. I note that the show cause notice...
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