Case: 1. SEBI, 2. In Re: Pyramid Saimira Theatre Limited Vs 1. Nishwet Management Services Private Limited. Securities and Exchange Board of India
| Judges | K.M. Abraham, Member |
| Issue | Company Laws |
| Judgement Date | August 24, 2009 |
| Court | Securities and Exchange Board of India |
Order:
K.M. Abraham, Member
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The Securities and Exchange Board of India (hereinafter referred to as SEBI), vide an ex-parte ad interim order dated April 23, 2009, in the matter of Pyramid Saimira Theatre Limited (hereinafter referred to as PSTL), inter alia directed M/s. Nishwet Management Services Private Limited (hereinafter referred to as Nishwet) not to buy, sell or deal in the securities market including in Initial Public Offerings (IPOs) directly or indirectly, till further directions as Nishwet was prima facie found to have played a key role in facilitating Mr. Nirmal Kotecha in the alleged manipulation. The entities/persons against whom the said order was passed were advised that they may file their objections, if any, within thirty days from the date of the said order and, if they so desire, avail of an opportunity of personal hearing. Nishwet, vide letter dated May 23, 2009 inter alia submitted the following objections to the said interim order of SEBI:
i. That the directions issued by the said order had resulted in deprivation of its right to carry on legitimate business activities;
ii. That not even a prima facie case has been made out to warrant the issuance of such an ex-parte order of serious consequence against it and that the imminent urgency has not been explained to support the order;
iii. That the funds transferred by it from the bank have been linked to the actions of Mr. Nirmal Kotecha, without appreciating the possibility of alternate use of these funds and without providing any evidence to show that the funds were directly or indirectly used for transactions/ abnormal designs in the securities market;
iv. That the said order is in total disregard to the mandatory provision in Section 11 (4) of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the Act) that SEBI shall either before or after passing such orders give opportunity of hearing to such intermediaries or persons concerned;
v. That none of the trades executed by it have been found to be in violation of the rules/ regulations framed by SEBI including the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations). That it had never bought and sold even a single share in the scrip of PSTL;
vi. That SEBI order has not made a single finding showing how the normal banking transactions carried out by it are considered to be suspicious in nature;
vii. That no allegation/averment/observation/finding or whisper thereof has been made by SEBI that the money transferred by it has been directly or indirectly been put in the securities market.
viii. That it has not been shown in the order as to what loss would have been caused to the securities market, if it was allowed to continue trading in the market or how the interest of the investor would be affected if it was not debarred with immediate effect;
ix. That an order of this nature, which is based merely on surmises and conjectures, would adversely affect it and would besmirch its impeccable reputation and would also result in irreparable damage to it and to its standing in the financial markets.
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In view of the above submissions, Nishwet requested that the said order to the extent the same applied to it, be reconsidered and the directions against it be withdrawn. As requested by Nishwet, an opportunity of personal hearing was granted to it on July 01, 2009. Mr. Shyam Mehta, Advocate represented Nishwet and made submissions on its behalf before me on the said date. The learned Counsel reiterated the objections made by Nishwet vide letter dated May 23, 2009 and requested that the directions passed by SEBI against it be vacated at the earliest.
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I have considered the objections filed by Nishwet, the oral submissions made by Mr. Shyam Mehta, learned Counsel on its behalf and other material available on record. In the facts and circumstances, the sole issue for consideration at this juncture is, whether based on the available materials on record and after considering the submissions made by Nishwet, the directions issued by SEBI vide ad interim ex parte order dated April 23, 2009 need to be continued, revoked or modified in any manner, in so far as it relates to Nishwet.
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Before, considering the issue, I would like to place this case in its context against the circumstances which led to the passing of the ex parte order dated April 23, 2009 against various persons/entities including Nishwet.
i. SEBI, while investigating the case of forged letters dated December 19, 2008 purported to be issued by SEBI to Mr. P. S. Saminathan (Chairman and Managing Director, PSTL) and Mr. Nirmal Kotecha (who was a person acting in concert with the promoters of PSTL and was a major shareholder in the said company), found that Mr. Nirmal Kotecha had offloaded substantial number of shares of PSTL on December 22, 2008 at artificially inflated prices. It was found that one of the forged letters (purported to be issued by SEBI) dated December 19, 2008 was sent to Mr. P. S. Saminathan, directing him to make an open offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as SAST Regulations) for acquiring additional stake of 20% at a price not less than Rs. 250/- within 14 days. Another forged letter (also purported to be issued by SEBI) dated December 19, 2008 was addressed to Mr. Nirmal Kotecha, seeking certain details about his acquisitions in PSTL, his relationship with Mr. P. S. Saminathan and Mr. N.C. Ravichandran (promoter/shareholder of PSTL), the agreement entered into with Mr. P.S. Saminathan, if any, for the interse transfer of shares, copies of his bank accounts and demat statements for the period January 2007 till December 2008, advances made to PSTL, if any and the details of his networth certificate and Income Tax Returns for the period 2006-07 and 2007-08, which were to be furnished within a period of fourteen days.
ii. The contents of the forged letter issued to Mr. P.S. Saminathan were given wide publicity by media reports on December 21, 2008 (Sunday) and December 22, 2008 (Monday) stating that SEBI had ordered Mr. P.S. Sam in a than, one of the promoters of PSTL to make an open offer (as stated above), for allegedly violating creeping acquisition norms. The closing share price of PSTL on December 19, 2008 was Rs. 75.45/- at National Stock Exchange of India Limited (hereinafter referred to as NSE). The share price of PSTL shot up to Rs. 83/- at NSE and Rs. 82.90/- at Bombay Stock Exchange Limited (hereinafter referred to as BSE), on December 22, 2008, when the markets opened up. In the meanwhile, PSTL informed (in the morning on December 22, 2008) BSE and NSE, that it had not received any communication from SEBI as published in the media with respect to the open offer (as mentioned in the forged letter). Subsequently, PSTL claimed to have received the said letter (forged letter purported to be issued by SEBI) at around 10.30 a.m. on December 22, 2008. Thereafter, Mr. P.S. Saminathan informed BSE and NSE about the receipt of the letter from SEBI. It was revealed by the courier company (Blue Dart) that they were instructed by the 'sender' to deliver the forged letter (though dated December 19, 2008) to PSTL only on December 22, 2008 (Monday). With respect to the letter issued to Mr. Nirmal Kotecha, it was claimed by Mr. Nirmal Kotecha that the purported letter was received at his residence by his wife on Saturday (December 20, 2008) through courier and that his wife was unable to recollect the name of the courier service. Prima facie, the preliminary analysis of the case by SEBI inter alia revealed the following:
a) That one Amol Kokane had lent his name for facilitating Mr. Nirmal Kotecha to carry out his fraudulent, abusive, manipulative and illegal activities, detrimental to the interests of investors and to the integrity of the securities market;
b) That the bank trail of the high value funds transferred to Mr. Amol Kokane's account, from where they were transferred to the stock market, has revealed that these funds have been received from various entities/ persons who appear to be connected to each other, and in whose bank accounts, funds appear to have been circulated through a large network of their connected accounts, in a complex pattern and without any ostensible and bonafide business purpose;
c) That the investigation prima facie also revealed frequent high value cash withdrawals and cash deposits, by limiting individual cash withdrawals and deposits to below Rupees ten lakh in some of these accounts;
d) that there were fund transfers from and between Mr. Nirmal Kotecha and his close relatives (his mother, wife) and related/associated entities/persons etc. and that the same modus operandi (withdrawing high value cash by keeping individual cash withdrawals below Rupees 10 lakh that prima facie appeared in some of the connected persons/ entities accounts from where high value funds were transferred to Mr. Amol Kokane's account and from where these funds were transferred to the stock market) prima facie also appeared to have adopted in the transfer of funds into and out of Mr. Nirmal Kotecha's account, as well as the accounts of his immediate relatives/ his related entities;
e) that there were purchases made by related/ associated persons of Mr. Nirmal Kotecha in the PSTL scrip just prior to the publication of the news about the forged SEBI open offer letter that was sent to Mr. P S Saminathan on December 19, 2008 and again sale of substantial number of shares of PSTL just prior to the announcement by Mr. P.S. Saminathan denying the open offer, on the morning of December 22, 2008 by these related/ associated persons;
f) that Mr. Nirmal Kotecha was a major seller in the PSTL scrip on December 22, 2008, having sold 15,05,862...
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