Misc. Application No. 30 of 2013 And Appeal No. 59 of 2013. Case: 1. Zenith Infotech Limited, 2. Rajkumar Saraf, 3. Akash Rajkumar Saraf, 4. Zenith Technologies Pvt. Ltd., 5. VU Technologies Pvt. Ltd., 6. Devita Rajkumar Saraf, 7. Vijayrani Rajkumar Saraf Vs 1. Securities and Exchange Board of India, 2. QVT Fund LP, 3. Quintessence Fund L.P.. Securities and Exchange Board of India

Case NumberMisc. Application No. 30 of 2013 And Appeal No. 59 of 2013
CounselFor Appellants: Mr. Fredun Devitre, Senior Advocate with Mr. Zal Andhyarujina, Mr. Nirav Shah and Mr. Vivek Shetty, Advocates and For Respondents: Mr. Shyam Mehta, Senior Advocate with Mr. Mihir Mody and Mr. Akhilesh Singh, Advocates Mr. Janak Dwarkadas, Senior Advocate with Mr. Navroz Seervai, Senior Advocate, Ms. Ankita Singhania, Mr. Ranjit ...
JudgesJog Singh, Member and A. S. Lamba, Member
IssueSecurities and Exchange Board of India Act, 1992 - Sections 19, 11(1), 11(4), 11B; Securities Contracts (Regulation) Act, 1956 - Section 12A; Companies Act, 1956; Foreign Exchange Management Act, 1999; Civil Procedure Code, 1908 - Order 38 Rules 5 to 13; Patent Act; SEBI (Prohibition of Insider Trading) Regulations, 1992; Securities Market) ...
Judgement DateJuly 23, 2013
CourtSecurities and Exchange Board of India


Jog Singh, Member

  1. The present appeal has been preferred by the Appellants against the ad-interim ex-parte order dated March 25, 2013 passed by the learned Whole Time Member (Ld. WTM) restraining the six Appellants (i.e. Appellant Nos. 2 to 7) from accessing the securities market and also prohibiting them from buying, selling or dealing in the securities market in any manner whatsoever till further orders. The Appellants have also been called upon to furnish a bank guarantee for one year for an amount of USD 33.93 million within 30 days with other connected directions. The said order is stated to have been passed under Section 19 read with 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (SEBI Act) and Section 12A of the Securities Contracts (Regulation) Act, 1956 (SCR Act).

  2. The operative portion of the said order reads as under:-

    25. Therefore, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me by virtue of section 19 read with sections 11(1), 11(4) and 11B of SEBI Act, 1992 and section 12A of the Securities Contracts (Regulation) Act, 1956, pending investigation, hereby issue the following directions, by way of this ad-interim ex-parte order:

    i. The following promoters of ZIL are restrained from accessing the securities market and further prohibited from buying, selling or dealing in securities, directly or indirectly, in any manner whatsoever, till further directions:-

    Sr. No.


    PAN No.


    Devita Rajkumar Saraf (Promoter)



    Vijayrani Rajkumar Saraf (Promoter)



    Zenith Technologies Pvt Ltd (Promoter)



    Vu Technologies P Ltd (Promoter)



    Rajkumar Saraf (Promoter and Chairman cum Director)



    Akash Rajkumar Saraf (Promoter and Managing Director)


    ii. The board of directors of ZIL is hereby directed tofurnish, within 30 days from the date of this order, bank guarantee(s) of a minimum tenure of one year, for USD 33.93 million (i.e. the amount of sale proceeds of MSD Division that has been diverted as described in para 15 above), in the name of Securities and Exchange Board of India, without using the funds of ZIL or creating any charge on assets of ZIL. The bank guarantee may be invoked in case any adverse inference is drawn by SEBI in its final order with regard to the actions of Board of directors/promoters of ZIL in diverting the sale proceeds of MSD Division and SEBI deems it necessary to compensate ZIL.

    26. This order is without prejudice to the right of SEBI to take any other action that may be initiated against ZIL and its directors/promoters in accordance with law. The above directions are without prejudice to the rights of FCCB holders to enforce their rights of redemption against ZIL before competent authority, forum or court.

    27. The persons/entities against whom this order has been passed may file their reply to SEBI within 21 days from the date of receipt of this order, if they so desire. They may also indicate in their replies whether they wish to avail an opportunity of personal hearing in the matter.

    28. This order shall come into force with immediate effect.

  3. When the appeal was listed on April 17, 2013 for admission and interim relief, the following interim order came to be passed:-


    Heard all the learned counsel for the parties. Certain jurisdictional issues have also been raised by Mr. Fredun Devitre, learned senior counsel for the appellants who appears with Mr. Zal Andhyarujia and Mr. Anand Desai. Mr. Shyam Mehta, learned senior counsel appears with Mr. Mihir Mody and Mr. Akhilesh Singh for the SEBI. Mr. Janak Dwarkadas, learned senior counsel with Mr. Navroz Seervai, learned senior counsel appearing for the interveners. After hearing the learned counsel for the parties the appeal is admitted. Two weeks' time is granted to the respondent to file their reply-affidavit with an advance copy to the other side.

  4. Similarly, turning to the Misc. Application preferred by the interveners today itself, parties have been heard. Prima-facie the Tribunal is of the opinion that the interveners should also be heard in this matter before any final order is passed. Misc. Application is, accordingly, allowed and interveners are also granted two weeks time to file their reply in the matter. Copy of appeal shall be given forthwith to the interveners so as to enable them to do the needful.

  5. Also heard parties on the question of interim relief. Keeping in view the totality of facts and circumstances of the case and submissions made by the parties, the operation of the impugned ad interim ex parte order dated March 25, 2013 is hereby stayed in so far as para 25(ii) is concerned during the pendency of the present appeal. Para 25(i) of the impugned order shall, however, operate against the appellants (six persons/entities mentioned in the said para 25(i) of the ad interim ex parte impugned order).

  6. It is further made clear that the appellants, in the meanwhile, shall neither alienate nor create third party interest in the properties owned and possessed by ZIL. List this matter for final hearing on May 7, 2013."

  7. The brief facts are that there are seven Appellants in the present appeal and Appellant No. 1 i.e. Zenith Infotech Ltd. ("ZIL") is a public limited company incorporated under the Companies Act, 1956 with its registered office at Navi Mumbai. Its shares are listed on the Bombay Stock Exchange Ltd. ("BSE") and the National Stock Exchange Ltd. ("NSE"). ZIL claims to be a leading international company specialising in delivering innovative IT solutions for virtual infrastructures, data storage and backup, and disaster recovery etc. It has about 900 employees in its offices spread across the globe. It had two sets of businesses: firstly; Cloud Computing Business ("CCB") and secondly; Managed Services Division Business ("MSD Business") prior to its (i.e. "MSD's") sale to Continuum Managed Services, LLC ("CMS"), on or about September 23, 2011.

  8. Appellant Nos. 2 to 7 are the promoters of ZIL and Appellant No. 2 is also the Chairman-cum-Director of ZIL, whereas, Appellant No. 3 is also its Managing Director. Appellant No. 4 is, however, a company incorporated under the Companies Act, 1956 having its registered office at Lower Parel, Mumbai. Similarly, Appellant No. 5 is also a company incorporated under the Companies Act, 1956 with its registered office at Andheri (East), Mumbai. Appellant Nos. 2 to 7 together hold 64.89% of ZIL's shareholding.

  9. From the pleadings it appears that, in the course of its business operations, ZIL floated Foreign Currency Convertible Bonds ("FCCBs") of USD 33 million (about Rs. 179 crore) in September 2006 and additional USD 50 million (about Rs. 271 crore) in August, 2007. The amount so collected through the FCCBs was due for redemption in August 2011 and August 2012 respectively; and the same is submitted to be governed by the offer document issuing said FCCBs, the Trust Deed executed between ZIL and the Trustees of said FCCBs, and also by the various provisions of the Foreign Exchange Management Act, 1999 ("FEMA Act"). Additionally, the Appellants submit that issuance of FCCBs, their redemption and any dispute in case of default in redeeming the same by the Appellants, are all governed by the laws of the country where the FCCBs in question have been issued. It is emphatically submitted that FCCBs, therefore, do not fall under the provisions of the SEBI Act, 1992 or other securities laws in India. In this context, the Appellants submit that on their default to redeem the monies in question, the interveners and some other parties have already approached the Hon'ble High Court and Learned Small Causes Court, Mumbai in appropriate proceedings against the Appellants. It is, therefore, contended that SEBI is precluded from launching parallel proceedings against the Appellants on the same dispute involving exactly the same subject matter.

  10. The case of the Appellants is that the FCCBs in question were issued and the monies collected by the Appellants at a time when the world economy was in boom almost everywhere. The rate of exchange of the American Dollar was between Rs. 41 to Rs. 45 during the relevant period. In the circumstances, it was the earnest belief of the Appellants that atleast a substantial part of the FCCBs would be converted into shares of the issuing Company by the FCCB holders. But, due to the global economic crash in the year 2008 recessionary trends across the whole world were witnessed and the same is a matter of record. Due to this phenomenon, most of the FCCB holders decided not to convert their FCCBs into shares and instead sought repayment / redemption of the FCCBs on maturity and due to economic crash in 2008, increase in cost of USD vis-à-vis Rupees and non-conversion of FCCBs into shares of ZIL, the ZIL did not have resources to repay FCCBs on maturity. In the circumstances, the Board of Directors of ZIL resolved to raise funds by various means. Accordingly, an Extraordinary General Meeting ("EGM") was convened on January 29, 2011 to obtain the shareholders' approval to borrow money upto Rs. 1500 crore and/or sell or lease the business, divisions, subsidiary of ZIL on such terms and conditions as the Board of Directors of ZIL might deem fit for an amount not exceeding Rs. 1000 crore. A special resolution to this effect was passed at the EGM under Section 293(1)(d) and other connected provisions of the Companies Act, 1956 and the FEMA Act. The Appellants submit that at the time of maturity of the FCCBs, there was a sharp decline in the share price because of adverse market conditions caused mainly due to the phenomenal increase in the rate of USD value vis-à-vis Indian Rupee (for one US Dollar was around Rs. 58 at that time and has continuously gone up since then, particularly in the recent past...

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