PARSOLI CORPORATION LIMITED, ZAFAR SARESHWALA AND UVES SARESHWALA Vs. SECURITIES AND EXCHANGE BOARD OF INDIA

JUDGEMENT

(1.) THIS order will dispose of nine Appeals No. 112, 113, 145, 146, 150 of 2010 and 77, 80, 81, 82 of 2011 all of which have been filed by Parsoli Corporation Ltd. and/or its promoters/promoter group. These were heard together one after the other and the learned senior counsel appearing for the Appellants has divided these appeals in 3 different groups and addressed arguments group wise. We shall deal with the appeals falling in each group in the same manner. It is pertinent to mention that out of these nine appeals, five Appeals No. 112, 113, 145, 146 and 150 of 2010 had earlier come up for hearing before this Tribunal and these were dismissed by a common order dated January 12, 2011. The Appellants in these five appeals filed civil appeals in the Supreme Court which came up for hearing on May 2, 2011 and the order passed by this Tribunal was set aside and the cases remitted with a direction to pass separate orders in each of the five appeals. As observed above, we are dealing with these appeals group wise as stated by the learned senior counsel for the Appellants. Learned Additional Solicitor General appearing for the Respondent Board has No. objection to the disposal of the appeals in the manner as suggested by the Appellants.

(2.) DID Parsoli Corporation Ltd. (hereinafter referred to as Parsoli) and its promoters/directors defraud its shareholders by transferring their shares in their own demat accounts on the basis of forged signatures and forged/duplicate share certificates and when caught, compensate the shareholders by crediting back in their demat accounts shares through off market transactions is the primary question that arises for consideration in this group of appeals. Facts as they emerge from the record are these.

(3.) THE Board carried out investigations, inter -alia, in the matter of fraudulent transfer and demat of shares of Parsoli on the basis of forged documents. Investigations revealed that 80,800 shares of 252 shareholders held in physical form had been transferred in the names of persons who belonged to the promoter group on the basis of fake share certificates and forged signatures of shareholders. The modus operandi adopted by Parsoli and its directors was that they retained the specimen signature cards of shareholders with them and did not furnish the same to the RTA and that they were verifying the signatures of the transferors and also the genuineness/correctness of the share certificates. Parsoli had set up a committee of its directors for the purpose and after the committee verified the signatures and genuineness of the share certificates, RTA would formally effect those transfers. It is pertinent to mention that this practice was illegal and contrary to the aforesaid Regulations. Parsoli had directed the RTA to effect transfer of shares on the basis of signature verification done by the former and assured the latter that in case of any complaint, Parsoli would take the responsibility and compensate the shareholders. During the course of the investigations, Parsoli, its managing director and joint managing director had been asked to provide details of the process by which the shares were being transferred. By letter dated July 19, 2008, Parsoli furnished the minutes of the meeting of the share transfer committee of its directors held on January 31, 2004. Parsoli was then asked to provide the complete documents showing the transfer of shares and the procedure followed to which it replied by its letter of August 11, 2009 that "We only have in our possession minutes of the Board meeting held as on January 31, 2004. The other disclosures are not with us." The managing director of Parsoli appeared before the investigating officer on August 5, 2008 and several questions were put to him soliciting information in this regard. He undertook to furnish the information by August 8, 2008 which was never done. From all this it was inferred that Parsoli and its managing director and joint managing director both of whom were members of the share transfer committee were not co -operating with the investigations. On completion of the investigations, the Appellants were served with a notice dated June 10, 2009 alleging that Parsoli, its managing director and joint managing director were involved in printing/issuing fake share certificates, forging of signatures of genuine investors on the transfer documents, verification of those fake share certificates and forged signatures, approval of fraudulent transfers and ultimately dematerialising those fake share certificates in the names of promoters and their front entities on the basis of forged documents. It was also alleged that Parsoli and its aforesaid two directors did not handover the specimen signature cards to the RTA and did not maintain records relating to transfer of securities at a single point. It was also pointed out that Parsoli and its directors did not provide complete and material information to the Board during the course of the investigations and thereby violated the provisions of Section 11C of the Securities and Exchange Board of India Act, 1992 (for short the Act). The show cause notice also alleged the violation of Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and Regulations 53A and 54(5) of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 (hereinafter referred to as FUTP Regulations and the depository Regulations respectively). Some other charges were also levelled and since those have not been established, it is not necessary to refer to those. The Appellants were called upon to show cause why action be not taken against them under Sections 11(4) and 11B of the Act which may include debarring them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period of time. For the aforesaid illegalities that came to light during the course of the investigations, the Board also decided to initiate adjudication proceedings against Parsoli and its promoters and other front entities for imposing monetary penalties. Accordingly, notice dated July 17, 2009 was issued to as many as 17 entities including Parsoli and its promoters pointing out the same illegalities as aforesaid and asking them to show cause why penalty be not imposed on them under Section 15HA of the Act and Section 19H of the Depositories Act, 1996. On receipt of the aforesaid notices, the Appellants did not file any reply to the show cause notice dated June 10, 2009 before the whole time member. However, they filed their reply before the adjudicating officer to the show cause notice dated July 17, 2009 denying all the allegations. The Appellants appeared before the whole time member and were given a personal hearing and they filed their written submissions which could be treated as their reply to the allegations levelled against them in the show cause notice. The whole time member and the adjudicating officer conducted separate proceedings and on the basis of the material collected by them during the course of the enquiry and also the material that was collected during the investigations, they both found the Appellants guilty of the charges levelled against them. By order dated July 27, 2010, the whole time member recorded his findings against the Appellants in the following words: