BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date: 25.11.2019 Appeal No.441 of 2019 Rajesh Ranka G-13, Orchid Garden, Girdharnagar, Shahibaug, Ahmedabad, Gujarat. ….. Appellant Versus Securities and Exchange Board of India SEBI Bhavan, Plot No.C-4A, G Block, Bandra Kurla Complex, Bandra (East), Mumbai – 400 051. … Respondent Mr. Harsh Kesharia, Advocate for the Appellant. Mr. Chirag Bhavsar, Advocate with Ms. Eram Quraishi, Advocate i/b. MDP & Partners for the Respondent. CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Justice Tarun Agarwala (Oral)

1. Failure to comply with the interim order dated

5th November, 2013 and confirmatory order dated 17th May, 2015 issued under the provisions of Section 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) resulted in the passing of the impugned order imposing a penalty of Rs.50,00,000/- upon the appellant against which the present appeal has been filed. The facts leading to the filing of the present appeal is as follows.

2. SMS Techsoft (India) Ltd. (hereinafter referred to as,

‘the company’) allotted 3 crores shares through preferential allotment to 31 entities on March 13, 2012. After stock split in the ratio 1:10 in November 2012, these 3 crores shares became 30 crores shares. The allotment of shares had a lock in period of one year and thus, the allottees could not sell the shares during the lock in period. Around the time when the lock in period was coming to an end, Short Text Messages (SMS) were sent to various investors on their mobiles recommending purchase of the scrip of the company which was a listed company on the BSE Ltd. (BSE) and Coimbatore Stock Exchange Ltd. SEBI noticing the recommendations through these SMS undertook an enquiry in the matter relating to buying and selling of shares of the company and, upon an analysis of the trading activity in the scrip of the company, it found that 37 entities were acting together as a group and had adopted a fraudulent device and artifice to defraud the genuine shareholders of the company by falsely portraying fraudulent transactions as genuine preferential allotment of shares and offloading the shares allotted pursuant to the preferential allotment thereby earning illegal profits.

3. As a result of the aforesaid enquiry, SEBI issued an ad-

interim ex-parte order dated November 5, 2013 against 37 entities restraining them from accessing the securities market and further prohibiting them from buying, selling or dealing in the securities market either directly or indirectly and further directed them to keep in an escrow account an amount of Rs. 6 crore which they had earned illegally from sale of the shares allotted in preferential allotment by the company. The company was also restrained from raising any additional capital through the securities market either directly or indirectly. The said ad-interim ex-parte order was subsequently confirmed on May 7, 2015.

4. Subsequently, pursuant to a show cause notice dated

15th November, 2016, the Whole Time Member passed an order dated 27th July, 2018 restraining the appellant and other entities from dealing in securities market for a period of 10 years and was also made the appellant and others jointly and severally liable to disgorge an amount of Rs.6,78,85,716/- along with simple interest calculated at the rate 12% per annum with effect from 5th November, 2013 till the date of payment.

5. The appellant being aggrieved by the order of the

Whole Time Member filed an Appeal no.408 of 2018 which was clubbed along with other appeals and was dismissed by judgement dated 18th October, 2019. This Tribunal held that the appellant along with others were acting in concert and that the appellant held a power of attorney on behalf of the other entities. This Tribunal found that the appellant was not only acting in concert with other entities but was also adopting fraudulent devices and was operating all the accounts of the appellants through the power of attorney given to him and that he was part of the fraud even though he may not be an allottee himself but was involved in the manipulation or fraud in concert with others. This Tribunal also held that the appellant was jointly and severally liable to disgorge the amount as per the order passed by the Whole Time Member.

6. For non compliance of the ex-parte interim order dated

5th November, 2013 and confirmatory order dated 17th May, 2015, SEBI directed the appellant to deposit a sum of Rs.6,00,11,512/- in an escrow account within 30 days. The Adjudicating Officer issued a notice dated 10th March, 2017 to show cause as to why penalty should not be imposed for non compliance of the aforesaid orders.

7. The Adjudicating Officer after considering the reply

and after taking into consideration the seriousness and gravity of the irregularities committed by the appellant imposed a penalty of Rs.50,00,000/- under Section 15HB of the SEBI Act.

8. Having heard the learned counsel for the appellant we

find that an ex-parte interim order dated 5th November, 2013 was issued directing the appellant and others to deposit Rs.6,00,11,512/- in an escrow account within 30 days. The said direction has not been complied with till date even after a lapse of 6 years. This Tribunal in the appeal of the appellant also found that he was acting in concert with others and had played a fraud upon the investors. This Tribunal also held that he was jointly and severally liable to disgorge the amount.

9. In the light of the aforesaid, we do not find any

manifest error in the order of the Whole Time Member imposing a penalty of Rs.50 lakhs for non compliance of the orders of SEBI which admittedly has not been complied with by the appellant till date.

10. For the reasons stated aforesaid we do not find any

merit in the appeal. Dismissed. Sd/- Justice Tarun Agarwala Presiding Officer Sd/- Dr. C. K. G. Nair Member Sd/- Justice M.T. Joshi Judicial Member 25.11.2019 Prepared and compared by RHN