wtm/ps/60/ivd/june/2016 securities and exchange … · page 1 of 43 wtm/ps/60/ivd/june/2016...

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WTM/PS/60/IVD/JUNE/2016

SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER

ORDER

Under Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 In the matter of Backdated Transactions in the shares of Global Telesystems Limited and Global E-Commerce Services Limited In respect of:

1. Mr. Dilip S. Pendse, 2. Mr. A.L. Shilotri, 3. Pat Financial Consultants Pvt. Limited and 4. Superior Financial Consultancy Services Pvt. Limited.

________________________________________________________________________ Appearances: Date of hearing: November 24, 2015

Mr. A.L. Shilotri appeared along with his Mr. Atul S. Tungare, Advocate.

For SEBI: Dr. Anitha Anoop, General Manger; Mr. Pradeep Kumar, Assistant General Manager and Ms. Anamika Ahir, Assistant Manager.

Date of hearing: February 03, 2016 and April 01, 2016 Mr. Pesi Mody, Senior Advocate; Mr. Neveille Lashkari, Advocate; Mr. S.H. Merchant, Advocate; Mr. Rihal Kazi, Advocate; Mr. Bharat Patel and Mr. Vishal Patel appeared for Pat Financial Consulatants Pvt. Limited and Superior Financial Consultancy Services Pvt. Limited.

For SEBI: Dr. Anitha Anoop, General Manger; Mr. Pradeep Kumar, Assistant General Manager; Mr. Ankit Bhansali, Assistant General Manager and Ms. Anamika Ahir, Assistant Manager.

Date of hearing: May 09, 2016

Mr. D.S. Pendse appeared along with Mr. V.M. Singh, Advocate For SEBI: Mr. Pradeep Kumar, Assistant General Manager and Ms. Anamika Ahir, Assistant Manager.

________________________________________________________________________

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1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) on receipt

of a complaint dated October 18, 2002, from Tata Finance Limited (hereinafter

referred to as ‘TFL’ or ‘the Company’) conducted an investigation in the rights issue

of TFL. The complaint had stated as under:

a. TFL had come out with a rights issue of 9% cumulative convertible preferences shares

aggregating to `90.93 crores in March 2001.

b. For the same, TFL was required to furnish the financial statement of its subsidiary

companies including that of Niskalp Investment and Trading Co. Limited (hereinafter

referred to as ‘Niskalp’) in the offer document.

c. Niskalp during the relevant period had suffered huge losses on account of erosion in

the value of its investments (to the tune of `190 crores due to fall in the stock market)

and payment of an interim dividend (@45% for the year 2000-01 resulting into cash

outflow of `10.81 crores).

d. In order to ensure that Niskalp’s accounts did not reflect the losses and as the loss and

‘non-performing assets’ (NPA) provisioning of Niskalp as on September 30, 2000 were

lower compared to December 31, 2000, financials of Niskalp were disclosed for the

period ending September 30, 2000, in the offer document instead for the period ending

December 31, 2000.

e. The complaint alleged certain fictitious backdated transactions of sale and purchase in

the shares of Global Telesystems Limited (hereinafter referred to as ‘GTL’) and Global

E-Commerce Services Limited (hereinafter referred to as ‘GECS’) between Niskalp

and TFL.

2. During the course of investigation, the trading details (trade-order log) and demat

account statements were analysed and the statements of various persons were

recorded. The investigation prima facie found backdating of the transactions of sale of

shares of GTL and GECS in September 2000 by Niskalp and purchase by TFL and

reversal of such trades in December 2000 were at the behest of Mr. D.S. Pendse (Ex.

Managing director of TFL and ex-director of Niskalp), Mr. A.L. Shilotri (Ex. President

and Chief Executive Officer of Niskalp) and broking firms/ entities connected to Mr.

Bharat J. Patel and his relatives/ associates. Such fictitious/ backdated transactions in

the scrip of GTL and GECS had converted the loss of `14.59 crore to a profit of

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`11.45 as on September 30, 2000 in the books of Niskalp. Further, such profit in the

hands of Niskalp was disclosed in the offer document for the purposes of the rights

issue of TFL. The shares of TFL were listed on the Bombay Stock Exchange

(hereinafter referred to as ‘BSE’) and the National Stock Exchange (hereinafter

referred to as ‘NSE’) at the relevant point of time.

3. On completion of the investigation, SEBI issued a show cause notice (hereinafter

referred to as ‘SCN’) dated May 04, 2009 to Mr. D.S. Pendse and Mr. A.L. Shilotri

under Sections 11, 11B and 11(4) of the SEBI Act, 1992 (hereinafter referred to as

‘SEBI Act’) read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair

Trade Practices relating to Securities Market) Regulations, 2003 alleging therein that

the backdating of the transactions of sale and accounting entries for the scrip of GTL

and GECS in the books of Niskalp were given in order to give a better picture of its

half yearly accounts in the ‘letter of offer’ of TFL and to induce the purchase/

subscription to the rights issue of TFL. The SCN further alleged that the acts of Mr.

D.S. Pendse and Mr. A.L. Shilotri were in violation of the Regulations 5(1), 6(a) and

6(d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations 1995 (hereinafter referred to as ‘PFUTP Regulations’)

read with Regulations 4(1), 4(2)(f), (k), (r), 13(2) and 13(3) of the SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003.

SEBI also issued a SCN dated May 04, 2009 to the entities namely Pat Financial

Consultants Pvt. Limited (hereinafter referred to as ‘Pat’) and Superior Financial

Consultancy Services Pvt. Limited (hereinafter referred to as ‘Superior’) under Sections

11, 11B and 11(4) of the SEBI Act read with Regulation 11 of SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003,

alleging therein that they had aided and abetted Mr. D.S. Pendse and Mr. A.L. Shilotri

in backdating the transactions of sale and purchase of shares of GTL and GECS. The

SCN alleged that the acts of Pat and Superior were in violation of Regulations 6(a) and

6(d) of the PFUTP Regulations read with the Regulations 4(1), 4(2)(p), 13(2) and 13(3)

of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations 2003.

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4. Thereafter, Mr. D.S. Pendse sought an inspection of the documents. Accordingly, an

inspection of documents was granted to him on July 17, 2009. Vide letter dated

September 07, 2009, reply was submitted by him through his advocates. In the said

letter, while requesting for dropping of the proceedings, he stated as under:

a. The complaint dated October 18, 2002 and the SCN seek to protect certain high

ranking officers of Tata group and seek to make him a proverbial scapegoat. The SCN

has been issued almost 6 years after commencement of the investigation and relates to

the transactions in the year 2000. The SCN does not explain the delay.

b. The impugned transactions are relating to the year 2000 or latest March 2001, i.e. prior

to the coming into force of SEBI (Prohibition of Fraudulent and Unfair Trade

Practices relating to Securities Market) Regulations 2003. The provisions of SEBI

(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations 2003, could not be made applicable to him as the alleged wrong doings

relates to the period of September 2000.

c. The impugned transactions would be one out of numerous transactions done by TFL/

Niskalp and he cannot be expected to remember after almost a decade the details of

each and every transactions. He has no knowledge or recollection that the shares of

GECS in the demat account of Niskalp were pledged with the HDFC Bank or any

other bank at the relevant time. Further, no profit or motive is attributable to him in

respect of the alleged wrong doing. For the period when he was in charge of TFL, all

the statutory records had correctly reflected the transactions carried out by TFL.

d. He sought cross examination of the author of the complaint, Mr. Bharat Jayantilal

Patel, Mr. Prashant Jayantilal Patel, Mr. Pankaj Jayantilal Patel, Mr. Subodh K. Shah,

Mr. P.R. Ramesh (partner of S.B. Billimoria & Co., CA), Mr. S. Sivaram (partner of

M/s. Sahni Natrajan & Bahl), Mr. Jose Peter (director of Niskalp and Vice-President

of TFL) and Mr. A.L. Shilotri.

e. He had submitted a letter to the directors of TFL, conveying his decision not to

continue with TFL as its Managing Director beyond May 31, 2001, on which date his

term as Managing Director of TFL was expiring. This letter was accepted by the Board

of Directors of TFL at its Special Board Meeting held on February 08, 2001 and Mr.

Subodh K. Shah (who was the Deputy Managing Director of TFL from January 01,

2001), was appointed as the Managing Director (designate) w.e.f. February 09, 2001.

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As he was serving the notice period, effective management and decision making was

in the hands of Mr. Subodh K. Shah. Further, the rights issue of TFL including the

audit of the accounts of TFL and its subsidiary namely Niskalp were being monitored

by Mr. Subodh K. Shah.

f. He was not a party to any scheme of antedating of the documents or sale and buyback

of the shares of TFL by Niskalp. The books of Niskalp and the entries in respect of

the transactions referred reflected the dates of September 2000.

g. The accounts of TFL and Niskalp, were audited by the statutory auditors of TFL and

Niskalp namely S.B. Billimoria & Company for the purposes of rights issue in March

2001, who had not raised any objection of any nature at that time.

h. He was not involved in any manipulation of accounts or execution of any antedated

documents to conceal the losses of TFL or fraudulent transaction to artificially inflate

the profits of Niskalp.

5. Mr. A.L. Shilotri through Mr. Atul S. Tungare vide letter dated July 15, 2009, replied

to the SCN and stated as under:

a. The SCN is belated and he is not in a position to deal with all the aspects due to lapse

of almost nine years from the date of the transactions. Due to the same, he is not able

to lay his hands on important papers and documents.

b. On the same set of allegation, he is being prosecuted by CBI, Mumbai and the same

is pending before the Additional Chief Metropolitan Magistrate. In view of the same,

he cannot be compelled to be a witness against himself. Once his defense is disclosed,

it would be easy for the complainant to fill up the lacunas in their case by manipulating

the evidence. In view of the same he will suggest his defence at the trial of the criminal

prosecution when the witnesses will be examined on oath and he would get the right

to cross examination.

c. On the relevant dates he was in no way concerned with the TFL. He was the CEO of

Niskalp which was a subsidiary of TFL. His job was to invest the funds of Niskalp in

various securities by using his knowledge and experience in investment and finance

sector under the guidance of the Board of Niskalp. He was not concerned with the

Rights Issue of TFL. He was not even a shareholder of TFL and was not concerned

with the day-to-day book entries and the audit of accounts.

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d. If TFL had disclosed the financial position of Niskalp ending on September 30, 2000

in its offer document, it was the sole decision of the board of TFL.

e. He was not concerned with the book keeping and accounts or back dated transaction.

Before issuing statement as regards the financial position of Niskalp, TFL must have

studied the audited report of Niskalp.

f. He was never a party to any irregular transactions and all the transaction, if any,

ordered by him were in the regular course of business.

g. He requested for cross examination of the persons namely Mr. P.R. Ramesh, Mr.

Subodh K. Shah and Ms. S. Sivaram.

6. Pat and Superior vide separate letters both dated November 18, 2009, requested for

inspection of the documents. SEBI vide its letter dated August 06, 2010, granted an

opportunity of inspection of the documents to these on August 17, 2010. On the date

fixed the authorized representatives of Pat and Superior inspected the relied upon

documents. Thereafter, SEBI vide its letters both dated August 23, 2010, supplied the

copies of inspected documents to Pat and Superior. While proceeding further,

opportunities of personal hearing were granted to Pat and Superior on November 12,

2010, however, the same was postponed to December 02, 2010, due to certain

administrative exigencies.

7. In the meantime, Pat and Superior vide letters dated November 04, 2010, submitted

the preliminary reply to the SCN. The submissions made in brief, are as under:

a. Since the issuance of SCN, for the first time vide letter dated August 23, 2010, SEBI

informed these that the statements of the witnesees and other documents are made

part of the record. They requested for cross-examination of Mr. P.R Ramesh, Mr.

Subodh K. Shah, Mr. A.L Shilotri, Mr. S. Sivaram, Mr. D.S. Pendse, Mr. Jose Peter

and the author of the complaint.

b. SEBI has no jurisdiction or authority to inquire into the matters involving shares of a

company which are not even listed. Sections 11, 11B and 11(4) of the SEBI Act, 1992

in the exercise of which the present SCN is issued, are enacted to regulate the working

of intermediaries like that of stock brokers, share transfer agents, sub-brokers, etc.

They are neither registered as a stock broker nor as a sub-broker or otherwise and as

such we are not an intermediary within the meaning of SEBI Act or the rules

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thereunder. Therefore, the SCN against these is void, bad in law and is liable to be

withdrawn.

c. The SCN has been issued without any authority or power. The name and designation

of the signatory of the SCN is not mentioned and a vague statement is made that the

SCN is issued with the approval of the Competent Authority. Nothing is mentioned

as to how the signatory of the notice has derived authority from the Competent

Authority.

d. There are simultaneous and prior civil as well as criminal proceedings initiated by TFL

against these which are pending. These are based on the same cause of action as stated

in the SCN and are pending before the Hon'ble Bombay High Court as well as in the

court of Chief Metropolitan Magistrate, Esplanade, Mumbai. These proceedings

involve common issues to those covered in the present SCN. Defending the

allegations contained in the present SCN will compel them to disclose their defense

and evidence in the said pending proceedings and will prejudice their rights and

contentions in the aforesaid pending proceedings. The same could also be used against

them in such pending proceedings and in view of the same the present SCN may not

be proceeded with.

e. The law imposing criminal liability has to be applied prospectively and not

retrospectively. The PFUTP Regulations have been repealed and the SEBI

(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 2003 have come into force on July 17, 2003. The same inflict penalty of

criminal nature and cannot be applied retrospectively to the transactions of shares in

question under the SCN, which were effected in September, 2000.

f. The purchase of 16,35,100 shares of GECS as on September 29, 2000 from Niskalp

was genuine transaction and there was no intention to commit fraud on any person.

They purchased 16,35,100 shares of GECS from Niskalp on the basis of

representations made by Mr. Shilotri, the then Director and CEO of Niskalp and the

same was a genuine transaction acted upon by the buyer and seller.

g. The books of accounts of Niskalp and/or TFL are their internal affairs and looked

into by their management. PAT and Superior cannot be held responsible for any

alleged violation of the books of accounts of a different independent authority.

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h. The present SCN has been issued on May 04, 2009, for the alleged violations in dealing

of shares transacted in September, 2000. The transactions are more than 9 years old.

They are experiencing great difficulties in tracing the relevant records which would

have enabled these to effectively deal with the violations alleged in the SCN. The

Section 209(4)(A) of Companies Act, 1956 provides that the books of account of every

company relating to a period of not less than 8 years immediately preceding the current

year together with vouchers relevant to the entry in the ‘books of accounts’ shall be

preserved in good order. Thus, the issue of the SCN at such belated stage has caused

great difficulty.

i. Pat and Superior were not aware that TFL was coming out with rights issue of 9%

Cumulative Convertible Preference Shares in or about March, 2001. They are also not

aware of any profits booked by Niskalp.

8. Considering the requests of the noticees, opportunities of cross examination on the

various dates was granted. A detailed table of such opportunities is mentioned in the

table below:

a. Opportunities of cross examination granted to Mr. D.S. Pendse:

Witness Date Status

Mr. S. Sivaram 15/06/2011 Noticee expressed his inability to appear for conducting the cross examination.

20/06/2011-22/06/2011

Noticee expressed his inability to appear for conducting the cross examination.

02/08/2011 Noticee expressed his inability to appear for conducting the cross examination.

26/08/2011 &30/08/2011

Witnesses failed to confirm his presence for cross-examination.

05/09/2011 The cross-examination proceedings were adjourned on the request of the noticee as time was sought to examine the documents.

22/09/2011 Witness was present and the proceedings of cross examination were conducted. As the proceedings could not be completed, the same were adjourned for further date.


26/09/2012 – 28/09/2012

Witness was present for the cross-examination, however, the noticee failed to enter appearance. The opportunity of cross examination of Mr. S. Sivaram was closed.

14/12/2015 Witness was recalled on the application of the noticee. However, the noticee had remained absent.

03/02/2016 Witness expressed his inability to appear for the cross-examination.

02/03/2016 Witness was again recalled on the request of the noticee and the proceedings of cross-examination were conducted and completed.

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Mr. Jose Peter 20/06/2011 Noticee expressed his inability to appear for conducting the cross examination.

20/06/2011-22/06/2011

Noticee expressed his inability to appear for conducting the cross examination. However, the witness was present.

01/08/2011, 26/08/2011, 30/08/2011.


12/09/2011 Noticee requested copies of several documents before conducting the cross-examination.

13/10/2011 Noticee refused not go ahead with the cross-examination of any witness until the cross-examination of Mr. S Sivaram is complete. Cross-examination was adjourned.


28/10/2014 Witness was present and the cross examination in respect of him was completed.

Mr. Subodh K. Shah

15/06/2011 Noticee expressed his inability to appear for conducting the cross examination

20/06/2011-22/06/2011


01/08/2011 Witnesses vide letter dated July 07, 2011 expressed his inability to appear for conducting the cross-examination.

26/08/2011, 30/08/2011



20/11/2014 Further proceedings of cross examination were conducted. As the proceedings could not be completed, on this date, the same were adjourned for further date.

21/11/2014 Witness was present and further proceedings of cross examination were conducted and completed.

Mr. A.L. Shilotri


20/06/2011-22/06/2011



26/08/2011, 30/08/2011, 28/10/2014


26/11/2014 The witness requested for postponing the cross examination proceedings for a period of eight weeks.

13/05/2015 Witness expressed his inability to appear for the cross examination

21/07/2015 Witness was present, however, the noticee failed to appear for the cross examination, inspite of due intimation. The opportunity of cross examination of Mr. A.L. Shilotri was closed.

Mr. Bharat Patel


20/06/2011-22/06/2011


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26/08/2011, 30/08/2011, 28/10/2014, 04/12/2014, 21/01/2015


12/05/2015 Witness vide letter dated May 07, 2015, expressed inability to appear for the cross examination.

24/07/2015 Noticee expressed his inability to appear for conducting the cross examination. The witness remained absent.

06/08/2015 Witness vide email dated August 05, 2015 expressed his inability to appear for the cross examination.

Mr. Prashant J. Patel


20/06/2011-22/06/2011


01/08/2011 Witnesses failed to confirm its presence for cross-examination. Another date for cross-examination was granted.

26/08/2011, 30/08/2011, 28/10/2014


04/12/2014 Witness vide letter dated December 01, 2014 expressed inability to appear for the cross examination.

21/01/2015 Noticee vide email dated January 12, 2015 expressed his inability to appear for conducting the cross examination. The witness remained absent.




06/08/2015 Witness failed to confirm the presence for the cross examination.

Mr. Pankaj Patel


20/06/2011-22/06/2011


01/08/2011, 26/08/2011, 30/08/2011, 28/10/2014


04/12/2014 Witness vide letter dated December 01, 2014 expressed his inability to appear for the cross examination.

21/01/2015 Noticee vide email dated January 12, 2015 expressed his inability to appear for conducting the cross examination.




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06/08/2015 Noticee vide email dated August 07, 2015, expressed his inability to appear for conducting the cross examination. The witness remained absent.

Mr. P.R. Ramesh


20/06/2011-22/06/2011



26/08/2011, 30/08/2011

Witnesses failed to confirm his presence for cross-examination. Another date for cross-examination was granted.

29/09/2011 Proceedings cancelled due to certain administrative exigencies

10/10/2011 Noticee requested not go ahead with the cross-examination of any witness until the cross-examination of Mr. S Sivaram is complete. Cross-examination was adjourned for further date.

25/11/2014-26/11/2014

Witness vide his e-mail dated November 18, 2014, expressed his inability to appear for cross examination.

09/12/2014 Witness was present and the proceedings of cross examination were conducted.

09/01/2015 Proceedings cancelled due to certain administrative exigencies

16/04/2015 Witness vide his e-mail dated February 24, 2015, expressed his inability to appear for the cross examination.

29/04/2015 Witness was present and the proceedings of cross examination was conducted and completed.

b. Following opportunities of cross examination were granted to Mr. A.L. Shilotri: Witness Date Status

Mr. Subodh K. Shah

20/10/2014 Witness was present and the proceedings of cross examination were conducted.

Mr. S. Sivaram 21/10/2014 Witness was present and the proceedings of cross examination were conducted.

Mr. P.R. Ramesh

25/11/2014 -26/11/2014

Witness vide e-mail dated November 18, 2014 expressed his inability to appear for the cross-examination on the date fixed.

09/12/2014 Witness was present and the proceedings of cross examination were conducted and completed.

c. Following opportunities of cross examination were granted to Pat:

Noticee Date Status

Mr. D.S. Pendse

05/12/2012 Noticee failed to confirm the presence for the cross examination

28/10/2014 Noticee vide letter dated October 13, 2014, expressed his inability to appear for the cross-examination on the date fixed.


15/04/2015 Noticee vide letter dated April 16, 2014, expressed his inability to appear for cross-examination on the fixed date as it received summons from Sessions Court, in a SEBI related matter for the same date.

22/07/2015 Noticee failed to appear for the cross examination

Mr. A.L. Shilotri

21/10/2014 Noticee vide letter dated October 13, 2014, expressed his inability to appear for the cross-examination on the date fixed.

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02/01/2015 The witness expressed his inability to appear for the cross examination on the scheduled date.

15/04/2015 Noticee vide letter dated April 16, 2014 expressed inability to appear for cross-examination on the fixed date as it has received summons from Sessions Court, in a SEBI related matter for the same date.


Mr. Subodh K. Shah

21/10/2014 Noticee vide letter dated October 13, 2014, expressed inability to appear for the cross-examination on the date fixed.

18/03/2015 – 19/03/2015

Director of the noticee vide e-mail date March 13, 2015, informed about its unavailability

14/05/2015 Noticee failed to appear for cross examination


Mr. S. Sivaram 21/10/2014 Noticee vide letter dated October 13, 2014, expressed inability to appear for the cross-examination.

18/03/2015 – 19/03/2015



Mr. Jose Peter 21/10/2014 Noticee vide letter dated October 13, 2014, expressed inability to appear for the cross-examination.

18/03/2015 – 19/03/2015

Director of the noticee vide e-mail date March 13, 2015, informed about its unavailability.


Mr. P.R. Ramesh

25/11/2014-26/11/2014

Witness vide email dated November 18, 2014, expressed inability to appear for the cross-examination.


18/03/2015 – 19/03/2015

Director of the noticee vide e-mail dated March 13, 2015, informed about the unavailability


d. Following opportunities of cross examination were granted to Superior: Noticee Date Status

Mr. A.L. Shilotri

06/12/2012 Witness expressed his inability to appear for cross examination.

21/10/2014 The letter communicating the schedule of cross examination had returned undelivered.

02/01/2015 The witness expressed his inability to appear for the cross examination on the scheduled date.

15/04/2015 Noticee vide letter dated April 15, 2014, expressed inability to appear for cross-examination on the fixed date as it had received summons from Sessions Court, in a SEBI related matter, for the same date.

20/07/2015 Noticee failed to confirm the presence for the cross examination.

Mr. Subodh K. Shah


18/03/2015 – 19/03/2015

Director of the noticee vide e-mail date March 13, 2015, informed about its unavailability.



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Mr. S. Sivaram 21/10/2014 The letter communicating the schedule of cross examination had returned undelivered.

18/03/2015 – 19/03/2015

Director of the noticee vide e-mail date March 13, 2015, informed about the unavailability


Mr. Jose Peter 21/10/2014 The letter communicating the schedule of cross examination had returned undelivered.

18/03/2015 – 19/03/2015



Mr. D.S. Pendse


05/12/2014 Noticee vide letter dated December 01, 2014, requested time to collate the data

15/04/2015 Noticee vide letter dated April 15, 2014 expressed inability to appear for cross-examination on the fixed date as it has received summons from the Sessions Court.


Mr. P.R. Ramesh

25/11/2014-26/11/2014

Witness vide email dated November 18, 2014, expressed his inability to appear for the cross-examination on the date fixed.

09/12/2014 Noticee vide letter dated December 01, 2014, requested time to collate the data

18/03/2015 – 19/03/2015


14/05/2015 Noticee failed to appear for the cross examination

9. While the above discussed cross examination proceedings were being conducted, the

noticees namely Pat and Superior vide email dated July 16, 2015, raised a preliminary

issue on the jurisdiction and argued that there are simultaneous and prior pending civil

and criminal proceedings initiated by TFL against them on the same cause of action

and defending the allegations contained in the present SCN, will compel these to

disclose the defense and evidence available with them. It was argued that the same will

prejudice their rights and contentions in the pending proceedings and requested that

the present SCN should be kept in abeyance and the cross examination of witnesses

be postponed. The request of Pat and Superior for keeping the proceedings in

abeyance was rejected as the cross examination dates were fixed as per their

convenience. It was also communicated to Pat and Superior that the preliminary issue

raised would be dealt in the final order after the completion of the cross-examination

and the personal hearing.

10. Thus, upon granting ample opportunities of cross examination to Mr. D.S. Pendse,

Mr. A.L. Shilotri, Pat and Superior (hereinafter collectively referred to as the ‘noticees’)

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(as detailed in paragraph 8 above), SEBI proceeded further and granted opportunities

of personal hearings to Mr. D.S. Pendse and Mr. A.L. Shilotri on November 19, 2015

and to Pat and Superior on November 20, 2015. The schedule of the personal hearing

was intimated to the respective noticees vide letters dated October 12, 2015. The

noticees along with the letter were provided with status of cross-examination of

respective witnesses and the copies of cross-examination proceedings.

11. The noticee Mr. D.S. Pendse vide his letter dated October 26, 2015, while requesting

for adjournment of the personal hearing again sought for further cross examination of

Mr. S.Sivaram, Mr. Bharat Patel, Mr. Pankaj Patel, Mr. Prashant Patel, Mr. A.L. Shilotri

and Mr. F.J. Da Cunha.

- The request of Mr. D.S. Pendse to cross examine Mr. F.J. Da Cunha was rejected as

he had only made a complaint to SEBI and no statement was recorded by SEBI. I note

that Mr. F.J. Da Cunha had authorized Mr. Jose Peter to appear on his behalf and

answer the questions in the matter. It is seen that Mr. Jose Peter has already been

cross-examined by Mr. Pendse on October 28, 2014.

- As the cross examination of Mr. S.Sivaram was partly held on September 22, 2011 and

the same was incomplete, the request to have Mr. S.Sivaram cross examined by Mr.

D.S. Pendse was allowed. The cross examination of Mr. S. Sivaram was fixed for

December 14, 2015. Mr. D.S. Pendse vide his email dated December 01, 2015 and

December 14, 2015, requested for rescheduling of the cross examination proceedings.

Although such request was not accepted in the first instance, subsequently, the same

was granted in the interest of justice. Accordingly, an opportunity for cross-examining

Mr. S.Sivaram was scheduled for first on February 03, 2016, but re-scheduled to March

02, 2016. On the date fixed, the cross-examination proceedings were conducted and

completed.

- Regarding the opportunity of cross-examination of other witnesses, Mr. D.S. Pendse

and his advocate were informed that SEBI had made various attempts over the past

3-4 years to produce the other witnesses for cross-examination. The witnesses, viz.,

Mr. Bharat Patel, Mr. Pankaj Patel and Mr. Prashant Patel remained absent during the

entire proceedings.Mr. D.S. Pendse has already cross examined the witnesses namely

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Mr. S. Sivaram (cross examined on September 22, 2011 and March 02, 2016), Mr.

Subodh Shah (cross-examined on October 28, 2014, November 20, 2014 and

November 21, 2014), Mr. Jose Peter (cross examined on November 27, 2012 and

October 28, 2014) and Mr. P.R. Ramesh (cross-examined on December 09, 2014 and

April 29, 2015).

SEBI had also produced Mr. A.L. Shilotri on July 21, 2015. Mr. A.L. Shilotri’s cross

examination was scheduled on several previous occasions i.e. June 15, 2011, June 20,

2011 – June 22, 2011, August 02, 2011, August 26, 2011, August 30, 2011, October

28, 2014, November 26, 2014 and May 13, 2015. However, as the said witness was

located out of the country and he had cited illness as a reason for inability to be present

for the cross examination, he could not be produced on such dates. Finally on July 21,

2015, when SEBI managed to produce Mr. A.L. Shilotri, Mr. D.S. Pendse failed to

turn up for conducting the cross examination. As Mr. D.S. Pendse did not avail the

opportunity for cross-examination on the date fixed, Mr. A.L. Shilotri made a request

that he should be discharged, which was granted.

- I could not have further accommodated the request of Mr. D.S. Pendse for further

cross examination as SEBI had already taken substantial efforts to produce the

witnesses and several opportunities were scheduled in the process. The matter is old

and long drawn and I note that in the interest of justice, it could not be delayed further.

Therefore, an opportunity of personal hearing was granted to Mr. D.S. Pendse on

March 30, 2016. However, Mr. D.S. Pendse vide his letter dated March 10, 2016, again

requested for an opportunity of cross examining Mr. Bharat Patel, Mr. Pankaj Patel,

Mr. Prashant Patel, Mr. A.L. Shilotri and Mr. F.J. Da Cunha. Vide another letter dated

March 17, 2016, Mr. Pendse again requested that he be first given the opportunity to

cross-examine the aforesaid persons and requested SEBI to adjourn/ re-schedule the

personal hearing to a date after completion of the cross-examination.

- SEBI vide its letter dated March 23, 2016, reiterated that the opportunity to cross-

examine Mr. A.L. Shilotri was closed due to the non-appearance of Mr. D.S. Pendse,

inspite of due intimation and the witnesses namely Mr. Bharat Patel, Mr. Pankaj Patel,

Mr. Prashant Patel had remained absent. Later vide letter dated March 28, 2016, Mr.

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Pendse requested for re-scheduling of the personal hearing. His request was

considered and the hearing was re-scheduled to April 18, 2016. The hearing was later

re-scheduled to May 03-05, 2016, due to certain administrative exigencies. Mr. D.S.

Pendse vide letter dated April 26, 2016, requested for an adjournment on the ground

that his advocate is engaged in another matter and thereafter he was travelling. Vide

this letter, he requested for fixing the next date of hearing after June 06, 2016. The

request of Mr. Pendse was rejected and the same was communicated to him vide letter

dated April 28, 2016.

- Thereafter, Mr. D.S. Pendse vide letter dated May 02, 2016, submitted two applications

i.e. for re-call of the order communicated vide letter dated March 23, 2016, in respect

of cross-examination of certain witnesses and for fixing fresh date of personal hearing.

He further failed to appear for the personal hearing on May 03, 2016. In the interest

of justice, one more opportunity of personal hearing was granted to him on May 09,

2016. On the date fixed Mr. D.S. Pendse along with Mr. V.M. Singh, Advocate

appeared for the personal hearing and made submissions in respect of his application

dated May 02, 2016 regarding recall of the order communicated vide letter dated March

23, 2016. The noticee was informed that the said application would be considered and

decided in the final order and he was advised to make submission on merits of the

case. The noticee was also informed during the course of personal hearing that as the

matter is old, the hearing would be held on a day to day basis till the completion of the

submissions by Mr. Pendse. However, no submissions were made on merits and the

matter was adjourned to the next day. Mr. D.S. Pendse failed to appear on the next

day i.e. May 10, 2016, for the personal hearing. In the interest of justice, Mr. D.S.

Pendse was granted time till May 23, 2016, for filing the written submissions, if any.

The same was communicated to him vide letter dated May 11, 2016. However, no

written submissions have been filed by him, till date.

I note that Mr. D.S. Pendse was free to draw adverse inferences for the witnesses who

were not produced. However, Mr. D.S. Pendse has failed to make any written

submissions. Mr. D.S. Pendse, at different stages of the proceedings, tried to dodge

the conclusion of this proceeding and lastly by not filing any written submissions. I

note that the transactions dealt in the matter are of the year 2000-2001, the SCN was

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issued in the year 2009 and thereafter the matter was pending for cross-examination

of the witnesses. I note that the statements are only corroborative to the main

evidences and the noticee, Mr. D.S. Pendse has failed to make any argument in respect

of the main evidences. From the above and the numerous opportunities already

afforded to the Mr. D.S. Pendse in the matter of cross-examination of the witnesses

and also for making submissions, I find that there is no violation of the principles of

natural justice. Accordingly, I dispose of the application of the Mr. D.S. Pendse dated

May 02, 2016, as being without merits.

12. Mr. A.L. Shilotri vide his letter dated October 29, 2015, requested to re-schedule the

personal hearing. The request was considered and the hearing was re-scheduled to

November 24, 2015. In the meantime, Mr. A.L. Shilotri vide letter dated November

05, 2015, submitted the reply to the SCN, which was taken on record. On the date

fixed for hearing Mr. A.L. Shilotri appeared alongwith Mr. Atul S. Tungare, Advocate

and made oral submissions. Thereafter, Mr. A.L. Shilotri vide another letter dated April

06, 2016, filed certain additional submissions, which were also taken on record. His

submissions, in brief, are as under:

a. Niskalp was wholly owned subsidiary of TFL and TFL was holding 99.90% shares of

Niskalp. The office of Niskalp and TFL was in the same premises. Niskalp was

managed by the board of TFL and it had no staff of its own. All the books of accounts

of Niskalp were maintained in the regular course of business by the staff on the payroll

of TFL. Niskalp was an investment arm of TFL and its business was to make

investments from and out of the funds provided by TFL. Niskalp had no employees

except him and a Company Secretary named Mr. P. B. Karyekar. Mr. P.B. Karyekar

was not reporting to him at any point of time and he was drawing his salary from TFL

and was reporting to Mr. Ramanujan, Chief Financial Officer of TFL.

b. Before his appointment as President and CEO of Niskalp on February 11, 2001, he

was working as Vice President of TFL. In that capacity he was supposed to advise

TFL in the matter of equity investments. The decisions as regards the investments

advised/ recommended by him were to be taken by the Investment Committee, who

were the members on the Board of TFL. He was in no way concerned with day to day

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entries in the books of accounts, sales and purchase registers, register relating to pay

in and pay outs and any other back office business.

c. As a president and CEO of Niskalp, he was in no way concerned with the success or

failure of the ‘offer for Rights Issue’ made by TFL. He was not to be benefited by the

‘offer of Rights Issue’ and the only persons, who could be interested to ensure that the

Rights Issue would be a success were TFL and its Board, who were interested in raising

funds under the issue.

d. He was working as Vice President (Investment) with TFL till February, 2001. Vide

letter dated February 02, 2001, he was informed that his services had been transferred

from TFL to Niskalp w.e.f. February 05, 2001 and he was given continuity of service

upon such transfer and asked to continue to be based at Dubhash House. Till his

services were terminated, he drew his salary from TFL. No staff was working under

him at Niskalp and he was supposed to report to the Chairman and Board of Directors

who were nominated by TFL.

e. When TFL had decided to come out with the Rights Issue, Niskalp was in losses due

to fall in the stock market. Before offering Rights Issue, the TFL was supposed to

furnish financial statements of all its subsidiary companies. The Board of TFL must

have instructed its accounts and finance department to submit the financial position

of its subsidiaries as on the relevant date for the purpose of Rights Issue. The account

and finance department of TFL must have submitted the financial position of its

subsidiaries including that of Niskalp to the Board of TFL. Therefore the Board of

TFL and its highrank officer cannot say that they did not know the financial position

of Niskalp as on September 30, 2000 and December 31, 2000.

f. It was the decision of the Board of TFL to disclose the financial position of Niskalp

for the period of six months ending on September 30, 2000 instead of December 31,

2000.

g. TFL had published the ‘letter of offer’ of Rights Issue on or about January 31, 2001.

The datum line for the entitlement of Rights Issue for the shareholders was February

17, 2001 and the Rights Issue was to open on March 30, 2001. He was appointed CEO

of Niskalp on February 05, 2001 vide letter transferring his services from TFL to

Niskalp.

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h. After publication of the letter of offer for Rights Issue by TFL, a complaint was made

to SEBI against the Board of TFL about the non-disclosure of relevant information

relating to the financial position of Niskalp. SEBI took cognizance of the complaint

and sought explanation from the Board of TFL. The influential persons of the Board

of TFL had decided to use few persons in lower management as scape goats. He has

not been named by any of the witnesses. The brokers who named him have not been

cross examined by him.

Further, the broker namely Mr. Prashant Patel and Mr. Dilip Pendse were given

opportunity to cross examine him, but they have failed to cross examine him. Mr.

Bharat J. Patel was also given an opportunity to cross examine him, however, he also

failed to do the same. Therefore, there is no case against him.

i. The investors were given options to withdraw their monies from the rights issue not

once but twice and that no investor has ever lost any money due to the alleged

anomalies in the ‘letter of offer’.

j. The concept of internal transactions between the parent company and its subsidiary is

not unknown in corporate world. In such kind of transactions, no physical transfer of

shares take place and no brokerage is paid to the brokers, however for the account

purpose, broking entity is used. Merely because no brokerage is paid, SEBI could not

have jumped to a conclusion that the transactions were fictitious. The report of A.

Furgusson which was invited by TFL itself, had heavily indicted the management of

TFL and hence the same was not produced before the Competent Authority.

k. During the course of proceedings, SEBI had examined Mr. Subodh K. Shah as a

witness. In his cross examination, Mr. Subodh K. Shah stated that before recording of

his statement by SEBI, he had gone through the copy of the report prepared by Y.M.

Kale, partner, A. Furgusson & Co. and that his statement before SEBI was based on

the report of Y.M. Kale. Further, it has been said by him that the Y.M. Kale report

was not brought on record before SEBI. Mr. Subodh Shah stated that it was Mr. D.S.

Pendse who had asked him if the transactions for sale of GTL shares could be done

between Niskalp and TFL. Mr. Subodh Shah also stated that in the meeting held in

the chamber of Mr. D.S. Pendse in March 2001, no decision whatsoever was taken

regarding the sale of shares between Niskalp and TFL. Mr. Subodh Shah stated that

he did not have any personal knowledge regarding the internal transactions of the

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shares, if any, between Niskalp and TFL and he came to know about the backdating

transactions from the report of Y.M. Kale of A. Furgusson & Co. Thus, there is

nothing against Mr. A.L. Shilotri in the evidence of Mr. Subodh K. Shah.

l. Mr. P.R. Ramesh, partner, S.B. Billimoria and Co. in his cross examination, stated that

he was aware that Niskalp was in the business of trading in securities and financing.

S.B. Billimoria and Co. were the auditors of both TFL and Niskalp. The witness

admitted that he was aware that he was preparing the account of TFL for the financial

year 2000-2001 for the purpose of Rights Issue and that the statement of account

would form the ‘letter of offer’. Further, Mr. D.S. Pendse had informed him that TFL

had decided to proceed with the Rights Issue with the results of Niskalp for the period

ending on September 30, 2000, instead for the period ending on December 31, 2000,

but he was not aware of the reason for such change. The witness further stated that

he did not seek any explanation from the Board of TFL for such change, as it was in

compliance with law. Mr. P.R. Ramesh stated that though for giving clear picture

before publishing the Rights Issue, the accounts for the last quarter ending on

December 31, 2000 could have been given, since the requirement of law was to include

the account up to a period not earlier than six months from the date of offer, it was

the choice of the Company to consider inclusion of the results.

m. Mr. S. Sivaram in his cross examination has not uttered a word against Mr. A.L.

Shilotri. Mr. S. Sivaram admitted that the audit report was signed by the senior partner

Mr. Dinesh Bahl and that he had no personal knowledge as regards the transactions

referred to in his statement before SEBI. Mr. S. Sivaram also admitted that he had

knowledge about the transactions, as the supervisor on the job would have, based on

the documents and he was not personally summoned by SEBI to appear before it for

recording statement.

n. The statement of Mr. D.S. Pendse supports the case of Mr. A.L. Shilotri. Most of the

Board meetings of the Niskalp were chaired by Mr. J.E. Talaulicar. The statement of

Mr. Jose Peter further supports the case of Mr. A.L. Shilotri that all the decisions

relating to investment were made by the board of TFL.

o. No broker has been examined as a witness to substantiate the charge that Mr. A.L.

Shilotri had placed orders verbally for the alleged transactions. It was stated that Sahani

Natarajan and Bahl published the audit report part-IV in August, 2001. In June 2001

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itself, Mr. Y.M. Kale of A. Furgusson & Co. had already handed over his preliminary

report to TFL in which he had commented upon several irregularities in the

functioning of TFL inter alia including backdating certain transactions. The very

auditors did not notice any irregularities in respect of the said transactions in their

earlier reports submitted by way of Audit Report nos. 1, 2 and 3, in the course of audit.

p. As can be seen from the evidence of the internal auditor, Mr. S. Sivaram, he had

remarked in his audit reports for the earlier financial years 1998-1999 and 1999-2000

that there was a basic anomaly in the system which permitted backdation of records

and in those financial years also, he had noticed accounting of transactions not backed

by approvals/ supporting documents. Moreover, the transaction was between a parent

company and its subsidiary and therefore there was no need for movement of scrip

and even book entries were suffice. Such internal transactions are perfectly legal as per

any accounting standards and the inference drawn by the SEBI is absolutely

unwarranted.

13. While replying to the hearing letters of SEBI, the noticees namely Pat and Superior

vide letters dated November 16, 2015 and November 20, 2015, respectively submitted

the following:

a. SEBI does not have jurisdiction to investigate into the transaction in the shares of

GECS.

b. It would be imperative for SEBI to decide the aforesaid issue as a preliminary issue

and pass a reasoned order thereon prior to proceeding with the cross examination of

the witnesses or the SCN under reference.

c. There are simultaneous and prior civil as well as criminal proceedings initiated by TFL

against these which are pending adjudication. These proceedings involve common

issues to those covered by the SCN. In view of the same, defending these allegations

contained in the present SCN will compel these to disclose the defense and evidence

available with them in the present proceedings. The same will prejudice their rights

and contentions in the aforesaid pending proceedings.

d. They have never given up rights in the matter to cross examine the witnesses and non-

appearance cannot be deemed to be any waiver on their part.

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On the date fixed for personal hearing, Pat and Superior failed to turn up for the

personal hearing. In the interest of justice, one more opportunity of personal hearing

was granted to these on January 19, 2016. Superior vide letter dated January 13, 2016,

requested for the copy of the minutes of the hearing for November 20, 2015 and

confirmed the presence for the personal hearing on January 19, 2016. SEBI vide its e-

mail dated January 14, 2016 replied that no minutes of the proceedings were recorded

on November 20, 2015, as the noticees were absent. Vide another e-mail dated January

19, 2016, Mr. Bharat Patel, director of Pat requested for re-scheduling of the personal

hearing. The request was considered and the matter was re-scheduled to February 03,

2016.

On the date fixed, Mr. Bharat Patel and Mr. Vishal Patel appeared for Pat and Superior

along with Mr. Pesi Modi, Senior Counsel, Mr. Neveille Lashkari, Advocate; Mr. S.H.

Merchant, Advocate; Mr. Rihal Kazi, Advocate. The representatives made submissions

on the preliminary arguments made vide letter dated November 16, 2015. The request

made by the representatives for cross-examination of the witnesses was rejected, in

view of the earlier opportunities granted and not availed by them. The representative

thereafter, made submissions on the merits of the case. However, as the submissions

could not be completed and the hearing was adjourned to March 15, 2016. In the

meantime, Pat and Superior vide email dated March 14, 2016, requested for an

adjournment due to non-availability of their counsel. The request was considered and

the matter was adjourned to April 01, 2016. On the date fixed, the authorized

representative submitted a compilation of the documents containing the minutes of

cross-examination of Mr. Jose Peter, Mr. Subodh Shah, Mr. P.R. Ramesh, Mr. Dilip S.

Pendse, Mr. S. Sivaram recorded before the ‘Designated Authority’ under the SEBI

(Intermediaries) Regulations, 2008. The same were taken on record. The

representatives also requested time for filing the written submissions. The request was

considered and two weeks’ time was granted to these for filing the written submissions

and supporting documents, if any. Pat and Superior vide letters dated April 21, 2016

and April 22, 2016 respectively gave the written submissions, which were taken on

record. The submissions in brief are as under:

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i. GECS was an unlisted company, Pat and Superior were unlisted companies and not

intermediaries registered with SEBI. No trades were executed on the stock exchange

either in accordance with the stock exchange mechanism or otherwise, which are being

investigated and/ or are in issue in the present matter. Therefore SEBI has no

jurisdiction to issue the SCN to them.

ii. The noticees had no role to play in the internal accounting procedures of Niskalp/

TFL or in respect of the drafting/ disclosures in the ‘letter of offer’. The sale of shares

of GECS was never concluded. There was no delivery or payment and the same should

never have been shown in Niskalp’s account as a concluded sale nor could they have

booked any profits in respect thereof. Therefore, there is no cause of action or

jurisdiction fact which would justify taking any action including issuance of SCN

against them. Despite the same, the learned WTM has decided not to hear the said

issues as a preliminary issue and has heard the entire matter on merits. However, the

issue of jurisdiction still remains to be adjudicated upon.

iii. Numerous proceedings are already pending on the same allegations. The present

matter is squarely in issue pending trial and adjudication before the Hon’ble Bombay

High Court. For SEBI to pass orders at this stage, would amount to interference with

proceedings pending before the Hon’ble Bombay High Court. SEBI has also filed a

criminal complaint before the Sessions Court on the very same allegations and the

same is pending before the Hon’ble Court. Even the CBI has file Criminal Complaint

before the Metropolitan Magistrate, Mumbai on the very same allegations and the same

is pending for hearing.

iv. The extraordinary delay in the proceedings has caused tremendous prejudice to the

noticees.

v. SEBI’s entire allegations in the SCN of back dating of documents, fictitious

transactions, etc. are based only on the alleged statements of various parties as allegedly

recorded by SEBI in the year 2004-05, copies whereof were forwarded by SEBI to

them under cover of letter dated August 23, 2010. Several of the said statements

contain contradictory allegations to the statements allegedly made by other deponents.

Yet these are all purportedly relied upon by SEBI and that too without any explanation

or reference in the SCN, nor was any supplementary SCN issued by SEBI.

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Since SEBI has relied upon inter alia the statements of Mr. S. Sivram and Mr. D.S.

Pendse, the same are binding upon SEBI and these expressly record that there was no

back dating or fictitious transactions which totally contradicts and belies the allegations

in the SCN, and therefore the SCN is bound to be dismissed or discharged against

them.

vi. The noticees were offered certain opportunities of cross examination, the same were

adjourned for various reasons. SEBI vide its e-mail dated November 20, 2015, refused

to grant the noticees any further opportunity of cross examination. During the course

of personal hearing, they had requested for one last chance to cross examine the parties

whose statements were being relied upon by SEBI. However, the same was not

granted. Upon the same, the advocate for the noticee had suggested that in connected

matter relating to the sale of GTL shares 6 out of 7 witnesses had been cross examined

in year 2012 and only 1 witness remained to be cross examined, the cross examination

of the last witness therein could also be completed and then the noticees be allowed

to rely upon the cross examination of all such witnesses for the present matter also.

However, the request was not considered and it was orally ruled that whilst the

noticees could produce and rely upon the cross examination of the witnesses done so

far in the said other matter, he would not wait for the cross examination of the last

witness as the said other matter is before the Enquiry Officer under the Intermediate

Regulations. Thereafter, they were constrained to rely upon the cross examination of

the witnesses as was available from the said other matter.

vii. As per the statement of Mr. Bharat J. Patel, a few days before September 29, 2000, Mr.

D.S. Pendse and Mr. A.L. Shilotri had approached Mr. Bharat J. Patel and told him

that they had negotiated with some foreign party for the purchase of GECS shares @

`310 per share, but as RBI permissions were awaited and they wanted them as middle

men in the deal. Pat had therefore issued the said letter dated September 29, 2000.

Further, as they could not arrange the ultimate client, at their request, the trades were

later reversed on November 28, 2000, by Niskalp repurchasing the shares from

Superior. There was no delivery of shares and no payment.

viii. The letter dated September 29, 2000 was only an ‘agreement to sell’ and not a sale.

The same ex-facie show that the delivery and payment were intended to happen at

future date, the payment was to be effected 7 days after the delivery of the shares so

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that Pat could deliver the shares and get the payment from the proposed ultimate

buyer. In such transaction, Pat was to act as a broker and was to receive brokerage.

Niskalp had failed and neglected to get the ultimate buyer and to deliver the shares.

Therefore, admittedly no payment was ever made. It has also been said that the

brokerage was not paid. In effect, there was no concluded sale of shares and Niskalp

could never have shown the same in its account as a concluded sale and could never

have at any time purported to book any profits in its accounts on the basis of the said

letter dated September 29, 2000. Therefore the mischief, if any, was by Niskalp alone.

ix. No reasonable/ responsible auditor could having seen the letter dated September 29,

2000; demat statements showing that the shares had never been delivered; the bank

statements showing that no money was paid would have allowed to book the alleged

profit of ‘sale’ in the accounts of Niskalp/ TFL.

x. As alleged in the SCN, if the letters were backdated and created in March 2001, then

the auditors/ accountants were fully aware of the resale and reversal. The same was

before the ‘letter of offer’. Therefore, there was no obligation to disclose the same but

the letter dated November 28, 2000 was suppressed. The same was the mischief of the

auditors, the accountants, the BRLM (DSP Meryl Lynch) and the Board of Directors

of TFL and Niskalp.

xi. The impugned transaction was a huge single transaction of about `50 crores, which

partly converted Niskalp’s loss into a profit. The value of the transaction was about

25% of the total portfolio of Niskalp, which was worth about `218 crores. Despite the

same, the auditors allowed Niskalp’s account to show and book a profit for a

transaction which was never concluded and the same was allowed/ approved by

BRLM and the Board of Directors of Niskalp. The same is complete failure and lack

of due diligence on the part of the auditors/ BRLM/ Board of Directors of Niskalp

and TFL.

xii. As regards, the query during the course of personal hearing that if the sale as intended

under the said letter dated September 29, 2000 had never concluded and if not then

what was the reasons for recording a reversal thereof by the letter dated November

28, 2000, it has been submitted that at the relevant time, information regarding the

proposed merger between GTL and GECS, was in the public domain. Because of the

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same, there was a huge potential for the shares of GECS and the value to jump up,

inter alia since its unlisted shares would become listed shares of GTL.

In view of the same, there was no downside in issuing of the said letter dated

September 29, 2000. If Niskalp delivered the shares and brought the proposed ultimate

buyer as promised, they would have earned brokerage. If Niskalp did not get the buyer,

the shares had huge potential value as aforesaid. If Niskalp did not deliver the shares,

there was no obligation to pay for the same, but, they could have sued Niskalp for

damages and brokerage, if the share value went up. If the shares value went down,

even then they could have sued for their brokerage. In order to avoid such situation

and close out the outstanding obligation and liability to Pat and Superior, Niskalp

asked them, Niskalp asked them to reverse the trades at the same price. The noticees

agreed because of the long standing relationship and because they would also earn

brokerage on such reversal. Unfortunately, however, even the brokerage has not been

paid to date.

xiii. SEBI had vetted the ‘letter of offer’ and permitted Niskalp’s accounts to be as of

September 2000, without furnishing any explanation for such deviation. Even the

Board of Directors of TFL and Niskalp; the BRLM of the said ‘letter of offer’; the

auditors of TFL and Niskalp permitted the said deviation without any reason and no

charge has been made out against them for ‘aiding and abetting’ as alleged against Pat

and Superior.

xiv. If the noticees were co-conspirators with Niskalp, then the said letters would logically

have been far more explicit in recording the actual sale and the shares would have been

transferred to and parked with Pat and Superior. Further, the said letter would have

been backdated to show a sale in November 2000, to themselves and the reversal

would have been effected as a purchase by Niskalp in January 2001 from Pat and

Superior, so that the accounts of Niskalp could have also been made as of December

2000 as was done for TFL and all other subsidiaries. Further, there would have been

no brokerage payable to Pat and Superior so that the record could reflect a concluded

sale.

xv. As the letters dated September 29, 2000 and November 28, 2000 were bonafide and

genuine, that Niskalp had to deviate and make their accounts as of September 2000,

i.e., in between the dates of the aforesaid letters. The letter of Pat and Superior have

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been misused by Niskalp, TFL, their respective Boards of Directors, the auditors, the

BRLM concerned, etc. to falsify the accounts of Niskalp as disclosed in the said ‘letter

of offer’.

xvi. TFL would have published its quarterly accounts as of September 2000 and December

2000, within one month of the end of each quarter as required by the listing agreement.

Niskalp’s accounts would have been incorporated in such disclosed accounts. It is not

known/ disclosed as to whether the accounts of Niskalp had reflected the purported

sale/ profit in such accounts. If the same was in fact accounted for then it cannot be

said that the same was backdated/ fictitious. If however, the same was not reflected,

the same highlight the mischief of the auditors that even after the disclosures in

September and December 2000, they changed the accounts in March 2001, showing

the non-existing profits, even though in December they must have shown a loss.

xvii. The ‘letter of offer’ is dated March 20, 2001. The approval of SEBI was prior to that

date. The Board Resolution of the Board of Directors of TFL approving the ‘letter of

offer’ for the offer was apparently on January 04, 2001. Prior to the same, the accounts

had to be finalized. Therefore in any event, there could never have been any backdating

of the said impugned letters in March 2001 as incorrectly alleged.

xviii. Niskalp could not have booked profits for the transactions which admittedly never

took place due to failure to deliver the shares. In any event, as of March 2001,

admittedly both the impugned letters were part of the record of Niskalp. Therefore in

any event no profits could have been booked. It is reiterated that the accounts of

Niskalp ought not to have reflected the proposed transactions at all, since the same

never fructified. Niskalp choose to incorrectly allege that there was a sale on the basis

of the letter dated September 29, 2000, then it was also bound to disclose the

repurchase/ reversal under the letter dated November 28, 2000. In either event, the

net result would have been nil and no profits could have been booked. The mischief

was in booking the notional profit on the basis of the letter dated September 29, 2000

while ignoring the letter dated November 28, 2000.

xix. The statements relied upon by SEBI are contradictory, however, these shows that the

impugned letters of Pat and Superior could never have been fabricated in March 2001,

as alleged in the SCN. Mr. P.R. Ramesh in his statement dated June 16, 2004 has inter

alia stated that on 19-20 March, 2001, he had sought supporting documents in respect

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of purported sale of GECS shares, Mr. Karyekar had informed him that the sale of

GECS shares would be accounted at `347 instead of `310 to which he objected. He

had instructed not to pass any accounting entries without supporting documents. The

only document provided was the letter dated September 29, 2000, on the basis of

which he had approved the accounts and the ‘letter of offer’ information. Further, the

profits booked were reversed only in March 2002, since the shares had not been

delivered.

Mr. Subodh Shah in his statement dated July 01, 2004 has stated that he had attended

a meeting in March 2001, at which it was discussed that Niskalp had suffered losses

for quarters ending September 2000 and December 2000, Mr. D.S. Pendse and Mr.

Shilotri had suggested showing in the accounts, the purported sale of said shares, but

he opined that the same could not be done, as the returns of TFL had already been

filed for the quarter ended September 2000 and December 2000. The same proves

that Niskalp’s accounts for the quarter ended September 2000 and December 2000

did not show any such booked profit since the transaction never took place. Therefore,

the mischief was on the part of Niskalp/ TFL/ the BRLM/ the auditor/ the Board of

Directors, in subsequently booking such profits in March 2001.

Mr. S.Sivaram has stated that GECS shares were sold on September 30, 2000 @ `310

per share through Pat and Superior and a profit of `9.81 crore was booked by Niskalp

even though no payment was ever received. He alleged that there was no board

resolution authorizing purchase/ sale of shares. Further, the accounting entry for the

sale of shares was not recorded in the books of accounts of Niskalp till October 31,

2000.

Mr. Jose Peter in his statement dated April 25, 2005 had stated that there were internal

audit reports of Niskalp for the periods of July 2000-October 2000, November 2000-

December 2000 and January 2001 to February 2001, which covered 100%

transactions, but the same did not show any sale of GECS shares. He alleged that only

in March 2001, the entities were backdated to show the purported sale of GECS

shares, but he admits that even then the reversal under letter dated November 28, 2000

was on record. He also said that the accounting software of Niskalp permitted

retrospective entries and the same must have been misused by Niskalp and Mr. D.S.

Pendse to perpetuate the fraud.

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Mr. D.S. Pendse in his statement has stated that the transactions of sale of shares were

undertaken as per the approval granted by the Board of Directors and only the

accounting entries were made in the books of Niskalp in March 2001. Further, the

decision for the sale of shares was taken by himself, Mr. A.L. Shiklotri and Mr. Subodh

Shah in consultation with Mr. Talaulikar and Dr. F.A. Mehta. The said decision was

taken in September 2000 and the orders were placed by Mr. Shilotri and not by him.

The investment portfolio of Niskalp was reviewed at every board meeting. The Board

had discussed the sale and purchase of shares and all directors were aware of the same.

Even the auditor’s report which was included in the ‘letter of offer’ was unqualified,

therefore Mr. P.R. Ramesh could not allege that there was any backdating irregularity.

xx. In the cross-examination proceedings before the Designated Authority, Mr. Jose Peter

has confirmed that before filing of the offer document with SEBI, the final accounts

were approved by the Board of Directors and certified by the auditors. Pat and

Superior have submitted that as the ‘letter of offer’ is dated March 20, 2001, SEBI’s

approval would have been much prior thereto and the certification by the auditors and

the approval of the board would have had to be much prior thereto, therefore, it

cannot be alleged that the impugned letter were backdated/ created in March 2001.

Mr. Subodh Shah also in his cross-examination before the Designated Authority has

stated that he does not remember the Board of Directors of TFL had approved the

‘letter of offer’ before or after January 2001. From the same, it implies that the Board

approval may have been prior to January 2001 and the question of the impugned letter

being backdated in March 2001 does not arise.

Mr. P.R. Ramesh in his cross-examination before the Designated Authority has stated

that he had signed the audit report on March 19, 2001, even though the impugned

letter of September 29, 2000 was not produced on March 19, 2001 and prior thereto.

It has been argued by Pat and Superior that ex facie the auditor admits that he signed

the audit report containing the wrong booked profit for the proposed transaction

without ever having seeing the letter dated September 29, 2000. The same shows that

the auditors cannot contend that the letter dated September 29, 2000 misled them into

believing that the transaction was concluded.

xxi. The impugned letter dated September 29, 2000 and November 28, 2000 were not

backdated or fictitious and the allegation is irrelevant. The same could never have been

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accounted as a concluded transaction and Niskalp could never have been booked

profits for the transactions which admittedly never took place due to the failure to

deliver the shares. In any event, as of March 2001, admittedly both these impugned

letters were part of the record of Niskalp. Therefore, in any event no profits could

have been booked. It is reiterated that the accounts of Niskalp ought not to have

reflected the proposed transaction at all since the same never fructified. However, if it

chose to incorrectly allege that there was sale on the basis of the letter dated September

28, 2000, then it was also bound to disclose the repurchase/ reversal under the letter

dated November 28, 2000. In either event, the net result would have been nil and no

profits could have been booked. The mischief was in booking the notional profit on

the basis of the letter dated September 29, 2000 while ignoring the letter dated

November 28, 2000.

14. While proceeding further, I note that the noticees have raised certain preliminary issues

during the course of proceedings. Before proceeding with the merits of the case, let

me consider these preliminary issues raised by the noticees:

a. The noticees namely Pat and Superior have argued that SEBI does not have

jurisdiction to investigate into the transactions in the shares of GECS: Pat and

Superior have also argued that they had no role to play in the internal accounting

procedures of Niskalp/ TFL or in respect of the drafting/ disclosures in the ‘letter of

offer’. Further, it has also been said that the sale of shares of GECS was never

concluded.

In this regard, I note that the present proceedings relates to the mis-statements in the

offer document of the rights issue of TFL (a listed company). The prima facie findings

of the investigation have revealed backdated and fictitious transactions between TFL

and its subsidiary namely Niskalp. Further, the profits shown to have been made with

such backdated and fictitious transactions were disclosed in the ‘letter of offer’ of TFL.

Such activities have been alleged to be in violation of the provisions of the PFUTP

Regulations.

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In view of the same, jurisdiction of SEBI extends to all the persons who were involved

in such execution of backdated and fictitious transactions as alleged in the SCN.

Further, I note that SEBI has the jurisdiction to examine the nature of all the

transactions which had a bearing on the investors in the securities market. Having

aided and assisted the noticees in their fraudulent activities, the argument of Pat and

Superior that as they were not registered as a stock broker/ sub-broker or otherwise

and that no trades were executed on the stock exchange as such the SCN issued against

these is void and bad in law, finds no merit.

b. Further, the noticees namely Pat and Superior are persons associated with the

securities market and are within the scope of Sections 11, 11(4) and 11B of the SEBI

Act. In this regard, I place my reliance on the judgment of the Hon’ble High Court of

Gujarat in the matter of Karnavati Fincap Vs. SEBI [(1996) 10 SCL 5 (GUJ)]. The

relevant extract of the same is as under:

“….. In ordinary meaning, the persons associated with the securities market would include all and sundry who have something to do with the securities market. …… The words “persons associated with the securities market” are of much wider import than intermediaries. ……It is inconceivable to think that a buyer or seller of a scrip is not a person associated with securities market, where or through which he transacts his business, whether as trader or as investor, of selling or buying the required scrip.”

The words ‘all and sundry’ above would also include Pat and Superior as the letters

admittedly issued by these were used to book profits in books of Niskalp and the same

were disclosed in the ‘letter of offer’ of TFL.

c. Multiple proceedings: Pat and Superior in respective submissions have argued that

numerous proceedings are already pending on the same allegations and the present

matter is squarely covered in the pending trial and adjudication before the Hon’ble

Bombay High Court. It has also been said that when Hon’ble High Court is seized of

the matter, there is no reason for SEBI to deal with it and the same may amount to

interference with the administration of justice by the Hon’ble High Court. Pat and

Superior have further submitted that SEBI has also filed a Criminal Complaint before

the Sessions Court on the very same allegations and the same is pending.

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As discussed above, the issue involved in the present proceedings is ‘mis-statements

in the offer document of the rights issue of TFL’. For the same, SEBI has alleged the

violation of the provisions of the relevant provisions of the PFUTP Regulations and

deciding such issue which is in the jurisdiction of SEBI, in my opinion, will not amount

to any interference with the administration of justice by the Hon’ble High Court.

d. Delay: The noticees have argued that the transactions are of the year 2001 and the

proceedings suffer from various delays and latches. The noticees have argued that they

are experiencing great difficulties in tracing the relevant records which would have

enabled them to effectively deal with the violations as alleged in the SCN. I note that

the proceedings have taken time, however, the same was due to various reasons.

However, such delay cannot justify exoneration. I have also seen that the cross

examination proceedings have gone on for a longer duration. Further, I note that the

noticees were aware of the pending proceedings and are therefore expected to possess

the relevant records for necessary defence.

e. I note that certain noticees have alleged that the entire Board of TFL, auditors and

others concerned are also responsible for the violations. In this regard, I note that the

present proceedings are with respect to the noticees against whom the SCNs were

issued and the allegation levelled by them is not a subject matter of the present SCNs.

Therefore, the same cannot be decided in the present proceedings.

f. Mr. D.S. Pendse in his submissions has requested that before proceeding further with

the matter, he be first given the cross examination of Mr. Bharat Patel, Mr. Pankaj

Patel, Mr. Prashant Patel, Mr. A.L. Shilotri and Mr. F.J Da Cunha. I have already dealt

with this issue at para 11 above.

The noticees namely Pat and Superior also sought cross-examination of the persons

upon whose statements SEBI has relied upon. In this regard, it is important to note

that sufficient opportunities of cross examination of the witnesses was given to these

two, the details of the same is reproduced in the paragraph 8 above. However, Pat and

Superior had failed to appear and conduct the cross examination of the witnesses.

Thereafter, during the course of personal hearing, the request of the counsel for Pat

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and Superior to place the proceedings of cross-examination as was conducted in the

proceedings under the SEBI (Intermediaries) Regulations, 2008 was allowed and the

same were also taken on record.

15. While proceeding further, I note that TFL was a Non Banking Finance Company, at

the relevant point of time. Niskalp was an investment company and was a subsidiary

of TFL, which was primarily engaged in investments and share trading activities. TFL

in its Board meeting held on January 04, 2001, had decided to come out with a rights

issue of 9% Cumulative Convertible Preference Shares (CCPS). This was confirmed

by a further resolution in the board meeting held on January 29, 2001. The rights issue

of the Company had opened on March 30, 2001 and closed on April 30, 2001. For the

rights issue, TFL was required to furnish the financial statements of its subsidiary

companies in its ‘letter of offer’. Niskalp being one of the subsidiary companies of

TFL, its financial statements were also required to be incorporated in the offer

document. As discussed earlier, Niskalp had suffered huge losses during the year 2000-

01. In view of the same, the financials of Niskalp for the period ending September 30,

2000, were disclosed instead of the period ending December 31, 2000. Considering

the above, the issue that now arises for my consideration are as under:

a. Whether there was any mis-statement in the ‘letter of offer’ of the rights issue of TFL?

b. Whether such mis-statement was due to any falsification of records? If yes, then who

were responsible for the same?

16. Whether there was any mis-statement in the ‘letter of offer’ of the rights issue

of TFL?

a. I note that the ‘letter of offer’ of TFL was dated March 20, 2001. Pursuant to the

opening of the rights issue of TFL on March 30, 2001, SEBI had received a complaint

in April, 2001 alleging non-disclosure of the losses of Niskalp in the ‘letter of offer’ of

TFL. On receipt of such complaint, SEBI sought comments from TFL.

It is noted from TFL’s letter dated April 30, 2001 (which is publically available) that

TFL had informed its shareholders that there was substantial erosion in the value of

the stocks held by it and that Niskalp had incurred an actual loss `14.57 crore as on

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September 30, 2000 and a provisional loss of `79.37 crores for the year ended March

31, 2001, as against a disclosed profit of `11.46 crores for the six month period ended

September 30, 2000. Vide its aforesaid letter, TFL also gave an option to the applicants

in the rights issue to withdraw their subscriptions.

b. From the above, it is noted that TFL had given false disclosures in its ‘letter of offer’

about the financials of Niskalp. The false disclosure was corrected by TFL and a letter

in this regard was issued to the investors. TFL in an attempt to mend its mistake, also

had given the withdrawal option to its subscribers. These details confirms that there

was mis-statement in the ‘letter of offer’ of the rights issue of TFL.

17. Whether such mis-statement was due to any falsification of records? If yes, then

who were responsible for the same?

a. As discussed earlier, TFL had incurred an actual loss of `14.57 crore as on September

30, 2000. However, such losses were shown to have been converted into a profit of

`11.45 crore as on September 30, 2000 and the same were disclosed in the offer

document of TFL for its rights issue. The SCN has alleged that such profits were

shown out of the transactions between TFL and Niskalp of 2,88,400 shares of GTL

and 16,35,100 shares of GECS (an unlisted company during the relevant period).

b. For better understanding of the transactions, let me consider the alleged transactions

executed between TFL and Niskalp as detailed in the SCN:

Date Broker Sale client Qty. Price Buy Client Qty. Price

27/09/2000 Bharat J. Patel Niskalp 56,400 `1135 (including brokerage of `6 per share)

TFL 56,400 `1141 (including brokerage of `6 per share)

29/09/2000 Bharat J. Patel Niskalp 1,00,000 `1160 (including brokerage of `6 per share)

TFL 1,00,000 `1166 (including brokerage)

20/09/2000 JHP Securities Pvt Limited

Niskalp 32,000 `1350 - `1447 TFL 32,000 `1405 - `1448 (including brokerage of `7 per share)


TFL 20,000 `1183.50 - `1192 (including brokerage of `6 per share)


Niskalp 20,000 `1127 (including brokerage of `6 per share)


Niskalp 20,000 `1129 - `1138 (including brokerage of `6 per share)

TFL 20,000 `1129 - `1139 (including brokerage of `6 per share)





27/09/2000 Prashant J. Patel


TFL 20,000 `1125 - `1126 (including brokerage of `6 per share)

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28/09/2000 Prashant J. Patel



13/12/2000 Bharat J. Patel TFL 1,30,000 `1166 - `1197 (including brokerage of `6 per share)

Niskalp 1,30,000 `1172 - `1203

14/12/2000 Bharat J. Patel TFL 1,58,400 `1192 - `1204 (including brokerage of `6 per share)

Niskalp 1,58,400 `1184 - `1204 (including brokerage of `6 per share)

From the above, it is noted that Niskalp had claimed to have sold 2,88,400 shares of

GTL towards the end of September 2000 through the brokers, such shares were

purchased by TFL through the same broker. Further, in the month of December 2000,

similar quantity of shares were shown to have been purchased back by Niskalp from

TFL through the broker namely Bharat J. Patel.

c. The transactions in the scrip of GECS as alleged in the SCN are as under:

i. Pat vide its letter dated September 29, 2000, intimated to Niskalp that 16,35,100

shares of GECS have been sold on its behalf @ `310 per share less brokerage of

`1.65 i.e. a net rate of `308.35 per share. The letter also states that the delivery of

the shares would be made within a maximum period of two months and payment

within 7 days after delivery.

ii. Superior vide its letter dated November 28, 2000, intimated to Niskalp that 16,35,100

shares of GECS have been purchased back on its behalf @ `310 per share plus

brokerage of `1.60 i.e. net rate of `311.60 per share. The said letter also stated that

the delivery of the shares would be made within seven days and payment would be

made immediately.

d. The SCN has alleged the above transactions in the scrip of GTL and GECS were

planned during March 2001 and backdated to September 2000 and December 2000.

In support of such allegation, SCN has relied upon the demat statement of Niskalp. I

note that the entry in the demat statement is the basic proof of transaction in a scrip.

I have perused the demat statement of Niskalp and note that there was only one credit

entry of GECS shares for 16,35,100 shares as on July 10, 2000 and a debit entry of

GECS shares for 16,35,100 shares as on April 19, 2001. No other transaction in the

shares of GECS are seen in such demat statement. Further, the demat statement also

do not find any entry of the sale and purchase of GTL shares during the period of

September – December 2000. Further, the investigation has also revealed that the

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shares of GTL were pledged with HDFC Bank by Niskalp and the same could not

have been sold without the prior approval of HDFC.

I note that there was no physical/ demat transfer of shares of GTL. Also, the

transactions are not supported by any payment receipts to the broker. From the trade

- order log details as received from the stock exchanges, it has been revealed that no

purchase/ sale transactions in the scrip of GTL were executed for the client codes

assigned to Niskalp and TFL by the broker involved. There is no evidence available to

show that the trades were actually done through the stock exchange mechanism and

the available facts suggests that these were off-market transactions.

As the demat statement of Niskalp does not record the movement of any shares of

GECS and GTL during the relevant period of September 2000 to January 2001, the

same suggests that such transactions never happened. The SCN has alleged that the

accounting entries in relation to GTL and GECS shares in the books of Niskalp were

to show a better picture of its half yearly accounts in the ‘letter of offer’ of TFL.

However, all the noticees have maintained that the alleged transactions were genuine

and there was no backdation/ misstatement in the ‘letter of offer’.

e. The submissions of the noticees regarding genuineness of the transactions have to be

considered in detail. For the same, let me examine the role of each of the noticees in

the alleged transactions:

i. Mr. D.S. Pendse: I note that the ‘letter of offer’ of TFL was dated March 20,

2001 and issue was to close on April 30, 2001. At the relevant point of time, Mr.

D.S. Pendse was the Managing Director of TFL and a director of Niskalp. From

the minutes of the board meeting of TFL dated February 08, 2001, it is noted that

Mr. D.S. Pendse had handed over his resignation from the post with a request to

be relieved from the services w.e.f. May 31, 2001. The said resignation was

accepted by the Board of TFL and Mr. Subodh K. Shah was appointed as

Managing Director of the Company w.e.f. June 01, 2001. As per available record,

it is noted that the subject ‘letter of offer’ was signed by Mr. D.S. Pendse on March

20, 2001. As a Managing Director of the Company, Mr. D.S. Pendse was primarily

responsible for the ‘letter of offer’.

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Mr. D.S. Pendse in his submissions dated September 07, 2009, has argued that as

he was serving the notice period, effective management and decision making was

in the hands of Mr. Subodh K. Shah. I have seen the minutes of the Board

Meetings held on the date of his handing over of resignation and thereafter. From

the same, it is noted that Mr. Subodh K. Shah had attended the meetings in the

capacity of Deputy Managing Director till May 25, 2001. Till May 25, 2001 and

Mr. D.S. Pendse had seemed to play a major role in such Board Meetings.

I note that Mr. D.S. Pendse while cross examining Mr. Subodh K. Shah on

November 21, 2014, had placed the minutes of the meeting of TFL dated October

30, 2000, on record. I have perused these, wherein the proposal for restructuring

of the balance sheet of Niskalp was discussed. The relevant extract of the said

minutes is as under:

“Mr. D.S. Pendse, Managing Director, advised the Board that Niskalp had on its portfolio various long term investments in unquoted Equity Shares as well as Non-Convertible Debentures, acquired either to support … or as strategic investments in certain ventures/ Group companies. … These investments were funded mainly by way of ICDs from Tata Finance apart from ICDs from the market and loans from Banks, as a result of which, the Capital Adequacy Ratio of the Company was constantly under pressure. It was therefore proposed that investments aggregating Rs. 100 crores and securitization transaction with ICMIPL of the net exposure not exceeding Rs.70 crores be transferred to Tata Finance at cost of market value, whichever is lower. After discussion, the Board approved the proposal and directed the Management to report before the end of the year, the total amount of investment transferred to the Company and its impact on profitability, cash flows, borrowings of Niskalp and the Company.”

I note that these minutes are not of much help to Mr. Pendse, as also explained in

the SCN, the same pertains only to investment in unquoted shares or strategic

investment in group companies. Further, the transaction as noted in the letter of

Pat dated September 29, 2000 regarding GECS shares was definitely before the

board meeting held on October 30, 2000. Further, the approval of the Board of

TFL was definitely for future transactions and the same was not related to the

transactions in the scrip of GTL and GECS. It is further noted that the letters of

Pat and Superior dated September 29, 2000 and November 28, 2000 respectively

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were though addressed to Niskalp, the same had referred the name of Mr. D.S.

Pendse.

The same also suggests that Mr. D.S. Pendse had played an important role in the

alleged transactions. I note that Mr. D.S. Pendse was the Managing Director of

TFL and was responsible for the ‘letter of offer’ for the Rights Issue of TFL. It is

also to be noted that Mr. D.S. Pendse himself had signed the ‘letter of offer’.

Therefore, he cannot escape the liability for mis-statements in the ‘letter of offer’.

At the relevant point of time, he was also a director of Niskalp. It is a fact that the

‘letter of offer’ contained false disclosure about the financials of Niskalp. I also

note that Mr. D.S. Pendse himself had given withdrawal option to the subscribers

to the Rights Issue. In view of the discussion above, Mr. D.S. Pendse cannot

escape the responsibility of declaring false/ misleading account statement of

Niskalp in the ‘letter of offer’ of TFL.

ii. While proceeding further, I note that Niskalp was the subsidiary of TFL. As per

the submissions of Mr. A.L. Shilotri, he was appointed as CEO of Niskalp on

February 06, 2001, prior to the same, he was working as Vice President

(Investments) of TFL. He also argued that being the President and CEO of

Niskalp, he was not concerned with the success or failure of the offer for rights

issue of TFL. In this regard, I refer to the SEBI order dated January 02, 2004, in

the matter of TFL wherein it was discussed that he was hand in glove with Mr.

D.S. Pendse. Further, Hon’ble SAT vide its order dated May 21, 2004, has held

that Mr. A.L. Shilotri was aware of the bad state of Niskalp and such sensitive

information was not available with the general public at the relevant time.

Considering the observation of Hon’ble SAT, Mr. A.L. Shilotri cannot distance

himself from (the financial position of) Niskalp and his knowledge about the

financial status of Niskalp. Further, inspite of the knowledge about the financial

position, he had not raised his voice when the profits were shown wrongly in the

books of Niskalp. As regards, the submission of Mr. A.L. Shilotri the report of A.

Furgusson & Co. had indicted the management of TFL, however, I note that no

such report has been relied upon in the present proceedings.

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iii. I note that the noticees namely Pat and Superior have not denied the issuance of

the letter dated September 29, 2000 and November 28, 2000. It has been submitted

that the letter dated September 29, 2000 was only an ‘agreement to sell’ and not a

sale of shares. I have perused the text of the letter of Pat dated September 29,

2000, addressed to Niskalp, the same has also been reproduced below for

reference:

“We refer to discussion with you. We today confirm having sold for you 16,35,100 shares of Global E-commerce Services @Rs.310/- per share less Brokerage Rs.1.65 ie net rate of Rs.308.35 on following terms & conditions. Delivery - within maximum two months Payment – 7 days after delivery Kindly acknowledge the same as token of your acceptance”

As per the letter dated September 29, 2000, the delivery of the shares of GECS

had to happen within two months and payment was to be made seven days after

the delivery. It is a fact that no delivery of shares had happened. The demat

statement of Niskalp also confirms the same. Pat has argued that its interest in the

transactions was only brokerage, which admittedly had remained unpaid. I note

that the text of the letter of Pat clarifies that the sale of shares of GECS was not

concluded as no delivery of shares had happened. Taking note of the same, the

auditor of Niskalp ideally should not have allowed booking of profit on such sale

of GECS shares during the quarter 2000. I also note that the alleged transactions

were of high value and the same should not have missed by the auditors/ BRLM/

Board of Directors of Niskalp and TLF.

The submission of Pat and Superior to the query that if the sale as intended under

the letter dated September 29, 2000, had never been concluded then what were the

reasons for recording a reversal thereof vide letter dated November 28, 2000. This

appears to be a mere afterthought. Pat and Superior have argued that the shares

of GECS had huge potential due to the news of proposed merger between GTL

and GECS and they had no risk if Niskalp had delivered the shares and brought

the buyer, in such case they would have earned brokerage and otherwise they could

have sued Niskalp for damages and brokerage. I note that admittedly the brokerage

as stated in the letters dated September 29, 2000 and November 28, 2000 are yet

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to be paid by Niskalp. Further, neither Pat nor Superior informed SEBI about any

action initiated against Niskalp for recovery of such amount. All these indicate,

that the stated transaction never happened and were mere book entries for

wrongfully/ falsely showing profits at the hands of Niskalp.

I also note that Pat had not received the brokerage from Niskalp for the first leg

of transaction and admittedly no delivery of shares was made to it. In view of the

same, there was no requirement from its sister concern (Superior) who till

November 2000 was a stranger to the transaction to make any reverse transaction.

At this stage, I have perused the letter of Superior dated November 28, 2000,

addressed to Niskalp. The relevant text of the same is reproduced below:

“We refer to discussion with you. We today confirm having bought for you 16,35,100 share of Global E-commerce Services @ Rs.310/- per share plus Brokerage Rs.1.60 i.e. net rate of Rs.311.60 on following terms & conditions. Delivery – within seven days Payment – immediately Kindly acknowledge the same as token of your acceptance”

From the discussion above, it is important to note that quantity and price of GECS

shares was exactly same as was proposed to be sold for Niskalp by Pat. It is the

case of Superior that such transaction was to close the outstanding obligation and

liability to Pat. This submission cannot be accepted for the reason that the

obligation, if any, was on Pat and Superior was a stranger to the transaction.

Considering the discussion above and the manner of dealings by Pat and Superior

it can be said that they had definitely accommodated/ helped Niskalp by issuing

letters which mentioned fictitious sale and purchase of GECS shares, which were

never enforced. They did not even know to whom the shares were being sold by

Pat. Pat and Superior while arguing further have submitted that if they were the

co-conspirators with Niskalp then the letters would have been more explicit in

recording the sale and the shares would have been delivered to Pat. Further, the

reversal would have effected as a purchase by Niskalp in January 2001, so that the

accounts of Niskalp could have been made as of December 2000. Such submission

of Pat and Superior could have been of consideration, if there had been any

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delivery of the shares of GECS to Niskalp. However, as stated above, the

transactions as indicated in the letter of Pat had never happened.

Pat and Superior have also argued that as of March 2001, both the letters of Pat

and Superior were part of the records of Niskalp and in such case no profit could

have been booked. However, in the present case as detailed above, the actual losses

of Niskalp were shown as profit in the ‘offer document’ of TFL. In view of the

above discussion, I note that the letter of Pat had definitely helped the co-

conspirators to show profits in the books of Niskalp and further by the letter of

Superior attempt was made to cover up the transaction in the scrip of GECS.

Therefore, I conclude that Pat and Superior by such false letters had aided and

abetted Niskalp in showing fictitious profits as represent in the ‘letter of offer’ for

rights issue.

f. As per the allegations in the SCN, the letter of Pat and Superior dated September 29,

2000 and November 28, 2000 respectively were created in March 2001. I note that

these documents formed the basis to support the misleading statement about the

profits of Niskalp to induce the interest of investors and falsification of the accounts/

records. The transactions in the shares of GTL were not on stock exchange and the

shares of GTL were pledged with HDFC Bank. Further, there is no transfer of shares

of GTL and GECS in the demat statement of Niskalp. Thus, showing such

transactions in the books of Niskalp was not proper and showing profit out of such

transaction was definitely a misleading statement.

18. At this stage, I note the argument of the noticees that they have not been granted

opportunities to cross-examine the persons on whose statements SEBI has relied

upon. I note that the allegation levelled in the SCNs are not solely on the basis of the

statement of persons. SEBI in its SCNs have relied upon various documents available

on record. Further, the observations and findings made in paragraphs 16 and 17 above

are on the basis of documents other than the statements of persons. Therefore, in my

view, the case is proved without reference to the statements.

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19. The facts as discussed above, shows that Mr. D.S. Pendse was the Managing Director

of TFL and Director of Niskalp and had signed the ‘letter of offer’ pertaining to the

Rights Issue of TFL. Therefore, he was fully incharge of the Rights Issue of TFL

during the relevant period and his involvement in the misleading statements cannot be

wished away. Considering the admitted mis-statement made in the ‘letter of offer’

pertaining to the rights issue regarding the accounts of Niskalp, it can be concluded

that the affairs of the companies were mismanaged to commit fraud on the investors.

In view of the same, the charges against Mr. D.S. Pendse of violation of the provisions

of Regulation 5(1), 6(a) and (d) of the PFUTP Regulations read with the relevant

provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations 2003 stands proved.

20. For the facts stated in the earlier paragraphs, it can be said that as CEO of Niskalp,

Mr. A.L. Shilotri was required to be aware of the financial transactions of Niskalp and

had not raised any voice or concern when the losses were converted to profits in the

hands of Niskalp. Mr. A.L. Shilotri in his submission has argued that the investors

were given options to withdraw their monies from the rights issue not once but twice

and that no investor has ever lost any money due to the alleged anomalies in the ‘letter

of offer’. This submission is of no relevance as it has already been proved that there

were misstatements in the rights issue ‘letter of offer’.

In view of the same, I find that Mr. A.L. Shilotri had violated the provisions of

Regulation 5(1), 6(a) and (d) of the PFUTP Regulations read with the relevant

provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to

Securities Market) Regulations 2003.

21. From the discussions above, Pat and Superior by issuing letters regarding the fictitious

transactions aided and abetted Niskalp in making backdated/ fictitious transactions in

the shares of GECS. Accordingly, Pat and Superior are found to have violated

Regulation 6(a) of the PFUTP Regulations also stands proved.

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22. For the above reasons, I, in exercise of the powers conferred upon me under Section

19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11B

and 11(4), hereby issue the following directions:

a. The noticees namely Mr. D.S. Pendse and Mr. A.L. Shilotri are restrained from

accessing the securities market and are prohibited from buying, selling or otherwise

dealing in securities market for a period of three (3) years. Mr. D.S. Pendse and Mr.

A.L. Shilotri are also hereby restrained from holding any Key Managerial position in

any listed company for a period of three (3) years.

b. The noticees namely Pat Financial Consultants Pvt. Limited and Superior Financial

Consultancy Services Pvt. Limited are restrained from accessing the securities market

and are prohibited from buying, selling or otherwise dealing in securities market for a

period of three (3) years.

23. The order shall come into force with immediate effect.

Date : June 21st, 2016 PRASHANT SARAN Place : Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

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