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Adjudication Order in respect of Murli Industries Limited
Page 1 of 29 November 28, 2014
BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
ADJUDICATION ORDER NO. JJ/AM/AO-159/2014
_________________________________________________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT,
1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
In respect of:
Murli Industries Limited
(PAN – AACCM1276B)
In the matter of:
Dealings of Sanjay Dangi and other entities in various scrips
_________________________________________________________________________________________
BACKGROUND
1. Securities and Exchange Board of India (SEBI) had received a reference from the
Income Tax Department (ITD), containing certain findings in the matter of Murli
Industries Limited (Noticee/MIL). It was stated in the said reference that ten
entities were holding substantial shares of MIL and the affairs of the ten
companies were being looked after by Mr. Amit Raja, Chartered Accountant, who
happened to be their auditor. The ITD had found certain documents suggesting
manipulation in the share price of MIL. The reference stated that the following
ten private limited companies were found to be dummy companies incorporated
by MIL (hereinafter collectively referred to as “dummy companies”) which had
together cornered a large part of the shareholding of MIL.
i. Ambaji Papers Private Limited (Ambaji)
ii. Inco Infrastructures Private Limited (Inco)
iii. Kanhaiya Mining And Minerals Private Limited (Kanhaiya)
iv. Krishnum Investments Private Limited (Krishnum)
Adjudication Order in respect of Murli Industries Limited
Page 2 of 29 November 28, 2014
v. Lakhi Packaging Private Limited (Lakhi)
vi. Ramji Agri Business Private Limited (Ramji)
vii. Ramkrishna Fabrication and Machineries Private Limited (Ramkrishna)
viii. Runicha Alloys And Steel Private Limited (Runicha)
ix. Simple Mining And Power Private Limited (Simple)
x. Taitan Management Services Private Limited (Taitan)
2. The reference made by the ITD stated that none of the dummy companies
had proper offices and that the directors of these dummy companies were
of no means to carry out huge transactions running into millions of
rupees. As per the said reference, ITD conducted survey under Section
133A of the Income Tax Act, 1961 at the premises of the dummy
companies and found that the companies were not traceable at their
given addresses. The original documents relating to the ten dummy
companies and their directors (bank statements, demat statements,
correspondence from brokers, dividend vouchers, contract notes,
correspondence with shareholders, tax invoices, income tax returns filed,
income tax acknowledgements, copies of PAN applications,
correspondence with lenders, blank pledge creation forms, etc.) were
found at the premises of Mr. Amit Raja and were impounded by ITD,
whereas even copies of these documents were not found in the premises
of the dummy companies or their directors. Similarly, the original
documents pertaining to the directors in their personal capacity (bank
statements, demat statements, correspondence from brokers, dividend
vouchers, contract notes, income tax returns filed, income tax
acknowledgements, copies of PAN applications, etc.) were also found in
the premises of Mr. Amit Raja, whereas no such documents or even their
copies were found in the premises of the individual directors.
Adjudication Order in respect of Murli Industries Limited
Page 3 of 29 November 28, 2014
3. ITD also forwarded certain documents which indicated an agreement for
manipulation of MIL share price and profit sharing between MIL
promoters and Sanjay Dangi.
4. The reference received from the ITD suggested that the price of the MIL
scrip was manipulated by the entities mentioned in the reference for the
purpose of issuing Foreign Currency Convertible Bond (FCCB) at a higher
price than what was the correct price. In light of the aforesaid reference
and documents received from the ITD regarding the manipulation in
share price of MIL and the profit sharing arrangement between MIL and
Mr. Sanjay Dangi, SEBI initiated a preliminary inquiry in the matter to
find as to whether there was any concentration of shareholding of the
company among the ten entities and whether there was any attempt to
manipulate the shares of the company before the FCCB issue of MIL.
Based on the preliminary findings of the aforesaid investigation, it
appeared to SEBI that a group of entities connected to each other (Dangi
group) had influenced the price rise in the scrip during the ‘pricing
period’ of FCCBs and thereafter, exited the scrip at a profit, as per the
alleged agreement made with the promoters of MIL.
5. Based on the finding in MIL that a group was operating to offer its
services to a promoter, SEBI examined similar patterns in the trading and
price-volume of scrips of other companies that had issued FCCBs or in
which Dangi Group had been found to have traded regularly, or both. The
said examination revealed that the Dangi Group was actively trading in
the shares of many companies where there was capital raising exercise
through FCCB issue, ADR/GDR issue, QIB/QIP placement, preferential
allotment or loans or pledge/revocation of pledge of promoter shares.
Among the several scrips in which Dangi group was trading, their role
was taken up for examination in their dealings in the shares of Hubtown
Ltd. (Hubtown) (earlier known as Ackruti City Ltd.); Welspun Corp Ltd.
Adjudication Order in respect of Murli Industries Limited
Page 4 of 29 November 28, 2014
(earlier known as Welspun – Gujarat Stahl Rohren Ltd.) (WCL),
Brushman (India) Ltd. (BIL) and RPG Transmission Ltd. (RPG).
6. In view of the above findings in various scrips and noticing that such
operations were possibly continuing in the market to the detriment of the
investing public, SEBI vide ad-interim ex-parte order (interim Order)
dated December 02, 2010, (available on SEBI website www.sebi.gov.in)
issued directions against Mr. Sanjay Dangi, his associates & promoter
entities of 4 companies i.e. MIL, Hubtown Ltd., WCL & BIL.
7. Further, certain promoter/promoter related entities of MIL, Hubtown,
WCL and BIL mentioned therein were directed not to buy, sell or deal in
the securities of their own companies and their listed group companies,
in any manner whatsoever, till further directions. The aforesaid four
companies and their respective promoters were directed to ensure that
the shareholding of the promoters/promoter group in the said companies
was not altered in any manner till further directions. The stock brokers
namely, Sanchay Fincom Limited, Sanchay Finvest Limited and Ashika
Stock Broking Ltd. (ASBL) were directed not to buy, sell or deal in the
securities in their own/proprietary account in any manner till further
directions in this regard. They were further directed not to take/deal
with fresh/new clients with immediate effect until further orders.
8. Subsequently, SEBI conducted detailed investigations in respect of
dealings in the five scrips including MIL. From the bank statements of
Ramji, Runicha, Ambaji, Kanhaiya and Inco it was observed that these
companies had availed loans from SICOM Limited (SICOM) to make the
payments to MIL for conversion of the share warrants allotted to them. In
this regard, all the loan related papers available with SICOM were
examined. It was observed that the loans granted to the five dummy
companies mentioned above were in the form of Inter Corporate Deposits
Adjudication Order in respect of Murli Industries Limited
Page 5 of 29 November 28, 2014
(ICDs). The documents mentioned the various debt recovery options
available to SICOM in case of default of these ICDs, one option being
“MAPL/ promoters acquiring the shares as under Creeping Acquisition.”
The shares referred to were the 5 Lac shares each of MAPL (Murli Agro
Products Limited – now MIL) which the five dummy companies would
have to pledge as collateral for the ICDs. This indicated that SICOM had
discussions with the promoters/ directors of MIL, wherein the promoters
had agreed to buy the shares of MIL from SICOM in case of default by the
dummy companies. The security toward the ICDs extended to the five
dummy companies was as follows:
o Pledge of 5 Lac shares of MIL on conversion of warrants
o Post dated Cheques (PDCs) towards principal and interest from the
borrower companies
o Personal guarantees of promoters/ directors of borrower companies
o Comfort letter of MIL (signed by Shri Tarun Singh, company secretary of
MIL)
o PDCs towards principal and interest from Shri Nandlal Maloo
(promoter/ MD of MIL)
9. It was also observed that in addition, as temporary collateral till the
borrowers converted their warrants, each dummy company was required
to pledge 1.50 Lac shares of MIL with SICOM, the same to be released
after conversion of warrants and the subsequent pledge of the 5 Lac
shares in demat form. It was also observed that the total 7.50 Lac shares
thus pledged on behalf of the borrowers was also by Mr. Nandlal Maloo,
Mr. Bajranglal Maloo, Mr. Lalchand Maloo and Mr. Sunilkumar Maloo
(promoters of MIL). Thus, it appeared that the promoters of MIL had used
their goodwill with SICOM to avail loans for the five dummy companies so
that they may convert their warrants.
Adjudication Order in respect of Murli Industries Limited
Page 6 of 29 November 28, 2014
10. From the information furnished by the dummy companies, MIL, bank
transaction counterparties of dummy companies, etc., it was observed
that many major customers of MIL had given huge unsecured loans to the
dummy companies immediately after their incorporation and even before
these companies had set up any business infrastructure. Further, it was
observed that when the five dummy companies which took loans from
SICOM had to repay their loans, they received the necessary funds as
unsecured loans from ANG Financial Consultants Private Limited (earlier
known as Madhulika Leasehold Private Limited), which in turn had
received the necessary funds from MIL. On the same day as loan was
extended to the five dummy companies, ANG Financial Consultants
Private Limited (ANG) had received the same amount from MIL.
However, ANG repaid MIL in installments using the money paid by the
dummy companies as repayment for their loans. Thus, it appeared that
MIL had used ANG as a conduit to provide funds to the five dummy
companies to repay their loans to SICOM.
11. It was observed that for the bank account of one of the directors of
Krishnum, i.e., Kamalkishore Bhattad held with State Bank of India
(Nagpur), for the purpose of residence proof, a letter dated November 01,
2001 from Murli Agro Products Limited (now MIL) was submitted. It was
also observed that the residence of Kamalkishore Bhattad was in the
same building as the office of MIL. It was further observed that for the
same bank account, the introducer of Kamalkishore Bhattad was
indicated as Mrs. Shanta Bajranglal Maloo, who has the same address as
Mr. Bajranglal Maloo (one of the promoters of MIL).
12. It was observed from the depository (CDSL) account of Kamalkishore
Bhattad maintained with Motilal Oswal Securities Limited that his
address was ‘101, Jai Bhavani Society, Wardhaman Nagar, Nagpur’, which
was also the address of MIL and for the same account, the email id
Adjudication Order in respect of Murli Industries Limited
Page 7 of 29 November 28, 2014
provided was [email protected]. It was observed from the demat
account opening forms of the promoters of MIL that for the accounts held
with ICICI the email id furnished by Mahesh Maloo, Lalchand Maloo HUF,
Murli S Maloo, Bajranglal Maloo HUF, Nandlal Maloo HUF, Sunilkumar
Sobhagmal Maloo, Lalchand Bankatlal Maloo and Bajranglal Bankatlal
Maloo was also [email protected]. For the same account, the
phone number provided by Kamalkishore Bhattad was 2768912, which
was registered in the name of Mr. Bajranglal Bankatlal Maloo, C/o Nandlal
Enterprises. In the account of Kamalkishore Bhattad with IL&FS
Securities Services Limited, the address mentioned was ‘Jai Bhawani
Society, Central Avenue, Wardhman Nagar, Nagpur 440008’ and the
phone numbers mentioned were 2738634 and 9373118357. In the
Income Tax returns, the address furnished by Kamalkishore Bhattad was
‘201, 202 Jai Bhawani Society, C A Road, Wardhaman Nagar, Nagpur’.
Further, it was observed from Kamalkishore Bhattad’s bank account
statement that in May-June 2010 that Kamalkishore Bhattad received Rs.
4,80,000/- each from Nihal Gilts Private Limited and Raghav Finvest
Private Limited, both being promoters of MIL.
13. It was observed that in the bank account opening form of Taitan, the
address of one of its directors, i.e., Poonamchand Bhattad was mentioned
as ‘102, Jai Bhawani Society, Wardhaman Nagar, Nagpur’ (address of MIL
being ‘101, Jai Bhawani Society, Wardhaman Nagar, Nagpur’) and his
phone number was 2738634 (same phone number as mentioned in
Kamalkishore Bhattad’s account with IL&FS Securities Services Limited).
It was observed that Poonamchand Bhattad was also a director of Ambaji.
It was further observed that the address in the driving license (issued in
March 2004) of Lalit Loya, who was a director of Krishnum and Ramji
was ‘C/o M/s. Murli Agro Products Limited, MIDC, Dhurkheda Tah,
Umrer’. The connection between the dummy companies arising out of
common contact details was as follows:
Adjudication Order in respect of Murli Industries Limited
Page 8 of 29 November 28, 2014
Common Telephone Number 1 3096334 Kamalkishore Bhattad -
(R) – Director of Krishnum IDBI Bank a/c opening form of Krishnum
Shivshakti B Dhoot - (R) – Director of Inco and Simple
IDBI Bank a/c opening form of Kanhaiya
Nilesh Jain - (R) – Director of Ramkrishna, Runicha and Taitan
IDBI Bank a/c opening form of Ramkrishna
Inco - (O) IDBI Bank a/c opening form; Guiness Securities a/c opening form
Taitan - (O) IDBI Bank a/c opening form 2 2732955
(Phone Number of Mr. Harish D Jasani)
Sukhram Prajapat (O) IDBI Bank a/c opening form Sanjay Lute - (O) – Director of Inco
IDBI Bank a/c opening form
Umardan Khariya - (O) - Director of Ramji
IDBI Bank a/c opening form
Lalit Loya - (O) - Director of Krishnum and Ramji
IDBI Bank a/c opening form
3 9370422232 (Phone Number of
Mr. Amit Raja CA) Krishnum Guiness Securities a/c opening form Simple Guiness Securities a/c opening form Taitan Guiness Securities a/c opening form Lakhi Guiness Securities a/c opening form
4 2778910
(Phone Number of Mr. Amit Raja CA)
Krishnum IDBI demat a/c opening form Simple IDBI Bank a/c opening form; IDBI Demat a/c
opening form Lalit Loya - (R) IDBI Bank a/c opening form of Runicha Kanhaiya Guiness Securities a/c opening form; IDBI
Demat a/c opening form Taitan IDBI Demat a/c opening form Lakhi IDBI Demat a/c opening form Ambaji - (O) Guiness Securities a/c opening form; IDBI
Demat a/c opening form Runicha IDBI Demat a/c opening form Ramji Guiness Securities a/c opening form; IDBI
Demat a/c opening form Common Address
1 C/o M/s. Murli Agro Products Limited, MIDC, Dhurkheda Tah, Umrer
Lalit Loya Address in Driving Licence
2 Plot 142, East Wardhaman Nagar,
Behind Akash Apartment, Nagpur – 8 (Address of Amit Raja CA)
Ramji IDBI Demat a/c opening form Runicha IDBI Demat a/c opening form Lakhi IDBI Demat a/c opening form Taitan IDBI Demat a/c opening form Kanhaiya IDBI Demat a/c opening form; Guiness
Securities a/c opening form Inco IDBI Bank a/c opening form; Guiness
Securities a/c opening form
Adjudication Order in respect of Murli Industries Limited
Page 9 of 29 November 28, 2014
Simple IDBI Demat a/c opening form Krishnum IDBI Demat a/c opening form
3 c/o Vidya Amar Fulzale,
Ambedkar Square, bypass Road, Umrer, Nagpur 441203
Ramji IDBI Demat a/c opening form; Guiness Securities a/c opening form
Runicha IDBI Demat a/c opening form Krishnum Guiness Securities a/c opening form
4 2nd Floor, Bind Apartment,
Gandhi X Ray, Gandi Putla, Nagpur -8 (Address of late Deepti Raja, wife of Amit Raja CA)
Kamalkishore Bhattad IDBI Bank a/c opening form of Krishnum Krishnum Fortis a/c opening form; IDBI demat a/c
opening form
Common e-mail address
1 [email protected] (e-mail address of Amit Raja CA)
Krishnum Guiness Securities a/c opening form; ROC Filings
Simple Guiness Securities a/c opening form; ROC Filings
Taitan Guiness Securities a/c opening form; ROC Filings
Lakhi Guiness Securities a/c opening form; ROC Filings
14. It was observed that the 10 dummy companies had a common auditor,
common consultant (which incidentally was run by the family members
of Mr. Amit Raja, CA), bank accounts in the same branch of IDBI Bank Ltd.,
demat accounts with the same DP (Guiness Securities), trading accounts
with the same broker, off market transfers by directors of dummy
companies with the same counterparties and a large number of common
shareholders. It was observed that all the dummy companies had used
the services of Bhagwati Commercial and Financial Services Private
Limited (promoters/directors of Bhagwati Commercial & Financial
Services Pvt. Ltd. were Jayantilal V Raja, Lata J Raja and Deepti A Raja) for
accounting consultancy and ROC work. It was also observed that Mr. Amit
Raja, CA, was the auditor of the dummy companies since the
incorporation of each of the companies.
15. The common phone number and email id shared by the promoters of MIL
and some of the directors of dummy companies indicated that the
Adjudication Order in respect of Murli Industries Limited
Page 10 of 29 November 28, 2014
promoters of MIL were known well to the directors. The only income for
the various dummy companies and their directors appeared to be the
dividend paid by MIL as seen from their respective bank statements. It
was also observed that none of the dummy companies had invested in
any scrip other than MIL since their incorporation. It was also observed
that four dummy companies, namely, Krishnum, Lakhi, Simple and Taitan
had actively traded in the scrip of MIL. The dummy companies
incorporated with a capital of not more than a couple of lakhs of rupees
had invested in the warrants of MIL knowing very well that a payment
close to Rs 5 Crore would be necessary to convert the warrants. Yet no
activity was undertaken by any of these companies to generate income
from any business activity.
16. It was observed that all the 10 dummy companies were incorporated
during the same time period (April – May, 2005) and since incorporation,
none of the dummy companies, except Ramkrishna had undertaken any
major business activity. Only Runicha, Ramji, Lakhi and Kanhaiya had
carried out some business of coal, for which the buyer was Nandlal
Enterprises Limited, a company connected to MIL (directors of Nandlal
Enterprises Ltd. were Nandlal B Maloo, Shobhagmal B Maloo, Bajranglal B
Maloo and Lalchand B Maloo). Even in the case of Ramkrishna, its
business dealings were only with MIL and Nandlal Enterprises Ltd. It was
observed that five of the dummy companies, namely, Runicha, Ramji,
Lakhi, Kanhaiya and Ramkrishna had received some amount of money
from Nandlal Enterprises Ltd., details of which are as follows:
Date From To Amount Purpose 03.05.2007 Nandlal Enterprises Ltd Runicha 1,50,000 Purchase of Coal 03.05.2007 Nandlal Enterprises Ltd Lakhi 1,50,000 Purchase of Coal 22.05.2007 Nandlal Enterprises Ltd Kanhaiya 2,00,000 Purchase of Coal 01.06.2007 Nandlal Enterprises Ltd Kanhaiya 3,00,000 Purchase of Coal 20.07.2007 Nandlal Enterprises Ltd Ramkrishna 1,00,000 Purchase of Land 24.07.2007 Nandlal Enterprises Ltd Ramkrishna 1,00,000 Purchase of Land 01.08.2007 Nandlal Enterprises Ltd Kanhaiya 6,00,000 Purchase of Coal
01.08.2007 Nandlal Enterprises Ltd Ramji 3,00,000 Purchase of Coal
Adjudication Order in respect of Murli Industries Limited
Page 11 of 29 November 28, 2014
18.09.2007 Nandlal Enterprises Ltd Ramkrishna 1,00,000 Purchase of Land
17. During investigation certain fund flows were observes between ANG, MIL
and some of the dummy companies. Regarding the financial dealings
between ANG and MIL, ANG had stated that it had received a loan of
₹28,27,00,000/- from MIL on 30/11/2007, which was repaid in
installments during FY 2008-09. The last payment was made on
11/12/2008. Even though ANG denied any other connection/relationship
with MIL, it was observed that the loan was given without any collateral.
ANG also stated that the amount of ₹28,27,00,000/- received from MIL
was margin money for lease finance for various Plants & Machinery, with
a rate of interest of 8%. However, it was observed that on 30/11/2007,
ANG gave a loan of ₹5,65,25,000/- to Kanhaiya, Ramji and Runicha.
Further, on 01/12/2007, ANG gave a loan of ₹5,65,25,000/- to Ambaji
and Inco. The total amount given as loan to the above 5 dummy
companies was ₹28,26,25,000/-. Regarding the loans given by ANG to
Kanhaiya, Ramji, Runicha, Ambaji and Inco it was stated that the loans
were of unsecured nature with an interest rate of 9% per annum. Hence,
it appeared that ANG had been used as a conduit by MIL to provide a
short term loan to the 5 dummy companies which had applied for its
warrants, to make payment to SICOM on due date.
18. During investigation it was observed that some of the major customers of
MIL, namely, Kavyatri Paper & Board Pvt. Ltd. (Mumbai), Sammanlal Sher
Singh Papers Ltd (Delhi), ECC Trading Pvt. Ltd (Secunderabad), T.K. Ruby
& Co (Mumbai), Mukul Agencies Private Limited and PS Universal Pvt. Ltd
(New Delhi) had paid lakhs of rupees to one or more of the dummy
companies immediately after the formation of those dummy companies.
Details of some of such transactions are presented below:
Date From To Amount (`)
Jain Coal Services- a partnership firm in Nagpur having dealings with MIL 03.02.2006 Jain Coal Services Simple 27,40,000.00
Adjudication Order in respect of Murli Industries Limited
Page 12 of 29 November 28, 2014
03.02.2006 Jain Coal Services Taitan 13,70,000.00 03.02.2006 Jain Coal Services Lakhi 27,25,000.00 01.01.2008 Taitan Jain Coal Services 16,60,355.00 28.03.2008 Lakhi Jain Coal Services 33,94,469.00 28.03.2008 Simple Jain Coal Services 34,13,155.00
Mukul Agencies Private Limited
22.07.2006 Mukul Agencies Krishnum 50,00,000.00 07.12.2007 Krishnum Mukul Agencies 50,00,000.00
Kavyatri Paper & Board Private Limited 16.06.2005 Kavyatri Paper & Board Runicha 10,00,000.00 18.06.2005 Kavyatri Paper & Board Runicha 500,000.00 30.10.2009 Runicha Kavyatri Paper & Board 500,000.00
ECC Trading Private Limited 14.06.2005 ECC Trading Inco 2,000,000.00 18.07.2006 ECC Trading Simple 5,000,000.00 07.10.2008 Inco ECC Trading 1,000,000.00 27.10.2009 Simple ECC Trading 400,000.00 27.10.2009 Inco ECC Trading 1,000,000.00
MIL customers which have applied for shares of dummy companies 14.06.2005 T K Ruby & Co Kanhaiya 2,000,000.00 29.06.2005 Hero Paper Stores Runicha 1,000,000.00 04.01.2007 Runicha Hero Paper Stores 1,000,000.00 23.06.2005 Sammanlal Shersingh Papers Ambaji 5,000,000.00 21.07.2006 Sammanlal Shersingh Papers Krishnum 5,000,000.00 03.01.2007 Sammanlal Shersingh Papers Ambaji 1,000,000.00
19. During investigation, one of the entities Mukul Agencies Private Limited
stated that it was not known to/ connected to/ familiar with any of the
promoters/ directors of Krishnum and that the entity Krishnum was
introduced to it by MIL. Further, P S Universal (agent/ distributor for
MIL) stated that it knew Mr. Shivshakti B Dhoot (Director of Inco and
Simple) and Mr. Kamalkishore Bhattad (Director of Krishnum), directors
of the dummy companies. The company lent money to the above
mentioned entities on the basis of their planning and business growth,
but later asked for returning the money when they realised that the
above mentioned companies were not up to the mark. However, it was
observed that Inco had not repaid its loan to PS Universal even as late as
November 2011.
20. It was observed that corporate entities not based out of Nagpur, but
major clients of MIL, had given money to the dummy companies as either
advance or share application money, immediately after the respective
Adjudication Order in respect of Murli Industries Limited
Page 13 of 29 November 28, 2014
dummy companies were set up. The offices of these dummy companies
were set up at the residences of their respective directors and the
companies had no infrastructure or business deals in place. The amounts
thus received by the dummy companies were used either to pay for share
warrants of MIL or to pay off unsecured loans. Therefore, on examining
the end use of these funds, it appeared that the top clients of MIL had
funded the dummy companies to purchase the share warrants of MIL.
21. In order to conduct a thorough investigation and in order to ascertain the
exact role played by the various entities including the ten dummy
companies, vide summons dated September 19, 2011,
details/information was sought from the Noticee by the SEBI
Investigating Authority (IA). It was alleged that despite duly receiving
summons dated September 19, 2011; the Noticee failed to submit correct
and complete details/information as required vide the aforesaid
summons, thereby violating the provisions of Section 11C(2) and 11C(3)
of the SEBI Act, 1992.
APPOINTMENT OF ADJUDICATING OFFICER
22. Shri Piyoosh Gupta was appointed as the Adjudicating Officer vide order
dated March 30, 2012 and the said appointment was conveyed vide
proceedings of the Whole Time Member dated April 11, 2012 to inquire
and adjudge under Section 15A(a) of the SEBI Act, 1992 alleged violations
of provisions of Section 11C(2) & 11C(3) of SEBI Act, 1992 committed by
the Noticee. Pursuant to the transfer of Shri Piyoosh Gupta the
undersigned has been appointed as Adjudicating Officer vide Order dated
November 08, 2013.
Adjudication Order in respect of Murli Industries Limited
Page 14 of 29 November 28, 2014
SHOW CAUSE NOTICE, HEARING & REPLY
23. Show Cause Notice (SCN) in terms of the provisions of Rule 4(1) of SEBI
(Procedure for Holding Inquiry and Imposing Penalties by Adjudicating
Officer) Rules, 1995 (Adjudication Rules) was issued to the Noticee on
April 22, 2013, calling upon the Noticee to show cause why an inquiry
should not be held against it under Rule 4(3) of the Adjudication Rules for
the alleged violations and penalty.
24. The aforesaid SCN was duly delivered to the Noticee by Speed Post.
Subsequently, vide letter dated April 30, 2013, M/s. Lakshmi Kumaran &
Sridharan, Attorneys acknowledged the receipt of SCN by the Noticee and
sought extension of 6 weeks time to submit reply. Vide letter dated May
06, 2013 the Noticee was advised to submit vakalatnama/authorisation
within 7 days for taking cognizance of the letter dated April 30, 2013.
Subsequently, on May 16, 2013 authorization of the Noticee in favour of
M/s. Lakshmi Kumaran & Sridharan, Attorneys was received.
25. Vide Notice dated June 06, 2013 the Noticee was asked to submit its
reply, if any, on or before June 14, 2013 and the Noticee was granted an
opportunity of personal hearing on June 14, 2013. Vide email dated June
12, 2013 M/s. Lakshmi Kumaran & Sridharan, Attorneys submitted a
scanned copy of the Noticee’s reply to SCN and also requested for
postponement of the hearing and another opportunity of personal
hearing. The salient points of Noticee’s reply dated June 12, 2013 are as
follows:
o The Noticee duly submitted all information against each item and
diligently complied with all requisitions, without any inordinate delay and
therefore duly discharged its obligations and duties under Section 11C (2) &
(3) of the SEBI Act. In addition, the Noticee has also not contravened the
provisions of Section 15A of the said Act. In fact, Section 15A of the said Act
does not even apply to the facts and circumstances of the instant case and
Adjudication Order in respect of Murli Industries Limited
Page 15 of 29 November 28, 2014
resultantly, the contraventions thereof as alleged in the instant Show Cause
Notice, must fall against the said Noticee, as they are not maintainable in the
first place.
o In this regard, it may only be stated that the above stated provisions of
Section 15A of the SEBI Act would trigger only when there is a failure on the
part of the Noticee to furnish information. If information is supplied, the
provisions cannot trigger. It cannot be anybody’s case that although the
information was provided by the Noticee, however, as it was considered wrong,
deficient, incomplete or insufficient, the Noticee ought to be proceeded under
Section 15A of the said Act. The condition precedent for the above stated
provision to apply is failure to furnish information; the provision does not bring
within its fold such information which the authority may consider to be
deficient, incomplete or insufficient. For this reason, the instant show cause
notice is not maintainable as the facts and circumstances of the instant case
are beyond the scope and objects of Section 15A of the SEBI Act.
o Be that as it may, it is respectfully submitted that the instant show cause
notice under reply, has admittedly alleged contravention of Section 11C(2) and
(3) read with Section 15A of the SEBI Act, 1992 on the premise that
information provided by the Noticee at Item No. 5 was wrong, incorrect,
incomplete and/or an attempt to conceal information from the Investigating
Authority.
o It is respectfully submitted that an action cannot be initiated under rule
4(1) of Securities and Exchange Board of India (Procedure for Holding Inquiry
and Imposing Penalties by Adjudicating Officer) Rules, 1995 on the premise
that information supplied was wrong, incorrect, incomplete or provided with a
view to conceal information. It is respectfully submitted that such an action has
in fact presumed that the Noticee had supplied wrong, incorrect or incomplete
information, even though there is no order to this effect. It is being reiterated
that the presumption of falsification or falsehood against the Noticee has been
made at a time when the adjudication proceedings before the adjudicating
authority pursuant to the order of SEBI dated 16.03.2011, is pending
adjudication and has not reached finality. There is no order which holds the
information supplied as wrong, incorrect, incomplete or holds the Noticee
liable for concealment. In the absence of such an order, the initiation of action
by way of the instant Show cause Notice cannot stand scrutiny.
o The Noticee would respectfully submitted that its conduct has been
bonafide and above board. The Noticee, has not willfully or otherwise
concealed information or mislead the investigating authority, in any manner
whatsoever. In this regard, it is respectfully submitted that the Show Cause
Notice has incorrectly held the Noticee guilty of concealment and of misleading
the investigating authority.
Adjudication Order in respect of Murli Industries Limited
Page 16 of 29 November 28, 2014
o However, as has been stated herein above earlier, allegations under the
Show Cause Notice under reply that the information provided by the Noticee
was false and incorrect is presumptuous and as such cannot be sustained as the
adjudication proceedings are still pending. It is submitted that the correctness
of the said information is subject matter of determination pursuant to the
outcome of the adjudication proceedings, which is still pending and therefore
this present Show Cause Notice inasmuch as it has proceeded against the
Noticee presuming the information provided to be false of incorrect; the same
must fall as it is premature.
26. Subsequently, vide Notice dated June 14, 2013 the Noticee was given
another opportunity of personal hearing on July 02, 2013. However, vide
email dated July 01, 2013 the hearing of the Noticee was adjourned and
vide Notice dated August 29, 2013 the Noticee was given an opportunity
of personal hearing on September 11, 2013. Mr. Vinay Chauhan alongwith
Mr. Prashant Ingle of M/s. Corporate Law Chambers India, Advocates,
appeared as Authorised Representatives (AR) on behalf of the Noticee
and reiterated their previous submissions. The AR also stated that they
will be making additional submissions by September 16, 2013.
Thereafter, vide letter dated September 12, 2013 the Noticee made
additional submissions, salient points of which are as follows:
o It is submitted that adverse inference against us has been drawn based
on answer given by us with regard to Query 5 of summons dated September 19,
2011 (Annexure I to SCN).
o In our reply to Query 5 there was no mention of “any connection/relation
with the promoters/directors of dummy companies” by us. Therefore, to this
extent there is a error in Para 25 of the Notice, which sets out the charge and
the allegations based thereupon collapse. In fact the Query 5 is also restricted
to connection/relation with dummy companies and not their
promoters/directors.
o The charge of submitting incomplete reply is vague. Nothing has been
spelled out in this regard. It is reiterated that we have submitted complete
information pertaining to ourselves. Further, it is denied that we have
submitted any incorrect reply. It is denied that we are connected/related to
dummy companies, save and except as company and shareholders and having
fund transfers with Ramakrishna Fabrications & Machineries Ltd., which we
have already submitted in response to query 5 as stated hereinbefore. Reliance
Adjudication Order in respect of Murli Industries Limited
Page 17 of 29 November 28, 2014
placed on ‘previous paragraphs”, in this context is totally misplaced. We are
setting out the following instances (on illustrative basis) in support of the
same:
i. At Para 12 of the Notice it has been concluded that “Thus it appeared
that MIL had used ANG as a conduit to provide funds to the five dummy
companies to repay their loans to SICOM”. (It may be noted similar inference is
drawn at Para 19 of the Notice). Admittedly, same is in the realm of inference
drawn based on two separate independent facts viz.:
Transfer of funds by MIL to ANG Financial Consultants Pvt Ltd;
Transfer of funds by ANG Financial Consultants Pvt Ltd to certain dummy
companies;
It is nobody’s case that MIL had transferred funds directly to dummy
companies giving rise to relationship. Funds given by ANG Financial Consultants
Pvt Ltd to certain dummy companies cannot be construed as funds given by MIL
to dummy companies and an inference drawn that therefore the response to
Query 5 given by us wherein we have stated that we are not related/ connected
to dummy companies, is incorrect.
ii. Similarly, at Para 11 of the Notice it has been concluded that “Thus it
appeared that the promoters of MIL had used their goodwill with SICOM to
avail loans for the five dummy companies so that they may convert their
warrants”. Clearly the inference is qua promoters and not qua MIL.
iii. Similarly, at Para 17 of the Notice it has been concluded that “The
common phone number and e mail id shared by the promoters of MIL and some
of the directors of dummy companies indicates that the promoters of MIL were
known well to the directors”. Clearly the inference is qua promoters and not
qua MIL.
iv. Similarly, at Para 22 of the Notice it has been concluded that “Therefore,
on examining the end use of funds it appeared that the top clients of MIL had
funded the dummy companies to purchase the share warrants of MIL.” Clearly
the inference is qua clients of MIL. Now actions of clients of MIL cannot be
equated with actions of MIL. Funds given by the clients of MIL to certain
dummy companies cannot be construed as funds given by MIL to dummy
companies and therefore relation/ connection with them, and an inference
drawn that therefore the response to Query 5 given by us, is incorrect.
o While appreciating our submissions, distinction between the individual
connections or relations of promoters/directors of MIL and connections/
relations of MIL be kept in mind. Two cannot be jumbled and mixed up in order
to draw adverse inferences against MIL. Further, response to Query 5 is only
with regard to connection/ relation of MIL with dummy companies.
o It is reiterated that we had bonafide submitted all the information as
sought for by Investigating Officer SEBI and we have not submitted any wrong
Adjudication Order in respect of Murli Industries Limited
Page 18 of 29 November 28, 2014
information or attempted to mislead the investigation process of SEBI in any
manner. It is further submitted that we have not made any unfair gains or
caused any loss to anybody including investors in the market etc by submitting
the alleged wrong information.
o Without prejudice to the aforesaid submissions, it is submitted that
admittedly, section 15 A (a) is limited and restricted to failure to furnish the
information. Therefore, no penalty for submitting incorrect or false
information under this section can be imposed. The interpretation of section 15
A (which is a penal provision) cannot be stretched so as to include within its
ambit submission of incorrect information etc as done in the matter under
reference. Same would be contrary to the well settled principle of law that
penal provisions are to receive strict construction and that when the language
of the statute is plain and crystal clear, it does not require any interpretation
other than its literal meaning.
o In this context attention is also invited to the observations of the
Adjudicating Officer SEBI in his Order No. ACR/95 OF 2005 dated 25/10/2005,
where under similar circumstances involving interpretation of section 15 A(a),
wherein, based on the Para 2.4 of the Report submitted by expert group
constituted by SEBI under the chairmanship of Mr Justice M H Kania, former
Chief Justice of India, it has been stated as follows;
“14. I therefore conclude that law does not permit me to adjudicate and impose
penalty in cases where the information furnished by a person is allegedly false
and misleading.”
o In view of the aforesaid, it is submitted that we have not violated the
provisions of sections 11C (2) & 11C (2) & 11C (3) of SEBI and no penalty is
warranted under section 15A (a) of the SEBI Act.
27. Subsequent to the appointment of the undersigned as the Adjudication
Officer, vide Notice dated August 27, 2014 the Noticee was given another
opportunity of personal hearing on September 10, 2014. Vide letter dated
September 09, 2014 the Noticee submitted that it had already availed the
opportunity of personal hearing granted on September 11, 2013 and
requested for passing of a final order in the matter taking into
consideration its reply and written submissions. Hence, I am proceeding
with the inquiry taking into account the material available on record.
Adjudication Order in respect of Murli Industries Limited
Page 19 of 29 November 28, 2014
ISSUES FOR CONSIDERATION
28. After perusal of the material available on record, I have the following
issues for consideration, viz.,
A. Whether the Noticee has violated provisions of Section 11C(2) and
11C(3) of the SEBI Act, 1992?
B. Whether the Noticee is liable for monetary penalty under Section
15A(a) of the SEBI Act, 1992?
C. What quantum of monetary penalty should be imposed on the Noticee
taking into consideration the factors mentioned in Section 15J of the
SEBI Act, 1992?
FINDINGS
29. On perusal of the material available on record and giving regard to the
facts and circumstances of the case, I record my findings hereunder.
ISSUE 1: Whether the Noticee has violated provisions of Section 11C(2) and
11C(3) of the SEBI Act, 1992?
30. The provisions of Section 11C(2) and 11C(3) of the SEBI Act, 1992 read as
under:
Section 11C(2) and Section 11C(3) of the SEBI Act, 1992
Section 11C(2): Without prejudice to the provisions of sections 235 to 241 of the
Companies Act, 1956 (1 of 1956), it shall be the duty of every manager, managing
director, officer and other employee of the company and every intermediary referred to
in section 12 or every person associated with the securities market to preserve and to
produce to the Investigating Authority or any person authorised by it in this behalf, all
the books, registers, other documents and record of, or relating to, the company or, as
the case may be, of or relating to, the intermediary or such person, which are in their
custody or power.
Section 11C(3): The Investigating Authority may require any intermediary or any
person associated with securities market in any manner to furnish such information to,
or produce such books, or registers, or other documents, or record before him or any
person authorised by it in this behalf as it may consider necessary if the furnishing of
Adjudication Order in respect of Murli Industries Limited
Page 20 of 29 November 28, 2014
such information or the production of such books, or registers, or other documents, or
record is relevant or necessary for the purposes of its investigation.
31. From the material available on record, I note that summons dated
September 19, 2011, was issued to the Noticee by the IA asking it to
furnish the following information by September 26, 2011.
1) Furnish copies of bank statements highlighting the following transactions:
a) Payments received for warrants issued in the year 2005
b) Payments received for conversion of warrants in the year 2006
c) Amounts received through FCCB issue in the year 2007
d) Utilization of funds raised through FCCB issue in the year 2007
2) Furnish the list of allottees of the FCCB issue by MIL in February, 2007.
3) Furnish copy of the final information memorandum/placement document of
the FCCB issue by MIL in February, 2007.
4) Is the Company MIL, its promoters and/or directors connected/related to any
of the Following entities? Has the company MIL had any business/financial
dealings with any of the following entities during the period April 01, 2005 to
December 31, 2009:
a) Shri Amit Raja, CA
b) Shri Manoj Agarwal, CA. Give details.
5) Is the Company MIL, its promoters and/or directors connected/related to any
of the following entities? Has the company MIL had any business/financial
dealings/ fund transfers with any of the following entities during the period
April 01, 2005 to December 31, 2009:
i. Taitan Management Services Pvt. Ltd.
ii. Ramkrishna Fabrications & Machineries Pvt. Ltd.
iii. Lakhi Packaging Pvt. Ltd.
iv. Kanhaiya Mining and Mineral Pvt. Ltd.
v. Krishnum Investments Pvt. Ltd.
vi. Runicha Alloys & Steel Pvt. Ltd.
vii. Simple Mining & Power Pvt. Ltd.
viii. Ambaji Papers Pvt. Ltd.
ix. Ramji Agri Business Pvt. Ltd.
x. Inco Infrastructures Pvt. Ltd. Give details.
In case of fund transfers, the information may be furnished in the format
given below:
Date From To Amount Mode of Payment (Cash/ Cheque) Purpose of Payment
For all transactions, furnish copy of the bank statement highlighting the
payment made/ received.
Adjudication Order in respect of Murli Industries Limited
Page 21 of 29 November 28, 2014
6) Whether MIL and/or its promoters/directors were involved in the
formation/Management of the entities mentioned at Point 4.
32. It is observed that vide letter dated September 23, 2011, the Noticee
submitted information sought in serial number 2), 3), 4), and 6) and
requested for an extension of one month for submitting the information
sought in serial number 1) and 5) as required by the IA vide summons
dated September 19, 2011. Subsequently, vide letter dated October 29,
2011, the Noticee submitted information sought in serial number 1) and
5). However, the Noticee did not submit true and complete information.
33. It is observed that vide summons dated September 19, 2011 the Noticee
was inter alia asked whether the Noticee, its promoters and/or directors
were connected/related to any of the dummy companies. The Noticee
was also asked whether it had any business/financial dealings/ fund
transfers with any of the dummy companies. However, the Noticee, vide
its letter dated October 29, 2011, inter alia, stated that “The company
Murli Industries Limited is not related/connected with the companies
mentioned in the point no. 5 except as share holders – company relation.
Murli Industries Limited has distributed dividend on regular basis during
the period in question. Hence, as a share holder of the company all the
companies received dividend. M/s Ramakrishna Fabrication & Machineries
Pvt Ltd. sold land to the company and hence there are financial
transactions between Murli Industries Limited and Ramakrishna
Fabrication and Machineries Pvt Limited........”.
34. As observed before, five of the dummy companies viz., Ramji, Runicha,
Ambaji, Kanhaiya and Inco had availed loans from SICOM to make
payments to the Noticee for conversion of the share warrants allotted to
them and that the loan granted to these five dummy companies were in
the form of ICDs. One option of debt recovery available to SICOM in case
Adjudication Order in respect of Murli Industries Limited
Page 22 of 29 November 28, 2014
of default of these ICDs was that either the Noticee or its promoters
acquired the shares under Creeping Acquisition. The shares referred to
were the 5 Lac shares each of the Noticee which the five dummy
companies had to pledge as collateral for the ICDs. The security toward
the ICDs extended to the five dummy companies was – pledge of 5 Lac
shares of the Noticee on conversion of warrants; PDCs towards principal
and interest from the borrower companies; personal guarantees of
promoters/ directors of borrower companies; comfort letter of the
Noticee (signed by Shri Tarun Singh, company secretary of the Noticee);
PDCs towards principal and interest from Shri Nandlal Maloo (promoter/
MD of the Noticee). In addition, as temporary collateral till the borrowers
converted their warrants, Ramji, Runicha, Ambaji, Kanhaiya and Inco
were required to pledge 1.50 Lac shares each of the Noticee with SICOM,
the same to be released after conversion of warrants and the subsequent
pledge of the 5 Lac shares in demat form. The total 7.50 Lac shares thus
pledged on behalf of the borrowers was also by Mr. Nandlal Maloo, Mr.
Bajranglal Maloo, Mr. Lalchand Maloo and Mr. Sunilkumar Maloo
(promoters of the Noticee). The fact that comfort letter was issued by the
Noticee and PDCs towards principal and interest were issued by the
Managing Director of the Noticee clearly establish that the Noticee was
connected/related to the five dummy companies viz., Ramji, Runicha,
Ambaji, Kanhaiya and Inco. Also, the Noticee in its replies dated June 12,
2013 and September 12, 2013 has neither denied nor disputed the fact of
issuance of comfort letter by it to SICOM. Further, providing the
temporary collateral by the promoters of the Noticee clearly show that
promoters of the Noticee had used their goodwill with SICOM to avail
loans for the five dummy companies so that they could convert their
warrants.
35. Moreover, when the five dummy companies which took loans from
SICOM had to repay their loans, they received the necessary funds as
Adjudication Order in respect of Murli Industries Limited
Page 23 of 29 November 28, 2014
unsecured loans from ANG which in turn had received the necessary
funds from the Noticee. On the same day as loan was extended to the five
dummy companies, ANG had received the amount from the Noticee and
ANG repaid the Noticee in installments using the money paid by the
dummy companies as repayment for their loans. ANG had received a loan
of ₹28,27,00,000/- from the Noticee on 30/11/2007, and the loan was
given without any collateral. Further on 30/11/2007, ANG gave a loan of
₹5,65,25,000/- to Kanhaiya, Ramji and Runicha and on 01/12/2007,
ANG gave a loan of ` 5,65,25,000/- to Ambaji and Inco. The total amount given
as loan to the above five dummy companies was ₹28,26,25,000/-. I note
in its reply dated September 12, 2013 the Noticee not denied the fact that
it had paid ₹ 28,27,00,000/- to ANG, but has, inter alia, contend that
“Funds given by ANG Financial Consultants Pvt Ltd to certain dummy
companies cannot be construed as funds given by MIL to dummy companies
and an inference drawn that therefore the response to Query 5 given by us
wherein we have stated that we are not related/ connected to dummy
companies, is incorrect”. However, I am of the opinion that it is too much
of a coincidence that when the five dummy companies which took loans
from SICOM had to repay their loans, they received the necessary funds,
i.e., crores of rupees as unsecured loans from ANG which in turn had
received the necessary funds from the Noticee as unsecured loan and all
these happened within the span of a day. Hence, I am inclined to believe
that ANG had been used as a conduit by the Noticee to provide a short
term loan to the five dummy companies which had applied for its
warrants, to make payment to SICOM on due date, thereby demonstrating
connection between the Noticee and Ramji, Runicha, Ambaji, Kanhaiya,
Inco.
36. Further, as observed in aforesaid paragraphs 11 – 16, all the ten dummy
companies were connected to each other and some of the directors of the
Adjudication Order in respect of Murli Industries Limited
Page 24 of 29 November 28, 2014
dummy companies were connected to the promoters of the Noticee. All
the ten dummy companies were incorporated during the same time
period, had a common auditor and common consultant, bank accounts in
the same bank branch, demat accounts with same DP, trading accounts
with the same broker and 8 of the 10 dummy companies, i.e., Krishnum,
Simple, Kanhaiya, Taitan, Lakhi, Ambaji, Runicha and Ramji had used
common phone number (phone number of CA Amit Raja) in their demat
a/c opening form. Also, since incorporation, none of the dummy
companies, except Ramkrishna had undertaken any major business
activity. Only Runicha, Ramji, Lakhi and Kanhaiya had carried out some
business of coal, for which the buyer was Nandlal Enterprises Limited, a
company connected to the Noticee (directors of Nandlal Enterprises Ltd.
were Nandlal B Maloo – Managing Director of the Noticee, Shobhagmal B
Maloo, Bajranglal B Maloo and Lalchand B Maloo). Even in the case of
Ramkrishna, its business dealings were only with the Noticee and Nandlal
Enterprises Ltd. During investigation, it was also observed that corporate
entities not based out of Nagpur, but major clients of MIL, had given
money to the dummy companies as either advance or share application
money, immediately after the respective dummy companies were set up.
The offices of these dummy companies were set up at the residences of
their respective directors and the companies had no infrastructure or
business deals in place. The Noticee vide its reply dated September 12,
2013 has, inter alia, submitted that “Funds given by the clients of MIL to
certain dummy companies cannot be construed as funds given by MIL to
dummy companies and therefore relation/ connection with them, and an
inference drawn that therefore the response to Query 5 given by us, is
incorrect”. However, looking at the entire gamut of the case, I am of the
considered opinion that all these clearly tend to indicate towards one
thing and one thing only, that the Noticee and its promoters / directors
were related and/or connected to the dummy companies. From the
aforesaid, it is clear that the Noticee was related / connected to
Adjudication Order in respect of Murli Industries Limited
Page 25 of 29 November 28, 2014
the dummy companies and the Noticee did not submit true and complete
information / documents as sought by the SEBI summons dated
September 19, 2011.
37. I now proceed to discuss as to how essential and important the required
information was in the instant matter which was not provided by the
Noticee. Since SEBI was investigating manipulation in price of the shares
of the Noticee before its FCCB issue and since the dummy companies had
together cornered a large part of the shareholding of the Noticee, it was
imperative for the IA to know the exact relationship that existed between
the Noticee and the ten dummy companies. Had the required information
been provided, then the IA would have been in a better position to
ascertain the exact role played by various entities including the Noticee
and the same would have helped in examination of possible violations of
the provisions of SEBI Act and Rules and Regulations made thereunder. In
this regard, I also refer to the observations made by the Securities
Appellate Tribunal (SAT) in Appeal No. 41 of 2010 (Brijlaxmi Leasing &
Finance Ltd. vs. SEBI, decided on 07-06-2010) – “………if the required
information had been furnished, it is possible that many more things could
have been revealed. Since the information was withheld, we are satisfied
that the appellants did not cooperate with the investigating officer and
hampered the investigations. This is, indeed, a serious matter and cannot be
viewed lightly………..”. In this context, it can be said beyond doubt that the
information which was not provided by the Noticee was relevant to find
the truth in the matter.
38. I note that the Noticee in its reply has submitted that provisions of
Section 15A of the SEBI Act, 1992 would trigger only when there is failure
on the part of the Noticee to furnish information and if information is
supplied, the provisions cannot trigger. The Noticee has therefore stated
that no penalty for submitting incorrect or false information under this
Adjudication Order in respect of Murli Industries Limited
Page 26 of 29 November 28, 2014
section can be imposed. The Noticee has also quoted form one
Adjudication Order dated October 25, 2005 wherein it was stated that “I
therefore conclude that law does not permit me to adjudicate and impose
penalty in cases where the information furnished by a person is allegedly
false and misleading”. However, I find the interpretation adopted by the
Noticee unsustainable. In the previous paragraphs, it has been
established beyond doubt that the Noticee did not provide the correct
information as required and sought by SEBI vide summons dated
September 19, 2011. While interpreting SEBI Act and its provisions, its
larger objective should be kept in mind. In this regard, I note that the
Hon’ble Supreme Court in SEBI vs Ajay Agarwal (AIR 2010 SC 3466)
has laid down the principle to be adopted while interpreting the SEBI
Act as follows: “It is a well known canon of construction that when Court
is called upon to interpret provisions of a social welfare legislation the
paramount duty of the Court is to adopt such an interpretation as to
further the purposes of law and if possible eschew the one which
frustrates it.” Hence, when SEBI seeks information/documents through
summons under Section 11C of the SEBI Act, 1992, it seeks true and
complete information only as furnishing false/incomplete/misleading
information will frustrate the purpose of seeking information and render
the investigative process of SEBI ineffective. Further, Hon’ble SAT in
Appeal No. 96 of 2007 (Siddhartha Agarwal vs. Adjudicating Officer,
SEBI; decided on 26-11-2008) has inter alia held that “………Making a false
statement would amount to failure to furnish the information sought and
would attract section 15A(a) of the Act…….”. Therefore, I am of the
considered opinion that submitting incorrect/false information should be
treated as failure to furnish information/document and should be
penalized accordingly.
39. From the forgoing paragraphs it is observed that the Noticee failed to
provide the required information to the IA. The said details which were
Adjudication Order in respect of Murli Industries Limited
Page 27 of 29 November 28, 2014
sought vide the summons dated September 19, 2011 were very relevant
and important in the whole Investigating Process. Thereby, it is
established that the Noticee has violated the provisions of Section 11C(2)
& 11C(3) of the SEBI Act, 1992.
ISSUE 2: Whether the Noticee is liable for monetary penalty under Section
15A(a) of the SEBI Act, 1992?
40. The provisions of Section 15A(a) of the SEBI Act, 1992 read as under:
Penalty for failure to furnish information, return, etc.:
Section 15A If any person, who is required under this Act or any rules or regulations made there under,—
(a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less
41. In the matter of SEBI Vs. Shri Ram Mutual Fund [2006] 68 SCL 216 (SC), the
Hon’ble Supreme Court of India has held that “In our considered opinion,
penalty is attracted as soon as the contravention of the statutory obligation
as contemplated by the Act and the regulation is established and hence the
intention of the parties committing such violation becomes wholly
irrelevant”.
42. As already observed, the Noticee has violated the provisions of Section
11C(2) & 11C(3) of the SEBI Act, 1992. Therefore, I find that the Noticee
is liable for monetary penalty under Section 15A(a) of the SEBI Act, 1992.
ISSUE 3: What quantum of monetary penalty should be imposed on the
Noticee taking into consideration the factors mentioned in Section 15J of
the SEBI Act, 1992?
Adjudication Order in respect of Murli Industries Limited
Page 28 of 29 November 28, 2014
43. In the absence of material on record, the amount of disproportionate gain
or unfair advantage made as a result of the default and the amount of loss
caused to the investors due to the said default cannot be quantified.
However, I note that not submitting complete details and correct
information in response to the SEBI summons appears to be a deliberate
action on the part of the Noticee to not cooperate with the regulatory
mechanism, especially when sufficient time and opportunity was
provided. I also note that such non cooperation and default of the Noticee,
which is a listed company, definitely compromises the regulatory
framework and acts as an impediment to the functioning of the
investigation process of SEBI. Further, any delay or hurdle in
investigation due to non cooperation by any entity is detrimental to the
interest of investors in securities market. As already noted, SEBI had
received a reference from the Income Tax Department, containing certain
findings regarding the Noticee and the dummy companies which
suggested that the price of the shares of the Noticee were manipulated for
the purpose of issuing FCCB at a higher price than what was the correct
price and SEBI was conducting detailed investigation in respect of
dealings in the shares of the Noticee. As a part of the investigation
process, summons were issued to the Noticee, however, the Noticee did
not submit the correct information/documents regarding its relation to
the dummy companies in response to SEBI summons thereby hampering
the investigation to a great extent. Therefore, the violation of the Noticee
cannot be viewed lightly.
44. From the forgoing paragraphs it is now established that the Noticee
violated the provisions of Section 11C(2) & 11C(3) of the SEBI Act, 1992.
Considering the facts and circumstances of the case and the violation
committed by the Noticee, I find that imposing a penalty of ` 30,00,000/-
(Rupees Thirty Lakhs only) on Murli Industries Limited would be
commensurate with the violation committed by the Noticee.
Adjudication Order in respect of Murli Industries Limited
Page 29 of 29 November 28, 2014
ORDER
45. In terms of the provisions of the SEBI Act, 1992 and Rule 5(1) of the
Adjudication Rules, I hereby impose a penalty of ` 30,00,000/- (Rupees
Thirty Lakhs only) under Section 15A(a) of SEBI Act, 1992 for violation of
Section 11C(2) & 11C(3) of the SEBI Act, 1992 on Murli Industries
Limited.
46. The penalty shall be paid by way of demand draft drawn in favour of
“SEBI – Penalties Remittable to Government of India” payable at Mumbai
within 45 days of receipt of this Order. The said demand draft shall be
forwarded to the Division Chief, Enforcement Department, Securities and
Exchange Board of India, Plot No. C4-A, ‘G’ Block, Bandra Kurla Complex,
Bandra (E), Mumbai – 400051.
47. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding
Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995,
copies of this Order are being sent to the Noticee and also to Securities
and Exchange Board of India.
Date: November 28, 2014 Jayanta Jash Place: Mumbai Adjudicating Officer