Shri Vikas Gupta V.

Securities And Exchange Board Of India

Sebi (securities & Exchange Board Of India) / Securities Appellate

Tribunal
Appeal No. 183 /2014

Judgment Date:
30-08-2016

Shri Vikas Gupta ..Petitioner

Securities And Exchange Board Of India ..Respondent

Bench:
{J. P. Devadhar, Presiding Officer , Jog Singh, Member }

Citation:

LQ/SAT/2016/452 ;

Jog Singh

1. The present Appeals have been filed challenging order dated March 11, 2014 ( ?Impugned Order?) passed by
the Respondent - SEBI against PG 3 Electroplast Limited ( ?Appellant?) and its directors in exercise of SEBI?s
powers as conferred by sections 11(1), 11(4), 11(A) and 11(B) of the SEBI Act, 1992 ( ?SEBI Act? for short) read
with Regulation 11(1) of the Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities
Market Regulations, 2003 ( ?PFUTP Regulations? for short), prohibiting the latter from raising any capital from
the securities market and further dealing in the securities market in any manner for a period of ten years. The
Appellant was also directed by the Impugned Order dated March 11, 2014 to recall all the moneys, which were
not recovered by the Appellant till March 11, 2014 and submit report to the Respondent. In fact, the Appellant
had already been directed to recover an amount of ` 32 crore from certain entities and deposit it in an escrow
account by ad-interim ex- parte order dated December 28, 2011.

2. The Appellant, which is a company incorporated under the Companies Act, 1956, in the process of floating an
IPO filed its Red Herring Prospectus dated August 17, 2011 and Prospectus dated September 14, 2011 and came
out with an IPO of 57,45,000 equity shares of ` 10/- each for cash at a price of ` 210/- per equity share. The
IPO opened and closed on September 7, 2011 and September 12, 2011 respectively. The Appellant?s shares were
listed on BSE and NSE on September 26, 2011. SEBI noticed fluctuations in the price of the Appellant?s scrip
following the day of listing and, therefore, launched an investigation into the IPO. Interim Order dated December
28, 2011 was passed since SEBI came to a prima facie conclusion that manipulative devices had been used to
create an artificial volume in the Appellant?s scrip in contravention of Section 12A(a), (b) and (c) of the SEBI Act
read with Regulations 3(a)-(d), 4(1), 4(2)(a), (d)-(f) and (k) of the PFUTP 4 Regulations and Regulations 57(1),
60(4)(a) and 60(7)(a); Clauses 2(VII)(G), 2(VIII)(B)(5)(b) and (6); and Clause 2(XVI)(B)(2) of Part A of Schedule VIII
read with Regulation 57(2)(a) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (

(Page 1 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

?ICDR Regulations? for short). The Interim Order prohibited the Appellant from raising further capital from the
securities market; the Promoter/Directors of the Appellant were prohibited from dealing in the securities market in
any manner; the Appellant was directed to recall ICDs deposited with Raw Gold Securities ( ?Raw Gold?),
Wattkins Commerce Private Limited (Wattkins) and Saptrishi Suppliers Pvt. Ltd. ( ?Saptrishi?) and place them in
an Escrow Account; and deposit the IPO Proceeds remaining with the Appellant in the said Escrow Account. After
completing its investigation SEBI confirmed the Interim Order on October 31, 2012 ( ?Confirmatory Order?).

3. Subsequently, a Show Cause Notice dated January 16, 2013 ( ?SCN?) was issued to the Appellant alleging non-
disclosure of certain information viz., amounts raised through Inter-Corporate Deposits ( ?ICDs?), Board Resolution
dated August 17, 2011, purchase orders for plant and machinery, names of certain suppliers, Agreements and
Memorandum of Understanding entered into by the Appellant for the purchase of land; diversion of IPO Proceeds
through repayment of ICDs and through investment in ICDs by the Appellant; diversion of funds through purchase
orders; contradictory disclosures regarding amount of term-loan availed and failure to comply with directions
contained in the Interim Order. An opportunity of personal hearing was granted to the Appellants on July 11,
2013 and after conducting its enquiries SEBI passed the Impugned Order dated March 11, 2014 barring the
Appellants from the Securities Market for a period of ten years. 5

4. We have heard both the learned Senior Counsel, Shri Shyam Mehta and Shri Shiraz Rustomjee, for the parties
at length and have perused the pleadings and documents brought on record.

5. The charges levelled against the Appellants, clubbed into two heads for the sake of convenience, are as under:

1) Non-disclosure of certain material information in the offer documents; and

2) Diversion of IPO Proceeds and other funds to entities which purchased the Appellant?s shares to ensure full
subscription to the IPO of the Appellants.

6. The case of the Respondent as set out in the SCN is that several material facts have been allegedly
intentionally suppressed in the offer documents pertaining to the IPO with respect to the utilization of the IPO
Proceeds, agreements for purchase of land and raw material. Information has not been disclosed regarding ICDs,
placement of purchase orders and with respect to utilization of the IPO Proceeds for general corporate purposes.
It is alleged that the fact of taking and providing ICDs was not disclosed in the offer document, along with the
non-disclosure of agreements executed with Nimbus and Supreme for the purchase of raw materials, and
agreements for the purchase of land. It is also an allegation levelled in the SCN that Board Resolution dated
August 17, 2011 in which the decision regarding ICDs was taken was not disclosed in the RHP.

7. Further, a principal part of the IPO Proceeds has been allegedly diverted by the Appellant for transactions
related to the securities market, giving and taking of ICDs, dubious land deals and unnecessary purchase of raw
material. It is alleged that ` 36 crore were diverted by the Appellant to 6 connected entities and a sum of ` 2.2
crore were diverted to allottees for their application in the IPO of the Appellant. Ostensibly vide advance
payments made for the purchase of plastic granules, an amount of ` 7.25 crore were diverted through Nimbus
and Supreme. ` 40 lakh out of this ` 7.25 crore were diverted to Sunlight for its application in the Appellant?s
IPO. It is duly noted that agreements with Nimbus and Supreme stand cancelled today and that Nimbus has
refunded the money, and some amount has also been recovered from Supreme. The Appellant has initiated
proceedings against Supreme for the recovery of the remainder of the advance payment.

8. Several entities have acted in conjunction to abet the Appellant in its alleged scheme of routing money through
various entities acting as intermediary channels to create a layered structure for supposedly hoodwinking the
market regulator. This was done to defraud the investors partaking in the securities market by creating an
artificial market and upsetting the market equilibrium which resulted in an allegedly unwarranted increase in the
price of the Appellant?s scrip which closed at ` 415.3 on the day of listing of the Appellant?s shares. It is,
therefore, the case of the Respondent that the trading by connected entities in the Appellant?s scrip has created
a misleading volume in the Appellant?s shares leading to a sharp rise in the price of the scrip. The SCN has

(Page 2 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

alleged that the Appellants are guilty under the PFUTP Regulations for indulging in fraudulent practices and also
under the ICDR Regulations for inadequate disclosures and misleading statements.

9. In their reply to the SCN, the Appellants submit that the Appellant company was incorporated in the year
2003 as part of PG Group when a plastic injection moulding unit was set up which led to the PG Group 7
becoming a renowned player in the electronic market. The primary raw materials used by the company are
sourced from various providers to meet requirements, quality as well as quantity, as and when they arise on the
basis of rates offered by different suppliers. The accumulated outstanding liabilities were draining the profits of
the Appellant and, therefore, it was paramount that the debt be paid off and simultaneously the equity of the
Appellant company be increased. The Appellant wished to enhance the company?s business activities but realized
that the contractors / suppliers would not begin work or supply raw material without advance payments. This led
to the Appellant having to avail of finance through ICDs obtained from NBFCs and other companies in the
interregnum. The Appellant states in its Reply to the SCN that SEBI has failed to take account of the fact that
the Lead Manager to the Issue advices the company regarding disclosures and also prepares the RHP and
Prospectus. Moreover, the RHP itself is considered by SEBI before the Prospectus is filed and, therefore, the
allegation that adequate disclosures have not been made by the Appellant is erroneous.

10. The Appellant also submitted that SEBI in the SCN had failed to establish that the Appellant itself was
connected to the entities which had purchased the Appellant?s shares in the IPO or that the Appellant was in the
know regarding the use of the funds supplied by it to its raw material providers and through ICDs and land
deals. SEBI has failed to prove that any benefit accrued to the Appellant or its promoters from the alleged
diversion of funds. None of the IPO Proceeds were used by the Appellant to invest in the securities market.

11. It is further submitted by the learned Senior Counsel for the Appellant that the Appellant?s IPO was
underwritten in its entirety by the 8 Book Running Lead Manager who undertook to ensure complete subscription
of the IPO in question if the subscription had fallen below the required minimum benchmark of 90% of the total
issue size as per the ICDR Regulations, 2009. Therefore, there was no reason for the Appellant to divert funds
from the ICDs borrowed by it prior to the opening of the IPO to various entities for subscription to the IPO as
sought to be proved by the Respondent.

12. The Appellant has stated further in the Reply to the SCN that SEBI has indiscriminately sought to attribute
impure motives to the most basic activities intrinsic to the business of the Appellant company such as purchase of
raw material and purchase of land for expansion of its business. There is not a shred of evidence to link the
Appellant with any of the entities which dealt in its scrip and or the existence of a scheme allegedly concocted
by the Appellant to create a misleading impression of demand in its scrip. Too many of the allegations contained
in the SCN are based on conjectures and surmises which have failed to find their mark in any case. The non-
disclosure regarding the Board Resolution dated August 17, 2011 in the RHP is said to have been unavoidable
since the RHP itself was being approved in the Board Meeting held on August 17, 2011. Non-disclosure of certain
agreements with respect to purchase of raw material and land deals was unintentional and not meant to hide
these facts but because these agreements were all in the nature of day to day to business activities of the
Appellant and did not carry any particular risk, they were not thought to be material and hence not considered
necessary in terms of disclosure requirements.

13. With respect to the ICDs it is submitted that the Appellant?s disclosure under the head of ?interim use of
proceeds? in the RHP as well 9 as the Prospectus, permits the company to give loans to other entities in the
form of ICDs in keeping with the investment policies of the Appellant as decided by the Board. It has been
reiterated time and again that the ICDs have been recalled by the Appellant and legal proceedings have been
initiated to recover the same. The agreements with Nimbus and Supreme were entered into for purposes of the
expansion of business of the Appellant, as well as the discount offered by them for the supply of raw materials.
In any event, these agreements were cancelled by Nimbus and Supreme in light of the Interim Order dated
December 28, 2011 passed by the Respondent tainting the reputation and goodwill of the Appellant company. It is
vociferously denied that money paid to entities in pursuance of purchase orders and land deals was in any way
meant to aid the subscription to the IPO of the Appellant.

(Page 3 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

14. Having summarized the incidents that have led up to the passing of the Impugned Order dated March 11,
2014 for the sake of clarity, we shall now deal with the submissions of the parties in greater detail and give our
findings thereon.

15. At the outset learned Senior Counsel for the Appellant, Mr. Shyam Mehta, submits that all allegations and
charges as made out in the SCN and Impugned Order have been exaggerated in pursuit of the Appellant
company. With respect to the charge of diversion of IPO proceeds to Jainex Securities Private Limited (hereinafter
referred to as ?Jainex?) and Pranneta through repayment of ICDs, the Appellant submits that no link has been
established between the Appellant and the aforementioned entities. In fact, no such allegation has been levelled
by the Respondent in the first place. The Appellant had no knowledge of the fact that the funds used by it to
repay Jainex and Pranneta would be ultimately used to purchase the 10 Appellant?s shares in the ensuing IPO.
Further, there is no allegation levelled to the effect that the entities which ultimately bought the Appellant?s
shares were acting hand in glove with Jainex and Pranneta. It is also pointed out that the impugned transactions
between Pranneta and Jainex on one hand and the Appellant on the other, and Pranneta and Jainex on one hand
and the entities which bought the Appellants? shares on the other, have not been analysed by the Respondent
either in the SCN or the Impugned Order.

16. It is contended by the Appellant that without the examination of these transactions the Respondent cannot
logically conclude that the Appellant adopted any means to conceal the true nature of the transactions which
allegedly were a mere smokescreen for diversion of funds to ensure complete subscription of the Appellant?s IPO.
The Appellant was merely repaying a loan to Pranneta and Jainex, nothing else. The Appellant took seven ICDs in
all, four of which were repaid before receiving the IPO proceeds. It is argued that the fact that these entities
were repaid after the Appellant received the IPO Proceeds alone cannot vitiate the transactions between the
Appellant and these entities are per se illegal. This, by itself, cannot lead to the assumption that these dealings
were not regular transactions conducted in the ordinary course of the Appellant?s business. Jainex and Pranneta
are both Non-Banking Financial Corporations registered with RBI and, by the very nature of the business they
conduct, accept and extend funds from and to other entities.

17. In respect of the allegation of non-disclosure of funds raised by the Appellant through ICDs, it is submitted
by the learned counsel for the Appellant that on a perusal of Clauses (2)(VII)(G) and (2)(VII)(F)(i) of Part A of
Schedule VII of the ICDR Regulations, it is borne out that disclosures 11 in pursuance thereof would be required
only in case the ICDs had been raised earlier than two months from the date of the offer document being
registered with the ROC. As far as Regulation 57(1) of the ICDR Regulations is concerned, it is also submitted
that the said Regulation only covers those transactions which enable applicants to make an informed investment
decision.

18. In response to SEBI?s allegation regarding the diversion of IPO Proceeds through investment in ICDs, it is
reiterated by the Appellant that there is no connection between the entities which purchased the Appellant?s
shares and the Appellant itself. There is no allegation in the SCN, nor is there a finding to the effect in the
Impugned Order that the Appellant had any knowledge that the money invested by the Appellant with Saptrishi,
Raw Gold and Wattkins would be used to purchase its shares in the IPO. The Appellant has, in any event,
recovered the ICD amounts deposited with the three entities. The three entities in question are NBFCs registered
with RBI and there is nothing untoward in them accepting and extending funds from and to other entities.

19. The reason for entering into ICD agreements dated September 20, 2011 with Saptrishi, Raw Gold and
Wattkins as explicated by the Appellant is as follows. One of the objects of the IPO, as disclosed in the offer
documents, was to repay the loan facilities availed of by the Appellant from Standard Chartered Bank. Since their
repayment fell due in December 2011 and the Appellant had already received the IPO proceeds in September-
October 2011, the Appellant decided to invest the IPO proceeds which remained with it in the hopes of obtaining
a higher interest rate with respect to the same. This business decision of the Appellant resulted in the execution
of ICD agreements for a period of seven months at an interest 12 rate of 14% p.a. along with an addendum that
the Appellant reserved the right of recalling the amounts invested with seven days? written notice. Regarding the
MJ Commodities? ASBA application for 2,10,000 shares, the Appellant submits that since ICDs were deposited with

(Page 4 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

Raw Gold on September 22, 2011, the finding that the Appellant?s funds transferred to Raw Gold were used to
fund MJ Commodities? application for allotment does not stand the test of reason since the said application was
made earlier on September 12, 2011.

20. With respect to the non-disclosure of Board Resolution dated August 17, 2011, the Appellant submits that the
RHP dated August 17, 2011 was approved in the meeting held on August 17, 2011 itself and, therefore, the RHP
could not possibly have disclosed the Board Resolution. The disclosure in the Prospectus is sufficient to meet the
requirements of the ICDR Regulations and covers the decision to invest in the ICDs of other companies. The
Prospectus need not specifically disclose the date of the Board Resolution which spells out the use of the IPO
proceeds. The decision to invest in Saptarshi?s ICDs was a commercially viable decision in the Appellant?s opinion
being in the nature of ?high quality interest bearing liquid instrument? as disclosed in the Offer Documents. It is
further submitted that the entire principal amounts deposited with Saptrishi, Raw Gold and Wattkins have since
been recovered. The said amounts were, therefore, not routed out of the reach of the Appellant?s shareholders in
any manner.

21. It is submitted by the Appellant with respect to the allegation of siphoning off and diversion of money
through purchase orders placed for supply of plastic granules and plant and machinery that no connection has
either been found nor alleged between the Appellants and the entities 13 through which the money is said to
have been routed, viz., Modi Alloys, Agarwal Steel, Nimbus and Supreme. It is, thus, submitted by the Appellant
that it could not have reasonably contemplated that the money used to purchase plastic granules would be used
to buy the Appellant?s own shares. It is pointed out by the Appellant that the Respondent has not analysed the
underlying transactions and particularly failed to appreciate that the purchase of plant and machinery was a duly
disclosed object in the Appellant?s Prospectus. It is wrong to allege that the Appellant made payments a year in
advance of the supply of machinery since the supply in fact began 4-5 months after the payments were made as
is evidenced by delivery challans and other receipts adduced before this Tribunal.

22. With respect to allegations of the Respondent that agreements entered into with Nimbus and Supreme
appeared to be untrue, the Appellant submits that agreements executed with both entities were provided to SEBI
on November 21, 2011 and, therefore, the Respondent?s allegation in this respect does not hold good. However,
due to the Respondent?s forbidding the two entities, namely, Nimbus and Supreme, from accessing the securities
market vide the Interim Order, these agreements had to be cancelled before the supply of plastic granules could
commence since the two companies no longer wished to be associated with the Appellant. The Appellant never
attempted to create an artificial volume in the scrip of the Appellant through these transactions. In this context,
it is further submitted that the Appellant?s intention to place purchase orders on Modi Alloys and Aggarwal Steel
was clearly disclosed in the RHP. However, the Prospectus was not updated by the Merchant Banker to the Issue
to reflect that purchase orders had in fact been placed after the filing 14 of the RHP although the Appellant had
duly brought this development to the notice of the Merchant Banker.

23. Regarding the alleged non-disclosure of names of certain companies in the list of suppliers provided by the
Appellant, it is submitted that the names of the manufacturers of materials are disclosed in the offer documents
in the form of a list of principal sources of raw materials, the list being incusive rather than exhaustive. First,
Nimbus and Supreme are not manufacturers of raw materials but trading companies, and second, agreements
executed with the two entities were not material contracts in nature but agreements in the ordinary course of
business. Therefore, their names were not required to be mentioned in the offer documents.

24. Finally, dealing with SEBI?s allegation of diversion of IPO Proceeds through payment of consideration for land
deals, the Appellant submits that there is no connection established between the Appellant and Safeco and
Realnet with whom agreements have been executed for the purchase of land with the exception of the land deals
themselves. In fact, this allegation does not hold any water particularly in light of the fact that all the amounts
paid by the Appellant to the aforementioned entities were refunded to the Appellant even before the passing of
the ex-parte ad-interim order dated December 28, 2011. The transfer of funds by Saptrishi to other entities, which
ultimately purchased the Appellant?s shares, is of no concern to the Appellant since the manner in which
Saptrishi utilized the funds, once the Appellant made payments, was beyond the Appellant?s control as well as

(Page 5 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

concern. It is the Appellant?s submission that the land purchased from Saptrishi has not been independently
valued by the Respondent, nor has the cost of construction of the factory to be constructed on the said land
been verified and hence it is not open to the Respondent to question agreements 15 entered into by the
Appellant in the ordinary course of business when the said agreements are clearly within the four corners of law.
Even in respect of land deals, SEBI has been unable to conduct an analysis of the underlying transactions which
would reveal that the transactions were conducted for bonafide purposes and without any ulterior motive on the
part of the Appellant whatsoever.

25. The Appellant submits that the Respondent?s written submissions travel beyond the scope of the SCN and the
Impugned Order with a view to improve the Respondent?s case. None of the money paid to Eastern, Safeco and
Realnet was utilized for the purchase of the Appellant?s shares and that transactions executed by the Appellant
are genuine. For instance, the payment made to Aggarwal Steel in lieu of plant and machinery was, as alleged by
SEBI, apparently routed to Wonder Vincom, Pranneta, Pushpanjali and Rakesh Industries. However, none of the
money was utilized by these entities to purchase shares of the Appellant. It, therefore, emerges that there is no
pattern suggesting that the Appellant had any unethical understanding with entities to create an artificial volume.
It is denied that there was any pre-meditated plan to ensure subscription to the Appellant?s shares. Pertinently,
the Appellant submits without prejudice to any of its other submissions, that a ban of ten years is highly
disproportionate to the alleged misconduct of the Appellant. It is urged that a balance be maintained between the
punishment imposed upon an alleged defaulter and the interests of the investors.

26. Per contra, the Respondent submits that statements and disclosures were made by the Appellant in the RHP
and Prospectus in contravention of Clause 2(VII)(G) of Part A of the ICDR Regulations which mandates the
disclosure of bridge loans and other financial arrangements which may be 16 financed through the IPO Proceeds.
A statement was made in the offer documents to the effect that no bridge loan had been raised against the IPO
Proceeds even when various ICD agreements were executed by the Appellant. A large proportion of the IPO funds
being used for ICDs was material information which ought to have been disclosed to the public particularly when
Clause 2(VII)(G) requires the disclosure of bridge loans which would include ICDs.

27. By way of a chart regarding the flow of the fund, it is contended by the Respondent that funds were
diverted through repayment of ICDs to Jainex Securities Pvt. Ltd. ( ?Jainex?) and Prraneta Industries Ltd. (
?Prraneta?) to entities which eventually bought shares of the Appellant on the first day of listing. An amount of `
9.47 crore was allegedly diverted to ETL Infrastructure Finance Ltd. ( ?ETL?) through Jainex using a circuitous
methodology. ETL finally paid ` 1.5 crore to its broker for purchase of the Appellant?s shares on the first day of
listing. Similarly, after receiving funds from the Appellant, Prraneta sent the money to Saptrishi who then passed
it on to several entities which then purchased the Appellant?s shares. As far as the Appellant?s assertion that
ICDs were raised to meet urgent needs for funds, the Respondent submits that the Appellant cannot be allowed
to state that it was in need of money when it seemed to have enough to temporarily invest the same around the
same point in time. In relation to the invoices furnished by the Appellant to substantiate the Appellant?s claim
that it did in fact use the ICDs to purchase plant and machinery, the Respondent submits that the invoices do
not help prove the Appellant?s case. It is further submitted, on behalf of the Respondent, that in view of the vast
scope of the instant matter, SEBI did not consider it feasible to conduct a detailed inquiry into each of the
Appellant?s 17 transactions before proceeding against the latter particularly when the facts on record establish a
strong case against the Appellant.

28. The Respondent submits that Board Resolution dated August 17, 2011 to invest in ICDs of other companies
was not disclosed in the RHP and Prospectus. The Appellant executed identical ICD Agreements, each dated
September 20, 2011 with three entities, viz., Saptrishi for an amount of ` 15 crore, Raw Gold for an amount of `
7 crore, Wattkins for an amount of ` Rs. 10 crore, aggregating to a total of ` 32 crore. There is allegedly no
reference to such an investment in ICDs anywhere in the offer documents. The failure to make the required
disclosures is contended to be in breach of Regulations 57(1), 57(2)(a), 60(4)(a), 60(7)(a) and Clause 2(VII)(G) of
Part A of Schedule VIII of the ICDR Regulations. Further, money from these ICDs was then diverted to Saptrishi,
Wattkins and Raw Gold to other entities which eventually bought the Appellant?s shares. The end entities which
eventually purchased the Appellant?s shares after receiving money from the Appellant through Saptrishi were

(Page 6 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

Jaimini Trading Pvt. Ltd., Saptrishi Multitrade Private Ltd., Frank Mercantile Pvt. Ltd. and Cellworth Mercantile
Private Limited, all of which bought the Appellant?s shares. Similarly, money to the tune of ` 5 crore was
diverted by the Appellant through Raw Gold to Padamprabhu Project Pvt. Ltd. and MJ Commodities, both of which
bought the Appellant?s shares. Further, a total amount of ` 9.5 crores out of the ` 10 crore received by Wattkins
was transferred to other entities which then purchased the Appellant?s shares. Thus, the case of the Respondent,
in this context, is that the Appellant was responsible for these subsequent transactions by those entities which
had also invested in the IPO in question despite the Appellant having no connection with them. 18

29. The Respondent submits that the disclosure stating that no purchase orders had been placed for plant and
machinery is entirely incorrect since, as per the record, several purchase orders were placed by the Appellant
with entities such as Modi Alloys, Aggarwal Steels etc., aggregating to an amount of ` 52.23 crore solely towards
machinery and equipment. The placement of such huge quantities of orders should have been disclosed in the
offer documents, in fact even the names of suppliers were left undisclosed. Furthermore, both Modi Alloys and
Aggarwal Steels diverted the money received on the alleged pretext of purchase orders to entities which bought
the Appellant?s shares. With respect to the Appellant?s submission that it has adduced invoices pertaining to the
purchase of plant and machinery from the aforementioned entities, the Respondent states that all the equipment
was not delivered by February 2012 but delivery continued upto June 2012, inspite of the fact that the Appellant
made an advance of ` 28.3 crore to the two companies during the months of August- September 2011. The
Respondent submits that the Appellant failed to disclose the names of Nimbus Industries Ltd. and Supreme
Communications Ltd. in the list of suppliers for plastic granules even though two agreements dated August 31,
2011 each were executed with these two entities for purchase of plastic granules amounting to ` 3.5 crore and `
5 crore respectively. By failing to disclose this information, the Appellant violated the ICDR Regulations which
mandate disclosure of material information. It is also submitted that the distinction between a manufacturer as a
supplier of raw material and a trader as a supplier of raw material does not emanate from any law.

30. Moreover, payments purportedly made in the name of purchasing plastic granules were diverted through
Nimbus and Supreme to entities 19 which then allegedly further transferred moneys to other companies which
ultimately purchased the Appellant?s shares. In response to the Appellant?s submissions that transactions with
Nimbus and Supreme were genuine transactions, the Respondent states that the agreements did not specify the
quality or quantity of the granules to be supplied. The Appellant also failed to disclose agreements and MOUs
entered into by PGEL with certain entities for purchase of land, thereby violating Part A of Schedule VIII of the
ICDR Regulations. The Appellant entered into four such agreements, viz., agreement dated September 21, 2011
with Saptrishi for consideration amounting to ` 18 crores, out of which ` 13.5 crore was paid in advance;
agreement dated August 27, 2011 with Safeco Projects Pvt. Ltd. for a consideration of ` 25 crore, out of which `
15 crore was paid as an advance; agreement dated September 2, 2011 with Realnet Infraprojects Pvt. Ltd. for a
consideration of ` 12-15 crore, out of which ` 2 crore was paid in advance; and finally agreement dated August
26, 2011 with Eastern Resorts Pvt. Ltd. for consideration amounting to ` 25 crore of which ` 10.30 crore was
paid in advance by the Appellant. It is submitted by the Respondent that none of the aforementioned detail was
disclosed in the RHP or Prospectus despite the fact that funds to the tune of ` 80 crore were involved in the
said deals. The Appellant stated in the offer documents that the money allocated for general corporate purposes,
which in any event was ` 21.4 crore as opposed to ` 80 crore, would be used only after the purpose of
conducting the IPO was fulfilled.

31. The Respondent submits that the Appellant is, thus, guilty of diversion of the IPO proceeds through payments
made as consideration for land deals. Even after payments of more than ` 30 crore in this respect, the
agreements with Safeco, Realnet and Eastern Resorts were cancelled. 20 Money paid to Saptrishi was diverted to
various entities to facilitate subscription to the Appellant?s IPO. Realnet received money from ChinInfo which has
traded in the Appellant?s scrip when the IPO was launched, and eventually the agreement with Realnet was
cancelled since Realnet was unable to acquire any land. With respect to Safeco, it is submitted that although the
money has been refunded to the Appellant, the last payment in this regard was made in 2013-14 even when the
Cancellation Deed was dated March 20, 2012. The Appellant was entitled to recover ` 62.60 lakh from Safeco,
however, only ` 25 lakh had been paid to the Appellant as on December 27, 2015. It is further submitted that
the Appellant failed to prevent misrepresentation with respect to the amount of term loan availed by it and made

(Page 7 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

contrary disclosures regarding the same in the RHP. The Appellant failed to abide by the Interim Order to the
extent that the Appellant failed to recall the ` 32 crore given in respect of ICDs to Saptrishi, Raw Gold and
Wattkins and as on the date of the Impugned Order ` 4.84 crore had been deposited in the Escrow Account
created as per the Respondent?s instructions. Although, by the time the appeal came up for hearing before this
Tribunal the Appellant had already recovered the amounts as directed by SEBI by the Impugned Order dated
March 11, 2014 except an amount of ` 3.77 crore.

32. We have heard the learned senior counsel for both parties at length and perused the Appeal and all
documents annexed therewith, along with the Written Submissions of both the parties. Before delving into the
submissions of both parties, it is imperative that we look at the Regulations which are alleged to have been
violated by the Appellant :- ?Section 12A(a), (b) and (c) of SEBI Act, 1992 Prohibition of manipulative and
deceptive devices, insider trading an substantial acquisition of securities or control 21 12A. No person shall
directly or indirectly ? (a) use or employ, in connection with the issue, purchase or sale of any securities listed
or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in
contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any
device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or
proposed to be listed on a recognized stock exchange; (c) engage in any act, practice, course of business which
operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities
which are listed or proposed to be listed on a recognized stock exchange, in contravention of the provisions of
this Act or the rules or the regulations made thereunder; ???????????????????.? Regulations 3(a) ? (d), 4(1),
4(2)(a), (d)-(f) and (k) of Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003 ?Prohibition of
certain dealings in securities

3. No person shall directly or indirectly (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b)
use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a
recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions
of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud
in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized
stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or
deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to
be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the
regulations made thereunder.? ?4. Prohibition of manipulative, fraudulent and unfair trade practices 22 (1) Without
prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in
securities. (2) Dealing in securities shall be deemed to be a fraudulent or any unfair trade practice if it involved
fraud and may include all or any of the following, namely :- (a) indulging in an act which creates false or
misleading appearance of trading in the securities market; (b) and (c) ???????????????? (d) paying, offering or
agreeing to pay or offer, directly or indirectly, to any person any money or money?s worth for inducing such
person for dealing in any security with the object of inflating, depressing, maintaining or causing fluctuation in
the price of such security; (e) any act or omission amounting to manipulation of the price of a security; (f)
publishing or causing to publish or reporting or causing to report by a person dealing in securities any
information which is not true or which he does not believe to be true prior to or in the course of dealing in
securities; (g) to (j) ?????????????? (k) an advertisement that is misleading or that contains information in a
distorted manner and which may influence the decision of the investors; ??????????????????? Manner of disclosures
in the offer document ?57.(1) The offer document shall contain all material disclosures which are true and
adequate so as to enable the applicants to take an informed investment decision.? ??????????? Public
communications, publicity materials, advertisements and research reports ?60(4)(a). in case of public issue,
between the date of registering final prospectus or the red herring prospectus, as the case may be, with the
Registrar of Companies, and the date of allotment of specified securities; 60(7)(a). it shall be truthful, fair and
shall not be manipulative or deceptive or distorted and it shall not contain any statement, promise or forecast
which is untrue or misleading;? ?????????????????.. ?2(VII)(G). Sources of Financing of Funds Already Deployed :
The means and source of financing, including details of 23 bridge loan or other financial arrangement, which may
be rapid from the proceeds of the issue.? 2(VIII)(B)(5)(b). The property to which sub-clause (a) applies is a
property purchased or acquired by the issuer or proposed to be purchased or acquired, which is to be paid for

(Page 8 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

wholly or partly out of the proceeds of the issue offered for subscription by the offer document or the purchase
or acquisition of which has not been completed at the date of issue of the offer document, other than property:
(i) the contract for the purchase or acquisition whereof was entered into in the ordinary course of the issuer?s
business, the contract not being made in contemplation of the issue nor the issue in consequence of the contract;
or (ii) as respects which the amount of the purchase money is not material. ? for the purpose of this clause,
where a vendor is a firm, the members of the firm shall not be treated a separate vendors. ? if the issuer
proposes to acquire a business which has been carried on for less than three years, the length of time during
which the business has been carried. ????????????. 2(VIII)(B)(6) Land : (a) The names of the entities from whom
the land has been acquired / proposed to be acquired alongwith the costs of acquisition, along with the relation,
if any, of such entities to any promoter or director of the issuer. (b) Details of whether the land acquired by the
issuer is free from the encumbrances and has a clear title and whether it is registered in the name of the issuer.
(c) Details of whether the issuer has applied / received all the approvals pertaining to land. If no such approvals
are required to be taken by the issuer, then this fact may be indicated by way of affirmative statement. (d) The
figures appearing under this section shall be consistent with the figures appearing under the section ?Cost of the
Project?. ?????????????. ?2(XVI)(B)(2). The signatories shall further certify that all disclosures made in the offer
document are true and correct.? ?????????????. Manner of disclosures in the offer document. ?57.(2)(a) the red-
herring prospectus, shelf prospectus and prospectus shall contain: (i) the disclosures specified in Schedule II of
the Companies Act, 1956; and (ii) the disclosures specified in Part A of Schedule VIII, subject to the provisions of
Parts B and C thereof;? 24

33. On a perusal of the PFUTP Regulations, we note that Regulations 3(a)-(d) speak of prohibition of certain types
of dealings in securities which are fraudulent in nature and which attempt to use unscrupulous and manipulative
devices in connection with the sale of securities. Market players are also prohibited from acting in any manner
which would operate as a fraud upon any person dealing in securities. Regulation 4(1) prohibits the indulgence in
fraudulent or unfair trade practices. Regulation 4(2)(a) prohibits transactions which result in a misleading
appearance with regard to the trading in any scrip. Regulations 4(2)(d)-(e) prohibit any action executed with the
intention of causing fluctuations in the price of the scrip. Regulation 4(2)(f) prohibits the publishing of any false
information by any person dealing in securities. Regulation 4(2)(k) prohibits the publishing of an advertisement
which is misleading in any manner or distorts the information it presents to prospective investors.

34. We now move on to those provisions in the ICDR Regulations which are alleged to have been violated by the
Appellant. Regulation 57 deals with the manner of disclosures in the offer document and lays down that the offer
document shall contain all material disclosures which are true and adequate so as to enable investors to take an
educated and well-informed investment decision regarding the viability of the stock of a particular company.
Regulations 60(4)(a) states that any material development taking place between the date of filing of the RHP or
Prospectus with the ROC and the date of allotment of securities must be published in newspapers and made
available for public consumption. Regulation 60(7)(a) of the ICDR Regulations states that any advertisement or
report published by an issuer company must be true, fair and not meant to distort any information or mislead
prospective investors. 25

35. Clause 2(VII)(G) of Part A of Schedule VIII mandates disclosure of any bridge loan financing availed of by the
issuer company in the offer document; Clause 2(VIII)(B)(5)(b) and (6) require disclosure of the purchase of
property and any land deals executed by the issuer company; and Clause 2(XVI)(B)(2) provides that all information
in the offer document shall be true and accurate and be certified by the Board of Directors as being so.

36. Turning to the fact situation of the present case, we note that five broad issues have been succinctly
enunciated in the course of the hearing before us and we shall now deal with those individually to identify the
extent of the Appellant?s misconduct, if any.

37. The first allegation levelled against the Appellant deals with the failure to disclose items which amounted to
material information and ought to have been disclosed in the offer documents.

38. The first instance of non-disclosure relates to ICDs taken by the Appellant in the nature of bridge loans. A

(Page 9 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

bridge loan in financial parlance is nothing but a short-term loan availed of by companies to meet their
immediate fiscal requirements, this is precisely what an inter-corporate deposit represents. Clause 2(VII)(G) of Part
A mandates the disclosure of bridge loans or any other financial arrangement which the concerned company
intends to repay out of the proceeds of the issue. As per the facts of the case, the Appellant executed ICD
agreements with seven entities, namely Jainex, Prraneta, Agarwal Holdings Ltd., JRI Industries and Infrastructure
Ltd., Vineet Capital Services Pvt. Ltd., Jay Polychem (India) Pvt. Ltd., and Urmi Computers Pvt. Ltd. It is
pertinent to note that all these seven agreements, vide which the Appellant received an aggregate of 26 around `
52 crore, were executed after the filing of the RHP, but before the filing of the Prospectus i.e., between August
17, 2011 and August 31, 2011. A perusal of the Impugned Order dated March 11, 2014 clearly points out that
the Appellant could not have disclosed this information in the Draft RHP, which was filed on September 23, 2010
or even in the RHP which was filed, after incorporating SEBI?s suggestions and on being approved by the
Company?s Board of Directors on August 17, 2011. This Board Resolution was communicated by the Appellant to
its Merchant Banker on August 17, 2011 itself whose duty it was to incorporate this factum of bridge loan in the
Prospectus. The Merchant Banker seems to have a great hurry to file the RHP on the same date due to which
the bridge loan aspect did not find a mention either in the RHP or the Prospectus.

39. Be that as it may. This is an important information and should have been incorporated in the offer documents
so as to enable the prospective investors to appreciate the company?s financial background in a better manner
before investing in the forthcoming IPO. Moreover, intention or the lack thereof behind the non-disclosure does
not matter much, particularly in light of the mandatory language of Clause 2(VII)(G) to the effect that any loan in
the nature of a bridge loan must be disclosed in the offer document. We, therefore, hold that the ICD agreements
should have been disclosed in the Prospectus at the least, even if they could not practically be disclosed in the
DRHP or RHP by the Appellant. The charge against the Appellant to the extent of non-disclosure of bridge loan,
thus, stands proved.

40. The second allegation of non-disclosure in the RHP and Prospectus relates to the non-disclosure of the
Company?s Board Resolution dated August 17, 2011 to invest the IPO Proceeds in ICDs of other companies. In 27
pursuance thereof, three ICD agreements were entered into between the Appellant and the concerned parties for
amounts of ` 15 crore, ` 7 crore and ` 10 crore. Although by disclosing in the Prospectus that the Appellant
intends to invest the IPO Proceeds in interest bearing liquid instruments, the Appellant satisfied the disclosure
requirements as per the ICDR Regulations, the Appellant did not in categorical terms disclose that it wished to
invest the IPO Proceeds in ICDs. We note that even though the Prospectus did state that the Appellant would be
investing the IPO proceeds in high-quality interest bearing liquid instruments, the expression ?ICD? is absent from
the disclosure. The Appellant should, therefore, have fairly disclosed the abovesaid relevant information, if not
material, regarding ICDs in the RHP and Prospectus filed with the Respondent.

41. But the contention of the Respondent that Appellant failed to disclose the placement of purchase orders for
plant and machinery is not sustainable in view of the fact that it is evident from the records that the RHP and
Prospectus do contain the names of these very suppliers whose quotations had already been disclosed and the
machinery was purchased from these suppliers in fact.

42. The Respondent has submitted before us that the list of suppliers of plastic granules to the Appellant, as
disclosed in the offer documents, omits the names of Nimbus and Supreme and that this amounts to non-
disclosure of material information. From the facts it is borne out that the Appellant entered into two separate
agreements with both entities on August 31, 2011. The value of the agreement executed with Nimbus was ` 3.5
crore and that of the agreement executed with Supreme was ` 5 crore. The reasons put forth by the Appellant
regarding this omission are that firstly, the list was not exhaustive and secondly, the list disclosed names of
manufacturers of 28 raw materials and since Nimbus and Supreme were traders and not manufacturers, the list
did not include their names. Thus, the purpose underlying the principle of disclosure had been achieved by
disclosing the same names in the offer documents in one context or the other. It is, therefore, wrong to hold the
Appellant guilty of simple non-disclosure in this regard. At the most it would be an inadvertent omission.

43. Finally, the Appellant has been held guilty by the Respondent for allegedly not disclosing agreements and

(Page 10 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

MOUs entered into for the purchase of land. Agreements for the purchase of land were executed with Saptrishi,
Safeco, Realnet and Eastern Resorts, aggregating to an amount of ` 80 crore between the date of filing of the
RHP and the date of filing the Prospectus. Out of the ` 80 crore (approximate value), around ` 37 crore was
paid in advance to the aforementioned entities in pursuance of the said land deals, however, the details regarding
the same were not mentioned at the appropriate place in the Prospectus. The Appellant, however, stated that it
had ?not entered into any commitment for any strategic initiatives?? which as per the Respondent is a
misstatement. The Appellant?s defense that the aforesaid agreements did not need to be disclosed since they fell
under the ?General Corporate Purpose? head cannot be accepted because the money allocated towards general
corporate purposes was only ` 21.4 crore as opposed to the ` 80 crore which was sought to be spent on the
land purchase agreements. In this regard, therefore, the Impugned Order does not carry any legal infirmity.

44. We now come to the second issue as crystallized hereinabove viz., first, the diversion of IPO Proceeds
through the repayment of ICDs and second, through investment in ICDs of other companies by the Appellant.
From the records it is borne out that the Appellant spent an amount of 29 ` 44.40 crore towards the repayment
of ICDs it had taken from Jainex and Prraneta on September 22, 2011, i.e., immediately after the closing of the
IPO. This amount was eventually returned to the Appellant. Similarly, the Appellant is also alleged to have
diverted proceeds through investment in ICDs of other companies. It is a matter of fact that out of the ` 33
crore transferred to Saptrishi, a sum of ` 15 crore was transferred to entities such as Jaimini and Cellworth.
Jaimini used ` 1.5 crore to buy shares of the Appellant in the IPO, and routed around ` 3.5 crore to Saptrishi
and Frank. Further, it becomes clear from a perusal of the documents produced before us that the IPO Proceeds
were used to pay entities which either bought the Appellant?s shares themselves or transferred the money further
along to other entities which then dealt in the Appellant?s scrip. The Appellant also transferred ` 7 crore to Raw
Gold which paid ` 5 crore to MJ Commodities and Padamprabhu both of which bought the Appellant?s shares. `
9.5 crore was also paid by the Appellant through Wattkins to Eden Financial Services and Adcon. Eden paid some
money to Pushpanjali who, in turn, transferred it to Cellworth and Jaimini, both of which traded in the
Appellant?s scrip on the date of listing. Further, Adcon transferred money to its broker in order to buy the
Appellant?s shares. In this context, it is noted that the ICDs were placed by the Appellant and taken around the
same time. Therefore, it is indeed hard to accept the Appellant?s submission that it was in need of funds for
running its day to day business and hence the finding in the impugned order in this regard cannot be upset.

45. The third allegation levelled against the Appellant is regarding diversion of funds through purchase orders. It
is the Respondent?s case that the Appellant?s dealings with Modi Alloys and Aggarwal Steels were meant to
divert money to entities which could eventually buy the 30 Appellant?s shares. From the facts it is borne out that
a sum of ` 19.65 crore was received by Modi Alloys from the Appellant and out of this around ` 12 crore was
given to Wonder Vincom which, in turn, paid the money to Chin Info, Safford and Nihal, which seem to have
bought the Appellant?s shares. Similarly, almost ` 4 crore was given by Aggarwal Steels to other entities, after
having received ` 5 crore from the Appellant.

46. Copies of invoices, delivery challans and receipts regarding Municipal Taxes etc. have been brought on record
by the Appellant to establish the genuineness of its transactions with Aggarwal Steels as well as Modi Alloys. It
is not the case of the Respondent that these documents have been fabricated by the Appellant. In fact there is
no evidence on record which may create doubt as to the genuineness of these documents in question. Further,
the Respondent?s argument that Appellant made advances of almost ` 30 crore to Modi Alloys and Aggarwal
Steels in August - September 2011 and only received delivery of all equipment by June 2012, does not hold a lot
of significance since this was an understanding arrived at by the Appellant on the one hand and Modi Alloys and
Aggarwal Steels on the other, purely on the basis of their business requirements and other commercial
considerations. The Appellant cannot be, thus, held to be guilty of this part of the charge as well.

47. Next, the Respondent submits that an amount of ` 7.25 crore was transferred by the Appellant to Nimbus
and SCL on the pretext of plastic granules. Nimbus and SCL, in turn, transferred money to entities such as
Sunlight, Scanpoint, Pearl, Fantasy and Cosmos which either bought the Appellant?s shares themselves or went on
to further transfer the money to other entities which finally purchased the Appellant?s shares. However, it is a
matter of fact that the agreements executed with Nimbus and Supreme 31 were finally cancelled on the

(Page 11 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

insistence of Nimbus and Supreme when the Interim Order was passed against the Appellant on December 28,
2011. We note that since these agreements stand cancelled their veracity need not be delved into. However, we
do note from the records that an amount of ` 3.77 crore which was transferred to Supreme was not transferred
from the IPO Proceeds but from the Appellant?s own funds. The Appellant submits that it has initiated winding
up proceedings against Supreme since it has been unable to get a refund of the said amount. This is the only
amount that has yet to be recovered by the Appellant and the process for the same is stated to be currently
underway.

48. Further, it is a matter of fact that there is no connection between the Appellant itself and any of the entities
to which money was paid by Modi, Aggarwal, Nimbus or Supreme. The respondent has not taken note of the
fact, in this regards, that the IPO was fully underwritten by the Lead Merchant Banker as per law by way of a
separate contract, and hence, there was no need for the Appellant to have indulged in such a scheme of
diverting the funds. Thus, the Respondent?s plea that money was diverted through purchase orders seems a bit
far-fetched and we, therefore, hold that the Appellant was merely engaging in its usual commercial activities while
transacting business with Modi, Aggarwal, Nimbus and Supreme who would have bought shares in the IPO in
question. No cogent and convincing evidence is brought on record by the respondent that those entities had any
relationship in the form commonality of directors, control, address etc. There is nothing to draw the inference
that the Appellant motivated or pressurized, in any manner, to purchase its shares in the IPO in question. 32

49. The fourth allegation pertains to diversion of IPO Proceeds through agreements executed for the purchase of
land with Saptrishi, Safeco, Realnet and Eastern Resorts. The Appellant has stated that the disparity in price
between the consideration paid by Saptrishi for the land and the price that the Appellant paid to Saptrishi was
owing to several factors such as conversion of the land from agricultural to non-agricultural, the developmental
cost of the land and the cost to build a factory thereon. The Appellant has produced certain documents on record
which corroborate the Appellant?s submissions. The authenticity of these documents is not disputed and a few
particularly relevant ones are mentioned hereinbelow : a) Letter dated August 5, 2011 from Realnet to the
Appellant stating that they are awaiting a positive response. b) Letter dated August 30, 2011 from Realnet to the
Appellant stating that they would require an advance payment of Rs. 3 crore. c) MoU dated September 2, 2011
executed between Realnet and the Appellant. d) Letter dated November 26, 2011 from the Appellant to Realnet
stating that the Appellant wished to be updated on the agreement executed between the two parties as per which
Realnet had undertaken the task of procuring land for industrial use by the Appellant, and that the time-period of
the agreement was soon coming to an end. e) Letter dated December 1, 2011 from Realnet to the Appellant
stating that they have failed to provide land and will return the money to the Appellant at 14% interest p.a. f)
MoU dated August 26, 2011 executed between Eastern and the Appellant. 33 g) Cancellation of MoU executed
between Eastern and the Appellant on October 11, 2011. h) MoU executed between August 27, 2011 between the
Appellant and Safeco. i) Letter dated December 22, 2011 from the Appellant to Safeco asking for an update on
the status regarding the procurement of land for the Appellant since the time-period prescribed in the agreement
for this purpose was drawing to a close and that funds would need to be arranged for the same according to the
update provided. j) Letter dated December 25, 2012 from Safeco to the Appellant stating that Safeco had been
debarred from the securities market owing to allegations of siphoning off funds received from the Appellant and
are, therefore, refunding the advance payment made to them by the Appellant. k) Cancellation deed dated March
20, 2012 executed between the Appellant and Safeco.

50. An analysis of the abovesaid documents reveals that the Appellant?s dealings with Saptrishi, as far as the
agreement for the purchase of land is concerned, are genuine and not illegal or fabricated. It is argued by Shri
Rustomjee, learned senior counsel for the Respondent, that the Appellant entered into an MOU with Realnet
which did not mention the total amount to be paid for the land and that even though Realnet conducted its
business primarily in Mumbai and it was vested with the responsibility of locating land for the Appellant in
Noida. These arguments of the Respondent are without any basis since there is nothing in law or on fact to lead
to any inference that because Realnet was conducting its business in Mumbai it 34 would be unable to procure
land in Greater Noida. Moreover, the agreement now stands cancelled and the advance of ` 2 crore had since
been returned even before the passing of the Impugned Order in question. Similarly, the MOU executed with
Safeco has been cancelled and the entire amount of ` 15 crore has been refunded to the Appellant. In such a

(Page 12 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

situation, the submissions of the Respondent appear to be based on material which is completely inadequate,
particularly when the charge pertaining to PFUTP is sought to be established against the Appellant. There has to
be sufficient material to bring home such a severe charge against the Appellant. The charge relating to violation
of PFUTP Regulations is a serious charge and hence a higher degree of proof is required to sustain it. In the
instant case, such a charge has not been established against the Appellant by adducing cogent reasoning and
convincing evidence. Furthermore, in this context, it is pertinent to note that the Appellant undoubtedly advanced
various amounts to various entities for different purposes viz for purchasing raw materials, land, machinery, ICD
advance etc. These transactions, qua the Appellant cannot, by themselves, be treated as link to the series of
transactions which might have led to the purchase of the Appellant?s share in the IPO.

51. The Respondent?s final allegation is that of failure to prevent misrepresentation in respect of the amount of
the term loan availed of by the Appellant from Standard Chartered Bank apparently by first mentioning in the
RHP and Prospectus that an amount of almost ` 37 crore was sanctioned by the bank and then on the following
page stating that the amount so sanctioned by the bank was ?Nil?. This is clearly an inadvertent error on the
part of the Appellant and we do not expect SEBI to transform insignificant issues into claims that do not deserve
a second look. We, 35 therefore, hold that it was not the Appellant?s endeavour to misrepresent the amount of
term loan sanctioned by the Standard Chartered Bank.

52. The abovesaid discussion particularly in paragraphs No. 40, 45 and 50 all clearly establishes that the
punishment of ten years? debarment to enter the capital market imposed on the Appellant, is highly
disproportionate and calls for modification to meet the ends of justice in the case in hand.

53. To sum up, the Appellant has partially failed to ensure proper disclosure of material information which was
required for the investors in order to enable them to take an informed decision to invest or not to invest in the
IPO in question. However, there are certain facts which remain undisputed. One, that there is no connivance or
connection for that matter which has been established between the Appellant itself and entities further down in
the line of transfer which eventually purchased the Appellant?s shares and dealt in its scrip once it was listed on
the stock exchange. There is no commonality of directors, or registered addresses or any other incidents which
can lead to such an inference that the Appellant was involved in the transfer of funds to certain such entities
which, inter-alia, bought the Appellant?s share in the IPO. Further, invoices and other documents have been
produced by the Appellant for the purchase of raw materials and equipments required to run the business, and
their validity is not in question. It is pertinently noted that most of the money which the Respondent alleges to
have been transferred has been returned to the Appellant. The Respondent has fairly submitted that the Auditor
appointed by SEBI itself has in its report dated January 25, 2016 noted that an amount of ` 80 crore has been
successfully recalled by the Appellant and the Respondent has scrutinized the utilization thereof. It is also a fact
36 that the Appellant has already recalled moneys recoverable owing to ICDs, cancelled contracts pertaining to
land purchase, except an amount of ` 3.77 crore as explicated hereinabove with respect to which the Appellant
has initiated the winding up of the company called Supreme. It shows the respect for and earnest desire of the
Appellant to abide by SEBI?s regulatory directions.

54. Further, it remains undisputed that ICDs which were given out of the IPO Proceeds to the tune of ` 32 crore
given as ICDs to Saptrishi, Raw Gold and Wattkins. Today, however, this amount of ` 32 crore has been received
by the Appellant, albeit with certain amount of delay. It is also to be noted that minutes of the annual general
meeting held on September 12, 2012, attached as Exhibit F2 of the Appeal clarify that unequivocal permission
was granted to the Board of the Appellant, as per Section 61 of the Companies Act, 1956, to alter the utilization
of the IPO Proceeds and to use the proceeds as the directors deemed fit. Therefore, looking into the totality of
the facts and circumstances of the case in hand, the Respondent should not have imposed the punishments of
debarment from the market for a long period of one decade. Given that, some of the Respondent?s allegations
levelled in the Impugned Order, and particularly dealt with in this order in paragraphs no. 40, 45, and 50 cannot
be sustained in law or on fact as elucidated, this Tribunal is of the opinion that in order to meet the ends of
justice the period of debarment from the securities market of ten years imposed upon the Appellant should be
reduced to seven years as the Appellant has already suffered by remaining out of the market for a period of
more than four and half years by now. Ordered accordingly. As far as the money lying in the escrow account is

(Page 13 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM

 Shri Vikas Gupta V. Securities And Exchange Board Of India

concerned, the Appellant shall be at liberty to use for the objects of the IPO as per law. 37

55. The impugned Order is, therefore, modified to the specified extent and the appeal is disposed of with no
order as to costs. Sd/- Justice J. P. Devadhar Presiding Officer Sd/- Jog Singh Member 30.08.2016 Prepared &
Compared by PTM

Disclaimer: Legitquest has made all efforts to avoid any omission and/or mistake in publishing this document and adding editorial and other enhancements. Legitquest would not be
liable in any manner whatsoever by reason of any omission or mistake in the published document or any action or advice rendered or accepted on the basis of the document or any
editorial or other enhancements like idraf/infographics/Note/Notebook/Acts/Rules/Regulations/Bills/Notifications/Circulars/News/Interviews/Columns/Treaties/LawCommission
Reports/Constituent Debates and/or any material or feature added by us. All disputes will be exclusively dealt with the Courts/Tribunals at Delhi only. It is advised to check the
authenticity of all published document from the original source.

(Page 14 of 14) Printed For: NLIU Bhopal 30-07-2024 On: 08:17:AM