BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

          Appeal No. 146 of 2010 

          Date of decision: 12.8.2011 

1) Parsoli Corporation Limited
2) Zafar Sareshwala
3) Uves Sareshwala
All having office at 402-403, 4th Floor,
325, Amba Sadan, Linking Road,
Khar (W), Mumbai – 400 052.

……Appellants
Versus

Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai.

…… Respondent
Mr. Shyam Divan, Senior Advocate with Ms. Sonal, Ms. Aditi Prabhu and
Mr. Waseem Pangarkar, Advocates for Appellants.
Mr. Darius Khambatta, Additional Solicitor General with Ms. Harshada Nagare and
Mr. Aditya Mehta, Advocates for the Respondent.
CORAM : Justice N. K. Sodhi, Presiding Officer
P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : Justice N. K. Sodhi, Presiding Officer
This order will dispose of nine Appeals no. 112, 113, 145, 146, 150 of 2010 and
77, 80, 81, 82 of 2011 all of which have been fi led by Parsoli Corporation Ltd. and/or its
promoters/promoter group. These were heard together one after the other and the learned
senior counsel appearing for the appellants has divided these appeals in 3 different groups
and addressed arguments group wise. We shall deal with the appeals falling in each group
in the same manner. It is pertinent to mention that out of these nine appeals, five Appeals
no. 112, 113, 145, 146 and 150 of 2010 had earlier come up for hearing before this
Tribunal and these were dismissed by a common order dated January 12, 2011. The
appellants in these five appeals filed civil appeals in the Supreme Court which came up

2
for hearing on May 2, 2011 and the order passed by this Tribunal was set aside and the
cases remitted with a direction to pass separate orders in each of the five appeals. As
observed above, we are dealing with these ap peals group wise as st ated by the learned
senior counsel for the appellants. Learned A dditional Solicitor General appearing for the
respondent Board has no objection to the dis posal of the appeals in the manner as
suggested by the appellants.
Group I
Appeals no.146, 112 and 113 of 2010 constitute this group as they arise out of the same
set of facts and allegations.

2. Did Parsoli Corporation Ltd. (hereinaft er referred to as Parsoli) and its
   promoters/directors defraud its shareholders by transferring their shares in their own
   demat accounts on the basis of forged signature s and forged/duplicate share certificates
   and when caught, compensate the shareholders by crediting back in their demat accounts
   shares through off market tr ansactions is the primary question that arises for
   consideration in this group of appeals. Facts as they emerge from the record are these.
3. Parsoli is a public limited company and its shares are listed, among others, on the
   Bombay Stock Exchange Ltd., Mumbai (BSE ). Zafar Yunus Sareshwala and Uves
   Yunus Sareshwala are its managing director and joint managing dir ector respectively.
   Sareshwalas including these two directors ar e the promoters of Parsoli and they hold
   87.59% of its shares. It carried on the business of non-banking finance company and was
   also a stock broker on the National Stock Exch ange Ltd. and BSE. Parsoli was also a
   depository participant affiliated to the Central Depository Services (India) Ltd. and was
   providing depository services to its clients. Regulatio n 53A of the Securities and
   Exchange Board of India (Depositories and Participant) Regulations, 1996 requires that
   every listed company shall ensure that all matte rs relating to its transfer of securities,
   maintenance of records of holders of secu rities, handling of physical securities and
   establishing connectivity with the depositori es are handled and maintained at a single
   point either in-house by the is suer company or by a share tran sfer agent registered with 3
   the Securities and Exchange Board of India (f or short the Board). Parsoli appointed on
   April 25, 2003 Pinnacle Shares Registry Pvt. Limited as its share transfer agent for
   handling the share transfer work and it shall be referred to hereinafter as RTA. It was
   registered with the Board as a share transfer agent.
4. The Board carried out investigations, inter-alia, in the matter of fraudulent
   transfer and demat of shares of Parsoli on the basis of forg ed documents. Investigations
   revealed that 80,800 shares of 252 sharehol ders held in physical form had been
   transferred in the names of persons who belonged to the pr omoter group on the basis of
   fake share certificates and forged signatu res of shareholders. The modus operandi
   adopted by Parsoli and its directors was that they retained the specimen signature cards of
   shareholders with them and did not furnish the same to the RTA and that they were
   verifying the signatures of th e transferors and also the ge nuineness/correctness of the
   share certificates. Parsoli had set up a committee of its directors for the purpose and after
   the committee verified the signatures and ge nuineness of the share certificates, RTA
   would formally effect those transfers. It is pertinent to mention that this practice was
   illegal and contrary to the aforesaid regulati ons. Parsoli had directed the RTA to effect
   transfer of shares on the basis of signatur e verification done by th e former and assured
   the latter that in case of any complaint, Parsoli would take the responsibility and
   compensate the shareholders. During the cour se of the investigations, Parsoli, its
   managing director and joint managing director had been asked to provide details of the
   process by which the shares were being transferred. By letter dated July 19, 2008, Parsoli
   furnished the minutes of the meeting of the sh are transfer committee of its directors held
   on January 31, 2004. Parsoli was then asked to provide the complete documents showing
   the transfer of shares and th e procedure followed to which it replied by its letter of
   August 11, 2009 that “We only have in our possession minutes of the Board meeting
   held as on January 31, 2004. The oth er disclosures are not with us.” The managing
   director of Parsoli appeared before the investigating officer on August 5, 2008 and
   several questions were put to him soliciting in formation in this regard. He undertook to
   furnish the information by August 8, 2008 which was never done. From all this it was 4
   inferred that Parsoli and its managing director and joint managing director both of whom
   were members of the share transfer co mmittee were not co-operating with the
   investigations. On completion of the investigations, the appellants were served with a
   notice dated June 10, 2009 alleging that Parsoli, its managing director and joint managing
   director were involved in printing/issuing fake share certificates, forging of signatures of
   genuine investors on the transfer documents, verification of those fake share certificates
   and forged signatures, approval of fraudulen t transfers and ultimately dematerialising
   those fake share certificates in the names of promoters and their front entities on the basis
   of forged documents. It was also alleged th at Parsoli and its aforesaid two directors did
   not handover the specimen signature cards to the RTA and did not maintain records
   relating to transfer of securities at a single poi nt. It was also pointed out that Parsoli and
   its directors did not provide complete and ma terial information to the Board during the
   course of the investigations and thereby vi olated the provisions of section 11C of the
   Securities and Exchange Board of India Act, 1992 (for short the Ac t). The show cause
   notice also alleged the viola tion of regulations 3 and 4 of the Securities and Exchange
   Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to
   Securities Market) Regulations, 2003 and regulations 53A and 54(5) of the Securities and
   Exchange Board of India (Depositories and Participants) Regulations, 1996 (hereinafter
   referred to as FUTP Regulati ons and the depository regula tions respectively). Some
   other charges were also levelled and since those have not been established, it is not
   necessary to refer to those. The appellants were called upon to show cause why action be
   not taken against them under sections 11(4) and 11B of the Act which may include
   debarring them from accessing the securities market and prohibiting them from buying,
   selling or otherwise dealing in securities for an appropriate period of time. For the
   aforesaid illegalities that came to light during the course of the investigations, the Board
   also decided to initiate adjudication proceed ings against Parsoli and its promoters and
   other front entities for imposing monetary penaltie s. Accordingly, notice dated
   July 17, 2009 was issued to as many as 17 en tities including Parsoli and its promoters
   pointing out the same illegalities as aforesaid and asking them to show cause why penalty 5
   be not imposed on them under section 15HA of the Act and section 19H of the
   Depositories Act, 1996. On rece ipt of the aforesaid notices, the appellants did not file
   any reply to the show cause notice dated June 10, 2009 before the whole time member.
   However, they filed their reply before the adjudicating officer to the show cause notice
   dated July 17, 2009 denying all th e allegations. The appellants appeared before the
   whole time member and were given a persona l hearing and they filed their written
   submissions which could be treated as their re ply to the allegations levelled against them
   in the show cause notice. The whole time member and the adjudicating officer conducted
   separate proceedings and on the basis of the material collected by them during the course
   of the enquiry and also the material that was collected during the investigations, they both
   found the appellants guilty of the charges levelled ag ainst them. By order dated
   July 27, 2010, the whole time member recorded his findings against the appellants in the
   following words:
   “10. In light of the above findings, I find that the noticees:
   10.1 By not providing information to SEBI and giving misleading and
   contradictory information, have violated the provisions of
   Sections 11C(2) and 11C(3) of SEBI Act, 1992;
   10.2 By not handling and maintaining the share transfer related work
   at a single point, violated Regulations 53A of the SEBI
   (Depositories and Participants) Regulations, 1996 and SEBI
   Circular no. D&CC/FITTC/Cir-15/2002 dated December 27,
   2002; and

10.3 By engaging in issuance of 80,800 fake share certificates, forging
signatures of genuine investor s on the transfer documents,
verifying those fake share ce rtificates, approving fraudulent
transfer and dematerialization of those fake share certificates in
favour of 22 promoters/front enti ties, violated Regulations 3(a),
3(b), 3(c), 3(d), 4(1) and 4(2)(h) of the PFUTP Regulations.”
In view of these findings, the whole time me mber issued the following directions to the
appellants under sections 11(4) and 11B of the Act:
“12. In view of the foregoing, I, in exercise of the powers conferred
upon me under Section 19 of the Securi ties and Exchange Board of India
Act, 1992 read with Sections 11(4) and 11B thereof, hereby
(a) restrain Parsoli Corporation Ltd. (Permanent Account Number:
AABCP9030F), Mr. Zafar Yunus Sareshwala (Permanent Account
Number: ANYPS8494D) and Mr. Uves Yunus Sareshwala
(Permanent Account Numb er: AOFPS5856M) from buying,

6
selling or dealing in securities market in any manner whatsoever or
accessing the securities market directly or indirectly for a period of
seven years from the date of this Order (except for complying with
directions mentioned at (c) below);
(b) restrain Mr. Zafar Yunus Sareshwala and Mr. Uves Yunus
Sareshwala from holding the positi on of Director in any listed
company for a period of seven years from the date of this Order;

(c) direct Mr. Zafar Yunus Sare shwala and Mr. Uves Yunus
Sareshwala to make a public offe r through a merchant banker to
acquire shares from public share holders by paying them the value
determined by the valuer in the manner prescribed in Regulation
23 of the SEBI (Delisting of Equity Shares) Regulations, 2009 and
acquire the shares offered in respon se to the public offer, within
three months from the date of this Order;
(d) direct BSE to facilitate valuation of shares to be purchased as at (c)
above, and compulsorily delist Parsoli Corporation Ltd., if the
public shareholding reduces below the minimum level in view of
aforesaid purchase.”
Feeling aggrieved by these directions , Parsoli and its two directors have filed
Appeal no.146 of 2010.

5. The adjudicating officer has also found the appellants and their front entities
   guilty of all the charges levelled against them in the show cause notice dated
   July 17, 2009 and by his order dated May 5, 2010, he imposed the following monetary
   penalties on them:
   “Having regard to the nature and gr avity of the charges established and
   after taking into account the factor s contained Section 15J of the SEBI
   Act, 1992 and other statutory provisi ons I hereby impose the following
   monetary penalties in exercise of the powers conferred as Adjudicating
   Officer.
   (i) a consolidated penalty of Rs. 25 lakhs on Parsoli Corporation
   Limited, Mr. Zafar Sareshwala, Ma naging Director and Mr. Uves
   Sareshwala, promoter / Director under Section 15A(a) of the SEBI
   Act, 1992 for the violation of Section 11C(2) and (3) of SEBI Act.
   (ii) a consolidated penalty of Rs. 3 cr ores on the promoters’ family of
   Sareshwalas comprising of (a) Mr . Zafar Sareshwala, Managing
   Director (b) Mr. Uves Sare shwala, (c) Mr. Talha Yunus
   Sareshwala and (d) Mr. Saleha Mohammed Yunus Sareshwala
   under Section 15HA of SEBI Act, 1992 for the violation of
   Regulations 3 (a) to (d), 4(1) and (2) (h) of the SEBI (FUTP)
   Regulations, 2003 and under Section 19G of the Depositories Act,
   1996 for the violation of Regulation 53A of the SEBI (DP)
   Regulations.
   (iii) a consolidated penalty of Rs. 70 lakhs on the Kothawalas family
   comprising of (a) Mohammed A libhai Kothawala (b) Amena 7
   Maksud Kothawala (c) Fatema Mukhtar Kothawala (d) Maksud
   Yusufbhai Kothawala (e) Mariam Yusuf Kothawala (f) Mukhtar
   Yusufbhai Kothawala (g) Yusufbhai Umarbhai Kothawala under
   Section 15HA of SEBI Act, 1992 for the violation of Regulations 3
   (a) to (d), 4 (1) and (2) (h) of the SEBI (FUTP) Regulations, 2003.
   (iv) a penalty of Rs. 10 lakhs each on (a) Gulam Rasool Mohiuddin
   Bombaywala (b) Iftekhar Mohammed Yusuf Mansoori (c)
   Aslamkhan Rehmatkhan Pathan (d) Abdul Hameed Abdul Gaffer
   Memon (e) Absuldamad Abdul Gaffer Memon under Section
   15HA of SEBI Act, 1992 for the violation of Regulations 3 (a) to
   (d), 4(1) and (2) (h) of the SEBI (FUTP) Regulations, 2003.”
   Parsoli has filed Appeal no.112 of 2010 against this order wh ereas the promoter group
   including the aforesaid two directors of Parsoli have filed Appeal no.113 of 2010
   challenging the same order. The front entities of Parsoli and its promoters have not come
   up in appeal and we are not concerned with them in these appeals.
6. We have heard the learned senior counsel on both sides who have taken us
   through the record and the impugned orders. At the cost of repetition, it may be
   mentioned that in both the orders dated May 5, 2010 and July 27, 2010 the appellants and
   their front entities have been found guilt y of the same charges and the whole time
   member has issued directions to the appellants under sections 11 and 11B of the Act with
   a view to regulate the securities market and prevent them from committing such acts in
   future and the adjudicating officer has impos ed monetary penalties on them for those
   very wrongs. The main arguments were addressed in Appeal no. 146 of 2010 filed by
   Parsoli and its two directors a nd we shall first deal with the contentions raised by the
   learned senior counsel in this appeal.
7. The learned senior counsel for the appellants has raised three contentions. Firstly,
   he has very strenuously challenged the direc tions issued by the whole time member in
   paragraph 12(c) and (d) of the impugned or der by which the two directors of Parsoli
   namely, Zafar Yunus Sareshwala and Uves Y unus Sareshwala have been directed to
   make a public offer through a merchant banker to acquire shares from public
   shareholders by paying them the price as determined in the manner prescribed in
   regulation 23 of the delisting regulations framed by the Board. The direction in para 8
   12(d) is only consequential and if, on the im plementation of the direction in para 12(c),
   the public shareholding of Pa rsoli falls below the minimum required to be maintained,
   then it has to be delisted compulsorily. It is urged that these dir ections are ultra vires
   sections 11 and 11B of the Act and beyond th e show cause notice. The second argument
   of the learned senior counsel is that the rest raint orders issued in paras 12(a) and (b) by
   which the appellants have been restrained from accessing the securities market directly or
   indirectly for a period of seven years and re straining the two directors from holding the
   position of a director in any listed company for the same period are also arbitrary,
   perverse and ultra vires sections 11 and 11B of the Act. The third submission of
   Shri Shyam Divan, senior advocate is that the appellants did not commit any fraud when
   the shares were transferred to the demat accounts of the promoters of Parsoli and their
   front entities. Accordi ng to the learned senior counsel, the findings of ‘ fraud’ and
   ‘carefully crafted strategy’ recorded in the impugned order are without any basis since
   the erroneous transfers had been detected by the management itself and corrective
   measures taken to recompense all genuine shareholders even before the Board was seized
   of the matter. We shall deal with these submissions one by one.
8. We shall first discuss the third submission which is the heart of the matter. As
   noticed in the earlier part of our order, th e question for our consideration is whether the
   appellants played a fraud with their innocen t shareholders and fraudulently transferred
   their shares in their own demat accounts. The learned senior counsel contended before us
   that the appellants did not play any fraud an d that their action coul d, at the most, be
   termed as an ‘aberration’ which did not justif y the issuance of the directions that have
   been given by the whole time member. Let us examine whether he is right. To begin
   with, we may mention that at no stage of th e proceedings before the Board and not even
   in the memorandum of appeal have the appellants admitted that they had done any wrong
   much less played fraud on their shareholders and that they have b een justifying their
   conduct all through. During the course of the he aring before us, when the learned senior
   counsel for the appellants was confronted with the documentary material available on the
   record regarding the transfer of shares which is being dea lt with hereafter, he fairly 9
   admitted that there was some wrongdoing on the part of the appellants when the shares
   were transferred to the demat accounts of promot ers of Parsoli and he wanted us to treat
   the conduct of the appellants as an ‘aberra tion’. Documents on r ecord, however, tell a
   different story.
9. The fact that after appointing the RTA as an independent record keeper, Parsoli
   did not furnish the specimen signature cards of its shareholders to it (RTA) and that
   Parsoli was verifying the signature s of the shareholders at its ow n level through an
   in-house committee of directors on the basi s of which RTA was formally effecting
   transfers is not in dispute. It is also not in dispute that all the 80,800 shares pertaining to
   252 shareholders which are now in issue were transferred by the di rectors in their own
   names or their front entities and got them dema terialised and later when the shareholders
   applied for the dematerialisation of the sh ares held by them in physical form, the
   directors compensated them (shareholders) by crediting shares from their demat accounts
   to the accounts of the shareholders. We ha ve perused the transfer documents carefully
   and find that the shares were transferred by the directors on the basis of forged signatures
   of the shareholders and also on the basis of forged/duplicate share certificates. This is an
   open and shut case and the charge of fraudulen t transfer of shares stands established on
   the appellants’ own showing. This is what a few transfer documents that we have
   perused as a sample reveal. One Deepakbhai S. Shah purchased on October 13, 1995, 100
   shares of Parsoli from Indulal Shah and Shashank Indulal Shah who were then the joint
   holders. These shares were transferred in the na me of Deepakbhai S. Shah on
   December 5, 1995 and it is common case of the parties that he has been holding these
   shares since then in physical form. The share transfer form on the basis of which the
   shares were transferred to him bears his si gnatures as a transferee which are not in
   dispute. By a share transfer form dated Ju ly 29, 2005, the shares he ld by Deepakbhai S.
   Shah were transferred in the name of Mohammed A. Kothawala who is, admittedly, an
   associate of Parsoli and its directors. This form also purports to have been signed by
   Deepakbhai S. Shah as a transferor. His si gnatures after verifica tion by the transfer
   committee have been certified by the authorized representative of Parsoli with its official 10
   stamp and initials. One does not need to go to a handwriting expert to say that the
   signatures on the two transfer deeds, one where Deepakbhai S. Shah is signing as a
   transferor and the earlier one which he signe d in the year 1995 as a transferee do not
   match. The two forms were shown to the learned senior counsel for the appellants and, to
   be fair to him, he admitted that the signatures were not the same. Since the signatures are
   not the same, it is obvious that the share transfer form of July 29, 2005 on the basis of
   which the shares were transferred from the na me of Deepakbhai S. Shah to an associate
   of Parsoli had forged signatures of the transferor (Deepakbhai S. Shah). It was for Parsoli
   and its directors to explain as to who signed the transfer form as transferor and on what
   basis did they verify his signatures. No expl anation has been furnished in this regard.
   Again, shares in the physical form could not be transferred without the original share
   certificate(s) being attached to the share transfer form(s). The original share certificate(s)
   were with Deepakbhai S. Shah as will be se en hereafter. Then which were the share
   certificates accompanying the share transfer form on the basis of which Parsoli
   transferred the shares. They cannot but be dupl icate/forged share certificates. Here also
   Parsoli and its directors owe an explanatio n but there is none forthcoming. It is
   interesting to note that the form dated July 29, 2005 does not record the date of approval
   nor does it record the transfer number as entered in the register of members/transfers. Be
   that as it may, even though the shares stan ding in the name of Deepakbhai S. Shah had
   been transferred fraudulently as aforesaid in the name of a front en tity of Parsoli, the
   former continued to hold the original share certificate(s) in the phys ical form. He then
   applied on September 22, 2005 for the dematerialisation of his shares and his request was
   rejected by RTA on the ground “ Original certificates present are those for which the
   duplicates have already been issued .” Interestingly, Parso li decided to compensate
   Deepakbhai S. Shah and sent a communication to him dated May 31, 2006 in this regard
   giving altogether a different reason from that of RTA for rejecting his request for
   dematerialisation. This is what Parsoli wrote to Deepakbhai S. Shah:
   “Above referred DRN has been re jected by our RNT under Code-
   13 Misc – “Certificate received is already stands demated in our
   system. Please contact company for further details.” 11
   We have taken necessary steps to compensate you considering that
   your request seems to be genuine. We have already credited above
   referred account by off market transaction. Xerox copy of delivery
   slip is enclosed and request you to verify with your DP. Hence
   your problem is resolved.”

It is, thus, clear that when Deepakbha i S. Shah approached Parsoli for the
dematerialization of his shares , the latter found his request to be genuine. If his request
was genuine then the earlier transfer on the basis of the share transfer form dated
July 29, 2005 was obviously based on forged signatures and documents. We also find
from the letter written to Deepakbhai S. Shah that it was in a standard form and his name
and other details were written in hand and similar letters had been written to the other
shareholders as well and all this was done to resolve their problem that had arisen out of
fraudulent transfer of their shares. We also note that th e reasons given by the RTA and
Parsoli for rejecting the request of Deepakbhai S. Shah for dematerialization are different.
The fraudulent conduct of the a ppellants is writ large from th e fact that the directors of
Parsoli had themselves verified the forged signatures of the tr ansferor and then
transferred the shares to their own entities. Their fraudulent conduct is further established
when they compensated Deepakbhai S. Shah by transferring shares to his demat account
in off market transaction(s). If the shares had earlier been transferred bona fide in the
name of Mohammed A. Kothawala (front entity of Parsoli), then where was the need to
compensate Deepakbhai S. Shah. The director s were conscious that they had deprived
him of his shares fraudulently and compensated him to purchase his silence only after he
applied for dematerialization of his shares . Transfer of shares from the name of
Deepakbhai S. Shah to Mohammed A. Kothaw ala is not a solitary instance. We have
perused by way of sample 9 se ts of share transfer documents and find that the signatures
of the transferor (shareholder) on the transfer forms do not tally with the admitted
signatures. During the c ourse of the hearing on June 24, 2011, copies of the 9 sets of
transfer documents were furnished to the learned counsel for the appellants to enable him
to seek instructions from his clients. Since the original share certificates in all cases were
in the possession of the shareholders and shares had been transferred on the basis of some
other certificate(s), we directed the appellant s to file an affidavit as to who produced

12
before Parsoli the transfer documents including the share certificate(s) and whether those
were forged or duplicate. When the hear ing resumed on June 27, 2011, the appellants
sought to file a detailed affidavit but the queries made by us remained unanswered and
the affidavit dealt with issues not relevant to the queries and, therefore, we declined to
take the same on record. As regards the transfer documents which had been furnished to
the appellants on the previous da te of hearing, the learned senior counsel very fairly
conceded that the signatures of the transfer or (shareholder) on the transfer forms did not
tally with his admitted signatures. Since Parsoli has not explained as to who produced the
transfer documents, it is reasonable to infe r that the transfer doc uments bearing forged
signatures of the shareholders were prepared by Parsoli and its directors and they also
prepared forged/duplicate share certificates which they themselves certified as true on the
basis of which the RTA formally effected the transfers. We have some other instances as
well where shares were fraudulently transferred in the accounts of the directors of Parsoli
on the basis of share transfer forms which do not bear any signature of the transferee. We
have on record share transfer form No.105794 tr ansferring shares from the name of one
Prabhudas P. Prajapati in the name of Moha mmed A. Kothawala a nd the transferee has
not signed the form. There are several instances of this type. We are satisfied that transfer
deeds with no signatures at all and with single signature in case of joint signatures were
cleared for transfer by the committee of dir ectors set up by Parsoli and all this was done
to defraud the shareholders. As many as 252 shareholders holding 80,800 shares in
physical form had been deprived of their shar es in the aforesaid manner. This conduct of
the appellants, in our opinion, is one of the grossest forms of frauds known to the
securities market and cannot be described as an aberration. We are in agreement with the
whole time member that Parsoli and its directors had a carefully crafted strategy by which
they played fraud on their shareholders.

10. The “carefully crafted strategy’ of the appellants is further borne out from the fact
    that even after appointing the RTA, Parsoli did not hand over to it the specimen signature
    cards of the shareholders for verification of their signatures and instead retained the same
    with itself. Having appointed the RTA, it wa s no business of Parsoli and its directors 13
    either to retain the specimen signature card s with them or verify the signatures of the
    transferors through an in-house committee. They did this only to verify the signatures of
    the transferors which they were themselves forging. Their intention to defraud the
    innocent shareholders is, thus, manifest from the very beginning. A share transfer agent is
    an independent record keeper of the issuer company and an intermediary of the securities
    market and is registered with the Board and its activities are regulated by the Securities
    and Exchange Board of India (Registrars to an Issue and Share Transfer Agents)
    Regulations, 1993. The primary duty of a share tr ansfer agent is to maintain the records
    of holders of securities issued by a body cor porate and he has to deal with all matters
    connected with the transfer and redemption of its securities. The appellants did not allow
    the RTA to perform its primary duty by retaining with them the specimen signature cards.
    The depository regulations mandate that all work relating to share registry in terms of
    both physical and electronic shares should be maintained at a single point i.e. either
    in-house by the company or by a share transfer agent registered with the Board. On the
    appellants’ own showing, this was not done. Th ey admit that the signature verification
    was done by Parsoli itself and transfers were effected by RTA. It is, thus, clear that share
    transfer records were maintained at two diffe rent places and this violated the provisions
    of regulations 53A and 54(5) of the depository regulations. This violation was knowingly
    committed for achieving the object of defraudi ng the shareholders. It may be mentioned
    that separate proceedings were initiated against the RTA as well and by order dated
    October 14, 2009, its certificate of registration was cancelled which order was upheld by
    this Tribunal. To justify the retention of specimen signature cards, the appellants have
    taken contradictory stands. Before the w hole time member, their stand was that these
    cards had not been furnished to the RTA as those were in torn condition. The learned
    counsel for the appellants took the same plea be fore us during the course of the hearing.
    However, in paragraph 6.85 of the memorandum of appeal, the appellants also state “that
    the specimen signature cards were not hande d over to the share transfer agent for
    better operational and administrative control.” Both these reasons cannot go together.
    Be that as it may, during the course of the h earing we directed the appellants to produce 14
    the original specimen signature cards of the sh areholders for our perusal which they did.
    We have examined these cards and find that a large number of them are in perfect
    condition whereas some others have been to rn and even from among the torn ones, the
    signatures can be tallied/verified and this is what Parsoli was doing. We wonder, if
    Parsoli could verify the signatures then why the same could not be done by the RTA
    which was meant to carry out that work. It is interesting to note that there were some
    issues between Parsoli and RTA regarding th e transfer of shares and a discussion took
    place between the two of th em whereafter Parsoli by its letter of August 16, 2005
    clarified the doubts and this is what it wrote to the RTA:
    “We refer to the personal discussion our Mr. Zafar Sareshwala had
    with you and also Mrs. Nazima during her personal visit on
    12.8.2005 for verification/explanation of transfer deed submitted
    by the company for transfer of shares so as to clear certain doubts.
    In the matter we clarify the matter and explain the same as under:-
    SIGNATURE AUTHENTICATION:
    1) Signature record is with th e company and as it is on torn
    condition and not properly main tained and as such it is
    difficult/problematic to hand over the same to R&T.
    In view of the above share certificates with Transfer Deed received
    either at your place or at our place, are being forwarded to us for
    signature verification at our end and after verification for
    identification purpose we are put ting round stamp of the company
    and initialed by our authorised officer Mrs. Nazima of the
    company. When such TD with origin al share certificates are
    received and signatures are verified by us we certify the same
    as correct and it is to be transferred in favour of transferee and
    if any complaint is received later on from any party/holder for
    transfer of shares or otherwise on the basis of forged signature
    or otherwise it will be our responsibility. We undertake our
    full responsibility to compensate the holder/transferee/R&T.

• In majority of the cases shares received for transfer are of off
  market transaction and backside of TD does not contain the stamp
  of broker. However, we verify th e genuineness of signature/s for
  correctness of signature on such TD and authenticated by us. When
  shares are transferred on such verification it is the responsibility of
  the company to compensate the deprived shareholder/holder in due
  course, if any complaint is receive d for forged signature/otherwise
  on TD and for issue of duplicate shares.
  2) Our attention is drawn by you that many time you have
  observed that share certificates so issued on 6th April, 1995, though
  it is printed on same day, colour of the share certificates are
  different and specimen of which are enclosed. 15
  When we authenticate the TD for verification of signature of the
  transferor we are also scrutinizing the genuineness/correctness of
  certificates of blue colour and ot her colour and put signature of
  authorised officer on TD and se nd you the certificate/s with TD.
  We clarify that such types of cer tificates of diffe rent colours are
  issued, printed and signed by authorised signatory of the company
  and they are valid certificates for transfer.
  3) If later on any complaint is received from any party or we
  receive the certificates for transfer, which have already been
  transferred earlier, we undertak e the full responsibility to
  compensate such proposed transferee/holder who has bought the
  shares. If received at your end, please send such type TD with
  certificates to us for resolving the complaint and we will take
  necessary action in the matter. We assure and undertake that
  necessary action will be taken to compensate the purchaser/holder
  holder in due course/R&T if it is found to be genuine.”
  A reading of the aforesaid le tter leaves no room for doubt th at Parsoli was anticipating
  some complaints/claims regarding transf er of shares on the ground of forged
  signatures/share certificates and took full resp onsibility for the same. It assured the RTA
  that if any subsequent comp laint/claim was made not only would Parsoli be responsible
  for the same but it would also compensa te the purchaser/ho lder/holder in due
  course/R&T. If the shares were being transf erred bona fide in the ordinary course, as
  companies normally do, there should not have been any occasion for Parsoli to anticipate
  such complaints/claims. This letter lets the cat out of the bag and makes it clear that
  Parsoli had a fraudulent inten tion right from the beginning. The more we look into the
  conduct of the appellants the more we are satisfied that they acted fraudulently right from
  the word go.

10. Mr. Shyam Divan, Senior Advocate contended that there was no fraud committed
    by Parsoli and its directors beca use the ‘erroneous transfers’, as he wants to put it, had
    been detected by the management and correctiv e measures were taken to recompense all
    the shareholders much before the Board was se ized of the matter and that there were no
    complaints from any shareholder regarding th e fraudulent transfer of shares. He also
    argued that ‘fraud’ is a very serious charge and conclusions in regard thereto cannot be
    reached on the basis of preponderance of probab ilities or on the basis of surmises and/or
    conjectures as has been done by the whole time member in the impugned order. We are
    unable to agree with the learned senior counsel. We have discussed in the earlier part of 16
    our order the manner in which the shares were being transferred and the fraudulent intent
    of Parsoli which was manifest from the very beginning. In view of our discussion above,
    we cannot agree that the transfers were erroneous’. They were in fact fraudulent. Parsoli
    started compensating the shareholders only after they come forward to get their shares
    dematerialised/transferred. It did not do it on its own as was sought to be argued before
    us. It is true that no shareholder complained against Parsoli for the fraudulent transfer of
    his shares and this is because when he applied for transfer/dematerialisation of his shares,
    the directors of Parsoli realized that they would be caught and before that could happen
    they compensated him by transferring shares from their own demat accounts to his
    account and this is how Parsoli purchased his silence. Let us not forget that all the
    shareholders whose shares were fraudulentl y transferred were small shareholders who
    were satisfied when they received their shares back and did not consider it worthwhile to
    pursue the matter further. Merely because there were no complaints does not mean that
    the appellants did not commit a ny fraud. We agree that fraud is a serious charge but we
    do not agree with the learned senior counsel that in civil proceedings like the present, it
    cannot be established on preponderance of pr obabilities. In civil proceedings, unlike in
    criminal proceedings, even a serious char ge like fraud has to be established on
    preponderance of probabilities and since this charge is serious higher has to be the degree
    of probability to establish the same. Having regard to the manner in which the appellants
    conducted themselves in transferring the shar es of the innocent shareholders, we are
    satisfied that the charge of fraud in the present case has been established with the
    required degree of probability. It was also argued by Shri Divan that the promoters of
    Parsoli who held 87.59 per cent of the total shares could not have had any motive to
    fraudulently transfer small numbers of shares in their own accounts. It is contended that
    the appellants made no profit nor was any shar eholder put to loss and, therefore, the
    whole time member was wrong in recording a finding against the appellants. These
    contentions of the learned seni or counsel are equally without merit. In civil proceedings
    of the kind we are dealing with, it is not necessary to establish the motive of the
    wrongdoer nor is it necessary to prove mens rea [see Shriram Mutual Fund vs. SEBI AIR 17
    2006 SC 2287). Having said this, we cannot say that the appellants did not have a motive.
    They could well have had one and it is not n ecessary for us to go into this question. The
    fact that the total number of shares transfe rred constituted only a small percentage of the
    total shareholding of th e company (Parsoli) is also irre levant in our opinion. What has
    been established on the record is that 80,800 shares held by 252 shareholders were
    fraudulently transferred on th e basis of forged signatur es of the transferors and
    forged/duplicate share certificates. What perc entage they bear to the total shareholding
    of the company is not relevant. The learned senior counsel for the appellants also pointed
    out that irregularities in the matter of transf er of shares occurred as records of Parsoli
    were destroyed in the earthquake in Janua ry, 2001 and the riots in February, 2002 in
    Gujarat. This argument is equally baseless. The only record that was essential for the
    transfer of shares and which ought to have been handed over to the RTA was the
    specimen signature cards of the shareholders from where the signatures of the transferors
    could be tallied/verified. This record is very much available with the appellants and the
    same was produced before us and, as pointed out earlier, most of it was in good condition
    and some of the signature cards were torn but the signatures c ould be tallied. The
    argument that the whole time member erro neously held that the appellants had
    printed/issued fake share certificates also cannot be accepted. It is now the admitted case
    on both sides that when the shares were transferred, the original/genuine share certificates
    were in the possession of the sh areholders and yet their shar es were transferred on the
    basis of some other share certificates wh ich could not but be forged/duplicate. The
    appellants owe an explanation in this regar d. They did not explain to the Board whether
    the share certificates on the basis of wh ich the transfers were effected were
    forged/duplicate. Even to a query put by us, we did not get any answer. The only
    inference that can be drawn is that the appellants prepared those forged/duplicate share
    certificates in order to effect transfers. We cannot find fault with the findings recorded by
    the whole time member in this regard. In this view of the matter, we cannot but hold that
    the appellants committed fraud of the worst ki nd and their conduct, to say the least, was
    heinous and we answer the question posed in para 2 above in the affirmative. Persons like 18
    the appellants should have no place in the se curities market if its integrity is to be
    preserved. In view of these findings of our s, we have no hesitation to hold that the
    appellants have violated regulations 3 and 4 of the FTUP Regulations. These regulations
    prohibit a person from directly or indirect ly buying, selling or ot herwise dealing in
    securities in a fraudulent manner. They al so prohibit a person fr om indulging in a
    fraudulent or an unfair trade practice in s ecurities. The conduct of the appellants as
    depicted above clearly falls within the prohi bitions contained in these provisions and the
    whole time member was right in holding them guilty of violating them. We are also
    satisfied that the appellants had knowingly violated the provisions of regulations 53A and
    54(5) of the depository regulations and the Board’s circular dated December 27, 2002 by
    not maintaining records of holders of securities, handling of their physical securities and
    establishing connectivity with the deposito ries at a single point and despite having
    appointed the RTA, the appellan ts continued to retain with them the specimen signature
    cards of the shareholders.
11. Having dealt with the third contention of the learned senior counsel for the
    appellants and in the light of the findings th at we have recorded thereon, we shall now
    deal with his other two conten tions as noticed in para 7 above. We have found that the
    appellants by issuing fake certificates, fo rging signatures of genui ne investors on the
    transfer documents, verifying those fake certificates and forged signatures and approving
    fraudulent transfers and dematerializing those shares in favour of promoters/front entities
    of Parsoli, have violated regulations 3 and 4 of the FUTP Regulations. Since the conduct
    of the appellants in transferring shares has been found to be fra udulent, the whole time
    member has restrained them from buying, sellin g or dealing in securities market in any
    manner whatsoever or accessing the securities market for a period of seven years from
    the date of the impugned orde r. In addition, Zafar Saresh wala and Uves Sareshwala
    (appellants no. 2 and 3) have also been rest rained from holding the position of a director
    in any listed company for a period of seven year s from the date of the order. Shri Shyam
    Divan, Senior Advocate has strenuously argued that thes e directions are ultra vires
    section 11(4) and section 11B of the Act besides being arbitrar y and perverse. The 19
    argument is that since the wrong doing by Parsoli was not in its capacity as a stock broker
    or a depository participant, it could not be restrained from carrying on such activities in
    the market. In other words, it is submitted that Parsoli as a listed company could be
    issued some directions but it could not be restrained from operating as a stock broker or a
    depository participant in the s ecurities market. It is urged that if Parsoli had done some
    wrong as a stock broker or as a depository par ticipant, action could be taken against it
    under section 12(3) of the Act after comp lying with the procedural requirements
    prescribed in Securities and Exchange Board of India (Intermediaries) Regulations, 2008
    but no directions could be issued to it under sections 11 and 11B as aforesaid. We have
    given our thoughtful consideration to the diffe rent facets of the s econd argument of the
    learned senior counsel and fi nd no merit in any of them. Before we deal with the
    arguments, it is necessary to refer to the relevant provisions of sections 11 and 11B of the
    Act on which the argument of the learned senior counsel is based.
    “11. Functions of Board –
    (1) Subject to the provisions of this Act, it shall be the duty of the
    Board to protect the interests of investors in securities and to
    promote the development of, and to regulate the securities
    market, by such measures as it thinks fit.
    (2) and (3)…………………………………………………………..
    4) Without prejudice to the provisi ons contained in sub-sections
    (1), (2), (2A) and (3) and s ection 11B, the Board may, by an
    order, for reasons to be recorded in writing, in the interests of
    investors or securities market, take any of the following
    measures, either pending inve stigation or inquiry or on
    completion of such investigation or inquiry, namely:-
    (a) suspend the trading of any security in a recognized stock
    exchange;
    (b) restrain persons from accessing the securities market and
    prohibit any person associated w ith securities market to buy,
    sell or deal in securities;
    (c) to (f) ………………………………………………………………
    11B. Power to issue directions.- Save as otherwise provided in
    section 11, if after making or causing to be made an
    enquiry, the Board is satisfied that it is necessary-
    (i) in the interest of investor s, or orderly development
    of securities market; or
    (ii) to prevent the affairs of any intermediary or other
    persons referred to in section 12 being conducted in
    a manner detrimental to the interests of investors or
    securities market; or 20
    (iii) to secure the proper management of any such
    intermediary or person,
    it may issue such directions, –
    (a) to any person or class of pe rsons referred to in section
    12, or associated with the securities market; or
    (b) to any company in respect of matters specified in
    section 11A, as may be appropr iate in the interests of
    investors in securities and the securities market.”
    The Board is a statutory body established und er section 3 of the Act and section 11
    thereof enjoins a duty on it to protect the in terests of investors in securities and to
    promote the development of and to regulate the securities market. Parliament in its
    wisdom has left it to the Board to take such measures as it thinks necessary to carry out
    these duties. The powers of the Board in this regard are, indeed, very wide and it can do
    anything and take any action/step in order to perform its functions/duties. Howsoever
    wide the powers be, every action of the Bo ard has to be judged on the twin tests of
    investor protection an d development and regulation of th e securities market. In other
    words, the Board may be free to do anything but whatever it does has to be for the
    protection of the interests of investors or for the development and regulation of the
    securities market. It has the freedom to play only within these parameters. Having left it
    to the Board to take such measures that are necessary for investor protection and
    regulation and development of the securities market, sections 11(2) and 11(4) without
    diluting the powers of the Board under section 11(1) suggest some of the measures which
    it can take in this regard. Clause (b) of section 11(4) clearly entitles the Board to restrain
    persons from accessing the securities market and prohibit any person associated with the
    market to buy, sell or deal in securities if that were to become necessary for investor
    protection or for preserving the integrity of the securities market. In other words, when
    the Board finds that any person associated with the securities market has committed some
    serious wrongs, he can surely be kept out of the market to prevent him from committing
    that wrong again and to preserve its integrity and this is one way of regulating the market.
    Again, section 11B entitles the Board to issue such directions to any of the intermediaries
    referred to in section 12 or to any person asso ciated with the securities market as it may
    think appropriate either for protecting the in terests of investors or for regulating the 21
    securities market which would include preserving its integrity. This is the common thread
    that runs through the provisions of the Act including sections 11 and 11B. The directions
    that are issued under these provisions have nece ssarily to be preventive or regulatory in
    nature and these provisions cannot be resorted to for punishing the wrongdoers. There are
    other provisions in the Act and in the regul ations framed thereunder for taking penal
    action against the delinquents. Some of the directions that the Board may issue under
    sections 11 and 11B of the Act could be to keep the delinquent out of the market as that
    may be necessary to preserve its integrity having regard to the nature of his wrongdoing.
    Such directions are also preventive and regulatory in nature though incidentally they may
    have the effect of keeping him out of hi s business. Even though he may be out of
    business, the directions cannot be said to be punitive because the primary purpose of the
    directions is to regulate the market by preserving its integrity and keeping the wrongdoer
    out is only incidental. The object is not to pun ish him. Such directions are usually issued
    in the larger interest s of the securities market. In s hort, the Board as a watchdog of the
    securities market can take any action/step against any person associated with that market
    provided those actions are meant to protect the interests of investors and/or to regulate the
    securities market.
12. In the case before us, the appellants had transferred 80,800 shares belonging to
    252 shareholders in a fraudulent manner discussed hereinabove in great detail. In view of
    this grave misconduct of the appellants, the managing director and the joint managing
    director of Parsoli who did the mischief ha ve been directed to make a public offer
    through a merchant banker to acquire shares from the public shareholders by paying them
    the price determined by the valuer in the manner prescribed in regulation 23 of the
    Securities and Exchange Board of India (Del isting of Equity Shares) Regulations, 2009
    (delisting regulations) and acquire the shares offered in response thereto. They have been
    directed to complete this process within th ree months. The conse quential direction has
    also been issued that if as a result of the offer of shares by the public shareholders, the
    public shareholding of Pars oli comes below the minimum level required to be
    maintained, then it should be compulsorily delisted. The learned senior counsel has taken 22
    serious objection to these dir ections being issued under sect ions 11 and 11B of the Act.
    He has strenuously argued that these directions are ultra vire s the provisions of sections
    11(4) and 11B of the Act and that they are neither preventive nor remedial. According to
    the learned senior counsel, th ese directions are punitive in nature which could not be
    issued. Another facet of this argument is that dehors the provisions of the delisting
    regulations, the Board has no powers to issue such directions. These arguments have no
    merit at all and deserve to be rejected at the threshold. It is true that the directions that
    can be issued under sections 11 and 11B of th e Act have necessarily to be preventive or
    remedial in nature and we are clearly of the view that these directions are preventive. The
    appellants had defrauded th eir shareholders as discus sed hereinabove. While the
    shareholders were enjoying the warmth of their investments by holding the shares in
    physical form, their shares had been fraudul ently transferred by the directors/promoters
    of Parsoli by forging their signatures and also on the basis of forged/duplicate share
    certificates. Could there be a more serious fr aud relating to the se curities market? The
    possibility that the appellants would not cheat/defraud their shareholders in future cannot
    be ruled out having regard to their conduct in the past. Obviously, the Board was
    concerned about the shareholders and the question is how to protect them from fraudsters.
    It is with a view to protect the interest of the shar eholders generally that the impugned
    directions have been issued. Let us not forget that section 11(1) of the Act enjoins a duty
    on the Board to protect the interests of th e shareholders and it would have failed in
    performing that duty if it had not intervened. The nature of the directions is such which
    would give an exit route to th e shareholders. The two directors have been told to make a
    public offer to the shareholders of Parsoli and purchase the shares of those who offer at a
    price determined in accordance with the de listing regulations. The shareholders are not
    bound to offer their shares. This direction, in our view, is reasonable in the circumstances
    of the case as it gives an option to the shar eholders to leave the company if they so
    choose. The argument that the shareholders could sell the shares in the market and go out
    is no answer because another set of shareholde rs would step in whose interests would be
    equally in jeopardy. Moreover, they are not likely to get a fair price in the market. This is 23
    the way the Board thought that the interests of the public shareholders could be protected.
    May be there could be another method as well to protect the shareholders but the one
    adopted by the Board by issuing the impugned directions cannot be said to be perverse or
    arbitrary so as to ca ll for our interference. We cannot agree with the learned senior
    counsel for the appellants that this dire ction has no nexus with the alleged wrongdoing.
    The nexus is obvious which has been pointed out hereinabove. We are also of the view
    that the directions are preventive and remedial in nature and the Board was competent to
    issue the same. The learned senior counsel also pointed out duri ng the course of the
    hearing that the financial burden on the second and third appellants would be to the tune
    of approx. Rs.30 crores. We do not know how this figure has been worked out but, be
    that as it may, the burden shall only be on th e directors/promoters of Parsoli who have
    played the real mischief. One cannot chea t/defraud one’s own shar eholders and then
    claim that one is being burdened with a financia l liability. If there is a financial liability,
    so be it as it is only incidental and the object is to protect the shareholders.
13. Before we conclude, we may take not e of another argument advanced by the
    learned senior counsel for the appellants. He strenuously contended that the directions
    issued in paragraph 12(c) and (d) of the impugned order by which the second and the
    third appellants have been directed to provide an exit route to the shareholders are beyond
    the show cause notice and deserve to be set aside on this ground. He pointed out that the
    show cause notice does not state that such directions could also be issued and, therefore,
    the appellants have had no opportunity to represent against the issuance of such
    directions. We are unable to accept this contention. We have carefully gone through the
    show cause notice and find that the details of the misconduct committed by the appellants
    have been mentioned in paragraphs 3 to 23 thereof and the provisions of law which they
    violated have been clearly stated in para graph 24. After pointing out the provisions that
    had been violated, the show cause notice goes on to state the proposed action in
    paragraph 25 which is reproduced hereunder for facility of reference:
    “25. In view of the above, you are hereby called upon to show cause as to
    why action in terms of Section 11(4 ) and Section 11B of SEBI Act, 1992
    should not be initiated against you fo r the violations specified above, 24
    which may include debarring you from accessing the securities market
    and prohibiting you from buying, selling or otherwise dealing in securities
    for an appropriate period of time. This shall be without prejudice to the
    right of Securities and Exchange Boar d of India Act, 1992 to initiate
    prosecution under section 24 of SEBI Ac t, 1992 or any other action as it
    may deem fit in terms of the said Ac t or the Rules and regulations framed
    thereunder.” (emphasis supplied)
    The words “which may include” as mentione d in paragraph 25 leave no room for doubt
    that the proposed action of debarring the appe llants from accessing the securities market
    was not exhaustive and that such other directions which the Board is competent to issue
    under these provisions could also be issued if the allegations enumerated in paragraphs 3
    to 23 of the show cause notice were established. We have already observed that the Board
    is competent to issue such directions as may be necessary to protect the interests of the
    investors. It is pertinent to mention here that the directions of the kind that have been
    issued in para 12(c) and (d) of the impugned order are well known to those who are
    associated with the securities market and are often resorted to by the market regulator as
    and when it becomes necessary to protect the interests of i nvestors. Directions of this
    kind are also the requirements of some of the regulations framed by the Board for the
    purpose of regulating the market. With a view to satisfy ourselves that no
    prejudice/injustice is caused to the appellants, we put it to the lear ned senior counsel for
    the appellants that if these directions had been specifically mentioned in the show cause
    notice then what further could they have urged before the Board. After seeking
    instructions from his clients who were present in Court, he could not point out anything
    in this regard. We are, therefore, satisfied that no prejudice or injustice has been caused to
    the appellants particularly in the background that such dire ctions are well known to the
    market. Having regard to the conduct of the appellants which has been discussed in detail
    hereinabove and in view of the grave misconduct that has been established on the record,
    we are of the firm view that the directions of the kind contained in para 12(c) and (d) of
    the impugned order are called for in the circumstances of this case to protect the interests
    of the shareholders. Even if it were to be assumed (though we are holding to the
    contrary) that there was some lacuna in th e show cause notice in this regard, we are
    upholding the directions in exercise of our powers under Rule 21 of the Securities 25
    Appellate Tribunal (Procedure) Rules, 2000 to secure the ends of justice. It may be
    mentioned that Rule 21 of these rules enables th is Tribunal to make such orders or give
    such directions as may be necessary or expe dient, among others, to secure the ends of
    justice.
14. This brings us to the second argument of the learned senior counsel for the
    appellants as noticed in para 7 above. It is argued that since Parsoli had done no wrong as
    a stock broker or as a depository participan t, the Board was not justified in stopping it
    from carrying on the activities as a stock br oker or as a depository participant. The
    argument is that the wrongdoing, if any, of the first appellant was in its capacity as a
    listed company and not in its capacity as a stock broker or a depos itory participant and
    that it could not be stopped from carrying on its activities in these two capacities.
    Another facet of this argument is that the first appellant could be prevented from carrying
    on its activities as a market intermediary (stock broker or depository participant) only by
    way of a disciplinary action after following the procedure laid down in Securities and
    Exchange Board of India (Intermediaries) Regulations, 2009 (inter mediary regulations)
    whereunder the certificates of registration can be suspended/cancelled or such other
    punishments could be awarded as prescribed therein. This argument(s) is equally
    untenable and we cannot accept the same. There is no doubt that the appellant was
    associated with the securities market in th ree different capacities namely, as a listed
    company, as a registered stock broker and a re gistered depository participant. The first
    appellant and its promoters committed seriou s wrongs in their capacity as a listed
    company and defrauded the shareholders. S hould they be allowed to operate in the
    securities market in other capacities? We do not think so. We have already noticed that
    the appellants had played a fraud of the worst kind on their inno cent shareholders and
    their conduct is so heinous that they should not be allowed to be in the securities market
    in any capacity. If the argument of the learned senior counsel were to be accepted then
    we should allow them to operate as stock br okers and depository participants. So far the
    appellants have defrauded only their own shareholders. The Board cannot take the risk of
    allowing them to operate as a stock broker or as a depository participant in which 26
    capacity they could defraud ot her investors as well. Mr. Shyam Divan, Senior Advocate
    gave an illustration to prove his point that the first appellant could not be debarred from
    functioning as a stock broker or a depository participant. He said if a listed company
    which manufactures automobiles were to commit a similar wrong qua its shareholders,
    could the Board debar that company from manu facturing motor cars. In this illustration
    the answer has to be in the negative becau se the activity of manufacturing cars is not
    market related but if the listed company wa s carrying on any other activity or wearing
    any other hat as a market intermediary in the securities market, it could certainly be kept
    out therefrom depending upon the nature of the misconduct. If the wrong committed is
    heinous as in the present case, the object of the Act would be better achieved by keeping
    the wrongdoer out of the market completely no matter the number of hats he may wear.
    We may hasten to add that whether for a pa rticular wrongdoing, the market player is to
    be kept out of the securities market completely or only in regard to a particular activity
    would depend upon the facts and circumstances of each case and also on the gravity of
    the wrongdoing. In the facts and circumstances of the present case, we have no doubt that
    the Board was justified in keeping the first appellant out of the market completely in
    regard to all its activities for a period of seven years because the wrongdoing is rather
    serious. It is for the same reason that we would uphold the other dir ection issued to the
    second and third appellants restraining them from holding the position of a director in any
    listed company for the same period. This dir ection, too, became necessary because these
    appellants were primarily re sponsible for defrauding their shareholders. We cannot lose
    sight of the fact that the securities market is a place where investors come to trade, that is,
    buy and sell their securities and it is of utmo st importance that we keep the market place
    safe and secure. It is only then that the conf idence of the investors, both from within and
    outside the country, can be built and investor confidence is an important factor which
    enables the market to develop. It is for this development that the Board has been set up.
15. We may now deal with the other tw o Appeals no. 112 and 113 of 2010 in this
    group both of which are directed against the common order dated May 5, 2010 passed by
    the adjudicating officer imposing monetary pena lties on the appellants. Reference to this 27
    order and the penalties has already been made in para 5 above. Penalty of Rs.25 lacs has
    been imposed on Parsoli, its managing director and joint managing director under section
    15A(a) of the Act for violati ng section 11C and another sum of Rs. 3 crores imposed on
    the family of Sareshwalas who are the pr omoters of Parsoli including the managing
    director and the joint managing director under section 15HA of the Act for violating
    regulations 3 and 4 of the FU TP Regulations and for the vi olation of regulation 53A of
    the depository regulations. Pena lties have also been levied on the family of Kothawala
    and several others who are the associates of Parsoli and their prom oters and since they
    have not come up in appeal, it is not necessary for us to deal with those penalties. Parsoli
    has challenged the imposition of the penalties in Appeal no. 112 of 2010. Four promoters
    namely, Zafar Sareshwala, Uves Sareshwa la, Talla Unus Sareshwala and Sleha
    Mohammed Yunus Sareshwala have challenge d the penalties in Appeal no.113 of 2010.
    The learned senior counsel for the appella nts while challenging the impugned order in
    these appeals strenuously contended that the penalties imposed on bot h the counts were
    highly excessive, arbitrary and unreasonable and that the adjudicating officer completely
    disregarded the factors enumerated in section 15J of the Act while imposing the penalties.
    We are unable to agree with the learned counsel.
16. We shall first deal with the penalty of Rs.25 lacs that has been imposed on Parsoli
    and its two directors as aforesaid. As alrea dy noticed, this penalty has been levied for
    violating section 11C(2) & (3) of the Act. These provisions read as under:
    “11C. Investigation.-
    (1)………………………………………………..
    (2) Without prejudice to the prov isions of sections 235 to 241 of
    the Companies Act, 1956 (1 of 1956) , it shall be the duty of every
    manager, managing director, offi cer 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
    him in this behalf, all the books, registers, other documents and
    record of, or relating to, the comp any or, as the case may be, of or
    relating to, the intermediary or such person, which are in their
    custody or power.
    (3) The Investigating Authority ma y require any intermediary or
    any person associated with securi ties market in any manner to
    furnish such information to, or produce such books, or registers, or 28
    other documents, or record before him or any person authorised by
    it in this behalf as it may consider necessary if the furnishing of
    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.
    (4) to (11) …………………………………………………………..”
    Section 15A(a) of the Act is also relevant and the same is reproduced hereunder for ease
    of reference.
    “15A. Penalty for failure to furnish information, return, etc.- If any
    person, who is required under this Ac t or any rules or regulations
    made thereunder,-
    (a) to furnish any document, return or report to the Board, fails to
    furnish the same, he shall be li able to a penalty of one lakh
    rupees for each day during which such failure continues or
    one crore rupees, whichever is less.
    (b) and (c)……………………………………………………”
    The words “a penalty of one lakh rupees for each day during which such failure continues
    or one crore rupees, whichever is less” were substituted by amending Act 59 of 2002
    w.e.f. October 29, 2002 for the words “a penalty not exceeding one lakh and fifty
    thousand rupees for each such failure.” The statement of objects and reasons of Act 59 of
    2002 states “ that existing penalties are too low and do not serve as effective
    deterrent.” The fact that the information sought from the appellants during the course of
    the investigations was not furnished by them is not in dispute. As already noticed, the
    Board was investigating the fraudulent transfer and demat of shares of Parsoi on the basis
    of forged documents. We have on record that th e Board had sought from Parsoli on
    July 11, 2008 information as to why the dema t requests from its shareholders had been
    rejected when the company had admitted that such requests were genuine. Information
    was also sought as to why the shareholders were compensated. Parsoli did not furnish the
    information in this regard. This informati on was also sought from the managing director
    and he was directed to clar ify the position. He, too, did not respond. Zafar Sareshwala,
    managing director was then summoned to app ear before the investigating officer on
    August 5, 2008 which he did. As many as 25 qu estions were put to him with a view to
    solicit information regarding the manner in which the shares were being transferred and
    the modus operandi adopted by Parsoli in this regard. He was also asked as to why the 29
    signature specimen cards had not been furnished to the RTA. His answer to as many as
    15 questions was that he would furnish the information by August 8, 2008 which he
    never did. The other answers that he gave to some of the questions were evasive. We
    have perused the statement of the managi ng director and in the background of the
    findings that we have recorded hereinabov e, we have no doubt that Parsoli and its
    directors were deliberately withholding the information that was sought from them during
    the course of the investigations. Obviously, they were trying to cover up their fraudulent
    acts. Non furnishing of the information to the investigating officer in these circumstances
    was indeed serious and such non furnishing would hinder th e investigations. If market
    players start withholding information from the Board, the latter would not be in a position
    to perform its statutory duties enjoined upon it by the Act. Parliament had noticed that the
    penalties that were provided for the violati ons were inadequate and did not serve as a
    deterrent to the market players and it is for this reason that the Act came to be amended in
    the year 2002 as noticed above and the pena lties were enhanced considerably. The
    penalty for not furnishing the information coul d be levied to the extent of Rs.1 lac for
    each day during the period for which the information was withheld. The appellants in the
    present case did not furnish the information at all. In these circumstances, a penalty of
    Rs.25 lacs cannot be said to be excessive.
17. A consolidated penalty of Rs.3 crores has been levied on the promoters of Parsoli
    for violating the FUTP Regulations and th e depository regulations. We have already
    recorded our findings that the appellants had violated thes e provisions and played fraud
    on their shareholders which is of the worst order in the securities market. Section 15HA
    of the Act provides that if any person indul ges in fraudulent and unfair trade practices
    relating to securities, he shall be liable to a penalty not exceedi ng 25 crores rupees or
    three times the amount of profits made out of such practices, whichever is higher. For the
    kind of fraud perpetrated by the appellants, we are of the view that the penalty of
    Rs.3 crores is too moderate and does not call for any interference by this Tribunal. 30
18. Another ground on which the penalties levied is sought to be ch allenged is that
    the adjudicating officer has not considered th e factors enumerated in section 15J of the
    Act. Section 15 I of the Act provides that ad judication proceedings could be initiated for
    the purpose of adjudging, among others, unde r section 15HA whether any person has
    indulged in fraudulent and unfair trade practices relating to securities and the adjudicating
    officer while adjudging the quantum of pena lty shall have due regard to the factors
    enumerated in section 15J of the Act which reads as under:
    “15J. Factors to be taken into account by the adjudicating
    officer.- While adjudicating the quantum of penalty under
    section 15-I, the adjudicating o fficer shall have due regard
    to the following factors, namely:-
    (a) the amount of disproportionate gain or unfair
    advantage, wherever quantifiable, made as a result of
    the default’
    (b) the amount of loss caused to an investor or group of
    investors as a result of the default’
    (c) the repetitive nature of the default.”
    A plain reading of section 15J leaves no room for doubt th at the factors enumerated
    therein are not exhaustive and that the adjudicating officer while having regard to those
    factors can take into account other factors as well such as the gravity of the wrongdoing.
    We are unable to agree with the learned seni or counsel that the factors enumerated in
    section 15J have not been considered by the adjudicating officer. He has examined those
    factors and took note of large number of inst ances in which the shares belonging to the
    unsuspecting public shareholders were fraudulently transferred in favour of the promoters
    and their associates and concluded that the misconduct of the appellants was repetitive in
    nature. He has also observed that it would be difficult to assess and convert into monetary
    terms the gains made by the appellants in th e fraudulent acts with any mathematical
    precision. He has also taken into account the gravity of the fraud and the modus operandi
    employed by the appellants and concluded that it calls for a deterrent penalty. We have
    perused the impugned order carefully and are in agreement with findings recorded therein
    and find no ground to interfere with the quantum of penalty imposed. 31
    Group II
    Appeals no.145 of 2010, 77 and 80 to 82 of 2011 fall in this gr oup as they all arise from
    the same set of facts and allegations.
19. Parsoli is a listed company and governe d by the listing agreem ent executed with
    stock exchange(s) where its securities are list ed. Section 21 of the Securities Contracts
    (Regulation) Act, 1956 requires that a listed company shall comply with the conditions of
    the listing agreement. This agreement is in a st andard form prescribed by the Board. It is
    an important document and one of the requireme nts of its clause 35 is that a listed
    company shall file with the stock exchange where its securities are listed a statement
    showing its shareholding pattern including th at of its promoters and the changes made
    therein from time to time. One charge levelled against Parsoli is that it violated clause 35
    of the listing agreement. The promoters of Parsoli transferred 9,61,600 shares held by
    them to others which brought about a change in the shareholding pattern of the promoters
    and Parsoli was aware of this change but it di d not disclose the same to BSE. Another
    charge against Parsoli is the non-intimation to BSE of its decision to reverse the earlier
    decision recommending dividend. The board of directors of Parsoli in their meeting held
    on July 4, 2005 recommended to the general body of shareholders the declaration of
    dividend @ 10% per share and this informa tion was disseminated to BSE promptly as
    required by the listing agreement and the regula tions. This information without doubt is
    price sensitive. The board of directors in their su bsequent meeting held on
    November 18, 2005 “revised the accounts by cancellation of dividend”. This cancellation
    of dividend was approved by the shareholders in the annual general meeting held on
    December 31, 2005 but information regarding can cellation of the dividend had not been
    communicated to BSE. Reversal of the earl ier decision was equally price sensitive and
    Parsoli was required to communicate this information to the stock exchange for the
    benefit of the investors in general. The thir d charge against Parso li is that during the
    course of investigations for the period from March 11, 2005 to July 18, 2005 Parsoli and
    its promoters/directors did not co-operate with the investigating officer and failed to
    furnish the information sought from them. Proceedings under sections 11 and 11B and 32
    also under chapter VIA of the Act were initiated against Parsoli and its
    promoters/directors for the aforesaid wrongdoings and they have been found guilty both
    by the whole time member and the adjudicating officer. By order dated June 28, 2010, the
    whole time member has restrained Parsoli from accessing the securities market directly or
    indirectly for a period of one year from the da te of the order. However, Parsoli has been
    allowed to service its existing clients both as a broker and also as a depository participant.
    The adjudicating officer by his separate orders passed against Parsoli and its
    promoters/directors has imposed different m onetary penalties on th em. Parsoli has filed
    Appeal no. 145 of 2010 against th e directions issued by the whole time member and
    Appeal no. 82 of 2011 against the order of the adjudicatin g officer imposing monetary
    penalty. Appeals no. 77, 80 and 81 of 2011 have been filed by the promoters of Parsoli
    challenging the orders passed by the adjudicating officer imposing monetary penalties on
    them. As already observed, these appeals ar ise out of the same facts and the main
    arguments were addressed in Appeal no. 145 of 2010.
20. Challenging the findings recorded by th e whole time member, the learned senior
    counsel argued that the promoters of Pars oli had pledged their shares with private
    financiers to raise funds for the company and that the pledgees wrongfully transferred the
    shares to themselves. We find no merit in this argument. There is no material on the
    record to show that the shares were ever pledged. The mere ipse dixit of the appellants
    cannot be accepted. It is pertinent to mention that there is a procedure prescribed under
    the Depositories Act and the regulations framed thereunder for pledging shares and when
    a pledge is created the same is recorded in the records of the depository. Had a pledge
    been created, as is now sought to be argu ed, the appellants would have produced the
    records from the depository. On the contrary, we find that the shares were transferred by
    the promoters and this information was dul y received by Parsoli from the beneficial
    account statements received from the depositories. How can we agree with Parsoli that it
    was not aware about the transfer of shares? It is interesting to note that when the whole
    time member confronted Parsoli with the fact that there was no record of pledge in the
    records of the depository, Parsoli sought to change its stance and stated that the 33
    promoters might have transferred their shares but pleaded ignorance about this fact. We
    find that Parsoli and its prom oters have been dodging the Bo ard at every stage of the
    proceedings and have not come out clean. The fact of the matter is that the shareholding
    pattern of Parsoli and its promoters had cha nged when they transferred a large chunk of
    9,61,600 shares and this change in the sharehol ding pattern was never intimated to BSE.
    Parsoli and its promoters wanted to keep this information back from the market lest it had
    an adverse effect on the scrip. The object of clause 35 is to let the investors know about
    the shareholding of the promoters to enable them to take an informed decision. When the
    investors come to know that the promoters ar e themselves off-loading their shares, this
    information is bound to have its own effect. Th is lapse is rather serious and cannot be
    taken lightly. We are satisfied that Parsoli willfully violated clause 35 of the listing
    agreement when it failed to intimate BSE regarding the change in the shareholding
    pattern of its promoters.
21. We also find from the record that the board of directors of Parsoli had on
    July 4, 2005 recommended dividend to be declared @ 10% per share. This decision was
    promptly communicated to BSE as it was likely to have a positive impact on the price of
    the scrip. When the decision was reversed in the meeting held on November 18, 2005
    which decision was subsequently adopted by the annual general meeting on
    December 31, 2005, Parsoli and its promoters deliberately withheld this information
    from BSE and thereby from the investing pub lic and the reason why they withheld this
    information is not far to seek. The earlier decision to recommend dividend was in public
    domain and being price sensitive had the poten tial to influence the price of the scrip.
    When the decision was reversed, the informa tion of reversal was likely to have an
    adverse impact in the market. Moreover, Pars oli and its directors wanted the investing
    public to remain under the impr ession that dividend was being declared even though the
    decision in that regard had been reversed. This is a novel method adopted by Parsoli and
    its directors in misleading the investing public and we are in agreement with the whole
    time member that they violated regulations 3 and 4 of the FUTP Regulations. The whole
    time member has also found that Parsoli and its directors did not furnish the details of the 34
    record sought from them during the course of the investigations and that they did not co-
    operate with the investigating officer and made serious attempts to mislead the
    investigations and the proceedings. The whole time member has recorded his findings on
    all these issues in para 5.3 of the impugne d order which findings were not seriously
    challenged by the learned senior counsel during the course of the hearing. What he
    strenuously argued was that the direction is sued by the whole time member restraining
    Parsoli from accessing the capital market was not preventive in nature and that it was
    penal and the same could not be sustained. We are unable to agree with him. Firstly,
    Parsoli and its directors misled the invest ors in general on the issue of dividend as
    discussed above which is, i ndeed, a very serious wrongdoi ng with the potential of
    materially affecting the price of the scri p. Parsoli also took a false stand that the
    promoters had pledged their shares and that there was no change in their shareholding
    pattern. Here again, Parsoli was trying to cover up its default in not disseminating the
    information to BSE. As already noticed, Parsoli willfully withheld this information.
    Parsoil also misled the investigations a nd the proceedings. In the light of these
    wrongdoings as established in the impugned or ders, we do not think that the order
    restraining Parsoli from accessing the capital ma rket is penal. The purpose is to prevent
    Parsoli and its directors from repeating such serious wrongdoings in future. We have
    already observed that such a direction is regulatory and pr eventive in nature though it
    may incidentally have the effect of keeping the delinquent out of business.
22. As regards the orders passed by the adjudicating officer imposing monetary
    penalties, the learned senior counsel had only one argument to advance. He contended
    that the impugned orders did not take into account the factors enumerated in section 15J
    of the Act and the penalty amounts were exces sive, arbitrary and disproportionate to the
    gravity of the wrongdoing. Here again, we cannot agree with the learned senior counsel.
    As already pointed out, the wr ongdoing is so serious and we are of the considered view
    that the adjudicating officer has erred in imposing penalties on th e lower side having
    regard to the amendments made in the year 2002. How can a listed company and its
    directors be allowed to mislead the inve stors in general by keeping them under the 35
    impression that the company was coming out wi th a dividend when the proposal in this
    regard had been dropped? As already noticed, the appellants had willfully withheld this
    information from the stock exchange. Equally serious are the violations pertaining to the
    listing agreement and non-cooperation during the course of the investigations. We have
    no hesitation in upholding the impugned orders in all these appeals and also the monetary
    penalties imposed on Parsoli and its promoters/directors.
    Group III
23. The solitary appeal that falls in this group is A ppeal no.150 of 2010. The charge
    levelled against Parsoli in this appeal is non-co mpliance of the order dated
    February 20, 2009 by which the Board had dire cted it to remove the RTA and appoint
    another RTA within a period of six months fr om the date of the order. The whole time
    member, by his order of July 22, 2010, has held that Parsoli had failed to comply with the
    order and accordingly restrained it from accessing the securities market for a period of six
    months from the date of the order. This or der is under challenge in this appeal. It is
    common case of the parties th at the order dated Februa ry 20, 2009 had been complied
    with by Parsoli though there was a delay of 54 days in complying with the same. The
    whole time member is wrong in holding that there was non-compliance. The order had
    been complied with but belatedly. For the dela y in complying with the order, Parsoli has
    furnished an explanation. It states that th e RTA had not transferred the database and
    electronic connectivity for a su fficiently long time which cau sed the delay. It has also
    been pointed out that a tr ipartite agreement between Pa rsoli, the new RTA and the
    National Securities Depository Limited had to be executed before the change could take
    place and this agreement also took some time. The explanation furnished by Parsoli
    appears to be plausible and, in the circumst ances, we are clearly of the view that the
    whole time member was not justified in issu ing the directions under sections 11 and 11B
    of the Act restraining Parsoli from accessing th e capital market. Even if Parsoli can be
    said to have violated the order of February 20, 2009 because of the delay in changing the
    RTA, the Board should have taken penal actio n for violating the said order by initiating
    adjudication proceedings or such other proceedings which could be initiated in 36
    accordance with law. In the circumstances of this case, there is no warrant for issuing
    regulatory and preventive directions of the na ture that have been issued in the instant
    case. We are of the view that the whole time member has resorted to this provision by
    way of taking disciplinary actio n which is not the scope of sections 11 and 11B of the
    Act. In this view of the matter, the impugned order cannot be sustained.
    For the reasons recorded above, Appeals no. 112, 113, 145, 146 of 2010 and
    Appeals no. 77, 80, 81, 82 of 2011 are dismissed and the impugned orders therein upheld.
    Appeal no. 150 of 2010 is allowed and the impugned order therein set aside. Parties shall
    bear their own costs in all the appeals. Sd/- Justice N. K. Sodhi
    Presiding Officer Sd/- P. K. Malhotra Member Sd/- S.S.N. Moorthy Member ddg
    12.8.2011
    After we pronounced the orders in Court, the learned counsel for the appellants
    made an oral prayer that we should stay the operation of our or ders to enable the
    appellants to continue operating in the mark et till such time they approach the Supreme
    Court. This prayer is oppos ed by the learned counsel ap pearing for the Board. The
    prayer made on behalf of the appellants, in our view, is wholly misconceived. By orders
    dated June 28, 2010 and July 27, 2010, the Board had restrained the appellants from
    accessing the securities market for a period of one year and seven years respectively and 37
    these orders had been impugned in the appeals. When the appeals were admitted, we did
    not stay the operation of the orders impugned therein. Now when we have affirmed those
    orders and dismissed the appeals, there is no reason for us to grant any interim stay.
    Consequently, the prayer is rejected. Sd/- Justice N. K. Sodhi
    Presiding Officer Sd/- P. K. Malhotra Member Sd/- S.S.N. Moorthy Member Prepared and compared by-ddg
    12.8.2011

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