WIM/GM/ISD/ 32/2017-18 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER UNDER SECTIONS 1i(1), 11(4) AND 11B OF THE SECURITIES AND EXCHANGE, BOARD OF INDIA ACT, 1992 - AND IN CONTINUATION OF ORDER DATED MARCH 29, 2016, IN THE MATTER OF KAILASH AUTO FINANCE LIMITED In respect of: SL No. | Noticee PAN Company 1 | Kailash Auto Finance Td. AACCROD25] Beneficiaries 2 [Ni Kanniah “‘SAHPK8800D 3 | Keishaa Agrawal “ACHPAGI25P 4 | Nand Kishore Agarwal “ACIPAZHOP 5 | Praveen Goud Adhilkam ACOPATASAQ © _| Sapna Goud Adhikam ADAPAI395) 7 _| Poonam Makin “AEVPM9256K | Sunitha Mundada ‘ABZPM26N 9 | Prashant Singh Gaur ‘APBPGS5512R 10 __| Sandeep Mahendrabbai Shah ‘AADPS4022M cry ‘Shiv Kumar HUF AABHS3053G_ 12 | Ramachandran Ananthan Pothi “AACPPSG20K 73 _| Anand Swaroop Rathi ‘ABLPRBIO3M 14 Rajesh Rathi ACDPR7543Q: 15 _ | Asha Rani Soni ‘AJEPSE5361. 16 Bhagwati Devi Patwati AEYPP3706L 17 | Priyanka Patwasi ‘ALSPRBI79K 18 | SK Patwari HUF ‘AAFHSS91K 19 _ | Sajan Kuma Patwasi ‘ABYPPST05K 20 | Sanjay Kamar Patwari ‘AFPPP9ST6G 21 | Sanjay Kumar Patwari HUF ‘AASHST7307E. 22, Sanjib Kumar Patwati -AFRPP9205L_ 23 | Sanjib Kumar Patwasi HUF Order in the matter of Kailash Auto Finance Limited24 | Sarika Patwari “ABAPL2442E, 25 | Shaila Patwari ‘AJFPP4973M_ 26 | Sunil Kumar Patwari ‘AFVPP3401L_ 27 | Sunil Kumar Patwari HUF AANHS6750A Entities at SL No. 02 to 27, shall, hereinafter, be collectively referred to as “beneficiaries” or individually by their respective names. ‘Recipients of CPAL and PML Shares 28 | Anand Sagar Thakur AEYPTO142A 29 | Rudm Prasad Banerjee AVTPB4409) 30 | Binod Kumar Toshniwal AFDPT0326E, 31 | Hanish Toshniwal AHJPT9222F 32 | Santosh Sharma BFAPS7597Q Entities at Si. No, 28 to 32, shall, hereinafter, be collectively referred to as “Recipients of CPAL shares and Recipients of PML Shares” ot “Recipients” ot individwally by theit respective names. The aforesaid entities at SI, No. Of to 32, shall, hereinafter, be referred to by their respective names of by theit respective categories or collectively as “the noticees”. 1. Securities and Exchange Board of India (SEBI) vide an ad-interin ex:parte order dated March 29, 2016 (hereinafter referred to as the “interim order”), cestrained the Company namely Kailash ‘Auto Finance Limited (hereinafter referred to as “Kailash Auto’) and 245 other entities including the above named noticees, from accessing the securities market and further prohibited them from buying, selling or dealing in securities, either directly or indirectly, in any mannet, whatsoever, til further directions. The persons/ entities against whom the interim onder was passed, were advised to file their objections, if any, within twenty one days from the date of the interim order and, if they so desite, to avail themselves of an opportunity of personal hearing before SEBI. 2. The interim order was passed taking into account the facts and circumstances as summatised hereunder:- @ CPAL and PML were incorporated as private limited companies with share capital 1,00,000/- each, consisting of 10,000 equity shares of € 10/- each on September 15, 2010 and September 19, 2010, respectively. Gi During Financial Year 2010-11, within a short time of its incorporation, CPAL had purportedly entered into a private placement arrany i Onder in the matter of Kailash Auto Finance Limitedfn the interim order as the ‘primary allottees of CPAL!) whereby CAPL issued 3,30,155 equity shares of face value & 10/-each ata premium of € 590/- and raised a shate premium of & 19,47,91,450/-. Then its shares were split ftom & 10/- each to 1/- each, thereby convesting 3,40,155 equity shares of ® 10/- each into 3,401,550 equity shares of @ 1/- each. Thereafter, during the same financial year, CPAL had issued 18,70,85,250 equity shares of € 1/- each as bonus shares in the ratio of 55 shares for 1 share and further issued 95,200,000 equity shares of € 1/- each through private placement. All the entities who received bonus shares, and who were allotted sharesin this 2° private placement ate referred to as the "recipients of CPAL shares". Gi) Similasly, PML had made private placement of 3,36,900 equity shares of face value & 10/- each at a premium of € 690/- each during the Financial Year 2010-11 to 15 entities (hereinafter referred to as "primaty allottees of PML") and purpottedly raised a share premium of € 23,24,61,000/- within short time of its incorporation. ‘Then its shares were split from & 10/~ each to & 1/- each, thereby converting 3,46,900 equity shares of €10/- each into 34,69,000 equity shares of €1/- each. ‘Thereafter, during Financial Year 2011-12, PML had issued 225,485,000 equity shares of & 1/- cach as bonus shares in the ratio of 65 shares for 1 share and further issued 7,12,70,000 equity shares of & 1/- each through private placement. All the entities who received bonus shares, and who were allotted shares in this 2 private placement are referred to as the "recipients of PML shates.” Gv) The primary allttes of CPAL and PML ate connected to each other on the basis of common addresses and/or common directors as detailed in tables 5 and 6 of the intetim order. The interim order in para 5 (s),(#) & (v) has brought out two charts of circulation of funds which indicates the fund flow between primary allottees of CPAL, Ge. the original allottees at the time of incorporation) with CPAL and similarly the fand flow between the primary allotees of PML with PML and also the inter-se connection between CPAL and PML. (#) During the Financial Year 2011-12, both CPAL and PML, were converted from private limited companies to public unlisted companies. (vi) Pursuant to the scheme of amalgamation of CPAL and PML with Kailash Auto(Noticer Nos berzin) in 2013, for every one equity share held by the sharcholders of CP-AL and PML, one equity share of Kailash Auto was allotted to them. Itis relevant to state that the shareholders of CPAL and PML. as on date of amalgamation were allotted shares of Kailash Auto and such allottees are called as bengfsiariesin the interim order. Such. group identified as bngfiaris, inter alia includes noticees nos. 2 to 27 herein. It is Order in the matter of Kailash Auto Finance Limited!relevant to state that the shares of CPAL and PML were acquired by the beneficiaries at an avetage ptice of “1/- pet share. As per the records of the Registrar to Issue and Share Transfer Agent of Kailash Auto, as on record date of amalgamation i.e June 08, 2013, the shares of CPAL were held by 1972 entities and the shares of PML were held y 2058 entities. Out of the total shareholders of CPAL and PML (4030 entities), 85 ‘entities were common shareholders of CPAL and PML. ‘The said benefiarie, after holding the shares for around 12 months, off-loaded the shates of Kailash Auto, at an average price of & 35/-, which was the result of an artificial price increase through transactions over the stock exchange. In the process, the benyiiaries made huge profits of approximately 3400% on their investment. Subsequent to the amalgamation, the volume and price of Kailash Auto was observed to fluctuate in a precise patertn which is divided into three patches as shown below:- (@ Patch — 1 Janvary 17, 2013 to June 04, 2013):- In this patch, the scrip was an illiquid one with negligible trading therein and the price was manipulated from % 11/- to % 36.25/- in 36 trading days by the connected parties who traded under a pre-meditated plan igging the price by 230%. During this petiod the BSE Seasex moved from 19,964 ( on January 17, 2013) to 19545 (on June 04, 2013) (©) Patch — 2 (july 22, 2013 to November 05, 2014):- In this patch, average trading volume increased by 5577 times, as compared to Patch —1 with slight reduction in price © 36.85 on July 22, 2013 and & 28.45 on November 05, 2014). ‘The beneficiaries were net sellers and the entities forming part of Kailash Auto Group I and Kailash Auto Group I (as defined in the interim ordes) were net buyers. (©) Patch — 3 (November 07, 2014 to December 31, 2015):- In this patch the downward trend in the trading volume and price of the scrip of Kailash Auto was observed to be on account of the trades of the beneficiaries who were exiting from the market. (ii) Ta this regard, the analysis of the trades in various patches brought to light a set of net buyers who bought the shares of Kailash Auto from the bengficiares and contributed to the creation of artificial demand in the market and who were connected or related toGroxp I and Kailash Auto Groxp I, in the interim order depending on the inter-se connections within the group members, based on the KYC details, bank details, off- market transactions and information available from MCA web site and the details of the members of the two groups have been shown in Annexures A and B of the interim onder. (és) Tt was further alleged in the interim order that entities involved in such volume and price manipulation of Kailash Auto were being funded by different sources including the cuttent promoter group of Kailasb Auto, to buy shares of Kailash Auto from the beneficiaries and to provide exit to them from the market. Entities of Kailash Auto Group Tand Kailash Auto Group IT had received the funds via multiple layering / transfer of fands so as to mask the true identity of the ultimate owner of the funds. (®) KYC of Kailash Auto Group Land Kailash Auto Group II entities, prima facie, depicts that though theit income level was below ®1 lakh, they had traded worth crotes of rupees, in the sctip of Kailash Auto. From their bank statements, it was noted they were receiving huge amounts of funds on daily basis and the same were used to provide exit to the bengfiiares. Hence, the trading pattern of the entities of Kailash Auto Group I and Kailash Auto Group TI does not match the income disclosed in their KYC. Further these entities acted as exit providers to the beneficiaries and created attificial traded volume. (xi) The key financial parameters/ ratios of Kailash Auto did not present a healthy picture and were well below the industry standards. The Operating Revenue and the Operating Expenditure of Kailash Auto depicts hasdly any operations being cattied out by Kailash Auto, Kailash Auto bas continuously reported negative of no profit. Further, Eaming Per Share (EPS) of Kailash Auto was nil or negative and the value of the scrip was highly inflated with respect to its book value. Considering the financial and operating figures of Kailash Auto, the huge matket capital of Kailash Auto and price/ traded volumes in the sctip during the relevant periods were alleged to be inflated and untealistic as per the interim ordes. (Gai) It is further alleged in the interim order that the entire process of private placement, fabrication of share premium, issuance of bonus shares, subsequent transfer of shares and funds to connected/ related entities was designed to generate bogus LTCG which is exempt from tax under the provisions of the Income Tax Act, 1961. For perpetration of this scheme, the entities misused the stock exchange system. 3, It was therefore alleged in the interin order that the noticees, had committed such acts and ‘omissions in the securities matket, which are ‘fraudulent, as defined under Regulation 2(1)(c) of the SEBI (Prohibition of Fraudulent and Unfair T: ractices relating to Securities Market) Onder in the matter of Kailash Auto Finance Limited Page 5 of 43Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”) and are in contravention of the provisions of Regulations 3(a), (b), (¢) and (d) and 4(1), 4(2)(@), (b), (© and () of PFUTP Regulations and Sections 12(@), (b) and (©) of the Securities and Exchange Board of India Act, 1992 (heteinafter referted to as “SEBI Act’). 4, Out of total 246 entities against whom the interim order dated March 29, 2016, was passed, the directions were subsequently confirmed against 221 entities on different dates (June 15, 2016, September 30, 2016, October 21, 2016 and October 27, 2016) through different orders. Tote that one such confirmatory order dated June 15, 2016 covered 12 noticees referred to in Sl. No. 16 to 27 herein, who remained ex parte eatliet. Subsequently, these 12 entities appealed before the Hon'ble Securities Appellate Tribunal (GAT) against the ex-parte confirmatory otder and SAT vide order dated November 17, 2016, granted liberty to the 12 appellants to approach SEBI seeking modification of ex-parte confirmatory order and this order addresses the scope of confirmatory orders against them. Besides the said 12 noticees, this order also deals with the necessity of passing confirmatory orders against the 20 entities who for different reasons were not heard before. This order however excludes from its scope the remaining 5 entities who are presently pursuing their appeals befote the Hon’bie SAT. 5, Accordingly, based on the sepresentation of these 12 entities, they were called for fresh heating on Aptil 27, 2017. The entities appeared through Mr. Vinay Chauhan, Advocate, along with Dr. $ K Jain, Company Secretary and made submissions. 6. Pursuant to the snterin order, the noticees had filed theis replies on different dates. Subsequently some of the noticees filed their written submissions and sought inspection of documents. Based upon the request of the noticees, an opportunity of inspection of the records/ cocuments which were selied upon by SEBI for the purpose of the interim onder was provided to the noticees. Thereafter, several rounds of personal hearings were granted to the notices on various dates. Out of such noticees, certain persons/ entities had attended the petsonal heating, while some others had sought exemption and a few had failed to appear for the petsonal hearings. The additional written submissions, submitted by such noticees pursuant to the personal heatings were also taken on record. 7, Majority of entities have been heard and their replies are on similar lines. Some of the entities have sought adjournment / documents solely with a view to delay the proceedings. Certain other entities have not sent any reply or app for the heating. In view of the fact thatpassing of the confirmatory order cannot be delayed / deferred any further and I do not find ‘it necessary t0 accede to the requests for adjournments of certain entities. Tam taking into consideration the replies and submissions of entities who have responded and the materials available on records with respect to other entities as well, for passing this order. 8. In the case of Noticees who have submitted similar replies, common issues have been identified and grouped together for the sake of brevity. In addition, once a common ground / contention is raised by one of the noticees, it is not repeated for other noticees. ‘The replies of the Noticees are also summarized below: I. Company: A. Kailash Auto Finance Limited (did not appeat for hearing): @ They denied the allegations made in the Order and submitted that they have not violaed the provisions of SEBI Act and PFUTP Regulations as alleged in the Order (Gi) They bave not been furnished the entire material based on whic SEBI bas come to the alleged findings agains then, (ii) The said Order is vitiated by gross violation of principles of natural justice, in as much as no opportunity was prove t0 them to explain their version and the circumstances as stated inthe said Onder did not justify dispensation of pre-deisional bearing (G0) In the matter under reference, itis clear that there was no imnrinent danger or urgency 50 as fo sxcenise powers under Sections 11 and 11(B) dispensing with the pre decisional hearing in gross sialation of principles of natural justice. (0) The directions under Sections 11 and 11(B) are issued for safeguarding the markets and are not for penalizing the persons and denying ther egal rights, on the bass of assumptions and presumptions, ‘The direction issued against thre, at tis juncture is nether preventive or remedial nor curation, but out and out penal. (oi) The alleged private placements made by CPAL. and PML. were in the ordinary course of business Gebors sinister intent or design. (sii), SEI bas errunconsty clubbed them with other entities (nx, beneficiaries, primary allotes, Kailash Auto Group I, Kailash Auto Group I and recipients of CPAL shares and redipients of PML. shares). They are not involved with the said alleged groups nor bad connived with them. ‘The company was incorporated under the provisions of Companies Act 1956, and a NBFC registered with RBI. They bave been carpying on the business of granting loans amd advances to individuals and SME, ete, and dealing in shares and svurits, (5) Daring the pri (November 07, 2013 to November 06, 2014) Kailash At mas nde in smal cap faces list of Margan Stale ity inal Global Small Cap Indies (MSD, Order in the matter of Kailash Auto Finance Limit a a [ Page 7 of 43 q in ay — Fey %Alt that time, Kailash Auto bad market capitalisation greater than LT Fin, City Union, Bank of Mabarashina, Vijaya Bank, Kotak Bank and Dena Bank. Further, during te period fram December 14, 2013 to December 20, 2013 the stack was purchased by 13 Financial Insitution and Foreign Institutional Investors (FU). Thereafter, on November 06, 2014 the serp war removed from the cap forus lst of MSCL. Neither the Company nor its directors] promoters bave dealt in the shares ofthe company during the relevant tins, (65) They do not have any link] connection [ nescus mith any ofthe alleged: a. Benefciaies/ primary allottees| recipients of CPAL shares and recipients of PML shares, save and except that of a Company and sharebolde. b, Kailash Auto Group I, Kailash Auto Group I bave dealt in the shares ofthe Company, uring the ioapugned period and the compnay bad no roe to play in the trading done by these nites and the compnay didnot have any financial transactions with them. (i) No materialf evidence has been brought on record to connect there with other entities and to demonstrate even remotely as to bow they are acting in concert with others. (Cail) The corporate actions made by them were never questioned citber bythe stock exchange or SEBI, shile granting approval forthe same. (iti) Their registred office is currently at 15, Rollant Complex, 37/17, The Mall, Kanpur, Uttar Pradesh- 208 001. The inspection of their earlier registered ofce at 19, Rollant Complex, 37/17, ‘The Malh, Kanpur, Uttar Pradesh - 208 001 was done by BSE, The said ofce was shared by theme with a Chartered Accountant firm- M/s Kedia Gupta & Ascocates and not M/s Ajay Kedia & Associates. It may be noted that their employees sit atthe said premises on. (xiv) All the operations of the Company are bandled at their corporate office at Meena. Ut is denied that corporate office was locked and no company officals were available at tbe time of visit of BSE. officials at that address, The said allegations are totally fale, seaping, vogue, misplaced and based on mere surmites and conjectures. BSE. officials bad conducted inspection in Mumbai office on December 03, 2014 and December 31, 2014, On December 03, 2014 the office was locked. ‘However, on December 31, 2014, during the inspection their employer was present at the office, ‘boweve,all the directors were outstation due to company related work, (<0) The date of incorporation of CAL and PML was September 18, 2010 and Stptember 25, 2010, respective. (vi) During FY 2010-11, CPAL had made prinate placement of its 3,30,155 equity shares of face value %10 per share. However, they had submitted to SEBI a list of 13 entities who were allotted 33,01,550 equity shares of face value ©1/- per share. They submited that the same was not deliberate and intentional and at the bighestit was technical, procedural and senial breach, (sl) The nama nthe tbr hae opti of bana shares and priate plcoen af epi shares were undertaken by PML] Paseo intent or design in the ordinary Onder in the matter of Kailash Auto Finance Linvited © t Page 8 of 8course of business, by seeking requisite approvals, complying with the applicable provisions of law and after making proper disclosures. (Goviti) They denied that during the period, December 2010 to June 2011, same funds were being churned among PML CPAL. and their respective primary allotees as alleged. In so far as CPAL. amd PML are concerned, the transactions were in the nature of transfer) recipt of funds for sale/ purchase of walisted shares and allotment of shares and cannot be sai lobe forthe puapaseof book centres, Further, it is denied that there was no infusion of cash in respect of private placements by CPAL and PML as alleged. (ix) They submitted that all the corporate actions viz anoalgamation, reduction of share capital et, bad ‘the approval of SEBI, BSE. and shareholders and details about the same were inthe public domain cand nobody raised any grievance about the saree during the relevant period, (60%) They denied that CPAL. and PML. were incorporated with a dubious plan and premeditated arrangement and artfce to increase nunber of shares thercin through shame and non-genuine transactions as alleged and the same bas resulted in fetching exorbitant and unrealistic consideration in the scheme of amalgamation as alleged. (boc) Asa Company they had no contral over the rice of the srip in the stock: market. Even stock eccabange bad not raised any alarm bells despite the price ofthe serip rising sharply as alleged. They had no role to playin the price rise and the trading done by various entities] persons (asset ‘ont in the Order) in the seri. (oxi) They were not aware of the transactions done by the beneficiaries ding the relevant ime. Further, ‘they were not aware ofthe funds recived by the recipients of shares of CPAL and PML. xin) They were not aware of the tcc evasion dane by primary allottees, recipients of CRAL shares and scipients of PML shares, beneficiaries, LTP contributors, entities of Kailash Auto Group I and Kailash Auto Groxp IL (soon) They denied that they were involoed in any fraudulent, deceptive and manipulative device, plan and artifice designed 10 tamper with free market forces and to damage rhe integrity of the securities markets as alleged. Admittedly, neither the promoters nor the Company ave traded inthe serip of the Company, Therefore, the allegation of misusing the stock exchange system to generate bogus LTCG tai and help beneficiaries to convert their unaccounted income into accounted one with no payment of tases as LCG is tae exempt does not arise, They were nat aware ofthe profits made dy the beneficiaries during the relevant tie, (coer) The loss of reputation as a result ofthe said Order would severely impediment their business in _fitere which is enormously detrimental to them, (ccevi) They submitted that they are suring both financially and reputational, and hence prayed that withdrawn, Onder in the matter of Kailash Auto Finance I(Goxnii) Pursuant to passing of the ex-parte order, the trading in the shares was suspended by BSE. and consequenty, the sharcholders are stuck with the shares of the Company and are notin a position ‘0 unlock ther vale, Il. Beneficiaries: A. Mt. N Kanniah (Represented by Advocate, S. K. Jain): () He denies the allegations, cares and findings leveled agains him in the said ex:parte ad interim order, (i) He isan ordinary investor who acquired 15,00,000 equity shares of CPALR1- each inthe FY 2011-12 out of inestable funds available with bim. All the said shares wer credited to his deat account. (Gi) During the FY 2012-13, CPAL got amalgamated with KAFL. after getting de approvals from relevant regulatory authorities including the Hon'ble High Court of Allababad and Bomby. As per the Scbenve approved by the respective Hlon'ble ligh Courts, be got 15,00,000 equity shares of KAFL of&1/- cach against his bolding of 15,00,000 eguity shares of CPAL and the shares were edited to his demat account on July 22, 2013. (Ge) That the said 15,00,000 equity shares of KAFL. were sold by him daring the period from August 2013 to November, 2013. (0) Fle has not directly or indirectly bougpt or sold or otberwice dealt in securities in aframdulent manner. (oi) He has not indulged in any fraudulent or unfair rade practice in brading in eqaity shares of KAFL. (oi) Hle bas not indulged in any act which erates false or misleading appearance of trading in the securities market (vii) Hes not directly/ indirectly connected to KAFL and] or its promoters and/ or its Directors and or KAFL employees or any of the persons/ entities as refered in the said ex: parte ad-intriot order, (ix) All bis transactions mentionsd above were executed in a transparent manner and as por the applicable market rules and regulations. (65) All income or loss arising ont of the trading in securities market are dnly assessed by the Incnwe Tax Department and due taxes where applicable are paid without claiming any TCG benefits under the provicions of the Income Taxe Act, 1961 as alleged. ( ‘the Exchange. They denied that they have not contravened the provisions of PPUTP and/ or SEBI Aa. ‘They have requested for lifting the directions issued under the Order on an urgent basis 50 that their repretation is restored. Sagar Thakur (did not appear for hearing) ak Page 24 of 43(Gi) They are investors in the securities market and trade in various listed ad united serips from time 10 time. They undertake the activity of trading in securities with an intention to identify companies ‘that have a grout potential and invests in the same, with a wiew to gain profits, eter in terms of capital profits, or revenue profit, (i) The said onder was passed without serking any explanations from them or giving them an “opportunity of bring beard which isa violation of principles of natural justice, equity and fair play and the said order has tarnished bis reputation. (G0) They were made part of the Recipient of CPAL & PML group! merely on the basis of bolding shares of CPAL. (0) They deny being a part of any scheme, plan, device and/ or artifice employed in any cast of tax evasion. They deny having carried out manipalatie transactions in securities nor have they misused the securities market (0) They have prayed that they be allowed to acess securities market and bn, sll or deal in securities cand an order iting the drections issued under ex parte ad-interit order may be passed on am urgent basis. 9. Further, the noticee, Shiv Kumar HUF, having PAN - AABHS3053G, has neither filed any reply not has it availed the opportunities of petsonal heating. 10. T have considered the allegations levelled against the noticees in the interim order, their replies/written submissions and other material available on record. 1 note that in the instant case, the directions issued against the noticees ate interim in nature and have been issued on the basis of prima facie findings. SEBI had issued directions vide the interim onder in the matter in order to protect the interests of investors in the securities market. Detailed investigation in the matter is still in progress. Thus, the issue for consideration at this stage is whether the interim dixections, issued against the noticees vide the interim order, need to be confirmed, vacated or modified in any manner, during the pendency of investigation in the matter. 11. Almost all the notices have raised common issues. Therefore, before dealing with specific replies/submissions of the noticees on merit, I deem it necessary to deal with the preliminary Page 25 of 43Common issues saised by noticees:- ‘A. Whether SEBI has jurisdiction to investigate matters related to LTCG? B. Whether interim order has been passed in complete disregard of the principles of natural justice without giving an opportunity of hearing before passing the interim order? C. Whether there was any requicement and urgency for passing such restraints as imposed by the interim order and whether the same results in breach of fandamental right of doing trade and business? D. Whether after giving permission to the company to amalgamate by court and thereafter listing the shares, such an exercise can be questioned by SEBI? E. Other issues raised by noticees:- I, Whether interim order without bringing out individual role of notices in the manipulation can impose such restrictions on them? IL, Whether it is correct to question their intent when they have used their own funds and sold in the market in an anonymous trading platform of the exchange? TH. Whether BSE or SEBI failed to raise alarm bells on the unusual price movement in the scrips? IV, Whether SEBI has adopted a disctiminatory approach by excluding beneficiaries who had sold less than 5 Lakh shares? A. Whether SEBI has jurisdiction to investigate matters related to LTCG? 12, Some of the Noticees have contended that the primary allegation in the esepart ad intrim order against them is of conversion of unaccounted income into accounted income and subsequent tax evasion which falls outside the jurisdiction of SEBI. ‘The Noticces have also submitted that they have aot received any query fig Income ‘Tex Authorities regarding LICG and tax = Page 26 of 43 (Order in the matter of Kailash Auto FinanceB. 13. evasion falls outside the jurisdiction of SEBI They have stated that their capital gain is genuine. As regards the lack of jurisdiction of SEBI in tax avoidance matters, I note that the interins order bas brought out the modus operandi wherein the company in nexus with the beneficiaries were able to float equity shazes on private placement basis and thereafter the connected entities misused the stock exchange mechanism to ptovide exit to bengficianias at a high ptice in order to help the Lengfciarits to generate fictitions long term capital gain (LTCG). ‘The interim order has detailed at length the manner in which price and volume of the scrip were prima face manipulated by the entities. The manipulation in the traded volume and price of the scrip by a group of connected entities has the potential to induce gullible and genuine investors to trade in a sctip in which they would otherwise not trade. ‘The net buyers in order to provide exit to beneficiaries at a high price interfered with the open ptice discovery mechanism of the stock exchange. Apparently, when certain entities act in concert with the motive of making ‘exorbitant profits which may not have arisen from normal trades in the securities market, such ‘entities ate distorting the fair and free opezation of price discovery and cutting at the root of market integrity. Thus, prina face a fraud in the securities market is established inasmuch as it involves manipulative transactions in securities and misuse of the securities matket Accordingly, I am of the view that SEBI has acted well within its jurisdiction, in the matter. An observation in the interim order to the effect that the object of such market manipulation would have been enhancement of the gains from tax angle does not take the matter out of the purview of SEBI. Whether interim order has been passed in complete disregard of the principles of natural justice without giving an opportunity of hearing before passing the interim order? Some of the Noticees have contended that the interim order has been passed in complete disregard of the principles of natural justice as no opportunity of hearing was provided to the Noticees. In this regard, I note that the: infer order has been passed on the basis of prima face afindings observed during the preliminary examination/inguiry undertaken by SEBI. The facts, circumstances and the reasons necessitating issuance of directions by the interim order have been examined and dealt with in the said interim onder: The interim onder has also been issued in the ature of a show cause notice affording the Noticees a post-decisional opportunity of heating. Talso note that the power of SEBI to pass interie onder: lows from sections 11 and 11B of the SEBI Act which enable SEBI to pass appropriate directions in the interests of investors or secutities market, pending investigation ox inquiry or on completion of such investigation or inquiry. While passing such directions, it is not always necessary for SEBI to provide the entity with an opportunity of pre-decisional hearing. The law with regard to doing away with the requirement of pte-decisional heating in certain situations is also well settled. The following findings of the Hon'ble Supreme Court of India in the matter of Liberty Oil Mills & Others Vs Union Of India & Other (1984) 3 SCC 465 ate noteworthy:- "There can be no tape-measure of the extent of natural justice, It may and indued it must vary from statute to statute, stvation to situation and case to cast. Again, it is necessary to say that pre-decsional natural “justice is not usnaly contemplated when the decisions taken are of an interia nature pending investigation or enquiry, Ad-interim orders may always be made excparte and such orders may themselves provide for «an opportunity to the aggrieved party tobe beard ata later stage. Even ifthe interim orders do not make provision for such an opportunity, am aggrieved party have, nevertbeless, aluays the right to make appropriate representation seeking a review of the order and asking the auibority fo rescind or modify the onder. The principles of natural justice would be satisfied ifthe aggrieved party is given an opportunity at the request." 14, Thus, considering the facts and circumstances of a patticular case, an ad-ilerim ex: parte order may bbe passed by SEBI in the interests of investors of the securities market. It is pertinent to note that the interim order in the present case was passed under the provisions of sections 11(1), 11(4) and 11B of the SEBI Act. The second proviso to section 11(4) clearly provides that "Provided aN [= 28 of 43 Oniern the matter of Kailash Auto Finance 1further that the Board shal, either before or after passing such orders, give an opportunity of bearing to such intermediaries or persons concerned". Further, various Courts, while considering the aforesaid sections of the SEBI Act have also held that principles of natural justice will not be violated if an interim onder is passed and a post-decisional heating is provided to the affected entity. In this egatd, the Hon'ble Bombay High Court in the matter of Anand Rathi & Others Vi. SEBI (2002) 2.Bom CR 403, has held as under: "Ths, it isa settled positon that while ex parte interim orders may alwys be made without a pre decisional opportunity or without the order itself providing for a post decisional opportunity, the principles of natural justice which are never excluded will be satisfied if a post decisional opportunity is given if demanded." I, therefore, do not find that the /nterim order is vitiated for want of a personal hearing prior to passing of the order. C. Whether there was any requirement and urgency for passing such restraints as imposed by the interim order and whether the same results in breach of fundamental right of doing trade and business? 15, ‘The Noticees have raised another contention that the power to issue directions under sections 114) and 11B is a drastic power having serious civil consequences and ramifications on the repute and livelihood of those against whom it is directed. The said power is not available for routine application and cannot be used for penal action. In this regard, I note that in this case the purpose of the interim orderis to achieve the objectives of investor protection and secure the market integrity by enforcing the provisions of the SEBI Act. Urgent measures by way of esttaining the noticees from continued operations in the securities market were considered necessary in furtherance of the objectives of the SEBI Act. I, therefore, do not agree with the contentions of these Noticees that such an exercise of power is not done routinely and retrospectively. Order in the matter of Kailash Auto Finance ‘ Page 29 of 4316. Some of the notices have further contended that thete was no emergent situation that existed which wattanted SEBI to pass the inteinr onder without providing them an opportunity of personal heating. In this regard, I note that the time taken to attive at a decision/action, as in this case, is dependent on the complexity of the matter, its scale and modus operandi involved and other attendant circumstances. ‘The power under sections 11 and 11B of the SEBI Act can be invoked at any stage i.e. either during pendency or on completion of inquiry ot investigation. Farther, the interim onder sets out the reasons and circumstances which led to the issuance of e- parte ad-interion directions. 17. Another contention of the noticees is that the restraint order is in breach of their fundamental tight to catty on trade and business under the Constitution of India. Article 19(1)(g) guarantees, to all citizens, the right to practice any profession or to carry on any occupation, trade of business subject to reasonable restrictions imposed by sectoral regulators in the interest of general public. SEBI Act, 1992 is a special Act enacted by the Parliament conferring on SEBI the duty to protect the interests of investors in securities and to promote the development of, and to regulate the secutities market, by such measures as it thinks ft. In the present case, the restraint otdet has been passed by SEBI in exercise of the powers conferred upon it by law and towards fulfilment of the duties cast under the SEBI Act. As noted in the inérim onder, the notices seem to be prima fare involved in the manipulative scheme and the aoticees have therefore been restrained from accessing the securities market and dealing in securities till further ditections. It is a settled law that the fandamental rights to trade ensured under the Constitution ate subject to restrictions stemming out of legal requirements mandated in other statutes. D. Whether after permission by court for amalgamation and thereafter listing the scrip, such an exercise can be questioned by SEBI? 18, It nceds to be stated that the interim order does not find fault with the manner in which the xeamalgamation took place or the manner in which scrip was listed but deals with the intent of the companies, promoters, beneficiaries ete. in going for a strategic private placement, fabrication of share premium, issuance of bonus shares, subsequent transfet of shares and transfer of funds to connected/ related entities designed to generate bogus LCG. The private placement in the scrips being made to benefit certain identified entities at the cost of the integrity of the whole of securities market is the thrust of the interim order. Thus there is no merit in the above contention. E, Other issues raised by notices L Whether interim order without bringing out individual role of notices in the manipulation can impose such restriction on them? 19, Certain notices have also contended that no material evidence has been brought on record to demonstrate any kind of nexus or prior arrangement between the redpiemts, bengfiiares and Kailash Auto, CPALand PML ot any other entities debatted by this order, Some of the notices, have also contended that they have invested in the PML and/ or CPAL based on background of the company, positive news/ rumours about the company, potential takeover / merger with another compaay etc. In this regard, I note that the notices were unable to demonstrate or provide plausible reasons as to why any ational investor would like to invest in 2 closely held company with hardly any operations and had poor business/ financial standing, CPAL and PML had nil value of tangible and intangible assets. Despite such poor financial background of the company, the exuberance shown by the noticces for companies like CPAL and PML ‘casts doubt on the investment/ trading strategy of these noticees. In my view, this type of, investment was possible only when the entities are acting in nexus for a common objective as Drought out in the interim onder 20. Upon an appreciation of the scheme as a whole, I notice that several entities and group of entities as identified in the interim or: ‘broadly been shown to bave some connection Onder in the matter of Kailash Auto Finance Lirmited Page 31 of 43 AN \, NNwith the alleged market fraud. As stated in the catlier paragraphs, since intetim order is an ‘emergent measuse taken by SEBI in the interest of investor, the issuance of such order cannot await the identification of each entities’ role to the main scheme. I do not find any merit in the contention of the notice as the role of notices would be revealed only in a detailed investigation, which will consume time at the cost of immediacy. IL. Whether it is correct to question their intent when they have used theit own funds and sold in the market in an anonymous trading platform of the exchange? 2 |. As regards the contention of certain noticees that pricing of a sctip is subjective, contingent upon forces of demand and supply and at no point of time either the stock exchange or SEBI hhad raised any alarm as to price movement in the scrip, I note that it is an admitted position that the movement in the price of a scrip is driven by various factors. Unlike in the instant case, the steep price tise with meagre volume followed by sudden increase in volume at high ptice cannot be assumed as a normal market trend when the buyers and sellers of Patth - 2 are found to be entities of Kailash Auto Group I and Kailash Auto Group Il and beneficiaries. Ithas been found that certain entities of Kailash Auto Group Iand Kailash Auto Groxp Thad acted as buyers when the bengfciaries were selling the shares of Kailash Auto. It is appatent from the trading pattern that the said Kailash Auto Group I and Kailash Auto Gronp II entities bad bought shares at high prices in market which saw sudden sale of huge number of shares post amalgamation by the Dengfcares. Such trading behaviour belies any economic rationale and indicates existence of premeditated arrangement among the benfciries and those Kailash Auto Group I and Kailash Auto Growp TI. The facts and circumstances of this case were fit for issuing directions by way of intrio order during the pendency of the investigation. I, therefore, do not find any merit in the contentions of the noticees. 22, There have been instances of market manipulation wherein entities have deployed their own fands and these manipulations have been perpetzated through the trading platform. The mere a j possibility of manipulation. Only the act of bringing in own fands does, Onder in the matter of Kailash Auto Finanie Lirhited Qe NNongoing investigation would reveal the complicity or otherwise of vatious patties in the fraud. ‘Thus these are not valid grounds available to the noticees to challenge the intetim order. IIL, Whether BSE or SEBI failed to raise alarm bells on the unusual price movement in the scrips? 23. The thrust of interim order was not price or volume manipulation. It was the whole scheme beginning from the strategic private placement, amalgamation, fabrication of shate premium, issuance of bonus shares, subsequent transfer of shares and transfer of funds to connected/ related entities designed to generate bogus LTCG, by investing in the scrip of the aforesaid company in a strategic manner by misusing the stock exchange mechanism. ‘Therefore, the contention raised by noticees ate without merit. IV. Whether SEBI has adopted a discriminatory approach by excluding beneficiaries who had sold less than 5 Lakh shares? 24. The entities have contended that SEBI has adopted a discriminatory approach by including them in the intrim orderand exchuding certain other beneficiaries from the purview of the same as they have not sold more than 5 lakh shares. In this regard, I find it important to mention that the interim order clearly mentioned that a detailed investigation in the matter is in progress. The fact that certain bengfciaries have been left out in the interim order does not signify that they are outside the scope of SEBI’s investigation or have been exonerated, At the stage of the interim order, dizections were issued agninst entities whose tole involvement in the entite scheme was prima face Observed in light of the facts and circumstances at that stage. Its pertinent to clarify that appropriate action in accordance with the provisions of law will be initiated against entities Gnclading the benefiiarit) who ate found to have played a role in the plan / scheme / design employed in this case. A. Company: 25, I may now consider the specific contentions of the Company. It has saised a contention that, [ Page 33 of 43, Onder in the matter of Kailash Auto Finanall the corporate actions were undertaken in the ordinary course of business and had the approval of SEBI, BSE and shareholders and details about the same were in the public domain and nobody saised any grievance about the same during the relevant period. I note that the interim order does not find fault with the manner of issue of private placement of shares but, deals with the strategy employed by the company, recipients, beneficiaries etc. in the whole scheme. The thrust of the interim order was the manner in which private placements and onus issues were made to benefit certain identified entities at the cost of the integrity of the whole of securities market. Thus there is no merit in the above contention. 26. ‘The noticee has contended that it was aot connected/ has been erroneously connected with the other entities viz. Kailash Auto Group I and Kailash Auto Group Il, primary allotees, ecipients of CPAL shares and recipients of PML shares, benficiaris, etc. In this regard 1 note that the intern order brings out at Table 12 and corresponding paragraphs that the promoter and promoter related entities of KAFL were transfersing funds to the entities who were part of Kailash Auto Group I and Kailash Auto Group II. CPAL and PML, promoters of Kailash Auto, made private placement to the primary allots. The intr onder also brings out instance of monetary trail which shows how entities forming part of Kailash Auio Group II are connected to CPAL and PML, the beneficiacies and reipients of CPAL. shares and recipients of PML shares. Uhave carefully considered these submissions but I am unable to accept them at face value as only a full investigation ‘would reveal the validity or otherwise of such contentions and hence I would aot like to pre- judge the issue, at this stage, 27. The noticee has denied that corporate office was locked and no company officials were available at the time of visit of BSE officials at that address and any such allegations are baseless. In this regard, I note that they have also accepted that ont of the two days that BSE officials visited their corporate office, on one day the office was locked and the other day, an employee was present but none of the directors. Even hi egaidlte the inspection of their ngistered office, PRE iesthey have failed to prove that any employee was present at that time, The Noticee has merely stated that, ‘i¢ may be noled that our employees sit atthe said premises onl”. In view of the above, at this juncture, Iam unable to accept the submissions of the Noticce in this regard and this is subject to the findings on facts on a matter under investigation. 28. The noticee has further contended that same funds were not being churned among CPAL and PML and their respective primary allottees as alleged. In so far as CPAL and PML are concerned, the transactions were in the nature of transfer/ receipt of funds for sale/ purchase of unlisted shares and allotment of shares. In this regard, I note that it is too much of a coincidence that several primary allottees of CPAL and PML were simultaneously investing in the equity shares of each other’s companies and tranferring the funds to another entity immediately after receiving the same from one entity. As detailed investigation in the matter is still in progress and the facts and veracity of the submissions along with the documents are being looked into by the investigation, I do not deem it appropriate to deal with these submissions of the noticees at this juncture, as the same would prejudice the investigation. 29. The noticee has denied that CPAL and PML were incorporated with a dubious plan and premeditated arrangement and artifice to increase number of shares therein through sham and non-genuine transactions and contended that all their transactions were in the ordinary course of business without any malafide intent or design. In this regard, I note that within a year of their incorporation with share capital of only &1 lakh each, both CPAL and PML undertook stock split and made private placements to the tune of approx. 833 lakhs at premiums of & 590 and % 690, respectively per shate. The financial figures reveal that they incurzed losses and had no tangible or intangible assets in the FY10-11 and FY11-12, however, in the same FY, the primary allots transferred the shares to the respients and CPAL and PML made private placement and bonus issue (in the huge ratio of 1:55 and 1:65, respectively), thereby increasing thes share capital ubstantly. kn the are § months i by Sepembet 2012, the shaneholdes of CPAL and PML increased rs ‘s than 50 Onder in the matter of Kailash Auto Phar Ld iN Ss each to 1100 and 680, respectively, through < L Page 35 of 43off-market ot physical transfers. All of this happened just months before the decision to merge with Kailash Auto Finance limited in Noveraber 2012. It all appears that they were not carrying ‘out any operations and were incurring losses but continued to make private placements and bonus issues with alleged dubious intent. 30. The noticee has contended that they had 10 control over the price of the scrip in the stock market. I note that the role played by the the LP contributors and their counterparties have already been highlighted in the interim order It is alleged in the interim order that the promoters fanded the net buyers icc. entities forming part of Kailash Auto Group I and Kailash Auto Group I, who were trading in the scrip. KAFL and its promoters were connected to the exit providers ‘who bought the shates from the beneficiaries exit the scrip at profit since the price of the scrip had been attificially increased. Hence, KAFL. has also indirectly played a role and the same would be brought out in the ongoing investigation, 31, The noticee has contended that they were not awate of the transactions done by the benficiaries or receipt of funds by the recipient. I note that it has been explained above that the promoter and promoter group of KAFL allegedly transferred funds to Kailash Auto Group I and Kailash Auto Grow II, who provided exit to the beneficiaries, It has also been alleged by an instance / example that an entity forming part of Kailash Auto Grogp II received funds through multiple layering from the bmefidiares, rapients and CPAL and PML. On an overall evaluation of the facts of the matter, I am convinced that there is a prima facie case made out against the entities covered in this notice generally and the investigation is further examining the matter, which would bring out their roles in detail depending on the material. Ido not want to prejudice the investigation in any manner whatsoever, at this stage. B. Beneficiaties and Recipients of CPAL shares and recipients of PML shares:shares and beneficiaries. They have raised a common contention that there is nothing in the interim: orderto allege ot demonstrate any wrong-doing on their part. They have further contended that they are not connected/ related to Kailash Auto/ its promoters/ with any entities who are alleged to have indulged in price manipulation with the entities who have provided exit to the beneficiaries. The noticees have also contended that they had invested in the scrip of CPAL and PML from their own funds as genuine investors considering it a good investment opportunity. It has been further contended that they invested in the shares of CPAL and PML as its objectives and growth prospects were locking great, especially in light of prospects of takeover/ merger of the company with some other company. Thus, they had iavested in the scrip after seeing the scope of development in CPAL and PML. Hence, they cannot be said to be involved in any dubious plan or artifice as alleged in the interim order 33. In this regard, it may be noted that recipients and bensfciarias have invested in such closely held ‘companies that reported no value creation and made loss or negligible amount of profit since their incorporation. Also, the news of amalgamation of CPAI. and PML with Kailash Auto was first announced at public portal, ie., BSE website, by Kailash Auto on November 22, 2012, however the news of amalgamation was known to privileged recpionts and beneficiaries at the time when they were investing in the scrip of CPAL and PML, as they were expecting the tice of Kailash Auto shares would do well in future. This shows that recipients and beneficiaries had invested in CPAL-and PML not considering the operating performance of CPAL or PML. but with the intent to use shares of CPAL and PML to receive shares of Kailash Auto and further use the market platform to exit. It shows that revpiemts and benefiiaries were acting in concert in this alleged dubious scheme which is under investigation, ‘Therefore T, reject the contention of the recionts and beneficiaries in this regasd and keep these issue open to investigation. 34. Some of the beneficiaries have claimed that they were approached by certain individuals to make e ey PP y investment in the CPAL asid PML, I am unable to accept the explanation of the beneficiaries (2s ie [ Pee sTORS Order in the matter of Kailash Auti Finance Limited.35. that they invested in the shates of CPAL and PML on the advice/ tips of some random sources. I note that such petsons/ entities have failed to give any plausible explanation as to how mapients of CPAL shares and recipients of PML. shares had transferred shares of CPAL and PML at around %1/- each to them, when same shares were allotted by CPAL and PML to primary allottees at huge premium and costing the primary allottees €600/- or %700/- for each such allotted shares. This could only be possible if the bengfcanies had nexus and prior understanding with the recpients of CPAL shares and recipients of PML shares with regard to the plan, device and artifice as prima facie found in the interim order. I note that the beneficiaries have not been able to furnish any satisfactory documentary evidence to explain how they were approached for buying shates of CPAL and PML. As brought out in the interim order, ultimate winners in of the whole scheme in question are the bengficari and as such they cannot pretend to be oblivious to the scheme/ plan/ device/ artifice in question. Is intriguing to note that, in spite of the poor track record, prior to amalgamation, price of the scrip of Kailash Auto had increased from %11/- to %36.25/ in 36 tending days with average trading volume of 280 shates per day. Thereafter, beneficiaries including the noticees were able to offload their shares at high price, continuously for a period of around 15-16 months. In aay normal market, a sudden supply if not matched by similar demand leads to price fall. However, in this case, the bengiiares were able to offload shates at higher price because of the presence of entities of Kailash Auto Group I and Kailash Auto Group Iwho had acted as buyers when the bunefiaries were selling their shates. The circumstances prima face show that in the whole process, attficial demand was created by the entities of Kailash Auto Group I and Kailash Auto Group I so as to absotb the supply from the beneficiaries. Thus as a result of the trading between the beneficiaries and entities of Kailash Auto Group I and Kailash Auto Group IL in Patch - 2, the avemnge trading volume in the sctip had increased by 5,51,752.10%, ie., (8577 times) as compared to Pafch-1. Such increase in volume was mainly on account of matched trading amongst Kailash Auto Group I atid Kailash Auto Group II catitics and beneficiaries. This artificial36. volume in the sctip crcated by the benefiaries including the noticecs and the entities of Kailash Auto Group Land Kailash Auto Group IThad the potential to induce any genuine investor to invest in the scrip without knowing the scheme of operations deployed, as in the instant case. Such facts and circumstances reinforce the finding in the interim order that beneficiaries and entities of Kailash Auto Group I and Kailash Auto Group Il bad used the securities market system to attifcially increase volume for making illegal gains and to convert ill-gotten gains into genuine one. Therefore, I am convinced that there is a prima facie case made out against the notices and the investigation is further examining the matter, which would bring out their roles in detail depending on the material. Certain bengfiiares have contended that they are not aware that entities of Kailash Auto Group I and Kailash Auto Groxp IT had provided profitable exit to them and no adverse inference can be drawn against them based on the same. Even though I agree with the submissions of the notices that exchange platform is an anonymous trading platform where counterparty is not known, the anonymity argument does not fit in the instant case when it is observed that the notices dealing in the scrip were driven by the common objective of the scheme. The objective of the scheme was aptly brought out in the interim order which says that that the scheme was orchestrated to provide LTCG benefit to the beneficiaries where Kailash Auto acted as a platform for issue of equity shates pursuant to amalgamation and the entities of Kailash Auto Groxp Land Kailash Auto Group II acted as exit providers to provide exit to these beneficiaries so that the they can claim LTCG and convert their unaccounted income into accounted one. “The modus operandi deployed in the instant case is such that the entities involved in the scheme necessarily have to act in concert, under a pre-meditated plan to achieve the end objective of the scheme. Admittedly, none of the noticees have denied to have dealt in the scrip during the examination petiod as mentioned in the interim order and when the acts and deeds of these noticees are seen holistically with the facts and ciccumstances of this case, it prima facie appears that they ate acting in nexus. “Therefore, I do not accept the contention of the notices. Page 39 of 4337. The schemes, plan, device and artifice employed in this case, apatt from being a possible case of money laundering or tax evasion, which could be seen by the concemed law enforcement agencies sepatately, is prima fac, also a fraud in the sccutities matket in as nauch as it involves ‘manipulative transactions in securities and misuse of the securities market. The manipulation in the traded volume and price of the scrip by a group of connected entities has the potential to induce gullible and genuine investors to trade in the scrip and harm them. As such, the acts and omissions of entities of Kailash Auto Group I and Kailash Auto Group II and beneiiares are ‘fraudulent’ as defined under Regulation 2(1)(c) of the PFUTP Regulations and are in contravention of the provisions of Regulations 3(a), (b), (<) and (d) and 4(1), 42)(@), (0), (©) and (g) of PFUTP Regulations and Sections 12A(a), (b) and (c) of the SEBI Act, 1992. I, therefore, reject the contention of the beneficiaries in this regard. 38, In the instant case, the interim order has reasonably highlighted the modus operandi wherein CPAL and PML and their primary allottees engineered a web of transfers and retransfers of funds and shates amongst themselves in a bid to create a facade of infusion of funds by way of private placement of shares when actually there was no infusion of funds for the large part of the private placement and thereafter the recipients of CPAL share and recipients of PML. shares acted as conduit to facilitate the transfer of shares of CPAL and PML to the bemgiianes, Further, beneficiaries with the aid of the entities of Kailash Auto Group I and Kailash Anto Group IT ‘misused the stock exchange mechanism to exit at a high price and book illegitimate gains with ‘no payment of taxes as LTCG is exempt from tax under Section 10(38) of the Income Tax Act, 1961. Thus, as detailed above, the noticces, while acting under alleged dubious plan, device and attifice, have traded in the shares of Kailash Auto that prima fact led to the creation of artificial volume in the scrip, by misuse of the securities market system, 39. I, therefore, find that, at this stage, the following 32 noticees have failed to give any plausible ae reasoning/ explanation ir acts and omissions as described inthe intr order and have nr mtr Rah ia eT Page 40 of 43 xsnot been able to make out a prima facie case for xevocation of the interim onder. I, therefore, in this case, reject the prayers of such noticees for setting aside the intrin onder ot for complete removal of the restraint imposed by it. The list of these noticees is as under: SINo. | Noticee PAN 1 | Kailash Auto Finance Ltd, ‘AACCK0928) 2 |N Kanniah AAHPK8800D 3 | Krishna Agrawal ACHPAG428P 4 | Nand Kishore Agarwal ‘ACJPA2410P- 5 | Praveen Goud Adhikam ACOPAT454Q 6 | Sapna Goud Adhikam ‘ADAPAI398} 7 | Poonam Makin AEVPMO256K 8 | Sunitha Mundada ABZPM2GN 9” | Prashant Singh Gaur APBPGSSI2R 10 | Sandeep Mahendrabhai Shah | AADPS4022M 11 | Shiv Kumar HOF AABHS3053G 12 | Ramachandran Ananthan Pothi | AACPP8620K 13_| Anand Swatoop Rathi ABLPR8I03M 14 | Rajesh Rathi ACDPR75HQ 15 | Asha Rani Soni AJEPSA5361. 16 | Anand Sagar Thakur AEYPTOUM2A 17 _| Rudra Prasad Banerjee AVIPB4409] 18 | Binod Kumar Toshniwal AFDPTO326E 19 _ | Hanish Toshniwal ‘AHJPT9222F 20 | Santosh Sharma BFAPS7597Q 21 | Bhagwati Devi Patwark ‘KEYPP3706L 22 | Priyanka Patwari ALSPK8179K 23 | SK Patwari HUF ‘AAFHS3391K 24-_| Sajan Kumar Patwant ‘AEYPP3705K 25 | Sanjay Kumar Patwari “AFPPP9576G, 26 | Sanjay Kumar Patwai HUF | AASHS7307E 27 _| Sanjib Kumar Patwani ‘AFRPP9205L 28 | Sanjib Kumar Patwai HUF | AAPHS3236R ABAPI2VZE AJFPPA97SM Page 41 of 4331 | Sunil Kumar Patwast AFVPP3401L, 32, -AANHS67504 40. Considering the above, I, in exercise of the powers conferred upon me under section 19 of the SEBI Act, read with sections 11(1), 11(4) and 11B thereof, hereby confirm that the directions issued vide ad interim ex parte order dated March 29, 2016 as against all the 32. Notices mentioned above, shall continue until further orders. This is however subject to the reliefs which ate given to other entities, as detailed hereunder with immediate effect so as to ensure consistency with the eatlier orders passed against other entities in this matter, namely:- @ Carty on delivery based transactions in cash segment in the securities covered in NSE Nifty 500 Index scrips and/ or S&P BSE 500 sezips; (b) Subscribe to units of the mutual funds including through SIP and redeem the units of the mutual funds so subscribed; (© Deal in Debt/Government Securities; @ lavest in ETF (©) Avail the benefits of corporate actions like rights issue, bonus issue, stock split, dividend, ete; (D Sell the securities held in the demat account as on the date of the interim order, other than the shares of the companies which are suspended from trading by the concerned stock exchange, in an orderly manacr under the supervision of the stock exchanges; ® Tender / sell the shares lying in their demat accounts or in any open offer /delisting offer under the relevant regulations of SEBI, as on the date of the interim order, with the condition that the sale proceeds should be deposited in an interest beating Escrow account with a nationalized bank, (h) Deal with or utilize the sale proceeds lying in the aforesaid escrow account undet the supervision of the concerned stock exchange as provided undes:- { Page 42 of 43 Onder in the matter of Kailasi. the sale proceeds may be utilised for investments permitted in para 43 (a) to (© above; ii, upto 25% of the value of the portfolio as on the date of the infrin order or the amount* in excess of the profit made /loss incurred or value of shares purchased to give exit, whichever is higher, may be utilized for business purposes and/or for meeting any other exigencies or address liquidity problems. * The amount will include the value of portfolio in the deroat account Explanation: For the purposes of determining the portfolio value of the entities, the value of portfolio of securities lying in the demat account/s (individual and joint both) on the date of the interim order aficr excluding the value of shares that have been suspended from trading as on the date of the communication shall be considered. For NBFCs and stock brokers the value of portfolio shall exclude the value of clients’ securities lying in their demat accounts. @ The aforesaid reliefs shall be subject to the supervision of exchanges and depositories. The stock exchanges may use the existing mechanism available for implementing the similar interim relief earlier granted to some of the other entities. 41. A copy of this order shall be served on all recognized stock exchanges and depositories to ‘ensure compliance with above directions. DATE: July 13, 2017 G. MAHALINGAM PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Onder in the matter of Kailash Auto Finance Linsited Page 43 0f 43,