Kalpana Gupta And Others vs Securities And Exchange Board Of India And Others

Dr. C.K.G. Nair, Member

These two appeals have been filed aggrieved by the issuance of the recovery certificate, notice of attachment of bank accounts and notice of

attachment of demat accounts by the Recovery Officer of Securities and Exchange Board of India (“SEBIâ€for short),all dated June 10, 2020. By

the said recovery certificate the appellant, along with other erstwhile directors of the Company MVL Limited, has been directed to deposit an amount

of Rs. 65,93,37,925/- within 15 days from date of receipt of the recovery certificate. Similarly, by the impugned bank attachment notice, the bank

accounts of the appellants as well as other erstwhile directors of the MVL Limited are frozen and by the demat attachment notice depositories have

directed to attached the shares in the accounts of some of the erstwhile directors etc.

Facts relating to the appeals are the following:-

(a) On December 19, 2014 an order was passed by the Whole Time Member (“WTMâ€for short) of the SEBI in the matter of MVL Limited

holding that a scheme promoted by the Company MVL Limited is in the nature of Collective Investment Scheme (CIS) and therefore the Company

and its directors, including the Appellant herein, were given multiple directions in para 10 which are as follows:-

“a. MVL Limited [PAN:AAFCM2372M] and its directors viz., Mr. Prem Adip Rishi[PAN:AGQPR9177H;DIN: 00020611],Mr.PraveenKumar

[PAN:ADQPK8192E;DIN:01332414], Mr. Rakesh Gupta [PAN:AAJPG3712C; DIN: 00020638], Mr. Vinod Malik[PAN:ABLPM6562D; DIN:

01275161], Mr. Vinod Kumar Khurana [PAN:AAIPK7996F;DIN: 01863652], Mr. Vijay Kumar Sood [PAN:ACBPS9229G; DIN: 01325491] and Ms.

Kalpana Gupta [PAN:AAGPG5434L; DIN: 02300348] shall abstain from collecting any money from the investors or launch or carry out any

Collective Investment Schemes including the schemes which have been identified as a Collective Investment Scheme in this Order.

b. MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana,

Mr. Vijay Kumar Sood and Ms. Kalpana Gupta, shall wind up the existing Collective Investment Schemes and refund the monies collected by the said

company under the schemes with returns which are due to its investors as per the terms of offer within a period of three months from the date of this

Order and thereafter, within a period of fifteen days, submit a winding up and repayment report to SEBI in accordance with the SEBI (Collective

Investment Schemes) Regulations,1999, including the trail of funds claimed to be refunded, bank account statements indicating refund to the investors

and receipt from the investors acknowledging such refunds.

c. MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. RakeshGupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana,

Mr. Vijay Kumar Sood and Ms. Kalpana Gupta, shall not alienate or dispose off or sell any of the assets of MVL Limited except for the purpose of

making refunds to its investors as directed above.

d. MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana,

Mr. Vijay Kumar Sood and Ms. Kalpana Gupta are also directed to immediately submit the complete and detailed inventory of the assets owned by

MVL Limited.

e. In the event of failure by MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr.

Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta, to comply with the above directions contained in sub-paragraphs (a) to (d)

above, the following actions shall follow:

i. MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod Malik, Mr. Vinod Kumar Khurana,

Mr. Vijay Kumar Sood and Ms. Kalpana Gupta, shall remain restrained from accessing the securities market and prohibited from buying, selling or

otherwise dealing in securities market, till all the Collective Investment Schemes of MVL Limited are wound up and all the monies mobilized through

such schemes are refunded to its investors with returns which are due to them.

ii. SEBI would make a reference to the State Government/ Local Police to register a civil/ criminal case against MVL Limited, its promoters, directors

and its managers/persons in-charge of the business and its schemes, for offences of fraud, cheating, criminal breach of trust and misappropriation of

public funds; and

iii. SEBI would make a reference to the Ministry of Corporate Affairs, to initiate the process of winding up of the company, MVL Limited.

iv. SEBI shall also initiate attachment and recovery proceedings under the SEBI Act and rules and regulations framed thereunder.

f. Without prejudice to the above, MVL Limited and its directors viz., Mr. Prem Adip Rishi, Mr. Praveen Kumar, Mr. Rakesh Gupta, Mr. Vinod

Malik, Mr. Vinod Kumar Khurana, Mr. Vijay Kumar Sood and Ms. Kalpana Gupta are restrained from accessing the securities market and are

prohibited from buying, selling or otherwise dealing in securities market for a period of four (4) years.â€​

(b) Following this order, the Company MVL Limited and its directors including the appellants herein filed an Appeal, No. 157 of 2015, before this

Tribunal on January 29, 2015. On March 18, 2015 this Tribunal while taking up the matter for admission granted some interim relief till the next date of

hearing scheduled on July 01, 2015.

(c) On July 5, 2018 a winding up petition was admitted by the Delhi High Court with regard to the Company MVL Limited and the Official Liquidator

was appointed as a provisional liquidator and took charge of the assets of the company. In spite of notice, the official liquidator did not appear nor

contested the matter, as a result, this Tribunal dismissed the Appeal No. 157 of 2015 for want of prosecution. However, subsequent to an application

filed by the official liquidator on November 4, 2019 this Tribunal recalled the dismissal order of Appeal No. 157 of 2015 and restored the appeal in

terms of its original number vide this Tribunal’s order dated January 3, 2020. However, the matter could not be heard thereafter and that the

appeal is still pending.

In the meantime, aggrieved by the impugned Certificates/ orders passed by the Recovery Officer, the present appeals have been filed. Along with

appeals the appellants have also filed two Misc. Applications (i) seeking urgent hearing and (ii) seeking interim stay / relief. The application for urgent

hearing is allowed and we have taken up the appeals along with the Misc. Application for final hearing at the stage of admission itself through video

conferencing.

It is the contention of the learned counsel Shri Shantanu Mitra appearing on behalf of the appellant Ms. Gupta that the appellant was only an

independent director of MVL Limited from 2009 till 2019; she had no day-to-day role in the functioning of the Company; she was not an officer in

default as defined under the provisions of the Companies Act; she is a housewife; she did not receive any remuneration from the Company except the

sitting fees as applicable to an independent director; she has several family obligations and the freezing of her bank accounts and directions to jointly

and severally deposit Rs. 65,93,37,925/- has imposed extraordinary liabilities and burden on the appellant. Such a liability has been cast upon the

Appellant even prior to determination of whether the Scheme under question is in fact a CIS or not and whether the Appellant being an Independent

Director is responsible for the doings of the Company.

Further, it was contended by the learned counsel for the appellant that it was not appropriate for the Recovery Officer of SEBI to issue the

impugned recovery certificate / bank recovery notices etc. at this stage since this Tribunal had given interim protection against refund of monies to the

investors by its interim order dated March 18, 2015. Accordingly when the original Appeal No. 157 of 2015 as restored is pending before this Tribunal

and when the interim relief was also available to the appellant the Recovery Officer could not have proceeded with issuing the impugned certificates /

notices. Moreover, it was also contended that any attachment from the appellant or other erstwhile directors of MVL Limited could have been done

only after exhausting the available resources of the Company MVL Limited which is presently under liquidation and any orders therefore should have

waited till the result / finality of the liquidation proceedings.

On the specific issue of attachment of bank accounts the learned counsel for the appellant further submitted that apart from six bank accounts in

the sole name of the appellant herself, two joint accounts wherein the appellant is only the second holder have been also frozen. The first holder of

these accounts are the mother of the appellant and the son of the appellant. It was contended that the freezing of these two accounts was not within

the powers of SEBI as those accounts do not belong to the appellant and the freezing of all the accounts has put the appellant in extraordinary

difficulties that too in the time of pandemic as she has no resources to carry on with even the essential financial requirements on a day-to-day basis.

The learned senior counsel Shri Kevic Setalvad appearing on behalf of respondent SEBI on the other hand contended that there is no bar on issuing

the recovery certificate / attachment notices etc. even if an appeal is pending in the absence of a complete stay on the order impugned in that appeal.

Further SEBI cannot wait indefinitely for the liquidation proceedings to be completed and therefore it proceeded in accordance with the orders issued

by the WTM dated December 19, 2014, the operative part of which is reproduced in paragraph 2 of this order. Moreover, the learned senior counsel

stated in response to the specific question as to why joint bank accounts where the appellant is only the second holder have been attached the learned

senior counsel submitted that freezing of bank accounts is procedurally done on the basis of PAN number and it is also possible that either the entire

money or part of the money in such joint accounts could belong to the appellant. Therefore, if an application is made before SEBI giving the details

relating to the two joint accounts an appropriate decision will be taken by SEBI within a period of 2-3 working days thereafter.

Having heard the learned counsel for the parties and in the facts and circumstances of the case, we find that the arguments of the appellant do not

have much merit. The arguments relating to the appellant being an independent director and having no role to play in the functioning of the company,

etc. cannot be raised in this appeal and will be considered in the main appeal.

In so far as the interim order passed by the Tribunal is concerned we find that the interim stay was granted to only one of the directions in the order of

WTM of SEBI for a limited period till the next date of hearing. A specific direction was given by the Tribunal allowing further time to deposit the

money as per the WTM’s order which till date has not been complied with. Thus, it does not entitle the appellant to claim the benefit of continued

interim relief for more than 5 years thereafter. The relief was granted on March 18, 2015 while fixing the next date of hearing three months

thereafter. Further, during the pendency of the appeal the appellant never came forward seeking an early hearing of the matter. In July, 2018 even

after the company went under liquidation and till the official liquidator filed an application on November 4, 2019 the appellant never came forward

seeking early hearing of the matter. Therefore, this Tribunal is of the considered view that the interim relief granted cannot come to the rescue of the

appellant at this stage. For greater clarity we reproduce the operational part of this Tribunal’s interim order dated March 18, 2015.

“ORDER:

Learned counsel for SEBI seeks time to file affidavit-in-reply. Reply, if any, be filed within 6 weeks from today. Rejoinder, if any, be filed

within 4 weeks thereafter.

By consent, place these appeals for hearing at the stage of admission on July 1, 2015.

Time to refund the monies collected by MVL Limited from its investors under the India Business Centre project (IBC project) as per para

10(b) of the impugned order is extended till the next date of hearing.

In view of the statement made by the learned counsel for SEBI that in paragraph 10(c) of the impugned order, expression “shall not

alienate or dispose off or sell any of the assets of MVL Limited is restricted to the assets relating to the IBC project and not to other assets

of MVL Limited, counsel for appellants do not press for ad-interim stay of paragraph 10(c) of the impugned order.

It is, however, made clear that during the pendency of the appeals, if the assets / premises under the IBC project are alienated / disposed

/ sold, then, MVL Limited shall deposit the entire amount received on account of such alienation / disposed / sale in a separate account and

shall not utilize the same till an order is passed to that effect by this Tribunal.

With reference to the direction contained in paragraph 10(d) of the impugned order, learned counsel for the appellant stated that the

particulars set out therein would be furnished to SEBI within 2 weeks from today.

Stand over to July 1, 2015.â€​

Given the fact that the interim relief was given only till the next date of hearing (01st July, 2015) and fact that the appellant never sought an urgent

hearing in the matter either prior to the Company going into liquidation or even thereafter we find no deficiency in the Recovery Officer issuing the

impugned certificates / notices. In any case, we find that the interim order was not extended after the appeal was restored. On the contrary it is the

stand of the appellant that she is not even privy to what is contained in the appeal filed by MVL as copy was never given to her, which speaks

volumes about the lack of interest of the appellant in pursuing appeal number 157/2015.

However, we are of the considered view that without ascertaining that the monies actually belong to the appellant the Recovery Officer could not

have frozen the two joint bank accounts in which the appellant was the second holder. As per Section 28A of the SEBI Act read with Section 220 to

227 of the Income Tax Act, especially Section 226(3) requires the Recovery Officer to issue a notice to the holder of the bank account and show

cause as to why the amount should not be withdrawn on the ground that the monies in the account belongs to the appellant. A perusal of Section

226(3) and its subsections will indicate that the Recovery Officer is required to issue notice to all the account holders. In the instant case we find that

no notice has been issued to the first holder of the account in which the appellant is the second holder. Section 226(3) mandates that a notice is

required to be served before taking action and therefore the action taken is bad in so far as the attachment of the joint accounts are concerned.

In Purnima Das vs Union of India and others, (2010) 329 ITR 278 the Calcutta High Court held that it is mandatory to issue a notice to all the

account holders under Section226(3) of the Income Tax Act and that non issuance of a notice will make the attachment bad. In Mohan Singh vs

Commissioner of Income Tax and others,(1993) 204 ITR 571 the Punjab and Haryana High Court held that not only a notice has to be issued but an

order could only be passed after giving an opportunity of hearing.

Therefore, in the absence of any finding in the WTM’s order dated December 19, 2014 which is under challenge in Appeal No. 157 of 2015,

that there was siphoning off funds from the accounts of the Company MVL Limited to the accounts of the appellant herein such joint bank accounts

could not have been frozen by the Recovery Officer. We may observe here that the Recovery Officer is required to ascertain that the account holds

monies of the appellant and cannot proceed mechanically on the basis of a PAN number. The power of attachment has to be exercised with utmost

care and circumspection.

In view of the above, we direct the Recovery Officer of SEBI to de-freeze the two bank accounts of the appellant, Ms. Gupta forthwith wherein

the appellant is only the second holder along with her mother and son respectively who are the primary holders of those two accounts. It will however

be open to the Recovery Officer to proceed afresh with regard to the joint accounts in accordance with law.

The facts relating to appeal No 152 of 2020 filed by Vinod Kumar Khurana are the same and squarely covered in Appeal No. 151 of 2020 by

Kalpana Gupta. Hence we have connected both these appeals though the appeal by Khurana has been heard and Order reserved on 21 July 2020.

However, in the absence of details and no specific plea relating to joint bank accounts referred to in the appeal papers/submissions made by the

learned counsel we are unable to provide any relief on this ground to the Appellant Khurana. However, the Appellant is at liberty to plead his case

before the Recovery Officer of SEBI under Rule 11 of the Second Schedule of the Income Tax Act.

Accordingly appealNo.151 of 2020by Kalpana Gupta is partly allowed. Appeal No. 152 of 2020 by Vinod Kumar Khurana is dismissed.

Consequently the Misc. Applications are also disposed of. No order as to costs.

The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor

a certified copy of this order could be issued by the registry. In these circumstances, this order will be digitally signed by the Presiding Officer on

behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally

signed copy sent by fax and/or email.