Sachin Gupta vs Securities & Exchange Board Of ...
2014 Latest Caselaw 986 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                          Reserved on: 18.02.2014
%                                                    Date of Decision: 24.02.2014
+                                    Crl. A. No.563 of 2010
SACHIN GUPTA                                                ....Appellant
                         Through:          Mr. Vinod Kumar, Adv.

                                           Versus
SECURITIES & EXCHANGE
BOARD OF INDIA & ANR.                     ....Respondents
              Through: Mr. Sanjay Mann & Mr. R.K. Pillai,
                         Advs. for R-1.
+                  Crl. A. No.567 of 2010
GLITTER GOLD PLANTATION LTD. & ORS. ....Appellants
              Through: Mr. Vinod Kumar, Adv.

                                           Versus

STATE (NCT OF DELHI) & ANR.               ....Respondents
              Through: Mr. Sanjay Mann & Mr. R.K. Pillai,
                         Advs. for R-2.
+                  Crl. A. No.573 of 2010
YASHWANT JAIN                                               ....Appellant
            Through:                       Mr. Prag Chawla, Adv.

                                           Versus
SECURITIES & EXCHANGE
BOARD OF INDIA & ORS.                   ....Respondents
              Through: Mr. Sanjay Mann & Mr. R.K. Pillai,
                         Advs. for R-1.
CORAM:
HON'BLE MR. JUSTICE V.K.JAIN

                                        JUDGMENT

V.K.JAIN, J.

The appellant No.1 in Crl. A. No.567/2010, Glitter Gold

Plantation Limited (hereinafter referred to as ‗the Company'), came to

be incorporated on 31.1.1997 and appellants 2 & 3, Pankaj Jain &

Deepak Jain are its Directors. The appellant in Crl. A. No.563/2010,

namely Sachin Gupta and the appellant in Crl. A. No.573/2010,

Yashwant Jain, are stated to be the subscribers to the memorandum of

the aforesaid Company though they are not its Directors. The Company,

as per the history provided to Securities & Exchange Board of India (for

short ‗SEBI'), vide communication (Ex.CW1/1), was engaged in Teak

plantation activities and it offered opportunity to the members of the

public to invest in Teak saplings on the land owned or leased directly or

on behalf of others. The Company commenced its business on 9.2.1997.

It came out with the schemes named as Glitter Teak Unit 1 and Glitter

Teak Unit II and collected Rs.14.06 lakh from the investors till

30.11.1997. It was stated in the Brochure that the Company shall give

Teak trees to the unit holders after 20 years and the share per unit, which

at the time of offer was 2,500/-, was likely to be Rs.3.00 lakh per unit at

the time Teak trees are given to the investors. Thus, it was represented

to the investors that investment of Rs.2,500/- was likely to grow to

Rs.3.00 lakh in 20 years.

2. Section 12 (1B) of the Securities and Exchange Board of India

Act, 1992 (hereinafter referred to as ‗the Act'), which came to be

inserted w.e.f. 25.1.1995, provides that no person shall sponsor or cause

to be sponsored or carry on or cause to be carried on any venture capital

funds or collective investment scheme (for short ‗CIS') including

mutual funds, unless he obtains a certificate of registration from the

Securities and Exchange Board of India (for short ‗SEBI) in accordance

with the regulations. The proviso to the aforesaid sub-section, permits

any person, sponsoring or causing to be sponsored, carrying or causing

to be carried on any such fund or scheme operating in the security

market immediately before 25.1.1995, for which no certificate of

registration was required prior to the said date, to continue to operate till

such time Regulations are made under clause (d) of sub-section (2) of

Section 30.

3. Vide press release dated 18.11.1997, the Government of India

conveyed that instruments such as agro bonds, plantation bonds, etc.

shall be treated as CIS coming under the Act and SEBI was asked to

formulate its Regulations for such schemes.

Pursuant to the SEBI press release dated 26.11.1997 and/or notice

18.12.1997, the Company furnished information with respect to its

above-referred scheme to SEBI. Vide aforesaid information, the

Company informed SEBI about Rs.14.06 lakh raised by it by way of its

Glitter Teak Unit 1 and Glitter Teak Unit II which according to SEBI

are Collective Investment Schemes (CIS). The information sent to SEBI

was signed by the appellant S.K. Jain, Managing Director of the

Company and the appellant Pankaj Jain, who was stated to be a whole

time Director of the Company.

Vide letter received by SEBI on 29.4.1998, the Company, through

Shri Pankaj Jain, whole time Director, furnished additional information

to SEBI which included the copies of its balance sheet, a compliance

certificate and a statement of deployment of funds mobilized under

various schemes. The balance sheet was signed by the Managing

Director Shri S.K. Jain and the while time Director Shri Pankaj Jain. It

was also stated in the said information that Shri Deepak Jain was also a

Director of the Company and that he was a businessman. The

compliance certificate submitted to SEBI was signed by Shri Pankaj

Jain.

4. The Securities and Exchange Board of India Regulations, 1999

(hereinafter referred to as ‗the Regulations') came to be notified on

15.10.1999. In terms of the requirement of the Regulations, SEBI vide

its letters dated 15.12.1999/29.12.1999 and by way of a public notice

dated 10.12.1999, required the Company to send an information

memorandum to all its investors detailing the state of affairs of the

scheme, the amount repayable to each investor and the manner in which

such amount was determined. The said information memorandum was

required to be sent to the investors latest by 28.2.2000. However, neither

the Company submitted any application to SEBI for registration of its

CIS nor did it comply with the letters of SEBI dated 15.12.1999/

29.12.1999 and its public notice dated 10.12.1999.

5. On 7.12.2000, SEBI in exercise of the powers conferred under

Section 11(B) of the SEBI Act, directed the Company to refund the

money collected under its CIS to the persons who had invested therein

within a period of one (1) month from the date of the said direction.

6. Vide its letter received by SEBI on 9.1.2001 (Ex.CW1/16), the

Company through its Director Shri Deepak Jain informed SEBI that the

number of their investors was 1029 and since April, 1998, itself they

had started refunding money to their investors. It was further stated in

the letter that 95 per cent of the investors were jhuggi dwellers with

whom no correspondence was possible and that the Company had made

full refund to 503 out of 1029 investors and had given Indira Vikas

Patras (IVPs) to the remaining 526 investors. It was further stated that

full refund was in progress from the side of the Company and only

Rs.5,18,100/- was left with it out of the amount of Rs.14,07,500/-

collected by it from the investors. The Company sought time till

December, 2001, to refund money to the remaining 526 investors.

7. Vide letter dated 25.1.2001 (Ex.CW1/17), SEBI reminded the

Company that it had not sent winding up and repayment report in terms

of the letter of SEBI dated 31.7.2000. The Company was advised to

submit the said report by 2.2.2001. Vide letter dated 30.3.2004

(Ex.CW1/18), the Company informed SEBI that they had already made

payment to 876 investors and would be paying to the remaining 153

investors as soon as it was possible. Vide letter dated 10.11.2005

(Ex.CW1/19) sent through Shri Pankaj Jain, Director, the Company

informed SEBI that they had already repaied Rs.11,88,400/- and only a

sum of Rs.2,17,600/- remained to be paid.

8. Vide its letter dated 16.11.2005, SEBI advised the Company to

complete repayment of the investors in terms of SEBI order dated

7.12.2000. It was also stated in the said letter that the Company was

only repaying the principal sum to the investors whereas it was required

to pay the principal sum along with promised return as per the original

term of the offer. Responding to the said letter the Company informed

SEBI that the balance amount payable to the investors as on 31.3.2003

was Rs.2,17,600/-. However, there was no reference to payment of

returns promised by the Company to its investors.

Since the Company failed to comply with the Regulations of the

SEBI and the directions issued by it a complaint against the Company

and seven (7) other persons was filed before the Chief Metropolitan

Magistrate, Delhi. Vide impugned judgement dated 30.3.2010, the

Company and three (3) of its Directors, Shri Pankaj Jain, Shri Deepak

Jain and Shrimati Manjul Jain and three (3) promoters namely, Arti Jain,

Sachin Gupta and Yashwant Jain were convicted under Sections 24 &

27 of the SEBI Act. Vide Order on Sentence dated 9.4.2010, the

Directors of the Company, namely Shri Pankaj Jain and Shri Deepak

Jain as well as its subscribers Shri Sachin Gupta and Shri Yashwant Jain

were sentenced to undergo RI for three (3) months each and to pay fine

of Rs.1.00 lakh each or to undergo SI for three (3) months each in

default. Shrimati Manjul Jain and Shrimati Arti Jain were sentenced to

pay fine of Rs.50,000/- each or to undergo SI for three (3) months each

in default. The company was sentenced to pay fine of Rs.1 lac. Being

aggrieved from their conviction and the sentence awarded to them, the

appellants, Pankaj Jain, Deepak Jain, Sachin Gupta & Yashwant Jain are

before this Court. The Company is also an appellant in Crl. A.

No.567/2010.

9. The first question which comes up for consideration before this

Court as to whether the scheme under which a sum of Rs.14.06 lakh was

collected by the Company from various investors amounts to CIS or not.

The expression ‗Collective Investment Scheme' has been defined

in Section 2(ba) to mean any scheme or arrangement which satisfies the

conditions specified in Section 11AA. Sub-section (2) of Section 11AA

provides that any scheme or arrangement made or offered by any

company under which--

(i) the contributions, or payment made by the investors, by

whatever name called, are pooled and utilized for the purposes of the

such or arrangement;

(ii) the contributions or payments are made to such scheme or

arrangement by the investors with a view to receive profits, income,

produce or property, whether movable or immovable, from such scheme

or arrangement;

(iii) the property, contribution or investment forming part of

scheme or arrangement, whether identifiable or not, is managed on

behalf of the investors;

(iv) the investors do not have day-to-day control over the

management and operation of the scheme or arrangement shall be a

collective investment scheme.

Though the aforesaid Section came to be inserted with effect from

only 22.02.2000, the expression ‗Collective Investment Scheme (CIS)

even before the aforesaid incorporation was understood to mean any

scheme, whereby funds were raised from the members of the general

public for the purpose of making investment in any property. The

following view in this regard was taken in Paramount Bio-Tech

Industries Limited vs. Union of India 2003 Law Suit (All) 1206:-

―The Dave Committee in its report observed that the ‗collective investment scheme' is a generic term, and therefore would encapsulate within its fold various activities which have been found to have certain specific characteristics. It is alleged that the definition of collective investment schemes as inserted by the Securities Laws (Amendment) Act, 1999 is substantially the same as mentioned in the Dave Committee report. The expression 'collective investment scheme' though not initially defined under the Statute, was generally understood to include such schemes as are floated for mobilisation of money by way

of contribution from the public at large and the corpus is invested in property with a view to share the benefits arising out of deployment of such common corpus. In the absence of the definition of collective investment scheme it cannot be said that SEBI has no power to regulate such scheme.‖

10. A perusal of the brochure issued by the Company clearly shows

that the Schemes floated by the Company were meant for mobilization

of funds by way of contribution of public at large and the corpus was

sought to be invested in property with a view to share the benefits

arising out of deployment of such common corpus. Therefore, the Teak

Unit Schemes of the Company were, in fact, CIS.

11. As noted earlier sub-section (1B) came to be inserted in Section

12 of the SEBI Act w.e.f. 25.1.1995. As noted earlier, the Company

came to be incorporated only on 31.1.1997, which was much after sub-

section (1B) of Section 12 had been notified. In view of the absolute bar

contained in the aforesaid sub-section, the Company could not have

come out with such a scheme, without obtaining a certificate of

registration from SEBI, in accordance with its Regulations on the

subject. Admittedly, no such registration was even applied for by the

Company before it came out with its scheme. As far as the proviso is

concerned, it is evident from its bare perusal that it applies to only those

schemes which were already in operation on 25.1.1995 when Security

Laws (Amendment) Act, 1995, came into force. Though really not

necessary, a reference in this regard may be made to a judgement of the

Allahabad High Court in Paramount Biotech Industries Limited Vs.

Union of India 2003 LawSuit (All.) 1206 where noticing that petitioner

No.1 was incorporated in 1996, and, therefore, was not carrying on

business on 25.1.1995, it was held that the proviso to sub-section (1B)

of Section 12 of the Act was not applicable to it and was not entitled to

the benefit of the said proviso. Therefore, by coming out with its CIS,

the Company contravened the provisions of Section 12 (1B) of the Act

which is punishable under Section 24 of the Act.

12. Regulation 74 of the SEBI CIS Regulations, which came into

force on 15.10.1999, provides that an existing CIS which is not desirous

of obtaining provisional registration from the Board shall formulate a

scheme of repayment to the existing investors in the manner specified in

Regulation 73. Moreover, Regulation 69 provides that if prior to the

date of coming into force the Regulations, any person was running an

existing collective investment scheme he should apply for grant of

certificate within two months from such date. Regulation 69 contains a

prohibition against launching any new CIS or raising money from the

investors, under the existing Scheme, without registration with SEBI.

Since the scheme of the Company was in operation at the time the

aforesaid Regulations came into force, the Company was under an

obligation to formulate a scheme of repayment and make such

repayment to its investors in terms of Regulation 73, which inter alia

required the scheme to be wound up and the investors to be intimated

within two (2) months from the date of receipt of intimation from SEBI,

detailing the state of affairs of the scheme, the amount repayable to each

investor and the manner in which such amount was determined. The

information memorandum was to explicitly state that the investors

desirous of continuing with the scheme shall have to give a positive

consent within one (1) month from the date of the information

memorandum to continue with the scheme. The payment to the

investors was to be made within three (3) months from the date of the

information memorandum and on completion of winding up a report as

specified by the Board was to be filed with it.

13. After notification of the Regulations, SEBI sent a letter dated

21.10.1999 (Ex.CW1/4) to the Company informing it of the Regulations

having been notified. The Regulations were also notified by public

notice in Hindustan Times, published on 19.12.1999, a copy of which is

Ex.CW1/15. The said letter, however, was returned back unserved.

SEBI sent another letter dated 10.12.1999 (Ex.CW1/6) which also was

received back unserved. The same was the position in respect of the

letter dated 29.12.1999 (Ex.CW1/8).

14. Vide order dated 7.12.2000, directions were issued by the

Chairman, SEBI to the Company under Section 11B of SEBI Act read

with Regulations 65 & 73 of SEBI CIS Regulations, 1999, directing the

Company to refund the money collected by it along with the returns

promised to the investors within a period of one (1) month. The

contents of the said letter were also notified by public notice, a copy of

which is Ex.CW1/14.

15. There is no evidence of the Company sending the Information

Memorandum to its investors, within two (2) months from the date of

receipt of intimation from SEBI. The said memorandum was required

to give details such as state of affairs of the scheme, the amount

repayable to each investor and the manner in which the said amount was

determined. No copy of the information memorandum, if any, sent to

the investors has been proved by the appellant. As noted earlier, in

terms of Regulation 73, the payment to the investors was to be made

within three (3) months from the date of the information memorandum.

This is not even the case of the appellants that the Company had actually

sent information memorandum in terms of the Regulations to all its

investors within two (2) months of receipt of intimation from SEBI and

the said memorandum envisaged payment to the investors within three

(3) months from its date.

16. The letter Ex.CW1/19, sent by the Company to SEBI would show

that even on the date this letter dated 10.11.2005, was sent a sum of

Rs.2,75,600/- was still due to the investors as on 31.3.2005. This was

further admitted by the Company in its letter dated 21.11.2005

(Ex.CW1/21). Earlier vide its letter dated 30.4.2004 (Ex.CW1/18), the

Company had admitted that it was yet to refund money to as many as

153 investors. The number of such investors was stated to be 526 in the

letter dated 9.1.2001 (Ex.CW1/16). Thus, the Company clearly did not

comply with the requirement of the Regulations to send information

memorandum to the investors within two (2) months of receipt of

intimation from SEBI and paying to them within three (3) months of the

date of memorandum. The Company, therefore, clearly contravened not

only the directions issued by the Chairman, SEBI but also the provisions

of SEBI Regulations.

17. The learned counsel for SEBI has drawn my attention to the

decision of Supreme Court in M/s P.G.F Ltd. and others vs. Union of

India and another [AIR 2013 SC 3702], wherein the direction was given

by SEBI to a company which had collected money by way of Collective

Investment Scheme, to collect any money from the investors or to

launch any scheme with a further direction to refund the money

collected by it within one month from the date of the order of SEBI. The

aforesaid order was challenged by the appellant before the Apex Court,

inter alia, on the ground that it was ultra vires of Section 11AA of SEBI

Act. Rejecting the contention, the Apex Court, inter alia, held as under:

"53. We, therefore, hold that Section 11AA of the SEBI Act is constitutionally valid. We also hold that the activity of the PGF Limited, namely, the sale and development of agricultural land squarely falls within the definition of collective investment schemed under Section 2(ba) read along with Section 11AA (ii) of the SEBI Act and consequently the order of the second respondent dated 6.12.2002 is perfectly justified and there is no scope to interfere with the same. In the light of our above conclusions, the PGF Limited has to company with the direction contained in last paragraph of the order of the second respondent dated 6.12.2002.‖

18. For the reasons stated hereinabove, the Company has rightly been

convicted for contravening sub-section (1B) of Section 12 of SEBI Act

by collecting money from the investors under its CIS schemes without

registration with SEBI and it also committed contravention of the

provisions of Section 24 of the Act by not complying with the

Regulations framed by SEBI and the directions issued by the Chairman.

Therefore, no fault can be found with the conviction of the Company.

19. Coming to the vicarious liability of the appellants, the question

which comes up for consideration is as to whether they, at the time the

provisions of Section 12(1B) and/or CIS Regulations were contravened

by the Company, were in-charge of and responsible to the Company for

conduct of its business or not. Of Course, even if they were in-charge of

and responsible to the Company for conduct of its business they would

not to be guilty of commission of offence if they are able to prove that

the offence by the Company was committed without their knowledge or

that they had exercised all due diligence to prevent the commission of

such offence. If SEBI is able to prove that the offence by the Company

was committed with the consent or connivance of any of the appellants

or is attributable to any neglect on their part, they shall be guilty in

terms of sub-section (2) of Section 27 even if they were not persons in-

charge of and responsible to the Company for conduct of its business.

20. It was held by this Court in Vishnu Prakash Bajpai versus

Securities and Exchange Board of India [2010 (2) Crimes 394 (Del.)]

that the offence punishable under Section 24 of the Act is a continuous

offence, till the time the company complies with the Regulations and the

directions issued by SEBI by refund of money to the investors. Similar

view was taken by another Bench of this Court in Samarpan Agro and

Livestock Ltd. Versus SEBI [2010 (104) SCL 584].

21. Admittedly, Pankaj Jain & Deepak Jain - the appellants in Crl.

Appeal no.567/2010 are the whole-time Directors of the appellant -

company Glitter Gold Plantation Ltd. Both have been corresponding

with SEBI with respect to the CIS of the company. Additional

information to the SEBI with respect to the CIS of the Company,

including the balance sheet, balance sheet certificate and statement of

deployment of funds were submitted by the appellant - Pankaj Jain vide

letter received by the SEBI on 29.04.1998. The balance sheet of the

company was signed by its Managing Director Mr. S.K. Jain as well as

the appellant - Pankaj Jain, who is none other than son of the then

Managing Director Shri S.K. Jain. The compliance certificate submitted

to SEBI was also signed by him on behalf of the company. The letter

Ex.CW1/16, which SEBI received on 9.1.2001 submitted on behalf of

the company and signed by the appellant - Deepak Jain. He also is the

son of the Managing Director Shri S.K. Jain. The copy of Form-32

Ex.DW2/A, which is the document produced by the appellant shows

that Mr. Deepak Jain became the Director of the Company at the time of

its incorporation. Thus, both of them were actively involved in the

business of the company and were also associated with the Collective

Investment Schemes under which the money was collected by the

company from various investors. In their statements under Section 313

Cr.P.C neither of them claimed that they were not connected with the

day-to-day affairs of the business of the company. DW2 - Mr. Anil

Bansal, who is the Chartered Accountant of the appellant company

stated in his cross examination that Mr. Pankaj Jain and Mr. Deepak

Jain are the only Directors of the Company know to him. When Mr.

Deepak Jain came in the witness box as DW-3, he stated that he was

doing office work in the office of the company and was one of its

Directors. He did not claim that he was not involved in day-to-day

business of the company and was not the person in-charge and

responsible to the company for conduct of its business. No evidence has

been led by the appellants - Deepak Jain or by Pankaj Jain to prove that

the contravention of sub section (1B) of Section 12 of SEBI Act and the

CIS Regulation of SEBI was committed by the company without their

knowledge or that they had exercised all due diligence to prevent the

commission of the said offence by the company. In these circumstances,

it can hardly be disputed that being the directors and persons in-charge

and responsible to the company for conduct of its business, they are

vicariously liable for the contravention of the provisions of SEBI Act

and the Regulations framed thereunder. Therefore, no fault can be found

with their conviction.

22. However, as far as the appellants - Yashwant Jain and Sachin

Gupta are concerned, admittedly they have never been the directors of

the company. There is no evidence to show that either of them was the

person in-charge and responsible to the company for conduct of its

business. This is not the case of SEBI that the offence by the Company

was committed with the consent or connivance of Mr. Yashwant Jain

and Mr. Sachin Gupta and is attributable to any neglect on their part.

Moreover there is no evidence of their even being a Director, Manager,

Secretary or officer of the Company. Therefore, sub-section (2) of

Section 27 would not apply to them. They cannot be said to be the

persons in-charge of and responsible to the Company for conduct of its

business only because they had subscribed to its memorandum and

articles of association. In fact, the learned counsel for SEBI fairly

conceded during the course of arguments that the charge against them

could not be established during the course of trial. Mr. Yashwant Jain

and Mr. Sachin Gupta, therefore, liable to be acquitted.

23. As regards the sentence, the appellants - Pankaj Jain and Deepak

Jain have been sentenced to undergo imprisonment for three months

each, which cannot at all be said to be harsh or excessive. If at all, the

substantive sentence awarded to them is on the lower side. As regards

the quantum of fine, though there was no maximum fine at the relevant

time, Section 24 has since been amended so as to enhance the maximum

substantive sentence to ten (10) years, and to prescribe a fine up to

Rs.25.00 crore. The amendment clearly indicates the seriousness, which

the Legislature attaches to such contraventions. The purpose obviously

is to deter persons such as the appellants from trapping the gullible

investors, by promising them returns which are unrealistic and can never

be given. Any unwarranted leniency towards such persons will be

highly misplaced, besides being detrimental to the larger interest of the

society.

24. Even otherwise, this is an admitted case that not all of the

investors have been paid back the money which the company had raised

from them. Vide their letter dated 30.3.2004, the appellants claimed that

they had paid to 876 investors and only 153 investors were such who

were yet to be paid, no documentary proof such as the receipts executed

by the investors was submitted by them to SEBI. Vide letter dated

10.11.2005, the appellants claimed that they had already paid

Rs.11,88,400/- and that a sum of Rs.217600/- remained to be paid.

Again, no credible documentary proof such as receipts from the

investors was submitted to SEBI. The case of the appellants was that

they had returned the principal sum to the aforesaid investors in cash.

No reason was given by the appellants for not paying by cheques/

demand drafts/ pay orders. Since they did not submit the receipts from

the investors, it was not possible for SEBI to verify the payment which

they claimed to have made to their investors.

25. Not only was it imperative for the appellants to refund the entire

money collected from the investors along with the return promised by

them while raising deposits, within the time stipulated in the

Regulations, they should also have submitted the proof of such

payments to SEBI in order to enable it to verify the alleged payments.

That having not been done, SEBI had no opportunity to verify their

claim.

Even during the course of trial, neither the appellants examined

any of the investors nor did they produced the receipts obtained from the

investors. Thus, no genuine attempt was made by them to satisfy the

learned trial Judge that they had refunded the substantial deposits to the

investors.

26. The learned counsel for the appellants has filed affidavits of the

appellant - Pankaj Jain enclosing thereto the details of the refund

alleged to have been paid to the investors. As per the said statement, out

of the principal sum of Rs.14,07,500/- an amount of Rs.12,56,900/- was

paid to the investors who were traceable. It is further stated that a sum of

Rs.4,25,208/- was paid as interest to the investors @ 12% per annum

whereas Indira Vikas Patra worth Rs.4,33,200/- were given to some

other investors. According to the appellants the principal amount due to

the untraceable investors now is Rs.1,50,600/-, whereas the interest @

12% per annum payable to such investors, as per interim order dated

10.5.2010, is Rs.2,01,796/-. It is also claimed that the alleged amount of

Rs.3,52,390/- was deposited in the trial court on 24.5.2010. The

aforesaid statement, in my view, does not prove the payment of the

amount alleged to have been made by the appellants. They ought to have

produced the documentary proof such as the receipts obtained from the

investors since according to them no payment was made by cheque/

demand draft/ pay order. No receipt executed by any of the investors in

respect of the cash alleged to have been paid by the company nor in

respect of IVPs alleged to have been given to the investors has been

annexed to the affidavit of Mr. Deepak Jain. As noted earlier, none of

the investors was produced during the course of trial to satisfy the court

with respect to payments claimed by the appellants. Moreover, as rightly

pointed out by the learned counsel for SEBI, the appellants, in terms of

the order of SEBI were required to refund the principal amount collected

from the investors along with the return which the company had

promised to them. Admittedly, the amount payable to the investors

along with returns as promised by the company would come to many

times more than the amount of Rs.16,87,300/-, which the appellants

claimed to have paid to the investors in cash as well as by way of IVPs.

27. During the course of arguments, the learned counsel for the

appellants submits that pursuant to a letter dated 18.11.2010 received by

them from SEBI, they had issued a public notice to the investors

informing them that the company had wound up its plantation scheme,

had repaid to the investors and the balance amount of untraceable

investors along with interest had been deposited with the trial court. A

perusal of the letter of SEBI dated 18.11.2010 would show that the

public notice was required to be published in one of the leading

newspapers of the State where the registered office of the company is

situated, as also in leading newspapers having country vide circulation.

However, the advertisement issued by the company was a very small

insertion published in ―Pioneer‖and ―Veer Arjun‖, neither of which can

be said to be the leading newspapers and neither of which has a vide

circulation in Delhi where the registered office of the company is

situated. It is thus quite clear that the company issued a public notice

only for the sake of complying with the letter of SEBI without really

meaning to refund money to its investors. In these circumstances, no

ground either for reducing the substantive sentence awarded to the

appellants - Deepak Jain and Pankaj Jain or for reducing the fine

imposed upon any of the appellant is made out.

28. The learned counsel for SEBI drew my attention to the report of

the Chartered Accountant appointed by SEBI to examine the balance

sheet of the appellant company. The CA, in the aforesaid report, inter

alia, stated as under:

c) As pointed out in earlier paragraphs the company has not maintained any register of unit holders detailing the addresses.

        d)        The company has not maintained the records of
                  application form received from the unit holders
                  detailing the addresses.
        e)        All the repayments to the unit holders were made
                  in cash only for which documentary evidence was
                  not available.
        f)        We have observed that only the signatures thumb

impression was available on the unit certificate, there was no mention of the amount repaid, and we are unable to verify the amount paid to each unit holder in the absence of any documentary evidence.

xxx

i) Glitter Gold Plantations Ltd opened the bank account on 26.03.1996, most of the bank statements were manual as provided by company for the following period:

26.03.1996 to 17.06.1996 01.07.1996 to 01.03.1997 26.04.1997 to 04.05.2005

These Bank statements are not legible hence we could not verify any entries on it. We are unable to comment upon any payments made through Bank.‖

The said report is a strong indicator that the company has not

refunded the dues of the investors, in terms of the requirement of the

Regulations and the order passed by SEBI.

29. For the reasons stated hereinabove, the Crl. Appeal nos.563/2010 and 573/2010 filed by Mr. Sachin Gupta and Yashwant Jain respectively are allowed and both of them are acquitted, whereas, Crl. Appeal no. 567/2010 filed by the company and two of its Directors namely Mr. Pankaj Jain and Deepak Jain is dismissed. The appellants Pankaj Jain and Deepak Jain are directed to surrender forthwith before the trial court in order to undergo the sentence awarded to them. The appellants - Pankaj Jain and Deepak Jain shall surrender forthwith. The trial court shall take necessary steps to procure their presence and commit them to prison to undergo the sentence awarded to them. The amount raised by the company, unless already deposited, shall be deposited within two (2) weeks from today.

Trial court record be returned with a copy of this order.

FEBRUARY 24, 2014                                              V.K. JAIN, J.
b'nesh