1. Aastha Broadcasting Network Ltd. (Aastha) formerly known as CMM Broadcasting Network Ltd. (CMM) and Trimline Investments Ltd. (Trimline) was incorporated on August 29, 1981 to carry on the business of investments and finance. In May 2000, Trimline passed a resolution to carry on multimedia activities and to operate satellite channels and christened itself as Aastha Network Ltd., and subsequently in the year 2003 Aastha Network Limited was rechristened as Aastha Broadcasting Network Ltd. The registered office of Aastha is located at 1st Floor, Vaman Techno Centre, Off Andheri Kurla Road, Andheri East, Mumbai 59.
The share capital of Aastha stood at Rs. 10,00,00,000 divided into 1 crore equity shares of Rs. 10/-each as on 31st March, 2001. Of these, 7,00,000 shares are listed on The Bombay Stock Exchange (BSE), and the remaining 93,00,000 shares are yet to be listed. Of the total 1,00,00,000 equity shares issued by the company, 7,00,000 equity shares were issued by Trimline (as it was then called) as on 31.03.00.
Subsequently, Aastha at its annual general meeting held on 16.05.00 decided to make a preferential issue of 93,00,000 shares. The shares were allotted on 14.08.00 to the promoter group entities to the extent of 51,00,000 shares and 42,00,000 shares to other Kolkata based entities. SEBI received a report on September 3, 2001 from BSE regarding its examination of the trading pattern in the shares of Aastha for the period November 20, 2000 to February 16, 2001.
2. During the period under investigation by BSE, the share price increased from Rs. 9.70 on November 20, 2000 to Rs. 39.10 on February 16, 2001. Thereafter, the share price fell to levels of Rs. 26 in June 2001. The report of BSE brought out that Aastha had issued 93,00,000 shares on a preferential allotment basis in August 2000 to several entities and some of these entities appeared to be related to each other/Aastha, and had traded in the shares of Aastha in significant quantities. Pursuant to the above report, SEBI conducted an investigation into the scrip of Aastha for possible violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995 (FUTP 95 Regulations) and SEBI (Disclosure and Investor Protection) Guidelines, 2000 (DIP Guidelines).
SEBI investigation brought out that the shares issued on preferential allotment were earlier dematted without receipt of listing permission from the stock exchanges. Investigation also revealed that there was rerouting of preferential allotment funds from the company to the preferential allottees through layers of related entities. Same funds were recirculated as preferential allotment consideration. It was also seen that a major portion of the shares issued in preferential allotment were transferred by the preferential allottees to related entities in off market transactions and 1,19,373 shares were off-loaded in the market.
3. Based on the investigations conducted till 15.01.04, SEBI found that there was a prima-facie case made out for non-receipt of full consideration money in respect of preferential allotment of shares and offloading of unlisted shares in the market. In order to ensure that no further harm is caused to the investors or the market an interim order was passed by SEBI on 15.01.04 prohibiting the preferential allottees and other entities to which the shares had been transferred by the preferential allottees, totalling 30, from buying, selling or dealing in securities of the company till further orders. In addition, it was ordered that, the shares of Aastha held in the demat account of the said 30 entities would be frozen, till further orders. Since the order dated 15.01.04 was passed without giving an opportunity of personal hearing to the said 30 entities, a post decisional hearing was given to these entities by SEBI on 10.03.04 and SEBI, vide its order dated 15.06.04 confirmed the interim order dated 15.01.04 and directed that the 30 entities/persons be prohibited from buying, selling or dealing in the securities of Aastha, either directly or indirectly, till further orders. It was further directed that the shares of Aastha, held by the said 30 entities/persons and lying in all their demat accounts shall be frozen till further orders.
4. SEBI, thereafter, completed the investigations in the matter and based on the findings of the investigation, a notice dated 06.08.04 was issued to Aastha and 39 other entities under Section 11(4)(b) read with Sections 11 and 11B of the SEBI Act, 1992 read with Regulations 11 and 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Aastha was alleged to have violated provisions of Clauses 13.1.1.1, 13.3, 13.4.2, 13.5A of DIP Guidelines. Besides Aastha and the 39 other entities to which show cause notices have been issued, were alleged to have violated Regulations 5(1) and 6(a) of FUTP 95 Regulations by virtue of recirculation of the preferential allotment subscription money among themselves and disseminating misleading information pertaining to preferential allotment. The company had received only a sum of Rs. 2.83 crore out of the total issue of Rs. 9.30 crores and recirculated a portion of the Rs. 2.83 crores using layers of related entities to create an impression of subscription for the remaining Rs. 6.47 crores.
In effect, a total of Rs. 3.04 per share had been received as against the issue price of Rs. 10 per share. Aastha and the other entities have merely denied the allegations of fraud made against them and have submitted that no instances as suggested by the relevant regulations have taken place to result in fraud. Aastha has also submitted that, none of its shareholders have ever complained that a fraud has been perpetrated on them. When no fraud has occurred at all, there cannot be a situation of aiding, abetting or assisting of a fraud, as alleged.
5. Subsequent to the filing of reply with SEBI, Aastha filed a Writ Petition No. 1240 of 2005 before the High Court of Judicature at Bombay for directing SEBI and BSE to permit trading in the 93,00,000 equity shares of the company that were issued and allotted on 14.08.00. Aastha had also prayed for directing SEBI to act on the reply to the show cause notice submitted by them with SEBI. The petition was taken up for hearing on 12.07.05 and the High Court directed that SEBI shall pass the order within six weeks from the date of receipt of its order i.e., on 14.07.05. To avoid further delay, Aastha was directed to appear before SEBI on the 25th July, 2005. By virtue of the above order of the High Court, SEBI had to pass the final order in the matter on or before 25.08.05. A final personal hearing was offered to Aastha on 18.08.05, when Aastha appeared before me and made its further submissions. After considering issues, SEBI found that Aastha violated provisions of Clauses 13.3 and 13.5A of DIP Guidelines, and Aastha and the 39 other entities violated Regulations 5(1) and 6(a) of FUTP 95 Regulations and SEBI passed order dated 06.09.2005, against Aastha and other 39 entities prohibiting them from buying, selling and dealing in securities and accessing the capital market till 14th January, 2007.
Further, orders were passed directing that the shares of Aastha that were frozen in the demat accounts of 1. Cheneena Impex Pvt. Ltd, 2. CMM Ltd., 3. Neena Mehta, 4. Ceean Impex Pvt. Ltd., 5. Smitasha Impex Pvt.
Ltd., 6. Prarekha Exim Pvt. Ltd., 7. Bratiti Finlease Pvt. Ltd., 8.
Bicharsil Traders Pvt. Ltd., 9. Bhairav Tradelink Pvt. Ltd., 10.
Deepmala Dealers Pvt. Ltd., 11. Divya Dealers Pvt. Ltd., 12. Gurupath Merchandise Pvt. Ltd., 13. Jeet Vanijya Pvt. Ltd., 14. Navltex Marketing Pvt. Ltd., 15. Saltlake Merchants Pvt. Ltd., 16. Network Power Pvt. Ltd. and 17. Savera Traders Pvt. Ltd., would continue to remain frozen in their demat accounts till 14th January, 2007. SEBI vide said order, stated that it will be open for SEBI, in the meanwhile, to explore the possibility of taking up civil proceedings against the entities involved for appropriate remedies. Subsequently, SEBI passed order dated 7.6.2006 against 13 entities viz., Shri Ajit Satyaprakash Gupta, Shri Arihant Jain, Shri Dilip Mohan Kejriwal, Shri Gunjan Jain, Ms. Lalita Jain, M/s. Martanda Finlease P. Ltd., Ms. Meera Jain, M/s. Natun Finlease P Ltd., Shri Pradeep Joshi, Shri Pramod Joshi, Ms. Sonal Jain, Shri Surendra Kumar Jain and Ms. Veena Dilip Kejriwal directing that the shares of Aastha that were frozen in the demat accounts of these 13 entities would continue to remain frozen in their demat accounts till 14th January, 2007, preventing further contamination of the securities market. SEBI vide said order, stated that it will be open for SEBI, in the meanwhile, to explore the possibility of taking up civil proceedings against the entities involved for appropriate remedies. The said order dated 06.09.2005 passed by SEBI was challenged by Aastha and other 39 entities before Hon'ble Securities Appellate Tribunal(SAT). The Hon'ble SAT after hearing the parties at length, while dismissing the appeals, held that in this view of the matter, the Board was right in holding that the Appellant company played a fraud on the existing investors of the company who held 7 lac shares and that the investors in the market were let to believe that the preferential allotment was successful.
This in turn would have increased the demand for the shares of the Appellant company and would have resulted in defrauding the innocent investors had the Board not passed the interim order on 15.1.2004 prohibiting the Appellant and its entities from buying, selling or dealing in scrips.
However, I note that the 13 entities have not challenged the freezing order dated 7.6.2006 passed by SEBI, before Hon'ble SAT. Conclusion 6. I find that SEBI, pursuant to order dated 06.09.2005, had taken steps in filing civil suit before Hon'ble High Court of Bombay, bearing Suit No. 2620 of 2006 against Aastha and other 52 entities praying for issuance of an order of injunction from creating and/or transferring, alienating third party rights in respect of the shares allotted through preferential allotment to the tune of 93.00 lac allotted on 14.8.2000 to different entities. SEBI, further prayed to declare the preferential issues of 93 lac shares as bad in law and liable to be set aside and direct the defendants to cancel the allotment of the said preferential issue. However, I note, on 12.1.2007 the Hon'ble High Court of Bombay was pleased to dismiss the said civil suit on the ground that the SEBI has no locus standi to file the suit. However Hon'ble High Court vide said order directed that parties shall maintain status -quo in respect of the shares for a period of two weeks and allowed SEBI to move the appeal court.
7. In my view the SEBI Act, 1992 was promulgated to provide for establishment of a Board to protect the interests of the investors in securities and to promote the development of, and to regulate the securities market and for the matters connected therewith or incidental thereto. Section 11 of the SEBI Act, sets out what are the powers and functions of the Board. Both under Section 11 and 11B a duty is cast on the Board to protect the interest of investors in securities and to promote and regulate the securities market, by such measures as it thinks fit. If the contract prima facie is fraudulent, illegal and opposed to public policy then such contract is void ab initio. It cannot be enforced in the eye of law. The present case before me is one of such cases where the company had issued a preferential allotment by dubious methods and perpetrated a fraud injuring the interests of investors. The preferential allotment is irregular and illegal for the reasons and grounds discussed in detail vide aforesaid orders passed by SEBI in the scrip of Aastha wherein the preferential allotment itself was found to be fraudulent. The aforesaid order dated 06.09.2005 passed by SEBI was upheld in toto by Hon'ble SAT on merits vide order dated 09.02.2006.
8. I have noticed that during the period 2000-01, there were a spate of preferential allotments made by several companies. Many of these preferential allotments were irregular and illegally issued and made with a view to issue shares without actually receiving adequate consideration and without disclosing the details of utilization of proceeds while bypassing the takeover regulations. Further, most of the promoters who raised the capital through preferential allotment route by making use of select intermediaries, later off-loaded their shares profitably in the market, at times, without getting the shares listed in the stock exchange. The main purpose of these preferential allotments was for a private gain at the cost of public good. Aastha is one such case wherein an irregular and fraudulent preferential allotment was established and wherein "freezing" orders were passed restraining allottees from off loading the same into the market to avoid contamination in the interests of the investors.
9. In view of the fact that, SEBI's civil suit seeking inter-alia for the illegally allotted shares to be declared as void has since been dismissed on grounds of locus, the present order is being passed to ensure that the perpetrators of a serious fraud do not sell the illegally acquired shares in the market, thereby contaminating the market besides unjustly enriching themselves at the cost of unsuspecting investors. In addition, SEBI is exploring the possibility of appealing against the said dismissal order of civil suit.
10. Therefore, in view of the facts and circumstances of the case, I find it necessary, for the sake of market integrity and to safeguard the interest of investors, to pass an order of permanently freezing the shares issued by Aastha under preferential allotment. Issuance of direction of permanent freeze has become imperative in the wake of the developments in civil proceedings pursued by SEBI to cancel/annul the said preferential allotment.
11. Taking into account the facts and circumstances of the case, I feel it would be appropriate to freeze permanently the shares of Aastha lying in the demat accounts of entities holding shares of Aastha.
12. In view of the above, in exercise of the powers conferred upon me, in terms of Section 19 read with Sections 11B and 11 of the Securities and Exchange Board of India Act, 1992, I hereby direct that the preferentially allotted shares of the Aastha lying in the demat accounts of the following entities viz., 1) Cheneena Impex Pvt. Ltd, 2) CMM Ltd., 3) Neena Mehta, 4) Ceean Impex Pvt. Ltd., 5) Smitasha Impex Pvt. Ltd., 6) Prarekha Exim Pvt. Ltd., 7) Bratiti Finlease Pvt. Ltd., 8) Bicharsil Traders Pvt. Ltd., 9) Bhairav Tradelink Pvt. Ltd., 10) Deepmala Dealers Pvt. Ltd., 11) Divya Dealers Pvt. Ltd., 12) Gurupath Merchandise Pvt. Ltd., 13) Jeet Vanijya Pvt. Ltd., 14) Navltex Marketing Pvt. Ltd.,15) Saltlake Merchants Pvt. Ltd., 16) Network Power Pvt. Ltd., 17) Savera Traders Pvt. Ltd., 18) Shri Ajit Satyaprakash Gupta, 19) Shri Arihant Jain, 20) Shri Dilip Mohan Kejriwal, 21) Shri Gunjan Jain, 22) Ms. Lalita Jain, 23) M/s. Martanda Finlease P. Ltd., 24) Ms. Meera Jain, 25) M/s. Natun Finlease P Ltd., 26) Shri Pradeep Joshi, 27) Shri Pramod Joshi, 28) Ms. Sonal Jain, 29) Shri Surendra Kumar Jain and 30) Ms. Veena Dilip Kejriwal shall be frozen permanently.
13. Further, the entities/persons mentioned above may file their objections, if any, to this order within 15 days from the date of this order and, if they so desire, avail themselves of an opportunity of personal hearing at the Securities and Exchange Board of India, Head Office, SEBI Bhawan, Bandra Kurla Complex, Mumbai 400 051 on a date and at a time to be fixed on a specific request, to be received in this behalf from the entities within 15 days from the date of this order.