Order With Respect To Mr. Dilip Pendse, Mr. A.L Shilotri, Pat Financial Consultants Pvt. Limited and Superior Financial Consultancy Services Pvt. Limited

WTM/PS/60/IVD/JUNE/2016
SECURITIES AND EXCHANGE BOARD OF INDIA

CORAM: PRASHANT SARAN, WHOLE TIME MEMBER
ORDER
Under Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act,
1992 read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices relating to Securities Market) Regulations, 2003
In the matter of Backdated Transactions in the shares of Global Telesystems Limited
and Global E-Commerce Services Limited
In respect of:
1. Mr. Dilip S. Pendse,
2. Mr. A.L. Shilotri,
3. Pat Financial Consultants Pvt. Limited and
4. Superior Financial Consultancy Services Pvt. Limited.
________________________________________________________________________
Appearances:
Date of hearing:
November 24, 2015
Mr. A.L. Shilotri appeared along with his Mr. Atul S. Tungare, Advocate.
For SEBI: Dr. Anitha Anoop, General Manger; Mr. Pradeep Kumar, Assistant
General Manager and Ms. Anamika Ahir, Assistant Manager.
Date of hearing:
February 03, 2016 and April 01, 2016
Mr. Pesi Mody, Senior Advocate; Mr. Neveille Lashkari, Advocate; Mr. S.H. Merchant,
Advocate; Mr. Rihal Kazi, Advocate; Mr. Bharat Patel and Mr. Vishal Patel appeared
for Pat Financial Consulatants Pvt. Limited and Superior Financial
Consultancy Services Pvt. Limited.
For SEBI: Dr. Anitha Anoop, General Manger; Mr. Pradeep Kumar, Assistant
General Manager; Mr. Ankit Bhansali, Assistant General Manager and Ms. Anamika
Ahir, Assistant Manager.
Date of hearing:
May 09, 2016
Mr. D.S. Pendse appeared along with Mr. V.M. Singh, Advocate
For SEBI: Mr. Pradeep Kumar, Assistant General Manager and Ms. Anamika Ahir,
Assistant Manager.
________________________________________________________________________
Page 1 of 43
1.
Securities and Exchange Board of India (hereinafter referred to as SEBI) on receipt

of a complaint dated October 18, 2002, from Tata Finance Limited (hereinafter
referred to as TFL or the Company) conducted an investigation in the rights issue
of TFL. The complaint had stated as under:
a. TFL had come out with a rights issue of 9% cumulative convertible preferences shares
aggregating to `90.93 crores in March 2001.
b. For the same, TFL was required to furnish the financial statement of its subsidiary
companies including that of Niskalp Investment and Trading Co. Limited (hereinafter
referred to as Niskalp) in the offer document.
c. Niskalp during the relevant period had suffered huge losses on account of erosion in
the value of its investments (to the tune of `190 crores due to fall in the stock market)
and payment of an interim dividend (@45% for the year 2000-01 resulting into cash
outflow of `10.81 crores).
d. In order to ensure that Niskalps accounts did not reflect the losses and as the loss and
non-performing assets (NPA) provisioning of Niskalp as on September 30, 2000 were
lower compared to December 31, 2000, financials of Niskalp were disclosed for the
period ending September 30, 2000, in the offer document instead for the period ending
December 31, 2000.
e. The complaint alleged certain fictitious backdated transactions of sale and purchase in
the shares of Global Telesystems Limited (hereinafter referred to as GTL) and Global
E-Commerce Services Limited (hereinafter referred to as GECS) between Niskalp
and TFL.
2.
During the course of investigation, the trading details (trade-order log) and demat
account statements were analysed and the statements of various persons were
recorded. The investigation prima facie found backdating of the transactions of sale of
shares of GTL and GECS in September 2000 by Niskalp and purchase by TFL and
reversal of such trades in December 2000 were at the behest of Mr. D.S. Pendse (Ex.
Managing director of TFL and ex-director of Niskalp), Mr. A.L. Shilotri (Ex. President
and Chief Executive Officer of Niskalp) and broking firms/ entities connected to Mr.
Bharat J. Patel and his relatives/ associates. Such fictitious/ backdated transactions in
the scrip of GTL and GECS had converted the loss of `14.59 crore to a profit of
Page 2 of 43
`11.45 as on September 30, 2000 in the books of Niskalp. Further, such profit in the
hands of Niskalp was disclosed in the offer document for the purposes of the rights
issue of TFL. The shares of TFL were listed on the Bombay Stock Exchange
(hereinafter referred to as BSE) and the National Stock Exchange (hereinafter
referred to as NSE) at the relevant point of time.
3.
On completion of the investigation, SEBI issued a show cause notice (hereinafter

referred to as SCN) dated May 04, 2009 to Mr. D.S. Pendse and Mr. A.L. Shilotri
under Sections 11, 11B and 11(4) of the SEBI Act, 1992 (hereinafter referred to as
SEBI Act) read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 2003 alleging therein that
the backdating of the transactions of sale and accounting entries for the scrip of GTL
and GECS in the books of Niskalp were given in order to give a better picture of its
half yearly accounts in the letter of offer of TFL and to induce the purchase/
subscription to the rights issue of TFL. The SCN further alleged that the acts of Mr.
D.S. Pendse and Mr. A.L. Shilotri were in violation of the Regulations 5(1), 6(a) and
6(d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations 1995 (hereinafter referred to as PFUTP Regulations)
read with Regulations 4(1), 4(2)(f), (k), (r), 13(2) and 13(3) of the SEBI (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003.
SEBI also issued a SCN dated May 04, 2009 to the entities namely Pat Financial
Consultants Pvt. Limited (hereinafter referred to as Pat) and Superior Financial
Consultancy Services Pvt. Limited (hereinafter referred to as Superior) under Sections
11, 11B and 11(4) of the SEBI Act read with Regulation 11 of SEBI (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003,
alleging therein that they had aided and abetted Mr. D.S. Pendse and Mr. A.L. Shilotri
in backdating the transactions of sale and purchase of shares of GTL and GECS. The
SCN alleged that the acts of Pat and Superior were in violation of Regulations 6(a) and
6(d) of the PFUTP Regulations read with the Regulations 4(1), 4(2)(p), 13(2) and 13(3)
of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations 2003.
Page 3 of 43
4.
Thereafter, Mr. D.S. Pendse sought an inspection of the documents. Accordingly, an

inspection of documents was granted to him on July 17, 2009. Vide letter dated
September 07, 2009, reply was submitted by him through his advocates. In the said
letter, while requesting for dropping of the proceedings, he stated as under:
a. The complaint dated October 18, 2002 and the SCN seek to protect certain high
ranking officers of Tata group and seek to make him a proverbial scapegoat. The SCN
has been issued almost 6 years after commencement of the investigation and relates to
the transactions in the year 2000. The SCN does not explain the delay.
b. The impugned transactions are relating to the year 2000 or latest March 2001, i.e. prior
to the coming into force of SEBI (Prohibition of Fraudulent and Unfair Trade
Practices relating to Securities Market) Regulations 2003. The provisions of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations 2003, could not be made applicable to him as the alleged wrong doings
relates to the period of September 2000.
c. The impugned transactions would be one out of numerous transactions done by TFL/
Niskalp and he cannot be expected to remember after almost a decade the details of
each and every transactions. He has no knowledge or recollection that the shares of
GECS in the demat account of Niskalp were pledged with the HDFC Bank or any
other bank at the relevant time. Further, no profit or motive is attributable to him in
respect of the alleged wrong doing. For the period when he was in charge of TFL, all
the statutory records had correctly reflected the transactions carried out by TFL.
d. He sought cross examination of the author of the complaint, Mr. Bharat Jayantilal
Patel, Mr. Prashant Jayantilal Patel, Mr. Pankaj Jayantilal Patel, Mr. Subodh K. Shah,
Mr. P.R. Ramesh (partner of S.B. Billimoria & Co., CA), Mr. S. Sivaram (partner of
M/s. Sahni Natrajan & Bahl), Mr. Jose Peter (director of Niskalp and Vice-President
of TFL) and Mr. A.L. Shilotri.
e. He had submitted a letter to the directors of TFL, conveying his decision not to
continue with TFL as its Managing Director beyond May 31, 2001, on which date his
term as Managing Director of TFL was expiring. This letter was accepted by the Board
of Directors of TFL at its Special Board Meeting held on February 08, 2001 and Mr.
Subodh K. Shah (who was the Deputy Managing Director of TFL from January 01,
2001), was appointed as the Managing Director (designate) w.e.f. February 09, 2001.
Page 4 of 43
As he was serving the notice period, effective management and decision making was
in the hands of Mr. Subodh K. Shah. Further, the rights issue of TFL including the
audit of the accounts of TFL and its subsidiary namely Niskalp were being monitored
by Mr. Subodh K. Shah.
f. He was not a party to any scheme of antedating of the documents or sale and buyback
of the shares of TFL by Niskalp. The books of Niskalp and the entries in respect of
the transactions referred reflected the dates of September 2000.
g. The accounts of TFL and Niskalp, were audited by the statutory auditors of TFL and
Niskalp namely S.B. Billimoria & Company for the purposes of rights issue in March
2001, who had not raised any objection of any nature at that time.
h. He was not involved in any manipulation of accounts or execution of any antedated
documents to conceal the losses of TFL or fraudulent transaction to artificially inflate
the profits of Niskalp.
5.
Mr. A.L. Shilotri through Mr. Atul S. Tungare vide letter dated July 15, 2009, replied
to the SCN and stated as under:
a. The SCN is belated and he is not in a position to deal with all the aspects due to lapse
of almost nine years from the date of the transactions. Due to the same, he is not able
to lay his hands on important papers and documents.
b. On the same set of allegation, he is being prosecuted by CBI, Mumbai and the same
is pending before the Additional Chief Metropolitan Magistrate. In view of the same,
he cannot be compelled to be a witness against himself. Once his defense is disclosed,
it would be easy for the complainant to fill up the lacunas in their case by manipulating
the evidence. In view of the same he will suggest his defence at the trial of the criminal
prosecution when the witnesses will be examined on oath and he would get the right
to cross examination.
c. On the relevant dates he was in no way concerned with the TFL. He was the CEO of
Niskalp which was a subsidiary of TFL. His job was to invest the funds of Niskalp in
various securities by using his knowledge and experience in investment and finance
sector under the guidance of the Board of Niskalp. He was not concerned with the
Rights Issue of TFL. He was not even a shareholder of TFL and was not concerned
with the day-to-day book entries and the audit of accounts.
Page 5 of 43
d. If TFL had disclosed the financial position of Niskalp ending on September 30, 2000
in its offer document, it was the sole decision of the board of TFL.
e. He was not concerned with the book keeping and accounts or back dated transaction.
Before issuing statement as regards the financial position of Niskalp, TFL must have
studied the audited report of Niskalp.
f. He was never a party to any irregular transactions and all the transaction, if any,
ordered by him were in the regular course of business.
g. He requested for cross examination of the persons namely Mr. P.R. Ramesh, Mr.
Subodh K. Shah and Ms. S. Sivaram.
6.
Pat and Superior vide separate letters both dated November 18, 2009, requested for
inspection of the documents. SEBI vide its letter dated August 06, 2010, granted an
opportunity of inspection of the documents to these on August 17, 2010. On the date
fixed the authorized representatives of Pat and Superior inspected the relied upon
documents. Thereafter, SEBI vide its letters both dated August 23, 2010, supplied the
copies of inspected documents to Pat and Superior. While proceeding further,
opportunities of personal hearing were granted to Pat and Superior on November 12,
2010, however, the same was postponed to December 02, 2010, due to certain
administrative exigencies.
7.
In the meantime, Pat and Superior vide letters dated November 04, 2010, submitted
the preliminary reply to the SCN. The submissions made in brief, are as under:
a. Since the issuance of SCN, for the first time vide letter dated August 23, 2010, SEBI
informed these that the statements of the witnesees and other documents are made
part of the record. They requested for cross-examination of Mr. P.R Ramesh, Mr.
Subodh K. Shah, Mr. A.L Shilotri, Mr. S. Sivaram, Mr. D.S. Pendse, Mr. Jose Peter
and the author of the complaint.
b. SEBI has no jurisdiction or authority to inquire into the matters involving shares of a
company which are not even listed. Sections 11, 11B and 11(4) of the SEBI Act, 1992
in the exercise of which the present SCN is issued, are enacted to regulate the working
of intermediaries like that of stock brokers, share transfer agents, sub-brokers, etc.
They are neither registered as a stock broker nor as a sub-broker or otherwise and as
such we are not an intermediary within the meaning of SEBI Act or the rules
Page 6 of 43
thereunder. Therefore, the SCN against these is void, bad in law and is liable to be
withdrawn.
c. The SCN has been issued without any authority or power. The name and designation
of the signatory of the SCN is not mentioned and a vague statement is made that the
SCN is issued with the approval of the Competent Authority. Nothing is mentioned
as to how the signatory of the notice has derived authority from the Competent
Authority.
d. There are simultaneous and prior civil as well as criminal proceedings initiated by TFL
against these which are pending. These are based on the same cause of action as stated
in the SCN and are pending before the Hon'ble Bombay High Court as well as in the
court of Chief Metropolitan Magistrate, Esplanade, Mumbai. These proceedings
involve common issues to those covered in the present SCN. Defending the
allegations contained in the present SCN will compel them to disclose their defense
and evidence in the said pending proceedings and will prejudice their rights and
contentions in the aforesaid pending proceedings. The same could also be used against
them in such pending proceedings and in view of the same the present SCN may not
be proceeded with.
e. The law imposing criminal liability has to be applied prospectively and not
retrospectively. The PFUTP Regulations have been repealed and the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 2003 have come into force on July 17, 2003. The same inflict penalty of
criminal nature and cannot be applied retrospectively to the transactions of shares in
question under the SCN, which were effected in September, 2000.
f. The purchase of 16,35,100 shares of GECS as on September 29, 2000 from Niskalp
was genuine transaction and there was no intention to commit fraud on any person.
They purchased 16,35,100 shares of GECS from Niskalp on the basis of
representations made by Mr. Shilotri, the then Director and CEO of Niskalp and the
same was a genuine transaction acted upon by the buyer and seller.
g. The books of accounts of Niskalp and/or TFL are their internal affairs and looked
into by their management. PAT and Superior cannot be held responsible for any
alleged violation of the books of accounts of a different independent authority.
Page 7 of 43
h. The present SCN has been issued on May 04, 2009, for the alleged violations in dealing
of shares transacted in September, 2000. The transactions are more than 9 years old.
They are experiencing great difficulties in tracing the relevant records which would
have enabled these to effectively deal with the violations alleged in the SCN. The
Section 209(4)(A) of Companies Act, 1956 provides that the books of account of every
company relating to a period of not less than 8 years immediately preceding the current
year together with vouchers relevant to the entry in the books of accounts shall be
preserved in good order. Thus, the issue of the SCN at such belated stage has caused
great difficulty.
i. Pat and Superior were not aware that TFL was coming out with rights issue of 9%
Cumulative Convertible Preference Shares in or about March, 2001. They are also not
aware of any profits booked by Niskalp.
8.
Considering the requests of the noticees, opportunities of cross examination on the

various dates was granted. A detailed table of such opportunities is mentioned in the
table below:
a. Opportunities of cross examination granted to Mr. D.S. Pendse:
Witness
Date
Status
Mr. S. Sivaram
15/06/2011
Noticee expressed his inability to appear for conducting the cross

examination.
examination.
examination.
Witnesses failed to confirm his presence for cross-examination.
20/06/201122/06/2011
02/08/2011
26/08/2011
&30/08/2011
05/09/2011
22/09/2011
01/11/2011
26/09/2012
28/09/2012
14/12/2015
03/02/2016
02/03/2016
The cross-examination proceedings were adjourned on the request

of the noticee as time was sought to examine the documents.
Witness was present and the proceedings of cross examination were
conducted. As the proceedings could not be completed, the same
were adjourned for further date.
examination.
Witness was present for the cross-examination, however, the noticee
failed to enter appearance. The opportunity of cross examination of
Mr. S. Sivaram was closed.
Witness was recalled on the application of the noticee. However, the
noticee had remained absent.
Witness expressed his inability to appear for the cross-examination.
Witness was again recalled on the request of the noticee and the
proceedings of cross-examination were conducted and completed.
Page 8 of 43
Mr. Jose Peter
20/06/2011
20/06/201122/06/2011
01/08/2011,
26/08/2011,
30/08/2011.
12/09/2011
13/10/2011
27/11/2012
28/10/2014
Mr. Subodh
K. Shah
15/06/2011
20/06/201122/06/2011
01/08/2011
26/08/2011,
30/08/2011
28/10/2014
20/11/2014
21/11/2014
Mr.
Shilotri
A.L.
15/06/2011
20/06/201122/06/2011
02/08/2011
26/08/2011,
30/08/2011,
28/10/2014
26/11/2014
13/05/2015
21/07/2015
Mr.
Patel
Bharat
15/06/2011
20/06/201122/06/2011

examination.
examination. However, the witness was present.
Noticee requested copies of several documents before conducting
the cross-examination.
Noticee refused not go ahead with the cross-examination of any
witness until the cross-examination of Mr. S Sivaram is complete.
Cross-examination was adjourned.
Witness was present and the cross examination in respect of him was
completed.
examination
examination.
Witnesses vide letter dated July 07, 2011 expressed his inability to
appear for conducting the cross-examination.
Further proceedings of cross examination were conducted. As the
proceedings could not be completed, on this date, the same were
adjourned for further date.
Witness was present and further proceedings of cross examination
were conducted and completed.
examination.
examination.
examination.
The witness requested for postponing the cross examination
proceedings for a period of eight weeks.
Witness expressed his inability to appear for the cross examination
Witness was present, however, the noticee failed to appear for the
cross examination, inspite of due intimation. The opportunity of
cross examination of Mr. A.L. Shilotri was closed.
examination.
examination.
Page 9 of 43
02/08/2011
26/08/2011,
30/08/2011,
28/10/2014,
04/12/2014,
21/01/2015
12/05/2015
24/07/2015
06/08/2015
Mr. Prashant
J. Patel
15/06/2011
20/06/201122/06/2011
01/08/2011
26/08/2011,
30/08/2011,
28/10/2014
04/12/2014
21/01/2015
17/04/2015
12/05/2015
24/07/2015
06/08/2015
Mr.
Patel
Pankaj
15/06/2011
20/06/201122/06/2011
01/08/2011,
26/08/2011,
30/08/2011,
28/10/2014
04/12/2014
21/01/2015
17/04/2015
12/05/2015
24/07/2015

examination.
Witness vide letter dated May 07, 2015, expressed inability to appear
for the cross examination.
examination. The witness remained absent.
Witness vide email dated August 05, 2015 expressed his inability to
appear for the cross examination.
examination.
examination.
Witnesses failed to confirm its presence for cross-examination.
Another date for cross-examination was granted.
Witness vide letter dated December 01, 2014 expressed inability to
appear for the cross examination.
Noticee vide email dated January 12, 2015 expressed his inability to
appear for conducting the cross examination. The witness remained
absent.
Witness failed to confirm the presence for the cross examination.
examination.
examination.
Witness vide letter dated December 01, 2014 expressed his inability
to appear for the cross examination.
Noticee vide email dated January 12, 2015 expressed his inability to
appear for conducting the cross examination.
Page 10 of 43
Mr.
P.R.
Ramesh
06/08/2015
Noticee vide email dated August 07, 2015, expressed his inability to
appear for conducting the cross examination. The witness remained
absent.
15/06/2011

examination.
examination.
examination.
Another date for cross-examination was granted.
Proceedings cancelled due to certain administrative exigencies
Noticee requested not go ahead with the cross-examination of any
witness until the cross-examination of Mr. S Sivaram is complete.
Cross-examination was adjourned for further date.
Witness vide his e-mail dated November 18, 2014, expressed his
inability to appear for cross examination.
conducted.
Proceedings cancelled due to certain administrative exigencies
Witness vide his e-mail dated February 24, 2015, expressed his
inability to appear for the cross examination.
Witness was present and the proceedings of cross examination was
conducted and completed.
20/06/201122/06/2011
02/08/2011
26/08/2011,
30/08/2011
29/09/2011
10/10/2011
25/11/201426/11/2014
09/12/2014
09/01/2015
16/04/2015
29/04/2015
b. Following opportunities of cross examination were granted to Mr. A.L. Shilotri:

Witness
Date
Status
Mr. Subodh
K. Shah
20/10/2014

conducted.
Mr. S. Sivaram
21/10/2014

conducted.
Mr.
P.R.
Ramesh
25/11/2014 26/11/2014
09/12/2014
Witness vide e-mail dated November 18, 2014 expressed his inability
to appear for the cross-examination on the date fixed.
conducted and completed.
c. Following opportunities of cross examination were granted to Pat:

Noticee
Mr.
Pendse
D.S.
Date
Status
05/12/2012
28/10/2014
Noticee failed to confirm the presence for the cross examination

Noticee vide letter dated October 13, 2014, expressed his inability
Noticee vide letter dated April 16, 2014, expressed his inability to
appear for cross-examination on the fixed date as it received
summons from Sessions Court, in a SEBI related matter for the same
date.
Noticee failed to appear for the cross examination
Noticee vide letter dated October 13, 2014, expressed his inability
05/12/2014
15/04/2015
Mr.
Shilotri
A.L.
22/07/2015
21/10/2014
Page 11 of 43
02/01/2015
15/04/2015
20/07/2015
Mr. Subodh
K. Shah
21/10/2014
18/03/2015
19/03/2015
14/05/2015
20/07/2015
Mr. S. Sivaram
21/10/2014
18/03/2015
19/03/2015
07/08/2015
Mr. Jose Peter
Mr.
P.R.
Ramesh
21/10/2014
The witness expressed his inability to appear for the cross

examination on the scheduled date.
Noticee vide letter dated April 16, 2014 expressed inability to appear
for cross-examination on the fixed date as it has received summons
from Sessions Court, in a SEBI related matter for the same date.
Noticee vide letter dated October 13, 2014, expressed inability to
appear for the cross-examination on the date fixed.
Director of the noticee vide e-mail date March 13, 2015, informed
about its unavailability
Noticee failed to appear for cross examination
appear for the cross-examination.
18/03/2015
19/03/2015
14/05/2015

about its unavailability.
25/11/201426/11/2014
09/12/2014
18/03/2015
19/03/2015
14/05/2015
Witness vide email dated November 18, 2014, expressed inability to

Director of the noticee vide e-mail dated March 13, 2015, informed
about the unavailability
d. Following opportunities of cross examination were granted to Superior:

Noticee
Mr.
Shilotri
A.L.
Date
Status
06/12/2012
21/10/2014
Witness expressed his inability to appear for cross examination.

The letter communicating the schedule of cross examination had
returned undelivered.
The witness expressed his inability to appear for the cross
examination on the scheduled date.
Noticee vide letter dated April 15, 2014, expressed inability to
appear for cross-examination on the fixed date as it had received
summons from Sessions Court, in a SEBI related matter, for the
same date.
Noticee failed to confirm the presence for the cross examination.
02/01/2015
15/04/2015
20/07/2015
Mr. Subodh
K. Shah
21/10/2014
18/03/2015
19/03/2015
14/05/2015
20/07/2015

about its unavailability.
Page 12 of 43
Mr. S. Sivaram
21/10/2014
18/03/2015
19/03/2015
07/08/2015
Mr. Jose Peter
21/10/2014
18/03/2015
19/03/2015
14/05/2015
Mr.
Pendse
D.S.
21/10/2014
05/12/2014
15/04/2015
22/07/2015
Mr.
P.R.
Ramesh
25/11/201426/11/2014
09/12/2014
18/03/2015
19/03/2015
14/05/2015
9.

about the unavailability
Noticee vide letter dated December 01, 2014, requested time to
collate the data
Noticee vide letter dated April 15, 2014 expressed inability to appear
for cross-examination on the fixed date as it has received summons
from the Sessions Court.
Witness vide email dated November 18, 2014, expressed his inability
Noticee vide letter dated December 01, 2014, requested time to
collate the data
Noticee failed to appear for the cross examination
While the above discussed cross examination proceedings were being conducted, the
noticees namely Pat and Superior vide email dated July 16, 2015, raised a preliminary
issue on the jurisdiction and argued that there are simultaneous and prior pending civil
and criminal proceedings initiated by TFL against them on the same cause of action
and defending the allegations contained in the present SCN, will compel these to
disclose the defense and evidence available with them. It was argued that the same will
prejudice their rights and contentions in the pending proceedings and requested that
the present SCN should be kept in abeyance and the cross examination of witnesses
be postponed. The request of Pat and Superior for keeping the proceedings in
abeyance was rejected as the cross examination dates were fixed as per their
convenience. It was also communicated to Pat and Superior that the preliminary issue
raised would be dealt in the final order after the completion of the cross-examination
and the personal hearing.
10.
Thus, upon granting ample opportunities of cross examination to Mr. D.S. Pendse,
Mr. A.L. Shilotri, Pat and Superior (hereinafter collectively referred to as the noticees)
Page 13 of 43
(as detailed in paragraph 8 above), SEBI proceeded further and granted opportunities
of personal hearings to Mr. D.S. Pendse and Mr. A.L. Shilotri on November 19, 2015
and to Pat and Superior on November 20, 2015. The schedule of the personal hearing
was intimated to the respective noticees vide letters dated October 12, 2015. The
noticees along with the letter were provided with status of cross-examination of
respective witnesses and the copies of cross-examination proceedings.
11.
The noticee Mr. D.S. Pendse vide his letter dated October 26, 2015, while requesting
for adjournment of the personal hearing again sought for further cross examination of
Mr. S.Sivaram, Mr. Bharat Patel, Mr. Pankaj Patel, Mr. Prashant Patel, Mr. A.L. Shilotri
and Mr. F.J. Da Cunha.
-
The request of Mr. D.S. Pendse to cross examine Mr. F.J. Da Cunha was rejected as
he had only made a complaint to SEBI and no statement was recorded by SEBI. I note
that Mr. F.J. Da Cunha had authorized Mr. Jose Peter to appear on his behalf and
answer the questions in the matter. It is seen that Mr. Jose Peter has already been
cross-examined by Mr. Pendse on October 28, 2014.
As the cross examination of Mr. S.Sivaram was partly held on September 22, 2011 and
the same was incomplete, the request to have Mr. S.Sivaram cross examined by Mr.
D.S. Pendse was allowed. The cross examination of Mr. S. Sivaram was fixed for
December 14, 2015. Mr. D.S. Pendse vide his email dated December 01, 2015 and
December 14, 2015, requested for rescheduling of the cross examination proceedings.
Although such request was not accepted in the first instance, subsequently, the same
was granted in the interest of justice. Accordingly, an opportunity for cross-examining
Mr. S.Sivaram was scheduled for first on February 03, 2016, but re-scheduled to March
02, 2016. On the date fixed, the cross-examination proceedings were conducted and
completed.
Regarding the opportunity of cross-examination of other witnesses, Mr. D.S. Pendse

and his advocate were informed that SEBI had made various attempts over the past
3-4 years to produce the other witnesses for cross-examination. The witnesses, viz.,
Mr. Bharat Patel, Mr. Pankaj Patel and Mr. Prashant Patel remained absent during the
entire proceedings.Mr. D.S. Pendse has already cross examined the witnesses namely
Page 14 of 43
Mr. S. Sivaram (cross examined on September 22, 2011 and March 02, 2016), Mr.
Subodh Shah (cross-examined on October 28, 2014, November 20, 2014 and
November 21, 2014), Mr. Jose Peter (cross examined on November 27, 2012 and
October 28, 2014) and Mr. P.R. Ramesh (cross-examined on December 09, 2014 and
April 29, 2015).
SEBI had also produced Mr. A.L. Shilotri on July 21, 2015. Mr. A.L. Shilotris cross
examination was scheduled on several previous occasions i.e. June 15, 2011, June 20,
2011 June 22, 2011, August 02, 2011, August 26, 2011, August 30, 2011, October
28, 2014, November 26, 2014 and May 13, 2015. However, as the said witness was
located out of the country and he had cited illness as a reason for inability to be present
for the cross examination, he could not be produced on such dates. Finally on July 21,
2015, when SEBI managed to produce Mr. A.L. Shilotri, Mr. D.S. Pendse failed to
turn up for conducting the cross examination. As Mr. D.S. Pendse did not avail the
opportunity for cross-examination on the date fixed, Mr. A.L. Shilotri made a request
that he should be discharged, which was granted.
-
I could not have further accommodated the request of Mr. D.S. Pendse for further
cross examination as SEBI had already taken substantial efforts to produce the
witnesses and several opportunities were scheduled in the process. The matter is old
and long drawn and I note that in the interest of justice, it could not be delayed further.
Therefore, an opportunity of personal hearing was granted to Mr. D.S. Pendse on
March 30, 2016. However, Mr. D.S. Pendse vide his letter dated March 10, 2016, again
requested for an opportunity of cross examining Mr. Bharat Patel, Mr. Pankaj Patel,
Mr. Prashant Patel, Mr. A.L. Shilotri and Mr. F.J. Da Cunha. Vide another letter dated
March 17, 2016, Mr. Pendse again requested that he be first given the opportunity to
cross-examine the aforesaid persons and requested SEBI to adjourn/ re-schedule the
personal hearing to a date after completion of the cross-examination.
SEBI vide its letter dated March 23, 2016, reiterated that the opportunity to crossexamine Mr. A.L. Shilotri was closed due to the non-appearance of Mr. D.S. Pendse,
inspite of due intimation and the witnesses namely Mr. Bharat Patel, Mr. Pankaj Patel,
Mr. Prashant Patel had remained absent. Later vide letter dated March 28, 2016, Mr.
Page 15 of 43
Pendse requested for re-scheduling of the personal hearing. His request was
considered and the hearing was re-scheduled to April 18, 2016. The hearing was later
re-scheduled to May 03-05, 2016, due to certain administrative exigencies. Mr. D.S.
Pendse vide letter dated April 26, 2016, requested for an adjournment on the ground
that his advocate is engaged in another matter and thereafter he was travelling. Vide
this letter, he requested for fixing the next date of hearing after June 06, 2016. The
request of Mr. Pendse was rejected and the same was communicated to him vide letter
dated April 28, 2016.
-
Thereafter, Mr. D.S. Pendse vide letter dated May 02, 2016, submitted two applications
i.e. for re-call of the order communicated vide letter dated March 23, 2016, in respect
of cross-examination of certain witnesses and for fixing fresh date of personal hearing.
He further failed to appear for the personal hearing on May 03, 2016. In the interest
of justice, one more opportunity of personal hearing was granted to him on May 09,
2016. On the date fixed Mr. D.S. Pendse along with Mr. V.M. Singh, Advocate
appeared for the personal hearing and made submissions in respect of his application
dated May 02, 2016 regarding recall of the order communicated vide letter dated March
23, 2016. The noticee was informed that the said application would be considered and
decided in the final order and he was advised to make submission on merits of the
case. The noticee was also informed during the course of personal hearing that as the
matter is old, the hearing would be held on a day to day basis till the completion of the
submissions by Mr. Pendse. However, no submissions were made on merits and the
matter was adjourned to the next day. Mr. D.S. Pendse failed to appear on the next
day i.e. May 10, 2016, for the personal hearing. In the interest of justice, Mr. D.S.
Pendse was granted time till May 23, 2016, for filing the written submissions, if any.
The same was communicated to him vide letter dated May 11, 2016. However, no
written submissions have been filed by him, till date.
I note that Mr. D.S. Pendse was free to draw adverse inferences for the witnesses who
were not produced. However, Mr. D.S. Pendse has failed to make any written
submissions. Mr. D.S. Pendse, at different stages of the proceedings, tried to dodge
the conclusion of this proceeding and lastly by not filing any written submissions. I
note that the transactions dealt in the matter are of the year 2000-2001, the SCN was
Page 16 of 43
issued in the year 2009 and thereafter the matter was pending for cross-examination
of the witnesses. I note that the statements are only corroborative to the main
evidences and the noticee, Mr. D.S. Pendse has failed to make any argument in respect
of the main evidences. From the above and the numerous opportunities already
afforded to the Mr. D.S. Pendse in the matter of cross-examination of the witnesses
and also for making submissions, I find that there is no violation of the principles of
natural justice. Accordingly, I dispose of the application of the Mr. D.S. Pendse dated
May 02, 2016, as being without merits.
12.
Mr. A.L. Shilotri vide his letter dated October 29, 2015, requested to re-schedule the
personal hearing. The request was considered and the hearing was re-scheduled to
November 24, 2015. In the meantime, Mr. A.L. Shilotri vide letter dated November
05, 2015, submitted the reply to the SCN, which was taken on record. On the date
fixed for hearing Mr. A.L. Shilotri appeared alongwith Mr. Atul S. Tungare, Advocate
and made oral submissions. Thereafter, Mr. A.L. Shilotri vide another letter dated April
06, 2016, filed certain additional submissions, which were also taken on record. His
submissions, in brief, are as under:
a. Niskalp was wholly owned subsidiary of TFL and TFL was holding 99.90% shares of
Niskalp. The office of Niskalp and TFL was in the same premises. Niskalp was
managed by the board of TFL and it had no staff of its own. All the books of accounts
of Niskalp were maintained in the regular course of business by the staff on the payroll
of TFL. Niskalp was an investment arm of TFL and its business was to make
investments from and out of the funds provided by TFL. Niskalp had no employees
except him and a Company Secretary named Mr. P. B. Karyekar. Mr. P.B. Karyekar
was not reporting to him at any point of time and he was drawing his salary from TFL
and was reporting to Mr. Ramanujan, Chief Financial Officer of TFL.
b. Before his appointment as President and CEO of Niskalp on February 11, 2001, he
was working as Vice President of TFL. In that capacity he was supposed to advise
TFL in the matter of equity investments. The decisions as regards the investments
advised/ recommended by him were to be taken by the Investment Committee, who
were the members on the Board of TFL. He was in no way concerned with day to day
Page 17 of 43
entries in the books of accounts, sales and purchase registers, register relating to pay
in and pay outs and any other back office business.
c. As a president and CEO of Niskalp, he was in no way concerned with the success or
failure of the offer for Rights Issue made by TFL. He was not to be benefited by the
offer of Rights Issue and the only persons, who could be interested to ensure that the
Rights Issue would be a success were TFL and its Board, who were interested in raising
funds under the issue.
d. He was working as Vice President (Investment) with TFL till February, 2001. Vide
letter dated February 02, 2001, he was informed that his services had been transferred
from TFL to Niskalp w.e.f. February 05, 2001 and he was given continuity of service
upon such transfer and asked to continue to be based at Dubhash House. Till his
services were terminated, he drew his salary from TFL. No staff was working under
him at Niskalp and he was supposed to report to the Chairman and Board of Directors
who were nominated by TFL.
e. When TFL had decided to come out with the Rights Issue, Niskalp was in losses due
to fall in the stock market. Before offering Rights Issue, the TFL was supposed to
furnish financial statements of all its subsidiary companies. The Board of TFL must
have instructed its accounts and finance department to submit the financial position
of its subsidiaries as on the relevant date for the purpose of Rights Issue. The account
and finance department of TFL must have submitted the financial position of its
subsidiaries including that of Niskalp to the Board of TFL. Therefore the Board of
TFL and its highrank officer cannot say that they did not know the financial position
of Niskalp as on September 30, 2000 and December 31, 2000.
f. It was the decision of the Board of TFL to disclose the financial position of Niskalp
for the period of six months ending on September 30, 2000 instead of December 31,
2000.
g. TFL had published the letter of offer of Rights Issue on or about January 31, 2001.
The datum line for the entitlement of Rights Issue for the shareholders was February
17, 2001 and the Rights Issue was to open on March 30, 2001. He was appointed CEO
of Niskalp on February 05, 2001 vide letter transferring his services from TFL to
Niskalp.
Page 18 of 43
h. After publication of the letter of offer for Rights Issue by TFL, a complaint was made
to SEBI against the Board of TFL about the non-disclosure of relevant information
relating to the financial position of Niskalp. SEBI took cognizance of the complaint
and sought explanation from the Board of TFL. The influential persons of the Board
of TFL had decided to use few persons in lower management as scape goats. He has
not been named by any of the witnesses. The brokers who named him have not been
cross examined by him.
Further, the broker namely Mr. Prashant Patel and Mr. Dilip Pendse were given
opportunity to cross examine him, but they have failed to cross examine him. Mr.
Bharat J. Patel was also given an opportunity to cross examine him, however, he also
failed to do the same. Therefore, there is no case against him.
i. The investors were given options to withdraw their monies from the rights issue not
once but twice and that no investor has ever lost any money due to the alleged
anomalies in the letter of offer.
j. The concept of internal transactions between the parent company and its subsidiary is
not unknown in corporate world. In such kind of transactions, no physical transfer of
shares take place and no brokerage is paid to the brokers, however for the account
purpose, broking entity is used. Merely because no brokerage is paid, SEBI could not
have jumped to a conclusion that the transactions were fictitious. The report of A.
Furgusson which was invited by TFL itself, had heavily indicted the management of
TFL and hence the same was not produced before the Competent Authority.
k. During the course of proceedings, SEBI had examined Mr. Subodh K. Shah as a
witness. In his cross examination, Mr. Subodh K. Shah stated that before recording of
his statement by SEBI, he had gone through the copy of the report prepared by Y.M.
Kale, partner, A. Furgusson & Co. and that his statement before SEBI was based on
the report of Y.M. Kale. Further, it has been said by him that the Y.M. Kale report
was not brought on record before SEBI. Mr. Subodh Shah stated that it was Mr. D.S.
Pendse who had asked him if the transactions for sale of GTL shares could be done
between Niskalp and TFL. Mr. Subodh Shah also stated that in the meeting held in
the chamber of Mr. D.S. Pendse in March 2001, no decision whatsoever was taken
regarding the sale of shares between Niskalp and TFL. Mr. Subodh Shah stated that
he did not have any personal knowledge regarding the internal transactions of the
Page 19 of 43
shares, if any, between Niskalp and TFL and he came to know about the backdating
transactions from the report of Y.M. Kale of A. Furgusson & Co. Thus, there is
nothing against Mr. A.L. Shilotri in the evidence of Mr. Subodh K. Shah.
l. Mr. P.R. Ramesh, partner, S.B. Billimoria and Co. in his cross examination, stated that
he was aware that Niskalp was in the business of trading in securities and financing.
S.B. Billimoria and Co. were the auditors of both TFL and Niskalp. The witness
admitted that he was aware that he was preparing the account of TFL for the financial
year 2000-2001 for the purpose of Rights Issue and that the statement of account
would form the letter of offer. Further, Mr. D.S. Pendse had informed him that TFL
had decided to proceed with the Rights Issue with the results of Niskalp for the period
ending on September 30, 2000, instead for the period ending on December 31, 2000,
but he was not aware of the reason for such change. The witness further stated that
he did not seek any explanation from the Board of TFL for such change, as it was in
compliance with law. Mr. P.R. Ramesh stated that though for giving clear picture
before publishing the Rights Issue, the accounts for the last quarter ending on
December 31, 2000 could have been given, since the requirement of law was to include
the account up to a period not earlier than six months from the date of offer, it was
the choice of the Company to consider inclusion of the results.
m. Mr. S. Sivaram in his cross examination has not uttered a word against Mr. A.L.
Shilotri. Mr. S. Sivaram admitted that the audit report was signed by the senior partner
Mr. Dinesh Bahl and that he had no personal knowledge as regards the transactions
referred to in his statement before SEBI. Mr. S. Sivaram also admitted that he had
knowledge about the transactions, as the supervisor on the job would have, based on
the documents and he was not personally summoned by SEBI to appear before it for
recording statement.
n. The statement of Mr. D.S. Pendse supports the case of Mr. A.L. Shilotri. Most of the
Board meetings of the Niskalp were chaired by Mr. J.E. Talaulicar. The statement of
Mr. Jose Peter further supports the case of Mr. A.L. Shilotri that all the decisions
relating to investment were made by the board of TFL.
o. No broker has been examined as a witness to substantiate the charge that Mr. A.L.
Shilotri had placed orders verbally for the alleged transactions. It was stated that Sahani
Natarajan and Bahl published the audit report part-IV in August, 2001. In June 2001
Page 20 of 43
itself, Mr. Y.M. Kale of A. Furgusson & Co. had already handed over his preliminary
report to TFL in which he had commented upon several irregularities in the
functioning of TFL inter alia including backdating certain transactions. The very
auditors did not notice any irregularities in respect of the said transactions in their
earlier reports submitted by way of Audit Report nos. 1, 2 and 3, in the course of audit.
p. As can be seen from the evidence of the internal auditor, Mr. S. Sivaram, he had
remarked in his audit reports for the earlier financial years 1998-1999 and 1999-2000
that there was a basic anomaly in the system which permitted backdation of records
and in those financial years also, he had noticed accounting of transactions not backed
by approvals/ supporting documents. Moreover, the transaction was between a parent
company and its subsidiary and therefore there was no need for movement of scrip
and even book entries were suffice. Such internal transactions are perfectly legal as per
any accounting standards and the inference drawn by the SEBI is absolutely
unwarranted.
13.
While replying to the hearing letters of SEBI, the noticees namely Pat and Superior
vide letters dated November 16, 2015 and November 20, 2015, respectively submitted
the following:
a.
SEBI does not have jurisdiction to investigate into the transaction in the shares of
GECS.
b. It would be imperative for SEBI to decide the aforesaid issue as a preliminary issue
and pass a reasoned order thereon prior to proceeding with the cross examination of
the witnesses or the SCN under reference.
c. There are simultaneous and prior civil as well as criminal proceedings initiated by TFL
against these which are pending adjudication. These proceedings involve common
issues to those covered by the SCN. In view of the same, defending these allegations
contained in the present SCN will compel these to disclose the defense and evidence
available with them in the present proceedings. The same will prejudice their rights
and contentions in the aforesaid pending proceedings.
d. They have never given up rights in the matter to cross examine the witnesses and nonappearance cannot be deemed to be any waiver on their part.
Page 21 of 43
On the date fixed for personal hearing, Pat and Superior failed to turn up for the
personal hearing. In the interest of justice, one more opportunity of personal hearing
was granted to these on January 19, 2016. Superior vide letter dated January 13, 2016,
requested for the copy of the minutes of the hearing for November 20, 2015 and
confirmed the presence for the personal hearing on January 19, 2016. SEBI vide its email dated January 14, 2016 replied that no minutes of the proceedings were recorded
on November 20, 2015, as the noticees were absent. Vide another e-mail dated January
19, 2016, Mr. Bharat Patel, director of Pat requested for re-scheduling of the personal
hearing. The request was considered and the matter was re-scheduled to February 03,
2016.
On the date fixed, Mr. Bharat Patel and Mr. Vishal Patel appeared for Pat and Superior
along with Mr. Pesi Modi, Senior Counsel, Mr. Neveille Lashkari, Advocate; Mr. S.H.
Merchant, Advocate; Mr. Rihal Kazi, Advocate. The representatives made submissions
on the preliminary arguments made vide letter dated November 16, 2015. The request
made by the representatives for cross-examination of the witnesses was rejected, in
view of the earlier opportunities granted and not availed by them. The representative
thereafter, made submissions on the merits of the case. However, as the submissions
could not be completed and the hearing was adjourned to March 15, 2016. In the
meantime, Pat and Superior vide email dated March 14, 2016, requested for an
adjournment due to non-availability of their counsel. The request was considered and
the matter was adjourned to April 01, 2016. On the date fixed, the authorized
representative submitted a compilation of the documents containing the minutes of
cross-examination of Mr. Jose Peter, Mr. Subodh Shah, Mr. P.R. Ramesh, Mr. Dilip S.
Pendse, Mr. S. Sivaram recorded before the Designated Authority under the SEBI
(Intermediaries) Regulations, 2008. The same were taken on record. The
representatives also requested time for filing the written submissions. The request was
considered and two weeks time was granted to these for filing the written submissions
and supporting documents, if any. Pat and Superior vide letters dated April 21, 2016
and April 22, 2016 respectively gave the written submissions, which were taken on
record. The submissions in brief are as under:
Page 22 of 43
i.
GECS was an unlisted company, Pat and Superior were unlisted companies and not
intermediaries registered with SEBI. No trades were executed on the stock exchange
either in accordance with the stock exchange mechanism or otherwise, which are being
investigated and/ or are in issue in the present matter. Therefore SEBI has no
jurisdiction to issue the SCN to them.
ii.
The noticees had no role to play in the internal accounting procedures of Niskalp/
TFL or in respect of the drafting/ disclosures in the letter of offer. The sale of shares
of GECS was never concluded. There was no delivery or payment and the same should
never have been shown in Niskalps account as a concluded sale nor could they have
booked any profits in respect thereof. Therefore, there is no cause of action or
jurisdiction fact which would justify taking any action including issuance of SCN
against them. Despite the same, the learned WTM has decided not to hear the said
issues as a preliminary issue and has heard the entire matter on merits. However, the
issue of jurisdiction still remains to be adjudicated upon.
iii.
Numerous proceedings are already pending on the same allegations. The present
matter is squarely in issue pending trial and adjudication before the Honble Bombay
High Court. For SEBI to pass orders at this stage, would amount to interference with
proceedings pending before the Honble Bombay High Court. SEBI has also filed a
criminal complaint before the Sessions Court on the very same allegations and the
same is pending before the Honble Court. Even the CBI has file Criminal Complaint
before the Metropolitan Magistrate, Mumbai on the very same allegations and the same
is pending for hearing.
iv.
The extraordinary delay in the proceedings has caused tremendous prejudice to the
noticees.
v.
SEBIs entire allegations in the SCN of back dating of documents, fictitious

transactions, etc. are based only on the alleged statements of various parties as allegedly
recorded by SEBI in the year 2004-05, copies whereof were forwarded by SEBI to
them under cover of letter dated August 23, 2010. Several of the said statements
contain contradictory allegations to the statements allegedly made by other deponents.
Yet these are all purportedly relied upon by SEBI and that too without any explanation
or reference in the SCN, nor was any supplementary SCN issued by SEBI.
Page 23 of 43
Since SEBI has relied upon inter alia the statements of Mr. S. Sivram and Mr. D.S.
Pendse, the same are binding upon SEBI and these expressly record that there was no
back dating or fictitious transactions which totally contradicts and belies the allegations
in the SCN, and therefore the SCN is bound to be dismissed or discharged against
them.
vi.
The noticees were offered certain opportunities of cross examination, the same were
adjourned for various reasons. SEBI vide its e-mail dated November 20, 2015, refused
to grant the noticees any further opportunity of cross examination. During the course
of personal hearing, they had requested for one last chance to cross examine the parties
whose statements were being relied upon by SEBI. However, the same was not
granted. Upon the same, the advocate for the noticee had suggested that in connected
matter relating to the sale of GTL shares 6 out of 7 witnesses had been cross examined
in year 2012 and only 1 witness remained to be cross examined, the cross examination
of the last witness therein could also be completed and then the noticees be allowed
to rely upon the cross examination of all such witnesses for the present matter also.
However, the request was not considered and it was orally ruled that whilst the
noticees could produce and rely upon the cross examination of the witnesses done so
far in the said other matter, he would not wait for the cross examination of the last
witness as the said other matter is before the Enquiry Officer under the Intermediate
Regulations. Thereafter, they were constrained to rely upon the cross examination of
the witnesses as was available from the said other matter.
vii.
As per the statement of Mr. Bharat J. Patel, a few days before September 29, 2000, Mr.
D.S. Pendse and Mr. A.L. Shilotri had approached Mr. Bharat J. Patel and told him
that they had negotiated with some foreign party for the purchase of GECS shares @
`310 per share, but as RBI permissions were awaited and they wanted them as middle
men in the deal. Pat had therefore issued the said letter dated September 29, 2000.
Further, as they could not arrange the ultimate client, at their request, the trades were
later reversed on November 28, 2000, by Niskalp repurchasing the shares from
Superior. There was no delivery of shares and no payment.
viii.
The letter dated September 29, 2000 was only an agreement to sell and not a sale.
The same ex-facie show that the delivery and payment were intended to happen at
future date, the payment was to be effected 7 days after the delivery of the shares so
Page 24 of 43
that Pat could deliver the shares and get the payment from the proposed ultimate
buyer. In such transaction, Pat was to act as a broker and was to receive brokerage.
Niskalp had failed and neglected to get the ultimate buyer and to deliver the shares.
Therefore, admittedly no payment was ever made. It has also been said that the
brokerage was not paid. In effect, there was no concluded sale of shares and Niskalp
could never have shown the same in its account as a concluded sale and could never
have at any time purported to book any profits in its accounts on the basis of the said
letter dated September 29, 2000. Therefore the mischief, if any, was by Niskalp alone.
ix.
No reasonable/ responsible auditor could having seen the letter dated September 29,
2000; demat statements showing that the shares had never been delivered; the bank
statements showing that no money was paid would have allowed to book the alleged
profit of sale in the accounts of Niskalp/ TFL.
x.
As alleged in the SCN, if the letters were backdated and created in March 2001, then
the auditors/ accountants were fully aware of the resale and reversal. The same was
before the letter of offer. Therefore, there was no obligation to disclose the same but
the letter dated November 28, 2000 was suppressed. The same was the mischief of the
auditors, the accountants, the BRLM (DSP Meryl Lynch) and the Board of Directors
of TFL and Niskalp.
xi.
The impugned transaction was a huge single transaction of about `50 crores, which
partly converted Niskalps loss into a profit. The value of the transaction was about
25% of the total portfolio of Niskalp, which was worth about `218 crores. Despite the
same, the auditors allowed Niskalps account to show and book a profit for a
transaction which was never concluded and the same was allowed/ approved by
BRLM and the Board of Directors of Niskalp. The same is complete failure and lack
of due diligence on the part of the auditors/ BRLM/ Board of Directors of Niskalp
and TFL.
xii.
As regards, the query during the course of personal hearing that if the sale as intended
under the said letter dated September 29, 2000 had never concluded and if not then
what was the reasons for recording a reversal thereof by the letter dated November
28, 2000, it has been submitted that at the relevant time, information regarding the
proposed merger between GTL and GECS, was in the public domain. Because of the
Page 25 of 43
same, there was a huge potential for the shares of GECS and the value to jump up,
inter alia since its unlisted shares would become listed shares of GTL.
In view of the same, there was no downside in issuing of the said letter dated
September 29, 2000. If Niskalp delivered the shares and brought the proposed ultimate
buyer as promised, they would have earned brokerage. If Niskalp did not get the buyer,
the shares had huge potential value as aforesaid. If Niskalp did not deliver the shares,
there was no obligation to pay for the same, but, they could have sued Niskalp for
damages and brokerage, if the share value went up. If the shares value went down,
even then they could have sued for their brokerage. In order to avoid such situation
and close out the outstanding obligation and liability to Pat and Superior, Niskalp
asked them, Niskalp asked them to reverse the trades at the same price. The noticees
agreed because of the long standing relationship and because they would also earn
brokerage on such reversal. Unfortunately, however, even the brokerage has not been
paid to date.
xiii.
SEBI had vetted the letter of offer and permitted Niskalps accounts to be as of
September 2000, without furnishing any explanation for such deviation. Even the
Board of Directors of TFL and Niskalp; the BRLM of the said letter of offer; the
auditors of TFL and Niskalp permitted the said deviation without any reason and no
charge has been made out against them for aiding and abetting as alleged against Pat
and Superior.
xiv.
If the noticees were co-conspirators with Niskalp, then the said letters would logically
have been far more explicit in recording the actual sale and the shares would have been
transferred to and parked with Pat and Superior. Further, the said letter would have
been backdated to show a sale in November 2000, to themselves and the reversal
would have been effected as a purchase by Niskalp in January 2001 from Pat and
Superior, so that the accounts of Niskalp could have also been made as of December
2000 as was done for TFL and all other subsidiaries. Further, there would have been
no brokerage payable to Pat and Superior so that the record could reflect a concluded
sale.
xv.
As the letters dated September 29, 2000 and November 28, 2000 were bonafide and
genuine, that Niskalp had to deviate and make their accounts as of September 2000,
i.e., in between the dates of the aforesaid letters. The letter of Pat and Superior have
Page 26 of 43
been misused by Niskalp, TFL, their respective Boards of Directors, the auditors, the
BRLM concerned, etc. to falsify the accounts of Niskalp as disclosed in the said letter
of offer.
xvi.
TFL would have published its quarterly accounts as of September 2000 and December
2000, within one month of the end of each quarter as required by the listing agreement.
Niskalps accounts would have been incorporated in such disclosed accounts. It is not
known/ disclosed as to whether the accounts of Niskalp had reflected the purported
sale/ profit in such accounts. If the same was in fact accounted for then it cannot be
said that the same was backdated/ fictitious. If however, the same was not reflected,
the same highlight the mischief of the auditors that even after the disclosures in
September and December 2000, they changed the accounts in March 2001, showing
the non-existing profits, even though in December they must have shown a loss.
xvii.
The letter of offer is dated March 20, 2001. The approval of SEBI was prior to that
date. The Board Resolution of the Board of Directors of TFL approving the letter of
offer for the offer was apparently on January 04, 2001. Prior to the same, the accounts
had to be finalized. Therefore in any event, there could never have been any backdating
of the said impugned letters in March 2001 as incorrectly alleged.
xviii.
Niskalp could not have booked profits for the transactions which admittedly never
took place due to failure to deliver the shares. In any event, as of March 2001,
admittedly both the impugned letters were part of the record of Niskalp. Therefore in
any event no profits could have been booked. It is reiterated that the accounts of
Niskalp ought not to have reflected the proposed transactions at all, since the same
never fructified. Niskalp choose to incorrectly allege that there was a sale on the basis
of the letter dated September 29, 2000, then it was also bound to disclose the
repurchase/ reversal under the letter dated November 28, 2000. In either event, the
net result would have been nil and no profits could have been booked. The mischief
was in booking the notional profit on the basis of the letter dated September 29, 2000
while ignoring the letter dated November 28, 2000.
xix.
The statements relied upon by SEBI are contradictory, however, these shows that the
impugned letters of Pat and Superior could never have been fabricated in March 2001,
as alleged in the SCN. Mr. P.R. Ramesh in his statement dated June 16, 2004 has inter
alia stated that on 19-20 March, 2001, he had sought supporting documents in respect
Page 27 of 43
of purported sale of GECS shares, Mr. Karyekar had informed him that the sale of
GECS shares would be accounted at `347 instead of `310 to which he objected. He
had instructed not to pass any accounting entries without supporting documents. The
only document provided was the letter dated September 29, 2000, on the basis of
which he had approved the accounts and the letter of offer information. Further, the
profits booked were reversed only in March 2002, since the shares had not been
delivered.
Mr. Subodh Shah in his statement dated July 01, 2004 has stated that he had attended
a meeting in March 2001, at which it was discussed that Niskalp had suffered losses
for quarters ending September 2000 and December 2000, Mr. D.S. Pendse and Mr.
Shilotri had suggested showing in the accounts, the purported sale of said shares, but
he opined that the same could not be done, as the returns of TFL had already been
filed for the quarter ended September 2000 and December 2000. The same proves
that Niskalps accounts for the quarter ended September 2000 and December 2000
did not show any such booked profit since the transaction never took place. Therefore,
the mischief was on the part of Niskalp/ TFL/ the BRLM/ the auditor/ the Board of
Directors, in subsequently booking such profits in March 2001.
Mr. S.Sivaram has stated that GECS shares were sold on September 30, 2000 @ `310
per share through Pat and Superior and a profit of `9.81 crore was booked by Niskalp
even though no payment was ever received. He alleged that there was no board
resolution authorizing purchase/ sale of shares. Further, the accounting entry for the
sale of shares was not recorded in the books of accounts of Niskalp till October 31,
2000.
Mr. Jose Peter in his statement dated April 25, 2005 had stated that there were internal
audit reports of Niskalp for the periods of July 2000-October 2000, November 2000December 2000 and January 2001 to February 2001, which covered 100%
transactions, but the same did not show any sale of GECS shares. He alleged that only
in March 2001, the entities were backdated to show the purported sale of GECS
shares, but he admits that even then the reversal under letter dated November 28, 2000
was on record. He also said that the accounting software of Niskalp permitted
retrospective entries and the same must have been misused by Niskalp and Mr. D.S.
Pendse to perpetuate the fraud.
Page 28 of 43
Mr. D.S. Pendse in his statement has stated that the transactions of sale of shares were
undertaken as per the approval granted by the Board of Directors and only the
accounting entries were made in the books of Niskalp in March 2001. Further, the
decision for the sale of shares was taken by himself, Mr. A.L. Shiklotri and Mr. Subodh
Shah in consultation with Mr. Talaulikar and Dr. F.A. Mehta. The said decision was
taken in September 2000 and the orders were placed by Mr. Shilotri and not by him.
The investment portfolio of Niskalp was reviewed at every board meeting. The Board
had discussed the sale and purchase of shares and all directors were aware of the same.
Even the auditors report which was included in the letter of offer was unqualified,
therefore Mr. P.R. Ramesh could not allege that there was any backdating irregularity.
xx.
In the cross-examination proceedings before the Designated Authority, Mr. Jose Peter
has confirmed that before filing of the offer document with SEBI, the final accounts
were approved by the Board of Directors and certified by the auditors. Pat and
Superior have submitted that as the letter of offer is dated March 20, 2001, SEBIs
approval would have been much prior thereto and the certification by the auditors and
the approval of the board would have had to be much prior thereto, therefore, it
cannot be alleged that the impugned letter were backdated/ created in March 2001.
Mr. Subodh Shah also in his cross-examination before the Designated Authority has
stated that he does not remember the Board of Directors of TFL had approved the
letter of offer before or after January 2001. From the same, it implies that the Board
approval may have been prior to January 2001 and the question of the impugned letter
being backdated in March 2001 does not arise.
Mr. P.R. Ramesh in his cross-examination before the Designated Authority has stated
that he had signed the audit report on March 19, 2001, even though the impugned
letter of September 29, 2000 was not produced on March 19, 2001 and prior thereto.
It has been argued by Pat and Superior that ex facie the auditor admits that he signed
the audit report containing the wrong booked profit for the proposed transaction
without ever having seeing the letter dated September 29, 2000. The same shows that
the auditors cannot contend that the letter dated September 29, 2000 misled them into
believing that the transaction was concluded.
xxi.
The impugned letter dated September 29, 2000 and November 28, 2000 were not
backdated or fictitious and the allegation is irrelevant. The same could never have been
Page 29 of 43
accounted as a concluded transaction and Niskalp could never have been booked
profits for the transactions which admittedly never took place due to the failure to
deliver the shares. In any event, as of March 2001, admittedly both these impugned
letters were part of the record of Niskalp. Therefore, in any event no profits could
have been booked. It is reiterated that the accounts of Niskalp ought not to have
reflected the proposed transaction at all since the same never fructified. However, if it
chose to incorrectly allege that there was sale on the basis of the letter dated September
28, 2000, then it was also bound to disclose the repurchase/ reversal under the letter
dated November 28, 2000. In either event, the net result would have been nil and no
profits could have been booked. The mischief was in booking the notional profit on
the basis of the letter dated September 29, 2000 while ignoring the letter dated
November 28, 2000.
14.
While proceeding further, I note that the noticees have raised certain preliminary issues
during the course of proceedings. Before proceeding with the merits of the case, let
me consider these preliminary issues raised by the noticees:
a. The noticees namely Pat and Superior have argued that SEBI does not have
jurisdiction to investigate into the transactions in the shares of GECS: Pat and
Superior have also argued that they had no role to play in the internal accounting
procedures of Niskalp/ TFL or in respect of the drafting/ disclosures in the letter of
offer. Further, it has also been said that the sale of shares of GECS was never
concluded.
In this regard, I note that the present proceedings relates to the mis-statements in the
offer document of the rights issue of TFL (a listed company). The prima facie findings
of the investigation have revealed backdated and fictitious transactions between TFL
and its subsidiary namely Niskalp. Further, the profits shown to have been made with
such backdated and fictitious transactions were disclosed in the letter of offer of TFL.
Such activities have been alleged to be in violation of the provisions of the PFUTP
Regulations.
Page 30 of 43
In view of the same, jurisdiction of SEBI extends to all the persons who were involved
in such execution of backdated and fictitious transactions as alleged in the SCN.
Further, I note that SEBI has the jurisdiction to examine the nature of all the
transactions which had a bearing on the investors in the securities market. Having
aided and assisted the noticees in their fraudulent activities, the argument of Pat and
Superior that as they were not registered as a stock broker/ sub-broker or otherwise
and that no trades were executed on the stock exchange as such the SCN issued against
these is void and bad in law, finds no merit.
b. Further, the noticees namely Pat and Superior are persons associated with the
securities market and are within the scope of Sections 11, 11(4) and 11B of the SEBI
Act. In this regard, I place my reliance on the judgment of the Honble High Court of
Gujarat in the matter of Karnavati Fincap Vs. SEBI [(1996) 10 SCL 5 (GUJ)]. The
relevant extract of the same is as under:
.. In ordinary meaning, the persons associated with the securities market would include
all and sundry who have something to do with the securities market. The words
persons associated with the securities market are of much wider import than intermediaries.
It is inconceivable to think that a buyer or seller of a scrip is not a person associated
with securities market, where or through which he transacts his business, whether as trader
or as investor, of selling or buying the required scrip.
The words all and sundry above would also include Pat and Superior as the letters
admittedly issued by these were used to book profits in books of Niskalp and the same
were disclosed in the letter of offer of TFL.
c. Multiple proceedings: Pat and Superior in respective submissions have argued that
numerous proceedings are already pending on the same allegations and the present
matter is squarely covered in the pending trial and adjudication before the Honble
Bombay High Court. It has also been said that when Honble High Court is seized of
the matter, there is no reason for SEBI to deal with it and the same may amount to
interference with the administration of justice by the Honble High Court. Pat and
Superior have further submitted that SEBI has also filed a Criminal Complaint before
the Sessions Court on the very same allegations and the same is pending.
Page 31 of 43
As discussed above, the issue involved in the present proceedings is mis-statements

in the offer document of the rights issue of TFL. For the same, SEBI has alleged the
violation of the provisions of the relevant provisions of the PFUTP Regulations and
deciding such issue which is in the jurisdiction of SEBI, in my opinion, will not amount
to any interference with the administration of justice by the Honble High Court.
d. Delay: The noticees have argued that the transactions are of the year 2001 and the
proceedings suffer from various delays and latches. The noticees have argued that they
are experiencing great difficulties in tracing the relevant records which would have
enabled them to effectively deal with the violations as alleged in the SCN. I note that
the proceedings have taken time, however, the same was due to various reasons.
However, such delay cannot justify exoneration. I have also seen that the cross
examination proceedings have gone on for a longer duration. Further, I note that the
noticees were aware of the pending proceedings and are therefore expected to possess
the relevant records for necessary defence.
e. I note that certain noticees have alleged that the entire Board of TFL, auditors and
others concerned are also responsible for the violations. In this regard, I note that the
present proceedings are with respect to the noticees against whom the SCNs were
issued and the allegation levelled by them is not a subject matter of the present SCNs.
Therefore, the same cannot be decided in the present proceedings.
f. Mr. D.S. Pendse in his submissions has requested that before proceeding further with
the matter, he be first given the cross examination of Mr. Bharat Patel, Mr. Pankaj
Patel, Mr. Prashant Patel, Mr. A.L. Shilotri and Mr. F.J Da Cunha. I have already dealt
with this issue at para 11 above.
The noticees namely Pat and Superior also sought cross-examination of the persons
upon whose statements SEBI has relied upon. In this regard, it is important to note
that sufficient opportunities of cross examination of the witnesses was given to these
two, the details of the same is reproduced in the paragraph 8 above. However, Pat and
Superior had failed to appear and conduct the cross examination of the witnesses.
Thereafter, during the course of personal hearing, the request of the counsel for Pat
Page 32 of 43
and Superior to place the proceedings of cross-examination as was conducted in the

proceedings under the SEBI (Intermediaries) Regulations, 2008 was allowed and the
same were also taken on record.
15.
While proceeding further, I note that TFL was a Non Banking Finance Company, at
the relevant point of time. Niskalp was an investment company and was a subsidiary
of TFL, which was primarily engaged in investments and share trading activities. TFL
in its Board meeting held on January 04, 2001, had decided to come out with a rights
issue of 9% Cumulative Convertible Preference Shares (CCPS). This was confirmed
by a further resolution in the board meeting held on January 29, 2001. The rights issue
of the Company had opened on March 30, 2001 and closed on April 30, 2001. For the
rights issue, TFL was required to furnish the financial statements of its subsidiary
companies in its letter of offer. Niskalp being one of the subsidiary companies of
TFL, its financial statements were also required to be incorporated in the offer
document. As discussed earlier, Niskalp had suffered huge losses during the year 200001. In view of the same, the financials of Niskalp for the period ending September 30,
2000, were disclosed instead of the period ending December 31, 2000. Considering
the above, the issue that now arises for my consideration are as under:
a. Whether there was any mis-statement in the letter of offer of the rights issue of TFL?
b. Whether such mis-statement was due to any falsification of records? If yes, then who
were responsible for the same?
16.
Whether there was any mis-statement in the letter of offer of the rights issue
of TFL?
a. I note that the letter of offer of TFL was dated March 20, 2001. Pursuant to the
opening of the rights issue of TFL on March 30, 2001, SEBI had received a complaint
in April, 2001 alleging non-disclosure of the losses of Niskalp in the letter of offer of
TFL. On receipt of such complaint, SEBI sought comments from TFL.
It is noted from TFLs letter dated April 30, 2001 (which is publically available) that
TFL had informed its shareholders that there was substantial erosion in the value of
the stocks held by it and that Niskalp had incurred an actual loss `14.57 crore as on
Page 33 of 43
September 30, 2000 and a provisional loss of `79.37 crores for the year ended March
31, 2001, as against a disclosed profit of `11.46 crores for the six month period ended
September 30, 2000. Vide its aforesaid letter, TFL also gave an option to the applicants
in the rights issue to withdraw their subscriptions.
b. From the above, it is noted that TFL had given false disclosures in its letter of offer
about the financials of Niskalp. The false disclosure was corrected by TFL and a letter
in this regard was issued to the investors. TFL in an attempt to mend its mistake, also
had given the withdrawal option to its subscribers. These details confirms that there
was mis-statement in the letter of offer of the rights issue of TFL.
17.
Whether such mis-statement was due to any falsification of records? If yes, then
who were responsible for the same?
a. As discussed earlier, TFL had incurred an actual loss of `14.57 crore as on September
30, 2000. However, such losses were shown to have been converted into a profit of
`11.45 crore as on September 30, 2000 and the same were disclosed in the offer
document of TFL for its rights issue. The SCN has alleged that such profits were
shown out of the transactions between TFL and Niskalp of 2,88,400 shares of GTL
and 16,35,100 shares of GECS (an unlisted company during the relevant period).
b. For better understanding of the transactions, let me consider the alleged transactions
executed between TFL and Niskalp as detailed in the SCN:
Date
Broker
Sale client Qty.
27/09/2000 Bharat J. Patel Niskalp
56,400
29/09/2000 Bharat J. Patel Niskalp
20/09/2000 JHP Securities Niskalp
Pvt Limited
25/09/2000 JHP Securities
Pvt Limited
Pvt Limited
Pvt Limited
Pvt Limited
Pvt Limited
27/09/2000 Prashant
J.
Patel
Price
Buy Client
`1135
(including TFL
brokerage of `6 per share)
1,00,000 `1160
(including TFL
32,000 `1350 - `1447
TFL
TFL
Niskalp
20,000
Niskalp
20,000
Niskalp
20,000
Niskalp
20,000
(including
`1129 - `1138 (including TFL
TFL
Qty.
56,400
Price
`1141 (including brokerage
of `6 per share)
1,00,000 `1166
(including
brokerage)
32,000 `1405 - `1448 (including
20,000 `1183.50
`1192
(including brokerage of `6
per share)
`1127
`1160 - `1158 (including

Page 34 of 43
20,000
20,000
20,000
`1129 - `1139 (including

of `6 per share)
`1125 - `1126 (including

28/09/2000 Prashant
J. Niskalp
Patel
13/12/2000 Bharat J. Patel TFL
14/12/2000 Bharat J. Patel TFL
20,000

1,30,000 `1166 - `1197 (including Niskalp
1,58,400 `1192 - `1204 (including Niskalp
20,000

of `6 per share)
1,30,000 `1172 - `1203
1,58,400 `1184 - `1204 (including

From the above, it is noted that Niskalp had claimed to have sold 2,88,400 shares of
GTL towards the end of September 2000 through the brokers, such shares were
purchased by TFL through the same broker. Further, in the month of December 2000,
similar quantity of shares were shown to have been purchased back by Niskalp from
TFL through the broker namely Bharat J. Patel.
c. The transactions in the scrip of GECS as alleged in the SCN are as under:
i.
Pat vide its letter dated September 29, 2000, intimated to Niskalp that 16,35,100
shares of GECS have been sold on its behalf @ `310 per share less brokerage of
`1.65 i.e. a net rate of `308.35 per share. The letter also states that the delivery of
the shares would be made within a maximum period of two months and payment
within 7 days after delivery.
ii.
Superior vide its letter dated November 28, 2000, intimated to Niskalp that 16,35,100
shares of GECS have been purchased back on its behalf @ `310 per share plus
brokerage of `1.60 i.e. net rate of `311.60 per share. The said letter also stated that
the delivery of the shares would be made within seven days and payment would be
made immediately.
d. The SCN has alleged the above transactions in the scrip of GTL and GECS were
planned during March 2001 and backdated to September 2000 and December 2000.
In support of such allegation, SCN has relied upon the demat statement of Niskalp. I
note that the entry in the demat statement is the basic proof of transaction in a scrip.
I have perused the demat statement of Niskalp and note that there was only one credit
entry of GECS shares for 16,35,100 shares as on July 10, 2000 and a debit entry of
GECS shares for 16,35,100 shares as on April 19, 2001. No other transaction in the
shares of GECS are seen in such demat statement. Further, the demat statement also
do not find any entry of the sale and purchase of GTL shares during the period of
September December 2000. Further, the investigation has also revealed that the
Page 35 of 43
shares of GTL were pledged with HDFC Bank by Niskalp and the same could not
have been sold without the prior approval of HDFC.
I note that there was no physical/ demat transfer of shares of GTL. Also, the
transactions are not supported by any payment receipts to the broker. From the trade
- order log details as received from the stock exchanges, it has been revealed that no
purchase/ sale transactions in the scrip of GTL were executed for the client codes
assigned to Niskalp and TFL by the broker involved. There is no evidence available to
show that the trades were actually done through the stock exchange mechanism and
the available facts suggests that these were off-market transactions.
As the demat statement of Niskalp does not record the movement of any shares of
GECS and GTL during the relevant period of September 2000 to January 2001, the
same suggests that such transactions never happened. The SCN has alleged that the
accounting entries in relation to GTL and GECS shares in the books of Niskalp were
to show a better picture of its half yearly accounts in the letter of offer of TFL.
However, all the noticees have maintained that the alleged transactions were genuine
and there was no backdation/ misstatement in the letter of offer.
e. The submissions of the noticees regarding genuineness of the transactions have to be
considered in detail. For the same, let me examine the role of each of the noticees in
the alleged transactions:
i.
Mr. D.S. Pendse: I note that the letter of offer of TFL was dated March 20,
2001 and issue was to close on April 30, 2001. At the relevant point of time, Mr.
D.S. Pendse was the Managing Director of TFL and a director of Niskalp. From
the minutes of the board meeting of TFL dated February 08, 2001, it is noted that
Mr. D.S. Pendse had handed over his resignation from the post with a request to
be relieved from the services w.e.f. May 31, 2001. The said resignation was
accepted by the Board of TFL and Mr. Subodh K. Shah was appointed as
Managing Director of the Company w.e.f. June 01, 2001. As per available record,
it is noted that the subject letter of offer was signed by Mr. D.S. Pendse on March
20, 2001. As a Managing Director of the Company, Mr. D.S. Pendse was primarily
responsible for the letter of offer.
Page 36 of 43
Mr. D.S. Pendse in his submissions dated September 07, 2009, has argued that as
he was serving the notice period, effective management and decision making was
in the hands of Mr. Subodh K. Shah. I have seen the minutes of the Board
Meetings held on the date of his handing over of resignation and thereafter. From
the same, it is noted that Mr. Subodh K. Shah had attended the meetings in the
capacity of Deputy Managing Director till May 25, 2001. Till May 25, 2001 and
Mr. D.S. Pendse had seemed to play a major role in such Board Meetings.
I note that Mr. D.S. Pendse while cross examining Mr. Subodh K. Shah on
November 21, 2014, had placed the minutes of the meeting of TFL dated October
30, 2000, on record. I have perused these, wherein the proposal for restructuring
of the balance sheet of Niskalp was discussed. The relevant extract of the said
minutes is as under:
Mr. D.S. Pendse, Managing Director, advised the Board that Niskalp had on its portfolio
various long term investments in unquoted Equity Shares as well as Non-Convertible
Debentures, acquired either to support or as strategic investments in certain ventures/
Group companies.
These investments were funded mainly by way of ICDs from Tata Finance apart from ICDs
from the market and loans from Banks, as a result of which, the Capital Adequacy Ratio
of the Company was constantly under pressure. It was therefore proposed that investments
aggregating Rs. 100 crores and securitization transaction with ICMIPL of the net exposure
not exceeding Rs.70 crores be transferred to Tata Finance at cost of market value, whichever
is lower.
After discussion, the Board approved the proposal and directed the Management to report
before the end of the year, the total amount of investment transferred to the Company and its
impact on profitability, cash flows, borrowings of Niskalp and the Company.
I note that these minutes are not of much help to Mr. Pendse, as also explained in
the SCN, the same pertains only to investment in unquoted shares or strategic
investment in group companies. Further, the transaction as noted in the letter of
Pat dated September 29, 2000 regarding GECS shares was definitely before the
board meeting held on October 30, 2000. Further, the approval of the Board of
TFL was definitely for future transactions and the same was not related to the
transactions in the scrip of GTL and GECS. It is further noted that the letters of
Pat and Superior dated September 29, 2000 and November 28, 2000 respectively
Page 37 of 43
were though addressed to Niskalp, the same had referred the name of Mr. D.S.
Pendse.
The same also suggests that Mr. D.S. Pendse had played an important role in the
alleged transactions. I note that Mr. D.S. Pendse was the Managing Director of
TFL and was responsible for the letter of offer for the Rights Issue of TFL. It is
also to be noted that Mr. D.S. Pendse himself had signed the letter of offer.
Therefore, he cannot escape the liability for mis-statements in the letter of offer.
At the relevant point of time, he was also a director of Niskalp. It is a fact that the
letter of offer contained false disclosure about the financials of Niskalp. I also
note that Mr. D.S. Pendse himself had given withdrawal option to the subscribers
to the Rights Issue. In view of the discussion above, Mr. D.S. Pendse cannot
escape the responsibility of declaring false/ misleading account statement of
Niskalp in the letter of offer of TFL.
ii.
While proceeding further, I note that Niskalp was the subsidiary of TFL. As per
the submissions of Mr. A.L. Shilotri, he was appointed as CEO of Niskalp on
February 06, 2001, prior to the same, he was working as Vice President
(Investments) of TFL. He also argued that being the President and CEO of
Niskalp, he was not concerned with the success or failure of the offer for rights
issue of TFL. In this regard, I refer to the SEBI order dated January 02, 2004, in
the matter of TFL wherein it was discussed that he was hand in glove with Mr.
D.S. Pendse. Further, Honble SAT vide its order dated May 21, 2004, has held
that Mr. A.L. Shilotri was aware of the bad state of Niskalp and such sensitive
information was not available with the general public at the relevant time.
Considering the observation of Honble SAT, Mr. A.L. Shilotri cannot distance
himself from (the financial position of) Niskalp and his knowledge about the
financial status of Niskalp. Further, inspite of the knowledge about the financial
position, he had not raised his voice when the profits were shown wrongly in the
books of Niskalp. As regards, the submission of Mr. A.L. Shilotri the report of A.
Furgusson & Co. had indicted the management of TFL, however, I note that no
such report has been relied upon in the present proceedings.
Page 38 of 43
iii.
I note that the noticees namely Pat and Superior have not denied the issuance of
the letter dated September 29, 2000 and November 28, 2000. It has been submitted
that the letter dated September 29, 2000 was only an agreement to sell and not a
sale of shares. I have perused the text of the letter of Pat dated September 29,
2000, addressed to Niskalp, the same has also been reproduced below for
reference:
We refer to discussion with you.
We today confirm having sold for you 16,35,100 shares of Global E-commerce Services
@Rs.310/- per share less Brokerage Rs.1.65 ie net rate of Rs.308.35 on following terms &
conditions.
Delivery - within maximum two months
Payment 7 days after delivery
Kindly acknowledge the same as token of your acceptance
As per the letter dated September 29, 2000, the delivery of the shares of GECS
had to happen within two months and payment was to be made seven days after
the delivery. It is a fact that no delivery of shares had happened. The demat
statement of Niskalp also confirms the same. Pat has argued that its interest in the
transactions was only brokerage, which admittedly had remained unpaid. I note
that the text of the letter of Pat clarifies that the sale of shares of GECS was not
concluded as no delivery of shares had happened. Taking note of the same, the
auditor of Niskalp ideally should not have allowed booking of profit on such sale
of GECS shares during the quarter 2000. I also note that the alleged transactions
were of high value and the same should not have missed by the auditors/ BRLM/
Board of Directors of Niskalp and TLF.
The submission of Pat and Superior to the query that if the sale as intended under
the letter dated September 29, 2000, had never been concluded then what were the
reasons for recording a reversal thereof vide letter dated November 28, 2000. This
appears to be a mere afterthought. Pat and Superior have argued that the shares
of GECS had huge potential due to the news of proposed merger between GTL
and GECS and they had no risk if Niskalp had delivered the shares and brought
the buyer, in such case they would have earned brokerage and otherwise they could
have sued Niskalp for damages and brokerage. I note that admittedly the brokerage
as stated in the letters dated September 29, 2000 and November 28, 2000 are yet
Page 39 of 43
to be paid by Niskalp. Further, neither Pat nor Superior informed SEBI about any
action initiated against Niskalp for recovery of such amount. All these indicate,
that the stated transaction never happened and were mere book entries for
wrongfully/ falsely showing profits at the hands of Niskalp.
I also note that Pat had not received the brokerage from Niskalp for the first leg
of transaction and admittedly no delivery of shares was made to it. In view of the
same, there was no requirement from its sister concern (Superior) who till
November 2000 was a stranger to the transaction to make any reverse transaction.
At this stage, I have perused the letter of Superior dated November 28, 2000,
addressed to Niskalp. The relevant text of the same is reproduced below:
We refer to discussion with you.
We today confirm having bought for you 16,35,100 share of Global E-commerce Services @
Rs.310/- per share plus Brokerage Rs.1.60 i.e. net rate of Rs.311.60 on following terms &
conditions.
Delivery within seven days
Payment immediately
Kindly acknowledge the same as token of your acceptance
From the discussion above, it is important to note that quantity and price of GECS
shares was exactly same as was proposed to be sold for Niskalp by Pat. It is the
case of Superior that such transaction was to close the outstanding obligation and
liability to Pat. This submission cannot be accepted for the reason that the
obligation, if any, was on Pat and Superior was a stranger to the transaction.
Considering the discussion above and the manner of dealings by Pat and Superior
it can be said that they had definitely accommodated/ helped Niskalp by issuing
letters which mentioned fictitious sale and purchase of GECS shares, which were
never enforced. They did not even know to whom the shares were being sold by
Pat. Pat and Superior while arguing further have submitted that if they were the
co-conspirators with Niskalp then the letters would have been more explicit in
recording the sale and the shares would have been delivered to Pat. Further, the
reversal would have effected as a purchase by Niskalp in January 2001, so that the
accounts of Niskalp could have been made as of December 2000. Such submission
of Pat and Superior could have been of consideration, if there had been any
Page 40 of 43
delivery of the shares of GECS to Niskalp. However, as stated above, the

transactions as indicated in the letter of Pat had never happened.
Pat and Superior have also argued that as of March 2001, both the letters of Pat
and Superior were part of the records of Niskalp and in such case no profit could
have been booked. However, in the present case as detailed above, the actual losses
of Niskalp were shown as profit in the offer document of TFL. In view of the
above discussion, I note that the letter of Pat had definitely helped the coconspirators to show profits in the books of Niskalp and further by the letter of
Superior attempt was made to cover up the transaction in the scrip of GECS.
Therefore, I conclude that Pat and Superior by such false letters had aided and
abetted Niskalp in showing fictitious profits as represent in the letter of offer for
rights issue.
f. As per the allegations in the SCN, the letter of Pat and Superior dated September 29,
2000 and November 28, 2000 respectively were created in March 2001. I note that
these documents formed the basis to support the misleading statement about the
profits of Niskalp to induce the interest of investors and falsification of the accounts/
records. The transactions in the shares of GTL were not on stock exchange and the
shares of GTL were pledged with HDFC Bank. Further, there is no transfer of shares
of GTL and GECS in the demat statement of Niskalp. Thus, showing such
transactions in the books of Niskalp was not proper and showing profit out of such
transaction was definitely a misleading statement.
18.
At this stage, I note the argument of the noticees that they have not been granted
opportunities to cross-examine the persons on whose statements SEBI has relied
upon. I note that the allegation levelled in the SCNs are not solely on the basis of the
statement of persons. SEBI in its SCNs have relied upon various documents available
on record. Further, the observations and findings made in paragraphs 16 and 17 above
are on the basis of documents other than the statements of persons. Therefore, in my
view, the case is proved without reference to the statements.
Page 41 of 43
19.
The facts as discussed above, shows that Mr. D.S. Pendse was the Managing Director
of TFL and Director of Niskalp and had signed the letter of offer pertaining to the
Rights Issue of TFL. Therefore, he was fully incharge of the Rights Issue of TFL
during the relevant period and his involvement in the misleading statements cannot be
wished away. Considering the admitted mis-statement made in the letter of offer
pertaining to the rights issue regarding the accounts of Niskalp, it can be concluded
that the affairs of the companies were mismanaged to commit fraud on the investors.
In view of the same, the charges against Mr. D.S. Pendse of violation of the provisions
of Regulation 5(1), 6(a) and (d) of the PFUTP Regulations read with the relevant
provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations 2003 stands proved.
20.
For the facts stated in the earlier paragraphs, it can be said that as CEO of Niskalp,
Mr. A.L. Shilotri was required to be aware of the financial transactions of Niskalp and
had not raised any voice or concern when the losses were converted to profits in the
hands of Niskalp. Mr. A.L. Shilotri in his submission has argued that the investors
were given options to withdraw their monies from the rights issue not once but twice
and that no investor has ever lost any money due to the alleged anomalies in the letter
of offer. This submission is of no relevance as it has already been proved that there
were misstatements in the rights issue letter of offer.
In view of the same, I find that Mr. A.L. Shilotri had violated the provisions of
Regulation 5(1), 6(a) and (d) of the PFUTP Regulations read with the relevant
provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations 2003.
21.
From the discussions above, Pat and Superior by issuing letters regarding the fictitious
transactions aided and abetted Niskalp in making backdated/ fictitious transactions in
the shares of GECS. Accordingly, Pat and Superior are found to have violated
Regulation 6(a) of the PFUTP Regulations also stands proved.
Page 42 of 43
22.
For the above reasons, I, in exercise of the powers conferred upon me under Section
19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11, 11B
and 11(4), hereby issue the following directions:
a. The noticees namely Mr. D.S. Pendse and Mr. A.L. Shilotri are restrained from
accessing the securities market and are prohibited from buying, selling or otherwise
dealing in securities market for a period of three (3) years. Mr. D.S. Pendse and Mr.
A.L. Shilotri are also hereby restrained from holding any Key Managerial position in
any listed company for a period of three (3) years.
b. The noticees namely Pat Financial Consultants Pvt. Limited and Superior Financial
Consultancy Services Pvt. Limited are restrained from accessing the securities market
and are prohibited from buying, selling or otherwise dealing in securities market for a
period of three (3) years.
23.
The order shall come into force with immediate effect.
Date : June 21st, 2016

Place : Mumbai
PRASHANT SARAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Page 43 of 43

Order With Respect To Mr. Dilip Pendse, Mr. A.L Shilotri, Pat Financial Consultants Pvt. Limited and Superior Financial Consultancy Services Pvt. Limited

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Order With Respect To Mr. Dilip Pendse, Mr. A.L Shilotri, Pat Financial Consultants Pvt. Limited and Superior Financial Consultancy Services Pvt. Limited

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WTM/PS/60/IVD/JUNE/2016

SECURITIES AND EXCHANGE BOARD OF INDIA

Securities and Exchange Board of India (hereinafter referred to as SEBI) on receipt

On completion of the investigation, SEBI issued a show cause notice (hereinafter

Thereafter, Mr. D.S. Pendse sought an inspection of the documents. Accordingly, an

Considering the requests of the noticees, opportunities of cross examination on the

Noticee expressed his inability to appear for conducting the cross

The cross-examination proceedings were adjourned on the request

Mr. Jose Peter

Noticee expressed his inability to appear for conducting the cross

Noticee expressed his inability to appear for conducting the cross

Noticee expressed his inability to appear for conducting the cross

b. Following opportunities of cross examination were granted to Mr. A.L. Shilotri:

Witness was present and the proceedings of cross examination were

Witness was present and the proceedings of cross examination were

c. Following opportunities of cross examination were granted to Pat:

Noticee failed to confirm the presence for the cross examination

Mr. Jose Peter

The witness expressed his inability to appear for the cross

Noticee vide letter dated October 13, 2014, expressed inability to

Witness vide email dated November 18, 2014, expressed inability to

d. Following opportunities of cross examination were granted to Superior:

Witness expressed his inability to appear for cross examination.

The letter communicating the schedule of cross examination had

Mr. Jose Peter

The letter communicating the schedule of cross examination had

Regarding the opportunity of cross-examination of other witnesses, Mr. D.S. Pendse

SEBIs entire allegations in the SCN of back dating of documents, fictitious

As discussed above, the issue involved in the present proceedings is mis-statements

and Superior to place the proceedings of cross-examination as was conducted in the

`1160 - `1158 (including

`1129 - `1139 (including

`1125 - `1126 (including

`1125 - `1158 (including TFL

`1125 (including brokerage

1,58,400 `1184 - `1204 (including

delivery of the shares of GECS to Niskalp. However, as stated above, the

The order shall come into force with immediate effect.

Date : June 21st, 2016

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