CBI team to go to Mauritius to track 2G scam money trail

A Supreme Court bench directed the agency to file its report on the probe into the money trail by 31st May and posted the matter for further hearing on 6th July

New Delhi: A team of the Central Bureau of Investigation (CBI), India's premier investigation agency, officers would be leaving for Mauritius next week to track the trail of money invested in various telecom companies involved in the second generation (2G) spectrum allocation scam, CBI told the Supreme Court on Friday.

Senior advocate KK Venugopal appearing for the investigating agency said the team would be leaving on 16th May and will file its report before the court on the investigation done by it, reports PTI.

A bench of justices GS Singhvi and AK Ganguly directed the agency to file its report on the probe into the money trail by 31st May and posted the matter for further hearing on 6th July.

The bench also directed the CBI to expedite its enquiry against a journalist who had allegedly tried to bribe an Enforcement Directorate (ED) official who was inquiring into 2G scam.

Mr Venugopal also informed the court that teams of ED officials would also be going to five foreign countries in tracking the money trail involved in 2G scam.

The bench also wanted to know from him about the progress into the probe based on the status report filed by the CBI relating to 10 destinations abroad.

"Some team is going to Mauritius on 16th May. Is there a plan for the CBI team to go to any other destination?" the bench asked.

"It is an untiring crusade," the bench said when advocate Prashant Bhushan, appearing for and NGO, Centre for Public Interest Litigation (CPIL), said top people from the telecom companies allegedly involved in the scam should be charge sheeted.

"How can they (CBI) wash its hands? All people right to the top should be charge sheeted," he said.

The bench also said that arguments of the petitioner NGO seeking appointment of committee to assist the court in monitoring the case required serious consideration.

The CBI also placed before the bench its probe report on journalist Upendra Rai against whom a complaint was filed by ED official for allegedly trying to bribe him.

The bench after going through the report said that findings were "quite serious" and directed the agency to expedite the inquiry against him.

The court asked the agency to submit its report on 6th July.

The apex court had earlier agreed to look into the issue of Mr Rai, director (news) Sahara News Network, over allegations that he had tried to bribe one of the ED officers by offering to give him Rs2 crore to benefit corporate lobbyist Niira Radia.

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Bombay HC allows proceedings against Helios & Matheson

While setting aside the orders passed by the Sessions Court, the HC has allowed a revision application by VMoksha's co-founder Rajiv Sawhney against H&M

The Bombay High Court has set aside the orders of the Sessions Court and allowed a revision application of VMoksha Technologies co-founder Rajiv Sawhney against Helios & Matheson Information Technology (H&M).

In an order passed on 6 May 2011, Justice JH Bhatia restored the order of the Additional Chief Metropolitan Magistrate (ACMM) of the 47th Court, Mumbai, to restart proceedings against the accused, including H&M's chairman V Ramachandran. This has come as a reprieve to Mr Sawhney, a US-based non-resident Indian (NRI), who is fighting a long battle with H&M.

Judge Bhatia said,"the Additional Sessions Judge, on the basis of facts disclosed in the complaint, had also come to the conclusion that a prima facie case was made out. Having come to such a conclusion, the judge embarked upon the consideration of other grounds and quashed the order, which was well-reasoned and based on facts disclosed in the complaint. Therefore, in my opinion, it is a fit case where this Court should, under its inherent power under Section 482, interfere and quash the order passed by the Additional Sessions Judge."

Advocate Rahil Moghe, counsel of Mr Sawhney, told Moneylife that the process will now begin from where it was stopped. The court has also order all the parties to appear before the Additional Chief Metropolitan Magistrate on 4 July 2011, he said.

"On 18 January 2007, the chief magistrate issued a process against all the accused, including H&M. This was challenged by them in the Sessions Court, where the decision was quashed on various grounds. We then challenged this decision at the Bombay High Court, which has now quashed the decision of Sessions Court and has upheld the decision of the learned magistrate," Mr Moghe said.

Moneylife has previously reported about the bruising battle between H&M and Rajeev Sawhney (Read, Helios & Matheson Under The Scanner ). Moneylife has also reported on how the market regulator, the Securities and Exchange Board of India (SEBI), had fined H&M Rs50 lakh for making false announcements to influence the stock price and hiding information about acquisition of vMoksha.  (Read, Helios & Matheson fined Rs50 lakh by SEBI for financial irregularities; vMoksha co-founder also penalised )

The case dates back to 2005, when shareholders of vMoksha, an IT company, decided to sell its three units. The company appointed PriceWaterhouseCooper, who found out H&M as potential buyer for vMoksha's three units. On 11 May 2005, both the companies signed a share purchase agreement under which V Ramachandran, chairman of H&M, was to pay $19 million for the three units, out of which $4 million was to be paid to Pawan Kumar, the then chief executive of vMoksha and also former CEO of the controversial DSQ Software, as earn out. Although, Pawan Kumar and his family members were also stakeholders in vMoksha, Mr Sawhney later bought out their stake as well.

Mr Ramachandran was supposed to pay $13.4 million to Mr Sawhney, after paying some amount to Tapan Garg and Madhuri Garg, son and wife of Pawan Kumar for their holding. Mr Sawhney soon realised that he had been kept in the dark about many aspects of the deal.

For instance, he found that instead of receiving $19 million, a bank account had been 'fraudulently' opened in the State Bank of Mauritius in vMoksha's name and used to borrow $13.5 million, using a fake board sanction and false entries. That money was remitted to H&M ostensibly for subscription of redeemable preference shares on 28 June 2005.

The regional director of the MCA conducted a technical scrutiny of H&M and found that the loan was, indeed, obtained by falsifying the board minutes and making false entries. Worse, the H&M chairman provided a personal guarantee for this borrowing by vMoksha, even before acquiring the company or transferring any funds for its acquisition. The State Bank of Mauritius allegedly approved the loan, although the loan documents were unsigned and on plain sheets of paper instead of the company's letterhead.

On 30th June, the same funds were transferred back to vMoksha ostensibly as part of the acquisition amount and were used to pay back the dubious loan. According to Mr Sawhney, this was to defraud him and other shareholders of the subsidiaries of vMoksha. He contended that for this purpose, Pawan Kumar had entered into a conspiracy with the State Bank of Mauritius, Ravi Kumar, who was manager of State Bank of Mauritius's Chennai branch and H&M, Mr Ramachandran, GK Muralikrishna, managing director of H&M and Maharashtra. Pawan Kumar created the forged and fabricated documents to show that he was authorised to open the account to obtain the loan and to transmit that amount to the account of H&M.

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Controversial Helios & Matheson plans to raise Rs500 crore

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COMMENTS

karthikeyan

5 years ago

Fax: 28234298 Tel: 28272676
http://www.mca.gav.in 2827665



GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF THE REGISTRAR OF COMPANIES
SHASTRI BHAVAN, II FLOOR, 26.. HADDOWS ROAD, CHENNAI. – 600-006

No.20443/IPC/ROC/2007, Dated:


To
The Regional Director (SR),
Ministry of Corporate Affairs,
Chennai-600-006.

Sir,
Sub:- Technical Scrutiny of Balance Sheet of M/s.Helois & Matheson
Information Technology Ltd. – Report u/s 234 (6) of the Companies
Act, 1956 (the Act) – Fast Tract – Reg.

Ref:- 1. Directorate’s letter No.2/M-9751/2006 dated 11.6.2007 & 28.06.07
2. This office letter of even no. dated 8.8.2007 & 14.09.2007.

-----------

With reference to the above subject. I am to state that vide this office letter second cited, this office has sent a report to the Directorate in the matter of complaint received fro Sri Rajeev Sawheny of M/s. Vmoksha Technologies Pvt Ltd., attracting the provisions of Sec.372A(3), 77 and involving diversion/ transfer of funds between M/s. Helios & Matheson Information Technology Ltd. & M/s. Vmoksha, Mauritius. A copy of the said report is enclosed for ready reference. Further as reported therein, the technical scrutiny of Balance sheet as at 31.3.2006 has been taken up and information/clarification arising out Technical Scrutiny has been called for from the subject company u/s.234(1) of the Companies Act,1956 vide this office letter dated 27.9.2007. The Company vide its letter dated 23.10.2007 has sought 15days time to submit their reply in the matter and subsequently submitted their reply on 7.11.2007. A copy of the same is forwarded herewith. The report in terms of Section 234(6) of the Act read with Section 234(1) and (7) of the Act is as under :-

(1) It is seem from significant Accounting Policies & Notes on accounts of the Balance sheet as at 31.3.2006 of the Company, i) The Company signed a definitive” Share Purchase Agreement” (SPA) to acquire 100% equity in three Vmoksha entities on 11.05.2005. As per para 2.2.1 pf the said agreement the subject company shall pay a total consideration of Rs.62.5164 Crores at the rate of Rs.1887.77 per share for the purchase of entire shareholding of 3,31,165 equity shares of Rs.100/- each in the Vmoksha India held by the sellers - Vmoksha Mauritius Mr.Tapan Garg and Mrs.Madhuri Garg. Ii) The Company entered into another agreement viz. “Subscription Agreement” on 11.5.2005 and as per paras 2.1 & 2.2. of the said agreement, the subject company will issue and allot to the investors i.e. Vmoksha .Mauritius and others 84.05.520 Redeemable Preference shares of Rs.10/- each at a premium of Rs.65/- per share. It is further stated in para 2.2 that the subscription price shall be paid by wire transfer by the Investors o M/sHelios & Matheson simultaneously on receipt of wire transfer funds from H & M under Share Purchase Agreement iii) Escrow Agreement dated 11.5.2005 was entered to provide safeguard to all the parties concerned Copies of there agreements are enclosed with the reply of the Company.


As stated above, the company has entered into share subscription agreement on 11.5.2005 and the said agreement at para 2.1 & 2.2 stipulated that the company will issue and allot to the investors viz., Vmoksha, Mauritius and others 8405520 redeemable preference shares of Rs.10/- each at a premium of Rs.65/- per shares. The funds to the extent of Rs.63.03 crores for allotment for the said preference shares from Vmoksha was received on 28.6.2005. The perusal of the company’s document relating to MOA reveal that as on 11.5.2005 as well as 28.6.2005 the company’s MOA contained authorized share capital of Rs.15crores consisting of 1500000 of equity shares of Rs. 10/- each only. Therefore, it is clear that as on date of execution of the share subscription agreement as well as date of receipt of the money for the said redeemable preference shares, company’s MOA does not contain any Authorized capital of the nature of preference share capital.

In the EGM held on 20.7.2005, the company has passed the following resolutions :-

(1) Increase in authorized share capital of the company.

(2) Alteration of MOA of the company.

(3) Alteration of AOA of the company.

(4) Issue of redeemable preference shares.

(5) Raising of additional long term resources through issue of FCCBs/GDRs.



The Notice dated 20.6.2005 and explanatory statement to the said notice of the EGM is enclosed herewith. The resolution are reproduced hereunder :-

Increase in Authorised Share Capital of the Company

1. To consider and if thought fit, to pass with or without modification(s) the following resolution as an Ordinary Resolution

“RESOLVED THAT PURSHAT TO Sec.94 and other applicable provision, if any, the Companies Act, 1956, the Authorised Share Capital of the company be increased from 15,00,00,000/-(Rupees fifteen crores only) divided in to 1,50,00,000(One Crore fifty laksh only) Equity Shares of Rs.10/-(Rupees ten only) each to Rs.25,00,00,000/-(Rupees Twenty only) divided into 1,50,00,000(one crore fifty lakhs) Equity shares of Rs.10 (rupees ten only) each and 1,00,00,000(one crore only) redeemable preference shares of Rs. 10 (rupees ten only) each with power to increase or reduce, consolidate, sub-divide the capital in accordance with Companies Act. 1956.”

Alteration of Memorandum of Association of the Company

2. To consider and thought fit to pass with or without modifications (s) the following resolution as an Ordinary Resolution


“RESOLVED THAT the existing clause 29(11) of the Memorandum of Association of Company be deleted and substituted with the new clause.


29(II). The Authorised Share Capital of the Company is Rs.25,00,00,000/-(Rupees twenty five crores only) divided into 1,50,00,000(One crore fifty lakhs) Equity Shares of Rs.10/-(Rupees Ten) each and 1,00,00,000(one Crore only) redeemable preference shares of Rs.10/-(Rupees ten) each with power to increase or to reduce the capital and to consolidate, sub-divide the shares and shares of higher or lower denomination and to attach there to respectively preferential, deferred, qualified or other special rights, privileged and conditions attached there to as may be determined by in accordance with the Articles of Association of the company and to vary, modify or abrogate any such rights privileges or conditions or restrictions in such a manner as may for the time being, be permitted by the Articles of Association of the company or the legislative provision for the being inforce in that behalf.

Alteration of Article of Association of the Company

3. To consider and if thought fit. To pass with or without modifications(s), the
Following resolutions as a Special Resolution.


RESOLVED THAT The existing clause 16If) of the Articled of Association of the Company be deleted and substituted with the following new clause

16(f) The Authorised Share Capital of the Company is Rs.25,00,00,000/-(Rupees twenty five crores only) divided into 1,50,00,000(One Crore fifty lakhs only) Equity shares of Rs.10/-(Rupees Ten only) each and 1,00,00,000(one crore only) redeemable Preference Shares of Rs.10/-(Rupees Ten only) each with power to increase or reduce the capital and to consolidate or sub divide the Shares and issue shares of higher or lower denomination in accordance with the provisions of the Companies Act,1956.”

Issue of Redeemable Preference Shares

4) To consider and if thought fit, to pass with or without modification(s), the following Resolution as a Special Resolution

“RESOLVED THAT 1,00,00,000 Redeemable Preference Shares of Rs.10/- each forming part of the Authorised Share Capital of the company can be issued at par / premium / discount and allotted to any person or persons, in one or more branches and on such terms as to dividend, preferential payment and redemption as the Board of Directors (hereinafter referred to as the “Board”, which term shall include any committee(s) which the Board may constitute to exercise the powers of the Board including the powers conferred by this resolution) may deem fit and that the provisions of Section 81 of the Companies Act,1956 shall not apply to the aforesaid issue and that such shares need not be offered to the existing Shareholders of the Company.”


RESOLVED FURTHER THAT the board of Directors or a Committee thereof be and is herby authorized to do all acts and deeds as may be necessary, usual, proper and expedient to give effect to this Resolution including listing of securities in the Stock Exchanges. If necessary.”



Raising of additional long term resources through issue of FCCBs/GDRs, etc.,

5. To consider and if thought fit, to pass with or without modifications(s), the following Resolutions as a Special Resolution.


RESOLVED THAT, in accordance with the provisions of section 81(1A) and all other applicable provisions, if any of the Companies Act, 1956 (including any statutory modification(s) or re-enactment thereof) and relevant provisions of the Memorandum of Association and Articles of Association of the company………………………

Explanatory statement to the above resolution is reproduced below:-

Item1 to 3

The present Authorised Share Capital of the Company is Rs.15 crore consisting of 1,50,00,000 equity Shares of Rs.10/- each. To enable the Company to expand its activities for seeking the emerging opportunities for growth , it is considered necessary to increase the share capital of the company to Rs.25crore consisting of 1,50,00,000/-Equity Shares of Rs.10/- each and 1,00,00,000 redeemable preference Shares of Rs.10/- each. Such increase in the authorised capital requires alteration Capital Clause of the Memorandum of Association and Articles of Association. Hence the items no. 1 to 3 placed before the meeting for approval

None of the directors are interested or concerned in the items of business


Item no.4

Inorder to meet the fund requirement it is proposed to offer/issue and allot redeemable non-convertible preference shares. For making preferential allotment, the approval of shareholders is necessary. It is propose to issue about 85 lakhs shares of Rs.10/- each at par/premium/discount to private corporate bodies and individuals on non-converatable basis as Board may fix and determine. For this purpose, the Board may be authorized to take necessary steps as may be required to give effect to this resolution. Hence the item is placed before the meeting for approval. None of the directors are interested or concerned in the item of business.



Item no.5

The company has been examining various growth opportunities from time in line to its objectives of becoming globally competitive. While it is envisaged that the internal generation of funds would partially finance the proposed investments it is thought prudent at this stage for the company to raise a part of fund requirement through the issue of securities in the domestic/international market as set out in the accompanying Notice.

It is therefore proposed to issue appropriate securities for an amount not exceeding the equivalent of US $ 100 Million in one or more branches in such form on such terms and timing and in such manner at such price or prices and at such time as may be considered appropriate by the Board of Directors to the various categories of investors in the domestic/international market as set out in the accompanying Notice.


Your company will work out the mode of financing and utilization plants in consultation with advisers, lead managers and other agencies as may be required subject to the approval of Government of India, Reserve Bank of India, Securities Exchange Board of India, and other authorities wherever applicable. While the fund raising programme may be through a mix of debt/Equity related instruments as may be appropriate, approval of the members of the company is being sought the extent that any part of the abovementioned fund raising plan includes issue of Ordinary (Equity) Shares. Section 81 of the Companies Act, 1956 provides inter alia that whenever it is proposed to increase the subscribed Capital of a company by issue and allotment of further shares. Such further shares shall be offered to the persons who on the date of the offer are holders of the Ordinary Shares of the Company, in proportions o the capital paid up on that date unless the members in a general decide otherwise by way of a Special Resolution. The listing agreement executed by the company with various stock exchanges also contains similar provision in this regard. The securities issued pursuant to this resolution may be listed on stock Exchanges whether in India or abroad as decided by the Board. While no specific instrument has been identified at this stage that may be issued by the company pursuant to the resolution the ordinary(Equity) shares if any allotted on conversion of securities or exercise of warrants shall rank parapassu in all respect interse with the then existing ordinary equity shares of the company.

Your directors recommend the acceptance of the proposed resolution in the best interest of the company. None of the directors are interested or concerned in the business.

From the above issues, following conclusions can be drawn:-

(1) The MOA has not authorized to receive any money for preferred shares as on the date of execution of share subscription agreement as well as date of receipt of money.
(2) AOA also does not contain the amended authorized capital.

Therefore, the execution of the share subscription agreement on 11.5.2005 and receipt of money on 28.6.2005 was without any authority in the MOA and therefore ultra virus the MOA and beyond the authority of the company as well as Board of Directors in terms of Section 291 of the Act and such ultra virus act of MOA cannot be regularized by the general Body or by the directors.
The intimation relating to increase in authorized capital in form 5 was filled in the ROC office on 11.8.2005. As such, authorized capital is deemed to have been increased u/s 97 only on 11.8.2005. A copy of form 5 is enclosed as Annexure ……..A……………….. Therefore, till 11.8.2005, the company was not authorized to received any money on preference share capital.

Further, resolution No.4 & 5 relating to issue of preference shares u/s 81 and 81(1A) were not passed prior to the execution of share subscription agreement or the receipt of money and therefore execution of share subscription agreement on 11.5.2005 was beyond the competence of the Board of Directors.

(2) Voilation of Section 628 and 173 of the Act.

As stated in para 1 above , the company ahs passed resolution No.4 & 5 u/s 81 and 81(1A)of the Act for issue of preference shares. The perusal of the resolution as well as explanatory statement u/s 173 of the Act reveal that though they had entered into share subscription agreement on 11.5.2005 and para 2.1 and 2.2 of the agreement provides that company will issue and allot to investors, ie., Vmoksha, Mauritius and others to the extent of 8405520 redeemable preference shares of Rs.10/- each at a premium of Rs.65/-, the company has failed to give the full disclosure of (i) this material document (ii) the material facts that were already decided vide this agreement dated 11.5.2005 and (iii) pre-decided premium of Rs.65/- in the explanatory statement contained in the notice dated 20.6.2005. As the company omitted to disclose the said material document facts contained in the material document and the premium amount of Rs.65/- per share knowing it to be material, knowingly in the resolution as well as the explanatory statement in the notice dated 20.6.2005 to the EGM held on 20.7.2005, the company and the directors violated the provisions of section628 and 173 of the Act. A copy of the notice dated 20.6.2005 containing the said resolution as well as the explanatory statement is enclosed as Annexure… B

(3) Voilation of Section 372A(3) of the Act:-


As per the Balance Sheet. The Schedule “G” contained the item “Advances” for investment of shares in Vmoksha entities for Rs.65.03 crores. The perusal of the paper reveal that the said money was received in terms of share purchase agreement dated 11.5.2005 (one different from that of share subscription agreement referred above). Though the above advance was made on 30.6.2005, the company could not get any shares allotted.
From Vmoksha till date. Therefore, the said advance attract provisions of section 372A of the Act as loans and therefore it further attracts provisions of section 372A (3) of the Act. Explanation provided under the subsection 10(a) for share application money is specifically mentioned, this means that share application money included under “loans and advances” for relevant purpose for meaning provisions of section 372A of the Act. T. In the instant case, the company has clearly shown it as an ‘advance’ but could not get shares allotted for more than two years, it is definitely a ‘loan’. As the shares were not allotted for more than 2years, because of different reasons, the shares now cannot be allotted against the said advance from the retrospective date of advance, i.e..30.6.2005, it attracts the provisions of sections 372A of the Act as loans without charging interest. As the company could not get any interest from the said advance, it has violated Section 372A (3) of the Act.

4. Regarding para 6 relating to receipt of subscription money from M/s Vmoksha on28.6.2055 and the transfer of money to M/s. Vmoksha, Mauritius on 30.6.2005 for acquisition through the agreements entered on same day, the company was called upon to offer explanation as to how the same can be considered to be a desirable practice and prudent business activity and more particularly when the directors of the subject company have given personal guarantee for the loan taken by Vmoksha for payment of subscription of redeemable preference shares. To this the company has submitted that the personal guarantee was given by the Directors of the Company only to facilitate the process of the transaction as advised by the Escow Agent Ms/.Price Waterhouse Coopers and that there is no undesirability or imprudence in their Directors giving such guarantee. They have added that the company was not affected in any manner and the expectation of revenue there from has been given in clauses 6.1(a) (b)(c)(d) of the Share Purchase Agreement.

However in view of the internecine quarrel amongst the promoters if Vmoksha Group, the obligations/conditions under the abovesaid agreement were getting delayed and hence the subject company initiated arbitration proceedings before the Hon’ble High Court which is now pending before the Sole Arbitrator. As such, there appears to be a diversion/transfer of funds between the abovesaid companies and the guarantee given by the Directors shows that they have got vested interest in the transactions.

5.In para 7 of this office letter, it is stated that the movement of funds the two companies had taken place within 2days variation but intention of such transactions was made on one & same day i.e 11.5.2005. The company stated that as per the agreements, the payment were made simultaneously by wire transfer and the time gap is only due to the Banking channel and the consideration for acquisition was being paid and the same was being invested in accordance with law as advised by M/s.Price Waterhouse Coopers is tenable. It appears that the funds granted/received is having nexus for funding for subscribing its shares which attracts the provisions of Sec.77 of the Act.

Further the contention of the Compnay that the delay is due to Banking channel cannot be accepted since books has to be maintained on accrual basis as per Sec.209(3) (b) of the Act.

Further all the above arrangements had taken place between a variation of two days in the movement of funds and therefore the funds granted/received is having indirect nexus for funding for subscription its own shares which may attract the provisions of Sec.77 of the Act. However, this requires further examination.

6. As regards para 8 regarding Investment abroad. Company has forwarded approval obtained from foreign investment Promotion Board (FIPB) for infusion of additional foreign investment by issuance of Redeemable preference shares for the purpose of Foreign Collaboration for Software development. But it appears that the arrangement is not in the nature of foreign collaboration but only an investment for acquisition but only an investment for acquisition of shares in Vmoksha entities and for Vmoksha acquiring preference shares in the Company. The Transfer of funds from India to abroad and from abroad to for which no shares are allowed may attract the provisions of FEMA in the matter. Hence this may be reported to the concerned authorities viz., FIPB and RBI.

7.In respect of para 9 relating to difference in the amounts payable to Vmoksha viz., Rs.65.03 Crores in the Balance sheet and Rs.62.5164 Crores stated in page 59 of Balance sheet, Company’s reply stating that the amount started in the Balance sheet is inclusive of the amounts payable to Escrow Agents & Board of Advisors. However, this issue requires further examination.


8. As called for in para10, company has forwarded a copy of the valuation report in respect of Investment in Vmoksha entities. However, the correction of valuation requires further probe.

9. Regarding para16, Compnay has stated that the Arbitration proceeding are still pending before the Arbitral Tribunal Hon’ble Mr.Justice K.Venkataswamy.

10. About Fluctuation in share prices of the Company as observed in para 17, the company has clarified that this is due increase in profits and announcement of Bonus shares during 2005. However, such an abnormal increase from Rs.147/- to Rs.428/- per share was only Rs .795.89 Lakhs. Bonus shares were issued on 28.9.2005. Therefore, this issue requires deep probe as well as reference to SEBI.

11. As required in para 23, Company has finished the details of Unsecured loans for the last three year which included amount of unsecured loan from friends and associates and has referred the report of the Auditors that the provisions of Sec.58A and 58AAof the Act and the Rules made there under have been complied. In this connection, it is seen from the records of the Company that the company has not filed the return of Deposits as required under Rule 10 of deposit Rules. However, this issue requires further examination.

12. In respect of payment of rent as per para 30. It is submitted that the same is not disclosed separately as required under part ii –CL.x of Sch. VI. Company’s reply in this regard is not satisfactory. Hence Company has violated the Sec.211 r/w.Sch. VI-Part II Cl(x) of the Act.

13. Regarding para 31 relating to payment made to M/s.Price Water House Coopers, the Company has given the details as under as “consultancy charges” paid in relation to the agreement relating the share subscription and share purchase agent:-

Price Water Coopers India P.Ltd, Bangalore - Rs.16,530,000.
Mr.B.K.Syngal - Rs.826,500
Mr.B.M Srinivasa Rao - Rs. 826,500
Mr.S.Ishwar - Rs. 826,500
Mr.Suresh Talwar - Rs. 826,500
Total - Rs.19,836,000

Above payment of huge money as Escrow Agents is not at all justified and is not commensurate with any outcome i.e the company neither could get shares nor allot shares.

II. Complaint:-

In respect of allegations made by Sri.Rajeev Sawheny, the findings were already reported vide this office report dated 14.9.2007 report dated 14.9.2007 report in terms of section 234(1) and (7) of the act. The major findings were:-

i) On a perusal of the reply of the company, it is seen that the company has receives a sum of Rs. 63.04 Crores on 28.06.2005 towards advance received for subscription of redeemable preference shares and the consideration for acquisition of equity shares of Vmoksha, Mauritius was transferred / paid by the Company on 30.6.2005 ie., subsequent to the receipt of advance for subscription. As such, it cannot be said to be a desired practice and prudent business activity. Particularly where the guarantee was given to the State Bank of Mauritius by the Chairman & Managing Director of the company towards loan obtained by M/s Vmoksha for making payment towards subscription of Redeemable preference shares.
ii) Further it is seen that the conditions stipulated under the Share Purchase Agreement were not completed with in the stipulated time. Under the circumstances, the advance paid for investment in shares of Vmoksha entities is still lying with them and no interest is charges on the said advance. Hence the provisions of Sec.372A(3) of the Act are contravened.
iii) Further all the arrangement have been committed on one and the same day, although there was 2days variation in the movement of funds. Therefore the fund granted/received is having indirect nexes for funding for subscripting its own share which may attract the provisions of Sec.77 of the Act.
iv) In this connection it is seen that the company has taken approval of the foreign Investment Promotion Board (FIPB). Ministry of Finance vide their letter dated 30.6.2005 for infusion of additional foreign investment by issuance of Rs.78.00 Lakh Redeemable Preference shares for the purpose of foreign Collaboration, for software development proposes to act as a holding company to make downstream investment in other ventures/activities. However, it appears that the arrangement is not in the nature of foreign collaboration, but only an investment for acquisition of shares in Vmoksha entities and for Vmoksha acquiring preference shares in the company
v) As regards the transfer of funds from India to abroad and also from abroad to India, a kind of acquisition/allotting of shares as investment which may attract the provisions of FEMA in the matter.
vi) In Clause 2.2.4 of the Share Purchase Agreement, It is stated that the Company Helios & Matheson shall pay on amount of Rs.1.50 Crores to Price Waterhouse Coopers Private Lt., the financial advisors to the sellers (Vmoksha) This amount is not refundable even if the transaction is not completed. Particularly when the agreement is not materialized, and they are the financial advisors to Vmoksha, the above substantiated payment is not justified.
vii) There is no material /information available regarding involvement of M/s.DSQ Software Limited in this company.
In view of the above ,there appears to be diversion/transfer of funds among the two entities. This office is also receiving complaints forwarded from Enforcement Directorate, Shastri Bhavan, Chennai, Reserve Bank of India, Mumbai and also from the Ministry copies of which are enclosed. Scrutiny of the Balance Sheet as at 31.3.2006 has also brought out serious issues disclosing unsatisfactory state of affairs of the company requiring for further investigation under section 235 of the Act.
Copy of this office letter dated 27.9.2007 and the reply of the Company dated 7.11.2007 are forwarded herewith. Copy of the Balance Sheet was already forwarded to the Directorate along with this office report dated 14.9.2007.

Yours Faithfully,

(B.N. HARISH)
REGISTRAR OF COMPANIES.
TAMILNADU, CHENNAI

Encl: as above.

Namrathan

5 years ago

The Company since inception has never ever changed its Auditor which is Venkatesh & Co. a very tiny five Employee Company who help’s the Company in producing fictitious Annual Report / balance sheet.

REVIEW OF ANNUAL REPORT OF HELIOS AND MATHESON INFORMATION TECHNOLOGY LTD – CHENNAI FOR F.Y.2009-10



Name: - Helios and Matheson Information Technology Limited

Business Sector: - Information Technology

Registered office and Corporate Office: - Chennai

Shares Listed: - On BSE, NSE and Madras Stock Exchange (BSE Script Code 532347)
Also listed at Luxembourg Exchange

F.Y. Data: - For 2009-2010 as of 30th September, 2010 for 12 months
For 2008-2009 as of 30th September, 2009 for 18 months

Annualised Date :- Previous F.Y.2008-09 was for 18 months, hence for comparison purpose we have annualized it by divided by 18 and multiply by 12.

Number of Customers: - Not mentioned

Number of Employee: - Not mentioned

Board of Directors: - There is no Chairman of the Company

Web Site: - http://www.heliosmatheson.com

Arbitration in Vmoksha Case :- See remark on Page No.15

SEBI Penalty Order:- SEBI has passed the order levying penalty of Rs.50 lacs for Violation of Insider Trading and other Regulations – See Page No.49 Point E

Auditors Report: - See Page No.38 point 9B

Income Tax Department has served a Demand Notice for A.Y.2008-09 for Demand of Rs.17.85 crores.under section 10 A and the Company has gone in for Appeal – also see page no.48 point B

Section 10 A pertains to the Export earnings, it means Income Tax Department has disallowed the billing / sales of Export Invoices claimed by the Company.

Sales Income: - Revenue from operations – during current year was Rs.230.45 crores v/s previous year on annualized basis Rs.204.93 crores increases of 12.4%

Profit before depreciation and Taxes: - Were Rs.48.55 crores v/s previous year on annualized basis of Rs.45 crores that is increase of 7.88% - See page No.40

Depreciation during the year: - Rs.24.89 crores – See page No.40 and 43

Additions to Fixed Assets: - during the year Rs.31.96 crores – See page No.43

Interest Paid: - Rs.8.33 crores – See Page No.40 Schedule N

Provision for Income Tax: - Rs.4.02 crores – See Page No.40

Profit after Tax: - during the year Rs.19.64 crores v/s previous year Rs.22.04 crores – See page No.40

Advance: - See Page No.41 Schedule G mentions that Company paid advance for Investment in Shares of Vmoksha Entities of Rs.65.02 cores – similar amount previous year. (this is the fraudulent entry done through forgery, cheating, fraud and conspiracy as per the Court Order / Judgment by the Honorable Bombay High Court which is on Public Domain) http://indiankanoon.org/doc/309173/


Sundry Debtors:- Rs.75 crores v/s previous year Rs.75.2 crores – current year debtors are 4 months of Sales (118 days) v/s previous year 4.5 months (133 days) – See Page No.45

Rent Payment: - During the year was Rs.2.10 crores v/s Previous year Rs.3.08 crores – See page No.42

Foreign Exchange Earnings :- During the year Rs.173.81 crores v/s previous year Rs.185.32 crores on annualized basis inspite of over all increase in Sales Turn Over – See page No.47.

Foreign Exchange out go: - Total out go during the year was Rs.40.44 crores v/s previous year Rs.114.81 crores, there is a marked decrease whereas the sales revenue has increased

Under the head employee related personal cost and allowances on site were Rs.37.62 cores v/s previous year annualized basis of Rs.112.03 crores, it is not clear from the data and comments as to how this reduction was achieved whereas majority of the Sales earnings are from Foreign Exchange only – See page No.47.

Ravi

5 years ago

Sebi has also put a fine on them, this article was on Business line paper

SEBI slaps Rs 50-lakh fine on Helios and Matheson
Our Bureau
Chennai, Feb. 15:
The SEBI has imposed a Rs 50-lakh fine on Chennai-based Helios and Matheson Information Technology for ‘alleged irregularity' in trading of the company's shares.
SEBI conducted an investigation into the alleged irregularity for the period February 2005 to September 2006.
Officials of the company could not be reached for a comment.

BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
ADJUDICATION ORDER NO. PKB / AO-8 / 2011
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF
INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR
HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING
OFFICER) RULES, 1995
In respect of
M/s. Helios and Matheson Information Technology Ltd.
PAN: AAACE0805A
In the matter of
M/s. Helios and Matheson Information Technology Ltd.
I. BACKGROUND
1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”)
conducted investigation into the alleged irregularity in the trading in the
shares of M/s. Helios and Matheson Information Technology Ltd.
(hereinafter referred to as “Noticee”) for the period February 2005 to
September 2006 (hereinafter referred to as “Investigation Period”).
2. On the conclusion of investigation by SEBI, Adjudication Proceedings
under section 15I of the SEBI Act, 1992 (hereinafter referred to as “Act”)
were initiated in respect of the Noticee.
3. Shri Sura Reddy was appointed as the Adjudicating Officer vide Order
dated June 29, 2007 to inquire into and adjudicate under sections 15HA
and 15HB of the Act and section 23 E of Securities Contracts (Regulation)
Act, 1956 (hereinafter referred to as “SCR Act”), the alleged violation of
provisions of Regulations 3(a), 3(d) and 4(2)(k) of the SEBI (Prohibition of
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 1 of 33 January 31, 2011

Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”) and
clause 2.1 of the Code of Corporate Disclosure Practices for Prevention of
Insider Trading of Schedule II read with Regulation 12(2) of SEBI
(Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to
as “PIT Regulations”) and Clause 36 of the Listing Agreement.
4. Pursuant to transfer of Shri Sura Reddy, the undersigned was appointed
as the Adjudicating Officer vide Order dated December 10, 2008.
II. SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING
5. Show Cause Notice (hereinafter referred to as “SCN”) dated March 18,
2008 was issued to the Noticee under Rule 4(1) of the SEBI (Procedure for
Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules,
1995 (hereinafter referred to as “Adjudication Rules”) and Rule 4(1) of
Securities Contracts (Regulation) (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 2005, calling upon the
Noticee to show cause why inquiry should not be held against the Noticee
for the alleged violations.
6. The SCN was duly received by the Noticee. The acknowledgement of
receipt of the same by the Noticee is available on record. No reply was
received from the Noticee. Therefore, Notice of Inquiry dated April 23,
2009 was issued to the Noticee vide which it was accorded an opportunity
of personal hearing on May 11, 2009 by which time, the Noticee was also
advised to send its reply.
7. Vide letter dated April 29, 2009, the Noticee acknowledged the receipt of
the Notice of Inquiry and submitted that it had not received the SCN and
hence, could not reply to the same and requested a copy of the SCN to
enable them to file reply at the earliest.
8. Vide letter dated May 4, 2009, the Noticee authorized Mr. P. Manoj
Kumar, General Manager to collect the copy of SCN. Vide letter dated
May 6, 2009, the Noticee acknowledged the receipt the SCN and requested
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 2 of 33 January 31, 2011

to grant 30 days time to send reply as the contents of the notice are also
subject matter of litigation and also set another date thereafter for hearing.
9. Vide letter dated June 6, 2009, the Noticee requested for granting of 4
weeks time to send their reply. Vide letter dated July 3, 2009 the Noticee
replied to the SCN and the same has been dealt with while arriving at the
Findings in the subsequent paragraphs.
10. Vide Notice of Inquiry dated October 7, 2009 the Noticee was given an
opportunity of personal hearing which was scheduled on October 23,
2009. Vide letter dated October 19, 2009 the Noticee requested for
rescheduling of the hearing preferably in the second week of November,
2009. This request of the Noticee was accepted and vide Notice of Inquiry
dated October 23, 2009, the hearing was rescheduled to November 13,
2009. Vide letter dated November 9, 2009 the Noticee submitted that it had
filed for consent in the instant matter. Subsequent to the rejection of the
consent application of the Noticee, vide Notice of Inquiry dated March 30,
2010, the Noticee was given an opportunity of personal hearing which
was scheduled to be held on April 6, 2010.
11. Vide letter dated April 2, 2010 the Noticee requested for adjournment of
the hearing. This request of the Noticee was accepted and vide Notice of
Inquiry dated April 7, 2010, the Noticee was given one last opportunity of
personal hearing which was scheduled to be held on April 20, 2010. Vide
email dated April 20, 2010 the Noticee informed us that they had filed the
revised consent application and in view of the same, requested to keep the
Adjudication proceedings in abeyance and enclosed the copy of their
letter dated April 16, 2010 acknowledged by SEBI on April 19, 2010. Vide
this Noticee submitted that they have filed the revised consent
Application and hence, requested to keep the hearing in abeyance.
However, vide email dated April 20, 2010 the Noticee was advised to
attend the hearing scheduled on April 20, 2010 and as two opportunities
of hearing had already been provided to the Noticee subsequent to the
rejection of the consent Application of the Noticee, no further opportunity
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 3 of 33 January 31, 2011

of hearing would be granted. Vide letter dated April 20, 2010 the Noticee
assured that their representatives would be appearing for the hearing and
reiterated their request for keeping the hearing in abeyance and requested
for giving another date for the hearing. Mr. P Manoj Kumar and Ms.
Sheetal Bhatkalkar, Authorized Representatives of the Noticee appeared
for the hearing held on April 20, 2010. When asked if they wished to
submit anything in relation to the Proceedings apart from their reply
dated July 3, 2009, they submitted that
“We are not aware of the matter.”
12. As the representatives of the Noticee were not aware of the matter, to
provide a meaningful opportunity to the Noticee, one last opportunity of
personal hearing was scheduled on June 7, 2010. Mr. G.K.Muralikrishna,
Managing Director of the Noticee, Mr. T.S.Sridharan and Mr. Prasad
Vijayakumar, General Counsel of the Noticee and Mr. Vinay Chauhan,
Advocate, Corporate Law Chambers India appeared for hearing on June 7,
2010. The submissions made vide letter dated July 3, 2009 were reiterated
with a liberty to make further written submissions by June 29, 2010. The
Noticee filed their additional submissions vide letter dated June 28, 2010.
These submissions have been dealt with while arriving at the Findings in
the subsequent paragraphs.
III. ISSUES FOR CONSIDERATION
13. On perusal of the SCN and Noticee’s submissions, I have the following
Issues for consideration, viz.,
ISSUE 1: Whether the Noticee has violated provisions of Regulations
3(a), 3(d) and 4(2)(k) of PFUTP Regulations and clause 2.1 of the
Code of Corporate Disclosure Practices for Prevention of Insider
Trading of Schedule II read with Regulation 12(2) of PIT Regulations
and Clause 36 of the Listing Agreement?
ISSUE 2: Whether the Noticee is liable for monetary penalty under
sections 15HA and 15HB of the Act and section 23 E of SCR Act?
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 4 of 33 January 31, 2011

ISSUE 3: What quantum of monetary penalty should be imposed on
the Noticee, taking into consideration the factors mentioned in
section 15J of the Act?
IV. FINDINGS
14. On careful perusal of the material available on record, I proceed to discuss
the Issues for Consideration and my findings are recorded as under:
ISSUE 1: Whether the Noticee has violated provisions of Regulations 3(a), 3(d)
and 4(2)(k) of PFUTP Regulations and clause 2.1 of the Code of Corporate
Disclosure Practices for Prevention of Insider Trading of Schedule II read with
Regulation 12(2) of PIT Regulations and Clause 36 of the Listing Agreement?
15. The provisions of Regulations 3(a), 3(d) and 4(2)(k) of PFUTP Regulations
and clause 2.1 of the Code of Corporate Disclosure Practices for
Prevention of Insider Trading of Schedule II read with Regulation 12(2) of
PIT Regulations and Clause 36 of the Listing Agreement read,
SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relation to
Securities Market) Regulations, 2003
Prohibition of certain dealings in securities
3.
No person shall directly or indirectly—
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(d) engage in any act, practice, course of business which operates or
would operate as fraud or deceit upon any person in connection
with any dealing in or issue of securities which are listed or
proposed to be listed on a recognized stock exchange in
contravention of the provisions of the Act or the rules and the
regulations made thereunder.
4. Prohibition of manipulative, fraudulent and unfair trade practices
(2) Dealing in securities shall be deemed to be a fraudulent or an
unfair trade practice if it involves fraud and may include all or any
of the following, namely :—
(k) an advertisement that is misleading or that contains
information in a distorted manner and which may
influence the decision of the investors;
Schedule II, Code of Corporate Disclosure Practices for Prevention of
Insider Trading read with Regulation 12 (2) of SEBI (Prohibition of
Insider Trading) Regulations, 1992
,
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 5 of 33 January 31, 2011

Clause 2.1 - Price sensitive information shall be given by listed
companies to stock exchanges and disseminated on a continuous and
immediate basis.
Listing Agreement
Clause 36 - “………..The Company will also immediately inform the
Exchange of all the events, which will have bearing on the
performance/operations of the company as well as price sensitive
information. The material events may be events such as:
…………….
(5) Litigation/dispute with a material impact
The Company will promptly after the event inform the Exchange of the
developments with respect to any dispute in conciliation proceedings,
litigation, assessment, adjudication or arbitration to which it is a party
or the outcome of which can reasonably be expected to have a material
impact on its present or future operations or its profitability or
financials.
(7) Any other information having bearing on the operation/performance
of the company as well as price sensitive information, which includes
but not restricted to;
i) Issue of any class of securities.
ii) Acquisition, merger, de-merger, amalgamation, restructuring,
scheme of arrangement, spin off or selling divisions of the company, etc.
…………..
The above information should be made public immediately.”
16. The SCN stated that
the Noticee had made various favourable corporate
announcements during the Investigation Period i.e. issue of bonus shares,
dividend, and declared favourable un-audited quarterly results etc.
besides the announcement of acquiring 3 entities of vMoksha
Technologies Pvt. Ltd. (hereinafter referred to as “vMoksha”). It was
further alleged that the Noticee did not disclose/announce with regard to
profitability of vMoksha companies to the exchange.
17. On the basis of press release dated May 11, 2005 of the Noticee and the
announcement made to the exchanges, it was noted that the Noticee had
stated that the acquisition of the 3 vMoksha companies was complete in
an all cash deal of 19 million dollars which included the earn out for
meeting certain financial targets.
18. The Noticee had submitted to SEBI that the advisors and mandate holders
for the sellers, PWC, structured the transaction in such a way that sellers
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 6 of 33 January 31, 2011

would subscribe to redeemable preference shares of the Noticee
redeemable at the end of 18 months from the date of allotment and the
Noticee would effect payment for sold shares by wire transfer and by
demand draft as envisaged in clause 2.2.1 of the Share Purchase
Agreement (hereinafter referred to as “SPA”). As per the SPA it was
decided that the Noticee would pay a consideration of Rs. 1877.77 per
share to vMoksha and payment to vMoksha, Mauritius would be made by
remittance through wire transfer through normal banking channels and
payment to other sellers namely, Tapan Garg and Madhuri Garg would be
by way of demand drafts payable in India for a cumulative amount of INR
62.5164 crore for the 100% acquisition of the sale shares within 20 days
from the date of execution of the agreement. The sale also included the
subsequent subscription of zero coupon redeemable preference shares in
the Noticee company by vMoksha. The Noticee had also agreed to pay in
cash or equivalent redeemable preference shares of the Noticee company
in the event of vMoksha achieving certain target turnovers. In the
Subscription Agreement which is a part of the SPA it is specified that
vMoksha, Madhuri Garg and Tapan Garg had agreed to subscribe to
84,05,520 preference shares of the Noticee company for an aggregate price
of Rs. 63.0414 crores. The subscription price would be paid by the
abovementioned investors to the Noticee simultaneously on receipt of
wire transfer funds from the Noticee under the SPA.
19. Therefore, it was alleged that during the course of verification of
announcements the Noticee had not stated the entire facts in the press
release; that the sellers would subscribe to preference shares as
subsequent leg of the deal was not disclosed in the press release.
The
general understanding of a shareholder that could be gathered from the
announcements of the Noticee was that the Noticee was purchasing a
company by paying cash from its general reserves. The issue of preference
shares of vMoksha, which was prima facie willfully withheld from
shareholders, for the specific purpose of buying the company from the
seller negates all connotations of a "cash deal."
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 7 of 33 January 31, 2011

20. Few articles were published in newspapers i.e. The Financial Express
titled “The Flip Side of the Great Indian IT Story” dated February 13, 2006
and in The Indian Express ‘Getting Curioser’ dated February 19, 2006
which raised doubts about the possible failure of the acquisition of
vMoksha by the Noticee in a $19 mn cash deal and the absence of any
intimation of the same to the stock exchanges.
21. Prior to the publication of above said newspaper articles, the last
disclosure was made on May 12, 2005 wherein the Noticee had informed
that all the procedural formalities for acquisition of the 3 vMoksha
companies were completed and the consideration for the deal was USD19
million. However as per the SPA, it was observed that Clause 4 specifies
that the completion shall take place on a date to be mutually agreed upon
by both the parties on compliance of certain other clauses in the
agreement but such date would not be later than 120 days from the
signing of the SPA. It was observed that the Noticee had prima facie,
misled investors by stating that the deal was complete whereas the deal
was not complete in entirety and was still subject to compliance of certain
conditions
.
22. Further, the Noticee had not informed the Stock exchange about the
interim developments such as that the Noticee’s attempt to acquire 3
vMoksha companies had not materialized in the stipulated time period i.e.
within 120 days as specified in the SPA and the judicial proceedings. The
investors and the general public were kept in the dark during the interim
period. On expiry of 120 days of signing of the SPA the Noticee should
have made announcement whether the deal was completed or not because
as per the SPA there was no provision whereby the deal could have been
kept alive, if not completed, unless a new SPA was agreed to and signed
by both the parties.
23. Several news articles too appeared in the various newspapers during the
examination period. On analyzing these announcements and news, it was
noted that a news article was not informed to the Exchange quoting
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 8 of 33 January 31, 2011

“Helios & Matheson scout for foreign buy” which appeared in Economic
Times on 14/01/2006. Clarification was sought by SEBI on the issue of
non intimation of the above to the stock exchanges. The Noticee replied
that it had not intimated the stock exchanges because the Noticee was
then only in the process of identifying suitable proposals and no concrete
decisions had been taken that could be informed to the stock exchanges.
Subsequently, when a healthcare company, A Consulting Team Inc., USA
was acquired in March 2006 the same was intimated to the stock
exchanges.
24. The Noticee submitted that on June 30, 2005 a sum of USD 13,395,484 was
remitted to vMoksha Technologies Ltd., Mauritius (INR 58.37,75,193) from
their current account through State Bank of Mauritius, Chennai as
payment for 306,665 shares and the balance was paid into the savings
accounts in India in rupee equivalent to the other two sellers, namely Mr.
Madhuri Garg (INR 4,66.19,778) and Mr. Tapan Garg (INR 19,036) as
payment for 24,490 and 10 shares respectively. The Noticee also submitted
that as detailed in the SPA, PWC was mandated to obtain FIPB approval
prior to receiving the application money for redeemable preference shares
and remittance of consideration payable to the sellers. As per the terms of
FIPB approval and in compliance of Press note no 9, application money
for redeemable preference shares was received and the payment for the
sale of shares was made. This was also reflected in the Noticee’s Annual
Report (2005-06) under the heading “advance for investment in the shares
of vMoksha.”
25. The Noticee submitted that the SPA was definitive in nature. As per
clause 3.13 (-2 para), the sellers, the company (vMoksha Technologies Pvt
Ltd., India), and the confirming parties cannot rescind the said agreement
once the same was signed. Only, the Noticee was empowered to waive or
postpone any of the conditions precedent mentioned in the SPA. The
Noticee submitted that the transfer of USD 13,395,484 to the Noticee were
effected pursuant to the approval received from the Foreign Investment
Promotion Board as application money for subscription to redeemable
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 9 of 33 January 31, 2011

preference shares. Preference shares were to be allotted upon release of
vMoksha shares from the escrow and till such time, the money received is
treated as application money and no allotment of shares is made.
26. Further, a loan availed by vMoksha, was taken against demand
Promissory Note and Loan Agreement, supported by Board Resolution of
vMoksha under appropriate power to borrow and lien letter for pledge of
proceeds by the Noticee and a personal guarantee of Mr. V.
Ramachandiran, Chairman and Mr. G.K. Muralikrishna, MD of the
Noticee. The Noticee stated that vMoksha Mauritius along with Tapan
Garg and Madhuri Garg, the sellers, were required to subscribe to the
preference shares to start with for which a comfort in the form of a
personal guarantee was given for enabling vMoksha Mauritius to raise
that loan initially. The proceeds of the loan were remitted to the Noticee
immediately after sanction as application money for subscription to
redeemable preference shares by vMoksha, Mauritius. Hence, it was
considered appropriate to extend a personal guarantee. The loan has since
been repaid by vMoksha Technologies Ltd. Mauritius and there is no
outstanding as on date. The entire transaction is covered by the terms and
conditions set out in the SPA and the Subscription Agreement. It has also
been reflected in the Noticee’s Annual Report (2005-06) under the heading
“advance received towards the subscription of Redeemable Preference
Shares”
27. Further, according to the SPA, the consideration was to be paid by the
Noticee to vMoksha within 20 working days from the date of execution of
the SPA. The SPA was executed on May 11, 2005 and payment was made
on June 30, 2005 i.e. after a delay of almost one month. The Noticee should
have ordinarily initiated the transaction by effecting payment and
received it back as contribution to preference shares. Further, the press
announcements following the deal were silent on the preference shares,
which in effect, would have destroyed the hue of an all-cash deal from the
announcement.
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 10 of 33 January 31, 2011

28. Further, the International Financial Services Ltd., a leading management
company incorporated in Mauritius and licensed by the Financial Services
Commission (FSC) to provide advisory and management services for
international businesses, also pointed out in a letter to vMoksha that the
whole incident was unusual.
29. From the above, I find that the allegations against the Noticee are that it
failed to make announcements/disclosure with regard to the following
price sensitive information viz.,
a. That the Noticee had not stated the entire facts in the press release
dated May 11, 2005 and disclosure dated May 12, 2005; that the sellers
would subscribe to preference shares as subsequent leg of the deal. It
appears from the announcements of the Noticee company that it was
purchasing a company by paying cash from its general reserves.
However, the deal was structured in such a way that sellers would
subscribe to redeemable preference shares of the Noticee’s company
for an equivalent amount of the sale price and the sellers would in turn
wire back the same amount to the Noticee towards subscription to
preference shares. The issue of preference shares, which was allegedly
willfully withheld from shareholders, for the specific purpose of
buying the company from the seller negates all connotations of a "cash
deal."
b. In the disclosure dated May 12, 2005 the Noticee had informed that all
the procedural formalities for acquisition of the 3 vMoksha companies
were completed. However as per Clause 4 the SPA, it is observed that
the completion shall take place on a date to be mutually agreed upon
by both the parties on compliance of certain other clauses in the
agreement but such date would not be later than 120 days from the
signing of the SPA. The Noticee had prima facie, misled investors by
stating that the deal was complete whereas the deal was not complete
in entirety and was still subject to compliance of certain conditions
.
c. The Noticee had not informed the Stock exchange about the interim
developments such as its attempt to acquire 3 vMoksha companies had
not materialized in the stipulated time period i.e. within 120 days as
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 11 of 33 January 31, 2011

specified in the SPA and the judicial/arbitration proceedings which
started in relation to the same. The investors and the general public
were kept in the dark during the interim period.
30. Now I deal with the Noticee’s submissions made vide letter dated July 3,
2009. The Noticee has submitted that the SCN deals exclusively with
issues related to acquisition of vMoksha entities which is subject matter of
arbitration before a judicial forum and that the very same issues which are
raised in the Notice are being agitated in arbitration. The Noticee further
submitted that an opinion is sought to be formed on the basis of a
complaint from one Rajeev Sawhney, who is a party to the dispute with
the company and Principles of natural justice require that a regulatory
body maintains its neutrality till the dispute is resolved in an appropriate
legal forum and SEBI’s involvement in the matter at this juncture is likely
to bias and impair its case in the pending arbitration proceedings. The
Noticee also requested that the proceedings under reference be kept in
abeyance till the legal issues are decided since the matter is sub-judice. In
this regards I note that the Present Proceedings only dwell on allegations
concerning violation of securities laws under the ambit of SEBI and
therefore, do not interfere with any other disputes pending elsewhere.
Moreover, the present Proceedings only places reliance on all information
provided to the Noticee and the present Proceedings have been initiated
against the Noticee pursuant to investigation conducted by SEBI.
31. Further, the Noticee submitted that
i.
Without prejudice to the aforesaid it is submitted that, in your notice under
Rule 4(1) of SEBI (Procedure For Holding Enquiry and Imposing
Penalties by Adjudicating Officer) Rules, 1995 & 4(1) of Securities
Contracts (Regulation) (Procedure for Holding Inquiry and Imposing
Penalties by Adjudicating Officer) Rules, 2005, you have stated that you
have been appointed as Adjudicating Officer vide order of SEBI dated June
29, 2007, a copy of which is annexed with the Notice. On a perusal of the said
appointment Order, it is noticed that adjudication has been ordered against us
for violation of provisions of SEBI Act, FUTP Regulations & Insider Trading
Regulations and SCRA. However it is noted that the Hon’ble Member has
exercised the powers conferred upon him under section 19 of the SEBI Act,
1992 r/w 15-I of the Act and Rule 3 of SEBI (Procedure For Holding
Enquiry and Imposing Penalties by Adjudicating Officer) Rules 1995.
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 12 of 33 January 31, 2011

ii.
It is respectfully submitted that delegation of the powers of SEBI in terms of
section 19 of the Act is available to SEBI for exercising its powers and
functions under the SEBI Act as is evident from the section itself.
For ready reference section 19 is extracted below:
“The Board may by general or special order in writing delegate to any
member, officer of the board or any other person subject to such conditions, if
any, as may be specified in the order, such of its powers and functions
under
this Act
(except the powers under section 29 as it may deem necessary.”
(emphasis supplied)
iii.
Therefore the power available to appoint the Adjudicating Officer by Whole
Time Member is applicable only to the alleged violation of provisions of SEBI
Act, FUTP Regulations & Insider Trading Regulations as recorded in the
order and it cannot extend to adjudication in respect of any violation of
provisions of SCRA. Adjudication under SCRA is a different channel which
cannot be substituted by the provisions of SEBI Act.
iv.
It is also seen that the appointment has been made in terms of section 15-I of
the SEBI Act and Rule 3 of SEBI (Procedure For Holding Enquiry and
Imposing Penalties by Adjudicating Officer) Rules 1995. It is reiterated that
the power under section 15-I and said Rule 3 is not available to the
adjudication in respect of any violation of the provisions of the SCRA or the
rules and regulations made thereunder.
v.
It is also noticed that you have issued a Notice under section 4(1) of the
Securities Contracts (Regulation) (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules 2005, though you have not
been empowered to issue such a Notice, as the member’s decision based on
which you are purportedly acting, enables you to exercise power only under
the SEBI (Procedure for holding inquiry and imposing penalties by
adjudicating officer) Rules, 1995. For this reason also your notice is beyond
jurisdiction and therefore cannot be proceeded with.
32. In this regard, I note that the aforesaid contentions raised by the Noticee
are of technical nature only. SEBI has the power to appoint Adjudicating
Officer to adjudicate under section 23E of SCR Act. In the present case, the
Appointment Order appoints the Adjudicating Officer to adjudicate the
alleged violation of the Noticee under section 23E of SCR Act also and the
same has been duly spelt out in the SCN and all principles of natural
justice have been adhered to. Therefore, in view of the above, I find that
the contentions raised by the Noticee are only technical in nature and do
not impact the present Proceedings on merit.
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 13 of 33 January 31, 2011

33. The Noticee further submitted that
“With regard to the observations in para 2
of the Notice, it is submitted that the same is a matter of record therefore we have
no comments to offer. However, we may point out that we have not been provided
with the copy of the investigation report, which is in gross violation of principles
of natural justice.”
In this regard, I note that the present Adjudication
Proceedings place reliance on only those material which have been
provided to the Noticee and the SCN has spelt out all the allegations
against the Noticee and it is on the basis of the SCN and submissions of
the Noticee, that the undersigned has arrived at the Findings, therefore,
under no circumstance has there been any violation of principles of
natural justice.
34. Further, the Noticee has submitted that:
i.
It is denied that the Notice had made various company favourable corporate
announcements (i.e. issue of bonus shares, dividend, and declared favourable
un-audited quarterly results etc. besides the announcement of acquiring 3
entities of vMoksha) during the relevant period, as alleged
.
The alleged
announcements were made at different times in consonance with and in
compliance with the provisions of the Listing Agreement.
The allegation of making the “favourable corporate announcements” is a bald
allegation devoid of any substance. Nothing has been brought on record to
show as to how the favourable corporate announcements were unwarranted or
were contrary to factual position. Absence of specificity disenables us to
fully meet the said allegation.
ii.
We did not disclose/announce with regard to profitability of vMoksha entities
to the exchange, since the effect of the working of vMoksha entities under the
SPA was only futuristic. The said group only had the potential growth but
was not effective at that stage calling for any announcement in that regard.
iii.
The fact that we did not include the revenue or profits of vMoksha entities in
our financial results also reinforces our contention that the announcements
made by us at the relevant time were not favourable but were made in the
ordinary course of business. Had it been so, we would have disclosed the
profitability of vMoksha entities in our financial results as projected by the
Sellers and promoters of vMoksha entities. The fact that we did not do so
fortifies our contention that all the announcements/declarations made by us
truly and correctly reflected the financial state of affairs of the company.
iv.
It is denied that we had not stated the entire facts in the press release or
that we had willfully withheld from shareholders the proposed issue of
preference shares to the sellers of vMoksha entities with the specific purpose
of buying the company from the Sellers or that the deal was not a cash deal as
alleged. All the relevant details pertaining to the transactions were disclosed.
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 14 of 33 January 31, 2011

Here it may be appreciated that it is not required to disclose everything,
and it is also difficult to make a disclosure regarding all the clauses of the
agreement in a press release. We were of bonafide belief that since the proposed
issue of preference shares was only taken as a protection by way of re-
investment of the price in the company for 18 months, and in order to ensure
that the representations and warranties are fully complied by the Sellers, it
was not warranting explicit disclosure. Whatever was found to be of
consequence, as per Company’s bonafide belief and understanding at the
relevant time, was disclosed appropriately. In this context it may be
highlighted that the alleged non disclosure was not suppression of material
fact with ulterior motive as sought to be insinuated.
v.
It may be also pointed out that the transaction agreements were approved by
the Board of Directors of both companies and advance notice of the board
meeting of our company was given to the Stock Exchanges. Mr. G.K.
Muralikrishna, Managing Director, was authorized to take such steps as was
necessary to complete the transactions including the convening of an
Extraordinary General Meeting and obtaining the approval of the
shareholders for issue of redeemable preference shares. At the Extraordinary
General Meeting held on 20.07.2005, issue of redeemable preference shares
was approved by the Shareholders which was duly intimated to the Stock
Exchanges. Thus, it could be seen that we had made necessary disclosure to
the stock exchange/ shareholders and no portion of the deal was sought to be
withheld from the investors and shareholders.
vi.
As per our understanding, the acquisition in question was a cash deal. The
acquisition was based on SPA with the sellers and the confirming parties. As
per clause 2.2.1 of the SPA,
“2.2.1
H&M shall pay a consideration computed at the rate of Rs. 1,887.77 per share
to the SELLERS. Payment to vMOKSHA MAURITIUS will be made by
H&M by remitting by wire transfer through normal Banking Channels and
payment to the other SELLERS namely TG and MG shall be by way of
Demand Drafts payable in India to the SELLERS for a cumulative amount of
Indian Rupees 62.5164 crores for the 100% acquisition of the Sale Shares in
the Company within 20 working days from the date of execution of this
Agreement.”
From the above it is abundantly clear that it is a cash deal and admittedly the
remittance towards sale consideration was also made on 30.06.05 by wire
transfer as stipulated in the SPA.
vii.
It may be pointed out that at the relevant time there was no need for us to
convey any incorrect impression to the investors, as alleged. It may be
appreciated that there was nothing for us to gain by “willfully withholding”
the proposed issue of preference shares to vMoksha entities. As stated
hereinbefore, issue of preference shares to vMoksha entities was nothing but a
provision for safeguarding the interests of the company and for ensuring the
smooth continuity in the operations of vMoksha entities in accordance with
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 15 of 33 January 31, 2011

the terms and conditions of the SPA and the representation and warranties
post acquisition by us.”
35. The Noticee vide its letter dated June 28, 2010 further submitted that:
(a) Willful withholding of disclosure regarding – subscription of
preference shares by Sellers
i.
The case under reference is not that a disclosure has not been made, but the
question has been raised regarding adequacy of the same. At the relevant
time we had, based on our bonafide understanding disclosed everything
what we considered was relevant and warranted a disclosure. It may be
appreciated that extent of disclosure required in a given case is highly
subjective and would vary based on the perception of every corporate and no
hard and fast formula can be prescribed for that. The test is the authenticity
and accuracy of the material furnished and not mere adequacy or
inadequacy.
ii.
We had not “willfully withheld” anything as alleged. “Willful” connotes
that deliberate / intentional attempt was made by us with some ulterior
objective / oblique motive. There is nothing on record to substantiate as to
how the inadequacy of disclosure as alleged was willful, deliberate or
intentional and what was the motive behind the same. There was no ulterior
motive involved in not disclosing the subsequent leg of the transaction in
the form of issuance of redeemable preference shares to the Sellers. There was
nothing to be gained by us by not disclosing to the shareholders, the
subsequent leg of the transaction, since the same was for the benefit of the
shareholders and the company only. The issuance of redeemable preference
shares to the Sellers, as a part of the deal was insisted since :
(a) the same would lead to reinvestment of amounts by the Sellers in our
company as protection and for due compliance of the representations and
warranties made by the sellers in the SPA.
(b) the same would also ensure that there was seamless integration of the
vMoksha companies with our company; and
(c) ensure durability of interest of the Sellers in the company.
iii.
Thus, the said subscription was insisted in order to protect the interest of
the company and its shareholders and no fault can be found with the same.
Further, the redemption period was only 18 months.
iv.
It may be appreciated that why would somebody try to suppress a fact which
is in no way going to either affect the deal or the decision of the shareholders
to go ahead with the transaction.
v.
In any event the allotment of redeemable preference shares could not have
been made by us, without seeking approval from the shareholders.
Admittedly, in the EGM held on July 20, 2005 the shareholders of the
company had approved the issuance of redeemable preference shares.
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 16 of 33 January 31, 2011

Further, admittedly, we have also received the subscription amount of
Rs.63,04,14,007 from the respective Sellers, which continues to be reflected
in our books as advance towards application money for issuance of
redeemable preference shares. Further, the consideration for acquisition of
vMoksha companies is also shown at Rs.65,02,50,007 as advance.
vi.
Allegation has been made in the SCN, that the subsequent leg of the
transaction in the form of issuance of shares to the Sellers was not disclosed,
since it would have negated that the deal in question was a cash deal and
that an impression was sought to be created that we were making the
acquisition by paying cash from our general reserves (refer Para 7 SCN).
vii.
The said allegation is misplaced and completely contrary to factual position
on record. The deal in question was a cash deal, same is also borne out by the
contents of the Share Purchase Agreement entered into between the parties
which specifically provided that we were to pay to the Sellers consideration
at the rate of Rs 1887.77 per share to the Sellers (refer Clause 2.2.1. of SPA).
Admittedly, the sale consideration amounts (being Rs. 63,04,14,007) have
actually been paid by us to the respective Sellers on June 30, 2005, through
Banking channel and same is also borne out by our books. Further, even the
Preference shares were meant to be redeemed for cash within 18 months.
viii.
With regard to creation of impression that we were making the acquisition
by paying cash from our general reserves it is denied that we had tried to
create any such impression. Based on our bonafide understanding of the
terms of the agreement that we had entered into with the Sellers, we had
disclosed that the deal was a cash deal. We had neither conveyed that we are
paying cash from the general reserves nor was there any such need for us to
do so. It may be appreciated that it is not always necessary that a company
will enter into cash deals only if it has requisite amount in its general
reserves. In a given case a company may also tie up cash by raising loans
from banks etc., should there be any mismatch of funds. Therefore, the
suggestion is based on mere surmises and conjectures.
ix.
It may be noted that, it is not a case where the company is making losses and
it is trying to convey something contrary to factual position by painting a
rosy picture about its financial position in order to mislead the investors and
make quick gains. The details of our financial position were already in public
domain. We give below our financial position over the years ‘at a glance’ :
Financial
Profits (in Rs.) Netowned
Year
funds
2009 (18
30,02,62,405 207,50,86,439
months)
2008 45,77,11,997 178,94,51,498
2007 44,59,24,752 99,27,41,962
2006 26,80,97,715 66,57,53,978
2005 12,64,40,119 43,18,80,867
2004 4,56,92,564 32,25,53,050
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 17 of 33 January 31, 2011

need for us to create an impression which was not borne out by the factual
position on the ground.”
36. The perusal of communication made by the Company to the Stock
Exchanges clearly brings out that there was emphasis on the factor that it
was a cash deal. It is interesting to note the contents of the communication
made to the Stock Exchanges by the Noticee, which states as below:
“ By this transaction, we are investing cash 19 mn dollars, and therefore
it is a big statement about our commitment and seriousness to build
scale, capabilities and international presence.
The Share Purchase Agreement was signed today by Helios & Matheson
and vMoksha’s officials after completion of all procedural formailities.
The all-cash deal was closed at USD 19 million and includes earn-out for
achieving targeted financial milestones over a two-year period.”
(Emphasis supplied)
37. However, the perusal of Share Purchase Agreement and Subscription
Agreement entered into between the Noticee and vMoksha clearly brings
out that it was not a cash deal and there was no cash investment of 19
million dollar. The following clauses of the Share Purchase Agreement
and Subscription Agreement are to be seen in this regard.
“Clause no. 2.2.1 of Share Purchase Agreement
H&M shall pay a consideration computed at the rate of Rs. 1,887.77 per share to
the SELLERS. Payment to vMOKSHA MAURITIUS will be made by H&M by
remitting by wire transfer through normal Banking Channels and payment to the
other SELLERS namely TG and MG shall be by way of Demand Drafts payable
in India to the SELLERS for a cumulative amount of Indian Rupees 62.5164
crores for the 100% acquisition of the Sale Shares in the Company within 20
working days from the date of execution of this Agreement. However, the parties
have agreed to procure information from the Foreign Investment Promotion
Board (FIPB) and/or Reserve Bank of India (RBI) within 7 working days of the
signing of this Agreement that
this sale transaction and the subsequent
subscription of Zero Coupon Redeemable Preference shares in H&M by
the SELLERS
shall not require any prior approval from FIPB and/RBI and that
its covered under the automatic route under the prevailing guidelines. The Parties
have jointly requested Price Waterhouse Coopers Pvt Ltd., the advisor of the
SELLERS, who have accepted such request to seek such confirmation from the
FIPB/RBI and it is anticipated that this will be procured within 7 working days
from the date of execution of the Agreement.”
(Emphasis supplied)
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 18 of 33 January 31, 2011

“Clause 2.2. of Subscription Agreement
Agreement to Subscribe and Issue & Allot: Subject to the terms and conditions
hereof, on the date of closing, the Company will issue and allot to the
INVESTORS, and the INVESTOR agrees to subscribe for 84,05,520 (eighty four
lakhs five thousand five hundred and twenty) of H&M’s Preference Shares at the
price set out for an aggregate price of Rs. 63.0414 crores (Subscription Price) as
indicated in the schedule.
The Subscription price shall be paid by wire
transfer by the INVESTORS to H&M simultaneously on receipt of wire
transfer funds from H&M under the Share Purchase Agreement dated 11
May 2005.”
(Emphasis supplied)
38. From the harmonious reading of the above referred clauses of these
Agreements, it can be noted that the deal was not a cash deal and there
was not a cash investment of 19 mn dollars as claimed by the Noticee in its
communication to the Stock Exchanges.
39. From the above discussion, I find that the information given by the
Noticee is not accurate and is incomplete. The payment may be made by
Noticee in cash and the preference shares may be redeemed in cash but at
the time of making the announcement, the deal was not an all cash deal
because calling it a cash deal would make the investors presume that no
other conditions stand attached to the deal. However, that is not the
situation in the present case. Even if the subscription to the preference
shares was insisted to protect the interest of investors, it does not render
the incomplete and inaccurate disclosures complete and correct.
40. Therefore, this is not case where the defense that ‘not everything can be
disclosed’ can be used because the Noticee has disclosed
incorrect/incomplete information as it reveals a wrong picture of the
whole deal to the investors. The allegation against the Noticee on this
count is that it has made a wrong/incomplete disclosure which was
misleading in nature. Non disclosure is one thing and
wrongful/incomplete disclosure another. Therefore, I don’t accept
Noticee’s explanations as when an announcement by a listed company is
made, it should be very careful of the language so used and the disclosure
should be complete in all respect enabling the investors to make informed
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 19 of 33 January 31, 2011

investment decisions. And definitely, in any case, the disclosure should
not convey the incorrect details. The question is not only regarding the
adequacy of the disclosure but also about the authenticity of the
disclosures made by the Noticee. The disclosure was not accurate and was
incorrect and also incomplete.
41. Its Noticee’s own submissions that “
We were of bonafide belief that since the
proposed issue of preference shares was only taken as a protection by way of re-
investment of the price in the company for 18 months, and in order to ensure that
the representations and warranties are fully complied by the Sellers, it was not
warranting explicit disclosure.”
From the fact that its Noticee’s own
submissions that the issue of preference shares was to ensure compliance
at least for 18 months, it can be noted that the subscription to the
Preference Shares by the Sellers was the integral part of the Agreement to
Purchase vMoksha companies and omitting to mention about the same
definitely affected the ability of the investors to take informed investment
decisions.
42. It would defeat the purpose of PIT Regulations if the Companies don’t
make proper and true disclosures, as along with liberty comes
responsibility and if the Companies are allowed to exercise adequate
freedom to choose what has to be mentioned in the Public announcement,
the same has to be responsibly used and the Company should at least not
create a delusion in the minds of the investors. Therefore, the Noticee’s
explanations that “
Whatever was found to be of consequence, as per Company’s
bonafide belief and understanding at the relevant time, was disclosed
appropriately. In this context it may be highlighted that the alleged non
disclosure was not suppression of material fact with ulterior motive as sought
to be insinuated”
can’t be accepted. Furthermore, I don’t find the
explanations of the Noticee satisfactory as factually what the Noticee has
stated is wrong and it gives a wrong impression to investors. The deal was
definitely not an all cash deal because the consideration paid to sellers was
again retained in the company as money towards the proposed issue of
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 20 of 33 January 31, 2011

preference shares and this was an integral part of the deal and this
definitely negates the deal as an all cash deal.
43. Now I deal with the Noticee’s submissions that
i.
With regard to observations in
para 9 & para 17(ii)
of the Notice, it is
denied that we have misled the investors by stating that the deal was complete
as alleged. The charge solely proceeds on the basis of Clause 4 of the SPA. In
this context it is submitted that Clause 4 of SPA has to be interpreted in the
context of surrounding facts and circumstances concerning the deal. Clause
4 of SPA has to be read in harmony with Clause 3.13. As per clause 3.13 (2
nd
para), the Sellers, the company (vMoksha technologies Pvt Ltd., India), and
the confirming parties cannot rescind the said agreement once the same was
signed. Only, we were empowered to waive or postpone any of the conditions
precedent mentioned in the SPA. The said clause quoted is extracted
hereinbelow:
ii.
It is however agreed that the SELLERS and/or the COMPANY (i.e vMoksha
Technologies Pvt. Ltd, India), PROMOTER, CONFIRMING PARTIES
cannot rescind this Agreement, except as stated elsewhere herein, on signing
and shall only take all steps to honour the terms and conditions agreed in this
Share Purchase Agreement. However, H&M, could at its option waive or
postpone any of the Condition Precedents (CP’s) mentioned herein above and
proceed for Completion.”
iii.
It is clear from the above that once the SPA is signed, the Sellers cannot
rescind the contract and can only take such steps to honour the terms and
conditions. 120 days time is provided in the SPA for Sellers to comply with
conditions precedent relating mainly to settling inter-company transactions
within vMoksha group and furnishing of account statements, Audited
Balance Sheet etc. by the sellers and confirming parties. We reiterate that we
had the sole privilege to waive or defer the Condition Precedents. When
Clause 4 is read in harmony with Clause 3.13, it would be clear that 120 days
was the time limit set for the sellers and not for the agreement. Further, it may
be noted that the ‘effective date” has been fixed as 11
May 2005, the date on
th
which the agreements were signed.
iv.
Based on the aforesaid, we had inter alia disclosed that the deal is complete.
The relevant share certificates with executed transfer deeds were deposited in
Escrow along with the resignation letters of vMoksha directors (Sellers) and
the purchase consideration has been remitted. All that remained was to
convene a board meeting of vMoksha entities to induct our nominees into the
board and approve the transfer of shares to us. The Sellers had 120 days to
complete such a simple formality. Due to internecine quarrel between
promoters of vMoksha entities about which we were kept in the dark, the
Sellers delayed convening the board meeting while assuring us all along that
steps are being taken to complete the task.
v.
In the circumstances, it cannot be alleged that we had made disclosures in
order to mislead the investors. It is reiterated that we have not made any
misleading disclosures, as alleged. Further, at the relevant time we did not
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M/s. Helios and Matheson Information Technology Ltd.
Page 21 of 33 January 31, 2011

have the slightest indication that the events would take such a turn, wherein
the Sellers would not comply with the remaining procedural obligations and
that there would be internecine disputes amongst the Sellers and that they
would keep us in the dark, while parallelly assuring us their commitment to
perform their obligations. “
44. The Noticee vide letter dated June 28, 2010 has further submitted that:
i.
It may be noted that on May 11, 2005 three separate agreements were
executed between the parties viz. Share Purchase Agreement (“
SPA
”),
Subscription Agreement (“
SA
”) for subscribing to the redeemable preference
shares by Sellers & Escrow Agreement (“
ESA
”) .
ii.
In terms of ESA, M/s Pricewaterhouse Coopers Pvt. Ltd., and Khaitan & Co.,
were to be the Escrow agents and were to keep in their custody inter-alia
various documents viz., the Share Transfer Deeds, Share Certificates held by
the Sellers with regard to vMoksha companies. Further, as per Clause 4 read
with Clause 3.1.3 of the SPA, Sellers cannot rescind the agreement and they
were to take steps to honour the terms and conditions and conditions
precedent and that we as Purchasers could at our option waive or postpone the
time for performance of the conditions precedent for completion. Admittedly,
the shares of vMoksha entities are deposited in Escrow along with the signed
transfer deeds and resignation letters of vMoksha directors (Sellers) and the
purchase consideration has been remitted. Thus the deal was complete.
iii.
Post execution of the SPA on May 11, 2005, the only thing left was payment
of consideration by us to the Sellers and the transfer of the consideration
amount back to us by the Sellers towards application money for subscription
of redeemable preference shares which has been completed as approved by the
FIPB. Thereafter, the requirements were the convening of the Board meeting
by the Sellers for the purpose of approving the transfer of shares in our favour
(lying with the Escrow Agents), acceptance of resignation of directors and
induction of our representatives on the Board of vMoksha companies.
Admittedly the transaction was complete. At the relevant point in time, given
the conduct of all the parties to the acquisition; we did not anticipate any
roadblock in the performance of the said actions.
iv.
It was against this backdrop and based on our bonafide belief that we had
announced that the acquisition of vMoksha companies was complete. Further,
it may also be appreciated that there was nothing to be gained by us by
misleading the investors as alleged. Admittedly, post the disclosure all the
actions which were to be performed at our end for completing the acquisition
were performed immediately. We immediately paid the consideration amounts
to the Sellers on June 30, 2005 (the date of receipt of approval from FIPB). The
Sellers also paid the subscription amount as application money for
subscribing to the redeemable preference shares. Further the Sellers also had
deposited the Share Certificates of vMoksha companies documents with the
Escrow Agents.
v.
Save and except the holding of board meeting for approving the transfer of
shares in our favour and induction of our representatives on the board,
Adjudication Order in respect of M/s. Helios and Matheson Information Technology Ltd. in the matter of
M/s. Helios and Matheson Information Technology Ltd.
Page 22 of 33 January 31, 2011

Karthikeyan

5 years ago

There is one more order which is against them have been imposed with a penalty of Rs 5 Lacs for FEMA Violation

Order against Helios & Matheson by Enforcement Directorate
Madras High Court
Top of Form
Bottom of Form
V.Ramachandran vs The Special Director on 3 March, 2011
Dated:- 03.03.2011
Coram:-
The Hon'ble Mr. Justice T.RAJA
Writ Petition No.24534 of 2010
and
M.P. No.1 of 2010
1. V.Ramachandran
Former Chairman,
Helios and Matheson Information
Technology Ltd.,
Adwave Towers, No.9 South
Boag Road, T. Nagar,
Chennai 600 017.
2. G. Murali Krishna,
Managing Director,
Helios and Matheson Information
Technology ltd.,
Adwave Towers, No.9 South
Boag Road, T. Nagar,
Chennai 600 017. ... Petitioners
vs.
The Special Director,
Directorate of Enforcement,
6th Floor, Lok Nayak Bhawan,
Khan Market, New Delhi 110 003. ... Respondent
Petition under Article 226 of the Constitution of India for the issuance of a writ of certiorari to call for the records of the respondent relating to proceedings No.SDE/SKS/IV/5/2010, dated 03.09.2010, and quash the same.
For Petitioners : Mr.R.Krishnamurthy,
Senior Counsel for M/s.Pais, Lobo & Alvares
For Respondent : Mr.M.Dhandapani,
Special counsel for the Directorate
of Enforcement.
O R D E R
The petitioners herein challenge the impugned proceedings (No.SDE/KS/IV/5/2010) of the respondent-Special Officer, Enforcement Directorate, dated 03.09.2010, in and by which, a penalty of Rs.5,00,000/- came to be imposed under Section 13 (1) of the Foreign Exchange Management Act, 1999, on each of the petitioners herein by the aforesaid authority for the alleged contravention of the provisions under Section 6 (3)(j) of the Act on the ground that the petitioners offered personal guarantee for a loan amount of US$ 13.5 Million to a resident outside India without obtaining prior permission from the Reserve Bank of India (RBI).
2. Certain vital facts, which are necessary to be pointed out for better appreciation, are concisely outlined here-under:-
M/s.Helios and Matheson Information Technology Limited, Chennai-17, (hereinafter refereed to as H & M Ltd.) is a Public Limited Company and the petitioners herein are its Former Chairman and present Managing Director respectively. M/s.vMoksha Technologies Ltd. (in short 'VMT') is a non-resident Unit in Mauritius, Port Blair. In order to expand its business activities, H & M Ltd. entered into a Sale Purchase Agreement (in short 'SPA') on 11.05.2005 with VMT at Mauritius to acquire 100% of its shares for US$ 13.5 Million with an understanding that the consideration will be first transferred by H & M Ltd. to VMT whereupon, the transferred amount will be re-transferred to H & M Limited who, in turn, will issue redeemable preference service shares of H & M Ltd. in favour of VMT, Mauritius and those shares will be redeemed after 18 months from the date of issue. Consequent to the agreement, VMT, Mauritius, deposited the Original Share Certificates and the Share Transfer Forms duly signed with the agents/Escrow as per the terms of the SPA. The petitioner-H & M Limited secured the approval from Foreign Investment Promotion Board for the said investment in non-convertible preference shares in H & M Limited by a non-resident/VMT, Mauritius. The Government of India, by its proceedings dated 20.06.2005, granted approval for the collaborations between the petitioners and VMT Mauritius subject to the condition that the consideration for the investment in VMT Mauritius shall be paid out of the inward remittance of Foreign Exchange through normal banking channels and further, to invest with H & M Ltd., VMT Mauritius has to follow the procedure prescribed by the Government of India in Press Note No.9/99 whereby it is provided that foreign companies will have to bring the requisite funds from abroad and not leverage the same with the funds from the domestic market. VMT, Mauritius, for remitting US$ 13.5 Million which is equivalent to Rs.58,37,75,195/-, being the consideration for allotment of preference shares in H & M Ltd., availed credit facilities from the State Bank of Mauritius at Mauritius. In order to comply with the terms of the SPA, H & M Ltd. gave a letter of lien and guarantee in favour of Chennai Branch of State Bank of Mauritius. Thereafter, on 29.06.2005, the entire sum of Rs.58,37,75,195/- was remitted to the account of H & M Ltd. at the State Bank of Mauritius Branch at Chennai. On the very next day, ie., on 30.06.2005, the said amount credited to the account of H & M Ltd. was re-transmitted to the account of VMT, Mauritius, with the State Bank of Mauritius at Mauritius, towards the consideration for the purchase of 3 subsidiaries of VMT. At this juncture, it is relevant to note that a rift originated between the petitioner-company and the successive Management of the VMT Mauritius on the very transactions referred to above which gave rise to various proceedings including the impugned proceedings under challenge herein.
Despite fulfilment of the terms and conditions as contained in the SPA on the part of H & L Ltd., VMT Mauritius committed breach of the terms on account of certain disputes that arose between Rajeev Shawney, the present Chairman of VMT and Pawan Kumar, the then CEO/Chairman of VMT Mauritius. Arbitration Proceedings initiated thereupon by the petitioners to resolve the dispute arose with the Management of VMT Mauritius are still pending. The said Rajeev Shawney is also said to have made false and defamatory allegations against H & M Ltd. and the petitioners apart from lodging a false and frivolous complaint against them alleging commission of serious offences of fraud. Inasmuch as the successive Management of VMT Mauritius alleged fraud in the transaction in question and highlighted the same in the complaint made to the RBI, by letter dated 28.08.2007, the RBI requested the respondent-Department to examine and investigate the issue for necessary action, which resulted in search of the office premises of the petitioners on 12.03.2008 and during such search, incriminating documents were said to have been seized and statements of the individuals recorded including that of the Branch Manager of the State Bank of Mauritius (SBM) at Chennai, who is said to have stated that the petitioners furnished guarantees only to the SBM at Mauritius. Ultimately, after conclusion of the investigation, a show cause notice, dated 21.01.2010, came to be issued against the petitioners stating that they have contravened the provisions under Section 6 (3) (j) of the Foreign Exchange Management Act, 1999 (FEMA) read with Regulation 3 of the Foreign Exchange Management (Guarantees) Regulation 2000 to the extent of US$ 13.5 million equivalent to Rs.58,37,75,193/- in having stood as guarantors for obtaining the loan from State Bank of Mauritius, Mauritius, and requiring them to show cause in writing within 30 days from the date of receipt of the notice as to why adjudicating proceedings as contemplated under Section 13 of FEMA should not be held against them in the manner as provided under Rule (4) of the Foreign Exchange Management (Adjudication Proceedings and Appeal) Rules, 2000 (in short 'Rules') and as to why penalty(ies) as provided in Section 13 (1) of FEMA should not be imposed on them. The petitioners submitted a detailed explanation along with a letter, dated 01.07.2010, of their Advocate stating that the Authority has no jurisdiction to proceed against the petitioners and as such, there was no need to have an enquiry at all. At such stage, challenging the proceedings pending before the adjudicating authority, the petitioners filed W.P. Nos.15059 of 15060 of 2010. By common order dated 13.07.2010, this Court found that nothing has been brought on record to substantiate the claim of the petitioners that the principles of natural justice have been violated and so finding, refused to interfere with the show cause notice, however, considering the plea of the petitioners that their grievance would stand redressed if a direction is issued to the respondents for deciding the case of the petitioners on the basis of the explanation offered to the effect that the provisions under Section 6(3)(j) have no application to their case at all, the writ petition came to be disposed of with a direction to the Department to consider such objections within a period of four weeks from the date of receipt of a copy of the order. After disposal of the aforesaid writ petitions, by letter dated 15.07.2010, sent by the Advocates of the petitioners to the respondent-Directorate, it was stated that there was no need for the petitioners to attend the scheduled personal hearing fixed on 16.07.2010. The opportunities given to the petitioners for personal hearings on 12.07.2010 and 14.07.2010 were not availed of by the petitioners. Since the petitioners did not desire to attend the personal hearings as expressed by them in the aforesaid letter and sought to consider their cases based on the explanation offered on 01.07.2010, the authority, taking note of the time-limit prescribed in the order of the learned single Judge, after considering the case of the petitioners as detailed in their explanation, ultimately declined to accept the same and, by the proceedings challenged herein, imposed a penalty of Rs.5 lakhs each on the petitioners herein.
3. Mr.R.Krishnamurthy, learned Senior Counsel appearing for the petitioners, in an arduous endeavour to whittle down the vigour of the impugned order, studiously contended by advancing the following submissions:-
(i) The petitioners herein did not stand as guarantors for any non-resident but the letter of comfort-guarantee was given only to a resident of India. Generally, if a person guarantees re-payment of a loan availed of by a borrower, the guarantor would also execute the loan agreement along with the borrower, whereas, in the case on hand, the loan agreement, dated 28.06.2005, executed by VMT in favour SBM, Mauritius, would depict that the borrower alone had executed the loan agreement and the petitioners had never executed the agreement along with the borrower as guarantors. The lien and guarantee on the part of the petitioners did not pertain to the loan granted by the SBM at Mauritius but pertains to petitioners' account with SBM at Chennai Branch, which is not a non-resident. Under such circumstances, in a transaction which in no way involves a non-resident as a party, there is no scope for applicability of Section 6(3)(j) of FEMA.
(ii) In matters relating to Capital Account Transactions, for a resident to offer guarantee to a non-resident, no permission of the RBI is necessary at all. While sub-Section (2) of Section-6 states that the RBI may, in consultation with the Central Government, specify any class or classes of capital account transactions which are permissible and limit up to which foreign exchange shall be admissible for such transactions, sub-section (1) thereof clearly states that subject to what is provided in sub-Section (2), any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction, provided that the Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payment due on account of amortization of loans or for depreciation of direct investments in the ordinary course of business. Since Section-(3) is very explicit that Clause (j) pertaining to guarantee/surety in respect of any debt/obligation/liability by (i) a person resident in India and owed to a person resident outside India or (ii) by a person outside India, may be regulated by the RBI without prejudice to the generality of the provisions of sub-Section (2), the transactions involved herein would only fall under Section 6 (2) of the Act and the purview of section 6(3) (j) is clearly excluded from application.
(iii) When all the transactions had been done through the Chennai Branch of the SBM after obtaining advice of Pricewaterhouse Coopers Pvt. Ltd and Khaitan and Co., if in fact permission of the RBI was necessary, the Chennai Branch of the SBM should have returned the papers submitted by the petitioners-company, instructing them to obtain the requisite permission from the RBI. At any rate, for the default, if any, committed by the authorised dealer-Chennai Branch of SBM, the petitioners cannot be held responsible and the authorized dealer, who acted as an agent of the RBI alone is answerable, however, no charge was ever levelled against the dealer.
(iv) After disposal of W.P. Nos.15059 and 15060 of 201, vide order dated 13.07.2010, the respondent was directed to consider the objections submitted by the petitioners on 01.07.2010 and the said authority, having formed an opinion to impose huge penalty on the petitioners declining to accept the explanation offered, before passing the impugned proceedings, should have issued a fresh show-cause notice as provided under Section 4 of the Rules and afforded all reasonable opportunities to substantiate the defence, however, it seems that the authority had already made up his mind to hold against the petitioners and such attitude on the part of statutory authorities should be depreciated.
(v) In Harbanslal Sahnia v. Indian Oil Corpn. Ltd. (AIR 2003 SC 2120), it has been categorically held that rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion and that, in an appropriate case, in spite of availability of the alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies viz., (a) where the writ petition seeks enforcement of the Fundamental Rights; (b) where there is failure of principles of natural justice; or (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged. In the light of the above case law, the respondents cannot canvass a plea of alternative remedy available by way of appeal before the appellate authority-Appellate Tribunal for Foreign Exchange (AFTE) under the Act as against the impugned order passed by the original authority. So submitting, learned Senior Counsel states that inasmuch as, in the present case, the authority has proceeded by pre-determining the issue without even considering the basic and core aspects adverted to on the part of the petitioners and the principles of natural justice having not been complied with by not resorting to the course outlined in Section 4 of the Rules for issuance of a fresh show cause notice, the impugned proceedings are rendered invalid in the eye of law, and pleads for grant of the prayer sought for.
4. Controverting the submissions made by the learned Senior Counsel, Mr.M.Dhandapani, learned Special Counsel appearing for the respondent-Directorate would submit that, after exhaustively considering the objections made by the petitioners, the authority could not agree with their claim since the case clearly falls under Section 6(3) (j), however, the authority was lenient enough in imposing the penalty under challenge and a close reading of the provisions would only suggest that Section 6(2) has no applicability to the petitioners' case. Further, the present writ petition, agitated in the second round of litigation before this Court, by the very same parties may be rejected on the simple ground that as against the present impugned order passed subsequent to the direction issued in W.P. Nos.15059 and 15060 of 2010 by duly considering the issue in the light of the explanation offered by the petitioners, an efficacious alternative remedy under Section 19 is available by way of Appeal before the ATFE and all the grounds raised herein can be very well agitated and canvassed before the said Forum. When all dealings pertaining to permissible capital account transactions as governed by FEMA are stipulated by the RBI, prior permission of the RBI must have been obtained by the petitioners who stood guarantors to a non-resident and the present case is clearly covered by Regulation-3 of FEM (Guarantees) Regulation 2000. The respondent even before disposal of the earlier writ petitions on 13.07.2010, fixed the date of personal hearing on 12.07.2010 and even thereafter, they did not avail the opportunity of personal hearing for which the dates given were 14.07.2010 and 16.07.2010. If the petitioners were really looking for an ample opportunity, despite the explanation offered by them, by availing the opportunity of personal hearing fixed on 14.07.2010 and 16.07.2010, either personally or through counsel, they could have effectively projected their pleas and claims, rather, they simply addressed a letter dated 15.07.2010 so vaguely stating that there was no need for them to any more attend the enquiry as the matter could be decided based on the explanation. Thus, the authority, conscious of the fact that the High Court had fixed an outer-limit for disposal of the petitioners' case on the basis of the explanation, proceeded therewith, assessed and dealt in detail with each of the objections made and ultimately, passed the impugned order and in the said order, clear discussion has been made to hold that only the provisions under Section 6(3)(j) of the Act is applicable to the issue in question. Referring to Section 35 of the FEMA which provides that any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such order; and relying on a case law of the Apex Court reported in 2010 CIJ 61 CLJ (Rajkumar Shivhare v. Asst. Director, Directorate of Enforcement) wherein it has been categorically held that when an appeal remedy was provided under the Act, only appeal had to be preferred and the writ petition was not maintainable, learned special counsel submits that, in the present case, the petitioners without exhausting such remedy of appeal has rushed to this Court and further, even if he suffers an adverse order at the hands of the appellate authority, he has further recourse to challenge the appellate order by filing an appeal u/s.35 of the Act to this Court. Under such circumstances, a deep analysis of the case would go to show that it may not be appropriate at this stage for this Court to appreciate the case of the petitioners by delving into the various points raised and hence, the writ petition may be dismissed at the threshold.
5. I have given my thoughtful consideration to the rival submissions made on either side and carefully perused the materials available on record.
6. Admittedly, VMT Ltd. is a holding company, a non-resident at Mauritius with whom the petitioners, in order to promote their business, entered into a Sale Purchase Agreement duly signed by both sides on 11.05.2005 and it was agreed that the petitioner-company will acquire 100% shares of VMT for a consideration of US$ 15 million, with an understanding that the consideration will be first transferred to VMT Ltd. whereupon the amount will be re-transferred to H & M Ltd., who in tun will issue redeemable preference shares in favour of VMT and those shares will be redeemed after 18 months from the date of issue. VMT applied for loan from the State Bank of Mauritius at Mauritius and on the basis of the letter of lien and guarantee furnished by the petitioners, the said amount released by SBM at Mauritius was credited to the petitioner's account at the Chennai Branch of SBM on 29.06.2005. In respect of the said transaction, the RBI received a complaint from the present Chairman of VMT stating that the said transaction was fraudulently entered into by collusion between the petitioners and the erstwhile Chairman of the VMT, for, instead of crediting the acquisition proceeds into the accounts of VMT maintained with HSBC Bank, the sum was credited to the VMT's account with the SBM at the Mauritius Branch. The said complaint received by the RBI was forwarded to the respondent-Directorate for enquiry and investigation and on the basis of the materials collected, both oral and documentary, it was found that even though the present transaction between a resident in India/petitioners and a non-resident/VMT at Mauritius falls only under the specified class of permissible capital account transaction in terms of Section 6(2) of FEMA, the same is regulated in terms of Regulation of FEM (Guarantees) Regulation, 2000 issued under Section 6(3)(j) of FEMA.
7. Even though at the first instance after completion of the investigation, the petitioners were issued with a show cause notice on 21.01.2010 and a detailed explanation was offered along with a letter, dated 01.07.2010, from their Counsel to the effect that there was no need to have an enquiry at all, the petitioners did not choose to appear for the personal hearing scheduled on 12.07.2010, rather, they chose to file the writ petitions as mentioned above with an emphatic allegation that the principles of natural justice have been flagrantly violated in their case. One of the grounds taken therein is relevant to be quoted below:-
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That all the materials needed for the enquiry are available on record and the petitioner has no other record to produce or offer any other explanation other than brought to the notice of the respondent during the investigation in the year 2008 and also its explanations offered under in his letter dated 01.07.2010. Hence, there is no need at all to hold any further enquiry and first respondent can hold on the materials already available on record and that I have not contravened any provisions of the said Act. The continuation of the adjudication proceedings in spite of the request made by me in my explanation offered to the charges would lead to unnecessary and lengthy proceedings and harassment to me.
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It was further highlighted in the said litigation that guarantee furnished by the petitioners was through a Bank in Chennai viz., SBM's Chennai Branch, and for such issuance of guarantee by a resident in India to a non-resident, permission of RBI is not necessary in terms of Section 6 (2) and the regulations made there-under and further, the respondents have not produced the guarantee alleged to have been issued to the non-resident. While disposing of the writ petition, this Court discarded the strong argument regarding violation of the principles of natural justice and, acting upon the plea of the petitioners that they restrict the prayer to the extent that their grievance would get redressed if a direction was issued to the respondents to consider their claim of non-applicability of Section 6(3) (j) to their case on the basis of the detailed explanation submitted on 01.07.2010, ultimately directed the respondents to consider those objections and pass orders within a period of four weeks from the date of receipt of a copy of the order.
8. At this juncture, it must be taken note of that even during the pendency of the writ petition, personal hearing was scheduled on 12.07.2010 and the writ petition came to be disposed of on 13.07.2010. Two more opportunities were given to the petitioners to attend the personal hearings scheduled on 14.07.2010 and 16.07.2010, but the petitioners did not avail it of. The petitioners could have very well utilised the further opportunity of personal hearing coupled with the direction of this Court for consideration of the case by the respondent in the light of the detailed explanation offered on 01.07.2010, to effectively defend their case and substantiate the claim and pleas now raised as to the applicability of Section 6(2) of FEMA to the complete exclusion of Section 6(3) (j) and the Regulations issued thereunder. It must also be pointed out here that when the petitioners themselves requested this Court that they would be satisfied if a mere direction is issued to consider their claim in the light of the explanation offered, the presumption would be that they only required a decision at the hands of the authority based on the explanation offered and that in the event of an adverse order, they would resort to the further course of remedy as provided under the statute. Therefore, in the subsequent proceedings now adjudicated by this Court, they are estopped from raising the plea of compliance to the principles of natural justice as provided under Rule-4 of the Rules. If they were cautious and conscious enough, in the letter, dated 15.07.2010, sent to the Directorate by the petitioners through their counsel, they could have emphasised that in the event of their case being considered negatively, they may be given a further opportunity by way of giving a fresh personal hearing in the matter. But, the petitioners did not take such efforts at any point of time.
9. By way of circumspection, without proceeding further on the issues enveloped by facts in dispute with reference to various documents and the manner in which they executed, now, it would be of much relevance to refer to a case law of the Apex Court in Raj Kumar Shivhare's case, wherein, it has been categorically ruled as follows:-
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34. When a statutory forum is created by law for redressal of grievance and that too in a fiscal Statute, a writ petition should not be entertained ignoring the statutory dispensation. In this case High Court is a statutory forum of appeal on a question of law. That should not be abdicated and given a go-bye by a litigant for invoking the forum of judicial review of the High Court under writ jurisdiction. The High Court, with great respect, fell into a manifest error by not appreciating the aspect of the matter. It has however dismissed the writ petition on the ground of lack of territorial jurisdiction.
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After ruling so, the Apex Court proceeded further to discuss the issue based on the earlier decisions and the ratio laid down therein, and the relevant portions are extracted below:-
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36. Reference may be made to the Constitution Bench decision of this Court rendered in Thansingh Nathmal and others vs. The Superintendent of Taxes, Dhubri, reported in AIR 1964 SC 1419, which was also a decision in a fiscal law. Commenting on the exercise of wide jurisdiction of the High Court under Article 226, subject to self imposed limitation, this Court went on to explain: "The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up." (Emphasis added)
37. The decision in Thansingh (supra) is still holding the field.
38. Again in Titaghur Paper Mills Co. Ltd. and another vs. State of Orissa and another [AIR 1983 SC 603] in the background of taxation laws, a three judge Bench of this Court apart from reiterating the principle of exercise of writ jurisdiction with the time-honoured self imposed limitations, focused on another legal principle on right and remedies. In paragraph 11, at page 607 of the report, this Court laid down: "It is now well recognized that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Water Works Co. v. Hawkesford [1859] 6 C.B (NS) 336 at page 356 in the following passage: "There are three classes of cases in which a liability may be established founded upon statute.... But there is a third class, viz., where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it...the remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to." The rule laid down in this passage was approved by the House of Lords in Neville v. London Express Newspaper Ltd. [1919] AC 368 and has been reaffirmed by the Privy Council in Attorney-General of Trinidad and Tobago v. Gordon Grant and Co. [1935] AC 532 and Secretary of State v. Mask and Co. AIR 1940 PC 105. It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. The High Court was therefore justified in dismissing the writ petitions in limine".
39. In this case, liability of the appellant is not created under any common law principle but, it is clearly a statutory liability and for which the statutory remedy is an appeal under Section 35 of FEMA, subject to the limitations contained therein. A writ petition in the facts of this case is therefore clearly not maintainable.
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In the light of the above observation of the Apex Court, this Court is of the view that, in the given circumstances, bypassing the effective and proper alternative remedy available and provided in the statute itself, it may not be proper to proceed to decide this writ petition by examining the issues arising from various facts in dispute.
10. Despite the clear position as outlined above which directly applies to the given case, the learned Senior Counsel endeavoured to draw support to his argument through the very same case law cited supra wherein reference was made to an earlier decision rendered in Seth Chand Ratan vs. Pandi Durga Prasad (D) By Lrs. and Ors (2003 (5) SCC 399 for the proposition that when a right or liability is created by a Statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before seeking the discretionary remedy under Article 226 of the Constitution; however, such principle is subject to one exception, namely, where there is a complete lack of jurisdiction of the Tribunal to take action or there has been a violation of rules of natural justice or where the tribunal acted under a provision of law which is declared ultra vires. In such cases, notwithstanding the existence of such a tribunal, the High Court can exercise its jurisdiction to grant relief.
11. Of course, the learned Senior Counsel may be right in citing the said decision if the circumstances herein are similar to that of those involved in Ratan's case, but in the present case, what is under challenge is an appealable order and therefore, when an appealable order is passed, particularly when the facts are in dispute, the writ petition filed under Article 226 of the Constitution of India without availing alternate remedy is not maintainable. Further, in the very same decision in Raj Kumar Shivhare's case, there is an answer to the argument of the learned Senior Counsel by placing reliance on Seth Chand Ratan's case in the following text :-
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44. Therefore, principle laid down in the Ratan's case (supra) applies in the facts and circumstances of this case. If the appellant in this case is allowed to file a writ petition despite the existence of an efficacious remedy by way of appeal under Section 35 of FEMA this will enable him to defeat the provisions of the Statute which may provide for certain conditions for filing the appeal, like limitation, payment of court fees or deposit of some amount of penalty or fulfilment of some other conditions for entertaining the appeal. (See para 13 at page 408 of the report). It is obvious that a writ court should not encourage the aforesaid trend of by-passing a statutory provision.
12. In A. Venkatasubbiah Naidu vs S. Chellappan (2000 7 SCC 695), the Apex Court deprecated the practice of exercising the writ jurisdiction when an efficacious alternative remedy is available, by observing as follows:-
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Though no hurdle can be put against the exercise of the constitutional powers of the High Court it is a well recognized principle which gained judicial recognition that the High Court should direct the party to avail himself of such remedies one or the other before he resorts to a constitutional remedy. Learned single judge need not have entertained the revision petition at all and the party affected by the interim ex parte order should have been directed to resort to one of the other remedies.
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13. In the case on hand, the Statute/FEMA not only provides an alternative remedy of appeal as against the original order but also further remedy against the appellate authority's order by appeal to the High Court. The relevant provision being Section-35 under the caption 'Appeal to High Court', the same is extracted below:-
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Any person aggrieved by any decision or order of the Appellate Tribunal may file and appeal to the High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such order.
Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.
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14. When an argument was advanced before the Apex Court that under Section 35, only appeals from final order could be filed, the Court, explaining the concept of the provision and its encompassing operation, vividly answered thus in Raj Kumar Shivhare's case:-
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23.The argument that under Section 35 only appeals from final order can be filed has been advanced on a misconception of the clear provision of the Section itself. The Section clearly says that from `any decision or order' of the Appellate Tribunal, appeal can be filed to the High Court on a question of law.
24.The word `any' in this context would mean `all'. We are of this opinion in view of the fact that this Section confers a right of appeal on any person aggrieved. A right of appeal, it is well settled, is a creature of Statute. It is never an inherent right, like that of filing a suit. A right of filing a suit, unless it is barred by Statute, as it is barred here under Section 34 of FEMA, is an inherent right (See Section 9 of the Civil Procedure Code) but a right of appeal is always conferred by Statute. While conferring such right Statute may impose restrictions, like limitation or pre-deposit of penalty or it may limit the area of appeal to questions of law or sometime to substantial questions of law. Whenever such limitations are imposed, they are to be strictly followed. But in a case where there is no limitation on the nature of order or decision to be appealed against, as in this case, the right of appeal cannot be further curtailed by this Court on the basis of an interpretative exercise. Under Section 35 of FEMA, the legislature has conferred a right of appeal to a person aggrieved from `any' `order' or `decision' of the Appellate Tribunal. Of course such appeal will have to be on a question of law. In this context the word `any' would mean `all'.
15. In similar circumstances, while dealing with the allegation of violation of the principles of natural justice in a writ petition filed relating to Customs Act, 1962, this Court in the case law reported in 2009 (248) ELT 30 (S.Ram Kumar vs. Union of India), repelled the allegation holding that writ jurisdiction under Article 226 should not have been invoked without availing the alternative remedy provided under Section 128 and 129A of the Customs Act for the reason that the appellate authority under the statute is vested with the power to appreciate the factual aspects and the petitioner can very well establish his right before the said authority. More importantly, this High Court, in the said Judgement has further held that in fiscal matters, there should not be short-circuiting of the statutory remedies. Such principle as laid down above is also clearly applicable to the present case.
16. Thus, on the various disputed questions as to whether,
(i) failure to obtain permission from the RBI by the authorised Agent was in fact due to inadvertence or deliberately intentional;
(ii) whether the actual transaction which directly involves a non-resident would amount to invocation of Section 6 (3) (j) and the Regulations made thereunder particularly when there is an argument that the ultimate beneficiary was a non-resident company at Mauritius;
(iii) whether the petitioners were deprived of an effective opportunity in placing their case before the authority by, in fact, non-supply of any crucial document?
(iv) whether Circular No.29, dated 27.03.2006, has any applicability and is helpful to the case of the petitioners; etc.
in regard to the allegation in the complaint which gave rise to the enquiry and proceedings ie.,
instead of crediting the acquisition proceeds to the account of VMT maintained with the HSBC Bank, the proceeds were credited to VMT's account with SBM at Mauritius to the wrongful benefit of the erstwhile chairman of the VMT ,
the petitioners could have challenged the order passed by the original authority before the ATFE under Section 19 of the Act and thereafter, if still aggrieved by any order passed by the Appellate Tribunal, they have further appeal remedy before the High Court u/s.35 of the Act as has been consistently held by the Apex Court in its various decisions as referred to above while dealing with alike cases. Even accepting the argument of the learned Senior Counsel for the petitioners that the instant case is an exceptional case where this Court can proceed with the matter, I am of the considered opinion that such exercise would only turn out to be futile since there exist many disputed questions and further, none of the 3 elements as enumerated in Hanbanslal Sahnia's case is present herein to treat the present case otherwise.
17. In the light of the foregoing discussion, I hold that the present writ petition is not maintainable and accordingly, the same is dismissed. However, the petitioners are at liberty to file an Appeal before the AFTE, if they so desire, and in that event, the appellate authority shall not raise any objection to entertain the appeal on the ground of limitation since the matter was pending on the file of this Court. However, in respect of other relevant conditions such as payment of court fees, deposit of penalty or fulfilment of any other conditions for entertaining the Appeal, it is for the AFTE to decide on such issues. It is made clear that in view of the peculiar circumstances involved in the given case, while exercising its vast powers under Section 28 of the Act, the Tribunal may, if necessary, call for the entire records from the original authority, to render proper reasoning on the facts in dispute. The petitioners are given three weeks' time from to-day to prefer the appeal before the AFTE as provided under Section 19 of the Act and thereafter, if still feel aggrieved, they may file an appeal before this High Court under Section 35 of the Act. No costs. Connected Miscellaneous Petition is closed.
JI.
To
The Special Director,
Directorate of Enforcement,
6th Floor, Lok Nayak Bhawan,
Khan Market,
New Delhi 110 003



Manish

5 years ago

Just saw this Bombay High Court Order against Helios & Matheson on
http://indiankanoon.org/doc/309173/

Cites 11 docs - [View All]
The Code Of Criminal Procedure, 1973
Section 203 in The Code Of Criminal Procedure, 1973
The Indian Penal Code, 1860
Section 202(1) in The Code Of Criminal Procedure, 1973
Poonam Chand Jain & Anr. Vs. Fazru on 28 January, 2010

Bombay High Court
Rajeev Sawhney, Age 55 Years vs High Road, Chennai 600 034. on 6 May, 2011
Bench: J. H. Bhatia
1 CRA-441-08.sxw
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
Mhi
CRIMINAL REVISION APPLICATION NO. 441 OF 2008 Rajeev Sawhney, Age 55 years, )
Residing Chairman having his address )
in Mumbai at 603A, Basera Co-op. Hsg.Soc.)
Lokhandwala, Andheri (W), )
Mumbai 400 053. ).. Applicant Versus
1. State Bank of Mauritius Ltd. )
having its corporate office at )
State Bank Tower, I Placed Armes, )
Port Louis, Republic of Mauritius )
and one of the branch offices at )
101, Raheja Centre, Free Press )
Journal Road, Nariman Point, )
Mumbai 400 021. )
2. Mr. Ravi Kumar )
Manager, State Bank of Mauritius Ltd.)
Chennai Branch, Price Arcade, 22A, )
Cathedral Road, Chennai 600 086 )
3. Mr. Pawan Kumar )
205, Casablanca Apartments, )'
Airport Road, Bangalore 560 017. )
4. Helios and Matheson Information )
Technology Ltd., Ganga Griha, 9-D, )
Nungambakkam High Road, )
Chennai 600 034. )
5. Mr. V.Ramachandiran )
Chairman, Helios and Matheson )
Information Technology Ltd., )
Ganga Griha, 9-D, Nungambakkam )
2 CRA-441-08.sxw
High Road, Chennai 600 034. )
6. Mr. G.K.Muralikrishna )
Managing Director, )
Helios and Matheson Information )
Technology Ltd., Ganga Griha, 9-D, )
Nungambakkam High Road, )
Chennai 600 034. )
7. State of Maharashtra )
Through office of Public Prosecutor. )..Respondents
Mr. Mahesh Jethmalani, Senior Counsel i/b. Mr. Rahul Moghe, Advocate, for the applicant.
Mr.Sanjog S.Parab,Advocate for the respondent Bankers( orig. accused Nos. 1 to 3).
Mr. Ashok K.Wanwar, Advocate i/b. Smt. Rita S.Panjwani,Advocates, for respondent No.3.
Mr. K.G.Menon, Senior Counsel i/b. Mr. J.L.Phoujdar, Advcate, for respondent Nos. 4, 5 & 6.
Smt. M.R.Tideke, APP, for the respondent No.7 - State. CORAM: J.H.BHATIA,J.
DATE : 6th May, 2011.
JUDGMENT:
1. Rule. Rule made returnable forthwith. Heard the learned Counsel for the parties.
2. The Revision Application is filed by the original complainant challenging the order passed by the learned Additional Sessions Judge, Greater 3 CRA-441-08.sxw
Bombay, on 13.8.2008 whereby he allowed the Revision Application Nos.449 of 2007, 460 of 2007 and 853 of 2007 filed by the different accused persons/respondents and whereby he set aside the order passed by the Additional Chief Metropolitan Magistrate 47th Court, Esplanade, Mumbai on 18.1.2007 of issuance of process against all the accused persons for the offences under Sections 420, 465, 467, 471, 403 read with Sec. 120B of IPC.
3. To appreciate the controversy, it will be useful to state the facts in brief. For the sake of convenience, the revision applicant may be called as complainant and the respondents as the accused persons. Respondent Nos. 1 and 2 are original accused Nos. 1 and 3 respectively while accused Nos. 3 to 6 are original accused Nos. 4 to 7 respectively. The complainant is a Chairman of Vmoksha Technologies Ltd., a company incorporated in Mauritius (hereinafter referred to as "the Company"). The Company had certain subsidiaries by name "Vmoksha Technologies Pvt. Ltd." registered at Bangalore, "Vmoksha Technologies Inc. USA" and "Vmoksha Technologies Pvt. Ltd.", Singapore. Accused No.5 - Helios and Matheson Information Technology Ltd. is registered in India and has its head office at Chennai. Accused Nos. 6 and 7 are the Chairman and Managing Director respectively of the said accused 5 Company. The complainant had 50% shareholding in Vmoksha Technologies and the 4 CRA-441-08.sxw
accused No.4 Pawan Kumar and his family members had also 50% holding in the said Company. Accused No.4 Pawan Kumar was also the Chief Executive Officer of the Company. On 28.1.2006, his 50% holdings were transferred to the complainant. Accused No.1 is State Bank of Mauritius Ltd., while accused No.2 was situated at Mumbai. Accused No.3 was looking after the Chennai Branch of the accused No.1 Bank. The shareholders of the Company decided to sell the Company's subsidiaries in India, USA and Singapore and the task of identifying a prospective buyer was entrusted to M/s. Price Waterhouse Coopers, a firm of Chartered Accountants. Said M/s. Price Waterhouse Coopers identified accused No.5 as a potential buyer. After a series of negotiations, on 11.5.2005, a Share Purchase Agreement was executed between the Company and various other confirming parties on one hand and accused Nos.6 and 7 in their respective capacity as Chairman and Managing Director of accused No.5. As per the said agreement, accused No.5 acquired Company's Indian, USA and Singapore subsidiaries for a consideration of US$ 19 million including an earn out of US$ 4 million to be paid to accused No.4 Pawan Kumar, the then CEO and he was to continue to work as CEO for the Company's said subsidiaries even after sale. The balance amount of US$ 15 million was to be paid to the shareholders of the Company as a consideration of the said transaction. Out of this consideration amount, some amount was to be paid to Tapan Garg and Madhuri Garg, son and 5 CRA-441-08.sxw
wife of the accused No.4 Pawan Kumar respectively for their holdings and the amount of US$ 13,395,519.13 was to be paid to the complainant and other shareholders and as eventually the 50% share of accused No.4 Pawan Kumar was also taken over by the complainant and his family, whole of that amount was to come to the complainant. As accused No.5 was not in a position to make payment of the whole of the consideration amount in cash immediately, it had agreed to make payment after 18 months. However, it was also agreed that initially, accused No.5 would make payment of US$ 15 million to the sellers and the sellers would pay back the said amount to accused No.5 by subscribing to redeemable preference shares for the equal amount and the said shares would be redeemed by accused No.5 after 18 months by making payment. Thus, initially, only the redeemable preference shares of accused No.5 Company were to be transferred to the sellers of the Company and on redeeming those shares after 18 months, the complainant and other sellers were to receive the consideration amount in cash. The sellers were to deposit all the original share certificates representing 100% equity capital of the Company in its USA, Singapore and India subsidiaries with Price Waterhouse Coopers, who were appointed as Escrow Agent, till completion of the transaction. In terms of the Escrow Agreement, accused No.5 was to deposit a sum of Rs.1.2 crore with the Escrow Agent to be held by them. In terms of the said sale agreement, initially, the 6 CRA-441-08.sxw
amount was to be paid by cheque which was to be replaced by Pay Order within 7 working days from the date of execution of the agreement. On conversion of the consideration into Indian Currency, excluding the share of Tapan Garg and Madhuri Garg, the sellers were to receive an amount of Rs.58,3775 crore from accused No.5 as consideration of the transfer of their shares in the said three subsidiary companies. In a Board Meeting of the Company held on 19.5.2005, it was resolved to authorise accused No.4 to deposit share certificates of the subsidiaries of the Company with signed transfer deeds in favour of accused No.5 with the escrow agent.
4. There is no dispute about the aforesaid facts. It is the contention of the complainant that accused No.5 never deposited the original pay order of Rs. 1.2 crore with the escrow agent nor had delivered the redeemable preference shares of accused No.5 in favour of the complainant.
5. It is the contention of the complainant that on 28.6.2005, the accused No.4 sent an E-mail to Price Waterhouse Coopers i.e. Escrow Agent requesting them to make the complainant agree for securing some loan and opening an account with respondent No.1 Bank, Port Louis Branch at Mauritius. A copy of the resolution for the complainant's signature was annexed with the said E-mail. 7 CRA-441-08.sxw
The proposed resolution contained an authority in favour of accused No.4 to open the account with accused No.1 and to apply for some loan. As the complainant suspected some foul play, he refused to give his consent. Therefore, Mr. Puneet Kinra of Price Waterhouse Coopers sent an E-mail dated 29.6.2005 to hold the process of completion of transaction with accused No.1. Later on, the complainant came to know that the accused No.5 was claiming that they had paid the entire consideration for purchase of the shares of all the three subsidiaries of the Company and was claiming ownership over the same. According to the complainant, the accused No.5 had not made any payment nor had transferred the redeemable preference shares to the sellers as per the agreement. On further enquiry, it was revealed that on 28.6.2005 itself, accused No.4 had submitted a proposal to accused No.1 Bank for opening an account and for advancing of loan to the Company. The Bank approved the proposal and agreed to advance the loan subject to condition that the Board Resolution of the Company to that effect and the authority in favour of accused No.4 be produced. As stated above, according to the complainant, he had not given his consent nor he had signed the above referred resolution sent by accused No.4 for his signature through the Escrow Agent. Not only this, he had conveyed his disagreement by sending E-mail through the Escrow Agent to hold the proceedings of the transaction. Inspite of this, on 28.6.2005 itself, the accused 8 CRA-441-08.sxw
Nos. 2 and 3, the officers of the accused No.1 Bank sanctioned the loan immediately on the same day and immediately the said amount was initially credited in the newly opened account of the Company with accused No.1 Bank, Post Louis Branch at Mauritius. n the same day i.e. 28.6.2005, an amount of US$ 13,395,519.13 was transmitted from the said account of the Company to the account of accused No.5 with State Bank of Mauritius, Chennai Branch. Then on the same day, the said amount was re-transferred from the account of accused No. 5 with the Chennai Branch of State Bank of Mauritius to the account of the Company with State Bank of Mauritius, Port Louis, Mauritius and on 30.6.2005 again whole of that amount was transferred to State Bank of Mauritius and thus the loan taken by opening the new account in the name of the Company on 28.6.2005 was shown to have been repaid. According to the complainant, the above transactions, beginning with opening of the account in the name of the Company with Bank of Mauritius at Port Louis till the said amount of the loan was repaid, were a part of great conspiracy hatched and executed by accused Nos. 1 to 7. This was to defraud the complainant and other shareholders of the said subsidiaries of the Company. It is contended that for this purpose, accused No.4 Pawan Kumar had had entered into conspiracy with accused Nos. 1 to 3 and accused Nos. 5 to 7 and had created the forged and fabricated documents to show that he was authorised to open the account to obtain the loan and to 9 CRA-441-08.sxw
transmit that amount to the account of accused No.5 Company.
6. The learned Counsel for the complainant contended that even though as per the agreement, the accused No.5 was to deliver the redeemable preference shares of the accused No.5 Company to the sellers. Those shares were never delivered or transferred to the complainant and other owners of the said Company. The learned Counsel contended that there was no valid reason to obtain the loan from the accused No.1 in the name of the said company nor there was any reason for the Company to transfer that amount to the account of accused No.5 at Chennai because the complainant or its company was not to make any payment to the accused No.5 in the said transaction. The complainant's Company was the seller and he had to receive consideration of the sale of the said subsidiaries from accused No.5. As the accused No.5 was not in a position to make payment in cash immediately, it was agreed that they would hand over the redeemable preference shares, which would be eventually redeemed after 18 months and thus the price would be paid to the complainant and other vendors of the Company in cash. The learned Counsel for the accused persons inspite of his best attempts could not give any convincing reply as to why and in what circumstances the complainant Company was required to obtain the loan to make payment to the accused No.5 when in fact the payment was to be made by the accused No.5 Company to the 10 CRA-441-08.sxw
company of the complainant and not otherwise. The complainant and the Company had not purchased anything from the accused No.5 and, therefore, they were not required to make any payment to the accused No.5. One can understand if the accused No.5 would have opened an account and had obtained certain loan in his own account and then that amount was transferred to the account of the Company of the complainant and then that amount was taken back against delivery of redeemable preference shares. However, in the present case, it appears that not only the accused Nos. 5 to 7 secured original shares of the three subsidiaries of Vmoksha Technologies it secured loan from accused No.1 Bank in the name of the seller company and then got transfered that money in the account of accused No.5 and the same was therefore rechanneled to the account of Vmoksha Technologies and back to the Bank immediately. By this, an attempt was made to show that accused No.5 had made payment of the consideration amount by transferring that amount from its account at Chennai Branch of Bank of Mauritius to the account of Vmoksha Technologies opened with Bank of Mauritius, Port Louis while in fact not even a rupee was actually paid by accused No.5 to Vmoksha. This, prima facie, shows a fraudulent transaction.
7. Whole of this fraudulent transaction was completed within a short span of two days. The proposal was moved on 28.6.2005. On the same day, the 11 CRA-441-08.sxw
proposal was accepted by the Company with certain conditions of producing the resolution of the Company. On that day itself accused No.4 sent the copy of the resolution by E-mail to the Escrow Agents i.e. Price Waterhouse Coopers with a request to obtain signature of the complainant. Record reveals that the complainant did not sign it and through Escrow Agents asked the bank to hold the process of loan transaction. Inspite of the fact that the resolution duly signed by the shareholders, and particularly the complainant, was not submitted to the Bank, the loan was sanctioned and on the same day, amount of US$ 13.5 million was credited in the newly opened account of Vmoksha Technologies. The shocking fact is that not only the loan was sanctioned and the amount was credited to the newly opened account in the name of Vmoksha Technologie on 28.6.2005, on the same day, the amount of US $ 13,395,519.13 was first transferred to the account of accused No.5 with Chennai Branch and then that amount was shown to have been transferred from the account of accused No.5 from Chennai Branch to the newly opened account of Vmoksha Technologies and within two days after that the amount was paid back to the Bank of Mauritius. From these facts, prima facie conclusion can be drawn that whole of this transaction was the result of a great conspiracy and fraud in which accused Nos. 4, 5, 6 ad 7 had actually participated.
12 CRA-441-08.sxw
8. The learned counsel for the accused Nos. 1 and 2 vehemently contended that accused Nos. 2 and 3 were stationed in India during the relevant period. The account of Vmoksha Technologies was opened, loan was sanctioned and credited to that account at Port Loius Branch of State Bank of Mauritius. The transaction had taken place at Mauritius and, therefore, the accused Nos. 2 and 3 had no role and they cannot be held responsible. However, the learned Senior Counsel for the complainant pointed out that the letter dated 28.6.2005 from State Bank of Mauritius addressed to the Director of Vmoksha Technologies Ltd. was signed by the accused Nos. 2 and 3. By that letter, they had accepted the proposal for opening of the account and advancing of the loan subject to the condition that Vmoksha was to indicate acceptance of the conditions and returned the said agreement with copy of the shareholders' resolution confirming the terms and conditions. As noted above, neither such a resolution was passed by the shareholders of the Company nor any such resolution was submitted to the Bank. What was submitted was a draft resolution prepared by accused No.4 and sent by him alone. He had sent that resolution by E-mail to the complainant who had refused to sign. Thus, accused Nos. 1 to 3 did not get the said resolution and any document about the acceptance of the terms and conditions of the loan. According to the complainant, the loan agreement wassigned by accused Nos. 2 and 3 on 13 CRA-441-08.sxw
behalf of the Bank and by accused No.4. It indicated the participation of accused Nos. 2 and 3 in the whole fraudulent transaction. I hasten to add that at the time of trial, the accused Nos. 2 and 3 will have an opportunity to show that they were not parties to the loan agreement and actual transfer of the amount from the account of Vmoksha Technologies and back. The case is a warrant trial case and therefore the complainant will be required to lead evidence before framing of charge. At that time, the accused persons will have right to cross-examine the witnesses and will get an opportunity to point out that the evidence does not make out a case for framing of charge against them. At that stage, accused persons and particularly accused Nos. 2 and 3 may press for discharge, but at this stage, prima facie case is made out against them also.
9. Taking into consideration the facts and circumstances noted above, it must be held that prima facie case was made out to issue process against accused persons, which the trial Court did. The order of the trial Court was set aside by the learned Addl. Sessions Judge by the impugned order mainly on three grounds. Firstly, there was suppression of fact that the complainant had earlier filed a complaint on the basis of same facts before the Magistrate at Bangalore. Secondly, the mandatory provision of inquiry under Sec. 202 of Cr.P.C. was not complied with as some of the accused persons were not residing within the 14 CRA-441-08.sxw
territorial jurisdiction of the learned Metropolitan Magistrate and thirdly, the alleged act of 28.6.2005 was ratified by the complainant in the meeting held on 19.7.2005.
10. It is an admitted fact that before complaint was filed by the complainant against the accused Nos. 1 to 7 in the Court of Chief Metropolitan Magistrate, 47th Court, Mumbai, the complaint was also filed before the Magistrate at Bangalore against accused Nos. 4 to 7. When the Metropolitan Magistrate, Mumbai issued the process, the complaint was pending before the Magistrate at Bangalore. It is also an admitted fact that the learned Magistrate at Bangalore had directed the investigation under Section 156(3) of Cr.P.C. That order was challenged by the accused persons before the Karnataka High Court and before the Karnataka High Court also the accused persons had contended that on the same facts and circumstances, the complainant had filed complaint in Mumbai and when that complaint was pending, the complaint before the Magistrate at Bangalore was liable to be quashed. The Karnataka High Court accepted that argument and quashed the said complaint mainly on the ground that a comprehensive complaint against seven accused persons, including accused Nos. 1 to 3 and 4 to 7 was already filed and was pending before the Magistrate at Mumbai. The Karnataka High Court passed the order dated 23.7.2007 and as a 15 CRA-441-08.sxw
result of that order, the complaint filed before the Magistrate at Bangalore was quashed and it was no more in existence. The impugned order was passed by the Additional Sessions Judge on 13.8.2008. On that day, no complaint was pending before the Magistrate at Bangalore. Therefore, one of the ground given by the learned Addl. Sessions Judge for allowing the revision application that a similar complaint was filed before and was pending before the Magistrate at Bangalore and this fact was suppressed was in fact not available. It is a fact that initially when this complaint was filed before the Addl. C.M.M. Mumbai, the complaint was pending before the Magistrate at Bangalore, but the learned Addl. Sessions Judge, Mumbai, could not ignore the fact that said complaint before the Magistrate at Bangalore was already quashed and was no more in existence. On 13.8.2008 when the learned Addl. Sessions Judge passed the order, there was no complaint except the one filed before the Addl. C.M.M. Mumbai. The learned Senior Counsel for the accused persons contended that when certain facts are suppressed for getting some relief, on that ground itself the relief can be refused. Mr. Menon, the learned Senior Counsel for accused Nos. 5, 6 and 7, placed reliance upon Welcom Hotel and Ors. vs. State of Andhra Pradesh & Ors. (1983) 4 SCC 575, S.P. Chengal Varaya Naidu vs. Jagannath &Ors. (1994) 1 SCC 1, Motor Incorporated vs. Union of India and Ors. 2004 Cri.L.J.1576 and Bomanji Kavasji Boman Behram and Ors. vs. Mehernosh Minochar 16 CRA-441-08.sxw
Mehta & Ors. 1980 Bom.C.R.503. In all these matters, the Supreme Court and the Bombay High Court had taken a view that if a party has suppressed material facts while obtaining or attempting to obtain some reliefs from the Court, the Court would be justified in refusing that relief on the ground that there was suppression of material facts. There can be no dispute about this legal proposition. However, the facts of the present case, as noted above, make it clear that when the learned Addl. Sessions Judge passed the order, there was no second criminal complaint pending before the Magistrate at Bangalore.
11. It was also contended by the learned Counsel for the accused persons that when one complaint has been dismissed, the complainant cannot be allowed to prosecute the accused persons on the basis of same facts and circumstances by filing second complaint and in support of this reliance was placed upon Poonam Chand Jain and Anr. vs. FAZRU (2010) 2 SCC 631. In fact, in that case, first complaint was dismissed on merits and the question was before the Supreme Court whether second complaint on identical facts would be maintainable, particularly when the first complaint was dismissed on merits and that dismissal had attained finality. The Supreme court observed thus in paras 15, 16 and 20 :- "15. Almost similar questions came up for consideration 17 CRA-441-08.sxw
before this Court in Pramatha Nath Talukdar v. Saroj Ranjan Sarkar. The majority judgment in Pramatha Nath was delivered by Kapur, J. His Lordship held that an order of dismissal under Section 203 of the Criminal Procedure Code (for short "the Code") is, however, no bar to the entertainment of a second complaint on the same facts but it can be entertained only in exceptional circumstances. This Court explained the exceptional circumstances as :
(a) where the previous order was passed on incomplete record, or
(b) on a misunderstanding of the nature of the complaint, or (c) the order which was passed was manifestly absurd, unjust or foolish, or
(d) where new facts which could not, with reasonable diligence, have been brought on the record in the previous proceedings
16. This Court in Pramatha Nath made it very clear that interest of justice cannot permit that after a decision has been given on a complaint upon full consideration of the case, the complainant should be given another opportunity to have the complaint enquired into again. In para 50 of the judgment the majority judgment of this Court opined that fresh evidence or fresh facts must be such which could not with reasonable diligence have been brought on record. This Court very clearly held that it cannot be settled law which permits the complainant 18 CRA-441-08.sxw
to place some evidence before the Magistrate which are in his possession and then if the complaint is dismissed adduce some more evidence. According to this Court, such a course is not permitted on a correct view of the law. (para 50, p.899).
20. Following the aforesaid principles which are more or less settled and are holding the field since 1962 and have been repeatedly followed by this Court, we are of the view that the second complaint in this case was on almost identical facts which was raised in the first complaint and which was dismissed on merits. So the second complaint is not maintainable. This Court finds that the core of both the complaints is the same. Nothing has been disclosed in the second complaint which is substantially new and not disclosed in first complaint. No case is made out that even after the exercise of due diligence the facts alleged in the second complaint were not within the knowledge of the first
complainant. In fact, such a case could not be made out since the facts in both the complaints are almost identical. Therefore, the second complaint is not covered within exceptional circumstances explained in Pramatha Nath. In that view of the matter the second complainant in the facts of this case, cannot be entertained."
In the present case, first complaint was not dismissed on merits. The first complaint was quashed by the Karnataka High Court on the ground that 19 CRA-441-08.sxw
complainant had filed another complaint on identical facts at Mumbai against 7 accused persons. The complaint filed before the Magistrate at Bangalore was not decided on merits nor the Court had dismissed the same on merits. Therefore, this authority is not attracted to the facts and circumstances of the case and on this ground the complaint filed before the Addl. C.M.M. Mumbai could not be dismissed. Even though complainant had filed two complaints, one of them was already quashed by the Karnatak High Court at Bangalore, the second complaint pending before the Addl. C.M.M. Mumbai could not have been dismissed on the same ground. If it would also be quashed, it would amount to denial of justice to the complainant and providing protection and immunity to the accused persons who had committed serious offences of fraud, cheating, forgery, conspiracy, etc.
12. The second contention is about non-following the mandatory provisions of Section 202(1) of Cr.P.C. Out of seven accused persons, accused Nos. 1 and 2 were situated at Mumbai, accused No.3 was at Chennai, accused No. 4 was at Bangalore and accused Nos. 5, 6 and 7 were also at Chennai. Therefore, it is clear that accused Nos. 3 to 7 were not residing or situated within the territorial jurisdiction of the Addl. C.M.M. Mumbai. After the amendment, with effect from 23.6.2006, in Sec. 202(1) of Cr.P.C. it has been made mandatory that any Magistrate, on receipt of a complaint of an offence against an accused residing at 20 CRA-441-08.sxw
a place beyond the area in which he exercises his jurisdiction, he shall postpone the issue of process against the accused and shall either inquire into the case himself or direct an investigation to be made by a police officer or by such other person as he deems fit, before issuing the process. There is no dispute that in Criminal Application No.2640 of 2009 (Capt. S.C.Mathur & Anr. vs. M/s. Elektronik Lab & Ors) and companion matters, one of which was between the parties before this Court, a learned Single Judge of this Court was required to consider whether the above provision of Sec. 202 is mandatory or not and after hearing the parties, the learned Judge held that the amendment made in Sec. 202(1) of Cr.P.C. insofar as postponement of issuance of process against the accused, who are not residing in the area in which the concerned Magistrate exercises his jurisdiction, is mandatory. This proposition of law is not in dispute in the present case.
13. The learned Counsel for the accused persons contended that this mandatory provision was not followed as no such enquiry was made by the learned Addl. C.M.M. before issuing process. On the other hand, the learned Senior Counsel for the complainant pointed out from the proceedings of the trial Court that the said provision was in fact followed . The record reveals that the complaint was field on 22.11.2006 and on that day, the matter was adjourned to 21 CRA-441-08.sxw
11.12.2006 for hearing on the point of taking cognizance on 11.12.2006, the matter was adjourned to 19.12.2006. On 19.12.2006 after hearing, the learned Addl. C.M.M. came to conclusion that offence was made out and therefore he took cognizance and posted it to 5.1.2007 for recording verification statement of the complainant. On 5.1.2007, verification statement was recorded. Thereafter, the matter was adjourned to 11.1.2007 and then to 18.1.2007 and finally on 18.1.2007, the learned Addl. C.M.M. passed the order to issue process. In that order, he gave detailed reasons which show that he had not only gone through the complaint, verification statement, but also other documents on which the complainant was relying. From this, it is clear that after taking cognizance of the complaint on 19.12.2006, the learned Addl. C.M.M. had adjourned the matter and for recording evidence after verification statement again, he had adjourned for hearing as to whether process should or should not be issued. It means, he had in fact postponed issuance of process after taking cognizance of the matter. What has been held in Capt. S.C.Mathur (supra) is that postponement of issuance of process is mandatory when the accused is not residing within the territorial jurisdiction of the Magistrate taking cognizance of the matter, till some enquiry is held either by the Magistrate himself or through police or some other person, Sec. 202 does not prescribe what enquiry should be held by the Magistrate after having taken cognizance. If the Magistrate hears the Counsel for the parties and 22 CRA-441-08.sxw
peruses the relevant documents is satisfied that prima facie case is made out for issuance of process, it amounts to making necessary enquiry under Sec. 202 before issuance of process. In my opinion, taking into consideration the facts and circumstances, it must be held that the learned Addl. C.M.M. had in fact complied with the mandatory provision of Sec. 202 and had postponed the issuance of process till he made appropriate enquiry in the given circumstances and then he came to conclusion that the issuance of process was necessary, for which he passed a reasoned order. The learned Addl. Sessions Judge committed a serious error in holding that the learned Magistrate had not complied with the mandatory provisions of Sec. 202.
14. The third ground on which the learned Addl. Sessions Judge had allowed the revision of the accused persons and quashed the process was that the acts in dispute were ratified in the meeting dated 19.7.2001. It appears that during the arguments before the Addl. Sessions Judge, a photocopy of a document purporting to be minutes of the meeting of the advisers of the complainant and accused No.4 Pawan Kumar held on 19.7.2005 was produced to show that the parties had approved the act of opening the account in the name of the Company and securing the loan on 28.6.2005. Firstly, this document was produced for the first time before the Addl. Sessions Judge in the revision application. This 23 CRA-441-08.sxw
document could be treated as a defence of the accused persons. That document was not available before the Addl. C.M.M. when he passed the order. Secondly, this document being the defence could not be taken into consideration for the purpose of deciding whether prima facie case is made out for issuing process. The learned Addl. Sessions Judge observed that signature on the document was not disputed. In fact, the stage of proving that document or admitting signature on that document had never arisen. The original document was not before the Court and only a photocopy of the document purporting to be minutes of the meeting was filed and on the basis of such photocopy produced during the revision application by the accused persons, the learned Addl. Sessions Judge jumped to the conclusion that such a resolution was passed and the acts of 28.6.2005 were ratified. In my opinion, it will not be appropriate for the Addl. Sessions Judge.
15. In Suryalakshmi Cotton Mills Limted vs. Rajvir Industries Limited & Ors. (2008) 13 SCC 678, the Supreme Court observed thus in para 22 :-
"22. Ordinarily, a defence of an accused
although appears to be plausible should not be taken into consideration for exercise of the said jurisdiction. Yet again, the High Court at that stage would not ordinarily enter into a 24 CRA-441-08.sxw
disputed question of fact. It, however, does not mean that documents of unimpeachable character should not be taken into consideration at any cost for the purpose of finding out as to whether continuance of the criminal proceedings would amount to an abuse of process of court or that the complaint petition is filed for causing mere harassment to the accused. While we are not oblivious of the fact that although a large number of disputes should ordinarily be determined only by the civil courts, but criminal cases are filed only for achieving the ultimate goal, namely, to force the accused to pay the amount due to the complainant immediately. The courts on the one hand should not encourage such a practice; but, on the other, cannot also travel beyond its jurisdiction to interfere with the proceeding which is otherwise genuine. The courts cannot also lose sight of the fact that in certain matters, both civil proceedings and criminal proceedings would be maintainable." In the present case, it cannot be said that the photocopy of the document purporting to be minutes of the meeting dated 19.7.2005 was a document of unimpeachable character. It is material to note that title of the document shows that it was the minutes of the meeting of the advisers of the complainant Rajeev Sawhney and accused No.4 Pawan Kumar. If it was so the document would have been signed by such advisers, but according to the accused persons, the said document was in fact signed by the complainant himself. If it is so this fact may 25 CRA-441-08.sxw
be proved by the accused as and when the parties are put to trial. Thus, the defence of the accused is based on that document. Therefore, it could not have been taken into consideration while quashing the order about issuance of process.
16. In view of the facts and circumstances noted above, all the three reasons given by the Additional Sessions Judge to quash the order passed by the Addl. C.M.M. had no basis. It is interesting to note that after having stated the facts of the case, in para 31 of the impugned order, the learned Addl. sessions Judge himself had observed "if this incident averred in the complaint is taken as it is without any more facts then certainly leads a prima facie case of playing fraud." It shows that the Addl. Sessions Judge, on the basis of the facts disclosed in the complaint, had also come to conclusion that prima facie case was made out. Having come to such a conclusion, the Addl. Sessions Judge embarked upon consideration of other grounds and quashed the order, which was well-reasoned and based on the facts disclosed in the complaint. Therefore, in my opinion, it is a fit case where this Court should, under its inherent power under Sec.482, interfere and quash the order passed by the Addl. sessions Judge.
17. For the aforesaid reasons, the Revision Application is allowed. The impugned order passed by the learned Addl. Sessions Judge, Greater Bombay, is 26 CRA-441-08.sxw
hereby set aside and the order passed by the Addl. C.M.M. 47th Court, Mumbai, issuing process against the accused persons is hereby restored.
18. Parties shall appear before the Addl. C.M.M. Mumbai, on 4.7.2011. It is made clear that the Court below while deciding the matter at the stage of framing charge or at the time of final judgment after trial, shall not be influenced by any observations made in this order as those observations are prima facie and are made for deciding this Revision Application only. (J.H.BHATIA,J.)



aman

6 years ago

what is the scheme of money plan

State FMs to look for new chief to steer GST

In the assembly elections Asim Dasgupta, who has been heading the Empowered Group of state finance ministers on GST since its inception, lost to TMC candidate and Ficci secretary general Amit Mitra by a margin of over 26,000 votes

New Delhi: With the Left losing power in West Bengal, the Empowered Group of state finance ministers, which is currently engaged in building a consensus on the Goods and Services Tax (GST), will have to find a replacement for Asim Dasgupta who has been heading the body since its inception, reports PTI.

As West Bengal finance minister, Mr Dasgupta was involved with the Empowered Group for more than a decade. Earlier, he was the convenor of the VAT panel and played a key role in implementing the new tax regime.

As chairman of the Empowered Group, Mr Dasgupta was engaged in preparing a blue print for implementation of the GST along with other state finance ministers.

In the assembly elections, Mr Dasgupta lost to TMC candidate and Ficci secretary general Amit Mitra by a margin of over 26,000 votes.

The view that seems to be emerging is that the new chairman of the Empowered Group should be somebody who has experience of serving in the body.

"As a chairman of the group, we would prefer somebody more experienced in handling intricacies of party politics," said one of the members of the body.

This stance goes against the view in some quarters that Mr Mitra is a favourite to replace Mr Dasgupta.

"Mr Mitra, if he is allocated the finance portfolio, would have his hands full with affairs back in West Bengal. He should be focusing on that," the member said.

The new chairman will have a tough task of bringing a consensus among states and the central government on the GST.

"At this moment it is premature to speculate about who the chairman of the Empowered Group would be. Not only West Bengal, but two other very important states-Tamil Nadu and Kerala-have witnessed change in governments and would be having new faces as finance ministers," Madhya Pradesh finance minister Mr Raghavji said.

He said any decision in this regard has to be unanimous.

"A decision would be reached only on the basis of consensus among state governments, besides taking on board the view of the central government. This will also mean consensus between the Congress and the BJP, who are two major political parties in India," Mr Raghavji said.

"Mr Dasgupta worked very hard during his tenure as chairman of the Empowered Group. Whoever becomes the new chairman will have a big task before him, especially in taking ahead the matter of GST" he added.

In the Budget Session last year, the government had introduced the Constitution Amendment Bill in the Lok Sabha which seeks to pave the way for the Goods and Services Tax.

The new GST regime would subsume most of the indirect taxes like excise duty and service tax at the central level and VAT on the state front, besides local levies.

The implementation of GST, which is considered to be a major tax reform, has been stuck for the past few years due to differences between the Centre and some states over the new structure.

The Bill was the fourth draft prepared by the Centre after the first three drafts were rejected by the states, citing autonomy issues.

However, a few states, mainly those ruled by the BJP, continue to oppose the existing GST structure.

After missing the original April 2010 deadline for GST rollout, the government had proposed to introduce it in April 2011.

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