Facts of the case:

• SEBI conducted an investigation into the trading in the scrip of Shrestha Finvest Ltd [‘Company’]. SEBI observed that Mrs. Renu Bhushan, (Noticee no.1), Mr Bharath Bhushan, (Noticee no. 2) and Mr Brij Bhushan, Noticee no. 3 [Noticees] had dealt in the shares of SRL.
• SEBI observed that there was an off-market transfer of 10,00,000 shares of SFL between Mrs Renu and Mr Bharat of 10,00,000 shares of SRL on March 29, 2017 and also there was transfer of 10,00,000 shares of SRL between Mr. Brij and Mr. Bharat Bhushan on February 22, 2018. Upon perusal of the Delivery Instruction Slip (DIS) slip in respect of the aforesaid off market transaction, it was observed that it contained a remark ‘collateral returned’.
• On further analysis, it was observed that Mr. Bharat Bhushan received 10,00,000 shares of the scrip of SFL from Mrs. Renu Bhushan (Connected entity to Mr. Brij Bhushan as both Brij Bhushan and Mrs. Renu Bhushan have same email id and phone number for placing orders) on March 29, 2017. Mrs Renu Bhushan further contented that she did not knew Mr Bharat Bhushan. She further stated that her husband Mr Brij Bhushan was discussing some business deal with Mr Bharat Bhushan and in support of that as a collateral security SRL shares were provided. Since the business deal did not fructify my husband have requested Mr Bharat Bhushan to return the collateral provided. She further stated that under a bonafide belief Mr Brij Bhushan inadvertently provided Mr Bharat Bhushan details of his own Demat account and the collateral was returned to his account on 22-02-18. Mr Brij Bhushan reiterated the submission of his wife Ms Renu Bhushan.
• Mr. Bharat Bhushan. In response, vide reply dated June 18, 2021, submitted “shares were returned to Brij Bhushan account which were earlier taken for collateral purpose for business. As business deal did not go thru these were returned. He further stated that there was no purchase or sale transaction w.r.t. the said shares of SFL as it was for collateral purpose, which is also mentioned on DIS. Shares transferred for collateral purpose and returned thereafter, cannot be alleged to be shares purchased and sold.
• SEBI alleged this as a change of ownership of the shares. In this regard SEBI observed that there was no fund settlement done by Mr. Bharat Bhushan with Mr. Brij Bhushan or Ms. Renu Bhushan for the aforementioned off market transactions.
• SEBI further sought details regarding off market transfer from depository participant CDSL. CDSL, in its response submitted to SEBI that no pledge was initiated by Mr. Bharat Bhushan or Mr. Brij Bhushan for the aforesaid off market transaction dated February 22, 2018.
• In view of the above, SEBI alleged that the aforementioned off market transaction cannot be treated as collateral. Further, it is alleged that while there was a change in the ownership of the shares of SFL in this context and as there was no fund transaction/settlement done, Mr. Brij Bhushan, Ms. Renu Bhushan and Mr. L Bharat Bhushan in this regard, violated the provisions of Section 2 (i) (a) read with Section 13, 16, 18 of the SCRA and SEBI notification dated October 03, 2013 issued under the sections 16 and 28 of the SCRA.

Question of law framed by SEBI:  Whether the Noticees entered into off market transactions without making payment of consideration/fund settlement during the investigation period and hence, violated the provisions of Section 2 (i) (a) read with Section 13, 16, 18 of the SCRA and SEBI notification dated October 03, 2013 issued under the Sections 16 and 28 of the SCRA?

Reply by SEBI:

• SEBI stated that the off-market transactions entered into by the Noticees, are governed by the provisions of SCRA i.e. Section 2 (i) (a) read with Section 13, 16, 18 of the SCRA and SEBI notification dated October 03, 2013 issued under the sections 16 and 28 of the SCRA which provide that whenever there is actual delivery of securities payment of price therefor shall be made either on same day or on next day. It also states that transfer of shares in a manner other than this will not be considered as ‘Spot Delivery Contract’.
• Referring to this provision SEBI stated that in respect of receipt of 10,00,000 shares from Mrs. Renu Bhushan on March 29, 2017, Mr. Bharath Bhushan was mandated to make payment to Mrs. Renu Bhushan either on the same day i.e. on March 29, 2017 or on the next day i.e. on March 30, 2017. SEBI further noted that in respect of receipt of 10,00,000 shares from Mr. Bharath Bhushan on February 22, 2018, Mr. Brij Bhushan was mandated to make payment to Mr. Brij Bhushan either on the same day i.e. on February 22, 2018 or on the next day i.e. on February 23, 2018. However, in both scenarios, the Noticees have not made payment of consideration/fund settlement with each other. This fact was accepted by the Noticees that no fund settlement took place for the said transactions
• SEBI perused submission of Noticees. SEBI highlighted that Mrs. Renu, Mr. Brij and Mr. Bharath have not provided any supporting document/valid business agreements to substantiate the submissions made by them as regards the ‘business proposal’ entered into by them. In the absence of any legitimate agreements for using the shares as ‘collateral’ for business purposes, the aforesaid submissions of the Noticee nos. 1 and 3 cannot be accepted.
• SEBI further highlighted that Delivery Instruction Slip (DIS) was obtained from the DP in respect of the off market transaction dated February 22, 2018 entered into by the Mr. Bharath Bhushan and Mr. Brij Bhushan. Upon perusal of the said DIS slip it was noted that the remarks column on DIS stated as ‘collateral returned’. SEBI noted that no pledge was initiated but that in the absence of valid business agreements the off market transactions of the Noticees cannot be considered as ‘collateral’ even though the term ‘collateral’ was mentioned on the DIS slip.
• Admittedly the Noticees also failed to make the payment of consideration in respect of the off market transactions entered into by them, within the stipulated time, the details of which were already discussed in the previous paragraphs.
• In this regard SEBI referred to various Hon ‘able Supreme Court cases viz. SEBI vs Opee Stock Link Ltd dt: July 11, 2016 whereby it held that, “We also note that the Securities Contracts (Regulation) Act, 1956 (SCRA) has been enacted to prevent undesirable transactions in securities by regulating the business of dealing therein, by providing for certain other matters connected therewith like regulating functioning of recognised stock exchanges and working of the members of such stock exchanges. The SCRA is a special law to regulate the sale and purchase of shares and securities and hence it prevails over the provisions of the Indian Contract Act, 1872 and Sale of Goods Act, 1930, insofar as the matters which are specifically dealt with by the SCRA. The contracts for sale and purchase of securities, as envisaged under the SCRA, can be entered into only in a prescribed manner in a notified area and that can only be effected through registered members of a recognised stock exchange (i.e. stock brokers) and the only exception to this is a Spot Delivery Contract…”.
• Accordingly, SEBI held that Section 2(i)(b) of the SCRA was introduced in the statute book with effect from September 20, 1995. It is clear from the aforestated definition of ‘Spot Delivery Contract’ that to enter into such a contract, the seller has to effect actual delivery of securities and the buyer has to pay the price therefor either on the same day or on the next day and further, the said transfer should be coupled with transfer of the Securities from one Beneficial Owner (BO) to another.

Penalty:

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