Amount Used via Fictitious Accounts to Block IPO Shares Reserved for Retail Applicants to Be Treated as Proceeds of Crime

Case Details: Dushyant Natwarlal Dalal v. Deputy Director Directorate of Enforcement - [2024] 168 taxmann.com 30 (SAFEMA-New Delhi)

Judiciary and Counsel Details

• Munishwar Nath Bhandari, Chairman & Balesh Kumar, Member
• Neeraj Malhotra, Nimish Kumar, Ravichandra Hegde, Parinaz Bharucha & Ms Amrita Panda, Advs. for the Appellant.
• Ms Anubha Bhardwaj, Adv. for the Respondent.

Facts of the Case

In the instant case, consequent to preliminary scrutiny, based on forged documents, SEBI found that the large number of Bank and Demat Accounts were opened by Key Operators in fictitious names, using identity of Bank and Demat Accounts.

Those Key Operators had cornered IPO shares reserved for retail applicants by making application in retail category through medium of thousands of fictitious / benami IPO applicants with each of application being for small value so as to be eligible for allotment under retail category.

Subsequent to receipt of IPO allotment these fictitious / benami allottees had transferred shares to their principals who in turn transferred shares to financiers including appellant that had originally made available funds for executing game-plan.

Further, financiers in turn sold most of these shares on first day of listing thereby realizing windfall gain of price difference between IPO price and listing price. Also, the respondent had taken note of unlawful gain out of sale of shares which could be termed to be `proceeds of crime’.

Thereafter, respondent attached bank and Demat accounts found involved in case. It was a case of appellant that proceeds of crime’ could have been difference of amount, i.e. sale proceeds of shares allotted to appellant minus original amount injected for seeking allotment.

However, in instant case, even money refunded to unsuccessful applicants had been considered to be `proceeds of crime’ though amount was procured on loan from Bank or financed by Financiers.

In fact, amount landed to appellants was not tainted money so as to consider it to be `proceeds of crime’. It was noted that finance was made for illegal purpose. Thus, entire amount involved therein would be considered to be `proceeds of crime’.

It could not be considered to be `proceeds of crime’ only to extent of successful applications leaving refund amount pursuant to unsuccessful applications. Entire amount was used in illegal manner with criminal intention of cheating at cost of genuine applicants who were deprived to get allotment of shares because of fraudulent act of appellant and others.

APPELLATE TRIBUNAL SAFEMA Held

Thus, the Appellate Tribunal SAFEMA held that the entire amount used for fraudulent acts had rightly been considered to be `proceeds of crime’.