Suman Motels, directors acquitted in multi-crore investment scam

MUMBAI: A Special Court on Wednesday Suman Motels Ltd and its directors for their involvement in a multi-crore investment scam. Suman Motels and its executives were prohibited from accessing the capital market by the Securities and Exchange Board of India (SEBI) in October 2002 for five years due to the company’s noncompliance with an order issued in July, which required it to return funds collected under collective investment schemes to investors within a month.
The National Stock Depository Ltd (NSDL) informed SEBI on July 19, 2002, that 184 requests for dematerialization were pending for more than 60 days. After which the market regulator on August 8, 2002, issued directions to the company and its directors, Mukhtar Hussain, Surendra M Khandhar and Praful M Khandhar, to process all requests for dematerialization as per the procedure prescribed in the applicable byelaws and business rules of NSDL within 15 days.
The order was issued under Section 19 of the Depositories Act, 1996, which confers power on the Board to give directions in certain cases. It was alleged that despite the directions, the company failed to process the pending requests and thereby committed violations of the tripartite agreement and directions issued by SEBI, which is punishable under Section 20 of the Depositories Act, 1996. Therefore, the prosecution was initiated.
Advocate NK Dayanand, representing Suman Motels Ltd, submitted that the company was not responsible for the failure of dematerialization of the shares. Rather, the Register and Shares Transfer agent was to process the dematerialization of shares on behalf of the company within the stipulated period but the RTA under the pretext of outstanding dues failed to do so.
He further stated that SEBI had already filed a case in 2014 for the failure of the company to demat their shares, where the company and the director Surendra Khandar were convicted. So, the present proceeding was barred by the principle of double jeopardy.
However, special prosecutor Kushal Mor, representing SEBI, pointed out that the directors of the company, despite knowing that the dematerialization of the shares was not done within the stipulated period, failed to do so even before filing the present prosecution.
SEBI special judge RM Jadhav, however, accepted the defence of the company and its directors and acquitted them, stating that SEBI had failed to establish and prove that the accused had failed to comply with its direction under Section 19 of the Depositories Act and thus committed an offence under the Act.
“The accused proved their defence that they are not responsible for processing the request of dematerialisation of shares and it was the result of non-cooperation on the part of Registrar and Transfer Agent. Consequently, the accused deserves to be acquitted from the charge levelled against them,” the court added.