sebi:Order/KS/AA/2020-21/8142-8143

SEBI · SEBI · 2019-06-07 · K Saravanan, Chief General Manager & Adjudicating Officer

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Allegations not established; no penalty levied, proceedings disposed

Provisions invoked

• s. 15
• s. 19
• s. 12A
• s. 15H
• s. 133A

Regulations

• Reg. 3
• Reg. 4(1)
• Reg. 3(b)

Parties

• Mangalam Drugs and Organics Limited
• Shri Govardhan M Dhoot

Holding

The Adjudicating Officer held that it could not be established from available records that the sales and purchases of Mangalam Drugs and Organics Limited with Morarka Group entities for FY 2007-08 to FY 2009-10 were bogus, and therefore no violation of Section 12A of SEBI Act and Regulations 3 and 4 of PFUTP Regulations was made out and no penalty under Section 15HA could be levied on the Company and its Chairman & Managing Director.

Full text

Page 2 of 41 Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as ‘PFUTP Regulations’). Noticee 1 and Noticee 2 are hereinafter collectively referred to as ‘Noticees’. APPOINTMENT OF ADJUDICATING OFFICER

Page 3 of 41 referred to as ‘the Exchanges’). The Registered office of the company is situated at Mumbai. The company has two manufacturing facilities at Vapi, Gujarat. The company is engaged in manufacturing and trading of chemicals such as Active Pharmaceutical Ingredients (API). 3) SEBI received a reference from Regional Economic Intelligence Council (REIC) informing about Income Tax / Sales Tax proceedings against the Company. It is observed from the reference that the Sales Tax Department had informed Income Tax Department that in his statement, one Shri Abhishek S. Morarka (hereinafter referred to as ‘Morarka’), recorded on January 06, 2010, had admitted to issuing bills without actual delivery of materials to Mangalam. It is noted that Morarka was the director of four entities - Utkantha Trading Private Limited (Utkantha), Siddhpad Trading Private Limited (Siddhpad), Realstone Export Private Limited (Realstone) and Dura Barrel Packaging Private Limited (DB Packaging) (hereinafter referred to as ‘Morarka Group’), all of which allegedly issued fake bills to Mangalam. 4) As per information provided by Sales Tax Department, Mangalam was involved in debiting bogus expenditure by procuring bogus bills from different parties. On getting reference from Sales Tax Department, the Investigation wing of the Income Tax Department conducted a survey on the company premises on August 27, 2013. The survey report dated March 26, 2014 of the Income Tax Department mentioned/alleged that

Page 4 of 41 the financial years (FY) 2007-08 to FY2009-10 (hereinafter referred to as ‘Investigation Period/ IP’). It is observed that Noticee 2 was the Managing Director of the Company during the IP. 6) It is observed from the disclosures made by the Company to the exchanges, that the financial performance of the company for the FYs 2006-07 to 2009-10, was as follows: Table 1: Profit and loss account Rs. (Figures in crores) Particulars FY 2009-10 FY 2008-09 FY 2007-08 FY 2006-07 Sales And Other Sales Income 112.76 102.77 95.45 89.05 Increase /(Decrease) In Stocks 7.42 -0.37 2.64 -0.31 Expenditure 109.28 93.19 91.49 83.07 Cost Of Material Consumed 88.36 72.28 73.87 59.44 Other Expenditure 20.92 20.91 17.62 23.63 Profit Before Interest & Depreciation 10.9 9.21 6.6 5.67 Interest 5.72 5.13 3.28 2.83 Depreciation 2.97 2.58 2.3 2.06 Profit Before Tax 2.2 1.5 1.02 0.79 Profit After Tax 1.82 1.27 0.86 0.66

Source: SecMarx — sebi:Order/KS/AA/2020-21/8142-8143. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.