V. Hansprakash (Through Pairokar) vs State

S. No.,Name of mutual funds,ISIN,Units,,,

1.,"DSP-Black Rock Low

Duration Fund-Regula

Plan-Growth","INF740K018P2

r",12602182.698,,,

2.,"D S P Mutual Fund

Liquidity Fund Insti Pla

Growth Open End","INF740K01FK9

n",222116.276,,,

3.,"Kotak Mahindra Mutua

Fund Bond Short Term

Reg Growth",l1NF174K01ES7,3516935.686,,,

4.,"Reliance Mutual Fund

Liquid FD Grw P

Growth","INF204K01UN9

L",98375.733,,,

5.,"U T I Liquid Cash

PlanInstitutional Option

Growth","INF789FF01PH1

-",489790.286,,,

FS Securities Services Ltd. Sh.Awanish Kumar Mishra, Director of Allied Financial Services Pvt Ltd is alleged to have fraudulently transferred the",,,,,,

credentials of the complainant in the account opening form and fed wrong credentials on NSDL server to deprive the complainant from getting an,,,,,,

alert message for each transaction and that the accused Awanish Kumar Mishra further fraudulently transferred the mutual fund units of the,,,,,,

complainant worth Rs.344.07 crores by using delivery instruction slips bearing forged signatures of authorized signatories of the complainant,,,,,,

companies. As per the said status report, the said mutual fund units were further pledged to IL&FS Securities Services Ltd (ISSL) for getting margin",,,,,,

in derivative trading segments and ISSL and its officials namely V. Hansprakash i.e. the present applicant herein malafidely facilitated the accused,,,,,,

Awanish Kumar Mishra and AFSPL in using the said fraudulently transferred mutual fund units for margin.,,,,,,

As per the status report submitted by the State through the investigation conducted so far, the role alleged against the accused V. Hansprakash is",,,,,,

as under:-,,,,,,

“1. He was the Head of Business Department and Chief Business Strategy Officer of the IL & FS Securities Services Ltd.,,,,,,

He also suggested that intraday benefits be extended over and above available collaterals to some selected client, which resulted in",,,,,,

facilitation to the AFSPL.,,,,,,

As per Grant Thornton Forensic Audit report, Mr V. Hansprakash potentially changed the data which was sent to exchange as well as to",,,,,,

bank.,,,,,,

He also sent data to the exchange without reducing the collaterals value by the hair cut as defined by the exchange, which is potential",,,,,,

violation of the exchange rules. By these acts, he facilitated the AFSPL to commit crime.",,,,,,

Being Chief Business Strategy head and responsible person of the company, in connivance with AFSPL, he actively facilitated the AFSPL",,,,,,

to commit fraudulent transfer of the mutual fund units.â€​,,,,,,

Inter alia it was submitted through the said status report dated 11.06.2020 that during the course of investigation, the applicant joined investigation as",,,,,,

and when required and after completion of investigation, the charge sheet was filed before the trial court against accused Allied Financial Services Pvt",,,,,,

Ltd, its director Awanish Kumar Mishra for fraudulent transfer of mutual fund and IL&FS Security Services Ltd and against the present applicant",,,,,,

Chief Business Head V. Hansprakash for facilitating him in utilization of the said mutual fund worth Rs.344.07 Crores of the complainant from its,,,,,,

demat account for getting margin in derivative trading.,,,,,,

Through its reply dated 09.06.2020, the complainant has submitted that admittedly it only had a DMAT account and had no trading account and as",,,,,,

such there was no cause/occasion to transfer the mutual fund units of INR 344.07 Crores belonging to the complainant from its DMAT account to the,,,,,,

trading accounts of the accused and that the applicant arrayed as accused No.4 in collusion and conspiracy with the other accused violated the,,,,,,

securities laws and forged and fabricated DISs in order to criminally misappropriate the mutual funds units of INR 344.07 Crores belonging to the,,,,,,

complainant, and as a consequence thereof, the complainant being a public limited company cannot use its own money for meeting its day to day",,,,,,

operations including paying salaries to its employees.,,,,,,

The complainant has further alleged that the applicant and the co-accused has received a premium of INR 380 Crores fraudulently by using the,,,,,,

mutual fund units of INR 344.07 Crores of the Complainant as their own margin money and a wrongful gain of INR 380 crores has accrued to the,,,,,,

applicant/accused No.4 and other accused. Inter alia the complainant has submitted that on 04.12.2018 ISSL/Accused No.3 i.e. a part of IL&FS,,,,,,

Group, committed a fraud of INR 90,000 crores by forming 350 shell companies and thus, the Central Government sacked its entire board on the",,,,,,

ground of oppression and mismanagement of the company and as per the media report dated 28.02.2020, IL&FS Group is also facing investigation for",,,,,,

money laundering of over INR 6500 Crores.,,,,,,

Inter alia it has been submitted on behalf of the complainant whilst opposing the prayer made by the applicant seeking the grant of bail that if at,,,,,,

this crucial stage of investigation, the applicant is released, there is every likelihood that he will not allow to unearth the amount of INR 380 Crores",,,,,,

received as premium by fraudulently using the mutual fund units of INR 344.07 Crores of the Complainant as his own margin money and this aspect,,,,,,

still needs to be investigated and as such the State and SFIO are currently investigating into the matter. The complainant has submitted that the,,,,,,

DMAT accounts opened by the accused No.2 & 3 were opened only for the purpose of holding and redemption of mutual fund units belonging to the,,,,,,

complainant and could not have been used for trading and any other related purposes and that both the OCL and DCEL erstwhile subsidiaries of,,,,,,

Dalmia Cement Bharat Limited i.e. of the complainant had never opened any trading account nor given any power of attorney to the accused no.2 to,,,,,,

do the same on their behalf.,,,,,,

It was further submitted by the complainant adverting to critical findings in the charge sheet to the effect:-,,,,,,

“i. Awanish Kumar Mishra/Accused No.l in collusion and conspiracy with the Applicant/Accused No.4, malafidely and dishonestly, had",,,,,,

not only forged mobile number, email id and correspondence address mentioned in the account opening forms/KYCs of Erstwhile",,,,,,

Subsidiaries of Complainant but also uploaded fake mobile number, fake email id, and fake address supported by fake address proof of its",,,,,,

Erstwhile Subsidiaries on the portal/website of NSDL so that Erstwhile Subsidiaries of the Complainant could not get/receive any,,,,,,

transaction alert from NSDL.,,,,,,

ii. The Accused No.l, in collusion and in conspiracy with the Applicant/Accused No.4, had illegally, dishonestly and fraudulently transferred",,,,,,

the Securities from Demat Accounts of Erstwhile Subsidiaries of Complainant to their own account(s) and its related entities based on,,,,,,

forged Delivery Instruction Slips and further, fraudulently placed these Securities as collateral with ISSL/Accused No.3 (where the",,,,,,

Applicant/Aceused No.4 was working as Business Head) for meeting its own margin obligations in future and option contracts without,,,,,,

consent, knowledge or mandate of the Complainant, who neither issued any mandate for transfer of the Securities nor received any",,,,,,

consideration for such transfer thereof.,,,,,,

iii. Pursuant to taking above position in future and option contracts by fraudulently using the Securities of the Complainant as its own,,,,,,

margin money by Allied/Accused No.2 with ISSL/Accused No.3 (where Applicant/Accused No.4 was working as Business Head) , the",,,,,,

Accused Persons had received a sum of INR 380 Crores towards premium, and thus, Applicant/Accused No.4 along with other Accused",,,,,,

Persons gained a sum of INR 380 crores illegally and wrongfully by causing illegal and wrongful loss to the Complainant to the tune of INR,,,,,,

344.07 Crores.,,,,,,

iv. Allied/Accused No.2 used to send forged and fabricated Statement of Holdings from time to time in respect of Demat Accounts just to,,,,,,

make the Complainant believe that its Securities are intact in their Demat accounts.,,,,,,

v. Forensic Science Laboratory Report (""FSL Report"") filed along with the Charge Sheet, also confirmed that the signatures of authorized",,,,,,

signatories of the Complainant on all sixty-six (66) Delivery Instructions Slips are forged by Accused Persons which were used by Accused,,,,,,

Persons for fraudulent transfer of Securities from Demat Accounts of Erstwhile Subsidiaries of Complainant to their own account(s)/related,,,,,,

entities and further, fraudulently used the Securities of the Complainant as their own margin money and received a sum of INR 380 Crores",,,,,,

as premium and thus, Applicant/Accused No.4 along with other accused gained a sum of INR 380 crores illegally and wrongfully by causing",,,,,,

illegal and wrongful loss to the Complainant to the tune of INR 344.07 Crores.,,,,,,

vi. FSL Report further confirmed that the signature of authorized signatories of Erstwhile Subsidiaries of the Complainant on the account,,,,,,

opening forms/KYCs are also forged. This clearly shows that the intention of Accused Persons including the Applicant/Accused No.4, right",,,,,,

from beginning, was only to cheat and misappropriate the Securities of Complainant.",,,,,,

vii. Upon fraud being surfaced, the top management of ISSL/Accused No.3 had conducted its forensic audit through its own Forensic",,,,,,

Auditor, Grant Thornton, in respect of transaction between ISSL/Accused No.3 and Allied/Accused No.2. ISSL/Accused No.3, own Forensic",,,,,,

Auditor, Grant Thornton, has reported several irregularities indicating collusion and conspiracy between Applicant/Accused No.4 &",,,,,,

Allied/Accused No.2 through Accused No.1 and further, the above forensic audit report conducted on behalf of ISSL/Accused No.3",,,,,,

categorically pointed out several instances of collusion and conspiracy between the Applicant/Accused No.4 and Allied/Accused No.2 which,,,,,,

are stated as under:,,,,,,

b. Unusual Collateral movements between ISSL and Allied;,,,,,,

i. ISSL allowed Allied to withdraw collaterals amounting to INR 736 Crs on Saturday (non-working day), which were bought back on",,,,,,

Monday.,,,,,,

ii. ISSL allowed Allied to withdraw collateral amounting to INR 243 Crs and deposit back on the same day without any decrease in limit.,,,,,,

iii. ISSL allowed Allied to withdraw collaterals and deposit back INR 102 Crs in the same week.,,,,,,

c. Between Jul'18 to Dec'18- On 65 instances ISSL allowed intra-day benefit (extending limit without collaterals) totalling to INR 2418 Crs.,,,,,,

d. ISSL accepted illiquid collaterals from Allied which are not deployable as margin to the exchange and provided limit, based on the same.",,,,,,

e. ISSL increased limits of Allied unanimously with corresponding increase in the collaterals.,,,,,,

f. ISSL opened trading terminal of Allied and allowed them to roll over their position during Jan' 19, specifically after the termination notice",,,,,,

was issued on 8-Jan-19.,,,,,,

g. ISSL choose to ignore significant unusual increase in the asset and liabilities of Allied financials for FY 18 and didn't acted upon it at all.,,,,,,

A proper review of financial statements of Allied should have triggered an alarm and some sort of action should have been taken by ISSL.,,,,,,

h. Auditors observation was there in financials transactions that Allied had multiple doubtful transaction with related parties and the,,,,,,

recovery is doubtful which ISSL ignored and have not acted upon.,,,,,,

i. ISSL despite having a previous relationship with Allied, have misrepresented in their CAM document (at the time of on-boarding) that they",,,,,,

don't have any existing relationship with Allied.,,,,,,

j. In 2010, SEBI ordered an adverse order against Allied for synchronised trades and penalised by SEBI. ISSL ignored this instance at the",,,,,,

time of on boarding of Allied.,,,,,,

k. Allied was under Risk Reduction Management (RRM) for 137 trading days out of 299 trading days. RRM specifically that the trading,,,,,,

member crosses 90% of the available margin limit. That means in a normal situation when margin can be utilised upto 40-50%, ISSL allowed",,,,,,

Allied to go upto more than 100% of margin utilisation in multiple instances. During RRM period, TM (Allied) could have only done",,,,,,

immediate and cancel order, but he was allowed to do trading further.",,,,,,

l. On 1st Jan 19, there was an email from ISSL stating that, on 28-dec-18 terminal was disabled. Then how Allied was allowed to trade for",,,,,,

1000 Crs without sufficient margins.â€​,,,,,,

Inter alia the complainant has submitted to the effect that on the other hand, SEBI, upon completion of forensic audit conducted by it in respect of",,,,,,

transaction between ISSL/ Accused No.3 (where Applicant/Accused No.4 was working as Business Head) and Allied/ Accused No.2, has also",,,,,,

observed that ISSL/ Accused No.3 (where Applicant/Accused No.4 was working as Business Head) has not only actively participated in the fraud,,,,,,

committed by Allied/Accused No.2 in respect of Securities belonging to the Complainant, but also facilitated Allied/Accused No.2 in executing",,,,,,

fraudulent transfer of Securities belonging to Complainant in collusion with Accused No.l and the Applicant herein. Consequently, SEBI has also",,,,,,

issued a Show Cause Notice dated 09.12.2019 against ISSL/Accused No.3 (where the Applicant/Accused No.4 was working as Business Head). It,,,,,,

has further been submitted by the complainant that SEBI has also taken cognizance over the subject matter of unauthorized and fraudulent transfer,,,,,,

and pledging of stolen Securities of Complainant by the Accused Persons which was reported by the Complainant vide its complaint dated 08.02.2019.,,,,,,

The complainant has further submitted that SEBI while dealing with similar facts arose in the matter of KARVY STOCK BROKING LIMITED,",,,,,,

SEBI (WTM / AB / SEBI / MIRSD / HO / 42 /2019-20) vide its order dated 14.01.2020 held in para 11, which is reproduced as under:",,,,,,

Regarding pledging of securities of its fully paid clients, a stock broker has no authority to pledge the securities of its fully paid clients.",,,,,,

If a stock broker pledges securities of its fully paid clients, it amounts to misappropriation of clients' securities by the stock broker. Even if",,,,,,

securities belonging to fully paid clients are pledged by the stock broker, such pledge does not pass any title to the pledge, as the stock",,,,,,

broker in such case himself/itself does not possess any title/right over such securities. Thus, pledge of securities, belonging to fully paid",,,,,,

client, is not treated as valid pledge in law """,,,,,,

(Emphasis supplied),,,,,,

The complainant further submits that admittedly, it had only Demat Accounts with Allied/Accused No.2 and had no trading account nor any power of",,,,,,

attorney was given by OCL & DCEL to Allied/Accused No.2, and as such the case of Complainant is much stronger than in KARVY STOCK",,,,,,

BROKING LIMITED, wherein investors had trading accounts and had also given power of attorney, which was misused by the broker, while in the",,,,,,

instant case, the Complainant had only Demat Accounts with Allied / Accused No.2 and no trading account and admittedly, no power of attorney was",,,,,,

ever given by OCL & DCEL to Allied / Accused No.2 in respect of such Demat Accounts. It was thus submitted on behalf of the complainant that,,,,,,

the fraudulent transfer of Securities of Complainant from its Demat Accounts by the Accused Persons to their own account and to their related,,,,,,

entities is illegal on the face of it.,,,,,,

It was further submitted by the complainant to the effect that the accused no.1 in collusion and in conspiracy with the Applicant/Accused No.4,",,,,,,

had illegally, dishonestly and fraudulently transferred the Securities from demat accounts of it erstwhile Subsidiaries of the Complainant to their own",,,,,,

account(s) and its related entities based on forged Delivery Instruction Slips and further, fraudulently placed these Securities as collateral with",,,,,,

ISSL/Accused No.3 (where the Applicant/Accused No.4 was working as Business Head) for meeting its own margin obligations in future and option,,,,,,

contracts without any consent, knowledge or mandate of the Complainant, who neither issued any mandate for transfer of the Securities nor received",,,,,,

any consideration for such transfer thereof.,,,,,,

Inter alia the complainant has submitted that the FSL Report filed along with the Charge Sheet, also confirmed that the signatures of the authorized",,,,,,

signatories of the Complainant on all sixty-six (66) Delivery Instructions Slips are forged by Accused Persons which were used by the Accused,,,,,,

Persons for fraudulent transfer of Securities from Demat Accounts of erstwhile subsidiaries of the Complainant to their own account(s)/related,,,,,,

entities and also fraudulently used the Securities of the Complainant as their own margin money and further received a sum of INR 380 Crores as,,,,,,

premium and thus, the Applicant/Accused No.4 along with other accused gained a sum of INR 380 crores illegally and wrongfully by causing illegal",,,,,,

and wrongful loss to the Complainant to the tune of INR 344.07 Crores. The complainant has further submitted to the effect that the,,,,,,

applicant/Accused No. 4 and Accused No.l are the master minds in the whole fraud committed by them just to cause gain each other including their,,,,,,

respective companies (Accused Nos. 1 & 3) illegally and wrongfully by causing illegal and wrongful loss to the Complainant to the tune of INR 344.07,,,,,,

crores.,,,,,,

The complainant has further submitted that ISSL/Accused No.3 (where Applicant/Accused No.4 was working as Business Head) had also,,,,,,

conducted its forensic audit through its own Forensic Auditor, Grant Thornton, in respect of transaction between ISSL/Accused No.3 (where the",,,,,,

Applicant/Accused No.4 was working as Business Head) and Allied/Accused No.2. The Forensic Auditor, Grant Thornton, has also reported several",,,,,,

irregularities indicating collusion and conspiracy between ISSL/Accused No.3 (where the Applicant/Accused No.4 was working as business head) &,,,,,,

Allied/Accused No.2. Consequently, ISSL/Accused No.3 (where the Applicant/Accused No.4 was working as Business Head) has been facing",,,,,,

multiple investigations by various authorities including SEBI, NSDL, EOW, SFIO etc. The complainant has further submitted to the effect that SEBI,",,,,,,

upon completion of forensic audit conducted by it in respect of the transaction between ISSL/Accused No.3 (where the Applicant/Accused No.4 was,,,,,,

working as Business Head) and Allied/Accused No.2, has also observed that ISSL/Accused No.3 (where the Applicant/Accused No.4 was working",,,,,,

as Business Head) has not only actively participated in the fraud committed by Allied/Accused No.3 in respect of Securities belonging to the,,,,,,

Complainant but also facilitated Allied/Accused No.2 in executing fraudulent transfer of Securities belonging to the Complainant in collusion with,,,,,,

Allied/Accused No.2 and thus, the SEBI has also issued a Show Cause Notice dated 09.12.2019 against ISSL/Accused No.3 (where the",,,,,,

Applicant/Accused No.4 was working as Business Head).,,,,,,

It is further contended on behalf of the complainant that the applicant/accused no.4 is guilty of serious offences such as conspiring in the,,,,,,

commission of forgery for the purpose of cheating, and commission of breach of trust by agent in respect of Complainant's mutual fund units worth",,,,,,

Rs. 344.07 crores entailing severe punishment up to life imprisonment as prescribed under sections 409/467 IPC.,,,,,,

Inter alia the complainant has submitted that due to the complexity of transactions the role of other officials of ISSL/Accused No.3 including,,,,,,

Applicant/Accused No.4, NSDL and Allied/Accused No.2 are being probed to unearth the amount of INR 380 crores received by them as premium",,,,,,

by fraudulently using the Securities of the Complainant as its own margin money and as such investigation is pending qua them and that there is every,,,,,,

likelihood that the Applicant/Accused No.4 may tamper with evidence, influence the witnesses and ultimately, may not turn up to face the trial, if",,,,,,

released' on bail as he is a permanent resident of Ahmedabad, Gujarat. The complainant has further submitted that it is a settled law that once the",,,,,,

Applicant/Accused No.4 has been charge sheeted by the Respondent, and cognizance has also been taken inter alia under Sections 409/467 IPC qua",,,,,,

the Applicant/Accused No.4, the Applicant/Accused No.4 cannot claim entitlement of bail as a matter of right merely on the ground of being not",,,,,,

arrested by the Respondent during investigation.,,,,,,

The petitioner on the other hand through its written synopsis dated 29.06.2020 submits that the charge sheet was filed without the arrest of the,,,,,,

applicant indicating thus, that there was no recovery and discovery was required from him and that the status report submitted by the State also",,,,,,

indicates that the applicant had joined the investigation as and when required and thus there is no possibility of the witnesses being influenced by the,,,,,,

applicant as he has already left the company i.e. the accused no.3 (IL & FS Securities Services Limited- M/s ISSL) on 18.07.2019 and that there is,,,,,,

not a whisper of a single averment about the possibility of the applicant influencing the witnesses and tampering with the documents in the status,,,,,,

report submitted by the State.,,,,,,

The applicant has further submitted that the trial has not yet commenced and would take many years to conclude as there are as many as 34,,,,,,

witnesses and documents running upto thousands of pages. The applicant has further submitted that the charge sheet reveals that all the main,,,,,,

offences as to forgery, criminal cheating, criminal misappropriation of mutual funds under Sections 406/420/467/468/471/120B of the Indian Penal",,,,,,

Code, 1860 have been committed by the accused nos. 1 & 2 i.e. M/s AFSPL and none of the criminal offences have been committed by ISSL and the",,,,,,

applicant.,,,,,,

Inter alia the applicant has submitted further to the effect that M/s AFSPL further utilized the alleged mutual funds of the Complainant to avail,,,,,,

margin to carry out future & option trades on National Stock Exchange (""Exchange"") by transferring them with ISSL which in turn pledged the said",,,,,,

units with National Clearing Limited ("" Clearing Corporation"" ). It has been submitted by the applicant that ISSL is a professional clearing member",,,,,,

registered with Clearing Corporation as well as SEBI, who settles the trade carried out by the trading member on the exchange, whereas M/s AFSPL",,,,,,

is a trading member registered with exchange and SEBI. For ISSL, the clients are the trading members with no knowledge about the end clients of the",,,,,,

Trading members. The applicant further submits that ISSL had no knowledge about the background details of the collaterals provided by the Trading,,,,,,

Members to avail margin limits and that in view of the relevant rules in existence, ISSL had no knowledge of the end clients, i.e. the complainant in",,,,,,

this case.,,,,,,

Furthermore, the applicant has submitted that no wrongful loss has been caused to the Complainant as the mutual funds worth of Rs. 344.07",,,,,,

crores have been seized by the Police u/s 102 CrPC and no corresponding gain has occurred to ISSL & the Applicant and that it is ISSL which has,,,,,,

suffered huge losses and has been the worst victim in the entire transaction as M/s AFSPL had already carried out the trade on exchange by availing,,,,,,

the margins and ISSL is no more in a position to utilize the mutual funds to settle the trades of AFPSL with other trading members because of the,,,,,,

freezing order passed by the Police.,,,,,,

Date,Total Margin,Cash,Securities,"M F Amount

Released",Total Collateral,"Shortfall on

Saturday and

Sunday

30 -Dec17,"1,81,27,20,261.54","71,62,00,000.00","3,40,27,11,266,266.92","3,29,62,41,561.48","82,26,69,705.44","99,00,50,556.1 0

3 1 â€"Dec-

17","1,81,27,20,261.54","71,62,00,000.00","3,40,27,11,266,266.92","3,29,62,41,561.48","82,26,69,705.44","99,00,50,556.1 0

31-Mar-18,"3,25,99,58,458.67","1,00,30,00,000.00","3,50,79,16,668.34","3,35,05,98,756.50","1,16,03,17,911.85","2,09,96,40,546.82

01 -Apr-18,"3,25,99,58,458.67","1,00,30,00,000.00","3,50,79,16,668.34","3,35,05,98,756.50","1,16,03,17,911.85","2,09,96,40,546.82

S.No.,Particulars,,,,,

1.,"Networth as on September 30, 2018 after deducting ICDs, interest on

ICDs, loan to IL&FS Employee welfare trust, Interest on Joan, Impact o

lnd AS and Sundry Debtors of Rs. ( 154.06) Cr, Networth as on Septembe

30, 2018 is 53 .0 I Cr. as against Nerworth submission of member of Rs.

207.07 Cr.",,,,,

2.,"After deducting ICDs amounting toRs. 750 Cr, Networth as on March

31,2018 is (573 .01) Cr as against Networth submission of member ofRs

176.99 Cr.",,,,,

proceedings in the present application are pending since institution in June 2020 and apparently there is no urgency qua the treatment of the,,,,,,

applicant’s wife required.,,,,,,

Furthermore, on behalf of the applicant, the prayer made initially seeking the grant of interim bail has expressly during the course of the",,,,,,

proceedings on 15.06.2020 was not sought to be pressed.,,,,,,

CONCLUSION,,,,,,

The bail application in the circumstances is dismissed.,,,,,,

Nothing stated hereinabove shall however amount to any expression on the merits or demerits of the case.,,,,,,