SEBI Penalises Company and KMPs for Circular Funding of Preferential Share Issue

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  • Last Updated on 3 November, 2025

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funding of preferential share

Case Details: Paresh Vora HUF vs. Securities & Exchange Board of India [2025] 179 taxmann.com 500 (SAT-Mumbai)

Judiciary and Counsel Details

  • P. S. Dinesh Kumar, Presiding Officer, Ms Meera Swarup & Dr Dheeraj Bhatnagar, Technical Member
  • Kunal Katariya, Ms Ashmita Goradia, Sahebrao Wamanrao Buktare, Advs. & Shardul Shah, CA for the Appellant.
  • Sumit Rai, Bhushan Shah & Gaurav Edekar, Advs. for the Respondent.

Facts of the Case

In the instant case, ACEL was accused of self-funding its own preferential share issue, an act prohibited under Section 77(2) of the Companies Act, 1956 [corresponding Section 67 of the Companies Act 2013 ] and in violation of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003. The investigation revealed that ACEL had transferred ₹10.47 crore to three Vora family entities (Noticees 12–14).

These entities, acting as conduits, subsequently transferred ₹3.42 crore to other Vora family members (Noticees 3–11), who then used these funds to subscribe to ACEL’s preferential shares. Effectively, ACEL’s own funds were routed through related parties and returned to it as share application money.

SAT Held

The Securities Appellate Tribunal found that the close timing and circular flow of funds clearly established self-financing of the preferential allotment. This conduct amounted to a fraudulent and unfair practice under SEBI regulations. Consequently, ACEL, its key managerial personnel (KMPs), and the Vora family entities involved were held guilty of the violations.

However, Raj Radhika Property & Developers Pvt. Ltd. was exonerated since its transactions with ACEL occurred about a year later and were unrelated to the allotment. A joint and several penalty of ₹30 lakh was imposed under Section 15HA of the SEBI Act for breaching Section 12A(a)-(c) of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations, 2003.

List of Cases Referred to

  • Jolly Plastics v. SEBI [SEBI Appeal No. 752 of 2022] (para 6.1)
  • Geetaben Joshi v. SEBI [SEBI Appeal No. 650 of 2022] (para 6.1)
  • Murugan v. State of Tamil Nadu [2011] 6 SCC 111 (para 7.1.4)
  • Punit Goenka v. SEBI [2023] 156 taxmann.com 8 (SAT – Mumbai) (para 7.1.4)
  • CIT v. Dhanrajgirji Raja Narasingirji [1974] 3 SCC 520 (para 7.4)
  • Tilak Ventures Ltd. v. SEBI [Civil Appeal No. 1611-1613 of 2022] (para 10.1.2)
  • N. Narayan v. Adjudicating officer, SEBI1 [2013] 12 SCC 152 (para 11.1)
  • SEBI v. Kanaiyalal Baldevbhai Patel [2017] 85 taxmann.com 267/144 SCL 5 (SC) (para 11.3).

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied