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SEBI - Case Laws
Showing 61 to 80 of 510 Records
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2023 (2) TMI 1243
Fraudulent scheme for issuance of GDRs by the Company - SEBI found that Vintage was the sole subscriber to the GDR and that the Company did not disclose this fact with clarity that only one entity had subscribed to the entire GDR and, therefore, misled the investors and loan agreement and the pledge agreements were not disclosed to the stock exchange or to the shareholders of the Company - WTM restrained the Company, Chairman and its Managing Director from accessing the securities market for a period of three years and one year respectively and imposed a sum of Rs.10 crore upon the Company and Rs.10 lakh each upon the Chairman and Managing Director - whether directions imposed by the WTM and the penalty imposed by the AO was harsh and excessive?
HELD THAT:- Where the punitive measure is harsh or disproportionate to the offence which shocks the conscience it is within the discretion of the Court to exercise the doctrine of proportionality and reduce the quantum of punishment to ensure that some rationality is brought to make unequals equal.
In our opinion, the penalty imposed is excessive and disproportionate to the violation and is also discriminatory.
Excessive penalty imposed upon the Company does not make any sense. In the instant case, there are public shareholders and workers. The Company is a running concern. Penalising the Company with such heavy penalty is in fact penalising the shareholders which is not justifiable especially for a running company. Further, the money raised through GDRs has been received by the Company and has not been misappropriated. The same has been utilitised for the purpose for which the GDR was issued which fact has not been disputed. Thus, it is not a case of defalcation of the funds.
While affirming the order of the AO for the violations committed by the Company we reduce the penalty against the Company to Rs. 25 lakh. The penalty against the Chairman and Managing Director is affirmed.
For the same reason, debarring the Chairman and Managing Director for 1 year is neither excessive nor arbitrary. We accordingly confirm the directions issued by the WTM. Further, in the circumstances of the case, the debarment of the Company for a period of 3 years is reduced to the penalty undergone.
Appeal of Euram Bank is concerned, the WTM has issued a warning to the said appellant to ensure that all its future dealings in the Indian securities market is done strictly in accordance with law - Appellant Euram Bank was registered as a Foreign Institutional Investor (FII) with SEBI in the year 2008 and that an entity known as India Focus Cardinal Fund (IFCF) was registered with SEBI as a sub account of the appellant. The role played by Euram Bank while granting a fraudulent structured loan to Vintage was dubious. The pledge agreement executed by Euram Bank with the Company pledging the GDR shares prior to its actual issuance for the purpose of securing the loan given to Vintage was totally dubious.
WTM also found that IFCF undertook the role of off-loading the converted shares of GDR in the Indian market which was done with the active role of the appellant bank and the fraudulent scheme of the sub account IFCF could not have been completed and the shares of Zenith could not have been sold in the Indian market but for the active participation of the appellant bank. On these findings the WTM held that there was sufficient reasons to hold the acts of the appellant bank amounted to transgression of Section 12A of the SEBI Act read with Regulation 3 and 4 of the PFUTP Regulations. In spite of coming to the aforesaid conclusion the WTM has only issued a warning on the strength of the observation that the appellant subsequently took corrective steps in removing Arun Panchariya as Director from its joint venture Euram Bank Asia Ltd. (EBAL).
Considering the findings given by the WTM we are of the opinion that the warning given by the WTM to the appellant bank does not suffer from any manifest error.
Violations found against the Company and the Directors are affirmed. Appeal of the Company, Zenith Steel Pipes and Industries Limited are partly allowed. The debarment is reduced to the period undergone and penalty is reduced from Rs. 10 crore to Rs. 25 lakh.
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2023 (2) TMI 442
Buyback offer made by the company in violation of regulatory provisions - role of the Company Secretary, compliance officer - WTM proceeded to hold the respondent liable on the ground that he was a Company Secretary during the Financial Year 2010-11 when a buyback offer worth Rupees 270 crores was made by the company in violation of regulatory provisions - Tribunal held that the role of the respondent, who was a Company Secretary, compliance officer, was limited to redressing the grievances of investors - HELD THAT:- Regulation 19(3) of the SEBI (Buyback of Securities) Regulations 1998 requires the company to nominate a compliance officer and an investors’ service centre. The purpose of the nomination is twofold, namely (i) to ensure compliance with the buyback Regulations; and (ii) to redress the grievances of investors. There is a patent error on the part of the Tribunal in interpreting the Regulations. The Tribunal held that the role of the respondent, who was a Company Secretary, compliance officer, was limited to redressing the grievances of investors. In arriving at the finding, the Tribunal has relied upon the latter part of Regulation 19(3) which deals with redressal of the grievances of investors.
The crucial point which has been missed by the Tribunal is that the compliance officer is also required to ensure compliance with the buyback regulations. Regulation 19(3) of the Regulations expressly so stipulates. Since the interpretation which has been placed by the Tribunal on the interpretation of 19(3) is contrary to the plain terms of Regulation 19(3), we set aside the impugned decision and remit the proceedings back to the Tribunal for consideration of the facts afresh in the light of the interpretation which has been placed above on the provisions of Regulation 19(3).
For the above reasons, the appeal is allowed and the impugned order of the Tribunal is set aside. Appeal shall stand restored to the file of the Tribunal for a decision afresh.
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2023 (2) TMI 379
Arbitration award - Share Purchase Agreement (SPA) - Legality or enforceability of the transaction of repurchase contained in the SPA - rejection of Edelweiss’s claim on the ground that the transaction of share purchase option was illegal and/or unenforceable being in breach of SCRA (Securities Contracts (Regulation) Act, 1956) - contracts in derivatives not being traded on stock exchange and hit by Section 18A of SCRA or not - HELD THAT:- We totally agree with the view expressed by the learned Single Judge that the Arbitrator’s conclusion that the purchase option contained in clauses 8.5 and 8.5.1 was illegal and unenforceable being a forward contract is an incorrect view. The judgment in MCX [2013 (9) TMI 914 - HIGH COURT OF BOMBAY] squarely deals with a purchase option, such as the present, where the purchaser of securities requires the vendor to repurchase on the occurrence of a contingency - As held in MCX, a contract giving an option to a purchaser to require repurchase of securities by his vendor on some contingency occurring would only mean that there was no present obligation at all but the obligation arose by reason of some contingency occurring. On the date when the SPA was entered into, there was no contract for sale or purchase of shares under clauses 8.5 and 8.5.1. A contract for sale or purchase of shares would come into being only at a future point of time in the eventuality of Edelweiss, which was granted such option, exercising it in future on the occurrence of a stipulated contingency.
Section 18A of SCRA does not purport to invalidate any contract. It starts with a non-obstante clause, i.e., overriding effect over any other law for the time being in force. It provides that notwithstanding anything contained in any other law for the time being in force, the contracts in derivative shall be legal and valid, if such contracts satisfy the conditions mentioned therein. Section 18A of SCRA on its own does not make any particular contract illegal or invalid.
What the buyer of an option buys is his right to exercise the option, often with a premium; his counter-party, who gives him such option, receives the option premium and in consideration thereof, is obliged to buy or sell the underlying asset against the option exercised by the buyer - What the law prohibits under Section 18A read with Section 16 read with the SEBI circular of 1st March 2000 is not entering into a call or a put option for sale but as rightly held by the learned Single Judge what it prohibits is trading or dealing in such option treating it as a security - Clauses 8.5 and 8.5.1 are not contract for sale or purchase of securities, but merely an option which the promisee may or may not exercise and entering into such option does not amount to making of a contract in a derivative. Such a contract was never prohibited.
Appeal dismissed with costs, which we hereby fixed at Rs.5 lakhs. The cost to be paid by way of cheque drawn in favour of advocate on record for respondent within four weeks from today.
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2023 (2) TMI 282
Decision to write off Additional Tier 1 (AT-1) bonds - Petitioner raised objection to the writing down of AT-1 bonds and even suggested for converting into shares - Petitioner seeks directions against the National Securities Depositories Limited and Central Depository Services to take such steps to reverse the effect of any accounting, entries, noting, write-offs, cancellations, or any such steps that may have been undertaken pursuant to the impugned decision to write off the Additional Tier 1 bonds - HELD THAT:- It appears that upon consideration of the objections the Reserve Bank made modification in the draft scheme, as permissible under section 45(6)(b) of the Act of 1949. It deleted the clause of writing down of AT-1 bonds. After said modification the scheme was placed by RBI before the Central Government as required and mandated under sub section 7 of Section 45 of the Act of 1949.
Central Government thereafter sanctioned the scheme sans clause of writing down AT-1 bonds. The final scheme sanctioned by the Central Government did not contain the clause or provision for writing down AT-1 bonds. Section 45(7) further provides that the scheme sanctioned by the Central Government shall come into force on such date as the Central Government may specify. Proviso to sub section 7 of section 45 of Act of 1949 empowers the Central Government to specify different dates for different provisions of the scheme.
In the final scheme, March 13, 2020 is the date prescribed of coming into force the scheme, the same would mean that the Bank stood reconstituted on March 13, 2020.
Only because the shares were to be allotted to SBI within two working days of the final scheme being notified, would not extend the date from which the scheme came into force nor it would extend the appointed date or the date the Bank is reconstituted. Yes Bank stands reconstituted on March 13, 2020. Under the Scheme, Moratorium period was extended by three days and the Administrator to vacate the office after seven calendar days from the date of cessation of moratorium.
Yes Bank stood reconstituted on March 13, 2020 upon the Notification of the final Yes Bank Ltd. Reconstruction Scheme, 2020. After the bank was reconstituted, the Administrator could not have taken such a policy decision of writing off the debentures. Board of Directors were notified in the final scheme. However, actual time period was given for the Board of Directors to take over from the Administrator and for that purpose, tenure of the Administrator was also extended to seven days from the date of reconstitution of the bank. During this period, the Administrator could not have taken such a policy decision of writing down the AT-1 bonds. Nor the RBI had authorized him to do so. The Final Reconstruction Scheme also did not authorize Administrator to write off the AT-1 bonds. It appears that Administrator exceeded his powers and authority in writing off AT-1 bonds after the bank was reconstructed on March 13, 2020.
Reading clause 57 of the Information Memorandum along with the Final Reconstruction Scheme, it would be manifest that the administrator could not have exercised his powers after reconstitution of the bank.
The clauses in the Information Memorandum which according to the Respondents is a contract between two private parties, is based on the Master Circular. The Master Circular is issued by the Reserve Bank under its statutory powers. The covenant and the terms in the Information Brochure i.e. between the parties is based on statutory Master Circular. Information Memorandum and its clauses refer to Master Circular. The said Information Brochure has a statutory flavour. It is based on the statutory Master Circular. In that event, the agreement would have a statutory base and such an agreement can certainly be enforceable.
Reliance can be had to the judgment of India Thermal Power Ltd. [2000 (2) TMI 842 - SUPREME COURT] as observed that if entering into a contract containing the prescribed terms and conditions is a must under the statute then the contract becomes a statutory contract. If a contract incorporates certain terms and conditions in it, which are statutory then the said contract to that extent is statutory. Clause 57 of the Information Memorandum binding the parties and relevant for our consideration is extracted from the Master Circular based on Basel III Norms. Clause 57 also suggests that the writing off or conversion to shares would be in accordance with these rules. In view of that, Writ Petition would be tenable before this court.
The impugned letter dated March 14, 2020 and decision to write off Additional Tier 1 (AT-1) bonds deserve to be set aside and is hereby quashed and set aside. Necessary consequences shall follow.
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2023 (1) TMI 1323
Prohibition of manipulative, fraudulent and unfair trade practices - charge that NSE and its employees have colluded with TMs, especially OPG Securities Pvt. Ltd. - profit made by ISB in its report is on the basis of early login by OPG - show cause notice alleged that OPG gained materially by being the first logger as well as by connecting to the secondary server -WTM directed OPG debarring accessing the securities market for a period of five years and restraining OPG from taking any new clients for a period of one year and its Directors to disgorge jointly and severally a sum of Rs.15.57 crores alongwith interest at the rate of 12% p.a - HELD THAT:- The show cause notice alleged that OPG gained materially by being the first logger as well as by connecting to the secondary server. In this regard, NSE had appointed ISB to calculate the profits earned by TMs including OPG especially on days when they logged in first to the PDC either from the primary server or from the secondary server. The ISB in its report took 30 days on sample basis and analysed the same for the period 2012 and 2013 which were the days when OPG had consistently logged in first. ISB in its report submitted that OPG made higher profits close to Rs.25 crores when they logged in early. Based on this ISB report, the show cause notice directed OPG to show cause as to why the profit of Rs.25 crores should not be disgorged.
The ISB report used First-In-First-Out (FIFO) methodology to calculate both intraday and overnight profits. Intraday profits are profits generated through positions that are opened and closed on the same day. Overnight profits are profits generated through positions opened on a prior day and closed on that particular day
A perusal of the terminology “First Prop” indicates that the profits made by the TM is on the basis of its trades made on days when he logged in first into a Port.
WTM has calculated the unlawful gain on the basis of table A11 and A15 of the ISB report. A perusal of the aforesaid tables indicates that the calculation has been made on the basis of “First Prop” and “Non-First Prop”. The “First Prop” analysis is based on when OPG logged in first. When the WTM has given a finding that early logging in does not give any advantage and could only be given a probabilistic advantage the question of calculating profits on the basis of early login becomes wholly erroneous. The WTM could only consider probabilistic advantage, if any, which the OPG may have gained by being the first logger.
Thus, on this aforesaid short point, the calculation of unlawful gain made by the WTM cannot be accepted.
To conclude, we find that all the charges leveled in the show cause notice has not been proved. Many of the charges were dropped by the WTM himself while passing the impugned order. The WTM held that the charge of fraud and unfair trade practice by NSE under PFUTP Regulation is not made out. The charge that NSE and its employees have colluded with TMs, especially OPG has not been made out. The allegation of suppression of material facts and non-cooperation by NSE with the investigating authorities has not been made by the WTM.
We also find that early log in by TM did not create any advantage with regard to dissemination of data. May be a probabilistic advantage is obtained by a TM on account of early login, but in the absence of any further evidence on this aspect, no adverse orders can be passed. We also hold that there was randomness in the dissemination of data in the TBT architecture and, therefore, there was no requirement to add a randomiser to the existing TBT architecture.
NSE failed to monitor the secondary server which led many TMs especially OPG to misuse it to their advantage. NSE failed to follow its own norms and guidelines framed for such purpose. NSE should have placed a mechanism to check unauthorized access to the secondary server by the TMs. NSE should have placed a defined policy for use of secondary server and a mechanism ought to have been placed for monitoring connection by TM on the secondary server since it was an active server.
WTM further held that failure to place the randomizer or load balancer in the TCP IP dissemination protocol, cannot be categorised as breach of the principles of “fairness and equity” attracting the provisions of PFUTP Regulations. The WTM held that the dissemination of information which is in breach of the stipulation contained in SECC Regulations cannot automatically attract the rigors of PFUTP Regulations, without there being any proof to indicate fraud. The WTM held that in the absence of any fraud or collusion or connivance the possibility of fraud was non-existent.
Charge that NSE has violated Regulation 41(2) and 42(2) of SECC Regulations is not proved. NSE provided a level playing field for TM subscribing to the TBT data feed of NSE and provided equal, unrestricted and fair access from the TBT architecture. We, however, found that the circular of 30th March, 2012 was not followed by NSE.
WTM exonerated OPG and its Directors on issue of first login and crowding out other TMs. We, however, affirm the findings of the WTM that OPG gained an unfair access and advantage by consistently log in to the secondary server and made unlawful gains.
We, however, find that for violation of the circular, there can be no disgorgement by NSE or by Mr. Ravi Narain and Ms. Chitra Ramkrishna. Insofar as Mr. Ravi Narain and Ms. Chitra Ramkrishna are concerned, the order of disgorgement cannot be sustained. We also find that order of disgorgement against NSE also cannot be sustained.
We have already held that NSE did not commit any violation of Regulation 41(2) of the SECC Regulations. We have also found that TBT architecture provided unrestricted, transparent and fair access to data dissemination from its TBT architecture to the TMs. We have also found that there was lack of due diligence while allocating IPs on various Ports and that there was inequitable distribution of IPs. We also found that a load balancer should have been placed for equitable distribution of the IPs. We also found that there was failure to monitor frequent connections to the secondary server by certain TMs.
Even though NSE has not indulged in any unethical act or has unjustly enriched itself the direction to disgorge, in our opinion, cannot be sustained. However, NSE has not adhered to its own norms and guidelines and has not followed the circular. The SCRA Act confers a large responsibility upon the exchange to ensure that undesirable transactions do not take place. Being a first level regulator it has a front line responsibility for regulation of the market and has a mandate to ensure compliance by the TMs of its own norms, guidelines and circulars. NSE has a duty to ensure transparency and fair access to all the TMs. For lapses committed by NSE directions under Sections 11 and 11B could be passed and some of the directions of the WTM were rightly passed. However, the direction for disgorgement was unwarranted but the appellant NSE cannot be allowed go scot free and is required to pay a price for the lack of due diligence on account of human failure to comply with the circular in letter and spirit. Though there are no parameters to quantify the lapse committed by NSE but taking into consideration all facts and circumstances of the case and the factors contemplated under Section 15J of the SEBI Act read with 23J of the SCRA Act and in exercise of the powers confirmed upon this Tribunal under Rules 21 of the Securities Appellate Tribunal (Procedure) Rules, 2000, we are of the opinion that NSE should pay a sum of Rs.100 crores for this lapse which is not expected from a first level regulator and which would act as a deterrent.
In view of the reasons given in the preceding paragraph:
a. We set aside the order of the WTM directing disgorgement of an amount of Rs.624.89 cores alongwith interest at the rate of 12% p.a. against NSE.
b. Directions given by the WTM prohibiting NSE from accessing the securities market, directly or indirectly, for a period of six months and, further, directing NSE to carry out system audit at frequent interval after thorough appraisal of the technological changes introduced from time to time is affirmed.
c. We direct NSE to deposit a sum of Rs.100 crores to the Investor Protection and Education Fund created by SEBI. This amount will be adjusted by SEBI pursuant to the deposit already made by NSE vide our interim orders dated 22nd May, 2019 and 17th May, 2021. The excess amount alongwith interest accrued shall be refunded by SEBI within six weeks. The appeal of NSE is partly allowed.
d. The direction to disgorge 25% of the salary from Mr. Ravi Narain and Ms. Chitra Ramkrishna is set aside.
e. The direction prohibiting Mr. Ravi Narain and Ms. Chitra Ramkrishna from associating with any listed Company or a market infrastructure institution or any other market intermediary for a period of five years is set aside and substituted for the period undergone by them. The appeals for Mr. Ravi Narain and Ms. Chitra Ramkrishna are allowed.
f. The direction of the WTM directing NSE to initiate enquiry against its employees is affirmed.
g. The violations committed by OPG as found by WTM is affirmed. However, the direction of the WTM directing OPG and its Directors to disgorge Rs.15.57 crores alongwith interest at the rate of 12% p.a. from 7th April, 2014 onwards is set aside. The matter is remitted to the WTM to decide the quantum of disgorgement afresh in the light of the observation made above within four months from today.
h. In addition to the above, we direct the WTM to consider the charge of connivance and collusion of OPG and its Directors with any employee/officials of NSE. Further, the WTM will decide the issuance of direction/penalty concealment/destruction of vital information and will further reconsider Issue No. 2 relating to crowding out other market participants.
i. All other directions issued against OPG and its Directors are affirmed. The appeal is partly allowed.
j. The intervention applications as well as the appeal of Mr. A. Kumar are rejected.
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2023 (1) TMI 1258
Fraudulent activities under SEBI - issue of 80,800 false share certificates, forging signatures of genuine investors on the transfer documents and verifying fake share certificate and forging signatures and approving fraudulent transfer etc. - WTM passed ex-parte ad-interim order - appellants were Directors and Promoters in company in the business of non-banking finance and also a stock broker on NSE and BSE - contention of the appellant is, that the impugned order was passed ex-parte without giving an opportunity of hearing - HELD THAT:- We find that the impugned order is an ex-parte ad-interim order which has been passed in terms of Section 11 in the interest of the investors. We find that admittedly the order directing the appellant to make an open offer as per the order dated 27th July, 2010 has not been complied with for more than ten years and, therefore, direction was given to the appellants to complete the process of the open offer within 60 days. Such direction so issued does not suffer from any error of law nor does the order amounts to penalising the appellant again for the same cause of action.
WTM has calculated the value of the open offer and the amount which is to be paid to the shareholders/investors in terms of Regulation 15(2) of the Delisting Regulations. This amount was directed to be deposited as a safeguard which could eventually be utilised accordingly as and when the appellants makes the open offer. The amount so calculated is a tentative figure and if objected by the appellant can be rectified and revised on the basis of evidence that would be furnished by the appellant while passing a final order. It is for the aforesaid purpose that the appellant was given an opportunity to show cause as to why appropriate directions should not be issued under Section 11 and 11B.
Thus WTM was justified in passing an ex-parte ad-interim order which can be modified provided an application is filed by the appellant objecting to the calculation. No manifest error in the order passed by the WTM.
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2023 (1) TMI 1054
SEBI settlement Scheme, 2022 - penalty imposed as petitioner alleging that he carried out non-genuine trades i.e. in liquid stock options at the Bombay Stock Exchange, whereby, he violated Regulations 3(a)(b)(c)(d), 4(1) and 4(2)(a) of SEBI (prohibition of Fraudulent and Unfair Trading Practices related to Securities Markets), Regulations 2003 - advantage of the scheme while accepting online payment - petition seeks for issuance of directions in the nature of mandamus directing the respondents to open/enable the link for payment of penalty in terms of the Scheme and accept the payment on behalf of the Petitioner on or before the closure of the Settlement Scheme of 2022 either physically or online - HELD THAT:- SEBI settlement Scheme, 2022 with an object to settle enforcement proceedings approved/initiated and pending in respect of Illiquid stock Options.
A perusal of the concerned Regulation and the eligibility Clause would clearly indicate that all the entities who had executed non-genuine trades/trade reversals on the stock option segment of BSE during the period April 01, 2014 to September 30, 2015 and against whom enforcement proceedings have been approved or initiated and are pending before any authority/forum, viz. Adjudicating Officer/Hon’ble SAT/Hon’ble Courts/Recovery Officer etc. shall be eligible to avail the one time settlement opportunity. It clearly indicates that the benefit of Scheme can only be extended where the enforcement proceedings have been approved or initiated and are pending before any authority/forum.
In the instant case, the argument made by learned counsel for the petitioner cannot be accepted that the enforcement proceedings are still pending. After approval of the enforcement proceedings, the same are required to be formally initiated before the adjudicating authority and in the instant case, the stage of approval of initiation and of initiation is already over when the adjudicating officer had already passed an order. It is thus seen that as on date the money towards penalty is due under an order issued under Securities Laws, which is liable to be recovered under Securities Laws. Regulation 5 of SEBI Regulation, 2018 puts a specific bar for settlement of such cases. Pendency of recovery proceedings cases are distinct than the original proceedings. Hence, the case of the petitioner does not fall within Clause 6 of the said scheme for eligibility, accordingly, no mandamus can be issued. Petition stands dismissed.
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2023 (1) TMI 459
Notification notifying the Securities and Exchange Board of India (Research Analyst) Regulations, 2014 - Mandation to petitioner to take Licence/Registration from the respondents just to speak or write regarding listed stocks, and for sharing stock related recommendations with others and on social media - petitioner’s grievance is that on account of these Regulations, he has been deprived of his fundamental right of freedom of speech and expression guaranteed under Article 19(1)(a) of the Constitution of India, the right to practice profession/business of his choice guaranteed under Article 19(1)(g) and 19(6) of the Constitution of India, and also right to liberty guaranteed under Article 21 of the Constitution of India due to the alleged unreasonable restrictions imposed by the said Regulations on the petitioner.
HELD THAT:- It is settled law that the power to impose restrictions on fundamental rights is essentially a power to ‘regulate’ the exercise of these rights; and in fact ‘regulation’ and not ‘extinction’ of that which is to be regulated is, generally speaking, the extent to which permissible restrictions may go in order to satisfy the test of reasonableness.
A wide the range of powers is conferred on the Board under Regulation 31 since different corrective actions may have to be taken depending on the nature of the violation committed by the Research Analyst.
In a given case if such powers are exercised arbitrarily or disproportionately to the misconduct committed by a Research Analyst, the affected party can approach the Securities Appellate Tribunal or invoke the jurisdiction under art.226 of the Constitution of India. But the mere possibility of abuse of such a power cannot be ground to declare them as violative of Art.19(1) (g) of the Constitution of India.
In our opinion, Regulation 27 or Regulation 31 are not violative of rights conferred on the Research Analyst under Articles 19(1)(a) & 19(1)(g) or Art.14 of the Constitution of India.
The fact that the Astrologers or Management consultants are allowed to give consultancy, and are not regulated, does not mean that Research Analysts who provided investors with information on the basis of which investment decisions are made, should also be excluded from regulation. So the plea based on Article 14 of the Constitution of India in that regard cannot be countenanced.
In this view of the matter, we do not find any merit in this Writ Petition. Accordingly, the same is dismissed.
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2023 (1) TMI 458
Inquiring into complaints by SEBI - Power conferred on the investigating authority - reasonable ground to believed that transactions in securities - purpose of empowering the SEBI to investigate - investigative process undertaken by respondent No.3 - investigations conducted prior to ordering investigation u/s 11C - HELD THAT:- In the instant case respondent No.3 was designated as an investigating authority in order to enable the Board to investigate into the dealings in the scrip of Omaxe Ltd. on the basis that there was a reasonable ground to believed that transactions in securities were dealt with in a manner detrimental to the investors or securities market.
It is in exercise of this inquisitorial power conferred under Sec.11C that respondent No.3 issued summons to the petitioners to investigate as to whether the petitioners had anything to do with the buy recommendations made in the scrip of Omaxe Ltd during 01.06.2020 to 01.07.2020. The basis for the investigation is the document provided by the telemarketer M/s Mobonair Wireless Pvt. Ltd. which had informed the Board that SMS recommendations were sent by the petitioner No.1, and it had also provided document alongwith its email dt.10.08.2022.
When the Board has been conferred an investigative power by Parliament, and when a complaint is received against an Investment Advisor such as petitioner no.1, the Board has a statutory duty to investigate it; and in the course of such investigation, it can ask for information from the persons against whom such allegations are leveled, to assist it in the investigation.
The penalty of imprisonment of a term which would extends to one year or fine which would extend to 1 Crore become leviable under sub section (6) of Section 11 C only if without reasonable cause a person were to refuse to produce before the investigating authority the books, registers and other documents or furnish information which is his duty to furnish or refuses to appear before the investigating authority personally or to answer any question which is put to him by the investigating authority or to sign the notes of any examination referred to in sub section (7).
The punishment of imprisonment or fine will be imposed under Sec.11C(6) only after a complaint is lodged before a competent criminal court by SEBI against the person refusing to cooperate in the investigative process and the said court will consider whether in the facts and circumstances of the case, such refusal is bonafide and whether punishment ought to be imposed and if so, to what extent.
There are, thus, adequate safeguards provided in the enactment itself against any misuse of the power.
The petitioner has not been able to show that powers conferred on the SBI by Sec.11 C (3), (5), (6) and (7) interfere or violate in any way and fundamental rights conferred upon the petitioners by Article 19(1) (a), 20(3) and 21 of the Constitution of India. Such powers are necessary to be exercised in public interest and to protect investors.
If the case of the petitioners is that the documents on the basis of which summons were issued to the petitioners are forged documents and they are not guilty of the allegations of giving buy recommendations in the scrip of Omaxe Ltd. at all, they have a duty to assist in the investigative process undertaken by respondent No.3 and place whatever material they have in their possession to enable the investigating authority to complete the investigation and place the report thereon before the Board.
Therefore, no case has been made out by petitioners for quashing the impugned summons issued for physical appearance of petitioner No.2 and other Directors. So the prayer made in that regard is rejected.
As regards the prayer of the petitioners for directing respondent No.4 to register FIR and take other necessary action against Ms. Vishal Shah and M/s. Mobonair Wireless Pvt. Ltd. and others is concerned, in the event the Police is not registering the FIR on the complaint lodged by the petitioners, they have an effective alternate remedy vested under Section 154(3) Cr.PC by giving complaint in writing to the Superintendent of Police concerned; and in spite of that if their grievance persists, then they could approach the Magistrate under Section 156 (3) Cr.P.C.
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2022 (12) TMI 1377
Procedure to be followed by debenture trustees - Option to dissenting Debenture Holders to accept the terms of the Resolution Plan - approving the Resolution Plan as sought in interim application - Whether the debenture holders and other parties in the present case were required to follow the procedure under the SEBI Circular? - scope of Debenture Trust Deeds - SEBI Circular to have retrospective effect - Interim Application sought for exercise of inherent powers by this Court under Section 151 of the CPC - alternatively, the dissenting Debenture Holders be given a right to stand outside the Resolution Plan and pursue other legal means as available in law - HELD THAT:- As considering the law laid down by the Supreme Court in SEBI Vs. Rajkumar Nagpal & Ors [2022 (9) TMI 110 - SUPREME COURT] which holds that the SEBI Circular dated 13th October, 2020 has retroactive application, it is not open for the Applicant by way of this present Interim Application to contend otherwise. The moulding of relief can only be done by the Supreme Court under Article 142 of the Constitution of India. This Court under Section 151 of the CPC does not have the powers akin to Article 142 of the Constitution of India.
Exercise of powers u/s151 of the CPC is limited to only those circumstances where procedural gaps exists and which is not expressly or impliedly provided for in the CPC, so as to ensure substantive justice is not obliterated by hyper technicalities. This Court whilst exercising jurisdiction under Section 151 cannot be do something contrary to what the statute lays down. The SEBI Circular dated 13th October, 2020 has received the force of law by the said judgment and order dated 30th August, 2022 of the Supreme Court which holds the SEBI Circular to have retroactive effect.
It is a conceded position that in accordance with SEBI’s Circular dated 13th October, 2020, the requisite majority has not been achieved for approval of the Resolution Plan tabled for approval of at the meeting held on 13th May, 2022. As taken note of the manner in which the Supreme Court has moulded the relief in approving the Resolution Plan which was the subject matter of those proceedings. As noted the observations of the Supreme Court which are in Paragraph 88 and 89 wherein notice has been taken regarding the small Retail Debenture Holders whose exposure is not more than Rs.10 lakhs in that case being in a position to recover 100% of their admitted dues under the Resolution Plan.
There can be a comparison drawn between that case and the present case, wherein a similar pattern arises if one was to consider the approval of the Resolution Plan.
In the present case this would benefit the small Retail Debenture Holders having exposure upto Rs.5 lakhs being in a position to recover 100% of their principal dues. These small Retail Debenture Holders number 19353 out of the total 20861 Debenture Holders. However, the moulding of relief as had been done by Supreme Court in approving the Resolution Plan in the case of RCFL cannot be done by this Court in exercise of its inherent powers under Section 151 of the CPC for approving the Resolution Plan of the Applicant as has been sought for it in the present Interim Application.
In view of the above finding it is not necessary to go into the other arguments of SEBI that by the filing of the present Interim Application, the Applicant has overriden the prior orders of this Court.
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2022 (12) TMI 237
Public Interest Litigation - Regulations seeked to Time Share Companies as Collective Investment Scheme (CIS) under SEBI Act and the Collective Investment Schemes Regulations, 1999 (“CIS Regulations”) - scheme or arrangement to be qualified as a CIS as defined under the SEBI Act - substantial public interest for entertaining this petition - this petition has been instituted is that the rights of several million residents of India are adversely affected due to malfunctioning, fraud, misrepresentation and other wrongful and/or illegal activities of various Time Share Companies - as submitted since Time Share Companies were not included in the exempted categories and considering their mention in the interim report, they would be covered under the definition of CIS as a scheme or arrangement in section 11AA(1) of the SEBI Act
HELD THAT:- Once the Parliament has included the provisions with respect to CIS after considering the Dave Committee report and which provisions have been held to be intra vires in the decision of Rose Valley Kolkata [2013 (9) TMI 623 - CALCUTTA HIGH COURT] as quoted above, it would not be necessary for us to dwell any further on this aspect.
In view of the above discussion, in our considered view, the reliance by the Learned Counsel for the Petitioners on the decision of Rose Valley Kolkata (supra) does not advance the case of the Petitioners.
Petitioner’s reliance on the Securities Appellate Tribunal decision in the case of Chandrasen Ganpatrao Bhise Vs. Securities and Exchange Board of India [2022 (3) TMI 1449 - SECURITIES APPELLATE TRIBUNAL MUMBAI] in support of the contention to bring all time share schemes within the ambit of CIS also appears to be misplaced in as much as in the specific facts of that case a reference has been made to the finding of the Tribunal that the time sharing business of the company was a CIS. Moreover that was a case filed by one of the directors of a company namely Pancard Clubs Limited on whom a penalty had been levied under Section 15HA for fraudulent and unfair trade practice for violation by the company of not registering the CIS under Section 12(1B). In the said case the Tribunal quashed the imposition of penalty on the director holding that the penalty for non-registration was under Section 15D(a) and not under Section 15HA as the director had not indulged in fraudulent and unfair trade practice.
In our view, the finding that the time sharing scheme that is selling of rooms for a fixed duration of nights / days depending upon the scheme opted by its customers was held to be a collective investment scheme by the Tribunal itself demonstrates that on a case to case basis after due examination of the facts, the Tribunal may come to a conclusion that a particular scheme is a Collective Investment Scheme. However, that does not mean that every time sharing scheme of selling rooms for a fixed duration of nights and days would be a collective investment scheme, as submitted by the Learned Counsel for SEBI.
True that the innocent and gullible investors need to be protected against the abuse in the name of Time shares. However as mentioned above, SEBI – the Regulator being fully empowered to do so, it would therefore not be necessary for us to give any such directions to the Regulator.
The purposes for which a public interest litigation can be instituted has been very succinctly elucidated by the Supreme Court in the case of State of Uttaranchal Vs. Balwant Sing Chaufal & Ors [2010 (1) TMI 1095 - SUPREME COURT] where it has been clearly observed that PIL can be filed only for the following three purposes and not otherwise:
(i) for enforcement of fundamental rights of marginalized and deprived sections of the society;
(ii) for preservation of ecology and environment;
(iii) for purity in public administration and probity in governance
Having said so, even if such companies, keeping in mind the complex nature of the schemes and the arrangements by which people contribute monies into pools under promises of rights to holidays and the segment of the population that they may touch, require a separate regulation as canvassed by the Learned Counsel for the Petitioners, that clearly in our view is not the job of the Courts. The Supreme Court in the case of Mallikarjuna Rao and Ors v. State of Andhra Pradesh & Ors [1990 (4) TMI 307 - SUPREME COURT], has categorically held that the High Courts or the Administrative Tribunals cannot issue a mandate to the Government to legislate nor recommend / advise / direct legislation on a subject nor even require the executive to exercise its rule making power in any manner.
Applying the aforesaid principles, the present petition, in our considered view, does not fall within any of the aforesaid categories and cannot be styled or filed as a Public Interest Litigation as it is neither for enforcement of fundamental rights of marginalized and deprived sections of the society nor for preservation of ecology and environment nor for purity in public administration and probity in governance but seeking directions to the Respondents to either enforce the provisions pertaining to CIS Regulations against Timeshare companies, which we have found to be without any merit or in the alternate, issue directions to formulate legislation / guidelines / regulations, which we have already held to be de hors the scope of our constitutional mandate under Article 226.
Petition deserves to be dismissed and is hereby dismissed with costs of Rs. 25,000/- to be paid by the Petitioner to the SEBI, within a period of two weeks.
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2022 (11) TMI 1430
Power of SEBI to initiation action against Chartered Accountant (CA) / Auditor of the company - Default by Auditor - negligence in certification of accounts of listed companies and lack of professionalism - Criminal case against the Company for cheating banks on the basis of manipulated financial credentials - auditor of company restrained directly or indirectly from issuing any certificate related to audit of listed companies, compliance obligations of listed companies and intermediaries registered with SEBI - charge against company as executive directors have colluded in ensuring that the Company’s financials were misstated thereby defrauding investors and that the directors were responsible for the affairs of the Company - allegation against the auditor / appellant was that the said noticee was responsible for negligence in certification of accounts of listed companies and lack of professionalism skepticism in audit and therefore alleged that all the noticees including the appellant were engaged in dubious accounting practices to defraud the investors by manipulating the financial statements thereby violating the provisions of Section 12A(a), (b) & (c) of the SEBI Act read with Regulation 3 and 4 of the SEBI - PFUTP Regulations - allegation against the appellant was that it colluded with noticee nos. 2 and 8 being CMD and Director (Finance) (ED) respectively
HELD THAT:- As finding of the WTM that the appellant had colluded with noticee nos. 2 and 8 in the fraud perpetuated by the Company and manipulated financial statements of the Company is patently erroneous based on surmises and conjectures and is also perverse.
The charge is, that directors have colluded in ensuring that Company’s financials are misstated. The charge against the appellant that it was not only negligent in the certification of accounts but was also engaged in dubious accounting practices to defraud the investors by manipulating the financial statements. This charge of manipulating the financial statements by colluding noticee nos. 2 and 8 was required to be proved by the respondent SEBI. Merely by holding that the appellant did not raise any query with regard to the transfer of funds and failure on the part of the appellant to raise red flags with respect to instances of fake transactions may show negligence on the part of the appellant but cannot amount to collusion between the Company and the appellant or between the appellant and noticee nos. 2 and 8 nor can it lead to a conclusion that the appellant was involved in the manipulation of the accounts of the Company.
The charge in the show cause notice is, that the appellant has colluded with the directors, namely, noticee nos. 2 to 9 and not with the Company. There is no finding given in the impugned order of any collusion between the appellant with noticee nos. 2 and 8 or between noticee nos. 2 to 9.
The finding that the appellant had colluded with noticee nos. 2 and 8 to commit fraud is patently erroneous and is based on surmises and conjectures.
Penalizing the appellant on the charge that the appellant was colluding with noticee nos. 2 and 8 is patently erroneous and cannot be sustained. However, we find that the Disciplinary Committee of the Institute of Chartered Accountants of India (ICAI) found that appellant guilty of issuing an incorrect certificate dated June 4, 2009 certifying that BBIL had incurred capital expenditure for a sum of Rs. 90.49 crore as on March 31, 2009 which was variance to the figures shown in Schedule (V) of the balance sheet. The Disciplinary Committee observed that the appellant did not exercise due diligence while certifying the certificate in respect of capital expenditure and observed that the appellant was guilty of professional misconduct within the meaning of Clause (7) and (8) of Part I of Second Schedule to the Chartered Accountants Act, 1949 and consequently reprimanded the appellant.
Though the WTM observed that the disciplinary proceedings has no bearing to the outcome of the proceedings involved, we are of the opinion, that these proceedings have a material bearing which has to be taken into consideration.
The finding given by the Disciplinary Committee is, that the appellant was guilty of professional misconduct and that it did not exercise due diligence while certifying the certificate in respect of capital expenditure. For such incorrect issuance of certificate the investors could be misled and SEBI was well within its right to penalize the appellant.
Consequently, even though falsification of the certificate has not been taken into consideration, we are of the opinion that in the given facts and circumstances, the appellant is liable to be penalized for certifying an incorrect statement of the capital expenditure.
Direction of the WTM restraining the appellant from issuing any certificate related to audit of listed companies etc. is reduced from one (1) year to three (3) months. The appeal is partly allowed.
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2022 (11) TMI 1372
Review application - Violation of the SEBI Act - misrepresentation of financials and violation of the accounting standards - non-furnishing of information to the Forensic Auditor was violative of Section 11(2)(i) of the SEBI Act - HELD THAT:- Having heard the learned counsel for the applicant we do not find any palpable error in our [2022 (7) TMI 1428 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] - The review application is dismissed.
This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
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2022 (10) TMI 1216
Power of SEBI to initiation action against Chartered Accountant (CA) / Auditor of the company - Professional negligence by Auditor/CA - IPO proceeds were utilized for the objects other than those mentioned in the prospectus - Sebi alleged actual utilization of IPO proceeds was significantly different from the certificate issued by the appellants and the utilization certificate did not carry any qualification even though the appellants had access to bank statements and books of accounts of the Company - Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - HELD THAT:- AO has only established that the appellants have falsely certified the Unqualified Utilization Certificate. There is no finding that the appellants were party to preparation of false and fabricated accounts. There is no finding that the appellants had manipulated the books of accounts with knowledge and intention in the absence of which the appellants cannot be accused of fraud.
There is also no finding by the AO on collusion with the Company in the absence of which the charge of aiding and abetting the Company cannot be sustained. It is an admitted fact that the appellants had qualified the annual accounts on the matter of utilization of funds of the IPO and such a qualification is mentioned in the Annual Report which is in the public domain. In absence of a finding that there was deceit or inducement, the appellants can only be held guilty for professional lapse or negligence for which the appropriate authority to take action is ICAI. SEBI has already made a complaint to the ICAI in the instant case and ICAI is holding an inquiry against the appellants.
Section 12(A)(a) & (b) of SEBI Act is not applicable to the appellants as they are not dealing in securities. Further, in absence of proof of fraud, connivance, deceit or manipulation Section 12(c) of SEBI Act and Regulation (3) and (4) of PFUTP Regulations are not applicable.Thus, for the reasons stated aforesaid, the impugned order cannot be sustained and is set aside.
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2022 (10) TMI 1180
Compulsory delisting against the company - Payment of reinstatement fee to the Exchange - HELD THAT:- Having heard the learned counsel for the applicant, we do not find any manifest error in our order requiring a review. The Review Application fails and is dismissed.
This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
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2022 (10) TMI 641
Power of SEBI to initiate action against the company or its directors who have defaulted in payment of dividend - non payment of dividends - Whether the complaint filed by the respondent is barred by limitation as specified under Section 468(2) of Cr.P.C.? - HELD THAT:- A reading of the unamended Section specifies that the company and its directors are said to have committed an offence if the dividends are not paid within 42 days from the date of declaration. There is no provision that the company or its directors shall also be liable to pay a fine of Rs.1000 everyday during which such default continues. Hence, the offence committed under the unamended section was not a continuing offence. The decisions relied upon by the learned counsel for petitioners were rendered with reference to unamendend section and the same are not applicable to the present case since the offence alleged to have been committed by the Petitioners is under the amended section which is a continuing offence. Hence, the complaint is not barred by limitation as specified under Section 468(2) of Cr.P.C.
Whether the respondent has locus-standi to maintain the complaint when the dividends were already paid to the shareholders as on the date of filing the complaint? - A combined reading of Section 55(A) and Section 207 clearly indicates that the SEBI is vested with power to safeguard the interests of the shareholders in the matter of non payment of dividends and the moment the dividends are paid, the SEBI has no power to initiate any action against the company or its directors who have defaulted in payment of dividend within 30 days as specified under Section 207 of the Act. Section 621 clearly specifies that the shareholder/registrar of companies/person authorized by a central government can only maintain a complaint for the offence punishable u/s 207 even though the dividends are paid, since criminality does not get absolved on payment of dividends after the stipulated time. Hence, Point No.2 is answered affirmatively in favor of the Petitioners.
For the foregoing discussions, the respondent had no locus standi to file the complaint and the cognizance taken on the said complaint stands vitiated.
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2022 (10) TMI 526
Registration of stock brokers, sub-brokers, share transfer agents with SEBI - Single registration with SEBI as sufficient even if the stock broker has various memberships and functions from several stock exchanges - Whether under the Act 1992, a stock broker has to obtain a certificate of registration from SEBI for each of the stock exchanges where he operates or whether a single certificate of registration from SEBI is sufficient and the same would enable him to trade in all other stock exchanges? - Whether the ad valorem fee to be paid for an initial period of five years will recur with every such registration?
HELD THAT:- High Court, in our view, appears to be influenced by the expression ‘a certificate of registration’ referred to under Section 12(1) of the Act, 1992 but has failed to notice that the expression ‘a certificate’ is not in reference to any number and it can be considered that the words in the singular shall include plural as well, and has failed to notice that certificate of registration has to be obtained from the Board in accordance with the regulations framed in exercise of power under Section 30 of the Act 1992.
The very scheme of rules framed by the Central Government in exercise of power under Section 29 and regulations framed by the Board under Section 30 of the Act, 1992 has been completely misplaced which indeed has a statutory force. Although the scheme may be in the nature of subordinate legislation, the same has superior force and supplements a mechanism/ procedure according to which the member (stock broker) of the stock exchange has to obtain certificate of registration from the Board and issuance of certificate of registration from SEBI remain co-terminus with the stock exchange to which the stock broker is a member and that being the reason, Reg. 10 read with Schedule III lays down the procedure according to which the fees has to be paid/deposited by the stock broker in obtaining certificate of registration from SEBI in reference to the stock exchange and for its renewal at a later stage for keeping its registration in force.
When the law has to be applied in a given case, it is for the Court to ascertain the facts and then interpret the law to apply on such facts. Interpretation, indeed, cannot be in a vacuum or in relation to hypothetical facts. It is always the function of the legislature to say what shall be the law and it is only the Court to say what the law is and this Court applied the principle of purposive construction while interpreting the law to apply to such facts. A statute has to be construed according to the intent that makes it and it is always the duty of the Court to act upon the true intention of the legislature. If a statutory provision is open to more than one interpretation, it is always desirable of the Court to choose the interpretation which represents the true intention of the legislature. It is also well-settled that to arrive at the intention of the legislation, it is always depending on the objects for which the enactment is made, the Court can resort to historical, contextual and purposive interpretation leaving textual interpretation aside.
Thus, while interpreting the statutory provisions, the Court is always supposed to keep in mind the object or purpose for which the statute has been enacted.
The conjoint reading of the expression “a certificate” as referred to in Section 12(1) of the Act read with the scheme of Rules, 1992 and Regulations 1992, leads to an inevitable conclusion that the stock broker not only has to obtain a certificate of registration from SEBI for each of the stock exchange where he operates, at the same time, has to pay ad valorem fee prescribed in terms of Part III annexed to Regulation 10 of the Regulations, 1992 in reference to each certificate of registration from SEBI in terms of the computation prescribed under Circular dated 28th March, 2002 and fee is to be paid as a guiding principle by the stock broker which is in conformity with the scheme of Regulations 1992.
So far as the emphasis which was made to the expression ‘date of initial registration’ as referred to in Schedule III(I)(1)(c) is concerned, it is in relation to a certificate of registration which has been obtained by the stock broker from SEBI, which in turn is in relation to the stock exchange of which he is a member. After the expiry of five financial years from the date of initial registration, in reference to the stock exchange, the fee has to be deposited for the purpose of sixth financial year to keep his registration in force.
Insofar as the procedure of charging fees as prescribed under Schedule III annexed to Regulation 10 of the Regulations, 1992 is concerned, it has already been examined by this Court, in B.S.E. Brokers’ Forum, Bombay and Others [2001 (2) TMI 957 - SUPREME COURT]and needs no further deliberation of this Court.
As in the case where stock broker is declared defaulter or disqualified to continue as a stock broker in reference to one of the stock exchanges, in terms of SEBI Circular SEBI/MIRSD/Master Cir-04/2010 dated 17th March, 2010, it has been notified that such stock exchange shall immediately inform all other stock exchange(s) the details of the defaulter member such as name of the member, the names of the proprietors/partners/ promoters/dominant shareholders, as applicable. This may be a mechanism according to which if the stock broker who is a member of the stock exchange commits default, or on being disqualified to continue as a member, consequential actions could be taken against him pursuant to the circular to which a reference has been made. However, this is not a question to be examined by this Court in the instant proceedings.
Consequently, the appeal deserves to succeed and is accordingly allowed and the judgment and order passed by the Division Bench of the High Court is hereby quashed and set aside.
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2022 (9) TMI 1485
Maintainability of the writ petition against SEBI - efficacious alternative remedy of preferring an appeal in terms of Section 15T - Recovery proceedings against past director - HELD THAT:- It would be open to the Recovery Officer to examine all issues and contentions including that of the petitioner not being liable in terms of the original order passed. Judge had further observed that in case the Recovery Officer find merit in the challenge so raised, it would not continue the proceedings as initiated against the petitioner.
It was further observed that in case it reached a contrary conclusion, it would be open for the Board to continue to hold the monies and utilise the same in accordance with law. Learned counsel seeks to draw sustenance from the fact that subsequently and pursuant to the directions issued by this Court on the earlier writ petition, the Recovery Officer had in fact by an order of 22 March 2018 withdrawn all proceedings which had been initiated against the petitioner. It is in aforesaid backdrop that learned counsel contended that the petitioner is not liable to be relegated to the alternative remedy.
The Court finds itself unable to sustain the aforesaid submission for the reason that the order of the Recovery Officer does not record any categorical findings on whether the petitioner was or was not liable in terms of the original order which had been made by the Board.
The issues which were canvassed before this Court in the earlier writ petition thus do not appear to have been decided or ruled upon on merits. In any case, the present proceedings which flow from the power of the respondents to levy penalties under the Act stand on a completely distinct footing.
In that view of the matter, it would be appropriate for the petitioner to raise all objections and contentions before the Appellate Tribunal.
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2022 (9) TMI 1426
Interim Application seeking orders to open the sealed envelope and disclose the voting results of the meeting of the Debenture Holders convened - Holding of the meeting was pursuant to the orders of this Court - HELD THAT:- There is merit in the submission of the Mr. Sharan Jagtiani, particularly considering the order dated 10th August, 2022 of the Supreme Court. The meeting of the debenture holders was convened by Respondent No.2 on 13th May, 2022. Pursuant to orders of this Court dated 31st March, 2022 and 6th April, 2022 in Interim Application (L) No [2022 (5) TMI 1510 - BOMBAY HIGH COURT] 25571 of 2021 filed by the Plaintiff.
The voting results of the said meeting had been placed in the sealed envelope pursuant to order dated 10th May, 2022. The contention of the Mr. Mustafa Doctor that the voting has not taken placed in accordance with said SEBI’s circular can be considered on the opening of the sealed envelope containing the voting results. The order of the Supreme Court dated 30th August, 2022 holds that the SEBI’s circular has retroactive application and voting would have to be as per the ISIN wise voting.
The sealed envelope containing the voting results of the meeting held on 13th May, 2022 shall be opened and made available to the Advocates for the parties in order to assist the Court as to whether the requisite majority as required in accordance with the circular of SEBI dated 13th October, 2020 has been achieved during the course of the meeting. The voting results shall not be publicised prior to such determination. This shall be without prejudice to the rights and contentions of the parties in the present proceedings.
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2022 (9) TMI 1072
Offence under SEBI ACT - Insider trading - violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 - HELD THAT:- The contention of the appellant that SEBI took note of the situation in which the respondent was placed and the dire need that he had to sell the shares and that therefore SEBI confined the final order only to disgorgement, is neither here nor there. This argument is actually an argument of convenience. It so happened in this case that according to SEBI the closing price of the stock on 03.09.2013 showed favourable position for the respondent and SEBI was able to calculate as though the respondent made a profit. But if a company is likely to gain strength by making a significant change in its policy, the price of its securities is likely to shoot up. Despite such a natural phenomena, if a person sells his stocks without waiting for the market trend to show up, it can only be taken as a sale, devoid of any desire to make unlawful gains, even if it cannot be termed as a distress sale.
In SEBI vs. Kishore R. Ajmera [2016 (2) TMI 723 - SUPREME COURT] this Court was concerned with the question as to what is the degree of proof required to hold a broker liable for fraudulent/manipulative practices under SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 as well as the Conduct Regulations of 1992. After taking note of the fact that SEBI Act and the Regulations framed thereunder are intended to protect the interest of investors and that the provisions of the Act and the Regulations have to be understood and interpreted
An attempt by the insider to encash the benefit of the information is not exactly the same as mens rea. Therefore, the Court can always test whether the act of the insider in dealing with the securities, was an attempt to take advantage of or encash the benefit of the information in his possession. This is the test we have applied to the case on hand.
In Chintalapati Srinivasa Raju [2018 (5) TMI 931 - SUPREME COURT] this Court approved the minority judgment of the Securities Appellate Tribunal (in para 20), which took note of the compelling circumstances under which the individual was selling shares. The fact that this has been taken note of by WTM as a mitigating factor, while passing a mere restitutionary order, does not take away the validity of the defence taken by the respondent.
We are of the view on Question No.1 that the information regarding the termination of the two contracts can be characterised as price sensitive information, in that it was likely to place the existing shareholders in an advantageous position, once the information came into the public domain. In such circumstances, our answer to Question No.2 would be that the sale by the respondent, of the shares held by him in GIPL would not fall within the mischief of insider trading, as it was somewhat similar to a distress sale, made before the information could have a positive impact on the price of the shares.
Appeal is dismissed
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