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2015 (5) TMI 484 - SECURITIES APPELLATE TRIBUNAL MUMBAI

2015 (5) TMI 484 - SECURITIES APPELLATE TRIBUNAL MUMBAI - TMI - Suspension of the trading in the securities of the appellant company w. e.f.07/01/2015 - Notice put up by the Bombay Stock Exchange Limited on its website as on 01/01/2015 - SEBI directed the Stock Exchanges to suspend the trading on charges of market manipulation - Concurrent decision by members of tribunal with same conclusion - Held that:- First set of reasoning - Justice J.P. Devadhar - According to the BSE trading in the securi .....

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o the appellant, the name plate of the appellant was in fact displayed just below the name plate/board of Sheorey. This fact is seriously disputed by BSE. Existence of a company is not to be determined on the basis of name plate/board . It is also held that when BSE official gave surprise visit, no employee of the appellant was present at the said address and hence the appellant cannot be said to be existing at the address mentioned. It is not in dispute that the BSE official who gave surprise v .....

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f BSE that the appellant-company does not exist at the address mentioned and does not carry on business from the said premises and thus fulfils the first parameter set out in the SEBI minutes dated 10/12/2014 cannot be sustained.

Second parameter that wide fluctuations in preferential share price of the company - If a defunct company like the appellant revives it business by pumping in finance through the issuance of preferential shares duly approved by BSE and there after corporate a .....

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minutes dated 10/12/2014 are satisfied in the present case is unsustainable. mere fact that the preferential shareholders after the lock-in period have sold their shares cannot ipso-facto be a ground for suspending the trading in the shares of the appellant-company. Also assuming that the preferential shareholders who had traded in the shares of the appellant-company had prima-facie indulged in market manipulation, then those preferential shareholders could be restrained from buying, selling or .....

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preferential shares from time, to time the appellant-company has raised ₹ 38.36 crores. Thereafter, the appellant-company has commenced its business of film production by entering into contracts with reputed entities/persons in the film industry and that film production has already commenced. Neither the execution of contracts nor commencement of film production is disputed by the BSE. Admittedly, corporate announcements made by appellant regarding raising funds through preferential share .....

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or before passing the reasoned order on 12/01/2015, the appellant was called upon to explain the manner in which the funds collected by issuing preferential shares have been utilized. However, in the order dated 12/01/2015 it is alleged that no particulars have been given as to how the funds have been utilized. Such a finding recorded without seeking any explanation from the appellant is wholly unjustified. In order to demonstrate bonafides on part of the appellant, counsel for appellant submit .....

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any did not exist at that address and apparently Company tried to correct this by putting sign-board subsequently, but Company is right in stating there is no requirement-in-law for an official of the Company to be present there during working hours, when a receptionist existed, at premises, to take a messages and he conveyed the message also. Regarding second parameter- "Weak financials and price rise in the scrip not supported by the parameters, it is admitted by Company that financial results .....

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ara 4.5 (c) which shows increase in shares traded and average volume, before and after lock-in period. It was seen that average was arrived at by dividing no. of shares traded by number of days scrip was traded, before and after lock-in and since no. of days of trading before and after lock-in were different and hence comparison of company's averages traded volume, before and after lock in, is not correct for arriving at informed decision.

Towards the end question of dealing with the .....

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egal activity - without addressing the issue transparently or even consciously.

For all the aforesaid reasons, the impugned order dated 01/01/2015 in so far as it relates to the appellant as also the order dated 12/01/2015 recording reasons for suspending the trading in the shares of the appellant-company are quashed and set aside subject to the following condition that Promoters of the appellant-company shall not buy, sell or deal in the securities of the appellant-company till 30/06 .....

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that the impugned orders cannot be sustained, however, for the reasons recorded herein. 2. This appeal is filed to challenge the notice put up by the Bombay Stock Exchange Limited ('BSE' for short) on its website on 01.01.2015. By that notice all the trading members of the BSE were informed that the trading in the securities of 22 companies named thereunder including the trading in the securities of the appellant-company would be suspended with effect from 07.01.2015 until further order .....

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his appeal is, whether BSE is justified in suspending the trading in the securities of the appellant with effect from 07/01/2015 for the reasons recorded by it on 12.01.2015 after granting post decisional hearing. 5. Facts relevant for the purposes of the present appeal are that the appellant is a public limited company engaged in the activity connected with the entertainment market such as film making. Shares of the appellant-company are listed on the BSE. However, trading in the shares of the .....

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ential shares to non-promoters subject to complying with all applicable provisions of the Companies Act, SEBI Act and the Regulations framed thereunder as well as the Rules and Regulations of the BSE. 7. On being satisfied that the proposal put forth by the appellant was in order, BSE by its letters dated 01.03.2013 and 22.11.2013 granted in principle approval for issuance of 1,79,70,000 and 74,45,000 equity shares of ₹ 10 each at par to other than promoters on a preferential basis in term .....

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lant-company rose to 3,48,80,000 shares out of which 3,15,89,450 shares are held by the general public (including preferential shareholders) and 32,90,550 shares are held by the promoters of the appellant-company. 8. According to BSE, decision to suspend trading in the securities of the appellant was taken as per the directions given by SEBI contained in the minutes of the SEBI Surveillance Committee Meeting held on 10.12.2014 with the Stock Exchanges. In the said minutes, it is recorded that th .....

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uring one year period of lock-in. After lock-in huge rise in volumes and exit of preferential allottees. This may be coupled with stock split. (c) Companies having week financials and the price rise in such scrip is not supported by financials. According to BSE the appellant-company fulfills all the aforesaid three parameters laid down in the minutes of Surveillance Committee Meeting held on 10.12.2014, and therefore the BSE by its notice dated 01.01.2015 has sought to suspend trading in the sha .....

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ties of the appellant. It does not specify the provision of law that is allegedly violated by the appellant and does not specify the period for which the trading in the securities of the appellant shall remain suspended. Such a notice which does not contain facts or reasons for suspending the trading in the shares of the appellant cannot be said to be an order passed in accordance with law and hence unsustainable. In support of the above contentions reliance is placed on the decisions of the Ape .....

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utes of the Surveillance Committee Meeting cannot be sustained. In support of the above contention reliance is placed on decisions of this Tribunal in case of Kaplana Plastiks Ltd. v. BSE (Appeal No. 78 of 2011, dated 09.11.2011) and Padmini Engg. (P.) Ltd. v. BSE (Appeal No. 51 of 2006, dated 27.05.2008). (c) By the impugned notice dated 01.01.2015 trading in the securities of the appellant is sought to be suspended with effect from 07.01.2015. Obviously, there was no grave and emergent situati .....

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prohibition of dealing in securities. In the present case, trading is suspended by BSE and that power could be exercised only by the Governing Board of BSE. Since the impugned action is not taken by the Governing Board of BSE, the impugned action is bad in law. Although Bye law 39 is amended by BSE on 16/01/2014 and instead of the Governing Board the 'Exchange' is empowered to suspend dealings on the Exchange for such period or periods as it may determine, the said amendment does not emp .....

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of Gujarat High Court in case of Alka Synthetics Ltd. vs. SEBI reported in (1995) 95 Comp. Cas 663 (Guj) and a decision of Karnataka High Court in case of Bharat Electronics Ltd. v. BEL Head Officer Staff Association reported in 2001(3) Kar L. J. 201, it is submitted that when an order is passed whether in exercise of its administrative functions or quasi judicial functions, reasons recorded in the said order alone has to be considered and the reasons cannot be supplied by other documents or ev .....

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ems Limited (a group company of the appellant) and part of that premises is being used by the appellant pursuant to the permission in writing granted by Sheorey Digital Systems Limited on 29/07/2013. Documentary evidence such as written permission granted by Sheorey Digital Systems Limited in favour of the appellant to occupy part of the aforesaid premises, print outs from the master data maintained by the registrar of companies showing both the companies (Sheorey Digital Systems Limited and the .....

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f the appellant nor there was the name plate of the appellant-company is not correct, because, name plate was in fact displayed outside the office premises as is evident from the photographs furnished by the appellant to the BSE. As regards the allegation that no employee of the appellant was present when the BSE official visited the office, it is submitted that Mr. Morne, an employee of the appellant present at the office, had met the BSE official and had informed him that Mr. Cyrus Bhot who lo .....

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SE official did not contact Mr. Bhot on the next day. In these circumstances, it is submitted that the decision of SEBI that the appellant-company neither exists at the registered address nor is carrying on any business is wholly unsustainable. (h) The second parameter set out by SEBI in the draft minutes dated 10.12.2014 required BSE to identify the companies which have made preferential allotments and if the price of the scrip of those companies increased with very low volume during the first .....

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uction Agreement dated 09/10/2013 entered into by and between appellant and Abbas Mustan Film Productions Pvt. Ltd. ('AMFP' for short) for production of a film. AMFP is a reputed and well known entity inter-alia engaged in the business of creating, managing, supervision, developing creative content for and supervision and executing the production and distribution of cinematograph films. (b) Film Director Agreement dated 25/08/2014 entered into between appellant and Mr. Abbbas Burmawala/M .....

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shareholders, wherein it is agreed that the appellant would invest funds in Four Lions Films Private Limited and acquire 50% shares of that company, which is engaged in the business of production of Cine Films, TV Serials, Advertising Films, Telefilms, Documentary Films, Feature Films etc. Corporate announcements made by the appellant to the above effect were duly displayed on the BSE website from time to time. Thus, the investors had every reason to believe that the appellant has bright future .....

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er the lock-in period cannot be a ground to suspend the trading in the scrip of the appellant-company. Fact that some of the preferential shareholders in the appellant-company, namely, Dilip Jiwrajka, Surendra Jiwrajka, Ashok Jiwrajka and Kamal Jajoo were also preferential shareholders in Moryo Industries Ltd. and Radford Global Limited and in those cases they have been restrained by SEBI from buying, selling or dealing in the securities market either directly or indirectly in any manner till fu .....

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preferential shares or the promoters of the of appellant-company have traded in violations of the norms laid down by SEBI/BSE. (j) Trading in 6,01,877 shares of appellant-company throughout the year commencing from 15.03.2014 to 06/01/2015 as against the total quantity of 3,48,00,000 shares issued by appellant cannot be said to be abnormal trading. Moreover, if the criteria was to suspend the trading in the shares of loss making companies, then there were several loss making companies and there .....

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, then the proper course is to pass an order against that person and not to suspend the trading in the shares of the company. In the present case, from the price volume chart of BSE, it is seen that the increase in the price has in fact started from September 2014 after the appellant-company came out with third preferential issue at a premium of ₹ 23/- per share and the same was duly approved by BSE and intimated to the investors through the BSE website. In such a case, neither the appella .....

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hose cases had connived with the appellant or its promoters and had indulged in market manipulations in the scrip of the appellant. Hence suspending the trading in the shares of the appellant-company is wholly unjustified. 10. Mr. Modi, Learned Senior Advocate appearing on behalf of BSE submitted as follows: (a) Pursuant to a reference from the income tax department that Stock Exchanges are used as a platform for illegal gains through market manipulation, SEBI on investigation passed ad-interim .....

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d a lock-in period. (iii) funds received on preferential allotment were not used for the purpose as disclosed and there was no major change or improvement in the performance of the concerned companies, yet there was considerable increase in the prices of the shares of those companies. (iv) the market prices were manipulated by parties who were found to be connected to the concerned companies and/or the allottees, and the prices were pushed up substantially on relatively small volumes. (v) once t .....

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the SEBI Surveillance Committee Meeting held with Stock Exchanges on 10/12/2014, SEBI urged the Stock exchanges to suspend the trading of shares of companies which satisfy any one or more of the three parameters set out in the minutes recorded on 10/12/2014. Thereafter by e-mails dated 19/12/2014 and 29/12/2014 SEBI insisted that the exchange must immediately implement the directions contained in the minutes dated 10/12/2014 by suspending the trading in the securities of those companies which fu .....

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d by its order dated 12/01/2015 recorded that the appellant was covered within the three parameters set out in the minutes dated 10/12/2014, and therefore, the trading has been correctly suspended and that the suspension ought to be continued till the investigation carried out by SEBI is completed. (d) Argument of the appellant that the power to direct suspension is only with the Governing Board under Bye Law 39 is not correct. Under Bye law 21, power conferred on the Governing Board and Executi .....

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change and Clearing Corporations) Regulations, 2012. Apart from the above, the Board of Directors of BSE on 12/02/2015 have confirmed that the MD and CEO had the requisite power to pass the order and suspension of trading under Bye Law 21 and it has also confirmed, ratified and approved all actions taken on 01/01/2015. (e) Regarding the first parameter set out in the minutes dated 10/12/2014, it is submitted that as per the site inspection report, there was no name plate/board of the company and .....

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the BSE. Thus, the appellant has fabricated false evidence to mislead this Tribunal and committed perjury. (f) contention of appellant that Sheorey had permitted the appellant to use part of its premises is unsustainable, because, the leave and license agreement between Sheorey and the Trustees of Tarabai Trust, prohibits Sheorey from allowing user of the said premises in whole or in part to any person/persons. The telephone bill, bank statement produced by the appellant merely show the mailing .....

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second parameter prescribed by SEBI is also satisfied in the present case. Admittedly the appellant had made three preferential allotments during the period from March 2013 to September 2014. By issuance of the said preferential shares appellant has raised ₹ 38.36 crores, while its previous paid up capital was only ₹ 5 crore consisting of ₹ 50 lac shares of ₹ 10/- each. The preferential allottees together hold approximately 86% of the company's total capital. The appe .....

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preferential allottees of the appellant-company, namely Dilip Jiwrajka, Surendra Jiwrajka, Ashok Jiwrajka and Kamal Jajoo are the same parties against whom orders have been passed by SEBI in case of Moryo Industries Limited and Radford Global Limited. This cannot just be a mere coincidence. (j) Preferential allottees viz. Dharmendra A. Roliya & Dipika D. Roliya (holding 3,00,000 shares) sold part of their allotted shares at abnormal prices of about ₹ 26.50 (gain of about 165%) ₹ .....

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those decisions have any relevance in the present case. (l) In an emergent situation it is open to BSE to suspend trading without hearing and grant post decisional hearing. In the present case post decisional hearing is granted and reasons are recorded in the order dated 12/01/2015. (m) The third parameter specified in the minutes dated 10/12/2014 are also satisfied in the present case, because, admittedly during the previous three years the company's income has been shown in its own accoun .....

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ed by the appellant since the last three years. Merely, announcing execution of some contracts cannot justify the huge price increase. The contracts relied upon by the appellant does not remotely indicate the revenue likely to be earned by the appellant in the future. In these circumstances, exceptional price in the scrip from ₹ 2.67 to ₹ 149 between 16/12/2013 to 31/12/2014 which is a 5480.52% increase in the price is totally unbelievable and cannot be said to be genuine merely beca .....

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Meeting have not been disclosed to the public and therefore, the impugned order based on the above parameters are unsustainable, is without any merit, because, worldwide, surveillance is always done in a confidential manner and disclosure of the parameters in advance would have defeated the intention and enabled the parties to cover up to evade detection. In any event, the parameters have been now disclosed and the appellant was given full opportunity to respond and thereafter order dated 12/01 .....

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nd Sunday there were no trading on those two days and BSE always gives advance notice of 3-4 trading days time before suspension so that innocent investors can sell off the shares they hold, if they so desire. Therefore, making the order operative with effect from 07/01/2015 would not invalidate the impugned order. (r) When a prima facie view is formed that there is market manipulation, then, pending investigation, suspension of trading is the proper course to prevent further damage at the inter .....

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is of directions, which are formulated in Surveillance Meeting held on 10/12/2014 with a view to protect the interest of investors and the securities market. (b) Under Section 11 of SEBI Act, SEBI is empowered to take such measures as it thinks fit. Thus, the extent of the nature and the manner of taking measures that can be adopted by SEBI have been left to the discretion and wisdom of SEBI. Apex Court in case of Sahara India Real Estate Corpn. Ltd. vs. SEBI reported in (2013) 1 SCC 1 has consi .....

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of shares, which had a lock in period of one year. The market prices were manipulated by parties who were found to be connected to the companies or the allottees. The prices were pushed up substantially on relatively small volumes and once the lock-in period was over, the preferential allottees sold their shares at high prices to connected parties and made huge profits which were also exempt from long term capital gains tax. (d) SEBI noticed that other companies followed the trend as stated abov .....

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g the securities market and in case of First Financial Services Limited, 152 persons/entities are restrained from accessing the securities market. (e) In the Surveillance Committee Meeting held with the Stock Exchanges on 10/12/2014 it was decided that the Stock Exchanges shall immediately shortlist scrips by applying the three parameters specified therein and suspend the trading in such scrips with immediate effect which satisfy the aforesaid parameters and intimate the same to SEBI. Since appe .....

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2/2014 and 29/12/2014 Stock Exchanges were called upon to immediately comply with the minutes dated 10/12/2014. (g) The modus operandi, in these matters appears to be that the entities/persons wanting to convert their unaccounted money to white money, approaches Key Operator. The Key Operator and other entities find companies, which have weak financial, poor performance having barely any business and their stocks are traded at meager prices. The concerned companies then raise large amounts by pr .....

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to connected parties who are set up to buy the same by preferential allottees and make huge profits which were exempt from capital gains tax. The market platform in this type of transaction was misused by artificially rigging the price so as to have an unfair long term capital gains tax exemption. (h) SEBI as a market regulator, while not directly concerned with money laundering or tax evasion, is certainly concerned with the manipulation of the price of a scrip and to achieve that object, suspe .....

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hares of the appellant-company. In the present case, in view of the complex nature of investigation where large number of entities are involved and a number of transactions are required to be scrutinized, it would take at least one year for completion of investigation by SEBI. Accordingly, it is submitted, that pending investigation it is absolutely essential in the interest of investor protection to continue suspension of trading in the shares of the appellant company. 12. We have carefully con .....

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g, selling or dealing in securities until further orders. In those cases SEBI has held that the said companies in connivance with preferential shareholders of those companies and other related parties had indulged in market manipulations. If SEBI on investigation had found, prima facie, that the appellant has indulged in market manipulation, then SEBI would have passed ex-parte ad-interim order against the appellant as has been done in case of aforesaid three companies. Very fact that SEBI has n .....

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ipulation. 14. In the ex-parte-ad-interim order passed by SEBI on 04/12/2014 against Moryo Industries Ltd., its promotes, directors, preferential allottees and Moryo group entities, it is specifically recorded that Moryo Industries Ltd. did not have any business activity, that there were no corporate announcements and that certain entities related/connected to Moryo Industries Limited had substantially traded amongst themselves in shares of Moryo Industries Limited and created artificial volume .....

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he appellant if the three parameters set out in the minutes dated 10/12/2014 were satisfied. 15. Fact that some of the preferential shareholders of the appellant-company were also preferential shareholders of Moryo Industries Limited and Radford Global Limited and those preferential shareholders have been found to have prime facie connived with those companies along with its directors/promoters in resorting to market manipulation while trading in the shares of Moryo Industries Ltd./Radford Globa .....

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ies of the appellant. 16. According to the BSE trading in the securities of the appellant are suspended because, the appellant fulfils all the three parameters set out in the SEBI surveillance minutes dated 10/12/2014. Question, therefore to be considered is, whether BSE is justified in holding that the appellant-company satisfies the three parameters specified in the SEBI surveillance minutes dated 10/12/2014. 17. First parameter set out in the surveillance minutes dated 10/12/2014 is held to b .....

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ct displayed just below the name plate/board of Sheorey. This fact is seriously disputed by BSE. Existence of a company is not to be determined on the basis of name plate/board. In the present case, the facts and the documents produced by the appellant in support of its contention reveal the following:- (a) The record of Registrar of companies shows that Sheorey and appellant have the common address as the registered office address. (b) The BSE official who visited the premises does not dispute .....

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entered into contracts with third parties by showing the premises in question as the registered of the appellant. None of those contracts have been doubted. (f) Fact that in some contracts the appellant has erroneously shown their administrative office address as the registered address of the appellant cannot be a ground to hold that the appellant-company does not exist, especially when, existence of the administrative office is not disputed. In these circumstances, presumption drawn by BSE that .....

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loyee of the appellant) at the premises in question. It is also not in dispute that on the BSE official disclosing his identity, Mr. Morne informed that Mr. Cyrus Bhot who looks after the day to day affairs of the company had gone out for business work at Nariman Point. In fact Mr. Morne contacted Mr. Cyrus Bhot and in turn Mr. Cyrus Bhot spoke to the BSE official and offered all assistance in the matter. In these circumstances, decision of BSE that the appellant-company does not exist at the ad .....

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the lock-in period there is huge rise in the volume of trading and exit of preferential shareholders. Fact that the appellant-company had issued preferential shares with the approval of BSE cannot be a ground to hold that appellant has indulged in market manipulation. Similarly, fact that the share prices of the appellant-company started rising after the funds were pumped in after issuance of preferential shares and the share prices rose further, on account of the trades executed by some of the .....

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uance of preferential shares duly approved by BSE and there after corporate announcements have been made from time to time in relation to the business commenced by the appellant and those announcements were duly displayed on the BSE website, then rise in share prices of that company would be a natural phenomena and in such a case, in the absence of any evidence to the contrary it cannot be presumed that there must be market manipulation and pending investigation suspend the trading in the shares .....

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d the shares acquired by them on preferential basis. In such a case, mere fact that the preferential shareholders after the lock-in period have sold their shares cannot ipso-facto be a ground for suspending the trading in the shares of the appellant-company. Assuming that the preferential shareholders who had traded in the shares of the appellant-company had prima-facie indulged in market manipulation, then those preferential shareholders could be restrained from buying, selling or dealing in sh .....

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ecause, the appellant-company has weak financials and the price rise in the scrip of the appellant is not supported by the financials. Fact that during the last three years, the appellant had no income and had incurred losses could not be a ground to treat the appellant-company as having weak financials, because, financial position of the appellant started reviving only after the BSE approved issuance of preferential shares on 01/03/2013, 22/11/2013 and 03/09/2014. It is not in dispute that by i .....

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shares and also corporate announcements made by appellant regarding the contracts entered with reputed entities/persons were duly displayed on the BSE website so that the investors are made known about the revival of the appellant-company. In such a situation, inference drawn by BSE that the appellant-company has weak financials and the price rise in such scrips is not supported by financials is wholly unjustified. 22. Neither the SEBI nor BSE have deemed it fit to initiate action against those .....

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xchanges to suspend the trading in the securities of the companies if they satisfy certain parameters fixed by SEBI which have no bearing whatsoever with the alleged market manipulation. 23. At no point of time, either before passing the impugned order on 01/01/2015 or before passing the reasoned order on 12/01/2015, the appellant was called upon to explain the manner in which the funds collected by issuing preferential shares have been utilized. However, in the order dated 12/01/2015 it is alle .....

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the preferential shareholders has indulged in alleged market manipulation, cannot be a ground to suspend the trading in the shares of the appellant-company until further orders. SEBI through its counsel and also in its written submissions stated before us that it would take at least one year to complete the investigation and till then, it would be just and proper to suspend the trading in the shares of the appellant in the interest of investors. In the facts of present case, since there is not .....

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as conducted investigation in case of three companies and after finding prima facie evidence that those three companies were parties to market manipulation deemed it fit to take action against those three companies, SEBI/BSE ought to have followed the same procedure in case of appellant. Therefore, in the facts of present case, suspending the trading in securities of appellant solely based on conjectures and surmises is wholly unjustified. 25. In order to demonstrate bonafides on part of the app .....

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the draft minutes dated 10/12/2014 have the sanctity of law, and the question as to whether the EMC of BSE had power to suspend the trading in the securities of the appellant-company would become academic and hence are not gone into. Per : A.S. Lamba 27. This appeal has been preferred by 52 Weeks Entertainment Ltd., formerly known as Shantanu Sheorey Aquakult Ltd., (Appellant) against directions issued by Bombay Stock Exchange Ltd. (BSE), Respondent No. 1 on January 1, 2015 suspending Appellant .....

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E relationship with these entities; • Suspension was without any mention of time period; • Suspension was without any reference to any previous correspondence between BSE and any of 22 entities, such as show cause notice, explanation, reply of these entities; • Only statement for suspension in trading of the entities was - "pursuant to directions received from SEBI, as a surveillance measure trading in the securities of the following companies will be suspended with effect fr .....

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Only clarity, to some extent, in Notice of BSE dated January 1, 2015 was that the Notice was issued by BSE - in pursuant to directions received from SEBI, as a surveillance measure, and accordingly, SEBI was requested to clarify the subject matter, and SEBI clarified the following: • During SEBI Surveillance Meetings held on October 8, 2014 and December 10, 2014, concerns were raised with respect to emerging trading activity in the lowly priced scrips (such as below ₹ 10) having weak .....

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tment made. Price of the scrip increases with very low volumes during 1 year period of lock in. After lock-in huge rise in volumes and exit of preferential allottees. This may be coupled with stock split; (c) Companies having weak financial and the price rise is not supported by financials. 30. Considering the above, the stocks which broadly fulfill any of the parameters stated above, an immediate need was felt to take stern actions so as to contain any damage to the market integrity. How market .....

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resses mentioned and does not appear to be carrying out any operations; (b) Preferential allotment made. Price of the scrip increases with very low volumes during 1 year period of lock in. After lock-in huge rise in volumes and exit of preferential allottees. This may be coupled with stock split; (c) Companies having weak financials and the price rise in such scrips is not supported by financials. 32. However, in this respect with above note, it may be pointed out, at this stage, that following .....

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s were advised to conduct a comprehensive back-listing based on the SEBI analysis and submit their feed-back by December 19, 2014. • Since the above LTCG route has been witnessed in scrips relisting after invocation of suspension, BSE/NSE were advised to tighten their procedure for relisting including a site visit in such cases. 33. The above points mentioned were part of minutes of agenda item and were relevant, important and were in context of subject matter, but were omitted from note se .....

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- "(1) Line of action is approved, however, the criteria for taking various actions may be further fine tuned in discussion with the exchanges and referring to the data available. (2) All possible efforts should be made to take appropriate action against the Cos. which are using the stock exchanges mechanisms for tax-evasion. Exchange should be suitably advised on the issue". 35. It is seen that Ld. WTM (RKA) has approved line of action, but criteria for same was to fine tuned, in disc .....

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d the same to be fine tuned with some observation on tax-evasion but without revision of criteria as per noting of Ld. WTM (RKA), minutes in original were sent by SEBI to Exchanges for immediate action with direction that Exchanges shall continuously fine tune the criteria for ensuring appropriate immediate action against the companies which are misusing/advising/manipulating the stock market for tax-evasion", - which is different from objective of SEBI Surveillance Meeting dated December 1 .....

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ket mechanism. The entire exercise undertaken by stock exchange to identity companies on basis of above criteria become irrelevant to original objective and whether serves the new objective -is very doubtful, and suspension of these companies become unfructuous, since purpose of identification is now tax-evasion which was preventing companies from using mechanism of stock exchanges for purposes of LTCG. 38. In this context, it may also pointed out, no mention - of any securities law (SEBI Act, S .....

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quot;Stock Exchanges agreed that these types of companies are not serving any genuine investor intent and possibly needs to be suspended from trading". Actually the word "intent" was replaced by "interest", by BSE. "Genuine investor intent/interest" - is a new term used by SEBI, without defining as to what it is and certainly, it is not purpose for which SEBI was created, as per SEBI Act, 1992. 39. Having dealt with Meeting of Surveillance of SEBI dated Decembe .....

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ce, equity and fair-play. • Respondent should have given opportunity of being heard to Appellant, before its notice dated January 1, 2015. • Respondent No. 1 ought to have shared the directions received from Respondent No. 2 with the Appellant and ought to have informed Appellant's role, in irregularities purportedly carried out by Appellant in the trading of Appellant Company. • Respondents have not informed the Appellant about any surveillance issues as far as trading in sec .....

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h and inept handling of the matter. • I.O. not based on show cause notice. 40. On first day of hearing of the case by this Tribunal, it was decided that BSE will afford an opportunity of hearing to the Appellant based on a reference from BSE to Appellant stating parameters for taking a decision on suspension of scrip and BSE's observation on each of the parameters and pass suitable order in the matter. Parameter, observation of BSE and Reply of Appellant are stated as follows; Parameter .....

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working director - was away and official left his visiting card with receptionist (Mr. Marne) and that Director be informed of his visit. Mr. Bhot - was informed of this by Mr. Marne - who contacted official of BSE immediately Parameter: Regarding the missed out part of the first information i.e. does not appear to be carrying out any operations. Observation: No observation. Reply: Appellant has produced copies of its financial results (audited and unaudited) for years 2011 to 2015; minutes of .....

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weak in last three years but now Company has entered into new ventures, which will produce results in future. Parameter: Price Rise of Scrip - increased from ₹ 2.67 as on December 16, 2013 to ₹ 149 as on December 31, 2014. Observation: No observation. Reply: Capital market increased in general. Company has ventured into film production, signed popular comedian and acquired rights in TV serial production and these announcements were made from website of BSE - generating investors' .....

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as in SCN, observations of BSE, and submission of Appellant were placed before Exchange Management Committee (EMC) of BSE and this committee has decided that it is necessary that a detailed investigation be carried out by the Exchange/SEBI. Pending such investigation, as the company has satisfied all parameters laid down by SEBI, the suspension in the trading of the securities of the company ought to be implemented and continued as an interim preventive measure and to maintain orderly developme .....

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met by the Appellant, and hence Appellant is suspended, as per parameters specified by SEBI. 43. It was one of the grounds for appeal by Appellant that I.O. has travelled beyond scope, purview and compass of BSE's power and jurisdiction and is contrary to BSE's rules, byelaws and regulations and BSE's acting on mandate of SEBI is not as per scheme of arrangements worked out in SEBI Act and Securities Contract (Regulation) Act, under which Stock Exchanges function. 44. One of the grou .....

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approved by MD, earlier designated ED. It was pointed out Bye-law 21 of BSE authorized Governing Board and not MD/ED and that Bye-law 21 allows "prohibition of dealings", while BSE's Bye-law 39 allows "suspension of Admission to Dealings on the Exchange". Ld. Sr. Counsel could not deal with the query satisfactorily how suspension can be affected under Bye-law 21, but stated MD/ED was authorized by Governing Board for this purpose. Ld. Sr. Counsel for BSE has produced a r .....

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pursuant to direction from SEBI is hereby confirmed, ratified and approved". 46. To say the least, the above resolution of BSE does not correct the position that MD & CEO of BSE was authorized by Governing Board before he acted on January 1, 2015 in suspending trading by Appellant due to the following reasons: • For a person has to have the authority on day he acted and this cannot be given to him on ex-post facto basis. • The Tribunal had asked for production of the authorit .....

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hen suspension and prohibition are different measures and under different Bye-laws, then how one can be used to exercise power under the other. • As a matter of fact BSE could take the plea that suspension was under Bye-law 39, but then here MD & CEO does not have inherent power to exercise the same, unless specifically authorized by GB, but since the same did not exist on the date the same was exercised by MD & CEO, BSE in now tying itself in knots to make us believe that same exis .....

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rip of Appellant, once again, on January 12, 2015 and whether this is covered by GB's resolution dated February 12, 2015 of GB is not known. • In any case this "cocky attitude" of BSE is not appreciated. 47. A lot of discussion took place and case laws cited when an action taken without affording hearing to the aggrieved party can be corrected by affording post direction hearing to meet the requirements of law to natural justice we may not go into this question now, since it w .....

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me to a wrong conclusion that company did not exist at its registration address - although sign-board of Company did not exist at that address and apparently Company tried to correct this by putting sign-board subsequently, but Company is right in stating there is no requirement-in-law for an official of the Company to be present there during working hours, when a receptionist existed, at premises, to take a messages and he conveyed the message also. 49. The second part of first parameter that & .....

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ults of the last three years - after resumption of listing - have been bad with practically no income, but as per the Company - business model of company is Entertainment Business is such that income/revenue start after 3 years or so and investors invest in these companies on basis of so many factors like future prospects, which as per company, are healthy in view of producing films/TV serials - necessary ground work for same has been done. 51. In any case, weak financial is not a good parameter .....

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ounted for. As a matter of fact, it is foolhardy on part of SEBI/BSE to go into this question, which in any case is determined by market and only requirement of SEBI (through not of BSE) is to act in investors interests in securities and to promote development and regulation of securities market and if it is seen that the same is being compromised, manipulated, rigged; SEBI is duty bound to act decisively, in shortest possible time, to deal with these on emergency basis, but unless such a situat .....

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ulations, SEBI must take action against such persons, as per law, but fixing a parameter and then tying scrips to same - is in the opinion of this Tribunal - is not the proper course of action and do injustice to investors or distorts the market, which may cause hardship/loss to one set of investors and/or which appears the case here since only 4 persons , not connected to promoters, have traded in shares of Appellant - these people if have done traded in manipulative manner, which can be recogn .....

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ume, before and after lock-in period. It was seen that average was arrived at by dividing no. of shares traded by number of days scrip was traded, before and after lock-in and since no. of days of trading before and after lock-in were different and hence comparison of company's averages traded volume, before and after lock in, is not correct for arriving at informed decision. 55. Towards the end question of dealing with the entire issue - on emergency basis and on basis of the three paramete .....

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onsciously. 56. It is now being stated by SEBI/BSE that these companies were almost non-existent companies with hardly any activity, let alone profit, in the last 3-4 years, and had weak financials although - quite a few of these were delisted/suspended for non-payment of exchange's fee etc. but it is strange that BSE recommended these company's case to SEBI for permission to raise funds through rights issues to outsiders, not once but three times in most of these cases, despite knowing .....

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of these companies scrip, from one year prior to end of lock-in period, through their surveillance system, where price movement of all traded shares is monitoring on line - on minute to minute basis and these surveillance reports are analyzed by in house expert analyst and sometimes these abnormal price movement, on trading of small number of shares can be seen, yet SEBI/BSE did not find anything abnormal for one full year and yet allowed them stock splits when lock-in period ended. This raises .....

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