TMI Blog2010 (4) TMI 1034X X X X Extracts X X X X X X X X Extracts X X X X ..... o seven persons who, on the appellant s own showing, joined just before the opening of the public offer and left soon thereafter. The details of the allotment made to these persons including the duration of their employment is shown in the chart below:- Seven Persons No.of Shares Duration of Employment (Months) Applied Allotted Mr. Kishore S. Jain 50,040 48,837 4+ Mr. Jayantilal R. Jain 48,000 46,846 5+ Mr. Shripal J. Shah 18,000 17,567 5+ Mr. Rajesh Prakashchandra Jain 22,020 21,490 5 Mr. Pravin Kumar Devichand Jain 48,000 46,846 5+ Mr. Dheeraj Jain 1,20,000 1,17,115 5+ Mr. Sanjay Jhabak 1,20,000 1,17,115 5+ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made against the appellant stood established. The whole time member found that the appellant company and the seven allottees had connived to deprive the common investors including the genuine employees of the company from allotment under the public issue. He further found that there was no credible evidence in the records of the company to show that the seven allottees were its genuine employees. Besides, there is also a finding by the whole time member that the seven allottees collectively made an unlawful gain of ₹ 2.31 crores by selling the shares in the market though there is no material on the record to indicate whether the appellant company also shared the ill-gotten gains. Accordingly, by his order dated November 10, 2009 the appellant has been restrained from accessing the securities market and from dealing in securities in any manner whatsoever for a period of 7 years. It is against this order that the present appeal has been filed. 3. We have heard the learned senior counsel on both sides and they have taken us through the records of the case including the impugned order. The fact that the appellant company came out with an IPO in December, 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taining to the provident fund of the seven allottees. Obviously, the letter written on March 27 2007 was a crude patch up operation by the appellant. There is yet another reason why we cannot hold the allottees to be the employees of the appellant. When we look at their background, they were already well settled in Mumbai for a long time carrying on their established textile business. We say so because they were high net worth individuals and their bank accounts show debit and credit entries running into crores of rupees. Each one of them had several demat accounts and this would show beyond doubt that they were seasoned market players. With this background, would any one leave Mumbai and go to Bangalore to take up a traveling job for a mere paltry salary ranging from ₹ 7,500/- to ₹ 25,000/- per month. The answer has to be in the negative. Interestingly, the applications by some of them for obtaining a job indicate that they were desperate in getting one. Some of them applied for any office job or any suitable job . Again, it is the appellant s own case that each one of the allottees was in the employment from July/August 2006 to December 2006/early Janu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the latter were its employees. 5. Having failed to satisfy us that the allottees were the employees of the appellant company, Sh. Janak Dwarkadas, learned senior counsel then argued that the appellant is an artificial juristic person and it cannot be said to have a mind of its own and it could act only through living persons. He contends that guilty mind or a state of mind for committing fraud could be attributed to the company only if the act complained of was committed by a responsible officer of the company acting as its agent and having the ostensible authority to perform such acts so as to bind the company. In that event, argues the learned senior counsel, the state of mind of the responsible officer could be the mind of the corporate entity for which the latter could be penalized. In short, the learned senior counsel is pressing into service the theory of the directing mind . The argument is that since the Board has failed to identify the directing mind of the appellant company or the person(s) who had performed the fraudulent act of allotting shares to the non- employees, the fraudulent action or the guilty state of mind could not be attributed to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. This theory can have no application to the facts of the present case where civil action has been taken against the appellant for the wrong that it has committed. There is no denying the fact that the present proceedings were initiated against the appellant company under Section 11B of the Act for imposing civil penalties and the enquiry that was conducted by the Board is of a civil nature. It is by now well settled that civil action could be taken against a delinquent even for a criminal act. It is trite law that proceedings initiated by the Board against a delinquent under the provisions of the Act are civil in nature and mens rea or criminal intent is not an essential element for imposing penalties for breach of civil obligations. A Division Bench of the Bombay High Court in SEBI vs. Cabot International Capital Corporation [2004] 51 SCL 307 while dealing with the provisions of the Act took the same view when it made the following observations: 25. Thus, the following extracted principles are summarized. (A) Mens rea is an essential or sine qua non for criminal offence. (B) Strait jacket formula of mens rea cannot be blindly followed in each and ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposing civil penalties under the SEBI Act and Regulations. This judgment of the High Court and the observations referred to above have since been approved by the Supreme Court in Chairman, SEBI vs. Shriram Mutual Fund and another (2006)5 SCC 361 and this is what their Lordships have held: In our considered opinion, penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant. A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence of mens rea, it is wholly unnecessary to ascertain whether such a violation was intentional or not. Even though the judgment of the Supreme Court in Shriram Mutual Fund s case (supra) was dealing with chapter VIA of the Act, the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 3(c), on the other hand, imports the concept of fraud but fraud as defined in Regulation 2(1)(c) of the Regulations which is reproduced hereunder for facility of reference: 2. (1) In these regulations, unless the context otherwise requires,- (a) .. (b) (c) fraud includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include- (1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact; (4) a promise made without any intention of performing it; (5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is an unlisted subsidiary company of the appellant. It holds 99,20,488 shares of PSPIL and wants to transfer these shares to its shareholders without consideration. In other words, the appellant company wants to disinvest a sizeable part of its portfolio. The prayer made in the application is that this Tribunal should hold that the aforesaid disinvestment by the appellant company is not barred / restricted by the impugned order. We are unable to grant this prayer. For the reprehensible conduct of the appellant, it has, by the impugned order, been restrained from dealing in securities in any manner whatsoever or accessing the securities market directly or indirectly for a period of 7 years . Transfer of PSPIL shares by the appellant to its shareholders would tantamount to dealing in securities and, therefore, in view of the bar contained in the impugned order, it cannot be allowed to do so since we are upholding that order. 11. The other application filed by the three shareholders need not detain us for long. It was filed at the closing stage of the arguments and that too in court. This application deserves to be rejected because it appears to us to be mot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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