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2015 (7) TMI 316 - SUPREME COURT

2015 (7) TMI 316 - SUPREME COURT - TMI - Jurisdiction of SEBI under SEBI Act, 1992 in relation to Global Depository Receipts (GDRs) issued outside India - SEBI debarred the respondent for a period of ten years in dealing with securities acting as Lead Managers relating to the GDRs issued - Held that:- It is common knowledge that in the commercial sector, companies which are in the field of manufacturing or any other business activity are able to gain the confidence of the investors by virtue of .....

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eciable trend in the share market which would draw the attention of the local investors to stake their claim in such well established, well grown business ventures with a view to earn better profits on whatever investments they wish to make. Therefore, if there is going to be a false pretext or misleading information circulated with a view to lure both the foreign investors as well as Indian investors and in that process the very purpose of creation and trading in GDRs are found to be not true o .....

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ng SEBI from taking action in exercise of its powers under Section 11, 11B and 12A of the SEBI Act, 1992. That apart under Section 11(3) it is provided that SEBI can exercise its powers under sub-section 2(i) or (ia) or sub-section 2A notwithstanding anything contained in any other law for the time being in force, meaning thereby, the action that can be taken for any of the violation under FEMA or RBI Act, SEBI can validly exercise its powers under SEBI Act, 1992. Even under the 1993 Scheme as w .....

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, FERA, FEMA, Companies Act, the Information Technology Act and the Income Tax Act. In the first place, the said reliance placed on the provisions of those enactments providing for extra territorial jurisdiction can have no impact on the action initiated by the appellant, for the simple reason that the violation complained of by the appellant is with reference to such of those provisions contained in SEBI Act, 1992 vis-`-vis the underlying shares of GDRs. Therefore, we are unable to see any viol .....

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n any of those allegations.

The learned senior counsel relied upon the decision reported in Chairman, SEBI v. Shriram Mutual Fund and another [2006 (5) TMI 191 - SUPREME COURT OF INDIA]. In particular, reliance was placed upon paragraphs 15, 17, 19 and 33 to 36. Paragraph 19 is relevant for our purpose which explains the scheme of SEBI Act in imposing penalty. The said decision was subsequently approved by a three Judge Bench of this Court reported Union of India and Others v. Dharame .....

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curities. What is fraud has been sufficiently defined under Regulation 2(1)(c) of the 2003 Regulations as well as under Section 12(A) of the SEBI Act, 1992. Therefore, when such express provisions are contained in the SEBI Act and its regulations apart from specific provisions relating to issuance of GDR based on the underlying shares deposited with the Domestic Custodian Bank under the 1993 Scheme which got a statutory backing under the 2000 Regulations, we are convinced that the exercise of ju .....

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the correctness or otherwise of the order of SEBI dated 20.06.2013 in the appeal preferred by the respondents in Appeal No.126 of 2013. We, therefore, set aside the impugned order by the majority and hold that the minority view of the Chairman of the Tribunal is perfectly in order. - The appeal stands allowed and the impugned order of the majority is set aside. - The appeal No.126 of 2013 before the Securities Appellate Tribunal at Mumbai shall stand restored and the same shall be disposed of o .....

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nstance of the Securities and Exchange Board of India (hereinafter called "SEBI") is directed against the majority judgment and final order dated 30.09.2013, passed by the Securities Appellate Tribunal, Mumbai, in Appeal No.126 of 2013. 2. The short question that arises in this appeal relates to the jurisdiction of SEBI under the Securities and Exchange Board of India Act, 1992, (in short "SEBI Act, 1992") to initiate proceedings against the respondents as Lead Managers to th .....

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uestion that arises for consideration is that if the said question is answered in the affirmative, whether the SEBI was justified in passing its impugned order dated 20.06.2013, debarring the respondents herein from rendering services in connection with instruments that are defined as securities under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (in short "SCR Act, 1956") and such debarment for a period of 10 years prohibiting the respondents from accessing the capit .....

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has come forward with this appeal before us. 4. Therefore, for us, the only question to be decided is as to whether SEBI had jurisdiction in passing the impugned order dated 20.06.2013 debarring the respondents for a period of ten years in dealing with securities while considering the role played by the respondents as Lead Managers relating to the GDRs issued by six companies who issued such GDRs. In the counter affidavit filed on behalf of the first respondent, it is stated that the said respo .....

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ssary to explain the manner in which the respondents dealt with the GDRs issued by those six entities in the foreign market and the nature of allegation which according to SEBI was found true and which led SEBI to conclude that such manner of dealing of the GDRs of those companies by the respondents as Lead Managers did have a serious impact in the securities market of Indian origin and consequently it had jurisdiction to proceed against the respondents. 6. In the present appeal, according to SE .....

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g to all the six companies, for the purpose of noting the nature of such dealings we can restrict it to the first company viz., Asahi and that the same can be applied mutatis mutandis in respect of the six other companies. We are therefore referring to the details of the GDRs issued by Asahi and the manner in which such issuance of GDRs were disposed of and ultimately converted into shares and sold out in the Indian Market. 8. According to SEBI, Asahi issued equity shares of ₹ 29,91,00,000 .....

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r for the GDR issued and the entirety of the share capital of the first respondent was held by the second respondent. While referring to the GDR issued by Asahi and the appointment of the respondents as its Lead Managers, it will be necessary to refer to two other entities viz., Vintage and Euram. The second respondent is the Managing Director of Vintage and Euram is the foreign bank lender. It was mainly stressed at the instance of SEBI that there was a loan taken from Euram by Vintage for subs .....

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ment was dated 21/22.04.2009 between Euram and Vintage bearing agreement No.K210409-003 i.e. eight days before the issuance of GDRs themselves. The second respondent signed the loan agreement as Managing Director of Vintage under the loan agreement, Euram sanctioned a loan of 59,82,000 USD to Vintage, the borrower to enable Vintage to take Asahi's GDRs and thereafter to transfer to Euram A/c No.540030. However, as a matter of fact, it was found that A/c No.540030 in Euram was Asahi's acc .....

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of Asahi on 28.04.2009. It is relevant to note that family members of Mr.Rathi are the promoters of the Asahi. It was pointed out on behalf of SEBI that Mr.Rathi did not inform Bombay Stock Exchange (BSE) or the company or the shareholders about the signing of the pledge agreement in favour of Euram. Therefore, Asahi was the Pledgor with Euram Bank under the pledge agreement. The preamble of the pledge agreement after referring to the loan agreement between Euram and Vintage stated that the pled .....

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nder the loan agreement for the value of 59,82,000 USD. Clauses 6.1, 6.2 and 6.3 of the pledge agreement gave full rights to the bank Euram to realise its loan agreement by realisation of pledged securities. By virtue of the coalesce manner of the loan agreement and pledge agreement, the resultant position was found to be a common ownership of bank account by the borrower, subscriber and the issuing company added to a guarantee by the issuing company for the loan taken by the subscriber to its G .....

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92 and SCR Act, 1956 read along with the regulations framed under the provisions of SEBI Act, 1992 to proceed against the respondent(s) as the Lead Manager for the so called fraudulent transaction indulged in by the respondents. 13. As far as the nature of fraud alleged is concerned, according to SEBI the investors of GDR of Asahi were found to be Messers Greenwich Management Inc and Tradetec Corporation. Greenwich was stated to have paid 29,82,000 USD for the purchase of 14,91,000 GDRs and Trad .....

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ies. 14. Apart from the above, it was pointed out on behalf of SEBI that on 01.06.2009, Asahi informed BSE about allotment and creation of 29,91,00,000 equity shares and 29,91,000 GDRs to foreign entities viz., Greenwich and Tradetec for conversion. Based on such information, BSE made it public to retail investors. It was however found that in reality the GDRs were subscribed by Vintage in connivance with Asahi and the proceeds simultaneously pledged with Euram. On 15/16.07.2009, BSE stated to h .....

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said agreement Vintage gave a loan of 20,00,000 USD to Credo to further lend it to KII Limited to enable KII limited to purchase the securities of several Indian companies including Asahi. The agreement enabled KII limited to convert GDRs into underlying shares and in fact shares were sold in the Indian market. Such sale effected and the proceeds collected were used to purchase further securities and to repeat the said process until KII limited decided to terminate the agreement. Credo was paid .....

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of GDRs were cancelled by IFCF and KII limited. The underlying shares received by IFCF and KII limited were sold in the Indian Market. 16. On behalf of SEBI it was also submitted that when the utilization of GDR proceeds by Asahi was investigated, it was found that most of the documents submitted by Asahi to SEBI were inconsistent with the statements that were available in public domain. According to SEBI, it summoned Asahi to furnish details of the usage of proceeds of GDR issued by it, the ban .....

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, transfer of 44.68% of GDR issued in favour of the respondents which was suspected by SEBI as the modus operandi adopted by the respondents for repayment of loan taken by Vintage to Euram. It was further alleged that Asahi failed to provide vital information relating to Asahi FZE and other transaction details. It is claimed on behalf of SEBI that flow of funds post GDR revealed clandestine manner of GDR dealings by vintage and Asahi. 17. Reliance was also placed on false information about pledg .....

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that nil for Asahi even after issuance of GDR issue. It was therefore claimed that the falsification of information regarding pledge and loan agreement and concealment of information regarding utilisation of funds by foreign subsidiary fully supported the suspicion of SEBI that part of the proceeds of GDR issue were routed back to the entities belonging to the respondents. 19. In conclusion, it was said that Asahi having executed fraudulent transaction of claiming subscription of GDRs by two fo .....

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ent of the company which were not even disclosed to the market and therefore the share holders of Asahi were adversely affected and without warning impacted seriously which resulted in slide in prices on account of large sale of shares upon cancellation of GDRs. It is on the above said basis, SEBI took the stand that it had every jurisdiction to proceed against the respondents for the alleged fraudulent manner of dealing with the GDRs issued by Asahi which had serious impact in the share holding .....

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pectable appearance to the financial statement of the company while in reality by making few book entries it was shown as though large surge in the capital of the company was made. It was contended that the so called initial investors to the GDRs were found to be fictitious which were created by respondent. It was contended that by making such fictitious book entries, the respondent(s) in reality ensured that the funds moved from one of its controlled company to another company also controlled b .....

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elease the GDR subscription proceeds from encumbrance/pledge and thereby instead of capital being raised from foreign investors by way of issuance of GDRs, the Indian investors ultimately paid for part of the GDRs after the same were converted into underlying shares which were then sold in the Indian securities market to the investors. 21. According to SEBI, this kind of transaction would defeat the purpose of issuance of GDRs which is to raise finance from foreign investors. It was therefore co .....

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market in India. 22. It was further contended that the material issue was whether the arrangement by which the respondents as Lead Managers indulged in the transaction of GDRs of the issuing company of the Indian origin by creating a pledge on the proceeds thereof to enable a foreign bank to lend to foreign investors will have to be tested in the anvil of Indian law as the GDRs are always supported by the underlying Indian shares. 23. It was also pointed out that in the course of the hearing the .....

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en the investor viz., Vintage could not repay the loan borrowed by it from Euram which borrowal was fully and mainly supported by the pledge agreement created by Asahi in favour of Euram. In this context, heavy reliance was placed upon Section 77(2) of the Companies Act which prohibited any public company or private company which is subsidiary to a public company to give directly or indirectly by means of a loan, guarantee etc., any financial assistance for the purpose or in connection with purc .....

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tal through GDRs but were completely unaware of the activities of respondents as Lead Managers along with their connected entities in such GDR issues. It was the case of SEBI that the very fact that the GDRs were issued pursuant to the alleged fraudulent arrangement entered into by the respondents through Vintage that the initial investors as declared by the respondents largely did not exist, as a result of which, the investors in India were made to believe (falsely) that the stocks of issuing c .....

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submissions, Mr. C.U. Singh learned senior counsel for SEBI also referred to various provisions of the SEBI Act, 1992, SCR Act, 1956 and the Regulations framed under the provisions of the SEBI Act, 1992. In particular he relied upon Section 2(i) of SEBI Act, 1992 read along with Section 2(h) of SCR Act, 1956 which defines "securities" and contended that GDRs are marketable securities as defined in Section 2(h)(i) and (iii) of SCR Act, 1956. By referring to Section 2(j), the definition .....

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of the Board have been clearly set out in Section 11B as well as 11C read along with Section 12 of the SEBI Act, 1992. 27. The learned senior counsel by making reference to Section 12A of SEBI Act, 1992 which prohibits manipulative and deceptive devices relating to insider trading etc either directly or indirectly, SEBI have every jurisdiction to proceed against the respondents when once it came to light that respondents indulged in manipulative devices in dealing with the underlying shares of t .....

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nature of transaction indulged in by the respondent resulted in more than 140 million USD of fraudulent transaction. The learned senior counsel, therefore, submitted that the action of the respondents was in total violation of stock market regulation, it was in violation of Section 77(2) of the Companies Act and was a rank fraud on the share holders apart from such violations attracting the provisions of the Foreign Exchange Management Act, 1999 (in short "FEMA") and Reserve Bank of I .....

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Processors and Others - (2008) 13 SCC 369 paras 2, 3, 13 and 20. 30. As against the above submissions Mr. Shyam Divan, learned senior counsel appearing for the respondents raised several points for consideration. The points raised by learned senior counsel for the respondents are: a) SEBI is a creature of a Statute under Section 3 of SEBI Act, 1992 and its scope and powers are, therefore, defined by the Statute. b) SEBI Act, 1992 extends to the whole of India and extra jurisdictional matters ar .....

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the authorities which can control the respondents and SEBI has no plenary jurisdiction over them. f) SEBI has no subject matter jurisdiction over GDR though the powers under FEMA regulations/schemes and RBI directions and the authorities specified may have jurisdiction to act and certainly not SEBI on the subject matter. Negatively the office manual of SEBI has nothing to do with the subject matter of GDR. g) Material on records placed before the Tribunal disclosed that the activities of respond .....

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The learned senior counsel contended that there is no obligation either on the first respondent or the second respondent under SEBI Act, 1992 or regulations or under any other Indian law including FEMA to make or disclose any information. It was contended that the first and second respondent have not filed any information in order to state that false information was furnished to the Indian authorities with an intention to mislead them. According to the learned senior counsel, the disclosure to .....

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so far as trading, conversion, redemption etc., they have no role to play. It was further contended that there is no lock in period for the GDR which is freely convertible, which may be converted and may not be converted which depends upon the decision of the investor. According to the respondents, they had no control over issuing companies which function independently in India and except commercial contractual relationship pertaining to GDR, the respondents had no relationship with the issuing .....

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in the issuer company's bank account maintained with Euram Bank. 4) This account with Euram Bank was opened by the issuer company. 5) Dollars in the issuer company's account (GDR subscription proceeds) became available to the issuer companies, albeit according to SEBI after "repayment of loan". There was an 8 months delay in respect of Asahi with respect to free utilisation of the GDR proceeds. 6) The loans have been repaid. 7) As on 30.06.2012, though all loans were paid, all .....

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at the funds were used for prohibited activities, viz., stock exchange transactions or real estate transactions prescribed under the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 (in short "1993 Scheme"). 35. Mr. Shyam Divan further contended that SEBI's own documents established that the GDR issues were subscribed in USD and the proceeds were available to the issuing companies and that in that process no violati .....

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. He also made reference to Section 6(3) wherein the RBI has been empowered to formulate regulations for prohibiting, restricting or regulating matters relating to transfer etc., of foreign security by a person who is resident in India as well as outside India. Further reference was made to Section 13 of the said Act which prescribed the penalties for contravention of the provision of the Act and Section 36 for the authorities who have been empowered under the said Act for the enforcement of the .....

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nsel referred to master circular on foreign investment in India dated 01.07.2011 of the RBI with particular reference to paragraph 8(F) of the said circular which deals with issues of shares by Indian companies under ADR/GDR as well as the form prescribed under Annexure 11 of the said circular by which the quarterly return are to be filed by the issuing company. The learned senior counsel pointed out that such procedure has been prescribed under the master circular under the provisions of the FE .....

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ontext, Mr. Shyam Divan brought to our notice the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (in short "2000 Regulations") in particular Regulation 4, 5.1 along with Schedule I (4B), 5 and 6 and submitted that the scheme viz., 1993 Scheme got statutory flavour by virtue of the 2000 Regulations referred to above. 39. Learned senior counsel also referred to Clarification 23 in the RBI guidelines for the limited two way .....

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enior counsel also brought to our notice the Depositary Receipts Scheme 2014 (in short "2014 Scheme") notified by the Central Government which mandates the authorities under the RBI and SEBI as well as Ministry of Corporate Affairs in the Ministry of Finance to implement the provisions of the said scheme. The learned senior counsel fairly pointed out paragraph 10 of the scheme which refers to market abuse, which states that "market abuse" means any activity prohibited under C .....

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India. The said submission was made on the footing that issuance of GDR is outside India, investor is outside India, market is outside India, investor bank is outside India, therefore, everything relating to GDR is outside India. The contention was that both as a matter of law and fact the GDR operates outside India and that the respondents are covered only till the GDR is listed in the overseas and therefore, GDR is not a security covered by SEBI Act, 1992 as well as SCR Act, 1956. Consequentl .....

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e definition, because GDR was from cradle to grave outside India, whereas SEBI Act, 1992 is exclusively for transactions within Indian territory. By making specific reference to Section 12 of the SEBI Act, 1992, it was contended that while it refers to investment advisors, market bankers whose registration is statutorily required, respondents as Lead Managers are not required to be registered because they are not dealing with local Indian securities. It was also contended that even SEBI do not c .....

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laced upon Vodafone International Holdings BV v. Union of India and Another - (2012) 6 SCC 613 paragraphs 83-93, 387 and 408. 43. To appreciate the submissions made by the respective counsel for the appellant as well as the respondents, in the forefront, we feel the following questions need our attention viz., I. What is GDR and whether it will fall under the definition of Securities' under Section 2(h) of SCR Act 1956 ? II. How is it created ? III. Why is it created ? IV. After its creation .....

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e investors of the Indian market ? X. In the event of any misfeasance or malfeasance in dealing with the GDRs whether SEBI can effectuate its control over those who are involved in such misfeasance or malfeasance? 44. To find an answer to the above questions we can make reference to Regulation 5 (1) and (2) as well as Schedule I of the 2000 Regulations which has been framed in exercise of the powers conferred by Clause (b) of sub-section 3 of Section 6 and Section 47 of the FEMA. Regulation 5 (1 .....

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Investment Scheme, subject to the terms and conditions specified in Schedule 1. (2) A registered Foreign Institutional Investor (FII) may purchase shares or convertible debentures of an Indian company under the Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 2. *** Paragraph 4. Issue of Shares by International offering through ADR and/or GDR (1) An Indian company may issue its Rupee denominated shares to a person resident outside India being a depository f .....

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d (c) the ADRs/GDRs are issued in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Central Government thereunder from time to time. (2) The Indian company issuing shares under sub-paragraph (1), shall furnish to the Reserve Bank, full details of such issue in the form specified in Annexure 'C', within 30 days from the date of closing of the issue. (3) The Indian .....

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ecretariat for Industrial Assistance, the cumulative outflow of foreign exchange on account of payment of dividend over a period of seven years from the date of commencement of commercial production to investors outside India shall not exceed cumulative amount of export earning of the company during those years. Provided that (a) the restriction under this paragraph shall not apply i) in respect of shares held in such a company by International Finance Corporation (IFC), the Deustche Entwicklung .....

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Schedule I of 2000 Regulations, as rightly pointed out by Mr.Shyam Divan gives a statutory recognition to the 1993 Scheme which came into force w.e.f 01.04.1992. It is needless to state that the said Scheme came to be issued by the Central Government in exercise of its executive powers under Article 73 of the Constitution of India. Paragraph 4 (1), (2) & (3) and paragraph 6 of Schedule I of the 2000 Regulations in effect authorises the issuance of GDRs and the Statutory requirements to be fu .....

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gainst Global Depository Receipt or certificates. Paragraph 2(c) defines Global Depository Receipts to mean any instrument in the form of a depository receipt or certificate (by whatever name it is called) created by an Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or foreign currency convertible bonds of the issuing company. Paragraph 2(d) defines an issuing company to mean an Indian company permitted to issue Foreign Currency C .....

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Under paragraph 3(1) any issuing company desirous of raising foreign funds by issuing Foreign Currency Convertible Bonds or ordinary shares for equity issues through Global Depository Receipt is required to obtain prior permission of the Department of Economic Affairs, Ministry of Finance, Government of India. 48. Under paragraph 3(1)(iii) an approved intermediary under the scheme would be an Investment Banker registered with the Securities and Exchange Commission in USA or under Financial Serv .....

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eking permission under sub-paragraph I should have a consistent track record of good performance (financial or otherwise) for a minimum period of three years on the basis of which an approval of finalizing the issue structure would be issued to the company by the Department of Economic Affairs, Ministry of Finance. Under paragraph 3(3) on the completion of the finalization of the issue structure in consultation with the Lead Manager to the issue, the issuing company shall obtain the final approv .....

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instruct the Overseas Depository Bank to issue Global Depository Receipt or a certificate to non-resident investors against the shares or bonds held by the Domestic Custodian Bank. A Global Depository Receipt may be issued in the negotiable form and may be listed on any international stock exchange enabling the investor for trading outside India under paragraph 3(6). Under paragraph 3(7) the provisions of any law relating to issue of capital by an Indian company would apply in relation to the i .....

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eld with the Domestic Custodian Bank. The GDRs may be denominated in any freely convertible foreign currency. The ordinary shares under the GDRs will be denominated only in Indian currency. The issues viz., public or private placement, number of GDRs to be issued, the issue price, rate of interest payable on foreign currency convertible bonds, the conversion price, coupon and the pricing of the conversion options would be decided by the issuing company with the Lead Manager to the issue. There w .....

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aragraph 7 of the Scheme deals with the transfer and redemption. Under paragraph 7(1), a non-resident holder of GDR may transfer those receipts or may ask the overseas Depository Bank to redeem those receipts. In the case of redemption Overseas Depository Bank should request the Domestic Custodian Bank to get the corresponding underlying shares released in favour of the non-resident investor for being sold directly on behalf of the non-resident on being transferred in the books of account of the .....

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on of the underlying ordinary shares. 52. A combined reading of paragraphs 2(a), (c), (d) and (e) shows that the Global Depository Receipts are issued by a company in India based on the ordinary shares deposited with the domestic custodian bank and issued by the corresponding overseas depository bank depending upon the extent of ordinary shares held by the Domestic Custodian Bank. Once such Global Depository Receipts are issued by the Overseas Depositary Bank, which has the approval of the appro .....

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GDRs based on ordinary shares for equity issues can create such receipts. In other words, the issuance of GDRs based on ordinary shares deposited with the Domestic Custodian Bank depends upon the issuing companies desire for raising of foreign funds. In order to fulfill its desire, while issuing the GDRs based upon the underlying shares deposited with the Domestic Custodian Bank through the overseas Depository Bank, the prior permission of the Department of Economic Affairs, Ministry of Finance .....

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s Depository Bank to issue the GDRs to the extent of underlying ordinary shares held by the Domestic Custodian Bank. GDR is issued in the negotiable form and listed on any international stock exchange for trading outside India. On such listing, they are always issued for exchange of freely convertible foreign currency. It is significant to note that the ordinary shares underlying the GDRs are always denominated only in Indian currency. Again the Lead Manager plays a key role in relation to the i .....

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ose receipts or may ask the Overseas Depository Bank to redeem those receipts. In the case of redemption, Overseas Depository Bank makes a request to the Domestic Custodian Bank to get the corresponding underlying shares released in favour of the non-resident investor for being sold directly on behalf of the non-resident or being transferred in the books of account of the issuing bank in the name of the non-resident. That is the manner in which GDR is dealt with after its creation and that is ho .....

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n purposes in consultation with the Lead Manager and before the GDRs are actually created by the corresponding Overseas Depository Bank, necessary prior permission of the Department of Economic Affairs, Ministry of Finance, Government of India have to be obtained. It is based on such statutory sanction granted by the statutory authorities of Indian origin, a legally enforceable right for the purpose of creation of GDR comes into existence and based on such validity for issuance of GDRs, the Over .....

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he country of India would be governed by the relevant laws applicable to such Receipts. 57. Though it may appear that on the one hand underlying ordinary shares would be governed by the laws prevailing in India and the GDRs would be governed by the laws of the country in which such receipts are issued, the most relevant fact which is to be borne in mind is that the existence of GDRs is always dependent upon the extent of underlying ordinary shares lying with the Domestic Custodian Bank. 58. In t .....

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company in consultation with the Lead Manager to the issuing company. It also highlights as to how such of those Indian listed companies which have been restrained from accessing the securities market by SEBI will be ineligible to issue GDRs. 59. The Master Circular also explains as to how under the two way fungibility scheme which was put in place by the Government of India for GDRs under which a stock broker in India registered with the SEBI can purchase shares of an Indian company from the m .....

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he marketability of its investment creation potential will have a demand at the hands of the foreign investors. Simultaneously, having regard to the development of the issuing company in the market and the confidence built up with the investors both internally as well as at global level, the issuing company's desire to raise foreign funds by creating GDRs should have the appreciation of investors for them to develop a keen interest to invest in such GDRs. Mere desire to raise foreign investm .....

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pany on its own or with the aid of its Lead Manager cannot attempt to make it appear as though there is scope for trading GDRs at the global level while in reality there is none. The above fact has to be kept in mind when dealing with an issue relating to creation of GDRs, in as much as, when the GDRs gets fully subscribed at the global level providing scope for huge foreign investment, the same will have a serious impact at the internal investment market in the form of high appreciation of shar .....

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Act, 1992 simply defines securities' to mean the definition assigned to it in Section 2(h) of the SCR Act, 1956. Under Section 2(h) security' has been defined to mean as under in sub-clauses (i), (iia) and (iii): "2 (h) "securities" include- (i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; xxx xxx (iia) such other instruments as may be declared by the Ce .....

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strued as securities. 63. Going by the definition under Section 2(h)(i) security' would include other marketable securities of a like nature of any incorporated company. Therefore reading Section 2(h)(i) and 2(h) (iii) together and apply the same to GDRs, having regard to the fact that the issuance of GDRs are always based on the underlying Indian shares deposited with the Domestic Custodian Bank and thereby the GDRs possess in it right, as well as, interest in the shares, scripts etc., it w .....

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under: "2(j) "stock exchange" means- (a) any body of individuals, whether incorporated or not, constituted before corporatisation and demutualisation under sections 4A and 4B, or (b) a body corporate incorporated under the Companies Act, 1956 (1 of 1956) whether under a scheme of corporatisation and demutualisation or otherwise, for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities." 65. The above definition makes it .....

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sarily the holder of a GDR will have to fall back upon the stock exchanges as per the definition under Section 2(j) of the SCR Act, 1956, who alone can assist, regulate or control the business of buying, selling or dealing with securities. 66. Having examined the above statutory provisions, we find that a GDR is one form of security' as defined under Section 2(h) of SCR Act, 1956, which is created by the issuing company of Indian origin based on underlying shares deposited with the Domestic .....

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idating the GDR are entitled to liquidate the same through the Overseas Depository Bank, in which event the extent of underlying shares of the GDRs get transferred in the name of the investors themselves and thereby enabling such investors to trade on underlying shares in the Indian stock market or if so wish under the fungibility scheme once again get it redeemed in the form of GDR themselves. 67. Therefore, the creation of the GDR by the issuing company and after its creation in the fixation o .....

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of GDRs, the underlying shares deposited with the Domestic Custodian Bank is made available for trading in India depending upon the wish of the holder of GDR in the local market or for holding it as such i.e as mere shares of the issuing company or by virtue of the fungibility scheme can once again be converted as GDRs for being traded in the global market. 68. In order to find out as to what would happen in the event of any misfeasance or malfeasance in dealing with the GDRs, whether SEBI can .....

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be extracted which are as under: "11. Functions of Board: (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for - (a) regulating the business in stock exchanges and any other securities markets .....

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h other intermediaries as the Board may, by notification, specify in this behalf;] (c) registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds; (e) prohibiting fraudulent and unfair trade practices relating to securities markets; (g) prohibiting insider trading in securities; (4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recor .....

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, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,- (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market; or (iii) to secure the proper management of any such intermediary or person, it may issue such directions,- (a) to any person or class of .....

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securities market has violated any of the provisions of this Act or the rules or the regulations made or directions issued by the Board thereunder, It may, at any time by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board. 12. Registration of Stock-brokers, sub-brokers, share transfer ag .....

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buying or selling securities or otherwise dealing with the securities market as a stock- broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market immediately before the establishment of the Board for which no registration certificate was necessary prior to such establishment, may continue to do so for a pe .....

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ies, foreign institutional investor, credit rating agency or any other intermediary associated with the securities market as the Board may by notification in this behalf specify, shall buy or sell or deal in securities except under and in accordance with the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act: Provided that a person buying or selling securities or otherwise dealing with the securities market as a depository, .....

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ng and substantial acquisition of securities or control. No person shall directly or indirectly - (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities whi .....

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03 Regulations. We are concerned with Regulation 2(1)(b) & (c), Regulation 3(a)(b)(c)(d), Regulation 4(1) and (2) (a), (b), (c), (d), (e) (f), (k) and (r) and Regulation 5(a)(b). The said provisions are as under: "Regulation 2. (1) In these regulations, unless the context otherwise requires,- (b) "dealing in securities" includes an act of buying, selling or subscribing pursuant to any issue of any security or agreeing to buy, sell or subscribe to any issue of any security or o .....

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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 .....

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market price. And "fraudulent" shall be construed accordingly; Nothing contained in this clause shall apply to any general comments made in good faith in regard to- (a) the economic policy of the government (b) the economic situation of the country (c) trends in the securities market; (d) any other matter of a like nature whether such comments are made in public or in private; Regulation 3. Prohibition of certain dealings in securities No person shall directly or indirectly- (a) buy, .....

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a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder. Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of r .....

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, depress or Page 4 of 11 cause fluctuations in the price of such security for wrongful gain or avoidance of loss; (c) advancing or agreeing to advance any money to any person thereby inducing any other person to offer to buy any security in any issue only with the intention of securing the minimum subscription to such issue; (d) paying, offering or agreeing to pay or offer, directly or indirectly, to any person any money or money's worth for inducing such person for dealing in any security .....

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manner and which may influence the decision of the investors; (r) planting false or misleading news which may induce sale or purchase of securities. Regulation 5. Where the Board, the Chairman, the member or the Executive Director (hereinafter referred to as "appointing authority") has reasonable ground to believe that- (a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market in violation of these regulations; (b) any in .....

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vided in section 11C of the Act." 71. On a reading of the above statutory provisions, we find under Section 11(1) of the SEBI Act, 1992, a duty has been cast on the SEBI to protect the interest of investors in securities and also to promote the development of the securities market as well as for regulating the same by taking such measures as it thinks fit. The paramount purpose has been shown as protection of interest of investors on the one hand and also simultaneously for promoting the de .....

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luding foreign institutional investors in particular to ensure that fraudulent and unfair trade practices relating to securities markets are prohibited and also prohibiting insider trading in securities. 72. Under Section 11(4)(a) and (b) apart from and without prejudice to the provisions contained in sub-section (1), (2) (2A) and (3) as well as Section 11B, SEBI can by an order, for reasons to be recorded in writing, in the interest of investors of securities market either by way of interim mea .....

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th powers in the interest of investors or orderly development of the securities market or to prevent the affairs of any intermediary or other persons referred to in Section 11 in themselves conducting in a manner detrimental to the interest of investors of securities market and also to secure proper management of any such intermediary or person. It can issue directions to any person or class of persons referred to in Section 11 or associated with securities market or to any company in respect of .....

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rities. Section 12A(a), (b) and (c) are relevant, wherein, it is stipulated that no person should directly or indirectly indulge in such manipulative and deceptive devices either directly or indirectly in connection with the issue, purchase or sale of any securities, listed or proposed to be listed wherein manipulative or deceptive device or contravention of the Act, Rules or Regulations are made or employ any device or scheme or artifice to defraud in connection with any issue or dealing in sec .....

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ket and such orders can be passed by means of interim measure or final order as against all those specified in the above referred to provisions, as well as against any person. The purport of the statuary provision is protection of interests of investors in securities and the securities market. 73. Along with the Section 12A, when we read Regulation 2(1)(c) of 2003 Regulations, the act of fraud has been elaborately defined to include any kind of activity which would work against the interest of t .....

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ecurities and security market with any person however remotely the same are connected with such securities, in the event of such an act working against the interest of investors in securities and securities market by way of fraud which has been elaborately defined under Regulation 2(i)(c) of 2003 Regulations. 74. Having thus noted the statutory prescription relating to the issuance of GDR based on the underlying shares of the issuing company, the manner in which such GDRs were being traded in th .....

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by any person relating to the interest of the investors in securities and securities market are very wide. When we examine the nature of acts alleged against the respondents, the following instances which according to SEBI empowers it to exercise jurisdiction over the respondents under SEBI Act, 1992 can be listed viz., I. Loan or Pledge agreement between Euram, Vintage and Asahi were structured by respondents and were keys to fraudulent issuance and subscription of GDRs. II. Loan agreement was .....

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ged to support the borrowings of Vintage. VIII. Pledge agreement dated 21.04.2009 was signed by Mr.M.Laxminarayan Rathi, Managing Director of Asahi on 28.04.2009. IX. Family members of Mr.Rathi are the promoters of Asahi. X. Mr.Rathi did not inform BSE or the company or the shareholders about the signing of the pledge agreement. XI. As pledgor, Asahi agreed to the terms of the loan agreement between Euram and Vintage. XII. Pledgor agreed to pledge its assets as collateral security for due repaym .....

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e invested by Vintage. XVII. On 15/16-07-2009, BSE authorised the trading of 29,91,000 GDRs in Indian market. XVIII. Vintage by virtue of the entire holding of GDRs became 88.94% shareholder of Asahi. XIX. Vintage transferred the GDRs to IFCF and KII for which Vintage granted a loan of 20,00,000 USD to CREDO, associate company of KII for lending to KII. It enabled KII to sell the underlying shares of GDRs in Indian market. XX. Agreement between Vintage and CREDO was also signed by the second res .....

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to greatly suspect that part of the proceeds of GDR issued were routed back to the entities belonging to the respondents. XXVI. Annexure B to the first respondent's reply dated 29.05.2013 to SEBI, which is a statement disclosing that the loan availed by Vintage from Euram in April 2009 and the time taken to repay the loan i.e. till December, 2009 during which period the pledge agreement between Asahi and Euram in support of the loan submitted and thereby Asahi's right as issuing company .....

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f Asahi for the period of three months from January, 29, 2009 to April, 29, 2009 was ₹ 0.89 and ₹ 0.53 respectively. Subsequent to the issuance of GDR, the price paid for each share underlying GDRs was ₹ 1.04 which was 140.54% of the price of the script on the same day. XXX. The information provided by Asahi to BSE about the allotment of 29,91,000 GDRs to foreign (fake) entities, namely Greenwich and Tradetec was made public to retail investors on BSE website which misled the i .....

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ead Managers, while facilitating the issuing companies in the fixation of price of the GDRs and its trading in the global market, according to SEBI, by virtue of such fraudulent nature of involvement of the respondents along with the issuing company, SEBI is entitled to invoke its jurisdiction under Section 11, 11B, 11C, 12 and 12A of the SEBI Act, 1992 read along with its 2003 Regulations and consequently its order dated 20 th June 2013 debarring the respondents from rendering services in conne .....

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st the respondents is liable to be set aside. 76. On the other hand according to the respondents, since cradle to grave GDRs are dealt with outside the country in the global market, SEBI lacks jurisdiction in proceeding against the respondents. When we consider the above respective submissions, we are convinced that the stand of the appellant that having regard to the statutory prescription under the SEBI Act, 1992, SCR Act, 1956, 2000 Regulations, 1993 Scheme as well as 2003 Regulations is well .....

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deciding the question as to the jurisdiction claimed by SEBI for proceeding against the respondents. In fact, by the majority view of the impugned order, the order dated 20.06.2013 of SEBI in having debarred the respondents for a period of ten years came to be set aside on the sole ground that SEBI lacked jurisdiction. The Tribunal has not gone into the merits of the allegations levelled against the respondents. Therefore, in the event of the impugned order being set aside and thereby providing .....

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k in the stock market outside the country and, therefore, dealing with those GDRs and its trading by the Lead Manager while assisting the issuing company are governed by the statutory prescriptions prevailing in the respective trading points in the foreign countries and, therefore, SEBI has no power to deal with the same as its jurisdiction was limited to the securities which are being dealt with within the Indian territory and not outside. It was then contended that as Lead Managers the respond .....

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territory of India and therefore neither the provision of SCR Act, 1956 and the SEBI Act, 1992 nor any of the regulations or the scheme provisions of 1993 can have any application as against the respondents. The further submission is that if at all any violation complained of as against the issuing company can only be relating to the provisions of FEMA which has recognized the 1993 Scheme and therefore that cannot give scope for SEBI to proceed against the respondents who acted as Lead Managers .....

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ry and the overseas bankers, receiving all information, certification for due diligence and other documents, commencement and completion of due diligence for GDR issue, opening of bank account outside India, appointment of intermediaries, offer document and prospectus, decision to open the issue and price fixation, opening and closing of the issue, allotment of underlying equity shares, listing of GDRs with foreign stock exchanges and application to Indian stock exchanges for listing of underlin .....

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Manager the key role played is on the price fixing, opening of the issue and enabling the issuing company to market the GDRs at the global level, there is no scope to hold that SEBI can proceed against the respondents on the ground of any misfeasance or malfeasance in issuance of GDRs, having regard to the territorial jurisdiction within which SEBI can operate. Though technically such a submission made on behalf the respondents appears to be forceful, we are not able to countenance such a submis .....

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curities as defined in Section 2(h). Therefore even if GDR as such is not specifically referred to under the definition of securities' under Section 2(h) by virtue of sub-clause (iii) of the said section, any rights or interests in securities would also fall within the definition of securities. Viewed in that respect, every issue of GDR is based on the underlying shares of the issuing company deposited with the Domestic Custodian Bank which clearly falls under the definition of securities of .....

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e examined is as to how far any alleged misdeeds involved in the creation of GDR and its dealing by the issuing company with the support of the Lead Manager can be dealt with by SEBI. It is true that the creation of GDR and its trading in the global market are governed by the respective laws of the country in which they are dealt with. But one special feature to be borne in mind is that in the case on hand, the allegations levelled against the issuing company in connivance with the respondents a .....

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ess it is alleged that the issuing company itself provided every scope for the foreign investments to be financed and in reality the ultimate investment was made by Indian investors viz., the ordinary share holders. The said fact would certainly call for a probe at the hands of SEBI on whom a duty is cast under Section 11(1) to protect the interest of investors in securities and the security market. In this context, it will be necessary to make specific reference to the relevant provisions of SE .....

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ibit fraudulent and unfair trade practices relating to securities markets. Section 11(2)(g) prohibits insider trading in securities. If the allegation that the respondents facilitated issuing company (viz,) Asahi aided the foreign investor company to invest in its GDRs by supporting the loan it borrowed from Euram and thereby the said allegation can be brought within the expression insider trading' that would also empower SEBI to intervene. Under Section 11B while empowering SEBI to issue di .....

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ative and deceptive devices, insider trading and substantial acquisition of securities or control by ANY PERSON either directly or indirectly. If SEBI's allegation listed out earlier as well as all the other allegations fall under Section 12A(a), (b) and (c), there will be no escape for the respondents from satisfactorily explaining before the Tribunal as to how these allegations would not result in fully establishing the guilt as prescribed under sub-clause (a)(b)(c) of Section 12A. Similar .....

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o mislead the local investors was totally baseless and that therefore no action was called for. It will be appropriate at this stage to note that under the 2000 Regulations as well as the 1993 Scheme, one of the main reasons for creating GDRs by the issuing company is in fulfilment of its desire to gain foreign investments. It is common knowledge that in the commercial sector, companies which are in the field of manufacturing or any other business activity are able to gain the confidence of the .....

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elop an appreciable trend in the share market which would draw the attention of the local investors to stake their claim in such well established, well grown business ventures with a view to earn better profits on whatever investments they wish to make. Therefore, if there is going to be a false pretext or misleading information circulated with a view to lure both the foreign investors as well as Indian investors and in that process the very purpose of creation and trading in GDRs are found to b .....

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egations in the interests of investors in securities as well as the statutory obligation/duty cast upon SEBI to protect their interests, SEBI has got every jurisdiction to proceed against the respondents as well as the issuing company. The contention made on behalf of the respondents that the only authority which can proceed against the issuing company can be only for violation of the FEMA Act or the RBI Act is therefore not appealing to us. It may be that the 1993 Scheme was acknowledged under .....

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owers under sub-section 2(i) or (ia) or sub-section 2A notwithstanding anything contained in any other law for the time being in force, meaning thereby, the action that can be taken for any of the violation under FEMA or RBI Act, SEBI can validly exercise its powers under SEBI Act, 1992. Even under the 1993 Scheme as well as the 2000 Regulations, there are provisions which make specific reference to the role of SEBI in dealing with the securities. Therefore it is too late in the day for the resp .....

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from person to person depending upon the law which one may feel validly applies. In any event, the opinion rendered in the said document only pertains to the transactions contemplated by the documents placed before the said firm which related to the loan agreement and other connected documents. The opinion was that the documents and the performance of the transactions contemplated by the said documents were in accordance with the applicable Austrian laws and do not constitute any violation of an .....

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ents are entirely on a different footing which was solely based on the alleged violation of the Indian laws vis., the SEBI Act read along with the SCR Act, 1956 the provisions of 2000 Regulations and the 1993 Scheme as well as 2003 Regulations. In fact in that opinion itself it is stated that the said opinion was not to be taken to imply that any provision of the document would necessarily be capable of enforcement or be enforced in all circumstances in accordance with its terms and that it shou .....

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nly states that the second respondent was the sole shareholder of Pan Asia which is now known as M/s. Global Finance Capital Limited. It only stated that in its opinion from the aspect of laws applicable and enforceable in UK, the documents and transactions pertaining to those documents relating to the respondents were in the normal course of business under the applicable laws in UK and they do not, in any manner, constitute any violation of any applicable laws of UK. It is stated that the docum .....

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se reads as under: "10. Market Abuse (1) It is clarified that any use, intended or otherwise, of depository receipts or market of depository receipts in a manner, which has potential to cause or has caused abuse of the securities market in India, is market abuse and shall be dealt with accordingly." 85. It is clarified that any use, intended or otherwise, of depository receipts or market of depository receipt in a manner, which has potential to cause or has caused abuse of securities m .....

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taken under the 1993 Scheme shall be deemed to have been done or taken under the corresponding provision of the present scheme. Under Schedule-I, the permissible jurisdiction have been listed out as on the date of the notification in which Austria is also included apart from United Kingdom and United States. The 2014 Scheme having thus explained what is "market abuse", it must be stated that now after the 2014 Scheme any act done under the 1993 Scheme has also been validated. The defin .....

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heme and having regard to the violation complained of by the appellant as against the respondents with particular reference to the substantive provision of the SEBI Act, 1992 and SCR Act, 1956, read along with the 2000 Regulations and the 1993 Scheme, the power of the appellant to proceed against the respondents based on such allegations cannot be deprived. 86. To support the contention that the SEBI Act, 1992 operates only within Indian territory, reference was made to the provisions contained .....

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nable to see any violation of exercise of its jurisdiction since the underlying shares of GDR were created and dealt with as well as traded in the stock market of Indian Territory. Any act which caused any infringement in such trading of those underlying shares by virtue of any malfeasance or misfeasance or misdeeds committed by any person under the Act which worked against the interests of the investors in securities and the securities market, the SEBI was entitled to proceed against such perso .....

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res for the purpose of issuing GDRs should furnish to the Reserve Bank the full details of such issue in the prescribed form DR within 30 days from the date of closing of the issue. Similarly under paragraph 4(3) issuing company against GDR should furnish a quarterly return in the prescribed form DR-Quarterly to RBI within 15 days of the close of the calendar quarter. When we refer to Form DR and Form DR-quarterly, some of the details which are to be furnished are name and address of the deposit .....

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any share price at the end of the quarter, the GDR price quoted on overseas stock exchange as at the end of the quarter and in the quarterly return, it should be certified by the authorized signatory of the company that the funds raised through GDRs/ADRs were not invested in stock market or real estate. 88. A perusal of the above details which are required to be furnished statutorily, shows that in the event of any wrong statement furnished in the above referred to forms, it provides scope for p .....

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in paragraph E(ii) the functions of the first respondent in relation to any GDR has been mentioned as under: "The Functions of the first respondent in relation to any GDRs include: (a) conducting due diligence in collecting and evaluat- ing all possible information which may have a bear- ing on the issue for the purpose of the listing of GDR issue abroad "outside of territory and jurisdiction of India"; (b) assessing the market for the purpose of the issue and marketing the issue; .....

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Banks) confir- mation of issue of instructions to the clearing sys- tems of the GDR subscribers and confirmation from the requisite foreign stock exchange of the listing of the GDRs issue; (g) ensuring that the Issuer Company complies with applicable non-Indian legal formalities in respect of the same." 90. It is true that if in the discharge of its functions as Lead Managers, the respondents had confined to their activities to any of the procedures set out in the said paragraph, it will be .....

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lusion with any alleged act of the issuing company in violation of the statutory prescriptions of SEBI Act, 1992, SCR Act, 1956, 2000 Regulations read along with 1993 Scheme, it is the bounden duty of the respondents to demonstrate before the appellant and now before the Tribunal that no such involvement by the respondents is made out in order to proceed against them as has been decided and orders passed by the appellant in its order dated 20.06.2013. 91. As far as the stand of the second respon .....

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the instructions of the second respondent, that he was the sole shareholder of the first respondent who is a non-resident Indian residing at Dubai. Therefore, it is too late in the day for the respondents in attempting to get themselves excluded from the alleged violations as against the issuing companies along with the respondents, which resulted in the passing of the order of debarment dated 20.06.2013. 92. For the very same reasons, the stand of the second respondent that he is not an interm .....

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ns. Similarly, the stand of the respondents by making reference to the core features of the GDR issues, to contend that there was no requirement to bring GDR proceeds into India and that there was no allegation that its funds were used for prohibited activities i.e. stock exchange transaction or real estate transaction as prescribed in 1993 Scheme and that the subscription of the GDR issued in USD become available to the issuing company were all matters the respondents can validly explain and su .....

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ing the two divergent views outlined above, we have framed the following questions: (1) Is Parliament constitutionally restricted from enacting legislation with respect to extra-territo- rial aspects or causes that do not have, nor ex- pected to have any, direct or indirect, tangible or in- tangible impact(s) on, or effect(s) in, or conse- quences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, wellbeing of, or secu- rity of inhabitants of India, and I .....

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t, tangible or intangible im- pact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, wellbeing of, or security of inhabitants of India, and Indians? The answer to the above would be yes. However, the Parliament may exercise its legislative powers with respect to extra-territorial aspects or causes, - events, things, phenomena (howsoever commonplace they may be), resources, actions or transactions, and the like - that .....

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ted to have, some impact on, or effect in, or consequences for: (a) the territory of India, or any part of India; or (b) the inter- ests of, welfare of, wellbeing of, or security of inhabi- tants of India, and Indians. 125. It is important for us to state and hold here that the powers of legislation of the Parliament with regard to all aspects or causes that are within the purview of its competence, including with respect to extra-territorial aspects or causes as delineated above, and as specifi .....

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n, or expected real connection, between the extra-territorial aspect or cause and something in India or related to India and Indians, in terms of impact, effect or conse- quence, would be a mixed matter of facts and of law. Obviously, where Parliament itself posits a degree of such relationship, beyond the constitutional require- ment that it be real and not fanciful, then the courts would have to enforce such a requirement in the op- eration of the law as a matter of that law itself, and not of .....

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ve in the answer to Question 1 above. Such laws would fall within the meaning, purport and ambit of the grant of powers to Parlia- ment to make laws "for the whole or any part of the territory of India", and they may not be invalidated on the ground that they may require extra-territorial operation. Any laws enacted by Parliament with re- spect to extra- territorial aspects or causes that have no impact on or nexus with India would be ultra- vires, as answered in response to Question 1 .....

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matter of law itself. The Constitution Bench, however, held that Parliament has no power to legislate for any territory other than the territory of India or other part of India with respect to aspects or causes which have no impact or nexus with India as was explained in question No.1. Keeping the said principle thus pronounced by this Court in mind, when we examine the SEBI Act, 1992 read along with SCR Act, 1956 as well as the 1993 Scheme, we find that the Act itself provides for proceeding a .....

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estion posed for consideration is noted. In the concurring view of Mr. Justice Chelameswar in paragraphs 130 and 139 it is recorded as under: "130. Though Article 245 speaks of the authority of Parliament to make laws for the territory of India, Article 245(2) expressly declares - "No law made by Parliament shall be deemed to be invalid on the ground that it would have extra territorial operation". In my view the declaration is a fetter on the jurisdiction of the Municipal Courts .....

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sts of this country." 98. We fully concur with the said view expressed by the learned Judge and applying the said principle, even if the law applies to persons who are not corporally present within the territory of India, even if they are citizens abroad when such persons commit acts which affects the legitimate interest of this country which would include such legitimate interest in the case on hand of the investors in India at the stock market, it must be held that the appellant would be .....

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very clear. Chapter VI-A nowhere deals with criminal offences. These defaults for failures are nothing, but failure or default of statutory civil obligations provided under the Act and the Regulations made thereunder. It is pertinent to note that Section 24 of the SEBI Act deals with the criminal offences under the Act and its punishment. Therefore, the proceedings under Chapter VI A are neither criminal nor quasi-criminal. The penalty leviable under this Chapter or under these Sections, is pena .....

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ghlighted the purported powers of SEBI to impose penalty under Chapter VI-A, while commenting upon the judgment of the Securities Appellate Tribunal which by its order curtailed the powers of SEBI to impose such penalty. Paragraph 36 reads as under: "36. In our view, the impugned judgment of the Securities appellate Tribunal has set a serious wrong precedent and the powers of the SEBI to impose penalty under Chapter VIA are severely curtailed against the plain language of the statute which .....

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d object of introducing Chapter VIA to give teeth to the SEBI to secure strict compliance of the Act and the Regulations." 100.The said decision was subsequently approved by a three Judge Bench of this Court reported Union of India and Others v. Dharamendra Textile Processors and Others - (2008) 13 SCC 369. The said decision also fully supports the stand of the appellant/SEBI. 101.On behalf of the respondents reliance was placed upon the decision reported in Haridas Exports (supra). That ca .....

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onsideration. In paragraph 29, the question was noted as to whether MRTP Act, 1969 has extra-territorial jurisdiction and as to whether it can pass orders against parties who are not in India and who do not carry business here and where agreements were entered into outside India with no Indian being a party to it. In paragraph 31 this Court noted that under Section 1(2), the Act applied to whole of India except the State of Jammu and Kashmir as in the case of SEBI Act, 1992. Factually this Court .....

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lained. The said paragraph 43 and the relevant part of paragraph 46 are as under: "43. Under Section 33(1)(j) of the Act, any agreement to sell goods at such prices as would have the effect of eliminating competition or a competitor is regarded as an agreement relating to restrictive trade practice and shall be subject to registration. The Act nowhere states that this agreement should be only in India or between Indian parties. In effect, this Section recognizes the 'ef- fects doctrine& .....

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ld read as follows: "Any agreement to sell goods imported into India at such prices as would have the effect of eliminating competition or a competitor." Thus, the agreement requiring registration must be in respect of goods after their import into India." 46. It is possible that persons outside India indulge in such trade practices, not necessarily restricted to the effectuation of prices within India, which have the effect of preventing, distorting or restricting competition in .....

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riate order even though a transaction, for example, which results in exporting goods to India at predatory price, which was in effect a restrictive trade practice, had been carried out outside the territory of India if the effect of that had resulted in a restrictive trade practice in India. If power is not given to the MRTP Commission to have jurisdiction with regard to that part of trade practice in India which is restrictive in nature then it will mean that persons outside India can continue .....

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ded) 102.Therefore, when we apply the above principles set down in the said judgment to the case on hand, we are convinced that the principle of "effects doctrine" will apply to the case on hand since we have found that in the event of the allegations noted in paragraph 74 of this judgment levelled against the respondents by the appellant being established, it will have a far reaching consequence on the Indian investors on securities as well as the stock market and consequently the dut .....

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Tax Department to apply the principle of look through. The real issue which was considered by this Court on that aspect was based on the contention raised by the revenue that under Section 9(1)(i), "it can look through" the transfer of shares of a foreign company, holding shares in Indian company and treat the transfer of shares in the foreign company as equivalent to the transfer of shares to Indian companies on the premise that Section 9(1)(i) covers direct and indirect transfers of .....

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9(1)(i) is not a "look through" provision." 104.We do not find any scope for applying the said decision to the facts of this case as we have found that the specific provisions of SEBI Act, 1992 provided for necessary powers with the SEBI casting a duty on it to protect the interests of the Indian investors as well as the stock market in India whenever it finds any fraud or other such misdeeds committed by any person which worked against the interests of Indian investors in securit .....

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