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2016 (7) TMI 624 - SUPREME COURT

2016 (7) TMI 624 - SUPREME COURT - TMI - Ingenuine demat account holder - getting excessive number of shares in an irregular manner - undue benefit - Held that:- We do not find any substance in the submissions made on behalf of the respondents to the effect that the price of the shares of Jet Airways India Ltd. paid by the respondents to the demat account holders was reasonable. Even according to the submission made by the learned counsel, value of the said shares, during the said period varied .....

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er se illegal by the Whole Time Member. - The submission made to the effect that the Tribunal is a final fact finding authority cannot be disputed. According to the learned counsel, the facts found by the SAT should not be disbelieved by this Court. However, for coming to a definite conclusion contrary to the findings arrived at by the lower authority, the appellate authority, in the instant case, the SAT, ought to have recorded specific reasons for arriving at a different conclusion, but we .....

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facts and in our opinion he has rightly come to the conclusion that the dealings of the respondents were not fair and were in violation of the Act as well as the Regulations. - Civil Appeal No. 2252 of 2010, Civil Appeal Nos. 2285, 2286, 2294 & 2303 of 2010 - Dated:- 11-7-2016 - Anil R. Dave And R. Banumathi, JJ. JUDGMENT Anil R. Dave, J 1. All these appeals have been filed under the provisions of Section 15-Z of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as t .....

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rsely affect Retail Individual Investors, who are the persons with relatively less means and who desire to invest their hard earned money into shares of companies, whereby they also make an effort to participate in the progress of our economy. So as to see that the Stock Exchanges of the country and the persons connected therewith do not indulge themselves into illegalities or irregularities, the Act has been enacted and the functionaries under the Act have to see that no financial scams take pl .....

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as and when they are offered to the public at large. 3. As we are concerned with issue of shares in the nature of IPO (there is initial offering made by Jet Airways Limited and Infrastructure Development Finance Company Limited), without referring to much details about the transactions of sale or purchase of each company, we have referred to the nature of the transactions in general terms. When shares of the aforestated companies were offered to the public at large, the issue of shares in relati .....

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ffect the faith of a common man in the functioning of the share market. The basic purpose with which the Act was enacted was to see that the share market functions properly and effectively so that ultimately it may not adversely affect the economy of our country. 5. Investigations was made by the officials of the SEBI and in pursuance of the said investigation it was revealed that in the matter of the IPO of the aforestated two companies, shares which were meant for RIIs had been cornered throug .....

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r shares made in respect of both the companies and parties concerned are common, we have referred to the issue of Jet Airways India Limited. It was found by the SEBI that respondent in Appeal No.20 of 2009 before the SAT had received 12,053 shares out of which 3272 shares were transferred before the day of listing of shares of the company with the stock exchange, 3598 shares on the day of listing and 5183 shares after the day of listing. The said shares were purchased through off market transact .....

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count holders were not genuine persons though there is no specific finding to that effect but there is a specific finding by the Whole Time Member of the SEBI that:- (e).There is no material on record that the 553 demat account holders were benami or fictitious. Investigation has not been able to substantiate this. There are name lenders, as alleged in the SCN. The conduct of these account holders substantiates this. All the 553 accounts behaved exactly in the same manner in terms of price and t .....

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70/- per share though the market value of the said shares at the time when they were purchased was much more and the shares were sold at an average market value of ₹ 1296.12 paise. Had the respondent been a share broker, he would have charged brokerage from the demat account holders but the facts found by the authorities making the investigation are absolutely different. All the demat holders were paid some amount by the concerned respondents and the shares had been sold at a much higher p .....

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ances, no man with normal prudence would ever enter into such type of transaction but in this case all the 553 demat account holders did it ! 9. Upon knowing the nature of the transactions, the Whole Time Member of the SEBI was convinced that all the transactions pertaining to opening of the demat accounts, applications made by the applicants holding the demat accounts, sale by those account holders to the respondents and sale by the respondents to other buyers of the shares were of fishy nature .....

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is name or would sign in a different manner with a different spelling of his name. 10. It is also a fact that most of the demat account holders were not having their trading accounts and many of them were having a common address. Normally, a demat account holder, if a genuine one, would use his own correct address while opening and operating his demat account. Number of demat account were having same address and that too, care of someone else and this makes genuineness of the account holders and .....

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se transactions were nothing but a scam. If the respondents had acted as brokers, they ought to have been registered brokers, but they were not. By having the aforestated device, the respondents had done something which was against the interest of small investors because from their quota the shares were allotted to the demat account holders who were not genuine. 12. As a result of the aforestated transactions, the respondents got undue benefit. They got the shares transferred from the so called .....

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d used addresses of others and had signed in a fishy manner in their demat accounts. In fact, the so-called sale of shares was bogus as there was someone who had financed all the demat holders, who had given back the shares to the respondents to whom they had lent their names for getting the shares. 13. The Whole Time Member of the SEBI has very meticulously examined the aforestated facts and in our opinion he has rightly come to the conclusion that the dealings of the respondents were not fair .....

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mpugned order, we do not find any such finding to the effect that the findings arrived at by the Whole Time Member as well as the Adjudicating Officer of the SEBI were incorrect or perverse for a particular reason. 15. If one looks at the purpose with which the Act has been enacted, one can see that its object is to regulate the securities market and check unfair trade practices. Its object is also to promote fairness and efficiency in all dealings relating to the capital market so that confiden .....

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y upon the respondents for the reasons recorded by them. 17. We do not find any substance in the submissions made on behalf of the respondents to the effect that the price of the shares of Jet Airways India Ltd. paid by the respondents to the demat account holders was reasonable. Even according to the submission made by the learned counsel, value of the said shares, during the said period varied from ₹ 1172/- to ₹ 1339/- and in such circumstances, nobody would believe that all the de .....

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to act in the manner as it acted in the instant case. The fact, however, remains that because of the undue advantage which the respondents got, some small investors or RII must have not got the shares, which they ought to have been allotted. 19. The learned counsel for the respondents also made a submission that a common address given by several demat account holders would not show any irregularity. We do not agree with the said submission, because normally a person would give his own address w .....

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ave been sold before they were listed with a stock exchange and such a sale cannot be said to be an illegality. Looking at the fact that number of persons, having common address of their demat accounts, selling their shares at the same price to a particular person before listing of shares of a company with a stock exchange is not a normal thing. In the facts and circumstances of the case, we do not accept the said submission made by the learned counsel appearing for the respondents. 21. We also .....

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t, 1872 and Sale of Goods Act, 1930, insofar as the matters which are specifically dealt with by the SCRA. The contracts for sale and purchase of securities, as envisaged under the SCRA, can be entered into only in a prescribed manner in a notified area and that can only be effected through registered members of a recognised stock exchange (i.e. stock brokers) and the only exception to this is a Spot Delivery Contract. 22. Spot Delivery Contract is defined in Section 2(i) of the SCRA as a contra .....

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SCRA was introduced in the statute book with effect from September 20, 1995. It is clear from the aforestated definition of Spot Delivery Contract that to enter into such a contract, the seller has to effect actual delivery of securities and the buyer has to pay the price therefor either on the same day or on the next day and further, the said transfer should be coupled with transfer of the Securities from one Beneficial Owner (BO) to another. Considering the scope of Spot Delivery Contract as d .....

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