TMI Blog2006 (5) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... ese appeals with the exchange or with its executive Director as they have not challenged the order before us. Since all the appeals raise common questions of law and fact, they are being disposed of together by a common order. 2. Facts giving rise to these appeals in so far as they are relevant may first be stated. 3. It came to the notice of the Board that trading on the platform of the Magadh Stock Exchange at Patna (for short the exchange ) had been conducted in violation of the conditions of renewal of recognition granted to that exchange. On scrutiny of the details of the trading, it transpired that trading was concentrated mainly in the scrip of BFSL. DLF was the buyer of the shares of BFSL and the sellers were the promoters of BFSL, namely, Shri Satyanarayan Agrawal, Shri Vivek Agrawal, Smt. Umah Agrawal, Shri Siddhartha Agrawal, Satyanarayan Vivek Kumar HUF, Prabhu Securities Ltd., Bhoruka Engineering Ind. Ltd., Pragya Enterprises and its partners (hereinafter collectively referred to as the sellers ). It also transpired that the shares had been sold approximately for a sum of ₹ 109.71 crores in just 10 trading days. It appears that the Board further scrutinis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, the Board by its order dated December 6, 2005 and after affording an opportunity of hearing to the appellants and others directed that the ex-parte interim order dated August 19, 2005 shall remain in force till further orders which the Board may pass on the conclusion of the investigations which were ordered on December 5, 2005. It is against this order that the present appeals have been filed. 4. We have heard the learned senior counsel for the parties. 5. The learned senior counsel appearing for DLF strenuously urged that while the investigations as ordered by the Board have yet to commence (because DLF has not received any notice from the Board since December 5, 2005), the Board by its impugned order has recorded the findings on all the issues against the appellant thereby prejudicing its cause at the threshold of the proceedings. It was vehemently argued that while the Board has yet to investigate the matter and that it is in the process of collecting material regarding the alleged illegal trading in the scrips of BFSL, it could not record any finding on the merits of the issues as that would amount to prejudging the cause. He challenged on merits the findings on each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investigations had been ordered on the previous day. 6. We have given our thoughtful consideration to the rival contentions of the parties and are of the view that the following questions arise for determination. a. Whether the Board could issue interim directions in terms of Sub-section (4) of Section 11 before any investigation or enquiry is ordered in the matter; b. Whether the Board was justified in recording its findings on different issues even before the investigations as ordered on December 5, 2005 are yet to commence. c. Whether the impugned order is sustainable in law. 7. Before we take up the first question it is necessary to refer to the provisions of the statute. The Act has been enacted for the establishment of the Board to protect the interests of the investors in securities and to promote the development of and to regulate the securities market. It is, therefore, the duty of this regulator to protect the integrity of the market and to ensure that each player plays the game according to the rules and no one is allowed to manipulate the market. The Board is established under Section 3 of the Act and Section 11 deals with its functions and it provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulations made thereunder: Provided.. (f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation: Provided that the Board may, without prejudice to the provisions contained in Sub-section (2) or Sub-section (2A), take any of the measures specified in Clause (d) or Clause (e) or Clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in Section 12) which intends to get its securities listed on any recognized stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market : Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. Section 11C. (1) Where the Board 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; or (b) any intermediary or any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation or enquiry into the matter. Mr. Rafique Dada, learned senior counsel appearing for the Board strenuously contended that if this interpretation was to be put on the language of Sub-section (4) of Section 11, the Board would be precluded from taking immediate steps in case of an imminent urgency to prevent manipulation or any other wrong doing in the market. He further submits that even prior to the introduction of Sub-section (4) in Section 11 the Board had the power under Sections 11 and 11B to issue interim directions and such powers have not been affected with the introduction of Sub-section (4) of Section 11. We cannot agree with the submissions made on behalf of the Board. There can be no doubt that even prior to the introduction of Sub-section (4) of Section 11 the Board had the powers to issue interim directions in case of an emergency which could not brook any delay. What was the nature and extent of that power is not really relevant for us today when Sub-section (4) of Section 11 has been specifically introduced by Parliament by Act 59 of 2002 with effect from 29/10/2002. Whatever was the nature and extent of power to issue interim orders/ directions which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be passed by the Board only either pending investigation or enquiry or on completion of such investigation or enquiry. Section 11(4) is an enabling provision and it is not necessary that the Board should in every case pass an interim order / direction where an enquiry / investigation has been ordered. There could be cases where the Board may order an enquiry / investigation and pass final orders / directions only on its completion. This will depend upon the nature and seriousness of the complaint received. Shri Rafique Dada, learned senior counsel appearing for the Board strenuously argued that when the Board learnt on 10th August, 2005 about the illegal trading going on at the exchange, it looked into the matter and made, what he calls, preliminary enquiries and, therefore, it cannot be said that no enquiry was pending when the ex-parte restraint order was passed on 19/08/2005. He laid great emphasis on the use of the words investigation or enquiry as used in Section 11(4) and contended that these would include the preliminary investigations or inquiry which the Board made on receipt of information. At the first flush the argument looks attractive but when examined in detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall appoint an adjudicating officer for holding an enquiry in the prescribed manner and give the person concerned a reasonable opportunity of being heard. Apart from the provisions of Chapter VIA, the Board as a regulator with a view to protect the interest of the investors and the integrity of the securities market has framed a host of Regulations for the violation of which it can take action and before it can proceed against those who violate the Regulations it has to hold an enquiry in accordance with the provisions of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (for short 'the Regulations'). An enquiry under these Regulations can be held for the purpose of passing an order for the contravention of any of the provisions of the Regulations referred to in Regulation 4 of these Regulations. It is, thus, clear that the Board can order an enquiry either for the purpose of imposing a penalty under Chapter VIA of the Act for which an adjudicating officer shall be appointed or it may order an enquiry under the Regulations. The word enquiry referred to in Section 11(4) of the Act refers to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In this view of the matter when the Board confirmed on December 6, 2005 its earlier order dated August 19, 2005 it can safely be presumed that the Board passed a fresh order on December 6, 2005 in the same terms and since by then investigations had been ordered, the order would be within the competence of the Board. In the result, it has to be held that the order dated December 6, 2005 was an order within the powers of the Board. The first question referred to in the earlier part of our order stands answered accordingly. 12. This brings us to the next issue. It is not in dispute that the Board received some information on telephone around August 10, 2005 that trading had taken place on the platform of the exchange in contravention of the terms and conditions of its renewal of recognition. On receipt of this information the Board was looking into the matter and since, according to it there was great urgency as it wanted to stop the misuse of the platform of the exchange, it issued the aforesaid directions by an ex-parte order dated August 19, 2005 which, we have already held, was beyond its powers. It is common case of the parties that the Board took almost 4 months to make up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guage holding the appellants guilty of various allegations levelled against them. The Board has found that the case set up by DLF that it has been unnecessarily dragged in the controversy is not correct and that in going about the transactions it acted in complicity with others. The Board has further found that the legal maxim 'res ipsa loquitur' is applicable to the facts of the present case. If the facts speak for themselves, nothing remains to be investigated. After referring to the judgment of the Supreme Court in CIT v. D. Bhoormull dealing with the law relating to burden of proof, the Board recorded the following findings in the impugned order: Applying the aforesaid observations made in criminal proceedings, to the present quasi judicial proceedings which admittedly do not require to prove the case with as much precision as is required in criminal case, I, in the facts and circumstances of the case as discussed hereinabove, am of the view that the assertion of DLF that they did not know anything and agreed to trade in MSEA only on the insistence of the sellers is merely a pretence which can not be brooked and in fact and accordingly hold that DLF acted in cahoots ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court, since the issue of grant of injunction, usually, is at the earliest possible stage so far as the time-frame is concerned. (emphasis supplied) Again, in Smt. Indira Nehru Gandhi v. Shri Raj Narain and Anr. their Lordships while dealing with the circumstances when an interim order should be passed observed as under: Shri Palkhivala assailed, in his opening submissions, the two findings recorded against the appellant holding her guilty of corrupt practice. Indeed, he was at pains to convince me that his client had a strong prima facie case on the merits, in the sense that the judgment, on its face, was perverse and legally untenable. Although I listened at some length to these arguments and, to an extent, to the counter-submissions made by Shri Shanti Bhushan in his endeavour to establish that the holdings were sound, I made it fairly clear in the course of the hearing that at this stage when I was considering whether a stay should be granted or not, it was premature and perhaps unwise to pronounce on the merits of the appeal itself except. (emphasis supplied) In view of the above, it is clear that the Board should not have recorded findings on merits at this stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed one and that even today it continues to be shown as a recognized exchange on the website of the Board and, therefore, the appellants did nothing wrong when they traded on its platform. They also urged that the appellants could not have known that the exchange was violating the terms on which its recognition had been renewed. The grievance of the appellants is that no finding has been recorded on this material issue and the impugned order is conspicuously silent in this regard. They were sanguine that findings in this regard could not be recorded against them. It is not for us to comment on this issue at this stage of the proceedings and we have no doubt that the Board will examine these issues and record its findings when the final order is passed. In view of what has been stated above we are constrained to set aside the impugned order. This, however, does not mean that no interim orders / directions shall be issued. Having regard to the facts and circumstances of the case we are one with the Board that it is a fit case where DLF should be restrained from transferring the shares which it has already acquired. The direction issued by the Board in this regard shall, however, cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how that agreement could be challenged. The shares and the money will have to be swapped between DLF and the sellers and no one will get affected -- neither the market nor the investors and not even the Board. This being the position, we think the ends of justice will be adequately met if the contention of Mr. M.P. Bharucha, the learned senior counsel on behalf of the sellers' is accepted and a direction issued to them to deposit whatever amount is lying with them (Rs. 5.7 crore) in an escrow account till such time the Board passes the final order in accordance with law. We order accordingly. 17. There is yet another direction which the Board has issued in regard to the sellers. Adjudication proceedings have been ordered against them for their non-compliance of the directions issued by the ex-parte order dated August 19, 2005. Since we have held that order to be beyond the powers of the Board and the same is illegal, we do not think that adjudication proceedings should commence against the sellers for the non-compliance of that order. That would result in grave injustice to them. 18. In the result, the appeals are allowed, the impugned order in so far as it relates to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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