TMI Blog2002 (6) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... and Exchange Board of India Act, 1992 ( the Act) for violation of clauses (a) and (d) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (the 1995 Regulations) be initiated against the Appellant company through its directors/officers viz. Shri Rajiv Chandrasekhar, Shri Ajit Nambiar, Shri R.Murali, Shri T.P.G.Nambiar and Shri T.C.Chauhan. The Appellant company is a public limited company, mainly engaged in the production and marketing of consumer electronic products like televisions, home appliances, telecom products, alkaline and dry cell batteries, medical instruments and other electronic products. The share capital of the Appellant company as on 31.3.98 was ₹ 269.30 millions. Subsequently it was raised to ₹ 776.90 millions. Its shares are listed on seven stock exchanges across the country. Shares of the Appellant are stated to be widely held by the promoters group, banks, foreign institutional investors, financial institutions, non-resident Indians, employees and members of the Public. Promoters, relatives and friends are stated to be holding about 53% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onger and fell sharply after 04.06.98 to a low of ₹ 139/- in the month of June, 1998 The investigations revealed that a set of brokers and sub-brokers acting on behalf of a common set of clients cornered a large chunk of shares of the Appellant company at both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These clients called Damayanti group, built up unusually large positions in the Appellants shares resulting in distortion of the market equilibrium and creation of artificial market in these shares. Damayanti group comprised mainly of the following entities, viz. Damayanti Finvest Pvt.Ltd, CDP Fincap and Leasing Pvt.Ltd, KRN Finvest and Leasing Pvt.Ltd, Rijuta, Finvest Pvt.Ltd, Ikshu Finvest Pvt.Ltd, Money Television Industries Ltd. These entities had neither the financial worth nor the professional expertise to undertake the kind of dealings, which they have supposedly done through a large number of brokers and merely acted as front for Shri Harshad Mehta, who is a notified person under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (the Special Court Act) Damayanti group acting through a set of brokers bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned in the bill. On questioning, Digital admitted that this transaction was not executed as the contract was cancelled at the behest of BSFL. However, Digital could not explain how the bill with time and order number was issued when the deal had not taken place. Appellant made payment to Digital on 6.9.1997 when order to purchase the shares was purportedly cancelled on 26.8.1997. Digital when asked whether the money was refunded back to BSFL stated that instead of refunding the money they approached BSFL with an offer for sale of shares and Fully Convertible Debentures (FCDs) of Money Television Industries Ltd (an Unlisted company) Digital in turn had earlier received offer to sell shares/FCDs of Money Television Industries Ltd (Money Television) from Damayanti Group. It was claimed that Digital sold 38,13,500 shares and 11, 86, 500 FCDs of Money Television @ ₹ 10/- each to BSFL. The counter parties for this transactions were entities belonging to Damayanti group. It was also seen that the bill for the sale of shares and debentures of Money Television was of the same date and number as the original bill raised for sale of the Appellants shares. This showed that somethi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain as to why the bill was raised by Digital in the name of BSFL if there was no such purchase. He merely stated that his decision was not to buy the shares of Money Television and that BPL group had still to receive ₹ 5 crores from Digital. It was seen that despite a period of more than a year having elapsed BSFL had not taken any steps to recover this money. The explanation for purchase of 1,10,000 shares of the Appellant @ ₹ 400/- per share is also not convincing and appears to be an after thought. Director of Digital stated that dealings were being done at their counter by Shri Harshad Mehta though billing was being done in the name of his nominee i.e. Damayanti group. As regards receipt of amount from BPL group it was also admitted that they (Digital) were informed by Shri Harshad Mehta that a large payment would be credited into their account from BPL group from Bangalore to settle Damayantis outstanding pay-in-liability. It was also stated that contract notes were issued just to provide an alibi for transfer of funds and cover up the links of BPL group with Shri Harshad Mehta after SEBI investigations had commenced. The above facts indicate that BPL was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.66 crores was returned to BPL group entities, and preferential shares were issued for the balance amount of ₹ 15.34 crores. BPL group gave this money (Rs.15.34 crores) to cover a loss of ₹ 11.64 crores suffered by SSKL in this regard. This shows that SSKL merely provided a facade to BPL group for purchase of its own shares and through this methodology the prohibition imposed by section 77 of the Companies Act was circumvented. In view of the presence of fabricated contract notes in favour of BSFL and details of transfer of funds from BPL group to Digital, telephone bills linking Shri Harshad Mehta with BPL group, admissions of Digital and contradicting statements of directors/officials of the Appellant company, the Appellant seems to have connived with Shri Harshad Mehta and created a false market and manipulated the prices of scrips. Further there is no plausible explanation as to why a public limited company which is responsible for its share holders should buy its own shares at ₹ 235/- when the market was falling and there were only one side sellers and no genuine buyers in this scrip, in violation of section 77 of the Companies Act only from those br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals pertain to the same order, it was decided with the consent of the parties, to hear the appeals together and pass a common order. Shri Aspi Chinoy, learned Senior Counsel appearing for the Appellants except for Appellant in appeal No.15/2001, submitted that the order is bad in law and cannot be sustained as it is passed without following the principles of natural justice, and without jurisdiction and contrary to the material on record. Shri Chinoy referred to the show cause notice dated 20.12.1999 issued to the Appellant company and the other Appellants herein and stated that the Respondent had offered inspection of the documents and material which was being relied on by it. He stated that by a letter dated 25.1.2000 the Appellant company requested the Respondent to confirm the list of documents and material that were being relied upon by the Respondent, referred to in the said letter, and the Respondent was also informed of the Appellants desire to take inspection of the documents listed in the letter at a mutually convenient date, but the Respondent did not confirm the documents upon which it would be placing reliance. Inspection of the documents was completed on 29.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to provide Shri Shripal Morakhia, of Seventilal Kantilal Securities P. Ltd. (SSKL) for cross examination, which was not agreed to by the Respondent. In this context he referred to the Appellants formal application dated 24.1.2001 to provide Shri Shripal Morakhia for cross examination as Shri Morakhias cross examination was very essential, as he was the representative of SSKL stated to have approached the Appellant at the behest of the office bearers of BSE and NSE, further that in support of the show cause notice, the Respondent had relied on SSKLs letter dated 25.6.98 to the Respondent and inspection of the said letter was granted to the Appellant, that during the course of hearing on 24.1.2001 before the Respondents Chairman, the Appellants Counsel had explained as to why cross examination of Shri Morakhia was considered necessary. Shri Chinoy stated that the Chairman had asked the Appellant to make written submission on the issue of cross examination and accordingly written submission was also made that at the hearing on 4.4.2001, the Respondents representative stated that they would not rely upon SSKLs letter dated 25.6.1998 but reliance would be placed on the statement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the documents relate to the Appellant or not. The question is whether the documents are relevant to the charges levelled against the Appellant, that the documents are certainly relevant, as they are used to link the Appellant with Shri Harshad Mehta and to suggest that Shri Harshad Mehta acted at the behest of the Appellant. He stated that since the material has been used against the Appellant, the Appellant was entitled to inspect the same/to get a copy of the document. Shri Chinoy referred to the Respondents version in its reply (p.15) that all the documents/materials relied upon ( in so far as they relate to the Appellant), in the impugned order had been made available to the Appellant and stated that it is not factually correct. In this context he referred to the letters from the Appellants side dated 25.1.2000,15.2.2000, 15.3.2000, 16.3.2000, 29.4.2000 forming part of the Respondents reply and particularly referred to the Respondents letter dated 15.5.2000 in reply to the Appellants letter dated 29.4.2000 and pointed out that the Respondent had agreed to provide photocopies of only few documents selected out of several documents listed in the letter, implying tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is entitled, that inevitably would be that the enquiry had not been held in accordance with rules of natural justice. (2) KhemChand v Union of India (AIR 1958 SC 300) If the opportunity to show cause is to be a reasonable one it is clear that he should be informed about the charge or charges levelled against him and the evidence by which it is sought to be established, for it is only then that he will be able to putforward his defence. If the purpose of this provision is to give the Government servant an opportunity to exonerate himself from the charge and if this opportunity is to be a reasonable one he should be allowed to show that the evidence against him is not worthy of credence or consideration and that he can only do if he is given a chance to cross examine the witnesses called against him and to examine himself or any other witness in support of his defence (3) M.A.Jackson v.Collector of Customs (1998) 1 SCC 198 Once it is admitted that the price mentioned in the magazine was not mentioned in the show cause notice issued to the petitioner, any reliance on the said price mentioned in the magazine, by the Customs authorities must be held to be illegal. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. In this context he referred to the facts stated in para Q of the grounds of appeal which included the Appellants financial position, impressive performance, profitability, market leadership, product range and demand, corporate recognition etc. With reference to the Respondents contention that the scrip of the Appellant was moving abnormally compared with the movement of the BSE/NSE index, Shri Chinoy referred to the share price movement data for 3 calendar years i.e. 1997, 1998 and 1999 filed with the appeal and pointed out that in the year 1997 the highest price quoted in August, 1997 was ₹ 105/- followed by ₹ 104/- in December. In 1998, the highest quote in January was ₹ 121, in February, ₹ 129, in March, ₹ 165, in April, ₹ 417, in June, ₹ 446. In July the price fell to ₹ 180, in August, ₹ 158, in September, ₹ 157, in October, ₹ 152, in November, ₹ 138 and in December, it was ₹ 146. He also referred to the highest rates in 1999, that in January it was ₹ 226, in February ₹ 200, in March ₹ 395, in April ₹ 415, in May ₹ 474, in June ₹ 530, in July ₹ 535, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was in the name of BSFL, that BSFL is a totally independent and distinct entity . In this context he, referred to the statement made by Shri R.Balathandayutham, Vice President, BSFL in his deposition dated 10.8.1998 that in fact the shares have been received by BPL Sanyo Finance ltd., and lodged for transfer on 16.7.1998. He submitted that with reference to purchase of Money Televisions shares and FCDs also it is clear from the bill (copy filed with the appeal) that the buyer was not the Appellant. He submitted that BSFL is a finance company and there were transactions between the Appellant and the BSFL in the nature of inter corporate loans and deposits, and the funds advanced to BSFL in 1997 by the Appellant were part of the normal transactions, that the Respondents contention that it was meant for purchase of the shares of the Appellant company is baseless. He submitted that the Respondent has not produced any credible evidence to establish that the money was given by the Appellant to purchase its shares. Shri Chinoy submitted that the Respondent has gone on the wrong presumption that BSFL, Sanyo Finance and the Appellant are one and the same entity, though it is not so. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ownership or control of the Appellant. Learned Senior Counsel submitted that the impression that the Appellant and BSFL are one and the same is incorrect. Shri Chinoy refuted the Respondents version in para 13.1 that BPL was exercising its controlling mind in respect of BSFL, and stated that BSFL is a business associate of the Appellant does not mean, that it is under the control or management of the Appellant, that the Respondent has failed to establish that the Appellant is the controlling mind of BSFL. Shri Chinoy stated that the specific allegations in the show cause notice/order are directed against the said BSFL and not against the Appellant. By way of illustration he referred to the Respondents version in the show cause notice that (i) on 20.8.97 BSFL gave a mandate to Digital to purchase 5 lakh shares (para 8), (ii) a contract note dated 26.8.1997 issued on BSFL in respect of the purchase of 5 lakh shares of the Appellant (para 8), (iii) a bill dated 16.8.97 raised on BSFL in respect of the said transaction (para 8), (iv) Digital received ₹ 5 crores on 5.9.97 from BSFL (para 9), (v) credit for this payment was given in the books of account of Digital to BSFL (para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself. In this context learned Senior Counsel submitted that the charge of market manipulation implies an improper motive or intention that when such a charge is levelled against an artificial person or body corporate, it is necessary for the party making the charge to establish that the controlling/directing mind of the artificial person, that is, the Board of Directors or a committee of directors or the shareholders in general meeting, were involved in manipulation, that the subject transactions were never put up before the Board of the Appellant or a committee of its directors or before its shareholders. In this context he referred to the following authorities (i) Esso Standard Inc v. Udharam B Japanwalla 1975(45) Co.cases 16(Bom), (ii) ANZ Grindlays v. Director of Enforcement, decided by the Hon ble Bombay High Court on 7.11.1998 in W.P.No.1972/1994 etc.) Shri Chinoy read out extensively from the Esso Standards case and in particular the following paragraphs: The passage of Viscount Haldane, Lord Chancellor, in Lennard s Carrying Company Ltd v. Asiatic Petroleum Co.Ltd (1915) AC 705) referred to by Lord Diplock, is as follows: My Lords, a corporation is an ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second deals with the presumption of culpable mental state This is a complete departure from the legislative intendment as envisaged by the Act 1947. This measure has brought a drastic change in legislative approach and consequently by necessary implication Mens Rea has become the essential ingredient of the commission of the contravention.Section 58 is brought to prevent vindictive attitude or venom of the officers of the Enforcement Directorate or any person willfully giving false information. The very nature of the offence clearly involves culpable mental state. Section 59 reads thus:- Presumption of culpable mental state(1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation:- In this section culpable mental state includes intention, motive, knowledge of a fact and belief in, or reason to believe, a fact. (3) The provisions of this section shall, so far as may be, apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the price movement in its scrip or for the abnormal trade volumes as alleged. He denied that the volumes traded were abnormal or that the price was due to manipulations.. Shri Chinoy submitted that share price movements of several other companies indicate that the share prices of these companies also rose against the trend and movement of Sensex/Nifty during the period September, 1997 to June,1998. By way of example he stated that the price of Pentafour Software Ltd rose on BSE from ₹ 129 in September , 1997 to ₹ 1082 in May, 1998, in the same period in the case of Zee Films the price movement was from ₹ 115 to ₹ 610, in Satyam Computers from ₹ 160 to ₹ 504, in HCL-HP from ₹ 35 to ₹ 332, in ITC from ₹ 495 to ₹ 830. He stated that the general market sentiment and confidence in the Appellant s scrip is evident from the steady rise in the scrip value between July, 1998 and September, 1999, that on BSE the scrip rose from July, 1998 high of ₹ 180 to a high of ₹ 636 in September, 1999, that the increase during said period was much greater than the increase during the subject period, which clearly demonstrates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was in respect of a transaction by BSFL and the beneficial ownership was transferred to BSFL, there could not be any question of this transaction resulting in any market manipulation. As regards the payment on 5.9.1997 of ₹ 5 crores, the learned Senior Counsel submitted that this payment was made by BSFL to Digital and not by the Appellant. He submitted that the entries in the books of account of Digital showed that the payment on 5.9.1997 was not in lieu of any transaction for the purchase of shares. He stated that in so far as the disbursals made by Digital are concerned, these are the matters with which the Appellant is not in any way concerned. Shri Chinoy referring to the 2nd limb of the charge, that is funding to bail out the brokers in distress, referred to the Respondent s observation in this regard as found in the show cause notice that investigations revealed that a large number of brokers of BSE and NSE who were dealing on behalf of Damayanti group had cornered substantial stock of BPL shares and some of them faced payment problems and could not discharge their commitments towards pay in liabilities as they did not get the payments from their clients i.e. Dama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if there were any such share transactions, it would have been the Appellant s bail out, that no such charge has been established or even levelled against the Appellant, that all that the Appellant did was that it provided funds, as required by the management of the stock exchange to diffuse an otherwise explosive crisis in the market, to protect the interest of investors. Shri Chinoy submitted that by the Respondent s own version, cornering of shares was done at the instance of Damayanti group and it was Damayanti group who failed to pay. He also stated that bail out is an incident pertaining to June, 1998 where as the charge against the Appellant is funding a broker in the year 1997 to manipulate the market. Shri Chinoy denied the Respondent s version that the Appellant in connivance with Shri Harshad Mehta through Damayanti group was instrumental in manipulating the prices of its shares. He submitted that the charge is thus a charge of conspiracy. He stated that there is no nexus of any sort between the Appellant and Shri Harshad Mehta or Damayanti group and that the Appellant has not provided any evidence in support of its contention. He also stated that the Respondent ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable to the present case also that the onus is on the Respondent to prove its version. Mohan Sigh v Bhanwarlal (AIR 1964 SC 1366): The onus of establishing a corrupt practice is undoubtedly on the person who sets it up,and the onus is not discharged on proof of mere preponderance of probability as in the Trial of a Civil Suit; the corrupt practice must be established beyond reasonable doubt by evidence which is clear and unambiguous (emphasis supplied) Ch. Razik Ram v. J.S.Chouhan (AIR 1975 SC 667) Before considering as to whether the charges of corrupt practice were established, it is important to remember the standard of proof required in such cases. It is well settled that a charge of corrupt practice is substantially akin to a criminal charge. The commission of a corrupt practice entails serious, penal consequences. It only vitiates the election of the candidate concerned but also disqualifies him from taking part in elections for a considerably long time. Thus the trial of an election petition being in the nature of an accusation, bearing the indelible stamp of quasi-criminal action, the standard of proof is the same as in a criminal trial. Just as in a crimina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atment of evidence, appears to have gone away. It is therefore, necessary to reappraise the evidence from the stand-point indicated above. Ramanbhai Nagribhai Patel v. Jasvant Singh Udersingh Dabhi (AIR 1978 SC 1162): We may state that the charge of bribery is in the nature of a criminal charge and has got to be proved beyond doubt. The standard of proof required is that or proving a criminal or a quasi criminal charge. A clear cut evidence, wholly credible and reliable is required to prove the charge beyond doubt. Evidence merely probabilising and endeavouring to prove the fact on the basis of preponderance of probability is not sufficient to establish such a charge. Shri Chinoy stated that the charge of bribing in an election is an act of manipulation and the test of evidence required to punish the manipulator spelt out in the order is applicable to manipulations covered in regulation 4(a) and 4(d). He stated that market manipulation is a corrupt practice, with serious consequences, affecting the public and the test laid by the Court as aforesaid is applicable in deciding the charge of manipulation. Ramsingh v. Col.Ram Singh (AIR 1986 SC 3) In Samant N. Balakrish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he election petitioners were able to produce at the trial could not have been rejected for any such fanciful reason when there was nothing to show that the election petitioners were able to give useful evidence to their personal knowledge but stayed away purposely. In the case of Sultan Salahuddin Owasi v. Mohd. Osman Shaheed (1980) 3 SCC 281 : (AIR 1980 SC 1347), to which one of us (Fazai Ali, J.) was a party, this Court observed thus:- It is now well settled by a large catena of the authorities of this Court that a charge of corrupt practice must be proved to the hilt, the standard of proof of such allegation is the same as a charge of fraud in a criminal case. In Ram Sharan Yadav v. Thakur Muneshwar Nath Singh (1984) 4 SCC 649: (AIR 1985 SC 24), to which two of us were parties, this Court observed thus: The sum and substance of these decisions is that a charge of corrupt practice has to be proved by convincing evidence and not merely by preponderance of probabilities. As the charge of a corrupt practice is in the nature of a criminal charge, it is for the party who sets up the plea of undue influence to prove it to the hilt beyond reasonable doubt and the manner of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, strange the coincidences, and however grave the doubts suspicion alone can never take the place of proof. In our normal life we are sometimes faced with unexplainable phenomenon and strange coincidences, for, as it is said, truth is strange than fiction. In these circumstances, therefore, after going through the judgement of the High Court we are satisfied, that the Appellant has not been able to make out a case of fraud as found by the High Court. Shri Chinoy cited Svenska Handelsbanken v. M/s. Indian Charge Chrome (AIR 1994 SC 626) and stated that therein also the Hon ble Court had re-iterated the Privy Council s observation in Narayanan Chetteyar s case, quoted in Chaturbhai s case that fraud like any other charge of a criminal proceedings must be established beyond reasonable doubt. A finding as to fraud cannot be based on suspicion and conjuncture In this context he also referred to Ambalal s case (supra) and re-iterated that the principles laid down therein should be strictly followed. He submitted that the test of evidence in a case like market manipulation is not the normal preponderance of probability but it is the proof beyond doubt. Shri Chinoy also referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or fine. Though usu. for crimes, penalties are also sometimes imposed for civil wrongs. 2. Excessive liquidated damages that a contract purports to impose on a party that breaches. If the damages are excessive enough to be considered a penalty, a court will usu. not enforce that particular provision of the contract. Some contracts specify that a given sum of damages is intended as liquidated damages and not as a penalty but even that language is not fool proof. A penalty is a sum which a party agrees to pay or forfeit in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach, or as security, where the sum is deposited or the covenant to pay is joined in by one or more sureties, to insure that the person injured shall collect his actual damages. Penalties are not recoverable or retainable as such by the person in whose favor they are framed Charles T. McCormick, Handbook on the Law of Damages 146, at 600 (1935). civil penalty. A fine assessed for a violation of a statute or regulation the EPA levied a civil penalty of $10,000 on the manufacturer for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of penalties. He further stated that section stipulates only the object for which the directions can be issued and not the nature of directions. He further submitted that penalties cannot be created by the Respondent. It is a substantive power which should come from the statute. Penalties are required to be statutorily defined and one can t whimsically create an offence and impose penalty at his sweet will. Shri Chinoy submitted that if 11B is construed to be a penal provision then it is ultravires and liable to be struck down. Referring to the impugned direction he stated that debarring the Appellant accessing capital market for four years cannot be considered remedial with reference to the alleged offence stated to have been committed more than 3 years ago, that the prohibition on the Appellant company raising capital from the public is to be considered as a penalty and imposition of such penalty is out of the purview of section 11B and as such the same deserves to be set aside. In support of his argument in this regard he cited the following extracts from the decided cases: Khemka and Co.(Agencies Pvt.Ltd) v. State of Maharashtra (AIR 1975 SC 1549) It is a well set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200 at pg.204) where this Court held that if a particular action is valid under one section, it cannot be rendered invalid because reference was made to another section, and it makes no difference if the two empowering provisions are in the same statute. But this principle will have no application where in a penal action no notice was given or resort to such provision was made to the delinquent or the offending party. Kantilal Babulal and Bros. v. H.C.Patel (AIR 1968 SC 445) This was a case where a Sales Tax Officer, without giving effect to the order passed by the Sales Tax Appellate Tribunal, to refund the amount collected as tax from a dealer on the sales effected outside the State from 26.1.1950 to 31.3.1951, proceeded to take steps for forfeiting the amount to the State Government under S.12 A(4) of the Sales Tax Act. According to the Revenue S.12A(4) is a penal provision; and it provides for the imposition of penalty on those who contravene Section 12A(1) and (2). It was said on its behalf that power to enact such a provision is incidental to the power to take sales. I support of that contention reliance was placed on the decision of the Gujarat High Court in Ram G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-sections (1) and (2) of Sec.12A. Even if there is any dispute either as to the factum of collection or as to the amount collected, such a case also comes within the scope of Section 12A (4). Yet that section does not provide for any enquiry on disputed questions of fact or law. The forfeiture provided for in Section 12A (4) prima facie infringes Article 19 (1) (f). Therefore it is for the respondents to satisfy the Court that the impugned provision is a reasonable restriction imposed in the interest of the general public. Section 12A (4) does not contemplate the making of any order. As mentioned earlier, that section prescribes that if any registered dealer collects any amount by way of tax in excess of the amount payable by him under the Act, the amount so collected shall, without prejudice to any prosecution that may be instituted against him for an offence under the Act, be forfeited to the State Government and he shall within the prescribed period pay such amount into a government treasury and in default of such payment shall be recovered as arrears of land revenue. This section does not contemplate adjudication. Nor does it provide for making any order. Hence, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an opinion must be guided by the doctrine of benefit of doubt and is under an obligation to record a finding of guilt only upon being satisfied beyond reasonable doubt. It would be impermissible to reach a conclusion on the basis of preponderence of evidence or on the basis of surmise, conjucture or suspicion. It will also be essential to consider the dimension regarding mens rea: This proposition is hardly open to doubt or debate particularly regard to the view taken by this Court in L.D. Jaisinghani v. Naraindas N. Punjabi (1976) 1 SCC 354: (AIR 1976 SC 373 at p.376) wherein Ray, CJ., speaking for the Court has observed:- In any case, we are left in doubt whether the complaint s version, with which he had come forward with considerable delay was really truthful. We think that, in a case of this nature, involving possible disbarring of the advocate concerned, the evidence should be of a character which should leave no reasonable doubt about guilt. The Disciplinary Committee had not only found the appellant guilty but had disbarred him permanently. (emphasis added) Shri Chinoy also read out extensively from this Tribunal s order in Sterlite case(supra) and stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2001 submitted that the Respondent has ordered to launch prosecution proceedings under section 24 of the SEBI Act for violation of clauses (a) and (d) of the 1995 Regulations against the Appellant through its directors and officers ( 5 in number) including the 4 Appellants whom he represented. He pointed out that there is not even a grain of evidence in the impugned order to launch prosecution against any of the Appellants. Shri Chinoy pointed out that the direction is to prosecute the Appellant company in the light of the findings arrived at by the Respondent. But direction is not to prosecute the Appellant directly but through its officers and directors. He submitted that it is not permissible under the law to launch vicarious criminal prosecution. The Respondent s order is not clear whom really it wants to prosecute, the Appellant or the others. He submitted that the law does not permit prosecution of a person through another, that prosecution through proxies is unheard of. Shri Chinoy referred to the provisions of sections 24 and 27 of the Act and stated that the Respondent has not made out any case to proceed against the Appellants either under section 24 or under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he persons referred to in the section are liable to be prosecuted provided there is sufficient justification to the same. Shri Chinoy referred to the written reply given by the Appellants in response to the show cause notice in this regard that: on a correct interpretation of Section 27, the provisions of that section do not have any application to adjudication proceedings such as these proceedings since Section 27 applies only in the case of criminal prosecutions under Section 24 of the SEBI Act, 1992. The deeming provision under Section 27(1) would be attracted where an offence has been committed by a company. Offences are covered by Section 24 which provides, inter alia, that where a person is held guilty of an offence he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both. Section 26 of the Act provides, inter alia, that no court shall be cognizance of any offence punishable under the SEBI Act or the said Regulations, except on a complaint made by SEBI. Moreover, it is provided that no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis for launching the prosecution, further that though the Respondent had stated before the Tribunal that they would not be proceeding with the criminal prosecution during the pendency of the appeal, the Respondent has filed the prosecution and process has been issued by the Court, that this action of the Respondent all the more establishes that prosecution and the impugned order are not unrelated, and therefore this Tribunal need also set aside the order to launch prosecution covered in the order. Shri Chinoy stated that the impugned order is a composite order including the direction to launch prosecution and as such the Tribunal has jurisdiction to set aside the said part of the order also. Shri Somasekhar Sundaresan, learned Counsel appearing for the Appellant in appeal No.15/2001 submitted that he was adopting the submissions made by Shri Chinoy. He submitted that the Appellant is in no way concerned or involved in the activities of the Appellant company, that he was/is not occupying any position in the company, that he had not attended even a single board meeting of the Appellant company during the relevant period, that he has resigned from the Board of the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to make a representation before the council against the report of the Disciplinary Committee. The contention can be disposed of shortly. There is nothing in regulation 14, which excludes the operation of the principles of natural justice entitling the member to be heard by the Council when it proceeds to render its finding. The principles of natural justice must be read into the unoccupied interstices of the statute, unless there is a clear mandate to the contrary. (emphasis supplied) Shri Sundaresan stated that since the Appellant has been chosen as an instrumentality to proceed against the Appellant company, it was incumbent on the Respondent to hear the Appellant irrespective of the fact whether there was any specific provision in the Act or not, following the principle laid down by the Hon ble Supreme Court in Ratna s case. He pointed out that this deficiency cannot be cured in the subsequent proceedings as observed by the Court that.... it seems to us, there is manifest need to ensure that there is no breach of fundamental procedure in the original proceedings, and to avoid treating an appeal as an overall substitute for the original proceeding Shri Rafiq Dada, learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant s scrip alongwith the Hawala rates for the settlements 1 to 12, furnished in para D(1) in the Respondent s reply as under : Sett No Carry forward Purchases Carry forward Sales Purchase V/s Sales (No.of times) Hawala Rate (Rs.) 1 2331600 349400 6.67 163 2. 2359400 305000 7.74 177 3 1460100 215400 6.78 182 4 1480400 224200 6.60 225 5 1892400 219300 8.63 270 6 2009900 173800 11.56 260 7 2358200 170400 13.84 260 8 2524200 252500 10.00 265 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries taken/given by few entities have a material impact on the price movement and the large positions carried forward over a period of time also affects the prices. He stated that the price movement in the scrip of the Appellant was not due to the normal market forces but due to manipulation and the resultant creation of false market. Learned Counsel refuted the Appellant s contention that the Respondent has identified BPL group and the Appellant as one and the same entity erroneously and the Appellant has been held liable for the omissions and commissions, if any, of the other companies in the group, and stated that in the impugned order enough evidence has been arrayed to show that the controlling mind in BSFL and Sanyo Finance is the Appellant. In this context he referred to the predominant share ownership, common directorship, Shri T.C.Chauhan s role, and the role of Shri Rajaram, the Appellant s Company Secretary as the authorised authority for the said entities. Shri Dada in particular referred to the statement of Shri Balathandayutham, Vice President of BSFL and stated that, there was no difficulty at all in coming to the conclusion that the Appellant was exercising its c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments indicating the notional profits/actual profits. It was explained by Shri Gulati that these statements, were addressed to Mr.Atul Parekh, an associate of Shri Harshad Mehta and sent by FAX at telephone No.2829831 (of Damayanti Group). The documents obtained from 1208 Maker Chambers V, Nariman point, Bombay were shown to Shri Gulati and it was confirmed by him that these were sent by LKP to Mr.Atul Parekh in accordance with their arrangement with Shri Harshad Mehta. Since LKP did not make any profits on the investment in these shares as promised by Shri Harshad Mehta, in lieu thereof they were given 2,00,000 shares of BPL by Shri Harshad Mehta on 15.4.98 towards repayment of loan. These shares were delivered to LKP on the letterhead of Damayanti Finvest Pvt.Ltd with whom they otherwise had no dealings. Shri Dada stated that this statement indicates Shri Harshad Mehta s involvement in the game. The learned Senior Counsel submitted that there is enough evidence to show that Digital was transacting for Damayanti group and the said Damayanti group was in turn acting for Shri Harshad Mehta. To establish the Appellants nexus with Shri Mehta, Shri Dada cited several telephone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd stopping any further dealings with Digital, further money was paid to the said broker, that the statement of Shri Chauhan that purchase of 1, 10, 000 shares of the Appellant was made to recover the advance paid to the broker is belied by the fact that further payment of ₹ 4.40 crores was made when the earlier amount was yet to be recovered. He referred to the details of money sent by the Appellant to Digital as stated in the order that ₹ 5 crores was made on 5.9.1997, ₹ 75 lacs on 10.10.97, 22.10.97, and 31.10.97, ₹ 27.50 lacs on 17.11.97, 22.12.97, 2.2.98, 5.3.98 and 2.5.98 making the total payment to the extent of ₹ 8, 62, 50, 000, that BSFL transferred only ₹ 75, 62, 500 on 6.10.97 to Digital from its account, that Shri Balathandayutham has admitted the position and no convincing explanation could be given by Shri Chauhan and Shri Balathandayutham as to why these funds were given by the Appellant to Digital and Digital in turn disbursed the amount to the brokers. In this context Shri Dada stated that the funds were disbursed more or less on the same day by Digital to the brokers. He referred to the details of disbursement made, as furnished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of shares etc. BPL Sanyo Finance is registered with Reserve Bank of India as a NBFC. He had admitted that after 31.3.98 we have purchased 1,10,000 shares of BPL Ltd at the rate of ₹ 400/- each on 2.6.98 from M/s. Digital Leasing and Finance Ltd, a member broker of BSE and NSE. He had stated that During the period 1.4.97 to 31.3.98 we have sold 1,92,500 shares of BPL Ltd on various dates at different rates aggregating 1,62,53,615 through M/s. Sheshanka Securities, member of Bangalore Stock Exchange NSE .............. we also purchased 5000 shares of BPL Ltd on 29.8.97 at the rate of ₹ 77.80 from M/s. Nagarjuna Securities. Shri Dada stated that Shri Balathandayutham with reference to the transaction with Digital had stated we have made a payment of ₹ 75,62,500 during 97-98 and another ₹ 3,35,00,000 was paid by BPL Ltd on our behalf to M/s. Digital Leasing and Finance Ltd during 97-98, another ₹ 27, 50, 000 was paid by BPL Ltd to M/s. Digital Leasing and Finance Ltd during 98-99 against which 1,10,000 shares of BPL Ltd were purchased by us on 2.6.98 for ₹ 4, 40, 00, 000. To another query Shri Balathandayutham had stated that some where in Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase of BPL shares was not through. According to Shri Dada there cannot be a resolution as the transaction was fudged. To another question as to whether there was any Resolution by which the requirement of purchase of 5 lakhs shares of BPL was dropped and in its place the management was satisfied about the purchase of Money Television Ltd s shares, Shri Balathandayutham had replied There is no Board resolution to the effect that five lakhs share of BPL were not to be purchased. To another question how Digital Leasing and Finance Ltd was contacted and who gave the reference for this company and how they decided to buy the shares through this Bombay Company when they had sold large chunk of shares of BPL Ltd through Bangalore brokers, Shri Balathandayudam had stated Shri T.C. Chauhan was in touch with Digital Leasing and Finance Ltd and through the associate company of Digital leasing and Finance Ltd in Bangalore. Only Shri Chauhan will be able to answer this question. Shri Dada referred to another question-Rupees five crores was transferred as per the record of Digital Leasing and finance Ltd, in September 1997. Your company (BPL Sanyo Finance Ltd) had given mandate to buy 5 lakh s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r received any amount from the broker Q.33. In response to question 7, you have stated that ₹ 3, 35, 00, 000 and ₹ 27, 50, 000 were paid by BPL Ltd to Digital Leasing and Finance Ltd. on our behalf for purchase of 1, 10, 000 shares of BPL Ltd. Does this tantamounts to purchase of own shares by BPL Ltd ? A.33. As a part of the portfolio investment we use to request BPL Ltd to transfer the funds to Digital Leasing and Finance Ltd. As the shares in BPL Limited on 31.3.97 and subsequent period were sold, we wanted to atleast replenish the quantity sold by us. Shri Dada with reference to Shri Chauhan s role vis-a-vis BPL cited the following portions from Shri Chauhan s statements recorder on 14.8.1998 and 27.9.99. To a question as to who authorised the decisions for BSFL in the matter relating to investments in shares and securities, Shri Chauhan s answer was Normal transactions of buy and sell, say up to a crore of rupees are authorised by the officers like Shri Balathandayutham and a summary is presented to the Board as and when it needs. Beyond that it is informally discussed by the Board. A quarterly review of the activities of the company is presented to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d stated I understand the offer came from the same broker Digital Leasing and Finance Ltd and the offer was received by somebody in BPL Sanyo Finance Ltd. Shri Dada referred to question 29 and the answer to the same from Shri Chauhan: Q.29. I am showing you contract note No.1 dated 26.8.97 and bill no. GC05/305001 dated 26.8.97 issued by Digital Leasing and Finance Ltd for sale of shares and convertible debentures of Money television Ltd, valued at rupees five crores. The contract note and bill along with the share/debenture certificates have been received by BPL Sanyo Finance Ltd on 26.8.97. If the decision was not to purchase shares of Money Television Ltd why were these shares and debentures received and acknowledged form the broker. I have seen the documents and they appear to have been received and acknowledged by Shri A.R. Rajaram, the Company Secretary of BPL Ltd. My decision was not to buy the shares of Money Television Ltd. To my knowledge these shares were delivered by the broker about two three months back. I cannot say how Shri Rajaram has acknowledged the documents and accepted delivery of shares and debentures of Money Television Ltd in August 1997. To anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Chauhan in answer to a question had admitted that I also recall speaking to Shri Harshad Mehta on a few occasions. As mentioned earlier the discussion was always on company s prospects and market share and such connected issues. In the light of the said statement the investigating officer had posed that It is quite likely in the context of manipulations in the shares of BPL that Shri Harshad Mehta was in touch with you for reasons other than knowing merely prospects of the company. Please explain the details of actual discussions. To this Shri Chauhan s answer was As I mentioned earlier, I have spoken to Shri Harshad Mehta on a few occasions and the discussions have always been about the business prospects of the company in the context of the total market. Shri Dada to show that Sanyo Finance and BPL Sanyo Finance Ltd and the Appellant are under the same management, referred to the copy of the letter dated 28.8.97 (Annexed to the appeal) from Digital to Sanyo Finance, 1/1 Palace Road, Bangalore 560 001 re Bill No. GC05/305001 where under the said Digital had forwarded certificate in respect of 38,13,500 shares and 11,86,500 FCD s of Money Television and stated that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bangalore, after deducting Damayanti groups dues to us, we disbursed the balance amount as per their instructions to various entities and then waited for their instructions to close the entry. Later starting from 6.10.97 to 9.3.98 we received an amount of ₹ 4, 10, 62, 500 from BPL Bangalore in installments, plus a final ₹ 27.5 lakhs received on 6.5.98. Against this amount, during that period we raised a bill on BPL for the following sale as per instructions of Damayanti: 2 lacs shares of KREB BIOTECH 1 lac shares of SWARAJ MAZDA 1.25 lac shares of BPL Later, the above bill was changed to reflect a sale of 1, 10, 000 shares of BPL scrip @ ₹ 400/- upon Damayanti s instructions, in good faith, without suspecting any wrong doing in their frequently changing instructions we cancelled and destroyed the previous bill and issued the fresh bill. We never gave delivery of these share to BPL although we have stated and Shri Rajaram has acknowledged that we have delivered the share on 6.6.98 we still have to receive ₹ 1,87,500 from BPL Bangalore. Just after the SEBI investigation started Damaynati informed us that the previous bill for 5, 00, 00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for ₹ 47 Crores on 17/19.06.1998 on behalf of Monoplan, a loss making company of SSKI. Monoplan received ₹ 47 crores as Application money for allotment of 15% preference shares from BPL controlled entities. Rs.15.5 crores from Oriental Transport Ltd. on 19.06.98. This money (Rs.15.5 crores) was refunded by Monoplan on 28.01.99 to Oriental Transport Ltd. Rs.15.15 crores from Orion Construction Company Co. Pvt. Ltd. Out of ₹ 15.5 crores, ₹ 16.1 lacs were refunded by Monoplan on 28.01.99 to Orion Construction Company co. Pvt. Ltd. Rs.16 crores from Badalona Overseas Pvt. Ltd (an associate of SSKI) on 26.06.98. This money was refunded by Monoplan on 28.01.99. This money (Rs.15.5 crores was given by BPL on 18/6/98 to Oriental Transport Limited towards subscription of 14% NCDs on private placement basis. This money (Rs.15.5 crores) was given by BPL on 18/6/98 to Orion Construction company towards subscription of 14% NCDs on private placement basis This money (Rs.16 crores) was received by Badalona from BSFL on 26/6/98 as advance toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the crisis. It was represented to BPL that they are being approached at the instance of SEBI and in the general interest of the stock market. The Stock Exchange authorities also have issued a letter dated 12th June 1998 addressed to SSKL, requesting them to help in clearing the position of 30 lakh shares, which would restore the confidence of the investors. The common price fixed by the Exchange was at ₹ 235/- per share. It was also mentioned in the letter that the Stock Exchange has succeeded in garnering the suitable investors up to 5 lakh shares. It was also informed that the Exchange is discussing the matter with the Tata group of companies to co-operate and to support the Exchange in their endeavour, with the above back ground and particularly with the representation made by SSKL that they are sent by SEBI, Badalonna Overseas P. Ltd. and Monoplan Securities Ltd were the two companies belonging to SSKL ₹ 47 crores was transferred to these two companies for purchase of debentures and preference shares. Some preferential shares were allotted to Orion Construction Co. Pvt. Ltd by Monoplan Securities. The rest of the money was refunded back later in the early part of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take action in matters like the one under consideration and stated that the Appellant has been subjected only to adjudication, that the standard of proof required in an adjudication is not that high as required in a criminal proceeding, that in a criminal proceeding evidential standard of proof is beyond reasonable doubt but the requirement in an enquiry like the present one is preponderance of probabilities, which is much less than the strict proof requirements in a criminal proceeding. He cited the decision of the Hon ble Supreme Court in Gulabchand vs. Kudilal AIR 1966 SC 1734 in support. He also referred to the decision of the Hon be Special Court (Trial of Offences Relating to Transactions in Securities at Bombay) in National Housing Bank. v. ANZ Grindlays. 1998(2)LJ 153 in this regard. He stated that it is principle laid down in Gulabchand that prevails and not that of Chaturbhai and Svenska relied on by the Appellant. Shri Dada referred to Ambalal (AIR 1961 SCS 264) relied on by the Appellant and stated that the decision therein is in the context of confiscation of goods and the Court s observation therein was based on commission of an offence as could be seen from para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in Gulabchand s case (AIR 1966 SC 1734) laid down by the 5 judges Bench is the law in this regard, a position which the Bombay High Court has already highlighted in NHB/ANZ Grindlay (Supra). In NHB s case Hon ble High Court had viewed that In this case the law of the land happens to be as per the judgement of the constitutional Bench of the Supreme Court in Gulabchand s case, as against that, Chaturbhai s judgement is of a Bench of two judges. Gulabchand s case was not cited before the Bench hearing Chaturbhai s case. Shri Dada submitted that even if it is viewed that charge under regulation 4(a) is a criminal charge, still the test laid down in Gulabchand s case is the one applicable. Shri Dada submitted that to establish the charge of manipulation and hold a person liable for the same circumstantial evidence is sufficient and from the material on record it is evident that Appellant company had indulged in market manipulation attracting the provisions of regulation 4(a) and 4(d) Countering Shri Chinoy s interpretation of regulation 4, Shri Dada submitted that the scope of the regulation is wide enough to bring in, the conduct of the Appellant thereunder. In this context Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in securities and accessing the capital market and any other suitable direction in the interest of investors and securities market under section 11 read with section 11B of the SEBI Act read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations should not be issued. You are also requested to show cause why prosecution proceedings under section 24 of SEBI Act, 1992 should not be initiated for the above mentioned violations. In the case of other Appellants the only addition in the show cause notice was a reference to section 27 of the Act as they were deemed to be guilty to attract the said section. Shri Dada submitted that once Regulation 11 is referred, automatically Regulation 12 also comes into. He stated that the notice clearly states the nature of violation and the attendant section and regulations and it is not correct to say that the show cause notice was vague and evasive on this count. Shri Dada stated that the Respondent has established the charge of market manipulation attracting the provisions of regulation 4(a) and 4(d) and justification for issuance of direction under section 11/11B of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not applicable. Referring to Kantilal Babulal s case (AIR 1968 SC 445), he stated that the issue involved therein was forfeiture of money without statutory authority. In that case the Sales Tax Officer, without giving effect to the order passed by the Sales Tax Appellate Tribunal, to refund the amount collected as tax from a registered dealer, proceeded to take steps for forfeiting the amount to the State Government under section 12A(4) of the Bombay Sales Tax Act without even holding an enquiry. In this context Shri Dada read out section 11 and 11B of the Act and stated that the instant order has been passed by the Respondent exercising the authority vested in it following the procedure of enquiry laid down in the Act/Regulation. Referring to L.D. Jaisinghani vs. Narayandas M. Punjabi (1976 SC 373) and in ReAdvocate (AIR 1989 SC 245) Shri Dada stated that both these cases relate to matters connected with the disciplinary proceedings against Advocates for violating the professional misconduct under the Advocates Act and Bar Council of India Rules. The principle that the evidence should be of a character which should leave no reasonable doubt about guilt is not applicable to the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch runs on the wheel of Rule of Law. Shri Dada submitted that since the prosecution having been launched against the Appellants, the forum to contest the charges made in the prosecution is the trial Court and not this Tribunal. He submitted that this Tribunal has no power to decide in an appeal as to whether a person is liable to be prosecuted or not under section 24, that the powers available under section 482 of Cr. PC are not available to the Tribunal. Shri Dada submitted that in the light of the facts and circumstances as revealed in the order, there is every reason to hold that the Appellant company had indulged in market manipulation violating the provisions of regulation 4(a) (d) attracting the consequences as laid down in regulation 12(a) and section 11 and 11B of the Act, and therefore the impugned order has been rightly issued. I have carefully considered the submissions made by the learned Counsel for the parties, the pleadings and the entire material on record before me. The heading of the impugned order clearly states that the order is in the matter of price manipulation in BPL share. Undoubtedly the subject matter of the order is price manipulation in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ah referred to in para 6.3.4(b)(ii) of the impugned order; (iii) Statement of one Dinesh D. Doshi referred to in para 6.3.4(b)(iii) of the impugned order; (iv) Statement of one Anil Doshi referred to in para 6.3.4(c) of the impugned order; (v) Statements of unspecified brokers referred to in paragraph 6.3.4(d) of the impugned order; (vi) Letter dated 12th May, 1998 of LKP Shares and Securities Ltd. ( LKP ) referred to in para 7.1 of the impugned order; (vii) Travel bills issued by M/s. Bonik Travels referred to in para 8.1(a) of the impugned order; (viii) Travel bills issued by M/s. Taurus Travels referred to in para 8.1(a) of the impugned order; (ix) Proof of payment of ₹ 14 lakhs to Harshad Mehta s lawyers by Damayanti Group referred to in para 8.1(a) of the impugned order; (x) Unsigned letter dated 18th September, 1997 from Harshad Mehta to CBI referred to in para in 8.1(b) of the impugned order; (xi) Documents containing investments and bearing notes/jottings in the handwriting of Harshad Mehta, referred to in para 8.1(c) of the impugned order; Learned Senior Counsel submitted that in the circumstances, the impugned order is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants have not been denied of material information by the Respondent, so as to hold that the order has been passed in total disregard to the principles of natural justice. On the Respondent s unwillingness to provide Shri Shripal Morkhia of SSKL for cross examination by the Appellant, the reason put forth by the Respondent is found acceptable. The Appellant wanted to cross examine him in the context of the statements of Shri Morkhia in his letter dated 25.6.98. The Respondent has made it clear that the statement of Shri Morkhia made in the letter dated 25.6.98 had not been relied upon in the impugned order. In para 13.7 of the order it has been stated I note that, during the personal hearing on 04.04.2001 the Counsel for BPL specially confirmed that they do not insist on cross examination (of Shri Morkhia) if, SEBI is not placing reliance on the said statement. I do not find any reliance on Shri Morkhia s statement in the order. Cross examination of a witness, no doubt is very relevant and also very important, from the evidential angle. But the rule has exceptions. In K.L. Tripathi Vs. State Bank of India (1984) 1 SCC 43) Hon ble Supreme Court had observed that if the credibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent s finding that the Appellant company is guilty, and further that, there are in built provisions in law ensuring sufficient opportunities to the accused in a prosecution case, to putforth its defense before the trial court before passing any adverse order, it is difficult to hold that the Respondent should have heard the said Appellants before passing the impugned order and by not doing so failed to follow the principles of natural justice. Opportunity of being heard before launching prosecution is not ordinarily known to any penal jurisprudence. Infact, it is seen that the said Appellants were also given opportunity to put forth their version in the proceedings before the Respondent, vide show cause notice issued to them on 20.12.1999. The requirements of regulation 8 of the 1995 Regulations have thus been complied with. It has been stated in the operative portion of the order that powers under sections 11 and 11B of the Act have been invoked to issue the impugned directions. Though there is no specific reference to regulation 11 of the 1995 Regulations therein, on a perusal of the order and the show cause notice, it can be safely inferred that power available in regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent to issue the directions. Text of section 11B is extracted below: Power to issue directions 11B. Save as otherwise provided in section 11, 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 persons referred to in section 12, or associated with the securities market; or (b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market Now back to the 1995 Regulations: Regulation 2(b) defines dealing in securities as under: dealing in securities means an act of buying, selling or otherwise dealing in any security or agreeing to buy, sell or otherwise deal in any security by any person either as principal, or as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities; (e) pay, offer or agree to pay or offer, directly or indirectly, to any person any money or money s worth for inducing another person to purchase or sell any security with the sole object of inflating, depressing, or causing fluctuations in the market price of securities; Chapter III provides for investigation into alleged contravention of the regulations and consequential action thereafter. Regulation 7 empowers SEBI suo motu or upon information received by it to cause an investigation to be made in respect of the conduct and affairs of any person buying, selling or otherwise dealing in securities, by an investigating officer, for the purposes, namely- (a) to ascertain whether there are any circumstances which would render any person guilty of having contravened any of these regulations or directions issued there under (b) to investigate into any complaint of any contravention of the regulation, received from any investor, intermediary or any investors. In terms of regulation 8, in the normal course , before causing an investigation th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said regulation 4(a) and (d), to begin with. On a perusal of regulation 4 it is clear that prohibition is against market manipulations stated in clauses (a) to (e) therein. According to the impugned order the Appellant company indulged in the type of market manipulation referred to at clause (a) and (d) . Text of the regulation has been already extracted above. To attract regulation 4(a) (i) a person should have effected, taken part in, or entered into either directly or indirectly, transactions in securities (ii) the transactions must be with an intention (iii) such transaction must be to artificially raise or depress the prices of securities (iv) the result of the action must be to induce the sales or purchase of securities by any person. The ingredients of regulation 4(d) are that (i) a person must enter into a purchase or sale of any securities (ii) said purchase or sale must not be intended to effect the transfer of beneficial ownership (iii)the purchase or sale must be intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities. On a perusal of the regulation it is clear that reach of clause (a) is wider than the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court Act, during 5.9.97 to 2.5.98 for carrying out transactions to manipulate market. Providing funds to the tune of approximately ₹ 47 crores to bail out some of the brokers connected with Damayanti group trapped in payment crisis in BSE/NSE in June 1998. The Respondent has briefly explained the back ground and has also made certain observations in the following first few paras of the order giving an insight into the matter: Large volumes coupled with abnormal price movements were observed in the stock exchanges in respect of shares of BPL Ltd (BPL), particularly during the period between April and June 1998. The price of the BPL scrip which was ₹ 180/- during April touched a high of ₹ 446/- by first week of June. The said price movement in the scrip of BPL was not in conformity with the movement in index of The Stock Exchange, Mumbai (Sensex) / National Stock Exchange, Index (Nifty). The BSE sensex showed a decline of 11% i.e. from 3969 to 3546 and Nifty showed a decline of 5% from 1081 to 1027, whereas, the price of BPL share rose by 148%. This rise in price was accompanied by abnormal volumes in the share of BPL, both at The Stock Exchange, Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and being instrumental in effecting transactions by taking part and entering directly and indirectly into transaction in the shares of BPL.(emphasis supplied) The order though refers to cornering of shares by companies of Damayanti group and involvement of Shri Harshad Mehta, is silent about the action, if any, taken against them. However, learned Senior Counsel appearing for the Respondent stated that they have been proceeded against separately and orders also have been issued in most of the cases holding them guilty of market manipulation. The charges against the Appellant company as already stated relate to supply of funds by it in two tranches i.e. (i) ₹ 9.4 crores for financing transactions in the market and (ii) ₹ 47 crores to bail out the brokers in distress. To begin with let us examine the 1st phase of the alleged funding: The details of various payments made by BPL to Digital, as per the impugned order are as under: Date Amount (Rs.) 05.09.97 5 crores 10.10.97 75 lakhs 22.10.97 75 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .8.97 signed by Shri Balathandayutham, Vice President of BPL Sanyo Finance Ltd, confirming their order for 5, 00, 000 shares of BPL @ ₹ 100/-. On 05.09.97 we received ₹ 5 crores from BPL by way of Demand draft (5 of ₹ 90 lakhs each, and 1 of ₹ 50 lakhs). As soon as we received the funds from BPL Bangalore, after deducting Damayanti groups dues to us, we disbursed the balance amount as per their instructions to various entities and then waited for their instructions to close the entry. Later starting from 06.10.97 to 09/03/98 we received an amount of ₹ 4, 10, 62,500 from BPL Bangalore in installments, plus a final ₹ 27.5 lacs received on 06/05/98. Against this amount, during that period we raised a bill on BPL for the following sale as per instructions of Damayanti: 2 lacs shares of KREB BIOTECH 1 lac shares of SWARAJ MAZDA 1.25 lac shares of BPL. Later, the above bill was changed to reflect a sale of 1,10,000 shares of BPL scrip @ ₹ 400/- upon Damayanti s instructions, in good faith, without suspecting any wrong doing in their frequently changing instructions we cancelled and destroyed the previous bill and issued the fres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct of the said Digital was under inquiry and the inquiry officer had found him guilty of violating the regulations and had consequently recommended imposition of penalty. The contents in the Affidavit under reference need be viewed in the said context. It is clear from the tone of the Affidavit that it is some sort of a mercy pleading. It has admitted several lapses on its part including manipulation of records to suit its interest. There are glaring contradictions as well. To quote one such contradiction in the first para it has been stated that the money received from BPL was disbursed as per their instructions to various entities, but in the fourth para it has been stated during all these transactions we were never in touch with the BPL Group. We received instructions only from Shri Harshad Mehta. While accepting the Affidavit of such a person whose credibility is questionable, utmost caution is necessary. Those portions therein which are corroborated with other evidence alone can be taken into consideration. It has been stated that Digital executed a contract for sale of 5 lac shares of BPL based on a letter dated 20.8.97 signed by Shri Balathandayutham, Vice Presiden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reveal payment by Digital to several entities including certain entities stated to be of Damayanti group. Digital s statement shows receipt of only ₹ 5 crores on 5.9.97 from BSFL, but the amounts paid on that day are as follows: Date 05.09.97 Party Amt. Paid Malar Share Shoppee 4906800.00 Arhum Securities 422025.00 J.D. Investment 115000.00 Bharati D. Thakker 116670.00 Jignesh Dalal 115000.00 Time Investment 267300.00 Scope Investment 642800.00 Surya Investment 87400.00 Shri Krishna Co 293660.15 Anil Shah Securities 1200000.00 Satyanarayan Nangalia 768401.16 N.V. Shah 705408.50 Sony Securities 1100000.00 Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen from the copy of the contract note and the bill relating to the transaction involving the said securities filed in the appeal, that these are in the name of Sanyo Finance . Copy of the contract note and bill indicates that the documents were received For BPL Sanyo Finance Ltd by Shri A.R. Rajaram in his capacity as the Authorised signatory. It is therefore difficult to agree to the view that since Shri Rajaram, who is also the Company Secretary of the Appellant, having accepted the documents, the transaction should be considered as made by the Appellant itself. In this context it is to be noted that the Respondent itself had admitted that Sanyo Finance is a partnership firm. Shri R. Balathandayutham in his statement dated 10.8.98 to a query by the investigating officer (Q.10.) on the constitution and relationship of Sanyo Finance with the BPL Group had stated Sanyo Finance is a partnership firm with two corporate partners and one individual by the name of Shri Rajgopal ............................. I cannot comment on the relationship between Sanyo Finance and the BPL Group. But Shri T.C.Chauhan was more candid. He in his statement dated 14.8.98 had said Sanyo Finance is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kers. In this connection it is also worth noting his statement in the context of the company s transaction with Digital referred to in the order. In answer to a question (A.7) Shri Balathandayutham had stated that we have made payment of ₹ 75, 62, 500 during 97-98 and another ₹ 3, 35, 00, 000 was paid by BPL Limited on our behalf to M/s. Digital Leasing and Finance Ltd during 97-98 and another ₹ 27, 50, 000 was paid by BPL Ltd to M/s. Digital Leasing and Finance Limited during 98 - 99 against which 1, 10, 000 shares of BPL were purchased by us on 2.6.98 for ₹ 4, 40, 00, 000. Shri Balathandayutham has also admitted the fact of purchasing the shares and FCDs in the name of Sanyo Finance from out of the funds of ₹ 5 crores given by it to Digital in 1997. The question of cancellation of the earlier transaction stated to be involving 5 lac shares of BPL and the substitution by Money Television Securities and alleged back dated receipt of the same are matters involving BSFL and Digital. The Respondent has not produced any evidence to show that these actions were taken at the behest of the Appellant. Regarding the purchase of 1, 10, 000 shares by BPL Sanyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and securities by BSFL. To a question (Q.7) as to who authorises the decision for BSFL in the matters relating to investments in shares and securities, Shri Chauhan s answer was Normal transactions of buy and sell, say up to a crore of rupees, are authorised by the officers like Shri Balathandayutham ................. Beyond that it is informally discussed by the Board. A quarterly review of the activities of the company is presented to the Board as and when, it meets and all the activities including investments are reviewed. With reference to the purchase of 5 lac shares of the Appellant by BSFL, Shri Chauhan stated (A.11) that the Investment decisions are as I mentioned earlier discussed informally in the Board. Only in case of an offer of 5 lakh BPL, shares that had come to my notice through some broker. This was as usual informally discussed at the Board meeting of BPL Sanyo Finance Ltd and based on its concurrence, I asked Shri Balathandayutham to go ahead and purchase the shares. No documentation was prepared for the decision of the Board and this was orally communicated to Shri Balathandayutham. This statement further strengthens the view that the investment decision was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst ₹ 4.70 crores paid to Digital. For the purpose of considering the Appellant s case, I do not consider it necessary to go into the details of the transactions BSFL had with Digital and Digital with others for the reasons discussed in this order. The fact that BSFL had received money from the Appellant has been even accepted by the Respondent. But the Respondent s version is that the said BSFL was used as a conduit to supply funds to Damayanti group and that the Appellant was exercising its controlling mind in BSFL. The basis on which the Respondent has come to the conclusion that BPL was exercising its controlling mind in respect of BSFL has been stated in para 13.1. of the order as follows: BPL has also contended that BPL is a separate and distinct, corporate entity from BSFL and the show cause notice has alleged transactions not by BPL but by BSFL and Sanyo finance. It has also contended that the controlling mind in respect of these entities is distinct from BPL. In this regard, I observe that the facts found in paras above clearly establish that BSFL is an associate of BPL which has been admitted by BPL. This fact was also indicated in the show cause notice. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where in the order that the said Sanyo Electronic Company, had given any authority to BPL to take decisions independently. On the contrary it is on record that out of four nominee directors of the said Sanyo Electronic company one of the directors viz. Shri Yoshi nobu Machino was a whole time Director of BSFL at the relevant period. It cannot be said in the absence of any evidence that the said nominee directors including the whole time director was non existent entities and it was BPL which was controlling the company. Respondent s reliance on the role of Shri Chauhan s dual role to establish its proposition is unfounded. Respondent has cited Shri Balathandayutham s statement that the main director is Shri T.C. Chauhan to support its said theory But Shri Chauhan s statement in answer to a question as to the nature of your duties and responsibilities as a director of BPL Sanyo Finance Ltd was that I have no day to day involvement in the affairs of BPL Sanyo Finance Ltd. I attend its Board meetings. There is no particular responsibility assigned to me in BPL Sanyo Finance Ltd seems to have been ignored. The reason for relying on Shri Balathandayutham s statement and ignoring Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed up or pushed down intentionally. The Respondent has put forth material to believe that the broker s abnormal activities could have effected the price in March 1998. The quote has to be seen in that background. However, the Respondent has failed to establish any nexus between the price rise and the Appellant s role vis-a-vis the same. In fact in the order itself the Respondent has stated that: a set of brokers and sub-brokers viz. Shri R.R.Mohta BSE broker, M/s. Ramrakh R.Bohra-BSE broker, M/s. Sony securities Ltd - NSE broker, M/s. Digital Leasing and Finance Ltd - NSE broker etc on behalf of a common set of clients i.e. Damayanti group, cornered large quantity of shares of BPL both at BSE and NSE. These clients i.e. Damayanti Group transacted in the shares of BPL through these brokers and built up unusually large positions in the carry forward segment in the scrips of BPL. It was noticed that the outstanding purchase positions were abnormally high in the scrips and it went to the extent of 9.45% of total equity of BPL. This increase in carry forward position was accompanied by a corresponding increase in the scrip price. The increase in the hawala prices of the scrip (cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hta and find no convincing evidence to support the Respondent s contention. In para 6, 7, and 8 the Respondent has marshalled some material and it establishes association of Damayanti group with Shri Harshad Mehta. I have come to this finding based on the preponderance of probability. But the preponderance of probability test has failed in establishing nexus between the Appellant and the said Damayanti group/Shri Harshad Mehta for want of sufficient materials. The strong reliance on the alleged telephonic conversions of Shri Harshad Mehta with Shri Chauhan does not help to prove the Respondent s case. It has to be remembered that Shri Chauhan was acting in a dual capacity as director of the Appellant and BSFL. The documents show fund flow from BSFL to Digital etc. In that context the only inference possible is that the discussions if at all was with reference to investments, could be only with reference to investments by BSFL as it is seen from the material that it was not BPL but BSFL was investing in securities. Shri Chauhan has not admitted that he had discussed any thing about the investments. In the absence of any tangible material evidence on record it is difficult to link th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sellers. Investigations revealed that trading system of the Exchange was opened much beyond the closure of trading time, to facilitate these transactions. These transactions were entered late in the night of 17th June 1998 and 19th June 1998. (b) Another quantity of 4.5 lakh shares were also lying with the Clearing House of NSE on behalf of brokers who dealt for Damayanti Group and could not discharge their pay-in liabilities. The above facts also indicate that Damayanti Group had cornered large quantity of shares of BPL. Out of floating stock of around 40 lakh shares, around 34 lakh shares were in the control of Shri Harshad Mehta through various entities of Damayanti Group/LKP etc. 12.2(a) Inquiries were made with SSKI and M/s. Jayantilal Khandwala, members of the BSE who had purchased around 25 lakh shares of BPL at an aggregate cost of approximately ₹ 60 crores. It has been found in the books of SSKI that purchases were made on behalf of M/s. Monoplan Securities Limited (Monoplan). The said money was transferred, to Monoplan, a loss making company of SSKI, ostensibly, as application money towards allotment of 15% preference shares. The said money was received f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from BPL connected / controlled entities i.e. Oriental Transport Ltd, Orion Construction Co. Ltd, Badalona Overseas Pvt. Ltd. Ostensibly, both Orion and Oriental had received an advance of ₹ 15.5 crores each from BPL towards subscription of 14% Non Convertible Debentures on a private placement basis on 18.06.98. This money was transferred to Monoplan on the same day. Badalona is an associate concern of SSKI and had received application money of ₹ 16 crores from BSFL on 26-06-98 towards allotment of 14% Convertible Debentures. BSFL in turn had received ₹ 16 crores as advance towards allotment of 13% Convertible Debentures on private placement basis from BPL Sanyo Utilities and Appliances Ltd., a company belonging to the BPL group, on 25.06.98. Thus investment of Badalona is also in reality an investment of BPL group. Thus BPL and its associate concern M/s. BPL Sanyo Utilities and Appliances Ltd placed ₹ 47 crores at the disposal of SSKL for purchase of approximately 20 lacs shares of BPL through a web of entities. Investigations into ultimate use of this fund, has brought out clearly that transfer of funds from BPL Group was to provide accommodation to those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 20.6.2000 to the show cause notice that What emerges from the material on record is that when a payment crisis was sensed by officials of the BSE and NSE, an effort was made bona fide to try and prevent a collapse or crash of the market. The actions of BPL Ltd. in respect of making funds available so as to prevent a crash in the market must be seen as an effort to advance investor protection and not against the interest of investors as is sought to be made out in the show cause notice. Indeed, at that time it was projected to BPL Ltd. and the management of BPL Ltd. understood that the actions and assistance on their part had the endorsement and approval of not only BSE and NSE officials but also of SEBI itself. As per the statement of Mr. Katdhare dated 24/9/1999, BPL Ltd. was given to understand that SSKL was approaching BPL Ltd. at the instance of SEBI. BPL Ltd. was also given to understand that officials of the BSE/NSE were engaged in discussions with the Tata group to also assist in ensuring that the small investor is protected and that the market does not crash. The paragraphs under reply distort the correct position and project an entirely incorrect picture in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited quantity was put as bulk deals (to the extent of amount available). I had given a blank letter signed to my employee and asked him to punch in BPL Ltd shares to the extent of nearly 12, 77, 000. The name of the broker and the quantity for each broker was decided by the Exchange. In respect to the all or none deals, one line of phone was held by me and on the other side it was Shri Banthia who asked me to punch in all or none window a particular quantity at a fixed price of ₹ 234.90 per share. We punched in nearly 3, 35, 000 shares in this fashion. The price, the broker, and quantity for each broker was decided by Shri Banthia subject to over all limit of 3, 35, 000 shares @ ₹ 234.90 for all or none deals. The all or none deals were carried out in the normal trading hours. (emphasis supplied). Shri Banthia, whose name appears in the statement above was at that time Vice President of BSE. In answer to another question, Shri Shah had reiterated the position We would like to make it clear that we were not desirous of acquiring any shares of BPL Ltd. We were requested by officials of BSE, to buy shares of BPL Ltd only to help certain brokers who had pay in difficu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anding position of various members for the BPL shares is around 30 lakh shares. As the Exchange has been successful in garnering suitable investors up to 25 lakh shares we suggest that you purchase 5 lakh shares so that the entire outstanding position is cleared. The Exchange has worked out a common price of ₹ 235 shares per share........... (emphasis supplied). The learned Senior Counsel for the Respondent had invited my attention to the statement dated 24.9.99 of Shri Pramod Purushottam Katdhare who claimed to be associated with the Chairman of the Appellant for 20 years, and is stated to be authoirsed to give statement on behalf of BPL Ltd. When asked (Q.7) In June 1998, there was payment crisis in BSE and NSE, do you recollect how BPL was approached during this period and sequence of events, Shri Katdhare s answer was I have read in the papers regarding the developing crisis and also heard from the people. Chairman of BPL, Shri T.P.G. Nambiar was also very concerned about such crisis. The Stock exchange through SSKL Stock Brokers (Shri Shripal Morakhia) approached BPL for diffusing the crisis. It was represented to BPL that they are being approached at the instance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, in the light of the above discussion, is found baseless and untenable. The fact is that the outstanding position was of brokers. If it had been a creation of the Appellant, obviously BSE s approach would have been certainly different. BSE wanted Appellant s help to defuse the crisis situation and the Appellant favourably responded to BSE s request by providing funds is evident from the facts before me. A crisis was avoided to benefit the market and the investors. This by any standard can be considered as an act of market manipulation to attract the provisions of regulation 4(a) and (d). Indulging in fraudulent and unfair trade practices stated in regulation 4(a) and (d) is a serious charge visiting serious consequences as could be seen from the regulations, which enables the Respondent even put a brake on a person s right to do business for his livelihood. The wrong doer is also liable to be prosecuted. In the instant case the charge of manipulation is all the more aggravated as the Appellant has been held for involving in creating false market and manipulating the price of its scrip in connivance with Shri Harshad Mehta by aiding, abetting and being instrumental in effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is some mechanism in position to ensure that the disqualified persons are not indirectly running the show, the very purpose of passing such orders will be defeated. Respondent may like, to consider this aspect. In the order it has been stated that it has also contended that BPL has not been benefited in any way by the alleged transactions. I find that with the increase in market capitalisation of the company, the company does get benefited with enhancement of its public esteem shareholders wealth/value. This also facilitates institutional support/funding for the company. Besides it also helps the company in bench marking of the share price for further placements. Therefore, the above said contention of BPL is not tenable. These observations are hypothetical. In any case in the Appellant s case, there is no evidence to show that it benefitted in such manner. With reference to the test of evidence applicable to the domestic inquiries, Shri Dada had referred to the decision in Gulabchand (supra) that it is wrong to insist that in civil cases such charge must be proved clearly and beyond reasonable doubt and therefore the principle laid down in Chaturbhai is not the one to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the case of a large public company having large number of investors. The stigma sticks and it also hurts, not the company alone, but its shareholders as well. Not all the King s horses and all the King s men can ever salvage the situation. Mere conjuctures and surmises are not adequate to hold a person guilty of such a serious offence. The extent of proof required to hold the delinquent guilty has been explained by the Hon ble Supreme Court in Bank of India v. Degala Surya Narayana (AIR 1999 SC 2407) . The Court held: strict rules of evidence are not applicable to departmental enquiry proceedings. The only requirement of law is that the allegation against the delinquent officer must be established by such evidence acting upon which a reasonable person acting reasonably and objectively may arrive at a finding upholding the gravamen of the charges against the delinquent officer. Mere conjucture or surmise cannot sustain the finding of guilt even in departmental enquiry proceeding. (emphasis supplied) In M.S.Bindra v. Union of India, (1998) 7 SCC 310 the Court had while deciding an appeal against the removal of an officer from service on doubtful integrity held that mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Disciplinary Committee had not only found the Appellant guilty but had disbarred him permanently. (In Re An advocate AIR 1989 SC 245) (emphasis supplied). About the test of evidence in a civil proceeding, the following observations made by the Hon ble Court (Razikram v. J.S.Chauhan - AIR 1975 SC 667: (1975) 4 SCC 769) is to be noted: It is true that there is no difference between the general rules of evidence in civil and criminal cases and the definition proved in section 3 of the Evidence Act does not draw a distinction between civil and criminal cases. Nor does this definition insist on perfect proof because absolute certainty amounting to demonstration is rarely to be had in the affairs of life. Nevertheless, the standard of measuring proof prescribed by the definition is that of a person of prudence and practical good sense.. The same is equally true about proof a charge of corrupt practice which cannot be established by a mere balance of probabilities. (emphasis supplied) The Hon ble Supreme Court in yet another case with reference to adjudication under the Sea Customs Act and Land Customs Act relating to imposition of penalty on the person concerned had held: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son acting reasonably and objectively may arrive at a finding upholding the charges. Mere conjuctures or surmises cannot sustain the finding of a serious charge like manipulation of market in connivance with a person notified under the Special Court Act. It is also seen from the material on record that the market volatility was not confined to the Appellant s shares alone, but the shares of companies like Sterlite, and Videocon were also involved, and there was payment crisis in respect of the transactions entered into by brokers in respect of the said companies shares also. It cannot be a coincidence that the shares of these three companies were involved during the market volatility witnessed in April- May, 1998. It is nobody s case that those three companies are under the same management. Therefore it is obvious that there was a third party, who played a major role in the market manipulation and that third party according to the Respondent was Damayanti group. The impugned order has left out the Damayanti group from the range of investigation vis-a-vis the Appellant. According to the Respondent it was Shri Harshad Mehta who acted through Damayanti group. There is no indication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms mandated to protect the interests of investors in securities by such measures as it thinks fit. Of course those measures are subject to the provisions of the Act. The expression measure has not been defined in the Act. So we have to go by its generally understood meaning. According to Corpus Juris Secundum measure means anything desired or done with a view to the accomplishment of a purpose, a plan or course of action intended to obtain some object, any course of action proposed or adopted by a Government. However, I am not inclined to agree with the Respondent s view that the power under section 11 is unlimited. I am of the view that the legislature has circumscribed the power, by putting the caveat that these measures are subject to the provisions of the Act. The ambit of power is contained within the frame work of the Act. But within the statutory frame work such power reigns. While section 11 deals with the functions of the Board, section 11B is on the powers of the Board. Section 11B is more action oriented, in a sense it is a functional tool in the hands of the Board. In effect section 11B is one of the executive measures available to the Respondent to enforce its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scernible on the basis of the provisions contained in section 11 read with section 11B of the SEBI Act. ..We have to therefore consider and interpret the power of SEBI under the provisions so as to see that the objects sought to be achieved by Act is fully served, rather than being defeated on the basis of any technicality The duty and function had been entrusted to take such measures as it think fit and in order to discharge this duty, the power is vested under section 11B. . The authority has been given under the law to take appropriate measures as it thinks fit and that by itself is sufficient to cloth the SEBI with the authority of law. One has to view the powers of the Respondent under the provisions of the Act in the context of the objects sought to be achieved by the Act and the duty cast on them in achieving the same. Section 11 and section 11B give enormous authority to the Respondent in this regard. As long as the power exercised under section 11B is subject to the provisions of the Act and well within the legal and constitutional frame work, intended to achieve the purposes of the Act and subjecting the persons specified in the section, the power will sustain. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a legal right can be relegated to the region of mere procedure and machinery for the realization of tax. It is more than that. Such liabilities must be created by clear, unambiguous and express enactment. The language used should leave no serious doubts about its effect so that the persons who are to be subjected to such a liability for the infringement of law are not left in a state of uncertainty as to what their duties or liabilities are. This is an essential requirement of a good government of laws. (emphasis supplied) The legislature has clearly spelt out the penal provisions in the Act at 3 places section 12(3) provides for suspension or cancellation of the certificate of registration granted to the market intermediaries in the event of their proven misconduct, provision under Chapter VIA, provides for imposition of monetary penalty for certain offences specified therein; section 24 empowers Courts to award punishment for violation of offences under the Act etc. Since legislature has deliberately chosen to create specific offences and penalties thereto, it is not possible to view that under section 11B the Respondent is competent to issue a direction which tantamount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant from accessing the capital market is a penalty . In this view of the matter the order has no legal backing and therefore cannot sustain. The Respondent in its order has observed that the directions contemplated in the show cause notice are not penal in nature but are of remedial nature and issued in the interest of the investors and development and regulation of the securities market with the obejct to prevent the fraudulent and unfair trade practices and market manipulation. If such malpractices are not curbed they may go to distrub the equilibrium of the market and may endanger the safety and security of the capital market. This finding has absolutely no nexus with the impugned order and in effect it is a penalty imposed on the Appellant. Hence, for the reasons stated above the direction cannot be sustained. In the light of the above I do not consider it necessary to examine the entire case law cited by Shri Chinoy and the submissions of Shri Dada on the non applicability of the ratios of the said cases to the present one. No authority has been cited warranting reconsideration of the views expressed by this Tribunal in Sterlite. Learned Senior Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction which can be issued in a proven case of fraudulent and unfair trade practice is discernible from regulation 12. In my view the impugned order is punitive in effect as it takes away the Appellant s right to raise funds from the public to carry on its business. Penalty means a punishment imposed or incurred for violation of law or rule. In the instant case the order has been passed by the Respondent in the light of the finding that the Appellant has violated regulation 4(a) and 4(d). This nexus also strengthens the view that the order banning the Appellant raising capital from the public is in effect a penalty. The decisions relied on by Shri Dada cited above are in the context of challenge to the Respondent s authority to issue interim orders during the pendency of inquiry and the Courts had viewed that such orders which are required to protect the interest of the investors can be issued. The impugned direction, for the same reason stated in the Sterlite case extracted above, is nothing but a penalty in effect and is in fact against the interest of investors, as a ban on raising funds to meet the Appellant company s business requirements is likely to adversely affect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of sufficient material evidence to establish that the Appellant had directly or indirectly indulged in market manipulation, the impugned order holding the Appellant guilty of violating regulation 4(a) and 4(d) cannot sustain and therefore deserves to be set aside. In the appeals filed by Shri Rajiv Chandrasekhar, Shri Ajit Nambiar, Shri R.Murali, Shri T.P.G. Nambiar and Shri T.C.Chauhan they had inter-alia prayed to set aside the direction to launch prosecution against them. They have adduced several grounds in support. In this connection it is to be noted that there is no finding of guilt in the order against the said Appellants. The direction is to prosecute the Appellant company through the Appellants. On a perusal of the order it is seen that the prohibition on the Appellant company on accessing the capital market is made invoking the provisions of section 11 and 11B of the Act and regulation 11 and 12 of the 1995 Regulations. Prosecution against the Appellant company through its directors/ officers has been ordered under section 24 of the Act. In this context, the following observation made in the interim order made by this Tribunal in the present appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. On a perusal of the section, it is thus clear that for the offence committed by a company its directors/officers are not automatically punished along with the company. Section provides safeguards by giving opportunity to them to prove their non involvement in commission of the offence, to escape from the attendant penal consequences. It could be seen that as per the provisions of section 27 only those persons in charge and responsible at the relevant point of time for conduct of business of the company alone are deemed to be held guilty for contravention. So legal fiction comes into operation against the persons indicated only on establishing facts, which are appurtenant with the contravention. Such persons can successfully resist the prosecution by establishing want of knowledge about the contravention or exercises of due deligence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or proprietory rights. It is not possible to subscribe to the view that a direction to launch prosecution would operate directly and injuriously on any of the rights of the Appellants. The expression aggrieved person in section 15T means person affected by an order. In that sense the Appellants are not aggrieved persons. A decision to launch prosecution by itself cannot be considered a cause of grievance to approach the Tribunal through an appeal. Therefore I am of the view that a direction to launch prosecution against the Appellant company is not an order appealable in the Tribunal and the Tribunal is not empowered to adjudicate the same. According to the learned Senior Counsel for the Appellants, the Respondents have already launched prosecution against the Appellants. As Shri Dada, learned Senior Counsel for the Respondent rightly pointed out, this Tribunal does not enjoy the inherent powers of High Courts under section 482 of the Cr.PC to issue any order for quashing pending proceedings before any Court of law. For the reasons stated above this Tribunal is of the view that it is beyond the jurisdiction of this Tribunal to issue any order setting aside the Respondent s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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