Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

M/s. Opee Stock Link Ltd. and Mr. Ashok K. Bagrecha Director Versus SEBI

2009 (12) TMI 1006 - SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI

Appeal No. 20 of 2009 - Dated:- 30-12-2009 - N.K. Sodhi, Presiding Officer And Samar Ray, Member, JJ. Mr. Sanjay Mehta, Advocate for Appellants. Mr. Kumar Desai and Ms. Daya Gupta, Advocates for the Respondent. ORDER N.K. Sodhi, J. (Presiding Officer) 1. Whether the appellants had cornered the retail portion of the shares issued by Jet Airways Limited and Infrastructure Development Finance Company Limited in the Initial Public Offerings (IPOs) made by them is the short question that arises for o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

c Offerings (IPO) scam that was unearthed by the Securities and Exchange Board of India (for short the Board) in the year 2005-06. The Board received some information regarding the alleged abuse and misuse of the IPO allotment process. It initiated a probe. A preliminary analysis of the buying, selling and dealing in the shares issued through IPOs of various companies during the period 2003-05 showed that certain entities opened many demat accounts in fictitious/benami names and the said entitie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ie of the view that thousands of entities in whose names demat accounts and bank accounts had been opened and IPO applications made were either benami (name lenders) or non-existent. Pending investigations, the Board by an ad-interim exparte order dated April 27, 2006, inter alia, directed Shri Deepakkumar Shantilal Jain and Opee Stock-Link Limited, the appellants now before us, not to buy, sell or deal in the securities market including the IPOs directly or indirectly till further orders. In th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mean: (a) "Financier" is a person who either on his own or alongwith others provided the finance for IPO subscription and are the ultimate beneficiaries in the scheme of cornering retail allotment and forking out a big gain on sale immediately after listing. (b) "Master Account Holders / Key Operators" are the 24 entities identified in the sweep of this order who allowed their demat accounts for temporarily parking credits received from a multitude of afferent accounts befor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ter affording an opportunity of hearing to them. 2. After the conclusion of the investigations, the Board initiated parallel proceedings against the appellants for issuing directions under Sections 11 and 11B of the Securities and Exchange Board of India Act 1992 (for short the Act) and also for the imposition of monetary penalty by initiating adjudication proceedings under Chapter VIA of the Act. A notice dated November 24, 2008 was issued to the appellants to show cause why suitable directions .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

opened on February 18, 2005 and closed on February 24, 2005 and the shares were listed on the Bombay Stock Exchange (B SE) and the National Stock Exchange of India Limited (NSE) on March 14, 2005 and the first appellant is alleged to have received 523 off-market credits of 14 shares each in its demat account. The first appellant is also alleged to have received credits of 1442 and 3021 shares from the demat accounts of H. Nyalchand Financial Services and Pravin Ratilal Sh Stk - a depository par .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iciary of shares allotted to 553 entities as all of them were mere name lenders or benamis and transferred the shares immediately on allotment to the noticee. It is also alleged that the first appellant purchased the shares from the benami demat account holders at the rate of ₹ 1170 per share which price was much lower than the then prevailing market price. The break-up of the shares that were transferred to the first appellant in off-market transactions has been given in the show cause no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hich the appellants produced in their defence. Reference is then made to the IPO of Infrastructure Development Finance Company Limited (IDFC) in which Deepak kumar Shantilal Jain (appellant in Appeals No. 17 and 19 of 2009 which are also being disposed of by this order) is said to have cornered shares from fictitious demat account holders in a like manner It is alleged that the first appellant and the said Deepak kumar Shantilal Jain had cornered shares in the two IPOs (Jet Airways and IDFC) fro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rice and made an unlawful gain of ₹ 12,02,302 which was worked out on the basis of the difference between the purchase price of ₹ 1170 and the average sale price of ₹ 1296.12. The second appellant is said to have made an illegal gain of ₹ 2,24,280 on the sale of 2520 shares which had been transferred to him by the first appellant In view of all these allegations, the appellants were said to have violated Section 12A of the Act and Regulations 3 and 4(1) of the Securities .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n submissions. On a consideration of the entire material collected during the course of the investigations and the enquiry conducted under Section 11B of the Act and taking note of the oral and written submissions made on behalf of the appellants, the whole time member came to the conclusion that the appellants employed a manipulative and deceptive device to corner the shares meant for retail individual investors in the IPO of Jet Airways and this, according to him, was to the detriment of the r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

per cent per annum from the date of listing of the IPO till actual payment. A further direction was issued that in case the first appellant failed to disgorge the amount, it shall remain out of the securities market for another period of five years without prejudice to the right of the Board to enforce the disgorgement. The second appellant had also been restrained from buying, selling, or dealing in the securities market for a further period of two years in addition to the period for which he .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ction 15T of the Act. 3. We have heard the learned Counsel for the parties and have carefully gone through the impugned order and also the record to which reference was made by the learned Counsel on both sides during the course of the hearing. The primary argument of the learned Counsel for the appellant is that his clients while trading in the shares of Jet Airways had committed no wrong and that they did not corner the shares in the IPO allotment as alleged. He further submitted that the appe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

i learned Counsel for the Board, on the other hand, strenuously urged that the appellants are a part of the IPO scam who cornered shares which were meant for the retail investors thereby depriving those investors of their rightful claim under the IPO. The argument on behalf of the Board is that 553 demat account holders were mere name lenders who transferred the shares to the first appellant under a pre-designed manipulative scheme which was meant to deprive the genuine retail investors of their .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

red to above, had spelt out the common modus operandi resorted to by a very large number of entities by which they cornered the IPO shares issued by several companies meant for the retail individual investors. Retail individual investor is one who applies or bids for securities of or for a value of not more than ₹ 50,000 which amount was subsequently raised to ₹ 1 lac w.e.f. 4.4.2005. It must also be remembered that before one could apply for shares, it was necessary for the applican .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

benami. All these applications had been sponsored / financed directly or indirectly by those who were the ultimate beneficiaries of the scam. The strategy adopted was that subsequent to the receipt of IPO allotment, these fictitious/benami allottees transferred the shares to their principals who controlled their accounts and who, in turn, transferred the shares to the financiers that had originally made available the funds for executing the game plan. In view of the booming market, financiers th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lly depicted in the order of April 27,2006 and referred to in paragraph 1 above, is the transfer of shares from the fictitious/benami demat accounts to the demat accounts of the key operators for temporary parking of credits for onward transfer to the financiers who were the ultimate beneficiaries of the scam. The third step was the transfer of the temporary credits from the demat accounts of the key operators to the financiers who had financed the entire game plan and with the sale of shares by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d order. He has recorded a categorical finding in para 10(e) that there is no material on the record to establish that the 553 demat account holders from whom the shares were transferred in the name of the first appellant were benami or fictitious. This is what he has said in this paragraph: There is no material on record that the 553 demat account holders were benami or fictitious. Investigation has not been able to substantiate this. These are name lenders, as alleged in the SCN. The conduct o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he first appellant were genuine, the impugned order holds that all of them were name lenders and were hand-in-glove with the appellants. He has given reasons to arrive at this conclusion which we shall deal with a little later. Since all the 553 demat accounts and their holders were genuine, they do not fit into the manipulative scheme of the IPO scam. As already noticed, the IPO scam started with thousands of fictitious applicants applying for allotment of shares in the retail category after op .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ares in the retail category had been financed by the appellants. In the absence of such an allegation, it cannot but be presumed that genuine retail investors with proper demat accounts had applied for shares with their own funds and were allotted IPO shares in the retail category. Can such an allotment be described as 'cornering of shares' in the IPO. The answer to this question can only be in the negative. We are unable to agree with the whole time member that the genuineness of the 55 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntilal Jain, the appellant in the connected appeals, were identified as key operators in different IPOs. The term key operator was given a specific meaning in the context of the IPO scam and that definition has been referred to in para 1 of our order. According to that definition, a key operator is one who allowed his demat account for temporary parking of credits received from afferent account (s) before transfer to the financiers. On the basis of the investigations carried out by the Board in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

notice had specifically denied that they acted as key operators in the IPO scam. However, on a consideration of the material collected during the investigations and the enquiry conducted by the whole time member and for the reasons that he stated in paragraph 10 of the impugned order with which we shall be dealing a little later, he concluded in paragraph 11 of the impugned order as under: From the analysis in Para 10, it is clear that the 553 demat account holders, who had trading accounts wit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nus the brokerage to the demat account holders. This clearly indicates that the 553 demat account holders were mere name lenders, and they were acting under the direction, supervision and control of the noticees. Therefore, I conclude that the noticees acted as key operators and had the control over the 553 demat account holders who were mere name lenders and acted as agents of the noticees. They used 553 demat accounts of the name lenders for the purpose of cornering shares to the detriment of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ugned order, the demat accounts of 553 allottees who transferred the shares to the first appellant were genuine accounts. It is thus clear that the appellants did not receive any share from any afferent or fictitious account. It is the Board's own case that the appellants had sold the shares in the market and allegedly made unlawful gains. It is clear that the appellants did not transfer the shares to any financiers. Obviously, the question of their parking the shares temporarily for the ben .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

allotment of IPO shares. In this view of the matter, the entire IPO scam syndrome qua the appellants fails. 6. What actually happened in the present case was that genuine retail investors holding proper demat accounts had applied for the shares in the IPO of Jet Airways Limited in the retail category. The retail segment of the issue was oversubscribed by 2.9 times and, therefore, in consultation with NSE, the issuer company finalized the basis of allocation to the retail investors. It is not in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

complete and the allottees were free to trade those shares in the secondary market even before the listing. Since the shares were initially allotted to the retail investors on the basis of the applications filed by them with their own funds, it cannot be said that there was any cornering of shares in the allotment of IPO shares. As already noticed, the shares were allotted to the retail investors not as benamis as they had applied with their own funds and it was thereafter that they sold the sh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

peculation violate the provisions of the securities laws which are meant to protect the market integrity and interest of the investors. We see no such transgression in the instant case. Once the allotment is made in the primary market by the issuer companies to the genuine applicants, there is nothing to stop them from trading those shares in the secondary market immediately thereafter, which quite a few investors do, and this is what the securities market is all about. When we look at the break .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o dispose of their shares even before they are listed because they have a limited financial and risk taking capacity. Because of the uncertainty as to the price of the scrip on its listing, which may be higher than the issue price or could be even lower, the small-time investors do not mind trading in those shares at a lower but safe margin. In the instant case, the issue price was ₹ 1100 and the demat account holders sold them at ₹ 1170 to the first appellant The shares which were l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n that the allotment was benami/fictitious, it cannot be held that the appellants cornered the shares in the IPO allotment. There is no question of cornering shares in the secondary market and, if one were to do that, it would be perfectly lawful and justified so long as the disclosure and other legal requirements are complied with. We are, therefore, satisfied that there was no cornering of shares by the appellants. 7. We shall now examine the reasons given by the whole time member for holding .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

appellants have admitted that some of them were their friends and relatives. Common addresses of some of the demat account holders do not carry us any further. The other reason which weighed with the whole time member is that the signatures of the demat account holders in the declarations made by them which were produced by the appellants in their defence did not tally with the signatures in their demat accounts with the depository participants/depository. This ground to our mind is very flimsy .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. Even if this was a sample checking, it does not establish the charge against the appellants. He also doubts as to why the account holders came to the appellants when the later were not brokers/sub-brokers. These are not the issues which could establish the guilt of the appellants. Even if the appellants are not saying the truth, it would not establish the charge of cornering shares. So what if the appellants had approached the demat account holders to purchase their shares with a view to make .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d not sell the shares in the market on behalf of the allottees. The factors referred to in para 10 of the impugned order individually or collectively do not establish the unholy alliance between the appellants on the one hand and the demat account holders on the other to manipulate the allotment of IPO shares in the retail category. The fact that 553 demat account holders transferred the shares on allotment to the first appellant at the same price of ₹ 1170 per share may raise a doubt but .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es meant for allotment to retail individual investors. In all those cases, the Board was able to establish that the appellants therein had acted as 'financiers' or 'key operators' as understood in the context of the IPO scam and were the actual and illegal beneficiaries of those shares meant for retail investors and to make those illegal gains they had operated through various benami/fictitious accounts in benami and fictitious names The Board also found in all those cases that t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the primary market in the segment meant for the retail investors. 8. This brings us to the other aspect of the impugned order by which the whole time member has directed the appellants to disgorge the unlawful gains made by them. He has found that the first appellant purchased the shares at ₹ 1170 per share from the demat account holders and sold them in the market at an average price of ₹ 1296.92 per share and on the basis of the difference between these prices he has worked out .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

defines disgorgement as "The act of giving up something (such as profits illegally obtained) on demand or by legal compulsion." In commercial terms, disgorgement is the forced giving up of profits obtained by illegal or unethical acts. It is a repayment of ill-gotten gains that is imposed on wrongdoers by the courts. Disgorgement is a monetary equitable remedy that is designed to prevent a wrongdoer from unjustly enriching himself as a result of his illegal conduct. It is not a punish .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ollow that the disgorgement amount should not exceed the total profits realized as the result of the unlawful activity. In a disgorgement action, the burden of showing that the amount sought to be disgorged reasonably approximates the amount of unjust enrichment is on the Board. In the present case we have held that the appellants committed no wrong when they traded in the shares in the secondary market and that the charge against them of cornering shares in the IPO allotment process is not esta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er found that the first appellant had made an unlawful gain of ₹ 12,02,302, the adjudicating officer came to the conclusion that this appellant had made an unlawful gain of ₹ 24 lacs. Again, in the case of the second appellant, the whole time member found that he made an unlawful gain of ₹ 2,24,280 whereas the adjudicating officer found that he made a gain of only ₹ 16,931/-. Similarly in the case of Deepakkumar Shantilal Jain, the whole time member found that he made an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version