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Sterlite Industries (India) Ltd. Versus Securities and Exchange Board of India

2001 (10) TMI 1176 - SECURITIES APPELLATE TRIBUNAL, MUMBAI

Appeal No. 20 of 2001 - Dated:- 22-10-2001 - C. Achuthan, J. For Appellant: C.A. Sundaram, Madhavi Joshi and Tarun Jain, Advs. For Respondents: R.A. Dada, Uma Dalal and Praveen Trivedi, Advs. ORDER 1. The present appeal is directed against the order dated 19-4-2001, made by the Chairman, Securities & Exchange Board of India. The order prohibits the appellant from accessing the capital market for a period of two years and orders to initiate prosecution proceedings under Section 24 read with S .....

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ufacturing business. The appellant's shares are listed on Stock Exchanges at Mumbai (BSE), Calcutta, Delhi, Ahmedabad and also traded at the National Stock Exchange (NSE). 3. The respondent is a statutory regulatory body established under Section 3 of the Act. It is mandated to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. 4. The respondent carried out an investigation into the alleged price manipulation in the scri .....

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r alia alleged that: (i) There were large volumes coupled with fluctuations in prices at the bourse in respect of the appellant's shares specially during April-May, 1998. Share price of the appellant was hovering in the range of ₹ 175 to 200 since September, 1997 but rose to above ₹ 350 in this period. As compared to other scrips in the industry, the rise was abnormal. (ii) Investigations revealed that a set of brokers and sub-brokers acting on behalf of a common set of clients c .....

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;Oil Vikas, Ster -195,000'. Dil Vikas Finance Limited is an associate of a company called Eldorado, known in market circles as 'a jobber' for the appellant. (iii) In April, 1998, El Dorado bought 3 lakh shares for the following 2 accounts :- (a) 1,50,000 shares for Crimson securities, an associate company of El Dorado; (b) 1,50,000 shares for Ashwini Khurana, a client of Eldorado. (iv) In case of Mr. Khurana the shares were never transferred to him and were always lying with Eldorado .....

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s in the garb of a loan to Dil Vikas. Hence, the entire transaction of 3 lakh shares was a conduit for parking of shares. (v) In addition, MALCO lent ₹ 11.75 crores to Eldorado for acquisition of shares by Dil Vikas Finance. These shares were bought at the instance of the BSE authorities to avert a payment crisis on the stock exchange due to failure of some brokers to meet their obligations. These transactions were entered into the stock exchange system at midnight on 12-6-1998. The broker .....

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nt on 16-2-1998 whereby it was decided to issue on preferential basis 90 lakhs warrants to Shri Anil Aggarwal, the promoter of the appellant and his associates. The warrant holder was entitled to apply for one equity share against each warrant held by him, after the expiry of 18 months. The warrant was priced @ ₹ 181 per share as per SEBI guidelines. This offer was accepted by the promoters and by June end 1998 they applied for these 90 lakhs warrants by paying 10 per cent of the face valu .....

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n 25-6-1998 hiked its offer size (to acquire 52.03 per cent of the equity of INDAL) and increased the offer price to ₹ 221 each payable by ₹ 131 in cash and balance by allotment of Optionally Convertible Preference Shares ('OCPS') of the appellant with minimum conversion price of ₹ 350. The appellant did not succeed in acquiring majority stake in INDAL as majority of the shareholders of INDAL preferred the Alcan bid. From the price movement around this period it would b .....

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nd some of the brokers dealing for Damayanti Group got trapped in the manner mentioned above. 5. In the context of the above allegations the respondent viewed that the appellant has violated regulation 4(a) and (d) read with Section 11(1) and 11(2)(e) of the Act. Accordingly the appellant was requested to show-cause why directions including directions prohibiting the appellant from dealing in securities and accessing the capital market and any other suitable direction in the interest of investor .....

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inter alia stating that:- "5.2 I find that there were large volumes coupled with fluctuation in prices at the stock exchange in respect of Sterlite Industries Ltd, especially during April and May 1998. In the scrip of Sterlite the price moved from ₹ 162 on 17-2-1998 to ₹ 385 on 27-5-1998. Sterlite has not disputed the above price movement which is a fact borne out of actual trading details and price at the stock exchange. I find that the price movement in the scrip of Sterlite .....

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price movement of the shares of other companies in the same industry segment was highly abnormal. I do not find any merit in the submissions of Sterlite that rise in the price of scrip of Sterlite was due to open offer for Indal, recommencement of commercial production of Copper Smelter, preferential allotment or declaration of half-yearly result. The findings show the price was due to price manipulation and there was similar to abnormal price rise in two other scrips namely; BPL and Videocon. .....

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a large chunk of shares of Sterlite both at BSE and NSE. These common clients i.e. Damayanti Group, built up unusually large positions in these scrips i.e. in the scrip of Sterlite, BPL and Videocon resulting in distortion of the market equilibrium and creation of artificial market in these scrips Damayanti group comprised mainly of the following entities :- Damayanti Finvest (P.) Ltd. CDP Fincap and Leasing (P.) Ltd. KRN Finvest and Leasing (P.) Ltd. Rijuta Finvest (P.) Ltd. Ikshu Finvest (P.) .....

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roup entities was with Shri Harshad Mehta only though routine day to day affairs of these entities were being looked after by Shri Anil Doshi, brother in law of Shri Harshad Mehta i.e. his wife's brother. Shri Pankaj Shah, Shri Atul Parikh and Sunil Samtani also dealt for Damayanti Group entities, though they are neither employees nor directors of Damayanti Group companies but are close confidante of Shri Harshad Mehta. Since Shri Harshad Mehta is a notified person under the Special Courts A .....

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rlite and it went to the extent of 3.8 per cent of total equity of Sterlite Industries Ltd. This increase in carry forward positions was accompanied by a corresponding increase in the scrip prices. In Sterlite Industries Ltd., the hawala rate (closing rate on the date of end of settlement) moved consistently from ₹ 260 to ₹ 350 in only five settlements. The settlement wise details of outstanding position along with Hawala Rate in Sterlite are as under :- Sett. No. Carry forward Purch .....

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s were utilised for making further purchases both at BSE and NSE in cash segment, payment of margins, building up further positions in carry forward etc. The delivery of shares received was also utilised for raising finances by doing share badla. It was found that Damayanti Group/Shri Harshad Mehta acting through a set of brokers built up large concentrated positions in the scrip. This positions was around 40 per cent of the total positions in Sterlite. Thus, through this modus operandi, substan .....

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ent of the total carry forward position. In Settlement No. 6 it was 61.27 per cent of the total position at the Exchange and in Settlement No. 8 it was 53.57 per cent of the total position at the Exchange. The carry forward position in this scrip at the BSE increased from 8.2 lacs shares in Settlement No. 9 to 12.5 lacs shares in Settlement No. 10 and to 18.8 lacs shares in Settlement No. 11. Thus, the increase in the carry forward position between Settlement No. 9 to Settlement No. 11 was appro .....

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ns at the NSE in this scrip. The approximate number of shares acquired by Damayanti group through these brokers in Settlement No. 20 was 1,00,200 which is 38.94 per cent of the total delivery of 2,57,300 shares at the exchange. 6.2 Sterlite has admitted that Malco has purchased about 3 lacs (6 lakhs ?) shares at the cost of ₹ 11.75 crores. It was stated that when Malco purchased these shares the sole intention was to help the BSE to avert a major payment crisis on the premium exchange of t .....

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in June, 1998 any such payment crisis would have without any fault of Sterlite further tarnished the corporate reputation of Sterlite. At the same time this was perceived as an opportunity by the promoters to acquire some further shares at an attractive price. It is further stated that purchase of shares by promoters is permissible under the regulations upto 5 per cent of the capital of the company. It is pertinent to note that the creeping limit for acquisition of shares by a promoter under th .....

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the holding of such entities after the offer are as under: Name of The Entities No. of warrants Post issue holding SterLite Copper Rolling Mills Pvt. Ltd. 24,00,000 6.76 per cent Dwarka parsad Anil kumar Investment Pvt. Ltd. 15,00,000 10.36 per cent Twin Star Holdings Ltd. 36,00,000 9.86 per cent Pravin Navin Investment & Trading Co. Pvt. Ltd. 15,00,000 10.63 percent The holders of one warrant were entitled to apply for one Equity Share after the expiry of 18 months. The price of this was w .....

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in INDAL made a competitive offer. At the same time, trading volumes rose in the scrip of Sterlite Industries Ltd. The volumes increased suddenly from 4 to 5 lakhs per settlements to 25 to 30 lakhs per settlements at NSE and around 30 to 40 lakhs at BSE. 6.5 To beat Alcan in its competitive bid, Sterlite Industries Ltd. came with an ingenious scheme. The very next day i.e. 26-5-1998, Sterlite announced its decision to hike the offer size to acquire 52.03 per cent of the equity of INDAL at a pric .....

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ng market price of Sterlite Industries Ltd. during the 10 weeks immediately preceding the conversion date. However, this price was subject to minimum conversion price of ₹ 350 per share. In case the OCPs (OCPs having face value of ₹ 10 each) were not converted, the same were redeemable in two equal instalments at the end of 3rd and 4th year from the date of allotment. For generating funds to the tune of ₹ 817.70 crores, it was proposed to issue OCPs worth 333 crores, arrange lo .....

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20 29-5-1998 803000 346.85 01-6-1998 1500100 335.75 02-6-1998 1074200 302.25 If one tries to analyse rationale behind "minimum conversion price of OCPs at ₹ 350" this offer would not have been attractive to any prudent shareholders of INDAL unless the share price of Sterlite Industries Ltd. was higher than this price on the day of offer and during the currency of the offer. This price i.e. ₹ 350 per share is in stark contrast with the price at which preferential offer was m .....

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f time, the copper smelter plant was working and the production was higher in June and July as compared to production in the month of April. 6.6 Damayanti Group was working in concert with promoters of the company. During the visit of the SEBI investigation team to the office of Damayanti Group at 1208, Maker Chambers V, Nariman Point, copies of certain documents were furnished by employee of Damayanti Group in response to summons. One of the papers had details of investment by Shri Harshad Meht .....

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rn of Eldorado, in settlement No. 3 of BSE. This was part of the total purchase of 3 lakh shares by Eldorado in that Settlement. Eldorado purchased 1.5 lakh shares in the name of M/s. Crimson Securities, their family concern and advised their clients, Mr. Ashwini Khurana of Delhi to purchase another 1.5 lakh shares, which they purchased in the names of their group concerns. 6.7 The fact that paper (referred to in para 6.6) was available in the office of Damayanti Group which is a front for Shri .....

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n be found from the table below : Clearing No. Name of selling broker Quantity 553 P.R.Shah 40000 566 S.N. Nangalia 39900 200 GNH Global Securities 118200 581 R.R. Mohta 30000 519 N.C. Jain 15000 645 S.N. Tara 25000 6.8 It was also found that the transaction with Shri Ashwin Khurana were in the nature of financing transactions and have been given colour of purchase and sale of shares as (i) no payments were received from the client and purchase consideration was adjusted against amounts borrowed .....

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d from the following facts (a) funds being given by MALCO ostensibly as loan, (b) transaction being entered at the instance of Mr. Murthy of Sterlite who gave details of counter party broker with whom this negotiated deals was entered, (c) departure from normal practice of entering in inward and outward register of shares received in the office in respect of 45,000 shares, (d) non-furnishing of details regarding the financier and owner of this 45,000 shares, (e) loan has been given by MALCO for .....

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eir outstanding positions in Sterlite Industries Ltd. sold these shares to Dil Vikas Finance Ltd., an associate concern of Eldorado. This was done by entering the trade as "All or none" deals by synchronising the timing of logging in of the trades by the buyer and the seller at pre-determined prices. This deals was entered in the trading system at midnight of June 12, 1998 by opening the system much beyond the trading hours and without informing the market and investors in general. Thi .....

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ked up by MALCO only. The persons who were bailed out or whose positions was taken up by Eldorado are as under : Clearing No. Name of selling broker Quantity 739 Lalkar Securities 58,800 200 GNH Global Secs. Ltd. 2,32,000 747 SVS Secs. Pvt. Ltd. 21,300 141 Sanghvi Bros. Brokerage Ltd. 40,000 553 P. Regulation 3(1) Shah 70,600 566 S.N. Nangalia 1,35,000 394 KNC Shares & Securities 22,500 482 M. N. Agarwal 20,000 581 R.R. Mohta 53,500 295 J.H. Patel 40,000 785 T.C.P. Slock Brokers 5,000 Total .....

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in order to fulfil commitments. Sterlite has admitted that any such payment crisis would have further tarnished the corporate reputation of Sterlite and at the same time this was perceived as an opportunity by the promoters to acquire some further shares at an attractive price. It further stated that when MALCO purchased these shares the sole intention was to help BSE to avert a major payment crisis on the premier exchange of the country and not to manipulate the share prices of Sterlite or bai .....

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ith whom it was to be entered was given by Damayanti Group. Apart from this, in the light of the above, it is concluded that promoters/company first abetted Shri Harshad Mehta to build up large positions in the shares of Sterlite Industries Ltd. which facilitated market manipulation and later provided an exist route when the artificial increase in price not sustained and some of the brokers dealing for Damayanti Group got trapped. 8.1 The Sterlite in its reply has denied that the seller of this .....

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tated that he is an employee of Sterlite. However, Sterlite in its reply claims that Shri Murthy is Manager-Finance of MALCO. Shri Gandhi, the director in El Dorado Guarantee Limited in his statement has categorically stated that around the month of April, 1998 he received a telephone call from Shri C.R. Murthy informing that there were a lot of 3 lakhs shares of Sterlite Industries available with few brokers of BSE and whether El Dorado were interested to purchase these shares. These shares wer .....

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It is very difficult to conclude that in such a large deal which was in the form of negotiated deal, the buyers and sellers were not knowing each other. 9.1 From the above circumstantial evidence, it is very difficult to conclude that Sterlite was not involved in the price or market manipulation in the scrip of Sterlite or that the same was a normal transaction. At this juncture, I would like to refer to the Supreme Court judgment which is stated as under: Shivajirao Nilangekar Patil v. Mahesh .....

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circumstantial evidence, I am convinced that Sterlite Industries Ltd. has indulged in price manipulation of the scrip of Sterlite during the period April and May, 1998 and violated regulation 4 (a) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with Section 11(1) and 1 l(2)(e) of SEBI Act, 1992. 10.2 Creation of false market and price manipulation is a very serious offence and is in violation of regulation 4(a) and 4(d) .....

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securities and thereby inducing the sale or purchase of securities by any person enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities. From the findings as shown in paras 5.2 to 9.1, it is clear that the Sterlite has indulged in purchase of 6 lakhs securities of Sterlite through MALCO, its associated company through El Dorado w .....

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ection 11B of the Act empowers SEBI to issue directions in the interest of the investors or orderly development of securities market. The Hon'ble Division Bench of the Bombay High Court in the matter of R.R. Bohra v. SEBI (SCL 1998) has held that Section 11B of the SEBI Act is an enabling provision enacted to empower SEBI to protect the interest of investors and to promote the development of and to regulate the securities market and to prevent malpractices and manipulations inter alia by bro .....

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rm to the fairness and integrity of the securities market. I am of the view that integrity of the securities market has been effected. In order to ensure that the confidence of investors in securities market remains unimpaired, it would be necessary to issue suitable direction. 10.5 In view of the above, I in exercise of powers under Section 4(3) read with Sections 11 and 11B of SEBI Act hereby direct that Sterlite Industries is prohibited from accessing the capital market for a period of 2 year .....

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appellant submitted that the impugned order is contrary to the rules of natural justice, as the respondent did not give personal hearing to the appellant nor allowed it to cross examine the witnesses upon whose statements the respondent has so heavily relied on. In this context he particularly mentioned the statements of Shri Bimal Gandhi of El Dorado and stated that Shri Gandhi died recently and as a result the appellant has lost for ever an opportunity to controvert his evidence. Shri Sundaram .....

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of about 18 months, that the appellant submitted its reply on 10-1-2000 i.e., within just 3 weeks of the receipt of the notice, that the respondent vide letter dated 8-2-2000 fixed the matter for hearing on 24-2-2000, that on 16-2-2000 the appellant requested either to 'pre-pone or postpone' the date of hearing because of unavoidable reasons. The learned senior counsel stated that it was not a request for postponing the hearing to cause delay, that it was left to the respondent to even .....

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the request for cross examination of the witnesses. Shri Sundaram stated that on 3-4-2001 before the scheduled time of the hearing, the appellant filed a letter requesting the respondent to fix the hearing any time within a week, so as to enable it to have the benefit of the presence of its senior counsel. He pointed out the endorsement on the office copy of the letter filed with the appeal to show that the letter marked 'urgent' was delivered at the respondent's office at 1.30 p.m. .....

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super speed all on a sudden in the light of the heat turned on it after the share market crash in March, 2001 and decided the matter in a hurry even ignoring the rules of natural justice. 10. Shri Sundaram submitted that the impugned order cannot sustain legally and factually. He submitted that the respondent has chosen two transactions involving the appellant's shares i.e., 3 lakh shares purchased by El Dorado Guarantee Ltd. (El Dorado) for their clients on 8/10-4-1998 and 6 lakhs shares p .....

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ns of regulation 4(a) and 4(d) stated that the charge is totally baseless. He submitted that unless it is established that these two specific transactions squarely fall within the ambit of the said regulations the charge cannot stick, that the respondent has failed remarkably in this regard. He submitted that the onus is on the respondent to establish the charge with supporting evidence, that since the charge is of a serious nature and the attendant consequences being very severe, the standard o .....

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ed contravention of the provisions of regulation 4, Shri Sundaram read out the provisions of the regulation and in particular Clauses (a) and (d) and stated that the scope of the regulation need by clearly understood, which the respondent did not, before applying to the facts of the case and drawing hasty conclusions. He stated that Chapter II of the Regulations, under which regulation 4 on 'Prohibition against market manipulation', regulation 5 on 'Prohibition of misleading statemen .....

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eone, there is, no further scope for any investigation as to who did it and why did it. Shri Sundaram stated that deceit through market manipulation is what the regulation prohibits. In this context he stated that there is not even a whisper of such a charge against the appellant anywhere in the order. The learned senior counsel stated that according to Clause (a) of regulation 4, no person shall, effect, take part in or enter into, either directly or indirectly, transactions in securities, with .....

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ificially raising or depressing the price' are the crux and that an artificial price is not the genuine price. Whether the price is genuine or artificial would depend on the attendant facts in each case. 13. Referring to the allegation involving purchase of 3 lakh shares by the appellant, Shri Sundaram stated that shares were not purchased by the appellant or at its behest, that it was a transaction effected by a broker for his clients. He submitted that as per El Dorado, they purchased 1,50 .....

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he weighted average price aggregated ₹ 308 per share on the NSE and ₹ 306 per share on BSE during the period. Shri Sundaram further submitted that as a matter of fact, during the period April to June, 1998 the total volume of the appellant's shares traded on both these exchanges was to the tune of 69 million shares and as such even if it is assumed for argument sake that MALCO had purchased these shares, it is impossible to believe that just 3 lakh shares traded would in anyway m .....

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here was not even a trace of deceit in the transactions. Shri Sundaram submitted that there is nothing on record to show that the transaction involving 3 lakh shares referred to by the respondent in the order, attracted the provisions of regulation 4(a). 14. Shri Sundaram further stated that regulation 4(d) which prohibits any person entering into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, dep .....

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of the clients, and not to distort the price mechanism, and therefore it cannot be said that the transaction attracted regulation 4(d). 15. Referring to the purchase of 6 lakh shares of the appellant by MALCO in June, 1998, Shri Sundaram submitted that provisions of regulation 4(a) and (d) are not attracted to the said purchase also as could be seen from the factual position being referred to later. The shares were purchased as requested by the BSE, to avert a payment crisis and save the market .....

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has been totally over looked by the respondent in its order. The appellant and MALCO are two distinct and separate legal entities and as such purchase of shares by MALCO cannot in any case be considered as purchase of shares by the appellant. 17. The learned senior counsel submitted that MALCO purchased 6 lakh shares of the appellant at the specific request of some senior members of the BSE Governing Board to avert a payment crisis in the exchange, He submitted that the sole intention of MALCO .....

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nor the appellant knew the brokers of the Damayanti Group nor was there any means of knowing as to which brokers were selling those shares. Shri Sundaram stated that the impugned order has disregarded the fact that MALCO instructed El Dorado to first find a buyer (financial institution) for these 6 lakh shares and only if they could not find such a buyer, MALCO would purchase the shares, which MALCO did after one month of the original purchase by El Dorado. He further stated that it is an admitt .....

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ention was to manipulate the market, MALCO would have directed El Dorado to place the shares with the brokers. He further stated that the impugned order itself clearly states that the shares were purchased by MALCO and the purchase was also funded by MALCO and as such the appellant cannot be said to have violated regulation 4(d). He also pointed out that nowhere it has been stated in the order that there was any fund flow from the appellant for the purchase of the said 6 lakh shares. MALCO used .....

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submitted that in the context of market manipulation charge levelled against the appellant, it is necessary to clearly understand what is actually meant by 'market manipulation'. According to him the respondent has made the allegation without fully appreciating the scope of the said expression. He stated that the expression 'manipulation' for the purpose of the regulation has not been defined, but its meaning is well understood in the market and by the regulators all over the wo .....

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islead investors by artificially effecting market activity S. Dchreiber v. Burlington Northerm Inc. 472 US. 1, 6 (1985). "Section 9(a)(1) prohibits certain manipulative practices, including wash trades, and matched orders, when such transactions are done for the purpose of creating the false or misleading appearance of active trading in a security listed on a national securities exchange, or a false or misleading appearance with respect to the market for any such security. To establish a vi .....

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ies". To establish that an individual has engaged in manipulative practices in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the Division must prove, as it has done here, that one or more individuals engaged in any act, practice, or course of business which operated as a fraud or deceit upon any person in connection with the purchase or sale of the security (SEC v. Kimmes, 799 F. Supp. 852, 858 (ND III 1992). In establishing a violation of Section 10(b) and Rule .....

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ent" "[Sand Strand Corporation v. Sunchemical Corporation 553 F. 2d 1033, 1044 (7th cir.)"] 19. Shri Sundaram stated that the law in this regard is materially identical in India and in USA and therefore the decision of the US Courts could be followed for guidance. 20. The learned senior counsel submitted that there is no allegation or finding of deceit either in the show-cause notice issued to the appellant or in the impugned order. In this context Shri Sundaram further cited the .....

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erpich v. Wallace, 430 F. 2d 792, 802 (5th Cir. 1970). A finding of manipulation is not dependent upon the presence of any particular device usually associated with a manipulative scheme. Swartwood, Hesse, Inc., 50 S.E.C. 1301, 1307 [1992]. The proof in a manipulation case "almost always depends on inferences drawn from a mass of factual detail. Findings must be gleaned from patterns of behaviour, from apparent irregularities, and from trading data". Pagel, Inc., 48 S.C.E.C. 223, 223 [ .....

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p; Co., the Commission, in determining that a market had been manipulated, emphasized that there was little retail demand for the securities in question. Todd & Co., Inc., 46 S.E.C. 314, 319 [1976], vacated and remanded on other grounds sub.nom., Todd & Co., Inc. v. Sec., 557 F. 2d 1008 (3ed Cir. 1977). A lack of public information which could justify a price increase for a security is also evidence that a series of manipulative transactions caused the price of the securities to rise. Se .....

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flated the price of Counsel securities. First, there was virtually no retail demand for Of Counsel securities during the rapid price rise. During the entire period from November 16, 1993 through December 8, 1993 only 1.9% of the Of Counsel units volume involved retail customers. And second, there was no publicly disseminated information regarding Of Counsel to account for the price increase from the $ 3.25 IPO price to the high price of $ 8. [18]." It is settled Commission law that "on .....

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rising prices in the absence of any demand are well-known symptoms of .....Unlawful market operations". Dlugash v. SEC 373 F.2d at 109. In this case, the price of Of Counsel units rose dramatically despite an almost total absence of demand. Between November 23 and December 8, over only 11 trading days, the price of Of Counsel units almost doubled, from $ 4-1/8 to $ 8. This rapid increase occurred in the absence of any significant retail demand for the securities, and in the absence of any n .....

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od, that while BSE sensex declined by 11 per cent, the appellant's share price rose by 71 per cent. In this context he referred to the share price movement data furnished at Ex.-D to the appeal and stated that on 1-4-1998 the appellant's share price was ₹ 299.10 and on 4-6-1998 ₹ 302.70 thereby showing an increase of just 1.2 per cent as against the sensex of 3969 and 3546 on the relevant dates which indicated a decrease of just-10.7 per cent, Shri Sundaram stated that the re .....

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that since Shri Gandhi has not been made available to the appellant to cross examine and that since he died recently his oral evidence cannot be used. Shri Sundaram stated that Shri Bimal Gandhi was a director of El Dorado Guarantee Ltd., that he was also a director of Dil Vikas Finance Ltd., that the transactions attributed to the appellant were done by the said firms, that in fact the entire finding of the respondent that the 3 lakh shares were purchased by the appellant is based on the untest .....

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e, 1998. Shri Sundaram submitted that in any case Shri Murthy, as could be seen from his evidence had denied of having given any instructions to Shri Gandhi to buy three lakh shares and as far as funding to purchase 6 lakh shares by MALCO is concerned, the factual position remains undisputed. 23. The learned senior counsel submitted that MALCO did not finance 3 lakh shares on delivery basis purchased by El Dorado, that the loan of ₹ 5 crores given by MALCO to Dil Vikas, a registered RBI sa .....

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urchased by El Dorado, namely Crimson and Shri Khurana, had admitted that they were beneficially entitled to these shares, that the respondent has blacked out this factual position to suit its convenience. 24. Shri Sundaram referred to Shri Murthy's statement dated 30-9-1999 (at A.10) to the effect that he had not given any instructions to anyone in El Dorado Guarantee Ltd. or to any other associate concern to buy the appellant's shares. According to Shri Sundaram in the light of the sai .....

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th Mr. Murthy and he says that no instructions as claimed by Mr. Bimal Gandhi were given'. Shri Sundaram said there is no evidence to support the finding in the order that 3 lakh shares were purchased at the behest of the appellant, that the finding in this regard is nothing but an offshoot of imagination. Shri Sundaram stated that in fact the available evidence establishes that these 3 lakh shares were purchased for El Dorado's clients and the appellant or MALCO had no involvement at al .....

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support its story. Shri Sundaram submitted that from Bimal Gandhi's evidence it is clear that MALCO was not informed by Dil Vikas that the advance was to buy the appellant's shares. Further from Shri Gandhi's deposition (question 18) it is clear that he did not remember about the contact person for the purchase of these shares that it is to be noted that Shri Murthy has also stated that he also did not say'. In answer to Question 21, Shri Gandhi had admitted that 'the firm r .....

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arket price and volume traded on BSE and NSE have been shown and stated that as per the said Annexure the price of the scrip was opened on 8-4-1998 at 296 and closed at 291 and the traded volume was 241 153. On 10-4-1998 the corresponding figure was 299 and 319.80 and volume was 447 539. Shri Sundaram stated that 8-4-1998 and 10-4-1998 are relevant as the shares for Khurana and Crimson were purchased on the said dates. Shri Sundaram submitted that the volume traded in NSE during the period 1-4-1 .....

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t there was no erratic movement of price or volume as a result of the said purchase, as alleged. He further pointed out that the purchase of shares was made on 8/10-4-1998 and therefore the respondent's reference to price movement from 2-1-1998 is only to misguide the Tribunal. The learned senior counsel submitted that no reasonable person would have reached at the conclusion which the respondent has drawn, in the light of the facts and circumstances of the case. 27. Shri Sundaram referred t .....

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in any way show that the appellant was involved in the transaction. El Dorado/Dil Vikas etc. are not exclusively working for the appellant, and they transact dealings for others also, that in the instant case also they have admitted of purchasing 1.5 lakh shares of the appellant for Shri Khurana and another purchase involving 1.5 lakh for Crimson. Shri Sundaram submitted that if all those persons who purchase shares of the appellant are to be treated as persons acting in concert with the appella .....

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l out brokers having payment difficulties, MALCO forwarded 11.75 crores to El Dorado for this deal. In fact the position that MALCO purchased shares has been re-iterated in para 7.2 also. By this statement the respondent itself has admitted that the purchase was made for MALCO and not for the appellant and the reason for such purchase was BSE's request to help to avoid a payment crisis. BSE is a public authority which has representatives of the respondent on its Governing Board and that MALC .....

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a) and (d). 29. The learned senior counsel submitted that 6 lakh shares were purchased by MALCO on the specific request of the authorities from Bombay Stock Exchange, neither MALCO nor the appellant knew the brokers of Damayanti Group allegedly involved in the transactions. He stated that the respondent had ignored the fact that MALCO had instructed El Dorado to find a buyer for the said 6 lakh shares and only if they could not find a buyer, MALCO would purchase such shares, which MALCO did afte .....

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only those brokers who had dealings/linkages with Damayanti Group were selected for bail out. Shri Sundaram stated that this is factually incorrect. He stated that the factual position in this regard has been stated by Bimal Gandhi himself that even he was not aware of the brokers involved and the purchase was done as per the list prepared by BSE. Shri Sundaram strongly rebutted the respondent's version that promoters/company first abetted Shri Harshad Mehta to build up large positions in th .....

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on, that on the contrary, the respondent itself has stated that MALCO purchased shares, at the instance of BSE to overcome an impending disaster affecting the credibility of the market. Though the order (in para 9.1) speaks of 'circumstantial evidence' there is no evidence of any kind to charge the appellant that it was involved in market manipulation. Shri Sundaram, stated that the appellant's reliance on the decision in Shivajirao Nilangekar Patil v. Mahesh Madhav Gosavi MANU/SC/01 .....

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eferred to in para 10.2 of the order is relating to January 1998 and this referral date has been deliberately left out to misguide the Tribunal to show that the time gap between the rate of ₹ 181 prevailed and ₹ 385 on 27-5-1996 was very narrow. He submitted that purchase of 3 lakh shares by El Dorado was on 8/10-4-1998 and purchase of 6 lakh shares by MALCO on 12-6-1998 and these purchases were made at the market price and the market data furnished by the appellant indicate that the .....

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the promoters and the minimum conversion price for Optionally Convertible Preference Shares (OCPs), that the allegation that the price was rigged to sustain the minimum conversion price of OCPs of ₹ 350 is without any substance inasmuch as OCPs were to be converted into equity shares eighteen months after the date of allotment, that such conversion was not mandatory but optional and, therefore, the appellant could have had no intention in rigging the price to ₹ 350 in April 1998 mor .....

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eading volumes. Shri Sundaram submitted that since the respondent itself has stated in the order the reason for increasing the share price is the acquisition of INDAL by the appellant, it cannot now say that the share price was manipulated. He also refuted the allegation that issuance of OCP at a conversion price of ₹ 350 on 26-5-1998 could have resulted in any market distortion, as the transaction involving 3 lakh shares were effected on 8/10-4-1998 and the transaction involving 6 lakh sh .....

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-6-1998 by virtually stopping the appellant from bidding for INDAL shares. 33. Shri Sundaram referred to the appellant's take over bid of INDAL and stated that, it is but natural that scrip price of acquirer going up in the event of such a take over, that when the appellant purchases a company it is own growth, its assets improves and naturally the share price should also increase, that it is the optimism that drives the prices up. The appellant had made an open offer for the acquisition of .....

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mencement of commercial production at copper smelter which was closed twice during June-December 1997, declaration and commencement of commercial production at copper after operations stabilised, declaration of excellent half-yearly results of July-December 1997 on 27-2-1998, preferential allotment to promoters at a price above market price. He further submitted that the price did fall in June, but the reasons for that are not far to seek, that the nuclear blasts in Pokharan had led the entire m .....

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anti Group had any connections with the appellant, the appellant has been bracketed with the said Damayanti Group. Shri Sundaram, citing extensively from the impugned order stated that there are patent errors in the order and it is full of infirmities and inconsistencies. He submitted that the respondent has tailored the order to meet with certain preconceived notions, that it makes one believe that the order preceded adjudication. As an illustrative example of reliance on factually incorrect in .....

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#8377; 371 giving a price to earning multiple ratio of around 8, which was much lower than the prevailing P/E's of other industry majors. 35. Shri Sundaram, referred to the respondent's averment in para 25 of the reply that the two purchases of 3 lakh shares or 6 lakh shares are merely illustrative and that the appellant had connived with Shri Harshad Mehta to artificially raise the price of the appellant's shares, and stated that such attitude from the regulator deserve all out cond .....

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stated that an elaborate investigation spanning over three year period would not have missed any transaction, if actually there had been such transactions. Shri Sundaram submitted that the respondent at this appellate stage cannot improve the impugned order and the respondent's attempt to stretch the order at this stage, beyond what it is, need be disregarded. In this context he referred to the observation made by the Hon'ble Supreme Court in Mohinder Singh Gill v. Chief Election Commis .....

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t in their scrips. Thus according to the respondent it is the Damayanti group which cornered the large chunk of shares resulting in distortion of market equilibrium. He said the transactions involving 3 lakh and 6 lakh shares are not the key issues, but the respondent is linking the appellant with the said Damayanti Group and treating it as a part of the said group, holding liable for the actions of the said group. For this purpose the respondent has not adduced any evidence except stating that .....

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irements. He further stated that para 5.5 of the order reiterates that Damayanti Group acting through a set of brokers built up large positions in the carry forward segments in the appellant's scrip at the BSE. According to Shri Sundaram, even if it is by Damayanti Group, carry forward segment is not the entire market. He also submitted that the respondent is deliberately misguiding the authorities by comparing the quantum with carry forward figures, instead of comparing with the total volum .....

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ct on the market, that the transactions were uneventful as far as the market was concerned. 37. Shri Sundaram submitted that the respondent has no power to issue such an order under 11B debarring the company from accessing the capital market. In this context he cited the decision of this Tribunal in Tirupati Finlease Ltd. v. SEBI [2000] 27 SCL 179 (SAT - Mum.). Wherein the Tribunal had held that for the omissions and commissions personal to the promoters, a company promoted by them cannot be in .....

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ri Rafiq Dada, the learned senior counsel appearing for the respondent submitted that the appellant's argument that MALCO and the appellant are distinct and separate and therefore MALCO's action should not be treated as appellant's action is untenable. He submitted that technically the two companies are different, but their management is common and the action of MALCO has to be seen in the context of their close relationship. Shri Dada submitted that practically both the companies ar .....

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of the BSE Governing Board of an impending problem in settlement of dues in Sterlite shares on the BSE which would adversely affect the Group's corporate reputation and investor friendly image. They requested us to take suitable action to prevent a major crisis on the BSE. It may be noted that in June 1998, the otherwise excellent reputation and image of the Group had suffered a setback due to the failure of INDAL's Open Offer as well as the closure of its plant in late 1997, and any suc .....

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the premier exchange of the country and not to manipulate the share price of Sterlite or bail out any particular group of brokers". 40. Shri Dada submitted that the cited reply by the appellant indicates the close association of the appellant and MALCO and that MALCO was only an intermediary acting for the appellant in the transaction. In support of his version he also cited the evidence of Shri Murthy, C.G.M. Finance and Taxation in the appellant, that on a request to mention the name of .....

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hat he had a portfolio of more than 1000 crores'. 41. Shri Dada submitted that reference to 'our management' by Shri Murthy is to the common management of the appellant and MALCO. To show that MALCO had acted at the behest of the appellant the learned senior counsel cited letter dated 19-5-1999 of MALCO to the respondent wherein it has been stated that 'during the first week of June, 1998 we were approached by the Bombay Stock Exchange authorities that there is an impending probl .....

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ares with any other investor we had bought 6,06,000 shares of Sterlite Industries for which the necessary contract copies are enclosed. The purchase of shares has been entirely financed through the internal resources of the company and we had not borrowed from any entities for financing this transaction'. Shri Dada submitted that from this letter it is clear that the bail out was done to avoid payment crisis relating to sterlite shares and not MALCO's shares, that the bail out was mainly .....

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in the appellant's scrips and it went to the extent of 3.8 per cent of total of its equity accompanied by a corresponding increase in the price of the scrips that those brokers who had cornered shares were to be bailed out. Shri Dada stated that these brokers are not genuine investors, but speculators not warranting any protection by way of bail out, but the appellant had to bail them out as they were acting for the appellant by keeping the scrip price high. Shri Dada submitted that there w .....

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rder. He further stated that the persons who were bailed out or whose positions were taken up by El Dorado had high outstanding positions in the appellant's scrips as could be seen from the particulars furnished in para 7.1 of the order. He also stated that in the carry forward segment 3 lakh shares is a substantial quantity to affect the market equilibrium. 43. Shri Dada submitted that the appellant had to keep its share price high and that is why it indulged in manipulating the price. He s .....

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conversion of the said OCPS was to be given effect to in May 1999. Shri Dada stated that in order to induce the investors to exercise their option in favour of sterlite in preference to Alcan's offer, the share prices of sterlite were rigged to ₹ 350. He further submitted that on the basis of the public offer made by the appellant for the acquisition of INDAL's shares, the total fund required was ₹ 817.70 crores, that to generate this fund it was proposed to issue OCPs worth .....

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According to the learned senior counsel the appellant connived with Shri Harshad Mehta to artificially raise the price of its shares, that Shri Harshad Mehta built up large positions in the carry forward segment at BSE where positions can be leveraged upto 8-10 times of the base minimum capital plus additional capital (i.e., by paying 10 per cent margin one can build positions upto 10 times of the same), that the funding from sterlite has enabled Shri Harshad Mehta to build up large positions. 4 .....

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red to the following observations of the Hon'ble Supreme Court in State of UP v. Krishna Gopal MANU/SC/0506/1988MANU/SC/0506/1988 : AIR 1988 SC 2154 that: "...What degree of probability amounts to 'proof is an exercise particular to each case.' Doubts would be called reasonable if they are free from zest for abstract speculation. Law cannot afford any favourite other than truth. To constitute reasonable doubt, it must be free from an over emotional response. Doubts must be actua .....

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takable subjective element in the evaluation of the degrees of probability and the quantum of proof. Forensic probability must, in the last analysis, rest on a robust common sense and, ultimately, on the trained intuitions of the judge. While the protection given by the criminal process to the accused persons is not to be eroded, at the same time uninformed legitimization of trivialities would make a mockery of administration of criminal justice." (p. 2154) 47. Shri Dada stated that, thus e .....

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commit the offence with which he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement in cases of contravention of the provisions of Section 10 of FERA, would be discharged where it is show that the "blame worthy conduct" of the delinquent had been established by wilful contravention by him of the provisions of Section 10 FERA, 1947. It is the delinquency of the defaulter itself which establishes his blame worthy conduct..." 49. .....

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as observed by the Apex Court in Disciplinary Authority v. N.B. Patnaik[1996] 9 SCC 69. 50. Shri Dada submitted that to establish the charge of manipulation and hold a person responsible for the same circumstantial evidence is sufficient and from the material furnished in the order it is evident that the appellant had indulged in market manipulation attracting the provisions of regulations 4(a) and 4(d). 51. The learned senior counsel referred to the Annexure R in the appellant's compilatio .....

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t in the INDAL acquisition ₹ 817.70 crores were going out from the company and as the investors knew about such huge outflow the share price had to fall, but it was going up because of the manipulation. According to Shri Dada there was no reason for the brokers to be a party to the unnatural price propping up for the benefit of the appellant in the Alcan war", that the price pep up was done obviously at the behest of the appellant, that the only beneficiary of such manipulation was th .....

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no direct evidence. It is also true that there is no evidence to link him up with tampering. Tamperingis established. The relationship is established...." (p. 310) 52. He submitted that 'INDAL' take over gives sufficient circumstantial evidence to show that the appellant was the beneficiary in the transactions propping the prices up. Shri Dada referred to the show-cause notice wherein it has been stated that investigation revealed that the entity 'Dil Vikas' referred to in t .....

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; 5 crores and MALCO made available the loan vide cheque dated 16-4-1998 @ 15 per cent interest for a period of 6 months. Interest never paid. ₹ 11.75 crores was also paid to El Dorado through whom the bail out was made. 54. The learned senior counsel stated that to MALCO it was clear that the brokers should be bailed out at any cost. The company had in any case provided the funds and incidentally requested the broker to find out a purchaser for the shares purchased in the bail out, and ex .....

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the entire transaction including furnishing information to the said Bimal Gandhi regarding the brokers through whom the aforesaid 3 lakh shares were to be purchased. Shri Dada submitted that in the light of these facts it can be safely concluded that purchase of 3 lakh shares of the appellant was organised by the appellant itself and the same was financed indirectly through its group company i.e., MALCO. 56. About the funding of the transaction Shri Dada submitted that the sum of ₹ 5 crore .....

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t the loan was obtained for 6 months. 57. Shri Dada further submitted that the appellant has failed to offer any rationale for the purchase of its 6,06,000 shares by MALCO, that the intention of MALCO was not to help BSE to avert payment crisis but to protect selected brokers. Shri Dada further submitted that the question of investors being affected would not arise in the context because the shares of the appellant were held by brokers known to be operating on behalf of the Damayanti Group, that .....

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med by the appellant, that the fact that transactions were entered in the exchange system on 12-6-1998 as 'all or one' deals synchronizing the timing of logging in of the trades by the buyers and the sellers at the pre-determined price itself shows the name of the brokers were known of the appellant. 58. Shri Dada rebutted the appellant's version that the respondent has not adduced any material or evidence to establish the nexus or connection of the appellant with Damayanti Group bro .....

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reduce the floating stock of the appellant's shares in the market and to artificially inflate prices thereof. He submitted that regarding the purchase of 5 lakh shares the appellant has not produced any evidence to show that the shares were registered in the name of Crimson and Khurana as has been claimed, that on the contrary the evidence shows that these shares were lying with the broker, that it is also on record that the said parties had also not made any payment. Countering Shri Sundara .....

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on as in regulations 3 and 6. 59. Shri Dada submitted that Chapter II of the Regulations talks about fraudulent and unfair practices relating to securities. He explained the ingredients of regulations 4(a) and 4(d) and stated that deceit need not necessarily be there to attract the regulation. He also emphasised the expression 'directly or indirectly' in regulation 4(a) and stated that in the instant case it was the appellant who indirectly transacted in shares and indulged in manipulati .....

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was relatable to the acquisition of the shares of INDAL. Shri Dada stated that self benefit was the motive behind the transaction and the transaction was designed accordingly, therefore regulations 4(a) and 4(d) attracted. 60. The learned senior counsel submitted that in the light of the finding that the appellant had manipulated the market to its benefit, the impugned order under Section 11B is perfectly justified and need be upheld. He also submitted that while S/shri Aggarwal and Tarun Jain b .....

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lations in the scrips of BPL, Videocon and Sterlite. Investigations revealed that there were large volumes coupled with fluctuation in prices at the exchanges in respect of BPL Limited, Videocon International Ltd. and Sterlite Industries Ltd., (hereinafter referred of as BPL, Videocon and Sterlite respectively) especially during April and May 1998. The Investigation revealed that a set of brokers and sub brokers acting on behalf of a common set of clients were acting as front for Shri Harshad Me .....

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ated 20-12-1999 was issued to the Sterlite Industries Ltd., Shri Anil Aggarwal, Managing Director, Sterlite Industries Ltd., Shri Tarun Jain, Sterlite Industries Ltd., Shri Shashikant, Director Sterlite Industries Ltd.'. 64. The order though refers to cornering of shares by Damayanti Group is silent about the action, if any, taken against the said Group. However, the learned Senior counsel appearing for the appellant stated that they have been proceeded against separately. 65. The appellant .....

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to Securities Market) Regulations, 1995, read with Sections 11(1) and 11(2)(e) of SEBI Act' Chairman had also concluded that 'promoters/ company first abetted Shri Harshad Mehta to build up large positions in the shares of Sterlite Industries Ltd., which facilitated market manipulation and later provided an exit route when the artificial increase in price was not sustained and some of the brokers dealing for Damayanti Group got trapped' (para 7.3). The gravity of the offence attribut .....

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9; invoking the powers available under Sections 11 and 11B, the Chairman directed that 'Sterlite Industries is prohibited from accessing the capital market for a period of 2 years from passing this order'. And also 'ordered that prosecution proceedings under Section 24, read with Section 27 of the SEBI Act for violation of regulations 4(a) and 4(d)... shall be initiated against Sterlite Industries through their directors namely Shri Anil Aggarwal, Shri Tarun Jain and Shri Shashikant& .....

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portunity of being heard and that witnesses were not given to be cross examined, lost the vigour as he himself ultimately stated that he was not pressing the issue, so as to avoid further delay in the matter. However, he had urged that the evidence of Shri Bimal Gandhi, Director of El Dorado, on which the respondent has placed heavy reliance be discarded as the evidence is untested and that it is not possible now to cross examine him as he is no more. But this argument does not hold good, as the .....

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Board by name of the SEBI, with a Chairman and five members. The Board is in position since 1992. In terms of Sub-section 3 of Section 4, in the areas otherwise determined by regulations, the Chairman also enjoys all powers of the Board. The impugned order is made by the Chairman exercising the concurrent power of the Board vested in him. 69. Chapter IV of the Act deals with the functions of the Board. This chapter comprises 4 Sections - i.e., Section 11, on functions of Board, Section 11A on m .....

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, and to regulate the securities market, by such measures as it think fit". 70. Sub-section (2) refers to measures to provide for certain matters enumerated therein, with a caveat that it is without prejudice to the generality of the provisions of Sub-section (1), 'Prohibiting fraudulent and unfair trade practices relating to securities' is one of the measures, the SEBI is expressly empowered to take. In exercise of the said power the SEBI has made the Regulations. These Regulations .....

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ary,- (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 co .....

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l, or as agent;" The expression 'fraud has been defined in Clause (c) of regulation 2 as under: (c) "'fraud' includes any of the following acts committed by a party to a contractor with his connivance, or by his agent, with intent to deceive another party thereto or his agent or to induce him to enter into the contract:- (1) the suggestion, as to a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having .....

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silence to speak or unless his silence is in itself equivalent to speech;" 71. Chapter II is the core chapter in the regulation titled 'Prohibition of Fraudulent and Unfair Trade Practices relating to securities market. Regulation 3 thereunder prohibits any person from buying, selling or otherwise, dealing in securities in a fraudulent manner. Prohibition against market manipulation' is covered by regulation 4. Regulation 5 is 'Prohibition of misleading statements to induce sale .....

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d thereby inducing the sale or purchase of securities by any person; (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market; (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; (d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress .....

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ncerned investigating officer is required to submit the investigation report to the Board. Regulations 11, 12 and 13 deal with the follow up action. "11. Power of the Board to issue directions.-The Board may, after consideration of the report referred to in regulation 10, and after giving a reasonable opportunity of hearing to the person concerned, issue directions for ensuring due compliance with the provisions of the Act, rules and regulations made thereunder, for the purposes specified i .....

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regulations; (d) directing the person concerned to dispose of any such securities acquired in contravention of these regulations, in such manner as the Board may deem fit, for restoring the status quo ante. 13. Suspension or cancellation of registration.-The Board may, in the circumstances specified in regulation 11, and without prejudice to its power under regulation 12, initiate action for suspension or cancellation of registration of an intermediary holding a certificate of registrations unde .....

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s considered necessary to examine the scope and reach of the said regulation 4(a) and (d), to begin with. 74. On a perusal of regulation 4 it is clear that prohibition put therein is against market manipulations stated in five clauses therein at Clauses (a) to (e). According to the impugned order the market manipulation referred to at Clause (a) and (d) are applicable to the appellant's conduct. On a perusal of the regulation it is clear that reach of Clause (a) is wider than the reach of Cl .....

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ttract the regulation though such a transaction had resulted in market price variation. The regulation attracts if the transaction is made . with an intention of artificially raising or depressing the prices of securities so as to induce any other person to sell or purchase the securities. The participation need not necessarily be direct, it can be indirect as well. In this context the observation made by the US Court in Hynes case (supra) relied by Shri Sundaram gives strength to the belief tha .....

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a security. Indeed manipulation is usually the result of acts, practices and course of conduct that deceive the market place...." 75. The above observations were made by the Administrative Judge while considering whether a transaction could be considered as a manipulative practice in violation of Section 10(b) of the Securities Commission Act of USA. I think that on a perusal of the provisions of regulation 4(a), the observations made by the Judge are in equal force applicable to the said .....

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the clauses, the intention of the party is relevant. Therefore an element of mens rea is also involved. 77. The factual matrix based on which charge of market manipulation has been levelled against the appellant is as under : (A) Purchase of 3 lakh shares of the appellant by El Dorado in the 2nd week of April, 1998 for the following 2 accounts; (i) 1,50,000 shares for Crimson Securities, an associate company of El Dorado (ii) 1,50,000 shares for Shri Ashwani Khurana, a client of El Dorado. (B) .....

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ed above, at the cost of repetition it is again extracted for ready reference. It reads : "Though, Shri Gandhi denied that any assurance was given by Mr. Murthy as regards the funds for the purchase of these shares or any commitment as regards the buy back of these shares or sharing of gains/losses on the purchase of these shares, yet the transactions have been found to be done by them for Sterlite Industries. It can be inferred from the following facts : (a) funds being given by MALCO oste .....

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etails of 1,95,000 shares in the office of Damayanti Group. Based on the above, it was concluded 'that this transaction was for Damayanti Group and Sterlite Industries Ltd.' and 'El Dorado was used as a conduit for parking of shares'. It has also been stated that the transactions with Ashwani Khurana were in the nature of financing transactions and have been given colour of purchase and sale of shares as:- (i) no payments were received from the client and purchase consideration w .....

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t of funds for their obligation as satellite dealer, but not for purchase of the three lakh shares, that the observations at (c) and (d) are vague and in any way not concerning the appellant. 80. It is seen from the letter available at p. 49 of the compilation filed by the appellant that Oil Vikas Finance Ltd. in its letter dated 8-4-1998 to MALCO had requested for a loan/advance/intercorporate deposit of ₹ 5 crores for a period of 6 months for their short term needs for investing in Gover .....

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te of 15 per cent. This factual position has been confirmed by Shri Bimal Gandhi of Dil Vikas also in his evidence before the respondent. Shri Bimal Gandhi in his deposition dated 8-9-1998 before the Investigating Officer had admitted the receipt of ₹ 5 crores from MALCO 'towards advance for purchase of Government of India securities'. There is also evidence on record to show that the cheque for ₹ 5 crore from MALCO was deposited by the said party in their current account mai .....

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Ltd. nor where there any instructions from them in this connection'. The respondent had examined Shri Tarun Jain, the Appellant's Director, Finance on 6-10-1998. In answer to a question that whether he or Murthy had given any instructions to buy 3 lakh shares of Sterlite Industries Ltd., Shri Jain had stated 'we had not given any instructions as stated by Shri Bimal Gandhi in his statement shown to me'. He had further stated that he had checked up with Shri Murthy and Shri Murthy .....

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urana of Delhi to purchase another 1.5 lakh shares which they purchased in the name of their group companies'. Shri Ashwani Khurana in his deposition has stated as to how the purchase consideration was paid. Regarding the purchase of shares by Crimson also, Shri Gandhi has stated the source of funds. It is nowhere mentioned that ₹ 5 crores provided by MALCO was used in these transactions. The argument that the fund requirement for purchasing securities was only for two days and for the .....

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hat 1,50,000 shares were purchased for Mr. Ashwani Khurana and 1,50,000 shares for Crimson Securities. Shri Gandhi in reply to a question from the Investigating Officer had also stated that 'the said clients have regular transactions from time to time hence there was no payment on this date from the said client. In the case of Shri Ashwani Khurana we have been regular borrowers from them and we have adjusted the purchase consideration against their loan . . . Though no payments have been mad .....

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le in the compilation is also relevant. Shri Khurana in his deposition dated 10-9-1998 had admitted that he had purchased 50,000 shares each of Sterlite in the name of his family concerns, viz. (1) Kanchenjunga Advt. (P.) Ltd. (2) Khurana & Co. and (3) Iqbal Chand Khurana in the month of April, 1998. Regarding delivery of the shares purchased on his behalf by Dil Vikas, Shri Khurana had stated that 'the physical delivery of shares is lying with El Dorado. We normally seek the physical de .....

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consideration of ₹ 1.46 crore was met from the opening balance of 45 cr. and the balance was adjusted through the running account which currently shows a Cr. balance of ₹ 35 lakhs as on 10-9-1998. Shri Tarun Jain, Director Finance for Sterlite Industries Ltd., in his deposition dated 6-10-1998 had confirmed the position that MALCO or Sterlite Industries Lid. had not given any loan to El Dorado Guarantee Ltd., Shri Bimal Gandhi or any of the directors or any directors of the associate .....

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ociate concerns to buy shares of Sterlite Industries Ltd. in the last 2 years, had stated categorically 'No, I have not given any instructions to anyone in El Dorado Guarantee Ltd. or any of their associate concerns to buy shares of Sterlite Industries Ltd.'. Shri Murthy did not even confirm that he had suggested the names of counter-party selling brokers to Shri Bimal Gandhi. In this context it is to be remembered that Shri Gandhi also did not say that Shri Murthy had instructed him to .....

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ted by us with the selling brokers. There was no , arrangement of funds, commitment of buy back or sharing of gains or losses on these purchases with Shri Murthy ....' 85. In this context it is to be noted that the statements extracted above are from the statements made by S/Shri Gandhi, Khurana, Murthy and Jain before the respondent's Investigating Officer and their statements have also been relied on by the respondent. Depositions of these persons have been filed in the appeal by the a .....

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through 'all or no deals' in BSE terminals by synchronizing the timings of the logging of trades after the official hours at pre-determined price is contrary to what is stated in para 6.9 of the order wherein it has been stated that these were negotiated deals. In fact the view that it was negotiated deals has been confirmed by Shri Gandhi in his statement. 87. The respondent's argument that even though technically MALCO and Sterlite are two separate entities, the action of MALCO sh .....

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e manipulation of market by the appellant is that MALCO lent ₹ 11.75 crore to El Dorado for acquiring 6 lakh shares of the appellant in the 2nd week of June, 1998 to bail out brokers associated with the Damayanti Group of Shri Harshad Mehta. 89. It is an admitted fact that MALCO had provided funds to the tune of ₹ 11.75 crores to Dil Vikas to purchase shares of the appellant. It is also an admitted fact that the said amount was made available by MALCO on a request made by some of the .....

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out the brokers associated with Damayanti Group as they had taken long positions in the carry forward segment to maintain the appellant's scrip price high, in the context of its bid to acquire the shares of INDAL, that it was at the instance of the appellant the market was manipulated by the brokers and when the manipulators got trapped the appellant had stepped in to protect them. To support the contention that the scrip price was artificially kept high for the limited purpose, Shri Dada ha .....

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act subscription. 90. It is true that the price of the appellant's scrip had steadily increased during the period and fell when the acquisition failed. Upward price movement in the shares of an acquirer company is not uncommon, as the market would respond positively in case the takeover is likely to result in value addition. In the absence of any evidence to show that the price was pushed up to meet the situation at the instance of appellant, it is difficult to hold the appellant responsible .....

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believe that the money was made available as requested by certain members of the BSE's Governing Board. The respondent in its order has also endorsed this fact. Now the question is whether the appellant had any role in choosing the brokers to be bailed out. In this context the unrebutted evidence of the respondent's witness Shri V.D. Kinkhabwala, a Director of Dil Vikas, dated 15-9-1998 is revealing. He had stated that 'the name of the client, number of shares and the price were all .....

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brokers and only realised their identities from the documents now available'. The statement of Shri Gandhi of El Dorado confirmed that even they did not know the identity of the selling brokers. To a question that were you told that the clients of the counter party brokers for these transactions were Damayanti Group who were believed to be front entities of Shri Harshad Mehta, Shri Gandhi's answer was 'No I am not aware of anything'. It has also been stated that in any event all .....

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settlements. His submission that the profits earned by Damayanti Group as a result of increase in hawala prices over successive settlements were utilised for raising finances by doing share badla is convincing. But it is to be noted in this context that in this appeal we are not examining the conduct of the Damayanti Group but the conduct of the appellant. In the absence of any reasonably acceptable evidence to show a nexus between the appellant and the Damayanti Group or that the Damayanti Grou .....

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Group was working in concert with the promoters of the company'. It appears that this view is formed mainly on the basis of a paper retrieved from the office of the Damayanti Group which is stated to be one of the papers having details of investment by Shri Harshad Mehta, wherein under the heading 'excess lying as under' it was found written 'Dil Vikas - Ster, 1,95,000 giving the break up of this figure as 1,50,000 - 45,000 margins'. It has been further stated in the order t .....

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tlement, El Dorado purchased 1.5 lakh shares in the name of Crimson Securities, their family concern and advised their clients Mr. Ashwani Khurana of Delhi to purchase another 1.5 lakh shares, which they purchased in the name of their group companies'. The order also states 'the fact that paper (referred to in para 6.6) was available in the office of Damayanti Group which is a front for Harshad Mehta indicates that there was nexus between El Dorado and Damayanti Group in this regard. The .....

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yanti Group. The name of a company appearing in the list of investments made by a broker by itself cannot be considered as an evidence proving conclusively that the investment was made by the broker at the company's behest. The respondent seems to have not examined in this context any of the Damayanti Group companies to ascertain the factual position. In any case there is no reference to any statement from them, in the order. 93. In this context linking the said investment of Shri Harshad Me .....

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Vikas for others and not for the appellant or at Us behest. In the light of the views already expressed with reference to Shri Murthy's mentioning of the names of the brokers holding scrips of Sterlite in the market and the nature of ₹ 5 crores advanced as Inter Corporate Deposit by MALCO, it is difficult to subscribe to the respondent's view in this regard. In this context it is to be noted that the appellant in its reply has stated that it has no connection with Damayanti Group .....

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mayanti Group. Shri Tarun Jain had also stated that he had not heard about any of the so called Damayanti Group companies or the persons referred to by the Investigating Officer. In the absence of adequate evidence from the respondent's side to establish any nexus between the appellant and the Damayanti Group, if not directly, at least indirectly, the appellant cannot be considered as part of the Damayanti Group or associated with the Damayanti Group and it cannot be held liable for the acti .....

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id to take over INDAL and by applying the principle laid down by the Hon'ble Supreme Court in Shivajirao Nilangekar Patil's case (supra) the appellant's role in the manipulation can be safely inferred, is not convincing. Facts and circumstances of Shivajirao Nilangekar Patil's case (supra) are very different. In that case the tampering was done by one of the officials of a Medical College coming under the administrative control of Government of Maharashtra and Shri Patil was at t .....

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be supplemented by fresh reasons. This position is clear from the following observation made by the Hon'ble Supreme Court in Mohinder Singh Gill's case (supra): 8. "The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to .....

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e public effect and are intended to affect the acting and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself. Orders are not like old wine becoming better as they grow older". (p. 858) 97. Shri Dada had argued about the decree evidence required in an adjudication like the one, in contradistinction to the nature of evidence required in criminal proceedings in a court of law, that in an inquiry like the instant .....

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y is not sufficient to establish such a serious offence of market manipulation. When such a serious offence is investigated and the charge is established, the fall out of the same is multifarious. The impact of such an adverse finding is wide especially 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 .....

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dence acting upon which a reasonable person acting reasonably and with objectively may arrive at a finding upholding the gravamen of the charges against the delinquent officer. Mere conjuncture or surmise cannot sustain the finding of guilt even in departmental enquiry proceeding. ..." (p. 2411) [Emphasis Supplied] In M.S. Bindra v. Vol[1998] 1 SCC 310 the Court had while deciding an appeal against the removal of an officer from service on doubtful integrity held that 'mere possibility .....

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re of a quasi judicial character; therefore, the minimum requirement of the rules of natural justice is that tribunal should arrive at its conclusion on the basis of some evidence, i.e., evidential material which with some degree of definiteness points to the guilt of the delinquent in respect of the charges against him. Suspicion cannot be allowed to take the place of proof even in domestic inquiries'. As pointed out by this Court in Union of India v. H.C. Goel (AIR 1964 SC 364) 'the pr .....

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e of benefit 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 preponderance of evidence or on the basis of surmise, conjuncture or suspicion. It will also be essential to consider the dimension regarding mens rea. This proposition is hardly open to doubt or debate particularly having regard to the view taken by this court in L.D. Jaishinghani v. Naraindas N. Punjabi AIR. 1976 .....

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ently. [In Re An advocate AIR 1989 SC 245]" [Emphasis supplied] (p. 376) 100. About the test of evidence in a civil proceeding, the following observations made by the Hon'ble Court Razikram v. J.S. Chouhan - AIR 1975 SC 667 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 of 'proved' in section 3 of the Evidence Act does not draw a distinction between civil and criminal cases. .....

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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 : "...To such a situation, though the provisions of the Code of Criminal Procedure or the Evidence Act may not apply except in so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice must necessarily apply. If so, the burden of proof is on the customs authorities and they have .....

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to above it is clear that in the absence of reasonably strong evidence, even in a civil proceeding, a person cannot be held guilty and awarded punishment. Merc surmise, conjuncture, or suspicion cannot sustain the finding of guilt. I have very carefully examined the impugned order and find that the conclusion drawn by the respondent holding the appellant guilty of indulging in market manipulation in contravention of regulation 4(a) and 4(d) is not substantiated by sufficient evidence. 103. Even .....

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material information and such information would have helped the respondent to examine the charge more seriously and purposefully. 104. Now on the direction issued by the respondent. It is seen from the order that the direction debarring the appellant accessing the capital market was issued invoking the powers vested in the respondent under sections 11 and 11B. Since I have already reproduced the text of these two sections in the earlier part of this order, the same is not reproduced again. The .....

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rs 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 a .....

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on 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 prime duty of investor protection. As could be seen from the text of the section reproduced above, the respondent is empowered to issue directions in the interests of investors of any person or class of persons referred to in Section 12 of the Act or associated with the securities market. In other words the section identifies .....

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forfeiting the money received by stock exchanges, as per the concluded transactions under its procedure, until final decision is made. While negating the views of the Single Judge, and upholding the respondent's power to issue such a direction under Section 11B the Court observed:- 'The SEBI Act is an Act of remedial nature and, therefore, the preset cases could not be compared with the cases relating to the fiscal or taxing statutes or other penal statutes for the purposes of collectio .....

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g of the language of the section itself that the SEBI has to protect the interests of the investors in securities and has to regulate the securities market by such measures as it thinks fit and such measures may be for any or all of the matters provided in Sub-section (2) of Section 11 and in due discharge of this duty cast upon the SEBI as a part of its statutory function, it has been invested with the powers to issue directions under Section 11B.... Thus, so far as the authority of law in the .....

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thinks 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'. 56. 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 authori .....

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t be said that the power is unguided or unlimited. It is a wholesome provision designed to achieve the objectives of the Act." (p. 562) 105 But it is to be noted that the power under Section 11B is restricted to issue appropriate direction for the purpose of protecting the interest of the investors etc. mentioned in the section. The scope of the expression 'direction' has not been defined in the Act. But the word has been judicially interpreted by Courts. Hon'ble Bombay High Cou .....

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the respondent to impose penalties. Hon'ble Calcutta High Court had held that prescribing an offence and its punishment is an essential plenary function of the legislature - D.N. Ghosh v. Addl. Sessions Judge AIR 1959 Cal. 208. Hon'ble Gujarat High Court also held the same view in Delux Land Organisers v. State of Gujarat AIR 1992 Guj. 75 holding that "... Any power to impose penalty must be statutority warranted and executive Government cannot create penal provisions by issuing cir .....

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..It is a well settled cannon of construction of statutes that neither a pecuniary liability can be imposed nor an offence created by mere implication. It may be debatable whether a particular procedural provision creates a substantive right or liability. But, I do not think that the imposition of pecuniary liability which takes the form of a penalty for fine for a breach of a legal obligation, can be relegated to the region of mere procedure and machinery for the realization of tax. It is more .....

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e 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 possi .....

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but preventive and remedial in its application. If that is so, it has to be seen whether the impugned direction prohibiting the appellant from accessing the capital market for a period of 2 years from the date of the order is preventive or remedial. In the absence of any explanation from the respondent as to what exactly is meant by 'accessing the capital market', it has to be understood as is understood in the common parlance - i.e., entry to the capital market for issuing/offering secu .....

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