TMI Blog2002 (6) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Securities and Exchange Board of India Act, 1992 ( the Act) for violation of regulation 4(a) and 4(d) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations 1995 ( 1995 the Regulations). The Appellant in appeal No.23/2001 (the Appellant company) is a public limited company. It is mainly engaged in the business of manufacturing and selling of consumer electronic items and consumer durables, such as colour televisions, audio-video systems, refrigerators, air-conditioners, washing machines, computers, etc. . The share capital of the Appellant as on 31.3. 2000 was ₹ 1411.89 millions . Appellant s shares are listed on the Stock Exchange, Mumbai (BSE), traded as permitted securities on the National Stock Exchange (NSE) and also traded on the stock exchanges at Bangalore, Chennai, Delhi, Calcutta, Pune and Jaipur. 65% of the Appellant s share capital is stated to be held by the public and the balance 35% by the promoters. Appellant in appeal No.24/2001 (Shri V.N. Dhoot) is the Chairman and Managing Director of the Appellant company. Appellant in Appeal No.25/2001 (Shri S.M. Hegde) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n these scrips resulting in distortion of the market equilibrium and creation of artificial market in these scrips. Damayanti group comprised mainly of the following entities, viz. Damayanti Finvest Pvt.Ltd, CDP Fincapand Leasing Pvt.Ltd, KRN Finvest and Leasing Pvt. Ltd, Rijuta, Finvest Pvt.Ltd, Ikshu Finvest Pvt.Ltd, Money Television Industries Ltd. These entities had neither the financial worth nor the professional expertise to undertake the kind of dealings, but merely acted as front for Shri Harshad Mehta, who is a notified person under the Special Court(Trial of Offences Relating to Transactions in Securities) Act, 1992(the Special Court Act) Damayanti group acting through a set of brokers built up large purchase positions in the carry forward segments at BSE in the Appellant s scrip which increased from settlement to settlement, that this increase in carry forward position was accompanied by a corresponding increase in the scrip prices, which were being manipulated, that the hawala rate moved from ₹ 45.50 to ₹ 162/- during this period (Settlement No.1 to 10), on account of these manipulations. The profits earned by Damayanti group / Shri Harshad Mehta as a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d placed at the disposal of Damayanti group through a myriad of transactions through several bank accounts of Videocon group entities at Federal Bank, Fort branch, Mumbai. Videocon group placed an aggregate amount of around ₹ 10 crores at the disposal of Shri Harshad Mehta by making purchase of illiquid shares in spot from Damayanti group. These alleged spot deals were not reported by the brokers to the Exchange. This arrangement was merely a fa ade to transfer funds from Videocon group to Damayanti group entities. Some of the brokers, dealing on behalf of Damayanti group, who had cornered a substantial chunk of the Appellant company s shares faced payment problems in June, 1998 and could not discharge their commitments towards pay-in liabilities. The outstanding carry forward positions of some of these brokers were taken up by Madhukar Seth Co., Jaysukhlal Jagjivan, Springfield Securities Ltd. and Ventura Securities Limited, brokers of BSE, through all or none or bulk deals at pre-determined rates and quantities by synchronizing the timing of logging in of the trades by the buyers and the sellers. The brokers connected with Damayanti group sold these shares as bail out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, M/s. Videocon International Ltd not to raise money from the public in the capital market for a period of 3 years in the interest of investors. Further, I hereby direct that prosecution proceedings be launched against the company viz. Videocon International Ltd through its directors/officers, i.e. Mr. V.N. Dhoot, Mr. S.K. Shelgikar, and Mr. S.M. Hegde under the provisions of SEBI Act, 1992. The order shall come into force with immediate effect. Since all the 4 appeals pertain to one and the same order it was decided with the consent of the parties, to hear the appeals together and pass a common order. Shri C.A. Sundaram, learned Senior Counsel appearing for the Appellant company submitted that the impugned order has been passed by the Respondent Chairman in gross violation of the principles of natural justice and fair play in as much as the statements of the brokers/witnesses were taken in the absence of the Appellant, that despite repeated requests to give the Appellant an opportunity of cross examining the witnesses/brokers, who were examined by the Respondents and whose statements have been relied on while passing the impugned order, the request was not acceded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uy shares at a price higher than the prevailing market price would necessarily activate the market and as long as the offer price is not an artificial one and the offerer honours the commitment, it cannot be viewed as an act of manipulation, that in the instant case neither the offer price was an artificial one nor the commitment to buy the shares remained unfulfilled Shri Sundaram submitted that it is an admitted position thaton 9.4.1998 the price of the Appellant s share was ₹ 62/-, that the offer to acquire 14.24 lakh shares at ₹ 165 per share involving a total investment of ₹ 21 crores was for the promoter group to consolidate its share holding and strengthen its position as the promoters had apprehension that raiders would take over the company by cornering the shares taking advantage of the low cost of acquisition. He further submitted that the public offer was made after intimating Respondent SEBI and upon the terms and conditions as approved by it. In this context the learned Senior Counsel referred to the promoter s letter dated 9.4.1998 addressed to Respondent SEBI, copy of the text of the public offer, and the press reports, annexed to the appeal and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the promoters. He stated that since the public offer did take place and the promoters acquired the shares as promised, there has been no prejudice to any shareholder of the Appellant. Shri Sundaram stated that the allegation that the Appellant indulged in manipulating the price and volume of its own shares pursuant to the public offer made by the promoters and that it was done for the purpose of bench marking the price of its shares is contrary to and inconsistent with the facts on record and hence untenable. He also stated that the offer price was not an artificial price as could be seen from the Appellant s Balance Sheet as on 31.3.1998 and referred to the parameters like Price Earning Ratio, Book value of the shares, dividend rate etc., and also the progressive growth pattern of the Appellant year after year. He further stated that creeping acquisition itself boosts investor confidence in the company and upward share price movement is the normal effect, in such a context. He stated that the offer price was in no way manipulated, that as a result of the higher price offered, everybody who wanted to take advantage of the offer, got benefited and that benefit was not confine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters, submitted that if the Respondents conclusion that the open offer distorted the market equilibrium is accepted that would mean that even if any third party makes the offer and the market responds positively that would amount to manipulation of price warranting action! He submitted that the Respondent s role under the Act is of regulator and its primary function is to decide in the course of an activity as to whether that act would affect the investor; that the regulator who did not see the need to regulate at the relevant time despite being there, cannot find fault thereafter, that in the instant case the Respondent SEBI was aware of the promoters plan to acquire 2%of the Appellant s capital and that it had asked the Appellant to make the offer and not to stop by making public announcements. Shri Sundaram submitted that the Appellant has not been charged for violating the Takeover Regulations, that if the Respondents had felt that the creeping acquisition was not in accordance with the provisions of the Takeover Regulations they would have by now proceeded against the Appellant, that even after 3 years of the public offer they have not done so would clearly indicate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artificially and consequently an artificial demand was created resulting in rise in the price of the Appellant s shares from ₹ 62 to ₹ 105 by 21.4.98, that in the show cause notice and in the order the Respondent had stated that this rise in price was accompanied by abnormal volumes in the scrip both at the BSE and NSE during this period, and submitted that thus the Respondents themselves have taken a contradictory view. Since the offer price was relatable to the economic fundamentals governing the share prices the purchase price offered by the promoters cannot be considered as artificial, as alleged. Learned Senior Counsel submitted that if an offer is made within the real value of the scrip, then the presumption is that the offer price/transaction price is not an artificial price, butif the price is beyond the real value, the price can be considered as a manipulated price, that in the instant case the offer price was not above the real value. He further submitted that the price and volume movement is natural in the context of a public offer to purchase shares which are fundamentally sound, at a price higher than the prevailing market rate, from the shareholders whos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the brokers (mentioned in the order) dealt with extensively in the Videocon scrip on behalf of Damayanti group, thereby admitting that it was the brokers who had transacted in the Appellant s shares on behalf of Damayanti group. He submitted that the Appellant was not connected with or concerned in the share transactions done by brokers on behalf of Damayanti group or any other entities. Referring to the finding in the order that GNH Global Securities Ltd and Shri Satyanarayan Nangalia were given large amounts for purchase of shares Shri Sundaram stated that by the Respondent s own version these two brokers were paid just ₹ 1.25 crores each. He stated that the Respondent has in a story telling manner stated that the Videocon group was financing Damayanti group by sham transactions, without bothering to substantiate such a serious charge. Shri Sundaram stated that the Respondents had alleged that the illiquid shares were purchased in spot deliveries and by way of an example purchase of Global Tele Systems shares has been quoted, little realising that Global Tele systems share at that point of time was not an illiquid scrip. He further stated that the Respondents have not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their rights and obligations. The order refers to funding by Videocon group companies and ends up in penalising the Appellant, though it is only one of the companies in the Videocon group, that on a representative basis one of the group companies cannot be held liable for the omissions and commissions, if any, of the other group companies, that the Respondents have not identified any particular company in the group and its involvement, if any, to proceed against . Shri Sundaram stated that in fact in the impugned order the person responsible for the market distortion has been identified in the following words that the Damayanti group built up unusually large position in the scrips of the Appellant resulting in distortion of the market equilibrium and creation of artificial market in their scrips. Thus according to the Respondents it is the Damayanti group which cornered large chunk of shares resulting in distortion of market and not the Appellant, and there is no indication in the order of the Respondents having proceeded against the said Damayanti group, that the Appellant has been penalized for the alleged misconduct of the Damayanti group though there is no material to show that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the centre of funding. Shri Sundaram submitted that the Respondents have unjustifiably linked Damayanti group with the Appellant and by linking so, the Appellant has been held liable for the actions of the said Damayanti group. He said that for the purpose the Respondent has not adduced any evidence except stating that the bail out was meant to protect Damayanti group brokers, ignoring the Appellant s version that funding for the bail out of brokers was done at the behest of BSE to avoid payment crisis in the exchange. Learned Senior Counsel submitted that unless it is established that the Appellant is a part of the Damayanti group or that the Damayanti group had cornered shares at the behest of the Appellant, the charge of manipulation against the Appellant flowing from the transactions made by the Damayanti group cannot be sustained, that the Respondent has failed to establish the said requirement. He stated that though it has been categorically stated in the order that the Damayanti group acting through a set of brokers built up large positions in the carry forward segments in the Appellant s scrip at BSE, the Appellant has been penalized for the same though it cannot be held re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant is thus described as a financier who helped Damayanti group to purchase shares. Shri Sundaram submitted that the order claims that this is based on the investigations conducted by the Respondent, that the investigation finding as communicated to the Appellant has no such finding. In this connection he referred to the various dates on which the fund flow is stated to have taken place and the trade volume in the exchange in those days, thaton 29.4.98, ₹ 1.5 crores (volume 7.8 crores) on 30.4.98 ₹ 1.5 crore (volume 19 crores ) 2./5.98 ₹ 7.5 crores (volume 11crores)19.5.98 ₹ 2 crores (volume 89 crores )28.5.98 ₹ 1 crore (vol. 70 crores). He also pointed out that it was spread over a period of one month and not overnight and further to claim that by providing just ₹ 10 crores; huge transactions could be effected is incorrect. Shri Sundaram referred to the Respondents observation that the funds moved from the Appellant to Videocon Petroleum Ltd and from Videocon Petroleum Ltd to Dombell Investment, and stated that a contrary position emerges from the letter dated 13.4.1998 from Videocon Petroleum Ltd to Joy Holdings P.Ltd (relied on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .6.98 the exchange asked us to put the sale order in Sterlite Industries in all or none segment. Accordingly we put the order and the same was picked up by some other brokers. Since all or none segment does not indicate the clearing number of counter party broker we are not in a position to give you the name of counter party broker. Similarly 2.4 lakh shares of Videocon International were put in all or none segment at the instruction of the client and it was picked up by some other broker. Since inboth the cases we had a C/F position there was no need to give the delivery. Shri Sundaram stated that it is thus evident that it was not in the knowledge of the Appellant as to who were the brokers involved in the bail out and Shri Nangalia had stated that the transaction was done on the instructions of his client, and the Appellant has not been stated as a client by Shri Nangalia. Shri Sundaram referred to another question put by the Respondentsto Shri Nangalia as to whether he had dealt for a client viz.M/s. Gandak Investments P.Ltd and how he was introduced to the said client and what was the nature of the transactions, andthe answer thereto we were told by Hema of 1208 Maker Chamber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss the test. Shri Sundaram referred to the statement of Shri Navanit N Rana of GNH Global Securities Ltd and pointed out that to the Respondent s query that any shares other than VIL, Sterlite, BPL were purchased from his counter for Damayanti group, Shri Rana had replied in the affirmative and had stated that the other shares which were purchased and sold were of SAIL, LIC Housing, Global Tele, Kreb Bio, Tata Chemical, Nagarjuna Fertiliser. To another query about the sale of shares of Kreb Biotech and Global Tele systems as spot transactions to Equity Investments and Gandak Investments, Shri Rana had stated that payments were made directly to Sony and Val fin upon the instructions of Damayanti group and the payments were received upon the instructions of Damayanti group and the payments were received only after Damayanti group had given delivery of shares sold by them. Shri Sundaram stated that dealings in shares with Damayanti group is not an offence, that the question is whether the Appellant had funded the said group with the intention to manipulate the market, that there is not even an iota of evidence against the Appellant in this regard. Shri Sundaram also referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Appellant. He also referred to the statement of Shri Nangalia to a question as to whether he had dealt for a client viz. M/s.Gandak Investments P. Ltd and how he was introduced to the said client and what was the nature of the transactions with them? that we were told by Hema of 1208 Maker Chambers V that they wanted to sell certain shares of Global Tele Systems Ltd, which would be purchased by Gandak Investments P. Ltd. We have not met any person from Gandak Investments P.Ltd and do not know their office. 1, 80, 000 shares of Global Telesystems Ltd were purchased by M/s.Gandak Investments Ltd on spot basis which were sold by one of the concerns of Anil Doshi and Dinesh Doshi we received a payment of ₹ 1.25 crores against this., The delivery of these shares were not given by us to M/s. Gandak Investment P. Ltd., we were then asked by Hema to purchase 1,20,000 shares of BPL in settlement nos. 12 in the Account of M/s.Gandak Investments P Ltd., and then sell these shares in the same settlement. A loss of approximately ₹ 1.03 crores was debited to their account. Since the payment was not coming from M/s.Gandak Investments P. Ltd we sold 1, 18, 000 shares of Global ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come to such clear conclusion as to who manipulated the market, the public announcement or the alleged fund flow from the Appellant could not be considered as the cause of market manipulation warranting action against the Appellant. Shri Sundaram also referred to the following submission made by the Appellant vide its letter dated 20.12.1999 before the Respondent Chairman, in the inquiry proceedings before him explaining the circumstances of funding the bail out that when the officials of Bombay Stock Exchange and National Stock Exchange made a bonafide effort to try and prevent a collapse or crash of the market and both BSE and NSE approached the promoters of VIL to overcome the crisis. Without prejudice and without admitting, it can be said that, if at all it is the promoters who indulged into the activities to prevent the crisis and that too, at the behest of the BSE and NSE. At all times, it was projected to the promoters and they understood that the actions and assistance on their part had the endorsement and the approval not only of BSE and NSE officials, but also of SEBI itself. Shri Sundaram pointed out that this submission has not been rebutted in the order by the Respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shriram Investment company Ltd., relied on in the order, Shri Sundaram submitted that the Appellant is in no way connected or concerned with arrangement arrived at between the management of the said two companies and that it is not proper to rope in the Appellant company to every transaction, involving its share. About ₹ 1.25 crores payment by the Appellant to Fedex , the Respondents themselves have admitted the purpose for which the payment was made that it was not to buy shares but was towards deposit for lease, and in the light of such a factual finding, the Respondents version that the money was paid to purchase the Appellant s share cannot sustain. Shri Sundaram referred to the show cause notice and stated that the notice refers to manipulation in the shares of 3 companies viz. BPL, Videocon and Sterlite., He also stated that there were several reports in the press that the shares of certain other companies were also cornered by certain persons leading to the market crisis in June, 1998 requiring BSE s intervention to protect the market and bail out was designed for the purpose. Thus it is clear that it was third parties who played the mischief and the companies wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation 4,no person shall, effect , take part in or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person. He stated that self profit is the motivation that attracts clause (a) of the regulation. Shri Sundaram submitted that any price change in the scrips, as a result of genuine purchase or sale would not attract the provision, that if there is no artificiality in a transaction, regulation 4(a) cannot reach. He stated that the words intention of artificially 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. He submitted that the Respondents have not produced any evidence to show that the Appellant had transacted in securities, that the said transactions were done with intention of artificially raising or depressing the price and that thereby persons were induced to transact in securities. Learned Senior Counsel submitted that in the context of market manipulation charge le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thatthe decisions in Khemka (AIR 1975 SC 1549), Gulabchand (AIR 1966 SC 1734), Anand Rathi (2001)32 SCL 227 (Bom)) , M.Z.Khan (AIR 1999 Delhi 64), R.R. Bohra(1999 33 CLA 243 (Bom)) and Alka Synthetics(1999 19 SCL 460(Guj) and Bank of Baroda (2000 38 CLA 226 (SAT)) etc., relied on by the Respondents have absolutely no application to the present case in view of the distinguishable features of the cases. He submitted thatno authoritative decision from any Court holding that the Respondent SEBI is empowered to issue directions which are outright punitive in effect , has been cited by the Respondents, that on the contrary this Tribunal in Sterlite (supra) case had clearly viewed with supporting authorities that section 11B cannot be invoked to issue directions tan amounting to penalties. Shri Sundaram, as an alternate argument submitted that regulation 12 of the 1995 Regulations is not a punitive provision, itis only a regulatory provision. In this context he referred to regulation 44 of the Takeover Regulations and compared the same with regulation12 and stated that regulation 12 is restrictive unlike regulation 44 which is inclusive. He explained the scope of regulation 12(a)and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are related to each other is not correct. He stated that by making the public offer the promoters had only helped the investors by offering to buy their shares at the rate of ₹ 165/- when the price was languishing at ₹ 51/-, that this was not a call for subscription to the company s shares independent of any investment from the promoters, that the promoters had stated that they are prepared to buy 14.24 lakh equity shares representing 2% of the paid up capital of the Appellant company by putting their own money of approximately ₹ 21 crores. In this context he referred to the letter dated 9.4.1998 from the promoter to the Respondent SEBI, the public announcement and the public offer following the same and also the fact of the promoters buying the shares at the rate they promised. He stated that despite the fact that the promoters had informed the Respondent SEBI about their proposed public offer, and the Respondent having asked them to make the public offer has taken an about turn and is finding fault with the public offer so made as the cause of volatile market behavior, which is not befitting to anybody, especially to a public authority like the Respondent. Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive involved in raising the price of the shares by the Appellants at the company s cost. He stated that the Respondents have not given any earthly reason as to what gain the promoters would have made by pumping ₹ 10 crores more as alleged. He further pointed out that, if the Respondents are to be believed that the price was artificial, in that case no sensible investor would hold on the shares and buy grief, as he knows that an artificial market cannot last long and before the price crashes he would like to dispose of the shares and make profit and promoters are no exception to this. In the instant case nothing of that sort has been held against the promoters. Learned Senior Counsel stated that there is no element of manipulation in making a genuine public offer or favorably responding to a request from BSE in the larger interest of the market and the investors and providing money to avoid payment crisis, that both the said actions , are perfectly in order and have not in any way resulted in market manipulation, but it has only resulted in benefitting the investors. Learned Senior Counsel stated that both the Appellants have been unjustifiably roped in by the Respondents, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person concerned. He submitted that the impugned order to prosecute the Appellants is a direction and therefore, it was incumbent on the part of the Respondent to give them an opportunity of being heard, which the Respondents have failed to give and as such the order is bad. He further submitted that it is evident from the scheme of the Regulations and the Act that the prosecution follows an adjudication and it is not independent of adjudication. He also pointed out that prosecuting a person for an offence is not something complementary, it affects the business of the person concerned and also it is stigmatic and therefore the Respondent cannot do away with the requirements mandated by the law required to be followed before launching prosecution. Referring to the provisions of section 27 Shri Dwarkadas stated that section 27(1) comes into only where an offence has been committed by a company. He said a deeming provision cannot make an offence . He said that it is the adjudication required in the regulation which decides the offences and the guilty. Only when the guilt is established in the adjudication the Respondent SEBI can launch the prosecution, that in the instant case it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een a director of the Appellant company, he is not an officer in charge of the Appellant company or an employee or a promoter of the said company, that he has been retained by the company as a consultant and authorised signatory and in that capacity only he had signed the cheques and was not a party to any decision making in the Appellant company. The impugned order does not give any reason as to how Shri Hegde was responsible for and how any act of his has resulted in the alleged market manipulation. He does not fall within the purview of section 27, by virtue of any position vis- -vis the company, that he is not a person deemed to be guilty of any offence as alleged by the Respondents. Section 27 attracts only to those persons exercising such powers which are managerial and to persons who had played a role in the manipulation, that as an authorised signatory by himself, his role was only ministerial, and the Respondents have unjustifiably roped in him and directed to be prosecuted. Shri Shelgikar Appellant in appeal No.26/2001- has made written submissions. His Counsel submitted that he is adopting the submissions made for the Appellant company, Shri Dhoot and Shri Hegde. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is adjudicating an appeal against the order made by the Respondent and one of the directions in the said order is to prosecute the Appellant and therefore the Tribunal is competent to decide whether such an order directing prosecution is sustainable or not and the Respondents submission that an appeal does not lie against a direction to prosecute does not hold good. He has stated that prosecution is a serious matter which permanently affects the reputation of the party concerned and should be initiated only on the basis of proper material and independent application of mind/logic reasons, that the impugned order fails to show any material whatsoever which implicate the Appellant in the disputed transactions and there is no indication to show any independent application of mind/or consideration of any cogent reason to prosecute the Appellant, that the prosecution has been directed against him, on the basis that he is a director/officer of the said company, which in fact he is not, that the order displaysthe complete non-application of mind by the 1st and 2nd Respondents. Ithas been further stated that a person aggrieved by an order directing prosecution, has the right to appeal agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mope up the reduced floating stock which led to further increase in price and thereby helped in maintaining the price at high levels, that the said brokers acting on instruction from Damayanti group built up large positions, and as a result of the aforesaid, price of Appellant s share was hiked to ₹ 151/- by 25.5.1998 i.e. well above the open offer purchase price of ₹ 140/-, that on 25.5.1998 another public press announcement was made increasing the public offer price from ₹ 150 to ₹ 165/- and in that context the Respondent SEBI called the Managing Director of the Appellant company and requested him to refrain from making public announcement expressing the intention of the promoters to make purchase of 2% by a public offer without actually making a public offer, as the said press announcement had led to artificial increase in the price of the shares. Shri Dada stated that during 25.5.1998 to 4.6.1998, the Appellant made available approximately ₹ 3 crores through a myriad of transactions through several bank accounts with Federal Bank, Fort Branch to Valpin Finance to purchase shares of the Appellant company for payment of margin, carry forward etc., a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities Ltd ₹ 4.50 crores, Valfin Finance Ltd ₹ 3.00 crores, S.N.Nangalia ₹ 1.25 crores , GNH Global Securities Ltd ₹ 1.25 crores. Learned Senior Counsel stated that the sum of ₹ 10 crores provided by JHPL was not its money but was given by the Appellant company . He stated that JHPL is an associate of the Appellant companyand the relationship between the two has been clearly explained in the impugned order, that the fund was routed thus indirectly to over come certain statutory prohibitions on acquiring the Appellant its own shares. In this context he referred to, in particular the fact of office space sharing, common telephones, close association of Mr.Shelgikar with Videocon grouped. to drive home the point that the said JHPL is closely associated with the Videocon group . Shri Dada stated that JHPL served as the link between the brokers and the Appellant company as the Appellant cannot purchase its own shares as per section 77 of the Companies Act and the modus operandi adopted was to show that these are arms length transactions. Shri Dada pointed out that the fund flow coincidence is remarkable and one cannot in any way come to the conclusion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urities (Rs.108.0 lacs) and Fedex Securities Ltd (Rs.562.00) lacs), that the aforesaid sum of ₹ 15.5 crores was made available by JHPL after receiving the same from Videocon group of companies . He stated that Madhukar Seth Co., had taken over the outstanding purchase positions of the BSE brokers in the Appellant company s scrip to the extent of 5, 65, 000 shares, that a total of 10 lakh shares were sold by Madhukar Seth as bail out package to the entities connected with Videocon group. He also referred to an MOU arrived at between JHPL and Shri Ram Investment Services Ltd., of Shriram group for acquiring 5, 25, 000 shares of the Appellant company @ ₹ 130 per share, wherein it was stipulated that Videocon Leasing and Industrial Finance Ltd, a company belonging to Videocon group who had to recover ₹ 3.68 crores from two other Shri Ram group companies would not insist on recovery of the said amount till the transactions between JHPL and Shriram Investment was completed, that this MOU was signed by Shri D.A.Gadgil of Shriram group and Shri Shelgikar of JHPL. Shri Dada further stated that as a part of the bail out package 5, 03, 000 shares of the Appellant compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bankon which the cheques were drawn by the Appellant for the purpose was Federal Bank, Fort branch. To another question as to who takes the decision in respect of the private limited companies in the group Shri Hegde had replied that the decisions are taken by Dhoot Brothers in respect of the above mentioned private limited companies of the Group. Shri Dada referred to several paras in Shri Hegde s deposition in an attempt to show Shri Hegde s close association with the Videocon group . Shri Hegde had further stated that Equity Investments P.Ltd and Gandak Investments P.Ltd belonged to the Videocon group of companies and he was the authorised signatory for the bank accounts of these companies also.. To another query on the logic of money flowing from VPL to EquityInvestments P.Ltd and Gandak Investments P.Ltd he had stated that this flow of funds of approximately ₹ 10 crores from VPL to Equity Investments P.ltd and Gandak Investments P.Ltd is at the instance of my Chairman V.N.Dhoot, that the decision for investment by Equity Investments P. Ltd and Gandak Investments P.Ltd was taken by my Chairman, Shri V.N.Dhoot, that the cheques for the investments by Equity and Gandak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement that Equity Investment P.Ltd and Gandak Investments P.Ltd are Videocon group companies, that to a question as to why JHPL applied for the shares in Gandak Investments and Equity Investments and who took the decision and with whom the discussion in Gandak Investments and Equity Investments took place Shri Shelgikar had stated Joy holding carries on business as investment company. I took decision to invest in Gandak and Equity Investments. As regards the person in Gandak and Equity Investment, I had discussion with Mr.V.N.Dhoot. Learned Senior Counsel stated that Shri Shelgikar had corroboratedShri Hegde s statement that cheques for all the group companies used to be signed by him on advice/instructions of Shri.V.N.Dhoot, Shri. R.N.Dhoot or Shri P.N.Dhoot. Shri Dada stated that to a question that Spring Field Securities Ltd had ostensibly purchased 5 lakh shares of VIL as a bail out process during the payment crisis at BSE at the instance of BSE, that these shares were purchased at ₹ 111.60 per share, that it has been shown that these very shares were sold out by Spring Field Securities Ltd @ 90/- per share, that the difference of 108 lakhs has been paid by Joy Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hta s (Director Mehta Integrated Finance Ltd ) answer to the question who had placed orders with the broker Madhukar Seth for the deal in Videocon Ltd that The clients had themselves placed the orders as well as communicated to us. Day today operations of the deal are handled by the clients directly under intimation to us In this context he referred to that portion of the impugned order relating to the bail out and attempted to link the transactions referred to therein with the statements of the brokers. Shri Dada stated that in reality JHPL is a close associate of Videocon group, that the said JHPL even uses the letterhead of the other companies in the group and as an example and in support he cited the use of Videocon Leasing s letterhead by JHPL , on which MOU with Sriram group was drawn up, that JHPL s claim of arms length transactions is baseless as there is enough reason to believe JHPL has close link withVideocon group . In this context Shri Dada also referred to the statement of Darshan Mehta that the MIFL/MSL had done transactions on behalf of their clients Madhukar Sheth for purchase of shares of the Appellant company in the month of June, 1998 as specified and direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores and ₹ 1 crore respectively to Equity Investments P.Ltd as share application money on provisional basis. Shri Dada also referred to JHPL letter dated 25.4.1998 to Darshan Mehta of MIFL sanctioning a loan of ₹ 10 crores at the interest rate of 3% per month. Shri Dada submitted that these are only illustrative instances that the pattern followed was identical in other cases also. Learned Counsel submitted that from the conduct of the Appellant company, it is clear that it had indulged in market manipulation. In this context he referred to the press statement dated 9.4.1998 made by the promoters discharging their plan to acquire 2% from the open market and stated that it was the triggering point, that the promoters did not buy any shares till May, 1998. It funded Damayanti group s, transactions, created price distortion and volume scarcity in the market. He submitted that the need for bail out was by way of a quid pro quo measure, as it was necessary to save the brokers in distress who had transacted in the Appellant company s share at the behest of the Appellant company and had manipulated the market. Shri Dada stated that there is no indication, that the bail o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dulent and Unfair Trade Practices relating to Securities Market) Regulations should not be issued and the Appellant company was also requested to show cause as to why prosecution proceedings under section 24 of SEBI Act, 1992 should not be initiated for the above mentioned violations. He further stated that, even if it is viewed that under section 11 B such a direction cannot be issued following the Tribunal s decision in Sterlite case (supra), still the order is to be sustained as regulation 12(a) empowers Respondent SEBI to direct the person concerned not to deal in securities . In this context he referred to the scope of the words dealing in securities, with reference to the definition available in regulation 2(b), that dealing in securities means an act of buying , selling or other wise dealing in any security or agreeing to buy, sell or otherwise deal in any security by any person either as principal or agent. Shri Dada submitted that dealing in securities is wider in its scope and includes accessing the capital market and therefore the impugned direction to the Appellant company not to access the capital market is well within the powers vested in the Respondent. Shri Dada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Appellant. Shri Dada stated thatself benefit was the motive and therefore regulation 4(a) and 4(d) attracted. Learned Senior Counsel submitted that in the light of the finding that the Appellant had manipulated the market to its benefit, the impugned order is perfectly justified and need be upheld. In support of the submission that Respondents have power to issue directions under section 11B of the Act, Shri Dada cited this Tribunal s decision in Bank of Baroda Vs. Securities and Exchange Board of India (2000)38 CLA 226 (SAT) and decisions of High Courts in (1) Anand Rathi and Ors. v. Securities and Exchange Board of India (2001) 32 SCL 227(Bom), (2) M.Z.Khan v. SEBI (AIR 1999 Delhi 64), (3) SEBI v. Alka Synthetics (1999) 19 SCL 460 (Guj) and (4) R.R.Bohra v. SEBI (1999) 33 CLA 243 (Bom). Shri Dada submitted that various High Courts have upheld the powers of the Respondent under section 11/11B to issue appropriate directions as an interim measure though penal in nature and as such the Respondent is empowered to issue directions under section 11/11B which are penal in nature, in its final orders also. With reference to the plea of S/Shri Dhoot, Shelgikar and Hegde a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. In the light of the said prima-facie finding, Respondent SEBI decided to inquire into the matter and accordingly show cause notice was issued to the Appellants. The matter was adjudicated. After adjudication, Respondent Chairman holding the Appellant company guilty of violating regulation 4(a) and 4(d) of the 1995 Regulations, passed the impugned order on 19.4.2002 directing the Appellant company not to raise money from the public in the capital market for a period of 3 years in the interest of investors. It was also further directed that prosecution proceedings be launched against the company viz. Videocon International Ltd through its directors/officers i.e. Mr.V.N.Dhoot, Mr.S.K.Shelgikar and Mr.S.M.Hegde, under the provisions of SEBI Act, 1992 Shri Sundaram s submission that the impugned order was passed without following the principles of natural justice as adequate opportunity of being heard was not given and the witnesses were not allowed to be cross examined, lost the vigour as he himself stated that he was not pressing the issue at this juncture. However, he had urged that the evidence of persons like S/Shri Satyanaran Nangalia, Navnit Rana (of GNH Global) etc., re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provide for the establishment of a Board to protect the interestsof the investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto. Section 3 of the Actempowers the Central Government to establish a Boardby thenameofthe Securities and Exchange Board of India, with a Chairman and five members. The Board is in position since 1992. In terms of sub section 3 of section 4 of the Act, in the areas otherwise determined by regulations, the Chairman also enjoys all powers of the Board. The impugned order has been made by the Respondent Chairman exercising the concurrent power of the Board vested in him. Chapter IV of the Act deals with the functions of the Board. This chapter comprises 4 sections i.e. Section 11, on functions of the Board , section 11A on matters to be disclosed by the companies, section 11AA onCollective investment scheme and section 11B on power to issue directions. Since the powers under section 11 and 11B have been invoked in the matter, it is felt necessary to have a look at these two sections. According to sub section (1) of section 11: Subject to the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, 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 knowledge or belief of the fact (3) a promise made without any intention of performing it (4) any other act fitted to deceive (5) any such act or omission as the law specially declares to be fraudulent; and fraudulent shall be construed accordingly, Explanation: Mere silence as to facts likely to effect the willingness of a person to enter into a contract is not a fraud, unless the circumstances of the case are such that regard being had to them it is the duty of the person keeping silence to speak or unless his silence is in itself equivalent to speech. Chapter II is the core chapter in the Regulations 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 on Prohibition of misleading statements to induce sale or purchase of securities and regulation 6 prohibits unfair trade practic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board. Regulations 11, 12 and 13 deal with the follow up action. These three regulations are extracted below: 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 in regulation 12. 12. Purpose of directions:- The purpose for which directions under regulation 11 may be issued are the following namely: (a)directing the person concerned not to deal in securities in any particular manner. (b) requiring the person concerned to call upon any of its officers, other employees or representatives to refrain dealing in securities in any particular manner; (c)prohibiting the person concerned from disposing of any of the securities acquired in contravention of these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epressing the prices of securities and thereby inducing the sale or purchase of securities by any person is the pointer in this regard. Artificial action to induce other persons to transact in securities is the core theme of regulation 4(d). According to Blacks Law Dictionary deceit means a fraudulent and deceptive misrepresentation, artifice or device used by one or more persons to deceive and trick another, who is ignorant of the true facts, to the prejudice and damage of the party imposed upon. On a careful perusal of the regulation it is clear as Shri Sundaram pointed out that element of deceit is an underlying factor in the transaction. A genuine transaction by itself cannot attract the regulation though such a transaction had resulted in market price variation. Regulation 4(a) attracts only 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. Prohibition in regulation 4(d) is on entering into transactions for a purchase or sale of any securities not intended to effect trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced a low of just 24, 000 shares on 10.4.98, 12, 000 shares on 13.4.98 and to 10, 000 shares on 15.4.98 i.e. immediately after the announcement by t he promoters. A similar change in the traded volumes was observed at NSE, where the traded volumes dropped to just 3, 000 shares on 10.4.98, 2,100 shares on 23.4.98 and 600 shares on 15.4.98 as against a volume of between 3 lacs to 5.76 lacs shares a day during 17.3.98 to 3.4.98 The announcement by the promoters also had an immediate impact on the traded prices of GDR of Videocon. The Videocon GDR which was illiquid at about 1.45 each jumped to 2.66 each on the announcement by the promoters of their intention to acquire 2% of the equity of Videocon at price substantially higher than the prevailing market price. This bench marking of the price is also reflected in the price circuit filters which this scrip hit at the BSE. The details when the scrip hit the circuit filter are given as under Date Circuit filter (Rs.) 13.4.98 77.90 20.4.98 97.35 21.4.98 105.35 In this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulations . In this context it is to be noted that the 5% bench mark was brought in with effect from 28.10.98 prior to that it was 2% . The limit has been further raised to 10% with effect from 24.10.2001. The creeping acquisition upto the specific limit without mandating public offer is a concession to those in control of the company as is evident from the observation in the Bhagwati committee s report that the committee appreciated the fact that in a competitive environment it become necessary for person(s) in control of the company to consolidate their holding either suo moto or to build their defences against take over threats . It is also to be noted that the limit has been progressively increased from 2% to 5% to 10% over the last 5 years. It is therefore clear that public offer is mandatory only if the quantum of shares involved exceeds the prescribed limit. But there is no prohibition in the Regulations on an acquirer acquiring shares by following the fair and transparent offer route. The Respondent s observation that the promoters ought not to have resorted to public offer as the creeping acquisition was within the limit, when viewed in the light of the underlying spirit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought to the notice of Respondent SEBI, of their proposal to make creeping acquisition of 2% by adopting the public offer route, as is evident from their letter dated 9.4.98 , the text of which is extracted below: Respected Sir, Sub: Consolidation by Promoters - Dhoot family and associated interest In Videocon International Ltd, under the 2% p.a. scheme. As is well known, the Dhoot family is in management control of Videocon International Limited. The Dhoot Family and associated interests now wish to further consolidate their equity holdings in Videocon International Limited by acquiring 2% in the open market, especially in view of the unusual and inexplicably high trading volumes witnessed in the scrip in recent weeks. In line with practices of best corporate governance, we want to be totally transparent in the process of acquisition of this 2% extra stake and wish to keep SEBI duly informed about this. Since we have enjoyed the support of thousands of small investors, we propose to acquire this 2% by an open transparent Public Offer, almost in line with all SEBI regulations for an open Public Offer. We believe that if we go through this Public Offer route, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to estbalish the Appellant s motive behind such an acquisition. Learned Senior Counsel for the Respondents had stated that self benefit was the motive. But he did not throw much light on that, as towhat gain the promoters expected to get or actually got by acquiring shares at such a higher price shelling out about ₹ 21 crores of their own money. There is yet another important factor to be noted in this regard. It was the promoters , who acquired the shares representing 2% of the paid up capital to consolidate their holding and strengthen their position, and it was not a buy back of shares by the company. The Appellant is not a closely owned company, the public holding in it is around 65% leaving only 35% with the promoters. It is not a family concern of Dhoot s to be identified with Dhoots. That being the case, it was incumbent on the part of the Respondents to clearly state as to how the Appellant company could be held liable for the consequences, if any, arising out of the acquisition of shares by the promoters. According to the Respondents version (in its reply)the promoters of the Appellant company had made the public offer for the purpose of bench marking the shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had announced to make the public offer to acquire 14.24 lakh shares at the rate of ₹ 140/165 per share and (ii) ₹ 15.53 crores during 4.6.98 to 30.7.98 to bail out the brokers in distress. With reference to the funding of ₹ 10 crores Shri Dada had pointed out that JHPL advanced a sum of ₹ 5.50 crores to Equity Investments P.Ltd during the period 29.4.98 to 28.5.98 and ₹ 4.50 crores to Gandak Investments P.Ltd during 2.5.98 to 19.5.98 that both these companies are admittedly Videocon group companies. Out of the said ₹ 10 crores paid to the said two companies , ₹ 4.50 crores was advanced to Sony securities, ₹ 3.0 crores to Valfin Finance, ₹ 1.25 crores each to S.N.Nangalia and GNH Global , all BSE and NSE brokers and they in turn purchased shares of the Appellant company from the Damayanti group entities for the said Equity and Gandak. In this context he referred to funding pattern stated in the order that the funds were routed from Videocon International Ltd and placed at the disposal of BSE,NSE brokers through a myriad of transactions through several bank accountsIt was observed that funds were transferred to Shri Harshad M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt of bail out it has been stated that the fund flow of the purchasing entities, the concerned brokers etc. revealed that these brokers received from entities connected with Videocon group only. Thereforethe said funds (15.5 crores) were made available by JHPL after receiving the same from Videocon Group of companies The fountain head of fund flow appears to Videocon Petroleum Ltd. Not only the letter dated 1.7.98 but there is also corroborating evidence to the said effect. The statement made by the Appellant company in the letter dated 1.7.1998 has been taken cognizance of by the Respondentsis evident from the questions put by the Investigating Officer (I.O) to Shri Hegde while recording his statement. It is seen from Shri Hegde s deposition dated 9.7.98 that the I.O had asked him to explain the logic of money flowing from VPL to Equity Investments P.Ltd and Gandak Investments Pvt.Ltd (Q.27) and in answer there to Shri Hegde had stated: This flow of funds approximately ₹ 10 crores from VPL to Equity Investments P.Ltd and M/s.Gandak Investments P.Ltd is at the instance of my Chairman Shri V.N.Dhoot. Only he can explain this. The I.O had confronted Shri Dhoot with said stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... starting point and other group companies such as Domebell Investments, JHPL, Equity Investments, Gandak Investments etc. as intermediaries in the fund movement channel till it reached the brokers. It appears that no attempt has been made to find out as to whether the funds were actually provided by VPL as claimed by the Appellants or it was the Appellants own funds. The evidence on record strengthens the Appellants version that ₹ 10 crores was made available by VPL and was routed through other companies including the Appellant company.The Appellant s version is that instead of returning the loan amount to VPL directly, it was paid to DIPL, at the behest of VPL and DIPL acted as directed by VPL. Factual position in this regard could have been verified from the records of the concerned companies. In any case there is no rebuttal of the Appellant s version from the Respondents side, on the contrary the Respondents have relied on the Appellant s letter dated 1.7.1998. The Appellant s contention that JHPL is a totally independent company and not in any way associated or connected with it is untenable. The fact that JHPL received money directly from Domebell, a Videocon group comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct restricts a company from purchasing its own shares. But the section also porhibits financing directly or indirectly any person for purchasing/subscribing to the company s shares. That being the legal provision, it is difficult to accept the Respondent s version that the Appellant knew only a part of section 77 and not the whole section. If a company like the Appellant knew about prohibition of acquisition of its own shares in terms of section 77 of the Act, it should also be aware of the prohibition on funding others to purchase its own shares! Section 77 prohibits not only acquisition of own shares but funding for the purpose also. Further, even if the Respondents version that the money belonged to the Appellant is accepted, still the funding was done intentionally to manipulate the market has to be established to hold the Appellant liable for violation of regulation 4(a) and 4(d) . As stated earlier the intention/motive in hiking the price at a time when the Appellant s promoters themselves had decided to purchase shares remains unexplained. There is no evidence to show that the Appellant had directed purchase of its own shares. It is seen from the Appellant s balance sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,03,000 shares of Videocon purchased @ 111.50 aggregating ₹ 5.62 crores by Fedxex Securities Ltd through M/s.Ventura Securities, member of BSE who had taken over the carry forward positions of the brokers who had payment problems. As per the order the payment by Fedex for purchase of these shares was made partly out of receipt of share application money of ₹ 50 lakhs from JHPL, a loan of ₹ 90 lakhs from JHPL, ₹ 1.25 crores from Videocon International towards deposit for lease etc.! The fact that Videocon group had made available funds to the tune of ₹ 15.53 crores to bail out the brokers trapped in the pay ment crisis in June, 98 is born out of material available on record. The background of providing the funds has been explained by the Appellant in its written submission dated 20.12.1999 before the Respondent in response to the show cause notice that when the officials of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) sensed a payment crisis, both the BSE and NSE made a bonafide effort to try and prevent collapse or crash of the market and both BSE and NSE approached the promoters of VIL to overcome the crisis. Without prejudice and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aperson under regulation 4(a) and 4(d) , the charge must be proved beyond reasonable doubt. The nature of evidence required for the purpose was considered by this Tribunal in Sterlite case (supra), . In the Sterlite case also the charge was manipulation of the market and the direction issued was also identical, but for the tenure of the prohibition. In the said case also Appellant Sterlite was represented by Shri Sundaram and the Respondent SEBI by Shri Dada. The views expressed by this Tribunal in the said case are squarely applicable to the present case also. It was held in the said case: Shri Dada had argued about the degree of evidence required in an adjudication like the one, in contradistinction to the nature of evidence required in criminal proceedings in a court of law, thatin an inquiry like the instant one it is the preponderance of probability that is to be taken into consideration and not to go by proof beyond doubt as required in criminal proceeding. In this context it is to be noted that Chairman holding the Appellant guilty of indulging in price manipulation has stated that creation of false market and price manipulation is a very serious offence. Evidence mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake the place of proof even in domestic inquiries. As pointed out by this Court in Union of India v. H.C.Geol (AIR 1964 SC 364) the principle that in punishing the guilty scrupulous care must be taken to see that the innocent are not punished, applies as much to regular criminal trials as to disciplinary inquiries held under the statutory rules. (emphasis supplied). In the context of a disciplinary action against an advocate,the Hon ble Court had held thatdisciplinary authority empowered to conduct the inquiry and to inflict the punishment on behalf of the body, in forming an opinion must be guided by the doctrine 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.Jaisinghani v. Naraindas N Punjabi ( 1976) 1 SCC 354: AIR 1976 SC 373 at P. 376wherein Ray, CJ speaking for the Court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strong evidence (though not beyond reasonable doubt), even in a civil proceeding, a person cannot be held guilty and awarded punishment. Mere surmise, conjucture or suspicion can not sustain the holding of guilt. I have very carefully examined the impugned order and find that the conclusion drawn by the Respondents holding the Appellant guilty of indulging in market manipulation in contravention of regulation 4(a) and 4(d) of the 1995 Regulations is not substantiated by sufficient evidence. The Respondents have not established the charge against the Appellant company by such evidence, acting uponwhich a reasonable person acting reasonably and objectively may arrive at a finding upholding the charges. Mere conjunctures or surmises cannot sustain the finding of a serious charge like manipulation of market in connivance with a person notified under the Special Court Act . A public offer resulting in purchase of shares at a price relatable to the book of value of the company s shares, unless proved otherwise, cannot be considered as an act of market manipulation. In the instant case it was the promoters who purchased shares in the public offer and as such for the impact of such a pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondents was Damayanti group. The impugned order has left out the Damayanti group from the range of the order. According to the Respondents it was Shri Harshad Mehta who acted through Damayanti group. There is no indication in the order that Shri Harshad Mehta was examined and his statement was recorded/considered. Since Shri Harshad Mehta, according to the Respondents, being the person who manipulated the market through his front companies, it was incumbent on the Respondents to record his statements and also of those concerned persons in his front companies. Subjecting Shri Harshad Mehta and others to separate investigation and passing separate orders is not a substitute for obtaining his/their statements in the present case. Respondent Chairman has directed the Appellant company not to raise money from the public in the capital market for a period of 3 years in the interest of investors. It has also been directed that prosecution proceedings be launched against the company through its directions/officers i.,e. Mr.V.N Dhoot, Mr.S.M.Hegde, Mr. S.K.Shelgikar under the Act. The directions have been issued invoking the powers under section 11 and 11B of the Act. Learned Senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive 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 to 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 the persons to whom and the purposes for which, directions can be issued. Gujarat High Court had examined the scope of section 11 and section 11B vis-a-vis the Respondent s position, while deciding an appeal against the Single Judge s order in Alka Synthetics Case (supra). The basic issue for consideration before the Division Bench in the said appeal was as to whether the Respondent had the authority to issue an order under section 11B of the Act for impounding or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the section, the power will sustain. Since the exercise of power is subject to the provisions of the Act and the purposes forwhich it can be exercised and the persons to whom it can reach has been specified in the section, it can not be said that the power is unguided orunlimited. It is a wholesome provision designed to achieve the objectives of the Act. But it is to be noted that the power under section11B 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 Court had viewed that in law direction means guidance or command (AIR 1988 Bombay 416 at p. 421). According to the Hon ble Supreme Court in Rajendranath v.CIT (1979) 4 SCC 282, a direction by a statutory authority is in the nature of an order requiring positive compliance . According to Blacks Law Dictionary direction means a guiding or authoritative instruction, order, command . It has to be noted that section 11B does not even remotely empower the Respondent to impose penalties. Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent to issue a direction which tantamounts to imposition of penalties. While widening the scope of such measures used in section 11, to include penalties, and thereby stretching the scope of issuing directions under section 11B to cover imposition of penalties, the limitation stated above need be kept in mind. However, it is understood that the Respondent has also been taking theview that section 11B is not a penal provision, 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 parlancei.e. entry to the capital market for issuing/offeringsecurities.In this context, it is to be noted that the charge against the Appellant is of market manipulation. The shares of the Appellant are listed/traded in the stock exchanges even today. That being the case preventing the Appellant raising further capital/offering shares to the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11B can be issued only on being satisfied by the Board after an inquiry that it is necessary (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market; or (iii) to secure the proper management of any such intermediary or person. In my view the impugned direction is beyond the scope of section 11B .It has also to be seen whether the impugned direction prohibiting the Appellant from raising capital from the public in the capital market for a period of 3 years is an investor protection measure or not. In this context it is to be noted that the charge against the Appellant is market manipulation. It has to be noted that 65% of the Appellant s shares are held by the public. Appellant s shares are listed/traded on BSE, NSE and other stock exchanges at Bangalore, Chennai, Delhi, Calcutta, Pune and Jaipur. Preventing the Appellant from raising capital from the public in the next 3 years cannot serve as a measure to debilitate the Appellant indulging in market manipulation. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction is very clear in this regard. The ban is on the Appellant company raising money from the public in the capital market for a period of 3 years, leaving little doubt. Raising money by a company from the public by any standard cannot be considered as an act of dealing in securities. Dealing in securities normally means transactions in securities. Dealing in securities as per the definition at regulation 2(b) meansan act of buying, selling or otherwise dealing in any security or agreeing to buy , sell or otherwise deal in any security by any person either as principal or agent The act of raising capital from the market by its very nature does not come under the definition dealing in securities. Therefore the Respondents contention that under regulation 12(a) it is empowered to issue such direction is untenable. The Respondents have also stated that the impugned direction is issued in the interest of investors. But there is no explanation as to how the said direction is in the interest of investors at this point of time. In fact for the reason stated in the preceeding paras issuing such a ban on the Appellant company raising capital for three years is against the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o decide to launch or not to launch prosecution under the Act. It is also to be noted that no order as such is required to launch prosecution in view of the clear provisions of section 26 of the Act because it is only SEBI which is competent to file prosecution and none else. It is clear that under the Act the Respondent has uninhibited power to launch prosecution against persons contravening the provision of the Act, rules or regulations made there under. It is not with in the appellate powers of the Tribunal to stall launching of prosecution by the Respondent under section 24/26 of the SEBI Act. Now coming to the question of the penal liability of the directors/officers of a company proceeded against for an offence, we need look into the provisions of section 27 of the Act, which reads as under : 27(1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obedience, he or she has to submit to the process. Cherishing majesty of law and its process is a inner core of the dignity of individual in a Democratic World, which runs on the wheel of Rule of Law. On behalf of the Appellants it was argued that the Tribunal is adjudicating an appeal against the order made by the Respondents and one of the directions in the said order is to launch prosecution proceedings against the Appellants and therefore the Tribunal is competent to decide whether such an order directing prosecutionis sustainable or not, that a person aggrieved by an order directing prosecution against him has the right to appeal against the order in terms of section 15T of the Act. Certainly Section 15T of the Act enables any person aggrieved by an order of SEBI to file an appeal to the Tribunal. From Section 15T it is clear that to file an appeal there should be an order to start with. Then comes the impact of the order. If a person is aggrieved by that order, he is entitled to file an appeal. Since the section uses the wider expression any person right of appeal is not restricted only to the parties before the Board in the proceedings. Anybody, whether he was a party ..... 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