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Videocon International Ltd, Shri V.N. Dhoot, Shri S.M. Hegde, Shri S.K. Shelgikar, Versus Securities & Exchange Board of India, Shri D.R. Mehta, And Dr. R.K. Kakkar,

2002 (6) TMI 598 - SECURITIES APPELLATE TRIBUNAL, MUMBAI

Appeal No. 23/2001, 24/2001, 25/2001, 26/2001 - Dated:- 20-6-2002 - C. Achuthan, J. Mr. C.A.Sundaram, Ms Neeta Rajda,Mr.J.D.Dwarkadas, Ms Dipti Rajda, Mr. Surendra Raja And Mr. Zal Andhyarujina for the Appellant. Mr.R.A.Dada, Mr.Kumar Desai, Ms Uma Dalal, Mr. S.V.Krishna Mohan, Mr. Vijaykrishnan G for the Respondent. ORDER The present appeals are directed against the order dated 19th April, 2001, made by Shri D.R.Mehta, the then Chairman, Securities & Exchange Board of India. By the said ord .....

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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- .....

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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) and Appellant in Appeal No. 26/2001 ( Shri S.K. Shelgikar) are stated to be associated with the Appellant company in their professional capacity as consultant/adviser. They are also authorised signatories of Videocon group of companies Respondent No.1 (SEBI) is a statutory body established under section 3 of the Act. It is mandated to protect the interests of in .....

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d that a set of brokers and sub brokers acting in concert and on behalf of a common set of clients identified as Damayanti Group, cornered a large chunk of shares of the Appellant company at BSE and NSE and thereby built up unusually large positions in the scrips resulting in destortion of the market equilibrium and creation of artificial market in the scrips. Based on the findings of the investigation, Respondent No.3, on December 20, 1999 issued show cause notice to the Appellants .The text of .....

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the price movement was not in conformity with the Sensex/Nifty movements, and also not in line with the price movement of the shares of other companies in the same industry segment, that the scrip could not sustain the rise longer and fell sharply after 04.06.98 to a low of ₹ 51/-. A set of brokers and sub-brokers acting on behalf of a common set of clients (Damayanti group) cornered a large chunk of shares of the Appellant company both at BSE and NSE. The Damayanti group, built up unusua .....

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cted 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 mani .....

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finances by doing share badla. Thus, through this modus operandi, substantial portion of traded stock of the Appellant company was cornered by Damayanti group/Shri Harshad Mehta and this cornering caused creation of artificial market and price manipulation in the scrip. The promoters of the Appellant company announced, on 9.4.98, that they would acquire 2% equity capital of the company by making an open offer at a price of ₹ 140/- per share. The prevailing market price of the scrip at that .....

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hereafter, a Public Announcement was made by the promoters wherein price of ₹ 165/-, for each share of the Appellant company was offered. As per the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Regulations), the promoters of a company are allowed to acquire 2% of the equity as creeping acquisition without making a public offer. But the promoters chose to follow the public offer route for acquiring .....

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up positions and corner the floating stock in the scrip. The funds were routed from the Appellant company and 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 .....

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gjivan, 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 package. The funds for the purchase of shares to the said brokers were given by Videocon group entites through Joy Holdings P. Ltd (JHPL), a Videocon group company . The purchase of t .....

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. Harshad Mehta through Damayanti group.The Appellant company provided an exit route to brokers dealing for Damayanti group, when the artificial increase in price could not be sustained and these brokers got trapped. The Appellant company was asked to explain its violation of regulation 4(a) and (d) of the 1995 Regulations, read with section 11(1) and 11(2) (e) of the Act, and show cause as to why directions including directions prohibiting it from dealing in securities & accessing the capit .....

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he show cause notice was adjudicated by the 2nd Respondent (the Chairman) and passed the impugned order confirming the charges set out in the show cause notices. The Respondent has viewed public announcement by the promoters to purchase the Appellant company s shares at a very high price and funding of Damayanti group to purchase the Appellant company s shares, as the cause of market distortion and held the Appellant company guilty of violating regulation 4(a) and 4(d). The impugned direction wa .....

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s/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 violatio .....

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k Jogani are not trustworthy and cannot be relied on, as they themselves have vested interest in the proceedings having been investigated for contravening SEBI Regulations and having suffered penalties in the hands of the Respondent . Shri Sundaram, though contested the Respondents decision disallowing cross examination of the witnesses/brokers, did not press the matter. Learned Senior Counsel submitted that the impugned order cannot sustain legally and factually as the Respondents have failed t .....

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gain to the Appellant in manipulating its share prices as alleged in the impugned order and the said failure is fatal as regulation 4(a) and 4(d) being an anti fraud provision, the intention of the party concerned has to be established to bring home the charge. Referring to the allegation that the public announcement of open offer to acquire 2% of the Appellant s equity share capital by the promoters had artificially increased the price and volume of the scrip, learned Senior Counsel submitted t .....

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hat the very foundation of the charge of manipulation levelled against the Appellant is linked to the public announcement of offer made on 9.4.1998 by the promoters to acquire 2% of the Appellant s share capital (i.e. 14.24 lakh shares) from the public. According to Shri Sundaram any offer to buy 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 .....

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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 part .....

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the Appellant, that Managing Director of Videocon was called and advised that they should refrain from making such announcements of intentions to buy at higher prices without actually initiating a formal process of offer, as such announcements lead to artificially affecting the price of the scrip. Thereafter a public announcement was made wherein price of ₹ 165/- for each share of Videocon was offered. He submitted that if the promoters had any intention to defraud other shareholders, the .....

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itially of ₹ 140 and later at ₹ 165 per share, by bench marking the market price of the shares no benefit would be derived, that it is but natural that when an attractive public offer is made to acquire shares at a price higher than the market price , the existing shareholders and potential investors would try to acquire more and more shares by the record date (1.6.1998 in this case) resulting in increase in the volume and the price and the offer to buy shares at the rate of ₹ .....

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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 see .....

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everybody who wanted to take advantage of the offer, got benefited and that benefit was not confined to few but wide spread. He also stated that fixing a purchase price in tune with the book value cannot be considered as an artificial price. Referring to the observation in the impugned order that timing of the offer of the company in April and its subsequent revised offer in May 1998 has to be seen against the back ground where its share prices were showing unusual rise and the company s funding .....

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lding would normally try to depress the share value to reduce the cost of their acquisition, rather than increasing the cost. Learned Senior Counsel submitted that in the light of the facts and circumstances of the case, the Appellant cannot be held to have manipulated the market, to attract the provisions of regulation 4(a) and 4(d) of the 1995 Regulations. Shri Sundaram cited the published market figures and stated that the price rise was steady from 7.4.98 to 2.6.98 and started falling from 3 .....

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ed that the Respondents in a very unfair manner have chosen selective data to suit their theory by ignoring the actual factual position. He denied the allegation in the order that the price increase in the scrip of the company was not based on any economic fundamentals and stated that it is only a casual remark without bothering to see the strong financial position of the Appellant revealed in its annual accounts. Shri Sundaram, with reference to the public announcement made by the promoters, su .....

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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 pr .....

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ulations and the consequential market response to such a legitimate action should not be a matter of concern to the Respondents. Shri Sundaram referring to the Respondents version that under the Takeover Regulations, in the context of acquisition of shares public offer is required to be made only when the same attracts regulations 10 or 11, submitted that public offer is not barred in the context of creeping acquisition is evident as the Respondents have accepted the transparent creeping acquisi .....

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on that as a result of the public announcement made on 9.4.1998 scarcity was created in the market and consequently the share price shot up, stated that by the Respondents own version it was the public announcement which was responsible for the market hike. He stated that making a genuine public announcement/ offer being not illegal, and if the price as a result of the offer moved up, the offer cannot be blamed, as it was only the natural effect of a legal action. Shri Sundaram stated that in on .....

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nd 21.4.98 that as a result of the fall in the volumes, the floating stock was reduced 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 take .....

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nstant 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 whose name appears on the company s register on a prospective record date, as many would try to buy and few would like to sell, to reap the benefit when the offer is made, resulting in scarcity of shares in the market a .....

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acquisition . He stated that the public announcement was made on 9.4.98 and public offer was also made on 29.5.98, scrupulously following the time frame provided in the Regulations. With reference to the allegation that the Appellant provided about ₹ 10 crores to Damayanti group to finance the transactions, Shri Sundaram submitted that the Respondents have not cited a single transaction by the Appellant, to support the allegation. On the contrary it has been stated in the order that Damaya .....

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he market position is unbelievable and the finding arrived at by the Respondents in this regard is self-contradictory. He referred to the flow of funds depicted in the impugned order and stated that it could be seen therefrom that not even one rupee has been given by the Appellant to the Damayanti group. He submitted that JHPL to whom the Appellant is stated to have given ₹ 10 crores is a pure trade transaction and the said JHPL is not a Videocon group company , that it is owned and contro .....

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ctions 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 .....

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hares are business decisions taken by each company, not the Appellant. With reference to the charge that the broker did not report the spot transactions to the exchange Shri Sundaram stated that the proper course in that case is to take action against the concerned broker and in any case non reporting of the transactions by broker to the exchange will not change the nature of the transactions. As regards the nature of fund flow shown by the Respondents in the order, Shri Sundaram, referred to th .....

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E, that this would show that the fund flow had nothing to do with the market response during the period April-May 1998, referred to in the order. Shri Sundaram stated that as per BSE/NSE data, Appellant s scrip price increased from 29thMarch, 1998 even when there was no fund flow from the Appellant as per the impugned order, that for nearly one month the price/volume on BSE/NSE increased even in the absence of any such fund flow as alleged. He further stated that as per the order the price incre .....

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he Respondents have failed to establish the version that it was due to the alleged flow of funds from the Appellant the share price increased. Shri Sundaram submitted that the Respondents have failed to understand the difference between the promoters and the companies and 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 .....

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ion 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 the Damayanti group is con .....

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bmitted that the Respondent s view that JHPL is a Videocon Group companyand as such funding by the said JHPL is to be considered as funding by the Appellant company is also untenable for the simple reason that the Appellant is neither a shareholder of JHPL nor any of its Director is a Director of JHPL nor does the Appellant control the functioning of the said company in any manner. Shri Shelgikar who is a shareholder and director of JHPL , visiting the Appellant s premises as a consultant by its .....

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s were provided to certain brokers facing- payment difficulties as a quid proquo measure are completely unfounded, that there is no material on record based on which such a conclusion can be drawn. He submitted that the Appellant has not directly or indirectly given any loan, guarantee or any financial assistance for purchase of its own shares as alleged. On the allegation of bailing out the brokers, by providing a sum of ₹ 15 crores from the Appellants side, Shri Sundaram stated that the .....

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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 gr .....

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lant has been penalized for the same though it cannot be held responsible for Damayanti group s transactions as it has no connection with them. He further stated that the Respondents have totally ignored the quantum of the so called funds provided by the Appellants, vis-à-vis the cost of the shares stated to have been accumulated by Damayanti group. He referred to the observation in the order that as a part of the bail out package 503000 shares of Videocon were purchased @ 111.60 aggregat .....

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nt towards deposit of lease fee, etc that these figures add up to ₹ 2.5 crores only and there is no indication as to who financed the balance amount of ₹ 3.12 crores stated to have involved in the transaction, that it should obviously be by some one and the Respondents have suppressed the information, as revealing the same would have gone against their theory, that if the Appellant had been that interested, as alleged, Fedex would have been entirely funded for the purpose by the Appe .....

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ion effected on 12.6.98. The fund flow stated therein is that from 13.6.98 to 19.6.98, was ₹ 3.75 crores, 2.7.98 to 30.7.98 ₹ 2.70 and 1.8.98 to 27.8.98 ₹ 1.28crores! Shri Sundaram stated that according to the Respondents the Videocon group had made funds available to Damayanti group, that the funds were routed from Videocon International and placed at the disposal of Damayanti group through several bank account of Videocon group companies, that the Appellant is thus described .....

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ore (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 L .....

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ideocon Petroleum Ltd (VPL) and this company had surplus funds of about ₹ 500 crores in 1998. Out of this about 25 crores were invested in listed securities. This was a normal investment of the investment division of VPL. In the light of the said unrebutted statement, the Respondents claim that the Appellant had funded through Videocon Petroleum is untenable. Shri Sundaram submitted that the entire charge that the Appellant provided funds to buy its own shares, thus falls flat in view of t .....

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e loans, that the Appellant repays/ returns the money due from it to these entities in the manner they direct. Shri Sundaram referred to the statement of Shri Nangalia and stated that to a question from the Respondents investigating officer (Q.2) as to who were the clients on behalf of whom he traded in the scrip of Videocon, BPL, Sterlite, Seasa Goa and Pentafor Software during January 98 to 23.6.98 (date of deposition) the said broker had admitted that in the case of Videocon,BPL and Sterlite .....

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ant, Shri Nangalia had answered After the trading hours of 12.6.98 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 o .....

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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 V that they wanted to sell certain shares of Global Telesystems Ltd which would be purchased by M/s.Gandak Investments Ltd, we have not met any person from M/s.Gandak Investments Ltd and do not know their office. The Respondent had asked S .....

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Sundaram submitted that, the one spot transaction, referred to by the Respondents cannot be considered as a channel for routing funds to corner shares. In this context he specifically referred to the observation in the order that the Brokers GNH Global Securities Ltd and Satyanarayan Nangalia in a statement to SEBI had stated that Equity and Gandak belonged to the Videocon Group and were introduced to them as client by Damayanti. These brokers were given large amounts for purchase of shares in s .....

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henever the clients of these brokers i.e. Damayanti group were short of funds, Videocon group through Equity and Gandak provided the necessary funds bysham transactions disguised as spot transactions between Damayanti group and Videocon group. Shri Sundaram submitted that these are all findings springing out of imagination and definitely not from any evidence. In this context he referred to the test of evidence required, to hold a person guilty of manipulation in terms of regulation 4(a) and 4(d .....

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urchased 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 h .....

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own. Shri Satvinderpal Singh had deposed that LKP group had to receive a sum of approximately ₹ 3 crores from M/s. Shrenik Shah and Bharat Khona, both members of the BSE on account of payments given to them about 4 years back. For almost 4 years, the LKP group could not recover these amounts and the interest thereon. Despite our repeated insistence, the brokers expressed their inability to make over payment. We were told by the broker that they had recoverable dues from Mr. Harshad Mehta .....

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rket report and price behaviour we decided to purchase shares of BPL Ltd, Lakme, Federal Bank, SAIL, Global Trust Bank, Videocon International Ltd and Sterlite . We did not perceive any risk in these purchases since the purchased shares were to remain in our possession. Accordingly Sea Glimpse Investments Pvt. Ltd and Prasam Trading and Finance P. Ltd of the LKP Group purchased these shares on his recommendation. The total exposure by the LKP group was in the range of 10 to 15 crores. These purc .....

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ect of all our purchases and have also got some of them transferred in our name Shri Sundaram stated that thisstatement indicatesHarshad Mehta s role, and also explains some of the transactions of Nangalia, Valfin Securities etc., and the noninvolvement 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 .....

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his., 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 Telesystems Ltd in the market in settlement nos .....

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show that the Appellant gave money and instructed Shri Harshad Mehta to corner the shares on its behalf, that on the contrary as per the Respondents,Harshad Mehta is the profiteer, that to charge the Appellant under regulation 4(a), there is no cause and link. The Respondents have wrongly come to the conclusion that the Appellants money was used to buy its own shares at its behest. Shri Sundaram stated that the bail out as such had no reaction in the market and it is not per se illegal. If the R .....

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n from the show cause notice stating that the investigations conducted by the Respondent into the suspected price manipulation revealed that there were large volumes coupled with fluctuation in prices at the bourses in respect of BPL., Videocon and Sterlite during April-May, 1998, that the Damayanti group distorted the market equilibrium and created artificial market in those scrips, that Shri Harshad Mehta was identified as the driving forcebehind the Damayanti group, that in no uncertain terms .....

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ered 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 .....

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as not been rebutted in the order by the Respondent. There has been no contravention of any provision of the Act or any rules or regulations in this regard by the Appellant, and the action to prevent a crash in the market must be seen as an effort to advance investor protection and not adverse to the interest of the investors. Shri Sundaram stated that the Respondents have not dealt with the said submission but conveniently left out any observation thereon in the order, obviously for the reason .....

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i Satyanarayan Nangalia that the Respondent SEBI cannot now take a stand that it was not aware of the same. He submitted that bail out per se does not attract regulation 4 and is not illegal in any manner. Shri Sundaram stated that the Respondents have now picked up a portion of Shri Dhoot s negative answer to a question by the investigating officer as to whether Shri Dhoot or his associate companies had received any communication from BSE governing Board members to help brokers having payment d .....

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deocon and Sterlite. He stated that since it has been stated in the order that Damayanti group cornered shares, the profit motive behind such cornering cannot be with anybody but with Damayanti group or the persons owning or controlling the said group and that in any case it is not the Respondent s case that Damayanti group is owned or controlled by the Appellant. With reference to the memorandum of understanding arrived at between JHPL and Shriram Investment company Ltd., relied on in the order .....

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ctual 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 th .....

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lating regulation 4(a) and 4(d) and the scope of section 11 and 11B. Shri Sundaram referring to the finding recorded in the impugned order that the Appellant has violated the provisions of regulation 4(a) and 4(d) of the 1995 Regulations stated that the charge is totally baseless. He submitted that the onus is on the Respondents 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 of proof re .....

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rohibition against market manipulation, regulation 5 on Prohibition of misleading statements to induce sale or purchases of securities and regulation 6 on Prohibition on unfair trade practice relating to securities are put, is titled Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market. According to him the object of the regulation, is thus clear that it is meant to prohibit fraudulent and unfair trade practices relating to securities market, that in the absence of .....

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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 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 wou .....

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ions 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 leveled against the Appellant, it is necessary to clearly understand what is actually meant by market manipulation. According to him the Respondents have made the allegation without fully appreciating the scope of the said expression. He stated that the expression manipulat .....

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egulation and only an actual transaction is covered. He further stated that the expression "artificially used in the regulation is linked to the price and not relatable to the act of raising or depressing. He further stated that artificial means not natural, that since the offer price was well within the real value, it cannot be said that it was an artificial price . He stated that in the Appellant s case in making the public announcement there was no transaction, the price was real and not .....

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established no penalty can be imposed. Shri Sundaram submitted that regulation 4(d) is attracted only when a 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 distort the price and the market, the Respondents have not explained anywhere in the order as to how the said regulation is attracted to the instant case. He countered the argument regarding Respondent SEBI s powers under section 11/ .....

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guishable 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 19 .....

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n, stated in the show cause notice, wherein it has referred to directions prohibiting from dealing in securities and accessing the capital market that prohibiting an entity from accessing the capital market is beyond the scope of regulation 12(a) and on that ground also the direction cannot legally sustain. Shri Sundaram submitted that neither section 11/11B nor regulation 12(a) is available to the Respondents to issue penal orders. He further stated that every violation per se does not attract .....

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cially raising or depressing the prices of securities in 4(a) and the transactions intended to operate only as a device to effect change in price of securities in regulation 4(d). He referred to the impugned order and stated that there is nothing therein to indicate that neither the Appellant company nor the Appellants in the other appeals had done anything to artificially create a price or market or that the share holders were induced to make transactions in an unreal market. He submitted that .....

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out as the factual position of the said action remains undisputed leaving the dispute to facts concerning acquisition of shares. Learned Senior Counsel submitted that the Respondents view that all the three actions 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 .....

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he 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. Learned Counsel submitted that the public offer proposal was transparent and to benefit al .....

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fact that the promoters had agreed to purchase the shares spending ₹ 21 crores of their own money, has been ignored by the Respondents, that there was no compulsion on any investor to purchase the shares at the higher price offered , that the price quoted was the price at which the promoters were willing to buy the shares from others. He submitted that in the context of such a good public offer, it is but natural that the trade volume and the price would go up. He stated that the Responde .....

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ingredient of regulation 4(a) and 4(d) and there was nothing artificial in the public offer made by the promoters of the Appellant company. Shri Dwarkadas stated that the allegation of acquisition of shares by providing ₹ 10 crores to Damayanti group is based on pure conjunctures and surmises and there is not even an iota of reliable evidence in support of the said allegation in the order, that it defies all the reasoning to make one believe that when the promoters were planning to acquir .....

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ld 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 Seni .....

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pondents, though nowhere in the order, any charge has been made out against them. He stated that in the whole order at two places Shri Hegde s name appears, that at one place it has been stated that cheques issued by all the companies in the chain were signed either by Mr.Shelgikar or by Mr. Hegde, who are directors in the investment companies of the promoters of Videocon International ltd (internal page 4of the order) , and that at another place (on internal page 14 of the order) that Shri S.M. .....

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not established any link of Shri Hegde and Shri Dhoot, with Fedex and JHPL and there is no evidence of any complicity on the part of the Appellants. Shri Dwarkadas stated that the Appellants have been charged not for any faults on their part but for the violation stated to have been committed by the Appellant company . According to the order the acts of the company are in violation of regulation 4(a) and 4(d) and therefore directed that prosecution proceedings be launched against the company viz .....

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yone other than the Respondent SEBI, that the complaint is to be made only if the Board have definite reason to believe that an offence has been committed. In this context he referred to regulations 10 and 11 of the 1995 Regulations and stated that the Board can issue directions under regulation 11 only on receipt of the investigation report and after giving a reasonable opportunity of hearing to the person concerned. He submitted that the impugned order to prosecute the Appellants is a directio .....

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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 establis .....

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Shri Dwarkadas pointed out that in the instant case the Respondents have failed to establish commission of any offence by the Appellant and therefore there is no question of proceeding against the Appellants . He further stated that it has also not been explained in the order as to why the Respondents have selected three persons i.e. Shri Dhoot, Shri.Hegde and Shri Shelgikar and what is their role in the alleged offence, to prosecute them and on what basis it is considered that they were in char .....

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ortunity to explain his position vis-à-vis the Appellant company. Learned Senior Counsel submitted that, assuming that section 27(1) is applicable, as per the proviso thereto the charges against the Appellants to be deemed guilty have to be proved which the Respondents have failed to do, that the Respondents have also failed to establish any motive or gain to the Appellants or to the Appellant company that could arise as a result of their action, that the Respondents have at no point of t .....

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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 manipul .....

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uted. 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 has been stated that the Appellant is a Chartered Accountant by profession and a professional consultant to many companies including the Videocon group companies, that he is neither a director and/or an officer of the Appellant company, but only an authorised signatory of the said company, that h .....

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o be charged under section 27. According to the Appellant, the said section 27 deems only two categories of persons to be guilty of the offence committed by the company, that under the first category comes those persons in charge and responsible to the company for the conduct of the business of the company at the relevant time when the offence was committed and the second category deems any director, manager, secretary or other officer of the company guilty of such offence if it is committed wit .....

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ence to the Respondents version that JHPL is an associate of the Appellant company , it has been stated that JHPL is a completely independent corporate entity, with its entire share capital held by the Appellant and his family; that JHPL is engaged in the business interiliac of raising finance and accordingly it has from time to time accepted loans from, and advanced loans to various Videocon group companies on a commercial arms length basis, that apart from such normal business transactions, it .....

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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 hi .....

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cute under the Act is not a mere mechanical process, but requires independent application of mind, that where adjudication, leading to the imposition of a penalty is possible, the decision to further prosecute a party must be backed by independent application of mind and cogent reasons. According to the Appellant, the direction to prosecute him has no legal or factual support. Shri Rafiq Dada, learned Senior Counsel, appearing for the Respondents in the cited appeals referred to various dates an .....

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lidate their equity holding in the Appellant company by acquiring 2% shares in the open market by making public offer @ ₹ 140/- per share and that open offer would be made in the week following the public announcement. He stated that the price of the scrip was around ₹ 62/- on that day, that Videocon made a press announcement to the aforesaid effect which was reported on 10.4.1998 in the Economic Times. Shri Dada stated that the effect of the said announcement, during 9.4.1998 to 21. .....

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roximately ₹ 7 crores through myriad of transactions through several bank accounts with Federal Bank, Fort Branch Mumbai to brokers viz. Sony Securities, S.N. Nangalia, GNH Global Ltd, to 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 ₹ .....

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id 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., and as a result of which the share price shot up to ₹ 167/- and volume increased , that 46 lakh shares .....

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een 4.6.1998 and 30.7.1998 the Appellant company and its associate firms provided funds of approximately 15 crores to brokers such as Madhukar Sheth and Co, Jaisukhlal Jagjivan, Spring Field Securities Ltd and Venture Securities Ltd to bail out brokers dealing with Damayanti group, as detailed in the show cause notice and in the impugned order. Shri Dada submitted that the Appellant company made two public announcements i.e. one on 9.4.1998 and again on 25.5.1998 which affected the marketliquidi .....

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Appellant company s shares were part of the said Damayanti group. He also referred to the graphic information furnished in the order on internal pages 9 to 12 to show that the funds moved from the Appellant company through group intermediaries and reached the Damayanti group . He stated that there was some proximity of the fund flow from the Videocon group to Damayanti group and the date of public announcement and referred to the data stated to in the order (internal page 13) that during the pe .....

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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 Vid .....

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the Appellant company s money which was used in the transactions. Shri Dada submitted that all the 4 brokers referred to above had extensively dealt in the Appellant company s shares on behalf of Damayanti group that the funds were shown to have been received by brokers in their books as money received for spot purchases where the selling client was Damayanti group entities and the buying client was two Videocon group companies viz. Equity Investments P.Ltd and Gandak Investment Ltd., to whom t .....

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enever the clients of Damayanti group was short of funds Videocon group through Equity and Gandak provided funds by transactions disguised as spot transactions between Damayanti group and Videocon group. Shri Dada referred to the observation in the impugned order that some of the brokers dealing on behalf of Damayanti group who had cornered a substantial quantum of the Appellant company s shares faced payment problem in June, 1998, could not discharge their commitments towards pay in liabilities .....

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out package, and stated that the fund flow of the purchasing clients, the concerned brokers, etc. revealed that these brokers received funds from the entities connected with Videocon group only and the prominent entities who purchased the Appellant company s shares from the said brokers were Mehta Integrated Finance Ltd/Mehta Securities Ltd(MIFL/MSL) (Rs.873.18 lacs) Spring Field Securities (Rs.108.0 lacs) and Fedex Securities Ltd (Rs.562.00) lacs), that the aforesaid sum of ₹ 15.5 crores .....

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r 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 .....

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77; 50 lakhs from JHPL, a loan of ₹ 90 lakhs from JHPL and ₹ 1.25 crore from the Appellant company towards deposit for lease etc. In support of his arguments Shri Dada relied on the depositions of several persons as follows: With reference to the closeness of Shri Hegde with the Appellant company, Shri Dada referred to the statement made by Shri S.M.Hegde before the investigating officer on 9.7.1998 and stated that he is closely associated with the Videocon group as could be seen the .....

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ad stated that he looked after the financial matters of the company but was not in the employment of the company. In this context Shri Dada referred to Shri Dhoot s deposition wherein he had stated that Shri Hegde is a part time employee. Shri Hegde had also stated that the Managing Director Shri .V.N.Dhoot headed the finance department and he reported to Shri .V.N.Dhoot. Shri Dada also stated that Shri Hegde had admitted that a majority of the Bank accounts of the Videocon group companies in Bo .....

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he 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 .....

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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 were issued by me on the instructions of Shri V.N.Dhoot. To another question Is it true that this purchase of shares was made by M/s. S.N.Nangalia, Sony Securities, GNH Global Securities, Valfin Finance etc. which involved purchases of VIL Shares alongwith other shares Shri Hegde had answered this payment was not mad .....

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e. Shri Dada stated that these statements clearly indicates that Shri Hegde was not a mere authorised signatory, but an integral part of the management of the Videocon group and also that the companies in the group are well interconnected. Shri Dada referred to Shri V.N. Dhoot s deposition dated 20.7.1999 and stated that to a question as to who used to take investment decisions in Equity Investments P.Ltd and Gandak Investments P.Ltd, Shri Dhoot had stated that the Board of Director of these com .....

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t the Videocon groups relationship with Fedex Securities Ltd Shri Dhoot had stated they are a sort of financial consultants to us and they help us to invest our monies, that this indicates the role of Fedex in the transactions vis-à-vis the Appellants shares. Regarding JHPL he had stated that we have regular business relationship with Joy Holdings Ltd in the nature of borrowing and lending of money as ICDsI do not know how Joy Holding had utilised the money borrowed by them from our assoc .....

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andak 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 .....

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fer of funds from Videocon International or Videocon Petroleum Ltd to Damayanti group, JHPL took loan from various group companies of Videocon group and transferred the amount on the same day to brokers dealing for Damayanti group, Shri Shelgikar had stated that the entire set of transactions were part of the business of JHPL as an investment company, that the company was not functioning as conduit as alleged, that all these transactions were business transactions. Shri Dada stated that Shri She .....

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ed that it is to be remembered that Ms Hema is associated with Damayanti group. Learned Counsel referred to Shri Navanit N Rana s (Director GNH Global Securities Ltd ) deposition and stated that he had also stated that Equity Investments PLtd and Gandak Investment P.Ltd are related to Videocon group, and that Shri Rana to a question as to how was his pay in liability for settlement 12 met and how did he receive the credit for share of BPL , VIL, SIL sold in settlement 13 had stated that. 69500 V .....

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company in the context, that Shri Singh had stated that he had transacted in the shares of VIL as recommended by Harshad Mehta. Shri Dada also referred to Shri Darshan Mehta 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 thi .....

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s 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 directed by their clients Sangath Investments PLtd and Sheth Integrated Pvt.Ltd, that JHPL made payments to Madhukar Sheth on behalf of the .....

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t the put option offer, we approached Joy Holdings P.Ltd to finance our purchase. Joy Holdings Mr. Shelgikar is known to us. They agreed to finance on the condition that share shall be held in the name of MIFL and physical delivery of shares will be kept with Joy Holdings till repayment of loan. Shares will be purchased throughwhom was also stipulated by Joy. The shares were to be transferred in the name of MIFL because MIFL had guaranteed repayment of loan taken by Sangath. Shri Dada referred t .....

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hare. We placed our order for for approx. ten lakh shares on Madhukar Sheth and the order was confirmed on ₹ 111 and 112. We do not know how this rate was arrived at. We have received physical delivery of five lakh shares out of which 1,77,300 have been sent for transfer in the name of MIFL. And the balance 2,22,700 are lying with Joy. Remaining 6 lakhs shares are being c/f by broker on our account . Regarding funding, Shri Dada referred to Videocon Petrochemicals letter dated 13.4.1998 ad .....

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e 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 di .....

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confirmed by Shri Dhoot in his deposition. Shri Dada referred to the provisions of regulation 4(a) and 4(d) and explained its scope and reach and stated that the Appellant company s indirect involvement is sufficient to attract the provisions of the said regulations. Shri Dada stated that there is ample evidence to show that JHPL acted only as a dummy to create an impression that the funding by the Appellant company was not for purchase of its shares, that it is clear from the unsustainable ali .....

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ss reports on the would be creeping acquisition and belated public offer was meant only to fool the public share holders. Shri Dada referred to the price movement in the shares of the Appellant company in BSE and NSE vis-à-vis the respective index to show the abnormality. He also referred to the data relating to the trading position of Damayanti group with certain brokers in the Appellants shares to show the build up over the period. In particular he referred to the trading position of S/ .....

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id notice the Appellant company was requested to show-cause why directions including directions prohibiting it from dealing in securities and accessing the capital market and any other suitable direction in the interest of investors and securities market under Section 11 read with 11B of the SEBI Act and Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations should not be issued and the Appellant company was also requested to sh .....

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g 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 withi .....

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lities , which is much less than the strict proof requirement in a criminal proceeding. He cited the decisions of the Hon ble Supreme Court in Gulabchand vs. Kudilal AIR 1966 SC 1734 in support .He also referred to the decision of the Hon ble Special Court (Trial of Offences Relating to Transactions in Securities at Bombay) in National Housing Bank v. ANZ Grindlays. 1998(2)LJ 153 in this regard. Shri Dada submitted that to establish the charge of manipulation and hold a person responsible for th .....

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is not an ingredient of regulation 4(a) or 4(d) as is being made out by Shri Sundaram, that wherever fraud/fraudulent transactions are covered, it has been specifically included in the regulation, as in regulations 3 and 6. Shri Dada explained the ingredients of regulation 4(a) and (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 .....

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t 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 decisio .....

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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 against their prosecution, Shri Dada stated that under section 24, prosecution lies against them and it is not necessary that a full fledged enquiry following the rules of natural justice should precede the decision to prosecute,that the principles of natural justice will be followed in the proceedings before the trial Court. He re-iterated that even if the A .....

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and circumstances as unfolded in the order, there is every reason to hold that the Appellant company had indulged in manipulating the market violatingthe provisions of regulation 4(a) and 4(d) attracting the consequences as laid down in regulation 12(a) and section 11 and 11B of the Act, and, therefore the impugned order has been rightly issued. I have carefully considered the submissions made by the learned Counsel for the parties, the pleadings and the entire material on record before me The i .....

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May, 1998, Respondent SEBI conducted investigations to ascertain whether the unusual market behaviour was due to any manipulations. The investigations indicated that the market behaviour relating to the Appellant company s shares was due to manipulation and viewed prima-facie the Appellant responsible for the same, attributing the creeping acquisition of 14.24 lakh shares at the rate of ₹ 165/- by the promoters, and funding a set of brokers described as Damayanti group to acquire the Appel .....

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eriod 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 .....

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Shri V.N.Dhoot, S.M.Hegde, S.K.Shelgikar, (appellants in appeal No.24,25 and 26 respectively) also it was urged that the Respondents had not followed the principles of natural justice and as such the impugned order against them is bad and untenable. On a perusal of the order , I find that the order is directedonly against the Appellant company and the direction is to launch prosecution proceedings against the Appellant company through S/Shri Dhoot, Hegde and Shelgikar considering them as the com .....

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ing so failed to follow the principles of natural justice. Opportunity of being heard before launching a prosecution is not ordinarily known to any penal jurisprudence. It is to be noted that the Appellants were also asked vide notice dated 20.12.1999 to show cause as to why prosecution proceedings under section 24 of the Act should not be initiated. The requirements of regulation 8 of the 1995 Regulations have thus been complied with. It has been stated in the operative portion of the order tha .....

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is to be noted that the object of the Act is broadly stated in its preamble in the following words, thatit is an Act to 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 .....

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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 of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures a .....

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shed in the official gazette. We will discuss the provisions of the said regulations a little later. Before that let us also have a look at section 11B invoked by the Respondent to issue the directions. Text of section 11B is extracted below: Power to issue directions 11B. Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary;- (i) in the interest of investors, or orderly development of securities market; or (ii) t .....

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of investors in securities and the securities market Now back to the 1995 Regulations: Regulation 2(b) defines dealing in securities as under: dealing in securities means an act of buying, selling or otherwise dealing in any security or agreeing to buy, sell or otherwise deal in any security by any person either as principal, or as 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 contract o .....

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nd 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. Re .....

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d below: Prohibition against market manipulation: 4. No person shall (a) 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; (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 .....

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of inflating, depressing, or causing fluctuations in the market price of securities; Chapter III provides for investigation into alleged contravention of the regulations and consequential action thereafter.Regulation 7 empowers SEBI suo motu or upon information received by it to cause an investigation to be made in respect of the conduct and affairs of any person buying, selling or otherwise dealing in securities, by an investigating officer, for the purposes, namely- (a) to ascertain whether t .....

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he regulation. Regulation 9 is on the duties and obligations of the person under investigation. In terms of regulation 10 the concerned investigating officer is required to submit the investigation report to the 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 t .....

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efrain 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 cancellation of registration:- The Board may, in the circumstances specified in regulation 11, and without pr .....

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am vehemently argued that the said regulations are not attracted Shri Dada in equal force emphasised that these regulations are attracted. In this context it is considered necessary to examine the scope and reach of the said regulation 4(a) and (d), to begin with. On a perusal of regulation 4 it is clear that prohibition is against market manipulations stated in clauses (a) to (e) therein. According to the impugned order the Appellant company indulged in the type of market manipulation referred .....

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4(d) are that (i) a person must enter into a purchase or sale of any securities (ii) said purchase or sale must not be intended to effect the transfer of beneficial ownership (iii)the purchase or sale must be intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities. On a perusal of the regulation it is clear that reach of clause (a) is wider than the reach of clause (d). Regulation 4(a) brings not only the purchaser and seller but even thi .....

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e 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 s .....

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hip but intended only as a device to distort the market price of securities. In other words the regulation covers speculative trading. Under regulation 4(d) it is not necessary that the action should result in inducing others to purchase or sell the securities as in the case of regulation 4(a). It has to be noted that in both the clauses, the intention of the party is relevant. Therefore an element of mens rea is also involved. The factual matrix based on which charge of market manipulation has .....

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5.98 to build up positions and for cornering the floating stock. (3) Providingfunds to the tune of ₹ 15.53 crores to bail out some of the brokers connected with Damayanti group, trapped in payment crisis in BSE in June, 1998. It is noticed from the order that the public announcement and its impact on the scrip price, is confined to a very brief discussion. Since this is a major charge it is felt necessary to extract verbatim the relevant portion, from the order, to get the Respondents perc .....

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price and the company s funding of the operators in the market who built long positions in the scrip of the company. Such announcements by the promoters had a material impact in artificially increasing the price and volume of the scrip. The traded volumes in Videocon scrip at the BSE which was around 10 lacs shares prior to the announcement on 9.4.1998 reduced 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 announcem .....

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ters 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 context it is to be noted that in some places in the order the Appellant company is referred to as the acquirer. I .....

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9.4.1998 announced that they would acquire 2% of the company s equity capital by making an open offer at a price of ₹ 140 per share against the then prevailing market price of ₹ 62/- and thereafter on 25.5.98 the offer price was raised from ₹ 140 to ₹ 165, that the share price dripped after 4.6.98 freezing at ₹ 51/- in the month of June, 1998. In this context it is to be noted that the press announcement was first made on 9.4.1998, 1.6.1998 was the specified date to .....

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Regulations public announcement to acquire shares is required on the acquirer s holding in the company crossing the bench mark provided in the regulation. Regulation 11 (1) as it stood at the time of acquisition of shares by the promoters in June, 1998 reads: No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law not less than 10 percent but not more than 51% of the shares or voting rights in a company, shall acquire, either by .....

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uisition 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 .....

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ifficult to accept. The Takeover Regulations is substantially based on the recommendations of Justice Bhagwati Committee. The Committee in its report had observed that the Regulations should help in evolving good business standards as to how fairness to shareholders can be achieved as maintenance of such standards is of importance to the integrity of the financial markets and they should not concern themselves with issues of competition or financial or commercial advantage or disadvantages of a .....

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(1) equality of treatment and opportunity to all shareholders and (2) protection of interests of shareholders. Equality of treatment and opportunity to all shareholders, is the corner stone of Takeover Regulations. Viewed in the said back drop, it is difficult to agree to the Respondent s version that the public announcement of offer to buy 2% of the equity capital of the Appellant was improper or uncalled for, especially in view of the fact that the procedure followed was fair and transparent p .....

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resented by Shri Sundaram based on the Appellant company s published balance sheet as on 31.3.1998, and that the offer price of Rs.,165 was below the real value of the share, it cannot be said that the said price was an artificial price as has been alleged by the Respondents. That which is not real is artificial. In this context it is also to be noted that the promoters had brought to the notice of Respondent SEBI, of their proposal to make creeping acquisition of 2% by adopting the public offer .....

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ecially 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 .....

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f secondary market operations, which is the other alternative to acquire 2%, will benefit only a few speculators as against thousands of small investors in case of acquisition by Public Offer. The price which we are proposing to offer to shareholders is ₹ 140/- per share. Due to tactical and pressing market reasons, we propose to make a press announcement immediately next week setting out our intention to acquire 2% via an open Public Offer. We look forward to your support and guidance in .....

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ificially affecting the price of the scrip. Thereafter a public announcement was made wherein price of ₹ 165 for each share of Videocon was offered The fact that the promoters action was not in violation of the Takeover Regulations is also established from the fact that the Respondents till date have not proceeded against the Appellant for any such violation. The upward market price movement and the consequential impact on the trade volume, in the context of such an attractive offer is not .....

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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 t .....

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e 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 the Appellant company at ₹ 165/- per share and creating an artificial demand in the said shares of the Appellant company. Such bench marking would automatically increase the market capital of the company and the shares held by the promoters. This can enable promoters to issue shares on preferential basis at higher price, place shares with FI/FI .....

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able evidence from the Respondents side to show that the public offer made by the promoters was a market manipulation device and for that the Appellant company is responsible, it is difficult to support the Respondents theory, but to accept that the Appellant company s version that it was not involved in the public offer made by the offerors and for the consequences, if any, flowing from the action of the offerors the Appellant company cannot be held liable. The version that the share price was .....

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e of any credible reasoning it is not possible to buy the Respondent s argument in this regard. Now coming to the details of the funding, it has been stated that Videocon group provided ₹ 10 crores to certain brokers of BSE and NSE, who were dealing in the Videocon scrip on behalf of Damayanti group, a front of Shri Harshad Mehta, a person notified under the Special Court Act. In fact funding is stated to have been made in two tranches (i) ₹ 10 crores during April;-May 1998 i.e. at t .....

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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 .....

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i Group. Thus an ingenious way was devised to transfer the funds from Videocon Group to Damayanti Group. It was found that Damayanti group acting through a set of brokers had built up a large concentrated positions of around more than 50% of the total position at the exchanges in thes crip of Videocon. This cornering of shares had created artificial market and price manipulation in the scrip . In the order under the heading Flow of Funds from Videocon Group the Respondents have chartered the mov .....

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any and Videocon Appliances Ltd (VAL) and they in turn paid to Domebell Investments P.Ltd (DIPL), the amount due to VPL, at its behest. The said DIPL transmitted the amount to JHPL. ₹ 10 crores so given to JHPL was given to Equity Investments and Gandak Investments. They in turn are alleged to have ultimately provided the amount to Damayanti group. This transaction is in the first tranche of funding. I do not see anything in the order disputing the position stated in the said letter. Video .....

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per annum. Proximity of this funding by JHPL of Equity and Gandak to the tune of ₹ 10 crores need also be noted. In the context 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 Videoco .....

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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 statement of Shri Hegde as could be seen from the deposition of Shri Dhootdated 20.7.99. The I.O had put the following Question to Shri Dhoot Mr.Hegde stated in his statement .....

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nvestment of the investment division of VPL. In this context the statement of Shri Hegde in answer to the following question is also relevant: Q.31: Is it true that this purchase of shares was made from M/s.,S.N.Nangalia, Sony Securities, GNH Global Securities, Valfin Finance etc., which involved purcahse of VIL shares alongwith other shares? Ans. This payment was not made for buying VIL shares but was meant for purchase of other shares. Q.32: Were these payments to the above brokers meant for p .....

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for a period of 16 months in one or moretranches. We are pleased to inform you that the company is pleased to extend ICD for a period of 16 months @ 20% p.a. aggregating ₹ 20 crores as per the request of your company from time to time . The fund flow from VPL to purchase shares as stated by the Appellant company remains unrebutted. The Appellant company has stated by its letter dated 1.7.1998 it was VPL s money which was given to JHPL through Domebell Investment P.Ltd (DIP). The Responden .....

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ly 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 o .....

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vestments P.Ltd and Gandak Investments Ltd goes to demolish the Appellants contention that JHPL is unrelated to the Videocon group. What is missing is a finding with facts that ₹ 10 crores paid to Equity Investments and Gandak Investments actually belonged to the Appellant company, and a rebuttal of the factual position putforth by the Appellant company in its letter dated 1.7.1998. The respondents have established fund flow from the group to brokers. But they have failed to prove that it .....

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from the other companies. The reason for not investigating the version of the Appellant company, remains unexplained. In the absence of adequate evidence to show that the Appellant company used its funds to purchase its shares, the Appellant cannot be held liable for the consequences, if any, arising out of the transaction. As already stated, the order has referred to the Videocon group companies, as the source of funding, and the Respondents seem to be under the impression that for the action o .....

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p, the order is replete with several inaccurate statements. The reason attributed by the Respondents to the Appellantresorting to the alleged indirect funding for acquisition of its own shares, is that under section 77 of the Companies Act, a company cannot acquire its own shares. Section 77 of the Companies Act 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 be .....

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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 balan .....

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ehest of BSE management to bail out cannot be presumed as a measure to bail out Damayanti group brokers, in the context of the Respondent s failure to link the payment directly to Damayanti group entities. On the contrary the evidence on record shows that it was done at the behest of BSE amd NSE to overcome a payment crisis and save the market from a crash and the beneficiaries were not chosen by the Appellant. The Respondents have stated that the Videocon group had provided ₹ 15.53 crores .....

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of BSE through all or none or bulk deals at predetermined rates and quantities by synchronising the logging in of the trades by the buyers and the sellers. The prominent entities who purchased the Videocon shares through the said brokers were, Mehta Integrated Finance Ltd /Mehta Securities Ltd, Spring Field Securities Ltd and Fedex Securities Ltd (Total amount ₹ 15.53 crores). As per the details stated in the order Madhukar Seth & Co., had taken over the outstanding purchase positions .....

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ecurities 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 ₹ 1 .....

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e 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 approval not only of BSE and NSE officials, but also of SEBI itself. The fact o .....

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ough a set of brokers had built up a large concentrated positions of around more than 50% of the total position at the exchange in the scrip of Videocon. This cornering of shares had created artificial market and price manipulation in the scrip. There is a three full page discussion in the order to the effect that Damayanti group was acting as a front for Shri Harshad Mehta. But the Respondents have failed to prove that the said Damayanti group had acted at the behest of the Appellant company an .....

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cable to the domestic inquiries, Shri Dada had referred to the decision in Gulabchand (supra) that it is wrong to insist that in civil cases such charge must be proved clearly and beyond reasonable doubt. He had also cited the Hon ble Bombay High Court in National Housing Bank (supra) in this regard. In the said case the Hon ble High Court had reiterated the principle laid down by the Hon ble Supreme Court in Gulabchand s case. This Tribunal is not suggesting for a moment that to proceed against .....

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l 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 .....

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f such an adverse finding is wide especiallyin the case of a large public company having large number of investors. The stigma sticks and it also hurts, not the company alone, but its shareholders as well. Not all the King s horses and all the King s men can ever salvage the situation.Mere conjunctures and surmises are not adequate to hold a person guilty of such a serious offence. The extent of proof required to hold the delinquent guilty has been explained by the Hon ble Supreme Court in Bank .....

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even in departmental enquiry proceeding.(emphasis supplied) In M.S.Bindra v. Union of India, (1998) 7 SCC 310 the Court had while deciding an appeal against the removal of an officer from service on doubtful integrity held thatmere possibility is hardly sufficient to assume that it would have happened. In Nandakishore Prasad v. State of Bihar (1978) 3 SCC 366, the Court while considering the appeal against the removal of an employee from service based on the findings of a departmental enquiry v .....

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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.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 agai .....

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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 observed: In any case we are left in doubt whether the complainants version with which he had come forward with considerable delay was really truthful. We think that in a case of this nature, involving possible debarr .....

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etween the general rules of evidence in civil and criminal cases and the definition proved in section 3 of the Evidence Act does not draw a distinction between civil and criminal cases. Nor does this definition insist on perfect proof because absolute certainty amounting to demonstration is rarely to be had in the affairs of life. Nevertheless, the standard of measuring proof prescribed by the definition is that of a person of prudence and practical good sense The same is equally true about proo .....

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es of criminal jurisprudence and of natural justice must necessarily apply. If so, the burden of proof is on the customs authorities and they have to bring home the guilt to the person alleged to have committed a particular offence under the said Acts by adducing evidence (Ambalal v. Union of India AIR 1961 SC 264). On application of the standard of evidence required to hold a person guilty of an offence, as set out by the Hon ble Supreme Court cited above, it is seen that the evidence produced .....

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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 per .....

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have failed to do. It is also to be noted that the Respondents have failed to identify the exactsource of funds flow to the market that as to whether it was the Appellant s money or VPL s . The evidence shows that it was VPL s and the Appellant was only one of the links in the chain of fund movement to the market. Even if it is assumed that it was the Appellant s fund, in the absence of reasonable evidence to show the nexus between the Appellant company and Damayanti group and further that the s .....

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ntrary the Respondents have stated that it was Damayanti groupfor Shri Harshad Mehta cornered the shares. But the relevance of that again depends on the evidence showing as to whehter it was a quid pro quo measure. Not enough evidence in this regard has been adduced by the Respondents. Even though Shri Harshad Mehta has been projected as the man behind, it appears that he was not even questioned and there is no indication of having his activities/role investigated in this regard to establish the .....

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tnessed in April- May, 1998. It is nobody s case that those three companies are under the same management. Therefore it is obvious that there was a third party, which played a major role in the market manipulation and that third party according to the 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 Shr .....

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ent 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 Counsel for the Respondents had submitted that not .....

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ers vested in the Respondent under section 11 and 11B of the Act . 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 Tribunal had occasion to examine the scope and reach of these sections in Bank of Baroda v. Securities Exchange Board of India ((2000) 26 SCL 532 : (2000) 38 CLA 226: (2001) CLC 714): and had expressed the following view: Section 11 and section 11B are interconnected and coextensive as both these .....

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ris Secundum measure means anything desired or done with a view to the accomplishment of a purpose, a plan or course of action intended to obtain some object, any course of action proposed or adopted by a Government However, I am not inclined to agree with the Respondent s view that the power under section 11 is unlimited. I am of the view that the legislature has circumscribed the power, by putting the caveat that these measures are subject to the provisions of the Act. The ambit of power is co .....

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ondent 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 b .....

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emedial 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 collection of levy, taxes etc. As and when new problems arise, they call for new solutions and the whole context in which the SEBI had to take a decision, on the basis of which impugned orders were passed, cannot be said to be without authority of law in face of the provisions contained in section 11 and section 11B. As the lan .....

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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 SEBI to issue such directions is concerned, such authority to take measures as it thinks fit is clearly discernible on the basis of the provisions contained in section 11 read with section 11B of the SEBI Act.We have to therefore consider and interpret the power of SEBI under the provisions so as to see that the objects s .....

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Act in the context of the objects sought to be achieved by the Act and the duty cast on them in achieving the same. Section 11 and section 11B give enormous authority to the Respondent in this regard. As long as the power exercised under section 11B is subject to the provisions of the Act and well within the legal and constitutional frame work, intended to achieve the purposes of the Act and subjecting the persons specified in the section, the power will sustain. Since the exercise of power is .....

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ession 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, c .....

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ve Government cannot create penal provisions by issuing circular when there is no authority to impose such penalty flowing from any provision of law. Hon ble Supreme Court in Khemka and Co.(Agencies) Pvt.Ltd v. State of Maharashtra (AIR 1975 SC 1549) , while considering the question as to whether the assessee under the Central Sales Tax Act, 1956 could be made liable for penalty under the provisions of the State Sales Tax Act, had considered the power to impose penalty.It had held: It is well se .....

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s must be created by clear, unambiguous and express enactment. The language used should leave no serious doubts about its effect so that the persons who are to be subjected to such a liability for the infringement of law are not left in a state of uncertainty as to what their duties or liabilities are. This is an essential requirement of a good government of laws . (emphasis supplied) The legislature has clearly spelt out the penal provisions in the Act at 3 places section 12(3) provides for sus .....

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competent 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, .....

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nt 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 public in the next two years cannot serve as a preventive measure to debilitate the Appellant indulging in market manipulation. Similarly, by no stretch of imagination the said direction can be consideredeven remedial as prospective barring of a public issue cannot remedy an act of market manipul .....

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the Appellant s right to mobilise funds from the public to carry on its business. According to Webster s Encyclopedic Unabridged Dictionarypenalty means a punishment imposed or incurred for a violation of law or rule. In the instant case it is seen that the order is made in the light of the finding by the authority, that the Appellant has violated the regulations. This nexus also strengthens the view that the order debarring the Appellant from accessing the capital market is a penalty. In this v .....

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sions and find no support to hold that after completing the enquiry, a direction under section 11B which tantamounts toimposition of penalty can be issued. No doubt a direction under section 11B can reach a company whose shares are listed in stock exchanges as the company can be considered as person associated with the securities market in terms of section 11B(a). But from the purpose for which the direction which SEBI can issue under section 11B as provided in the section, it is clear that a di .....

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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 share .....

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preventive or remedial direction which can be issued in a proven case of fraudulent and unfair trade practice is discernible from regulation 12. In my view the impugned order is punitive in effect as it takes away the Appellant s right to raise funds from the public to carry on its business. Penalty means a punishment imposed or incurred for violation of law or rule. In the instant case the order has been passed by the Respondent in the light of the finding that the Appellant has violated regula .....

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tracted above,is nothing but a penalty in effect and is in fact against the interest of investors, as a ban on raising funds to meet the Appellant company s business requirements is likely to adversely affectthe company s ongoing business activities and further expansion /development and thereby the shareholders interest . Learned Senior Counsel for the Respondents had putforth an alternate argument that even if it is held that in the light of this Tribunal s decision in Sterlite s case section .....

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ation 12(a) I am afraid, is too far fetched . It is well accepted in the market circle thataccessing the capital market and dealing in securities are different. In fact the impugned 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 norma .....

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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 of the investors and thereby against the purpose for which direction under section 11B is permitted to be issued. The view .....

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regulation 4(a) and 4(d) cannot sustain and therefore deserves to be set aside. In the appeals filed by Shri V.N.Dhoot, Shri S.M.Hegde, and Shri S.K.Shelgikar (appeals Nos. 24,25,and 26) they had inter-alia prayed to set aside the direction to launch prosecution against them. They have adduced several grounds. In this connection it is to be noted that there is no finding of guilt in the order against the said Appellants. The direction is to prosecute the Appellant company through the Appellants. .....

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is considered relevant. In terms of section 24(1), if any person contravenes or attempts to contravene or abets the contravention of the provisions of the Act or any rules or regulations made there under he shall be punishable with imprisonment for a term which may extend to one year, or with fine or with both. In terms of section 26(1) of the Act, cognizance of an offence punishable under the Act etc. by a court is permissible only on a complaint made by SEBI ( the Respondent). On a combined r .....

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ent 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 lo .....

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r any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, .....

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to escape from the attendant penal consequences. It could be seen that as per the provisions of section 27 only those persons in charge and responsible at the relevant point of time for conduct of business of the company alone are deemed to be held guilty for contravention. So legal fiction comes into operation against the persons indicated only on establishing facts, which are appurtenant with the contravention. Such persons can successfully resist the prosecution by establishing want of knowle .....

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or reputation of the official because he/she had to face prosecution. No person can maintain the dignity or cherish prestige by avoiding due process of law. Law being a guardian, it maintains and protects the dignity and honour of every person. Dignified and honourable persons have to stand the test and trial articulated by Law. And in 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, w .....

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n 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. .....

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