TMI Blog2008 (3) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... ery purpose of the proceedings. What is contended by the learned Counsel for the Board is that investigations commenced only in May 2002 and were going on till the year 2003. This is no explanation for the delay. Why could they not commence earlier. Again when investigations continue for years together, the very purpose of issuing the directions under Section 11B may be lost as in the instant case. In view of the inordinate delay in initiating action against the appellant and that too, when its certificate of registration had already expired, the impugned order cannot be sustained. Thus, we allow the appeal and set aside the impugned order leaving the parties to bear their own costs. - N.K. Sodhi, Arun Bhargava and Utpal Bhattacharya, JJ. ORDER N.K. Sodhi, J. 1. Mazda Fabrics and Processors Limited (for short 'Mazda') is a company incorporated under the provisions of the Companies Act, 1956. It came out with an Initial Public Offer (IPO) in January 1996. In terms of the circulars issued by the Securities and Exchange Board of India (for short the 'Board'), the appellant-company which was then a merchant banker entered into a memorandum of un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it had not been renewed thereafter. The Board was informed that since September 2000, the appellant had ceased to be a merchant banker. The allegations made in the show-cause notice were emphatically denied. The Board took almost another four years to complete the enquiry under Section 11B of the Act and on a consideration of the material collected during that enquiry came to the conclusion that the appellant had violated the code of conduct prescribed for merchant bankers and also the circular dated 1-3-1993. By order dated 18-2-2008 the Board has issued directions to the appellant under Section 11B of the Act restraining it from accessing the securities market and also prohibited it from buying, selling or otherwise dealing with the market in any manner whatsoever for a period of one month. It is against this order that the present appeal has been filed. 2. At this stage it would be necessary to refer to the relevant provisions of the Regulations which were then in force in the year 1996 when the irregularities/illegalities are alleged to have been committed by the appellant. Penalty of suspension of registration as a merchant banker could be imposed if a merchant banker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation, as the case may be, could be imposed except after holding an enquiry in accordance with the procedure specified in Regulation 39 and this regulation laid down the manner of holding enquiry before imposing the penalty of suspension or cancellation. It would be pertinent to mention that Regulations 36 to 39 along with some others have been omitted from the Regulations with effect from 27-9-2002 and enquiries against the delinquent merchant bankers could thereafter be conducted in accordance with the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (for short Enquiry Regulations). It would also be relevant to refer to the provisions of Section 11B of the Act under which action has been taken against the appellant for violating the code of conduct prescribed by the Regulations. It reads as under: 11B. Power to issue directions.- Save as otherwise provided in Section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,- (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be taken against a delinquent merchant banker prior to 27-9-2002, the Board had to hold an enquiry in terms of Regulation 39 and after that date an enquiry is required to be held in terms of the Enquiry Regulations and, if found guilty, any appropriate penalty could be imposed. Obviously, the object of imposing penalty is to punish the wrongdoer. If the nature of the misconduct is such which is likely to affect adversely the securities market or the interest of the investors in general, it is open to the Board to issue under Section 11B such directions as may be necessary to protect the integrity of the market or the interests of the investors including a direction to restrain the delinquent from accessing the capital market. When such directions are issued, the object is not to punish the delinquent but to protect and safeguard the market and the interest of the investors which is the primary duty cast on the Board under the Act. The directions may result in penal consequences to the entity to whom those are issued but that would be only incidental. The purpose or the basis of the order or the directions would nevertheless be to protect the securities market and the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d merchant banker in the year 1996. Its certificate of registration expired on 30-9-2000 and it was never renewed and it is common case of the parties that the appellant has not carried on business as a merchant banker thereafter. It is, thus, clear that the appellant ceased to be a merchant banker after 30-9-2000 and, therefore, it could not be a threat to the securities market any more. Where was then a need to issue directions to it restraining it from accessing the securities market. As already observed, Section 11B is an enabling provision entitling the Board to issue directions to an intermediary or any other person with a view to protect the interest of the investors or to protect the integrity of the market or to ensure its orderly development. The object of issuing directions can only be to regulate the market and not to punish the delinquent intermediary. There are ample provisions under which an erring intermediary could be punished. Since there was no threat to the market and yet the appellant has been debarred from accessing the securities market, we are satisfied that the impugned order has been passed with the object of punishing it for its alleged violation of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
