TMI Blog2000 (8) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... e opened for subscription on 8-1-1996 was closed on 10-1-1996 as the issue was overwhelmingly over subscribed. Shares were listed on the Ahmedabad Stock Exchange (ASE) on 26-3-1996. It was reported that there was substantial variation in the collection figures of the public issue as per the 3 days report and the final report submitted by the lead manager of the issue. Further, unusual movements, in the share prices and volumes traded in the scrip not based on any economic fundamentals were witnessed at ASE. The shares which were listed at ₹ 41 per share had gone up to ₹ 60 on 9-5-1996. Intraday volatility was also reported high on certain days, e.g., on 23-4-1996 price movement was found in the range of ₹ 38 to ₹ 53. Trading in the scrip on ASE, attributing to volatility, was suspended on 16-5-1996. The respondent had, in the meantime, decided to investigate into the affairs relating to dealings in the shares in respect of the public issue of the company by Tirupati Finlease Ltd., and other intermediaries/persons associated with public issue and into the irregularities of price rigging and market manipulations in the said scrip which is violative of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions, the appellant sought adjournment and the adjourned hearing was held on 25-1-1999. Thereafter, after a gap of one year the impugned order was issued i.e., on 16-2-2000 under regulation 11. He pointed out, the delay from the respondent s side at each stage, including the time gap between the hearing and the issuance of the order, was indicative of the respondent s bias towards the appellant. When the adjudication proceeding was going on, the respondent filed a criminal case against the Chairman and Director of the appellant, before the Court of Additional Chief Metropolitan Magistrate at Ahemedabad in January 1999. While the respondent was after the appellant, they did little realise the plight of the investors by keeping trading of shares under suspension for such a long period spanning over 4 years. The learned counsel submitted that suspension of trading for such a long period was not an investor protection measure. It was submitted that the inquiry was not conducted in a just and fair manner following the principles of natural justice. Even before suspending trading, no opportunity was given to the appellant and no reason for such suspension was communicated. He rebu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant from accessing the capital market. He urged that since the impugned order was issued after a lapse of one year from the date of closing the hearing, on this ground itself the order need be set aside. Further, having, suspended the trading, imposition of further penalty on the appellant through the impugned order was illegal. 5. Shri Krishnamohan, learned representative of the respondent submitted that they had already instructed ASE to consider revoking of the indefinite suspension of the trading of the appellant s share. A copy of the letter dated 4-5-2000, evidencing this fact has been filed in the Tribunal. He denied the allegation that no action has been taken against the Registrar to the issue. He submitted that the respondent had completed inquiry against the Registrar and notice was issued to them to show-cause as to why a penalty of 6 months suspension as recommended by the inquiry officer not be imposed. He denied the charge of bias, levelled by the appellant. 6. The learned representative submitted that they had noticed unusual movements in the share price of the appellant-company which shot up from ₹ 38 on 22-4-1996 to ₹ 53 on 23-4-1996. He referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dt. of allotment No. of equity shares Issue Price (Rs.) Percentage to total equity Lock-in-period March 29, 1993 300 10 0.01 Nil March 16, 1995 2,09,700 10 6.99 Nil July 24, 1995 1,00,000 10 3.33 Nil August 19, 1995 1,60,000 10 5.33 Nil August 21, 1995 2,30,000 10 7.67 5 Years Present issue 5,20,000 10 17.33 5 Years 12,20,000 40.67 On a perusal of the above figures it is seen that the appellant had issued 7 lakh shares to the promoters, directors, their friends, relatives and associates, etc. before making the pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e collection money is received from the separate collection account, volatility in the price and trade volume immediately in the aftermath of the public issue may not be of any relevance to the issuer company, as the company had already received the issue price. The loss or gain would normally affect those who deal in these shares. That being the normal case, in the absence of clinching evidence to pin down the appellant, it cannot not be held that the Appellant was responsible for the volatility in the market. This view is strengthened from the scope and reach of regulation 7 and 12 of the Regulations. The focus of the Regulation is on dealing in securities and a company cannot deal in its own securities in the market. Normally the persons holding shares in the company would be the riggers as manipulating the share prices, hike would be to their advantage. In this case, it may not be forgotten that the promoters had 4.7 lakh shares in their custody not subject to any lock in restriction at the time of public issue. The possibility of the promoters, in the absence of any lock in period, desiring to dispose of the shares in an artificially created market could not be ruled out. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated illiquidity in the scrip which resulted in volatility in the share price due to mismatch of demand and supply . [Emphasis supplied] Even if it is assumed for argument sake (though cannot sustain on the face of the evidence produced from the postal authorities) that by retaining 3 lakh shares meant for mutual funds, and 4,24,800 shares of others, an artificial scarcity was created in the market to manipulate the price movement, the charge cannot stick on the appellant, as in the respondent s own version, the so-called situation was created by the promoter of the appellant-company. There is no evidence to show that the shares were withheld by the promoter Managing Director, at the instance or for and on behalf of the appellant. On the contrary since the appellant was not to be benefited by price rigging at that point of time and it was the promoters who would have benefited more in the event of hike in price, and in the light of the respondent s clear finding of the role of promoter in withholding the shares, the appellant-company cannot be said to have indulged in unfair and fraudulent trade practices to attract the penal consequences in terms of the impugned order. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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