9911796707
TMI Blog2000 (8) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... tors, their friends, relatives and associates. The public issue 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal hearing. Since the time provided was too short to prepare submissions, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered thereunder to issue the impugned order debarring the appellant 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contributions and lock-in-period as disclosed in the prospectus. 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 public issue. Out of the 7 lakh shares 4.70 lakh shares were not under any lock in obligation and as such those shares were freely transferable. Post issue equity stake of the promoter was 40.65 per cent out of which 25 per cent was under lock in restriction for 5 years. 7. Even though the impugned order refers to variance in the collection figures submitted by the lead manager, the appellant, has not been held responsible for the same, by accepting that it was the collection bank which receives application money from the applicants and submits reports and not the issuer co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assumption on the role of promoters is strengthened from the findings of the inquiry recorded in the impugned order itself. It has been stated therein that : ". . . investigations revealed that the promoters in connivance with the Banker to the issue and the Registrar have deposited applications after closure of the issue and have also indulged in unfair and fraudulent trade practices by creating artificial scarcity of the floating stock in the scrip." [Emphasis supplied] Further in para numbered 3 on the page 3 of the order, it has been stated that : "The Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, the appellant's version that during the month of January, 1999 Criminal Case No. 1 of 1999 was preferred by the respondent before the Court of Additional Chief Metropolitan Magistrate at Ahmedabad against its Chairman and Director has been admitted by the respondent in their reply. From this statement it appears that the appellant-company was not arrayed as an accused in the prosecution but only its Chairman and Director were charged. It is also noticed that ASE has been asked by the respondent vide letter dated 4-5-2000 to consider "revoking the indefinite susp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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