TaxTMI 
TaxTMI 
2015 (7) TMI 316
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....usion that in relation to transaction of sale/purchase of underlying shares released on redemption of GDRs in the securities market in India, the Lead Managers had committed fraud on the investors in India and that such fraudulent intention existed at every stage of the GDR process till sale/purchase of underlying shares in the securities market in India. The further question that arises for consideration is that if the said question is answered in the affirmative, whether the SEBI was justified in passing its impugned order dated 20.06.2013, debarring the respondents herein from rendering services in connection with instruments that are defined as securities under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (in short "SCR Act, 1956") and such debarment for a period of 10 years prohibiting the respondents from accessing the capital market directly or indirectly under SEBI Act, 1992 and the regulations framed there under was justified. 3. When the order of SEBI dated 20.06.2013 was challenged by the respondents before the Securities Appellate Tribunal, Mumbai in Appeal No.126 of 2013, the Chairman of the Tribunal in his minority view upheld the order of the SE....
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....ore referring to the details of the GDRs issued by Asahi and the manner in which such issuance of GDRs were disposed of and ultimately converted into shares and sold out in the Indian Market. 8. According to SEBI, Asahi issued equity shares of Rs. 29,91,00,000/- of Rupee one each at the value of 2 USD on 29.04.2009. Such shares issued resulted in allotment of 29,91,000 GDRs containing 29,91,00,000 equity shares. The total value of the GDRs issued was 5.98 million USD. Such GDRs issued were fully subscribed and closed on 29.04.2009 itself. 9. Prior to the GDRs issue, Asahi had 3,71,96,000 fully paid equity shares and GDRs issued was about eight times of Asahi's outstanding share capital. The first respondent herein was appointed as the Lead Manager for the GDR issued and the entirety of the share capital of the first respondent was held by the second respondent. While referring to the GDR issued by Asahi and the appointment of the respondents as its Lead Managers, it will be necessary to refer to two other entities viz., Vintage and Euram. The second respondent is the Managing Director of Vintage and Euram is the foreign bank lender. It was mainly stressed at the instance ....
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....lves issued by Asahi. 11. Further Clause 2.1 of pledge agreement provided for pledging of the pledgor's assets as collateral security for due repayment of the loan under the loan agreement for the value of 59,82,000 USD. Clauses 6.1, 6.2 and 6.3 of the pledge agreement gave full rights to the bank Euram to realise its loan agreement by realisation of pledged securities. By virtue of the coalesce manner of the loan agreement and pledge agreement, the resultant position was found to be a common ownership of bank account by the borrower, subscriber and the issuing company added to a guarantee by the issuing company for the loan taken by the subscriber to its GDRs. According to SEBI such a nature of transactions as between Asahi, Vintage and Euram disclosed central and determining features of a scheme to fraudulently raise fake capital by the issuing company. 12. At this juncture, we want to make it very clear that we are not expressing any opinion as to the correctness or otherwise of the stand of SEBI at this moment. We are only concerned with the question as to the jurisdiction of SEBI to exercise its powers under the provisions of the SEBI Act, 1992 and SCR Act, 1956 read....
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....aid process until KII limited decided to terminate the agreement. Credo was paid commission by Vintage and the agreement ensured Vintage to take full liability of the dealings of KII limited in the GDRs of Indian Companies and any loss by KII limited to be borne by Vintage. The said agreement was also signed by the second respondent on behalf of Vintage. 15. Cancellation of Asahi GDRs said to have started from 19.08.2009 and completed by 14.06.2011. The shares were released and credited to the Demat account of IFCF and KII limited. Between 20.08.2009 and 15.06.2011, 49.51 % of GDRs were cancelled by IFCF and KII limited. The underlying shares received by IFCF and KII limited were sold in the Indian Market. 16. On behalf of SEBI it was also submitted that when the utilization of GDR proceeds by Asahi was investigated, it was found that most of the documents submitted by Asahi to SEBI were inconsistent with the statements that were available in public domain. According to SEBI, it summoned Asahi to furnish details of the usage of proceeds of GDR issued by it, the bank statements, agreement copies etc., Based on the information furnished by Asahi, SEBI found that there wer....
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....ement of the company which were not even disclosed to the market and therefore the share holders of Asahi were adversely affected and without warning impacted seriously which resulted in slide in prices on account of large sale of shares upon cancellation of GDRs. It is on the above said basis, SEBI took the stand that it had every jurisdiction to proceed against the respondents for the alleged fraudulent manner of dealing with the GDRs issued by Asahi which had serious impact in the share holding pattern of Asahi in the Indian market which really hoodwinked the Indian investors. 20. Mr. C.U. Singh the learned senior counsel appearing for the SEBI after making reference to the above facts and also the statutory provisions submitted that the respondents as Lead Managers were involved in the above alleged fraudulent transactions of GDRs whereby without any actual inflow of funds into the issuing company, the said company was successful in issuing large amount of GDRs which gave a false respectable appearance to the financial statement of the company while in reality by making few book entries it was shown as though large surge in the capital of the company was made. It was contend....
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....ion actually occurred immediately subsequent to the execution of pledge agreement by Asahi and thereby made it clear that the loan agreement and pledge agreement drew strength from each other and were intricately connected to the transaction. It was also noted by SEBI based on the uncontroverted factual scenario that it took eight months for the issuing company viz., Asahi to utilise the GDR proceeds as till then the investor viz., Vintage could not repay the loan borrowed by it from Euram which borrowal was fully and mainly supported by the pledge agreement created by Asahi in favour of Euram. In this context, heavy reliance was placed upon Section 77(2) of the Companies Act which prohibited any public company or private company which is subsidiary to a public company to give directly or indirectly by means of a loan, guarantee etc., any financial assistance for the purpose or in connection with purchase or subscription made or to be made by any person for any share in the company or in its holding company. Reliance was also placed upon the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003 (in short "2003 Regul....
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....ct, 1992 which prohibits manipulative and deceptive devices relating to insider trading etc either directly or indirectly, SEBI have every jurisdiction to proceed against the respondents when once it came to light that respondents indulged in manipulative devices in dealing with the underlying shares of the GDRs by hoodwinking the investors and by making the issuing companies themselves to pledge their own investments for the purpose of advancing loan for the investment made by Vintage, which according to SEBI also belong to the respondents who are the Lead Managers who dealt with the GDRs of the issuing company Asahi. 28. According to the learned senior counsel by virtue of the alleged fraud played by the respondent(s) the Indian investors were the victims for whom SEBI is the custodian and the nature of transaction indulged in by the respondent resulted in more than 140 million USD of fraudulent transaction. The learned senior counsel, therefore, submitted that the action of the respondents was in total violation of stock market regulation, it was in violation of Section 77(2) of the Companies Act and was a rank fraud on the share holders apart from such violations attracting ....
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....bmitted that while the first respondent is the Lead Manager second respondent is not a Lead Manager and that both of them were not registered with SEBI or any other authority for the purpose of dealing with GDRs. The learned senior counsel contended that there is no obligation either on the first respondent or the second respondent under SEBI Act, 1992 or regulations or under any other Indian law including FEMA to make or disclose any information. It was contended that the first and second respondent have not filed any information in order to state that false information was furnished to the Indian authorities with an intention to mislead them. According to the learned senior counsel, the disclosure to be made were the obligations of the issuing company relating to GDRs including the details about the foreign bank, foreign exchange etc., under the statutes in India. It was further submitted that under no statutory prescription first and second respondent are obligated to inform about the fund flow into India to SEBI. The fact that no such obligation exists even as Indian issuing company. 32. It was contended that as Lead Managers the role of respondents 1 and 2 end with the list....
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....es were subscribed in USD and the proceeds were available to the issuing companies and that in that process no violation of any Indian or overseas law was alleged against either the issuing company or the respondents. 36. Mr. Shyam Divan then referred to Section 2(o) the definition of "foreign security", Section 2(za) the definition of "security" and Section 3 and contended that the said provisions under the FEMA are relevant which control any transaction pertaining to foreign security which means shares, stocks, bonds, debentures etc., which are denominated expressed in foreign currency. 37. He also made reference to Section 6(3) wherein the RBI has been empowered to formulate regulations for prohibiting, restricting or regulating matters relating to transfer etc., of foreign security by a person who is resident in India as well as outside India. Further reference was made to Section 13 of the said Act which prescribed the penalties for contravention of the provision of the Act and Section 36 for the authorities who have been empowered under the said Act for the enforcement of the provisions of the Act The learned senior counsel therefore contended that the GDRs will definit....
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....ice the Depositary Receipts Scheme 2014 (in short "2014 Scheme") notified by the Central Government which mandates the authorities under the RBI and SEBI as well as Ministry of Corporate Affairs in the Ministry of Finance to implement the provisions of the said scheme. The learned senior counsel fairly pointed out paragraph 10 of the scheme which refers to market abuse, which states that "market abuse" means any activity prohibited under Chapter VA of the SEBI Act, 1992. By making reference to the said scheme learned senior counsel submitted that even the said scheme notified in the year 2014 cannot be invoked to rope in the respondents though it may empower SEBI to proceed against the issuing company. 41. The sum and substance of the submissions of the learned senior counsel for the respondents is that GDR is statutorily defined under Clause 2(c) of 1993 Scheme and 2000 Regulations which shows that cradle to grave GDR is outside India. The said submission was made on the footing that issuance of GDR is outside India, investor is outside India, market is outside India, investor bank is outside India, therefore, everything relating to GDR is outside India. The contention was that....
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.... is the role played by a Lead Manager while dealing with GDRs in a foreign market ? VII. Who are all the parties who are involved in the creation, ownership and the cancellation of GDR ? VIII. Dealing with GDR, is it regulated by the statutory prescription of India or only by foreign laws ? IX. Post cancellation of GDRs what impact it can create on the issuing company and the investors of the Indian market ? X. In the event of any misfeasance or malfeasance in dealing with the GDRs whether SEBI can effectuate its control over those who are involved in such misfeasance or malfeasance? 44. To find an answer to the above questions we can make reference to Regulation 5 (1) and (2) as well as Schedule I of the 2000 Regulations which has been framed in exercise of the powers conferred by Clause (b) of sub-section 3 of Section 6 and Section 47 of the FEMA. Regulation 5 (1) and (2) and paragraph 4 (1), (2) & (3) and Paragraph 6 of Schedule I are relevant which are as under:-- "Regulation 5. Permission for purchase of shares by certain persons resident outside India :- (1) A person resident outside India (other than a citizen of Bangladesh or Pakistan or Sri Lanka) or a....
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....commercial production to investors outside India shall not exceed cumulative amount of export earning of the company during those years. Provided that (a) the restriction under this paragraph shall not apply i) in respect of shares held in such a company by International Finance Corporation (IFC), the Deustche Entwicklungs Gescelschaft (DEG), the Commonwealth Development Corporation (CDC) and Asian Development Bank (ADB). ii) to a company that has completed a period of seven years from the date of commencement of commercial production, (b) in case of an existing company that has issued fresh equity to persons resident outside India under these Regulations, the restriction shall apply to the fresh shares from the date of their issue." 45. A reading of Regulation 5 read along with paragraphs (4) & (6) of Schedule I of 2000 Regulations, as rightly pointed out by Mr.Shyam Divan gives a statutory recognition to the 1993 Scheme which came into force w.e.f 01.04.1992. It is needless to state that the said Scheme came to be issued by the Central Government in exercise of its executive powers under Article 73 of the Constitution of India. Paragraph 4 (1), (2) & (3) and par....
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....in this regard. The provisions of paragraph 4(B) of Schedule I of 2000 Regulations as notified by the RBI vide Notification No.FEMA 41/2001-RB dated 02.03.2001 should also be adhered. Under paragraph 3(2), an issuing company seeking permission under sub-paragraph I should have a consistent track record of good performance (financial or otherwise) for a minimum period of three years on the basis of which an approval of finalizing the issue structure would be issued to the company by the Department of Economic Affairs, Ministry of Finance. Under paragraph 3(3) on the completion of the finalization of the issue structure in consultation with the Lead Manager to the issue, the issuing company shall obtain the final approval for proceeding ahead with the issue from the Department of Economic Affairs. Under paragraph 3(4) the Foreign Currency Convertible Bonds shall be denominated in any convertible foreign currency and the ordinary shares of an issuing company to be denominated in Indian rupees. Under paragraph 3(5) when an issuing company issues ordinary shares or bonds under the 1993 Scheme, that company should deliver the ordinary shares or bonds to a Domestic Custodian Bank, who wil....
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....f the non-resident investor for being sold directly on behalf of the non-resident on being transferred in the books of account of the issuing company in the name of non-resident. 51. Under paragraph 7(3), on redemption, the cost of acquisition of shares under lying the Global Depository Receipts should be reckoned as the cost on the date on which the Overseas Depository Bank advises the Domestic Custodian Bank for redemption. The price of the ordinary shares of the issuing company prevailing in the Bombay Stock Exchange or the National Stock Exchange on the date of advice of redemption should be taken as the cost of acquisition of the underlying ordinary shares. 52. A combined reading of paragraphs 2(a), (c), (d) and (e) shows that the Global Depository Receipts are issued by a company in India based on the ordinary shares deposited with the domestic custodian bank and issued by the corresponding overseas depository bank depending upon the extent of ordinary shares held by the Domestic Custodian Bank. Once such Global Depository Receipts are issued by the Overseas Depositary Bank, which has the approval of the appropriate authorities of the Indian origin as well as appropriat....
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....ry Receipts viz., a non-resident can transfer those receipts or may ask the Overseas Depository Bank to redeem those receipts. In the case of redemption, Overseas Depository Bank makes a request to the Domestic Custodian Bank to get the corresponding underlying shares released in favour of the non-resident investor for being sold directly on behalf of the non-resident or being transferred in the books of account of the issuing bank in the name of the non-resident. That is the manner in which GDR is dealt with after its creation and that is how the rights in favour of the holder of GDR is created after its transfer in his favour. The role of Lead Manager is thus prescribed under the scheme at the time of its creation as well as its disposal. 56. As far as applicable law is concerned, it must be stated that the underlying ordinary shares of a GDR which is held by the Domestic Custodian Bank prior to such shares being created in the form of GDR have to necessarily undergo a procedure to be followed by the issuing company and for certain purposes in consultation with the Lead Manager and before the GDRs are actually created by the corresponding Overseas Depository Bank, necessary pr....
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....instructions issued from overseas investors and also re-issuance of GDRs to be permitted to the extent of GDRs which are redeemed into underlying shares and sold in the Indian market. 60. On a consideration of the 2000 Regulations, the 1993 Scheme and the Master Circular issued by RBI periodically one can discern that for creation of GDRs which can be traded only at the global level, the issuing company should have developed a reputation at a level where the marketability of its investment creation potential will have a demand at the hands of the foreign investors. Simultaneously, having regard to the development of the issuing company in the market and the confidence built up with the investors both internally as well as at global level, the issuing company's desire to raise foreign funds by creating GDRs should have the appreciation of investors for them to develop a keen interest to invest in such GDRs. Mere desire to raise foreign investments without any scope for the issuing company to develop a market demand for its GDRs by increasing the share capital for that purpose is not the underlying basis for creation of GDRs. In fact for creating of GDRs apart from the desire ....
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....of a like nature of any incorporated company. Therefore reading Section 2(h)(i) and 2(h) (iii) together and apply the same to GDRs, having regard to the fact that the issuance of GDRs are always based on the underlying Indian shares deposited with the Domestic Custodian Bank and thereby the GDRs possess in it right, as well as, interest in the shares, scripts etc., it will have to be straight away held that all GDRs would fall within the definition of `securities' as defined under Section 2(h) of the 1956 Act. 64. Further, under Section 2(2) of the SEBI Act, 1992, words and expressions used and not defined but defined under the SCR Act, 1956, the said meaning would respectively assign wherever used in the SEBI Act, 1992. Therefore for the expression `stock exchange' one will have to fall back upon Section 2(j) of the SCR Act, 1956 which definition is as under: "2(j) "stock exchange" means-- (a) any body of individuals, whether incorporated or not, constituted before corporatisation and demutualisation under sections 4A and 4B, or (b) a body corporate incorporated under the Companies Act, 1956 (1 of 1956) whether under a scheme of corporatisation and demutualisat....
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.... Bank by the laws regulating the same and prevalent in India and so far as the corresponding GDRs created based on such underlying shares are concerned, the same are governed by the laws prevailing in the respective market where such GDRs are being traded. Post cancellation of GDRs, the underlying shares deposited with the Domestic Custodian Bank is made available for trading in India depending upon the wish of the holder of GDR in the local market or for holding it as such i.e as mere shares of the issuing company or by virtue of the fungibility scheme can once again be converted as GDRs for being traded in the global market. 68. In order to find out as to what would happen in the event of any misfeasance or malfeasance in dealing with the GDRs, whether SEBI can effectuate its control over those who are involved in such misfeasance or malfeasance, it will be appropriate to further examine the provision available under the SEBI Act, 1992 and SCR Act, 1956. 69. In order to assimilate the statutory functions of the Board its functions and the area of its operation, it will be necessary to make a detailed reference to Sections 11, 11B, 11C, 12 and 12(A) of SEBI Act, 1992. As we ....
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....ducted in a manner detrimental to the interest of investors or securities market; or (iii) to secure the proper management of any such intermediary or person, it may issue such directions,- (a) to any person or class of persons referred to in section 12, or associated with the securities market; or (b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market] 11C. Investigation: (1) Where the Board has reasonable ground to believe that - (a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market; or (b) any intermediary or any person associated with the securities market has violated any of the provisions of this Act or the rules or the regulations made or directions issued by the Board thereunder, It may, at any time by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board. 12. Registration of Stoc....
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....l such time regulations are made under clause (d) of sub-section (2) of section 30. 12A. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. No person shall directly or indirectly - (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder" 70. In this respect it will be necessary to refer to some of the regulations of 2003 Regulations. We are concerned with....
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.... certain dealings in securities No person shall directly or indirectly-- (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made thereunder; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder. Regulation 4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (....
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.... in the manner provided in section 11C of the Act." 71. On a reading of the above statutory provisions, we find under Section 11(1) of the SEBI Act, 1992, a duty has been cast on the SEBI to protect the interest of investors in securities and also to promote the development of the securities market as well as for regulating the same by taking such measures as it thinks fit. The paramount purpose has been shown as protection of interest of investors on the one hand and also simultaneously for promoting the development as well as orderly regulation of the security market. By way of elaboration under Section 11(2)(a) to (e) it is stipulated that the duty of SEBI would include regulating the business in the stock exchanges and any other securities market which would include the working of stock brokers, share transfer agents and similarly placed other functionaries associated with securities market in any manner, registering and regulating the working of the depositories, participants of securities including foreign institutional investors in particular to ensure that fraudulent and unfair trade practices relating to securities markets are prohibited and also prohibiting insider tra....
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....r deceit on any person in connection with any issue dealing with security which are prohibited. By virtue of such clear cut prohibition set out in Section 12A of the Act, in exercise of powers under Section 11 referred to above, as well as 11B of the SEBI Act, it must be stated that the Board is fully empowered to pass appropriate orders to protect the interest of investors in securities and securities market and such orders can be passed by means of interim measure or final order as against all those specified in the above referred to provisions, as well as against any person. The purport of the statuary provision is protection of interests of investors in securities and the securities market. 73. Along with the Section 12A, when we read Regulation 2(1)(c) of 2003 Regulations, the act of fraud has been elaborately defined to include any kind of activity which would work against the interest of the investors in securities. Further, such interest of investors can be better ascertained by making reference to Section 2(h)(iii) of the SCR Act, 1956 which defines the `security' to mean the right or interest in securities. A conspectus reference to Section 12A(a) (b) and (c) read ....
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....009. IX. Family members of Mr.Rathi are the promoters of Asahi. X. Mr.Rathi did not inform BSE or the company or the shareholders about the signing of the pledge agreement. XI. As pledgor, Asahi agreed to the terms of the loan agreement between Euram and Vintage. XII. Pledgor agreed to pledge its assets as collateral security for due repayment of the loan of 59,82,000 USD. Clause 6.1, 6.2 and 6.3 gave full right to Euram to realise its loan by realising the pledged securities. XIII. According to SEBI, the original investors of GDRs of Asahi were Greenwich and Tradetec whose addresses were found to be fake and non-existent. XIV. On 01.06.2009 Asahi informed BSE about allotment and creation of GDR shares to Greenwich and Tradetec. XV. In turn BSE published the information to retail investors. XVI. That in reality the entire GDRs were invested by Vintage. XVII. On 15/16-07-2009, BSE authorised the trading of 29,91,000 GDRs in Indian market. XVIII. Vintage by virtue of the entire holding of GDRs became 88.94% shareholder of Asahi. XIX. Vintage transferred the GDRs to IFCF and KII for which Vintage granted a loan of 20,00,000 USD to CREDO, associate comp....
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....ram." 75. In the light of the above features noted and alleged by SEBI as against the respondents, relating to GDRs issued by the six entities for whom the respondents acted as Lead Manager, with particular reference to the extent of the involvement of the respondents even while acting as Lead Managers, while facilitating the issuing companies in the fixation of price of the GDRs and its trading in the global market, according to SEBI, by virtue of such fraudulent nature of involvement of the respondents along with the issuing company, SEBI is entitled to invoke its jurisdiction under Section 11, 11B, 11C, 12 and 12A of the SEBI Act, 1992 read along with its 2003 Regulations and consequently its order dated 20 th June 2013 debarring the respondents from rendering services in connection with the instruments which are defined as `securities' under Section 2(h) of the SCR Act, 1956 in the Indian market or dealing with them either directly or indirectly for a period of ten years from the date of its orders and also prohibiting them from getting access to the capital market directly or indirectly for the said period of ten years was justified. It was, therefore, contended that th....
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....r to deal with the same as its jurisdiction was limited to the securities which are being dealt with within the Indian territory and not outside. It was then contended that as Lead Managers the respondents only facilitate the issuing company of India for creation, pricing and trading of their GDRs in the foreign market and so long as such trading of the GDRs by the respondents as Lead Managers work within the framework of the law applicable in the respective foreign countries, SEBI has no power to proceed against the respondents and pass the order of debarment. The contention is that as Lead Managers, the respondents have never dealt with the securities issued by the Indian company within the territory of India and therefore neither the provision of SCR Act, 1956 and the SEBI Act, 1992 nor any of the regulations or the scheme provisions of 1993 can have any application as against the respondents. The further submission is that if at all any violation complained of as against the issuing company can only be relating to the provisions of FEMA which has recognized the 1993 Scheme and therefore that cannot give scope for SEBI to proceed against the respondents who acted as Lead Manager....
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....(h)(a) of SCR Act, 1956 makes it clear that rights and interests in securities are also to be construed as securities as defined in Section 2(h). Therefore even if GDR as such is not specifically referred to under the definition of `securities' under Section 2(h) by virtue of sub-clause (iii) of the said section, any rights or interests in securities would also fall within the definition of securities. Viewed in that respect, every issue of GDR is based on the underlying shares of the issuing company deposited with the Domestic Custodian Bank which clearly falls under the definition of securities of Section 2(h), the Global Deposit Receipts which create rights and interests in those securities, the Global Deposit Receipts would automatically fall and come within the definition of Section 2(h) viz., `securities'. Once when the said legal position is insurmountable, any argument based on the said submission should be rejected. 80. Therefore when GDRs create rights and interests in the securities viz., the underlying shares deposited with the Domestic Custodian Bank, the next question to be examined is as to how far any alleged misdeeds involved in the creation of GDR and i....
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....ue directions in the interest of investors, it is provided that such directions can be against any person or class of persons associated with securities market. Under Section 11C(b) it is provided that where SEBI has reasonable ground to believe that any person associated with securities market violated any of the provisions of the Act or Rules or Regulations or directions issued, it can order for an investigation and take action. Under Section 12A, it is specifically provided to prohibit any manipulative and deceptive devices, insider trading and substantial acquisition of securities or control by ANY PERSON either directly or indirectly. If SEBI's allegation listed out earlier as well as all the other allegations fall under Section 12A(a), (b) and (c), there will be no escape for the respondents from satisfactorily explaining before the Tribunal as to how these allegations would not result in fully establishing the guilt as prescribed under sub-clause (a)(b)(c) of Section 12A. Similar will be the situation for answering the definition under Regulation 2(1)(b)(c), (3), (4)(1)(2)(a)(b)(c)(d)(e)(f)(k)(r) of 2003 Regulations, apart from taking required penal action against those ....
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....duty cast upon SEBI to protect their interests, SEBI has got every jurisdiction to proceed against the respondents as well as the issuing company. The contention made on behalf of the respondents that the only authority which can proceed against the issuing company can be only for violation of the FEMA Act or the RBI Act is therefore not appealing to us. It may be that the 1993 Scheme was acknowledged under the 2000 Regulations, but on that score it cannot be held that the said Scheme or Regulations will have no application when it comes to the question of any action being initiated under the provisions of SEBI Act, 1992 read along with SCR Act, 1956. There is no statutory prohibition either under FEMA or RBI Act preventing SEBI from taking action in exercise of its powers under Section 11, 11B and 12A of the SEBI Act, 1992. That apart under Section 11(3) it is provided that SEBI can exercise its powers under sub-section 2(i) or (ia) or sub-section 2A notwithstanding anything contained in any other law for the time being in force, meaning thereby, the action that can be taken for any of the violation under FEMA or RBI Act, SEBI can validly exercise its powers under SEBI Act, 1992. ....
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.... of foreign law or the reasonableness of any statements or opinion contained in any of the documents. Therefore, the said document is of no use to support the stand of the respondents. 84. As far as the opinion rendered by solicitors firm called Singhania and Co having its office at London, dated 17.07.2013, it only states that the second respondent was the sole shareholder of Pan Asia which is now known as M/s. Global Finance Capital Limited. It only stated that in its opinion from the aspect of laws applicable and enforceable in UK, the documents and transactions pertaining to those documents relating to the respondents were in the normal course of business under the applicable laws in UK and they do not, in any manner, constitute any violation of any applicable laws of UK. It is stated that the documents and transactions were standard documents and transactions commonly executed by entities as part of mode of the lawful business activities. Here again we do not find any need to be guided by such an opinion of a law firm which only refer to the documents placed before it, which according to the said firm is in conformity with the laws of UK. Our notice was also drawn to the 20....
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....6. To support the contention that the SEBI Act, 1992 operates only within Indian territory, reference was made to the provisions contained in other Acts viz., IPC, FERA, FEMA, Companies Act, the Information Technology Act and the Income Tax Act. In the first place, the said reliance placed on the provisions of those enactments providing for extra territorial jurisdiction can have no impact on the action initiated by the appellant, for the simple reason that the violation complained of by the appellant is with reference to such of those provisions contained in SEBI Act, 1992 vis-`-vis the underlying shares of GDRs. Therefore, we are unable to see any violation of exercise of its jurisdiction since the underlying shares of GDR were created and dealt with as well as traded in the stock market of Indian Territory. Any act which caused any infringement in such trading of those underlying shares by virtue of any malfeasance or misfeasance or misdeeds committed by any person under the Act which worked against the interests of the investors in securities and the securities market, the SEBI was entitled to proceed against such persons who are involved in any of those allegations. Therefore,....
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....it filed on behalf of the first respondent, wherein in paragraph E(ii) the functions of the first respondent in relation to any GDR has been mentioned as under: "The Functions of the first respondent in relation to any GDRs include: (a) conducting due diligence in collecting and evaluat- ing all possible information which may have a bear- ing on the issue for the purpose of the listing of GDR issue abroad "outside of territory and jurisdiction of India"; (b) assessing the market for the purpose of the issue and marketing the issue; (c) obtaining confirmation of acceptance of subscrip- tion acceptance from the initial investors to the GDR issues; (d) assisting the Issuer Company at all stages from preparing the documentation, making investor pre- sentation, selection of other manager(s) etc.,; (e) receipt of confirmation of subscription monies re- ceived in the requisite company's escrow account opened / maintained by the company with the es- crow account holding bank; (f) receipt of Depository's (Depository's Banks) confir- mation of issue of instructions to the clearing sys- tems of the GDR subscribers and confirmation from the requisite foreign st....
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....GDR was limited to advising for the listing of GDRs etc., would not absolve the second respondent from facing the action initiated by the appellant. 93. As far as the contention raised by the second respondent in paragraph M, N etc., we do not wish to go into the said stand so made by the second respondent, as it is for the second respondent to convince the appellant and now before the Tribunal that he cannot be proceeded against for any of the alleged violations. Similarly, the stand of the respondents by making reference to the core features of the GDR issues, to contend that there was no requirement to bring GDR proceeds into India and that there was no allegation that its funds were used for prohibited activities i.e. stock exchange transaction or real estate transaction as prescribed in 1993 Scheme and that the subscription of the GDR issued in USD become available to the issuing company were all matters the respondents can validly explain and substantiate the same before the Tribunal while challenging the merits of the order passed by the appellant in the order dated 20.06.2013. 94. In support of his submissions Mr.C.U.Singh learned senior counsel for the appellant reli....
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.... the inter- ests of, welfare of, wellbeing of, or security of inhabi- tants of India, and Indians. 125. It is important for us to state and hold here that the powers of legislation of the Parliament with regard to all aspects or causes that are within the purview of its competence, including with respect to extra-territorial aspects or causes as delineated above, and as specified by the Constitution, or im- plied by its essential role in the constitutional scheme, ought not to be subjected to some a-priori quantitative tests, such as "sufficiency" or "signifi- cance" or in any other manner requiring a pre-deter- mined degree of strength. All that would be required would be that the connection to India be real or ex- pected to be real, and not illusory or fanciful. 126. Whether a particular law enacted by Parlia- ment does show such a real connection, or expected real connection, between the extra-territorial aspect or cause and something in India or related to India and Indians, in terms of impact, effect or conse- quence, would be a mixed matter of facts and of law. Obviously, where Parliament itself posits a degree of such relationship, beyond the constitutional require- me....
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....ch applies in all force to the case on hand. 97. The learned senior counsel then relied upon the judgment of this Court reported in Republic of Italy through Ambassador (supra) in particular paragraph 14, 130 and 139. In paragraph 14 the question posed for consideration is noted. In the concurring view of Mr. Justice Chelameswar in paragraphs 130 and 139 it is recorded as under: "130. Though Article 245 speaks of the authority of Parliament to make laws for the territory of India, Article 245(2) expressly declares - "No law made by Parliament shall be deemed to be invalid on the ground that it would have extra territorial operation". In my view the declaration is a fetter on the jurisdiction of the Municipal Courts including Constitutional Courts to either declare a law to be unconstitutional or decline to give effect to such a law on the ground of extra territoriality. The first submission of Shri Salve must, therefore, fail. 139. Thus, it is amply clear that Parliament always asserted its authority to make laws, which are applicable to persons, who are not corporeally present within the territory of India (whether are not they are citizens) when such persons commit ac....
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....d the powers of the SEBI to impose penalty under Chapter VIA are severely curtailed against the plain language of the statute which mandatorily imposes penalties on the contravention of the Act/Regulations without any requirement of the contravention having been deliberated or contumacious. The impugned order sets the stage for various market players to violate statutory regulations with impunity and subsequently plead ignorance of law or lack of mens rea to escape the imposition of penalty. The imputing mens rea into the provisions of Chapter VI A is against the plain language of the statute and frustrates entire purpose and object of introducing Chapter VIA to give teeth to the SEBI to secure strict compliance of the Act and the Regulations." 100.The said decision was subsequently approved by a three Judge Bench of this Court reported Union of India and Others v. Dharamendra Textile Processors and Others - (2008) 13 SCC 369. The said decision also fully supports the stand of the appellant/SEBI. 101.On behalf of the respondents reliance was placed upon the decision reported in Haridas Exports (supra). That case arose under the Monopolies and Restrictive Trade Practices Act, ....
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.... agreement to sell goods imported into India at such prices as would have the effect of eliminating competition or a competitor." Thus, the agreement requiring registration must be in respect of goods after their import into India." 46. It is possible that persons outside India indulge in such trade practices, not necessarily restricted to the effectuation of prices within India, which have the effect of preventing, distorting or restricting competition in India or gives rise to a restrictive trade practice within India then in respect of that restrictive trade practice, the MRTP Commission will have jurisdiction. The counsel for the respondents is right in submitting that if the effect of restrictive trade practices came to be felt in India because of a part of the trade practice being implemented here the MRTP Commission would have jurisdiction. This "effects doctrine" will clothe the MRTP Commission with jurisdiction to pass an appropriate order even though a transaction, for example, which results in exporting goods to India at predatory price, which was in effect a restrictive trade practice, had been carried out outside the territory of India if the effect of that had r....
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....ugh" in the statute or in the treaty is a matter of policy. It is to be expressly provided for in the statute or in the treaty. Similarly, limitation of benefits has to be ex- pressly provided for in the treaty. Such clauses can- not be read into the Section by interpretation. For the foregoing reasons, we hold that Section 9(1)(i) is not a "look through" provision." 104.We do not find any scope for applying the said decision to the facts of this case as we have found that the specific provisions of SEBI Act, 1992 provided for necessary powers with the SEBI casting a duty on it to protect the interests of the Indian investors as well as the stock market in India whenever it finds any fraud or other such misdeeds committed by any person which worked against the interests of Indian investors in securities. What is fraud has been sufficiently defined under Regulation 2(1)(c) of the 2003 Regulations as well as under Section 12(A) of the SEBI Act, 1992. Therefore, when such express provisions are contained in the SEBI Act and its regulations apart from specific provisions relating to issuance of GDR based on the underlying shares deposited with the Domestic Custodian Bank under the 1....