TaxTMI 
TaxTMI 
2002 (6) TMI 597
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.... years It has been further ordered that prosecution proceedings under section 24 of the Securities and Exchange Board of India Act, 1992 ( the Act) for violation of clauses (a) and (d) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (the 1995 Regulations) be initiated against the Appellant company through its directors/officers viz. Shri Rajiv Chandrasekhar, Shri Ajit Nambiar, Shri R.Murali, Shri T.P.G.Nambiar and Shri T.C.Chauhan. The Appellant company is a public limited company, mainly engaged in the production and marketing of consumer electronic products like televisions, home appliances, telecom products, alkaline and dry cell batteries, medical instruments and other electronic products. The share capital of the Appellant company as on 31.3.98 was Rs. 269.30 millions. Subsequently it was raised to Rs. 776.90 millions. Its shares are listed on seven stock exchanges across the country. Shares of the Appellant are stated to be widely held by the promoters group, banks, foreign institutional investors, financial institutions, non-resident Indians, employees and....
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....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 Rs. 139/- in the month of June, 1998 The investigations revealed that a set of brokers and sub-brokers acting on behalf of a common set of clients cornered a large chunk of shares of the Appellant company at both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These clients called Damayanti group, built up unusually large positions in the Appellants shares resulting in distortion of the market equilibrium and creation of artificial market in these shares. Damayanti group comprised mainly of the following entities, viz. Damayanti Finvest Pvt.Ltd, CDP Fincap and Leasing Pvt.Ltd, KRN Finvest and Leasing Pvt.Ltd, Rijuta, Finvest Pvt.Ltd, Ikshu Finvest Pvt.Ltd, Money Television Industries Ltd. These entities had neither the financial worth nor the professional expertise to undertake the kind of dealings, which they have supposedly done through a large number of brokers and merely acted as front for Shri Harshad Mehta, who is a notified person under the Special Court (Trial of Of....
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.... appeared to be consequent to the purchase order, that on enquiries with NSE it was found that no such order was logged in by Digital at the time mentioned in the bill. On questioning, Digital admitted that this transaction was not executed as the contract was cancelled at the behest of BSFL. However, Digital could not explain how the bill with time and order number was issued when the deal had not taken place. Appellant made payment to Digital on 6.9.1997 when order to purchase the shares was purportedly cancelled on 26.8.1997. Digital when asked whether the money was refunded back to BSFL stated that instead of refunding the money they approached BSFL with an offer for sale of shares and Fully Convertible Debentures (FCDs) of Money Television Industries Ltd (an Unlisted company) Digital in turn had earlier received offer to sell shares/FCDs of Money Television Industries Ltd (Money Television) from Damayanti Group. It was claimed that Digital sold 38,13,500 shares and 11, 86, 500 FCDs of Money Television @ Rs. 10/- each to BSFL. The counter parties for this transactions were entities belonging to Damayanti group. It was also seen that the bill for the sale of shares and debenture....
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....nd FCDs of Money Television were delivered to BSFL and duly acknowledged by Shri A.R.Rajaram, Company Secretary of the Appellant. Shri Chauhan could not explain as to why the bill was raised by Digital in the name of BSFL if there was no such purchase. He merely stated that his decision was not to buy the shares of Money Television and that BPL group had still to receive Rs. 5 crores from Digital. It was seen that despite a period of more than a year having elapsed BSFL had not taken any steps to recover this money. The explanation for purchase of 1,10,000 shares of the Appellant @ Rs. 400/- per share is also not convincing and appears to be an after thought. Director of Digital stated that dealings were being done at their counter by Shri Harshad Mehta though billing was being done in the name of his nominee i.e. Damayanti group. As regards receipt of amount from BPL group it was also admitted that they (Digital) were informed by Shri Harshad Mehta that a large payment would be credited into their account from BPL group from Bangalore to settle Damayantis outstanding pay-in-liability. It was also stated that contract notes were issued just to provide an alibi....
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....19.6.98. It was found that SSKL later sold 20 lakhs shares out of 25 lakhs shares purchased by them, for a consideration of Rs. 35.36 crores. At that stage, out of Rs. 47 crores received, Rs. 31.66 crores was returned to BPL group entities, and preferential shares were issued for the balance amount of Rs. 15.34 crores. BPL group gave this money (Rs.15.34 crores) to cover a loss of Rs. 11.64 crores suffered by SSKL in this regard. This shows that SSKL merely provided a facade to BPL group for purchase of its own shares and through this methodology the prohibition imposed by section 77 of the Companies Act was circumvented. In view of the presence of fabricated contract notes in favour of BSFL and details of transfer of funds from BPL group to Digital, telephone bills linking Shri Harshad Mehta with BPL group, admissions of Digital and contradicting statements of directors/officials of the Appellant company, the Appellant seems to have connived with Shri Harshad Mehta and created a false market and manipulated the prices of scrips. Further there is no plausible explanation as to why a public limited company which is responsible for its share holders should....
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....egulation 4 of the said Regulations be initiated against BPL through its directors/officers, Shri Rajeev Chandrasekhar, Shri Ajit Nambiar, Shri R.Murali, Shri T.P.G.Nambiar and Shri T.C.Chauhan. Since all the six appeals pertain to the same order, it was decided with the consent of the parties, to hear the appeals together and pass a common order. Shri Aspi Chinoy, learned Senior Counsel appearing for the Appellants except for Appellant in appeal No.15/2001, submitted that the order is bad in law and cannot be sustained as it is passed without following the principles of natural justice, and without jurisdiction and contrary to the material on record. Shri Chinoy referred to the show cause notice dated 20.12.1999 issued to the Appellant company and the other Appellants herein and stated that the Respondent had offered inspection of the documents and material which was being relied on by it. He stated that by a letter dated 25.1.2000 the Appellant company requested the Respondent to confirm the list of documents and material that were being relied upon by the Respondent, referred to in the said letter, and the Respondent was also informed of the Appellants desire to take in....
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....elied on them to link Damayanti group with Shri Harshad Mehta and also to link the Appellant with them. Learned Senior Counsel further submitted that the Appellant company had specifically requested the Respondent to provide Shri Shripal Morakhia, of Seventilal Kantilal Securities P. Ltd. (SSKL) for cross examination, which was not agreed to by the Respondent. In this context he referred to the Appellants formal application dated 24.1.2001 to provide Shri Shripal Morakhia for cross examination as Shri Morakhias cross examination was very essential, as he was the representative of SSKL stated to have approached the Appellant at the behest of the office bearers of BSE and NSE, further that in support of the show cause notice, the Respondent had relied on SSKLs letter dated 25.6.98 to the Respondent and inspection of the said letter was granted to the Appellant, that during the course of hearing on 24.1.2001 before the Respondents Chairman, the Appellants Counsel had explained as to why cross examination of Shri Morakhia was considered necessary. Shri Chinoy stated that the Chairman had asked the Appellant to make written submission on the issue of cross examination and accordingly....
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....nies access to the same to the Appellant. He submitted that the caveated submission by the Respondent that in so far as they relate to the Appellant is important in the context. He stated that the question is not as to whether the documents relate to the Appellant or not. The question is whether the documents are relevant to the charges levelled against the Appellant, that the documents are certainly relevant, as they are used to link the Appellant with Shri Harshad Mehta and to suggest that Shri Harshad Mehta acted at the behest of the Appellant. He stated that since the material has been used against the Appellant, the Appellant was entitled to inspect the same/to get a copy of the document. Shri Chinoy referred to the Respondents version in its reply (p.15) that all the documents/materials relied upon ( in so far as they relate to the Appellant), in the impugned order had been made available to the Appellant and stated that it is not factually correct. In this context he referred to the letters from the Appellants side dated 25.1.2000,15.2.2000, 15.3.2000, 16.3.2000, 29.4.2000 forming part of the Respondents reply and particularly referred to the Respondents letter dated 15.5.20....
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.... witnesses who give evidence against him is a very valuable right and if it appears that effective exercise of this right has been prevented by the enquiry officer by not giving to the officer relevant documents to which he is entitled, that inevitably would be that the enquiry had not been held in accordance with rules of natural justice. (2) KhemChand v Union of India (AIR 1958 SC 300) If the opportunity to show cause is to be a reasonable one it is clear that he should be informed about the charge or charges levelled against him and the evidence by which it is sought to be established, for it is only then that he will be able to putforward his defence. If the purpose of this provision is to give the Government servant an opportunity to exonerate himself from the charge and if this opportunity is to be a reasonable one he should be allowed to show that the evidence against him is not worthy of credence or consideration and that he can only do if he is given a chance to cross examine the witnesses called against him and to examine himself or any other witness in support of his defence (3) M.A.Jackson v.Collector of Customs (1998) 1 SCC 198 Once it is admitted tha....
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....lating the price of its shares as alleged. He submitted that increase in the share price of the Appellant in April-May, 1998 could be for several independent reasons that the price movement did not imply that there was market manipulation. In this context he referred to the facts stated in para Q of the grounds of appeal which included the Appellants financial position, impressive performance, profitability, market leadership, product range and demand, corporate recognition etc. With reference to the Respondents contention that the scrip of the Appellant was moving abnormally compared with the movement of the BSE/NSE index, Shri Chinoy referred to the share price movement data for 3 calendar years i.e. 1997, 1998 and 1999 filed with the appeal and pointed out that in the year 1997 the highest price quoted in August, 1997 was Rs. 105/- followed by Rs. 104/- in December. In 1998, the highest quote in January was Rs. 121, in February, Rs. 129, in March, Rs. 165, in April, Rs. 417, in June, Rs. 446. In July the price fell to Rs. 180, in August, Rs. 158, in September, Rs. 157, in October, Rs. 152, in November, Rs. 138 and in December, it was Rs. 146. He also referred to the highest rate....
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.... In this context he referred to the copy of the contract notes issued and the bills raised by Digital and stated that it was in the name of BSFL, that BSFL is a totally independent and distinct entity . In this context he, referred to the statement made by Shri R.Balathandayutham, Vice President, BSFL in his deposition dated 10.8.1998 that in fact the shares have been received by BPL Sanyo Finance ltd., and lodged for transfer on 16.7.1998. He submitted that with reference to purchase of Money Televisions shares and FCDs also it is clear from the bill (copy filed with the appeal) that the buyer was not the Appellant. He submitted that BSFL is a finance company and there were transactions between the Appellant and the BSFL in the nature of inter corporate loans and deposits, and the funds advanced to BSFL in 1997 by the Appellant were part of the normal transactions, that the Respondents contention that it was meant for purchase of the shares of the Appellant company is baseless. He submitted that the Respondent has not produced any credible evidence to establish that the money was given by the Appellant to purchase its shares. Shri Chinoy submitted that the Respondent has ....
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.... corporate veil. It is a fifty fifty joint venture of two different groups - Indians and Japanese - and not under the sole ownership or control of the Appellant. Learned Senior Counsel submitted that the impression that the Appellant and BSFL are one and the same is incorrect. Shri Chinoy refuted the Respondents version in para 13.1 that BPL was exercising its controlling mind in respect of BSFL, and stated that BSFL is a business associate of the Appellant does not mean, that it is under the control or management of the Appellant, that the Respondent has failed to establish that the Appellant is the controlling mind of BSFL. Shri Chinoy stated that the specific allegations in the show cause notice/order are directed against the said BSFL and not against the Appellant. By way of illustration he referred to the Respondents version in the show cause notice that (i) on 20.8.97 BSFL gave a mandate to Digital to purchase 5 lakh shares (para 8), (ii) a contract note dated 26.8.1997 issued on BSFL in respect of the purchase of 5 lakh shares of the Appellant (para 8), (iii) a bill dated 16.8.97 raised on BSFL in respect of the said transaction (para 8), (iv) Digital received Rs. 5 crore....
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....nvolving mens rea, the mental element of those in control and management of the company is attributed to the company itself. In this context learned Senior Counsel submitted that the charge of market manipulation implies an improper motive or intention that when such a charge is levelled against an artificial person or body corporate, it is necessary for the party making the charge to establish that the controlling/directing mind of the artificial person, that is, the Board of Directors or a committee of directors or the shareholders in general meeting, were involved in manipulation, that the subject transactions were never put up before the Board of the Appellant or a committee of its directors or before its shareholders. In this context he referred to the following authorities (i) Esso Standard Inc v. Udharam B Japanwalla 1975(45) Co.cases 16(Bom), (ii) ANZ Grindlays v. Director of Enforcement, decided by the Hon'ble Bombay High Court on 7.11.1998 in W.P.No.1972/1994 etc.) Shri Chinoy read out extensively from the Esso Standards case and in particular the following paragraphs: The passage of Viscount Haldane, Lord Chancellor, in Lennard's Carrying Company....
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.... the first time the Act of 1973 has adopted provisions under Section 58 and 59. The first deals with vexatious search etc., by officers of Enforcement. What is more pertinent that the second deals with the presumption of culpable mental state This is a complete departure from the legislative intendment as envisaged by the Act 1947. This measure has brought a drastic change in legislative approach and consequently by necessary implication Mens Rea has become the essential ingredient of the commission of the contravention.Section 58 is brought to prevent vindictive attitude or venom of the officers of the Enforcement Directorate or any person willfully giving false information. The very nature of the offence clearly involves culpable mental state. Section 59 reads thus:- Presumption of culpable mental state(1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explan....
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....oans. Shri Chinoy stated that there is nothing in the order to show that loan was given to BSFL by the Appellant with the intend to manipulate the market. Shri Chinoy refuted the charge that the Appellant was responsible for the price movement in its scrip or for the abnormal trade volumes as alleged. He denied that the volumes traded were abnormal or that the price was due to manipulations.. Shri Chinoy submitted that share price movements of several other companies indicate that the share prices of these companies also rose against the trend and movement of Sensex/Nifty during the period September, 1997 to June,1998. By way of example he stated that the price of Pentafour Software Ltd rose on BSE from Rs. 129 in September , 1997 to Rs. 1082 in May, 1998, in the same period in the case of Zee Films the price movement was from Rs. 115 to Rs. 610, in Satyam Computers from Rs. 160 to Rs. 504, in HCL-HP from Rs. 35 to Rs. 332, in ITC from Rs. 495 to Rs. 830. He stated that the general market sentiment and confidence in the Appellant's scrip is evident from the steady rise in the scrip value between July, 1998 and September, 1999, that on BSE the scrip rose from July, 1998 ....
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.... Digital by the Appellant Shri Chinoy stated that 4.4 crores pertained to 1,10,000 shares of the Appellant purchased by BSFL., that since the payment of Rs. 4.40 crores was in respect of a transaction by BSFL and the beneficial ownership was transferred to BSFL, there could not be any question of this transaction resulting in any market manipulation. As regards the payment on 5.9.1997 of Rs. 5 crores, the learned Senior Counsel submitted that this payment was made by BSFL to Digital and not by the Appellant. He submitted that the entries in the books of account of Digital showed that the payment on 5.9.1997 was not in lieu of any transaction for the purchase of shares. He stated that in so far as the disbursals made by Digital are concerned, these are the matters with which the Appellant is not in any way concerned. Shri Chinoy referring to the 2nd limb of the charge, that is funding to bail out the brokers in distress, referred to the Respondent's observation in this regard as found in the show cause notice that investigations revealed that a large number of brokers of BSE and NSE who were dealing on behalf of Damayanti group had cornered substantial stock of BPL shares and som....
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....stance, no charge of manipulation can stick on the Appellant. Learned Senior Counsel stated that the Appellant had not entered into any purchase transaction, that if there were any such share transactions, it would have been the Appellant's bail out, that no such charge has been established or even levelled against the Appellant, that all that the Appellant did was that it provided funds, as required by the management of the stock exchange to diffuse an otherwise explosive crisis in the market, to protect the interest of investors. Shri Chinoy submitted that by the Respondent's own version, cornering of shares was done at the instance of Damayanti group and it was Damayanti group who failed to pay. He also stated that bail out is an incident pertaining to June, 1998 where as the charge against the Appellant is funding a broker in the year 1997 to manipulate the market. Shri Chinoy denied the Respondent's version that the Appellant in connivance with Shri Harshad Mehta through Damayanti group was instrumental in manipulating the prices of its shares. He submitted that the charge is thus a charge of conspiracy. He stated that there is no nexus of any sort between the Appellant and....
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....e customs authorities. Where the customs authorities do not discharge the burden, the order of confiscation is bad. (emphasis supplied) Shri Chinoy stated that the ratio of the case is applicable to the present case also that the onus is on the Respondent to prove its version. Mohan Sigh v Bhanwarlal (AIR 1964 SC 1366): The onus of establishing a corrupt practice is undoubtedly on the person who sets it up,and the onus is not discharged on proof of mere preponderance of probability as in the Trial of a Civil Suit; the corrupt practice must be established beyond reasonable doubt by evidence which is clear and unambiguous (emphasis supplied) Ch. Razik Ram v. J.S.Chouhan (AIR 1975 SC 667) Before considering as to whether the charges of corrupt practice were established, it is important to remember the standard of proof required in such cases. It is well settled that a charge of corrupt practice is substantially akin to a criminal charge. The commission of a corrupt practice entails serious, penal consequences. It only vitiates the election of the candidate concerned but also disqualifies him from taking part in elections for a considerably long time. Thus t....
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....ry flotsam for shore, suspicion for proof and illusion for reality. Since these principles were not constantly kept in mind, the approach of the High Court in this case to the issues involved and the treatment of evidence, appears to have gone away. It is therefore, necessary to reappraise the evidence from the stand-point indicated above. Ramanbhai Nagribhai Patel v. Jasvant Singh Udersingh Dabhi (AIR 1978 SC 1162): We may state that the charge of bribery is in the nature of a criminal charge and has got to be proved beyond doubt. The standard of proof required is that or proving a criminal or a quasi criminal charge. A clear cut evidence, wholly credible and reliable is required to prove the charge beyond doubt. Evidence merely probabilising and endeavouring to prove the fact on the basis of preponderance of probability is not sufficient to establish such a charge. Shri Chinoy stated that the charge of bribing in an election is an act of manipulation and the test of evidence required to punish the manipulator spelt out in the order is applicable to manipulations covered in regulation 4(a) and 4(d). He stated that market manipulation is a corrupt practice, with serious co....
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....should not have been found to have been committed as the election petitioners did not examine themselves during the course of the trial in the High Court. There was however no such obligation on them, and the evidence which the election petitioners were able to produce at the trial could not have been rejected for any such fanciful reason when there was nothing to show that the election petitioners were able to give useful evidence to their personal knowledge but stayed away purposely. In the case of Sultan Salahuddin Owasi v. Mohd. Osman Shaheed (1980) 3 SCC 281 : (AIR 1980 SC 1347), to which one of us (Fazai Ali, J.) was a party, this Court observed thus:- It is now well settled by a large catena of the authorities of this Court that a charge of corrupt practice must be proved to the hilt, the standard of proof of such allegation is the same as a charge of fraud in a criminal case. In Ram Sharan Yadav v. Thakur Muneshwar Nath Singh (1984) 4 SCC 649: (AIR 1985 SC 24), to which two of us were parties, this Court observed thus: The sum and substance of these decisions is that a charge of corrupt practice has to be proved by convincing evidence and not merely by preponder....
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....her made in civil or criminal proceedings, must be established beyond reasonable doubt: per Lord Atkin in A.L.N. Narayanan Chetteyar v. Official Assignee, High Court Rangoon, AIR 1941 PC 93. However suspicious may be the circumstances, however, strange the coincidences, and however grave the doubts suspicion alone can never take the place of proof. In our normal life we are sometimes faced with unexplainable phenomenon and strange coincidences, for, as it is said, truth is strange than fiction. In these circumstances, therefore, after going through the judgement of the High Court we are satisfied, that the Appellant has not been able to make out a case of fraud as found by the High Court. Shri Chinoy cited Svenska Handelsbanken v. M/s. Indian Charge Chrome (AIR 1994 SC 626) and stated that therein also the Hon'ble Court had re-iterated the Privy Council's observation in Narayanan Chetteyar's case, quoted in Chaturbhai's case that fraud like any other charge of a criminal proceedings must be established beyond reasonable doubt. A finding as to fraud cannot be based on suspicion and conjuncture In this context he also referred to Ambalal's case (supra) and re-iterated that the ....
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....nforceable by fine, imprisonment, or similar punishment the statute is always construed as penal. 3 Norman J. Singer, Sutherland Statutes and Statutory Construction 59.01, at 1 (4th ed. 1986). penalty. 1. Punishment imposed on a wrong doer, esp. in the form of imprisonment or fine. Though usu. for crimes, penalties are also sometimes imposed for civil wrongs. 2. Excessive liquidated damages that a contract purports to impose on a party that breaches. If the damages are excessive enough to be considered a penalty, a court will usu. not enforce that particular provision of the contract. Some contracts specify that a given sum of damages is intended as liquidated damages and not as a penalty but even that language is not fool proof. A penalty is a sum which a party agrees to pay or forfeit in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach, or as security, where the sum is deposited or the covenant to pay is joined in by one or more sureties, to insure that the person injured shall collect his actual damages. Penalties are not recoverabl....
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.... out the provisions of section 11B and stated that the section empowers the Respondent to issue directions. He further stated that the fact that section does not provide any procedural safeguards or even guidelines, demonstrates that the directions covered thereunder cannot be issued by way of penalties. He further stated that section stipulates only the object for which the directions can be issued and not the nature of directions. He further submitted that penalties cannot be created by the Respondent. It is a substantive power which should come from the statute. Penalties are required to be statutorily defined and one can't whimsically create an offence and impose penalty at his sweet will. Shri Chinoy submitted that if 11B is construed to be a penal provision then it is ultravires and liable to be struck down. Referring to the impugned direction he stated that debarring the Appellant accessing capital market for four years cannot be considered remedial with reference to the alleged offence stated to have been committed more than 3 years ago, that the prohibition on the Appellant company raising capital from the public is to be considered as a penalty and imposition of such pena....
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....A(1). The Hon'ble Court while dismissing the Revenue's appeal observed: It is not a question of sustaining jurisdiction by reference to a wrong section as was done in the case of L. Hazari Mal Kuthiala v. Income Tax Officer, Special Circle, Ambala canntt. (1961 41 ITR 12 at p.20: (AIR 1961 SC 200 at pg.204) where this Court held that if a particular action is valid under one section, it cannot be rendered invalid because reference was made to another section, and it makes no difference if the two empowering provisions are in the same statute. But this principle will have no application where in a penal action no notice was given or resort to such provision was made to the delinquent or the offending party. Kantilal Babulal and Bros. v. H.C.Patel (AIR 1968 SC 445) This was a case where a Sales Tax Officer, without giving effect to the order passed by the Sales Tax Appellate Tribunal, to refund the amount collected as tax from a dealer on the sales effected outside the State from 26.1.1950 to 31.3.1951, proceeded to take steps for forfeiting the amount to the State Government under S.12 A(4) of the Sales Tax Act. According to the Revenue S.....
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....he whole thing, from the beginning to end, is treated as of a purely administrative character, completely ignoring the legal position. The imposition of a penalty on a person is at least of a quasi-judicial character. The impugned provision does not concern itself only with the amount admittedly collected by a person in contravention of sub-sections (1) and (2) of Sec.12A. Even if there is any dispute either as to the factum of collection or as to the amount collected, such a case also comes within the scope of Section 12A (4). Yet that section does not provide for any enquiry on disputed questions of fact or law. The forfeiture provided for in Section 12A (4) prima facie infringes Article 19 (1) (f). Therefore it is for the respondents to satisfy the Court that the impugned provision is a reasonable restriction imposed in the interest of the general public. Section 12A (4) does not contemplate the making of any order. As mentioned earlier, that section prescribes that if any registered dealer collects any amount by way of tax in excess of the amount payable by him under the Act, the amount so collected shall, without prejudice to any prosecution that may be instituted agains....
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....oceeding by a statutory body of the Members of the profession which is statutorily empowered to impose a punishment including a punishment of such immense proportions is quasi-criminal in character; as a logical corrolory it follows that the Disciplinary Committee empowered to conduct the enquiry and to inflict the punishment on behalf of the body, in forming an opinion must be guided by the doctrine of benefit of doubt and is under an obligation to record a finding of guilt only upon being satisfied beyond reasonable doubt. It would be impermissible to reach a conclusion on the basis of preponderence of evidence or on the basis of surmise, conjucture or suspicion. It will also be essential to consider the dimension regarding mens rea: This proposition is hardly open to doubt or debate particularly 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.376) wherein Ray, CJ., speaking for the Court has observed:- In any case, we are left in doubt whether the complaint's version, with which he had come forward with considerable delay was really truthful. We think that, in a case of thi....
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....sion that the decision to initiate prosecution is not a part of the order, Shri Chinoy submitted that, if that is so that portion of the order should go, and if it is to be there, then also it should go as no offence has been established against the Appellant company and other Appellants, that in any case it should go. Shri Chinoy for the Appellants in appeals 16,17,18 and 19 of 2001 submitted that the Respondent has ordered to launch prosecution proceedings under section 24 of the SEBI Act for violation of clauses (a) and (d) of the 1995 Regulations against the Appellant through its directors and officers ( 5 in number) including the 4 Appellants whom he represented. He pointed out that there is not even a grain of evidence in the impugned order to launch prosecution against any of the Appellants. Shri Chinoy pointed out that the direction is to prosecute the Appellant company in the light of the findings arrived at by the Respondent. But direction is not to prosecute the Appellant directly but through its officers and directors. He submitted that it is not permissible under the law to launch vicarious criminal prosecution. The Respondent's order is not clear whom really it ....
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....should not be issued. Shri Chinoy submitted that section 27 is not available to issue directions in an adjudication. Hesubmitted that though the Show cause notice refers to section 27, the order it appears has given up the decision to prosecute them under section 27 as the direction is only to prosecute the Appellant company through the Appellant officers. Under section 27 the company and the persons referred to in the section are liable to be prosecuted provided there is sufficient justification to the same. Shri Chinoy referred to the written reply given by the Appellants in response to the show cause notice in this regard that: on a correct interpretation of Section 27, the provisions of that section do not have any application to adjudication proceedings such as these proceedings since Section 27 applies only in the case of criminal prosecutions under Section 24 of the SEBI Act, 1992. The deeming provision under Section 27(1) would be attracted where an offence has been committed by a company. Offences are covered by Section 24 which provides, inter alia, that where a person is held guilty of an offence he shall be punishable with imprisonment for a term which may extend ....
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....hat the Respondent having passed a statutory order against the directors/officers to launch prosecution against them, the said order is appealable. He pointed out that though the Respondent had taken a stand at the time of arguing the interim relief application of the Appellant that the prosecution is independent of the order under section 11B, the Respondent has relied on the said order as the basis for launching the prosecution, further that though the Respondent had stated before the Tribunal that they would not be proceeding with the criminal prosecution during the pendency of the appeal, the Respondent has filed the prosecution and process has been issued by the Court, that this action of the Respondent all the more establishes that prosecution and the impugned order are not unrelated, and therefore this Tribunal need also set aside the order to launch prosecution covered in the order. Shri Chinoy stated that the impugned order is a composite order including the direction to launch prosecution and as such the Tribunal has jurisdiction to set aside the said part of the order also. Shri Somasekhar Sundaresan, learned Counsel appearing for the Appellant in appeal No.15/2001 su....
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.... It is next pointed out on behalf of the Appellant that while Regulation 15 requires the Council, when it proceeds to act under S.21(4), to furnish to the member a copy of the report of the disciplinary committee, no such requirement is incorporated in regulation 14 which prescribes what the Council will do when it receives the report of the disciplinary committee. That, it is said, envisages that the member has no right to make a representation before the council against the report of the Disciplinary Committee. The contention can be disposed of shortly. There is nothing in regulation 14, which excludes the operation of the principles of natural justice entitling the member to be heard by the Council when it proceeds to render its finding. The principles of natural justice must be read into the unoccupied interstices of the statute, unless there is a clear mandate to the contrary. (emphasis supplied) Shri Sundaresan stated that since the Appellant has been chosen as an instrumentality to proceed against the Appellant company, it was incumbent on the Respondent to hear the Appellant irrespective of the fact whether there was any specific provision in the Act or not, follo....
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....res while carry forward sales position was 2.45 lacs., that the increase in carry forward position was accompanied by a corresponding increase in the scrip price, that the Hawala rate increased from Rs. 163 in settlement No.1 to Rs. 410 by settlement No.11 on account of the manipulations. In this context he referred to the settlement wise details of the outstanding positions in the Appellant's scrip alongwith the Hawala rates for the settlements 1 to 12, furnished in para D(1) in the Respondent's reply as under : Sett No Carry forward Purchases Carry forward Sales Purchase V/s Sales (No.of times) Hawala Rate (Rs.) 1 2331600 349400 6.67 163 2. 2359400 305000 7.74 177 3 1460100 215400 6.78 182 4 1480400 224200 6.60 225 5 1892400 219300 8.63 270 6 2009900 173800 11.56 260 7 2358200 170400 13.84 260 8 2524200 252500 10.00 265 9 2455200 245300 10.01 330 10 2546400 297300 8.57 390 11 2522600 421300 5.99 410 12 992700 538000 1.85 280 Shri Dada stated that the consistent increase in th....
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.... Appellant has been held liable for the omissions and commissions, if any, of the other companies in the group, and stated that in the impugned order enough evidence has been arrayed to show that the controlling mind in BSFL and Sanyo Finance is the Appellant. In this context he referred to the predominant share ownership, common directorship, Shri T.C.Chauhan's role, and the role of Shri Rajaram, the Appellant's Company Secretary as the authorised authority for the said entities. Shri Dada in particular referred to the statement of Shri Balathandayutham, Vice President of BSFL and stated that, there was no difficulty at all in coming to the conclusion that the Appellant was exercising its controlling mind through its director Shri T.C.Chauhan and he was instrumental in effecting and taking part in the transactions to inflate the prices and create false market using Digital as a conduit. Shri Dada referred to the impugned order and stated that the fact that Damayanti group is a front set up of Shri Harshad Mehta, has been well established and that Shri Mehta being a person notified under the Special Court Act was under certain restrictions to carry on the business and as such he....
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....ny profits on the investment in these shares as promised by Shri Harshad Mehta, in lieu thereof they were given 2,00,000 shares of BPL by Shri Harshad Mehta on 15.4.98 towards repayment of loan. These shares were delivered to LKP on the letterhead of Damayanti Finvest Pvt.Ltd with whom they otherwise had no dealings. Shri Dada stated that this statement indicates Shri Harshad Mehta's involvement in the game. The learned Senior Counsel submitted that there is enough evidence to show that Digital was transacting for Damayanti group and the said Damayanti group was in turn acting for Shri Harshad Mehta. To establish the Appellants nexus with Shri Mehta, Shri Dada cited several telephone calls made by Shri Mehta to Shri Chauhan. Shri Dada referring to the order and the averments in the Respondent's reply submitted that it has been established that, in the modus operandi adopted by the Appellant, the purchases were effected by brokers associated with the Damayanti group. He stated that the payment of Rs. 5 crores has been made by the Appellant to Digital in September, 1997 for which an antedated delivery of 1,10,000 shares of the Appellant @ Rs. 400/- had been made in June, 1998, ....
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.....97, Rs. 27.50 lacs on 17.11.97, 22.12.97, 2.2.98, 5.3.98 and 2.5.98 making the total payment to the extent of Rs. 8, 62, 50, 000, that BSFL transferred only Rs. 75, 62, 500 on 6.10.97 to Digital from its account, that Shri Balathandayutham has admitted the position and no convincing explanation could be given by Shri Chauhan and Shri Balathandayutham as to why these funds were given by the Appellant to Digital and Digital in turn disbursed the amount to the brokers. In this context Shri Dada stated that the funds were disbursed more or less on the same day by Digital to the brokers. He referred to the details of disbursement made, as furnished in para 9(f) of the order. Shri Dada stated that it was seen from the books of Digital that on 5.9.97 itself, when the Appellant transferred Rs. 5 crores to Digital account there was out go of approximately Rs. 6 crores on behalf of Damayanti group, that this shows that the transfer amount was not in lieu of any transaction involving purchase of shares. He further stated, that it is found from the Damayanti group A/c in the books of Digital annexed to the appeal that credit was given by Digital to Damayanti group from the Appellant, indicati....
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....shares of BPL Ltd on 29.8.97 at the rate of Rs. 77.80 from M/s. Nagarjuna Securities. Shri Dada stated that Shri Balathandayutham with reference to the transaction with Digital had stated we have made a payment of Rs. 75,62,500 during 97-98 and another Rs. 3,35,00,000 was paid by BPL Ltd on our behalf to M/s. Digital Leasing and Finance Ltd during 97-98, another Rs. 27, 50, 000 was paid by BPL Ltd to M/s. Digital Leasing and Finance Ltd during 98-99 against which 1,10,000 shares of BPL Ltd were purchased by us on 2.6.98 for Rs. 4, 40, 00, 000. To another query Shri Balathandayutham had stated that some where in August 1997 we placed an order for 5 lakhs shares of BPL Ltd @ of around Rs. 100/- per share with Digital Leasing and Finance Ltd, and they were not able to deliver the shares and cancelled the contract note. The mandate was given some where in August 97. Since the BPL group was on the look out for a media company which will be helpful in strengthening our publicity department, Digital Leasing and Finance Ltd came with the proposal to offer shares and convertible debentures in Money Television Ltd. Since it is not our line of business, in getting engaged in a media company, ....
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....r this company and how they decided to buy the shares through this Bombay Company when they had sold large chunk of shares of BPL Ltd through Bangalore brokers, Shri Balathandayudam had stated Shri T.C. Chauhan was in touch with Digital Leasing and Finance Ltd and through the associate company of Digital leasing and Finance Ltd in Bangalore. Only Shri Chauhan will be able to answer this question. Shri Dada referred to another question-Rupees five crores was transferred as per the record of Digital Leasing and finance Ltd, in September 1997. Your company (BPL Sanyo Finance Ltd) had given mandate to buy 5 lakh shares of BPL Ltd in August 1997. You had mentioned earlier that there was no Board Resolution for the decision to purchase 5 lakh shares of BPL as the transaction could not be executed. Please explain why the money was transferred to Digital Leasing and Finance Ltd when the transaction could not be executed. To this his answer was I can not answer this question To another question you just now mentioned that the deal for purchase of Money Television Shares had to be undertaken as the money which was already given to Digital Leasing and Finance Ltd for purchase of 5 lakh BPL sh....
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....ence to Shri Chauhan's role vis-a-vis BPL cited the following portions from Shri Chauhan's statements recorder on 14.8.1998 and 27.9.99. To a question as to who authorised the decisions for BSFL in the matter relating to investments in shares and securities, Shri Chauhan's answer was Normal transactions of buy and sell, say up to a crore of rupees are authorised by the officers like Shri Balathandayutham and a summary is presented to the Board as and when it needs. Beyond that it is informally discussed by the Board. A quarterly review of the activities of the company is presented to the Board as and when it meets and all the activities including investments are reviewed. Shri Dada stated that Shri Balathandayutham's statement of 10.8.98 regarding decision to purchase the Appellant's shares when shown to Shri Chauhan, he had stated the investments decisions are, as mentioned earlier, discussed informally in the Board. Only in case of an offer of 5 lakh BPL shares that had come to my notice through some broker, this was as usual informally discussed at the Board meeting of BPL Sanyo Finance Ltd, and based on its concurrence, I asked Shri Balathandayutham to go ahead and purchase ....
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....8.97. If the decision was not to purchase shares of Money Television Ltd why were these shares and debentures received and acknowledged form the broker. I have seen the documents and they appear to have been received and acknowledged by Shri A.R. Rajaram, the Company Secretary of BPL Ltd. My decision was not to buy the shares of Money Television Ltd. To my knowledge these shares were delivered by the broker about two three months back. I cannot say how Shri Rajaram has acknowledged the documents and accepted delivery of shares and debentures of Money Television Ltd in August 1997. To another question that BPL Finance has purchased 1, 10, 000 shares of BPL Ltd in June 1998 @ Rs. 400/- per share from Digital Leasing and Finance Ltd. who authorised purchased of these shares Shri Chauhan had stated I understand the broker asked for further payment to be able to honour his earlier commitment for purchase of five lakh shares for BPL Sanyo Finance Ltd. For that payments were made piecemeal amounting to approximately 4.4 crores. At this stage this broker delivered 1, 10, 000 shares of BPL quoting the then price of approximately Rs. 400/- per share. These were accepted by BPL Sanyo Fi....
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....ave spoken to Shri Harshad Mehta on a few occasions and the discussions have always been about the business prospects of the company in the context of the total market. Shri Dada to show that Sanyo Finance and BPL Sanyo Finance Ltd and the Appellant are under the same management, referred to the copy of the letter dated 28.8.97 (Annexed to the appeal) from Digital to Sanyo Finance, 1/1 Palace Road, Bangalore 560 001 re Bill No. GC05/305001 where under the said Digital had forwarded certificate in respect of 38,13,500 shares and 11,86,500 FCD's of Money Television and stated that these certificates were received by Shri Rajaram, company secretary of the Appellant for BPL Finance Ltd, same was the case with the contract note and the bill issued by Digital. Shri Dada did place considerable reliance on Digital's affidavit dated 30.9.99 a copy of which has been filed along with the appeal. Shri Dada read out the following extract from the said affidavit: We were introduced to Shri Harshad Mehta around March 1996 by Shri Harish Teparia a mutual business acquaintance. We met at Shri Mehta's residence at Madhuli Building, Worli, and he indicated his interest in doing ....
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....; 1.25 lac shares of BPL Later, the above bill was changed to reflect a sale of 1, 10, 000 shares of BPL scrip @ Rs. 400/- upon Damayanti's instructions, in good faith, without suspecting any wrong doing in their frequently changing instructions we cancelled and destroyed the previous bill and issued the fresh bill. We never gave delivery of these share to BPL although we have stated and Shri Rajaram has acknowledged that we have delivered the share on 6.6.98 we still have to receive Rs. 1,87,500 from BPL Bangalore. Just after the SEBI investigation started Damaynati informed us that the previous bill for 5, 00, 000 shares of BPL was not acceptable to BPL Bangalore and asked us to change the bill to Money Television Shares and FCDs amounting to Rs. 5 crores. During the SEBI investigation around July/August 1998, we sent our representatives Shri Pramod Dakua to Bangalore to hand over delivery of Money Television Shares and FCDs to Shri Rajaram, Company Secretary of BPL Bangalore. Shri Rajaram acknowledged the delivery and contract note/bill back dated on 28.8.97. During all these transactions we were never in touch with the BPL Group. ....
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....t. Ltd. Rs.16 crores from Badalona Overseas Pvt. Ltd (an associate of SSKI) on 26.06.98. This money was refunded by Monoplan on 28.01.99. This money (Rs.15.5 crores was given by BPL on 18/6/98 to Oriental Transport Limited towards subscription of 14% NCDs on private placement basis. This money (Rs.15.5 crores) was given by BPL on 18/6/98 to Orion Construction company towards subscription of 14% NCDs on private placement basis This money (Rs.16 crores) was received by Badalona from BSFL on 26/6/98 as advance towards allotment of 14% convertible debentures BSFL had received this money on 25/6/98 from BPL Sanyo and Utilities and Appliances Limited, a BPL Group Company. Shri Dada stated that a large number of brokers of BSE and NSE who were dealing on behalf of Damayanti group had cornered a substantial chunk of the Appellant's shares and some of them faced payment problems and could not discharge their commitments towards pay in liabilities as they did not get the payments from their clients i.e. Damayanti group. In this context he stated that it was admitted by the Director of Seventilal Kantilal Securities P. Ltd (SSKL) that they got in touch wi....
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.... above back ground and particularly with the representation made by SSKL that they are sent by SEBI, Badalonna Overseas P. Ltd. and Monoplan Securities Ltd were the two companies belonging to SSKL Rs. 47 crores was transferred to these two companies for purchase of debentures and preference shares. Some preferential shares were allotted to Orion Construction Co. Pvt. Ltd by Monoplan Securities. The rest of the money was refunded back later in the early part of 1999. Shri Dada stated that from this statement it is clear that the requisite funds for the bail out purpose was made available by the Appellant company. Shri Dada also referred to the affidavit of Shri Katdhare dated 20.12.1999, forming part of the appeal and stated that in the said affidavit he had reiterated his version made in the statement of 24.9.99 that BPL had funded to bail out the brokers in distress. Referring to the authorities cited by Shri Chinoy, Shri Dada submitted that the ratio in none of the cases would be applicable to the present case in view the distinguishable features. Referring to Esso Standard Inc V. Udharam Bhagavandas Japanwalla (supra) he stated that the principle laid down in the said case....
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.... National Housing Bank. v. ANZ Grindlays. 1998(2)LJ 153 in this regard. He stated that it is principle laid down in Gulabchand that prevails and not that of Chaturbhai and Svenska relied on by the Appellant. Shri Dada referred to Ambalal (AIR 1961 SCS 264) relied on by the Appellant and stated that the decision therein is in the context of confiscation of goods and the Court's observation therein was based on commission of an offence as could be seen from para 6 of the judgement: The Court has held that a custom officer is not a judicial tribunal and that a proceeding before him is not a prosecution. But it cannot be denied that the relevant provisions of the Sea Custom Act and the Land Customs Act are penal in character. The appropriate customs authority is empowered to make an enquiry in respect of an offence alleged to have been committed by a person under the said Acts, summon and examine witnesses, decide whether an offence is committed, make an order of confiscation of the goods in respect of which the offence is committed and impose penalty on the person concerned, ......... . To such a situation, though the Code of Criminal Procedure or the Evidence Act m....
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....at to establish the charge of manipulation and hold a person liable for the same circumstantial evidence is sufficient and from the material on record it is evident that Appellant company had indulged in market manipulation attracting the provisions of regulation 4(a) and 4(d) Countering Shri Chinoy's interpretation of regulation 4, Shri Dada submitted that the scope of the regulation is wide enough to bring in, the conduct of the Appellant thereunder. In this context Shri Dada referred to the definition of the expression fraud in regulation 2(c) and stated that it is not an ingredient of regulation 4(a) and 4(d), that where ever fraud/fraudulent transactions are covered, it has been specifically included in the regulation, as in regulation 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 company who indirectly caused transactions in shares and indulged in manipulation. He reiterated the finding in the impugned order that as a result of the carry for....
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....ce Regulation 11 is referred, automatically Regulation 12 also comes into. He stated that the notice clearly states the nature of violation and the attendant section and regulations and it is not correct to say that the show cause notice was vague and evasive on this count. Shri Dada stated that the Respondent has established the charge of market manipulation attracting the provisions of regulation 4(a) and 4(d) and justification for issuance of direction under section 11/11B of the Act and regulation 12 of the 1995 Regulations. He further stated that since the said direction is remedial in nature, and the interest of investors the Respondent is well with in its powers to issue such a direction debarring the Appellants from accessing the capital market for 4 years. He stated that even if it is viewed that under section 11B such a direction is impermissible following this Tribunal's decision in Sterlite case (supra) still the order is to be sustained as regulation 12(a) empowers the Respondent to direct the person concerned not to deal in securities. In this context he referred to the scope of the words dealing in securities used in regulation 12(a) with reference to the definiti....
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....id down in the Act/Regulation. Referring to L.D. Jaisinghani vs. Narayandas M. Punjabi (1976 SC 373) and in ReAdvocate (AIR 1989 SC 245) Shri Dada stated that both these cases relate to matters connected with the disciplinary proceedings against Advocates for violating the professional misconduct under the Advocates Act and Bar Council of India Rules. The principle that the evidence should be of a character which should leave no reasonable doubt about guilt is not applicable to the cases of market manipulation established in an inquiry, as held in NHB vs ANZ Grindlay's case (supra). He further stated that in Commissioner, Sales Tax, U.P. vs Anoop Wines (AIR 1998 SC 2042) the decision that imposition of penalty cannot be sustained by implication, has no application to the instant case as the Respondent had clearly stated the offence and the penal provisions attracted to the case in the show cause notice itself. He said for the said reason Hindustan Lever case (2001 scale 219) has also no application. Shri Dada stated that Jackson's case (1998) 1 SCC 198 was in the context of non disclosure of material in the show cause notice and use of such undisclosed material later, it is not so ....
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....(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 heading of the impugned order clearly states that the order is in the matter of price manipulation in BPL share. Undoubtedly the subject matter of the order is price manipulation in the shares of the Appellant. The back ground in which the order was issued has been briefly stated in the impugned order and I have stated the same in the earlier part of this order. The Respondent on noticing abnormal market behaviour in the scrip of certain companies, including the Appellant's, ordered an investigation to ascertain whether the market behaviour was due to any manipulation. The investigation attributed market manipulation as the cause and also viewed that the Appellant had a role therein. In the light of the said prima facie finding, the Respondent decided to enquire into the matter. Accordingly show cause notices were issued to the Appellants. The matter was adjudicated and t....
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....by M/s. Taurus Travels referred to in para 8.1(a) of the impugned order; (ix) Proof of payment of Rs. 14 lakhs to Harshad Mehta's lawyers by Damayanti Group referred to in para 8.1(a) of the impugned order; (x) Unsigned letter dated 18th September, 1997 from Harshad Mehta to CBI referred to in para in 8.1(b) of the impugned order; (xi) Documents containing investments and bearing notes/jottings in the handwriting of Harshad Mehta, referred to in para 8.1(c) of the impugned order; Learned Senior Counsel submitted that in the circumstances, the impugned order is liable to be set aside solely on the ground that extensive material has been relied upon by the Respondent, without granting any opportunity to the Appellant to consider and explain the same. Denial of cross examination of Shri Shripal Morakhia, a representative of SSKL who is stated to have approached the Appellant at the behest of BSE, seeking funds for bail out operation was also cited in particular by Shri Chinoy. The Respondent has denied the allegation. In its reply it has stated the Appellant had inspected and had been provided copies of all documents as desired by ....
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....relied upon in the impugned order. In para 13.7 of the order it has been stated I note that, during the personal hearing on 04.04.2001 the Counsel for BPL specially confirmed that they do not insist on cross examination (of Shri Morkhia) if, SEBI is not placing reliance on the said statement. I do not find any reliance on Shri Morkhia's statement in the order. Cross examination of a witness, no doubt is very relevant and also very important, from the evidential angle. But the rule has exceptions. In K.L. Tripathi Vs. State Bank of India (1984) 1 SCC 43) Hon'ble Supreme Court had observed that if the credibility of a person who has testified or given some information is in doubt, or if the version or the statement of the person who has testified is in dispute, right of cross examination must inevitably form part of fair play in action. I do not find any force in the submission from the Appellants side in its demand for cross examination of Shri Morakhia. It is well settled judicially that absence of any formal opportunity of cross examination per se does not invalidate the decision arrived at fairly. If no useful purpose is likely to be served by allowing cross examination, then Cou....
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....hat the said Appellants were also given opportunity to put forth their version in the proceedings before the Respondent, vide show cause notice issued to them on 20.12.1999. 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 that powers under sections 11 and 11B of the Act have been invoked to issue the impugned directions. Though there is no specific reference to regulation 11 of the 1995 Regulations therein, on a perusal of the order and the show cause notice, it can be safely inferred that power available in regulation 11 of the 1995 Regulations has also been invoked. The omission to specifically refer the said regulation in the order is not fatal, as there is a legal source of authority to issue the directions. It is to be noted that the object of the Act is broadly stated in its preamble in the following words, that it is an Act to provide for the establishment of a Board to protect the interests of 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 ....
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.... (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 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: Fraud includes any of the following acts committed by a party to a contract or with his connivance, or by his agent with intent to deceive another party thereto or his agent or to induce him to enter into the contract: (1) the suggestion, as to a fact, of that which is not true, by one who does not believe it to be true (2) the active concealment of a fact by one having knowledge or belief of th....
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....es; 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 there are any circumstances which would render any person guilty of having contravened any of these regulations or directions issued there under (b) to investigate into any complaint of any contravention of the regulation, received from any investor, intermediary or any investors. In terms of regulation 8, in the normal course , before causing an investigation the Board is required to give notice to the person concerned but this requirement can be dispensed with for certain reasons specified in the 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. T....
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....the regulation has been already extracted above. To attract regulation 4(a) (i) a person should have effected, taken part in, or entered into either directly or indirectly, transactions in securities (ii) the transactions must be with an intention (iii) such transaction must be to artificially raise or depress the prices of securities (iv) the result of the action must be to induce the sales or purchase of securities by any person. The ingredients of regulation 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 third parties also to its ambit , if they are found in any way involved in effecting or taking part in the transactions directly or indirectly. The motive behind the action and the effect of the actions is also relevant. Transactions in s....
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....lso made certain observations in the following first few paras of the order giving an insight into the matter: Large volumes coupled with abnormal price movements were observed in the stock exchanges in respect of shares of BPL Ltd (BPL), particularly during the period between April and June 1998. The price of the BPL scrip which was Rs. 180/- during April touched a high of Rs. 446/- by first week of June. The said price movement in the scrip of BPL was not in conformity with the movement in index of The Stock Exchange, Mumbai (Sensex) / National Stock Exchange, Index (Nifty). The BSE sensex showed a decline of 11% i.e. from 3969 to 3546 and Nifty showed a decline of 5% from 1081 to 1027, whereas, the price of BPL share rose by 148%. This rise in price was accompanied by abnormal volumes in the share of BPL, both at The Stock Exchange, Mumbai (BSE) and National Stock exchange (NSE) during this period and that the price movement in the scrip of BPL vis a vis the price movements of the shares of other companies in the same industry segment was highly abnormal. Though price of BPL was continually on rise, the scrip could not sustain the rise any longer and fell sharply....
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....if any, taken against them. However, learned Senior Counsel appearing for the Respondent stated that they have been proceeded against separately and orders also have been issued in most of the cases holding them guilty of market manipulation. The charges against the Appellant company as already stated relate to supply of funds by it in two tranches i.e. (i) Rs. 9.4 crores for financing transactions in the market and (ii) Rs. 47 crores to bail out the brokers in distress. To begin with let us examine the 1st phase of the alleged funding: The details of various payments made by BPL to Digital, as per the impugned order are as under: Date Amount (Rs.) 05.09.97 5 crores 10.10.97 75 lakhs 22.10.97 75 lakhs 31.10.97 75 lakhs 17.11.97 27.50 lakhs 22.12.97 27.50 lakhs 02.02.98 27.50 lakhs 05.03.98 27.50 lakhs 02.05.98 27.50 lakhs Total 8, 62, 50, 000 The order further states that only Rs. 75, 62, 500 was transferred from the accounts of BSFL on 6.10.97. The Respondent's version is that the funds were supplied to Digital on account of Damayanti group and the said Digital made further disbursals of money so ....
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.... during that period we raised a bill on BPL for the following sale as per instructions of Damayanti: 2 lacs shares of KREB BIOTECH 1 lac shares of SWARAJ MAZDA 1.25 lac shares of BPL. Later, the above bill was changed to reflect a sale of 1,10,000 shares of BPL scrip @ Rs. 400/- upon Damayanti's instructions, in good faith, without suspecting any wrong doing in their frequently changing instructions we cancelled and destroyed the previous bill and issued the fresh bill. We never gave delivery of these share to BPL although we have stated and Shri Rajaram has acknowledged that we have delivered the share on 06/06/98 we still have to receive Rs. 1,87,500 from BPL Bangalore. Just after the SEBI investigation started Damaynati informed us that the previous bill for 5, 00, 000 shares of BPL was not acceptable to BPL Bangalore and asked us to change the bill to Money Television Shares and FCDs amounting to Rs. 5 crores. During the SEBI investigation around July/August 1998, we sent our representatives Shri Pramod Dakua to Bangalore to hand over delivery of Money Television Shares and FCDs to Shri Rajaram, Company Secretary of BPL Bang....
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....g all these transactions we were never in touch with the BPL Group. We received instructions only from Shri Harshad Mehta. While accepting the 'Affidavit' of such a person whose credibility is questionable, utmost caution is necessary. Those portions therein which are corroborated with other evidence alone can be taken into consideration. It has been stated that Digital executed a contract for sale of 5 lac shares of BPL based on a letter dated 20.8.97 signed by Shri Balathandayutham, Vice President of BSFL confirming their order for 5 lakh shares of BPL @ Rs. 100/- . In the 'Affidavit' it has also been stated that We received from BPL by way of Demand Drafts (5 of Rs. 90 lacs each and 1 of Rs. 50 lacs) and later starting from 6.10.97 to 9.3.98 received an amount of Rs. 4, 10, 62, 500 from BPL Bangalore in instalments, plus a final Rs. 27.5 lacs on 6.5.98. A copy of Shri Balathandayutham's letter regarding purchase of BPL Ltd Equity shares, is on record. This letter is on the printed letterhead of BPL Sanyo Finance Ltd. The letter addressed to Digital Leasing and Finance Ltd reads as follows: This refers to the telephonic conversation, the undersigned had w....
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....f Damayanti group were also among them. The evidence on record, shows that Digital had received funds from BSFL and transacted business making use of the funds. It was BSFL which had instructed as to the nature of securities to be purchased as is evident from Shri Balathandayutham's letter referred to above. It is seen from the show cause notice dated 20.12.1999 issued by the Respondent, based on the findings of the investigation carried by it that Shri R. Balathandayutham, Vice President of BPL Sanyo Finance Ltd, an associate company of BPL Ltd had given mandate to Digital to purchase 5 lacs shares of the Appellant company @ Rs. 100/- per share and also stated that the contract note 26.8.97 in this regard was issued on BPL Sanyo Finance Ltd and the purchase bill dated 26.8.97 was also found raised on BPL Sanyo Finance Ltd. Digital's version to the extent of the involvement of BPL Sanyo Finance Ltd thus stands confirmed. But then, it has been stated that the said transaction of 5 lac shares of the Appellant did not materialise and cancelled on 26.8.97. In this context it is seen that the Respondent had asked Digital whether the money was efunded back to BPL Sanyo Finance Ltd and....
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....BPL Group. It is felt that it would have been more appropriate to identify the involvement of each entity of the group and examine its role if any, in the transactions and reach at conclusions based on the role of each concerned and proceed against the concerned entity, if found necessary, instead of referring to the involvement of the Group and then proceeding against the Appellant without establishing any charge specific against it. Now coming back again to the alleged supply of funds by the Appellant to Digital the statements made by Shri Balathandayutham and Shri T.C.Chauhan, on which the Respondent has placed heavy reliance, throw some light. Their statements remain unrebutted on this particular point. Shri Balathandayutham in his statement dated 10.8.98 had stated that BPL Sanyo Finance Ltd is engaged in leasing, hire purchase, bill discounting, ICDs, purchase and sale of shares etc, that it is registered with the Reserve Bank of India as a NBFC. The fact that the said company was carrying on investment activities in securities is evident from his answer (A.6) that all the investments by BPL Sanyo Finance Ltd as on 31.3.97 are reflected in the audited balance sheet provide....
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....7, you have stated that Rs. 3, 35, 00, 000 and Rs. 27, 50, 000 were paid by BPL Limited to Digital Leasing and Finance Ltd, on our behalf for purchase of 1,10,000 shares of BPL Ltd. Does this tantamount to purchase of own shares by BPL Ltd? to which Shri Balathandayutham stated that As a part of the portfolio investment we use to request BPL Limited to transfer the funds to Digital Leasing and Finance Ltd. As the shares in BPL Ltd on 31.3.97 and subsequent period were sold, we wanted atleast to replenish the quantity sold by us. From Shri Balathandayutham's statements on record it is clear that BSFL used to deal in the shares of the Appellant. For its fund requirements it used to approach the Appellant. I do not see any thing illegal or improper as it is, on the part of BSFL, which is a finance company, in the normal course of the business activities purchasing and selling securities of companies including the shares of the Appellant. There is no prohibition in law on a group company investing in the shares of another company in the same group, provided the investment is not by the subsidiary in the shares of its holding company that it is no where stated in the order that BSFL is ....
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....auhan was authorised to take investment decision in the Appellant company or in BSFL. To another question (Q.15) as to what was the source of funds available with BPL Sanyo Finance Ltd for the purchase of these five lakh shares of BPL Shri Chauhan's answer was BPL Sanyo Finance Ltd. asked for a loan of rupees five crores from BPL Ltd. At BPL I am responsible for the sale of all the group companies and as and when any of the group companies has a requirement of funds, I authorise and provide temporary accommodation to them. Accordingly rupees five crores was given by BPL Ltd to BPL Sanyo Finance Ltd. Thus there is abundant evidence to show that the Appellant company had given money to BSFL. But at the same time no evidence has been produced to show that BSFL was given money to use it for any particular purpose and or that BSFL was acting at the behest of the Appellant. Digital's version that they received money directly from the Appellant itself is not a sound reason to conclude that Appellant was funding. The loanee can always direct the lender to disburse the amount to any person of the loanee's specification and in that case the lender will directly pay the sum to that specified ....
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....g of the BSFL. In addition, BPL and BSFL have three common directors namely Shri T.P.G. Nambiar, Shri M.A. Uppal and Shri T.C.Chauhan. these facts clearly suggest that BSFL is an associate of BPL ltd. It is also established that Shri T.C. Chauhan who is part of process of decision making for grant of loan/advances in BPL in his capacity as a director is also the person taking investment decisions for BSFL in his capacity as a Director of BSFL. The same is further corroborated by the statement of Shri Balathandayutham who in response to a separate query as to who takes the decision in BSFL for purchase of shares etc stated that the main director is Shri T.C.Chauhan. Thus it is clear that BPL was exercising its controlling mind in respect of BSFL. BSFL is an associate company of the Appellant is the main basis on which the Respondent has come to the conclusion that BPL was exercising its controlling mind in respect of BSFL. The fact that BSFL is an associate company of the Appellant has been even admitted by the Appellant. But then it is erroneous to view that because BSFL is an associate company of the Appellant, the Appellant should be exercising controlling mind in res....
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.... the Respondent's finding is based on the theory that BPL is the controlling mind in BSFL and as such the transactions effected by the said BSFL need be considered as the transactions effected by the Appellant. The Respondent's proposition that "BPL was exercising its controlling mind in respect BSFL so long remains unestablished the Appellant cannot be held liable for the actions of BSFL. On a perusal of the show cause notice and the impugned order it is found that the material allegations are mainly levelled against BSFL and the instances cited in para 1 in the Memorandum of appeal are born out of the record that (i) on 20.8.97 BSFL gave mandate to Digital to purchase 5 lakh shares of BSFL, (ii) contract note and bills in respect of the transaction were raised in the name of BSFL, (iii) Digital received Rs. 5 crores on 5.9.97 form BSFL, (iv) credit for this payment was given in the books of account Digital to BSFL, (v) Digital approached BSFL with an offer for sale of securities of Money Television, (vi) Digital sold securities of Money Television, BPL, Knobs Biotech, etc to BSFL, (vii) securities were delivered to BSFL. The various dates on which funds were supplied ha....
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....ositions in the scrip at BSE. This position was around 70% of the total position at the Exchanges (BSE and NSE) in BPL...................................... The said brokers of BSE and NSE who were dealing on behalf of Damayanti group and who had allegedly cornered a substantial stock of BPL shares faced payment problems and could not discharge their pay-in-liabilities as they did not receive payment from Damayanti group. In the order, it has also been asserted that Above facts strongly suggest that Damayanti group of companies were transacting as front companies to facilitate transactions of Shri Harshad Mehta who is a notified person under the Sepecial court (Trial of offences Relating to Transactions in Securities) Act, 1992 and is subject to several restrictions imposed by the Courts in respect to dealing in securities and therefore could not have dealt in his own name and therefore conceived of these entities to operate as a front for him in the securities. It has also been stated in the order that Damayanti Group had cornered large quantity of shares of BPL. Out of a floating stock of around 40 lakh shares, around 34 lakh shares were in the control of Shri Harshad Mehta throu....
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....s either directly or indirectly. Since BSFL has been found to be involved in the matter, why it was not subjected to investigation/inquiry and why no action was considered against it remains unexplained. According to the learned Senior Counsel for the Respondent all those entities involved such as Digital and other brokers and persons like Shri Harshad Mehta have been proceeded against. But BSFL was left untouched. Was it because that an order against BPL would be considered as an order against BSFL?. In my view not issuing show cause notice and pursing investigation into the conduct of BSFL cannot be considered as a trivial omission in the light of the factual position emerging out of the order. This omission has materially affected the outcome of the investigations. Yet another finding in the order is that the Appellant had provided funds to the tune of Rs. 47 crores to bail out the brokers in distress. In this context the portion dealing with the said charge is extracted below for ready reference: 12.1 (a) It has been revealed that a large number of brokers of BSE and NSE, dealing on behalf of Damayanti Group had cornered a substantial stock of BPL shares. It ....
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.... 4700.00 (b) It has further been revealed during the investigations that Exchange officials contacted SSKI to approach BPL for bailing out those brokers who were in difficulty. SSKI in turn approached BPL who arranged the necessary funds. BPL has not denied having provided funds for helping the brokers who were not able to met their pay-in liabilities, but, they stated they had not approached SSKI for the purpose but, it is the SSKI allegedly on behalf of BSE/ SEBI, who had approached them for making available the required funds for the purpose. In view of the admission of BPL regarding providing of funds for helping brokers, I do not consider it necessary to go into further details. (c) So far as BPL's submission that SSKI had allegedly approached them on behalf of BSE and that same had the approval of SEBI is concerned, I note that in response to a specific query during personal hearing, whether they can produce any written communication or refer to any oral advice by SEBI in this regard, BPL submitted that though they did not receive any formal or verbal communications from SEBI, but they were given the impression by ....
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....res @ Rs. 186.12 on 22/1/99. Thus, shares which were purchased for Rs. 47 crores on 17th and 19th June, were sold for a consideration of Rs. 35,36,20,000 i.e. at a loss of Rs. 11, 63, 80, 000. Against this loss, Monoplan Securities Ltd. has kept with them Rs. 15, 33, 90, 000 in the garb of allotment of preference shares to Orion Construction, which covers loss of Rs. 11.64 crores and accrued interest thereon. Thus, it establishes that BPL indirectly acquired shares through Monoplan Securities. 12.5 The above findings are further substantiated by the statement of Shri Pramod Purshottam Katdhare, a tax consultant handling financial and tax matters of some of the BPL Group companies and an authorised representative of BPL, who stated on oath that Chairman of BPL Mr. T.P.G. Nambiar was also very concerned about this crisis. The stock exchange approached BPL thorough SSKI for diffusing the payment crisis and in that connection, they transferred the funds to Monoplan and Badalona Overseas Pvt. Ltd. (associate companies of SSKI). So far as the time as to when the transfer of funds from BPL, Bangalore to Digital are concerned, he stated that Mr. Balathandayutham or Mr. Chau....
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.... to pump in money for bail out purpose. It was done at the behest of BSE to save the market from a serious crisis. The material reveals that it was not the Appellant, who decided as to who should be bailed out. It was BSE who decided the name of the brokers to be bailed out, the quantity of the shares to be purchased, the rate at which the purchase was to be made etc. This is evident from the following statement of Shri Tarun Parvin Chandra Shah (Tarun Shah) dated 16.9.98, which the Respondent has also relied on. Shri Tarun Shah was a director of SSKL, during the relevant period to whom the money was reportedly given by the Appellant for bail out purpose. Shri Tarun Shah had stated: As stated earlier, the negotiation was done with President and Vice President of the BSE. At their instance these purchases of BPL Ltd shares were made. We on our part wanted to ensure that we are not stuck up with bad delivery and so we desired that the deal should be routed through the Stock Exchange mechanism. As asked by the Stock Exchange President and Vice President we punched in the deals for purchase of BPL Ltd shares, and this was done at a mutually agreed price of Rs. 235/- per sha....
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.... Ltd is a SSKL company. Once it remains established that the funding of SSKL for bail out purpose was made at the behest of BSE, the channel and the manner in which the payment was effected is not of much relevance. The fact that SSKL was approached by BSE is evident from the copy of the letter dated 12.6.98 from BSE to SSKL filed in the appeal. This letter also gives the perception of BSE on the market crisis under reference: Substantive portion of the said letter is as under: Economic Sanctions following Indias Nuclear Test, non-fulfillment of investors expectations in the Union Budget 1998, plunging Yen and the very recent cropping of South East Asian Crisis has affected market sentiments. Seized of these problems SEBI has announced measures for strengthening the market. We are hopefull that with these regulatory measures and efforts put in by our exchange the investors confidence would be restored. The present outstanding positions of various members for the BPL shares is around 30 lakh shares. As the members has been successful in garnering suitable investors up to 5 lakh shares, we suggest you try and arrange for purchase 25 lakh sha....
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....e representation made by SSKL that they are sent by SEBI, Badalonna Overseas Pvt. Ltd and Monoplan Securities Ltd were the two companies belonging to SSKL, Rs. 47 crores was transferred to these two companies for purchase of debentures and preferential shares. Some preferential shares were allotted to Orion Construction Co. P. Ltd by Monoplan Securities. The rest of the money was refunded back later in the early part of 1999. From the position stated above, it is clear that Shri Katdhare is a person who knew the developments and there is no reason to disbelieve his statement. Therefore Shri Dada's reliance on the statement relating to funding of Rs. 47 crores for bail out purpose by the Appellant is acceptable. But the charge that BPL indirectly acquired (its) shares through Monoplan is baseless in the light of the material on record. The order has also highlighted Shri Katdhare's statement that Chairman of BPL, Shri T.P.G. Nambiar was also very concerned about this crisis to support the Appellant's involvement in the manipulation. I donot see any thing that way in the concern stated to have been expressed by Shri Nambiar to suggest the Appellant's involvement as alleged. Admitt....
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....of such a serious charge attracting serious consequences. It is also noticed that the Appellant is a large public limited company, with large number of public shareholders and therefore bracketing it with a notified person under the Special Court Act, in the absence of enough evidence, would not be correct. According to the Respondent, Damayanti group was a front of Shri Harhad Mehta who was under several restrictions and not allowed to deal in securities. It appears that, companies and other brokers knew that Shri Harshad Mehta was operating through Damayanti Group atleast from 1996 onwards. Shri Harshad Mehta was notified under the Special Court Act and his membership in the stock exchange was also suspended in 1992. When the market knew of Shri Harshad Mehta's activities in disguise, it is difficult to believe that the Respondent was unaware of the same till June 1998. If the Respondent did not know about his indirect presence in the market till they completed the investigation in 1998 then it is indicative of the Respondent's inadequate market intelligence set up. On the contrary if the Respondent was aware of his activities, the question why timely steps could not be taken ....
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....o cited certain cases, which I have extracted in the earlier part of the order and also Shri Dada's countering submissions thereon. I do not consider it necessary to discuss the principles laid down by the Court in the cases cited by them, in this regard as the Tribunal had considered the nature of evidence required for the purpose in Sterlite case (supra). I do not find any authority cited by them warranting reconsideration of the view held in Sterlite. In the Sterlite case also the charge was manipulation of the market and the direction issued by the Respondent therein was also identical, but for the tenure of the prohibition. The views expressed by this Tribunal 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, that in 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 i....
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.... at its conclusion on the basis of some evidence, i.e. evidential material which with some degree of definiteness points to the guilt of 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 against an advocate, the Hon'ble Court had held that disciplinary authority empowered to conduct the inquiry and to inflict the punishment on behalf of the body, in forming an opinion must be guided by the doctrine of benefit and is under an obligation to record a finding of guilt only upon being satisfied beyond reasonable doubt. It would be impermissible to reach a conclusion on the basis of preponderance of evidence or on the basis of surmise, conjucture or suspicion. It will also be essential to consider the dimension regarding mens rea ....
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....as set out by the Hon'ble Supreme Court cited above, it is seen that the evidence produced by the Respondents is not sufficient to hold the charge against the Appellant. From the case law referred to above it is clear that in the absence of reasonably strong evidence (though not beyond reasonable doubt), even in a civil proceeding, a person cannot be held guilty and awarded punishment. Mere surmise, conjucture or suspicion cannot sustain the finding of guilt. I have very carefully examined the impugned order and find that the conclusion drawn by the Respondents holding the Appellant 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. 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 said Damayanti group acted at the behest of the Appellant company, it is not possible to hold the Appellant liable for the activities of Damayanti group, especially in view of the seriousness of the allegation and the legal consequences thereof. Bail out per se is no....
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....dent Chairman has directed the Appellant company not to access the the capital market for a period of four years. It has also been directed that prosecution proceedings under section 24 of the SEBI Act for violation of clauses (a) and (d) of regulation 4 of said Regulations be initiated against BPL be through its directors/officers Shri Rajiv Chandrasekhar, Shri Ajit Nambiar, Shri R.Murali, Shri T.P.G. Nambiar and Shri T.C.Chauhan. The directions have been issued invoking the powers under section 11 and 11B of the Act. Learned Senior Counsel for the Respondent had submitted that not only under section 11 and 11B but under regulation 12(a) also such directions can be issued. Text of section 11 and 11B and regulation 12(a) has already been extracted in the earlier part of this order. This Tribunal considered the scope and reach of the said two sections in Sterlite case(supra) and had viewed as under: Now on the direction issued by the Respondent. It is seen from the order that the direction debarring the Appellant accessing the capital market was issued invoking the powers vested in the Respondent under section 11 and 11B of the Act . Since I have already reprod....
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....nst the Single Judge's order in Alka Synthetics Case (supra). The basic issue for consideration before the Division Bench in the said appeal was as to whether the Respondent had the authority to issue an order under section 11B of the Act for impounding or forfeiting the money received by stock exchanges, as per the concluded transactions under its procedure, until final decision is made. While negating the views of the Single Judge, and upholding the Respondent's power to issue such a direction under section 11B the Court observed:- The SEBI Act is an Act of remedial nature and, therefore, the present 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 language of section 11(1) itself shows and as the matters for which the measures can be taken are provided in sub-secti....
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....he scope of the expression 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, command. It has to be noted that section 11B does not even remotely empower the Respondent to impose penalties. Hon'ble Calcutta High Court had held that prescribing an offence and its punishment is an essential plenary function of the legislature (D.N.Ghosh v. Addl. Sessions Judge (AIR 1959 Cal.208.) Hon'ble Gujarat High Court also held the same view in Delux Land Organisers v. State of Gujarat (AIR 1992 Guj. 75) holding that "any power to impose penalty must be statutorily warranted and executive 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 Supr....
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....e impugned direction prohibiting the Appellant from accessing the capital market for a period of 2 years from the date of the order is preventive or remedial . In the absence of any explanation from the Respondent as to what exactly is meant by accessing the capital market, it has to be understood as is understood in the common parlance i.e. entry to the capital market for issuing/offering securities. In this context, it is to be noted that the charge against the Appellant 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 considered even remedial as prospective barring of a public issue cannot remedy an act of market manipulation allegedly indulged for a specific purpose, 3 years ago. A remedial action is normally seen as one intended to correct, remove or lessen a wrong, fault or defect. Purport of preventive or remedia....
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....ld that after completing the enquiry, a direction under section 11B which tantamounts to imposition 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 can be issued under section 11B as provided in the section, it is clear that a direction on conclusion of the inquiry cannot be in the nature of a penalty. Directions under section 11B can be issued only on being satisfied by the Board after an inquiry, that it is necessary (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted 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. In my view the impugned direction is beyond the scope of section 11B. It is also to be seen whether the impugned direction prohibiting the Appell....
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....sue such direction under regulation 12(a) read with regulation 11 as the said regulation empowers Respondent to direct the person concerned not to deal in securities in any particular manner. According to the learned Senior Counsel the words not to deal in securities are wide enough to cover debarring a company from accessing the market for a specific period. This interpretation of regulation 12(a), I am afraid, is too far fetched . It is well accepted in the market circle that accessing the capital market and dealing in securities are different. Raising money by a company from the public, by any standard cannot be considered as an act of dealing in securities. Dealing in securities normally means transactions in securities. Dealing in securities as per the definition at regulation 2(b) 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 agent. The act of raising capital from the market by its very nature does not come under the definition dealing in securities. Therefore the Respondents contention that under regulation 12(a) it is empowered to issue such direction is u....
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.... an offence punishable under the Act etc. by a court is permissible only on a complaint made by SEBI ( the Respondent). On a combined reading of sections 24 and 26 it is clear that prosecution for offences can be launched by the Respondent and the power to launch such prosecution is not in any way circumscribed by any of the provision of the Act. It is left to the discretion of the Respondent to decide to launch or not to launch prosecution under the Act. It is also to be noted that no order as such is required to launch prosecution in view of the clear provisions of section 26 of the Act because it is only SEBI which is competent 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 provisions 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 look into the provisions of section 27 of the A....
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....e are unable to accept the plea that impugned provisions abrogates prestige 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, which runs on the wheel of Rule of Law. On behalf of the Appellants it was argued that the Tribunal is adjudicating an appeal against the order made by the Respondent and one of the directions in the said order is to launch prosecution proceedings against the Appellants and therefore the Tribunal is competent to decide whether such an order directing prosecution is sustainable or not, that a person aggrieved by an order directing prosecution against him has the right to appeal against the order in terms of section 15T of the Act. Certainly Section 15T of the Act enables any person aggrieved by an order of ....