TaxTMI 
TaxTMI 
2013 (7) TMI 1077
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....llant Nos. 2 to 7) from accessing the securities market and also prohibiting them from buying, selling or dealing in the securities market in any manner whatsoever till further orders. The Appellants have also been called upon to furnish a bank guarantee for one year for an amount of USD 33.93 million within 30 days with other connected directions. The said order is stated to have been passed under Section 19 read with 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 (SEBI Act) and Section 12A of the Securities Contracts (Regulation) Act, 1956 (SCR Act). 2. The operative portion of the said order reads as under:- "25. Therefore, in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me by virtue of section 19 read with sections 11(1), 11(4) and 11B of SEBI Act, 1992 and section 12A of the Securities Contracts (Regulation) Act, 1956, pending investigation, hereby issue the following directions, by way of this ad-interim ex-parte order: i. The following promoters of ZIL are restrained from accessing the securities market and further prohibited from buying, s....
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.... Mr. Janak Dwarkadas, learned senior counsel with Mr. Navroz Seervai, learned senior counsel appearing for the interveners. After hearing the learned counsel for the parties the appeal is admitted. Two weeks' time is granted to the respondent to file their reply-affidavit with an advance copy to the other side. 2. Similarly, turning to the Misc. Application preferred by the interveners today itself, parties have been heard. Prima-facie the Tribunal is of the opinion that the interveners should also be heard in this matter before any final order is passed. Misc. Application is, accordingly, allowed and interveners are also granted two weeks time to file their reply in the matter. Copy of appeal shall be given forthwith to the interveners so as to enable them to do the needful. 3. Also heard parties on the question of interim relief. Keeping in view the totality of facts and circumstances of the case and submissions made by the parties, the operation of the impugned ad interim ex parte order dated March 25, 2013 is hereby stayed in so far as para 25(ii) is concerned during the pendency of the present appeal. Para 25(i) of the impugned order shall, however, opera....
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....at issuance of FCCBs, their redemption and any dispute in case of default in redeeming the same by the Appellants, are all governed by the laws of the country where the FCCBs in question have been issued. It is emphatically submitted that FCCBs, therefore, do not fall under the provisions of the SEBI Act, 1992 or other securities laws in India. In this context, the Appellants submit that on their default to redeem the monies in question, the interveners and some other parties have already approached the Hon'ble High Court and Learned Small Causes Court, Mumbai in appropriate proceedings against the Appellants. It is, therefore, contended that SEBI is precluded from launching parallel proceedings against the Appellants on the same dispute involving exactly the same subject matter. 7. The case of the Appellants is that the FCCBs in question were issued and the monies collected by the Appellants at a time when the world economy was in boom almost everywhere. The rate of exchange of the American Dollar was between Rs. 41 to Rs. 45 during the relevant period. In the circumstances, it was the earnest belief of the Appellants that atleast a substantial part of the FCCBs would be co....
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.... Nos. 1 to 3. As part of the transaction, all the shares of Zenith Monitoring were sold on or around September 23, 2011 at face value plus costs of incorporation to Zenith RMM. The purpose of incorporating Zenith Monitoring was to make it a wholly owned subsidiary of Zenith RMM for the purpose of transferring about 550 employees in India along with movable assets of the MSD Business that were in India. The process of sale of the MSD Business was completed in the month of October, 2011. It is contended by the Appellants that the bondholders and trustees have always been aware of the fact that ZIL was in the process of mobilising funds for the purpose of, inter alia, redemption of FCCBs. In fact, the Appellants also seem to have made an attempt to negotiate amicably with the investors/bondholders for extension of time to redeem the FCCBs in question. In the process, the cutoff date i.e. September 21, 2011 meant for the maturity of the 2011 FCCBs lapsed and the trustees issued a notice of default on September 30, 2011 coupled with a notice of cross default for the 2012 FCCBs under Condition 11(D) of the Conditions relating to the said FCCBs. The trustees demanded payment of both the F....
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.... make any payment. In view of the default, the plaintiff issued notice of demand as contemplated by the agreements and also addressed notices in October 2011 to defendant No. 1 being Notice of Acceleration and declaring the 2012 Bonds as due and payable". I am also prima facie satisfied that the Defendant Nos. 1, 5 and 6, despite representing their shareholders, Stock Exchange and the City Civil Court that the consideration received from the sale of the MSD business or at least part thereof would be applied towards buy-back/redemption of FCCBs, have after the sale of the MSD business, not paid any amount whatsoever towards buy back/redemption of FCCB series. 17. Order 38 Rules 5 to 13 of the CPC, 1908 pertains to attachment of properties of a party before judgment. Rule 5 provides that where, at any stage of a suit, the Court is satisfied by affidavit or otherwise, that the Defendant, with intent to obstruct or delay the execution of any decree that may be passed against him, (a) is about to dispose of the whole or any part of his property, or (b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court, the Court may ....
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....gainst the assets of the Defendant No. 1. However, in the instant case, the Defendant Nos. 1,5 and 6 have themselves without prejudice to their rights and contentions expressed their willingness to undertake to the Court not to dispose of any of their assets disclosed on oath save and except the cash and bank balances and the amounts received by them from their sundry creditors from time to time to enable them to carry on their business which would include payment of wages to 1000 workmen. Attaching the Bank balances of approximately Rs. 28 crores and the amount to be received from sundry creditors is bound to stop the day to day business of the Company affecting the lives of 1000 workmen and their family members. This will not be in the interest of anyone including the Plaintiff. Even otherwise, I am also not inclined to pass such a drastic order of stopping the entire business of the Defendant No. 1 at the ad-interim stage. In view thereof, until further orders, I pass the following order: (i) The undertaking given by Defendant Nos. 1, 5, and 6 viz. that the Defendants shall until further orders not dispose of, sell, transfer alienate or create any third party right or i....
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.... Hon'ble High Court and the rights and interests of the affected parties in the matter of redemption of the FCCBs in question are duly protected by the above said order dated October 9, 2012. The Appellants also submitted during the course of arguments that they have deposited Rs. 25 crore pursuant to the order of the Hon'ble High Court. 10. Per contra, the case of Respondent No. 1 is that not only, there was failure on the part of the Appellants to inform the BSE and NSE regarding the defaults with respect to the FCCBs in question, but the funds purportedly raised for redemption of said FCCBs were used for other purposes. This amounts to fraud within the meaning of provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 and is also opposed to various provisions of the SEBI Act, 1992, the SCR Act, 1956 as well as the SEBI (Prohibition of Insider Trading) Regulations, 1992. The Respondent No. 1 has drawn our attention towards findings arrived at by the Ld. WTM in the impugned order dated March 25, 2013 particularly in paragraphs 15, 16, 18, 19 and 20 which can be summarised as below:- i) The am....
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....y-one days in advance of the date on and from which the interest on debentures and bonds, and redemption amount of redeemable shares or of debentures and bonds will be payable and will issue simultaneously the interest warrants and cheques for redemption money of redeemable shares or of debentures and bonds, which shall be payable at par at such centres as may be agreed to between the Exchange and the Company and which shall be collected at par, with collection charges, if any, being borne by the Company, in any bank in the country at centres other than the centres agreed to between the Exchange and the Company, so as to reach the holders of shares, debentures or bonds on or before the date fixed for interest on debentures or bonds or redemption money, as the case may be." 13. Learned senior counsel for the Respondent No. 1, Mr. Shyam Mehta, submitted that the expression "bonds" used in above said Clause 21 covers FCCBs as well, for the simple reason that it is not excluded in the definition. Secondly, Mr. Mehta submits that a purposive and dynamic interpretation is required to be given to Clause 21 of the Listing Agreement so as to further enhance the definition and concept of ....
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....listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder; (d) engage in insider trading; (e) deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder; (f) acquire control of any company or securities more than the percentage of equity share capital of a company whose securities are listed or proposed to be listed on a recognised stock exchange in contravention of the regulations made under this Act." Regulation 3 of SEBI (PFUTP) Regulations, 2003 "Prohibition of certain dealings in securities No person shall directly or indirectly- (a) buy, sell or otherwise deal in securities in a fraudulent manner; (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contraven....
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....ady reference:- "23. In the facts and circumstances of the case, it is necessary to take urgent action for the above violations so as to prevent further loss of shareholders' value due to stripping of the asset and erosion of value in ZIL and also to preclude reoccurrence of such defaults/violations. It is also noteworthy that the conduct of ZIL and its promoters/directors may raise concerns about the integrity of the securities market and may tarnish the image and reputation of the Indian securities market amongst foreign investors which is bad for development of the markets. 24. Given the vital function of protecting investors and safeguarding the integrity of the securities market vested in SEBI and the commensurate powers given to it under the securities laws, it is necessary for SEBI to exercise these powers firmly and effectively to insulate the market and its investors from the fraudulent actions of the participants in the securities market. One of the basic premise that underlies the integrity of securities market is that the participants conform to standards of transparency, good governance and ethical behavior prescribed in securities laws and do not....
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....stating that Appellant No. 1 acted in contradiction to the shareholders' resolution in relation to the sale of the MSD business. It is submitted by Respondent Nos. 2 & 3 that Mr. Rajkumar Saraf, Appellant No. 2 stated in an affidavit that the sale proceeds received by Appellant No. 1 (ZIL) will be applied towards buy-back redemption of FCCBs etc. which was not done. 20. The trustee for the FCCBs pursuant to the instructions of Respondent Nos. 2 & 3 also filed Suit No. 2865 of 2011 before the Hon'ble Bombay High Court along with a Winding-up Petition against the Appellant No. 1 being Company Petition No. 28 of 2012. The trustees also filed Notices of Motion No. 3520 of 2011 and No. 3527 of 2011 for attachment before judgment and for other ad-interim reliefs. The Notices of Motion were heard and disposed of by the Hon'ble High Court by its order dated October 9, 2012 which recorded the undertakings of Appellant Nos. 1 to 3 as under:- 1. Shall not dispose of, sell, transfer, alienate or create any third party right or interest in respect of Cloud Computing Business of the Company. 2. Shall maintain status quo in respect of the Company's fixed asset....
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....impugned order further records that vital function of SEBI is protecting investors and safeguarding integrity of securities market vested in SEBI and commensurate powers given to it under securities laws. Next, Hon'ble Supreme Court in N. Narayanan vs. Adjudicating Officer, SEBI, has enunciated principles in relation to conduct of entities operating in the securities market and the role of SEBI as the market regulator. In paragraph 30 it is stated that any manipulative or deceptive practices in contravention of the SEBI Act or its Regulations whether employed directly or indirectly in connection with the issue, purchase or sale of any securities listed in the Stock Exchange must be dealt with in accordance with the provisions of the Act, which is absolutely necessary for investors protection and to avoid market abuse. In paragraph 35, the Hon'ble Supreme Court lays down the parameters regarding the concept of market abuse and directs that the SEBI to act as an auditor and an overseer to ensure that no market abuse takes place. The Hon'ble Supreme court states that SEBI has a duty to send out a message to foreign investors that market security is the motto of the securit....
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....tention of the Respondents. 23. Further, the fact is that there may be an order in the Civil Suit filed by the trustee for recovery of monies recording the undertaking of Appellant No. 1 not to dispose of its movable and immovable assets, this firstly establishes that the Company has defaulted in obligations regarding the FCCBs requiring the Civil Court to pass such an order; and secondly does not in any manner divest SEBI of its power to protect the interests of the shareholders of Appellant No. 1 who are not the plaintiffs in the Civil Suit. The impugned order is infact an order which is in the interests of the minority public shareholders who due to small holdings would not have the wherewithal to approach the Civil Court. 24. The relevant provisions of law under which the ad-interim ex-parte order is stated to have been passed are reproduced hereinbelow:- SEBI Act, 1992 Delegation. "Section 19 The Board may, by general or special order in writing delegate to any member, officer of the Board or any other person subject to such conditions, if any, as may be specified in the order, such of its powers and functions under this Act (except the powers ....
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....in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market: Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned. "Section 11B. Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary, - (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any 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, 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 11....
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....d by the Appellants is that the impugned ad-interim ex-parte order of Ld. WTM, SEBI is almost final in nature in as much as it seeks to restrain the Appellants from accessing the securities market, in any manner whatsoever till further orders, and further directs them to deposit USD 33.93 Million as Bank Guarantee for a period of one year. The Appellants submit that there are other drastic findings against the Appellants in the whole order which have been gravely prejudicial to the interests and defence of the Appellants and the same have been passed without affording any opportunity of hearing to the Appellants. The post decisional opportunity of hearing sought to be granted to the Appellants by filing a reply within three weeks is nothing but an empty formality. 27. We have given our thoughtful consideration to the matter and the submissions made by Mr. Fredun Devitre, learned senior counsel for the Appellants, Mr. Shyam Mehta, learned senior counsel for Respondent No. 1 and Mr. Janak Dwarakdas, learned senior counsel for Respondent Nos. 2 and 3. We are of the considered opinion that the impugned ad-interim ex-parte order dated March 25, 2013 is not sustainable in the eyes of ....