TaxTMI 
TaxTMI 
2008 (3) TMI 737
X X X X Extracts X X X X
X X X X Extracts X X X X
....would have to be refunded. It is further alleged that the promoters of Mazda had undertaken to buy back the shares from the allottees and pay interest to them for the period of investment. Investigations carried out by the Board revealed that 50 applications had been received for 1000 shares each accompanied by cheques which were in continuous serial numbers from the same account maintained with State, Bank of Indore, Raipur. It is claimed that the continuous cheque numbers for different applications should have alerted the appellant as the lead manager and even the Registrar to the issue (which was a different entity altogether) in scrutinizing the applications accompanying those cheques and since it failed to get alerted, it assisted the promoters of Mazda in fulfilling the subscription level. Another allegation made against the appellant is that as the lead manager to the issue, it failed to ensure that the Registrar to the issue was not making irregular allotments to applicants with a view to bail out the issue. In view of these allegations it was alleged that the appellant as a merchant banker had violated Clauses 1, 2 and 9 of the code of conduct prescribed in Schedule III to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions of the Act, rules or regulations; (ii) the merchant banker- (a) fails to furnish any information relating to his activity as merchant banker as required by the Board; (b) furnishes wrong or false information; (c) does not submit periodical returns as required by the Board; (d) does not cooperate in any enquiry conducted by the Board; (iii) the merchant banker fails to resolve the complaints of the investors or fails to give a satisfactory reply to the Board in this behalf; (iv) the merchant banker indulges in manipulating or price rigging or cornering activities; (v) the merchant banker is guilty of misconduct or improper or unbusiness like or unprofessional conduct which is not in accordance with the Code of Conduct specified in Schedule III; (vi) the merchant banker fails to maintain the capital adequacy requirement in accordance with the provisions of Regulation 7; (vii) the merchant banker fails to pay the fees; (viii) the merchant banker violates the conditions of registration; (ix) the merchant banker does not carry out his obligations as specified in the regulations. 37. Cancellation o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s specified in Section 11A, as may be appropriate in the interests of investors in securities and the securities market. A reading of the aforesaid provisions would make it clear that in the year 1996 when the appellant is alleged to have committed the aforementioned irregularities, the Regulations provided that the only penalty that could be imposed on a delinquent was either suspension of its certificate of registration as a merchant banker or its cancellation. It would follow that in the case of either of these penalties being imposed, the delinquent entity could carry on other activities in the market except business as a merchant banker. For instance, if a merchant banker was also a registered stock broker and if penalty of suspension or cancellation of its certificate of registration as a merchant banker were to be imposed, it could continue its activities as a stock broker. It is a matter of common knowledge that persons get themselves registered as market intermediaries for carrying on different activities for which they obtain different registration certificates. In other words, the same entity could wear different hats and quite often it does. Section 11B of the Act, on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to proceedings under Section 11B unless a regulatory order also needs to be passed. The Board cannot punish a delinquent merchant banker by taking recourse to Section 11B. Section 11B is meant for a different purpose. The directions under Section 11B could be more far reaching than the mere penalty which could be imposed under the Regulations or under the Enquiry Regulations, as the case may be. If proceedings under the Enquiry Regulations or the Regulations had been initiated and the appellant had been found guilty, then one of the penalties referred to in those Regulations could be imposed and the maximum that could happen was cancellation of its certificate of registration as a merchant banker (though the facts of this case do not warrant such action). In that event it could continue with its activities other than the business as a merchant banker. The sweeping direction issued under Section 11B restrains the appellant from accessing the capital market altogether for one month. The result is that the appellant cannot carry on any of its activities in the market for which it may be holding valid certificate(s) of registration. We do not think that the Board was right in initiati....