TaxTMI 
TaxTMI 
2003 (9) TMI 831
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....all come into force with effect from October 11th 2002. It is further directed that promoters of M/s . Gold Multifab Ltd. , shall write to all allottees/existing shareholders asking them whether they would like to remain invested (?) with the company and if allottees/existing shareholders choose to exit; they should be given an option to sell the shares to the promoters. If the shares offered are fully paid up, then the promoters should give the face value to the allottees/existing shareholders and if the shares are partly paid up, then the promoters should give the amount subscribed to the allottees/existing shareholders. It is directed that the company shall send its compliance report (giving evidence as to writing to all the allottees/existing shareholders by the promoters and purchase of shares from such allottees/existing shareholders by the promoters who choose the option) within 45 days of receipt of this order." 2. The Respondent No. 1 passed the said order based on the following findings arrived at by him, as recorded in the order that: "I have carefully examined the findings of investigation, submissions made from time to time and material and evidence available on rec....
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....90% is baseless. He submitted that in fact the public issue was over subscribed by 2.95 times. 5. Learned Counsel submitted that the impugned public issue relates to February-March 1996 and the impugned order against the Appellant company and its directors was brought into effect on 11 October 2002 i.e. after 51/2 years of the public issue and 31/2 years after initiating investigation. He submitted that the subject matter of the impugned order really relates to the conduct of the intermediaries associated with the public issue, that despite the fact that it was the intermediaries i.e. Registrar to the Issue, Lead Manager to the Issue and Bankers to the Issue, who betrayed, deceived and committed fraud on the Appellants, the Respondent vide its order has penalized the Appellants. Learned Counsel submitted that the Respondent (SEBI) restrains companies from making public offer without appointing the registered Intermediaries, who are empowered and duty bound to undertake the roles, duties and functions laid down by SEBI, and the issuer company and promoters have limited knowledge of cumbersome SEBI guidelines and procedure of public issue and they have to rely on the SEBI registered....
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....e persons referred in section 12 of the SEBI Act. The Appellants are not persons covered under section 12 and, therefore, the Respondent cannot issue direction against the Appellants, and enforce the same. He further submitted that direction against a company can be issued only under section 11A and section 11A is available only for the limited purpose specified in the section and it has no application to the Appellant in the instant case. 10. Shri Kumar Desai, learned Counsel appearing for the Respondents submitted that the first Respondent in his order has clearly stated the charge against the Appellants and the clear findings thereon has also been stated. Shri Desai submitted that the Appellant company's claim that it had procured subscription much more than the specified minimum subscription, is not correct. Shri Desai referred to the impugned order and submitted that the Respondent has clearly established that the Appellants had manipulated the issue and minimum subscription was not received, that the subscription money was misused and they even indulged in buying back the shares in the process and violated the provisions of the Companies Act. He referred extensively to t....
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.... section 55 to 58, 59 to 84, 108, 109, 110, 112, 113, 117, 118, 119, 120, 121, 122, 206, 206A and 207 so far as they relate to issue and transfer of securities and non payment of dividend, in the case of listed public companies, and in case of those public companies which intend to get their securities listed on any recognized stock exchange in India, that it is not in dispute that the Appellant Company had issued the prospectus and it had sought permission from Stock Exchanges for listing the shares; that therefore, the Respondent is empowered to take action against the persons concerned for violation of the provisions of the Companies Act, referred to in the show cause notice.. 14. Shri Kumar Desai submitted that the Appellant Company is not entitled to the benefit under section 22 of the SICA and the view held by the Hon'ble Supreme Court in Real Value Appliances (supra) has no application to the Appellant's case. In this context he submitted that the proceeding initiated by SEBI in which the impugned order was passed is not a proceedings falling within the scope of section 22(1) of SICA. He referred to the said section 22(1) that: "Where in respect of an industrial c....
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....espondent SEBI is stated to have carried out an investigation in to the matter and collected material. Based on the material so collected the Respondent SEBI decided to conduct an inquiry and for the purpose a show cause notice was issued. In this context the show cause notice dated 29.2.2000 issued by Respondent No. 3 need be noticed. The notice after narrating the facts has stated as follows: "On the basis of the above evidences gathered in the course of investigation the following conclusions have been arrived at: 1. GML made allotments to applicants without receiving the consideration for the shares allotted and went ahead with allotting shares to applicants without receiving the minimum subscription. Thus, GML appears to have contravened the provisions of section 69 of the Companies Act, 1956. SEBI Guidelines on Disclosure and Investor Protection (June 18 1992) and also the terms and conditions of the Prospectus for the Issue. 2. Section 73 (3A) of the Companies Act specifies that the public issue proceeds standing to the credit of a separate bank account shall not be utilised for any purpose other than adjustment against allotment of shares or repayment of moneys receiv....
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....usion arrived at by the person who issued the show cause notice, based on the facts stated therein. Even though the Respondent No. 3 has referred to violation by the Appellants of the SEBI Guidelines and also the terms and conditions of the Prospectus, it is not clear as to which specific guideline/terms and conditions were violated. These sort of vague allegations are not to be sustained as the same does not provide an opportunity to the noticee to counter the charges. Therefore adjudication of the said two charges i.e. violation of the SEBI Guidelines on Disclosure and Investor Protection and violation of the terms and conditions of the Prospectus, and the decision based thereon can not be sustained, as the same is contrary to the rules of natural justice. Therefore, the charges against the Appellants, which need be taken cognizance are that of violation of section 69, 73(3A) and 77 of the Companies Act, 1956, in the light of the facts stated in the show cause notice. In this context it is pertinent to have a look at the said three sections of the Companies Act: Section 69 69.(1) No allotment shall be made of any share capital of a company offered to the public for subscripti....
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....ence on his part. (6) Any condition purporting to require or bind any applicant for shares to waive compliance with any requirement of this section shall be void. (7) This section, except sub-section (3) thereof, shall not apply in relation to any allotment of shares subsequent to the first allotment of shares offered to the public for subscription. Section 73(3) and (3A) 73(3) "All moneys received as aforesaid shall be kept in a separate bank account maintained with a Scheduled Bank until the permission has been granted, or where an appeal has been preferred against the refusal to grant such permission, until the disposal of the appeal, and the money standing in such separate account shall, where the permission has not been applied for as aforesaid or has not been granted, be repaid within the time and in the manner specified in sub-section 2 and if default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty thousand rupees. 73(3A) Moneys standing to the credit of the separate bank account referred to in sub-section (3) shall not be utilised for any purpose ot....
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.... every officer of the company who is in default, shall be punishable with fine which may extend to {ten} thousand rupees. (5) Nothing in this section shall affect the right of a company to redeem any shares issued under section 80 or under any corresponding provision in any previous companies law. 23. On a perusal of the above sections it is noticed that consequences for non compliance of the requirements of the said sections have been provided in the section itself. It is to be noted that section 69 requires the issuer company in the event of failure to procure minimum subscription to repay the entire subscription money to the applicants. Similarly section 73 requires the issuer company to return the money collected by way of subscription to the applicants, in case it fails to get the listing approval from the stocks exchanges in terms of the disclosure made in this regard in the Prospectus. In both the eventualities the issuer company is left with little option to retain the subscription money. In that context the SEBI's direction to the issuer company's promoters to give an option to the allottees/existing shareholders to continue to be a member of the company or to e....
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....re 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." 25. The scope and reach of section 11B is clear. Directions can be issued for the purposes stated in clauses (i)to (iii). The persons to whom such directions can be issued have also been stated in clauses (a) and (b). The Appellant's contention that they are not persons covered under section 12 and as such they are not amenable to section 11B is not correct. As Shri Kumar Desai rightly pointed out they are persons associated with the securities market and as such coming within the scope of section 11B. Thus there is no doubt as to the Chairman's power to issue directions under section 11B and the reach of the said section to the Appellants. Since the charges levelled against the Appellants are violation of certain provisions of the Companies Act it is necessary to examine as to whether section 11B has jurisdic....
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....ion 55A of the Companies Act. Section 55A was included in the Companies Act in the year 2000, vide Companies (Amendment)Act, 2000. The section is as follows: "55A. The provisions contained in sections 55 to 58, 59 to 81 (including sections 68A, 77A and 80A), 108, 109, 110, 112, 113, 116, 117, 118, 119, 120, 121, 122, 206, 206A and 207, so far as they relate to issue and transfer of securities and non-payment of dividend shall, -- (a) in case of listed public companies; (b) in case of those public companies which intend to get their securities listed on any recognized stock exchange in India, be administered by the Securities and Exchange Board of India; and (c) in any other case, be administered by the Central Government. Explanation.-For the removal of doubts, it is hereby declared that all powers relating to all other matters including the matters relating to prospectus, statement in lieu of prospectus, return of allotment, issue of shares and redemption of irredeemable preference shares shall be exercised by the Central Government, the Company Law Board or the Registrar of companies, as the case may be." 28. Authority to prosecute the persons violating the provisions ....