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Issues Involved:
1. Allegation of market manipulation by the Appellant company. 2. Examination of the evidence and principles of natural justice. 3. Prosecution of the Appellant company through its directors/officers. 4. Validity and scope of the directions issued under Sections 11 and 11B of the SEBI Act and Regulation 12 of the 1995 Regulations. Issue-wise Detailed Analysis: 1. Allegation of Market Manipulation by the Appellant Company: The core allegation against the Appellant company was that it was involved in market manipulation by artificially raising the prices of its shares and creating a false market in connivance with Shri Harshad Mehta through the Damayanti group. The Respondent SEBI observed abnormal price movements in the Appellant's shares, with the price rising from Rs. 180 in April 1998 to Rs. 446 by the first week of June 1998, which was not in line with the BSE Sensex or NSE Nifty movements. The price then fell sharply to Rs. 139 in June 1998. SEBI's investigation revealed that a set of brokers and sub-brokers, acting on behalf of the Damayanti group, cornered a large quantity of the Appellant's shares, building unusually large positions in the carry forward segment, which was accompanied by a corresponding increase in the scrip price. 2. Examination of the Evidence and Principles of Natural Justice: The Appellants contended that the order was bad in law as it was passed without following the principles of natural justice and without jurisdiction. They argued that SEBI relied on certain material not disclosed in the show cause notice and denied the Appellants the opportunity to cross-examine critical witnesses. The Tribunal found that the Appellants were given reasonable opportunities to inspect documents and that the denial of cross-examination of Shri Shripal Morakhia was justified as SEBI did not rely on his statement in the impugned order. The Tribunal noted that the principles of natural justice were substantially followed. 3. Prosecution of the Appellant Company Through its Directors/Officers: The Tribunal observed that the direction to launch prosecution under Section 24 of the SEBI Act was incidental to the finding of guilt against the Appellant company. The Tribunal noted that there was no specific finding of guilt against the individual directors/officers in the impugned order, and their prosecution was based on their roles in the company. The Tribunal held that the decision to prosecute did not violate the principles of natural justice as the directors/officers would have the opportunity to defend themselves in the trial court. 4. Validity and Scope of the Directions Issued Under Sections 11 and 11B of the SEBI Act and Regulation 12 of the 1995 Regulations: The Tribunal examined the scope of Sections 11 and 11B of the SEBI Act, which empower SEBI to issue directions in the interest of investors and the securities market. The Tribunal reiterated its view from the Sterlite case that the power under Section 11B is preventive and remedial, not punitive. The direction prohibiting the Appellant from accessing the capital market for four years was found to be punitive in effect, as it took away the Appellant's right to raise funds for its business. The Tribunal held that such a direction was beyond the scope of Section 11B and Regulation 12(a), which does not cover raising capital from the market. The Tribunal concluded that the impugned direction was not legally sustainable. Conclusion: The Tribunal set aside SEBI's order directing the Appellant company not to access the capital market for four years, finding insufficient evidence to establish the charge of market manipulation. The Tribunal also held that the direction to launch prosecution against the Appellant company through its directors/officers was beyond its jurisdiction to adjudicate. The appeals were allowed to the extent stated.
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