2003 (10) TMI 669 - AT - Companies Law

Issues Involved:
1. Validity of the SEBI order dated 24.10.2002.
2. Allegations of irregularities in investments by Shriram Mutual Fund (SMF).
3. Denial of cross-examination rights to the appellant.
4. Applicability of SEBI (Mutual Fund) Regulations to individuals.
5. Date of the transaction in dispute.
6. Infirmities in the impugned order.
7. Applicability of Section 11B of the SEBI Act.
8. Allegations of creating false documentary evidence.

Issue-wise Detailed Analysis:

1. Validity of the SEBI order dated 24.10.2002:
The SEBI order disqualified the appellant from holding any public position in any capital market-related institution for one year. This order was challenged on grounds of procedural impropriety and denial of natural justice, particularly the right to cross-examine witnesses whose statements were relied upon by SEBI.

2. Allegations of irregularities in investments by SMF:
The SEBI investigation revealed that the investments by SMF were not in the best interest of the unit holders and provided undue advantage to entities associated with the sponsors. SEBI held the appellant, the Managing Director of SAM, responsible for these irregularities, leading to the disqualification order.

3. Denial of cross-examination rights to the appellant:
The appellant repeatedly requested to cross-examine Jaysukhlal Jagjivan and Nitin Doshi of JSBL, whose statements were crucial to SEBI's findings. SEBI denied this request, leading to the appellant's contention that this denial violated principles of natural justice. The Tribunal agreed, stating that the right to cross-examine is fundamental when statements are disputed.

4. Applicability of SEBI (Mutual Fund) Regulations to individuals:
The appellant argued that the SEBI (Mutual Fund) Regulations apply to the Asset Management Company (AMC) and not to individual directors. SEBI's order held the appellant personally responsible, which the appellant contested. The Tribunal did not conclusively resolve this issue but focused on procedural fairness.

5. Date of the transaction in dispute:
The date of the transaction was crucial to the charges. SEBI claimed the transaction occurred on 24.06.1998, while the appellant maintained it was on 19.06.1998. The Tribunal noted conflicting evidence and statements regarding the transaction date, emphasizing the need for cross-examination to resolve these discrepancies.

6. Infirmities in the impugned order:
The appellant highlighted several infirmities, including reliance on disputed documents and statements, and the lack of opportunity to rebut these through cross-examination. The Tribunal found merit in these contentions, pointing out that SEBI's reliance on unverified statements without allowing cross-examination was procedurally flawed.

7. Applicability of Section 11B of the SEBI Act:
The appellant argued that the order under Section 11B was punitive rather than preventive. SEBI contended it was within its powers to issue such orders in the interest of investors and the securities market. The Tribunal did not delve deeply into this issue, focusing instead on the procedural aspects.

8. Allegations of creating false documentary evidence:
SEBI accused the appellant of creating false documents to mislead the investigation. The appellant denied these allegations, arguing that the documents were genuine and the transaction date was correctly recorded. The Tribunal noted the conflicting evidence and stressed the need for cross-examination to establish the truth.

Conclusion:
The Tribunal found that SEBI's order was procedurally flawed due to the denial of the appellant's right to cross-examine key witnesses. It emphasized the importance of natural justice and remanded the matter to SEBI, directing it to allow the appellant to cross-examine the witnesses and then pass a fresh order. The appeal was allowed by way of remand.

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