2003 (9) TMI 796 - AT - Companies Law

Summary

Issues Involved:
1. Validity of SEBI's Order under Section 11B of SEBI Act, 1992.
2. Allegations of Fraudulent and Unfair Trade Practices.
3. Role and Involvement of the Appellant in the Alleged Market Manipulation.
4. Applicability of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.
5. Adequacy and Scope of Show Cause Notice.
6. Delay in Issuance of SEBI's Order.

Detailed Analysis:

1. Validity of SEBI's Order under Section 11B of SEBI Act, 1992:
The SEBI's order dated 29.11.2002 debarring the Appellant from accessing and being associated with the capital market for five years was challenged. The Appellant argued that Section 11B does not empower SEBI to impose punitive measures. The Tribunal noted that Section 11B is preventive and remedial, not punitive, and the order was set aside due to lack of evidence supporting the charges against the Appellant.

2. Allegations of Fraudulent and Unfair Trade Practices:
SEBI's investigation revealed that the Appellant financed six multiple applications for shares in the public issue of MFL, resulting in irregular allotments. SEBI alleged that these actions facilitated an artificial rise in MFL's share prices, constituting market manipulation and unfair trade practices under regulations 4 and 6 of the FUTP Regulations. However, the Tribunal found no convincing evidence of the Appellant's involvement in post-allotment market manipulation, and thus, the charge of fraudulent activities was not substantiated.

3. Role and Involvement of the Appellant in the Alleged Market Manipulation:
The Appellant contended that its role was limited to providing financial accommodation to Shri Gopal Khadaria as a professional financier, without any knowledge of the alleged market manipulation. The Tribunal observed that the Appellant's actions were in line with a legitimate business transaction and there was no evidence to prove that the Appellant knowingly participated in fraudulent activities. The Tribunal noted that the Appellant handed over the shares to Shri Khadaria upon receiving interest, and there was no further involvement in the alleged manipulation.

4. Applicability of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995:
The Appellant argued that the FUTP Regulations, notified on 25.10.1995, were not applicable as the agreement and applications were made before this date. SEBI countered that the actions continued until 27.12.1995, making the regulations applicable. The Tribunal agreed with SEBI on the applicability of the regulations but found no evidence of the Appellant's violation of these regulations.

5. Adequacy and Scope of Show Cause Notice:
The Appellant argued that the show cause notice did not adequately charge it with knowingly participating in market manipulation. The Tribunal noted that the show cause notice focused on the Appellant's role in financing multiple applications, but there was no charge of intentional fraud. The Tribunal found that SEBI's order went beyond the scope of the show cause notice, making the order untenable.

6. Delay in Issuance of SEBI's Order:
The Appellant contended that the delay of over seven years in issuing the order was unjust. SEBI argued that market manipulation investigations take time. The Tribunal acknowledged the delay but did not find it a sufficient reason to set aside the order solely on this ground. However, the lack of evidence substantiating the charges was the primary reason for setting aside the order.

Conclusion:
The Tribunal set aside SEBI's order to the extent it applied to the Appellant, as SEBI failed to substantiate the charges of violating the FUTP Regulations. The Appellant's role was limited to providing financial accommodation, and there was no evidence of its involvement in market manipulation.