2001 (5) TMI 963 - AT - Companies Law

Summary

Issues Involved:
1. Prohibition on accessing the capital market.
2. Initiation of prosecution under section 24 of the SEBI Act, 1992.
3. Alleged price manipulation and market manipulation.
4. Non-disclosure of materials relied upon in the impugned order.
5. Denial of personal hearing to the appellant officers.
6. Jurisdiction and validity of the impugned order under sections 11 and 11B of the SEBI Act.
7. Penal liability of directors/officers under section 27 of the SEBI Act.
8. Balance of convenience and irreparable injury.

Detailed Analysis:

1. Prohibition on Accessing the Capital Market:
The impugned order directed BPL not to access the capital market for four years. The appellants did not press for an interim order staying this prohibition. This aspect of the order was not contested at this stage.

2. Initiation of Prosecution under Section 24 of the SEBI Act, 1992:
The impugned order also directed the initiation of prosecution under section 24 against BPL and its directors/officers. The appellants sought a stay of the substantive portion of the order relevant to this context, arguing that the order was not sustainable for several reasons. The Tribunal noted that the power to launch prosecution is independent of adjudication and is within SEBI's discretion. The Tribunal emphasized that it is not within its appellate powers to stall the launching of prosecution by SEBI under sections 24 and 26.

3. Alleged Price Manipulation and Market Manipulation:
The investigation by SEBI was triggered by abnormal price movements and large volumes in BPL shares between April and June 1998. SEBI's findings led to the issuance of show-cause notices alleging violations of regulation 4(a) and 4(d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995. The appellants argued that the transactions were carried out by BPL Sanyo Finance Ltd. (BSFL), not BPL, and that BSFL was a separate legal entity. SEBI's contention was that BPL provided substantial funds to manipulate the market.

4. Non-Disclosure of Materials Relied Upon in the Impugned Order:
The appellants argued that certain materials relied upon in the impugned order were not disclosed to them. They contended that they were not shown any material linking the Damayanti group to Harshad Mehta and that their request for cross-examination of a key witness was denied. SEBI countered that it had adequate evidence and was not required to disclose all evidence at this stage.

5. Denial of Personal Hearing to the Appellant Officers:
The appellants contended that they were not given a personal hearing despite requesting it. SEBI argued that personal hearings were not considered necessary, especially given the safeguards available under section 27 of the SEBI Act. The Tribunal noted that the appellants had put forth their submissions in writing.

6. Jurisdiction and Validity of the Impugned Order under Sections 11 and 11B of the SEBI Act:
The appellants argued that sections 11 and 11B, which are preventive and remedial, not punitive, were improperly invoked as the alleged price manipulation occurred in 1998, and the order was passed nearly three years later. They contended that the impugned order was penal and beyond the scope of section 11B. SEBI maintained that the order was within its jurisdiction and necessary to address the violations.

7. Penal Liability of Directors/Officers under Section 27 of the SEBI Act:
The Tribunal examined section 27, which holds directors/officers liable only if they were in charge and responsible for the conduct of the company's business at the time of the offence. The section provides safeguards for directors/officers to prove their non-involvement or due diligence to escape penal consequences. The Tribunal noted that prosecution does not automatically result in punishment and that directors/officers have the opportunity to defend themselves.

8. Balance of Convenience and Irreparable Injury:
The appellants argued that the prosecution would cause them considerable hardship and irreparable injury. SEBI countered that the appellants had not established a prima facie case, and the balance of convenience was not in their favor. The Tribunal agreed with SEBI, stating that an order to prosecute is not a penalty and that the appellants would not suffer irreparable injury by facing prosecution.

Conclusion:
The Tribunal rejected the appellants' request for an interim order, stating that the appellants had not made out a prima facie case, and the balance of convenience was not in their favor. The Tribunal emphasized that prosecution is an independent course of action and that the appellants would have the opportunity to defend themselves in court. The appeals were posted for final disposal on 6-8-2001.