2013 (10) TMI 1475 - AT - Companies Law

Summary

Issues Involved:
1. Restraint on trading activities
2. Alleged arbitrary treatment and violation of fundamental rights
3. Alleged non-collection of margin
4. Role of appellants in facilitating illegal transactions
5. Parallel proceedings and their validity

Summary:

1. Restraint on Trading Activities:
The appellants were restrained from buying, selling, or dealing in securities for five years by the respondent u/s 11(4) and 11B of the SEBI Act, 1992 and Regulation 11(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. A period of one year and seven months already undergone was to be deducted from the restraint period. The restraint on the appellants' stock broking business imposed by the ad-interim ex parte order dated December 28, 2011, was to continue until the completion of the enquiry proceedings.

2. Alleged Arbitrary Treatment and Violation of Fundamental Rights:
The appellants argued that the respondent acted arbitrarily, violating their fundamental right to carry on trade u/s Article 19(1)(g) of the Constitution. The Tribunal held that the SEBI Act, 1992, and the regulations under it, including the FUTP Regulations and the Broker's Code, were enacted to protect investors and regulate the securities market. The Tribunal found no violation of fundamental rights, emphasizing that the regulatory measures were reasonable and in the interest of the general public.

3. Alleged Non-Collection of Margin:
The appellants contended that the only real case against them was the alleged non-collection of margin. They argued that SEBI's circular dated February 23, 2005, allowed them discretion in collecting margin money. The Tribunal found that the appellants allowed a client, Zala, to trade without any margin, using funds and securities from other clients and their own accounts, exposing the market to significant risk. The Tribunal rejected the appellants' contention, emphasizing the mandatory nature of margin collection as a vital risk management tool.

4. Role of Appellants in Facilitating Illegal Transactions:
The respondent found that the appellants facilitated Zala's trading on the first day of the IPO of TPL, leading to significant losses. The Tribunal noted that the appellants' actions, including using funds and securities from other clients to cover Zala's trades, pointed to their conscious role in the alleged manipulation. The Tribunal upheld the respondent's intervention to prevent potential market manipulation.

5. Parallel Proceedings and Their Validity:
The appellants argued against simultaneous enquiry and adjudication proceedings based on the same facts. The Tribunal held that such proceedings were permissible, noting that the enquiry and adjudication officers acted independently and impartially, and their findings would not be influenced by the impugned order. The Tribunal found no illegality in the parallel proceedings.

Conclusion:
The Tribunal dismissed the appeal, upholding the impugned order dated July 31, 2013, and confirming the restraint on the appellants. The Tribunal emphasized the importance of margin collection and the regulatory measures to protect the securities market.