2001 (10) TMI 1176 - AT - Companies Law

Summary

Issues Involved
1. Violation of SEBI regulations and market manipulation.
2. Procedural fairness and natural justice.
3. Evidentiary standards and the burden of proof.
4. Authority and scope of SEBI's powers under Sections 11 and 11B of the SEBI Act.

Summary

1. Violation of SEBI Regulations and Market Manipulation
The appeal was against SEBI's order prohibiting the appellant from accessing the capital market for two years and initiating prosecution proceedings u/s 24 read with Section 27 of the SEBI Act for violation of regulation 4(a) and 4(d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995. SEBI alleged that the appellant engaged in price manipulation through brokers and sub-brokers, leading to market distortion, particularly during April and May 1998. The appellant was accused of conniving with Mr. Harshad Mehta and providing an exit route when the artificial price increase was unsustainable.

2. Procedural Fairness and Natural Justice
The appellant argued that the impugned order was contrary to the rules of natural justice as SEBI did not provide a personal hearing or allow cross-examination of witnesses. The appellant specifically mentioned the statements of Shri Bimal Gandhi, who had passed away, thus losing the opportunity to controvert his evidence.

3. Evidentiary Standards and Burden of Proof
The appellant contended that SEBI's findings were based on insufficient evidence and conjecture. The burden of proof was on SEBI to establish the charge with supporting evidence, which they failed to do. The appellant argued that the transactions involving the purchase of shares were genuine and did not amount to market manipulation. SEBI's reliance on circumstantial evidence, such as the price movement of the appellant's shares and the involvement of the Damayanti Group, was deemed inadequate to prove the appellant's guilt.

4. Authority and Scope of SEBI's Powers under Sections 11 and 11B
The Tribunal examined the scope of SEBI's powers under Sections 11 and 11B of the SEBI Act. It was noted that while SEBI has broad powers to protect investors and regulate the securities market, these powers do not extend to imposing penalties without clear statutory authority. The Tribunal held that the direction prohibiting the appellant from accessing the capital market was punitive rather than preventive or remedial, and thus lacked legal backing.

Conclusion
The Tribunal allowed the appeal, setting aside the impugned order. It concluded that SEBI failed to provide sufficient evidence to establish that the appellant had indulged in market manipulation directly or indirectly. The procedural lapses and the inadequate evidentiary basis led to the conclusion that the order could not be sustained.