2008 (12) TMI 785 - AT - Companies Law

Summary

Issues involved: Allegations of market manipulation, violation of securities regulations, imposition of penalties, appeal against debarment from securities market.

Summary:
1. The case involved allegations of market manipulation by the promoters of Cyberspace, leading to an investigation by the Securities and Exchange Board of India (SEBI) into trading activities. The Board found that circular trades were executed to artificially raise the price and volumes of Cyberspace's shares, involving entities like Amit Interchemicals P. Ltd. The appellant, a director of Amit Interchemicals, was issued a show cause notice u/s 11 and 11B of the SEBI Act for his involvement in these trades.

2. The appellant filed a reply claiming innocence, stating that he was coerced into becoming a director of Amit Interchemicals and was unaware of the trades. However, evidence presented by the Board showed that the appellant had signed delivery instruction slips and was actively involved in the circular trades. The whole-time member passed an order debarring the appellant and Amit Interchemicals P. Ltd. from the securities market for 5 years, which led to the appellant filing an appeal against this decision.

3. During the appeal hearing, it was established that the appellant was indeed a director of Amit Interchemicals and had knowledge of the trades conducted by the company. Despite initial denials, the appellant's active participation in the circular trades was confirmed through documentary evidence. The appellant's argument of being misled by the promoters was rejected, and his lack of cooperation during the investigation was noted. The appeal was dismissed, upholding the penalty imposed on the appellant for his role in the market manipulation scheme.

4. The appellant's counsel argued for a reduction in the penalty, citing other cases with lesser punishments. However, the Tribunal found that each entity involved in the scheme had distinct roles, and the severity of the penalty was justified based on the appellant's direct involvement as a director of Amit Interchemicals. Comparisons to cases of brokers and individual investors were made to emphasize the seriousness of the appellant's actions. Ultimately, the appeal was rejected, and the penalty remained unchanged.