2012 (7) TMI 1053 - AT - Companies Law

Summary

Issues Involved:
1. Whether the appellant violated regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (FUTP Regulations).
2. Whether the appellant's role as a financier constituted involvement in manipulative trades.
3. Whether the appellant's actions warranted the prohibition from accessing the securities market for a period of 2 years.

Summary:

Issue 1: Violation of FUTP Regulations
The appellant was accused of violating regulations 3 and 4 of the FUTP Regulations. The whole time member of the Securities and Exchange Board of India (SEBI) found the appellant guilty of engaging in manipulative trades aimed at creating artificial volumes and misleading the market. However, the appellant contended that he merely provided a loan against shares and did not engage in any trading activities. The Tribunal noted that the appellant did not transfer the shares after receiving them and retained them as security, thus not contributing to any manipulative activities. The Tribunal concluded that the appellant's role as a financier did not establish a violation of the FUTP Regulations.

Issue 2: Appellant's Role as a Financier
The appellant provided a loan of `72,37,000 to M/s. Mahesh Kothari Share and Stock Brokers P. Ltd. (M.K.) against 4,00,000 shares of Alka Securities Ltd. The shares were transferred to the appellant's demat account, but he did not trade them. The SEBI argued that the appellant's involvement in the transfer of shares contributed to circular trading. However, the Tribunal found that the appellant's role was limited to providing a loan and retaining the shares as security. The Tribunal emphasized that the appellant's actions did not indicate any intention to participate in manipulative trades.

Issue 3: Prohibition from Accessing the Securities Market
The SEBI's order prohibited the appellant from accessing the securities market for 2 years. The appellant argued that this prohibition would have disastrous consequences for his business, which primarily involved share trading. The Tribunal observed that the appellant's conduct did not demonstrate any manipulative intent or connection with the entities involved in the alleged manipulative activities. The Tribunal concluded that the prohibition was a harsh punishment given the appellant's limited role and lack of wrongdoing.

Conclusion:
The Tribunal set aside the order of the whole time member of SEBI, allowing the appeal and lifting the prohibition on the appellant from accessing the securities market. The Tribunal found that the appellant's role as a financier did not constitute involvement in manipulative trades and that no violation of the FUTP Regulations was established. The Tribunal emphasized that the appellant's actions were consistent with providing a loan and retaining shares as security, without engaging in any fraudulent or manipulative practices.