2000 (8) TMI 1135 - AT - SEBI

Summary

Issues Involved:
1. Debarring the appellant company from accessing the capital market for 5 years.
2. Allegations of fraudulent and unfair trade practices.
3. Inquiry and investigation procedures.
4. Suspension of trading in the appellant's shares.
5. Alleged bias and procedural delays by the respondent.
6. Applicability and scope of regulation 11 of SEBI Regulations.

Issue-wise Detailed Analysis:

1. Debarring the Appellant Company from Accessing the Capital Market for 5 Years:
The appellant company was debarred from accessing the capital market for 5 years by the respondent under regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Markets) Regulations, 1995. The respondent's decision was based on findings that the appellant had created artificial scarcity of shares, resulting in market illiquidity and price volatility.

2. Allegations of Fraudulent and Unfair Trade Practices:
The respondent alleged that the appellant indulged in fraudulent and unfair trade practices by withholding 7,24,800 shares from the market, creating artificial scarcity and resulting in price volatility. The appellant denied these allegations, stating that the shares were dispatched properly, and any discrepancies were due to delays and actions by third parties, not the appellant.

3. Inquiry and Investigation Procedures:
The appellant argued that the inquiry was not conducted fairly and violated principles of natural justice. The appellant highlighted procedural delays, lack of timely communication, and the respondent's evasive behavior. The respondent countered by stating that the investigation was thorough and aimed at protecting investor interests.

4. Suspension of Trading in the Appellant's Shares:
Trading in the appellant's shares was suspended on 16-5-1996 due to unusual price movements and high intraday volatility. The appellant contended that the suspension was unjust and prolonged, causing harm to investors. The respondent justified the suspension as a measure to prevent further market volatility during the investigation.

5. Alleged Bias and Procedural Delays by the Respondent:
The appellant accused the respondent of bias and procedural delays, including a significant time gap between the hearing and the issuance of the order. The appellant cited instances of non-responsiveness and delays in finalizing allotments and approvals. The respondent denied these allegations, asserting that all actions were taken in the public interest.

6. Applicability and Scope of Regulation 11 of SEBI Regulations:
The appellant challenged the applicability of regulation 11 for debarring them from the capital market, arguing that the regulation did not empower the respondent to issue such an order. The appellant also argued that the delay in issuing the order itself was grounds for setting it aside. The respondent maintained that the order was within the scope of regulation 11 and necessary to maintain market integrity.

Conclusion:
The tribunal weighed the contentions and found that the impugned order lacked justification. It noted that the evidence did not conclusively prove the appellant's involvement in creating market illiquidity and price volatility. The tribunal emphasized the distinction between the company and its promoters, stating that penalties applicable to promoters could not be imposed on the company. Consequently, the appeal was allowed, and the impugned order was set aside.