2000 (7) TMI 1004 - AT - SEBI

Summary

Issues Involved:
1. Liability of the appellants to refund the application money.
2. Jurisdiction and powers of the respondent under section 11B of the SEBI Act.
3. Applicability of section 73 of the Companies Act.
4. Due diligence and negligence of the appellants.
5. Timeliness and limitation of the respondent's order.
6. Interest liability on the refund amount.
7. Role and responsibilities of Bankers to an Issue.
8. Whether the impugned order is a decree for recovery of money.
9. Non-joinder of necessary parties in the inquiry.

Detailed Analysis:

1. Liability of the Appellants to Refund the Application Money:
The Tribunal confirmed that the appellants, as Bankers to an Issue, were liable to refund the application money collected from the public. The appellants had transferred the funds to the issuer company without ensuring that the company's shares were listed on all stock exchanges mentioned in the prospectus, thus breaching their fiduciary duty. The Tribunal emphasized that the application money was held in trust for the benefit of the subscribers and should have been refunded when the public issue became void due to the Bombay Stock Exchange's refusal to list the shares.

2. Jurisdiction and Powers of the Respondent under Section 11B of the SEBI Act:
The Tribunal upheld the respondent's jurisdiction and powers under section 11B of the SEBI Act to issue directions to the appellants to refund the money. It was clarified that section 11B empowers the respondent to take necessary measures to protect the interests of investors, and this includes issuing directions to any person associated with the securities market. The Tribunal referred to the Gujarat High Court's decision in Alka Synthetics Ltd., which confirmed the respondent's authority under section 11B to issue such directions.

3. Applicability of Section 73 of the Companies Act:
The Tribunal explained that section 73 of the Companies Act mandates that if permission for listing is not granted by any of the stock exchanges mentioned in the prospectus, the public issue becomes void, and the application money must be refunded. The appellants were found to have violated this provision by transferring the funds to the issuer company before ensuring that all necessary listing permissions were obtained.

4. Due Diligence and Negligence of the Appellants:
The Tribunal found that the appellants failed to exercise due diligence and acted negligently by releasing the application money to the issuer company without waiting for the listing approval from all stock exchanges mentioned in the prospectus. The appellants' argument that they acted based on the advice of the Lead Manager was rejected, as the statutory requirements clearly outlined their responsibilities.

5. Timeliness and Limitation of the Respondent's Order:
The Tribunal dismissed the appellants' contention that the respondent's order was time-barred. It was noted that the sequence of events, including the various appeals and legal proceedings initiated by the issuer company, justified the timeline of the respondent's actions. The Tribunal stated that the cause of action for the refund arose when the respondent issued the direction on 19-1-2000, and thus, the limitation period did not apply.

6. Interest Liability on the Refund Amount:
The Tribunal upheld the respondent's direction to pay interest on the refund amount at the rate of 15% per annum from the date the money was transferred to the issuer company. It was clarified that this interest was not a penalty but a compensation for the delayed refund, as mandated by section 73 of the Companies Act.

7. Role and Responsibilities of Bankers to an Issue:
The Tribunal highlighted the critical role of Bankers to an Issue in safeguarding public funds during a public issue. The appellants were expected to keep the application money in a separate account and ensure compliance with all statutory requirements before releasing the funds. Their failure to do so constituted a breach of trust and fiduciary duty.

8. Whether the Impugned Order is a Decree for Recovery of Money:
The Tribunal rejected the appellants' argument that the impugned order was a decree for recovery of money. It was clarified that the order was a remedial measure to protect investors' interests and ensure the refund of their money, which was rightfully theirs. The direction was in line with the respondent's mandate under section 11B of the SEBI Act.

9. Non-Joinder of Necessary Parties in the Inquiry:
The Tribunal dismissed the appellants' contention regarding the non-joinder of necessary parties, such as the issuer company and the Lead Manager, in the inquiry. It was clarified that the inquiry under section 11B was a fact-finding process, and the appellants were given adequate opportunity to present their case. The absence of other parties did not invalidate the inquiry or the subsequent order.

Conclusion:
The Tribunal dismissed the appeals, upholding the respondent's order directing the appellants to refund the application money along with interest. The judgment reinforced the appellants' fiduciary responsibilities as Bankers to an Issue and confirmed the respondent's authority under section 11B of the SEBI Act to issue directions for investor protection.