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SEBI - Case Laws

Showing 221 to 240 of 555 Records

• 2021 (1) TMI 982
  

  Violator indulging in serous act of misusing client's securities - appellant was expelled from the membership of the respondent exchange and also declared as a defaulter - HELD THAT:- All the violations are admitted by him. No reply was submitted to the show cause notice issued regaring violation noted in the inspection for the year 2017-18. Considering the request of the appellant that he wanted to surrender his license afer redressing the complaints the investors, the Committee of respondent no. 1 time and again granted him time in hearing of the proceedings.Ultimately finding that the complaints were not resolved completely the impugned order was passed.

  As seen that after declaration of the appellant as a defaulter more complaints of the investors are pouring in with the respondent nos.1 and 2. The appellant was earlier penalized for similar violations for the financial years 2015-16, 2016-17 and 2017-18. In the circumstances in our considered view the appellant is a continuous violator much less a repeat violator. Besides respondent no 1 had already granted more than sufficient opportunity to redress the complaints of the investors, as it pleaded that it wanted to surrender the license. Therefore in our view this is not a fit case for interference in the impugned order. Hence the appeal is hereby dismissed.

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• 2021 (1) TMI 761
  

  Fraud by the company - Liability of directors - Concealing and suppressing the material facts as in violation of the provisions of Section 12A of SEBI Act - Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market - WTM directing the company to take steps for refund of the money from Banco and also debarred the appellant from accessing the securities market for a period of 5 years - HELD THAT:- The submissions so made are beyond the pleadings and cannot be taken into consideration. The respondent cannot be allowed to better their case and rely upon such documents which are not part of the record. There is no finding that the appellant, being a director for more than 10 years, was deemed to be involved in the day-to-day affairs and management of the Company nor there is any finding that the appellant was chairman of various committees and therefore deemed to be involved in the day-to-day affairs of the Company. There is no finding that the credit agreement and the charge account agreement were in the knowledge of the appellant. On the other hand, it is the consistent case of the appellant that he was a practicing chartered accountant and a non-executive independent director and was only involved in policy decisions. These facts have not been disputed nor controvert by any documentary evidence before the WTM.

  Reliance of section 27 of the SEBI Act is patently erroneous. Section 27 is not applicable if the offence is committed without the knowledge of the incumbent. We have already held that there is no finding given by the WTM that the appellant was involved in the day-to-day affairs and management of the Company. On the other hand, a specific case was stated by the appellant that the fraud was committed by the mastermind, namelyly, the chairman, managing director and the authorized signatory/director Mr. Rajinder Singh Negi and that he had no knowledge of the violation committed by the masterminds of the PFUTP Regulations. This fact has not been denied by the respondent. In our view Section 27 of the SEBI Act has no application. The impugned order insofar as it relates to the appellant cannot be sustained and is quashed.

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• 2021 (1) TMI 390
  

  Violation of Equity Listing Agreement clauses - whether the information relating to signing of a Binding Implementation Agreement ('Binding Agreement' for short) by an Authorized Executive Director of the appellant with the dominant Shareholders of the Bank of Rajasthan was liable to be disclosed on an immediate basis under clause 36 of the Listing Agreement and Regulation 12(2) of the PIT Regulations, 1992? - Penalty imposed of ₹ 5 lakh each on the appellant - contentions of the appellant on the inordinate delay in issuing the show cause notice and in passing the impugned order by respondent SEBI - HELD THAT:- The signed Binding Agreement in question was price sensitive and admittedly material to the performance of the appellant and needed to be disclosed on an immediate basis which was not done.

  On the basis of interpretation given in the impugned order itself the finding that signing of the Binding Agreement was a material and price sensitive information and hence there was a delay of a trading day in making the disclosure to the Stock Exchanges cannot be faulted. It was a PSI is also clear from the fact that the investigation revealed insider trading by entities connected with the dominant Shareholders in the shares of Bank of Rajasthan on the day of the Binding Agreement. Submission that insider trading did not happen in the shares of the Appellant does not dilute the issue since it is the same Binding Agreement which triggered the alleged violation of insider trading. Therefore, the appeal fails on merit.

  We agree with the contentions of the learned Senior Counsel for the appellant on the inordinate delay in issuing the show cause notice and in passing the impugned order by respondent SEBI.

  After all the charge against the appellant is one trading day's delay in disclosure, but the delay on the part of SEBI to show cause is 2955 days from the date of the event and about 2130 days from the date of the preliminary investigation report, which is too wide a gap to be ignored. Several years' delay in show-causing and concluding proceedings in such known incidence of violation/alleged violations is a failure in effectively performing the behavior modification function of a market regulator.

  Laches is a mixed question of fact and law. The facts in the instant case indicate delay in issuing the show cause notice. However, the plea of laches though not raised before the AO was specifically raised in the appeal before this Tribunal. We however, find that undue delay in initiating the proceedings by the respondent by itself causes prejudice and would ultimately attach a stigma pursuant to any adverse order that may be passed.

  Thus, in the instant case, though there are laches, that by itself in the peculiar circumstances of the case, will not vitiate the proceedings but definitely the penalty amount of ₹ 10 lakh imposed on the appellant cannot be sustained and deserves to be substituted by a lesser penalty.

  In the result, while upholding the impugned order on merits, we modify the penalty imposed on the appellant to only a warning which will meet the ends of justice in the given facts and circumstances of the matter. Appeal is thereby partly allowed.

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• 2021 (1) TMI 219
  

  Determination of the ownership of the securities - As stressed that the appellant is holding securities worth more than ₹ 90 crores given by Respondent No. 2 and the impugned direction is relating to only securities worth ₹ 34 crores - HELD THAT:- After perusing certain documents placed before us, without going into the detailed legalities and merit of the matter, we pass the following interim directions:-

  (a) The parties shall appear before NSE, either physically or through Video Conference, on June 24, 2020. NSE shall give the contact details and arrangements for the said meeting to the parties at least one day in advance.

  (b) Based on the database of NSE and other parties rights in respect of the securities in question shall be reconciled/determined within one week thereafter.

  (c) This Tribunal will hear the matter further on Friday, July 03, 2020. In the interim status quo shall be maintained by the parties i.e. there shall be no transfer of securities as directed in the impugned orders nor the appellant shall alienate any of the securities in question.

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• 2021 (1) TMI 188
  

  Whole Time Member restraining the appellant from accessing the securities market - securities of the appellant in its demat account has also been frozen for the same period - appellant is a trader and investor in the capital market - HELD THAT:- Appellant had only executed one trade out of 983 trades, we are of the opinion that the penalty of debarring the appellant for six months is wholly unwarranted and cannot be sustained.

  Finding that 13 entities were acting as a homogenous group and were connected to each other and had executed the trades in a premeditated manner with a sole purpose of manipulating the price is not applicable in so far as the appellant is concerned. The finding that other notices were taking turns on different trading days with a premeditated motive to raise the LTP of the scrip is not applicable in the appellant's case as he had only executed one trade whereas the other 13 entities were executing several trades on various days in a premeditated manner. Thus, clubbing the single trade of the appellant with the trades executed by other 13 noticees on the ground that he is connected to them is per se erroneous and baseless.

  No finding to the effect that the appellant was trading either on the buy side or on the sell side with the other noticees. Thus, having common email or address with some of them is redundant in the absence of any trades being executed between them.

  There is no finding that the appellant had any connection with the buyer, namely, Gajpal. In the absence of any connection, no collusion could be proved with regard to price manipulation or artificially increasing the price or its volume.

  Appellant has not contributed to the LTP on the basis on one trade executed on the sell side unless connection was established with the buyer which in the instance case is lacking. We find that no proceedings have been initiated against the buyer who had placed orders above the LTP and was thus responsible in the increase in the price of the scrip. Thus, we are of the opinion that the appellant has not indulged in fraudulent or unfair trade practices in securities. In the absence of any connection being found between the buyer and the seller and between the appellant and other entities the finding of a trading pattern being premeditated to manipulate the price is patently erroneous. The impugned order cannot be sustained and is quashed in so far as it relates to the appellant.

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• 2020 (12) TMI 1383
  

  Offence under SEBI - imposition of disgorgement - appellants are prohibited from dealing in equity derivatives in F&O segment of Stock Exchanges - Appellant no. 1 shall disgorge an amount of Rs 447.27 Crs alongwith interest @12% p.a. w.e.f. 29.11.2017 onwards till the date of payment - HELD THAT:- Securities Appellate Tribunal has recoded a split verdict, with a dissent by its Chairperson. Having regard to the issues raised, we admit the appeal against the order of the Securities Appellate Tribunal dated 5 November 2020.

  Insofar as the interim relief is concerned, the appellants have complied with the order for debarment from dealing in equity derivatives for one year, imposed by the Whole Time Member of SEBI. The appellants have been directed to make payment of the disgorged amount of Rs 447.27 crores along with simple interest at the rate of 12% per annum with effect from 29 November 2007 till payment.

  As and by way of interim relief, we order and direct that the appellants shall, within a period of four weeks from today, deposit an amount of Rs 250 crores in the Investors’ Protection Fund in compliance with the order of the Whole Time Member, subject to the final result of the appeal. There shall be a stay on the recovery of the balance, inclusive of interest, pending the appeal.

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• 2020 (12) TMI 1219
  

  Fraudulent IPO proceedings - certain applicants of the IPO were funded by the entities connected with the Company itself and subsequently, the IPO proceeds were not utilized towards the objects of raising funds and instead were allegedly transferred to a few of the entities who had funded the applicants of the IPO - Underwriting Agreement to subscribe unsubscribed portion of the IPO - ex-parte ad interim order issued - Whether the Noticee nos. 4 to 11 are connected and whether the Company through its connected entities/Noticees has funded the subscription of its IPO? - HELD THAT:- A careful consideration of clauses of the Underwriting Agreement reveals that the obligation of the underwriter was limited/restricted to only those IPO applications that was to be procured by it only in case of default of payment by an applicant after allotment of shares or in case of withdrawal of such applications by applicants (to whom allocation of equity shares has been made) just prior to allotment of shares to those applicants - no other clause in the aforesaid agreement that can be shown to have imposed a contractual obligation on the underwriter to subscribe to the entire unsubscribed portion of the IPO so as to cross the minimum threshold of 90% subscriptions of total quantity of shares offered in the IPO. Thus, the said Underwriting Agreement which is being peddled by the Company as a strong defense shield to ward off the charges of funding of IPO subscription by the Company, is actually of no help to the Company given the facts and circumstances of the present case.

  In absence of such a financial backing, the only consequence would have been the failure of the IPO thereby compelling the Company to refund all the application amounts so collected from the applicants. Therefore, the argument of the Company projecting its Underwriting Agreement as an answer to the allegations of funding subscription to its own IPO does not hold ground at all hence, is liable to be rejected as not maintainable on the face of the aforesaid factual evidence and observations made in preceding paragraphs.

  Particularly the details of the financial transactions highlighted above, the evasive replies of the Company and its Directors and complete absence of any explanation from the other Noticees , we are persuaded to hold that the Company, its Directors and the rest of the Noticees have successfully implemented a fraudulent scheme to achieve sufficient number of applications by way of funding the applicants, with the sole motive to get the listing of its equity shares on SME segment of BSE. Thus, as far as the first issue is concerned, the same has to be answered affirmatively against the Noticees and in favour of the allegations levelled in the SCN.

  Diversion of IPO proceeds in deviation from the Objects of the IPO - Whether the proceeds of IPO have been utilized by the Company in terms of the Objects stated in the Prospectus? - Considering the overall conduct of the Noticee no. 1, I find it beyond acceptance that the Company and its Directors (Noticee nos. 1 to 3) are not in a position to explain the details of transfer of INR 15.65 Crore, when it was disclosed to the investors in the IPO documents that the IPO proceeds would be utilized for the stated Objects of the Issue.

  Consediring facts and the circumstances and the manner and timing of transfer of funds made immediately after the IPO, I am constrained to observe that the amount of INR 10.59 Crore which was immediately diverted from the IPO proceeds to various entities belonging to the funding group entities represent nothing but reimbursement of the funds that were provided by the funding group entities (Noticee nos. 4 to 11) so as to make the IPO of the Company successful by helping it cross the statutory ceiling of 90% of total subscription amounts.

  Company, in connivance with the funding group Noticees at the first stage, financially supported the applications of the 161 IPO applicants who were allotted 13,24,000 shares. Subsequently, out of INR 15.97 Crore received under the IPO, the Company siphoned off INR 15.60 Crore (approx.) by transferring the same to various entities out of which, INR 10.59 Crore (approx.) was transferred to the funding group Noticees. By acting in tandem and in concert to fructify their scheme, all the Noticees in this proceedings have been able to make the IPO of HPC successful by way of funding the IPO applications to the extent of 29.03% of the total shares subscribed under the IPO in the absence of which, the IPO would have been hit by non-achievement of the mandatory 90% of shares offered in the IPO and resultantly the scrip of Company would have failed to reach the listing platform of the stock exchange.

  The feeble attempt to produce certain self made documents to project utilization of IPO proceeds is nothing but an eyewash that the Company has attempted to make. Thus, the claimed grievance of not having provided adequate opportunities does not exist anymore in the present case as the Company and its Directors have provided whatever explanation and documentary proofs they intended to file out of their own volition, which have been duly considered by me and the findings on such explanations have already been recorded in this order. Under the circumstances, the unassailable fact remains that despite providing adequate opportunities, and in spite of furnishing various explanations and documents, the Noticees including the Company have not been able to produce any tangible material or evidence so as to justify the transfer of huge sums of IPO proceeds to different entities, in gross violation of the stated Objects of the IPO.

  Transfer of funds immediately after the IPO coupled with the evasive and unsubstantiated explanations offered by the Company with respect to claimed utilization of IPO proceeds, further explain the reasons as to why the Company had not actually utilized the IPO proceeds towards the Objects of its IPO. In reality, the specious claims of utilization of the IPO proceeds remained far away from the actual utilization in terms of the stated Objects, resulting in the un-fulfillment of the promises made to the shareholders by way of the Prospectus.

  Noticees in this case have crafted the scheme with intricacies and in such a manner that the degree of proof to expose their fraudulent acts would be of preponderance of probabilities which, as held by me earlier are clearly tilted against the Noticees.

  In exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(4) and 11B thereof, pass the following directions:

  i. Noticee nos. 2 and 3 (promoters of the Company) are directed to make a public offer through a merchant banker to acquire shares of the Company from public shareholders by paying them the value determined by the valuer in the manner prescribed in Regulation 23 of the SEBI (Delisting of Equity Shares) Regulations, 2009 and acquire the shares offered in response to the public offer, within three months from the date of this Order

  ii. BSE to facilitate valuation of shares to be purchased as directed at (i) above, and compulsorily delist the Company, if the public shareholding reduces below the minimum level in view of aforesaid purchase.

  iii. The Noticee no. 1 is hereby restrained from accessing the securities market by issuing prospectus, offer document or advertisement soliciting money from the public in any manner for a period of 8 years.

  iv. Noticee no. 2 and 3 are hereby restrained from holding post of director, any managerial position or associating themselves in any capacity with any listed public company and with any public company which intends to raise money from the public, or with any intermediary registered with SEBI for a period of 3 years.

  v. The Noticees, as mentioned below are hereby restrained and prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for the period specified in their respective columns: Sr. No. Name of Entity Debarred vide interim order Period of debarment.

  vi. Obligation of the debarred Noticees, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order in respect of pending transactions, if any. Further, all open positions, if any, of the aforesaid debarred Noticees in the F & O segment of the stock exchange, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order.

  vii. It is further clarified that during the period of the aforesaid restraint, the existing holding of securities, including the units of mutual funds shall remain under freeze.

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• 2020 (12) TMI 1209
  

  Winding up proceedings of Mutual fund scheme - objections to the e-voting results - HELD THAT:- The Registry shall also list all connected/cross special leave petitions filed by the Security and Exchange Board of India and other respondents.

  In the meanwhile, without prejudice to the rights and contentions of all parties, the trustees are permitted to call meeting of unit holders to seek their consent/approval. Steps in this regard be taken within a period of one week from today.

  For the time being, there will be stay of redemption payment to the unit holders.

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• 2020 (12) TMI 1208
  

  Winding up proceedings of Mutual fund scheme - objections to the e-voting results - HELD THAT:- Permission to file special leave petitions is granted

  Issue notice.Counter affidavit/reply be filed by the non-applicants/respondents within seven days.

  Rejoinder affidavit, if any, be filed within seven days thereafter.

  Service upon the unrepresented respondents is permitted through all modes including e-mails.

  An apprehension is expressed on behalf of the SEBI that the last order recording that without prejudice to the rights and contentions of all parties, the trustees are permitted to call meeting of unit holders to seek their consent/approval could be misread and treated as a precedent. This it is stated would create difficulties.

  We clarify that order [2020 (12) TMI 1209 - SUPREME COURT] has been passed in the peculiar facts and circumstances ofthe case and to expedite the hearing and decision in the present special leave petitions. The same should not be treated as a precedent in any other matter.

  SEBI shall appoint an observer regarding the e-voting of unit holders which is scheduled between 26^th December to 29th December, 2020. The result of the e-voting would not be announced and would be produced before us in a sealed cover along with the report of the observer appointed by the SEBI. SEBI would also file a copy of the final Forensic Audit Report before this Court in a sealed cover.

  It is made clear that the trustees are undertaking the exercise of e-voting and SEBI in terms of our directions is appointing an observer.

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• 2020 (12) TMI 157
  

  Violation of provision of SEBI Act v/s IPC - Bail application - offence punishable under other Act such as IPC - Whether amount taken from the clients was 'deposit' or fees - invoking the principles of M.P. Nikshepakon Ke Hiton Ka Sanrakshan Adhiniyam, 2000 - HELD THAT:- Section 26 of SEBI Act only prohibits cognizance of offence which is punishable under SEBI Act, but does not prevent cognizance in respect of offence punishable under other Act such as IPC. It is true that the police has come to know about the complainants after communicating with SEBI and after obtaining particulars from the same agency and in the FIR the names of the complainants have been given, but under Section 154 of Cr.P.C, it is not imperative that the aggrieved person is only authorized to lodge FIR.

  FIR has been lodged by SHO on the directions of ASP who after obtaining relevant information from SEBI regarding duped customers has directed the SHO to lodge FIR. The FIR contains the names of customers. After lodging of FIR, statements of such complainants have been recorded which reflect offences as laid down in the FIR and which are cognizable in nature. Thus, it is not that there is violation of provision of SEBI Act only, but provisions of IPC are also prima facie attracted for investigation of which police is the only appropriate authority. Investigation by police is not excluded in view of Section 32 of SEBI Act.

  For invoking the principles of M.P. Nikshepakon Ke Hiton Ka Sanrakshan Adhiniyam, 2000, it should be shown that the amount which has been taken by the company from its client was in the form of deposit.

  There is substance in the prosecution case that the aforesaid company, was though on papers was an advisory company rendering advice to consumers on payment of fees, was in fact involved in receiving money from investors and such money could not be termed as fees but was more in the nature of 'deposit' - such advisory companies registered with SEBI have mushroomed in various parts of the country. However, instead of doing their business by charging fees, are involved in taking lump sum amounts from their clients, assuring them with the promise of huge returns, but are indulging in malpractices resulting in huge loss to investors.

  On papers such company appears to be properly constituted, showing to be acting as per their given ambit and scope of business, but in reality the consumers are given a raw deal. It is also found that the whole operation is run by persons who are not qualified as per set out norms. The applicant in the present case, although an employee of Flanking Research Investment Company is an E-Commerce Company, was looking after the complete operations at Indore and was also involved in recruiting ill equipped employees who were as many as 114 in numbers. Such firms/companies, are not only causing immense hardship to the citizens, but also causing loss to the Government and Financial and Banking Institutions in a big way. The activities of such advisory firms have to be dealt with an iron hand. Further, Tarun Chandani, the main owner of this company is still absconding - no case is made out for grant of bail to the applicant. The same stands rejected.

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• 2020 (12) TMI 156
  

  Fraudulent use of the mutual funds units of the complainant - Applicant seeking the grant of regular bail - applicant herein malafidely facilitated the accused director Awanish Kumar Mishra and AFSPL in using the said fraudulently transferred mutual fund units for margin - applicant seeking interim bail on the account of his wife’s illness - HELD THAT:- Applicant was in a fiduciary capacity and has allegedly committed gross breach of trust in relation thereto in alleged connivance with other co-accused persons of an alleged amount of INR 344.07 crores, and it has to be taken into account the factum that the complainant is a public limited company, and that the members of the public have also consequently been allegedly defrauded of the amount of INR 344.07 crores by alleged fraudulent use of the mutual funds units of the complainant of INR 344.07 Crores by the accused persons inclusive of the applicant arrayed as the accused no.4 by inter alia creation of 350 shell companies.

  Applicant is alleged to have committed an economic fraud which affects the moral fabric of society, coupled with the factum that economic offences corrode the very fabric of democratic governance and probity in public life and are considered to be the gravest offences against the society and the persons alleged to have committed such offences are necessarily required to be treated differently in the matter of bail.

  What is brought forth through the observations therein is to the effect that merely because a person who was not arrested by the police or Investigating Agency during investigation nor produced in custody as envisaged in Section 170 of the Cr.P.C., 1973 ought not to be taken into custody merely because the charge sheet has been filed, the same however, does not spell out an embargo on the Court to reject a prayer made for bail by such an accused not arrested during investigation or not produced in custody, to be taken into custody in the circumstances where the facts of a case as alleged bring forth the gravity and magnitude of the alleged commission of an offence and consequently negate the grant of bail.

  As regards the contention raised on behalf of the petitioner that the petitioner was not a flight risk and there is no scope of his tampering evidence and influencing the witnesses, the same per se does not suffice to grant bail to the applicant in view of the magnitude of the alleged commission of breach of fiduciary trust placed. In the circumstances the bail application filed by the applicant seeking the grant of regular bail is rejected and as regards the prayer made by the applicant seeking the grant of interim bail for the reasons that his wife is unwell, it cannot be overlooked that the proceedings in the present application are pending since institution in June 2020 and apparently there is no urgency qua the treatment of the applicant’s wife required - The bail application in the circumstances is dismissed.

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• 2020 (12) TMI 36
  

  Power of SEBI to pass an ex parte interim order - allegation against the respondent was that being in possession of price sensitive information and being a connected person, he had sold the shares and had, thus, made a notional gain or averted a notional loss - appellant alleged that the reason for passing an ex-parte order was that there was a possibility of a diversion of the notional gain made by the respondent - HELD THAT:- Tribunal, in our view, was correct in coming to the conclusion that since the investigation was pending since 2017 and information had been supplied on 28 November 2019, there was no urgency for passing an ex-parte interim order of the nature that was issued by the Whole Time Member. It was, in this background, that the Tribunal, while affirming the power of SEBI to pass an ex parte interim order in appropriate cases, observed that this should be exercised “only in extreme urgent matters

  Since we have come to the conclusion that the Tribunal was on the facts of the case correct in setting aside the ex-parte order of the Whole Time Member on the ground that no urgency has been made out to sustain such an order, it is necessary for this Court to clarify that the interpretation which has been placed by the Tribunal on the powers of SEBI, particularly in paragraph 9 of the impugned order, which has been extracted above, shall not be cited as a precedent in any other case. The order passed by the SEBI must necessarily be in accord with Section 11(4) of the SEBI Act.

  We affirm the view of the Tribunal on the facts as they have emerged. The appeals are accordingly disposed of.

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• 2020 (12) TMI 29
  

  Expulsion against the appellant, from the membership of the National Stock Exchange of India Limited - Validity of respondents’ decision of withdrawal of trading facility and subsequent action of closing out of open transactions - appellant has contended that since the trading facility itself was interdicted, it could not have been expected to keep up with various margins and deposits prescribed by the respondents as no trading was being permitted.

  Whether prior approval of SEBI/Central Government was essential for enforcing the circular dated 19.05.1997 against trading/clearing members? - HELD THAT:- Clause (5) of Chapter IX of the Byelaws uses the phrase “the relevant authority may determine and announce” the operational parameters. Both “determination” and “announcement” of such parameters is therefore, within the competence of the Exchange. Such announcement can be made by the Exchange by circulating a communication amongst the members, as it rightfully did in the present case by way of the subject circular. A similar clause has been inserted in Chapter VI of the Byelaws of the Clearing Corporation as well, thereby empowering the Clearing Corporation to issue operational parameters relating to trading limits and consequent actions in case of non­compliance.

  Whether the circular is invalid as being in conflict with the Byelaws of the Exchange, particularly regarding the manner of closing out prescribed therein? - HELD THAT:- The circular provides for the effect of violation of the exposure limits and lays down that any such violation shall be treated as a violation of the Byelaws of the Clearing Corporation, without prejudice to the power of the Exchange to withdraw the trading facilities. This withdrawal is contemplated as an imminent action to protect the market from being exposed to unsecured financial exposure. Consequent thereto, closing out of open positions has been contemplated - The nature of action contemplated under clause 16 is in furtherance of the basic mandate laid down under Section 9 of the 1956 Act. For, section 9 of the Act clearly provides that all contracts/deals on the market are subject to the Byelaws (including Regulations, operational parameters etc. issued under the Byelaws) and Rules of the Exchange. One of the consequences of not acting in accordance with the Byelaws is provided under clause 16, apart from other provisions - on a comprehensive view of the scheme of closing out under the Byelaws of the Exchange, Byelaws of the Clearing Corporation and the circular, we are of the view that an action of forthwith closing out is permissible under the said scheme, particularly clause 18, and thus, the circular is not ultra vires clauses 17 and 18 of the Byelaws. Rather, the circular furthers the spirit underlying clause 18.

  Whether the appellant is legally bound by the subject circular which allows the withdrawal of trading facility and forthwith closing out of open positions? - HELD THAT:- It is clear that the scheme of 1956 Act enables the Exchange to resort to suspension and expulsion of the members, in accordance with its approved Byelaws and Rules. Section 3(2) of the Act specifies certain matters that must be appropriately covered in the Byelaws or Rules. Clause (c) of the said sub­section expressly provides that matters of admission, qualification, exclusion, suspension, expulsion and re­admission of members must be covered in the Byelaws/Rules.

  In the present case, it is not in dispute that the Interest Free Security Deposit to be maintained by the appellant actually fell short of the required margins during the relevant period. Therefore, we are neither on question of existence of power to expel nor on the factum of whether or not the deposits fell short of the prescribed margins. What falls for our examination, here, is the sole question as to whether the obligation of the appellant to keep up with the adequacy of deposits continued despite the withdrawal of its trading facility. An affirmative answer would justify the expulsion.

  Whether the appellant was obligated to maintain the prescribed Interest Free Security Deposit and other deposits, despite the withdrawal of its trading facilities, for continued membership of the Exchange? - HELD THAT:- Having observed that the appellant failed to maintain the requisite membership margins with the Exchange for a long period and refused to make up for the shortfalls when called upon to do so by the Exchange, there is nothing to deviate from the view taken by the Tribunal that the appellant acted in contravention of the Byelaws and Rules of the Exchange necessitating unto termination - Schedule­II of the SEBI (Stock Brokers and Sub­Brokers) Regulations, 1992 prescribes a “Code of Conduct” for the stock brokers and clause 5 thereof specifies that compliance with statutory requirements is a mandatory aspect of code of conduct of a stock broker. The appellant consistently failed to comply with the requirements and acted in a manner which was prejudicial to the sanctity of a Member­Exchange relationship.

  The Tribunal rightly confirmed the order of expulsion.

  Withholding of securities - vesting period - return of unrealised securities - recovery of unrealised securities - HELD THAT:- The following directions are issued for full and final settlement of all claims between the parties:

  (i) NSE to evaluate and get the remaining transferrable securities, if any, transferred in its favour and recover the remaining amount using the same evaluation criteria adopted in respect of other withheld securities of the appellant within 6 weeks.

  (ii) After realisation, the surplus amount be returned forthwith to the appellant along with interest at the rate of 12% P.A. from the date of determination of claim/date of vesting until the date of payment.

  (iii) Respondents to return the unrealised securities including those with outstanding objections to the appellant within 6 weeks from today.

  (iv) In case recovery is not possible from the remaining securities, for any reason whatsoever, the respondents may communicate the same to the appellant forthwith and the appellant shall then pay the amount so demanded (including interest, if any), to the respondents within 6 weeks from the date of receipt of such communication.

  (v) NSE is directed to oversee the evaluation and realisation of remaining securities, and settlement of claims.

  Appeal disposed off.

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• 2020 (12) TMI 2
  

  Forward trade in commodities - Trading Irregularities - Piercing of corporate veil - abuse of position by the MD / Chairman of the Commodity Exchange - Plea of lack of adequate opportunity - principles of natural justice - Issuing show cause notice to the second respondent and not to the first respondent - multiple proceedings have been initiated but have resulted in no culmination over a period just short of a decade.

  HELD THAT:- We do feel that there was an endeavour to some extent by Respondent No.2 herein to prolong the proceedings but then looking into the enormity of the contents of the show cause notice running into 150 pages with documents spanning 4,000 pages supporting it, a reasonable time had to be given to respond to the same. We may note that the whole enquiry was at the behest of “independent enterprising journalist.” The manner in which the proceedings were sought to be closed raises serious doubts in our mind that a fair process and opportunity has been extended to Respondent No.2 herein.

  Piercing of corporate veil - Insofar as Respondent No.1 herein is concerned, not even a formal show cause notice has been issued. However, the fact remains that the communications addressed by Respondent Nos.1 and 2 herein do give rise to a clear and unequivocal view that it was understood as a notice both to Respondent Nos.1 and 2 herein. - to some extent truth in what has been alleged by the appellants before us, i.e., that Respondent Nos.1 and 2 herein are conveniently playing this game of coming up separately even though they are joined in all purposes. We are conscious of the fact that Respondent No.1 herein is a separate legal entity being a registered company, but the concept of piercing the veil is not unknown to law. By this process, the law either goes behind the corporate personality to the individual members or ignores the separate personality of the company. - We are, thus, not able to hold that there was a failure to serve show cause notice to Respondent No.1 herein merely because no such notice was specifically addressed to it.

  The directions passed by the SAT for the case to begin with the service of fresh show cause notices would not be an appropriate direction. In the conspectus of the factual position from the proceedings which have taken place and the legal principles discussed, we are of the view that the following directions would subserve the interest of justice and perfect the rights of the parties:

  i. No fresh show cause notice is required to be served on Respondent No.1 herein and the show cause notice dated 21.6.2011 would be treated as a show cause notice to both Respondent Nos.1 and 2 herein.

  ii. The documents already asked for by Respondent No.1 and 2 herein and not supplied should be supplied. In order to obtain clarity on this issue, we direct that a list of documents sought for by either respondents be supplied to the SEBI within two weeks from the date of this order and those documents are to be supplied by SEBI within two weeks thereafter.

  iii. Respondent Nos.1 and 2 herein are granted opportunity to file their reply to the show cause notice without any further delay within a period of four weeks after receiving aforementioned documents.

  iv. The SEBI would thereafter proceed to give an opportunity for personal hearing both to Respondent Nos.1 and 2 herein and these proceedings are to go on, on a day-to-day basis and no request for adjournment will be entertained in this behalf from either respondents..

  v. The SEBI would take a final view on the subject matter thereafter.

  vi. Needless to say, if Respondent Nos.1 and 2 herein are aggrieved by the same, the remedy against the same lies before the SAT.

  vii. We make it clear that all pleas as raised by Respondent Nos.1 and 2 herein would be considered by the SEBI, legal or factual including but not confined to aspects of jurisdiction. In fact, this is the very purpose of relegating the proceedings before the SEBI and not to SAT as the right of appeal is a valuable right to be exercised after adequate opportunity at the first adjudication stage level.

  The order of the FMC dated 23.7.2011 has been set aside and a fresh order has to be passed. The different proceedings initiated, still pending almost at a nascent stage, are in pursuance of that order. The natural consequence, thus, would be that those proceedings would have to be kept in abeyance for the time being, till a view is taken by SEBI in pursuance of the directions passed by this order and would have to abide by the decision taken by the SEBI or in appeal arising therefrom. We clarify that were Respondent Nos.1 and 2 herein to fail in their endeavours, it will not mean that those other proceedings have to start de novo and can continue from the stage where they are, subject, of course, to the nature of directions passed afresh by SEBI.

  Appeals disposed off.

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• 2020 (11) TMI 1111
  

  Fraudulent And Unfair Trade Practices Relating To Securities Market - imposition of disgorgement - taking positions as a hedge in the derivative markets by someone who has an underlying exposure - F&O Market amounts to the commission of a ‘fraudulent and manipulative trade’ in securities in terms of the SEBI (PFUTP) Regulations - Offloading 5% of the shares in RPL by its promoter RIL would cause a flutter in the stock market and would not be in the interest of the investors - short positions taken - differences of views within the three-member Bench.

  Appellants are prohibited from dealing in equity derivatives in F&O segment of Stock Exchanges, directly or indirectly, for a period of one year from the date of the order and shall disgorge an amount alongwith interest @12% p.a. w.e.f. 29.11.2017 onwards till the date of payment

  Whether the Principal-Agent model/‚agency model‛ adopted by appellant no. 1 RIL and implemented with the help of other 11 appellants (because of merger of 2 of the original 12 other Noticees, there are 11 other appellants) in cornering huge position limits in the 2007 November single stock futures contract in the shares of Reliance Petroleum Ltd. (‘RPL’ for short) and the offloading of substantial quantities of RPL shares in the cash segment of the stock exchanges in the last 10 minutes (effectively 8.40 minutes) of the trading hours on 29 November, 2007, the settlement day, allegedly with an intention to artificially depress the price in the cash segment to make larger gains in the future contracts, are violative

  HELD THAT:- As cornering about 62% / 93% of the market-wide position limit by one entity through a manipulative scheme or device is not the same thing as exceeding the position limit by a client in a transparent manner, visible to the exchange/clearing corporation/house. Therefore, the finding in the impugned order that it is a rare case of violation of section 12A of the SEBI Act and Regulation 3 and 4 of the PFUTP Regulations is perfectly in order. Further, it is an established fact that SEBI administers the SCRA, 1956, SEBI Act, 1992, Depositories Act, 1996 and the delegated provisions of the Companies Act, 1956/2013. Therefore, if the nature of the violations specified in any legislations spills over to the mandate under another legislation, SEBI is fully within its rights to invoke the provisions of both/all those legislations. In the instant matter, therefore, when it was held that the position limit violation had been achieved through a dubious, manipulative scheme or a device, such an act would squarely fall within the provisions of SEBI Act and PFUTP Regulations. We, therefore, find no error or mistake on the part of the WTM in invoking the relevant provisions of SCRA, SEBI Act and the PFUTP Regulations, 2003 and in passing the Order under section 11 and 11B of SEBI Act accordingly.

  Disgorgement is an amount equivalent to the wrongful gain made or loss averted and therefore it is an equitable remedy; not a penal action. Moreover, equity is further served when the disgorged amount is credited to the Investor Protection Fund of SEBI, for the benefit of the market participants, particularly small investors; not to the Consolidated Fund of India as in the case of fine/penalty. Therefore, both the contentions that disgorgement is a penalty and SEBI does not have the power to impose disgorgement under section 11B of SEBI Act are contrary to the expressly stated provisions of the SEBI Act and therefore have no merit and are rejected forthwith.

  Further, fact that disgorgement of Rs. 447.27 crore (+interest) imposed on the appellant no. 1 is a sizable sum does not make that direction harsh both because (1) it is only a remedial action and (2) what is disgorged is only what has been gorged by contravention of the specified laws. Nothing has been taken out of the appellant’s own funds/assets in the process. Since it is only an equitable remedy there is no question of that being harsh or a penal action.

  Given the aforesaid reasons, appeal lacks any merit and is hereby dismissed. No orders on costs. Appellant no. 1 is directed to make payment of the disgorged amount of Rs. 447.27 Crore along with simple interest calculated at the rate of 12% p.a. with effect from November 29, 2007 till the actual date of payment to SEBI within 60 days from the date of this Order.

  In view of the majority opinion, the appeal is dismissed with no order as to costs. Appellant no. 1 is directed to make payment of the disgorged amount of Rs. 447.27 Crore along with simple interest calculated at the rate of 12% p.a. with effect from November 29, 2007 till the actual date of payment to SEBI within 60 days from the date of this Order.

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• 2020 (11) TMI 1013
  

  Validity of Ex-parte adinterim order dated October 20, 2020 passed by the Whole Time Member - attachment of demat accounts and bank accounts of respondent - Section 11 and 11B of the Securities and Exchange Board of India Act, 1992 - HELD THAT:- The direction of the WTM to deposit a sum of ₹ 1292.46 crore is wholly arbitrary and has been passed without any application of mind. Admittedly, the sale consideration has to be distributed to the shareholders of the Company after meeting the tax liability, indemnity, transaction cost, debt outstanding etc. According to the Company which is recorded in the impugned order, the total amount comes to ₹ 1026.44 crore and the balance left for distribution of the shareholders is ₹ 854.40 crore which amount is also reflected in the annual report 2018-19 as well as in the report of BSE dated December 12, 2019 - the direction to deposit the entire sale consideration of ₹ 1292 is neither appropriate nor beneficial to the survival of the Company at this stage. The fact that 50% of the sale consideration is also required to be distributed to the promoters and promoters group has not been disputed by the respondent.

  The respondent knowing fully well that a substantial amount was parked in fixed deposits, the direction to the appellant to deposit ₹ 1292. 46 crore in an escrow account is neither just nor proper especially when there is no specific finding on diversion of funds. The written note submitted by SEBI further indicates that a sum of ₹ 1002 crore is lying in fixed deposits - the direction to deposit further amount would cripple the Company and bring it to down to its knees which is neither in the interest of the Company nor in the interest of its shareholders.

  The appellant no. 1 Company shall deposit a sum of ₹ 500 crore in a separate escrow account within 10 days from today, the details of which would be supplied to SEBI and to the stock exchanges - Appeal allowed.

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• 2020 (11) TMI 56
  

  Validity of Downgrading petitioner's bank loans' rating to 'IND BB+' from 'IND BBB - Covid-19 pandemic outbreak - Reserve Bank of India has announced moratorium for the period upto 31st May, 2020 vide Circular dated 27.03.2020 - objection regarding territorial jurisdiction - whether third respondent cannot be characterised as “State” within the meaning of Article 12 of the Constitution of India? - HELD THAT:- Even though the third respondent may be located in Mumbai, in as much as part of the cause of action arose within the territorial limits of this Court, this writ petition cannot be dismissed on the ground of lack of territorial jurisdiction. Likewise, reliance on the ouster clauses in the rating agreement is equally misplaced.

  As third respondent is a private body and not a “State” within the meaning of Article 12 of the Constitution and by rating its clients, the third respondent is not discharging any public function and the subject matter involves analysis by financial experts and the petitioner is having effective alternative remedies, we dismiss this writ petition as not maintainable.

  The petitioner is at liberty to avail the in-house remedy available to them or move Securities and Exchange Board of India(SEBI) directly by filing a complaint against the third respondent.

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• 2020 (10) TMI 1332
  

  Non- compliance of the provisions of Regulation 16(1) of Securities and Exchange Board of India (Issue of Listing of Debenture Securities) Regulations, 2008 - Penalty on the appellant imposed under section 15A(b) and 15HB of the SEBI Act - Appellant is a housing finance company, and at present, is undergoing corporate insolvency resolution process - HELD THAT:- As the adjudicating authority by order declare moratorium for prohibiting the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement or order in any court of law, tribunal, arbitration panel or other authority.

  In our view, the provision is clear and explicit and needs no further elaboration. Pursuant to a moratorium declared under section 14 the institution of suits or proceedings against the corporate debtor is prohibited or continuation of a suit or proceedings. Further, execution of any judgement or order in any court of law, tribunal, arbitration panel or other authority is also prohibited.

  Thus, where a moratorium has been declared under section 14 of IBC, the authority which in the instant case is SEBI/AO will have no jurisdiction to institute any proceedings. Where a proceeding has already been instituted and during the pendency of the proceedings a moratorium order is passed under section 14 then the authority is prohibited from continuing with the proceedings. This is clear from a bare reading of the provisions of section 14(1) of the IBC.

  The contention of the respondent that the word 'proceedings' depicted in section 14(1) has to be given an expansive meaning cannot be considered either by the adjudicating officer as it would amount to contempt of court. In any case, the prohibition is on the institution of a proceeding. In the instant case, the moratorium kicked in when the petition was filed on November, 2019 under Rule 5(a)(i) of the Insolvency and Bankruptcy (Insolvency and liquidation proceedings of financial service provider and application to Adjudicating Authority) Rules, 2019 and thereafter it was admitted on 3rd December, 2019. The adjudicating officer issued notice subsequently on 24th December, 2019. It is quite clear that the proceedings was initiated by the adjudicating officer after the moratorium had come into effect. In our view no proceedings could be instituted in view of section 14(1) of the Act.

  We are also of the opinion that external aid can only be considered when there is an ambiguity in the provision. In this regard, the provision of section 14 is very clear and explicit and there is no room for any ambiguity. Further, the Supreme Court has categorically explained the effect of section 14 of the IBC. We, therefore, find that the adjudicating officer could not have considered the report of the insolvency committee to come to the conclusion that he had the power to proceed under SEBI law inspite of a moratorium having come into effect under section 14 of the IBC.

  For the reasons stated aforesaid, the impugned order imposing a penalty and proceeding to recover under section 28A of the Act upon failure to pay cannot be sustained and is quashed. Since the proceedings could not be instituted, we also quash the show cause notice and the entire proceedings. The appeal is allowed.

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• 2020 (10) TMI 1228
  

  Winding up proceedings of Mutual fund scheme - objections to the e-voting results - Need for approval of unit-holders - validity of Regulations 39 to 40 of the Mutual Funds Regulations - majority of unit-holders on the happening of any event which in the opinion of the Trustees requires a Scheme to be wound up - duties of the Trustees under the Mutual Funds Regulations - obligation of the Trustees or Trustee Company - role of SEBI - issuance of direction to SEBI - HELD THAT:- We hold that Regulations 39 to 40 of the Mutual Funds Regulations are valid.When the Board of Directors of a Trustee company, by majority, decides to wind up a Scheme by taking recourse to sub-clause (a) of clause (2) of Regulation 39, the Trustee company is bound by its statutory obligation under sub-clause (c) of clause (15) of Regulation 18 of obtaining consent of the unit-holders of the Scheme. The consent of unit-holders will be by a simple majority. In view of the obligation of the Trustees under sub-clause (c) of clause (15) of Regulation 18, a notice as required by clause (3) of Regulation 39 can be issued and published only after making compliance with the requirement of obtaining consent of the Unit-holders.

  Clause 15A of Regulation 18 of the Mutual Funds Regulations 1996 operates in a different field which has nothing to do with the process of winding up of a Scheme. Therefore, compliance with Clause 15A of Regulation 18 is not a condition precedent for winding up of a Scheme pursuant to sub-clause (a) of clause (2) of Regulation 39.

  Considering the duties of the Trustees under the Mutual Funds Regulations, they perform a public duty. Therefore, when it is found that the Trustees have violated the provisions of the SEBI Act or Mutual Funds Regulations, a Writ Court, in exercise of its jurisdiction under Article 226 of the Constitution of India, can always issue a writ of mandamus, requiring the Trustees to abide by the mandatory provisions of the SEBI Act or the Mutual Funds Regulations.

  In the facts of the case, for the reasons which we have recorded earlier, no interference can be made with the decision of the Trustees dated 23rd April 2020 of winding up of the said Schemes. However, the decision can be implemented only after obtaining the consent of unit-holders as required by sub-clause (c) of clause 15 of Regulation 18.

  On compliance being made with sub-clauses (a) and (b) of clause (3) of Regulation 39, Regulation 40 triggers in and therefore, AMC or Trustees have no right to continue the business activities of the Schemes which will include borrowings. Similarly, from the date of publication of the notice in accordance with sub-clause (b) clause (3) of Regulation 39, AMC is disentitled to honour the redemption requests made earlier.

  The copy of the Forensic Audit report produced in a sealed cover, does not contain final findings and it is specifically mentioned therein that after taking the views/responses of SEBI, AMC and Trustee company, some of the conclusions in the report may undergo a change. Hence, the said report can at best be termed as a tentative report. Hence, the same is not relevant for deciding these petitions. As the said document is not relevant, it is not necessary for this Court to go into the legality of the claim for privilege.

  After receiving the final findings/report of the Forensic Auditors, SEBI is bound to consider of initiating an action as contemplated by Regulation 65, depending upon the findings recorded therein. It is the obligation of the Trustees or Trustee Company to provide copies of the minutes of the meeting held on 20th and 23rd April 2020 to the Unit-holders and no confidentiality can be attached to the said minutes of the meetings - In exercise of the powers under Section 11B of the SEBI Act, SEBI has no jurisdiction to interfere with the decision of winding up of a Scheme made by taking recourse to Regulation 39(2)(a).

  ORDER:-

  i) We hold that no interference is called for in the decision of the Trustees taken on 23rd April 2020 of winding up the said six Schemes;

  ii) We hold and declare that the decision of the Trustees (the Franklin Templeton Trustee Services private Limited) to wind up six Schemes mentioned in paragraph-1 of the Judgment by taking recourse to sub-clause (a) of clause (2) of Regulation 39 of the Mutual Funds Regulations cannot be implemented unless the consent of the unit-holders is obtained in accordance with sub-clause (c) of clause (15) of Regulation 18. Hence, we restrain the Trustees from taking any further steps on the basis of the impugned notices dated 23rd April 2020 and 28th May 2020, till consent of the unit-holders by a simple majority to the decision of winding up is obtained by the Trustees in accordance with sub-clause (c) of Clause (15) of Regulation 18 of the Mutual Funds Regulations;

  iii) It will be open for the Trustees to obtain consent of the unit-holders as provided in sub-clause (c) of clause (15) of Regulation 18 and to take further steps in accordance with clause (3) of Regulation 39 of the Mutual Funds Regulations;

  iv) We hold that Regulations 39 to 41 of the Mutual Funds Regulations are legal and valid;

  v) We direct the Securities and Exchange Board of India to ensure that the Forensic Auditors submits their report in accordance with Regulation 64 at the earliest. After the report is submitted by the Forensic Auditor, the Securities and Exchange Board of India or its Chairman shall examine the report and shall take a decision on the question of taking action as provided in Regulation 65 of the Mutual Funds Regulations and under SEBI Act. The decision shall be taken within six weeks from the date of the receipt of the Forensic Audit Report;

  vi) We direct the Trustees to provide true copies of the Board Resolutions placed on record in sealed cover to unit-holders of the said six Schemes as and when they apply for providing copies thereof;

  vii) We hold that the unit-holders are not entitled to receive a copy of the Forensic Audit Report filed on record in a sealed cover;

  viii) No other relief is required to be granted in these writ petitions.

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• 2020 (10) TMI 689
  

  Whether the Board obliged to grant a personal hearing to the petitioner while considering an exemption application under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 - HELD THAT:- It is a settled position that the requirement of compliance with the principle of natural justice can vary in different situations and conditions. Even where situations where principles of natural justice require an opportunity of hearing, it does not in all circumstances mean a personal hearing. A “reasonable opportunity of being heard” to the applicant before deciding exemption application. Therefore whenever it is found necessary to provide for an opportunity, SEBI has expressly incorporated it in such provisions. No such stipulation is found in the Regulation at hand.

  Apprehension expressed by the SEBI that by reading duty to give personal hearing in this Regulation would have adverse ramifications on its working cannot be said to be unwarranted. The SEBI has framed several regulations on various aspects of the securities market. A large number of applications are filed before it. It will hamper the functioning of the SEBI if the exercise of its every power is preceded by mandatory personal hearing, whether the regulation provides for it or not.

  There is no duty on the Board while considering an exemption application under Regulation 29 of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, to give a personal hearing to the applicant.

  Interest of justice to give a personal hearing to the Petitioner - argument of the Petitioner that since SEBI has formed an opinion and the rigid application of the Regulations, it is necessary to give an opportunity of personal hearing - As rightly pointed out by SEBI, there is no such formation of opinion. There were no reasons given in the earlier order. The Petitioner has submitted the relevant material. Petitioner has also been given an opportunity to submit additional written submissions. Once there is no requirement of a personal hearing under Regulation 29, we do not find that there is a special case made out by the Petitioner or any extraordinary circumstances exist to give special direction for the Petitioner.

  Writ Petition is dismissed.

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