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SEBI - Case Laws
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2012 (5) TMI 839
Issues involved: Appeal against penalty imposed by adjudicating officer u/s 15 I of SEBI Act for violating FUTP Regulation.
Issue 1: Violation of FUTP Regulation
The appellant, an investor in a company's scrip, was penalized for violating regulations 3 and 4 of FUTP Regulation by artificially propping up the share price through manipulative trades. Investigations revealed the appellant's strategy of placing buy orders above the last traded price, contributing to the price increase. Despite denying manipulation, the appellant was found guilty by the adjudicating officer.
Issue 2: Quantum of Penalty
During the appeal, the appellant's counsel argued that the penalty of &8377; 2 lacs was excessive considering the appellant's status as a small investor and the minimal impact of the trades on the market. A comparison was drawn with another case where a lower penalty was imposed for similar actions. The Board's counsel defended the penalty, emphasizing the appellant's deliberate actions contributing to the price manipulation.
Judgment:
The Tribunal acknowledged the appellant's involvement in manipulating the share price, noting the similarity in modus operandi with another individual who received a lower penalty. While the appellant's actions were deemed less severe, a penalty reduction to &8377; 1 lac was considered just and reasonable based on the gravity of the offense and the number of trades involved. The appeal was partly allowed, and the penalty reduced accordingly.
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2012 (4) TMI 780
Issues Involved:
1. Imposition of penalty u/s 15HA and 15HB of the SEBI Act, 1992.
2. Alleged violation of regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (FUTP Regulations).
3. Alleged breach of the code of conduct prescribed under SEBI (Stock Brokers and Subbrokers) Regulations, 1992.
Summary:
Issue 1: Imposition of penalty u/s 15HA and 15HB of the SEBI Act, 1992
The appellant, a member broker of the Bombay Stock Exchange (BSE), was penalized Rs. 3 lacs: Rs. 2 lacs u/s 15HA for violating FUTP Regulations and Rs. 1 lac u/s 15HB for breaching the code of conduct under the Broker's Regulation. The adjudicating officer found the appellant guilty of artificially inflating the price of the scrip of Oregon Commercial Limited during the investigation period from November 21, 2008, to June 08, 2009.
Issue 2: Alleged violation of regulations 3 and 4 of the FUTP Regulations
The appellant, along with other brokers, was accused of placing buy orders at prices significantly above the last traded price, thereby artificially propping up the scrip's price. The adjudicating officer concluded that the appellant knowingly assisted in the artificial inflation of the scrip's price, thus violating regulations 3 and 4 of the FUTP Regulations. The appellant's defense that trading above the last traded price is not an offense was rejected, as the trading pattern indicated a well-thought-out plan to inflate the share price.
Issue 3: Alleged breach of the code of conduct prescribed under SEBI (Stock Brokers and Subbrokers) Regulations, 1992
The appellant was also found guilty of violating clauses 1 and 2 of Schedule II of the code of conduct under regulation 7 of the Broker's Regulations. The adjudicating officer noted that the appellant failed to exercise due diligence and care, as evidenced by the repeated fictitious/self trades executed by one of its employees. The appellant's argument that the volume of trades was negligible and that it acted at the behest of the client was not accepted.
Conclusion:
The Tribunal upheld the finding that the appellant violated regulations 3 and 4 of the FUTP Regulations and the code of conduct under the Broker's Regulations. However, considering the facts, the penalty for violating FUTP Regulations was reduced from Rs. 2 lacs to Rs. 1 lac, while the penalty of Rs. 1 lac for breaching the code of conduct was upheld. The appeal was partly allowed, reducing the total penalty to Rs. 2 lacs.
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2012 (4) TMI 753
Issues involved:
The issues involved in this judgment are the appeal against the order passed by the Securities and Exchange Board of India (SEBI) regarding alleged fraud by a company in issuing preferential warrants and underlying shares, and the maintainability of the appeal under Section 15T of the Securities and Exchange Board of India Act, 1992.
Issue 1 - Alleged Fraud by the Company:
The appellant alleged that the company, along with its promoters and directors, committed fraud by issuing preferential warrants and underlying shares, contravening regulatory provisions. SEBI informed the appellant that no violation of regulations had occurred. The appellant appealed to the Securities Appellate Tribunal, which disposed of the appeal, prompting the appellant to file the present appeal against SEBI's detailed order.
Issue 2 - Maintainability of the Appeal:
The appellant, holding a significant share in the company, argued that SEBI's order adversely affected its rights, making it appealable. SEBI and other respondents contended that the order did not directly impact the appellant's rights and was not appealable under Section 15T of the Act. The Tribunal analyzed the definition of "an order" and previous decisions, ultimately upholding the respondents' objection and dismissing the appeal without delving into the case's merits.
In conclusion, the Tribunal found that the impugned order from SEBI did not adversely affect the appellant's rights, making it not appealable under Section 15T of the Act. The appellant had alternative avenues to address its grievances, such as pursuing the matter before the Company Law Board and the Delhi High Court. Therefore, the appeal was dismissed, and no costs were awarded.
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2012 (3) TMI 696
Issues involved: Violation of regulations u/s 4(a), (b), (c) and (d) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with regulations 4(1), 4(2) (a), (b), (e), and (g) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
Summary:
1. The appellant, a trader/jobber and short-term investor, was found guilty of violating securities market regulations and was restrained from accessing the market for one year. Allegations included circular/synchronized trades generating artificial volumes in a company's scrip. The appellant denied the allegations, citing lack of complete investigation report and trade logs.
2. The appellant argued that trades were ordinary, anonymous, and automated through a registered stock broker, with no knowledge of counterparties. The appellant's trades were a small portion of alleged irregular trades, not capable of creating an artificial market. The appellant contested findings of reversal trades, claiming misinterpretation by the whole time member.
3. The respondent Board defended providing relevant trade/order logs to the appellant, refuting claims of natural justice violation. The whole time member found the appellant engaged in circular/reversal trades, forming a significant portion of trading in the company's scrip. The order was supported by material linking parties and trade logs.
4. After reviewing the case, the Tribunal upheld the order, stating no interference was warranted. The interconnection between parties, supported by trade logs, was a factor in the Board's findings. Despite the appellant's request for complete documents, the provided extracts were deemed sufficient for defense. The Tribunal found no fault with the whole time member's conclusions, dismissing the appeal.
Separate Judgment: No separate judgment was delivered by the judges.
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2011 (12) TMI 785
... ...
... ... ..... TICE, HON BLE MR. JUSTICE A.K. PATNAIK, HON BLE MR. JUSTICE SWATANTER KUMAR For the Appellant Mr. Shyam Divan,Sr.Adv., Ms. Sonal,Adv., Ms. Naheed Carimjee,Adv., Mr. Rishi Maheshwari,Adv., Ms. Adidi Prabhu,Adv., Mr. P.S.Sudheer,Adv. ORDER Delay condoned. The civil appeals are dismissed.
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2011 (12) TMI 731
Issues involved: Violation of 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.
Issue 1: Alleged misleading disclosures regarding promoter shareholding
The appeals were filed against the orders imposing a monetary penalty under Section 15HA of the Securities and Exchange Board of India Act for violating regulations 3 and 4 of the FUTP Regulations. The appellant, a stockbroker registered with the Board, was accused of misleading shareholders and investors by making inaccurate disclosures to the National Stock Exchange regarding promoters' shareholding. The adjudicating officer found the appellant guilty of violating the regulations based on the misleading disclosures made to the public through NSE.
Issue 2: Disputed promoter shareholding disclosures
The Tribunal analyzed the discrepancies in the disclosures made by the appellant regarding promoter shareholding. The appellant's explanation that the variance in figures was due to pledged shares not being taken into account was rejected. It was established that the shares were transferred by the bank and sold to other persons before the disclosures were made. The misleading disclosures were deemed to create a false impression for investors, leading to a violation of FUTP Regulations. The imposition of a penalty was upheld based on the inaccurate and inflated promoter shareholding disclosures.
Issue 3: Liability of directors and company
The Tribunal addressed the argument that the appellant, as a director of the company, should not be held liable for the violations. It was noted that the appellant, being responsible for the conduct of the company's business, could not evade liability. The company, acting through its directors, was deemed responsible for the violations under Section 27 of the Act. The Tribunal upheld the findings of the adjudicating officer, dismissing the appeals and affirming the penalty imposed.
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2011 (12) TMI 730
Issues involved: Violation of section 12A (d) and (e) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) read with Regulation 3(i) and 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992.
Summary:
1. The appellant, a non-executive Vice Chairman and Director of a company, traded in the company's shares while in possession of unpublished price sensitive information, violating SEBI Act and Insider Trading Regulations.
2. A show cause notice was issued, appellant denied allegations, but adjudicating officer found him guilty and imposed a penalty.
3. Legal provisions prohibit insider trading to ensure fair market practices and protect ordinary shareholders and the public.
4. The appellant, as a director, was an insider and purchased shares before the information became public, violating regulations.
5. The argument that the information was not price sensitive before the contract award was rejected, upholding the adjudicating officer's decision.
6. The order was supported by the respondent, emphasizing the appellant's insider position and early knowledge of the contract.
7. Shareholders and the public rely on accurate information for investment decisions, insiders must not use privileged information for personal gain.
8. The appellant's purchase of shares before public disclosure of the contract award constituted insider trading, as per regulations.
9. The adjudicating officer's decision was upheld based on the appellant's insider status and early access to price sensitive information.
In conclusion, the appeal was dismissed, and the penalty upheld for insider trading violations.
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2011 (11) TMI 878
Issues involved: Interpretation of Regulation 12 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
Summary:
The civil appeal was filed against the order of the Securities Appellate Tribunal (SAT) which held that the Respondent did not acquire control in the Target Company and thus was not required to make a public offer under Regulation 12 of the Takeover Regulations. However, during the appeal, the Respondent submitted that they had not appointed their Director on the Board, had sold their stake in the Target Company, and retained only about six per cent shareholding. It was also revealed that another company, M/s. Welspun, had acquired majority stake and control of the Target Company, complying with Regulations 10 and 12. Considering these developments, the Court decided to dispose of the appeal, leaving the question of law open and clarifying that the SAT's order would not set a precedent. The civil appeal was thus disposed of without any costs.
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2011 (8) TMI 1371
Issues Involved:
1. Fraudulent transfer of shares by Parsoli Corporation Ltd. and its promoters.
2. Non-disclosure of shareholding pattern changes and dividend cancellation to BSE.
3. Non-cooperation with SEBI investigations.
4. Non-compliance with SEBI's order to change the RTA.
Detailed Analysis:
Issue 1: Fraudulent Transfer of Shares
Key Question: Did Parsoli Corporation Ltd. and its promoters defraud shareholders by transferring shares based on forged signatures and documents?
Findings:
- Parsoli Corporation Ltd. (Parsoli) and its promoters were found guilty of transferring 80,800 shares of 252 shareholders using forged signatures and duplicate share certificates.
- The modus operandi involved retaining specimen signature cards and verifying signatures in-house instead of through the appointed share transfer agent (RTA), which was illegal.
- Parsoli compensated shareholders by crediting shares back into their demat accounts through off-market transactions when caught.
- SEBI's investigation revealed that Parsoli and its directors did not cooperate, withheld information, and provided misleading responses.
- The whole time member of SEBI and the adjudicating officer found Parsoli and its promoters guilty of violating Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, and Regulations 53A and 54(5) of the SEBI (Depositories and Participants) Regulations, 1996.
Judgment:
- Parsoli and its directors were restrained from accessing the securities market for seven years.
- The directors were also prohibited from holding the position of a director in any listed company for the same period.
- They were directed to make a public offer to acquire shares from public shareholders and facilitate the delisting of Parsoli if public shareholding fell below the minimum level.
- Monetary penalties were imposed: Rs. 25 lakhs for non-cooperation with SEBI investigations and Rs. 3 crores for fraudulent activities.
Issue 2: Non-Disclosure of Shareholding Pattern Changes and Dividend Cancellation
Key Question: Did Parsoli fail to disclose changes in shareholding pattern and the cancellation of dividend to BSE?
Findings:
- Parsoli's promoters transferred 9,61,600 shares, changing the shareholding pattern, but did not disclose this to BSE.
- The board of directors recommended a 10% dividend but later reversed this decision without informing BSE.
- These actions were found to be violations of Clause 35 of the listing agreement and Regulations 3 and 4 of the FUTP Regulations.
Judgment:
- Parsoli was restrained from accessing the securities market for one year.
- Monetary penalties were imposed on Parsoli and its promoters for the violations.
Issue 3: Non-Cooperation with SEBI Investigations
Key Question: Did Parsoli and its promoters fail to cooperate with SEBI's investigations?
Findings:
- Parsoli and its directors did not provide necessary information during SEBI's investigations and attempted to mislead the process.
- This non-cooperation was a violation of Section 11C of the SEBI Act.
Judgment:
- A penalty of Rs. 25 lakhs was imposed for violating Section 11C by not furnishing information to SEBI.
Issue 4: Non-Compliance with SEBI's Order to Change the RTA
Key Question: Did Parsoli fail to comply with SEBI's order to change its RTA?
Findings:
- Parsoli delayed compliance with SEBI's order to change the RTA by 54 days.
- The explanation provided by Parsoli for the delay was considered plausible.
Judgment:
- The whole time member's order restraining Parsoli from accessing the securities market for six months was set aside.
- SEBI was advised to take penal action for the delay through appropriate adjudication proceedings.
Conclusion:
- Appeals No. 112, 113, 145, 146 of 2010 and Appeals No. 77, 80, 81, 82 of 2011 were dismissed, upholding the impugned orders.
- Appeal No. 150 of 2010 was allowed, and the impugned order was set aside.
- The prayer for interim stay on the operation of the orders was rejected.
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2011 (8) TMI 1357
Issues involved: Insider trading, penalties imposed, adequacy of penalties, Securities and Exchange Board of India's role in adjudication proceedings.
Insider Trading: The judgment pertains to three connected Appeals involving insider trading. The appellants, including a director of a company and his relatives, were found to have engaged in insider trading by purchasing shares based on unpublished price sensitive information. The information was passed on by the director to his wife, and another appellant was in possession of the information. The Tribunal found the charge of insider trading to be established against the appellants.
Penalties Imposed: The Tribunal noted that while the insider trading charge was established, the penalties imposed on the appellants were considered too low and not serving as a deterrent. The adjudicating officer had imposed penalties of &8377; 3.5 lakhs, &8377; 4 lakhs, and &8377; 2 lakhs on the respective appellants, which the Tribunal deemed inadequate considering the seriousness of insider trading.
Adequacy of Penalties: Section 15G of the Securities and Exchange Board of India Act, 1992, allows for penalties to be imposed for insider trading. The Tribunal highlighted that the maximum penalty had been increased to &8377; 25 crores or three times the profits made by the delinquent, whichever is higher, to serve as an effective deterrent. However, the adjudicating officer failed to impose adequate penalties in line with the amended provisions of the Act.
SEBI's Role in Adjudication Proceedings: The Tribunal expressed dissatisfaction with SEBI's handling of the adjudication proceedings, as it only initiated proceedings and imposed small penalties on the delinquents. The appellants were noted to still be benefiting from their ill-gotten gains, despite the small penalties imposed. The Tribunal suggested that SEBI should have taken further action under sections 11 and 11B of the Act to ensure that the appellants do not profit from their wrongdoing and to disgorge their gains.
In conclusion, the appeals were dismissed, and no costs were awarded. The Tribunal emphasized the seriousness of insider trading and the need for adequate penalties to serve as effective deterrents in the securities market.
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2011 (5) TMI 1101
Issues Involved:
1. Alleged violation of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992.
2. Imposition of a monetary penalty under section 15HB of the Securities and Exchange Board of India Act, 1992.
3. Interpretation of the Model Code of Conduct and its enforceability by the Securities and Exchange Board of India (SEBI).
4. Discrepancy in penalties imposed on the appellant and the company.
Comprehensive, Issue-Wise Detailed Analysis:
1. Alleged Violation of Insider Trading Regulations:
The appellant, a shareholder and director of Adlabs Films Limited, was accused of violating Regulation 12(1) read with clauses 3.2-3 and 3.2-5 of the code of conduct under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. The appellant sold 10,00,000 shares on 24-4-2006 before the expiry of 24 hours after the outcome of the Board meeting was made public, which was considered a breach of the trading window closure norms. The appellant argued that the sale was a normal market transaction and not based on insider information, as the decision had already been sent to the stock exchanges and disseminated.
2. Imposition of Monetary Penalty:
The adjudicating officer found the appellant guilty of violating the code of conduct and imposed a penalty of Rs. 1 crore under section 15HB of the Securities and Exchange Board of India Act, 1992. The appellant contested this, arguing that any violation of the code of conduct should be addressed by the company, not SEBI. The appellant also highlighted that the company had settled a similar issue with SEBI by paying Rs. 15 lacs, while the appellant faced a much higher penalty.
3. Interpretation of the Model Code of Conduct:
The Tribunal examined whether the violation of the company's code of conduct, formulated in compliance with SEBI's model code, constituted a violation of the Regulations themselves. It was concluded that the code of conduct prescribed by the company for prevention of insider trading, as mandated by the Regulations, is to be treated as part of the Regulations. Any violation of this code can be dealt with by SEBI as a violation of the Regulations. The Tribunal emphasized that the purpose of the insider trading regulations is to prevent trading based on price-sensitive information, and a strict interpretation is necessary to uphold this objective.
4. Discrepancy in Penalties:
The appellant argued that the penalty imposed on him was excessive compared to the Rs. 15 lacs settlement accepted from the company for a similar breach. The Tribunal found merit in this argument, noting that the charge against the appellant was not of insider trading but of violating the code of conduct by selling shares during the closed trading window. Considering the facts and circumstances, the Tribunal reduced the penalty from Rs. 1 crore to Rs. 25 lacs, finding it more proportionate to the nature of the violation.
Conclusion:
The Tribunal upheld the finding that the appellant violated the code of conduct framed under the Regulations and was liable to a penalty under section 15HB of the Act. However, the penalty was reduced to Rs. 25 lacs, considering the discrepancy in penalties and the nature of the violation. The Tribunal emphasized the importance of adhering to the code of conduct to prevent misuse of price-sensitive information and protect investor interests.
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2011 (4) TMI 1532
Issues Involved:
1. Whether the announcement regarding the export order was deliberately made to mislead investors.
2. Whether the price of the scrip increased solely due to the announcement regarding the export order.
3. Whether the company promptly informed the public about the non-materialization of the export order.
4. Whether the promoters violated regulations by selling their shares after the announcement.
Summary:
Issue 1: Misleading Announcement
The precise charge against the appellants was making a false/misleading corporate announcement about an export order, leading to an increase in the price and volumes of the scrip of M/s. Vijay Textiles Limited. The adjudicating officer concluded that the appellants falsely informed the BSE about the receipt of the export order, which was just an intent to purchase and not an actual order, thus violating Regulations 4(1), 4(2)(e), and (r) of the Securities and Exchange Board of India (Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 2003. However, the Tribunal found that the announcement was not misleading and that the company treated the letter of intent as an order based on subsequent communications with Simran Enterprises.
Issue 2: Price Increase Due to Announcement
The adjudicating officer concluded that the price of the scrip increased due to the misleading announcement, and the promoters sold their shares making huge profits. The Tribunal disagreed, stating that the price increase could not be attributed solely to the export order announcement. The company had made several other price-sensitive announcements around the same time, including financial performance improvements, dividend declarations, and bonus issues, which were primarily responsible for the price increase.
Issue 3: Public Information on Non-Materialization
The Board argued that the company did not promptly inform the public about the non-materialization of the export order. The Tribunal found that the company had informed the public through BSE and a newspaper announcement, and it was reasonable for the company to wait before concluding that the order had not been finalized. The Tribunal held that the announcement was made in a manner that prominently brought the information to the public's notice.
Issue 4: Promoters' Share Sales
The Board contended that the promoters sold a substantial part of their holdings when the price went up, violating the Regulations. The Tribunal found no fault with the sales, noting that the promoters had been selling their stocks before and after the public announcements regarding the export order. The Tribunal held that the price increase was due to other corporate announcements and not the export order announcement.
Conclusion:
The appeals were allowed, and the impugned orders were set aside. The Tribunal concluded that the company did not deliberately make a misleading announcement and that the price increase was due to other corporate announcements. The Tribunal also found that the company had informed the public about the non-materialization of the export order in a reasonable manner and that the promoters' share sales were not in violation of the Regulations.
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2011 (3) TMI 1796
Issues Involved:
1. Violation of Regulation 7 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
2. Violation of Regulation 11(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
Summary:
Issue 1: Violation of Regulation 7 of the Takeover Code
The appellants, promoters of Blue Coasts Hotels Limited, had pledged their shares as collateral security for loans taken by Morepen Laboratories Limited. Upon default, the banks invoked the pledges and transferred the shares to their demat accounts, becoming the beneficial owners. The Securities and Exchange Board of India (SEBI) contended that the appellants, upon reacquiring the shares after settling the loans, failed to disclose the acquisition as required by Regulation 7 of the takeover code. The adjudicating officer concluded that the appellants were under obligation to make the required disclosures to the company and stock exchanges, which they failed to do, thus violating Regulation 7(1) read with 7(2) of the takeover code.
Issue 2: Violation of Regulation 11(1) of the Takeover Code
The adjudicating officer also found that the appellants, upon reacquiring the shares from the banks, exceeded the threshold limit prescribed by Regulation 11(1) of the takeover code. This required them to make a public announcement to acquire further shares of the target company, which they did not do. The officer concluded that the appellants violated Regulation 11(1) by failing to make a public announcement in accordance with the regulations. Consequently, a monetary penalty of Rs. 3 lacs was imposed on each appellant, with Rs. 2 lacs for violating Regulation 11(1) and Rs. 1 lac for violating Regulation 7.
Conclusion:
The Tribunal upheld the adjudicating officer's findings, stating that the banks became beneficial owners upon invoking the pledge, and the appellants acquired the shares upon their transfer back, triggering the requirements of Regulations 7 and 11(1). The argument that the shares remained collateral security throughout was rejected, as it would circumvent the statutory provisions. The appeals were dismissed with no order as to costs.
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2011 (2) TMI 1577
Issues involved: Alleged violation of Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 through circular trading in two scrips on Bombay Stock Exchange and National Stock Exchange.
Summary:
The judgment by the Securities Appellate Tribunal, Mumbai involved a trader who engaged in circular trading in two scrips, Allcargo Global Logistics Ltd. and Unity Infraprojects Ltd., listed on BSE and NSE. The appellant traded during the investigation period from April 1, 2008, to May 15, 2008, executing circular trades in both scrips on both exchanges. The adjudicating officer found the appellant guilty of circular trading and imposed a penalty of Rs. 3 lacs, leading to the appellant filing an appeal.
Upon hearing arguments, the Tribunal confirmed the circular trades by the appellant and rejected claims of not being part of the trading group. The trades involved transferring shares within the group without beneficial ownership transfer, creating a false appearance of trading. Despite arguments of being misled by another individual, the Tribunal upheld the violation of regulation 4 due to engaging in unfair trade practices.
Considering the appellant's limited trading period, lack of profit, and incurred losses, the Tribunal reduced the penalty to Rs. 1.5 lacs as a sympathetic measure, emphasizing it as a unique decision not setting a precedent. Ultimately, the Tribunal upheld the guilty verdict but reduced the penalty amount.
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2011 (1) TMI 1585
Issues Involved:
1. Fraudulent transfer of shares.
2. Non-compliance with regulatory requirements.
3. Failure to replace the share transfer agent.
4. Non-disclosure of promoter shareholding.
5. Imposition of monetary penalties.
Summary:
1. Fraudulent Transfer of Shares:
The Tribunal found that Parsoli Corporation Ltd. and its directors engaged in fraudulent transfer of shares by using forged documents and signatures. The modus operandi involved retaining specimen signature cards and verifying signatures in-house, bypassing the appointed share transfer agent (RTA). The directors transferred shares to their own names or front entities and later compensated shareholders through off-market transactions when caught. The Tribunal affirmed the findings of fraudulent conduct and upheld the penalties imposed.
2. Non-Compliance with Regulatory Requirements:
Parsoli and its directors violated several regulatory provisions, including Section 11 C of the SEBI Act, 1992, Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, and Regulations 53A and 54(5) of the SEBI (Depositories and Participants) Regulations, 1996. The Tribunal noted that the fraudulent activities were part of a "carefully crafted strategy" that damaged market integrity and investor confidence.
3. Failure to Replace the Share Transfer Agent:
Despite a directive from the Board to replace the RTA within six months, Parsoli failed to comply. Consequently, the Tribunal upheld the order restraining Parsoli from accessing the securities market for six months.
4. Non-Disclosure of Promoter Shareholding:
Parsoli did not furnish the shareholding details of promoters and promoter group to BSE, violating Clause 35 of the Listing Agreement. Additionally, Parsoli failed to cooperate with the investigating officer, violating Section 11 C of the SEBI Act. The Tribunal upheld the order restraining Parsoli from accessing the securities market for one year.
5. Imposition of Monetary Penalties:
The adjudicating officer imposed substantial monetary penalties on Parsoli and its directors for the violations. The penalties included:
- Rs. 25 lakhs on Parsoli and its managing director and joint managing director u/s 15A(a) of the SEBI Act for violating Section 11C(2) and (3).
- Rs. 3 crores on the promoters' family u/s 15HA of the SEBI Act for violating Regulations 3(a) to (d), 4(1) and (2)(h) of the SEBI (FUTP) Regulations, 2003, and u/s 19G of the Depositories Act, 1996.
- Rs. 70 lakhs on the Kothawalas family u/s 15HA of the SEBI Act for similar violations.
- Rs. 10 lakhs each on other individuals involved.
The Tribunal dismissed the appeals, affirming the penalties and rejecting the argument that the penalties were excessive given the severity of the fraudulent conduct.
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2010 (12) TMI 1363
Issues Involved:
1. Jurisdiction of Civil Courts under Sections 15(Y) and 20A of the SEBI Act, 1992.
2. Whether the suit for recovery is maintainable in Civil Court.
3. Interpretation of the SEBI Act concerning the jurisdiction of adjudicating officers and the Securities Appellate Tribunal.
4. The applicability of SEBI regulations to the contractual dispute in question.
Issue-wise Detailed Analysis:
1. Jurisdiction of Civil Courts under Sections 15(Y) and 20A of the SEBI Act, 1992:
The primary issue addressed in the judgment is whether the jurisdiction of Civil Courts is barred by Sections 15(Y) and 20A of the SEBI Act. Section 15(Y) explicitly states that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which an adjudicating officer or a Securities Appellate Tribunal is empowered to determine under the SEBI Act. Section 20A further bars civil courts from having jurisdiction in matters where the Board or the adjudicating officer is empowered to pass orders. The judgment emphasizes that these sections aim to prevent civil courts from intervening in matters that fall within the specialized jurisdiction of SEBI authorities. However, the court found that the provisions did not apply to the present suit for recovery, as there was no specific provision in the SEBI Act or its regulations conferring jurisdiction on SEBI authorities to adjudicate such contractual disputes.
2. Whether the suit for recovery is maintainable in Civil Court:
The court evaluated whether the suit for recovery of money under a contractual obligation could be entertained by a civil court. The judgment noted that the trial court erred in dismissing the suit on jurisdictional grounds without identifying any specific SEBI provision or regulation that would allow SEBI authorities to adjudicate the matter. The court concluded that the suit for recovery was indeed maintainable in a civil court, as the SEBI Act did not provide an alternative adjudicatory mechanism for such disputes.
3. Interpretation of the SEBI Act concerning the jurisdiction of adjudicating officers and the Securities Appellate Tribunal:
The judgment delved into the interpretation of the SEBI Act, particularly concerning the powers of adjudicating officers and the Securities Appellate Tribunal. It was noted that the SEBI Act and its regulations primarily deal with issues related to securities markets, investor protection, and fraudulent practices, rather than contractual disputes between private parties. The court highlighted that the SEBI Act does not empower its authorities to resolve disputes like the one in question, which involves a contractual obligation for procuring subscriptions to a public issue.
4. The applicability of SEBI regulations to the contractual dispute in question:
The court examined whether SEBI regulations applied to the contractual dispute between the parties. It was determined that the agreement in question was not an underwriting agreement as defined by SEBI regulations, and the respondent was not acting as an underwriter. Consequently, the dispute did not fall within the regulatory framework of SEBI, and the civil court retained jurisdiction over the matter. The judgment underscored that the absence of specific SEBI regulations addressing the dispute at hand meant that the civil court was the appropriate forum for adjudication.
Conclusion:
The judgment concluded by setting aside the trial court's decision, allowing the appeal, and directing the parties to appear before the District and Sessions Judge for further proceedings. The court reaffirmed the jurisdiction of civil courts in the absence of explicit SEBI provisions or regulations covering the contractual dispute, thereby ensuring that the appellant's suit for recovery could proceed in the appropriate judicial forum.
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2010 (9) TMI 1301
Issues Involved:
1. Legitimacy of SEBI's decisions and actions.
2. Allegations of bias and misconduct against SEBI's Chairman.
3. Jurisdiction of the High Court to intervene in SEBI's and SAT's decisions.
4. The role and scope of public interest litigation in this context.
5. The appropriateness of ordering an investigation into SEBI's functioning.
Issue-wise Analysis:
1. Legitimacy of SEBI's Decisions and Actions:
The petitioner challenged the decisions of SEBI and the Securities Appellate Tribunal (SAT), arguing that the orders were influenced by irregularities and biased opinions. The petitioner sought to quash the decisions/orders dated 9th November 2009 and 2nd February 2010, as well as the SAT's order dated 22nd June 2010. The court examined the statutory framework under the Securities and Exchange Board of India Act, 1992, and found no evidence of collusion or conspiracy in the decision-making process. The court noted that SEBI's Chairman had recused himself from the relevant proceedings, ensuring no undue influence was exerted.
2. Allegations of Bias and Misconduct Against SEBI's Chairman:
The petitioner alleged that the SEBI Chairman had acted in a biased manner to favor the National Securities Depositories Limited (NSDL). However, the court found no substantial evidence to support these claims. It was highlighted that the Chairman had recused himself from the proceedings involving NSDL, and the decision-making process was carried out independently by a committee. The court emphasized that allegations of bias and mala fide intentions must be substantiated with concrete evidence, which was lacking in this case.
3. Jurisdiction of the High Court to Intervene in SEBI's and SAT's Decisions:
The court addressed the scope of its jurisdiction under Articles 226 and 227 of the Constitution of India. It reaffirmed that while the High Court has the power to review decisions of statutory bodies, it does not possess administrative control over them. The court cited the Supreme Court's decision in L. Chandra Kumar v. Union of India, which clarified that tribunals like SAT are subject to judicial review, but the High Court cannot supervise their administrative functions. The court concluded that it was not within its purview to order an investigation into SEBI's functioning unless a specific controversy required judicial intervention.
4. The Role and Scope of Public Interest Litigation in This Context:
The court scrutinized the nature of the public interest litigation filed by the petitioner. It emphasized that public interest litigation is intended to address issues affecting marginalized and underprivileged sections of society, not to challenge decisions made inter se parties without substantial grounds. The court criticized the petitioner for attempting to use public interest litigation as a tool to unsettle established orders and create discord within institutional functioning. It warned against allowing such litigations to divert attention from genuine public interest issues.
5. The Appropriateness of Ordering an Investigation into SEBI's Functioning:
The petitioner sought an investigation into the alleged misconduct by SEBI's Chairman. However, the court found no justification for such an inquiry, given the lack of evidence supporting the allegations. It reiterated that the judicial system should not be used to conduct fishing expeditions based on unsubstantiated claims. The court concluded that the petitioner's request for an investigation was beyond the scope of judicial review and dismissed the writ petition with costs, emphasizing the need to protect the integrity of institutional processes.
In conclusion, the court dismissed the writ petition, highlighting the importance of maintaining the sanctity of judicial processes and ensuring that public interest litigation serves its intended purpose. The petitioner was directed to pay costs, reinforcing the court's stance against frivolous and unfounded litigation.
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2010 (9) TMI 1284
Issues involved:
The judgment involves issues related to violation of Regulation 10 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 by the appellant, leading to the imposition of a monetary penalty under Section 15H (ii) of the Securities and Exchange Board of India Act, 1992.
Details of the Judgment:
Issue 1: Violation of Regulation 10 of the takeover code
The appellant, a promoter group company, acquired 18.74% shares of the target company from another promoter group company in an off-market transaction. The Securities and Exchange Board of India (SEBI) found that this acquisition triggered the requirement for a public announcement under Regulation 10 of the takeover code. Despite the transfer not changing control over the target company, the appellant was penalized for not making the necessary public announcement.
Issue 2: Adjudication proceedings and penalty imposition
The appellant was issued a show cause notice for the violation of Regulation 10 of the takeover code. The appellant contended that the share transfer was an inter se transfer within the promoter group and that they were unaware of the need for an exemption from the takeover code provisions. After a personal hearing, a monetary penalty of &8377; 72,14,000 was imposed on the appellant under Section 15H (ii) of the Act. The appellant challenged this penalty through an appeal.
Issue 3: Appellate Tribunal's decision
The Securities Appellate Tribunal noted that the transfer of shares was between promoters and could have been exempted under Regulation 3 of the takeover code if certain conditions were met, which were not fulfilled in this case. While acknowledging the violation of Regulation 10, the Tribunal found that the interest of the shareholders was not prejudiced, and there was no change in control or management of the target company. Citing precedents, the Tribunal reduced the penalty imposed on the appellant from &8377; 72,14,000 to &8377; 5 lacs, stating that the reduced amount would meet the ends of justice.
The appeal was disposed of with no order as to costs.
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2010 (9) TMI 1249
Issues Involved:
1. Denial of Cross-Examination
2. Maintainability of Appeal
Summary:
1. Denial of Cross-Examination:
The appellant, a member of the Bombay Stock Exchange and a registered share and stock broker, was accused by the Securities and Exchange Board of India (SEBI) of executing fictitious and backdated transactions on behalf of Niskalp Investments and Trading Company Private Limited and Tata Finance Limited. SEBI issued a show cause notice based on statements from six individuals. The appellant requested to cross-examine these individuals, but the enquiry officer denied this request. The Tribunal emphasized that cross-examination is crucial for arriving at the truth, citing previous judgments and principles of natural justice. The Tribunal noted that SEBI had repeatedly ignored this fundamental principle and its own guidelines for conducting cross-examinations. Consequently, the Tribunal allowed the appeal, directing the enquiry officer to permit the appellant to cross-examine the six individuals.
2. Maintainability of Appeal:
SEBI contended that the appeal was not maintainable, arguing that the impugned communication was not "an order" within the meaning of Section 15T of the Securities and Exchange Board of India Act, 1992. The Tribunal disagreed, stating that the term "an order" is comprehensive enough to include decisions that adversely affect the rights of parties. The Tribunal held that the denial of cross-examination was a final decision on this issue within the enquiry and affected the appellant's substantive rights, making the appeal maintainable. The Tribunal referenced the Division Bench judgment of the Bombay High Court in Harinarayan G. Bajaj v. Securities Appellate Tribunal and Anr., clarifying that procedural orders not affecting substantive rights are not appealable, but this was not the case here.
In conclusion, the Tribunal allowed the appeal, set aside the decision of the enquiry officer, and directed that the appellant be allowed to cross-examine the six individuals. There was no order as to costs.
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2010 (7) TMI 1221
Issues Involved:
1. Introduction and transfer of fake shares.
2. Failure to consolidate share transfer records at a single point.
3. Providing misleading and contradictory information to SEBI.
4. Violations of specific SEBI regulations.
Detailed Analysis:
Issue 1: Introduction and Transfer of Fake Shares
The judgment addresses the fraudulent introduction and transfer of 80,800 fake shares by the noticees to 22 promoter/front entities. The noticees retained specimen signature cards, verified signatures, and scrutinized share certificates, thus bypassing the Registrar and Share Transfer Agent (RTA). They forged signatures on transfer documents and dematerialized the fake shares. When genuine shareholders requested dematerialization, Parsoli rejected their requests, citing that duplicate shares had already been issued. Parsoli compensated these shareholders by off-market transfers from promoter/front entities. The judgment confirms that the shares transferred to promoter/front entities were fake, introduced and approved by the noticees, thereby violating regulations 3(a), 3(b), 3(c), 3(d), 4(1), and 4(2)(h) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations).
Issue 2: Failure to Consolidate Share Transfer Records
The noticees failed to ensure all matters related to the transfer of securities were handled at a single point. They retained specimen signature cards despite the RTA's request, claiming they were in a torn state, which was disproven by SEBI officials. This failure enabled the fraudulent transfer of shares, violating regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996, and SEBI Circular No. D&C:C/FITTC/Cir-15/2002 dated 27 December 2002.
Issue 3: Providing Misleading and Contradictory Information to SEBI
The noticees provided misleading and contradictory information during the investigation. Examples include inconsistent reasons for rejecting demat requests, contradictory statements about off-market transactions, and false claims about the condition of specimen signature cards. They also failed to provide critical information, such as details of rejected transfer/demat requests, share transfer processes, and off-market transactions by promoters. This non-cooperation hindered SEBI's investigation, violating sections 11C(2) and 11C(3) of the SEBI Act, 1992.
Issue 4: Violations of Specific SEBI Regulations
The judgment finds that the noticees violated several SEBI regulations:
- By not providing information and giving misleading information, they violated sections 11C(2) and 11C(3) of the SEBI Act, 1992.
- By not handling share transfer work at a single point, they violated regulation 53A of the SEBI (Depositories and Participants) Regulations, 1996, and SEBI Circular No. D&C:C/FITTC/Cir-15/2002.
- By engaging in fraudulent activities related to fake shares, they violated regulations 3(a), 3(b), 3(c), 3(d), 4(1), and 4(2)(h) of the PFUTP Regulations.
Conclusion and Orders:
The judgment concludes that the introduction of fake shares and fraudulent transfers by a listed company and its promoters severely damage the integrity of the securities market. The noticees are restrained from buying, selling, or dealing in securities for seven years and are barred from holding director positions in any listed company for the same period. They are also directed to make a public offer to acquire shares from public shareholders and facilitate the delisting of Parsoli Corporation Ltd. if public shareholding falls below the minimum level. The order is to be enforced immediately, with copies served to all relevant stock exchanges and depositories.
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