2013 (5) TMI 435 - Board - Companies Law

Misleading advertisements as regards issue of buy-back as well as bonus shares - Appellants contested that both the schemes of buy-back and bonus shares did not materialize at all & in the process they suffered huge losses - prayer for direction to SEBI for grant of compensation for the loss suffered by them in the course of the transaction in respect of 1,71,773 shares in question @ Rs.30 per share at least - Held that - There is no directive or mandate in any of the 15 or 16 measures empowering SEBI to undertake the task of considering and granting compensation to an investor for the alleged losses he might have suffered due to certain misleading or fraudulent advertisements by a company. Thus the prayer of the Appellants seeking a direction to the SEBI to grant them compensation to the tune of Rs.51,53,190/- for the alleged loss suffered on account of the purchase/sale of 1,71,773 shares of VCL is totally misconceived and is hereby rejected. Appellants prayer for compensating him for the alleged loss is in the nature of a claim for damages on account of such alleged fraudulent and misleading representations by the VCL through various advertisements needs to be looked into by a civil court of competent jurisdiction in a trial and not by SEBI under the SEBI Act, 1992 for the simple reason that SEBI has neither the expertise nor infrastructure for this purpose. There is no mandate in law requiring SEBI to do so in case any investor suffers loss on account of trading in shares etc. Direction to SEBI to launch an investigation into the alleged misleading and/or fraudulent advertisement by VCL no doubt is acceptable as SEBI is duly authorized by the SEBI Act, 1992 to do so in any given and fit case in this connection. SEBI itself has stated in its affidavit in reply dated 6th March, 2013 filed by Ms. Doel Saha, Assistant Legal Advisor that SEBI has already taken action against VCL and its directors under Section 11B and by an order dated 20th February, 2008, VCL was barred from accessing the securities market and from buying, selling or dealing in securities for a period of two years - Thus SEBI directed to look into the part of the complaint of the Appellants which relates to the alleged misleading and fraudulent advertisements issued by VCL, along with the investigation, understandably, being carried on in respect of VCL or separately, as it may be advised and considered fit and proper in the circumstances of this case as per law.

Summary

Issues:
1. Compensation sought by investors for losses incurred in purchasing shares.
2. Allegations of misleading advertisements by a listed company and the stock exchange.

Analysis:

Issue 1: Compensation for losses incurred in purchasing shares
The appellants sought compensation of Rs.51,53,190 for losses suffered in purchasing 1,71,773 shares from a listed company. They claimed to have been misled by advertisements regarding buy-back and bonus shares that did not materialize, resulting in substantial losses. However, SEBI declined the request for compensation, citing lack of jurisdiction to grant compensation to investors for losses in the securities market. The Tribunal rejected the appellants' claim for compensation, stating that SEBI is not mandated to consider and grant compensation for losses due to misleading representations by companies. The Tribunal emphasized that the jurisdiction for such claims lies with civil courts, not SEBI, as SEBI lacks the expertise and infrastructure for assessing damages.

Issue 2: Misleading Advertisements by the Listed Company
The appellants alleged that the listed company engaged in unfair and deceptive trade practices through misleading advertisements, enticing investors to purchase shares based on false promises of buy-back and bonus shares. SEBI was directed to investigate the misleading and fraudulent advertisements issued by the company. SEBI had already taken action against the company under Section 11B, barring it from accessing the securities market. The Tribunal directed SEBI to further investigate the company's actions and, if found guilty, consider directing the company to refund the amount spent by the appellants on purchasing shares, along with appropriate interest. The stock exchange, while denying any alliance with the company in misleading practices, was directed to cooperate with SEBI in the investigation.

In conclusion, the Tribunal dismissed the claim for compensation but directed SEBI to investigate the misleading advertisements by the listed company and take appropriate action if fraudulent practices were found. The stock exchange was instructed to assist in the investigation.