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2015 (7) TMI 316 - SC - Companies LawJurisdiction of SEBI under SEBI Act, 1992 in relation to Global Depository Receipts (GDRs) issued outside India - SEBI debarred the respondent for a period of ten years in dealing with securities acting as Lead Managers relating to the GDRs issued - Held that - It is common knowledge that in the commercial sector, companies which are in the field of manufacturing or any other business activity are able to gain the confidence of the investors by virtue of their appreciable performance in the respective manufacturing or other business activities and while controlling and developing the growth in their respective field of business, aspire to make further excellence by drawing the attention of foreign investors to make investments and thereby broad base their business venture also endeavour to sustain their development in the concerned business in which they are involved. Any such initiative taken by any entrepreneur would develop an appreciable trend in the share market which would draw the attention of the local investors to stake their claim in such well established, well grown business ventures with a view to earn better profits on whatever investments they wish to make. Therefore, if there is going to be a false pretext or misleading information circulated with a view to lure both the foreign investors as well as Indian investors and in that process the very purpose of creation and trading in GDRs are found to be not true or bona fide, it cannot be said that simply because creation of such GDRs and its trading is in global market, SEBI should keep its mouth shut on the ground that it cannot extend its long statutory arm beyond Indian territory to control any such misdeeds deliberately committed with a view to defraud the Indian investors and thereby their interest in the investment of securities and its protection is at great stake. There is no statutory prohibition either under FEMA or RBI Act preventing SEBI from taking action in exercise of its powers under Section 11, 11B and 12A of the SEBI Act, 1992. That apart under Section 11(3) it is provided that SEBI can exercise its powers under sub-section 2(i) or (ia) or sub-section 2A notwithstanding anything contained in any other law for the time being in force, meaning thereby, the action that can be taken for any of the violation under FEMA or RBI Act, SEBI can validly exercise its powers under SEBI Act, 1992. Even under the 1993 Scheme as well as the 2000 Regulations, there are provisions which make specific reference to the role of SEBI in dealing with the securities. Therefore it is too late in the day for the respondents to contend that action can only be taken for any violation under the FEMA and there is no scope for invoking the provision of SEBI Act, 1992. To support the contention that the SEBI Act, 1992 operates only within Indian territory, reference was made to the provisions contained in other Acts viz., IPC, FERA, FEMA, Companies Act, the Information Technology Act and the Income Tax Act. In the first place, the said reliance placed on the provisions of those enactments providing for extra territorial jurisdiction can have no impact on the action initiated by the appellant, for the simple reason that the violation complained of by the appellant is with reference to such of those provisions contained in SEBI Act, 1992 vis- -vis the underlying shares of GDRs. Therefore, we are unable to see any violation of exercise of its jurisdiction since the underlying shares of GDR were created and dealt with as well as traded in the stock market of Indian Territory. Any act which caused any infringement in such trading of those underlying shares by virtue of any malfeasance or misfeasance or misdeeds committed by any person under the Act which worked against the interests of the investors in securities and the securities market, the SEBI was entitled to proceed against such persons who are involved in any of those allegations. The learned senior counsel relied upon the decision reported in Chairman, SEBI v. Shriram Mutual Fund and another 2006 (5) TMI 191 - SUPREME COURT OF INDIA . In particular, reliance was placed upon paragraphs 15, 17, 19 and 33 to 36. Paragraph 19 is relevant for our purpose which explains the scheme of SEBI Act in imposing penalty. The said decision was subsequently approved by a three Judge Bench of this Court reported Union of India and Others v. Dharamendra Textile Processors and Others 2008 (9) TMI 52 - SUPREME COURT . The said decision also fully supports the stand of the appellant/SEBI. We have found that the specific provisions of SEBI Act, 1992 provided for necessary powers with the SEBI casting a duty on it to protect the interests of the Indian investors as well as the stock market in India whenever it finds any fraud or other such misdeeds committed by any person which worked against the interests of Indian investors in securities. What is fraud has been sufficiently defined under Regulation 2(1)(c) of the 2003 Regulations as well as under Section 12(A) of the SEBI Act, 1992. Therefore, when such express provisions are contained in the SEBI Act and its regulations apart from specific provisions relating to issuance of GDR based on the underlying shares deposited with the Domestic Custodian Bank under the 1993 Scheme which got a statutory backing under the 2000 Regulations, we are convinced that the exercise of jurisdiction by SEBI against the respondents, having regard to the nature of allegations, listed out in paragraph 74 is well founded. Hold that SEBI had jurisdiction in passing the impugned order dated 20.06.2013 debarring the respondents for a period of 10 years in dealing with the securities while considering the role played by the respondents as Lead Managers relating to the GDRs issued by six companies which issued such GDRs. We, therefore, hold that the Tribunal is bound to examine the correctness or otherwise of the order of SEBI dated 20.06.2013 in the appeal preferred by the respondents in Appeal No.126 of 2013. We, therefore, set aside the impugned order by the majority and hold that the minority view of the Chairman of the Tribunal is perfectly in order. - The appeal stands allowed and the impugned order of the majority is set aside. - The appeal No.126 of 2013 before the Securities Appellate Tribunal at Mumbai shall stand restored and the same shall be disposed of on merits and in accordance with law expeditiously preferably within three months from the date of production of a copy of this order.
Issues Involved:
1. Jurisdiction of SEBI under the SEBI Act, 1992, to initiate proceedings against Lead Managers for GDRs issued outside India. 2. Justification of SEBI's order debarring the respondents for ten years from dealing with securities. Issue-wise Detailed Analysis: 1. Jurisdiction of SEBI under the SEBI Act, 1992, to initiate proceedings against Lead Managers for GDRs issued outside India: The primary issue in this appeal concerns the jurisdiction of SEBI to initiate proceedings against the respondents, who acted as Lead Managers for GDRs issued outside India. SEBI contended that the respondents committed fraud on Indian investors in relation to the sale/purchase of underlying shares released on redemption of GDRs in the Indian securities market. SEBI argued that such fraudulent intention existed throughout the GDR process until the sale/purchase of underlying shares in India. SEBI's jurisdiction was questioned based on the argument that the SEBI Act, 1992, extends to the whole of India and does not cover extra-jurisdictional matters. However, the court held that SEBI has jurisdiction if the fraudulent activities have a direct or indirect impact on the Indian securities market or investors. The court emphasized that GDRs are marketable securities under Section 2(h) of the SCR Act, 1956, and SEBI has the authority to regulate and protect the interests of investors in securities, including GDRs. 2. Justification of SEBI's order debarring the respondents for ten years from dealing with securities: SEBI's order dated 20.06.2013, debarring the respondents from rendering services in connection with securities for ten years, was challenged. SEBI's investigation revealed that the respondents, as Lead Managers, structured a loan and pledge agreement involving the issuing company, Asahi, Vintage (the subscriber), and Euram (the foreign bank lender). The transactions were alleged to be fraudulent, involving fictitious investors and misleading information to the Bombay Stock Exchange (BSE) and Indian investors. The court noted that SEBI's duty under Section 11 of the SEBI Act, 1992, is to protect the interests of investors in securities and regulate the securities market. The court found that SEBI had reasonable grounds to believe that the respondents' actions were detrimental to the interests of Indian investors and the securities market. The court held that SEBI's order of debarment was justified based on the allegations and evidence presented. Conclusion: The court concluded that SEBI had jurisdiction to proceed against the respondents under the SEBI Act, 1992, and SCR Act, 1956, for their role in the fraudulent GDR transactions. The court set aside the majority view of the Securities Appellate Tribunal, which held that SEBI lacked jurisdiction, and restored the appeal for disposal on merits. The court emphasized that SEBI's actions were aimed at protecting the interests of Indian investors and ensuring the integrity of the securities market.
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