9911796707
TMI Blog1996 (5) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... ealt with those shares through Stock Brokers at Stock Exchange, Bombay, they do not fall in category of persons against whom inquiry can be instituted or from whom information can be called or discovery of documents can be made. The learned counsel for the petitioners in support of his arguments relies on the statutory provisions contained in section 11(2)( i ) read with sections 11B and 12 of the Act. He contends that the combined reading of these provisions leads to only one conclusion that only persons who are covered by these provisions are stock exchanges, mutual funds, other persons associated with the securities market and intermediaries and self- regulatory organisations in the securities market. The persons referred to as "associated with the securities market" according to the learned counsel, refers only to persons enumerated in clause ( ba ) of sub-section (2) which has been inserted by the Securities Laws (Amendment) Act, 1995 with effect from 25-1-1995. His further contention is that section 11B confers on the SEBI power to issue directions in pursuance of any inquiry. For the present purpose, his argument is that such directions can be issued to any person or class o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision is to be read as illustrative and not exhaustive of the matters of the measures which can be provided for by the Board in furtherance of discharge of its duties referred to in sub-section (1). 5. The words 'other persons associated with the securities market' have not been defined in the Act. The question then arises whether the persons associated with the securities market takes its colour from persons enumerated in clause ( ba )? If one has to go by the literal meaning, the interpretation which restricts the meaning of "persons associated with the securities market" with the persons enumerated in clause ( ba ) is not acceptable. In ordinary meaning, the persons associated with the securi- ties market would include all and sundry who have something to do with the securities market. It is to be noted that the securities market in this sense is not confined to stock exchanges only. The words 'persons associ-ated with the securities market' are of much wider import than interme-diaries. 'Persons associated with' denotes a person having connection or having intercourse with the other; in the present case that 'other' with whom a person is to have connection or intercour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sations in the securities market. The provision is twofold. Firstly, calling for information primarily before holding any inquiry, and, secondly holding of an inquiry into the affairs of the persons named therein and transactions in securities which takes place under its precincts or through its agencies. While calling for infor-mation, a power may be restricted to the persons enumerated therein. But where calling for the information is incidental to the conducting of the inquiries into the affairs of stock exchange or persons associated with stock exchange then persons to whom such an inquiry would reach cannot be restricted. It would be self-defeating to hold that the investiga-tion into any malpractice attached with any transaction or practice carried in stock exchange can be made only up to intermediary but cannot reach the primary source of transaction. It will be like searching for light in a tunnel without reaching its mouth. All the persons connected with the subject of enquiry are amenable to its reach. 7. Therefore, once an inquiry is to be conducted with respect to any securities dealt with at the stock exchanges or of any persons connected with such securities, whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matters connected therewith or incidental thereto. Section 11 casts a duty on the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market. For achieving such object, it has been authorised to take such measures as it thinks fit. Thus power to take all measures necessary to discharge its duty under statute which is reflection of objective disclosed in the preamble has been conferred in widest amplitude. Protecting interests of investors in securities and healthy development of securities market takes within its sweep all measures to effectively tackle the malpractices connected with security trading meant for manipulating market prices for ulterior motives of inducing the investors in selling or purchasing securi-ties at such manipulated and artificial market conditions. In furtherance of this object to keep check on such manipulative or fraudulent transac-tions which are not bona fide and genuine transactions of sale and purchase but a part of manipulative mechanism the Board had framed (Prohibition of Fraudulent and Unfair Trade Practices Relating to Secu-rities Market) Regulations, 1995 by publishing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , intermediary or any other person; Regulation 8(1) : Before causing an investigation to be made under regulation 7, the Board shall give notice. (2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors or in the public interest, no such notice should be given, it may, by an order in writing and recording the reasons as far as practicable, direct that the investigation be undertaken without such notice. (3) Subject to the provisions of this regulation, an order passed under regulation 7 shall be a sufficient authority for the Investigating Officer to undertake the investigation and, on production of an authenticated copy of the order, the person concerned shall be bound to carry out the duty imposed in regulation 9." [Emphasis supplied] 15. Regulation 9 casts a duty on the person concerned to co-operate and furnish requisite information and documents. Regulations 11 and 12 provide for issuing directions to buyers and sellers in respect of any transaction which has taken place in contravention of the regulations after report of enquiry has been submitted to the Board. These provisions cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrong labelling of it would not invalidate exercise of such powers. 19. I am unable to sustain the contention of the petitioners that the Board has no power to conduct an inquiry in the transaction of transfer of shares by the petitioners and inquiry of the Board must stop at the stock brokers or intermediaries who have been instructed to carry out the transactions of petitioners. 20. Contention that the information cannot be called from the petitioners because section 11(2) restricts calling for information from undertaking inspection, conducting inquiries and audits of the stock exchanges, mu- tual funds, other persons associated with the securities market and self- regulatory organisations in the securities market only and the petitioner does not fall in any of them must also fail. 21. The contention that no enquiry can be held against petitioner buyer has been rejected on two grounds namely: ( i ) the buyer does fall within the purview of class enumerated in clause ( i ) as person associated with securities market and ( ii ) that Regulations of 1995 specifically provides for holding investigation in conduct and affairs of any buyer or seller in respect of transac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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