9911796707
TMI Blog1998 (9) TMI 428X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by the appellate authority under the Securities Contracts (Regulation) Act, 1956 ( the Act ) dated 24-12-1996 and 30-9-1997 - Interim relief was also prayed against execution and implementation of the order passed by respondent No. 1, Union of India, and by the SEBI. 3. The case of the petitioner was that it was a company incorporated in 1994 under the Companies Act, 1956. The Registrar of the Companies issued commencement certificate of business in favour of the petitioner- company on 30-8-1994. The petitioner-company floated a public issue of 36 lakhs equity shares of Rs. 10 each. The issue was opened for subscrip-tion on 21-12-1995. It was oversubscribed by nearly 12 times. The SEBI received a complaint in regard to this public issue. Certain allegations were made regarding irregularity on the basis of which inquiry was ordered by the SEBI and a report was submitted. From the report it was established that two persons, namely, Mr. Atul Shah, Managing Director of the petitioner-company and one Mr. Shantilal Gandhi were involved in grey market operations .It was also alleged that there was an agreement between Mr. Atul Shah and Mr. Shantilal Gandhi which guaranteed paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of marketing the issue. 3. Shri Atul Shah had stated that the agreement which refers to various transactions is forged. I find it difficult to believe that Rs. 21 lakhs must have been paid without any supporting documents. 4. The payment of cheques, the meetings with Shri Gandhi, Shri Gandhi s easy access to the office of Shri Atul Shah, and the fact that Shri Atul Shah while addressing a conference of the brokers had Shri Shantilal Gandhi sitting on the same dais shows special closeness between them. 5. There is enough evidence of transactions in the scrip of Jaltarang Motels Ltd. even prior to the listing of the shares of Jaltarang. 6. Shri Atul Shah had confirmed that he was aware of the trading of the scrip of Jaltarang in the grey market. However, he was not aware of the number of shares and the buyer and seller trading therein. 7. Shri Atul Shah also admitted that the monies collected against the public issue of Jaltarang had been released even prior to the approval of listing of shares." It was further stated : "A11 the above factors and the investigation report leaves me with no hesitation in concluding that the transactions had been entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner had returned only before few days from abroad. A request was, therefore, made to keep hearing on any date after 10-7-1997. It was the case of the petitioner that no reply was given to the communication dated 26-6-1997 to the petitioner and on 1-7-1997, the appeal was heard ex parte by the appellate authority. Even thereafter the petitioner was not informed. According to the petitioner, on 5-8-1997, again it addressed a letter to the appellate authority, Annexure "M" to the petition, wherein a request was made for fixing another date of hearing of the appeal. It was also stated that earlier time was sought by an application dated 26-6-1997 but till that date, ie., 5-8-1997, the petitioner had not heard anything from the appellate authority in the matter. Therefore, once again a request was made to fix date of hearing of appeal. 6. According to Mr. Atul Shah, when he personally inquired in the office of the appellate authority on 29-8-1997, he was given to understand that hearing was already over in July and some order was passed but as it was not signed, the same could not be despatched. It is on record that the order was passed by the appellate authority on 22-8-1997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Single Judge, a serious grievance was made that SEBI had committed an error of law in passing the order against the petitioner which was contrary to the facts and documentary evidence. It was also contended that though the appeal was filed in accordance with law and the appellate authority was bound to decide it on merits, without afford- ing opportunity of hearing and without complying with the principles of natural justice, the appeal was dismissed ex parte. By doing so, an error of law was committed even by the appellate authority which deserved interference by this Court. It was urged that the appeal was fixed for hearing on 30-6-1997. Since it was not possible for the petitioner to proceed with hearing of appeal on that day, an application was made, well in advance, on 26-6-1997, requesting the appellate authority to adjourn the hearing. The appellate authority did not inform the petitioner that the appeal will not be adjourned and hearing will take place on scheduled day. The petitioner in these circumstances was under the impression that the appeal would be adjourned and would not be decided in his absence. The petitioner was not made aware of the fact that on 1-7-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gives a personal undertaking to this Court that he will pay the remaining amount if the decision in appeals go against him. Mr. Jhaveri states that the petitioner has only Rs. 6 lakhs available in the bank and only that much deposit be directed. It is not possible to accept this suggestion that if he deposits these Rs. 6 lakhs with SEBI, same will be adjusted towards the deposit of Rs. 50 lakhs. In the meanwhile he shall not withdraw any amount from these Rs. 6 lakhs. (B)The petitioner will create a charge on the properties purchased out of these funds mentioned in his affidavit, filed in this Court affirmed on 29-7-1998. 9. The petitioner is given the time of four weeks to take the necessary steps within which period the execution of the impugned order will remain stayed. During this period however the petitioner and Mr. Atul Shah will not deal with, part with, alienate or encumber any of these properties mentioned in the affidavit. Mr. Atul Shah will also instruct the Jaltarang Club to stop its activities forthwith inasmuch as they are obviously run out of the diverted fund of Rs. 67,60,000, that will enable him to raise the deposit of Rs. 50,00,000 as well. Mr. Jhaveri sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various provisions of the Companies Act, he submitted that when an amount was received by the company before complying with the provi-sions of the Companies Act and before necessary permission was granted by the authorities, the appellant was holding the amount in trust. It was, therefore, not open to the appellant either to appropriate or to spend or to divertor in any other manner deal with the said amount. He was virtually a banker to the issue. When the learned Single Judge recorded a finding that the appellant has diverted an amount of Rs. 67,60,000 to its sister concern i.e., Jaltarang Club , the order to deposit an amount of Rs. 50 lakhs with SEBI cannot be said to be illegal or improper. According to Mr. Shelat, the amount which has to be recovered from the petitioner is about Rs. 3.6 crores. Considering the fact, Rs. 50 lakhs would come to approximately 15 to 20 per cent. If the learned Single Judge, after considering of the circumstances, directed petitioner/appel- lant deposit an amount of 15 to 20 per cent by giving an opportunity of hearing by the appellate authority, on merits, by no stretch of imagination, the order can be said to be illegal which requires interf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise be entitled to get back the amount. 11. In our opinion, however, the question was not whether such expenses were necessary. The question was that when the provisions of the Companies Act were not duly complied with and necessary sanction/ permission was not granted by the authorities, it was not open to the appellant to deal with the amount received by him for any purpose. If during that period, he dealt with the amount, an appropriate condition could be imposed on him. Moreover, the said amount of Rs. 67,60,000 was paid by the appellant to its sister concern. Taking into account that a statement was made by Mr. Shelat on behalf of SEBI before the learned Single Judge that it would be appropriate if the learned Single Judge passed an order directing the petitioner to deposit at least an amount of Rs. 50 lakhs from the amount of Rs. 67,60,000, in our opinion, the learned counsel was fair and the order was just and equitable. If on the basis of that fact and the statement, the learned Single Judge passed an order directing petitioner to deposit an amount of Rs. 50 lakhs, such discretion cannot be said to be arbitrary or unreasonable. 12. It is true that even in exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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