9911796707
TMI Blog2002 (5) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... came to be opened on 20-4-1995 and closed on 24-4-1995 and the allotment of shares came to be made on 26-5-1995. On 25-7-1997 the SEBI issued show-cause notice in exercise of powers under section 11B of the Act to Managing Director of the petitioner Company to show-cause as to why the direction should not be issued under section 11 of the Act to refund the issue proceeds as minimum subscription of 90% was not received till the time of closure of the issue and why the company should not be barred from entering the capital market for various violations as mentioned in the show-cause notice and the attempt to create a false market etc. It is the case of the petitioner that ultimately after receipt of show-cause notice letter dated 16-8-1997 was addressed to the SEBI for supplying the preliminary investigation report made in respect to the public issue by the petitioner-company and it was revealed in the said preliminary investigation that though in reality the issue was not subscribed by 90%, an artificial subscription was shown by the company. The petitioner, as per letter dated 18-8-1997 demanded the copy of preliminary investigation report, statements recorded and it was also menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was issued without prejudice to the right of the SEBI to initiate prosecution against the petitioner under the Act. 4. The petitioner thereafter on 3-1-2000 filed appeal under section 20 of the Act to the Central Government which came up for hearing before the appellate authority on 25-4-2000 and ultimately on 29-5-2000 the appellate authority passed the order after hearing the petitioner. The appellate authority confirmed the findings of SEBI as made in the order dated 12-11-1999 and further observed that the opportunity of cross-examination cannot be read and the principles of natural justice have been complied with by supplying the material which is used against the petitioner company and the appellate authority also found that there is strong evidence that false market was created and therefore ultimately dismissed the appeal. The aforesaid orders, dated 12-11-1999 of the SEBI and the order, dated 29-5-2000 of the appellate authority are under challenge in this petition. 5. Mr. Soparkar appearing for the petitioner mainly raised the contentions that the order is in breach of principles of natural justice inasmuch as he submitted that there is absolute denial of opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of public issue after a period of 4 years and therefore Mr. Soparkar submitted that the order for giving such direction is not only impracticable but is impossible to be conceived under section 11B of the Act. 6. On behalf of respondent Mr. S.N. Shelat, the Ld. Sr. Counsel submitted that there is concurrent finding by both the authorities that a false market was created and therefore this Court would not re-appreciate the evidence for upsetting the finding in exercise of powers under Art. 226/227 of the Constitution. Mr. Shelat also submitted that even on facts it does transpire that a false market was created by the promoters of the petitioner company at the time of public issue and he further submitted that though the issue was closed on 24-4-1995 cheques were issued in the month of May 1995 and the payment thereof was made in the month of June 1995 by Khandwala family comprising of Shri Parmanand Khandwala, Smt. Kinnari Khandwala, Shri Vimal Khandwala and Smt. Sonal Khandwala totalling to Rs. 50 lac and Mr. Shelat submitted that if the amount of Rs. 50 lac which was shown as artificial subscription is taken out from the total subscription, the issue subscribed would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is sufficient explanation for artificial subscription made by Khandwala family, more particularly, the petitioner has not denied that the amount of stock invest from Khandwala family was paid in the month of June 2000 i.e., after the closure of issue in April 1995. Therefore, the opportunity of cross-examining them which the petitioner is pursuing is even otherwise meaningless since neither any prejudice is caused nor the said cross-examination would have any bearing upon the decision taken by the SEBI. Mr. Shelat submitted that the direction given is only of refund and the other directions as mentioned in the show-cause notice for barring the petitioner from entering the capital market etc. are not given and therefore when the authority which is well versed with all relevant aspects of the subject has upon the material found that false market was created it cannot be said that the order would be bad on the so-called ground of denial of cross-examination of witness, more particularly when the petitioners are unable to show any prejudice caused on account of denial of cross-examination of witnesses. Mr. Shelat ultimately submitted that the orders passed by both the autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther securities markets, (b)registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets, in any manner, (ba)registering and regulating the working of the depositors, participants, custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the Board may, by notification specify in this behalf, (c)registering and regulating the working of venture capital funds and collective investment schemes including mutual funds, (d)promoting and regulating self regulatory organisations, (e)prohibiting fraudulent and unfair trade practices relating to securities markets, (f)promoting investors' education and training of intermediaries of securities markets, (g)prohibiting insider trading in securities. (h)regulating substantial acquisition of shares and takeover of companies, (i)calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchanges, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it thinks fit. Sub-section (2) of section 11 provides that the SEBI may undertake various measures as provided under clauses (a) to (m), sub-section (3) of section 11 provides the enabling power of SEBI like that of a civil Court under the Code of Civil Procedure for trial of the suit in respect to discovery or production of books of account etc. summoning and enforcing the attendance of persons and examining them on oath and inspection of any books or register or other documents etc. Section 11B of the Act provides that when the Board is satisfied that it is necessary in the interest of investors or orderly development of securities market or to prevent the affairs of any intermediary or other persons or to secure the proper management of any such intermediary or person the SEBI may issue such directions to any person or class of persons or to any company in respect of the matters specified in section 11A. There is no dispute raised to this petition challenging the powers of SEBI to issue directions. However, the petition is preferred mainly on the procedural aspects of breach of principles of natural justice. Before such contention of breach of principles of natural justice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he benefits procured by wrong doing, the same cannot be tolerated under any circumstances. If the company has used or wrongly retained the money of the investors in the public issue. I am of the view that it is within the powers of the SEBI to give such directions to the concerned company to refund the money. Merely because the period has expired and the amount is used by the company is no legitimate ground to contend that the said directions cannot be issued by the SEBI in exercise of its powers under section 11B of the Act and therefore the contention of Mr. Soparkar that the company cannot be directed to refund the money of public issue fails and hence is rejected. 10. Much grievance is raised on behalf of the petitioner regarding breach of principles of natural justice and more particularly the denial of opportunity to cross-examine the persons whose statements were recorded by the SEBI. As such the perusal of section 11B of the Act shows that the Legislature has not provided for any observance of principles of natural justice while exercising powers under section 11B of the Act. In the given case it may be impracticable for SEBI to give pre-decisional hearing considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res that the Tribunals should observe rules of natural justice in the conducting of inquiry and has further observed that the rules of natural justice require that a party should have the opportunity of adducing all relevant evidence on which he relies. That the evidence of the opponent should be taken in his presence and that he should be given the opportunity of cross-examining the witnesses examined by that party. So far as holding departmental inquiry for termination of services of a Government employee is concerned there are statutory rules regarding the inquiry and further that the rules are to be read with Article 311 of the Constitution of India which is not in the present case and therefore the aforesaid judgment of the Apex Court is of no help to the petitioner. In the case of Khemchand (supra) was also the case of departmental inquiry under Article 311 of the Constitution and so was the case of Town Area Committee (supra). The case of K.T. Sadhuli Grocery Dealer (supra) was under Taxing Statute and in the said case while considering the proviso of section 17(3) of Kerala General Sales Tax Act the Apex Court observed that in the facts of the case and in view of the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice including the right of cross-examination in every case and therefore the same is of no help to petitioner. 12. As against the above, Mr. S.N. Shelat appearing for the respondent has relied upon the judgment in the case of Surjeet Singh Chhabra (supra) to contend that under the Customs Act, the Apex Court has observed that failure to give opportunity to cross-examine the witnesses is not violative of principles of natural justice. In the case of K.L. Tripathi (supra) the Apex Court has observed in para 32 of its judgment that the basic concept is fair play in action administrative, judicial or quasi-judicial. The concept of fair play in action must depend upon the particular lis, if there be any, between the parties. If the credibility of a person who has testified or given some information is in doubt, or if the version or the statement of the person who has testified is in dispute, right of cross-examination must inevitably form part of play in action but where there is no lis regarding the facts but certain explanation of the circumstances, there is no requirement of cross-examination to be fulfilled to justify fair play in action. When on the question of facts there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eque amount on 7-6-1995 which are the crucial evidence are to be decided from the bank record and the same is coupled with the acceptance of MOU which is not denied by the petitioner. Therefore, considering the facts of the present case, the fact that the MOU is entered into and that the stock invest were issued on 13-5-1995 and the cheques were released on 7-6-1995 in any case all these dates are after the closure of public issue on 24-4-1995 coupled with existence of MOU shows that the SEBI was justified in issuing directions to refund the money. It is not the case of the petitioner that the stock invest were not of later date or that the cheques were not released on later date or that the MOU was not in existence and therefore under the circumstances I find that in any case the denial of cross-examination has not in any manner prejudiced more particularly when the SEBI has taken decision of issuing minimum direction to refund the money of public issue and has not taken any decision of barring the company from entering the capital market and of lodging prosecution. Under the circumstances, there is considerable force in the contention of Mr. Shelat that when the facts of the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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