9911796707
TMI Blog2002 (6) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... that prosecution proceedings under section 24 of the Securities and Exchange Board of India Act, 1992 ( the Act) for violation of clauses (a) and (d) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (the 1995 Regulations) be initiated against the Appellant company through its directors/officers viz. Shri Rajiv Chandrasekhar, Shri Ajit Nambiar, Shri R.Murali, Shri T.P.G.Nambiar and Shri T.C.Chauhan. The Appellant company is a public limited company, mainly engaged in the production and marketing of consumer electronic products like televisions, home appliances, telecom products, alkaline and dry cell batteries, medical instruments and other electronic products. The share capital of the Appellant company as on 31.3.98 was ₹ 269.30 millions. Subsequently it was raised to ₹ 776.90 millions. Its shares are listed on seven stock exchanges across the country. Shares of the Appellant are stated to be widely held by the promoters group, banks, foreign institutional investors, financial institutions, non-resident Indians, employees and members of the Public. Promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that the scrip could not sustain the rise longer and fell sharply after 04.06.98 to a low of ₹ 139/- in the month of June, 1998 The investigations revealed that a set of brokers and sub-brokers acting on behalf of a common set of clients cornered a large chunk of shares of the Appellant company at both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These clients called Damayanti group, built up unusually large positions in the Appellants shares resulting in distortion of the market equilibrium and creation of artificial market in these shares. Damayanti group comprised mainly of the following entities, viz. Damayanti Finvest Pvt.Ltd, CDP Fincap and Leasing Pvt.Ltd, KRN Finvest and Leasing Pvt.Ltd, Rijuta, Finvest Pvt.Ltd, Ikshu Finvest Pvt.Ltd, Money Television Industries Ltd. These entities had neither the financial worth nor the professional expertise to undertake the kind of dealings, which they have supposedly done through a large number of brokers and merely acted as front for Shri Harshad Mehta, who is a notified person under the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (the Special Court Act) Damayanti gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s logged in by Digital at the time mentioned in the bill. On questioning, Digital admitted that this transaction was not executed as the contract was cancelled at the behest of BSFL. However, Digital could not explain how the bill with time and order number was issued when the deal had not taken place. Appellant made payment to Digital on 6.9.1997 when order to purchase the shares was purportedly cancelled on 26.8.1997. Digital when asked whether the money was refunded back to BSFL stated that instead of refunding the money they approached BSFL with an offer for sale of shares and Fully Convertible Debentures (FCDs) of Money Television Industries Ltd (an Unlisted company) Digital in turn had earlier received offer to sell shares/FCDs of Money Television Industries Ltd (Money Television) from Damayanti Group. It was claimed that Digital sold 38,13,500 shares and 11, 86, 500 FCDs of Money Television @ ₹ 10/- each to BSFL. The counter parties for this transactions were entities belonging to Damayanti group. It was also seen that the bill for the sale of shares and debentures of Money Television was of the same date and number as the original bill raised for sale of the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chauhan could not explain as to why the bill was raised by Digital in the name of BSFL if there was no such purchase. He merely stated that his decision was not to buy the shares of Money Television and that BPL group had still to receive ₹ 5 crores from Digital. It was seen that despite a period of more than a year having elapsed BSFL had not taken any steps to recover this money. The explanation for purchase of 1,10,000 shares of the Appellant @ ₹ 400/- per share is also not convincing and appears to be an after thought. Director of Digital stated that dealings were being done at their counter by Shri Harshad Mehta though billing was being done in the name of his nominee i.e. Damayanti group. As regards receipt of amount from BPL group it was also admitted that they (Digital) were informed by Shri Harshad Mehta that a large payment would be credited into their account from BPL group from Bangalore to settle Damayantis outstanding pay-in-liability. It was also stated that contract notes were issued just to provide an alibi for transfer of funds and cover up the links of BPL group with Shri Harshad Mehta after SEBI investigations had commenced. The above facts indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 31.66 crores was returned to BPL group entities, and preferential shares were issued for the balance amount of ₹ 15.34 crores. BPL group gave this money (Rs.15.34 crores) to cover a loss of ₹ 11.64 crores suffered by SSKL in this regard. This shows that SSKL merely provided a facade to BPL group for purchase of its own shares and through this methodology the prohibition imposed by section 77 of the Companies Act was circumvented. In view of the presence of fabricated contract notes in favour of BSFL and details of transfer of funds from BPL group to Digital, telephone bills linking Shri Harshad Mehta with BPL group, admissions of Digital and contradicting statements of directors/officials of the Appellant company, the Appellant seems to have connived with Shri Harshad Mehta and created a false market and manipulated the prices of scrips. Further there is no plausible explanation as to why a public limited company which is responsible for its share holders should buy its own shares at ₹ 235/- when the market was falling and there were only one side sellers and no genuine buyers in this scrip, in violation of section 77 of the Companies Act only from those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain to the same order, it was decided with the consent of the parties, to hear the appeals together and pass a common order. Shri Aspi Chinoy, learned Senior Counsel appearing for the Appellants except for Appellant in appeal No.15/2001, submitted that the order is bad in law and cannot be sustained as it is passed without following the principles of natural justice, and without jurisdiction and contrary to the material on record. Shri Chinoy referred to the show cause notice dated 20.12.1999 issued to the Appellant company and the other Appellants herein and stated that the Respondent had offered inspection of the documents and material which was being relied on by it. He stated that by a letter dated 25.1.2000 the Appellant company requested the Respondent to confirm the list of documents and material that were being relied upon by the Respondent, referred to in the said letter, and the Respondent was also informed of the Appellants desire to take inspection of the documents listed in the letter at a mutually convenient date, but the Respondent did not confirm the documents upon which it would be placing reliance. Inspection of the documents was completed on 29.4.2000 and on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Shripal Morakhia, of Seventilal Kantilal Securities P. Ltd. (SSKL) for cross examination, which was not agreed to by the Respondent. In this context he referred to the Appellants formal application dated 24.1.2001 to provide Shri Shripal Morakhia for cross examination as Shri Morakhias cross examination was very essential, as he was the representative of SSKL stated to have approached the Appellant at the behest of the office bearers of BSE and NSE, further that in support of the show cause notice, the Respondent had relied on SSKLs letter dated 25.6.98 to the Respondent and inspection of the said letter was granted to the Appellant, that during the course of hearing on 24.1.2001 before the Respondents Chairman, the Appellants Counsel had explained as to why cross examination of Shri Morakhia was considered necessary. Shri Chinoy stated that the Chairman had asked the Appellant to make written submission on the issue of cross examination and accordingly written submission was also made that at the hearing on 4.4.2001, the Respondents representative stated that they would not rely upon SSKLs letter dated 25.6.1998 but reliance would be placed on the statement of Shri Tarun Parvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e documents relate to the Appellant or not. The question is whether the documents are relevant to the charges levelled against the Appellant, that the documents are certainly relevant, as they are used to link the Appellant with Shri Harshad Mehta and to suggest that Shri Harshad Mehta acted at the behest of the Appellant. He stated that since the material has been used against the Appellant, the Appellant was entitled to inspect the same/to get a copy of the document. Shri Chinoy referred to the Respondents version in its reply (p.15) that all the documents/materials relied upon ( in so far as they relate to the Appellant), in the impugned order had been made available to the Appellant and stated that it is not factually correct. In this context he referred to the letters from the Appellants side dated 25.1.2000,15.2.2000, 15.3.2000, 16.3.2000, 29.4.2000 forming part of the Respondents reply and particularly referred to the Respondents letter dated 15.5.2000 in reply to the Appellants letter dated 29.4.2000 and pointed out that the Respondent had agreed to provide photocopies of only few documents selected out of several documents listed in the letter, implying that only those doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tably would be that the enquiry had not been held in accordance with rules of natural justice. (2) KhemChand v Union of India (AIR 1958 SC 300) If the opportunity to show cause is to be a reasonable one it is clear that he should be informed about the charge or charges levelled against him and the evidence by which it is sought to be established, for it is only then that he will be able to putforward his defence. If the purpose of this provision is to give the Government servant an opportunity to exonerate himself from the charge and if this opportunity is to be a reasonable one he should be allowed to show that the evidence against him is not worthy of credence or consideration and that he can only do if he is given a chance to cross examine the witnesses called against him and to examine himself or any other witness in support of his defence (3) M.A.Jackson v.Collector of Customs (1998) 1 SCC 198 Once it is admitted that the price mentioned in the magazine was not mentioned in the show cause notice issued to the petitioner, any reliance on the said price mentioned in the magazine, by the Customs authorities must be held to be illegal. Further, that this point was taken in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts stated in para Q of the grounds of appeal which included the Appellants financial position, impressive performance, profitability, market leadership, product range and demand, corporate recognition etc. With reference to the Respondents contention that the scrip of the Appellant was moving abnormally compared with the movement of the BSE/NSE index, Shri Chinoy referred to the share price movement data for 3 calendar years i.e. 1997, 1998 and 1999 filed with the appeal and pointed out that in the year 1997 the highest price quoted in August, 1997 was ₹ 105/- followed by ₹ 104/- in December. In 1998, the highest quote in January was ₹ 121, in February, ₹ 129, in March, ₹ 165, in April, ₹ 417, in June, ₹ 446. In July the price fell to ₹ 180, in August, ₹ 158, in September, ₹ 157, in October, ₹ 152, in November, ₹ 138 and in December, it was ₹ 146. He also referred to the highest rates in 1999, that in January it was ₹ 226, in February ₹ 200, in March ₹ 395, in April ₹ 415, in May ₹ 474, in June ₹ 530, in July ₹ 535, in August ₹ 569, in September &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a totally independent and distinct entity . In this context he, referred to the statement made by Shri R.Balathandayutham, Vice President, BSFL in his deposition dated 10.8.1998 that in fact the shares have been received by BPL Sanyo Finance ltd., and lodged for transfer on 16.7.1998. He submitted that with reference to purchase of Money Televisions shares and FCDs also it is clear from the bill (copy filed with the appeal) that the buyer was not the Appellant. He submitted that BSFL is a finance company and there were transactions between the Appellant and the BSFL in the nature of inter corporate loans and deposits, and the funds advanced to BSFL in 1997 by the Appellant were part of the normal transactions, that the Respondents contention that it was meant for purchase of the shares of the Appellant company is baseless. He submitted that the Respondent has not produced any credible evidence to establish that the money was given by the Appellant to purchase its shares. Shri Chinoy submitted that the Respondent has gone on the wrong presumption that BSFL, Sanyo Finance and the Appellant are one and the same entity, though it is not so. Learned Senior Counsel stated that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Senior Counsel submitted that the impression that the Appellant and BSFL are one and the same is incorrect. Shri Chinoy refuted the Respondents version in para 13.1 that BPL was exercising its controlling mind in respect of BSFL, and stated that BSFL is a business associate of the Appellant does not mean, that it is under the control or management of the Appellant, that the Respondent has failed to establish that the Appellant is the controlling mind of BSFL. Shri Chinoy stated that the specific allegations in the show cause notice/order are directed against the said BSFL and not against the Appellant. By way of illustration he referred to the Respondents version in the show cause notice that (i) on 20.8.97 BSFL gave a mandate to Digital to purchase 5 lakh shares (para 8), (ii) a contract note dated 26.8.1997 issued on BSFL in respect of the purchase of 5 lakh shares of the Appellant (para 8), (iii) a bill dated 16.8.97 raised on BSFL in respect of the said transaction (para 8), (iv) Digital received ₹ 5 crores on 5.9.97 from BSFL (para 9), (v) credit for this payment was given in the books of account of Digital to BSFL (para 9), (vi) Digital approached BSFL with an of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the charge of market manipulation implies an improper motive or intention that when such a charge is levelled against an artificial person or body corporate, it is necessary for the party making the charge to establish that the controlling/directing mind of the artificial person, that is, the Board of Directors or a committee of directors or the shareholders in general meeting, were involved in manipulation, that the subject transactions were never put up before the Board of the Appellant or a committee of its directors or before its shareholders. In this context he referred to the following authorities (i) Esso Standard Inc v. Udharam B Japanwalla 1975(45) Co.cases 16(Bom), (ii) ANZ Grindlays v. Director of Enforcement, decided by the Hon'ble Bombay High Court on 7.11.1998 in W.P.No.1972/1994 etc.) Shri Chinoy read out extensively from the Esso Standards case and in particular the following paragraphs: The passage of Viscount Haldane, Lord Chancellor, in Lennard's Carrying Company Ltd v. Asiatic Petroleum Co.Ltd (1915) AC 705) referred to by Lord Diplock, is as follows: My Lords, a corporation is an abstraction. It has no mind of its own any more than it had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ete departure from the legislative intendment as envisaged by the Act 1947. This measure has brought a drastic change in legislative approach and consequently by necessary implication Mens Rea has become the essential ingredient of the commission of the contravention.Section 58 is brought to prevent vindictive attitude or venom of the officers of the Enforcement Directorate or any person willfully giving false information. The very nature of the offence clearly involves culpable mental state. Section 59 reads thus:- Presumption of culpable mental state(1) In any prosecution for any offence under this Act which requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. Explanation:- In this section culpable mental state includes intention, motive, knowledge of a fact and belief in, or reason to believe, a fact. (3) The provisions of this section shall, so far as may be, apply in relation to any proceeding before an adjudicating officer as they apply in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the volumes traded were abnormal or that the price was due to manipulations.. Shri Chinoy submitted that share price movements of several other companies indicate that the share prices of these companies also rose against the trend and movement of Sensex/Nifty during the period September, 1997 to June,1998. By way of example he stated that the price of Pentafour Software Ltd rose on BSE from ₹ 129 in September , 1997 to ₹ 1082 in May, 1998, in the same period in the case of Zee Films the price movement was from ₹ 115 to ₹ 610, in Satyam Computers from ₹ 160 to ₹ 504, in HCL-HP from ₹ 35 to ₹ 332, in ITC from ₹ 495 to ₹ 830. He stated that the general market sentiment and confidence in the Appellant's scrip is evident from the steady rise in the scrip value between July, 1998 and September, 1999, that on BSE the scrip rose from July, 1998 high of ₹ 180 to a high of ₹ 636 in September, 1999, that the increase during said period was much greater than the increase during the subject period, which clearly demonstrates that rise in the Appellant's scrip price may be justified on the basis of objective factors, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be any question of this transaction resulting in any market manipulation. As regards the payment on 5.9.1997 of ₹ 5 crores, the learned Senior Counsel submitted that this payment was made by BSFL to Digital and not by the Appellant. He submitted that the entries in the books of account of Digital showed that the payment on 5.9.1997 was not in lieu of any transaction for the purchase of shares. He stated that in so far as the disbursals made by Digital are concerned, these are the matters with which the Appellant is not in any way concerned. Shri Chinoy referring to the 2nd limb of the charge, that is funding to bail out the brokers in distress, referred to the Respondent's observation in this regard as found in the show cause notice that investigations revealed that a large number of brokers of BSE and NSE who were dealing on behalf of Damayanti group had cornered substantial stock of BPL shares and some of them faced payment problems and could not discharge their commitments towards pay in liabilities as they did not get the payments from their clients i.e. Damayanti group. It was gathered during the course of investigation that some of the office bearers of BSE a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge has been established or even levelled against the Appellant, that all that the Appellant did was that it provided funds, as required by the management of the stock exchange to diffuse an otherwise explosive crisis in the market, to protect the interest of investors. Shri Chinoy submitted that by the Respondent's own version, cornering of shares was done at the instance of Damayanti group and it was Damayanti group who failed to pay. He also stated that bail out is an incident pertaining to June, 1998 where as the charge against the Appellant is funding a broker in the year 1997 to manipulate the market. Shri Chinoy denied the Respondent's version that the Appellant in connivance with Shri Harshad Mehta through Damayanti group was instrumental in manipulating the prices of its shares. He submitted that the charge is thus a charge of conspiracy. He stated that there is no nexus of any sort between the Appellant and Shri Harshad Mehta or Damayanti group and that the Appellant has not provided any evidence in support of its contention. He also stated that the Respondent has not provided any material/document to the Appellant establishing relationship between Damayanti group an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1964 SC 1366): The onus of establishing a corrupt practice is undoubtedly on the person who sets it up,and the onus is not discharged on proof of mere preponderance of probability as in the Trial of a Civil Suit; the corrupt practice must be established beyond reasonable doubt by evidence which is clear and unambiguous (emphasis supplied) Ch. Razik Ram v. J.S.Chouhan (AIR 1975 SC 667) Before considering as to whether the charges of corrupt practice were established, it is important to remember the standard of proof required in such cases. It is well settled that a charge of corrupt practice is substantially akin to a criminal charge. The commission of a corrupt practice entails serious, penal consequences. It only vitiates the election of the candidate concerned but also disqualifies him from taking part in elections for a considerably long time. Thus the trial of an election petition being in the nature of an accusation, bearing the indelible stamp of quasi-criminal action, the standard of proof is the same as in a criminal trial. Just as in a criminal case, so in an election petition, the Respondent against whom the charge of corrupt practice is levelled, is presumed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted above. Ramanbhai Nagribhai Patel v. Jasvant Singh Udersingh Dabhi (AIR 1978 SC 1162): We may state that the charge of bribery is in the nature of a criminal charge and has got to be proved beyond doubt. The standard of proof required is that or proving a criminal or a quasi criminal charge. A clear cut evidence, wholly credible and reliable is required to prove the charge beyond doubt. Evidence merely probabilising and endeavouring to prove the fact on the basis of preponderance of probability is not sufficient to establish such a charge. Shri Chinoy stated that the charge of bribing in an election is an act of manipulation and the test of evidence required to punish the manipulator spelt out in the order is applicable to manipulations covered in regulation 4(a) and 4(d). He stated that market manipulation is a corrupt practice, with serious consequences, affecting the public and the test laid by the Court as aforesaid is applicable in deciding the charge of manipulation. Ramsingh v. Col.Ram Singh (AIR 1986 SC 3) In Samant N. Balakrishna v. George Fernandez (1969) 3 SCR 603 : (AIR 1969 SC 1201), this Court while dwelling on the principles to be followed in election cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the election petitioners were able to give useful evidence to their personal knowledge but stayed away purposely. In the case of Sultan Salahuddin Owasi v. Mohd. Osman Shaheed (1980) 3 SCC 281 : (AIR 1980 SC 1347), to which one of us (Fazai Ali, J.) was a party, this Court observed thus:- It is now well settled by a large catena of the authorities of this Court that a charge of corrupt practice must be proved to the hilt, the standard of proof of such allegation is the same as a charge of fraud in a criminal case. In Ram Sharan Yadav v. Thakur Muneshwar Nath Singh (1984) 4 SCC 649: (AIR 1985 SC 24), to which two of us were parties, this Court observed thus: The sum and substance of these decisions is that a charge of corrupt practice has to be proved by convincing evidence and not merely by preponderance of probabilities. As the charge of a corrupt practice is in the nature of a criminal charge, it is for the party who sets up the plea of undue influence to prove it to the hilt beyond reasonable doubt and the manner of proof should be the same as for an offence in a criminal case. This is more so because once it is proved to the satisfaction of a court that a candidate has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nomenon and strange coincidences, for, as it is said, truth is strange than fiction. In these circumstances, therefore, after going through the judgement of the High Court we are satisfied, that the Appellant has not been able to make out a case of fraud as found by the High Court. Shri Chinoy cited Svenska Handelsbanken v. M/s. Indian Charge Chrome (AIR 1994 SC 626) and stated that therein also the Hon'ble Court had re-iterated the Privy Council's observation in Narayanan Chetteyar's case, quoted in Chaturbhai's case that fraud like any other charge of a criminal proceedings must be established beyond reasonable doubt. A finding as to fraud cannot be based on suspicion and conjuncture In this context he also referred to Ambalal's case (supra) and re-iterated that the principles laid down therein should be strictly followed. He submitted that the test of evidence in a case like market manipulation is not the normal preponderance of probability but it is the proof beyond doubt. Shri Chinoy also referred to the view taken by this Tribunal in Sterlite Industries Ltd v. SEBI (2001) 31 SCL 485: (2001) 45 CLA 195 (SAT) on the scope and reach of regulation 4(a) and 4(d) and the test of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e damages are excessive enough to be considered a penalty, a court will usu. not enforce that particular provision of the contract. Some contracts specify that a given sum of damages is intended as liquidated damages and not as a penalty but even that language is not fool proof.
A penalty is a sum which a party agrees to pay or forfeit in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach, or as security, where the sum is deposited or the covenant to pay is joined in by one or more sureties, to insure that the person injured shall collect his actual damages. Penalties are not recoverable or retainable as such by the person in whose favor they are framed
Charles T. McCormick, Handbook on the Law of Damages 146, at 600 (1935).
civil penalty. A fine assessed for a violation of a statute or regulation X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a substantive power which should come from the statute. Penalties are required to be statutorily defined and one can't whimsically create an offence and impose penalty at his sweet will. Shri Chinoy submitted that if 11B is construed to be a penal provision then it is ultravires and liable to be struck down. Referring to the impugned direction he stated that debarring the Appellant accessing capital market for four years cannot be considered remedial with reference to the alleged offence stated to have been committed more than 3 years ago, that the prohibition on the Appellant company raising capital from the public is to be considered as a penalty and imposition of such penalty is out of the purview of section 11B and as such the same deserves to be set aside. In support of his argument in this regard he cited the following extracts from the decided cases: Khemka and Co.(Agencies Pvt.Ltd) v. State of Maharashtra (AIR 1975 SC 1549) It is a well settled canon of construction of statutes that neither a pecuniary liability can be imposed nor an offence created by mere implication. It may be debatable whether a particular procedural provision creates a substantive right or l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same statute. But this principle will have no application where in a penal action no notice was given or resort to such provision was made to the delinquent or the offending party. Kantilal Babulal and Bros. v. H.C.Patel (AIR 1968 SC 445) This was a case where a Sales Tax Officer, without giving effect to the order passed by the Sales Tax Appellate Tribunal, to refund the amount collected as tax from a dealer on the sales effected outside the State from 26.1.1950 to 31.3.1951, proceeded to take steps for forfeiting the amount to the State Government under S.12 A(4) of the Sales Tax Act. According to the Revenue S.12A(4) is a penal provision; and it provides for the imposition of penalty on those who contravene Section 12A(1) and (2). It was said on its behalf that power to enact such a provision is incidental to the power to take sales. I support of that contention reliance was placed on the decision of the Gujarat High Court in Ram Gopal v. Sales Tax Officer, Surat, (1965) 16 STC 1005 (Guj). That decision upheld the validity of Sec. 12A(4). If that decision lays down the law correctly then the appellants are out of court. But we think that the said decision cannot be susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed questions of fact or law. The forfeiture provided for in Section 12A (4) prima facie infringes Article 19 (1) (f). Therefore it is for the respondents to satisfy the Court that the impugned provision is a reasonable restriction imposed in the interest of the general public. Section 12A (4) does not contemplate the making of any order. As mentioned earlier, that section prescribes that if any registered dealer collects any amount by way of tax in excess of the amount payable by him under the Act, the amount so collected shall, without prejudice to any prosecution that may be instituted against him for an offence under the Act, be forfeited to the State Government and he shall within the prescribed period pay such amount into a government treasury and in default of such payment shall be recovered as arrears of land revenue. This section does not contemplate adjudication. Nor does it provide for making any order. Hence, it is doubtful whether any appeal can be filed against a demand made under that Section under Section 21. The question whether appellants in the instant case had been afforded a reasonable opportunity to establish their case or not is beside the point. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or on the basis of surmise, conjucture or suspicion. It will also be essential to consider the dimension regarding mens rea: This proposition is hardly open to doubt or debate particularly regard to the view taken by this Court in L.D. Jaisinghani v. Naraindas N. Punjabi (1976) 1 SCC 354: (AIR 1976 SC 373 at p.376) wherein Ray, CJ., speaking for the Court has observed:- In any case, we are left in doubt whether the complaint's version, with which he had come forward with considerable delay was really truthful. We think that, in a case of this nature, involving possible disbarring of the advocate concerned, the evidence should be of a character which should leave no reasonable doubt about guilt. The Disciplinary Committee had not only found the appellant guilty but had disbarred him permanently. (emphasis added) Shri Chinoy also read out extensively from this Tribunal's order in Sterlite case(supra) and stated that the view taken by the Tribunal in the said case is applicable to the present case in equal force. He stated that the Appellant has not indulged in any market manipulation attracting the provisions of regulation 4(a) and (d). He further stated that the Respondent has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts whom he represented. He pointed out that there is not even a grain of evidence in the impugned order to launch prosecution against any of the Appellants. Shri Chinoy pointed out that the direction is to prosecute the Appellant company in the light of the findings arrived at by the Respondent. But direction is not to prosecute the Appellant directly but through its officers and directors. He submitted that it is not permissible under the law to launch vicarious criminal prosecution. The Respondent's order is not clear whom really it wants to prosecute, the Appellant or the others. He submitted that the law does not permit prosecution of a person through another, that prosecution through proxies is unheard of. Shri Chinoy referred to the provisions of sections 24 and 27 of the Act and stated that the Respondent has not made out any case to proceed against the Appellants either under section 24 or under section 27 and the order to launch prosecution has been made without application of mind. Shri Chinoy submitted that the Appellant has 11 directors and many senior officers and there is no reference anywhere in the show cause notice or in the order as to why these five Appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 27, the provisions of that section do not have any application to adjudication proceedings such as these proceedings since Section 27 applies only in the case of criminal prosecutions under Section 24 of the SEBI Act, 1992. The deeming provision under Section 27(1) would be attracted where an offence has been committed by a company. Offences are covered by Section 24 which provides, inter alia, that where a person is held guilty of an offence he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both. Section 26 of the Act provides, inter alia, that no court shall be cognizance of any offence punishable under the SEBI Act or the said Regulations, except on a complaint made by SEBI. Moreover, it is provided that no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under this Act. It is clear from reading the provisions of the SEBI Act, specifically, Section 27 that the deeming provisions would be attracted in prosecution proceedings under Section 24 and would have no application to adjudication proceedings. It is submitted that proposed directions und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this action of the Respondent all the more establishes that prosecution and the impugned order are not unrelated, and therefore this Tribunal need also set aside the order to launch prosecution covered in the order. Shri Chinoy stated that the impugned order is a composite order including the direction to launch prosecution and as such the Tribunal has jurisdiction to set aside the said part of the order also. Shri Somasekhar Sundaresan, learned Counsel appearing for the Appellant in appeal No.15/2001 submitted that he was adopting the submissions made by Shri Chinoy. He submitted that the Appellant is in no way concerned or involved in the activities of the Appellant company, that he was/is not occupying any position in the company, that he had not attended even a single board meeting of the Appellant company during the relevant period, that he has resigned from the Board of the Appellant. Learned Counsel submitted that the Appellant has been unnecessarily roped in for reasons best known or unknown to the Respondent, that he was not even given adequate opportunity to present his case in a personal hearing though he had requested for the same, that if the Respondent had given s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds to render its finding. The principles of natural justice must be read into the unoccupied interstices of the statute, unless there is a clear mandate to the contrary. (emphasis supplied) Shri Sundaresan stated that since the Appellant has been chosen as an instrumentality to proceed against the Appellant company, it was incumbent on the Respondent to hear the Appellant irrespective of the fact whether there was any specific provision in the Act or not, following the principle laid down by the Hon'ble Supreme Court in Ratna's case. He pointed out that this deficiency cannot be cured in the subsequent proceedings as observed by the Court that.... it seems to us, there is manifest need to ensure that there is no breach of fundamental procedure in the original proceedings, and to avoid treating an appeal as an overall substitute for the original proceeding Shri Rafiq Dada, learned Senior Counsel appearing for the Respondent in the cited appeals referred to certain developments relating to the matter. According to him the Appellant company started funding Digital, a broker member of NSE since August, 1997, to purchase its own shares, through Shri Harshad Mehta outfits and continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 460100 215400 6.78 182 4 1480400 224200 6.60 225 5 1892400 219300 8.63 270 6 2009900 173800 11.56 260 7 2358200 170400 13.84 260 8 2524200 252500 10.00 265 9 2455200 245300 10.01 330 10 2546400 297300 8.57 390 11 2522600 421300 5.99 410 12 992700 538000 1.85 280 Shri Dada stated that the consistent increase in the Hawala rate at the end of each trading period by and large bench marked the scrip price for trading at the beginning of a subsequent trading cycle and this was due to the building up of concentrated purchase positions by a set of brokers of BSE, acting in concert and on behalf of Damayanti group, and Digital to whom the Appellant supplied money was one among them. He submitted that at one point of time, the brokers dealing for Damayanti group had total outstanding position of more than 70% of the total position at the exchange, and similarly the set of brokers of NSE dealing for Damayanti group took delivery of around 70% of the total delivery of the scrip of the Appellant in settlement No.22 which witnessed highest delivery of around 5 lacs shares. Shri Dada submitted that it is thus established that the Damayanti group tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prices and create false market using Digital as a conduit. Shri Dada referred to the impugned order and stated that the fact that Damayanti group is a front set up of Shri Harshad Mehta, has been well established and that Shri Mehta being a person notified under the Special Court Act was under certain restrictions to carry on the business and as such he was using Damayanti group of companies to carry out his designs. Shri Dada reiterated the factual position stated in paras 6.1 to 8.1 of the impugned order in this regard. Shri Dada in this context also referred in aprticular to the statement of Shri Satinderpal Gulati of LKP Shares and Securities referred to in para 8.1(e) of the order that A letter showing delivery of 2, 00, 000 shares of BPL by Damayanti Finvest Pvt.Ltd to LKP on 15.4.98 which was duly acknowledged by LKP. The investigations revealed that one Shri Satinder Pal Gulati who was working with LKP shares and Securities Ltd (hereinafter referred to as LKP) had sent the said fax. In his statement Shri Gulati stated that LKP was to receive approx. ₹ 3 crores from M/s. Shrenik Shah and M/s. Bharat Kona, the BSE brokers. These Brokers had earlier taken loan from L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een established that, in the modus operandi adopted by the Appellant, the purchases were effected by brokers associated with the Damayanti group. He stated that the payment of ₹ 5 crores has been made by the Appellant to Digital in September, 1997 for which an antedated delivery of 1,10,000 shares of the Appellant @ ₹ 400/- had been made in June, 1998, that further funds had been provided by the Appellant during the period 6.7.97 to 9.3.98 and 6.5.98 to Digital for the purchase of its shares, that the Appellant admittedly bailed out the said brokers during the payment crisis in 1998, that the whole set of operations continued from September, 1997 till June, 1998, that April/May 1998 is not too remote from September/October, 1997 to effect manipulation. In this context Shri Dada cited the conduct of the brokers namely Satyanarayan Nangalia, a member of BSE who amongst others was involved in the creation of artificial market in the scrip of the Appellant, that the said Nangalia had traded mainly on behalf of Damayanti group in cash as well as carry forward segment, that it was found that 61% of his position in settlement No.11 was on behalf of Damayanti group. Learned Sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 5 crores to Digital account there was out go of approximately ₹ 6 crores on behalf of Damayanti group, that this shows that the transfer amount was not in lieu of any transaction involving purchase of shares. He further stated, that it is found from the Damayanti group A/c in the books of Digital annexed to the appeal that credit was given by Digital to Damayanti group from the Appellant, indicating that the amounts received from Appellant were for Damayanti group. Shri Dada submitted that the material on record, especially the statements of Shri Balathandayutham, Shri T.C. Chauhan and the affidavit of Digital forming part of the appeal conclusively establishes that the Appellant had made payments to Damayanti group. Shri Dada submitted that the statement of Shri Gulati dated 11.7.98 indicated the game plan of Shri Harshad Mehta, that Shri Mehta was to rig the price inter alia the Appellant's shares to ₹ 500. He submitted that the factual position stated in the order clearly shows that the Appellant in connivance with Shri Harshad Mehta was instrumental in manipulating the prices of the scrip. According to Shri Dada there was no purchase of shares by the Appellant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to deliver the shares and cancelled the contract note. The mandate was given some where in August 97. Since the BPL group was on the look out for a media company which will be helpful in strengthening our publicity department, Digital Leasing and Finance Ltd came with the proposal to offer shares and convertible debentures in Money Television Ltd. Since it is not our line of business, in getting engaged in a media company, we thought it is more appropriate to purchase the shares in the name of Sanyo Finance (Firm). I would also like to inform, that in order to strengthen and accelerate the BPL group media business the decision was taken by the management. Already magazines in the name of Asian Age is under vide circulation in metros. To another question about the constitution and address of Sanyo Finance and its relationship with the Appellant group, Shri Balathandayutham had stated that Sanyo Finance is a partnership firm with two corporate partners and one individual by the name Mr. Rajagopal. Both the corporates are already in the media business. One of the corporate partners is in the media business, to my knowledge. To my knowledge they have an office in Bombay and Bangalor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action could not be executed. Please explain why the money was transferred to Digital Leasing and Finance Ltd when the transaction could not be executed. To this his answer was I can not answer this question To another question you just now mentioned that the deal for purchase of Money Television Shares had to be undertaken as the money which was already given to Digital Leasing and Finance Ltd for purchase of 5 lakh BPL shares was to be recovered in view of the fact that Digital Leasing and Financing Ltd could not purchase share of BPL Ltd. Please explain where is the question of recovering the money when you had given mandate for purchase of BPL shares in August 1997 which could not be completed and the money was transferred to Digital Leasing and Finance Ltd, much later, Shri Balathandayutham answered I do not know this, Shri Chauhan can answer this question. Shri Dada cited the following questions and answers in support of his contention that ₹ 5 crores given by the Appellant company was meant to manipulate its share prices. Q.18. Who placed the order on Digital Leasing and Finance Ltd. for purchase of 5, 00, 000 shares of BPL and how was this order placed ? A.18. As pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant's shares when shown to Shri Chauhan, he had stated the investments decisions are, as mentioned earlier, discussed informally in the Board. Only in case of an offer of 5 lakh BPL shares that had come to my notice through some broker, this was as usual informally discussed at the Board meeting of BPL Sanyo Finance Ltd, and based on its concurrence, I asked Shri Balathandayutham to go ahead and purchase the shares. No documentation was prepared for the decision of the Board and this was orally communicated to Shri Balathandayutham. To another question as to what was the source of funds available with BSFL for the purchase of five lakhs shares of BPL Shri Chauhan replied BPL Sanyo Finance Ltd, asked for a loan of rupees five crores form BPL Ltd. At BPL Ltd, I am responsible for the sales of all the group companies and as and when any of the group companies has a requirement of funds, I authorise and provide temporary accommodation to them. Accordingly, rupees five crores was given by BPL Ltd to BPL Sanyo Finance Ltd. To another question How was the payment of rupees five crores recovered from Digital Leasing and Finance Ltd? the answer was Since the broker was not able to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chauhan had stated I understand the broker asked for further payment to be able to honour his earlier commitment for purchase of five lakh shares for BPL Sanyo Finance Ltd. For that payments were made piecemeal amounting to approximately 4.4 crores. At this stage this broker delivered 1, 10, 000 shares of BPL quoting the then price of approximately ₹ 400/- per share. These were accepted by BPL Sanyo Finance Ltd to recover the value of 4.4 crores paid to him. The amount of five crores paid to him in August 1997 is still outstanding for which he has to deliver 5 lakh shares of BPL to us. Shri Dada referred to another question that Since it has been almost close to one year since BPL Sanyo Finance Ltd made the payments to Digital Leasing and Finance Ltd, have any steps taken against the broker for the recovery of rupees five crores or the equivalent five lakh shares of BPL and the answer there to I understand that the company is continuously pursuing the matter. As I mentioned earlier, offer of Money Television Ltd's shares came for equivalent value, which on examination was turned down about some time in March/April 1998. Subsequently the company has been pursuing the matter f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derable reliance on Digital's affidavit dated 30.9.99 a copy of which has been filed along with the appeal. Shri Dada read out the following extract from the said affidavit: We were introduced to Shri Harshad Mehta around March 1996 by Shri Harish Teparia a mutual business acquaintance. We met at Shri Mehta's residence at Madhuli Building, Worli, and he indicated his interest in doing share trading activity through our company. We worked out terms of brokerage with him i.e. 0.1% for trading and 0.5% for delivery based transactions. He made it clear from the beginning that under no circumstances were we to use his name or we could face problems with statutory bodies. Therefore, he suggested that we do business with Damayanti Finvest P. Ltd. and other related companies. At that time, we had read an article in the papers that Supreme Court of India had allowed Shri Harshad Mehta to do fresh business, and we assumed he was operating through Damayanti group to protect his money from attachments xxxxxxxxxxxxxxxxxx Regarding the direct payment from BPL, we were informed by Shri Harshad Mehta that a large payment would be credited into our account from BPL Bangalore to settle Damayan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tives Shri Pramod Dakua to Bangalore to hand over delivery of Money Television Shares and FCDs to Shri Rajaram, Company Secretary of BPL Bangalore. Shri Rajaram acknowledged the delivery and contract note/bill back dated on 28.8.97. During all these transactions we were never in touch with the BPL Group. We received instructions only from Shri Harshad Mehta and we treated BPL Bangalore as just one of the entities introduced to us by Damayanti group. It was only during the SEBI investigations that we were introduced to BPL's Shri Rajaram, Shri Balathandayutham and Shri Chauhan at Shri Pramod Katdare's Dadar office on the insistence of Shri Harshad Mehta, that if any SEBI enquiry were to reach us, we should be able to identify each other. We followed the above instructions under economic duress and the coersion of Damayanti group who refused to settle their huge accumulated dues unless we co-operated. By the time we realised that we had been made scape goats, we were already embroiled in the SEBI investigation and we could not find an exit route unless we forfeited the Damayanti groups dues to us. For this reason alone, we were compelled to say what they wished us to. We were ask ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ischarge their commitments towards pay in liabilities as they did not get the payments from their clients i.e. Damayanti group. In this context he stated that it was admitted by the Director of Seventilal Kantilal Securities P. Ltd (SSKL) that they got in touch with BPL Ltd for funds. Shri Dada stated that in pursuance to the same funds totalling around ₹ 47 crores were transferred from the entities connected with the Appellant under the garb of application money for preferential shares in a loss making associated company of SSKL (Monoplan). This money, was used for purchase of shares through all or none or bulk deals at predetermined rates and quantities by synchronizing the transactions with the brokers of Damayanti group. Shri Dada submitted that SSKL purchased 20 lacs shares of BPL for ₹ 47 crores on behalf of Monoplan Securities Ltd on 17/19 June 1998 .. that these shares were subsequently sold in two tranches at a loss of ₹ 11, 63, 80, 000 as 19 lacs shares were sold for ₹ 33, 50, 08, 000 on 13.1.99 and 1 lac shares for ₹ 1, 86, 12, 000 on 22.1.99, that against the loss of ₹ 11, 63, 80, 000 and interest thereon Monoplan kept ₹ 15, 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities cited by Shri Chinoy, Shri Dada submitted that the ratio in none of the cases would be applicable to the present case in view the distinguishable features. Referring to Esso Standard Inc V. Udharam Bhagavandas Japanwalla (supra) he stated that the principle laid down in the said case is not applicable to the present case as in the instant case the Appellant company itself has admitted the charge of funding stated in the show cause notice and confirmed in the order. Referring to the Hon'ble Bombay High Court in Standard Chartered Bank V V.B. Survase/ ANZ Grindlays Bank V Directorate of Enforcement cited by Shri Chinoy, Shri Dada stated that the observation made by the Hon'ble Court therein is with reference to section 58 and 59 of FERA Act and as such have no application to the instant case that mens rea is not an ingredient of regulation 4(a) and 4(d). In support of his contention he cited Director of Enforcement v. MCTM Corporation P. Ltd (1996) 2 SCC 471 where in the Hon'ble Supreme Court had, with reference to imposition monetary penalty in adjudication proceedings under the FERA, stated Unlike in criminal case where it is essential for the prosecution to establish th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itnesses, decide whether an offence is committed, make an order of confiscation of the goods in respect of which the offence is committed and impose penalty on the person concerned, ......... . To such a situation, though the Code of Criminal Procedure or the Evidence Act may not apply except in so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice must necessarily apply. In the said case the Honourable Court also had viewed that we cannot also accept the contention that by reason of the provisions of section 106 of the Evidence Act the onus lies on the Appellant to prove that he brought the said items of goods into India in 1947.............. If Section 106 of the Evidence Act is applied then, by analogy, the fundamental principles of criminal jurisprudence must equally be involved. Shri Dada submitted that in the instant case neither the Code of Criminal Procedure nor Evidence Act is attracted to warrant strict proof. Shri Dada referred to Mohan Singh (AIR 1964 SC 1366), Ch.Razik Ram (AIR 1975 SC 667), Ramanbhai NagjiBhai Patel (AIR 1978 SC 1162), Ramsingh (AIR 1986 SC 3) and stated that the main issue involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pression directly or indirectly in regulation 4(a) and stated that in the instant case it was the Appellant company who indirectly caused transactions in shares and indulged in manipulation. He reiterated the finding in the impugned order that as a result of the carry forward position built up by Damayanti group of brokers, and that at a time when they were to face the music, the Appellant appeared on the horizon as their saviour to bail out, pumping out huge sum of money, that the Appellant was not simply interested in the brokers but it was because these brokers had acted at the behest of the Appellant. Shri Dada stated that self benefit was the motive and therefore regulation 4(a) and 4(d) attracted. Learned Senior Counsel submitted that in the light of the finding that the Appellant had manipulated the market to its benefit, the impugned order is perfectly justified and need be upheld. Referring to the Appellant's submission that the direction issued by the Respondent is a penal one, Shri Dada submitted that it is not so. In this context he referred to para 13.6 of the impugned order and stated that the legal position has been clearly stated therein that the directions contemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be sustained as regulation 12(a) empowers the Respondent to direct the person concerned not to deal in securities. In this context he referred to the scope of the words dealing in securities used in regulation 12(a) with reference to the definition available in regulation 2(b), that dealing in securities means an act of buying, selling or otherwise dealing in any security or agreeing to buy, sell or otherwise deal in any security by any person either as principle or agent. Shri Dada submitted that dealing in securities is wider in its scope and includes accessing the capital market and therefore the impugned direction is well within the powers vested in the Respondent. In support of the submission that Respondent has power to issue directions under section 11B of the Act, Shri Dada cited this Tribunal's decision in Bank of Baroda v. SEBI (2000) 38 CLA (SAT) and decisions of High Court's in Anand Rathi & others v. SEBI (2001) 32 SCL 227 (Bom); M.Z. Khan v. SEBI (AIR 1999 Del 64); Alka Synthetics Ltd v. SEBI (1999) 19 SCL 460 (Guj) and R.R. Bohra V. SEBI (1999) 33 CLA 243 (Bom). Shri Dada submitted that various High Courts have upheld the powers of the Respondent under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustan Lever case (2001 scale 219) has also no application. Shri Dada stated that Jackson's case (1998) 1 SCC 198 was in the context of non disclosure of material in the show cause notice and use of such undisclosed material later, it is not so in the present case and hence the said decision has no application to the instant case. With reference to the Appellants plea in appeals 15,16,17,18,19 Shri Dada stated that under section 24, prosecution lies against them and that it is not necessary that a full fledged enquiry following the rules of natural justice should precede the decision to prosecute, that the principles of natural justice will be followed in the proceedings before the trial court. Shri Dada reiterated that even if the Appellant company is not prosecuted, the other Appellants can still be prosecuted independently as the scope of section 24 is wide enough in this regard. He explained the scope of section 24. In the context of Ratna's case cited by Shri Sundaresan, Shri Dada submitted that a decision to prosecute by itself does not affect the rights and obligations warranting interference by the Tribunal. In this context he referred to the following observation made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant had a role therein. In the light of the said prima facie finding, the Respondent decided to enquire into the matter. Accordingly show cause notices were issued to the Appellants. The matter was adjudicated and the impugned order was passed. The Appellant was found involved in creating a false market and manipulating the prices of its scrip, in connivance with Shri Harshad Mehta, by aiding, abetting and being instrumental in effecting transactions by taking part and entering directly and indirectly into transaction in the shares of BPL. The Appellant company was therefore held guilty of violating regulation 4(a) and 4(d) of the 1995 Regulations. In that context the Respondent vide order dated 19.4.01 directed the Appellant company not to access the capital market for a period of four years. It was further ordered that prosecution proceedings for violation of regulation 4(a) and 4(d) be initiated against the Appellant company through its directors/ officers, Shri Rajiv Chandrasekhar, Shri Ajit Nambiar, Shri R. Murali, Shri T.P.G. Nambiar and Shri T.C. Chauhan. Shri Chinoy had argued at length that the impugned order was passed without following the principles of natural j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected and had been provided copies of all documents as desired by it. It is denied that there had been any violation of the principles of natural justice as alleged. It is submitted that in the impugned order, no documents/adverse material has been relied upon without having been made available to the appellant for their inspection. It is submitted that the respondent had offered inspection of all the documents mentioned in the para (E) of the grounds of appeal to the appellant. However, the appellant chose to take inspection of only certain documents which were sufficient for drafting their reply. It is submitted that the documents obtained from 1208, Maker Chambers V [(reference para 8.1(e) of the impugned order]) including copy of account of Damayanti Group with Digital, copy of contract note issued by Digital to BSFL, correspondence of BSFL and Digital and the documents showing transactions in the shares of the appellant by Damayanti Group of companies and LKP Shares and Securities (LKP) had been inspected by and were given to the Appellant. On a perusal of the list of documents referred to by the learned Senior Counsel, it appears that these documents have been relied on by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is likely to be served by allowing cross examination, then Courts will be slow rather unwilling to disturb that decision (Bushell V Secretary of state for the Environment (1980) 2 All ER 608). When 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. I have carefully considered the case law cited by the learned Senior Counsel-Waishampayan (AIR 1961 SC 1623), Khem Chand (AIR 1958 SC 300), M.A. Jackson (AIR 1988 1SCC 198), and Hindustan Lever 2001(1) SCALE 219 and find none of these decisions of any help to the Appellants case, as the facts in those cases are clearly distinguishable from the facts in the present case. Since the Respondent had not relied on the statement of Shri Morkhia, the request for his cross examination cannot be sustained. In the case of the Appellants viz. Shri Rajeev Chandrasekhar, Shri Ajit Nambiar, Shri R. Murali, Shri T.P.G. Nambiar and Shri T.C. Chauhan, also it was urged that the Respondent had not followed the principles of natural justice and as such the impugned order against them is bad and untenable. On a perusal of the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erewith or incidental thereto. Section 3 of the Act empowers the Central Government to establish a Board by the name of the Securities and Exchange Board of India, with a Chairman and five members. The Board is in position since 1992. In terms of sub section 3 of section 4 of the Act, in the areas otherwise determined by regulations, the Chairman also enjoys all powers of the Board. The impugned order has been made by the Respondent Chairman exercising the concurrent power of the Board vested in him. Chapter IV of the Act deals with the functions of the Board. This chapter comprises 4 sections i.e. Section 11, on functions of the Board, section 11A on matters to be disclosed by the companies, section 11AA on Collective investment scheme and section 11B on power to issue directions. Since the powers under section 11 and 11B have been invoked in the matter, it is felt necessary to have a look at these two sections. According to sub section (1) of section 11: Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (4) any other act fitted to deceive (5) any such act or omission as the law specially declares to be fraudulent; and fraudulent shall be construed accordingly, Explanation: Mere silence as to facts likely to effect the willingness of a person to enter into a contract is not a fraud, unless the circumstances of the case are such that regard being had to them it is the duty of the person keeping silence to speak or unless his silence is in itself equivalent to speech. Chapter II is the core chapter in the Regulations titled Prohibition of Fraudulent and Unfair Trade Practices relating to securities market. Regulation 3 thereunder prohibits any person from buying, selling or otherwise, dealing in securities in a fraudulent manner. Prohibition against market manipulation is covered by regulation 4. Regulation 5 is on Prohibition of misleading statements to induce sale or purchase of securities and regulation 6 prohibits unfair trade practices relating to securities. In the present case the charge is that the Appellant has violated regulation 4(a) and (d). Full text of the said regulation 4 is extracted below: Prohibition against market manipulation: 4. No person shall (a)ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable opportunity of hearing to the person concerned, issue directions for ensuring due compliance with the provisions of the Act, rules and regulations made thereunder, for the purposes specified in regulation 12. 12. Purpose of directions:- The purpose for which directions under regulation 11 may be issued are the following namely: (a) directing the person concerned not to deal in securities in any particular manner. (b) requiring the person concerned to call upon any of its officers, other employees or representatives to refrain dealing in securities in any particular manner; (c) prohibiting the person concerned from disposing of any of the securities acquired in contravention of these regulations; (d) directing the person concerned to dispose of any such securities (e) acquired in contravention of these regulations, in such manner as the Board may deem fit, for restoring the status-quo ante. 13. Suspension or cancellation of registration:- The Board may, in the circumstances specified in regulation 11, and without prejudice to its power under regulation 12, initiate action for suspension or cancellation of registration of an intermediary holding a certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dictionary 'deceit' means a fraudulent and deceptive misrepresentation, artifice or device used by one or more persons to deceive and trick another, who is ignorant of the true facts, to the prejudice and damage of the party imposed upon. The caption of Chapter II referred to above is also a pointer in this regard. On a careful perusal of the regulation it is clear as Shri Chinoy pointed out that element of deceit is an underlying factor in the transaction. A genuine transaction by itself cannot attract the regulation though such a transaction had resulted in market price variation. Regulation 4(a) attracts only if the transaction is made with an intention of artificially raising or depressing the prices of securities so as to induce any other person to sell or purchase the securities. The participation need not necessarily be direct, it can be indirect as well, as pointed out by Shri Dada. Prohibition in regulation 4(d) is on entering into transactions for a purchase or sale of any securities not intended to effect transfer of beneficial ownership but intended only as a device to distort the market price of securities. In other words the regulation covers speculative trading. Und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E broker, M/s. Ramrakh R Bohra BSE broker, M/s. Sony Securities Ltd.-NSE broker, M/s. Digital Leasing & Finance Ltd (hereinafter referred to as Digital).- NSE broker etc acting on behalf of a common set of clients i.e. Damayanti Group, cornered a large quantity of shares of BPL both at BSE and NSE. These clients i.e. Damaynati Group transacted in the share of BPL through these brokers and built up unusually large positions in the carry forward segment in the scrips of BPL. It was noticed that the outstanding purchase positions were abnormally high in the scrips and it went to the extent of 9.45% of total equity of BPL. This increase in carry forward positions was accompanied by a corresponding increase in the scrip price. The increase in hawala prices of the scrip (closing rate on the date of the end of the settlement) over successive settlements, was used for making further positions in carry forward etc. The delivery of shares received was also utilised for raising finances by doing share badla. In BPL, the hawala rate moved consistently from ₹ 163 in settlement no.1 to ₹ 410 by settlement no. 11. Damayanti Group acting through a set of brokers built up large concen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said amount was not in lieu of any transaction of purchase of shares as alleged by BPL. In this context it may be stated that only because there was an outflow from Digital to the extent of ₹ 6 crores on 5.9.97 to Damayanti group against ₹ 5 crores stated to have been received on 5.9.97 from BPL, by itself cannot be considered as an evidence to prove the version that the money was given to purchase shares of the Appellant company. Digital, it is admitted by the parties, is a share broker and there is no mention any where in the order that it was dealing exclusively for the Appellant company. Therefore only on the basis of the fundflow from it to others in the absence of other clinching evidence it is difficult to support the Respondent's version. In this context it is to be noted that the Respondent has relied on the so called affidavit of Digital. This affidavit is a crucial piece of evidence relied on by the Respondent. A portion of this affidavit I have already extracted in the earlier part of this order. Still for proper reference, at the cost of repeatation, portion relevant to the issue under consideration is extracted below: On 26.08.97 we executed a contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alathandayutham and Shri Chauhan at Shri Pramod Katdare's Dadar office on the insistence of Shri Harshad Mehta, that if any SEBI enquiry were to reach us, we should be able to identify each other. We followed the above instructions under economic duress and the coersion of Damayanti group who refused to settle their huge accumulated dues unless we co-operated. By the time we realised that we had been made scapegoats, we were already embroiled in the SEBI investigation and we could not find an exit route unless we forfeited the Damayanti groups dues to us. For the reason alone, we were compelled to say what they wished us to. We were asked not to say anything about Shri Harshad Mehta's involvement. Though the statement is branded as 'Affidavit' and drawn on a stamp paper of ₹ 20/- I find the same wanting in basic requirements of a proper affidavit. It is nothing but a letter addressed to the Chairman of the Respondent in reply to a show cause under regulation 29 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 in an inquiry against Digital. Notice under Regulation 29 is issued for the purpose of imposition of penalty in the light of the report submitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D Sd/- R.BALATHANDAYUTHAM VICE PRESIDENT It is seen from the copy of the contract note and the bill relating to the above transaction forming part of the appeal that these are in the name of BPL Sanyo Finance Ltd- specially marked to Shri R. Balathandayutham. On a perusal of the copy of the details of the transactions provided by Digital, relied on by the Respondent, and forming part of the appeal, the following entries are noticed. Date Party Amount Received (Rs.) 5.9.97 BPL Sanyo Finance Ltd 5, 00, 00, 000 6/7.10.97 BPL Sanyo Finance Ltd 75, 62, 500 10.10.97 BPL Sanyo Finance Ltd 75, 00, 000 22.10.97 BPL Sanyo Finance Ltd 75, 00, 000 31.10.97 BPL Sanyo Finance Ltd 75, 00, 000 17.11.97 BPL Sanyo Finance Ltd 27, 50, 000 22.12.97 BPL Sanyo Finance Ltd 27, 50, 000 The details available on record also reveal payment by Digital to several entities including certain entities stated to be of Damayanti group. Digital's statement shows receipt of only ₹ 5 crores on 5.9.97 from BSFL, but the amounts paid on that day are as follows: Date 05.09.97 Party Amt. Paid Malar Share Shoppee 4906800.00 Arhum Securities 422025.00 J.D. Investment 115000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant, acknowledged receipt of those shares and FCDs it could be considered to be an acquisition in effect by the Appellant itself. In this context it is seen from the copy of the contract note and the bill relating to the transaction involving the said securities filed in the appeal, that these are in the name of 'Sanyo Finance'. Copy of the contract note and bill indicates that the documents were received For BPL Sanyo Finance Ltd by Shri A.R. Rajaram in his capacity as the Authorised signatory. It is therefore difficult to agree to the view that since Shri Rajaram, who is also the Company Secretary of the Appellant, having accepted the documents, the transaction should be considered as made by the Appellant itself. In this context it is to be noted that the Respondent itself had admitted that Sanyo Finance is a partnership firm. Shri R. Balathandayutham in his statement dated 10.8.98 to a query by the investigating officer (Q.10.) on the constitution and relationship of Sanyo Finance with the BPL Group had stated Sanyo Finance is a partnership firm with two corporate partners and one individual by the name of Shri Rajgopal ............................. I cannot comment on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 at the rate of ₹ 77.80 from M/s. Nagarjuna Securities. Thus it is clear that the said company was transacting in securities through different brokers. In this connection it is also worth noting his statement in the context of the company's transaction with Digital referred to in the order. In answer to a question (A.7) Shri Balathandayutham had stated that we have made payment of ₹ 75, 62, 500 during 97-98 and another ₹ 3, 35, 00, 000 was paid by BPL Limited on our behalf to M/s. Digital Leasing and Finance Ltd during 97-98 and another ₹ 27, 50, 000 was paid by BPL Ltd to M/s. Digital Leasing and Finance Limited during 98 - 99 against which 1, 10, 000 shares of BPL were purchased by us on 2.6.98 for ₹ 4, 40, 00, 000. Shri Balathandayutham has also admitted the fact of purchasing the shares and FCDs in the name of Sanyo Finance from out of the funds of ₹ 5 crores given by it to Digital in 1997. The question of cancellation of the earlier transaction stated to be involving 5 lac shares of BPL and the substitution by Money Television Securities and alleged back dated receipt of the same are matters involving BSFL and Digital. The Respondent has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs of BSFL and no particular responsibility was assigned to him (A.3), that he was not looking after the affairs relating to investment in shares and securities by BSFL. To a question (Q.7) as to who authorises the decision for BSFL in the matters relating to investments in shares and securities, Shri Chauhan's answer was Normal transactions of buy and sell, say up to a crore of rupees, are authorised by the officers like Shri Balathandayutham ................. Beyond that it is informally discussed by the Board. A quarterly review of the activities of the company is presented to the Board as and when, it meets and all the activities including investments are reviewed. With reference to the purchase of 5 lac shares of the Appellant by BSFL, Shri Chauhan stated (A.11) that the Investment decisions are as I mentioned earlier discussed informally in the Board. Only in case of an offer of 5 lakh BPL, shares that had come to my notice through some broker. This was as usual informally discussed at the Board meeting of BPL Sanyo Finance Ltd and based on its concurrence, I asked Shri Balathandayutham to go ahead and purchase the shares. No documentation was prepared for the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently BSFL had purchased the securities of Money Television against the said ₹ 5 crores and 1,10,000 shares of the Appellant company against ₹ 4.70 crores paid to Digital. For the purpose of considering the Appellant's case, I do not consider it necessary to go into the details of the transactions BSFL had with Digital and Digital with others for the reasons discussed in this order. The fact that BSFL had received money from the Appellant has been even accepted by the Respondent. But the Respondent's version is that the said BSFL was used as a conduit to supply funds to Damayanti group and that the Appellant was exercising its controlling mind in BSFL. The basis on which the Respondent has come to the conclusion that BPL was exercising its controlling mind in respect of BSFL has been stated in para 13.1. of the order as follows: BPL has also contended that BPL is a separate and distinct, corporate entity from BSFL and the show cause notice has alleged transactions not by BPL but by BSFL and Sanyo finance. It has also contended that the controlling mind in respect of these entities is distinct from BPL. In this regard, I observe that the facts found in paras ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors are the nominees of BPL Ltd and the remaining four directors are the nominees of the said Japanese partner. There is no indication any where in the order that the said Sanyo Electronic Company, had given any authority to BPL to take decisions independently. On the contrary it is on record that out of four nominee directors of the said Sanyo Electronic company one of the directors viz. Shri Yoshi nobu Machino was a whole time Director of BSFL at the relevant period. It cannot be said in the absence of any evidence that the said nominee directors including the whole time director was non existent entities and it was BPL which was controlling the company. Respondent's reliance on the role of Shri Chauhan's dual role to establish its proposition is unfounded. Respondent has cited Shri Balathandayutham's statement that the main director is Shri T.C. Chauhan to support its said theory But Shri Chauhan's statement in answer to a question as to the nature of your duties and responsibilities as a director of BPL Sanyo Finance Ltd was that I have no day to day involvement in the affairs of BPL Sanyo Finance Ltd. I attend its Board meetings. There is no particular responsibility assign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a created price is unacceptable. The price movement of shares are unpredictable. What is important is that whether it was artificially pushed up or pushed down intentionally. The Respondent has put forth material to believe that the broker's abnormal activities could have effected the price in March 1998. The 'quote' has to be seen in that background. However, the Respondent has failed to establish any nexus between the price rise and the Appellant's role vis-a-vis the same. In fact in the order itself the Respondent has stated that: a set of brokers and sub-brokers viz. Shri R.R.Mohta BSE broker, M/s. Ramrakh R.Bohra-BSE broker, M/s. Sony securities Ltd - NSE broker, M/s. Digital Leasing and Finance Ltd - NSE broker etc on behalf of a common set of clients i.e. Damayanti group, cornered large quantity of shares of BPL both at BSE and NSE. These clients i.e. Damayanti Group transacted in the shares of BPL through these brokers and built up unusually large positions in the carry forward segment in the scrips of BPL. It was noticed that the outstanding purchase positions were abnormally high in the scrips and it went to the extent of 9.45% of total equity of BPL. This increase in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the material relied on by the Respondent to establish the Appellant's alleged nexus between the Damayanti group/Shri Harshad Mehta and find no convincing evidence to support the Respondent's contention. In para 6, 7, and 8 the Respondent has marshalled some material and it establishes association of Damayanti group with Shri Harshad Mehta. I have come to this finding based on the preponderance of probability. But the preponderance of probability test has failed in establishing nexus between the Appellant and the said Damayanti group/Shri Harshad Mehta for want of sufficient materials. The strong reliance on the alleged telephonic conversions of Shri Harshad Mehta with Shri Chauhan does not help to prove the Respondent's case. It has to be remembered that Shri Chauhan was acting in a dual capacity as director of the Appellant and BSFL. The documents show fund flow from BSFL to Digital etc. In that context the only inference possible is that the discussions if at all was with reference to investments, could be only with reference to investments by BSFL as it is seen from the material that it was not BPL but BSFL was investing in securities. Shri Chauhan has not admitted that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lk deals at pre-determined rates and quantities by synchronizing the timing of logging in of the trades by the buyers and the sellers. Investigations revealed that trading system of the Exchange was opened much beyond the closure of trading time, to facilitate these transactions. These transactions were entered late in the night of 17th June 1998 and 19th June 1998. (b) Another quantity of 4.5 lakh shares were also lying with the Clearing House of NSE on behalf of brokers who dealt for Damayanti Group and could not discharge their pay-in liabilities. The above facts also indicate that Damayanti Group had cornered large quantity of shares of BPL. Out of floating stock of around 40 lakh shares, around 34 lakh shares were in the control of Shri Harshad Mehta through various entities of Damayanti Group/LKP etc. 12.2(a) Inquiries were made with SSKI and M/s. Jayantilal Khandwala, members of the BSE who had purchased around 25 lakh shares of BPL at an aggregate cost of approximately ₹ 60 crores. It has been found in the books of SSKI that purchases were made on behalf of M/s. Monoplan Securities Limited (Monoplan). The said money was transferred, to Monoplan, a loss making comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscription of 14% Non Convertible Debentures on a private placement basis on 18.06.98. This money was transferred to Monoplan on the same day. Badalona is an associate concern of SSKI and had received application money of ₹ 16 crores from BSFL on 26-06-98 towards allotment of 14% Convertible Debentures. BSFL in turn had received ₹ 16 crores as advance towards allotment of 13% Convertible Debentures on private placement basis from BPL Sanyo Utilities and Appliances Ltd., a company belonging to the BPL group, on 25.06.98. Thus investment of Badalona is also in reality an investment of BPL group. Thus BPL and its associate concern M/s. BPL Sanyo Utilities and Appliances Ltd placed ₹ 47 crores at the disposal of SSKL for purchase of approximately 20 lacs shares of BPL through a web of entities. Investigations into ultimate use of this fund, has brought out clearly that transfer of funds from BPL Group was to provide accommodation to those select brokers who were dealing on account of Damayanti Group. A camouflage of investment by different entities in preference shares in an associate company of SSKI was created to hide the real nature of transactions. It is also fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions of BPL Ltd. in respect of making funds available so as to prevent a crash in the market must be seen as an effort to advance investor protection and not against the interest of investors as is sought to be made out in the show cause notice. Indeed, at that time it was projected to BPL Ltd. and the management of BPL Ltd. understood that the actions and assistance on their part had the endorsement and approval of not only BSE and NSE officials but also of SEBI itself. As per the statement of Mr. Katdhare dated 24/9/1999, BPL Ltd. was given to understand that SSKL was approaching BPL Ltd. at the instance of SEBI. BPL Ltd. was also given to understand that officials of the BSE/NSE were engaged in discussions with the Tata group to also assist in ensuring that the small investor is protected and that the market does not crash. The paragraphs under reply distort the correct position and project an entirely incorrect picture in relation to the crisis that was prevented. BPL Ltd had no role to play in the all or none or bulk deals at pre-determined rates. BPL Ltd had no knowledge as to the brokers who were entering into these transactions. At all times, BPL Ltd. was given to unders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ker was decided by the Exchange. In respect to the all or none deals, one line of phone was held by me and on the other side it was Shri Banthia who asked me to punch in all or none window a particular quantity at a fixed price of ₹ 234.90 per share. We punched in nearly 3, 35, 000 shares in this fashion. The price, the broker, and quantity for each broker was decided by Shri Banthia subject to over all limit of 3, 35, 000 shares @ ₹ 234.90 for all or none deals. The all or none deals were carried out in the normal trading hours. (emphasis supplied). Shri Banthia, whose name appears in the statement above was at that time Vice President of BSE. In answer to another question, Shri Shah had reiterated the position We would like to make it clear that we were not desirous of acquiring any shares of BPL Ltd. We were requested by officials of BSE, to buy shares of BPL Ltd only to help certain brokers who had pay in difficulties. All the deals either as bulk deals or all or none deals which were entered on 17th June or 19th June at BSE were at the insistence of BSE officials. The deals with NSE brokers were done at the rate of ₹ 209.10. Here too, purchase of 1, 00, 000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange has worked out a common price of ₹ 235 shares per share........... (emphasis supplied). The learned Senior Counsel for the Respondent had invited my attention to the statement dated 24.9.99 of Shri Pramod Purushottam Katdhare who claimed to be associated with the Chairman of the Appellant for 20 years, and is stated to be authoirsed to give statement on behalf of BPL Ltd. When asked (Q.7) In June 1998, there was payment crisis in BSE and NSE, do you recollect how BPL was approached during this period and sequence of events, Shri Katdhare's answer was I have read in the papers regarding the developing crisis and also heard from the people. Chairman of BPL, Shri T.P.G. Nambiar was also very concerned about such crisis. The Stock exchange through SSKL Stock Brokers (Shri Shripal Morakhia) approached BPL for diffusing the crisis. It was represented to BPL that they are being approached at the instance of SEBI and in the general interest of the stock market. The Stock Exchange authorities also have issued a letter dated 12th June 1998 addressed to SSKL requesting them to help in clearing the position of 30 lakh shares, which would restore the confidence of the investors. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the crisis situation and the Appellant favourably responded to BSE's request by providing funds is evident from the facts before me. A crisis was avoided to benefit the market and the investors. This by any standard can be considered as an act of market manipulation to attract the provisions of regulation 4(a) and (d). Indulging in fraudulent and unfair trade practices stated in regulation 4(a) and (d) is a serious charge visiting serious consequences as could be seen from the regulations, which enables the Respondent even put a brake on a person's right to do business for his livelihood. The wrong doer is also liable to be prosecuted. In the instant case the charge of manipulation is all the more aggravated as the Appellant has been held for involving in creating false market and manipulating the price of its scrip in connivance with Shri Harshad Mehta by aiding, abetting and being instrumental in effecting transactions........................ . "The Respondent has stated that Shri Harshad Mehta is a notified person under the Special Court Act and is subject to several restrictions imposed by the courts in respect of dealing in securities." In this context the charge against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L has not been benefited in any way by the alleged transactions. I find that with the increase in market capitalisation of the company, the company does get benefited with enhancement of its public esteem shareholders wealth/value. This also facilitates institutional support/funding for the company. Besides it also helps the company in bench marking of the share price for further placements. Therefore, the above said contention of BPL is not tenable. These observations are hypothetical. In any case in the Appellant's case, there is no evidence to show that it benefitted in such manner. With reference to the test of evidence applicable to the domestic inquiries, Shri Dada had referred to the decision in Gulabchand (supra) that it is wrong to insist that in civil cases such charge must be proved clearly and beyond reasonable doubt and therefore the principle laid down in Chaturbhai is not the one to be followed. He had also cited the Hon'ble Bombay High Court in National Housing Bank (supra) in this regard. In the said case the Hon'ble High Court had reiterated the principle laid down by the Hon'ble Supreme Court in Gulabchand's case. The position in the instant case is that even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a person guilty of such a serious offence. The extent of proof required to hold the delinquent guilty has been explained by the Hon'ble Supreme Court in Bank of India v. Degala Surya Narayana (AIR 1999 SC 2407) . The Court held: "strict rules of evidence are not applicable to departmental enquiry proceedings. The only requirement of law is that the allegation against the delinquent officer must be established by such evidence acting upon which a reasonable person acting reasonably and objectively may arrive at a finding upholding the gravamen of the charges against the delinquent officer. Mere conjucture or surmise cannot sustain the finding of guilt even in departmental enquiry proceeding. (emphasis supplied) In M.S.Bindra v. Union of India, (1998) 7 SCC 310 the Court had while deciding an appeal against the removal of an officer from service on doubtful integrity held that mere possibility is hardly sufficient to assume that it would have happened. In Nandakishore Prasad v. State of Bihar (1978) 3 SCC 366, the Court while considering the appeal against the removal of an employee from service based on the findings of a departmental enquiry viewed that Before dealing with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 67: (1975) 4 SCC 769) is to be noted: It is true that there is no difference between the general rules of evidence in civil and criminal cases and the definition proved in section 3 of the Evidence Act does not draw a distinction between civil and criminal cases. Nor does this definition insist on perfect proof because absolute certainty amounting to demonstration is rarely to be had in the affairs of life. Nevertheless, the standard of measuring proof prescribed by the definition is that of a person of prudence and practical good sense.. The same is equally true about proof a charge of corrupt practice which cannot be established by a mere balance of probabilities. (emphasis supplied) The Hon'ble Supreme Court in yet another case with reference to adjudication under the Sea Customs Act and Land Customs Act relating to imposition of penalty on the person concerned had held: To such a situation though the provisions of the Code of Criminal Procedure or the Evidence Act may not apply, except in so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice must necessarily apply. If so, the burden of proof is on the cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tility was not confined to the Appellant's shares alone, but the shares of companies like Sterlite, and Videocon were also involved, and there was payment crisis in respect of the transactions entered into by brokers in respect of the said companies shares also. It cannot be a coincidence that the shares of these three companies were involved during the market volatility witnessed in April- May, 1998. It is nobody's case that those three companies are under the same management. Therefore it is obvious that there was a third party, who played a major role in the market manipulation and that third party according to the Respondent was Damayanti group. The impugned order has left out the Damayanti group from the range of investigation vis-a-vis the Appellant. According to the Respondent it was Shri Harshad Mehta who acted through Damayanti group. There is no indication in the order that Shri Harshad Mehta was examined and his statement was recorded/considered. Since Shri Harshad Mehta, according to the Respondent, being the person who manipulated the market through his front companies, it was incumbent on the Respondent to record his statements and also of those concerned persons in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desired or done with a view to the accomplishment of a purpose, a plan or course of action intended to obtain some object, any course of action proposed or adopted by a Government. However, I am not inclined to agree with the Respondent's view that the power under section 11 is unlimited. I am of the view that the legislature has circumscribed the power, by putting the caveat that these measures are subject to the provisions of the Act. The ambit of power is contained within the frame work of the Act. But within the statutory frame work such power reigns. While section 11 deals with the functions of the Board, section 11B is on the powers of the Board. Section 11B is more action oriented, in a sense it is a functional tool in the hands of the Board. In effect section 11B is one of the executive measures available to the Respondent to enforce its prime duty of investor protection. As could be seen from the text of the section reproduced above, the Respondent is empowered to issue directions in the interests of investors to any person or class of persons referred to in section 12 of the Act or associated with the securities market. In other words the section identifies the persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n had been entrusted to take such measures as it think fit and in order to discharge this duty, the power is vested under section 11B. . The authority has been given under the law to take appropriate measures as it thinks fit and that by itself is sufficient to cloth the SEBI with the authority of law. One has to view the powers of the Respondent under the provisions of the Act in the context of the objects sought to be achieved by the Act and the duty cast on them in achieving the same. Section 11 and section 11B give enormous authority to the Respondent in this regard. As long as the power exercised under section 11B is subject to the provisions of the Act and well within the legal and constitutional frame work, intended to achieve the purposes of the Act and subjecting the persons specified in the section, the power will sustain. Since the exercise of power is subject to the provisions of the Act and the purposes for which it can be exercised and the persons to whom it can reach has been specified in the section, it can not be said that the power is unguided or unlimited. It is a wholesome provision designed to achieve the objectives of the Act. But it is to be noted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of law are not left in a state of uncertainty as to what their duties or liabilities are. This is an essential requirement of a good government of laws. (emphasis supplied) The legislature has clearly spelt out the penal provisions in the Act at 3 places section 12(3) provides for suspension or cancellation of the certificate of registration granted to the market intermediaries in the event of their proven misconduct, provision under Chapter VIA, provides for imposition of monetary penalty for certain offences specified therein; section 24 empowers Courts to award punishment for violation of offences under the Act etc. Since legislature has deliberately chosen to create specific offences and penalties thereto, it is not possible to view that under section 11B the Respondent is competent to issue a direction which tantamounts to imposition of penalties. While widening the scope of such measures used in section 11, to include penalties, and thereby stretching the scope of issuing directions under section 11B to cover imposition of penalties, the limitation stated above need be kept in mind. However, it is understood that the Respondent has also been taking the view that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation of the securities market with the obejct to prevent the fraudulent and unfair trade practices and market manipulation. If such malpractices are not curbed they may go to distrub the equilibrium of the market and may endanger the safety and security of the capital market. This finding has absolutely no nexus with the impugned order and in effect it is a penalty imposed on the Appellant. Hence, for the reasons stated above the direction cannot be sustained. In the light of the above I do not consider it necessary to examine the entire case law cited by Shri Chinoy and the submissions of Shri Dada on the non applicability of the ratios of the said cases to the present one. No authority has been cited warranting reconsideration of the views expressed by this Tribunal in Sterlite. Learned Senior Counsel for the Respondent had cited the following cases to support his contention that the Respondent is empowered to issue the impugned direction:(1) Anand Rathi and Ors. v. Securities and Exchange Board of India (2001) 32 SCL 227(Bom), (2) M.Z.Khan v. SEBI (AIR 1999 Delhi 64), (3) SEBI v.Alka Synthetics (1999) 19 SCL 460 (Guj)).(4) R.R.Bohra v. SEBI((1999) 33 CLA 243). I have care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Respondent in the light of the finding that the Appellant has violated regulation 4(a) and 4(d). This nexus also strengthens the view that the order banning the Appellant raising capital from the public is in effect a penalty. The decisions relied on by Shri Dada cited above are in the context of challenge to the Respondent's authority to issue interim orders during the pendency of inquiry and the Courts had viewed that such orders which are required to protect the interest of the investors can be issued. The impugned direction, for the same reason stated in the Sterlite case extracted above, is nothing but a penalty in effect and is in fact against the interest of investors, as a ban on raising funds to meet the Appellant company's business requirements is likely to adversely affect the company's ongoing business activities and further expansion /development and thereby the shareholders interest . Learned Senior Counsel for the Respondent had putforth an alternate argument that even if it is held that in the light of this Tribunal's decision in Sterlite's case section 11B cannot be used for debarring the Appellant accessing the capital market, still the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.Chauhan they had inter-alia prayed to set aside the direction to launch prosecution against them. They have adduced several grounds in support. In this connection it is to be noted that there is no finding of guilt in the order against the said Appellants. The direction is to prosecute the Appellant company through the Appellants. On a perusal of the order it is seen that the prohibition on the Appellant company on accessing the capital market is made invoking the provisions of section 11 and 11B of the Act and regulation 11 and 12 of the 1995 Regulations. Prosecution against the Appellant company through its directors/ officers has been ordered under section 24 of the Act. In this context, the following observation made in the interim order made by this Tribunal in the present appeals (2001) 32 SCL 95 are considered relevant. In terms of section 24(1), if any person contravenes or attempts to contravene or abets the contravention of the provisions of the Act or any rules or regulations made there under he shall be punishable with imprisonment for a term which may extend to one year, or with fine or with both. In terms of section 26(1) of the Act, cognizance of an offence puni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce committed by a company its directors/officers are not automatically punished along with the company. Section provides safeguards by giving opportunity to them to prove their non involvement in commission of the offence, to escape from the attendant penal consequences. It could be seen that as per the provisions of section 27 only those persons in charge and responsible at the relevant point of time for conduct of business of the company alone are deemed to be held guilty for contravention. So legal fiction comes into operation against the persons indicated only on establishing facts, which are appurtenant with the contravention. Such persons can successfully resist the prosecution by establishing want of knowledge about the contravention or exercises of due deligence to prevent the same. Such onus on a person can not be considered so heavy. Ordinarily the same could be discharged. Referring to the Appellant's submission that criminal prosecution results in diminishing the personal reputation of the concerned person , I would only refer to the following observation made by the Bombay High Court in ANZ Grindlay's case (supra). We are unable to accept the plea that impugned prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal through an appeal. Therefore I am of the view that a direction to launch prosecution against the Appellant company is not an order appealable in the Tribunal and the Tribunal is not empowered to adjudicate the same. According to the learned Senior Counsel for the Appellants, the Respondents have already launched prosecution against the Appellants. As Shri Dada, learned Senior Counsel for the Respondent rightly pointed out, this Tribunal does not enjoy the inherent powers of High Courts under section 482 of the Cr.PC to issue any order for quashing pending proceedings before any Court of law. For the reasons stated above this Tribunal is of the view that it is beyond the jurisdiction of this Tribunal to issue any order setting aside the Respondent's direction to launch prosecution against the Appellant company through its directors/officers. Therefore I do not consider it necessary to examine the grounds adduced by the Appellants in support of their contention, in this regard. For the reasons stated above the Respondents order directed to the Appellant company not to access the capital market for a period of four years is set aside. Appeals allowed to the extent stated abov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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