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TMI Blog2001 (5) TMI 963X X X X Extracts X X X X X X X X Extracts X X X X ..... als are as follows : According to the Respondent's perception, large volumes coupled with abnormal price movements were observed in the stock exchanges in respect of shares of BPL, particularly during the period between April and June 1998. Suspecting price manipulation in the scrips of BPL, the Respondent conducted an investigation. Based on the findings of the investigation, the Respondent, on 20-12-1999 issued a show-cause notice to BPL. By the said show-cause notice BPL was called upon to explain as to why directions including directions prohibiting BPL from dealing in securities and accessing the capital market and any other suitable direction in the interest of investors and securities market under section 11 read with section 11B of the SEBI Act and regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995 (the 1995 Regulations) should not be issued to it. By the said notice BPL was also asked to show cause as to why prosecution proceedings under section 24 of the SEBI Act should not be initiated against it in respect of the violations mentioned in the notice. Separate show-cause notices, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat even the operative portion of the order in para 14.2 itself is vague as it directs prosecution against BPL through its directors. 8. Shri Chinoy referring to the impugned order submitted that it is directed against BPL as is evident from the text of the order and in particular cited the observations in para 3.1 therein. Though show-cause notices were issued to the Appellant officers also, and they had submitted their reply thereto, with specific request for a personal hearing in the matter to enable them to explain their case to the adjudicating authority, no such opportunity was given to them. There is not even any indication in the impugned order as to whether their submissions were at all considered and as to why their request for personal hearing was not acceded to. Shri Chinoy submitted that having put the Appellant officers on show-cause notice, their replies and requests were arbitrarily ignored and passed an order against them, in total disregard to the principles of natural justice. Countering the Respondent's contention that the procedure under the Act/regulations does not contemplate issuance of pre-prosecution notices, the learned Senior Counsel submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BPL's holding was just 50 per cent and its Board was not dominated by BPL's nominees. It is a joint venture company with a Japanese firm with equal rights and power and by no stretch of imagination it can be said that BSFL is a front company of BPL and BPL was acting through BSFL. According to the Respondent's own version the entire transaction was made by BSFL, still no show-cause notice was issued to the said company or it was subjected to any investigation, that there was no evidence to show that BSFL's controlling mind was BPL, as alleged, that the show-cause notice is silent on this aspect. 11. The learned senior counsel submitted that the impugned order has been passed without jurisdiction, that the show-cause notice was issued alleging violation of regulation 4(a) and 4(d) of the 1995 Regulations; and the order has been passed under sections 11 and 11B. He submitted that both these sections have no application to the instant case, that power under section 11B is preventive and remedial in nature and certainly not punitive. Section 11B is meant for emergent situations. Since the alleged price manipulation reportedly relate to the year 1998, after a lapse o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. It was also pointed out that the show-cause notice issued to the Appellant did not allege any violation or contravention of the law by him and that he had explained his version in writing in his reply to the notice. His submissions were not taken into consideration by the Respondent while passing the impugned order. Though he had specifically asked for a personal hearing, the request was not acceded to by the Respondent. The Respondent passed the order without following the basic principles of natural justice, and on this ground alone the order is untenable. 16. Shri Sundaresan, submitted that the Appellant is aggrieved by the order passed by the Respondent. In as much as the order is not legally sustainable, he is entitled to file an appeal before the Tribunal and the Tribunal has adequate power to pass suitable interim order during the pendency of the appeal, and the appellate remedy provided by the statute should not be negated by holding that the Tribunal has no power to pass interim orders. 17. Shri Sundaresan cited the following cases to support his view point that a criminal prosecution does not He against the Appellant. The cases relied on him by are (1) Hindusta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in their favour (c) they would suffer any irreparable injury if their prayer for stay of the impugned order is disallowed. 21. Shri Dada submitted that since the Appellants have decided not to seek any interim order against the direction prohibiting BPL accessing the capital market, all that is left to be decided at this stage is the rest of the Respondent's order confining to the direction to initiate prosecutions under section 24 of the Act against BPL and the Appellant officers. In this context the learned senior counsel referred to the Supreme Court decision in United Commercial Bank v. Bank of India [1981] 2 SCC766 there in the court had viewed that the first question that necessarily arise while considering a case for injunction of an order is whether in the facts and circumstances of the case, there is a prima facie case, and, if so between whom. According to him in the instant case, the Appellants have not established any prima facie case in their support. 22. Shri Dada referred to the provisions of sections 24, 26 and 27 of the SEBI Act and submitted that there is built in provision in the law itself to protect the persons facing prosecution under the Act. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said case, the Respondent's submission that the enforcement directorate could not invoke section 61 for launching prosecution till the completion of adjudication was held untenable. The court did not agree with the Respondent's plea therein that the impugned provisions abrogate prestige or reputation of the official because he/she had to face prosecution. He referred to sections 24,26 and 27 of the SEBI Act and stated that the Respondent is empowered, independent of adjudication to launch prosecutions for offences punishable under the Act. Shri Dada referred to section 41(d) of the Specific Relief Act and stated that an injunction cannot be granted by the Tribunal to restrain the Respondent from instituting or prosecuting any proceeding in a criminal matter, in a criminal court. Referring to the Appellants' contention that BPL had no role in the price manipulation covered under the inquiry, Shri Dada stated that the sum of ₹ 5 crores provided by BPL to purchase the shares created havoc in the market. The fact that it had made available funds to the tune of ₹ 47 crores to bail out some stock brokers also need be born in mind. The Appellants' submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al reasons. He had advanced arguments to show that the order is bad in facts and in law and as such any decision based on such a perverse order can not be allowed to be acted upon. Shri Somesekhar Sundaresan appearing for the Appellant in appeal No. 15 of 2001 had tried to establish that the Appellant was a non-executive director of BPL or say a director simpliciter, and not in charge or responsible to the conduct of the business of BPL to be proceeded against for the alleged offences. He had cited quite a few court decisions to show that in the light of the ratios of those cases the Appellant cannot be prosecuted and penalised. Shri Dada had countered the submissions made by the Appellants and said that there was no justification for any interim order at this stage of the appellate proceeding. 28. On a careful perusal of the contents of para 14.2 of the order it is seen that the prohibition order on BPL accessing the capital market is made invoking the provisions of sections 11 and 11B of the Act and prosecution against the Appellants has been ordered under section 24 for violation of clauses (a) and (d) of regulation 4 of the 1995 Regulations. 29. In terms of section 24(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. 32. On a perusal of the section, it is thus clear that for the offence 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 diligence to prevent the same. Such onus on a person c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of penalty is totally untenable. 35. Mr. Diwan, learned Counsel attempted to content that if the Directorate simultaneously is permitted to invoke section 61 for launching prosecution, it would lead to multiplicity of proceedings. If the person is not held responsible for contravention in adjudication proceedings, he had to face prosecution on the same set of facts. Moreover exercise of the Directorate is without any guideline. Reliance is placed on decision in the case of Ramana Dayaram Shetty v. I.A. Authority of India reported in AIR 1979 SC 1628 which dealt the matter of tender of the Government. Submissions are totally untenable in view of the scheme of Act 1973 as discussed above. Mandate of section 56 is clear and absolute and does not leave any scope for the discretion of the Authority. Both the proceedings are statutory permissible and they are not in any manner unjust. Mr. Chandrachud rightly asserted that the parallel proceedings are legally admissible. [Emphasis supplied] 35. Scheme of the SEBI Act is no way different on this issue. As discussed above power to prosecute criminal proceedings is independent of any other action under the Act. 36.1 have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sake that the impugned order is untenable, still nothing stops the Respondent from launching prosecution against the Appellants, in view of the statutory provisions discussed above. As stated above the learned Senior Counsel sought only a temporary stay of the substantive order. He had made it very clear that he was not at present seeking stay on the prohibition on BPL accessing the capital market or on the Respondent's order to initiate prosecution against the Appellants. If these two spin off effects are not required to be contained now through an interim order, I do not find any other imminent action emanating from the impugned order endangering the interests of the Appellants warranting emergent intervention by the Tribunal through an interim order. In my view the Appellants have not made out a prima facie case in their favour. In the light of the facts and circumstances of the case, I am also of the view that the balance of convenience is also not in their favour. I agree with Shri Dada that an order to prosecute the Appellants by itself is not a penalty. By launching prosecution the Appellants are not likely to suffer any irreparable injury. 40. For the reasons stated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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