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TMI Blog2011 (3) TMI 1741X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. The purchasers in turn are alleged to have sold the shares in the market. On the basis of these allegations, the Securities and Exchange Board of India (for short the Board) was prima-facie of the view that the Appellants had violated regulation 4 of the regulations. Three separate show cause notices were issued to the Appellants alleging violation of regulation 4. The learned Counsel appearing for the Board at the outset has very fairly stated that the charge against Appellant No. 2 (Varshaben Shah) is not made out and that she has been absolved of the same charge by the whole time member of the Board in separate proceedings initiated against her under Section 11B of the Securities and Exchange Board of India Act, 1992 (for short the Act). On the statement of the learned Counsel for the Respondent, the impugned order qua her shall be set aside. In view of this statement, it is not necessary for us to deal with the case of Appellant No. 2. 2. This brings us to the case of Appellants No. 1 and 3. They were both issued show cause notices dated August 16, 2007. It is stated in para 5 of both the show cause notices that the scrip of the company was infrequently traded and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff the loan of the financiers and got back the shares which you got transferred in his name and his family members. From an analysis of their demat account (Copy enclosed as Annexure V ) it is observed that you and your family members have all transferred shares in off market to some common clients during the investigation period. These clients have in turn sold shares in the market. It is observed from the statement recorded and available details and documents that are well connected to the promoters/directors and PA Cs' of OMML. Also it is further alleged that you and your family members sold shares in the off market to known clients which were offloaded in the market and thus helped in creating artificial volume in the market. In the show cause notice issued to Appellant No. 3 the allegation made against him is also contained in paragraph 6 and it is alleged that he colluded with Appellant No. 1 and other company connected entities to help create artificial volume and manipulated the market. The precise charge against Appellant No. 3 reads as under: 6. It is observed from the investigation report that you were holding 5,36,000 shares (1.72% of the equity capital) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... false or misleading appearance of trading in the securities market and further prohibits from dealing in a security not intended to effect transfer of beneficial ownership. When we read the charge levelled against the first Appellant as contained in para 6 reproduced above, he is alleged to have colluded with other entities to create volumes in the scrip and off-load the shares in the market . This allegation is as vague as it could be. The show cause notice does not tell the Appellant as to who were the entities with whom he colluded to create volumes in the scrip. The fact that he off-loaded his shares in the market is not in dispute and that by itself is not an irregularity. The first Appellant and his family members were holding shares in the company and it is alleged that he was connected to the promoters of the company. Holding shares and being connected to the promoters of the company is again not an irregularity much less an illegality. It is further pointed out in para 6 of the show cause notice that the statement of the first Appellant was recorded during the course of the investigations and he was asked as to how he was holding 5,63,000 shares of the company. He had fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The concept has gained significance and shades with time. (emphasis supplied) Now we come to the show cause notice issued to the third Appellant. The charge against him is also contained in para 6 thereof which has been reproduced hereinabove. We are clearly of the view that the allegations made in this para of the show cause notice also do not make out a case of violation of regulation 4 of the regulations against him. The first charge mentioned in this para of the show cause notice is that the third Appellant had sold 5,00,000 shares in an off market transaction to one Ramesh Jain against whom also proceedings have been initiated which shares he eventually offloaded in the market. From this fact it is alleged that the transaction helped in creating artificial volumes in the market. We do not think so. Off market transactions are permissible in law and it is not alleged that the transaction by the third Appellant was illegal. Ramesh Jain who purchased the shares from this Appellant had further sold them in the market. We do not think that both these transactions even if taken together constitute any wrong doing. The other charge in para 6 of the show cause notice is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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