9911796707
TMI Blog2019 (6) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... has stated on affidavit before SEBI on December 23, 2017 that he has no other source of income except trading in shares and that as a result of the ex-pate order, his broker prematurely closed his trading positions which the appellant had taken in F O segment resulting in a loss of ₹ 50 lacs. This aspect has not been considered by the WTM. Whenever an ex-parte order is granted, an endevour should also be made to dispose of the matter as expeditiously as possible no sooner when the party appears. In the instant case, the ex-parte order was passed on November 1, 2017 and the appellant filed his replies on November 3, 2017, November 28, 2017 and December 23, 2017. WTM almost a year to dispose of the application. We find that at this late stage there was no real urgency to continue with the restraint order. Passing a confirmatory order virtually puts a stoppage on the appellant s right to trade which in the instant case is based on non-consideration of evidence and, in our opinion, is harsh and unwarranted. In our opinion, for the aforesaid reasons, the appellant is, thus entitled to get costs from the respondent. Ex-parte ad-interim order as confirmed by the confirmatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om disseminating messages or news in any form related to the securities market, directly or indirectly, by any means whatsoever. 3. The prima-facie basis for passing the ex-parte ad-interim order by the WTM was that prior to sending of SMSs, there was a fund transfer of ₹ 50 lacs from the joint account of the STML to Mr. Lahoti. Mr. Lahoti in collusion with Mr. Mohsin channelized the funds to RouteSMS on behalf of Future Fintrade. It was observed that Future Fintrade entered into an agreement with RouteSMS for the purpose of sending bulk SMSs. Payments to RouteSMS were made by Mr. Mohsin who received funds either from the joint account of STML or through Mr. Lahoti. It was also observed that the bank statement of STML maintained with UCO Bank revealed that STML was the primary account holder, Mr. Ram Lal Gupta was Joint holder No. 1, appellant was Joint holder No. 2 and Mr. Ajay Gupta was Joint holder No. 3. It was also observed that there appeared to be a nexus amongst the entities and the modus operandi was that the account of STML was used to fund the sending of bulk SMSs which was sent through Idea Cellular, Goldleaf International Pvt. Ltd., etc. reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account maintained with UCO Bank. It was contended that as per the banking practice there cannot be a joint account with the Company and that the appellant was only an authorized signatory to the bank account of STML as a director but after his resignation in 2013 his authorization to use the account came to an end. It was categorically stated that he never operated the account of STML after he resigned as a director. In this regard, the appellant produced certificates from the UCO Bank indicating that the bank account of STML was not a joint account and that the appellant had never signed any cheque after his resignation on April 19, 2013. The appellant further submitted that he had no nexus with the promoters and the directors of STML nor had any connection with the sending of the SMSs at any point of time in the year 2016 as he had ceased to be a director since April 2013. In view of the serious differences with the present management, it was contended that question of conspiring with other entities in order to benefit from the price manipulation did not arise as the appellant was never a party to the price manipulation through the scheme of SMSs. The appellant however admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the bank and chose to ignore this vital piece of evidence. 10. Under the Banking Regulation Act, 1949, for opening an account of a Company, amongst other documents, a resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on behalf of the Company is required to be filed. A Company is a legal entity and can only act through its Board of Directors or through one or more juridical persons. In the instant case, no such steps have been taken by the WTM to find out who are the authorized signatories who can transact on behalf of STML. No steps have been taken by the WTM to find out as to whether a joint account with a Company can be opened in a Bank or not. No steps were taken by the WTM to check the Bank account opening form or the resolution of the Board of Directors to satisfy itself as to what kind of an account was opened by STML. In the instant case, prima-facie , we find that the bank statement is as a result of a system flaw of the Bank s computer program. Normally, the bank prepares its own software. Various categories are shown viz, Primary holders, first joint account holder and so on. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the appellant indulged in any manipulative or fraudulent practice which would come under PFUTP Regulations unless there was further evidence to show that the appellant was acting in concert as a homogenous group with other entities. No such observation or prima-facie evidence has been given by the WTM. 15. We are, consequently, of the opinion that the impugned order in so far as it relates to the appellant cannot be sustained. 16. SEBI has power to pass interim orders and such interim orders can also be passed ex-parte. Interim orders are passed in order to prevent further possible mischief of tampering with the securities market. If during investigation, it is found prima-facie, that the person is indulging in manipulation of the securities market, it would be obligatory for SEBI to pass an interim order or for that matter an ex-parte interim order in order to safeguard the interests of the investors and to maintain the integrity of the market. Normally, while passing an interim order, the principles of natural justice has to be adhered to, namely, that an opportunity of hearing is required to be given. Procedural fairness embodying natural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s indulging in unfair trade practices with a manipulative intent to manipulate the price. 20. The appellant has stated on affidavit before SEBI on December 23, 2017 that he has no other source of income except trading in shares and that as a result of the ex-pate order, his broker prematurely closed his trading positions which the appellant had taken in F O segment resulting in a loss of ₹ 50 lacs. This aspect has not been considered by the WTM. We are further of the opinion that whenever an ex-parte order is granted, an endevour should also be made to dispose of the matter as expeditiously as possible no sooner when the party appears. In the instant case, the ex-parte order was passed on November 1, 2017 and the appellant filed his replies on November 3, 2017, November 28, 2017 and December 23, 2017. It took the WTM almost a year to dispose of the application. We find that at this late stage there was no real urgency to continue with the restraint order. Passing a confirmatory order virtually puts a stoppage on the appellant s right to trade which in the instant case is based on non-consideration of evidence and, in our opinion, is harsh and unwarranted. In o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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