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BEFORE THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

APPEAL NO. 40/2001

In the matter of:

NEPC India Limited Appellant No.1

NEPC Agro Foods Limited Appellant No.2

Skyline NEPC Limited Appellant No.3

Vs.

Securities and Exchange Board of India` Respondent

APPEARANCE

Shri P.S. Raman

Advocate

Shri S.R.Rajgopal

Advocate

I/b. M/s.S.R.ajagopal & S.R.Raghunathan for Appellants

Shri Rafiq Dada

Senior Advocate

Srri Kumar Desai

Advocate

Shri K.K.Billimoria

Advocate

Shri J. Ranganayakulu,

Jt. Legal Adviser, SEBI for Respondent

ORDER

The present appeal is directed against the Respondent’s order dated 2.7.2001. By the said order S/Shri Ravi Prakash Khemka, Raj Kumar Khemka, Ratan Kumar Khemka, Tirupathi Kumar Khemka and Madhu Sudan Khemka (the acquirers)along with their group companies were debarred from accessing the capital market for a period of 5 years. The order is issued under section 11B read with section 4(3) and section 27 of the Securities and Exchange Board of India Act, 1992 (the Act).

The acquirers in the wake of substantial acquisition of shares/control of Damania Airways Ltd.(name changed to Skyline NEPC Ltd.) (Appellant No.3), as required under the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovoers) Regulations, 1994 (Takeover Regulations).made a public announcement to acquire 64,66,800 fully paid up equity shares of Rs.10/- each representing 20% of the voting capaital of Skyline NEPC Ltd. The offer was to remain open from 1.2.1996 to 29.2.1996. The offer price was Rs.35.25 per share. The total consideration payable for 64,66,800 shares was Rs.22.80 crores. The offer closed on 29.2.1996. Pursuant to the offer, several shareholders of the said compazny offered the shares held by them. In terms of regulation 22, person (s) acquiring shares is required within a period of four weeks from the date of closure of the offer complete all procedures relating to the offer including payment of consideration to the shareholders who have accepted the offer. However, a number of shareholders did not receive the consideration for the shares tendered by them in response to the public offer made by the acquirers. Even though the acquirers had promised to pay the purchase consideeration to the shareholders by 28.3.1996, they failed to do so. They sought time by 45 days to make balance payments by writing to the Respondent on 22.5.1996. The Respondent informed them that there is no provision in the TakeoverRegulations, for extending time for making payments and directed to complete the payment due to the shareholders and also to pay interest @ 15% for the period of delay. But the acquirers failed to comply with the said directions. It is in the said context, the Respondent passed the impugned order. Since the Respondent has treated the Appellants also as defaualters they have filed the present appeal claiming to be aggrieved by the Respondent’s order.

Three out of the five acquirers, namely S/Shri Ravi Prakash Khemka, Raj Kumar Khemka, and. Tirupathi Kumar Khemka had also filed a separate appeal (Appeal No.39/2001) challenging the order. Subsequently they withdrew the appeal. Two other companies viz. NEPC Textiles Ltd., and NEPC Paper Board Ltd. had also filed an appeal (Appeal No.41/2001). In the light of a clarification given by the Respondent that the said two companies are not covered by its order, the said appeal was also withdrawn.

The Appellants and the Appellants in appeal nos. 39/2001 and 41/2001 had prayed for an interim order staying the operation of the impugned order during the pendency of the appeal. Concerned parties were heard and after considering all the relevant factors the Tribunal felt that it was not a fit case warranting an interim order. Accordingly the prayer for interim order was rejected vide the Tribunal’s order dated 12.9.2001. Appeal Nos. 39/2001 and 41/2001 referred above were withdrawn only thereafter.

Shri P. S. Raman, learned Counsel appearing for the Appellants explained the factual position of acquiring shares of Damania Airways Ltd, the change in the constitution of the Board of Directors of the said company and of the acquirers making public offer to acquire 64,66,800 shares of Damania Airways. Learned Counsel referred to the copy of the "Letter of offer" dated 12.1.1996 issued for the purpose and submitted that the Appellants are not acquirers, that the names of the acquirers have been clearly stated in the "Letter of offer" viz. "Mr. Ravi Prakash, Mr. Ratan Kumar, Mr. Madhu Sudan, Mr.Raj Kumar and Tirupathi Kumar". He submitted that nowhere in the ‘Letter of offer’ the Appellants have been shown as acquirers or as persons acting in concert. He further submitted that the Appellant No.3 is in fact the target companay, and cannot by any standard be considered as an acquirer or person acting in concert. Learned Counsel referred to the definition of the expression "acquirer" and "persons acting in concert" in the Takeover Regulations and also the requirement of furnishing details of the persons acting in concert thereunder. Shri Raman further submitted that, from the scheme of the Takeover Regulations it is evident that ‘acquirer’ and ‘persons acting in concert’ are separate and distinct entities and this distinction is clear from the separate definitions of these expressions provided in the Takeover Regulations. He submitted that the Respondent has ignored the distinction provided by law and has wrongly viewed the Appellants as acquirers and proceeded against them. He reiterated that the Appellants are neither acquirers nor persons acting in concert. Learned Counsel submitted that the Appellants are widely held public limited companies. They are distinct and separate legal entities from the acquirers. According to the learned Counsel, the Respondent issued show cause notices to the five acquirers mentioned in the "Letter of Offer" , that these notices are dated 2.8.1996 and identical in substance, that no notice was addressed to the Appellants. He referred to the notice addressed to one of the acquirers viz Ravi Prakash Khemka (copy filed with the appeal memorandum) and submitted that the notice is to "Shri Ravi Prakash Khemka, Chairman, NEPC Micon Ltd., 36, WallajahRoad, Madras – 600 002". Refuting the Respondent’s contention that the said notice is to the Appllents as well, Shri Raman submitted that from the text of the notice it is clear that the notice is directed to Shri Ravi Prakash Khemka, in his individual capacity as the acquirer. In this context in support of the contention that the notice is directed only to the person concerned he referred to the charge therein that "you in concert with others acquired 12,50,000 equity shares of Damania Airways Ltd……. you made a public offer to acquire shares for the remaining shareholders of the company ….you have failed to make payment to the shareholders within the stipulated time…" Learned Counsel further referred to the ‘show cause portion’ in the notice that "you are advised to show cause within 15 days of receipt of the notice as to why appropriate action should not be initiated against you………"(emphasis given) He submitted that the Appellants did not acquire shares, that there is not even a wisper in the notice alleging that the Appellants funded the acquisition of the shares by the ‘acquirers’. He further submitted that in the entire notice the reference "you" is to Shri Ravi Prakash Khemka, and the charge is specific to his failure to make payment to the shareholders who had tendered shares in response to the public offer made by the acquirers including Shri Ravi Prakash Khemka. Learned Counsel reiterated his contention that it cannot be held on any ground that the said notice is to the Appellants to show cause. Learned Counsel submitted that on 14.3.1997, the Respondent issued another show cause notice to Shri Ravi Prakash Khemka and the otherfour acquirers. The notice was addressed as in the case of the notice dated 2.8.1996 describing him as "the Chairman, NEPC Micon Ltd." that the notice repeated the charges contained in the notice dated 2.8.1996 and also added few more charges, that the opening part of the notice stated that "it appears that you acting in concert with other acquirers namely Shri Rattan Kumar, Shri Madhu Sudan, ShriRaj Kumar and Shri Tirupathi Kumar acquired 12,50,000 equity shares" acquired 12,50,000 equity shares of Damania Airways Ltd, that thus the persons who acted in concert with the acquirer have also been clearly identified to the exclusion of the Appellants. He submitted that from the text of the notice it is clear that the notice was not directed to the Appellants but confined to the noticee only in his capacity as an ‘acquirer. He submitted that the replies of Shri Ravi Kumar Khemka referred to in the said show cause notice are the replies of the noticee to the earlier notice and not the replies from the Appellants, that he had not signed those replies "For" or "on behalf" of any of the Appellants, that describing himself as "the Chairman, NEPC Group" does not mean that the reply was on behalf of the Appellants; that his personal replies cananot be treated as reply on behalf of NEPC Group companies, as Shri Khemka replied for himself and not for anybody else. He further referred to the concluding portion of the notice and stated that the notice asked Shri Ravi Prakash Khemka and other acquirers to show cause "as to why the following directions under section 11B should not be passed– (1) You and other persons acting in concert with your group companies in which you are directors and are being managed by you viz. NEPC Micon Ltd., NEPC Skyline Ltd., NEPC Tea Gardens Ltd. NEPC Agro Foods Ltd. and Skyline NEPC Ltd. etc. be debarred from accessing the capital market for a period of five years (2) you and other persons acting in concert who have made the said offer should not be liable to make payment at 24% to 9155 sharheolders". Shri Raman submitted that reference to "you and other persons acting in concert who have made the said offer" is very relevant. The offer was made by the five individuals and this fact has been clearly mentioned in the Letter of offer. Learned Counsel submitted that in the said notice as could be seen, the names of four public companies have also been made, that it is only in the context of the would be consequences, but their role in the default has not been stated and that these companies were not given any opportunity to put forth their point of view.

Learned Counsel submitted that the Appellants are widely held public limited companies, that NEPC Micon has 3 lakh shareholders, NEPC Agro Foods has 90,000 shareholders and Skyline NEPC has 68,000 shareholders, that the acquirers’ holding in these companies is less than 20%. Shri Raman further submitted that the impugned order has not disclosed the basis on which the Respondent has come to the conclusion that the Appellants are group companies of acquirers, that in the absence of any admission in this regard by the Appellants, it was incumbent on the Respondent to establish that the Appellants are the group companies of the acquirers.

Learned Counsel submitted that on knowing about the show cause notice to the acquirers, under the apprehension that the Respondent may go ahead with the threat mentioned in the notice, the Appellants filed Writ Petition ( W.P.) No.5617 of 1997 in the Hon’ble Madras High Court seeking injunction restraining the Respondent from taking any steps pursuant to the notice dated 14.3.1997. In this context he referred to the interim order passed by the Hon’ble Madras High Court in the said W.P. on 21.4.1997 observing that:

"In the impugned notice, it has also been stated that the companies belonging to the petitioners group viz. those companies of which the petitioners are Directors or in charge of the management viz. NEPC Micon Ltd., NEPC Skyline Ltd., NEPC Tea Gardens Ltd. NEPC Agro Foods Ltd. and Skyline NEPC Ltd. etc.would be debarred from accessing the capital market on account of the default committed by the petitioners. This threat is prima facie not warranted in view of the fact that those companies were not parties to the puiblic offer. Petitioners in W.P. 5617/96(97) therefore, are entitled to have any further proceedings pursuant to that threat in relation to them stayed."

Issue notice of motion returnable in twelve weeks. Stay for 12 weeks of further proceedings pursuant to that part of the show cause notice which threatens the companies who are petitioners in W.P.No.5617/96(97) from accessing the market."
 
 

Learned Counsel submitted that the Hon’ble High Court had prima facie concluded that the Appellants were not parties to the public offer that since the Appellants were not parties to the public offer the consequences of failure in making payments for the shares acquired cannot visit them. In this connection he referred to the averments made by the Appellants in para 4 of the W.P.No.5617/1997 and the Respondent’s reply thereto.

Appellants averment in para 4 –

"It would appear that two show cause notices respectively dated 2nd August, 1996 and 14th March 1997 were issued to certain persons who also happen to be directors in our company. The said show cause notices were issued for certaian purported acts of omission/commission in certain outside venture of the said persons, in their individual capacity for acquiring certain shares of the company called Damania Airways Ltd. Neither of the show cause notices were served on the Petitioner, nor addressed to them or copy marked to them."
 
 
The Respondent in para 6 of its affidavit dated 26.3.98 in WMP. No.9330 of 1997 in the said W.P. had averred that" "6. The averments in para 4 have no relevance to the matter at hand. There was no need for the petitioner (SEBI) to serve the show cause notices on the respondents herein. The petitioner had first to hear the acquirers’ stories regarding the whole matter, thereafter if required call upon the respondents herein also for personal hearing, by serving such notice as deemed appropriate."
 
 
He submitted that the gist of the said averment by the Respondent is that the Writ Petition is premature and the Respondent was giving an undertaking to the Hon’ble Court that the Appellants will be given an opportunity of personal hearing in case they are to be proceeded against, that at that particular juncture - i.e. when the affidavit filed - it was not required. He submitted out that the affidavit is dated 26.3.1998, after the issue of the two show cause notices, that in the light of what is averred in para 6, in its affidavit the Respondent cannot claim that those notices were issued to the Appellants, that had it been issued to the Appellants, the Respondent would have certainly stated so and would not have givensuch an undertaking in their affidavit.

Shri Raman referred to the impugned order and stated that in the order also the five individuals referred to in the ‘Letter of Offer’ have been identified as the acquirers. He referred to the following observation in the order:
 
 

"It would be relevant to add here that the acquirers are all prominent directors

of their companies. An extract from the letter of offer is reproduced as under:
 
 

Name Directorship Personal Networth as on 31.03.95

(certified by the Chartered Accountant)

Mr. Ravi Prakash NEPC Micon Rs.1830.86 lacs

NEPC Agro Foods Ltd.

NEPC LM Wind Energy Ltd.

NEPC Textiles Ltd.

Combined Travels Ltd.

Gujrat Windfarms Ltd.

NEPC Paper and Board Ltd.

Skyline NEPC Ltd.

Mr. Rattan Kumar NEPC Micon Rs.814.23 lacs

NEPC Agro Foods Ltd.

NEPC Textiles Ltd.

Gujrat Windfarms Ltd.

NEPC Paper and Board Ltd.

Skyline NEPC Ltd.

Mr. Madhusudan NEPC Micon Ltd. Rs.2240.81 lacs

NEPC Agro Foods Ltd.

NEPC LM Wind Energy Ltd.

NEPC Textiles Ltd.

LM Glassfiber (India ) Ltd.

Gujrat Windfarms Ltd.

NEPC Paper and Board Ltd.

Skyline NEPC Ltd.

Mr. Raj Kumar NEPC Micon Ltd. Rs.4021.30 lacs

NEPC Agro Foods Ltd.

NEPC LM Wind Energy Ltd.

LM Glassfiber (India ) Ltd.

Combined Travels Ltd.

Gujrat Windfarms Ltd.

NEPC Paper and Board Ltd.

Skyline NEPC Ltd.

Mr. Tirupathi Kumar NEPC Micon Ltd. Rs.2081.73 lacs

NEPC Agro Foods Ltd.

NEPC Textiles Ltd.

NEPC Paper and Board Ltd.

Skyline NEPC Ltd.

From the above, it is evident that adequate resources are available with the acquirers to meet the full acceptance of the open offer."

Shri Raman also submitted that there is no concept of "prominent director" under the Companies Act and as such it was for the Respondent to explain the said concept, that even the networth shown therein is personal networth of the Directors mentioned therein and not that of the companies in which they are directors. He submitted that the acquirers are directors in 8/6 companies, but all those 8/6 companies in which they hold directorship have not been identified as defaulters and proceeded against, that the Respondent has not given any reason in the order as to on what basis the Appellants have been singled out,and why others have been excluded. He submitted that for the reason that a person is one of the diriectors in a widely held public limited company the said company cannot be treated as a group company of the said director.

Learned Counsel referred to the following portion in the impugned order:

"Further in clause XII of the letter of offer it is stated that the capacity of the offerors to run the business affairs of SNL (target co), with readily available fleet & infrastructure on profitable lines in future commercially justifies this offer. Hence, it is apparent that the diriectors of the companies belonging to the acquirers are the persons controlling the business affairs of these acquirer companies and have, while making the open offer to the shareholders of the target company relied upon their connection with the said companies and made the offer in their capacity as Directors of their companies. It is, therefore, necessary to appreciate the nexus between the Directors of the company and the company per se, and pierce the corporate veil to detect the persons responsible for the violation of the regulations. Hence, when the Board of Directors of the acquirer group of companies who have made the offer have violated the provisions of the regulations, it is only just and equitable that if action has to be initiated against the diriectors, the company as a juristic person should also be held liable for inaction on the part of its directors and hence be impleaded in the said action. The same is as per section 27 of the SEBI Act. As the acquirers who are the directors of these companies have admittedly violated the regulations, and are the persons controlling the companies, if action is initiated against them, the companies cannot be treated as a distinct entity from the Directors who are managing the said companies. Accordingly necessary action has to be issued as against the companies also.

It is relevant to add here that as the acquirers are Directors of NEPC Micon Limited, NEPC Tea Gardens Limited, NEPC Agrofoods Limited and Skyline NEPC Limited and there is a clear indication of all of them having acted in concert in the matter of the acquisition of shares under consideration, in the interest of the investors and the orderly development of the securitiesd market as well as in respect of matters relating to the issue of capaital, transfer of securities and other matters incidential thereto, action can be initiated not only against the intermediaries but also against any class of persons associated with the securities market."
 
 

Learned Counsel submitted that these statements and conclusions have been made without giving the Appellants an opportunity to explain their stand, that for the action of the dirictors in their individual capacity, the Appellants cannot be held responsible, that the vague statement that the acquirers hold shares in the company by itself is not sufficient to implead the Appellents in the said action. He submitted that reference to section 27 of the Act is absolutely irrelevant in the context as the same is with reference to prosecution of companies for offences committed by them and not on the liability of companies for the action/non action of the directors of the companies. He submitted that the observations made by the Respondent are based on surmises and the Appellants have been unjustifiably roped in the matter. He submitted that the Respondent has placed heavy reliance on certain typograpahical mistakes in the appeal memorandum such as the expression "us" in certain places, to hold that the Appellants and the acquirers as one and the same, so as to support its contention that the Appellants are also acquirers.

Learned Counsel submitted that it is well settled that a person cannot be penalised without giving him a reasonable opportunity of being heard and it is for that purpose show cause notice is required to be issued to the person concerned, that the Respondent has not followed the said requirement while passing the adverse order under challenge. Learned Counsel, refering to the Respondent’s reliance on Order 29, Rule 2 of the Civil Procedure Code submitted that said rule is not on service of show cause notice and is for an entirely different purpose.

Learned Counsel referred to the decision of the Hon’ble Madras High Court in Government of India V Maxim A Lobo (1991 (190) ITR 101 to support his argument that while communicating such an adverse order the reasons for passing the order cannot be withheld from the person going to be affected by the order, that certain actions affecting the image and reputation of the person concerned and the loss of image and reputation requires to be viewed far more seriously than causing mere monetary loss. He submitted that the impugned order is also stigmatic as far as the Appellants are concerned.

He referred to CB Gautam V Union of India (1993) 1 SCC 78 wherein the Hon’ble Supreme Court apart from holding the need for giving a reasonable opportunity of being heard to the persons concerned before passing an adverse order had also held that when such orders are passed reasons must be recorded, the Hon’ble Court had observed:

"The recording of reasons which lead to the passing of the order is basically intended to serve a two fold purpose:
    1. that the "party aggrieved" in the proceeding before (sic the appropriate authority) acquires knowledge of the reasons and in a proceedings before the High Court or the Supreme Court (since there is no right of appeal or revision), it has an opportunity to demonstrate that the reasons which perrsuaded the authority to pass an order adverse to his interest were erroneous, irrational or irrelevant, and
    2. that the obligation to record reasons and convery the same to the party concerned operates as a deterrent against possible arbitrary action by the quasi judicial or the executive authority invested with judicial powers"
He submitted that the impugned order though narrative with extraneous discussions, is silent on reasons and that in fact it is a non speaking order and, therefore, deserves to be set aside. Learned Counsel submitted that the Respondent has totally ignored the dictum of the Hon’ble Supreme Court in Gautam’s case.

Learned Counsel, referring to the averments made in the reply filed by the Respondent and the arguments advanced on behalf of the Respondent by its Counsel submitted that the order should stand on its own and it cannot be supplemented by further submissions, that the Respondent is making out a new charge against the Appellants, which it had not made out in the order. In support of the said argument he relied on the Hon’ble Supreme Court’s observation in Mohinder Singh Gill V The Chief Election Commissioner (AIR 1978 SC 851):

"that when a statutory functionary makes an order based on certain grounds its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose J in Gordhandas Bhanji (AIR 1952 SC 16) at p. 18: ‘Public order publicly made, in exercise of a statutory authority cannot be construed in the light of the explanations subsequently given by the officer making the order of what he meant, or what was in his mind or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the acting and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself.’ Orders are not like old wine becoming better as they grow older."

Learned Counsel referring to the Respondent’s submission on piercing the corporate veil, submitted that the purpose of piercing corporate veil is to find out the organic person behind the corporate entity. He submitted that Hon’ble Supreme Court in Life Insurance Corporation of India V Escorts Ltd. (1986) 59 Co. cases 548 had clearly explained the rationale on lifting the veil, that it is unheard of the proposition of reverse piercing as has been canvassed by the Respondent. It is the companies’ veil which is pierced to find out the people behind it and never an "individual is pierced" to find out "those behind him". He submitted that the reliance placed on by the Respondent on the Hon’ble Supreme Court’s decision in Delhi Development Authority V Skipper Construction Co. P. Ltd. (AIR 1996 SC 2005) is of no relevance, as the facts of the said case are entirely different compared to the facts in the Appellants’ case. The Court in the said case was considering the question of lifting of corporate veil with reference to the corporate bodies created by an individual and his family members for committing illegalities and defrauding people. It was in the said context the Hon’ble Court observed:

"The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that an individual and members of his family have created several corporate bodies would not prevent the court from treating all of them as one entity belonging to and controlled by that individual and family if it found that these corporate bodies are merely clocks behind which lurks that individual and or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people"
 
 
Learned Counsel submitted that the three Appellants are widely held public limited companies with large public participation and these are not closely held private limited companies created by the five acquirers to take over Damania Airways Ltd. He submitted that it is not that the Appellants had put the acquirers as their dummies to defraud the public, and that the Respondent has not produced any material to prove the contrary.

Shri Raman referred to the decision of the Hon’ble Delhi High Court in New Horizon Ltd. V union of India (1997) 89 Co. Cases 785 Delhi) relied on by the Respondent and submitted that observation made by the Hpn’ble Court therein has no application to the case because of the entirely different factual position, that it was also a case to find out the actual persons behind the corporate entities and not the other way round.

Shri Raman submitted that the Respondent has subjected the Appellants to the impugned direction, which has adverse effect on the Appellants, without any justification, without even affording any opportunity to put forth their case. He submitted that such an adverse order of far reaching consequences passed without following the principles of natural justice need be set aside. He reiterated that the Appellants are not the acquirers and they have not committed any default and therefore they cannot be held liable for the failure, if any, of any of their directors. He submitted that the order can not be sustained and deserve to be set aside.

Shri Rafiq Dada, Learned Senior Counsel appearing for the Respondent submitted that the main issue that requires to be considered in the present appeal is as to whether the Appellants had actual knowledge of the allegations, and if they had such actual knowledge of the allegations and still having opted not to contest the allegations, are they entitled to claim that the impugned order has been passed without following the principles of natural justice. He submitted that the Appellants’ failure to put forth their defense even on knowing fully well the charges against them is a matter which requires to be noted. He submitted that one has to take into consideration the totality of the facts and circumstances before concluding as to whether there was any failure on the part of the Respondent in following the principles of natural justice. In this context he narrated the background of the case and the sequence of the developments referring to "list of dates" furnished by him, and submitted that evidence on record clearly demonstrates that the Appellants were in the knowledge of the show cause notice and still they intentionally opted not to put forth their defense for reasons best known to them. Learned Senior Counsel submitted that having decided not to contest the show cause notice in the proceedings, the Appellants cannot come before the Tribunal and now allege in the appeal proceeding, that the impugned order was passed without hearing them.

Shri Dada submitted that by the Appellants’ own version that the five offerors (acquirers) mentioned in the "Letter of Offer" "are directors and in charge of administration and management of the Appellants herein" (para 5.8 of the Memorandum of appeal). He submitted that the Appellants very well knew that they were indicted in the show cause notice and that is why they filed Writ Petition No.5617 of 1997 in the Hon’ble Madras High Court challenging the show cause notice, that it is improbable that one would challenge the show cause notice in a Writ petition without fully knowing the import of the notice. The prayer before the Hon’ble High Court was to issue a "writ of certiorarified Mandamus or such other writ order or directions calling for the records of the Respondent contained in the communication dated 14.3.1997 and quash the communication dated 14.3.1997 and forbear the Respondent from taking any further steps pursuant to the said communication dated 14.3.1997….." He submitted that three out of the five acquirers instigated the Appellants to file the present appeal and contest the same, and decided to withdraw the other appeals challenging the same order, filed by them and their other companies. The acquirer – Appellants nexus is very much evident from their conduct. He submitted that the unison conduct of the Appellants and the acquirers is of considerable relevance in deciding the Appellants’ version that they have nothing to do with the acquirers and they are distinct and separate entities. He submitted that the submission that the Appellants being companies registered under the Companies Act are separate and distinct legal entities and as such to be treated distinct from the acquirers is untenable in the light of the facts of the case showing the firm gelling of them.

Learned Counsel submitted that the Appellants are deliberately making an attempt to show that they are ‘away’ from the acquirers, so as to escape from their obligation arising out of the failure to make payment to the shareholders of Damania Airways. In this context Shri Dada referred to the different registered addresses of the Appellants shown in the appeal i.e. Appellant No.1 at No. 1678, Trichy Road, Ramanath Puram, Coimbatore, Tamil Nadu, Appellant No.2 at Waverly Estate, Water Falls Post, Valparai, Coimbatore and Appellant No.3 at No.17, M.G. Road, Pune and the address disclosed in the Writ Petition No. 5617/1997 filed by the Appellants at No.36, Wallajah Road, Madras 600 0032, which is also the common address of the five acquirers as per the Letter of offer. In this context he also referred to Appeal No.39/2001 (subsequently withdrawn) filed by S/Shri Ravi Prakash Khemka, Rajkumar Khemka and Tirupathi Kumar Khemka and submitted that the address of the Appellants therein is also shown at No.36, Wallajah Road, Madras 600 0032. Shri Dada referred to the Appellants’ averment in para 5.3 of the Memorandum that "in continuation of their illegal and arbitrary act the respondent and called us for discussion in January 1996 and had thrust the acquirers with an unrealistic price of Rs.35..25 per equity share instead of Rs.19.50 as announced by us." He submitted that this is a clear indication of the gelling of the Appellants and the acquirers and the Appellants themselves have in no uncertain terms identified themselves as acquirers, that the same acquirers are the directors in charge of administration and management of the Appellants. Learned Senior Counsel submitted that the Appellants were fully aware of the on going proceedings and that of the charge against them is evidenced from the Appellants’ averments in para 5.9 of the memorandum of appeal that:

"The Appellants learnt that an order has been passed by the respondent on 2.7.2001, copies served on Mr. Tirupathi Kumar Khemka on 17.7.2001 by which the respondent had debarred the offerors along with their group companies from accessing the capital market for a period of 5 years for the alleged violation of regulation and listing agreement. It is also submitted that by no stretch of imagination the appellants herein who are separate legal entities and separate public limited companies with distinct shareholding pattern and three of the present offerors at present on their Board have been penalized and debarred by the said order." Learned Counsel submitted, the Appellants could get a copy of the order from Mr. Tirupathi Kumar and based on the text of the order so received they could file the present appeal, but strangely enough, if they are to be believed, they did not get a copy of the show cause notice addressed to the Chairman of the NEPC group, who is also a director in each of the Appellant’ Board of Directors and also to the two other persons who are also directors, and as a result of non availability of the notice they could not put forth their views before the Respondent. He further submitted that though according to the Appellants they had no copy of the show cause notice dated 14.3.1997 to put forth their case before the Respondent, they could challenge the same show cause notice in a Writ Petition before the Hon’ble Madras High Court. He submitted that the Respondent had addressed the show cause notice to all the 5 offerors mentioned in the "Letter of offer", and they are all directors of the Appellants and none of them did formally respond to the notice by specifically meeting the charges and it was the same policy the Appellants also followed as the said acquirers are the directing mind and will of the Appellants. He submitted that on a perusal of the notice it is clear that the whole thrust of the notice is not only on those five offerors but also on the Appellants as well.

In this context learned Senior Counsel filed a set of documents. Shri Raman had objected to taking on record at the argument stage those documents which were not relied on in the order or referred to by the Appellants. I have taken note of his objections and the reliance made on by the Respondents’ Counsel on such alien correspondence is not taken cognizance. But certain letters from the Appellants and relied on in the proceedings contained in the set of documents, presented by the Counsel for the Respondent have to be certainly taken cognizance of. This includes the letters dated 19.1.2000, 1.2.2000, 2.6.2000, 19.6.2000, 28.6.2000 from NEPC India Ltd. These letters were relied on by the learned Senior Counsel to show the close proximity of the acquirers and the Appellants. Learned Senior Counsel referred to the letter dated 11.12.1996 from Shri Ravi Prakash Khemka which is annexed to the reply of the Respondent and stated that the said Ravi Prakash Khemka as Chairman of the NEPC Group by the said letter referred to the meeting held on 2.12.1996 with the Respondent and sent therewith a schedule showing how payment was proposed to be made to the balance applicants. The balance payment was proposed to be made in 6 equal monthly instalments of Rs.2.5 crores per month commencing from January 1997 and ending on June 1997, that an undertaking to pay the balance amount was also given with interest at 15% per annum. Learned Senior Counsel submitted that the letter dated 11.12.1996 was written and the commitment to pay instalment was made by Ravi Prakash Khemka not only on behalf of the acquirers but also on behalf of the NEPC group companies as Chairman of NEPC group companies. Learned Counsel submitted that if it was an individual commitment, there was no need for him to show the signatory as ‘Chairman, NEPC Group Companies’.

Shri Dada submitted that there is evidence to show that the show cause notice was served on the five acquirers who are directors and also persons in charge of administration and management of the Appellants. In this context he referred to Order 29, Rule 2 of the Civil Procedure Code providing for service of notice on the Secretary, or any director or other Principal Officer of the corporation, and submitted that therefore the show cause noticed served on the Chairman (who is also a director) of the Appellant companies is sufficient service of notice.

Learned Senior Counsel referred to the show cause notice dated 2.8.1996 filed with the appeal memorandum and submitted that the notice was addressed to Shri Ravi Prakash Khemka who is the Chairman of Appellant No.1. He also referred to the show cause notice dated 14.3.1997 which is also addressed to Shri Ravi Prakash Khemka, Chairman of the Appellant No.1. He submitted that in the said notice the charge has been clearly stated that it was failure to make payment to the shareholders who had accepted the offer pursuant to Letter of offer dated 12.1.1996 that the notice also refers to the noticees’ letter dated 11.12.1996 agreeing to make the payments, that this letter was signed by the noticee as the Chairman, NEPC Group companies and the Appellants are NEPC Group companies and therefore, they were also party to the said undertaking and liable to make the payments as committed by Shri Ravi Prakash Khemka in his letter dated 11.12.1996. He submitted that the fact of the proceeding going on with reference to the show cause was known to the Appellants is evidenced from their averment in their W.P. that "the Petitioners have filed the above writ petition challenging the arbitrary and malafide action of the Respondents seeking to drag the Petitioner, a public limited company, into an enquiry investigation/adjudication procedure vis-à-vis certain individuals which has been alleged to have been launched by the Respondents."

With reference to interim stay passed by the Hon’ble Madras High Court, learned Senior Counsel submitted that the order dated 21.3.1997 passed by the Hon’ble Court is a common order in the 2 sets of appeals – (1) filed by the acquirers and (2) by the Appellants. He submitted that the Appellants had not pursued the matter to get the stay extended after the expiry of the 12 weeks. Learned Senior Counsel also referred to the submission made by the Respondent in its affidavit in the said appeal that

"the submission by the respondents that the group companies are distinct and separate legal entities is not a proper or acceptable defence especially in relation to the capital market. It is an undisputed fact that in the capital market the reputation of a promoter is the most crucial factor for raising resources from the public and the promoter is identified as part and parcel of the Group."
 
 
Learned Counsel extensively referred to the impugned order. He referred to the following observation that: "It is relevant to add here that as the acquirers are directors of NEPC Micon Ltd., NEPC Tea Gardens Ltd., NEPC Agro Food Ltd., and Skyline NEPC Ltd. and there is a clear indication of all of them having acted in concert in the matter of acquisition of shares under consideration in the interest of investors and the orderly development of the securities market as well as in respect of matters relating to the issue of capital, transfer of securities and other matters incidental thereto, action can be initiated not only against the intermediaries but also against any class of persons associated with the securities market."
 
 
Learned Counsel also referred to the following observations in the order. "The acquirers have not formally responded to the show cause notice but without any reference to the show cause notice, have however sent a letter dated March 27, 1997 wherein they stated that they had acquired control over the target company only in the month of September, 1995 and had therefore made the open offer, albeit at a price fixed on an arbitrary basis. They requested for being heard before initiation of any action against them.

There were several reminders both from the merchant bankers and SEBI to the acquirers to complete the payment to the consideration to the shareholders who have accepted the offer, yet the same has not been done, to the detriment of several shareholders who had offered their shares for sale. The result is that not only are the shareholders of the target company deprived of the share certificates which had been surrendered by them for sale pursuant to the open offer but they have also not received the consideration for the same.

From the above, it is clearly evident that the inaction on the part of the acquirers to pay the consideration amount or fulfill the obligations as laid down in the Regulations is clearly detrimental to the interest of the investors who are deprived from their monies. This is in fact apparent that the action of the acquirers clearly displays an attempt to defraud the shareholders.

It would be relevant to add here that the acquirers have filed WP No.5616/97 and WP No 5617/97 in the Madras High Court seeking stay of the proceedings which seek to debar the acquirers and the group companies from accessing the capital market for a period of 5 years pursuant to the show cause notice dated March 14, 1997. Although the court vide its order dated April 21, 1997 granted stay of the proceeding pursuant to that part of the show cause notice which proposes to debar the acquirers and the group companies from accessing the capital market for a period of 5 years, for a period of 12 weeks from the date of the order, subsequently, SEBI has filed an application for the vacation of the said stay order. Furthermore, the period of 12 weeks from the date of the grant of the interim stay order has expired and no further attempt has been made by the acquirers to either seek extension of the said stay order or obtaining any fresh stay order. As a consequence of the same, there is no interim order of the stay which is operational as on date. Furthermore, Shri Tirupati Kumar Khemka on his behalf and on behalf of Shri Ravi Prakash Khemka and Rajkumar Khemka filed a writ petition no 835/99 in the Madras High Court challenging the validity of the Takeover Regulations. No stay has been ordered in the said case also, and no attempt has been made by the acquirers to expedite the hearing of the case.

A letter dated July 25, 2000 was received from Shri Madhusudan Khema wherein he has claimed to resigned from the NEPC Group of companies including the target company on June 09, 1997. Subsequently, the letters sent to him have been returned as undelivered. However, the fact remains that as on the date of the commission of the offence, he was the director of the said companies.

As the acquirers had requested for the grant of a personal hearing before passing any orders pursuant to the show cause notice, opportunity of personal hearing have been granted to the acquirers on February 01, 2000, June 21, 2000, August 04, 2000, September 11, 2000 and November 03, 2000. While Shri Ravi Prakash Khemka and Raj Kumar Khemka attended the first two hearing, Shri Madhusudhan Khemka and Shri Rattan Kumar Khemka did not attend the same. Further while the last three hearings were attended by Shri Madhusudhan Khemka and Shri Ratan Kumar Khemka, Shri Ravi Prakash Khemka and Shri Raj Kumar Khemka did not attend the same.

From the above, it is apparent that for one reason or the other the acquirers are procrastinating the proceedings and the fulfillment of the open offer obligations."
 
 

Learned Counsel submitted that the attempt is to further delay payments to the share holders and every effort is made by the Appellants to achieve the said objective. He submitted that filing of the appeals, withdrawing them subsequently, raising technical objections etc. are meant to delay the matter to the detriment of investors.

Learned Counsel submitted that, as the acquirers have admitted of their failure by not filing appeal/withdrawing the already filed appeal, and they are debarred from accessing the capital market so as to prevent such activities, there is no justification in allowing the Appellants which they are administering and managing, to freely access the market. Learned Counsel submitted that unless the acquirers are controlling the Appellants, the question of their administering or managing the Appellants does not arise. He submitted that the Appellants are just namesake public companies, that they virtually are front companies of the acquirers and therefore, the Appellants also should be held liable for the actions of their controlling matters. He submitted that on ‘piercing the veil’ the who is who position will be establaished.

Learned Counsel in this context referred to the decision of the Hon’ble Supreme Court in Skipper Constructions that :

"the fact that an individual and members of his family have created several corporate bodies would not prevent the court from treating all of them as one entity belonging to and controlled by that individual and family if it found that these corporate bodies were merely cloaks behind which lurkes that individual and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and or to defraud people"
 
 
He submitted in the light of the said information mere seprate legal status by itself does not mean that a company is distinct from those behind it.

Learned Counsel submitted that this Tribunal had held in Integrated Amusement Ltd. V (SEBI (2000) 27 SCL 458) that the Respondent is empowered to issue appropriate measures which are preventive or remedial in nature as a measure of investor protection. He also referred to the Tribunal’s decision in Anand Rathi V SEBI ( 2002) CLA 292(SAT) to support the Respondent’s powers to issue diiections of the nature impugned in the appeal to companies for the ommissions and commissions of the directors.

Learned Senior Counsel referred to the decision of the Hon’ble Delhi High Court in New Horizone Ltd. V Union of India (1997) 89 Co. cases 785 ) and submitted that the ratio of the said case with reference to piercing the corporate veil is in equal force applicable to the present case. He submitted that as held by the Privy Council in Meridian Global Funds Management Asia Ltd. V Securities Commission (1995) 2 BCLC 116) one has to go by the test of whose was the "directing mind and will of the company" and on applying the said test it is clear that the directing mind and will of the Appellants is the five acquirers mentioned in the order and therefore Appellants cannot be absolved from the charges and that it is not necessary to separately issue show cause notice to them as that would have been only an empty formality, as the purpose is served by serving notice on the acquirers who are in control and in the administration and management of the Appellants.

Learned Senior Counsel submitted that it will be a great injustice to allow the companies owned and controlled by a set of people to access the capital market while those people are barred from accessing the market, that allowing the companies to do so would tantamount to indirectly allowing the masters of these companies to access the market indirectly and thereby effectively negating the whole objective of debarring the persons for proven charges. He submitted that what is prohibited to be done directly should not be allowed to be done indirectly, that the Appellants should not be allowed to access the capital market indirectly through the entities controlled and managed by them.

I have carefully considered the rival submissions. The main thrust of the Appellants’ case is that the impugned order which is adversely affecting their rights and obligation was passed without giving them an opportunity of being heard and since the order was passed without following the rules of natural justice, the same need be set aside. The Appellants have not contested the charge that the five acquirers who acquired shares from the shareholders of Damania Airways did not make payment to the shareholders who tendered shares in response to the public offer. In my view the failure to pay the purchase consideration for the shares purchased from the shareholders who responded to the public offer is a very serious charge which tantamounts to cheating. Criminal law is not short of provisions to deal with matters of cheating deceiving etc. It is not known as to what action the Respondent has taken against those responsible for the same. It is also noted that the payment was due to the shareholders on 28.3.1996 ! Seven years are over by now. However, since it is not a matter which the Tribunal is called upon to adjudicate in the present appeal, I refrain from making any observation thereon.

On a perusal of the impugned order, it is noted that the Appellants have also been debarred alongwith the acaquirers, from accessing the capital market for a period of five years, based on the findings arrived at by the Respondent on an enquiry conducted by it in the context of the failure of the acquirers to make payments to the shareholders of Damania Airways. The consequences of the impugned order are serious. But then, there is no doubt in my mind in the facts and circumstances of the case as emerged in the proceedings, that severe deterrent action is called for against those who caused grief to the gullible investors. Shareholders have been taken for a ride. It is noted that the five acquirers referred to in the Respondent’s order have decided not to contest the order in the appeal. They have thus impliedly accepted the finding arrived and the decision made by the Respondent in the impugned order.

Learned Senior Counsel for the Respondent had submitted that the acquirers are directors and in charge of administration and management of the Appellants that unless the acquirers are in control of the Appellants their administration and management cannot be with the acquirers. I find much force in the argument. In the light of the Appellants’ own admission that the acquirers are directors and in charge of the administration and management of the Appellants, it can be safely concluded that the Appellants are acquirer group companies. No further evidence, in my view, is required to estabalish that the Appellants are acquirer group companies. Shri Raman’s submission that the Appellants are not group companies of the acquirers is defeated by the Appellants’ own statement. In para 5.8 of the Memorandum of Appeal the Appellants had admitted that the acquirers "are directors and in charge of administration and management of the appellants herein". I do not think any further material is required to prove the fact that the Appellants belong to the acquirers group.

The basic question which requires to be considered is as to whether the show cause notice served on the five acquirers can be treated as sufficient notice to the Appellants. In this context it is noted that in the letter of offer the five persons have been shown as offerors. These five offerors are in the administration and management of the Appellants. It is seen that the five acquirers are in the Board of Directors of the three Appellants. It is also seen that despite the claim that the Appellants were not served with any show cause notice by the Respondent, the Appellants had challenged the show cause notice dated 14.3.1997 issued by the Respondent in a Writ Petition in the Hon’ble Madras High Court. This goes to prove that the Appellants were fully aware of the said show cause notice. Their prayer in the said W.P. was "to issue a writ of certiorarified Mandamus or such other writ order or directions calling for the records of the Respondent contained in the communication dated 14.3.1997 and quash the communication dated 14.3.1997 and forbear the Respondent from taking any further steps pursuant to the said communication dated 14.3.1997….." In this context it is noted that the prayer included to forbear the Respondent taking any further steps pursuant to the communicated dated 14.3.1997. The communication dated 14.3.1997 referred to by the Appellants is nothing but the show cause notice issued by the Respondent holding the Appellants as well liable for action for the failure to make payment to the shareholders of Damania Airways. Hon’ble Madras High Court granted stay for twelve weeks of further proceedings pursuant to the said notice. I do not find anything on record to show that the Appellants had approached the Hon’ble Court seeking extension of period of stay. Therefore, it is clear that the Appellants were aware that in the absence of any extended stay, they were exposed to further proceedings pursuant to the said notice and they could have, if they so desired, based on the knowledge of the show cause notice which they opted to challenge by filing W.P., represented before the Respondent. But they deliberately opted to keep quiet. It is also noted that it was Shri Raj Kumar Khemka, who is son of Shri Ravi Prakash Khemka, filed the affidavit in the W.P. Shri Raj Kumar Khemka along with Shri Ravi Prakash Khema and Shri Tirupathi Kumar Khemka had filed an appeal No.39/2001 in this Tribunal challenging the Respondent’s order dated 2.7.2001. The appeal was subsequently withdrawn by them. The acquirers had also filed a separate W.P. No.5616/97 in the Hon’ble Madras High Court challenging the same show cause notice which the Appellants had challenged in W P No.5616/97. It is rather difficult to accept the proposition that the Appellants did not know the consequences that would visit them as stated in the notice dated 14.3.1997 in case the proceeding thereunder was not resisted, as they had moved the Hon’ble Madras High Court by filing a W.P to stall the proceedings. In the affidavit filed in the Hon’ble Madras High court it has been clearly stated by them that "the Petitioners have nothing to do with the concerned inquiry/adjudication/procedure/ prosecution and by the illegal actions, the Respondents are acting arbitrarily in a malafide manner and with extreme motivations to cause harm and injury to the Petitioners in their business." What more evidence is required to show that the Appellants were aware of the show cause notice and also of the inquiry proceeding, and the fact that they were being proceeded against. But they chose not to present their case before the Respondent and claim that the representation was not made for want of notice of the charges. Their contention that since the notice was not available to them, they could not represent to the Respondent is baseless. If they wanted they could have represented before the Respondent. They opted not to do so.

The Appellants had relied on the observation of the Hon’ble Court in its interim order dated 21.3.1997 that the "threat is prima facie not warranted in view of the fact that those companies were not parties to the public offer. This is only a prima facie finding based on the material then available before the Hon’ble High Court. But it is seen from the impugned order that there is enough material to show that the "directing mind and will" of the Appellants was the acquirers on whom the notice was served. Since the Appellants were aware of the notice and that the notice referred to the names of the parties to whom the consequences would visit, and that since the Appellants’ names were there, it was for the Appellants to participate in the proceeding and put forth their defence. It is seen from the order that none of the noticees formally responded to the notice by filing specific replies and that could be the reason for the Appellants’ non participation in the proceedings before the Respondent.

The Counsel for the Appellants citing the averment in the Respondent’s affidavit before the Hon’ble Madras High Court in W.P. 5617/97 had submitted that the Respondent had given an undertaking to the Hon’ble Court that the Respondent would hear the Appellants before passing any adverse order. It is noted that in the said affidavit the Respondent had stated that "..There was no need for the petitioner to serve the show cause notices on the respondents herein. The petitioner had first to hear the acquirers stories regarding the whole matter, thereafter if required call upon the respondents herein also for personal hearing by serving such notice/s as deemed appropriate". I do not find any such undertaking from the Respondent, as claimed by the Appellants. The Respondent had made it clear that after hearing the acquirers, if necessary, the Appellants will be heard. It is seen from the order that the Respsondent had heard the acquirers. If they have come to the conclusion that the material available with them was sufficient, and the diriectors of the Appellants had fully explained the matter to reach at a fair conclusion and in that context if they felt that the Appellants’ presence was not required, they cannot be faulted for deciding not to call the appellants specifically for personal hearing.

It is also noticed that the impugned order was forwarded by the Respondent vide letter dated 12.7.2001 only to the five acquirers and not to the Appellants separately. But the Appellants got the copy of the order and challenged the order by filing the present appeal promptly on 12.8.2001. The Appellants did not claim that they were unaware of the impugned order as the same was addressed only to the acquirers and not to them directly.

I do not consider that by not addressing the notice specifically to the Appellants, any prejudice has been caused to the Appellants. The fact is that despite the clear knowledge of the notice, the Appellants preferred to abstain from the proceedings. It was not that they were unaware of the charges. For the reasons best known to them they decided not to participate in the proceedings, though they preferred to challenge the notice before another forum – Hon’ble Madras High Court. The order arising out of the adjudication of the show cause notice was also challenged by them in the present appeal. But they did not consider it necessary to answer the show cause notice! The Hon’ble Supreme Court in Managing Director ECIL V B. Karunakar (1993) 4 SCC 727 observed in the context of a challenge made alleging non compliance of the principles of natural justice in a domestic enquiryon the ground that the enquiry report was not made available to the delinquent officer, that the Court or Tribunal should not mechanically set aside the order of punishment on the ground that the report was not furnished. Whether in fact prejudice has been caused to an employee or not on account of the denial to him of the report has to be seen and considered on the facts and circumstances of each case. Where even after furnishing the report, no different consequence would have followed, the court observed, it would be a perversion of justice to permit the employee to resume duty and get all the consequential benefits. It amounts to rewarding the dishonest and the guilty and thus to straighten the concept of justice to illogical and exasperating limits. It amount to an "unnatural expansion of natural justice" which in itself is antithetical to justice. It is only if the Courts or Tribunals finding that the furnishing of the report would have made a difference to the result in the case, that it would set aside the order of punishment. Serving a copy of the show cause notice on the Appellants, from the facts available before me, was only a formality, in view of the fact that they were already in possession of the same and had acted upon the notice by filing the Writ Petition in the Hon’ble Madras High Court. I am not stating a general principle that notice to the director of a company is also notice to the company in alal cases. In the facts and circumstances of the present case, there is sufficient evidence to estabalish that the notice addressed to the Aappellants’ directors had actualaly reached the Appellants and the Appellants had taken cognizance of the notice and acted thereon. In that view of the matter the Appellants submission that the impugned order was passed without notice to the Appellants and it was in violation of the principles of natural justice is not acceptable. Let us not forget that the soul of natural justice is "fair play in action." The purpose of following the principles of natural justice is for prevention of miscarriage of justice and hence the observance thereof is the pragmatic requirement of fair play in action. In the Appellants’ case from the facts of the case I find that it was a self denial of natural justice by the Appellants rather than the denial of natural justice by the Respondent. The Appellants’ reliance on Gadgil’s case (supra) is of no help to them, as the factual position in the said case was different. Mr. Gadgil, though was the Chief Executive of the noticee company, the scope and reach of the notice in that case was restricted to the noticee company only.

The Appellants’ contention that the order has gone beyond the scope of the show cause notice is baseless. In the show cause notice dated 14.3.1997 the Respondent has clearly stated the charge against the company and material information in support of the charge and the legal consequences attracted to the charge. In my view the order has not gone beyond the show cause notice. The Appellants had submitted that in the order, the Respondent has not given reasons. He had cited few authorities in support that order should contain reasons and that order should be self explanatory. I do not see the relevance of citing those authorities, as the order, in my view is a reasoned one and survives of its own.

Regarding the Appellants’ contention on the power to issue directions under section 11B, it is made clear that the Respondent is empowered to issue directions under section 11B of the Act to protect the interest of investors. Section 11B reads as under:

Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary, -- (i) in the interest of investors, or orderly development of securities market, or

(ii) to prevent the affairs of any intermediary or other persons referred to in Section 12 being conducted in a manner detrimental to the interest of investors or securities market ‘or

    1. to secure the proper management of any such intermediary or person,

    2. it may issue such directions, --

      1. to any person or class of persons referred to in section 12, or associated with the securities market, or
      2. to any company in respect of matters specified in Section 11A as may be appropriate in the interests of investors in securities and the securities market.
In the light of the proven facts of the case that the shareholders of Damania Airways having been deprived of the money legitimately due to them, the Respondent felt that the persons responsible for the same should not be allowed to repeat such "performance" and felt the need to prevent them from repeating such activities. With that object in view the Respondent has issued the impugned order, under section 11B which in my view is a preventive measure taken to protect the interest of the investors and therefore permissible in terms of section 11B. This Tribunal had occasion to consider in detail the scope of section 11B in several appeals decided by it in the past, that to mention one of them is the decision in Sterlite Industries V SEBI (supra). The Tribunal after relying on several authorities, held in the said case that the Respondent is empowered to issue directions of preventive or remedial nature to protect the interest of investors that the restriction is only on issuing directions which tantamount to penalty. In my view the impugned direction in the light of the facts specific to the case is not a penalty.

For the reasons discussed above, the impugned order is upheld and the appeal is dismissed.
 
 

(C.ACHUTHAN) PRESIDING OFFICER

Place: Mumbai

Date: March 31 , 2003.