IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 27 of 2004
|
Date of Hearing
|
13/07/2005
|
|
Date of Decision
|
08/08/2005
|
|
|
Appellant – Represented by:
|
|
Kosha Investments Ltd.
|
Mr. Mustafa Doctor, Advocate with Mr. Vijay Nane, Advocate
|
|
Versus
|
|
|
Securities & Exchange Board of India
|
Respondent- Represented by
|
|
|
Mr. Kumar Desai, Advocate with Ms. Daya Gupta, Advocate
|
| |
|
|
CORAM
C. Bhattacharya, Member
R.N. Bhardwaj, Member
Per: R.N. Bhardwaj, Member
1. The appeal is taken up for final disposal with the consent of parties.
2. The appeal is against the impugned order dated 03/12/2003. Before we discuss the arguments from the appellant and the respondent we would like to state briefly the facts of the case. There was a substantial spurt in the price of the scrip of Snowcem India Limited (‘SIL’ for short) during the period of June, 1999 to August, 1999. The price of the scrip at NSE during the period June, 1999 to August, 1999 rose from Rs. 55 to Rs. 127/-. This scrip was earlier infrequently traded but during this period the average quantity of scrip traded per day increased to 68,370 shares from the average quantity of 1252 shares during March, 1999 to May, 1999. As a result of this initial rise in the price of the scrip, NSE conducted an internal investigation for the period June 3, 1999 to August 10, 1999. On the basis of the investigation reports received from NSE, SEBI ordered further investigation vide their letter dated 18/06/2001 into the alleged price manipulation of the scrip of SIL.
3. The appellant i.e., Kosha Investments Limited (‘KIL’ for short) is one of the Indian promoters of SIL. SEBI found from the analysis of data of BSE and NSE and of brokers that several transactions were executed through KIL and it was the predominant trader in the scrip during the period of investigation i.e., June, 1999 to August, 1999. In view of the findings of investigation, a notice dated 16/09/2002 was issued by SEBI to the appellant asking it to show cause as to why suitable directions prohibiting it from dealing in securities for a particular period should not be issued to it under Section 11B of SEBI Act, 1992 read with Regulation 11 and 12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. The show cause notice mentioned that KIL, who was one of the promoters of SIL, was among the top traders who had traded in the scrip with intention to artificially raise the price of the scrip in coordination with entities connected with it. It was pointed out in the show cause notice that there were a common set of clients acting in concert through selected brokers of BSE and NSE who were involved in circular trading. It was also mentioned in the show cause notice that investigating team had observed that on many occasions KIL had received fund from SIL and the same were deployed to buy shares of SIL and these payments were in turn, made to brokers to purchase shares of SIL. It was also alleged in the show cause notice that orders placed by other clients were done in such a way that they were matching and appearing to be acting in concert which indicated circular trading of the scrip. This was distorting the market price determination and leading to rise in the price of the scrip. The show cause notice alleged that the appellant had aided and abetted the management of SIL in the price manipulation of the scrip and therefore it violated the Regulation 4 (a), (b) and (d) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. The reply was to be submitted within 21 days from the date of receipt of the notice. The show cause notice also had Annexures 1A giving details of the investigation conducted during the aforesaid period.
4. KIL replied to the show cause notice vide their letter dated 22/11/2002. They mentioned in the reply that the transactions entered into by KIL were done in the normal course of business. It denied that it had traded in the scrip of SIL with the intention of artificially raising the price of this share. He further made a statement that they did not work in concert with other entities to influence the price of the share. It was not involved in any circular trading, but mentioned that KIL was a registered non-banking financial institution and it was their normal business as per their Memorandum of Articles of Association to invest, hold, sell and deal with the shares. He also made a statement that it was one of the main business of KIL to deal with the equity shares as it earned more than 60% of its income from dividend earnings of the shares.
5. It was mentioned in the reply to the show cause notice that being a promoter company it used to get some time request from SIL that they needed funds for meeting their financial requirements and KIL would arrange funds from banks and other financial institutions with collateral security of SIL shares. Some time it would become necessary to liquidate the shares in the market to meet with the obligations. Therefore the sale and purchase of shares would happen in order to meet with the loan requirements of the company. It was reiterated in the reply that all that KIL would do under such circumstances, was to enter into normal financial transactions with the sole objective of meeting the financial needs of SIL. It was mentioned that in their reply to the show cause notice that KIL was an independent company with its own Board of Directors and SIL was also run by the Board of Directors as an independent legal entity. The appellant in its reply stated that Sourabh Bora was a financial intermediary who was arranging the finance for SIL and it had a running account with KIL in its normal course of business. It was submitted in the reply that all transactions with brokers including Sourabh Bora were financial transactions and no attempt was made by KIL to create artificial volumes in the market. It denied that there was any transfer of funds from SIL to KIL and to brokers. It was reiterated that these transactions were done during the normal course of business. On the basis of these submissions KIL requested that the proceedings should be dropped against it and KIL also requested for personal hearing which was granted to it and the hearing could take place only on 17th September, 2003.
6. On 3rd December, 2003 the Whole Time Member of SEBI issued the impugned order against which the appeal has been filed. The impugned order confirmed the charges in the show cause notice and passed an order which reads as under:
“30. In view of the above and in exercise of the powers conferred on me under Section 19 of the Securities and Exchange Board of India Act, 1992, read with Sections 11 and 11B of the SEBI Act, 1992, and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, I hereby restrain Kosha Investments Limited from buying, selling, or dealing in securities in any manner, directly or indirectly for a period of two years.”
7. The learned counsel for the appellant referred to the appeal filed by the appellant and also the submission made by the appellant in response to the show cause notice. The learned counsel submitted that the order has been passed on some surmises, conjectures and suspicion. He pointed out that the appellant in terms of the Memorandum of Articles of Association was empowered to inter alia, invest, hold, sell and deal with shares, stocks, bonds, etc., carry on the business of an investment company, and to buy, underwrite sub-underwrite, invest in and acquire and hold shares, stock, etc. Therefore, it was a legitimate activity on the part of the appellant to buy and sell shares including SIL. The learned counsel for the appellant argued that the appellant company was trading in the shares of not only SIL but of other companies also. He also pointed out that this period of June, to August, 1999 has been taken out of context whereas the appellant company had been purchasing and selling the shares of SIL from much earlier period. Moreover, these transactions have to be seen as only financial transactions. The appellant did not act in concert with a common set of clients through select brokers of the BSE and NSE and were not involved in circular trading in the scrip of SIL. It did not push up the price of the SIL scrip to artificial levels. The learned counsel stated that the increase in the price of SIL could be because of several independent reasons; the market was buoyant during this period as would be reflected by the indices of BSE and NSE; more over during this period SIL announced its plan to double its turnover by increasing its manufacturing facilities and also registered an increase of 175% net profit; therefore the respondent should not have come to the conclusion that the increase in the price of the scrip was due to any manipulation. The learned counsel for the appellant argued that there was no conclusive evidence to prove that the appellant was responsible for the spurt in volumes and increase in the price of scrip of SIL. There was no evidence to corroborate that the appellant in concert with the other entities was responsible for increasing the volume of trade and raising the price of SIL scrip. All transactions entered into by KIL were financial transactions between the appellant and SIL and other brokers involved during the investigation period. The learned counsel for the appellant further argued that there was no evidence to establish the intentions of the appellant that it had indulged in artificially raising the price of the scrip and increasing the volume in conjunction with other persons / brokers. He further argued that if anybody has to be charged under SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 it should not be done on the basis of preponderance of probability, but there has to be direct evidence to prove. The learned counsel for the appellant argued that the respondent has wrongly restrained the appellant from dealing in securities for a period of two years in exercise of the powers conferred on him under Section 19 of the SEBI Act, 1992 read with Sections 11 and 11B of SEBI Act, 1992 and Regulations 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market), Regulations, 2003.
8. The learned counsel further argued that the appellant had been only arranging funds by way of term loan, bridge loan, ICD, etc., and furnishing the shares of SIL as collateral security in respect of such borrowings, and whenever the aforesaid loans became due for repayment, the borrowing company would request the lender to liquidate either the whole or part of the loan by selling the mortgaged shares that were placed as collateral security after obtaining the consent of the appellant i.e., the pledger in this case. He argued that such transactions were in the nature of ongoing transactions and there was no intention to increase the volume of transactions and artificially raise the share price of SIL through circular trading. He argued that it was wrong to interpret that transactions between various brokers named in the impugned order and the appellant were unfair or unjust.
9. The learned counsel for the appellant further argued that perhaps the respondent had relied on four transactions carried out in NSE in respect of the SIL scrip i.e., Settlement No. 26, 27, 28 and 29 to conclude that the appellant was boosting the volumes of the scrip. He further argued that neither the entire data for the year had been presented nor the data from other exchanges has been presented. The learned counsel argued that there could not be any hard and fast rules for investing in the stock market. If volume on a particular day is low as compared to other day it might not indicate any specific reason. The volumes are not predictable as transactions are also not predictable. The learned counsel argued that the appellant having the bank account in the same bank along with Sourabh Bora and others would not lead to the conclusion that they were acting in concert. There was no legal bar or prohibition by law to open bank account at the same branch of the bank. The learned counsel further submitted that the appellant had already stated in his submissions to the respondent that these were only financial transactions between the appellant and Mr. Sourabh Bora.
10. The learned Counsel argued that the appellant was both in the purchase and sale of the securities and at any point of time only the net increase in the share holdings should be taken into account. He stated that the appellant on 31/03/1999 held 31,84,228 shares in the paid up capital of SIL including shares pledged by the appellant with various parties for loans / advance, however, the share holding pattern of SIL as on 31st March, 1999 showed the appellant’s holding of 21,32,900 shares only. He said it was not correct that the appellant acquired 11,36,700 shares during the period under investigation. It was stated that all these shares were bought by the appellant from the open market which originally belonged to the appellant but had been pledged due to financial transactions; the learned counsel argued that the entire basis of respondent’s case against the appellant was based on preponderance of probabilities; the respondent has not been able to establish any nexus between the appellant and the other entities for the alleged manipulation of the price of the scrip and therefore the impugned order should be set aside.
11. Shri Kumar Desai, learned counsel argued on behalf of the respondent that the period from June, to August, 1999 had been taken because of the unusual spurt in the price of the scrip and of the volume of SIL, because of which investigation was carried out by the NSE. He said that it was an admitted fact that the appellant was the Indian promoter of SIL. He said that from the records collected by SEBI from NSE and BSE and from other brokers it has come out that the appellant was one of the main ultimate clients who had heavily traded in the scrip of SIL during the period under investigation. The learned counsel for the respondent submitted that the records pointed out that the appellant enrolled itself as a common client to the brokers / sub-brokers of BSE and NSE and heavily traded “both bought and sold in the scrip of SIL”. Because of this heavy trading the price of SIL got pushed up from Rs. 52/- to Rs. 128/-. The learned counsel for the respondent pointed out that the appellant traded through other brokers / during the period from April, 1999 to March, 2000 as borne out from the data annexed to the show cause notice which reads as under:
“KIL TRADES THROUGH D.J.LAWYER
Period From 01/04/1999 to 31/03/2000
|
Sl. No
|
Date
|
Bill No.
|
Quantity
|
Remarks
|
|
Purchase
|
Sale
|
Balance
|
|
1.
|
24/05/99
|
K/001
|
|
10,700
|
-10,700
|
|
|
2.
|
24/05/99
|
K/002
|
|
39,300
|
-50,000
|
|
|
|
May-1999 Total
|
|
50,000
|
-50,000
|
|
“KIL TRADES THROUGH FORTUNE
“Period From 01/04/1999 to 31/03/2000
|
|
|
Bill No.
|
Quantity
|
Remarks
|
|
Sl. No
|
Date
|
|
Purchase
|
Sale
|
Balance
|
|
|
1.
|
24/05/99
|
K/003
|
|
21,000
|
-21,000
|
|
|
|
May-1999 Total
|
|
21,000
|
|
|
“KIL TRADES THROUGH MAHARASHTRA APEX
Period From 01/04/1999 to 31/03/2000
|
Sl. No
|
Date
|
Bill No.
|
Quantity
|
Remarks
|
|
Purchase
|
Sale
|
Balance
|
|
1.
|
24/05/99
|
K/004
|
|
26,700
|
-26,700
|
|
|
|
May-1999 Total
|
|
26,700
|
-26,700
|
|
“KIL TRADES THROUGH SOURABH BORA
Period From 01/04/1999 to 31/03/2000
|
Sl. No
|
Date
|
Bill No.
|
Quantity
|
Remarks
|
|
Purchase
|
Sale
|
Balance
|
|
1.
|
07/07/99
|
K/005
|
|
200,000
|
-200,000
|
|
|
2.
|
07/07/99
|
K/006
|
|
45,000
|
-445,000
|
|
|
3.
|
10/07/99
|
K/007
|
|
50,000
|
-340,000
|
|
|
4.
|
24/07/99
|
K/008
|
|
50,000
|
-395,000
|
|
|
5.
|
28/07/99
|
K/009
|
|
100,000
|
-495,000
|
|
|
6.
|
28/07/99
|
K/025
|
|
50,000
|
-595,000
|
|
|
7.
|
30/07/99
|
K/010
|
|
40,000
|
-585,000
|
|
|
8.
|
31/07/99
|
K/011
|
|
10,000
|
-585,000
|
|
|
|
July-1999 Total
|
|
545,000
|
|
|
|
9.
|
03/08/99
|
K/012
|
|
100,000
|
-685,000
|
|
|
10.
|
04/08/99
|
K/013
|
|
25,000
|
-710,000
|
|
|
11.
|
06/08/99
|
K/014
|
|
50,000
|
-760,000
|
|
|
12.
|
11/08/99
|
K/015
|
|
25,000
|
-785,000
|
|
|
13.
|
11/08/99
|
K/016
|
|
25,000
|
-810,000
|
|
|
14.
|
17/08/99
|
K/017
|
|
25,000
|
-835,000
|
|
|
15.
|
25/08/99
|
K/019
|
|
120,000
|
-955,000
|
|
|
16.
|
28/08/99
|
K/018
|
|
48,000
|
-1,003,000
|
|
|
|
Aug-1999 Total
|
|
418,000
|
|
|
|
17.
|
07/09/99
|
K/020
|
|
47,000
|
-1,050,000
|
|
|
18.
|
20/09/99
|
K/021
|
|
47,000
|
-1,097,000
|
|
|
19.
|
23/09/99
|
K/022
|
|
60,000
|
1,157,000
|
|
|
|
Sept-1999 Total
|
|
154,000
|
|
|
|
20.
|
11/10/99
|
K/023
|
|
110,000
|
-1,267,000
|
|
|
21.
|
26/10/99
|
K/024
|
|
150,000
|
-1,417,000
|
|
|
|
Oct-1999 Total
|
|
260,000
|
|
|
|
21
|
Grand Total 1999-00
|
|
1,377,000
|
-1,377,000
|
|
| |
|
|
|
|
|
|
|
“KIL TRADING THROUGH - ZEAL
Period From 01/04/1999 to 31/03/2000
|
Sl. No
|
Date
|
Bill No.
|
Quantity
|
Remarks
|
|
Purchase
|
Sale
|
Balance
|
|
1.
|
03/09/99
|
GA/24
|
|
1,000
|
1,000
|
|
|
2.
|
18/09/99
|
GA/26
|
|
200
|
1,200
|
|
|
|
Sept-1999 Total
|
|
1,200
|
|
|
|
3.
|
23/10/99
|
GA/31
|
|
6000
|
1,800
|
|
|
4.
|
30/10/99
|
GA/32
|
|
3,600
|
5,400
|
|
|
|
Oct-1999 Total
|
|
4,200
|
|
|
|
5.
|
11/12/99
|
GA/38
|
|
100
|
5,500
|
|
|
21
|
Grand Total 1999-00
|
|
5,500
|
|
|
12. The learned counsel for the respondent further argued that the day when the appellant traded in the scrip it increased the market volume drastically which is reflected in the data as given below:
|
Exchange
|
Date
|
Volume
|
Whether KIL Participated
|
|
NSE
|
08/06/99
|
100
|
No
|
|
|
09/06/99
|
50,400
|
Yes
|
|
NSE
|
10/06/99
|
1,300
|
No
|
|
|
11/06/99
|
50,200
|
Yes
|
|
NSE
|
23/06/99
|
1,000
|
No
|
|
|
24/06/99
|
1,00,100
|
Yes
|
|
BSE
|
30/06/99
|
2,400
|
No
|
|
|
01/07/99
|
1,17,600
|
Yes
|
|
BSE
|
02/07/99
|
11,400
|
No
|
|
|
05/07/99
|
1,60,600
|
Yes
|
|
BSE
|
16/07/99
|
17,000
|
No
|
|
|
17/07/99
|
1,58,700
|
Yes
|
13. The learned counsel for the respondent further pointed out that the records indicated that the appellant accounted for 99% of the shares of the total market activity on gross basis in Settlement No. 26 of NSE; 82% in Settlement No.27 of NSE, 97% in Settlement No. 28 of NSE and 30% in Settlement in Settlement No.29 of NSE. More over at NSE, KIL, the appellant was a common client dealing in the scrip through Indraprastha Holdings Limited, Kasat Securities Limited and Triveni Management Consultancy Services Limited.
14. The learned counsel of the respondent submitted that the appellant was a common client with Kasat Securities Limited and Indraprastha Holdings Limited. The trades were carried out through them as shown below:
|
Name of Client
|
Trading Member
|
Settlement No.
|
Buy
|
Sell
|
|
KIL
|
Indraprastha Holdings Ltd.
|
1999026
|
65000
|
65000
|
|
KIL
|
Kasat Securities Ltd.
|
1999026
|
0
|
50000
|
|
KIL
|
Indraprastha Holdings Ltd.
|
1999027
|
60000
|
0
|
|
KIL
|
Kasat Securities Ltd.
|
1999027
|
0
|
100000
|
|
KIL
|
Indraprastha Holdings Ltd.
|
1999028
|
76900
|
0
|
|
KIL
|
Kasat Securities Ltd.
|
1999028
|
0
|
125000
|
|
KIL
|
Indraprastha Holdings Ltd.
|
1999029
|
50000
|
0
|
|
KIL
|
Kasat Securities Ltd.
|
1999029
|
0
|
100000
|
15. According to the learned counsel of the respondent from the above it is clear that KIL had executed both buy and sell orders through different broking members in the same settlement. Obviously these were structured transactions. Even the timings of the orders confirmed that these were structured and matching transactions as given below:
|
Order Date
|
Order Time
|
Order No.
|
B/S
|
TM Name
|
Client Code
|
Disclosed Quantity
|
Total Volume
|
Price
|
Trade No.
|
|
19990701
|
10:02:40
|
19990701 0007920
|
S
|
Kasat
|
Kosha
|
2500
|
25000
|
52/-
|
5538
|
|
19990701
|
10:06:45
|
19990701 0020801
|
B
|
Indraprastha
|
Kosha
|
0
|
25000
|
52/-
|
5538
|
|
19990701
|
10:08:58
|
19990701 0027353
|
S
|
Kasat
|
Kosha
|
2500
|
25000
|
52/-
|
9430
|
|
19990701
|
10:10:19
|
19990701 0031406
|
B
|
Indraprastha
|
Kosha
|
0
|
25000
|
52/-
|
9430
|
|
19990714
|
11:54:28
|
19990701 40292012
|
S
|
Kasat
|
Kosha
|
2500
|
25000
|
59/-
|
170526
|
|
19990714
|
11:55:57
|
19990701 0294821
|
B
|
Indraprastha
|
Kosha
|
2500
|
25000
|
59/-
|
170526
|
|
19990714
|
11:56:43
|
19990701 0296410
|
S
|
Kasat
|
Kosha
|
0
|
25000
|
59/3
|
172001
|
|
19990714
|
11:57:06
|
19990701 0297184
|
B
|
Indraprastha
|
Kosha
|
0
|
25000
|
59/3
|
172001
|
16. It is the contention of the respondent that the above data clearly revealed that opposite orders were placed by different trading members (TMs) for the same client, even the time of the orders confirmed that these were structured transactions. The transactions of the appellant “buy” matched with the “sale” orders of Bishwanath Murlidhar Jhujhunwala of NSE as given below:
|
Settlement No.
|
Buying Broker
|
Client
|
Quantity
|
Selling Broker
|
|
28
|
Kasat
|
KIL
|
50,000
|
Nariman Finvest
|
|
29
|
Kasat
|
KIL
|
50,000
|
Nariman Finvest
|
|
29
|
Nariman Finvest
|
KIL
|
50,000
|
Triveni Management
|
17. The learned counsel for the respondent submitted that there were several transactions in which the appellant was the ultimate client on both sides i.e., on one side the brokers were buying the shares on behalf of the appellant and on the other side the counter party brokers were selling the shares on behalf of the appellant. He further argued that on an examination of the bank account of the appellant and Mr. Sourabh Bora and others it was revealed that there were frequent flows of funds between the said entities and accounts were maintained in the same branch of the bank at Oman International Bank at Nariman Point, Global Trust Bank at Nariman Point and United Western Bank Limited, Fort Branch. He pointed that the transfer of funds from the respective bank account of the entities revealed that money received by the appellant from SIL was subsequently paid to the brokers for the purchase of shares of SIL. The learned counsel further pointed out the following details given in the impugned order:
|
Date ‘99
|
Cheque No.
|
Amount
|
Particulars
|
|
Jun 1
|
-
|
12,00,000
|
Paid to KIL
|
|
Jun 1
|
|
12,00,000
|
Paid by KIL to Bishwanath (net pur pos)
|
|
June 3
|
|
20,00,000
|
Paid to KIL
|
|
June 3
|
P/O
|
28,00,000
|
Paid by KIL to Bishwanath
|
|
June 9
|
|
5,00,000
|
Paid to KIL
|
|
June 9
|
597575 597536
|
3,98,000
|
Paid by KIL to Bishwanath
|
|
June 18
|
|
3,00,000
|
Paid to KIL
|
|
June 18
|
597589
|
2,53,000
|
Paid by KIL to Bishwanath
|
|
June 22
|
|
4,00,000
|
Paid to KIL
|
|
June 22
|
597596
|
2,36,000
|
Paid by KIL to Indraprastha
|
|
June 23
|
600972
|
1,82,000
|
Paid by KIL to Bishwanath
|
|
Jul 1
|
|
47,00,000
|
Paid to KIL (GTB NP)
|
|
Jul 1
|
341625
|
20,00,000
|
Paid by KIL to M J Patel
|
|
Jul 1
|
341622
|
15,00,000
|
Paid by KIL to M J Patel
|
|
Jul 1
|
341624
|
15,00,000
|
Paid by KIL to Bishwanath
|
|
Jul 5
|
|
25,00,000
|
Paid to KIL (GTB NP)
|
|
Jul 5
|
341629
|
20,00,000
|
Paid to KIL to Indraprastha
|
|
Jul 5
|
341627
|
5,00,000
|
Paid by KIL to M J Patel
|
|
Oct 1
|
|
25,00,000
|
Paid to KIL
|
|
Oct 1
|
|
20,00,000
|
Paid by KIL to Indraprastha
|
|
Oct 1
|
|
5,00,000
|
Paid by KIL to M J Patel
|
18. The learned counsel for the respondent submitted that these funds were utilised to acquire shares of SIL from the open market which was reflected in the trading details of the appellant and other entities. The learned counsel further argued that the transactions involved between the appellant and other entities were matching transactions and were done in a concerted manner to raise the price of the scrip or maintain the price of the scrip. He also pointed out that during the period under investigation the appellant in concert with others had acquired 11,36,700 shares constituting 10.8% of the paid up capital when it already had 20.29% of the paid up capital as on 31/03/1999.
19. It had been submitted by the learned counsel for the appellant that the appellant had repurchased the shares from the market which it pledged earlier.
20. The learned counsel for the respondent submitted that in the absence of any record of pledging of shares it could not be taken that these purchases were mere re-purchases of the pledged shares. In fact all these purchases were made from the open market operations and were therefore to be taken as market deliveries.
21. The learned counsel for the respondent also relied on the following judgments of the Supreme Court:
i) Commissioner of Income-tax, West Bengal V. East Coast Commercial Co. Ltd. AIR 1967 SC 768, wherein the Supreme Court referred other judgments to come to its conclusion:
But in Commissioner of Income-tax, Bombay City-I v. Jubilee Mills Ltd. ([1963] Supp. 1 S.C.R. 83-48 I.T.R. 9.) this Court held that no direct evidence of overt act or concert between the members of the group having control over voting was necessary to prove that the Company was not one in which the public were substantially interested. It was observed in Raghuvanshi Mills' case ([1961] 2 S.C.R. 978.) that "in deciding if there is such a controlling interest, there is no formula applicable to all cases. Relationship and position as director are not by themselves decisive. If relatives act, not freely, but with others, they cannot be said to belong to that body, which is described as 'public' in the Explanation." In Jubilee Mills' case ([1963] Supp. 1 S.C.R. 83-48 I.T.R. 9.) this Court elaborated those observations and stated :
"The test is not whether they have actually acted in concert but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts."
On an analysis of the reasons recorded by the Tribunal and the High Court, it is clear that the Tribunal held that the Kedias did not form a controlling group because there was no evidence that they actually controlled the voting, even though they held more than seventy-five per cent of the shares issued by the Company : the High Court observed that the members of the Kedia family held 4,015 shares of the Company and were in a position to control the affairs of the Company, but there was no evidence to show that they did in fact act in concert and controlled the affairs of the Company as a block. But, as already observed, if the members of the Kedia family formed a block and held more than seventy-five per cent of the voting power, it was not necessary to prove that they actually exercised controlling interest. It is the holding in the aggregate of a majority of the shares issued by a person or persons acting in concert in relation to the affairs of the Company which establishes the existence of a block. It is sufficient, if having regard to their relation etc., their conduct, and their common interest, that it may be inferred that they must be acting together: evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon.
ii) Director of Enforcement V. M/s. M.C.T.M. Corporation Pvt. Ltd.& Ors. AIR 1996 SC 1100 where it says
“7. "Mens rea" is a state of mind. Under the criminal law, mens rea is considered as the "guilty intention" and unless it is found that the 'accused' had the guilty intention to commit the 'crime' he cannot be held 'guilty' of committing the crime. An 'offence' under Criminal Procedure Code and the General Clauses Act, 1897 is defined as any act or omission "made punishable by any law of the time being in force". The proceedings under Section 23(1)(a) of FERA, 1947 are 'adjudicatory' in nature and character and are not "criminal proceedings". The officers of the Enforcement Directorate and other administrative authorities are expressly empowered by the Act to 'adjudicate' only. Indeed they have to act 'judicially' and follow the rules of natural justice to the extent applicable but, they are not 'Judges' of the "Criminal Courts" trying an 'accused' for commission of an offence, as understood in the general context. They perform quasi-judicial functions and do not act as 'courts' but only as 'administrators' and 'adjudicators'. In the proceedings before them, they do not try 'an accused' for commission of "any crime" (not merely an offence) but determine the liability of the contravenor for the breach of his 'obligations' imposed under the Act. They impose 'penalty' for the breach of the "civil obligations" laid down under the Act and not impose any 'sentence' for the commission of an offence. The expression 'penalty' is a word of wide significance. Sometimes, it means recovery of an amount as a penal measure even in civil proceedings. An exaction which is not compensatory in character is also termed as a 'penalty. When penalty is imposed by an adjudicating officer, it is done so in "adjudicatory proceedings" and not by way of fine as a result of 'prosecution' of an 'accused' for commission of an 'offence' in a criminal court. Therefore, merely because 'penalty' clause exists in Section 23(1)(a), the nature of the proceedings under that section is not changed from 'adjudicatory' to 'criminal' prosecution. An order made by an adjudicating authority under the Act is not that of conviction but of determination of the breach of the civil obligation by the offender.”
22. The learned counsel for the respondent also cited the order of the Tribunal in the case of Shri Bishwanath Murlidhar Jhunjhunwala, Appeal No. 107 of 2004, who is one of the entity involved in the above transactions wherein the Tribunal upheld the order passed by SEBI in an appeal relating to the above transactions. He therefore argued that in view of the above facts the impugned order should be upheld and the appeal should be dismissed.
23. Having heard the learned counsel for the appellant and learned counsel for the respondent, and after perusing all the documents pertaining to the impugned order and the submissions by the appellant we are of the opinion that there were no doubt that there was initial spurt in the price and volume of the scrip of SIL during June, 1999 to August, 1999 which increased from Rs. 55/- to Rs. 127/-. It is also a fact that the trading volume also increased substantially during this period. It is also admitted that the appellant is an Indian promoter of SIL and the appellant had been heavily trading in the shares of SIL. It is also admitted that the appellant was purchasing and selling shares of SIL before and after the period of investigation. It is admitted that the appellant has, in its Articles of Association, an authority to invest in stocks and shares. It is also confirmed from the record that the appellant was having a running account with SIL. On many occasions, even prior to the period of investigation, SIL had been borrowing and lending money to the appellant and there were financial transactions.
24. It has been observed from findings of investigations and the submissions from the learned counsel that the appellant was purchasing and selling shares of SIL along with other brokers. It is found that there were transactions where the appellant was both, the buyer as well as the seller in the same settlement, leading to the spurious trade. Matching and structured transactions led to increase the volume of the trade and to increase the price of the scrip. It also led to circular trading and also contributed to structured transactions.
25. It is found that that on many transactions the appellant was both the buyer and the seller. On one side the brokers were buying the shares on behalf of the appellant and on the other side the counter party brokers were selling the shares on behalf of the appellant. In most of these transactions it was seen that the buy rate and sell rate placed by the appellant was the same. It was also found that the bank accounts of persons working in concert with the appellant and the appellant were having the flow of funds, which revealed that funds were used for purchasing the shares of SIL. There were matching structured transactions with persons acting in concert with each other who were placing buy and sale orders to increase the price of the scrip and boosting the volume. The brokers were known to the Managing Director of the appellant as is mentioned in his deposition before SEBI.
26. In this view of the matter we uphold the impugned order. However, having regard to the fact that the spurt in the price and volume of the scrip pertains to the year 1999, we feel that there would not be any adverse impact on the market if we reduce the period of suspension from two years to the period that is already undergone from the date of the impugned order till the date of this order. Accordingly we reduce the period of suspension to the period already undergone i.e., from the date of the impugned order to till the date of this order. With this modification the impugned order is upheld. The appeal is disposed of accordingly.
27. No order as to costs.
|
(R.N.Bhardwaj)
Member
|
(C. Bhattacharya)
Member
|
Place: Mumbai
Date: 08/08/2005
*/as