IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 18 of 2006
|
Date
of Decision
|
10/05/2006
|
|
|
|
|
Bhoruka
Financial Services Ltd.
|
�..Appellant
|
|
Versus
|
|
|
Securities & Exchange Board of India
|
�.Respondent
|
|
|
|
|
|
|
Mr.
D.J. Khambatta, Sr. Advocate with Mr. Ajay Bahl, Advocate, Mr. Mihir Rale,� Advocate and Mr. Paras Parekh, Advocate for
the appellant.
Mr.
Rafique Dada, Senior Advocate with Mr. Kumar Desai, Advocate for the
Respondent.
CORAM
��������� Justice
N.K. Sodhi, Presiding Officer
��������� C.
Bhattacharya, Member
��������� R.N.
Bhardwaj, Member
���������
Per:��� Justice N.K. Sodhi, Presiding Officer
This order
will dispose of a bunch of 12 appeals filed under Section 15T of the Securities
and Exchange Board of India Act, 1992 (for short �the Act�) all of which are
directed against the interim order dated December 6, 2005 passed by the whole time
member of the Securities and Exchange Board of India (for short �the Board�)
restraining the appellant DLF Commercial Developers Limited (for short �DLF�)
from dealing in the scrip of Bhoruka Financial Services Limited (hereinafter
called �BFSL�). Promoters of BFSL who sold their shares to DLF have also been
directed to deposit the sale proceeds in an escrow account with a nationalised
bank and not to deal with the said amount without the prior approval of the
Board.� They too have come up in separate
appeals.� Some directions have been
issued to the Magadh Stock Exchange and its officiating executive Director has
been placed under suspension. We are not concerned in these appeals with the exchange
or with its executive Director as they have not challenged the order before
us.� Since all the appeals raise common
questions of law and fact, they are being disposed of together by a common
order.
2.
Facts
giving rise to these appeals in so far as they are relevant may first be stated.
3.
It
came to the notice of the Board that trading on the platform of the Magadh
Stock Exchange at Patna (for short the �exchange�) had been conducted in
violation of the conditions of renewal of recognition granted to that
exchange.� On scrutiny of the details of
the trading, it transpired that trading was concentrated mainly in the scrip of
BFSL. DLF was the buyer of the shares of BFSL and the sellers were the
promoters of� BFSL, namely, Shri
Satyanarayan Agrawal, Shri Vivek Agrawal, Smt. Umah Agrawal, Shri Siddhartha Agrawal,
Satyanarayan Vivek Kumar HUF, Prabhu Securities Ltd., Bhoruka Engineering Ind.
Ltd., Pragya Enterprises and its partners (hereinafter collectively referred to
as the �sellers�). It also transpired that the shares had been sold
approximately for a sum of ���������Rs.
109.71 crores in just 10 trading days. It appears that the Board further scrutinised
the trading history of the shares of BFSL which were listed on the Bangalore
Stock Exchange and found that the said shares were illiquid and were last
traded in the year 1988. It is common case of the parties that DLF acquired
98.73% of the shares of BFSL from the sellers by executing the transactions on
the exchange where the shares had not been listed but were allowed to be traded
in permitted category using the services of a broker of that exchange.� It is relevant to mention here that when DLF
agreed to purchase almost the entire share capital of BFSL, the provisions of
the Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997 (for short �takeover code�) got triggered and it
filed an application before the Board seeking exemption from the takeover code under
clause (1) of Regulation 3 of the said code and the said exemption was granted
on 29/06/2005. It was thereafter that the shares were transferred through the exchange
in the month of August 2005. It appears that the Board felt that the
transactions were not above board since the shares of BFSL were listed on the
Bangalore Stock Exchange where they were not traded and that the trade took
place at the exchange at Patna which permitted the trading in contravention of
the conditions of renewal of recognition granted to it. The Board thought that
the matter was of imminent urgency and that there was need to safeguard the
integrity of the securities market. By an ex-parte order dated 19/08/2005 DLF
was prohibited from dealing in the scrip of BFSL and the sellers were directed
to deposit the proceeds of the sale transactions in an escrow account with a
nationalised bank. It was observed in the order that �any person aggrieved by
this interim ex-parte order may approach SEBI within 30 days of this order
showing cause for reconsideration of the directions�. It is not in dispute that
after the passing of this ex-parte order, DLF and the sellers filed their
objections before the Board stating that for the reasons stated therein the
restraint order was not called for.� On
receipt of the objections filed by the parties and after looking into the
matter the Board by its order dated December 5, 2005 ordered investigations
into the affairs of the alleged illegal trading conducted on the exchange
between August 1 and August 12, 2005. After ordering the investigations, the Board
by its order dated December 6, 2005 and after affording an opportunity of
hearing to the appellants and others directed that the ex-parte interim order
dated August 19, 2005 shall remain in force till further orders which the Board
may pass on the conclusion of the investigations which were ordered on December
5, 2005.� It is against this order that
the present appeals have been filed.
4.
We
have heard the learned senior counsel for the parties.
5.
The
learned senior counsel appearing for DLF strenuously urged that while the
investigations as ordered by the Board have yet to commence (because DLF has
not received any notice from the Board since December 5, 2005), the Board by
its impugned order has recorded the findings on all the issues against the
appellant thereby prejudicing its cause at the threshold of the proceedings. It
was vehemently argued that while the Board has yet to investigate the matter
and that it is in the process of collecting material regarding the alleged
illegal trading in the scrips of BFSL, it could not record any finding on the
merits of the issues as that would amount to prejudging the cause. He
challenged on merits the findings on each issue as recorded by the Board in the
impugned order and contended that the findings are against the record and could
not be sustained.� He, however, had no
objection to the direction issued by the Board restraining DLF from
transferring the shares during the pendency of the investigations. The learned
senior counsel appearing for the sellers who are also appellants before us
submitted that the ex-parte restraint order dated August 19, 2005 passed by the
Board was without jurisdiction since on that day no investigation / enquiry was
pending in the matter and therefore no such order could be passed in view of
the provisions of Section 11(4) of the Act.�
He referred to Section 11 and other relevant provisions of the Act in
support of his contention.� He also
supported the contention raised� on
behalf of DLF that the Board was not justified in recording its findings on the
issues that will eventually arise after investigations are over and that the
Board has pre-judged those issues at the initial stage.� Shri Rafique Dada, learned senior counsel
appearing for the Board while supporting the impugned order argued that the
Board was justified in recording its reasons for passing an interim order and
that the findings were only prima facie and interim pending final
investigations and that the appellants are not prejudiced in any way as they
would have ample opportunity to place their view points and the material that
they claim to possess before the Board during the course of investigations. He
further contended that all the material that the Board may collect will be
evaluated independently and with an open mind and then an appropriate order
would be passed.� He argued that the
Tribunal in appeal should not interfere with the interim order at this stage
and that the Board should be left free to carry on its investigations.� He forcefully contended that even prior to
the introduction of Section 11(4) of the Act, the Board had power to issue
interim directions with a view to protect the interests of the investors and to
protect the integrity of the market. He referred to some decisions of the
Courts to contend that the courts had upheld the power of the Board to issue
interim directions where there was imminent danger of the securities market
being manipulated. In the alternative he also contended that in any case the
impugned order was passed on December 6, 2005 after the investigations had been
ordered on the previous day.�
6.
We
have given our thoughtful consideration to the rival contentions of the parties
and are of the view that the following questions arise for determination.
a.
Whether
the Board could �issue interim directions
in terms of sub-section (4) of Section 11 before any investigation or enquiry
is ordered in the matter;
b.
Whether
the Board was justified in recording its findings on different issues even
before the investigations as ordered on December 5, 2005 are yet to commence.
c.
Whether
the impugned order is sustainable in law.
7.
Before
we take up the first question it is necessary to refer to the provisions of the
statute.� The Act has been enacted for
the establishment of the Board to protect the interests of the investors in
securities and to promote the development of and to regulate the securities
market. It is, therefore, the duty of this regulator to protect the integrity
of the market and to ensure that each player plays the game according to the
rules and no one is allowed to manipulate the market. The Board is established
under section 3 of the Act and section 11 deals with its functions and it
provides that it shall be the duty of the Board to protect the interest of the
investors and to promote and regulate the securities market. Sub-Section (2)
deals with the measures which it has to take in carrying out its functions. It
can also undertake inspection of records and documents, books of any listed
company on a recognised stock exchange. Section 11B gives power to the Board to
issue directions in the interest of the investors or orderly development of
securities market or to prevent the affairs of any intermediary from being
conducted in a manner detrimental to the interests of investors of securities market
or to secure proper management of any such intermediary. The directions
referred to in this section may be issued to any person or class of persons associated
with the securities market and also to any company in respect of matters
specified in Section 11A. By amending Act 59 of 2002 the Parliament added
clause (4) to Section 11 and also introduced Section 11C giving specific powers
to the Board to order investigations. Sub-Section (4) of Section 11 and the
relevant part of Section 11C in so far as it concerns us are reproduced
hereunder for facility of reference.
�11(4) Without
prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3)
and section 11B, the Board may, by an order, for reasons to be recorded in
writing, in the interests of investors or securities market, take any of the
following measures, either pending investigation or inquiry or on completion of
such investigation or inquiry, namely:�
(a)������ suspend the trading of any security in a
recognised stock exchange;
(b)������ restrain persons from accessing the
securities market and prohibit any person associated with securities market to
buy, sell or deal in securities;
(c)������ suspend any office-bearer of any stock
exchange or self-regulatory organisation from holding such position;
(d)������ impound and retain the proceeds or
securities in respect of any transaction which is under investigation;
(e)������ attach, after passing of an order on an
application made for approval by the Judicial Magistrate of the first class
having jurisdiction, for a period not exceeding one month, one or more bank
account or accounts of any intermediary or any person associated with the
securities market in any manner involved in violation of any of the provisions
of this Act, or the rules or the regulations made thereunder:
Provided ���..
(f)������� direct any intermediary or any person
associated with the securities market in any manner not to dispose of or
alienate an asset forming part of any transaction which is under investigation:
Provided that the Board may, without prejudice to the
provisions contained in sub-section (2) or sub-section (2A), take any of the
measures specified in clause (d) or clause (e) or clause (f), in
respect of any listed public company or a public company (not being
intermediaries referred to in section 12) which intends to get its securities
listed on any recognised stock exchange where the Board has reasonable grounds
to believe that such company has been indulging in insider trading or
fraudulent and unfair trade practices relating to securities market :
Provided
further that the Board shall, either
before or after passing such orders, give an opportunity of hearing to such
intermediaries or persons concerned.�
Section 11C
�11C. (1) Where the Board has reasonable ground to believe
that�
�(a)����� the transactions in securities are being
dealt with in a manner detrimental to the investors or the securities market;
or
(b)������ any intermediary or any person associated
with the securities market has violated any of the provisions of this Act or
the rules or the regulations made or directions issued by the Board thereunder,
it may, at any time
by order in writing, direct any person (hereafter in this section referred to
as the Investigating Authority) specified in the order to investigate the
affairs of such intermediary or persons associated with the securities market
and to report thereon to the Board.�
8.
Reference
to Section 11B of the Act will also become necessary and the same is also
reproduced hereunder for facility of reference.
�11B. 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
(iii)���� to secure the
proper management of any such intermediary or person,
it may issue such
directions,�
(a)������ to any person or
class of persons referred to in section 12, or associated with the securities
market; or
(b)������ 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.�
9.
A
reading of the aforesaid provisions leaves no room for doubt that the Board
while exercising its functions under the Act with a view to protect the
interest of the investors and also to protect the integrity of the market and without
prejudice to the provisions of sub-sections (1), (2A) & (3) of Section 11
and Section 11B can by an order, for reasons to be recorded in writing, take
any of the measures referred to in sub-section (4) and those measures can be
taken either pending investigations or enquiry or on completion of such
investigation or enquiry. One of the measures that it can take is to direct any
person associated with the securities market not to dispose of any asset
forming part of the transaction which is under investigation. In other words,
steps can be taken to protect the interest of the market either when the
investigation or enquiry is pending or on its completion. It would follow that
the Board is precluded from taking any steps / measures before ordering an
investigation or enquiry into the matter.�
Mr. Rafique Dada, learned senior counsel appearing for the Board
strenuously contended that if this interpretation was to be put on the language
of sub-section (4) of Section 11, the Board would be precluded from taking
immediate steps in case of an imminent urgency to prevent manipulation or any
other wrong doing in the market. He further submits that even prior to the
introduction of sub-section (4) in Section 11 the Board had the power under
Sections 11 and 11B to issue interim directions and such powers have not been
affected with the introduction of sub-section (4) of Section 11. We cannot
agree with the submissions made on behalf of the Board. There can be no doubt
that even prior to the introduction of sub-section (4) of Section 11 the Board had
the powers to issue interim directions in case of an emergency which could not
brook any delay. What was the nature and extent of that power is not really
relevant for us today when sub-section (4) of Section 11 has been specifically
introduced by Parliament by Act 59 of 2002 with effect from 29/10/2002. Whatever was the nature and extent of
power to issue interim orders/ directions which the Board was exercising prior
to 29/10/2002, the exercise of that power with effect from that date has been
circumscribed by the provisions of sub-section (4) of Section 11 and with
effect from the date this provision was introduced such power can be exercised
only in accordance therewith and not otherwise.�
It appears that prior to the introduction of sub-section (4) of Section
11 the Board was exercising powers to issue interim directions/orders and the
exercise of that power had been challenged in different courts and even though
the exercise of that power had been upheld, the Parliament thought that the provisions
of the Act were inadequate in this regard and in its wisdom introduced
sub-section (4) of Section 11 with effect from 29/10/2002. Since this provision
does not permit the Board to exercise the power to issue interim orders or
directions without first ordering an enquiry or investigation, we are clearly
of the view that the said power cannot be exercised unless an enquiry or an
investigation is pending.� This will not
denude the Board of its power to issue interim orders and directions in cases
of urgency.� When the Board receives a complaint
or otherwise has reason to believe that the securities market is being
manipulated or there is some other wrong doing which brooks no delay and that immediate
action needs to be taken by way of an interim order/direction it is open to it
to immediately order an enquiry or investigation in the matter which can always
be ordered ex-parte and simultaneously issue necessary directions in terms of
sub-section (4) of Section 11. It is not the requirement of Section 11C that
opportunity of hearing is to be afforded to any intermediary of the market
before ordering such investigation. The reason is obvious. Investigation by
itself does not adversely affect any person or intermediary and no civil
consequences flow from such an order.� If
the matter is not so urgent and the Board wants to find out whether or not it
is a fit case to order an enquiry or investigation it may issue notice to those
allegedly involved in the wrong doing and make up its mind thereafter. In that
event it will not be open to it to issue interim order/directions
instantaneously obviously because the matter is not urgent and investigations /
enquiry is yet to be ordered. The legislature has made its intention clear that
interim direction / order could be passed by the Board only �either pending
investigation or enquiry or on completion of such investigation or enquiry.�
Section 11(4) is an enabling provision and it is not necessary that the Board
should in every case pass an interim order / direction where an enquiry /
investigation has been ordered.� There
could be cases where the Board may order an enquiry / investigation and pass
final orders / directions only on its completion. This will depend upon the
nature and seriousness of the complaint received.� Shri Rafique Dada, learned senior counsel
appearing for the Board strenuously argued that when the Board learnt on 10th
August, 2005 about the illegal trading going on at the exchange, it looked into
the matter and made, what he calls, preliminary enquiries and, therefore, �it cannot be said that no enquiry was pending
when the ex-parte restraint order was passed on 19/08/2005. He laid great
emphasis on the use of the words �investigation or enquiry� as used in Section
11(4) and contended that these would include the preliminary investigations or
inquiry which the Board made on receipt of information. At the first flush the
argument looks attractive but when examined in detail we do not think that it
merits acceptance. The legislature has used two words � �investigation or
enquiry� and it is during the pendency of either of the two that the Board can
issue interim directions / orders. Let us take the �investigation� first. This
word has not been defined in the Act.�
Sub-section (4) of Section 11 in which it appears was introduced by the
Amending Act 59 of 2002 and by the same amending Act the Parliament inserted
Section 11C in the Act and gave powers to the Board which it did not possess
earlier to investigate the affairs of any intermediary or persons associated
with the securities market and ask for a report. The word �investigation� as it
finds mention in Section 11(4) obviously refers to the investigation in terms
of Section 11C as both these provisions were inserted simultaneously.� When we read this newly added provision it
becomes clear that where the Board has reasonable grounds to believe that the
securities market is being dealt with in a manner which is detrimental to the
investors or the securities market or any intermediary or person associated
with such market, it may at any time, by order in writing direct any person to
investigate the affairs of any intermediary or persons associated with the
securities market and submit a report. It is, thus, clear that investigation
can be made only by an order in writing and not otherwise.� In the instant case this order was passed
only on 05/12/2005. The so called preliminary investigations which the
Board made prior to 05/12/2005 were only meant to make up its mind
whether investigation was to be ordered or not. Whatever material the Board
might have collected during the preliminary investigations could be used by it
but it could not pass an interim order / direction prior to 05/12/2005 because no investigation was
pending.
10.
Let
us now see whether any enquiry was pending on 19/08/2005 when the interim order was passed. �The term �enquiry� has also not been given a
statutory meaning. However, in the year 1995 the Parliament amended the Act and
introduced Chapter VIA containing Sections 15A to 15J by Act 9 of 1995 with effect
from 25/01/1995. This Chapter provides for penalties and
adjudication.� Penalties can be levied
for various violations referred to in this Chapter and Section 15I requires
that before any penalty could be levied, the Board shall appoint an adjudicating
officer for holding an enquiry in the prescribed manner and give the person
concerned a reasonable opportunity of being heard. Apart from the provisions of
Chapter VIA, the Board as a regulator with a view to protect the interest of
the investors and the integrity of the securities market has framed a host of
Regulations for the violation of which it can take action and before it can
proceed against those who violate the Regulations it has to hold an enquiry in
accordance with the provisions of the Securities and Exchange Board of India
(Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty)
Regulations, 2002 (for short �the Regulations�). An enquiry under these
Regulations can be held for the purpose of passing an order for the contravention
of any of the provisions of the Regulations referred to in Regulation 4 of
these Regulations. It is, thus, clear that the Board can order an enquiry
either for the purpose of imposing a penalty under Chapter VIA of the Act for
which an adjudicating officer shall be appointed or it may order an enquiry
under the Regulations. The word enquiry referred to in Section 11(4) of the Act
refers to either of these two enquiries and it is during the pendency of such
an enquiry that Section 11(4) empowers the Board to pass an interim order /
directions. Since no enquiry was pending against any of the appellants in
August, 2005, the Board could not pass the interim order on August
19, 2005.� In the result, it has to be held that since
no investigation or enquiry was pending against the appellants in August, 2005
the interim order passed by the Board on 19/08/2005 was without jurisdiction.
11.
This
brings us to the impugned order passed by the Board on December
6, 2005. The
argument of the learned senior counsel for the Board is that the said order
cannot be said to be without jurisdiction even if we were to ignore the earlier
order dated August 19, 2005 because by then the investigations
into the alleged illegal trading on the platform of the exchange were pending.� There is considerable force in this argument.
There is no gainsaying the fact that on December 5, 2005 the Board had by an
order in writing ordered investigations into the trading that took place
between August 1 and 12, 2005 on the exchange at Patna. The Board had reason to
believe that during the pendency of the investigations it was necessary to
issue a restraint order and that the subject matter of the investigation should
be preserved.� With that object in view
it issued a direction restraining DLF from transferring its shares and also
directed the sellers to keep the sale proceeds in a separate escrow account
with a bank.� The Board had the power to
issue an interim order but whether such a direction should have been issued to
the sellers is a matter to which we shall advert later. What was contended by
the learned senior counsel for the appellants is that the order dated December
6, 2005 only confirms the earlier ex-parte order passed on August 19, 2005 and
that no fresh direction or order was issued on December 6, 2005 and since the
earlier order was without jurisdiction it was not open to the Board to confirm
an illegal order. We do not find any merit in this submission. It is true that
we have found that the order dated August 19, 2005 was without jurisdiction but that
does not mean that there was no such order in existence.� It is by now well settled that orders which
are illegal or without jurisdiction also need to be set aside by a competent
authority and cannot be treated as non est.�
In this view of the matter when the Board confirmed on December
6, 2005 its
earlier order dated August 19, 2005 it can safely be presumed that the
Board passed a fresh order on December 6, 2005 in the same terms and since by then
investigations had been ordered, the order would be within the competence of
the Board.� In the result, it has to be
held that the order dated December 6, 2005 was an order within the powers of
the Board.� The first question referred
to in the earlier part of our order stands answered accordingly.
12.
This
brings us to the next issue. It is not in dispute that the Board received some
information on telephone around August 10, 2005 that trading had taken place on the
platform of the exchange in contravention of the terms and conditions of its
renewal of recognition.� On receipt of
this information the Board was looking into the matter and since, according to
it there was great urgency as it wanted to stop the misuse of the platform of
the exchange, it issued the aforesaid directions by an ex-parte order dated August
19, 2005
which, we have already held, was beyond its powers.� It is common case of the parties that the
Board took almost 4 months to make up its mind that the matter required
detailed investigations and therefore by an order dated December 5, 2005 it
appointed an investigating officer to investigate the so called illegal trading
on the platform of the exchange. The learned senior counsel appearing for the
appellants inform us during the course of the hearing that their clients had
not received any notice in pursuance to this order passed by the Board which
fact could not be disputed by the learned senior counsel appearing for the
Board. We, therefore, presume that the investigations though ordered on 05/12/2005 have yet to commence.� In the meantime, the Board passed the
impugned order which is now under challenge before us.� Primary grievance of the appellants is that
the Board in the said order has recorded firm findings holding the appellants
guilty of various acts of omission and commission and that the investigation in
the matter is yet to proceed. It is contended that the Board is still in the
process of collecting evidence / material in regard to the so called illegal
trading that took place in August, 2005 on the exchange and even before the
investigations could commence the appellants have been found guilty of various
violations. According to the learned senior counsel the Board has adjudged the
issues which they raised before the Board in response to the order dated August
19, 2005.
Mr. Rafique Dada, the learned senior counsel appearing for the Board could not
dispute the fact that the Board is still in the process of carrying out the
investigations and that the materials and evidence in support of what has been
alleged is yet to be collected though, according to him, some of the materials
are already in possession of the Board. It is, thus, clear that the matter is
under investigation and the appellants and other intermediaries involved in the
transactions have yet to receive notices in pursuance to the order of
investigation passed by the Board.� Could
then the Board record firm findings on the issues raised before it on the basis
of the objections filed by the appellants. The answer to this question has to
be in the negative.
13.
We
have carefully gone through the impugned order which is a lengthy one. It is
admittedly an interim order issuing directions pending final investigations. On
a reading of the order we are satisfied that the Board has recorded firm
findings using strong language holding the appellants guilty of various
allegations levelled against them. The Board has found that the case set up by
DLF that it has been unnecessarily dragged in the controversy is not correct
and that in going about the transactions it acted in complicity with others.
The Board has further found that the legal maxim �res ipsa loquitur� is
applicable to the facts of the present case. If the facts speak for themselves,
nothing remains to be investigated. After referring to the judgment of the
Supreme Court in CIT v. D. Bhoormull
1983 (13) ELT 1546 (SC) dealing with the law relating to burden of proof, the
Board recorded the following findings in the impugned order:
�Applying the aforesaid observations made in criminal
proceedings, to the present quasi judicial proceedings which admittedly do not
require to prove the case with as much precision as is required in criminal
case, I, in the facts and circumstances of the case as discussed hereinabove,
am of the view that the assertion of DLF that they did not know anything and
agreed to trade in MSEA only on the insistence of the sellers is merely a
pretence which can not be brooked and in fact and accordingly hold that DLF
acted in cahoots with sellers, broker and OED of the exchange to execute the
illegal trades at MSEA with full knowledge.�
Again,
when dealing with the case of the sellers the Board recorded the following
findings.
�In view of the aforesaid I hold the sellers/erstwhile
promoters� conduct highly objectionable and one of obdurate defiance. By their
aforesaid conduct they have failed to comply with the directions of SEBI issued
vide interim orders dt. August 19, 2005 and August 24,
2005 and are
liable to be punished interalia under Section 15HB of the SEBI Act which provides
as under:�
14.
We
do not think that this was the proper stage for the Board to record such
findings. It was also unwise on its part. Since the matter is pending
investigation, it is possible that on its conclusion the Board may have
sufficient material with it on the basis of which whatever has now been said in
the interim order could be sustained. It is equally possible that the material
which the Board may collect may not be enough to substantiate those
allegations. When both the possibilities are there it was not proper for the
Board to record findings at this preliminary stage. It obviously amounts to
pre-judging the issues and may lead to the charge of bias.� The learned counsel appearing for the
appellants took us through the records of the case and strenuously urged that
there was enough material with them to show that each finding recorded by the
Board in the impugned order was unsustainable. We refrain from going into the
merits of the contentions raised before us because any observation made by us
may also pre-judge the issues which we are not inclined to do. We would be then
committing the same error which the Board has committed.
15.
In Colgate
Palmolive (India) Ltd. v. Hindustan Lever Ltd., 1999 (7) SCC 1, a complaint
was filed before the Monopolies and Trade Practices Commission which has the
power to investigate the same and pending investigations it has the power to
issue temporary injunctions under Section 12A of the Monopolies and Restricted
Trade Practices Act. Their Lordships noted the considerations which should
weigh in the matter of grant of interim orders in the following words:
�We, however, think it fit to note
herein below certain specific considerations in the matter of grant of
interlocutory injunction, the basic
being non-expression of opinion as to the merits of the matter by the court,
since the issue of grant of injunction, usually, is at the earliest possible
stage so far as the time-frame is concerned.� (emphasis supplied)
Again, in Smt. Indira Nehru Gandhi v. Shri Raj Narain and another, AIR 1975
S.C. 1590 their Lordships while dealing with the circumstances when an interim
order should be passed observed as under:
�Shri Palkhivala assailed, in his
opening submissions, the two findings recorded against the appellant holding
her guilty of corrupt practice. Indeed, he was at pains to convince me that his
client had a strong prima facie case on the merits, in the sense that the
judgment, on its face, was perverse and legally untenable. Although I listened
at some length to these arguments and, to an extent, to the counter-submissions
made by Shri Shanti Bhushan in his endeavour to establish that the holdings
were sound, I made it fairly clear in
the course of the hearing that at this stage when I was considering whether a
stay should be granted or not, it was premature and perhaps unwise to pronounce
on the merits of the appeal itself except���.� (emphasis supplied)
In view of the above, it is clear
that the Board should not have recorded findings on merits at this stage of the
proceedings.
16.
Shri
Rafique Dada, learned senior counsel appearing for the Board submitted that the
findings are prima facie subject to the final order which the Board may pass on
the conclusion of the investigations. We do not think that the findings
recorded in the impugned order are prima facie. As already stated they are firm
findings leaving no room for the appellants to urge to the contrary and that
they stand condemned.� Moreover, the
Board in the order does not state that the findings are prima facie though it
is stated that investigations are pending. All that the Board was required to
do at this stage while issuing interim directions was to record its reasons for
issuing such directions. It was not expected to record findings on the merits
of the issues that arise before it. The learned senior counsel appearing for
the Board contended that the Board had merely recorded reasons as was required
by sub-section (4) of Section 11 of the Act and therefore no fault could be
found with the impugned order.� We are
unable to accept this contention either.�
Recording of reasons as to why it was necessary to issue interim
directions is one thing and to record findings on the merits of the issues that
have been raised by the appellants is altogether different.� We do not think that the Board has recorded
reasons for issuing the interim directions. It has given its findings on merits
closing all the doors for the appellants to contend to the contrary.� This could not be done when investigations
are still pending and the appellants are yet to produce the material in their
possession to substantiate their pleas.�
The Board should have refrained from recording the findings and it was
only expected to record briefly its reasons why it was necessary to issue
interim directions / orders and that would have adequately met with the
requirements of sub-section (4) of Section 11 of the Act. In view of the firm
findings recorded by the Board, there is hardly anything which the Board has
left to record in its final order.� The
learned senior counsel for the appellants also contended that the Board has
selectively recorded findings on some of the issues raised in their objection
petitions and that no finding is recorded on one of the primary contentions
raised before it. It was argued that the appellants specifically pleaded before
the Board that the exchange is a recognized one and that even today it
continues to be shown as a recognized exchange on the website of the Board and,
therefore, the appellants did nothing wrong when they traded on its platform.
They also urged that the appellants could not have known that the exchange was
violating the terms on which its recognition had been renewed. The grievance of
the appellants is that no finding has been recorded on this material issue and
the impugned order is conspicuously silent in this regard. They were sanguine
that findings in this regard could not be recorded against them. It is not for
us to comment on this issue at this stage of the proceedings and we have no
doubt that the Board will examine these issues and record its findings when the
final order is passed. In view of what has been stated above we are constrained
to set aside the impugned order. �This,
however, does not mean that no interim orders / directions shall be issued.
Having regard to the facts and circumstances of the case we are one with the
Board that it is a fit case where DLF should be restrained from transferring
the shares which it has already acquired. The direction issued by the Board in
this regard shall, however, continue to operate till such time the Board passes
the final order on the conclusion of the investigations.� As regards the directions issued to the
sellers, �we are of the view that the
same need to be modified in the facts and circumstances of the case.� It is common ground between the parties that
the shares were transferred on different dates between August 1 and August
12, 2005 and
the sellers have received a sum of Rs. 108.87 crores.� Admittedly the ex-parte order was passed by
the Board on 19/08/2005 and it is the case of the sellers that by that time
they had spent good amount of the sale proceeds for the discharge of their
liabilities and that they were left with only a sum of Rs. 5.7 crores as on
28/08/2005 the date on which the said order was received by them.� Mr. M.P. Bharucha, learned senior counsel appearing
for the sellers stated during the course of arguments that his clients were
willing to keep this amount in an escrow account as they are not in possession
of any amount more than Rs. 5.7 crores.�
In the normal course we would have ordered the sellers to deposit the
entire sale proceeds in an escrow account pending final investigations but in
the facts and circumstances of this case we do not think that it is necessary
to issue such a direction. DLF has purchased almost 99% of the shares of BFSL
and the parties are agreed before us that only 26 shareholders are left in the
market and it is for this reason that the Board had granted exemption to DLF
from making a public announcement in terms of the takeover code.� It is also not in dispute that DLF has paid the
higher price of Rs. 4,490/- per share to the remaining 26 shareholders as
well.� It becomes obvious that all the
shareholders of the company were paid the higher price and none has
suffered.� Since BFSL has been taken over
by DLF, �the securities market does not
got affected. At the most, when the investigations conclude the Board could
declare the transactions to be illegal and in that event the transfer of shares
from the sellers to DLF may have to be reversed. If that were to happen
individual sellers will have to refund the amount to DLF and the latter will
have to return the shares to the sellers but the agreement between DLF and the
sellers will remain intact because the Board has no jurisdiction to declare
that agreement invalid and nothing has been pointed out to show as to how that
agreement could be challenged. The shares and the money will have to be swapped
between DLF and the sellers and no one will get affected -- neither the market
nor the investors and not even the Board. This being the position, we think the
ends of justice will be adequately met if the contention of Mr. M.P. Bharucha,
the learned senior counsel on behalf of the sellers� is accepted and a
direction issued to them to deposit whatever amount is lying with them (Rs. 5.7
crore) in an escrow account till such time the Board passes the final order in
accordance with law. �We order
accordingly.
17.
There
is yet another direction which the Board has issued in regard to the sellers.
Adjudication proceedings have been ordered against them for their
non-compliance of the directions issued by the ex-parte order dated August
19, 2005.
Since we have held that order to be beyond the powers of the Board and the same
is illegal, we do not think that adjudication proceedings should commence
against the sellers for the non-compliance of that order. That would result in
grave injustice to them.
18.
In
the result, the appeals are allowed, the impugned order in so far as it relates
to the appellants is set aside and interim directions as referred to herein
above shall issue pending investigations.�
We have no doubt that the Board shall at the conclusion of the
investigations evaluate independently all the material that it collects and pass
an appropriate order based on that material in accordance with law.� The Board is directed to conclude the
investigations expeditiously but not later than July 31,
2006. There
is no order as to costs.
sd/-
|
� Justice N.K. Sodhi
Presiding Officer
|
|
|
|
|
|
|
|
|
sd/-
|
|
|
C.Bhattacharya
|
|
|
��������� ���������������������������Member
|
|
|
|
|
|
|
|
|
sd/-
|
|
R.N.Bhardwaj
��������������������������������������������������������������������������������������������������������
Member
|
*/as
