IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.345/2004 In the matter
of:
Appeal No.346/2004 In the matter
of:
Coram: ��������� Justice Kumar Rajaratnam,
Presiding Officer ��������� C. Bhattacharya, Member ��������� R. N. Bhardwaj, Member 1.
The
appeals are taken up for final hearing with the consent of all the parties by a
common order as both the appellants challenge a common order of SEBI. 2.
Briefly
stated, the facts of the case are that DSQ Software Ltd., formerly known as
Square D Software Ltd., was a company engaged in Software business with its
registered office initially in Kolkata but later
shifted to Chennai.� Shri Dinesh Dalmia
and his group concerns were the main promoters of the company.� The Board of directors consisted of the
following persons apart from Shri Dinesh Dalmia as on i. Mohammed Ghulam
Ghouse ii. Brigadier (retd)
V. M. Sundaram iii. S. K. Bhatnagar
(deceased in 2001) iv. B. K. Pal v. J. Narayanamurthy
(IDBI Nominee) vi. K. M. Venkateswaran 3.
�A sharp fluctuation in the price of the scrip
of the company was noted during the period October, 1999 to March, 2001.� The price increased from Rs.250/- in October,
1999 to Rs.2631/- in March, 2000, but fell to Rs.150/- only in March,
2001.� The said movements in price were
also accompanied by very large volume on all the stock� exchanges i.e. BSE, NSE and Kolkatta� Stock
Exchange.� Investigations by SEBI
revealed serious irregularities in the allotment of shares by the company as
also in the dematerialization of shares so allotted and subsequent sale of such
shares by brokers and entities associated with the promoters of the
company.� The following are the main� findings of SEBI Investigation extracted in the
impugned order: Quote �(a) It is observed from the
listing application dated
However, the investigation revealed
that the company had allotted 1.30 crore shares to the following entities in
the year 2000 itself as given below.
In 2001, 40 lakh
shares were allotted in physical form as ���� given
below:
(b)����� The
shares allotted to New Vision Investment Ltd., UK, �������� Dinesh Dalmia, Trustee, Technology Trust & Dr. Suryanil Ghosh, Trustee, Softec Corporation were
subsequently ������ transferred/sold by
these entities in the market without ����� listing/
obtaining listing permission, at the stock exchanges.� It ������� was
revealed that around 52.12 lakh of shares were transferred ������ from these entities to DSQ Holding Ltd.,
around 15.25 lakh � shares were
transferred to Powerflow Holding & Trading P. Ltd., ��� around 3.75 Lakh shares were transferred to Hulda Properties ������ & Trades Ltd., and around 58.70 Lakh
shares transferred to ����� various
brokers� pool accounts and beneficiary accounts during ���� May 2000 to January 2001.� Unquote 4.������ During
the pendency of the Investigation on the unusual
fluctuation in price and volumes in the shares of the company which SEBI had
initiated by order dated 29/3/2001 the following Interim order was passed by
SEBI vide its order dated July 20, 2001. 1. ����� DSQ cancel
the acquisition of Fortuna Technologies being done on swap basis after
following the procedure laid down under the Companies Act. 2. DSQ be prohibited from accessing capital market for
a period of one year or completion of investigation and action thereupon
whichever is later. 3. Shri Dinesh Dalmia, Managing Director, of the
company be debarred from dealing in securities for a period of one year or completion
of investigation and action thereupon whichever is later.
Subsequently SEBI vide its order dated 5.������
The shares allotted to New Vision Investment Ltd, UK, Dinesh Dalmia,
Trustee, Technology Trust & Dr. Suryanil Ghosh, Trustee Softec
Corporation were
subsequently transferred/ sold by these entities in the market
without listing / obtaining listing permission, at the stock exchanges. It was
revealed that around 52.12 lakh of shares were transferred from these entities
to DSQ Holding Ltd, around 15.25 lakh shares were transferred to Powerflow
Holding & Trading P. Ltd., around 3.75 Lakh shares were transferred
to Hulda Properties & Trades Ltd., and around 58.70 lakh shares transferred
to various brokers� pool accounts and beneficiary accounts during May 2000 to
January 2001. 6.
On examination of the demat account of New Vision Investment U K, it was
revealed that all the 30,00,000 shares allotted to it in May 2000 were
sold by it till December 2000. It is noteworthy that that partly paid up shares
were dematerialized as fully paid up and sold in the market as "good
delivery", although at the time of the sale of the shares on the BSE /
NSE, the shares were not listed. 7.������ In
respect of 30 lakh shares allotted to New Vision Investment on 8.������ The
impugned order observes that on brought into the account by� transferring��
them �to the pool account of the
brokers by first transferring the shares to the account of group entities and
then selling them in to the market. 8.������ Investigations revealed
that out of the 1.3 crore shares
fraudulently allotted and dematted (30 lakh in May 2000, 70
lakh in October 2000 and 30 Lakh in December 2000), except for 18,000
shares in the account of Dr. Suryanil Ghosh Trustee Softec
Corporation, all other shares were transferred
and sold in the market. 9.
Subsequently, 40,00,000 shares were also
fraudulently allotted to New Vision Investment Ltd., New Delhi, in physical
form. Personal visit of SEBI official to the address No.207 Paras Apartments,
Madhu Vihar, Pratapganj, New Delhi, which was given in the demat account
opening form, revealed no evidence of any company existing at that address.
Investigations revealed that there was promoter-broker nexus between Shri
Dinesh Dalmia and the broker, Biyani Securities for the 10,00,000
shares. It was brought out that out of 40,00,000 shares, 10,00,000 shares were
given to broker � Biyani Sec in physical form for tiding over his payment
crisis and were then deposited by Biyani Sec with the Calcutta Stock Exchange.
The broker admitted that it spoke to Shri Dinesh Dalmia who said he would try
to help him and shares in the name of New Vision Investment Private Ltd. were
given to it. The balance 30 lakh shares were not traceable as New Vision
Investments Pvt. Ltd was not available at the registered address as stated
earlier. 10.���� It is alleged that Shri Dinesh Dalmia as
Managing Director himself had written to the Registrar, NSDL about the
allotment of these shares and applied for Demat credit.� A total of 1 crore shares which were allotted
to the two trusts viz. Dinesh Dalmia Technology Trust and Dr. Suryanil Ghosh
Trustee Softec Corporation also had Shri Dinesh Dalmia as one of the
trustees.� He had in fact opened the
demat account on behalf of these trusts and in these two names by entering into
agreement with the DPs signed the relevant demat account opening form with the
DPs etc. 11.���� In the background of the above facts the
impugned order lists the following violations by the company and Shri Dinesh
Dalmia. ��������� a The company did not
inform the said allotments of 1.30 crore shares to the stock exchange where its
shares have been listed when these shares were actually allotted and dematted
during year 2000 to the aforesaid entities. 30 lakh shares allotted to New
Vision Investment Ltd., UK on 20-05-2000 are partly paid (10% of allotment
money) and 90% of allotment money has not been paid. However these shares
were introduced into market as fully paid shares and without listing. There is
no evidence to suggest that the company received any consideration for
allotment of 60 lakh shares to Technology trust and 40 lakh shares to Softec
Corporation. However these shares were also introduced into market as fully
paid shares and without listing. b The
company vide letter dated c. Shri
Dinesh Dalmia, Managing Director of the company is the authorized signatory and
one of the trustees in both the above mentioned trusts viz. Technology Trust and Softec Corporation Trust. It was also
noted that none of the allottees are traceable in their given addresses. These
1.30 crore shares which were allotted by the company to various associated
entities as mentioned above were not listed on the stock exchanges.
However, the allottees offloaded the said shares through the trading system of
the exchange misrepresenting the same as listed shares on the stock exchange
with the assistance of certain persons and entities like DSQ Holdings Ltd.,
Hulda Properties and Trades Ltd., Mehta & Ajmera, Powerflow Holdings Ltd.,
Radha Dalmia, Himanshu Ajmera, Maya Trade Links Ltd., Mittal Securities,
Khandwala Finance Ltd., Dinesh Singhania and Doe Jones Investments &
Consultants P. Ltd. d. The company
knowingly gave false information to the Stock Exchanges vide its letter dated
February 26, 2001 that the company received full money due from the applicants
towards allotment of 30 lakh shares allotted to New Vision Investment Ltd.
Further the company knowingly gave false information to the Stock Exchanges
vide its letter dated February 26, 2001 that the company received the entire
application money from the allottees consideration other than cash towards
allotment of 1.40 crore shares allotted
on January 12, 2001 to New Vision Investment Ltd.(Mauritius), Softec
Corporation Ltd.(Mauritius) and Technology Trust (Mauritius). e. The
company knowingly gave wrong information of allottees and date of allotments to
the Stock Exchanges. They gave the same distinctive numbers which were already
allotted to different entities and were already sold/introduced in to the
market/system before listing. Due to the company�s non-disclosure of the
allotments of 1.30 crore shares to the various entities during the year 2000 to
the Stock Exchanges the company has defrauded innocent investors who bought
unlisted shares during the year 2000. f. The
company through its associate/front entities sold/introduced around 1.30 crore
unlisted demat shares of the company in to the market/system. By this act,
fraud was perpetuated on the investors who bought the said shares. As the
company concealed the material facts pertain to above allotments from its shareholders,
fraud was also perpetuated on them. g. The
company advanced moneys to DSQ Holdings Ltd. amounting to Rs.15 crore, Rs.54
crore to Mehta & Ajmera, Rs.25 crore to Accord Capital Ltd., and Rs.20
crore to Wood Stock Securities Pvt., Ltd. It is observed that among other
entities, these entities also dealt in the shares of the company to create
artificial volume in the trading of the company�s shares. It is also observed
that the said entities entered into synchronized trades to create the artificial
volume and also to offload the unlisted demat shares of the company into the
market/system through associated / front entities. 12.��� The appellants were issued Show Cause
Notices on ���� (a) They be directed to deposit a sum of Rs.840 Crore in a separate escrow account till completion of investigation by SEBI (b) They be prohibited form accessing the capital market
and dealing in securities for a period of 10 years. 13.���� Both the company and Shri Dinesh
Dalmia� were given opportunity for
personal hearing and were also granted inspection of documents etc. on various
dates. �After a series of adjournments
for� personal hearing the company did not
make any submissions on the merits of the case mentioned in the show cause
notice.�� Nor did they submit any reply
to the allegations leveled against them in the show cause notice dated a. Chapter III of the FUTP Regulations, 2003 provides for investigation and Regulation 9 of the said regulations provides that the investigating authority shall on completion of investigation after taking into account all relevant facts shall submit a report to the appointing authority. They stated that they are entitled to a copy of the report submitted to the Board by the investigating authority. They further submitted that they had sought for inspection of certain documents which have been referred to and / or relied upon by SEBI and / or those which are necessary for them to file a proper and complete reply. b. T hey referred to
several letters wherein they sought inspection of documents and further
submitted that their request for inspection of documents relied upon by SEBI in
passing orders dated 20.7.2001 and 20.12.2001 was refused. 14.���� After
considering the facts of the matter, the findings of the investigation, the
submissions of the company, Shri Dinesh Dalmia� and other directors on record, the
Chairman of SEBI framed the following issues for consideration: ����� (a) Whether the allotment and
dematerialization of the shares issued on a preferential basis by the company
on 20.5.2000, 5.10.2000, 24.10.2000 and 14.12.2000 were done in an irregular manner. After analyzing the facts, the respondent concluded
that both the company and Shri� Dinesh
Dalmia� had acted in a fraudulent manner
while issuing these shares and thereafter getting them introduced in the market
without listing.� The impugned order also
alleges that the allotment made on ��������� (b)����� Another issue framed for consideration was whether ������������������ ����������� Shri �� Dinesh Dalmia being the promoter and one of ����������� ����������� ����������� the directors of the company is �liable for the ���������������� ����������� ����������� fraudulent and irregular activities.� The impugned order notes that Dinesh Dalmia, as
Managing Director of the company had been instrumental in making the allotments,
some even without the knowledge of the Board of Directors, as stated by the
members of the Board. Thus, Shri Dinesh Dalmia has allotted shares to entities
that were controlled by him. �After
considering the various facts the impugned order concludes that �Dinesh Dalmia being the promoter � director of
the company and the person in control of the company and its associated
entities was responsible for the fraudulent acts of the company. Therefore,
Shri� Dinesh Dalmia was alleged to
have� violated Regulation 3 of the FUTP
Regulations, 1995.� It has been alleged
that Shri Dinesh Dalmia was the final beneficiary of the profits made by the
connected entities through their fraudulent actions as detailed in� the impugned order. It has also been alleged that out of the� total of 1.70 crore shares fraudulently
allotted by the company during the period 2000-01, 1.30 crore shares were
allotted in dematerialized form and 40 lakh shares were allotted in physical
form. These �1.30 crore shares worth
Rs.630 crore which� were� allotted in �demat form were introduced into the market by
entities associated with DSQ Software and Shri Dinesh Dalmia and the sale
proceeds which were credited to the account of those entities associated with
the company and controlled by� Shri
Dinesh Dalmia.� �its promoters. ��40 lakh shares which were issued in physical
form are not in circulation in the market.�
15. ��� Having regard to these facts, the Chairman,
SEBI, issued the following directions under Section 11 and 11B of the SEBI Act,
1992 read with Regulation 11 of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to the
Securities Market) Regulations, 2003 to DSQ Software Ltd., and Shri Dinesh
Dalmia: (i)
Shri
Dinesh Dalmia is prohibited from buying, selling or otherwise dealing in
securities in any manner, directly or indirectly, for a period of 10 years and
is also prohibited from holding any office of responsibility in a
company/entity or other institution associated with the securities market for a
period of 10 years. �(ii)
DSQ
Software Limited is prohibited from accessing the securities market and buying,
selling or otherwise dealing in securities in any manner, directly or
indirectly in securities for a period of 10 years. (iii)
Shri
Dinesh Dalmia and DSQ Software Ltd shall deposit a sum of Rs.630 crore (being
the value of 1.30 crore shares calculated by taking into account the average
price of the scrip in the relevant settlement) within a period of 45 days in a
separate escrow account to be maintained with a nationalized bank, till
completion of investigation by various Police agencies including The Calcutta
Police and Central Bureau of Investigation. (iv) Shri Dinesh
Dalmia shall buy 1.30 crore shares of DSQ Software Ltd, circulated into the
secondary market within a period of 45 days and retain the same in a separate
demat account to be opened for the purpose, till permission for reduction in
capital is obtained by the company from the competent authority. (v)
The
amounts deposited in the escrow account and shares retained in the demat account
shall not be withdrawn without prior permission in writing from SEBI. Being
aggrieved by the above order the appellants have filed the appeals. 16.���� During the course of hearing the learned
counsel for the appellants submitted that in the course of its fast expansion
of business at the material time the company had explored the possibility of
acquiring a reputed software service provider overseas.� In this process the company identified
Fortuna Technologies INC, 16. ��� The learned counsel for the appellants
further submitted that under the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to the
Securities Market) Regulations, 2003 the respondent has no power to direct the
company or Shri Dalmia to buy back the shares.�
Section 11 of FUTP Regulations, 2003 which empowers the Board to take
action or issue directions does not contain any such power for issuing directions
to buy back the shares.� Regarding the
direction contained in the impugned order for the appellants to deposit a sum
of Rs.630 crores in an escrow account in a
nationalized bank, the learned counsel vehemently argued that there is no
provision both in the Act and the regulations empowering the Board to either
direct the appellant to buy back the shares or to compel the appellant to
deposit any such sum in an escrow account.�
In his written submissions the learned counsel sums up his arguments as follows: 1. �It is the admitted case
of SEBI that 1.70 crores shares were issued and
allotted during the period 2000 � 2001.�
In view of Article 20 of the Constitution of 2. In view of the earlier
orders passed on 20.7.2001, the power under�
Section 11 and 11B of the Act and Section 11 and 12 of the FUTP
Regulations, 1995 stood exhausted. Moreover, the Show Cause
Notice dated 7.10.2003 and the impugned order dated 9.9.2004 are barred by resjudicata/doctrine of double jeopardy. ���� The three directions issued by SEBI are as follows: 1) Prohibiting the Appellant
from buying, selling, or otherwise dealing with securities in any manner,
directly or indirectly, for a period of ten years and from holding any office
of responsibility in a Company/Entity or other institution associated with the
Securities Market for a period of ten years. 2) Directing the Appellant
herein and M/s. DSQ Software Ltd., to deposit a sum of Rs.630 crores within a period within a period of 45 days �in a separate escrow account to be maintained
in a Nationalised Bank till completion of
investigation by various police agencies including the Kolkata
police and the Central Bureau of Investigation. 3) Directing the Appellant
to buy 1.30 crore shares of DSQ Software Ltd., circulated
to the Secondary� Market, within a period
of 45 days and to retain the same in a separate demat
account to be opened for the purpose, till permission for reduction in capital
is obtained by the Company from the Competent Authority. It is respectfully
submitted that the Authority/Power to issue the aforesaid directions was not
available to the Respondent under Section 11 and 11B of the SEBI Act, 1992 as
it stood prior to 29.10.2002 on which date extensive amendments tos the said provisions were made.� Likewise, Regulation 11 and 12 of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities
Markets) Regulations, 1995, did not empower SEBI to issue such directions.� It was only on 117.7.2003 that the SEBI� (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Markets) Regulations, 2003, came in to force
and for the first time, Regulation 11(1(b) conferred power on SEBI to restrain
persons from accessing the Securities Market and prohibit any persons
associated with the Securities Market and prohibit any person associated with
the Securities Market to buy, sell or deal in securities.�� Thus, it is evident that the direction
issued by SEBI restraining the Appellant from accessing the Securities Market
was beyond its power as it existed during the period in which the transactions
allegedly took place.� Therefore, the
direction debarring the Appellant from accessing the Stock Market is without
jurisdiction and hence non est. It would be significant
to point out the direction issued by SEBI debarring the Appellant from holding
any office in any Company/Institution associated with the Securities Market was
not even proposed/contemplated by the Show Cause Notice.� However, by the impugned order, the Appellant
has been debarred from holding such an office for a period of 10 years.� Needless to state that the said direction
apart from being violative of the principles of
natural justice is also devoid of authority since the power to issue such a
direction is not found either in the SEBI Act, 1992 or the FUTP Regulations,
1995. The direction to deposit
Rs.630 crores in an Escrow Account to be maintained
in a Nationalised Bank till completion of
investigation by of investigation by various police agencies including the Kolkata Police and the Central Bureau of Investigation is
once again devoid of authority.� An
analysis of the SEBI Act, 1992 and the FUTP Regulations, 1995 do not vest in
SEBI the power to issue such a direction.�
On 29.10.2002, when the SEBI Act was amended, Section 15HA providing for
penalty for fraudulent and unfair trade practices was introduced.� This provision reads as follows: ���� �If any person indulges in fraudulent and unfair trade practices
relating to securities, he shall be liable to a penalty not exceeding Rs.25 crores or three times the amount of profits made out of
such practices, whichever is higher.�
Obviously, realizing that the penalty contemplated by Sec.15HA could not
be imposed, the Adjudicating Authority under the guise of issuing a direction
under Sec.11 and 11B of the Act read with FUTP, 1995, has indirectly/colourably exercised the power contained� in Sec.15HA by directing the Appellant to
deposit Rs.630 crores. This submission is made
without prejudice to the contention that even Section 11 and 11B pf the SEBI
Act, 1992 read with Regulations 11 and 12 of the FUTP 1995, do not empower the
SEBI to issue such a direction.� In Bank of �Section 11 and Section
11B are interconnected and co-extensive as both these section are mainly
focused on investor protection.� On a
careful perusal of the said Section 11, it would seen that SEBI has been in no
uncertain terms mandated to protect the interest of investors in securities by
such measures as it thinks fit��.�
However, the power under Section 11 is not unlimited.� The Legislature has circumscribed the power
by putting the caveat these these measures are
subject to the provisions of the Act.�
The ambit of power is contained within the framework of the Act.� But within the statutory framework, such
power reigns.� It is apparent from the aforesaid extract that though the SEBI has wide
powers to protect investor interest, the power should be exercised within the
framework of the Act.� The nature and
purpose of the directions which SEBI may issue are contained in Sections 11 and
11 B of the SEBI Act, 1992 and Regulations 11 and 12 of the SEBI FUTP
Regulations, 1995.� As demonstrated
supra, the directions issued by SEBI in the impugned order were not provided
for under the Amended Act and Regulations.�
Therefore, such directions which were issued without statutory authority
are ultra vires and consequently non est. It must also be pointed out that the treatment meted out to the Appellant
herein has been to say the least, harsh.�
The ban issued by SEBI under the FUTP Regulations, 1995 never obliged
the ��alleged delinquent from depositing any sum as
compensation.� There is an apparent
contradiction on the very face of the directions 1 and 2.� While the third direction may be permissible
by law, the second direction is not permissible in law and the second and third
directions run counter to each other.� If
the third direction is complied with, there cannot be any question of
depositing the sum of Rs.630 crores as directed in
the second direction unless it is� the
nature of a penalty.� It has already been
shown that a penalty is contemplated only by Section 15HA which was introduced
by the Amendment Act on 29.10.2002 whereas the alleged transactions took place
between the year 2000 and 2001 which is much prior to the introduction of the
penal provision.� The Respondents have
only relied on one judgement passed in Agarwal�s case, which again will not apply to the facts
involved in the present appeal since the case referred to above dealt with
insider trading.� Even the judgement of this Hon�ble Tribunal in the aforesaid case
has been challenged in appeal and is pending before the Hon�ble Supreme Court
of In deference to the observation made by this Hon�ble tribunal, an
application has already been filed undertaking to purchase 1.7 million shares
at par value.� This offer however, is
without prejudice to the contention raised by the Appellant that the SEBI has
no power whatsoever to issue directions contained in the impugned order.� 16.���� Notwithstanding the above
contentions, the learned counsel submitted that it is the earnest desire of the
appellant Shri Dinesh Dalmia who was the key promoter of DSQ Software Ltd., to
resolve the crisis in which the company was placed and to resurrect its
activities.� He stated that the company
which had a huge clientele can still be revived and with this end in view he
submitted an affidavit giving the following proposal: 1) The promoter
will buy at par �and cancel 17 million
shares of the company which were unlisted.�
This will be in line with the SEBI directions as also the directions of
the Department of Company Affairs.� The
shares will be purchased by the promoter entities from the market at par and
will be converted into physical shares by following the process of demat.� The company will simultaneously follow the
provisions of Sec. 100 of the Companies Act, 1956 for canceling these shares
and reducing the issued capital of the company.�
This reduction requires the approval of the members of the company as
also the permission of the High Court.�
The company will take necessary steps for these compliances. 2) The promoter
of the company will bring in Rs.50 crores in a phased manner over two years
time for revival of the company.� These
amounts will be brought in the forms of Redeemable/Convertible Preference
shares of the company at a token coupon rate.�
These amounts will be utilized to repay the dues to the Banks and
Financial Institutions as also revive the operations of the company.� The company has got a revival plan ready and
a copy of the same was enclosed with the affidavit of the appellant dated The
company proposes to utilize the amounts brought in to clear the debts of the
company besides improving the business as detailed in the revival plan.� The company has following liabilities at
present: Industrial
Development����� Rs.50.50 crores. Bank of Indusind
Bank������������������� Rs.31.80 crores. ING
Vysya Bank����������������� Rs.� 2.20 crores. The
banks and institutions have filed recovery applications in the Debt Recovery
Tribunal and the company proposes to settle all these dues out of the amounts
brought in.� the profits will be utilized
to improve the business and infrastructure and the company proposes to increase
its asset base by going in for owned premises in a phased manner.�� This will improve the company�s as also
Shareholder�s Wealth.� The company will
also have the latest in technology assets which will be built out of its
retained earnings. 17. �The learned counsel for the Respondent Shri
Rafique Dada quite forcefully �argued
that Regulation 11(h) of FUTP Regulations empowers the Board �to direct the
person concerned to dispose off any such securities acquired in contravention
of these regulations in such manner as the Board may deem fit for restoring the
status quo ante.�� He pleaded that once
the Board� is convinced that status quo
ante needs to be restored, the manner� in
which it is to be carried out, is left entirely at the discretion of the Board
and the empowerment by this regulation includes the power to issue direction to
a person to buy back the shares which were fraudulently issued and introduced
in the market to the detriment of the interest of genuine investors.� However, he agreed that only those to whom
such fraudulently issued shares were sold have the right to get back their
money. 18. ��� The appellants have themselves filed an
affidavit offering suo moto �that the promoter will buy from the market all
the 17 million shares at par �and will cancel
these 17 million equity shares of the company which are unlisted.� �We �do not therefore, �feel it necessary, at this stage, to make any
judicial pronouncement as to whether regulation 11(h) of the FUTP Regulations
empowers the Board to direct the company to buy back its shares.� Both sides have �agreed on the main objective that the promoter
will bring in funds to purchase 1.70 crores unlisted
shares and thereafter ultimately cancel these unlisted shares �in terms of provisions of section 100 of the
Companies Act, 1956 by going through the due process of law.� A question arose at what price these shares
would be bought by the promoter.� These
unlisted shares were sold to the unsuspecting investors way back in 2000-01 at
a price of several hundred rupees for each share.� The current market price is below par.� So the market price or par value at which the
appellants� offer to buy back these
shares from the market will be a small fraction of the original price paid by
the investors.� It is only equitable that
the unsuspecting investors to whom such unlisted shares were sold are paid back
at least that much amount as they had paid as purchase price for those
shares.� In other words, equity demands
that such unsuspecting investors should at least get full refund of their
principal amount, if not any return on such investment.� The other related question which need to be
examined in this connection is how to avoid unjust enrichment of any
investor.� If the promoter is directed to
buy back any share at a price determined by the regulator or by this Tribunal
there is every possibility that some investors who had got these unlisted
shares at a lesser price get windfall gain which would be against the principle
of �No unjust enrichment�. �As �such it will be necessary to ensure that while
the investor gets back his money and no genuine investor loses his principal at
least, each investor gets only that much as he had paid at the time of buying
these unlisted shares.� Merely directing
the promoter or the company to deposit some estimated amount to an escrow
account �in a bank will not serve this
purpose of bringing justice to the unsuspecting investors who had bought� such unlisted shares.� To our suggestion that SEBI may appoint an
authority to undertake and oversee the whole process, Shri Rafique
Dada, the learned senior counsel agreed that SEBI is the proper body for this
work.� Accordingly the following� directions are given: (a) SEBI to
appoint an appropriate authority who will be entrusted with the task of
identifying the scrips which were �not listed and were alleged to have been
issued from 20th May, 2000 to 12th January, 2001 and
introduced into the market by Shri Dinesh Dalmia and his Associates.�
The authority to be appointed by SEBI may be either one of its senior official
not below the rank of GM or a person from outside considered fit for the
purpose. (b) The said
authority will identify, in consultation with the representative of the
appellant, the eligible shareholders who had bought such unlisted shares during
the period mentioned above.� The
authority will also �verify and satisfy
itself (by reference to original purchase contract or such other evidences as
are available) about the price at which these unlisted shares were originally
sold to the investors during the material period� and thereafter arrange for refund� of the purchase price to the investor after
he surrenders those shares.� The �above arrangement of� buying back at original� purchase price will be applicable to those
original investors who had bought the unlisted shares during (c) �Apart from the above Shri
Dinesh Dalmia shall buy from
the market (either at par or at market rate whichever is higher) the remaining
unlisted shares of DSQ Software Ltd., circulated in the secondary market as
expeditiously as possible and retain the same in a separate Demat
account and Shri Dinesh Dalmia shall seek reduction of capital in accordance with
law. (d) The promoter
of DSQ Software Ltd., Shri Dinesh
Dalmia, will have to fund this entire operation.� For this purpose he will deposit Rs.30 crores (minus the amount already deposited with SEBI
pursuant to the order dated 03/02/2005 on Interlocutory Application) �as a first installment in an escrow account in
a Nationalised Bank within a period of one month from
the date the authority appointed by SEBI calls open to do so.� The bank in which the account is to be opened
will be selected in consultation with the authority appointed by SEBI.� Shri Dalmia or his power agent must undertake, in writing, to
further fund this escrow account to the extent �needed and whenever called upon to do so by
the authority appointed by SEBI for the purpose of purchasing the unlisted
shares if tendered. (e) The refund
of the original purchase price as per �item (b) above �has to be effected� only to those investors who had purchased these
unlisted shares during 20/05/2000 to 12/01/2001 and are still holding these
unlisted shares;� similarly, the buy back
by the company at market price or at par, as per item (c) above, has to be
arranged only for those investors who had purchased such unlisted shares from
secondary market after 20/05/2000 and are still holding those shares. ��If any of the� investors has already exited by
selling those shares and thereby incurred any loss �he cannot look to the authority for
compensation.� (f) The
authority appointed by SEBI should �advertise through the media inviting original
investors who are still holders of such unlisted scrips
to submit claims with required documentary evidence about the price paid etc.� The authority to be appointed by SEBI may
devise its own procedure about the manner in which it is to be satisfied about
the veracity of the claims submitted in the presence of the representative of
the appellant.� Similarly,� those who bought
such unlisted shares from secondary market at a later date should also be
called upon to submit their claims to the authority with such evidence as the
authority may decide. (g) As and when
the amount deposited in the escrow account is exhausted in making payments to the �satisfaction of
such claims, the authority shall call upon Shri Dinesh
Dalmia, promoter of DSQ Software Ltd., or his power agent
to deposit further amounts in multiples of Rs.5-10 crores
as the authority made decide.� It will be
incumbent upon Shri Dinesh Dalmia
or his power agent to comply with the directions of the authority from time to
time by placing such funds as he is called upon to do to the credit of the
escrow account within 2/3 weeks (as the authority may decide) �from the receipt of such instruction from the
authority. (h) The
authority should endeavour to complete the whole
process preferably within a period of �not more than six months from the time
the authority is set up by SEBI.� With a
view to achieving this objective it will be in� order for the authority to fix adequate
�time limit for submission of claims from
the date of publication of the advertisement in the media.� SEBI is to provide necessary office
infrastructure and adequate secretarial and legal support to the authority. (i) A senior
official from SEBI, who is �not below the
rank of ED, should be entrusted with the work of overseeing the whole process
and the working of the authority.� It would
be his bounden duty to personally oversee the whole process and ��submit progress report in this matter to SEBI . (j) With respect
to directions at clause (iv) of the impugned order that Shri
Dinesh Dalmia shall buy
1.30 crore shares of DSQ Software Ltd., circulated
into the secondary market, we direct that Shri Dinesh Dalmia shall buy back such
of the unlisted shares of DSQ Software Ltd., from out of� the 1.30 crores
unlisted shares which are not tendered to the authority but� which continue to be held by the
shareholders.� In other words, if there
are not enough tenderers to satisfy the respondent,
the balance unlisted shares shall be bought in the secondary market by Dinesh Dalmia which together will
amount to 1.30 cores unlisted shares.��
Such buy back of shares from the market by him shall be at higher of
face value or market price. (k) Particulars
of all such shares for which the original purchase price is refunded to the
original investor by the authority in terms of item (b) above or from whom the
shares are bought back at par/market price by Shri Dinesh Dalmia in terms of item
(j) above will be passed on to the company who will take necessary steps for
removing them from the list of demat shares (1.3 crores share unlisted were demated)
and ultimate cancellation of these shares in accordance with the Law and after
obtaining necessary approvals from all concerned authorities.� In respect of 40 lakh
shares which were issued in physical form (out of the total 1.70 crore unlisted shares) urgent steps would be initiated to
cancel them by observing due process of law. (l) If �any surplus
amount is left �lying in the escrow
account after the authority declares the whole operation as closed, such
surplus shall be credited to DSQ Software Ltd., which could use it for paying
its creditors as submitted by the learned senior counsel for the appellants to
this Tribunal in his affidavit. (m) ��Items (iii), (iv) and (v) of the impugned
order dated (n) �Items (i) and (ii)
of the impugned order are upheld subject to the following modification: The period of debarment shall be from the date when
the interim order was passed by SEBI on 27.1.2001 and will run for a period of
10 years from that date and the order to that extent also is modified.� There is no provision in law to direct the
appellant not to hold any office in any other institution associated with the
securities market particularly since the show cause notice did not propose to
impose any such restriction.� The
impugned order is accordingly modified. Appeals are disposed of accordingly.� No order as to costs.
Place:
Mumbai Date: Smn/23/11 |
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