IN THE SECURITIES
APPELLATE TRIBUNAL
MUMBAI
Appeal No. 21 of 2006
Present
:� Mr.��
Janak Dwarkadas, Senior Advocate with Mr. P.N. Modi & ������� Mr.Shiva Mandal, Advocates for the
appellant ����������������� ����������������� Mr. Dipan Merchant, Senior
Advocate with Mr. Ravi Hegde, ����������� 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 ����������� Whether
the appellant is a �fit and proper person� in terms of the criteria set out in
Regulation 3 of the Securities and Exchange Board of India (Criteria for Fit
and Proper Person) Regulations, 2004 (hereinafter called the Regulations) is
the short question that arises for our consideration in this appeal filed under
Section 15T of the Securities and Exchange Board of India Act, 1992 (for short the
Act).� Facts giving rise to this appeal
are these: 2.
Jermyn
Capital LLC, the appellant is a limited liability company incorporated in 1) H.H. Juma Maktoum
Juma Al-Maktoum� 2) Hugh Hamilton Andrews � a British national (hereinafter called ������ Andrews) 3)� Mihir D. Kapadia 4)� Amit Shah. It has three
shareholders namely, H. H. Juma �Maktoum �Juma Al-Maktoum (51%), Andrews (40%) and Mihir
D. Kapadia (9%).� It is common case of
the parties that the Articles of Association of the Dubai Co. provide that the
management of the Company shall vest with Andrews.� By letter dated November 30, 2005 addressed
to Taib Bank, the Board directed the former to stop trading in the Indian
securities market on behalf of the sub-account i.e. Dubai Co. as it was in
receipt of credible information that the sub-account did not meet the criteria
for �fit and proper person� which was mandatory for all registrants to adhere
to through out the period of validity of their registration.� The Board further directed the foreign institutional
investor to provide information in regard to the following:- 1)� Beneficial ownership of the investments made
by Dubai Co. till the date of the communication. 2) Proof of adequate
and proper background verification of the investors and shareholders of 3)� The Board had received some information
indicating that the Dubai Co. had close links with Jermyn Capital Partners Plc,
a company incorporated in Taib Bank gave its
reply by letter dated
3.
It is relevant to mention at this stage that one Ketan Parekh, his
brother Kartik K. Parekh and his seven companies including Classic Credit Ltd. were
involved in a securities market scam in the year 2001 and the Board found that
they had all rigged the market in a big way and executed fictitious, circular
and non-genuine transactions by distorting the exchange mechanism with a view
to artificially increase the trading volumes in the scrips of some of the
Companies with which they dealt.� By a
detailed order dated 12.12.2003 passed by the Board they were all debarred from
associating with the securities market for a period of 14 years.� They had also been prohibited from buying,
selling or dealing in securities in any�
manner directly or indirectly.�
This order has been recently upheld by this Tribunal on 14.7.2006
holding �that if Ketan Parekh and his entities are allowed to continue with
their operations they would pose a serious threat to the integrity of the
securities market and endanger the interests of the investors.��
4.
In pursuance to the directions issued by this Tribunal on December 21,
2006, the Board issued to the appellant a show cause notice dated January 5,
2006 alleging that the appellant prima
facie did not satisfy the criteria of �fit and proper person� in view of
the close links between the Dubai Co. and the UK Co. through Dharmesh Doshi and
the aforesaid Ketan Parekh. �It was also
alleged that in order to circumvent the prohibitions imposed on Ketan Parekh
and his related entities, a new entity had been incorporated in September 2003
by the name of Jermyn Capital LLC for dealing in the Indian securities
market.� The Board was also of the view
that because of the links between the Dubai Co. and Dharmesh Doshi/ Ketan
Parekh and in order to ensure that Ketan Parekh related entities do not access
the Indian stock market directly or indirectly, it was necessary to issue
urgent orders to restrain the Dubai Co. from accessing the securities market to
safeguard the interest of the investors.�
It was called upon to show cause why it should not be restrained from
accessing the capital market.� The
appellant filed its detailed reply denying all the allegations. The Board has
ordered detailed investigations under Section 11C of the Act which are still
pending.� On a consideration of the
material that the Board could collect pending final investigations it found prima facie that the appellant did not satisfy the criteria of �fit and
proper person�.� The Board also found
that investigations were being conducted by other intelligence agencies and
that the CBI had launched prosecution against Dharmesh Doshi, Ketan Parekh and
several others including Triumph Internationals Finance (India) Ltd. (for short
TIFIL) in the Court of Chief Metropolitan Magistrate, Ahmedabad under Sections
120-B, 409 and 420 IPC.� Since the
investigations ordered by the Board and those conducted by other investigating
agencies are still pending, the Board has not passed a final order and instead
by its order dated 13.1.2006 restrained the appellant as an interim measure from
accessing the capital market pending the conclusion of the investigations.� It is against this order that the present
appeal has been filed.
5.
We have heard the learned senior counsel for the parties and are of the
view that the impugned order deserves to be upheld.� It is admitted by the appellant that the
6.
There is yet another admitted fact which establishes close proximity
between Andrews and Dharmesh Doshi.� The
7.
We shall now examine whether there is any direct link or association
between Dharmesh Doshi and Ketan Parekh who, admittedly, has been held as a
scamster by the Board and has been debarred from accessing the securities
market for a period of 14 years which finding has been upheld in appeal.� It is true that the Board has not been able
to collect any direct evidence showing a link between the two but in our
opinion there is enough material on the record to show there is closeness between
them which in turn would adversely affect the reputation of not only Dharmesh
Doshi but also of the appellant.� There
is on record a charge sheet which the CBI has filed in the Court of Chief
Metropolitan Magistrate, Ahmedabad against Dharmesh Doshi, Ketan Parekh and
several others under Sections 405, 406, 408, 409, 420 and 120B IPC and Section
35(a) of Banking Regulation Act in which it is alleged that Dharmesh Doshi,
Ketan Parekh and several others were share and stock brokers and were
maintaining their accounts with Madhavpura Merchantile Co-operative Bank,
Ahmedabad (for short the Bank).� They
were allowed overdraw facilities and it is alleged that they defrauded the Bank
in connivance with some of its directors and caused undue pecuniary advantage
to themselves. It is also the case of the CBI that out of 19 accounts opened with
the Bank by the accused, 10 were controlled by Ketan Parekh and that he was the
major beneficiary of the conspiracy.� It
is also stated in the charge sheet that Dharmesh Doshi through his company
TIFIL transferred the overdrawals in its account to the account of Classic
Credit Ltd. of Ketan Parekh.� The accused
have been charged with the offence of cheating and criminal conspiracy.� The matter is pending before the Chief Judicial
Magistrate in which the process has been issued to the accused.� Dharmesh Doshi is absconding and has not
appeared though Ketan Parekh was arrested in this case and subsequently
released on bail.� Admittedly, Dharmesh
Doshi is living in
8.
From the aforesaid facts, what stands established is that Andrews who is
carrying on the operations on behalf of the Dubai Co. in the Indian securities
market is closely associated with Dharmesh Doshi, who in turn appears to be a
close associate of Ketan Parekh who has been debarred from accessing the
capital market.� Dharmesh Doshi and Ketan
Parekh are co-accused in two criminal cases which are pending against them and
that Dharmesh Doshi is absconding.� They
have also been fined for violating the provisions of FEMA.� The question that arises for our
consideration is whether in this background could the appellant be said to be a
fit and proper person.� The criteria for
fit and proper person as set out in Regulation 3 of the Regulations reads as
under: �3. (1) "For
the purpose of determining as to whether an applicant or the intermediary
seeking registration under any one or more of the relevant regulations is a
�fit and proper person�, the Board may take account of any consideration as it
deems fit, including but not limited to the following criteria � (a) financial
integrity; (b) absence of
convictions or civil liabilities; (c) competence; (d) good
reputation and character; (e) efficiency and
honesty; and (f) absence of any
disqualification to act as an intermediary as stipulated in these regulations. (2) A person shall
not be considered as a" fit and proper person" for the purpose of
grant or renewal of certificate to act as an intermediary or to continue to act
as an intermediary under any one or more of the relevant regulations, if he
incurs any of the following disqualifications - (a) the applicant or
the intermediary, as the case may be or its whole time director or managing
partner has been convicted by a Court for any offence involving moral turpitude,
economic offence, securities laws or fraud; (b) an order for
winding up has been passed against the applicant or the intermediary; (c) the applicant or
the intermediary, or its whole time director, or managing partner has been
declared insolvent and has not been discharged; (d) an order, other
than an order of suspension of certificate of registration as an intermediary,
restraining, prohibiting or debarring the applicant or the intermediary, or its
whole time director or managing partner from dealing in securities in the
capital market or from accessing the capital market has been passed by the
Board or any other regulatory authority and a period of three years from the
date of the expiry of the period specified in the order has not elapsed; (e) an order
canceling the certificate of registration of the applicant or the intermediary
has been passed by the Board on the ground of its indulging in insider trading,
fraudulent and unfair trade practices or market manipulation and a period of
three years from the date of the order has not elapsed; (f) an order
withdrawing or refusing to grant any license / approval to the applicant or the
intermediary, or its whole time director or managing partner which has a
bearing on the capital market, has been passed by the Board or any other
regulatory authority and a period of three years from the date of the order has
not elapsed; Provided that the
Board may for reasons to be recorded in writing, allow the applicant or the
intermediary, to seek registration before the lapse of three years as specified
in clauses (d), (e) and (f). ����� (g) the applicant or the intermediary, is financially not sound; (h) any other reason, to be recorded in writing
by the Board, which in the opinion of the Board, renders such applicant or the
intermediary, or its whole time director or managing partner unfit to operate
in the capital market.�
9.
A reading of the aforesaid provisions of the Regulations makes it
abundantly clear that the concept of a fit and proper person has a very wide
amplitude as the name �fit and proper person� itself suggests.� The Board can take into account �any
consideration as it deems fit� for the purpose of determining whether an
applicant or an intermediary seeking registration is a fit and proper person or
not.� The framers of the Regulations have
consciously given such wide powers because of their concern to keep the market
clean and free from undesirable elements.�
It can take into account the financial integrity of the applicant and its
competence.� Absence of convictions or
civil liabilities would be another relevant consideration which could weigh
with the Board.� Good reputation and
character of the applicant is a very material consideration which must
necessarily weigh in the mind of the Board in this regard.� Reputation is what others perceive of
you.� In other words, it is the subjective
opinion or impression of others about a person and that, according to the
Regulations, has to be good. This impression or opinion is generally formed on
the basis of the association he has with others and/or on the basis of his past
conduct.� A person is known by the
company he keeps.� In the very nature of
things, there cannot be any direct evidence in regard to the reputation of a
person whether he be an individual or a body corporate.� In the case of a body corporate or a firm,
the reputation of its whole time director(s) or managing partner(s) would come
into focus.� The Board as a regulator has
been assigned a statutory duty to protect the integrity of the securities market
and also interest of investors in securities apart from promoting the
development of and regulating the market by such measures as it may think
fit.�� It is in the discharge of this
statutory obligation that the Board has framed the Regulations with a view to
keep the market place safe for the investors to invest by keeping the
undesirable elements out.� The
Regulations apply across to all sets of regulations and all intermediaries of
the securities market including those who associate themselves with the market and
they all have to satisfy the criteria of �fit and proper person� before they
could be registered under any of the relevant regulations and this criteria
they must continue to satisfy through out the period of validity of their registration
and through out the period they associate with the market.���� The purpose of the Regulations is to
achieve the aforesaid objects and make the securities market a safe place to
invest.� One bad element can, not only
pollute the market but can play havoc with it which could be detrimental to the
interests of the innocent investors.� In
this background, the Board may, in a given case, be justified in keeping a
doubtful character or an undesirable element out from the market rather than
running the risk of allowing the market to be polluted.� We may hasten to add here that when the Board
decides to debar an entity from accessing the capital market on the ground that
he/it is not a fit and proper person it must have some reasonable basis for saying
so.� The Board cannot give the entity a
bad name and debar it. When such an action of the Board is brought to
challenge, it (the Board) will have to show the material on the basis of which
it concluded that the entity concerned was not a fit and proper person or that
it did not enjoy a good reputation in the securities market.� The basis of the action will have to be
judged from the point of view of a reasonable and prudent man.� In other words, the test would be what a
prudent man concerned with the securities market thinks of the entity.� In the instant case we are satisfied that the
Board was justified in debarring the appellant as a temporary measure pending
final investigations and keeping it out of the market by not allowing it to
access the same because of its close association with Dharmesh Doshi and Ketan
Parekh who, in the perception of the Board and in our view rightly, do not
enjoy good reputation in the context of the securities market.� This association, in the circumstances of the
case, would be enough to hold that the appellant is not a fit and proper
person. 10.
To sum up, Andrews who is running the show in 11.
We may now refer to the two judgements cited by the learned senior
counsel for the appellant in support of the plea that the appellant in the
circumstances of the case is a �fit and proper person� and could not be
debarred from accessing the securities market.�
In Singh and Kaur vs. Kirkcaldy District Licensing Board 1988 SLT 286,
alcoholic liquor was sold to a youth in the premises of which S. was the
licence holder.� The licence was
transferred to a firm in which K. & S. were partners.� S. was later convicted for selling alcohol to
the youth.� The Licensing Board suspended
the licence for six months on the ground that Singh was not a fit and proper
person.� In appeal the decision was
reversed which order was upheld by the Court of Session.� The argument that merely because one partner
was unfit to hold a licence would not make the partnership unfit was accepted
particularly because K. was the person who was responsible for the day to day running
of the premises.� This case in our view
does not advance the cause of the appellant because it is not clear as to
whether there was a criteria for �fit and proper person� similar to the one that
has been prescribed in the Regulations before us.� Moreover, Andrews and Dharmesh Doshi are the
ones carrying on the day to day affairs of the Dubai Co. and the UK Co.� ��In R
vs. Crown Court at Knightsbridge (1981) 2 All ER 417, three companies were running
casinos in 12.
In view of our findings recorded hereinabove we uphold the impugned
order and dismiss the appeal leaving the parties to bear their own costs.
//SR28/8/06 15:27 |
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