Back
SUPREME COURT OF INDIA
Fakkir Mohamed Ibrahim Kalifulla, Shiva Kirti Singh, JJ.
Securities and Exchange Board of India – Appellant
VERSUS
Pan Asia Advisors Ltd. & Anr. – Respondents
CIVIL APPEAL NO.10560 of 2013
Decided On : 06-07-2015
(b) Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 – Paragraph 3(1) and 3(1)(iii) and (iv) and 3(2) and 3(3) – Prior permission of the Department of Economic Affairs, Ministry of Finance, Government of India required for issue of GDRs – Required to confirm to the Foreign Direct Investment Policy and other mandatory statutory requirement and detailed guidelines – Foreign Currency Convertible Bonds shall be denominated in any convertible foreign currency – Ordinary shares to be denominated in Indian rupees – Role of Domestic Custodian Bank and the Overseas Depository Bank – GDRs may be issued in negotiable form and listed on any international stock exchange – Sections 55A and 77(2) of the Companies Act to be followed – No lock-in period (Para 47, 48)
(c) Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 – Paragraphs 2(a), (c), (d) and (e) – Global Depository Receipts are issued by a company in India – Based on ordinary shares deposited with the domestic custodian bank and issued by the corresponding overseas depository bank depending upon the extent of ordinary shares held by the Domestic Custodian Bank – Approval of appropriate authorities of the Indian origin as well as appropriate regulatory authority of registered agencies at the global level mandatory – Thereafter GDR becomes an approved registered authenticated instrument over which any non-resident can make an investment for possessing it as a valid holder of GDR. (Para 52)
(d) Global Depository Receipts (GDR) – Issued on the basis of existing shares – Marketability international markets important – GDRs fully subscribed at global level – Resulting in high appreciation of shares in domestic market – Artificial marketability will have adverse effect. (Para 60)
(e) Securities Contracts (Regulation) Act, 1956 – Section 2(h)(i) and (iii) – GDRs – Always based on the underlying Indian shares deposited with the Domestic Custodian Bank – Therefore GDRs possess in it right, as well as, interest in the shares, scripts etc. – Fall within definition of ‘securities’. (Para 63, 79)
(f) SCR Act 1956 – Section 2(j)(a) and (b) r/w Section 2(2), SEBI Act, 1992 – ‘Stock exchange’ – Any transaction in GDR be it conversion into shares and their trading or reconversion into GDR can be made only through stock exchanges – SEBI has a role. (Para 65)
(g) Securities and Exchange Board of India Act, 1992 – Section 11(1), 11(4) and 12A – Paramount purpose of the Act and functions of SEBI – Protection of interest of investors – And, simultaneously promoting development and orderly regulation of security market – Includes regulating business in stock exchanges/securities market – Covers working of stocks brokers, share transfer agents etc., registering and regulating the working of the depositories, participants of securities including foreign institutional investors in particular – To ensure prohibiting fraudulent and unfair trade practices relating to securities as also insider trading in securities – Board is fully empowered to pass appropriate orders restraining any person to protect the interest of investors in securities and securities market. (Para 71, 72)
(h) Securities and Exchange Board of India Act, 1992 – Section 12A r/w Regulation 2(1)(c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003 – Fraud – Includes any kind of activity which would work against the interest of the investors in securities. (Para 73)
(i) Securities and Exchange Board of India Act, 1992 – Section 11(1) and 12A(a), (b) and (c) – Issuing Company creating a make believe or fictitious situation of its global performance in connivance with respondents – Luring domestic investors to greater participation – Calls for probe by SEBI. (Para 80, 82)
(j) Securities and Exchange Board of India Act, 1992 – Section 11, 11B and 12A – SEBI empowered to exercise its jurisdiction notwithstanding anything contained in any other law for the time being in force – No prohibition under FEMA or RBI Act – Even if action is taken under FEMA and/or RBI Act – SEBI can exercise its jurisdiction under the Act. (Para 82)
(k) Securities and Exchange Board of India Act, 1992 – Section 11 and 12A – Market abuse – Violations of provisions under the Act, SCR Act, 1956, read along with the 2000 Regulations and the 1993 Scheme – Though defined as market abuse only in 2014 Regulations – Does not deprive SEBI of its jurisdiction to take action for violation of substantive provisions of the Act, SCR Act, 1956, read along with the 2000 Regulations and the 1993 Scheme. (Para 85)
(l) Securities and Exchange Board of India Act, 1992 – Section 11 and 12A – Contention that SEBI has jurisdiction only in India and GDRs were created in foreign territory hence SEBI has no jurisdiction in the matter – Reference to IPC, FERA, FEMA, Companies Act, the Information Technology Act and the Income Tax Act giving extra-territorial jurisdiction – No impact – GDRs created on the basis of underlying shares of Company operating in India and traded in Indian Stock market – SEBI has jurisdiction. (Para 86)
(m) Securities and Exchange Board of India Act, 1992 – Section 11 and 12A – Paragraph 4(2) and (3) of Schedule I of 2000 Regulations – Details to be submitted by Company issuing GDRs to RBI on such issuance and thereafter quarterly – Violations empower SEBI to take action. (Para 87, 88)
(n) Global Depository Receipts – Lead Managers – Second respondent who was an NRI residing in Dubai till September, 2011 and was Managing Director of first respondent trying to distance from first respondent on ground of being separate legal entity – Second respondent sole shareholder of the first respondent – Cannot be absolved of his responsibility. (Para 91, 92)
(o) Securities and Exchange Board of India Act, 1992 – Section 11 and 12A – Territorial jurisdiction – If an extra territorial act is in any way related to India and Indians in terms of impact; the effect or consequences would be mixed matter of fact and law – Courts in India would have to enforce such a requirement in the operation of law as a matter of law itself – If a citizen abroad and not corporally present within the territory of India commits acts affecting legitimate interests of the country and Indian investors; SEBI will have powers to proceed against such person – Doctrine of effect. (Para 96, 98, 102)
(2011) 4 SCC 36; (2013) 4 SCC 721; (2006) 5 SCC 361; (2008) 13 SCC 369; (2002) 6 SCC 600 – Relied upon
(2012) 6 SCC 613 – Distinguished
Facts of the case:
The short question that arises in this appeal relates to the jurisdiction of SEBI under the Securities and Exchange Board of India Act, 1992, to initiate proceedings against the respondents as Lead Managers to the Global Depository Receipts issued outside India based on investigations held by it and on its conclusion that in relation to transaction of sale/purchase of underlying shares released on redemption of GDRs in the securities market in India, the Lead Managers had committed fraud on the investors in India and that such fraudulent intention existed at every stage of the GDR process till sale/purchase of underlying shares in the securities market in India. The further question that arises for consideration is that if the said question is answered in the affirmative, whether the SEBI was justified in passing its impugned order dated 20.06.2013, debarring the respondents herein from rendering services in connection with instruments that are defined as securities under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 and such debarment for a period of 10 years prohibiting the respondents from accessing the capital market directly or indirectly under SEBI Act, 1992 and the regulations framed there under was justified.
When the order of SEBI dated 20.06.2013 was challenged by the respondents before the Securities Appellate Tribunal, Mumbai in Appeal No.126 of 2013, the Chairman of the Tribunal in his minority view upheld the order of the SEBI while the members of the Tribunal by way of their majority view set aside the order of SEBI debarring the respondents.
Finding of the Court:
SEBI had jurisdiction in passing the impugned order dated 20.06.2013 debarring the respondents for a period of 10 years in dealing with the securities while considering the role played by the respondents as Lead Managers relating to the GDRs issued by six companies which issued such GDRs.
The Tribunal is bound to examine the correctness or otherwise of the order of SEBI dated 20.06.2013 in the appeal preferred by the respondents in Appeal No.126 of 2013.
Minority view of the Chairman of the Tribunal is perfectly in order.
Result: Appeal allowed.
Certainly. Based on the provided legal document, the key points are as follows:
SEBI's Jurisdiction: SEBI has the authority to regulate and take action against fraudulent, manipulative, or unfair trade practices related to securities, including GDRs, even if such activities occur outside India but have a significant impact within the Indian securities market (!) (!) (!) (!) .
Definition and Regulation of GDRs: GDRs are considered securities under Indian law, created based on underlying Indian shares deposited with a Domestic Custodian Bank. They are issued and traded internationally but are intrinsically linked to Indian securities and are subject to Indian statutory provisions, including the Securities Contracts (Regulation) Act and SEBI regulations (!) (!) (!) (!) (!) (!) .
Legal Framework and Statutory Backing: The issuance, trading, and regulation of GDRs are supported by specific schemes, regulations, and statutory provisions issued by Indian authorities, including the 1993 Scheme, 2000 Regulations, and relevant SEBI regulations. These provisions establish the legality and regulatory oversight of GDR activities originating from Indian companies (!) (!) (!) (!) (!) .
Extraterritorial Jurisdiction: Indian laws, including the SEBI Act, 1992, have extraterritorial application when activities related to securities have a real or expected impact on Indian investors or the Indian securities market. The jurisdiction extends to actions committed outside India if they affect Indian interests, based on the "effects doctrine" and the real connection with India (!) (!) (!) (!) (!) .
Powers of SEBI: SEBI is empowered to investigate, regulate, and take enforcement actions against parties involved in fraudulent schemes, manipulative practices, or violations of securities laws related to GDRs. Its authority includes issuing directions, suspending trading, restraining access to markets, and imposing penalties, regardless of whether the activities occur within Indian territory or abroad, if they impact Indian investors or markets (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) [p_
JUDGMENT
Fakkir Mohamed Ibrahim Kalifulla, J.
1. This appeal at the instance of the Securities and Exchange Board of India (hereinafter called “SEBI”) is directed against the majority judgment and final order dated 30.09.2013, passed by the Securities Appellate Tribunal, Mumbai, in Appeal No.126 of 2013.
2. The short question that arises in this appeal relates to the jurisdiction of SEBI under the Securities and Exchange Board of India Act, 1992, (in short “SEBI Act, 1992”) to initiate proceedings against the respondents as Lead Managers to the Global Depository Receipts (in short “GDRs”) issued outside India based on investigations held by it and on its conclusion that in relation to transaction of sale/purchase of underlying shares released on redemption of GDRs in the securities market in India, the Lead Managers had committed fraud on the investors in India and that such fraudulent intention existed at every stage of the GDR process till sale/purchase of underlying shares in the securities market in India. The further question that arises for consideration is that if the said question is answered in the affirmative, whether the SEBI was justified in passing its impugned order dated 20.06.2013, debarring the respondents herein from rendering services in connection with instruments that are defined as securities under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (in short “SCR Act, 1956”) and such debarment for a period of 10 years prohibiting the respondents from accessing the capital market directly or indirectly under SEBI Act, 1992 and the regulations framed there under was justified.
3. When the order of SEBI dated 20.06.2013 was challenged by the respondents before the Securities Appellate Tribunal, Mumbai in Appeal No.126 of 2013, the Chairman of the Tribunal in his minority view upheld the order of the SEBI while the members of the Tribunal by way of their majority view set aside the order of SEBI debarring the respondents. It was in the above stated background SEBI has come forward with this appeal before us.
4. Therefore, for us, the only question to be decided is as to whether SEBI had jurisdiction in passing the impugned order dated 20.06.2013 debarring the respondents for a period of ten years in dealing with securities while considering the role played by the respondents as Lead Managers relating to the GDRs issued by six companies who issued such GDRs. In the counter affidavit filed on behalf of the first respondent, it is stated that the said respondent’s name has been changed and is now known as Global Finance & Capital Limited, having its office International Corporate House, Monster House, 42 Mincing Lane, London and represented by its Executive Officer Ms. Neha Dua. Therefore, whatever stated with reference to first respondent and applicable to it in this order shall mutatis mutandis apply to the said entity namely Global Finance & Capital Limited in all respects.
5. In order to appreciate the issue raised, it will be necessary to explain the manner in which the respondents dealt with the GDRs issued by those six entities in the foreign market and the nature of allegation which according to SEBI was found true and which led SEBI to conclude that such manner of dealing of the GDRs of those companies by the respondents as Lead Managers did have a serious impact in the securities market of Indian origin and consequently it had jurisdiction to proceed against the respondents.
6. In the present appeal, according to SEBI the respondents as Lead Managers dealt with the GDRs issued by six entities viz., (1) Asahi Infrastructure & Projects Ltd (Asahi) (2) IKF Technologies Ltd. (IKF) (3) Avon Corporation Ltd (Avon) (4) K Sera Sera Ltd (K Sera) (5) CAT Technologies Ltd (Cat) and (6) Maars Software International Ltd (Maars).
7. Mr. C.U. Singh, learned senior counsel who appeared for SEBI submitted that since the nature and manner of handling of the GDRs by the respondents as Lead Managers were iden
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
