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SUPREME COURT OF INDIA
ANIL R. DAVE, R. BANUMATHI, JJ.
Securities and Exchange Board of India – Appellant
VERSUS
M/s. Opee Stock-Link Ltd. & Anr – Respondents
CIVIL APPEAL NO. 2252 OF 2010 WITH CIVIL APPEAL NOS.2285, 2286, 2294 & 2303 OF 2010
Decided On : 11-07-2016
(b) Administration of justice – judicial propriety – Appeal before SAT – In the nature of first appeal – Open to SAT to re-appreciate the evidence and set aside the impugned judgment/order if incorrect or perverse– Instantly SAT reversing well reasoned order of the Whole Tome Member of SEBI without recording a finding that the impugned order was incorrect ore perverse – Not permissible. (Para 14)
(c) Securities and Exchange Board of India Act, 1992 – Section 12A (a), (b), (c) r/w Regulations 3 and 4(1), Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 – Transactions in violation of the Act and the Regulations – On knowing thereabout, SEBI investigating and thereafter taking action – No infirmity – No complaint by Retail Individual Investor – Not relevant. (Para 18)
(d) Several demat account holders giving a common address – On initiation of inquiry by SEBI most of the demat account holders closing their accounts – Demat accounts held irregular. (Para 19)
(e) Securities and Exchange Board of India Act, 1992 – Section 12A (a), (b), (c) r/w Regulations 3 and 4(1), Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 – Number of persons, having common address of their demat accounts, selling their shares at the same price to a particular person before listing of shares of a company – Not a normal thing – Transaction illegal. (Para 20)
Securities Contracts (Regulation) Act, 1956 – Special Act – Prevails over provisions of Indian Contract Act, 1872 and Sale of Goods Act, 1930, insofar as the matters which are specifically dealt with by the SCRA. (Para 21)
(f) Securities Contracts (Regulation) Act, 1956 – Section 13 r/w section 2(i) – Instantly shares transferred without complying with either section 13 or 2(i) – Transaction rightly held per se illegal. (Para 22)
(2013) 9 SCC 584 – Relied upon
Facts of the case:
These are the cases which reflect the manner of getting excessive number of shares in an irregular manner, which would adversely affect Retail Individual Investors.
The initial offering made by Jet Airways Limited and Infrastructure Development Finance Company Limited had been over-subscribed.
Somehow it was brought to the notice of the Security and Exchange Board of India (SEBI) that several serious irregularities/illegalities had been committed by some persons so as to corner shares of the said companies by adopting certain unscrupulous, immoral and improper methods.
On investigation it was revealed that in the matter of the IPO of the aforestated two companies, shares which were meant for RIIs had been cornered through hundreds of benami/fictitious demat account holders, which was in violation of the provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992. Moreover it was also found that the said transactions were in violation of Regulations 3 and 4(1) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003.
It was found by the SEBI that respondent Jet Airways India Limited had received 12,053 shares out of which 3272 shares were transferred before the day of listing of shares of the company with the stock exchange, 3598 shares on the day of listing and 5183 shares after the day of listing. The said shares were purchased through off market transactions from 553 demat account holders, who had been allotted shares of the said company.
The said 553 demat account holders sold the shares to the said respondent at the rate of Rs.1170/-per share, though the market value of the said shares was much more than Rs.1170/-per share. The said shares were thereafter sold by the said respondent at a higher price. Upon investigation, it was also found that most of those 553 demat account holders were not genuine persons.
The Whole Time Member of the SEBI very meticulously examined the facts and came to the conclusion that the dealings of the respondents were not fair and were in violation of the Act as well as the Regulations. Penalty was imposed upon the respondents
The Securities Appellate Tribunal, Mumbai allowed the appeals.
Finding of the Court:
The Whole Time Member as well as the Adjudicating Officer of the SEBI were justified in imposing penalty upon the respondents for the reasons recorded by them.
Result: Appeal allowed.
JUDGMENT
ANIL R. DAVE, J
1. All these appeals have been filed under the provisions of Section 15-Z of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘the Act’) challenging the impugned order dated 30th December, 2009, passed by The Securities Appellate Tribunal, Mumbai (hereinafter referred as “SAT”) in Appeal Nos. 16 to 20 of 2009, whereby the SAT has allowed the appeals filed by the respondents herein and set aside the orders dated 31st December, 2008 passed by the Whole Time Member and the Adjudicating Officer, SEBI.
2. These are the cases which reflect the manner of getting excessive number of shares in an irregular manner, which would adversely affect Retail Individual Investors, who are the persons with relatively less means and who desire to invest their hard earned money into shares of companies, whereby they also make an effort to participate in the progress of our economy. So as to see that the Stock Exchanges of the country and the persons connected therewith do not indulge themselves into illegalities or irregularities, the Act has been enacted and the functionaries under the Act have to see that no financial scams take place in the matters relating to issue or transfer of shares, management of Stock Exchange etc. One of the important duties of the functionaries under the Act is to see that when there is an Initial Public Offerings (IPO), the shares are offered to public at large in a particular manner so that even small investors {who have been referred to hereinafter as ‘Retail Individual Investors’ (RII)}, also get fairly good chance to purchase shares of newly floated companies or shares of existing companies, as and when they are offered to the public at large.
3. As we are concerned with issue of shares in the nature of IPO (there is initial offering made by Jet Airways Limited and Infrastructure Development Finance Company Limited), without referring to much details about the transactions of sale or purchase of each company, we have referred to the nature of the transactions in general terms. When shares of the aforestated companies were offered to the public at large, the issue of shares in relation to both the companies had been over subscribed.
4. Somehow it was brought to the notice of the Security and Exchange Board of India (SEBI) that several serious irregularities/illegalities had been committed by some persons so as to corner shares of the said companies by adopting certain unscrupulous, immoral and improper methods not known to the law, which had not only affected the RII but had also an effect on the share market because such dealings by certain greedy persons would adversely affect the faith of a common man in the functioning of the share market. The basic purpose with which the Act was enacted was to see that the share market functions properly and effectively so that ultimately it may not adversely affect the economy of our country.
5. Investigations was made by the officials of the SEBI and in pursuance of the said investigation it was revealed that in the matter of the IPO of the aforestated two companies, shares which were meant for RIIs had been cornered through hundreds of benami/fictitious demat account holders, which was in violation of the provisions of Section 12A (a), (b), (c) of the SEBI Act, 1992. Moreover it was also found that the said transactions were in violation of Regulations 3 and 4(1) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (hereinafter referred to as ‘the Regulations’).
6. As modus operandi was quite similar in applications for shares made in respect of both the companies and parties concerned are common, we have referred to the issue of Jet Airways India Limited. It was found by the SEBI that respondent in Appeal No.20 of 2009 before the SAT had received 12,053 shares out of which 3272 shares were transferred before the day of lis
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