1. The present appeal is directed against the order dated 19-4-2001, made by the Chairman, Securities & Exchange Board of India. The order prohibits the appellant from accessing the capital market for a period of two years and orders to initiate prosecution proceedings under section 24 read with section 27 of the Securities and Exchange Board of India Act, 1992 (‘the Act’) for violation of regulation 4(a) and 4(d) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 1995 (‘the Regulations’), against the appellant, through its directors namely Shri Anil Aggarwal, Shri Tarun Jain and Shri Shashikant.

2. The appellant is a large public limited company engaged in copper and aluminium manufacturing business. The appellant’s shares are listed on Stock Exchanges at Mumbai (BSE), Calcutta, Delhi, Ahmedabad and also traded at the National Stock Exchange (NSE).

3. The respondent is a statutory regulatory body established under section 3 of the Act. It is mandated to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

4. The respondent carried out an investigation into the alleged price manipulation in the scrips of certain companies including the appellant, especially during April and May, 1998. Investigation revealed that a set of persons had cornered large chunk of shares of the appellant, at BSE and NSE resulting in distortion of market equilibrium. Based on the findings of the said investigation, the respondent, on 20-12-1999 issued show-cause notice to the appellant and its directors/officers, viz. Shri Anil Aggarwal, Shri Shashikant and Shri Tarun Jain. In the said show-cause notice it was inter alia alleged that :

(i)There were large volumes coupled with fluctuations in prices at the bourse in respect of the appellant’s shares specially during April-May, 1998. Share price of the appellant was hovering in the range of Rs. 175 to 200 since September, 1997 but rose to above Rs. 350 in this period. As compared to other scrips in the industry, the rise was abnormal.

(ii)Investigations revealed that a set of brokers and sub-brokers acting on behalf of a common set of clients cornered large chunk of shares of the appellant at both BSE and NSE. These clients called the Damayanti Group, built up unusually large positions in the appellant’s shares resulting in distortion of the market equilibrium and creation of artificial market in this scrip. Investigations further revealed that Damayanti Group merely acted as a front for Mr. Harshad Mehta ("Mr. Mehta"). In the documents obtained from Mr. Mehta, a page was found with the following in his hand writing ‘Dil Vikas, Ster - 195,000’. Dil Vikas Finance Limited is an associate of a company called Eldorado, known in market circles as ‘a jobber’ for the appellant.

(iii)In April, 1998, El Dorado bought 3 lakh shares for the following 2 accounts :—

(a)1,50,000 shares for Crimson securities, an associate company of El Dorado;

(b)1,50,000 shares for Ashwini Khurana, a client of Eldorado.

(iv)In case of Mr. Khurana the shares were never transferred to him and were always lying with Eldorado. In addition no payment was received from him and the purchase consideration was adjusted against some amounts due to him. Mr. Murthy of the appellant had indicated to Eldorado about the availability of 3 lakh shares. Investigations revealed that the brokers from whom the 3 lakh shares were bought belonged to the Damayanti Group. In addition, it was revealed that the appellant through Madras Aluminium Company Limited (‘MALCO’) lent Rs. 5 crores for the purchase of these 3 lakh shares in the garb of a loan to Dil Vikas. Hence, the entire transaction of 3 lakh shares was a conduit for parking of shares.

(v)In addition, MALCO lent Rs. 11.75 crores to Eldorado for acquisition of shares by Dil Vikas Finance. These shares were bought at the instance of the BSE author