Justice N.K. Sodhi, Presiding Officer. - The precise charge levelled against the appellants in these two Appeal Nos. 49 and 50 of 2011 is that they made a false/misleading corporate announcement relating to an export order which led to increase in the price and volumes of the scrip of M/s. Vijay Textiles Limited (‘the company’) and when the price went up the promoters of the company off-loaded a substantial part of their holdings thereby making huge profits. It is on this basis that both the appellants have been charged with violating the provisions of Regulations 4(1), 4(2)(e) and (r) of the Securities and Exchange Board of India (Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (‘the Regulations’). Since common questions of law and fact arise in these two appeals, they are being disposed of by this order.

2. The shares of the company are listed on the Bombay Stock Exchange Limited (BSE) and the Hyderabad Stock Exchange. The Securities and Exchange Board of India (for short the Board) carried out investigations in the scrip for the period from 1-11-2004 to 11-3-2005 and it was observed that on BSE the price and volumes had witnessed a huge spurt. Investigations revealed that the company had come out with a false/misleading news regarding it having received an export order from a Swiss company which induced investors to purchase the scrip. It was also observed that the so-called export order did not fructify and the company omitted to bring this information to the notice of the investors. Investigations further revealed that after the price of the scrip had gone up considerably, the promoters of the company (one of which is the appellant in Appeal No. 50 of 2011) sold a substantial part of their holdings thereby making huge profits. On the conclusion of the investigations, the Board was prima facie of the view that the appellants had violated the provisions of the Regulations and accordingly two show-cause notices both dated 8-5-2008 were issued to the appellants which contain identical allegations alleging that the company had made the following corporate announcements during November 2004 to February 2005.

(a)Opening of retail Showroom

(b)Opening of Studio

(c)Bagging of export order.

Since no fault has been found with the announcements at (a) and (b) above, it is not necessary to deal with those announcements in any detail. However, it was alleged that the announcement regarding the bagging of the export order was false and misleading which did not materialize. According to the show-cause notice, this announcement was made by the company on 21-2-2005 and again on 24-2-2005 stating that it had bagged an export order worth 4.60 million US $ (about Rs. 20 crores) from Simran Enterprises from Europe for the supply of exclusive range of home furnishings. It is further alleged that the company produced an unsigned fax letter from the Swiss Firm which was only a letter of intent and did not refer to the placing of any order with the company. It is the case of the Board that when the company made this corporate announcement the price of the scrip went up and the promoters including the appellant in Appeal No. 50 of 2011 sold a substantial part of their holdings and thus violated Regulations 4(1), 4(2)(e) and (r) of the Regulations. The appellants filed their detailed replies to the show-cause notices denying the allegations. It was stated that the price of the scrip was in the upward mode since October 2004 and that the company had made several corporate announcements as a result whereof the price of the scrip went up. It was pointed out that on 20-11-2004 the Board of directors considered the proposal for division/splitting of the share capital of the company and on 22-11-2004 they decided to set up a Design Studio. The Board of directors approved the sub-division of the shares in their meeting held on 27-11-2004. Again, in their meeting held on 20-1-2005, the Board of directors considered the