- (1.) THE present appeal is directed against the order dated 19-4-2001 made by the Chairman, Securities and Exchange Board of India. THE order prohibits the appellant from accessing the capital market for a period of 2 years and also 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 regulations 4(a) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 ('the 1995 Regulations'), against the appellant through its directors, namely, Shri Anil Aggarwal, Shri Tarun Jain and Shri Shashikant.
(2.) Brief facts leading to the filing of the present appeal are as follows: 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. The investigation revealed that a set of persons had cornered a large chunk of shares of the appellant, at Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), resulting in distortion of market equilibrium and creation of artificial market conditions. 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, Shri Anil Aggarwal, Shri Shashikant and Shri Tarun Jain. In the said show-cause notice it was alleged that the appellant had violated, regulations 4(a) and 4(d) of the 1995 Regulations, and also the bye-laws of the Bombay Stock Exchange by transacting indirectly in the shares of the appellant. The appellant and Shri Aggarwal, Shri Shashikant and Shri Tarun Jain were asked to show cause as to why (i) directions including a direction prohibiting them from accessing the capital market should not be issued and (ii) prosecution proceedings under section 24 of the Act should not be initiated against them for the above-mentioned violations. Show-cause notice was adjudicated by the Chairman, SEBI. Based on the conclusion arrived at in the adjudication, he passed the impugned order. Copy of the appeal has been served on the respondent and the reply is awaited. Pending disposal of the appeal, the appellant has prayed for an interim order staying the impugned order. The relief sought in the appeal is also substantially the same. At this stage of the proceedings, what is being considered is the appellant's prayer for interim order, it was made known to the parties that the Tribunal would be disposing of the appeal expeditiously, on receipt of the respondent's reply, which is expected in a couple of weeks. However, the appellant desires to have an interim order staying the operation of the impugned order, pending disposal of the appeal. Therefore, at this stage the prayer for interim order was taken up for consideration and decision. Shri C.A. Sundram, the learned senior counsel appearing for the appellant submitted that he was not asking for any interim stay specifically of the respondent's direction prohibiting the appellant from accessing the capital market or the order to initiate prosecution proceedings against the appellant and its directors/officers, that his request is to temporarily stay the impugned order as a whole. He submitted that he was prepared to give any undertaking for the purpose, including an undertaking that the appellant will not access the capital market till the disposal of the appeal, in case the Tribunal requires so. Shri Sundaram submitted that the appeal proceeding is a continuation of the adjudication. Therefore, during the pendency of the proceeding before the appellate forum, to safeguard the interests of the appellant it is necessary to stay the order passed by the adjudicating authority. In support of the said submission that the appeal is a continuation of the original adjudication, the learned senior counsel cited the Supreme Court in Hasmat Rai v. Raghunath Prasad [1981] 3 SCC 103. He stated that since the Tribunal is empowered to decide the appeal arising out of any order made by the respondent under the Act, it goes without saying that the Tribunal is also empowered to pass interim orders of the like sought for by the appellant. Referring to the Supreme Court decision in ITO v. M.K. Mohammed Kunhi AIR 1969 SC 430 the learned senior counsel stated that power to pass interim orders in an appeal is incidental to the power available to pass final orders, and there was no dearth of power with the Tribunal in this regard. Shri Sundaram submitted that the impugned order has caused irreparable injury to the appellant as it's reputation world over has been adversely affected and that the appellant would continue to suffer so as long as the impugned order is allowed to continue. He submitted that the appellant is a globally recognized company with lot of national and international business activities. He further submitted that the punishment meted out by the impugned order is unwarranted by the facts of the case and the material on record. According to him the order is draconian, and of extremely serious financial and other consequences adversely affecting the interests of the appellant and its shareholders numbering around 1,50,000. Shri Sundaram submitted that the impugned order has been passed arbitrarily in total disregard to the rules of natural justice. Although the appellant had specifically asked for a personal hearing, the respondent did not bother to give any such personal hearing. Despite the request of the appellant to permit cross-examination of the witnesses, citing various authorities in support thereof, the respondent denied the opportunity to the appellant to cross-examine the witnesses upon whose statements and evidence the impugned order is so heavily relied. Shri Sundaram further stated that the impugned order has relied on certain facts and materials which were never disclosed to the appellant either at the time of the show-cause notice or during inspection, thereby denying the appellant an opportunity to effectively defend itself. Therefore, the impugned order is untenable and deserve to be stayed urgently. Shri Sundaram pointed out that the respondent's finding in the impugned order that the appellant has contravened regulations 4(a) and 4(d) is based on two stray transactions involving purchase of 3 lakh shares by El Dorado and 6 lakh shares by Madras Aluminum Co. Ltd. (Malco). The learned senior counsel pointed out that it is not even alleged by the respondent that these transactions were effected at the instance of the appellant, that on the contrary the evidence on record shows non-involvement of the appellant in the transactions. According to the learned senior counsel when the traded volume of the appellant's shares in the stock exchange during the relevant settlement period was 13 million shares, by no stretch of imagination, it could be concluded that the purchase of 3 lakh shares had resulted in abnormal price movement in the appellant's shares, the respondent had totally ignored this reality to suit its convenience Shri Sundaram further stated that the shares were purchased at an average price of around Rs. 300 when several days before the purchase, the share had already touched Rs. 320. He also pointed out that such purchase on delivery basis could never have artificially raised the price or induced any person to purchase the shares, as has been alleged. Shri Sundaram submitted that Malco did not finance purchase of 3 lakh shares on delivery basis purchased by El Dorado, that the loan of Rs. 5 crores given by Malco to Dil Vikas, a registered RBI Satellite Dealer for the Government securities was deposited by Oil Vikas in their separate earmarked satellite account with the RBI from which funds could only be utilised for the RBI transactions and for no other purpose. He said that the said loan had nothing to do with the purchase of these 3 lakh shares, as the loan amount itself was only Rs. 5 crores, while the purchase consideration for 3 lakh shares was over Rs. 9 crores. Shri Sundaram submitted that both the parties for whom the shares were purchased by El Dorado, namely, Crimson and Mr. Khurana, had admitted that they were beneficially entitled to these shares.
(3.) REFERRING to the purchase of 6 lakh shares by Malco, the learned senior counsel submitted that the said purchase was effected on the specific request of the authorities from Bombay Stock Exchange to avoid a major payment crisis and thereby to protect the interests of innocent investors. Neither Malco nor the appellant knew the brokers of Damayanti Group allegedly involved in the transactions. The learned senior counsel stated that the respondent had ignored the fact that Malco had instructed El Dorado to find a buyer for the said 6 lakh shares and only if they could not find a buyer, Malco would purchase such shares, which Malco did after one month of the purchase by El Dorado. Shri Sundaram pointed out that the respondent had failed to recognise the fact that Malco is a separate and independent legal entity and felt no need to issue any show-cause notice to Malco, to ascertain the actual position, that this is a serious omission having a direct bearing on the conclusion drawn by the adjudicating authority. Shri Sundaram submitted that the so-called bail out was done to protect the interests of the stock market and not for any specific benefit of the appellant and that too it was done at the request of the concerned stock exchange. According to him such a transaction made at the request of the stock exchange, cannot be said to be meant to manipulate the prices to attract the provisions of regulation 4. He pointed out that the purchase was made at the then prevailing market price from the open market that such a stray transaction involving a relatively small quantity of shares cannot artificially raise or depress the market. He further stated that yet another factor to be noted is that the parties for whom the shares were purchased had taken delivery of the same. REFERRING to the scope of regulations 4(a) and (d), the learned senior counsel submitted that the transactions did in no way attract the provisions of the said regulations. REFERRING to the respondent's finding that the motive for the alleged price manipulation was relatable to the appellant's plan to acquire shares of INDAL in the context of competition from ALCAN, the learned senior counsel submitted that the said finding is baseless and contrary to the facts. Shri Sundaram submitted that the respondent had ignored the fundamental difference in valuing the shares allotted to the promoters of the appellant and the minimum conversion price for Optionally Convertible Preference Shares (OCPS). The allegation that the reason why the price was rigged was due to the minimum conversion price of OCPS of Rs. 350 is without any substance inasmuch as OCPS were to be converted into equity shares eighteen months after the date of allotment, that such conversion was not mandatory but optional and, therefore, the appellant could have had no intention in rigging the price to Rs. 350 in April, 1998 more so when the entire concept of offer of the said OCPS was mooted, even as per the show-cause notice, only at the end of May 1999 in response to ALCAN's counter offer, that therefore, the alleged rigging of price in April 1998 would in no way be connected with the issue of OCPS which was not even contemplated at that time.;