1. Minors – Retrospective Operation of order –– SEBI(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulation, 1995 – S. 11

SKA was the promoter of the Company while his wife ‘RA’ and his two sons ‘R’ and ‘D’ who were minors at that time were contributors to the company. The company came up with the public issue of shares out of which certain shares were reserved for the firm allotment to promoters/ directors of the company. The appellant asked for the issuance of duplicate shares contending that the shares allotted in their favour has been misplaced. An advertisement was issued and a notice was also sent to the Stock Exchange which on enquiry found that the stocks were sold in the market. Consequently the company scrip was suspended. The matter was referred to the Board for the enquiry it was found that there were large number of irregularities. Consequently the Board exercised the powers confered by the Provision of the Act and FUTP Regulation directing not to access the capital markets for a period of 10 years. On appeal, Tribunal while rejecting the plea of the appellants that there were minors at the relevant time, upheld the impugned order. In appeal Supreme Court appellants contend that they were minors at the time so no penalty can be imposed on them apart from SKA other than having not been shown as promoters the impugned order could not be sustained and the FUTP Regulations could not be said to have any applications in the instant case.

The Court held that the impugned order passed by the Board would not be binding on the appellants as they were minors. However the other directions issued by the Board including action taken in respect the offences committed were to be upheld. Further liberty was granted to the authorities to proceed against the offenders to which they are liable under the act but also under the Companies Act, and other penal statutes if attracted.

Ritesh Agarwal vs. SEBI [2008] 84 SCL 373 (SC)

2. Natural Justice – Banking Regulation Act, 1949 – S. 35A

The appellant restrained the Respondent from accepting deposits from both the existing depositor and fresh depositor. On writ the Respondent stated that it did not have a fair opportunity to present the case before the appellant. The High Court passed an interim order staying the operation and the enforcement order till further orders. Aggrieved by this the appellant challenged in the appeal the order passed by the Division Bench of the Allahabad High Court granting interim protection to the Respondent.

The Court held that there is a peculiar fact involved and it would be appropriate that Appellant gives an opportunity of hearing to Respondent so that it can place materials to substantiate its stand taken to reply to the show cause notice. The Court directed the Respondent to appear before the Appellant without any further notice and to place such material on which it proposes to rely upon. It also directed the Appellant to pass a fresh order.

Reserve Bank of India vs. Sahara India Financial Corpn. Ltd [2008] 85 SCL 19 (SC)

3. Prospectus – SEBI (Disclosure and Investors Protection) Guidelines, 2000 –Clauses 4.1 & 4.6

RPL and Reliance Public Utility Private Limited (i.e., RPUPL) were two unlisted companies of Anil Dhirubai Ambani Group (i.e., ADAG) and were promoted by Reliance Energy (i.e., REL) and AAA Projects Ventures Limited (i.e. AAA) . RPUPL decided to merge in RPL and a petition seeking sanction of the scheme of amalgamation was filed in Bombay High Court and was approved by the Court. RPL came out with the Public issue at premium in the price band. Before the issue it filed a draft Red Herring prospectus with the SEBI as per the guidelines. The appellant made representation before the board seeking stoppage of the IPO, on the ground that the amalgamation of RPUPL with RPL was fraudulently approved by the Bombay High Court. The appellant moved to the Bombay High Court through PIL seeking direction that the Board should investigate into the alleged irregularities in the IPO. The Bombay HC disposed the petition. The board complaining with the direction of the High Court passed the order. The appellant was not satisfied with the order as the IPO was not stopped by the Board and the filed the petition before the Tribunal. The main issue was that the Tribunal should prevent the IPO from being issued to the public in the form of envisaged in the Red Herring Prospectus. The appellant filed a petition before the Gujarat High Court seeking a stay of implementation and operation of the impugned order of the Board. RPL moved to the Supreme Court for grant of interim stay in the petition before the Gujarat High Court which was granted by it. The ground of the appellant that the IPO should be stopped has become infructuous by the order of the Supreme Court. RPL issued the Red Herring Prospectus for 100 % Book Built offer the IPO continued as per the order of the Supreme Court and was oversubscribed.

The Tribunal held that RPL had furnished all relevant and detailed information in the Red Herring Prospectus as required by law. The shares of the RPL was oversubscribed on the basis of the information furnished in the prospectus, the public shareholders had taken an informed commercial decision when they applied for shares in IPO. In this circumstance we fail to understand as to how RPL can be faulted after it had furnished information as required by the law in the Red Herring Prospectus. .

Jilla Grahak Suraksha Mandal & Ors. vs. Reliance Power Ltd. (SAT –Mum)

Appeal No. 194 of 2007

Date of the Decision : 14-7-2008

4. Registration fee – SEBI (Stock Brokers and Sub-Brokers) Regulations – Regulation 10

The appellant’s father ‘K’ was a member of the stock exchange and formed a partnership firm with his son (i.e., Appellant), wife and daughter-in-law. The Appellant was nominated on behalf of his father as he was ill. The Appellant claimed that the business continued in the name or entity and the stock exchange had permitted continuation of the same membership under same number and clearing code. The appellant claimed that he should be given benefit under the same registration of the earlier stock-broker and the benefit of fee continuity. The board as well as Tribunal rejected the appellant’s claim.

The Supreme Court has held that it is abundantly clear that no provision of succession to registration is permissible. The appellant, in order to operate in the stock exchange has to obtain a fresh registration from SEBI and for the First 5 years he would require to pay the quantum of fee linked to the turnover and at the flat rate in order to keep the registration in force.

Nikhil Kanchanlal Vakharia vs. SEBI [2008] 84 SCL 303 (SC)

5. Winding up – Companies Act 1956 – S. 433, 434

The petition was filed for the winding up of the respondent company on allegation that the respondent was indebted to the petitioner which is payable to the petitioner. The Petitioner on completion of work called upon the respondent company to pay the amount raised in the bill which was disputed by the company. The respondent company made certain deductions from the payment made to the petitioner stating that there has been delay in completing the job and that they have already informed the petitioner of the said
damaged for failure to complete within the stipulated time.

The court dismissed the Petition on the ground that respondent was justified in deducting certain amount as there were serious dispute between the petitioner and the respondent regarding the delay and unsatisfactory completion of work. The petition was filed to exert pressure to pay the bill. The dispute raised by the respondent appears to be bona fide and also involved disputed question of fact which can be gone into only in a full fledged inquiry before the civil court which is not the scope of summary proceeding like a winding up petition.

Osnar Paints & Contractors P. Ltd . vs. Western India Shipyard Ltd. (2008) 143 Comp Cases 239 (Bom.)