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1. Penalty – Regulation 26
of SEBI (Broker and Sub-Brokers) read with Section 15F of SEBI Act
The appellant company was a
stock broker. A monetary fine of Rs.10 lakhs was imposed by the adjudicating
officer on the appellant for alleged irregularities committed by the appellant
as disclosed during the inspection by the SEBI through Chartered Accountants.
A show – cause notice was issued upon the appellant and in reply to the show
cause notice the appellant has denied the allegations.
In Appeal, the Tribunal held that the proportion of the trade of the appellant
on account of his clients has little to do with the extent of care and skill
to be exercised by him in adhering the regulatory requirements that are meant
to protect the interest of investors. The size of clientele is not relevant in
this respect not is the fact there was a complaint from the clients. It could
not be accepted that the violation of regulation found during inspection were
merely technical nature. In any case appellant had no reason to allow its
banker the authority to transfer funds from and to the accounts of the
clients, since that was a gross violation of statutory regulation. In view of
large number of defaults of the appellant that have been established which
shows that the lack of due care, skill and diligence on its part, the penalty
imposed by the adjudicating officer cannot be considered to be
disproportionately high and there is no reason for the Tribunal to interfere
with the quantum of penalty.
Mefcom Securities Ltd. vs.
Securities Exchange Board of India [2008 82 SCL 193 (SAT-Mum)].
2. Managing Director – SEBI
Act – Section 27
The SEBI filed a complaint
against the petitioner for alleging that the petitioner being in charge and
responsible for day-to-day affairs of accused company failed to comply with
various regulations while accepting the funds in connection with their
plantation activities. It has been stated that the last decade has witnessed
initiative by private entrepreneurs to undergo plantation activated on a
commercial scale. It was not that the petitioner would invest minimal amount
in such ventures. It stated that the high returns promises under the scheme
were questionable and stated certain guidelines were framed pertaining to
plantation of the companies. Listing out the various regulations which were
required to comply within the year 1997 and alleging that the same were not
compiled with, complaint was filed violation of section 27 of the Act as also
the regulations framed. The petitioner filed instant petition seeking quashing
of the impugned order stating that merely because petitioner were directors
and the person-in-charge of day-to-day affairs of the company was insufficient
to proceed against them. They also contended that they were investors and
merely signed the proposal form of directorship and in September, 1997 they
were removed from the directorship of the company.
The Court relied on the
judgment of S.M.S Pharmaceuticals Ltd. case and held that it is very
nomenclature a person who holds the post of managing director would be
presumed to be managing and controlling the affairs of the company and there
was no merit in the petition and the same was to be dismissed .
Sushila Devi vs. SEBI [2008]
83 SCL 62 (Delhi)
3. Amalgamation – Section
11B – SEBI Act
The transferor company was
merged with the transferee company as per the scheme of amalgamation approved
by the High Court. The merged company retained the name of the transferor
company. The transferee company issued equity shares to the shareholders of
the transferor company which has not been listed. The appellant approached the
BSE for listing of shares. The BSE insisted that the promoters to sell 25% in
the market before the application for listing of the shares could take place.
Being aggrieved by this the appellant filed an appeal before the Tribunal. The
issue was settled amicably between the parties, the BSE imposed a condition
that its promoters should divest at least 1.33 % of the paid-up share capital
to the Indian Public by way of an offer for sale in the domestic market. The
appellant prepared the draft offer document and sent it to the respondent, the
Board. The Board withheld the draft offer for sale till the proceedings
against the appellant and violation of various provisions is concluded.
The Tribunal set aside the
order and directed the Board to proceed with the letter of offer presented by
the appellant in accordance with the law and issue a letter of observations in
terms of guidelines within 6 weeks from the date of the this order. The Board
should insist for strict compliance of the guidelines.
HFCL Infotel Ltd. vs.
Securities & Exchange Board of India [2008 82 SCL 199 (SAT-Mum)].
4. Pledge – SEBI (Unfair
Trade Practices) Regulations – Regulation 4
The SEBI noticed sharp price
variation in the scrip of the appellant company (i.e., Karuna Cables Ltd).
listed on the BSE and NSE, during certain period the price of the scrip was
risen for which the Board ordered investigation. The Board collected various
information on basis of which it passed an ex parte order restraining, among
others, the promoters of the appellant from buying, selling or dealing in
securities of the company directly or indirectly till further orders. The
Board directed the appellant not to issue any equity shares or any other
instrument convertible into equity shares and would not alter the capital
structure in any manner till further direction. In the appeal the appellants
contended that the company had received large orders for supply of electricity
transmission cables in order to meet those orders the company need finances,
but in view of the Board order it is unable to raise loans from the financial
institutions. Accordingly appellants sought the modification of the impugned
order to the extent that they be allowed to pledge to meet their shares with
financial institution or private financier to raise loans to meet the
financial requirements of the company.
The Tribunal hold the view
that view of the aforesaid undertaking given by the appellants the impugned
order was to be modified only to the limited extent the appellants were
allowed to pledge their shares with the financier/financial institutions in
accordance with the law. It further directed that monies it received on
account of the pledge would be in the account of the company to enable it to
meet its financial requirements. The appeal was disposed of in aforesaid
terms.
Karuna Cables Ltd. vs.
Securities & Exchange Board of India. [2008] 83 SCL 139 (SAT-Mum)
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