Videocon International Ltd. Vs. Securities and Exchange Board of - Court Judgment

Excerpt:
1. the present appeals are directed against the order dated 19th april, 2001, made by shri d.r.mehta, the then chairman, securities & exchange board of india. by the said order the appellant in appeal no.23/2001 has been directed "not to raise money from the public in the capital market for a period of three years in the interest of investors". it has been further directed that prosecution proceedings be launched against the appellant "through" its directors/officers i.e. shri v.n.dhoot, shri shelgikar and shri s.m.hegde, the appellants in appeals no.24/2001, 25/2001 and 26/2001 respectively, under the provisions 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.....

Judgment:
1. The present appeals are directed against the order dated 19th April, 2001, made by Shri D.R.Mehta, the then Chairman, Securities & Exchange Board of India. By the said order the Appellant in appeal No.23/2001 has been directed "not to raise money from the public in the capital market for a period of three years in the interest of investors". It has been further directed that prosecution proceedings be launched against the Appellant "through" its directors/officers i.e. Shri V.N.Dhoot, Shri Shelgikar and Shri S.M.Hegde, the Appellants in appeals No.24/2001, 25/2001 and 26/2001 respectively, under the provisions 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 Markets) Regulations 1995 ( 1995 the Regulations).

2. The Appellant in appeal No.23/2001 (the Appellant company) is a public limited company. It is mainly engaged in the husiness of manufacturing and selling of consumer electronic items and consumer durables, such as colour televisions, audio-video systems, refrigerators, air-conditioners, washing machines, computers, etc. .

The share capital of the Appellant as on 31.3. 2000 was Rs.1411.89 millions . Appellant's shares are listed on the Stock Exchange, Mumbai (BSE), traded as permitted securities on the National Stock Exchange (NSE) and also traded on the stock exchanges at Bangalore, Chennai, Delhi, Calcutta, Pune and Jaipur. 65% of the Appellant's share capital is stated to be held by the public and the balance 35% by the promoters.

3. Appellant in appeal No.24/2001 (Shri V.N.Dhoot) is the Chairman and Managing Director of the Appellant company. Appellant in Appeal No.25/2001 (Shri S.M.Hegde) and Appellant in Appeal No. 26/2001 ( Shri S.K.Shelgikar) are stated to be associated with the Appellant company in their professional capacity as consultant/adviser. They are also authorised signatories of "Videocon group of companies" 4. Respondent No.1(SEBI) is a statutory 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. Respondent No.2 (the Chairman) is the Chairman, SEBI, who has passed the impugned order. Respondent No.3 is Division Chief, SEBI, who has issued the show cause notice to the Appellants.

5. The Respondent SEBI, carried out an investigation into the alleged price manipulation in the shares of certain companies including the Appellant company, especially during April and May, 1998. The investigation revealed that a set of brokers and sub brokers acting in concert and on behalf of a common set of clients identified as Damayanti Group, cornered a large chunk of shares of the Appellant company at BSE and NSE and thereby "built up unusually large positions in the scrips" resulting in destortion of the market equilibrium and creation of artificial market in the scrips. Based on the findings of the investigation, Respondent No.3, on December 20, 1999 issued show cause notice to the Appellants . The text of the show cause notice issued to the Appellants is common. The show cause notice inter alia contained the following allegations/observations: There were large volumes coupled with fluctuation in prices of the scrips at the bourses in respect of the Appellant company, BPL Limited (BPL) and Sterlite Industries Ltd.( Sterlite) , especially during April and May, 1998.

The Appellant company's share price which was around Rs.100/- in April, 1998 touched a high of Rs.165/- on 04.06.1998, that the price movement was not in conformity with the Sensex/Nifty movements, and also not in line with the price movement of the shares of other companies in the same industry segment, that the scrip could not sustain the rise longer and fell sharply after 04.06.98 to a low of Rs.51/-.

A set of brokers and sub-brokers acting on behalf of a common set of clients (Damayanti group) cornered a large chunk of shares of the Appellant company both at BSE and NSE. The Damayanti group, built up unusually large positions in these scrips resulting in distortion of the market equilibrium and creation of artificial market in these scrips. Damayanti group comprised mainly of the following entities, viz. Damayanti Finvest Pvt.Ltd, CDP Fincapand Leasing Pvt.Ltd, KRN Finvest and Leasing Pvt.Ltd, Rijuta, Finvest Pvt.Ltd, Ikshu Finvest Pvt.Ltd, Money Television Industries Ltd. These entities had neither the financial worth nor the professional expertise to undertake the kind of dealings, but merely acted as front for Shri Harshad Mehta, who is a notified person under the Special Court(Trial of Offences Relating to Transactions in Securities) Act, 1992(the Special Court Act) Damayanti group acting through a set of brokers built up large purchase positions in the carry forward segments at BSE in the Appellant's scrip which increased from settlement to settlement, that this increase in carry forward position was accompanied by a corresponding increase in the scrip prices, which were being manipulated, that the hawala rate moved from Rs.45.50 to Rs.162/- during this period (Settlement No.1 to 10), on account of these manipulations. The profits earned by Damayanti group / Shri Harshad Mehta as a result of increase in hawala prices over successive settlements were utilised for making further purchases both at BSE and NSE in cash segment, payment of margins and building up further positions in carry forward segment. The delivery of shares received was also utilised for raising finances by doing share badla. Thus, through this modus operandi, substantial portion of traded stock of the Appellant company was cornered by Damayanti group/Shri Harshad Mehta and this cornering caused creation of artificial market and price manipulation in the scrip.

The promoters of the Appellant company announced, on 9.4.98, that they would acquire 2% equity capital of the company by making an open offer at a price of Rs.140/- per share. The prevailing market price of the scrip at that point of time was around Rs.62/-.

Thereafter, on 25.5.98, the promoters revised this offer price from Rs.140/- to Rs.165/- per share. In that context Shri V.N.Dhoot, the Managing Director of the Appellant company was called and advised by the Respondent that the promoters should refrain from making such announcements of intentions to buy at "higher prices" without actually initiating a formal process of offer, as such announcements lead to artificially affecting the share price. Thereafter, a Public Announcement was made by the promoters wherein price of Rs.165/-, for each share of the Appellant company was offered. As per the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the Takeover Regulations), the promoters of a company are allowed to acquire 2% of the equity as creeping acquisition without making a public offer. But the promoters chose to follow the public offer route for acquiring 2% equity, that the various announcements by the promoters of the Appellant that they would be acquiring 2% shares at much higher rate than the prevailing market price had the effect of bench marking the scrip price and led to distortion of true price discovery of the share price. Such announcements by the promoters had a material impact in artificially increasing the price and volume of the scrip.

6. The Videocon group made funds available to Damayanti group, to enable Shri Harshad Mehta to build up positions and corner the floating stock in the scrip. The funds were routed from the Appellant company and placed at the disposal of Damayanti group through a myriad of transactions through several bank accounts of Videocon group entities at Federal Bank, Fort branch, Mumbai. Videocon group placed an aggregate amount of around Rs.10 crores at the disposal of Shri Harshad Mehta by making purchase of illiquid shares in "spot" from Damayanti group. These alleged spot deals were not reported by the brokers to the Exchange. This arrangement was merely a fae to transfer funds from Videocon group to Damayanti group entities.

7. Some of the brokers, dealing on behalf of Damayanti group, who had cornerned a substantial chunk of the Appellant company's shares faced payment problems in June, 1998 and could not discharge their commitments towards pay-in liabilities. The outstanding carry forward positions of some of these brokers were taken up by Madhukar Seth & Co., Jaysukhlal Jagjivan, Springfield Securities Ltd. and Ventura Securities Limited, brokers of BSE, through "all or none" or "bulk" deals at pre-determined rates and quantities by synchronizing the timing of logging in of the trades by the buyers and the sellers. The brokers connected with Damayanti group sold these shares as bail out package. The funds for the purchase of shares to the said brokers were given by Videocon group entites through Joy Holdings P.Ltd (JHPL), a Videocon group company . The purchase of these shares of the Appellant company was made by Videocon group only, though shown in the name of other entities to circumvent the prohibition contained in section 77 of the Companies Act.

8. The purchase of the Appellant's shares from the selected brokers who were dealing mainly on behalf of Damayanti group, through a complex web of entities controlled by Videocon group further corroborated that the Videocon group were involved in the manipulation of the prices of the scrip in connivance with Shri. Harshad Mehta through Damayanti group.

The Appellant company provided an exit route to brokers dealing for Damayanti group, when the artificial increase in price could not be sustained and these brokers got trapped.

9. The Appellant company was asked to explain its violation of regulation 4(a) and (d) of the 1995 Regulations, read with section 11(1) and 11(2) (e) of the Act, and show cause as to why directions including directions prohibiting it from dealing in securities & accessing the capital market, and any other suitable directions, in the interest of investors and securities market under Section 11 read with 11 B of the Act and regulation 11 of the 1995 Regulations, should not be issued, and proceedings under section 24 of the Act should not be initiated against it through its directors/officers i.e. Shri V.N.Dhoot, Shri S.M. Hegde and Shri S.K. Shelgikar, for the above mentioned violations.

10. The Appellants answered the show cause notice. Based on the response to the charges, the show cause notice was adjudicated by the 2nd Respondent (the Chairman) and passed the impugned order confirming the charges set out in the show cause notices. The Respondent has viewed public announcement by the promoters to purchase the Appellant company's shares at a very high price and funding of Damayanti group to purchase the Appellant company's shares, as the cause of market distortion and held the Appellant company guilty of violating regulation 4(a) and 4(d). The impugned direction was issued in that context by the Respondent Chairman. The text of the direction is extracted below: " In exercise of the powers conferred under Sec. 11 and Sec. 11B of the SEBI Act, 1992, I hereby direct that the company, M/s.Videocon International Ltd not to raise money from the public in the capital market for a period of 3 years in the interest of investors.

Further, I hereby direct that prosecution proceedings be launched against the company viz. Videocon International Ltd through its directors/officers, i.e. Mr.V.N.Dhoot,Mr. S.K.Shelgikar, and Mr.

S.M. Hegde under the provisions of SEBI Act, 1992. The order shall come into force with immediate effect." 11. Since all the 4 appeals pertain to one and the same order it was decided with the consent of the parties, to hear the appeals together and pass a common order.

12. Shri C.A.Sundaram, learned Senior Counsel appearing for the Appellant company submitted that the impugned order has been passed by the Respondent Chairman in gross violation of the principles of natural justice and fairplay in as much as the statements of the brokers/witnesses were taken in the absence of the Appellant, that despite repeated requests to give the Appellant an opportunity of cross examining the witnesses/brokers, who were examined by the Respondents and whose statements have been relied on while passing the impugned order, the request was not acceded to . He submitted that the statements of brokers namely S/Shri S.N. Nangalia, Navanit Rana and Ashok Jogani are not trustworthy and cannot be relied on, as they themselves have vested interest in the proceedings having been investigated for contravening SEBI Regulations and having suffered penalties in the hands of the Respondent . Shri Sundaram, though contested the Respondents' decision disallowing cross examination of the witnesses/brokers, did not press the matter.

13. Learned Senior Counsel submitted that the impugned order cannot sustain legally and factually as the Respondents have failed to establish the charge of market manipulation by the Appellant. Referring to the main allegation that the Appellant manipulated its scrip price, Shri Sundaram submitted that it is baseless as the Appellant does not control the movements of trading in its shares, that it is the market forces that decide the prices, that abnormality and volatility are common features in the stock market. He further stated that the Respondents have failed to establish, what if any would be or was the motive or the gain to the Appellant in manipulating its share prices as alleged in the impugned order and the said failure is fatal as regulation 4(a) and 4(d) being an anti fraud provision, the intention of the party concerned has to be established to bring home the charge.

14. Referring to the allegation that the public announcement of open offer to acquire 2% of the Appellant's equity share capital by the promoters had artificially increased the price and volume of the scrip, learned Senior Counsel submitted that such a public announcement followed by a public offer cannot in any manner be considered as a device to manipulate the market. He submitted that the public announcement was made, though not required by law, to benefit the investors, and there is no bar on making a creeping acquisition in a fair and transparent manner to benefit the other shareholders, that the creeping acquisition by the promoters through public offer was in tune with the objective of the Takeover Regulations. He submitted that the very foundation of the charge of manipulation levelled against the Appellant is linked to the public announcement of offer made on 9.4.1998 by the promoters to acquire 2% of the Appellant's share capital (i.e. 14.24 lakh shares) from the public. According to Shri Sundaram any offer to buy shares at a price higher than the prevailing market price would necessarily activate the market and as long as the offer price is not an artificial one and the offerer honours the commitment, it cannot be viewed as an act of manipulation, that in the instant case neither the offer price was an artificial one nor the commitment to buy the shares remained unfulfilled Shri Sundaram submitted that it is an admitted position that on 9.4.1998 the price of the Appellant's share was Rs.62/-, that the offer to acquire 14.24 lakh shares at Rs.165 per share involving a total investment of Rs.21 crores was for the promoter group to consolidate its share holding and strengthen its position as the promoters had apprehension that raiders would take over the company by cornering the shares taking advantage of the low cost of acquisition. He further submitted that the public offer was made after intimating Respondent SEBI and upon the terms and conditions as approved by it. In this context the learned Senior Counsel referred to the promoter's letter dated 9.4.1998 addressed to Respondent SEBI, copy of the text of the public offer, and the press reports, annexed to the appeal and in particular , the contents of the letter dated 9.4.1998 and stated that the promoters had stated the reasons for making the public offer and had even sought the Respondent's "support and guidance" in the matter.

15. Shri Sundaram submitted that despite the knowledge of the said public offer, at no point of time did Respondent SEBI raise any objection with regard to the aforesaid public offer but gave its tacit approval as is evident from the Respondent's own statement in the show cause notice issued to the Appellant, that "Managing Director of Videocon was called and advised that they should refrain from making such announcements of intentions to buy at "higher prices" without actually initiating a formal process of offer, as such announcements lead to artificially affecting the price of the scrip. Thereafter a public announcement was made wherein price of Rs.165/- for each share of Videocon was offered". He submitted that if the promoters had any intention to defraud other shareholders, they would not have offered to pay 2 1/2 times the prevailing market value of the shares by making the public offer, that if the intention was to defraud other share holders, rather than offering such a higher price the promoters would have preferred to depress the market price of the shares to their advantage.

Shri Sundaram stated that the Respondents have failed to appreciate that the promoters having committed themselves to acquire 14.24 lakh shares on 9.4.1998 from the public at the rate initially of Rs.140 and later at Rs.165 per share, by "bench marking" the market price of the shares no benefit would be derived, that it is but natural that when an attractive public offer is made to acquire shares at a price higher than the market price , the existing shareholders and potential investors would try to acquire more and more shares by the record date (1.6.1998 in this case) resulting in increase in the volume and the price and the offer to buy shares at the rate of Rs.165 against the market rate of Rs.62/-, cannot have a different effect and be an exception. Learned Senior Counsel stated that the very fact that immediately after the record date the share price dropped from Rs.162.50 to Rs.50/- on 4.6.1998 itself demonstrates that increase in the volume and price was only on account of the investors wanting to derive benefit of the public offer made by the promoters. He stated that since the public offer did take place and the promoters acquired the shares as promised, there has been no prejudice to any shareholder of the Appellant. Shri Sundaram stated that the allegation that the Appellant indulged in manipulating the price and volume of its own shares pursuant to the public offer made by the promoters and that it was done for the purpose of "bench marking the price of its shares" is contrary to and inconsistent with the facts on record and hence untenable. He also stated that the offer price was not an artificial price as could be seen from the Appellant's Balance Sheet as on 31.3.1998 and referred to the parameters like Price Earning Ratio, Book value of the shares, dividend rate etc., and also the progressive growth pattern of the Appellant year after year. He further stated that creeping acquisition itself boosts investor confidence in the company and upward share price movement is the normal effect, in such a context. He stated that the offer price was in no way manipulated, that as a result of the higher price offered, everybody who wanted to take advantage of the offer, got benefited and that benefit was not confined to few but wide spread. He also stated that fixing a purchase price in tune with the book value cannot be considered as an artificial price.

Referring to the observation in the impugned order that "timing of the offer of the company in April and its subsequent revised offer in May 1998 has to be seen against the back ground where its share prices were showing unusual rise and the company's funding of the operators in the market who built up long position in the scrips of the company", Shri Sundaram stated that as per the Respondent's version ten crore rupees was made available in April and if that be so it could not have an impact on trading in mid May, 1998 He also stated that the Respondents have conveniently ignored the fact that the promoters had only purchased the shares and did not sell the same and book any profit. He further stated that the promoters intending to increase their holding would normally try to depress the share value to reduce the cost of their acquisition, rather than increasing the cost. Learned Senior Counsel submitted that in the light of the facts and circumstances of the case, the Appellant cannot be held to have manipulated the market, to attract the provisions of regulation 4(a) and 4(d) of the 1995 Regulations.

16. Shri Sundaram cited the published market figures and stated that the price rise was steady from 7.4.98 to 2.6.98 and started falling from 3.6.98 onwards and touched Rs.56.50 per share on 30.6.98., that there was no overnight jump or fall. He also referred to the quantum of shares traded during the period and stated that there was no quantum jump in the volume traded, as is being projected by the Respondents, that except on 11.5.1998 and 12.5.1998 on all other days the transactions were only normal in volume. He referred to the details of the price volume data of the scrip in BSE and NSE presented in the impugned order and stated that the Respondents in a very unfair manner have chosen selective data to suit their theory by ignoring the actual factual position. He denied the allegation in the order that " the price increase in the scrip of the company was not based on any economic fundamentals" and stated that it is only a casual remark without bothering to see the strong financial position of the Appellant revealed in its annual accounts.

17. Shri Sundaram, with reference to the public announcement made by the promoters, submitted that if the Respondents' conclusion that the open offer distorted the market equilibrium is accepted that would mean that even if any third party makes the offer and the market responds positively that would amount to manipulation of price warranting action! He submitted that the Respondent's role under the Act is of regulator and its primary function is to decide in the course of an activity as to whether that act would affect the investor; that the regulator who did not see the need to regulate at the relevant time despite being there, cannot find fault thereafter, that in the instant case the Respondent SEBI was aware of the promoters plan to acquire 2%of the Appellant's capital and that it had asked the Appellant to make the offer and not to stop by making public announcements.

18. Shri Sundaram submitted that the Appellant has not been charged for violating the Takeover Regulations, that if the Respondents had felt that the creeping acquisition was not in accordance with the provisions of the Takeover Regulations they would have by now proceeded against the Appellant, that even after 3 years of the public offer they have not done so would clearly indicate that there was nothing illegal on the part of the Appellant company. He stated that the Respondents cannot stop promoters making public offer for the purpose of creeping acquisition, that making an informed public announcement is not in contravention of the law, but is more in tune with the spirit of the Takeover Regulations and the consequential market response to such a legitimate action should not be a matter of concern to the Respondents.

Shri Sundaram referring to the Respondents' version that under the Takeover Regulations, in the context of acquisition of shares public offer is required to be made only when the same attracts regulations 10 or 11, submitted that public offer is not barred in the context of creeping acquisition is evident as the Respondents have accepted the transparent creeping acquisition by the promoters. He submitted that there is no prohibition in the regulation on an acquirer making a public offer and making creeping acquisition. The Respondents' present version that " you ought not to have done so " is not correct, that the Respondent SEBI has forgotten the fact that it had asked the Appellant to make the offer and accordingly the public offer was made and for obeying the Respondent's order, it cannot now blame the Appellant. Shri Sundaram referring to the Respondent's version that as a result of the public announcement made on 9.4.1998 scarcity was created in the market and consequently the share price shot up, stated that by the Respondents' own version it was the public announcement which was responsible for the market hike. He stated that making a genuine public announcement/ offer being not illegal, and if the price as a result of the offer moved up, the offerer cannot be blamed, as it was only the natural effect of a legal action. Shri Sundaram stated that in one breath the Respondents consider the public announcement as the cause of price rise and in another breath they consider Rs 10 crores stated to have been given by the Appellant company as the cause that they are not sure of the casue. Shri Sundaram, referred to the effect of the public announcement on the market during 9.4.98 to 21.4.98 as perceived by the Respondents, that volumes on both exchanges fell drastically and the shares hit circuit filters soon after opening on 13.4.98, 20.4.98 and 21.4.98 that as a result of the fall in the volumes, the floating stock was reduced artificially and consequently an artificial demand was created resulting in rise in the price of the Appellant's shares from Rs.62 to Rs.105 by 21.4.98 , that in the show cause notice and in the order the Respondent had stated that " this rise in price was accompanied by abnormal volumes in the scrip both at the BSE and NSE during this period", and submitted that thus the Respondents themselves have taken a contradictory view. Since the offer price was relatable to the economic fundamentals governing the share prices the purchase price offered by the promoters cannot be considered as artificial, as alleged. Learned Senior Counsel submitted that if an offer is made within the real value of the scrip, then the presumption is that the offer price/transaction price is not an artificial price, but if the price is beyond the real value, the price can be considered as a manipulated price, that in the instant case the offer price was not above the real value. He further submitted that the price and volume movement is natural in the context of a public offer to purchase shares which are fundamentally sound, at a price higher than the prevailing market rate, from the shareholders whose name appears on the company's register on a prospective record date, as many would try to buy and few would like to sell, to reap the benefit when the offer is made, resulting in scarcity of shares in the market and rise in price that it is the law of demand and supply that drive the market.. Shri Sundaram submitted that the yard stick of artificiality should be one of objective approach and not of subjective approach. Shri Sundaram referred to the various provisions of the Takeover Regulations and the requirements thereunder and stated that the Regulations is an investor friendly one as well, and that the Appellant has not violated any of the provisions of the said Regulations while making the creeping acquisition . He stated that the public announcement was made on 9.4.98 and public offer was also made on 29.5.98, scrupulously following the time frame provided in the Regulations.

19. With reference to the allegation that the Appellant provided about Rs.10 crores to Damayanti group to finance the transactions, Shri Sundaram submitted that the Respondents have not cited a single transaction by the Appellant, to support the allegation. On the contrary it has been stated in the order that " Damayanti group acting in concert, through a set of brokers had built up a large concerted position of around more than 50% of the total position at the exchange in the scrip of Videocon" and "this cornering of shares had created artificial market and price manipulation in the scrip" . He submitted that the daily market turnover in the scrip was to the tune of Rs20 crores per day and as such the allegation that just with ten crore rupees reportedly provided by the Appellant, one could hold 50% of the market position is unbelieable and the finding arrived at by the Respondents in this regard is self contradictory. He referred to the flow of funds depicted in the impugned order and stated that it could be seen therefrom that not even one rupee has been given by the Appellant to the Damayanti group. He submitted that JHPL to whom the Appellant is stated to have given Rs.10 crores is a pure trade transaction and the said JHPL is not a Videocon group company , that it is owned and controlled by some one else and the Appellant has no control over the business decisions of the said JHPL . He submitted that the Respondents have stated in the order categorically that all the brokers (mentioned in the order) "dealt with extensively in the Videocon scrip on behalf of Damayanti group", thereby admitting that it was the brokers who had transacted in the Appellant's shares on behalf of Damayanti group. He submitted that the Appellant was not connected with or concerned in the share transactions done by brokers on behalf of Damayanti group or any other entities. Referring to the finding in the order that GNH Global Securities Ltd and Shri Satyanarayan Nangalia "were given large amounts for purchase of shares" Shri Sundaram stated that by the Respondent's own version these two brokers were paid just Rs.1.25 crores each. He stated that the Respondent has in a story telling manner stated that the Videocon group was financing Damayanti group by sham transactions, without bothering to substantiate such a serious charge.

20. Shri Sundaram stated that the Respondents had alleged that the illiquid shares were purchased in spot deliveries and by way of an example purchase of Global Tele Systems' shares has been quoted, little realising that Global Tele systems share at that point of time was not an illiquid scrip. . He further stated that the Respondents have not furnished the names of those companies the shares of which according to them are "illiquid", that in any case purchase of shares are business decisions taken by each company, not the Appellant. With reference to the charge that the broker did not report the spot transactions to the exchange Shri Sundaram stated that the proper course in that case is to take action against the concerned broker and in any case non reporting of the transactions by broker to the exchange will not change the nature of the transactions. As regards the nature of fund flow shown by the Respondents in the order, Shri Sundaram, referred to the explanation given in the appeal memorandum and stated that it was towards trade transactions/loan repayments, and utilisation of the funds was for the recipients to decide and not by the Appellant.

21. Learned Senior Counsel stated that the fund flow depicted in the order indicates that the funds were transferred from 29th April 1998 till 30th July, 1998, but according to the Respondents, prices/volumes of the Appellant's shares showed increase from 27th March, 1998 till June 4, 1998 on BSE and NSE, that this would show that the fund flow had nothing to do with the market response during the period April-May 1998, referred to in the order. Shri Sundaram stated that as per BSE/NSE data, Appellant's scrip price increased from 29thMarch, 1998 even when there was no fund flow from the Appellant as per the impugned order, that for nearly one month the price/volume on BSE/NSE increased even in the absence of any such fund flow as alleged. He further stated that as per the order the price increase continued till 4th June, 1998 after which the prices started falling finally freezing at Rs.50.90 on 30th June, 1998, that even from the information furnished in the order showing the flow of funds and the market behaviour, it could be seen that there was no co.relation between the funds flow and price movement. By way of illustration he stated that even though the order shows fund flow after 4.6.1998 and even after 30.6.1998, the scrip price kept on falling. Shri Sundaram stated that the Respondents have failed to establish the version that it was due to the alleged flow of funds from the Appellant the share price increased.

22. Shri Sundaram submitted that the Respondents have failed to understand the difference between the promoters and the companies and their rights and obligations. The order refers to funding by Videocon group companies and ends up in penalising the Appellant, though it is only one of the companies in the Videocon group, that on a representative basis one of the group companies cannot be held liable for the omissions and commissions, if any, of the other group companies, that the Respondents have not identified any particular company in the group and its involvement, if any, to proceed against .

Shri Sundaram stated that in fact in the impugned order the person responsible for the market destortion has been identified in the following words that "the Damayanti group built up unusually large position in the scrips of the Appellant resulting in distortion of the market equilibrium and creation of artificial market in their scrips".

Thus according to the Respondents it is the Damayanti group which cornered large chunk of shares resulting in distortion of market and not the Appellant, and there is no indication in the order of the Respondents having proceeded against the said Damayanti group, that the Appellant has been penalised for the alleged misconduct of the Damayanti group though there is no material to show that the Damayanti group is connected with the Appellant. Shri Sundaram stated that the Respondents have not produced even an iota of evidence to show that the Appellant had provided funds to Damayanti group and Damayanti group had transacted in the shares at the behest of the Appellant. The Respondents have connected the Damayanti group with the Appellant based on the untested and untrustworthy statement of Shri Nangalia and GNH Global Securities, ignoring the denial of the Appellant of any such association.

23. Shri Sundaram submitted that the Respondent's view that JHPL is a Videocon Group company and as such funding by the said JHPL is to be considered as funding by the Appellant company is also untenable for the simple reason that the Appellant is neither a shareholder of JHPL nor any of its Director is a Director of JHPL nor does the Appellant control the functioning of the said company in any manner. Shri Shelgikar who is a shareholder and director of JHPL , visiting the Appellant's premises as a consultant by itself is not sufficient to treat JHPL and the Appellant as one and the same entity . The fact that the said JHPL and the Appellant had trade transactions does not mean that JHPL is controlled by the Appellant and the Appellant is liable to the actions of JHPL.

24. Shri Sundaram submitted that the conclusions arrived at in the impugned order by the Respondents that the Appellant provided funds through its associates, and certain brokers rigged the share price at the behest of the Appellant or that funds were provided to certain brokers facing- payment difficulties as a quid proquo measure are completely unfounded, that there is no material on record based on which such a conclusion can be drawn. He submitted that the Appellant has not directly or indirectly given any loan, guarantee or any financial assistance for purchase of its own shares as alleged.

25. On the allegation of bailing out the brokers, by providing a sum of Rs.15 crores from the Appellants' side, Shri Sundaram stated that the Appellant has not funded any particular broker to get out of the crisis as is evident from the impugned order itself. He re-iterated the observations made in the order that funds to the tune of Rs.15.5 crores were made available by JHPL after receiving the same from Videocon Group companies. The entire order depicts Videocon group as the source and JHPL as the centre of funding. Shri Sundaram submitted that the Respondents have unjustifiably linked Damayanti group with the Appellant and by linking so, the Appellant has been held liable for the actions of the said Damayanti group. He said that for the purpose the Respondent has not adduced any evidence except stating that the bail out was meant to protect Damayanti group brokers,ignoring the Appellant's version that funding for the bail out of brokers was done at the behest of BSE to avoid payment crisis in the exchange. Learned Senior Counsel submitted that unless it is established that the Appellant is a part of the Damayanti group or that the Damayanti group had cornered shares at the behest of the Appellant, the charge of manipulation against the Appellant flowing from the transactions made by the Damayanti group cannot be sustained, that the Respondent has failed to establish the said requirement. He stated that though it has been categorically stated in the order that the Damayanti group acting through a set of brokers built up large positions in the carry forward segments in the Appellant's scrip at BSE, the Appellant has been penalised for the same though it cannot be held responsible for Damayanti group's transactions as it has no connection with them. He further stated that the Respondents have totally ignored the quantum of the so called funds provided by the Appellants, vis-is the cost of the shares stated to have been accumulated by Damayanti group. He referred to the observation in the order that as a part of the bail out package 503000 shares of Videocon were purchased @ 111.60 aggregating Rs.5.62 crores by Fedex Securities Ltd, and stated that the said Fedex is not connected with the Appellant, that it is absurd to hold that all those who have normal business transactions with the Appellant are " intimately connected" to it. As per the Respondents' own version the payment by Fedex for the purchase of these shares was made partly out of receipt of share application money of Rs.50 lakhs from JHPL, loan of Rs.90 lakhs from JHPL and Rs.1.25 crores from the Appellant towards deposit of lease fee, etc that these figures add up to Rs. 2.5 crores only and there is no indication as to who financed the balance amount of Rs.3.12 crores stated to have involved in the transaction, that it should obviously be by some one and the Respondents have suppressed the information, as revealing the same would have gone against their theory, that if the Appellant had been that interested, as alleged, Fedex would have been entirely funded for the purpose by the Appellant.

He further stated that the allegation against the Appellant that the Appellant provided funds through its associates and certain brokers who dealt in the equity shares of the Appellant and rigged the company's share price between 1.4.98 to 4.6.98 and provided funds to bail out brokers in June, 1998 is totally baseless. In this context he referred to the observations in the order that a sum of Rs.773.18 lakhs was given to Madhukar Seth during 13.6.98 to 27.8.98 for the bail out operation effected on 12.6.98. The fund flow stated therein is that from 13.6.98 to 19.6.98, was Rs.3.75 crores, 2.7.98 to 30.7.98 Rs.2.70 and 1.8.98 to 27.8.98 Rs.1.28crores!` 26. Shri Sundaram stated that according to the Respondents the Videocon group had made funds available to Damayanti group, that the funds were routed from Videocon International and placed at the disposal of Damayanti group through several bank account of Videocon group companies, that the Appellant is thus described as a financier who helped Damayanti group to purchase shares. Shri Sundaram submitted that the order claims that this is based on the investigations conducted by the Respondent, that the investigation finding as communicated to the Appellant has no such finding. In this connection he referred to the various dates on which the fund flow is stated to have taken place and the trade volume in the exchange in those days, that on 29.4.98, Rs.1.5 crores (volume 7.8 crores) on 30.4.98 Rs.1.5 crore (volume 19 crores ) 2./5.98 Rs.7.5 crores (volume 11crores)19.5.98 Rs.2 crores (volume 89 crores )28.5.98 Rs1 crore (vol. 70 crores). He also pointed out that it was spread over a period of one month and not overnight and further to claim that by providing just Rs.10 crores; huge transactions could be effected is incorrect.

27. Shri Sundaram referred to the Respondents' observation that the funds moved from the Appellant to Videocon Petroleum Ltd and from Videocon Petroleum Ltd to Dombell Investment, and stated that a contrary position emerges from the letter dated 13.4.1998 from Videocon Petroleum Ltd to Joy Holdings P.Ltd (relied on by the Respondents ), as the letter proves that the said Videocon Petroleum Ltd had provided a sum of Rs.20 crores @ 20% interest to the JHPL as inter corporate deposit for a period of sixteen months. In this context he also referred to Shri Dhoot's statement dated 20.7.1999 relied on by the Respondents that " I am the Chairman of Videocon Petroleum Ltd (VPL) and this company had surplus funds of about Rs.500 crores in 1998. Out of this about 25 crores were invested in listed securities. This was a normal investment of the investment division of VPL". In the light of the said unrebutted statement, the Respondents' claim that the Appellant had funded through Videocon Petroleum is untenable. Shri Sundaram submitted that the entire charge that the Appellant provided funds to buy its own shares, thus falls flat in view of the uncontroverted position that it was Videocon Petroleum and not the Appellant who paid money to JHPL. Shri Sundaram referred to factual position explained in the appeal memorandum and stated that DIPL, VAL, VPL, JHPL, and Fedex were paid in the business dealings. He stated that DIPL supplies Colour TV and washing machines to the Appellant from its manufacturing unit at Noida, that VAL supplies consumer appliances, VPL advances loans/ICD, JHPL also provides funds and Fedex provides hire purchase loans, that the Appellant repays/ returns the money due from it to these entities in the manner they direct.

28. Shri Sundaram referred to the statement of Shri Nangalia and stated that to a question from the Respondents' investigating officer (Q.2) as to who were the clients on behalf of whom he traded in the scrip of Videocon, BPL, Sterlite, Seasa Goa and Pentafor Software during January 98 to 23.6.98 (date of deposition) the said broker had admitted that in the case of Videocon,BPL and Sterlite his main clients were Damayanti Finvest P.Ltd, CDP Fincap and Leasing PLtd, Digital Leasing and Finance, KRN Finvest P.Ltd and Rituja Finvest P.Ltd. Shri Sundaram stated that these are the companies shown as Damayanti group companies by the Respondent in the show cause notice issued to the Appellant .From Shri Nangalia's statement it is clear that he had traded for the said clients. To another question seeking the name of the counter party broker to whom he had sold 2.4 lakh shares of the Appellant, Shri Nangalia had answered " After the trading hours of 12.6.98 the exchange asked us to put the sale order in Sterlite Industries in "all or none" segment. Accordingly we put the order and the same was picked up by some other brokers. Since all or none segment does not indicate the clearing number of counter party broker we are not in a position to give you the name of counter party broker. Similarly 2.4 lakh shares of Videocon International were put in all or none segment at the instruction of the client and it was picked up by some other broker.

Since in both the cases we had a C/F position there was no need to give the delivery". Shri Sundaram stated that it is thus evident that it was not in the knowledge of the Appellant as to who were the brokers involved in the bail out and Shri Nangalia had stated that the transaction was done on the instructions of his client, and the Appellant has not been stated as a client by Shri Nangalia. Shri Sundaram referred to another question put by the Respondents to Shri Nangalia as to whether "he had dealt for a client viz.M/s. Gandak Investments P.Ltd and how he was introduced to the said client and what was the nature of the transactions", and the answer thereto - " we were told by Hema of 1208 Maker Chamber V that they wanted to sell certain shares of Global Telesystems Ltd which would be purchased by M/s.Gandak Investments Ltd, we have not met any person from M/s.Gandak Investments Ltd and do not know their office". The Respondent had asked Shri Nangalia to state in the light of his large scale business with Damayanti group, the financial credibilities of the said group, and in reply thereto he had stated - " I received all the margins in time.

There were no payment problems. Even in the beginning when the exposure was to the tune of a lakh shares of BPL, I was given around 30,000 shares of BPL as security. I did not have any doubts about their financial credibilities. In my view whatever I have done is correct as a normal broker". Shri Sundaram submitted that, the one spot transaction, referred to by the Respondents cannot be considered as a channel for routing funds to corner shares. In this context he specifically referred to the observation in the order that the "Brokers GNH Global Securities Ltd and Satyanarayan Nangalia in a statement to SEBI had stated that Equity and Gandak belonged to the Videocon Group and were introduced to them as client by Damayanti. These brokers were given large amounts for purchase of shares in spot by companies belonging to Videocon Group and they were inrtroduced as clients to these brokers by Damayanti Group, shows that this arrangement of purchase of shares in spot was worked out to transfer funds from Videocon Group to Shri Harshad Mehta through Damayanti Group entities".

He submitted that such conclusion is baseless as there is nothing to support the same in the statement of the said two brokers placed before the Tribunal. Similar is the case; with the Respondents' observation that "whenever the clients of these brokers i.e. Damayanti group were short of funds, Videocon group through Equity and Gandak provided the necessary funds by sham transactions disguised as spot transactions between Damayanti group and Videocon group. Shri Sundaram submitted that these are all findings springing out of imagination and definitely not from any evidence. In this context he referred to the test of evidence required, to hold a person guilty of manipulation in terms of regulation 4(a) and 4(d), explained by this Tribunal in Sterlite Industries Ltd v. SEBI ([2001]34 SCL 485: [2001] 45 CLA 195(SAT)) and stated that the impugned order has failed to pass the test.

29. Shri Sundaram referred to the statement of Shri Navanit N Rana of GNH Global Securities Ltd and pointed out that to the Respondent's query that "any shares other than VIL, Sterlite, BPL were purchased from his counter for Damayanti group, Shri Rana had replied in the affirmative and had stated that the other shares which were purchased and sold were of SAIL, LIC Housing, Global Tele, Kreb Bio, Tata Chemical, Nagarjuna Fertiliser. To another query about the sale of shares of Kreb Biotech and Global Telesystems as spot transactions to Equity Investments and Gandak Investments, Shri Rana had stated that payments were made directly to Sony and Valfin upon the instructions of Damayanti group and the payments were received upon the instructions of Damayanti group and the payments were received only after Damayanti group had given delivery of shares sold by them. Shri Sundaram stated that dealings in shares with Damayanti group is not an offence, that the question is whether the Appellant had funded the said group with the intention to manipulate the market, that there is not even an iota of evidence against the Appellant in this regard. Shri Sundaram also referred to the statement by Shri Satvinderpal Singh Gulati of LKP Group to show the non involvement of the Appellant and that LKP group purchased shares of its own. Shri Satvinderpal Singh had deposed that "LKP group had to receive a sum of approximately Rs.3 crores from M/s.

Shrenik Shah and Bharat Khona, both members of the BSE on account of payments given to them about 4 years back. For almost 4 years, the LKP group could not recover these amounts and the interest thereon. Despite our repeated insistence, the brokers expressed their inability to make over payment. We were told by the broker that they had recoverable dues from Mr. Harshad Mehta and that we should recover our dues from him.

Accordingly, we started following up with Mr.Harshad Mehta for recovery of our dues. This has been going on for almost 4 years. Since Harshad Mehta could not pay up, he suggested that we purchase certain shares on his recommendation, make a profit on their sale and adjust the outstanding dues from the profits, . This was about a year ago. He made a recommendation in several scrips (about 30 or so) but on examining the fundamentals of the companies market report and price behaviour we decided to purchase shares of BPL Ltd, Lakme, Federal Bank, SAIL, Global Trust Bank, Videocon International Ltd and Sterlite . We did not perceive any risk in these purchases since the purchased shares were to remain in our possession. Accordingly Sea Glimpse Investments Pvt. Ltd and Prasam Trading and Finance P.Ltd of the LKP Group purchased these shares on his recommendation. The total exposure by the LKP group was in the range of 10 to 15 crores. These purchases were financed out of own sources, private borrowings and bank finance from Standard Chartered , Bank of India and Global Trust Bank.

30. We purchased approximately 6,00,000 shares of BPL, 1,00,000 of Sterlite, 80,000 shares of Videocon Ltd and others...., these purchases were made by us through our inhouse broking concerns LKP Shares and Securities Ltd., LKP Securities Ltd and some other brokers of BSE and NSE like Satyanarayan Nangalia, Valfin Securities etc. We received deliveries in respect of all our purchases and have also got some of them transferred in our name......." Shri Sundaram stated that this statement indicates Harshad Mehta's role, and also explains some of the transactions of Nangalia, Valfin Securities etc., and the non involvement of the Appellant. He also referred to the statement of Shri Nangalia to a question as to whether he had dealt for a client viz.

M/s.Gandak Investments P.Ltd and how he was introduced to the said client and what was the nature of the transactions with them? that " we were told by Hema of 1208 Maker Chambers V that they wanted to sell certain shares of Global Tele Systems Ltd, which would be purchased by Gandak Investments P.Ltd. We have not met any person from Gandak Investments P.Ltd and do not know their office. 1,80,000 shares of Global Telesystems Ltd were purchased by M/s.Gandak Investments Ltd on spot basis which were sold by one of the concerns of Anil Doshi and Dinesh Doshi we received a payment of Rs.1.25 crores against this., The delivery of these shares were not given by us to M/s. Gandak Investment P.Ltd., we were then asked by Hema to purchase 1,20,000 shares of BPL in settlement nos. 12 in the Account of M/s.Gandak Investments P Ltd., and then sell these shares in the same settlement. A loss of approximately Rs.1.03 crores was debited to their account. Since the payment was not coming from M/s.Gandak Investments P.Ltd we sold 1,18,000 shares of Global Telesystems Ltd in the market in settlement nos. 13,14 and 15. We have to recover about Rs.11 lakhs from M/s.Gandak Investments Pvt.Ltd, for which we contact Anil Doshi, and Hema". Shri Sundaram submitted that from this statement it is clear that it was Damayanti group which identified the broker and not the Appellant and the brokers were transacting at the behest of the said Damayanti group , that there is no evidence to show that Damayanti group used Appellant's money to purchase the Appellant's shares and and there is no evidence to show that the Appellant gave money and instructed Shri Harshad Mehta to corner the shares on its behalf, that on the contrary as per the Respondents, Harshad Mehta is the profiteer, that to charge the Appellant under regulation 4(a), there is no cause and link. The Respondents have wrongly come to the conclusion that the Appellants money was used to buy its own shares at its behest. Shri Sundaram stated that the bail out as such had no reaction in the market and it is not per se illegal. If the Respondent had made out a case that the brokers were holding large positions on the Appellant's account, then the Appellant is liable, but in the instant case the Respondent has admitted that it was Damayanti group of companies cornered the shares for Shri Harshad Mehta, that in the light of such clear finding, the Appellant cannot be held to have manipulated the market.

31. Shri Sundaram submitted that the show cause notice stated that Shri Harshad Mehta manipulated the market. He read out the portion from the show cause notice stating that the investigations conducted by the Respondent into the suspected price manipulation revealed that there were large volumes coupled with fluctuation in prices at the bourses in respect of BPL., Videocon and Sterlite during April-May, 1998, that the Damayanti group distorted the market equilibrium and created artificial market in those scrips, that Shri Harshad Mehta was identified as the driving force behind the Damayanti group, that in no uncertain terms it has been stated in the notice the manner in which the Damayanti group/Shri Harshad Mehta transacted in securities, that substantial portion of traded stock of Videocon was cornered by Damayanti group/Shri Harshad Mehta and this cornering caused creation of artificial market and price manipulation in the scrip, that thus the Respondents having come to such clear conclusion as to who manipulated the market, the public announcement or the alleged fund flow from the Appellant could not be considered as the cause of market manipulation warranting action against the Appellant.

32. Shri Sundaram also referred to the following submission made by the Appellant vide its letter dated 20.12.1999 before the Respondent Chairman, in the inquiry proceedings before him explaining the circumstances of funding the bail out that "when the officials of Bombay Stock Exchange and National Stock Exchange made a bonafide effort to try and prevent a collapse or crash of the market and both BSE and NSE approached the promoters of VIL to overcome the crisis.

Without prejudice and without admitting, it can be said that, if at all it is the promoters who indulged into the activities to prevent the crisis and that too, at the behest of the BSE and NSE. At all times, it was projected to the promoters and they understood that the actions and assistance on their part had the endorsement and the approval not only of BSE and NSE officials, but also of SEBI itself". Shri Sundaram pointed out that this submission has not been rebutted in the order by the Respondent. There has been no contravention of any provision of the Act or any rules or regulations in this regard by the Appellant, and the action to prevent a crash in the market must be seen as an effort to advance investor protection and not adverse to the interest of the investors. Shri Sundaram stated that the Respondents have not dealt with the said submission but conveniently left out any observation thereon in the order, obviously for the reason that the said view could not be disproved or disagreed to.

33. Shri Sundaram submitted that the fact of BSE approaching the Appellant company and other companies seeking help to get over the payment crisis was not unknown to the Respondents as the Appellant had stated the factual position in this regard in its reply to the show cause notice dated 20.12.1999; that such knowledge is also evident from the text of the questions put in by the Respondent's investigating officer to certain brokers like Shri Satyanarayan Nangalia that the Respondent SEBI cannot now take a stand that it was not aware of the same. He submitted that bail out per se does not attract regulation 4 and is not illegal in any manner. Shri Sundaram stated that the Respondents have now picked up a portion of Shri Dhoot's negative answer to a question by the investigating officer as to whether Shri Dhoot or his associate companies had received any communication from BSE governing Board members to help brokers having payment difficulties in June, 1998, and used the same against the Appellant company. Shri Sundaram stated that the factual position was explained to the Respondents by the Appellant in its written submission dated 20.12.1999 and this factual submission is corroborated by other witnesses such as Shri Nangalia and Shri Navanit N Rana. He also stated that there is no finding contrary to the fact and that it is admitted by the Respondents also in the show cause notice that the companies involved were BPL, Videocon and Sterlite. He stated that since it has been stated in the order that Damayanti group cornered shares, the profit motive behind such cornering cannot be with anybody but with Damayanti group or the persons owning or controlling the said group and that in any case it is not the Respondent's case that Damayanti group is owned or controlled by the Appellant. With reference to the memorandum of understanding arrived at between JHPL and Shriram Investment company Ltd., relied on in the order, Shri Sundaram submitted that the Appellant is in no way connected or concerned with arrangement arrived at between the management of the said two companies and that it is not proper to rope in the Appellant company to every transaction, involving its share.

About Rs.1.25 crores payment by the Appellant to Fedex , the Respondents themselves have admitted the purpose for which the payment was made that it was not to buy shares but was towards deposit for lease, and in the light of such a factual finding, the Respondents' version that the money was paid to purchase the Appellant's share cannot sustain.

34. Shri Sundaram referred to the show cause notice and stated that the notice refers to manipulation in the shares of 3 companies viz. BPL, Videocon and Sterlite., He also stated that there were several reports in the press that the shares of certain other companies were also cornered by certain persons leading to the market crisis in June, 1998 requiring BSE's intervention to protect the market and bail out was designed for the purpose. Thus it is clear that it was third parties who played the mischief and the companies were not the players as it is not anybody's case that the said three companies are under the same management or were acting in concert.

35. Shri Sundaram to support his line of argument did heavily rely on the views held by this Tribunal in the Sterlite case(Supra) on the scope of regulation 4(a) and 4(d), test of evidence required to hold the person guilty of violating regulation 4(a) and 4(d) and the scope of section 11 and 11B.36. Shri Sundaram referring to the finding recorded in the impugned order that the Appellant has violated the provisions of regulation 4(a) and 4(d) of the 1995 Regulations stated that the charge is totally baseless. He submitted that the onus is on the Respondents to establish the charge with supporting evidence, that since the charge is of a serious nature and the attendant consequences being very severe, the standard of proof required is very strict and rigid and no casual approach would suffice.

37. Shri Sundaram stated that he is adopting the same line of arguments which he had put forward in the Sterlite case(supra). Shri Sundaram read out the provisions of regulation 4 and in particular clauses (a)and (d) and stated that the scope of the regulation need be clearly understood, before applying the same to the facts and drawing conclusions. He stated that Chapter II of the 1995 Regulations, under which regulation 4 on 'Prohibition against market manipulation', regulation 5 on 'Prohibition of misleading statements to induce sale or purchases of securities' and regulation 6 on 'Prohibition on unfair trade practice relating to securities' are put, is titled " Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market". According to him the object of the regulation, is thus clear that it is meant to prohibit fraudulent and unfair trade practices relating to securities market, that in the absence of any fraud or deceit the provisions of the regulation would not apply., that in the absence of any finding that the transaction was intended to defraud or deceit someone, there is no further scope for any investigation as to who did it and why did it. Shri Sundaram stated that deceit through market manipulation is what the regulation prohibits. In this context he stated that there is not even a whisper of such a charge against the Appellant anywhere in the order. Learned Senior Counsel stated that according to clause (a) of regulation 4, no person shall, effect , take part in or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person. He stated that self profit is the motivation that attracts clause (a) of the regulation. Shri Sundaram submitted that any price change in the scrips, as a result of genuine purchase or sale would not attract the provision, that if there is no artificiality in a transaction, regulation 4(a) cannot reach. He stated that the words " intention of artificially raising or depressing the price" are the crux and that an artificial price is not the genuine price. Whether the price is genuine or artificial would depend on the attendant facts in each case. He submitted that the Respondents have not produced any evidence to show that the Appellant had transacted in securities, that the said transactions were done with intention of artificially raising or depressing the price and that thereby persons were induced to transact in securities.

38. Learned Senior Counsel submitted that in the context of market manipulation charge leveled against the Appellant, it is necessary to clearly understand what is actually meant by 'market manipulation'.

According to him the Respondents have made the allegation without fully appreciating the scope of the said expression. He stated that the expression 'manipulation' for the purpose of the regulation has not been defined, but its meaning is well understood in the market and by the regulators all over the world.39. Shri Sundaram referred to the provisions of regulation 4(a) and stated that by making a public announcement of an offer by a person would not amount to "effect take part in, or enter into any transaction in securities". As per the said regulation there must be a transaction in securities, that a pre-transaction measure does not trigger of the said regulation and only an actual transaction is covered. He further stated that the expression "artificially" used in the regulation is linked to the price and not relatable to the act of raising or depressing. He further stated that "artificial" means not natural, that since the offer price was well within the real value, it cannot be said that it was an artificial price . He stated that in the Appellant's case in making the public announcement there was no transaction, the price was real and not artificial, and there was no transaction which induced persons to purchase or sell securities and therefore the Respondent's charge that by making the public announcement for the purpose of making creeping acquisition, the Appellant manipulated the market and as such regulation 4(a) attracted is untenable.

40. Shri Sundaram submitted that Shri Dada's argument that penalty be read into the provision, makes it all the more necessary to prove the said three ingredients and unless these ingredients are established no penalty can be imposed. Shri Sundaram submitted that regulation 4(d) is attracted only when a person enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership, but intended to operate only as a device to distort the price and the market, the Respondents have not explained anywhere in the order as to how the said regulation is attracted to the instant case. He countered the argument regarding Respondent SEBI's powers under section 11/11B to impose penalty, by extensively citing the observations from Sterlite case (supra) decided by this Tribunal. He submitted that the decisions in Khemka (AIR 1975 SC 1549), Gulabchand (AIR 1966 SC 1734), Anand Rathi (2001)32 SCL 227 (Bom)) , M.Z.Khan (AIR 1999 Delhi 64), R.R.Bohra(1999 33 CLA 243 (Bom)) and Alka Synthetics(1999 19 SCL 460(Guj) and Bank of Baroda (2000 38 CLA 226 (SAT)) etc., relied on by the Respondents have absolutely no application to the present case in view of the distinguishable features of the cases. He submitted that no authoritative decision from any Court holding that the Respondent SEBI is empowered to issue directions which are outright punitive in effect , has been cited by the Respondents, that on the contrary this Tribunal in Sterlite (supra) case had clearly viewed with supporting authorities that section 11B cannot be invoked to issue directions tantamounting to penalties.

41. Shri Sundaram, as an alternate argument submitted that regulation 12 of the 1995 Regulations is not a punitive provision, it is only a regulatory provision. In this context he referred to regulation 44 of the Takeover Regulations and compared the same with regulation12 and stated that regulation 12 is restrictive unlike regulation 44 which is inclusive. He explained the scope of regulation 12(a)and stated that "dealing in securities" does not include "accessing the capital market", that the very fact that these are not one and the same is evident from the Respondents' own version, stated in the show cause notice, wherein it has referred to "directions prohibiting from dealing in securities and accessing the capital market" that prohibitting an entity from accessing the capital market is beyond the scope of regulation 12(a) and on that ground also the direction cannot legally sustain. Shri Sundaram submitted that neither section 11/11B nor regulation 12(a) is available to the Respondents to issue penal orders.

He further stated that every violation per se does not attract penalties. In this context he cited Addl.Commissioner of Income Tax, Madhya Pradesh v. Kalyanmal Mills Factory (1979 (116)ITR 881(MP) 42. Shri Janak Dwarkadas , learned Senior Counsel appearing for the Appellants in Appeal Nos. 24 and 25 adopted the line of argument putforth by Shri Sundaram and made few supplementary submissions.

43. Shri Dwarkadas explained in detail the scope of regulation 4(a) and 4(d) and particularly the significance of the words "with reference to transactions intended to artificially raising or depressing the prices of securities" in 4(a) and "the transactions intended to operate only as a device to effect change in price of securities" in regulation 4(d). He referred to the impugned order and stated that there is nothing therein to indicate that neither the Appellant company nor the Appellants in the other appeals had done anything to artificially create a price or market or that the share holders were induced to make transactions in an unreal market. He submitted that the order portrays something that is not real.

44. Learned Senior Counsel stated that the instant case is a three pieces jigsaw puzzle put in one hole, that these three pieces are (1) the open offer (2) the acquisition and (3) the bail out action. He stated that the time frame involved in the case of public offer and acquisitions as per the Respondents is the period between 1.4.98 to 4.6.98. The bail out action is outside the said time frame.There is a commonality in the case of open offer and bail out as the factual position of the said action remains undisputed leaving the dispute to facts concerning acquisition of shares. Learned Senior Counsel submitted that the Respondents' view that all the three actions are related to each other is not correct. He stated that by making the public offer the promoters had only helped the investors by offering to buy their shares at the rate of Rs.165/- when the price was languishing at Rs.51/-, that this was not a call for subscription to the company's shares independent of any investment from the promoters, that the promoters had stated that they are prepared to buy 14.24 lakh equity shares representing 2% of the paid up capital of the Appellant company by putting their own money of approximately Rs 21 crores. In this context he referred to the letter dated 9.4.1998 from the promoter to the Respondent SEBI, the public announcement and the public offer following the same and also the fact of the promoters buying the shares at the rate they promised. He stated that despite the fact that the promoters had informed the Respondent SEBI about their proposed public offer, and the Respondent having asked them to make the public offer has taken an about turn and is finding fault with the public offer so made as the cause of volatile market behaviour, which is not befitting to anybody, especially to a public authority like the Respondent.

Learned Counsel submitted that the public offer proposal was transparent and to benefit all the investors and it is untenable to view such an action, which is inconformity with the goal of investor protection as criminal act to be proceeded against. He submitted that to proceed against the Appellants, the Respondent is required to establish the motive and how the Appellants profiteered in the process and harmed the other investors' interest. Shri Dwarkadas refuted the Respondent's allegation that the offer price of Rs.165/- per share was meant for "bench marking". He pointed out the fact that the promoters had agreed to purchase the shares spending Rs.21 crores of their own money, has been ignored by the Respondents, that there was no compulsion on any investor to purchase the shares at the higher price offered , that the price quoted was the price at which the promoters were willing to buy the shares from others. He submitted that in the context of such a good public offer, it is but natural that the trade volume and the price would go up. He stated that the Respondents have missed the fact that when 14 lakhs shares were to be purchased, it was not specifically targeted to anybody, but left to the investors at large and that is how the market was driven and that is the practice everywhere. He stated that for the increase in the trade volume and share price, the answer lies in the offer itself, that it is wrong to say that the public offer artificially raised price and volume. He reiterated that what is real is not artificial., that artificiality is the main ingredient of regulation 4(a) and 4(d) and there was nothing artificial in the public offer made by the promoters of the Appellant company.

45. Shri Dwarkadas stated that the allegation of acquisition of shares by providing Rs.10 crores to Damayanti group is based on pure conjunctures and surmises and there is not even an iota of reliable evidence in support of the said allegation in the order, that it defies all the reasoning to make one believe that when the promoters were planning to acquire a large chunk of shares at the rate of Rs.165 per share, involving a financial stake of approximately Rs.21 crores, would spend another 10 crores to boost the price to increase their cost of acquisition further. He stated that neither the show cause notice nor the impugned order has explained the motive involved in raising the price of the shares by the Appellants at the company's cost. He stated that the Respondents have not given any earthly reason as to what gain the promoters would have made by pumping Rs.10 crores more as alleged.

He further pointed out that, if the Respondents are to be believed that the price was artificial, in that case no sensible investor would hold on the shares and buy grief, as he knows that an artificial market cannot last long and before the price crashes he would like to dispose of the shares and make profit and promoters are no exception to this.

In the instant case nothing of that sort has been held against the promoters. Learned Senior Counsel stated that there is no element of manipulation in making a genuine public offer or favourably responding to a request from BSE in the larger interest of the market and the investors and providing money to avoid a payment crisis, that both the said actions , are perfectly in order and have not in any way resulted in market manipulation, but it has only resulted in benefitting the investors.

46. Learned Senior Counsel stated that both the Appellants have been unjustifiably roped in by the Respondents, though nowhere in the order, any charge has been made out against them. He stated that in the whole order at two places Shri Hegde's name appears, that at one place it has been stated that "cheques issued by all the companies in the chain were signed either by Mr.Shelgikar or by Mr. Hegde, who are directors in the investment companies of the promoters of Videocon International ltd (internal page 4of the order) , and that at another place (on internal page 14 of the order) that "Shri S.M.Hegde authorised signatory for the bank accounts of JHPL was working as the financial controller of the Videocon Group". Shri Dwarkadas stated that Shri Hegde's name has been brought in the context of bail out, little realising that he had nothing to do with the bail out and that the bail out action by itself is not one attracting regulation 4(a) and 4(d). The Respondents have not established any link between Shri Hegde and Shri Dhoot, or even with the Appellant company. The Respondents have also not established any link of Shri Hegde and Shri Dhoot, with Fedex and JHPL and there is no evidence of any complicity on the part of the Appellants.

47. Shri Dwarkadas stated that the Appellants have been charged not for any faults on their part but for the violation stated to have been committed by the Appellant company . According to the order " the acts of the company are in violation of regulation 4(a) and 4(d)......." and therefore directed that "prosecution proceedings be launched against the company viz. Videocon International Ltd through its directors/officers i.e. Mr.V.N.Dhoot, Mr.S.K.Shelgikar and Mr.S.M.Hegde under the provisions of SEBI Act, 1992".

48. Shri Dwarkadas referred to the provisions of sections 24,26 and 27 of the Act and stated that section 24 is on offences, section 26 relates to cognizance of offences by courts and section 27 is specific to offences by companies. He submitted that courts are barred from taking cognizance of complaints for offences punishable under the Act, from anyone other than the Respondent SEBI, that the complaint is to be made only if the Board have definite reason to believe that an offence has been committed. In this context he referred to regulations 10 and 11 of the 1995 Regulations and stated that the Board can issue directions under regulation 11 only on receipt of the investigation report and after giving a reasonable opportunity of hearing to the person concerned. He submitted that the impugned order to prosecute the Appellants is a direction and therefore, it was incumbent on the part of the Respondent to give them an opportunity of being heard, which the Respondents have failed to give and as such the order is bad. He further submitted that it is evident from the scheme of the Regulations and the Act that the prosecution follows an adjudication and it is not independent of adjudication. He also pointed out that prosecuting a person for an offence is not something complementary, it affects the business of the person concerned and also it is stigmatic and therefore the Respondent cannot do away with the requirements mandated by the law required to be followed before launching prosecution.

49. Referring to the provisions of section 27 Shri Dwarkadas stated that section 27(1) comes into only "where an offence has been committed by a company". He said a deeming provision cannot make an offence . He said that it is the adjudication required in the regulation which decides the offences and the guilty. Only when the guilt is established in the adjudication the Respondent SEBI can launch the prosecution, that in the instant case it has not been done. He stated that the provisions of sub section (2) of section 27also refers to a positive finding that where an offence has been committed by the company, and it is proved that offence has been committed with the consent or connivance or is attributable to any neglect on the part of any director, manager, secretary or other officer of the company, they shall be deemed to be guilty" Shri Dwarkadas pointed out that in the instant case the Respondents have failed to establish commission of any offence by the Appellant and therefore there is no question of proceeding against the Appellants . He further stated that it has also not been explained in the order as to why the Respondents have selected three persons i.e. Shri Dhoot, Shri.Hegde and Shri Shelgikar and what is their role in the alleged offence, to prosecute them and on what basis it is considered that they were in charge of and was responsible to the company, for the conduct of the business of the company. He stated that Shri Dhoot's name does not figure anywhere in the showcause notice or in the order and it is not known on what basis the Respondents have come to the conclusion that he is an officer described in section 27(1), that he has not been even given inspection of the documents relied upon by the Respondents or has been called upon by the Respondents at any time for a personal hearing providing an opportunity to explain his position vis-is the Appellant company.

50. Learned Senior Counsel submitted that, assuming that section 27(1) is applicable, as per the proviso thereto the charges against the Appellants to be "deemed guilty" have to be proved which the Respondents have failed to do, that the Respondents have also failed to establish any motive or gain to the Appellants or to the Appellant company that could arise as a result of their action, that the Respondents have at no point of time expressly or by implication alleged mensrea or any intention on the part of the Appellants to do any act connoting guilt, that no shares of the Appellant company were purchased/sold/and or traded through the alleged transactions. He further submitted that as per the provisions of the section the alleged charge has to be proved by the Respondents after giving an opportunity of being heard to the persons concerned.

51. In the case of Shri Hegde, Shri Dwarkadas stated that he is not and has never been a director of the Appellant company, he is not an officer in charge of the Appellant company or an employee or a promoter of the said company, that he has been retained by the company as a consultant and authorised signatory and in that capacity only he had signed the cheques and was not a party to any decision making in the Appellant company. The impugned order does not give any reason as to how Shri Hegde was responsible for and how any act of his has resulted in the alleged market manipulation. He does not fall within the purview of section 27, by virtue of any position vis-is the company, that he is not a person deemed to be guilty of any offence as alleged by the Respondents. Section 27 attracts only to those persons exercising such powers which are managerial and to persons who had played a role in the manipulation, that as an authorised signatory by himself, his role was only ministerial, and the Respondents have unjustifiably roped in him and directed to be prosecuted.

52. Shri Shelgikar - Appellant in appeal No.26/2001- has made written submissions. His Counsel submitted that he is adopting the submissions made for the Appellant company, Shri Dhoot and Shri Hegde. It has been stated that the Appellant is a Chartered Accountant by profession and a professional consultant to many companies including the Videocon group companies, that he is neither a director and/or an officer of the Appellant company, but only an authorised signatory of the said company, that he is not an officer as defined in section 2(30) of the Companies Act as far as the Appellant company is concerned. The fact that he is only an authorised signatory of the Appellant company has been accepted by the Respondents and still the Respondents considered that "the Appellant is acting under the direction, supervision and control of the promoters of Videocon International Ltd and in respect of its financial dealings" and based on the said perception the Appellant has been considered liable to be charged under section 27.

According to the Appellant, the said section 27 deems only two categories of persons to be guilty of the offence committed by the company, that under the first category comes those "persons incharge and responsible to the company for the conduct of the business of the company" at the relevant time when the offence was committed and the second category deems any "director, manager, secretary or other officer of the company" guilty of such offence if it is committed with the consent or connivance of, or is attributed to any neglect on their part". The Appellant being merely an authorised signatory and a consultant to the Videocon group is not a person either "incharge of" or "responsible to the company for the conduct of the business of the company" that he is not a "director, manager, secretary or other officer of the company" and as such cannot be deemed to be guilty for the offence allegedly committed by the Appellant company, to come under section 27.

53. With reference to the Respondents' version that JHPL is an associate of the Appellant company , it has been stated that JHPL is a completely independent corporate entity, with its entire share capital held by the Appellant and his family; that JHPL is engaged in the business interalia of raising finance and accordingly it has from time to time accepted loans from, and advanced loans to various Videocon group companies on a commercial arms length basis, that apart from such normal business transactions, it is not in any way connected with the Videocon group.

54. The Appellant has stated that the Tribunal is adjudicating an appeal against the order made by the Respondent and one of the directions in the said order is to prosecute the Appellant and therefore the Tribunal is competent to decide whether such an order directing prosecution is sustainable or not and the Respondents' submission that an appeal does not lie against a direction to prosecute does not hold good. He has stated that prosecution is a serious matter which permanently affects the reputation of the party concerned and should be initiated only on the basis of proper material and independent application of mind/logic reasons, that the impugned order fails to show any material whatsoever which implicate the Appellant in the disputed transactions and there is no indication to show any independent application of mind/or consideration of any cogent reason to prosecute the Appellant, that the prosecution has been directed against him, on the basis that he is a director/officer of the said company, which in fact he is not, that the order displays the complete non-application of mind by the 1st and 2nd Respondents. It has been further stated that a person aggrieved by an order directing prosecution, has the right to appeal against such an order on the basis that the order is not based on any proper material and/or that no proper application of mind/ cogent reasons for such order have been considered, that the decision to prosecute under the Act is not a mere mechanical process, but requires independent application of mind, that where adjudication, leading to the imposition of a penalty is possible, the decision to further prosecute a party must be backed by independent application of mind and cogent reasons. According to the Appellant, the direction to prosecute him has no legal or factual support.

55. Shri Rafiq Dada, learned Senior Counsel, appearing for the Respondents in the cited appeals referred to various dates and events relevant in the matter. He stated that prior to 9.4.1998, i.e. the date on which the press announcement of the promoters' plan to acquire 2% of the Appellant company's equity shares was published, the shares were quoted on BSE and NSE at about Rs.60/62, and trade volume per day on BSE was about 10 lakh shares and on NSE about 5.75 lakh shares. He stated that "Videocon" by its letter dated 9.4.1998 intimated the Respondent inter alia that Dhoot family and its associates wished to consolidate their equity holding in the Appellant company by acquiring 2% shares in the open market by making public offer @ Rs.140/- per share and that open offer would be made in the week following the public announcement. He stated that the price of the scrip was around Rs.62/- on that day, that "Videocon" made a press announcement to the aforesaid effect which was reported on 10.4.1998 in the Economic Times.

Shri Dada stated that the effect of the said announcement, during 9.4.1998 to 21.4.1998, on the market was that volumes on both the stock exchanges, -BSE and NSE - fell drastically and the share hit circuit filters on 13th, 20th and 21st April 1998, that as a result of fall in the volume, floating stock was reduced artificially thereby creating artificial demand for the shares resulting in rise in the share price from Rs.62 to Rs.105 by 21.4.1998. He stated that during the period 29.4.1998 to 2.5.1998 the Appellant company and Videocon Appliances Ltd made funds of approximately Rs.7 crores through myriad of transactions through several bank accounts with Federal Bank, Fort Branch Mumbai to brokers viz. Sony Securities, S.N. Nangalia, GNH Global Ltd, to mope up the reduced floating stock which led to further increase in price and thereby helped in maintaining the price at high levels, that the said brokers acting on instruction from Damayanti group built up large positions, and as a result of the aforesaid, price of Appellant's share was hiked to Rs.151/- by 25.5.1998 i.e. well above the open offer purchase price of Rs.140/-, that on 25.5.1998 another public press announcement was made increasing the public offer price from Rs.150 to Rs.165/- and in that context the Respondent SEBI called the Managing Director of the Appellant company and requested him to refrain from making public announcement expressing the intention of the promoters to make purchase of 2% by a public offer without actually making a public offer, as the said press announcement had led to artificial increase in the price of the shares. Shri Dada stated that during 25.5.1998 to 4.6.1998, the Appellant made available approximately Rs.3 crores through a myriad of transactions through several bank accounts with Federal Bank, Fort Branch to Valpin Finance to purchase shares of the Appellant company for payment of margin, carry forward etc., and as a result of which the share price shot up to Rs.167/- and volume increased , that 46 lakh shares were in carry forward segment. In the last week of May, 1998 the open offer was made. On 1.6.1998 trade volumes reached a peak of 46,70,887 shares and share price jumped to Rs.168/- .The public offer was opened on 15.6.1998 and closed on 3.7.1998. By end of June 1998 the Appellant Company's shares crashed to Rs.51/- and volume also came down to 1,03,558 per day as the artificial support was no longer there. Shri Dada submitted that on 4.6.1998, BSE faced payment crisis, that between 4.6.1998 and 30.7.1998 the Appellant company and its associate firms provided funds of approximately 15 crores to brokers such as Madhukar Sheth and Co, Jaisukhlal Jagjivan, Spring Field Securities Ltd and Venture Securities Ltd to bail out brokers dealing with Damayanti group, as detailed in the show cause notice and in the impugned order.

56. Shri Dada submitted that the Appellant company made two public announcements i.e. one on 9.4.1998 and again on 25.5.1998 which affected the market liquidity and artificial scarcity so created in the market resulted in the scrip price shooting up. He pointed out that there was some nexus between the timing of the public announcement and the supply of funds from the Appellant company to the Damayanti group.

In this context he read out extensively from the impugned order to show that the Damayanti group was just a front for Shri Harshad Mehta, a notified person under the Special Courts Act and the transactions effected by some of the entities in the Appellant company's shares were part of the said Damayanti group. He also referred to the graphic information furnished in the order on internal pages 9 to 12 to show that the funds moved from the Appellant company through group intermediaries and reached the Damayanti group . He stated that there was some proximity of the fund flow from the "Videocon group" to Damayanti group and the date of public announcement and referred to the data stated to in the order (internal page 13) that during the period 29.4.1998 to 28.5.1998 a sum of Rs.5.50 crores was provided to Equity Investments P.Ltd and during 2.5.98 to 19.5.98 Rs.4.50 crores was provided to Gandak Investments P.Ltd by JHPL and the said two companies provided rupees 10 crores to brokers of NSE and BSE vi z. Sony Securities Ltd Rs.4.50 crores, Valfin Finance Ltd Rs.3.00 crores, S.N.Nangalia Rs.1.25 crores , GNH Global Securities Ltd Rs. 1.25 crores.

57. Learned Senior Counsel stated that the sum of Rs.10 crores provided by JHPL was not its money but was given by the Appellant company . He stated that JHPL is an associate of the Appellant companyand the relationship between the two has been clearly explained in the impugned order, that the fund was routed thus indirectly to over come certain statutory prohibitions on acquiring the Appellant its own shares. In this context he referred to, in particular the fact of office space sharing, common telephones, close association of Mr.Shelgikar with Videocon group,etc. to drive home the point that the said JHPL is closely associated with the Videocon group . Shri Dada stated that JHPL served as the link between the brokers and the Appellant company as the Appellant cannot purchase its own shares as per section 77 of the Companies Act and the modus operandi adopted was to show that these are arms length transactions. Shri Dada pointed out that the fund flow coincidence is remarkable and one cannot in any way come to the conclusion that it was not the Appellant company's money which was used in the transactions.

58. Shri Dada submitted that all the 4 brokers referred to above had extensively dealt in the Appellant company's shares on behalf of Damayanti group that the funds were shown to have been received by brokers in their books as money received for spot purchases where the selling client was Damayanti group entities and the buying client was two Videocon group companies viz. Equity Investments P.Ltd and Gandak Investment Ltd., to whom the Appellant company through JHPL had provided Rs.10 crores. He further stated that in certain cases, the payments were not received by the broker selling the shares to Equity and Gandak but were made directly to other brokers by Equity and Gandak on behalf of Damayanti group. He stated that, to create record of transactions, accounting entries were made in the books of the broker, that in reality these were merely financing arrangements, given a colour of purchase and sale of shares and whenever the clients of Damayanti group was short of funds Videocon group through Equity and Gandak provided funds by transactions disguised as spot transactions between Damayanti group and Videocon group. Shri Dada referred to the observation in the impugned order that some of the brokers dealing on behalf of Damayanti group who had cornered a substantial quantum of the Appellant company's shares faced payment problem in June, 1998, could not discharge their commitments towards pay in liabilities , that the outstanding carry forward position of some of these brokers were taken up by M/s. Madhukar Seth & Co., Jaisukhlal Jagjiwan, Spring Field Securities and Ventura Securities Ltd., brokers of BSE through " all or none" or "bulk" deals at pre-determined rates and quantities by synchronising the timing of logging in of the trades by the buyers and the sellers. Shri Dada read out from the impugned order the names of the brokers connected with Damayanti group who sold these shares in the bail out package, and stated that the fund flow of the purchasing clients, the concerned brokers, etc. revealed that these brokers received funds from the entities connected with Videocon group only and the prominent entities who purchased the Appellant company's shares from the said brokers were Mehta Integrated Finance Ltd/Mehta Securities Ltd(MIFL/MSL) (Rs.873.18 lacs) Spring Field Securities (Rs.108.0 lacs) and Fedex Securities Ltd (Rs.562.00) lacs), that the aforesaid sum of Rs.15.5 crores was made available by JHPL after receiving the same from Videocon group of companies . He stated that Madhukar Seth & Co., had taken over the outstanding purchase positions of the BSE brokers in the Appellant company's scrip to the extent of 5,65,000 shares, that a total of 10 lakh shares were sold by Madhukar Seth as bail out package to the entities connected with Videocon group.

59. He also referred to an MOU arrived at between JHPL and Shri Ram Investment Services Ltd., of Shriram group for acquiring 5,25,000 shares of the Appellant company @ Rs.130 per share, wherein it was stipulated that Videocon Leasing and Industrial Finance Ltd, a company belonging to Videocon group who had to recover Rs.3.68 crores from two other Shri Ram group companies would not insist on recovery of the said amount till the transactions between JHPL and Shriram Investment was completed, that this MOU was signed by Shri D.A.Gadgil of Shriram group and Shri Shelgikar of JHPL. Shri Dada further stated that as a part of the bail out package 5,03,000 shares of the Appellant company were purchased @ Rs.111.60 aggregating Rs.5.62 crores by Fedex Securities Ltd through Ventura Securities, a member of BSE who had taken over the carry forward positions of the brokers who had payment problems , that the said Fedex is a close associate of the Appellant company , that the fund requirement of Fedex in these transactions was met partly out of receipt of share application money of Rs.50 lakhs from JHPL, a loan of Rs.90 lakhs from JHPL and Rs.1.25 crore from the Appellant company towards deposit for lease etc. In support of his arguments Shri Dada relied on the depositions of several persons as follows: With reference to the closeness of Shri Hegde with the Appellant company, Shri Dada referred to the statement made by Shri S.M.Hegde before the investigating officer on 9.7.1998 and stated that he is closely associated with the Videocon group as could be seen therefrom that in answer to a question asking him to state his sources of income for the preceding five years, he had stated that it was through consultancy charge and that it was only from Videocon group companies. Shri Dada stated that this indicates Shri Hegde's whole time assignment with Videocon group. To another question with reference to his description as "the Finance Controller of Videocon International Ltd (VIL)" on his business card and his "exact status in the Appellant company" Shri Hegde had stated that he looked after the financial matters of the company but was not in the employment of the company. In this context Shri Dada referred to Shri Dhoot's deposition wherein he had stated that Shri Hegde is a part time employee. Shri Hegde had also stated that the Managing Director Shri .V.N.Dhoot headed the finance department and he reported to Shri .V.N.Dhoot. Shri Dada also stated that Shri Hegde had admitted that a majority of the Bank accounts of the Videocon group companies in Bombay were operated by him as an authorised signatory , that to another question Shri Hegde had stated that " I am the authorised signatory, since I am the Finance Controller of VIL and consultant to the group" . About the association of Fedex with the Appellant company Shri Hegde had stated that Mr.K.Madhavan of Fedex was earlier working with Federal Bank , Fort Branch and the Videocon group of companies had their accounts with the said Bank. In this context Shri Dada stated that the Bank on which the cheques were drawn by the Appellant for the purpose was Federal Bank,Fort branch.

To another question as to who takes the decision in respect of the private limited companies in the group Shri Hegde had replied that " the decisions are taken by Dhoot Brothers in respect of the above mentioned private limited companies of the Group. Shri Dada referred to several paras in Shri Hegde's deposition in an attempt to show Shri Hegde's close association with the Videocon group . Shri Hegde had further stated that Equity Investments P.Ltd and Gandak Investments P.Ltd belonged to the Videocon group of companies and he was the authorised signatory for the bank accounts of these companies also.. To another query on the logic of money flowing from VPL to Equity Investments P.Ltd and Gandak Investments P.Ltd" he had stated that " this flow of funds of approximately Rs.10 crores from VPL to Equity Investments P.ltd and Gandak Investments P.Ltd is at the instance of my Chairman V.N.Dhoot", that " the decision for investment by Equity Investments P. Ltd and Gandak Investments P.Ltd was taken by my Chairman, Shri V.N.Dhoot, that " the cheques for the investments by Equity and Gandak were issued by me on the instructions of Shri V.N.Dhoot". To another question " Is it true that this purchase of shares was made by M/s. S.N.Nangalia, Sony Securities, GNH Global Securities, Valfin Finance etc. which involved purchases of VIL Shares alongwith other shares" Shri Hegde had answered " this payment was not made for buying of VIL shares but was meant for purchase of other shares" and to another question " were these payments to the above brokers meant for purchase of shares or were they in the nature of loans given to the brokers or on behalf of any third party" he had answered that " these payments were for purchase of shares only and not as loans. To another question " did you receive contract notes and bills for the purchase of shares from these brokers", Shri Hegde had answered "Yes, this should be in office." Shri Dada stated that these statements clearly indicates that Shri Hegde was not a mere authorised signatory, but an integral part of the management of the Videocon group and also that the companies in the group are well interconnected.

60. Shri Dada referred to Shri V.N. Dhoot's deposition dated 20.7.1999 and stated that to a question as to who used to take investment decisions in Equity Investments P.Ltd and Gandak Investments P.Ltd, Shri Dhoot had stated that " the Board of Director of these companies took the decisions in this regard". To another question in the light of Shri Hegde's statement that the cheques to Valfin, Sony GNH and SN Nangalia were given to them based on Shri Dhoot's instructions, Shri Dhoot had replied that " I am the Chairman of Videocon Petroleum Ltd (VPL) and this company had surplus funds of about Rs.500 crores in 1998. Out of this around Rs.25 crores were invested in listed securities. This was a normal investment of the investment decision of VPL". About the Videocon groups relationship with Fedex Securities Ltd Shri Dhoot had stated " they are a sort of financial consultants to us and they help us to invest our monies", that this indicates the role of Fedex in the transactions vis-is the Appellants shares. Regarding JHPL he had stated that " we have regular business relationship with Joy Holdings Ltd in the nature of borrowing and lending of money as ICDs" "I do not know how Joy Holding had utilised the money borrowed by them from our associate companies." 61. Shri Dada stated that Shri Shelgikar had also admitted in his statement that Equity Investment P.Ltd and Gandak Investments P.Ltd are Videocon group companies, that to a question as to why JHPL applied for the shares in Gandak Investments and Equity Investments and who took the decision and with whom the discussion in Gandak Investments and Equity Investments took place Shri Shelgikar had stated " Joy holding carries on business as investment company. I took decision to invest in Gandak and Equity Investments. As regards the person in Gandak and Equity Investment, I had discussion with Mr.V.N.Dhoot". Learned Senior Counsel stated that Shri Shelgikar had corroborated Shri Hegde's statement that cheques for all the group companies used to be signed by him on advice/instructions of Shri.V.N.Dhoot, Shri. R.N.Dhoot or Shri P.N.Dhoot. Shri Dada stated that to a question that Spring Field Securities Ltd had ostensibly purchased 5 lakh shares of VIL as a bail out process during the payment crisis at BSE at the instance of BSE, that these shares were purchased at Rs.111.60 per share, that it has been shown that these very shares were sold out by Spring Field Securities Ltd @ 90/- per share, that the difference of 108 lakhs has been paid by Joy Holding to Spring Field Securities as the loss incurred by JHPL., Shri Shelgikar had answered " nothing of the above is true to the best of my remembrance". In response to the observation that the JHPL was used as conduit for transfer of funds from Videocon International or Videocon Petroleum Ltd to Damayanti group, JHPL took loan from various group companies of Videocon group and transferred the amount on the same day to brokers dealing for Damayanti group, Shri Shelgikar had stated that the entire set of transactions were part of the business of JHPL as an investment company, that the company was not functioning as "conduit" as alleged, that all these transactions were business transactions. Shri Dada stated that Shri Shelgikar did not dispute the flow of funds as shown to him by the Investigating Officer, that there is every reason to believe that JHPL was used as a front by the Videocon group for its share purchase transactions.

62. About the transactions involving Gandak and Equity , Shri Dada referred to Shri Nngalia's statement that it was Ms Hema from Damayanti group who had told them that they wanted to sell certain shares of Global Tele systems Ltd which would be purchased by Gandak Investments P.Ltd and stated that it is to be remembered that Ms Hema is associated with Damayanti group. Learned Counsel referred to Shri Navanit N Rana's (Director GNH Global Securities Ltd ) deposition and stated that he had also stated that Equity Investments PLtd and Gandak Investment P.Ltd are related to Videocon group, and that Shri Rana to a question as to how was his pay in liability for settlement 12 met and how did he receive the credit for share of BPL , VIL, SIL sold in settlement 13 had stated that .... 69500 VIL shares were squared off with Seth Securities and 2,25,000 VIL shares were sold at "all or none" basis at the instructions of the customer and all these transactions were for Damayanti group. Shri Dada stated that from Shri Rana's deposition the pattern is clear that money went from Videocon group to Damayanti group and Damayanti group played. He also referred to the statement of Satvinder Pal Singh Gulati of LKP group to show the nexus of Shri harshad Mehta and Damayanti group and the Appellant company in the context, that Shri Singh had stated that he had transacted in the shares of VIL as recommended by Harshad Mehta. Shri Dada also referred to Shri Darshan Mehta's (Director Mehta Integrated Finance Ltd ) answer to the question " who had placed orders with the broker Madhukar Seth for the deal in Videocon Ltd" that "The clients had themselves placed the orders as well as communicated to us. Day today operations of the deal are handled by the clients directly under intimation to us" 63. In this context he referred to that portion of the impugned order relating to the bail out and attempted to link the transactions referred to therein with the statements of the brokers. Shri Dada stated that in reality JHPL is a close associate of Videocon group, that the said JHPL even uses the letterhead of the other companies in the group and as an example and in support he cited the use of Videocon Leasing's letterhead by JHPL , on which MOU with Sriram group was drawn up, that JHPL's claim of arms length transactions is baseless as there is enough reason to believe JHPL has close link with Videocon group .

In this context Shri Dada also referred to the statement of Darshan Mehta that the MIFL/MSL had done transactions on behalf of their clients Madhukar Sheth for purchase of shares of the Appellant company in the month of June, 1998 as specified and directed by their clients Sangath Investments PLtd and Sheth Integrated Pvt.Ltd, that JHPL made payments to Madhukar Sheth on behalf of the clients, for the orders placed by the clients with the broker Madhukar Seth. Shri Dada also referred to the statement of Shri Ashok Jogani of Sangath Investment P.Ltd that he had dealt in the Appellant company's shares that he had purchased approx. 10 lakh shares of the Appellant company through MIFL and the deal was done with Madhukar Sheth, that to a query as to why the deal was done through Sheth with whom MSL or MIFL had no dealings in the normal course Shri Jogani had stated that " when we got the put option offer, we approached Joy Holdings P.Ltd to finance our purchase.

Joy Holdings Mr. Shelgikar is known to us. They agreed to finance on the condition that share shall be held in the name of MIFL and physical delivery of shares will be kept with Joy Holdings till repayment of loan. Shares will be purchased through whom was also stipulated by Joy.

The shares were to be transferred in the name of MIFL because MIFL had guaranteed repayment of loan taken by Sangath". Shri Dada referred to Shri Jogani's following deposition summing up the position that: "Sangath were approached by Dombell for put option of ten lakh shares of Videocon @ Rs.155/- upto 30.6.99. We approached Joy who sanction an IDC of Rs.10 crores @ 3% for purchase of VIL shares on the condition that these shares are purchased from Madhukar Sheth, transferred in the name of MIFL and physically to be kept with Joy.

No where asked by Joy to place order for VIL shares on Madhukar Sheth @ approx. 111-112 per share. We placed our order for for approx. ten lakh shares on Madhukar Sheth and the order was confirmed on Rs.111 and 112. We do not know how this rate was arrived at. We have received physical delivery of five lakh shares out of which 1,77,300 have been sent for transfer in the name of MIFL. And the balance 2,22,700 are lying with Joy. Remaining 6 lakhs shares are being c/f by broker on our account".

64. Regarding funding, Shri Dada referred to Videocon Petrochemicals' letter dated 13.4.1998 addressed to JHPL giving Rs.20 crores as ICD for 16 months. On 19.5.1998 JHPL issued a cheque for Rs. 2 crores to Gandak Investments P.Ltd "as share application money on provisional basis", that on 26.5.1998 and 28.5.1998 JHPL also transferred Rs.2 crores and Rs.1 crore respectively to Equity Investments P.Ltd "as share application money on provisional basis". Shri Dada also referred to JHPL letter dated 25.4.1998 to Darshan Mehta of MIFL sanctioning a loan of Rs.10 crores at the interest rate of 3% per month. Shri Dada submitted that these are only illustrative instances that the pattern followed was identical in other cases also.

65. Learned Counsel submitted that from the conduct of the Appellant company, it is clear that it had indulged in market manipulation. In this context he referred to the press statement dated 9.4.1998 made by the promoters discharging their plan to acquire 2% from the open market and stated that it was the triggering point, that the promoters did not buy any shares till May, 1998. It funded Damayanti group's, transactions, created price distortion and volume scarcity in the market. He submitted that the need for bail out was by way of a quid pro quo measure, as it was necessary to save the brokers in distress who had transacted in the Appellant company's share at the behest of the Appellant company and had manipulated the market. Shri Dada stated that there is no indication, that the bail out was made at the instance of BSE and this is confirmed by Shri Dhoot in his deposition.

66. Shri Dada referred to the provisions of regulation 4(a) and 4(d) and explained its scope and reach and stated that the Appellant company's indirect involvement is sufficient to attract the provisions of the said regulations. Shri Dada stated that there is ample evidence to show that JHPL acted only as a dummy to create an impression that the funding by the Appellant company was not for purchase of its shares, that it is clear from the unsustainable alibi such as paying money to private companies "towards application money on provisional basis"etc. . Shri Dada stated that it cannot be viewed that Rs.10 crore supplied by the Appellant is a negligible amount, that the money was used for carry forward transaction and by using the same as margin money huge transaction was possible. Shri Dada referring to the Apellant seeking shelter under the Takeover Regulations submitted that the Regulations is not meant to create artificial market as the press reports on the would be creeping acquisition and belated public offer was meant only to fool the public share holders.

67. Shri Dada referred to the price movement in the shares of the Appellant company in BSE and NSE vis-is the respective index to show the abnormality. He also referred to the data relating to the trading position of Damayanti group with certain brokers in the Appellants shares to show the build up over the period. In particular he referred to the trading position of S/Shri G.N.Hegde, S.N.Nangalia, R.R.Mohta, P.R Shah., R.R.,Bohra and Mahico Ltd etc., to show the extent of the build up position in the Appellant's shares.

68. Shri Dada referred to the show cause notice and stated that it has been clearly mentioned therein as to the consequences that would follow for the of violation of regulation 4(a) and 4(d) and the applicable legal provisions in the context of the prima-facie finding that the Appellant company had indulged in the market manipulation. Vide the said notice the Appellant company was "requested to show-cause why directions including directions prohibiting it from dealing in securities and accessing the capital market and any other suitable direction in the interest of investors and securities market under Section 11 read with 11B of the SEBI Act and Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations should not be issued" and the Appellant company was also requested "to show cause as to why prosecution proceedings under section 24 of SEBI Act, 1992 should not be initiated for the above mentioned violations". He further stated that, even if it is viewed that under section 11 B such a direction cannot be issued following the Tribunal's decision in Sterlite case(supra), still the order is to be sustained as regulation 12(a) empowers Respondent SEBI to direct the person concerned not to deal in securities . In this context he referred to the scope of the words "dealing in securities", with reference to the definition available in regulation 2(b), "that dealing in securities means an act of buying , selling or other wise dealing in any security or agreeing to buy, sell or otherwise deal in any security by any person either as principal or agent". Shri Dada submitted that "dealing in securities" is wider in its scope and includes "accessing the capital market" and therefore the impugned direction to the Appellant company not to access the capital market is well within the powers vested in the Respondent.

69. Shri Dada referred to the standard of proof required to take action in matters like the one under consideration and stated that the Appellant has been subjected only to adjudication, that the standard of proof required in an adjudication is not that high as required in a criminal proceeding, that in a criminal proceeding evidential standard of proof is beyond reasonable doubt but the requirement in an enquiry like the present one is preponderance of probabilities , which is much less than the strict proof requirement in a criminal proceeding. He cited the decisions of the Hon'ble Supreme Court in Gulabchand vs.

Kudilal AIR 1966 SC 1734 in support .He also referred to the decision of the Hon'ble Special Court (Trial of Offences Relating to Transactions in Securities at Bombay) in National Housing Bank v. ANZ Grindlays. 1998(2)LJ 153 in this regard. Shri Dada submitted that to establish the charge of manipulation and hold a person responsible for the same circumstantial evidence is sufficient and from the material on record it is evident that Appellant company had indulged in market manipulation attracting the provisions of regulation 4(a) and 4(d) Countering Shri Sundaram's interpretation of regulation 4, Shri Dada submitted that the scope of the regulation is wide enough to bring in, the conduct of the Appellant thereunder. In this context Shri Dada referred to the definition of the expression 'fraud' in regulation 2 (c) and stated that it is not an ingredient of regulation 4(a) or 4(d) as is being made out by Shri Sundaram, that wherever fraud/fraudulent transactions are covered, it has been specifically included in the regulation, as in regulations 3 and 6. Shri Dada explained the ingredients of regulation 4(a) and (d) and stated that deceit need not necessarily be there to attract the regulation. He also emphasised the expression 'directly or indirectly' in regulation 4(a) and stated that in the instant case it was the Appellant company who indirectly caused transactions in shares and indulged in manipulation. He reiterated the finding in the impugned order that as a result of the carry forward position built up by Damayanti group of brokers, and at a time when they were to face the music, Videocon group appeared on the horizon as their saviour to bail them out, that they were not simply interested in the brokers but it was because these brokers had acted at the behest of the Appellant. Shri Dada stated that self benefit was the motive and therefore regulation 4(a) and 4(d) attracted. Learned Senior Counsel submitted that in the light of the finding that the Appellant had manipulated the market to its benefit, the impugned order is perfectly justified and need be upheld.70. In support of the submission that Respondents have power to issue directions under section 11B of the Act, Shri Dada cited this Tribunal's decision in Bank of Baroda Vs. Securities and Exchange Board of India (2000)38 CLA 226 (SAT) and decisions of High Courts in (1) Anand Rathi and Ors. v. Securities and Exchange Board of India (2001) 32 SCL 227(Bom), (2) M.Z.Khan v. SEBI (AIR 1999 Delhi 64), (3) SEBI v.Alka Synthetics (1999) 19 SCL 460 (Guj) and (4) R.R.Bohra v. SEBI (1999) 33 CLA 243 (Bom).

71. Shri Dada submitted that various High Courts have upheld the powers of the Respondent under section 11/11B to issue appropriate directions as an interim measure though penal in nature and as such the Respondent is empowered to issue directions under section 11/11B which are penal in nature, in its final orders also.

72. With reference to the plea of S/Shri Dhoot, Shelgikar and Hegde against their prosecution , Shri Dada stated that under section 24, prosecution lies against them and it is not necessary that a full fledged enquiry following the rules of natural justice should precede the decision to prosecute, that the principles of natural justice will be followed in the proceedings before the trial Court. He re-iterated that even if the Appellant company is not to be prosecuted, S/Shri Dhoot, Shelgikar and Hegde can still be prosecuted independently as the scope of section 24 is wide enough in this regard and explained the scope of section 24. Shri Dada submitted that the Tribunal has no power to decide in an appeal as to whether the person is liable to be prosecuted or not under section 24, that the powers available under section 482 of Cr.PC are not available to the Tribunal.

73. Shri Dada submitted that in the light of the facts and circumstances as unfolded in the order, there is every reason to hold that the Appellant company had indulged in manipulating the market violating the provisions of regulation 4(a) and 4(d) attracting the consequences as laid down in regulation 12(a) and section 11 and 11B of the Act, and , therefore the impugned order has been rightly issued.

74. I have carefully considered the submissions made by the learned Counsel for the parties, the pleadings and the entire material on record before me.

75. The impugned order is captioned "Order against M/s.Videocon International Ltd in the matter of price manipulation in the scrip of Videocon International Ltd". The reach of the order and reason for issuing the order is thus clear from the said caption itself. The background in which the order was issued, has been briefly stated in the impugned order. It has been stated therein that in the context of extreme volatility and undue movements in the shares of the Appellant company, BPL and Sterlite in April-May, 1998, Respondent SEBI conducted investigations to ascertain whether the unusual market behaviour was due to any manipulations. The investigations indicated that the market behaviour relating to the Appellant company's shares was due to manipulation and viewed prima-facie the Appellant responsible for the same, attributing the creeping acquisition of 14.24 lakh shares at the rate of Rs.165/- by the promoters, and funding a set of brokers described as 'Damayanti group' to acquire the Appellant's shares in large proportions. In the light of the said prima-facie finding, Respondent SEBI decided to inquire into the matter and accordingly show cause notice was issued to the Appellants. The matter was adjudicated.

After adjudication, Respondent Chairman holding the Appellant company guilty of violating regulation 4(a) and 4(d) of the 1995 Regulations, passed the impugned order on 19.4.2002 directing the Appellant company "not to raise money from the public in the capital market for a period of 3 years in the interest of investors". It was also further directed that "prosecution proceedings be launched against the company viz.

Videocon International Ltd through its directors/officers i.e.

Mr.V.N.Dhoot, Mr.S.K.Shelgikar and Mr.S.M.Hegde, under the provisions of SEBI Act, 1992" 76. Shri Sundaram's submission that the impugned order was passed without following the principles of natural justice as adequate opportunity of being heard was not given and the witnesses were not allowed to be cross examined, lost the vigour as he himself stated that he was not pressing the issue at this juncture. However, he had urged that the evidence of persons like S/Shri Satyanaran Nangalia, Navnit Rana (of GNH Global) etc., relied on by the Respondents be discarded as their evidence is untested in cross examination and their credibility is doubtful. But this argument does not hold good as the Appellant itself has relied on certain portions of their statement to meet its case., In the case of S/Shri V.N.Dhoot, S.M.Hegde, S.K.Shelgikar, (appellants in appeal No.24,25 and 26 respectively) also it was urged that the Respondents had not followed the principles of natural justice and as such the impugned order against them is bad and untenable. On a perusal of the order , I find that the order is directed only against the Appellant company and the direction is to launch prosecution proceedings against the Appellant company through S/Shri Dhoot, Hegde and Shelgikar considering them as the company'directors/officers.

Therefore in the absence of any adverse finding or charge against them in the order, and for the reason that they are being proceeded in the light of the Respondent's finding that the company is guilty, and further that, there are in built provisions in the Cr.PC ensuring sufficient opportunities to the accused to be heard, before passing any adverse order against them, it is difficult to hold that the Respondents should have heard them before passing the order and by not doing so failed to follow the principles of natural justice.

Opportunity of being heard before launching a prosecution is not ordinarily known to any penal jurisprudence. It is to be noted that the Appellants were also asked vide notice dated 20.12.1999 to show cause as to why prosecution proceedings under section 24 of the Act should not be initiated. The requirements of regulation 8 of the 1995 Regulations have thus been complied with.

77. It has been stated in the operative portion of the order that powers under sections 11 and 11B of the Act have been invoked to issue the impugned directions.

78. Though there is no specific reference to regulation 11 of the 1995 Regulations therein, on a perusal of the order and the show cause notice, it can be safely inferred that power available in regulation 11 of the 1995 Regulations has also been invoked. The omission to specifically refer the said regulation in the order is not fatal, as there is a legal source of authority to issue the directions.

79. It is to be noted that the object of the Act is broadly stated in its preamble in the following words, that it is an Act "to provide for the establishment of a Board to protect the interests of the investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto". Section 3 of the Act empowers the Central Government to establish a Board by the name of the Securities and Exchange Board of India, with a Chairman and five members. The Board is in position since 1992. In terms of sub section 3 of section 4 of the Act, in the areas otherwise determined by regulations, the Chairman also enjoys all powers of the Board. The impugned order has been made by the Respondent Chairman exercising the concurrent power of the Board vested in him.

80. Chapter IV of the Act deals with the functions of the Board. This chapter comprises 4 sections - i.e. Section 11, on functions of the Board , section 11A on matters to be disclosed by the companies, section 11AA on Collective investment scheme and section 11B on power to issue directions. Since the powers under section 11 and 11B have been invoked in the matter, it is felt necessary to have a look at these two sections. According to sub section (1) of section 11: " Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it think fit" Sub section (2) refers to measures to provide for certain matters enumerated therein, with a caveat that it is without prejudice to the generality of the provisions of sub section (1) " Prohibitting fraudulent and unfair trade practices relating to securities" is one of the measures, SEBI is expressly empowered to take. In exercise of the said power SEBI has made the 1995 Regulations. This Regulations came into force with effect from 25.10.1995, that is the date on which it was published in the official gazette. We will discuss the provisions of the said regulations a little later.

81. Before that let us also have a look at section 11B invoked by the Respondent to issue the directions. Text of section 11B is extracted below: 11B. Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary;- (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market; or (iii) to secure the proper management of any such intermediary or person.

(a) to any person or class of persons referred to in section 12, or associated with the securities market; or (b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market" " dealing in securities" means an act of buying, selling or otherwise dealing in any security or agreeing to buy, sell or otherwise deal in any security by any person either as principal, or as agent".

The expression "fraud" has been defined in clause (c) of regulation 2 as under: (a) "Fraud includes any of the following acts committed by a party to a contract or with his connivance, or by his agent with intent to deceive another party thereto or his agent or to induce him to enter into the contract: (1) the suggestion, as to a fact, of that which is not true, by one who does not believe it to be true (2) the active concealment of a fact by one having knowledge or belief of the fact (5) any such act or omission as the law specially declares to be fraudulent; and 'fraudulent' shall be construed accordingly, Explanation: Mere silence as to facts likely to effect the willingness of a person to enter into a contract is not a fraud, unless the circumstances of the case are such that regard being had to them it is the duty of the person keeping silence to speak or unless his silence is in itself equivalent to speech." 82. Chapter II is the core chapter in the Regulations titled "Prohibition of Fraudulent and Unfair Trade Practices relating to securities market". Regulation 3 thereunder prohibits any person from buying, selling or otherwise, dealing in securities in a fraudulent manner. Prohibition against market manipulation' is covered by regulation 4. Regulation 5 is on " Prohibition of misleading statements to induce sale or purchase of securities" and regulation 6 prohibits "unfair trade practices relating to securities". In the present case the charge is that the Appellant has violated regulation 4(a) and (d).

Full text of the said regulation 4 is extracted below: (a) effect, take part in, or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of securities, and thereby inducing the sale or purchase of securities by any person; (b) indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market; (c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions; (d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress, or cause fluctuations in the market price of securities; (d) pay, offer or agree to pay or offer, directly or indirectly, to any person any money or money's worth for inducing another person to purchase or sell any security with the sole object of inflating, depressing, or causing fluctuations in the market price of securities; 83. Chapter III provides for investigation into alleged contravention of the regulations and consequential action thereafter.Regulation 7 empowers SEBI suo motu or upon information received by it to cause an investigation to be made in respect of the conduct and affairs of any person buying, selling or otherwise dealing in securities, by an investigating officer, for the purposes, namely- (a) to ascertain whether there are any circumstances which would render any person guilty of having contravened any of these regulations or directions issued there under (b) to investigate into any complaint of any contravention of the regulation, received from any investor, intermediary or any investors. In terms of regulation 8, in the normal course , before causing an investigation the Board is required to give notice to the person concerned but this requirement can be dispensed with for certain reasons specified in the regulation. Regulation 9 is on the duties and obligations of the person under investigation. In terms of regulation 10 the concerned investigating officer is required to submit the investigation report to the Board. Regulations 11,12 and 13 deal with the follow up action. These three regulations are extracted below: " 11. Power of the Board to issue directions:- The Board may, after consideration of the report referred to in regulation 10, and after giving a reasonable opportunity of hearing to the person concerned, issue directions for ensuring due compliance with the provisions of the Act, rules and regulations made thereunder, for the purposes specified in regulation 12.

12. Purpose of directions:- The purpose for which directions under regulation 11 may be issued are the following namely: (a) directing the person concerned not to deal in securities in any particular manner.

(b) requiring the person concerned to call upon any of its officers, other employees or representatives to refrain dealing in securities in any particular manner; (c) prohibiting the person concerned from disposing of any of the securities acquired in contravention of these regulations; (d) directing the person concerned to dispose of any such securities acquired in contravention of these regulations, in such manner as the Board may deem fit, for restoring the status-quo ante.

13. Suspension or cancellation of registration:- The Board may, in the circumstances specified in regulation 11, and without prejudice to its power under regulation 12, initiate action for suspension or cancellation of registration of an intermediary holding g a certificate of registrations under section 12 of the Act; Provided that no such certificate of registration shall be suspended or cancelled unless the procedure specified in the regulation applicable to such intermediary is complied with" Scope of regulation 4(a) and (d) was elaborately argued by learned Senior Counsel appearing for the parties. While Shri Sundaram vehemently argued that the said regulations are not attracted Shri Dada in equal force emphasised that these regulations are attracted. In this context it is considered necessary to examine the scope and reach of the said regulation 4(a) and (d), to begin with.

84. On a perusal of regulation 4 it is clear that prohibition is against market manipulations stated in clauses (a) to (e) therein.

According to the impugned order the Appellant company indulged in the type of market manipulation referred to at clause (a) and (d) . Text of the regulation has been already extracted above. To attract regulation 4(a) (i) a person should have effected, taken part in, or entered into either directly or indirectly, transactions in securities (ii) the transactions must be with an intention (iii) such transaction must be to artificially raise or depress the prices of securities (iv) the result of the action must be to induce the sales or purchase of securities by any person. The ingredients of regulation 4(d) are that (i) a person must enter into a purchase or sale of any securities (ii) said purchase or sale must not be intended to effect the transfer of beneficial ownership (iii)the purchase or sale must be intended to operate only as a device to inflate, depress or cause fluctuations in the market price of securities. On a perusal of the regulation it is clear that reach of clause (a) is wider than the reach of clause (d).

Regulation 4(a) brings not only the purchaser and seller but even third parties also to its ambit , if they are found in any way involved in effecting or taking part in the transactions directly or indirectly.

The motive behind the action and the effect of the actions is also relevant. Transactions in securities, with the intention of raising or depressing the prices of securities and thereby inducing the sale or purchase of securities by any person is the pointer in this regard.

Artificial action to induce other persons to transact in securities is the core theme of regulation 4(d). According to Blacks Law Dictionary "deceit" means " a fraudulent and deceptive misrepresentation, artifice or device used by one or more persons to deceive and trick another, who is ignorant of the true facts, to the prejudice and damage of the party imposed upon". On a careful perusal of the regulation it is clear as Shri Sundaram pointed out that element of deceit is an underlying factor in the transaction. A genuine transaction by itself cannot attract the regulation though such a transaction had resulted in market price variation . Regulation 4(a) attracts only if the transaction is made with an intention of artificially raising or depressing the prices of securities so as to induce any other person to sell or purchase the securities. The participation need not necessarily be direct, it can be indirect as well.

85. Prohibition in regulation 4(d) is on entering into transactions for a purchase or sale of any securities not intended to effect transfer of beneficial ownership but intended only as a device to distort the market price of securities. In other words the regulation covers speculative trading. Under regulation 4(d) it is not necessary that the action should result in inducing others to purchase or sell the securities as in the case of regulation 4(a). It has to be noted that in both the clauses, the intention of the party is relevant. Therefore an element of mens rea is also involved.

86. The factual matrix based on which charge of market manipulation has been levelled against the Appellant company is as under: (1) Public announcement by the promoters on 9.4.98 stating that they would acquire 2% equity capital of the company by making an open offer @ Rs.140/- per share as against the then prevailing rate of Rs.62/- (offer price was revised to Rs.165 on 25.5.98) (2) Providing funds to the tune of Rs.10 crores to Damayanti group, a front for Shri Harshad Mehta, a person notified under the Special Court Act, during 29.4.98 to 29.5.98 to build up positions and for cornering the floating stock.

(3) Providing funds to the tune of Rs.15.53 crores to bail out some of the brokers connected with Damayanti group, trapped in payment crisis in BSE in June, 1998.

87. It is noticed from the order that the public announcement and its impact on the scrip price, is confined to a very brief discussion.

Since this is a major charge it is felt necessary to extract verbatim the relevant portion, from the order, to get the Respondents' perception in this regard.

"As regards the open offer of the company to acquire 2% of its scrip capital it was contended on behalf of the company that though they were not liable to make an open offer for the acquisition of the shares of the company to the extent of 2%, there is nothing illegal about it, While this may be true, the timing of the offer of the company in April and its subsequent revised offer in May, 1998 has to be seen against the background where its share prices were showing unusual price and the company's funding of the operators in the market who built long positions in the scrip of the company.

Such announcements by the promoters had a material impact in artificially increasing the price and volume of the scrip. The traded volumes in Videocon scrip at the BSE which was around 10 lacs shares prior to the announcement on 9.4.1998 reduced a low of just 24,000 shares on 10.4.98, 12,000 shares on 13.4.98 and to 10,000 shares on 15.4.98 i.e. immediately after the announcement by t he promoters. A similar change in the traded volumes was observed at NSE, where the traded volumes dropped to just 3,000 shares on 10.4.98, 2,100 shares on 23.4.98 and 600 shares on 15.4.98 as against a volume of between 3 lacs to 5.76 lacs shares a day during 17.3.98 to 3.4.98 The announcement by the promoters also had an immediate impact on the traded prices of GDR of Videocon. The Videocon GDR which was illiquid at about 1.45 each jumped to 2.66 each on the announcement by the promoters of their intention to acquire 2% of the equity of Videocon at price substantially higher than the prevailing market price. This bench marking of the price is also reflected in the price circuit filters which this scrip hit at the BSE. The details when the scrip hit the circuit filter are given as under 88. In this context it is to be noted that in some places in the order the Appellant company is referred to as the acquirer. It is not so. The creeping acquisition was by the promoters of the Appellant, as is seen from the copy of the "Announcement of offer to members (registered shareholders) of Videocon International Ltd" annexed to the appeal.

Said announcement described "Shree Dhoot trading and Agencies Ltd, Mr.V.N.Dhoot , Mr. R.N.Dhoot and Mr.P.N.Dhoot" as the offerors and also stated "the offerors represent the founders and promoters of VIL" There is no denial of the fact that the promoters of the Appellant company on 9.4.1998 announced that they would acquire 2% of the company's equity capital by making an open offer at a price of Rs.140 per share against the then prevailing market price of Rs.62/- and thereafter on 25.5.98 the offer price was raised from Rs.140 to Rs.165, that the share price dripped after 4.6.98 freezing at Rs.51/- in the month of June, 1998. In this context it is to be noted that the press announcement was first made on 9.4.1998, 1.6.1998 was the specified date to determine the members to whom the offer was to be made, 15.6.98 was the date of opening of the offer and 3.7.98 was the closure date and 1.8.98 for completing all the formalities including payment. It is not anybody's case that the promoters simply made the announcement/offer but failed to honour the commitment. The fact is that the promoters purchased 14.24 lakh shares representing 2% equity capital of the Appellant company at the rate of Rs.165 per share, as offered.

89. As per the Takeovers Regulations public announcement to acquire shares is required on the acquirer's holding in the company crossing the bench mark provided in the regulation. Regulation 11 (1) as it stood at the time of acquisition of shares by the promoters in June, 1998 reads: "No acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law not less than 10 percent but not more than 51% of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations".

90. In this context it is to be noted that the 5% bench mark was brought in with effect from 28.10.98 prior to that it was 2% . The limit has been further raised to 10% with effect from 24.10.2001. The creeping acquisition upto the specific limit without mandating public offer is a concession to those in control of the company as is evident from the observation in the Bhagwati committee's report that "the committee appreciated the fact that in a competitive environment it become necessary for person(s) in control of the company to consolidate their holding either suo moto or to build their defences against take over threats" . It is also to be noted that the limit has been progressively increased from 2% to 5% to 10% over the last 5 years. It is therefore clear that public offer is mandatory only if the quantum of shares involved exceeds the prescribed limit. But there is no prohibition in the Regulations on an acquirer acquiring shares by following the fair and transparent offer route. The Respondent's observation that the promoters "ought not to have resorted to public offer" as the creeping acquisition was within the limit, when viewed in the light of the underlying spirit of the Regulations is difficult to accept. The Takeover Regulations is substantially based on the recommendations of Justice Bhagwati Committee. The Committee in its report had observed that the Regulations should "help in evolving good business standards as to how fairness to shareholders can be achieved as maintenance of such standards is of importance to the integrity of the financial markets and they should not concern themselves with issues of competition or financial or commercial advantage or disadvantages of a takeover". The Committee had also observed that it would be impracticable to devise regulations in such detail to cover the entire range of situations which could arise in the process of substantial acquisition of shares and take overs and instead there should be a set of general principles which should guide the interpretation and operation of the Regulation especially in circumstances which are not explicitly covered by the Regulation. The principles enumerated in the report inter alia include (1) equality of treatment and opportunity to all shareholders and(2) protection of interests of shareholders. Equality of treatment and opportunity to all shareholders, is the corner stone of Takeover Regulations. Viewed in the said back drop, it is difficult to agree to the Respondent's version that the public announcement of offer to buy 2% of the equity capital of the Appellant was improper or uncalled for, especially in view of the fact that the procedure followed was fair and transparent providing "equality of treatment and opportunity to all shareholders".

The Respondents have failed to establish that the said public offer was intended to artificially raising or depressing the prices of securities to defraud/deceit other shareholders. A public announcement, which does not attract the provisions of regulation 4 cannot be considerd as an act of market manipulation. It is not a per se charge, but needs to be established with factual evidence. In the light of the financial parameters presented by Shri Sundaram based on the Appellant company's published balance sheet as on 31.3.1998, and that the offer price of Rs.,165 was below the "real value" of the share, it cannot be said that the said price was an artificial price as has been alleged by the Respondents. That which is not real is artificial. In this context it is also to be noted that the promoters had brought to the notice of Respondent SEBI, of their proposal to make creeping acquisition of 2% by adopting the public offer route, as is evident from their letter dated 9.4.98 , the text of which is extracted below: Sub: Consolidation by Promoters - Dhoot family and associated interest In Videocon International Ltd, under the 2% p.a. scheme.

As is well known, the Dhoot family is in management control of Videocon International Limited.

The Dhoot Family and associated interests now wish to further consolidate their equity holdings in Videocon International Limited by acquiring 2% in the open market, especially in view of the unusual and inexplicably high trading volumes witnessed in the scrip in recent weeks. In line with practices of best corporate governance, we want to be totally transparent in the process of acquisition of this 2% extra stake and wish to keep SEBI duly informed about this.

Since we have enjoyed the support of thousands of small investors, we propose to acquire this 2% by an open transparent Public Offer, almost in line with all SEBI regulations for an open Public Offer.

We believe that if we go through this Public Offer route, we would be serving small investors' best interest which is the mission of the Videocon International Limited management as well as of SEBI. Needless to say if acceptance exceed 2%, our basis of acceptance will be on a proportionate basis favouring small retail shareholders.

We believe that such a Public Offer is commensurate with the letter and the spirit of SEBI Rules in connection with the captioned subject. Using the existing mechanism of secondary market operations, which is the other alternative to acquire 2%, will benefit only a few speculators as against thousands of small investors in case of acquisition by Public Offer. The price which we are proposing to offer to shareholders is Rs. 140/- per share.

Due to tactical and pressing market reasons, we propose to make a press announcement immediately next week setting out our intention to acquire 2% via an open Public Offer. We look forward to your support and guidance in this regard." In this context it is also relevant to note the observations made by the Respondents in the show cause notice dated 20.12.1999. In the context of the promoters press announcement to acquire 2% of the share capital @Rs.140/165, that "Managing Director of Videocon was called and advised that they should refrain from making such announcements of intentions to buy at "higher prices" without actually initiating a formal process of offer, as such announcements lead to artificially affecting the price of the scrip. Thereafter a public announcement was made wherein price of Rs.165 for each share of Videocon was offered" The fact that the promoters action was not in violation of the Takeover Regulations is also established from the fact that the Respondents till date have not proceeded against the Appellant for any such violation.

The upward market price movement and the consequential impact on the trade volume, in the context of such an attractive offer is not unusual . The Respondents have failed to establish in what way the said offer was an exception. In the absence of any tangible evidence from the Respondent's side showing that the said public offer was meant to manipulate the market, there is no choice but to believe that the market response was in tune with the pattern normally found in such a situation. In this context yet another fact which has to be noted is that the Respondents have failed to estbalish the Appellant's motive behind such an acquisition. Learned Senior Counsel for the Respondents had stated that "self benefit was the motive". But he did not throw much light on that, as to what gain the promoters expected to get or actually got by acquiring shares at such a higher price shelling out about Rs.21 crores of their own money. There is yet another important factor to be noted in this regard. It was the promoters , who acquired the shares representing 2% of the paid up capital to consolidate their holding and strengthen their position, and it was not a buy back of shares by the company. The Appellant is not a closely owned company, the public holding in it is around 65% leaving only 35% with the promoters. It is not a "family concern" of Dhoot's to be identified with Dhoots. That being the case, it was incumbent on the part of the Respondents to clearly state as to how the Appellant company could be held liable for the consequences, if any, arising out of the acquisition of shares by the promoters. According to the Respondents' version (in its reply) " the promoters of the Appellant company had made the public offer for the purpose of bench marking the shares of the Appellant company at Rs.165/- per share and creating an artificial demand in the said shares of the Appellant company. Such bench marking would automatically increase the market capital of the company and the shares held by the promoters. This can enable promoters to issue shares on preferential basis at higher price, place shares with FI/FII at higher price etc. raise loans against pledge of shares etc." But there is no indication in the order that there was any such plan to issue preferential shares etc. as stated and even while concluding the inquiry spanning over more than three years, the Respondents could not bring in any evidence to establish anything of that sort . It is found that not even a single question was put to the management to elicit the information in this regard. In these circumstances, in the absence of any reliable evidence from the Respondents' side to show that the public offer made by the promoters was a market manipulation device and for that the Appellant company is responsible, it is difficult to support the Respondents' theory, but to accept that the Appellant company's version that it was not involved in the public offer made by the "offerors" and for the consequences, if any, flowing from the action of the offerors the Appellant company cannot be held liable.

91. The version that the share price was artificially raised during the said period by manipulating the market by Damayanti group at the behest of the Appellant company by using Rs.10 crores provided by the Appellant company also remains unsubstantiated. It defies logic to say that the promoters planning to buy shares from the market at such a higher price would do something to further increase the cost of acquisition. If there was any other motive behind such an action, the Respondents should have explained the same. In the absence of any credible reasoning it is not possible to buy the Respondent's argument in this regard.

92. Now coming to the details of the funding, it has been stated that "Videocon group" provided Rs.10 crores to certain brokers of BSE and NSE, who were dealing in the Videocon scrip on behalf of Damayanti group, a front of Shri Harshad Mehta, a person notified under the Special Court Act. In fact funding is stated to have been made in two tranches- (i) Rs. 10 crores during April;-May 1998 i.e. at the time when the promoter of the Appellant had announced to make the public offer to acquire 14.24 lakh shares at the rate of Rs.140/165 per share and (ii) Rs.15.53 crores during 4.6.98 to 30.7.98 to bail out the "brokers in distress".

93. With reference to the funding of Rs.10 crores Shri Dada had pointed out that JHPL advanced a sum of Rs.5.50 crores to Equity Investments P.Ltd during the period 29.4.98 to 28.5.98 and Rs.4.50 crores to Gandak Investments P.Ltd during 2.5.98 to 19.5.98 that both these companies are admittedly Videocon group companies. Out of the said Rs.10 crores paid to the said two companies , Rs.4.50 crores was advanced to Sony securities, Rs.3.0 crores to Valfin Finance, Rs.1.25 crores each to S.N.Nangalia and GNH Global , all BSE and NSE brokers and they in turn purchased shares of the Appellant company from the Damayanti group entities for the said Equity and Gandak. In this context he referred to funding pattern stated in the order that "the funds were routed from Videocon International Ltd and placed at the disposal of BSE,NSE brokers through a myriad of transactions through several bank accounts". "It was observed that funds were transferred to Shri Harshad Mehta through Damayanti Group to build up large positions. Ostensibly , group companies of Videocon purchased on spot basis certain shares namely Global Telesystems , Kreble Biotech etc. On each occasion the counter party who had delivered the shares was Damayanti Group. Thus an ingenious way was devised to transfer the funds from Videocon Group to Damayanti Group". "It was found that Damayanti group acting through a set of brokers had built up a large concentrated positions of around more than 50% of the total position at the exchanges in thes crip of Videocon. This cornering of shares had created artificial market and price manipulation in the scrip".

94. In the order under the heading "Flow of Funds from Videocon Group" the Respondents have chartered the movemment of funds from the Appellant company. Summary of the flow of funds specified in the order is found in a letter dated 1.7.1998 addressed to the Respondent by the Appellant company. In the said letter "movement of funds to Joy Holdings Pvt.Ltd from Videicon Group of companies" has been shown as follows: (contd. On next page) 95. It could be seen from the above information that substantial part of the money belonged to Videocon Petroleum Ltd (VPL)The said company had "given loan to" the Appellant company and Videocon Appliances Ltd (VAL) and they in turn paid to Domebell Investments P.Ltd (DIPL), the amount due to VPL, at its behest. The said DIPL transmitted the amount to JHPL. Rs.10 crores so given to JHPL was given to Equity Investments and Gandak Investments. They in turn are alleged to have ultimately provided the amount to Damayanti group. This transaction is in the first tranche of funding. I do not see anything in the order disputing the position stated in the said letter. Videocon Petroleum Ltd had given loans to the Appellant company and Videocon Appliances Ltd. It has been stated at several places in the order that the funds were provided by "Videocon group". Shri V.N.Dhoot, Chairman of VPL had stated that VPL had surplus funds of Rs.500 crores in 1998. In this context VPL's letter dated 13.4.1998 to JHPL relied on by the Respondents is also relevant. Vide the said letter VPL had provided Es.20 crores to JHPL by way of ICD for a period of 16 months @ 20% interest per annum. Proximity of this funding by JHPL of Equity and Gandak to the tune of Rs.10 crores need also be noted. In the context of bail out it has been stated that "the fund flow of the purchasing entities, the concerned brokers etc. revealed that these brokers received from entities connected with Videocon group only. Therefore the said funds (15.5 crores) were made available by JHPL after receiving the same from Videocon Group of companies"... The fountain head of fund flow appears to Videocon Petroleum Ltd. Not only the letter dated 1.7.98 but there is also corroborating evidence to the said effect. The statement made by the Appellant company in the letter dated 1.7.1998 has been taken cognizance of by the Respondents is evident from the questions put by the Investigating Officer (I.O) to Shri Hegde while recording his statement. It is seen from Shri Hegde's deposition dated 9.7.98 that the I.O had asked him to "explain the logic of money flowing from VPL to Equity Investments P.Ltd and Gandak Investments Pvt.Ltd" (Q.27) and in answer there to Shri Hegde had stated: "This flow of funds approximately 96. Rs.10 crores from VPL to Equity Investments P.Ltd and M/s.Gandak Investments P.Ltd is at the instance of my Chairman ShriV.N.Dhoot. Only he can explain this". The I.O had confronted Shri Dhoot with said statement of Shri Hegde as could be seen from the deposition of Shri Dhoot dated 20.7.99. The I.O had put the following Question to Shri Dhoot "Mr.Hegde stated in his statement that the cheques to Valfin, Sony, GNH, S.N.Nangalia were given to them based on your instructions, What is your reply? (it is to be noted that these are four entities to whom Rs.10 crores were paid at a time the public offer was in the offing. ). In reply thereto Shri Dhoot had stated "I am the Chairman of Videocon Petroleum Ltd (VPL) and this company had surplus funds of Rs.500 crores in 1998. Out of this, around Rs.25 crores were invested in listed securities. This was a normal investment of the investment division of VPL". In this context the statement of Shri Hegde in answer to the following question is also relevant: Q.31: Is it true that this purchase of shares was made from M/s.,S.N.Nangalia, Sony Securities, GNH Global Securities, Valfin Finance etc., which involved purcahse of VIL shares alongwith other shares? Ans. This payment was not made for buying VIL shares but was meant for purchase of other shares.

Q.32: Were these payments to the above brokers meant for purchase of shares or were they in the nature of loans given to the brokers or on behalf of any third party? Ans: These payments were for purchase of shares only and not as loans.

The i nvolvement of Videocon Petroleum in the funding is furhter evidenced from the said company's letter dated 13.4.1998 addressed to JHPL relied on by the Respondent. In the said letter it has been stated that " with reference to your letter dated 10.4.1998, wherein you had agreed for an intercorporate deposit of Rs.20 crores @ 20p.a. for a period of 16 months in one or more tranches. We are pleased to inform you that the company is pleased to extend ICD for a period of 16 months @ 20% p.a. aggregating Rs.20 crores as per the request of your company from time to time".

97. The fund flow from VPL to purchase shares as stated by the Appellant company remains unrebutted. The Appellant company has stated by its letter dated 1.7.1998 it was VPL's money which was given to JHPL through Domebell Investment P.Ltd (DIP). The Respondents have also not rebutted this factual position. The Respondents in the order had also stated about the funds made available by Videocon group. However, in the flow chart the Appellant company has been shown as the starting point and other group companies such as Domebell Investments, JHPL, Equity Investments, Gandak Investments etc. as intermediaries in the fund movement channel till it reached the brokers. It appears that no attempt has been made to find out as to whether the funds were actually provided by VPL as claimed by the Appellants or it was the Appellants own funds. The evidence on record strengthens the Appellants version that Rs. 10 crores was made available by VPL and was routed through other companies including the Appellant company.The Appellant's version is that instead of returning the loan amount to VPL directly, it was paid to DIPL, at the behest of VPL and DIPL acted as directed by VPL.

Factual position in this regard could have been verified from the records of the concerned companies. In any case there is no rebuttal of the Appellant's version from the Respondents' side, on the contrary the Respondents have relied on the Appellant's letter dated 1.7.1998. The Appellant's contention that JHPL is a totally independent company and not in any way associated or connected with it is untenable. The fact that JHPL received money directly from Domebell, a Videocon group company, and JHPL passed on the money to two other Videocon group companies viz. Equity Investments P.Ltd and Gandak Investments Ltd goes to demolish the Appellants contention that JHPL is unrelated to the Videocon group. What is missing is a finding with facts that Rs.10 crores paid to Equity Investments and Gandak Investments actually belonged to the Appellant company, and a rebuttal of the factual position putforth by the Appellant company in its letter dated 1.7.1998. The respondents have established fund flow from the group to brokers. But they have failed to prove that it was the Appellant's funds and that it was meant to buy its own shares. As I already stated, in the absence of any evidence to show that Rs.10 crores was the Appellant company's money, one has to go by the version of the Appellant, supported with the material on record that it was VPL's money and the Appellant company like other companies in the group such as Domebell, Gandak, Equity Investment etc., was only one of the conduits and the Appellant cannot be treated differently by isolating it from the other companies. The reason for not investigating the version of the Appellant company, remains unexplained. In the absence of adequate evidence to show that the Appellant company used its funds to purchase its shares, the Appellant cannot be held liable for the consequences, if any, arising out of the transaction. As already stated, the order has referred to the Videocon group companies, as the source of funding, and the Respondents seem to be under the impression that for the action of the group companies, the Appellant being one of the constituents of the group can be held liable discarding the fact that each company registered under the Companies Act is a separate and distinct legal entity and punishment cannot be awarded to one of them in a representative capacity. It is seen that throughout in the order, references are made in a general manner to Videocon group and due to the failure to recognise the distinction between the separate and distinct legal entities in the group, the order is replete with several inaccurate statements.

98. The reason attributed by the Respondents to the Appellant resorting to the alleged indirect funding for acquisition of its own shares, is that under section 77 of the Companies Act, a company cannot acquire its own shares. Section 77 of the Companies Act restricts a company from purchasing its own shares. But the section also porhibits financing directly or indirectly any person for purchasing/subscribing to the company's shares. That being the legal provision, it is difficult to accept the Respondent's version that the Appellant knew only a part of section 77 and not the whole section. If a company like the Appellant knew about prohibition of acquisition of its own shares in terms of section 77 of the Act, it should also be aware of the prohibition on funding others to purchase its own shares! Section 77 prohibits not only acquisition of own shares but funding for the purpose also.

99. Further, even if the Respondents' version that the money belonged to the Appellant is accepted, still the funding was done intentionally to manipulate the market has to be established to hold the Appellant liable for violation of regulation 4(a) and 4(d) . As stated earlier the intention/motive in hiking the price at a time when the Appellant's promoters themselves had decided to purchase shares remains unexplained. There is no evidence to show that the Appellant had directed purchase of its own shares. It is seen from the Appellant's balance sheet that it has a large investment portfolio running into several crores with investments in the shares of several companies, both listed and unlisted.

100. Further, no credible evidence has been produced to show that the Appellant company and Damayanti group had any nexus and the Damayanti group purchased shares at the behest of the Appellant. Casual observations alone is not sufficient to show that the said Damayanti group had acted on the instructions of the Appellant. Funds provided at the behest of BSE management to bail out cannot be presumed as a measure to bail out Damayanti group brokers, in the context of the Respondent's failure to link the payment directly to Damayanti group entities. On the contrary the evidence on record shows that it was done at the behest of BSE amd NSE to overcome a payment crisis and save the market from a crash and the beneficiaries were not chosen by the Appellant.

101. The Respondents have stated that the Videocon group had provided Rs.15.53 crores to bail out the brokers trapped in the payment crisis.

According to the impugned order some of the brokers dealing on behalf of Damayanti group who had cornered a substantial stock of the company's shares faced payment problems in June 1998, could not discharge their commitment towards pay in liabilities. The outstanding carry forward position of some of these brokers were taken up by Madhukar Seth & Co., M/.s.Jaisukhlal Jagjivan, Spring Field Securities and Ventura Securities Ltd., brokers of BSE through "all or none" or bulk deals at predetermined rates and quantities by synchronising the logging in of the trades by the buyers and the sellers. The prominent entities who purchased the Videocon shares through the said brokers were, Mehta Integrated Finance Ltd /Mehta Securities Ltd, Spring Field Securities Ltd and Fedex Securities Ltd (Total amount Rs. 15.53 crores). As per the details stated in the order "Madhukar Seth & Co., had taken over the outstanding purchase positions of the BSE brokers in the Videocon Scrip to the extent of 5,65,000 shares Totally 10 lakh shares were sold by Madhukar Seth as a bail out package to the entities connected with Videocon group. Payments to the extent of Rs.773.18 lakhs were "received by Madhukar Seth from JHPL, an entity which received funds from Videocon group". Another instance of bail out package recorded in the orders is purchase of 5,03,000 shares of Videocon purchased @ 111.50 aggregating Rs.5.62 crores by Fedxex Securities Ltd through M/s.Ventura Securities, member of BSE who had taken over the carry forward positions of the brokers who had payment problems". As per the order the payment by Fedex for purchase of these shares was made partly out of receipt of share application money of Rs.50 lakhs from JHPL, a loan of Rs.90 lakhs from JHPL, Rs.1.25 crores from Videocon International towards deposit for lease etc.! 102. The fact that "Videocon group" had made available funds to the tune of Rs.15.53 crores to bail out the brokers trapped in the pay ment crisis in June, 98 is born out of material available on record. The background of providing the funds has been explained by the Appellant in its written submission dated 20.12.1999 before the Respondent in response to the show cause notice that " when the officials of Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) sensed a payment crisis, both the BSE and NSE made a bonafide effort to try and prevent collapse or crash of the market and both BSE and NSE approached the promoters of VIL to overcome the crisis. Without prejudice and without admitting, it can be said that , if at all it is the promoters who indulged into the activities to prevent the crisis, and that too, at the behest of the BSE and NSE. At all times, it was projected to the promoters and they understood that the actions and assistance on their part had the endorsement and approval not only of BSE and NSE officials, but also of SEBI itself" . The fact of the payment crisis and the exchanges' attempt to diffuse the situation has been corroborated in the deposition of Shri Navneet N Rana (of GNH). There is no evidence to show that any particular broker chosen by the Appellant was bailed out as transactions were put through BOLT and the counter party details were not available at the time of transacting the business, as per the statement of the brokers available on record.

103. In the order there is a categorical finding that "Damayanti group acting through a set of brokers had built up a large concentrated positions of around more than 50% of the total position at the exchange in the scrip of Videocon. This cornering of shares had created artificial market and price manipulation in the scrip". There is a three full page discussion in the order to the effect that Damayanti group was acting as a front for Shri Harshad Mehta. But the Respondents have failed to prove that the said Damayanti group had acted at the behest of the Appellant company and thereby distorted the market. As long as the Appellant company's role in the game is not established, the Appellant company cannot be proceeded against, for the so called omissions and commissions of the said Damayanti group. As stated earlier, in the absence of reasonably good evidence to support, charge of market manipulation , which is a very serious one, cannot stick on the Appellant company, merely on surmises and conjunctures .

104. In this context, with reference to the test of evidence applicable to the domestic inquiries, Shri Dada had referred to the decision in Gulabchand (supra) that "it is wrong to insist that in civil cases such charge must be proved clearly and beyond reasonable doubt". He had also cited the Hon'ble Bombay High Court in National Housing Bank (supra) in this regard. In the said case the Hon'ble High Court had reiterated the principle laid down by the Hon'ble Supreme Court in Gulabchand's case.

This Tribunal is not suggesting for a moment that to proceed against a person under regulation 4(a) and 4(d) , the charge must be proved beyond reasonable doubt. The nature of evidence required for the purpose was considered by this Tribunal in Sterlite case (supra), . In the Sterlite case also the charge was manipulation of the market and the direction issued was also identical, but for the tenure of the prohibition. In the said case also Appellant Sterlite was represented by Shri Sundaram and the Respondent SEBI by Shri Dada. The views expressed by this Tribunal in the said case are squarely applicable to the present case also. It was held in the said case: "Shri Dada had argued about the degree of evidence required in an adjudication like the one, in contradistinction to the nature of evidence required in criminal proceedings in a court of law, that in an inquiry like the instant one it is the "preponderance of probability" that is to be taken into consideration and not to go by "proof beyond doubt" as required in criminal proceeding.

In this context it is to be noted that Chairman holding the Appellant guilty of indulging in price manipulation has stated that "creation of false market and price manipulation is a very serious offence". Evidence merely probabalising and endeavouring to prove the fact on the basis of preponderance of probability is not sufficient to establish such a serious offence of market manipulation. When such a serious offence is investigated and the charge is established , the fall out of the same is multifarious .

The impact of such an adverse finding is wide especially in the case of a large public company having large number of investors. The stigma sticks and it also hurts, not the company alone, but its shareholders as well. "Not all the King's horses and all the King's men" can ever salvage the situation. Mere conjunctures and surmises are not adequate to hold a person guilty of such a serious offence.

The extent of proof required to hold the delinquent guilty has been explained by the Hon'ble Supreme Court in Bank of India v. Degala Surya Narayana (AIR " strict rules of evidence are not applicable to departmental enquiry proceedings. The only requirement of law is that the allegation against the delinquent officer must be established by such evidence acting upon which a reasonable person acting reasonably and objectively may arrive at a finding upholding the gravamen of the charges against the delinquent officer. Mere conjuncture or surmise cannot sustain the finding of guilt even in departmental enquiry proceeding.In M.S.Bindra v. Union of India, (1998) 7 SCC 310 the Court had while deciding an appeal against the removal of an officer from service on doubtful integrity held that " mere possibility is hardly sufficient to assume that it would have happened". In Nandakishore Prasad v. State of Bihar (1978) 3 SCC 366, the Court while considering the appeal against the removal of an employee from service based on the findings of a departmental enquiry viewed that " Before dealing with the contentions canvassed, we may remind ourselves of the principles in point crystalised by judicial decisions. The first of these principles is that disciplinary proceedings before a domestic tribunal are of a quasi judicial character; therefore, the minimum requirement of the rules of natural justice is that tribunal should arrive at its conclusion on the basis of some evidence, i.e. evidential material which with some degree of definiteness points to the guilt of the delinquent in respect of the charges against him. Suspicion cannot be allowed to take the place of proof even in domestic inquiries. As pointed out by this Court in Union of India v. H.C.Geol (AIR 1964 SC 364) 'the principle that in punishing the guilty scrupulous care must be taken to see that the innocent are not punished, applies as much to regular criminal trials as to disciplinary inquiries held under the statutory rules'.

105. In the context of a disciplinary action against an advocate, the Hon'ble Court had held that " disciplinary authority empowered to conduct the inquiry and to inflict the punishment on behalf of the body, in forming an opinion must be guided by the doctrine of benefit and is under an obligation to record a finding of guilt only upon being satisfied beyond reasonable doubt. It would be impermissible to reach a conclusion on the basis of preponderance of evidence or on the basis of surmise, conjuncture or suspicion. It will also be essential to consider the dimension regarding mens rea . This proposition is hardly open to doubt or debate particularly having regard to the view taken by this Court in L.D.Jaisinghani v. Naraindas N Punjabi ( 1976) 1 SCC 354: AIR 1976 SC 373 at P. 376 - wherein Ray, CJ speaking for the Court has observed: "In any case we are left in doubt whether the complainants version with which he had come forward with considerable delay was really truthful. We think that in a case of this nature, involving possible debarring of the advocate concerned the evidence should be of a character which should leave no reasonable doubt about guilt. The Disciplinary Committee had not only found the Appellant guilty but had disbarred him permanently. ( In Re An advocate AIR 1989 SC 245)" About the test of evidence in a civil proceeding, the following observations made by the Hon'ble Court (Razikram v. J.S.Chauhan - AIR 1975 SC 667: (1975) 4 SCC 769) is to be noted: " It is true that there is no difference between the general rules of evidence in civil and criminal cases and the definition proved in section 3 of the Evidence Act does not draw a distinction between civil and criminal cases. Nor does this definition insist on perfect proof because absolute certainty amounting to demonstration is rarely to be had in the affairs of life. Nevertheless, the standard of measuring proof prescribed by the definition is that of a person of prudence and practical good sense........ The same is equally true about proof a charge of corrupt practice which cannot be established by a mere balance of probabilities".

The Hon'ble Supreme Court in yet another case with reference to adjudication under the Sea Customs Act and Land Customs Act relating to imposition of penalty on the person concerned had held: " To such a situation though the provisions of the Code of Criminal Procedure or the Evidence Act may not apply, except in so far as they are statutorily made applicable, the fundamental principles of criminal jurisprudence and of natural justice must necessarily apply. If so, the burden of proof is on the customs authorities and they have to bring home the guilt to the person alleged to have committed a particular offence under the said Acts by adducing evidence" (Ambalal v. Union of India AIR 1961 SC 264).

106. On application of the standard of evidence required to hold a person guilty of an offence, as set out by the Hon'ble Supreme Court cited above, it is seen that the evidence produced by the Respondents is not sufficient to hold the charge against the Appellant. From the case law referred to above it is clear that in the absence of reasonably strong evidence (though not beyond reasonable doubt), even in a civil proceeding, a person cannot be held guilty and awarded punishment. Mere surmise, conjucture or suspicion can not sustain the holding of guilt. I have very carefully examined the impugned order and find that the conclusion drawn by the Respondents holding the Appellant guilty of indulging in market manipulation in contravention of regulation 4(a) and 4(d) of the 1995 Regulations is not substantiated by sufficient evidence". The Respondents have not established the charge against the Appellant company by such evidence, acting upon which a reasonable person acting reasonably and objectively may arrive at a finding upholding the charges. Mere conjunctures or surmises cannot sustain the finding of a serious charge like manipulation of market in connivance with a person notified under the Special Court Act .

107. A public offer resulting in purchase of shares at a price relatable to the book of value of the company's shares, unless proved otherwise, cannot be considered as an act of market manipulation. In the instant case it was the promoters who purchased shares in the public offer and as such for the impact of such a public offer if any, the company cannot be held liable, unless the company's involvement therein is clearly established , which the Respondents have failed to do. It is also to be noted that the Respondents have failed to identify the exact source of funds flow to the market that as to whether it was the Appellant's money or VPL's . The evidence shows that it was VPL's and the Appellant was only one of the links in the chain of fund movement to the market. Even if it is assumed that it was the Appellant's fund, in the absence of reasonable evidence to show the nexus between the Appellant company and Damayanti group and further that the said Damayanti group acted at the behest of the Appellant company, it is not possible to hold the Appellant liable for the activities of Damayanti group, especially in view of the seriousness of the allegation and the legal consequences thereof. Bail out per se is not an act of manipulation. At best it can be considered as a corroborative action. The Respondents have not made out any case that the brokers who faced payment problem were holding large positions on the Appellant's account. On the contrary the Respondents have stated that it was Damayanti group for Shri Harshad Mehta cornered the shares.

But the relevance of that again depends on the evidence showing as to whehter it was a quid pro quo measure. Not enough evidence in this regard has been adduced by the Respondents. Even though Shri Harshad Mehta has been projected as the "man behind", it appears that he was not even questioned and there is no indication of having his activities/role investigated in this regard to establish the Appellant's allged connivance with him in the transactions.

108. It is also seen from the material on record that the market volatility was not confined to the Appellant's shares alone, but the shares of companies like Sterlite, and BPL were also involved, and there was payment crisis in respect of the transactions entered into by the brokers in respect of the said companies' shares also. It cannot be a coincidence that the shares of these three companies were involved during the market volatility witnessed in April- May, 1998. It is nobody's case that those three companies are under the same management.

Therefore it is obvious that there was a third party, which played a major role in the market manipulation and that third party according to the Respondents was Damayanti group. The impugned order has left out the Damayanti group from the range of the order. According to the Respondents it was Shri Harshad Mehta who acted through Damayanti group. There is no indication in the order that Shri Harshad Mehta was examined and his statement was recorded/considered. Since Shri Harshad Mehta, according to the Respondents, being the person who manipulated the market through his front companies, it was incumbent on the Respondents to record his statements and also of those concerned persons in his front companies. Subjecting Shri Harshad Mehta and others to separate investigation and passing separate orders is not a substitute for obtaining his/their statements in the present case.

109. Respondent Chairman has directed the Appellant company "not to raise money from the public in the capital market for a period of 3 years in the interest of investors". It has also been directed that "prosecution proceedings be launched against the company through its directions/officers i.,e. Mr.V.N Dhoot, Mr.S.M.Hegde, Mr. S.K.Shelgikar under the Act". The directions have been issued invoking the powers under section 11 and 11B of the Act. Learned Senior Counsel for the Respondents had submitted that not only under section 11 and 11B but under regulation 12(a) also such directions can be issued. Texts of section 11 and 11B and regulation 12(a) have already been extracted in the earlier part of this order.

110. This Tribunal had considered the scope and reach of the said two sections in Sterlite case(supra) and had viewed as under: "Now on the direction issued by the Respondent. It is seen from the order that the direction debarring the Appellant accessing the capital market was issued invoking the powers vested in the Respondent under section 11 and 11B of the Act . Since I have already reproduced the text of these two sections in the earlier part of this order, the same is not reproduced again. The Tribunal had occasion to examine the scope and reach of these sections in Bank of Baroda v. Securities Exchange Board of India ((2000) 26 SCL 532 : (2000) 38 CLA 226: (2001) CLC 714): and had expressed the following view: "Section 11 and section 11B are interconnected and coextensive as both these sections are mainly focussed on investor protection. On a careful perusal of the said section 11 referred to in the earlier paragraphs, it could be seen that the Respondent has been in no uncertain terms mandated to protect the interests of investors in securities by such measures as it thinks fit. Of course those measures are subject to the provisions of the Act. The expression 'measure' has not been defined in the Act. So we have to go by its generally understood meaning. According to Corpus Juris Secundum measure means "anything desired or done with a view to the accomplishment of a purpose, a plan or course of action intended to obtain some object, any course of action proposed or adopted by a Government". However, I am not inclined to agree with the Respondent's view that the power under section 11 is unlimited. I am of the view that the legislature has circumscribed the power, by putting the caveat that these measures are subject to the provisions of the Act. The ambit of power is contained within the frame work of the Act. But within the statutory frame work such power reigns.

While section 11 deals with the functions of the Board, section 11B is on the powers of the Board. Section 11B is more action oriented, in a sense it is a functional tool in the hands of the Board. In effect section 11B is one of the executive measures available to the Respondent to enforce its prime duty of investor protection. As could be seen from the text of the section reproduced above, the Respondent is empowered to issue directions in the interests of investors to any person or class of persons referred to in section 12 of the Act or associated with the securities market. In other words the section identifies the persons to whom and the purposes for which, directions can be issued.

111. Gujarat High Court had examined the scope of section 11 and section 11B vis-a-vis the Respondent's position, while deciding an appeal against the Single Judge's order in Alka Synthetics Case (supra). The basic issue for consideration before the Division Bench in the said appeal was as to whether the Respondent had the authority to issue an order under section 11B of the Act for impounding or forfeiting the money received by stock exchanges, as per the concluded transactions under its procedure, until final decision is made. While negating the views of the Single Judge, and upholding the Respondent's power to issue such a direction under section 11B the Court observed:- " The SEBI Act is an Act of remedial nature and, therefore, the preset cases could not be compared with the cases relating to the fiscal or taxing statutes or other penal Statutes for the purposes of collection of levy, taxes etc. As and when new problems arise, they call for new solutions and the whole context in which the SEBI had to take a decision, on the basis of which impugned orders were passed, cannot be said to be without authority of law in face of the provisions contained in section 11 and section 11B. As the language of section 11(1) itself shows and as the matters for which the measures can be taken are provided in sub-section(2) of section 11.

It is clearly made out by the plain reading of the language of the section itself that the SEBI has to protect the interests of the investors in Securities and has to regulate the securities market by such measures as it thinks fit and such measures may be for any or all of the matters provided in sub-section (2) of section 11 and in due discharge of this duty cast upon the SEBI as a part of its statutory function, it has been invested with the powers to issue directions under section 11B. ................ Thus, so far as the authority of law in the SEBI to issue such directions is concerned, such authority to take measures as it thinks fit is clearly discernible on the basis of the provisions contained in section 11 read with section 11B of the SEBI Act. ..............We have to therefore consider and interpret the power of SEBI under the provisions so as to see that the objects sought to be achieved by Act is fully served, rather than being defeated on the basis of any technicality.................. The duty and function had been entrusted to take such measures as it think fit and in order to discharge this duty, the power is vested under section 11B. ................... The authority has been given under the law to take appropriate measures as it thinks fit and that by itself is sufficient to cloth the SEBI with the authority of law".

One has to view the powers of the Respondent under the provisions of the Act in the context of the objects sought to be achieved by the Act and the duty cast on them in achieving the same. Section 11 and section 11B give enormous authority to the Respondent in this regard. As long as the power exercised under section 11B is subject to the provisions of the Act and well within the legal and constitutional frame work, intended to achieve the purposes of the Act and subjecting the persons specified in the section, the power will sustain. Since the exercise of power is subject to the provisions of the Act and the purposes for which it can be exercised and the persons to whom it can reach has been specified in the section, it can not be said that the power is unguided or unlimited. It is a wholesome provision designed to achieve the objectives of the Act." 112. But it is to be noted that the power under section11B is restricted to issue appropriate direction for the purpose of protecting the interest of the investors etc. mentioned in the section. The scope of the expression 'direction' has not been defined in the Act. But the word has been judicially interpreted by Courts. Hon'ble Bombay High Court had viewed that "in law direction means guidance or command" (AIR 1988 Bombay 416 at p. 421). According to the Hon'ble Supreme Court in Rajendranath v.CIT (1979) 4 SCC 282, "a direction by a statutory authority is in the nature of an order requiring positive compliance".

According to Blacks Law Dictionary direction means " a guiding or authoritative instruction, order, command".

113. It has to be noted that section 11B does not even remotely empower the Respondent to impose penalties. Hon'ble Calcutta High Court had held that prescribing an offence and its punishment is an essential plenary function of the legislature (D.N.Ghosh v. Addl. Sessions Judge (AIR 1959 Cal.208.) Hon'ble Gujarat High Court also held the same view in Delux Land Organisers v. State of Gujarat (AIR 1992 Guj. 75) holding that " any power to impose penalty must be statutorily warranted and executive Government cannot create penal provisions by issuing circular when there is no authority to impose such penalty flowing from any provision of law". Hon'ble Supreme Court in Khemka and Co.(Agencies) Pvt.Ltd v. State of Maharashtra (AIR 1975 SC 1549) , while considering the question as to whether the assessee under the Central Sales Tax Act, 1956 could be made liable for penalty under the provisions of the State Sales Tax Act, had considered the power to impose penalty. It had held: " It is well settled canon of construction of statutes that neither a pecuniary liability can be imposed nor an offence created by mere implication. It may be debatable whether a particular procedural provision creates a substantive right or liability. But I do not think that the imposition of pecuniary liability which takes the form of a penalty or fine for a breach of a legal right can be relegated to the region of mere procedure and machinery for the realization of tax. It is more than that. Such liabilities must be created by clear, unambiguous and express enactment. The language used should leave no serious doubts about its effect so that the persons who are to be subjected to such a liability for the infringement of law are not left in a state of uncertainty as to what their duties or liabilities are. This is an essential requirement of a good government of laws".

The legislature has clearly spelt out the penal provisions in the Act at 3 places - section 12(3) provides for suspension or cancellation of the certificate of registration granted to the market intermediaries in the event of their proven misconduct, provision under Chapter VIA, provides for imposition of monetary penalty for certain offences specified therein; section 24 empowers Courts to award punishment for violation of offences under the Act etc. Since legislature has deliberately chosen to create specific offences and penalties thereto, it is not possible to view that under section 11B the Respondent is competent to issue a direction which tantamounts to imposition of penalties. While widening the scope of 'such measures' used in section 11, to include penalties, and thereby stretching the scope of issuing directions under section 11B to cover imposition of penalties, the limitation stated above need be kept in mind. However, it is understood that the Respondent has also been taking the view that section 11B is not a penal provision, but preventive and remedial in its application.

If that is so, it has to be seen whether the impugned direction prohibiting the Appellant from accessing the capital market for a period of 2 years from the date of the order is preventive or remedial . In the absence of any explanation from the Respondent as to what exactly is meant by "accessing the capital market", it has to be understood as is understood in the common parlance - i.e. entry to the capital market for issuing/offering securities. In this context, it is to be noted that the charge against the Appellant is of market manipulation. The shares of the Appellant are listed/traded in the stock exchanges even today. That being the case preventing the Appellant raising further capital/offering shares to the public in the next two years cannot serve as a preventive measure to debilitate the Appellant indulging in market manipulation. Similarly, by no stretch of imagination the said direction can be considered even remedial as prospective barring of a public issue cannot remedy an act of market manipulation allegedly indulged for a specific purpose, 3 years ago. A remedial action is normally seen as one intended to correct, remove or lessen a wrong, fault or defect. Purport of preventive or remedial directions which can be issued in a proven case of fraudulent and unfair trade practice is discernible from the provisions of regulation 12 of the 1995 Regulations, already cited in this order. In my view the impugned order is neither remedial nor preventive but punitive in effect as it takes away the Appellant's right to mobilise funds from the public to carry on its business. According to Webster's Encyclopedic Unabridged Dictionary " penalty means a punishment imposed or incurred for a violation of law or rule". In the instant case it is seen that the order is made in the light of the finding by the authority, that the Appellant has violated the regulations. This nexus also strengthens the view that the order debarring the Appellant from accessing the capital market is a penalty . In this view of the matter the order has no legal backing and therefore cannot sustain".

114. Learned Senior Counsel had cited the following cases to support his contention that the Respondent is empowered to issue the impugned direction:(1) Anand Rathi and Ors. v. Securities and Exchange Board of India (2001) 32 SC227(Bom), (2) M.Z.Khan v. SEBI (AIR 1999 Delhi 64), (3) SEBI v.Alka Synthetics (1999) 19 SCL 460 (Guj)).(4) R.R.Bohra v.SEBI((1999) 33 CLA 243).

115. I have carefully gone through each one of these decisions and find no support to hold that after completing the enquiry, a direction under section 11B which tantamounts to imposition of penalty can be issued.

No doubt a direction under section 11B can reach a company whose shares are listed in stock exchanges as the company can be considered as "person associated with the securities market" in terms of section 11B(a). But from the purpose for which the direction which SEBI can issue under section 11B as provided in the section, it is clear that a direction on conclusion of the inquiry cannot be in the nature of a penalty. Directions under section 11B can be issued only on being satisfied by the Board after an inquiry that it is necessary - (i) in the interest of investors, or orderly development of securities market; or (ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market; or (iii) to secure the proper management of any such intermediary or person.

In my view the impugned direction is beyond the scope of section 11B .It has also to be seen whether the impugned direction prohibiting the Appellant from raising capital from the public in the capital market for a period of 3 years is an investor protection measure or not. In this context it is to be noted that the charge against the Appellant is market manipulation. It has to be noted that 65% of the Appellant's shares are held by the public. Appellant's shares are listed/traded on BSE, NSE and other stock exchanges at Bangalore, Chennai, Delhi, Calcutta, Pune and Jaipur. Preventing the Appellant from raising capital from the public in the next 3 years cannot serve as a measure to debilitate the Appellant indulging in market manipulation. The direction cannot also be considered as remedial measure in the interest of investors, as prospective ban on raising capital cannot remedy an act of market manipulation allegedly indulged 3 years ago. Purport of preventive or remedial direction which can be issued in a proven case of fraudulent and unfair trade practice is discernible from regulation 12. In my view the impugned order is punitive in effect as it takes away the Appellant's right to raise funds from the public to carry on its business. Penalty means a punishment imposed or incurred for violation of law or rule. In the instant case the order has been passed by the Respondent in the light of the finding that the Appellant has violated regulation 4(a) and 4(d). This nexus also strengthens the view that the order banning the Appellant raising capital from the public is in effect a penalty.

116. The decisions relied on by Shri Dada cited above are in the context of challenge to SEBI's authority to issue interim orders during the pendency of the inquiry and the Courts had viewed that such orders which are required to protect the interest of the investors can be issued. The impugned direction for the same reason stated in the Sterlite case extracted above,is nothing but a penalty in effect and is in fact against the interest of investors, as a ban on raising funds to meet the Appellant company's business requirements is likely to adversely affect the company's ongoing business activities and further expansion /development and thereby the shareholders' interest .

117. Learned Senior Counsel for the Respondents had putforth an alternate argument that even if it is held that in the light of this Tribunal's decision in Sterlite's case section 11B cannot be used for debarring the Appellant accessing the capital market, still the Respondents can issue such direction under regulation 12(a) read with regulation 11 as the said regulation empowers Respondent SEBI to direct the person concerned "not to deal in securities in any particular manner". According to the learned Senior Counsel the words "not to deal in securities" are wide enough to cover debarring a company from accessing the market for a specific period. This interpretation of regulation 12(a) I am afraid, is too far fetched . It is well accepted in the market circle that " accessing the capital market" and "dealing in securities" are different. In fact the impugned direction is very clear in this regard. The ban is on the Appellant company "raising money from the public in the capital market for a period of 3 years", leaving little doubt. Raising money by a company from the public by any standard cannot be considered as an act of dealing in securities.

"Dealing in securities" normally means transactions in securities.

"Dealing in securities" as per the definition at regulation 2(b) means " an act of buying, selling or otherwise dealing in any security or agreeing to buy , sell or otherwise deal in any security by any person either as principal or agent". The act of raising capital from the market by its very nature does not come under the definition "dealing in securities". Therefore the Respondents' contention that under regulation 12(a) it is empowered to issue such direction is untenable.

118. The Respondents have also stated that the impugned direction is issued in the interest of investors. But there is no explanation as to how the said direction is in the interest of investors at this point of time. In fact for the reason stated in the preceeding paras issuing such a ban on the Appellant company raising capital for three years is against the interest of the investors and thereby against the purpose for which direction under section 11B is permitted to be issued. The view taken by this Tribunal in Sterlite case extracted above in relation to issuance of directions under section 11 and 11B, in equal force is applicable to the present case also. In the said view of the matter the impugned direction has no legal backing and therefore cannot sustain.

119. As already stated, in the absence of sufficient material evidence to establish that the Appellant had directly or indirectly indulged in market manipulation, the impugned order holding the Appellant guilty of violating regulation 4(a) and 4(d) cannot sustain and therefore deserves to be set aside.

120. In the appeals filed by Shri V.N.Dhoot, Shri S.M.Hegde, and Shri S.K.Shelgikar (appeals Nos. 24,25,and 26) they had inter-alia prayed to set aside the direction to launch prosecution against them. They have adduced several grounds. In this connection it is to be noted that there is no finding of guilt in the order against the said Appellants.

The direction is to prosecute the Appellant company through the Appellants.

121. On a perusal of the order it is seen that the prohibition on the Appellant company on raising money from the public in the capital market is made invoking the provisions of section 11 and 11B of the Act and regulation 11 and 12 of the 1995 Regulations. Prosecution against the Appellant company through its directors/ officers has been ordered under section 24 of the Act. In this context, the following observation made in the interim order made by this Tribunal in BPL Ltd v. SEBI (2001) 32 SCL 95 is considered relevant.

"In terms of section 24(1), if any person contravenes or attempts to contravene or abets the contravention of the provisions of the Act or any rules or regulations made there under he shall be punishable with imprisonment for a term which may extend to one year, or with fine or with both. In terms of section 26(1) of the Act, cognizance of an offence punishable under the Act etc. by a court is permissible only on a complaint made by SEBI ( the Respondent).

On a combined reading of sections 24 and 26 it is clear that prosecution for offences can be launched by the Respondent and the power to launch such prosecution is not in any way circumscribed by any of the provision of the Act. It is left to the discretion of the Respondent to decide to launch or not to launch prosecution under the Act. It is also to be noted that no "order" as such is required to launch prosecution in view of the clear provisions of section 26 of the Act because it is only SEBI which is competent to file prosecution and none else. It is clear that under the Act the Respondent has uninhibited power to launch prosecution against persons contravening the provision of the Act, rules or regulations made there under. It is not with in the appellate powers of the Tribunal to stall launching of prosecution by the Respondent under section 24/26 of the SEBI Act.

Now coming to the question of the penal liability of the directors/officers of a company proceeded against for an offence, we need look into the provisions of section 27 of the Act, which reads as under : "27(1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that noting contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

On a perusal of the section, it is thus clear that for the offence committed by a company its directors/officers are not automatically punished along with the company. Section provides safeguards by giving opportunity to them to prove their non involvement in commission of the offence, to escape from the attendant penal consequences. It could be seen that as per the provisions of section 27 only those persons in charge and responsible at the relevant point of time for conduct of business of the company alone are deemed to be held guilty for contravention. So legal fiction comes into operation against the persons indicated only on establishing facts, which are appurtenant with the contravention. Such persons can successfully resist the prosecution by establishing want of knowledge about the contravention or exercises of due deligence to prevent the same. Such onus on a person can not be considered so heavy. Ordinarily the same could be discharged.

Referring to the Appellant's submission that criminal prosecution results in diminishing the personal reputation of the concerned person , I would only refer to the following observation made by the Bombay High Court in ANZ Grindlay's case (Supra).

"We are unable to accept the plea that impugned provisions abrogates prestige or reputation of the official because he/she had to face prosecution. No person can maintain the dignity or cherish prestige by avoiding due process of law. Law being a guardian, it maintains and protects the dignity and honour of every person. Dignified and honourable persons have to stand the test and trial articulated by Law. And in obedience, he or she has to submit to the process.

Cherishing majesty of law and its process is a inner core of the dignity of individual in a Democratic World, which runs on the wheel of Rule of Law".

On behalf of the Appellants it was argued that the Tribunal is adjudicating an appeal against the order made by the Respondents and one of the directions in the said order is to launch prosecution proceedings against the Appellants and therefore the Tribunal is competent to decide whether such an order directing prosecution is sustainable or not, that a person aggrieved by an order directing prosecution against him has the right to appeal against the order in terms of section 15T of the Act.

122. Certainly Section 15T of the Act enables any person aggrieved by an order of SEBI to file an appeal to the Tribunal. From Section 15T it is clear that to file an appeal there should be an order to start with.

Then comes the impact of the order. If a person is aggrieved by that order, he is entitled to file an appeal. Since the section uses the wider expression " any person" right of appeal is not restricted only to the parties before the Board in the proceedings. Anybody, whether he was a party or not in the proceedings before the Board, is entitled to prefer an appeal, provided he is aggrieved by that order. Thus the first test is the existence of an order and then the impact of that order on a person.

123. It has been described in Corpus Juris Secundum (Vol.IV) that "broadly speaking a party or person is aggrieved by a decision only when it operates directly and injuriously upon his personal pecuniary or proprietory rights". It is not possible to subscribe to the view that by a direction to launch prosecution would operate directly and injuriously on any of the rights of the Appellants. The expression "aggrieved person" in section 15T means person affected by an order. In that sense the Appellants are not aggrieved persons. A decision to launch prosecution by itself cannot be considered a cause of grievance to approach the Tribunal by way of an appeal. Therefore I am of the view that a direction to launch prosecution against the Appellant company is not an order appealable in the Tribunal and the Tribunal is not empowered to adjudicate the same.

124. According to the learned Senior Counsel for the Appellants, the Respondents have already launched prosecution against the Appellants.

As Shri Dada, learned Senior Counsel for the Respondents did rightly point out, this Tribunal does not enjoy the inherent powers of High Courts under section 482 of the Cr.PC to issue any order for quashing pending proceedings before any Court of law.

125. For the reasons stated above this Tribunal is of the view that it is beyond the jurisdiction of this Tribunal to issue any order setting aside the Respondents' direction to launch prosecution against the Appellant company though its directors and officers. Therefore I do not consider it necessary to examine the grounds adduced by the Appellants in support of their contention, in this regard.

126. For the reasons stated above the Respondents' order directed to the Appellant company "not to raise money from the public in the capital market for a period of 3 years" is set aside.