1. All these appeals are directed against a common impugned order and the appeals are taken up for final disposal with consent of both parties in the common order.
2. The appeals are against the impugned order dated 18th June, 2003 of the Respondent which reads among others as under: "6.0 Therefore, in exercise of powers conferred on me under Section 4(3) read with Section 11 and 11B of SEBI Act and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, I hereby, direct that KSL and Industries Limited and its promoter directors namely - Shri Pravin K. Tayal, Shri Navin K. Tayal, Shri Sanjay K. Tayal, shall dissociate themselves from the capital market for a period of 2 years, and that the aforesaid persons are also prohibited from dealing in securities for a period of 2 years.
3. The brief facts of the case is that the appellant No.1 is a company registered under the Companies Act. It was earlier known as Krishna Texport and Capital Market Ltd., The name of the appellant No.1 was changed to KSL & Industries Ltd., on or from 27thJanuary, 2000 (hereinafter referred to as "KSL") . The appellant No.1 (KSL) and No.2, 3 and 4 are promoter directors aggrieved by the order dated 18th June, 2003 passed by the Respondent have filed this appeal. On receipt of a complaint from one Mr. Pramod Kumar Agarwal alleging irregularities in the allotment and delivery of shares, subscription to the issue by way of dummy and fake applications and through fake stock invests and price-rigging at BSE, the Respondent conducted an investigation into the Public Issue of PCL.
4. PCL had come out with a Public Issue of 80,33,660 equity shares of Rs.10/- each aggregating to Rs.803.36 lakhs. The Issue opened on February 3rd, 1996 and closed on February 12th, 1996. as per the 3 days and 78 day reports of the Lead Manager to the issue, M/s. Kanoria Securities and Financial Services Ltd., the issue was fully subscribed.
5. With the financial assistance from KSL, 12 investors applied for 60,00,000 (sixty lakh) shares Pashupati Cables Ltd., by way of stock invests worth Rs.3.00 (Three) crores as application money. The said stock invests were issued against a deposit of Rs.5.00 crores made by the Appellant No.1 in the State Bank of Indore. The application for subscription were made on 9th February, 1996. The issue closed for subscription on 12.2.1996. The share applications submitted by these 12 investors were withdrawn on or about 12.2.1996. According to the appellant the aforesaid application for withdrawal of offer for purchase of shares were made prior to the closing of the Issue. They also forwarded their request for withdrawal of their applications to the Registrar to the Issue.
6. Upon receipt of the aforesaid withdrawal applications both the Registrars to the Issue as well as PCL by their letters dated 15th February, 1996 informed the respective applicants that there would be no allotment in respect of the applications as the applications were rejected. They were further informed in the said letter that the stock invests would be returned to the respective applicants in due course.
PCL did not allot any share/s to the said applicants and, therefore, there was no purchase of shares by the applicants of KSL.
7. Subsequently, the shares were got listed on BSE on 8th May, 1996.
Opening price was stated to be Rs.12/- per share. The shares were last traded on 30th November, 1998. Closing price of the share was Rs.15.95.
BSE suspended trading on 15-3-1999.
8. As per the findings of the investigation report of SEBI which was submitted on 31st May, 2002 the Respondent found KSL & Industries Ltd., prima facie had: a. arranged finance to subscribe to the public issue of PCL to the extent of 60 lakh shares aggregating to Rs.300 lakhs i.e. around 80% of the net public offer.
b. acted in concert with PCL and Empey finance and Investment Pvt.
Ltd., (hereinafter referred to as "Empey') with the objective of bailing out the issue and to get the shares of PCL listed on the BSE without any actual inflow of fund.
9. Show cause notices were issued to KSL & its 4 promoters viz. Shri Ram Pratap Tayal, Shri Pravin K. Tayal, Shri Navin K. Tayal, Shri Sanjay K. Tayal on 5-8-2002. Thereafter, KSL was granted an opportunity for hearing in person before the Chairman of the Respondent on 16th September, 2002. No appeal has been filed by Shri Ram Pratap Tayal.
10.1 Shri Prasad Kuhad, learned senior counsel for the appellants submitted that according to the impugned order the overwhelming 80% of the Public Issue was subscribed to by the appellants with a view to bailing out the Issue and that since there was a total lack of any commercial justification for such substantial investment in a company whose prospectus were at best precarious, the investment by itself smacked of a fraudulent intent. However, according to him the correct factual position is fundamentally different. The amount subscribed to was in fact not beyond 25% of the value of the issue offered; the financial projections of the company were excellent, the projections were fully substantiated both by the statutory regulators and other experts. The project had been fully appraised both by the regulators and other financial institutions; substantial investment had already been made in its implementation and considering its prospects the likely allotment was to be made only a portion of the shares subscribed to. Moreover, the record bears out that the size of the investment made for this project to be launched by the company was the normal size of company's investment. The investment herein represented only a small portion of total investment made by the appellants in different Public Issues. The submissions of the learned senior counsel for the appellants are as under: 10.2 The total paid up capital of the company after the issue was to be worth Rs.13.48 cores and the total value of the current issue was Rs.11.95 crores. Out of this shares, worth Rs.3.04 crores alone were offered to the public. Shares worth Rs.4.60 crores were reserved for mutual funds, financial institutions and NRIs. Shares worth Rs.3.92 crores were reserved for promoters and there was no reason to believe that the shares were not likely to subscribed to. The only reason the appellant company had applied for a larger sum was to ensure that it secured a large portion of the issue offered to the Indian public.
10.3. As is evident from pages 2, 8 and 9 of the prospectus the issue had been vetted by SEBI, Lead Manager, Consultants and IDBI,. Page 9 of the prospectus bears out that IDBI had already sanctioned a loan of Rs.400 crores, that the total cost of the project was Rs.17.84 crores.
Under these circumstances, the decision to apply for allotment out of the shares offered to public amounting to Rs.3.40 crores could not be said to be commercially imprudent. By the time of the application PCL had already placed, order for purchase of machines valuing Rs.2.5 crores, acquired land and already spent Rs.1.63 crores. Promoters' fund of Rs.4 crores were to be brought in before allotment of shares to the public. The prospectus as appraised by SEBI, Lead Manager, Consultants and IDBI further indicated that PCL's annual net profit after implementation of the project would likely to be Rs.6.38 crores.
10.4 In the light of the above information and the facts that the funds were to be utilized only after the approval of the stock exchange and listing on all the exchanges and the fact that the stock invests were to remain with the Registrar, the approach adopted by the appellant company by no standard be described as imprudent.
10.5. Since at the relevant time, huge amount of private investments, both by foreign as well domestic investors was being made in power sector, the projections made by PCL were considered to be reasonable and achievable. The project cost which was Rs.17.48 crores was appraised for economic viability and technical feasibility by the Madhya Pradesh Consultancy Organisation Ltd., (MPCOM) which was a joint venture of IFCI, IDBI, ICICI and State Corporations and banks. The prospectus, in section containing "Capital Structure of the Company" has clearly specified that the issue floated by PCL was for 1,19,55,400 equity shares out of which 39,21,800 equity shares reserved for allotment to Indian and Non Resident Indian Directors, Promoters and their relatives, friends, associates and Directors. Out of the remaining, 16,06,820 equity shares were reserved for preferential allotment to Indian Mutual Funds on competitive basis and another 11,06,880 equity shares were reserved for preferential allotment to Indian Financial Institutions/banks on competitive basis. Another 19,20,000 shares were reserved for preferential allotment to NRIs etc., leaving the 34,00,000 shares for cash at par offered to the Indian Public.
10.6 It is further submitted by the learned senior counsel for the appellants that 60 lakh shares of PCL were applied for by way of stock invests worth Rs.3 crores as application money. The said stock invests were issued against a deposit of Rs.5 crores made by the appellant No.1 in the State Bank of Indore. The applications for subscription were made on 9th February, 1996.
The said applications for purchase of shares were withdrawn on or about 12th February, 1996, in any case before 15th February, 1996, as intimated in the letter dated 15th February, 1996 addressed by PCL to the 12 applicants and letters dated 15th February, 1996 addressed by Fintech Compu Systems Ltd., Registrar to the issue to the 12 applicants. In the said letter dated 15th February, 1996 the Registrar to the issue has acknowledged the withdrawal letter of the applicants and has further confirmed that the respective applications were rejected and no allotment for the said applications would be made. The relevant extract of the said letter states as under: "We hereby confirm that there will be no allotment for the said application and the application has been rejected. The stock invests will be sent to you in due course." On a point of query whether the appellant can produce a copy of the letter addressed to the Registrar to the issue relating to withdrawal of their offer, the Learned counsel expressed his inability to produce the same as there has been lapse of considerable period of time and no record is available now.
10.7 The learned senior counsel further stated that the application for subscription to any issue is merely an offer which can be revoked at any time before acceptance of the same. Even as per prospectus issued by PCL the Board of Directors of PCL had reserved the right to accept or reject any application in whole or in part. Therefore, a prospectus can never be treated as an offer but only an invitation for. Section 2(36) of the Companies Act, 1956 defines the term 'prospectus' as under: " 'Prospectus' means any document described or issued as a prospectus and includes any notice, circular advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate.
10.8. If it is treated as an offer, then application for subscription will have to be treated as acceptance of the offer which would be binding on the parties. In view of the above the appellants have a right to withdraw the application at any time before acceptance of the same.
10.9. By applying for subscription of shares of PCL, the applicants had merely submitted their offer, which was subject to acceptance by PCL. A prospectus issued by the company is merely an invitation to offer. As per Section 6 of the Contract Act, an offer can be revoked at any time until it is accepted. In the present case PCL to which the offer was made as also the Registrar to the issue had in no uncertain terms communicated that the application made by the applicants, has been rejected, pursuant to withdrawal of offer by the applicants. In other words the withdrawal offer of the applicants was unequivocally accepted by PCL and Registrar to the Issue, as such, the applicants verily believe that their application has been rejected and no shares will be allotted to them and their money will be returned to them. The appellants are relying on the Judgement of Shri Balaji Textile Mills (P) Ltd. v. Ashok Kavle and Ors. (1989) 3 Comp. L.J 322 (Karn).
10.10. At the relevant time Stock markets were doing well and number of IPOs were being floated in the market. The appellants as a business strategy used to invest mainly in the IPOs of mid-cap companies. The appellants used to identify such companies based on market information so that it would invest in IPOs of such company's shares which will get listed at a price higher than the offer price on the stock market so that the appellants can exit immediately after listing of the shares of the respective companies which means getting short term benefit of the difference of the offer price and the price at the time of listing. It is submitted by the learned senior counsel that the appellants were not the only persons who used to follow this type of investment strategy.
There were several other persons, who at that point of time following this investment strategy. In the market parlance such persons were called stags. PCL was not the only company in which the appellants applied for shares and withdrew. The appellants in the past have invested in many IPOs and in certain cases had withdrawn their applications for subscription. The decision for withdrawal in most of the cases were guided by the market information regarding the said companies. The appellants had withdrawn their applications for subscription where they got information that the particular company was not expected to do good so as to have their shares listed at a higher price than the issue price.
10.11 The appellants through the 12 applicants had applied for subscription on 9th February, 1996 and had withdrawn their applications on or about 12th February, 1996. The stock invests were encashed between the period 23rd May, 1996 and 8th June, 1996. Since the issue closed for subscription on 12th February, 1996 , the allotment was to be made within 10 weeks therefrom as per section 69(1) of the Companies Act, 1956. The trading in the shares of PCL were commenced on 22nd April, 1996. It is, therefore, clear that the allotment was made prior to 22nd April, 1996. As per section 69(1) of the Companies Act, 1956 allotment cannot be made unless the complete amount for subscription of shares are paid to the company. Section 69(1) of the Companies Act, 1956 reads as under: "S. 69 - Prohibition of allotment unless minimum subscription received: (1) No allotment shall be made of any share capital of a company offered to the public for subscription, unless the amount stated in the prospectus as the minimum amount which, in the opinion of the Board of Directors, must be raised by the issue of share capital in order to provide for the matters specified in clause 5 of the Schedule II has been subscribed, and the sum payable on application for the amount so stated has been paid to and received by the company, whether in cash or by a cheque or other instrument which has been paid It is, therefore, the submission of the appellant that on the strength of a stock invest, no allotment could have been made by PCL. It appears that PCL and the Registrar to the issue had misled the stock exchanges by forging the proof of payment, got the issue listed or the stock exchanges have acted in the negligent manner by not insisting for proof of payment towards allotment of shares from PCL and the Registrar to the issue. PCL and Registrar to the Issue fraudulently encashed the stock invests from the period between 23/5/1996 and 8/6/1996. It is clear that the said stock invests were not the basis of allotment of shares of PCL for the simple reason that the shares of PCL were listed on 8th May, 1996 which is prior to 15 days of encashment of stock invests. In other words the 12 stock invests issued against the security of the appellants were not at all the basis for allotment of shares of PCL. The appellants are, therefore, a victim of fraud played by PCL, Registrar to the Issue and merchant banker to the issue. Stock exchanges could have acted in a more diligent manner. It was incumbent on the stock exchange concerned to insist for proof of payment from PCL, Registrar to the issue and merchant banker to the issue. Registrar to the issue and PCL, having communicated to the appellants that their applications have been rejected, no allotment will be made. The duty on account of the appellants was over by 15th February, 1996 and the appellants can never be held liable for any act of omission or commission committed by PCL, Registrar to the issue and Merchant banker to the issue 10.12. No material whatsoever has been placed on record to show that during the issue or at the time of allotment or at the time of listing there was any nexus between the appellants and the Registrar to the issue and PCL.
10.13 The only allegation against the appellants has been that they applied for subscription of the shares of PCL and withdrew it subsequently prior to the allotment. The above act per say is not illegal or prohibited by law. The allegation of the Respondent that the appellants, by so doing, created an illusion in the minds of investors is not supported by any evidence. There is neither any allegation with respect of collusion nor any kind of material to that effect.
Therefore, by mere fact of applying for subscription for the issue of PCL, it cannot be concluded de hors existence of credible material/evidence that the acts of subscription was malafide and deceptive which lead to creation of illusion in the minds of investors.
10.13 In the case of 12 applicants mentioned above, only the amount of stock invests was returned. It is, therefore, clear that these applicants or the appellants did not get any monetary or otherwise benefit from the above transactions.
10.14 The learned senior counsel Shri Kuhad further submitted that PCL and Registrar to the issue have committed a fraud on the appellants, investors and stock exchanges concerned and, therefore, the respondent could have proceeded against PCL and Registrar to the issue immediately. During the course of hearing of the present appeal, upon enquiry being made by this Tribunal about the action taken by the respondent against PCL and Registrar to the issue the respondent had initially mentioned that it has taken action against them. Learned counsel for appellant stated that an order dated 10th September, 2004 against the Registrar to the issue has been hurriedly prepared and it is an ex-parte order wherein the Registrar to the issue had not participated in the enquiry. It is further curious to know that the order suspended the registration of the said Registrar to the issue for two years from the date of the said order. The same order records that the registration of the said Registrar to the issue has already expired on 30th October, 2003. The order is, therefore, ineffective, and is of no consequence as the said Registrar to the issue inspite of its fraudulent conduct which became known to the respondent as early as in 1996 continued to operate as Registrar to the issue till 2003 without there being any action by the Respondent. As regard PCL, apart from including PCL in the list of vanishing companies, the respondent has not taken any action against PCL which is the real culprit of this fraud. As per the statements made by the respondent, the shares of PCL were listed on 8th May, 1996 and the opening price of the share was Rs.12/- The shares of PCL continued to be traded on the stock exchanges right through 1996 to 1999. The shares of PCL were lastly traded on 30th November, 1999 at the rate of Rs.15.95 per share. The respondent had included the name of PCL in the list of vanishing companies only after November, 1999. It is inconceivable that the respondent could not proceed against PCL for a period of 31/2 years during which its shares were being traded on the stock exchanges.
10.15 The appellants have been charged with the allegations that all the 12 applicants have given the address of the appellant No.1 in the application for subscription. It was conscious decision on the part of 12 applicants to mention the address of appellant No.1 for the simple reason that future correspondence with the said applicants in respect of the said issue is quickly obtained by them. It is of common knowledge that a person who is either in the employment or in business is not available at his or her residential address during the day time to receive the correspondence etc. The prospectus issued by PCL stipulates that the dispatches required to be sent to the applicants through the registered post at the sole risk of the applicants. It is only in this background that the applicants thought it fit, to avoid any risk of loss of correspondence, share certificates and other connected materials, to specify the address of appellant No.1.
10.16 The above transactions cannot be classified as benami transactions as the applicants in the present case i.e. the said persons were real persons, the transaction between the said applicants and appellant No.1 was a loan transaction. The applicants had got issued the stock invests against the deposit made by the appellant No.1. The deposit of the appellant No.1 was kept under lien by the State Bank of Indore issuing bank of the stock invests. The applicants would have got some profit that might have accrued after sale of shares upon allotment of the same. Therefore, these transactions cannot be classified as benami transaction nor the arrangements between the applicants and the appellant No.1 is illegal and/or prohibited by law.
10.17 The learned senior counsel for the appellants submitted that the jurisdiction of SEBI under the SEBI Act, 1992 until the enactment of Amendment Act, 2002, subject to two-fold limitations viz: (i) The Power was available for exercise only against specified intermediaries and not against other entities except in the matter of requirement of public disclosure; (ii) The class of transactions covered were post-allotment transactions i.e. transactions in securities carried out in securities market and not the transactions leading to issue of capital/securities.
10.18 Regulation 2(b) and (c) of SEBI (FUTP) Regulations, 1995 define dealing in securities and fraud and regulation 7 provide for investigation. The availability of power therein and the power of the said regulations is restricted entity wise to the intermediaries only and functionally to the stage of post-allotment of shares. Since the appellants are not intermediary, no investigation can be conducted against them.
10.19 Till 1995 the powers under the SEBI (FUTP) Regulations were available only with the Board. It is clear from section 4(3) of the SEBI Act that the Chairman may exercise all powers which may be exercised by the Board subject to regulations. Section 4(3) reads as under: "S. 4(3): Save as otherwise determined by regulations, the Chairman shall also have powers of general superintendence and direction of the affairs of the Board and may also exercise all powers and do all acts and things which may be exercised or done by that Board." 10.20 It is, therefore, clear from Section 4(3) that by Regulations framed under Section 30 of the Act, the Board can control the exercise of power by the Chairman available to him under Section 4(3). It is submitted that under the FUTP Regulations, 1995, as pointed out above, the Regulations restrict the exercise of powers under Regulations 7, 8, 10 and 11 only by the Board and not by the Chairman. It was only in the FUTP Regulations 2003 that the Regulations permitted the Chairman to exercise powers available under the FUTP Regulations, 2003.
10.21 Regulation 7 limits the availability of power of investigation to a person buying selling or otherwise dealing in securities. Regulation 2(b) which defines 'dealing in securities' read with section 2 A, 2J, 3(2), 4(ii), Section 9 (2) (a)(b)(f)(j)(m), section 17 and section 23(i) (g)(h) of the Securities Contract Act, 1956 bear out that the only entity is empowered to buy, sell or deal in securities and is thus covered by FUTP Regulation, 1995 is an intermediary or person associated with securities market. The investigation that was initiated in 1996 did not carry the sanction of any order under regulation 7 by any authority. It was held totally de hors the regulation. Similarly the investigation that is alleged to have been initiated vide order dated 31st March, 1998 has also not been shown to be based on any valid order of Board nor has it been shown that either a notice was issued for investigation or that it was validly dispensed with. The order dated 4th April, 2000 directing investigation was equally vitiated by the fact that there was neither a notice as contemplated under section 8(1) of the FUTP Regulations 1995 nor did it conform with the requirement of Regulation 8(2) for dispensing the notice.
10.22 The relevant portion of the impugned order pertaining to the reasoning given by the respondent is reproduced below: " I am further satisfied that in the interest of the investors and in public interest/securities market, no notice to the persons to be investigated, should be given, I, therefore, order that the above investigation may be conducted without notice." From the above it is clear that there was complete non application of mind by the respondent and the order has been passed in a purely mechanical manner without referring to any material for recording its satisfaction for dispensation of notice under Regulation 8(1). The learned senior counsel also submitted that even today no material whatsoever has been produced by the respondent to show that it was indeed in the interest of public or the securities market, notice under Regulation 8(1) was required to be dispensed with. The aforesaid order is, therefore, contrary to the law laid down by the Supreme Curt of India in the case of Ajanta Industries and Ors. v. Central Board of Direct Taxes, New Delhi (1976} 1 SCC 1001 where the Supreme Court has observed as under: "Para 15: When law requires reasons to be recorded in a particular order affecting prejudicially, the interest of any person, who can challenge the order in Court, it ceases to be a mere administrative order and the vice of violation of principles of natural justice on account of omission to communicate the reasons is not expiated." 10.23 The appellants also relied upon the Judgement of Supreme Court of India in the case of The Barium Chemicals Ltd. and Anr. v. Shri A. J.Rana and Ors., (1972) 1 SCC 240 wherein the Supreme Court, in paras 14 and 15, has observed as under" "Para 14: The words 'considers it necessary' postulate that the authority concerned has thought over the matter deliberately and with care and it has been found necessary as a result of such thinking to pass the order. The dictionary meaning of the word 'consider' is 'to view attentively, to survey, examine, inspect (arch), to look attentively, to contemplate mentally to think over, meditate on, given heed to, take note of, to think deliberately, bethink oneself, to reflect' ((vide shorter Oxford Dictionary).
According to Words and Phrases - Premanent Edition Vol. 8-A 'to consider' means to think with care. It is also mentioned that to 'consider' is to fix the mind upon with a view to careful examination; to ponder; study; meditate upon, think or reflect with care. It is, therefore, manifest that careful thinking or due application of the mind regarding the necessity to obtain and examine the documents in question is sine qua non for the making of the order. If the impugned order were to show that there has been no careful thinking or proper application of the mind as to the necessity of obtaining and examining the documents specified in the order, the essential requisite to the making of the order would be held to be non-existent." 10.24 The learned senior counsel further submitted that the securities do not come into existence until the allotment is finalized. Thus at the stage of subscription of public issue there is no existence of securities. In that view a person can be said to acquire the status of being associated with the securities market only at the post allotment stage and nor prior to.Morgan Stanly v. Kartick Das (1994) 81 Company Cases (SC), it was held that: "till the allotment of shares take place, 'shares do not exist; therefore, they can never be called goods." (pg. 333E) Further that "therefore, it is after allotment, rights may arise as per the contract. But certainly not before allotment. At that stage he is only a prospective investor of future goods." (pg 334 G).
Further that "the expression 'unfair trade practices' as per the Rules shall have the same meaning as defined under section 36A of the MRTP Act, 1969. that again cannot apply because the company is not trading in shares. A share means a share in the capital. The object of issuing the same is for building up capital. To raise capital means making arrangements for carrying on trade. It is not the practice relating to carrying on a trade. Creation of shares without allotment of shares does not bring shares into existence. From the above discussions it is clear that the question of appellant company trading in shares does not arise." (pg 335 E-G).R. D. Goyal v. Reliance Industries (2003) 113 Company Cases (pg 1), Hon'ble Supreme Court held that: "till the allotment is made, shares do not exist as such. It is only on allotment in this sense that the shares comes to existence."(pg 9 - B to C) In the following judgements this Tribunal has held that the board has no power to impose penalties u/s. 11B.Videocon International v. SEBI In SEBI v. Alka Synthetics reported in 1999(1) CLJ 396 the division bench of the Hon'ble Gujrat High Court held that impounding of money by SEBI can not be said to be penalty. From a collective careful reading of the judgement it is clear that SEBI can not impose penalties while exercising function u/s.11 and 11B. The relevant portion of the judgement is reproduced herein under: "The learned single judge has examined the scope of this regulation in the context of the power to impose penalty or punishment of breach of regulations and, according to the view taken by him, it cannot be considered to be a part of the power to the Board to take measures as it thinks fit for achieving its objects and that even power for framing regulations and taking legislative measures are also subject to the provisions of the Act and rules and, therefore, according to the learned single Judge, in the occupied field of legislation by the statute itself or the rules, the Board's authority to frame regulations are also restricted. In our considered opinion, there is no question of any punishment or penalty involved in the measured as has been decided to be taken by SEBI, for the simple reason that the tenor of the order clearly shows that it is only an interim measure to preserve the main subject matter. In absence of such measures, if the sale proceeds are allowed to be taken away by the concerned parties despite the manipulation and rigging found as a result of investigation, SEBI will simply be rendered to be a helpless spectator later on. In our opinion, the measures taken by SEBI neither entail any penal consequence as such or a punishment, nor can it be said to be forfeiture of the money. It is only a case of withholding money for certain period till the final decision is taken. Withholding of such money temporarily for certain period or to transfer any amount to the Investors Protection Funds, as proposed and decided by SEBI, cannot be said to be the penalty as such." The fact that section 11 B did not include penal provisions is also justified by the fact that the legislature has enacted an amendment Act, 2002 inserting Section 11(4) and empowering the Board to take measures specified therein for restraining persons from accessing the securities market and prohibiting any person associated with securities market from buying, selling and dealing in securities.
The learned senior counsel submitted that the allegations of market manipulation resulting in defrauding the investors is a serious charge, which has to be established with reasonable good evidence, if not beyond reasonable doubt. The respondent has alleged that there was nexus between KIL and PCS and the main object behind this nexus was to get the scrip of PCL listed on the exchange. The respondent has not placed anything on record to show that there was any nexus between the appellants and PCL. The appellants relied on the following citations to prove that the burden of proof for the allegations made lies on the person making such allegations.Ramanbhai Nagjibhai Patel v. Jasvant Singh Udesing Dabhi and Ors.
The findings recorded and the penalty imposed by the respondent is clearly contrary to the material available with the Respondent. The impugned order also suffers from the vice of non-application of mind and absence of reasoning. The penalty imposed by the Respondent is penal in character, which requires a reasonable standard of proof to be exhibited in the order imposing the penalty. In the present case, the respondent has clearly failed to assign any reason for holding the appellants guilty of FUTP Regulations 1995 and imposing penalty on them.
10.26. The learned Senior Counsel has further relied on the following Judgements:Municipal Corpn. Of New Delhi v. Ram Kishan Rohtaji. AIR 1993 SC 67State of Haryana v. Brij Lal Mittal AIR 10. 27 The learned senior counsel for the appellant further submitted that admittedly, the vicarious extension of the liability of the company to the directors responsible for the affairs of the company is not provided for under section 27 of the SEBI Act in general terms. The extension of the liability under section 27 is restricted to the limited purpose of offences under the Act. Section 27 does not apply to every transaction carried out by a company. The essential constituent of the contravention alleged in these proceedings is the commission of a positive act with the requisite mens rea or willful intent to deceive. Thus in respect of such contravention an individual director can be subjected to a regulatory direction only if it is alleged and proved that the said director had willfully carried out an act which was intended to deceive another person. In the instant case neither the show cause notice alleges any specific act or such intent on the part of any individual director nor does the impugned order establish any such act or intent on the part of any individual director.
10.28 The alleged transaction in question is of February, 1996. The process was initiated by SEBI prior to 28th February, 1996. the Show Cause Notices were issued only on 5th August, 2002 and 15th January, 2003. It is thus clear that although investigations were initiated by SEBI as early as in 1996 the Show Cause Notices were issued only after 6 years. No explanation whatsoever has been offered by SEBI for issuance of Show Cause Notices after such a long period. Where the statute is silent on the issue of limitation every exercise of statutory power is subject to fundamental limitation flowing out of the principle of reasonableness that every statutory power has to be exercised within a reasonable period of time. However, the powers available with the respondent are remedial in nature and particularly for protection of interest of investors. As such the investigation, if at all was to be ordered ought to have been ordered within a reasonable period and in any case 6 years is not a reasonable period by any stretch of imagination for ordering investigation.State of Andhra Pradesh v. P. V. Patiraram 9. 2001 (4) SCC 525 Sita Hemchandra Shashital v. State of Maharashtra It is further submitted that by lapse of a period of six years, the relevant materials which would have been otherwise available to the appellants, had the investigation been initiated and completed immediately after the alleged transaction, is not available. After a gap of more than 6 years there is no material documentary evidence with the appellants to prove their innocence, as a result, the appellants are not given sufficient proper and fair opportunity to establish their innocence for want of relevant material which in itself is a grave and incurable breach of principles of natural justice vitiating investigating and consequently the impugned order.
10.30 The learned senior counsel for the appellant submitted that as per the Show Cause Notice issued by the respondent, the appellants were charged with bailing out the public issue of PCL by providing funds to the extent of 80% of the issue amount. It was contended by the respondent that the appellants by making applications through 12 applicants bailed out the public issue of PCL by conspiring with PCL.
Though the appellants have been charged with this allegation during the course of arguments as also in the impugned order, the theory of bailing out the public issue has been abandoned. In the impugned order also the charge of bailing out and conspiracy has been abandoned and appellants were held guilty of creating illusion. The impugned order records of finding in para 2.1.9 that the appellants have acted in such a manner as to create an impression of full subscription to the public issue of PCL and in a fraudulent manner in contravention of SEBI (FUTP) Regulations, 1995. It is submitted that firstly the aforesaid finding is limited to creation of illusion in the minds of investors and no finding on conspiring with PCL or any other entity has been recorded.
Even the finding of creation of illusion is also not substantiated by any substance and the same is not supported by any reasoning.
10.31 The learned senior counsel submitted that allotment of shares pursuant to a public issue involved following steps: Step 2: Existence of such offer with valid cash payment / Stock invest on the date of finalization of basis of allotment.
Step 3: Encashment of 100% of received payment including encashment of stock invest on 60th day.
Step 5: Report of Merchant Banker for Company and lead manager regarding completion of steps 1 to 4.
10.32 Assuming that there is some uncertainty about the withdrawal of the applications, the fact of making an offer by itself does not create any kind of illusion, which will be detrimental to the interest of investors and security market. Apart from the above no material has been placed on record and no findings are recorded in the impugned order about the intention and motive on the part of the applicants.
10.33 Section 69 of the Companies Act, 1956 clearly stipulates that allotment is to be made only after receipt of money in cash by the company. It is submitted that stockinvest can never be treated at par with cash for the purpose of section 69 as this section requires such stock invests to be paid prior to allotment. The judgement of the Gujrat High Court in the case of Rick Paints Ltd. v. Vadodara Stock Exchange Ltd., has clearly laid down the law on this point. In view of the Judgement, the arguments of the Respondent that the stock invests of the appellants were used for getting the shares listed on the stock exchange is clearly misconceived and unsustainable.
11. Shri Kumar Desai, learned Senior Counsel for the Respondent submitted that KSL was charged with having camouflaged the operation of bailing out the Public Issue of PCL by inter alia having financed 12 applicants, who subscribed for 60 lakhs shares aggregating to Rs.3 crores i.e. about 80% of the net public offer. Besides KSL was also charged with acting in concert with PCL and Empey with the objective of bailing out the said Public Issue of PCL and getting the shares of PCL listed at the BSE without any actual inflow of funds into PCL.
Investigations were conducted pursuant to the complaint received from Shri Pramod Kumar Agarwal on 27-5-97. First Show Cause Notice was issued on 5th August, 2002. A second Show Cause Notice was also issued on 15th January, 2003 in furtherance to the first Show Cause Notice inter alia for the purpose of clarifying the nature of directions proposed to be issued. It was alleged that the whole fae of marginal over subscription was planned and executed for the purpose of creating an illusion of over subscription only for the purpose of getting the shares of PCL listed.
11.1 Learned Counsel Shri Kumar Desai further submitted that though the Public Issue of the aggregate value was of Rs.11,95,00,000/-the amount available for public subscription was of 80,33,600 shares of Rs.10/- each aggregating to Rs.8,03,30,000/-. Fifty percent of the share value i.e. Rs.5/- each was payable on application and the balance of Rs.5/- was to be paid on allotment. The amount of application money for 80,33,600 shares would be Rs.4,01,68,000/-. The applicant has an option to apply through stock invest also. Since applications by way of stock invests could be made only by individuals and mutual funds, KSL had put up 12 applicants to apply for shares of the said Public Issue by way of stock invests issued by SBI. For this scheme to operate successfully submission of applications along with stock invests were essential.
11.2. Shri Desai learned counsel stated that KSL set up/financed 12 applicants to subscribe to 5 lakh shares each i.e. 60,00,000 shares out of the net Public Issue of 80,33,000 shares i.e. around 75% of the offer to the Public. KSL loaned to the said 12 applicants the required amount payable on application i.e.Rs.25.00 lakhs each aggregating in all to Rs.3 crores out of the total amount payable on application which was Rs.4,01,68,000/- i.e. 75% of the offer to the Public. Assuming that the amount available for subscription by the Indian Public was Rs.3.04 crores or 3.40 crores, the shares subscribed to the said 12 applicants was for Rs.6 crores i.e. nearly twice the net offer to the Indian Public. KSL loaned the said sum of Rs.3 crores i.e. a sum of Rs.25 lakh to each of the said 12 persons by getting 12 stock invests of Rs.25.00 lakhs each issued in the name of each of the said 12 persons by SBI.The said 12 stock invests were used to make the said 12 applications by the said 12 individuals.
11.3. The amount received by way of credit upon realization of the said Stock Invests by PCL in its account with the Union Bank of India was immediately transferred to the account of Empey and the amount so received by Embey were paid back to KSL by way of Pay orders. According to the said senior counsel the amount loaned by KSL allegedly to the 12 individuals was received back from PCL out of the share application amounts through Empey. It is, therefore, according to the respondent, clear that but for the application allegedly made by the said 12 individuals the said issue of PCL would have failed. The said 12 applications made by the said 12 individuals created an impression of full subscription.
11.4. The learned senior counsel further submitted that during the investigation inquiry and as set out in the said impugned order dated 18th June, 2003 are inter alia set out such relevant facts as mentioned below which conclusively demonstrate that KSL had bailed out the Public Issue of PCL.
(i) 12 persons who apparently have no connection with each other approached only KSL for finance and not any other financer.
(iii) All 12 persons applied to KSL for a loan for subscribing for shares of PCL.
(iv) All 12 persons applied to KSL for a loan for identical amount of Rs.25 lacs each i.e. for payment of 50% of the amount payable on application i.e. Rs.5/- per share for 5 lacs shares each. No loan was applied for payment of balance Rs.5/- per share of allotment because applications were withdrawn.
(v) All 12 persons applied to KSL for a loan for an identical number of shares i.e. 5 lacs shares each i.e. a total of 60 lacs shares.
(vi) All 12 persons got the same address i.e. address of Corporate office of KSL in the share application forms.
(vii) All 12 persons gave the same address i.e. the address of a flat belonging to KSL (occupied by Mr. Manoj Maheshwari) in the application for stock invest. Admittedly Manoj Maheshwari at the relevant time was an employee of KSL.
(viii) All 12 applications for stock invest were made on the same day i.e. 9/2/96.
(ix) Atleast 2 of the 12 applications for stock invest were not signed by the applicants i.e. the application of Mr. Manoj Maheshwari and Mr. Arvind Sharma. This is indicated in the statements of Mr. Manoj Maheshwari and Mr. Arvind Sharma.
(x) All 12 applications were made on the same day i.e. 9/2/96 along with stock invests also applied for and obtained on the same day i.e. 9/2/96.
(xi) The 12 stock invests were issued on 9.2.1996 against fixed deposits of Rs.500 lacs placed by KSL one day prior thereto i.e.
8/2/96 (in anticipation that 12 applicants would apply the next day for stock invests aggregating to Rs.300 lacs i.e. Rs.25 lacs each) The said FDR was to mature on 4th May, 1996 and has been paid to KSL on 4th May, 1996. However, the relevant stock invests of 12 applicants were encashed between 24.5.96 to 8.6.96.
(xii) The bank has already repaid the FD amount to KSL before the stock invests amount was realized By PCL.
(xiii) All the letters/summons dated 12th March, 1999, 23rd March, 1999, 12th April, 1999 and 22nd April, 1999 sent by SEBI to each of the 12 persons at the same address i.e. the Corporate address of KSL were accepted. These letters were neither refused nor returned.
Acknowledgements are available with SEBI. (xiv) Identical replies were sent by each of the 12 persons to SEBI on 20th July, 1998. One of the applicants i.e. Arvind Sharma stated that all the said letters were written by KSL.
(xv) All the 12 persons claim to have withdrawn their applications on the same date (exact date not known) prior to the closure of the Issue by allegedly addressing letters to the company i.e. PCL and Registrar to the Issue. The appellants could not produce copies of such letters. If such letters exist the same appear to be undated.
However, Registrar to the Issue deny having received any such letter from the 12 persons. The 3 days monitoring report made by the Lead Manager dated 15th February, 1996 shows that the Issue was subscribed 1.06 times.
(xvi) All 12 letters written by the company i.e. PCL and Registrar to the Issue to each of the 12 persons were sent to the same address i.e. Corporate office of KSL.
11.5 Learned counsel for the respondent stated that the Director of Registrar to the Issue stated that the signature of the said letter dated 12th February, 1996 to the 12 persons is not his signature.
11.6 State Bank of Indore which has issued stock invests was not informed by any of the applicants or KSL or PCL or Registrar to the Issue that the said applicants had withdrawn their applications nor was any request made to stop payment / cancel the stock invest as the applications had been withdrawn. According to the learned senior counsel Shri Desai the stock invests can be cancelled inter alia on the ground that the application had been withdrawn. To hold otherwise mean that an application for shares using stock invests can never be withdrawn. This is not the intention of the stock invests scheme.
11.7 Since the encashment of stock invest were between 23rd May, 1996 and 8th June, 1996, upon encashment of the first stock invest KSL could have told the bank to cancel balance. This was not done. (on the date of encashment KSL had already received back the amount of the FD on the basis of which the stock invest were issued) It may be noted that the stock invest instrument is encashed only after the allotment is made and only to the extent of the allotment made.
11.8 On a scrutiny of statement of accounts of PCL with Union Bank of India, Nariman Point Branch, it was noted that the amounts received by way of credit through realization of the stock invest was immediately transferred to the Empey at the same branch. Further, the funds so received were immediately routed to the account of KSIL by way of pay orders.
11.9 Refund of application money was not made to the 12 persons but to KSL. Since KSL was not the applicant, there was no privity of contract between KSL and PCL and subsequently PCL could not have refunded the amount of the said withdrawn applications to KSL, nor was KSL entitled to receive the said refund amount directly from PCL.
11.10 Since the applications were made by the said 12 persons and since the stock invest instruments were also issued in the name of the said 12 persons, PCL could not have known that KSL had financed the said 12 applicants. The withdrawal notices were also sent by the said 12 applicants. Even after encashment of the said stock invest the amounts were not refunded to the said 12 applicants but were refunded to KSL.
11.11 Refund of application money was not made by PCL but by Empey. No explanation was given by KSL as to how and why it accepted money from Empey. No explanation was also given as to why PCL would send the signature of its M.D. verified by PCL's Banker to KSL as if KSL had no connection with PCL. Out of the 12 persons, the appellant admitted that four persons viz. Manoj Maheshwari, Arvind Sharma, Paresh Soni and Madhukar Lad appear to have applied for loans for subscription to earlier public issues also. Out of the 12 persons 5 appear to be employees of KSL. Manoj Maheshwari admitted that KSL made the application through him. No complaint was made by KSL to SEBI at the relevant time against PCL. A complaint was however, made by KSL to SEBI only by its letter dated 14th September, 2000 after the investigation had commenced.
11.12. The learned senior counsel submitted that against the net public offer of 80,33,600 shares the total applications received were for 80,95,500 shares i.e. the issue was oversubscribed 1.007 times. If the application made by the said 12 persons for 60 lakh shares are not taken into account the net subscription by the public would be only 20,95,500 shares i.e. less than 26% of the public issue. The issue consequently would have failed.
11.13 It is therefore clear that but for the applications allegedly made by the said 12 individuals the said issue would have failed. The said 12 applications made by the said 12 individuals created an impression of full subscription. Upon the lead manager filing the 3 days monitoring report dated 15th February, 1996 showing that the said public issue of PCL was subscribed 1.06% the illusion of over subscription was achieved. The said public issue which but for the said 12 applications would have failed was thereby successfully bailed out.
11.14 The learned senior counsel for the respondent submitted that majority of the submissions tendered by the appellants in the written submissions relate to both facts and law were never made before SEBI and are being made for the first time in the appeal court. Each of the grounds/contentions/arguments being canvassed for the first time in this appeal were available to and ought to have been canvassed by the appellants before SEBI in the said enquiry proceedings, in reply to said two show cause notices, personal hearings and written submissions.
The appellants not having raised them is not entitled to raise them for the first time in the appeal. The appellants are deemed to have waived their rights to raise the said issues and in any event estopped from raising them for the first time in this appeal. The appellants who had been unsuccessful in the lower court cannot and ought not be allowed to patch up the weak parts of his case and fill in omissions for the first time in the court of appeal. Majority of the said new submissions have not even been taken up in the grounds of appeal as the same are clearly an after thought.
11.15 It has always been the contention of the respondent that KSL had bailed out the said public issue of PCL by circuitous finance and subscription by the said 12 applicants. KSL had during the investigation and enquiry taken a stand that KSL was merely a financier and had loaned monies to 12 individuals who wanted to subscribe for shares of PCL at the said public issue. For the first time during the argument and in the written submissions now tendered KSL appears to content that KSL was the real subscriber and not merely a financier and that the size of investment was the normal size of KSL's investment and represented the small portion of the total investment made by KSL in different public issues.
11.16 The objective of the SEBI Act is to prevent undesirable transactions of securities by regulating business of dealings therein and to thereby protect the interest of the investors in securities and to promote an orderly development of securities market.
11.17 The SEBI Act has made it SEBI's duty to protect the interest of the investors in securities, to promote the development of and to regulate the securities market with such measures as it thinks fit. The words "by such measures as it thinks fit" are very wide and would include taking action against persons like KSL and its directors as their actions tend to lower the integrity of the securities market and have in fact hurt innocent investors who had subscribed to the shares of PCL and who were entitled to receive their money back since the issue would have failed but for the action of KSL. SEBI's power under section 11(2)(i) extended interalia to "all persons associated with the securities market". KSL and its directors are covered by the expression "persons associated with the securities market" and SEBI is entitled to issue directions against them. The learned senior counsel referred to the case of Karnavati Fincap Ltd. v. SEBI - 1996 (10) SCL 6.
11.18 Section 11B of SEBI Act is an enabling provision enacted to empower SEBI to protect the interest of investors and to promote the development of and to regulate the securities market and to prevent malpractices. Such an enabling provision must be construed to sub serve the purpose for which it is enacted. It would be the duty of the court to further the legislative objective and to give a construction to the section which advances this object rather than one which attempts to circumvent it. The following cases were referred to in this connection: 11.19 Under Section 11B SEBI is empowered to issue directions inter alia to any persons associated with the securities market. The expression 'any person associated with securities market' would cover not only an individual but also a company. SEBI would have jurisdiction over any company which was associated with security market just as it would have over many individuals who was associated with the securities market. If a company associated with the securities market commits any breach of the SEBI Act, rules and regulations SEBI would be empowered to take such measures and pass such directions as are appropriate against such company. KSL having subscribed to shares of PCL at the said public issue through the said 12 persons in a fraudulent manner i.e. with the avowed object of bailing out the said public issue and to get the shares of PCL listed on the Bombay Stock Exchange without there being any inflow of funds into PCL, was a company associated with the securities market against which SEBI always have the power to take appropriate measures or pass appropriate directions under section 11 and 11B of the Act.
11.20. The learned senior counsel further submitted that in a judgement of the Bombay High Court Shirish Finance and Investment (P) Ltd. v. M.Sreenivasulu Reddy (2002) 35 SCL 27 at page 89, para 59, on the concept of interpretation of statutes - rule of literal and purposive interpretation it was interalia held that "It is trite to say that the statute must be costrued according to the intent of its framers, and it is the duty of the Court to act upon the true intent of the Legislature. Cannons of interpretation lend a guide, without affording a strait jacket formula. It is often said that the function of the courts is only to expound and not to legislate, a theory which has in the recent past invited dissents in the sense that the gaps in the legislation may call for a judicial filling up with a view to dealing with situations and circumstances that may emerge after enacting a statute, not within the imagination of the Legislature, when its application may be called for. If the words are plain and clear, no difficulties arise, but where a statutory provision is open to more than one interpretation, it becomes the duty of the court to so interpret the provision that without doing any violence to the language of the statute, it is given its true meaning as may have been intended by the Legislature, having regard to its context, the object which the statute seeks to achieve, and the mischief it seeks to avoid.
Definitions given in the statute more often than not assist the Court in giving a meaning to a provisions, but definitions are always made subject to the context, and therefore, reading the statute as a whole, contextual interpretation may t times widen or narrow the definition.
The process of construction, therefore, combines both literal and purposive approaches." The Hon'ble High Court then has recorded the relevant passage of the judgement in RBI v. Peerless General Finance & Investment Co. Ltd., -- Reported in AIR 1987 SC 1023.
11.21 The learned senior counsel further submitted that the powers of SEBI to take action against companies is not in any manner restricted as is wrongly sought to be contended by the applicants by reference to section 11A and 11 2A. The powers set out in section 11(2) A, 11(4) and proviso are additional powers conferred on SEBI and are without prejudice to the provisions of the Companies Act and the provisions of the SEBI Act.
11.22 The appellants have further for the first time sought to content that the investigation by SEBI has been vitiated only on the ground that prior to the amending Act 2002 SEBI had no power to undertake investigation. The power to investigate has to be read into section 11.
Under section 11(2)(i) SEBI's power to investigate were limited to calling for information, undertaking inspection, conducting enquiries and audits etc. SEBI was hampered in undertaking investigation because of these limitations. The object and reasons for amending the Act itself sets out that there were shortcomings in the legal provisions of the SEBI Act interalia with reference to investigation. This itself suggest that the power to investigate was not being conferred upon SEBI for the first time by the said amending Act, 2002 as is sought to be contended by the appellants, but there are certain shortcomings in the legal provisions relating to investigations and that by the said amending act further additional powers were conferred upon SEBI inter alia relating to investigation.
11. 23 Under sub section 4(3) of the SEBI Act the Chairman is entitled to exercise all powers and do all acts or things which the Board may exercise and under Regulation 7 of the FUTP Regulations the Chairman is empowered to order investigation. There is an independent power of delegation under section 19 of the SEBI Act and pursuant thereto the SEBI has passed necessary resolution.
11.24. All the three orders dated 31st March, 1998, 4th April, 2000 and 19th December, 2001 were passed by the Chairman of SEBI contained the reasons for dispensing with notice before the investigation to KSL and its directors. No delinquent is entitled to notice before an investigation is launched against him as a matter of right for various reasons. Regulation (1) merely requires SEBI to record reasons for not giving such notice prior to commencement of any investigation. There is no further requirement that the said reason be disclosed to the person concerned also for obvious reasons. The case cited by the appellant i.e. Ajanta Industries v. CBDT 1996 (1) SCC 1001 and the Barium Chemicals case have no application to the present case. No allegation of malafides or arbitrariness have been made in this case.Morgan Stanley v. Kartik Das 1994 (81) CC (SC) has no application to the facts of this case. In the context of the proved charges SEBI directed KSL and its directors to dissociate themselves from the securities market for 2 years and also prohibited KSL and its directors from dealing in securities for 2 years as a preventive measure. The said directions are indeed preventive as the said directions are reliable to the proven offence/violations of the FUTP Regulations. The said order is consistent with the view expressed in Manu Finlease Limited reported in (2003) 48 SCL 507. every order passed by SAT when looked at from the angle of the offender who according to the offender be penal but this is not how the orders of SEBI are to be viewed.
11.26. The Supreme Court in its Judgement reported in AIR 1966 sc 1734 - Gulabchand v. Kudilal has interalia held that the standard of proof in a civil case involving allegation of charges of criminal or fraudulent character - the insistence on proving charges clearly and beyond doubt is wrong. It has also been inter alia held that "it is apparent from definitions of the words 'proved' 'disproved' and 'not proved' given in Section 3 of the Evidence Act that it applies the same standard of proof in all civil cases. It makes no difference between cases in which charges of fraudulent and criminal character are made and cases in which such charges are not made. But this is not to say that the Court will not, keep in mind the presumption of honesty or innocence or the nature of the crime or fraud charged. It is wrong to insist that such charges must be proved clearly and beyond reasonable doubt."National Housing Bank v. ANZ Grindlays Bank reported in 1998 (2) LT 153 the High Court has inter alia noted that Gulabchand's case was not cited before the bench hearing Chaturbhai's case. The arbitrators were bound by the law laid down in Gulabchand's case. It was not open to the arbitrators to state that they prefer to follow Chaturbhai's decision and to ignore the decision of the constitutional bench of the Supreme Court. Their decision that the petitioners must be put to strict proof of fraud is clearly based on a wrong proposition of law laid down in Gulabchand's case. It is a view of law in which it is not possible to sustain. It is an error apparent on the face of the award. It is an error going to the root of the award.
11.28 It was further submitted that the Show Cause Notice was issued to all and so all to whom show cause notice was addressed to have been given opportunity to reply and have availed of the same and also been given an opportunity of a personal hearing. It is further submitted that normally, action needs to be taken against the entity found guilty of violation of law. Further a corporate body operates and acts through its directors and other key persons in charge of its business operations. It is, therefore, essential in appropriate cases to lift the corporate veil and take action against the individuals whose conduct is primarily responsible for the misconduct and violation of law as narrated above. A reference may be made to the case of Skipper v. DDA reported in AIR 1996 SC 2005.
11.29 The learned Senior Counsel for the respondent further submitted that the above offences are absolute offences and no mens rea is required to be established in such cases as is already held by the Hon'ble High Court in Cabot International Ltd., The intention referred to in Cabot International Ltd., is the intention to be taken into account for the purpose of determining the quantum or period for levy of penalty and not an element required to be proved to substantiate the charge.
11.30. With reference to delay in conducting investigation etc. the learned counsel submitted that there is no period of limitation specified under the Act or regulations within which the order need to be passed. There is no prejudice caused to the appellant due to the delay in passing the order.
11.31. It is further submitted that since the present appeal is the first appeal and the Hon'ble SAT is the last court to determine the question of facts it is absolutely incumbent upon the Hon'ble SAT to take into account all documents that are available with SEBI and made available to the appellant for inspection. In the facts of the present case the SEBI had offered full, fair and complete inspection of all documents on which SEBI intended to rely upon in the enquiry proceedings. The Hon'ble Tribunal is entitled and ought to take into account all documents not only relied upon by SEBI in the enquiry proceedings but also all documents and papers produced by the appellant for and on their behalf.
11.32. It was therefore, submitted that the charge levied against the appellant has been proved as has been demonstrated above. Finally the learned counsel for the respondent submitted that the appellant No.2 who was the Managing Director of KSL at the relevant time has since been appointed as Chairman of Bank of Rajasthan. The Reserve Bank of India has approved the appointment of the appellant NO.2 as Chairman of Bank of Rajasthan. Even after the passing of the said impugned order Reserve Bank of India has not disqualified the appellant No.2 continues to be the Chairman of Bank of Rajasthan till date.
We have carefully considered the pleadings and submissions made by the counsel for the parties and the material on record. The core allegation against the appellant is that KSL had bailed out the said public issue of PCL by circuitous finance and subscription by the said 12 applicants. After going through all materials we are inclined to believe that but for the subscription by said 12 applicants the issue of PCL would have failed. The refund of money to KSL by Empey does not speak good conduct of the entire transactions. When the applications have been submitted by 12 investors, it is but natural that money should have been refunded to those 12 investors only. There is nothing on record that they have given any authority on this to PCL to return the money to KSL who has admitted to have financed these 12 applicants.
The company has now been listed as a vanishing company and public investors are left in lurch. It is also curious that action has not been taken against PCL and the Registrar to the Issue on time.
33. Taking into account the facts and circumstances of the case and also taking into account the fact that the appellants have suffered the effect of the impugned order from June 2003 till this day, it would be appropriate to consider the quantum of period of ban from the securities market.
34. It is common ground that the principal delinquent, Pashupathi Cables Ltd., has not suffered due to any order and we are orally informed that it was listed as a vanishing company. We are also told that at the time when the enquiry was on, Pashupathi Cables Ltd. was very much in existence and shares were being traded and no action was being taken. Taking into account the facts and circumstances of the case, we feel that the ends of justice will be met if the appellants are made to suffer the period of ban of 18 months from the date of impugned order.
We confirm the order dated 18th of June 2003 of the respondent except in so far as the period of ban, which stands modified as mentioned herein.
It was submitted by the learned counsel for the appellant that the order of this Tribunal should not cast a stigma for future employment or other activities in financial matters. It would not be open for this Tribunal to give any such direction. However, we earnestly hope, taking into account the facts and circumstances of the case, that this order will not be a hindrance in future and will not be treated as a stigma.