Allowed

Tirupathi Finlease v. SEBI

SAT18 Aug 2000

Case brief

AI extract

What is this about?

The SAT allowed the appeal and set aside an order debarring the Appellant from the capital market. The court held that since findings indicated promoters, not the company, were responsible for the alleged manipulation, the penalty directed at the company was unjustified.

What did the court decide?

The appeal is allowed and the impugned order debarring the Appellant from accessing the capital market is set aside.

What the court decided

Tirupathi Finlease Vs. SEBI — Securities and Capital Markets | SAT (2000)

Allowed

Tirupathi Finlease v. SEBI

SAT18 Aug 2000

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Case brief

AI extract

What is this about?

What did the court decide?

The appeal is allowed and the impugned order debarring the Appellant from accessing the capital market is set aside.

What the court decided

¶14

Shri Kalpesh Zaveri, learned Counsel submitted that the Appellant had not done anything wrong to warrant any penal action from the Respondent. According to the Appellant the public issue opened on 8th January, was closed on 10^th January, 1996 in the wake over subscription, that allotment of shares was finalised on 7^th February, 1996 in the presence of the Respondent’s representative and that the final allotment of shares was submitted to ASE on 14^th February, 1996. ASE for reasons best known to them did not finalise the same, but directed the Appellant to contact the Respondent. The Appellant tried several times to contact the concerned officer of the Respondent but did not succeed. Since the Respondent was evasive and non-responsive, the Appellant Company approached the Gujarat High Court by way of a Writ Petition and then the Respondent woke up and finalised the allotment, and listing approval was thereafter accorded by ASE on 26^th March, 1996. The learned Counsel denied any abnormal movement in the price or in the volumes of shares traded on ASE, as alleged by the Respondent. Having failed to stall the public issue, the learned Counsel submitted that the Appellant was issued a show cause notice (SCN) by the Respondent on 13.1.1997 under section 11B of the Act. The Appellant Company responded to the same by denying the allegations. But, without any final adjudication in the matter covered in the SCN, a notice of prosecution was sent to the Chairman and Managing Director of the Appellant on 3^rd March 1997. This notice was also replied to. Subsequently, after a considerable gap, vide letter dated 3^rd December, 1998 the Appellant was called for a personal hearing before the Chairman, SEBI, on 15^th December, 1998.The letter was silent on the scope of the personal hearing. Since the time provided was too short to prepare submissions, the Appellant sought adjournment and the adjourned hearing was held on 25^th January, 1999.Thereafter, after a gap of one year the impugned order was issued, i.e. on 16^th February, 2000 under regulation 11. He pointed out, the delay from the Respondent’s side at each stage, including the time gap between the hearing and the issuance of the order, was indicative of the Respondent’s bias towards the Appellant. When the adjudication proceeding was going on, the Respondent filed a criminal case against the Chairman and Director of the Appellant, before the Court of Additional Chief Metropolitan Magistrate at Ahmedabad in January 1999. While the Respondent was after the Appellant, they did little realise the plight of the investors by keeping trading of shares under suspension for such a long period spanning over 4 years. Learned Counsel submitted that suspension of trading for such a long period was not an investor protection measure.

¶23

Dt.of allotment	No. of Issue equity shares (Rs.) equity	Percentage Lock in period total
March 29, 1993	300	10 0.01 NIL
March 16,1995	209700	10 6.99 NIL
July 24, 1995	100000	10 3.33 NIL
August 19,1995	160000	10 5.33 NIL
August 21,1995	230000	10 7.67 5 Years
Present issue	520000	10 17.33 5 Years
	----------	--------------
	1220000 -----------	40.67 --------------

¶36

produced from the postal authorities) that by retaining 3, 00, 000 shares meant for mutual funds, and 4, 24, 800 shares of others, an artificial scarcity was created in the market to manipulate the price movement, the charge cannot stick on the Appellant, as in the Respondent’s own version, the so called situation was created by the promoter of the Appellant company. There is no evidence to show that the shares were withheld by the promoter Managing Director, at the instance or for and on behalf of the Appellant. On the contrary since the Appellant was not to be benefited by price rigging at that point of time and it was the promoters who would have benefited more in the event of hike in price, and in the light of the clear finding of the role of promoter in withholding the shares, the Appellant company cannot be said to have indulged in unfair and fraudulent trade practices to attract the penal consequences in terms of the impugned order. Further the Appellant’s version that during the month of January, 1999 criminal case No. 1 of 1999 was preferred by the Respondent before the Court of Additional Chief Metropolitan Magistrate at Ahmedabad against its Chairman and Director has been admitted by the Respondent in their reply. From this statement it appears that the Appellant Company was not arrayed as an accused in the prosecution but only its Chairman and Director were charged. It is also noticed that ASE has been asked by the Respondent vide letter dated 4.5.2000 to consider "revoking the indefinite suspension in the trading of this scrip"- effected from 16.5.1996. In this context it is made clear that a company and its promoters are separate legal entities. A Company cannot be substituted for promoters for the purpose of imposing penalties. It is also seen that the Respondent has asked ASE to consider revoking the 4 year old ban on trading in the Appellant’s scrips, but at the same time by the impugned order the Appellant has been debarred from accessing the market for the next five years!

Tirupathi Finlease v. SEBI

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Tirupathi Finlease v. SEBI

Case brief

What is this about?

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What the court decided

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Parties & counsel

Coram

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