Dismissed

Harinarayan G Bajaj

SAT5 Sept 2002

Case brief

AI extract

What is this about?

The Securities Appellate Tribunal dismissed joint appeals filed against SEBI's refusal to furnish specific trading and investigation details sought by investors facing show cause notices for alleged market manipulation in ARBL shares. The Tribunal held that SEBI was only required to provide material relied upon for the charges and was not obligated to supply documents relevant to other inquiries o

What did the court decide?

The appeals filed against the impugned order dismissing the applications for inspection of documents are dismissed with no directions issued.

¶1

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

¶2

Appeal No.1/2002

¶3

In the matter of:
Harinarayan G Bajaj Appellant
Vs.
1. The Chairman
Securities & Exchange Board of India Respondent No.1
2.The Executive Director, Respondent No.2
Securities & Exchange Board of India
3.The Asstt. Legal Adviser (Prosecutions) Respondent No.3 Securities & Exchange Board of India
4. The Securities & Exchange Board of India Respondent No.4
Appeal No.2/2002
In the matter of
Rahul H. Bajaj Appellant
Vs.
1. The Chairman
Securities & Exchange Board of India Respondent No.1
2.The Executive Director, Respondent No.2 Securities & Exchange Board of India
3.The Asstt.Legal Adviser (Prosecutions) Respondent No.3 Securities & Exchange Board of India
4. The Securities & Exchange Board of India Respondent No.4
Appearance:
Shri Janak Dwarkadas, Senior Advocate
Shri Prakash Ganwani
Advocate,
I/b Shri Ravi Goenka
Advocate. For Appellants
Shri T. N. Subrahmanyan Advocate
Ms. Uma Dalal Advocate
Ms. Raita Shivalkar
Advocate I/b Maneksha & Sethna

¶4

Shri K.R.C.V. Seshachalam Asstt. Legal Adviser, SEBI

Harinarayan G Bajaj — Securities and Capital Markets | SAT (2002)

Dismissed

Harinarayan G Bajaj

SAT5 Sept 2002

Download

Case brief

AI extract

What is this about?

What did the court decide?

The appeals filed against the impugned order dismissing the applications for inspection of documents are dismissed with no directions issued.

¶1

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI

¶2

Appeal No.1/2002

¶3

In the matter of:
Harinarayan G Bajaj Appellant
Vs.
1. The Chairman
Securities & Exchange Board of India Respondent No.1
2.The Executive Director, Respondent No.2
Securities & Exchange Board of India
3.The Asstt. Legal Adviser (Prosecutions) Respondent No.3 Securities & Exchange Board of India
4. The Securities & Exchange Board of India Respondent No.4
Appeal No.2/2002
In the matter of
Rahul H. Bajaj Appellant
Vs.
1. The Chairman
Securities & Exchange Board of India Respondent No.1
2.The Executive Director, Respondent No.2 Securities & Exchange Board of India
3.The Asstt.Legal Adviser (Prosecutions) Respondent No.3 Securities & Exchange Board of India
4. The Securities & Exchange Board of India Respondent No.4
Appearance:
Shri Janak Dwarkadas, Senior Advocate
Shri Prakash Ganwani
Advocate,
I/b Shri Ravi Goenka
Advocate. For Appellants
Shri T. N. Subrahmanyan Advocate
Ms. Uma Dalal Advocate
Ms. Raita Shivalkar
Advocate I/b Maneksha & Sethna

¶4

Shri K.R.C.V. Seshachalam Asstt. Legal Adviser, SEBI

¶12

Trading on the stock market marked a huge upswing on 28th February and 1st March, 2001, following the presentation of the Union Budget. However, the boom did not last long. The market nose dived in the days followed for no sound reasons. There was a lot of general concern as to the cause of the market collapse. The authorities suspected foul play. The Respondents initiated investigation into the matter. They also resorted to certain measures with a view to arrest further fall in the price of securities and contain the market volatility. The Respondents, on 5th March, 2001, took the following risk management measures viz. (i) the threshhold limit for applicability of the volatility margin reduced from 80% to 60% (ii) exemption from the applicability of volatility margin not allowed to any class of investors (iii) imposed additional margin @ 10% on end of the day’s net outstanding position on all the scrips in MCFS / ALBM and BLESS. However, the drift continued. On 7.3.2001 the Respondents directed that all sales transactions from 8.3.2001 should be backed by delivery unless a sale transaction is preceded by a purchase position of atleast an equivalent amount in the name of the same client with the same or any other exchange. This was also made applicable to proprietary trading by members. The Appellants were stated to be trading largely in the shares of ARBL, that on March 9, 2001 the closing rate of the shares of ARBL on BSE was Rs.308.40 per share at 2 P.M., when BSE had closed for the purpose of trading earlier than the normal hours on the eve of Holi, that during the period between 3 P. M. to 4.05 P.M. when the NSE was still open for trading, on account of some heavy selling the scrip price of ARBL dropped to Rs.266.75 per share, that for 8 consecutive trading sessions from March 9, 2001 there was a circuit of 16% at the lower end in the aforesaid scrip on both the exchanges that the rate of the scrip went down from Rs.320 to Rs.80 during this period, that the abnormal fall in price of ARBL shares was attributed to short selling by the members of BSE and NSE in violation of the risk management measures put in place by the Respondents and that according to the Appellants, as a result of the market upheaval they suffered huge loss.

¶16

Pursuant to the said order the Appellants made several representations to BSE, NSE and SEBI requesting them to furnish the details and information which the Appellants considered necessary to prove the case of annulment of trades. It is seen that the Appellants vide letter dated 11.4.2001 addressed to the Respondents, had inter alia requested them for exercising powers under section 11B of the Act and also for (a) providing the details of sales without requisite margins, short sales and / or fictitious dealings effected by certain members / brokers of BSE and / or NSE and / or their constituents in respect of the shares of ARBL during the period from 6th March, 2001 onwards (b) directing annulment of such illegal trade bargains in view of Bye-law Nos. 193 and 357 of BSE, Bye-law Nos. 5 (a) and 5 (b) of NSE, and section 11B of the Act since the said short sales and / or fictitious dealings are in contravention of the directives given by the Respondents on 5.3.2001 and 7.3.2001. The Appellants did not get from the Respondents the details asked for by them. Subsequently Appellants were served with 2 show cause notices by the Respondents. These show cause notices are dated 11.7.2001 and 27.7.2001. Notice dated 11.7.2001 alleged that the Appellants had indulged in buying and selling of abnormal volumes of ARBL scrips with a view to creating artificial market in the scrip and in the context asked to show cause as to why criminal prosecution in terms of section 24 (1) of the Act read with regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 1995 (the 1995 Regulation) should not be launched against them. The second notice dated 27.7.2001 alleged that the trading by Appellants in the scrips of ARBL resulted in creation of false market for ARBL shares and artificially raising the price of the said scrip and in the context asked them to show cause as to why directions restraining them from further dealing in the securities and other direction as deemed fit in the facts and circumstances of the case should not be passed against them under regulation 11 read with regulation 12 (a) of the 1995 Regulations. The Appellants responded to the said 2 notices in their letters dated 19.7.2001 and 10.8.2001 respectively, requesting the Respondents to furnish the details as sought by them in their letter dated 11.4.2001 and also to provide a copy of the relevant investigation reports to enable them to answer the said show cause notices. The Appellants did not get any response from the Respondents. The Appellants wrote a letter to the Respondents on 20.8.2001, enumerating the details sought by them. The details sought for are as under:

¶39

Learned senior counsel referred to various letters written by the Appellants to the Respondents requesting them to take action against the errant brokers and provide them details and materials relating to sales without requisite margins, short sales / or fictitious dealings, effected by certain member brokers. In this context he referred to the abnormal and unprecedented movement in the share price of ARBL from Rs. 320/- per share to Rs. 80/- per share within a span of 8 trading days in a regime which prohibited short sales. Shri Dwarkadas, in this context referred to the SEBI circular dated 7.3.2001 forming part of the appeal, and submitted that the transaction in the settlement periods involved i.e. from March 5, 2001 till March 23, 2001 (Settlement Nos. 50, 51 and 52 of BSE) and from March 7, 2001 till March 20, 2001 (Settlement Nos. 10 and 11 of NSE) were amenable to the risk management measures put in position by the Respondents. He submitted that during these settlements, the Appellants had a purchase position, that there was sales also, but the Appellants have not bothered to find out who were selling. He submitted that purchase and sale of scrips depends on individual perception. Shri Dwarkadas stated that the buyer places purchase order and it is for the seller to ensure delivery, that if subsequently the buyer finds that the seller had no shares to deliver, then the buyer cannot be held responsible for the same. He submitted that the Appellants were buying shares under the genuine belief that the seller would deliver the shares that the people around knew the Appellants’ purchase position and they took advantage. Shri Dwarkadas referred to the transaction dates and stated that it is on record that some of the brokers viz. Sheth, Trimbak, Satco etc. had short sold, that short selling in ARBL scrips was rampant at that point of time was not unknown to the Respondents. He submitted that it is absolutely necessary that to defend the Appellants’ case, the Respondents should furnish all the details relevant to the case that the Respondents’ posture denying such material information is untenable, that the Respondents have ignored that their primary duty is to protect the interests of investors and not to make

¶41

Shri Dwarkadas submitted that the Respondents seem to have misunderstood the concept of “relevancy” and “admissibility” of material sought by the Appellants. Learned counsel submitted that the test of “relevancy” is as to whether it will be of help to a party to advance his case or destroy other’s case. In this context he stated that the show cause notices issued to the Appellants allege market manipulation by them, which is a serious charge visiting with serious consequences. He submitted that it is in the said context the Appellants asked for the details as set out in their letter dated 20.8.2001 addressed to the Respondents and each material / document referred to therein is vital to the Appellants for their defense. He submitted that it cannot be said on any ground that these particulars are not relevant to the inquiry proceedings initiated against the Appellants. Learned senior counsel referred to the order dated 19.12.2001 passed by the Hon’ble Bombay High Court in W.P. No. 2737/2001 and stated that the Writ was disposed of in the light of the statement made on behalf of SEBI by its Counsel that the SEBI will hear and dispose of the Appellants’ application seeking details/materials, by passing a reasoned order within a period of one week after hearing is concluded. Shri Dwarkadas referred to the finding recorded in the impugned order with respect to the relevancy of the documents sought for by the Appellants and submitted that the Appellants wanted to know the purchase position actually held by the concerned brokers and sub brokers on the Appellants’ behalf as on March 9, 2001 and March 12, 2001 and the amounts of margin monies lying with them and shares of ARBL lying with them as collateral securities as the information is crucial to the Appellants to prove their innocence. He stated that the details of margin as called for are also very relevant as the margin will indicate as to whether the trade undertaken by the particular person was genuine or not. He submitted that the Appellant’s main grievance is that some of their brokers duped them and it is in that context they wanted to know the details relating to the dealing by the brokers, and the Respondents’ not giving those details claiming that furnishing the details would violate the client confidentiality agreement the broker had with their respective customers is untenable, that client confidentiality protection is not available in an inquiry proceeding like the present one. Shri Dwarkadas submitted that the Respondents have conveniently forgotten that the particulars have been sought by the Appellants who are facing enquiry initiated by the Respondents and the particulars are relevant to the inquiry and the particulars are available with them. He submitted that the Respondents have denied the said information not based on the relevancy aspect, but on confidentiality. In this context he referred the decision of the Hon’ble Supreme Court in M. L. Sethi Vs R. P. Kapur (AIR 1972 SC 2379) He cited particularly the following portion from the said decision – “Nor do we think that the High Court was right in holding that the documents ordered to be discovered was not relevant to the inquiry. The documents sought to be discovered need not be admissible in evidence in the enquiry or proceedings. It is sufficient if the documents would be relevant for the purpose of throwing light in the matter in controversy. Every document which will throw any light on the case is a document relating to a matter in dispute in the proceedings, though it might not be admissible in evidence. In other words, a document might be inadmissible in evidence yet it may contain information which may either directly or indirectly enable the party seeking discovery either to advance his case or damage the adversary's case or which may lead to a trail of enquiry which may have either of these two consequences.” Shri Dwarkadas submitted that the legal position as explained in the cited case has been ignored by the Respondents.

¶88

Respondent No.1 has stated in the order that he has given the findings with respect to the “relevancy” of the documents sought by the Appellant and in that context the learned counsel for the Appellants had submitted that material / information sought by the Appellants are very relevant for their defence. The case law cited [M. L. Sethi (supra)] by the learned counsel in this regard is of no support to the Appellants. In that case the Hon’ble Court was deciding a special leave appeal from the order of the Hon’ble Allahabad High Court allowing an application for revision of order passed by the Civil Judge, Saharanpur directing discovery of documents by the respondent and dismissing an application by him for permission to sue in forma pauperis. In the said case the Hon’ble Court had held that “the documents sought to be discovered need not be admissible in evidence in the enquiry or proceedings. It is sufficient if the documents would be relevant for the purpose of throwing light in the matter in controversy.” The expression “relevant” / ’relevancy’ has not been defined to give any precise meaning. The term relevancy describes the logical relationship between a proffered item of evidence and a proposition that is material or provable in a given case. ‘ Relevancy’, as that term is used by writers on the law of evidence, omitting metaphysical distinctions, is that which “conduces to prove a pertinent theory in a case” or “which influences or control the case”. The degree of connection between a fact that is given in evidence and the issue to be proved is relevant (Blacks Law Dictionary). In this context it is to be noted that the Respondents have started an enquiry against the Appellants for certain alleged violations of the 1995 Regulations. Show cause notice stating the charge and the material relied in support of the charge has been issued. The charges are specifically directed to the Appellants. It is not the Appellants’ grievance that the show cause notice is deficient in as much as the same does not disclose the material facts relating to the charges. They want more details. It is well settled that the enquiry cannot go beyond the scope of the show cause notice. The Appellants’ request for material / documents has to be seen in the context of the charges which they are required to answer in the show cause notice. The Respondents’ argument, citing Quilter (supra) that “production of documents ought not to be ordered till a statement of defense had been filed” is not relevant, to the present case as the present case is in relation to an enquiry, in which the person concerned is asked to explain his conduct with reference to the show cause notice issued to him. In such an enquiry, the noticee cannot be denied of material relevant to answer the charges and cannot be said that let him file the defense and then the material will be furnished. Noticee cannot effectively defend, in case he is denied access to the material based on which the charges are leveled. Present case is not comparable to the facts in the Quilter. However, it is found that in the Appellants’ case, the request is for such materials, which the Respondents have categorically stated will not be used against them without furnishing the same to them. The Respondents have to give the material / details based on which the charges are leveled. But they are not bound to give any material / detail which has no relevance to the charges being enquired into.

¶93

On a perusal of the material on record and on consideration of the submissions made by the Appellants, to me, it appears that the Appellants are more concerned to pursue a course of action which they feel necessary to recoup the loss stated to have been suffered by them as a result of the alleged short sale of ARBL shares effected by some brokers flouting the SEBI directions and for that purpose they require material and find SEBI as the source. It is also evident that they need the particulars to use in arbitration claims filed against them. Fair enough. Their requirements for those purposes are understandable. But here the question relates to the supply of information with reference to the show cause notice holding specific charges. It is noticed that the Appellants’ conduct is being enquired into by the Respondents with reference to their transactions in ARBL scrips during the relevant period. For the purpose the Respondents have issued show cause notice and the material relied on by them in support of the charge has been stated in the notice. The Respondents have made it clear, in the impugned order, “that no documents will be relied upon without giving the Appellants a copy of the same and without giving them an opportunity to explain the contents thereof”. The said undertaking is very relevant. If for any reason it is found that the said undertaking has been flouted, consequences would follow. The Appellants have filed a lot of material in the appeal proceedings to support their contention that they are the victims and not the villains in the game. It is surprising to me, as to why the Appellants are reluctant to present their case before the Respondents and shying away from answering the charges. The Appellants are not in any way debarred from raising objections before the Respondents in the proceedings, in case they feel that the material relevant to the charges has been held back from them. Further in case they are aggrieved by the outcome of the proceedings initiated by the Respondents, they are entitled to appeal against such decision before the concerned forum. The Appellants’ submission gives an impression that they want the scope of the enquiry to be expanded and take up the enquiry by themselves.

Harinarayan G Bajaj

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Case details

Similar cases

Harinarayan G Bajaj

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Case details

Similar cases

What the court decided

A compact analysis

Statutes considered

Coram