Allowed

Paresh M. Parekh

SAT8 Oct 2002

Case brief

AI extract

What is this about?

The SAT quashed SEBI orders debarbing four appellants from trading for two years. The Tribunal held SEBI failed to prove the appellants intentionally aided market manipulation and that the stock invest date dispute lacked independent verification from the collection bank. Consequently, the Tribunal allowed the appeals.

What did the court decide?

The four appeals were allowed, rescinding the directions under Section 11B of the SEBI Act prohibiting the appellants from dealing in securities market.

What the court decided

AI extract

Outcome

The four appeals were allowed, rescinding the directions under Section 11B of the SEBI Act prohibiting the appellants from dealing in securities market.

Issue for consideration

Whether SEBI could rely on bank records showing a one-day delay in stock invest issuance to prove a public issue subscription was belated. +2 more

A compact analysis

This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.

Paresh M. Parekh — Securities and Capital Markets | SAT (2002)

Allowed

Paresh M. Parekh

SAT8 Oct 2002

Download

Case brief

AI extract

What is this about?

What did the court decide?

The four appeals were allowed, rescinding the directions under Section 11B of the SEBI Act prohibiting the appellants from dealing in securities market.

What the court decided

AI extract

Outcome

The four appeals were allowed, rescinding the directions under Section 11B of the SEBI Act prohibiting the appellants from dealing in securities market.

Issue for consideration

Whether SEBI could rely on bank records showing a one-day delay in stock invest issuance to prove a public issue subscription was belated. +2 more

A compact analysis

¶51

submitted that the Respondent in the impugned order has stated that the Appellants paid consideration by using stock invests issued by the Matunga branch (Bombay) of Bank of Madura on 19.3.1996, that since the stock invest was issued on 19.3.1996 it was not to be accounted as subscription received in the public issue which had already closed on 18.3.1996. Learned Counsel submitted that the Respondent has not proved that the stock invests were not dated 18.3.1996. He referred to the photo copy of the relevant stock invest, annexed to the appeal and stated that it was issued by a Bank authorized to issue the stock invests and that in the absence of any thing to prove other wise the presumption is that it was issued on 18.3.1996 as evidenced by the stock invest itself, that the Respondent has not brought in any evidence to show that the stock invest was not issued on 18.3.1996. In this context Shri Mehta submitted that the Appellants’ request, to provide the officials of Bank of Madura, on whose alleged statement the Respondent has relied, for cross examination, was not accepted by the Respondent, that the Respondent has not produced any evidence from the receiving bank i.e. Oriental Bank of Commerce, as to when the applications with the stock invests were received by them. He referred to the version of the Respondent as stated in its reply dated 6.5.2002 filed in the Tribunal that "The stock invests were issued against security of Flexi Fixed Deposits ……… which were created out of funds transferred from the account of Sun Pharmaceuticals Ltd on 19.3.96. Entries in all the register/ledger of banks show the date as 19.3.1996. The applications accompanied by the said 4 stock invests issued at Bombay had been handed over by the Appellants admittedly to a representative of the promoter, Shri Pramod Gupta, and ultimately deposited at the Oriental Bank of Commerce, Lehripura New Road Branch, Baroda. Considering the above and the distance between Bombay and Baroda the said applications could not have been deposited at Baroda before the closure of the issue on 18.3.1996 and hence the applications would be deemed to be late applications. If these four applications were to be excluded, the issue would have been subscribed only to the extent of 43% and the issue would have failed." In this context learned Counsel submitted that the application for the

¶52

stockinvest was made by the Appellants on 18^th March, 1996 and the stockinvests were issued to them by Bank of Madura on 18^th March, 1996, that this fact is clear from the copy of the stockinvest produced by the Appellants. He submitted that the Respondent has relied upon the entries in certain records of Bank of Madura to show that the stockinvest was issued on 19^th March, 1996, that the Appellants are not concerned with the internal records of the Bank and in any case it is in fact irrelevant for the purpose of deciding whether there is any irregularity in the application made by the Appellants, that as far as they are concerned, the date shown on the stockinvest is conclusive proof of the fact that the stockinvest was issued on 18^th March, 1996, that if the Bank has for any reason for its own purpose mentioned the date of issuance of the stockinvest as 19^th March, 1996, the Appellants would not know about the same and in any case the Appellants cannot be penalized for the same. He gave a plausible explanation that it is likely that in its records the Bank mentioned the date of issuance of the stockinvests as 19^th March, 1996 since that was the day on which the amount of the stockinvest, i.e. Rs. 20 lakhs, was transferred in the account of the Appellants with the Bank, that at the time of applying for the stockinvests the Appellants had forwarded a cheque to Bank of Madura for Rs.20 lakhs towards Fixed Deposit, that the cheque was issued by Sun Pharmaceutical Industries Ltd., who also had an account in the same Bank. Learned Counsel further submitted that it is quite possible that on knowing that there was sufficient funds in the account of Sun Pharmaceutical Industries Ltd., and accordingly the account of the Appellants was bound to be credited, the Bank may have issued the stockinvest without waiting for it to clear, on the date of application itself, i.e. 18^th March, 1996, that since the funds were actually credited in the account of the Appellant on 19^th March, 1996, for internal purposes the Bank may have mentioned 19^th March, 1996 as the date of issuance of the stock invest. Learned Counsel further submitted that in connection with the allegations with regard to the delayed submission of stockinvests the Respondent has not stated in the show cause notice that the stockinvest was not

¶102

before the Respondent, explaining the possible reason for showing in the bank records the issue date of stock invest as 19.3.1996 attributing to the internal procedure that the bank would have followed in maintaining its records, and stated that by any standard it was not possible to deposit the stock invests dated 18.3.1996 made in Mumbai, on the same day at Baroda, before the public issue was closed. He submitted the "probability" of reaching it on 18.3.1996 itself has to be seen in the over all scenario, such as the nature of MOU, application for shares far exceeding the number offered to the public, authorizing the holder of POA to deal in the shares handed over to him in any manner etc. With reference to the Appellants version that if the company had not received the money, there was no compulsion to close the public issue on 18.3.1996 itself and the issue could have been kept open for few more days, learned Counsel submitted that early closure was a ploy to fool the public to show that there was overwhelming support to the issue from the public that creating such an impression was to attract the investors to purchase the company’s shares at higher price. In this context learned Counsel referred to the Chairman’s observation in the order that "I have carefully examined Shri Parekhs reply, oral submissions made during personal hearing and also taken into account relevant material available record. I find from the record that the aforementioned four applications are known to each other and as a group have subscribed to many a public issue using similar modus operandi. From the stock invest register of the bank, it was noted that the four applicants had taken stock invests for large amounts for applying in public issues of as many as 20 companies around that period." Shri Mandhyan submitted that in the light of the well reasoned order it is clear that the Appellants’ action was clearly a case of fraud on the investors and as such deserves to be dealt with as ordered in the impugned order.

Paresh M. Parekh

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Parties & counsel

Case details

Similar cases

Paresh M. Parekh

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Parties & counsel

Case details

Similar cases

Statutes considered

Coram