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Bhoruka Financial Services Ltd. v/s Securities & Exchange Board of India

    Appeal No: 18 of 2006

    Decided On, 10 May 2006

    At, SEBI Securities Exchange Board of India Securities Appellate Tribunal

    By, CORAM: JUSTICE N.K. SODHI
    By, PRESIDING OFFICER
    By, C. BHATTACHARYA
    By, MEMBER
    By, R.N. BHARDWAJ
    By, MEMBER

    Mr. D.J. Khambatta, Sr. Advocate with Mr. Ajay Bahl, Advocate, Mr. Mihir Rale, Advocate and Mr. Paras Parekh, Advocate for the Appellant. Mr. Rafique Dada, Senior Advocate with Mr. Kumar Desai, Advocate for the Respondent.



Judgment Text

Per: Justice N.K. Sodhi, Presiding Officer


This order will dispose of a bunch of 12 appeals filed under Section 15T of the Securities and Exchange Board of India Act, 1992 (for short “the Act”) all of which are directed against the interim order dated December 6, 2005 passed by the whole time member of the Securities and Exchange Board of India (for short “the Board”) restraining the appellant DLF Commercial Developers Limited (for short “DLF”) from dealing in the scrip of Bhoruka Financial Services Limited (hereinafter called “BFSL”). Promoters of BFSL who sold their shares to DLF have also been directed to deposit the sale proceeds in an escrow account with a nationalised bank and not to deal with the said amount without the prior approval of the Board. They too have come up in separate appeals. Some directions have been issued to the Magadh Stock Exchange and its officiating executive Director has been placed under suspension. We are not concerned in these appeals with the exchange or with its executive Director as they have not challenged the order before us. Since all the appeals raise common questions of law and fact, they are being disposed of together by a common order.


2. Facts giving rise to these appeals in so far as they are relevant may first be stated.


3. It came to the notice of the Board that trading on the platform of the Magadh Stock Exchange at Patna (for short the “exchange”) had been conducted in violation of the conditions of renewal of recognition granted to that exchange. On scrutiny of the details of the trading, it transpired that trading was concentrated mainly in the scrip of BFSL. DLF was the buyer of the shares of BFSL and the sellers were the promoters of BFSL, namely, Shri Satyanarayan Agrawal, Shri Vivek Agrawal, Smt. Umah Agrawal, Shri Siddhartha Agrawal, Satyanarayan Vivek Kumar HUF, Prabhu Securities Ltd., Bhoruka Engineering Ind. Ltd., Pragya Enterprises and its partners (hereinafter collectively referred to as the “sellers”). It also transpired that the shares had been sold approximately for a sum of Rs. 109.71 crores in just 10 trading days. It appears that the Board further scrutinised the trading history of the shares of BFSL which were listed on the Bangalore Stock Exchange and found that the said shares were illiquid and were last traded in the year 1988. It is common case of the parties that DLF acquired 98.73% of the shares of BFSL from the sellers by executing the transactions on the exchange where the shares had not been listed but were allowed to be traded in permitted category using the services of a broker of that exchange. It is relevant to mention here that when DLF agreed to purchase almost the entire share capital of BFSL, the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short “takeover code”) got triggered and it filed an application before the Board seeking exemption from the takeover code under clause (1) of Regulation 3 of the said code and the said exemption was granted on 29/06/2005. It was thereafter that the shares were transferred through the exchange in the month of August 2005. It appears that the Board felt that the transactions were not above board since the shares of BFSL were listed on the Bangalore Stock Exchange where they were not traded and that the trade took place at the exchange at Patna which permitted the trading in contravention of the conditions of renewal of recognition granted to it. The Board thought that the matter was of imminent urgency and that there was need to safeguard the integrity of the securities market. By an ex-parte order dated 19/08/2005 DLF was prohibited from dealing in the scrip of BFSL and the sellers were directed to deposit the proceeds of the sale transactions in an escrow account with a nationalised bank. It was observed in the order that “any person aggrieved by this interim ex-parte order may approach SEBI within 30 days of this order showing cause for reconsideration of the directions”. It is not in dispute that after the passing of this ex-parte order, DLF and the sellers filed their objections before the Board stating that for the reasons stated therein the restraint order was not called for. On receipt of the objections filed by the parties and after looking into the matter the Board by its order dated December 5, 2005 ordered investigations into the affairs of the alleged illegal trading conducted on the exchange between August 1 and August 12, 2005. After ordering the investigations, the Board by its order dated December 6, 2005 and after affording an opportunity of hearing to the appellants and others directed that the ex-parte interim order dated August 19, 2005 shall remain in force till further orders which the Board may pass on the conclusion of the investigations which were ordered on December 5, 2005. It is against this order that the present appeals have been filed.


4. We have heard the learned senior counsel for the parties.


5. The learned senior counsel appearing for DLF strenuously urged that while the investigations as ordered by the Board have yet to commence (because DLF has not received any notice from the Board since December 5, 2005), the Board by its impugned order has recorded the findings on all the issues against the appellant thereby prejudicing its cause at the threshold of the proceedings. It was vehemently argued that while the Board has yet to investigate the matter and that it is in the process of collecting material regarding the alleged illegal trading in the scrips of BFSL, it could not record any finding on the merits of the issues as that would amount to prejudging the cause. He challenged on merits the findings on each issue as recorded by the Board in the impugned order and contended that the findings are against the record and could not be sustained. He, however, had no objection to the direction issued by the Board restraining DLF from transferring the shares during the pendency of the investigations. The learned senior counsel appearing for the sellers who are also appellants before us submitted that the ex-parte restraint order dated August 19, 2005 passed by the Board was without jurisdiction since on that day no investigation / enquiry was pending in the matter and therefore no such order could be passed in view of the provisions of Section 11(4) of the Act. He referred to Section 11 and other relevant provisions of the Act in support of his contention. He also supported the contention raised on behalf of DLF that the Board was not justified in recording its findings on the issues that will eventually arise after investigations are over and that the Board has pre-judged those issues at the initial stage. Shri Rafique Dada, learned senior counsel appearing for the Board while supporting the impugned order argued that the Board was justified in recording its reasons for passing an interim order and that the findings were only prima facie and interim pending final investigations and that the appellants are not prejudiced in any way as they would have ample opportunity to place their view points and the material that they claim to possess before the Board during the course of investigations. He further contended that all the material that the Board may collect will be evaluated independently and with an open mind and then an appropriate order would be passed. He argued that the Tribunal in appeal should not interfere with the interim order at this stage and that the Board should be left free to carry on its investigations. He forcefully contended that even prior to the introduction of Section 11(4) of the Act, the Board had power to issue interim directions with a view to protect the interests of the investors and to protect the integrity of the market. He referred to some decisions of the Courts to contend that the courts had upheld the power of the Board to issue interim directions where there was imminent danger of the securities market being manipulated. In the alternative he also contended that in any case the impugned order was passed on December 6, 2005 after the investigations had been ordered on the previous day.


6. We have given our thoughtful consideration to the rival contentions of the parties and are of the view that the following questions arise for determination.


a. Whether the Board could issue interim directions in terms of sub-section (4) of Section 11 before any investigation or enquiry is ordered in the matter;


b. Whether the Board was justified in recording its findings on different issues even before the investigations as ordered on December 5, 2005 are yet to commence.


c. Whether the impugned order is sustainable in law.


7. Before we take up the first question it is necessary to refer to the provisions of the statute. The Act has been enacted for the establishment of the Board to protect the interests of the investors in securities and to promote the development of and to regulate the securities market. It is, therefore, the duty of this regulator to protect the integrity of the market and to ensure that each player plays the game according to the rules and no one is allowed to manipulate the market. The Board is established under section 3 of the Act and section 11 deals with its functions and it provides that it shall be the duty of the Board to protect the interest of the investors and to promote and regulate the securities market. Sub-Section (2) deals with the measures which it has to take in carrying out its functions. It can also undertake inspection of records and documents, books of any listed company on a recognised stock exchange. Section 11B gives power to the Board to issue directions in the interest of the investors or orderly development of securities market or to prevent the affairs of any intermediary from being conducted in a manner detrimental to the interests of investors of securities market or to secure proper management of any such intermediary. The directions referred to in this section may be issued to any person or class of persons associated with the securities market and also to any company in respect of matters specified in Section 11A. By amending Act 59 of 2002 the Parliament added clause (4) to Section 11 and also introduced Section 11C giving specific powers to the Board to order investigations. Sub-Section (4) of Section 11 and the relevant part of Section 11C in so far as it concerns us are reproduced hereunder for facility of reference.


“11(4) Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and (3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in the interests of investors or securities market, take any of the following measures, either pending investigation or inquiry or on completion of such investigation or inquiry, namely:—


(a) suspend the trading of any security in a recognised stock exchange;


(b) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;


(c) suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position;


(d) impound and retain the proceeds or securities in respect of any transaction which is under investigation;


(e) attach, after passing of an order on an application made for approval by the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder:


Provided ………..


(f) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation:


Provided that the Board may, without prejudice to the provisions contained in sub-section (2) or sub-section (2A), take any of the measures specified in clause (d) or clause (e) or clause (f), in respect of any listed public company or a public company (not being intermediaries referred to in section 12) which intends to get its securities listed on any recognised stock exchange where the Board has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market :


Provided further that the Board shall, either before or after passing such orders, give an opportunity of hearing to such intermediaries or persons concerned.”


Section 11C


“11C. (1) Where the Board has reasonable ground to believe that—


(a) the transactions in securities are being dealt with in a manner detrimental to the investors or the securities market; or


(b) any intermediary or any person associated with the securities market has violated any of the provisions of this Act or the rules or the regulations made or directions issued by the Board thereunder,


it may, at any time by order in writing, direct any person (hereafter in this section referred to as the Investigating Authority) specified in the order to investigate the affairs of such intermediary or persons associated with the securities market and to report thereon to the Board.”


8. Reference to Section 11B of the Act will also become necessary and the same is also reproduced hereunder for facility of reference.


“11B. Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary,—


(i) in the interest of investors, or orderly development of securities market; or


(ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market; or


(iii) to secure the proper management of any such intermediary or person,


it may issue such directions,—


(a) to any person or class of persons referred to in section 12, or associated with the securities market; or


(b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market.”


9. A reading of the aforesaid provisions leaves no room for doubt that the Board while exercising its functions under the Act with a view to protect the interest of the investors and also to protect the integrity of the market and without prejudice to the provisions of sub-sections (1), (2A) & (3) of Section 11 and Section 11B can by an order, for reasons to be recorded in writing, take any of the measures referred to in sub-section (4) and those measures can be taken either pending investigations or enquiry or on completion of such investigation or enquiry. One of the measures that it can take is to direct any person associated with the securities market not to dispose of any asset forming part of the transaction which is under investigation. In other words, steps can be taken to protect the interest of the market either when the investigation or enquiry is pending or on its completion. It would follow that the Board is precluded from taking any steps / measures before ordering an investigation or enquiry into the matter. Mr. Rafique Dada, learned senior counsel appearing for the Board strenuously contended that if this interpretation was to be put on the language of sub-section (4) of Section 11, the Board would be precluded from taking immediate steps in case of an imminent urgency to prevent manipulation or any other wrong doing in the market. He further submits that even prior to the introduction of sub-section (4) in Section 11 the Board had the power under Sections 11 and 11B to issue interim directions and such powers have not been affected with the introduction of sub-section (4) of Section 11. We cannot agree with the submissions made on behalf of the Board. There can be no doubt that even prior to the introduction of sub-section (4) of Section 11 the Board had the powers to issue interim directions in case of an emergency which could not brook any delay. What was the nature and extent of that power is not really relevant for us today when sub-section (4) of Section 11 has been specifically introduced by Parliament by Act 59 of 2002 with effect from 29/10/2002. Whatever was the nature and extent of power to issue interim orders/ directions which the Board was exercising prior to 29/10/2002, the exercise of that power with effect from that date has been circumscribed by the provisions of sub-section (4) of Section 11 and with effect from the date this provision was introduced such power can be exercised only in accordance therewith and not otherwise. It appears that prior to the introduction of sub-section (4) of Section 11 the Board was exercising powers to issue interim directions/orders and the exercise of that power had been challenged in different courts and even though the exercise of that power had been upheld, the Parliament thought that the provisions of the Act were inadequate in this regard and in its wisdom introduced sub-section (4) of Section 11 with effect from 29/10/2002. Since this provision does not permit the Board to exercise the power to issue interim orders or directions without first ordering an enquiry or investigation, we are clearly of the view that the said power cannot be exercised unless an enquiry or an investigation is pending. This will not denude the Board of its power to issue interim orders and directions in cases of urgency. When the Board receives a complaint or otherwise has reason to believe that the securities market is being manipulated or there is some other wrong doing which brooks no delay and that immediate action needs to be taken by way of an interim order/direction it is open to it to immediately order an enquiry or investigation in the matter which can always be ordered ex-parte and simultaneously issue necessary directions in terms of sub-section (4) of Section 11. It is not the requirement of Section 11C that opportunity of hearing is to be afforded to any intermediary of the market before ordering such investigation. The reason is obvious. Investigation by itself does not adversely affect any person or intermediary and no civil consequences flow from such an order. If the matter is not so urgent and the Board wants to find out whether or not it is a fit case to order an enquiry or investigation it may issue notice to those allegedly involved in the wrong doing and make up its mind thereafter. In that event it will not be open to it to issue interim order/directions instantaneously obviously because the matter is not urgent and investigations / enquiry is yet to be ordered. The legislature has made its intention clear that interim direction / order could be passed by the Board only “either pending investigation or enquiry or on completion of such investigation or enquiry.” Section 11(4) is an enabling provision and it is not necessary that the Board should in every case pass an interim order / direction where an enquiry / investigation has been ordered. There could be cases where the Board may order an enquiry / investigation and pass final orders / directions only on its completion. This will depend upon the nature and seriousness of the complaint received. Shri Rafique Dada, learned senior counsel appearing for the Board strenuously argued that when the Board learnt on 10th August, 2005 about the illegal trading going on at the exchange, it looked into the matter and made, what he calls, preliminary enquiries and, therefore, it cannot be said that no enquiry was pending when the ex-parte restraint order was passed on 19/08/2005. He laid great emphasis on the use of the words “investigation or enquiry” as used in Section 11(4) and contended that these would include the preliminary investigations or inquiry which the Board made on receipt of information. At the first flush the argument looks attractive but when examined in detail we do not think that it merits acceptance. The legislature has used two words – ‘investigation or enquiry’ and it is during the pendency of either of the two that the Board can issue interim directions / orders. Let us take the ‘investigation’ first. This word has not been defined in the Act. Sub-section (4) of Section 11 in which it appears was introduced by the Amending Act 59 of 2002 and by the same amending Act the Parliament inserted Section 11C in the Act and gave powers to the Board which it did not possess earlier to investigate the affairs of any intermediary or persons associated with the securities market and ask for a report. The word ‘investigation’ as it finds mention in Section 11(4) obviously refers to the investigation in terms of Section 11C as both these provisions were inserted simultaneously. When we read this newly added provision it becomes clear that where the Board has reasonable grounds to believe that the securities market is being dealt with in a manner which is detrimental to the investors or the securities market or any intermediary or person associated with such market, it may at any time, by order in writing direct any person to investigate the affairs of any intermediary or persons associated with the securities market and submit a report. It is, thus, clear that investigation can be made only by an order in writing and not otherwise. In the instant case this order was passed only on 05/12/2005. The so called preliminary investigations which the Board made prior to 05/12/2005 were only meant to make up its mind whether investigation was to be ordered or not. Whatever material the Board might have collected during the preliminary investigations could be used by it but it could not pass an interim order / direction prior to 05/12/2005 because no investigation was pending.


10. Let us now see whether any enquiry was pending on 19/08/2005 when the interim order was passed. The term ‘enquiry’ has also not been given a statutory meaning. However, in the year 1995 the Parliament amended the Act and introduced Chapter VIA containing Sections 15A to 15J by Act 9 of 1995 with effect from 25/01/1995. This Chapter provides for penalties and adjudication. Penalties can be levied for various violations referred to in this Chapter and Section 15I requires that before any penalty could be levied, the Board shall appoint an adjudicating officer for holding an enquiry in the prescribed manner and give the person concerned a reasonable opportunity of being heard. Apart from the provisions of Chapter VIA, the Board as a regulator with a view to protect the interest of the investors and the integrity of the securities market has framed a host of Regulations for the violation of which it can take action and before it can proceed against those who violate the Regulations it has to hold an enquiry in accordance with the provisions of the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (for short ‘the Regulations’). An enquiry under these Regulations can be held for the purpose of passing an order for the contravention of any of the provisions of the Regulations referred to in Regulation 4 of these Regulations. It is, thus, clear that the Board can order an enquiry either for the purpose of imposing a penalty under Chapter VIA of the Act for which an adjudicating officer shall be appointed or it may order an enquiry under the Regulations. The word enquiry referred to in Section 11(4) of the Act refers to either of these two enquiries and it is during the pendency of such an enquiry that Section 11(4) empowers the Board to pass an interim order / directions. Since no enquiry was pending against any of the appellants in August, 2005, the Board could not pass the interim order on August 19, 2005. In the result, it has to be held that since no investigation or enquiry was pending against the appellants in August, 2005 the interim order passed by the Board on 19/08/2005 was without jurisdiction.


11. This brings us to the impugned order passed by the Board on December 6, 2005. The argument of the learned senior counsel for the Board is that the said order cannot be said to be without jurisdiction even if we were to ignore the earlier order dated August 19, 2005 because by then the investigations into the alleged illegal trading on the platform of the exchange were pending. There is considerable force in this argument. There is no gainsaying the fact that on December 5, 2005 the Board had by an order in writing ordered investigations into the trading that took place between August 1 and 12, 2005 on the exchange at Patna. The Board had reason to believe that during the pendency of the investigations it was necessary to issue a restraint order and that the subject matter of the investigation should be preserved. With that object in view it issued a direction restraining DLF from transferring its shares and also directed the sellers to keep the sale proceeds in a separate escrow account with a bank. The Board had the power to issue an interim order but whether such a direction should have been issued to the sellers is a matter to which we shall advert later. What was contended by the learned senior counsel for the appellants is that the order dated December 6, 2005 only confirms the earlier ex-parte order passed on August 19, 2005 and that no fresh direction or order was issued on December 6, 2005 and since the earlier order was without jurisdiction it was not open to the Board to confirm an illegal order. We do not find any merit in this submission. It is true that we have found that the order dated August 19, 2005 was without jurisdiction but that does not mean that there was no such order in existence. It is by now well settled that orders which are illegal or without jurisdiction also need to be set aside by a competent authority and cannot be treated as non est. In this view of the matter when the Board confirmed on December 6, 2005 its earlier order dated August 19, 2005 it can safely be presumed that the Board passed a fresh order on December 6, 2005 in the same terms and since by then investigations had been ordered, the order would be within the competence of the Board. In the result, it has to be held that the order dated December 6, 2005 was an order within the powers of the Board. The first question referred to in the earlier part of our order stands answered accordingly.


12. This brings us to the next issue. It is not in dispute that the Board received some information on telephone around August 10, 2005 that trading had taken place on the platform of the exchange in contravention of the terms and conditions of its renewal of recognition. On receipt of this information the Board was looking into the matter and since, according to it there was great urgency as it wanted to stop the misuse of the platform of the exchange, it issued the aforesaid directions by an ex-parte order dated August 19, 2005 which, we have already held, was beyond its powers. It is common case of the parties that the Board took almost 4 months to make up its mind that the matter required detailed investigations and therefore by an order dated December 5, 2005 it appointed an investigating officer to investigate the so called illegal trading on the platform of the exchange. The learned senior counsel appearing for the appellants inform us during the course of the hearing that their clients had not received any notice in pursuance to this order passed by the Board which fact could not be disputed by the learned senior counsel appearing for the Board. We, therefore, presume that the investigations though ordered on 05/12/2005 have yet to commence. In the meantime, the Board passed the impugned order which is now under challenge before us. Primary grievance of the appellants is that the Board in the said order has recorded firm findings holding the appellants guilty of various acts of omission and commission and that the investigation in the matter is yet to proceed. It is contended that the Board is still in the process of collecting evidence / material in regard to the so called illegal trading that took place in August, 2005 on the exchange and even before the investigations could commence the appellants have been found guilty of various violations. According to the learned senior counsel the Board has adjudged the issues which they raised before the Board in response to the order dated August 19, 2005. Mr. Rafique Dada, the learned senior counsel appearing for the Board could not dispute the fact that the Board is still in the process of carrying out the investigations and that the materials and evidence in support of what has been alleged is yet to be collected though, according to him, some of the materials are already in possession of the Board. It is, thus, clear that the matter is under investigation and the appellants and other intermediaries involved in the transactions have yet to receive notices in pursuance to the order of investigation passed by the Board. Could then the Board record firm findings on the issues raised before it on the basis of the objections filed by the appellants. The answer to this question has to be in the negative.


13. We have carefully gone through the impugned order which is a lengthy one. It is admittedly an interim order issuing directions pending final investigations. On a reading of the order we are satisfied that the Board has recorded firm findings using strong language holding the appellants guilty of various allegations levelled against them. The Board has found that the case set up by DLF that it has been unnecessarily dragged in the controversy is not correct and that in going about the transactions it acted in complicity with others. The Board has further found that the legal maxim ‘res ipsa loquitur’ is applicable to the facts of the present case. If the facts speak for themselves, nothing remains to be investigated. After referring to the judgment of the Supreme Court in CIT v. D. Bhoormull 1983 (13) ELT 1546 (SC) dealing with the law relating to burden of proof, the Board recorded the following findings in the impugned order:


“Applying the aforesaid observations made in criminal proceedings, to the present quasi judicial proceedings which admittedly do not require to prove the case with as much precision as is required in criminal case, I, in the facts and circumstances of the case as discussed hereinabove, am of the view that the assertion of DLF that they did not know anything and agreed to trade in MSEA only on the insistence of the sellers is merely a pretence which can not be brooked and in fact and accordingly hold that DLF acted in cahoots with sellers, broker and OED of the exchange to execute the illegal trades at MSEA with full knowledge.”


Again, when dealing with the case of the sellers the Board recorded the following findings.


“In view of the aforesaid I hold the sellers/erstwhile promoters’ conduct highly objectionable and one of obdurate defiance. By their aforesaid conduct they have failed to comply with the directions of SEBI issued vide interim orders dt. August 19, 2005 and August 24, 2005 and are liable to be punished interalia under Section 15HB of the SEBI Act which provides as under:”


14. We do not think that this was the proper stage for the Board to record such findings. It was also unwise on its part. Since the matter is pending investigation, it is possible that on its conclusion the Board may have sufficient material with it on the basis of which whatever has now been said in the interim order could be sustained. It is equally possible that the material which the Board may collect may not be enough to substantiate those allegations. When both the possibilities are there it was not proper for the Board to record findings at this preliminary stage. It obviously amounts to pre-judging the issues and may lead to the charge of bias. The learned counsel appearing for the appellants took us through the records of the case and strenuously urged that there was enough material with them to show that each finding recorded by the Board in the impugned order was unsustainable. We refrain from going into the merits of the contentions raised before us because any observation made by us may also pre-judge the issues which we are not inclined to do. We would be then committing the same error which the Board has committed.


15. In Colgate Palmolive (India) Ltd. v. Hindustan Lever Ltd., 1999 (7) SCC 1, a complaint was filed before the Monopolies and Trade Practices Commission which has the power to investigate the same and pending investigations it has the power to issue temporary injunctions under Section 12A of the Monopolies and Restricted Trade Practices Act. Their Lordships noted the considerations which should weigh in the matter of grant of interim orders in the following words:


“We, however, think it fit to note herein below certain specific considerations in the matter of grant of interlocutory injunction, the basic being non-expression of opinion as to the merits of the matter by the court, since the issue of grant of injunction, usually, is at the earliest possible stage so far as the time-frame is concerned.” (emphasis supplied)


Again, in Smt. Indira Nehru Gandhi v. Shri Raj Narain and another, AIR 1975 S.C. 1590 their Lordships while dealing with the circumstances when an interim order should be passed observed as under:


“Shri Palkhivala assailed, in his opening submissions, the two findings recorded against the appellant holding her guilty of corrupt practice. Indeed, he was at pains to convince me that his client had a strong prima facie case on the merits, in the sense that the judgment, on its face, was perverse and legally untenable. Although I listened at some length to these arguments and, to an extent, to the counter-submissions made by Shri Shanti Bhushan in his endeavour to establish that the holdings were sound, I made it fairly clear in the course of the hearing that at this stage when I was considering whether a stay should be granted or not, it was premature and perhaps unwise to pronounce on the merits of the appeal itself except……….” (emphasis supplied)


In view of the above, it is clear that the Board should not have recorded findings on merits at this stage of the proceedings.


16. Shri Rafique Dada, learned senior counsel appearing for the Board submitted that the findings are prima facie subject to the final order which the Board may pass on the conclusion of the investigations. We do not think that the findings recorded in the impugned order are prima facie. As already stated they are firm findings leaving no room for the appellants to urge to the contrary and that they stand condemned. Moreover, the Board in the order does not state that the findings are prima facie though it is stated that investigations are pending. All that the Board was required to do at this stage while issuing interim directions was to record its reasons for issuing such directions. It was not expected to record findings on the merits of the issues that arise before it. The learned senior counsel appearing for the Board contended that the Board had merely recorded reasons as was required by sub-section (4) of Section 11 of the Act and therefore no fault could be found with the impugned order. We are unable to accept this contention either. Recording of reasons as to why it was necessary to issue interim directions is one thing and to record findings on the merits of the issues that have been raised by the appellants is altogether different. We do not think that the Board has recorded reasons for issuing the interim directions. It has given its findings on merits closing all the doors for the appellants to contend to the contrary. This could not be done when investigations are still pending and the appellants are yet to produce the material in their possession to substantiate their pleas. The Board should have refrained from recording the findings and it was only expected to record briefly its reasons why it was necessary to issue interim directions / orders and that would have adequately met with the requirements of sub-section (4) of Section 11 of the Act. In view of the firm findings recorded by the Board, there is hardly anything which the Board has left to record in its final order. The learned senior counsel for the appellants also contended that the Board has selectively recorded findings on some of the issues raised in their objection petitions and that no finding is recorded on one of the primary contentions raised before it. It was argued that the appellants specifically pleaded before the Board that the exchange is a recognized one and that even today it continues to be shown as a recognized exchange on the website of the Board and, therefore, the appellants did nothing wrong when they traded on its platform. They also urged that the appellants could not have known that the exchange was violating the terms on which its recognition had been renewed. The grievance of the appellants is that no finding has been recorded on this material issue and the impugned order is conspicuously silent in this regard. They were sanguine that findings in this regard could not be recorded against them. It is not for us to comment on this issue at this stage of the proceedings and we have no doubt that the Board will examine these issues and record its findings when the final order is passed. In view of what has been stated above we are constrained to set aside the impugned order. This, however, does not mean that no interim orders / directions shall be issued. Having regard to the facts and circums

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tances of the case we are one with the Board that it is a fit case where DLF should be restrained from transferring the shares which it has already acquired. The direction issued by the Board in this regard shall, however, continue to operate till such time the Board passes the final order on the conclusion of the investigations. As regards the directions issued to the sellers, we are of the view that the same need to be modified in the facts and circumstances of the case. It is common ground between the parties that the shares were transferred on different dates between August 1 and August 12, 2005 and the sellers have received a sum of Rs. 108.87 crores. Admittedly the ex-parte order was passed by the Board on 19/08/2005 and it is the case of the sellers that by that time they had spent good amount of the sale proceeds for the discharge of their liabilities and that they were left with only a sum of Rs. 5.7 crores as on 28/08/2005 the date on which the said order was received by them. Mr. M.P. Bharucha, learned senior counsel appearing for the sellers stated during the course of arguments that his clients were willing to keep this amount in an escrow account as they are not in possession of any amount more than Rs. 5.7 crores. In the normal course we would have ordered the sellers to deposit the entire sale proceeds in an escrow account pending final investigations but in the facts and circumstances of this case we do not think that it is necessary to issue such a direction. DLF has purchased almost 99% of the shares of BFSL and the parties are agreed before us that only 26 shareholders are left in the market and it is for this reason that the Board had granted exemption to DLF from making a public announcement in terms of the takeover code. It is also not in dispute that DLF has paid the higher price of Rs. 4,490/- per share to the remaining 26 shareholders as well. It becomes obvious that all the shareholders of the company were paid the higher price and none has suffered. Since BFSL has been taken over by DLF, the securities market does not got affected. At the most, when the investigations conclude the Board could declare the transactions to be illegal and in that event the transfer of shares from the sellers to DLF may have to be reversed. If that were to happen individual sellers will have to refund the amount to DLF and the latter will have to return the shares to the sellers but the agreement between DLF and the sellers will remain intact because the Board has no jurisdiction to declare that agreement invalid and nothing has been pointed out to show as to how that agreement could be challenged. The shares and the money will have to be swapped between DLF and the sellers and no one will get affected -- neither the market nor the investors and not even the Board. This being the position, we think the ends of justice will be adequately met if the contention of Mr. M.P. Bharucha, the learned senior counsel on behalf of the sellers’ is accepted and a direction issued to them to deposit whatever amount is lying with them (Rs. 5.7 crore) in an escrow account till such time the Board passes the final order in accordance with law. We order accordingly. 17. There is yet another direction which the Board has issued in regard to the sellers. Adjudication proceedings have been ordered against them for their non-compliance of the directions issued by the ex-parte order dated August 19, 2005. Since we have held that order to be beyond the powers of the Board and the same is illegal, we do not think that adjudication proceedings should commence against the sellers for the non-compliance of that order. That would result in grave injustice to them. 18. In the result, the appeals are allowed, the impugned order in so far as it relates to the appellants is set aside and interim directions as referred to herein above shall issue pending investigations. We have no doubt that the Board shall at the conclusion of the investigations evaluate independently all the material that it collects and pass an appropriate order based on that material in accordance with law. The Board is directed to conclude the investigations expeditiously but not later than July 31, 2006. There is no order as to costs.
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