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D & A Financial Services P. Limited & Another v/s Securities and Exchange Board of India SEBI Bhawan

    Appeal No.22 of 2013

    Decided On, 07 February 2013

    At, SEBI Securities Exchange Board of India Securities Appellate Tribunal


    For the Appellants: Ms. Leene Toty, Advocate. For the Respondent: Shiraz Rustomjee, Senior Advocate with Mihir Mody, Advocate.

Judgment Text

P.K. Malhotra

With the consent of the learned counsel for the parties, the appeal is taken up for final hearing.

2. At the outset learned counsel for the appellant submitted that the appeal may be confined only to prayer in paragraph 6(ii) of the appeal and she is not pressing for other prayers. Prayer in paragraph 6(ii) reads as under:-

'(ii) pass an order setting aside letter dated 27.12.2012 directing Appellant not resume its Merchant banking Operations and declaring that as per Order dated 5.10.2012 the interim order stands vacated and consequently allow the Appellant to carry on its Merchant Banking Activities;'

3. The facts of the case, in brief, are that Appellant no.1 is a merchant banker and it acted as a broker of Brooks Laboratories Limited (the company). Appellant no.2 is one of the promoters of the appellant company. The Securities and Exchange Board of India (for short the Board) carried out investigation into the IPO issue of the company and found certain irregularities committed by the appellants. The Board passed an ad-interim ex-parte order dated December 28, 2011 prohibiting, beside others, the appellant from taking up any new assignment or involvement in any new issue of capital including IPO, follow-on issue etc from the securities market in any manner whatsoever from the date of the order till further directions. This direction to the appellant is part of paragraph 28 of the order which, in the opening portion, states that the ad-interim ex-parte order is being passed pending investigations. The said ad-interim ex-parte order was also a show cause notice and the appellant was required to file a reply. After granting personal hearing to the appellant, the Board passed an interim order on September 5, 2012 in which it specifically said that the direction issued by order dated December 28, 2011 should continue till the completion of investigation in the matter. As per affidavit dated February 5, 2012, filed by the Board, the investigation qua the appellant was completed on November 27, 2012 and a show cause notice was issued on December 21, 2012. The Assistant General Manager of the Board issued another letter dated December 27, 2012 to the appellant observing that the Board has completed investigation in compliance with the directions issued by this Tribunal earlier on October 5, 2012 and consequently proceedings are underway. It advised the appellant to refrain from resuming the merchant banking activities and further said that any violation of the Board’s orders dated December 28, 2011 and September 5, 2012 would attract separate regulatory action/prosecution under the relevant regulations. The appellant is aggrieved by this direction issued by the Assistant General Manager of the Board stating that the interim order dated September 5, 2012 was to operate only during the investigation and not beyond that. The Assistant General Manager is not authorized to issue directions or order in continuation of the direction issued under section 11 of 11B of the Securities and Exchange Board of India Act, 1992 (the Act).

4. After hearing learned counsel for the parties and having perused the record, I am inclined to agree with the argument of learned counsel for the appellant. There is no ambiguity in the order passed by the whole time member of the Board under section 11 and 11B of the Act. The interim order was to continue only during the investigation and as per Board’s own admission the investigation was complete on November 27, 2012.

Therefore, the direction given by the Assistant General Manager in his letter dated December 27, 2012 is without authority of law. A direction issued under sections 11 and 11B of the Act by the Whole Time Member of the Board could have been modified or continued by the Whole Time Member only and not by an authority subordinate to him which has not been delegated any such power under the Act. Therefore, I set aside the direction contained in the letter dated December 27, 2012 issued by the Assistant General Manager of the Board. However, if the Board is of the view that some appropriate direction needs to be issued to the appellant till passing of the final order in the matter, the Board is free to do so in accordance

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with law. 5. The matter is now pending with the Board for more than a year. Since the investigations are over and a show cause notice has also been issued, the Board is directed to complete the proceedings as expeditiously as possible. Learned counsel for the appellant states that the appellant will extend full co-operation and provide all information required by the Board till completion of the enquiry. The appeal stands disposed of as above. No costs.