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Database Finance Ltd. v/s Securities & Exchange Board of India

    Appeal No. 142 of 2005

    Decided On, 17 April 2007

    At, SEBI Securities Exchange Board of India Securities Appellate Tribunal

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

    Mr. Kiran Kulkarni & Ms. Dias, Advocates for the Appellant. Mr. Subhash Jha, Advocate with Ms. Lakshmi Menon, Advocate for the Respondent.



Judgment Text

Justice N. K. Sodhi, Presiding Officer (Oral)


Since we are inclined to remand the case back to the adjudicating officer for passing a fresh order in accordance with law it is not necessary to sate the facts in detail.


2. M/s Database Finance Ltd. is a public limited company incorporated under the Companies Act, 1956. It came out with an Initial Public Offer (IPO) in June 1996 of 35 lac equity shares of Rs.10/- each. In the year 2001 these shares were split up into 10 parts of Re. 1 each. A group of 29 shareholders made complaints to the Securities and Exchange Board of India (for short the Board) and also to the Bombay Stock Exchange (BSE) where the shares of the appellant were listed, alleging that the shares allotted to them were not being dematted by the appellant and that the split shares had not been transferred in their names. On receipt of these complaints the Board and the BSE appear to have addressed some communications to the appellant requiring the latter to redress the grievance of the complainants. It further appears that the appellant furnished its reply to each of the communications informing the Board and the BSE that the shares which were offered for being transferred in the name of the complainants did not match with the records of the appellant company and therefore, they were forged and bogus shares. The appellant company is alleged to have informed the complainants to file an affidavit that they were the owners of the shares and also to furnish an indemnity bond. The appellant company also required them to produce proof of payment for those shares and a copy of the original allotment letter was also asked for. Since these documents were not furnished by the complainants, the company claims that it refused to transfer the bogus shares. Not satisfied with the explanation furnished by the company, the complainants filed writ petitions in the High Court of Gujarat in which the appellant company and the Board were made respondents. The prayer made in the writ petitions was for a direction to the Board to take action against the appellant company for not redressing the grievances of its complainants in terms of Section 15C of the Securities and Exchange Board of India Act, 1992 (for short the Act). The High Court by its order dated 6.2.2002 disposed of the writ petitions with a direction to the Board to take necessary steps against the appellant company as per the guidelines and the Regulations for any breach committed by it. The appellant did not appear before the High Court. It was thereafter that the Board initiated adjudication proceedings against the appellant for violating Section 15C of the Act. The adjudicating officer issued a notice to the appellant. There were a number of hearings conducted by the adjudicating officer but unfortunately the appellant did not appear on the date when the matter was decided by the adjudicating officer. By an ex-parte order dated 27.6.2005 she found that the appellant was guilty of violating Section 15C of the Act in as much as it failed to redress the grievances of the investors by not transferring the shares and dematting them which, according to the appellant, were forged. Accordingly, she levied a penalty of Rs.25 lacs on the appellant. It is against this order that the present appeal has been filed.


3. We have heard the learned counsel for the parties. The learned counsel for the appellant has taken us through the various replies sent by the appellant to the BSE and also to the Board informing them that the shares which were offered by the complainants for transfer in their names did not tally with the records of the Company and therefore the Company concluded that the shares wee bogus and forged. We have on record a letter addressed by the appellant to the BSE informing the latter that the complainants had been asked to file an affidavit and furnish an indemnity bond and produce the original letter of allotment which they failed to do so. The learned counsel for the Board on the other hand contends that the defence sought to be raised by the appellant failed to produce the records before the adjudicating officer. He contends that an adverse inference should be drawn against the appellant for not placing the records when called upon to do so.


4. After going through the records and the documents placed before us we are of the view that this material should be placed before the adjudicating officer who should examine the same and find out prima facie whether the defence sought to be raised by the appellant is substantial or not. It is not for the adjudicating officer to decide finally whether the shares are forged or not. This dispute between the appellant company and the complainants is a dispute of a civil nature and in terms of Section 9 of the Civil Procedure Code it can be decided only by a Civil Court. The adjudicating officer will only satisfy herself whether the defence which is now sought to be raised by the appellant is bonafied and whether there is any material to prima facie substantiate their plea. We have pursued some of the documents but refrain from making any comments lest the case of either party gets prejudiced.

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r /> 5. We, accordingly, set aside the impugned order and remand the case back to the adjudicating officer with a direction to the appellant through its counsel to appear before her on 23.4.2007 for further proceedings. The appellant should produce all the material in its possession on that day or on such other day to which the proceedings are adjourned to prima facie establish the plea that the shares put up by the complainants were forged. The adjudicating officer will examine the material and pass a fresh order in accordance with law. There is no order as to costs.
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