At, SEBI Securities Exchange Board of India Securities Appellate Tribunal
By, CORAM : JUSTICE N.K. SODHI
By, PRESIDING OFFICER
By, R.N. BHARDWAJ
Mr. Bharat Merchant Advocate for the Appellant. Mr. Kumar Desai Advocate with Mr. Anant Upadhyay Advocate for the Respondent.
Justice N.K. Sodhi, Presiding Officer (Oral),
The appellant before us is an unregistered sub-broker who has been operating in the securities market. It is the sole proprietorship concern of one Mr. Hiren N. Dharamshi. It is admitted in the grounds of appeal and also by the learned counsel for the appellant at the time of hearing that Mr. Dharamshi received a sum of Rs. 1,36,000,00/- directly from M/s. Krishna Filaments Limited, a company incorporated under the provisions of Companies Act (fort short KFL) towards the payment of the shares of KFL purchased by him (appellant) on behalf of Competent Trading Private Limited and Dominance Trade & Investment Private Limited (for short Competent and Dominance respectively). He also received another sum of Rs.30 lacs from H.D. Fire Protect Company on the instructions of KFL towards the purchase of shares of KFL on behalf of Competent and Dominance. It appears that H.D. Fire Protect Company owed a sum of Rs.30 lacs to KFL which it paid to the appellant on the instructions of KFL. In other words, the appellant as a sub-broker purchased shares of KFL from the market on behalf of Competent and Dominance and received the purchase amount from KFL. It is, thus, clear that KFL was utilising its own funds for the purchase of its own shares from the market and the appellant acted as a sub-broker in those dubious transactions knowing well that KFL was purchasing its own shares. Such purchases are not only contrary to the provisions of section 77 of the Companies Act but also violative of Regulation 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Practices Relating to Securities Market) Regulations, 1995. These trades executed by the sub-broker also violated code of conduct laid down for the brokers and sub-brokers and it would make no difference if the appellant is not a registered sub-broker. Even an unregistered sub-broker is expected to maintain a code of ethics as prescribed for the registered sub-brokers.
The appellant was issued a notice dated September 27, 2002 to show cause why suitable directions under section 11B of the Securities and Exchange Board of India Act ,1992 and the regulations framed thereunder including directions prohibiting him from accessing the capital market and dealing in securities for a suitable period be not issued for his aiding and assisting the contravention of the aforesaid regulations. He was also required to show cause why directions be not issued for violating the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short the Takeover Code) while acting in concert with others. A reply was filed to the show cause notice in which the transactions were admitted. It was also admitted that the appellant had received funds from KFL for the purchase of its shares. On a consideration of the reply and the material available on the record, the Securities and Exchange Board of India (for short the Board) by its order dated September 10, 2004 found that the allegations levelled against the appellant stood substantiated and he was accordingly debarred from accessing the capital market for a period of five years. He has also been directed to make a public announcement in terms of Chapter III of the Takeover Code for having violated Regulation 11(2) of that Code. It is against this order that the present appeal has been filed.
We have heard the learned counsel for the parties. In view of the admission made by the appellant in the grounds of appeal and also by his learned counsel at the time of hearing as referred to above, the charge of aiding and abetting KFL to purchase its own shares from the market stands established. The trades executed by the appellant as a sub-broker also violated Regulation 4 of the aforesaid Regulations. He has also violated the code of conduct. The violation committed is rather serious and, therefore, the Board was justified in debarring him from accessing the capital market for a period of five years. No fault can, thus, be found with this part of the order.
As regards the direction to make a public announcement in terms of Chapter III of the Takeover Code, we are of the view that the same cannot be upheld. Admittedly, the appellant acted as a sub-broker in the trades referred to above.
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He did not acquire the shares for himself either directly or while acting in concert with others. He is not an acquirer within the meaning of the Takeover Code. The learned counsel for the respondent could not justify the issuance of such a direction. The impugned order in so far it issues a direction to the appellant to make a public announcement stands quashed qua the appellant. In the result, the appeal is partly allowed as above. There is no order as to costs.