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Team Code - 112
8th GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2024
BEFORE THE SECURITIES APPELLATE TRIBUNAL
CASE NO. ___/ 2023

JURISDICTION UNDER REGULATION 14(1) OF SECURITIES APPELLATE
TRIBUNAL RULES, 2000
APPEAL NO. __/2023
MR. KAPIL VARMA & ANR ….APPELLANTS

VERSUS
THE SECURITIES AND EXCHANGE BOARD OF INDIA …..RESPONDENT
Clubbed with
APPEAL NO. __/2023
PFTC & ORS. …. APPELLANTS

VERSUS
Clubbed with
APPEAL NO. __/2023
MR. TAPAN MANOJ & ANR ….APPELLANTS

VERSUS
----------------------------------------------------------------------------------------------------------------
COMPENDIUM for THE RESPONDENT

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LIST OF CASES
Sr. No. Name of Case Page No.
1. Confirmatory Order in Matter of Stock Recommendation using 1–5
YouTube in the scrip of Sadhna Broadcast Limited
2. Adjudication Order in the matter of Insider Trading in the scrip of 6–9
Crisil Ltd.
3. Samir C. Arora v. SEBI 10 – 12
4. Adjudication Order in respect of Reliance Petroinvestments Ltd. 13 – 15
5. Final order in the matter of Divi’s Laboratories Ltd. 16 – 20
6. SEBI Order in the Scrip of M/S TATA Finance Ltd. 21 – 24
7. SEBI Order In the matter of KLG Capital Services Limited 25 – 28
8. The Chairman, SEBI v. Shriram Mutual Fund & Anr. 29 – 32
9. SEBI v. Kishore R. Ajmera 33 – 36
10. HB Stockholdings Ltd. v. SEBI 37 – 40
11. State of Andhra Pradesh v. N. Radhakishan 41 – 43
12. Bhorukha Financial Services Ltd. v. SEBI 44 – 46
13. Anand Rathi & Ors. v. SEBI 47 – 50
14. Liberty Oil Mills & Ors. V. Union of India & Ors. 51 – 53
15. DSQ Securities Ltd. v. SEBI 54 – 57
16. Rajiv B. Gandhi v. SEBI 58 – 61

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WTM/AN/ISD/ISD-SEC-1/29722/2023-24
SECURITIES AND EXCHANGE BOARD OF INDIA
CONFIRMATORY ORDER
UNDER SECTIONS 11(1), 11(4) AND 11B (1) OF THE SECURITIES AND
EXCHANGE BOARD OF INDIA ACT, 1992
In respect of:
S. No. Name of the Noticee PAN
1. Manish Mishra (Noticee no. 1) AMPPM6823L
2. Anshu Mishra (Noticee no. 2) BMIPS3480H
3. Dipak Dwiwedi (Noticee no. 3) ATDPD4055C
4. Purav Bharatbhai Patel (Noticee no. 8) ANWPP1802G
5. Subhash Agarwal (Noticee no. 10) AAEPA6699R
6. Gaurav Gupta (Noticee no. 11) AKHPG5185D
7. Shreya Gupta (Noticee no. 12) AIMPJ4419J
8. Pooja Aggarwal (Noticee no. 13) AGMPA6216C
9. Varun Media Private Limited AAACV7714K

(Noticee no. 14)
10. Saurabh Gupta (Noticee no. 15) BFEPG0692E
11. Sadhna Bio Oils Pvt. Ltd. AAKCS4057N

(Noticee no. 16)
12. Rakesh Kumar Gupta (Noticee no. 17) AAEPG2752R
13. Madhu Render Singh (Noticee no. 18) CDBPS4643B
Confirmatory Order in the matter of Stock Recommendations using YouTube in the

scrip of Sadhna Broadcast Limited Page 1 of 125
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iii. There is no evidence to show that the trades of the Noticees led to
an increase in the price of the scrip or they were involved in the price
increase of the scrip.
iv. The Noticees have no relation with the owners of the YouTube
Channels which were involved in the recommendation of the scrip of
Sadhna.
v. The Noticees do not have any connection with the promoter/ director/
key managerial persons of the Company, Sadhna.
vi. They sold their shares before the scrip reached its highest price.
37.10.7. Noticee no. 10 has also raised the above mentioned contentions
at points (i), (ii) and (iii). Further, Noticee no. 23 has raised the said
contentions at points (i), (ii), (iii), (iv) and (vi). In this regard, I note that the
Interim Order does not specifically allege any of the said points raised in
respect of these Noticees. As regards point (vi), it is pertinent to note that
in hind sight such an argument may seem logical but no one could have
had the foresight to predict the level to which the price of a scrip would
rise, even in a fraudulent scheme
37.10.8. The increase in retail shareholding in the scrip of Sadhna
subsequent to the dissemination of false and misleading YouTube videos
was alarmingly high i.e., an increase of around 2,454% (from 2,167 as of
June 30, 2022 to 55,343 to September 30, 2022). Volumes and prices in
these scrips had also increased abnormally in and around the period these
messages were disseminated and were followed by near complete exit of
large shareholders in these scrips. Such schemes cannot be perpetrated
by one or two persons alone. There are likely to be several persons who
may be involved in various aspects of fraud, the activities of each of whom
when individually seen in isolation may appear genuine or mundane.
Fraudulent scheme in securities market usually involve co-ordinated
activity by several connected persons individually playing separate parts
such as volume creation, price escalation, misleading message
dissemination etc. all leading up to illegal profit booking. In this regard, I

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would like to place reliance on the findings of Hon’ble SAT in the matter of
Hemant Sheth et.al. vs. SEBI and Other Connected Appeals decided on
March 04, 2020 wherein it was held as follows.
“In a scheme of manipulative and unfair trading it is not necessary that

every participant should be indulging in every type of trading violation or
even in the same / similar magnitude. Once they are found to be part of a
group trying to manipulate the volume or price of the scrip they became
party to the violation. Hair splitting arguments that some traded more than
others or on more days or some indulged in synchronized reversal and
self-trade while others did only one of those types do not cast away their
violations.”
37.10.9. As explained in the paragraphs above, when such a tell-tale

pattern of a “pump-and-dump” scheme exists, the totality of the evidence
overwhelmingly suggests that the connected persons have put together a
nefarious scheme to defraud hapless investors.
37.10.10. The Noticees to the instant Order were noted to have allegedly
played the role of Volume Creators based on their inter-se connections
and trading pattern. Further, the ex-parte order is only interim in nature
designed to avoid continued perpetration of such suspicious activity and
with a view to avoid diversion of illegal gains made.
37.10.11. The Interim Order has prima facie concluded that the false and
misleading YouTube videos along with the artificial volume created by the
Volume Creators were prima facie designed to facilitate the complete exit
of the Net Sellers from the scrip of Sadhna at inflated prices. The Noticees
have not substantiated their submissions with any documentary evidence
to dispute their direct or indirect connection with the Misleading Message
Disseminator.
37.10.12. I also note that all the Noticees except Noticee no. 2 have not
deposited any amount constituting illegal gain in escrow accounts despite
specific directions in the Interim Order. None of the other directions

4
passed against them (excluding restraint from dealing in securities which

has been enforced through the depository and stock exchange
mechanism) have been complied with by all the Noticees except Noticee
no. 12. The conduct of these Noticees clearly demonstrates a blatant and
audacious disregard for the law.
37.10.13. Manish Mishra (Noticee no. 1) has submitted that there was no
reason to prohibit him from dealing in shares other than Sadhna as there
is nothing to show that he was involved in any illegal action in respect of
any other security. This submission is patently erroneous as the Noticee
was observed to have disseminated misleading information in at least one
other scrip i.e., Sharpline Broadcast Limited. Therefore, I do not find any
merit in this contention.
37.10.14. Noticee nos. 1, 2 and 3 submitted that the SEBI should not have
acted on anonymous complaints as directed by the Central Vigilance
Commission vide circular no. 98/DSP/9 dated November 23, 2014. On
perusal of the said circular and the circular no. 3(v)/99/2 dated June 29,
1999 of the Central Vigilance Commission, I note that the same was issued
only in respect of complaints against government officials. Therefore, the
submission of the Noticees is unfounded.
37.10.15. Noticee nos. 11, 12, 13, 14, 15, 16, 20 and 31 have submitted
that the price of Sadhna scrip did not rise and fall suddenly. This
submission is evidently incorrect as the price of the scrip had increased by
around 1103% (from INR 27.55 on April 26, 2022 to INR 331.5 (without
split adjustment) on August 12, 2022) and thereafter, the price crashed by
around 83% (from INR 33.15 (with split adjustment) on August 12, 2022 to
INR 5.67 on March 01, 2023).
37.10.16. Certain Noticees have also submitted that the volume and price
movement was in line with the company’s public announcements from time
to time and its financial disclosures regarding profitability. As noted in the
Interim Order, there were no price sensitive material disclosures made
during the examination period and the Noticees have also failed to provide
any evidence supporting this submission.

5
41. The directions in the Interim Order dated March 02, 2023 against Noticee no. 19
stand revoked for the reasons recorded in paragraph no. 37.7.1.
42. It is clarified that the funds to be deposited by the Noticees in interest bearing
escrow accounts as directed in the Interim Order will remain in the said account
with lien in favour of SEBI until further orders.
43. It is further clarified that the observations made in the present Order are tentative
in nature. The investigation shall be carried out without being influenced by any of
the directions passed or any observation made either in the Interim Order or in the
present Order. Based on the outcome of the investigation, appropriate proceeding
will be initiated in accordance with law.
44. This Order is without prejudice to the right of SEBI to take any other action against
the Noticees in accordance with law.
45. This Order shall come into force with immediate effect.
46. A copy of this Order shall be served on the Noticee Nos. 1, 2, 3, 8, 10, 11, 12, 13,
14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26 and 31 as well as on recognised
Stock Exchanges, Depositories, Registrar and Share Transfer Agents and Banks
for necessary action and compliance with the above directions. Further, a copy of
this Order shall be served on the Resolution Professional of Noticee no. 14.
Sd/-
ANANTH NARAYAN G.
DATE: OCTOBER 31, 2023 WHOLE TIME MEMBER
PLACE: MUMBAI SECURITIES AND EXCHANGE BOARD OF INDIA

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BEFORE THE ADJUDICATING OFFICER

(ADJUDICATION ORDER NO. AO/SBM/EAD-1/12/2019)
_________________________________________________________________
UNDER SECTION 15- I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING
INQUIRY AND IMPOSING PENALTIES) RULES, 1995.
In respect of
Mr. Utsav Pathak
(PAN No- ANBPP6287G)
C-27/28, Patel Park Society,
Opp. P& T Quarters,
Santacruz (East),
Mumbai-400029
In the matter of
Insider trading in the scrip of CRISIL Ltd
BACKGROUND OF THE CASE
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’)

conducted an investigation into the dealings in the scrip of M/s CRISIL Ltd
(hereinafter referred to as ‘CRISIL’/ ‘Company’) by Mr. Utsav Pathak
(hereinafter referred to as ‘Noticee’/ ‘Tipper’) and also the trading/dealings in
the scrip of CRISIL by other persons who were allegedly related to the Noticee
during the period November 05, 2012 to August 08, 2013 (hereinafter referred
to as ‘investigation period’). The connection of the Noticee with his relatives
who have allegedly traded / dealt in the scrip of CRISIL during the investigation
period is mentioned as under:--
_________________________________________________________________
Adjudication Order in the matter of Insider Trading in the scrip of Crisil Ltd Page 1 of 28
7
(d) The Noticee/Tipper was closely related to the Tippees. The same has
already been established in the present order.
(e) The Tippees, during the course of adjudication proceedings, had
contended that they had invested in the scrip of CRISIL as part of their
long term investment strategy. However, their immediate sale of shares
of CRISIL during the investigation period does not justify their contention.
(f) The track record of earlier trading in the shares by Tippee 1 and Tippee
2 does not indicate trading in such large volume in the normal course of
their business.
25. It cannot be a mere coincidence that the Tippees suddenly invested in the
scrip of CRISIL particularly during the UPSI period, while the Noticee (who
was related to the Tippees) worked on the open offer project of CRISIL. In
view of the above observations and more pertinently from the trading pattern
and other attendant circumstances which has been discussed above, a
natural and logical inference can be drawn that Noticee has communicated
the PSI to the Tippees. I am of the view that the Tippees would not have
entered into the transactions in question, had it not been for the price
sensitive information parted with by the Noticee. In the facts and
circumstances of the case, the standard of proof is ‘strong preponderance of
probability’. The facts surrounding the allegations /charges against the
Noticee and the timing and pattern of trades employed by the Tippees
strongly indicate that the Noticee had leaked the PSI to the Tippees who had
benefitted by trading in the scrip of CRISIL on the basis of PSI. In this context,
I would like to refer to the order of Hon’ble Supreme Court of India in the
matter of SEBI vs Kishore R Ajmera; ( 2016) 6 SCC 368 wherein Hon’ble SC
had observed the following :
“It is a fundamental principle of law that proof of an allegation levelled against

a person may be in the form of direct substantive evidence or, as in many
cases, such proof may have to be inferred by a logical process of reasoning
from the totality of the attending facts and circumstances surrounding the
_________________________________________________________________
8
allegations/charges made and levelled. While direct evidence is a more

certain basis to come to a conclusion, yet, in the absence thereof the Courts
cannot be helpless. It is the judicial duty to take note of the immediate and
proximate facts and circumstances surrounding the events on which the
charges/allegations are founded and to reach what would appear to the
Court to be a reasonable conclusion therefrom. The test would always be
that what inferential process that a reasonable/prudent man would adopt to
arrive at a conclusion……”
26. Regarding the issue of relevance of circumstantial evidence, the Hon’ble

District Court, Southern District of New York in the matter of United States of
America V Raj Rajaratnam 09 Cr. 1184 (RJH) decided on 11.08.2011 has
observed the following:
“...Moreover, several other Courts of Appeals have sustained insider trading

convictions based on circumstantial evidence in considering such factors as
“(1) access to information; (2) relationship between the tipper and the tippee;
(3) timing of contact between the tipper and the tippee; (4) timing of the
trades; (5) pattern of the trades; and (6) attempts to conceal either the trades
or the relationship between the tipper and the tippee.” United States v.
Larrabee, 240 F.3d 18, 21-22 (1st Cir. 2001)...”
27. In the instant matter, all the relevant parameters mentioned in the aforesaid
case have been established in the pre paras. Therefore, I conclude that
Noticee has communicated the PSI to the Tippees. In view of the same, I
hold that the Noticee has violated the provisions of Regulation 3(ii), Clause
2.0 and 2.1 of Schedule I read with Regulation 12(1) of PIT Regulations,
1992.
28. In the context of the present proceedings, I have taken note of the fact that
the Tippees who have traded/dealt in the scrip of CRISIL during the
investigation period have filed settlement applications in terms of SEBI
_________________________________________________________________
9
(Settlement of Administrative and Civil Proceedings) Regulations, 2014,

which has been repealed and replaced with SEBI (Settlement Proceedings)
Regulations, 2018, without admitting the findings of the fact and conclusions
of law, proposing to settle, through the settlement order, the pending
proceedings initiated against the Tippees by SEBI under section 11 B r/w
section 11(4) of SEBI Act and also the pending adjudication proceedings
initiated against them in the said matter. Accordingly, settlement orders were
passed by SEBI against the Tippees in the matter disposing of the aforesaid
proceedings against them. I have taken note of the fact that the Tippees, who
had actually benefitted from the PSI, have settled the proceedings initiated
against them by paying an amount of more than Rs 2 crore, which includes
profit earned by them as a result of their trading and other charges, including
interest etc. In his submission dated July 22, 2019, the Noticee has stated
that he has also resigned from Morgan Stanley w.e.f December 31, 2018 and
since then, he is unemployed. Therefore, in view of the above factors, I am
not inclined to impose any penalty on the Noticee.
ORDER:
29. In view of the above observations and considering the facts and
circumstances of the case, no penalty is imposed on the Noticee and the
adjudication proceedings initiated against the Noticee vide SCN dated April
27, 2018 is accordingly disposed of.
30. In terms of the provisions of Rule 6 of the Adjudication Rules, copies of this
order are being sent to the Noticee viz. Mr. Utsav Pathak and also to the
Securities and Exchange Board of India
Place: Mumbai SURESH B. MENON

Date: August 30, 2019 ADJUDICATING OFFICER
_________________________________________________________________
10/1/24, 4:07 PM
10
sebi.gov.in/sebi_data/docfiles/12241_t.html
IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 83/2004

In the matter of: Last Date of Hearing 01/09/2004
Date of Decision 15.10.2004
Appellant – Represented by:
Shri C.A. Sundaram, Sr. Advocate with Shri
Somasekhar Sundaresan, Advocate and Shri H.
Samir C. Arora Chandoke, Advocate
Versus
Securities and Exchange Board of India Respondent- Represented by

Shri Rafique Dada, Sr. Advocate with Shri Kumar
Desai, Advocate
CORAM
Justice Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
N.L. Lakhanpal, Member
Per: N.L. Lakhanpal, Member
1. The appeal is taken up for final disposal with the consent of parties. Heard Mr. C.A.Sundaram,
Senior Advocate for the appellant and Mr. Rafique Dada, Senior Advocate for the respondent.
2. The appellant challenges the impugned order passed by SEBI dated 31/03/2004, the operative
portion of which reads as follows:
“13.1 In the light of the above and in exercise of the powers conferred on me in terms of
Section 19 of the SEBI Act, 1992, read with Section 11(4) and 11B of SEBI Act,
1992, read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations 2003 and Regulation 11 of
SEBI (Prohibition of Insider Trading) Regulations, 1992, I hereby prohibit Shri Samir
C. Arora not to buy, sell or deal in securities, in any manner, directly or indirectly, for
a period of five years. The period of prohibition already undergone by Shri Samir C.
Arora by virtue of the interim order dated August 9, 2003 will be included in the
above period. However, if, in the meantime Shri Samir C. Arora desires to sell the
securities, if any, currently held by him he may do so only after obtaining prior
written permission of SEBI.”
https://www.sebi.gov.in/sebi_data/docfiles/12241_t.html 1/60
10/1/24, 4:07 PM
11
person charged consistent with the presumption of innocence or honesty of the person charged.
Ultimately it depends on the facts of each case. For the purpose of the present case, we shall proceed
to deal with the facts of the case and determine whether SEBI on the evidence has made out a case
on the preponderance of probability. We do not think that in disputes relating to securities market it is
necessary for the respondent to prove the case beyond reasonable doubt. However, it cannot be
forgotten that even in a civil dispute, there must be legally sustainable evidence before a person is
found guilty of violation of Regulations.
58. Just to recapitulate, what we have before us by way of evidence against the appellant are his
own notings on the proposals for selling the stock of DGL during the period May 8, 2003 to May 12,
2003 after his interview to Business Standard defending his holding of this stock. Since everything in
relation to this charge hinges on these notings it would be worthwhile examining these notings
datewise. Thus on May 8, 2003 his notings were as follows:
“Sell 1,25,000
Proportionately for all
Digital Globalsoft Ltd. - funds
Price has rallied nicely – Taking

profits.”
Obviously no objection can be taken about this decision and the reasons underlying this decision
because selling shares for taking profits is a legitimate trading activity of a mutual fund since there is
no other way the unit holders of the fund can be rewarded or more efficient mutual funds differentiated
from the less efficient ones. Thereafter on May 9, 2003 the records read as under:
“Sell Digital Globalsoft - 2,00,000 for all funds

Proportionately
Event risk in Digital is too high

Getting nervous – Reducing
exposure”
It is here that the respondent attributes insider information of course without any proof except that the appellant made a
reference to the event risk.
59. The respondent contends that the only event was only the forthcoming Board meeting which was merely going
to discuss financial results as per the agenda filed with the Stock Exchanges and that since the market expected the
financial results to be good there was no event risk involved prompting any nervousness leading to reduction in
exposure. According to the respondent the nervousness was due to the insider information that the Board was going to
discuss and announce the merger on the basis of a merger ratio which the appellant knew was going to be adverse.
According to the appellant, the event mentioned here was simply the event of Board meeting and that when the Board
meets it can discuss anything on or off the agenda including, possibly the merger issues. On May 12, 2003 the notings
are as follows:
10/1/24, 4:07 PM
12
Member Member
Place: Mumbai
Date: 15.10.2004
*/as//sr
13
BEFORE THE ADJUDICATING OFFICER
ADJUDICATION ORDER NO. AO/SG-AS/EAD/15/2016
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT,

1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
In respect of:
Reliance Petroinvestments Ltd.
9th Floor, Maker Chambers IV
222, Nariman Point
Mumbai- 400021
In the matter of Indian Petrochemicals Corporation Ltd.
BACKGROUND
1. Surveillance alerts were generated at the stock exchanges on March 2, 2007

and March 07, 2007 for news in the shares of Indian Petrochemicals
Corporation Ltd (hereinafter referred to as ‘IPCL / Company’). The scrip also
witnessed sudden rise in its share price and trading volume on March 8, 2007.
The company made an announcement on March 2, 2007 to the stock
exchanges about its intention to declare interim dividend and on March 7,
2007 it announced (on Stock Exchange after market hours) that it was going
to consider and recommend amalgamation of the company with Reliance
Industries Limited (hereinafter referred to as ‘RIL’). Based on the above news
and alert generated at the exchanges, analysis of dealing in shares of IPCL was
carried out by BSE Ltd. (hereinafter referred to as ‘BSE’) and National Stock
Exchange of India Ltd. (hereinafter referred to as ‘NSE’) for the period
February 22, 2007 to March 08, 2007 wherein it was observed that certain
entities had bought large quantities of IPCL shares before aforesaid
announcements.
__________________________________________________________________________________________________________________________________
Adjudication Order in respect of Reliance Petroinvestments Ltd. Page 1 of 50
14
…
F. Without prejudice, RPIL could not have violated the PIT Regulations:
..........................
18.13. Therefore, as per the decision in Rajiv Gandhi’s Case (Supra), the
presumption of being in possession of UPSI is rebuttable on the basis that an
insider is able to show that he did not trade on the basis of UPSI.
Assuming without admitting that RPIL is a an insider, it has established by

cogent evidence that
i. the Relevant Trades were undertaken pursuant to the decision in

2006 and 2007 to invest further in IPCL on a creeping basis as long
as the price of the shares of IPCL were below a certain price.
ii. UPSI was not in existence at the time of the undertaking of the
Relevant Trades,
iii. Assuming (without admitting) that the alleged UPSI was in

existence, the discussions in respect of the UPSI took place at the
level of the senior most management of RIL and IPCL, while the
trading of RPIL was being conducted by Mr. Ashok C. Jain, who had
no access whatsoever to the UPSI.
Thus, without prejudice to the submission that the alleged UPSI was not in
existence at the time that the Relevant Trades were executed, it is
submitted that RPIL has rebutted the presumption of being in possession
of the alleged UPSI at the time of executing the Relevant Trades. There is
also nothing on record or in the SCN to say otherwise. In view of the same
the aforementioned presumption must not and cannot be made against
RPIL. In any event RPIL is not an insider.
………………………”
19. Vide office note (hereinafter also referred to as “ON / office note”) dated
27.01.2016, certain information / documentary evidence were sought from
the concerned department (hereinafter referred to as “OD”). OD vide its office
note dated 01.02.2016 replied to the aforesaid office note dated 27.01.2016
__________________________________________________________________________________________________________________________________
15
ORDER
74. .In view of my findings noted in the preceding paragraphs, I hereby dispose
of the Adjudication Proceedings initiated against Reliance Petroinvestments
Ltd. vide SCN dated 31.01.2011.
75. In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry
and Imposing Penalties by Adjudicating Officer) Rules 1995, a copy each of
this Order is being sent to Reliance Petroinvestments Ltd and also to
Securities and Exchange Board of India.
Date: 08.03.2016 Suresh Gupta

Place: Mumbai Adjudicating Officer
__________________________________________________________________________________________________________________________________
16
Final order in the matter of Divi’s Laboratories Ltd.
WTM/AB/IVD/ID3/9771/2020-21

FINAL ORDER
UNDER SECTIONS 11 (1), 11(4), 11(4A), 11B (1) AND 11B (2) OF THE SECURITIES
AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH SECURITIES AND
EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES) RULES, 1995
In respect of:
S. No. Name of the entity PAN No.
1. Mr. Srinivas Maddineni AJGPM9951K
In the matter of Divi’s Laboratories Ltd.
1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had

conducted an investigation into suspected insider trading activities of certain
entities in the scrip of Divi’s Laboratories Limited (hereinafter referred to as
‘Divi’s / the Company’) for the period July 07, 2017 to July 10, 2017 (hereinafter
referred to as ‘Investigation Period’) to ascertain whether certain entities had
traded in the scrip on the basis of unpublished price sensitive information
(‘UPSI’) in contravention of the provisions of Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”) read with SEBI
(Prohibition of Insider Trading) Regulations, 2015 (hereinafter referred to as
‘Insider Trading Regulations, 2015’).
2. On the conclusion of the aforesaid investigation, an ex-parte Impounding Order

was passed by SEBI on July 1, 2020 against eight entities. The said Impounding
Order was also in the nature of a show cause notice inter alia calling upon the
entities therein why appropriate directions under Sections 11 (1), 11(4), 11(4A),
11B (1) and 11B (2) of the SEBI Act, 1992 should not be issued against them. I
note that the entities against whom the said show cause notice was issued had
applied for settlement of the said proceedings and upon the acceptance of their
Page 1 of 19
17
Trading Instrument
Date Exchange Buy Quantity Sell Quantity
member Type
JM Financial
11/07/2017 NSE Stock Future 0 1600
Services Limited
JM Financial
Services Limited
JM Financial
Services Limited
k. Further, it was also observed that the Noticee had traded only in the scrip of
Divi’s during UPSI Period.
l. It was observed that the Noticee, being an insider to the Company, had traded
in the scrip of Divi’s when in possession of the UPSI, thereby indulging in
“insider trading”, in terms of Regulation 4(1) of the Insider Trading Regulations,
2015. It is therefore alleged in the SCN that the Noticee had violated Section
12A (d) and (e) of SEBI Act, 1992 and Regulation 4(1) of Insider Trading
Regulations, 2015.
m. The investigation observed that the value of trade executed during UPSI Period
by the Noticee crossed Rs. 10 Lakhs (Ref. Table 4). As a Designated Person
of the Company, the Noticee was required to make required disclosures as per
Regulations 7(2)(a) of Insider Trading Regulations, 2015. However, the said
disclosure is not available on the BSE and NSE websites. It was observed from
the submission of the Company that it did not receive any disclosure from the
Noticee for the trades executed during July 07, 2017-July 10, 2017. Further, the
Noticee vide email dated September 04, 2019 had accepted that he did not
provide any disclosure to the Company under Insider Trading Regulations,
2015 for the aforementioned trades. Hence, according to the SCN, the Noticee
being an employee of Divi’s, had allegedly violated Regulation 7(2)(a) of Insider
Trading Regulations, 2015.
n. Further, the Noticee, being a Designated Person of the Company, should have
obtained pre-clearance from the Company for his aforementioned trade where
trade value exceeded Rs Ten Lakhs as per clause 6 of the Minimum Standards
for Code of Conduct to Regulate, Monitor and Report Trading by Insiders as
specified in Schedule B read with Regulation 9(1) of Insider Trading
Page 5 of 19
18
that Mr. Madhusudhana Rao Divi came in possession of UPSI when he received
the email from Mr. YTS Prasad - General Manager, on July 7 2017 at 8:23 am. By
virtue of his frequent and direct reporting relationship to Mr. Madhusudhana Rao
Divi, the Noticee who was posted in the Environment, Health and Safety
Department at Divi’s, was reasonably expected to have access to UPSI. I note that
the Noticee has not disputed his reporting relationship with Mr. Madhusudhana
Rao Divi and he has also not presented any reliable explanation supported by
cogent evidence of not having any access to the UPSI. Therefore, from the trading
pattern of the Noticee which exhibits executing futures long position before the
UPSI becoming public and futures short position after the UPSI is made public,
coupled with his direct and frequent relationship with Mr. Madhusudhana Rao Divi,
who had access to UPSI, I find that the Noticee was in possession of UPSI when
he traded in the scrip of Divi’s before it was disclosed to stock exchanges and
became public.
15. Noticee has also contended that his trades in the scrip of Divi’s were independent
of and not influenced by any UPSI. At this juncture, it would be appropriate to refer
to the explanatory ‘Note’ to Regulation 4(1) of Insider Trading Regulations, 2015,
which reads as under:
“NOTE: When a person who has traded in securities has been in possession of
unpublished price sensitive information, his trades would be presumed to have been
motivated by the knowledge and awareness of such information in his
possession…………………..”
16. From the aforesaid Note, it is clear that a presumption is created in law that the
trading done by an ‘insider’ was motivated by the UPSI in his possession. However,
such a presumption is a rebuttable presumption. In the present case, in para 14 I
have already found that Noticee was in possession of UPSI when he traded in the
scrip of Divi’s on July 10, 2017 at 9:15 am before it was disclosed to stock
exchanges on July 10, 2017 at 11:50 am and became public. I find that the Noticee
has not presented and reliable explanation supported by cogent evidence as to
why he had traded in the scrip of Divi’s on July 10, 2017 when he was in possession
of UPSI. Therefore, on the basis of the presumption envisaged in the explanatory
note to Regulation 4(1) of Insider Trading Regulations, 2015 and in the absence of
Page 12 of 19
19
6. When the trading window is open, trading by designated persons shall be subject to pre-
clearance by the compliance officer, if the value of the proposed trades is above such
thresholds as the board of directors may stipulate. No designated person shall apply
for pre-clearance of any proposed trade if such designated person is in possession of
unpublished price sensitive information even if the trading window is not closed.
22. I note that the ‘Code of Conduct to Regulate, Monitor and Report Trading by
Insiders’ as framed by Divi’s had provided for obtaining pre-clearance of trade by
a designated employee if the value of the trades being executed by him were to
exceed Rs. 10 Lacs. I also note that the Noticee was a Designated Person at Divi’s.
However, from a reading of Clause 6 of the ‘Minimum Standards for Code of
Conduct to Regulate, Monitor and Report Trading by Insiders’, as reproduced
above, I find that the requirement to obtain pre-clearance of trade would have been
applicable to the Noticee only when he was not in possession of UPSI. In other
words, the question of pre-clearance of trades does not arise when the designated
person is in possession of UPSI because when in possession of UPSI, the
designated person is otherwise prohibited from trading in the scrip of the company
by virtue of Regulation 4(1) of Insider Trading Regulations, 2015. In the instant
case, the Noticee has been found to have violated Regulation 4(1) of Insider
Trading Regulations, 2015 for trading in the scrip of Divi’s when in possession of
UPSI. Thus, the question of obtaining pre-clearance for the impugned trades does
not arise. Hence, I find that the allegation in the SCN for violation of Clause 6 of
‘Code of Conduct to Regulate, Monitor and Report Trading by Insiders’ as
contained in Schedule B of Insider Trading Regulations, 2015, against the Noticee,
is not sustainable.
23. In view of the aforesaid findings, the Noticee in the present matter is found to have
indulged in the act of ‘insider trading’ in violation of Regulation 4(1) of Insider
Trading Regulations, 2015 and Section 12A(d) and 12A(e) of SEBI Act, 1992. The
Noticee is also found to have made a wrongful gain of Rs.1,83,000/-. The Noticee
is also found to have failed in making the appropriate disclosures in violation of
Regulation 7(2)(a) of Insider Trading Regulations, 2015. In view of the above, I find
that the Noticee is liable for issue of appropriate directions for debarment from
accessing the securities market and dealing in securities and for disgorgement of
unlawful gains with interest thereon under Section 11B(1) of SEBI Act, 1992 and
Page 15 of 19
20
support at portalhelp@sebi.gov.in. The demand draft or the details/

confirmation of e-payment should be sent to "The Division Chief, IVD-ID3,
Securities and Exchange Board of India, SEBI Bhavan II, Plot no. C-7,
"G" Block, Bandra Kurla Complex, Bandra (E), Mumbai -400 051” and also
to e-mail id:- tad@sebi.gov.in in the format as given in table below:
Case Name
Name of Payee
Date of Payment
Amount Paid
Transaction No.
Payment is made for:
(like penalties/ disgorgement/ recovery/
settlement amount/ legal charges along with
order details)
27. This order comes into force with immediate effect.
28. A copy of this Order shall be served on the Noticee, recognized Stock Exchanges,
Depositories, Registrar and Share Transfer Agents of Mutual Funds to ensure
compliance with the above directions.
Sd/-
Date: December 11, 2020 ANANTA BARUA

Place: Mumbai WHOLE TIME MEMBER
Page 19 of 19
21
WTM/VKC/ ID5/ 119/08
BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM: SHRI V.K. CHOPRA, WHOLE TIME MEMBER
IN THE MATTER OF SHRI D.S. PENDSE, MRS. ANURADHA

PENDSE, DR. ANJALI BEKE, M/S NALINI PROPERTIES PVT. LTD.
AND M/S INDIAN EMERGING COMPANY INVESTMENT LTD.
IN THE SCRIP OF M/S TATA FINANCE LTD.
DATE OF HEARINGS: 04.02.2005, 22.03.2005, 01.03.2006, 12.12.2006,

11.09.2007, 05.10.2007 and 11.11.2007
Appearance:
For Noticees : Dr. (Mrs) Anjali Beke
Dr. Dilip Beke
Shri. D.A. Athawale, Advocate
Shri. Somasekhar Sundaresan, Advocate
Ms. Kirtida Chandarana, Counsel
For SEBI : Shri. P.K. Bindlish, Chief General Manager
Shri. Chandrakanta Mitra, Manager
Shri. Mohamed Rahaz, Legal Officer
ORDER
UNDER SECTIONS 11 AND 11B OF SECURITIES AND EXCHANGE
BOARD OF INDIA ACT, 1992
1. Shri Dilip S. Pendse (hereinafter referred to as ‘Shri Pendse’) is the

former Managing Director of Tata Finance Limited (hereinafter referred
Page 1 of 22
22
(c) the one is related to the other in the manner indicated in Schedule
IA.”
29. Mrs. Anuradha Pendse being the wife of Shri Pendse clearly falls
within the definition of the term “relative” as defined under Section 6 of
the Companies Act, 1956.
NPPL:
30. NPPL was a company controlled by Mrs Pendse and father of Shri
Pendse and therefore it can also be termed as “insider” as defined under
the Insider Regulations.
Dr. Anjali Beke:

31. As regards Dr. Anjali Beke, it is an admitted fact that she was a close
friend and associate of Shri Pendse for several years. She was also the
Director of APIPL. In this regard, I would also like to quote and rely
upon the observation of Hon’ble SAT in Dr. Anjali Beke v
Adjudicating Officer, SEBI1 wherein it was held that, “when a person
has received unpublished price sensitive information or who has had access to
such information, he becomes as insider. He need not be a person connected
with the company. It is an admitted fact that Dr. Anjali Beke was well known
to Shri Pendse for more than ten years and it is her own case that he carried on
business in her name. Their closeness cannot, therefore, be in doubt. It is
because of this closeness that he passed on the unpublished price sensitive
information to her on the basis of which she traded in the shares of TFL. She is,
therefore, an insider.”
1
Appeal No. 148 of 2005. (Date of Decision: October 26, 2005).
Page 12 of 22
23
32. Therefore Mrs Anuradha Pendse, Dr. Anjali Beke and NPPL fall within
the class of persons enumerated under Regulation 2(h) of the Insider
Regulations by virtue of their relation with Shri Pendse, and thus are
deemed to be connected persons.
33. Since information relating to the financial results of a company was

likely to influence the price of the scrip, it can safely be termed as “price
sensitive information”. In this regard, it is pertinent to analyse the
definition of the term “unpublished price sensitive information”. This term
has been defined under Regulation 2(k) of Insider Regulations which
reads as under-
“any information which relates to the following matters or is of concern,

directly or indirectly, to a company, and is not generally known or
published by such company for general information, but which if published
or known, is likely to materially affect the price of securities of that
company in the market –
a) financial results (both half-yearly and annual) of the

company
b) intended declaration of dividends (both interim/final)
c) issue of shares by way of public, rights, bonus etc,;
d) any major expansion plans or execution of new projects;
e) amalgamations, mergers and takeovers;
f) disposal of the or substantially the whole of the undertaking;
g) such other information as may affect the earning of the company;
Page 13 of 22
24
47. I note that vide order dated December 28, 2007 Shri D.S. Pendse and
NPPL have already been restrained from accessing the securities
market for a period of two years and as such they are undergoing the
debarment with effect from December 28, 2007. It is therefore clarified
that the period of restraint under this order shall be computed from
December 28, 2007.
48. As regards M/s Indian Emerging Company Investment Ltd. (PAN No:
AAACI1395P), in view of the special facts and circumstances of the
case, as recorded supra, I hereby warn M/s Indian Emerging Company
Investment Ltd. to be careful and not indulge in transactions which
may be in violation of law, in future.
49. This order shall come into effect immediately.
Place: Mumbai V.K. CHOPRA

Date: January 11, 2008 WHOLE TIME MEMBER
Page 22 of 22
25
WTM/GM/EFD-DRA1/ISD/9769/2020-21
BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
Under Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992,
read with Regulation 11 of the Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 1992
In respect of:
Sr. No. NOTICEE(S) PAN

1. Hemant R. Patel ADYPP4929N
2. Hemant Patel HUF AAAHH2660D
In the matter of KLG Capital Services Limited

___________________________________________________________________________
BACKGROUND:
1. The Securities and Exchange Board of India (SEBI), upon receipt of alerts in its IMSS system
in the scrip of KLG Capital Services Limited (KLG), had conducted an investigation which
revealed that during the period February 22, 2008 to February 27, 2008, Awaita Properties Pvt.
Limited (APPL) had acquired 17,11,287 equity shares of KLG through market transactions.
Such acquisition had increased the shareholding of APPL in KLG to 60.46% and the same was
disclosed by KLG to Bombay Stock Exchange Limited (BSE) on February 28, 2008. Thereafter,
APPL made a public announcement dated March 03, 2008 to acquire another 20% shares of
KLG. The investigation also revealed that certain entities, namely Hemant Patel (HUF) (whose
karta is Hemant R. Patel), Priyanka Singhvi and Anita Ravichandran had bought substantial
number of equity shares of KLG, based on unpublished price sensitive information (UPSI),
relating to the impending acquisition of KLG by APPL. Based on the findings of the said
investigation, SEBI issued Show Cause Notices dated December 02, 2008 and December 18,
_____________________________________________________________________________________
Order in the matter of KLG Capital Services Limited Page 1 of 34
26
established that the Noticees were in possession of the UPSI and had dealt in the shares of
UPSI based on the same.
15. Further, while the SCN has clearly established the relationship between APPL and SKIL, the
abovementioned evidences cumulatively leave no doubt regarding the involvement of Hemant
Patel, Praveen Mohnot and N. Ravichandran in the acquisition of KLG by APPL, which was a
group company of SKIL where the said three Noticees worked.
16. Now, it is to be seen whether the Noticees were insiders while they had executed trades in the
scrip of KLG prior to the UPSI becoming public on February 28, 2008. I note that under
Regulation 2(e) of the PIT Regulations, the term 'insider' is defined as: “insider” means any person
who, is or was connected with the company or is deemed to have been connected with the company, and who is
reasonably expected to have access to unpublished price sensitive information in respect of securities of a company,
or who has received or has had access to such unpublished price sensitive information.
17. I note that the Noticees have repeatedly contended that they do not fall within the definition
of insiders, as given under Regulation 2(e) since they were not connected to KLG, whose shares
were acquired by the Noticees. According to the Noticees, only a connected person can be an
insider. However, I find that under Regulation 2(e) of the PIT Regulations, two categories of
persons can qualify as an insider. They are: (a) any person who, is or was connected with the company or
is deemed to have been connected with the company, and who is reasonably expected to have access to unpublished
price sensitive information in respect of securities of a company; or (b) who has received or has had access to such
unpublished price sensitive information. In my opinion, for any person to be qualified as insider, it is
sufficient if just one of the two conditions stated above is met. Thus, in this case, whether the
Noticees were “connected” or “deemed to be connected” to KLG or APPL is immaterial for
_____________________________________________________________________________________
27
deciding whether they were insiders or not, as long as they had received or had access to the
UPSI. I find that mere access to UPSI pertaining to KLG was sufficient to render them insiders
of KLG. In this regard, it is pertinent to refer to the judgment of the Hon'ble SAT in the matter
of Dr. Anjali Beke Vs. SEBI (Appeal no. 148 of 2005, Date of Decision: 26.10.2006) wherein it
was held that when a person receives UPSI, he becomes an insider, even when he is not
connected to the company to which the UPSI pertains.
18. Further, I find that the evidences listed under para 13 above, especially the role played by
Hemant Patel, Praveen Mohnot and N. Ravichandran in the acquisition of shares by APPL,
clearly indicate that they, though directly employed with SKIL, were also indirectly connected
to APPL (SKIL and APPL being part of the same group) and were reasonably expected to have
access to the UPSI. I note that the Noticees have repeatedly contended that for them to qualify
as insiders, they ought to be connected to KLG whose shares were traded. However, I find that
the Noticees need not be connected to KLG and their connection with APPL is sufficient. In
this regard, it is relevant to refer to the judgement of the Hon’ble SAT in the matter of V.K.
Kaul Vs. Securities and Exchange Board of India (Appeal No. 55 of 2012, Date of Decision:
08.10.2012) wherein it has been held that: “It is not obligatory under the regulations that the UPSI must
be in possession or knowledge of ‘a company’ in whose securities an insider of ‘the company’ deals. As long as,
an insider of ‘the company’ deals in the securities of ‘a company’ listed on any exchange while in possession of
UPSI relating to that company, the provisions of Regulation 3(i) of the regulations will get attracted.”
19. In view of the above, since Hemant Patel along with Praveen Mohnot and N. Ravichandran,
had access to unpublished price sensitive information, as established above, he automatically
qualified as an ‘insider’.
_____________________________________________________________________________________
28
paras (b) and (c) above.
(e) The above named Noticees shall pay the amounts, as directed above, within 45 (forty five)
days from the date of this order by way of crossed demand draft drawn in favour of
'Securities and Exchange Board of India', payable at Mumbai.
27. This Order shall come into force with immediate effect.
28. This Order shall be served on all recognized stock exchanges and depositories to ensure
necessary compliance.
DATE: DECEMBER 09, 2020 G. MAHALINGAM

PLACE: MUMBAI WHOLE TIME MEMBER
_____________________________________________________________________________________
http://JUDIS.NIC.IN
29
SUPREME COURT OF INDIA Page 1 of 12
CASE NO.:
Appeal (civil) 9523-9524 of 2003
PETITIONER:
The Chairman, SEBI
RESPONDENT:
Shriram Mutual Fund & Anr.
DATE OF JUDGMENT: 23/05/2006
BENCH:
Dr. AR. Lakshmanan & Lokeshwar Singh Panta
JUDGMENT:
J U D G M E N T
Dr. AR. Lakshmanan, J.
The Securities and Exchange Board of India (hereinafter

referred to as ’the SEBI’) is the appellant in the present appeal
under Section 15-Z of the Securities and Exchange Board of
India Act, 1992. This appeal was filed against the final judgment
and order dated 21.08.2003 passed by the Securities Appellate
Tribunal, Mumbai (hereinafter referred to as ’the Tribunal’) in
appeal No. 50 of 2002 and 51 of 2002 raising an important
question of law as to whether once it is conclusively established
that the Mutual Fund has violated the terms of the Certificate of
Registration and the statutory Regulations i.e. SEBI (Mutual
Funds) Regulations, 1996 (hereinafter referred to as ’the
Regulations") the imposition of penalty becomes a sine qua non of
the violation.
The respondents have not chosen to enter appearance
though they were served with the notice. Since the service is
complete and the appeals are ready for hearing, the above
appeals were listed for final hearing.
The Appellant Board, a body corporate, has been
established under the Securities and Exchange Board of India
Act, 1992 by the Central Government, inter alia, to protect the
interest of the investors in securities and to promote the
development of, and to regulate the securities market and for
matters connected therewith.
Shriram Mutual Fund was registered in the year 1994. It
had floated 5 schemes. It conducted business through brokers
associated with its sponsor in excess of the permissible limits
prescribed under Regulation 25(7)(a) of the Regulations, 1996 on
12 occasions. The respondent failed to comply with the terms
and conditions attached to the Certificate of Registration which
are statutory in nature, as prescribed by Regulation 15 (D)(b) of
the Securities and Exchange Board of India Act, 1992.
The instances of excess transactions conducted by the
respondents are as follows:-
Sr. Quarter ended Name of the Associate Percentage of
No. Brokers Business
1. June 1998 Springfield Securities 10.65%

2. September 1998 -do- 6.6%
3. March 1999 -do- 16.57%
4. September 1999 -do- 9.57%
5. December 1999 -do- 91.68%
6. September 1998 SIS Shares and Stock 19.59%
Brokers
http://JUDIS.NIC.IN
30
taking into consideration the nature of the
penalty, which is punitive, no sentence can be
imposed under that provision unless the element
of mens rea is established. In most cases of
criminal liability, the intention of the legislature
is that the penalty should serve as a deterrent.
The creation of an offence by statute proceeds on
the assumption that society suffers injury by the
act or omission of the defaulter and that a
deterrent must be imposed to discourage the
repetition of the offence. In the case of a
proceeding under Section 271(1)(a), however, it
seems that the intention of the legislature is to
emphasise the fact of loss of revenue and to
provide a remedy for such loss, although no
doubt an element of coercion is present in the
penalty. In this connection, the terms in which
the penalty falls to be measured is significant.
Unless there is something in the language of the
statute indicating the need to establish the
element of mens rea it is generally sufficient to
prove that a default in complying with the statute
has occurred. In our opinion, there is nothing in
Section 271(1)(a) which requires that mens rea
must be proved before penalty can be levied
under that provision."
(e) Swedish Match AB and Anr. Vs. SEBI & anr. ,

(2004) 11 SCC 641.
"\005\005\005\005The provisions of Section 15-H of the Act

mandate that a penalty of rupees twenty five
crores may be imposed. The Board does not have
any discretion in the matter and, thus the
adjudication proceeding is a mere formality.
Imposition of penalty upon the appellant would,
thus, be a forgone conclusion. Only in the
criminal proceedings initiated against the
appellants, existence of mens rea on the part of
the appellants will come up for consideration."
(f) SEBI vs. Cabot International Capital

Corporation, (2005) 123 Comp. Cases 841
(Bom).
"Thus, the following extracted principles are

summarised:
(A) Mens rea is an essential or sine qua non for

criminal offence.
(B) Strait jacket formula of mens rea cannot be

blindly followed in each and every case.
Scheme of particular statute may be diluted
in a given case.
(C) If, from the scheme, object and words used in

the statute, it appears that the proceedings
for imposition of the penalty are adjudicatory
in nature, in contra-distinction to criminal or
quasi criminal proceedings, the determination
is of the breach of the civil obligation by the
offender. The word "penalty" by itself will not
be determinative to conclude the nature of
proceedings being criminal or quasi-criminal.
http://JUDIS.NIC.IN
31
The relevant considerations being the nature
of the functions being discharged by the
authority and the determination of the
liability of the contravenor and the
delinquency.
(D) Mens rea is not essential element for imposing

penalty for breach of civil obligations or
liabilities\005..
(E) There can be two distinct liabilities, civil and

criminal under the same Act.
(Para 52) The SEBI Act and the Regulations

are intended to regulate the Security Market
and related aspects, the imposition of penalty,
in the given facts and circumstances of the
case, cannot be tested on the ground of "no
mens rea no penalty". For breaches of
provisions of SEBI Act and Regulations,
according to us, which are civil in nature,
mens rea is not essential. On particular facts
and circumstances of the case, proper
exercise or judicial discretion is a must, but
not on a foundation that mens rea is an
essential to impose penalty in each and every
breach of provisions of the SEBI Act.
(para 54) However, we are not in agreement
with the appellate authority in respect of the
reasoning given in regard to the necessity of
mens rea being essential for imposing the
penalty. According to us, mens rea is not
essential for imposing civil penalties under
the SEBI Act and Regulations."
The Trbunal has erroneously relied on the judgment in

the case of Hindustan Steel Ltd. Vs. State of Orissa, AIR
1970 SC 253 which pertained to criminal/quasi-criminal
proceeding. That Section 25 of the Orissa Sales Tax Act which
was in question in the said case imposed a punishment of
imprisonment up to six months and fine for the offences under
the Act. The said case has no application in the present case
which relates to imposition of civil liabilities under the SEBI
Act and Regulations and is not a criminal/quasi-criminal
proceeding.
In our considered opinion, penalty is attracted as soon as

the contravention of the statutory obligation as contemplated
by the Act and the Regulation is established and hence the
intention of the parties committing such violation becomes
wholly irrelevant. A breach of civil obligation which attracts
penalty in the nature of fine under the provisions of the Act
and the Regulations would immediately attract the levy of
penalty irrespective of the fact whether contravention must
made by the defaulter with guilty intention or not. We also
further held that unless the language of the statute indicates
the need to establish the presence of mens rea, it is wholly
unnecessary to ascertain whether such a violation was
intentional or not. On a careful perusal of Section 15(D)(b)
and Section 15-E of the Act, there is nothing which requires
that mens rea must be proved before penalty can be imposed
under these provisions. Hence once the contravention is
established then the penalty is to follow.
In our view, the impugned judgment of the Securities
http://JUDIS.NIC.IN
32
appellate Tribunal has set a serious wrong precedent and the
powers of the SEBI to impose penalty under Chapter VIA are
severely curtailed against the plain language of the statute
which mandatorily imposes penalties on the contravention of
the Act/Regulations without any requirement of the
contravention having been deliberated or contumacious. The
impugned order sets the stage for various market players to
violate statutory regulations with impunity and subsequently
plead ignorance of law or lack of mens rea to escape the
imposition of penalty. The imputing mens rea into the
provisions of Chapter VI A is against the plain language of the
statute and frustrates entire purpose and object of introducing
Chapter VIA to give teeth to the SEBI to secure strict
compliance of the Act and the Regulations.
In the result, the Civil Appeal Nos. 9523 and 9524 of 2003
are allowed and the order passed by the Securities Appellate
Tribunal, Mumbai dated 21.08.2003 in Appeal Nos. 50 and 51 of
2002 are set aside. No costs.
33
1
REPORTABLE
IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2818 OF 2008
Securities and Exchange Board of India ...Appellant (s)
Versus
Kishore R. Ajmera ...Respondent (s)
WITH
CIVIL APPEAL NO.8769 OF 2012
JUDGMENT
RANJAN GOGOI, J.
1. The core question of law arising in this group of appeals
being similar and the facts involved being largely identical, all
the appeals which were heard analogously are being decided
by this common order.
2. The question of law arising in this group of appeals may
be summarized as follows.
Page 1
34
21
20. Before embarking upon the necessary discussions, we
would like to record our views on a somewhat unclear if not a
confused picture that emanates from parallel provisions
contained in the Act and the Regulations framed thereunder,
as referred to above. This is particularly in the context of the
power of imposition of penalty on determination of liability
either for manipulative or fraudulent practices or for violation
of the Code of Conduct Regulation, 1992. The different
Regulations including the Regulations that prescribe the
procedural course, namely, SEBI (Procedure for Holding
Enquiry by Enquiry Officer and imposing Penalty) Regulations
2002 and the successor Regulation i.e. SEBI (Intermediaries)
Regulations 2008 contain identical and parallel provisions
with regard to imposition of penalty resulting in myriad
provisions dealing with the same situation. A comprehensive
legislation can bring about more clarity and certainty on the
norms governing the security/capital market and, therefore,
would best serve the interest of strengthening and securing
the capital market.
21. The SEBI Act and the Regulations framed thereunder are
intended to protect the interests of investors in the Securities
Page 21
35
22
Market which has seen substantial growth in tune with the
parallel developments in the economy. Investors' confidence in
the Capital/Securities Market is a reflection of the
effectiveness of the regulatory mechanism in force. All such
measures are intended to preempt manipulative trading and
check all kinds of impermissible conduct in order to boost the
investors' confidence in the Capital market. The primary
purpose of the statutory enactments is to provide an
environment conductive to increased participation and
investment in the securities market which is vital to the
growth and development of the economy. The provisions of
the SEBI Act and the Regulations will, therefore, have to be
understood and interpreted in the above light.
22. It is a fundamental principle of law that proof of an
allegation levelled against a person may be in the form of
direct substantive evidence or, as in many cases, such proof
may have to be inferred by a logical process of reasoning from
the totality of the attending facts and circumstances
surrounding the allegations/charges made and levelled. While
direct evidence is a more certain basis to come to a
Page 22
36
32
proper to impose different penalties in different cases involving
different set of facts, we do not see how and why interference
should be made in present appeals.
31. In the light of the above discussions, we dismiss the Civil
Appeal No.2818 of 2008 (SEBI Vs. Kishore R. Ajmera) and
affirm the order dated 05.02.2008 passed by the Securities
Appellate Tribunal, Mumbai.
Insofar as the remaining appeals are concerned, we allow
the same and set aside the orders of the Securities Appellate
Tribunal, Mumbai passed in each of the appeals and restore
the orders and penalty imposed on the respondents - brokers
by the respective orders of the Whole Time Member of the
SEBI.
…….…………………………...J.
[RANJAN GOGOI]
…………………………….……J.
[PRAFULLA C. PANT]
NEW DELHI;
FEBRUARY 23, 2016.
Page 32
37

MUMBAI
Appeal No. 114 of 2012
Date of decision: 27.08.2013
HB Stockholdings Limited
Plot No.31, Echelon Institutional Area,
Sector – 32,
Gurgaon – 122 001. … Appellant
Versus

SEBI Bhavan, Plot No.C4-A, G-Block,
Bandra Kurla Complex,
Mumbai – 400 051. … Respondent
Mr. Rohit Kapadia, Senior Advocate with Mr. Prashant Mishra, Mr. Piyush
Prasad, Mr. Praveer Shetty and Mr. Nishith Doshi, Advocates for the
Appellant.
Mr. Kumar Desai, Advocate with Mr. Ajay Khaire and Ms. Virakthi Hegde,
Advocates for the Respondent.
WITH
Alaknanda Capital Services Pvt. Ltd.

401, Padma Tower II,
22, Rajendra Place,
New Delhi – 110008. … Appellant
Versus

SEBI Bhavan, Plot No.C4-A, G-Block,
Bandra Kurla Complex,
Mumbai – 400 051. … Respondent
Mr. Joby Mathew, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mihir Mody and Mr. Akhilesh Singh,
Advocates for the Respondent.
38
-15-
proceedings against the Appellants. Undoubtedly, once such documents
form the basis of allegations and the subsequent punishment, the same
should be supplied to the Appellants in all fairness and also in consonance
with the principles of natural justice.
20. Lastly, we turn to the submissions of Mr. Rohit Kapadia and
Mr. P.N. Modi, learned senior counsel for the Appellants, regarding delay of
more than 11 to 12 years in completion of the proceedings against the
Appellants. At the outset, we make it clear that delay in itself may not be
fatal in each and every case. At the same time, if it is a case of unnatural and
unexplained delay, the Tribunal would be well within its right to interfere
with the matter on this count as well. In the instant case admittedly the
alleged trades took place in the year 2000. The first show cause notice itself
was issued by the Respondent on September 2, 2005 i.e. after a period of
more than five years had already lapsed. There is not even a whisper in the
impugned order to explain away such a long delay in issuing the SCN.
Furthermore, a personal hearing was given to the Appellants and replies etc.
were obtained from them on October 26, 2006. Thereafter, the Respondent
ought to have passed an order in question within a reasonable period of 2 to
3 months or so. The Respondent shockingly remained silent for a period
spanning more than four and a half years when abruptly a notice was issued
calling upon the Appellants to appear for a personal hearing on April 25,
2011. At this point we find it pertinent to note that human memory has a
short shelf life. Allowing matters to go on and on for years together by the
Respondent serves no purpose, rather it risks loss of evidence such as
important documents which may get destroyed while the issue gathers dust.
Such systemic failures occur to the disadvantage of all parties concerned
and lead to consequences such as genuine violators being allowed to

39
-17-
year 2000. Thus, the existence of unnatural and unexplained delay of more
than a decade and prejudice caused due to such undue delay is writ large in
the matter. Therefore, the impugned order deserves to be quashed on this
ground as well.
22. At this stage, we would like to deal with some of the important
judgments cited by all the learned counsel appearing in the matter.
We refer to the judgment cited by the Appellants in support of their
case in the matter of Subhkam Securities Private Limited vs. SEBI decided
by this Tribunal on July 25, 2012, in which Subhkam was accused of
creating artificial volumes in the scrip of Mascon Global Limited, thereby
manipulating the price of the same. A show cause notice was issued on
October 20, 2008 for trades executed by the appellant during August 1999
to March 2000 and December 2000 to March 2001, and a final order was
passed on March 2, 2012. While allowing the appeal this Tribunal held that
in cases of serious allegations such as market manipulation or insider
trading, expeditious disposal of proceedings alone would ensure that SEBI
carries out its duty of protecting investors’ interests effectively. It was
further held that inordinate delay in conducting inquiries hangs like
Damocles’ sword on market players and has a rather demoralizing effect on
them when they are ultimately exonerated of all charges. In the case in hand
too we note that an unexplained delay of around 13 years taints the entire
process of the investigation conducted by SEBI.
23. Next, in the case of Libord Finance Ltd. vs. SEBI, decided by this
Tribunal on March 31, 2008, it was alleged that promoters of one Mazda
Fabrics and Processors Ltd., which had come out with an IPO, manipulated
40
-26-
When an alternate remedy is available it is merely a rule

of convenience that a writ court may not exercise jurisdiction
and may direct the party to avail of the alternate remedy.
Availability of an alternate remedy, however, cannot oust the
exercise of writ jurisdiction. In a proper case even though an
alternate remedy is available, the writ court would still be
fully justified in exercising its writ jurisdiction.”
Both the judgments were in a different context and do not further the case of
the Respondent in the three appeals in hand.
33. In view of the above discussion of law and fact and in the peculiar
facts and circumstances of the case, we quash and set aside the impugned
order in each case and allow the three appeals on merit as well as on the
ground of unconscionable and unexplained delay of about 12 years in
initiating and completing the proceedings against the three Appellants in
question. No order as to costs.
Sd/-
Jog Singh
Member
Sd/-
A.S. Lamba
Member
27.08.2013
Prepared and compared by:
ptm/msb
http://JUDIS.NIC.IN
41
PETITIONER:
STATE OF ANDHRA PRADESH
Vs.
RESPONDENT:
N. RADHAKISHAN
DATE OF JUDGMENT: 07/04/1998
BENCH:
SUJATA V. MANOHAR, D.P. WADHWA
ACT:
HEADNOTE:
JUDGMENT:
THE 7TH DAY OF APRIL, 1998
Present:
Hon’ble Mrs. Justice Sujata V. Manohar
Hon’ble Mr. Justice D.P. Wadhwa
Ms.K. Amareshwari, Sr. Adv., V.R. Anumolu, T.Anil Kumar,
Advs. with her for the appellant
H.s. Gururaja Rao, Sr. Adv., T.V. Ratnam, Adv. with him for
the Respondent
J U D G M E N T
The following Judgment of the Court was delivered:
WADHWA,J.
Against the judgment dated December 12, 1996 of the
Andhra Pradesh Administrative Tribunal, Hyderabad, in O.A.
No. 2239/96 filed by the respondent, the State of Andhra
pradesh has come up in appeal. By the impugned judgment the
Tribunal allowed the petition of the respondent and directed
that the respondent be promoted to the category of Director
of Town and Country Planning, in the existing vacancy,
ignoring the charge memos -- (1) Memo No. 2732/FL/87/27/MA,
dated July 31, 1995; (2) memo no. 145/B2/93-19/MA, dated
October 27, 1995; and (3) Memo No. 898/B.2/94/M.A dated June
1, 1996, if the respondent is otherwise eligible. The
Tribunal found that the Departmental Promotion committee
met on August 16, 1995 and prepared the panel for the panel
year 1994-95, which was approved by the State Government in
October, 1995. One of the persons included in the panel was
promoted to the category of Director of Town and Country
Planning by G.O.M. dated November 14, 1995. The Tribunal
observed that the panel itself having been prepared on
August 16, 1995 should lapse only on December 31, 1996 and
not on December 31, 1995 as was contended by the State. The
name of the respondent was included in the panel. The
Tribunal, therefore, held that since the panel would lapse
only on December 31, 1996 the respondent was entitled for
promotion before that date. The Tribunal also noticed that
the objection of the State that the panel lapsed on December
31, 1995 was never raised either before it or in the State
against an interim order earlier made by the Tribunal.
Tribunal was concerned with the question if promotion
of the respondent could be denied to him after his name had
http://JUDIS.NIC.IN
42
court and that in a given case, the
nature of the offence and other
circumstances may be such that
quashing the proceedings may not be
in the interest of justice. In such
a case, it has been observed, it is
open to the court to make such
other appropriate order as it finds
just and equitable in the
circumstance of the case."
In that case this Court said that it was more appropriate
and in interest of justice as well as in the interest of
administration that inquiry which has proceeded to a large
extent be allowed to be completed. At the same time the
Court directed that Goyal should be considered forthwith for
promotion without reference to and without taking into
consideration the charges or the pendency of the inquiry, if
he is found fit for promotion.
It is not possible to lay down any pre-determined
principles applicable to all cases and in all situations
where there is delay in concluding the disciplinary
proceedings. Whether on that ground the disciplinary
proceedings are to be terminated each case has to be
examined on the facts and circumstances in that case. the
essence of the matter is that the court has to take into
consideration all relevant factors and to balance and weight
them to determine if it is in the interest of clean and
honest administration that the disciplinary proceedings
should be allowed to terminate after delay particularly when
delay is abnormal and there is no explanation for the delay.
The delinquent employee has a right that disciplinary
proceedings against him are concluded expeditiously and he s
not made to undergo mental agony and also monetary loss when
these are unnecessarily prolonged without any fault on his
part in delaying the proceedings. In considering whether
delay has vitiated the disciplinary proceedings the Court
has to consider the nature of charge, its complexity and on
what account the delay has occurred. if the delay is
unexplained prejudice to the delinquent employee is writ
large on the face of it. It could also be seen as to how
much disciplinary authority is serious in pursuing the
charges against its employee. It is the basic principle of
administrative justice that an officer enterusted with a
particular job has to perform his duties honestly,
efficiently and in accordance with the rules. If he deviates
from this path he is to suffer a penalty prescribed.
Normally, disciplinary proceedings should be allowed to take
its course as per relevant rules but then delay defeats
justice. Delay causes prejudice to the charged officer
unless it can be shown that he is to or when there is
proper explanation for the delay in conducting the
disciplinary proceedings. Ultimately, the court is to
balance these two diverse consideration.
In the present case we find that without any reference
to records merely on the report of the Director General,
Anti-Corruption Bureau, charges were framed against the
respondent and ten others, all in verbatim and without
particularizing the role played by each of the officers
charged. There were four charges against the respondent.
With three of them he was not concerned. He offered
explanation regarding the fourth charge but the disciplinary
authority did not examine the same nor did it choose to
appoint any inquiry officer even assuming that action was
validly being initiated under 1991 Rules. There is no
explanation whatsoever for delay in concluding the inquiry
http://JUDIS.NIC.IN
43
proceedings all these years. The case depended on records
of the Department only and Director General, Anti Corruption
bureau had pointed out that no witnesses ad been examined
before he gave his report. The Inquiry Officers, who had
been appointed on after the other, had just to examine the
records to see if the alleged deviations and constructions
were illegal and unauthorised and then as to who was
responsible for condoning or approving the same against the
bye-laws. It is nobody’s case that respondent at any stage
tried to obstruct or delay the inquiry proceedings. The
Tribunal rightly did not accept the explanations of the
state as to why delay occurred. In fact there was hardly any
explanation worth consideration. In the circumstances the
Tribunal was justified in quashing the charge memo dated
July 31, 1995 and directing the state to promote the
respondent as per recommendation of the DPC ignoring memos
dated October 27, 1995 and June 1, 1996. the Tribunal
rightly did not quash these two later memos.
Accordingly we do not find any merit in the appeal. It
is dismissed with costs.
9/30/24, 5:16 PM
44
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Home » Enforcement » Orders » Orders Of SAT
IN THE SECURITIES APPELLATE TRIBUNA

MUMBAI
Appeal No: 18 of 2006

Date of Decision 10/05/2006
Bhoruka Financial Services Ltd. �..Appellant
Versus
Securities & Exchange Board of India �.Respondent
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.
CORAM
�� Justice N.K. Sodhi, Presiding Officer

�� C. Bhattacharya, Member
�� R.N. Bhardwaj, Member
��
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
2005 passed by the whole time member of the Securities and Exchange Board of India (for short �the Board�) restraining the appella
Bhoruka Financial Services Limited (hereinafter called �BFSL�). Promoters of BFSL who sold their shares to DLF have also been directed
deal with the said amount without the prior approval of the Board.� They too have come up in separate appeals.� Some directions hav
been placed under suspension. We are not concerned in these appeals with the exchange or with its executive Director as they have not ch
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�
that exchange.� On scrutiny of the details of the trading, it transpired that trading was concentrated mainly in the scrip of BFSL. DLF was
https://www.sebi.gov.in/satorders/bhoruka.html 1/7
9/30/24, 5:16 PM
45
specifically introduced by Parliament by Act 59 of 2002 with effect from 29/10/2002. Whatever was the nature and extent of power to is
exercise of that power with effect from that date has been circumscribed by the provisions of sub-section (4) of Section 11 and with ef
accordance therewith and not otherwise.� It appears that prior to the introduction of sub-section (4) of Section 11 the Board was exerci
challenged in different courts and even though the exercise of that power had been upheld, the Parliament thought that the provisions 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 di
the said power cannot be exercised unless an enquiry or an investigation is pending.� This will not denude the Board of its power to
complaint or otherwise has reason to believe that the securities market is being manipulated or there is some other wrong doing whic
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 simu
the requirement of Section 11C that opportunity of hearing is to be afforded to any intermediary of the market before ordering such inv
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 ou
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/dir
enquiry is yet to be ordered. The legislature has made its intention clear that interim direction / order could be passed by the Board on
enquiry.� Section 11(4) is an enabling provision and it is not necessary that the Board should in every case pass an interim order / directio
Board may order an enquiry / investigation and pass final orders / directions only on its completion. This will depend upon the nature a
appearing for the Board strenuously argued that when the Board learnt on 10th August, 2005 about the illegal trading going on at the e
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 emp
contended that these would include the preliminary investigations or inquiry which the Board made on receipt of information. At the first
merits acceptance. The legislature has used two words � �investigation or enquiry� and it is during the pendency of either of the two th
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
gave powers to the Board which it did not possess earlier to investigate the affairs of any intermediary or persons associated with the s
Section 11(4) obviously refers to the investigation in terms of Section 11C as both these provisions were inserted simultaneously.� W
reasonable grounds to believe that the securities market is being dealt with in a manner which is detrimental to the investors or the secu
time, by order in writing direct any person to investigate the affairs of any intermediary or persons associated with the securities market
writing and not otherwise.� In the instant case this order was passed only on 05/12/2005. The so called preliminary investigations wh
investigation was to be ordered or not. Whatever material the Board might have collected during the preliminary investigations could be us
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� h
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
referred to in this Chapter and Section 15I requires that before any penalty could be levied, the Board shall appoint an adjudicating off
reasonable opportunity of being heard. Apart from the provisions of Chapter VIA, the Board as a regulator with a view to protect the in
Regulations for the violation of which it can take action and before it can proceed against those who violate the Regulations it has to hol
India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (for short �the Regulations�). An en
contravention of any of the provisions of the Regulations referred to in Regulation 4 of these Regulations. It is, thus, clear that the Board ca
Act for which an adjudicating officer shall be appointed or it may order an enquiry under the Regulations. The word enquiry referred to
pendency of such an enquiry that Section 11(4) empowers the Board to pass an interim order / directions. Since no enquiry was pending a
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, 20
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
ignore the earlier order dated August 19, 2005 because by then the investigations into the alleged illegal trading on the platform of th
gainsaying the fact that on December 5, 2005 the Board had by an order in writing ordered investigations into the trading that took plac
believe that during the pendency of the investigations it was necessary to issue a restraint order and that the subject matter of the inves
DLF from transferring its shares and also directed the sellers to keep the sale proceeds in a separate escrow account with a bank.� The
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
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
9/30/24, 5:16 PM
46
��
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47
MANU/SB/0005/2002
Equivalent/Neutral Citation: (2002)2C ompLJ100(SAT)
BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI

Appeal Nos. 52, 53 and 54/2001 (Appeals arising out of the order dated 9.11.2001 made by the Securities and Exchange Board of
India)
Decided On: 28.02.2002
Anand Rathi and Ors. Vs. Securities and Exchange Board of India
Hon'ble Judges/Coram:
C. Achuthan, Presiding Officer
Counsels:
For Appellant/Petitioner/Plaintiff: Aspi Chinoy, Sr. Counsel, Daksheesh Dhru, Anand Rathi and Amit Rathi, Advs., Ahmed Sayed,
Adv., i/b., Dhru & Co.
For Respondents/Defendant: Goolam Vahanvati, Adv. General of Maharashtra, Ananta Barua, Jt. Legal Adviser, SEBI,Rameeza
Hakeem, Adv. and Kumar Desai, Adv., i/b., Maneksha & Sethna
ORDER
1. These three appeals are directed against the Securities and Exchange Board of India's common order dated November 9, 2001,
whereby Shri Anand Rathi (Shri Rathi) (Appellant in Appeal No. 52/2001) was restrained from holding any position of director or
trustee of any capital market related institutions/entities for a period of two years from March 12, 2001 and the registration granted
to Anand Rathi Securities P.Ltd (Appellant in appeal No. 53/2001) and Anand Rathi Direct(India) P.Ltd (Appe llant in appeal No.
54/2001), allowing to undertake stock broking business was suspended for a period of nine months. In Shri Rathi's case the order
has been made under sections 11 and 11B of the Securities & Exchange Board of India Act, 1992 (the Act) andin the case of the
two Appellant companies, it is under regulation 26 of the Securities and Exchange Board of India (Stock Brokers and Sub Brokers
)Regulations, 1992 (the Stock Brokers Regulations). While the order against Shri Rathi has the approval of all the three members
including the Chairman of the Securities and Exchange Board of India (the SEBI), who heard thematter, the order against the two
Appellant companies has the approval of only two members, as one member i.e. the Chairman, did not agree to the conclusion
arrived at and the decision taken by the other two members. He has viewed that these two companies are not liable for the penalty
of suspension under regulation 26. In terms of section 7(3) of the Act, decision of the majority prevails and therefore the order in
force against the two companies is the one made by the two members, being the majority order.
2. On February 28, 2001, the Hon'ble Finance Minister presented what was widely perceived as an "Investor Friendly" Budget. The
general expectation was that the Stock Markets in the country would be encouraged by such a budget, and true to such expectation
on February 28 to March 1, the sensex rose by 201 points. However, this rising trend did not continue. On the next day, i.e. on
March 2, the sensex dropped by 176 points. There was a lot of consternation and concern as to the cause of such steep fall , which
was unusual and exceptional, especially in the light of such a budget. The Respondent initiated investigation into the matter. In
that context the Respondent came to know that Shri Anand Rathi, the then President of the Stock Exchange, Mumbai (BSE), had
sought some information, at about 1510 hours on March 2, in respect of the position of some brokers/FIIS in certain scrips from
the Surveillance Department of BSE. The Respondent decided to investigate the conduct of Shri Rathi also in the said context. As an
emergent measure, the Chairman of the Respondent on March 2, by an ex parte Interim Order, restrained Shri Rathi from acting as
director-member of BSE and also directed Shri Rathi and his four associate entities (viz. Anand Rathi Securities Pvt. Ltd., Rathi
Global Finance Ltd., Rathi Capital & Securities Pvt. Ltd. and Navaratan Capital Securities Ltd.) not to undertake any fresh business
as brokers till further orders were passed by SEBI. The order was made under section 11/11B of the Act.Subsequently, a post-
decisional hearing was given by the Respondent to Shri Rathi and his associate companies. Three out of the four members who
heard the matter, confirmed the order of March 12, Prof.J.R.Verma, the other member though endorsed the majority view in regard
to the restraint order on Shri Rathi holding any managerial positions, deferred on the exercise of powers under section 11B to
direct Shri Rathi and his concerns not to undertake any fresh business as a broker, inter alia, observing that section 11B is a
provision, not for punishing intermediaries, but for protecting investors and the market and felt that proceedings must be initiated
under Regulation 28 of the Stock Broker Regulations for possible imposition of penalties. Subsequently, on the basis of the
preliminary investigation report, the order was reviewed and the majority decision was confirmed by the Board on April 23, 2001
and also ordered that an Enquiry Officer be appointed for conducting an enquiry into the matter.
3. Aggrieved by the majority decision of the Respondent, Shri Rathi filed a writ petition no 628/2001 before the Hon'ble Bombay
High Court. The Hon'ble Court, vide its order dated May 2, 2001 dismissed the petition and directed the Respondent to complete
the enquiry within 4 months from the dated of the said order. The time frame provided for passing the order was subsequently
enlarged by the Hon'ble High Court, on the Respondent's request. The Respondent passed the impugned order on November 9,
2001.
4. All the three appeals were filed in the Tribunal on November 20, 2001, pending final decision on the appeals, the Appellants had
sought interim order staying the operation of the impugned order. Counsel for the parties were heard in detail in this regard.
Taking into consideration all the relevant factors, the Tribunal felt that it was not a fit case warranting interference at the juncture
by an interim order and disallowed the prayer vide its detailed order dated November 29, 2001.
5. Shri Aspi Chinoy, learned Senior Counsel appearing for the Appellants explained briefly the background of the impugned order,
and also stated the credentials and achievements of Shri Rathi as well as his contribution to the modernisation of BSE, including
the measures taken for strengthening the surveillance system in BSE and bringing transparency in trading transactions. He referred
to the first show cause notice issued to the Appellants on June 6, 2001 and stated that even though serious charges were levelled
against them, ultimately after the enquiry all those serious charges were dropped and a trivial charge of violating certain circulars
was held against the Appellants. Shri Chinoy stated that impugned order is a scrappy order not supported either by facts or law.
6. Shri Chinoy submitted that the show cause notice dated June 6, 2001 was addressed to Shri Rathi and 4 companies viz. Anand
48
but a conjuncture and far away from the truth. He referred to the Respondent's observation that " As the fall continues, there was
perhaps no necessity fore taking any further position by his associate entities" and stated that it is only a baseless presumptive
inference. He stated that infact the market had gone up between 3.00 p.m. and 3.30 p.m. and therefore the observation "as the fall
continues" is contrary to the facts on record. He further stated that the Respondent's observation that there was no necessity for
taking any further position also presumes that a certain position was already taken, for which there is no evidentiary supporting
and in case there is anything to indicate the position, if any taken, there is nothing to show that the same was based on such
information.
20. Learned Senior Counsel submitted that the Respondent is not justified in holding that the Appellant had sought information in
relation to or for the benefit of his associate concerns or for trading, when it had come to the conclusion that there was no use of
information. He said that the eight month long detailed investigations had revealed that the information had not been used or
utilised either by Shri Rathi or by any of his entities.
21. Shri Chinoy submitted that the very enquiry based on the findings therein, the impugned order was passed is illegal in as much
as during the course of enquiry the Enquiry officer had refused the Appellant's request for cross examining some of the persons
whose statements have been recorded during the enquiry and on which relevance has been placed during the enquiry and in the
report., that the denial of a right to cross examine was in flagrant breach of the principles of natural justice. Further, the learned
Senior Counsel submitted that the Respondent had deliberately not furnished a copy of the preliminary report and even as regards
the final investigation report, the Appellant had been furnished only the findings, that it is thus clear that even during the course of
the enquiry and thereafter the Respondent acted in breach of the principles of natural justice and fair play, that the very fact that
the enquiry/investigation report is sought to be suppressed and/or kept back goes to show that there is much more than meeting
the eye that if the same is disclosed it will not support the conclusions and decisions arrived at by the Respondent.
22. Shri Chinoy pointed out that even though the show cause notice dated September 27, 2001 refers to a penalty of a ban of two
years, the Respondent has changed its stand in the order by stating that such a ban is not a penalty at all and that the Respondent
is authorised to issue such an order not only as a preventive measure pending enquiry, but also by way of a final order. Shri
Chinoy submitted that the impugned order is clearly in the teeth of the recent decision of this Tribunal in Sterlite Industries Ltd v.
SEBI (2001) 34 SCL 485: (2001)45 CLA 195) wherein it has been expressly held that under section 11 and 11B the Respondent has
no powers to impose penalty, that a patently untenable stand has been taken by the Respondent by saying that the impugned order
does not amount to penalty. Shri Chinoy submitted that the Respondent's change in version is to get over the obvious difficulty of a
binding authority of this Tribunal, that even otherwise the view of the Respondent that the imposition of the ban of this nature does
not amount to penalty completely overlooks the fact that as compared to pecuniary penalty which is of a specific amount, such kind
of a ban has the effect of completely denying or taking away the Appellant's right to trade and carry on the business and this is of
far reaching adverse consequences as compared to pecuniary penalty.
23. Shri Chinoy submitted that the Respondent has penalised Shri Rathi in the guise of a direction under section 11B of the Act. In
this context he referred to the word "penalty" used in the show cause notice. Shri Chinoy extensively quoted from the Tribunal's
order in Sterlite case on the test of evidence required for imposing penalties and also on the scope of section 11B. He submitted
that the instant order is neither preventive nor remedial but punitive. He submitted that by preventing the Appellant holding any
position as a director or trustee in a market entity, the order is not rectifying or remedying anything . Shri Rathi's conduct as a
broker or having bearing on broking activity has not been questioned in the order, that the charge against him is that he had
violated the requirements of certain circulars. Shri Chinoy stated that the various offences referred to in section 15A to 15H does
not cover violation of any circulars as an offence. He also referred to the provisions of section 15J required to be followed while
imposing penalties. Re-iterating his view that the Respondent has imposed penalty on the Appellants, he referred to the principles
laid down by the Hon'ble Supreme Court in Hindustan Steels v. State of Orissa (MANU/SC/0418/1969 : AIR 1970 SC 253) and
stated that none of the factors warranting imposition of penalty stated in the said case is available in the Appellant's case as it is
evident from the evidence that the Appellant had acted openly and bonafidely and did not violate any of the legal provisions. He
cited Khemka and Co. (Agencies) v.State of Maharashtra (MANU/SC/0442/1975 : AIR 1975 SC 1549) to show that an offence
cannot be created by a circular, that on the contrary the law casts a duty on the President of the exchange to discharge certain
duties and he has only discharged those duties and proper discharge of duties should not be considered as an offence or failure. He
stated that on the contrary if the Appellant had failed to discharge the statutory duties cast on him, he would have faced the charge
of dereliction of duty and the attendant consequences. Shri Chinoy cited decisions of the Hon'ble Supreme Court in support of his
contention that it is necessary to establish mens rea for imposition of penalty - Akbar Badruddin Jiwani v. Collector of Customs (
MANU/SC/0288/1990 : 1990 (47) ELT 161 SC) and also the decision of the Hon'ble Calcutta High Court in Extrusion v. Collector of
Customs (MANU/WB/0313/1993 : 1994 (70)ELT 52 (cal).
24. With reference to the reliance by the Respondent on this Tribunal in R.K. Aggarwal v. SEBI (2001) 31 SCL 271: (2001) 42 CLA
254, the learned Senior Counsel stated that the facts in that case were clearly different from the facts in the present case. He
explained the distinguishable features of the cases and stated that the view taken by the Tribunal in the said case cannot have any
application to the present case .
25. With reference to the appeals filed by the two companies, Shri Chinoy submitted that the Appellants have been penalised on
the sole ground that Shri Rathi, who is stated to be controlling the Appellants, had violated the SEBI circulars by allegedly
interfering with the working of the Surveillance Department , that the Appellants have not complied with the requirements of fit and
proper person criterion under the Stock Brokers Regulations. Learned Senior Counsel submitted that the charge against Shri Rathi
itself is untenable and that in any case such a vicarious imposition of penalty on the Appellants despite the fact that the Appellants
are not involved in any way in the acts/breaches alleged is illegal and unjust. He submitted that the Respondent has ignored the
fact that Shri Rathi as the President of BSE had made the telephone call, that Rathi has not made inquiries with the Surveillance
Department on behalf of the Appellants, that there is no evidence to show that Shri Rathi was acting in the course of his
employment/position with the Appellants or that such actions were actuated with a motive to benefit the Appellants. He stated that
the Appellants are separate legal entities and could not be held vicariously responsible for the activities of Shri Rathi, more so
when the actions are not even in the course of discharge of his duties on behalf of the Appellants. Shri Chinoy referred to the
Respondent's version that the broking entities controlled by Shri Rathi in which he is a director would also not be considered as "fit
and proper" as the artificial entities such as corporate entities actually act through their directors and employees only, and
therefore, the conduct of their directors has a bearing as to whether the corporate entity is fit and proper or not, and stated that
this contention is baseless. Shri Chinoy submitted that the concept of lifting the corporate veil was introduced in order to identify
and implicate the offending director hiding behind the corporate veil for the wrongs committed in the name of the corporate entity
but never to make the company liable for the acts of a director acting in any other capacity unrelated to the company's functions.
He submitted that the Respondent has not raised any specific allegation of violation of the integrity requirement of the code of
49
Enforcement v. MCTM Corporation P.Ltd (MANU/SC/0300/1996 : AIR 1996 SC 1100) and therefore the authorities cited by the
Appellants in this regard is of no relevance to the issues under consideration in the appeal.
41. With reference to the suspension order made against the two Appellant companies, the learned Advocate General submitted
that since Shri Rathi being a nominee of the corporate entity and the two Appellant companies are owned and controlled by him,
and in the light of the finding that Shri Rathi is not a fit and proper person, the suspension of the entities owned and controlled by
him is justified. He submitted that the action/conduct of Shri Rathi is to be taken into consideration in this context, and as
disclosed in the order that his conduct and his action has caused erosion of investor confidence in the fair, transparent and
impartial working of stock exchanges. Learned Advocate General submitted that the conduct of Shri Rathi in obtaining sensitive
information from the Surveillance Department in breach of the circulars is a serious matter and the action taken by the authorities
cannot be faulted on any account.
42. Learned Advocate General refuted the allegation that the impugned order was made without following the principles of natural
justice. He stated that the Appellants have been given more than sufficient opportunities to defend their case by issuing detailed
show cause notice, and by furnishing enquiry report and materials on which reliance was placed by the Respondent, and in no way
they were debilitated in putting forth their version. The Appellants were not only allowed to make written submissions but were
heard extensively and their submissions were duly considered.
43. I have carefully considered the submissions made by the parties. My views are discussed herein below:
Even though Shri Chinoy had stated that the Respondent had failed to follow the principles of natural justice, he did not
press the same.
44. The controversy in the present case centers around the telephone call made by Shri Rathi, the then President of BSE, to Shri
Dhanawade in the Surveillance Department of BSE on March 2, 2001. The said March 2, is not just an ordinary date , it was a day
of mayhem as far as BSE was concerned. The capital market, true to the expectation was responding positively to the Union Budget
2001, presented to the Parliament on February 28. Though the market was buoyant on February 28 and March 1, and the sensex
rose by 201 points, to everybody's dismay it took a reverse turn on March 2 . Sensex dropped by 176 points. Bear hammering by
few was one of the causes attributed to the market casuality. Innocent investors, suffered heavily. Credibility of the market lost.
The Respondent mandated to protect the interests of the investors and responsible for regulating the securities market, smelt a rat
and decided to investigate into the matter. In that surcharged atmosphere some news papers carried out stories alleging that Shri
Rathi had illegally obtained some price sensitive information from an officer of the Surveillance Department in the presence of
some brokers. Since Shri Rathi himself had trading outfits in the market, the Respondent felt that the allegation merited
investigation. Investigation started. The Respondent obtained the taped conversation Shri Rathi had with the official of the
Surveillance Department. The transcript of the telephonic conversation established that Shri Rathi had talked to one of the junior
officials in the Surveillance Department and it also revealed that he had obtained from him information in respect of certain specific
scrips and brokers . The Respondent after detailed investigation and enquiry came to the conclusion that Shri Rathi had collected
price sensitive information from the Surveillance Department of BSE in breach of the governing norms and considered him as "not
a fit and proper person" to be associated with the management of the exchange etc. In that context not only Shri Rathi was
restrained from participating in the management of the capital market related institutions and entities as a director or trustee but
two of his companies were penalised by suspending their registration for nine months. The said nine month period is already over
and the suspension order is no more in operation. Thus the sting is no longer there, but the stink still continues as the finding of
guilt continues. That is why the Appellant companies are seeking relief.
45. Shri Rathi has questioned the basis and validity of the findings and the order on several grounds, particularly on the ground
that he had lawfully obtained the information in his capacity as the President of the exchange and that as per the governing rules
and bye-laws of the exchange, the President is entitled to access the Surveillance Department to obtain information that he had not
used the information for any personal benefit.
46. A stock exchange is not a mandi of the sort free for all. It is a sensitive forum providing a level playing ground to all the
participants, facilitating transactions involving multitude of investors and crores and crores of rupees having a bearing on the
economy as a whole. The regulatory regime is designed and structured in such a way to ensure that nobody takes undue advantage
by virtue of his position in the management of the exchange. Good governance of stock exchange being essentially necessary to
protect the interest of all the market players including the investors, the exchange is subjected to several statutory regulations. The
Securities and Contracts (Regulation) Act, 1957 (SCRA Act) and the Rules made thereunder provide the broad statutory frame work.
The Rules, Bye laws and the Regulations made by each stock exchange provide for regulating the activities of the exchange. In the
hierarchy it is the Governing Board which is vested with most of the powers . The Board consists of elected and nominated
members. One of the elected members is elected as the President of the exchange for a tenure not exceeding one year at a time.
The Chief Executive of the exchange is Chairman/Executive Director who is supposed to be independent of any personal trading
interest in the securities dealt on the exchange. The exchange admits corporate and non corporate members. The two Appellant
companies are corporate members of BSE.
47. Shri Rathi was elected to the Governing Board of BSEas a nominee of Anand Rathi Securities P.Ltd, a corporate entity owned
and controlled by him. He was elected as the President for the period 1999-2000 and again for the year 2000-2001. During the
crisis period referred to above Shri Rathi was the President. The two other Appellant companies are private limited companies
owned and controlled by Shri Rathi/his family. Anand Rathi Securities P.Ltd, (Appellant in appeal No. 53/2001) is a stock broker,
merchant banker and port folio manager and holds certificate of registration from the Respondent to do the said business. Anand
Rathi Direct(India) P.Ltd is a sub broker and holds a certificate for the purpose.
48. The Respondent is a statutory body established under section 3 of the Act. It is mandated to protect the interests of investors
in securities and to promote the development of and to regulate the securities market and for matters connected therewith or
incidental thereto. Section 11 of the Act enumerates the functions of the Board. Section 11B enables the Respondent to issue
directions to certain persons for certain purposes. The Respondent has made several regulations to regulate the activities of the
market intermediaries including stock brokers, merchant bankers, portfolio managers etc. Regulatory powers of stock exchanges
under the SCR Act are also vested in the Respondent.
49. The Respondent in its effort to protect the interests of the investors and to ensure fair dealings in the market by providing a
level playing ground to market participants decided to have a strong and independent Surveillance Department in each stock
exchange and devised a set up immune to interference from brokers. This requirement was discussed by the Respondent in the
meeting of the Executive Directors of stock exchanges held on July 19, 1995, and based on the decisions arrived at therein issued a
50
Appellant companies is not tenable and deserves to be set aside. I do so.

103. In view of my finding that the Respondent's order against Shri Rathi made under section 11B is not a penalty and further that
the penalty of suspension of registration awarded in the case of the two Appellant companies having been found unsustainable I do
not consider it necessary to discuss the various authorities cited by the learned Counsel for the parties on the principles and
circumstances governing imposition of penalties, etc.
104. In respect of the restraint order passed against Shri Rathi I am of the view that in the light of the nature of the direction
issued by the Respondent in the case of Shri R.K.aggarwal and Shri J.C.Parekh who were allegedly found interfering with
Surveillance Department rather more intensely, the restraint order in the case of Shri Rathi also in all fairness be confined to
"holding any public position as a member of the Governing Board or the office bearer of the exchange or any capital market related
public institutions" and not to extend to holding directorship or trusteeship in any other entities. It is to be noted that the only
charge finally held against Shri Rathi in the impugned order as against several serious charges like violation of Insider Trading
Regulations, UTP Regulations etc. found in the show cause notice, is an act of impropriety of breaching the norms set out in the
circulars issued by the Respondent governing the functioning of the Surveillance Department in the stock exchanges. The
Respondent itself has after detailed investigation and enquiry concluded that the information obtained by Shri Rathi was not made
use of by him or his companies for profit making and that his action has not actually resulted in benefiting him or his broking
companies or caused any loss to anybody. Shri Rathi was subjected to investigation and enquiry in the context of the havoc
witnessed in the market on March 2, 2001, to find out whether his action had in any way contributed to the same. Respondent after
detailed enquiry has given him a clean chit absolving him of any role in depressing the market. It is therefore felt that restraining
Shri Rathi holding directorship etc., for a period of two years is disproportionate to the gravity of the wrong doing by him and the
actual fall out thereof . It is all the more so , in view of the fact that Shri Rathi is not barred from carrying on the business of stock
broking in any manner, by the order. In fact the impugned order itself has impliedly restricted the disqualification that Shri Rathi is
" not a fit and proper person" for a period of just nine months as could be viewed from the suspension order passed against his
two companies, by limiting the period of suspension to nine months. Thus taking into consideration the totality of the facts and
circumstances of the case, it is felt that it would be but fair and reasonable to restrain Shri Rathi holding any post of director/office
bearer of stock exchanges for one year. Accordingly that portion of the impugned order relating to Shri Rathi is modified as under.
" Shri Anand Rathi be restrained from holding any position as a member of the Governing Board or office bearer of any
stock exchanges as well as any capital market related public institutions for a period of one year from March 12 , 2001"
105. The order as modified to extent applicable to Shri Rathi is to be sustained. That part of the order suspending the registration
granted to the two Appellant companies is set aside.
106. The appeals are disposed of in the above lines.
107. By way of post script, I would like to state that it is high time that the stock exchanges are liberated from the control of the
brokers. Stock exchanges, should no longer be allowed to be run as exclusive clubs of the brokers, by the brokers, for the brokers.
Perhaps a totally brokerless management of the exchange would be the answer in this regard. I would suggest that the authorities
may adopt appropriate measures to streamline the stock exchange management to impart more credibility to the institution to
enhance the common investors' faith in the capital market.
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51
PETITIONER:
LIBERTY OIL MILLS & OTHERS
Vs.
RESPONDENT:
UNION OF INDIA & OTHERS
DATE OF JUDGMENT01/05/1984
BENCH:
REDDY, O. CHINNAPPA (J)
BENCH:
REDDY, O. CHINNAPPA (J)
SEN, A.P. (J)
VENKATARAMIAH, E.S. (J)
CITATION:
1984 AIR 1271 1984 SCR (3) 676
1984 SCC (3) 465 1984 SCALE (1)750
CITATOR INFO :
R 1985 SC1416 (102)
RF 1986 SC 555 (6)
D 1987 SC1802 (28,30)
RF 1991 SC 363 (11)
RF 1991 SC 537 (13)
ACT:
Imports (Control) order, 1955- Promulgated under ss. 3
and 4A of the Imports and Exports (Control) Act, 1947 -
Clause 8B-Added later by way of amendment-Interpretation of-
Contemplates action of interim nature-Order action must
satisfy rules of natural justice-Authorities not bound to
give pre-decisional hearing-Authorities must give post-
decisional hearing-Decision must be communicated to person
affected-order need not give reasons but must be indicate
satisfaction forming basis for action and concise statement
of allegations-Action under Clause 8B of drastic nature-Must
be animated by sense of urgency-Sense of urgency infused by
several factors-Public sentiment is one such factor-Public
interest to be paramount consideration-It is for authorities
to consider public interest-Courts not to concern themselves
with sufficiency of ground-Courts to consider question of
mala fide or patent lack of jurisdiction.
Import (Control) order, 1955-Clause 8B read with Clause
11(4)- Interpretation of-Clause 8B applies equally to goods
covered by open General Licence.
Interpretation of statutes-Rules of-Courts not
permitted to interpret statutory instruments so as to
exclude natural justice unless language of instrument leaves
no option to Court.
Natural justice-Rules of-Extent of natural justice-Must
vary from case to case-Interim orders imply natural justice-
Seeking comments of person before investigation against him
not necessary-Decision affecting a person must be
communicated to the affected person-Affected person must be
given post-decisional opportunity not possible.
Words and phrases-Investigation-When commences.
HEADNOTE:
On being discovered that beef tallow imported from
abroad was either being sold as vanaspati or used in its
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52
the persons affected. [698G; 696D-E; G; 705F-H; 706A-E]
The decision to keep in ‘abeyance’ should be
communicated to the person concerned otherwise the rules of
natural justice will not be satisfied. It would be most
arbitrary and quit clearly violative of Articles 14 and 19
(i) (g) of the Constitution if cl. 8B is to be interpreted
as excluding
680
communication of the decision taken. There is nothing in cl.
8B to suggest that the decision is not to be communicated.
On the other hand, the expression "without assigning any
reason" implies that the decision has to be communicated,
but reasons for the decision have not to be stated. Reasons
of course, must exist for the decision since the decision
may only be taken if the authority is satisfied that the
grant of licence or allotment of imported goods will not be
in the public interest. The expression without assigning
reasons’ only means that there is no obligation to formulate
reasons and nothing more. Formal reasons may lead to
complications when the matter is still under investigation.
So the authority may not give formal reasons, but the
skeletal allegations must be mentioned in order to provide
an opportunity to the person affected to make his
representation. [706H; 707A-C]
On what should the satisfaction be based ? The action
under cl. 8B is really in aid of the ultimate order under
cl. 8. Therefore, in order to invite the satisfaction
contemplated by cl. 8B there must be present some strong
suspicion of one or other or more of the grounds mentioned
in cl. 8. Since the action which is of a drastic nature is
to be taken ex-parte, it must necessarily be animated by a
sence of urgency. The sense of urgency may be infused by a
host of circumstances such as the trafficking and
unscrupulous peddling in licences, large scale misuse of
imported goods, attempts to monopolise or corner the market,
wholesale prevalence of improper practices among classes of
importers, public sentiment etc. etc. It is true that public
administration is not to be run on public sentiment and
statutory action may only be taken on grounds permitted by
the statute. Public sentiment is not in some cases the
ground for the action but it is what clothes the ground with
that sense of urgency which makes it imperative that swift
action be taken. [707D-H]
Public interest must nolens volens be the paramount
consideration. If the threatened public mischief is such as
to outweigh the likely injury to the party, the authority
may take action under cl. 8B. If the threatened public
injury is very slight compared to the harm which may be done
to the party, the authority may not take action under cl.
8B. Which element of the public interest should be given
greater weight and which grounds should weigh at all are
matters for the authority taking action under cl. 8B. Courts
do not concern themselves with the sufficiency of the
grounds on which action is taken or with the balancing of
competing considerations, in favour of and against the
action. [708A-D].
An ‘abeyance’ order under cl. 8B is directed not
against any particular type of goods but against an
importer, licensee or other person against whom an
investigation into allegations under cl. 8 is pending.
Therefore the question is whether it is not in the public
interest that a particular person should be prevented from
obtaining import licences or imported goods any description
pending investigation into the allegations under cl. 8B.
That would depend on the nature of the allegations, the
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53
cases also, it is possible to envisage similar results
depending on the rights involved, the object of the statute
and other facts and circumstances. As it is the circulars in
question are hopelessly drafted adding to the confusion
created by the sadly drafted clause 8B. In the facts and
circumstances of this, case, the real remedy of the party,
as we conceive it, is to make a representation to the
concerned authority setting out his version of the facts and
the law and the prejudice to himself and the public interest
as a consequence of the action under clause 8B. We would
have first directed the authority to communicate, within a
specified time, to the party the allegations forming the
basis of the action. But we do not consider it necessary to
do so as the party is now fully apprised of the allegations
against him. In the circumstances, we think that it would be
proper if we direct the authority concerned to consider any
representation that may hereafter be made by the party
within 10 days from the date of its receipt. Subject to this
directions, the writ petition is dismissed but without any
order as to costs.
Civil Appeal No. 274 arises out of an interlocutory
order made by the Bombay High Court before the writ petition
was transferred
714
to this court. In view of our final decision disposing of
the main writ petition, it is unnecessary to pass any orders
in this civil appeal, which is disposed of accordingly.
H.S.K. Petitions dismissed.
715
54
MANU/SB/0205/2005
Equivalent/Neutral Citation: [2006]67SC L51(SAT)
BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI

Appeal No. 345/2004
Decided On: 08.12.2005
DSQ Securities Ltd. Vs. Securities and Exchange Board of India
[Alongwith Appeal No. 346/2004]
Hon'ble Judges/Coram:
Kumar Rajaratnam, J. (Presiding Officer), C. Bhattacharya and R.N. Bhardwaj, Members
Counsels:
For Appellant/Petitioner/Plaintiff: I. Subramanian, Sr. Adv. and Vaidyanathan, Adv.
For Respondents/Defendant: Rafique Dada, Sr. Adv. and Kumar Desai, Adv.
JUDGMENT
1. The appeals are taken up for final hearing with the consent of all the parties by a
common order as both the appellants challenge a common order of SEBI.
2 . Briefly stated, the facts of the case are that DSQ Software Ltd., formerly known as
Square D Software Ltd., was a company engaged in Software business with its
registered office initially in Kolkata but later shifted to Chennai. Shri Dinesh Dalmia and
his group concerns were the main promoters of the company. The Board of directors
consisted of the following persons apart from Shri Dinesh Dalmia as on 31/12/2000:
i. Mohammed Ghulam Ghouse
ii. Brigadier (retd) V. M. Sundaram
iii. S. K. Bhatnagar (deceased in 2001)
iv. B.K. Pal v. J. Narayanamurthy (IDBI Nominee)
vi. K. M. Venkateswaran
3 . A sharp fluctuation in the price of the scrip of the company was noted during the
period October, 1999 to March, 2001. The price increased from Rs. 250/- in October,
1999 to Rs. 2631/-in March, 2000, but fell to Rs. 150/-only in March, 2001. The said
movements in price were also accompanied by very large volume on all the stock
exchanges i.e. BSE, NSE and Kolkatta Stock Exchange. Investigations by SEBI revealed
serious irregularities in the allotment of shares by the company as also in the
dematerialization of shares so allotted and subsequent sale of such shares by brokers
and entities associated with the promoters of the company. The following are the main
findings of SEBI Investigation extracted in the impugned order:
"(a) It is observed from the listing application dated February 26, 2001
submitted to the Stock Exchanges by the company that 1.70 crore shares were
allotted to the following entities:
55
directing the promoter or the company to deposit some estimated amount to an escrow
account in a bank will not serve this purpose of bringing justice to the unsuspecting
investors who had bought such unlisted shares. To our suggestion that SEBI may
appoint an authority to undertake and oversee the whole process, Shri Rafique Dada,
the learned senior counsel agreed that SEBI is the proper body for this work.
Accordingly the following directions are given:
(a) SEBI to appoint an appropriate authority who will be entrusted with the task
of identifying the scrips which were not listed and were alleged to have been
issued from 20th May, 2000 to 12th January, 2001 and introduced into the
market by Shri Dinesh Dalmia and his Associates. The authority to be appointed
by SEBI may be either one of its senior official not below the rank of GM or a
person from outside considered fit for the purpose.
(b) The said authority will identify, in consultation with the representative of
the appellant, the eligible shareholders who had bought such unlisted shares
during the period mentioned above. The authority will also verify and satisfy
itself (by reference to original purchase contract or such other evidences as are
available) about the price at which these unlisted shares were originally sold to
the investors during the material period and thereafter arrange for refund of the
purchase price to the investor after he surrenders those shares. The above
arrangement of buying back at original purchase price will be applicable to
those original investors who had bought the unlisted shares during 20th May,
2000 to 12th January, 2001 and continue to retain them at the time of
tendering these shares to the authority appointed by SEBI with proof.
(c) Apart from the above Shri Dinesh Dalmia shall buy from the market (either
at par or at market rate whichever is higher) the remaining unlisted shares of
DSQ Software Ltd., circulated in the secondary market as expeditiously as
possible and retain the same in a separate Demat account and Shri Dinesh
Dalmia shall seek re duction of capital in accordance with law.
(d) The promoter of DSQ Software Ltd., Shri Dinesh Dalmia, will have to fund
this entire operation. For this purpose he will deposit Rs. 30 crores (minus the
amount already deposited with SEBI pursuant to the order dated 03/02/2005 on
Interlocutory Application) as a first installment in an escrow account in a
Nationalised Bank within a period of one month from the date the authority
appointed by SEBI calls open to do so. The bank in which the account is to be
opened will be selected in consultation with the authority appointed by SEBI.
Shri Dalmia or his power agent must undertake, in writing, to further fund this
escrow account to the extent needed and whenever called upon to do so by the
authority appointed by SEBI for the purpose of purchasing the unlisted shares if
tendered.
(e) The refund of the original purchase price as per item (b) above has to be
effected only to those investors who had purchased these unlisted shares
during 20/05/2000 to 12/01/2001 and are still holding these unlisted shares;
similarly, the buy back by the company at market price or at par, as per item
(c) above, has to be arranged only for those investors who had purchased such
unlisted shares from secondary market after 20/05/2000 and are still holding
those shares. If any of the investors has already exited by selling those shares
and thereby incurred any loss he cannot look to the authority for compensation.
56
(f) The authority appointed by SEBI should advertise through the media inviting
original investors who are still holders of such unlisted scrips to submit claims
with required documentary evidence about the price paid etc. The authority to
be appointed by SEBI may devi se its own procedure about the manner in which
it is to be satisfied about the veracity of the claims submitted in the presence of
the representative of the appellant. Similarly, those who bought such unlisted
shares from secondary market at a later date should also be called upon to
submit their claims to the authority with such evidence as the authority may
decide.
(g) As and when the amount deposited in the escrow account is exhausted in
making payments to the satisfaction of such claims, the authority shall call
upon Shri Dinesh Dalmia, promoter of DSQ Software Ltd., or his power agent
to deposit further amounts in multiples of Rs. 5-10 crores as the authority made
decide . It will be incumbent upon Shri Dinesh Dalmia or his power agent to
comply with the directions of the authority from time to time by placing such
funds as he is called upon to do to the credit of the escrow account within 2/3
weeks (as the authority may decide) from the receipt of such instruction from
the authority.
(h) The authority should endeavour to complete the whole process preferably
within a period of not more than six months from the time the authority is set
up by SEBI. With a view to achieving this objective it will be in order for the
authority to fix adequate time limit for submission of claims from the date of
publication of the advertisement in the media. SEBI is to provide necessary
office infrastructure and adequate secretarial and legal support to the authority.
(i) A senior official from SEBI, who is not below the rank of ED, should be
entrusted with the work of overseeing the whole process and the working of the
authority. It would be his bounden duty to personally oversee the whole
process and submit progress report in this matter to SEBI .
(j) With respect to directions at clause (iv) of the impugned order that Shri
Dinesh Dalmia shall buy 1.30 crore shares of DSQ Software Ltd., circulated into
the secondary market, we direct that Shri Dinesh Dalmia shall buy back such of
the unlisted shares of DSQ Software Ltd., from out of the 1.30 crores unlisted
shares which are not tendered to the authority but which continue to be held by
the shareholders. In other words, if there are not enough tenderers to satisfy
the respondent, the balance unlisted shares shall be bought in the secondary
market by Dinesh Dalmia which together will amount to 1.30 cores unlisted
shares. Such buy back of shares from the market by him shall be at higher of
face value or market price.
(k) Particulars of all such shares for which the original purchase price is
refunded to the original investor by the authority in terms of item (b) above or
from whom the shares are bought back at par/market price by Shri Dinesh
Dalmia in terms of item (j) above will be passed on to the company who will
take necessary steps for removing them from the list of demat shares (1.3
crores share unlisted were demated) and ultimate cancellation of these shares
in accordance with the Law and after obtaining necessary approvals from all
concerned authorities. In respect of 40 lakh shares which were issued in
physical form (out of the total 1.70 crore unlisted shares) urgent steps would
be initiated to cancel them by observing due process of law.
57
(l) If any surplus amount is left lying in the escrow account after the authority
declares the whole operation as closed, such surplus shall be credited to DSQ
Software Ltd., which could use it for paying its creditors as submitted by the
learned senior counsel for the appellants to this Tribunal in his affidavit.
(m) Items (iii), (iv) and (v) of the impugned order dated 9th September, 2004
stand modified accordingly.
(n) Items (i) and (ii) of the impugned order are upheld subject to the following
modification:
The period of debarment shall be from the date when the interim order
was passed by SEBI on 27.1.2001 and will run for a period of 10 years
from that date and the order to that extent also is modified. There is no
provision in law to direct the appellant not to hold any office in any
other institution associated with the securities market particularly since
the show cause notice did not propose to impose any such restriction.
The impugned order is accordingly modified. Appeals are disposed of
accordingly. No order as to costs.
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MUMBAI
Date of decision : 9.5.2008
1. Rajiv B. Gandhi
2. Sandhya R. Gandhi
3. Amishi B. Gandhi …… Appellants
Versus
Securities and Exchange Board of India …… Respondent
Mr. Somasekhar Sundaresan Advocate with Mr. Karan Bharihoke Advocate and
Mr. Zerick Dastur Advocate for Appellants.
Mr.Shiraz Rustomjee Advocate with Mr. Anant Upadhyay Advocate for the
Respondent.
Coram : Justice N.K. Sodhi, Presiding Officer

Arun Bhargava, Member
Utpal Bhattacharya, Member
Per : Justice N.K. Sodhi, Presiding Officer
Whether the appellants are guilty of ‘insider trading’ is the short question that
arises for our consideration in this appeal filed under section 15T of the Securities and
Exchange Board of India Act, 1992 (hereinafter called the Act) against the order dated
November 30, 2006 passed by the adjudicating officer holding them guilty and
imposing a penalty of Rs.5 lacs on each of them.
Facts in this case are not in dispute. Rajiv B. Gandhi (Gandhi) appellant no.1 is
the Company Secretary and Chief Financial Officer of Wockhardt Limited (for short the
company). Sandhya Gandhi appellant no.2 is his wife and Amishi Gandhi (appellant
no.3) is his sister. The shares of the company are listed, among others, on the National
Stock Exchange of India Limited and the Bombay Stock Exchange Limited (hereinafter
referred to as NSE and BSE respectively). Gandhi as the chief financial officer of the
company is primarily responsible for the preparation of the accounts of the company
including its balance sheets. As per the regulations framed by the Securities and
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(i) either on his own behalf or on behalf of any other

person, deal in securities of a company listed on any
stock exchange on the basis of any unpublished
price sensitive information; or
(ii) ………………………...
(iii) ………………………….……….……”
Regulation 4 then provides that any insider who deals in securities or communicates any
information or counsels any person dealing in securities in contravention of the
provisions of regulation 3 shall be guilty of insider trading. Insider is a person who is or
was connected with the company and who is reasonably expected to have access by
virtue of such connection to unpublished price sensitive information in respect of
securities of the company. A person who has received such information or has had
access to such information is also an insider. Unpublished price sensitive information
has been defined in the regulations to mean any information which relates to any of the
matters referred to in sub clauses (i) to (viii) of regulation 2(k) and is not generally
known or published by the company for general information but which, if published or
known, is likely to materially affect the price of the securities of the company in the
market. In other words, any information which is not known but, if known, could either
way affect the price of the scrip of the company would be unpublished price sensitive
information. This includes, among others, financial results of the company, intended
declaration of dividends – both interim and final, amalgamations, mergers and
takeovers.
Let us now examine whether Gandhi traded on the basis of the information that
was in his possession and not available to any other investor/trader. On a plain reading
of regulation 3 it appears to us that the prohibition contained therein shall apply only
when an insider trades or deals in securities on the basis of any unpublished price
sensitive information and not otherwise. The words “on the basis of” are significant
and mean that the trades executed should be motivated by the information in possession
of the insider. To put it differently, the information in possession of the “insider”
should be the factor or circumstance that should induce him to trade in the scrip of the
company. It is then that he will be said to have dealt with or traded “on the basis of”
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7
that information. We are of the considered opinion that if an insider trades or deals in
securities of a listed company, it would be presumed that he traded on the basis of the
unpublished price sensitive information in his possession unless he establishes to the
contrary. Facts necessary to establish the contrary being especially within the
knowledge of the insider, the burden of proving those facts is upon him. The
presumption that arises is rebuttable and the onus would be on the insider to show that
he did not trade on the basis of the unpublished price sensitive information and that he
traded on some other basis. He shall have to furnish some reasonable or plausible
explanation of the basis on which he traded. If he can do that, the onus shall stand
discharged or else the charge shall stand established. Let us illustrate to explain what
we mean. If an insider who sold the shares were to plead that he wanted to raise funds
to meet an emergency in his family say, marriage of his daughter or bypass surgery of a
close relation and could establish that fact, it would be reasonable to hold that even
though he was in possession of unpublished price sensitive information, the motive of
the trade was to meet the emergency. He would not be guilty of the charge of insider
trading.
In view of the interpretation that we have placed on regulation 3 and on the
admitted facts of this case, there would be a presumption that the appellants being
insiders, traded on the basis of the unpublished price sensitive information in possession
of Gandhi and the onus to rebut that presumption was on them. They have not only
failed to rebut the presumption but have not even attempted to offer an explanation as to
the basis which prompted them to trade. Faced with this situation, the learned counsel
for the appellants contended that at no stage of the proceedings were they asked for an
explanation as to the basis of their trade and, therefore, there was no occasion for them
to offer an explanation. We cannot accept this contention. The appellants were clearly
informed in the show cause notice that they “had sold 3600 shares on 21.1.1999 (before
the board meeting) and 22.1.1999 (in the first half hour before the market could react to
the news) on the basis of unpublished price sensitive information”. In view of this
61
8
specific allegation and considering the fact that the appellants are insiders there was a
presumption against them and it was for them to have offered an explanation to rebut
that presumption. The facts which prompted the appellants to trade in the scrip of the
company while in possession of unpublished price sensitive information were only
within their knowledge and it was for them to spell out those facts to rebut the
presumption raised by regulation 3 against them. So much so, we asked the learned
counsel for the appellants during the course of the hearing to tell us the reasons which
prompted/motivated the appellants to trade in the scrip, being insiders. He was unable
to offer any explanation. It is, thus, clear that the appellants have failed to discharge the
onus of rebutting the presumption raised against them under regulation 3 of the
regulations. They must, therefore, fail.
In view of our findings recorded above, it is not necessary to deal with
the other contentions raised by the learned counsel for the appellants.
In the result, the question posed in the earlier part of the order is
answered in the affirmative and we hold that the appellants were guilty of insider
trading. The penalty levied on them is not on the higher side keeping in view the
seriousness of the charge and, therefore, it does not call for any interference in appeal.
The appeal is accordingly dismissed with no order as to costs.
Sd/-
Justice N.K. Sodhi
Presiding Officer
Sd/-
Arun Bhargava
Member
Sd/-
Utpal Bhattacharya
Member
9.5.2008
ddg/-

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Team Code - 112

8th GNLU MOOT ON SECURITIES AND INVESTMENT LAW, 2024

BEFORE THE SECURITIES APPELLATE TRIBUNAL

CASE NO. ___/ 2023

APPEAL NO. __/2023

MR. KAPIL VARMA & ANR ….APPELLANTS

APPEAL NO. __/2023

PFTC & ORS. …. APPELLANTS

APPEAL NO. __/2023

MR. TAPAN MANOJ & ANR ….APPELLANTS

COMPENDIUM for THE RESPONDENT

Sr. No. Name of Case Page No.

1. Confirmatory Order in Matter of Stock Recommendation using 1–5

YouTube in the scrip of Sadhna Broadcast Limited

2. Adjudication Order in the matter of Insider Trading in the scrip of 6–9

3. Samir C. Arora v. SEBI 10 – 12

4. Adjudication Order in respect of Reliance Petroinvestments Ltd. 13 – 15

5. Final order in the matter of Divi’s Laboratories Ltd. 16 – 20

6. SEBI Order in the Scrip of M/S TATA Finance Ltd. 21 – 24

7. SEBI Order In the matter of KLG Capital Services Limited 25 – 28

8. The Chairman, SEBI v. Shriram Mutual Fund & Anr. 29 – 32

9. SEBI v. Kishore R. Ajmera 33 – 36

10. HB Stockholdings Ltd. v. SEBI 37 – 40

11. State of Andhra Pradesh v. N. Radhakishan 41 – 43

12. Bhorukha Financial Services Ltd. v. SEBI 44 – 46

13. Anand Rathi & Ors. v. SEBI 47 – 50

15. DSQ Securities Ltd. v. SEBI 54 – 57

16. Rajiv B. Gandhi v. SEBI 58 – 61

SECURITIES AND EXCHANGE BOARD OF INDIA

S. No. Name of the Noticee PAN

1. Manish Mishra (Noticee no. 1) AMPPM6823L

2. Anshu Mishra (Noticee no. 2) BMIPS3480H

3. Dipak Dwiwedi (Noticee no. 3) ATDPD4055C

4. Purav Bharatbhai Patel (Noticee no. 8) ANWPP1802G

5. Subhash Agarwal (Noticee no. 10) AAEPA6699R

6. Gaurav Gupta (Noticee no. 11) AKHPG5185D

7. Shreya Gupta (Noticee no. 12) AIMPJ4419J

8. Pooja Aggarwal (Noticee no. 13) AGMPA6216C

9. Varun Media Private Limited AAACV7714K

10. Saurabh Gupta (Noticee no. 15) BFEPG0692E

11. Sadhna Bio Oils Pvt. Ltd. AAKCS4057N

12. Rakesh Kumar Gupta (Noticee no. 17) AAEPG2752R

13. Madhu Render Singh (Noticee no. 18) CDBPS4643B

Confirmatory Order in the matter of Stock Recommendations using YouTube in the

Confirmatory Order in the matter of Stock Recommendations using YouTube in the

“In a scheme of manipulative and unfair trading it is not necessary that

37.10.9. As explained in the paragraphs above, when such a tell-tale

Confirmatory Order in the matter of Stock Recommendations using YouTube in the

passed against them (excluding restraint from dealing in securities which

Confirmatory Order in the matter of Stock Recommendations using YouTube in the

DATE: OCTOBER 31, 2023 WHOLE TIME MEMBER

PLACE: MUMBAI SECURITIES AND EXCHANGE BOARD OF INDIA

Confirmatory Order in the matter of Stock Recommendations using YouTube in the

BEFORE THE ADJUDICATING OFFICER

BACKGROUND OF THE CASE

1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’)

“It is a fundamental principle of law that proof of an allegation levelled against

allegations/charges made and levelled. While direct evidence is a more

26. Regarding the issue of relevance of circumstantial evidence, the Hon’ble