Origin Agrostar Ltd. vs Securities And Exchange Board Of … on 24 January, 2005

Securities Appellate Tribunal
Origin Agrostar Ltd. vs Securities And Exchange Board Of … on 24 January, 2005
Equivalent citations: 2005 60 SCL 140 SAT
Bench: K Rajaratnam, B Samal, N Lakhanpal


Kumar Rajaratnam, J. (Presiding Officer)

1. Appeal is taken up with consent of parties for final disposal.

2. The appellant company challenges the impugned order wherein the appellant along with the promoter Dinesh Dalmia was found guilty of violating Regulation 4(a), 4(b) and 4(d) and Regulation 12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 1995 (hereinafter referred to as the Regulation). The respondent having found the appellant guilty of violation of Regulations and in exercise of power under Section 11B of the SEBI Act directed the appellant and the promoter Dinesh Dalmia not to access the capital market or deal in securities for a period of 5 years with immediate effect. This impugned order dated 10-4-2003 is under challenge before us.

3. The allegations against the appellants briefly stated are as follows:

• There was a sudden spurt in the volumes and price of the shares of DSQB between June 1994 and December 1994 and from June 1995 and March 1996. The scrip movement was witnessed due to purchases made by the group companies of DSQB and not on account of genuine investor interest;

• The analysis of the trading records prior to and after the Rights issue suggested that the scrip price of DSQB was manipulated/rigged up by the DSQ Holdings Ltd. along with other entities;

• The DSQ group companies had availed of loan facility from various banks/financial institutions and had pledged sizable quantities of shares of DSQB as collateral security with the banks/financial institutions. The loan facility obtained by the DSQ group was diverted again to purchase shares of DSQB from the market;

• It appeared that a false/artificial market was created in the scrip as a result of such large scale buying in the scrip by the DSQ group companies;

• The concerted/concentrated buying of DSQ Holdings Ltd. and another group company induced short selling and the short sellers were trapped resulting in a number of auctions. It appeared that the purchase of shares by DSQ Holdings Ltd. were made with the prior knowledge of the impending rights issue of the company;

• It appeared that the DSQ group companies may have substantially acquired the shares without following the procedure of open offer in terms of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.

In short the finding of the investigation team related to and were in respect of the purchases made by the DSQ companies in the shares of the appellant company and there were various charges of violations of Regulations by those companies in effecting those purchases. However, there was no finding of any manipulation.

4. The only point urged before us by the appellant company is with respect to the violation of the principles of natural justice.

5. Mr. I. Subramanian, the learned senior counsel for the appellant submitted that he received a letter dated 4-12-2002 stating that the appellant was permitted personal hearing by the Chairman and that the personal hearing was scheduled to be held on 14-12-2002 but was postponed by the Chairman to 18-12-2002 at 2 p.m.

6. The letter by the respondent reads as follows:

“This has reference to the captioned subject and our earlier letter ref : IES/SBM/22609/02 dated November 21, 2002. You are hereby informed that the date for personal hearing by Chairman, Securities & Exchange Board of India which was scheduled for December 14, 2002 now stands postponed to Wednesday, December 18, 2002 at 2:00 P.M. You are requested to be present at the office of SEBI, Mittal Court ‘B’ Wing, Nariman Point, Mumbai along with all records and documents you may choose to rely upon in support of your submissions. In case you fail to avail the same, SEBI will be free to decide the matter on the basis of available facts and records.” [Emphasis supplied]

7. On 16-12-2002, the counsel for the appellant wrote a letter stating that 18-12-2002 was not convenient to the appellant and requested for a short adjournment by two weeks. The letter by the counsel for the appellant dated 16-12-2002 reads as follows:

“Our clients (1) Sri Dinesh Dalmia, DSQ Biotech Ltd.; (2) the Managing Director, Pillayar Parriyar Textiles Ltd., Chennai have been directed by your good self to appear for a personal hearing on 18-12-2002 by your communication dated 4-12-2002.

We wish to inform you that we have been retained to appear before you on 14-12-2002 but we notice now that the enquiry has been posted to 18-12-2002. Due to our commitments in Chennai on 18-12-2002, we will be unable to appear before your goodself on the said date and request that the matter may be adjourned by two weeks.”

8. There was no reply to the letter and the impugned order came to be passed on 21-4-2003. Mr. I. Subramanian, learned senior counsel for the appellant vehemently submitted that his client was ready to appear before the respondent on 14-12-2002 and the respondent suo motu changed the date to 18-12-2002. The respondent was informed by the appellant through his counsel that the change to 18-12-2002 was a suo motu change and he sought for an adjournment by two weeks. He further submitted that there was no reply to the letter dated 16-12-2002 and the impugned order came to be passed on 21-4-2003. All that the senior counsel for the appellant requests is for a personal hearing, as was granted by the respondent. He fairly submitted that during the enquiry if the Court were to remand the matter, the appellant would not access the capital market during enquiry.

9. The learned counsel also submitted that there is no dispute with regard to the facts of the case insofar as the adjournment is concerned. At paragraph 3.11 of the impugned order the respondent refers to this factual aspect, but no reason was given in the impugned order as to why no adjournment was not granted when the respondent himself postponed the hearing from 14-12-2002 to 18-12-2002.

Paragraph 3.11 of the impugned order reads as follows:

“3.11 An opportunity of oral hearing was granted to Shri Dalmiya on 28-10-2002. However, no one appeared on behalf of DSQ Group/Shri Dinesh Dalmiya. SEBI had received a fax on the scheduled date from DSQB stating that due to unforeseen circumstances, they were unable to attend the hearing and requested for another date. Subsequently, a further hearing was granted on 14-12-2002 which was postponed to 18-12-2002 and the same was communicated vide letter dated December 4, 2002. No one appeared on behalf of DSQ Group/Shri Dinesh Dalmia. Shri Dinesh Dalmia through their Advocates M/s. Vaidyanathan Associates vide their letter dated 16-12-2002 requested for postponement of the hearing by 2 weeks citing personal commitments on 18-12-2002.”

10. Mr. Kumar Desai, learned senior counsel for the respondent submitted that enough opportunities were given to the appellant and this technical point should not come in the way of the impugned order being set aside.

11. He further submitted in the event the Court is inclined to remand the matter only for the purpose of giving personal hearing to the appellant, the appellant during the enquiry should not access the capital market.

12. We have carefully considered the submission made by the counsel for the appellant and the respondent. We feel that having given an opportunity of personal hearing on 14-12-2002, the respondent should have taken up the matter on 14-12-2002. For some reason if the respondent was not able to take up the matter on 14-12-2002, the respondent was justified in adjourning the matter to 18-12-2002. But if that date is not convenient to the appellant then the respondent ought to have given a date that is convenient to both the appellant and respondent. This would have put an end to this controversy.

13. This having not been we have no alternative except to direct the respondent to give an opportunity of personal hearing to the appellant as agreed to in the letter of respondent dated 4-12-2002 and pass appropriate orders after hearing the appellant.

14. Only in that limited view of the matter, we set aside the impugned order only insofar as the appellant is concerned and remand the matter to the respondent. We direct the appellant or its representative to be present before the respondent on 10-3-2005 with a copy of this order. It is entirely up to the respondent to regulate the enquiry and dispose of the enquiry in accordance with law. The material in the impugned order can be reiterated if the explanation of the appellant is not satisfactory. However, the respondent shall apply his mind with respect to the submissions made at the time of oral hearing and pass appropriate orders as expeditiously as possible.

15. There will be a further direction that the appellant shall not access the capital market during the pendency of the enquiry on remand. It is also made clear that the impugned order is set aside only insofar as the appellant is concerned and not with respect to the promoter. The appeal is disposed of accordingly. No order as to costs.

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