JUDGMENT
N.K. Sodhi, J. (Presiding Officer)
1. This appeal under Section 15T of the Securities and Exchange Board of India Act, 1992 (for short “the Act) is directed against the order dated 23.8.2004 passed by the Securities and Exchange Board of India ((for short “the Board”) restraining M/s. Vision Technologies India Ltd. from accessing the securities market and prohibiting it from buying, selling or dealing in securities directly or indirectly for a period of five years. This order was passed exercising powers under Section 11 and 11B of the Act read with Regulations 11 and 13 of the Securities and Exchange Board of India (Prohibition of Fraudulent & Unfair Trade Practises Relating to Securities Market) Regulations, 2003 ((for short “the Regulations”).
2. M/s. Vision Technologies India Ltd. (hereinafter called “the Company”) is a company registered under the Companies Act, 1956 and its shares are listed on the Bombay Stock Exchange and other stock exchanges including the Bangalore Stock Exchange. The Board of Directors of the Company in their meeting held on 21.11.1999 decided to make a further allotment of 1,10,69,800 equity shares of Rs. 10/- each at par. The Company decided to issue preferential shares and since some of the shares were to be allotted to persons who were not shareholders of the Company, a resolution under Section 81(1A) of the Companies Act was passed. In pursuance to the decision taken on 21.11.1999 an extra-ordinary general meeting of the shareholders of the Company was held on 22.12.1999 in which it was resolved to issue further shares within the authorised capital of the Company to any financial institution, foreign institutional investor, corporates and such other persons who were not the shareholders of the Company in such proportion and in such manner as the Board may deem fit and proper in its absolute discretion. Accordingly, 14,40,000 shares of the Company were issued and allotted by the Board of Directors in the meeting held on 8.3.2000. The names of the allottees were mentioned in the resolution. Again on 21.3.2000 the Board of Directors in their meeting allotted 12,00,400 fully paid up shares and 84,29,400 partly paid-up shares. The Company received a sum of Rs. 2.9 crores from M/s. Shalibhadra Securities Ltd. (for short “SSL”) for allotment of shares to different investors named/mentioned by SSL in its letters addressed to the Company. The Company also received another sum of about Rs. 50 lakhs from its promoters through SSL for the allotment of shares. Since these amounts received by the Company are in dispute in the present proceedings it is necessary to give the details of the amounts received. It is common case of the parties that the aforesaid amounts were received by the Company in the following manner which is clear from the three charts as given below:
1) Details of Bank Statement of the Company with Bank of Punjab, Fort Branch, Mumbai
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Date Particulars Debit Credit Bank Name and Branch
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22-Mar-00 Tr. from SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. to SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. from SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. to SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. from SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. to SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. from SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. to SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. from SSL 5,000,000 Bank of Punjab, Fort
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22-Mar-00 Tr. to SSL 5,000,000 Bank of Punjab, Fort
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28-Apr-00 Tr. from SSL 40,00,000 Bank of Punjab, Fort
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28-Apr-00 Tr. To SSL 40,00,000 Bank of Punjab, Fort
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2) Details of Bank Statement of the Company with Union Bank of India, Princess Street, Mumbai
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Date Particulars Debit Credit Bank & Branch
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25.01.00 By High Value 9,99,910 UBI, Princess Street
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25.01.00 By High Value 9,99,910 UBI, Princess Street
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25.01.00 By High Value 9,99,910 UBI, Princess Street
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25.01.00 By High Value 9,99,910 UBI, Princess Street
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25.01.00 By High Value 9,99,910 UBI, Princess Street
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27.01.00 To Chq.
Returned 9,99,910 UBI, Princess Street
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28.01.00 By High Value 9,99,910 UBI, Princess Street
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3) Details of Bank Statement of SSL with Bank of Punjab, Fort Branch, Mumbai
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Date Particulars Debit Credit Bank & Branch
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25.01.00 Vision Technology 9,99,910 Bank of Punjab, Fort
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25.01.00 Vision Technology 9,99,910 Bank of Punjab, Fort
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25.01.00 Vision Technology 9,99,910 Bank of Punjab, Fort
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25.01.00 Vision Technology 9,99,910 Bank of Punjab, Fort
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28.01.00 Vision Technology 9,99,910 Bank of Punjab, Fort
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3. Since the amounts of Rs. 2.9 crores received by the Company from SSL were returned to it on the same day as is clear from the first chart the Board in the impugned order relying on the findings recorded by the investigating officer came to the conclusion that the amounts received by the Company were only book entries and non-genuine transactions and therefore no amount had come to the Company. No such finding had been recorded with regard to the other sum of Rs. 50 lakhs received from the promoters of the Company for the allotment of preferential shares.
4. The Board received a compliant from one A.K. Puri alleging that the company was being managed in a whimsical manner and that serious irregularities had been committed by it at the time of and in the matter of preferential allotment of shares made by it. Investigations were ordered into the trading of the shares of the Company and it revealed that the funds received by the Company on account of preferential allotment had not come in properly and that there was no inflow of funds in its bank accounts. The Board prima facie found that the Company had resorted to book entries for showing subscription for preferential allotment. The investigations further revealed that money in respect of the shares allotted to the directors and their family members had been received in January 2000 although the decision to allot the shares was taken in March 2000. The investigating officer also found that the funds of the Company had been routed through the Stock Exchange through SSL and some other institutions to artificially raise the price of its scrip. The investigating officer further concluded that these entities had manipulated the price of the scrip to artificial levels.
5. Pursuance to the aforesaid investigations, a notice dated 18.9.2003 was issued to the Company calling upon it to show cause as to why suitable directions including directions restraining/prohibiting it from buying and selling securities for a specific period be not issued under Section 11(4)(b) read with Section 11B of the Act and Regulation 11 of the Regulations. The Company filed its reply on 15.10.2003 and another reply on 6.2.2004 and thereafter personal hearing was afforded to it. On a consideration of the report of the investigating officer, the replies filed by the Company and on the basis of the submissions made by it, the Board found that the Company did not receive the monies referred to hereinabove in the charts and those were mere book entries and without any real infusion of funds and that the money was actually used by SSL in connivance with the Company and other entities to artificially manipulate the price of the scrip of the Company. The Board found that the price of the scrip of the Company increased from Rs. 4/- on 12.10.1999 to a peak of Rs. 650/- on 7.3.2000 and thereafter there was a steep fall in the price. In view of these findings, the Board restrained the Company from accessing the securities market and prohibited it from buying, selling or dealing in securities for a period of five years. Hence this appeal.
6. We have heard the learned counsel for the parties. The real question that needs to be decided is whether the Company received funds when it made the preferential allotment of its shares to the promoters and others. The charts reproduced in the earlier part of the order would clearly indicate that SSL had deposited with the Company a sum of Rs. 2.50 crores on 22.3.2000 and again another sum of Rs. 40 lakhs on 28.4.2000. It is also clear from the chart that the said amounts were returned to the Company on the same day they were received. The bank statements have been produced and all the accounts of the Company and those of SSL are on record and they substantiate the plea of the Company that the amount was actually received because there is a credit entry in the accounts of the Company and a corresponding debit entry in the bank accounts of SSL. The question for consideration is why did SSL deposit the money with the Company and why did the Company return the same. This question was put to the managing director of the Company during the course of the investigations. He was confronted with these bank entries and the reply he furnished was that the amounts were paid by SSL to the Company on behalf of different investors for the allotment of preferential shares of the Company. We have on record different letters written by SSL to the Company mentioning the names of the investors on whose behalf the amount was being deposited. It is thus clear that SSL which claims to be an investment advisor had actually made the payment of the funds on behalf of its clients who were investing in the shares of the Company. The next question that was asked from the managing director of the Company was as to why the amount was returned back to SSL on the same day. His stand was that the Company thought it prudent to invest the said amount through SSL which was its portfolio management advisor and therefore gave that money for investment purposes. The investigating officer and the Board did not accept this plea and found that there was no material on record to show that any investment was made. The specific stand of the Company was that the portfolio manager (SSL) had invested the money for purchase of 8 lakh shares of Electrolux Kelvinator Ltd. As already observed, this was not believed for want of any material on record. It is common case of the parties that during the course of the investigations, the Company informed the investigating officer that 8 lakh shares had been purchased through SSL with the money that was paid to it. This is a fact which could be easily verified. Without verifying the same, a finding was recorded that there was no material on record to show that any investment was made. We were inclined to have this fact further enquired into but then it was pointed out by the learned counsel for the appellant that material had been palced before the investigating officer that 8 lakh shares had been purchased by the Company on June 16, 2000. He referred to the statement made by the managing director of the Company before the investigating officer and our attention was drawn to the answer given to question No. 17 at page 38 of the paper book which makes it abundantly clear that the investigating officer knew that the said shares had been purchased by the Company. These shares were in dematerialised form and the statement of the demat account of the Company with the depository is on the record and the same had also been placed before the investigating officer. In view of this material on the record we have no hesitation in holding that the money which the Company paid to SSL was for investment in Electrolux Kelvinator shares and that this fact was known to the investigating officer. It is pertinent to mention here that on a look at the entries in the charts reproduced hereinabove the first impression that one gets is that of suspicion but when these entries are examined in depth in the context of the other materials on the record we are satisfied that there is no manipulation done as indeed the funds had been transferred from one bank account to the other. It is by now well settled that suspicion how so ever strong cannot take the place of proof. It would be worthwhile quoting the observations of the Apex Court in Union of India v. Chaturbhai M. Patel & Co. which aptly apply to the circumstances of the present case.
It is well settled that fraud like any other charge of a criminal offence whether made in civil or criminal proceedings, must be established beyond reasonable doubt; per Lord Atkin in A.L. N. Narayanan Chettyar v. Official Assignee, High Court Rangoon AIR 1941 PC 93. However suspicion alone can never take the palce of proof. In our normal like we are sometimes faced with unexplainable phenomenon and strange coincidences, for, as it is said, truth is stranger than fiction.
7. As regards the amount of Rs. 50 lakhs received from the promoters and their family members for the allotment of preferential shares, we are of the view that the said amount also came into the bank accounts of the Company through SSL and the same has been utilised by the Company. During the course of the investigation, the managing director had been specifically asked as to how the money was raised by them (promoters and their relations). At this stage it is necessary to refer to the pertinent questions asked and replies given by him. They read as under:
Q.25: It is seen from the bank statement of account of VTIL that 5 entries of Rs. 9,99,910.00 have been credited on January 25, 2000 and January 28, 2000. What are these credits in the account of VTIL?
A. These are the investment made by myself and my family for the preferential allotment.
Q. 26: The investigating team has observed from the account of Shalibhadra Securities Ltd. that it had made 5 payments of Rs. 9,99,910/- each on January 25 and January 28, 2000. Please offer your comments?
A. It was an advance taken from Shalibhadra Securities Ltd.
8. Placing reliance on the aforesaid answers given by the managing director the investigating officer and the Board concluded that the managing director had stated that the amounts had been raised by taking loans from the Company. This finding of the Board cannot be sustained. A reading of the two answers makes it clear that the managing director at no stage had said that the amount had been taken as an advance by the Company from SSL. All that the managing director said was that the amount paid by SSL had been taken as an advance from it. It is obvious that the advance was taken by the promoters and their relatives for purchasing the shares of the Company. We have referred to this finding recorded by the Board because the learned counsel appearing for the respondent had strenuously urged that the promoters and shareholders of the Company had purchased the shares after taking an advance from the Company itself. As already stated we are not inclined to accept this contention and have no hesitation in reversing the finding of the Board in this regard.
9. We may now deal with the other findings recorded by the Board. The Board found that the money belonged to SSL and the same was used in the market for artificially raising the price of the scrip of the Company and in this process both the Company and SSL along with some other entities had connived. We have already held that the amount was actually received in the account of the Company from SSL which deposited the same on behalf of the investors of the Company and having received the amount the Company invested that amount through SSL for purchase of 8 lakh shares of Electrolux Kelvinator Ltd. If the money on receipt was invested for the purchase of shares we see no illegality in such a transaction. The function of the Board as a Regulator is only to ensure that the players in the securities market play the game according to the rules. It is not the function of the Board to judge the wisdom of any business transaction entered into by the Company. The Company is a business house and is entitled to take its own business decisions as long as they do not violate any law. Such decisions may result in some profit or loss and that is for the Company to see and the Regulator cannot draw adverse inferences on that score.
10. There is yet another reason why the finding of the Board regarding manipulation of the scrips in connivance with the Company cannot be upheld. It is alleged in the show cause notice that the price of the scrip of the Company increased from Rs. 4/- on 12.10.1999 to a peak of Rs. 650/- on 7.3.2000 and thereafter there was a steep fall in the price. In other words the allegation levelled against the Company is that it connived with other entities to manipulate the price of the scrip from 12.10.1999 to 7.3.2000. Admittedly the disputed amount of Rs. 2.90 crores on account of the allotment of preferential shares was received on 22.3.2000 and 28.4.2000. This being the position which is clear from the charts referred to above it cannot be said that the amount was allowed to be used in the market for artificially raising the price of the scrip. The period during which the share of the Company is said to have artificially risen is much prior to the receipt of the money for allotment of shares.
11. Before concluding we may take note of the two objections raised by the learned counsel for the respondent. He submits that the stand taken by the Company that it was in need of money and therefore it issued further capital to raise funds stands belied from its own explanatory statement made in the notice issued to the shareholders for the extra-ordinary general meeting held on 22.12.1999 to which reference has already been made earlier. Even if it be so, we cannot jump to the conclusion that the Company connived with SSL to manipulate its shares in the market. It is then contended by the learned counsel for the respondent that the Company could not have purchased 8 lakh shares through SSL because the latter was not a registered portfolio manager. According to the learned counsel all portfolio managers are required to be registered with the Board and therefore it was an illegal transaction. If that were so, the Board should have proceeded against the Company for the said violation, but this is not the charge levelled in the show cause notice. We cannot, therefore, record any finding as to whether the Company violated any statutory provision while making its investments.
12. For the reasons recorded above, the appeal is allowed and the impugned order dated 23.10.2004 set aside leaving the parties to bear their own costs.