|Subject Matter : Rights of depositories and beneficial owner.|
|Relevant Section : Section 10: Depository shall be deemed as registered owner for effecting transfer of ownership of security on behalf of beneficial owner; Shall not have any voting right. Beneficial owner shall have all rights and liabilities and benefits.|
|Key Issue : Whether the Protection of beneficial owner is the duty of depositor or not?|
|Citation Details : In Re: Maharashtra Polybutenes Ltd. (25.07.2017 - SEBI / SAT): MANU/SB/0153/2017|
|Summary Judgment :
Facts: SEBI conducted investigation into the alleged irregular trading in the shares of Maharashtra Polybutenes Ltd. and into the possible violation of the provisions of the SEBI Act, 1992 and Regulations made thereunder. MPL had incurred losses till the financial year 2006-07 and made a meagre profit for the financial years 2007-08 and 2008-09 respectively. MPL shares were infrequently traded but during the relevant period, there was a spurt in the volumes traded and prices. An increase of 49.85% within 5 months without there being any change in the economic fundamentals of the company was noticed and therefore an enquiry officer was appointed to look into the same.
Held: It was held that there is no material on record that quantified the profit made by the Noticee. Continuous wrong disclosures to the stock exchange regarding shares held by promoter group consecutively for four quarters is a matter to be viewed seriously. The steep reduction of the shareholding of the promoter group was withheld from the public. In terms of Section 10 of the Depositories Act, 1996, the beneficial owner is the person whose name is recorded as such with a depository and is entitled to all the rights and benefits and also subjected to all liabilities in respect of its securities held by a depository. By virtue of making wrongful and misleading disclosures to the BSE and also failure to make necessary disclosures in the prescribed forms the investors were deprived of the correct information at the relevant point of time. General public were made to believe through repeated wrong disclosures continuously for four quarters to BSE that there was no change in the shareholding of the promoters whereas the shareholding of promoter group has come down drastically. The default by the Noticee is repetitive in nature as the Noticee has made wrongful and misleading disclosures to the BSE on more than one occasion i.e. continuously for four quarters. Hence, held liable.
|Subject Matter : Pledge or Hypothecation of securities.|
|Relevant Section : Section 12: With previous approval of depository, beneficial owner may create pledge securities. Entry in the register by depository shall be evidence of pledge.|
|Key Issue : Whether the other defendants who purchased shares from defendant No. 1 can be said to be bona fide purchasers for value without notice?|
|Citation Details : Jry Investments Private Limited vs. Deccan Leafine Services Ltd. and Ors. (11.03.2003 - BOMHC): MANU/MH/1427/2003|
|Summary Judgment :
Facts: The plaintiff is an investment company. D1 is a company which carries on the business of providing finance. The plaintiff claims that D2 to D21 are companies and individuals who have participated in fraudulently receiving equity shares of ETC Network Ltd., which belong to the plaintiff. The plaintiffs aver that they parted with 6,50,000 shares in favour of D1 in order to secure repayment of a loan proposed to be taken from D1. Eventually, D1 did not give the loan. However, it transferred the shares to other defendants. The plaintiffs contention is that under the loan agreement the plaintiffs transferred 15 lakh shares to D1 with the intention of creating security. The plaintiffs did not intend and in fact did not, transfer title in the shares to D1. Therefore, the said defendant did not have any authority to transfer the shares in favour of the other defendants. The plaintiffs' case is that under the loan agreement the intention of transferring the shares to the defendants was for the purpose of securing the loan which was to be taken from D1. Since no loan was taken the transfer of the shares in favour of the defendants is void and therefore the plaintiffs remain the owner of the shares.
Held: It was held that it is clear that the other defendants had no reason to suspect that there was any defect in title of D1 particularly since the shares stood in the name of D1 as beneficial owner upon transfer by the plaintiffs. I am of view that the present purchasers from D1 are on a better footing in this case since D1 himself did not acquire title through any fraud but acquired title to the shares under the loan agreement. It is far from dear at this stage that D1 had any intention of defrauding the plaintiffs particularly when in the very first letter the defendants had made it clear that it would be necessary for the plaintiffs to transfer the shares to D1 and the plaintiffs did so. There does not seem to have been any dispute between the two since D1 at the request of the plaintiffs also returned about 8,50,000 shares to the plaintiffs and in the affidavit before this court states that D1 is willing to disburse the loan which has not been demanded by the plaintiffs himself admittedly.
|Subject Matter : Inquiry and Inspection.|
|Relevant Section : Section 18: Power of Board to call for information and the Board may call upon any issuer, depository, participant or beneficial owner to furnish in writing such information relating to the securities held in a depository as it may require in order to protect the interests of the investors|
|Key Issue : Whether the conversion of status from Stock Broker to registrar and Share Transfer agent allows you to cross the permissible limits of 100 times of its networth as stipulated under Regulation 19 (a) (viii) of the said Regulations?|
|Citation Details : SEBI vs. Integrated Enterprises (India) Ltd. (02.07.2004 - SEBI / SAT): MANU/SB/0140/2004|
|Summary Judgment :
Facts: Integrated Enterprises (India) Ltd. was registered as Registrar and Share Transfer Agent and the registration was valid till 31.10.2003. SEBI issued a Certificate of Registration to Integrated as a Stock Broker. Integrated was also issued a Certificate of registration as Depository Participant of National Securities Depositories Limited. SEBI advised IEL to stop accepting any fresh business and opening of fresh accounts, since the aggregate value of the custody holdings of IEL, as a Depository Participant was crossing the permissible limits of 100 times of its networth. But it continued opening new accounts and contended that they were entitled for conversion of status from Stock Broker to Registrar and Share Transfer Agent and hence there was no violation of the said Regulations by IEL-DP. SEBI appointed an Investigating officer for the same. Aggrieved by the order of the Inquiry officer the present appeal before the SAT.
Held: It was held that the mandate of SEBI is to protect the interests of the investors and orderly development of the securities market. Any intermediary including a Depository Participant, who transgresses the Regulations, if left unpunished, will send wrong signals to the market and also will create an atmosphere which is not conducive for the orderly development of the securities market. A broker who is also acting as a Depository Participant is literally using his networth for dual purposes, one for having exposure on Exchange and the other for having custodial holdings of beneficial owners of the Participant. Any transgression of the limits in either of the areas will have grave repercussions on the other activities. IEL-DP by not bringing down the custodial holdings to the approved limits has put the whole market, more specifically the clients of IEL as a broker and the beneficial owner who opened accounts with IEL-DP were exposed to grave risk. The court found that the recommendations of the Enquiry Officer are adequate and agreed with the recommendations of the Enquiry Officer for suspension ofuspend the certificate of registration granted to the Integrated Enterprises (India) Ltd., as a Depository Participant, for a period of six months.
|Subject Matter : Power of the board.|
|Relevant Section : Section 19: Power of Board to give directions in certain cases. The board has power to give directions in order to prevent interest of the investors.
Section 19H: Power to adjudicate-the Board may appoint any officer not below the rank of a Division Chief of the Securities and Exchange Board of India to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty
|Key Issue : a) Whether the DIS submitted by the POA holders on behalf of clients of the Noticee not signed by the POA holder i.e. stock broker are in consonance with the regulations?
b) Whether it can be held liable when it was unable to produce records of instructions received for execution of DIS by the POA holder for the sample selected despite seeking the same repeatedly?
|Citation Details : In Re: Punjab National Bank (25.06.2018 - SEBI / SAT): MANU/SB/0265/2018|
|Summary Judgment :
Facts: SEBI conducted inspection of the books of accounts/records/documents maintained by Punjab National Bank in respect of activities carried out by it as a SEBI registered Depository Participant with a focus to verify whether the necessary documents are being maintained by it in the manner specified by the concerned Acts, rules, regulations and circulars made/issued thereunder and to verify the extent of compliance with respect to provisions relating to pledge, DIS and transfer of securities and other matters related thereto. The observations made during the inspection were communicated to the Noticee. SEBI felt satisfied that there are sufficient grounds to adjudicate upon the aforesaid alleged violations by the Noticee and appointed the undersigned as Adjudicating Officer under Section 19-H of Depositories Act, 1996 to inquire into and adjudge the alleged violations imposed on.
Held:a) The court held that trading of share takes place with the electronically given consent of the client on POA holder website and website of the Noticee. Thus the requirement as specified under regulation 42 (3) of the DP Regulations that "Every entry in the beneficial owner's account shall be supported by electronic instructions..." remains fulfilled as the systems and procedures adopted by the Noticee reflects substantial compliance on the part of the Noticee with the provisions of the said regulations. the depository NSDL which is conducting annual audit of the Noticee from past 10 years, including the period prior to and post inspection, has not pointed out such alleged discrepancy in the systems and procedures adopted by the Noticee for handling instructions on behalf of the clients from POA holders.
|Subject Matter : Special court to take cognizance of case.|
|Relevant Section : Section 22D: Any offence under the Depositories Act, 1996 is required to be tried by the Special Court established under the Depositories Act, 1996.|
|Key Issue : Whether the Special Court established under the Act of 1996 can try the offences under IPC?|
|Citation Details : Dinesh Kashiram Mange vs. State of Maharashtra and Ors. (21.12.2018 - BOMHC): MANU/MH/3470/2018|
|Summary Judgment :
Facts: The non-applicant files a complaint before Chief judicial magistrate against a private limited company and against its managers and directors that the accused had induced him with malafide intention to sign the Demat slips with instructions being filled up in the slips, and those slips were kept with the accused to be used in emergency, however, the accused committed breach of trust and misused the Demat slips with fraudulent intention and transferred valuable shares to the accounts of the accused and their associates. The learned Magistrate directed issuance of process against the accused .This order was challenged by the applicant before the Sessions Court in revision which is dismissed by the impugned judgment. Being aggrieved in the matter, the accused has filed this application before the hon'ble High Court.
Held:It was held that Section 22-C (3) of the Act of 1996 provides for the qualifications of a person who can be appointed as a Judge of a Special Court under the Act of 1996. It lays down that a person shall not be qualified for appointment as a Judge of a Special Court unless he is, immediately before such appointment, holding the office of a Sessions Judge or an Additional Sessions Judge, as the case may be. As per Section 28 of the Code of Criminal Procedure, the Sessions Judge or an Additional Sessions Judge can pass any sentence authorized by law subject to the limitation that any sentence of death passed by the Sessions Judge or the Additional Sessions Judge shall be subject to confirmation by the High Court. If the provisions of Section 22-C (3) of the Act of 1996 are read harmoniously with Section 28 of the Code of Criminal Procedure, it cannot be said that the Special Court presided over by a person who had been a Sessions Judge or an Additional Sessions Judge immediately before his appointment as Special Judge, cannot try the complaint in respect of the offences under IPC along with the complaint in respect of the offence/offences under the Act of 1996. As the complaint in respect of the offences under the Act of 1996 is to be tried by the Special Court under the Act of 1996, whether the accusations made in the complaint filed by the non-applicant cull out an offence under the Act of 1996 will have to be examined and determined by the Special Court under the Act of 1996. In view of the facts of the case and considering the provisions of Section 22-D of the Act of 1996, the Chief Judicial Magistrate, has no jurisdiction to entertain and try the complaint, and in view of the Securities Laws Act 2014, the complaint is required to be transferred to the Special Court established under the Act of 1996. Consequently, the order passed by the learned Magistrate directing issuance of process against the accused and the judgment passed by the learned Sessions Judge dismissing the criminal revision application are also not sustainable.
|Subject Matter : Appeals to Securities Appellate Tribunal.|
|Relevant Section : Section 23A: Any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act, or the regulations made thereunder 2[or by an order made by an adjudicating officer under this Act], may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter.|
|Key Issue : Whether the appeal is maintainable before this Hon'ble Tribunal?|
|Citation Details : Axis Bank Ltd. vs. Securities and Exchange Board of India (17.12.2019 - SEBI / SAT): MANU/SB/1714/2019|
|Summary Judgment :
Facts: The appeal has been filed aggrieved by the communication issued by the National Securities Depository Limited , whereby preventing the appellant from accessing the securities pledged with the appellant by Karvy Stock Broking Limited . The appellant is a bank who has lent money to Karvy on the basis of securities pledged by Karvy, it is the illegal extension of that order by NSDL that has impacted the appellant. The appellant submits that the ex parte ad interim order passed by the WTM of SEBI did not contain any direction preventing the appellant from operating Demat Account N which is named "Karvy Stock Broking Limited- Client Account-NSE . NSDL has kept the said account in abeyance and hence the appellant could not invoke the pledge when tried to do so.
Held: It was held that the preliminary objection regarding maintainability of the appeal is not sustainable since the appellant is an affected party impacted by all the impugned communications/orders together which the appeal is also challenging. It is a fact that the appellant as a bank has lent funds to Karvy under a permitted Loan against Shares arrangement and under the Depositories Act, rights and sanctity are provided to such pledged accounts. Therefore, the appellant is an affected party is clearly undisputed. It is also a fact that the appellant was not heard either by SEBI or by the Exchanges or Depositories before passing the impugned directions. Though, the account frozen explicitly by the WTM is not the same account as that of the appellant implicitly the order has got extended to such accounts because of the sweeping nature of the WTM's directions to protect the interest of the investors. Hence, the action by NSDL is also a consequential one as clearly stated in their communication.
|Subject Matter : Bar on Civil Court's jurisdiction.|
|Relevant Section : Section 23E: No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Securities Appellate Tribunal is empowered by or under this Act to determine.|
|Key Issue : Whether the Civil Court can go into the questions which had already been decided by a specialized adjudicatory body i.e. SAT?|
|Citation Details : Tendril Financial Services Pvt. Ltd. and Ors. vs. Namedi Leasing and Finance Ltd. and Ors. (03.04.2018 - DELHC): MANU/DE/1275/2018|
|Summary Judgment :
Facts: The plaintiffs, who are investment companies pledged equity shares of defendant Blue Coast owned by them in favour of another defendant Morgan Securities and Credits Pvt. Ltd. as security for the financial facility availed of by the defendant Morepen from the other defendant Morgan. That disputes arose between the parties as to the amount remaining unpaid under the aforesaid financial facility and which disputes were referred for adjudication to the Sole Arbitrator. The defendant Morepen could not discharge its repayment liability within the time stipulated in the Award and that the defendant No. 7 Morgan purports to have sold the pledged shares in contravention of the terms of the pledge and in breach of statutory provisions including S.176 of the Indian Contract Act, 1872, requiring mandatory prior legal notice preceding such sale and in breach of fiduciary duty of a pledge to act honestly and fairly.
Held: It was held that since the shares were not in physical form but in fungible form, the provisions of the Depositories Act, 1996 apply thereto, even assuming that S.176 of the Contract Act applies to pledges created under the Depositories Act and the pledge fails to exercise its right in accordance with the provisions of S.176 of the Contract Act, it would make no difference as far as the purchaser of the dematerialized shares from the pledge is concerned. The sale of shares in the present case is admittedly through market transactions and the finding of the SAT, being a specialized Tribunal, in this regard and which has attained finality, would bind the parties.