Supreme Court Upholds Sebi’s Findings about Cornering of Public Issue Shares through Illegal and Irregular Means

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Customer Care No. 91-11-45562222
Supreme Court Upholds Sebis Findings about
Cornering of Public Issue Shares through Illegal
and Irregular Means
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• Introduction
• 1. In a significant judgment dated 11th July,
  2016, the Hon'ble Supreme Court of India disposed
  of five appeals filed in 2010 by the Securities
  Exchange Board of India ("SEBI") against the
  impugned order dated 30th December, 2009 passed
  by the Securities Appellate Tribunal, Mumbai
  ("SAT") whereby the SAT had allowed the appeals
  filed by the Respondents, setting aside the
  orders dated 31st December, 2008 passed by the
  Whole Time Member ("WTM") and Adjudicating
  Officer of SEBI. The Supreme Court's decision in
  the case of SEBI v. Opee Stock-Link
  Ltd. 2016 71 taxmann.com 143 (in short "IPO
  Judgment") has been and points out in no
  uncertain terms that illegalities and
  irregularities associated with the dealings in
  the Stock Exchanges will be dealt with strictly
  as it impinges on the confidence of the small
  retail individual investors with relatively less
  means who desire to invest their hard earned
  money into shares of companies, whereby they can
  also make an effort to participate in the
  progress of our economy.

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• The Supreme Court also commented that SEBI Act
  has been enacted and SEBI has been entrusted with
  the task of seeing that the Stock Exchanges of
  the country and the persons connected therewith
  do not indulge themselves into illegalities or
  irregularities that the SEBI Act mandates the
  SEBI officials to see that no financial scams
  take place in the matters relating to issue or
  transfer of shares, management of the Stock
  Exchanges, etc. The Supreme Court also
  highlighted that one of the important duties of
  the functionaries under the SEBI Act is to see
  that when there is an Initial Public Offerings
  (IPO) and the shares are offered to public at
  large in a particular manner, so that even small
  investors (who are referred to as "Retail
  Individual Investors" or 'RII') also get fairly
  good chance to purchase shares of newly floated
  companies or shares of existing companies, as and
  when they are offered to the public at large.
• Brief Facts-Case of SEBI v. Opee Stock Link
  Limited
• 2. Brief facts leading to the aforesaid IPO
  Judgment were that there was an initial public
  offering ('IPO') by Jet Airways Limited and
  Infrastructure Development Finance Company
  Limited. When shares of the aforesaid companies
  were offered to the public at large, the issue of
  shares in relation to both the companies had been
  over-subscribed. However, it was brought to the
  notice of the SEBI that several serious
  irregularities and illegalities had been
  committed by some persons so as to corner the
  shares of the said companies by adopting certain
  unscrupulous, immoral and improper methods not
  known to the law, which had not only affected the
  RII, but had also an effect on the share market,
  because such dealings by certain greedy persons
  would adversely affect the faith of a commonman
  in the functioning of the share market.

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• The basic purpose with which the SEBI Act was
  enacted was to see that the share market
  functions properly and effectively so that
  ultimately it may not adversely affect the
  economy of our country. Upon investigations made
  by the SEBI it was discovered that the shares of
  the aforesaid two companies which were meant to
  be issued to the RIIs through the IPO, were
  actually found to have been cornered through
  hundreds of benami/fictitious demat account
  holders. Such tactic of cornering shares by means
  of fictitious demat account holders was a clear
  violation of the provisions of section 12A(a),
  (b) and (c) of the SEBI Act, 1992, apart from
  violating the provisions of Regulations 3 and
  4(1) of the SEBI (Prohibition of Fraudulent and
  Unfair Trade Practices Relating to Securities
  Markets) Regulations, 2003.
• The Supreme Court deemed it fit to make
  references to the IPO scam of the shares issued
  by Jet Airways India Limited only as the facts
  and circumstances surrounding the applications
  for shares made in respect of both the companies
  and the parties involved, were common. The Court
  noted that the respondent in Appeal No. 20 of
  2009 before the SAT had received a total of
  12,053 shares in 3 tranches, namely, 3,272
  shares, which were transferred before the day of
  listing of the company's shares with the stock
  exchange (i.e., before the day of the scheduled
  IPO on March 14, 2005) 3,598 shares on the day
  of the listing and 5,183 shares after the day of
  listing. The most shocking fact that was revealed
  before the SEBI and eventually the Supreme Court
  was that the aforesaid 12,053 shares were
  purchased through off market transactions from
  553 de-mat account holders, who had been allotted
  the shares of the said company.
• Once the said shares were purchased by the 553
  demat account holders, they sold the same to the
  said respondents at a price much lower than the
  market value of the shares, namely, at Rs.1,170/-
  per share, though the market value of each share
  at that point in time was much more. The modus
  operandi to profit illegally from such share
  transaction concluded in the Respondent
  thereafter selling the said shares at a much
  higher price thereon.

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