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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2252 OF 2010

Securities and Exchange Board of India .....Appellant

VERSUS

M/s. Opee Stock-Link Ltd. & Anr …..Respondents

WITH

CIVIL APPEAL NOS.2285, 2286, 2294 & 2303 OF 2010

J U D G M E N T

ANIL R. DAVE, J

1.All these appeals have been filed under the provisions

of Section 15-Z of the Securities and Exchange Board of

India Act, 1992 (hereinafter referred to as ‘the Act’)

challenging the impugned order dated 30th December,

2009, passed by The Securities Appellate Tribunal, Mumbai

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(hereinafter referred as “SAT”) in Appeal Nos. 16 to 20 of

2009, whereby the SAT has allowed the appeals filed by the

respondents herein and set aside the orders dated 31st

December, 2008 passed by the Whole Time Member and the

Adjudicating Officer, SEBI.

2.These are the cases which reflect the manner of getting

excessive number of shares in an irregular manner, which

would adversely affect Retail Individual Investors, who are

the persons with relatively less means and who desire to

invest their hard earned money into shares of companies,

whereby they also make an effort to participate in the

progress of our economy. So as to see that the Stock

Exchanges of the country and the persons connected

therewith do not indulge themselves into illegalities or

irregularities, the Act has been enacted and the

functionaries under the Act have to see that no financial

scams take place in the matters relating to issue or transfer

of shares, management of Stock Exchange etc. One of the

important duties of the functionaries under the Act is to see

that when there is an Initial Public Offerings (IPO), the

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shares are offered to public at large in a particular manner

so that even small investors {who have been referred to

hereinafter as ‘Retail Individual Investors’ (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.

3.As we are concerned with issue of shares in the nature

of IPO (there is initial offering made by Jet Airways Limited

and Infrastructure Development Finance Company Limited),

without referring to much details about the transactions of

sale or purchase of each company, we have referred to the

nature of the transactions in general terms. When shares of

the aforestated companies were offered to the public at

large, the issue of shares in relation to both the companies

had been over subscribed.

4.Somehow it was brought to the notice of the Security

and Exchange Board of India (SEBI) that several serious

irregularities/illegalities had been committed by some

persons so as to corner shares of the said companies by

adopting certain unscrupulous, immoral and improper

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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 common man in the functioning of the

share market. The basic purpose with which the 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.

5.Investigations was made by the officials of the SEBI

and in pursuance of the said investigation it was revealed

that in the matter of the IPO of the aforestated two

companies, shares which were meant for RIIs had been

cornered through hundreds of benami/fictitious demat

account holders, which was in violation of the provisions of

Section 12A (a), (b), (c) of the SEBI Act, 1992. Moreover it

was also found that the said transactions were in violation

of Regulations 3 and 4(1) of the Securities and Exchange

Board of India (Prohibition of Fraudulent and Unfair Trade

Practices Relating to Securities Markets) Regulations, 2003

(hereinafter referred to as ‘the Regulations’).

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6.As modus operandi was quite similar in applications

for shares made in respect of both the companies and

parties concerned are common, we have referred to the

issue of Jet Airways India Limited. It was found by the

SEBI that respondent in Appeal No.20 of 2009 before the

SAT had received 12,053 shares out of which 3272 shares

were transferred before the day of listing of shares of the

company with the stock exchange, 3598 shares on the day

of listing and 5183 shares after the day of listing. The said

shares were purchased through off market transactions

from 553 demat account holders, who had been allotted

shares of the said company. The shares of the company

were listed on 14

th

March, 2005.

7.The said 553 demat account holders sold the shares to

the said respondent at the rate of Rs.1170/- per share,

though the market value of the said shares was much more

than Rs.1170/- per share. The said shares were thereafter

sold by the said respondent at a higher price. Upon

investigation, it was also found that most of those 553

demat account holders were not genuine persons though

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there is no specific finding to that effect but there is a

specific finding by the Whole Time Member of the SEBI

that:-

“(e).There is no material on record that the 553

demat account holders were benami or fictitious.

Investigation has not been able to substantiate

this. There are name lenders, as alleged in the

SCN. The conduct of these account holders

substantiates this. All the 553 accounts behaved

exactly in the same manner in terms of price and

timing, that too, in off market, which is not

transparent. However, the allegation that these

were benami or fictitious does not make any

material difference to the main charge that the

noticees used 553 demat accounts to corner

shares in the retail segment of the Jet IPO.”

8.The finding by the Whole Time Member of the SEBI is

clear to the effect that the said respondent had not acted as

a share broker. It is an admitted fact that the said

respondent purchased the shares at the rate of Rs.1170/-

per share though the market value of the said shares at the

time when they were purchased was much more and the

shares were sold at an average market value of Rs.1296.12

paise. Had the respondent been a share broker, he would

have charged brokerage from the demat account holders but

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the facts found by the authorities making the investigation

are absolutely different. All the demat holders were paid

some amount by the concerned respondents and the shares

had been sold at a much higher price thereafter. In normal

circumstances, no share holder would sell his shares

through a broker or otherwise at a price below the market

value. In the instant case all the 553 demat account

holders have received the same price viz. Rs.1170/- per

share and that too some of the demat holders sold the

shares either on the date of listing of shares of the company

with the BSE and NSE or even prior thereto, when the

market price of the shares was also not known or

determined. In normal circumstances, no man with normal

prudence would ever enter into such type of transaction but

in this case all the 553 demat account holders did it !

9.Upon knowing the nature of the transactions, the

Whole Time Member of the SEBI was convinced that all the

transactions pertaining to opening of the demat accounts,

applications made by the applicants holding the demat

accounts, sale by those account holders to the respondents

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and sale by the respondents to other buyers of the shares

were of fishy nature. There is a specific finding by the

Whole Time Member of the SEBI, who has thoroughly

examined the facts of the case and has come to the

conclusion, like a trial court, to the effect that the demat

accounts were signed by some persons with different

spellings of their names and in different manners. We also

agree with the findings that normally a person would have

his same signature everywhere and even if at different

places he has signed differently, he would never use

different spellings of his name or would sign in a different

manner with a different spelling of his name.

10.It is also a fact that most of the demat account holders

were not having their trading accounts and many of them

were having a common address. Normally, a demat account

holder, if a genuine one, would use his own correct address

while opening and operating his demat account. Number of

demat account were having same address and that too, care

of someone else and this makes genuineness of the account

holders and the transactions doubtful.

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11.From all the transactions, which are in the nature of a

scam, it is clear that the demat account holders were not

genuine and either they were benami or fictitious and the

shares were purchased on behalf of someone, who had

financed these demat account holders and a show was

made as if the shares were finally sold to the concerned

respondents. The entire chain of the transactions of shares

and doubtful nature of the demat holders, establishes the

fact that all these transactions were nothing but a scam. If

the respondents had acted as brokers, they ought to have

been registered brokers, but they were not. By having the

aforestated device, the respondents had done something

which was against the interest of small investors because

from their quota the shares were allotted to the demat

account holders who were not genuine.

12.As a result of the aforestated transactions, the

respondents got undue benefit. They got the shares

transferred from the so called demat holders at a price

which was less than the market price of the shares.

Normally such things never happen in a well regulated stock

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exchange. The share prices are known to all persons

interested in buying or selling shares and in such

circumstances, it cannot be believed that 553 persons

would sell their shares at a time to one particular person at

a price which is much below the prevailing market price of

the shares. We, once again, note the fact that many of

these demat account holders had used addresses of others

and had signed in a fishy manner in their demat accounts.

In fact, the so-called sale of shares was bogus as there was

someone who had financed all the demat holders, who had

given back the shares to the respondents to whom they had

lent their names for getting the shares.

13.The Whole Time Member of the SEBI has very

meticulously examined the aforestated facts and in our

opinion he has rightly come to the conclusion that the

dealings of the respondents were not fair and were in

violation of the Act as well as the Regulations.

14.Upon perusal of the impugned order passed by the

SAT, we do not find any specific conclusion arrived at by the

SAT to the effect that the findings recorded by the Whole

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Time Member as well as the Adjudicating Officer of the SEBI

were incorrect. The appeals before the SAT were in nature

of First Appeal and therefore, it was open to the SAT to

re-appreciate the evidence after looking at the facts of the

case but upon perusal of the impugned order, we do not

find any such finding to the effect that the findings arrived

at by the Whole Time Member as well as the Adjudicating

Officer of the SEBI were incorrect or perverse for a

particular reason.

15.If one looks at the purpose with which the Act has

been enacted, one can see that its object is to regulate the

securities market and check unfair trade practices. Its

object is also to promote fairness and efficiency in all

dealings relating to the capital market so that confidence of

the persons having dealings with shares etc. is enhanced.

One of the most important objects is to protect the interest

of the investors. In our opinion, the entire case was decided

by the Whole Time Member of the SEBI after keeping in

mind the aforestated object with which the Act has been

enacted.

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16.Upon hearing the learned counsel appearing for both

the sides, we are of the view that the Whole Time Member as

well as the Adjudicating Officer of the SEBI were justified in

imposing penalty upon the respondents for the reasons

recorded by them.

17.We do not find any substance in the submissions

made on behalf of the respondents to the effect that the

price of the shares of Jet Airways India Ltd. paid by the

respondents to the demat account holders was reasonable.

Even according to the submission made by the learned

counsel, value of the said shares, during the said period

varied from Rs.1172/- to Rs.1339/- and in such

circumstances, nobody would believe that all the demat

account holders would sell their shares at the same rate,

viz. Rs.1170/- per share to the respondents. These

transactions are, therefore, definitely of fishy nature.

18.The submission to the effect that no Retail Individual

Investor had made any complaint to the SEBI is not at all

relevant because the SEBI need not act only on the basis of

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a complaint received. If from its independent sources, the

SEBI, after due enquiry comes to know about some illegality

or irregularity, the SEBI has to act in the manner as it acted

in the instant case. The fact, however, remains that because

of the undue advantage which the respondents got, some

small investors or RII must have not got the shares, which

they ought to have been allotted.

19.The learned counsel for the respondents also made a

submission that a common address given by several demat

account holders would not show any irregularity. We do not

agree with the said submission, because normally a person

would give his own address when he is opening his demat

account. Rarely, a person would give someone else’s

address if he is not having any permanent address or is

likely to shift his residence. In the instant case, not one or

a few, but several demat holders had given one particular

address and it is also pertinent to note that upon initiation

of an inquiry at the instance of the SEBI, most of the demat

accounts had been closed by the demat account holders.

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20.The submission was also to the effect that the shares

could have been sold before they were listed with a stock

exchange and such a sale cannot be said to be an illegality.

Looking at the fact that number of persons, having common

address of their demat accounts, selling their shares at the

same price to a particular person before listing of shares of

a company with a stock exchange is not a normal thing. In

the facts and circumstances of the case, we do not accept

the said submission made by the learned counsel appearing

for the respondents.

21.We also note that the Securities Contracts (Regulation)

Act, 1956 (SCRA) has been enacted to prevent undesirable

transactions in securities by regulating the business of

dealing therein, by providing for certain other matters

connected therewith like regulating functioning of

recognised stock exchanges and working of the members of

such stock exchanges. The SCRA is a special law to

regulate the sale and purchase of shares and securities and

hence it prevails over the provisions of the Indian Contract

Act, 1872 and Sale of Goods Act, 1930, insofar as the

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matters which are specifically dealt with by the SCRA. The

contracts for sale and purchase of securities, as envisaged

under the SCRA, can be entered into only in a prescribed

manner in a notified area and that can only be effected

through registered members of a recognised stock exchange

(i.e. stock brokers) and the only exception to this is a Spot

Delivery Contract.

22.‘Spot Delivery Contract’ is defined in Section 2(i) of the

SCRA as a contract, which –

“(a)provides for actual delivery of securities and

the payment of a price thereof either on the date

of the contract or on the next day, excluding the

time involved in dispatch of shares and

remittance of money where parties do not reside

in the same town/locality;

(b) transfer of securities by depository from the

account of one beneficial owner (demat account)

to the account of other beneficial owner (demat

account) were securities involved are in demat

form.”

Section 2(i)(b) of the SCRA was introduced in the statute

book with effect from September 20, 1995. It is clear from

the aforestated definition of ‘Spot Delivery Contract’ that to

enter into such a contract, the seller has to effect actual

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delivery of securities and the buyer has to pay the price

therefor either on the same day or on the next day and

further, the said transfer should be coupled with transfer of

the Securities from one Beneficial Owner (BO) to another.

Considering the scope of Spot Delivery Contract as defined

in Section 2(i) of the SCRA in Bhagwati Developers Pvt.

Ltd. v. Peerless General Finance and Investment

Company Ltd. & Anr. (2013) 9 SCC 584, this Court has

held as under :-

“...... a contract providing for actual delivery of

securities and the payment of price thereof either

on the same day as the date of contract or on the

next day means a spot delivery contract.”

Considering the facts and circumstances of the present

case, the transfer of shares did not comply with the

requirements of the provision of either Section 13 or Section

2(i) of the SCRA. Therefore, the off market trading indulged

into by the Respondents was rightly held to be per se illegal

by the Whole Time Member.

23.The submission made to the effect that the Tribunal is

a final fact finding authority cannot be disputed. According

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to the learned counsel, the facts found by the SAT should

not be disbelieved by this Court. However, for coming to a

definite conclusion contrary to the findings arrived at by the

lower authority, the appellate authority, in the instant case,

the SAT, ought to have recorded specific reasons for arriving

at a different conclusion, but we do not find any sound

reason for coming to a different conclusion in the impugned

order. On the other hand, we find detailed discussion for

coming to a particular conclusion in the order, which was

passed by the Whole Time Member of the SEBI and

therefore, we do not see any reason for the SAT to disturb

the said finding without mentioning any strong and

justifiable reason for coming to a different conclusion.

24.For the aforestated reasons and in view of the

submissions made by the learned counsel appearing for the

appellant for sustaining the orders passed by the Whole

Time Member as well as the Adjudicating Officer of the

SEBI, we quash and set aside the impugned order passed

by the SAT.

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25.The appeals filed by the SEBI are allowed with no

order as to costs and the orders passed by the SAT are

quashed so as to give effect to the orders passed by the

Whole Time Member as well as the Adjudicating Officer,

SEBI. The said orders shall be acted upon within two

months from today.

……………… ..……………….J.

(ANIL R. DAVE)

…….…………..……………….J.

(R. BANUMATHI)

NEW DELHI;

JULY 11, 2016.