Securities & Exchange Board Of India vs Ajay Agarwal

2. The factual background in which the present appeal arises is noted as under.

3. The respondent was appointed the Joint Managing Director of Trident Steel Limited (hereafter referred to as "the said Company) on or about 20th May 1993. The Board initiated certain preliminary investigations about the affairs relating to public issues by the said Company on the basis of a complaint received from a member of Bombay Stock Exchange (for short B.S.E.). The public issue of the said Company was of 52 lacs shares of Rs.10 each at a premium of Rs.3.50 per share aggregating to Rs.7 crore 2 lacs. The Lead Managers to the issue were Bank of Baroda and Apple Industries Limited. Such issues opened on 26th November, 1993 and closed on December 1993 and one of the Directors of the Company appeared to be the chief promoter of the same.

4. The complaint was to the effect that there was misstatement in the prospectus filed by the company at the time of the public issue with 2 regard to alleged non-disclosure of pledge of 7 lac 50 thousand shares held in the company by directors of the company to avail of working capital from Bank of Baroda. The second aspect of the complaint was that the Directors of the company had also given a non-disposal undertaking to Bank of Baroda in respect of the same shares and that the prospectus does not mention the same. The further complaint is that the 2000 investors complained regarding non- receipt of dividend and the such complaint was filed before the Investor Service Cell, B.S.E. The company while replying to the investors stated that it had not declared any dividend during the preceding year in respect of which complaint has been made. Therefore, prima facie, a case of misstating the facts in the prospectus and misguiding the investors was made out. It appears that the company had deliberately not dispatched share certificates to investors based in Jalgaon and failed to produce the share transfer records and proof of records of the applicants in Jalgaon.

5. In the course of investigation it appeared that the Directors of the company had pledged their personal holding of 7 lac 50 thousand shares with the Bank of Baroda and its Director, namely, Mr. A.A. Kazi and Dowell Leasing and Financing Limited had given non-disposal undertaking to Bank of Baroda. This was not disclosed in the prospectus of the company. This appears to be, prima facie, a case of violation of SEBI guidelines for disclosure for investor protection. Thus an important aspect of the capital structure of the company had not been disclosed in the prospectus as a result of which the investors were misguided. In view of such complaint having been received investigation was undertaken. Ultimately, a show cause notice dated 22.12.99 was issued to the respondent asking it to show cause why directions under Section 11-B of the Act restraining the company and its Directors from accessing the capital market for a suitable period will not be issued. A reply was demanded within 15 days from the receipt of the show cause notice.

6. Pursuant to such show cause notice the respondent gave his reply on 1.3.2000 and 10.7.2002. Thereafter, an opportunity of personal hearing was granted to the respondent on 14.5.2002 and the same was adjourned to 5.7.2002 and on that date the Board made its submissions. Ultimately, on 31st March, 2004 Chairman of the Board passed an order, the concluding portion whereof is as under:

7. Against the said order an appeal being Appeal No.85 of 2004 was filed before the Tribunal.

8. Before the Appellate Forum the only point argued is that Section 11-B of the Act came by way of amendment to the said Act with effect from 25th January, 1995 whereas the public issue in respect of which the impugned order was passed 5 was of November 1993 and the prospectus was of October 1993. Both public issue and prospectus were prior to 1995. The shares were listed with effect from 15.2.1994. Therefore, it was urged on behalf of the appellant that the alleged misconduct if any was for a period of time when Section 11-B was not on the statute book. Thus, the question arose whether any direction can be issued under Section 11-B for the alleged misconduct said to have been committed prior to introduction of Section 11-B. The Appellate Tribunal was of the view that the provision of Section 11-B cannot be invoked in respect of the alleged misconduct which took place at a point of time when Section 11-B was not on the statute book. While passing the said order the Appellate Forum recorded that the respondent before the said Forum, the appellant herein, wants to withdraw the impugned order.

12. Again in the order dated 9.12.04 it was unfortunately mentioned that the order was passed with the consent of the parties. Subsequently the said recital in the order, as noted above, was deleted.

45. From the statement of objects and reasons of the Amendment Act of 2002, it appears that the Parliament thought that in view of growing importance of stock market in national economy, SEBI will have to deal with new demands in terms of improving organisational structure and strengthening institutional capacity.

50. Provisions of Section 11-B being procedural in nature can be applied retrospectively.

54. For the reasons discussed above, this Court is constrained to quash the order of the Appellate Tribunal and upholds the order of the Chairman of the Board.

55. The appeal is allowed. There will be, however, no orders as to costs.