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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 14th 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.