Historical Background of Securities and Investment Law

> The evolution of securities and investment laws in India can be traced
back to the 18th century when loan securities of the East India Company
were traded informally
> The earliest stock exchange was set up in Amsterdam in 1602 and it was
involved in buying and selling of shares for Dutch East India Company and
Prior to this, brokers existed in France dealing with government securities.
> The first real Stock Exchange started in Philadelphia in the United States
during the late 18th century. Later, the New York Stock Exchange became
popular and Wall Street became the hotspot of brokerage activities.
> Earlier stockbrokers were largely unorganised, but later most of them joined
hands to form institutions and organisations.The evolution of securities and
investment laws in India can be traced back to the 18th century when loan
securities of the East India Company were traded informally
> Going back to 1850s the roots of Stock Exchanges in India sprouting when
22 stockbrokers began trading opposite the Town Hall of Bombay under a
banyan tree. The tree is still present in the area and is known as Horniman
Circle.
> The association of stock brokers is now known as Bombay Stock Exchange
(BSE) and in 1965 it was given permanent recognition by the Government of
India under the Securities Contracts (Regulation) Act (SCRA), 1956. BSE is also
the oldest stock exchange in Asia.
> The formation,of Ahmedabad stock exchange came into operation in
1894 trading in shares of textile mills. Another development in the history of
Stock Exchanges began with the Calcutta Stock Exchange opening up in
1908 and began trading shares of plantations and jute mills. It was followed
by Madras Stock Exchange starting in 1920.
> There were a series of reforms in the stock market between 1993 and 1996
which further lead to the development of exchange-traded equity
derivatives markets in India.
> There was a certain element of the trading system called “Badla” involving some elements
of forwards trading which had been in existence for decades.
> In the 1990s Stock Market witnessed a steady increase in stock market crises. An aspect of
these crises was market manipulation on the secondary market.
> The wake of Harshad Mehta scam in 1992, there was a pressing need for another stock
exchange large enough to compete with BSE and bring transparency to the stock market. It
leads to the development of the National Stock Exchange (NSE). It was incorporated in 1992,
became recognised as a stock exchange in 1993, and trading began on it in 1994. It was the
first stock exchange on which trading was conducted electronically. Stock exchanges at
present after incorporation of BSE and NSE, 23 stock exchanges were added not including
the BSE.
At present, there are 23 approved stock exchanges in India out of which 6 are functional:-
1. BSE Ltd
2. Calcutta Stock Exchange
3. India International Exchange (India INX)
4. Metropolitan Stock Exchange
5. NSE
6. NSE IFSC Ltd
Securities
Investment securities are securities that are tradable like financial assets such
as equities or fixed instruments of income. These are purchased in order to be
held for investment. Being in contrast to securities, which are purchased by a
broker-dealer or any other intermediary considered for a quick resale which
are trading account securities.
Equity securities generally refer to stocks that are shared to be purchased in
the company whereas debt securities which are also known as income
securities, referring to bonds generally.
Securities can be broadly categorized into debt securities, equity securities
and derivatives where the debt securities include banknotes, bonds, and
debentures, equity securities include common stocks and derivatives involve
forwards, futures options and swaps.
VIDEOCON INTERNATIONAL LTD V SEBI
The present appeals are directed against the order dated 19th april, 2001,
made by D.R.Mehta, the then chairman, Securities & Exchange Board of
India. by the said order the appellant in appeal no.23/2001 has been
directed not to raise money from the public in the capital market for a period
of three years in the interest of investors. it has been further directed that
prosecution proceedings be launched against the appellant through its
directors/officers . shri V.N.Dhoot, shri Shelgikar and shri S.M.Hegde, the
appellants in appeals no.24/2001, 25/2001 and 26/2001 respectively, under
the provisions of the Securities and Exchange Board of India Act, 1992 for
violation of regulation 4(a) and 4(d) of the Securities and Exchange Board of
India (prohibition of fraudulent and unfair trade practices relating to securities
markets) regulations 1995 .
FACTS OF THE CASE
The appellant in appeal no.23/2001 is a public limited company. It is mainly engaged in the Business of
manufacturing and selling of consumer electronic items and consumer durables, such
as colour televisions, audio-video systems, refrigerators, air-conditioners, washing machines, computers,
etc. . The share capital of the appellant as on 31.3. 2000 was Rs.1411.89 millions . appellants shares are
listed on the stock exchange, Mumbai (BSE), traded as permitted securities on the National Stock
Exchange (NSE) and also traded on the Stock Exchanges at Bangalore, Chennai, Delhi, Calcutta, Pune and
Jaipur. 65% of the appellants share capital is stated to be held by the public and the balance 35% by the
promoters.
Appellant in appeal no.24/2001 is the chairman and managing director of the appellant company.
Appellant in appeal no.25/2001 and appellant in appeal no. 26/2001 are stated to be associated with the
appellant company in their professional capacity as consultant/adviser. They are also authorised signatories
of Videocon group of companies respondent no.1 (SEBI) is a statutory body established under section 3 of
the Act. It is mandated to protect the interests of investors in securities and to promote the development of,
and to regulate, the securities market. Respondent no.2 is the chairman, SEBI, who has passed the
impugned order. Respondent no.3 is division chief, SEBI, who has issued the show cause notice to the
appellants.
The respondent SEBI carried out an investigation into the alleged price manipulation in the shares
of certain companies including the appellant company, especially during the period, 1998. The
investigation revealed that a set of brokers and sub brokers acting in concert and on behalf of a common
set of clients identified as Damayanti group, cornered a large chunk of shares of the appellant company at
BSE and NSE and thereby built up unusually large positions in the scrips resulting in destortion of the
market equilibrium and creation of artificial market in the scrips. Based on the findings of the
investigation, respondent no.3, 1999 issued show cause notice to the appellants . The text of the show
cause notice issued to the appellants is common. The show cause notice inter alia contained the
following allegations/observations:
The appellants answered the show cause notice. Based on the response to
the charges, the show cause notice was adjudicated by the 2nd respondent
(the chairman) and passed the impugned order confirming the charges set
out in the show cause notices. The respondent has viewed public
announcement by the promoters to purchase the appellant companyies
shares at a very high price and funding of Damayanti group to purchase the
appellant companies shares, as the cause of market distortion and held the
appellant company guilty of violating regulation 4(a) and 4(d). The
Impugned direction was issued in that context by the respondent chairman
Issue
Whether the appellant is voilation of regulation 4(a) and 4(d) of PFUTP and
SEC 11and 11b of SEBI Act 1992
ARGUMENTS OF APPELLANT
Shri Sundaram submitted that despite the knowledge of the said public offer, at no point
of time did respondent SEBI raise any objection with regard to
the aforesaid public offer but gave its tacit approval as is evident from the
respondents own statement in the show cause notice issued to the appellant, that
managing director of Videocon was called and advised that they should refrain from making
such announcements of intentions to buy at higher prices without actually initiating a formal
process of offer, as such announcements lead to artificially affecting the price of the scrip.
Thereafter a public announcement was made wherein price of Rs.165/- for each share of
Videocon was offered. He submitted that if the promoters had any intention to defraud other
shareholders, they would not have offered to pay 2 ½ times the prevailing market value of
the shares by making the public offer, that if the intention was to defraud other share
holders, rather than offering such a higher price the promoters would have preferred to
depress the market price of the shares to their advantage. Shri Sundaram stated that the
respondents have failed to appreciate that the promoters having committed themselves to
acquire 14.24 lakh shares on 1998 from the public at the rate initially of Rs.140 and later at
Rs.165 per share, by bench marking the market price of the shares no benefit would be
derived, that it is but natural that when an attractive public offer is made to acquire shares
at a price higher than the market price , the existing shareholders and potential investors
would try to acquire more and more shares by the record resulting in increase in the volume
and the price and the offer to buy shares at the rate of Rs.165 against the market rate of
Rs.62/-, cannot have a different effect and be an exception. Learned senior counsel stated
that the very fact that immediately after the record date the share price dropped
from Rs.162.50 to Rs.50/-1998 itself demonstrates that increase in the volume and price was
only on account of the investors wanting to derive benefit of the public offer made by the
promoters.
Arguments of Respondent
Shri Rafiq Dada, learned senior counsel, appearing for the respondents in the cited appeals referred to
various dates and events relevant in the matter. He stated that prior to The date on which the press
announcement of the promoters plan to acquire 2% of the appellant companys equity shares was
published, the shares were quoted on BSE and NSE at about Rs.60/62, and trade volume per day on BSE
was about 10 lakh shares and on NSE about 5.75 lakh shares. He stated that Videocon by its letter dated
9.4.1998 intimated the respondent inter alia that Dhoot family and its associates wished to consolidate their
equity holding in the appellant company by acquiring 2% shares in the open market by making public offer
Rs.140/- per share and that open offer would be made in the week following the public announcement. He
stated that the price of the scrip was around Rs.62/- on that day, that Videocon made a press
announcement to the aforesaid effect which was reported on 10.4.1998 in the economic times. Shri Dada
stated that the effect of the said announcement, during 9.4.1998 to 21.4.1998, on the market was that
volumes on both the stock exchanges, -BSE and NSE fell drastically and the share hit circuit filters on 13th,
20th and 21st April 1998, that as a result of fall in the volume, floating stock was reduced artificially thereby
creating artificial demand for the shares resulting in rise in the share price from Rs.62 to rs.105 by 21.4.1998.
He stated that during the period 29.4.1998 to 2.5.1998 the appellant company and Videocon appliances
ltd made funds of approximately Rs.7 Crores through myriad of transactions through several bank
accounts with federal bank, fort branch Mumbai to brokers viz. Sony securities, S.N. Nangalia, GNH global
ltd, to mope up the reduced floating stock which led to further increase in price and thereby helped in
maintaining the price at high levels, that the said brokers acting on instruction from damayanti group built
up large positions, and as a result of the aforesaid, price of appellants share was hiked to rs.151/- by
25.5.1998 Well above the open offer purchase price of rs.140/-, that on 25.5.1998 another public press
announcement was made increasing the public offer price from rs.150 to rs.165/- and in that context the
respondent SEBI called the managing director of the appellant company and requested him to refrain from
making public announcement expressing the intention of the promoters to make purchase of 2% by a
public offer without actually making a public offer, as the said press announcement had led to artificial
increase in the price of the shares. Shri dada stated that during 25.5.1998 to 4.6.1998, the appellant made
available approximately rs.3 crores through a myriad of transactions through several bank accounts with
federal bank, fort branch to valpin finan
DEBENTURES
The word ‘Debenture’ itself is a derivation of the Latin word ‘Debere’ which means to borrow or
loan. Debentures are written instruments of debt that companies issue under their common seal. It
comprises of an agreement for repayment of principal after a particular period or at intermissions or
at the option of the enterprise and for payment of interest at a fixed rate due to, usually either yearly
or half-yearly on fixed dates.
Types of Debentures
. Convertible debentures- one of the various types of debentures is convertible debentures. The
most significant feature of differentiation of a convertible debenture is that it can be converted into
shares or stocks at a certain point in time or when the firm notifies of the same. Although these
debentures have a lower interest rate when compared to stock, they are extremely useful.
2. Partially convertible debentures- the debentures which can be converted into shares but to a
certain limit or a certain percentage are known as partially convertible debentures. It is hybrid as
after its partial conversion, some portion remains debenture while some become part of the
company’s share.
3. Non- convertible debentures- these are normal or basic kinds of debentures which can never be
converted into stocks after they have been issued and till the time they exist.
4. Registered debentures- the kind of debentures which are transferred providing a proof of records
and documents needed for it. These are one of the safest kinds of debentures as there is less
chance of fraud compared to bearer debentures discussed below.
TYPES OF DEBENTURES
5. Bearer debentures- the type of debentures that are unregistered and can be
delivered after purchase without any compulsory need for evidence or record are
known as bearer debentures. There is no tertiary involvement in the transaction for
a bearer debenture and it a comparatively more prone to tax evasion and fraud.
6. Secured debenture- these are the kind of debentures that are like an alternative
to a loan where the collateral is needed to make money and when the firm starts
paying off the debts at the time of its closure due to any reason, then the secured
debenture holders are paid first.
7. Unsecured debentures- the type of debentures which don’t need any kind of
collateral are unsecured debentures and are preferred less at the time of
payment compared to secured debentures.
8. Redeemable debentures- the debentures which are purchases for a pre-
specified period and are paid by the end of this time are known as redeemable
debentures.
9. Irredeemable debentures- also known as perpetual debentures, irredeemable
debentures don’t have a fixed time for the redemption of the invested amount.
FEATURES OF DEBENTURES

> Debentures are instruments of debt,

It is a certificate of debt,
Debentures have a fixed rate of interes
The debenture holders do not get any voting rights
 Interest payable to the debenture holders
Convertibility
Sahara India Real estate Corporation limited and others v. Security and
Exchange Board of India 2011 SC
FACTS
SIRECL AND SHICL Floated an issue of OFCDs and started collecting
subscriptions from investors with effect from 2008 up to 2011. During this
period, the company had a total collection of over Rs 17,656 Crores. The
amount was collected from about 30 million investors in the guise of a "private
placement" without complying with the requirements applicable to the public
offerings of securities. The whole time member of SEBI while taking
cognizance of the matter passed an order year, 2011 thereby directing the
two companies to refund the money so collected to the investors and also
restrained the promoters of the two companies including Mr. Subrata Roy
from accessing the securities market till further orders. Sahara then preferred
an appeal before SAT against the order of the whole time member and after
hearing the SAT confirmed and maintained the order of the whole time
member by an order year 2011. Subsequently Sahara filed an appeal before
the supreme court of India against the SAT order.
Issue
> Whether SEBI has the power to investigate and adjudicate in this matter as
per sec 11, 11A, 11B of SEBI Act and under Sec 55A of the Companies
Act.1956
Whether the hybrid OFCDs fall within the definition of "securities" within the
meaning of Companies Act, SEBI Act and SCRA 1956 so as to vest SEBI with
the jurisdiction to investigate and adjudicate.
 Whether the issue of OFCDs to millions of persons who subscribed to the
issue is a private placement so as not to fall within the purview of SEBI
regulations and various provisions of Companies Act. 1956
Whether OFCDs are convertible bonds and whether exempted from
application of SCRA 1956 as per the provisions of sec 28(1)(b)
Arguments of Appellant
SEBI ’s jurisdiction under section 55A of the Companies Act 1956
 Mandatory listing requirement:
> SEBI’s jurisdiction based on DRHP filing (SECTION 60B,)
Nature of OFCDs and private placement:
Arguments of Respondent
SEBI has jurisdiction over public offers
Classification of OFCDs as securities:
Deemed public offer under section 67(3)
Judgement
SEBI’S JURISDICTION
CLASSIFICATION OF OFCDS AS SECURITIES
DEEMED PUBLIC OFFER UNDER SECTION 67(3) OF COMPANIES ACT 1956
. MANDATORY LISTING REQUIREMENT
NATURE OF OFCDS AND APPLICABILITY OF SCRA: T
Share Capital
Share capital in companies law refers to the total value of funds raised by a
company through the issuance of shares to its shareholders.
Share capital is also known as shareholders capital, equity capital,
contributed capital, or paid-in capital.
Importance of share capital
1. Expansion and growth
2. Capital requirements
3. Funding acquisitions
4. Debt Reduction
5. Enhancing investor confidence.
TYPES OF SHARE CAPITAL
AUTHORIZED SHARE CAPITAL:
It refers to the maximum amount of shareholders capital that a company is
authorized to issue as per its constitutional documents.
ISSUED SHARE CAPITAL:
This type of share capital of the company is the portion of authorized
shareholders’ capital that the company has actually issued.
SUBSCRIBED SHARE CAPITAL:
It refers to the part of issued capital subscribed by investors or agreed to be
taken up by shareholders.
PAID-UP SHARE CAPITAL
It represents the portion of subscribed shareholders’ capital that has been
paid by shareholders.
FEATURES OF SHARE CAPITAL
1. Divisibility
2. Limited liability
3. Voting rights
CLASSES OF SHARE CAPITAL
EQUITY SHARE CAPITAL
Also known as ordinary shares or common stock, equity shares represent
ownership in a company. Equity shareholders have voting rights and are
eligible for a share in the company’s profits in the form of dividends. They bear
the highest risk but also have the potential for higher returns.
PREFERENCE SHARES
Have certain preferential rights over equity shares. They typically have a fixed
dividend rate and are paid dividends before equity shareholders. Preferred
shareholders have a higher claim on the company’s assets in case of
liquidation. However, they usually do not have voting rights or have limited
voting rights.
DIVIDEND
Dividends are payments made by a corporation to its shareholders, typically
in the form of cash or additional shares of stock. They represent a portion of a
company's earnings that is distributed to its investors. Dividends are one of the
ways in which shareholders receive returns on their investment in a company.
Types of Dividend
CASH
STOCK
PROPERTY
SCRIP
LIQUIDATING
BANK OF BARODA. VS. MBL INFRASTRUCTURE 2022 SC
JUDGEMENT- M.M. SUNDRESH
BENCH: SANJAY KISHAN KAUL, M.M. SUNDRESH
CIVIL APPEAL NO. 8411 OF 2019
SECTIONS
Section 29A of the IB code says that the ineligibility requirements that prevent an Resolution Application
from taking part in the corporate insolvency resolution process (CIRP). A guarantor who has signed a
guarantee in favour of a creditor is disqualified under section 29A
Section 30(4) of the IB code only says that the COC may take into account the order of priority amongst
creditors

FACTS OF THE CASE

MBL infrastructures limited ( respondent 1) gained loan and credit facilities from a consortium of banks. Since
respondent 1 failed to comply with the terms of repayment, other respondents were forced to take
advantage of the personal guarantee provided by Mr Anjanee kumar Lakhotiya the promoter, chairman
and managing director of MBL infrastructures ., Respondent 3 for the loan funds used by respondent 1.
RBI bank issued a notice under section 13(2) of the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act), wherein a borrower is required to discharge all his
liabilities to a secured creditor in case he makes any default in repayment. And accordingly, bank initiated
an application before the National Company Law Tribunal, kolkata for the commencement of the
Corporate Insolvency Resolution process (CIRP) against respondent 1 and the appointment of an interim
resolution professional.
Respondent 3 was subjected to submit an appropriate Resolution plan as decided
in one of the meetings of the Committee of Creditors (COC) held on 2017.
Section 29A of was introduced by way of the Insolvency and Bankruptcy code
(amendment) ordinance, 2017. This section provides for the eligibility to be a
resolution applicant.
The committee of creditors met on 2017 to discuss respondent 3’s eligibility in
submitting a resolution plan in the CIRP process, especially after the amendment.
In light of the persistent suspicions raised, respondent 3 filed a petition requesting a
statement that he was not prohibited to submit a resolution plan under subsection
(c) and (h) of section 29A of the code.
The Adjudicating authority, in its judgement, stated that respondent 3 has the
authority to submit a resolution plan. However, he had provided a personal
guarantee on behalf of respondent 1, as mentioned by some creditors. The
application submitted with the stated explanation was satisfied considering the
amendments to the introduction of section 29A on 2017.
However, the aforesaid decision of the adjudicating authority was questioned by
RBI bank and Punjab National bank (respondent 10) before the National
Company Law Appellate Tribunal . The Appellate Tribunal ordered that the
adjudicating authority would neither accept nor reject the resolution plan without
its approval and dismissed their appeal.
Respondent 3 filed an application seeking the support of the creditors for the
resolution plan. Consequently, the bank of Maharashtra and Indian Overseas
Bank gave their approval to the resolution plan accumulating 78.50% of the
vote share, which is the requirement as per section 30(4) of this code.
The appellants (IDBI BANK, BANK OF BARODA, BANK OF INDIA AND STATE
BANK OF INDIA) then appeared before the supreme court against the order
passed by the adjudicating authority.
ISSUE
Whether Section 29 A of Bank Ruptcy code the persons not eligible to be
resolution applicant – A person shall not be eligible to submit a resolution
plan, if such person or any other person acting jointly with such person or any
other person who is a promoter or in the management or control of such
person, -
APPELLANTS’ SUBMISSION BEFORE THE SC
Section 29A of the Insolvency and Bankruptcy Code, 2016, provides for the
eligibility requirements to become a resolution applicant. The basic purpose of this
section is to eliminate the unwanted potential resolution applicants in order to
promote debt superiority by disqualified guarantors who have failed to full fil the
same comprehensive liability as because of bankruptcy. According to section
29a(h) of this code, respondent 3 was ineligible to submit a resolution plan as he
had provided a personal guarantee on behalf of respondent 1, as mentioned by
some creditors. The learned counsel for the appellants argued that this fact was
not considered by the adjudicating authority. And thus, the assumption that
respondent 3 is eligible to submit a resolution plan is incorrect.
The Learned counsel for the appellants further submitted that along with section
29a(h), section 30(4) of this code, shall also be considered because laws in force
must be considered on the date of application. And thus, the application is
subject to disqualification. Section 12 of this code was also infringed as the
resolution plan was approved much after the expiration of the CIRP period.
Therefore, the judgment of the appellate tribunal supporting the adjudicating
authorities’ judgment must be reversed and the appeal filed must be considered
by the Apex court.
RESPONDENT’S SUBMISSION BEFORE THE SC
The respondents submitted that the appellate Tribunal accepted the revised
plan as a measure of improvement over the previous plan. Strictly adhering to
section 29a(h) of the code, a personal guarantor is barred from submitting a
resolution plan only when the creditor invoking the jurisdiction of the
adjudicating authority has invoked a personal guarantee executed in favour
of said creditor by the resolution applicant. However, neither RBL bank nor
Allahabad bank, nor State Bank of Bikaner and Jaipur applied to the
adjudicating authority. The learned counsel for the respondents states that
the object of the code is the reinstatement of corporate debtor. Interference
will be against its very purpose. They also further state that both the forums,
The NCLT and NCLAT have rightly judged the matter and it needs no further
clarification, whatsoever.
JUDGEMENT
The Supreme Court highlighted the objective of section 29A in this case. It
stated that the main purpose of this section is to rule out unreasonable and
unfair elements and prevent their personal interests so that it does not get in
the way of the resolution process. Secondly, it tries to disqualify certain
categories of people who would lack to provide credibility in the process.
The Apex court then quoted the then hon’ble Finance Minister of Finance
and Corporate Affairs’ statement regarding the introduction of section 29a
while moving the IBC amendment bill, 2017. According to his statement, this
code lacked any ineligibility clause and thus section 29A provides the
provision for those who are ineligible to apply to the resolution process.
The statement of objects and reasons of this bill stated that the original IB
code did not provide any provision for the ineligibility of the resolution
process, There was no limitation on who can apply to the process or submit a
resolution plan. This could have led to the misusing of the situation and an
ineligible person would be awarded, therefore undermining the process laid
down in the code.
This statement was considered by the supreme court in the case of Chitra Sharma
& Ors. V. Union of India AIR 2018 18 SCC 575. The court held that Section 29A has
been enacted in the larger public interest and to facilitate effective Corporate
and Investment Law.” The court further observed that “parliament rectified a
loophole in the Act which allowed backdoor entry to erstwhile management in
CIRP.”
Section 29a was included in the case of Arcelor Mittal private ltd. V. Satish kumar
Gupta 2019 (2) SCC 1. According to clause (f) of this section, if a person is not
eligible to trade in securities then disqualifications under sub-section (i) would
attach. The word ‘control’ in section 29A (c) means only active control and the
mere authority of a company to bar a special resolution may not be sufficient to
exert ‘control.’
The entirety of this section was upheld by the supreme court in the case of Swiss
Ribbons v. Union of India 2019 4 SCC 17.
Section 29a of the Insolvency and Bankruptcy code, 2016 is designed to be an
important link and is intended to ensure that the purpose of the code is not
compromised by allowing “un authorised persons” including but not limited to, the
owner of the company (the management members) who has made the business
fall, may return as solution seekers.
The supreme court, with Sanjay kishan kaul J., And M.M. Sundresh J., In the bench
in its judgment observed that according to their understanding and interpretation
of section 29A, the resolution plan submitted by respondent 3 should not have
been accepted.
NCLAT(the adjudicating authority) and NCLT(the appellate Tribunal) erroneously
dismissed the applicant’s allegations because the previous complaint was
withdrawn without deprivation of liberty and the eligibility issue can never be
raised.
The court upheld the adjudicating authority and the appellate Tribunal’s decision
on the question of limitation. It further states that the resolution plan submitted by
respondent 3 was ineligible for submission. However, it cannot be revoked as it has
the mandatory voting share requirements, as per section 30(4) of the code.
As per the techno-economic report about the viability and feasibility of the
resolution plan, the adjudicating authority has rightly accepted the resolution
plan. Considering the main and the most important objective of the code is to get
corporate debtors back on track. Thus, according to the given facts of the case,
the court decided not to revoke the resolution plan because it might interfere with
the ongoing operation of respondent 1.
INTERPRETATION
This section establishes security for the company’s creditors by defending
them against unprincipled individuals who, regardless of their previous
defaults, are still attempting to reward themselves by risking the system.
Consequently, throwing the resolution process’s fundamental goal out of the
window. Under section 29A of the code, the resolution professional is
responsible for making a due diligence report on potential resolution
applicants and their associated people must be completed quickly and fast,
according to NCLT’s timeline. The COC has been given the authority to assess
the resolution professional’s due diligence report and to approve or reject the
resolution plan.
Section 29A of India’s Insolvency and Bankruptcy Code, 2016, established a
multi-layered and comprehensive criterion of disqualification that ensures
bonafide resolution applicants’ exclusion. The application of this section may
also prevent important or potential stakeholders from bidding for the
company’s revival. To maximise the benefits and objectives of the code to
creditors and the economy as a whole, a certain amount of tolerance by the
courts in deciding the question of qualification is the need of the hour.
MEANING OF CHARGE
Section 2(16) of the Companies Act 2014 defines charges to mean an interest
or lien created on the property or assets of a company. It also includes, any of
its undertaking or both as security and includes a mortgage.
KINDS OF CHARGE
On the basis of the nature of the charge, it is differentiated into two, namely:-
Fixed or specific charge
It is a kind of charge which is created to cover assets that are associated and
definite are capable of being uncertain and defined, at the time of creating
the charge.
Floating charge
Floating charge which is fluctuating one, so it is not attached to any definite
property but covers property like stock in trade which does not remain fix.
Bombay high court
Bajaj Auto ltd vs Western Maharashtra Development 2015
Judgement: -B. P. Colabawalla
Bench: mohit S. Shah, B. P. Colabawalla
The controversy are that the respondent is a State government corporation and a
wholly owned undertaking of the state of Maharashtra. As stated earlier, MSL is a
listed public company incorporated and registered under the provisions of
Companies Act, 1956. The equity shares of MSL are listed on the Bombay Stock
Exchange (BSE) and the National Stock Exchange (NSE).
MSL was incorporated pursuant to the protocol agreement 1974 entered into
between the appellant and the respondent which inter alia provided that the
appellant would grant benefit of know-how and offer its assistance in the
manufacture of two wheeler scooters to MSL and would also participate in the
equity share capital of MSL on the terms and conditions as set out therein. In
accordance with the terms and conditions of the said agreement, the respondent
as of today continues to hold 27% of the appeal.153.10.Doc equity shareholding
of MSL and the appellant continues to hold 24% thereof.
The balance 49% of the equity shareholding of MSL is held by the public. The
controversy in this appeal no.153 of 2010 revolves around clause 7 of the protocol
agreement which inter alia provides that if either party desires to part with or
transfer its shareholding or any part thereof, in the equity share capital of MSL,
such party shall give first option to the other party for the purchase of such shares
at such rate as may be agreed to between the parties or decided upon by
Arbitration. The procedure to be followed in such a situation is also set out in the
said clause.
It is the case of the respondent that the appellant had for the last 20 odd years
repeatedly been requesting the respondent to divest/transfer its 27% shareholding
to the appellant. On 2002, Mr. Raghuram of CRISIL carried out a valuation of the
shareholding of the respondent in MSL. It is the case of the respondent that this
valuation was done on the joint request of the appellant and the respondent. This
of course has been disputed by the appellant. Be that as it may, ultimately, some
time in April appeal.153.10.Doc 2003, the respondent considered selling and
transferring its 27% shareholding to the appellant and in furtherance thereof,
addressed a letter , 2003 offering to sell its 27% shareholding in MSL (30,85,712
shares) to the appellant at a price of Rs.232.20 per share.
In reply thereto, by their letter , the appellant, under clause 7 of the protocol
agreement, confirmed their interest in buying the shareholding of the
respondent. It was however stated that the price at which the shares were
offered was not acceptable to the appellant and therefore, requested that a
meeting be called for by a high level committee to carry out official
negotiations to reach a fair and marketable settlement.
In response thereto, the respondent addressed a letter calling upon the
appellant to confirm whether their letter was in response to the buy back by
the appellant. By their letter , the appellant appeal.153 Doc confirmed that
their letter was a response to the offer made by the respondent under
clause 7 of the protocol agreement. It was stated that in the letter 2003 they
had confirmed their intention to purchase the shares but the price offered
was not acceptable to the appellant and therefore, requested that a
meeting be called for by the high level committee to negotiate the price.
In reply thereto, by their letter the appellant, under clause 7 of the protocol
agreement, confirmed their interest in buying the shareholding of the
respondent. It was however stated that the price at which the shares were
offered was not acceptable to the appellant and therefore, requested that a
meeting be called for by a high level committee to carry out official
negotiations to reach a fair and marketable settlement.
In response thereto, the respondent addressed a letter calling upon the
appellant to confirm whether their letter 2003 was in response to the buy
back by the appellant. By their letter 2003, the appellant appeal.153.10.Doc
confirmed that their letter dated was a response to the offer made by the
respondent under clause 7 of the protocol agreement. It was stated that in
the letter they had confirmed their intention to purchase the shares but the
price offered was not acceptable to the appellant and therefore, requested
that a meeting be called for by the high level committee to negotiate the
price
Thereafter, by their letter , the appellant reiterated that they were not agreeable to the price
of Rs.232.20 per share as demanded by the respondent and offered to purchase the 27%
shareholding of the respondent at the rate RS 75 equity share. Again, by their letter the
appellant informed the respondent that if their offer of Rs.75/-
Per share was not acceptable to the respondent then arbitration be initiated in terms of
clause 7 of the protocol agreement. It is the case of the respondent that this correspondence
clearly indicates that there was no concluded contract arrived at between the parties in
respect of sale of the said shares. We will deal with this argument later in this judgment, when
we deal with the cross objections.
The Arbitrator, after considering the challenges and the evidence, by a detailed award, held
in favour of the appellant and declared that the 30,85,712 equity shares of MSL held by the
respondent and valued as on are to be sold to the appellant at a price of Rs.151.63 per
share.
Being aggrieved by the aforesaid award, the respondent challenged the same before this
court under the provisions of section 34 of the Arbitration and Conciliation Act, 1996.
As stated earlier, the learned single judge negated all the contentions of the respondent
herein save and except one, on the basis of which the award was set aside. Being aggrieved
by this part of the impugned order, the appellant has filed the present appeal.
ARGUMENTS OF APPELLANT
Faced with the judgment in Messer Holdings ltd., Mr. Khambatta, the learned
senior counsel appearing on behalf of the respondent, submitted that
whether a particular clause was a restriction on transferability of shares had to
be necessarily decided on a case to case basis. He submitted that the facts
in the case of Messer Holdings ltd. They were materially different than the
ones before us. The first distinguishing feature he pointed out was that, under
clause 6.1 in Messer Holdings ltd., There was no restriction on price whereas
clause 7 of the protocol agreement before us compelled the respondent to
sell the shares at a price not determined by the respondent but determined
through the process of arbitration.
The second distinguishing feature that Mr. Khambatta sought to highlight is
that in the facts of our case, this consensual arrangement as set out in clause
7 of the protocol agreement was appealled and also incorporated in Articles
of Association of MSL whereas that was not the case before the Division
Bench in the case of Messer holdings ltd. In furtherance of this argument, Mr.
Khambatta submitted that the protocol agreement and more particularly
clause 7 thereof, was incorporated into the Articles of MSL and was therefore
subsumed therein and did not independently survive.
Once it was submitted in the articles and the same could not be
incorporated the articles of a public company, the same could not re-
emerge in a different avatar, was the submission.
We cannot agree with this argument. Merely because the protocol
agreement was incorporated into the articles of MSL, does not mean that the
protocol agreement by itself ceased to exist.
ARGUMENTS OF RESPONDENT
Mr Samdani, Learned senior counsel appearing on behalf of the respondent,
in support of the cross objections, submitted that the Arbitral Tribunal had
exceeded its jurisdiction by embarking upon an inquiry and adjudicating on a
"date" with reference to which the valuation was to be undertaken. He
submitted that a combined reading of the joint reference 2003 and clause 7
of the protocol agreement left no manner of doubt that the length appeal
and breadth of the Arbitrator's jurisdiction was limited only to the
determination of the "rate". Clause 7 of the protocol agreement along with
the joint reference, did not empower the Arbitrator to decide any incidental
question, especially in view of the fact that clause 7 of the protocol
agreement was limited in its sphere, was the submission of Mr Samdani. He
submitted that the scope of clause 7 of the protocol agreement being
limited, is also borne out from the fact that the protocol agreement itself
contained another Arbitration clause that conferred a much wider
jurisdiction on the Arbitrator and which was admittedly not invoked by any of
the parties.
JUDGEMENT
The Court hold that appeal no.153 of 2010 is allowed and the impugned
order 2010 is set aside insofar as it set aside the Arbitral award on the ground
that clause 7 of the protocol agreement was in the nature of a restriction on
free transferability of the shares and was therefore contrary to section 111A of
the Companies Act, 1956. The cross objections 2010 filed by the respondent
have no merit and therefore stand dismissed. The appellant, for the purchase
of the 30,85,712 equity shares of MSL, shall pay to the respondent a sum of Rs.
46,78,86,510.56/- together with simple interest 18% per annum from 2006 till
payment. Appeal no.153 of 2010 and cross objections no.13 of 2010 are
disposed of in the aforesaid appeal.153.10.Doc terms. In the facts and
circumstances of the case, we leave the parties to bear their own costs.
JUDGEMENT
The Delaware Supreme court affirmed the lower court’s holding in
defendant’s favor. The court distinguished the Revlon decision as concerning
a company that already was determined to sell itself off to the highest bidder,
and therefore the only duty owed at that point was to the shareholders. In this
case, time only looked as if it were for sale as it moved forward on a long-
term expansion plan. Various facts, such as time’s insistence on ensuring the
journalistic independence and it’s temporary holding of the CEO position,
illustrated that the directors were not simply selling off assets. Once it was
determined that the directors’ decision passed the Revlon Test, the unocal
test was applied. The directors also passed the higher standard called for in
unocal to directors who are rebuffing a potential buyer. The directors
reasonably believed, after researching several companies, that a merger with
Warner made the most sense as far as future opportunities and maintaining
their journalistic credibility.
 SECURITIES APPELLATE TRIBUNAL
PRICE WATERHOUSE & CO. AND ORS. VS SEBI 2019
JUDGEMENT :- TARUN AGARWALA
FACTS
The facts leading to the filing of the aforesaid appeals are that PW Bangalore was
given the audit for auditing the books of accounts of Satyam computers services
limited . The engagement partner for the audit of SCSL for the period 2000-07 was
S. Gopalakrishnan and for the financial year 2007-08 which was extended till 2008,
the engagement partner was Srinivas Talluri.
SCSL was regarded as one of the top IT outsourcing firms in the world. The
company had won numerous awards and accolades including in the areas of its
internal audit and corporate governance. SCSL was admired as one of India's
multinational companies. SCSL was also listed in the New York Stock Exchange in
2001 after necessary due diligence carried out by renowned merchant bankers
including Merrill lynch. It is claimed that SCSL had been clocking a good growth in
line with peer companies and adding a number of top customers each year. SCSL
had eminent board members with experience and qualifications in diverse fields
as independent directors.
. On the basis of the investigation, a show cause notice (SCN) 2009 was
issued to Price Waterhouse Bangalore, Price Waterhouse's company
Bangalore, Price Waterhouse & company kolkata, Lovelock & Lewes
Hyderabad, S. Gopalakrishnan and Srinivas Talluri directing them to show
cause as to why directions under Section 11, 11(4) and 11B of the SEBI Act
should not be issued for violation of Sections 12a(a), 12a(b) and 12a(c) of the
SEBI Act read with regulations 3(c), 3(d), 4(1), 4(2)(a), 4(2)(e), 4(2)(f), 4(2)(k)
and 4(2)(r) of the Securities and Exchange Board of India (Prohibition of
Fraudulent and Unfair Trade Practices relating to Securities market)
regulations, 2003 . Subsequently, a supplementary show cause notice , 2010
was issued to the above persons/entities along with lovelock & Lewis Mumbai,
and other places.
Issue:- The question whether SEBI as a market regulator could be said to have
jurisdiction to pass any of the directions as contained in the SCN .
ARGUMENTS OF APPELLANT
The two writ petitions were principally directed against the initiation of proceedings by SEBI against
the ca's under the SEBI Act.
It was contended that SEBI lacked inherent jurisdiction to enquire into the conduct of the appellants
who were professionals. It was asserted that the appellants are not required to submit to the
jurisdiction of SEBI unless SEBI was vested with such jurisdiction.
It was contended that it was not open to SEBI to encroach upon the rights and powers of the ICAI
provided under the Chartered Accountants Act, 1949 .
It was submitted that under the provisions of the SEBI Act and the regulations framed there under,
directions can be issued by SEBI for regulating the securities market, but beyond that, it had no
power to issue any such directions.
It was contended that the powers of SEBI cannot be construed to cover anybody under its umbrella
on the ground of regulating the securities market.
The petitioners in writ petition no. 5256 of 2010 submitted that the said petitioners had not taken part
in any manner in the matter of audit of accounts of the company and therefore the show cause
notice could not be issued against them. It was asserted that the show cause notice could not be
issued simply because the petitioners were associated with price waterhouse & company.
It was contended that if there was any occasion or request on the part of any chartered
accountants in the matter of discharging their professional duties, it is only the ICAI which had the
power to regulate the profession of the chartered accountant (CA) under the CA Act.
ARGUMENTS OF SEBI
The contention of SEBI before the SAT was that by issuing notices to CA's and to the audit
firms, SEBI was not regulating the profession of CAs but was safeguarding the interest of the
investors as well as the securities market.
It was asserted that if by the acts and misdeeds of the cas and its firms it was found that the
books of accounts and balance sheets had been manipulated, it was open to SEBI to take
remedial measures by keeping such persons and entities at a distance. It was asserted that
the show cause notices were issued on the basis of the material available with SEBI and
ultimately if it was found that the books of accounts of the company were manipulated with
knowledge and intent, then such manipulation would have a direct bearing on the securities
market for which appropriate action could be taken.
It was further asserted that if during the enquiry any evidence is brought to the effect that
the auditors had connived and were in collusion with B. Ramalinga Raju and had fabricated
the accounts then SEBI could proceed against the cas and the audit firms.
It was asserted that if the CAs had violated the norms and standards of accounting
prescribed by the CA Act, SEBI had powers to take regulatory measures for protecting the
investor's interest by taking appropriate steps against the CAs by preventing the CA from
auditing the books of accounts of such listed companies. It was thus contended that on the
basis of prima facie evidence of fudging the books of accounts SEBI had the power and
jurisdiction to issue notices and enquire into the matter.
JUDGEMENT
In the light of the aforesaid, the WTM found that for this negligence, the auditors
and the firms benefitted by way of charging a fee amounting to Rs. 13,09,01,664/-.
the WTm was of the opinion that this wrongful gain was liable to be disgorged. We
find that for this professional lapse, there has been a breach of duty and failure to
maintain that standard of care. For this lapse / negligence, we are of the opinion
that the appellants were not justified to retain this amount. In our opinion, the WTM
was justified in disgorging the said amount along with interest. The power was
rightly exercised under section 11 and 11-B of the SEBI act to persons who in some
way was associated with the securities market as well as under the Companies
Act. 1956
. For the reasons stated aforesaid, the order of the WTM of SEBI debarring the PW
firms as well as the two auditors from auditing listed companies cannot be
sustained and is quashed. Directions to listed companies not to engage any audit
firm forming part of PW network is also quashed. Appeal no. 6 of 2018, appeal of
2018 are allowed. The order of the WTM disgorging the amount is sustained and
consequently appeal no. 7 of 2018 is partly allowed. In the circumstances of case,
parties shall bear their own costs.
OBJECTIVES OF SEBI ACT 1992
1. Protective function
2. Regulatory function
3. Development function
Protective Function
a. Prohibition of insider trading
b. Prevention of price rigging
c. Promotion of fair practices
d. Financial education
e. Regulatory function
f. Formulation of rules and regulations
g. Regulation of takeovers
h. Audit of stock exchanges:
i. Regulation of brokers
DEVELOPMENTAL FUNCTION
A.Training intermediaries
B. Introduction of electronic trading
THE STRUCTURE OF SEBI
The SEBI board consists of nine members, including:
One chairman appointed by the central government of India
One board member appointed by the Central Bank (RBI)
Two board members from the union Ministry of Finance
Five board members elected by the Central government of India
SEBI is essentially a Statutory body of the Indian Government that was established
on the 12th of April 1992. It was introduced to promote transparency in the Indian
investment market.
Besides its headquarters in Mumbai, the establishment has several regional offices
nationwide, including new Delhi, Ahmedabad, Kolkata and Chennai.
BANK OF BARODA VS SECURITIES & EXCHANGE BOARD OF INDIA, 2000
BEFORE TIIE SECURITIES APPELLATE TRIBUNAL MUMBAI
FACTS
These two appeals by the appellants viz. Bank of Baroda and Union bank of India, are directed
against the two separate orders, both 2000 made the respondent, directing the appellants to
refund the application money collected by them from the subscribers, in their capacity as the
bankers to the issue in the public issue of shares made by one Jaltarang motels ltd.1995.

Material facts giving rise to these two appeals relate to matters arising out of the public issue of 36
lakhs equity shares of Rs. 101- each, made by Jaltarang motels ltd by issuing a prospectus. Both the
appellants are public sector banks holding certificate of registration from the respondent, to act as
"bankers to an issue". The appellants along with Punjab National bank were the bankers to an issue
to the company's public issue of shares. The issue was opened for public subscription on 1995 with
heavy over subscription.

Even though the prospectus issued by the company categorically stated that the company' s shares
would be listed on the Stock Exchanges at Ahmedabad and Bombay and that for the purpose
necessary application had been made, permission for listing could be obtained only from
Ahmedabad Stock Exchange . While ASE accorded approval on 1996, Bombay Stock Exchange
(BSE) rejected the request on ,1996. However, the appellant Bank of Baroda, transferred a sum of
Rs.38, 89,218 collected from the public, to the company's account. The appellant Union Bank of
India, out of a sum of Rs.353.32 lakhs collected from the public, transferred few lakh rupees to
certain third parties and the balance amount to the company. These transfers were made without
waiting for the decision on listing from BSE.
Since BSE had refused to list the company's shares, the public issue became void in terms of of section 73 of
the companies act necessitating refund of the application money forthwith to the applicants as required
under sub section 2 of the said section 73.
However, the company did not comply with the said requirement of returning money to the applicants and
as a result innocent (investors) were, put to hardship. At this juncture the respondent got into the interests of
the investors.
After holding an enquiry the respondent order , directed shri Atul Shah, the managing director and one of
the promoters of the company, to refund the subscription money to the applicants. Instead of complying
with the said direction, the company preferred an appeal against the order before the appellate authority
under the securities & exchange board of India Act . The appeal was dismissed.
The company filed a revision application before the appellate authority, which was also dismissed on
march 17, 1998. Thereafter the company filed a special civil application in the gujarat high court. Single
judge dismissed the order 1998 giving liberty to the respondent to take appropriate action with respect to
recovery of amounts either from the properties purchased out of the fund or from the fund diverted to
Jaitarang Motels Club, an associate concern, or from the bankers to the issue.
LPA filed against the single judge's order was dismissed by the Division Bench on 1998. The respondent
opted to pursue the matter with the appellant banks, being the bankers to the issue, and accordingly after
making an enquiry issued orders invoking the powers provided under section 1 IB of the act, directing them
to refund the money to the investors, holding that due to their negligence, the investors have been made to
suffer. The appellant Bank of Baroda was directed to refund a sum of Rs.40.32 lakhs together with interest
15% p.A. From March 25, 1996 and the appellant union bank was directed to refund s.353.32 lakhs together
with interest @15% p.A. From april 3, 1996. Both these orders were issued on january 19, 2000. These two
orders are under challenge in the present appeals.
ISSUE
Whether SEBI has jurisdiction in this case
Arguments of appellant
Appearing for the appellant bank of baroda, shri M.T.Udeshi, the learned authorised representative, submitted that
the impugned order is beyond the jurisdiction and powers conferred on the respondent by the act.
According to him section 11 B of the A ct is only an enabling section and the substantive law governing the matter is
section 73 of the companies act, under which the issuer company and its officers in default alone are responsible for
the consequences of non compliance of the requirements provided therein, and in any case not the bankers to an
issue.
In the absence of any liability to refund the money fastened on the bankers to an issue by statute, appellant is not
liable to make such refund and cannot be compelled to make refund. In his view the act does not empower the
respondent to exercise powers to enforce the provisions of the companies act. Referring to Gujarat high court's order
1998 in the company's SCA, the learned representative submitted that since the properties of the company having
been charged to the respondent, the respondent should have realised the money theref rorn and paid to the
investors; more so in view of the company's admission of diversion of funds to purchase of properties and to its
associate concern.
He submitted that the bankers to an issue has only a limited role to play in a public issue as its duty is confined to
collection of applications and money. The lead manager being the kingpin in the process is required to over see the
public issue and provide guidance to others associated with the issue.
According to him the bankers to an issue is required to go by the advice of the lead manager and the appellant
bank faithfully went by the same. He submitted that in terms of the requirement of the prospectus, once allotment of
shares was decided by the concerned stock exchange, the bankers to an issue is not required to keep custody of
the funds and that the money was required to be released to the issuer company. In the instant case ASE vide letter
of 1996 had granted permission to trade the company's s on ASE and the company had also reiterated this fact in its
letter of march 25, requesting for release of the funds. The learned representative submitted that e's decision refusing
permission for listing though dated march 6, 1996, reached the appellant bank only on 1996 as the decision was
communicated by ASE to the lead manager on 21 and the lead manager in turn to them on 8, 1996. By then the
funds had already been released to the company.
ARGUMENTS OF RESPONDENT
The learned representative submitted that the appellants had failed to exercise due diligence
expected of them. Since BSE had declined permission for listing, the subscription money was
required to be refunded forthwith to the investors in terms of section 73(2) of the Companies Act. But
instead of refunding the money to its legitimate owners, the company made use of the same
necessitating the respondent's intervention by way of issuance of directions on 996 requiring the
company to refund the collection money to the applicants. Though the company filed an appeal
before the appellate authority challenging the respondents' order, they could not succeed and
subsequent revision application filed by them was also dismissed.
The matter did not rest at that point. The company filed a special civil application in the Gujarat
High Court, which was also dismissed on 1998. Letters patent appeal thereafter against the single
judge's order also was dismissed by the division h of the High court on 1998. Tribunal's attention was
invited to the single judge's order as endorsed by the Division Bench in the said SCA and in particular
to the portion giving liberty to the respondent to take appropriate action with respect to the
recovery of amounts either from the properties purchased out of the subscription money or from the
Jaltarang Motels club, an associate unit of the company, to whom part of the subscription money
was diverted or from the bankers to the issue. He submitted that the impugned order was issued in
compliance with the high court's specific order in the matter. In fact, the high court had also
directed the respondent to find out the conduct of the bankers to the issue in the matter and take
suitable action. The learned representative submitted that it is not correct to say that the appellants
were singled out and other players such as lead manager and the concerned registrar to the issue
were allowed to go scot-free. According to him after inquiry, certificate of registration granted to
the lead manager was suspended and the concerned registrar .
JUDGEMENT
The appellants being public sector banks it was all the more expected of them to exercise due diligence before parting with
the public money to the company. They cannot seek shelter on the ground that they were not aware of the requirements of
law, that they did not get proper advice from the lead manager and the respondent, etc. According to their own admission
they had acted as bankers to an -issue in several public issues in the past and as such they cannot claim ignorance of the
statutory requirements and their obligations. It is also to be remembered that in the prospectus itself an undertaking was given
that the subscription monies will be kept in separate bank accounts and the company will not have access to such funds unless
allotment of shares has been made in consultation with the stock exchanges where listing is made. Are we to believe that the
appellants had not read this portion in the prospectus casting such an important obligation on them? There is nothing on record
to show that the appellants had made any efforts to ascertain the compliance as to whether both the stock exchanges
mentioned in the prospectus had accorded listing approval. The main reason for the investors misery in this case is attributable
to the negligence of the appellants. Negligence is not an attribute of good faith. The facts and circumstances placed before
me do not suggest that the appellants had acted diligently.

From the legal and factual position discussed above, it is clear that the appellants as bankers to an issue were duty bound to
wait for the decision on the company's application from both the stock exchanges mentioned in the prospectus and only after
ensuring compliance of the statutory requirements, they should have decided to release the collection money to the
company. Since they were holding the application money in trust they were accountable for its safe up keep and return. They
cannot escape the liability for misapplication of money. The liability to refund the money is now on them. I am of the view that
the appellants are not out of the reach of and the respondent is not short of power to reach them.

For the reasons discussed above, i have no hesitation to hold that the impugned order is legally valid and there is no merit in the
appeals. The appeals are accordingly dismissed.
POWERS OF SEBI
SEBI carries out the following tasks to meet its objectives: protective functions, regulatory functions, and developmental
functions.
Functions that SEBI performs as a part of its protective functions are:
· It checks price manipulation
· It bans insider trading
· It prohibits unfair and fraudulent trade practices
· It promotes a fair code of conduct in the security market
· It takes efforts to educate the investors regarding ways to evaluate the investment options better

regulatory functions, SEBI performs the following role:

· It has designed a code of conduct, rules, and regulations to regulate the brokers, underwriters, and other intermediaries.
· SEBI also governs a company’s takeover.
· It regulates and registers the workings of share transfer agents, stockbrokers, merchant bankers, trustees, and others who are
linked with the Stock Exchange.
· It regulates and registers the mutual funds as well.
· It conducts audits and inquiries of stock exchanges.

As a part of its developmental functions, SEBI performs the following role:

· It facilitates the training of the intermediaries.
· It aims at promoting activities of the Stock Exchange by having an adoptable and flexible approach.
MAITREYA SERVICES PRIVATE LIMITED LAWRENCE TRADE CENTRE CO OP HSG SOC LTD & OTHERS VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA SEBI 2013 SEBI 47
JUDGES: The honourable Jog Singh, Hon'ble justice Mr. A.S. Lamba,
Facts
Maitreya Services private limited, is a company incorporated under the companies act, 1956 purportedly
engaged in the business of Real estate. The income tax office vide letter , 2010 informed SEBI of the alleged
violation of the , SEBI Act and the CIS regulations by appellant no. 1. Attached to the said letter were
documents substantiating the claims of the I. T. Office. SEBI started an inquiry into the business of appellant
no. 1 on the basis of the letter and documents sent by the I. T. Office. In relation to the inquiry, the
respondent sent a few letters from 2010 to 2011 to appellant no. 1 seeking some documents which would
help establish whether or not the business dealings of the appellants would fall under the definition of a CIS.
The appellants submitted some of the required documents annexed with letter 2010 requesting the
respondent to grant the appellants some time to put together certain information required by the
respondent. Among the documents sent to the respondent were the Memorandum and Articles of
association of appellant no.1, plan wise details of the member of investors and amounts received from
applicants for allotment of land units, details of past and present directors or appellant no. 1, copy of a
standard unit certificate issued by appellant no. 1 to its customer, the application form, memorandum of
understanding executed by MSPL with the customers. The appellants finally submitted their detailed reply
vide letter dated december 20, 2010 in which all accusations levelled against them by the respondent were
denied by the appellants. It is stated in the said letter that appellant no. 1 had stopped taking new
investment from the public. For the next couple of months SEBI moved forward with the inquiry, inspecting
documents sent by the appellants. Vide letter dated may 30, 2011, the appellants refuted allegations of the
respondent accusing the business of the appellants to be in the nature of within the meaning of the
expression as defined in , section 11AA of the SEBI Act 1992
Finally, a show cause notice 2011 (SCN) was issued to appellant no. 1 for
conducting CIS without getting registered with SEBI in terms of section 12(1B)
and respondent 3 of the CIS regulations. Appellant no. 1 replied to the show
cause notice vide letters 2011 and denying all allegations in the SCN.
Appellant nos. 2 and 3 did not reply to the SCN. A personal hearing was
conducted before the whole time member (WTM) , 2012 at which appellant
no. 1 submitted that it would propose a repayment plan which would allay all
of the respondents fears, and for this time was sought by the appellants. On
March 21, 2012, at the next hearing of appellant no. 1, the appellant put forth
a repayment plan spread over a period of five years. The WTM, on perusing
the application for repayment, advised appellant no. 1 to decrease the time
period to a mere suitable and appropriate number in view of the number of
investors and risks involved.
A hearing was then held on june 5, 2012 when the revised plan was
submitted. It was stated that since rs. 707.74 crore had to be repaid to the
investors, it would be possible only over a period of four years. The appellant
was asked for a copy of its statement of accounts along with a copy of its
balance sheet, both of which were provided to the respondent on 2012
respectively.
ISSUE
Whether SEBI has the jurisdiction in this case
Arguments of Appellant
The appellants submit that the CIS regulations apply to businesses pertaining to
plantation and agricultural activities and they were brought into force to deal with
entities whose modus operandi was to issue bonds on collection of money from
the public. For this reason, the reliance placed by the respondent on PGF ltd. Vs.
Union of india, decided by the supreme court 2013, has been refuted by the
appellants since PGF ltd. Was a company engaged in plantation activities. It is
submitted that the sale and purchase of land does not fall within the purview of
the CIS regulations. The appellants submit that it does not offer any exorbitantly
high returns to its buyers but an acceptable figure of 12% per annum. The funds
raised are not utilized only for development of the alleged schemes but also go
towards ongoing corporate expenses and other business activities of appellant
no. 1. It is submitted that the respondent erred while examining the documents
provided, which demonstrated how appellant no. 1 was utilizing its funds. It is
further submitted that the sole Purpose of the schemes of appellant no.1 is to
provide a convenient way to pay for the plots of lands, which it sells.
ARGUMENTS OF RESPONDENT
Section 11AA of the SEBI Act is constitutionally valid. We also hold that the
activity of the PGF limited, namely, the sale and development of agricultural
land squarely falls within the definition of collective investment scheme under
section 2(b) read along with , section 11AA (ii) of the SEBI Act and
consequently the order of the second respondent is perfectly justified and
there is no scope to interfere with the same. In the light of our above
conclusions, the PGF limited has to comply with the directions contained in
last paragraph of the order of the second respondent 2002. We also hold that
while ensuring compliance of the order 2002, the second respondent shall
also examine the claim of the PGF limited that it had stopped its joint venture
scheme as from 2000 is correct or not by holding necessary inspection,
enquiry and investigation of the premises of the PGF limited in its registered
office or any of its other offices wherever located and also examine the
account books other records and based on such inspection, enquiry and
investigation issue any further directions in accordance with law. Whatever
amount deposited by the PGF limited pursuant to the interim orders of this
court relating to joint venture scheme shall be kept in deposit by the second
respondent in an interest bearing escrow account of a Nationalized Bank
In light of the above said, The find no legal infirmity with the impugned order and
it is hereby upheld.
Now, keeping in view the large number of investors involved, , Around two and a
half million, and the long and tedious process of implementing the scheme of
repayment involved which would entail a number of steps before money is finally
received by the investors, including going through more than two million
applications; ascertaining the amount / money to be paid in each and every
case; disposing off the property; writing and dispatching cheques to the investors
We are inclined to grant them a longer period of time than that provided by SEBI.
However, we feel that the time frame of four years sought by appellants would be
unnecessarily long, and in the facts and circumstances of the case, a period of six
months would duly suffice, with a rider that the appellants shall submit a report to
SEBI after six months giving accurate details regarding the progress made while
executing the scheme of repayment in question. To this extent, the impugned
order dated march 25, 2013 stands modified. In case any eventuality arises in
future for the appellants to seek further extension of time to implement SEBIs order
in question, the appellants may approach SEBI for extension of time and SEBI will
consider the same and pass appropriate order depending upon progress made
by appellants in respect of implementation of impugned order.
The appeal, accordingly, stands dismissed, with no costs.
GURU TEAK INVESTMENT (MYSORE) PRIVATE ... VS SECURITIES AND EXCHANGE
BOARD OF INDIA 2005 SAT
FACT
The appellant M/s. Guru Teak investment (Mysore) private limited is a company
incorporated under the Companies Act, 1956 on 1996. The main objective was to
carry on business under collective investment scheme including farming,
horticulture, floriculture and for the purpose of manufacture and sale of agro
chemicals and to carry on business as timber merchants and the business to sell
land with or without trees and plants.
Section 11AA dealing with collective investment scheme was introduced by Act
31 of 1999 to 2000. Before section 11AA was introduced the collective investment
scheme was subject to various laws depending on whether the scheme was a
company, partnership or an individual. By the introduction of section 11AA such
scheme which come within the definition of collective investment scheme as
defined under section 11AA was to be brought within the purview of SEBI. In other
words even those collective investment scheme which existed even prior to the
introduction of section 11AA has now been brought under the provisions of section
11AA.
ISSUE
WHETHER PETITIONER IS COMPLIED ALL REQUIREMENTS FOR LAUNCH
COLLECTIVE INVESTMENT
ARGUMENTS OF APPELLANT
Mr. Naganand, learned Sr. Counsel for the appellant vehemently submits that
all schemes which involves growth of teak are, as a matter of routine, treated
as high risk. He also submitted that there is no bar for a company to deal in
collective investment schemes involving the growth of teak trees merely
because the rating indicates high risk provided the investing publics are
made to know the rating. He further submitted that all dealings in the stock
market / derivative market are also considered as high risk. All that was
required was to inform the investors that a rating has been given and that the
rating indicates that it is high risk. This is what the act and the regulations
require.
JUDGEMENT
The appellant has also deposited with the respondent a sum of Rs. 50 lakhs on
05/05/2005 pursuant to the interim order passed by this court. This amount shall
remain with SEBI till the matter is finally disposed of in accordance with law to be
used to repay the investors who want repayment of the money. The appellant was
also directed by the interim order not to alienate any movable property standing
in the name of the company without the leave of the tribunal and the appellant
was also not to mobilize any further funds. The learned senior counsel for the
appellant submitted that the appellant filed the above application praying for
certain conditions to be lifted and for the reasons stated in the affidavit. It is for
SEBI to consider the application sympathetically in accordance with law during
the pendency of the matter before SEBI in the interest of both the investors and in
public interest. SEBI may retain the amount deposited by the company till the time
it passes the final orders or disburse it to any person who wants the money back
during the pendency of the matter before SEBI. All contentions of the appellant
are left open. The respondent may issue fresh show cause notice and dispose of
the matter under remand as expeditiously as possible.
38. No order as to costs.
RULES
Company shall get existing schemes rated by a credit rating agency within one
year from the date of grant of provisional registration; (ii) the company shall not
launch any new scheme or raise money from the investors under the existing
scheme; (iii) company shall get the existing schemes audited by an auditor within
one year from the grant of provisional registration; (iv) company shall get the
existing schemes appraised by appraising agency within one year; (v) company
shall create trust and appoint trustees as specified in chapter IV of regulations
within one year; (vi) company shall comply with accounting and valuation norms
as provided in part II of the ninth schedule of the regulations within one year; (vii)
company shall meet a minimum net worth of Rs. One crore within one year and
will increase the same by Rs. One Crore each within two, three, four and five
years; (viii) company do not dispose of the scheme property except for meeting
obligation arising under the offer document; (ix) company to comply with
conditions in regulation 11 of the regulations and to inform SEBI regarding any
material change; (x) company to comply with the code of conduct and all other
guidelines issued by the SEBI; (xi) company to maintain books and documents as
per regulation 40 of the regulations; (xii) company to abide by regulations as
amended from time to time.
REQUIRED DOCUMENTS
Brief profile about the status of the company annexure 1
2. Copy of the memorandum and articles of annexure II association
3. Copy of the provisional certificate issued annexure III by SEBI 4. Copy of
form 32 for appointing independent directors
5. Copy of the notice, directors report, auditors annexure V report and
audited accounts for the period ended 31-03-2004
6. Certificate from participating company secretary annexure VI with respect
to the share capital of the company
7. Copy of the registered trust deed and memorandum annexure VII of
agreement
8. Appraisal report from agricultural finance annexure VIII corporation limited
9. Rating certificate issued by ICRA annexure IX
SECURITIES CONTRACTS (REGULATION) ACT, 1956
SEC 2 DEFINITIONS
Securities” include—

(I) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable
Securities of a like nature in or of any incorporated company or others
Sec 3
Application for recognition of stock exchanges.
Any stock exchange, which is desirous of being recognised for the purposes of this act, may
make an application in the prescribed manner to the Central Government.
Sec 4
Grant of recognition to stock exchanges.
4. (1) If the Central Government is satisfied, after making such inquiry as may be
necessary in this behalf and after obtaining such further information, if any, as it may
require,—
A) That the rules and bye-laws of a stock exchange applying for registration are in conformity with
such conditions as may be prescribed with a view to ensure fair dealing and to protect investors;
(B) That the stock exchange is willing to comply with any other conditions (including conditions as to
the number of members) which the central government, after Consultation with the governing body
of the stock exchange and having regard to the area served by the stock exchange and its
standing and the nature of the Securities dealt with by it, may impose for the purpose of carrying out
the objects Of this act; and
a) that the rules and bye-laws of a stock exchange applying for registration are in conformity with
such conditions as may be prescribed with a view to ensure fair dealing and to protect investors;
(b) that the stock exchange is willing to comply with any other conditions (including conditions as to
the number of members) which the Central Government, after consultation with the governing
body of the stock exchange and having regard to the area served by the stock exchange and its
standing and the nature of the securities dealt with by it, may impose for the purpose of carrying out
the objects of this Act; and
) Every grant of recognition to a stock exchange under this section shall be published in
the Gazette of India and also in the Official Gazette of the State in which the principal
office as of the stock exchange is situate, and such recognition shall have effect as from
the date of its publication in the Gazette of India.
SEC 5
WITHDRAWAL OF RECOGNITION.
5.] If the Central government is of opinion that the recognition granted to a
Stock
Exchange under the provisions of this act should, in the interest of the trade or
in the Public interest, be withdrawn, the central government may serve on the
governing body of the stock exchange a written notice that the central
government is considering the withdrawal of the recognition for the reasons
stated in the notice and after giving an opportunity to the governing body to
be heard in the matter, the central government may withdraw, by
notification in the official gazette, the recognition granted to the stock
Exchange:
SEC6
Power of central government to call for periodical returns or direct inquiries to be
Made.
6. (1) every recognised Stock Exchange shall furnish to the Securities and exchange
Board of India such periodical returns relating to its affairs as may be prescribed.
(2) every recognised Stock Exchange and every member thereof shall maintain and
Preserve for such periods not exceeding five years such books of account, and other
Documents as the central government, after consultation with the stock exchange
Concerned, may prescribe in the interest of the trade or in the public interest, and such
Books of account, and other documents shall be subject to inspection at all reasonable
Times by the authoriity
 [Power of recognised stock exchange to make rules restricting voting rights, etc.
 7A. (1) A recognised stock exchange may make rules or amend any rules made by it to
 provide for all or any of the following matters, namely:—
 (a) the restriction of voting rights to members only in respect of any matter placed
 before the stock exchange at any meeting;
 (b) the regulation of voting rights in respect of any matter placed before the stock
 exchange at any meeting so that each member may be entitled to have one vote
 only, irrespective of his share of the paid-up equity capital of the stock exchange;
 (c) the restriction on the right of a member to appoint another person as his proxy to
 attend and vote at a meeting of the stock exchange;
 (d) such incidental, consequential and supplementary matters as may be necessary to
 give effect to any of the matters specified in clauses (a), (b) and (c).
 SEC 8
 Power of Central Government to direct rules to be made or to make rules.
 8. (1) Where, after consultation with the governing bodies of stock exchanges
generally or with the governing body of any stock exchange in particular, the
Central Government other officer of the firm; and Power of Central
Government to direct rules to be made or to make rules.
 8. (1) Where, after consultation with the governing bodies of stock exchanges
generally or with the governing body of any stock exchange in particular, the
Central Government is of opinion that it is necessary or expedient so to do, it
may, by order in writing together
 with a statement of the reasons therefore, direct recognised stock exchanges
generally or any recognised stock exchange in particular, as the case may be,
to make any rules or toamend any rules already made in respect of all or any
of the matters specified in sub- section (2) of section 3 within a period of two
months from the date of the order
 Sec 9 Power of recognised stock exchanges to make bye-laws.
 9. (1) Any recognised stock exchange may, subject to the previous approval of the
 27[Securities and Exchange Board of India], make bye-laws for the regulation and control
 of contracts.
 (2) In particular, and without prejudice to the generality of the foregoing power, such
 bye-laws may provide for:
 (a) the opening and closing of markets and the regulation of the hours of trade;
 (b) a clearing house for the periodical settlement of contracts and differences
 There under, the delivery of and payment for securities, the passing on of delivery
 orders and the regulation and maintenance of such clearing house.
SEC 10
Power of [SEBI] to make or amend bye-laws of recognised Stock Exchanges.
10. (1) the SEBI may, either on a request in writing received by it in this behalf
from the governing body of a recognised Stock Exchange or on its own
motion, if it is satisfied after consultation with the governing body of the Stock
Exchange that it is necessary or expedient so to do and after recording its
reasons for so doing, make bye-laws for all or any of the matters specified in
section 9 or amend any Bye-laws made by such stock exchange under that
section.
SEC 12
Power to suspend business of recognised Stock Exchanges.
12. If in the opinion of the Central government an emergency has arisen and
for the purpose of meeting the emergency the Central government considers
it expedient so to do, it may, by notification in the official gazette, for reasons
to be set out therein, direct a recognised Stock Exchange to suspend such of
its business for such period not exceeding seven days and subject to such
conditions as may be specified in the notification, and, if, in the opinion of the
central government, the interest of the trade or the public interest requires
that the period should be extended, may, by like notification extend the said
period from time to time
SEC11 Power of central government to supersede governing body of a recognised stock
Exchange.
11. (1) without prejudice to any other powers vested in the central government under
This act, where the central government is of opinion that the governing body of any
Recognised stock exchange should be superseded, then, notwithstanding anything
Contained in any other law for the time being in force, in the central government may
Serve on the governing body a written notice that the central government is considering
The supersession of the governing body for the reasons specified in the notice and after
Giving an opportunity to the governing body to be heard in the matter, it may, by
Notification in the official gazette, declare the governing body of such stock exchange to
Be superseded, and may appoint any person or persons to exercise and perform all the
Powers and duties of the governing body, and, where more persons than one are
Appointed, may appoint one of such persons to be the chairman and another to be the
Vice-chairman thereof.
Sec16 Power to prohibit contracts in certain cases.
16. (1) if the central government is of opinion that it is necessary to prevent
undesirable s peculation in specified securities in any state or area, it may, by
notification in the official gazette, declare that no person in the state or area
specified in the notification shall, save with the permission of the central
government, enter into any contract for the sale or purchase of any security
specified in the notification except to the extent and in the manner, if any,
specified therein.
(2) all contracts in contravention of the provisions of sub-section (1) entered
into after
The date of notification issued there under shall be illegal
SEC 19 Stock Exchanges other than recognised stock exchanges prohibited.
19. (1) no person shall, except with the permission of the central government,
organise or assist in organising or be a member of any Stock Exchange for the
purpose of assisting in, entering into or performing any contracts in securities.
(2) this section shall come into force in any state or area on such date as the
central Government may, by notification in the official gazette, appoint.
Listed securities
21. Where securities are listed on the application of any person in any
recognised Stock Exchange, such person shall comply with the conditions of
the listing agreement with that Stock Exchange.
Delisting of securities.
21a. (1) A recognised Stock Exchange may delist the securities, after recording the
Reasons therefore, from any recognised Stock Exchange on any of the ground or grounds
As may be prescribed under this act: Provided that the securities of a company shall not be
delisted unless the company concerned has been given a reasonable opportunity of being
heard.
(2) a listed company or an aggrieved investor may file an appeal before the securities
Appellate tribunal against the decision of the recognised Stock Exchange delisting the
Securities within fifteen days from the date of the decision of the recognised stock
Exchange delisting the securities and the provisions of sections 22B to 22E of this act,
Shall apply, as far as may be, to such appeals:
Provided that the Securities Appellate Tribunal may, if it is satisfied that the company
Was prevented by sufficient cause from filing the appeal within the said period, allow it to
Be filed within a further period not exceeding one month.