52 Weeks Entertainment Ltd.(Formerly ... vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Order Reserved On: 27.02.2015 Date of Decision: 13.03.2015

Appeal No. 23 of 2015

52 Weeks Entertainment Ltd. (Formerly Known as Shantanu Sheorey Aquakult Ltd.), Tarabai Hall 97, Shivprasad, Marine Drive, Mumbai-400 002 ...Appellant

Versus

1.

BSE Limited Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai-400 001

2. Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondents

Mr. Pradeep Sancheti, Senior Advocate with Mr. Vishwanathan Iyer, Advocate i/b Mr. Prakash Shah, Advocate for the Appellant.

Mr. P. N. Modi, Senior Advocate with Mr. Ajay Khaire, Advocate i/b M/s. The Law Point for Respondent No. 1

Mr. J. P. Sen, Senior Advocate with Mr. Mihir Mody and Mr. Rushin Kapadia, Advocates i/b K. Ashar & Co. for Respondent No. 2

CORAM: Justice J.P. Devadhar, Presiding Officer A.S. Lamba, Member

Per: Justice J.P. Devadhar

1. I have perused the decision rendered by Learned Member Shri A.

S. Lamba. I agree with the conclusion drawn therein to the effect that the

impugned orders cannot be sustained, however, for the reasons recorded

herein.

2

2. This appeal is filed to challenge the notice put up by the Bombay

Stock Exchange Limited ('BSE' for short) on its website on 01.01.2015.

By that notice all the trading members of the BSE were informed that

the trading in the securities of 22 companies named thereunder including

the trading in the securities of the appellant-company would be

suspended with effect from 07.01.2015 until further orders.

3. When the appeal was moved before this Tribunal for urgent reliefs,

grievance made by the appellant was that the impugned notice is issued

without hearing the appellant and without assigning any reasons. Hence

we directed the BSE to hear the appellant and record reasons for issuing

the impugned notice on 01.01.2015. Accordingly, the BSE has heard

the appellant and on 12.01.2015 recorded its reasons for issuing the

impugned notice dated 01.01.2015.

4. Question therefore to be considered in this appeal is, whether BSE

is justified in suspending the trading in the securities of the appellant

with effect from 07/01/2015 for the reasons recorded by it on

12.01.2015 after granting post decisional hearing.

5. Facts relevant for the purposes of the present appeal are that the

appellant is a public limited company engaged in the activity connected

with the entertainment market such as film making. Shares of the

appellant-company are listed on the BSE. However, trading in the shares

of the appellant-company on BSE were suspended during the year 2001- 3

2012 as the appellant was not in a position to pay the Listing fees as also

CDSL/NSDL charges, Registrar fees and salary of the employees of the

appellant.

6. In the last quarter of 2012, the promoters of the appellant-company

decided to revive the operations of the appellant-company and with a

view to finance the activities connected with the entertainment market, it

was decided that the appellant should raise funds by issuing preferential

shares to non-promoters subject to complying with all applicable

provisions of the Companies Act, SEBI Act and the Regulations framed

thereunder as well as the Rules and Regulations of the BSE.

7. On being satisfied that the proposal put forth by the appellant was

in order, BSE by its letters dated 01.03.2013 and 22.11.2013 granted in

principle approval for issuance of 1,79,70,000 and 74,45,000 equity

shares of ` 10 each at par to other than promoters on a preferential basis

in terms of clause 24(a) of the Listing Agreement. Thereafter, on

03.09.2014, BSE once again deemed it fit to grant in-principle approval

for issuance of 53, 40,000 equity shares of ` 10 each at a price not less

than ` 23 per share to non-promoters on a preferential basis in terms of

clause 24(a) of the Listing Agreement. Accordingly, from time to time

appellant-company has issued preferential shares to non-promoters.

After issuance of the preferential shares, the share capital of the

appellant-company rose to 3,48,80,000 shares out of which 3,15,89,450

shares are held by the general public (including preferential 4

shareholders) and 32,90,550 shares are held by the promoters of the

appellant-company.

8. According to BSE, decision to suspend trading in the securities of

the appellant was taken as per the directions given by SEBI contained in

the minutes of the SEBI Surveillance Committee Meeting held on

10.12.2014 with the Stock Exchanges. In the said minutes, it is recorded

that the SEBI had inter alia appraised the Stock Exchanges regarding the

modus operandi of market manipulation that is being perpetrated by

certain entities, and to prevent further such damage, SEBI has directed

the Stock Exchanges to suspend the trading in the companies, which

satisfy one or more of the following parameters:-

a) Non-existent on the address mentioned and does

appear to be carrying out any operations.

b) Preferential allotments made. Price of the scrip

increased with very low volume during one year

period of lock-in. After lock-in huge rise in volumes

and exit of preferential allottees. This may be coupled

with stock split.

c) Companies having week financials and the price rise in

such scrip is not supported by financials.

According to BSE the appellant-company fulfills all the aforesaid three

parameters laid down in the minutes of Surveillance Committee Meeting

held on 10.12.2014, and therefore the BSE by its notice dated 5

01.01.2015 has sought to suspend trading in the shares of the appellant-

company until further orders.

9. Mr. Sancheti, Learned Senior Advocate appearing on behalf of the

appellant submitted that the impugned notice dated 01.01.2015 issued by

the BSE as well as the reasons recorded subsequently in support of the

impugned action cannot be sustained for the following reasons:-

a) Impugned notice published on the BSE website on

01.01.2015 is neither addressed to the appellant nor it

contains facts or reasons for suspending the trading in

the securities of the appellant. It does not specify the

provision of law that is allegedly violated by the

appellant and does not specify the period for which the

trading in the securities of the appellant shall remain

suspended. Such a notice which does not contain facts

or reasons for suspending the trading in the shares of

the appellant cannot be said to be an order passed in

accordance with law and hence unsustainable. In

support of the above contentions reliance is placed on

the decisions of the Apex Court in case of M/s. Kranti

Associates Pvt. Ltd. vs. Massod Ahmed Khan and Ors.

Reported in (2010) 9 SCC 496 and Assistant

Commissioner vs. M/s. Shukla Brothers repowered in

(2010) 4 SCC 785.

6

b) According to BSE, minutes of the Surveillance

Committee Meeting dated 10/12/2014 is the basis for

issuing the impugned notice. The said minutes are not

approved by SEBI and are not published for the

benefit of the trading members and therefore

suspending the trading in the securities of the appellant

on the basis of unapproved and unpublished draft

minutes of the Surveillance Committee Meeting

cannot be sustained. In support of the above contention

reliance is placed on decisions of this Tribunal in case

of M/s. Kaplana Plastiks Ltd. vs. BSE (Appeal No. 78

of 2011 decided on 09.11.2011) and Padmini

Engineering Pvt. Ltd. vs. BSE & Anr. (Appeal No. 51

of 2006 decided on 27.05.2008).

c) By the impugned notice dated 01.01.2015 trading in

the securities of the appellant is sought to be

suspended with effect from 07.01.2015. Obviously,

there was no grave and emergent situation which

required the BSE to suspend trading in the securities of

the appellant immediately without hearing the

appellant. In such a case, if BSE could wait for seven

days, then BSE could very well have issued show

cause notice and pass appropriate orders after hearing

the appellant. As the BSE has failed to do the needful 7

the impugned notice dated 01.01.2015 is liable to be

quashed and set aside.

d) Bye Law 39 framed by BSE, deals with suspension of

trading, whereas, Bye Law 21 deals with the

prohibition of dealing in securities. In the present case,

trading is suspended by BSE and that power could be

exercised only by the Governing Board of BSE. Since

the impugned action is not taken by the Governing

Board of BSE, the impugned action is bad in law.

Although Bye law 39 is amended by BSE on

16/01/2014 and instead of the Governing Board the

'Exchange' is empowered to suspend dealings on the

Exchange for such period or periods as it may

determine, the said amendment does not empower

Senior General Manager, (Surveillance and

Supervision) of BSE to suspend trading as has been

done in the present case. Although, Bye Law 39 refers

to the standard operating procedure, for suspension of

trading, appellant has not violated any of the criteria

specified in the SEBI circular dated 30/09/2013.

Therefore, the impugned notice issued by the Senior

General Manager, (Surveillance and Supervision) of

BSE is without jurisdiction and hence liable to be

quashed.

8

e) Relying on a decision of Gujarat High Court in case of

Alka Synthetics Limited vs. SEBI reported in (1995)

95 Comp. Cas 663 (Guj) and a decision of Karnataka

High Court in case of Bharat Electronics Limited vs.

BEL Head Officer Staff Association reported in

2001(3) Kar L. J. 201, it is submitted that when an

order is passed whether in exercise of its

administrative functions or quasi judicial functions,

reasons recorded in the said order alone has to be

considered and the reasons cannot be supplied by other

documents or evidence. In the present case, impugned

notice dated 01.01.2015 does not contain any reason

and therefore the impugned notice cannot be sustained.

f) In any evident, it is submitted that the first parameter

set out in the draft minutes dated 10.12.2014 cannot be

said to have been satisfied in the present case, because,

the registered office of the appellant is in fact located

on First Floor of Tarabai Hall at Marine Drive, which

premises is taken on leave and license basis by

Sheorey Digital Systems Limited (a group company of

the appellant) and part of that premises is being used

by the appellant pursuant to the permission in writing

granted by Sheorey Digital Systems Limited on

29/07/2013. Documentary evidence such as written

permission granted by Sheorey Digital Systems 9

Limited in favour of the appellant to occupy part of the

aforesaid premises, print outs from the master data

maintained by the registrar of companies showing both

the companies (Sheorey Digital Systems Limited and

the appellant) at the above address, various business

agreements entered into by the appellant with third

parties and letters received by the appellant-company

at the above address were furnished to the BSE which

clearly show that the appellant-company is situated at

its registered address and that the appellant-company

is in fact engaged in the business of film making.

g) Contention of BSE that on 30/12/2014 when a BSE

official visited the office of the appellant, there was

neither any employee of the appellant nor there was

the name plate of the appellant-company is not correct,

because, name plate was in fact displayed outside the

office premises as is evident from the photographs

furnished by the appellant to the BSE. As regards the

allegation that no employee of the appellant was

present when the BSE official visited the office, it is

submitted that Mr. Morne, an employee of the

appellant present at the office, had met the BSE

official and had informed him that Mr. Cyrus Bhot

who looks after the day to day affairs of the company

had gone out for business work at Nariman Point. In 10

fact, Mr. Morne contacted Mr. Bhot over the telephone

immediately and Mr. Bhot, spoke to the BSE official

on telephone and offered to give all assistance or

information by personally coming to BSE on the next

day. Thereupon, the BSE official told Mr. Bhot that

he would consult his seniors and would intimate the

time during which Mr. Bhot could meet the BSE

officials on the next day. However, the BSE official

did not contact Mr. Bhot on the next day. In these

circumstances, it is submitted that the decision of

SEBI that the appellant-company neither exists at the

registered address nor is carrying on any business is

wholly unsustainable.

h) The second parameter set out by SEBI in the draft

minutes dated 10.12.2014 required BSE to identify the

companies which have made preferential allotments

and if the price of the scrip of those companies

increased with very low volume during the first year of

lock-in period and after the lock-in period if there is

huge rise in the volume and exit of preferential

shareholders then, suspend the trading in the shares of

those companies. In the present case, shares under the

third preferential issue duly approved by BSE were

issued at a premium of ` 23 per share. Apart from the

above, there were corporate announcements made on 11

BSE website in relation to the following contracts

entered into by the appellant with third parties:-

a) Line Production Agreement dated

09/10/2013 entered into by and between

appellant and Abbas Mustan Film

Productions Pvt. Ltd. ('AMFP' for short) for

production of a film. AMFP is a reputed and

well known entity inter-alia engaged in the

business of creating, managing, supervision,

developing creative content for and

supervision and executing the production and

distribution of cinematograph films.

b) Film Director Agreement dated 25/08/2014

entered into between appellant and

Mr. Abbbas Burmawala/ Mr. Mustan

Burmawala and for production of a Hindi

film at a cost of ` 10 crore towards the cost

of production, ` 3 crore towards artists fee

and ` 3.5 crore towards directors

remuneration.

c) Agreement dated 24/08/2014 with Mr. Kapil

Sharma (well known for his T.V. Serial

'Comedy Nights with Kapil') under which

Mr. Kapil Sharma has agreed to act in the 12

lead role of the film to be produced by the

appellant.

d) MOU dated 18/12/2014 with Four Lions

Films private Limited and its shareholders,

wherein it is agreed that the appellant would

invest funds in Four Lions Films Private

Limited and acquire 50% shares of that

company, which is engaged in the business

of production of Cine Films, TV Serials,

Advertising Films, Telefilms, Documentary

Films, Feature Films etc.

Corporate announcements made by the appellant to the

above effect were duly displayed on the BSE website

from time to time. Thus, the investors had every reason

to believe that the appellant has bright future and

consequently the shares of the appellant have been

steadily rising and the same was within the knowledge

of SEBI and BSE. Therefore, no fault can be found

with the price rise due to trading in the scrip of the

appellant.

i) When preferential shares are issued with lock-in

period, it is obvious that after the lock-in period is

over, the preferential shareholders are entitled to off-

load the shares, if they choose to do so and therefore,

mere fact that there is spurt in trading activities after 13

the lock-in period cannot be a ground to suspend the

trading in the scrip of the appellant-company. Fact that

some of the preferential shareholders in the appellant-

company, namely, Dilip Jiwrajka, Surendra Jiwrajka,

Ashok Jiwrajka and Kamal Jajoo were also preferential

shareholders in Moryo Industries Ltd. and Radford

Global Limited and in those cases they have been

restrained by SEBI from buying, selling or dealing in

the securities market either directly or indirectly in any

manner till further directions cannot be a ground for

suspending the trading in the securities of the

appellant. Assuming that SEBI/BSE are investigating

the role of those preferential shareholders in the

appellant-company, SEBI/BSE may impose restriction

on those preferential shareholders but that cannot be a

ground to suspend the trading in the shares of the

appellant-company especially when there no allegation

that the appellant-company has indulged in any

irregularities/illegality either while issuing the

preferential shares or the promoters of the of appellant-

company have traded in violations of the norms laid

down by SEBI/BSE.

j) Trading in 6,01,877 shares of appellant-company

throughout the year commencing from 15.03.2014 to

06/01/2015 as against the total quantity of 3,48,00,000 14

shares issued by appellant cannot be said to be

abnormal trading. Moreover, if the criteria was to

suspend the trading in the shares of loss making

companies, then there were several loss making

companies and there was no reason to selectively

suspending the trading in the securities of certain

companies including the appellant-company.

k) The third parameter set out in the draft minutes dated

10/12/2014 required BSE to identify the companies

with weak financials and if the price rise in the scrip of

those companies are not supported by the financials of

those companies then suspend the trading in the shares

of those companies. If the price rise is due to market

manipulation of the shares on the exchange, then the

proper course is to pass an order against that person

and not to suspend the trading in the shares of the

company. In the present case, from the price volume

chart of BSE, it is seen that the increase in the price

has in fact started from September 2014 after the

appellant-company came out with third preferential

issue at a premium of ` 23/- per share and the same

was duly approved by BSE and intimated to the

investors through the BSE website. In such a case,

neither the appellant-company which has commenced

its revival by issuance of preferential shares can be 15

said to be a company with weak financials, nor, the

increase in the volume of trading after the shares were

released from the lock-in period could be treated as

unusual trading in shares. Decision of SEBI, in case of

Radford Global Limited, Moryo Industries Limited

and First Financial Limited are not comparable with

the case of appellant as there is nothing on record to

suggest that the persons found guilty in those cases

had connived with the appellant or its promoters and

had indulged in market manipulations in the scrip of

the appellant. Hence suspending the trading in the

shares of the appellant-company is wholly unjustified.

10. Mr. Modi, Learned Senior Advocate appearing on behalf of BSE

submitted as follows:

a) Pursuant to a reference from the income tax department

that Stock Exchanges are used as a platform for illegal

gains through market manipulation, SEBI on

investigation passed ad-interim ex-parte orders in case

of Moryo Industries Limited on 04/12/2014 and in case

of Radford Global Limited and First Financial Services

Limited on 19/12/2014. According to SEBI, the modus

operandi for market manipulations were as follows:- 16

i) the concerned companies were listed

companies with weak financials poor

performances, having barely any business

and their stocks were traded at meager

prices;

ii) the concerned companies then raised large

amounts by preferential allotment of shares

which had a lock-in period.

iii) funds received on preferential allotment were

not used for the purpose as disclosed and

there was no major change or improvement

in the performance of the concerned

companies, yet there was considerable

increase in the prices of the shares of those

companies.

iv) the market prices were manipulated by

parties who were found to be connected to

the concerned companies and/or the allottees,

and the prices were pushed up substantially

on relatively small volumes.

v) once the lock-in period was over, the

preferential allottees sold their shares at such

rigged high prices t o connected parties who

were set up to buy the same and made huge 17

profits which are also exempt from capital

gains tax.

b) According to SEBI, such misuse of the trading system

whether amounts to money laundering or tax evasion

would be gone into by the concerned agencies and that

the SEBI would only be investigating the matter from

the angle of probable violation of securities laws.

c) During the SEBI Surveillance Committee Meeting held

with Stock Exchanges on 10/12/2014, SEBI urged the

Stock exchanges to suspend the trading of shares of

companies which satisfy any one or more of the three

parameters set out in the minutes recorded on

10/12/2014. Thereafter by e-mails dated 19/12/2014

and 29/12/2014 SEBI insisted that the exchange must

immediately implement the directions contained in the

minutes dated 10/12/2014 by suspending the trading in

the securities of those companies which fulfill one or

more parameters set out in the minutes dated

10/12/2014. Accordingly BSE identified the companies

which fulfilled the parameters set out in the minutes

dated 10/12/2014 and accordingly on 01/01/2015

suspended the trading in the shares of the companies

set out therein which included the appellant-company.

Thereafter, as per the directions given by this Tribunal,

the Executive Management Committee ('EMC' for 18

short) of BSE gave personal hearing to the appellant on

08/01/2015 and by its order dated 12/01/2015 recorded

that the appellant was covered within the three

parameters set out in the minutes dated 10/12/2014,

and therefore, the trading has been correctly suspended

and that the suspension ought to be continued till the

investigation carried out by SEBI is completed.

d) Argument of the appellant that the power to direct

suspension is only with the Governing Board under

Bye Law 39 is not correct. Under Bye law 21, power

conferred on the Governing Board and Executive

Director (now known as 'Managing Director') to

prohibit trading in securities included power to suspend

trading in securities. Moreover, suspension, in the

present case, is carried out as per the directions of

SEBI which is directly covered under Bye Law 21.

Even under Rule 98(c) of the BSE Rules, it is the duty

of the CEO to give effect to the directives of SEBI and

the Managing Director is also obligated to do so as per

regulation 25(5) of Securities Contracts (Regulation)

(Stock Exchange and Clearing Corporations)

Regulations, 2012. Apart from the above, the Board of

Directors of BSE on 12/02/2015 have confirmed that

the MD and CEO had the requisite power to pass the

order and suspension of trading under Bye Law 21 and 19

it has also confirmed, ratified and approved all actions

taken on 01/01/2015.

e) Regarding the first parameter set out in the minutes

dated 10/12/2014, it is submitted that as per the site

inspection report, there was no name plate/board of the

company and there was only the name plate/ board of

Sheorey Digital Systems Limited ('Sheorey' for short).

Photograph relied upon by the appellant purports to

show the name plate of the appellant immediately

below the name plate of Sheorey, whereas, the

photograph taken by the BSE official shows only the

name plate/board of Sheorey. Therefore, the EMC has

correctly concluded that the name plate of the company

was affixed after the Exchange official's visit to

circumvent the observations made by the BSE. Thus,

the appellant has fabricated false evidence to mislead

this Tribunal and committed perjury.

f) contention of appellant that Sheorey had permitted the

appellant to use part of its premises is unsustainable,

because, the leave and license agreement between

Sheorey and the Trustees of Tarabai Trust, prohibits

Sheorey from allowing user of the said premises in

whole or in part to any person/persons. The telephone

bill, bank statement produced by the appellant merely

show the mailing address and do not satisfy the 20

requirement. Some of the documents produced by the

appellant show different address as its registered office.

It is relevant to note that the appellant had changed its

name pursuant to a resolution dated 15/01/2013 but the

application filed by appellant with the BSE for change

in name was incomplete and could not be processed.

The exchange has repeatedly reminded the appellant to

submit the required documents, but the same has not

been furnished till date.

g) The second parameter prescribed by SEBI is also

satisfied in the present case. Admittedly the appellant

had made three preferential allotments during the

period from March 2013 to September 2014. By

issuance of the said preferential shares appellant has

raised ` 38.36 crores, while its previous paid up capital

was only ` 5 crore consisting of ` 50 lac shares of

` 10/- each. The preferential allottees together hold

approximately 86% of the company's total capital. The

appellant has not disclosed as to how funds raised vide

the preferential allotments have been utilized.

h) During the lock-in period (03/01/2013 to 14/03/2014)

only 1692 shares were traded and after the lock-in

period (15/03/2013 to 14/03/2014) 6,01,877 shares

were traded. The fact that the preferential allottees

have not yet sold off all their holdings is what even 21

more so justifies suspension to maintain status quo, so

that they cannot face the investigation with a fait

accompli.

i) Some of the preferential allottees of the appellant-

company, namely Dilip Jiwrajka, Surendra Jiwrajka,

Ashok Jiwrajka and Kamal Jajoo are the same parties

against whom orders have been passed by SEBI in case

of Moryo Industries Limited and Radford Global

Limited. This cannot just be a mere coincidence.

j) Preferential allottees viz. Dharmendra A. Roliya &

Dipika D. Roliya (holding 3,00,000 shares) sold part of

their allotted shares at abnormal prices of about

` 26.50 (gain of about 165%) ` 44.95 (gain by 349%).

Preferential allottees have also made various off

market transfers and the trail of the share movement

will have to be traced in the investigation to see the

consequences and the conclusion to be drawn.

k) Various decisions relied on by the counsel for appellant

relate to final orders passed by the concerned

court/authority and none of those decisions related to

ad-interim orders passed in emergency situations and

pending investigation as is the present case. Hence

none of those decisions have any relevance in the

present case.

22

l) In an emergent situation it is open to BSE to suspend

trading without hearing and grant post decisional

hearing. In the present case post decisional hearing is

granted and reasons are recorded in the order dated

12/01/2015.

m) The third parameter specified in the minutes dated

10/12/2014 are also satisfied in the present case,

because, admittedly during the previous three years the

company's income has been shown in its own accounts

as nil or negative and it has suffered only losses.

During the years 2001 to 2012 the financials of the

appellant were so weak that it could not even pay

listing fee of ` 10,000/- per annum and could not pay

salary of its staff. Thus, the huge price jump up in the

shares of appellant is not justified by the performance

of the appellant and is obviously a manipulation.

n) Various agreements produced by the appellant merely

give hope of future prospectus. Not a single rupee has

been earned by the appellant since the last three years.

Merely, announcing execution of some contracts

cannot justify the huge price increase. The contracts

relied upon by the appellant does not remotely indicate

the revenue likely to be earned by the appellant in the

future. In these circumstances, exceptional price in the

scrip from ` 2.67 to ` 149 between 16/12/2013 to 23

31/12/2014 which is a 5480.52% increase in the price

is totally unbelievable and cannot be said to be genuine

merely because public announcements of executing

some contracts for producing a film in future have been

made. The price rise was on very small volumes on

most days and the price kept rising even when large

volumes were sold on certain odd days inter alia by the

preferential allottees. This is not at all commensurate

with the financials of the appellant-company and is a

clear indication of manipulation.

o) argument of the appellant that the parameters specified

in the minutes of the Surveillance Committee Meeting

have not been disclosed to the public and therefore, the

impugned order based on the above parameters are

unsustainable, is without any merit, because,

worldwide, surveillance is always done in a

confidential manner and disclosure of the parameters in

advance would have defeated the intention and enabled

the parties to cover up to evade detection. In any event,

the parameters have been now disclosed and the

appellant was given full opportunity to respond and

thereafter order dated 12/01/2015 has been passed.

p) Decision as to what should be appropriate interim

measure in such situation is left to the expert authority

in the field viz SEBI. In the present case, since almost 24

the entire capital is held by the parties who are believed

to be parties to the mischief and they are the

beneficiaries of the mischief, the impugned decision

cannot be faulted.

q) Decision to suspend taken on 01/01/2015 was made

effective from 07/01/2015, because 03/01/2015 and

04/01/2015 being Saturday and Sunday there were no

trading on those two days and BSE always gives

advance notice of 3-4 trading days time before

suspension so that innocent investors can sell off the

shares they hold, if they so desire. Therefore, making

the order operative with effect from 07/01/2015 would

not invalidate the impugned order.

r) When a prima facie view is formed that there is market

manipulation, then, pending investigation, suspension

of trading is the proper course to prevent further

damage at the interim stage. In the present case, it is

necessary to conduct a detailed investigation and

pending such investigation, as the company has

satisfied all parameters laid down by SEBI, the

suspension in the trading ought to be implemented and

continued to prevent further damage to the market and

the investors as directed by SEBI.

25

11. Mr. Sen, Learned Senior Advocate appearing on behalf of SEBI

submitted as follows:-

a) BSE has suspended the trading in the securities of the

appellant company on the basis of directions, which

are formulated in Surveillance Meeting held on

10/12/2014 with a view to protect the interest of

investors and the securities market.

b) Under Section 11 of SEBI Act, SEBI is empowered

to take such measures as it thinks fit. Thus, the extent

of the nature and the manner of taking measures that

can be adopted by SEBI have been left to the

discretion and wisdom of SEBI. Apex Court in case

of Sahara India Real Estate Corporation Limited vs.

SEBI reported in (2013) 1 SCC 1 has considered the

aforesaid powers of SEBI and held that aforesaid

powers are conferred to promote the development of

the securities market and the said power has not been

curtailed or whittled down in any manner by any

other provisions under the SEBI Act, as no provision

has been given an overriding effect over Section

11(1) of SEBI Act.

c) SEBI came across serious market manipulations,

which were operated by raising large amounts in

companies having weak financials, by issuing

preferential allotment of shares, which had a lock in 26

period of one year. The market prices were

manipulated by parties who were found to be

connected to the companies or the allottees. The

prices were pushed up substantially on relatively

small volumes and once the lock-in period was over,

the preferential allottees sold their shares at high

prices to connected parties and made huge profits

which were also exempt from long term capital gains

tax.

d) SEBI noticed that other companies followed the trend

as stated above and the market platform was then

used for money laundering and tax evasion purposes.

SEBI specifically noticed the above practice in

Moryo Industries Limited in which SEBI has passed

an interim order dated 04/12/2014, restraining 98

persons/ entities from accessing the securities market

and buying, selling or dealing either directly or

indirectly, in any manner. Similar orders have been

passed on 12/12/2014 in case of Radford Global Ltd,

wherein 108 persons/entities are restrained from

accessing the securities market and in case of First

Financial Services Limited, 152 persons/ entities are

restrained from accessing the securities market.

e) In the Surveillance Committee Meeting held with the

Stock Exchanges on 10/12/2014 it was decided that 27

the Stock Exchanges shall immediately shortlist

scrips by applying the three parameters specified

therein and suspend the trading in such scrips with

immediate effect which satisfy the aforesaid

parameters and intimate the same to SEBI. Since

appellant and several other companies satisfied the

three parameters set out in the minutes of the

Surveillance Committee Meeting held on 10/12/2014,

the trading in the scrip of appellant as also other

companies were suspended.

f) In the instant case, minutes of Surveillance

Committee Meeting held on 10/12/2014 were

approved by the Executive Director-Surveillance on

16/12/2014 and a specific approval was obtained

from the Whole Time Member of SEBI on

19/12/2014. Accordingly, vide e-mails dated

19/12/2014 and 29/12/2014 Stock Exchanges were

called upon to immediately comply with the minutes

dated 10/12/2014.

g) The modus operandi, in these matters appears to be

that the entities/ persons wanting to convert their

unaccounted money to white money, approaches Key

Operator. The Key Operator and other entities find

companies, which have weak financial, poor

performance having barely any business and their 28

stocks are traded at meager prices. The concerned

companies then raise large amounts by preferential

allotment of shares which have a lock-in period of 1

year. The market prices are manipulated by the

parties who are found to be connected to the

concerned companies or the allottees and the prices

are pushed up substantially on relatively small

volumes. Once, the lock-in period is over, another

syndicate buys the shares from original preferential

allottees through series of market transactions at

substantially higher prices. The preferential allottees

sold their shares at high prices to connected parties

who are set up to buy the same by preferential

allottees and make huge profits which were exempt

from capital gains tax. The market platform in this

type of transaction was misused by artificially rigging

the price so as to have an unfair long term capital

gains tax exemption.

h) SEBI as a market regulator, while not directly

concerned with money laundering or tax evasion, is

certainly concerned with the manipulation of the price

of a scrip and to achieve that object, suspension of

trading in such scrips it was agreed upon as a

surveillance measure to suspend the trading in shares,

pending investigation. The suspension pending 29

investigation is imperative and naturally in the interest

of small investors who may be otherwise induced by

market manipulation to invest in the scrip.

i) Surveillance measures by their very nature are

confidential and hence cannot be made public.

j) BSE has passed a reasoned order and given its reasons

for suspending the trading in the shares of the

appellant-company. In the present case, in view of the

complex nature of investigation where large number of

entities are involved and a number of transactions are

required to be scrutinized, it would take at least one

year for completion of investigation by SEBI.

Accordingly, it is submitted, that pending investigation

it is absolutely essential in the interest of investor

protection to continue suspension of trading in the

shares of the appellant company.

12. We have carefully considered rival submissions.

13. At the outset it is relevant to note that the trading in the securities

of the appellant company have been suspended by BSE at the instance

of SEBI, because, SEBI in similar cases viz. in case of Moryo Industries

Limited, Radford Global Limited & First Financials Limited prima

facie found that there is market manipulation and accordingly by ex-

parte ad-interim order has restrained those companies, their 30

promoter/directors and other connected entities from buying, selling or

dealing in securities until further orders. In those cases SEBI has held

that the said companies in connivance with preferential shareholders of

those companies and other related parties had indulged in market

manipulations. If SEBI on investigation had found, prima facie, that the

appellant has indulged in market manipulation, then SEBI would have

passed ex-parte ad-interim order against the appellant as has been done

in case of aforesaid three companies. Very fact that SEBI has not passed

any order against the appellant and has directed BSE to suspend the

trading in securities of those companies which fulfill the three

parameters set out in the surveillance minutes dated 10/12/2014 clearly

shows that apart from presuming that the companies which satisfy the

three parameters set out in the surveillance minutes dated 10/12/2014

must have been involved in market manipulation, there is no other

material to suggest that prima facie the appellant is involved in the

market manipulation.

14. In the ex-parte-ad-interim order passed by SEBI on 04/12/2014

against Moryo Industries Ltd., its promotes, directors, preferential

allottees and Moryo group entities, it is specifically recorded that Moryo

Industries Ltd. did not have any business activity, that there were no

corporate announcements and that certain entities related/connected to

Moryo Industries Limited had substantially traded amongst themselves

in shares of Moryo Industries Limited and created artificial volume and

contributed to the artificial price rise in the scrip. In the present case,

neither SEBI, nor BSE have found that the appellant-company or its 31

promoters/directors have directly or indirectly traded in the shares of the

appellant-company. Hence, the case of the appellant being not

comparable with Moryo Industries Limited SEBI, in the absence of any

evidence to suggest that the appellant has indulged in market

manipulation SEBI could not have asked BSE to suspend the trading in

securities of the appellant if the three parameters set out in the minutes

dated 10/12/2014 were satisfied.

15. Fact that some of the preferential shareholders of the appellant-

company were also preferential shareholders of Moryo Industries

Limited and Radford Global Limited and those preferential shareholders

have been found to have prime facie connived with those companies

along with its directors/promoters in resorting to market manipulation

while trading in the shares of Moryo Industries Ltd./Radford Global

Limited cannot be a ground to presume that the preferential shareholders

of the appellant company as also the appellant company, its

directors/promoters have connived and resorted to market manipulation,

especially when there is not an iota of evidence to sustain such

presumption. In the absence of any prima facie evidence to suggest that

the appellant is in any manner connected to the alleged market

manipulation, SEBI is not justified in directing the BSE to suspend the

trading in the securities of the appellant.

16. According to the BSE trading in the securities of the appellant are

suspended because, the appellant fulfils all the three parameters set out

in the SEBI surveillance minutes dated 10/12/2014. Question, therefore 32

to be considered is, whether BSE is justified in holding that the

appellant-company satisfies the three parameters specified in the SEBI

surveillance minutes dated 10/12/2014.

17. First parameter set out in the surveillance minutes dated

10/12/2014 is held to be satisfied on ground that the appellant does not

exist at the address mentioned and does not appear to be carrying out

any operations. Above conclusion of BSE is inter alia based on the

report submitted by its official that during his surprise unit, there was no

name plate/board of the appellant and only the name plate/board of

Sheorey Digital Systems Limited ('Sheorey' for short) was displayed at

the office premises. According to the appellant, the name plate of the

appellant was in fact displayed just below the name plate/board of

Sheorey. This fact is seriously disputed by BSE. Existence of a

company is not to be determined on the basis of name plate/board. In the

present case, the facts and the documents produced by the appellant in

support of its contention reveal the following:-

a) The record of Registrar of companies shows that

Sheorey and appellant have the common address as the

registered office address.

b) The BSE official who visited the premises does not

dispute that Sheorey is in possession of the premises in

question.

33

c) Documentary evidence is produced to show that

Sheorey is a group company and Sheorey has

permitted the appellant to use part of the said premises.

Terms on which Sheorey has taken the premises in

question do not specifically bar a group company from

using part of the premises given to Sheorey.

d) Appellant has produced telephone bills, bank

statements to show that the appellant is operating from

the said premises.

e) Appellant has entered into contracts with third parties

by showing the premises in question as the registered

of the appellant. None of those contracts have been

doubted.

f) Fact that in some contracts the appellant has

erroneously shown their administrative office address

as the registered address of the appellant cannot be a

ground to hold that the appellant-company does not

exist, especially when, existence of the administrative

office is not disputed.

In these circumstances, presumption drawn by BSE that the appellant-

company does not exist at the address mentioned and does not appear to

be carrying out any operations is wholly unjustified and contrary to the

facts on record.

34

18. It is also held that when BSE official gave surprise visit, no

employee of the appellant was present at the said address and hence the

appellant cannot be said to be existing at the address mentioned. It is not

in dispute that the BSE official who gave surprise visit to the appellant-

company, had met Mr. Morne, (an employee of the appellant) at the

premises in question. It is also not in dispute that on the BSE official

disclosing his identity, Mr. Morne informed that Mr. Cyrus Bhot who

looks after the day to day affairs of the company had gone out for

business work at Nariman Point. In fact Mr. Morne contacted Mr. Cyrus

Bhot and in turn Mr. Cyrus Bhot spoke to the BSE official and offered

all assistance in the matter. In these circumstances, decision of BSE that

the appellant-company does not exist at the address mentioned and does

not carry on business from the said premises and thus fulfils the first

parameter set out in the SEBI minutes dated 10/12/2014 cannot be

sustained.

19. According to BSE, the second parameter set out in the SEBI

Surveillance Committee minutes dated 10/12/2014 is also satisfied in the

present case, because, appellant had issued preferential shares and share

prices of the appellant-company had increased with very low volume

during the first year of lock-in period and after the lock-in period there is

huge rise in the volume of trading and exit of preferential shareholders.

Fact that the appellant-company had issued preferential shares with the

approval of BSE cannot be a ground to hold that appellant has indulged

in market manipulation. Similarly, fact that the share prices of the

appellant-company started rising after the funds were pumped in after 35

issuance of preferential shares and the share prices rose further, on

account of the trades executed by some of the preferential shareholders

after the lock-in period, cannot be the sole ground to presume that the

appellant-company is involved in market manipulation. Admittedly,

BSE approved the third issue of preferential shares at a premium of

` 23/- per share. It is not the case of BSE that the appellant has made

any misrepresentation to the BSE in issuing the preferential shares at a

premium. Therefore, if a defunct company like the appellant revives it

business by pumping in finance through the issuance of preferential

shares duly approved by BSE and there after corporate announcements

have been made from time to time in relation to the business

commenced by the appellant and those announcements were duly

displayed on the BSE website, then rise in share prices of that company

would be a natural phenomena and in such a case, in the absence of any

evidence to the contrary it cannot be presumed that there must be market

manipulation and pending investigation suspend the trading in the shares

of those companies. In the case of three companies, SEBI has passed ex-

parte ad-interim order after specifically recording a finding that prima

facie those companies were involved in market manipulation. In the

present case, no such findings are recorded. Hence, decision of BSE that

second parameter set out in minutes dated 10/12/2014 are satisfied in the

present case is unsustainable.

20. Apart from the above, preferential shareholders, after the lock-in

period were legally entitled to off-load the shares acquired by them on

preferential basis. In such a case, mere fact that the preferential 36

shareholders after the lock-in period have sold their shares cannot ipso-

facto be a ground for suspending the trading in the shares of the

appellant-company. Assuming that the preferential shareholders who

had traded in the shares of the appellant-company had prima-facie

indulged in market manipulation, then those preferential shareholders

could be restrained from buying, selling or dealing in shares to prevent

the market abuse. Instead of taking action against those violators, BSE

has penalized the appellant by suspending the trading in the shares of the

appellant-company, even though there is not an iota of evidence to show

that the appellant-company or its promoters/ directors have directly or

indirectly indulged in market manipulation.

21. According to BSE even the third parameter set out in the SEBI

Surveillance Committee minutes dated 10/12/2014, is satisfied in the

present case, because, the appellant-company has weak financials and

the price rise in the scrip of the appellant is not supported by the

financials. Fact that during the last three years, the appellant had no

income and had incurred losses could not be a ground to treat the

appellant-company as having weak financials, because, financial

position of the appellant started reviving only after the BSE approved

issuance of preferential shares on 01/03/2013, 22/11/2013 and

03/09/2014. It is not in dispute that by issuing preferential shares from

time, to time the appellant-company has raised ` 38.36 crores.

Thereafter, the appellant-company has commenced its business of film

production by entering into contracts with reputed entities/persons in the

film industry and that film production has already commenced. Neither 37

the execution of contracts nor commencement of film production is

disputed by the BSE. Admittedly, corporate announcements made by

appellant regarding raising funds through preferential shares and also

corporate announcements made by appellant regarding the contracts

entered with reputed entities/persons were duly displayed on the BSE

website so that the investors are made known about the revival of the

appellant-company. In such a situation, inference drawn by BSE that the

appellant-company has weak financials and the price rise in such scrips

is not supported by financials is wholly unjustified.

22. Neither the SEBI nor BSE have deemed it fit to initiate action

against those persons whose trades are responsible for the rise in the

script of the appellant from ` 2.67 per share to ` 149/- per share. If the

price rise is due to market manipulation, then, instead of catching the

market manipulators, the trading in the shares of the appellant-company

has been suspended at the instance of SEBI. As a market regulator,

SEBI is bound to take action against those who have prima facie

indulged in market manipulation and it is not open to SEBI to direct the

Stock Exchanges to suspend the trading in the securities of the

companies if they satisfy certain parameters fixed by SEBI which have

no bearing whatsoever with the alleged market manipulation.

23. At no point of time, either before passing the impugned order on

01/01/2015 or before passing the reasoned order on 12/01/2015, the

appellant was called upon to explain the manner in which the funds

collected by issuing preferential shares have been utilized. However, in 38

the order dated 12/01/2015 it is alleged that no particulars have been

given as to how the funds have been utilized. Such a finding recorded

without seeking any explanation from the appellant is wholly

unjustified.

24. Fact that 86% of the shares of the appellant-company are held by

preferential shareholders and the fact that some of those preferential

shareholders have allegedly indulged in market manipulation cannot be

a ground to consider that all preferential shareholders are market

manipulators. In any event, fact that some of the preferential

shareholders has indulged in alleged market manipulation, cannot be a

ground to suspend the trading in the shares of the appellant-company

until further orders. SEBI through its counsel and also in its written

submissions stated before us that it would take at least one year to

complete the investigation and till then, it would be just and proper to

suspend the trading in the shares of the appellant in the interest of

investors. In the facts of present case, since there is not an iota of

evidence to show that prima facie, the appellant-company or its

promoters/ directors have indulged in market manipulation, SEBI/BSE

are not justified in presuming on the basis of facts in case of Moryo

Industries Ltd., Radford Global Ltd. and First Financials Limited that

the appellant-company its promoters/directors must have connived in

resorting to market manipulation and on that presumption suspending

the trading in the securities of the appellant until further orders. Since

SEBI has conducted investigation in case of three companies and after

finding prima facie evidence that those three companies were parties to 39

market manipulation deemed it fit to take action against those three

companies, SEBI/BSE ought to have followed the same procedure in

case of appellant. Therefore, in the facts of present case, suspending the

trading in securities of appellant solely based on conjectures and

surmises is wholly unjustified.

25. In order to demonstrate bonafides on part of the appellant, counsel

for appellant submitted that pending investigation, trading in the

securities of the appellant be allowed subject to the promoters of the

appellant-company giving an undertaking to the effect that they would

not trade in the shares of the appellant-company for such period as this

Tribunal deems fit and proper.

26. In view of aforesaid decision, questions as to whether the

impugned order dated 01.01.2015 is violative of the principles of natural

justice, the question as to whether the draft minutes dated 10/12/2014

have the sanctity of law, and the question as to whether the EMC of BSE

had power to suspend the trading in the securities of the appellant-

company would become academic and hence are not gone into.

Sd/-

Justice J.P. Devadhar Presiding Officer 13.03.2015 Prepared & Compared By: PK 40

Per : A.S. Lamba

27. This appeal has been preferred by 52 Weeks Entertainment Ltd.,

formerly known as Shantanu Sheorey Aquakult Ltd., (Appellant) against

directions issued by Bombay Stock Exchange Ltd. (BSE), Respondent No. 1

on January 1, 2015 suspending Appellant alongwith 21 others from trading of

securities, with effect from January 7, 2015, until further notice; and against

Securities and Exchange Board of India (SEBI), Respondent No. 2.

28. The following was observed in the notice of BSE dated January 1,

2015, on subject "suspension in trading of securities":

 Suspension in trading of 22 companies was without stating any reason;

 Suspension was without any reference to any bye-law of BSE or any

other securities law governing BSE relationship with these entities;

 Suspension was without any mention of time period;

 Suspension was without any reference to any previous correspondence

between BSE and any of 22 entities, such as show cause notice,

explanation, reply of these entities;

 Only statement for suspension in trading of the entities was - "pursuant

to directions received from SEBI, as a surveillance measure trading in

the securities of the following companies will be suspended with effect

from Wednesday January 7, 2015 until further notice".

 Against two of these 22 entities, sign (*) existed - which is explained

as - "Scrips already under suspension", when these companies are

already under suspension, how can these be suspended another time.

 Towards, the end, it was stated - "In case of any clarifications,

members may contact Shri Ravindra Shetty (22728792) / Shri Rajesh

Gandhi (22728281) - who are Ravindra Shetty or Rajesh Gandhi, not

mentioned.

41

29. Only clarity, to some extent, in Notice of BSE dated January 1, 2015

was that the Notice was issued by BSE - in pursuant to directions received

from SEBI, as a surveillance measure, and accordingly, SEBI was requested

to clarify the subject matter, and SEBI clarified the following:

 During SEBI Surveillance Meetings held on October 8, 2014 and

December 10, 2014, concerns were raised with respect to emerging

trading activity in the lowly priced scrips (such as below Rs. 10)

having weak fundamentals, including doubtful existence coupled

with huge upsurge in prices of such scrips in the recent past. SEBI

appraised that the modus operandi being used by entities for Long

Term Capital Gains (LTCG) through preferential allotment route in

such companies. It was emphasized during the discussion that

generally some companies may have one or more of the following

features:

(a) Non-existent on the addresses mentioned and does not appear

to be carrying out business;

(b) Preferential allotment made. Price of the scrip increases with

very low volumes during 1 year period of lock in. After lock-in

huge rise in volumes and exit of preferential allottees. This may

be coupled with stock split;

(c) Companies having weak financial and the price rise is not

supported by financials.

30. Considering the above, the stocks which broadly fulfill any of the

parameters stated above, an immediate need was felt to take stern actions so

as to contain any damage to the market integrity. How market integrity is

damaged by above features, was not explained. Accordingly, SEBI advised

the exchanges to immediately shortlist the scrips by applying the above 42

parameters and suspend trading in such scrips with immediate effect, under

intimation to SEBI.

31. For implementation of decisions of SEBI Surveillance Meeting held on

December 10, 2014, a note was put up to Ld. WTM (RKA) for approval, by

Integrated Surveillance Department of SEBI and relevant extract of same is:

(a) Non-existent on the addresses mentioned and does not appear to

be carrying out any operations;

(b) Preferential allotment made. Price of the scrip increases with very

low volumes during 1 year period of lock in. After lock-in huge

rise in volumes and exit of preferential allottees. This may be

coupled with stock split;

(c) Companies having weak financials and the price rise in such

scrips is not supported by financials.

32. However, in this respect with above note, it may be pointed out, at this

stage, that following was also mentioned / decided in SEBI surveillance

meeting, which was not put up to Ld. WTM (RKA):

 The exchanges were of the view that suspension in non-existent

companies would be lifted only when the company is able to satisfy its

presence at registered office address along with the assets / operations

of the company.

 In respect of company where preferential allotment was done, it was

decided that SEBI would share its findings and name of the companies

with the exchanges. The exchanges were advised to conduct a

comprehensive back-listing based on the SEBI analysis and submit

their feed-back by December 19, 2014.

43

 Since the above LTCG route has been witnessed in scrips relisting after

invocation of suspension, BSE/NSE were advised to tighten their

procedure for relisting including a site visit in such cases.

33. The above points mentioned were part of minutes of agenda item and

were relevant, important and were in context of subject matter, but were

omitted from note seeking approval of Ld. WTM (RKA) for implementation,

after 'presumably' the same had been approved by Chairman of surveillance

meeting i.e. by Shri Gyan Bhushan, ED, SEBI; but it is certain that this note

was routed through the same ED (Gyan Bhushan) for approval of Ld. WTM

(RKA). It is not clear why these points, were not "put up" or "omitted", when

approval of Ld. WTM (RKA), for implementation of this agenda item was

sought.

34. Ld. WTM (RKA), minuted on the note as -

"(1) Line of action is approved, however, the criteria for taking

various actions may be further fine tuned in discussion with the

exchanges and referring to the data available.

(2) All possible efforts should be made to take appropriate action

against the Cos. which are using the stock exchanges

mechanisms for tax-evasion. Exchange should be suitably

advised on the issue".

35. It is seen that Ld. WTM (RKA) has approved line of action, but criteria

for same was to fine tuned, in discussion with exchanges and referring to the

data available. Hence, at this stage no action / instructions was to be

communicated to stock exchanges, until the criteria have been reworked and

approval of WTM (RKA) obtained.

44

36. Thus some decisions were taken in meeting of SEBI surveillance

meeting on December 10, 2014, all the decisions were not put up to Ld. WTM

(RKA) for approving implementation of same since parts of minutes were not

put up and Ld. WTM (RKA) did not approve the criteria and wanted the same

to be fine tuned with some observation on tax-evasion but without revision of

criteria as per noting of Ld. WTM (RKA), minutes in original were sent by

SEBI to Exchanges for immediate action with direction that Exchanges shall

continuously fine tune the criteria for ensuring appropriate immediate action

against the companies which are misusing / advising / manipulating the stock

market for tax-evasion", - which is different from objective of SEBI

Surveillance Meeting dated December 10, 2014, viz. deal with modus

operandi being used by entities for Long Term Capital Gain.

37. The most significant aspect of above is that objective of entire exercise

has been changed from dealing with aspect of LTCG through mechanism of

stock exchanges - which to the best of this Tribunal's understanding is a

legitimate activity and not barred by any law / enactment / executive order of

the Government - but to tax-evasion (which tax evasion, not stated which

may be illegal) using the stock market mechanism. The entire exercise

undertaken by stock exchange to identity companies on basis of above criteria

become irrelevant to original objective and whether serves the new objective -

is very doubtful, and suspension of these companies become unfructuous,

since purpose of identification is now tax-evasion which was preventing

companies from using mechanism of stock exchanges for purposes of LTCG.

38. In this context, it may also pointed out, no mention - of any securities

law (SEBI Act, Securities Contracts (Regulation) Act, or Companies Act,

1956 or any regulation framed under it - exists in the entire proceedings and

direction of SEBI to stock exchanges have to have reference to these, since 45

stock exchanges are expected to take action for suspension listed companies

with stock-exchanges, which have far reaching legal consequences. However,

some objective of this entire exercise is mentioned in para (xii) of draft

minutes of Surveillance Meeting held on December 10, 2014 as - "Stock

Exchanges agreed that these types of companies are not serving any genuine

investor intent and possibly needs to be suspended from trading". Actually the

word "intent" was replaced by "interest", by BSE. "Genuine investor intent /

interest" - is a new term used by SEBI, without defining as to what it is and

certainly, it is not purpose for which SEBI was created, as per SEBI Act,

1992.

39. Having dealt with Meeting of Surveillance of SEBI dated December

10, 2014, following which some directions were issued to Stock Exchanges

vide SEBI's communicated dated December 19, 2014 to BSE & NSE and

BSE issued notice dated January 1, 2015 suspending 22 entities from trading;

we may deal with Appellant's submissions on BSE's notice dated January 1,

2015 as follows:

 The impugned order is not based on violation of any provision of law,

hence has no legal basis.

 Impugned order is in violation of the principles of natural justice,

equity and fair-play.

 Respondent should have given opportunity of being heard to Appellant,

before its notice dated January 1, 2015.

 Respondent No. 1 ought to have shared the directions received from

Respondent No. 2 with the Appellant and ought to have informed

Appellant's role, in irregularities purportedly carried out by Appellant

in the trading of Appellant Company.

46

 Respondents have not informed the Appellant about any surveillance

issues as far as trading in securities of Appellant Company is

concerned.

 Impugned order has created chaotic situation for the Appellant

Company and its shareholders.

 Respondent No. 1 has not passed reasoned / speaking order while

conveying its decision to suspend trading in securities.

 Approval of competent authority for effecting suspension has not

obtained.

 I.O. suffers from legal / technical deficiencies, including interests of

retail investors, ignorance of provisions of law, lackadaisical approach

and inept handling of the matter.

 I.O. not based on show cause notice.

40. On first day of hearing of the case by this Tribunal, it was decided that

BSE will afford an opportunity of hearing to the Appellant based on a

reference from BSE to Appellant stating parameters for taking a decision on

suspension of scrip and BSE's observation on each of the parameters and pass

suitable order in the matter. Parameter, observation of BSE and Reply of

Appellant are stated as follows;

Parameter: Non-existence of company at registered office address available

in Exchange Office (This has been changed from 'Non-existent'

on the addresses mentioned and does not appear to be carrying

out any operation).

Observation: BSE official visited Co.'s office, did not find any nameplate of

the Company and no Company official was present, at the time

of visit.

47

Reply: Company represented that BSE official visited and asked for

Director of the Company and was informed that Mr. Cyrus Bhot

- working director - was away and official left his visiting card

with receptionist (Mr. Marne) and that Director be informed of

his visit. Mr. Bhot - was informed of this by Mr. Marne - who

contacted official of BSE immediately

Parameter: Regarding the missed out part of the first information i.e. does

not appear to be carrying out any operations.

Observation: No observation.

Reply: Appellant has produced copies of its financial results (audited

and unaudited) for years 2011 to 2015; minutes of meeting of

BOD during 2013-2014-2015 and have also produced copies of

agreements with various parties, in furtherance to it's business.

Parameter: Weak Financials and Price Rise of Scrip:

Observation: Company is having weak financials and income during last

three years was 0.00, 0.2 , 6.79 cr. A question was put to BSE

as to how income of a company could be negative and Sr.

Counsel replied that it was stated, as such, by Company.

Reply: Company has admitted their financial position has been weak in

last three years but now Company has entered into new

ventures, which will produce results in future.

Parameter: Price Rise of Scrip - increased from Rs. 2.67 as on December

16, 2013 to Rs. 149 as on December 31, 2014.

Observation: No observation.

Reply: Capital market increased in general. Company has ventured into

film production, signed popular comedian and acquired rights in 48

TV serial production and these announcements were made from

website of BSE - generating investors' interest - as viewing Co.

with future prospects and hence price of scrip increased.

Parameter: Company made three preferential issue - post revocation of

suspension in September 2012 - resulting in total issue of 2.988

crore shares and generating Rs. 36.172 crore.

Observation: No observation.

Reply: Only one allottee of preferential shares sold 4 lakh shares in

April 2014 at price Rs. 10 to 13 and price rise in scrip cannot be

linked to exit of preferential allottee.

41. The allegations as in SCN, observations of BSE, and submission of

Appellant were placed before Exchange Management Committee (EMC) of

BSE and this committee has decided that it is necessary that a detailed

investigation be carried out by the Exchange / SEBI. Pending such

investigation, as the company has satisfied all parameters laid down by SEBI,

the suspension in the trading of the securities of the company ought to be

implemented and continued as an interim preventive measure and to maintain

orderly development in the securities market, such suspension is essential and

in the interests of market and the investors, and the same is as directed by

SEBI.

42. It must be clarified, at this stage, that BSE or any Stock Exchange has

no mandate to act for the objective, as stated above and stating this in its

decision to keep Appellant Company under suspension is not justified since

this mandate is available to SEBI, as per SEBI Act, 1992 and, at the most BSE

can state that parameters indicated by SEBI, are met by the Appellant, and

hence Appellant is suspended, as per parameters specified by SEBI. 49

43. It was one of the grounds for appeal by Appellant that I.O. has

travelled beyond scope, purview and compass of BSE's power and

jurisdiction and is contrary to BSE's rules, byelaws and regulations and BSE's

acting on mandate of SEBI is not as per scheme of arrangements worked out

in SEBI Act and Securities Contract (Regulation) Act, under which Stock

Exchanges function.

44. One of the grounds of appeal is that decision of suspending the trading

in securities and who have signed the I.O. are not the authorized officials who

could take such decision. From perusal of earlier notice of BSE, dated January

1, 2015 suspending trading in Appellant scrip, it is seen that no authority or

rule, bye-law, regulation is cited.

45. This question was posed to Ld. Sr. Counsel for BSE, who stated that

suspension was in terms of Bye-law 21 - "Governing Board may prohibit

dealings" and was approved by MD, earlier designated ED. It was pointed out

Bye-law 21 of BSE authorized Governing Board and not MD / ED and that

Bye-law 21 allows "prohibition of dealings", while BSE's Bye-law 39 allows

"suspension of Admission to Dealings on the Exchange". Ld. Sr. Counsel

could not deal with the query satisfactorily how suspension can be affected

under Bye-law 21, but stated MD/ED was authorized by Governing Board for

this purpose. Ld. Sr. Counsel for BSE has produced a resolution of Board of

Directors of BSE dated February 12, 2015 to the effect that "MD & CEO was

and is empowered to take requisite actions to prohibit dealings in securities

pursuant to right vested in him by virtue Bye-law 21 of the exchange and has

correctly exercised the power of suspending trading in the various scrips and

for consequential proceedings. In any event, decision taken by EMC on

December 24, 2014 and January 1, 2015 with regard to suspension of trading 50

in various scrips pursuant to direction from SEBI is hereby confirmed, ratified

and approved".

46. To say the least, the above resolution of BSE does not correct the

position that MD & CEO of BSE was authorized by Governing Board before

he acted on January 1, 2015 in suspending trading by Appellant due to the

following reasons:

 For a person has to have the authority on day he acted and this cannot

be given to him on ex-post facto basis.

 The Tribunal had asked for production of the authority on or before

January 1, 2015 and a simple production of same was sufficient, if it

existed - but by conferring this authority, when he had acted before

hand, gives rise to suspicion that such an authority did not exist prior to

January 1, 2015.

 It is stated in resolution that - "Bye law 21 of BSE empowered MD &

CEO to take requisite action to prohibit dealings in securities, but then

how MD & CEO exercised their power to suspend trade - which is as

per the BSE Bye-law 39. When suspension and prohibition are

different measures and under different Bye-laws, then how one can be

used to exercise power under the other.

 As a matter of fact BSE could take the plea that suspension was under

Bye-law 39, but then here MD & CEO does not have inherent power to

exercise the same, unless specifically authorized by GB, but since the

same did not exist on the date the same was exercised by MD & CEO,

BSE in now tying itself in knots to make us believe that same existed,

whereas same did not exist on January 1, 2015.

 If MD & CEO of BSE has acted within power conferred on him by GB

or inherited by him, there was no need to say the last sentence in 51

resolution - that "In any event, the decision taken by the EMC on

December 24, 2014 and January 1, 2015 with regard to suspension of

trading in various scrips pursuant to directions received from SEBI is

hereby confirmed, ratified and approved". EMC has taken a decision to

suspend trading in scrip of Appellant, once again, on January 12, 2015

and whether this is covered by GB's resolution dated February 12,

2015 of GB is not known.

 In any case this "cocky attitude" of BSE is not appreciated.

47. A lot of discussion took place and case laws cited when an action taken

without affording hearing to the aggrieved party can be corrected by affording

post direction hearing to meet the requirements of law to natural justice we

may not go into this question now, since it was done with consent of both the

parties and raising this question, after proceedings undertaken and raising

question whether it rectifies the earlier shortfall in proceedings or not, is not

considered proper.

48. Lastly let us see the Impugned Order dated January 12, 2015 as

decided by EMC. The pleas taken by Appellant were:

 Are conditions for taking action in emergent situation satisfied, if

decision is taken, made known to all, but is to be implemented after six

days.

 EMC has come to a wrong conclusion that company did not exist at its

registration address - although sign-board of Company did not exist at

that address and apparently Company tried to correct this by putting

sign-board subsequently, but Company is right in stating there is no

requirement-in-law for an official of the Company to be present there

during working hours, when a receptionist existed, at premises, to take

a messages and he conveyed the message also. 52

49. The second part of first parameter that "does not appear to be carrying

out any operations" is not satisfied in Appellant's case since Appellant has

been able to produce Profit & Loss statement for three years, five BOD

resolutions and agreements / contracts for carrying out business - for good

prospects in future and these were hoisted on BSE's website also.

50. Regarding second parameter- "Weak financials and price rise in the

scrip not supported by the parameters, it is admitted by Company that

financial results of the last three years - after resumption of listing - have

been bad with practically no income, but as per the Company - business

model of company is Entertainment Business is such that income / revenue

start after 3 years or so and investors invest in these companies on basis of so

many factors like future prospects, which as per company, are healthy in view

of producing films / TV serials - necessary ground work for same has been

done.

51. In any case, weak financial is not a good parameter to suspend trading

of a company on Stock Exchange and as per Appellant 30% of listed

companies on BSE are loss-making, at any time and then their trading is to be

suspended.

52. Price of scrip depends on so many factors for scrips of company's

operating in different segments and sectors that is not possible to relate the

price of the scrip on simply one or two such factors. As a matter of fact these

factors may run into hundreds and still it may not be possible to say that all

have been accounted for. As a matter of fact, it is foolhardy on part of SEBI /

BSE to go into this question, which in any case is determined by market and

only requirement of SEBI (through not of BSE) is to act in investors interests

in securities and to promote development and regulation of securities market 53

and if it is seen that the same is being compromised, manipulated, rigged;

SEBI is duty bound to act decisively, in shortest possible time, to deal with

these on emergency basis, but unless such a situation is apprehended or arise,

SEBI may let market forces decide prices.

53. In the Appellant case the price has increased from Rs. 2.67 to Rs. 149

in little over one year, SEBI / BSE may analyze the trading pattern and if it is

seen some people are indulging in self trade, circular trade or increasing /

decreasing prices at regular interval, dealing with small quantities of shares in

pursuance to a scheme or deceptive device or in contrivance in contravention

of provisions of SEBI (PFUTP) Regulations, SEBI must take action against

such persons, as per law, but fixing a parameter and then tying scrips to same

- is in the opinion of this Tribunal - is not the proper course of action and do

injustice to investors or distorts the market, which may cause hardship / loss

to one set of investors and/or which appears the case here since only 4 persons

, not connected to promoters, have traded in shares of Appellant - these

people if have done traded in manipulative manner, which can be recognized,

should be appropriately dealt with, as per law but if due to action of these 4

persons, trading in scrip is suspended it will affect promoters, who appeared

working hard to revive the company or other intending buyers and sellers in

this scrip, who want to trade in same but will also be deprived of trading, even

if they have not acted for manipulation of the scrip.

54. Another factor on which BSE was relying was on Table at para 4.5 (c)

which shows increase in shares traded and average volume, before and after

lock-in period. It was seen that average was arrived at by dividing no. of

shares traded by number of days scrip was traded, before and after lock-in and

since no. of days of trading before and after lock-in were different and hence 54

comparison of company's averages traded volume, before and after lock in, is

not correct for arriving at informed decision.

55. Towards the end question of dealing with the entire issue - on

emergency basis and on basis of the three parameters was not that investors

do not evade tax, but was to see that investors do not use stock exchange

mechanism for LTCG, but after deciding parameters to prevent use of stock

exchanges for purposes of LTCG, the objective was changed to prevent use of

stock exchanges for tax-evasion; the question arises if parameter suitable for

preventing LTCG - which is a legal activity - can be used for purposes of tax

evasion - which is an illegal activity - without addressing the issue

transparently or even consciously.

56. It is now being stated by SEBI / BSE that these companies were

almost non-existent companies with hardly any activity, let alone profit, in

the last 3-4 years, and had weak financials although - quite a few of these

were delisted / suspended for non-payment of exchange's fee etc. but it is

strange that BSE recommended these company's case to SEBI for permission

to raise funds through rights issues to outsiders, not once but three times in

most of these cases, despite knowing fully well about their no activities, non-

existence, weak financials but also allowed these companies rights issue based

on what - this Tribunal does not know but after having these companies file

DRHP with them - offer suggestion for changes or issue observations, which

was to be necessarily carried out, in terms of SEBI (ICDR) Regulations, 2009;

did SEBI / BSE not know these facts before recommending / allowing them

to raise funds through rights issue, and also did not observe abnormal price

rise of these companies scrip, from one year prior to end of lock-in period,

through their surveillance system, where price movement of all traded shares

is monitoring on line - on minute to minute basis and these surveillance 55

reports are analyzed by in house expert analyst and sometimes these

abnormal price movement, on trading of small number of shares can be seen,

yet SEBI / BSE did not find anything abnormal for one full year and yet

allowed them stock splits when lock-in period ended. This raises more

questions about effectiveness, generation and monitoring of surveillance by

concerned persons - who catch / notice these activities when they want to.

57. Towards the end, it must be concluded that SEBI / BSE have done

everything that was required to do in a very undesirable manner, whimsical

and callous manner and SEBI has tried to do get it done through BSE, when

only SEBI had the mandate and a duty cast on SEBI - to protect interests of

investors, etc. - and is loaded with all unfettered powers to deal with such

situations, on emergent basis but both SEBI / BSE are trying to do these

things - which are legal and have legal ramifications - without mention of

any law, and not obtaining mandatory and unambiguous approval of WTM of

SEBI, which were legally required, before advising BSE to act and BSE also

acting without proper authorization, taking action under a bye-law when

another one was more appropriate, without mention of any law / authority in

exercise of powers and thereafter trying to regularize the matter on ex-post

facto basis; have not covered themselves in glory, but rather harmed the

interests of investors adversely and debilitated growth of securities markets.

Sd/-

A.S. Lamba Member

13.03.2015 Prepared & Compared By:

msb 56

Per: Tribunal

58. For all the aforesaid reasons, the impugned order dated 01/01/2015

in so far as it relates to the appellant as also the order dated 12/01/2015

recording reasons for suspending the trading in the shares of the

appellant-company are quashed and set aside subject to the following

conditions:-

a) Promoters of the appellant-company shall not buy, sell

or deal in the securities of the appellant-company till

30/06/2015.

b) Setting aside the impugned order dated 01/01/2015 &

order dated 12/01/2015 shall not come in the way of

SEBI/BSE, either to suspend the trading in the shares

of the appellant-company or to restrain the appellant,

its promoters/directors or any of the preferential

shareholders from buying/selling/dealing in the

securities of the appellant-company in any manner

whatsoever, if SEBI/BSE find any prima-facie

evidence to suggest that any of them have indulged in

market manipulation.

59. Appeal is disposed of in the above terms with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer Sd/-

A S Lamba Member 13.03.2015 Prepared & Compared By: PK/msb