Mrs. Ram Kishori Gupta & Anr. vs Sebi

Order Reserved on: 16.07.2019

Date of Decision : 02.08.2019

Appeal No. 44 of 2019

1.

Mrs. Ram Kishori Gupta, Aged about 69 years, W/o Shri Harish Chandra Gupta

2. Mr. Harish Chandra Gupta Aged about 74 years, S/o Late R.P. Gupta,

Both Resident of 142/38, Ka Amaniganj, Aminabad, Lucknow - 226 018.

At present address for correspondence:

Flat No. 17, Ground Floor, Sujata Niwas, "C" Wing, Opp. Siddharth Hotel, S.V. Road, Bandra (W), Mumbai - 400 050. ..... Appellants

Versus

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

Mr. Harish Chandra Gupta, Appellant-in-person.

Mr. Mustafa Doctor, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocates i/b K. Ashar & Co. for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per : Dr. C.K.G. Nair, Member

1. This appeal has been filed to challenge the order of the

Whole Time Member ('WTM' for short) of the Securities and

Exchange Board of India ('SEBI' for short) dated September

28, 2018. By the said order M/s. Vital Communications

Limited ('VCL' for short) and certain other entities specified

therein have been directed to disgorge the unlawful gain of

Rs. 4,55,91,232/-, with interest at the rate of 10% per annum

from August 1, 2002 till the date of payment for violation of

various provisions of the SEBI (Prohibition of Fraudulent and

Unfair Trade Practices Relating to Securities Markets)

Regulations, 1995 ('PFUTP Regulations, 1995' for short) and

SEBI (Prohibition of Fraudulent and Unfair Trade Practices

Relating to Securities Markets) Regulations, 2003 ('PFUTP

Regulations, 2003' for short).

3

2. This appeal has been filed by the two investors who are

husband and wife, and who invested Rs. 18,25,041/- in

buying the shares of VCL in 2002. These appellants are

aggrieved by the impugned order as they contend that the said

order violates the directions given by this Tribunal by its

order dated April 30, 2013 as well as the mandate given to

SEBI by the SEBI Act, 1992 in protecting the investors.

3. For facility, we reproduce the directions contained in

this Tribunal's order dated April 30, 2013 below:-

"In the fitness of things, we, therefore, direct SEBI to look into the part of the complaint of the Appellants which relates to the alleged misleading and fraudulent advertisements issued by VCL, along with the investigation, understandably, being carried on in respect of VCL or separately, as it may be advised and considered fit and proper in the circumstances of this case as per law. The outcome of such investigation should also be conveyed to the Appellants on completion of the investigation proceedings which are stated to be at an advanced stage by the Respondents. Needless to say that in case SEBI finds VCL guilty of playing fraud on the investors, it may consider directing the concerned entity or VCL to refund the actual amount spent by the Appellants on purchasing the shares in question and with appropriate interest and as per law."

4. The contentions of the appellants are that despite a clear

direction of this Tribunal as above directing SEBI to refund 4

the amount spent by the appellants on purchasing the shares

of VCL with appropriate interest as per law, the WTM of

SEBI has passed only a disgorgement order against the

Company and the connected entities. There is no direction to

pay any amount to the appellants despite such a clear

direction from this Tribunal. Accordingly, it is contended that

SEBI is in breach of not following the directions of this

Tribunal, apart from not fulfilling its mandate of protecting

the investors. This is particularly relevant in the context that

the appellants have been pursuing this matter since 2002 by

running from pillar to post. Apart from informing SEBI about

the violations committed by the Company VCL in 2003, by

means of misleading announcements they approached the

National Consumer Disputes Redressal Commission

(NCDRC), SEBI and SAT multiple times at very high

personal cost. On account of these complaints SEBI has now

confirmed that the Company VCL has committed several

violations and passed the disgorgement order, (impugned

order). However, still the appellants are left in the lurch

without any compensation despite the fact that they are

genuine investors in the shares of VCL and despite the

explicit direction for compensation by this Tribunal. 5

5. We have heard Shri Harish Chandra Gupta, Appellant-

in-person and Shri Mustafa Doctor, leaned senior counsel for

the respondent SEBI. The learned senior counsel for

respondent SEBI submitted that the direction contained in this

Tribunal's order dated April 30, 2013 was further modified by

this Tribunal's order dated December 19, 2013. While the

first order stated that SEBI may consider compensating the

appellants, the second order of this Tribunal modified it by

stating that such consideration, if any, has to be as per the

provisions of the law and if the circumstances so require.

Further, citing paragraph 32 of the impugned order the

learned senior counsel for the respondent SEBI submitted that

it is virtually impossible for SEBI to provide for restitution to

a large number of investors who have invested in the

secondary market and incurred losses and giving

compensation on a selective basis would be discriminatory as

there may be a large number of affected investors and

restitution to investors as a class is a complex task beyond the

capacity of SEBI.

6. While we sympathise with the submission of the learned

senior counsel for the respondent SEBI, we do not agree with

the helplessness of SEBI in the context like in this appeal. It is 6

on the relentless efforts of the appellants before us that the

violations made by VCL and other entities have been brought

to the fore. Such efforts have been going on since the year

2002. The direction contained in our order dated April 30,

2013 though amended in December 2013 was that if violation

by the VCL was proved the appellants' claim may be

considered as per law. This direction has to be placed in the

context of the disgorgement order issued by SEBI (impugned

order) whereby Rs. 4.5 crore (approximately) along with

interest has been ordered to be paid by VCL and other entities

jointly and severally. The basic idea behind disgorgement is

restitution. In the given context, we are of the view that as an

investor protection measure the appellants needs to be

compensated, since disgorgement without restitution does not

serve any purpose.

7. The spirit of the April 2013 order of this Tribunal is that

in the facts and circumstances of this matter, appellants

deserve to be compensated in case VCL was found violating

securities laws. Violation by VCL has been now conclusively

proved by the impugned order and, as such, the impugned

order should have contained provision for compensating the

appellants. Accordingly, in the light of this Tribunal's earlier 7

orders, and purely in the given facts and circumstances of this

matter, we direct SEBI to compensate the appellants by

Rs. 18,25,041/-, the amount they invested in the shares of

VCL in 2002. No interest thereon shall be paid, since the

appellants should also bear part of the risk of investing in the

securities market following the principle of caveat emptor.

SEBI shall pay the said amount to the appellants either from

the amount being disgorged from VCL and connected entities

as given in the impugned order or from SEBI's Investor

Protection and Education Fund within a period of three

months from the date of this order.

8. Appeal is partly allowed without any order on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

02.08.2019 Prepared and compared by:msb