IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.10560 of 2013

Securities and Exchange Board of India             ...Appellant

                                   VERSUS

Pan Asia Advisors Ltd. & Anr.                  …Respondents

                               J U D G M E N T

Fakkir Mohamed Ibrahim Kalifulla, J.

This appeal at the instance of the Securities and Exchange  Board  of  India

(hereinafter called “SEBI”) is directed against the  majority  judgment  and

final order dated 30.09.2013, passed by the Securities  Appellate  Tribunal,

Mumbai, in Appeal No.126 of 2013.

The short question that arises in this appeal relates  to  the  jurisdiction

of SEBI under the Securities and Exchange Board  of  India  Act,  1992,  (in

short “SEBI Act, 1992”) to initiate proceedings against the  respondents  as

Lead Managers to the Global Depository Receipts  (in  short  “GDRs”)  issued

outside India based on investigations held by it and on its conclusion  that

in relation to transaction of sale/purchase of  underlying  shares  released

on redemption of GDRs in the securities market in India, the  Lead  Managers

had committed fraud on the investors  in  India  and  that  such  fraudulent

intention existed at every stage of the GDR process  till  sale/purchase  of

underlying shares in the securities market in India.  The  further  question

that arises for consideration is that if the said question  is  answered  in

the affirmative, whether the SEBI was  justified  in  passing  its  impugned

order dated 20.06.2013, debarring  the  respondents  herein  from  rendering

services in connection with  instruments  that  are  defined  as  securities

under Section 2(h) of the Securities Contracts (Regulation)  Act,  1956  (in

short “SCR Act,  1956”)  and  such  debarment  for  a  period  of  10  years

prohibiting the respondents from accessing the capital  market  directly  or

indirectly under SEBI Act, 1992 and the regulations framed there  under  was

justified.

When the order of SEBI dated 20.06.2013 was challenged  by  the  respondents

before the Securities Appellate Tribunal, Mumbai in Appeal No.126  of  2013,

the Chairman of the Tribunal in his minority view upheld the  order  of  the

SEBI while the members of the Tribunal by way of  their  majority  view  set

aside the order of SEBI debarring the respondents.   It  was  in  the  above

stated background SEBI has come forward with this appeal before us.

Therefore, for us, the only question to be decided is  as  to  whether  SEBI

had jurisdiction in passing the impugned order  dated  20.06.2013  debarring

the respondents for a period of ten years in dealing with  securities  while

considering the role played by the respondents as Lead Managers relating  to

the GDRs issued by six companies  who  issued  such  GDRs.  In  the  counter

affidavit filed on behalf of the first respondent, it  is  stated  that  the

said respondent’s name has been changed and is now known as  Global  Finance

& Capital Limited, having its office International Corporate House,  Monster

House, 42 Mincing Lane, London and represented by its Executive Officer  Ms.

Neha Dua.  Therefore, whatever stated with  reference  to  first  respondent

and applicable to it in this order shall mutatis mutandis apply to the  said

entity namely Global Finance & Capital Limited in all respects.

In order to appreciate the issue raised, it will  be  necessary  to  explain

the manner in which the respondents dealt with the GDRs issued by those  six

entities in the foreign market and the nature of allegation which  according

to SEBI was found true and which led SEBI to conclude that  such  manner  of

dealing of the GDRs of those companies by the respondents as  Lead  Managers

did have a serious impact in the securities  market  of  Indian  origin  and

consequently it had jurisdiction to proceed against the respondents.

In the present appeal, according to SEBI the respondents  as  Lead  Managers

dealt with the GDRs issued by six entities viz., (1) Asahi Infrastructure  &

Projects Ltd (Asahi) (2) IKF Technologies Ltd. (IKF)  (3)  Avon  Corporation

Ltd (Avon) (4) K Sera Sera Ltd (K Sera) (5) CAT Technologies Ltd  (Cat)  and

(6) Maars Software International Ltd (Maars).

Mr. C.U. Singh, learned senior counsel who appeared for SEBI submitted  that

since the nature and manner of handling of the GDRs by  the  respondents  as

Lead Managers were identical relating to all  the  six  companies,  for  the

purpose of noting the nature of such dealings we  can  restrict  it  to  the

first company viz., Asahi and that the same can be applied mutatis  mutandis

in respect of the six other companies. We are  therefore  referring  to  the

details of the GDRs issued by Asahi and the manner in  which  such  issuance

of GDRs were disposed of and ultimately converted into shares and  sold  out

in the Indian Market.

According to SEBI, Asahi issued equity shares of Rs.29,91,00,000/- of  Rupee

one each at the value of 2 USD on 29.04.2009.  Such shares  issued  resulted

in allotment of 29,91,000 GDRs containing 29,91,00,000 equity  shares.   The

total value of the GDRs issued was 5.98 million USD.  Such GDRs issued  were

fully subscribed and closed on 29.04.2009 itself.

Prior to the GDRs issue, Asahi had 3,71,96,000 fully paid equity shares  and

GDRs issued was about eight times of Asahi’s outstanding share capital.  The

first respondent herein was appointed  as  the  Lead  Manager  for  the  GDR

issued and the entirety of the share capital of  the  first  respondent  was

held by the second respondent.  While referring to the GDR issued  by  Asahi

and the appointment of the respondents as its  Lead  Managers,  it  will  be

necessary to refer to two  other  entities  viz.,  Vintage  and  Euram.  The

second respondent is the Managing Director  of  Vintage  and  Euram  is  the

foreign bank lender.  It was mainly stressed at the instance  of  SEBI  that

there was a loan taken from Euram by Vintage for subscribing to the GDRs  of

Asahi and that the same was managed by a loan and  pledge  agreement  signed

not only by Vintage and Euram but by Asahi as well.  According to SEBI,  the

second respondent herein structured the loan and pledge agreement  to  which

Asahi, Vintage and  Euram  were  signatories  and  the  terms  of  the  loan

agreement as well as the pledge agreement were  intertwined  and  they  were

the keys to the alleged fraudulent issuance and subscription of GDRs.

It was pointed out that the loan agreement was dated  21/22.04.2009  between

Euram and Vintage bearing agreement No.K210409-003 i.e.  eight  days  before

the issuance of GDRs themselves.  The  second  respondent  signed  the  loan

agreement as Managing Director of Vintage under the  loan  agreement,  Euram

sanctioned a loan of 59,82,000  USD  to  Vintage,  the  borrower  to  enable

Vintage to take Asahi’s  GDRs  and  thereafter  to  transfer  to  Euram  A/c

No.540030.  However, as a matter of fact, it was found  that  A/c  No.540030

in Euram was Asahi’s account for depositing the proceeds  of  GDRs.   Clause

6.1 of the loan agreement stipulated for creation of a  pledge  of  (A)  the

securities held in the borrower’s  account  No.540030  (in  reality  it  was

Asahi’s account) at   Euram  (B)  Pledge  of  that  very  account  No.540030

(pledging of Asahi’s account itself) for supporting the borrower  under  the

loan agreement.  The pledge agreement was dated  21.04.2009,  between  Asahi

and Euram signed by  Mr.Laxminarayan  Rathi  in  his  capacity  as  Managing

Director of Asahi on 28.04.2009. It is relevant to note that family  members

of Mr.Rathi are the promoters of the Asahi.  It was pointed  out  on  behalf

of SEBI that Mr.Rathi did not inform Bombay  Stock  Exchange  (BSE)  or  the

company or the shareholders about the signing of  the  pledge  agreement  in

favour of Euram.  Therefore, Asahi was the Pledgor  with  Euram  Bank  under

the pledge agreement. The preamble of the pledge agreement  after  referring

to the loan agreement between Euram and  Vintage  stated  that  the  pledgor

agreed to the terms of loan agreement and a copy of the loan  agreement  was

also delivered to pledgor and in effect having  regard  to  such  nature  of

agreement as between  Asahi  and  Euram  as  pledgor  and  pledgee  and  the

borrower made by Vintage from Euram for whom loan was  advanced,  Euram  got

it secured by the pledge of GDR themselves issued by Asahi.

Further Clause  2.1  of  pledge  agreement  provided  for  pledging  of  the

pledgor’s assets as collateral security for due repayment of the loan  under

the loan agreement for the value of 59,82,000 USD.   Clauses  6.1,  6.2  and

6.3 of the pledge agreement gave full rights to the bank  Euram  to  realise

its loan agreement by realisation of pledged securities.  By virtue  of  the

coalesce manner of the loan agreement and pledge  agreement,  the  resultant

position was found  to  be  a  common  ownership  of  bank  account  by  the

borrower, subscriber and the issuing company added to  a  guarantee  by  the

issuing  company  for  the  loan  taken  by  the  subscriber  to  its  GDRs.

According to SEBI such a nature of transactions as  between  Asahi,  Vintage

and Euram  disclosed  central  and  determining  features  of  a  scheme  to

fraudulently raise fake capital by the issuing company.

At this juncture, we want to make it very clear that we are  not  expressing

any opinion as to the correctness or otherwise of the stand of SEBI at  this

moment.  We are only concerned with the question as to the  jurisdiction  of

SEBI to exercise its powers under the provisions of the SEBI Act,  1992  and

SCR Act, 1956 read along with the regulations framed  under  the  provisions

of SEBI Act, 1992 to proceed against the respondent(s) as the  Lead  Manager

for the so called fraudulent transaction indulged in by the respondents.

As far as the nature of fraud alleged is concerned, according  to  SEBI  the

investors of GDR of Asahi were found to be Messers Greenwich Management  Inc

and Tradetec Corporation. Greenwich was stated to have  paid  29,82,000  USD

for the purchase of 14,91,000 GDRs and Tradetec Corporation  paid  30,00,000

USD for 15,00,000 GDRs. It is  further  pointed  out  that  while  Greenwich

claimed to have its office at Hong Kong and Tradetec at  Singapore,  inspite

of its best efforts, SEBI could not contact both the addresses furnished  by

the above investors as it turned out ultimately that the addresses were non-

existent or the said addresses do not belong to them.  It also came  to  the

knowledge of SEBI that the said investors had investments in  several  other

GDRs of Indian Companies.

Apart from the above,  it  was  pointed  out  on  behalf  of  SEBI  that  on

01.06.2009, Asahi informed BSE about allotment and creation of  29,91,00,000

equity shares and 29,91,000 GDRs to foreign  entities  viz.,  Greenwich  and

Tradetec for conversion. Based on such information, BSE made  it  public  to

retail investors.  It was however  found  that  in  reality  the  GDRs  were

subscribed  by  Vintage  in  connivance  with   Asahi   and   the   proceeds

simultaneously pledged with Euram.  On 15/16.07.2009,  BSE  stated  to  have

authorised the trading of 29,91,000 GDRs in the Indian  Market.   After  the

issuance of GDRs, Vintage became the  sole  holder  of  the  said  GDRs  and

thereby it became majority share holder of Asahi i.e. 88.94 %  shareholding.

 Vintage transferred the GDRs to  two  entities  called  IFCF  (India  Focus

Cardinal Fund) and KII Limited between 17.08.2009 and  15.06.2011.   Another

entity called Credo an associate company of KII  limited  had  an  agreement

with Vintage for dealing with the GDRs of Asahi. As per the  said  agreement

Vintage gave a loan of 20,00,000 USD to Credo to  further  lend  it  to  KII

Limited to enable KII limited to purchase the securities of  several  Indian

companies including Asahi.  The agreement enabled  KII  limited  to  convert

GDRs into underlying shares and in fact  shares  were  sold  in  the  Indian

market.  Such  sale  effected  and  the  proceeds  collected  were  used  to

purchase further securities  and  to  repeat  the  said  process  until  KII

limited decided to terminate the agreement.  Credo was  paid  commission  by

Vintage and the agreement ensured Vintage to  take  full  liability  of  the

dealings of KII limited in the GDRs of Indian Companies and any loss by  KII

limited to be borne by Vintage.  The said agreement was also signed  by  the

second respondent on behalf of Vintage.

Cancellation of  Asahi  GDRs  said  to  have  started  from  19.08.2009  and

completed by 14.06.2011.  The shares  were  released  and  credited  to  the

Demat account of IFCF and KII limited. Between  20.08.2009  and  15.06.2011,

49.51 % of GDRs were cancelled by IFCF  and  KII  limited.   The  underlying

shares received by IFCF and KII limited were sold in the Indian Market.

On behalf of SEBI it was also submitted that when  the  utilization  of  GDR

proceeds by Asahi was investigated, it was found that most of the  documents

submitted by Asahi to SEBI were inconsistent with the statements  that  were

available in public domain. According to SEBI, it summoned Asahi to  furnish

details of the usage of proceeds of GDR issued by it, the  bank  statements,

agreement copies etc., Based on the information  furnished  by  Asahi,  SEBI

found that there were transfer of funds by Asahi  to  its  subsidiary  viz.,

Asahi FZE in Dubai, that Asahi transferred 26,73,000 USD  to  Asahi  FZE  by

selling the GDRs, the total realisation came to 59,62,136  USD  i.e.  99.66%

of the total loan taken by Vintage from Euram.  By making further  reference

to the transactions as between Asahi FZE  and  Vintage  and  another  entity

called Ababil which belonged to the respondent, transfer of  44.68%  of  GDR

issued in favour of the respondents which  was  suspected  by  SEBI  as  the

modus operandi adopted by the respondents for repayment  of  loan  taken  by

Vintage to Euram.  It was further  alleged  that  Asahi  failed  to  provide

vital information relating to Asahi FZE and other  transaction  details.  It

is claimed  on  behalf  of  SEBI  that  flow  of  funds  post  GDR  revealed

clandestine manner of GDR dealings by vintage and Asahi.

Reliance was  also  placed  on  false  information  about  pledge  and  loan

agreement and concealment of information regarding utilisation of  funds  by

foreign subsidiary of Asahi which supported to great  extent  the  suspicion

of SEBI that part of proceedings of GDR  issued  were  routed  back  to  the

entities belonging to the respondents.

It was also alleged on behalf of SEBI that Asahi did  not  disclose  details

of outstanding GDRs in its quarterly disclosure of share holding pattern  to

Exchanges and that as per BSE  website  the  enquiry  held  with  custodians

shows that nil for Asahi even after issuance of GDR issue. It was  therefore

claimed that the falsification of  information  regarding  pledge  and  loan

agreement and concealment of information regarding utilisation of  funds  by

foreign subsidiary fully supported the suspicion of SEBI that  part  of  the

proceeds of GDR issue were routed back to  the  entities  belonging  to  the

respondents.

In  conclusion,  it  was  said  that  Asahi   having   executed   fraudulent

transaction of claiming subscription  of  GDRs  by  two  foreign  investors,

while it was only purchased by the Lead Managers viz., the  respondents  and

their related entities and finding the proceeds having been  encumbered  due

to the underlying loan taken by the respondent(s) finally received in  India

not more than 30% of the money raised and the remaining funds were paid  out

to various parties without any clear purpose of such transfers mentioned  in

the books of the company apart from highly material  events  not  explaining

clearly in the financial statement  of  the  company  which  were  not  even

disclosed to the market and  therefore  the  share  holders  of  Asahi  were

adversely affected and without warning impacted seriously which resulted  in

slide in prices on account of large sale  of  shares  upon  cancellation  of

GDRs.  It is on the above said basis, SEBI took the stand that it had  every

jurisdiction to proceed against the respondents for the  alleged  fraudulent

manner of dealing with the GDRs issued by Asahi which had serious impact  in

the share holding pattern  of  Asahi  in  the  Indian  market  which  really

hoodwinked the Indian investors.

Mr. C.U. Singh the learned senior  counsel  appearing  for  the  SEBI  after

making reference to the  above  facts  and  also  the  statutory  provisions

submitted that the respondents as Lead Managers were involved in  the  above

alleged fraudulent transactions of GDRs whereby without  any  actual  inflow

of funds into the issuing  company,  the  said  company  was  successful  in

issuing large amount of GDRs which gave a false  respectable  appearance  to

the financial statement of the company while in reality by making  few  book

entries it was shown as though large surge in the  capital  of  the  company

was made.  It was contended that the so  called  initial  investors  to  the

GDRs were found to be fictitious which were created by respondent.   It  was

contended that by making such fictitious book entries, the respondent(s)  in

reality ensured that the funds moved from one of its controlled  company  to

another company also controlled by it and  vice  versa  and  ultimately  the

issuing company received post cancellation in Indian stock markets  and  the

sale of such shares  after  its  cancellation  in  the  Indian  market  only

resulted in reality the Indian investors and not the foreign  investors  who

ultimately paid for the GDRs.  It was pointed out that as a  consequence  of

such a fraudulent arrangement perpetuated  by  the  respondents  the  Indian

investors upon buying shares converted from GDRs  unknowingly  assisted  the

issuing  companies  to  release   the   GDR   subscription   proceeds   from

encumbrance/pledge and thereby instead of capital being raised from  foreign

investors by way of issuance of GDRs, the Indian investors  ultimately  paid

for part of the GDRs after the same were converted  into  underlying  shares

which were then sold in the Indian securities market to the investors.

According to SEBI, this kind of transaction  would  defeat  the  purpose  of

issuance of GDRs which is to raise finance from foreign investors.   It  was

therefore contended that issuance of  GDRs  being  sourced  from  authorised

share capital of a  company  listed  in  the  Indian  Stock  Exchanges,  any

structuring or manipulation related to GDRs will have  a  direct  impact  on

the stocks of the company  trading  in  Indian  market,  that  the  two  way

fungibility scheme for GDRs allow for conversion of GDRs  in  Indian  market

and vice versa and impact of such  issuance,  cancellation  /conversion  and

sale/transfer of shares so converted will  have  a  direct  bearing  on  the

securities market in India.

It  was  further  contended  that  the  material  issue  was   whether   the

arrangement by which the  respondents  as  Lead  Managers  indulged  in  the

transaction of GDRs of the issuing company of the Indian origin by  creating

a pledge on the proceeds thereof  to  enable  a  foreign  bank  to  lend  to

foreign investors will have to be tested in the anvil of Indian law  as  the

GDRs are always supported by the underlying Indian shares.

It was also pointed out that in the course of the  hearing  the  respondents

clarified  that  the  disbursement  of  loan  by   the   foreign   financial

institution actually occurred immediately subsequent  to  the  execution  of

pledge agreement by Asahi and thereby made it clear that the loan  agreement

and pledge agreement drew strength from  each  other  and  were  intricately

connected to the transaction.  It was  also  noted  by  SEBI  based  on  the

uncontroverted factual scenario that it took eight months  for  the  issuing

company viz., Asahi to utilise the GDR proceeds as till  then  the  investor

viz., Vintage could not repay the loan  borrowed  by  it  from  Euram  which

borrowal was fully and mainly supported by the pledge agreement  created  by

Asahi in favour of Euram.  In this context, heavy reliance was  placed  upon

Section 77(2) of the Companies Act which prohibited any  public  company  or

private company which is subsidiary to a public company to give directly  or

indirectly by means of a loan, guarantee etc., any financial assistance  for

the purpose or in connection with purchase or subscription  made  or  to  be

made by any person for any share in the company or in its  holding  company.

Reliance was also  placed  upon  the  provisions  of  SEBI  (Prohibition  of

Fraudulent  and  Unfair  Trade  Practice  Relating  to  Securities   Market)

Regulations, 2003  (in  short  “2003  Regulations”)  which  prohibited  such

transactions.

According to SEBI the existing share holders and prospective investors  were

projected of the positive dose that the issuing company had  raised  foreign

capital through GDRs but  were  completely  unaware  of  the  activities  of

respondents as Lead Managers along with their  connected  entities  in  such

GDR issues.  It was the case of SEBI that the very fact that the  GDRs  were

issued pursuant to the alleged fraudulent arrangement entered  into  by  the

respondents through Vintage that the initial investors as  declared  by  the

respondents largely did not exist, as a result of which,  the  investors  in

India were made to believe (falsely) that the stocks  of  issuing  companies

were highly valued by foreign investors.

Mr. C.U. Singh therefore contended that  having  regard  to  the  nature  of

transaction of the GDRs of the issuing companies of  Indian  origin  in  the

global market since had a direct bearing on the Indian  investors  and  such

transactions were found proved by SEBI had  serious  impact  on  the  Indian

market, SEBI was  fully  justified  in  assuming  jurisdiction  and  thereby

having passed the order of debarment in the order dated 20.06.2013.

To support his submissions, Mr. C.U. Singh learned senior counsel  for  SEBI

also referred to various provisions of the SEBI Act,  1992,  SCR  Act,  1956

and the Regulations framed under the provisions of the SEBI  Act,  1992.  In

particular he relied upon Section 2(i) of SEBI Act,  1992  read  along  with

Section 2(h) of SCR Act, 1956 which defines “securities” and contended  that

GDRs are marketable securities as defined in Section 2(h)(i)  and  (iii)  of

SCR Act, 1956.  By referring  to  Section  2(j),  the  definition  of  Stock

Exchange in SCR Act, 1956 as well as Section 11(2)  and  (4)  of  SEBI  Act,

1992, learned counsel contended that SEBI has been  invested  with  enormous

powers to check buying, selling  or  dealing  in  securities  through  stock

exchanges which power having regard to the  vide  definition  of  securities

under the SCR Act, 1956 would include any fraudulent  transactions  relating

to GRDs which are always supported by the underlying  shares.   The  learned

senior counsel further pointed out that such powers of the Board  have  been

clearly set out in Section 11B as well as 11C read along with Section 12  of

the SEBI Act, 1992.

The learned senior counsel by making reference to Section 12A of  SEBI  Act,

1992 which prohibits manipulative and deceptive devices relating to  insider

trading etc either directly or indirectly, SEBI have every  jurisdiction  to

proceed against the respondents when once it came to light that  respondents

indulged in manipulative devices in dealing with the  underlying  shares  of

the GDRs by hoodwinking the investors and by making  the  issuing  companies

themselves to pledge their own investments  for  the  purpose  of  advancing

loan for the investment made  by  Vintage,  which  according  to  SEBI  also

belong to the respondents who are the Lead Managers who dealt with the  GDRs

of the issuing company Asahi.

According to the learned senior counsel  by  virtue  of  the  alleged  fraud

played by the respondent(s) the Indian investors were the victims  for  whom

SEBI is the custodian and the nature  of  transaction  indulged  in  by  the

respondent resulted in more than 140 million USD of fraudulent  transaction.

The learned senior counsel, therefore, submitted  that  the  action  of  the

respondents was in total violation of stock market  regulation,  it  was  in

violation of Section 77(2) of the Companies Act and was a rank fraud on  the

share holders apart from such violations attracting the  provisions  of  the

Foreign Exchange Management Act, 1999 (in short “FEMA”) and Reserve Bank  of

India (in short “RBI”) regulations.

In support of his submissions, the learned senior counsel  relied  upon  GVK

Industries Limited and another v. Income Tax Officer and another - (2011)  4

SCC 36 paras 3 to 6 and para 124, Republic of Italy through  Ambassador  and

Others Vs. Union of India and Others - (2013) 4 SCC 721, paras 14,  130  and

139, Chairman, SEBI v. Shriram Mutual Fund and  another  (2006)  5  SCC  361

paras 15, 17, 19, 33 to 36 and Union of  India  and  Others  v.  Dharamendra

Textile Processors and Others - (2008) 13 SCC 369 paras 2, 3, 13 and 20.

As against the above submissions Mr. Shyam  Divan,  learned  senior  counsel

appearing for the respondents raised several points for  consideration.  The

points raised by learned senior counsel for the respondents are:

a) SEBI is a creature of a Statute under Section 3 of  SEBI  Act,  1992  and

its scope and powers are, therefore, defined by the Statute.

b) SEBI Act, 1992 extends to the whole of  India  and  extra  jurisdictional

matters are not covered by it and as a creature of  a  Statute  SEBI  cannot

operate beyond India.

c) PFUTP being delegated regulation/subordinate regulation under  SEBI  Act,

1992 cannot reach beyond its territorial jurisdiction.

d) SEBI functions as defined under  Section  11(1)  and  controlled  by  the

words in that Section which specifically use the expression “subject to  the

provisions of the Act”.

e) Both the respondents are registered with the Financial Conduct  Authority

(UK)  and  therefore  they  are  the  authorities  which  can  control   the

respondents and SEBI has no plenary jurisdiction over them.

f) SEBI has no subject matter jurisdiction over GDR though the powers  under

FEMA regulations/schemes and RBI directions and  the  authorities  specified

may have jurisdiction to act and certainly not SEBI on the  subject  matter.

Negatively the office manual of SEBI has nothing  to  do  with  the  subject

matter of GDR.

g) Material on  records  placed  before  the  Tribunal  disclosed  that  the

activities of respondents were fully in  compliance  of  local  statutes  of

Austria and U.K.

h)  The  directions  issued  by  SEBI  to  the  respondents  are   extremely

prejudicial.

Mr. Shyam Divan drew our attention to the stand of respondents 1  and  2  in

their respective counter statements filed in this appeal and submitted  that

while the first respondent is the Lead Manager second respondent  is  not  a

Lead Manager and that both of them were not  registered  with  SEBI  or  any

other authority for the purpose of dealing with  GDRs.  The  learned  senior

counsel  contended  that  there  is  no  obligation  either  on  the   first

respondent or the second respondent under SEBI Act, 1992 or  regulations  or

under  any  other  Indian  law  including  FEMA  to  make  or  disclose  any

information. It was contended that the first and second respondent have  not

filed  any  information  in  order  to  state  that  false  information  was

furnished to the Indian authorities  with  an  intention  to  mislead  them.

According to the learned senior counsel, the disclosure to be made were  the

obligations of the issuing company relating to GDRs  including  the  details

about the foreign bank, foreign exchange etc., under the statutes in  India.

 It was further submitted that under no  statutory  prescription  first  and

second respondent are obligated to inform about the fund flow into India  to

SEBI.  The fact that no  such  obligation  exists  even  as  Indian  issuing

company.

It was contended that as Lead Managers the role of respondents 1 and  2  end

with the listing of GDRs.  In so  far  as  trading,  conversion,  redemption

etc., they have no role to play.  It was further contended that there is  no

lock in period for the  GDR  which  is  freely  convertible,  which  may  be

converted and may not be converted which depends upon the  decision  of  the

investor.  According to the respondents, they had no  control  over  issuing

companies which  function  independently  in  India  and  except  commercial

contractual  relationship  pertaining  to  GDR,  the  respondents   had   no

relationship  with  the  issuing  company.   The  learned   senior   counsel

submitted that it is not the case of SEBI  that  these  companies  were  all

bogus companies.

The learned senior counsel drew our attention to certain  core  features  of

the GDR issues dealt with by respondents as Lead Managers  and  listed  them

as under:

“Core features of the GDR issues

1) GDRs were issued and were subscribed in full.

2) GDRs were dollar denominated and the  monies  received  at  the  time  of

subscription was in USD.

3)  The  dollars  stood  credited  in  the  issuer  company’s  bank  account

maintained with Euram Bank.

4) This account with Euram Bank was opened by the issuer company.

5) Dollars in the  issuer  company’s  account  (GDR  subscription  proceeds)

became available to the issuer companies, albeit  according  to  SEBI  after

“repayment of loan”.  There was an 8 months delay in respect of  Asahi  with

respect to free utilisation of the GDR proceeds.

6) The loans have been repaid.

7) As on  30.06.2012,  though  all  loans  were  paid,  all  GDRs  were  not

cancelled and certain GDRs remained intact.

8) The issuer companies received US Dollars and utilised the US  Dollars  by

transferring them to their respective overseas subsidiaries or  repatriating

the funds to India.”

The  learned  senior  counsel  further  pointed  out  that  there   was   no

requirement to bring the GDR proceeds into India or there is no  time  frame

for such repatriation which are supported by the RBI Master  Circular  apart

from the fact that there was no allegation that  the  funds  were  used  for

prohibited activities, viz., stock  exchange  transactions  or  real  estate

transactions prescribed under the  Issue  of  Foreign  Currency  Convertible

Bonds and Ordinary Shares (Through  Depository  Receipt  Mechanism)  Scheme,

1993 (in short “1993 Scheme”).

Mr. Shyam Divan further contended  that  SEBI’s  own  documents  established

that the GDR issues were subscribed in USD and the proceeds  were  available

to the issuing companies and that  in  that  process  no  violation  of  any

Indian or overseas law was alleged against either  the  issuing  company  or

the respondents.

Mr. Shyam Divan then referred to Section 2(o)  the  definition  of  “foreign

security”, Section 2(za) the definition of  “security”  and  Section  3  and

contended that the  said  provisions  under  the  FEMA  are  relevant  which

control any transaction pertaining to foreign security which  means  shares,

stocks, bonds, debentures etc., which are denominated expressed  in  foreign

currency.

He also made reference to Section 6(3) wherein the RBI  has  been  empowered

to formulate regulations for prohibiting, restricting or regulating  matters

relating to transfer etc., of foreign security by a person who  is  resident

in India as well as outside India. Further reference was made to Section  13

of the said Act which prescribed the  penalties  for  contravention  of  the

provision of the Act and Section  36  for  the  authorities  who  have  been

empowered under the said Act for the enforcement of the  provisions  of  the

Act  The learned senior counsel  therefore  contended  that  the  GDRs  will

definitely fall within the definition of “foreign security”  as  defined  in

section 2(o) and “security” as defined in  Section  2(za)  and  consequently

with reference to any violation in dealing with the GDRs can be  exclusively

dealt with under the provision of FEMA and the SEBI or any of the  provision

of SEBI Act, 1992 will not have any application relating to GDRs.

The  learned  senior  counsel  referred  to  master  circular   on   foreign

investment in India dated 01.07.2011 of the RBI  with  particular  reference

to paragraph 8(F) of the said circular which deals with issues of shares  by

Indian companies  under  ADR/GDR  as  well  as  the  form  prescribed  under

Annexure 11 of the said circular by which the quarterly  return  are  to  be

filed by the issuing company. The learned senior counsel  pointed  out  that

such procedure has been prescribed  under  the  master  circular  under  the

provisions of the FEMA which takes care of the issuance  of  GDRs  including

two way fungibility provided under the said circular.   The  learned  senior

counsel submitted that even such prescriptions  under  the  master  circular

issued by the Reserve Bank of India or with reference to the  control  which

the Act prescribed on “foreign security” and “security” which includes  GDRs

as defined under FEMA as well as  the  manner  in  which  such  issuance  of

foreign security are to be controlled by the  RBI.   In  this  context,  Mr.

Shyam Divan brought to our notice the Foreign Exchange Management  (Transfer

or Issue of Security by a Person Resident Outside India)  Regulations,  2000

(in short “2000 Regulations”) in particular Regulation  4,  5.1  along  with

Schedule I (4B), 5 and 6 and submitted that the  scheme  viz.,  1993  Scheme

got statutory flavour by virtue of the 2000 Regulations referred to above.

Learned senior  counsel  also  referred  to  Clarification  23  in  the  RBI

guidelines for the limited two way fungibility  under  the  1993  Scheme  as

well as the guidelines for ADR/GDR issues  by  the  Indian  companies  under

Euro issue and submitted that the issuance of GDR  by  the  issuing  company

and dealt with  by  the  respondent(s)  as  Lead  Managers  fulfil  all  the

requirements under FEMA, RBI Guidelines,  2000  Regulations  under  FEMA  as

well as 1993 Scheme and, therefore, there was no scope for SEBI  to  proceed

against the respondents under the provisions of the SEBI Act,  1992  or  SCR

Act, 1956.

The learned senior  counsel  also  brought  to  our  notice  the  Depositary

Receipts Scheme 2014 (in  short  “2014  Scheme”)  notified  by  the  Central

Government which mandates the authorities under the RBI and SEBI as well  as

Ministry of Corporate Affairs in the Ministry of Finance  to  implement  the

provisions of the said scheme. The learned  senior  counsel  fairly  pointed

out paragraph 10 of the scheme which refers to market  abuse,  which  states

that “market abuse” means any activity prohibited under Chapter  VA  of  the

SEBI Act, 1992. By making  reference  to  the  said  scheme  learned  senior

counsel submitted that even the  said  scheme  notified  in  the  year  2014

cannot be invoked to rope in the respondents though it may empower  SEBI  to

proceed against the issuing company.

The sum and substance of the submissions of the learned senior  counsel  for

the respondents is that GDR is statutorily  defined  under  Clause  2(c)  of

1993 Scheme and 2000 Regulations which shows that cradle  to  grave  GDR  is

outside India.  The said submission was made on the  footing  that  issuance

of GDR is outside India,  investor  is  outside  India,  market  is  outside

India, investor bank is outside India,  therefore,  everything  relating  to

GDR is outside India.  The contention was that both as a matter of  law  and

fact the GDR operates outside India and that  the  respondents  are  covered

only till the GDR is listed in the overseas and  therefore,  GDR  is  not  a

security covered by SEBI Act, 1992 as well as SCR Act, 1956.   Consequently,

SEBI had no jurisdiction or role to protect the interest  of  GDR  investors

or to regulate the GDR market.  It is  also  submitted  that  by  virtue  of

Section 1(2) of the SEBI Act, 1992, the  SEBI  can  have  control  over  the

operation in the whole  of  India  but  not  outside  the  country.  It  was

contended  that  the  various  provisions  referred  to  on  behalf  of  the

respondents under different statutes do not  make  express  mention  of  GDR

which was advisably so, because there was no  impediment  for  including  in

the definition, because GDR was from cradle to grave outside India,  whereas

SEBI Act, 1992 is exclusively for transactions within Indian territory.   By

making specific reference to Section 12  of  the  SEBI  Act,  1992,  it  was

contended that while it refers to investment advisors, market bankers  whose

registration is statutorily required, respondents as Lead Managers  are  not

required to be registered because they are not  dealing  with  local  Indian

securities.  It was also contended that even SEBI do not  contend  that  the

respondents are obliged to register with SEBI.

It was further contended that even under  Section  12(1A),  the  respondents

are not required to get registered with SEBI.  The  learned  senior  counsel

relied  upon  the  decision  reported  in  GVK  Industries  Limited  (supra)

paragraphs 6, 108 and 124 to 126, and also relied on Haridas Exports v.  All

India Float Glass Manufacturers’  Assn.  and  Others  -  (2002)  6  SCC  600

paragraphs 3, 18, 29, 33 to 39, 43,  46,  57  and  61.   Reliance  was  also

placed upon Vodafone  International  Holdings  BV  v.  Union  of  India  and

Another - (2012) 6 SCC 613 paragraphs 83-93, 387 and 408.

To appreciate the  submissions  made  by  the  respective  counsel  for  the

appellant as well  as  the  respondents,  in  the  forefront,  we  feel  the

following questions need our attention viz.,

What is GDR and whether it will fall under the  definition  of  ‘Securities’

under Section 2(h) of SCR Act 1956 ?

How is it created ?

Why is it created ?

After its creation, how is it dealt with ?

After the disposal of GDRs in the global market what are the rights  of  its

investors ?

What is the role played by a Lead Manager  while  dealing  with  GDRs  in  a

foreign market ?

Who are all the parties who are involved in the creation, ownership and  the

cancellation of GDR ?

Dealing with GDR, is it regulated by the statutory prescription of India  or

only by foreign laws ?

Post cancellation of GDRs what impact it can create on the  issuing  company

and the investors of the Indian market ?

In the event of any misfeasance or malfeasance  in  dealing  with  the  GDRs

whether SEBI can effectuate its control over those who are involved in  such

misfeasance or malfeasance?

To find  an  answer  to  the  above  questions  we  can  make  reference  to

Regulation 5 (1) and (2) as well as  Schedule  I  of  the  2000  Regulations

which has been framed in exercise of the powers conferred by Clause  (b)  of

sub-section 3 of Section 6 and Section 47 of the  FEMA.   Regulation  5  (1)

and (2) and paragraph 4 (1), (2) & (3) and Paragraph 6  of  Schedule  I  are

relevant which are as under:--

“Regulation 5.   Permission  for  purchase  of  shares  by  certain  persons

resident outside India :-

      (1)    A person resident  outside  India  (other  than  a  citizen  of

Bangladesh or Pakistan or Sri Lanka) or an  entity  outside  India,  whether

incorporated or not, (other than an entity in Bangladesh or  Pakistan),  may

purchase shares  or  convertible  debentures  of  an  Indian  company  under

Foreign Direct Investment  Scheme,  subject  to  the  terms  and  conditions

specified in Schedule 1.

      (2)   A registered Foreign Institutional Investor (FII)  may  purchase

shares or convertible debentures of an Indian company  under  the  Portfolio

Investment Scheme,  subject  to  the  terms  and  conditions  specified  in 

Schedule 2.

                                    * * *

Paragraph 4.     Issue of  Shares  by  International  offering  through  ADR

and/or GDR

      (1)   An Indian company may issue its Rupee denominated  shares  to  a

person resident outside India being a depository for the purpose of  issuing

Global Depository Receipts  (GDRs)  and/  or  American  Depository  Receipts

(ADRs),

            Provided the Indian company issuing such shares

            (a)  has an approval from the Ministry  of  Finance,  Government

of India to issue such ADRs and/or GDRs or is eligible to issue  ADRs/  GDRs

in terms of the relevant scheme in  force  or  notification  issued  by  the

Ministry of Finance, and

            (b)  is not otherwise ineligible  to  issue  shares  to  persons

resident outside India in terms of these Regulations, and

            (c)  the ADRs/GDRs are issued in accordance with the Scheme  for

issue of Foreign Currency Convertible Bonds  and  Ordinary  Shares  (Through

Depository Receipt Mechanism) Scheme, 1993  and  guidelines  issued  by  the

Central Government thereunder from time to time.

            (2)  The Indian company issuing shares under sub-paragraph  (1),

shall furnish to the Reserve Bank, full details of such issue  in  the  form

specified in Annexure 'C', within 30 days from the date of  closing  of  the

issue.

      (3)   The  Indian  company  issuing  shares  against  ADRs/GDRs  shall

furnish a quarterly return in the form specified in Annexure 'D' to  Reserve

Bank within fifteen days of the close of the calendar quarter.

                                    * * *

Paragraph 6.     Dividend Balancing

      Where a company is engaged in any of the industries  in  the  consumer

goods sector, specified in Annexure E, or in any other  activity  where  the

condition of  dividend  balancing  has  been  stipulated  in  terms  of  the

provisions of Industrial Policy and Procedures notified by  Secretariat  for

Industrial  Assistance,  the  cumulative  outflow  of  foreign  exchange  on

account of payment of dividend over a period of seven years  from  the  date

of commencement of commercial production to investors  outside  India  shall

not exceed cumulative amount of export earning of the company  during  those

years.

            Provided that

            (a)  the restriction under this paragraph shall not apply

             i)    in  respect  of  shares  held  in  such  a   company   by

International  Finance  Corporation   (IFC),   the   Deustche   Entwicklungs

Gescelschaft (DEG),  the  Commonwealth  Development  Corporation  (CDC)  and

Asian Development Bank (ADB).

            ii)  to a company that has completed a  period  of  seven  years

from the date of commencement of commercial production,

            (b)  in case of  an  existing  company  that  has  issued  fresh

equity to persons  resident  outside  India  under  these  Regulations,  the

restriction shall apply to the fresh shares from the date of their issue.”

A reading of Regulation 5 read along with paragraphs (4) & (6)  of  Schedule

I of 2000 Regulations, as rightly pointed out  by  Mr.Shyam  Divan  gives  a

statutory recognition to  the  1993  Scheme  which  came  into  force  w.e.f

01.04.1992. It is needless to state that the said Scheme came to  be  issued

by the Central Government in exercise of its executive powers under  Article

73 of the Constitution of India. Paragraph 4 (1), (2) & (3) and paragraph  6

of Schedule I of the 2000 Regulations in effect authorises the  issuance  of

GDRs and the Statutory requirements to be  fulfilled  for  the  issuance  of

such GDRs to have a valid sanction under law of the Indian origin.

Having noted such provisions framed under  the  2000  Regulations,  when  we

refer to paragraph 2(a), (c), (d) and (e) of 1993 Scheme,  one  will  get  a

clear idea about how GDRs  are  issued.  Paragraph  2(a)  defines  “Domestic

Custodian Bank” to mean a banking company which acts as a custodian for  the

ordinary shares or foreign currency convertible bonds of an  Indian  company

which are issued by it against Global Depository  Receipt  or  certificates.

Paragraph 2(c) defines Global Depository Receipts to mean any instrument  in

the form of a depository receipt or certificate  (by  whatever  name  it  is

called) created by an Overseas Depository Bank outside India and  issued  to

non-resident investors against the  issue  of  ordinary  shares  or  foreign

currency convertible bonds of the issuing company.  Paragraph  2(d)  defines

an issuing company to mean an Indian  company  permitted  to  issue  Foreign

Currency Convertible Bond  or  ordinary  shares  of  that  company  for  the

purpose of creation of Global Depository Receipts.  Paragraph  2(e)  defines

Overseas Depository Bank to mean a bank authorized by an issuing company  to

issue Global Depository Receipts against issue of  ordinary  shares  of  the

issuing company.

It will be necessary to refer to paragraph 3(1) and 3(1)(iii) and  (iv)  and

3(2) and 3(3) of 1993 Scheme in order to get a clear picture as to  what  is

Global Depository Receipt and how it is issued.  Under  paragraph  3(1)  any

issuing company  desirous  of  raising  foreign  funds  by  issuing  Foreign

Currency Convertible Bonds or ordinary  shares  for  equity  issues  through

Global Depository Receipt is required to  obtain  prior  permission  of  the

Department of Economic Affairs, Ministry of Finance, Government of India.

Under paragraph 3(1)(iii) an approved intermediary under  the  scheme  would

be  an  Investment  Banker  registered  with  the  Securities  and  Exchange

Commission  in  USA  or  under  Financial  Services  Authority  in   UK   or

appropriate regulatory authority in Germany, France, Singapore or in  Japan.

 Under paragraph 3(1)(iv) such issues would need to confirm to  the  Foreign

Direct Investment Policy  and  other  mandatory  statutory  requirement  and

detailed guidelines issued in this regard. The provisions of paragraph  4(B)

of Schedule I of 2000 Regulations as notified by the RBI  vide  Notification

No.FEMA 41/2001-RB dated 02.03.2001 should also be adhered. Under  paragraph

3(2), an issuing company seeking permission  under  sub-paragraph  I  should

have a consistent track record of good performance (financial or  otherwise)

for a minimum period of three years on the basis of  which  an  approval  of

finalizing the issue structure  would  be  issued  to  the  company  by  the

Department of Economic Affairs, Ministry of Finance.  Under  paragraph  3(3)

on  the  completion  of  the  finalization  of  the   issue   structure   in

consultation with the Lead Manager to the issue, the issuing  company  shall

obtain the final approval for proceeding  ahead  with  the  issue  from  the

Department of Economic Affairs. Under paragraph 3(4)  the  Foreign  Currency

Convertible Bonds shall be denominated in any convertible  foreign  currency

and the ordinary shares of an issuing company to be  denominated  in  Indian

rupees.  Under paragraph  3(5)  when  an  issuing  company  issues  ordinary

shares or bonds under the 1993  Scheme,  that  company  should  deliver  the

ordinary shares or bonds to a Domestic Custodian Bank, who will in terms  of

the  agreement  instruct  the  Overseas  Depository  Bank  to  issue  Global

Depository Receipt or a certificate to non-resident  investors  against  the

shares or bonds held by the Domestic Custodian  Bank.  A  Global  Depository

Receipt may be issued in the negotiable  form  and  may  be  listed  on  any

international stock exchange  enabling  the  investor  for  trading  outside

India under paragraph 3(6).  Under paragraph 3(7) the provisions of any  law

relating to issue of capital by an Indian company would  apply  in  relation

to the issuance of  Foreign  currency  convertible  bonds  or  the  ordinary

shares  of  an  issuing  company  and  the  issuing  company  should  obtain

necessary permission or exemption from the appropriate authority  under  the

relevant law relating to the issue of capital.  For this  purpose,  Sections

55A and 77(2) of the Companies Act are relevant which are  to  be  followed.

The issue structure of GDRs is governed by paragraph 5 of  1993  Scheme.   A

Global Depository Receipt can be issued for one or  more  underlying  shares

held with the Domestic Custodian Bank.  The GDRs may be denominated  in  any

freely convertible foreign currency.  The ordinary  shares  under  the  GDRs

will be denominated only in Indian currency.  The  issues  viz.,  public  or

private placement, number of GDRs to be issued, the  issue  price,  rate  of

interest payable on  foreign  currency  convertible  bonds,  the  conversion

price, coupon and the pricing of the conversion options would be decided  by

the issuing company with the Lead Manager to the issue. There  would  be  no

lock-in period for the GDRs issued under this scheme.

Under paragraph 6, the GDRs issued under this Scheme may be  listed  on  any

one of the Overseas  Stock  Exchanges  or  over  the  counter  exchanges  or

through Book Entry Transfer System prevalent abroad and  such  receipts  can

be purchased, possessed and freely transferable by a person who  is  a  non-

resident within  the  meaning  of  Section  2(q)  of  the  Foreign  Exchange

Regulation Act, 1973 and subject to the provisions of the said Act.

Paragraph 7 of the Scheme deals with the  transfer  and  redemption.   Under

paragraph 7(1), a non-resident holder of GDR may transfer those receipts  or

may ask the overseas Depository Bank to redeem those receipts. In  the  case

of  redemption  Overseas  Depository  Bank  should  request   the   Domestic

Custodian Bank to  get  the  corresponding  underlying  shares  released  in

favour of the non-resident investor for being sold  directly  on  behalf  of

the non-resident on being  transferred  in  the  books  of  account  of  the

issuing company in the name of non-resident.

Under paragraph 7(3), on redemption,  the  cost  of  acquisition  of  shares

under lying the Global Depository Receipts should be reckoned  as  the  cost

on the date on which the  Overseas  Depository  Bank  advises  the  Domestic

Custodian Bank for redemption. The price  of  the  ordinary  shares  of  the

issuing company prevailing in the Bombay  Stock  Exchange  or  the  National

Stock Exchange on the date of advice of redemption should be  taken  as  the

cost of acquisition of the underlying ordinary shares.

A combined reading of paragraphs 2(a), (c),  (d)  and  (e)  shows  that  the

Global Depository Receipts are issued by a company in  India  based  on  the

ordinary shares deposited with the domestic custodian  bank  and  issued  by

the corresponding overseas depository bank  depending  upon  the  extent  of

ordinary shares held by  the  Domestic  Custodian  Bank.  Once  such  Global

Depository Receipts are issued by the Overseas Depositary  Bank,  which  has

the approval of the appropriate authorities of the Indian origin as well  as

appropriate regulatory  authority  of  registered  agencies  at  the  global

level, the GDR becomes an approved registered authenticated instrument  over

which any non-resident can make an investment for possessing it as  a  valid

holder of GDR.

Under  paragraph  3(1)  it  gives  an  indication  as  to  why  such  Global

Depository Receipts are sought to be created.   The  said  paragraph  states

that an issuing company desirous of raising foreign  funds  can  by  way  of

GDRs based on ordinary shares for equity issues can  create  such  receipts.

In other words, the issuance of GDRs  based  on  ordinary  shares  deposited

with the Domestic Custodian Bank depends upon the issuing  companies  desire

for raising of foreign funds. In order to fulfill its desire, while  issuing

the GDRs based upon  the  underlying  shares  deposited  with  the  Domestic

Custodian Bank through the overseas Depository Bank,  the  prior  permission

of the Department of Economic Affairs, Ministry of  Finance,  Government  of

India has to be obtained.   In  that  process,  the  Lead  Manager  plays  a

pivotal role as in consultation with the Lead  Manager,  the  completion  of

finalization of issue structure by  the  issuing  company  is  made  subject

however to the final approval for proceeding ahead with the issue  from  the

Department of Economic Affairs.

After such creation, GDR which is governed by the agreement as  between  the

Domestic Custodian Bank and the issuing company, instructions are  given  to

the overseas Depository Bank to issue the GDRs to the extent  of  underlying

ordinary shares held by the Domestic Custodian Bank. GDR is  issued  in  the

negotiable form and listed on any international stock exchange  for  trading

outside India. On such listing, they  are  always  issued  for  exchange  of

freely convertible foreign currency.  It is significant  to  note  that  the

ordinary shares underlying the GDRs are always denominated  only  in  Indian

currency.  Again the Lead Manager plays  a  key  role  in  relation  to  the

issues viz., public or private placement, number of GDR to  be  issued,  the

issue price etc., in consultation with the issuing  company.   This  is  how

GDRs are dealt with after creation.

Once the GDRs are listed on any of the overseas Stock  Exchanges,  the  same

can be purchased, possessed and freely transferred by a person who is a non-

resident within  the  meaning  of  Section  2(q)  of  the  Foreign  Exchange

Regulation Act, 1973. A holder of Global Depository Receipts  viz.,  a  non-

resident can transfer those receipts or  may  ask  the  Overseas  Depository

Bank  to  redeem  those  receipts.  In  the  case  of  redemption,  Overseas

Depository Bank makes a request to the Domestic Custodian Bank  to  get  the

corresponding underlying shares  released  in  favour  of  the  non-resident

investor for being sold directly on behalf  of  the  non-resident  or  being

transferred in the books of account of the issuing bank in the name  of  the

non-resident. That is the manner in  which  GDR  is  dealt  with  after  its

creation and that is how the rights in  favour  of  the  holder  of  GDR  is

created after its transfer in his favour. The role of Lead Manager  is  thus

prescribed under the scheme at the time of  its  creation  as  well  as  its

disposal.

As far  as  applicable  law  is  concerned,  it  must  be  stated  that  the

underlying ordinary shares of a GDR which is held by the Domestic  Custodian

Bank prior to such  shares  being  created  in  the  form  of  GDR  have  to

necessarily undergo a procedure to be followed by the  issuing  company  and

for certain purposes in consultation with the Lead Manager  and  before  the

GDRs are actually created by the  corresponding  Overseas  Depository  Bank,

necessary prior permission of the Department of Economic  Affairs,  Ministry

of Finance, Government of India have to be obtained.  It is  based  on  such

statutory sanction granted by the statutory authorities of Indian origin,  a

legally enforceable right for the purpose of  creation  of  GDR  comes  into

existence and based on such validity for  issuance  of  GDRs,  the  Overseas

Depository Bank will have the power to issue such GDR by way  of  negotiable

form for the value to be determined  by  prescribing  number  of  underlying

shares that would be covered by each of the  GDR.   Once  the  GDR  is  thus

created and issued by the overseas depository bank,  again  in  consultation

with the Lead Manager arrangements are made for being listed in  the  public

or private listing of overseas Stock  Exchanges.  Thereafter  the  creation,

existence and subsequent dealing with the GDRs outside the country of  India

would be governed by the relevant laws applicable to such Receipts.

Though it may appear that on the one hand underlying ordinary  shares  would

be governed by the laws prevailing in India and the GDRs would  be  governed

by the laws of the country in which  such  receipts  are  issued,  the  most

relevant fact which is to be borne in mind is that the existence of GDRs  is

always dependent upon the extent of underlying ordinary  shares  lying  with

the Domestic Custodian Bank.

In this context, it will also be worthwhile to refer to Master  Circular  on

Foreign Investment  in  India  issued  by  the  RBI,  which  gives  detailed

description about creation of GDRs which are  negotiable  securities  issued

outside India by a depository bank on behalf  of  an  Indian  company  which

represent the local rupee denominated equity shares of the company  held  as

deposit by a Custodian Bank in India. The Master  circular  reiterates  that

GDRs are issued on the basis of the ratio worked out by the  Indian  company

in consultation with the Lead  Manager  to  the  issuing  company.  It  also

highlights as to how such of those Indian listed companies which  have  been

restrained from accessing the securities market by SEBI will  be  ineligible

to issue GDRs.

The Master Circular also explains as to how under the  two  way  fungibility

scheme which was put in place by the Government  of  India  for  GDRs  under

which a stock broker in India registered with the SEBI can  purchase  shares

of an Indian company from the market  for  conversion  into  GDRs  based  on

instructions issued from overseas investors and also re-issuance of GDRs  to

be permitted to the extent  of  GDRs  which  are  redeemed  into  underlying

shares and sold in the Indian market.

On a consideration of the 2000 Regulations, the 1993 Scheme and  the  Master

Circular issued by RBI periodically one can discern  that  for  creation  of

GDRs which can be traded only at  the  global  level,  the  issuing  company

should have developed a reputation at a level  where  the  marketability  of

its investment creation potential will have a demand at  the  hands  of  the

foreign investors.  Simultaneously, having regard to the development of  the

issuing company  in  the  market  and  the  confidence  built  up  with  the

investors both internally as well as at global level, the issuing  company’s

desire to raise foreign funds by creating GDRs should have the  appreciation

of investors for them to develop a keen interest to  invest  in  such  GDRs.

Mere desire to raise foreign investments without any scope for  the  issuing

company to develop a market demand for its  GDRs  by  increasing  the  share

capital for that purpose is not the underlying basis for creation  of  GDRs.

In fact for creating of GDRs apart from the desire of  the  issuing  company

to raise foreign funds, the marketability of such  shares  in  the  form  of

GDRs should have an applicable potential at the global  level.   To  put  it

differently, by artificial creation of global  level  investment  operation,

either the issuing company on its own or with the aid of  its  Lead  Manager

cannot attempt to make it appear as though there is scope for  trading  GDRs

at the global level while in reality there is none.  The above fact  has  to

be kept in mind when dealing with an issue relating to creation of GDRs,  in

as much as, when  the  GDRs  gets  fully  subscribed  at  the  global  level

providing scope for huge foreign investment, the same will  have  a  serious

impact at the internal investment market in the form  of  high  appreciation

of share value whereby the issuing company and the investor will be  greatly

benefited mutually.  Such a real growth structurally and financially is  the

underlying principle in the creation and  trading  of  GDRs  at  the  global

level.

In order to further appreciate the status of a GDR of  an  issuing  company,

it will be necessary to consider the definition of ‘securities’  as  defined

under Section 2(1)(i) of SEBI Act, 1992 read along with Section 2(h) of  SCR

Act 1956.  In fact Section 2(1)(i) of the  SEBI  Act,  1992  simply  defines

‘securities’ to mean the definition assigned to it in Section  2(h)  of  the

SCR Act, 1956.  Under Section 2(h) ‘security’ has been defined  to  mean  as

under in sub-clauses (i), (iia) and (iii):

“2 (h) “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

other body corporate;

xxx xxx

(iia) such other instruments as may be declared by  the  Central  Government

to be securities; and

(iii) rights or interest in securities;”

The above definition is exhaustive and includes not  only  shares,  scripts,

stocks, bonds, debentures, debenture stocks or other  marketable  securities

of a like nature in or any incorporated  company.   The  further  definition

under sub-clause (iia) covers such other instruments as may be  declared  by

the Central Government as Securities and under sub-clause  (iii)  rights  or

interest in securities are also to be construed as securities.

Going by the definition  under  Section  2(h)(i)  ‘security’  would  include

other marketable securities of a like nature of  any  incorporated  company.

Therefore reading Section 2(h)(i) and 2(h)(iii) together and apply the  same

to GDRs, having regard to the fact that the  issuance  of  GDRs  are  always

based on the underlying Indian shares deposited with the Domestic  Custodian

Bank and thereby the GDRs possess in it right, as well as, interest  in  the

shares, scripts etc., it will have to be straight away held  that  all  GDRs

would fall within the definition of ‘securities’ as  defined  under  Section

2(h) of the 1956 Act.

Further, under Section 2(2) of the SEBI Act,  1992,  words  and  expressions

used and not defined but defined under the SCR Act, 1956, the  said  meaning

would respectively assign wherever used in the  SEBI  Act,  1992.  Therefore

for the expression ‘stock exchange’ one will have to fall back upon  Section

2(j) of the SCR Act, 1956 which definition is as under:

“2(j) “stock exchange” means—

(a) any body  of  individuals,  whether  incorporated  or  not,  constituted

before corporatisation and demutualisation under sections 4A and 4B, or

(b) a body corporate incorporated under the Companies Act, 1956 (1 of  1956)

whether under a scheme of corporatisation and demutualisation or  otherwise,

for the purpose of assisting, regulating  or  controlling  the  business  of

buying, selling or dealing in securities.”

The above definition makes it clear that a ‘stock exchange’ as formed  under

Section (2)(j)(a) & (b) are for the  purpose  of  assisting,  regulating  or

controlling the business of buying, selling or dealing in securities. It  is

true that GDRs have no time limit and can  be  possessed  as  GDRs  for  any

number of years. However, when the holder of  the  GDR  apart  from  trading

with the same as GDR in the global market at  any  point  of  time  wish  to

redeem the same or go in for fungibility of the redeemed  shares  back  into

GDRs, necessarily the holder of a GDR will have to fall back upon the  stock

exchanges as per the definition under Section 2(j) of  the  SCR  Act,  1956,

who alone can assist, regulate or control the business  of  buying,  selling

or dealing with securities.

Having examined the above statutory provisions, we find that a  GDR  is  one

form of ‘security’ as defined under Section 2(h) of SCR Act, 1956, which  is

created by the issuing company of Indian origin based on  underlying  shares

deposited with the Domestic Custodian  Bank  and  created  by  the  Overseas

Depository Bank.  Such creation is at the instance of  the  issuing  company

in India with a desire to earn foreign investments.  Such  investments  made

by the investors in the GDRs is facilitated by the Lead Manager at the  time

of its creation as well as its investment.  Thereafter, the  investors  hold

the GDRs either for further trading on it in the global market  through  the

stock exchanges  at  global  level  and  in  the  event  of  such  investors

interested in liquidating  the  GDR  are  entitled  to  liquidate  the  same

through  the  Overseas  Depository  Bank,  in  which  event  the  extent  of

underlying shares of the GDRs get transferred in the name of  the  investors

themselves and thereby  enabling  such  investors  to  trade  on  underlying

shares in the Indian stock market  or  if  so  wish  under  the  fungibility

scheme once again get it redeemed in the form of GDR themselves.

Therefore, the creation of the GDR by the  issuing  company  and  after  its

creation in the fixation of price, value, marketing in  the  global  market,

the support of Lead Manager is involved and while dealing  with  such  GDRs,

the same is  regulated  in  so  far  as  it  related  to  underlying  shares

deposited with the Domestic Custodian Bank by the laws regulating  the  same

and prevalent in India and so far as the corresponding  GDRs  created  based

on such underlying shares are concerned, the same are governed by  the  laws

prevailing in the respective market where such GDRs are being  traded.  Post

cancellation of GDRs, the underlying  shares  deposited  with  the  Domestic

Custodian Bank is made available for trading in  India  depending  upon  the

wish of the holder of GDR in the local market or for holding it as such  i.e

as mere shares of the issuing  company  or  by  virtue  of  the  fungibility

scheme can once again be converted as GDRs for being traded  in  the  global

market.

In order to  find  out  as  to  what  would  happen  in  the  event  of  any

misfeasance or malfeasance in  dealing  with  the  GDRs,  whether  SEBI  can

effectuate its control over those who are involved in  such  misfeasance  or

malfeasance, it  will  be  appropriate  to  further  examine  the  provision

available under the SEBI Act, 1992 and SCR Act, 1956.

In order to assimilate the statutory functions of the  Board  its  functions

and the area of its operation, it will  be  necessary  to  make  a  detailed

reference to Sections 11, 11B, 11C, 12 and 12(A) of SEBI Act, 1992.   As  we

have to make  a  detailed  reference  to  those  provisions,  the  same  are

required to be extracted which are as under:

“11. Functions of Board:

(1) Subject to the provisions of this Act, it  shall  be  the  duty  of  the

Board to protect the interests of investors in  securities  and  to  promote

the development of, and to regulate the securities market, by such  measures

as it thinks fit.

(2) Without prejudice to the generality of  the  foregoing  provisions,  the

measures referred to therein may provide for -

(a) regulating the business in stock  exchanges  and  any  other  securities

markets;

(b) registering and regulating the working of  stock  brokers,  sub-brokers,

share transfer agents,  bankers  to  an  issue,  trustees  of  trust  deeds,

registrars to an issue, merchant bankers, underwriters, portfolio  managers,

investment advisers and such other  intermediaries  who  may  be  associated

with securities markets in any manner;

(ba)  registering  and  regulating  the   working   of   the   depositories,

participants, custodians of  securities,  foreign  institutional  investors,

credit rating agencies and such other intermediaries as the  Board  may,  by

notification, specify in this behalf;]

(c) registering and regulating the working  of  venture  capital  funds  and

collective investment schemes, including mutual funds;

(e)  prohibiting  fraudulent  and  unfair  trade   practices   relating   to

securities markets;

(g) prohibiting insider trading in securities;

(4) Without prejudice to the provisions contained in sub-sections (1),  (2),

(2A) and (3) and section 11B, the Board may, by an order, for reasons to  be

recorded in writing, in the interests of  investors  or  securities  market,

take any of the following measures, either pending investigation or  inquiry

or on completion of such investigation or inquiry, namely:-

(a) suspend the trading of any security in a recognised stock exchange;

(b) restrain persons from accessing the securities market and  prohibit  any

person  associated  with  securities  market  to  buy,  sell  or   deal   in

securities;

11B. Power to issue directions: Save as otherwise provided  in  section  11,

if after making or causing to be made an enquiry,  the  Board  is  satisfied

that it is necessary,-

(i) in the interest of  investors,  or  orderly  development  of  securities

market; or

(ii) to prevent the affairs of any intermediary or  other  persons  referred

to in section 12 being conducted in a manner detrimental to the interest  of

investors or securities market; or

(iii) to secure the proper management of any such  intermediary  or  person,

it may issue such directions,-

(a) to any person or  class  of  persons  referred  to  in  section  12,  or

associated with the securities market; or

(b) to any company in respect of matters specified in section  11A,  as  may

be  appropriate  in  the  interests  of  investors  in  securities  and  the

securities market]

11C.  Investigation: (1) Where the Board has reasonable  ground  to  believe

that –

(a) the transactions  in  securities  are  being  dealt  with  in  a  manner

detrimental to the investors or the securities market; or

(b) any intermediary or any person associated  with  the  securities  market

has violated any of  the  provisions  of  this  Act  or  the  rules  or  the

regulations made or directions issued by the Board thereunder,

It may, at any time by order in writing, direct  any  person  (hereafter  in

this section referred to as the Investigating Authority)  specified  in  the

order to investigate the affairs of such intermediary or persons  associated

with the securities market and to report thereon to the Board.

12. Registration of Stock-brokers, sub-brokers, share transfer agents  etc.,

(1) No stock-broker, sub- broker, share transfer agent, banker to an  issue,

trustee of trust deed, registrar to an issue, merchant banker,  underwriter,

portfolio manager, investment adviser and such other  intermediary  who  may

be associated with securities market shall buy, sell or deal  in  securities

except under, and in accordance with, the conditions  of  a  certificate  of

registration obtained from the Board  in  accordance  with  the  regulations

made under this Act:

Provided that a person buying or selling  securities  or  otherwise  dealing

with the securities market as a stock- broker,  sub-broker,  share  transfer

agent, banker to an issue, trustee of trust deed,  registrar  to  an  issue,

merchant banker, underwriter,  portfolio  manager,  investment  adviser  and

such other  intermediary  who  may  be  associated  with  securities  market

immediately before the establishment of the Board for which no  registration

certificate was necessary prior to such establishment, may  continue  to  do

so for a period of three months from such establishment or, if he  has  made

an application for  such  registration  within  the  said  period  of  three

months, till the disposal of such application.

Provider further that any certificate of registration, obtained  immediately

before the commencement of the Securities Laws (Amendment) Act, 1995,  shall

be deemed to have been obtained  from  the  Board  in  accordance  with  the

regulations providing for such registration.

(1A)  No  depository,  participant,   custodian   of   securities,   foreign

institutional investor, credit  rating  agency  or  any  other  intermediary

associated with the securities market as the Board may  by  notification  in

this behalf specify, shall buy or sell or deal in  securities  except  under

and in accordance with the  conditions  of  a  certificate  of  registration

obtained from the Board in accordance with the regulations made  under  this

Act:

Provided that a person buying or selling  securities  or  otherwise  dealing

with the securities market as  a  depository,  [participant,]  custodian  of

securities,  foreign  institutional  investor  or   credit   rating   agency

immediately before the commencement of the Securities Laws (Amendment)  Act,

1995, for which no certificate of registration was required  prior  to  such

commencement, may continue to buy or sell securities or otherwise deal  with

the securities market until such time regulations are made under clause  (d)

of sub-section (2) of section 30.

12A. Prohibition of manipulative and deceptive devices, insider trading  and

substantial acquisition of securities or control. No person  shall  directly

or indirectly –

(a) use or employ, in connection with the issue, purchase  or  sale  of  any

securities listed or proposed to be listed on a recognised  stock  exchange,

any manipulative or deceptive device or contrivance in contravention of  the

provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice  to  defraud  in  connection  with

issue or dealing in securities which are listed or proposed to be listed  on

a recognised stock exchange;

 (c) engage in any act, practice,  course  of  business  which  operates  or

would operate as fraud or deceit upon any person,  in  connection  with  the

issue, dealing in securities which are listed or proposed to be listed on  a

recognised stock exchange, in contravention of the provisions  of  this  Act

or the rules or the regulations made thereunder”

In this respect it will be necessary to refer to some of the regulations  of

2003  Regulations.  We  are  concerned  with  Regulation  2(1)(b)   &   (c),

Regulation 3(a)(b)(c)(d), Regulation 4(1) and (2) (a), (b),  (c),  (d),  (e)

(f), (k) and (r) and Regulation 5(a)(b).  The said provisions are as under:

“Regulation 2. (1)  In  these  regulations,  unless  the  context  otherwise

requires,—

(b)  “dealing  in  securities”  includes  an  act  of  buying,  selling   or

subscribing pursuant to any issue of any security or agreeing to  buy,  sell

or subscribe to any issue of any security or otherwise  transacting  in  any

way in any security by  any  person  as  principal,  agent  or  intermediary

referred to in section 12 of the Act.

(c) “fraud” includes any act, expression, omission or concealment  committed

whether in a deceitful manner or not by a person  or  by  any  other  person

with his connivance or by his agent while dealing in securities in order  to

induce another person or his agent to deal in  securities,  whether  or  not

there is any wrongful  gain  or  avoidance  of  any  loss,  and  shall  also

include—

(1) a knowing misrepresentation of the  truth  or  concealment  of  material

fact in order that another person may act to his detriment;

(2) a suggestion as to a fact which is not true by one who does not  believe

it to be true;

(3) an active concealment of a fact by a person having knowledge  or  belief

of the fact;

(4) a promise made without any intention of performing it;

(5) a representation made in a reckless and careless manner  whether  it  be

true or false;

(6) any such act or omission as any other law specifically  declares  to  be

fraudulent,

(7) deceptive behaviour by a person depriving another  of  informed  consent

or full participation,

(8) a false statement made without reasonable ground for believing it to  be

true.

(9) the act of an  issuer  of  securities  giving  out  misinformation  that

affects the market price of  the  security,  resulting  in  investors  being

effectively misled even though they did not rely on the statement itself  or

anything derived from it other than the market price.

And “fraudulent” shall be construed accordingly; Nothing contained  in  this

clause shall apply to any general comments made in good faith in regard  to—

(a) the economic policy of the government

(b) the economic situation of the country

(c) trends in the securities market;

(d) any other matter of a like nature whether  such  comments  are  made  in

public or in private;

Regulation 3. Prohibition of certain dealings in securities No person  shall

directly or indirectly—

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in  connection  with  issue,  purchase  or  sale  of  any

security listed or proposed to be listed in  a  recognized  stock  exchange,

any manipulative or deceptive device or contrivance in contravention of  the

provisions of the Act or the rules or the regulations made thereunder;

(c) employ any device, scheme or artifice  to  defraud  in  connection  with

dealing in or issue of securities which are listed or proposed to be  listed

on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or  would

operate as fraud or deceit upon any person in connection  with  any  dealing

in or issue of securities which are listed or proposed to  be  listed  on  a

recognized stock exchange in contravention of the provisions of the  Act  or

the rules and the regulations made thereunder.

Regulation 4. Prohibition  of  manipulative,  fraudulent  and  unfair  trade

practices

(1) Without prejudice to the provisions of regulation  3,  no  person  shall

indulge in a fraudulent or an unfair trade practice in securities.

(2) Dealing in securities shall be deemed to be a fraudulent  or  an  unfair

trade practice if it involves fraud and  may  include  all  or  any  of  the

following, namely :—

(a) indulging in an act which creates  false  or  misleading  appearance  of

trading in the securities market;

(b) dealing in a security not intended  to  effect  transfer  of  beneficial

ownership but intended to operate only as a device to  inflate,  depress  or

Page 4 of 11 cause fluctuations in the price of such security  for  wrongful

gain or avoidance of loss;

(c) advancing or agreeing  to  advance  any  money  to  any  person  thereby

inducing any other person to offer to buy any security  in  any  issue  only

with the intention of securing the minimum subscription to such issue;

(d) paying, offering or agreeing to pay or offer,  directly  or  indirectly,

to any person any money or  money’s  worth  for  inducing  such  person  for

dealing  in  any  security  with  the  object  of   inflating,   depressing,

maintaining or causing fluctuation in the price of such security;

(e) any act or  omission  amounting  to  manipulation  of  the  price  of  a

security;

(f) publishing or causing to publish or reporting or causing to report by  a

person dealing in securities any information which is not true or  which  he

does not believe to be true  prior  to  or  in  the  course  of  dealing  in

securities;

 (k) an advertisement that is misleading or that contains information  in  a

distorted manner and which may influence the decision of the investors;

 (r) planting false or misleading news which may induce sale or purchase  of

securities.

Regulation 5. Where the Board, the Chairman, the  member  or  the  Executive

Director (hereinafter referred to as “appointing authority”) has  reasonable

ground to believe that—

(a) the transactions  in  securities  are  being  dealt  with  in  a  manner

detrimental to the investors or the securities market in violation of  these

regulations;

(b) any intermediary or any person associated  with  the  securities  market

has violated any  of  the  provisions  of  the  Act  or  the  rules  or  the

regulations, it may, at any time by order in  writing,  direct  any  officer

not below the rank  of  Division  Chief  (hereinafter  referred  to  as  the

“Investigating  Authority”)  specified  in  the  order  to  investigate  the

affairs of such intermediary  or  persons  associated  with  the  securities

market or any other person and to report thereon to the Board in the  manner

provided in section 11C of the Act.”

On a reading of the above statutory provisions, we find under Section  11(1)

of the SEBI Act, 1992, a duty has been cast  on  the  SEBI  to  protect  the

interest of investors in securities and also to promote the  development  of

the securities market as well as for regulating  the  same  by  taking  such

measures as it  thinks  fit.   The  paramount  purpose  has  been  shown  as

protection of interest of investors on the one hand and also  simultaneously

for promoting the development as well as orderly regulation of the  security

market.  By  way  of  elaboration  under  Section  11(2)(a)  to  (e)  it  is

stipulated that the duty of SEBI would include regulating  the  business  in

the stock exchanges and any other securities market which would include  the

working of stock brokers, share transfer agents and similarly  placed  other

functionaries associated with securities market in any  manner,  registering

and regulating the working of the depositories, participants  of  securities

including foreign institutional  investors  in  particular  to  ensure  that

fraudulent and unfair trade practices relating  to  securities  markets  are

prohibited and also prohibiting insider trading in securities.

Under Section 11(4)(a) and (b) apart  from  and  without  prejudice  to  the

provisions contained in sub-section  (1),  (2)  (2A)  and  (3)  as  well  as

Section 11B, SEBI can by an order, for reasons to be  recorded  in  writing,

in the interest of investors of securities market either by way  of  interim

measure or by way of a final order after an enquiry, suspend the trading  of

any security  in  any  recognized  stock  exchange,  restrain  persons  from

accessing the securities market and prohibiting any person  associated  with

securities market to buy, sell or deal in securities.  On a careful  reading

of Section 11(4)(b), we find that the power invested with SEBI  for  passing

such orders of restraint, the  same  can  even  be  exercised  against  “any

person”.  Under Section 11B, SEBI has  been  invested  with  powers  in  the

interest of investors or orderly development of the securities market or  to

prevent the affairs of any intermediary or  other  persons  referred  to  in

Section 11 in themselves conducting in a manner detrimental to the  interest

of investors of securities market and also to secure  proper  management  of

any such intermediary or person.  It can issue directions to any  person  or

class of persons referred to in Section 11  or  associated  with  securities

market or to any company in respect of matters specified in Section  11B  in

the interest of investors in the securities and the securities market.   The

paramount duty cast upon the Board, as  stated  earlier,  is  protection  of

interests of investors in securities and securities market.  In exercise  of

its powers, it can pass orders of restraint to carry out  the  said  purpose

by restraining any person.  Section 12A of the  SEBI  Act,  1992  creates  a

clear prohibition of manipulating and  deceptive  devices,  insider  trading

and acquisition of securities.  Section 12A(a), (b) and  (c)  are  relevant,

wherein, it is stipulated that  no  person  should  directly  or  indirectly

indulge in such  manipulative  and  deceptive  devices  either  directly  or

indirectly  in  connection  with  the  issue,  purchase  or  sale   of   any

securities,  listed  or  proposed  to  be  listed  wherein  manipulative  or

deceptive device or contravention of the Act, Rules or Regulations are  made

or employ any device or scheme or artifice to  defraud  in  connection  with

any issue or dealing in securities or engage in any act, practice or  course

of business which would  operate  as  fraud  or  deceit  on  any  person  in

connection with any issue dealing with security which  are  prohibited.   By

virtue of such clear cut prohibition set out in Section 12A of the  Act,  in

exercise of powers under Section 11 referred to above, as  well  as  11B  of

the SEBI Act, it must be stated that the Board is fully  empowered  to  pass

appropriate orders to protect the interest of investors  in  securities  and

securities market and such orders can be passed by means of interim  measure

or final order as against all those  specified  in  the  above  referred  to

provisions, as well as against any  person.  The  purport  of  the  statuary

provision is protection of interests of  investors  in  securities  and  the

securities market.

Along with the  Section  12A,  when  we  read  Regulation  2(1)(c)  of  2003

Regulations, the act of fraud has been elaborately defined  to  include  any

kind of activity which would work against the interest of the  investors  in

securities.  Further, such interest of investors can be  better  ascertained

by making reference to Section 2(h)(iii) of the SCR Act, 1956 which  defines

the ‘security’ to mean the right or interest  in  securities.  A  conspectus

reference to Section 12A(a) (b) and (c) read along with  Regulation  2(1)(b)

and (c), as well as Section 2(h)(iii) of  the  SCR  Act,  1956  sufficiently

disclose  that  it  would  cover  any  act  which  will  have  relevance  in

protecting the interest of the investors in securities and  security  market

with  any  person  however  remotely  the  same  are  connected  with   such

securities, in the event of such an act  working  against  the  interest  of

investors in securities and securities market by  way  of  fraud  which  has

been elaborately defined under Regulation 2(i)(c) of 2003 Regulations.

Having thus noted the statutory prescription relating  to  the  issuance  of

GDR based on the underlying shares of the issuing  company,  the  manner  in

which such GDRs were being traded in the global market with the support  and

assistance of Lead Manager, the scope of  construing  GDRs  as  ‘securities’

falling under the definition of ‘securities’ as defined under  Section  2(h)

of the SCR Act, 1956 requires to be noted.  The extent of duties and  powers

vested with SEBI, namely, the protection of the  interest  of  investors  in

securities and securities market and also the prohibitive measures  as  well

as penal action that can be taken by  SEBI  whenever  it  comes  across  any

fraud committed by any person relating to the interest of the  investors  in

securities and securities market are very wide.  When we examine the  nature

of acts alleged against  the  respondents,  the  following  instances  which

according to SEBI empowers it to exercise jurisdiction over the  respondents

under SEBI Act, 1992 can be listed viz.,

Loan or Pledge agreement between Euram, Vintage and  Asahi  were  structured

by respondents and were keys to  fraudulent  issuance  and  subscription  of

GDRs.

Loan agreement was dated 21/22-4-2009 between Euram and Vintage, while  GDRs

were issued eight days later i.e. on 29.04.2009.

The second respondent signed the loan agreement as the Managing Director  of

Vintage.

Euram sanctioned a loan of 59,82,000 USD to purchase GDRs of Asahi.

Account No.540030 in Euram was Asahi’s account for depositing  the  proceeds

of GDRs.

Clause 6.1 of loan agreement referred to  the  said  account  as  Borrower’s

account i.e., Vintage.

That very account was again pledged to support the borrowings of Vintage.

Pledge agreement dated 21.04.2009 was  signed  by  Mr.M.Laxminarayan  Rathi,

Managing Director of Asahi on 28.04.2009.

Family members of Mr.Rathi are the promoters of Asahi.

Mr.Rathi did not inform BSE or the company or  the  shareholders  about  the

signing of the pledge agreement.

As pledgor, Asahi agreed to the terms of the loan  agreement  between  Euram

and Vintage.

Pledgor  agreed  to  pledge  its  assets  as  collateral  security  for  due

repayment of the loan of 59,82,000 USD. Clause 6.1, 6.2 and  6.3  gave  full

right to Euram to realise its loan by realising the pledged securities.

According to SEBI, the original investors of GDRs of  Asahi  were  Greenwich

and Tradetec whose addresses were found to be fake and non-existent.

On 01.06.2009 Asahi informed BSE about allotment and creation of GDR  shares

to Greenwich and Tradetec.

In turn BSE published the information to retail investors.

That in reality the entire GDRs were invested by Vintage.

On 15/16-07-2009, BSE authorised the trading of  29,91,000  GDRs  in  Indian

market.

Vintage by virtue of the entire holding of GDRs  became  88.94%  shareholder

of Asahi.

Vintage transferred the GDRs to IFCF and KII for  which  Vintage  granted  a

loan of 20,00,000 USD to CREDO, associate company  of  KII  for  lending  to

KII.  It enabled KII to  sell  the  underlying  shares  of  GDRs  in  Indian

market.

Agreement  between  Vintage  and  CREDO  was  also  signed  by  the   second

respondent on behalf of Vintage.

GDRs of CREDO  received  by  IFCF  and  KII  were  cancelled  and  then  the

underlying shares were sold in Indian market.

Most of the documents submitted by Asahi to SEBI were inconsistent with  the

statements available in public domain.

There was transfer of funds by Asahi to its subsidiary Asahi FZE,  Dubai  to

the extent of 26,73,000 USD by selling the GDRs.

Asahi failed to furnish vital information about Asahi FZE.

All the above factors led SEBI to greatly suspect that part of the  proceeds

of  GDR  issued  were  routed  back  to  the  entities  belonging   to   the

respondents.

Annexure B to the first respondent’s reply dated 29.05.2013 to  SEBI,  which

is a statement disclosing that the loan availed by  Vintage  from  Euram  in

April 2009 and the time taken to repay the loan  i.e.  till  December,  2009

during which period the pledge agreement between Asahi and Euram in  support

of the loan submitted and thereby Asahi’s right as issuing company  of  GDRs

was locked up.

Indian  investors  upon  buying  shares  converted  from  GDRs,  unknowingly

assisted the issuer company to realise the GDR  subscription  proceeds  from

encumbrance / pledge.

Instead of capital being raised from foreign investors through  issuance  of

GDRs, the Indian investors unknowingly paid for part of GDRs after the  said

GDRs were converted into underlying shares which were  sold  in  the  Indian

securities market to the investors.

The highest and lowest price of Asahi for the period of  three  months  from

January, 29, 2009 to April, 29, 2009 was Rs.0.89 and  Rs.0.53  respectively.

Subsequent to the issuance of GDR, the price paid for each share  underlying

GDRs was Rs.1.04 which was 140.54% of the price of the script  on  the  same

day.

The information provided by Asahi to BSE about the  allotment  of  29,91,000

GDRs to foreign (fake) entities, namely  Greenwich  and  Tradetec  was  made

public to retail investors on BSE website  which  misled  the  investors  in

believing that the  GDRs  were  subscribed  by  genuine  foreign  investors,

whereas in reality, GDRs were  subscribed  by  Vintage  in  connivance  with

Asahi and the proceeds simultaneously pledged in Euram.”

In the light of the above features noted and alleged by SEBI as against  the

respondents, relating to GDRs issued  by  the  six  entities  for  whom  the

respondents acted as Lead Manager, with particular reference to  the  extent

of the involvement of the respondents even while acting  as  Lead  Managers,

while facilitating the issuing companies in the fixation  of  price  of  the

GDRs and its trading in the global market, according to SEBI, by  virtue  of

such fraudulent nature of involvement of  the  respondents  along  with  the

issuing company, SEBI is entitled to invoke its jurisdiction  under  Section

11, 11B, 11C, 12 and 12A of the SEBI Act, 1992  read  along  with  its  2003

Regulations and consequently its order dated 20th June  2013  debarring  the

respondents from rendering  services  in  connection  with  the  instruments

which are defined as ‘securities’ under Section 2(h) of the  SCR  Act,  1956

in the Indian market or dealing with them either directly or indirectly  for

a period of ten years from the date of its orders and also prohibiting  them

from getting access to the capital market directly  or  indirectly  for  the

said period of ten years was justified.  It was, therefore,  contended  that

the majority view  of  the  impugned  order  in  holding  that  SEBI  lacked

jurisdiction to proceed against the respondents is liable to be set aside.

On the other hand according to the respondents, since cradle to  grave  GDRs

are dealt with  outside  the  country  in  the  global  market,  SEBI  lacks

jurisdiction in proceeding against the respondents.  When  we  consider  the

above respective submissions,  we  are  convinced  that  the  stand  of  the

appellant that having regard to the statutory prescription  under  the  SEBI

Act, 1992, SCR Act, 1956, 2000 Regulations, 1993  Scheme  as  well  as  2003

Regulations  is  well  justified.  Having  regard  to  the  nature  of   the

allegations against  the  respondents,  it  possess  every  jurisdiction  to

proceed against the respondents. At the risk of repetition we wish  to  make

it very clear that whatever factual matters we have noted, as well as  those

allegations levelled against the respondents by SEBI we have  not  expressed

any opinion  as  to  the  correctness  or  otherwise  of  those  factors  or

allegations.  Those factors and allegations have been  taken  note  of  only

for the purpose of deciding the question as to the jurisdiction  claimed  by

SEBI for proceeding against the respondents.  In fact, by the majority  view

of the impugned  order,  the  order  dated  20.06.2013  of  SEBI  in  having

debarred the respondents for a period of ten years came to be set  aside  on

the sole ground that SEBI lacked jurisdiction.  The Tribunal  has  not  gone

into the  merits  of  the  allegations  levelled  against  the  respondents.

Therefore, in the event of the impugned order being set  aside  and  thereby

providing scope for the Tribunal to consider the correctness  of  the  order

dated 20.06.2013 of SEBI on merits, it will be open for the  respondents  to

take the stand as Lead Managers that they have not committed anything  wrong

in order to justify the appellant to pass its order dated 20.06.2013.

When we consider the  stand  of  the  respondents,  by  the  learned  senior

counsel Mr. Shyam Divan his contention  was  two  fold.   According  to  the

learned senior counsel, GDRs are created by the Overseas Depository Bank  in

the stock market outside the country  and,  therefore,  dealing  with  those

GDRs and its trading  by  the  Lead  Manager  while  assisting  the  issuing

company are governed  by  the  statutory  prescriptions  prevailing  in  the

respective trading points in the foreign countries and, therefore, SEBI  has

no power to deal with the same  as  its  jurisdiction  was  limited  to  the

securities which are being dealt with within the Indian  territory  and  not

outside.  It was then contended that as Lead Managers the  respondents  only

facilitate the issuing company of India for creation,  pricing  and  trading

of their GDRs in the foreign market and so long as such trading of the  GDRs

by the respondents as Lead Managers work within the  framework  of  the  law

applicable in the  respective  foreign  countries,  SEBI  has  no  power  to

proceed against the respondents and  pass  the  order  of  debarment.    The

contention is that as Lead Managers, the respondents have never  dealt  with

the securities issued by the Indian company within the  territory  of  India

and therefore neither the provision of SCR Act, 1956 and the SEBI Act,  1992

nor any of the regulations or the scheme provisions of  1993  can  have  any

application as against the respondents. The further submission  is  that  if

at all any violation complained of as against the issuing company  can  only

be relating to the provisions of FEMA which has recognized the  1993  Scheme

and therefore that cannot  give  scope  for  SEBI  to  proceed  against  the

respondents who acted as Lead Managers for the issuing companies.

When we examine the said submissions of the learned senior counsel  for  the

respondents, we find that the said submissions raised the  following  issues

viz.,  that  issuance  of  GDRs  requires  as  many  as  14  steps  such  as

authorization  by  the  Board  of  Directors,  Notification  to  the   Stock

Exchange, Issuer share holders approval, appointment of a Lead  Manager  and

other intermediaries viz., the custodian who physically hold the  shares  of

the issuer on behalf of the depository and the overseas  bankers,  receiving

all information,  certification  for  due  diligence  and  other  documents,

commencement and completion of due diligence for GDR issue, opening of  bank

account outside India, appointment of  intermediaries,  offer  document  and

prospectus, decision to open the  issue  and  price  fixation,  opening  and

closing of the issue, allotment of  underlying  equity  shares,  listing  of

GDRs with foreign stock exchanges and application to Indian stock  exchanges

for listing of underling  equity  shares.   While  referring  to  the  above

steps, it was fairly  submitted  by  the  learned  senior  counsel  for  the

respondents that the role of the respondents as Lead Manager ends  with  the

13th step viz., listing of GDRs with foreign stock exchange and that  it  is

not concerned with the application to Indian stock exchanges for listing  of

underlying equity shares.  By stating so, it was contended  that  when  such

steps are taken  for  the  ultimate  listing  of  GDRs  with  foreign  stock

exchanges as Lead Manager the key  role  played  is  on  the  price  fixing,

opening of the issue and enabling the issuing company to market the GDRs  at

the global level, there is no scope to hold that SEBI  can  proceed  against

the respondents on the ground of any misfeasance or malfeasance in  issuance

of GDRs, having regard to the territorial  jurisdiction  within  which  SEBI

can operate.  Though technically  such  a  submission  made  on  behalf  the

respondents appears to be forceful, we are not able to  countenance  such  a

submission on a detailed consideration of  the  various  provisions  of  the

SEBI Act, 1992 read along with the definition of ‘securities’ under  Section

2(h) of the SCR Act, 1956 in the manner in which GDRs are to be  dealt  with

under the 2000 Regulations read along with the 1993 Scheme provisions.

The definition of ‘securities’ under Section 2(h) in  particular  sub-clause

(iii) of Section 2(h)(a) of SCR Act, 1956 makes it  clear  that  rights  and

interests in securities are also to be construed as  securities  as  defined

in Section 2(h). Therefore even if GDR as such is not specifically  referred

to under the definition of ‘securities’ under Section 2(h) by virtue of sub-

clause (iii) of the said section, any  rights  or  interests  in  securities

would also fall  within  the  definition  of  securities.   Viewed  in  that

respect, every issue of GDR  is  based  on  the  underlying  shares  of  the

issuing company deposited with the Domestic  Custodian  Bank  which  clearly

falls under the  definition  of  securities  of  Section  2(h),  the  Global

Deposit Receipts which create rights and interests in those securities,  the

Global Deposit  Receipts  would  automatically  fall  and  come  within  the

definition of Section 2(h) viz., ‘securities’.  Once  when  the  said  legal

position is insurmountable,  any  argument  based  on  the  said  submission

should be rejected.

Therefore when GDRs create rights and interests in the securities viz.,  the

underlying shares deposited with  the  Domestic  Custodian  Bank,  the  next

question to be examined is as to how far any alleged  misdeeds  involved  in

the creation of GDR and its dealing by the issuing company with the  support

of the Lead Manager can be  dealt  with  by  SEBI.   It  is  true  that  the

creation of GDR and its trading in the global market  are  governed  by  the

respective laws of the country in  which  they  are  dealt  with.   But  one

special feature to be borne in mind  is  that  in  the  case  on  hand,  the

allegations levelled against the issuing  company  in  connivance  with  the

respondents are that a make believe affair was created, as though there  was

genuine creation of GDRs and its investments by  the  foreign  investors  on

the very date when the GDRs were issued and thereby the  global  performance

of the issuing company in the local market of  the  issuing  company  had  a

boost in the commercial sector, which lured the local investors  to  develop

their keen interest to make the investments  on  a  higher  share  value  by

virtue of the investment made by the foreign investors and in  that  process

it is alleged that the issuing company itself provided every scope  for  the

foreign investments to be financed and in reality  the  ultimate  investment

was made by Indian investors viz., the ordinary  share  holders.   The  said

fact would certainly call for a probe at the hands of SEBI on  whom  a  duty

is cast under  Section  11(1)  to  protect  the  interest  of  investors  in

securities and the security market.  In this context, it will  be  necessary

to make specific reference to the relevant provisions  of  SEBI  Act,  1992,

2003 Regulations and 1993 Scheme. Under Section  11(2)(b)  while  regulating

working of stock brokers, etc., it is also provided that SEBI  can  regulate

“such other intermediaries who may be associated with  security  markets  in

any manner”. The  said  set  of  expressions  would  cover  anyone  who  are

directly or indirectly or in a subterfuge manner dealt with  the  securities

to deceive the real investors in  Indian  stock  market.   Section  11(2)(e)

also empowers SEBI to intervene to  prohibit  fraudulent  and  unfair  trade

practices  relating  to  securities  markets.   Section  11(2)(g)  prohibits

insider trading in securities.   If  the  allegation  that  the  respondents

facilitated issuing company (viz,) Asahi aided the foreign investor  company

to invest in its GDRs by supporting the loan  it  borrowed  from  Euram  and

thereby the said allegation can be brought within  the  expression  ‘insider

trading’ that would also empower  SEBI  to  intervene.   Under  Section  11B

while empowering SEBI to issue directions in the interest of  investors,  it

is provided that such directions can be  against  any  person  or  class  of

persons associated with securities  market.   Under  Section  11C(b)  it  is

provided that where SEBI has reasonable ground to believe  that  any  person

associated with securities market violated any of the provisions of the  Act

or  Rules  or  Regulations  or  directions  issued,  it  can  order  for  an

investigation and take  action.   Under  Section  12A,  it  is  specifically

provided  to  prohibit  any  manipulative  and  deceptive  devices,  insider

trading and substantial acquisition of securities or control by  ANY  PERSON

either directly or indirectly.  If SEBI’s allegation listed out  earlier  as

well as all the other allegations fall under Section 12A(a),  (b)  and  (c),

there will be no escape for the respondents from  satisfactorily  explaining

before the Tribunal as to how these allegations would not  result  in  fully

establishing the guilt as prescribed under sub-clause (a)(b)(c)  of  Section

12A. Similar will be  the  situation  for  answering  the  definition  under

Regulation  2(1)(b)(c),  (3),  (4)(1)(2)(a)(b)(c)(d)(e)(f)(k)(r)   of   2003

Regulations, apart from taking required penal action against those  who  are

involved in any fraud being played in the creation of securities.

Therefore, it is for the respondents as well as the Indian  issuing  company

to demonstrate that  any  of  the  allegations  made  by  the  appellant  in

relation to the so called fraud  or  fictitious  creation  of  GDRs  at  the

global level to mislead the local investors was totally  baseless  and  that

therefore no action was called for.  It will be appropriate  at  this  stage

to note that under the 2000 Regulations as well as the 1993 Scheme,  one  of

the main reasons for creating GDRs by the issuing company is  in  fulfilment

of its desire to gain foreign investments.  It is common knowledge  that  in

the commercial sector, companies which are in the field of manufacturing  or

any other  business  activity  are  able  to  gain  the  confidence  of  the

investors by virtue of  their  appreciable  performance  in  the  respective

manufacturing  or  other  business  activities  and  while  controlling  and

developing the growth in their respective field of business, aspire to  make

further excellence by drawing the attention of  foreign  investors  to  make

investments and thereby broad base their business venture also endeavour  to

sustain their development in  the  concerned  business  in  which  they  are

involved.  Any such initiative taken by any entrepreneur  would  develop  an

appreciable trend in the share market which would draw the attention of  the

local investors to stake their claim in such well  established,  well  grown

business  ventures  with  a  view  to  earn  better  profits   on   whatever

investments they wish to make.  Therefore, if there is going to be  a  false

pretext or misleading information circulated with a view to  lure  both  the

foreign investors as well as Indian investors and in that process  the  very

purpose of creation and trading in GDRs are found to be  not  true  or  bona

fide, it cannot be said that simply because creation of such  GDRs  and  its

trading is in global market, SEBI should keep its mouth shut on  the  ground

that it cannot extend its long statutory  arm  beyond  Indian  territory  to

control any such misdeeds deliberately committed with a view to defraud  the

Indian investors and thereby their interest in the investment of  securities

and its protection is at great stake.

We are therefore convinced that having regard to the nature  of  allegations

in the interests of  investors  in  securities  as  well  as  the  statutory

obligation/duty cast upon SEBI to protect  their  interests,  SEBI  has  got

every jurisdiction to  proceed  against  the  respondents  as  well  as  the

issuing company.  The contention made on behalf of the respondents that  the

only authority which can proceed against the issuing  company  can  be  only

for violation of the FEMA Act or the RBI Act is therefore not  appealing  to

us.  It may be  that  the  1993  Scheme  was  acknowledged  under  the  2000

Regulations, but on that score it cannot be held that  the  said  Scheme  or

Regulations will have no application when it comes to the  question  of  any

action being initiated under the provisions of SEBI  Act,  1992  read  along

with SCR Act, 1956.  There is no statutory prohibition either under FEMA  or

RBI Act preventing SEBI from taking action in exercise of its  powers  under

Section 11, 11B and 12A of the SEBI Act,  1992.  That  apart  under  Section

11(3) it is provided that SEBI can exercise  its  powers  under  sub-section

2(i) or (ia) or sub-section 2A notwithstanding  anything  contained  in  any

other law for the time being in force, meaning thereby, the action that  can

be taken for any of the violation under FEMA or RBI Act,  SEBI  can  validly

exercise its powers under SEBI Act, 1992.  Even under  the  1993  Scheme  as

well as the 2000 Regulations,  there  are  provisions  which  make  specific

reference to the role of SEBI in dealing with the securities.  Therefore  it

is too late in the day for the respondents to contend that action  can  only

be taken for any violation  under  the  FEMA  and  there  is  no  scope  for

invoking the provision of SEBI Act, 1992.  The said submission therefore  is

also liable to be rejected.

In support of the contention  based  on  applicable  jurisdiction  of  SEBI,

reliance was placed upon the opinion  rendered  by  a  law  firm  of  United

Kingdom, dated 25.07.2013.  In the first place, the Courts in  India  cannot

even be persuaded to rely upon any such opinion as opinion may  differ  from

person to person depending upon the law which one may feel validly  applies.

 In any event, the opinion rendered in the said document  only  pertains  to

the transactions contemplated by the documents placed before the  said  firm

which related to the loan  agreement  and  other  connected  documents.  The

opinion was that the documents  and  the  performance  of  the  transactions

contemplated by the said documents were in accordance  with  the  applicable

Austrian laws and do not constitute any violation of any law or  regulations

of general application in Austria.  There can be no conflict with  the  said

opinion if in the consideration of the said law firm, the documents were  in

conformity  with  the  laws  of  Austria  within  whose  jurisdiction,   the

documents came to be executed and to be operated upon.  In fact  the  action

of SEBI initiated against the respondents are not on the  footing  that  any

of the documents are contrary to the laws  of  Austria.  The  initiation  of

proceedings by SEBI as against the respondents are entirely on  a  different

footing which was solely based on the alleged violation of the  Indian  laws

vis., the SEBI Act read along with the SCR Act, 1956 the provisions of  2000

Regulations and the 1993 Scheme as well as 2003  Regulations.   In  fact  in

that opinion itself it is stated that the said opinion was not to  be  taken

to imply that any provision of the document would necessarily be capable  of

enforcement or be enforced in  all  circumstances  in  accordance  with  its

terms and that it should be understood that the  law  firm  which  gave  the

opinion should be understood to have not been responsible for  investigating

or confirming the accuracy of the facts including statements of foreign  law

or the reasonableness of any statements or opinion contained in any  of  the

documents. Therefore, the said document is of no use to  support  the  stand

of the respondents.

As far as the opinion rendered by solicitors firm called  Singhania  and  Co

having its office at London, dated  17.07.2013,  it  only  states  that  the

second respondent was the sole shareholder of Pan Asia which  is  now  known

as M/s. Global Finance Capital Limited.  It only stated that in its  opinion

from the aspect of laws applicable and enforceable in UK, the documents  and

transactions pertaining to those documents relating to the respondents  were

in the normal course of business under the applicable laws in  UK  and  they

do not, in any manner, constitute any violation of any  applicable  laws  of

UK.  It  is  stated  that  the  documents  and  transactions  were  standard

documents and transactions commonly executed by entities as part of mode  of

the lawful business activities. Here again we do not find  any  need  to  be

guided by such an opinion of a law firm which only refer  to  the  documents

placed before it, which according to the said firm  is  in  conformity  with

the laws of UK.  Our notice was  also  drawn  to  the  2014  Scheme  and  in

particular paragraph 10  of  the  said  scheme  under  the  caption  “market

abuse”.  The said clause reads as under:

“10. Market Abuse

(1) It is clarified that any  use,  intended  or  otherwise,  of  depository

receipts or market of depository receipts in a manner, which  has  potential

to cause or has caused abuse of the securities market in  India,  is  market

abuse and shall be dealt with accordingly.”

It is clarified that any use, intended or otherwise, of depository  receipts

or market of depository receipt in a manner, which has  potential  to  cause

or has caused abuse of securities market in India,  is  “market  abuse”  and

shall be dealt with accordingly.  According to Clause 10(2) for the  purpose

of this paragraph,  “market  abuse”  means  any  activity  prohibited  under

Chapter V-A of the SEBI Act, 1992. Under paragraph 11 of  the  2014  Scheme,

the 1993 Scheme stood repealed except to  the  extent  relating  to  foreign

currency convertible bonds and sub-para (2) of Section 11  contains  a  non-

obstante clause that notwithstanding  such  repeal,  anything  done  or  any

action taken under the 1993 Scheme shall be deemed  to  have  been  done  or

taken under the  corresponding  provision  of  the  present  scheme.   Under

Schedule-I, the permissible jurisdiction have been  listed  out  as  on  the

date of the notification in  which  Austria  is  also  included  apart  from

United Kingdom and United States. The  2014  Scheme  having  thus  explained

what is “market abuse”, it must be stated that now  after  the  2014  Scheme

any act done under the 1993 Scheme has also been validated.  The  definition

of “market abuse” would squarely cover the allegation presently made by  the

appellant as against the respondents.  Simply  because  “market  abuse”  has

been now codified under the 2014 Scheme, it cannot be held that there is  no

scope for proceeding against any person for indulgence  in  such  a  “market

abuse” prior to the introduction of  the  2014  Scheme.  As  the  nature  of

allegation which has now been explained under the caption “market abuse”  in

the 2014 Scheme and having regard to the  violation  complained  of  by  the

appellant as against  the  respondents  with  particular  reference  to  the

substantive provision of the SEBI Act, 1992 and SCR Act,  1956,  read  along

with the 2000 Regulations and the 1993 Scheme, the power  of  the  appellant

to proceed against the respondents  based  on  such  allegations  cannot  be

deprived.

To support the contention that the  SEBI  Act,  1992  operates  only  within

Indian territory, reference was made to the provisions  contained  in  other

Acts viz., IPC, FERA, FEMA, Companies Act, the  Information  Technology  Act

and the Income Tax Act.  In the first place, the  said  reliance  placed  on

the  provisions  of  those  enactments  providing  for   extra   territorial

jurisdiction can have no impact on the action initiated  by  the  appellant,

for the simple reason that the violation complained of by the  appellant  is

with reference to such of those provisions contained in SEBI Act, 1992  vis-

à-vis the underlying shares of GDRs.  Therefore, we are unable  to  see  any

violation of exercise of its jurisdiction since  the  underlying  shares  of

GDR were created and dealt with as well as traded in  the  stock  market  of

Indian Territory. Any act which caused any infringement in such  trading  of

those underlying shares by virtue  of  any  malfeasance  or  misfeasance  or

misdeeds committed by any person under the  Act  which  worked  against  the

interests of the investors in securities  and  the  securities  market,  the

SEBI was entitled to proceed against such persons who are  involved  in  any

of  those  allegations.  Therefore,  the  reference  to   those   provisions

contained in other enactments in our considered opinion does not  cause  any

impediment for SEBI to proceed against the respondents in  exercise  of  its

jurisdiction under the SEBI Act, 1992.

In this context, it is also necessary to refer to certain compliance  to  be

reported by the issuing company of GDR/ADR. As per paragraph  4(2)  and  (3)

of Schedule I of 2000 Regulations, the Indian  company  issuing  shares  for

the purpose of issuing GDRs should furnish to  the  Reserve  Bank  the  full

details of such issue in the prescribed form DR  within  30  days  from  the

date of closing of  the  issue.   Similarly  under  paragraph  4(3)  issuing

company against GDR should furnish a  quarterly  return  in  the  prescribed

form DR-Quarterly to RBI within  15  days  of  the  close  of  the  calendar

quarter.  When we refer to Form  DR  and  Form  DR-quarterly,  some  of  the

details which are to be furnished are name and  address  of  the  depository

abroad, name and address of the  Lead  Manager,  name  and  address  of  the

Indian custodians, details of the equity capital before issue  after  issue,

number of GDRs issued,  ratio  of  GDRs  vis-à-vis  the  underlying  shares,

whether funds are kept abroad, if yes, name and address of the bank,  amount

raised in USD, amount repatriated in USD, the  date  of  launching  of  GDR,

total number of GDRs, total interest earned till the  end  of  the  quarter,

the amount repatriated, number of  GDRs  still  outstanding,  company  share

price at the end of the quarter, the GDR  price  quoted  on  overseas  stock

exchange as at the end of the  quarter  and  in  the  quarterly  return,  it

should be certified by the authorized signatory  of  the  company  that  the

funds raised through GDRs/ADRs were not invested in  stock  market  or  real

estate.

A  perusal  of  the  above  details  which  are  required  to  be  furnished

statutorily, shows that in the event of any  wrong  statement  furnished  in

the above referred to forms, it provides scope for  proceeding  against  the

issuing company as well as any person connected with such violation  and  it

would certainly empower the authority viz., SEBI to  initiate  action  under

the SEBI Act, 1992 in order to protect the interests of Indian investors  in

securities and the security market.

For the purpose of ascertaining the role played by the respondents  as  Lead

Managers, it will be worthwhile to  refer  to  statement  contained  in  the

counter affidavit filed on  behalf  of  the  first  respondent,  wherein  in

paragraph E(ii) the functions of the first respondent  in  relation  to  any

GDR has been mentioned as under:

“The Functions of the first respondent in relation to any GDRs include:

conducting  due  diligence  in  collecting  and  evaluating   all   possible

information which may have a bearing on the issue for  the  purpose  of  the

listing of GDR issue  abroad  “outside  of  territory  and  jurisdiction  of

India”;

 assessing the market for the purpose of the issue and marketing the issue;

 obtaining confirmation of acceptance of subscription  acceptance  from  the

initial investors to the GDR issues;

  assisting  the  Issuer  Company  at  all   stages   from   preparing   the

documentation, making investor presentation, selection of  other  manager(s)

etc.,;

receipt of confirmation of subscription monies  received  in  the  requisite

company’s escrow account opened / maintained by the company with the  escrow

account holding bank;

 receipt of Depository’s  (Depository’s  Banks)  confirmation  of  issue  of

instructions  to  the  clearing  systems  of   the   GDR   subscribers   and

confirmation from the requisite foreign stock exchange  of  the  listing  of

the GDRs issue;

 ensuring that the Issuer Company complies with applicable non-Indian  legal

formalities in respect of the same.”

It is true that if in the discharge of its functions as Lead  Managers,  the

respondents had confined to their activities to any of  the  procedures  set

out in the said paragraph, it will be for  the  respondents  to  demonstrate

before the appellant and come out unscathed.  However, if  under  the  guise

of performing those functions as Lead Managers, if as  pointed  out  by  the

appellant, the  respondents  had  indulged  in  any  activities  which  were

contrary to the provisions of SEBI Act, 1992 read along with SCR Act,  1956,

which provided scope for proceeding against them for  having  acted  against

the interests of the Indian investors in securities and the security  market

or were involved in collusion with any alleged act of  the  issuing  company

in violation of the statutory prescriptions of  SEBI  Act,  1992,  SCR  Act,

1956, 2000 Regulations read along with 1993 Scheme, it is the  bounden  duty

of the respondents to demonstrate before the appellant and  now  before  the

Tribunal that no such involvement by the respondents is made  out  in  order

to proceed against them as  has  been  decided  and  orders  passed  by  the

appellant in its order dated 20.06.2013.

As far as the stand of the second  respondent  that  he  is  a  non-resident

Indian residing in Dubai till September, 2011 and was the Managing  Director

of the first respondent and that the first  respondent  is  a  distinct  and

separate legal entity from the second respondent  and  therefore  the  first

respondent cannot be made liable  or  responsible  for  the  action  of  the

second respondent, it must be stated that even as per the legal  opinion  of

M/s. Singhania and Co the Solicitors and Indian Advocates  based  at  London

who have stated apparently on the instructions  of  the  second  respondent,

that he was the sole shareholder of the  first  respondent  who  is  a  non-

resident Indian residing at Dubai.  Therefore, it is too  late  in  the  day

for the respondents in  attempting  to  get  themselves  excluded  from  the

alleged  violations  as  against  the  issuing  companies  along  with   the

respondents, which resulted in the passing of the order of  debarment  dated

20.06.2013.

For the very same reasons, the stand of the second  respondent  that  he  is

not an intermediary and his role in relation to GDR was limited to  advising

for the listing of GDRs etc., would not absolve the second  respondent  from

facing the action initiated by the appellant.

As far as the contention raised by the second respondent in paragraph  M,  N

etc., we do not wish to go into  the  said  stand  so  made  by  the  second

respondent, as it is for the second respondent  to  convince  the  appellant

and now before the Tribunal that he cannot be proceeded against for  any  of

the alleged violations.  Similarly, the stand of the respondents  by  making

reference to the core features of the GDR issues, to contend that there  was

no requirement to bring GDR proceeds  into  India  and  that  there  was  no

allegation that its funds were used for  prohibited  activities  i.e.  stock

exchange transaction or  real  estate  transaction  as  prescribed  in  1993

Scheme and that the subscription of the GDR issued in USD  become  available

to the issuing company were all matters the respondents can validly  explain

and substantiate the same before the Tribunal while challenging  the  merits

of the order passed by the appellant in the order dated 20.06.2013.

In support of his submissions Mr.C.U.Singh learned senior  counsel  for  the

appellant relied upon  the  Constitutional  Bench  decision  of  this  Court

reported GVK Industries Limited and  another  Vs.  Income  Tax  Officer  and

another - (2011) 4 SCC  36.   In  paragraph  6  of  the  said  judgment  two

questions were framed for consideration which are as under:

“6. Juxtaposing the two divergent views outlined above, we have  framed  the

following questions:

(1) Is  Parliament constitutionally  restricted  from  enacting  legislation

with respect to extra-territorial aspects or causes that do  not  have,  nor

expected to have any, direct or indirect, tangible or  intangible  impact(s)

on, or effect(s) in, or consequences for:

(a) the territory of India, or any part of India; or

(b) the interests of, welfare of, wellbeing of, or security  of  inhabitants

of India, and Indians?

(2) Does Parliament have the powers to legislate "for" any territory,  other

than the territory of India or any part of it?”

The said questions were ultimately answered in paragraph 124  to  127  which

are as under:

“124. We now turn to answering the two questions that we set out with:

(1) Is Parliament  constitutionally  restricted  from  enacting  legislation

with respect to extra-territorial aspects or causes that do  not  have,  nor

expected to have any, direct or indirect, tangible or  intangible  impact(s)

on or effect(s) in or consequences for:

(a) the territory of India, or any part of India; or

(b) the interests of, welfare of, wellbeing of, or security  of  inhabitants

of India, and Indians?

The answer to the above would be yes. However, the Parliament  may  exercise

its legislative powers with respect to extra-territorial aspects or  causes,

- events, things, phenomena (howsoever commonplace they may be),  resources,

actions or transactions, and the like -- that occur, arise or exist  or  may

be expected to do so, naturally or on account of some human agency,  in  the

social,  political,  economic,  cultural,   biological,   environmental   or

physical spheres outside the  territory  of  India,  and  seek  to  control,

modulate, mitigate  or  transform  the  effects  of  such  extra-territorial

aspects or causes, or in  appropriate  cases,  eliminate  or  engender  such

extra-territorial  aspects  or  causes,  only  when  such  extra-territorial

aspects or causes have, or are expected to have, some impact on,  or  effect

in, or consequences for: (a) the territory of India, or any part  of  India;

or  (b)  the  interests  of,  welfare  of,  wellbeing  of,  or  security  of

inhabitants of India, and Indians.

125. It is important for us to state  and  hold  here  that  the  powers  of

legislation of the Parliament with regard to all aspects or causes that  are

within the purview of its  competence,  including  with  respect  to  extra-

territorial aspects or causes as delineated above, and as specified  by  the

Constitution, or  implied  by  its  essential  role  in  the  constitutional

scheme, ought not to be subjected to some a-priori quantitative tests,  such

as "sufficiency" or "significance" or in any other manner requiring  a  pre-

determined degree of strength. All that would be required would be that  the

connection to India be real or expected to be  real,  and  not  illusory  or

fanciful.

126. Whether a particular law enacted by Parliament does show  such  a  real

connection, or  expected  real  connection,  between  the  extra-territorial

aspect or cause and something in India or related to India and  Indians,  in

terms of impact, effect or consequence, would be a  mixed  matter  of  facts

and of law. Obviously, where Parliament  itself  posits  a  degree  of  such

relationship, beyond the constitutional requirement that it be real and  not

fanciful, then the courts would have to enforce such a  requirement  in  the

operation of the law as a  matter  of  that  law  itself,  and  not  of  the

Constitution.

127. (2) Does Parliament have the powers to legislate "for"  any  territory,

other than the territory of India or any part of it?

The answer to the above would be  no.  It  is  obvious  that  Parliament  is

empowered to make laws with respect to aspects or causes that  occur,  arise

or exist, or may be expected to do so, within the territory  of  India,  and

also with respect to  extra-territorial  aspects  or  causes  that  have  an

impact on or nexus with India as explained above in the answer  to  Question

1 above. Such laws would fall within the meaning, purport and ambit  of  the

grant of powers to Parliament to make laws "for the whole  or  any  part  of

the territory of India", and they may not be invalidated on the ground  that

they  may  require  extra-territorial  operation.  Any   laws   enacted   by

Parliament with respect to extra- territorial aspects or  causes  that  have

no impact on or nexus with  India  would  be  ultra-vires,  as  answered  in

response to Question 1 above,  and  would  be  laws  made  "for"  a  foreign

territory.”

                                                            (Emphasis added)

A reading of the above judgment  makes  it  clear  that  a  law  enacted  by

Parliament if shows that for proceeding against in  exercise  of  any  extra

territorial aspect, which has got a cause and something in India or  related

to India and Indians in terms of impact, effect or consequence  would  be  a

mixed matter of facts and of law, then the Courts have  to  enforce  such  a

requirement in the operation  of  law  as  a  matter  of  law  itself.   The

Constitution Bench, however, held that Parliament has no power to  legislate

for any territory other than the territory of India or other part  of  India

with respect to aspects or causes which have no impact or nexus  with  India

as  was  explained  in  question  No.1.  Keeping  the  said  principle  thus

pronounced by this Court in mind, when we examine the SEBI  Act,  1992  read

along with SCR Act, 1956 as well as the 1993 Scheme, we find  that  the  Act

itself provides for proceeding against any person in order  to  protect  the

interests of investors and the stock market in India with reference  to  any

fraud played against such interest of the investors  in  India.   Therefore,

the answer to the first question as pronounced  by  the  Constitution  Bench

applies in all force to the case on hand.

The learned senior counsel then relied  upon  the  judgment  of  this  Court

reported in Republic of  Italy  through  Ambassador  (supra)  in  particular

paragraph 14,  130  and  139.   In  paragraph  14  the  question  posed  for

consideration is noted.  In the concurring view of Mr.  Justice  Chelameswar

in paragraphs 130 and 139 it is recorded as under:

“130. Though Article 245 speaks of the authority of Parliament to make  laws

for the territory of India, Article 245(2)  expressly  declares  -  “No  law

made by Parliament shall be deemed to be  invalid  on  the  ground  that  it

would have extra territorial operation”. In my view  the  declaration  is  a

fetter on the jurisdiction of the Municipal Courts including  Constitutional

Courts to either declare a law to be unconstitutional  or  decline  to  give

effect to such a law on  the  ground  of  extra  territoriality.  The  first

submission of Shri Salve must, therefore, fail.

139. Thus, it is amply clear that Parliament always asserted  its  authority

to make laws, which are applicable  to  persons,  who  are  not  corporeally

present within the territory of India (whether are not  they  are  citizens)

when such persons commit acts which affect the legitimate interests of  this

country.”

We fully concur with the said  view  expressed  by  the  learned  Judge  and

applying the said principle, even if the law applies to persons who are  not

corporally present within the territory of India, even if they are  citizens

abroad when such persons commit acts which affects the  legitimate  interest

of this country which would include such legitimate interest in the case  on

hand of the investors in India at the stock market, it  must  be  held  that

the appellant would be fully empowered to proceed against  such  persons  as

provided under the provisions of SEBI Act, 1992.

The learned senior  counsel  then  relied  upon  the  decision  reported  in

Chairman, SEBI v. Shriram Mutual Fund and another - (2006) 5  SCC  361.   In

particular, reliance was placed upon paragraphs 15, 17, 19  and  33  to  36.

Paragraph 19 is relevant for our purpose which explains the scheme  of  SEBI

Act in imposing penalty which reads as under:

“19. The Scheme of the SEBI Act of imposing penalty is very  clear.  Chapter

VI-A nowhere deals with criminal offences. These defaults for  failures  are

nothing, but failure or default  of  statutory  civil  obligations  provided

under the Act and the Regulations made thereunder. It is pertinent  to  note

that Section 24 of the SEBI Act deals with the criminal offences  under  the

Act and its punishment. Therefore, the proceedings under Chapter  VI  A  are

neither  criminal  nor  quasi-criminal.  The  penalty  leviable  under  this

Chapter or under these Sections, is penalty in cases of default  or  failure

of statutory obligation or in other words breach  of  civil  obligation.  In

the provisions and scheme of penalty under Chapter VI A  of  the  SEBI  Act,

there is no element of any criminal offence or  punishment  as  contemplated

under criminal proceedings. Therefore, there is  no  question  of  proof  of

intention or any mens rea by the appellants and it is not essential  element

for imposing penalty under SEBI Act and the Regulations.”

In paragraph 36, this Court has highlighted the purported powers of SEBI  to

impose penalty under Chapter VI-A, while commenting  upon  the  judgment  of

the Securities Appellate Tribunal which by its order  curtailed  the  powers

of SEBI to impose such penalty.  Paragraph 36 reads as under:

“36. In  our  view,  the  impugned  judgment  of  the  Securities  appellate

Tribunal has set a serious wrong precedent and the powers  of  the  SEBI  to

impose penalty under Chapter VIA are severely curtailed  against  the  plain

language  of  the  statute  which  mandatorily  imposes  penalties  on   the

contravention  of  the  Act/Regulations  without  any  requirement  of   the

contravention having been deliberated or contumacious.  The  impugned  order

sets the stage for various market players to violate  statutory  regulations

with impunity and subsequently plead ignorance of law or lack  of  mens  rea

to escape the  imposition  of  penalty.  The  imputing  mens  rea  into  the

provisions of Chapter VI A is against the plain language of the statute  and

frustrates entire purpose and object of  introducing  Chapter  VIA  to  give

teeth  to  the  SEBI  to  secure  strict  compliance  of  the  Act  and  the

Regulations.”

The said decision was subsequently approved by a three Judge Bench  of  this

Court reported Union of India and Others v. Dharamendra  Textile  Processors

and Others - (2008) 13 SCC 369. The said decision also  fully  supports  the

stand of the appellant/SEBI.

On behalf of the respondents reliance was placed upon the decision  reported

in Haridas Exports (supra).   That  case  arose  under  the  Monopolies  and

Restrictive Trade Practices Act, 1969  (in  short  “MRTP  Act,  1969).   The

appellant in that case was aggrieved by the orders passed by the  Monopolies

and   Restrictive   Trade   Practices   Commission,    whereby    Indonesian

manufacturers of float glass had been restrained from exporting the same  to

India at allegedly predatory prices.  While considering the  correctness  of

the order impugned in that case, the question relating to extra  territorial

jurisdiction came up for consideration.  In paragraph 29, the  question  was

noted as to whether MRTP Act, 1969 has  extra-territorial  jurisdiction  and

as to whether it can pass orders against parties who are not  in  India  and

who do not carry business  here  and  where  agreements  were  entered  into

outside India with no Indian being a party to  it.   In  paragraph  31  this

Court noted that under Section 1(2), the  Act  applied  to  whole  of  India

except the State of Jammu and Kashmir as in the  case  of  SEBI  Act,  1992.

Factually this Court while applying Sections 1, 2, 2(a) and 14 of  the  MRTP

Act, 1969 found that for the Commission to exercise any jurisdiction,  goods

should be imported into India and so long as the import had not taken  place

and the goods were merely intended for exports to India the same  would  not

fall within the definition of the word “goods” in Section  2(e).   Paragraph

43 and part of paragraph 46 are relevant for our purpose where  the  concept

of  “effects  doctrine”  has  been  considered  and  explained.   The   said

paragraph 43 and the relevant part of paragraph 46 are as under:

“43. Under Section 33(1)(j) of the Act, any agreement to sell goods at  such

prices as would have the effect of eliminating competition or  a  competitor

is regarded as an agreement  relating  to  restrictive  trade  practice  and

shall  be  subject  to  registration.  The  Act  nowhere  states  that  this

agreement should be only in India or  between  Indian  parties.  In  effect,

this Section recognizes the 'effects doctrine', namely, where  an  agreement

results in sale of goods at such prices  which  would  have  the  effect  of

eliminating competition or a competitor. In the very nature of  things,  the

sale of goods keeping in mind the definition of the word "goods" in  Section

2(e) must be of goods imported into India, in the  case  like  the  present.

But if we replace the word "goods" in Section 33(1)(j) with  the  definition

of "goods" in Section 2(e)(iii), then the Section  33(1)(j)  would  read  as

follows:

"Any agreement to sell goods imported into India at  such  prices  as  would

have the effect of eliminating competition or a competitor."

Thus, the agreement requiring registration  must  be  in  respect  of  goods

after their import into India.”

46. It is  possible  that  persons  outside  India  indulge  in  such  trade

practices, not necessarily restricted to the effectuation of  prices  within

India, which have  the  effect  of  preventing,  distorting  or  restricting

competition in India or gives rise to a restrictive  trade  practice  within

India  then  in  respect  of  that  restrictive  trade  practice,  the  MRTP

Commission will have jurisdiction. The counsel for the respondents is  right

in submitting that if the effect of restrictive trade practices came  to  be

felt in India because of a part of  the  trade  practice  being  implemented

here the MRTP Commission would have jurisdiction.  This  "effects  doctrine"

will clothe the MRTP Commission with jurisdiction  to  pass  an  appropriate

order even though a transaction, for example,  which  results  in  exporting

goods to India at predatory price, which was in effect a  restrictive  trade

practice, had been carried out outside the territory of India if the  effect

of that had resulted in a restrictive trade practice in India. If  power  is

not given to the MRTP Commission to have jurisdiction with  regard  to  that

part of trade practice in India which is restrictive in nature then it  will

mean that persons outside India can continue to indulge  in  such  practices

whose adverse effect is felt in India  with  impugnity.  A  competition  law

like  the  MRTP  Act  is  a  mechanism  to  counter  cross  border  economic

terrorism. Therefore, even though such an agreement may enter  into  outside

the territorial jurisdiction of the  Commission  but  if  it  results  in  a

restrictive  trade  practice  in  India  then  the  Commission   will   have

jurisdiction under Section 37 to pass appropriate orders in respect of  such

restrictive trade practice.” (Emphasis added)

Therefore, when we apply the above principles set down in the said  judgment

to the case on hand,  we  are  convinced  that  the  principle  of  “effects

doctrine” will apply to the case on hand since we have  found  that  in  the

event of the allegations noted in paragraph 74  of  this  judgment  levelled

against the respondents by the appellant being established, it will  have  a

far reaching consequence on the Indian investors on securities  as  well  as

the stock market and consequently the duty of  the  SEBI  to  protect  their

interests would automatically come into play as  stipulated  under  Sections

11B, 11C, 12 and 12(A) of the SEBI Act, 1992.  Therefore, the said  judgment

when applied carefully we find that  the  same  supports  the  case  of  the

appellant rather than the respondents.

In the decision reported in Vodafone International Holdings  (supra),  three

Judge Bench considered the question whether Section 9(1)(i)  of  the  Income

Tax Act can be said to be a provision enabling the Income Tax Department  to

apply the principle of look through.  The real issue  which  was  considered

by this Court on that aspect was based  on  the  contention  raised  by  the

revenue that under Section 9(1)(i), “it can look through”  the  transfer  of

shares of a foreign company, holding shares in Indian company and treat  the

transfer of shares in the foreign company as equivalent to the  transfer  of

shares to Indian companies  on  the  premise  that  Section  9(1)(i)  covers

direct and indirect  transfers  of  capital  assets.   The  said  contention

raised on behalf of  the  revenue  was  rejected  by  holding  as  under  in

paragraph 93:

“93.  The question of providing "look through" in  the  statute  or  in  the

treaty is a matter of policy. It is to be  expressly  provided  for  in  the

statute or in the treaty.  Similarly,  limitation  of  benefits  has  to  be

expressly provided for in the treaty. Such clauses cannot be read  into  the

Section by interpretation. For the foregoing reasons, we hold  that  Section

9(1)(i) is not a "look through" provision.”

We do not find any scope for applying the said  decision  to  the  facts  of

this case as we have found that the specific provisions of  SEBI  Act,  1992

provided for necessary powers with the SEBI casting a duty on it to  protect

the interests of the Indian investors as well as the stock market  in  India

whenever it finds any fraud or other such misdeeds committed by  any  person

which worked against the interests of Indian investors in securities.   What

is fraud has been sufficiently defined under Regulation 2(1)(c) of the  2003

Regulations  as  well  as  under  Section  12(A)  of  the  SEBI  Act,  1992.

Therefore, when such express provisions are contained in the  SEBI  Act  and

its regulations apart from specific provisions relating to issuance  of  GDR

based on the underlying shares deposited with the  Domestic  Custodian  Bank

under the  1993  Scheme  which  got  a  statutory  backing  under  the  2000

Regulations, we are convinced that the  exercise  of  jurisdiction  by  SEBI

against the respondents, having regard to the nature of allegations,  listed

out in paragraph 74 is well founded.

  Having regard to our above conclusions, we answer the questions  posed  by

us and hold that SEBI had jurisdiction in passing the impugned  order  dated

20.06.2013 debarring the respondents for a period of  10  years  in  dealing

with the securities while considering the role played by the respondents  as

Lead Managers relating to the GDRs issued  by  six  companies  which  issued

such GDRs.  We, therefore, hold that the Tribunal is bound  to  examine  the

correctness or otherwise of the  order  of  SEBI  dated  20.06.2013  in  the

appeal  preferred  by  the  respondents  in  Appeal  No.126  of  2013.   We,

therefore, set aside the impugned order by the majority and  hold  that  the

minority view of the Chairman of the Tribunal is perfectly  in  order.   The

appeal stands allowed and the impugned order of the majority is  set  aside.

The appeal No.126 of  2013  before  the  Securities  Appellate  Tribunal  at

Mumbai shall stand restored and the same shall be disposed of on merits  and

in accordance with law expeditiously preferably  within  three  months  from

the date of production of a copy of this order.

                                                       ….………….………………………………J.

                                          [Fakkir Mohamed Ibrahim Kalifulla]

                                                       ..……………………………………………J.

                                                         [Shiva Kirti Singh]

New Delhi;

July 06, 2015