PREVENTIVE MEASURES BY SEBI

DLF LIMITED AND ORS. VS. SECURITIES AND EXCHANGE BOARD OF INDIA
(13.03.2015 - SEBI / SAT) : MANU/SB/0006/2015

160. Accepting the argument of the appellants that the remedial/preventive measures under Section
11/11B of SEBI Act could be invoked only when the interest of investors/securities market were
in fact prejudiced by the violations, would in effect mean, construing those provisions narrowly
which is not warranted from the words used in those provisions. Very fact that Section 11/11B,
empowers SEBI to take remedial/preventive measures even before establishing any violations,
clearly shows that SEBI has very wide powers and the said powers can be invoked even before
establishing any violations. In such a case, construing the provisions of Section 11 & 11B
narrowly, as suggested by the appellants would amount to defeating the object with which those
provisions are enacted and hence argument advanced by the appellants cannot be accepted.

161. It is true that in a given case, fact that no investors were not prejudiced by the violations
committed by a person may be a relevant factor to be taken into consideration while considering
the quantum of remedial/preventive measure taken against that person. However, fact that no
investors were found to be prejudiced by the violations committed, would not bar SEBI from taking
remedial/preventive measures under Section 11/11B of SEBI Act. In other words, for passing
restraint/prohibitory order under Section 11/11B, it is not a condition precedent or mandatory for
SEBI to establish that the interests of the investors/securities market were actually
affected/prejudiced on account of the violations committed. To put it simply, remedial/preventive
measures can be taken in the interest of investors/securities market as and when
Guidelines/Regulations are violated, even if it is not established that the investors were actually
prejudiced by such violations.

164. It is evident that neither the decision of the Apex Court in case of Bharjatiya Steel Industries
(Supra) rendered in the context of the provisions contained in the U.P. Trade Tax Act, runs counter
to the ratio laid down by the Apex Court in case of Shriram Mutual Fund (Supra) nor the decision
of this Tribunal in case of Pyramid Saimira (Supra) seeks to lay down a proposition that
remedial/preventive measures must be mandatorily taken against a violator even if there is no mens
rea. What is held in case of Pyramid Saimira (Supra) is that, the principle laid down by the Apex
Court in case of Shriram Mutual Fund (Supra) that it is not necessary to establish mens rea for
imposing penalty under Chapter VIA would equally apply for taking remedial/preventive measures
under Section 11/11B. That does not mean that in every case remedial/preventive measures under
Section 11/11B must be taken against a person who has violated the Guidelines/Regulations
framed by SEBI, even when there was no mens rea in committing such violations. In other words,
what is held in case of Pyramid Saimira (Supra) is that, whenever a person is found to violate the
SEBI Guidelines/Regulations, it is open to SEBI to take remedial/preventive measures under
Section 11/11B, even if there is no mens rea in committing such violations.

VALIDITY OF INTERIM ORDER

PRICE WATERHOUSE AND CO. A PARTNERSHIP FIRM REGISTERED WITH THE

INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND MS. SHARMILA
KARVE, PARTNER, PRICE WATERHOUSE AND CO. VS. SECURITIES AND
EXCHANGE BOARD OF INDIA AND WHOLE TIME MEMBER MR. M.S. SAHOO,
SECURITIES AND EXCHANGE BOARD OF INDIA (13.08.2010 - BOMHC) :
MANU/MH/1027/2010

7. Mr. Ravi Kadam has also placed reliance on the judgment of the Delhi High Court in the case
of M.Z. Khan v. Securities and exchange Board of India and Ors. MANU/DE/0542/1999 : AIR
1999 Delhi 164 on the aspect of scope and width of Section 11 of the SEBI Act. In para 18 the
Delhi High Court has held as under:

18. Thus, it is clear that the Board has the power to carry out investigations and to take action in
accordance with the Regulations against the one who violates the Takeover Regulations, namely,
acquirer, the seller, the target company, the merchant banker, as the case may be. In this context a
question also arises for consideration as to whether the Board has the power to pass interim orders.
It seems to me that the SEBI has power to pass interim orders before and during the inquiry or
investigation to effectuate the purpose of the SEBI Act and the Regulations. Under Section 11 of
the SEBI Act, the SEBI has the power to protect the interests of the investors in securities and to
promote the development of, and to regulate the securities market, by such measures as it thinks
fit. The power is of a very wide nature and is not hedged in by any restrictions. This power will
embrace the power to issue interim orders. The SEBI in a fit case can pass interim orders in the
interests of investors and to promote the development of and to regulate the securities market.
Under the same provision, it can frame regulations as well for the same purpose. The final orders
after the inquiry are contemplated under Section 11B of the Act and at that stage it can issue such
directions to any person referred to in the section as may be appropriate in the interests of investors
and securities market. Both under Sections 11 and 11B the duty is cast on the Board to protect the
interests of the investors in securities and to promote and regulate the securities market. If at the
initial stage it becomes necessary to pass an interim order, the SEBI has been endowed with such
a power under Section 11 of the Act. In case the provisions of Section 11 are construed in a
restrictive manner, the interests of the investors in securities and development and regulation of
securities market will suffer.

PRICE WATERHOUSE AND CO. A PARTNERSHIP FIRM REGISTERED WITH THE

INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND MS. SHARMILA
KARVE, PARTNER, PRICE WATERHOUSE AND CO. VS. SECURITIES AND
EXCHANGE BOARD OF INDIA AND WHOLE TIME MEMBER MR. M.S. SAHOO,
SECURITIES AND EXCHANGE BOARD OF INDIA (13.08.2010 - BOMHC) :
MANU/MH/1027/2010

32. In the instant case, as pointed out earlier, if according to the SEBI, it is not advisable and safe
to have any particular person to be an Auditor of a listed Company, if he is found that he has
committed any misdeeds or fraud qua the interest of investors or the securities market, it can
always regulate its affairs by preventing such person from carrying on such work for a particular
period and exercising of such powers can be said to be in any way infringement of Article 19(1)(g)
of the Constitution of India. At this stage it is required to be noted that the jurisdiction of SEBI is
restricted only to the listed companies. We are not in a position to agree with the submission of
Mr. Dwarkadas that it is not open to SEBI to take shelter of accounting standards prescribed under
the CA Act. However, if it is found in a given case that the Chartered Accountant has violated the
audit norms prescribed by the Institute under the CA Act, the SEBI can certainly consider the said
aspect in order to find out as to whether such a professional person should be allowed to continue
to function as an Auditor of a listed Company if by continuing such person as an Auditor of a listed
Company, it may hamper the interest of the investors of such a listed Company. Considering the
matter from the aforesaid angle and considering the provisions of the SEBI Act, Companies Act
and CA Act, in our view, it can never be said that the SEBI has absolutely no jurisdiction and that
professionals like Chartered Accountants cannot be subjected to any inquiry or proceedings by the
SEBI on the ground that it is only the Institute which can take care of such a situation. So far as
the Regulations are concerned, they have been framed under Section 30 of the SEBI Act. Reading
the said Section discloses that the SEBI is vested with the necessary powers for safeguarding the
interest of investors by framing appropriate regulations. The SEBI Regulations are wide enough
to be attracted to cover the nature of allegations made in the show cause notices. Whether the
allegations stand proved would be a matter of inquiry on the basis of evidence.

IN RE: EMERGING INDIA INFRA LIMITED AND ORS. (26.06.2015 - SEBI / SAT) :
MANU/SB/0047/2015

11. Further, the activity of illegal mobilization of funds by EIIL through its schemes, prima facie,
amounts to a fraudulent practice in terms of Regulation 4(2)(t) of SEBI (Prohibition of Fraudulent
and Unfair Trade Practices relating to Securities Market), 2003 ("PFUTP Regulations").

..

13. Protecting the interests of the investors is the first and foremost mandate of SEBI. Under the
circumstances, SEBI has to take immediate steps to prevent activities of companies or persons
defrauding the investors and damaging the orderly development of the securities market. In order
to ensure that EIIL and their Directors do not collect further funds under their scheme/Plans and
to safeguard the assets/property acquired by EIIL and its Directors from the funds of the investing
public until full facts and materials are brought and final decision is taken in the matter, it becomes
necessary for SEBI to take urgent preventive action by way of this interim measure. In the light of
the above, I find no other alternative but to take recourse to an urgent measure by way of an interim
order against EIIL and its Directors for preventing them from further carrying on with the fund
mobilizing activity by launching 'collective investment scheme', without obtaining registration
from SEBI in accordance with law.

MANU FINLEASE LTD. VS. SECURITIES AND EXCHANGE BOARD OF INDIA

(27.10.2003 - SEBI / SAT) : MANU/SB/0199/2003

40. In RK Agarwal v SEBI ((2001) 31 SCL 279 (SAT-MUM) this Tribunal had held that the
Respondent is empowered to disqualify a person from occupying any office in the exchange, if it
is satisfied that involvement of such a person in the management of the exchange would not be in
the interest of the exchange. This observation was made by the Tribunal while deciding an appeal
filed by Shi RK Agarwal, President of Uttar Pradesh Stock Exchange, challenging SEBI's order
debarring him to be a member of the Governing Board or capital market related institution for a
period of 2 years.

41. It is to be noted that in the Appellants' case the undisputed charge is that they had manipulated
a public issue and it is in the context of the said proven charge the Respondent decided to prevent
them from repeating such manipulations. SEBI felt that prevention is possible by debarring the
Appellants from accessing and associating with the capital market. The Appellants feel that the
order is punitive. But viewed from the investor protection angle - that is the objective for which
directions under each 11B can be issued - it certainly is a preventive measure and therefore such a
direction can be issued under section 11B. The direction is relatable to the violation of the FUTP
Regulations in relation to the public issue made by the Appellant company. It was not so in the
case of Sterlite and Videocon. In view of the facts and circumstances of the case, I am of the view
that the impugned order is not contrary to ratio in the Sterlite and Videocon case.

ANAND RATHI VS. SECURITIES AND EXCHANGE BOARD OF INDIA

86. In Aggarwal's case also the Tribunal had examined the scope of section 11B in the light of
various court decisions and upheld the "authority of the Respondent to issue directions of the type
impugned". The Tribunal did not view the said direction as a penalty. I do not see any reason to
take a different view on the Respondent's authority to issue a similar restraint order on Shri Rathi.
A restraint order like this is not a penalty. Whether a direction is penal or not depends on the factual
position. In Sterlite case, there was sufficient ground to view that the direction issued by SEBI was
punitive. It is to be noted that the charges against Shri Aggarwal as extracted above was more
serious and still the direction against him was confined only to the extent of making him ineligible
to be a member of the Governing Board or office bearer of the exchange as well as any capital
market related public institution for a period of 2 years.

87. In the case of J C Parekh, who was President of BSE, during the year 1998-99 the Respondent
had passed an order under section 11 and 11B of the Act on March 23, 1999 directing Shri Parekh
to relinquish the office of President of BSE

PREROGTIVE OF REGULATOR

GRISHMA SECURITIES PRIVATE LIMITED AND OTHERS VS. SECURITIES AND

EXCHANGE BOARD OF INDIA SEBI BHAVAN (28.10.2013 - SEBI / SAT) :
MANU/SB/0060/2013

The FUTP Regulations and the Broker's Code have been enacted by the respondent only to protect
investors' interest and to regulate the capital market which is the underlying philosophy in enacting
the SEBI Act, 1992, constituting the Board to achieve these laudable objectives.

13. It is equally true that reasonable and non-arbitrary exercise of discretion is an inbuilt
requirement of the law and hence any unreasonable or arbitrary exercise of such a power would
violate the mandate of Article 14 of the Constitution of India. In the case in hand, however, we
note that the impugned order has been passed by the learned WTM while exercising powers
conferred on the Board by Section 11 of the SEBI Act, 1992, read with other provisions of the Act.
Section 11(1) empowers the Board to take such measures as it may deem fit in a given case in
order to protect the investors' interest in securities or to promote and regulate the securities market.
Section 11(2)(b) specifically enjoins upon the Board to take appropriate measures for regulating
the working of stock brokers, sub-brokers and other players or intermediaries associated with the
securities market. Similarly, Section 11(4)(b) confers upon the Board a power to restrain persons
from accessing the securities market and prohibit any person associated with the securities market
to buy, sell or deal in the securities pending investigation or enquiry or on completion thereof. The
only requirement is that such an order has to be in the interest of investors or the securities market.
Similar is the tone and tenor of Section 11(b) of SEBI Act, which deals with the power of the
Board to issue directions.

14. Therefore, keeping in view the scheme of the SEBI Act, 1992, we have no hesitation in holding
that a subjective decision as to when and where regulatory intervention is required is the sole
prerogative of the regulator. Undoubtedly, such a decision has to be rational and is to be based on
a prima facie and bonafide satisfaction as to the existence of certain alleged irregular or illegal
facts/happenings or circumstances supposedly taking place or prevailing in the affairs of a
company. We are convinced that the proceedings initiated against the appellants under Section 11
and 11(b) of the SEBI Act culminating into the impugned order dated July 31, 2013 do not suffer
from any such legal infirmity in the peculiar facts of the present case in as much as there is no
violation of any of the fundamental rights of the appellants as guaranteed by the Constitution.

IN RE: MISHKA FINANCE AND TRADING LIMITED AND ORS. (26.08.2016 - SEBI /
SAT) : MANU/SB/0220/2016

27. On a careful reading of the above provisions of the SEBI Act, I note that the only circumference
around SEBI's powers under sections 11 and 11B is the SEBI Act itself. The 'measures' and the
directions under section 11 and 11B of the SEBI Act can be taken/issued for prohibiting the
fraudulent and unfair trade practices relating to securities market and achieving the objective of
investor protection, and promotion of and regulation of the securities market. It is also pertinent to
mention that the interim order has been passed in the course of preliminary inquiry and the
investigation in the matter is ongoing. Based on the prima facie findings in the matter and in order
to protect the interest of investors in the securities market, SEBI had issued directions vide the
interim order.

28. In this case, as discussed hereinabove, the purpose of the interim order is to achieve the
objectives of investor protection and safeguarding the market integrity by enforcing the provisions
of the SEBI Act. I, therefore, do not agree with the contentions of the noticees with regard to the
scope of the interim order and the power of SEBI in the matter. I, therefore, reject the contentions
of the Noticees in this regard.

SECURITIES AND EXCHANGE BOARD OF INDIA VS. PAN ASIA ADVISORS LTD.
AND ORS. (06.07.2015 - SC) : MANU/SC/0761/2015

72. 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.

80. 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.
IN RE: RELIANCE PETROLEUM LTD. (RPL) AND ORS. (24.03.2017 - SEBI / SAT) :
MANU/SB/0044/2017

4.C.15 Further, I note that SAT has in the case of MP Mehrotra v. SEBI [2003] 43 SCL 315 (SAT),
observed that whether a direction is penal or remedial in nature would depend on the facts specific
to each case. The following observations of SAT in the case of Libord Finance Ltd. v. SEBI
MANU/SB/0096/2008 : 2008 86 SCL 72 SAT, is also instructive in this regard:

"When such directions are issued, the object is not to punish the delinquent but to protect and
safeguard the market and the interest of the investors which is the primary duty cast on the Board
under the Act. The directions may result in penal consequences to the entity to whom those are
issued but that would be only incidental. The purpose or the basis of the order or the directions
would nevertheless be to protect the securities market and the interest of the investors."

All recent decisions of SAT have considered all the principles stated above while upholding SEBI's
orders under section 11B. Therefore any interpretation seeking to restrict the powers of SEBI under
section 11B as being executive in nature, is contrary to the plain reading of the provision and the
well settled legal position that recognizes SEBI's powers to pass enforcement orders under section
11B.

4.C.16 With regard to the second contention alleging that SEBI does not possess power to order
disgorgement unless guilt is adjudicated, I note that no such process has been prescribed by the
Tribunal or the Courts. The Noticees' reliance on observations in the case of NSDL v. SEBI is
misplaced. The decision therein dealt with interim orders of disgorgement which were issued by
SEBI. SAT had concluded that guilt needs to be determined first before SEBI makes an order for
disgorgement. This decision is therefore not relevant for the facts in this Order, which is final in
nature wherein after having complied with principles of natural justice, the noticee's liability is
sought to be determined. Further disgorgement orders are remedial measures which, however
delayed, must be executed to remedy an elaborately conceived and perpetrated fraud on the
securities market resulting in illegal gains for the noticees. The regulator would be failing in its
duties if this remedial measure is not ordered, notwithstanding the process of reaching this
conclusion. The courts have consistently upheld the power of SEBI to disgorge the unlawful gains
under section 11B, if the facts justify the same.

NEW ONES

POWER TO PASS ORDER AGINST INDIVIDUAL AND COMPANY.

KSL AND INDUSTRIES LTD., VS. CHAIRMAN, SECURITIES AND EXCHANGE

BOARD OF INDIA (13.01.2005 - SEBI / SAT) : MANU/SB/0039/2005

11.17 The SEBI Act has made it SEBI's duty to protect the interest of the investors in securities,
to promote the development of and to regulate the securities market with such measures as it thinks
fit. The words "by such measures as it thinks fit" are very wide and would include taking action
against persons like KSL and its directors as their actions tend to lower the integrity of the
securities market and have in fact hurt innocent investors who had subscribed to the shares of PCL
and who were entitled to receive their money back since the issue would have failed but for the
action of KSL. SEBI's power under section 11(2)(i) extended inter alia to "all persons associated
with the securities market". KSL and its directors are covered by the expression "persons
associated with the securities market" and SEBI is entitled to issue directions against them. The
learned senior counsel referred to the case of Karnavati Fincap Ltd. v. SEBI - 1996 (10) SCL 6.

11.18 Section 11B of SEBI Act is an enabling provision enacted to empower SEBI to protect the
interest of investors and to promote the development of and to regulate the securities market and
to prevent malpractices. Such an enabling provision must be construed to sub serve the purpose
for which it is enacted. It would be the duty of the court to further the legislative objective and to
give a construction to the section which advances this object rather than one which attempts to
circumvent it. The following cases were referred to in this connection:

SEBI v. Alka Synthetics - reported in 1999 (19) SCL 460

RR Bohra v. SEBI - reported in 1998 (18) SCL 543

MZ Khan v. SEBI - reported in 1999 (19) SCL, 253.

Anand Rathi v. SEBI - reported in 2001 32 SCL 227 (Bom) Judgements)

11.19 Under Section 11B SEBI is empowered to issue directions inter alia to any persons
associated with the securities market. The expression 'any person associated with securities market'
would cover not only an individual but also a company. SEBI would have jurisdiction over any
company which was associated with security market just as it would have over many individuals
who was associated with the securities market. If a company associated with the securities market
commits any breach of the SEBI Act, rules and regulations SEBI would be empowered to take
such measures and pass such directions as are appropriate against such company. KSL having
subscribed to shares of PCL at the said public issue through the said 12 persons in a fraudulent
manner i.e. with the avowed object of bailing out the said public issue and to get the shares of PCL
listed on the Bombay Stock Exchange without there being any inflow of funds into PCL, was a
company associated with the securities market against which SEBI always have the power to take
appropriate measures or pass appropriate directions under section 11 and 11B of the Act.

RAMRAKH R. BOHRA, VS. SECURITIES AND EXCHANGE BOARD OF INDIA AND

ORS. (06.11.1998 - BOMHC) : MANU/MH/0691/1998

21. The aforesaid provision, which is found in Section 12 is in regard to the penalty of suspension
or cancellation of a certificate of registration. This under the proviso, no doubt can be done only
after affording a reasonable opportunity of being heard. However, this is not what has been done
in the instant case. A preliminary inquiry into the conduct of the petitioners has been conducted.
A part of the preliminary inquiry is complete and it is found that the petitioners have been indulging
in malpractices. Hence, in order to safeguard the interests of the investors and to maintain the
integrity of the market the petitioners have been directed not to undertake any fresh business as
brokers till the inquiry proceedings are completed and further proceedings in the matter are taken.
This, in our view, is an interim measure which the chairman of the first respondent is fully justified
in taking.

22. It may be useful at this stage to peruse some of the provisions of the SEBI (Stock-Brokers and
Sub-Brokers) Regulations, 1992 (hereinafter referred to as "the Regulations, 1992"), and the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations,
1995 (hereinafter referred to as "the Regulations, 1995"). Chapter V of the Regulations, 1992,
deals with the procedure for inspection, Regulation 19 deals with the right of the Board to inspect.
Regulation 20 provides for the procedure for inspection. Regulation 21 deals with the duties and
obligations of stock brokers in respect of the inspection. Regulation 22 deals with submission of
the report to the Board and regulation 23 deals with the communication of findings of the
inspecting authority to the Board. Chapter VI, thereafter, deals with the procedure for taking action
in case of default. The same provides for penalties either of suspension of registration for a
specified period or of cancellation of registration. Regulation 27 provides for holding of an inquiry
before a penalty of suspension or cancellation can be imposed. Regulation 28 deals with the
manner of holding inquiry. Regulation 28(7) provides for the inquiry officer to submit a report to
the Board by recommending penalty to be awarded along with the justification of the penalty
proposed. Regulation 29, thereafter, postulates the issue of a further show-cause notice to show
cause why the penalty proposed should not be imposed. The said regulation, thereafter, empowers
the Board to impose the penalty after considering the reply to the show-cause notice.

23. Having regard to the aforesaid provisions, it is strenuously contended on behalf of the
petitioners that the impugned order has virtually put a death-knell on the business of the petitioners.
The same has undoubtedly stopped their entire business. It is, therefore, virtually an order passed
under Section 12 and this can be done only after affording the petitioners a reasonable opportunity
of being heard. In our prima facie view the impugned order cannot be said to have been passed
under Section 12 as contended but the same has been passed under Section 11B. It is in the nature
of a direction restraining the petitioners from carrying on their business of dealing in shares. The
same has been passed pending the inquiry into the manipulations. The same has been passed in the
interests of investors and in the interests of the securities market.

24. Section 11B of the SEBI Act is an enabling provision enacted to empower the SEBI to protect
the interest of investors and to promote the development of and to regulate the securities market
and to prevent malpractices and manipulations, inter alia, by brokers, Such an enabling provision
must be construed so as to subserve the purpose for which it is enacted. It would be the duty of the
court to further the legislative object of providing a remedy for the mischief. A construction which
advances this object should be preferred rather than one which attempts to find a way to circumvent
it.

IN RE: RADFORD GLOBAL LTD. AND ORS. (26.08.2016 - SEBI / SAT) :

MANU/SB/0221/2016

17. Before dealing with replies/submissions of the noticees on merit I deem it necessary to deal
with preliminary and common contentions raised by some of the noticees. The first such contention
is that the interim order has been passed in complete disregard of the principles of natural justice
in as much as no opportunity of hearing was provided to the noticees. In this regard, I note that the
interim order has been passed on the basis of prima facie findings observed during the preliminary
examination/inquiry undertaken by SEBI. The facts and circumstances necessitating issuance of
directions by the interim order have been examined and dealt with in the interim order. The interim
order has also been issued in the nature of show cause notice affording the noticees a post
decisional opportunity of hearing. This position has been upheld in various judgements of the
Hon'ble SAT, the Hon'ble High Courts and the Hon'ble Supreme Court. Relevant portions of few
such judgments are referred to hereinafter:--

"(a) Hon'ble Bombay High Court in Anand Rathi & Others v. SEBI MANU/MH/0532/2001 :
(2002 (2) BomCR 403 upheld the procedure of post decisional hearing in such matters and
observed as under:

"31. It is thus clearly seen that pre decisional natural justice is not always necessary when ad-
interim orders are made pending investigation or enquiry, unless so provided by the statute and
rules of natural justice would be satisfied if the affected party is given post decisional hearing. It
is not that natural justice is not attracted when the orders of suspension or like orders of interim
nature are made. The distinction is that it is not always necessary to grant prior opportunity of
hearing when ad-interim orders are made and principles of natural justice will be satisfied if post
decisional hearing is given if demanded.

32. Thus, it is a settled position that while ex parte interim orders may always be made without a
pre decisional opportunity or without the order itself providing for a post decisional opportunity,
the principles of natural justice which are never excluded will be satisfied if a post decisional
opportunity is given, if demanded."

(b) Hon'ble High Court of Judicature for Rajasthan at Jaipur in the matter M/s. Avon Realcon Pvt.
Ltd. & Ors v. Union of India &Ors (D.B. Civil WP No. 5135/2010 Raj HC) has held that:

"...Perusal of the provisions of Sections 11(4) & 11(B) shows that the Board is given powers to
take few measures either pending investigation or enquiry or on its completion. The Second
Proviso to Section 11, however, makes it clear that either before or after passing of the orders,
intermediaries or persons concerned would be given opportunity of hearing. In the light of
aforesaid, it cannot be said that there is absolute elimination of the principles of natural justice.
Even if, the facts of this case are looked into, after passing the interim order, petitioners were called
upon to submit their objections within a period of 21 days. This is to provide opportunity of hearing
to the petitioners before final decision is taken. Hence, in this case itself absolute elimination of
principles of natural justice does not exist. The fact, however, remains as to whether post-
decisional hearing can be a substitute for pre-decisional hearing. It is a settled law that unless a
statutory provision either specifically or by necessary implication excludes the application of
principles of natural justice, the requirement of giving reasonable opportunity exists before an
order is made. The case herein is that by statutory provision, principles of natural justice are
adhered to after orders are passed. This is to achieve the object of SEBI Act. Interim orders are
passed by the Court, Tribunal and Quasi Judicial Authority in given facts and circumstances of the
case showing urgency or emergent situation. This cannot be said to be elimination of the principles
of natural justice or if ex-parte orders are passed, then to say that objections thereupon would
amount to post-decisional hearing. Second Proviso to Section 11 of the SEBI Act provides
adequate safeguards for adhering to the principles of natural justice, which otherwise is a case
herein also..."

18. I, therefore, do not find any violation of principles of natural justice while passing the interim
order as has been contended by the noticees. In this case, as discussed hereinabove, the purpose of
the interim order is to achieve the objectives of investor protection and safeguarding the market
integrity by enforcing the provisions of the SEBI Act. In my view, section 11(1) of the SEBI Act
casts the duty on SEBI to protect the interests of the investors, promote development of and
regulate the securities market, "by such measures as it thinks fit". Apart from this plenary power,
section 11(2) of the SEBI Act enumerates illustrative list of measures that may be provided for by
SEBI in order to achieve its objective. One of the measures enumerated in section 11(2)(e) is
"prohibiting fraudulent and unfair trade practices relating to securities markets". The word
'measure' has not been defined or explained under the SEBI Act. It is well settled position that this
word has to be understood in the sense in which it is generally understood in the context of the
powers conferred upon the concerned authority. From the provisions of section 11, it is clear that
the purpose of section 11(2)(e) of the SEBI Act is to prohibit all fraudulent and unfair trade
practices relating to the securities market and the Board may take any 'measures' in order to achieve
this purpose.

19. The 'measures' and the directions under sections 11 and 11B of the SEBI Act can be
taken/issued for prohibiting the fraudulent and unfair trade practices relating to securities market
and achieving the objective of investor protection, and promotion of and regulation of the securities
market. It is also pertinent to mention that the interim order has been passed in the course of
preliminary inquiry and the investigation in the matter is ongoing. Based on the prima facie
findings in the matter and in order to protect the interest of investors in the securities market, SEBI
had issued directions vide the interim order.

20. In this case, as discussed hereinabove, the purpose of the interim order is to achieve the
objectives of investor protection and safeguarding the market integrity by enforcing the provisions
of the SEBI Act. I, therefore, do not agree with the contentions of these noticees with regard to the
scope of the interim order and the power of SEBI in the matter.

FACTORIAL MASTER FUND VS. SECURITIES AND EXCHANGE BOARD OF INDIA

(08.05.2015 - SEBI / SAT) : MANU/SB/0013/2015
39. There can be no dispute that the appellant has suffered serious prejudice on account of restraint
order which is operation for nearly one year. No doubt that under Section 11(4)/11B of SEBI Act,
SEBI is empowered to restrain a person from entering the securities market, pending investigation,
provided, there is a prima facie evidence to suggest that such person has violated any of the
provisions of SEBI Act or the Rules/Regulations made thereunder. In the present case, the prima
facie view taken by SEBI that before entering into trades on March 13, 2014, the appellant was
privy to UPSI that L&T has fixed the floor price for selling the shares of LTFH at ` 70/- per share
is based on mere presumption and without any sustainable basis. In these circumstances,
continuation of the restraint order is unjustified. However, since the restraint order passed against
the appellant has already operated for nearly a year and since SEBI claims that the investigation is
at a crucial stage, in the facts of present case, pending further investigation it would be just and
proper to pass the following interim order:--

"a) SEBI shall complete the investigation within a period of two months from today.

b) If on completion of such investigation SEBI deems it fit to proceed further in the matter, then
SEBI shall issue show cause notice and pass appropriate order thereon after giving an opportunity
of hearing to the appellant, within a period of one month from the date of issuing show cause notice
as stated in clause (a) above.

c) If SEBI fails to issue show cause notice to the appellant within two months from today and if
issued, fails to pass an order as stated above within a period of one month from the date of issuing
show cause notice, then and in that event the impugned confirmatory order dated October 16, 2014
continuing the restraint order passed under the ex-parte ad-interim order dated June 05, 2014 shall
come to an end and the appellant would be entitled to access the Indian Securities Market."

ORDER FOR DISGORGEMENT OF AMOUNT

IN RE: EXELON INFRASTRUCTURE LIMITED AND ORS. (21.09.2016 - SEBI / SAT) :

MANU/SB/0234/2016
5.6.2 I note that under Section 11B read with Section 11(5) of the SEBI Act, SEBI has been
entrusted with the power to direct any person, who made profit or averted loss by indulging in any
transaction or activity in contravention of the provisions of that Act or Regulations made
thereunder, to disgorge an amount equivalent to the wrongful gain made or loss averted by such
contravention. It is pertinent to note that the aforesaid power has been entrusted upon SEBI to
exercise in the interest of investors and for orderly development of the securities market. In this
context, I note that vide the Impounding Order dated June 7, 2016, SEBI directed the impounding
of an amount of ` 12,54,84,118, jointly and severally, from 52 entities mentioned at paragraph 12
of the aforesaid Order. The aforesaid Order was necessitated in furtherance of the mandate of
investor protection; for safeguarding the interests of the securities market and for preventing
diversion of unlawful gains so that such gains are secured till final disposal of the matter on
determination of alleged culpability, if any, on the part of the entities mentioned therein. It was
reasonable for SEBI to view the entities mentioned in the Impounding Order as a 'Group' in view
of the connection that existed amongst them and also the impact their trading had on the scrip of
Exelon, for making them jointly and severally liable for the alleged unlawful gains made/loss
avoided while dealing in the said scrip. The Impounding Order therefore, suffers from no infirmity
or lack of clarity when viewed in the aforesaid context.

KARVY STOCK BROKING LTD. VS. SECURITIES AND EXCHANGE BOARD OF

INDIA (02.05.2008 - SEBI / SAT) : MANU/SB/0064/2008

5. Before we deal with the contentions of the parties, it is necessary to understand what
disgorgement is. It is a common term in developed markets across the world though it is new to
the securities market in India. Black's Law Dictionary defines disgorgement as "The act of giving
up something (such as profits illegally obtained) on demand or by legal compulsion." In
commercial terms, disgorgement is the forced giving up of profits obtained by illegal or unethical
acts. It is a repayment of ill-gotten gains that is imposed on wrongdoers by the courts.
Disgorgement is a monetary equitable remedy that is designed to prevent a wrongdoer from
unjustly enriching himself as a result of his illegal conduct. It is not a punishment nor is it
concerned with the damages sustained by the victims of the unlawful conduct. Disgorgement of ill
gotten gains may be ordered against one who has violated the securities laws/regulations but it is
not every violator who could be asked to disgorge. Only such wrongdoers who have made gains
as a result of their illegal act(s) could be asked to do so. Since the chief purpose of ordering
disgorgement is to make sure that the wrongdoers do not profit from their wrongdoing, it would
follow that the disgorgement amount should not exceed the total profits realized as the result of
the unlawful activity. In a disgorgement action, the burden of showing that the amount sought to
be disgorged reasonably approximates the amount of unjust enrichment is on the Board.

IN RE: BEEJAY INVESTMENT AND FINANCIAL CONSULTANTS PRIVATE

LIMITED AND ORS. (27.03.2017 - SEBI / SAT) : MANU/SB/0047/2017

4.2 The Noticees viz. Beejay, Neelanchal, DDM and DDT, have contended that the interim order
was passed without issuing show cause notice or granting opportunity of hearing and this is in
gross violation of principles of natural justice. The Noticees have also contended that the direction
to disgorge, even before the matter has been finally adjudicated on merits, is totally arbitrary,
unreasonable and legally untenable and that there is no express power to charge interest on the
alleged disgorged amount. In this regard, I note that the power of SEBI to pass interim orders flows
from Sections 11 and 11B of the SEBI Act which empower SEBI to pass appropriate directions in
the interests of investors or securities market, pending investigation or inquiry or on completion
of such investigation or inquiry. Exigencies of the situation also warrant urgent action by SEBI so
that profit or ill- gotten gains are not fritted away till the matter is finally disposed of. The law with
regard to doing away with the requirement of pre-decisional hearing in certain situations is well
settled. The following findings of the Hon'ble Supreme Court of India in the matter of Liberty Oil
Mills & Others v. Union of India & Other MANU/SC/0029/1984 : (1984) 3 SCC 465 1984 Indlaw
SC 326 are noteworthy:-

"It may not even be necessary in some situations to issue such notices but it would be sufficient
but obligatory to consider any representation that may be made by the aggrieved person and that
would satisfy the requirements of procedural fairness and natural justice. There can be no tape-
measure of the extent of natural justice. It may and indeed it must vary from statute to statute,
situation to situation and case to case. Again, it is necessary to say that pre-decisional natural
justice is not usually contemplated when the decisions taken are of an interim nature pending
investigation or enquiry. Ad-interim orders may always be made ex-parte and such orders may
themselves provide for an opportunity to the aggrieved party to be heard at a later stage. Even if
the interim orders do not make provision for such an opportunity, an aggrieved party has,
nevertheless, always the right to make appropriate representation seeking a review of the order and
asking the authority to rescind or modify the order. The principles of natural justice would be
satisfied if the aggrieved party is given an opportunity at the request. "

4.2.1 In the instant matter, the ad-interim ex-parte order was passed under the provisions of
Sections 11(1), 11(4) and 11B of the SEBI Act. The second proviso to Section 11(4), in fact, state
the following: "Provided further that the Board shall, either before or after passing such orders,
give an opportunity of hearing to such intermediaries or persons concerned". Further, various
Courts, while considering the aforesaid sections of the SEBI Act have also held that principles of
natural justice will not be violated if an interim order is passed and a post- decisional hearing is
provided to the affected entity. Reference may also be drawn to the following judgments of the
Hon'ble High Courts in this regard.

POST DECISIONAL HEARING BY SEBI

15. Before dealing with replies/submissions of the Noticees on the allegations in the interim order,
I deem it necessary to deal with preliminary and common contentions raised by some of the
Noticees. The first such contention is that the interim order has been passed in contravention of
the principles of natural justice as no opportunity of hearing was provided to them before passing
the said order. In this regard, I note that the interim order has been passed on the basis of prima
facie findings observed during the preliminary examination/inquiry undertaken by SEBI. The facts
and circumstances necessitating issuance of directions by the interim order have been examined
and dealt with in the interim order. The interim order has also been issued in the nature of show
cause notice affording the noticees a post decisional opportunity of hearing. This position has been
upheld in various judgements of the Hon'ble SAT, the Hon'ble High Courts and the Hon'ble
Supreme Court.
16. It is pertinent to note that the interim order in the present case was passed under the provisions
of sections 11(1), 11(4) and 11B of the SEBI Act. The second proviso to section 11(4) clearly
provides that "Provided further that the Board shall, either before or after passing such orders, give
an opportunity of hearing to such intermediaries or persons concerned". Further, various Courts,
while considering the aforesaid sections of the SEBI Act have also held that principles of natural
justice will not be violated if an interim order is passed and a post-decisional hearing is provided
to the affected entity. In this regard, the Hon'ble Bombay High Court in the matter of Anand Rathi
& Others v. SEBI MANU/MH/0532/2001 : (2002) 2 Bom CR 403, has held as under:

"It is thus clearly seen that pre decisional natural justice is not always necessary when ad-interim
orders are made pending investigation or enquiry, unless so provided by the statute and rules of
natural justice would be satisfied if the affected party is given post decisional hearing. It is not that
natural justice is not attracted when the orders of suspension or like orders of interim nature are
made. The distinction is that it is not always necessary to grant prior opportunity of hearing when
ad-interim orders are made and principles of natural justice will be satisfied if post decisional
hearing is given if demanded. Thus, it is a settled position that while ex parte interim orders may
always be made without a pre decisional opportunity or without the order itself providing for a
post decisional opportunity, the principles of natural justice which are never excluded will be
satisfied if a post decisional opportunity is given, if demanded."

17. Further, the Hon'ble High Court of Judicature of Rajasthan at Jaipur in the matter of M/s. Avon
Realcon Pvt. Ltd. & Ors v. Union of India & Ors (D.B. Civil WP No. 5135/2010 Raj HC) has held
that:

"...Perusal of the provisions of Sections 11(4) & 11(B) shows that the Board is given powers to
take few measures either pending investigation or enquiry or on its completion. The Second
Proviso to Section 11, however, makes it clear that either before or after passing of the orders,
intermediaries or persons concerned would be given opportunity of hearing. In the light of
aforesaid, it cannot be said that there is absolute elimination of the principles of natural justice.
Even if, the facts of this case are looked into, after passing the impugned order, petitioners were
called upon to submit their objections within a period of 21 days. This is to provide opportunity of
hearing to the petitioners before final decision is taken. Hence, in this case itself absolute
elimination of principles of natural justice does not exist. The fact, however, remains as to whether
post-decisional hearing can be a substitute for pre-decisional hearing. It is a settled law that unless
a statutory provision either specifically or by necessary implication excludes the application of
principles of natural justice, the requirement of giving reasonable opportunity exists before an
order is made. The case herein is that by statutory provision, principles of natural justice are
adhered to after orders are passed. This is to achieve the object of SEBI Act. Interim orders are
passed by the Court, Tribunal and Quasi Judicial Authority in given facts and circumstances of the
case showing urgency or emergent situation. This cannot be said to be elimination of the principles
of natural justice or if ex-parte orders are passed, then to say that objections thereupon would
amount to post-decisional hearing. Second Proviso to Section 11 of the SEBI Act provides
adequate safeguards for adhering to the principles of natural justice, which otherwise is a case
herein also..."

18. In view of the above, I find that the interim order passed by SEBI was not in violation of the
principles of natural justice since, reasons for passing the interim order have been clearly stated in
the interim order and, in accordance with law, the Noticees were afforded a post-decisional
opportunity to file its reply and avail the opportunity of personal hearing. I, therefore, reject the
contention of the Noticees in this regard.

In Re: Adarsh Credit Co.-Op. Society Limited and Ors. (22.08.2016 - SEBI / SAT) :
MANU/SB/0210/2016